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www.morrisons.co.uk
Wm Morrison Supermarkets PLC
Fresh choice for you
Annual report and
financial statements 2008
Index
01 Chairman’s statement
03 A tribute to Sir Ken Morrison
04 Chief Executive’s business review
06 Who are Morrisons?
08 Our key measures
10 Our stores
12 Closer to source
14 We are Morrisons
18 Taking good care
22 Operating review of the year
30 Financial review
32 Principal risks and uncertainties
Governance
34 Board of Directors
36 Corporate governance report
40 Directors’ remuneration report
47 Directors’ report
49 Statement of Directors’
responsibilities
50 Auditor’s report
51 Consolidated financial
statements
82 Company financial statements
Additional information
91 Seven year summary
94 Additional shareholder
information
100 Investor relations information
Financial summary
£13bn
Group turnover
2007: £12.5bn +6%
on 52 week basis
+4.6%
Like-for-like sales
(ex-fuel)
2007: +5.2%
£612m
Profit before tax
14.4p
Underlying
earnings per share
2007: 8.3p +73%
£543m
Net debt
2007: £772m –30%
4.8p
Total dividend
2007: £369m +66%
2007: 4.0p +20%
Operating review
>> range expanded and revitalised,
>> store refresh programme on track to complete by July 2008,
>> significant increase in customer numbers in the final
quarter,
>> eight new stores opened,
>> grocery distribution facility opened in Swindon.
Balance sheet strategy
>> progressive dividend growth,
>> surplus capital of £1bn to be returned to shareholders.
Chairman’s statement
Sir Kenneth Morrison CBE
In my last statement as Chairman of
Morrisons it gives me particular pleasure
to be reporting record earnings and to see
that more customers than ever before are
experiencing the freshness, quality and
value that Morrisons has to offer.
Sir Ken Morrison, Chairman
Morrisons annual report and financial statements 2008 01
The past year saw further steady progress for Morrisons, with a
solid sales performance and strong profit and cash generation.
Profit before tax was £612m compared with £369m last year.
This included £32m of property gains, compared with £38m last
year. Underlying earnings per share (EPS) increased by 73% to
14.4p, whilst basic EPS increased by 123% due to an abnormally
low tax charge. The Board is recommending a final dividend of
4.125p per share, to bring the total for the year to 4.8p – an
increase of 20%.
Cash generation was strong – net debt fell from £772m to
£543m despite opening eight new stores, beginning a phase of
additional investment in our Optimisation Plan and contributing
an additional £100m to our pensions schemes. From its peak in
2004 of £1.6bn, net debt has reduced by over £1.0bn through
a combination of profit recovery actions, tight capital controls
and divestment of property that did not fit our operating model.
Following the negotiation of new term debt facilities of £1.1bn
in September 2007, the Group had available headroom of
£1.3bn at the year end, with zero net finance cost in the year
and gearing of 12.4%.
As previously reported, David Hutchinson retired from the Board
in June 2007 on the grounds of ill health, after 21 years’ service.
I am very sorry to report that David passed away in February
2008, after a retirement that was cruelly short. My thoughts,
and those of everyone in the Company, are with his widow Diane,
and his family.
On behalf of the Directors, I would like to thank all our staff for
another year of exceptionally hard work, and I was delighted for
them that their efforts were rewarded as the year progressed
with some healthy sales momentum. Our profit improvement in
the year will provide a profit share pool for staff of £30m, a long
standing benefit on top of the very popular staff discount that
was launched in the year.
Our staff and customers responded strongly to our charitable
activities in the year, and we were pleased to raise over £1.1m
for Asthma UK, our chosen Charity of the Year, as well as £0.3m
in one day for Children in Need. In the coming year, our
colleagues have chosen to support ‘Protecting Generations for
Generations’, an innovative partnership between Help the Aged
and Childline.
The year under review saw the rise of inflationary cost pressures
in a number of basic commodities such as dairy products and
wheat. We fought hard to avoid passing these higher costs onto
consumers, and we will continue to strive to operate at low cost
in order to ensure maximum value for our customers.
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I think the present economic climate provides a wonderful
opportunity for the Company to continue to prosper as long as
it remains true to its founding principles. It has been great fun,
and I am delighted that I enjoyed the confidence of shareholders,
staff and customers alike. I have never forgotten that retailers
are always on duty as we are in a dynamic business, seven days
a week, 52 weeks a year.
I am sure the new management team headed by our recently
appointed Non-Executive Chairman, Sir Ian Gibson CBE, will
spare no effort in further extending your Company’s run of
success. Thank you sincerely.
02 Morrisons annual report and financial statements 2008
Chairman’s statement continued
The Competition Commission inquiry into the Grocery sector
will announce its final conclusions in April 2008, some two years
after it began. It has stated, as we all knew, that supermarket
retailing in the UK is highly competitive. We see nothing in the
provisional findings that would cause us to change the way we
do business – whether providing value and choice to customers,
dealing fairly with suppliers or seeking out new sites. We are
encouraged that a competition test, as proposed, would afford
opportunities for us in areas of the country where we are under-
represented. The Office of Fair Trading (OFT) inquiry into dairy
pricing activities in the early part of the millennium resulted in
fines being levied on a number of companies, including Safeway
for a period prior to it coming into our ownership. The OFT has
alleged that Morrisons, too, was involved, a claim that we
deny strongly.
This is my last statement to shareholders as Chairman. I have
been with the business now for some 55 years and must say
that the experience has been both demanding and fulfilling, but
nonetheless it has always been enjoyable. I am prepared for a
situation where I will have more time to look around and I intend
to develop new interests in a number of fields. I will keep in
touch with the progress of the Company and no doubt maintain
contact with a number of what will be my former colleagues.
It seems a long time since I was demobilised from the army in
1952 and started to learn about how to run a retail grocery
business. I believe that over the years I have learned one or two
things, and would set out what I consider to be the important
aspects for my successor. I think it is important to assume a
leading position and to never forget the business principles that
we might be a large company and fairly sophisticated but we do
carry out a simple task – we buy things and sell them. Our task is
to ensure that we always please the customer with the quality of
what we offer for sale and that at all times, we ensure outstanding
value for money. This can only be achieved by strict control of
all costs and remaining in touch with all aspects of what is a
fascinating industry. The ownership of freehold property and
the willingness to invest and re-invest in fixed assets has always
kept the Company in good heart. This can, of course, be achieved
whilst also maintaining a prudent balance sheet.
Any success I have achieved in my career has always been due
to the presence and help of numerous team members who
possessed great ability, dedication and skill. I would like to take
this opportunity to thank everyone I have been fortunate enough
to work with over the years and at the same time wish the
Company every success in the future.
A tribute to Sir Ken Morrison
Chairman’s statement continued
On 13 March 2008, Sir Ken Morrison
retired as Chairman of the Group.
Sir Ian Gibson succeeded him as
Non-Executive Chairman.
Sir Ken has accepted the position of
Honorary President. In this ambassadorial
role, he will continue the strong
relationship with employees, communities
and shoppers which has characterised his
long and distinguished career.
55 years with Morrisons
1952 Sir Ken joins Morrisons
1958 First town centre shop opened
1961 Victoria – first supermarket opened
1967 Morrisons floated on the Northern
Stock Exchange
1978 Morrisons moves out of Yorkshire with
acquisition of Whelan Discount Stores
2000 Sir Ken awarded a Knighthood for
services to retailing
2001 Morrisons joined the FTSE 100
2004 Morrisons acquired Safeway
2008 Sir Ken retires as Chairman
Morrisons annual report and financial statements 2008 03
The Board pays tribute to Sir Ken
We are proud to pay tribute to Sir Ken Morrison on his retirement
from the Company after 55 years of inspirational and dedicated
leadership. During this time he has transformed Morrisons from
a small, family business into the UK’s fourth largest food retailer
and a top five food producer, with 375 stores and 117,000
colleagues, serving over nine million customers a week.
An intuitive retailer, Sir Ken’s passion and flair were evident
from his early years, when during school holidays he could always
be found working in the family’s market stalls and small shops.
This hands-on approach has characterised his career, throughout
which he has never been happier than when out on the shop
floor, taking a personal interest in ensuring customers’ needs
are met. Sir Ken has always had customers as his focus; not as
a business technique, but as a lifelong part of his character,
forming his view of what Morrisons should be.
Through bold and innovative leadership Sir Ken has created
and built the business, from establishing the first out of town
self-service supermarket in Bradford, through to expansion
nationwide with the acquisition and integration of Safeway,
which involved the biggest store conversion programme in
UK retail history. He has given Morrisons a leading edge with
creative in-store features like Market Street and a unique
vertically integrated structure, together with a competitive
offer renowned for always delivering great value for money.
Sir Ken’s determination to avoid cost and waste throughout
his career has underpinned the commitment to that goal.
Sir Ken has won the loyalty and admiration of employees throughout
the business with his down-to-earth nature and belief in team-
work; and his pride in the achievements of those around him has
never been more apparent than in his desire to attend each and
every one of the Group’s 25-year service celebrations. Suppliers
also hold Sir Ken in high regard and having always shown great
empathy, he has nurtured many mutually beneficial, long-standing
relationships that have seen both businesses grow together.
Under Sir Ken’s stewardship, Morrisons has received wide
recognition from the business world, winning many awards.
His personal contribution has also been deservedly recognised
on many occasions. Having received a number of industry
accolades, he was awarded the CBE in 1990 and honoured
with a Knighthood in 2000 for his services to retailing.
Sir Ken is a consummate retailer and his achievements are
remarkable. His wholehearted devotion and strength of purpose
over five decades have taken Morrisons from modest beginnings,
to national household name. A creator and builder with great
passion and flair, his contribution to retailing has been invaluable
and we owe him a great debt of gratitude for his life’s work. We
are privileged to have known and worked with Sir Ken and those
following in his footsteps will cherish his legacy of success.
We wish Sir Ken a well-earned and long and happy retirement.
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04 Morrisons annual report and financial statements 2008
Chief Executive’s business review
Marc Bolland
Strategy
Our three year strategy, as laid out in our 2007 Annual report,
is to position the business as the UK’s ‘food specialist for
everyone’. This builds on our historic strengths, now applied
to a much bigger business following the Safeway acquisition.
As a food specialist, we are differentiating ourselves from our
larger competitors, all of whom are seeking to expand their non-
food credentials. We are emphasising our deep understanding
of food, through being closer to source than other retailers,
through our unique manufacturing and packing facilities,
through the amount of food preparation undertaken in our
stores and through the employment of more specialist butchers,
fishmongers and bakers than our competitors. We are also
emphasising that our offer is for everyone, compared with our
smaller, more expensive and exclusive competitors. Our great
food is also always great value.
Our strategy builds on our strengths, and is in tune with our
customers’ increasing focus on the health, provenance, quality
and freshness of the food that they buy. In order to deliver it
fully, we outlined last year the building blocks that needed to
be put in place, and our plans to do this by 2010. The operating
review of the year highlights our progress towards these goals.
We believe that the strategy has delivered strongly improved
profit margins for our shareholders, whilst also positioning the
Group for long term growth.
The Group is securely financed and has a strong balance sheet.
We are confident that our planned investment requirements
over the next two years can be met from existing facilities.
Our balance sheet strategy is based on a number of principles:
>> operational control of our retail stores is fundamental to us,
>> we are a prudent organisation and we structure our finances
This has been a strong year for
Morrisons, with growing customer
numbers. We have always delivered
good availability and service. Now we
are also recognised for our great fresh
food. Customer numbers have grown
by an extra half million per week and
we are well on track to becoming the
‘food specialist for everyone’.
Marc Bolland, Chief Executive
accordingly,
>> we wish to maintain a strong investment grade balance sheet,
>> our defined benefit pension schemes’ assets and liabilities are
effectively part of our balance sheet, and should be managed
as such.
Based on these principles and a review of our future operating
plans, the Board has concluded that surplus capital of £1bn
should be returned to shareholders during 2008 and 2009,
with £500m of that delivered in the first 12 months of the
programme. Our current intention is to achieve this through
a share buyback programme, and we will review progress at
the end of the first year of operation. Additionally, we will target
progressive dividend growth in the coming two years, over and
above earnings growth, in order to bring dividend cover to a level
in line with the rest of our sector. Funding for these enhanced
returns to shareholders will come from existing cash resources
and committed facilities available to the Group.
Morrisons annual report and financial statements 2008 05
‘Food specialist for everyone’ market positioning
One of the conclusions of the strategic review of the
business performed last year, was that customers who knew
us liked what we had to offer. They understood the quality
and freshness of the offer that is centred on the skills and
service in the heart of a Morrisons store, Market Street.
The Market Street concept gives a focus to delivering quality
food and a high level of customer service.
This, combined with our own packaging and production
facilities, helps us to deliver affordable prices. This is why
customers who know us, like us.
Market research (see graph) shows that the top two reasons
why customers are attracted to the ‘big four’ supermarkets
are for value and quality. Another finding from our research
was that consumers who were not our customers knew us for
our value offering but were surprised to learn of our in-store
expertise and food quality.
In order to become the ‘food specialist for everyone’,
we need to establish these credentials firmly, and our new
advertising campaign launched in the summer of 2007, aims
to achieve this through the message ‘Fresh Choice for You’.
Most important factors for deciding where to shop %
Value
Quality
Locality
Range
Service
44
33
32
24
12
Source: Target Group Index 12 months to March 2007
Brand value
What makes us
distinctive
Customer benefit
Business goal
Fresh
Value
Fresher food leading to
better quality in every
basket of shopping.
No better value place
to buy a full weekly
shop of groceries.
Fresh preparation
in-store and vertical
integration in the
supply chain gives
improved lead times
and a unique
understanding of the
provenance of our
fresh food.
By keeping our costs
low we ensure that our
prices are competitive.
Great promotional
offers – 1,000 per
week – provide even
better value.
Service
Market Street answers
the consumers’ desire
for freshly prepared
food, served by helpful,
qualified staff. Our
availability of product
leads the industry.
The right product
always available, and
specialists on hand to
help customers with
their choices.
Sales growth that
exceeds that of the
market and earnings
that meet the
expectations
of shareholders.
Food specialist
for everyone
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06 Morrisons annual report and financial statements 2008
Who are Morrisons?
We are a Bradford based food retailer
with 375 stores across Britain, with our
own supply chain and manufacturing
sites. Our customers buy in one year:
36 million
Bunches of flowers
50,000
Tonnes of fresh chicken
21,000
Tonnes of fresh beef
8,000
Tonnes of fresh lamb
1 million
Butternut squashes
215,000
Tonnes of potatoes
640
Tonnes of olives
115 million +
Ready meals
115 million
Tins of baked beans
375 Stores
12 Distribution centres
13 Manufacturing sites
13 (1 in Netherlands)
50
Scotland
55
North
62
Midlands
East
57
South
East
42
Midlands
West
49
South
Central
20
Wales
40
South
West
We are one of the UK’s largest food retailers
– 4th by sales
– 2nd by market capitalisation
117,000
Average number of our employees during the year
10 million
Number of customers currently visiting our stores per week
£13bn
Total annual turnover
11 million
Amount of our retail space (sq. feet)
25,000
Number of people preparing food that we sell
Morrisons annual report and financial statements 2008 07
We deal directly with many of our suppliers
The arable farmers who supply us tell us they appreciate the way
we buy the whole crop from their fields, rather than some companies
who will only buy part. Our livestock farmers are happy too, that
we buy whole animals and not just certain cuts.
We also supply ourselves from three bakeries, three abattoirs, and
seven packhouses and food production sites. This makes us a Top 5
food producer in the UK.
We deliver to store with our own fleet
We own and manage our own distribution network, moving over
16 million cases of product to stores every week. By owning and
operating a very modern fleet, we are able to manage the freshness
and quality of the produce and we also have industry-leading
turnarounds between order and delivery, being an average of 12 hours.
We operate from 12 distribution centres, with over 700 tractor units
and 1,800 trailers, covering up to 156 million kilometres per annum in
collecting products from our supplier base and delivering to our stores.
We have more people in-store preparing
food than any other retailer
Each of our stores has Market Street where you find trained
professionals delivering quality product and service. We employ
1,500 butchers, 2,000 bakers, 800 fishmongers. Each butcher has
the skill to prepare over 150 different cuts of meat and the bakers
know how to bake more than 90 different varieties of bread.
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Our customers tell us they love the feel of
being in a market in our stores
In research, the areas which clearly stand out about Morrisons offer
are the fresh fish, meat and bread areas combined with our approach
to great value and great deals through our promotional programme. In
addition, we pride ourselves on having industry-leading availability so
that customers can get the things they want when they visit our stores.
In addition, customers appreciate our specialist customer service
which, along with availability, has attracted a Grocer Gold award.
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08 Morrisons annual report and financial statements 2008
Our key measures
Financial objectives
Our financial objectives are:
>> sales growth that exceeds the market,
>> earnings that meet the expectations of our shareholders.
Like-for-like sales (ex-fuel) % growth in excess of market
Adjusted normalised basic earnings per share (pence)
2007/08
2006/07
2005/06
1.1
2007/08
1.2
2006/07
14.4
8.3
(0.3)
2005/06
1.7
Source: Nielson like-for-like sales growth measurement for 52 weeks to our year end.
Key performance indicators
Our monthly reporting to the Board includes measures that are considered essential to monitoring the performance and
development of the Group. These measures have been introduced as new targets for Morrisons to become the food specialist
for everyone. A selection of those are shown below and opposite.
Financial KPIs
Measure
Like-for-like sales (ex-fuel)
Underlying earnings per share
Dividend cover
Net debt
Capital expenditure
Profit before tax and property income
52 week Grocery market share
Total shareholder value (Morrisons)
Total shareholder value (FTSE 100)
Customer KPIs
We have tracked elements of our customer perception using
Hall & Partners brand tracker, to track the effects of our
advertising and whether it is working for us. We do not intend
to spend our investors’ money just for the sake of it, we want
to spent it right. Over time, a balance of measures, internal and
external, will be developed around the brand values of Fresh,
Value and Service.
2008
4.6%
14.4p
3.0
£543m
£410m
£580m
12.1%
204.2
200.7
2007
5.2%
8.3p
2.1
£772m
£269m
£331m
11.9%
202.8
203.0
2006
2.4%
1.7p
0.5
£1,148m
£655m
£54m
12.5%
125.1
180.2
Change in customer perception from May 2007 to
January 2008:
Fresh +13%
Value +5%
Service +18%
Morrisons annual report and financial statements 2008 09
Corporate Social Responsibility KPIs
The CSR agenda is an important topic and it gives us a licence to operate. The environmental programme that we have previously
outlined has set three year targets, against which we are making good progress.
Environment
Good progress being made towards our CSR targets:
Commitments met
The following commitments have been met during the year:
Reduction targets %
Carbon footprint
Group energy use
Own brand packaging
7
Carrier bags
3
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36
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Business
>> Support British farming through making our meat supplies
exclusively British (see page 19).
Society
>> All fresh fish counters certified under the Marine Stewardship
Council (see page 19).
Reduction to date
Reduction target
>> All own brand tissue paper products certified by the
Forest Stewardship Council.
Society
Each year our customers and employees choose a national
charity, and through fund raising events aim to raise more than
£1m for that charity.
2007/08 Asthma UK
2006/07 Breast Cancer Research
£1.1m
£1.6m
Employee KPIs
Success at Morrisons relies on 117,000 colleagues delivering great service to our customers each and every day.
Employee satisfaction
In 2007, the first colleague attitude survey involving 9,300
employees was conducted. The results were used to help develop
Core Employee Values. These are to be rolled out during 2008.
Employee stability
2007/08
2006/07
2005/06
75.7
71.3
70.0
Definitions
Like-for-like sales (ex-fuel)
Store based sales compared with the previous year, excluding
the impact of new store openings or store disposals. Also
excluded is the impact of major refurbishments and extensions.
Dividend cover
Underlying profit after tax from continuing operations
attributable to equity shareholders divided by total value
of dividends declared during the year.
Employee stability
Employee stability is a % of leavers against the total number
of employees. Employees who have been with the Group for
less than 12 months are excluded to remove seasonal and
short-term impacts.
Total shareholder value
Total shareholder value is the value of £100 invested in
Morrisons shares on 2 Feb 2003 compared to FTSE 100.
The increase in value includes any dividend paid. This is
measured over the past five years.
Carbon footprint
Carbon footprint is calculated using UK Government Waste
Strategy Report Guidelines, as recommended by Defra. The
calculations are created in partnership with the Carbon Trust
and audited by Enviros Consulting.
Profit before tax and property income
Profit before tax less profit on disposal of property disclose in
the income statement line Profits arising on property transactions.
Net debt see Accounting policies page 55.
Normalised earnings per share see note 7(c) page 63.
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10 Morrisons annual report and financial statements 2008
Our stores
We pride ourselves on providing our customers
with fresh food just the way they like it.
That’s why we have Market Street, where our
customers will find fresh food prepared by
our expertly trained staff.
At the heart of Market Street is the fresh produce section. Traditional
greengrocer methods combined with the chill-chain from lorry to shelf,
ensure that fresh produce, in the best condition, is available all day. The
greengrocer knows how to handle each product; bananas are hung and
melons are in shies to prevent bruising. Many vegetables, such as
broccoli stems, are trimmed so our customers only pay for what they
want. Our staff are on-hand to give advice and help with selecting
ripe produce.
From succulent roast chickens and chicken portions to
tasty spare ribs and sausages, everything is cooked in-store
and served hot from the oven. Our customers know when our
tempting range of pies are ready because we’ll ring a bell.
--->
--->
A huge range of British and Continental delicacies is available
at our deli counter, from cooked meats to olives and cheese,
including locally sourced varieties of cheese in certain stores.
If our customers fancy something new, or are looking for
something special, they can just ask our friendly deli staff.
They will be happy to give them a taste before they buy.
Our staff make sandwiches, salads and pizzas fresh in-store
everyday, using ingredients from in-store. There are up to
24 varieties of salads to choose – from simple potato salad
to the more exotic oriental style noodle salad. The pizza
toppings are carefully prepared by hand using the freshest
in-store ingredients.
--->
Morrisons annual report and financial statements 2008 11
Whilst other supermarkets have removed food preparation
from their stores to reduce costs, and traditional tradesmen,
such as butchers and greengrocers, are disappearing from the
High Street, Morrisons Market Street has more people in-store
preparing more food than any other retailer. Our supply chain
and our own manufacturing sites ensure that the food and
produce is offered at competitive prices.
Market Street, a unique retail experience, is central to Morrisons
food offer, and sets us apart from other supermarkets. All our
fresh food, much of it prepared in-store, is stocked and sold
in Market Street. Market Street is centred around our fresh
produce section and contains a number of different areas,
each of which has its own sense of personality – ‘shops within
a shop’. Each area is staffed with employees who know their
trade, giving the feel and service of a traditional market. There
is a butcher, a fishmonger, a baker and cake shop where we make
fresh cakes. There is an area selling pies and roasted meats fresh
from the oven, and an area preparing freshly assembled salads
and sandwiches, and freshly topped pizzas as well as a
delicatessen full of meats and cheeses. Here every customer
can receive advice and assistance about selecting the right food
for the right occasion – be it the free range turkey, oven prepared
at the Butchers’ counter for Christmas day, or the vegetables for
a TV chef’s latest adventurous recipe.
---> Packed full of freshly prepared cakes, doughnuts and all sorts of
creamy, sticky delights, the Cake Shop is a must for people who
have a sweet tooth. And because our cakes are filled in-store
throughout the day, fresh, tasty treats are available all the time
that will melt in the mouth.
When we sell any of our fish, it will be filleted and prepared by
the people who do this best, the in-store fishmongers. They are
on hand all day, every day to advise on the best buys, best choices
and best ways to prepare it. They’ll even advise on how and where
every fish was caught.
--->
--->
At our Family Butcher customers will find a friendly ‘real’ butcher,
able to cut and prepare meat the way customers want it, when
it is wanted – the traditional way. The variety of cuts we offer
is larger than any other supermarket, so customers are spoilt
for choice.
Nothing beats the aroma of freshly baked bread. And that’s
exactly what our customers will experience as they approach
the Bakery. Our bakers are busy baking bread in small batches
throughout the day. This means that whenever a Morrisons
loaf is purchased, it’ll have that just-baked freshness.
--->
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12 Morrisons annual report and financial statements 2008
Closer to source
At Morrisons we believe that being close to
source is something which makes us different.
This is especially important in an environment
where many customers are asking questions
such as ‘where does the food come from?’, ‘are
the producers being treated properly?’ and
‘how can we cut down on the resources it takes
to get it to me?’.
Our vertical integration had its roots in security of supply and
a drive for value for money for our customers. The challenge
frequently used at Morrisons was ‘why pay someone else for
something you can do yourself just as well?’ In addition, there
were occasions where long-standing relationships may have
ended if Morrisons had not stepped in to take control of
supplying ventures.
In time this became a core part of our strategy where 80% of
our own label fresh food is produced from our own plants with
product and livestock most likely sourced directly from producers
and bought by Morrisons own buyers. In this way we control the
quality and provenance and by ‘cutting out the middleman’ can
deliver good value to customers.
Start with the source
We are likely to have more direct relationships with our
producers than other retailers and we know exactly where the
produce comes from. We have some unique practices. Our
buyers deal directly with producers, other retailers may deal
through wholesalers. We operate ‘whole crop purchasing’ which
means we take what the farmer produces and grade it and sort it
ourselves, they are not left trying to offload some of their crop
not taken up by other retailers. Our pricing policy allows us to
price individual products so, for example, with broccoli we can
sell sizes that are often rejected by other retailers. This means
the producer can sell their whole crop to us and not just those
that are often regarded as cosmetically preferable. We believe
this offers producers a fairer deal.
When it comes to livestock, rather than buy finished packed cuts
from a wholesaler we work directly with selected farmers and
buy those animals which we believe will give us the best cuts of
meat. Again, our buyers will have direct relationships with our
producers in most cases. We source some (10-20%) of our cattle
from auction as we believe this allows smaller farmers to supply
us and it allows us flexibility of supply.
All of our produce and livestock comes from farms which
hold a relevant quality qualification such as the Farm Assured
or Assured Produce Scheme. In addition, we adhere to the
Supermarkets Code of Conduct and have our own Buyer’s
Charter when dealing with our suppliers.
From source, fresh to Morrisons
With fresh produce we will in most cases take directly from the
field to our own produce plants where we wash, grade and pack
the produce then transport it in reusable trays to our stores.
This can give us a real advantage in the freshness of some of our
produce; we can get carrots, for example, from the farm to the
store within 24 hours.
From selection
---> to the packhouse
--->
Our own buyers deal directly with the producer to either select
the livestock we believe is good enough quality or to purchase
whole crops of produce which is fairer to the farmer and offers
good value and good quality to our customers.
We own our own production process for 80% of our fresh food
ensuring that we control the freshness and the quality of what
is supplied to our stores. This is true for the vast majority of
produce and meat products as well as supplying our own
pre-packed bread products from our own bakeries. By cutting
out the need for any middlemen we also ensure great value.
Morrisons annual report and financial statements 2008 13
We are the only retailer to buy the livestock directly then
transport the animals to our own abattoirs. From there the
meat is supplied to our stores in primals (large cuts) and then
cut in-store by our trained butchers. Otherwise the meat will
go to our own meat processing plants to become pies, burgers,
sausages and sausage rolls. We are unique in this. It gives us
both a control over our own quality and animal welfare as well
as, we believe, a cost and value advantage.
Bread from scratch
Not only do we pack our own produce and process our own meat
we also bake our own bread. We have three bakeries across the
country producing 90 million loaves of bread in 2007/08. We do
not rely on third-party bakers, we use our own recipes in our own
facilities to bake 90% of Morrisons own label pre-packed bread.
We source the flour from top quality mills, we don’t grind that
ourselves!
Delivered to store with our own fleet
Our own distribution network moves over 16 million cases of
product to stores every week, delivering the freshest food daily
in the most cost-effective manner. Our turnaround from order to
supply in fresh foods is an average of 12 hours which we believe
is the best in the industry; our distribution network works very
closely with our own production facilities to achieve this.
We have 12 distribution centres, operated by ourselves and by
specialist providers, for example, Wincanton and Exel. We have
over 700 tractor units and around 1,800 trailers, covering up to
156 million kilometres per annum in delivering to our stores and
collecting product from our supplier base. Our network has
undergone a major rationalisation programme in recent years,
significantly reducing the number of road miles travelled.
Additionally, we have led the way in the introduction of cleaner
Euro 5 engines, with 58% of our fleet converted by the end of
2007 (versus the target date of 2009). When compared to the
Euro 1 standard of around 15 years ago, these engines emit
around 75% less nitrogen oxides and 94% fewer particles.
In-store, vertical integration continues
As you will see from our section on stores, we continue the
philosophy of doing the best we can to ensure freshness, quality
and value by doing things ourselves when we believe this is best.
We fillet our fish, cut our meat, bake fresh bread from the raw
ingredients (not ‘baked off’ frozen dough), finish off cakes, bake
doughnuts and griddle pancakes.
Managing the chain ourselves leads to several benefits
We believe that to be the food specialist for everyone we need
to provide fresh quality food at great value with great service.
By being ‘closer to source’ i.e. dealing directly with producers
and then managing the process ourselves means we manage
the freshness and quality and are not reliant on others. It also
helps us manage the value; we do not have to pay for a third-
party’s management, marketing and sales operation, as owning
the supply chain means this is not required. In addition to all
of this, we ensure that there is the minimum of transportation
between sites. In many cases our plants and distribution centres
are next to each other, or we can transport directly from plant
to store therefore we aim to cut back upon ‘food miles’.
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delivered to
---> all our stores.
We own and operate a very modern fleet, ensuring freshness and
cost control. We manage fresh produce very tightly and we also
have industry-leading turnarounds between order and delivery.
The ‘doing things ourselves’ story continues where we make and
prepare more products in-store than any other retailer with more
fishmongers, butchers and bakers than anyone else. This enables
us to deliver fresh product to our customers every day at great
value, helping us to become the food specialist for everyone.
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14 Morrisons annual report and financial statements 2008
We are
Morrisons
“
Our colleagues are vital to delivering
our success – to be the food specialist
for everyone demands a high level of
service and knowledge in all our stores.
”
Success at Morrisons relies on 117,000
people delivering great service to our
customers each and every day. That is why we
pay so much attention to bringing the best
out of our people. Over the last year, we have
worked hard to deliver a common set of
values which we are now using across our
business. Our values set out what we can
expect of each other and what our customers
can expect of us.
To become the food specialist for everyone involves real
commitment from all our employees and it means we have to tap
into everybody’s expertise across Morrisons from our factories to
our food counters, from selecting fruit and vegetables to setting
out eye-catching displays. To do this effectively requires real
understanding of how to work together and specialist skills from
across the business. We have established a core set of values
which are at the heart of how we work and help us to pull
together as one team.
Core values
A new Group Human Resources Director joined the Group in July
2007 and led the development of our employee communication
programme and the Group’s values. Working with senior
employees, the results of Morrisons first climate survey were
evaluated, and compared against our brand values. This led to
a series of workshops involving more than 1,000 employees,
the output of which is the six core values listed opposite which
support our strategy of becoming the food specialist for
everyone. The values have their roots in the culture established
by Sir Ken Morrison and also reflect the views of customers and
colleagues who work in the business today. Our values are being
incorporated into every aspect of our business and feature
heavily in our performance management, people development
and communications process. Together, they will help sharpen
our results focus and create a good place to work.
Morrisons annual report and financial statements 2008 15
Our core values
Can do
getting things done
Our ‘can do’ attitude means we keep things simple and to the
point, we thrive on a challenge, we get on with the job, we make
things happen and we achieve great results.
One team
we work well together
We build trust and respect and share a common goal. It means
we help each other out, we always keep our promises and we tell
each other what’s going on.
Fresh thinking
we’re always looking for new and better ways of doing things
We listen to new ideas. We come up with suggestions and we are
continuously improving.
Great selling and service
we love to sell and serve
We all have customers wherever we are in the business and
we are all here to deliver great service.
Bringing the best out of our people
we’re constantly learning and we’re always looking
to improve on where we are
We grow our own people, helping them progress their careers
through the Company. We are enthusiastic and we give our very
best every time.
Great shopkeeping
we set the standard in all areas of our business
We pay attention to detail, we take pride in what we do, we
guarantee the quality of our products, we aim to waste nothing
and we always watch the costs so Morrisons saves money and
our customers get a great deal.
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16 Morrisons annual report and financial statements 2008
We are Morrisons continued
Leadership Academy
We have embedded our values into a new leadership model for
the business. A partnership with Bradford Business School has
been established to accelerate the development of leaders across
the business and help take Morrisons performance to the next
level. To support leaders in their development, we have launched
a new on-line Leadership Academy. This is a hub for all
Leadership Development information, providing access to
learning whenever and wherever our leaders need support.
Performance
We have used our values to create a consistent way of focusing
performance objectives across the business. All Senior Managers
have been trained in the use of this new system which links our
vision to the priorities of every Manager in the business.
Training
Delivering Morrisons great shopkeeping standards relies on the
best training being delivered to all employees on a consistent
basis. Last year, Morrisons delivered over 1.5 million training
days. This rigorous approach to training builds real expertise
at every level in our organisation whether on a food counter
in Market Street or on the factory floor at our Farmers Boy
operation. We believe our customers find it helpful to know
that the people in Morrisons who prepare and serve their food
really know what they are talking about. We are constantly
upgrading our skills, most recently refreshing 3,500 employees’
merchandising skills. Our track record of excellence in training
is illustrated in our award winning People Development
programmes. In 2007 Morrisons won the Retail Industry awards
for best Store Manager in the UK and the Training Initiative of
the Year. This ‘Switching on to Switching off’ energy awareness
initiative trained more than 100,000 colleagues in energy
awareness and carbon reduction. This helped reduce the Group’s
carbon footprint by 24,734 tonnes and reduce the Group’s
energy use by 5%.
Employment policies
The Group’s comprehensive employment policies cover
recruitment, selection, retention, remuneration, education,
development and equality. As reported previously, priority
had been given to harmonisation of these policies throughout
the Group. Focus this year has been on implementing the
performance-based pay awards highlighted in the Remuneration
report, the implementation of a new staff discount scheme,
and on measures that will help to improve retention in general.
A key initiative to harmonise our payroll processes is on track for
completion in 2008. Effective involvement and communications
during the early stages of this project has ensured its effective
delivery.
Employee benefits
In November 2007, a new staff discount scheme was introduced.
Every employee qualifies for a 10% discount to a maximum of
£650 in any one year. The response to this scheme proves that it
is a very popular benefit, and gives employees and their families
the opportunity to enjoy the quality of product on offer and at a
discounted price.
Employee involvement
Creating a winning team relies on the involvement of everyone in
the organisation. Morrisons encourages involvement at all levels
1.5 million
3,500
training days in 2007
managers’ training refreshed in
our Merchandising standards
Morrisons annual report and financial statements 2008 17
Growing our own people
Our success in developing and involving employees in building
real commitment has produced a strong track record in creating
our own talent at Morrisons. 98% of all our Store Managers are
home grown which means they really know our business and the
needs of our customers. It is a track record we intend to build
on. Our involvement and development are also helping to
reduce employee turnover and improve stability in the business.
Long service award
Morrisons performance depends on the hard work and
dedication of 117,000 employees. Recognising this, we have
always placed a high value on the huge commitment that our
people make. Each year, in recognition of those employees who
have reached 25 years’ unbroken service with the Group, we
hold special celebratory events. Many of our people begin their
careers working in our stores, progressing to senior roles in the
Group or simply staying with us because they like the working
environment. The long service awards are our way of saying
thank you.
through a mixture of consultative committees, forums and
feedback groups. For example, in our manufacturing operation,
we introduced a feedback process which gave all employees
the opportunity to discuss their ideas resulting in significant
productivity improvement on our bacon production line.
We believe that encouraging all our employees helps to ensure
that everyone is committed to delivering great service to our
customers because they understand what is important. Great
communication is part of living our values and means we work
well together across our business. This commitment is reinforced
through out Profit Share Scheme which ensures everyone feels
a real part of the challenges and successes in the organisation.
Equal opportunities and disabilities
Equal opportunities are offered to all, regardless of race,
colour, nationality, religion, sex, marital status, disability or age.
All applicants and employees are treated equally in respect of
recruitment, promotion, training, pay and other employment
policies and practices. All decisions are based on merit.
The Group gives full and fair consideration to applications for
employment made by people with disabilities. The policy is to
offer equal opportunity to all disabled applicants and employees
who have a disability, or who become disabled during the course
of their employment. This applies to recruitment, career
development, promotion, training, pay and other employment
policies and conditions. A full assessment of the individual’s
needs is undertaken and, where practical, modifications are
made to the work environment or business practices in order
to assist those with disabilities.
1,000
10%
employees consulted on
developing our values
discount our employees receive
every time they shop with us
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18 Morrisons annual report and financial statements 2008
Taking
good care
Corporate Social Responsibility (CSR) strategy
The CSR strategy is aligned with the Group’s vision to be the
food specialist for everyone and to deliver the brand values of
freshness, service and value. It is structured around the three
principal areas of environment, society and business. For each
area, the relevant stakeholders have been identified and their
requirements and needs are considered through engagement.
Each issue is assessed in terms of material risk or business
opportunity to decide the appropriate action consistent with
the Group’s responsibilities.
CSR governance
Championed by Chief Executive, Marc Bolland, turning CSR
strategy into reality is governed by the CSR Project Team
comprising Board Directors and senior operational directors.
The CSR Project Team reports regularly to the Board and
evaluates and identifies new initiatives, creates targets for
operational management and monitors their progress. Each
of the three principal areas has a cross-functional steering
group chaired by a member of the CSR Project Team. Projects
and activities agreed by the steering groups are supported
by a number of working groups and delivered by operational
management as part of day-to-day business as usual.
CSR report
The full CSR report is available online at www.morrisons.co.uk
or by contacting the CSR Team (see inside back cover).
Environment
Taking good care
of the planet
Climate change, waste and sustainability
Our three main commitments are to:
>> reduce the Group’s carbon footprint cumulatively by 36% by
2010 (based on 2005 baseline),
>> prevent waste, including halving the volume of waste to
landfill and using 15% less own-brand packaging by 2010,
>> source responsibly and sustainably, including by improving
local, organic, Fairtrade and in-season ranges.
Recyclopedia
‘Recyclopedia’ is our own unique labelling scheme for own brand
packaging, which helps to increase awareness of which packaging
elements can be recycled and where. In November 2007,
Recyclopedia won the award for ‘Best Supermarket Recycling
Initiative’ at the prestigious National Recycling Awards.
The ‘Recyclopedia’ guide has three easy to recognise symbols:
>> a big grin, for packaging which is 100% recyclable or home
compostable,
>> smiling, for items which are partly recyclable or not recyclable
everywhere yet,
>> not smiling yet, for packaging which is not recyclable yet but
we are working on it.
Each symbol incorporates a ‘speech bubble’ giving information
about the packaging components’ recyclability and how to find
out about local recycling facilities.
Morrisons annual report and financial statements 2008 19
Society
Business
Taking good care
of shoppers
Taking good care
as we go about
our business
Work, neighbours and living
Sourcing, supply and engagement
Our three main commitments are to:
>> be an employer of choice, bringing the best out in our people,
Our three main commitments are:
>> product stewardship through provenance and food authority
enabling them to reach their potential and improving retention
and satisfaction,
>> be neighbourly, by giving to good causes and fundraising
for our Charity of the Year,
>> help encourage a better standard of living by consistently
offering quality and value, improving our product ranges
and providing useful information to customers.
to ensure the traceability and safety of food produced and sold,
>> supply chain integrity through implementation of fair and
ethical trading standards and being a decent and loyal
customer to our suppliers,
>> satisfaction for all stakeholders by engaging positively and
delivering our promises to them.
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Bakery apprentice programme
In 2007, our ‘Bakery Apprentice Scheme’ reached its tenth
anniversary. This highly successful programme was specially
designed by our in-house training team to provide employees
with the craft skills required to become qualified bakers. This
nine month, intensive course is one of the largest schemes of
its type in the country. For up to eight months, rigorous training
and development is conducted within a store bakery production
area, where employees learn all aspects of the bakery trade. The
scheme also includes four one week sessions of tuition at one
of four leading Craft Bakery Colleges, where apprentices receive
technical, theory and practical skills in a specialist environment.
Upon completion students are awarded with a nationally
accredited NVQ level 2 Bakery qualification.
100% British sourcing
Support for the British Farming industry is of particular
importance to us as we are closer to source than any other
retailer. We recognise that we share particular mutual
commitments with the British Farming industry and we
work hard to fulfil our stated commitment to ‘build long
term partnerships’ with our suppliers.
In November 2007, we were the first of the top four
supermarket chains to commit to selling 100% British fresh pork
and lamb all year round, having met with key representatives of
the industry and listened to their concerns during what had been
a difficult time for the British farming industry. In March 2008,
we reinforced our support by committing to selling only British
fresh beef, whilst all of our fresh and frozen chicken has been
100% British for many years.
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20 Morrisons annual report and financial statements 2008
Taking good care continued
Environment
Carbon footprint reduction
Our carbon reduction strategy includes the implementation of
more than 100 projects aimed at reducing our carbon emissions.
During 2007, a total of 115,718 tonnes of carbon has been
saved. Since the baseline of 2005 we have made a cumulative
reduction of 374,190 tonnes of carbon, which is 70%
of our target.
Preventing waste
We have achieved 18% of our target to reduce volume of waste
to landfill by 50% by 2010. A number of packaging initiatives,
including the introduction of ‘Prepared for You’ packaging for
foods freshly prepared in-store, have helped reduce own-brand
packaging by 7%. Customer awareness about what can be
recycled has been increased through our award-winning
‘Recyclopedia’ own-brand packaging labelling scheme (see case
study on page 18). Our in-house active management of food
waste delivers one of the lowest levels of waste in the food
retail sector.
Sourcing responsibly
A range of targets including timber from recycled or certified
sustainable sources, fish complying with our sustainable sourcing
policy, own-brand eggs to be free range, increasing the range of
Organic and Fairtrade products, and indicating the country of
origin through labelling, have been met, exceeded or have
made good progress.
What we include in our Carbon Footprint
A significant point of difference between our Carbon Footprint and that of our competitors is that emissions from our own
supply chain of manufacturing, processing and packing facilities are included.
Refrigeration
Waste
External
suppliers
Manufacturing,
processing
and packing
facilities
Transport and
distribution
(Group and
third party)
Stores
Customers
Offices
Staff and
business travel
Carbon Boundary
Morrisons annual report and financial statements 2008 21
Society
Business
Employer of choice
Our people remain at the heart of our vision and plans and we
have worked with employees to clarify the important values for
our Group. This is supported by the introduction of an online
Leadership Academy for our senior managers and an ongoing
communications and engagement strategy. We continue to
invest significantly in training and development.
Be neighbourly
We have continued to support good causes with over £577,000
donated during the year. The £1m target set for our Charity of
the Year 2007, Asthma UK, was exceeded with colleagues and
customers raising £1.1m to help fund vital research projects.
Encourage a better standard of living
The good shopkeeping principles that underpin being food
specialist for everyone have achieved further recognition with
Customer Service and Availability ‘Gold’ awards from the Grocer
trade magazine. Good progress has been made on labelling own-
brand foods with Guideline Daily Amounts (GDAs). Targets were
exceeded for increasing Eat Smart and Free From ranges, and
good progress has been made in reducing salt and removing
hydrogenated fats from our own-brand products.
Product stewardship
The traceability of product and ingredients is paramount for
food safety and quality. The successful implementation of a new
data system has increased the efficiency and detail of product
information that can be accessed easily. The targets set for food
safety standards, assurance and responsible sourcing continue to
be met. Targets are being extended to cover farm animal welfare
policies, pesticide residues monitoring, and enhanced testing of
imported products.
Supply chain integrity
In 2007, the Morrisons Ethical Trading Code was implemented
with suppliers in Africa, Asia and South America and in 2008
we will be conducting an audit exercise. Long term relationships
with suppliers continue to be developed, built on a foundation of
continuing compliance with the ‘Supermarkets Code of Practice’
and the Morrisons Buyers’ Charter.
Satisfaction for all stakeholders
Through active participation with specialist interest groups
and forums ranging from government initiatives and charitable
causes, to specialist CSR forums, we aim to address and meet
the needs of key stakeholders.
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Fresh sustainable fish
All the fish sold on our fresh fish counters has never been frozen
and is sourced from 100% sustainable stocks and caught using
the least environmentally harmful fishing methods. In 2007,
all of our fresh fish counters were certified under the Marine
Stewardship Council Chain of Custody traceability programme
to sell products from certified fisheries. This certification
ensures that all stages of the supply chain, from catch to counter,
are certified.
Closer to source
Operating from two Soil Association registered farms, Acorn
Dairy has supplied Morrisons since 2002 with fresh organic milk.
Initially supplying our stores in the Darlington area, for the last
three years the dairy has supplied our own label ‘Jersey’ milk
nationally and now ‘Definitely Yorkshire’ milk to all of our stores
in the North.
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22 Morrisons annual report and financial statements 2008
Operating review of the year
Our programme to freshen-up our stores
by rolling out a new look through the estate
will be completed by July 2008.
Morrisons annual report and financial statements 2008 23
2007/08 was a strong year for Morrisons – we
delivered good progress on our long term plans
and continued the profit recovery momentum
of the previous year. Our debt fell, despite
investment for the future.
We opened eight new stores in the year, at Johnstone,
Speke, Erskine, Wednesbury, Dundee, Llanelli, York, and Bristol
(Hartcliffe). The store in Erskine was a replacement for another
store in the town, and at 25,000 square feet was the smallest
new Morrisons opened for many years. We are pleased with
its initial performance and will be looking for more such sites.
Additionally, we carried out a number of extensions of stores,
with 13 extensions of retail space and 18 extensions of
warehousing space to cope with the growing volumes passing
through the stores. We ended the year with 375 stores and
a total of 10,835,000 square feet of retail space, growth of
3.0% on the start of the year.
Turnover grew by 4.1% to £13.0bn, a 6.0% increase after
adjusting for the effect of a 53-week year in 2006/07. We were
pleased that this growth was broad-based, across all regions.
Like-for-like store sales, the measure of growth in existing stores,
increased by 4.6% with both customer numbers and average
basket spend increasing.
Sales of goods (£m)
Fuel (£m)
Total sales inc VAT (£m)
Turnover exc VAT (£m)
Sales per square foot (£)
Customer numbers (m)
Customer spend (£)
Like-for-like stores
11,065
2,822
13,887
12,766
20.31
475
23.07
Other
173
49
222
203
14.11
7
25.29
2007/08
Total
11,238
2,871
14,109
12,969
20.18
482
23.10
2006/07
Total
10,841
2,706
13,547
12,462
19.34
479
22.53
As in the previous year, the strongest sales growth was achieved
in Scotland and the South of England, but it was pleasing also
to see growth in the Group’s traditional Northern heartland
after two challenging years. Our health and beauty department,
revamped in 146 stores in 2006/07, showed growth, but not as
much as we had aimed for. We are trialling a new, revised format
which we believe will yield more positive results. Our home and
leisure department showed good growth, albeit this was from
CDs and DVDs at low margin. New, broader ranges will be
introduced in the coming year. We continued to see strong
trends towards customers choosing higher quality, more healthy
food – with sales of our Eat Smart range up 35%, the Best up
25% and Organics up 14%.
Our forecourts business is important in attracting traffic to
our stores, and we ensure that our pricing is highly competitive.
Average unleaded pump prices were 94.88p in the year,
compared with 90.04p the previous year. Total litreage grew
by 2.9%, a reflection of the traffic growth.
Market Street – York store, Foss Islands Retail Park
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24 Morrisons annual report and financial statements 2008
Operating review of the year continued
Summary income statement
Turnover
Gross profit
Other operating income
Administrative expenses
Property transactions
Operating profit
Finance income and costs
Taxation
Profit/(loss) for the period
2008
£m
12,969
818
30
(268)
32
612
0
(58)
554
2007
£m
12,462
636
21
(272)
38
423
(54)
(121)
248
Change
£m
507
182
9
4
(6)
189
54
63
306
With the continued delivery of the Group’s Optimisation Plan,
first announced in 2006, profit growth significantly outstripped
turnover growth. Gross profit increased by 29%, from £636m
to £818m, reflecting the benefit of many initiatives detailed
further in this Operating review. Administrative expenses have
remained flat compared to 2007. Advertising activity has been
significantly increased to support the rebranding campaign in
the second half of the year, and these additional costs were
offset by efficiency savings elsewhere.
After the cost of products, our two biggest costs are store wages
costs and distribution costs. In both areas, we continued to
make strides to improve our efficiency. Store labour productivity
increased by 6% year-on-year, following a 14% improvement
in the previous year. The cost to deliver each case through our
distribution network reduced by 9.4% year-on-year, with not
only financial benefits but also significant environmental
benefits in terms of 3.4 million fewer miles travelled.
We were pleased, in the year, to win a number of important
industry awards, reflecting great achievements of our colleagues
throughout the business. Foremost amongst these were the Grocer
Gold Awards for Service and for Availability, the National Recycling
Awards for Best Supermarket Recycling Initiative Scheme and the
International Wine Challenge with 147 Gold Commendations.
Optimisation Plan progress
Last year, having achieved our initial targets for cost
reduction and margin improvement, I outlined a detailed
programme for the next stage of development for Morrisons,
with the overall aim of becoming the ‘food specialist for
everyone’. I explained what we mean by this:
Food specialist We really understand food…
…we know where it comes from
…we pack it and make it in our factories
…we make it in our stores
…we employ craft skills in every store
For everyone
Great food which is also great value
Great food which is for every day,
not just special days
We made good strides in the past year in building on our
food specialist credentials. In many cases, this has been about
showing more clearly to our customers the things that we
already do. In some cases, too, we have needed to make
improvements. Our meat is butchered the old fashioned way,
in-store rather than in a factory, by highly trained butchers.
Much of our bread is freshly baked overnight and throughout
the day, from scratch using flour, yeast and water. Our award-
winning fish bar is laid out fresh every day. Salads are chopped,
sandwiches are made, pizzas prepared and cakes topped with
cream. This local, fresh preparation, provides a real quality
advantage, and was not necessarily being appreciated by all our
customers. We introduced new packaging and labelling during
the year which clearly shows the products that have been made
in-store. And we are undertaking a programme to open up many
of the areas of Market Street where food preparation takes place,
so that customers can see at first hand what we do.
We previously had work to do to improve our product range.
We made strides in the year, with an increase in range from
28,000 to 30,000 lines and the relaunch of over 8,000 lines
in total. The work included the removal of all hydrogenated fats,
and significant reductions in salt, from our own label ranges.
We launched a new range of healthy food for children called
‘Kids Smart’, designed to be delicious, nutritious and healthy.
The fresh fruit in the range, for example, is carefully selected
smaller, sweeter varieties of apple and pear. Our programme to
tailor each in-store range more closely to the local customer base
continued – for example, we now stock a range of Polish products
in over 100 stores, and we have successfully trialled local
sourcing in a small number of stores. In our dialogue with our
customers, we find that they strongly support British agriculture,
and we are proud to reflect that sentiment by confirming that we
will only stock fresh beef, pork and in-season lamb that is British.
We are closer to source than any other major food retailer.
I outlined last year our plans to sharpen our image, with a
programme to freshen-up our stores. The new look is rolling out
through our estate, and by July 2008 the work will be complete.
At this stage, all store exteriors and approximately 140 interiors
have been completed. The programme covers the exterior and
interior signage of the stores, our filling stations, our trucks
and our Market Street counters. The total cost of the work will
average less than £0.5m per store, reflecting the care that has
been taken to ensure that the new design is cost effective.
It has been well received by customers.
Being the food specialist for everyone means not just providing
great products but also great value, and that has always been a
strength of Morrisons. UK grocery retailing is one of the most
competitive retail sectors in the world, and the battle for
customers in 2007, as the economy tightened, was hard fought.
Morrisons delivers value through having highly competitive base
prices and offering a broad range of attractive promotions. These
Fresh choice for you
advertising campaign
Background
Morrisons has always been associated with low
prices and, particularly, great offers. What Morrisons
hasn’t shouted about is its high-quality food. This is a
perception issue, and a perception issue that has been
holding Morrisons back, not just in the former Safeway
stores but also in the heartland.
The reality is that every day Morrisons makes and
prepares more food fresh in-store than any other
supermarket – meat cut fresh in-store every day, fish
brought fresh into store having never been frozen,
bread baked from scratch every day, sandwiches and
cakes made fresh each day – there’s a whole fresh food
story that consumers are completely unaware of. The
objective of the new advertising campaign was simple
– get customers and non-customers to appreciate the
strength and quality of Morrisons food offering.
The opportunity
Interest in the quality of food and where it comes
from is now mass market. As a mass market retailer
committed to fresh food, Morrisons has the
opportunity to become the ‘Food Specialist for
Everyone’, more ‘mass market’ than Waitrose, M&S
and Sainsbury, more of a ‘food specialist’ than ASDA
or Tesco.
The creative strategy
The new advertising campaign features well known
but down to earth shoppers, Denise van Outen, Gabby
Logan, Nick Hancock, Diarmuid Gavin, Alan Hansen
and Lulu, demanding the freshest food when they go
shopping – demands that Morrisons are able to fulfil
through Market Street, with each Market Street expert
preparing the food fresh and to order.
Results
The new campaign has been instantly successful.
Customers have described it as ‘a real eye-opener’,
perceptions of food quality are rising, and the
commercial metrics are positive.
Morrisons annual report and financial statements 2008 25
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26 Morrisons annual report and financial statements 2008
Operating review of the year continued
Our manufacturing businesses will be an
important part of delivering our food specialist
credentials. Collectively, they rank as a Top 5
UK food producer.
Morrisons annual report and financial statements 2008 27
are available all week, every week – never less than 1,000
promotions including 100 ‘buy one get one free’. The sector
has also been increasing the number of ‘big event’ promotions,
where eye-catching deals are used to attract customers into the
stores – examples in the year were the launch of the final Harry
Potter book and the DVD of Casino Royale – where supermarket
prices were very significantly below those of high street
competitors. Morrisons played its full part in this activity –
but for us the best way to provide our customers with value
is to offer superb quality products, unique to Morrisons, at great
prices. We had real success in the year – we were first to market
with Spring Lamb, a wonderful product, sourced from British
farmers at fair market rates and offered to customers at a price
over 20% below competitors’ prices. A number of our Christmas
products were rated very highly – our Christmas cake outscored
similar products from competitors in taste tests, but at half
the price of some. Griffith Park sparkling rose, at £4.99, beat
off many champagnes costing over £20 at the Effervescents
du Monde awards in France. It was exclusive to Morrisons.
This is what being the food specialist for everyone is all about –
showing to our customers that great food does not have to be
expensive food.
In support of the changes taking place in-store, we launched an
advertising campaign in the second half year designed to attract
new customers to come and try us. It placed emphasis on our
in-store food production and our food provenance knowledge,
which we know appeals to customers. Well known, but down to
earth, personalities were used in the campaign – Nick Hancock,
Denise Van Outen, Diarmuid Gavin, Gaby Logan, Alan Hansen
and Lulu – and fresh product featured strongly. We were pleased
with the success of this campaign – it told customers things they
did not know about Morrisons, and they liked what they heard.
We welcomed many new customers into our stores towards the
end of the year as a result and, very importantly, they kept
coming back.
Our colleagues are vital to delivering our success – to be the
food specialist for everyone demands a higher level of service
and knowledge in our stores. We believe we are the largest
employer of craft skills – butchers, bakers, fishmongers – in
the country, and we have 25,000 people employed in producing
the food that we sell.
Our 117,000 people are also our customers, and we were
delighted to introduce a discount scheme for them for the
first time, in November 2007. Given that the weekly food bill
represents a significant part of household budgets, this is a
key benefit for our staff. Our stability index, a measure of the
proportion of our colleagues who have been with us for over
one year, improved from 71.3% to 75.7% in the year. This is not
yet high enough, and we will continue to implement initiatives
to encourage our best staff to stay longer with us. We wish to
invest in skills, and take out work where we can be more
Rathbones bakery – Wakefield
Our bakeries deliver fresh bread to our stores every day.
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28 Morrisons annual report and financial statements 2008
Operating review of the year continued
more chilled space and this programme will continue through
2008 and 2009. Our progress here was slower than we would
have wished. Our programme to replace all the major systems
in the business got under way in 2007. The first stages involved
hardware and software selection and the overall design of the
new systems. Hewlett Packard were selected to provide our
core hardware and Oracle the software. The first major systems
implementation will be a new Group HR and payroll system,
which will go live in late 2008 and will be one of the largest and
most advanced payrolls in the UK. Thereafter, the programme
of systems renewal will run throughout 2009 and 2010.
The overall investment requirements for the Optimisation Plan,
outlined last year, are £450m over and above normal capital
investment, and the programme will run to 2010. In 2007,
only £68m of this was incurred as many of the programmes were
in the enabling stages, but investment will accelerate in 2008.
We have not changed our estimate of the overall costs.
Outlook
Household budgets are tight, with disposable incomes under
pressure and global commodity price rises feeding through
to the cost of basic foodstuffs and energy. At the same time,
the period of cheap credit has come to an end.
This environment presents an opportunity for Morrisons.
Whilst many of our programmes are designed to improve
product quality or the overall shopping experience, the great
value we offer our customers will be at the forefront of our
activity in the year ahead.
We expect to open eight new stores in the coming year, and to
extend a further 19 stores with an additional 100,000 square
feet of selling space. We are well placed to achieve our target
of increasing selling space by one million square feet over three
years, and we expect to complete all our other, previously
announced, investment programmes as planned.
We have made a promising start to our new financial year, in a
market that we know will be particularly challenging. We are
well on track towards our goal of being the ‘food specialist
for everyone’.
efficient. Our trials of ‘self scan’ checkouts were successful in the
year, and we intend to roll these out to over 200 stores.
I was pleased to complete our senior management team during
the past year, with the appointment of new HR, Marketing, and
Home and Leisure Directors. Additionally, upon the retirement of
David Hutchinson as Production Director we chose not to replace
this main Board position, instead creating two separate roles –
Manufacturing Director and Distribution Director, both promoted
from within. The senior team has come together well around our
Optimisation Plan agenda, and I am pleased that we now have a
stable and complete team driving the leadership agenda.
The importance to society of large corporations acting
responsibly is growing, and Morrisons is determined to play
its full part. In 2007 we published our first Corporate Social
Responsibility report, which highlighted our activities in this
area and set out some ambitious targets for reductions in
carbon emissions, energy usage and wastage.
We made good progress in many areas in the past year – overall
carbon emissions were down by 25% on 2005 – 70% of the way
towards our target of a 36% reduction. This has been achieved
by installing new refrigeration in our stores, with less leakage of
coolant, by training our colleagues to be more aware of energy
efficiency, resulting in a 5.0% reduction in the Group’s energy
usage, and by beginning to re-equip our vehicle fleet with more
efficient engines. Customers are concerned to contribute to the
environmental agenda, and improved recycling disciplines can
help greatly. In addition to providing recycling facilities at most
of our stores, we launched an information campaign called
‘Recyclopedia’ last year. It seeks to inform customers, through
simple graphics, of the recycling options available for the
packaging concerned. We were pleased that this initiative
won a National Recycling award.
In outlining our Optimisation Plan last year, I highlighted a
number of areas where our infrastructure required further
investment, in distribution, manufacturing and in systems.
In distribution, we successfully opened a new grocery depot
in Swindon to serve stores in the South and West, relocating
the activity from Tamworth. This saved 2.9 million miles of
transportation and allowed us to sell the surplus depot. We have
agreed terms for the development of a new regional distribution
centre at Sittingbourne, in Kent, and expect this leasehold facility
to open in 2010. In manufacturing, the development of our
new abattoir in Spalding continued, and it will open fully in the
second half of 2008 – by that stage all our fresh beef, pork and
in-season lamb will not only be British but also will be processed
through our own facilities.
We made progress in completing our chill chain through the
manufacturing and distribution businesses, and all products
that we wish to chill now arrive at the back door of our stores in
chilled condition. In-store, we still have work to do to provide
Morrisons annual report and financial statements 2008 29
In early 2008, Morrisons launched a new format magazine available free in-store for all
its customers. This quarterly magazine is packed full of health tips, inspiring food ideas
and recipes, and loads of information about what is on offer in-store. This brief extract
from the first edition is about the Experts that operate in Market Street.
Everything at the deli is freshly
cut and weighed in front of the
customer, so they get exactly
what they need. Unless, that is,
they’re in a rush. “The express
deli is there for people who
want the same quality products
without the wait,” explains
Lorna. “We pre-weigh, package
and price it in store so it’s
ready for you to take to the till.” According to Lorna, it’s the
“amazing displays, brilliant service and massive choice” that
makes Morrisons deli special. The huge range of cheese
demonstrates this.
There are more than 50 varieties of fish available at the
counter, none of which have been previously frozen. “When
we say fresh, we really mean fresh,” explains Kurtis. “What
we sell depends on what the fisherman’s caught recently.”
Occasionally this means customers might not find a particular
variety they’re looking for. “If someone’s looking for a specific
type of fish for a recipe and it’s not available – because we
don’t accept anything that’s not straight out of the sea –
we’ll suggest alternatives that will work just as well.”
“We have lots of regulars,” explains Liz. “One woman comes
in every morning to buy her lunch and frequently tells us how
much she loves the takeaway food because ‘it’s so fresh’.
That kind of comment makes my job worthwhile.”
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30 Morrisons annual report and financial statements 2008
Financial review
Income statement
The Group’s sales and operating profit performance has
been dealt with in the Operating review section of the Chief
Executive’s business review. This section deals with other
aspects of the Group’s income statement and its balance
sheet and cash flow.
>> During the period, the Group successfully concluded lengthy
negotiations with HM Revenue and Customs (HMRC) over a
number of open issues relating to the Safeway Group prior to
its acquisition by Morrisons in 2004. The closure of these
negotiations has resulted in the Group being able to release
prior period corporation tax and deferred tax provisions.
a) Property
There was a small number of individual divestments of surplus,
non-retail property, which generated proceeds of £94m and
provided a profit on disposal of £32m.
>> An additional contributor to the low effective tax rate was
the change of the UK corporation tax rate from 30% to 28%.
This change required the Group to recalculate its deferred tax
liabilities, resulting in a release of deferred tax provision.
b) Finance income and costs
2008
£m
2007
£m
During the year, the Group paid a net £107m of corporation
tax to HMRC.
Interest payable on short term loans
and bank overdrafts
Interest payable on bonds
Interest capitalised
Total interest payable
Fair value movement of derivative instruments
Other finance costs
Finance costs
Bank interest received
Amortisation of bonds
Other finance income
Net pension interest income
Finance income
Net finance cost
(1)
(53)
8
(46)
(7)
(7)
(60)
28
8
7
17
60
–
(5)
(60)
6
(59)
(12)
(11)
(82)
8
8
5
7
28
(54)
The principal objective of the in-house tax department continues
to be to pay the right tax at the right time. We actively engage
with the UK tax authorities and aim to be transparent in all of
our activities. The Group is predominantly UK based, operates
a simple business model, and does not engage in sophisticated
tax planning structures.
d) Underlying earnings
Unadjusted basic earnings per share were 20.8p (2007: 9.3p).
Underlying basic earnings per share of 14.4p (2007: 8.3p) has
been computed by removing property gains and net pension
interest income from profit before tax for the period and is
adjusted for a normalised tax charge (note 1 page 59).
The interest payable on bonds dropped to £53m from £60m
following the maturity of one bond totalling £250m in August 2007.
Balance sheet
a) Summary balance sheet
Interest receivable increased significantly to £28m, largely as
a result of tight capital controls on the business, strong cash
flows from improved profitability and the property proceeds.
In addition, the notional interest income on the pension liability
increased by £10m reflecting the continued improvement in the
schemes’ asset position.
c) Taxation
The tax charge in the year of £58m represents a tax rate of
9.5%, which is below a normal rate for the following reasons:
>> The current corporation tax charge of £142m was lower than
the charge expected at a ‘normal’ tax rate, which would have
been £184m. This was largely as a result of a tax deduction in
respect of a £100m special cash contribution to the Group’s
pension schemes and also the benefit of final agreement with
respect to the brought forward tax position for Safeway.
Property assets
Current assets and liabilities
(excluding debt)
Deferred tax
Net pension liabilities
Provisions
Total before net debt
Net debt
Net assets
3 February 4 February
2007
£m
6,602
2008
£m
6,687
Change
£m
85
(1,135)
(424)
(68)
(139)
4,921
(543)
4,378
(1,082)
(478)
(198)
(145)
4,699
(772)
3,927
(53)
54
130
6
222
229
451
b) Net debt
During the year, the outstanding amount of net debt fell
from £772m to £543m. This reduction in debt levels was a
consequence of the improving profit performance of the
business and lower levels of capital investment than we originally
anticipated. It is stated after making an additional contribution
of £100m into the Group’s pension schemes.
Morrisons annual report and financial statements 2008 31
The bonds, acquired with the Safeway acquisition in 2004,
constitute the major component of borrowings within net debt.
The next bond repayment is due in April 2010. Outstanding loan
notes amounting to £2m will mature in 2008 and will be repaid
from operational cash flow.
The funding contributions during the year were those agreed as
part of previous funding plans, which gave contributions over
service cost of £48m, plus the additional contribution of £100m
(split £75m Safeway scheme and £25m Morrisons scheme) being
the first of two instalments designed to eliminate the deficit.
The Group entered into a new revolving credit facility in
September 2007 with eight banks providing committed facilities
of £1.1bn for five years. At the balance sheet date the facility
was undrawn. With this facility and the bonds the Group now
has available committed facilities of £1,800m (2007: £1,450m)
maturing between 2010 and 2018.
There are financial covenants in relation to the revolving credit
facility, based on the level of consolidated net borrowings to
EBITDA, and interest cover. The Group continues to comply
with these financial covenants.
c) Pensions
Pension deficit bridge
Net pension deficit at 4 February 2007
Funding above annual service cost
Interest cost greater than asset return
Strengthening longevity assumptions
Higher discount factor
Impact of triennial valuation
Other
Net pension deficit at 3 February 2008
£m
(198)
148
(95)
(127)
122
70
12
(68)
During the year, a review of the two defined benefit pension
schemes was completed. The review also incorporated the
triennial Safeway actuarial valuation of 1 April 2007. Among
the principles agreed between the Group and the Trustees of
both schemes were funding, actuarial assumptions and
investment strategy. These principles are:
>> two additional contributions of £100m each (£75m Safeway
and £25m Morrisons) to be made – one in 2007/08 and
one intended to be made in 2008/09 to eliminate the
IAS 19 deficit,
>> funding will be set on an IAS 19 basis,
>> prudent longevity assumptions based on most recent
actuarial evidence,
>> over exposure to equity will be reduced and investment
management fees reduced through moving to passive
investment management,
>> disposal of certain investments inconsistent with the
Group’s view of balance sheet risk.
Volatility in the capital markets caused changes to the IAS 19
asset and liability measurements. The implied real discount
rate (the difference between inflation and the discount rate) has
increased by 20 basis points, reducing the liability by £122m.
Offsetting this, the return on assets would normally more than
cover the unwinding of interest in the present value calculation.
This year, with the downturn of the equity markets at the end
of 2007 and early 2008, any gains or returns on assets were
eliminated, leaving a net interest cost of £95m.
In agreeing the valuation assumptions for both schemes, the
Trustees and the Group agreed that the long cohort adjustment
to the mortality tables used was the most appropriate to ensure
a period of improvement consistent with a liability of a long
duration. This is consistent with the latest views expressed by
the Pension Regulator in a recent discussion paper. The effect
is to assume an additional 3.6 years’ life for a male currently
aged 45, compared with the assumption made in the prior year.
The key financial risks to the pension schemes are:
>> investment risk – changes in bond yield rates and fluctuations
in the equity markets,
>> further longevity risk which ultimately rests with the Group
to fund.
The Group Treasurer attends the Investment Sub-committee
of the pension schemes and represents the views of the Group
to the Trustees.
d) Provisions
The property provision of £110m (note 22 page 74) includes
£73m for onerous leases relating to sublet properties to cover the
shortfall between expected rent received and the rent payable,
taking into account the vacant tenancy periods during the terms
of the lease. The provision assumptions were reviewed in the last
quarter in the light of worsening economic conditions, and the
prospective Government legislation which will reduce rates relief
on vacant properties from April 2008, to establish the best
estimate of liability. This resulted in increases to the provision
of £8m and £6m to address each of these respective issues.
The restructuring provision of £29m (note 22) includes £20m
for ongoing activity associated with the 2007/08 rebranding
initiative described in the Chief Executive’s business review.
This programme will be complete by July 2008.
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32 Morrisons annual report and financial statements 2008
Financial review continued
Cash flow
a) Summary cash flow statement
Cash generated from operations
Interest and tax
Disposal and divestment proceeds
Capital expenditure
Share issues and dividend
long term cash on deposit
Repayment of loans
Net (decrease)/increase in cash
2008
£m
756
(127)
94
(402)
(91)
(74)
(269)
(113)
2007
£m
704
(109)
158
(257)
(93)
–
(263)
140
Change
£m
52
(18)
(64)
(145)
2
(74)
(6)
(253)
b) Operating cash flow
The Group generated an increasing level of cash flow from
operations of £756m driven from improved operational
efficiency and after funding additional contributions of £100m
to the two pension funds. The overall working capital cash
impact was neutral as the business required an increased level
of stock to support higher sales in the last quarter, along with
a commensurate increase in trade creditors.
The Group adheres strictly to the payment terms agreed with
its suppliers, and at the year end the average creditor days
outstanding was 34, compared to 31 days in the prior year.
c) Disposals and divestment proceeds
Proceeds of £94m on disposal of properties were lower than in
the previous year as the process of disposing of stores acquired
with Safeway that did not fit Morrisons operating model largely
completed in 2006/07. In the year under review the proceeds
were realised from a surplus depot, surplus land and two
replaced stores.
The capital expenditure programme was fully funded from cash
flow. It included the opening of eight new stores, compared with
four in the previous year, as well as the fitting out of the new
Swindon depot and the acquisition and development costs of
the new Spalding abattoir planned to open in the second
half of 2008.
Principal risks and uncertainties
Like all businesses, our business faces risks and uncertainties
that could impact on the Group’s achievement of its objectives.
Risk is accepted as being a part of doing business and within
the Group, responsibility for risk management and internal
control lies with the Board. Through the application of reasoned
judgement and consideration of the likelihood and consequence
of events, the Board believes a successful risk management
framework will balance risk and reward.
The list below sets out the most significant risks to the
achievement of the Group’s business goals. The list does not
include all risks that the Group faces and it does not list the
risks in any order of priority.
Business strategy
In the long term, effectively managing the strategic risks that
the Group faces will deliver benefits to all our stakeholders. The
Board understands that if the strategy and vision are not properly
formulated or communicated then the business may suffer.
The CEO has led the development of the strategy with other
senior executives, and this is detailed in the Operating review
on page 24. The Board has considered and approved the
strategy, takes time each year to review it, and continues to
monitor its delivery.
To ensure that our strategy is communicated and understood,
the Group engages with a wide range of stakeholders including
shareholders, employees, suppliers and other groups. This
continual process helps to ensure that the strategy remains
relevant and improves the likelihood of success.
Financial and Treasury
The Group’s financial results may be subject to volatility
arising from movements in commodity prices, foreign currencies,
interest rates and the availability of sources of funding. See note
19 on page 68.
Product quality and safety
We recognise that the quality and safety of our products is of
critical importance to us and that any failure in this regard would
affect the confidence of our customers in us. We work with
our suppliers to ensure the integrity of the products supplied.
Also, as a manufacturer of food products, we have established
strict standards and monitoring processes to manage the risks
associated with food safety throughout our Group and its
supply chain. Food hygiene practices are taken very seriously
throughout our Group, and are monitored both through internal
audit procedures and external bodies such as environmental
health departments. We have well prepared procedures for crisis
management in order to act quickly when required.
In March 2007, Morrisons and other supermarkets were supplied
with contaminated fuel that was subsequently sold to customers
through our petrol forecourts. Once we became aware of this we
moved quickly to replace the contaminated fuel, compensate the
4,500 affected customers and resume normal business.
In August 2007, a number of cases of E. coli were detected in the
Paisley area of Scotland, and circumstantial evidence suggested
that the source may have been the delicatessen counter of one
of our stores. As a precautionary measure, the counter was
closed and stringent checks of products, equipment and personal
Morrisons annual report and financial statements 2008 33
hygiene were undertaken. These tests revealed no evidence of
contamination.
meet our commitments this could damage our reputation and
potentially lose the trust of our stakeholders.
We are aware that if we fail or are perceived to fail to deliver,
to our customers’ satisfaction, the expected standards of quality
and safety in our products this has the potential to impact on
their loyalty to us. This in turn could adversely impact on our
market share and our financial results.
Regulation
The Group operates in an environment governed by strict
regulations to ensure the safety and protection of customers,
shareholders, staff and other stakeholders and the operation
of an open and competitive market. These regulations include
food hygiene, health and safety, the handling of hazardous
materials, data protection, the rules of the stock exchange and
competition law. In all cases, the Board takes its responsibilities
very seriously, and recognises that breach of regulation can lead
to reputational and financial damage to the Group. There is clear,
ultimate accountability with Directors for compliance with all
areas of regulation.
In September 2007, the Office of Fair Trading (OFT) issued a
Statement of Objections concerning the pricing of milk and
other dairy products during 2002 and 2003. It accused a
number of the largest grocers at that time, and a number of
producers, of colluding to increase the prices paid by consumers
for such products. One of the accused companies was Safeway,
which at the time of the alleged collusion was an independent
company. Based on the evidence available, we concluded that
Safeway, now owned by Morrisons, had infringed the
Competition Act along with others at that time. We therefore
agreed to co-operate fully with the OFT and to settle the liability
in respect of Safeway at £10.7m. In its Statement of Objections
the OFT also accused Morrisons of colluding to increase milk
prices in 2002, and in this case the Board has objected strongly
to this accusation. The evidence put forward by the OFT is, in our
view, weak and contains a number of basic factual inaccuracies.
We also regret that the OFT made these and other accusations
publicly and in doing so generated misleading, inaccurate and
sensationalist publicity that has damaged Morrisons reputation.
For this reason, not only have we submitted a robust defence
but also, with regret, we have commenced proceedings in the
High Court for a judicial review of the OFT’s actions and for
defamation. Given the strength of our case, the Directors do
not consider it appropriate to accrue for any potential fine which
the OFT may have proposed to levy.
Corporate Social Responsibility
In line with our commercial objectives we have identified three
areas, Environment, Society and Business where by ‘doing the
right thing’, we protect valuable resources, meet demand for
sustainable products and make our business more efficient.
Morrisons is committed to taking good care and if we fail to
Therefore, reporting to the Board is a cross functional steering
group of senior executives that ensure that the appropriate
management, evaluation and verification systems are integrated
into operational management activities. Delivery against targets
and key performance indicators is regularly monitored and
reported. Further information is available in our Corporate Social
Responsibility summary on page 18.
Business interruption
Our distribution and systems infrastructures are fundamental to
ensuring the normal continuity of trading in our stores. If a major
incident occurred to this infrastructure or another key facility
this would have a detrimental impact on the business’s ability
to operate effectively.
To reduce the chances of this happening and also to reduce the
impact of such an event if it were to happen, we have developed
recovery plans and invested in the creation of a remote IT
disaster recovery site. In addition, to further minimise any
possible disruption to our business the Group Finance Director
is leading a project to increase the resilience and readiness of
our critical processes.
Stores
The business is growing the size of its retail space, modernising
and extending existing stores and facilities. In this context there
is a possibility that the business fails to deliver an acceptable
return on this investment or that there is damage to the
business’s reputation if this is not done in a safe and timely
manner. The business mitigates against these risks through:
>> a property strategy that develops stores to a well proven
format,
>> the application of a formal capital approval process,
>> long-standing relationships and agreements with contractors
known to achieve required quality, safety and cost standards.
Systems and infrastructure
The acquisition of Safeway in 2004 and its subsequent
integration with the core business has been a challenge for the
business. The Board has identified that existing systems do not
provide the level of reporting or control that is required and has
approved plans for a significant investment in new IT systems.
As with all similar organisations, the business has a capacity
to absorb a level of change without this having a detrimental
impact on continuing business operations.
There are significant change programmes within the Group.
These have been structured and are governed in a manner that
allows the Board to monitor the change occurring within the
Group and to deliver successful outcomes.
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34 Morrisons annual report and financial statements 2008
Board of Directors
1 Sir Ken Morrison CBE
2 Marc Bolland
3 Mark Gunter
4 Martyn Jones
5 Roger Owen
6 Richard Pennycook
7 Sir Ian Gibson
8 Brian Flanagan
9 Paul Manduca
10 Susan Murray
11 Nigel Robertson
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Executive Directors
1 Sir Ken Morrison CBE
Chairman (retired 13 March 2008)
Sir Ken Morrison CBE (aged 76) has been with the Group,
which bears the name of his father, since finishing national
service in 1952 and was Chairman and Managing Director
from 1956 to 1997 at which time he relinquished the Managing
Director’s role. During his period in charge, the Group has grown
from a small market trader to one of the leading superstore
operators in the country. Sir Ken was awarded the CBE in
1990 and knighted in the 2000 New Year’s honours list for
services to the food retailing industry. He is the Chair of the
Nomination Committee.
2 Marc Bolland
Chief Executive
Marc Bolland (aged 49) joined the Group on 1 September
2006 as Chief Executive Officer from Heineken NV, based in
the Netherlands, where he was most recently Chief Operating
Officer and executive board member. He held a number of
senior roles at Heineken over the last 20 years, including having
responsibility for the brand and marketing strategies. He is
also currently a Non-Executive Director of Manpower Inc.
3 Mark Gunter
Group Store Operations Director
Mark Gunter (aged 49) joined the Group in 1986 as a Store
General Manager. In 1993 he was appointed Regional Director
and subsequently Stores Director in 1999. He was appointed
to the Board of the Group in 2000 as Store Operations Director
with additional responsibility for retail operations, retail fuel,
retail projects and Company-wide security. Prior to joining
Morrisons, he gained wide experience in UK food retailing,
which included working at Iceland, Fine Fare, Tesco,
Argyll Foods and Asda.
4 Martyn Jones
Group Trading Director
Martyn Jones (aged 49) joined the Group in 1990 as Trading
Manager for frozen foods before being promoted to Trading
Operations Director in 1993. He was appointed Grocery
Director in 1997 and then Senior Trading Director in 2002.
He was appointed to the Board of the Group on 8 March 2007.
5 Roger Owen
Group Property Director
Roger Owen (aged 59) has been with the Group since 1975 and
was appointed Building and Services Director in 1979. He joined
the Board in 1987 as Property Director and has full responsibility
for site acquisition, construction and estate management.
6 Richard Pennycook
Group Finance Director
Richard Pennycook (aged 44) joined the Group as Group Finance
Director in October 2005. He is a qualified accountant and a
member of the Society of Turnaround Professionals. Prior to
joining the Group, he was the Group Finance Director of RAC Plc,
the quoted specialist motoring and vehicle management company.
He has been involved as Finance Director in turnarounds of H P
Bulmer Holdings PLC, Welcome Break Holdings Ltd and Laura
Ashley Plc. Other previous roles include Finance Director of J D
Wetherspoon plc and various senior positions in Allders plc.
Morrisons annual report and financial statements 2008 35
Non-Executive Directors
7 Sir Ian Gibson
Deputy Chairman (appointed Chairman 14 March 2008)
Sir Ian Gibson (aged 61) joined Morrisons as Non-Executive
Deputy Chairman in September 2007. He is also Non-Executive
Chairman of Trinity Mirror PLC. Previous Board appointments
include Chairman of BPB PLC, Deputy Chairman of Asda Group
PLC, and a Director of Chelys Limited, GKN PLC, Greggs Plc,
Northern Rock Plc, and a member of the Court of the Bank of
England. Sir Ian enjoyed a distinguished 30-year career in the
motor industry, most recently as President of Nissan Europe.
8 Brian Flanagan
Brian Flanagan (aged 55) was appointed to the Board as a Non-
Executive Director in July 2005. He is a member of the Audit,
Nomination and Remuneration Committees. He is also a
Non-Executive Director of The Financial Services Authority
and Personal Navigation Systems Limited. Previously he has
worked for the Mars Corporation for 26 years and possesses
a broad international business experience. He has held senior
management positions in finance, information systems,
manufacturing, purchasing and was, most recently, the global
Vice President of Business Transformation for Mars inc.
9 Paul Manduca
Senior Independent Director
Paul Manduca (aged 56) was appointed as a Non-Executive
Director in September 2005. He is a member of the Audit,
Nomination and Remuneration Committees and is the Chair
of the Audit Committee. He is also a Director of Aon UK
Limited, Development Securities PLC, JPMF European Fledgling
Investment Trust Plc, JSC KazMunaiGas Exploration Production
Plc, Henderson Diversified Income plc as well as other
companies. Until recently he was the Chairman of Bridgewell
Group plc. Prior to that, he was the Global CEO of Rothschild
Asset Management Limited and a Director of Deutsche Asset
Management Limited.
10 Susan Murray
Susan Murray (aged 51) was appointed as a Non-Executive
Director in July 2005. She is a member of the Audit, Nomination
and Remuneration Committees and became the Chair of the
Remuneration Committee from 20 October 2005. Currently,
she is a Non-Executive Director of Compass Group plc, SSL
International plc, Enterprise Inns plc, Imperial Tobacco Group
Limited and Littlewoods Stores Limited.
11 Nigel Robertson
Nigel Robertson (aged 48) joined the Group as a Non-Executive
Director in July 2005. He is a member of the Audit, Nomination
and Remuneration Committees. Most recently he was the
Chief Executive Officer of Chelsea Stores Holdings Ltd. He was
previously the Managing Director of Ocado, the online grocery
shopping business set up in partnership with Waitrose. Prior to
this he held senior positions in Marks and Spencer Group PLC
both in the UK and USA.
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36 Morrisons annual report and financial statements 2008
Corporate governance report
Combined code
The Board has prepared this report with reference to the UK Combined Code of Corporate Governance issued by the Financial Reporting
Council as revised in June 2006. Throughout 2007/08 the Group has complied with the provisions set out in Section 1 of the Combined
Code, with exceptions noted below, and applied the principles of the Code as described below.
In recent years, there have been significant developments in the Group’s corporate governance structure. Since the acquisition of Safeway
in 2004 the composition of the Board has changed significantly. Progress in the establishment of principles of best practice relating to
governance has been and continues to be made.
During the year:
>> membership to and the roles of the Executive Board, Property Board and Manufacturing & Distribution Boards were revised and formalised,
>> the Group Marketing and Communications Director and Group HR Director were recruited to the top team,
>> the Audit Committee has had regular reports on the status of internal control across the Group from the newly formed internal audit function.
Throughout 2007/08 the Group has complied with the Combined Code, except in the following areas:
Combined code provisions
Status
Explanation
A.3.2 – at least half the Board,
excluding the Chairman, comprise
independent Non-Executive Directors than Non-Executive Directors
At the beginning of the year there
was one more Executive Director
As reported last year, the Board is committed to
ensuring that independent Non-Executive Directors
comprise at least half the Board during 2008
C.3.1 – at least one member of
the Audit Committee has recent
relevant financial experience
The current Audit Committee does
not have a member with recent
relevant financial experience
This is being addressed as part of overall Board
composition and the previously reported
arrangements remain in place to ensure the
satisfactory operation of the Audit Committee.
C.3.4 – there are arrangements
in place for the staff to raise
concerns in confidence
Comprehensive whistle-blowing
procedures did not exist throughout
the period
Whistle-blowing procedures that include adequate
reporting to the Audit Committee were introduced
in February 2008
The Board
a) Membership
On 3 February 2008 the Board comprised a Chairman, five Executive
Directors and five Non-Executive Directors. With the retirement of
the Chairman and the planned recruitment of an additional Non-
Executive Director, at least half of the Board will ultimately comprise
of independent Non-Executive Directors. Details of appointments,
roles and backgrounds are provided on page 34.
On 1 September 2007, Sir Ian Gibson joined the Group as Non-
Executive Deputy Chairman. With the assistance of the Chairman
and Company Secretary he has completed a period of induction
where he met with the Directors and senior executives from across
the Group, and visited stores and other operations across the
business.
The role of the Deputy Chairman is a temporary role prior to
succeeding Sir Ken Morrison as Chairman of the Group. The division
of responsibilities between the Chairman and the CEO has been set
out in writing by the Board.
programme of work to ensure further improvements in its
effectiveness.
This assessment was followed up with another evaluation carried
out in December 2007. The Board conducted this evaluation without
external assistance through the use of a questionnaire, based on
the independent assessment. The questionnaires were sent to all
Directors and the responses were reviewed by the Chairman and
the Company Secretary, and a report of findings was discussed
by the Board. The Board was satisfied with its performance and
it was agreed that action would be taken in those areas for which
it believed improved processes could be introduced.
c) Senior Independent Director
Paul Manduca as the Senior Independent Director (SID) is available
to shareholders as an alternative to the Chairman, CEO and the
Group Finance Director. The SID ensures that he is available to meet
shareholders during the year and reports any relevant findings to
the Board or Chairman. He also chaired the Nomination Committee
when it was considering the recruitment of the Deputy Chairman.
b) Performance evaluation
In February 2007, an independent assessment was conducted to
evaluate the performance of the Board, its committees and its
Directors. The results of this were presented to the Board in March
2007. This confirmed that Board members felt that good progress
had been made, and that the Board was embracing the right
d) Non-Executive Directors
The Non-Executive Directors provide a varied range of skills and
experience to the Group. The Board is satisfied that Sir Ian Gibson
was independent at the time of appointment and all other Non-
Executive Directors remain independent as defined by the
Combined Code.
Morrisons annual report and financial statements 2008 37
considers the strategic development of the Group’s manufacturing
and distribution functions.
Committees of the Board
The principal committees of the Board are the Audit, Remuneration
and Nomination Committees.
Name
Marc Bolland
Brian Flanagan
Sir Ian Gibson
Paul Manduca
Sir Ken Morrison
Susan Murray
Nigel Robertson
Committee membership
Nomination Audit Remuneration
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The Directors attended the following numbers of Board and
Committee meetings:
Number of meetings
Marc Bolland
Brian Flanagan
Sir Ian Gibson
Mark Gunter
David Hutchinson
Martyn Jones
Paul Manduca
Sir Ken Morrison
Susan Murray
Roger Owen
Richard Pennycook
Nigel Robertson
6
12
5/6
11/12
3/4
5
5/5
5/5
1/1
Board Nomination Audit Remuneration
16
16/16
15/16
4/5
16/16
7/8
13/14
15/16
15/16
16/16
15/16
16/16
14/16
5/5
4/5
5/5
10/12
12/12
9/12
5/5
4/6
6/6
6/6
The Company Secretary organises the appropriate level of insurance
cover for Directors to defend themselves against legal claims and
civil actions. The level of cover is currently £50m in aggregate.
a) Nomination Committee
The current membership of the Nomination Committee is shown in
the table above detailing Board and Board committee membership.
Sir Ian Gibson was appointed as a member on 17 September 2007.
During the year, the Committee put forward, for approval by the
Board, the appointment of Martyn Jones as Group Trading Director
and Sir Ian Gibson as Non-Executive Deputy Chairman. Martyn Jones
was appointed to the Board on 8 March 2007, and Sir Ian Gibson on
1 September 2007.
The activities of the Committee are focused on recruiting a Non-
Executive Director with recent and relevant financial experience.
The executive search agency, Egon Zehnder, is employed to identify
candidates which the Nomination Committee shortlists. Interviews
are conducted by the Nomination Committee and meetings
organised with other Executive Directors if appropriate, before a
recommendation is made to the Board.
The Committee’s terms of reference are subject to an annual review
and are available on request, and on the Group’s website
www.morrisons.co.uk.
>> has been employed by the Group within the last five years,
>> has had a material business relationship with the Group within
the last three years,
>> receives remuneration other than Directors’ fees,
>> has close family ties with any of the Group’s advisors, Directors
or senior employees,
>> holds cross-directorships or has significant links with other
Directors through involvement in other companies or bodies,
>> represents a significant shareholder,
>> has served on the Board for more than nine years.
All Non-Executive Directors fulfilled the commitment of their
engagement letters to provide a minimum time commitment based
on one day per month attendance of meetings, attendance at the
Annual General Meeting (AGM), Board away days and site visits,
plus adequate preparation time. No Non-Executive Directors hold
other positions that mean that they will not be able to fulfil these
commitments or contribute to the governance and operations of
the Group.
e) Board responsibilities
The Board is responsible for setting and approving the strategy and
key policies of the Group, and for monitoring the progress towards
achieving these objectives. It monitors financial performance,
critical operational issues and risks. The Board also approves all
circulars, listing particulars, resolutions and correspondence to
the shareholders including the Annual report, half yearly financial
report and interim management statements. The formal schedule
of matters reserved for the Board remains unaltered and further
details are available in the Investor Relations section of the Group’s
website www.morrisons.co.uk.
Operating Boards
The CEO has restructured the previous Executive Board and other
Operating Boards into three bodies. The CEO and the Group Finance
Director are members of all the following:
a) Executive Board
The Executive Board comprises four Executive Directors who oversee
the day-to-day direction of the retail business. The Executive Board
has met 16 times through the year. Examples of the matters brought
to the Executive Board include store and product performance, brand
management, food safety, marketing initiatives and the Group’s
corporate social responsibilities.
b) Property Board
The Property Board consists of four Executive Directors and has met
monthly since its formation. This Board has oversight of the strategic
development and operational management of the Group’s property.
Matters brought to this Board include development of new stores
and facilities, refurbishments and extensions.
c) Manufacturing & Distribution Board
The Manufacturing & Distribution Board comprises two Executive
Directors, the Manufacturing Director, the Distribution Director
plus three other senior executives. This body has met monthly and
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38 Morrisons annual report and financial statements 2008
Corporate governance report continued
b) Remuneration Committee
The current membership of the Remuneration Committee is
shown in the table above detailing Board and Board committee
membership. Sir Ian Gibson was appointed as a member on
17 September 2007. The Committee’s terms of reference are
subject to an annual review and are available on request and on
the Group’s website www.morrisons.co.uk.
During the year, the Committee has continued to reshape
remuneration packages to make them more performance related
and to ensure the Group’s ability to recruit, retain and motivate high
calibre senior executives. This has included the introduction of a
competitive suite of annual and long term incentives. The Long Term
Incentive Plan ‘LTIP’ was granted approval at the AGM in May 2007.
The initial grant under the LTIP was made on 24 May 2007.
During the year, the Committee received advice from its
appointed advisers New Bridge Street Consultants LLP (NBSC) on
all remuneration related matters, Jardine Lloyd Thompson in respect
of pensions, and Ashurst in respect of Executive Directors’ contracts.
Since his appointment in June 2007, the Group Human Resources
Director has also materially assisted the Committee in its
deliberations.
During the year, NBSC and Hay Group provided advice on incentive
arrangements for staff.
c) Audit Committee
The Board has delegated, to the Audit Committee, the responsibility
for reviewing on its behalf:
>> the integrity of financial reports,
>> the effectiveness of the Group’s internal control and risk
management systems,
>> the independence of the external auditors.
The Audit Committee’s remit has not changed during the year.
Full terms of reference are available on request and on the Group’s
website www.morrisons.co.uk.
The Audit Committee regularly considers the professional
development needs of its members, and whether adequate
technical information is being provided. Where necessary it will
seek independent external advice at the Group’s expense, with
such arrangements made through the Company Secretary. Whilst
the Audit Committee remains short of a member with recent and
relevant financial experience, the Company Secretary has retained,
at the request of the Audit Committee Chairman, the services of
PricewaterhouseCoopers LLP to advise the Audit Committee at
relevant times during the year.
There has been no change in the composition of the Audit
Committee during the year and the roles of the members also
remain unchanged. The Chairman, the CEO, the Group Finance
Director, the Head of Risk and Internal Audit and other finance
department representatives have attended meetings by invitation.
i) Overview of actions taken by the Audit Committee in
discharging its duties
The Committee has received and reviewed reports and presentations
from senior management to fulfil its terms of reference. To meet
its responsibilities in this respect the Committee considered:
>> interim and preliminary results announcements and interim
management statements,
>> the accounting principles, policies and practices adopted in
the Group’s financial statements,
>> the potential effects of tax and pensions accounting and other
significant judgmental and complex accounting issues dealt
within the accounts,
>> the impact of litigation and contingent liabilities on the Group.
The Audit Committee oversees the Group’s relationship with the
external auditors. To fulfil its responsibilities in respect of the
independence and effectiveness of the external auditors, the
Committee reviewed:
>> the terms, areas of responsibility, duties and scope of the external
auditors as set out in the engagement letter,
>> the external auditors work plan for the Group and its subsidiaries,
>> the audit fee and the extent of non-audit services provided by
the external auditors.
The Committee reviewed the letter from KPMG Audit Plc
confirming its independence and objectivity. The Board has a policy
on the engagement of the external auditors to supply non-audit
services, and the Committee reviewed the scope of non-audit
services provided by the external auditors to ensure that there
was no impairment of objectivity. Private meetings are held with
the external auditors, without management present. The purpose
of these meetings is to understand their views on the control and
governance environment and management’s effectiveness within it.
ii) Internal control
The Board is responsible for setting a system of internal control for
the Group and reviewing its effectiveness. The control system is
intended to manage rather than eliminate the risk of not meeting
the Group’s strategic objectives. Any such system can only provide
reasonable, not absolute, assurance against material misstatement
or loss.
The Board delegates to the Audit Committee the review of the
effectiveness of the Group’s internal controls and risk management
systems. During the year the Committee did this by:
>> receiving and considering regular reports from the internal audit
function on the status of internal control and risk management
systems across the Group. The Committee also reviewed the
department’s findings, annual plan and the resources available
to it to perform its work,
>> reviewing the external auditor’s management letters on internal
financial control,
>> seeking reports from senior management on the effectiveness
of the management of key risk areas,
>> monitoring the adequacy and timeliness of management’s
response to identified audit issues.
Specific matters that were considered by the Committee or the
Board included the supply of contaminated fuel, and the temporary
closure in Paisley of one store’s delicatessen counter. In both cases
the business moved quickly to reduce the effect on our customers
and to resume normal business.
During the year, the Head of Risk and Internal Audit made
recommendations to the Board that introduced a regular process
of formal risk assessment as an integral part of planning and review
for business operations and major projects. These recommendations
were accepted by the Board. To support the Board’s review, the Head
of Risk and Internal Audit is introducing to the Group a new, formal
and continual process for identifying, evaluating and managing the
significant risks faced by the business.
The Board is satisfied that a continual process for identifying,
evaluating and managing significant risks has been in place for
the financial year and up to the date of this Annual report. To date,
no material financial problems have been identified that would
affect the results reported in these financial statements. The Board
confirms that if significant failings or weaknesses had been identified
during this review the Board would have taken the necessary steps
to remedy them.
Shareholder relations
The CEO and the Group Finance Director meet regularly with
analysts and institutional shareholders. The Investor Relations
Director also maintains a programme of work that reports to the
Board the requirements and information needs of institutional and
major investors. This is part of the regular contact that the Group
maintains with its institutional shareholders. All Directors, Executive
and Non-Executive attend the AGM. The Chairs of the Audit,
Nomination and Remuneration Committees are available to answer
any questions. Additionally, the Group’s brokers sought independent
feedback from investors following the annual and interim results in
2007. This feedback was reported to the Board.
Morrisons annual report and financial statements 2008 39
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40 Morrisons annual report and financial statements 2008
Directors’ remuneration report
The Group is required by the Companies Act 1985 to prepare a
Directors’ remuneration report for the 52 weeks ended 3 February
2008 and put that report to a shareholder vote. A resolution to
approve this report will be proposed at the Annual General Meeting
(AGM) of the Company to be held on 5 June 2008.
The auditors are required to report on part of the Directors’
remuneration report and to state whether in their opinion that part
of the report has been properly prepared in accordance with the
Companies Act 1985. The report has therefore been divided into
separate sections for audited and unaudited information.
Unaudited information
The members of, and advisors to the Remuneration Committee are
laid out on pages 37 and 38 of the Corporate governance report in
the section titled Remuneration Committee.
Remuneration policy
Two years ago, the Remuneration Committee decided that it wished
to reshape remuneration packages to make them more performance-
related and to ensure that the Group is able to recruit, retain and
motivate high calibre senior executives that are key to the long term
growth of the business. Since then, this has been progressively
achieved by:
salaries in the context of fully competitive total packages with
a substantial proportion being subject to the performance of the
business and individuals. The Remuneration Committee will continue
to have regard to the following when reviewing salary levels:
>> the rates for similar roles in comparator companies, both direct
retail competitors and more generally in UK-based companies
of a similar size and complexity,
>> the performance of the individual concerned, together with any
change in responsibilities that may have occurred,
>> avoiding the automatic ratcheting effects of following ‘median’
or ‘upper quartile’ levels of salary derived from comparator
company analyses,
>> pay quantum and structure throughout the Company.
Executive Director base salary levels, with effect from 1 February
2008, are as follows:
Marc Bolland
Mark Gunter
Martyn Jones
Roger Owen
Richard Pennycook
£757,050
£540,750
£425,000
£494,400
£519,120
>> positioning base salaries around the mid-market,
>> operating a competitive suite of annual and long term incentives,
so that a substantial proportion of total remuneration is now
subject to performance and so that total remuneration packages
are competitive against the market,
On 1 February 2008, Marc Bolland, Mark Gunter and Richard
Pennycook each received an increase of 5% and Martyn Jones
received an increase of 6.25%. Roger Owen did not receive an
increase in base salary given that he had announced his retirement
at the time of the salary review date.
>> replacing contracts incorporating a two times annual
compensation entitlement with new one year service agreements,
Benefits include health insurance, transport costs and
telephone expenses.
>> limiting pensionable pay to base salary only. Whilst profit
share payments are currently pensionable for all pension scheme
members, Executive Directors are no longer eligible to participate
in the profit share arrangements.
Fixed versus variable remuneration
A substantial proportion of the Executive Directors’ pay is now
performance related. The table below demonstrates the balance
between fixed and performance-related pay for the Chief Executive
at target and maximum performance levels. Maximum performance
assumes the achievement of maximum bonus and full vesting of
shares under the LTIP.
Performance related versus fixed remuneration
%
Target
Maximum
0
10
20
30
40
50
60
70
80
90
Fixed pay (base salary and pension, excluding benefits)
Bonus
100
LTIP
Base salary and benefits
Base salary is a fixed cash sum payable monthly in arrears. Mindful
of the need to set the right balance in Executive Directors’ packages,
the policy has continued to move towards setting mid-market
Annual bonus
The Remuneration Committee operated an Annual bonus plan for
Executive Directors and other senior managers during 2007/08.
For 2007/08 the maximum bonus was 100% of base salary,
with measurement based upon profit before taxation (excluding
exceptionals) and personal objectives, as set out below:
Measures
Profit before tax, excluding exceptionals
Personal objectives
% of bonus potential
80%
20%
No bonus was payable for the achievement of personal objectives
unless the minimum profit targets had been achieved.
Details of the actual amounts paid for 2007/08 are set out in
the Directors’ emoluments table on page 43.
The 2008/09 Annual bonus plan for the Executive Directors will
be similar in design to the plan for 2007/08. It will be based upon
a combination of profit before exceptionals and tax and personal
objectives in the ratio of 80:20. The maximum bonus for Executive
Directors will remain at 100% of base salary. The plan will continue
to be operated for other senior managers at reduced levels. Specific
targets have not been disclosed as they are considered to be
commercially confidential but they will be demanding and require
performance significantly better than plan for full payout.
Morrisons annual report and financial statements 2008 41
Executive Directors are no longer eligible to participate in profit-
sharing arrangements.
All Employee Sharesave Scheme
The Group operates a Sharesave Scheme approved by HM Revenue
& Customs under which all eligible employees, including Executive
Directors, may be invited to participate on similar terms. The
Scheme allows participants to save up to a maximum of £250 each
month for a fixed period of three or five years. At the end of the
savings period, individuals may use their savings plus a tax-free
bonus to buy ordinary shares in the Group at a discount capped at
up to 20% of the market price, set at the launch of each Scheme.
Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) was approved at the AGM
in May 2007. The plan was designed to reward management for
achieving the Group’s strategic objectives and to provide an
appropriate level of long term performance pay.
Each year, participants receive conditional awards of shares in the
Group which will normally vest three years after they are awarded,
subject to the satisfaction of performance conditions measured over
a three year period and continued service. The plan’s individual
annual limit is 300% of salary (face value of shares).
Initial awards were made shortly after the 2007 AGM to 644
participants, including Executive Directors, their direct reports and
management tiers below (including supermarket store managers).
An award of shares worth 250% of salary was made to the Chief
Executive, with 200% of salary for the other Executive Directors.
For tiers below Executive Director, awards were made at the 100%
or lower levels, dependant upon seniority. It is intended that the
next awards will be granted in April 2008 shortly after the 2007/08
Preliminary announcement.
Performance under the plan is measured over three years.
Performance measures are 75% based on earnings per share (EPS)
and 25% based on like-for-like non-fuel sales growth. These
performance metrics were selected for the following reasons:
>> they are directly linked to the objectives set out in the Group’s
strategy – improving EPS and sales performance reflects the need
for basic profit growth and should flow through to increased
shareholder value,
>> there is a clear line of sight between performance and reward,
>> they are relatively easy to understand and communicate.
To guard against the possibility of individuals receiving value from
the LTIP as a result of sales targets being hit but EPS targets being
missed, no awards can vest under the sales targets unless threshold
EPS targets have been met.
For the awards intended to be granted in April 2008, the following
targets will apply. 25% of the EPS related component of the award
will vest if the Group’s EPS in 2010/11 is 19.6p per share rising on
a pro rata basis until 100% vests for an EPS of 23.5p per share.
25% of the sales growth related component will vest if the Group’s
like-for-like non-fuel sales grow by 3% per annum compound rising
on a pro rata basis until there is 100% vesting for growth of 5% per
annum compound.
EPS will be adjusted to exclude items considered exceptional and
property gains and losses. The Group will report EPS in this way in
its Annual report. Like-for-like sales is defined as the reported sales
from existing space (excluding VAT), less total fuel sales.
The Remuneration Committee considers that the targets set out
above are demanding in the context of the Group’s circumstances
and take into account the prospects for growth.
Share ownership guidelines
In conjunction with the introduction of the LTIP, the Group
operates share ownership guidelines for Executive Directors. Under
the guidelines, Directors are expected to retain 50% of vested LTIP
awards (net of tax) until such time as they own shares worth 100%
of their salary after which point they will be expected to retain, as a
minimum, this level of holding.
Pension arrangements
The Executive Directors, with the exception of Marc Bolland,
participate in the Group’s Defined Benefit Pension Scheme.
Pension entitlements accrue at the rate of 1 ⁄ 30th for each year,
with a maximum pension of 2 ⁄ 3rds pensionable salary at age 62.
Pensionable pay is annual salary as at 6 April each year plus profit
share earned in the tax year just ended, although going forward,
Executive Directors no longer participate in this arrangement.
In the case of members joining the pension scheme prior to 1 June
1989, the pension payable is currently based on final pensionable
pay calculated as the average of the highest three years pensionable
pay in the Director’s last 10 years of employment. For members
joining the scheme after 31 May 1989, final pensionable pay
is currently the lower of the average of the highest three years
pensionable pay in the Director’s last 10 years of employment
and the maximum earnings limit which in 2007/08 is £112,800.
Roger Owen joined the pension scheme prior to 1 June 1989.
Mark Gunter, Richard Pennycook and Martyn Jones became
members subsequent to that date. Sir Ken Morrison is in receipt of a
pension from the scheme, in addition to his emoluments shown on
page 43. His pension amounted to £181,702 in the period.
The expected cost of providing retirement benefits to the Directors
is assessed in accordance with the advice of independent qualified
actuaries. The pension arrangements include life assurance cover
whilst in employment, an entitlement to a pension in the event of
ill health or disability and a pension for the spouse and any
dependant children on death.
No contributions were paid or are payable by any Directors under
the terms of the scheme. There are no enhanced early retirement
rights. Post-retirement pensions increase in line with the annual
increase in the retail price index or by 5% per annum compound,
whichever is the lower.
Richard Pennycook, Mark Gunter and Martyn Jones, who were all
subject to the earnings cap in place before April 2006 which has
been retained for benefits accruing thereafter, receive a cash
supplement of 10% of salary in excess of the cap. Marc Bolland is
not in the pension scheme but instead receives a salary supplement
of 30% of salary.
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A
42 Morrisons annual report and financial statements 2008
Directors’ remuneration report continued
The outcome of the review of the Defined Benefit Pension Scheme
is described on page 31 of the Financial review.
Performance graph
The following graph shows the Group’s total shareholder return
(TSR) compared against the TSR of the FTSE 100 and FTSE Food &
Drug Retailers indices. These indices have been selected as being
appropriate in giving a broad equity view and the Group is a
constituent of both indices.
Total shareholder return
Source: Thomson Financial
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1
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250
200
150
100
50
2 Feb 03
1 Feb 04
30 Jan 05
29 Jan 06
04 Feb 07
3 Feb 08
Wm Morrison
FTSE Food and Drug Retail
FTSE 100
Directors’ contracts
a) Executive Directors
All Executive Directors have a service agreement without expiry
dates. These contracts can be terminated by either the Group or
Director giving 12 months’ notice.
Following a review of service contracts for Executive Directors,
the Remuneration Committee adopted a new model contract which
provides that any compensation provisions for termination without
notice will only extend to 12 months of salary, benefits and pension
(which may be payable in instalments and subject to mitigation) and
agreed that going forward, all new Director contracts would be on
that basis. The model contract does not contain change of control
provisions. This policy was applied to Marc Bolland at the time of
his recruitment and was applied to Mark Gunter, Martyn Jones and
Roger Owen on 5 April 2007. Richard Pennycook’s contract provides
that he has an obligation to mitigate his loss in the event of
termination in breach of contract.
Name of Director
M Bolland
M Gunter
M Jones
K Morrison
R Owen
R Pennycook
Date of contract
7 Jun 2006
5 Apr 2007
5 Apr 2007
1 Sep 20051
5 Apr 2007
23 May 2006
Notice period from
Company (months)
12
12
12
12
12
12
1 The date of the contract for Sir Ken Morrison is collectively based on letters of
appointment dated 23 January 2003, 23 June 2005 and 1 September 2005 (the latter
of these dates is displayed above).
The date of contract for D Hutchinson, who resigned from the
Board with effect from 30 June 2007, was collectively based on
letters of appointment dated 23 January 2003, 23 June 2005
and 1 September 2005.
Sir Ken Morrison will retire from the Board on 13 March 2008.
Roger Owen tendered his resignation on 25 October 2007 and will
leave the business at the end of the current financial year. On the
basis that full notice will be served, there will be no termination
payments made in relation to his contract. Roger Owen will
participate in the Annual bonus for 2008/09 and will receive an
award under the LTIP in April 2008. In line with best practice, LTIP
awards that have been granted to Roger Owen will vest three years
from grant, subject to the satisfaction of performance conditions,
with amounts pro-rated to reflect the period of time between grant
date and leaving date.
Subject to Board approval, Executive Directors are permitted to
accept outside appointments on external boards or committees as
long as these are not deemed to interfere with the business of the
Group. Any fees received in respect of these appointments are
retained by the Executive Directors concerned.
b) Non-Executive Directors
Brian Flanagan, Paul Manduca, Susan Murray and Nigel Robertson
have been appointed for a three year period from their dates of
appointment, unless otherwise terminated earlier by, and at the
discretion of, either party upon one month’s written notice.
On 1 September 2007, Sir Ian Gibson was appointed to the Board as
Non-Executive Deputy Chairman. Following the retirement of Sir Ken
Morrison, Sir Ian Gibson will be appointed Non-Executive Chairman.
For the period as Non-Executive Deputy Chairman, Sir Ian Gibson
receives an annual equivalent fee of £125,000. Following appointment
as Non-Executive Chairman, Sir Ian Gibson will receive an annual fee of
£300,000. Sir Ian Gibson has been appointed for a three year period
from date of appointment unless otherwise terminated earlier by,
and at the discretion of, either party upon 12 months’ written notice.
Name of Director
B Flanagan
I Gibson
P Manduca
S Murray
N Robertson
Date of
most recently
Current term amended letter
of appointment
commenced
7 Jul 2005
1 Jul 2005
1 Sep 2007
1 Sep 2007
21 Oct 2005
6 Sep 2005
21 Oct 2005
1 Jul 2005
7 Jul 2005
1 Jul 2005
Expected date
of expiry of
current term
1 Jul 2008
1 Sep 2010
6 Sep 2008
1 Jul 2008
1 Jul 2008
The Board makes the initial appointment of Directors who are then
subject to re-election by the shareholders at the first AGM following
appointment and thereafter at three yearly intervals.
The remuneration of the Non-Executive Directors (other than the
Chairman) is a matter for the Chairman and Executive members
of the Board and is reviewed from time-to-time with regard to the
time commitment required and the level of fees paid in comparable
companies. Non-Executive Directors receive no benefits from their
office other than fees and are not eligible to participate in the
Group’s pension arrangements.
The current levels are as follows:
Name of Director
B Flanagan
I Gibson
P Manduca
S Murray
N Robertson
Total
Committee
Base Chairmanship
£000
£000
–
45
1251
–
10
45
10
45
–
45
20
305
Senior
Independent
Director
£000
–
–
10
–
–
10
Total
£000
45
125
65
55
45
335
1 Following Sir Ian Gibson’s appointment as Non-Executive Chairman from 14 March
2008, this annual fee will increase to £300,000.
Morrisons annual report and financial statements 2008 43
Audited information
Directors’ emoluments and pension entitlements
The emoluments of the Directors were as follows:
Name of Director
Chairman
K Morrison
Executive Directors
M Bolland
M Gunter
D Hutchinson3
M Jones1
R Owen
R Pennycook
Non-Executive Directors
B Flanagan
I Gibson2
P Manduca
S Murray
N Robertson
Former Directors
M Melnyk4
R Stott5
D Jones6
Total
Directors’
salaries/fees
£000
Benefits
in kind
£000
Pension
supplement
£000
Profit
share
£000
Annual
bonus
£000
Integration
bonus
£000
Total
year to
3 Feb 2008
£000
Total
year to
4 Feb 2007
£000
675
721
515
256
355
494
494
45
52
65
55
45
–
–
–
3,772
40
45
35
12
28
35
128
–
–
–
–
–
–
–
–
323
–
21
217
41
–
23
–
38
–
–
–
–
–
–
–
–
319
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
–
706
502
–
380
480
485
–
–
–
–
–
–
–
–
2,553
–
736
736
–
–
–
1947
–
–
–
–
–
–
–
–
–
–
194
1,689
1,093
268
980
1,009
1,145
45
52
65
55
45
871
990
910
–
914
1,483
58
–
56
53
43
–
–
–
7,182
3,614
2,149
29
11,906
Appointed to the Board with effect from:
Resigned from the Board with effect from:
1 9 March 2007.
2 1 September 2007.
3 30 June 2007.
4 6 December 2006.
5 29 September 2006.
6 30 June 2006.
7 Following the acquisition of Safeway in March 2004, the Group implemented a one-off cash-based incentive scheme to below
Board executives who would play a key role in the integration process. Martyn Jones’ award, which was granted on 1 September
2004 and which vested on 1 September 2007, was subject to continued employment with the amount ultimately paid being
determined by the Group’s share price on the date the award vested.
In addition to the emoluments detailed above, a charge of £1.5m
has been made to the income statement in respect of Directors’
share-based payments.
Benefits in kind comprise relocation costs and disturbance allowances
for Richard Pennycook (negotiated at the time of his recruitment),
transport costs, health insurance and telephone expenses.
None of the Directors has a material interest in any contract
significant to the Group’s business.
The Executive Directors each received 100% of the potential
annual bonus payable in respect of profit before tax. The percentage
of potential bonus payable in respect of personal objectives was
as follows:
Executive Director
M Bolland
M Gunter
M Jones
R Owen
R Pennycook
% of bonus payable – personal objectives
89
89
75
86
90
For the period 2007/08 Marc Bolland received cash fees from
Manpower Inc. to a sterling equivalent of £9,500, and deferred and
restricted stock worth a sterling equivalent of £80,000 for his role
as Non-Executive Director at Manpower Inc.
Following cessation of employment on 29 September 2006, Robert
Stott agreed to work on a consultancy basis for the Group from
1 November 2006 for a minimum of 156 days over the following
12 month period. During that period, he was responsible for co-
ordinating the Group’s response to the Competition Commission
inquiry into the Grocery sector. Following completion of the initial
consultancy period, Robert Stott’s engagement was extended, for
10 days per month, until the Competition Commission’s final
report is issued. In the event that the report has not been issued by
29 September 2008, the period of engagement will once again be
subject to review. Consultancy fees paid to Robert Stott amounted
to £515,338 (including VAT) for the period from 4 February 2007
to 3 February 2008.
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44 Morrisons annual report and financial statements 2008
Directors’ remuneration report continued
The following Directors had accrued entitlements under defined benefit schemes as follows:
Increase in
Transfer
accrued
value of the
pension
increase
(excluding
inflation) in
in accrued
year ended pension during
the year
3 Feb 2008
£000
£000
Accrued
pension at
4 Feb 2007
£000
Accrued
pension at
3 Feb 2008
£000
Transfer value
of accrued
pension at
4 Feb 2007
£000
Transfer value
of accrued Movement in
transfer value
pension at
3 Feb 2008 during the year
£000
£000
42
180
26
296
5
549
3
30
4
14
3
54
36
4591
40
226
29
790
47
2101
30
321
8
616
505
2,918
296
4,856
46
8,621
491
3,561
319
5,278
70
9,719
(14)
643
23
422
24
1,098
Name
Executive Directors
M Gunter
D Hutchinson
M Jones
R Owen
R Pennycook
Total
1 As at 30 June 2007.
Share awards
As at 3 February 2008, Directors’ interests under LTIPs and one-off deferred share awards (Richard Pennycook) were as follows:
Date
of grant
24 May 2007
24 May 2007
Share price
on grant
313.75p
313.75p
As at
4 Feb 2007
–
–
–
Shares
granted
294,256
557,445
851,701
As at
3 Feb 2008
294,256
557,445
851,701
Vesting
date
1 Sep 2009
24 May 2010
M Bolland
M Gunter
M Jones
LTIP
LTIP
LTIP
LTIP
Notes
1
2
2
2
2, 3
24 May 2007
313.75p
24 May 2007
24 Oct 2007
313.75p
296.75p
R Owen
LTIP
2, 4
24 May 2007
313.75p
R Pennycook
Deferred share award
LTIP
5
2
1 Apr 2007
(notional grant date)
24 May 2007
308.75p
313.75p
–
–
–
–
–
–
–
318,540
318,540
24 May 2010
168,857
78,553
247,410
168,857
78,553
247,410
24 May 2010
24 Oct 2010
305,798
305,798
24 May 2010
309,073
309,073
1 Apr 2009
305,798
614,871
305,798
614,871
24 May 2010
1 Following shareholder approval at the 2007 AGM, Marc Bolland received a one-off LTIP reflecting the five months worked from appointment in 2006/07, with the value of shares
equal to 5/12ths of 250% of £700,000 (his salary on 1 September 2006) based on the average closing share prices on the day of the announcement of the interim results for 2006/07
(declared on 21 September 2006) and the following four business days (247.80p). This award was treated as having been made on 1 September 2006 (when Marc Bolland joined the
Group) and it vests, subject to performance and continued employment, on 1 September 2009 (i.e. three years after it was deemed to have been awarded). This award is not
pensionable.
Vesting of the award on 1 September 2009 will be based on performance over the period ending with 2008/09, to reflect the position which would have applied had he received
an award during the 2006/07 financial year. 25% of the EPS related part of the award will vest if the Group’s EPS is 13.3p per share in 2008/09, rising on a pro rata basis until full
vesting is achieved at 16p per share. 25% of the sales growth related part of the award will vest if the Group’s like-for-like non-fuel sales grow at 3% per annum (p.a.) compound over
2007/08 and 2008/09, rising on a pro rata basis until full vesting is achieved for growth of 5% p.a. compound.
2 LTIP awards granted on 24 May 2007 and 24 October 2007 are subject to three year performance targets. Performance measures are 75% based on EPS and 25% based on like-for-
like non-fuel sales growth. 25% of the EPS-related component of the award will vest if the Group’s EPS in 2009/10 is 15.8p per share rising on a pro rata basis until 100% vests for an
EPS of 19p per share. 25% of the sales growth-related component will vest if the Group’s like-for-like non-fuel sales grow by 3% p.a. compound rising on a pro rata basis until there is
100% vesting for growth of 5% p.a. compound. No awards can vest under the sales targets unless threshold EPS targets have been met.
3 Martyn Jones received an additional LTIP award of 78,553 shares in October 2007 to reflect an increase in salary upon joining the Board.
4 Following Roger Owen tendering his resignation on 25 October 2007, LTIP awards will vest three years from grant, subject to the satisfaction of performance conditions and time
pro-rating to reflect the shorter period of time between grant date and leaving date.
5 To fulfil promises made to Richard Pennycook at the time of his recruitment, as reported in last year’s Remuneration Report, the annual bonus award made to him for 2006/07
included, in addition to the cash element, a deferred share award as a result of no LTIP being adopted by shareholders in the 2006/07 financial year. That award was in shares of
the Group with a value equal to £950,400 (two times the amount of the cash bonus earned for the 2006/07 financial year) with the number of shares calculated by reference to the
average share price over the five dealing days prior to the deemed date of the award (1 April 2007) which was 307.5p. The deferred share award will normally vest on 1 April 2009,
provided Richard Pennycook is then still an employee of the Group. Upon vesting, a payment will also be made in cash or shares, as determined by the Remuneration Committee,
equivalent to the dividends which would have been payable on the shares over the two year deferral period (or such shorter period if awards vest earlier). This award is not
pensionable.
Morrisons annual report and financial statements 2008 45
Share options
Options granted to Directors to acquire ordinary shares in the Group which are still outstanding on 3 February 2008 or on ceasing
to be a Director are as follows:
Number of options
during the 52 weeks ended
At
4 Feb 2007
–
–
Granted
–
–
Exercised
–
–
Lapsed
–
–
At
3 Feb 2008
–
–
Exercise
price
on day of
exercise
Market price Gain on
exercise
£000s
–
–
Exercisable
From
To
260,000
220,000
5,9171
485,917
260,0002
220,0002
480,000
50,000
88,000
5,9171
143,917
200,000
150,000
260,000
500,000
1,110,000
150,000
260,000
220,000
630,000
–
–
–
–
–
–
–
–
– 260,000
– 220,000
– 480,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 150,000
– 260,000
– 220,000
– 630,000
–
–
3,8251
3,825
–
–
–
–
–
–
–
–
–
–
–
–
–
260,000
220,000
5,917
485,917
175p
222p
158p
–
–
175p 320.10p
222p 278.25p
50,000
88,000
5,917
143,917
200,000
–
150,000
–
260,000
–
500,000
–
– 1,110,000
187p
175p
158p
187p
209p
175p
222p
–
–
–
–
–
–
209p 313.72p
175p 313.72p
222p 313.72p
–
–
–
–
3,825
3,825
247p
2 Apr 2006
2 Apr 2013
12 Nov 2007 12 Nov 2014
1 Jan 2010
1 July 2009
2 Apr 2006
2 Apr 2013
12 Nov 2007 12 Nov 2014
5 Apr 2004
2 Apr 2006
1 July 2009
5 Apr 2011
2 Apr 2013
1 Jan 2010
5 Apr 2004
5 Apr 2005
2 Apr 2006
5 Apr 2011
5 Apr 2012
2 Apr 2013
12 Nov 2007 12 Nov 2014
5 Apr 2005
2 Apr 2006
5 Apr 2012
2 Apr 2013
12 Nov 2007 12 Nov 2014
1 July 2010
1 Jan 2011
–
–
–
–
377
124
501
–
–
–
–
–
–
–
–
–
157
361
202
720
–
–
Date of grant
M Bolland
M Gunter
2 Apr 2003
12 Nov 2004
21 Apr 2006
D Hutchinson
2 Apr 2003
12 Nov 2004
M Jones
5 Apr 2001
2 Apr 2003
21 Apr 2006
K Morrison
5 Apr 2001
5 Apr 2002
2 Apr 2003
12 Nov 2004
R Owen
5 Apr 2002
2 Apr 2003
12 Nov 2004
R Pennycook
18 May 2007
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1 Options granted under the Sharesave scheme.
2 Options outstanding on ceasing to be a Director.
The 1995 Executive Share Option Scheme terminated at the end of its 10-year life on 25 May 2005 and no grants have been
made under it since November 2004.
The ordinary share mid-market price ranged from 246.75p to 335.25p and averaged 300.33p during the period. The price on
3 February 2008 was 299.00p compared to 300.75p on 4 February 2007.
The performance condition attached to options under the Executive Share Option Scheme (which has been satisfied) is as follows:
The operating profit of the Group, as detailed in the audited report and financial statements, must increase by at least 20% between
the base year and its third or succeeding anniversary. Once an option is exercisable it will remain so until it lapses (in accordance with
the rules of the Scheme) even if on a future anniversary the operating profit does not exceed the base year by 20%.
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46 Morrisons annual report and financial statements 2008
Directors’ remuneration report continued
Dilution and share usage
Awards under the Group’s share option and SAYE schemes are satisfied by the issue of new shares within the limits agreed by shareholders
when the plans were approved. These limits comply with the Association of British Insurers’ guidelines restricting dilution from employee
share plans. The overall limits under the guidelines are that no more than 10% of a Group’s issued share capital may be used in any 10-year
period. Up to 5% may be used for executive share plans. As at 3 February 2008, the Group’s share usage against these limits was 4.3% and
1.5% respectively.
It is currently intended that LTIP awards be satisfied by market purchased shares which are held in an Employee Benefit Trust.
Directors’ interests
The interests of the Directors and their families in the shares of the Group (including percentages where holdings are over 3%) were
as follows:
Beneficial
M Bolland
M Gunter
M Jones
K Morrison
R Owen
R Pennycook
B Flanagan
I Gibson
S Murray
P Manduca
N Robertson
Non-beneficial
K Morrison
Ordinary shares
–
38,492
18,667
111,719,552 (4.2%)
482,178
–
–
108,055
5,000
25,000
–
3 February 2008
Options to purchase
ordinary shares
–
485,917
143,917
1,110,000
–
3,825
–
–
–
–
–
Ordinary shares
–
38,492
18,471
111,719,552 (4.2%)
482,178
–
–
–
5,000
25,000
–
4 February 2007
Options to purchase
ordinary shares
–
485,917
143,917
1,110,000
630,000
–
–
–
–
–
–
159,698,208 (5.9%)
–
158,542,368 (5.9%)
–
There were no changes in the above interests in the period from 3 February 2008 to 12 March 2008.
Approval
The audited section of this report was approved by the Board of Directors on 12 March 2008 and the unaudited section was approved on
11 April 2008 and signed on its behalf by
Susan Murray
Chair of the Remuneration Committee
Directors’ report
The Directors have pleasure in presenting their report and the
Group’s audited financial statements for the 52 weeks ended
3 February 2008.
Principal activity
The principal activity of the Group is the operation of retail
supermarket stores and associated activities.
Business review
The principal companies within the Morrisons Group (the Group)
for the period under review are Wm Morrison Supermarkets PLC
and its principal subsidiaries as disclosed in note 32. A fair review
of the business and its position at the period end is required to be
laid out in the Directors’ report, as well as a review of the principal
risks and uncertainties facing the Group. The Chief Executive’s
Business review (pages 4 to 33) covers a summary of the Group’s
strategy to become the ‘food specialist for everyone’, a summary of
key performance indicators, market backdrop, review of the period
and delivery against the Optimisation Plan and a summary of the
Corporate Social Responsibility report titled ‘Taking Good Care’.
The Directors are satisfied that risks to the business are identified
and mitigated appropriately, and a summary of the most significant
risks to the achievement of the Group’s goals can be found on
page 32. The developments in governance during the period are
covered in the Corporate governance report. This report is
supported by additional commentary in the Chairman’s statement
(pages 1 and 2) and the Financial review (pages 30 to 32).
The Directors’ report is prepared for the members of the Company
and should not be relied upon by any other party or for any other
purpose. Where the Directors’ report (including all the statements
and reports mentioned above) includes forward-looking statements,
these are made by the Directors in good faith based on the
information available to them at the time of their approval of this
report. Consequently, such statements should be treated with
caution due to the inherent uncertainties, including both economic
and business risk factors, underlying such forward-looking
statements and information.
Result and dividend
The profit for the period after taxation amounted to £554m. The
Directors have declared and recommended the following dividends:
Paid interim dividend of 0.675p per share (2007: 0.625p)
Recommended final dividend of 4.125p per share
(2007: 3.375p)
£m
18
111
The final dividend, if approved by shareholders at the Annual
General Meeting (AGM), is to be paid on 6 June 2008 to ordinary
shareholders on the register of members at close of business on
2 May 2008. If the final dividend is approved by shareholders, the
total ordinary dividend for the year will be 4.8p per share.
Auditors
A resolution to reappoint KPMG Audit Plc as auditors and to
authorise the Directors to set their remuneration is to be proposed
at the forthcoming AGM.
Morrisons annual report and financial statements 2008 47
Annual General Meeting
Notice of the 2008 AGM of the Company (to be held at the
Company’s Head Office at Gain Lane in Bradford on 5 June 2008)
is sent to shareholders with the Annual review and summary
financial statement with an accompanying explanatory letter from
the Chairman. The Directors believe each of the resolutions to be
proposed at the AGM is in the best interests of the Group and
recommend shareholders to vote in favour of each of them.
Share capital
The authorised and called up share capital of the Company, together
with details of shares allotted during the year, is shown in note 23 of
the financial statements.
At the AGM of the Company held in 2007, a special resolution
was passed to renew the authority given at the AGM held on
25 May 2006 to purchase by the Company of up to 151,900,000
ordinary shares and 282,660 preference shares representing
approximately 5.7% and 10% of the issued share capital of each
class of shares respectively, at that time. This authority remained
valid on 3 February 2008. The Company has not purchased any of
its own shares pursuant to that authority which will expire at the
close of the 2008 AGM.
In addition, 9,294,872 ordinary shares were issued during the period
to employees exercising share options.
Borrowing powers
The Articles of Association of the Company restrict the borrowings
of the Company and its subsidiary undertakings to a maximum
amount equal to twice the share capital and consolidated reserves.
Substantial shareholdings
As at 12 March 2008, the Company was notified that the following
shareholders (excluding Directors) had interests in 3% or more of
the issued share capital of the Company:
Brandes Investment Partners LLC
Ameriprise Financial Inc
Legal & General Group Plc
Walter Scott & Partners Ltd
Zurich Financial Services
Number
of shares
244,843,478
131,284,252
108,358,823
107,775,155
81,286,130
% of
holding
9.2%
4.9%
4.0%
4.0%
3.0%
In addition, Mr A R Wilson has an interest in 251,432,948 ordinary
shares (9.36%), which is made up of a personal holding of 7,285
ordinary shares and 251,425,663 ordinary shares held as trustee.
Details of Sir Ken Morrison’s interest in shares together with details
of all other Directors’ interests in shares are shown on page 46.
Relating to beneficial owners of shares with ‘information rights’
Beneficial owners of shares who have been nominated by the
registered holder of those shares to receive information rights under
section 146 of the Companies Act 2006 are required to direct all
communications to the registered holder of their shares rather than
to the Company’s registrar, Capita Registrars, or to the Group directly.
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48 Morrisons annual report and financial statements 2008
Directors’ report continued
Directors
The current Directors of the Group and their biographies are
shown on pages 34 and 35.
Sir Ken Morrison will retire on 13 March 2008 and he will be
replaced as Chairman by Sir Ian Gibson.
David Hutchinson retired from the Board on 30 June 2007.
Richard Pennycook (aged 44) and Mark Gunter (aged 49) retire
by rotation, and Sir Ian Gibson (aged 61) retire at the first AGM
following his appointment. All of them have service contracts with
a rolling 12 month notice period. All of them, being eligible, offer
themselves for re-election at the AGM.
The interests of the Executive and Non-Executive Directors of the
Company and their immediate families in the shares of the Company,
along with share options, are contained in the Directors’
remuneration report set out on pages 40 to 46.
At no time during the year did any of the Directors have a material
interest in any significant contract with the Company or any of its
subsidiaries.
Political and charitable donations
During the period the Group made charitable donations amounting
to £0.1m. In addition, the Group sponsored various charities and in
the year over £1.6m was raised by customers and staff. No political
donations were made, which is Group policy.
Disclosure of information to auditors
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are each aware, there
is no relevant audit information of which the Group’s auditors are
unaware; and each Director has taken all steps that he or she ought
to have taken as a Director to make himself or herself aware of any
relevant audit information and to establish that the Group’s auditors
are aware of that information.
Going concern
After reviewing the Group’s funding arrangements, Optimisation
Plan and other medium term plans, the Directors are confident that
the Company and the Group have adequate financial resources to
continue in operational existence for the foreseeable future. The
going concern basis has continued to be adopted in the preparation
of the financial statements.
Payment to creditors
Supplier credit is an important factor in the success of the business.
The Company will, as previously acknowledged, work within the
spirit and letter of the supermarkets’ code of practice. The Company
will continue with its policy to ensure all payments are made within
mutually agreed credit terms. Where disputes arise, the Company
attempts to sort these out promptly and amicably to ensure delays
in payment are kept to a minimum. Creditor days outstanding for
the Company at 3 February 2008 were 32 (2007: 27), and for the
Group creditor days were 34 (2007: 31).
Health and safety policy
The Group’s intention, so far as is reasonably practicable, to ensure
the health, safety and welfare of all its employees, customers,
contractors and visitors to its premises. In order to achieve this,
a comprehensive health and safety manual is in place for each
division of the Company and subsidiary companies within the
Group. Each health and safety manual contains the policy and
procedures for complying with the Health and Safety at Work Act
1974, including the provision, based on risk assessment, of safe
working practices for all work activities across the Group. The
Group’s health and safety policy is approved by the Executive Board.
The Group has adopted the national targets set by the Health and
Safety Commission for the reduction of workplace accidents and
work-related ill health, and is on course to meet or exceed these
targets. Health and safety performance is monitored to ensure
continuous improvement in all areas.
Additional shareholder information
Pages 94 to 99 provide the additional information for shareholders
as required by the implementation of the EU Takeover Directive into
UK Law.
By the order of the Board
Jonathan Burke
Company Secretary
12 March 2008
Statement of Directors’ responsibilities in respect
of the Annual report and the financial statements
Morrisons annual report and financial statements 2008 49
The Directors are responsible for preparing the Annual report and
the Group and Parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements
in accordance with IFRS as adopted by the EU and applicable law
and have elected to prepare the Parent Company financial
statements in accordance with UK Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice).
The Group financial statements are required by law and IFRS as
adopted by the EU to present fairly the financial position and the
performance of the Group; the Companies Act 1985 provides in
relation to such financial statements that references in the relevant
part of that Act to financial statements giving a true and fair view
are references to their achieving a fair presentation.
The Parent Company financial statements are required by law to give
a true and fair view of the state of affairs of the Parent Company.
In preparing each of the Group and Parent Company financial
statements, the Directors are required to:
>> select suitable accounting policies and then apply them
consistently,
>> make judgments and estimates that are reasonable and prudent,
>> for the Group financial statements, state whether they have been
prepared in accordance with IFRS as adopted by the EU,
>> for the Parent Company financial statements, state whether
applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the Parent
Company financial statements,
>> prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Parent Company will continue in business.
The Directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the financial
position of the Parent Company and enable them to ensure that its
financial statements comply with the Companies Act 1985. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ report, Directors’
remuneration report and Corporate governance statement
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
>> the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair review
of the assets, liabilities, financial position and profit or loss of the
Company and its subsidiaries included in the consolidation as a
whole, and
>> the Directors’ report includes a fair review of the development of
the business and the position of the Company and its subsidiaries
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
By order of the Board
12 March 2008
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50 Morrisons annual report and financial statements 2008
Independent auditor’s report to the members of
Wm Morrison Supermarkets PLC
We have audited the Group and Parent Company financial
statements (the ‘financial statements’) of Wm Morrison
Supermarkets PLC for the 52 weeks ended 3 February 2008 which
comprise the Consolidated income statement, the Consolidated
and Parent Company balance sheets, the Consolidated cash flow
statement, the Consolidated statement of recognised income and
expense and the related notes. These financial statements have
been prepared under the accounting policies set out therein. We
have also audited the information in the Directors’ remuneration
report that is described as having been audited.
This report is made solely to the Company’s members, as a body,
in accordance with section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions
we have formed.
Respective responsibilities of Directors and auditors
The Directors’ responsibilities for preparing the Annual report
and financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRS) as adopted by the
EU, and for preparing the Parent Company financial statements and
the Directors’ remuneration report in accordance with applicable law
and UK Accounting Standards (UK Generally Accepted Accounting
Practice) are set out in the Statement of Directors’ responsibilities
on page 49.
Our responsibility is to audit the financial statements and the part
of the Directors’ remuneration report to be audited in accordance
with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements and
the part of the Directors’ remuneration report to be audited have
been properly prepared in accordance with the Companies Act 1985
and, as regards the Group financial statements, Article 4 of the IAS
Regulation. We also report to you whether in our opinion the
information given in the Directors’ report is consistent with the
financial statements. The information given in the Directors’ report
includes the information presented in the Chairman’s statement,
Chief Executive’s business review and Financial review that is cross
referred from the Business review section of the Directors’ report.
In addition we report to you if, in our opinion, the Company has
not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if
information specified by law regarding Directors’ remuneration
and other transactions is not disclosed.
We review whether the Corporate governance report reflects
the Company’s compliance with the nine provisions of the 2006
Combined Code specified for our review by the Listing Rules of the
Financial Services Authority, and we report if it does not. We are not
required to consider whether the Board’s statements on internal
control cover all risks and controls, or form an opinion on the
effectiveness of the Group’s corporate governance procedures or
its risk and control procedures.
We read the other information contained in the Annual report
and consider whether it is consistent with the audited financial
statements. We consider the implications for our report if
we become aware of any apparent misstatements or material
inconsistencies with the financial statements. Our responsibilities
do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant
to the amounts and disclosures in the financial statements and the
part of the Directors’ remuneration report to be audited. It also
includes an assessment of the significant estimates and judgments
made by the Directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the
Group’s and Company’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the financial statements and the part of the
Directors’ remuneration report to be audited are free from material
misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements and the part
of the Directors’ remuneration report to be audited.
Opinion
In our opinion:
>> the Group financial statements give a true and fair view, in
accordance with IFRS as adopted by the EU, of the state of the
Group’s affairs as at 3 February 2008 and of its profit for the year
then ended,
>> the Group financial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation,
>> the Parent Company financial statements give a true and fair
view, in accordance with UK Generally Accepted Accounting
Practice, of the state of the Parent Company’s affairs as at
3 February 2008,
>> the Parent Company financial statements and the part of the
Directors’ remuneration report to be audited have been properly
prepared in accordance with the Companies Act 1985,
>> the information given in the Directors’ report is consistent
with the financial statements.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
Leeds
12 March 2008
Consolidated financial statements
under International Financial Reporting Standards
Morrisons annual report and financial statements 2008 51
Accounting Policies
General information
Wm Morrison Supermarkets PLC is a public limited company
incorporated in the United Kingdom under the Companies Act 1985
(Registration number 358949). The Company is domiciled in the
United Kingdom and its registered address is Hilmore House,
Gain Lane, Bradford, BD3 7DL, United Kingdom.
Basis of preparation
These financial statements have been prepared for the 52 weeks
ended 3 February 2008 (2007: 53 weeks ended 4 February 2007)
in accordance with International Financial Reporting Standards
(IFRS) and International Financial Reporting Interpretation
Committee (IFRIC) interpretations as adopted by the European
Union and with those parts of the Companies Act 1985 applicable
to companies reporting under IFRS. IFRS and IFRIC are issued by
International Accounting Standards Board (IASB) and must be
adopted into European Union law, referred to as endorsement,
before they become mandatory under the IAS Regulation. Shown
below are standards and interpretations that have been issued by
IASB, indicating their status of endorsement.
The financial statements are presented in Pounds Sterling, rounded
to the nearest million, except in some instances, where it is deemed
relevant to disclose the amounts up to one decimal place. They have
been prepared on the historical cost basis of accounting, except for
share-based payments and derivative financial instruments, which
are measured at fair value, and pension scheme liabilities that are
measured using actuarial valuations.
The Group’s accounting policies are set out below and have, unless
otherwise stated, been applied consistently to all periods presented
in these consolidated financial statements. Other than IFRS 7
Financial Instruments: Disclosures, which has resulted in an amount
of additional disclosures being made whilst not changing underlying
accounting, no alterations were made to the accounting policies
as a result of considering all amendments to IFRS and IFRIC
interpretations that became effective during the financial period
as these were considered to be immaterial to the Group’s operations
or were not relevant.
New IFRS and amendments to IAS and interpretations
not applied
There are a number of standards and interpretations issued by
the International Accounting Standards Board that are effective for
financial statements after this reporting period. The following have
not been adopted by the Group:
Effective for accounting
periods starting on or after
International Financial Reporting Standards
IAS 1
Presentation of financial statements:
A revised presentation
Share-based payment:
Vesting conditions and cancellations
Operating segments
Borrowing costs
Consolidated and separate
financial statements
Business Combinations
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 July 2009
1 July 2009
IFRS 2
IFRS 8*
IAS 23
IAS 27
IFRS 3
International Financial Reporting Interpretations Committee
IFRIC 11* IFRS 2: Group and Treasury share
transactions
Service Concession Arrangements
IFRIC 12
IFRIC 13 Customer loyalty programmes
IFRIC 14
IAS 19 – The limit on a defined benefit
asset, minimum funding requirements
and their interaction
1 March 2007
1 January 2008
1 July 2008
1 January 2008
* These standards and interpretations have been endorsed by the European Union.
The application of these standards and interpretations are not
anticipated to have a material effect on the Group’s financial
statements except for additional disclosure.
The emerging GAAP around IFRIC 14 will be monitored during the
year to ensure that it does not alter the Group’s current view that
this interpretation will not have a material impact on the Group’s
balance sheet.
IFRS 8 is a standard that may increase the amount of disclosure
and this will be considered when preparing the financial statements
for the year ending January 2010.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries, being those
undertakings that it controls. Control is achieved where the
Company has the power to govern the financial and operating
policy of an investee entity so as to obtain benefits from its
activities. The financial statements of subsidiaries used in the
preparation of the consolidated financial statements are prepared
for the same reporting period as the Parent Company and are
based on consistent accounting policies. The results of subsidiaries
acquired or disposed of during the period are included in the
consolidated accounts from the effective date of acquisition up
to the effective date of disposal, as appropriate.
Intra-group balances and any unrealised gains and losses or income
and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements.
Significant accounting policies
The Directors consider the following to be the significant accounting
policies in the context of the Group’s operations:
Revenue recognition
Revenue is recognised when significant risks and rewards of
ownership have been transferred to the buyer, there is reasonable
certainty of recovery of the consideration and the amount of
revenue, associated costs and possible return of goods can be
estimated reliably.
a) Sale of goods in-store and fuel
Sale of goods in-store is recorded net of value added tax, staff
discounts, coupons and the free element of multi-save transactions.
Sale of fuel is recognised net of value added tax and Morrisons
Miles award points. Revenue is recognised when transactions are
completed in-store. The related cost of sales includes the cost
of transportation of goods to stores.
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52 Morrisons annual report and financial statements 2008
Accounting policies continued
b) Direct manufacturing sales
Direct manufacturing sales are recognised on despatch of goods and
are recorded net of value added tax and intra-group transactions.
c) Income from concessions and commissions
Income from concessions and commissions is based on the terms of
the contract. Revenue collected on behalf of others is not recognised
as turnover, other than the related commission.
Other operating income
Other operating income consists of income not directly related to
the operating of supermarkets and mainly comprises rental income
from investment properties. Other categories of income included
within ‘other operating income’ are backhaul income and credits
earned from the recycling of waste and packaging materials.
Rental income from investment property
Rental income arising from operating leases on investment
properties is accounted for on a straight line basis over the lease
term. Details of rental income from investment property are
provided in note 11.
Segmental reporting
Based on the sources of risks and returns impacting the Group’s
activities, the Directors consider that the primary reporting format
is by business segment. The Directors consider that there is only one
business segment being grocery and related retailing and vertically
integrated manufacturing, since they are subject to similar risks and
returns. The disclosures for the primary segment are therefore given
by the primary financial statements and related notes.
The Group’s business operations are conducted almost exclusively
in the United Kingdom so a geographical segment report is not
required.
Supplier income
Supplier incentives, rebates and discounts are collectively referred
to as supplier income in the retail industry. Supplier income is
recognised as a deduction from cost of sales on an accruals basis
based on the expected entitlement which has been earned up to the
balance sheet date for each relevant supplier contract. The accrued
incentives, rebates and discounts receivable at year end are included
within prepayments and accrued income. Where amounts received
are in the expectation of future business, these are recognised in line
with that future business.
Property transactions
Property includes the balance sheet headings of property, plant and
equipment, investment property, lease prepayments and non-current
assets classified as held for sale. The results of transactions relating
to disposal of property are reported in the income statement under
‘Profit arising on property transactions’. Depreciation and any
impairment charges or reversals are recognised in cost of sales
or administrative expenses, as appropriate.
Borrowing costs
All borrowing costs are recognised in the Group’s income statement
on an accruals basis except for interest costs that are directly
attributable to the construction of buildings which are capitalised
and included within the initial cost of a building. Capitalisation of
interest cost ceases when the property is ready for use.
Deferred and current tax
Current tax payable is based on the taxable profit for the year, using
tax rates enacted or substantively enacted at the reporting date and
any adjustments to tax payable in respect of previous years. Taxable
profit differs from the profit as reported in the income statement as
it is adjusted both for items that will never be taxable or deductible
and temporary differences. Current tax is charged in the income
statement, except when it relates to items charged or credited
directly in equity in which case the current tax is reflected in equity.
Deferred tax is recognised using the balance sheet method.
Provision is made for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. No deferred tax is
recognised for temporary differences that arise on the initial
recognition of goodwill or the initial recognition of assets and
liabilities that is not a business combination and that affects neither
accounting nor taxable profits. Deferred tax is calculated based on
tax law that is enacted or substantively enacted at the reporting
date and provided at rates expected to apply when the temporary
differences reverse. Deferred tax is charged or credited in the
income statement except when it relates to items charged or
credited directly to equity in which case the deferred tax is reflected
in equity.
Deferred tax assets are recognised to the extent that it is probable
that taxable profit will be available against which the asset can be
utilised. Deferred tax assets recognised are reviewed at each
reporting date as judgement is required to estimate the availability
of future taxable income. Deferred tax assets and liabilities are not
discounted and are offset where amounts will be settled on a net
basis as there is a legally enforceable right to offset.
Accruals for tax contingencies require management to make
judgements and estimates of ultimate exposures in relation to tax
compliance issues. All accruals are included in current liabilities.
Business combinations and goodwill
All business combinations are accounted for by applying the
purchase method.
The assets, liabilities and contingent liabilities of subsidiaries are
measured at their fair values at the date of acquisition. Any excess
of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill.
Goodwill is recognised as an asset and reviewed for impairment
annually as detailed in ‘Impairment of non-financial assets’ below.
Morrisons annual report and financial statements 2008 53
Property, plant and equipment
a) Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses.
Costs include directly attributable costs. Annual reviews are made
of estimated useful lives and material residual values.
b) Depreciation rates used to write off cost less residual value on
a straight line basis are:
Freehold land
Freehold and long leasehold buildings
Short lease buildings
Plant, equipment, fixtures and vehicles
Assets held under a finance lease
Assets under construction
0%
2.5%
Over lease period
14-33%
Shorter of life of lease or asset
0%
Impairment of non-financial assets
Goodwill has been fully written off through an impairment review
that occurred in a prior year. Impairment of goodwill cannot be
reversed.
Property, plant and equipment and investment property are annually
reviewed for indications of impairment, or when events or changes
in circumstances indicate that the carrying amount may not be
recoverable. This is performed for each cash generating unit, which
in the case of a supermarket is an individual retail outlet. If there are
indications of possible impairment then a test is performed on the
asset affected to assess its recoverable amount against carrying
value. An asset impaired is written down to its recoverable amount
which is the higher of value in use or its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and
the risks specific to the asset.
If there is indication of an increase in fair value of an asset that had
been previously impaired, then this is recognised by reversing the
impairment, but only to the extent that the recoverable amount does
not exceed the carrying amount that would have been determined
if no impairment loss had been recognised for the asset.
Stocks
Stocks are measured at the lower of cost and net realisable value.
Cost is calculated on a weighted average basis and comprises
purchase price, import duties, less rebates and other non-
recoverable taxes. Stocks are primarily goods for resale.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs necessary to make
the sale.
Non-current assets classified as held for sale
Non-current assets are classified as held for sale if their carrying
amount will be recovered through sale rather than continuing use.
This condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for immediate
sale in its present condition. Management must be committed to
the sale and it should be expected to be completed within one year
from the date of classification.
On reclassification, non-current assets held for sale are recognised
at the lower of carrying amount and the fair value less costs to
sell. Impairment losses on initial classification as held for sale
are included in the income statement, as are gains or losses on
subsequent re-measurement. The depreciation of the asset ceases
on reclassification. Assets are reclassified from non-current assets
held for sale when the above criteria cease to be met.
Leases
Leases in which substantially all the risks and rewards of ownership
are retained by the lessor are classified as operating leases; all other
leases are classified as finance leases.
Lessor accounting
a) Operating leases
Assets acquired and held for use under operating leases are recorded
as property, plant and equipment and are depreciated on a straight
line basis to their estimated residual values over their estimated
useful lives. Operating lease income is recognised on a straight line
basis to the date of the next rent review.
b) Finance leases
The Group does not lease any assets on a finance lease basis.
Lessee accounting
a) Operating leases
Rental payments are taken to the income statement on a straight
line basis over the life of the lease.
Property leases are analysed into separate components for land
and buildings and tested to establish whether the components
are operating leases or finance leases. Premiums paid for land are
treated as a prepayment of an operating lease rental and recognised
on a straight line basis over the life of the lease.
b) Finance leases
The present value, calculated using the interest rate implicit in the
lease, of the future minimum lease payments is included within fixed
assets and financial liabilities as an obligation to pay future rentals.
Depreciation is provided at the same rates as for owned assets, or
over the lease period, if shorter.
Rental payments are apportioned between the finance charge
and the outstanding obligation so as to produce a constant rate
of finance charge on the remaining balance.
Provisions
Provisions are created where the Group has a present legal or
constructive obligation as a result of a past event, where it is
probable that it will result in an outflow of economic benefits to
settle the obligation from the Group, and where it can be reliably
measured. The nature of these provisions is:
a) Property provisions
Provisions are made in respect of individual properties where
there are obligations for onerous contracts, dilapidations and
certain decommissioning obligations for petrol filling stations.
The amounts provided are based on the Group’s best estimate of
the likely committed outflow to the Group. Where material, these
estimated outflows are discounted to net present value.
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54 Morrisons annual report and financial statements 2008
Accounting policies continued
b) Restructuring provisions
Provisions are established for announced and ongoing restructuring
programmes planned and controlled by management where there
is an obligation to make changes to the scope of the business
undertaken by the Group or the manner in which business is
conducted. The provision includes costs of severance to the affected
employees, costs of property closure, and other direct expenditures
not associated with ongoing activities.
Fair value is measured by use of a binomial stochastic model.
The expected life used in the model has been adjusted, based
on management’s best estimate, for effects of non-transferability,
exercise restrictions and behavioural considerations.
The fair value charge of share-based payments that are settled
by cash are credited to the balance sheet and are included within
creditors.
Foreign currencies
Transactions in foreign currencies are recorded at the rates of
exchange at the dates of the transactions.
At each balance sheet date, monetary assets and liabilities that are
denominated in foreign currency are retranslated at the rates of
exchange at the balance sheet date. Gains and losses arising on
retranslation are included in the income statement for the period.
Retirement benefits
The Group operates defined benefit and defined contribution
schemes. A defined contribution scheme is a pension scheme under
which the Group pays fixed contributions into a separate entity.
A defined benefit scheme is one that is not a defined contribution
scheme. Pension benefits under defined benefit schemes are defined
on retirement based on age at date of retirement, years of service
and a formula using either the employee’s compensation package
or career average earnings.
The Group operates two defined benefit retirement schemes
which are funded by contributions from the Group and members.
The defined benefit schemes are not open to new members. Pension
scheme assets, which are held in separate trustee administered
funds, are valued at market rates. Pension scheme obligations are
measured on a discounted present value basis using assumptions
as shown in note 21. The operating and financing costs of the
scheme are recognised separately in the income statement in the
period in which they arise. Death-in-service costs are recognised
on a straight line basis over their vesting period. Actuarial gains and
losses are recognised immediately in the statement of recognised
income and expense.
Payments by the Group to the defined contribution scheme are
charged to the income statement as they arise.
Share-based payments
The Group issues equity-settled share-based payments to certain
employees in exchange for services rendered by them. The fair
value of the share-based award is calculated at the date of grant
and is expensed on a straight line basis over the vesting period with
a corresponding increase in equity. This is based on the Group’s
estimate of share options that will eventually vest. This takes into
account movement of non-market conditions, being service
conditions and financial performance, if relevant. The fair value
of equity-settled awards granted is not subsequently revisited.
The Group has applied fair values to all grants of equity instruments
after 7 November 2002 which were unvested as of 1 January 2005,
and cash-settled equity instruments at each balance sheet date.
Financial instruments
Financial assets and liabilities are recognised on the Group’s balance
sheet when the Group becomes a party to the contractual provisions
of the instrument.
a) Financial assets
i) Trade and other debtors
Trade debtors are carried at the lower of their original invoiced value
and recoverable amount. Provision is made when there is objective
evidence that the Group will not be able to recover balances in full,
with the charge being recognised in administrative expenses in the
income statement. Balances are written off when the probability of
recovery is assessed as being remote.
ii) Cash and cash equivalents
Cash and cash equivalents for cash flow purposes includes cash-in-
hand, cash-at-bank and bank overdrafts together with short term,
highly liquid investments that are readily convertible into known
amounts of cash, with an insignificant risk of a change in value,
within three months from the date of acquisition. In the balance
sheet, bank overdrafts are presented within current liabilities.
b) Financial liabilities
i) Trade and other creditors
Trade and other creditors are stated at cost.
ii) Borrowings
Interest-bearing bank loans and overdrafts are initially recorded at
fair value, net of attributable transaction costs. Subsequent to initial
recognition, any difference between the redemption value and the
initial carrying amount is recognised in the income statement over
the period of the borrowings on an effective interest rate basis.
c) Derivative financial instruments and hedge accounting
Derivative financial instruments are initially measured at fair value,
which normally equates to cost, and are remeasured at fair value.
i) Cash flow hedges
Derivative financial instruments are classified as cash flow hedges
when they hedge the Group’s exposure to variability in cash flows
that are either attributable to a particular risk associated with a
recognised asset or liability, or a highly probable forecasted
transaction.
Morrisons annual report and financial statements 2008 55
The Group has a number of cross-currency swaps which have
been designated as cash flow hedges. These derivative financial
instruments are used to match or minimise risk from potential
movements in foreign exchange rates inherent in the cash flows
of certain financial liabilities.
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal
the related actual results. The estimates and assumptions that have
significant risk of causing a material adjustment to the carrying value
of assets and liabilities are discussed below.
Derivatives are reviewed quarterly for effectiveness. Where a
derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or highly
probable forecast transaction, the effective part of any gain or loss
on the derivative financial instrument is recognised directly in equity
through SoRIE. The gain or loss on any ineffective part of the hedge
is immediately recognised in the income statement within finance
income/costs. If a hedge of a forecast transaction subsequently
results in the recognition of a financial asset or liability, the
associated cumulative gains or losses that were recognised directly
in equity are reclassified into the income statement when the
transaction occurs.
Net debt
Net debt is cash and cash equivalents, long term cash on deposit,
bank and other current loans, bonds and derivative financial
instruments (stated at current fair value).
Investment property
Property held to earn rental income rather than for the purpose of
the Group’s principal activities is classified as Investment property.
Investment property is recorded at cost less accumulated
depreciation and any recognised impairment loss. Depreciation
policy is consistent with those described for other Group properties.
Income from investment properties is disclosed in ‘Other operating
income’ and details are shown in note 11 ‘Investment property’.
The related operating costs are immaterial and are included within
Administrative expenses.
Treasury shares
The Group has an employee trust for the granting of Group shares
to executives and members of the employee share plans. Shares in
the Group held by the employee share trust are treated as treasury
shares and presented in the balance sheet as a deduction from
retained earnings.
The finance and administration costs relating to the Executive Share
Option Scheme are charged to the income statement. The shares are
deducted for the purpose of calculating the Group’s earnings per
share.
Use of critical accounting assumptions and estimates
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
a) Property provisions
Provisions have been made for onerous leases, dilapidations and
decommissioning costs. These provisions are estimates based on
the condition of each property and market conditions in the relevant
location. The actual costs and timing of future cash flows are
dependent on future events. Any difference between expectations
and the actual future liability will be accounted for in the period
when such determination is made.
b) Pension scheme assumptions and mortality table
The carrying value of defined benefit pension schemes is valued
using actuarial valuations. These valuations are based on
assumptions including the selection of the correct mortality tables
for the profile of members in each scheme. All these are estimates
of future events. The mortality experience study conducted as part
of the Safeway scheme triennial valuation is statistically significant
and the longevity assumption is adjusted to reflect its results. As
both of the Group’s schemes have a similar composition and type
of members, this adjustment is also made to the Morrisons scheme.
The mortality assumptions, financial assumptions and mortality
experience study are based on advice received from the schemes’
actuaries. Where appropriate these are corroborated from time-to-
time with benchmark surveys and ad-hoc analysis.
c) Assumptions relating to tax computation
The Group recognises expected liabilities for tax based on an
estimation of the likely taxes due, which requires significant
judgement as to the ultimate tax determination of certain items.
Where the actual liability arising from these issues differs from
these estimates, such differences will have an impact on income tax
and deferred tax provisions in the period when such determination
is made.
d) Determination of useful lives and residual values of property,
plant and equipment, investment property and long leasehold
land prepayments
Depreciation is provided so as to write down the assets to their
residual values over their estimated useful lives as set out in the
accounting policies for property, plant and equipment, investment
property and long leasehold land prepayments. The selection of
these residual values and estimated lives requires the exercise
of judgement.
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56 Morrisons annual report and financial statements 2008
Consolidated income statement
52 weeks ended 3 February 2008
Turnover
Cost of sales
Gross profit
Other operating income
Administrative expenses
Profits arising on property transactions
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the financial period attributable to equity holders of the parent
Earnings per share (pence)
– basic
– diluted
Ordinary dividend per share (pence)
Interim – paid
Final
– proposed
– paid
Total dividend
Note
2
2008
£m
12,969
(12,151)
818
2007
£m
12,462
(11,826)
636
30
(268)
32
612
(60)
60
612
(58)
554
20.79
20.67
0.675
4.125
4.800
21
(272)
38
423
(82)
28
369
(121)
248
9.32
9.31
0.625
3.375
4.000
4
5
5
6
7
7
31
Consolidated statement of recognised income and expense
52 weeks ended 3 February 2008
Actuarial (loss)/gain arising in the pension scheme (net of taxation)
Cash flow hedging movement
Deferred tax on share options
Net (expense)/income recognised directly in equity
Profit for the financial period
Total recognised income and expense for the financial period attributable
to equity holders of the parent
Note
21
20
2008
£m
(26)
7
(2)
(21)
554
2007
£m
119
(1)
3
121
248
24
533
369
Consolidated balance sheet
3 February 2008
Morrisons annual report and financial statements 2008 57
Assets
Non-current assets
Property, plant and equipment
Lease prepayments
Investment property
Financial assets
Current assets
Stocks
Debtors
Financial assets
Cash and cash equivalents
Non-current assets classified as held for sale
Liabilities
Current liabilities
Creditors
Other financial liabilities
Current tax liabilities
Non-current liabilities
Other financial liabilities
Deferred tax liabilities
Net pension liabilities
Provisions
Net assets
Shareholders’ equity
Called-up share capital
Share premium
Merger reserve
Retained earnings and hedging reserves
Total equity attributable to equity holders of the parent
Note
2008
£m
2007
£m
9
10
11
12
13
14
12
15
16
17
18
18
20
21
22
23
23
24
24
6,205
239
239
43
6,726
442
199
74
191
906
4
910
(1,679)
(77)
(97)
(1,853)
(774)
(424)
(68)
(139)
(1,405)
4,378
269
57
2,578
1,474
4,378
6,117
228
241
19
6,605
368
151
–
231
750
16
766
(1,501)
(254)
(100)
(1,855)
(768)
(478)
(198)
(145)
(1,589)
3,927
268
41
2,578
1,040
3,927
The financial statements on pages 51 to 81 were approved by the Board of Directors on 12 March 2008 and were signed on its behalf by:
Marc Bolland
Chief Executive
Richard Pennycook
Group Finance Director
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58 Morrisons annual report and financial statements 2008
Consolidated cash flow statement
52 weeks ended 3 February 2008
Cash flows from operating activities
Cash generated from operations
Interest paid
Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment and investment property
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Finance lease principal payments
Repayment of borrowings
Increase in long term cash on deposit
Dividends paid to equity shareholders
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement
in net debt in the period
Net (decrease)/increase in cash and cash equivalents
Cash outflow from decrease in debt and lease financing
Long term cash on deposit
Other non-cash movements
Opening net debt
Closing net debt
Note
25
12
15
Note
12
26
2008
£m
756
(70)
(107)
579
50
94
(402)
(258)
17
(3)
(266)
(74)
(108)
(434)
(113)
231
118
2008
£m
(113)
268
74
–
(772)
(543)
2007
£m
704
(68)
(53)
583
12
158
(257)
(87)
5
(2)
(261)
–
(98)
(356)
140
91
231
2007
£m
140
263
–
(27)
(1,148)
(772)
Notes to the financial statements
52 weeks ended 3 February 2008
Morrisons annual report and financial statements 2008 59
1 Underlying earnings
The Directors consider that underlying earnings and normalised adjusted earnings per share measures referred to in the Chairman’s
statement, CEO’s review and Financial review provide additional useful information for shareholders on underlying trends and performance.
The adjustments are made to reported profit to (a) remove income statement volatility within net pension interest income caused by market
conditions; (b) remove profits arising on property transactions since these profits do not form part of the Group’s principal activities; and
(c) to apply an effective tax rate of 32%, being an estimated normalised tax rate, since the current year’s effective tax rate is considerably
lower due to reasons set out in note 6.
Profit after tax
Add back: tax charge for the year1
Profit before tax
Adjustments for:
– Net pension interest income (note 5)1
– Profits arising on property transactions1
Underlying earnings before tax
Normalised tax charge at 32% tax rate1
Underlying earnings after normalised tax charge
Adjusted earnings per share (pence)
– basic (refer note 7(b))
– diluted (refer note 7(b))
Adjusted normalised earnings per share (pence)
– basic (refer note 7(c))
– diluted (refer note 7(c))
1 adjustments marked 1 equal £171m (2007: £28m), as shown in the reconciliation of earnings disclosed in note 7(c).
2 Turnover (excluding VAT)
Sale of goods in-stores
Fuel
Total store based sales
Direct manufacturing sales
Income from concessions and commission
Total turnover
3 Employees and Directors
Employee benefit expense for the Group during the period
Wages and salaries
Social security costs
Share-based payments (note 27)
Pension costs
Other staff costs
Average monthly number of people employed by business group
Stores
Manufacturing
Distribution
Centre2
2 centre includes employees on maternity leave and long-term sick leave.
2008
£m
554
58
612
(17)
(32)
563
(180)
383
19.70
19.59
14.38
14.29
2008
£m
10,439
2,443
12,882
27
60
12,969
2008
£m
1,343
95
9
48
10
1,505
2007
£m
248
121
369
(7)
(38)
324
(104)
220
8.30
8.30
8.28
8.27
2007
£m
10,087
2,301
12,388
28
46
12,462
2007
£m
1,334
94
20
55
3
1,506
2008
No.
2007
No.
104,645
4,416
4,822
3,571
117,454
105,054
4,773
4,730
3,247
117,804
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60 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
3 Employees and Directors continued
Key management represent Directors. The aggregate remuneration paid to or accrued for the Directors for services in all capacities during
the period is as follows:
2008
£m
2007
£m
Directors
Short term employee benefits
Pension costs
Termination payments
Share-based payments
6.8
0.3
–
1.5
8.6
7.2
0.2
4.5
1.7
13.6
There are four Directors (2007: four) who have retirement benefits accruing under the Group’s defined benefit pension scheme.
Additional information on Directors’ emoluments (including the highest paid Director) can be found in the Directors’ remuneration report
on pages 40 to 46.
4 Operating profit
The following items have been included in arriving at operating profit:
Depreciation:
– owned assets
– assets held under finance leases
Property, plant and equipment
Depreciation of investment property
Charge in the income statement
Foreign exchange differences
Operating lease rentals:
– minimum lease payments
– sublease receipts
Value of stock expensed
Services provided by the Group’s auditor
During the period, KPMG Audit Plc, the Group’s auditor, provided the following services:
Audit services
– statutory Group and Company audit
– statutory audit of subsidiaries
– audit related regulatory reporting
Tax services
– compliance services
– advisory services
Other
– forecasting procedures review
2008
£m
2007
£m
280
2
282
7
289
3
276
2
278
3
281
(1)
38
(5)
9,739
40
(4)
9,364
2008
£m
2007
£m
0.4
0.2
0.2
0.3
0.2
–
1.3
0.6
0.2
0.2
1.1
–
0.2
2.3
5 Finance costs and income
Interest payable on short term loans and bank overdrafts
Interest payable on bonds
Interest capitalised
Total interest payable
Fair value movement of derivative instruments
Other finance costs
Finance costs
Bank interest received
Amortisation of bonds
Other finance income
Pension liability interest cost
Expected return on pension assets
Net pension interest income
Finance income
Net finance cost
Morrisons annual report and financial statements 2008 61
2008
£m
(1)
(53)
8
(46)
(7)
(7)
(60)
28
8
7
(99)
116
17
60
–
2007
£m
(5)
(60)
6
(59)
(12)
(11)
(82)
8
8
5
(95)
102
7
28
(54)
Interest is capitalised at the bank overdraft rate incurred before taxation which varies in line with the prevailing base rate. Taxation relief is
obtained on interest paid and this reduces the tax charged for the period.
6 Taxation
a) Analysis of charge in period
Corporation tax
– current period
– adjustment in respect of prior period
Deferred tax
– current period
– adjustment in respect of prior period
Tax charge for the period
b) Tax on items credited/(charged) directly to equity
Current tax on actuarial movements
Deferred tax credit/(charge) on actuarial movements
Tax credit/(charge) on actuarial movements taken to SoRIE
Tax on share-based payments – taken to SoRIE
2008
£m
2007
£m
142
(38)
104
40
(86)
(46)
58
2008
£m
–
10
10
(2)
127
(13)
114
(16)
23
7
121
2007
£m
–
(51)
(51)
3
The tax for both periods is different to the standard rate of corporation tax in the UK of 30% (2007: 30%). The differences are explained below:
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Tax reconciliation
Profit before tax
Profit before tax at 30% (2007: 30%)
Effects of:
Expenses not deductible for tax purposes
Non-qualifying depreciation
Effect of tax rate changes on deferred tax
Deferred tax on Safeway acquisition assets
Divestment profits not taxable
Overseas tax rates/dividends
Other
Prior period adjustments
Tax charge for the period
2008
£m
612
184
14
35
(32)
(11)
(11)
–
3
(124)
58
2007
£m
369
111
11
28
–
–
(31)
(2)
(6)
10
121
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62 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
6 Taxation continued
During the period the Group successfully concluded lengthy negotiations with HM Revenue & Customs (HMRC) over a number of open
issues relating to the Safeway group prior to its acquisition by Morrisons in 2004. The closure of these negotiations has resulted in the Group
being able to release prior period corporation tax and deferred tax provisions of £124m.
7 Earnings per share
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period, excluding those held by the Company as treasury shares (note 24), which are treated as
cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially
dilutive ordinary shares. The Company has two (2007: three) classes of financial instruments that are potentially dilutive: those share options
granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the period and
contingently issuable shares under the Group’s long term incentive plan. In the prior year, the other class of potentially dilutive ordinary
shares was the convertible preference shares.
a) Basic and diluted earnings per share (unadjusted)
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Unadjusted EPS
Basic EPS
Earnings attributable to ordinary shareholders
Effect of dilutive instruments
Share options
Preference share conversion
Diluted EPS
2008
Weighted
average
number
of shares
millions
Earnings
£m
2007
Weighted
average
number
of shares
millions
EPS
pence
EPS
pence
Earnings
£m
554
2,664.3
20.79
248
2,657.5
9.32
–
–
554
15.7
–
2,680.0
(0.12)
–
20.67
–
–
248
–
1.2
2,658.7
–
(0.01)
9.31
b) Adjusted earnings per share
Given below is the reconciliation of the earnings adjusted for profits arising on property transactions used in the calculations of adjusted
earnings per share:
2008
Weighted
average
number
of shares
millions
Earnings
£m
EPS
pence
Earnings
£m
2007
Weighted
average
number
of shares
millions
Adjusted EPS
Basic EPS
Earnings attributable to ordinary shareholders
Profits arising on property transactions1
Effect of dilutive instruments
Share options
Preference share conversion
Diluted EPS
554
(29)
525
–
–
525
2,664.3
–
2,664.3
15.7
–
2,680.0
20.79
(1.09)
19.70
(0.11)
–
19.59
248
(27)
221
–
–
221
2,657.5
–
2,657.5
–
1.2
2,658.7
1 Profits arising on property transactions as shown in the income statement after adjusting for tax relief.
EPS
pence
9.32
(1.02)
8.30
–
–
8.30
Morrisons annual report and financial statements 2008 63
7 Earnings per share continued
c) Adjusted normalised earnings per share
Given below is the reconciliation of the earnings used in the calculations of adjusted normalised earnings per share:
Adjusted EPS
Basic EPS
Earnings attributable to ordinary shareholders
Adjustments to determine underlying profit (see note 1)
Effect of dilutive instruments
Share options
Preference share conversion
Diluted EPS
2008
Weighted
average
number
of shares
millions
Earnings
£m
EPS
pence
Earnings
£m
554
(171)
383
–
–
383
2,664.3
–
2,664.3
15.7
–
2,680.0
20.79
(6.41)
14.38
(0.09)
–
14.29
248
(28)
220
–
–
220
2007
Weighted
average
number
of shares
millions
2,657.5
–
2,657.5
–
1.2
2,658.7
EPS
pence
9.32
(1.04)
8.28
–
(0.01)
8.27
8 Goodwill
Goodwill of £103m arose on the Safeway acquisition in the period ended 30 January 2005. In the financial statements for the period ended
29 January 2006, this goodwill was fully impaired.
9 Property, plant and equipment
Current year
Cost
At 4 February 2007
Additions at cost
Interest capitalised
Reclassification
Transfer from/(to) investment properties
Transfer to long land lease premium
Disposals
At 3 February 2008
Accumulated depreciation and impairment
At 4 February 2007
Charge for the period
Reclassification
Transfer from/(to) investment properties
Disposals
At 3 February 2008
Net book amount at 3 February 2008
Assets under construction included above
Land and buildings
Freehold
£m
Long
leasehold
£m
Short
leasehold
£m
Plant,
equipment,
fixtures and
vehicles
£m
6,211
252
7
(205)
51
–
(174)
6,142
691
98
(108)
18
(133)
566
5,576
91
417
33
1
(69)
(25)
(10)
(8)
339
47
15
(10)
(4)
–
48
291
14
18
9
–
6
–
–
–
33
17
4
–
–
–
21
12
–
Total
£m
7,565
410
8
–
26
(10)
(320)
7,679
1,448
282
–
14
(270)
1,474
919
116
–
268
–
–
(138)
1,165
693
165
118
–
(137)
839
326
6,205
22
127
The classification of Property, plant and equipment (PPE) was reviewed as part of upgrading our systems. As a result of this review, it was
deemed appropriate to reclassify certain assets that have historically been regarded intrinsic to the building structure to ‘fixtures and fittings’
included within plant, equipment, fixtures and vehicles.
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64 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
9 Property, plant and equipment continued
Prior year
Cost
At 29 January 2006
Additions at cost
Interest capitalised
Transfer to assets held for sale
Transfer from assets held for sale
Transfer to investment properties
Disposals
At 4 February 2007
Accumulated depreciation and impairment
At 29 January 2006
Charge for the period
Transfer to assets held for sale
Transfer from assets held for sale
Disposals
Impairment reversal
At 4 February 2007
Net book amount at 4 February 2007
Assets under construction included above
Land and buildings
Freehold
£m
Long
leasehold
£m
Short
leasehold
£m
Plant,
equipment,
fixtures and
vehicles
£m
6,079
139
5
(21)
33
(17)
(7)
6,211
563
122
–
15
(4)
(5)
691
5,520
108
379
36
1
–
1
–
–
417
43
3
–
1
–
–
47
370
14
14
6
–
(6)
4
–
–
18
12
2
–
3
–
–
17
1
–
Total
£m
7,288
269
6
(31)
57
(17)
(7)
7,565
1,143
278
(1)
37
(4)
(5)
1,448
816
88
–
(4)
19
–
–
919
525
151
(1)
18
–
–
693
226
6,117
1
123
Included in plant, equipment, fixtures and vehicles are assets held under finance leases at a cost of £22m (2007: £22m). The accumulated
depreciation at the end of the financial period was £19m (2007: £17m).
10 Lease prepayments
Long lease land premiums
2008
£m
239
2007
£m
228
The current element of long lease land premiums is included within debtors (note 14). During the year, new long lease land premiums
amounting to £1m were paid (2007: £15m).
11 Investment property
Cost
At start of period
Additions
Transfer from property, plant and equipment
Transfer to property, plant and equipment
Transfer from assets held for sale
At end of period
Accumulated depreciation
At start of period
Charge for the period
Transfer to property, plant and equipment
Transfer from assets held for sale
At end of period
Net book amount at end of period
Morrisons annual report and financial statements 2008 65
2008
£m
2007
£m
294
17
–
(26)
–
285
53
7
(14)
–
46
261
–
17
–
16
294
36
3
–
14
53
239
241
Included in other operating income is £20m (2007: £13m) of rental income generated from investment properties.
The fair value of investment properties at the end of the period was £328m (2007: £390m). This valuation has been determined by the
Directors based on market comparable information being rent and market rental yield. This reduction in the fair value is due to an increase in
market rental yield driven by deteriorating market conditions.
12 Financial assets
Non-current asset
Cross-currency interest swaps maturing 2010
Current asset
Long term cash on deposit
2008
£m
2007
£m
43
74
19
–
a) Cross-currency interest swaps maturing 2010
The cross-currency interest swaps cover the Group from currency exposure arising from payments of interest and repayment of the principal
in relation to Euro bonds.
The notional principal amount of the outstanding cross-currency interest swaps at 3 February 2008 was €250m (2007: €250m).
There are no contracts with embedded derivatives that have been identified to be accounted for separately as required by IAS 39 Financial
Instruments: recognition and measurement.
b) Long term cash on deposit
These are balances deposited with the bank with maturity of over three months from the date of the deposit.
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13 Stocks
Materials and work-in-progress
Finished goods
2008
£m
8
434
442
2007
£m
7
361
368
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66 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
14 Debtors
Trade debtors
Less: Provision for impairment of trade debtors
Lease prepayment – long lease land premiums
Other debtors
Prepayments and accrued income
The Group has recognised a provision of £2m (2007: £2m) for impairment of its trade debtors as at 3 February 2008.
The ageing analysis of trade debtors is as follows:
Neither past due nor impaired
Past due but not impaired:
Not more than three months
Greater than three months
2008
£m
94
(2)
92
1
32
74
199
2008
£m
70
17
5
92
2007
£m
80
(2)
78
1
8
64
151
2007
£m
53
24
1
78
As at 3 February 2008, trade debtors that were neither past due nor impaired related to a number of independent customers for whom there
is no recent history of default.
The other classes of debtors do not contain impaired assets.
15 Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents include the following for the purpose of the cash flow statement:
Cash and cash equivalents
Bank overdraft
16 Non-current assets classified as held for sale
Property
2008
£m
191
2008
£m
191
(73)
118
2008
£m
4
2007
£m
231
2007
£m
231
–
231
2007
£m
16
Non-current assets classified as held for sale represents a single administration building being marketed for sale. The prior year balance
represented stores, administration and distribution buildings being marketed for sale.
17 Creditors – current
Trade creditors
Other taxes and social security payable
Other creditors
Accruals and deferred income
Interest accrual
2008
£m
1,152
35
189
292
11
1,679
2007
£m
1,003
56
127
297
18
1,501
Morrisons annual report and financial statements 2008 67
18 Other financial liabilities
The Group had the following current and non-current borrowings and other financial liabilities:
Current
Bank loans and overdrafts due within one year or on demand:
£250m Sterling bonds August 2007
Bank overdraft
Other loan notes
Interest rate swaps
Finance lease obligations
Non-current
£150m Sterling bonds August 2014
£200m Sterling bonds January 2017
£200m Sterling bonds December 2018
€250m Euro bonds April 2010
Total non-current Sterling and Euro bonds
Other loan notes
Other Safeway loans
Finance lease obligations
2007
Coupon rate Coupon rate
2008
2008
£m
2007
£m
–
–
4.19%
–
5.88%
–
–
–
–
–
–
73
2
–
75
2
77
2007
Coupon rate Coupon rate
2008
2008
£m
6.50%
6.00%
6.12%
6.50%
–
9.38%
6.50%
6.00%
6.12%
6.50%
–
9.38%
156
203
205
194
758
–
15
1
774
251
–
–
1
252
2
254
2007
£m
157
203
205
183
748
2
15
3
768
a) Borrowing facilities
Borrowings are denominated in Sterling and Euros and bear fixed interest rates. All borrowings are unsecured.
In the event of default of covenants on the bank facility, the principal amounts and any interest accrued are repayable on demand.
The Group has the following undrawn floating committed borrowing facilities available in respect of which all conditions precedent had been
met at that date:
Undrawn facilities expiring:
Between one and two years
Between four and five years
b) Finance lease obligations
Payments under finance lease obligations fall due as follows:
Not later than one year
Later than one year but not more than five years
Future finance charges on finance lease obligations
Present value of finance lease obligations
2008
£m
–
1,100
2008
£m
2
1
3
–
3
2007
£m
500
–
2007
£m
3
3
6
–
6
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68 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
19 Financial instruments
a) Financial risk management
The Group’s treasury operations are controlled centrally by the Treasury Committee in accordance with clearly defined policies and
procedures that have been authorised by the Board. There is an amount of delegated authority to the Treasury Committee, but all activities
are summarised in half yearly treasury reports which are presented to the Audit Committee.
The Group’s principal financial liabilities, other than derivatives, comprise bank loans and overdrafts, borrowings, finance leases and trade and
other creditors. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has various financial
assets such as trade debtors and cash and short term and long term bank deposits, which arise directly from its operations.
The Group enters into derivative transactions, primarily forward currency contracts and cross-currency swaps. The purpose of these
derivative instruments is to manage the currency risks arising from the Group’s operations and its sources of finance. It remains the Group’s
policy not to engage in speculative trading of financial instruments.
The main risks arising from the Group’s financial instruments are foreign currency risk, liquidity risk and credit risk. The objectives, policies
and processes for managing these risks, which remain unchanged from the prior year are stated below:
i) Foreign currency risk
The Group incurs currency exposure in respect of overseas trade purchases made in currencies other than Sterling, primarily being Euro and
US dollar. The Group objective is to reduce risk to short term profits from exchange rate fluctuations. It is Group policy that any transactional
currency exposures recognised to have a material impact on short term profits will be hedged through the use of derivative financial
instruments. As at the balance sheet date, the Group had entered into forward foreign exchange contracts to mitigate foreign currency
exposure up to 50% of its forecasted purchases within next six months. Exposure on debt denominated in a foreign currency is hedged using
cross-currency interest rate swaps.
The sensitivity to a reasonably possible change (+/– 5%) in the US dollar/Euro exchange rate, with all other variables held constant, of the
Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (due to changes in the fair
value of forward exchange contracts and cross-currency interest swaps) has been determined as being immaterial.
ii) Liquidity risk
The Group policy is to maintain a balance of funding with a range of maturities and a sufficient level of undrawn committed borrowing
facilities to meet any unforeseen obligations and opportunities. Short term cash balances, together with undrawn committed facilities,
enable the Group to manage its liquidity risk. The Group finances its operations with a combination of bank credit facilities and bonds.
The Treasury Committee monitors rolling forecasts of the Group’s liquidity reserve on a quarterly basis, which comprises committed and
uncommitted borrowing facilities on the basis of expected cash flow.
The table below summarises the maturity profile of the Group’s primary non-current financial liabilities based on contractual undiscounted
payments, which includes interest payments. Balances due within 12 months equal their carrying balances as the impact of discounting is
not significant.
As the amounts included in the table are the contractual undiscounted cash flows, these amounts do not agree to the amounts disclosed on
the balance sheet for borrowings.
One to two years
Two to three years
Three to four years
Four to five years
Five+ years
2008
£m
46
188
35
35
703
2007
£m
49
46
188
35
738
Morrisons annual report and financial statements 2008 69
19 Financial instruments continued
The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings
based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows.
At 3 February 2008
Cross-currency swap – cash flow hedges
Outflow
Inflow
Forward contracts
Outflow
Inflow
At 4 February 2007
Cross-currency swap – cash flow hedges
Outflow
Inflow
< 1 year
1-2 years
2-3 years
3-4 years
(11)
12
(45)
45
(11)
12
–
–
(156)
200
–
–
–
–
–
–
< 1 year
1-2 years
2-3 years
3-4 years
(11)
11
(11)
11
(11)
11
(156)
175
iii) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banks, as well as credit exposures to
customers.
The Group maintains deposits with banks and financial institutions with an acceptable credit rating for a period not exceeding six months.
Further, the Group has specified limits that can be deposited with any one bank or financial institution at any point. The maximum exposure
on cash and cash equivalents and deposits is equal to the carrying amount of these instruments.
The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that customers who wish to trade on credit terms
are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the
Group’s exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in note 14. There are no
significant concentrations of credit risk within the Group.
iv) Other risk
Cash flow interest rate risk: The Group’s long term policy is to protect itself against adverse movements in interest rates by maintaining
up to 60% of its consolidated total net debt in fixed rate borrowings over a four year horizon. As at the balance sheet date all of Group’s
borrowings are at fixed rate, thereby substantially reducing the Group’s exposure to adverse movements in interest rate.
Cash and cash equivalents is a significant interest-bearing asset held by the Group. At year end, a 1% movement in the interest rate would
have had a £5m (2007: £2m) impact on the Group’s finance income. There are no other significant interest-bearing assets held by the Group.
b) Capital management
A key objective of the Group’s capital management is to maintain compliance with the covenants set out in the revolving credit facility.
The Group’s policy is to maintain both a gearing ratio and interest cover, which represents headroom of at least 10% over and above the
requirements laid down in the revolving credit facility. Throughout the year, the Group has comfortably complied with this policy.
There have been no changes in the objectives, policies or processes with regards to capital management during the years ended 3 February
2008 and 4 February 2007.
c) Fair values
All financial liabilities are carried at amortised cost. The Euro bonds are retranslated at balance sheet date spot rates. The fair value of the
Sterling and Euro Bonds are measured using closing market prices. These compare to carrying values as follows:
Bonds – current
Bonds – non-current
Total Sterling and Euro bonds
2008
2007
Amortised
cost
£m
–
758
758
Fair
value
£m
–
693
693
Amortised
cost
£m
251
748
999
Fair
value
£m
250
711
961
The fair value of other items within current and non-current borrowing equals their carrying amount, as the impact of discounting is not
significant.
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70 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
19 Financial instruments continued
d) Hedging activities
i) Cash flow hedge
At 3 February 2008, the Company held a number of cross-currency swaps which have been designated as cash flow hedges. These derivative
financial instruments are used to minimise risk from potential movements in foreign exchange rates inherent in cash flow of certain liabilities.
The hedged forecast transactions denominated in foreign currency are expected to occur at various dates over the next two years. Gains and
losses recognised in the hedging reserve in equity (note 24) on cross-currency swaps as at 3 February 2008 are recognised in the income
statement in the period or periods during which the hedged forecast transaction affects the income statement, which is generally once every
year over the course of the next three (2007: four) years.
ii) Forward contracts
The Group uses forward foreign exchange contracts to hedge the cost of future purchases of goods for resale, where those purchases are
denominated in a currency other than the functional currency of the purchasing company. The hedging instruments are primarily used to
hedge purchases in Euros and US Dollars. The cash flows hedged will occur within one year of the balance sheet date.
At 3 February 2008, the total notional amount of outstanding forward foreign exchange contracts to which the Group has committed was
£45m (2007: £nil). The fair value of these outstanding forward exchange contracts at the balance sheet date was £0.2m.
20 Deferred tax
Deferred tax liability
Deferred tax asset
Net deferred tax liability
2008
£m
554
(130)
424
2007
£m
629
(151)
478
IAS 12 Income Taxes permits the offsetting of balances within the same tax jurisdiction. All of the deferred tax assets were available for offset
against deferred tax liabilities.
The movements in deferred tax assets/(liabilities) during the period are shown below.
Property,
plant and
equipment
£m
Pensions
£m
Share-based
payments
£m
Other
short term
temporary
differences
£m
Current year
At 4 February 2007
Credited/(charged) to income statement
Credited/(charged) directly to equity
At 3 February 2008
Prior year
At 29 January 2006
(Charged)/credited to income statement
(Charged)/credited directly to equity
At 4 February 2007
(629)
75
–
(554)
(609)
(20)
–
(629)
59
(50)
10
19
125
(15)
(51)
59
6
1
(2)
5
3
–
3
6
Other short term temporary differences include £31m (2007: £nil) of unused tax losses.
The deferred income tax credited/(charged) through the SoRIE during the period was as follows:
Actuarial gains/(losses)
Share options
86
20
–
106
59
27
–
86
2008
£m
10
(2)
Total
£m
(478)
46
8
(424)
(422)
(8)
(48)
(478)
2007
£m
(51)
3
Morrisons annual report and financial statements 2008 71
21 Pension liabilities
a) Defined benefit pension scheme
The Group operates two pension schemes, the ‘Morrison’ and ‘Safeway’ schemes, providing benefits based on pensionable pay of the final
years of membership. The assets of the schemes are held in separate trustee administered funds; no part of the schemes is wholly unfunded.
The latest full provisional actuarial valuations, which were carried out at 6 April 2007 and 1 April 2007 for the Morrison and Safeway
schemes respectively, were updated for IAS 19 purposes for the periods to 3 February 2008, 4 February 2007 and 29 January 2006 by a
qualified independent actuary.
The Deed and Rules of the Morrison Pension Scheme gives the trustees power to set the level of contributions. In the Safeway Scheme this
power is given to the Group, subject to regulatory override.
The current best estimate of employer contributions to be paid for the year commencing 4 February 2008 is £138m, including a special
contribution of £100m.
b) Assumptions
The major assumptions used in this valuation to determine the present value of the schemes’ defined benefit obligation were as follows:
i) Financial
Rate of increases in salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate applied to scheme liabilities
Inflation assumption
2008
5.00-6.00%
3.75%
5.75%
3.75%
2007
4.45-5.45%
3.20%
5.00%
3.20%
2006
4.25-5.25%
3.00%
4.75%
3.00%
ii) Longevity
The average life expectancy in years of a member who reaches normal retirement age of 65 and is currently aged 45 is as follows:
Male
Female
The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:
Male
Female
2008
23.5
25.8
2008
22.2
24.7
2007
19.9
22.8
2007
19.9
22.8
2006
19.9
22.8
2006
19.9
22.8
Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The
longevity assumption considers how long a member will live when they reach the age of retirement. Amongst the UK population there is a
continuing trend for a generation to live longer than the preceding generation, and this has been reflected in the longevity assumption. This
means that a 45 year old today is assumed to live on average longer than a 65 year old today. This particular adjustment, described in the
mortality tables below, is known as ‘Long Cohort’ and is in line with the latest advice from the Pension Regulator.
In calculating the present value of the liabilities the actuary selects the appropriate mortality table that reflects the longevity assumption.
The most up to date tables are used in each period. The current mortality table used is PNX00 YOB LC (2007 and 2006: PA92 C2020).
As disclosed in the Critical accounting assumptions on page 55, the results of the experience study conducted for the Safeway scheme have
been used to adjust the longevity assumption for both schemes, no such adjustment was made for the comparative periods.
iii) Expected return on assets
The major assumptions used to determine the expected future return on the schemes’ assets, were as follows:
Long term rate of return on:
Equities
Corporate bonds
Gilts
Property related funds
Active currency management assets
Cash
2008
2007
2006
7.00%
6.00%
4.25-4.50%
6.00%
–
5.50%
7.00%
5.00%
–
6.00%
5.25%
5.25%
7.00%
4.25%
–
7.00%
4.50%
4.50%
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the
timescales covered, may not necessarily be borne out in practice. The expected return on plan assets is based on market expectation at the
beginning of the period for returns over the entire life of the benefit obligation.
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A
72 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
21 Pension liabilities continued
c) Valuations
Assets of the schemes are held in order to generate cash to be used to satisfy the schemes’ obligations, and are not necessarily intended to
be realised in the short term. The allocation of assets between category is governed by the Investment Principles of each scheme and is the
responsibility of the trustees of each respective scheme. The trustees should take due consideration of the Group’s views and a
representative of the Group attends Trustee Investment Committees. The fair values of the schemes’ assets, which may be subject to
significant change before they are realised, and the present value of the schemes’ liabilities which are derived from cash flow projections over
long periods and are inherently uncertain, are as follows:
Equities
Corporate bonds
Gilts
Property and property related funds
Active currency management assets
Cash
Total fair value of schemes’ assets
Present value of defined benefit funded obligation
Net pension liability recognised in the balance sheet
Related deferred tax asset (note 20)
Net deficit
2008
£m
1,040
237
531
104
–
27
1,939
(2,007)
(68)
19
(49)
2007
£m
1,208
221
–
260
66
19
1,774
(1,972)
(198)
59
(139)
2006
£m
1,190
211
–
54
22
59
1,536
(1,952)
(416)
125
(291)
The movement in the fair value of the schemes’ assets over the year was as follows:
Fair value of scheme assets at start of period
Expected return on scheme assets
Actuarial (losses)/gains
Employer contributions
Employee contributions
Benefits paid
Fair value of scheme assets at end of period
2008
£m
1,774
116
(113)
193
10
(41)
1,939
2007
£m
1,536
102
78
94
11
(47)
1,774
2006
£m
1,217
83
165
92
13
(34)
1,536
The above pension scheme assets do not include any investments in the Parent Company’s own shares or property occupied by any member
of the Group.
The movement in the present value of the defined benefit obligation during the period was as follows:
Defined benefit obligation at start of period
Current service cost
Past service cost
Employee contributions
Interest on defined benefit obligation
Actuarial gain/(loss) recognised in the SoRIE
Benefits paid
Defined benefit obligation at end of period
2008
£m
(1,972)
(44)
–
(10)
(99)
77
41
(2,007)
2007
£m
(1,952)
(53)
–
(11)
(95)
92
47
(1,972)
2006
£m
(1,625)
(55)
(2)
(13)
(86)
(206)
35
(1,952)
The cost of buying out pension benefits with an insurer was estimated in the recent provisional actuarial valuations to be £2,300m at April
2007, versus assets of £1,939m. This is a deficit of £361m or solvency funding ratio of 84%.
The cost of providing pensions equivalent to the level of compensation paid by the Pension Protection Fund was estimated to be £1,633m
at April 2007, compared with assets of £1,939m. This is a Pension Protection Fund surplus of £306m or a funding ratio of 119%.
Morrisons annual report and financial statements 2008 73
21 Pension liabilities continued
d) Sensitivities
Below is listed the impact on the liabilities at 3 February 2008 of changing key assumptions whilst holding other assumptions constant:
Discount factor
Longevity
+/– 0.1%
+/– 1 year
£47m
£55m
e) Income statement
The following amounts have been charged in employee benefits as set out in note 3 in arriving at operating profit:
Current service cost
Past service cost
The amounts for current and past service cost have been charged to the following income statement lines:
Cost of sales
Administrative expenses
The following amounts have been included in finance income:
Expected return on pension scheme assets
Interest on pension scheme liabilities
f) Actuarial gains and losses recognised in the statement of recognised income and expense (SoRIE)
The amounts included in the statement of recognised income and expense were:
Actual return less expected return on scheme assets
Experience gains and losses arising on scheme obligation
Changes in demographic and financial assumptions underlying the present value of scheme obligations
Actuarial movement recognised in the SoRIE
Taxation on actuarial movement in the SoRIE
Net actuarial movement recognised in the SoRIE
Cumulative gross actuarial movement recognised in the SoRIE
Taxation on cumulative actuarial movement recognised in the SoRIE
Cumulative net actuarial movement recognised in the SoRIE
The actual return on schemes’ assets can therefore be summarised as follows:
Expected return on schemes’ assets
Actuarial movement recognised in the SoRIE reflecting the difference
between expected and actual return on assets
Actual return on scheme’s assets
2008
£m
44
–
44
2008
£m
35
9
44
2008
£m
116
(99)
17
2008
£m
(113)
83
(6)
(36)
10
(26)
2008
£m
13
(5)
8
2008
£m
116
(113)
3
2007
£m
53
–
53
2007
£m
42
11
53
2007
£m
102
(95)
7
2007
£m
78
37
55
170
(51)
119
2007
£m
49
(15)
34
2007
£m
102
78
180
2006
£m
55
2
57
2006
£m
46
11
57
2006
£m
83
(86)
(3)
2006
£m
165
14
(219)
(40)
12
(28)
2006
£m
(121)
36
(85)
2006
£m
83
165
248
The expected return on schemes’ assets was determined by considering the expected returns available on the assets underlying the current
investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected
returns on equity and property investments reflect long term real rates of return experienced in the respective markets.
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A
74 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
21 Pension liabilities continued
g) History of experience gains and losses
Difference between the expected and actual return on scheme assets:
– Amount
– Percentage of scheme assets
Experience gains and losses arising on scheme liabilities:
– Amount
– Percentage of present value of scheme obligation
Effects to changes in the demographic and financial assumptions
underlying the present value of the scheme liabilities:
– Amount
– Percentage of present value of scheme obligation
Total amount recognised in the SoRIE:
– Amount
– Percentage of present value of scheme obligation
Total value of schemes’ assets
Present value of defined benefit obligation
Net pension liability recognised in the balance sheet
2008
£m
(113)
(5.8%)
83
4.1%
(6)
(0.3%)
(36)
(1.8%)
1,939
(2,007)
(68)
2007
£m
78
4.4%
37
1.9%
2006
£m
165
10.8%
14
0.7%
2005
£m
60
4.9%
(33)
(2.1%)
55
2.8%
(219)
(11.2%)
(107)
(6.6%)
170
8.6%
1,774
(1,972)
(198)
(40)
(2.1%)
1,536
(1,952)
(416)
(81)
(5.0%)
1,217
(1,625)
(408)
h) Defined contribution pension scheme
Employees joining the Company after September 2000 are no longer eligible to gain automatic entry into the final salary pension scheme.
In June 2001 the Company established a stakeholder pension scheme, open to all employees, to which the Company makes matching
contributions of a maximum of 5% of eligible earnings. Pension costs for the defined contribution scheme are as follows:
Stakeholder pension scheme
Life assurance scheme
Total costs
22 Provisions
At 4 February 2007
Charged to the income statement
Unused amounts reversed during the period
Utilised in period
Unwinding of discount
At 3 February 2008
2008
£m
(3)
(1)
(4)
Restructuring
£m
50
–
(8)
(13)
–
29
2007
£m
(1)
(1)
(2)
Property
provisions
£m
95
17
–
(8)
6
110
2006
£m
(1)
(1)
(2)
Total
£m
145
17
(8)
(21)
6
139
a) Restructuring
The change of the corporate logo and associated freshening of sections of the stores is well under way and progress is discussed in the CEO’s
Review. The provision covers the cost of conclusion on the work already started, and other direct expenditure not associated with the
ongoing activities of the Group. The ongoing restructuring programme in the distribution centres is also included in this balance. This
provision is expected to be utilised within the next financial year.
b) Property provisions
Property provisions comprise onerous leases provision, petrol filling station decommissioning reserve and provisions for dilapidations on
leased buildings.
Onerous leases relate to sublet and vacant properties. Where the rent receivable on the properties is less than the rent payable, a provision
based on present value of the net cost is made to cover the expected shortfall. The lease commitments range from 1 to 65 years. Market
conditions have a significant impact and hence the assumptions on future cash flows are reviewed regularly and revisions to the provision
made where necessary. As noted in the financial review, adjustments have been made to reflect the change in market conditions and the
legislative changes in respect of rates charges for empty properties.
Others comprise petrol filling station decommissioning reserve and dilapidations cost. Provision is made for decommissioning when the
petrol filling station tanks have reached the end of their useful life or when they become redundant and is based on the present value of costs
to be incurred to decommission the petrol tanks. Dilapidation costs are incurred to bring a leased building back to the condition it was
originally leased. Provision is made for these costs, which are incurred on termination of the lease.
23 Called up share capital
Current year
At 4 February 2007
Share options exercised
At 3 February 2008
Prior year
At 29 January 2006
Share options exercised
At 4 February 2007
Morrisons annual report and financial statements 2008 75
Number
of shares
millions
Share
capital
£m
Share
premium
£m
2,677
9
2,686
2,673
4
2,677
268
1
269
267
1
268
41
16
57
37
4
41
Total
£m
309
17
326
304
5
309
The total authorised number of ordinary shares is 4,000 million shares (2007: 4,000 million shares) with a par value of 10p per share
(2007: 10p per share). All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to one vote per share at the
meetings of the Company.
a) Potential issues of ordinary shares
Certain eligible employees hold options to subscribe for shares in the Company at prices ranging from 0p to 247p under the share option
schemes approved by Shareholders. Options on nine million shares (2007: four million) were exercised in the current financial year.
b) Preference shares
The 51⁄4% cumulative 282,666 preference shares with nominal amount of £1, amounting to £0.3m have been classified as a current financial
liability in accordance with IFRS 7 Financial Instruments: Disclosure. These preference shares do not carry any voting rights.
24 Reconciliation of movements in capital and reserves
Current year
At 4 February 2007
Total recognised income and expense
Share issues
Share option charge
Dividends
At 3 February 2008
Prior year
At 29 January 2006
Total recognised income and expense
Share issues
Share option charge
Dividends
At 4 February 2007
Share
capital
£m
Share
premium
£m
268
–
1
–
–
269
41
–
16
–
–
57
Share
capital
£m
Share
premium
£m
267
–
1
–
–
268
37
–
4
–
–
41
Merger
reserve
£m
2,578
–
–
–
–
2,578
Merger
reserve
£m
2,578
–
–
–
–
2,578
Hedging
reserve
£m
Retained
earnings
£m
(1)
7
–
–
–
6
1,041
526
–
9
(108)
1,468
Hedging
reserve
£m
Retained
earnings
£m
–
(1)
–
–
–
(1)
766
370
–
3
(98)
1,041
Total
£m
3,927
533
17
9
(108)
4,378
Total
£m
3,648
369
5
3
(98)
3,927
Included in retained earnings is a deduction of £44m (2007: £44m) in respect of treasury shares held at balance sheet date. This represents
the cost of 17,641,448 (2007: 17,641,448) of the Company’s ordinary shares (nominal value of £1.8m). These shares are held by a trust
using funds provided by the Group and were acquired to meet obligations under the share option schemes. The costs of funding and
administering the schemes are charged to the income statement of the Company in the period to which they relate. The market value of the
shares at 3 February 2008 was £53m (2007: £53m). The trust has waived its rights to dividends. These shares are not treasury shares as
defined by the London Stock Exchange.
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76 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
25 Cash flow from operating activities
Profit for the period
Adjustments for:
Taxation
Depreciation and amortisation
Profit on disposal of property, plant and equipment
Net finance cost (note 5)
Other non-cash changes
Excess of contributions over pension service cost
(Increase)/decrease in stocks
Increase in debtors
Increase in creditors
(Decrease)/increase in provisions
Cash generated from operations
26 Analysis of net debt
Cash and cash equivalents (note 15)
Bank overdraft (note 18)
Cash and cash equivalents per cash flow
Long term cash on deposit
Interest and cross-currency swaps
Financial assets (note 12)
Bonds
Swaps
Other loans (note 18)
Finance lease obligations (note 18)
Current financial liabilities
Bonds
Other unsecured loans
Finance lease obligations
Non-current financial liabilities (note 18)
Net debt
2008
£m
554
58
289
(32)
–
6
(148)
(74)
(60)
169
(6)
756
2008
£m
191
(73)
118
74
43
117
–
–
(2)
(2)
(4)
(758)
(15)
(1)
(774)
(543)
2007
£m
248
121
281
(38)
54
3
(42)
31
(3)
37
12
704
2007
£m
231
–
231
–
19
19
(251)
(1)
–
(2)
(254)
(748)
(17)
(3)
(768)
(772)
27 Share-based payments
The Group operates a number of share-based payments schemes: (i) the Executive share option scheme, (ii) the Sharesave scheme, (iii) the
Safeway Customer Care Performance Share Ownership Plan (CCPSOP), (iv) a cash-settled Long Term Incentive Plan (CLTIP), and (v) an equity-
settled Long Term Incentive Plan (LTIP). In line with IFRS 2 Share-based payment, the Group has fair valued all grants of equity instruments
issued after 7 November 2002 which were unvested as of 1 January 2005 and all shadow equity instruments which were unvested as of
1 January 2005.
The total charge for the period relating to employee share-based payment plans was £9m (2007: £20m), all of which (2007: £3m) related to
equity-settled share-based payment transactions. After corporation and deferred tax, the total charge in the income statement was £7m
(2007: £15m).
Morrisons annual report and financial statements 2008 77
27 Share-based payments continued
a) Share option schemes
i) Executive share option scheme
In May 1995, the Group adopted the 1995 Senior Executive Share Option Scheme which was made available to Directors and other senior
employees. The scheme was terminated on 25 May 2005. The scheme offered options at the market price two weeks prior to the date of the
grant which are normally exercisable between three and ten years from the date of grant. The maximum exercise value of the ordinary shares
subject to options held by an individual must not exceed the greater of four times earnings and £100,000. The exercise of options under the
scheme is subject to performance criteria broadly requiring an increase in Group operating profits of at least 20% between the year prior to
the date of the grant and its third or any succeeding anniversary. The scheme is equity-settled.
Those options which have been granted after 7 November 2002 have been fair valued using the Binomial stochastic option pricing model.
The fair value per option granted and the assumptions were as follows:
Grant date
Share price at grant date
Fair value of options granted
Exercise price
Dividend yield
Annual risk free interest rate
Expected volatility*
12 Nov 2004
£2.33
£1.4m
£2.22
1.43%
4.61%
29.4%
2 Apr 2003
£1.81
£1.9m
£1.75
1.49%
4.12%
29.4%
* The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the last six years.
The fair value calculations do not incorporate the effects of non-market vesting conditions, but the charge is adjusted to reflect an estimate
of the number of options which vest.
2008
2007
Movement in outstanding options
Outstanding at start of period
Exercised
Expired
Outstanding at end of period
Exercisable at end of period
Share options exercised in the financial period
Share options outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual file
Weighted
average
exercise
price in £
per share
Options
thousands
Weighted
average
exercise
price in £
per share
1.91
1.92
–
1.90
1.90
5,901
(2,678)
–
3,223
3,223
1.89
1.79
2.00
1.91
1.81
Options
thousands
8,151
(1,690)
(560)
5,901
4,441
2008
2007
Weighted
average
share price
at date of
exercise
Number
of shares
£3.10 2,678,000
Weighted
average
share price
Number
at date of
exercise
of shares
£2.64 1,690,000
2008
2007
£1.75-£2.22
5.0 years
£1.75-£2.22
6.1 years
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78 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
27 Share-based payments continued
ii) Sharesave scheme
The Sharesave scheme has been in operation since 18 May 2000 and all employees (including Executive Directors) are eligible once the
necessary service requirements have been met. The scheme allows participants to save up to a maximum of £250 each month for a fixed
period of three to five years. Options are offered at a discount of 20% to the mid-market closing price on the day prior to the offer and are
exercisable for a period of six months commencing after the end of the fixed period of the contract. The exercise of options under this
scheme is not subject to any performance conditions and is equity-settled.
Options granted before 7 November 2002
The Group has not fair valued the Sharesave plan since the grants of the options were all made before 7 November 2002 and remained
unvested as at 1 January 2005.
2008
2007
Movement in outstanding options
Outstanding at start of period
Exercised
Expired
Outstanding at end of period
Exercisable at end of period
Share options exercised in the financial period
Share options outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual file
Weighted
average
exercise
price in £
per share
Options
thousands
Weighted
average
exercise
price in £
per share
1.80
1.74
2.20
1.79
1.73
7,681
(6,570)
(932)
179
21
1.74
1.33
1.76
1.80
2.39
Options
thousands
11,879
(1,332)
(2,866)
7,681
690
2008
2007
Weighted
average
share price
at date of
exercise
Number
of shares
£2.97 6,570,000
Weighted
average
share price
Number
at date of
exercise
of shares
£2.04 1,332,000
2008
2007
£1.73-£1.79
0.1 years
£1.73-£2.39
0.8 years
Options granted after 7 November 2002
Those options which have been granted after 7 November 2002 to those eligible employees, including Directors, who chose to participate in
the scheme have been fair valued using the Binomial stochastic option pricing model. The fair value per option granted and the assumptions
were as follows:
Grant date
Share price at grant date
Fair value of options granted
Exercise price
Dividend yield
Annual risk-free interest rate
Expected volatility*
18 May 2007 24 Apr 2006
£1.94
£16.2m
£1.58
1.91%
4.57%
25.6%
£3.26
£12.3 m
£2.47
1.23%
5.58%
23.5%
* The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the past 3.25 years prior to the date of grant.
The fair value calculations do not incorporate the effects of non-market vesting conditions.
Morrisons annual report and financial statements 2008 79
2008
2007
Weighted
average
exercise
price in £
per share
1.58
2.47
1.59
1.81
1.84
–
Options
thousands
25,754
10,617
(46)
(3,990)
32,335
–
Weighted
average
exercise
price in £
per share
–
1.58
–
1.58
1.58
–
Options
thousands
–
28,222
–
(2,468)
25,754
–
2008
2007
Weighted
average
share price
at date of
exercise
£3.02
Weighted
average
share price
at date of
exercise
–
Number
of shares
46,000
Number
of shares
–
2008
2007
£1.58-£2.47
2.3 years
£1.58
2.9 years
27 Share-based payments continued
Movement in outstanding options
Outstanding at start of period
Granted
Exercised
Expired
Outstanding at end of period
Exercisable at end of period
Share options exercised in the financial period
Share options outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual file
iii) Safeway Customer Care Performance Share Ownership Plan (CCPSOP)
Awards under the Safeway Customer Care Performance Share Ownership Plan (CCPSOP) were made between 1997 and 1999. Options
granted to employees under the plan were normally exercisable between three and six and a half years after the date of the grant and were
equity-settled. Following the acquisition of Safeway plc by the Group, options under CCPSOP were rolled over into options over shares in the
Company. The Group has not fair valued the CCPSOP since the grants of the options were all made before 7 November 2002 and remained
unvested as at 1 January 2005.
2007
Movement in outstanding options
Outstanding at start of period
Exercised
Expired
Outstanding at end of period
Exercisable at end of period
Weighted
average
exercise
price in £
per share
Options
thousands
1.66
1.66
1.66
–
–
632
(120)
(512)
–
–
All of the outstanding share options were exercised last year and the scheme has been terminated. The weighted average share price at the
date of the exercise last year was £1.97.
b) Long Term Incentive Plans
i) Cash-based Long Term Incentive Plan (CLTIP)
The Group’s CLTIP scheme was made available to certain employees prior to the Safeway integration. Shadow shares were awarded to 684
employees as at 1 September 2004. The cash payment was made on 1 September 2007 based on the number of shares multiplied by the
average share price of the preceding week. The scheme was cash-settled.
Options were valued using the Binomial stochastic option pricing model. The fair value per option granted and the assumptions were as
follows:
Remeasurement date
Share price at re-measurement date
Fair value of options granted
Exercise price
Dividend yield
4 Feb 2007 29 Jan 2006 30 Jan 2005
£2.03
£19.7m
£nil
1.64%
£3.01
£22.0m
£nil
1.23%
£1.87
£14.6m
£nil
1.96%
The fair value calculations do not incorporate the effects of non-market vesting conditions.
The total charge for the period relating to the CLTIP was £nil (2007: £17m) and after deferred and corporation tax, the total charge was
£nil (2007: £12m). The total amount of the liability included within creditors at 3 February 2008 was £nil (2007: £22m). No amount
was vested at the end of either period.
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80 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
27 Share-based payments continued
ii) Equity-based Long Term Incentive Plan (LTIP)
At the AGM held on 24 May 2007, the Shareholders and the Board approved the introduction of a discretionary Long Term Incentive Plan for
the benefit of certain employees as approved by the Remuneration Committee. The awards are free share-based awards, with non-market
vesting conditions attached, that accrue the value of dividends over the vesting period.
The maximum total market value of shares over which awards may be granted to any employee during any financial year of the Company
is 300% of salary. Awards normally vest three years after the original grant date providing the relevant performance criteria have been met.
Employees have six months from the vesting date to exercise their options after which they lapse.
The fair value at the date of grant, which is being charged to the income statement over the three-year vesting period, has been calculated
based on the following assumptions:
Grant date
Share price at grant date
Assumed leavers
Performance criteria achieved
Exercise price
Fair value of options granted
Movement in outstanding share awards
Outstanding at start of period
Granted
Expired
Outstanding at end of period
Exercisable at end of period
Share awards outstanding at the end of the period
Weighted average remaining contractual file
24 Oct 2007
£2.88
5%
90%
£nil
£0.4m
6 Jun 2007 24 May 2007
£3.23
5%
90%
£nil
£10.5m
£3.13
5%
90%
£nil
£0.1m
2008
Weighted
average
exercise
price in £
per share
Options
thousands
–
–
–
–
–
–
4,470
–
4,470
–
2008
2.4 years
28 Operating lease arrangements
a) Lessee arrangements
The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as
follows:
2008
2007
Within one year
More than one year and less than five years
After five years
Vehicles,
plant and
equipment
£m
10
26
–
36
Property
£m
34
127
427
588
Vehicles,
plant and
equipment
£m
12
15
3
30
Property
£m
27
110
448
585
The Group leases various offices, stores and warehouses under non-cancellable operating lease agreements. The leases have various terms
ranging from 4 to 11 years for vehicles, plant and equipment and 25 to over 100 years for property (including land), with varying escalation
clauses and renewal rights. Generally all property leases are reviewed every five years to align them with market rentals.
Morrisons annual report and financial statements 2008 81
28 Operating lease arrangements continued
b) Lessor arrangements
The Group has non-cancellable agreements with tenants and the future minimum lease income is as follows:
Within one year
More than one year and less than five years
After five years
2008
£m
28
93
154
275
2007
£m
19
67
120
206
The Group sub-lets buildings of various nature under non-cancellable agreements. The leases have various terms, escalation clauses and
renewal rights.
29 Capital commitments
Contracts placed for future capital expenditure not provided in the financial statements
Included above are capital commitments for investment property of £7m (2007: £17m).
2008
£m
102
2007
£m
102
30 Contingent liabilities
In September 2007 the Office of Fair Trading issued a Statement of Objections to a number of grocery retailers and milk producers, alleging
collusion in the setting of prices for certain dairy products in 2002 and 2003. Morrisons was accused in relation to one infringement in
2002, and has vigorously denied this. Based on the evidence put forward, the Board does not consider it probable that the Group will
ultimately incur a fine, and accordingly have made no provision for any such liability.
31 Post-balance sheet events
The Directors are proposing a final dividend in respect of the financial period ending 3 February 2008 of 4.125p per share which will absorb
an estimated £111m of Shareholders’ funds. Subject to approval at the AGM, it will be paid on 6 June 2008 to Shareholders who are on the
register of members on 2 May 2008.
As described in the Chief Executive strategy review, the Group intends to return £500m to shareholders through a share buyback programme
in the financial year ended February 2009.
32 Principal subsidiaries
Wholly-owned subsidiaries of Wm Morrison Supermarkets PLC
Bos Brothers Fruit and Vegetables BV
Farmers Boy Limited
Farock Insurance Company Limited
Holsa Limited
Neerock Limited
Wm Morrison Produce Limited
Safeway Limited
Rathbone Kear Limited
Wholly-owned subsidiaries of Safeway Limited
Safeway Overseas Limited
Safeway Stores Limited
Principal activity
Produce wholesaler
Manufacturer and distributor of fresh food products
Captive insurer
Packing manufacturer
Fresh meat processor
Produce packer
Holding company
Baker
Grocery retailer
Grocery retailer
All the above companies are registered in England and Wales except Bos Brothers Fruit and Vegetables BV which is incorporated in
The Netherlands and Farock Insurance Company Limited which is incorporated in the Isle of Man.
The principal area of trading for all the above companies is the United Kingdom apart from Bos Brothers Fruit and Vegetables BV and
Safeway Overseas Limited who also trade in the rest of Europe.
At the end of last year the Group owned 80% of the share capital of Rathbone Kear Limited, the other 20% being owned by Mr H Kear.
The Group purchased the remaining 20% of the company on 25 September 2007 for a cash consideration of £0.6m which was equal to the
book value of the assets acquired.
In addition to the above, the Company has a number of other subsidiary companies, particulars of which will be annexed to the next
annual return.
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82 Morrisons annual report and financial statements 2008
Wm Morrison Supermarkets PLC Company financial statements
under UK GAAP
Company accounting policies
Basis of preparation
These separate financial statements of Wm Morrison Supermarkets
PLC (the Company) have been prepared under the historic cost
convention, except for share-based payments, which is measured
at fair value and in accordance with applicable accounting standards
under UK GAAP and the Companies Act 1985.
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company’s financial statements.
Accounting reference date
The accounting period of the Company ends on the Sunday
falling between 29 January and 4 February each year.
Investments
Investments in subsidiary undertakings are stated at cost less
provision for impairment.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation and
accumulated impairment losses. Costs include directly attributable
costs. Annual reviews are made of estimated useful lives and
material residual values.
Depreciation
The policy of the Company is to provide depreciation at rates which
are calculated to write off the cost less residual value of tangible
fixed assets on a straight line basis. The rates applied are:
Freehold land
Freehold and long leasehold buildings
Short leasehold improvements
Plant, equipment, fixtures and vehicles
Assets under construction
0%
2.5%
Over lease period
14-33%
0%
Fixed assets are reviewed for indications of impairment when events
or changes in circumstances indicate that the carrying amount may
not be recoverable. This is performed for each income generating
unit, which in the case of a supermarket is an individual retail outlet.
If there are indications of possible impairment then a test is
performed on the asset affected to assess its recoverable amount
against carrying value. An asset impaired is written down to its
recoverable amount which is the higher of value in use or its net
realisable value. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of
money and the risks specific to the asset.
If there is indication of an increase in fair value of an asset that had
been previously impaired, then this is recognised by reversing the
impairment, but only to the extent that the recoverable amount does
not exceed the carrying amount that would have been determined if
no impairment loss had been recognised for the asset.
Borrowing costs
All borrowing costs are recognised in the Company’s profit and
loss account on an accruals basis except for interest costs that
are directly attributable to the construction of buildings which
are capitalised and included within the initial cost of a building.
Capitalisation of interest cost ceases when the property is ready
for use.
Pension costs
The Company operates defined benefit and defined contribution
schemes. The defined benefit scheme is no longer open to new
members. A defined contribution scheme is a pension scheme under
which the Company pays fixed contributions into a separate entity.
A defined benefit scheme is one that is not a defined contribution
scheme. Pension benefits under defined benefit schemes are defined
on retirement based on age at the date of retirement, years of
service and employee’s final compensation package.
The Company’s defined benefit retirement scheme is funded by
contributions from the Company and members. Pension scheme
assets, which are held in separate trustee administered funds, are
valued at market rates. Pension scheme obligations are measured on
a discounted present value basis using assumptions set out in note
40. The operating and financing costs of the scheme are recognised
in the profit and loss account in the period in which they arise.
Death-in-service costs are recognised on a straight line basis over
their vesting period. Actuarial gains and losses are recognised
immediately in the statement of recognised gains and losses.
The Company also operates a stakeholder pension scheme and
contributions are charged to the profit and loss account as they
arise.
Provisions
Provisions are created where the Company has a present legal
or constructive obligation as a result of a past event, where it is
probable that it will result in an outflow of economic benefits to
settle the obligation from the Company, and where it can be reliably
measured. The nature of these provisions are:
a) Property provisions
Provisions made in respect of individual properties where there are
obligations for onerous contracts, dilapidations and certain
decommissioning obligations for petrol filling stations. The amounts
provided are based on the Company’s best estimate of the likely
committed outflow to the Company. Where material, these
estimated outflows are discounted to net present value.
b) Restructuring provisions
Provisions are established for announced and ongoing restructuring
programmes planned and controlled by management where there
is an obligation to make changes to the scope of the business
undertaken by the Company or the manner in which business is
conducted. The provision includes costs of severance to the affected
employees, costs of property closure, and other direct expenditures
not associated with ongoing activities.
Morrisons annual report and financial statements 2008 83
Leases
Leases in which substantially all the risks and rewards of ownership
are retained by the lessor are classified as operating leases; all other
leases are classified as finance leases.
Fair value is measured by use of a binomial stochastic model.
The expected life used in the model has been adjusted, based
on management’s best estimate, for effects of non-transferability,
exercise restrictions and behavioural considerations.
The fair value charge of share-based payments that are settled by
cash are credited to the balance sheet and are included within
creditors.
Financial contracts
Where the Company enters into financial contracts to guarantee
the indebtness of other companies within its Group, the Company
considers these to be insurance arrangements, and accounts for
them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes
probable that the Company will be required to make a payment
under the guarantee.
Exemptions
The Company has taken advantage of the exemption from preparing
a cash flow statement under the terms of FRS 1 ‘Cash Flow
Statement’. The cash flows of the Company are included in the
consolidated financial statements.
The Company is also exempt under the terms of FRS 8 ‘Related
Parties’ from disclosing related party transactions with entities that
are part of the Wm Morrison Supermarkets PLC Group.
Lessor accounting – operating leases
Assets acquired and held for use under operating leases are recorded
as fixed assets and are depreciated on a straight line basis to their
estimated residual values over their estimated useful lives.
Operating lease income is recognised on a straight line basis to the
date of the next rent review.
Lessee accounting – operating leases
Rental payments are taken to the profit and loss account on a
straight line basis over the life of the lease.
Property leases are analysed into separate components for land
and buildings and tested to establish whether the components are
operating leases or finance leases.
Deferred and current taxation
Current tax payable is based on the taxable profit for the year using
tax rates enacted or substantively enacted at the reporting date.
Taxable profit differs from the profit as reported in the profit and loss
account as it is adjusted both for items that will never be taxable or
deductible and timing differences.
Deferred tax is provided in full on timing differences between the
accounting and tax cost bases that result in an obligation at the
balance sheet date to pay more tax, or a right to pay less tax, at a
future date. Deferred tax is calculated based on tax law enacted or
substantially enacted by the balance sheet date and is provided at
rates that are expected to apply when the timing differences reverse.
Deferred tax assets are recognised to the extent that it is more likely
than not that they will be recovered. Deferred tax assets and
liabilities are not discounted.
Stocks
Stocks are measured at the lower of cost and net realisable value.
Cost is calculated at weighted average basis and comprises purchase
price, import duties, less rebates and other non-recoverable taxes.
Stocks are primarily goods for resale.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs necessary to make the sale.
Share-based payments
The Company issues equity-settled share-based payments to certain
employees in exchange for services rendered by them. The fair value
of the share-based award is calculated at the date of grant and is
expensed on a straight line basis over the vesting period with a
corresponding increase in equity. This is based on the Company’s
estimate of share options that will eventually vest. This takes
into account movement of non-market conditions, being service
conditions and financial performance, if relevant. The fair value
of equity-settled awards granted is not subsequently revisited.
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84 Morrisons annual report and financial statements 2008
Company balance sheet
3 February 2008
Fixed assets
Tangible assets
Investments
Current assets
Stocks – goods for resale
Debtors
Cash-in-hand
Creditors – amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Provisions for liabilities and charges
Net assets – excluding pension liability
Net pension liabilities
Net assets – including pension liability
Capital and reserve
Called up share capital
Share premium
Merger reserve
Profit and loss account
Equity shareholders’ funds
Note
35
36
37
38
39
40
42
43
43
43
2008
£m£m
2,233
3,366
5,599
325
620
169
1,114
(2,413)
2007
£m
2,053
3,366
5,419
242
575
151
968
(2,022)
(1,299)
(1,054)
4,300
4,365
(41)
(58)
4,259
(22)
4,237
4,307
(27)
4,280
269
57
2,578
1,333
4,237
268
41
2,578
1,393
4,280
The accounting policies on pages 82 and 83 and notes on pages 85 to 90 form part of these financial statements.
The financial statements on pages 82 to 90 were approved by the Board of Directors on 12 March 2008 and signed on its behalf by:
Marc Bolland
Chief Executive
Richard Pennycook
Group Finance Director
Notes to the financial statements
52 weeks ended 3 February 2008
Morrisons annual report and financial statements 2008 85
33 Profit and loss account
A profit of £63m (2007: £125m) is dealt with in the accounts of Wm Morrison Supermarkets PLC. The Directors have taken advantage
of the exemption available under section 230 of the Companies Act 1985 and not presented a profit and loss account for the Company
alone. Audit fees and expenses paid to the Group’s auditor were £0.6m (2007: £0.6m).
34 Employees and Directors
Employee benefit expense for the Company during the period
Wages and salaries
Social security costs
Share-based payments (note 27)
Pension costs
Other staff costs
Average monthly number of people employed
2008
£m
2007
£m
662
40
7
23
5
737
662
47
19
27
2
757
2008
No.
54,502
2007
No.
56,030
Key management represent Directors. The aggregate remuneration paid to or accrued for the Directors for services in all capacities during
the period is the same as the Group and is shown in note 3.
There are four Directors (2007: four) who have retirement benefits accruing under the Company’s defined benefit pension scheme.
35 Tangible fixed assets
Cost
At 4 February 2007
Additions at cost
Interest capitalised
Reclassification
Disposals
At 3 February 2008
Accumulated depreciation
At 4 February 2007
Charged in the period
Reclassification
Disposals
At 3 February 2008
Net book value
At 3 February 2008
At 4 February 2007
Assets under construction included above
At 3 February 2008
At 4 February 2007
Land and buildings
Freehold
£m
Short
Long
leasehold
lease improvements
£m
£m
Plant
equipment,
fixtures and
vehicles
£m
2,179
182
7
(206)
(9)
2,153
477
53
(111)
–
419
1,734
1,702
64
94
298
25
1
(51)
(1)
272
47
7
(10)
–
44
228
251
15
14
3
8
–
–
–
11
3
–
–
–
3
8
–
–
–
431
81
–
257
(1)
768
331
53
121
–
505
263
100
21
1
Total
£m
2,911
296
8
–
(11)
3,204
858
113
–
–
971
2,233
2,053
100
109
Included above is an amount of £661m (2007: £604m) relating to non-depreciable land.
The cost of property assets held as lessor included in the above figures is £219m at 3 February 2008 (2007: £203m). The related
accumulated depreciation is £42m (2007: £38m).
Since 3 February 1985, the cost of financing property developments prior to their opening date has been included in the cost of the project.
Accumulated interest capitalised is £86m (2007: £78m).
The classification of tangible fixed assets was reviewed as part of upgrading our systems. As a result of this review, it was deemed appropriate
to reclassify certain assets that have historically been regarded as intrinsic to the building structure to ‘fixtures and fittings’ included within
plant, equipment, fixtures and vehicles.
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86 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
36 Investments
Cost
At 4 February 2007 and 3 February 2008
Provision for impairment
At 4 February 2007 and 3 February 2008
Net book value
At 4 February 2007 and 3 February 2008
A list of the Company’s principal subsidiaries is shown in note 32.
37 Debtors – amounts falling due within one year
Trade debtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments
38 Creditors – amounts falling due within one year
Trade creditors
Amounts owed to subsidiary undertakings
Bank overdrafts
Other taxes
Other creditors
Accruals and deferred income
Corporation tax
39 Provisions for liabilities and charges
At 4 February 2007
Unused amounts reversed during the period
Charge for period
Unwinding of discount
Utilisation of provisions
At 3 February 2008
Investment in
subsidiary
undertakings
£m
3,367
(1)
3,366
2007
£m
76
452
7
40
575
2007
£m
906
701
–
56
88
203
68
2,022
Total
£m
58
(13)
3
1
(8)
41
2008
£m
68
486
7
59
620
2008
£m
1,091
863
73
20
100
236
30
2,413
Deferred Restructuring
provision
taxation
£m
£m
36
14
(8)
(5)
–
–
–
–
(8)
–
20
9
Property
provisions
£m
8
–
3
1
–
12
Further details of property and restructuring provisions are provided in note 22.
The potential deferred taxation on timing differences, calculated at 28% (2007: 30%), is set out below and has been provided for in full.
Excess of capital allowances over depreciation
Provisions and short term timing differences
Share-based payments
2008
£m
83
(69)
(5)
9
2007
£m
78
(58)
(6)
14
Morrisons annual report and financial statements 2008 87
40 Pension liabilities
a) Defined benefit pension scheme
The Company operates a pension scheme providing benefits based on final pensionable pay. The assets of the scheme are held in a separate
trustee administered fund. The latest full provisional actuarial valuations were carried out at 6 April 2007 and were updated for FRS 17
purposes for the periods to 3 February 2008 by a qualified independent actuary.
b) Assumptions
The major assumptions used in this valuation to determine the present value of the scheme’s liabilities were as follows:
Rate of increases in salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate applied to scheme liabilities
Inflation assumption
2007
2008
2006
5.00-6.00% 4.25-5.45% 4.25-5.25%
3.00%
4.75%
3.00%
3.75%
5.75%
3.75%
3.20%
5.00%
3.20%
i) Longevity
The average life expectancy in years of a member who reaches normal retirement age of 65 and is currently aged 45 is as follows:
Male
Female
2008
23.5
25.8
The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:
Male
Female
2008
22.2
24.7
2007
19.9
22.8
2007
19.9
22.8
2006
19.9
22.8
2006
19.9
22.8
Assumptions regarding future mortality experience are set based on advice in accordance with published statistics. The current mortality
table used is PNX00 YOB LC (2007: PA92 C2020).
The major assumptions used to determine the expected future return on the scheme’s assets, were as follows:
Long term rate of return on:
Equities
Bonds
Property
Cash
2008
2007
2006
7.00%
6.00%
6.00%
5.50%
7.00%
5.00%
6.00%
5.25%
7.00%
4.25%
7.00%
4.50%
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the
timescales covered, may not necessarily be borne out in practice.
c) Valuations
The fair values of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change before
they are realised, and the present value of the scheme’s liabilities which are derived from cash flow projections over long periods and are
inherently uncertain, were as follows:
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Total market value of assets
Present value of scheme liabilities
Deficit in the scheme – pension liability
Related deferred tax asset
Net pension liability in the balance sheet
2008
£m
252
57
60
31
7
407
(438)
(31)
9
(22)
2007
£m
288
43
–
36
1
368
(406)
(38)
11
(27)
2006
£m
252
34
–
1
19
306
(381)
(75)
23
(52)
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88 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
40 Pension liabilities continued
The movement in the deficit during the period was as follows:
Deficit in the scheme at the beginning of the period
Current service cost
Contributions
Other finance income
Actuarial (loss)/gain
Deficit in the scheme at the end of the period
d) Profit and loss account impact
The following amounts have been charged in arriving at operating profit in respect of pension costs:
Current service cost
The following amounts have been included in other finance income:
Expected return on pension scheme assets
Interest on pension scheme liabilities
e) Amounts recognised in statement of total recognised gains and losses
The amounts included in the statement of total recognised gains and losses were:
Actual return less expected return on scheme assets
Experience gains and losses arising on scheme liabilities
Changes in assumptions underlying the present value of scheme liabilities
Actuarial (loss)/gain recognised in the statement of total recognised gains and losses
f) History of experience gains and losses
Difference between the expected and actual return on scheme assets:
Amount
Percentage of scheme assets
Experience gains and losses arising on scheme liabilities:
Amount
Percentage of present value of scheme liabilities
Effects to changes in the demographic and financial assumptions
underlying the present value of the scheme liabilities:
Amount
Percentage of present value of scheme liabilities
Total amount recognised in statement of total recognised gains and losses
Amount
Percentage of present value of scheme liabilities
2008
£m
(32)
(7.9%)
12
2.9%
(6)
(1.4%)
(26)
(5.9%)
2007
£m
16
4.4%
6
1.6%
12
2.9%
34
8.4%
2008
£m
(38)
(21)
50
4
(26)
(31)
2008
£m
21
2008
£m
25
(21)
4
2008
£m
(32)
12
(6)
(26)
2006
£m
35
11.6%
4
1.1%
2007
£m
(75)
(24)
25
2
34
(38)
2007
£m
24
2007
£m
21
(19)
2
2007
£m
16
6
12
34
2005
£m
7.5
3.3%
2
0.6%
2006
£m
(72)
(22)
25
1
(7)
(75)
2006
£m
22
2006
£m
17
(16)
1
2006
£m
35
4
(46)
(7)
2004
£m
25
13.9%
(3)
(1.4%)
(46.6)
(12.2%)
(16.9)
(5.6%)
(71)
(28.6%)
(7)
(1.8%)
(7.6)
(2.5%)
(49)
(19.9%)
Morrisons annual report and financial statements 2008 89
40 Pension liabilities continued
g) Defined contribution pension scheme
Employees joining the Company after September 2000 are no longer eligible to gain automatic entry into the final salary pension scheme.
In June 2001 the Company established a stakeholder pension scheme, open to all employees, to which the Company makes matching
contributions of a maximum of 5% of eligible earnings. Pension costs for the defined contribution scheme are as follows:
Stakeholder pension scheme
Life assurance scheme
Total costs
41 Reconciliation of movements in equity shareholders’ funds
Profit for the financial period
Dividends
Retained (loss)/profit for the financial period
Share-based payment charge
Deferred tax on share options
Actuarial (loss)/gain on pension scheme
Movement in deferred tax relating to pension scheme
Share options exercised
New share capital subscribed
Net addition to equity shareholders’ funds
Opening shareholders’ funds
Closing equity shareholders’ funds
42 Share capital
a) Equity
Authorised
Equity share capital
4,000,000,000 ordinary shares of 10p each (2007: 4,000,000,000)
Issued and fully paid
Equity share capital
2,686,071,130 ordinary shares of 10p each (2007: 2,676,776,258)
i) Ordinary shares
At start of period
Share options exercised
At end of period
Details on new share capital subscribed are provided in note 23 above.
b) Non-equity
The authorised and issued preference share capital of the Company is as follows:
5¼% cumulative redeemable convertible preference shares of £1 each
Authorised 50,000,000 (2007: 50,000,000)
Issued and fully paid 282,666 (2007: 282,666)
2008
£m
(1)
(1)
(2)
2008
£m
63
(108)
(45)
6
(2)
(26)
7
16
1
(43)
4,280
4,237
2007
£m
(1)
(1)
(2)
2007
£m
125
(98)
27
3
3
34
(10)
–
5
62
4,218
4,280
2008
£m
2007
£m
400
400
269
268
2008
£m
268
1
269
2008
£m
50.0
0.3
2007
£m
267
1
268
2007
£m
50.0
0.3
The 51⁄4% cumulative preference shares, which are classified as a current liability in accordance with FRS 25 Financial instruments: Disclosure,
do not carry any voting rights, and were issued in 1987 at £1 per share.
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90 Morrisons annual report and financial statements 2008
Notes to the financial statements continued
52 weeks ended 3 February 2008
43 Reserves
At start of period
Retained in the period
Share-based payment charge
Deferred tax on share options
Actuarial loss recognised
Tax arising on actuarial loss
Share options exercised
At end of period
Net pension liability
Profit and loss account excluding pension liability
Share
premium
account
£m
41
–
–
–
–
–
16
57
Merger
reserve
£m
2,578
–
–
–
–
–
–
2,578
Profit
and loss
account
£m
1,393
(45)
6
(2)
(26)
7
–
1,333
22
1,355
44 Share-based payments
The disclosure requirements for FRS 20 Share-based payment are identical to that of IFRS 2 Share-based payment and share-based payments
included in the Company are the same as the Group. Full IFRS 2 disclosures are provided in note 27.
45 Capital commitments
Contracts placed for future capital expenditure not provided in the financial statements
2008
£m
86
2007
£m
92
46 Operating lease commitments
Annual commitments under non-cancellable operation leases:
Expiring within one year
Expiring within two to five years inclusive
Expiring over five years
2008
2007
Plant,
equipment,
Land and fixtures and
vehicles
buildings
£m
£m
1
–
8
–
2
3
11
3
Plant,
equipment,
fixtures and
vehicles
£m
3
7
3
13
Land and
buildings
£m
–
–
3
3
47 Contingent liabilities
The Company has given an unlimited guarantee in respect of the overdraft of all the subsidiary undertakings. At 3 February 2008, there was
a credit balance of £0.4m including uncleared banking items (2007: £0.2m).
The Company has also provided a guarantee in respect of Sterling and Euro Bonds, amounting to £758m (2007: £999m) in respect of
a subsidiary undertaking.
In September 2007 the Office of Fair Trading issued a Statement of Objections to a number of grocery retailers and milk producers, alleging
collusion in the setting of prices for certain dairy products in 2002 and 2003. Morrisons was accused in relation to one infringement in
2002, and has vigorously denied this. Based on the evidence put forward, the Board do not consider it probable that the Company will
ultimately incur a fine, and accordingly have made no provision for any such liability.
48 Post balance sheet events
The Directors are proposing a final dividend in respect of the financial period ending 3 February 2008 of 4.125p per share which will absorb
an estimated £111m of shareholders’ funds. Subject to approval at the AGM, it will be paid on 6 June 2008 to shareholders who are on the
register of members on 2 May 2008.
As described in the Chief Executive strategy review, the Company intends to return £500m to shareholders through a share buyback
programme in the financial year ended February 2009.
Seven year summary of results
52 weeks ended January
Morrisons annual report and financial statements 2008 91
Consolidated income statement
Turnover
Cost of sales5
Other operating income
Raw materials and consumables
Gross profit
Other operating income
Administrative expenses
Profits arising on property transactions
Staff costs
Depreciation
Other operating charges
Operating profit before one-off costs
One-off costs
Operating profit/(loss)
Amortisation of negative goodwill
Net finance (costs)/income
Share of joint venture operating profit
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
Minority interest equity
Profit/(loss) for the period
Dividends4
Profit/(loss) retained
Basic earnings per share (p)
Diluted earnings per share (p)
Diluted earnings excluding property
transactions per share (p)
Underlying earnings per share (p)
Dividend per ordinary share (p)
1 53 weeks.
New format*
IFRS GAAP
20071
£m
12,462
(11,826)
2006
£m
12,115
(11,793)
2008
£m
12,969
(12,151)
Previous format
IFRS GAAP
UK GAAP
2006
£m
12,115
20052
£m
12,104
20052, 3
£m
12,116
2004
£m
4,944
2003
£m
4,290
2002
£m
3,915
818
636
322
30
(268)
32
21
(272)
38
19
(237)
8
612
–
612
–
–
–
612
(58)
554
–
554
(108)
446
20.79
20.67
19.70
14.38
4.80
423
–
423
–
(54)
–
369
(121)
248
–
248
(98)
149
9.32
9.31
8.30
8.28
4.00
112
(375)
(263)
–
(52)
2
(313)
63
(250)
–
(250)
(99)
(348)
(9.46)
(9.46)
(9.21)
(7.91)
3.70
19
(9,156)
2,978
18
(9,110)
3,012
6
(9,110)
3,012
1
(3,682)
1,263
2
(3,186)
1,106
1
(2,944)
972
8
(1,631)
(257)
(986)
112
(375)
(263)
–
(52)
2
(313)
63
(250)
–
(250)
(98)
(348)
(9.46)
(9.46)
(9.21)
(7.91)
3.70
15
(1,537)
(259)
(836)
395
(139)
256
–
(65)
2
193
(88)
105
–
105
(88)
17
4.14
4.12
3.72
4.93
3.70
18
(1,533)
(265)
(834)
398
(99)
299
58
(64)
4
297
(91)
206
–
206
(88)
118
8.10
8.07
7.58
7.60
3.70
1
(571)
(120)
(256)
317
(11)
306
–
14
320
(122)
198
–
198
(44)
154
1
(498)
(111)
(227)
271
(3)
268
–
15
283
(97)
186
(2)
184
(36)
148
0
(445)
(99)
(198)
230
–
230
–
13
243
(88)
155
–
155
(29)
126
12.59
12.48
12.44
13.91
3.25
11.79
11.61
11.56
12.51
2.70
10.02
9.79
9.78
10.88
2.20
2 The results for 2005 include the acquired results of Safeway Limited.
3 Reclassification under UK GAAP to reallocate distribution costs.
4 Restated for FRS 25 Financial instruments: Disclosure for preference share dividends and FRS 21 Events after balance sheet date for dividends.
5 New category 2007 and Restated 2006.
* The income statement has been changed to that of a functional style.
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92 Morrisons annual report and financial statements 2008
Seven year summary of results continued
52 weeks ended January
Balance sheet
Assets
Goodwill and other intangibles
Property, plant and equipment
Lease prepayments
Investment property
Investment in joint venture
Financial assets
Non-current assets
2008
£m
6,205
239
239
–
43
6,726
IFRS GAAP
20071
£m
–
6,117
228
241
–
19
6,605
2006
£m
–
6,144
218
225
–
36
6,623
20052, 3
£m
20052, 3
£m
2004
£m
UK GAAP
103
5,708
231
219
78
37
6,376
(263)
6,824
–
–
68
–
6,629
–
1,739
–
–
–
–
1,739
2003
£m
–
1,609
–
–
–
–
1,609
2002
£m
–
1,453
–
–
–
–
1,453
Current assets
910
766
821
1,325
741
492
384
328
Liabilities
Current liabilities
Other financial liabilities
Deferred tax liabilities
Net pension liabilities
Provisions
Non-current liabilities
(1,853)
(1,855)
(1,807)
(1,713)
(1,732)
(743)
(656)
(587)
(774)
(424)
(68)
(139)
(1,405)
(769)
(478)
(198)
(144)
(1,589)
(1,023)
(422)
(416)
(127)
(1,989)
(1,017)
(501)
(408)
(56)
(1,982)
(990)
(207)
(264)
(80)
(1,540)
(1)
(38)
(48)
(13)
(100)
(5)
(37)
(20)
(12)
(74)
(12)
(39)
–
(10)
(61)
Net assets
4,378
3,927
3,649
4,006
4,097
1,388
1,263
1,133
Shareholders’ equity
Called up share capital
Share premium
Merger reserve
Retained earnings and other reserves
Total equity
269
57
2,578
1,474
4,378
268
42
2,578
1,039
3,927
267
37
2,578
767
3,649
266
20
2,578
1,142
4,006
266
20
2,578
1,233
4,097
157
16
–
1,215
1,388
156
13
–
1,094
1,263
154
8
–
971
1,133
1 53 weeks.
2 The results for 2005 include the acquired results of Safeway Limited.
3 Restated for FRS 25 Financial instruments – disclosure and measurement for preference share dividends and FRS 21 Events after balance sheet date for dividends.
Supplementary information
Morrisons annual report and financial statements 2008 93
2008
£m
4.07
44.57
65.89
123.67
122.13
20.00
11.49
IFRS GAAP
20071
£m
2006
£m
20052, 3
£m
20052, 3
£m
2004
£m
2003
£m
2002
£m
UK GAAP
2.86
0.09
260.97 (202.62)
217.93 (262.12)
198.90 (338.38)
329.61
198.37
8.11
–
7.63
145.06
144.81
(2.26)
(16.25)
(7.13)
(39.67)
4.10
(46.86)
(35.34)
(66.99)
13.85
13.85
(8.92) 188.69 195.24
15.25
14.31
13.24
6.07
7.49
20.37
9.83
9.58
16.25
16.26
20.04
18.59
22.73
11.53
11.98
9.78
10.91
8.00
8.18
22.22
13.03
4.72
4.72
4.27
3.40
2.96
1.99
(2.17)
(2.58)
(2.07)
2.12
1.59
0.87
2.47
2.45
1.70
6.19
6.47
4.00
6.24
6.59
4.34
5.88
6.21
3.96
12
141
180
42
375
284
10,837
28.9
10,656
11,238
20.18
576
24,411
23.10
13
143
173
39
368
278
10,505
28.5
10,762
10,841
19.34
541
24,343
22.53
14
158
167
39
378
275
10,633
28.1
11,539
10,541
17.69
477
25,818
20.92
78
186
197
37
498
283
12,468
25.0
12,705
10,929
16.80
400
18,712
21.36
78
186
197
37
498
283
12,468
25.0
12,705
10,929
16.80
400
18,712
21.36
–
8
93
24
125
112
4,526
36.2
4,399
4,550
19.94
716
29,242
24.48
–
9
86
24
119
98
4,241
35.6
4,113
3,988
18.65
666
28,277
23.57
–
9
83
21
113
89
4,039
35.7
3,964
3,644
17.68
629
27,645
22.77
51,502
66,302
50,018
67,436
57,501
56,005
84,896
76,836
117,454 117,804 134,337 140,901 140,901
95,340
93,041
56,005
84,896
95,340
83,736
84,653
23,296
29,088
52,384
35,395
21,136
25,642
46,778
31,961
18,931
24,028
42,959
29,141
155
7,307
17,973
82,194
369
147
4,999
17,787
86,745
5015
130
1,198
17,528
81,819
409
127
4,147
16,120
45,583
432
127
4,177
16,081
45,583
432
140
8,950
16,124
30,943
517
134
8,482
15,585
28,570
498
134
7,899
15,257
26,399
472
Increase/(decrease) on previous year %
Turnover
Operating profit
Profit before taxation
Profit after taxation
Diluted earnings per share
Dividend per ordinary share
Shareholder funds
% of turnover
Operating profit
Profit/(loss) before taxation
Profit/(loss) after taxation
Retail portfolio
Size 000s sq ft (net sales area)
0–15
15–25
25–40
40+
Total
Petrol filling stations
Total sales area (000s sq ft)
Average store size (000s sq ft)
Average sales area (000s sq ft)4
Total supermarket takings ex-fuel (gross) £m
Average per sq ft per week (£)
Average per store per week (£000s)
Average number of customers per store per week
Average take per customer (£)
Employees
Full time
Part time
Total
Full time equivalent
Average per FTE employee:
Turnover (£000s)
Operating profit before one-off costs (£)
Staff costs (£)
No. of participants in profit-related pay scheme
Average profit-related pay received (£)
1 53 weeks.
2 Includes Safeway Limited.
3 Reclassification under UK GAAP to reallocate distribution costs.
4 Includes sales area of divested stores.
5 Includes loyalty bonus.
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94 Morrisons annual report and financial statements 2008
Additional shareholder information
The following sections provide the additional information for
shareholders required following the implementation in the UK
of the EU Takeover Directive if not provided elsewhere in this
Annual Report.
Share capital
The Company (Wm Morrison Supermarkets PLC) has two classes
of shares: ordinary shares of 10p each (ordinary shares) and 51⁄4%
cumulative redeemable preference shares of £1 per share
(preference shares).
As at 5 February 2007, the Company had 2,676,776,258 ordinary
shares in issue. During the year ended 3 February 2008, 9,294,872
ordinary shares were issued to its Directors and staff in respect of
share options. As at 3 February 2008, the Company had
2,686,071,130 ordinary shares in issue.
Details of the options outstanding under each of the Company’s
share option schemes at the end of the year are set out in note 27
to the Group’s consolidated financial statements.
As at 5 February 2007, the Company had 282,666 preference
shares in issue. The preference shares ceased to be convertible into
ordinary shares in 2006 and the number of preference shares at
3 February 2008 remained at 282,666. The Company may redeem
preference shares at any time at par and shall redeem all of the
preference shares in issue at par on 31 December 2009. The holders
of preference shares are entitled to a fixed cumulative preferential
dividend of 51⁄4% per annum payable on 15 March and 15 September
in each year until redemption.
Each ordinary share carries one vote and the preference shares do
not carry voting rights unless the vote is on a winding up, a resolution
varying or abrogating the rights of the preference shareholders or
the preference dividend is six months in arrears. At 3 February 2008,
the total number of voting rights in the Company was 2,686,071,130.
The authorised share capital of the Company as at this date was
£4,050m, comprising 4,000 million ordinary shares and 50 million
preference shares.
The issued ordinary share capital represents 99.99% and the issued
preference share capital represents 0.01% of the total issued
share capital.
No share in the capital of the Company may be allotted at a discount
and, save as permitted by the Companies Act 1985 (the ‘1985 Act’)
and the Companies Act 2006 (the ‘2006 Act’) (together the ‘Acts’),
no share may be allotted except as paid up at least as to one-quarter
of its nominal value and the whole of any premium on it.
Voting
Subject as set out above:
i)
on a show of hands, every shareholder present in person shall
have one vote, and
ii) on a poll every shareholder present in person or by proxy shall
have one vote for every share of which they are the holder.
No shareholder shall be entitled to vote in relation to shares held by
them unless all moneys presently payable by them in respect of those
shares have been paid. Currently, all issued shares are fully paid.
The Company has the right to apply for an order that the voting
rights of shareholders may be restricted where a notice pursuant
to section 793 of the 2006 Act (which has replaced section 212
of the 1985 Act) has been given in respect of shares held by such
shareholder and the information required by such notice has not
been given to the Company.
Transfer of shares
A shareholder may transfer all or any of his/her certificated shares
by an instrument of transfer in any usual form or in any other form
which the Board of Directors (each a ‘Director’) of the Company
(the ‘Board’) may approve. An instrument of transfer shall be signed
by or on behalf of the transferor and, in the case of a partly paid
share, by or on behalf of the transferee. An instrument of transfer
need not be under seal.
Subject to the Uncertificated Securities Regulations 2001 (CREST
Regulations) the Board may refuse to register the transfer of a
certificated share which:
i)
is not a fully paid share, provided that the refusal does not
prevent dealings in shares of that class in the Company from
taking place on an open and proper basis,
ii)
is in respect of more than one class of shares,
iii)
is not lodged, duly stamped (if stampable) with the Company
and (except where the shares are registered in the name of
a recognised person) accompanied by the relevant share
certificate and such other evidence of the right to transfer
as the Board may require; or
iv)
is in favour of more than four persons except in the case of
executors or trustees of a deceased member.
Notice of refusal to register a transfer (together with reasons for
refusal) must be sent to the transferee as soon as practicable and in
any event within two months after the date on which the instrument
of transfer was lodged with the Company or the instruction to
transfer shares was received by the Company from the operator of a
relevant system (in each case, as defined in the CREST Regulations),
as the case may be.
No fee shall be charged for the registration of any instrument of
transfer or other document relating to or affecting the title to any
share. Every transfer of shares which are in uncertificated form must
be made by means of a relevant system, including the relevant
system of which CREST Co Limited is the operator (in each case,
as defined in the CREST Regulations).
Other than as provided by Part 28, Chapter 3 of the 2006 Act
(which restates sections 428 to 430 of the 1985 Act and
implements the Takeovers Directive (Interim Implementation)
Regulations 2006 (SI 1183/2006) (the Regulations)) and the City
Code on Takeovers and Mergers there are no rules or provisions
relating to mandatory takeover bids and/or squeeze-out and sellout
rules in relation to the ordinary shares.
Morrisons annual report and financial statements 2008 95
Variation of rights
Rights attached to any class of shares may be varied or abrogated
in such manner (if any) as may be provided by those rights, or in
the absence of any provision, either with the written consent of the
holders of not less than three-quarters in nominal value of the issued
shares of that class (excluding shares of that class held by the
Company as treasury shares), or with the sanction of an extraordinary
resolution passed at a separate general meeting of the holders of
those shares.
Alteration of share capital
The Company may from time-to-time by ordinary resolution increase,
consolidate and divide or, subject to the Acts, subdivide all or any
part of its share capital. The Company may by ordinary resolution
also cancel any shares that have not, at the date of passing the
resolution, been taken or agreed to be taken by any person and
diminish the amount of its authorised share capital by the amount
of the shares so cancelled. Subject to the provisions of the Acts, the
Company may by special resolution reduce its share capital, capital
redemption reserve and share premium account.
Allotment and issue of shares
Subject to the provisions of the Acts and the Articles and without
prejudice to any rights attached to any existing shares or class of
shares, any share may be issued with such rights or restrictions
as the Company may by ordinary resolution determine or, subject
to and in the default of such determination, as the Board shall
determine. Subject to the provisions of the Acts and the Articles,
the unissued shares of the Company (whether forming part of the
original or any increased capital) are at the disposal of the Board.
The Directors are, by shareholder resolution passed at the
Company’s AGM on 24 May 2007, generally and unconditionally
authorised, pursuant to section 80 of the 1985 Act to exercise all
the powers of the Company to allot relevant securities (within the
meaning of section 80(2) of the 1985 Act) up to a maximum
nominal amount of £80,300,000. This authority expires on the
earlier of 30 June 2008 or on the conclusion of the 2008 AGM of
the Company (unless previously revoked, varied or renewed). A
resolution to renew this authority is to be proposed at the 2008 AGM.
The Directors are, by shareholder resolution also passed at the
Company’s AGM on 24 May 2007, generally empowered to allot
equity securities (within the meaning of section 94(2) of the 1985
Act) of the Company for cash as if section 89(1) of the 1985 Act or
any pre-emption provisions contained in the Articles did not apply.
This power is limited to (i) any allotment where equity securities
have been offered to holders of equity securities in proportion
(as nearly as may be) to their then holdings of such securities; and
(ii) any other allotment of equity securities up to an aggregate
nominal value of £13,387,561. Such authorities and powers expire
on the earlier of 30 June 2008 or on the conclusion of the next AGM
of the Company (unless previously revoked, varied or renewed). A
resolution to renew this authority is to be proposed at the 2008 AGM.
Redeemable shares and purchase of own shares
Subject to the Acts, and without prejudice to any rights attaching
to any existing shares or class of shares, in such manner as is
provided in the Articles, shares may be issued that are to be
redeemed or which at the option of the Company or the holder
are liable to be redeemed.
Subject to the Acts and to Chapter 12 of the Rules relating to
Admission to the Official List in accordance with section 73A(2)
of the Financial Services and Markets Act 2000 (the ‘Listing Rules’)
and the Company may purchase any of its own shares of any class
in any way and at any price (whether at par or above or below par)
subject, in the case of the preference shares to the prior approval
by extraordinary resolution of the preference shareholders at a
separate meeting.
The Directors are, by shareholder resolution passed at the
Company’s AGM on 24 May 2007, generally and unconditionally
authorised to make market purchases of ordinary shares and
preference shares provided that:
i)
ii)
the maximum aggregate numbers of ordinary shares
and preference shares authorised to be purchased were
151,900,000 ordinary shares and 28,266 preference shares;
the minimum prices to be paid were the respective par values
and the maximum prices to be paid were amounts equal to
105% of the average of the values of such shares in the five
business days before purchase.
The authority expires at the conclusion of the next AGM of the
Company. A resolution to renew and extend this authority is to be
proposed at the 2008 AGM.
Distribution of assets on winding up
Except as provided by the rights and restrictions attached to any
class of shares, the holders of the Company’s shares will under
general law be entitled to share in any surplus assets in a winding
up in proportion to their shareholdings. A liquidator may, with the
sanction of an extraordinary resolution and any other sanction
required by the Insolvency Act 1986, divide among the shareholders
in specie the whole or any part of the assets of the Company and
may, for that purpose, value any assets and except as aforesaid
determine how the division shall be carried out as between the
shareholders or different classes of shareholders.
Substantial shareholders
As at 12 March 2008, the Company had been notified, in accordance
with DTR 5 of the Financial Service Authority’s Disclosure and
Transparency Rules, of the interests in the Company’s ordinary
share capital. This detail of substantial shareholders and indirect
shareholdings as at 12 March 2008 are disclosed in the Directors’
Report are disclosed inside the back cover.
The Company is not aware of any agreements between holders
of securities which may result in restrictions on the transfer of
securities or on voting rights.
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96 Morrisons annual report and financial statements 2008
Additional shareholder information continued
Significant agreements
Other than disclosed below there are no agreements that the
Company considers significant and to which the Company is party
that would take effect, alter or terminate upon change of control of
the Company following a takeover bid.
Retirement by rotation
Subject to the Articles all of the Directors shall retire from office at
the AGM at least once in every three year period. The Directors to
retire will be those who have been longest in office since their last
appointment or reappointment.
The terms of the LTIP state that upon change of control occurring
that the Board will notify every participant within seven days of the
change of control that, subject to certain conditions, that every
Award shall vest, and that any Option may be exercised within one
month of the date of notification.
Replacement of Directors
Section 168 of the 2006 Act provides that a Company may remove
a Director by ordinary resolution but requires that it be at a meeting
(and not by written resolution) so as to ensure the Director’s right to
be heard. Special notice is required.
Compensation for loss of office
The Articles provide that the Board may resolve to exercise any
power conferred on the Company by the Acts to make provision as
may seem appropriate for the benefit of any persons employed or
formerly employed by the Company or any of its subsidiaries (or any
member of their family, including a spouse or any person who is or
was dependent on them). Such provisions would apply in connection
with the cessation or the transfer to any person of the whole or part
of the undertaking of the Company or any subsidiary.
Following a review of service contracts for the Executive Directors,
the Remuneration Committee adopted a new model contract which
provides that any compensation provisions for termination without
notice will only extend to 12 months of salary, benefits and pension
(which may be payable in instalments and subject to mitigation) and
has agreed that going forward, all new Director contracts would be
on that basis. The model contract does not contain change of control
provisions. This policy was applied to Marc Bolland at the time of
his recruitment and was applied to Mark Gunter, Martyn Jones
and Roger Owen on 5 April 2007. Richard Pennycook’s contract
provides that he has an obligation to mitigate his loss in the event
of termination.
Appointment and retirement of Directors
Unless otherwise determined by ordinary resolution, the number
of Directors may not be less than two and is not subject to any
maximum. Directors may be appointed by the Company by an
ordinary resolution of shareholders. The Board may appoint a
Director either to fill a vacancy or as an additional Director. Any
Director so appointed will hold office only until the next following
AGM. If not reappointed at such meeting, such a Director will vacate
office at its conclusion. A Director is not required to hold shares in
the capital of the Company.
On joining the Board, the Directors are provided with
documentation on the Company and its activities. New Directors
are provided with an appropriate induction programme and where
appropriate visits are arranged to stores and other business facilities.
Ongoing training is provided as necessary.
Appointment of Alternate Directors
Any Director (other than an alternate Director) may, by notice
delivered to the registered office of the Company, or in any other
manner approved by the Board, appoint any other Director or any
other person who is approved by the Board be his/her alternate.
No appointment of an alternate Director who is not already a
Director may be effective until his/her appointment has been
approved by the Board.
Without prejudice to the provisions of the Acts, the Articles provide
that the Company may by ordinary resolution remove any Director
before the expiration of his/her period of office. The Company may
by ordinary resolution appoint a person to be a Director either to fill
a vacancy or as an additional member of the Board.
Subject to the provisions of the Acts, the Board may appoint a
person to be a Director either to fill a vacancy or as an additional
member of the Board.
The Company may by ordinary resolution subject the number of
Directors to a maximum.
Directors ’ interests
Subject to the provisions of the Acts, and provided that he/she has
disclosed to the Board the nature and extent of any material interest
of his/her, a Director notwithstanding his/her office:
i) may be a party to, or otherwise interested in, any transaction or
arrangement with the Company or in which the Company is
otherwise interested,
ii) may be a Director or other officer of, or employed by, or a party
to any transaction or arrangement with, or otherwise interested
in, any body corporate promoted by the Company or in which
the Company is otherwise interested,
iii) shall not, by reason of his/her office, be accountable to the
Company for any benefit which he/she derives from any such
office or employment or from any such transaction or
arrangement or from any interests in any such body corporate
and no such transaction or arrangement shall be liable to be
avoided on the ground of any such interest or benefit.
Votes
Questions arising at a meeting of the Board shall be decided by a
majority of votes. In the case of an equality of votes, the Chairman
shall have a second or casting vote.
Voting restrictions
A Director shall not vote at a meeting of the Board or a committee
of the Board on any resolution of the Board concerning his/her
appointment or concerning a matter in which he/she has a material
interest (other than by virtue of his/her interests in shares or
debentures or other securities of, or otherwise in or through, the
Company) which (together with any interest of any person
connected with him/her) save for any resolution which:
Morrisons annual report and financial statements 2008 97
i)
ii)
relates to the giving of a security, guarantee or indemnity in
respect of money lent or obligations incurred by him or by
another person at the request of or for the benefit of the
Company or a subsidiary undertaking, or a debt or obligation
of the Company or a subsidiary undertaking for which he has
assumed responsibility in whole or in part under a guarantee
or indemnity or by the giving of security,
relates to an offering of securities by the Company for a
subsidiary undertaking in which offer he is or may be entitled
to participate as a holder of securities or in the underwriting
or sub-underwriting of which he is to participate,
iii) relates to another company in which he and persons connected
with him do not to his knowledge hold an interest in shares
(within the meaning of sections 198–215 of the 1985 Act which
has now been replaced by Part 6 of the Financial Services &
Markets Act 2000) representing 1% or more either of its equity
share capital or of its voting rights,
iv) relates to a contract, arrangement or proposal for the benefit
of the employees of the Company or a subsidiary undertaking
which does not award him a privilege or benefit not generally
awarded to the employees to whom the contract, arrangement
or proposal relates; or
v)
concerns insurance which the Company proposes to maintain or
purchase for the benefit of Directors or for the benefit of
persons including Directors, unless the Company has suspended
or relaxed the above provisions by ordinary resolution.
Indemnification
Subject to the Acts but without prejudice to any indemnity to which
he/she may otherwise be entitled, every Director or other officer of
the Company is entitled to be indemnified out of the assets of the
Company against all costs, charges, expenses, losses and liabilities
which he/she may sustain or incur in or about the execution of his
office or otherwise in relation to the affairs of the Company.
Remuneration and expenses
Unless otherwise determined by the Company by ordinary resolution,
a Director shall be paid for his/her services as a Director fees at such
rate as may from time-to-time be determined by the Board. The
maximum aggregate level of fees is £1m or such other sum as the
Company may from time-to-time determine by ordinary resolution.
Any fee payable shall be deemed to accrue from day-to-day and shall
be distinct from any salary, remuneration or other amounts payable
to a Director pursuant to other provisions of the Articles.
Any Director who serves on any committee or who devotes special
attention to the business of the Company, or who otherwise performs
any services on behalf of the Company or its business which, in the
opinion of the Board, are outside the scope of the ordinary duties of
a Director, may be paid such additional remuneration for such
services, whether by way of salary, participation in profits or
otherwise, as the Board may from time-to-time determine.
The salary or remuneration of any Executive Director of the Group
shall be such as the Directors may from time-to-time determine and
may either be a fixed sum of money or may altogether or in part be
governed by the business done or profits made, or may include the
making of provisions for the payment to him, his widow and other
dependents, of a pension on retirement from the office or
employment to which he is appointed and for the participation in
pension and life assurance benefits, or may be upon such other
terms as the Directors determine.
The Directors shall be entitled to be paid all travelling, hotel and
other expenses properly incurred by them in connection with the
business of the Group, or in attending and returning from meetings
of the Directors or of committees of the Directors or general
meetings of the Company.
The Board may provide pensions or other retirement or
superannuation benefits, death or disability benefits or other
allowances or gratuities by insurance or otherwise, for any person
who is or has been at any time a Director or employed by or in the
service of the Company or any subsidiary of the Company, or is allied
to or associated with the Company or any such subsidiary, or any
predecessor in business of the Company or any such subsidiary.
These arrangements may be extended to any family member or any
person who is, or was, dependent on such Director.
Directors ’ powers – general
Subject to the provisions of the Acts, to the Memorandum of
Association of the Company (the ‘Memorandum’) and the Articles,
and to any directions given by special resolution of the Company, the
business of the Company shall be managed by the Board which may
exercise all the powers of the Company.
Reserves
The Board may, before recommending any dividend (whether
preferential or otherwise), set aside out of the profits of the
Company such sums as it thinks fit as a reserve or reserves which
may, at the discretion of the Board, be applicable for any purpose
to which the profits of the Company may be properly applied. The
Board may also, without placing the same to reserve, carry forward
any profits which it may think prudent not to distribute.
General meetings
The Board may convene a general meeting of the Company
whenever it thinks fit.
In compliance with the Combined Code, notice of the AGM is sent
to shareholders at least 20 working days before the meeting. This
ensures that the Company meets its requirement under the Articles
of giving 21 clear days’ notice before the meeting. The Company
may conduct the vote at the AGM by show of hands or if a poll is
demanded, by manual count.
Directors ’ right to attend and speak
A Director is entitled, even though he/she is not a shareholder,
to attend and speak at any general meeting and at any separate
meeting of the holders of any class of shares of the Company.
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98 Morrisons annual report and financial statements 2008
Additional shareholder information continued
Chairman’s power to adjourn
The Chairman may, with the consent of a meeting at which a quorum
is present (and may, if so directed by the meeting), adjourn any
meeting to another date, time and/or place for an indefinite period.
No business shall be transacted at any adjourned meeting except
business which might have been lawfully transacted at the previously
unfinished meeting.
Exercise of voting rights
The Board may exercise or cause to be exercised the voting rights
conferred by shares in any other Company held or owned by the
Company, or any power of appointment to be exercised by the
Company, in such manner and in all respects as it thinks fit (including
the exercise of the voting rights or power of appointment in favour
of the appointment of any Director as a Director or other officer
or employee of such Company or in favour of the payment of
remuneration to the Directors, officers or employees of such
Company).
Delegation of powers to the Executive Directors
The Board may from time-to-time delegate or entrust to and confer
upon any Director holding executive office (including a Managing
Director) such of its powers (other than the power to make calls or
forfeit shares) for such time, on such terms and subject to such
conditions as it thinks fit. It may confer such powers either collaterally
with, or to the exclusion of their own powers and may from time-to-
time revoke, withdraw, alter or vary all or any of such powers.
Delegation to committees
The Directors may delegate any of their powers to committees
consisting of such members or member of their body as they think
fit. Any committee so formed shall in the exercise of the powers so
delegate it conform to any regulations that may be imposed on it by
the Directors.
Appointment of agent
The Board may appoint any corporation, firm or person to be the
agent of the Company and may delegate to any such person or
persons any of its powers, authorities and discretions (not exceeding
those vested in the Board but with power to sub-delegate), in each
case for such purposes and for such time, on such terms (including,
but not limited to the protection and convenience of persons dealing
with the agent) and subject to such conditions as it thinks fit. The
Board may from time-to-time revoke, withdraw, alter or vary all or
any of such powers.
Minutes
The Directors shall cause minutes to be made of all appointments of
officers, of the names of the Directors present at each meeting of
Directors and of any committee of Directors and of all resolutions
and proceedings at all meetings of the Company and of the Directors
and of committees of Directors. Any such minute if purporting to be
signed by the chairman of the meeting at which the proceedings
were held or by the chairman of the next succeeding meeting, shall
be evidence of the proceedings.
Cheques, bills and notes
The Directors may draw, make, accept or endorse, or authorise any
other person or persons to draw, make, accept or endorse, any
cheques, bills of exchange, promissory notes or other negotiable
instruments, provided that every cheque, bill of exchange,
promissory note or other negotiable instrument drawn, made,
accepted or endorsed may be signed by such person or persons
as the Directors may appoint for the purpose.
Dividend reinvestment
The Board, with the authority of an ordinary resolution of the
Company, may implement and maintain one or more share dividend
or distribution reinvestment plans, including or instead of offering
scrip dividends.
Capitalisation
The Board may, with the authority of an ordinary resolution of the
Company, resolve to capitalise any amount:
i)
ii)
standing to the credit of the Company’s reserves (including any
share premium account, capital redemption reserve or other
undistributable reserve); or
standing to the credit of the profit and loss account which is not
required for paying any fixed preferential dividend (whether or
not such amount is available for distribution).
Powers to issue shares
Subject to the provisions of the Acts, the Board have unconditional
authority to allot, grant options over or otherwise deal with or
dispose of any unissued shares of the Company to such persons
at such times and on such terms as the Board may decide.
Power to pay dividends
Subject to the provisions of the Acts, the Company may by ordinary
resolution declare dividends in accordance with the respective rights
of the shareholders, but no dividend shall exceed the amount
recommended by the Board. Subject to the provisions of the Acts,
the Board may pay interim dividends if it appears to the Board that
they are justified by the profits of the Company available for
distribution. The Board may also pay, at intervals determined by it,
any dividend at a fixed rate if it appears to the Board that the profits
available for distribution justify the payment. If the Board acts in
good faith it shall not incur any liability to the holders of shares
conferring preferred rights for any loss they may suffer by the lawful
payment of an interim dividend on any shares having deferred or
non-preferred rights. No dividend or other moneys payable in
respect of a share shall bear interest against the Company unless
otherwise provided by the rights attached to the share.
Except as otherwise provided by the rights attached to any class of
shares, all dividends will be declared and paid according to the
amounts paid-up on the shares during any portion of the period in
respect of which the dividend is paid but, if any share is allotted or
issued in terms providing that it shall rank for dividend as from a
particular date, that share shall rank for dividend accordingly.
The Board may, if authorised by an ordinary resolution of the
Company, offer any holder of shares the right to elect to receive
shares by way of scrip dividend instead of cash in respect of the
whole (or some part, to be determined by the Board) of any
dividend. Any dividend which has remained unclaimed for 12 years
from the date when it becomes due for payment shall, if the Board so
resolves, be forfeited and cease to remain owing by the Company.
Borrowing powers
The Board may exercise all the powers of the Company to borrow
money, to mortgage or charge its undertaking, property and uncalled
capital, and to issue debentures and subject to the provisions of
the Act other securities and to give security whether outright or as
collateral security for any debt, liability or obligation of the Company
or of any third party.
The Board is required to restrict the borrowings of the Company
and exercise all voting and other rights or powers of control
exercisable by the Company in relation to its subsidiary undertakings
so as to secure that the aggregate principal amount outstanding at
any time in respect of all borrowings by the Company and its
subsidiary undertakings will not, without the previous authority
of the Company in general meeting, exceed an amount equal to
twice the share capital and consolidated reserves of the Company.
Alteration of Articles
Section 21 of the 2006 Act provides that the articles of association
of a Company may be altered by special resolution and section 22 of
the 2006 Act provides that companies may entrench provisions of
their articles of association, either on formation or subsequently by
unanimous agreement of the shareholders, the result of which is that
such entrenched articles may only be altered by the unanimous
consent of its shareholders.
Morrisons annual report and financial statements 2008 99
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100 Morrisons annual report and financial statements 2008
Investor relations and financial calendar
Annual General Meeting
The AGM will be held at 11am on Thursday 5 June 2008 at
Wm Morrison Supermarkets PLC Head Office, Gain Lane, Bradford,
BD3 7DL. A separate notice convening the meeting is sent to
shareholders, which includes an explanation of the items of special
business to be considered at the meeting.
Dividend Reinvestment Plan
The Company has a Dividend Reinvestment Plan which allows
shareholders to reinvest their cash dividends in the Company’s
shares bought in the market through a specifically arranged share
dealing service. Full details of the plan and its charges, together with
mandate forms, are available from the Registrars.
Morrisons website
Shareholders are encouraged to visit our website,
www.morrisons.co.uk to obtain information on company history,
stores and services, latest offers, press information and a local
store finder.
Share price information
The Investor Information section of our website provides our
current and historical share price data and other share price tools.
Share price information can also be found in the financial press
and the Cityline service operated by the Financial Times
(telephone 0906 843 3545).
Online reports and accounts
Our Annual and Interim Group accounts are available to download
from the website along with Corporate Social Responsibility reports
and other financial announcements. The information in the Annual
report and financial statements, Annual review and summary
financial statement and the Interim reports are exactly the same as
in the printed version.
Environmental matters
The effect of our business on the environment is something that
Morrisons takes very seriously. In the production of the 2008
Annual reports and accounts, we have contributed to the reduction
in environmental damage in the following ways:
a) Website
Morrison shareholders receive a printed copy of the Annual
review and summary financial statement. The full Annual report
is available for viewing or downloading from the corporate website
www.morrisons.co.uk. Shareholders are encouraged to view the
report on the website which is exactly the same as the printed
version, but using the internet has clear advantages such as
lowering costs and reducing the environmental impact.
b) Carbon offset
The Annual report and financial statements, the Annual review and
summary financial statement and the Corporate social responsibility
report have been assessed with the assistance of the Carbon Trust
for the amount of carbon emissions that will be generated in their
preparation, printing and delivery. To offset these carbon emissions a
donation has been made to PURE, The Clean Planet Trust, the first
UK registered charity dedicated to combating climate change by
offsetting. More information about PURE can be found on their
website www.puretrust.org.uk
c) Recycled paper
This document has been printed by The Midas Press on recycled
paper that is manufactured in mills with ISO 14001 accreditation
from 100% recycled fibre. It is totally chlorine free and is a NAPM
certified recycled product.
d) Photography
All people featured were either customers, colleagues or suppliers –
no actors or models were used. Permission to publish these
photographs was received from each individual. Where minors
appear, parental approval was granted.
e) Design
The Annual report and financial statements, the Annual review and
summary financial statement in both paper and HTML format, and
the Corporate social responsibility report were designed and
produced by Likemind 0207 855 5888.
Further information about other ways in which the Group is
helping with environmental change can be found in the Corporate
social responsibility report 2008 which can be viewed on the
Morrisons website.
Financial calendar 2008/09
Financial events and dividends
Final dividend record date
Annual General Meeting
Q1 Quarterly management statement
Final dividend payment date
Half year end
Interim results announcement and Interim
management statement
Interim dividend record date
Interim dividend payment date
Q3 Quarterly management statement
Financial year end
Preliminary results announcement
02/05/08
05/06/08
05/06/08
06/06/08
27/07/08
11/09/08
10/10/08
10/11/08
04/12/08
01/02/09
12/03/09
Company Secretary
Jonathan Burke
Registered office
Wm Morrison Supermarkets PLC
Hilmore House
Gain Lane
Bradford
BD3 7DL
Telephone: 0845 611 5000
www.morrisons.co.uk
Investor Relations
Telephone: 0845 611 5710
Email: accinvr@morrisonsplc.co.uk
Corporate Social Responsibility enquiries
Telephone: 0845 611 5000
Registrars and Shareholding enquiries
Administrative enquiries about the holding of Morrisons shares,
such as change of address, change of ownership, dividend payments
and the Dividend Reinvestment Plan should be directed to:
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0LA
Telephone: 0871 664 0300 Overseas: +44 208 639 3399
Calls cost 10p per minute plus network extras.
www.capitaregistrars.com
Solicitors
Gordons LLP
Riverside West, Whitehall Road
Leeds, LS1 4AW
Ashurt
Broadwalk House, 5 Appold Street
London, EC2A 2KA
Wragge & Co LLP
55 Colmore Row
Birmingham, B3 2AS
Auditors
KPMG Audit Plc
1 The Embankment, Neville Street
Leeds, LS1 4DW
Stockbrokers
Hoare Govett Limited
250 Bishopsgate
London, EC2M 4AA
Citigroup Smith Barney
33 Canada Square, Canary Wharf
London, E14 5LB
Investment Bankers
NM Rothschild & Sons Limited
New Court, 1 St. Swithin’s Lane
London, EC4P 4DU
Shareholder information
The number of shareholders at 3 February 2008 were 44,384 (4 February 2007: 45,415) and the number of shares in issue was
2,686,071,130 (4 February 2007: 2,676,776,258).
Analysis by Shareholder
Private Shareholder
Nominee companies
Limited companies
Deceased accounts
Other institutions
Pension funds
Investment trusts
Bank and bank nominees
Insurance companies
Analysis of size by Shareholder
1-1,000
1,001-10,000
10,001-1,000,000
Above 1,000,001
Number of holders
39,159
4,571
262
213
83
37
33
20
6
Number of holders
23,501
17,947
2,638
298
% holders
88.23
10.29
0.60
0.48
0.19
0.08
0.07
0.05
0.01
% holders
52.95
40.44
5.94
0.67
Balance at 3 February 2008
534,202,107
2,107,745,100
19,760,543
1,997,830
7,328,446
5,407,391
320,782
9,234,385
74,546
Balance at 3 February 2008
10,467,200
52,348,299
245,396,509
2,377,859,122
% capital
19.9%
78.5%
0.7%
0.1%
0.3%
0.2%
0.0%
0.3%
0.0%
% capital
0.39%
1.95%
9.14%
88.53%
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This report is 100% recyclable
100% recyclable
This is our award-winning Recyclopedia
logo which we use on our own-brand
product packaging to inform customers
about recyclability. See page 18.
www.morrisons.co.uk
Wm Morrison Supermarkets PLC
Fresh choice for you
Annual report and
financial statements 2008