taking morrisons online

17 May 2013

Taking Morrisons online

The Morrisons Difference, Delivered


Wm Morrison Supermarkets PLC 1

Key points for today

Wm Morrison Supermarkets PLC

1 2 3

How will it work? ▪ Customers will have an unmistakably Morrisons experience, from the website

through to the service they enjoy at their doorstep ▪ Ocado will provide an integrated technology, logistics and distribution solution

Why this deal? ▪ Online is what customers want – now we can serve them there this financial year ▪ This model provides us with a clear path to profitability ▪ We are bringing our unique affordable fresh proposition to customers’ homes,

leveraging a world-class technology platform

1

2

3 What will the impact be? ▪ Capex: investment on Morrisons.com of £216m ▪ Group capex guidance increased to £1.2bn for this FY ▪ P&L: incremental £25m additional new business development costs this year

2


1 2 3 WHY THIS DEAL?

This is a fantastic deal for customers

▪ Our unique offer, online:

–Customers are already shopping online, and now we’ll be there for them with a unique offer: Morrisons affordable fresh proposition and their market-leading technology, logistics and delivery platform

–We’ll bring our distinctive Market Street experience online – like our butchers, bakers and fishmongers

▪ The leading customer experience:

–We’ll start from Day 1 benefitting from 11 years’ experience: offering a proven, state of the art customer proposition

–Customers will benefit from the home delivery platform with the highest customer service ratings in the UK

3


1 2 3 WHY THIS DEAL?

And for shareholders

4

▪ Strong financials: There’s a clear path to profitability

▪ Lower costs: We benefit from certainty on capital investment, as well as shared infrastructure operating costs

▪ Lower risk: We will launch with the confidence and reassurance of 11 years of online experience, so much lower operational risk than going it alone

▪ Greater reach: Alongside convenience, it accelerates bringing our offer to London and the South East, reducing reliance on traditional bricks and mortar

▪ Defends the core: It protects our bricks and mortar business from online “headwinds”

4

The customer only sees Morrisons


1 2 3

Morrisons.com

Spoke

Dordon

Inbound

Outbound

Demand

Planning

Customer

Customer

Last mile

Suppliers

Morrisons

Manufacturing & DCs

HOW WILL IT WORK?

5

Impact: Investment

1 2 3


▪ Total investment of £216m in this FY, including:

–Purchase of Dordon (£82m), 50% of equipment (£58m) – plus £16m for our share of capacity extension

–Licence and integration fee: £30m

–Vans, spokes and Morrisons IT integration: £30m

▪ Group capex guidance increases to £1.2bn for this FY and full year net debt guidance increases to £2.7bn

INITIAL:

▪ Joint funding for future CFCs (in proportion to capacity) and replacement capital as agreed by both parties

FUTURE:

WHAT WILL THE IMPACT BE?

6

Continuing operations

1 2 3


▪ R&D contribution: £8m p.a. for 2014/15 and 2015/16, then up to 1/3 of ongoing R&D costs, capped at £8m p.a.

▪ IT annual fee: 1% of sales to £1bn – reducing scale thereafter

▪ Management fee: 4% of operating costs

▪ Bonus fee: 25% of positive Morrisons.com EBIT for 15 years, declining to 10% in years 16-25

–On EBIT over 6.6% post-fees, profit share increases to 50% of incremental profit

We expect to reach EBITDA positive in 2016/17, with EBIT positive the following year

WHAT WILL THE IMPACT BE?

7

We have structured an agreement that has fundamentally

aligned incentives and robust protections

Ocado are obliged to:

▪ Provide Morrisons the best end-to-end operating model in the UK

▪ Provide Morrisons with the same standard of service as it provides

to its own business

▪ Maintain performance vs. agreed SLAs or face penalty clauses

e.g., reduced management fees

Further protections are provided by:

▪ Change of control clauses, including termination rights in the case

of acquisition by a competitor

▪ Exclusivity agreement for online groceries in the UK


1 2 3 WHAT WILL THE IMPACT BE?

Alignment and protections

8


Morrisons, M-Local,

Morrisons.com

Co

re

Co

nve

nie

nce

On

line

▪ Improving promotional effectiveness

▪ Emphasising points of difference

▪ Enhancing Own Brand

▪ Rolling out Fresh formats

▪ Driving growth in our convenience network

▪ Trading 100 stores by the end of the financial year

▪ Growing in geographies where we under-index

▪ Launching online offering

▪ Complementing our other channels

▪ Delivering our unique offer to customers’ doorsteps

9

17 May 2013

Taking Morrisons online


FURTHER DETAILS


Dordon CFC

▪ Dordon situated centrally in the country, with great transport connections on the M6 and M40/42

▪ Well-placed to reach Morrisons northern heartland, as well as London and the South East

1 2 3 HOW WILL IT WORK?

12

▪ Dordon operating costs: 50% of the fixed costs and our variable costs

▪ Management fee: 4% surcharge on Morrisons share of operational costs of services provided by Ocado

▪ IT annual fee: 1% of sales to £1bn, then reduces

▪ R&D fee: £8m p.a. for 2014/15 and 2015/16, then up to a third of total ongoing R&D costs, capped at £8m p.a. – to fund projects to improve CFC efficiencies

13 Wm Morrison Supermarkets PLC

Summary of Morrisons ongoing obligations

COSTS

▪ Morrisons may not operate any other online grocery platform in UK

▪ Joint liability for replacement capex at Dordon

▪ Jointly fund future CFCs (in proportion to capacity)

▪ Morrisons obliged to generate minimum £100m sales at Year 3 and £200m at Year 5, if not met Morrisons exclusivity protection falls away

CAPITAL CONTRIBUTION

EXCLUSIVITY OBLIGATIONS

SALES OBLIGATIONS

▪ 25% EBIT share for first 15 years, followed by 10% for further 10 years – if EBIT is above 6.6% then profit share increases to 50%

▪ 10% EBIT share for the following 10 years

BONUS FEE

1 2 3 WHAT WILL THE IMPACT BE?

Disclaimer and cautionary statement

14 Wm Morrison Supermarkets PLC

This presentation is for information purposes only and does not constitute an invitation or inducement to underwrite, subscribe for or otherwise acquire or dispose of (or engage in any other investment activity in relation to) any Wm Morrison Supermarkets PLC (“Morrisons”) shares or other securities. No part of this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation contains certain ‘forward-looking statements’. These include statements which are not statements of historical fact and may include, among things, statements relating to Morrisons strategies, plans, objectives, initiatives and targets, its businesses, outlook, potential future growth, operations, financial condition, results of operations and growth prospects, liquidity, capital resources and capital expenditures, expected industry trends and development of markets, anticipated cost savings, anticipated uses of cash and the expected outcome of contingencies, as well as the intention, beliefs or current expectations of Morrisons and/or its directors concerning the foregoing. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “may,” “should” and similar expressions identify forward-looking statements.

Forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that will occur in the future. They are also based upon assumptions which are subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond Morrisons control. As such, these assumptions may prove to be inaccurate and Morrisons may not achieve or accomplish its expectations, beliefs or targets. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by any forward-looking statements contained in this presentation, including, but not limited to, the impact of competitive pricing, global and national economic conditions and trends in the grocery industry. Further, this presentation does not constitute a commitment by Morrisons to proceed with a certain transaction or business practice in the future. The information contained in this presentation is provided as at the date of this presentation and is subject to change without notice. Except as required by law or regulation, Morrisons undertakes no obligation to update or revise publicly any forward-looking statement or correct any inaccuracies which may become apparent, whether as a result of new information, future events or otherwise, except to the extent it would be required to do so under applicable law or regulation, and any opinions expressed herein are subject to change without notice.

Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. No reliance may be placed by any person for any purposes whatsoever on the information contained in this presentation or on the completeness of such information. Neither Morrisons nor anyone acting on its behalf makes any representation, express or implied, as to the accuracy or completeness of the information contained in this presentation. Neither Morrisons nor any person acting on its behalf shall have any liability whatsoever for loss, howsoever arising, directly or indirectly, from use of the information contained within this presentation. In particular, certain industry and market information in this presentation has been obtained by Morrisons from third party sources. This presentation has been prepared by Morrisons. Morrisons has not independently verified such information and none of Morrisons, anyone acting on its behalf or any other person provides any assurance as to the accuracy, fairness or completeness of such information or opinions contained in this presentation and none of such persons takes any responsibility for such information.

taking morrisons online

Documents