Somerfield PLC presentation

1
PRELIMINARY ANNOUNCEMENT 52 weeks ended 26th
April 2003
2
Agenda - Good Morning and Welcome

• 1. Overview - John von Spreckelsen
• 2. Strategy - Renewal and New Business - John von
  Spreckelsen
• 3. Strategy - Commercial - Steve Back
• 4. Financial Review - Steve Back
• 5. Summary and Close - John von Spreckelsen

3
Financial Summary
4
Like-for-LikeFood Retail Sales
Electronic top up of mobile phones has largely
replaced phone card sales. If the full sales
value of the top up was recorded within sales
rather than the commission element,
like-for-like sales would have shown an uplift to
1.7.
5
Agenda

• 1. Overview - John von Spreckelsen
• 2. Strategy - Renewal and New Business - John von
  Spreckelsen
• 3. Strategy - Commercial - Steve Back
• 4. Financial Review - Steve Back
• 5. Summary and Close - John von Spreckelsen

6
Vision

• plc Be the leading small-format food retailer
  in the UK
• Somerfield Be the leading local fresh and
  convenience food retailer
• Kwik Save Be the dominant low price
  neighbourhood food retailer

7
StrategyCapitalise on Key Assets

• Large estate - the Group has more stores in the
  UK than any other quoted grocery food retailer
• Fresh - the Group has the capability and
  expertise for daily delivery
• UK national supply chain - covers all of England,
  Scotland and Wales
• Strong balance sheet and no debt
• Experienced retail management team

8
Strategy Background

• Market
• Convenience is a fast growing market and remains
  fragmented
• Main shop segment of the market - no growth
• Convenience and top up shopping - some
  consolidation taking place - attractive growth
  opportunities
• Company
• Shareholder returns and profits are not yet
  adequate
• Historically weak and confused business model for
  Kwik Save
• Valuable estate but under-performing and
  under-invested retail portfolio

9
StrategyOffer - Exploit Complementary Market
Positioning
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Strategy Portfolio - Focus on Core Offer
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Strategy - New BusinessOpportunity to Expand
into the Convenience Market

• Forecourts - Key differentiator is that these are
  food sites selling fuel
• TFE 18 stores achieving growth of 9 in Q4
• Food only agreements
• Margram 8 stores of the 12 now trading as
  Somerfield
• Food and fuel sites
• Weekly sales range from 112k to 242k
• Franchise - Quality fresh food based franchise
  offer
• TM Retail 3 stores - co-branded trial
• As at the year end only 2 Margram stores and
  one TM store were open and included in turnover

12
StrategyGrowth Through Investment - Somerfield
100th store launched this week - Worlds End,
Chelsea
13
StrategyKwik Save - Formats Investment

• First Trial - 6 stores

Second Trial - 8 Stores
Productivity and Growth
14
StrategyRange - For Everyday Needs
15
Agenda

• 1. Overview - John von Spreckelsen
• 2. Strategy - Renewal and New Business - John von
  Spreckelsen
• 3. Strategy - Commercial - Steve Back
• 4. Financial Review - Steve Back
• 5. Summary and Close - John von Spreckelsen

16
StrategyGrowth is paramount - what about cost?

• Created centralised procurementPACE - a process
  to reduce cost of goods for resaleSTEPS
  - centralised savings on support goods, services
  and all contractsand co-operations for supply
  e.g. NISA
• Cost of supply chain operation
• Head Office and Support functions
• Cost of finance - interest at lowest rates
• Tax and Dunbar
• Property and under-utilised assets - release of
  profits and cash for next 2 years
• Closed stores - quick and effective turnaround

17
StrategySupply Chain/IT

• Largely unchanged - target 15 Depots by 2005/06
  Financial YearProduction of a single,
  integrated, fully composite supply chain(current
  capacity 6 billion)Development of new composite
  RDCsSingle RDC for all slow moving goodsClosure
  of outdated/surplus depots
• Operational EffectivenessComposite deliveries -
  covering Chill, Frozen and AmbientShorter lead
  times for fresh deliveriesOne system - Exceed
  to manage all depots on lineInteractive voice
  picking - improves accuracy and picking
  efficiency
• IT - continuation of improvement strategy

18
StrategyAvailability and Stock
19
Agenda

• 1. Overview - John von Spreckelsen
• 2. Strategy - Renewal and New Business - John von
  Spreckelsen
• 3. Strategy - Commercial - Steve Back
• 4. Financial Review - Steve Back
• 5. Summary and Close - John von Spreckelsen

20
Net Profit
21
Exceptional Items
Last year within interest there were refinancing
costs of 6.0m
22
Taxation

• 5.0m tax credit for the year (buffer carried
  forward) 8.5m
• Taxable losses carried forward 49.6m
• Capital losses carried forward 219 m
• Tax plan completed

23
Operating Cash Flow
24
Reconciliation of Net Debt
25
Reinvestment
26
Strategy - FRS17 Pension Risk

• FRS17 pension deficit from 55.1m to 99.5m
• 6.8m higher P L charge under FRS17 than under
  SSAP24
• The defined benefit scheme is closed to new
  members and the Group has increased company
  pension contributions from 13.9 to 20

27
Agenda

• 1. Overview - John von Spreckelsen
• 2. Strategy - Renewal and New Business - John von
  Spreckelsen
• 3. Strategy - Commercial - Steve Back
• 4. Financial Review - Steve Back
• 5. Summary and Close - John von Spreckelsen

28
Summary

• Clear focused business strategy
• Experienced Board to deliver and add pace to the
  strategy
• Sound financial base on which to grow
• Somerfield on track and remains focused
• Kwik Save format of the future to be rolled out
• Operating in growing market segments

29
StrategyFinancial Targets - EBIT Margins

• Somerfield 4
• Kwik Save 2
• Forecourts and Franchising 3
• Capital - all investments must meet a demanding
  cash payback model
• - exceptions health and safety and
  infrastructure works

30
Thank you
Question and Answer Session
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APPENDICES
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HR Strategyfor our Stakeholders

• People
• Energise 54,000 colleagues
• Simplify and create an effective, focused and
  lean organisational structure
• Train and develop our own people and promote from
  within
• Motivate and reward our people
• Establish a strong culture and values set - a way
  of working for our organisation
• Create a totally focused retail team

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Interest
34
Trading Portfolio MovementsNo. of Stores
35
Trading Portfolio MovementsSq. Ft. (000s)