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Broader,
stronger
Wm Morrison Supermarkets PLC
Annual Report and Financial Statements 2018/19
Overview
p6
p8
Morrisons unique team of food makers
and shopkeepers are working together to
achieve meaningful, sustainable growth
Chief Executive’s statement
The progress we
have made on our
six priorities
READ MORE AT
www.morrisons-
corporate.com
Group revenue
#
£17.7bn
+2.7%
17.3
17.7
16.1
16.3
2015/16 2016/17 2017/181 2018/19
1 2017/18 Group revenue on a 53 week basis.
Free cash flow*
SH
£265m
generation
854
670
350
265
FINANCIAL HIGHLIGHTS
Group like-for-like
(LFL) sales (exc. fuel)*
#
+4.8%
4.8%
1.9%
2.8%
(2.0)%
2015/16 2016/171 2017/181 2018/191
1 2016/17, 2017/18 and 2018/19 include wholesale
contribution to LFL sales.
Net debt*
SH
£997m
1,746
1,194
973
997
2015/16 2016/17 2017/18 2018/19
2015/16 2016/17 2017/18 2018/19
Throughout the Directors’ report and Strategic report: Unless otherwise stated, 2018/19 refers to the 52 week period ended
3 February 2019 and 2017/18 refers to the 53 week period ended 4 February 2018. 2018 and 2019 refer to calendar years.
Profit before tax, exceptional
items and net pension interest1
#
£406m
+8.6%
337
374
406
242
2015/162 2016/17 2017/183 2018/19
1 Referred to as ‘profit before tax and exceptionals’.
2 2015/16 profit before tax and exceptionals excluding
£60m one-offs was £302m.
3 £369m 52 week equivalent.
Total dividend
SH
12.60p
+24.9%
12.60p
10.09p
5.00p
5.43p
2015/16 2016/17 2017/181 2018/192
1 Including 4.00p special dividend.
2 Including 6.00p special dividend.
STRATEGIC REPORT
The core purpose
Chairman’s statement
Chief Executive’s statement
Six priorities
Six priorities in action
Our sites and our brands
Our customers
Our colleagues
Our suppliers
Our shareholders – Chief Finance
and Commercial Officer’s report
Corporate responsibility
Risk
GOVERNANCE
Corporate governance report
Directors’ remuneration report
Directors’ report
FINANCIAL STATEMENTS
Independent auditors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated cash flow statement
Consolidated statement of changes in equity
General information
Notes to the Group financial statements
Company balance sheet
Company statement of changes in equity
Company accounting policies
Notes to the Company financial statements
Related undertakings
INVESTOR INFORMATION
Five year summary
Supplementary information
Glossary
Investor relations and financial calendar
Information at your fingertips
2
4
6
8
10
12
13
15
17
18
21
23
27
39
55
58
66
66
67
68
69
70
74
111
112
113
116
127
129
131
132
134
136
p13
Our four stakeholder
ambitions
p21
Corporate
responsibility
NON-FINANCIAL HIGHLIGHTS
BUSINESS HIGHLIGHTS
• Customer satisfaction scores now up 20% pts in
the last four years
• Revenue growth of 4.7% on a 52-week basis, the
best since 2009/10
• Total 2018/19 dividend paid to shareholders
of £289m
• £700m annualised wholesale supply sales achieved
ahead of end-2018 target
• Morrisons Daily convenience stores now in
115 locations
• Sales of local suppliers’ products were up another
27% during the year and have now almost doubled
over the last three years
Like-for-like (LFL)
customer transaction numbers
#
+0.7%
4.0%
2.9%
0.7%
(1.6%)
2015/16 2016/17 2017/18 2018/19
LFL customer transaction numbers, year-on-year change.
Excludes online.
Colleague engagement index
CO
76%
78%
76%
76%
76%
2015/16 2016/17 2017/18 2018/19
Colleague engagement index as measured in the
annual ‘Your Say’ survey.
Customer satisfaction
C
+8% pts
year-on-year
+8%
+7%
+3%
+2%
Jan 16
Jan 17
Jan 18
Jan 19
Customer satisfaction measured at January each year,
year-on-year change.
Alignment of highlights to our
stakeholder ambitions:
C Customers
SH Shareholders
S Suppliers
# All
CO Colleagues
* Alternative Performance Measures as defined in the Glossary on pages 132 – 133.
1
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information The core purpose
To make and provide food we’re all
proud of, where everyone’s effort is worthwhile,
so more and more people can afford to
enjoy eating well.
Resources and
relationships
Customers
Around 12 million
customer transactions
every week
Colleagues
Over 100,000
friendly and skilled
colleagues, supported
by a high quality
management team
Sites
494 conveniently located supermarkets
18 manufacturing sites
9 distribution centres
Increasing digital presence
Brand
A well-loved brand becoming more
relevant and accessible to more customers
Financial strength
A strong balance sheet, with a largely
freehold estate, low debt and a net
pension surplus
Continued generation of significant and
sustainable levels of free cash flow
Our business …
Food maker
We are a diverse team, but united by
our ways of working and our food maker
and shopkeeper credentials
• Over half of the fresh food we sell
we make ourselves
• Every day our skilled food makers on Market
Street make fresh food for our customers
Distributor
We have a national distribution network
that moves the food we make and buy
• Our stores are serviced by eight regional
distribution centres and one national
distribution centre
• This network supports our growth through
other channels
• We make fresh food in our manufacturing
• Technology simplifies the links between sites
sites across the UK
and stores
• Our digital production lines increase
productivity and efficiency, and reduce waste
• We work with our suppliers to carefully source
the products we do not make ourselves
… is different in many ways …
Our food making skills provide products that are
fresh, good quality, great value and unique to us
By controlling the whole supply chain, we know
where our food comes from and can provide our
customers with what they want, when they want it
… delivering through our six priorities …
1
To be more
competitive
2 To serve
customers
better
3 Find local
solutions
… and supported by our five ways of working
Understanding our customers powers the
Through stores, manufacturing, online and
decisions we make. Customers love our brand
our wholesale partners, we can leverage our
and see us as competitive and locally relevant
brand to achieve meaningful and sustainable
capital light growth
4 Develop
popular and
useful services
5 To simplify and
6 To make the core
speed up the
organisation
supermarkets
strong again
1 Customers
first
2 Teamwork
3 Freedom in
the framework
4 Listening and
responding
5
Selling, controlling costs, growing
profits, and removing waste
2
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Outcomes
Customers
• An improving shopping trip informed
by listening
• More customers, buying more from us,
more often
• Customers can get what they want,
when they want it
See pages 13 and 14 for more detail
Colleagues
• Engaged and motivated colleagues
• Colleagues sharing in the success
of the business
• A fair day’s pay for the work they do
See pages 15 and 16 for more detail
Suppliers
• Establishing lasting relationships
• Working together with simplified terms
• Ways of working that comply with the
Groceries Supply Code of Practice
See page 17 for more detail
Shareholders
• A strong balance sheet
• A cash generative business with low
levels of debt
• Sales, profit and dividend growth
Retailer
We sell the products we make and buy,
in our stores and online
Wholesaler
We are a wholesaler, providing products
to retail partners and wholesale customers
• Listening informs the improvements we make
• We aim to make our brands more popular,
• We have a Morrisons price list, providing good
quality fresh food and great value
• Our shopkeepers care deeply about service
• Our More Card helps us to understand and
serve our customers better, by tailoring offers
• Over 75% of British households now have access
to our online offer, and we continue to expand
our ‘reach’
accessible, and increase volume through our
existing assets
• We leverage the strength of our brands and
manufacturing capability to deliver good quality
products at great value
• The Safeway brand has been revived for
wholesale partners
Understanding our customers powers the
decisions we make. Customers love our brand
and see us as competitive and locally relevant
Through stores, manufacturing, online and
our wholesale partners, we can leverage our
brand to achieve meaningful and sustainable
capital light growth
See page 8 for more detail
See pages 18 to 20 for more detail
4 Develop
popular and
useful services
5 To simplify and
speed up the
organisation
6 To make the core
supermarkets
strong again
Environmental and
social value
• Making a positive contribution to society
See page 15 for more detail
• Reducing plastic, minimising food waste,
1 Customers
first
2 Teamwork
3 Freedom in
the framework
4 Listening and
responding
5
Selling, controlling costs, growing
profits, and removing waste
and taking care of the environment
• Respecting human rights and ethical
trading practices
See pages 21 and 22 for more detail
3
… is different in many ways …
Our food making skills provide products that are
By controlling the whole supply chain, we know
fresh, good quality, great value and unique to us
where our food comes from and can provide our
customers with what they want, when they want it
… delivering through our six priorities …
1
To be more
competitive
2 To serve
customers
better
3 Find local
solutions
… and supported by our five ways of working
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Chairman’s statement
Whatever the highs and
lows of the ever-changing
British retail environment,
one constant has been
the determined progress
at Morrisons
Andrew Higginson
Chairman
24.9%
Total dividend growth year-on-year
(including special dividends)
4
Sustainable growth for all
stakeholders
The last year had many highs, notably during
the glorious summer, and also some more
challenging periods both for the economy and
the consumer. Whatever the highs and lows
of the ever-changing British retail environment,
one constant has been the determined
progress at Morrisons. David and the team
have now completed four years of important
work, building Morrisons as a broader,
stronger business.
I am delighted that sales and profit grew
strongly again, and that we were able
to share that growth with our shareholders.
Profit before exceptionals is up 34% in the last
three years, debt down from near-£3bn at peak
to less than £1bn, cash flow and the balance
sheet are very strong, and total dividend
of 12.60p per share (being the ordinary plus
two special dividends) is up 24.9% on last year,
and 152% higher than three years ago.
Progress is not just about the numbers
though. As large sections of this Annual
Report describe, progress is being made for
all stakeholders simultaneously. We are seeking
to grow Morrisons sustainably for the long
term, while also rewarding our colleagues
for their outstanding work, building stronger,
mutually beneficial relationships with suppliers,
and being the best corporate citizens we can.
The way to achieve these complementary
goals is by constantly improving the shopping
trip for customers. If we can keep improving
for customers, we will keep improving for
all our other stakeholders.
There is plenty of good work still ahead.
Much has been done in the Fix phase of
our strategy already, but there is more to do,
for example, in areas such as distribution and
technology. We are also well on with Rebuild
and Grow and, as David says in his statement,
growth is coming from many sources.
There is still much opportunity within the
core supermarkets, for example in areas such
as range, productivity, and the ongoing Fresh
Look programme. After three years without
opening a supermarket, we are acutely aware
that we need to earn the permission for even
a modest amount of new space, and we are
pleased to have got off to a good start with
the new stores at St Ives in Cambridgeshire,
Abergavenny, and Acocks Green in Birmingham,
which are all performing well. In addition,
Morrisons Daily convenience stores, our
broader online coverage, Safeway and now
other brands such as ‘Naturally Wonky’ and
‘Nutmeg’, and our many wholesale partners,
are all exciting areas of growth. I am confident
the team has plans for many years of
growth ahead.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 As I wrote last year, when devising the
components of management remuneration
policy, the Board has been mindful that those
growth plans are sustainable and align with the
best long-term interests of all stakeholders.
The Board
I am pleased with the development of the
Board over the year. Tony van Kralingen and
Kevin Havelock have completed their first full
year, and are bringing a wealth of experience
and knowledge from their multi-national, fast
moving consumer goods industry backgrounds.
We were delighted to add the important
role of Commercial Director to Trevor Strain’s
existing responsibilities, and have increased
his remuneration to reflect his considerably
broader remit. One important function of the
Board is to prepare for long-term management
development and plan for future progression,
and we will assist Trevor all we can with his
exciting and challenging new role.
Opportunity as a British business
At the time of writing, the outcome of Brexit
is somewhat unknown. The prolonged process
has at times caused uncertainty and confusion
for customers.
That said, we believe we are well prepared
to work with any Brexit outcome. As a British
business, we source most of the fresh food
we sell from British growers, farmers, fishermen
and other suppliers. In our 18 manufacturing
sites across Britain, we make most of the
own-brand fresh food that we sell. This
ensures our food is always fresh, and sold with
unrivalled provenance and traceability, which
is increasingly important for customers. So,
while the Brexit process has thrown up some
challenges, it is also an opportunity for our
unique team of food makers and shopkeepers
to both grow Morrisons and contribute to
our economy.
Board composition and membership
• The Board comprises of seven independent
Non-Executive Directors and two
Executive Directors
• There is an appropriate mixture of skills and
experience on the Board
• There is a clear division of responsibilities between
the roles of Chairman and the Chief Executive
• All Directors stand for re-election annually
at the AGM
• Our Senior Independent Director is Rooney Anand
• Tony van Kralingen is the Non-Executive Director
designated to engage with colleagues on behalf
of the Board
p28
The future
It is a very interesting time for the UK
grocery sector. The list of relative winners
and losers is being constantly re-cast in what
is always a fast moving and dynamic industry.
Recent strategies seem to be more divergent
than in the past. Some of our competitors
have sought a solution in scale, some are
coming out of non-food online just as others
are going in, and some are reducing emphasis
on service counters at the same time we
are investing more in our butchers, bakers,
fishmongers and other skilled craftspeople.
In addition, some ‘premium’ retailers have
reported weaker sales, perhaps impacted
by encroachment from more traditionally
‘mainstream’ retailers.
Where maybe some others are still looking
for solutions, we are confident in our
Fix, Rebuild and Grow strategy. We are
making Morrisons a broader business, more
popular and distinct for customers, with
value and service at its heart.
Morrisons can thrive in all conditions.
Whatever 2019/20 has in store, I am convinced
David and the team can continue to grow the
business for the benefit of all stakeholders.
They will do so while remaining committed
to the well-established principles of the
capital allocation framework that has served
Morrisons very well so far.
Andrew Higginson
Chairman
2018/19 quarterly Group LFL sales (exc. fuel)
6.3%
5.6%
3.6%
2.8%
3.8%
Q4*
Q1
Q2
Q3
Q4
Definition
See the Glossary on page 132 for a definition.
*2017/18
Total shareholder return
122
117
130
88
2015/16 2016/17 2017/18 2018/19
Definition
The value of a £100 shareholding in the Group (£).
GOVERNANCE HIGHLIGHTS
Board effectiveness
• An internal review of the Board’s effectiveness
found that the Board has a well balanced set of
capabilities, and that governance and compliance
is strong
External Auditor
• The Audit Committee is satisfied that the Group’s
statutory auditor, PwC, who were appointed in
2014/15, are independent and performing effectively
• The Board has a policy on the engagement of the
• The Directors have all attended an appropriate
external auditor to supply non-audit services
number of Board and Committee meetings, and
commit sufficient time to the Group
p28
5
p37
Accountability
• The Board is satisfied with the effectiveness
of internal control and that risk is being managed
effectively across the Group
p29
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Chief Executive’s statement
Growing a more popular
Morrisons for customers
Listening and responding
During a very busy 2018/19, Morrisons continued
to become broader and stronger, and more
relevant to more and more customers. The
concurrent Fix, Rebuild and Grow phases of our
strategy are in full flow, with several channels of
growth now driving the turnaround, including
supermarkets, wholesale, online and services.
The year started well, and the summer was
especially strong, helped by some favourable
weather and events such as the football
World Cup. The Autumn was more testing,
as uncertainty around Brexit became more
personal and customers became more
cautious, but our colleagues listened hard to
customers, responded quickly. We continued
to invest in the shopping trip, providing
consistently great value and good quality
just when it mattered most at the busiest
time of year. Sales responded and improved
towards the end of 2018.
Listening and responding is important in many
other ways. We learn and act on all kinds of
feedback: on the environment, from the local
communities we serve, and from our suppliers
and shareholders, and there are large sections
of this Annual Report and Financial Statements
rightly dedicated to our progress on important
environmental initiatives such as reducing
our use of plastic, and raising money for our
charity partners, such as CLIC Sargent.
Supermarkets growth on growth
We are now into our third year of positive
like-for-like sales growth. Over half our
supermarkets have now been through the
Fresh Look programme, improving and
modernising their look and feel. We opened
three new stores during the year, each getting
off to a strong start, and we expect a handful
more each year going forward. Applying all
the latest ideas and learnings from this work
is inspiring us to innovate, improve and grow
the whole estate.
It was also a busy year for own-brand innovation.
Always listening and following customers closely,
we have developed several successful new
ranges, including: ‘Naturally Wonky’, our brand
of low-priced, good quality fruit and vegetables;
‘Savers’, our lowest-priced range; ‘Nutmeg’ has
been extended into womenswear; ‘V Taste’,
our new vegan range, and; ‘Little Kitchen’,
a new healthy range for children. In addition,
we have increased the number of items we
make ourselves or direct source, so cutting
out the need for middle men and enabling
both closer relationships with suppliers and
lower prices for customers. Examples this year
included: producing pitta bread and crumpets
at our Rathbones bakery; and buying more
bananas, nuts and fish direct from suppliers.
During a very
busy 2018/19, Morrisons
continued to become
broader and stronger,
and more relevant
to more and more
customers
David Potts
Chief Executive
+4.8%
Group like-for-like
sales (exc. fuel)*
* Alternative Performance Measure as defined in the Glossary on pages 132 – 133.
6
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 As we integrate manufacturing and retail,
we are developing ‘Morrisons Makes It’ as a
standalone brand: great value, authentically
British fresh food, made by our skilled team of
food makers on Market Street. Customers are
becoming more familiar with how these, and
their other favourites, are part of an evolving
Morrisons price list – a basket of the most
popular items that customers regularly buy,
where we are working hard to consistently
ensure the best possible value.
Wholesale, online and services growth
2018/19 was an important year for wholesale,
growing substantially to exceed our target
of £700m of annualised sales by year end
and contributing over 3% to like-for-like sales.
Wholesale growth channels now include
Amazon, forecourt convenience and overseas.
We supply Amazon’s customers across all
its UK channels. For the same-day store-pick
‘Morrisons at Amazon’ offer, there are over
10,000 items available to be ordered and
delivered within one hour, with the service
now available in parts of London, Leeds,
Birmingham and Manchester.
We accelerated the roll-out of wholesale
supply to our new partner, McColl’s, more
quickly than initially planned, and now
supply around 1,300 of its stores with our
Safeway range plus other branded items.
As we develop our convenience offer, both
on our own forecourts and with our partners,
Rontec and Sandpiper in the Channel Islands,
our ‘Morrisons Daily’ fascia is growing quickly,
now in 115 locations. We also announced
a new partnership with MPK Garages, and
are in the process of converting many of its
forecourt convenience stores to ‘Morrisons
Daily’. In addition, we have begun exporting
a range of Morrisons own-brand items to
Big C in Thailand.
Our online channel added substantial new
growth capacity during the year, extending
its coverage to over 75% of British households.
Through the new customer fulfilment centre
in Erith and new store-pick capability, we have
significantly expanded our online catchment
area to include South London, Surrey, Kent, the
south coast, Devon and, for the first time into
Scotland, serving customers in Edinburgh and
Glasgow. We have also recently started a trial
to supply Center Parcs’ guests Morrisons.com
online delivery direct to their holiday lodges.
Services are growing too, with partners such
as Amazon, Timpson and Doddle helping
make Morrisons supermarkets more popular
destinations for customers. Since the
programme started, we have introduced
over 1,000 of these new services at our sites.
All this growth is driven by capital light,
but significant investment; particularly in
digital capability, distribution infrastructure,
online, wholesale, and, of course, Morrisons
supermarkets. We expect investment in
technology to be central to our future growth
and, see specific opportunity next year to
continue to reduce costs and benefit from
our increased investment in wholesale and
online distribution infrastructure.
Our colleagues
At the heart of our growth, and key to
our continued success, will always be our
colleagues. Once again this year, Morrisons
team of expert food makers and shopkeepers
showed how improving the shopping trip
every day is the best possible way to make
our customers more satisfied and grow
our business. Thank you to the whole
Morrisons team.
David Potts
Chief Executive
£700m
Annualised sales target
exceeded for wholesale
OPERATING IN A WAY THAT IS RIGHT
FOR ALL OF OUR STAKEHOLDERS
In addition, since 2016, we have donated 5.4 million
edible unsold food products to over 420 local
community groups. Our manufacturing sites
have also been working with the national charity
FareShare to donate food that cannot be sold
in our stores. Since 2017, we have donated over
two million meals to its network of charities.
Supporting British farming
We were recognised at the 2018 Food and
Farming Industry Awards as Retailer of the Year
as a result of our continued commitment to
keep British agriculture profitable, affordable
and sustainable.
Our ‘For Farmers’ range, where part of the retail
price of the products goes directly back to farmers,
has generated an additional £12m for farmers
since it launched in 2015. In addition, we received a
‘Good Egg’ award from Compassion in World Farming,
following our acquisition of the Chippindale egg
business and our commitment to sell only cage-
free shell eggs by 2022 and ingredient eggs by 2025.
Reducing our use of plastic
We have introduced a number of initiatives
to help our customers reduce and recycle the
plastic they use. Examples include: trialling paper
carrier bags; the roll-out of loose produce paper
bags across all stores; increasing the number
of loose fruit and vegetables we sell on Market
Street; encouraging customers to take their
own containers to the Butcher and Fish counters
in store, and trialling reverse vending machines
to incentivise customers to recycle plastic bottles.
Reducing food waste
We sell around 900 tonnes of ‘Naturally Wonky’
fruit and veg per week in our stores and online,
helping farmers to reduce farm waste. We launched
our ‘Too Good to Waste’ box in stores, selling fresh
fruit and vegetables just past their ‘Display Until’
date, but still perfectly good to eat.
p21
7
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Six priorities
We are making progress on our
priorities as we continue to listen
and learn from our colleagues
and customers.
To be more competitive
We operate in a competitive and dynamic
market and continue to invest in great prices
and good quality for customers, ensuring
we offer the best value we can
• We are a British business with a vertically
integrated supply chain. We have increased
the number of products we make ourselves
• We now directly source more items such as
nuts, bananas and fish, cutting out the need
for middle men and agents, which allows us
to have closer relationships with producers and
growers, to provide lower prices for customers
• We are developing ‘Morrisons Makes It’
as a standalone, authentically British brand
• We launched our new ‘Naturally Wonky’
brand of low priced good quality fruit
and vegetables, a new look ‘Savers’ range,
a vegan range called ‘V Taste’, ‘Little Kitchen’,
a range of healthy products for children, and
have extended ‘Nutmeg’ into womenswear
• We are showcasing our Market Street counters
and food maker experts with in-store tastings
and food maker demonstrations
• We acquired Chippindale Foods and
invested in our factory at Flaxby, which is
enabling us to become more competitive
in some high volume, commodity items such
as eggs, carrots and onions
To serve customers better
We are improving customer choice, emphasising
Morrisons provenance, and looking to improve
the shopping trip every day
• A key measure of turnaround progress
is customer satisfaction in areas such as
checkout queues, availability, and friendliness
of colleagues. This measure has shown
consistent improvement, and is up by 20% pts
in four years
• We have introduced card only checkouts
at more stores to give customers a choice
and to increase efficiency
• Our new Morrisons More app allows
customers to collect and redeem their
loyalty points digitally
• We hosted a further ten regional food maker
events around Britain, as we continued to
extend our range of local products from
growers, farmers, fishermen and other food
makers. Many of these products have been
incorporated into our new stores and our
Fresh Look programme
• We continue to support local farmers
and suppliers nationwide. For example,
in the year we started to sell individual local
loose eggs in over 330 stores, and Yorkshire
Squeaky Cheese, which was first seen at our
food maker roadshow, is now in 75 stores
8
Find local solutions
We are becoming renowned for ‘local’,
and customers increasingly regard this
as a distinguishing attribute of Morrisons
• We are improving regional events for
customers such as Hogmanay in Scotland,
St Davids Day in Wales and expanded
our Ramadan offer. We are also better
targeting important customer groups, for
example through our ‘More for Students’
club and at stores popular with tourists
• We are becoming more integrated in our
local communities. Every store has a
dedicated Community Champion who
supports local events, community groups
and charities
• We have extended the reach of Morrisons.com.
Through a combination of store pick and
additional space in Ocado’s new Central
Fulfilment Centre in Erith, we are able to
provide online grocery home shopping to
over 75% of British households
• We have recently started a trial to supply
Center Parcs guests online through
Morrisons.com
• We launched Eat Fresh, our new online
recipe box meal kit service, during the year.
Customers can order a wide variety of
fresh meals to be delivered to their home
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Develop popular and useful services
We are continually looking for ways to
develop services which are popular and
useful for customers
• Parcel pick up services are very popular
with our customers. Amazon lockers
have been rolled out across the estate
and Doddle is expanding too with 130
in year, taking the total to almost 300
• Timpson at Morrisons continues to grow,
and is now in over 200 stores
• We have been working with various
partners to develop new food service
units alongside our stores, for example,
McDonald’s and, more recently, KFC
• Our partnerships with McColl’s, MPK
Garages, Rontec and Sandpiper CI, plus our
own petrol forecourt shops, means we now
supply around 1,700 convenience stores
• Our modernised cafés provide a great value
for money menu. We also have Barista bars
in 65 stores, serving a quicker and more
convenient offer for customers
• We opened more car and tyre change
services in our car parks during the year,
taking the total to more than 60
• We opened nine currency exchange kiosks
with Travel Money and are trialling barber
shops with different national operators
To simplify and speed up the organisation
There are many opportunities to simplify
and speed up Morrisons, from one end of
the supply chain to the other. We have made
progress, but still have more opportunities
ahead
• In-store automated ordering has been
implemented and is enabling us to more
accurately manage stock
• We are reducing the amount of administration
in stores, enabling colleagues to spend more
of their time serving customers
• We are improving the way we manage
the flow of fresh commodities, improving
delivery accuracy and product quality,
while also reducing food waste
• We have increased the number of
self scan checkouts
• We have invested in our logistics network,
for example, at Bellshill and Swan Valley,
creating new capacity
• We have simplified the way we work with
suppliers, identifying mutually beneficial
ways to grow together
To make core supermarkets strong again
We are improving our existing stores and
adding new ones where it makes sense
• Three new stores opened during the year,
which reflect our latest innovations and
ideas, and have got off to a strong start
• Our new store at St Ives, Cambridgeshire,
was shortlisted as one of the top five
global stores of the year by the Institute
of Grocery Distribution
• Our store in Wood Green, London is our
first to be designed around a food market
court and food to go
• We completed a further 59 Fresh Look refits
during the year, with some of the learnings
applied across the whole estate
• We now have almost 1,000 year-round
‘Best’ products
• We are utilising excess space better.
For example, over the summer we opened
a further 95 small garden centres
• We extended ‘Nutmeg’ womenswear into
over 250 stores to complement the baby and
children’s range. The ‘Nutmeg’ brand has also
been extended into accessories and some
Health & Beauty products
• The Home & Leisure department, which was
updated last year, is proving very popular with
customers
9
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Six priorities in action
Morrisons is becoming more popular
and relevant to more people by
building a broader, stronger business.
Reducing plastic
While we want our customers to enjoy our food in the best possible condition, we understand that customers are increasingly conscious
of the impact plastic is having on the environment. We aim to ensure our packaging is only there to protect, preserve and display the
product, and does not present an unnecessary environmental burden.
In recent years, we have made significant reductions in packaging without compromising product quality. Smart packaging, which protects
food in transit and extends shelf life, is good for consumers and good for the environment.
We have removed over 60 million plastic straws and all single use 5p carrier bags from sale. We have also introduced a larger paper carrier bag,
and we encourage customers to bring their own containers to purchase items from our meat and fish counters. Many of our loose fruit and
vegetables are ‘naked’, which has removed 24 tonnes of plastic wrap in stores. Where bags are needed for loose fruit and vegetables, and in
doing so have replaced 148 tonnes of plastic bags with recyclable paper bags.
In addition, some stores are trialling reverse plastic recycling stations where customers can earn ‘More’ points for recycling their used
plastic bottles and cans. We also offer customers the option to refill their water bottles for free in our stores and have installed drinking
fountains into our new stores to make this even easier.
2
4
CR
Key
These case studies illustrate the progress this
year in building a broader, stronger Morrisons
and delivering against our six priorities.
1
2
3
4
5
6
To be more competitive
To serve customers better
Find local solutions
Develop popular and useful services
To simplify and speed up the organisation
To make core supermarkets strong again
CR Corporate Responsibility
‘Nutmeg’
Our aim is to make the ‘Nutmeg’ brand
more popular and accessible.
Almost every store offers the ‘Nutmeg’
brand, and our largest 268 stores have the
full clothing range including womenswear,
providing affordable fashion and a brand
that customers trust.
The ‘Nutmeg’ brand has also been
expanded into nappies, wipes, baby
accessories and health and beauty products.
1
2
4
6
10
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Naturally Wonky
‘Naturally Wonky’ is our range of around 30 good quality, great
value seasonal products with a focus on freshness and flavour.
As a British business with a vertically integrated supply chain, we are
able to work closely with farmers and growers to buy whole crops
and use our own sorting technology to wash, grade and pack the
products into standard, premium and ‘Naturally Wonky’ packs.
Our ‘Naturally Wonky’ fruit and vegetables continue to be very
popular with customers, and this year we have extended the
range to include flowers, avocados and chillies.
‘Naturally Wonky’ is affordable for customers and reduces the
amount of edible food waste sent to landfill. We are committed to
reducing food waste and to improving the quality, consistency and
price of fresh fruit and vegetables so that more and more customers
can afford to enjoy eating well.
Customers tell us they love the range of ‘Naturally Wonky’ products.
1
2
3
4
5
6
CR
Local solutions
We are becoming renowned for ‘local’, and customers increasingly
regard it as a distinguishing attribute of Morrisons.
There were a further ten regional food maker roadshows around
Britain, as we continue to extend our range of local products
from growers, farmers, fisherman and other food makers. Many
local products are delivered direct to stores rather than through
our distribution network, which means that quality products arrive
in store faster and more simply.
During the year, we acquired Chippindale Foods Limited which has
now been successfully integrated with the rest of our eggs business.
We also started to sell local loose eggs, which helps local suppliers
get their products to customers, gives customers the opportunity
to buy the exact number of eggs they want and helps reduce
food waste.
1
2
3
5
6
CR
Digital
Being more relevant to more people is
about online and digital too.
During the year we launched ‘Eat Fresh’, our
new online nationwide recipe box service,
which was developed by a small team of
emerging talent from across the business.
Our ‘More’ card app has been launched,
allowing customers to earn points by
scanning their phone at the till, and receive
vouchers digitally. We also now offer voice
activated shopping through Amazon Alexa.
We use cloud based technology to
simplify and speed up the links between
sites and stores, removing wasted effort
and increasing productivity.
Having a strong digital offer is an important
part of being a broader, stronger business.
1
2
4
5
11
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Our sites and our brand
“ Our brand is more
accessible, more popular,
and we are broadening
the markets we operate
in to become more
relevant to more people.”
David Potts
Chief Executive
Our sites
We have 494 conveniently located
supermarkets across the UK serving around
12 million customers on average every week.
86% of our stores are freehold meaning we
own most of the assets with which we serve
our customers.
During the year, we opened three new stores
which are trading well and receiving good
customer feedback. Our new store in St Ives,
Cambridgeshire, was shortlisted as one of
the top five stores globally by the Institute
of Grocery Distribution.
We continue to invest in our Fresh Look
programme, which aims to improve and update
the estate. We completed 59 Fresh Look refits
during the year. Around 300 stores have now
been through the programme and, whilst some
improvements are store specific, others have
been rolled out across the estate.
We are becoming increasingly digital. Our
online home delivery service, Morrisons.com,
is now available to over 75% of British households.
We share two customer fulfilment centres
with Ocado, in Dordon and Erith, supported
by a store pick operation in 20 of our stores.
We have eight regional distribution centres
and one national distribution centre, which
move the food we make and buy. This network
supports our growth through our other
channels, such as wholesale.
Our 18 manufacturing sites and skilled food
makers in our stores help us produce over
half of the fresh food we sell. We continue
to invest in technology to increase capacity,
add further ranges and improve efficiency.
We have 40 ‘Morrisons Daily’ convenience
stores on our own petrol forecourts and are
benefiting from many learnings which we will
apply as we develop the format, both at further
Morrisons sites and with our wholesale partners.
Our brand
Our brand is becoming more accessible, more
popular, and we are broadening the markets
in which we operate, to become more
relevant to more people.
We are a British brand, with strong heritage
and provenance. Food makers and shopkeepers,
making our own products in Market Street
makes us unique.
By making fresh food in our own manufacturing
sites, we control the whole supply chain and
know where our own-brand comes from.
An integrated supply chain optimises the
way we move the food we make and buy,
and gives us closer relationships with farmers
and growers to utilise whole crops and
minimise waste.
Our manufacturing capability allows us to
access different markets and leverage the brand,
for example, through wholesale, or through our
nationwide recipe box, ‘Eat Fresh’. Customers also
regard our strong links with local suppliers and
the community as a distinguishing attribute
of our brand.
There is something for everyone at Morrisons.
In addition to our unique fresh food and Market
Street offer, ranges such as ‘Best’, ‘Naturally
Wonky’, ‘Free From’, ‘Nutmeg’, ‘Home Cook’,
‘V Taste’ and ‘Little Kitchen’ all make our brand
more popular and relevant.
75%
Morrisons.com has extended
its reach to over 75% of
British households
494
conveniently located
supermarkets
12
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Our four stakeholder ambitions
Our customers
An improving
shopping trip informed
by listening
More customers,
buying more from us,
more often
Customers can
get what they want,
when they want it
Grocery market and consumer
confidence
Grocery market forecasts from the Institute of
Grocery Distribution (IGD) reflect cautious official
projections for the economy and a high degree of
uncertainty about how Brexit will unfold. The IGD
expects only moderate market growth over the
next five years, making it important for retailers
to understand their opportunities by channel.
Supermarkets are expected to remain the
largest grocery channel. The IGD anticipates
an improving outlook as supermarkets develop
unique reasons for customers to visit, by investing
in price, range and the customer experience.
Online is expected to be the fastest growing
channel over the next five years, driven by
more rapid and flexible fulfilment options
and omnichannel development.
Time of uncertainty
A combination of increased average wage
growth and stable inflation throughout much
of 2018, means that ‘real incomes’ have returned
to growth, although the benefit to customers
has been limited.
Consumer confidence has remained broadly
stable throughout 2018, with no significant
increase in the summer months, despite the
prolonged period of relatively warm weather.
The uncertainty surrounding the UK’s exit
from the EU has raised consumers’ concerns,
particularly towards the end of 2018.
However customers have told us it is difficult
to identify tangible impacts on their daily
lives. Media coverage of potential delays to
imports and Government contingency plans
for food and medical shortages led to some
anxiety, and added to existing fears for rising
grocery inflation.
Our vertically integrated supply chain means
we are less reliant on imported products
than other retailers, so we are well placed
to mitigate the potential impact of Brexit
within the grocery market and we have plans
in place to make sure we are well equipped
for all outcomes.
In these times of uncertainty, value is
even more important to customers, and it is
important that we continue to find ways to
be more competitive.
Listening and responding
to our customers
Listening to our customers and responding
quickly underpins what we do. With around
12 million transactions a week on average,
and in a competitive market, it is essential we
respond to our customers in order to grow
our business.
More colleagues across the business have
been spending more time with customers,
understanding their views and behaviours
and exploring ways in which we can improve
the shopping trip.
UK grocery market size (£bn)
forecasts
Composition of UK grocery market size
2018 vs 2023 (% share)
190
195
200
206
212
218
2018
2019
2020
2021
2022
2023
Supermarkets
Convenience
Discounters
Hypermarkets
Online
Other Retailers
2018
2023
46.8% 43.9%
21.1% 21.6%
12.1% 14.4%
8.6% 7.6%
5.9% 7.9%
5.4% 4.5%
Source
Institute of Grocery Distribution (IGD).
Source
Institute of Grocery Distribution (IGD).
13
We listen to customers in different ways
including listening groups, accompanied
shopping trips with customers both in store
and online, and spending time with customers
in their homes to understand the challenges of
their day-to-day lives. We have also introduced
customer video diaries, and these are helping
communicate messages to the business with
more impact, direct from customers.
Through this programme of listening, we
know that customers are seeking solutions
which are healthy, good value and convenient.
Our younger customers have told us that
variety and new ideas are also important. This
feedback has helped us to make improvements
for all customers.
Our customer service contact centre team
puts the customer at the heart of everything
they do, and during 2018 have connected with
1.5 million customers by telephone, email, letter
or social media.
Having listened to customers, we launched
‘Quieter Hour’ in July 2018 as part of our
commitment to making Morrisons a great place
to shop, especially for people with enhanced
needs such as autism. Every Saturday between
9am and 10am we carry out a number of
in-store adaptations to make the store quieter
and calmer; for example, by turning off our
in-store radio, dimming the lights and limiting
tannoy announcements.
12m
Around 12 million
customer transactions
per week on average
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Our four stakeholder ambitions continued
Our customers
Serving customers better
We continue to make progress in the overall
customer experience, improving in a number of
areas which are most important to customers.
These improvements helped customer
satisfaction scores increase by 8% pts in 2018/19.
Customers have told us that they continue to
see improvements in staff friendliness, store
cleanliness and queue times.
Customers rate us highly for our food maker
credentials, recognising the skill and expertise
of our in-store experts through our unique
Market Street offer. The ‘Morrisons Makes It’
campaign showcases the unique fresh products
made by our experts in-store and at our
manufacturing sites, and is well received
by customers. The introduction of a range
of meal kits on Market Street also has strong
appeal for customers, particularly those who
are younger and time poor.
Customers also strongly associate us with
buying from British suppliers and working
closely with farmers and growers. Our ‘Local
Foodmakers’ programme is working hard to
build on this reputation at both regional and
local level. Customers tell us how important
‘local’ is to them, particularly within Fruit & Veg,
Meat and Dairy.
This year, we have identified a number of
‘local flagship’ stores, where there are particular
opportunities for us to introduce larger local
ranges due to their location and customer
base. We have also introduced local loose
eggs in all stores this year, helping customers
support local farmers and reduce food waste.
Popular brands
Our own-brand plays an important role
within our business and for our customers.
Understanding our customers, and focusing on
things that matter most, such as price, quality
and range remains our focus, so that our brand
continues to be relevant and attractive.
Customers told us they want more vegan
choices at Morrisons and they want to be
able to spot these easily in store. We launched
our ‘V Taste’ range of vegan products this year
and are improving the clarity of our labelling
on more than 300 products throughout the
store that are suitable for vegans.
To appeal to our most price-sensitive customers,
we refined the ‘Savers’ range, strengthening
our value offer.
“ I love the Wonky fruit and
veg, and the paper bags
in the fruit and veg aisles.”
Customer, Plymouth store
Customers with young families have told
us they are looking for healthy convenient
solutions to feed their families. In November
2018, we launched our new ‘Little Kitchen’
range, which includes tasty products that
have been nutritionally developed specifically
for, and approved by, children. Every time a
customer purchases a product from the ‘Little
Kitchen’ range, we make a financial contribution
to our charity partner, CLIC Sargent. We hope
to raise £300,000 through this initiative.
This year, we launched our biggest and best
Food to Order brochure, which includes a
number of new and exclusive lines. Customers
tell us that they love the good quality food
and great value that this range offers. We also
launched 23 new Party Shops this year and
expanded our range of balloons and seasonal
products across our stores. Customers
complimented the excellent range and value
for money, and love the convenience of
picking up party items along with their regular
grocery shopping.
Helping customers reduce waste
Customers tell us that they are more concerned
than ever about waste of all kinds, and that
they love our ‘Naturally Wonky’ brand, as it
reduces food waste and offers excellent value.
The ‘Naturally Wonky’ range has expanded
further this year to now include wonky varieties
of around 30 Market Street products, including
flowers, avocados and chillies.
Reducing plastic waste and plastic packaging
has emerged as a key area of concern for
customers this year, with almost all telling us
that they are making an effort to reduce their
usage. Customers expect retailers to help them
in their efforts and are looking for convenient
solutions which do not impact quality or price.
We have introduced numerous initiatives
this year to reduce plastic waste. Customers
have reacted positively to these changes,
explaining that they demonstrate we are
moving in the right direction. For more details,
see the ‘Reducing plastic’ case study in the
‘six priorities in action’ section on page 10.
‘More’ Card
The Morrisons ‘More’ Card continues to grow in
popularity with our customers. Customers tell
us that they enjoy earning points every time
they shop with us, and really appreciate earning
money off of their next shopping trip.
We have been listening to customers about
how we can use the ‘More’ Card to serve them
better in an increasingly digital world. This year
we launched our new ‘More’ Card app, featuring
a digital ‘More’ Card which can be scanned at the
checkout, an option to ‘go paperless’ and receive
vouchers digitally, and personalised offers which
can be activated via the app. This has proved
popular with customers, with uptake growing
rapidly over the year.
More accessible
We opened three new stores this year, located
in St Ives (Cambridgeshire), Abergavenny and
Acocks Green. Our new stores have been
warmly received by customers, meeting their
expectations and improving existing perceptions
of the Morrisons brand. In particular, customers
in our new stores have praised the look and feel
of Market Street. They have also been impressed
by our local ranges, which demonstrates
our support for local producers. This strong
customer response has been reflected in our
trading, with the new stores performing well.
We are also serving more customers online
through the expansion of our online store pick
delivery service and the opening of a second
customer fulfilment centre with Ocado.
Our wholesale business is helping to increase
the size of the market in which we operate.
Our existing partnerships with Amazon,
Rontec and McColl’s are making Morrisons
more accessible to more customers, and this
will further increase through new wholesale
partnerships with MPK, Big C and Sandpiper CI.
We see the growth of our wholesale business
as a capital light and sustainable way of
accessing the growing convenience sector.
+8%
Year-on-year
increase in customer
satisfaction
14
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Our four stakeholder ambitions
Our colleagues
Engaged and
motivated colleagues
Colleagues sharing in the
success of the business
A fair day’s pay for
the work they do
Five ways of working
Our five ways of working underpin everything
we do and how we operate. They provide
a clear and consistent way of doing things and
apply to every colleague in Morrisons across
our stores, sites and central teams.
Customers first
Customers are at the heart of everything
our colleagues do. We care about our
customers and do all we can to always
put them first.
Teamwork
Through teamwork, colleagues can help
each other to get things done, knowing
that we can achieve more together.
Each colleague plays their part in the
team, respecting and working with others
to get better results. To ensure we serve
our customers better, especially at the times
of the year that mean the most to them,
such as Christmas, all colleagues working
in central roles help out in stores.
Freedom in the framework
Freedom in the framework means
colleagues have the freedom, and are
trusted, to make decisions to help achieve
our priorities.
Listening and responding
Listening and responding quickly is at the
heart of the turnaround. Taking the time to
listen to all of our stakeholders is embedded
in the way we work across the business.
Selling, controlling costs,
growing profits and
removing waste
All colleagues are food makers and
shopkeepers and are encouraged to
do everything they can to help sell more,
manage our costs more effectively, and
identify opportunities to improve how
we do things.
Having a say on what matters
Giving our 100,000 colleagues the opportunity
to have their say on what matters is critical
to the turnaround and continues to drive
better business outcomes. By listening hard
to colleagues and responding, we are able
to quickly address the things that make a real
difference to both colleagues and customers.
This year we continued to work with colleagues
through our ‘Your Say’ forums in every store and
site, with local representatives getting directly
involved in improving their place of work.
At our national ‘Your Say’ forum, colleagues
from across the business came together with
members of the Board including Non-Executive
Directors and some of the Leadership Team
to discuss some of the opportunities to
improve Morrisons.
In our annual ‘Your Say’ survey we heard from
more than three-quarters of all our colleagues,
achieving a strong overall engagement score
of 76%. There were some particularly strong
scores: on colleagues understanding how their
role contributes to the success of Morrisons
(89%); and feeling trusted to do their job in
a way that puts customers first (89%). During
the year, we have also trialled smaller ‘Pulse’
surveys, allowing us to track engagement
levels throughout the year. The insight from
this additional data will be something we will
focus on in the year ahead.
We have also introduced further two-way
communication channels between front-line
colleagues and our central teams. These online
‘Communities’ allow teams working at every
stage in our supply chain to talk immediately
about products, packaging and quality, to quickly
work together to improve the experience for
our customers.
A fair day’s pay
Our turnaround is colleague-led and it is
important that everyone’s contribution is fairly
rewarded. During 2018, we listened hard to our
colleagues’ views on a fair day’s work. In our
‘Your Say’ survey, 71% of colleagues told us they
receive a fair day’s pay for a fair day’s work,
22% pts ahead of the retail industry benchmark
provided by a third party survey.
During the year we again improved our market
competitive rate of pay for our front-line store
colleagues, increasing from £8.50 per hour to
£8.70 per hour. We also took the opportunity
to invest further in the 6,000 team managers
who run our in-store departments, introducing
a performance-driven pay award to replace
the previous flat rate, and increasing their
maximum bonus opportunity.
We recognise the importance of helping
our colleagues manage both their time at
work and their wellbeing, and are developing
a comprehensive plan for 2019.
£8.70
76% Minimum rate of
hourly pay for
front-line store
colleagues
Colleague
engagement
index
15
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Our four stakeholder ambitions continued
Our colleagues
Creating opportunities to
develop, progress and grow
During the year, over 500 colleagues started one
of our ‘Pathways’ programmes, which prepare
them for further internal progression.
At the same time, we recruited over 250
colleagues onto our skilled apprenticeship
programmes in areas ranging from Butchery
and Bakery to Engineering and Floristry.
We also prioritised the expansion of our market
leading Degree Apprentice programme, bringing
the total on this scheme to 110. In addition,
we continued to operate our more traditional
graduate programmes, with a further 80
colleagues starting in September 2018.
A real strength of our young talent programmes
is the way in which they attract friends and
family. This year almost 40% of our combined
Degree Apprentice and Graduate programmes
offers were made to the friends and families of
existing colleagues. Our Generations campaign,
which identifies colleagues and their family
members who have started one of our young
talent programmes proved particularly effective,
doubling the number of applications received
last year.
We also started our new ‘Morrisons in schools’
programme during the year, which enables our
stores, sites and offices to work closely with
local schools to build a strong pipeline of talent.
This activity supports our social mobility work,
especially in those areas where our stores are
in social mobility ‘cold spots’. We were delighted
to again be ranked highly in the ‘Top 50 Social
Mobility Employer Index’, and to win the
‘Top Retailer’ Award for School Leavers from
All About School Leavers in 2018.
Highly valued and treated
with respect
As we continue our turnaround, it is important
to ensure that our culture fully reflects our core
purpose, ways of working and ambitions for
all our stakeholders. During the year we launched
our ‘Leading with Respect’ training, to better
equip line managers with the skills to create
the right environment.
We also reviewed our recognition tools,
and created more opportunities for managers
to recognise their colleagues and reward them
in the moment, whether for excellent service,
great teamwork, or being great examples of
one of our five ways of working.
In addition, we have continued to work
on improving our talent and gender balance.
During the year, we employed 57,611 females and
46,019 males, increased the overall proportion of
female store managers to c.20% and maintained
the proportion of female regional managers
at over 26%.
We are particularly proud of the work we
have done to increase female representation
at senior levels. This has been recognised
in the November 2018 Hampton Alexander
report with Morrisons shown as the fifth best
performer in the FTSE 100. At the end of the
2018/19 financial year, the Leadership Team
included 16 female members, representing
28% of its total composition.
At the same time, we continue to celebrate
and promote the diversity of our colleagues.
This has included working with our new LGBT
network to attend Pride events, running a new
programme in stores for women in leadership,
and starting a Black, Asian and Minority Ethnic
(BAME) listening programme to understand
how we can better create opportunities for
these colleagues. This will continue to be an
important area of focus in 2019.
New operational structures
We introduced our new store management
structure early in the year. The structure is simpler,
with broader team manager roles which are
designed to provide better support and guidance
to our front-line colleagues. By changing the
structure we removed around 1,500 management
roles and reinvested in front-line colleague
hours. Of those affected by the structure
change, we retained the skills and experience
of over 800 colleagues in other roles. Towards
the end of the year we invested in technical
and behavioural training, to further raise the
capability of our store management teams.
Tools and training to do the job
We have continued to add modern tools
to ‘MyMorri’, our digital platform for colleagues.
This platform allows instant electronic contact
with all our colleagues for the first time. During
the year, this platform was used to launch new
applications, for example, allowing store colleagues
to request their holiday dates and check their
work schedule online, at any time, from any device.
‘MyMorri’ has also benefited from additional
investment, including the launch of a news
desk feature that brings all the latest news about
the business directly to colleagues. In addition,
we have trialled a new system to give colleagues
greater control of their schedules, allowing them
to better manage their availability, swap shifts
with others and ask for additional shifts. We will
introduce this system for all store colleagues
from next year.
Mastercraft
We continue to recognise the food maker and
shopkeeper craft skills of our specialist colleagues,
through our national Mastercraft competition.
This year, from the hundreds of colleagues
in craft skilled roles who competed in the initial
rounds, 44 finalists demonstrated the expertise
with which we make and provide food we
are all proud of. The 11 categories included
traditional areas such as Butchery, Fishmongery
and Bakery, as well as Floristry and Fruit & Veg.
The competition also looks to recognise and
award our ‘Craft Apprentices of the Year’.
Our World Foods
Senior Buying Manager,
Noor Ali, won the
‘Diversity Champion’
award at the ‘Forward
Ladies, Yorkshire
2018 awards’
Lynda Davies,
Fishmonger apprentice
finalist from Leigh
16
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Our four stakeholder ambitions
Our suppliers
Establishing lasting
relationships
Working together
with simplified terms
Ways of workings that
comply with the Groceries
Supply Code of Practice
Listening and responding
Strong supplier relationships, based on mutual
respect and benefit, are key to Morrisons
becoming broader and stronger – our growth
means growth for our suppliers.
We have made good progress over recent
years, focusing on improving relationships with
suppliers and developing a consistent framework
for our ways of working together. This progress
is reflected in our scores in the industry survey
carried out by the Groceries Code Adjudicator
(GCA) where, for the second year running,
we were the second most improved retailer.
Listening is at the heart of this progress.
By regularly engaging with all suppliers at
all levels, and understanding their concerns,
we can simplify how we work, and improve
the areas that matter most to our suppliers.
During the year, we continued to focus
on ensuring clear, customer-focused planning
and on paying suppliers on time. We also
introduced our supplier portal, a free-to-use
platform that enables suppliers to document
and store agreements. This is an important
step on our continued journey to simplify
the way we work.
We work closely with all our suppliers to
ensure we provide food and goods we are
all proud of, and that we offer customers
great quality, while removing unnecessary
cost together to improve competitiveness.
We also value innovation and work together
with suppliers to bring new and exciting
products to our customers.
Our supply chain
We are proud to be British farming’s biggest
supermarket customer, not only supporting
farmers, but also the wider community
throughout the British food supply chain.
We remain committed to sourcing all of our
fresh beef, pork, lamb, chicken and turkey
directly from British farmers, and continuing
to strengthen our relationship by working
directly with, for example, potato, onion
and carrot growers. By working closely and
collaboratively with our suppliers, we ensure
all of our milk and cream is 100% British.
We continue to grow and expand our
manufacturing division. During the year,
we acquired a Yorkshire egg packing business,
further strengthening our relationship with
British farmers, whilst at the same time
allowing us to supply customers with food
we are proud of.
Our customers support the farming community
by purchasing products in the ‘For Farmers’
range, where a clear part of the retail price
of the products goes directly back to farmers.
Through our Local Foodmakers events,
we continue to remain close to small British
businesses, giving these smaller suppliers an
opportunity to engage with us and to bring
their products to our stores.
The Groceries Supply Code of
Practice (GSCOP)
GSCOP applies to designated grocery retailers
in the UK, adding specific regulations into the
trading relationships between retailers and
their suppliers. We actively engage with the
relevant regulatory bodies, the Groceries Code
Adjudicator (GCA) and the Competition and
Markets Authority (CMA), to build best practice.
We meet regularly with the GCA, and provide
updates on our activity and details on specific
areas of interest to the Adjudicator.
In addition to these regular update meetings,
we invited the GCA to meet buyers and attend
a Board meeting, provided a guest speaker for
the GCA’s annual conference and presented
to new retailers being brought under the
GCA’s remit.
During the year, we focused on a number of
matters raised by suppliers or the GCA, with
the key developments including:
• reviewing our forecasting systems
and processes to find ways to improve the
information we share and the way we work
with suppliers;
• introducing a supplier portal which is
provided free for suppliers; and
• continuing to listen and improve initiatives
such as our ‘Good Faith Receiving’ process
and our dedicated supplier helpdesk.
We provide training and support on GSCOP
to all colleagues in our trading teams, together
with bespoke training in a range of formats
for relevant colleagues in our supply chain and
finance teams. We have further enhanced our
training programme by developing an interactive
online GSCOP training module which was
completed by nearly 900 colleagues.
Governance in this area includes a group
comprising of Leadership Team members
from all relevant functions. Routine updates
are provided to the Executive Committee
and to the Corporate Compliance and
Responsibility Committee, including
developments relating to the operation of the
Code. We formally report details of activity
over the year, together with any specific
concerns raised with our Code Compliance
Officer (CCO), to the GCA and to the CMA
at the financial year end.
GSCOP-related enquiries are dealt with in
accordance with the regulations. Any matter
not resolved directly with a buyer is escalated
to the relevant Category Director and, if
requested, to our CCO. During the year, we
successfully resolved all direct Code-related
complaints following conversation with
the supplier concerned, with the exception
of one raised in January 2019 which has
subsequently been resolved. Contact details
and further information can be found at
morrisons.co.uk/gscop.
17
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Our four stakeholder ambitions
Our shareholders
A strong balance sheet
A cash generative
business with
low levels of debt
Sales, profit
and dividend growth
Introduction
We have once again made good progress
in becoming a broader, stronger business.
2018/19 sales growth was the strongest for
nine years, profit was again up, cash flow was
strong, debt remained low and return on
capital employed (ROCE) improved.
We continue to invest for growth, and remain
focused on that growth being cash generative,
capital light and returns accretive.
We have a sustainable ordinary dividend
policy and a capital allocation framework,
against which we assess the uses of free
cash flow.
Once again, adhering to the principles of
this capital allocation framework, the Board
is recommending a return of surplus capital
to our shareholders through another special
dividend in addition to the special dividend
paid at the half year.
Summary income statement
Revenue
Operating profit
Net finance costs
Share of profit of joint
ventures (net of tax)
Profit before tax
Profit before tax
and exceptionals*
Basic earnings per share
before exceptionals*
Basic earnings per share
2018/19
£m
17,735
394
(75)
2017/18
£m
17,262
458
(80)
1
320
406
2
380
374
13.17p
10.34p
12.19p
13.30p
Revenue
Total revenue during the period was £17.7bn,
up 2.7% year-on-year. Revenue excluding fuel was
£14.0bn, up 3.2%. Adjusting for the 53rd week in
2017/18, total revenue including fuel was up 4.7%.
Group like-for-like (LFL) sales excluding fuel was
up 4.8% over the year, including contributions
from supermarkets of 1.2% and online through
central fulfilment of 0.3%.
It was an important year for wholesale,
which contributed 3.3% to LFL growth as we
accelerated supply to McColl’s and made good
progress with our other wholesale partners,
which enabled us to achieve our target of
£700m of annualised wholesale sales ahead
of our initial end-2018 guidance.
Operating profit
Operating profit
Adjustments:
– Impairment and provision
for onerous contracts
– Profit/loss on disposal
and exit of properties
– Pensions exceptional items
– Other exceptional items
Operating profit before
exceptionals*
2018/19
£m
394
2017/18
£m
458
5
(2)
26
42
(6)
(19)
(13)
25
465
445
Operating profit was £394m (2017/18: £458m).
Operating profit before exceptionals was £465m
(2017/18: £445m), which was a margin of 2.6%,
up four basis points year-on-year.
£406m
Trevor Strain
Chief Finance and
Commercial Officer
Profit before tax
Profit before tax
Adjustments:
– Impairment and provision
for onerous contracts
– Profit/loss on disposal
and exit of properties
– Costs associated with the
repayment of borrowings
– Pensions exceptional items
– Net pension interest
income
– Other exceptional items
Profit before tax and
exceptionals*
Profit before tax and
exceptionals margin
2018/19
£m
320
2017/18
£m
380
5
(2)
33
26
(18)
42
(6)
(19)
16
(13)
(9)
25
406
374
2.3%
2.2%
Reported profit before tax was £320m
(2017/18: £380m). After a review of emerging
practice around Alternative Performance
Measures, ‘profit before exceptionals’ is now
our key adjusted profit measure. It is defined
as profit before tax, exceptional items, and
net pension interest. In moving from ‘underlying
profit’ to ‘profit before exceptionals’ there is
no financial impact of the change on 2017/18
reported numbers.
Profit before tax and exceptionals was up
8.6% to £406m (2017/18 53 weeks: £374m).
As previously reported, last year’s 53rd week
added £5m to profit, meaning profit before
tax and exceptionals was up 10.0% on a
52-week basis.
This is another strong performance, with the
core supermarkets continuing to grow despite
some significant headwinds such as depreciation
and start-up costs as we continue to build a
broader, stronger Morrisons.
Profit before tax and
exceptionals* (2018: £374m)
* Alternative Performance Measure as defined in the
Glossary on pages 132 – 133.
18
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Group LFL sales (exc. fuel)
Net debt (£m)
4.8%
2.8%
1.9%
(2.0%)
1,746
1,194
973
997
2015/16 2016/17 2017/18 2018/19
2015/16 2016/17 2017/18 2018/19
Definition
See the Glossary on page 132 for a definition.
Definition
See the Glossary on page 133 for a definition.
During the period we invested in both the
start-up of our new store-pick capability and
the new Erith customer fulfilment centre for
Morrisons.com, and the accelerated roll-out
of wholesale supply to McColl’s. This enabled
us to both significantly increase our online
household coverage and achieve our target
of £700m of annualised wholesale supply sales
earlier than expected. This meant we incurred
some additional online and wholesale supply
start-up costs, which eased slightly in the second
half. The net incremental profit before tax
from wholesale, services, interest and online,
was a further £12m during the year, bringing the
cumulative total to £54m.
Within exceptional items (as fully detailed in
note 1.4 of the financial statements), was a £33m
one-off cost of completing a successful tender
offer across £233m of bonds. In addition, other
exceptional items included £28m in relation
to increased stock provisioning, as continued
automation of our ordering systems led to
operational changes, additional information
regarding stock levels and a change in the
methodology for estimating stock provisions.
Also within other exceptional items was a £12m
charge relating to one-off costs associated
with improvements to the distribution network.
These costs were incurred as part of a programme
to increase network capacity, and support the
accelerated roll-out of wholesale supply.
For pensions, following a High Court judgement in
October 2018, there was a £7m exceptional charge
relating to the estimated cost of equalising the
minimum pension benefits for men and women.
In addition there was a £19m charge relating
to the closure of a scheme to future accrual.
Net pension interest income was £18m, up £9m
year-on-year.
Earnings per share
Basic earnings per share decreased to 10.34p
(2017/18: 13.30p), and earnings per share before
exceptionals* increased to 13.17p (2017/18: 12.19p),
up 8.0%.
Debt, cash flow and working capital
Summary cash flow
Cash generated from
operations before onerous
capital payments
Onerous capital payments
Cash generated
from operations
Proceeds from sale of
property, plant and
equipment and investment
property
Capital expenditure
Dividends paid
Dividends received
Purchase of own shares
Tax and interest
Costs incurred on
repayment of borrowings
Proceeds on settlement
of share options
Other non-cash movements
Movement in net debt*
Opening net debt*
Closing net debt*
2018/19
£m
2017/18
£m
854
(12)
926
(42)
842
884
22
(461)
(289)
7
(9)
(130)
108
(500)
(129)
8
(4)
(136)
(30)
(17)
15
9
(24)
(973)
(997)
26
(19)
221
(1,194)
(973)
Net debt* remained low at £997m (2017/18: £973m).
Free cash flow* was £265m (2017/18: £350m,
including £108m disposal proceeds), bringing
the total to almost £3bn since the start of the
programme in 2014/15. Adjusting for disposal
proceeds, operating working capital*, and
onerous payments, free cash flow was up
£44m to £296m (2017/18: £252m).
* Alternative Performance Measure as defined in the
Glossary on pages 132 – 133.
19
With the majority of our original disposal
programme already achieved, disposal
proceeds were £22m in the year (2017/18: £108m),
bringing the total to £1,023m since we started
the programme. We still expect to achieve
our £1.1bn target.
The cash outflow from ordinary and special
dividends was £289m, a £160m increase year-
on-year (2017/18: £129m). The operating working
capital* outflow was £36m (2017/18: £35m
inflow). The small outflow was primarily due
to our investment in growth areas such as
the new wholesale supply business. We still
expect many future operating working capital
generation opportunities.
Net finance costs
Net finance costs were £75m (2017/18: £80m).
We completed tender offers of £233m
across three sterling bonds which incurred
an exceptional cost of £33m. Before this
exceptional cost and the £18m net interest
pension income, net finance costs before
exceptionals* were £60m (2017/18: £73m).
Tax
We understand the importance of the
tax contribution we make, and we take our
responsibility towards the communities in
which we operate and towards our colleagues,
customers, investors and suppliers seriously.
We have a tax management framework which
ensures the needs of all of our stakeholders
are considered. The Group is committed
to paying all of its taxes in full and on time.
The Group consistently ranks as one of
the largest contributors across a range of
UK taxes. In 2018/19, Morrisons made net
payments of £1,127m to the UK Government
of which £561m was borne by Morrisons
and the remaining £566m was collected
on behalf of our colleagues, customers and
suppliers. Corporation tax payments made
during the year were £76m which was in line
with the current tax charge of £83m in the
income statement.
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Our four stakeholder ambitions continued
Our shareholders
Capital expenditure (£m)
Return on capital employed (ROCE)
419
365
500
461
7.3%
7.7%
7.9%
5.6%
2015/16 2016/17 2017/18 2018/19
2015/16 2016/17 2017/18 2018/19
Definition
Measured as additions to property, plant and
equipment, investment properties, intangible assets,
assets held-for-sale and investments as per the cash
flow statement.
Definition
See the Glossary on page 133 for a definition.
Summary balance sheet
Fixed assets and investments
Working capital
Provisions and tax
Net pension asset
Net debt*
Net assets
2018/19
£m
7,828
(2,025)
(863)
688
(997)
4,631
2017/18
£m
7,761
(2,045)
(792)
594
(973)
4,545
Pensions
The net pension asset as at 3 February 2019
was £688m, an increase of £94m since 2017/18.
We continue to work with the pension trustees
to identify further opportunities to de-risk the
schemes and completed a further £413m buy in
of part of the Safeway scheme liabilities during
the year. During 2018/19 we also announced the
closure of the Retirement Saver plan to new
members and future accrual.
Capital expenditure
Cash capital expenditure was £461m,
(2017/18: £500m). In the year a further 59 stores
went through our Fresh Look programme,
meaning we have now refitted over half
the estate. We also invested in improving
distribution, both to support our growing
business, and as part of our longer term
network planning.
Borrowings
We continue to apply our policy of maintaining
a conservative debt maturity profile and
continue to reduce the level of gross debt.
In the year, we completed a tender offer across
three of our sterling bonds – repaying £233m.
The maturity profile of our remaining debt
facilities is strong.
Return on capital employed (ROCE)*
Return on capital employed increased to 7.9%.
The growth opportunities we are focused
on are capital light and accretive to profit
and returns.
Key balance sheet metrics
2018/19
2017/18
6.8 times 6.1 times
1.1
1.1
21%
22%
7.7%
7.9%
Interest cover
Net debt*/EBITDA1
Gearing
ROCE*
1 EBITDA before exceptionals.
Financial strategy
Capital allocation framework
1 Invest in maintaining the estate
and reducing cost
2 Maintain debt ratios to support
investment grade rating
3 Invest for profitable growth
4 Pay dividends in line with stated policy
5 Return surplus capital to shareholders
Our capital allocation framework remains
unchanged. Our first priority is to invest in our
stores and infrastructure, and to reduce costs.
Second, we will seek to maintain debt ratios that
support our target of an investment grade credit
rating. Third, we will invest in profitable growth
opportunities. Fourth, we will pay dividends in
line with our stated policy, and then any surplus
capital will be returned to shareholders.
Shareholder returns
Our policy is for the ordinary annual dividend
to be sustainable and covered around two times
by basic earnings per share before exceptionals.
The final ordinary dividend will be 4.75p, bringing
the ordinary dividend for the full year to 6.60p.
In addition to the final ordinary dividend, the
Board is proposing a final special dividend of
4.00p per share (in addition to the 2.00p special
dividend paid at the half year). This takes
the total dividend for the year to 12.60p,
an increase of 24.9%.
The principles of our capital allocation
framework have guided us in building a track
record of capital discipline, and sustained
improved total returns for shareholders. That
framework has served us and our stakeholders
very well for the last five years and remains
unchanged.
We still have significant opportunities
ahead. These opportunities span sales, costs,
productivity and every aspect of improving
the shopping trip. We are confident that the
meaningful and sustainable turnaround remains
in our own hands.
Trevor Strain
Chief Finance and Commercial Officer
7.9%
Return on capital
employed*
20
* Alternative Performance Measure as defined in the
Glossary on pages 132 – 133.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Corporate responsibility
Focusing on what matters
Making a positive
contribution to society
Reducing plastic, minimising
food waste and taking care
of the environment
Respecting human rights
and ethical trading practices
Non-financial information
statement
In order to comply with the requirements
of the Companies Act 2006, sections 414CA
and CB, we have discussed the following
information in the places referenced below:
• information on environmental matters
is shown in this section on pages 21 and 22;
• information on our colleagues is shown
in Our colleagues section on pages 15 and
16 and as part of the Director’s report on
page 56;
• information on social matters is shown
in this section on pages 21 and 22;
• our respect for human rights is set out
in our Corporate governance report
on page 38;
• our approach to anti-corruption and
anti-bribery matters is set out in our
Corporate governance report on page 38;
• our business model is described on
pages 2 and 3;
• our principal risks, and how we manage
them, are described on pages 24 and 25; and
• other non-financial key performance
indicators are shown on page 1.
Focusing on the issues that
matter most
Our corporate responsibility programme
ensures that we operate in a way that is
right for our customers, colleagues, suppliers
and shareholders while making a positive
contribution to society and taking good care
of the environment.
Our programme is underpinned by ten key
focus areas, many of which are described and
summarised in this section. These areas reflect
the issues that really matter to our customers
and our wider stakeholders.
For further information, please see our 2018/19
Corporate Responsibility Report which can be
found at www.morrisons-corporate.com/cr
In the short term, we have targeted
problematic plastic materials for our own-
brand and Market Street products.
We are working with our suppliers so that:
• the use of mixed polymers (multi-layers)
will be avoided wherever possible unless
necessary for food safety reasons; and
• problematic packaging materials that
cannot be easily recycled through kerbside
collections are avoided where suitable
alternatives exist.
For more detail on how we are making it
easier for our customers to reduce and recycle
the plastic they use, see the ‘Reducing plastic’
case study on page 10.
Reducing our food waste
We are committed to providing food we are
proud of and wasting as little of it as possible.
We take an active approach to use more of
what we buy. With a vertically integrated fresh
UK food chain we are able to drive efficiency
from farm gate, through our supply chain,
to our customers.
As part of our work with WRAP and the
Institute of Grocery Distribution, we are now
aligned to UN Sustainable Development Goal
12.3 to reduce our operational food waste
by 50% by 2030.
We continue to sell varieties of ‘Naturally
Wonky’ produce in our stores and online.
In addition, we have now introduced ‘Naturally
Wonky’ veg boxes to our online customers,
and these include carrots, onions, potatoes,
and parsnips as well as a minimum of three
additional seasonal produce items. These boxes
offer great value and are designed to help feed
a family of four for a week. For more details
on our ‘Naturally Wonky’ range, see page 11.
This section is a summary of some of our
activity during the year.
Alignment to the UN Sustainable
Development Goals
The UN Sustainable Development Goals
universally apply to all, and aim to end all forms
of poverty, fight inequalities and tackle climate
change on a global scale. These goals can only
be realised with participation from all sectors
including business. We recognise the importance
of these goals and the true value of collaboration
in order to create change.
At Morrisons, we want to address these global
challenges in a meaningful way, that is relevant
and aligned to our business strategy. We have
reviewed our focus areas and ensured we are
aligned to the UN Goals where possible. As the
use of the goals develops, we will adapt and
stay aligned to best practice where possible.
2018/19 highlights
Reducing, reusing and recycling plastic
Morrisons is a founder member of the UK
Plastics PACT, a collaborative commitment
which joins up all stakeholders in the plastics
system – businesses, government, local
authorities, environmental organisations,
and the wider public.
As signatories to the Waste and Resources
Action Programme (WRAP), and working
in collaboration with other fellow signatories,
our aim is by 2025 to:
• ensure that all Morrisons branded plastic
packaging will be recyclable, reusable
or compostable;
• ensure that we have 30% average recycled
content across all plastic packaging; and
• eliminate problematic or unnecessary single-
use packaging through redesign, innovation
or alternative (re-use) delivery models.
21
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Corporate responsibility continued
Focusing on what matters
In our stores, we have introduced ‘Too Good
to Waste’ boxes, which contain a mixture of
fresh fruit and vegetables that have just passed
their Display Until dates but are still perfectly
good to eat. These boxes are sold at a
discounted rate.
We continue to run our unsold food programme,
which enables stores to donate any edible
surplus food to local community groups of their
choice. Since the programme began in 2016, our
stores have donated over five million unsold
food items.
Within our manufacturing sites and distribution
centres, we continue to work with Company
Shop and the national charity FareShare to
redistribute two million meals that would have
otherwise been wasted.
Supporting British farmers
We support the British farming industry by
maintaining our 100% British on fresh seasonal
fruit and vegetables where possible as well
as fresh beef, lamb, pork, chicken and turkey.
Keeping supply chains short and efficient helps
to improve environmental performance.
We work closely with our primary fresh
producers helping them to be profitable,
affordable and sustainable. We host dedicated
primary supply chain working groups, inviting
farmers across all key product groups to discuss
current issues and challenges that we might
address collaboratively.
In early 2018, we acquired Chippindale Foods
Limited, a leading supplier of free range eggs,
enabling us to work closely with egg farmers
to support a sustainable supply chain, hen
welfare and high quality eggs. As a result
of this acquisition, we have now committed
to selling only shell eggs from cage-free
production systems by 2022 and using only
cage-free ingredient eggs in all own-brand
products by 2025.
Making a positive difference to local
communities
Community champions across all our stores
and sites continue to play an active role in
their communities. In total, they have arranged
donations of over £500,000 worth of our
products to good causes in 2018. This year, we
re-launched our school tour programme for
primary school children and local community
groups to help inspire the next generation of
food makers and shopkeepers.
This year we have increased community
champion hours in a number of stores which
has enabled an expansion of community
activity. We have also introduced a number
of community rooms in our stores, which are
dedicated spaces for local community members
to use free of charge for meetings, events and
get-togethers.
We have also completed the installation
of defibrillators in all of our stores and sites,
in partnership with St John Ambulance and the
Morrisons Foundation. These devices can be the
difference between life and death in the event
of cardiac arrest.
Promoting charity work and colleague
involvement
We understand the importance of supporting
charities and good causes that are close to
the hearts of our colleagues and customers.
During the year, we have raised over £3m
for our national charity partner CLIC Sargent.
This money is being used to provide support
for young cancer patients and their families,
for example through financial grants, a place to
stay for free close to cancer treatment centres,
and specialist nursing teams.
Our colleagues and customers also raised over
£600,000 for the Marie Curie Daffodil Appeal,
over £2m for the Poppy Appeal and more than
£100,000 for the Disasters Emergency Committee’s
Indonesian Tsunami Appeal. Furthermore,
fundraising in our stores also generated over
£5m for local charities and good causes.
Supporting the Morrisons Foundation
The Morrisons Foundation has now donated
more than £25m to charities and good
causes since its launch in February 2015.
Grants have been awarded to 1,400 local
charities supporting a wide range of causes
across England, Scotland and Wales. In addition,
more than 1,200 colleagues have received
match funding for their chosen charities –
a collective £1.2m boost to their fundraising.
Reducing our carbon emissions
In 2008, Morrisons became the first major
supermarket to be awarded the Carbon Trust
standard. The standard recognises a number of
environmental initiatives, including our range of
programmes that aim to deliver carbon savings
throughout our supply chain.
Reducing our impact not only makes sense from
an environmental perspective, it also ensures
efficiency throughout our operations.
Our drive to reduce energy use across the estate
has enabled us to reach our target of reducing
operational carbon by 30% by 2020 – two years
earlier than expected. In fact, we achieved an
overall absolute reduction of 34% in 2017/18.
We are now developing a science-based
carbon target for our operations, focusing
on scope 1 and 2 emissions in the immediate
term. For further details on our science-based
target, please see our 2018/19 Corporate
Responsibility Report which can be found at
www.morrisons-corporate.com/cr
Group greenhouse gas emissions for year ending 31 December¹
Emission source
Combustion of fuel and
operation of facilities
Natural gas
Haulage
Business miles
Fugitive emissions
Refrigerant
Energy purchased for own use
Electricity
Other
Staff travel
Waste
Online deliveries
Total
Intensity ratio: kg CO2e
per sq ft gross internal area
2005/06 Baseline year
2017/18 Prior year
2018/19 Current year
Change vs baseline
99,039
144,497
41,656
165,798
107,792
31,985
163,152
114,499
31,823
502,358
183,2482
130,318
767,748
503,237
392,805
1,680
66,000
–
1,622,978
1,300
47,553
15,7472
1,056,660
837
43,633
15,835
892,902
53.9
28.7
23.5
65%
(21%)
(24%)
(74%)
(49%)
(50%)
(34%)
–
(45%)
(56%)
1 The information above is taken from our Group Carbon Footprint, prepared internally and independently verified by Jacobs.
We have reported for the calendar year 1 January to 31 December in order to remain consistent with our historical footprint
reports. We have used the Government’s Environmental Reporting Guidelines (2013) to prepare these numbers, and the emissions
factors from the UK Government GHG Conversion Factors for Company Reporting (2018). These guidelines state the baseline
year should be recalculated if there have been structural changes that would significantly impact on the organisation’s base year
figures. For this year, we have revised our historical emissions figures given the acquisition and disposal of a number of sites and
revisions to carbon conversions factors. The Group Carbon Footprint includes all major sources of carbon emissions from the
operation of the Group’s supermarkets, manufacturing and distribution sites and operation of its haulage fleet. Some minor
exemptions include our Hong Kong office which deals with energy locally, a number of distribution sites operated by third parties
who are responsible for the energy and carbon, and five sites which have fuel oil (less than 0.5% of the total footprint).
2 Prior year amendment of Refrigerant emissions was due to data duplication and Online Deliveries emissions due to
reclassification of footprint boundaries.
22
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Risk
Managing our risks
The achievement of our six priorities depends on our ability to make sound, risk-informed
decisions. Managing risk and uncertainty is an integral part of the Board’s strategic thinking.
The risk management process
The risk management framework
Identif y
Eval
u
a
t
e
r
o
t
i
n
o
M
Mitigate
T
o
p
d
o
w
n
B
o
t
t
o
m
u
p
Board of Directors
Maintains sound risk management and control systems, assesses principal risks
Audit Committee
Sets risk management framework, assesses effectiveness of risk and
control systems and maintains oversight of risk monitoring
Executive Committee
Assesses principal and operational risks and undertakes regular monitoring of risk
Risk and Internal Audit
Coordinates risk management activity through review of risk registers,
agreement of risk mitigation plans and preparation of risk reporting
Operational Management
Reviews operational risks, operates controls and implements risk mitigation plans
Risk management approach
We manage uncertainty as we respond to
changes in our industry and the wider political-
economic climate by maintaining a business-
wide understanding of our key risks and how
to manage them. This assists in delivering our
ambitions for all of our stakeholders and means
that we are in a better position to achieve
our objectives, respond to emerging risks and
create opportunities.
The risk management process
We have an established risk management
framework which has been built to identify,
evaluate, mitigate and monitor those risks
which threaten the achievement of our six
priorities. The framework incorporates both
a top-down approach to identify the Group’s
principal risks and a bottom-up approach to
identify operational risks.
At the core of the risk management process
are the risk registers for each of the key business
functions. These detail the main operating
risks and are used to assess the gross level of
risk (likelihood and impact), mitigating controls,
and the resultant net level of risk and risk
mitigation plans with dates and target level of
risk. The impact assessment of a risk includes
consideration of the reputational, financial
and operational effect. Targets are assigned to
each risk based on the risk appetite framework
established and agreed with the Board.
Principal risks
The Directors have carried out a robust
assessment of the principal risks facing the
Group, including those that would threaten
its business model, achievement of the six
priorities, solvency or liquidity. The Directors
consider these to be the most significant risks
facing the business, they do not comprise all the
risks that the business is facing. These principal
risks are set out on the following page.
The uncertainty around Brexit and the
negotiation process has impacted customer
confidence in the latter part of the year, and
has also impacted the availability of EU labour.
This has led to an increase in the assessment
of the net risk associated with three of the
principal risks; competitiveness, customer
and people.
As at 12 March 2019, the date of approval of
this Annual Report and Financial Statements,
all options are still possible. A ‘no deal’ outcome
could increase the risk associated with Business
Interruption given the potential for disruption
in the supply chain with delays at the ports.
The costs associated with a further impact
on foreign exchange rates, changes to tariffs
and duty on goods imported into the UK
from the EU and other countries, would have
an additional impact on the Competitiveness
risk. The Group is focused on executing the
plans aimed at mitigating the identified risks
to minimise any impact.
The risk registers are owned and managed
by operational management, with the head
of each function certifying annually that these
have been reviewed and action plans are in
place where required. The risk registers are also
formally reviewed and challenged by a sub-group
of the Executive Committee each year.
The Group risk register is formally reviewed
twice a year by the Executive Committee.
The register details the Group’s principal risks,
key controls in place and the mitigating actions.
The Executive Committee’s assessment of the
completeness of these risks takes into account
the risks captured in the detailed functional risk
registers, strategic risks, external factors and any
emerging risks. The principal risks are monitored
every month by the Executive Committee
using key risk indicator reporting, supplemented
by more detailed reviews as appropriate to
identify any changes in the risk landscape.
The Risk and Internal Audit function facilitates
the preparation of both the functional and
Group risk registers. It supports the Audit
Committee in reviewing the effectiveness of our
risk management and internal control systems
and has established a rotational monitoring
process for key controls. Where potential
weaknesses are identified, the Risk and Internal
Audit teams work with the business to agree
robust actions to mitigate these.
The Audit Committee supports the Board
in maintaining a robust risk management
framework by approving the risk management
process and reviewing the Group’s principal
risks and key risk indicator reporting on a
regular basis. Read more on risk governance
in the Audit Committee report on pages 35
to 37. The key focus for 2019/20 is formalising
the assessment of emerging risks in light of the
new Corporate Governance Code.
23
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Risk continued
Principal risks
Certain risks are inherent in the business and are fundamental to the achievement of all of our key priorities. Other risks could directly impact the
achievement of certain key priorities. The risks, which are shown in no particular order, are disclosed along with their alignment to the six priorities
and the movement in residual risk during the year. Residual risk is stated after considering the actions taken by management in response to new
and emerging issues impacting the identified risks.
Risk
Description
Mitigation
Business
Interruption
#
There is a risk that a major incident, such as a
significant failure of technology, a natural disaster,
disruption in the supply chain or strike action, could
cause significant disruption to business operations.
The Group’s response must be appropriate to
minimise disruption and reputational damage.
There is an increased risk of supply chain disruption
and complexity in the event of a ‘no deal’ scenario.
Competitiveness
1
Customer
1 2
3 4 6
Data
#
The Grocery Sector continues to be highly
competitive. If we do not engage with our suppliers
and effectively manage our trade plan to remain
competitive there is a risk this will adversely
impact performance.
Additional pressures on competitiveness have been
seen from the impact on cost of goods following the
decision to leave the EU and the Brexit negotiations
that were ongoing throughout the year.
A ‘no deal’ outcome could continue to create
uncertainty in the UK Retail market and cause
movement in foreign exchange rates. It could also
result in additional costs, import duties, and delays
when bringing goods into the UK.
There is a risk that we do not meet the needs of
our customers in respect of price, range, quality,
service and sustainability concerns.
We need to be responsive to changes in customer
confidence and trends which have been impacted
by changes to the economy and the UK’s ongoing
discussions about leaving the EU which led to
uncertainty throughout the year. A ‘no deal’
outcome is likely to further impact customer
sentiment, increasing the importance of listening
and responding to our customers needs.
If we do not provide the shopping trip that
customers want, we could lose sales and market
share particularly in an environment of weaker
customer sentiment.
A security breach leading to a loss of customer,
colleague or Group confidential data is a key aspect
of this principal risk. A major data security breach
could lead to significant reputational damage
and fines.
The risk environment is challenging, with increased
levels of cyber-crime and regulatory requirements.
• We have recovery plans in place covering our stores, depots, sites and offices;
• These plans include, where appropriate, secondary locations which would be
used as backup in case of an incident;
• Business continuity resilience and disaster recovery exercises are undertaken
to test processes and management’s ability to respond effectively;
• A Crisis Management Group is in place to oversee these plans and to manage
and respond to any major incidents;
• We conduct supplier risk assessments and have contingency plans in place,
where possible, to manage the risk of loss of supply;
• Successful application for Authorised Economic Operator status;
• We have been working with our European and International Suppliers and
freight providers to safeguard and identify alternative supply routes; and
• There has been continued investment in cloud technologies to provide further
resilience to the Technology systems.
• Our pricing, trade plan and promotional and marketing campaigns are
actively managed;
• Our strong balance sheet and strong cash flow will allow us to continue
to invest in our proposition;
• Long-term agreements are established with suppliers, ensuring a competitive
customer offer to help maintain security of supply;
• We continue to work closely with British growers and farmers; and
• We continually review our range, category plan, and quality and respond to
customer feedback. The ‘Best’ premium own-brand range has continued to
grow to meet customer demand and we launched our low-price ‘Naturally
Wonky’ and relaunched the ‘Savers’ brands.
• One of our six priorities is ‘to serve customers better’ and we have a range
of activities to support that;
• An ongoing programme of customer listening is in place to gain a deep
understanding of what our customers want and these have informed key
activities such as our store Fresh Look programme and changes to range and
introducing more locally sourced products;
• We closely monitor research on customer perceptions and respond quickly
wherever possible. For example, with plans to reduce plastic in the products
we supply; and
• We have worked with wholesale partners to make Morrisons products
accessible to more customers and have continued to expand the geography
covered by our online offering.
• The Data Steering Group has the responsibility for overseeing data
management practices, policies, regulatory awareness and training;
• Information security policies and procedures are in place, including encryption,
network security, systems access and data protection;
• This is supported by ongoing monitoring, reporting and rectification
of vulnerabilities; and
• Focused working groups are in place – looking at the management of data
across the business including colleague data, customer data, commercial data
and financial data. This considers data transfer to third parties.
Key
Link to our six priorities
Increase in net risk
No change in net risk
Decrease in net risk
1
2
3
To be more competitive
To serve customers better
Find local solutions
4 Develop popular and useful services
5
To simplify and speed up the organisation
6 To make the core supermarkets strong again
#
Underpins all six priorities
24
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Risk
Description
Mitigation
Financial
and Treasury
#
The main areas of this principal risk are the
availability of funding and management of cash flow
to meet business needs. There is a risk of a working
capital outflow if there was a significant reduction
in payment terms to suppliers. Some suppliers
benefit from access to supply chain finance facilities.
The withdrawal of these facilities may require
some terms to be reviewed. In addition exposure
to movement in foreign exchange rates continues
to require management.
Food Safety
and Product
Integrity
1 2 3
There is a risk that the products we sell are unsafe
or not of the integrity that our customers expect.
It is of utmost importance to us, and to the
confidence that customers have in our business,
that we meet the required standards. If we do not
do this it could impact business reputation and
financial performance.
Health
and Safety
2 4 5
The main aspect of this principal risk is of injury or
harm to customers or colleagues. Failure to prevent
incidents could impact business reputation and
customer confidence and lead to financial penalties.
Our colleagues are key to the achievement of
our plan, particularly as we improve the business.
There is a risk that if we fail to attract, retain or
motivate talented colleagues, we will not provide
the quality of service that our customers expect.
Business change and the challenging trading
environment may impact on colleagues as would
a ‘no deal’ Brexit. This could increase the risk of
issues with the availability of EU labour in certain
locations, particularly low skilled labour, and could
increase the cost of agency labour.
People
#
Regulation
#
• The Group’s Treasury function is responsible for the forward planning and
management of funding, interest rate, foreign currency exchange rate and
certain commodity price risks. They report to the Treasury Committee and
operate within clear policies and procedures which are approved by the Board.
The appropriateness of policies are reviewed on a regular basis;
• The Group’s treasury policy is to maintain an appropriate borrowing maturity
profile and a sufficient level of headroom in committed facilities. This includes
an assumption that supply chain finance facilities are not available for the
benefit of suppliers;
• There are governance processes in place to control purchases in foreign
currency and management of commodity prices; and
• For livestock and produce, we track prices and forecasts and enter into
long-term contracts where appropriate to ensure stability of price and supply.
• Monitoring processes are in place to manage food safety and product integrity
throughout the Group and supply chain;
• Regular assessments of our suppliers and own manufacturing and store
facilities are undertaken to ensure adherence to standards;
• Our vertical integration model gives us control over the integrity of
a significant proportion of our fresh food;
• Management regularly monitors food safety and product integrity
performance and compliance as well as conducting horizon scanning
to anticipate emerging issues; and
• The process is supported by external accreditation and internal
training programmes.
• We have clear policies and procedures detailing the controls required
to manage health and safety risks across the business;
• An ongoing training programme is in place for front-line operators
and management;
• A programme of health and safety audits is in place across the Group
with resource dedicated to manage this risk effectively; and
• Management regularly monitors health and safety performance
and compliance.
• We have fair employment policies, and competitive remuneration and
benefits packages;
• A Group-wide reward framework is in place and roles are evaluated against
an external framework, driving stronger consistency of rewards;
• Our training and development programmes are designed to give colleagues
the skills they need to do their job and support their career aspirations;
• Line managers conduct regular talent reviews and processes are in place
to identify and actively manage talent;
• Colleague engagement surveys, listening sessions and networking forums
are used to understand and respond to our colleagues; and
• Opportunities continue to be identified, and implemented, to increase
automation across the business.
The Group operates in an environment
governed by numerous regulations including
GSCOP (Groceries Supply Code of Practice),
competition, employment, health and safety
and regulations over the Group’s products.
The Board takes its responsibilities very seriously
and recognises that breach of regulation can lead
to reputational damage and financial damages
to the Group. Consideration is also given to any
potential changes to regulations.
Regulatory changes in the event of a ‘no deal’
outcome in areas such as the labelling of goods,
transfer of data and exporting of products will
have some impact on the Group.
• We have a GSCOP compliance framework in place including training for
relevant colleagues and processes to monitor compliance;
• We have a senior level working group in place to review and improve GSCOP
compliance activity;
• We have an independent whistleblowing line for suppliers to provide
feedback to the Group and a Code Compliance Officer so that action
can be taken as necessary;
• The Group monitors for potential regulatory change and the impact
on contractual arrangements;
• We have training, policies and legal guidance in place to support compliance
with Competition Law and other regulations; and
• We actively engage with government and regulatory bodies on policy changes
which could impact our colleagues and our customers.
25
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Risk continued
Furthermore, reverse stress testing was
performed to understand the level of
performance decline that the Group
could withstand.
Based on this assessment, and taking into
account the Group’s current position, the
Directors have a reasonable expectation that
the Group will be able to continue in operation
and meet its liabilities as they fall due over the
three-year period of their assessment.
Brexit
Throughout the year there has been continued
uncertainty about Brexit and therefore this
has remained an area of focus from a risk
perspective. The Group has considered the
risks associated with the different possible
outcomes so that plans could be formulated
that would allow a response. The uncertainties
identified included the impact on the supply
chain, imported food inflation, consumer
confidence, potential changes to access to
EU labour and changes in legal requirements.
These uncertainties impact a number of the
Group’s principal risks and have therefore been
factored into the assessment of the relevant
risks throughout the year, and also considered
as part of the required mitigation plans. ‘No
regret’ decisions, which would be of benefit
to the Group regardless of the outcome
of the Brexit negotiations were also identified
by the dedicated steering group. Actions in
the year have included a successful application
for Authorised Economic Operator status,
seeking alternative supply routes for key
products, review of the hedging policy, process
automation and adapting the labour model,
and an increase in stock levels for certain
key lines.
Viability statement
The Group’s business model and strategy,
as outlined on pages 2 and 3, are central
to an understanding of its future viability.
The Group continues to progress against its
turnaround strategy, focusing on strengthening
the core supermarkets and delivering capital
light growth whilst maintaining discipline and
control in relation to costs and maintaining
a strong balance sheet.
The Directors have assessed the viability
of the Group over a three-year period to
January 2022. The Group’s business model
is not dependent on any particular contract
or resource with fixed end dates. The period
selected is consistent with the Group’s
strategic and financial plans and therefore
was considered to be the most robust means
to support its viability statement.
The Board assesses the Group’s prospects
primarily through the strategic planning
process. This considers the Group’s current
position, the business model (see pages 2 and
3), opportunities for growth, performance
of its strategy (including the six priorities on
pages 8 and 9), as well as the principal risks
(see pages 24 and 25). The latest strategic
planning update with the Board was held
in November 2018 with involvement of all
relevant functions across the business.
As part of the strategic planning process,
the Directors make a number of assumptions
about business performance and the ability
of the Group to raise debt financing.
The Group carefully plans and reviews the
maturity profile of debt facilities to avoid
coterminous maturity dates and liquidity
forecasting gives visibility of headroom
under committed facilities over the period
of the financial plans. The Group’s policy is
to maintain sufficient headroom in committed
facilities to mitigate the risk that supply chain
finance facilities are not available.
Key metrics, such as cash flow, interest cover,
liquidity and the ability to raise debt financing,
were subject to sensitivity testing by flexing
a number of the main financial assumptions
in order to assess the impact of principal risks
in severe but plausible scenarios.
The scenarios which have been modelled
encompass the Group’s principal risks. In the
case of these scenarios arising, various options
are available to the Group in order to maintain
liquidity. These include; reducing non-essential
capital expenditure, short-term cost reductions,
or reduced returns to shareholders.
Scenario
Principal Risks
Description
Competitive
pressure
Competitiveness,
Customer
Business interruption
or regulatory breach
Business Interruption,
Compliance
Banking crisis
Financial and Treasury
Impact of Brexit
Competitiveness,
Customer, regulation,
Financial and Treasury
Failure to remain competitive (e.g. through
price or keeping pace with the change in
the market)
A serious data security or regulatory breach
results in a significant monetary penalty and
a loss of reputation among customers
A banking crisis leading to one or more
of the members of the Group’s banking
syndicate choosing not to, or being unable
to, honour the facility agreement
Increased inflation and import costs as
a result of the UK’s decision to leave the
European Union, including the impact of
reversion to World Trade Organisation rates
in the case of a ‘no deal’ Brexit
Approval of the Strategic report
Pages 1 to 26 of the Annual Report form the
Strategic report.
The Strategic report was approved by the
Board on 12 March 2019 and signed on its
behalf by:
Jonathan Burke
Company Secretary
12 March 2019
26
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Corporate governance report
Chairman’s governance statement
On behalf of the Board,
I am pleased to introduce
Morrisons Corporate governance
report for the financial year
2018/19
Andrew Higginson
Chairman
Dear Shareholder,
The Board and I are absolutely committed to maintaining robust
and effective standards of corporate governance across Morrisons
for the long-term benefit of all our stakeholders. Our governance
framework ensures that our key stakeholders are at the heart of
every decision we make, supporting long-term value creation for all.
Our customers, colleagues, suppliers and shareholders are telling us
that there has never been a greater need for Morrisons to combine
our obligations to society with our obligations to our shareholders.
Complying with the Corporate Governance Code
Throughout the year, the Board has fully complied with the 2016 UK
Corporate Governance Code.
The Board has also comprehensively reviewed the requirements
of the 2018 UK Corporate Governance Code (the ‘Code’) and we
are pleased that our current governance framework already applies
the main principles of the 2018 Code. Throughout the coming year,
the Board will continue to ensure that our corporate governance
standards and processes remain aligned to the updated regulations
as well as the changing environment in which we work.
Colleague voice at the Board
Our colleagues are at the heart of everything we do. During the year,
each member of the Board met hundreds of Morrisons colleagues
through functional updates, store and site visits, and personal
shopping experiences.
The Board also receives updates on the annual ‘Your Say’ survey in
which three-quarters of colleagues across the business have shared
their thoughts about the Group. The national ‘Your Say’ forum, which
includes a representative from each store region, manufacturing site
and distribution centre, gathers twice a year to discuss the issues that
are most important to the colleagues they represent. This year, Tony
van Kralingen, David Potts and other senior members of the Group’s
management teams, each attended at least one of these forums to
hear colleague views for themselves.
Every day, our hands-on executive team works with hundreds of
colleagues throughout the Group to ensure a clear focus regarding
our objectives and culture, based around the six priorities, five ways
of working and four stakeholder groups.
More information on how the Group listen to colleagues can be found
in our Colleagues section on pages 15 and 16.
Engaging with all stakeholders
We seek and value the opinions of all our stakeholders seriously.
For example, we again worked hard over the year to engage
effectively with our shareholders.
Our culture of listening and responding extends across all our
stakeholder groups. Our Corporate Responsibility Report outlines
how we engage with all of our stakeholder groups to ensure that
our responsibilities to wider society are understood and embedded
in how we work.
The Board has also focused on ensuring that Morrisons continues
to adhere to anti-bribery, anti-corruption, and human rights best
practice. I am pleased with the improvements we have made this year
to further embed these requirements into the processes, procedures
and training across the Group.
In such a competitive industry, we have made and continue to make
tough decisions every day. The Board and the Group will continue
to listen hard to all our stakeholders and respond quickly wherever
we can.
Andrew Higginson
Chairman
27
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Corporate governance report continued
Compliance with the UK Corporate
Governance Code
The Board considers that its corporate governance policies and procedures are appropriate and
that the Group has applied the principles and complied with the detailed provisions of the 2016
UK Corporate Governance Code (the ‘Code’) throughout the financial year 2018/19 and to the
date of this Annual Report.
Leadership
Effectiveness
The role of the Board
The Board met eight times in the year which is
considered sufficient to fulfil its duties. Details
of attendance at each Board and Committee
meeting is provided on page 31. The formal
schedule of matters reserved for the Board
remains largely unaltered from 2017/18 and is
set out in the corporate governance compliance
statement which can be found in the investor
relations section of the Group’s website,
www.morrisons-corporate.com
Division of responsibilities
The Board is committed to a clear division
of responsibilities between the Chairman and
the Chief Executive. This has been reviewed
by the Board during the year and is also set
out in the corporate governance compliance
statement.
The Chairman
Andrew Higginson met the independence
criteria detailed in the Code on appointment.
Senior Independent Director
Rooney Anand was appointed as the Senior
Independent Director on 1 January 2016 when
he joined the Board. Rooney has extensive
knowledge of the retail and fast moving
consumer goods industries.
The Senior Independent Director provides
shareholders with an alternative contact to the
Chairman, the Chief Executive and the Chief
Financial Officer.
The Senior Independent Director also carried
out the Chairman’s performance review.
The Chairman arranges regular discussions
between all the Non-Executive Directors
(including himself) as a group without
management present.
The Board’s composition
The majority of the Board comprises
Non-Executive Directors. The Non-Executive
Directors bring a varied range of skills and
experience to the Group. Details of their
experience outside the Group are set out
in their respective biographies on page 30.
The Board is satisfied that all Non-Executive
Directors, including the Non-Executive
Chairman, remain independent according
to the definition contained in the Code. The
criteria used to determine independence are
set out in the corporate governance compliance
statement, which can be found in the investor
relations section of the Group’s website,
www.morrisons-corporate.com
Directors’ interests
The interests of the Executive and Non-Executive
Directors of the Group, and their immediate
families, in the shares of the Group, along with
share options, are contained in the Directors’
remuneration report set out on pages 39 to 54.
At no time during the year did any of the
Directors have a material interest in any significant
contract with the Group or any of its subsidiaries.
Board appointments
The Nomination Committee leads the process
for Board appointments. More information on
this Committee can be found on page 38.
The Nomination Committee considers that the
Board and Executive Committee contain the skills
and experience necessary in light of the Group’s
current activities and strategic direction.
Time commitments
The minimum time commitment expected of
the Non-Executive Directors is 12 days per year,
including attendance at the Annual General
Meeting (AGM), Board meetings and site visits,
plus adequate preparation time.
The Board is satisfied that each of the Non-
Executive Directors commit sufficient time to
the business of the Group and contribute to the
governance and operations of the Group.
Training and development
Induction programmes are agreed by the
Chairman for each new Non-Executive Director,
following their appointment.
The Chairman assesses the developmental needs
of members of the Board on an annual basis.
Provision of information and support
The Chairman, supported by the Company
Secretary, ensures that the Board receives
information on a timely basis.
Each Director has access to the advice and
services of the Company Secretary. They may
also take external advice at the Group’s expense
in relation to their duties.
Board and Committee performance
and evaluation
An internal assessment of the Board was
facilitated by the Chairman and Company
Secretary during the year. The outcomes of this
assessment can be found on page 34. The last
external assessment was conducted in 2017/18
and the outcomes were summarised in the
2017/18 Annual Report and Financial Statements.
Re-election of Directors
All the current Directors submit themselves
for re-election at the AGM to be held on
13 June 2019.
After reviewing the outcome of performance
evaluations, the Board confirms that the
contributions made by the Directors offering
themselves for re-election at the AGM in June
2019, continue to be effective and that the
Group supports their re-election.
28
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 The Code is available on the Financial Reporting Council’s (FRC) website, www.frc.org.uk
The Board’s corporate governance compliance statement sets out how the Group complies with each of the provisions of the Code.
It is available in the investor relations section of the Group’s website, www.morrisons-corporate.com
Compliance with the remuneration areas of the Code are covered in the Directors’ remuneration report which can be found on page 39.
Accountability
Relations with shareholders
Financial and business reporting
The way the Group generates value and the
Board’s strategy for delivering the Group’s
objectives is described in the Business model
on pages 2 to 3, and our six priorities section
on pages 8 to 9.
The information regarding the Takeover
Directive disclosures are on page 55. The
consideration of going concern is described
on page 55. The viability statement is disclosed
on page 26.
Risk management and internal
control systems
The Board is satisfied with the effectiveness of
internal control and that risk is being managed
effectively across the Group. More information
can be found on page 36.
Role and responsibility of the
Audit Committee
The role and responsibility of the Audit
Committee is outlined in the Board structure
on page 32.
The Board is satisfied that Belinda Richards
has recent and relevant financial experience
appropriate to her position as Chair of the
Audit Committee. Belinda is considered to
have sufficient financial experience, having
been a corporate finance partner at Deloitte
for over ten years. Additionally, she serves on
the Advisory Group of the Audit Committee
Chairmen at the FRC and is a member of the
Governing Council of the Centre for the Study
of Financial Innovation.
Shareholder engagement
The Board is committed to communicating the
strategy to analysts, investors and shareholders
on a regular basis through a planned programme.
The Investor Relations programme includes:
• formal presentations of full and half year results;
• trading statements;
• regular meetings between institutional
investors, the Chief Executive, the Chief Finance
and Commercial Officer and the Investor
Relations team in the UK and overseas following
the full and half year results;
• regular meetings between the Chairman
and major shareholders to discuss any aspect
of the Group or its governance arrangements;
• attending key investor conferences;
• communication between the Chairman
of the Remuneration Committee and
major shareholders on remuneration policy
and significant changes in remuneration
arrangements;
• responding to enquiries from shareholders
and analysts through the Investor Relations
team; and
• maintaining dedicated shareholder and investor
sections on the website.
In addition, the Investor Relations team
provides a regular update to the Board and
feedback from meetings held between executive
management and institutional shareholders.
The Group’s brokers seek independent feedback
from analysts and investors following the full and
half year results meetings, and this is reported
to the Board.
Use of the AGM
The 2019 AGM will be held on 13 June 2019 at the
Group’s headquarters at Gain Lane, in Bradford.
The whole Board is expected to attend and be
available to answer any questions shareholders
may have.
Notice of the 2019 AGM of the Group is to be
sent to shareholders with an accompanying letter
from the Chairman.
The format of the meeting is:
• a summary presentation of results is provided
before the Chairman deals with the formal
business;
• all shareholders present can put questions to
the Chairman, Chairs of the Committees, and
the Board during the meeting and informally
afterwards;
• the Board encourages participation
of individual investors at the AGM; and
• following the meeting, details of the voting
on the resolutions will be made available on
the website www.morrisons-corporate.com/
investor-centre/shareholder-information/
general-meetings/
The Directors recommend that shareholders
vote in favour of each resolution, believing them
to be in the best interests of the Group.
Shareholders will be notified of the availability
of the Annual Report and Financial Statements
on the website unless they have elected to
receive a printed version.
29
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Corporate governance report continued
Board of Directors and
Executive Committee
Composition of the Board
The Board is independent and contains an appropriate mixture of skills and experience. The Board is satisfied that all Non-Executive Directors,
including the Non-Executive Chairman, remain independent according to the definition contained in the Code. The criteria used to determine
independence are set out in the corporate governance compliance statement which can be found in the investor relations section of the Group’s
website, www.morrisons-corporate.com. Each of the Non-Executive Directors has committed and is able to commit an appropriate amount
of time in order to effectively fulfil their role and responsibilities on the Board.
1. Andrew Higginson
Chairman
C
R N
3. Trevor Strain
Chief Finance and
Commercial Officer
5. Neil Davidson CBE
Non-Executive
Director
A C
R N
7. Belinda Richards
Non-Executive
Director
A C
R N
2. David Potts CBE
Chief Executive
C
4. Rooney Anand
Senior Independent
Non-Executive
Director
A C
R N
6. Kevin Havelock
Non-Executive
Director
A C
R N
8. Tony van Kralingen
Non-Executive
Director
A C
R N
3. Trevor Strain
Appointment
Trevor joined the Group in June 2009
as Commercial and Operations Finance
Director. In June 2011, he became Finance
Director Corporate and took responsibility
for the Group’s productivity programmes.
Trevor joined the Board as Chief Financial
Officer in April 2013 and assumed the
additional responsibilities of Group
Commercial Director in October 2018.
Experience
Prior to joining Morrisons, Trevor worked
for Tesco PLC in a number of roles until
his appointment as UK Property Finance
Director in 2006 and subsequently UK
Planning and Reporting Finance Director.
Trevor began his career with Arthur
Andersen and is a member of the Institute
of Chartered Accountants in England
and Wales.
External Roles
None
4. Rooney Anand
Appointment
Rooney joined the Board as a
Non-Executive Director and Senior
Independent Director in January 2016.
Experience
Rooney is a highly experienced retail
and fast moving consumer goods (FMCG)
executive. Following a career with United
Biscuits and then Sara Lee, he joined Greene
King PLC in 2001 as Managing Director of its
brewery company. He was appointed CEO
in 2005 and will be stepping down from this
role shortly. Rooney is also the Chairman
of both the Casual Dining Group and
WorldSkills UK.
External Roles
Chief Executive Officer of Greene King PLC
Chairman of Purity Soft Drinks (a Langholm
Capital owned business)
1. Andrew Higginson
Appointment
Andrew joined the Group as Deputy
Chairman and Chairman Elect in October
2014 and became Chairman at the end
of January 2015.
Experience
Andrew brings significant Board,
commercial, retail and leadership experience
to the Board. Andrew is a former Executive
Director of Tesco PLC having spent 15
years on the Main Board, first as Finance
and Strategy Director, and latterly as Chief
Executive of their Retailing Services business.
His early career was with Unilever, Guinness,
Laura Ashley and the Burton Group. Andrew
was previously the Chairman of Poundland
Group PLC, Senior Independent Director
of BSkyB PLC and a Non-Executive Director
of the Rugby Football Union.
External Roles
Non-Executive Director of
Woolworths Holdings Limited
Chairman of Evergreen Garden Care
Chairman of the IGD
Non-Executive Director of Majid Al
Futtaim Group
2. David Potts
Appointment
David joined the Group as Chief Executive
in March 2015.
Experience
David is a vastly experienced retailer
who joined Tesco PLC at the age of 16
and worked there for 39 years. He rose
to become CEO of its Ireland business,
its UK retail stores business and then
CEO of Tesco Asia. David was also on
the Tesco PLC Board from 1998 until he
left in 2011. Prior to his appointment as
Chief Executive of Morrisons, David held
several advisory positions with a number
of private equity and consultancy firms
and developed his own retail concept to
sell general merchandise. He also worked
on two extensive retail projects in the UK.
External Roles
None
30
5. Neil Davidson
Appointment
Neil joined the Board as a Non-Executive
Director on 1 October 2015. He became
Chair of the Corporate Compliance and
Responsibility Committee in January 2016.
Experience1
Neil’s extensive career in manufacturing,
started with Northern Foods PLC where
he rose to become Managing Director of its
milk division. He subsequently became CEO
of Express Dairies PLC and then Arla PLC.
He is currently Chair of the Youth Sport
Trust and has also been a Non-Executive
Director of Produce Investments PLC,
Persimmon PLC and Northern Recruitment
Group PLC.
External Roles
Chairman of OptiBiotix Health PLC
6. Kevin Havelock
Appointment
Kevin joined the Board as a Non-Executive
Director in February 2018.
Experience
Kevin has significant fast moving consumer
goods (FMCG) industry experience, most
recently having been a member of the
Executive Committee at Unilever and
President of Global Refreshment, which
comprises of Unilever’s drinks and ice cream
brands. Kevin is a Trustee of both the British
Council and The Eden Project.
External Roles
Non-Executive Director of Fevertree PLC
7. Belinda Richards
Appointment
Belinda joined the Board as a Non-
Executive Director in September 2015 and
became Chair of the Audit Committee in
January 2016.
Experience1
Belinda’s career in professional services has
spanned over 25 years, where she operated
as a senior adviser in corporate finance
and strategy. She was a corporate finance
partner at Deloitte and Global Head of
Merger and Separation Advisory Services
until 2010. Belinda serves on the Advisory
Group of Audit Committee Chairmen at the
FRC, is a member of the Governing Council
of the Centre for the Study of Financial
Innovation and is a Trustee of the Youth
Sport Trust.
External Roles
Non Executive Director of Avast PLC
Non Executive Director of Monks
Investment Trust PLC
Non Executive Director of Phoenix Group
Holdings (‘PGH’)
Non Executive Director of Schroder Japan
Growth Fund PLC
8. Tony van Kralingen
Appointment
Tony joined the Board as a Non-Executive
Director in September 2017.
Experience
Tony has a broad experience across a
number of disciplines including marketing,
supply, procurement, manufacturing, and
human resources. Tony served 35 years at
SABMiller PLC, 14 of them on the Executive
Committee. He held a number of positions
including Group Director: Integrated Supply,
Chairman and Managing Director SAB,
and Chairman and CEO: Plzensky Prazdroj.
He is also currently an Honorary Professor of
Global Corporate Strategy at Nottingham
University.
External Roles
Chair of Crown Commercial Services
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Executive Committee
The Executive Committee is driving a culture of listening to all of our key
stakeholders within the business.
9. Paula Vennells CBE
Non-Executive
Director
A C
R N
Jonathan Burke
Company
Secretary
1. David Potts CBE
Chief Executive
C
4. Clare Grainger
Group People
Director
2. Trevor Strain
Chief Finance and
Commercial Officer
5. Gary Mills
Group Retail
Director
3. Andy Atkinson
Group Customer and
Marketing Director
1. David Potts
See Board of Directors on page 30.
2. Trevor Strain
See Board of Directors on page 30.
3. Andy Atkinson
Appointment
Andy joined Morrisons in 2011 and
was appointed as Group Customer
and Marketing Director in January 2016
having held the interim position for
over five months.
Experience
Andy previously held a number of
senior commercial and trading roles
within the organisation. Prior to joining
the Group, Andy worked in a variety of
senior commercial positions within Boots,
progressing to Commercial Director. Andy
started his career at Coca-Cola before
moving to Walt Disney and then L’Oréal.
4. Clare Grainger
Appointment
Clare joined Morrisons in February 2009
and was appointed Group People Director
in September 2015.
Experience
Clare began her career at Asda where
she held a number of roles at Head Office
and in the Retail division. She progressed
through a variety of senior human resources
(HR) positions including Head of HR at
HBOS/Lloyds Banking Group, where she
led a number of programmes to drive
differentiation in both sales and services.
5. Gary Mills
Appointment
Gary joined Morrisons in August 2015 as
Group Retail Director.
Experience
Gary has more than 30 years’ retail
experience, with Stewarts Supermarkets in
Northern Ireland and then with Tesco PLC
where he held a variety of senior positions,
including Retail Director for Convenience
and Retail Director for the North and
Northern Ireland. Gary’s experience covers
all areas of retail and all formats, including
supermarkets and convenience stores.
Appointment
Jonathan was appointed as the Group’s
Company Secretary in February 2017.
Experience
As a qualified accountant and Company
Secretary, Jonathan has worked at
Morrisons for over 25 years holding
various finance, compliance and project
roles. Jonathan was also previously
Company Secretary between 2001
and 2009.
9. Paula Vennells
Appointment
Paula joined the Board as a Non-Executive
Director in January 2016.
Experience
Paula has significant experience in large scale
business turnaround, digital transformation
and in culture change. Paula is shortly stepping
down as Group Chief Executive of the Post
Office, a role she has held since April 2012
having joined the Post Office in 2007.
Previously she was Group Commercial
Director of Whitbread PLC after starting her
career with Unilever and L’Oréal. Paula has
held directorships in sales and marketing,
commercial, and supply chain with a number
of major retailers including Dixons Stores
Group and Argos. Paula is a Non-Executive
Director of the Cabinet Office and Chair
Designate of Imperial College Healthcare
NHS Trust.
External Roles
Chief Executive of the Post Office
Non-Executive Chair of First Rate Exchange
Services Limited
Attendance at meetings
Andrew Higginson
David Potts
Trevor Strain
Rooney Anand2
Neil Davidson
Kevin Havelock
Tony van Kralingen
Belinda Richards
Paula Vennells
Board
Nomination Remuneration
Audit
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
8/9
5/5
–
–
5/5
5/5
5/5
5/5
5/5
4/5
5/5
–
–
5/5
5/5
5/5
5/5
5/5
4/5
–
–
–
1/1
5/5
5/5
5/5
5/5
4/5
CCR
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
3/4
On the rare occasions that a Director is unavoidably unable to attend a meeting, the Director
will still receive and consider the relevant papers allowing them to share and discuss any
comments or input with the other members of the Board before the meeting.
Committee key
A Audit Committee
C Corporate Compliance and Responsibility Committee
R Remuneration Committee
N Nomination Committee
Committee Chairman
1 On 6 February 2018, Belinda Richards was appointed Trustee of the Youth Sport Trust,
a national charity, of which Neil Davidson is Chairman. The Board has considered this
cross-directorship and is satisfied that it does not compromise the independence of
Belinda or Neil.
2 Rooney was appointed to the Audit Committee on 17 January 2019.
31
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Corporate governance report continued
Structure of the Board
and its Committees
The decisions delegated by the Board to its Committees during the financial year 2018/19 are shown in the table below and on the following page.
See pages 34 to 38 for details of activities.
Function
Members
Structure of the Board and its Committees
Chairman
Main Board
Key objective: Governance of the Board
Executive
Committee
Audit
Committee
Andrew Higginson
(Chair)
Neil Davidson
Kevin Havelock
David Potts
Trevor Strain
Rooney Anand
Tony van Kralingen
Belinda Richards
Paula Vennells
David Potts
(Chair)
Trevor Strain
Andy Atkinson
Darren Blackhurst1
Clare Grainger
Gary Mills
Belinda Richards
(Chair)
Rooney Anand2
Neil Davidson
Kevin Havelock
Tony van Kralingen
Paula Vennells
Key objectives
Overall conduct of the business and setting
strategy.
Implementation of strategy and actions
in respect of financial planning and
performance; day-to-day management
of operations.
Effective governance of financial
reporting, internal controls and risk
management systems; review of significant
accounting judgements, assumptions
and estimates; management of the
relationship and appointment of the
external auditor; monitoring and review
of the effectiveness of the Group’s Risk
and Internal Audit function.
Responsibilities
• Understanding, reviewing and responding
• Developing and implementing
• Reviewing and making recommendations
to the views of all stakeholders;
• Developing and approving the strategy
and key policies of the Group;
• Managing culture and values;
• Monitoring progress towards achieving
all Board objectives;
• Monitoring of financial performance, critical
operational issues and risks by reviewing
performance against strategy, objectives,
business plans and budgets;
• Approving communications to
shareholders, including the Annual Report
and Financial Statements, half-yearly
financial report and interim management
statements;
• Approving changes to the Group’s capital
structure, external financial reports, major
expenditure; and
• Approving membership of the Board
on recommendation of the Nomination
Committee.
to the Board on:
– the integrity of financial reports,
including reviewing significant financial
reporting issues and considering how
these issues have been addressed;
– whether the Annual Report and
Financial Statements are fair, balanced
and understandable;
– the effectiveness of the Group’s
internal control and risk management
system;
– the effectiveness of the Risk and
Internal Audit function;
– the independence, effectiveness and
appointment of the external auditor,
approval of their fees; and monitoring
of the Group’s policy on non-audit
services;
– approval of Tax and Treasury policies;
and
– pensions.
the strategy;
• Understanding, reviewing and responding
to the feedback from stakeholders
including customers and colleagues;
• Maintaining oversight of:
– financial performance, reporting
and control;
– risk management;
– operational improvement
programmes; and
– review and supervision of
operational activities;
• Making recommendations to the Board
in respect of:
– budgets and long-term plans;
– dividend levels;
– Group risk register; and
– ad-hoc events;
• Managing succession planning for
all colleagues including senior
management; and
• Organising Sub-Committees which are
responsible for key operational oversight
and decision making including:
– management of capital expenditure;
– departmental performance reviews;
– oversight of improvements to process
for suppliers; and
– Compliance with The Groceries Supply
Code of Practice (GSCOP).
1 Darren Blackhurst stepped down from the
Executive Committee on 17 October 2018.
2 Rooney Anand was appointed to the
Audit Committee on 17 January 2019.
32
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Structure of the Board and its Committees
Chairman
Main Board
Corporate Compliance
and Responsibility
Committee
Neil Davidson
(Chair)
Andrew Higginson
David Potts
Rooney Anand
Darren Blackhurst1
Andrew Clappen2
Kevin Havelock
Tony van Kralingen
Belinda Richards
Paula Vennells
Remuneration
Committee
Nomination
Committee
Tony van Kralingen
(Chair)
Andrew Higginson
Rooney Anand
Neil Davidson
Kevin Havelock
Belinda Richards
Paula Vennells
Andrew Higginson
(Chair)
Kevin Havelock
Tony van Kralingen
Rooney Anand
Neil Davidson
Belinda Richards
Paula Vennells
Leadership around
the business
David Potts
Chief Executive
Developing and implementing the
Group’s policies on corporate compliance
and corporate responsibility; reviewing
and ensuring compliance with those
policies and with ethical and governance
standards.
Developing and implementing the
Group’s remuneration framework
and policies for Directors and colleagues
including all long-term incentive plans,
bonuses and pensions.
Advising the Board on Board and
senior management appointments
and succession planning; monitoring
of the composition of the Board
and its Committees.
Clare Grainger
Group People Director
• Maintaining oversight of strategy
and process in areas of corporate
responsibility, including:
– Groceries Supply Code of Practice
(GSCOP);
– food safety and food integrity;
– health and safety;
– gender pay;
– cyber security;
– ethical trading;
– modern slavery;
– environmental and competition
compliance;
– governance and reputation;
– General Data Protection Regulation
(GDPR); and
– The Morrisons Foundation and
charitable giving.
• Setting the remuneration policy for
the Group’s Chief Executive, Chairman,
Executive Directors and Executive
Committee;
• Agreeing remuneration of the Executive
Directors and Executive Committee;
• Engaging with shareholders in respect
of remuneration policies;
• Reviewing the terms and operation of
the Share Ownership Guidelines; and
• Reviewing the Chief Executive and
Chairman’s expenses.
• Evaluating the current and required
mixture of skills and experience on
the Board;
• Reviewing succession planning for
the Board;
• Sourcing and selecting Board candidates
(more information can be found on
page 38);
• Maintaining general oversight of people
and capability within the business, and
their diversity (more information can
be found on page 38);
• Reviewing the talent pool for the
Executive Committee and levels below
Executive Committee; and
• Reviewing and setting policy on
diversity.
1 Darren Blackhurst stepped down from the Corporate Compliance and Responsibility Committee in November 2018.
2 Andrew Clappen is the Group Corporate Services Director. Andrew joined Morrisons in 2012 and is responsible for the Corporate Affairs and Policy,
Corporate Social Responsibility (CSR) & Ethical Trading, Agriculture and Technical Services (Food and General Merchandise Technology, Safety,
Quality, Compliance and Health & Safety) of the Group. Prior to Morrisons, Andrew was the Senior Vice President responsible for Food Safety,
Quality Assurance & Regulatory Affairs at Loblaw Companies Ltd in Canada.
33
Gary Mills
Group Retail Director
Andy Atkinson
Group Customer
and Marketing Director
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Corporate governance report continued
Board and Committee activities
Main board
Executive
Committee
Activities in 2018/19
Board evaluation
Activities in 2018/19
During the year, the Board has:
• set the strategy and plans for the Group;
• reviewed the results and forecasts and
approved the regulatory announcements;
• reviewed the annual business plan and
received regular updates from the Executive
Committee regarding its delivery;
• ensured the conduct of the business in
accordance with its values;
• reviewed the performance of the
Chief Executive;
• approved the 2018/19 budget and
commercial plans, including productivity
savings required to invest in the
customer offer;
• approved the plan for the Group’s balance
sheet and capital structure strategy;
• approved the proposed dividends including
special dividends;
• considered feedback received from
customers, colleagues, suppliers
and shareholders;
• reviewed the culture of the Group through
‘Your Say’ survey responses and feedback
provided from the ‘Your Say’ forums;
• discussed compliance to regulations with
the Grocery Code Adjudicator (GCA);
• approved the Group’s continued operations
and growth opportunities in online,
wholesale and manufacturing;
• reviewed the governance structure and
activities of the sub-committees of the
Board; and
• approved early repayment of bonds.
A review is undertaken on an annual basis
to evaluate the performance of the Board.
For the 2017/18 review, an external evaluation
was carried out by Concilium Board Review,
who have no connection to the Group.
This year the review was facilitated internally
by the Company Secretary, reporting to the
Chairman. The review continued to explore
the themes considered in last year’s external
review, including structure, composition and
dynamics of the Board.
The review was conducted in October 2018,
using a carefully constructed questionnaire,
with the opportunity provided for follow-up
interviews. The Company Secretary discussed
the findings of the review with the Chairman
and then presented them to the Board
in November.
Having considered the findings of the
review, the Directors concluded that the
Board and its various Board sub-committees
continue to perform effectively, with high
scores achieved across the broad range of
performance criteria.
A number of related actions were
agreed for implementation during 2019/20.
These included, for example, further
increasing opportunities for the Non-
Executive Directors to meet to discuss
Group matters on an informal basis and
setting aside more time at Board meetings
to further consider food retail sector related
matters of a longer-term nature.
During the year, the Group also reviewed and
considered the effectiveness of its principal
advisers to ensure they remain appropriate
and relevant to the Group’s needs.
During the year, the Executive Committee has:
• driven trading performance and reviewed
financial performance;
• reduced the cost base of the organisation;
• considered regular updates on customer
views including attending customer listening
sessions and shopping trips with customers;
• continued to implement the Group’s
six priorities;
• overseen the Group’s compliance with its
obligations under the GSCOP;
• overseen the Group’s commitment to
corporate social responsibility in particular
in minimising food waste, in supporting
the Group’s charity partner CLIC
Sargent and in supporting the charitable
Morrisons Foundation;
• continued to review the Group’s reduction
programme in energy and plastic;
• overseen the Group’s continued
development of its wholesale, online
and manufacturing operations;
• approved capital budgets;
• determined the draft budget and long-
term plan;
• reviewed the talent, capability and capacity
within the Group;
• listened to views of colleagues including
reviewing the ‘Your Say’ survey results and
agreement of improvement actions;
• periodically reviewed performance against
strategic objectives;
• determined principal risks for the Group;
• reviewed the GDPR compliance plans;
• reviewed changes to speed up and simplify
the business;
• agreed improvements to the Group’s
technology infrastructure; and
• recommended the dividend to the
Board.
34
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Audit
Committee
Belinda Richards
Chair of the
Audit Committee
Dear Shareholder,
I am pleased to present the Audit Committee
Report for the 52 weeks ended 3 February
2019, my fourth as Chair of the Committee.
The report provides an overview of the matters
considered by the Committee during the
year, and summarises how the Committee has
fulfilled its duties to represent the interests of
shareholders in respect of financial reporting,
risk management and internal controls.
Each year the Committee considers the
Group’s internal control and risk management
processes, the key risks facing the business,
the effectiveness of the Internal Audit
function, any material matters arising from
Internal Audits, and the independence and
effectiveness of the external auditor, along
with supporting the Board in respect of
financial reporting matters.
The Committee’s effectiveness was reviewed
during the year as part of the internal review
of the Board (see page 37 for further details),
and I am pleased to report that the review
concluded that the Committee continued
to discharge its duties effectively.
The Committee is responsible for reviewing
and making recommendations to the Board
on the integrity of the financial statements,
and assessing the appropriateness of key
judgements and estimates as defined in this
section. This year the Committee has spent
significant time reviewing key judgements in
relation to property assets and provisions, stock
and Alternative Performance Measures (APMs).
The Committee has also considered the impact
of new accounting standards, with the Group’s
preparations for the adoption of IFRS 16 ‘Leases’
in 2019/20 a particular area of focus.
During the year, Rooney Anand was appointed
to the Committee and I look forward to his
contribution to the Committee’s activities
going forward.
This report sets out further details on the
key activities of the Committee and covers
the risks and controls that were reviewed
and the core areas of judgement that were
considered during the year.
Activities in 2018/19
During the year, the Committee has:
• considered the appropriateness of the
Group’s Annual Report and Financial
Statements and Half-yearly report;
• understood key judgements made by
management in respect of the Group’s
financial statements;
• assessed the outcomes/findings of work
performed by the external auditor;
• considered the effectiveness of the internal
controls and the work of Risk and Internal
Audit and discussed key risks (described in
more detail on page 36);
• considered reports produced by Internal
Audit covering topics including regulatory
compliance and the control environment;
• reviewed key policies including those
governing tax and treasury;
• reviewed the recognition of commercial
income and the controls in place over
compliance with GSCOP;
• understood the new Corporate Governance
Code and reporting requirements;
• assessed the proposed viability statement,
reviewed and challenged the scenarios
modelled;
• considered the requirements and impact
of new accounting standards during the year,
and received regular updates on the Group’s
preparation for adoption of IFRS 16 ‘Leases’
in 2019/20; and
• reviewed and understood pensions matters
during the year and their impacts on the
Group’s financial statements.
Financial reporting matters
The Audit Committee has considered whether
suitable accounting policies have been applied,
and has reviewed key accounting judgements
and estimates made by management.
This section outlines the key judgements
and financial reporting matters considered
by the Committee during the year.
Impairment of property, plant and
equipment, intangible assets and onerous
property contracts
Impairment and onerous property contracts
continue to be a focus area for the Committee
on the basis of their materiality and level of
inherent judgement and estimation.
The Group’s policy to assess impairment on an
annual basis, or where changes in circumstances
indicate impairment (or impairment reversal), is
disclosed in note 3.1 of the financial statements.
The impairment review is comprehensive,
covering non-financial assets, principally the
Group’s property portfolio, technology assets
and goodwill.
Management estimates the recoverable
amount of assets to determine the extent
of any impairment charge or whether a
reversal of a previous impairment charge is
required. This assessment led to a reversal of
previous impairment of assets in certain cash
generating units and an impairment charge
being recognised on others, resulting in a
net impairment reversal of £55m recognised
in 2018/19, as disclosed in note 1.4 of the
financial statements.
The Committee reviewed reports produced
by management detailing the outcomes of
the impairment testing. This review focused on
understanding the methodology, the basis of
key assumptions (discount rate and long-term
growth rate) and a review of the outcomes
of the impairment assessment performed by
management. The Committee challenged how
management had reflected expected future
performance, changes in market conditions
and the potential impact of Brexit in the
impairment work. The Committee has also
reviewed management’s key assumptions
around the market valuation of the
store portfolio.
In addition, for property contracts where
the expected future cash flows are less than
the future contract commitment, an onerous
contract provision is recognised. This work
resulted in a net £74m charge in relation
to provisions for onerous contracts being
recognised along with £7m provisions for
dilapidations, which has been partially offset
by a reduction in accruals of £21m. The key
judgements are around the discount and
growth rate applied to future cash flows.
Having reviewed all key assumptions in
respect of impairment and onerous contract
provisions and the impact on the value of the
Group’s assets and provisions, the Committee
is satisfied that the assumptions applied by
management are appropriate.
Commercial income
The Group’s definition of commercial income is
disclosed in note 1.1 of the financial statements
and is consistent with the definition in the
prior year.
35
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Corporate governance report continued
Board and Committee activities
Commercial income is accounted for as a
deduction from the cost of purchase, and it is
recognised in accordance with signed supplier
agreements, with most income subject to little
or no subjectivity or judgement.
Commercial income continues to be an area
of focus for the Committee, despite reducing
complexity and size, as this continues to be
an area of focus in the industry. In considering
the appropriateness of commercial income
recognised in the year and the financial
position at the year end, the Committee
has reviewed reports from management
and Internal Audit outlining the accounting
judgements and the control environment.
The Committee understood the key
judgements in this area and considers them
to be appropriate.
Stock
Stock is a material balance in the Group’s
financial statements, with stock held across
a large number of locations. As such, this
remains an area of focus for the Committee.
Stock count procedures have remained
consistent with the prior year. Store stock
counts are a key control of the Group’s stock
balance and the Committee has reviewed
outcomes of third party store stock counts
conducted during the year and discussed
trends of stock loss experienced over the year.
Judgement is required in determining provisions
for shrinkage and valuation and the Committee
reviews these judgements as part of the twice-
yearly review of judgements and estimates.
During the year, the Group continued to
automate its ordering systems. This led
to operational changes and additional
information regarding stock levels resulting
in changes to the estimation methodology
applied to making provisions for stock loss, and
the Group recognised an exceptional charge.
The Committee reviewed and understood
shrinkage and the proposed methodology, and
discussed the treatment as an exceptional item.
Having discussed the matter with management
and the auditors, the Committee is satisfied
with the new methodology, and accepts that
the accounting treatment and disclosure
is appropriate.
Pensions
The Group operates a number of defined
benefit pension schemes. Accounting for
defined benefit pension schemes requires
the application of a number of assumptions
which have an impact on the valuation of
the schemes’ assets and liabilities. The IAS 19
valuations are performed by an independent
actuary.
The Committee has reviewed the
assumptions used in the schemes’
valuations. The Committee has considered
the appropriateness and sensitivity of the
assumptions used by the independent
actuaries in the valuation, including the
discount rate. During the year, the Committee
discussed the key assumptions (including the
methodology for assessing discount rates
over long durations) with the independent
actuary. The Committee is satisfied that the
assumptions are appropriate.
The Committee considered the legal advice
the Group has obtained with regard to the
recognition of a pension surplus for the
Group’s defined benefit pension schemes, as
disclosed in note 8.5 of the financial statements
and considered the treatment appropriate.
The Committee reviewed the accounting
treatment resulting from the closure of the
Group’s Retirement Saver Plan (a defined
benefit scheme) and provisions made in
respect of guaranteed minimum pensions
during the year. This resulted in exceptional
charges of £19m and £7m respectively
recognised in the year (as disclosed in notes
1.4, 8.6 and 8.7). The Committee concluded
that this treatment was appropriate.
Presentation of financial statements
The Committee has considered the Guidelines
on Alternative Performance Measures (APMs),
issued by the European Securities and Markets
Authority (ESMA) in 2016. The Group now
includes additional disclosure on the APMs
used by the Group in a Glossary on pages 132
and 133.
In addition, the Committee has considered
the use of APMs, in particular the items
presented as adjustments to profit presented
in the financial statements. The Committee
is satisfied the classification of these items is
appropriate and consistent and that the level
of disclosure provided in note 1.4 is appropriate.
The Committee also reviewed the changes
to the Group’s key adjusted profit measure,
where ‘profit before exceptional items and
net pension interest’ has replaced ‘underlying
profit’. The Committee agreed that this change
is appropriate, reflects how management
assess the performance and is satisfied the
Group’s disclosure in this area is effective.
36
Internal control and risk management
The Board has overall accountability for
ensuring that risk is effectively managed
across the Group. Risks are reviewed by the
Executive Committee twice a year and results
are brought to the Board. The Group’s principal
risks are set out on pages 24 and 25.
On behalf of the Board, the Audit Committee
has responsibility for reviewing the
effectiveness of internal control including
financial, operational and compliance controls.
In order to do this, as a matter of course in
any one year, the focus of Committee includes:
• receiving and agreeing appropriate actions
in response to regular reports from the Risk
and Internal Audit function on:
– the status of internal control and risk
management systems across the Group;
and
– the department’s findings, annual plan
and the resources available to perform
the work;
• reviewing financial whistleblowing reports
from colleagues;
• reviewing the external auditor’s report on
internal financial control;
• seeking reports from senior management
on the effectiveness of the management
of key risk areas; and
• monitoring the adequacy and timeliness
of management’s response to identified
audit issues.
These systems and processes have been
in place throughout the period and up to the
date of approval of this Annual Report.
The main features of the Group’s internal
control and risk management systems relating
to the accuracy and reliability of financial
reporting, including the process for preparing
the Group’s financial statements, are:
• the recruitment of suitably qualified and
experienced finance colleagues;
• the segregation of duties, clear lines of
accountability and delegation of authority;
• policies and procedures that cover financial
planning and reporting, preparation of
financial information, and capital expenditure;
• a robust period end review process
including review and commentary from
process owners;
• a tiered review process for external financial
reports involving internal stakeholders from
relevant areas of the business;
• information and data security policies and
procedures; and
• self certification by each function of
the business.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 The Group confirms that it has complied with
the provisions of the Competition and Markets
Authority’s Order in respect of The Statutory
Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee
Responsibilities) Order 2014.
Each year the Audit Committee considers
the effectiveness and independence of
the external auditors in making the decision
regarding the proposal of re-appointment
of the auditors, which is tabled each year
at the AGM.
When assessing the effectiveness of the
external auditor, the Committee considered:
• the content and quality of the audit work
plan for the Group;
• the detailed findings of the audit, including
a discussion of any major issues that arose
during the audit;
• management’s responses to the auditor’s
findings;
• the quality and knowledge of the audit team;
• the level of professional scepticism and
independence applied; and
• the output of an effectiveness survey
Independence of the external auditor
completed by the Directors and management.
The Committee regularly reviews the Group’s
process for risk management and internal
control and annually conducts a formal review
of these processes. No significant failings or
weaknesses of internal control were identified
during these reviews. Limited weaknesses
and areas where controls could be further
automated were identified. Clear action plans
are in place to address these weaknesses and
are captured as part of functional risk registers
with defined management responsibility.
The Committee understands the importance
of a robust risk management process and
control environment and looks to progressively
strengthen it over time.
Internal Audit
The Committee is regularly updated on the
work and findings of Internal Audit throughout
the year, including:
• approval of the terms of reference of the
Internal Audit function;
• approval of the Internal Audit plan for the year;
• review of findings from work of Internal Audit
completed during the year; and
The independence and objectivity of the
Group’s external auditors is a fundamental
safeguard which the Committee keeps under
review. In order to ensure the independence
of PwC during the year, the Committee has:
• considered the terms, areas of responsibility,
duties and scope of work of the external
auditor as set out in the engagement letter;
• considered the Group’s policy for provision
of non-audit services;
• review of the effectiveness of the Internal
• reviewed details of the non-audit services
Audit function.
Each year a review of the effectiveness
of Internal Audit is completed and reviewed
by the Audit Committee. In most years this
is an internal review taking the form of a
survey of the Executive Directors, members
of the Executive Committee, key members
of management and other stakeholders.
During the year, an external review of the
effectiveness of the Internal Audit function
was conducted in line with the Group’s policy
to perform an external assessment every five
years. The external review was conducted by
KPMG and included an assessment against
Internal Audit Standards and best practice.
KPMG considered key documentation, reviewed
a sample of audit files and met with members of
the Internal Audit team, management and the
Board, and performed benchmarking against
other Internal Audit functions.
The review considered the function’s
positioning (organisation and structure), people
and processes. The work concluded that the
function compares favourably to others and
noted no significant issues, with a small number
of minor improvement opportunities suggested,
which the Committee reviewed.
External audit tenure
The Board appointed PricewaterhouseCoopers
LLP (PwC) as external auditor in June 2014.
The lead audit partner, Andrew Paynter, has
held the position for four years.
provided in the year;
• considered the letter from the external
auditor confirming its independence and
objectivity; and
• understood and approved the basis for the
audit fee.
The policy on the engagement of the external
auditor to supply non-audit services is set out
in the investor relations section of the Group’s
website (see www.morrisons-corporate.com).
PwC has provided certain non-audit services
throughout the year. This was in line with
the policy and the ratio of audit to non-audit
services, which was within the 1:0.7 limit set
in the policy. Details of the external auditor’s
remuneration is disclosed in note 1.6 of the
financial statements. The Committee is
satisfied that this non-audit activity carried
out by the statutory auditors is subject to
safeguards to avoid a threat to the auditor’s
independence or objectivity. These safeguards
include separate teams for audit versus
non-audit work.
Effectiveness of the external auditor
The Committee considered the effectiveness
of PwC as auditor during the year. The
Committee and the Committee Chair hold
meetings with the auditor without management
present. The purpose of these meetings
is to understand the auditor’s views on the
control and governance environment and
management’s effectiveness within it.
37
An independent assessment of the effectiveness
of the external auditors is conducted annually
by Internal Audit. The assessment takes the form
of a questionnaire gathering feedback from key
stakeholders including Non-Executive Directors,
Executive Committee members and other key
members of the management team. The survey
covers the robustness of audit approach, quality
of reporting and quality of people and services.
Financial Reporting Council (FRC) review
of PwC’s audit of the Group
In February 2019, the Group received a letter
on the conclusion of the FRC’s Audit Quality
Review of PwC’s audit of the Group, for the
53 weeks ended 4 February 2018. The scope of
the review was to assess the work performed
by PwC as part of their audit, rather than to
review the Group’s reporting and accounting
practices. The findings of the review have been
discussed with PwC at the Audit Committee.
Whilst there were no significant findings, some
areas of PwC’s audit work were identified as
requiring improvement. We have considered
PwC’s responses to the review and are satisfied
they are looking to address the points raised.
FRC’s thematic review
In September 2018, the FRC published on their
website names of all companies whose Report
and Accounts had been subjected to a review
which has been completed. The Group was
included on that published list. This related
to the FRC’s thematic review of pension
disclosures – in the Group’s 2016/17 Annual
Report and Financial Statements, which had
been included in the sample selected for
review. The outcome of the review was that no
substantive issues were raised, with only minor
improvement opportunities noted, which were
reflected in our 2017/18 disclosures. The review
was concluded in September 2017.
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Corporate governance report continued
Board and Committee activities
Activities in 2018/19
During the year, the Nomination
Committee has:
• reviewed colleagues throughout the
organisation including diversity, succession
planning, capability and capacity.
More information on this can be found
on pages 15 and 16;
• reviewed and recommended the
expansion of Trevor Strain’s role to include
commercial responsibilities;
• recommended the appointment of Rooney
Anand to the Audit Committee;
• considered the Board’s structure; and
• reviewed and approved the Board
Diversity Policy.
Diversity
This year, the Committee updated the Board,
Executive Committee and Leadership Team
Diversity Policy. This policy fully supports
the Hampton-Alexander recommendations
that the Board should be made up of at least
one-third females by 2025. It also supports the
Parker recommendations that the Board should
also be comprised of at least one Black, Asian
and Minority Ethnic (BAME) Director. For more
details on the full Board, Executive Committee
and Leadership Team Diversity Policy, see
www.morrisons-corporate.com
At the end of the 2018/19 financial year,
the Board included two female members,
representing 22% of its total composition
and one BAME Director.
The diversity of the Leadership Team
and a review of the diversity of the general
population of Morrisons colleagues is outlined
on page 16 of this report.
Other areas of focus
The Committee spent time reviewing succession
planning for both the Board and Executive
Committee, as well as reviewing the talent pool
for levels below Executive Committee.
Corporate Compliance
and Responsibility
Committee
Neil Davidson CBE
Chair of the Corporate
Compliance and
Responsibility (CCR)
Committee
Dear Shareholder,
The CCR Committee acts as a custodian
of the policies and practices that
define and safeguard the reputation of
Morrisons. The Committee members bring
experience, insight and perspectives to
help guide the work of this Committee.
The Committee pays close attention to
the evolving views and expectations of the
Group’s broad range of key stakeholders,
and receives regular information and
reports on stakeholder developments.
Maintaining compliance to GSCOP and
GDPR have remained areas of significant
prioritisation for the Committee.
I am satisfied the Group makes decisions
in a very thoughtful and informed manner
and the Group is well positioned to ensure
that its role and reputation with all our
stakeholders remains strong during the
upcoming year.
Activities in 2018/19
During the year, the Committee has reviewed:
• GSCOP compliance including training and
results of internal reviews;
• cyber and technology security risk;
• health and safety incidents and actions taken
and progress of health and safety initiatives;
• energy strategy and carbon reduction
measures;
• ethical trading;
• redistribution of food waste;
• food safety and improvements;
• Market Abuse Regulation compliance;
• food integrity and testing;
• plastic waste;
• GDPR compliance;
• supply chain human rights;
• modern slavery; and
• non-financial whistleblowing reports.
Further details on the Group’s corporate
responsibility activities can be found
on pages 21 and 22. We also publish
a Corporate Responsibility Report that
provides more details on these areas
(see www.morrisons-corporate.com/cr).
For more detail on the Group’s work to
ensure compliance with GSCOP, see page 17.
Morrisons respect for fundamental human
rights is consistent with the United Nations
Universal Declaration of Human Rights, and we
ensure all of our internal policies are consistent
with this. The Committee has concluded the
Group does not currently have any human
rights issues.
The Committee has reviewed the Group’s
anti-bribery and anti-corruption policy, which
sets out our zero tolerance approach to bribery
and corruption and the conduct expected
of all of our colleagues and contractors.
The Committee has also considered the
gifts and hospitality policy which defines the
process which must be followed before any
gifts or hospitality are offered or accepted.
Regular training is provided to all colleagues
to maintain awareness of these policies
and processes.
Nomination
Committee
Andrew Higginson
Chair of the Nomination
Committee
Dear Shareholder,
Shareholders and other stakeholders are
increasingly recognising the importance of
the Nomination Committee’s role within the
Group. This year, we have taken a fresh look
at diversity and succession planning within
the Board itself and throughout the Group
to ensure that we have the right balance of
skills and experience from a suitable diverse
internal talent pool.
During the year, we updated our Board,
Executive Committee and Leadership Team
Diversity Policy, and committed to several
objectives which are key to succession
planning within Morrisons.
Looking ahead, long-term succession
planning at Board and Executive level will
remain a key priority of the Committee.
38
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ remuneration report
Annual statement by the Chairman
of the Remuneration Committee
Tony van Kralingen
Remuneration Committee Chair
Dear Shareholder
As Committee Chair I enjoyed the interaction with a variety of
shareholders during the course of last year, and at the 2018 Annual
General Meeting (AGM). The Committee was satisfied with the
85% vote in favour of our 2017/18 Directors’ remuneration report,
and remains conscious of the views of our shareholders, through
regular engagement.
2018/19 was another year of pleasing performance with profit before
tax and exceptional items growth of 8.6% (10% on a comparable 52
week basis) and positive Group like-for-like sales (LFL) (excluding fuel)
growth of 4.8%. The business continues to make progress against
the six priorities, which are summarised on pages 8 and 9.
2018/19 marked the thirteenth consecutive quarter of positive
LFL sales growth under David Potts’ leadership, and the business
continues to generate significant levels of free cash flow, a measure
which shareholders continue to tell me is very important to them.
In October, we announced that Trevor Strain has accepted the
additional responsibilities of Commercial Director, and is now
the Chief Finance and Commercial Officer. Consequently, the
Committee approved an increase of 6% to his base salary effective
from the date of his appointment.
How our Directors’ remuneration report is structured
Policy summary
pages 42 to 44
Implementation of the remuneration policy in 2018/19
pages 45 and 46
Annual report on remuneration
pages 47 to 54
Governance developments
2019 sees the introduction of the new UK Corporate Governance Code
(the ‘Code’), along with updated remuneration reporting requirements.
Supporting our strategy, promoting long-term sustainable success,
transparency and independent judgement are already at the core of
our remuneration policy. Alongside the Board review of the new Code
requirements, the Committee is already well placed for the application
of these new requirements for 2019/20, including:
• the Committee being regularly briefed on employee pay and
conditions, which in 2018/19 saw a further increase in the hourly rate
to £8.70 for front-line store colleagues;
• the Committee already being responsible for setting the remuneration
of the Executive Committee; and
• my nomination as the designated Non-Executive Director responsible
for engagement with our colleagues.
Finally, the Committee has decided that for Long Term Incentive Plan
(LTIP) awards made from 2019 onwards, a holding period will apply to
vested shares for two years, resulting in a total vesting and holding
period of five years. I look forward to reporting more fully next year on
how the Committee has complied with the new Code obligations at
the same time as presenting our new Directors’ remuneration policy for
renewal in advance of the 2020 AGM.
Pay for performance
Outcomes in 2018/19
The Committee continues to be of the view that superior performance
and reward are linked, and that the UK’s food retail industry remains
very competitive, providing great value for customers and good
opportunities for talent.
Financial performance
Over the last 12 months, despite challenges around some start-up
costs, the in-year contribution from wholesale and online, and a highly
competitive UK retail environment, management has delivered:
• Group LFL sales (excluding fuel) growth of 4.8%;
• profit before tax and exceptional items of £406m, an increase of 8.6%
on last year (10% on a comparable 52 week basis);
• further strong free cash flow and a final 4.00p special dividend, bringing
the total special dividend to 6.00p, and total dividend of 12.60p, up
24.9%; and
• further progress in cost and productivity savings, resulting in cost
reduction/productivity improvement of £145m.
Annual Bonus Plan
The Annual Bonus Plan is based on both business and personal
performance. Performance against the targets for sales, profit, and
productivity, and procurement cost savings have been substantially
met, resulting in a formulaic outcome of 76.2% of maximum for these
elements. However, management has recommended a downwards
adjustment of 20% for these elements, to 61%. This adjustment takes into
account some important aspects of overall performance, such as a lower
in-year increase in incremental profit from wholesale, services, interest
and online. The Committee has considered the annual bonus outcome
in view of overall Group performance and believes this represents a
fair assessment.
39
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
Annual statement by the Chairman
of the Remuneration Committee
2.8%
12.19p
£374m
£337m
10.86p
1.9%
Group performance
2017/18
2018/19
for the new Chief Finance and Commercial Officer;
Underlying profit
before tax (UPBT)
Underlying
basic earnings
per share (EPS)
Group like-for-like
sales (LFL)
• Reviewed base salaries, including the appropriate level of increase
£406m
13.17p
4.8%
£374m
12.19p
2.8%
Profit before tax
and exceptionals
Basic earnings per
share (EPS) before
exceptionals
Group like-for-like
sales (LFL) growth
2018/19
Taking into account performance against personal objectives, the
2017/18
Committee has decided to award David Potts and Trevor Strain each
the full 20% of this element. Taking into consideration the overall
performance of the Group, they have taken the decision to waive all
of this element of their bonus. This takes the total bonus achieved to
a payout of 61% of maximum, half of which will be deferred into shares
which must be held for three years under the deferred share bonus plan.
LTIP 2016-19
The 2016-19 LTIP outcome reflects the continued turnaround in
Morrisons’ performance since David Potts was appointed, and started
the Fix, Rebuild and Grow strategy. At the time David assumed the role
of Chief Executive, Morrisons reported full year LFL sales of (5.9)% and
had net debt of £2.3bn. The team has strengthened the balance sheet,
grown LFL sales, whilst reducing debt and generating significant free cash
flow. The performance over the period is summarised below:
Measure1,2
Total sales (excluding fuel)
Adjusted free cash flow
Basic earnings per share (EPS)
before exceptionals growth p.a.
Min (25%) Max (100%) Weighting
20%
£12.7bn
£13.2bn
60%
£620m £1,340m
20%
13%
6%
Actual
performance
£14.0bn
£1,466m
10.8%
1 See the definitions on page 46.
2 Additional detail on each of the measures on page 51.
It is also important to note that during this period, management increased
external guidance for working capital improvement. Notwithstanding this
increase, management exceeded the targets significantly on free cash flow
– a measure that investors have told me is extremely important to them,
as well as on sales, which is a key measure of the health of a food retailer.
As a consequence of the strong performance over the period as outlined
above, the 2016-19 LTIP is vesting at 94.6% of maximum. The Committee
believe the formulaic outcome is reflective of the value created for
shareholders over the period.
Sharing in success
As part of the philosophy of a colleague-led turnaround, and our
commitment to a fair day’s pay, the Group has continued to invest in
total reward for colleagues. In the last three years, colleague hourly
rate has increased 27%, with a further increase planned in April 2019.
Colleague bonus payout has increased again this year, and as part of
a package of improvements for team managers, working hours are being
reduced and bonus opportunity increased.
Key Committee activities during the year
• Considered investor feedback from the 2018 AGM and through
ongoing dialogue;
• Reviewed and considered consequences of the changing investor,
governance and reporting landscape following the 2018 AGM season
and issuance of the Code and updated Directors’ remuneration
reporting regulations;
• Introduced a two year post-vest holding period for future LTIPs;
• Assessed performance against target sets for the 2018/19 annual bonus
and 2016-19 LTIP and considered whether any discretion should be
used to adjust formulaic outcomes;
• Reviewed and approved targets for the 2019/20 annual bonus and
2019-22 LTIP; and
• Reviewed the performance of the Committee.
Looking forward
I reported last year on the positive engagement I have had with our
shareholders since my appointment and the steps the Committee
has taken to address the feedback received at our 2017 AGM.
The Committee remains committed to transparency, providing its
rationale for decisions taken and embedding rigour into the target
setting process and wider decisions on executive pay. I intend to
continue this constructive dialogue with our shareholders during 2019
and in the context of presenting a new Directors’ remuneration policy
for renewal at the 2020 AGM.
Implementation in 2019/20
Base salary
The Committee awarded David Potts an increase of 2% in line with the
wider workforce, which David has waived for the fourth consecutive year.
As noted, Trevor Strain was appointed Chief Finance and Commercial
Officer effective 17 October 2018. As a consequence of this and his strong
performance, the Committee approved an increase of 6% effective
from appointment.
Chairman and Non-Executive Director fees
The Chairman’s fees have not been reviewed since his appointment
in 2014. The Committee therefore awarded him a 5% increase effective
from 4 February 2019. Fees for the Chairman will be next reviewed in
2022. There is no change in Non-Executive Director fees.
Annual Bonus
The performance measures of the Annual Bonus Plan and their
weightings remain unchanged from 2018/19 and are summarised
on page 45. Subject to no longer being commercially sensitive, the
performance against targets will be disclosed in next year’s report.
The Group has changed the headline measure for adjusted profit to
be ‘profit before tax and exceptional items and net pension interest’
(referred to as ‘profit before tax and exceptionals’), from ‘underlying
profit before tax’ as previously reported. Therefore future targets will
be with reference to this new measure. There is no difference in values
between the previously reported results and targets under the new
or previous measure.
LTIP
In line with the policy approved by shareholders, awards will be 300%
of salary. Performance measures and weightings are unchanged from
2017/18 other than the earnings per share measure being with reference
to basic earnings per share before exceptionals rather than underlying
earnings per share as previously reported. Further detail on the targets
can be found on page 45. This grant will be subject to a two year holding
period at vest. I look forward to your support at the 2019 AGM.
Tony van Kralingen
Remuneration Committee Chair
40
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ remuneration report continued
At a glance
Looking at performance from the perspective
of shareholders, customers and colleagues
Three year summary of financial measures
Measure1
Profit before tax and exceptionals
Basic earnings per share (EPS) before exceptionals
Group like-for-like sales (excluding fuel) (%)
Cumulative adjusted free cash flow (2015/16 onwards)
2018/19
£406m
13.17p
4.8%
£2,339m
2017/182
£374m3
12.19p
2.8%
£2,053m
2016/17
£337m3
10.86p
1.9%
£1,656m
1 Definitions of these measures are set out on page 46.
2 2017/18 was a 53 week year. Profit before tax and exceptionals and basic earnings per share before exceptionals are with reference to the 53 week period. Group LFL was on a 53 week versus
53 week basis.
3 For 2017/18 and 2016/17 the adjusted profit measure was underlying profit before tax. There is no change in the reported numbers under the previous and current definition.
Key shareholder performance indicators
Three year total shareholder return (TSR)
12 month total shareholder return (TSR)
Value of a £100 holding
£
150
140
130
120
110
100
90
Feb 16
Value of a £100 holding
£
130
125
120
115
110
105
100
95
90
Feb 18
Feb 17
Feb 18
Feb 19
Apr 18
Jul 18
Oct 18
Feb 19
Morrisons
FTSE 100
Morrisons
FTSE 100
The graph above shows the Group’s total shareholder return (TSR)
compared with the TSR of the FTSE 100 indices over the three year
period to 1 February 2019 (the last trading day before the year end).
The graph above shows the Group’s total shareholder return (TSR)
compared with the TSR of the FTSE 100 indices over the 12 month
period to 1 February 2019 (the last trading day before the year end).
Investment in colleague pay
Customer satisfaction
+27.4%
£8.50
£8.70
£8.20
£6.83
2015
2016
2017
2018
Since 2016, we have continued to invest in colleague pay. In 2018/19,
we increased the hourly rate for front-line store colleagues to £8.70 an
hour – at the time, the highest of the ‘big 4’ grocery retailers.
+20%
+8%
+7%
+3%
+2%
Customer satisfaction measured at January each year, year-on-year change (% pts)
Jan 16
Jan 17
Jan 18
Jan 19
The above graph demonstrates the continued progress the Group has
made in terms of customer satisfaction over the last three years.
41
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Ensuring lock
in of Directors
as we deliver
Fix, Rebuild
and Grow
Performance measures
and period
Not applicable.
Directors’ remuneration report continued
Directors’ remuneration policy
Approved 15 June 2017
This part of the report sets out a summary of the Group’s policy for the remuneration of Executive and Non-Executive Directors as approved
by shareholders on 15 June 2017 at the AGM. The full policy can be found on page 37 in the 2016/17 Annual Report and Financial Statements
(www.morrisons-corporate.com/annual-report-2017). The policy took effect from this date and may operate for up to three years.
The principles that underpin our Directors’ remuneration policy are:
Doing what
is right for the
business in the
long term
Continuing to
deliver sector
superior returns
to shareholders
Providing clear
alignment of
Directors and
shareholders
Ensuring
competitive
pay in a talent
hungry market
Executive Directors – policy table
Element
Operation
Base
salary
Benefits
Pension1
The Committee’s policy is to set base salaries competitively to
attract and retain the best talent, which is critical to the Group’s
success and delivery of the strategy. Base salary is part of a total
remuneration package which rewards stretching performance
aligned to the Group’s strategy.
Base salaries are set by the Committee on appointment and
then normally reviewed annually. In setting and reviewing salary
levels, the Committee considers the responsibilities of the role,
progression in the role, individual performance (including any change
in responsibilities), skills, experience, and pay levels and structure
throughout the Group. The Committee also has regard to rates for
similar roles in comparator companies, both in FTSE 100 retailers and
UK-based companies of a similar size and complexity, but seeks to
avoid the automatic ratcheting effects of following benchmark levels
of salary.
The Group provides a market competitive benefits package for
Executive Directors to support in the ability to recruit and retain
the best talent.
Executive Directors are entitled to a car allowance (or other car
benefit), transport costs, private health provision, life assurance and
normal colleague discount entitlement. Executive Directors are also
entitled to participate in the all colleague Sharesave schemes (and
any other all colleague share plans which the Group may operate)
on the same terms as all other UK-based colleagues. The Committee
reviews benefit provision from time-to-time and retains flexibility
to add or remove benefits if necessary to ensure that benefit
provision remains market competitive or to meet the operational
needs of the business (for example, through the payment of
relocation expenses).
The Group provides a market competitive retirement provision
for Executive Directors which is aligned with retirement benefits
available throughout the Group.
Executive Directors are entitled to membership of the Group’s cash
balance pension arrangement known as the Morrisons Retirement
Saver Plan (RSP). Individuals contribute 5% of capped base salary in
return for a guaranteed cash balance. A 10% cash salary supplement
in lieu of Group pension contributions applies on base salary
above the capped amount. A cash alternative to pension provision
is provided where the Group’s standard pension provision is not
appropriate, for example, where an Executive Director has reached
the Lifetime Allowance. Executive Directors may elect to receive this
cash salary supplement in lieu of pension of broadly the same value
as would accrue on an annual basis in the pension plan.
Opportunity
Salary increases will ordinarily be in
line with salary increases across the
Group. The Committee may award
increases above this level where
this is warranted due to a change in
the scope or responsibilities of the
role, to reflect progression in the
role (for example, staged increases
for a recent appointment) or to
remain competitive in the market.
Current base salary levels are
disclosed on page 45.
Not applicable.
The maximum car allowance is
currently £24,000. The cost to the
Group of providing other benefits
depends on the nature of the benefit
and can vary from year-to-year.
Benefit provision will be maintained
at a level which is competitive.
Not applicable.
The RSP guarantees a value of the
cash balance in the plan of 24% of
pensionable pay (assuming retirement
at age 65 years) adjusted for inflation
capped at 2% p.a. A maximum
10% cash salary supplement
applies above capped base salary.
Where an Executive Director receives
a cash salary supplement only, the
maximum supplement payable is
25% of salary.
1 Until 23 September 2018, Executive Directors were entitled to membership of the RSP. From 24 September 2018, the Executive Directors became entitled to participate in the
Morrisons Personal Retirement Scheme. Colleagues contribute 5% of salary and the Group also makes a contribution. A 10% cash salary supplement in lieu of Group pension
contributions continues to apply on base salary above the capped amount with a cash alternative to pension provision continuing to be provided where the Group’s standard
pension provision is not appropriate. The maximum supplement payable remains 25% of salary.
42
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Executive Directors – policy table
Element
Operation
Opportunity
Performance measures and period
Annual
bonus
LTIP
Annual bonus awards are designed to incentivise and
reward achievement of the Group’s short-term financial and
strategic objectives and personal performance objectives.
Compulsory deferral is designed to encourage retention
and further align the interests of the Executive Directors
with shareholders.
Bonus awards are made annually subject to a mix of financial
and non-financial performance measures. Achievement of
each performance element is assessed independently and
the level of payout is determined by the Committee after the
end of the relevant financial year. 50% of any bonus payable
is paid in cash with the other 50% deferred in shares under
the deferred share bonus plan, normally for a period of three
years. The Committee has discretion to allow a higher level of
deferral. Dividend equivalents accrue over the vesting period
and are paid at the time of vesting on the number of shares
that vest.
The maximum bonus
potential for Executive
Directors is 200% of
base salary. The number
of shares subject to
the deferred award
is determined by
reference to the bonus
and the share price on
the date of award.
The maximum annual
individual award
level under the plan
is 300% of salary.
The annual award level
for Executive Directors
is 300% of salary.
Awards under the LTIP are designed to incentivise and reward
achievement of the Group’s long-term strategic objectives
and creation of sustainable value for shareholders through
execution of the strategy.
Awards are made annually subject to performance measures
set by the Committee, which are aligned with business
strategy and the Group’s financial plan. The Committee has
the discretion to change the weightings of measures, remove
measures or introduce new measures to support delivery of
the Group’s objectives and strategy. Achievement of each
element is assessed independently. Awards will normally vest
three years after the award is made. The Committee retains
discretion to introduce a holding period which would apply
after the award has vested. Dividend equivalents accrue over
the performance period and are paid at the time of vesting
on the number of shares that vest.
Annual bonus awards are subject to the following
performance measures:
• 50% is based on profit before tax
and exceptionals;
• 30% is linked to achievement of a number of
strategic scorecard measures; and
• 20% is linked to achievement of
personal objectives.
The measures and weightings are set by the
Committee on an annual basis, and may be
changed if the Committee decides this is
appropriate to support delivery of the Group’s
strategy. Each element is assessed independently
at the end of each year. Achievement of threshold
performance will result in a payout of 20% of the
adjusted profit element (i.e. 10% of the maximum
bonus potential).
Achievement of one of the strategic scorecard
measures or one of the personal objectives
is regarded as threshold performance for
that element. Deferred share awards are not
subject to any further performance conditions.
Awards will normally vest three years after the
date of award but may be forfeited if the individual
leaves employment before the vesting date.
The Committee has discretion to award ‘good
leaver’ status.
LTIP awards are subject to the following
performance measures:
• 40% is based on cumulative adjusted free
cash flow;
• 40% is based on total sales growth (excluding fuel);
and
• 20% is based on growth in basic earnings
per share (EPS) before exceptionals.
Achievement of threshold performance will
ordinarily result in vesting of 25% of each element
with 100% vesting for maximum performance.
However, the Committee has discretion to reduce
the level of vesting at threshold. There is a ROCE
underpin which allows the Committee to adjust
vesting of awards if ROCE is below the weighted
average cost of capital (WACC). For all awards, the
Committee has the discretion to adjust the vesting
calculations as set out in the ‘Implementation
of the remuneration policy in 2018/19’ section.
The Committee has the discretion to amend
the weightings, introduce new measures and
exclude measures in order to best align to long-
term shareholder interests. Malus and clawback
policies apply.
43
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
Directors’ remuneration policy
Approved 15 June 2017 continued
Other key features of policy:
Service contracts
Our policy is for Executive Directors to have rolling service contracts with a notice period of 12 months. On an exceptional basis, to complete external
recruitment, a longer initial period reducing to 12 months might be used. At its discretion, the Group may pay in lieu of notice. Payment in lieu of
notice could potentially include up to 12 months’ base salary, benefits and pension, but is payable in instalments and subject to mitigation.
Under the Annual Bonus and LTIP scheme rules, the Committee has discretion in relation to termination of employment.
Termination payments summary
Circumstances
of termination
Salary and contractual
benefits
Annual bonus plan
Unvested
deferred shares
Resignation or
gross misconduct
Injury/ill health, disability,
death, retirement (with
agreement of the Group)
Paid to date
of termination
Paid to date
of termination
Negotiated termination
at the discretion of
the Committee
Paid to date
of termination
No bonus paid for year
of termination
Award lapses when
employment ends
Eligible to be considered
for a bonus, calculated on
a time pro-rata basis
Deferred shares are retained
and will typically vest on
the normal three year cycle.
The Committee has discretion
to bring forward vesting in
exceptional circumstances
As above
As above
Unvested LTIP awards
Award lapses when employment ends
Eligible to be considered for good leaver status,
which gives entitlement to retain the award
granted calculated on a time pro-rata basis
At the Committee’s discretion, may be
eligible to be considered for good leaver
status, which gives entitlement to retain
the award granted calculated on a time
pro-rata basis
Approach to new hires
Prior to appointment, the Committee will apply the following principles in agreeing the remuneration of Executive Directors:
• the overall package will be sufficient to attract and retain the best talent to effectively deliver the Group’s strategy, taking into account similar
positions in the market, experience of the candidate and current remuneration;
• the Committee will look to align the base salary, benefits, pension benefits, Annual Bonus and LTIP, in line with the remuneration policy whilst taking
into account the individual circumstances (including compensation for loss of remuneration from a previous employer) of candidates and existing
Executive Directors; and
• the maximum variable pay opportunity will be 500% of salary. Up to 200% may be earned under the Annual Bonus Plan, and up to 300% may be
granted under the LTIP. This would be separate to arrangements required to recruit the preferred candidate.
Chairman and Non-Executive Director fees
Fees for the Non-Executive Directors are determined by the Chairman and the Executive Directors, and are reviewed from time-to-time with
regard to the necessary time commitment, and the level of fees in comparable companies. The Chairman’s fee is determined by the Remuneration
Committee and the Board, and is reviewed on the same basis. Fees for the Non-Executive Directors are made up of a base fee, plus additional fees
for Committee chairmanship, Committee membership and for the appointed Senior Independent Director. The Chairman receives a single fee only
with no additional fees for other duties to the Group.
Current Non-Executive Director fees are as follows:
Fee type
Chairman
Senior Independent Director
Non-Executive Director base fee
Committee chair fee
Committee membership fee (per Committee)
2019/20
£
420,000
20,000
61,200
20,000
7,000
2018/19
£
400,000
20,000
61,200
20,000
7,000
Benefits and other items in the nature of remuneration
The Chairman has use of a car and driver and receives private health provision. The Chairman and Non-Executive Directors are entitled to normal
colleague discount. Neither the Chairman nor any of the Non-Executive Directors participate in any Group incentive scheme.
44
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ remuneration report continued
Implementation of
remuneration policy in 2018/19
Base salary
The Committee awarded David Potts an increase of 2% in line with the
wider workforce, which David has waived for the fourth consecutive year,
and therefore remains unchanged at £850,000. As noted, Trevor Strain was
appointed Chief Finance and Commercial Officer effective 17 October
2018. As a consequence, the Committee approved an increase of 6%
effective from appointment, taking his salary to £650,000.
Benefits and pension
David Potts and Trevor Strain receive a pension supplement of 25% and
24% of base salary respectively.
Annual Bonus
The structure of the bonus, including maximum potential (200% of
salary) and the requirement to defer 50% of any bonus in shares under
the deferred share bonus plan (DSBP) is in line with the Directors’
remuneration policy (summary on pages 42 and 43).
Measure1
Profit before tax and exceptionals
Strategic scorecard
Personal objectives
1 Performance measures are defined on page 46.
Weightings
(% of maximum bonus
opportunity)
50%
30%
20%
Scorecard measures for 2019/20 will continue to focus on strategic
objectives in the areas of Group LFL sales (exc. fuel) growth (20%) and
productivity improvement/cost reduction (10%). Personal objectives will
be linked to strategy, and the areas under each executives’ responsibility.
Detail on the performance targets is regarded as commercially sensitive
at this time and cannot be disclosed here. Subject to no longer being
regarded as commercially sensitive, targets will be disclosed in next year’s
remuneration report.
LTIP
2019-22 LTIP target setting
In setting this year’s targets, the Committee reviewed past LTIP
targets and performance, the Group’s strategic plan, current market
performance, and available analysts’ estimates. The Committee also
analysed the targets through a variety of lenses to assess the level of
stretch. Unattainable or inappropriate targets, such as an exaggerated
focus on short-term margin expansion, are not in the best long-term
interests of any stakeholders. Instead, the Committee is striving to set
targets that achieve the right balance between continuing to drive
the turnaround, maximising shareholder returns and incentivising
management to prioritise consistent and sustainable growth over short-
term profit. The Committee noted that while historic performance has
been strong, it is the opinion of many analysts and the Board that trading
conditions are likely to remain challenging.
In line with the policy approved by shareholders, the LTIP awards
for David Potts and Trevor Strain for 2019/20 will be 300% of salary.
This grant will be subject to a two year post-vest holding period.
LTIP targets 2019-22
The targets for the 2019-22 LTIP are in the table below:
Measure1,2,3
Total sales growth (excluding fuel)
Adjusted free cash flow
Basic EPS before exceptionals
growth
Weighting
Threshold
40% £650m
40% £800m
5%
20%
Mid point
Maximum
£935m
£1.5bn
£850m £950m
10%
7%
1 Performance measures are defined on page 46.
2 Vesting is on a straight-line basis between points.
3 These targets have been set based on accounting standards in place for the financial year ended
3 February 2019. As disclosed in the financial statements IFRS 16 ‘Leases’ is effective for the Group
from the period beginning 4 February 2019 and represents a significant change in accounting for
and reporting of leases. The impact of the standard is currently being fully quantified, but will
affect the income statement and balance sheet as well as the Group’s alternative performance
measures, including basic EPS before exceptionals; however, as the EPS LTIP target is based
on percentage growth, any adjustments to prior year reported numbers will not affect the
achievability or stretch of the target. IFRS 16 will have no impact on cash measures.
The Committee has the discretion to adjust these calculations for
material exceptional events or actions (which may include strategic
changes to capital expenditure approved by the Board, and material
acquisitions or disposals) which were not in the contemplation of the
Committee at the time the targets were set and which might otherwise
materially distort the outcome, in order to ensure the vesting of the
LTIP is an accurate and fair reflection of performance. If the Committee
exercises its discretion to amend the calculation, a full disclosure of the
reason for the amendment and an explanation of the impact will be
given in the relevant annual report on remuneration.
Given the pending changes on lease accounting (IFRS 16, ‘Leases’),
which impact all companies reporting under IFRS, for the purposes of
the LTIP reporting, standards in place at the time of grant will be used in
calculation of vesting. As such, 2019-22 LTIP targets will be set on a pre-
IFRS 16 basis. There is a ROCE underpin which allows the Committee to
adjust vesting options if ROCE is below weighted average cost of capital.
Sales growth
The previous sales growth targets (2018-21) reflected the impact
of wholesale supply including the commencement of the McColl’s
agreement. Due to external circumstances, the roll out was significantly
accelerated and as a result sales growth was ‘front loaded’ in the first
year of that LTIP. The 2019-22 targets therefore reflects the shape
of the McColl’s roll out. Consensus sales growth for near years is
significantly below the maximum, which requires growth of c.3.5% p.a.
The Committee are therefore confident that the maximum represents
a very stretching target.
As permitted by Directors’ remuneration policy, the Committee
will retain the discretion to adjust the targets in the event of material
disposals or store closures during the performance period which were
not taken into account at target setting.
Adjusted free cash flow
In consultation, shareholders consistently said that free cash flow
remains a key measure for them. This year’s target follows a successful
four year programme of property disposals and working capital which
is now mostly complete, with around £2bn of improvements delivered.
For the four year period since 2015/16, delivery adjusted for property
disposals, working capital and onerous capital payments was c.£1bn.
Notwithstanding this strong progress, and the high level of property
disposals and working capital generation already achieved, management
remain focused on this key measure for shareholders. While the tighter
range for this LTIP reflects the reduced remaining opportunity, from
listening to feedback, the Committee have increased the threshold and
mid points significantly from the last year.
45
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
Implementation of
remuneration policy in 2018/19
continued
Basic EPS before exceptionals growth
In setting the target in January 2019, the Committee took into account
analyst estimates available at the time, which are mostly for near
years only and anticipate consistently challenging trading conditions.
The Committee remains very mindful of the need to balance profitable
growth with remaining competitive and relevant for customers in
increasingly uncertain times. EPS growth cannot be disconnected
from shopping trip improvements. The Committee does not want to
incentivise management to over reach on a level of EPS growth that may
not be sustainable in the long term, and believes that given recent and
anticipated trading conditions, competitor performance and predicted
performance, this range is very stretching.
Chairman and Non-Executive Director fees
Fees for the Non-Executive Directors remain unchanged from those
payable in 2018/19 and as set out in the summary of the remuneration
policy on page 44. Having not increased since his appointment in 2014,
the fees for the Chairman have been reviewed and increased by 5% to
£420,000 p.a. for 2019/20. The fees will next be reviewed in 2022.
Directors’ remuneration report performance measure definitions
Annual Bonus Performance Measures
Measure
Group
financial
Profit before tax and
exceptionals
Definition
As defined in the Glossary on page 132
Strategic
scorecard
Group like-for-like
sales growth (exc. fuel)
As defined in the Glossary on page 132
Productivity
improvement/cost
reduction
Personal objectives
Cost savings from productivity and
cost reduction delivered in the year
Personal objectives are linked to delivery
of the strategy
Other
measures
Long Term Incentive Plan (LTIP) Performance Measures
Measure
Definition
Total sales growth (exc. fuel)
Adjusted free cash flow
Basic earnings per share before
exceptionals (EPS) growth
The change in total sales (excluding fuel
and VAT) over the performance period
of the award
Total sales (excluding fuel and VAT) is
defined in the Glossary on page 132
The cumulative adjusted free cash
flow over the performance period
of the award
Adjusted free cash flow is defined as:
• Cash generated from operations
• Less: interest and tax
• Plus: property disposal proceeds
(excluding sale and leaseback)
• Less: capital expenditure
• Plus: onerous payments
The percentage change in basic EPS
before exceptionals p.a. over the
performance period of the award
Basic EPS before exceptionals is defined
in the Glossary on page 133
Pay and conditions in the wider group – investing in a colleague-led
turnaround
One of our people ambitions for colleagues is ‘a fair day’s pay for a
fair day’s work’. The Board receive regular updates on progress against
this ambition, and take this into account when setting Executive
Director pay.
• In 2016, the colleague hourly rate in stores was increased from £6.83
to £8.20. In 2018 we increased the hourly rate for all store colleagues
to £8.70 – at the time the highest of the ‘big 4’ grocery retailers and
will increase again in 2019. Our total package including colleague
bonus and annual long service award (for those employed prior
to 2013) remains market leading as additional cash benefits such as
bonus are equivalent to a further 38p an hour.
• Colleagues are sharing in the value they create, with one in five of
our people now in a Sharesave scheme.
• Colleague bonus levels continue to increase, from an average
payment for applicable colleagues of £164 in March 2016, £276 in
March 2017, £350 in March 2018 and £379 in March 2019.
• We invested in increasing the maximum bonus opportunity for our
team managers in stores, and have increased this again this year.
• The working week for store managers has been reduced.
• By April 2019, we will have delivered management development
training to the whole manager population – a significant investment
in our ambition for colleagues to have ‘a manager who helps and
supports me’, which in turn will help deliver our service ambition.
• Our colleague discount portal continues to grow in popularity,
offering a range of discounts to colleagues such as discounted
cinema tickets, meals out and savings at high street retailers. This has
proved extremely popular, with average savings of nearly £50 per
year per user.
• As part of our Fresh Look programme, we have underlined our
commitment to a colleague-led turnaround by refurbishing
colleague areas.
• In June 2016, we launched a Group-wide listening and responding
forum for colleagues called ‘Your Say’. Stores and sites each have
a monthly meeting, regional quarterly meetings and a national
meeting twice a year. As the Chair of the Remuneration Committee,
Tony van Kralingen attends the national ‘Your Say’ forum, to hear
views from colleagues on a range of issues, not just remuneration.
Successes from the Your Say forums in the last year include the
initiative to enable customers to bring their own plastic containers
to use at our counters, as well as improvements to first aid training,
provision of protective equipment, reducing waste, improving
processes, ways to better celebrate diversity in our workforce,
improving our birthday gift to ‘More’ Card customers, the signage
in our trolley bays to remind customers to bring their bags from
their car, removal of plastic cups and cutlery at head office, and our
participation in the 2019 Royal Cheshire County show.
Our colleagues are passionate about our business, and engage with
energy on how we can help them to simplify and speed up their
roles, to enable them to put customers first.
46
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ remuneration report continued
Annual report on remuneration
Audited information
Single total figure of remuneration
The table below sets out the single total figure of remuneration and breakdown for each Director for 2018/19 and the comparative figure for 2017/18.
Salary/fees
£000
Benefits1
£000
2018/19
Annual
bonus2
£000
LTIP3
£000
Pension
benefits4
£000
Total
£000
Salary/fees
£000
Benefits1
£000
Executive Directors
D Potts
T Strain
Non-Executive
Directors
A Higginson
R Anand
N Davidson
K Havelock6
CA van Kralingen
B Richards
P Vennells
850
622
400
103
102
89
102
102
89
27
35
38
–
–
–
–
–
–
1,037
759
2,482
1,679
213
149
4,609
3,244
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
438
103
102
89
102
102
89
850
596
400
102
102
–
35
102
89
27
35
24
–
–
–
–
–
–
2017/18
Annual
bonus2
£000
LTIP5
£000
Pension
benefits4
£000
1,678
1,177
3,189
1,576
213
143
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
5,957
3,527
424
102
102
–
35
102
89
1 Taxable benefits for the Executive Directors include a car allowance (or other car benefit), transport costs, private health provision. The Chairman previously had use of a car and driver. In 2018/19, he moved
to company car only. Due to the relevant tax treatment and disclosure, it appears his benefits have increased; however, the total cost to the Company is reduced. All Directors receive the Group’s normal
staff discount entitlement which is not taxable. Applicable Sharesave plans granted in given financial years are also included in this figure (for Executive Directors).
2 50% of the annual bonus is deferred in shares for a period of three years. There are no performance conditions attached to this deferred element.
3 Awards granted under the LTIP in April 2016 are scheduled to vest in April 2019. The performance conditions relating to the 2016-19 LTIP award ended on 3 February 2019 and the vest value of the 2016-
19 LTIP award is therefore calculated on the closing share price as at 1 February 2019 (the last trading day before year end). The 2018/19 figures also include the value of dividends accrued on the 2016-19
LTIP award at the time of vesting. Further detail on the 2016-19 LTIP is provided in the table on page 51.
4 D Potts received a salary supplement equal to 25% of base salary. T Strain received a salary supplement of 24% of base salary. None of the Executive Directors have a prospective entitlement to a
defined benefit pension by reason of qualifying service.
5 The value of the 2015-18 LTIP vest that was disclosed in the 2017/18 Directors’ remuneration report was based on an indicative price at 2 February 2018. The value of the 2015-18 LTIP vest has been
restated to reflect the actual April 2018 vest value.
6 K Havelock was appointed to the Board on 1 February 2018.
47
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
Annual report on remuneration
Audited information continued
Annual Bonus Plan
Annual bonus achieved 2018/19
Director
D Potts
T Strain
Group financial and strategic scorecard
Performance measure1
Group financial
Profit before tax and exceptionals
Strategic scorecard
Productivity improvement/cost reduction
Group LFL sales growth (exc. fuel)2
Other measures
Personal objectives
Maximum bonus
opportunity
(% of salary)
200%
200%
Actual bonus
(% of salary)
122%
122%
Actual bonus
(£000)
1,037
759
Bonus deferred
into shares
(% of award)
50%
50%
Cash bonus paid in
respect of 2018/19
(£000)
519
379
Achieved as a % of maximum
Threshold
20% payout
£370m
20% payout
£130m
0%
Target
60% payout
50% payout
Maximum
100% payout
£406m
100% payout
£150m
2%
Weighting
(as a % of total
annual bonus
opportunity)
50%
10%
20%
20%
Payout
(as a % of total
annual bonus
opportunity –
unadjusted)
Actual
achievement
£406m
50.0%
£145m
1.75%
8.1%
18.1%
20%
1 Performance measures are defined on page 46.
2 For the 2018/19 Annual Bonus Plan, the strategic scorecard measure relating to sales growth was with reference to Group LFL sales (exc. fuel) excluding sales to McColl’s. Further detail is provided below.
Profit before tax and exceptionals
In 2018/19, profit before tax and exceptionals increased by 10% on a comparable 52 week basis, delivering £406m (maximum £406m). At the time the
target setting process started (end of 2017), the grocery market was facing falling consumer confidence and growing inflationary/cost pressures.
The growth target challenged management to balance competing demands of growing profit while investing in the offer to be more competitive for
customers, and in customer service and colleague pay (in line with our six priorities). The UK Retail industry had a particularly challenging second half
of 2018 and performance is strong in that context.
Productivity improvement/cost reduction
Following two years of strong delivery against stretching targets, the maximum was set slightly lower than 2017/18, given the performance
in accelerating benefits since 2016/17 (delivered £269m vs maximum of £190m in 2016/17, and £195m against a maximum of £200m in 2017/18).
The maximum of £150m continued to be a very stretching target as a percentage of the remaining cost base.
Management have performed well against this stretching target, resulting in £145m being delivered meaning 8.1% of this element was achieved.
Group LFL sales growth (excluding fuel)
Group LFL sales growth (excluding fuel and McColl’s sales) was 1.75%. When the targets were set, the Group had achieved nine quarters of LFL sales
growth, following 16 quarters of decline. Therefore, this was the third time since 2011 that management were required to grow sales on top of prior
year growth in order to achieve the target. A target range of 0% to 2% therefore represented significant stretch given prior year performance and
the ongoing intensely competitive market. Due to the uncertain timing of the roll out of supply to McColl’s, these sales were excluded from LFL sales
performance targets for 2018/19. Achieving growth on top of prior year growth in the highly competitive core supermarkets business continues to be
stretching and challenging.
Financial and Strategic scorecard performance summary
Performance against the targets for sales, profit, and productivity and procurement cost savings have been substantially met, resulting in a formulaic
outcome of 76.2% of maximum for these elements. However, management has recommended a downwards adjustment of 20% for these elements,
to 61%. This adjustment takes into account some important aspects of overall performance, such as a lower in-year increase in incremental profit
from wholesale, services, interest and online. The Committee has considered the annual bonus outcome in view of overall Group performance and
believes this represents a fair assessment.
48
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Personal objectives
Stretching and measurable objectives are set by the Committee at the start of the financial year, taking into account our six priorities, and the
ambitions for our four stakeholders: customers, colleagues, suppliers and shareholders.
D Potts
Objective
Summary of Performance
Deliver key actions against the improvement
plan – i.e. the six priorities, five ways of
working and four sets of ambitions
• Opened three new stores and completed 59 Fresh Look refits.
• Morrisons home delivery reaches over 75% of British households due to second
fulfilment centre and successful ‘store pick’ solution roll out.
Weighting
4%
• Around 3,000 local products from 400 suppliers with over 350 stores selling local fruit
& veg and 334 stores selling local eggs.
• Launched new ‘Savers’ and ‘Naturally Wonky’ ranges and new ‘Best’ products.
• Customer satisfaction increased again, driven by queue wait times and friendliness
of our colleagues.
• Increased direct sourcing and manufacturing of key products including eggs, nuts,
bananas, pittas and crumpets.
• Extended Popular and Useful Services, including Doddle and Timpsons, and trialled
partnerships with new food service partners.
• Won ‘Supermarket of the year’ at Retail industry awards, amongst many others.
• Delivered best quarterly sales performance for nine years.
• Reorganised Executive Committee to be fit for the future and made five leadership
4%
team appointments.
• Continued investment in leadership development through our ‘My Job’ programme.
• Improved store structure delivered with no compulsory redundancies.
• More than 500 colleagues through Pathways development programmes,
now have over 400 craft apprentices.
• Biggest craft apprenticeship provider in the UK.
• Won ‘Top Employer in Retail’ and ‘Best Training’ in the School Leaver Awards.
• New GSCOP training launched in the year and will be carried out annually.
• Significant investment in a new supplier portal, providing suppliers with a more
4%
efficient way of working with Morrisons.
• We were the second most improved retailer in the Grocery Code Adjudicator’s 2018
supplier survey, for the second year running.
• ‘Leading with Purpose’ training delivered to over 1,000 leaders.
• Expansion of ‘Naturally Wonky’, vegan, children’s and ‘Best’ ranges as well as local all
4%
aligned to core purpose.
• Reduced plastic waste through many initiatives, including ’naked vegetables’.
• Introduced paper bags for fruit and veg and replaced black plastic on a number of
‘Best’ lines.
A senior internal working group, set up immediately after the referendum in 2016, has
continued to plan our readiness for Brexit throughout the year. Given the ongoing
political uncertainty our focus has been on how we serve customers through a
potential ‘no deal’ outcome. Work has included ensuring we have the right resource
plans, customs capabilities and processes in place, supply chain and site resilience, and
preparedness for changing legal requirements.
4%
Develop capability:
• Continue to develop leadership team
capability through development and
talent hires
• Maintain succession plans for the
Executive Committee and leadership team
• Build on 2017/18 investment in store and
senior manager capability and deliver team
manager up-skilling, finalise and re-set store
operational structure
Strengthen the Group’s Grocery Supply
Code of Conduct (GSCOP) compliance,
processes and culture:
• adhering to the GSCOP Codes
and Regulations;
• strengthen internal control processes; and
• improve culture around GSCOP compliance,
including supplier feedback
Continue to drive understanding of the
core purpose, communicate it and build
understanding widely
Lead the business through the challenges
of any instability driven through Brexit
49
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
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Audited information continued
T Strain
Objective
Summary of Performance
Continue to build the shareholder narrative,
and extend engagement
• As a result of the sustained engagement plan, the share register is increasingly
aligned with narrative.
Weighting
3.33%
Take lead role on cost reduction
and simplification programmes
• Cost reduction plan identified and being delivered through automation, simplification,
3.33%
reduced administration and improved procurement of goods not for resale.
Execute plans for non-core/
non-strategic assets
• Proceeds from disposals of assets were £22m in the year, with proceeds from the
3.33%
start of the programme now over £1bn.
Driving a performance and talent culture in all
functions led by Trevor Strain, with the specific
objective of identifying individuals with
potential to develop +2 or +3 work levels and
implement development plans
• Reorganisation of the Leadership Team enabled Trevor to take on the Group
3.33%
Commercial Director role.
• Rigorous talent identification and development in place, resulting in promotions,
increased role scope and future leaders identified.
• All succession plans reviewed with actions in place.
Develop our wholesale business
• Significant contribution to Group sales growth and target of £700m annualised
3.33%
sales achieved ahead of schedule.
• Completed initial McColl’s roll out at twice the rate initially planned.
• Wholesale supply chain set up with five dedicated distribution centres.
• 115 Morrisons daily stores now operating.
• Delivery to new export customers commenced.
• Safeway brand launched with around 400 products.
Continue to develop/execute broad-based
strategy for profitable growth
• Three new stores opened in the year with new stores in development for 2019/20.
• Online coverage expanded to over 75% of British households.
• Continued strong progress with Popular and Useful Services – over 1,000 now in place.
3.33%
Personal objectives performance summary
The Committee carefully assessed performance against objectives at the end of the financial year. In determining the final level of bonus payable, the
Committee took into account both the performance against objectives and the performance of the wider business. As well as individual objectives
being delivered in full, management continues to make significant progress against our six priorities, in particular being more competitive which is
improving LFL sales and volumes, and thereby rebuilding profitability.
Taking into account performance against personal objectives, the Committee has decided to award David Potts and Trevor Strain each the full 20%
of this element. Taking into consideration the overall performance of the Group, they have taken the decision to waive all of this element of their
bonus. This takes the total bonus achieved to a payout of 61% of maximum for Executive Directors, half of which will be deferred into shares under
the deferred share bonus plan.
Deferred bonus
50% of any bonus payable is deferred in shares under the deferred share bonus plan, which vest three years after the date of award.
Dividend equivalents will accrue and be paid on the shares that vest. Deferred shares are normally forfeited if the individual leaves the Group before
they vest.
50
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 LTIP awards
2016-19 LTIP awards
Awards granted under the LTIP in April 2016 are scheduled to vest in April 2019. The performance period relating to these awards ended on
3 February 2019.
Details of the performance conditions and the extent to which they have been satisfied are set out below:
Measure1,2
Total sales (excluding fuel)3
Adjusted cumulative free cash flow4
Basic earnings per share (EPS) before exceptionals growth p.a.5
Weighting
20%
60%
20%
(25%) Threshold
performance
required
£12.7bn
£620m
6% p.a.
(100%) Maximum
performance
required
£13.2bn
£1,340m
13% p.a.
Actual
outcome
£14.0bn
£1,466m
10.8% p.a.
Actual LTIP vesting
(% of maximum)
20.0%
60.0%
14.6%
1 Performance measures are defined on page 46.
2 The 2016-19 LTIP awards were subject to certain ‘guardrails’ relating to the free cash flow measure. The Committee has minimum and maximum guardrails for maintenance capital expenditure and
cumulative net proceeds from property sales over the performance period. When considering vesting against the free cash flow measure, the Committee can review and adjust as appropriate in the
event of operation outside the agreed parameters. The 2016-19 vesting for free cash flow was within the agreed parameters and as such no adjustment was required.
3 Total sales (excluding fuel) as at the end of the vesting period. In line with the policy, the maximum target was reduced in 2016/17 to adjust for the impact of store closures during the year.
4 Cumulative adjusted free cash flow over the vesting period. Adjusted free cash flow as defined on page 46.
5 Basic earnings per share (EPS) before exceptionals growth rate p.a. over the vesting period. Baseline basic EPS before exceptionals of 9.67p based on 2015/16 profit before exceptionals and
one-offs of £302m.
Share awards granted in 2018/19
The table below sets out the share awards made to the Executive Directors during 2018/19 under the Group’s LTIP:
Director
D Potts
T Strain
Grant date
Award type
22 March 2018 Conditional award
22 March 2018 Conditional award
Basis on which
award made
300% of salary
300% of salary
Face value
of award (£000)
2,550
1,832
Percentage of award
vesting at threshold
performance
25%
25%
Performance
period end date
31 January 2021
31 January 2021
Performance conditions
see table below
see table below
The table below sets out the performance conditions attached to the awards made during the year. These awards were granted in March 2018.
Measure1,2
Total sales growth (excluding fuel)
Adjusted free cash flow
Basic earnings per share (EPS) before exceptionals growth p.a.
1 Performance measures are defined on page 46.
2 Vesting is on a straight-line basis between threshold and maximum.
Period over which the measure applies
Three year performance period
(2018/19 – 2020/21)
Three year performance period
(2018/19 – 2020/21)
Three year performance period
(2018/19 – 2020/21)
Weighting (% of
maximum award)
Threshold (25%)
Maximum (100%)
40%
40%
20%
£1.1bn
£730m
5%
£2bn
£1bn
10%
Given the pending changes on lease accounting (IFRS 16, ‘Leases’), which impact all companies reporting under IFRS, for the purposes of the LTIP
reporting, standards in place at the time of grant will be used in calculation of vesting. As such, 2018-21 LTIP targets were set on a pre-IFRS 16 basis.
There is a ROCE underpin which allows the Committee to adjust vesting options if ROCE is below weighted average cost of capital.
For the sales target, as set out in the Directors’ remuneration policy, the Committee will retain the discretion to adjust the targets in the event of
material disposals or store closures during the performance period which were not taken into account in setting the target range.
The Committee has discretion to adjust these calculations for material exceptional events or actions (which may include strategic changes to capital
expenditure approved by the Board and material acquisitions or disposals) which were not in the contemplation of the Committee at the time
the targets were set and which might otherwise materially distort the outcome, in order to ensure that vesting of the LTIP is an accurate and fair
reflection of performance. If the Committee exercises its discretion to amend the calculation, a full disclosure of the reason for the amendment and
an explanation of the impact will be given in the relevant Annual Report on remuneration. There is a ROCE underpin which allows the Committee to
adjust vesting options if ROCE is below WACC.
51
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
Annual report on remuneration
Audited information continued
Payments to past Directors and loss of office payments
There were no payments made to past Directors of the Group or loss of office payments made during the year.
Statement of Directors’ shareholdings (Executive and Non-Executive Directors)
The Group has share ownership guidelines for Executive Directors of 250% of salary. Shares held under the deferred share bonus plan (calculated on
a post-tax basis) which are subject only to a continuing service requirement, will be included in assessing the level of shareholding. The shareholding
guideline should be reached within five years of appointment to the Board. The Group has share ownership guidelines for Non-Executive Directors
of 50% of base fees. This guideline should be reached within three years of appointment to the Board or three years after the date of adoption of
the policy for incumbent Directors.
David Potts has met his shareholding requirement. Trevor Strain has exceeded the 200% shareholding guidance set at the time of his appointment,
but has yet to meet the increased 250% requirement. In March 2018, Trevor exercised 615,428 shares. He is within the five year period permitted to
build up his shareholding and a further 688,622 shares will vest in April 2019, as a consequence of the 2016-19 LTIP.
Executive Director
D Potts
T Strain
Shareholding
requirement
(% salary)
250%
250%
Shareholding as at
February 2019
(% salary)1,2
567%
237%
Shares owned
outright
1,663,001
284,927
Deferred shares
not subject to
performance
1,032,414
714,299
Share save options
not subject to
performance
7,411
–
LTIP shares subject
to performance3
3,309,969
2,316,923
Total interests
in shares
6,012,795
3,316,149
1 Includes shares held under the deferred share bonus plan (DSBP) on an after tax basis.
2 For the purpose of calculating the shareholding as a percentage of salary, the three month average share price of £2.3244 up to 1 February 2019 (the last trading day of the financial year ended
3 February 2019) has been used.
3 1,017,964 shares and 688,622 shares represent LTIP awards granted to D Potts and T Strain respectively in April 2016 which are due to vest in April 2019. Performance targets for these awards and
associated outcomes are provided in the section headed ‘2016-19 LTIP awards’ on page 51. 1,074,589 and 753,824 shares granted to D Potts and T Strain respectively represent LTIP awards made in
March 2017 which are due to vest in March 2020. 40% of the award is linked to a total sales growth target. 25% of this element vests for achieving £400m over the performance period, and 100% vests
for achieving £750m over the period. 40% of the award is linked to a free cash flow target. 25% of this element will vest for achieving £600m against this measure, and 100% will vest for achieving
£800m against the adjusted free cash flow target. 20% of the award is linked to basic EPS before exceptionals growth. 25% of this element will vest for achieving 5% growth per annum over the
performance period. 100% will vest for achieving 10% growth per annum over the performance period. 1,217,416 and 874,477 shares granted to D Potts and T Strain respectively represent LTIP awards
made in March 2018 which are due to vest in March 2021. Performance targets for these awards are disclosed in the section headed ‘Share awards granted in 2018/19’ on page 51.
Shareholdings as at 1 February 2019 (the last trading day of the financial year ended 3 February 2019) are set out in the table below.
Non-Executive Directors
A Higginson
R Anand
N Davidson
K Havelock
C A van Kralingen
B Richards
P Vennells
3 February 2019 Total (owned outright)
63,5601
22,500
12,800
100,000
13,000
13,721
12,745
1 A Higginson acquired 63,560 shares on 31 January 2019. The shareholding of 266,209 shares, disclosed in the 2017/18 Annual Report and Financial Statements, was transferred to his former wife.
There have been no changes in the Directors’ interests since the year end.
52
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ remuneration report continued
Annual report on remuneration
Unaudited information
Performance graph and table
Total shareholder return (TSR)
Value of a £100 holding
£
300
250
200
150
100
50
2009
Morrisons
2010
FTSE 100
2011
2012
2013
2014
2015
2016
2017
2018
Feb 19
The graph above shows the Group’s total shareholder return (TSR) compared with the TSR of the FTSE 100 index over the ten year period to
1 February 2019 (last trading day before year end). This index has been selected as being appropriate in giving a broad equity view and given that the
Group has been constituent of the index over the period.
TSR is a measure of the returns that a company has provided for its shareholders, reflecting share price movements and assuming reinvestment
of dividends.
Remuneration of Chief Executive
The table below sets out the total remuneration figure for the Chief Executive over the previous ten years, valued using the methodology applied to
the single total figure of remuneration.
Total remuneration (£000)
Annual bonus payment
(% of maximum opportunity)
LTIP vesting level achieved
(% of maximum opportunity)
Chief Executive
D Potts
D Philips
M Bolland
D Potts
D Philips
M Bolland
D Potts
D Philips
M Bolland2
2009/10
–
–
1,159
–
–
0%1
–
–
–
2010/11
–
3,3283
304
–
70%
–
–
–
–
2011/12
–
2,502
–
–
90%
–
–
–
–
2012/13
–
1,089
–
–
0%
–
–
0%
–
2013/14
–
1,089
–
–
0%
–
–
0%
–
2014/15
–
2,101
–
–
60%
–
–
0%
–
2015/164
2,252
50
–
73%
–
–
–
0%
–
2016/17
2,794
366
–
100%
–
–
–
50%
–
2017/185
5,957
–
–
98.7%
–
–
96.3%
–
–
2018/19
4,609
–
–
61%
–
–
94.6%
–
–
1 M Bolland was not treated as a good leaver and therefore did not receive a bonus in 2009/10.
2 M Bolland was not treated as a good leaver and therefore lost any eligibility to shares that may have otherwise vested following his departure.
3 Total remuneration includes value of unrestricted share award over 319,401 shares and restricted share award over 120,965 shares granted on recruitment.
4 D Potts was appointed on 16 March 2015 and D Philips stepped down from the Board on 16 February 2015.
5 2017/18 total remuneration has been updated. The value of the 2015-18 LTIP vest that was disclosed in the 2017/18 Directors’ remuneration report was based on an indicative price at 2 February 2018.
The value of the 2015-18 LTIP vest has been restated to reflect the actual April 2018 vest value.
Change in remuneration of Chief Executive compared to Group employees
The table below sets out the change in total remuneration paid to the Chief Executive from 2017/18 to 2018/19 and the average percentage change
from 2017/18 to 2018/19 for employees of the Group as a whole.
D Potts
All Group employees1
% increase in element between 2017/18 and 2018/19
Salary and fees
0%
2.4%
Taxable benefits
0%
0%
Annual bonus
(38)%
(8)%2
1 Reflects the change in average pay for all Group employees employed in both the financial year 2017/18 and the financial year 2018/19.
2 Reflects the increase in the average bonus payout for eligible employees.
53
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Directors’ remuneration report continued
Annual report on remuneration
Unaudited information continued
Relative importance of spend on pay
The table below sets out the total spend on remuneration in the 2017/18 and 2018/19 financial years compared with distributions to shareholders.
Total cost of remuneration for all Group employees
Profit distributed by way of dividends
2018/19
£m
1,900
289
2017/18
£m
1,938
129
The Committee and its advisers
During the year, the following individuals were members of the Remuneration Committee:
C A van Kralingen (Chair since 1 September 2017)
R Anand
N Davidson
K Havelock
A Higginson
B Richards
P Vennells
1 September 2017
21 January 2016
3 November 2015
1 February 2018
22 January 2015
2 September 2015
21 January 2016
Difference
£m
(38)
160
To date
To date
To date
To date
To date
To date
To date
The Chief Executive, the Chief Finance and Commercial Officer, the Group People Director and other Human Resources (HR) representatives
also attend meetings by invitation (other than where their own remuneration is being discussed). The Company Secretary acts as secretary to
the Committee. Willis Towers Watson were appointed by the Committee in August 2016, following a competitive tender process, to provide
independent external advice on market practice and Executive and Non-Executive remuneration. Willis Towers Watson do not provide any other
services to the Group. The Committee is satisfied that the advice provided by Willis Towers Watson is objective and independent. Fees are agreed by
the Committee according to services provided. Total fees paid for assistance in relation to Remuneration Committee matters were £143,000 on a time
and expense basis.
Statement of voting at the 2017 AGM on the remuneration policy
Remuneration policy
Votes for
1,639,088,405
For as a %
of votes cast
92.35%
Votes against
135,826,285
Votes against
as a % of votes cast
7.65%
Abstentions
575,379
Total
1,775,490,069
Statement of voting at the 2018 AGM on the remuneration report
Votes for
1,552,589,664
For as a %
of votes cast
84.66%
Votes against
281,400,948
Votes against
as a % of votes cast
15.34%
Abstentions
27,309,332
Total
1,861,299,944
Remuneration report
Tony van Kralingen
Remuneration Committee Chair
12 March 2019
54
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ report
Statutory disclosures
The following disclosures have been included elsewhere within
the Annual Report and are incorporated into the Directors’ report
by reference.
Disclosure
Financial instruments
Financial risk management
Future developments
Dividends
Greenhouse gas emissions
Corporate governance report
Directors of the Group
Employee involvement
Page
99 to 101
99
1 to 26
80
22
27 to 38
30 and 31
15 and 16
Disclosures required pursuant to Listing Rule 9.8.4R can be found on the
following pages:
Disclosure
Interest capitalised
Long Term Incentive Plans
Waiver of Directors’ emoluments
Page
84 to 89
109
45
Political donations
No political donations were made in the financial year, which is
Group policy.
Going concern
The Directors’ assessment of the Group and the Company’s ability
to continue as a going concern is based on cash flow forecasts for the
Group and the committed borrowing and debt facilities of the Group.
These forecasts include consideration of future trading performance,
working capital requirements, retail market conditions and the
wider economy.
The Group remains able to borrow at competitive rates. The Group has
negotiated, and has available to it, committed, competitive facilities that
will meet the Group’s needs in the short and medium term.
Having assessed the principal risks as set out on pages 24 and 25 and
the other matters discussed in connection with the viability statement
on page 26, the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements.
Borrowing powers
The Articles of Association of the Company restrict the borrowings
of the Group and its subsidiary undertakings to a maximum
amount equal to twice the share capital and consolidated reserves.
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 Group’s registrar,
Equiniti, or to the Group directly.
Directors’ and Officers’ liability insurance
The Group maintains insurance cover for the protection of Directors
and senior management from personal liabilities and costs which may
arise in the course of fulfilling their duties. The Group also provides an
indemnity to the Non-Executive Directors for such liabilities and costs
to the fullest extent permitted by law.
Substantial shareholdings
As at 3 February and 12 March 2019, the following information has been
received, in accordance with DTR 5, from holders of notifiable interest
in the Company’s issued share capital.
The information provided below was correct at the date of notification,
however the date received may not have been within the current
financial year. As notification is not required until the next notifiable
threshold is crossed, it should be noted that these holdings are likely to
have changed since the Group was last notified.
Schroders PLC
Amerprise Financial Inc
BlackRock Inc
Silchester International
Investors LLP
Majedie Asset
Management Limited
Deutsche Bank AG
Brandes Investment
Partners, LP
As at 3 February 2019
As at 12 March 2019
Number of
shares
258,299,431
177,970,287
162,136,599
% of share
capital
10.96
7.62
6.84
Number of
shares
258,299,431
177,970,287
162,136,599
% of share
capital
10.96
7.62
6.84
118,601,810
5.01
118,601,810
5.01
116,805,074
117,399,109
5.00
4.96
116,805,074
117,399,109
5.00
4.96
115,902,280
4.96
115,902,280
4.96
Forward-looking statements
Additional shareholder information
Additional information for shareholders is required by the
implementation of the EU Takeover Directive into UK law.
Pursuant to section 992 of the Companies Act 2006, the Group
is required to disclose certain additional information. Such disclosures,
which are not covered elsewhere in this report, include the following
paragraphs. The disclosures set out below are in some cases a summary
of the relevant provisions of the Group’s Articles of Association and the
relevant full provisions can be found in the Articles which are available
for inspection at the Group’s registered office.
The Strategic report and Directors’ report are prepared for the members
of the Group and should not be relied upon by any other party or for
any other purpose. Where the Strategic report and Directors’ report
include 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 the Annual 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.
The liabilities of the Directors in connection with the Strategic report,
the Directors’ remuneration report and the Directors’ report shall be
subject to the limitations and restrictions provided by the Companies
Act 2006.
55
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Directors’ report continued
Statutory disclosures
Appointment and powers of Directors
Directors are appointed by ordinary resolution at a general meeting
of ordinary shareholders. The Directors have the power to appoint
a Director during the year, but any person so appointed must be put
up for appointment at the next Annual General Meeting.
Subject to its Articles of Association and relevant statutory law, and
to such direction as may be given by the Group in general meeting by
special resolution, the business of the Group shall be managed by the
Directors, who may exercise all powers of the Group which are not
required to be exercised by the Group in general meeting.
Articles of Association
The Company’s Articles of Association may only be amended by
a special resolution at a general meeting of shareholders.
Share capital
The authorised and called-up share capital of the Company, together
with details of shares allotted and cancelled during the year, are shown
in note 6.5 of the financial statements.
At the AGM held in June 2018, a special resolution was passed to renew
the authority given at the AGM held in June 2017 for the purchase by the
Group of up to 235,587,340 ordinary shares, representing approximately
10% of the issued ordinary share capital at that time.
During the period, 12,440,132 (2018: 20,279,315) ordinary shares were issued
to employees exercising share options and 1,721,480 (2018: 2,584,182)
awards were settled out of the trust shares.
Share capital and rights attaching to the Company’s shares
Under the Company’s Articles of Association, any shares in the Company
may be issued with such rights or restrictions, whether in regard to
dividend, voting, return of capital or otherwise as the Company may from
time-to-time by ordinary resolution determine (or, in the absence of any
such determination, as the Directors may determine).
At a general meeting of the Company, every member has one vote on
a show of hands and, on a poll, one vote for each share held. The notice
of general meeting specifies deadlines for exercising voting rights either
by proxy or present in person in relation to resolutions to be passed at
a general meeting.
No member is, unless the Board decides otherwise, entitled to attend
or vote either personally or by proxy at a general meeting, or to exercise
any other right conferred by being a shareholder if they or any person
with an interest in shares has been sent a notice under section 793 of the
Companies Act 2006 (which confers upon public companies the power
to require information with respect to interests in their voting shares)
and they or any interested person failed to supply the Company
with the information requested within 14 days after delivery of that notice.
The Board may also decide that no dividend is payable in respect of those
default shares and that no transfer of any default shares shall be registered.
These restrictions end seven days after receipt by the Company of a
notice of an approved transfer of the shares or all the information required
by the relevant section 793 notice, whichever is the earlier.
The Directors may refuse to register any transfer of any share which is
not a fully paid share, although such discretion may not be exercised
in a way which the Financial Conduct Authority regards as preventing
dealings in the shares of the relevant class or classes from taking place
on an open or proper basis. The Directors may likewise refuse to register
any transfer of a share in favour of more than four persons jointly.
The Company is not aware of any other restrictions on the transfer of
shares in the Company other than certain restrictions that may from
time-to-time be imposed by laws and regulations (for example, insider
trading laws). The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of securities
or voting rights.
Other disclosures
The Group is not party to any significant arrangements which take effect,
alter or terminate upon a change of control of the Group following a
takeover bid.
The Group does not have any employee share schemes where the
shares to which the scheme relates have rights with regard to the control
of the Group which are not exercisable by employees.
Equal opportunities for all
Integral to a high performing culture is the concept of equal opportunity
and inclusion for all colleagues, which is promoted through an
environment free from discrimination, harassment and victimisation.
The Group looks to ensure that everyone’s efforts are worthwhile
and all colleagues regardless of race, colour, nationality, ethnic origin,
gender (including gender reassignment), marital or civil partnership
status, disability, religion or belief, sexual orientation, age or trade union
membership are offered the opportunity to be their best, using their
individual talents and abilities.
This includes applications for employment made by people with
disabilities, which are given full and fair consideration. Respect underpins
behaviour towards all disabled candidates, as well as colleagues who have
a disability or become disabled in any way during the course of their
employment. A full assessment of the individual’s needs is undertaken
and the Group will make reasonable adjustments to the selection process,
work environment or practices in order to help people with disabilities.
With a heightened awareness of the impact of mental health on society
the Group is more mindful than ever that not all disabilities can be seen
and therefore ensure the same respect and support is provided to those
candidates or colleagues whose disabilities are not visible.
All candidates and colleagues are treated equally in respect of
recruitment, promotion, training, pay and other employment policies
and conditions. Decisions are made based on relevant merits and
abilities, with decisions made free from bias.
Remaining receptive to the needs of customers and the wider
communities is a priority – operating in an inclusive and respective manner.
Health and safety policy
It is the Group’s intention, so far as is reasonably practicable, to ensure
the health, safety and welfare of all its employees, customers and visitors
to its premises. In order to achieve this, a comprehensive health and
safety manual is in place for each division of the Group 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 Committee.
Health and safety improvement plans are in place for each division which
are monitored to ensure continuous improvement in performance
and practice.
By order of the Board
Jonathan Burke
Company Secretary
12 March 2019
56
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Directors’ report continued
Statement of Directors’ responsibilities
in respect of the Annual Report
and Financial Statements
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for
each financial period. Under that law the Directors have prepared the
Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and
Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and
applicable law). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period. In preparing
the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have
been followed for the Group financial statements and United Kingdom
Accounting Standards, comprising FRS 101, have been followed for the
Company financial statements, subject to any material departures
disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and
prudent; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Company will
continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Company and enable them to ensure
that the financial statements and the Directors’ remuneration report
comply with the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the
Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the Group and Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Corporate governance report confirm that, to the best of
their knowledge:
• the Company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Policies (United Kingdom Accounting Standards, comprising of FRS
101 ‘Reduced Disclosure Framework’, and applicable law), give a true
and fair view of the assets, liabilities, financial position and result of
the Company;
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position
and profit of the Group; and
• the Annual Report includes a fair review of the development and
performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces.
In the case of each Director in office at the date the Directors’ report
is approved:
• so far as the Director is aware, there is no relevant audit information
of which the Group and Company’s auditors are unaware; and
• they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company’s auditors
are aware of that information.
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 auditor is 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 auditor is aware
of that information.
Assessment of whether the Annual Report is fair, balanced and
understandable
As required by the Code, the Directors confirm that they consider that
the Annual Report, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group’s position and performance, business model and strategy.
When arriving at this position the Board was assisted by a number
of processes including the following:
• the Annual Report is drafted by appropriate senior management with
overall co-ordination by the Chief Financial and Commercial Officer to
ensure consistency across sections;
• an extensive verification process is undertaken to ensure factual
accuracy; and
• comprehensive reviews of drafts of the report are undertaken by
members of the Executive Committee and other senior management;
and the final draft is reviewed by the Audit Committee prior
to consideration by the Board.
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 view of the assets,
liabilities, financial position and profit or loss of the Group and
its subsidiaries included in the consolidation as a whole; and
• the Strategic report includes a fair review of the development of the
business and the position of the Group 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
Jonathan Burke
Company Secretary
12 March 2019
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Independent auditors’ report
Independent auditors’ report to the members
of Wm Morrison Supermarkets PLC
Report on the audit of the financial statements
Opinion
In our opinion:
• Wm Morrison Supermarkets PLC’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair view
of the state of the Group’s and of the Company’s affairs as at 3 February 2019 and of the Group’s profit and cash flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and Financial Statements (the ‘Annual Report’), which comprise: the
consolidated balance sheet and Company balance sheet as at 3 February 2019; the consolidated income statement and the consolidated statement
of comprehensive income; the consolidated cash flow statement; the consolidated statement of changes in equity; the Company statement of
changes in equity for the 52 week period then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs
(UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
or the Company.
Other than those disclosed in note 1.6 to the financial statements, we have provided no non-audit services to the Group or the Company in the
period from 5 February 2018 to 3 February 2019.
Our audit approach
Overview
Materiality
Audit scope
Areas of
focus
Areas of focus (Group and
Company)
• Impairment of property, plant
and equipment.
• Onerous lease provisions and
onerous property contracts.
• Commercial income and
manual promotional funding.
• Impairment of intangible assets.
• Stock existence and valuation.
• Pension accounting.
Materiality
• Overall Group materiality: £20.0m (2018: £18.7m), based
on 5% of profit before exceptional items and net
pension interest.
• Overall Company materiality: £18.0m (2018: £16.8m),
allocated to the Company as part of the Group audit.
Audit scope
• We identified two reporting units, Wm Morrison
Supermarkets PLC and Safeway Stores Limited, which
in our view, required a full scope audit based on their
size and risk.
• The Group engagement team performed the audit
procedures for each reporting unit in the scope of
our Group audit, which accounted for 99% of total
Group revenue and 95% of profit before tax. Our audit
scope provided sufficient appropriate audit evidence
as a basis for our opinion on the Group financial
statements as a whole.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to the Listing Rules, Pensions legislation, UK tax legislation and Grocery Supply Code of Conduct, and we considered the extent to which non-
compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the
preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to forgery
or intentional misrepresentations, or through collusion. Our tests included, but were not limited to, review of the financial statement disclosures to
underlying supporting documentation, review of correspondence with, and reports to, the regulators, review of correspondence with legal advisers,
enquiries of management and review of internal audit reports in so far as they related to the financial statements. As in all of our audits we also
addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by
the Directors that represented a risk of material misstatement. We did not identify any key audit matters relating to irregularities, including fraud.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter
Impairment of property, plant and equipment
Refer to page 73 (sources of estimation uncertainty), note 3.1
(accounting policies) and note 3.3 (property, plant and equipment).
The Group has a large freehold store estate (£5,741m at 3 February 2019).
Given the challenging trading conditions in the UK grocery retail market
in recent years and the subsequent adverse impact on the market value
of traditional supermarket freehold stores, the possibility of impairment
of these assets and the related trading assets is an area of focus for
management, as is the possibility that previously charged impairments
may need reversing where store trading conditions have improved.
We focused on this area because of the judgemental factors involved
in testing for impairment and impairment reversals and the significant
carrying value of freehold property.
Management considers each store to be a cash generating unit (CGU)
and has calculated the recoverable amount of each CGU as the higher
of value in use and fair value less costs of disposal.
Value in use
Value in use is based on discounted future cash flow forecasts, requiring
management to make judgements on certain key inputs including, for
example, discount rates and long-term growth rates.
Fair value less costs of disposal
Fair value less costs of disposal is estimated by management based
on its market knowledge of individual stores and likely demand from
grocers or other retailers in the event those stores were for sale. The key
judgements made by the Directors in this fair value calculation relate to
the estimated rental values and the yields of the stores.
Management has calculated that an impairment charge of £97m is
required as at 3 February 2019. A reversal of impairment charged
in previous years of £163m has also been calculated following an
improvement in the performance of certain stores.
How our audit addressed the key audit matter
Value in use
We have obtained the Group’s Board approved FY20 budget and medium-term financial
plans (upon which the forecasts underpinning the value in use calculations are based).
Our audit procedures included an assessment of management’s discounted cash flow
model. We tested the mathematical accuracy of the calculations included within the
forecast model and assessed key inputs in the calculations, such as the discount rate of
9% and expected future EBITDA growth rates, by reference to management’s forecasts,
industry reports and our valuation experts. We focused on these key assumptions
because small changes can have a material impact on the value in use assessment
and any resultant impairment charge or reversal. We found, based on our audit work,
that the key assumptions used by management were supportable and appropriate
in light of the current environment.
Fair value less costs of disposal
Management has determined its own view of estimated rental values and yields for each
store used in their calculation of market values. Management derived these assumptions
having considered available information such as industry data on market conditions and
purchase offers recently received for properties. We evaluated management’s supporting
information, and assessed this using our own internal experts, with a particular focus on
the assumptions and methodology used, obtaining third party evidence and market data
to corroborate the assumptions. We determined that the valuations performed
by management were reasonable.
Disclosures
In addition, we evaluated the adequacy of the disclosures made in note 3.3 of the financial
statements, including those regarding the key assumptions and sensitivities to changes
in such assumptions by comparing the disclosures against the requirements of IAS 36
‘Impairment of assets’ and found them to be consistent.
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Independent auditors’ report to the members
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Key audit matter
Onerous lease provisions and onerous property contracts
Refer to page 73 (sources of estimation uncertainty), note 5.1
(accounting policies) and note 5.5 (provisions).
The Group has onerous lease provisions and onerous property
contracts totalling £331m as at 3 February 2019.
Onerous lease provisions
Accounting standards require management to assess the Group’s
leasehold properties to identify where the expected future benefits
from a property are less than the future lease commitments which
would indicate that an onerous lease provision is required. Under IAS 37
‘Provisions, contingent liabilities and contingent assets,’ such a provision
is made for the unavoidable costs of the contract, defined in the
standard as the ‘least net cost of exit’.
We focused on this area because of the judgements required to
be made by management in identifying those stores requiring an
onerous lease provision and the assumptions used in calculating the
required level of provision, such as the discount rate and forecast
store performance.
Onerous property contracts
The Group recognises a provision in respect of onerous property
contracts, for example, where the Group has a commitment to develop
a site but management believes that no economic benefit would
result from proceeding with the development. There are judgements
involved in determining the expected realisable value of these sites and
associated contract exit costs, therefore this has been an area of focus
during our audit.
How our audit addressed the key audit matter
Onerous lease provisions
Having considered the possibility of impairment in the value of freehold properties (see
above), we also tested management’s calculations in respect of leasehold stores where
the estimated future benefits are not expected to exceed the future lease commitments,
resulting in an onerous lease.
We obtained management’s onerous lease model, which includes all leased stores, and
tested the accuracy and completeness of key data by agreeing inputs such as individual
store cash flows. We agreed lease expiry dates for a sample of stores to the original signed
lease agreements, noting no issues.
We obtained the Group’s Board approved FY20 budget and medium-term financial plans
(upon which the forecasts are based) and assessed the methodology of the discounted
cash flow model, noting no exceptions. We tested the mathematical accuracy of the
calculations included in the model and assessed key assumptions such as the discount rate
and forecast store performance, by reference to management’s forecasts, industry reports
and our own valuation experts. We performed sensitivities over key assumptions including
discount rate, expected cash flows and the potential impact of lease break clauses.
We found, based on our audit work, that the key assumptions used by management were
supportable and appropriate in light of the current environment.
Onerous property contracts
In respect of onerous property contracts, we obtained original contracts and
management’s calculations and considered the accuracy of these provisions by
reperforming calculations and testing key inputs such as estimates of contract exit costs,
contractual payments due and by reviewing evidence of the status of any negotiations
with landlords. We considered the completeness of these provisions by reviewing
documentation in relation to these contracts. We found no issues in this area.
Disclosures
We read the disclosures within the Annual Report in respect of onerous lease provisions
and onerous property contracts, and, based on our work, determined that they are
consistent with accounting standards.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Key audit matter
Commercial income and manual promotional funding
Refer to page 73 (sources of estimation uncertainty), note 1.1
(accounting policies) and note 1.6 (operating profit).
Commercial income
The Group has two categories of commercial income: marketing and
advertising funding, and volume-based rebates on purchases.
Commercial income is recognised as a deduction from cost of sales and
is earned over the period of the contractual agreements with individual
suppliers, as disclosed in the Group’s accounting policy on page 74.
The total income recognised in the income statement in a year is based
on the expected entitlement earned up to the balance sheet date under
each supplier agreement. It requires management to apply judgement
based on the contractual terms in place with each of its suppliers,
together with estimates of amounts the Group is entitled to where
transactions span the financial period end.
The relative level of judgement in each category of commercial income
is considered below:
Commercial income – marketing and advertising funding
This income is varied depending on the nature and timing of the
activity to which it relates, and is recognised in accordance with written
agreements with suppliers. This income is based on specific agreements,
and its recognition requires limited judgement or estimation by
management in determining the amount that the Group is entitled
to. Our focus was on assessing whether a written agreement for
the marketing and advertising funding existed, whether the relevant
marketing or advertising had taken place and whether the income
recognised was recorded in the appropriate period.
Commercial income – volume-based rebates
Volume-based rebates are driven by the Group achieving purchase
volume targets set by individual suppliers for specific products over
a predetermined period. There is therefore judgement involved
in estimating the volume of purchases, particularly where rebate
agreements span a financial period end. In order to narrow this
judgement, management endeavours to structure agreements to
coincide with the Group’s financial period end, thereby reducing or
eliminating the degree of estimation. In instances where the rebate
agreement does not fully coincide with the period end, the key
judgement that we focused on was the estimate of commercial income
to be accrued at the period end.
Promotional funding
The Group separately recognises promotional funding on promotions
that are partially funded by suppliers.
The majority of promotional funding is an automated deduction
from cost of sales, triggered when a sale is recognised. The funding is
recognised when the transaction occurs in accordance with the terms
of supplier agreements.
The amount receivable is wholly based on sales volumes achieved,
multiplied by rates agreed with each supplier in advance. There are
some elements of promotional funding which include a manual element
to the invoicing.
How our audit addressed the key audit matter
Our audit work in respect of commercial income and the manual elements of promotional
funding comprised a combination of controls testing, substantive testing of a sample of
income and funding recognised during the period, testing of amounts recognised in the
balance sheet and an assessment of the Group’s disclosures in this area. Each element of
our work is considered in more detail below.
Controls testing
Our controls work encompassed understanding, evaluating and testing management’s
key controls in respect of the recognition of both commercial income and manual
promotional funding. These key controls included the monitoring of invoices raised and
the accuracy of confirmations from suppliers. We found no significant deficiencies in these
key controls, and our testing of management’s key controls contributed to our evidence
in determining whether commercial income and manual promotional funding had been
recorded appropriately and in the correct period.
Income statement testing
We tested a sample of commercial income and the manual elements of promotional
funding to supporting documentation including supplier agreements. We requested
confirmations directly from suppliers in respect of a sample of transactions for commercial
income and the manual elements of promotional funding. The confirmations received,
and documentation reviewed, allowed us to evaluate whether commercial income or the
manual elements of promotional funding had been appropriately recognised in the period.
No exceptions arose from this work.
We also analysed commercial income and the manual elements of promotional funding
recognised each month and compared it to the previous period to identify whether
there were any unusual trends in the amounts or timing of commercial income and the
manual elements of promotional funding recognised in each period. We also used a data
analytics approach to identify any unusual items in the commercial income and the manual
elements of promotional funding populations. Where unusual items were identified these
were agreed to supporting documentation without exception.
Balance sheet testing
We wrote to a sample of suppliers, and obtained independent evidence of the value
and timing of commercial income and the manual elements of promotional funding
to evaluate whether it had been recognised in the correct period. We also agreed a
sample of accrued income to evidence of post-year end invoicing. We performed cut-off
procedures and credit note testing to provide further evidence to support the timing of
the recognition of both commercial income and the manual elements of promotional
funding. Cut-off work involved testing a sample of commercial income and the manual
elements of promotional funding recognised both pre and post the period end and
evaluating by reference to documentation from suppliers that the timing of recognition
was appropriate. We found no issues as a result of our audit procedures.
Our credit note testing focused on credit notes raised after the period end in order to
identify any instances of commercial income or the manual elements of promotional
funding being subsequently reversed. We did not identify any exceptions from this work.
We tested the recoverability of invoiced commercial income and the manual elements
of promotional funding (unsettled balances included within trade debtors in note 5.3 to
the financial statements and where the Group does not have the right of offset against
trade creditors). This testing was performed by assessing the ageing of both outstanding
commercial income and the manual elements of promotional funding debtors together
with understanding the details of any disputes, and obtaining explanations from
management to assess whether any provisions were appropriate. We also considered
management’s commercial income and promotional funding Key Performance Indicators
in this analysis. No exceptions were noted.
We focused on the manual elements of promotional funding because
of the significance of the amounts to the Group’s gross profit, the
significant number of transactions and agreements in place with
suppliers covering a range of periods, the manual nature of the invoicing
process and the industry-wide focus on this area of accounting.
Disclosures
We read the disclosures within the Annual Report in respect of commercial income and
manual promotional funding and, based on our work, determined that they are consistent
with accounting standards and the guidance on the reporting of complex supplier
arrangements issued by the Financial Reporting Council.
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Independent auditors’ report to the members
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Key audit matter
Impairment of intangible assets
Refer to page 73 (sources of estimation uncertainty), note 3.1
(accounting policies) and note 3.2 (goodwill and intangible assets).
The Group balance sheet includes intangible assets of £404m, of
which the majority relates to software development costs incurred in
connection with the Group’s technology improvement programme,
details of which are shown on pages 84 to 86 of the Annual Report.
We focused on this area because judgement is required to assess
whether the carrying value of the existing capitalised software or
systems is impaired.
During the year, an impairment charge of £11m has been recognised in
relation to intangible assets.
Stock existence and valuation
Refer to page 73 (sources of estimation uncertainty), note 5.1
(accounting policies) and note 5.2 (stock).
The Group balance sheet includes stock of £713m (2018: £686m).
We focused on this due to the nature of judgements made by
management in assessing the level of provisions required, in
particular in respect of existence and valuation.
The stock valuation is reduced by provisions including those
relating to estimated losses due to shrinkage (note 5.1). As disclosed
in note 1.4, during the period, the Group continued to automate
its ordering systems and revised its methodology for calculating
shrinkage provisions.
The stock valuation is additionally reduced for commercial income and
promotional funding (as the stock which this income and/or funding
relates to, is yet to be sold). When the stock is sold, the commercial
income and/or promotional funding is recognised in the income
statement. Also, stock is reduced for provisions related to estimated
obsolescence and other known specific risks.
Pension accounting
Refer to page 73 (sources of estimation uncertainty) and note 8
(pensions).
We have focused on the valuation of the Group’s defined benefit
pension schemes because of the level of judgement required in
determining the year end valuation. In addition, the size of the gross
assets (£4,820 million) and liabilities (£4,132 million) within the schemes are
significant and material.
The net surplus position of the schemes at 3 February 2019 was
£688 million.
How our audit addressed the key audit matter
We obtained management’s assessment as to whether the development of new software
or systems superseded or impaired any of the existing assets on the balance sheet.
We reviewed management’s assessment of the future expected benefit from capital
projects, with no issues being identified from our work.
We also applied our own understanding of both new and existing projects and considered
whether, in our view, any existing software was no longer in use or whether its life had
been shortened by development activity. We found no such items that were not already
considered within management’s assessment of the required impairment for the year.
No further material impairment of intangible assets were identified from our work.
Disclosures
We read the disclosures within the Annual Report in respect of intangible assets, and,
based on our work, determined that they are consistent with accounting standards.
We attended stock counts and performed sample counts at a number of the Group’s
supermarkets and petrol forecourts throughout the period. In addition to performing
sample test counts, we assessed the effectiveness of the count controls in operation,
with no material issues being identified.
We also evaluated the results of cycle counts performed by management and third parties
through re-performance and inspection at a sample of distribution centres throughout
the period to assess the level of count variances. We found no material variances or count
control deficiencies across these sites.
We assessed the assumptions included in the shrinkage provision including testing the key
inputs to supporting information. We reviewed recent count results to ensure that the
year-end shrinkage provision adequately reflected the levels of stock loss experienced
during the year. We determined that based on information available, the provision was
materially correct.
We tested the unearned commercial income and promotional funding deduction by
verifying the inputs of the calculation and methodology of the provision, noting no issues.
The obsolescence provision is calculated by applying a judgemental percentage to the
period end stock levels, with this judgement being informed by management’s view of the
current stock profile and expected stock life. We considered this provision by assessing
the explanations provided by management on the current profile and expected stock life
noting no issues.
We have assessed the other specific provisions with reference to the risks identified
by management and noted no issues.
Disclosures
We read the disclosures within the Annual Report in respect of stock, and, based on
our work, determined that they are consistent with accounting standards.
We obtained the IAS 19 valuation reports produced by the Group’s independent actuaries.
We used our own actuarial experts to assess the judgemental assumptions used within
the reports to form the valuation of the pension schemes’ liabilities, such as discount rate,
inflation and mortality rates. We obtained the detailed reports underlying the valuation
of the schemes’ assets and agreed the valuations to third party confirmations.
We assessed the membership data used in valuing the schemes’ liabilities and tested any
significant changes since the last valuation. We agreed a sample of contributions made by
the Group to bank statements. We have no exceptions to report as a result of this testing.
We have reviewed management’s assessment of the right to recognise the net surplus
in two of the three schemes under the requirements of IFRIC 14, including inspecting
updated legal advice, and are satisfied that it is appropriate to recognise the net asset
on the balance sheet. The third scheme (Retirement Saver Plan (RSP)) is recognised as
a net liability and therefore this aspect of IFRIC 14 is not applicable.
A curtailment loss of £19m has been recognised relating to the closure to future accrual
of the RSP. We used our actuarial experts to test the underlying assumptions and
methodology used in calculating the curtailment loss. We have no exceptions to note
from this testing.
Following a ruling by the High Court on 26th October 2018, pension schemes are required
to recalculate their obligations for the impact of guaranteed minimum pensions (GMP)
equalisation, for which an amount of £7m has been recognised. Our actuaries have tested
the methodology and assumptions used in calculating this liability and we have noted
no exceptions.
Disclosures
We read the disclosures within the Annual Report in respect of pensions, and, based on
our work, determined that they are consistent with accounting standards.
62
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
The Group’s accounting process is structured around a Group finance function at its head office in Bradford which is responsible for the Group’s
reporting units. For each reporting unit we determined whether we required an audit of its reported financial information (‘full scope’), or whether
certain account balances of reporting units were required to be in the scope of our Group audit to address specific risk characteristics or to provide
sufficient overall Group coverage of particular financial statement line items.
A full scope audit was required for Wm Morrison Supermarkets PLC and Safeway Stores Limited determined as financially significant because
they individually contribute more than 15% of the Group’s profit before tax. All of the audit procedures have been performed by the Group audit
engagement team.
In aggregate, our audit procedures accounted for 99% of Group revenues and 95% of profit before tax. In addition, the Group audit team
performed analytical review procedures over a number of smaller reporting units. This included an analysis of year-on-year movements, at a level of
disaggregation to enable a focus on higher risk balances and unusual movements. Those not subject to analytical review procedures were individually,
and in aggregate, immaterial. This gave us the evidence we needed for our opinion on the financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark
applied
Group financial statements
£20.0m (2018: £18.7m).
5% of profit before exceptional items and net
pension interest.
The Group has revised its adjusted profit performance measure
from underlying profit before tax to profit before exceptionals
and net pension interest. Consistent with the prior year we have
applied the relevant performance measure as our benchmark
because, in our view, this is the most relevant metric against which
the performance of the Group is most commonly measured.
Profit before exceptional items and net pension interest is
defined by management as profit before exceptional items, which
are significant in size and/or nature and net pension interest, as
reconciled in note 1.4 of the Group financial statements.
Company financial statements
£18.0m (2018: £16.8m).
Allocated to the Company as part of the
Group audit.
In our view, users focus on the consolidated
results of the Group rather than the individual
results of the Company, therefore we
determined our materiality in the overall
context of the Group.
For the two reporting units in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The materiality
allocated to the components was £18m.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1.0m (Group audit)
(2018: £0.9m) and £0.9m (Company audit) (2018: £0.8m) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw
attention to in respect of the Directors’ statement in the financial
statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting in preparing the
financial statements and the Directors’ identification of any material
uncertainties to the Group’s and the Company’s ability to continue as
a going concern over a period of at least 12 months from the date of
approval of the financial statements.
Outcome
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s and Company’s
ability to continue as a going concern. For example, the terms on which
the United Kingdom may withdraw from the European Union, which is
currently due to occur on 29 March 2019, are not clear, and it is difficult
to evaluate all of the potential implications on the Company’s trade,
customers, suppliers and the wider economy.
We are required to report if the Directors’ statement relating to
Going Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We have nothing to report.
63
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Independent auditors’ report continued
Independent auditors’ report to the members
of Wm Morrison Supermarkets PLC
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing
to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK)
and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required
by ISAs (UK) unless otherwise stated).
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the year
ended 3 February 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors’ report. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 23 of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on page 26 of the Annual Report as to how they have assessed the prospects of the Group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and
only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment
with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); and considering whether the statements are consistent with the
knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 57, that they consider the Annual Report taken as a whole to be fair, balanced and understandable,
and provides the information necessary for the members to assess the Group’s and Company’s position and performance, business model and
strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit.
• The section of the Annual Report on page 35 to 37 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision
of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)
64
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 57, the Directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches
not visited by us; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 5 June 2014 to audit the financial
statements for the year ended 1 February 2015 and subsequent financial periods. The period of total uninterrupted engagement is five years,
covering the years ended 1 February 2015 to 3 February 2019.
Andrew Paynter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
12 March 2019
65
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Consolidated income statement
52 weeks ended 3 February 2019
Revenue
Cost of sales
Gross profit
Other operating income
Profit/loss on disposal and exit of properties
Administrative expenses
Operating profit
Finance costs
Finance income
Share of profit of joint venture (net of tax)
Profit before taxation
Taxation
Profit for the period attributable to the owners of the Company
Earnings per share (pence)
Basic
Diluted
Before
exceptionals
£m
17,735
(17,084)
651
88
–
(274)
465
(64)
4
1
406
(95)
311
Exceptionals
(note 1.4)
£m
–
(44)
(44)
–
2
(29)
(71)
(33)
18
–
(86)
19
(67)
Note
1.2
1.6
6.2
6.2
4.2
2.2
1.5
1.5
2019
Total
£m
17,735
(17,128)
607
88
2
(303)
394
(97)
22
1
320
(76)
244
10.34
10.11
Before
exceptionals
£m
17,262
(16,629)
633
78
–
(266)
445
(78)
5
2
374
(89)
285
Exceptionals
(note 1.4)
£m
–
–
–
–
19
(6)
13
(16)
9
–
6
20
26
2018
Total
£m
17,262
(16,629)
633
78
19
(272)
458
(94)
14
2
380
(69)
311
13.30
13.03
Consolidated statement of comprehensive income
52 weeks ended 3 February 2019
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension schemes
Tax on defined benefit pension schemes
Items that may be reclassified subsequently to profit or loss
Cash flow hedging movement
Items reclassified from hedging reserve in relation to repayment of borrowings
Tax on items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Other comprehensive income for the period, net of tax
Profit for the period attributable to the owners of the Company
Total comprehensive income for the period attributable to the owners of the Company
Note
8.2
2.3
1.4
2.3
2019
£m
100
(17)
83
9
–
(1)
–
8
91
244
335
2018
£m
323
(55)
268
(18)
(2)
(2)
(1)
(23)
245
311
556
66
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Consolidated balance sheet
3 February 2019
Assets
Non-current assets
Goodwill and intangible assets
Property, plant and equipment
Investment property
Pension asset
Investment in joint venture
Derivative financial assets
Current assets
Stock
Debtors
Derivative financial assets
Cash and cash equivalents
Assets classified as held-for-sale
Liabilities
Current liabilities
Creditors
Borrowings
Derivative financial liabilities
Current tax liabilities
Non-current liabilities
Borrowings
Derivative financial liabilities
Pension liability
Deferred tax liabilities
Provisions
Net assets
Shareholders’ equity
Share capital
Share premium
Capital redemption reserve
Merger reserve
Retained earnings and other reserves
Total equity attributable to the owners of the Company
Note
2019
£m
2018
£m
3.2
3.3
3.5
8.2
4.2
7.3
5.2
5.3
7.3
6.4
3.4
5.4
6.3
7.3
6.3
7.3
8.2
2.3
5.5
6.5
6.5
6.6
6.6
6.6
404
7,312
26
730
47
15
8,534
713
347
19
264
1,343
39
1,382
(3,085)
(178)
(5)
(27)
(3,295)
(1,110)
(2)
(42)
(483)
(353)
(1,990)
4,631
237
178
39
2,578
1,599
4,631
428
7,243
33
612
53
16
8,385
686
250
15
327
1,278
4
1,282
(2,981)
(72)
(13)
(15)
(3,081)
(1,245)
(1)
(18)
(478)
(299)
(2,041)
4,545
236
159
39
2,578
1,533
4,545
The notes on pages 74 to 110 form part of these financial statements.
The financial statements on pages 66 to 110 were approved by the Board of Directors on 12 March 2019 and were signed on its behalf by:
Trevor Strain
Chief Finance and Commercial Officer
67
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Consolidated cash flow statement
52 weeks ended 3 February 2019
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
Dividends received from joint venture
Proceeds from the sale of property, plant and equipment and investment property
Purchase of property, plant and equipment and investment property
Purchase of intangible assets
Acquisition of business (net of cash received)
Net cash outflow from investing activities
Cash flows from financing activities
Purchase of trust shares
Settlement of share awards
Proceeds from exercise of employee share options
Proceeds on settlement of derivative financial instruments
New borrowings
Repayment of borrowings
Costs incurred on repayment of borrowings
Dividends paid
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 debt¹ in the period
Net (decrease)/increase in cash and cash equivalents
Cash inflow from increase in borrowings
Debt acquired on acquisition of business
Cash outflow from repayment of borrowings
Non-cash movements
Opening net debt
Closing net debt
1 Net debt is defined in the Glossary on page 133.
Note
5.6
10.1
6.5
6.5
6.5
1.8
6.4
Note
6.4
2019
£m
842
(54)
(76)
712
1
7
22
(381)
(77)
(3)
(431)
(9)
(5)
20
–
275
(306)
(30)
(289)
(344)
(63)
327
264
2019
£m
(63)
(275)
(2)
306
10
(973)
(997)
2018
£m
884
(66)
(74)
744
4
8
108
(429)
(71)
–
(380)
(4)
(7)
33
6
–
(245)
(17)
(129)
(363)
1
326
327
2018
£m
1
–
–
239
(19)
(1,194)
(973)
68
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Consolidated statement of changes in equity
52 weeks ended 3 February 2019
Current period
At 5 February 2018
Profit for the period
Other comprehensive income/(expense):
Cash flow hedging movement
Remeasurement of defined benefit pension schemes
Tax in relation to components of other comprehensive
income
Total comprehensive income for the period
Purchase of trust shares
Employee share option schemes:
Share-based payments charge
Settlement of share awards
Share options exercised
Dividends
Total transactions with owners
At 3 February 2019
Prior period
At 30 January 2017
Profit for the period
Other comprehensive (expense)/income:
Cash flow hedging movement
Items reclassified from hedging reserve in relation to
repayment of borrowings
Exchange differences on translation of foreign operations
Remeasurement of defined benefit pension schemes
Tax in relation to components of other comprehensive
income
Total comprehensive (expense)/income for the period
Purchase of trust shares
Employee share option schemes:
Share-based payments charge
Settlement of share awards
Share options exercised
Dividends
Total transactions with owners
At 4 February 2018
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Note
Merger
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
Attributable to the owners of the Company
236
–
159
–
–
–
–
–
–
–
–
1
–
1
237
–
–
–
–
–
–
–
19
–
19
178
8.2
2.3
6.5
1.7
6.5
6.5
1.8
39
–
–
–
–
–
–
–
–
–
–
–
39
2,578
–
–
–
–
–
–
–
–
–
–
–
2,578
2
–
9
–
(1)
8
–
–
–
–
–
–
10
1,531
244
4,545
244
–
100
(17)
327
(9)
34
(5)
–
(289)
(269)
1,589
9
100
(18)
335
(9)
34
(5)
20
(289)
(249)
4,631
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Note
Merger
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
Attributable to the owners of the Company
234
–
128
–
39
–
2,578
–
1.4
8.2
2.3
6.5
1.7
6.5
6.5
1.8
–
–
–
–
–
–
–
–
–
2
–
2
236
–
–
–
–
–
–
–
–
–
31
–
31
159
–
–
–
–
–
–
–
–
–
–
–
–
39
–
–
–
–
–
–
–
–
–
–
–
–
2,578
18
–
(18)
(2)
–
–
4
(16)
–
–
–
–
–
–
2
1,066
311
4,063
311
–
–
(1)
323
(61)
572
(4)
33
(7)
–
(129)
(107)
1,531
(18)
(2)
(1)
323
(57)
556
(4)
33
(7)
33
(129)
(74)
4,545
69
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
General information
Company information
Wm Morrison Supermarkets PLC is a public limited company
incorporated in the United Kingdom under the Companies Act 2006
(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
The financial statements have been prepared for the 52 weeks
ended 3 February 2019 (2018: 53 weeks ended 4 February 2018) in
accordance with International Financial Reporting Standards (IFRS) and
International Financial Reporting Standards Interpretation Committee
(IFRS IC) interpretations as adopted by the European Union and with
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS. IFRS and IFRS IC interpretations are issued by
the International Accounting Standards Board (the IASB) and must be
adopted into European Union law, referred to as endorsement, before
they become mandatory under the IAS Regulation.
The financial statements have been prepared on a going concern basis.
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 two decimal places. They are
drawn up on the historical cost basis of accounting, except as disclosed
in the accounting policies set out within these financial statements.
The Group’s accounting policies have, unless otherwise stated,
been applied consistently to all periods presented in these
financial statements.
Accounting reference date
The accounting period of the Group ends on the Sunday falling
between 29 January and 4 February each year.
New accounting standards, amendments and
interpretations adopted by the Group
The following new standards, interpretations and amendments to
standards are mandatory for the Group for the first time for the
52 weeks ended 3 February 2019:
• IFRS 9 ‘Financial Instruments’;
• IFRS 15 ‘Revenue from Contracts with Customers’;
• IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’;
• Amendments to the following standards:
– IAS 40 ‘Transfers of Investment Property’;
– IFRS 2 ‘Classification and Measurement of Share-based
Payment Transactions’;
– IFRS 4 ‘Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts’;
– Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’; and
– Improvements to IFRSs (2014-2016).
The Group has considered the above new standards, and amendments
to published standards, and has concluded that, except for IFRS 9 and
IFRS 15, they are either not relevant to the Group or they do not have
a significant impact on the Group’s consolidated financial statements.
IFRS 9 ‘Financial Instruments’
IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Recognition and
Measurement’ and is applicable to financial assets and financial
liabilities. Transition to IFRS 9 for the Group took place on 5 February
2018 and the Group has adopted the standard using the modified
retrospective transition approach, which does not require restatement
of prior year comparatives.
IFRS 9 introduced three key changes when compared to IAS 39
relating to:
• new requirements for the classification and measurement of financial
assets and financial liabilities;
• a new model for recognising provisions for impairment of financial
assets based on expected credit losses; and
• revised hedge accounting treatment by aligning hedge accounting
more closely to risk management objectives.
Upon adoption of IFRS 9, there has been no change in the classification
of financial assets. All trade receivables of the Group continue to be
held at amortised cost under IFRS 9, and all other financial assets are
held at fair value through other comprehensive income. For financial
liabilities, the classification and measurement requirements under IFRS 9
are similar to those under IAS 39. In respect of the Group’s hedging
arrangements, the only change on transition to IFRS 9 relates to the
standard allowing recognition of a proportion of option premiums
within other comprehensive income, rather than in the consolidated
income statement. This change, however, is immaterial to the
consolidated financial statements.
IFRS 9 also introduced a forward-looking expected credit loss model
for recognising provisions in respect of financial assets and receivables.
This, in theory, could result in earlier recognition of credit losses,
than the incurred loss model of IAS 39. The Group has updated its
accounting policy for the establishment of provisions against trade
receivables to reflect the lifetime expected credit loss, consistent
with the simplified approach under IFRS 9 (see note 5.1). However, the
impact of using the expected credit loss model on the consolidated
financial statements of the Group is immaterial.
As a result of the assessment, the Group concluded that IFRS 9
has an immaterial impact on the consolidated financial statements.
Accordingly, no adjustment to the opening balance sheet at 5 February
2018 has been recognised.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 ‘Revenue from Contracts with Customers’ was published in
May 2014 and has become effective for the Group from the period
beginning 5 February 2018. The standard replaces IAS 18 ‘Revenue’,
IAS 11 ‘Construction contracts’ and related interpretations. Transition to
IFRS 15 for the Group took place on 5 February 2018 and the Group has
adopted the modified retrospective transition approach which does
not require restatement of prior year comparatives.
The standard introduces a five-step approach to the timing and
recognition of revenue, based on performance obligations in customer
contracts. Under IFRS 15, revenue should only be recognised when
a customer obtains control of goods or services and has the ability
to direct the use and obtain the benefits from the goods or services.
It applies to all contracts with customers, except those in the scope
of other standards.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 New accounting standards, amendments and
interpretations adopted by the Group continued
IFRS 15 ‘Revenue from Contracts with Customers’ continued
During the 53 weeks ended 4 February 2018, the Group assessed in
detail the impact of IFRS 15 on the consolidated financial statements.
The impact assessment covered all of the Group’s revenue and income
streams, including those areas which require special consideration
such as customer loyalty schemes, rights of return and wholesale
arrangements. The Group concluded that IFRS 15 had an immaterial
impact on the existing accounting policies for revenue recognition on
the basis that the majority of the Group’s transactions (volume and
value) are for sale of goods in stores, online or to wholesale customers
where the transfer of control is clear (either at the till or on delivery
of goods). Accordingly, no adjustment to the opening balance sheet
at 5 February 2018 has been recognised.
As part of the exercise of assessing the impact of IFRS 15, the Group
reviewed and updated its accounting policies and disclosures around
each of its income streams. Following the exercise, the Group classified
£17m of commission income to other operating income in the period,
which in the 53 weeks ended 4 February 2018 was included within
‘other sales’ in revenue (2018: £18m). There has been no reclassification
for the 53 weeks ended 4 February 2018 as the adjustment is immaterial
and presentational only.
New accounting standards, amendments and
interpretations in issue but not yet effective
There are a number of standards and interpretations issued by the
IASB that are effective for financial statements after this
reporting period.
Of these new standards, amendments and interpretations, only
IFRIC 23, IFRS 16, and the amendment to IAS 19 are relevant to the
Group, and only IFRS 16 is expected to have a material impact on
the Group’s consolidated financial statements:
Amendment to IAS 19 ‘Employee Benefits’
An amendment to IAS 19 ‘Employee Benefits’ was published in February
2018 and will be effective for the Group from the period beginning
4 February 2019. The amendment applies prospectively in connection
with accounting for plan amendments, curtailments and settlements.
The amendment requires entities to use updated assumptions to
determine current service cost and net interest for the remainder
of the period after a plan amendment, curtailment or settlement.
The Group has assessed the impact of the amendment and
concluded that it will not have a material impact on the consolidated
financial statements.
IFRIC 23 ‘Uncertainty over income tax treatments’
IFRIC 23 ‘Uncertainty over income tax treatments’ was issued in
June 2017 and will be effective for the Group from the period
beginning 4 February 2019. The interpretation covers how the Group
accounts for taxation, where there is some uncertainty over whether
treatments in the tax return will be accepted by HMRC or the relevant
overseas jurisdictions.
Each uncertain treatment (or combination of treatments) is considered
for whether it will be accepted, and if probable taxable profits/losses,
tax bases, unused tax losses, unused tax credits and tax rates are
accounted for consistently with the tax return. The Group accounts
for each treatment using whichever of the two allowed measurement
methods is expected to best predict the final outcome – the single
most likely outcome or a probability weighted-average value of a range
of possible outcomes.
The Group will adopt the modified retrospective approach to
transition on 4 February 2019. Under this approach, the comparatives
in the consolidated financial statements for the 52 weeks ended
2 February 2020 will not be restated and the cumulative impact of
IFRIC 23 will be recognised in opening retained earnings. The Group
has referred to the IFRIC guidance, including the Draft Interpretation
DI/2015/1 in previous periods, and is expecting the impact of IFRIC 23
to be immaterial.
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ was published in January 2016 and will be effective for
the Group from the period beginning 4 February 2019, replacing IAS 17
‘Leases’.
The main principle of the standard is to eliminate the dual accounting
model for lessees under IAS 17, which distinguishes between on-
balance sheet finance leases and off-balance sheet operating leases,
and to provide a single model for lessee accounting. IFRS 16 requires
lessees to recognise right-of-use assets and lease liabilities for all leases
unless the lease term is 12 months or less or the underlying asset is of
low value.
The standard represents a significant change in the accounting and
reporting of leases and it will impact the income statement and
balance sheet as well as statutory and Alternative Performance
Measures used by the Group.
Transition to IFRS 16 for the Group will take place on 4 February 2019
and the Group will adopt the fully retrospective approach to transition.
Under this approach, the comparatives in the consolidated financial
statements for the 52 weeks ended 2 February 2020 will be restated.
As at 3 February 2019, the Group has non-cancellable operating lease
commitments of £2,331m (as disclosed in note 6.8). A small proportion
of these commitments relate to short-term leases and those leases of
low-value which will continue to be recognised on a straight-line basis
in the consolidated income statement.
The Group has a project team which has reviewed all of the Group’s
leasing arrangements in light of the new lease accounting rules.
This work is nearing completion, and the Group has estimated that
had IFRS 16 been applied in the 52 weeks ended 3 February 2019, the
impact on the consolidated balance sheet as at 3 February 2019 would
have been:
• recognition of right-of-use assets of around £0.8bn disclosed within
non-current assets;
• financial liabilities would increase by around £1.4bn to reflect the
recognition of the discounted lease liabilities;
• derecognition of onerous lease provisions of around £0.2bn; and
• an adjustment to opening retained earnings of around £0.4bn.
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information General information continued
New accounting standards, amendments and
interpretations in issue but not yet effective continued
IFRS 16 ‘Leases’ continued
IFRS 16 will also have a significant impact on the Group’s consolidated
income statement, particularly in respect of where and when costs are
recognised in the income statement. The Group has estimated that the
impact on profit before tax and exceptionals for the 52 weeks ended
3 February 2019 would have been around £10m lower than under IAS 17.
The profile of the costs recognised in the consolidated income
statement will change compared to IAS 17. This is because the unwind
of the discount on the lease liabilities and the depreciation on the
right-of-use asset will be more front-loaded compared to the straight-
line recognition of rental costs under IAS 17 following adoption of
IFRS 16. In particular:
• depreciation will increase due to the depreciation charge on the
IFRS 16 right-of-use assets;
• rental costs charged to the consolidated income statement on
a straight-line basis will reduce; and
• finance costs will increase driven by the unwind of the discount
on the discounted lease liability.
On completion of the work, the financial estimates will be finalised
and the interim results for the 26 weeks ended 4 August 2019 will be
reported on a post-IFRS 16 basis, along with restated comparatives.
The total cash outflow for lease payments will not change under
IFRS 16 but the split between operating cash flows and financing
cash flows will change.
Lessor accounting, as disclosed in note 3.6, will be substantially
unchanged from IAS 17. However, some additional disclosures will be
required in the consolidated financial statements for the 52 weeks
ended 2 February 2020.
All accounting policies for lessees and for lessors will be updated to
reflect the impact of IFRS 16 in the consolidated financial statements
for the 52 weeks ended 2 February 2020.
Basis of consolidation
Subsidiaries (including partnerships) are all entities over which the
Group has control. The Group controls an entity when it has power
over that entity, is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group. They
are deconsolidated from the date the control ceases. The financial
statements of subsidiaries used in the consolidation are prepared for
the same reporting period as the Group and are based on consistent
accounting policies. Intra-group balances and any unrealised gains and
losses or income and expenses arising from intra-group transactions are
eliminated on consolidation.
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.
Alternative Performance Measures
The Directors measure the performance of the Group based on
a range of financial measures, including measures not recognised by
EU-adopted IFRS. These Alternative Performance Measures may not
be directly comparable with other companies’ Alternative Performance
Measures and the Directors do not intend these to be a substitute
for, or superior to, IFRS measures. For definitions of the Alternative
Performance Measures used, see the Glossary on pages 132 and 133.
After a review of emerging practice around Alternative Performance
Measures, the Group has amended its primary measure for adjusted
profit. As a result ‘underlying profit’ has been replaced by ‘Profit before
exceptional items and net pension interest’. Here on in ‘Profit before
exceptional items and net pension interest’ will be referred to as ‘profit
before exceptionals’ (for further details on definitions, see the Glossary
on page 132). This change has no impact on amounts previously
reported under the previous definition. As such, previously reported
adjusted profit measures have not been restated.
In moving to this measure, the Group has also adopted a three-column
approach to the consolidated income statement. The Directors believe
this new definition and presentation provides additional clarity on the
treatment of adjusting items and is consistent with how the Directors
assess the performance of the Group.
72
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Critical accounting judgements
The critical judgement made in the process of applying the Group’s
accounting policies is detailed below:
Profit before exceptionals
Profit before exceptionals is defined as ‘Profit before exceptional
items and net pension interest’. For further details, see the Glossary
on page 132.
The Directors consider that the adjusted profit measure provides useful
information for shareholders on ongoing trends and performance.
This measure is consistent with how business performance is measured
internally by the Board and the Executive Committee.
Profit before exceptionals and earnings per share before exceptionals
measures are not recognised measures under EU-adopted IFRS and
may not be directly comparable with adjusted measures used by
other companies.
The Group’s definition of items excluded, together with further details
of adjustments made during the period, is provided in note 1.4.
The classification of items excluded from profit before exceptionals
requires judgement including considering the nature, circumstances,
scale and impact of a transaction. Reversals of previous exceptional
items are assessed based on the same criteria.
Given the significance of the Group’s property portfolio and the
quantum of impairment and property-related provisions recognised
in the consolidated balance sheet, movements in impairment and
other property-related provisions would typically be included as
exceptional items, as would significant impairments of other
non-current assets.
Despite being a recurring item, the Group has chosen to also exclude
net pension interest from profit before exceptionals as it is not part
of the operating activities of the Group, and its exclusion is consistent
with the way it has historically been treated and with how the
Directors assess the performance of the business.
Sources of estimation uncertainty
The areas of estimation uncertainty that have a significant risk of
resulting in material adjustment to carrying amounts of assets and
liabilities are detailed below. These estimates and assumptions are
continually evaluated and are based on historical experience and
other factors that the Directors believe to be reasonable.
Impairment of property, plant and equipment and intangible assets
and onerous property commitments
Property, plant and equipment and intangible assets are reviewed
annually for impairment or where changes in circumstances indicate
impairment (or impairment reversal). The recoverable amount is
estimated when the impairment review is conducted. Judgement is
required in applying estimates to assess the level of provision needed,
specifically in relation to discount rates and future growth rates.
Further detail is provided in notes 3.1, 3.2 and 3.3.
Where property contracts exist for which expected future cash flows
are less than the future contract commitments, an onerous contract
provision is recognised. Judgement is required in applying estimates
to assess the level of provision required specifically in relation
to discount rates of future cash flows and future growth rates.
Further detail is provided in notes 5.1 and 5.5.
Commercial income
Commercial income is accounted for as a deduction from the cost
of purchase, and it is recognised in accordance with signed supplier
agreements, with most income subject to little or no subjectivity
or judgement. However, a certain level of estimation or judgement
is required in assessing future sales or purchase volumes and whether
performance obligations have been achieved. This is estimated based
on historic trends and information on sales or purchase projections.
The Group’s recognition policy for commercial income along with
areas of estimation is included in note 1.1.
Stock
Certain estimates are required to assess the net realisable value of
stock, along with provisions for obsolete and slow moving stock and
stock loss, where estimation is required. Estimating the level of loss
between stock counts is inherently judgemental and is based on past
information and other available information. The Group’s accounting
policy for stock is provided in note 5.1.
Pensions
Accounting for defined benefit pension schemes requires the
application of a number of assumptions which have an impact on
the valuation of the schemes’ assets and liabilities. The significant
assumptions include discount rate, inflation, rate of salary increases and
longevity. The Group uses an independent actuary to calculate pension
liabilities. Details of these assumptions are provided in note 8.
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Notes to the Group financial statements
52 weeks ended 3 February 2019
1 Performance in the period
1.1 Accounting policies
Revenue recognition
Revenue is recognised when the Group has a contract with a customer and a performance obligation has been satisfied, at the transaction price
allocated to that performance obligation.
The Group does not adjust any of the transaction prices for the time value of money due to the nature of the Group’s transactions being
completed shortly after the transaction is entered into with the customer.
Sale of goods in-store and online, and sale of fuel
For revenue from the sale of goods in-store, fuel and online, the transaction price is the value of the goods net of returns, colleague discounts,
coupons, vouchers and ‘More’ points earned in-store, and the free element of multi-save transactions. It comprises cash from customers and
excludes VAT. Sale of fuel is recognised net of VAT and ‘More’ points earned on fuel. Revenue is recognised when the customer obtains control
of the goods, which is when the transaction is completed in-store or at the filling station, or in the case of online, when goods are accepted by
the customer on delivery.
Other sales
Other sales include wholesale sales made direct to third party customers, and income from concessions and commissions, and is net of returns
and net of promotional funding to customers. Wholesale revenue is recognised when the goods are delivered to the customer. Revenue collected
on behalf of others is not recognised as revenue, other than the related commission which is based on the terms of the contract. Sales are
recorded net of VAT and intra-group transactions.
‘More’ points
For ‘More’ points, the fair value of the points is the value to the customer of the points issued, adjusted for factors such as the expected
redemption rate. The Group continues to assess the appropriateness of the expected redemption rates against actual redemptions.
The fair value of ‘More’ points is recognised once the performance obligation has been satisfied. The fair value is treated as a deferral from
revenue, and is deferred until the rewards are redeemed by the customer in a future sale, as at the point of issue, the customer has a material
right to acquire additional goods and services (but at a future date).
Cost of sales
Cost of sales consists of all costs of the goods being sold to the point of sale, net of promotional funding and commercial income, and includes
property, manufacturing, warehouse and transportation costs. Store depreciation, store overheads and store-based employee costs are also
allocated to cost of sales.
Promotional funding
Promotional funding refers to investment in the customer offer by suppliers by way of promotion. The calculation of funding is mechanical and
system generated based on a funding level agreed in advance with the supplier. Funding is recognised as units are sold and invoiced in accordance
with the specific supplier agreement. Funding is recorded effectively as a direct adjustment to the cost price of the product in the period. Funding
is invoiced and collected through the year, shortly after the promotions have ended.
Commercial income
Commercial income is recognised as a deduction from cost of sales, based on the expected entitlement that has been earned up to the balance
sheet date for each relevant supplier contract. The Group only recognises commercial income where there is documented evidence of an
agreement with an individual supplier and when associated performance conditions are met. The types of commercial income recognised by
the Group, and the recognition policies are:
Type of commercial income
Marketing and advertising
funding
Volume-based rebates
Description
Examples include income in respect
of in-store and online marketing and
point of sale, as well as funding for
advertising.
Income earned by achieving volume
or spend targets set by the supplier
for specific products over specific
periods.
Recognition
Income is recognised over the period as set out in the specific supplier
agreement. Income is invoiced once the performance conditions in the
supplier agreement have been achieved.
Income is recognised through the year based on forecasts for expected
sales or purchase volumes, informed by current performance, trends and
the terms of the supplier agreement. Income is invoiced throughout the
year in accordance with the specific supplier terms. In order to minimise
any risk arising from estimation, supplier confirmations are also obtained to
agree the final value to be recognised at year end, prior to it being invoiced.
74
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 1 Performance in the period continued
1.1 Accounting policies continued
Commercial income continued
Uncollected commercial income at the balance sheet date is classified within the financial statements as follows:
• Creditors: A large proportion of the Group’s trading terms state that income due from suppliers is netted against amounts owing to that
supplier. Any outstanding invoiced commercial income relating to these suppliers at the balance sheet date are included within trade payables.
Any amounts received in advance of income being recognised are included in accruals and deferred income.
• Debtors: Where the trading terms described above do not exist, the Group classifies outstanding commercial income within trade debtors.
Where commercial income is earned and not invoiced to the supplier at the balance sheet date, this is classified within accrued commercial
income.
• Stock: The carrying value of stock is adjusted to reflect unearned elements of commercial income when it relates to stock which has not yet
been sold. This income is subsequently recognised in cost of sales when the product is sold.
In order to provide users of the financial statements with greater understanding in this area, additional income statement and balance sheet
disclosure is provided in notes 1.6, 5.2, 5.3 and 5.4 to the financial statements.
Other operating income
Other operating income primarily consists of income not directly related to in-store and online grocery retailing and wholesale supply. It mainly
comprises rental income from investment properties, income generated from the recycling of packaging and certain commissions.
Profit/loss on disposal and exit of properties
Profit/loss from the disposal and exit of properties includes gains and losses on disposal of property assets and other costs incurred by the Group
following a decision to dispose, close or no longer purchase properties. Where the Group disposes of a property, this disposal transaction is
accounted for upon unconditional exchange of contracts. Gains and losses are determined by comparing sale proceeds with the asset’s carrying
amount and are presented net of costs associated with disposal.
1.2 Revenue
Sale of goods in-store and online
Other sales
Total sales excluding fuel
Fuel
Total revenue
All revenue is derived from contracts with customers.
1.3 Segmental reporting
The Group’s principal activity is that of retailing, derived from the UK.
2019
£m
13,265
705
13,970
3,765
17,735
2018
£m
13,246
290
13,536
3,726
17,262
The Group is required to determine and present its operating segments based on the way in which financial information is organised and reported
to the chief operating decision-maker (CODM). The CODM has been identified as the Executive Committee, as this makes the key operating
decisions of the Group and is responsible for allocating resources and assessing performance.
Key internal reports received by the CODM, primarily the management accounts, focus on the performance of the Group as a whole.
The operations of all elements of the business are driven by the retail sales environment and hence have fundamentally the same economic
characteristics. All operational decisions made are focused on the performance and growth of the retail outlets and the ability of the business
to meet the supply demands of the stores.
The Group has considered the overriding core principles of IFRS 8 ‘Operating segments’ as well as its internal reporting framework, management
and operating structure. In particular, the Group considered its retail outlets, the fuel sale operation, the manufacturing entities, online operations
and wholesale supply. The Directors’ conclusion is that the Group has one operating segment, that of retailing.
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items
Performance is measured by the CODM based on profit before tax and exceptionals as reported in the management accounts.
Management believes that this adjusted profit measure is the most relevant in evaluating the results of the Group. This information and the
reconciliation to the statutory position can be found in note 1.4. In addition, the management accounts present a Group balance sheet containing
assets and liabilities.
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 1 Performance in the period continued
1.4 Profit before exceptionals
Profit before exceptionals is defined as profit before exceptional items and net pension interest. Further detail on profit before tax and
exceptionals, profit before exceptionals after tax and earnings per share before exceptionals is provided in the Glossary on pages 132 and 133.
The Directors consider that these adjusted profit and adjusted earnings per share measures referred to in the results provide useful information
for shareholders on ongoing trends and performance. The adjustments made to reported profit/loss are to: exclude exceptional items, which are
significant in size and/or nature; exclude net pension interest; and to apply a normalised tax rate of 23.5% (2018: 23.8%).
Profit before exceptionals and earnings per share before exceptionals measures are not recognised measures under EU-adopted IFRS and may not
be directly comparable with adjusted measures used by other companies. The classification of items excluded from profit before exceptionals
requires judgement including considering the nature, circumstances, scale and impact of a transaction. Reversals of previous exceptional items are
assessed based on the same criteria.
Given the significance of the Group’s property portfolio and the quantum of impairment and property-related provisions recognised in the
consolidated balance sheet, movements in impairment and other property-related provisions would typically be included as exceptional items,
as would significant impairments of other non-current assets.
Despite being a recurring item, the Group has chosen to also exclude net pension interest from profit before exceptionals as it is not part of the
operating activities of the Group, and its exclusion is consistent with the way it has historically been treated and with how the Directors assess the
performance of the business.
Profit after tax
Add back: tax charge for the period1
Profit before tax
Adjustments for:
Impairment and provision for onerous contracts1
Profit/loss arising on disposal and exit of properties1
Costs associated with the repayment of borrowings1
Pensions exceptional items (notes 8.6, 8.7 and 8.8)1
Other exceptional items1
Net pension income (note 8.2)1
Profit before tax and exceptionals
Normalised tax charge at 23.5% (2018: 23.8%)1,2
Profit before exceptionals after tax
Earnings per share before exceptionals (pence):
Basic (note 1.5.2)
Diluted (note 1.5.2)
2019
£m
244
76
320
5
(2)
33
26
42
(18)
406
(95)
311
13.17
12.88
2018
£m
311
69
380
(6)
(19)
16
(13)
25
(9)
374
(89)
285
12.19
11.94
1 Adjustments marked 1 increase post-tax adjusted earnings by £67m (2018: decrease of £26m), as shown in the reconciliation of earnings disclosed in note 1.5.2.
2 Normalised tax is defined in the Glossary, see page 133 for details.
Impairment and provision for onerous contracts
Following the Group’s annual impairment and onerous contract review a net charge of £5m has been recognised. This includes a net impairment
reversal of £55m (£163m impairment reversal offset by £108m impairment charge). The £108m impairment charge includes £97m in relation to
property, plant and equipment and £11m in relation to intangible assets (see notes 3.3 and 3.2). The £163m impairment reversal relates entirely to
property, plant and equipment (see note 3.3). A net £74m charge has been recognised in relation to provisions for onerous contracts (see note 5.5).
This has been partially offset by amounts released from accruals for amounts provided for onerous commitments of £21m. In addition, other
property provisions increased by £7m mainly relating to provisions for dilapidations (see note 5.5).
Impairment and provision for onerous contracts in the 53 weeks ended 4 February 2018 totalled a net credit of £6m. This comprised of a net
impairment reversal of £7m (£126m impairment reversal offset by £119m impairment charge), a net £1m credit relating to provisions for onerous
contracts, and an increase in accruals for onerous commitments of a net £2m.
Profits/loss arising on disposal and exit of properties
Profits/loss arising on disposal and exit of properties, net of fees incurred, amounted to £2m (2018: £19m).
76
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 1 Performance in the period continued
1.4 Profit before exceptionals continued
Costs associated with the repayment of borrowings
Costs associated with the early repayment of borrowing facilities and other refinancing activities total £33m (2018: £16m). This comprised £30m
relating to financing charges on redemption of financial instruments (primarily premiums) (2018: £17m) and £3m of fees and premiums written
off on the repayment of bonds (2018: £1m). There were no amounts relating to gains or losses reclassified to the income statement on termination
of hedging arrangements, which had previously been recognised in reserves (2018: £2m credit).
Pensions exceptional items
Pensions exceptional items include the following:
• Costs associated with the closure of pension schemes of £19m (2018: £nil) relate to an exceptional curtailment charge following the closure
of the Group’s Retirement Saver Plan to future accrual in September 2018 (see note 8.6).
• Guaranteed minimum pension of £7m (2018: £nil) relate to the estimated cost of equalising guaranteed minimum pension benefits for men
and women, following a ruling by the High Court in October 2018. Further detail is provided in note 8.7.
In the 53 weeks ended 4 February 2018, the pensions exceptional item was a pension scheme set-up credit of £13m related to back dated
contributions in respect of the Group’s defined contribution scheme which was established during that period. The credit represented the
difference between the expected back dated contributions and the cost based on actual participation rates. Further detail is provided in note 8.8.
Other exceptional items
Other exceptional items include:
• £28m in relation to increased stock provisioning. During the 52 weeks ended 3 February 2019, the Group continued to automate its ordering
systems. This led to operational changes and additional information regarding stock levels, and a change in the methodology for estimating
stock provisions.
• a £12m charge, relating to one-off costs associated with improvements to the Group’s distribution network. These costs were incurred as part
of a programme to increase network capacity and support the accelerated roll out of wholesale supply.
• a net charge of £2m, primarily in relation to previously recognised provisions for restructuring (£3m credit), and other costs incurred including in
relation to legal cases in respect of historic events (£5m charge). The credit recognised in respect of restructuring costs represents the difference
between the expected costs recognised based on estimates and the actual cost incurred.
In the 53 weeks ended 4 February 2018, other exceptional items included restructuring costs of £21m primarily relating to the restructuring of store
management teams, and legal costs incurred in relation to cases in respect of historic events.
1.5 Earnings per share (EPS)
Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue
during the period excluding shares held in trust. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all potentially dilutive ordinary shares.
The Company has two (2018: two) classes of instrument that are potentially dilutive: those share options granted to employees where the exercise
price together with the future IFRS 2 charge of the option 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 Plans (LTIPs).
1.5.1 Basic and diluted EPS (unadjusted)
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Unadjusted EPS
Basic EPS
Profit attributable to ordinary shareholders
Effect of dilutive instruments
Share options and LTIPs
Diluted EPS
Earnings
£m
Weighted average
number of shares
millions
243.7
–
243.7
2,356.8
53.2
2,410.0
2019
EPS
Pence
10.34
(0.23)
10.11
Earnings
£m
Weighted average
number of shares
millions
311.1
–
311.1
2,338.6
49.3
2,387.9
2018
EPS
Pence
13.30
(0.27)
13.03
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
1 Performance in the period continued
1.5 Earnings per share (EPS) continued
1.5.2 EPS before exceptionals
EPS before exceptionals is defined as earnings per share before exceptional items and net pension interest. Basic EPS is adjusted to more
appropriately reflect ongoing business performance.
The reconciliation of the earnings used in the calculations of EPS before exceptionals is set out below:
EPS before exceptionals
Basic EPS before exceptionals
Profit attributable to ordinary shareholders
Adjustments to determine profit before
exceptionals (note 1.4)
Effect of dilutive instruments
Share options and LTIPs
Diluted EPS before exceptionals
1.6 Operating profit
Earnings
£m
Weighted average
number of shares
millions
243.7
66.8
310.5
–
310.5
2,356.8
–
2,356.8
53.2
2,410.0
2019
EPS
Pence
10.34
2.83
13.17
(0.29)
12.88
Earnings
£m
Weighted average
number of shares
millions
311.1
(26.1)
285.0
–
285.0
2,338.6
–
2,338.6
49.3
2,387.9
The following items have been included in arriving at operating profit:
Employee costs (note 1.7)
Depreciation and impairment:
Property, plant and equipment (note 3.3)
Investment property (note 3.5)
Net impairment reversal (notes 1.4 and 3.3)
Amortisation and impairment:
Intangible assets (note 3.2)
Net impairment charge (notes 1.4 and 3.2)
Operating lease rentals:
Land and buildings
Other
Sublease receipts
Value of stock expensed
Commercial income
The amounts recognised as a deduction from cost of sales for the two types of commercial income are detailed as follows:
Marketing and advertising funding
Volume-based rebates
Total commercial income
2019
£m
1,900
350
–
(66)
93
11
92
22
(3)
13,772
2019
£m
51
135
186
2018
EPS
Pence
13.30
(1.11)
12.19
(0.25)
11.94
2018
£m
1,938
333
1
(8)
84
1
93
17
(3)
13,365
2018
£m
34
192
226
78
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
1 Performance in the period continued
1.6 Operating profit continued
Auditor remuneration
During the period, PricewaterhouseCoopers LLP, the Group’s auditor, provided the following services:
Audit services
Fees payable to the Group’s auditor for the audit of the Group and the Company financial statements
Other services
Fees payable to the Group’s auditor and its associates for other services:
The audit of the Group’s subsidiaries pursuant to legislation
Other services
2019
£m
0.6
0.2
0.1
0.9
2018
£m
0.5
0.2
0.2
0.9
The Board has a policy on the engagement of the external auditor to supply non-audit services, which is available in the Corporate governance
compliance statement set out in the investor relations section of the Group’s website at www.morrisons-corporate.com
1.7 Employees and Directors
Employee benefit expense for the Group during the period
Wages and salaries
Social security costs
Share-based payments
Other pension costs
Average monthly number of people, including Directors
Stores
Manufacturing
Distribution
Centre
2019
£m
1,643
129
34
94
1,900
2019
No.
86,552
8,799
6,004
2,275
103,630
2018
£m
1,682
131
33
92
1,938
2018
No.
89,558
8,212
5,565
2,152
105,487
Directors’ remuneration
A detailed analysis of Directors’ remuneration, including salaries, bonuses and long-term incentives, and the highest paid Director, is provided
in the Single total figure of remuneration table in the audited section of the Directors’ remuneration report, which forms part of these financial
statements (page 47). There are no Executive Directors (2018: none) who have retirement benefits accruing under any of the Group’s defined
benefit pension schemes.
Senior management remuneration
The table below shows the remuneration of senior managers. It excludes employees already included in the Directors’ remuneration report.
Senior managers are considered to be key management personnel in accordance with the requirements of IAS 24 ‘Related party disclosures’,
and in the context of gender disclosures required by the Companies Act 2006.
Senior managers
Wages and salaries
Social security costs
Share-based payments
Other pension costs
79
2019
£m
17
4
12
1
34
2018
£m
20
4
11
1
36
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
1 Performance in the period continued
1.8 Dividends
Amounts recognised as distributed to equity holders in the period:
Final dividend for the period ended 4 February 2018 of 4.43p (2017: 3.85p)
Special final dividend for the period ended 4 February 2018 of 4.00p (2017: £nil)
Interim dividend for the period ended 3 February 2019 of 1.85p (2018: 1.66p)
Special interim dividend for the period ended 3 February 2019 of 2.00p (2018: £nil)
2019
£m
104
94
44
47
289
2018
£m
90
–
39
–
129
The Directors propose a final ordinary dividend in respect of the financial period ended 3 February 2019 of 4.75p per share which will absorb
an estimated £113m of shareholders’ funds. The Directors also propose a special dividend of 4.00p per share which will absorb an estimated
£95m of shareholders’ funds. Subject to approval at the Annual General Meeting (AGM), these dividends will be paid on 1 July 2019 to shareholders
who are on the register of members on 24 May 2019.
The dividends paid and proposed during the year are from cumulative realised distributable reserves of the Company.
80
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
2 Taxation
The Group takes a compliance-focused approach to its tax affairs, and has a transparent relationship with the UK and overseas tax authorities
and interacts with HMRC on a regular basis. The Group’s tax policy provides a governance framework with all related risks and stakeholder
interests taken into consideration. The tax policy is approved by the Audit Committee, who also review updates on tax compliance and
governance matters.
The Group’s approach to tax is to ensure compliance with the relevant laws of the territories in which the Group operates. The majority of the
Group’s stores and sales are in the UK so the majority of the Group’s taxes are paid in the UK.
The Group operates a small number of branches and subsidiary companies outside of the UK based in the following overseas jurisdictions:
• The Netherlands: The Group has operations in the Netherlands as part of its produce supply chain. Local corporation taxes of £2m were paid
during 2019 (2018: £2m);
• Hong Kong: Offices in Hong Kong were established in 2011 and source many of the Group’s non-food products. Local corporation taxes of £0.4m
were paid during 2019 (2018: £0.4m); and
• Isle of Man, Jersey and Guernsey: The Group’s insurance company is based in the Isle of Man for regulatory reasons. Companies based in Jersey
and Guernsey hold UK property assets as a result of historic acquisitions. All profits arising in these companies are subject to UK tax.
2.1 Accounting policies
Current tax
The current income tax charge is calculated on the basis of the tax laws in effect during the period and any adjustments to tax payable in respect
of previous periods. Taxable profit differs from the reported profit for the period as it is adjusted both for items that will never be taxable
or deductible, and temporary differences. Current tax is charged to profit or loss for the period, except when it relates to items charged or
credited directly in other comprehensive income or equity, in which case the current tax is reflected in other comprehensive income or equity
as appropriate.
Deferred tax
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 are 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 to profit for the period except when it relates to items charged or
credited directly to other comprehensive income or equity, in which case the deferred tax is reflected in other comprehensive income or equity
as appropriate.
Deferred tax assets are recognised to the extent that it is probable that the asset can be utilised. Deferred tax assets are reviewed at each
reporting date as judgement is required to estimate the probability of recovery. Deferred tax assets and liabilities are offset where amounts
will be settled on a net basis as there is a legally enforceable right to offset.
Uncertain tax positions
The Group uses in-house tax specialists, professional advisers and relevant previous experience to assess tax risks, and considers IFRIC guidance
on the determination of taxable profit and tax bases, when making its assessment.
The Group recognises a tax provision when it is considered probable that there will be a future outflow of funds to a tax authority. Provisions
are measured based on the single most likely outcome for each item unless there is a range of possible outcomes for a particular item, where
a weighted average measurement is more appropriate. Provisions are included in current liabilities.
81
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 2 Taxation continued
2.2 Taxation
2.2.1 Analysis of charge in the period
Current tax
UK corporation tax
Overseas tax
Adjustments in respect of prior periods
Deferred tax
Origination and reversal of timing differences
Adjustments in respect of prior periods
Tax charge for the period
2.2.2 Tax on items charged in other comprehensive income and equity
Remeasurements of defined benefit pension schemes
Cash flow hedges
Share-based payments
Total tax on items included in other comprehensive income and equity (note 2.3)
2019
£m
79
4
6
89
(19)
6
(13)
76
2019
£m
17
1
–
18
2.2.3 Tax reconciliation
The reconciliation below shows how the tax charge of £76m (2018: £69m) has arisen on profit before taxation of £320m (2018: £380m).
The tax for the period is higher (2018: lower) than the standard rate of corporation tax in the UK of 19% (2018: 19.16%). The differences are
explained below:
Profit before taxation
Profit before taxation at 19% (2018: 19.16%)
Effects of:
Recurring items:
Expenses not deductible for tax purposes
Disallowed depreciation on UK properties
Deferred tax on Safeway acquisition assets
Adjustments in respect of prior periods
Non-recurring items:
Profit on property transactions
Tax impact of impairment and related items
Tax charge for the period
2019
£m
320
61
(1)
21
(2)
12
(1)
(14)
76
2018
£m
69
4
(8)
65
(2)
6
4
69
2018
£m
55
(4)
6
57
2018
£m
380
73
(6)
20
(4)
(2)
(8)
(4)
69
82
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
2 Taxation continued
2.2 Taxation continued
2.2.3 Tax reconciliation continued
Factors affecting current and future tax charges
The effective tax rate for the year was 23.7% (2018: 18.2%). The normalised tax rate for the year (excluding the impact of property transactions,
business disposals, tax rate changes, and other adjustments) was 23.5% (2018: 23.8%).
The normalised tax rate was 4.5% above the UK statutory tax rate of 19%. The main factor increasing the normalised tax rate is disallowed
depreciation on UK properties which reflects the Group’s strategy to maintain a majority freehold estate.
Legislation to reduce the standard rate of corporation tax to 17% from 1 April 2020 was included in Finance Act 2016 and was enacted in the
prior period. Accordingly, deferred tax has been provided at 19% or 17% depending upon when the temporary difference is expected to reverse
(2018: 19% or 17%).
There have been no indications of any further changes to the rate of corporation tax after 1 April 2020.
2.3 Deferred tax liabilities
Deferred tax liability
2019
£m
483
IAS 12 ‘Income taxes’ permits the offsetting of balances within the same tax jurisdiction. All of the deferred tax assets are available for offset
against deferred tax liabilities.
The movements in deferred tax liabilities during the period are shown below:
Property,
plant and
equipment
£m
Pensions
£m
Other
short-term
temporary
differences
£m
Current period
At 5 February 2018
Credited to profit for the period
Charged to other comprehensive income and equity
At 3 February 2019
Prior period
At 30 January 2017
Charged to profit for the period
Charged to other comprehensive income and equity
At 4 February 2018
The analysis of deferred tax liabilities are as follows:
Deferred tax liabilities to be settled after more than 12 months
Deferred tax assets to be settled within 12 months
364
(5)
–
359
361
3
–
364
101
(1)
17
117
46
–
55
101
13
(7)
1
7
10
1
2
13
2019
£m
487
(4)
483
2018
£m
478
Total
£m
478
(13)
18
483
417
4
57
478
2018
£m
480
(2)
478
83
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
3 Operating assets
3.1 Accounting policies
Intangible assets
Goodwill
Goodwill arising on a business combination is not amortised but is reviewed for impairment on an annual basis or more frequently if there are
indicators that it may be impaired. Goodwill is allocated to cash generating units (CGUs) that will benefit from the synergies of the business
combination for the purpose of impairment testing.
Other intangible assets (software development costs and licences)
Costs that are directly attributable to the creation of identifiable software, which meet the development asset recognition criteria as stated
in IAS 38 ‘Intangible assets’, are recognised as intangible assets.
Direct costs include consultancy costs, the employment costs of internal software developers, and borrowing costs. All other software
development and maintenance costs are recognised as an expense as incurred. Software development assets are held at historic cost less
accumulated amortisation and impairment, and are amortised over their estimated useful lives (three to ten years) on a straight-line basis.
Amortisation is charged in cost of sales.
Separately acquired pharmaceutical licences and software licences are recognised at historic cost less accumulated amortisation and impairment.
Those acquired in a business combination are recognised at fair value at the acquisition date. Pharmaceutical licences and software licences are
amortised over their useful lives (three to ten years) on a straight-line basis or over the life of the licence if different. Amortisation is charged in
cost of sales.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Costs include directly
attributable costs such as borrowing costs and employment costs of those people directly working on the construction and installation of
property, plant and equipment.
Depreciation rates
Depreciation rates used to write off cost less residual value on a straight-line basis are:
Freehold land
Freehold buildings
Leasehold land
Leasehold buildings
Plant, equipment, fixtures and vehicles
Assets under construction
0%
2.5%
Over the lease period
Over the shorter of lease period and 2.5%
10% to 33%
0%
Depreciation expense is primarily charged in cost of sales with an immaterial amount in administration expenses.
Investment property
Property held to earn rental income is classified as investment property and is held at cost less accumulated depreciation and impairment.
The depreciation policy is consistent with that described for property above.
Non-current assets classified as held-for-sale
Non-current assets are classified as held-for-sale if their carrying amount is to be recovered principally through a sale transaction, rather than
continuing use within the Group, and the sale is considered highly probable. The sale is expected to complete within one year from the date
of classification and the assets are available for sale in their current condition. The classification of assets as non-current assets held-for-sale
is re-assessed at the end of each reporting period. Non-current assets held-for-sale are stated at the lower of carrying amount and fair value
less costs of disposal and are not depreciated.
Lessor accounting – operating leases
Assets acquired and made available to third parties under operating leases are recorded as property, plant and equipment or investment property
and are depreciated on a straight-line basis to their estimated residual values over their estimated useful lives. Operating lease income is credited
on a straight-line basis to the date of the next rent review.
Finance leases
Assets funded through finance leases are capitalised as property, plant and equipment and depreciated over their useful economic life or
lease term, whichever is shorter. The amount capitalised is the lower of the fair value and the present value, calculated using the interest rate
implicit in the lease, of the future minimum lease payments. The obligations to pay future rentals are included within liabilities. 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.
84
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 3 Operating assets continued
3.1 Accounting policies continued
Impairment of non-financial assets
Intangible assets with indefinite lives, such as goodwill, and those in construction that are not yet being amortised, are tested for impairment
annually. Group policy is to test non-financial assets annually for impairment or if events or changes in circumstances indicate that the carrying
amount may not be recoverable.
Testing is performed at the level of a CGU in order to compare the CGU’s recoverable amount against its carrying value. An impaired CGU is
written down to its recoverable amount, which is the higher of value in use or its fair value less costs to dispose. 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.
The Group considers that each of its stores is a CGU, which together form a grocery group of CGUs supported by corporate assets such as head
office and vertically integrated suppliers.
Impairment losses are reversed if there is evidence of an increase in the recoverable amount of a previously impaired asset, 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.
Impairment losses relating to goodwill are not reversed. Any reversal of impairment losses is excluded from profit before exceptionals.
3.2 Goodwill and intangible assets
Current period
Cost
At 5 February 2018
Additions
Interest capitalised
Disposals
Fully written down assets
At 3 February 2019
Accumulated amortisation and impairment
At 5 February 2018
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 3 February 2019
Net book amount at 3 February 2019
Goodwill
£m
Other intangibles
£m
10
–
–
–
–
10
–
–
–
–
–
–
10
714
79
1
(18)
(35)
741
296
93
11
(18)
(35)
347
394
Total
£m
724
79
1
(18)
(35)
751
296
93
11
(18)
(35)
347
404
Other intangibles include software development costs and licences. Within this asset class, there are assets under construction of £30m
(2018: £20m). The net book amount of licences at 3 February 2019 was £16m (2018: £14m).
The Group has performed its annual assessment of its amortisation policies and asset lives and deemed them to be appropriate.
As in previous years, fully amortised assets are retained in the Group’s fixed asset register. In order to provide greater understanding of
the Group’s annual amortisation charge, assets which have become fully amortised in the year have been removed from both cost and
accumulated amortisation.
Following the annual impairment review conducted by the Group, an impairment charge of £11m (2018: £1m) has been recognised in relation
to intangible assets. This has been excluded from profit before exceptionals (see note 1.4).
Goodwill
The goodwill arose on the acquisition of Flower World Limited (£3m) and Farmers Boy (Deeside) Limited (£7m).
Impairment testing of goodwill
Goodwill of £10m is allocated to the grocery group of CGUs. This group of CGUs has been tested for impairment via the value in use
calculation described in note 3.3. The pre-tax discount rate used is 9.0% (2018: 9.0%) and the growth rate applied to the period after three years
is 2.0% (2018: 2.0%).
85
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
3 Operating assets continued
3.2 Goodwill and intangible assets continued
Software development costs
The cumulative interest capitalised in respect of software development costs included within other intangibles is £42m (2018: £41m). The cost of
internal labour capitalised during the year is not material for separate disclosure.
Prior period
Cost
At 30 January 2017
Additions
Disposals
Fully written down assets
At 4 February 2018
Accumulated amortisation and impairment
At 30 January 2017
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 4 February 2017
Net book amount at 4 February 2018
3.3 Property, plant and equipment
Current period
Cost
At 5 February 2018
Additions
Acquisition of business
Reclassifications
Transfers from investment property
Transfers to assets classified as held-for-sale
Disposals
Fully written down assets
At 3 February 2019
Accumulated depreciation and impairment
At 5 February 2018
Depreciation charge for the period
Impairment
Impairment reversal
Reclassifications
Transfers to assets classified as held-for-sale
Disposals
Fully written down assets
At 3 February 2019
Net book amount at 3 February 2019
Assets under construction included above
Goodwill
£m
Other intangibles
£m
10
–
–
–
10
–
–
–
–
–
–
10
678
68
(3)
(29)
714
243
84
1
(3)
(29)
296
418
Freehold
land
£m
Freehold
buildings
£m
Leasehold
land and
buildings
£m
Plant,
equipment,
fixtures and vehicles
£m
4,189
7
4
–
–
(26)
(13)
(8)
4,153
1,741
102
13
(54)
–
(11)
(9)
(8)
1,774
2,379
1
932
13
–
20
–
–
(5)
(12)
948
479
17
10
(20)
13
–
(5)
(12)
482
466
2
1,736
375
1
(5)
–
–
(44)
(116)
1,947
716
231
59
(4)
(1)
–
(43)
(116)
842
1,105
4
3,898
3
–
(15)
6
(28)
(18)
–
3,846
576
–
15
(85)
(12)
(2)
(8)
–
484
3,362
2
86
Total
£m
688
68
(3)
(29)
724
243
84
1
(3)
(29)
296
428
Total
£m
10,755
398
5
–
6
(54)
(80)
(136)
10,894
3,512
350
97
(163)
–
(13)
(65)
(136)
3,582
7,312
9
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
3 Operating assets continued
3.3 Property, plant and equipment continued
The Group has performed its annual assessment of its depreciation policies and asset lives and deemed them to be appropriate. There have
been no changes made to asset category lives during the year.
As in previous years, fully depreciated assets are retained in the Group’s fixed asset register. In order to provide greater understanding
of the Group’s annual depreciation charge, assets which have been fully depreciated in the year have been removed from both cost and
accumulated depreciation.
Included within the table on page 86 are leasehold land and buildings held under finance lease with a cost of £303m (2018: £293m) and accumulated
depreciation of £80m (2018: £75m).
The cost of financing property developments prior to their opening date has been included in the cost of the asset. The cumulative amount
of interest capitalised in the total cost above amounts to £199m (2018: £199m).
Impairment
The Group considers that each store is a separate cash generating unit (CGU) and therefore considers every store for an indication of
impairment annually. The Group calculates each store’s recoverable amount and compares this amount to its book value. The recoverable
amount is determined as the higher of ‘value in use’ and ‘fair value less costs of disposal’. If the recoverable amount is less than the book
value, an impairment charge is recognised based on the following methodology:
‘Value in use’ is calculated by projecting individual store pre-tax cash flows over the life of the store, based on forecasting assumptions.
The methodology used for calculating future cash flows is to:
• use the actual cash flows for each store in the current year;
• allocate a proportion of the Group’s central costs to each store on an appropriate basis;
• project store cash flows over the next three years by applying forecast sales and cost growth assumptions;
• project cash flows beyond year three, for the life of each store by applying a long-term growth rate; and
• discount the cash flows using a pre-tax rate of 9.0% (2018: 9.0%). The discount rate takes into account the Group’s weighted average cost
of capital.
‘Fair value less costs of disposal’ is estimated by the Directors based on their knowledge of individual stores, the markets they serve and likely
demand from grocers or other retailers. This assessment takes into account the continued low demand from major grocery retailers for
supermarket space, when assessing rent and yield assumptions on a store by store basis. In certain years, the Directors also obtain store level
valuations prepared by independent valuers to aid this assessment. When assessing the assumptions at individual store level the Directors take
into account the following factors:
• whether a major grocery operator might buy the store, taking into consideration whether they are already located near the store, and whether
the store size is appropriate for their business model, and then if not;
• assessing whether a smaller store operator might buy the store, in which case the value has been updated to reflect the Directors’ assessment
of the yield which would be achievable if such an operator acquired the store, and then if not; and
• assessing whether a non-food operator might buy the store, in which case the value has been updated to reflect the Directors’ assessment
of the yield which would be achievable if such an operator acquired the store.
Having applied the above methodology and assumptions, the Group has recognised a net impairment reversal of £66m (£163m impairment
reversal offset by £97m impairment charge) during the year in respect of property, plant and equipment (2018: net £8m impairment reversal;
£126m impairment reversal offset by £118m impairment charge). This movement reflects fluctuations from store level trading performance
and local market conditions.
At 3 February 2019, the assumptions to which the value in use calculation is most sensitive to are the discount and growth rates. The Group
has estimated a change of +/- 1% in either would result in a change in impairment of c.£60m.
87
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 3 Operating assets continued
3.3 Property, plant and equipment continued
Prior period
Cost
At 30 January 2017
Additions
Interest capitalised
Reclassifications
Disposals
Fully written down assets
At 4 February 2018
Accumulated depreciation and impairment
At 30 January 2017
Depreciation charge for the period
Impairment
Impairment reversal
Reclassifications
Disposals
Fully written down assets
At 4 February 2018
Net book amount at 4 February 2018
Assets under construction included above
3.4 Assets classified as held-for-sale
At start of period
Transfers from property, plant and equipment at net book value
Transfers from investment property at net book value
Disposals
At end of period
Freehold
land
£m
3,948
–
–
2
(52)
–
3,898
601
–
49
(51)
–
(23)
–
576
3,322
5
Freehold
buildings
£m
Leasehold
land and
buildings
£m
Plant,
equipment,
fixtures and vehicles
£m
4,251
23
1
5
(67)
(24)
4,189
1,690
100
25
(44)
4
(10)
(24)
1,741
2,448
16
944
1
–
(7)
(2)
(4)
932
469
17
24
(21)
(4)
(2)
(4)
479
453
–
1,409
403
–
–
(8)
(68)
1,736
565
216
20
(10)
–
(7)
(68)
716
1,020
3
2019
£m
4
41
–
(6)
39
Total
£m
10,552
427
1
–
(129)
(96)
10,755
3,325
333
118
(126)
–
(42)
(96)
3,512
7,243
24
2018
£m
–
–
4
–
4
Assets with a cost of £54m and accumulated depreciation of £13m were transferred from property, plant and equipment to assets classified as
held-for-sale in the 52 weeks ended 3 February 2019 (2018: £nil).
No assets were transferred from investment property in the 52 weeks ended 3 February 2019 (2018: £4m net book value, cost of £5m and
accumulated depreciation of £1m).
88
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
3 Operating assets continued
3.5 Investment property
Cost
At start of period
Additions
Transfers to property, plant and equipment
Transfers to assets classified as held-for-sale
Disposals
At end of period
Accumulated depreciation and impairment
At start of period
Charge for the period
Transfers to assets classified as held-for-sale
At end of period
Net book amount at end of period
2019
£m
53
–
(6)
–
(1)
46
20
–
–
20
26
2018
£m
53
5
–
(5)
–
53
20
1
(1)
20
33
Included in other operating income is £8m (2018: £8m) of rental income generated from investment properties. At the end of the period the fair
value of investment properties was £44m (2018: £52m). Investment properties are valued by independent surveyors on a vacant possession basis
using observable inputs (fair value hierarchy level 2).
3.6 Operating leases – lessor
The Group has non-cancellable agreements with tenants with varying terms, escalation clauses and renewal rights. The future minimum lease
income is as follows:
Within one year
More than one year and less than five years
After five years
3.7 Capital commitments
Contracts placed for future capital expenditure not provided in the financial statements
(property, plant and equipment and intangible assets)
2019
£m
12
32
30
74
2019
£m
36
2018
£m
11
29
20
60
2018
£m
38
89
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
4 Interests in other entities
4.1 Accounting policies
Joint ventures
The Group applies IFRS 11 ‘Joint Arrangements’ to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint
arrangements and determined them to be joint ventures. Joint ventures are accounted for under the equity method and are initially recognised
at cost.
The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of the equity accounted
investees, from the date that joint control commences until the date that joint control ceases.
Business combinations
The acquisition method is used to account for business combinations. Consideration is the fair value of the assets transferred, the liabilities
incurred and the equity interests issued by the Group, including the fair value of any contingent consideration arrangement. Acquisition-related
costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed, are measured initially at their fair
values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either
at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
Goodwill is the excess of consideration transferred, plus any non-controlling interest and the fair value of any previous equity interest in the
acquiree, over the fair value of the identifiable net assets acquired. In the event that this excess is negative the difference is recognised directly
in profit for the period.
Disposal of subsidiaries
When the Group ceases to have control over a subsidiary, any retained interest in the entity is remeasured to its fair value at the date when
control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised
in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.
This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
4.2 Investment in joint venture
The Group and Ocado Group plc are sole investors in a company (MHE JVCo Limited), which owns the plant and equipment at the Dordon
customer fulfilment centre. The Group has a 51.1% interest in MHE JVCo Limited (2018: 51.5%). Decisions regarding MHE JVCo Limited require the
unanimous consent of both parties. The Directors have considered the impact of IFRS 11 and determined that the Group continues to jointly
control MHE JVCo Limited.
MHE JVCo Limited
Non-current assets
Current assets
Current liabilities
Net assets
Group’s share of net assets
Profit
Group’s share of profit
2019
£m
71
22
(1)
92
47
2
1
2018
£m
86
20
(3)
103
53
4
2
4.3 Business combinations
On 19 February 2018, the Group acquired 100% of the ordinary share capital of Chippindale Foods Limited, a leading supplier of free range eggs.
Total consideration was £5m net of amounts due from the Group. The fair value of net assets acquired was £5m, including property, plant and
equipment and net current assets. Goodwill recognised in the transaction was negligible.
In the 53 weeks ended 4 February 2018, there were no business combinations.
90
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 5 Working capital and provisions
5.1 Accounting policies
Stock
Stock represents goods for resale and is measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price
in the ordinary course of business, less the estimated costs necessary to make the sale. Cost is calculated on a weighted average basis and
comprises purchase price, and other directly attributable costs, including import duties and other non-recoverable taxes, reduced by promotional
funding and commercial income and a provision for estimated losses relating to shrinkage and obsolescence. Losses relating to shrinkage in stores
are based on historical losses, verified by physical stock counts conducted by an independent third party. Provision is made for obsolete and slow
moving items.
Trade and other debtors
Trade and other debtors are initially recognised at fair value, which is generally equal to face value, and subsequently held at amortised
cost. Provision for impairment of trade debtors is recognised based on lifetime expected credit losses, with the charge being included in
administrative expenses.
Cash and cash equivalents
Cash and cash equivalents for cash flow purposes includes cash-in-hand, cash-at-bank and bank overdrafts. In the balance sheet, bank overdrafts
that do not have right of offset are presented within current liabilities.
Cash and cash equivalents includes debit and credit card payments made by customers which clear the bank shortly after the sale takes place.
Cash held by the Group’s captive insurer, Farock Insurance Company Limited, is not available for use by the rest of the Group as it is restricted
for use against the specific liability of the captive. As the funds are available on demand, they meet the definition of cash in IAS 7 ‘Cash flow
statements’.
Trade and other creditors
Trade and other creditors are initially recognised at fair value, which is generally equal to face value of the invoices received, and subsequently held
at amortised cost. Trade creditors are presented net of commercial income due when the Group’s trading terms state that income from suppliers
will be netted against amounts owing to that supplier.
Provisions
Provisions are created where the Group has a present 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, and where it can be reliably measured. For petrol filling station decommissioning costs this is when
the filling station is first constructed and for dilapidations on leased buildings, when the lease is entered into or where circumstances change.
Provisions for onerous leases and other onerous contracts are recognised when the Group believes that the unavoidable costs of meeting the
obligations exceed the economic benefits expected to be received under the contract. The Group assesses the appropriateness of each of these
provisions each year. The amounts provided are based on the Group’s best estimate of the least net cost of exit. Where material, these estimated
outflows are discounted to net present value using a pre-tax rate that reflects current market assumptions. The unwinding of this discount is
recognised as a financing cost in the income statement.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or non-occurrence of uncertain future
events outside the Group’s control, or present obligations that are not recognised because it is not probable that an outflow of economic
benefits will be required to settle the obligation or the amount cannot be measured reliably. The Group does not recognise contingent liabilities
but does disclose any such balances (see note 10.2). The disclosure includes an estimate of their potential financial effect and any uncertainties
relating to the amount or timing of any outflow, unless the possibility of settlement is remote or the Group cannot measure reliably.
5.2 Stock
Finished goods
Unearned elements of commercial income are deducted from finished goods as the stock has not been sold.
2019
£m
713
2018
£m
686
91
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 5 Working capital and provisions continued
5.3 Debtors
Commercial income trade debtors
Accrued commercial income
Other trade debtors
Less: provision for impairment of trade debtors
Trade debtors
Prepayments and accrued income
Other debtors
The ageing analysis of trade debtors and the provision for impairment of trade debtors is as follows:
Current period
Expected credit loss rate
Gross carrying amount – trade debtors
Provision for impairment of trade debtors
Prior period
Expected credit loss rate
Gross carrying amount – trade debtors
Provision for impairment of trade debtors
Current
%/£m
0%
194
–
Current
%/£m
0%
147
–
31 to 60 days
past due
%/£m
25%
1
–
31 to 60 days
past due
%/£m
28%
3
(1)
61 to 90 days
past due
%/£m
41%
1
(1)
61 to 90 days
past due
%/£m
81%
1
(1)
2019
£m
4
28
167
(4)
195
136
16
347
91 days plus
past due
%/£m
100%
3
(3)
91 days plus
past due
%/£m
100%
4
(4)
2018
£m
3
29
123
(6)
149
91
10
250
Total
£m
199
(4)
Total
£m
155
(6)
As at 3 February 2019 and 4 February 2018, trade debtors that were neither past due nor impaired, related to a number of debtors for whom there
is no recent history of default. The other classes of debtors do not contain impaired assets.
As at 10 March 2019, £4m of the £4m commercial income trade debtor balance had been settled and £14m of the £28m accrued commercial income
balance had been invoiced and settled.
5.4 Creditors
Trade creditors
Less: commercial income due, offset against amounts owed
Other taxes and social security payable
Other creditors
Accruals and deferred income
Included within accruals and deferred income is £1m (2018: £4m) in respect of deferred commercial income.
As at 10 March 2019, £18m of the £27m commercial income due above had been offset against payments made.
2019
£m
2,449
(27)
2,422
113
126
424
3,085
2018
£m
2,298
(28)
2,270
93
147
471
2,981
92
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
5 Working capital and provisions continued
5.5 Provisions
At 5 February 2018
Charged to profit for the period
Utilised/released during the period
Unwinding of discount
At 3 February 2019
Onerous leases and
onerous contracts
£m
279
74
(35)
13
331
Other property
provisions
£m
20
7
(5)
–
22
Total
£m
299
81
(40)
13
353
Part of the onerous leases relate to sublet and vacant properties, with commitments ranging from one to 55 years. Included with the above
balance at 3 February 2019 is £18m (2018: £nil) relating to a balance due within one year. The provision is revised regularly in response to market
conditions. During the period, £74m has been charged to onerous lease and onerous contracts provisions due to changes in circumstances
or performance relating to certain contracts, as detailed in note 1.4. The utilisation of provisions relates to the ongoing utilisation of onerous
contracts and the assignment of onerous leases.
Other property provisions include a petrol filling station decommissioning reserve for the cost of decommissioning petrol tanks, and provisions
for dilapidations on leased buildings, for the cost of restoring assets to their original condition.
5.6 Cash generated from operations
Profit for the period
Net finance costs
Taxation charge
Share of profit of joint venture (net of tax)
Operating profit
Adjustments for:
Depreciation and amortisation
Impairment
Impairment reversal
Profit/loss arising on disposal and exit of properties
Adjustment for non-cash element of pension charges
Share-based payments charge
Increase in stock1
Increase in debtors1
Increase in creditors1
Increase/(decrease) in provisions1
Cash generated from operations
2019
£m
244
75
76
(1)
394
443
108
(163)
(2)
21
34
(27)
(89)
82
41
842
2018
£m
311
80
69
(2)
458
418
119
(126)
(19)
10
33
(72)
(50)
153
(40)
884
Total working capital inflow (the sum of items marked 1 in the table) is £7m in the year (2018: £9m outflow). This includes £60m (2018: £1m) as a
result of the current year charges in respect of onerous contracts and accruals of onerous commitments, net of £12m (2018: £42m) of onerous
payments and other non-operating payments of £5m (2018: £3m). When adjusted to exclude these items, the working capital outflow is £36m
(2018: £35m inflow).
93
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 6 Capital and borrowings
6.1 Accounting policies
Borrowings
Interest-bearing 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 profit for the period over the period of the borrowings
on an effective interest rate basis.
Borrowing costs
All borrowing costs are recognised in the Group’s profit for the period on an effective interest rate basis except for interest costs that are directly
attributable to the construction of buildings and other qualifying assets, which are capitalised and included within the initial cost of the asset.
Capitalisation commences when both expenditure on the asset and borrowing costs are being incurred, and necessary activities to prepare the
asset for use are in progress. In the case of new stores, this is generally once planning permission has been obtained. Capitalisation ceases when
the asset is ready for use. Interest is capitalised at the effective rate incurred on borrowings before taxation of 5% (2018: 5%). Capitalised interest
is included within interest paid in cash flow from operating activities.
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. Property leases are analysed into separate components for land and buildings and tested to establish whether
the components are operating leases or finance leases. Rental payments on operating leases in which the Group is lessee are taken to profit
for the period on a straight-line basis over the life of the lease.
Sale and leaseback of properties
The accounting treatment of the sale and leaseback depends upon the substance of the transaction (by applying the lease classification principles
described above). For sale and operating leasebacks, the assets are sold at fair value, and accordingly the profit or loss from the sale is recognised
immediately in the consolidated income statement. When forming the conclusion of operating lease classification, consideration is given to the
key lease classification indicators of IAS 17. On making an assessment, the Directors review the remaining useful lives for these particular properties
and compare that to the period of the lease. Other key indicators considered in reaching the classification of a lease as an operating or finance
lease are the present value of the minimum lease payments and the ownership clauses in the contracts upon expiry of the lease.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds. Where any Group company purchases the Company’s equity share capital, the consideration paid,
including directly attributable incremental costs, is deducted from retained earnings until the shares are cancelled. On cancellation, the nominal
value of the shares is deducted from share capital and the amount is transferred to the capital redemption reserve.
Own shares held
The Group has employee trusts for the granting of Group shares to executives and members of the employee share plans. Shares in the Group
held by the employee share trusts are presented in the balance sheet as a deduction from retained earnings. The shares are deducted for the
purpose of calculating the Group’s earnings per share.
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).
94
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 6 Capital and borrowings continued
6.2 Finance costs and income
Interest payable on short-term loans and bank overdrafts
Interest payable on bonds
Interest capitalised
Total interest payable
Provisions: unwinding of discount (note 5.5)
Other finance costs
Finance costs before exceptionals1
Costs associated with the repayment of borrowings (note 1.4)
Finance costs
Bank interest received
Finance income before exceptionals1
Net pension income (notes 1.4 and 8.2)
Finance income
Net finance costs
1 Net finance costs before exceptionals marked 1 amount to £60m (2018: £73m).
6.3 Borrowings
The Group had the following current borrowings and other financial liabilities:
Current
£nil sterling bonds 6.12% December 2018 (2018: £71m)
Other short-term borrowings
The Group had the following non-current borrowings and other financial liabilities:
Non-current
€280m euro bond 2.25% June 2020 (2018: €280m)
£250m sterling bonds 4.625% December 2023 (2018: £365m)
£250m sterling bonds 3.50% July 2026 (2018: £318m)
£250m sterling bonds 4.75% July 2029 (2018: £300m)
Revolving credit facility
2019
£m
(3)
(48)
1
(50)
(13)
(1)
(64)
(33)
(97)
4
4
18
22
(75)
2019
£m
–
178
178
2019
£m
247
249
272
245
97
1,110
2018
£m
(2)
(63)
1
(64)
(13)
(1)
(78)
(16)
(94)
5
5
9
14
(80)
2018
£m
72
–
72
2018
£m
247
363
342
293
–
1,245
The movements in the nominal value of the non-current bonds was due to partial early repayment during the 52 weeks ended 3 February 2019.
During the year, the Group partially repaid some of the outstanding 2023, 2026 and 2029 sterling bonds. In addition, the remaining balance on the
2018 sterling bond was repaid on maturity in December 2018.
Borrowing facilities
The Group has a syndicated committed revolving credit facility of £1.35bn with a maturity date of June 2023. The revolving credit facility incurs
commitment fees and interest charges at a spread above LIBOR. The Group had £1.25bn of undrawn committed headroom available on this facility
as at 3 February 2019.
On 29 January 2019, the Group entered into a new £250m revolving credit facility to provide flexibility on refinancing the €280m euro bond
when it matures in June 2020. The Group can borrow under the facility from 19 May 2020. The facility has an initial maturity date of July 2020
and includes options to extend for up to 24 months.
In the event of default of covenants, the principal amounts of borrowings and any interest accrued become repayable on demand.
The Group has a number of uncommitted facilities which are available to meet short-term borrowing requirements, and incur interest charges
according to usage.
95
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
6 Capital and borrowings continued
6.3 Borrowings continued
Maturity of borrowings
The table below summarises the maturity profile of the Group’s borrowings based on contractual, undiscounted payments, which include interest
payments. As a result, amounts shown below do not agree to the amounts disclosed on the balance sheet for borrowings. Creditors (note 5.4) are
excluded from this analysis.
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
2019
£m
216
282
32
32
381
587
2018
£m
123
48
293
42
42
1,130
Fair values
The fair value of the sterling and euro denominated bonds is measured using closing market prices (level 1). The fair values of borrowings included
in level 2 are based on the net present value of the anticipated future cash flows associated with these instruments using rates currently available
for debts on similar terms, credit risk and equivalent maturity dates.
These compare to carrying values as follows:
Total borrowings: non-current and current
Amortised
cost
£m
1,288
2019
Fair
value
£m
1,360
Amortised
cost
£m
1,317
2018
Fair
value
£m
1,429
The fair value of other items within current and non-current borrowing equals their carrying amount, as the impact of discounting is not material.
6.4 Analysis of net debt1
Cross-currency interest rate swaps2
Fuel and energy price contracts
Non-current financial assets
Foreign exchange forward contracts
Fuel and energy price contracts
Current financial assets
Bonds2
Other short-term borrowings2
Foreign exchange forward contracts
Fuel and energy price contracts
Current financial liabilities
Bonds2
Revolving credit facility2
Fuel and energy price contracts
Non-current financial liabilities
Cash and cash equivalents
Net debt1
1 Net debt is defined in the Glossary on page 133.
Note
7.3
7.3
6.3
6.3
7.3
7.3
6.3
6.3
7.3
2019
£m
9
6
15
3
16
19
–
(178)
(4)
(1)
(183)
(1,013)
(97)
(2)
(1,112)
264
(997)
2018
£m
12
4
16
1
14
15
(72)
–
(13)
–
(85)
(1,245)
–
(1)
(1,246)
327
(973)
Total net liabilities from financing activities (the sum of items marked 2 in the table) is £1,279m in the 52 weeks ended 3 February 2019 (2018: £1,305m).
Cash and cash equivalents include restricted balances of £3m (2018: £7m) which is held by Farock Insurance Company Limited, a subsidiary of
Wm Morrison Supermarkets PLC.
96
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
6 Capital and borrowings continued
6.5 Called-up share capital
At 5 February 2018
Share options exercised
At 3 February 2019
Number of
shares
millions
2,355.9
12.4
2,368.3
Share capital
£m
236
1
237
Share premium
£m
159
19
178
Total
£m
395
20
415
All issued shares are fully paid and have a par value of 10p per share (2018: 10p per share). The Group did not acquire any of its own shares for
cancellation in the 52 weeks ended 3 February 2019 or the 53 weeks ended 4 February 2018.
The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at the meetings of
the Company.
Trust shares
Included in retained earnings is a deduction of £21m (2018: £14m) in respect of own shares held at the balance sheet date. This represents the cost
of 9,885,248 (2018: 7,661,470) of the Group’s ordinary shares (nominal value of £1.0m (2018: £0.8m)). These shares are held in a trust and were
acquired by the business to meet obligations under the Group’s employee share plans using funds provided by the Group. The market value of
the shares at 3 February 2019 was £23m (2018: £17m). The trust has waived its right to dividends. These shares are not treasury shares as defined by
the London Stock Exchange.
During the period, the Group acquired 3,945,258 (2018: 1,787,165) of its own shares to hold in trust for consideration of £9m (2018: £4m), and utilised
1,721,480 (2018: 2,584,182) trust shares to satisfy awards under the Group’s employee share plans.
Proceeds from exercise of share awards
The Group issued 12,440,132 (2018: 20,279,315) new shares to satisfy options exercised by employees during the period in respect of the Group’s
Share save schemes. Proceeds received on exercise of these shares amounted to £20m (2018: £33m) and these have been recognised as an addition
to share capital and share premium in the period.
Settlement of share awards
During the 52 weeks ended 3 February 2019, the Group has settled 1,721,480 of share options out of trust shares which have vested during the
period net of tax. The Group paid the £5m (2018: £7m) in cash on behalf of the employees, rather than selling shares on the employees’ behalf
to settle the employee’s tax liability on vesting of share options.
6.6 Reserves
Capital redemption reserve
Merger reserve
Hedging reserve
Retained earnings
Total
2019
£m
39
2,578
10
1,589
4,216
2018
£m
39
2,578
2
1,531
4,150
Capital redemption reserve
The capital redemption reserve relates to 389,631,561 of the Company’s own shares which it purchased on the open market for cancellation
between 31 March 2008 and 8 March 2013 at a total cost of £1,081m.
Merger reserve
The merger reserve represents the reserve arising on the acquisition in 2004 of Safeway Limited.
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging.
97
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
6 Capital and borrowings continued
6.7 Capital management
The Group defines the capital that it manages as the Group’s total equity and net debt balances, as well as its lease commitments.
The Group’s capital management objectives are to safeguard its viability taking into consideration the risks that it faces whilst maintaining an
investment grade credit rating and having adequate liquidity headroom. The Group manages its capital structure by managing the balance of
debt and shares outstanding. It does this by seeking an effective balance between debt and equity. During the 52 weeks ended 3 February 2019,
net debt has increased by £24m. Throughout the period, the Group has comfortably complied with the gearing and fixed charge cover covenants
attaching to its revolving credit facility.
6.8 Operating leases – lessee
The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases. The leases have varying
terms, escalation clauses and renewal rights, and fall due as follows:
Within one year
More than one year and less than five years
After five years
The movement in the property lease commitments within one year is summarised below:
2019
Vehicles, plant
and equipment
£m
17
33
–
50
Property
£m
114
436
1,731
2,281
2018
Vehicles, plant
and equipment
£m
13
22
–
35
Property
£m
114
435
1,666
2,215
At 5 February 2018
Net impact of disposal programme
New lease commitments
Other
At 3 February 2019
£m
114
(2)
4
(2)
114
98
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
7 Financial risk and hedging
7.1 Accounting policies
Derivative financial instruments and hedge accounting
Derivatives are transacted to mitigate financial risks that arise as a result of the Group’s operating activities and funding arrangements. At
the inception of a hedge, the Group documents the economic relationship between the hedging instrument and the hedged item, the risk
management objective and strategy for undertaking the hedge. This includes an assessment of whether changes in fair values or the cash flows
of the hedging instruments are expected to offset changes in the fair values or cash flows of hedged items.
All derivatives are initially recognised at fair value and are also measured at fair value at each reporting date. Derivatives with positive fair values
are recognised as assets and those with negative fair values as liabilities. They are also categorised as current or non-current according to the
maturity of each derivative. All gains or losses arising due to changes in the fair value of derivatives are recognised in profit or loss except when
the derivative qualifies for cash flow hedge accounting.
Cash flow hedges
The Group designates derivatives into a cash flow hedge where they have been transacted to hedge a highly probable forecast transaction or
a particular risk associated with an asset or liability. The effective portion of the change in the fair value of the derivatives, that are designated into
cash flow hedge relationships, are recognised in other comprehensive income. Cumulative gains or losses on derivatives are reclassified from other
comprehensive income into profit or loss in the period when the transaction occurs. Any ineffective portion of the gain or loss on the derivative
is immediately recognised in profit or loss.
When option contracts are used to hedge forecast transactions, both the intrinsic and time value of the options are designated as hedging
instruments. Gains or losses relating to the effective portion of the change in fair value of the options are recognised in the cash flow hedge
reserve within equity. Any changes in the fair value of the option premium is recognised in other comprehensive income.
When forward contracts are used to hedge forecast transactions, the Group designates the change in fair value of the forward contract as the
hedging instrument. Gains or losses relating to the effective portion of the change in fair value of the entire forward contract are recognised in
the cash flow hedge reserve within equity.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted
transaction occurs, at which point the net cumulative gain or loss recognised in equity is transferred to profit or loss in the period.
7.2 Financial risk management
The Group has a centralised treasury function which manages funding, liquidity and other financial risk in accordance with the Board approved
Treasury Policy. The objective of the policy and controls that are established is to mitigate the risk of an adverse impact on the performance of
the Group as a result of its exposure to financial risks arising from the Group’s operations and its sources of finance. It is the Group’s policy not
to engage in speculative trading of financial instruments.
The Board retains ultimate responsibility for treasury activity and is involved in key decision making. A Treasury Committee is established to
provide governance and oversight to treasury activity within delegated authority limits and formally reports to the Audit Committee.
Foreign currency risk
The majority of purchases made by the Group are denominated in sterling, however some trade purchases are made in other currencies, primarily
the euro and US dollar. The Group’s objective is to reduce short-term profit volatility from exchange rate fluctuations. Group policy specifies the
minimum percentage of committed and highly probable exposures that must be hedged.
Cross-currency interest rate swaps are used to mitigate the Group’s currency exposure arising from payments of interest and principal in relation
to foreign currency funding.
At the reporting date, the sensitivity to a reasonable possible change (+/-10%) in the US dollar and euro exchange rates would equate to a £8m
post-tax profit or loss exposure in relation to the euro and £4m in relation to the US dollar, for the unhedged forecast foreign currency exposures
over the next 12 months. A movement of the pound sterling by +/-10% against the euro and US dollar exchange rates would impact other
comprehensive income by £31m for the hedged amount.
99
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7.2 Financial risk management continued
Liquidity risk
The Group policy is to maintain an appropriate maturity profile across its borrowings and a sufficient level of committed headroom to meet
obligations. The Group finances its operations using a diversified range of funding providers including banks and bondholders.
A central cash forecast is maintained by the treasury function who monitor the availability of liquidity to meet business requirements and any
unexpected variances. The treasury function seek to centralise surplus cash balances to minimise the level of gross debt. Short-term cash balances,
together with undrawn facilities, enable the Group to manage its day-to-day liquidity risk. Any short-term surplus is invested in accordance with
Treasury Policy. Some suppliers have access to supply chain finance facilities, which allows these suppliers to benefit from the Group’s credit
profile. The total size of the facility at 3 February 2019 was £1,078m. The level of utilisation is dependent on the individual supplier requirements
and varies significantly over time.
The Treasury Committee compares the committed liquidity available to the Group against the forecast requirements including policy headroom.
This policy includes a planning assumption that supply chain finance facilities are not available.
Interest rate risk
The Group seeks to protect itself against adverse movements in interest rates by maintaining at least 60% of its total borrowings at fixed interest
rates. As at the balance sheet date, 78% (2018: 100%) of the Group’s borrowings are at fixed rate.
Whilst still applying the policy described above, from time-to-time the Group enters into fixed-to-floating interest rate swaps to achieve the
appropriate proportion of fixed versus floating rate borrowings.
Credit risk
The majority of the Group’s revenue is received in cash at the point of sale. Some credit risk does arise from cash and cash equivalents, deposits
with banking groups and exposures from other sources of income such as commercial income, third party wholesale customers and tenants of
investment properties.
The Group has established appropriate credit verification procedures in respect of financial institutions and other trading counterparties such as
wholesale customers. Limits on the total exposure to a counterparty or Group of connected counterparties are established within Treasury Policy.
Compliance with limits is regularly monitored.
Commodity price risk
The Group manages the risks associated with the purchase of electricity, gas and diesel consumed by its activities (excluding fuel purchased
for resale to customers) by entering into hedging contracts to fix prices for expected consumption.
The Group has adopted a capital at risk model for hedging its fuel and power consumption. The Treasury Committee reviews the Group’s
exposure to commodity prices and ensures it remains within policy limits.
A change of +/-10% in the market value of the commodity price at the balance sheet date would affect other comprehensive income
by £12m (2018: £13m).
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 7 Financial risk and hedging continued
7.3 Derivative financial assets and liabilities
Derivative financial assets
Current
Foreign exchange forward contracts
Fuel and energy price contracts
Non-current
Cross-currency interest rate swaps
Fuel and energy price contracts
2019
£m
3
16
19
9
6
15
All derivatives are categorised as level 2 instruments. Level 2 fair values for simple, over-the-counter derivatives are calculated by using
benchmarked, observable market interest rates to discount future cash flows.
Derivative financial liabilities
Current
Foreign exchange forward contracts
Fuel and energy price contracts
Non-current
Fuel and energy price contracts
2019
£m
4
1
5
2
2
The amounts disclosed in the table below are the contractual undiscounted derivative cash flows and therefore differ to those in the
balance sheet.
Maturity analysis of derivatives
Derivatives settled on a gross basis
Cross-currency swaps – cash flow hedges:
Outflow
Inflow
Forward contracts – cash flow hedges:
Outflow
Inflow
Derivatives settled on a net basis
Energy price contracts – cash flow hedges:
Inflow
< 1 year
£m
(7)
6
(374)
372
15
2019
£m
1-5 years
£m
(247)
253
–
–
4
< 1 year
£m
(7)
6
(350)
339
14
2018
£m
1
14
15
12
4
16
2018
£m
13
–
13
1
1
2018
£m
1-5 years
£m
(254)
250
–
–
3
Cash flow hedges
At 3 February 2019 and at 4 February 2018, the Group held cross-currency swaps designated as cash flow hedges. The notional principal amount
of the outstanding cross-currency swaps at 3 February 2019 was €282m (2018: €282m).
The fuel and energy price contracts and foreign currency derivatives shown in note 7.3 are designated as cash flow hedges.
101
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
8 Pensions
8.1 Accounting policies
A defined contribution scheme is a pension scheme under which the Group pays fixed contributions into a separate entity and provides no
guarantee as to the quantum of retirement benefits that those contributions will ultimately purchase. A defined benefit scheme is one that
is not a defined contribution scheme.
8.1.1 Defined benefit schemes
Pension scheme assets are valued at fair market value as required by IAS 19. Pension scheme obligations are an estimate of the amount required
to pay the benefits that employees have earned in exchange for current and past service, assessed and discounted to present value using the
assumptions shown in note 8.4.1. The net pension liability or asset recognised in the consolidated balance sheet is the net of the schemes’ assets
and obligations, which are calculated separately for each scheme.
Current service cost is treated as an operating cost in the consolidated income statement and consolidated cash flow statement and is part
of adjusted earnings. Net interest income/expense is calculated by applying the discount rate on liabilities to the net pension liability or asset
(adjusted for cash flows over the accounting period) and is recognised in finance costs or income and excluded from profit before exceptionals.
Expenses incurred in respect of the management of scheme assets are included in other comprehensive income as a reduction in the return
on scheme assets. Other scheme expenses are recognised in profit or loss as an operating expense.
Remeasurements comprise of actuarial gains and losses on the obligations and the return on scheme assets (excluding interest). They are
recognised immediately in other comprehensive income. Amounts shown within note 8 are before any adjustments for deferred taxation.
8.1.2 Defined contribution schemes
The cost of defined contribution schemes is recognised in the consolidated income statement as incurred. The Group has no further payment
obligations once the contributions have been paid.
8.2 Defined benefit schemes: summary and description
The Group operates a number of defined benefit retirement schemes (together ‘the Schemes’) providing benefits based on a benefit formula that
depends on factors including the employee’s age and number of years of service. The Morrison and Safeway Schemes provide pension benefits
based on either the employee’s compensation package and/or career average revalued earnings (CARE) (the ‘CARE Schemes’). The CARE Schemes
are not open to new members and were closed to future accrual in July 2015. The Retirement Saver Plan (RSP) is a cash balance scheme, which
provides a lump sum benefit based upon a defined proportion of an employee’s annual earnings in each year, which is revalued each year in line
with inflation subject to a cap. The RSP was closed to future accrual in September 2018 (see note 8.6).
The position of each scheme at 3 February 2019 is as follows:
CARE Schemes
RSP
Net pension asset
The disclosures below show the details of the schemes combined:
Balance sheet:
Fair value of scheme assets
Present value of obligations
Net pension asset/(liability)
Income statement:
Current service cost – recognised in cost of sales
Current service cost – recognised in administrative expenses
Past service cost (guaranteed minimum pension) (note 8.7)
Administrative costs paid by the Schemes – recognised in administrative expenses
Settlement and curtailment gain
Curtailment loss from closure of the pension scheme (note 8.6)
Net interest on net pension asset – finance income
Total expense (credited)/charged to income statement
Statement of other comprehensive income:
Remeasurements in other comprehensive income – credit
102
2019
£m
730
(42)
688
2018
CARE
£m
4,542
(3,930)
612
2018
CARE
£m
–
–
–
3
(10)
–
(9)
(16)
(295)
2018
£m
612
(18)
594
2018
RSP
£m
315
(333)
(18)
2018
RSP
£m
60
31
–
1
–
–
–
92
(28)
2019
CARE
£m
4,471
(3,741)
730
2019
CARE
£m
–
–
7
2
(2)
–
(18)
(11)
(100)
2019
RSP
£m
349
(391)
(42)
2019
RSP
£m
35
18
–
1
–
19
–
73
–
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 8 Pensions continued
8.2 Defined benefit schemes: summary and description continued
The Schemes are registered schemes under the provisions of Schedule 36 of the Finance Act 2004 and the assets are held in legally separate,
trustee-administered funds. The Board of each scheme is required by law to act in the best interests of the scheme participants within the
context of administering the scheme in accordance with the purpose for which the trust was created, and is responsible for setting the
investment, funding and governance policies of the fund. A representative of the Group attends Trustee Investment Committee meetings in
order to provide the Group’s view on investment strategy, but the ultimate power lies with the Trustees. The Deed and Rules of the Morrison
Scheme gives the Trustees the power to set contributions, while in the Safeway Scheme and the RSP this power is given to the Group, subject
to regulatory override.
Settlement and curtailment gains in the 53 weeks ended 4 February 2018 include £8m relating to the settlement of retirement benefits resulting
from actions taken to further de-risk the Group’s pension schemes.
8.3 Scheme assets
Assets of the Schemes generate returns and ultimately cash that is used to satisfy the Schemes’ obligations. They are not necessarily intended
to be realised in the short term. The Trustees of each Scheme invest in different categories of asset and with different allocations amongst those
categories, according to the investment principles of that Scheme.
Currently, the investment strategy of the CARE Schemes is to maintain a balance of growth assets (equities and diversified growth funds), income
assets (comprising credit investments, corporate bonds and absolute return bonds) and protection assets (comprising a liability driven investment
(LDI) portfolio and the two annuity policies), with a weighting towards protection assets. There are no direct investments in the parent Company’s
own shares or property occupied by any member of the Group.
Fair value of Scheme assets:
Equities (quoted)
Corporate bonds (quoted)
Diversified growth funds (quoted)
Credit funds (unquoted)
Liability driven investments (unquoted)
Annuity policies (unquoted)
Cash (quoted)
2019
CARE
£m
507
442
120
444
2,264
665
29
4,471
2019
RSP
£m
135
–
76
–
137
–
1
349
2018
CARE
£m
562
375
573
468
2,189
336
39
4,542
2018
RSP
£m
130
–
82
–
102
–
1
315
Liability driven investments
Part of the investment objective of the Schemes is to minimise fluctuations in the Schemes’ funding levels due to changes in the value of
the liabilities. This is primarily achieved through the use of LDI, whose main goal is to align movements in the value of assets with movements
in the Schemes’ liabilities arising from changes in market conditions. The Schemes have hedging that broadly covers interest rate movements
and inflation movements, as measured on the Trustees’ funding assumptions which use a discount rate derived from gilt yields.
LDI primarily involves the use of government bonds (including re-purchase agreements). Derivatives such as interest rate and inflation swaps
are also used. There are no annuities or longevity swaps.
The value of the LDI assets is determined based on the latest market bid price for the underlying investments, which are traded daily on
liquid markets.
Annuity policies
During the 52 weeks ended 3 February 2019, the Safeway Scheme entered into a buy-in policy that provides insurance for a proportion of the
pensioner population. This in addition to a buy-in policy entered into by the Safeway Scheme in 53 weeks ended 4 February 2018. The policy
pays an income to the Scheme that is exactly equal to the benefits paid to the insured population. This has removed all investment, interest rate,
inflation and longevity risks in respect of these members.
The value of the annuity is determined using the disclosed assumptions used for valuing the benefits of the Schemes and is equal to the
accounting liabilities of the insured pensioner population.
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 8 Pensions continued
8.3 Scheme assets continued
Diversified growth funds
The Schemes employ diversified growth funds in order to reduce their exposure to equity markets. These funds typically invest in a range
of public and private market assets, including equities, bonds, commodities, property and other assets.
Credit funds
The Schemes invest in credit funds in order to improve returns available from their bond assets. These funds typically lend directly to
corporations on a senior secured basis, rather than purchasing debt issued in the public markets.
The credit funds invest in a portfolio of different debt instruments and their value is equal to the value of the component assets. For high yield
debt, the value is based on the latest available market price. For senior debt and private credit, where no such market price exists, the value is
taken either at par value or by determining a fair enterprise value using a variety of techniques. For real-estate related investments, the value
is derived from market comparables or third party valuations.
The movement in the fair value of the Schemes’ assets over the period was as follows:
Fair value of scheme assets at start of period
Interest income
Return on scheme assets excluding interest
Employer contributions
Employee contributions
Settlement and curtailment
Benefits paid
Administrative expenses
Fair value of scheme assets at end of period
2019
CARE
£m
4,542
124
(53)
7
–
–
(147)
(2)
4,471
2019
RSP
£m
315
9
(6)
49
3
–
(20)
(1)
349
2018
CARE
£m
4,455
125
159
8
–
(37)
(165)
(3)
4,542
2018
RSP
£m
219
7
25
67
3
–
(5)
(1)
315
Scottish Limited Partnership
The Group has previously entered into a pension funding partnership structure. In January 2013, Wm Morrison Supermarkets PLC made a
contribution to the CARE Schemes of £90m. On the same day, the CARE Schemes invested £90m in the Wm Morrison Property Partnership (SLP)
as a limited partner. The SLP holds properties which have been leased back to the Group in return for rental income payments. The Group retains
control over these properties, including the flexibility to substitute alternative properties.
As partners in the SLP, the CARE Schemes are entitled to receive a fixed distribution of £6.6m p.a. from the profits of the SLP for 20 years from
2013, subject to certain conditions. The distributions shared with the Schemes are reflected in the Group financial statements as employer
pension contributions.
In July 2015, the SLP was amended to enhance the security provided to the Schemes by including additional properties. The terms of these
additional properties are such that the CARE Schemes have no entitlement to receive a distribution.
The CARE Schemes’ interests in the SLP reduce the respective deficits on a funding basis, although the agreements do not affect the position
directly on an IAS 19 accounting basis because the investments held by the CARE Schemes do not qualify as scheme assets for IAS 19 purposes.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 8 Pensions continued
8.4 Present value of obligations
The movement in the defined benefit obligation over the period was as follows:
Defined benefit obligation at start of period
Current service cost
Past service cost (guaranteed minimum pension)
Interest expense
Actuarial gain – demographic assumptions
Actuarial gain – financial assumptions
Actuarial gain/(loss) – experience
Settlement and curtailment gain
Curtailment loss from closure of the pension scheme
Employee contributions
Benefits paid
Defined benefit obligation at end of period
2019
CARE
£m
(3,930)
–
(7)
(106)
123
30
–
2
–
–
147
(3,741)
2019
RSP
£m
(333)
(53)
–
(9)
–
3
3
–
(19)
(3)
20
(391)
2018
CARE
£m
(4,162)
–
–
(116)
–
136
–
47
–
–
165
(3,930)
2018
RSP
£m
(240)
(91)
–
(7)
–
4
(1)
–
–
(3)
5
(333)
The durations of the defined benefit obligations at the end of the 2019 reporting period are: RSP 19 years; Morrison CARE 26 years; Safeway CARE
24 years. The weighted average duration of all three Schemes is 24 years.
8.4.1 Significant actuarial assumptions
The following are the principal actuarial assumptions at the reporting date (expressed as weighted averages):
Financial assumptions
Discount rate applied to scheme liabilities (% p.a.)
Inflation assumption (RPI) (% p.a.)
Life expectancies
Longevity in years from age 65 for current pensioners
Male
Female
Longevity in years from age 65 for current members aged 45
Male
Female
2019
CARE
2.8%
3.2%
2019
CARE
22.0
23.3
23.7
25.2
2019
RSP
2.7%
3.2%
2019
RSP
n/a
n/a
n/a
n/a
2018
CARE
2.8%
3.3%
2018
CARE
22.4
23.9
24.6
26.3
2018
RSP
2.7%
3.3%
2018
RSP
n/a
n/a
n/a
n/a
During the 53 weeks ended 4 February 2018, the Group updated the methodology for deriving the discount rate assumption used in valuing
the pension scheme liabilities. This methodology has also been used in the IAS 19 valuation at 3 February 2019. The Group believes that this
approach better reflects expected yields on high quality corporate bonds over the duration of the Group’s pension schemes, as required by
IAS 19. The previous methodology estimated the discount rate with reference to both corporate bond and gilt yields. The updated method
uses high quality corporate bond yields where available. At very long durations, where there are no high quality corporate bonds, the yield
curve is extrapolated based on available corporate bond yields of mid to long duration.
Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The mortality
tables used for the 52 weeks ended 3 February 2019 are the S2PMA/S2PFA-Heavy tables (males/females) based on year of birth with a scaling
factor of 110%/100% applied to the mortality rates in the Morrison/Safeway Scheme respectively, with CMI 2017 projections and a long-term rate
of improvement of 1.5% p.a. For the 53 weeks ended 4 February 2018, the Group used the S2PMA/S2PFA-Heavy mortality tables (males/females)
based on year of birth with a scaling factor of 110%/100% applied to the mortality rates in the Morrison/Safeway Scheme respectively, with CMI
2015 projections and a long-term rate of improvement of 1.5% p.a.
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
8 Pensions continued
8.4 Present value of obligations continued
8.4.1 Significant actuarial assumptions continued
Related actuarial assumptions (expressed as weighted averages)
Rate of increases in salaries (% p.a.)
Rate of increase of pensions in payment: RPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.)
Pre-retirement revaluation for active members (% p.a.)
Rate of increase of pensions in deferment: CPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.)
CPI inflation (% p.a.)
2019
CARE
–
2.1%/3.1%
–
–/2.1%
2.1%
2019
RSP
–
–
–
2.1%/–
2.1%
2018
CARE
–
2.1%/3.1%
–
–/2.2%
2.2%
2018
RSP
2.2%
–
1.8%
2.2%/–
2.2%
8.4.2 Sensitivity analysis on significant actuarial assumptions
The following table summarises the impact on the defined benefit obligation at the end of the reporting period if each of the significant actuarial
assumptions listed above were changed, in isolation, assuming no other changes in market conditions at the accounting date. In practice any
movement in assumptions could be accompanied by a partially offsetting change in asset values, and the corresponding overall impact on the net
asset/(liability) is therefore likely to be lower than the amounts below in a number of scenarios. Extrapolation of the sensitivities shown may not
be appropriate.
Discount rate applied to Scheme obligations
Inflation assumption (RPI and associated assumptions)
Longevity
+/– 0.1% p.a.
+/– 0.1% p.a.
+/– one year
2019
CARE
£m
–/+90
+/–80
+155
2019
RSP
£m
–/+7
+/–7
–
2018
CARE
£m
–/+95
+/–85
+170
2018
RSP
£m
–/+7
+/–3
–
8.5 Funding
The Morrison Scheme is entirely funded by the parent Company and the Safeway Scheme is funded by Safeway Limited and its subsidiaries.
The parent Company and its subsidiaries participated in the RSP until its closure. There is no contractual agreement or stated policy for charging
the net defined benefit cost between the parent Company and its subsidiaries. The contribution of each participating subsidiary to the RSP was
calculated in proportion to the number of employees that are members of the RSP.
The latest full actuarial valuations were carried out as at 1 April 2016 for the Safeway Scheme and 5 April 2016 for the Morrison Scheme and the
RSP. The valuations indicated that, on the agreed funding basis, the Safeway, Morrison and RSP Schemes had surpluses of £100m, £1m and £10m
respectively. As a result of these funding positions there are currently no deficit contributions payable. As such there is no ‘minimum funding
requirement’ in force.
The results of the 2016 actuarial valuations for the CARE Schemes have been used and updated for IAS 19 ‘Employee benefits’ purposes for the
period to 3 February 2019 by a qualified independent actuary. For the RSP an actuarial valuation for the purposes of IAS 19, based on member data
as at 31 December 2017, has been completed and updated to 3 February 2019 by a qualified independent actuary. The Schemes expose the Group
to inflation risk, interest rate risk and market investment risk. In addition, the CARE Schemes expose the Group to longevity risk.
At 3 February 2019, schemes in surplus have been disclosed within the assets on the balance sheet. The Group obtained legal advice with regard
to the recognition of a pension surplus and also recognition of a minimum funding requirement under IFRIC 14 ‘IAS 19 – The limit on a defined
benefit asset, minimum funding requirement and their interaction’. This advice concluded that recognition of a surplus is appropriate on the basis
that the Group has an unconditional right to a refund of a surplus. In respect of the RSP this is on the basis that paragraph 11(a) of IFRIC 14 applies,
enabling a refund of surplus during the life of the RSP. In respect of the Morrison Scheme, it is on the basis that paragraph 11(b) or 11(c) of IFRIC 14
applies enabling a refund of surplus assuming the gradual settlement of the scheme liabilities over time until all members have left the scheme or
the full settlement of the Scheme’s liabilities in a single event (i.e. as a scheme wind up). In respect of the Safeway Scheme, a refund is available on
the basis that paragraph 11(b) of IFRIC 14 applies. Amendments to the current version of IFRIC 14 are currently being considered. The legal advice
received by the Group has concluded that the above accounting treatment should not be affected by the current exposure draft of the revised
wording to IFRIC 14.
The current best estimate of Group contributions to be paid to the defined benefit schemes for the accounting period commencing 4 February
2019 is £7m (2018: £73m). This estimate includes amounts payable from the SLP and salary sacrificed contributions from employees.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 8 Pensions continued
8.6 Closure of the RSP
Following the conclusion of a consultation process, the Group announced the closure of the Group’s RSP to future accrual in September 2018.
This resulted in an exceptional curtailment charge of £19m recognised in 52 weeks ended 3 February 2019 (2018: £nil).
8.7 Guaranteed minimum pension
On 26 October 2018, the High Court issued a judgement in a claim involving Lloyds Banking Group’s defined benefit pension schemes.
This judgement concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum
pension benefits. The issues determined by the judgement have a potential consequence for many other defined benefit pension schemes and
are likely to result in an increase in the liabilities of the Morrison and Safeway Schemes. The Group has worked with the Trustees of the schemes
and independent actuaries and estimated the cost of equalising benefits at £7m. This cost has been recognised in the consolidated income
statement as an exceptional item in the 52 weeks ended 3 February 2019 (2018: £nil). Any subsequent changes to this amount in future periods
will be treated as a change in actuarial assumption, and as such will be recognised in other comprehensive income.
8.8 Defined contribution scheme
The Group opened a defined contribution pension scheme called the Morrisons Personal Retirement Scheme (MPRS) for colleagues during the
53 weeks ended 4 February 2018. The MPRS became the auto enrolment scheme for the Group and as such the Group was liable for backdated
contributions for eligible employees to 1 October 2012. This was paid in January 2018. The pension scheme set-up credit of £13m recognised in the
53 weeks ended 4 February 2018 as an exceptional item (see note 1.4), relates to the cost of back dated contributions in respect of this new defined
contribution scheme. The credit represents the difference between the expected back dated contributions previously accrued for and the cost
based on actual participation rates.
As the MPRS is a defined contribution scheme, the Group is not subject to the same investment, interest rate, inflation or longevity risks as it is
for the defined benefit schemes. The benefits that employees receive are dependent on the contributions paid, investment returns and the form
of benefit chosen at retirement. During the 52 weeks ended 3 February 2019, the Group paid contributions of £28m to the MPRS (2018: £4m), and
expects to contribute £79m for the following period (2018: £23m).
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Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information 9 Share-based payments
9.1 Accounting policy
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 share options is measured by use of the Black-Scholes 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 charge in the period
for share-based payments was £34m (2018: £33m).
9.2 Share save schemes
All employees (including Executive Directors) are eligible for the Share save schemes once the necessary service requirements have been met.
The scheme allows participants to save up to a maximum of £350 each month for a period of three years. Options are offered at a discount 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 subject only to service conditions.
The fair value of options granted, and the inputs used to determine it are as follows:
Grant date
Share price at grant date
Fair value of options granted
Exercise price
Dividend yield
Annual risk free interest rate
Expected volatility1
1 The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the past 3.37 years prior to the date of grant.
16 May 2016
£1.91
£5.1m
£1.70
2.62%
0.87%
26.8%
17 May 2018
£2.55
£13.2m
£1.87
3.96%
0.56%
24.9%
17 May 2017
£2.44
£16.5m
£1.84
2.08%
0.30%
28.1%
19 May 2015
£1.81
£4.8m
£1.64
5.15%
1.06%
22.7%
The requirement that the employee has to save in order to purchase shares under the Share save plan is a non-vesting condition. This feature has
been incorporated into the fair value at grant date by applying a discount to the valuation obtained from the Black-Scholes option pricing model.
The discount is determined by estimating the probability that the employee will stop saving based on expected future trends in the share price
and employee behaviour.
Movement in outstanding options
Outstanding at start of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
2019
Options
thousands
44,676
22,166
(12,441)
(6,831)
47,570
14
Weighted average
exercise price in
£ per share
1.66
1.84
1.64
1.73
1.75
1.64
Weighted average
exercise price in
£ per share
1.75
1.87
1.64
1.82
1.83
1.64
2019
Share options exercised in the financial period
Weighted average
share price at date
of exercise
£
2.51
Weighted average
option price at date
of exercise
£
1.64
Number of
shares
thousands
12,441
Weighted average
share price at date
of exercise
£
2.40
Weighted average
option price at date
of exercise
£
1.64
Share options outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual life
2019
£1.64 to £1.87
1.64 years
2018
Options
thousands
46,765
24,257
(20,279)
(6,067)
44,676
21
2018
Number of
shares
thousands
20,279
2018
£1.64 to £1.84
1.61 years
108
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019
9 Share-based payments continued
9.3 Long Term Incentive Plans (LTIPs)
The LTIP awards have no exercise price and accrue the value of dividends over the vesting period with the exception of senior employees within
the schemes granted in 2016.
LTIP grants issued between 2013 and 2016 had associated performance conditions for Executive Committee members, whilst other senior
employees eligible for LTIPs had to satisfy a service condition only. The LTIP schemes granted since 2016 have service and performance conditions
for all employees. The performance conditions associated with all awards are measured through adjusted free cash flow, sales and earnings per
share performance.
Awards normally vest three years after the original grant date, provided the relevant service and performance criteria have been met. The fair
value of awards granted and the inputs used to determined it are as follows:
Grant date
Option fair value at grant date
Fair value of share awards
18 Sept
2018
£2.62
£0.9m
22 March
2018
£2.09
£27.3m
24 Oct
2017
£2.34
£2.0m
22 March
2017
£2.37
£29.4m
25 Oct
2016
£2.28
£9.2m
13 May
2016
£1.90
£1.9m
06 Apr
2016
£2.00
£73.6m
01 Oct
2015
£1.74
£1.8m
23 Apr
2015
£1.97
£5.3m
Movement in outstanding share awards
Outstanding at start of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
2019
Share awards
thousands
2018
Share awards
thousands
47,967
13,386
(3,474)
(3,711)
54,168
–
46,482
13,253
(4,415)
(7,353)
47,967
–
The weighted average remaining contractual life of the share awards is 0.9 years (2018: 1.45 years).
9.4 One-off share awards
As part of the package for certain senior management, restricted share awards may be granted. These are primarily designed to replace the value
of share scheme awards forfeited from the previous employer. Vesting of these awards is subject only to service conditions.
The share price at grant date of 10 July 2015 was £1.72 and the fair value of awards granted was £0.1m. There were no share awards outstanding as at
3 February 2019 as all awards were exercised during the period (2018: 46,000). The weighted average remaining contractual life of the share awards
is nil years (2018: 0.39 years).
9.5 Deferred share bonus plan
Certain members of senior management participate in the deferred share bonus plan under which 50% of any bonus payable is deferred in shares
for three years from the date the deferred share award is made. Dividend equivalents accrue over the vesting period, to be paid when the shares
vest. Vesting of these share awards is subject only to service conditions.
The fair value of awards granted and the inputs used to determine it:
Grant date
Share price at grant date
Exercise price
Fair value of share awards granted
Movement in outstanding share awards
Outstanding at start of period
Granted
Exercised
Outstanding at end of period
The weighted average remaining contractual life of the share awards is 1.25 years (2018: 1.52 years).
109
2018/19 scheme
£2.09
£nil
£2.8m
2017/18 scheme
£2.35
£nil
£2.9m
2019
Share awards
thousands
2018
Share awards
thousands
2,491
1,355
(297)
3,549
1,360
1,247
(116)
2,491
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
10 Other
10.1 Related party transactions
The Group’s related party transactions in the period include the remuneration of the senior managers (see note 1.7), and the Directors’
emoluments and pension entitlements, share awards and share options as disclosed in the audited section of the Directors’ remuneration report,
which forms part of these financial statements.
During the 52 weeks ended 3 February 2019, the Group received a dividend of £7m (2018: £8m) from MHE JVCo Limited. The Group has a 51.1%
interest in MHE JVCo Limited (see note 4.2).
10.2 Guarantees and contingent liabilities
Following the disposal of the land and building of its customer fulfilment centre at Dordon to a third party, the Group continues to guarantee the
lease in respect of this site. If the lessee were to default, their lease obligations could revert back to the Group under the terms of the guarantee
and become a liability of the Group. Should the lessee default, the additional future commitment is estimated at up to £31m (2018: £32m).
The Group has an ongoing legal case brought by a number of current and former colleagues relating to employee data theft in the 52 weeks
ended 1 February 2015. In December 2017, the High Court concluded that the Group was liable for the actions of the former employee who
conducted the data theft. The Group launched an appeal to this judgement and the High Court has confirmed that there will be no hearings on
the level of compensation until the appeals have been concluded. During the 52 weeks ended 3 February 2019 the High Court rejected this appeal
and the Group is now appealing to the Supreme Court. It is the Directors’ view that at this stage of the process the Group can not reliably assess
the outcome of the case nor reasonably estimate the quantum of any loss and as such no provision has been recognised in these consolidated
financial statements.
110
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Notes to the Group financial statements continued52 weeks ended 3 February 2019 Wm Morrison Supermarkets PLC
Company balance sheet
3 February 2019
Fixed assets
Intangible assets
Property, plant and equipment
Investment property
Investments
Investment in joint venture
Current assets
Stock
Debtors
Pension asset due after more than one year
Derivative financial assets due within one year
Derivative financial assets due after more than one year
Cash and cash equivalents
Creditors – amounts falling due within one year
Derivative financial liabilities due within one year
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Derivative financial liabilities due after more than one year
Pension liabilities due after more than one year
Deferred tax liabilities
Provisions for liabilities
Net assets
Note
11.6
11.7
11.8
11.9
11.10
11.16
11.13
11.13
11.11
11.13
11.12
11.13
11.16
11.14
11.15
2019
£m
384
2,355
15
6
67
2,827
447
5,937
284
19
15
169
6,871
(3,758)
(5)
3,108
5,935
(1,198)
(2)
(42)
(145)
(313)
(1,700)
4,235
2018
£m
411
2,197
10
–
67
2,685
422
5,901
230
15
16
229
6,813
(3,090)
(13)
3,710
6,395
(1,375)
(1)
(18)
(143)
(250)
(1,787)
4,608
Shareholders’ equity
Share capital
Share premium
Capital redemption reserve
Merger reserve
Retained earnings and other reserves1
Total shareholders’ funds
1 Included within Retained earnings and other reserves is loss after tax of £155m (2018: profit of £186m). After adjusting for exceptionals, profit before exceptionals after tax is £7m (2018: £184m).
237
178
39
1,202
2,579
4,235
236
159
39
1,604
2,570
4,608
11.18
11.18
11.18
11.17
11.17
The accounting policies on pages 113 to 115 and the notes on pages 116 to 126 form part of these financial statements.
The financial statements on pages 111 to 126 were approved by the Board of Directors and authorised for issue on 12 March 2019. They were signed
on its behalf by:
Trevor Strain
Chief Finance and Commercial Officer
111
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Wm Morrison Supermarkets PLC
Company statement of changes in equity
52 weeks ended 3 February 2019
Current period
At 5 February 2018
Loss for the period
Other comprehensive income/(expense):
Cash flow hedging movement
Remeasurement of defined benefit
pension schemes
Tax in relation to components of other
comprehensive income
Total comprehensive income/(expense) for the period
Purchase of trust shares
Employee share option schemes:
Share-based payments charge
Settlement of share awards
Share options exercised
Dividends
Realisation of merger reserve
Total transactions with owners
At 3 February 2019
Prior period
At 30 January 2017
Profit for the period
Other comprehensive (expense)/income:
Cash flow hedging movement
Items reclassified from hedging reserve in relation
to repayment of borrowings
Remeasurement of defined benefit
pension schemes
Tax in relation to components of other
comprehensive income
Total comprehensive (expense)/income for the period
Purchase of trust shares
Employee share option schemes:
Share-based payments charge
Settlement of share awards
Share options exercised
Dividends
Realisation of merger reserve
Total transactions with owners
At 4 February 2018
Note
11.16
11.14
6.5
11.5
6.5
6.5
1.8
11.18
Note
11.16
11.14
6.5
11.5
6.5
6.5
1.8
11.18
Share
capital
£m
236
–
–
–
–
–
–
–
–
1
–
–
1
237
Share
capital
£m
234
–
–
–
–
–
–
–
–
–
2
–
–
2
236
Share
premium
£m
Capital
redemption
reserve
£m
159
–
–
–
–
–
–
–
–
19
–
–
19
178
39
–
–
–
–
–
–
–
–
–
–
–
–
39
Share
premium
£m
Capital
redemption
reserve
£m
128
–
–
–
–
–
–
–
–
–
31
–
–
31
159
39
–
–
–
–
–
–
–
–
–
–
–
–
–
39
Attributable to the owners of the Company
Hedging
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
2
–
9
–
(1)
8
–
–
–
–
–
–
–
10
2,568
(155)
4,608
(155)
–
49
(8)
(114)
(9)
16
(5)
–
(289)
402
115
2,569
9
49
(9)
(106)
(9)
16
(5)
20
(289)
–
(267)
4,235
Attributable to the owners of the Company
Hedging
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
11
–
(11)
(2)
–
4
(9)
–
–
–
–
–
–
–
2
1,419
186
–
–
127
(31)
282
(4)
33
(7)
–
(129)
974
867
2,568
4,409
186
(11)
(2)
127
(27)
273
(4)
33
(7)
33
(129)
–
(74)
4,608
Merger
reserve
£m
1,604
–
–
–
–
–
–
–
–
–
–
(402)
(402)
1,202
Merger
reserve
£m
2,578
–
–
–
–
–
–
–
–
–
–
–
(974)
(974)
1,604
The accounting policies on pages 113 to 115 and the notes on pages 116 to 126 form part of these financial statements.
112
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Wm Morrison Supermarkets PLC
Company accounting policies
52 weeks ended 3 February 2019
11 Company financial statements
11.1 General information
The principal activity of Wm Morrison Supermarkets PLC (the ‘Company’) is the operation of retail supermarket stores under the Morrisons brand
and associated activities. The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is Hilmore
House, Gain Lane, Bradford, BD3 7DL, United Kingdom.
11.2 Basis of preparation
The financial statements have been prepared for the 52 weeks ended 3 February 2019 (2018: 53 weeks ended 4 February 2018). These separate
financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(FRS 101) and the Companies Act 2006 (‘the Act’). FRS 101 sets out a reduced disclosure framework for a ‘qualifying entity’ as defined in the standard
which addresses the financial reporting requirements and disclosure exemptions in the individual financial statements of qualifying entities that
otherwise apply the recognition, measurement and disclosure requirements of EU-adopted IFRS.
The Company is a qualifying entity for the purposes of FRS 101 as it is a member of a group which prepares publicly available consolidated financial
statements and it is included in the consolidation for that group.
The disclosure exemptions adopted by the Company in preparation of these financial statements in accordance with FRS 101 are as follows:
a) IFRS 2 ‘Share-based payment’ (paragraphs 45(b) and 46 to 52) – details of the number and weighted-average exercise prices of share options,
and how the fair value of goods or services received was determined;
b) IFRS 7 ‘Financial Instruments: Disclosures’;
c) IFRS 13 ‘Fair value measurement’ (paragraphs 91 to 99) – disclosure of valuation techniques and inputs used for fair value measurement of assets
and liabilities;
d) IAS 1 ‘Presentation of financial statements’ (paragraph 38) – comparative information requirements in respect of:
(i) paragraph 79(a)(iv) of IAS 1;
(ii) paragraph 73(e) of IAS 16 ‘Property, plant and equipment’;
(iii) paragraph 118(e) of IAS 38 ‘Intangible assets’ – reconciliations between the carrying amount at the beginning and end of the period; and
(iv) paragraph 76 and 79(d) of IAS 40 ‘Investment property’;
e) The following paragraphs of IAS 1 ‘Presentation of financial statements’:
(i) 10(d), (statement of cash flows);
(ii) 111 (cash flow statement information); and
(iii) 134-136 (capital management disclosures);
f) IAS 7 ‘Statement of cash flows’;
g) IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (paragraph 30 and 31) – requirement for the disclosure of information
when an entity has not applied a new IFRS that has been issued but is not yet effective;
h) The following requirements of IAS 24 ‘Related party disclosures’:
(i) paragraph 17 – key management compensation; and
(ii) the requirements to disclose related party transactions entered into with two or more wholly owned members of a group.
In addition to the FRS 101 exemptions above, the Company has taken advantage of the exemption available under section 408 of the Act and not
presented a profit and loss account for the Company.
The financial statements have been prepared on a going concern basis under the historical cost convention except as disclosed in the Summary
of accounting policies in note 11.3. The Company’s accounting policies have, unless otherwise stated, been applied consistently to all periods
presented in these financial statements.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are the same for the Company
as they are for the Group. For further details, see page 73 in the Group financial statements.
113
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Wm Morrison Supermarkets PLC
Company accounting policies continued
52 weeks ended 3 February 2019
11 Company financial statements continued
11.2 Basis of preparation continued
New accounting standards, amendments and interpretations adopted by the Company
The following new standards, interpretations and amendments to standards are mandatory for the first time for the 52 weeks ended
3 February 2019:
• IFRS 9 ‘Financial Instruments’;
• IFRS 15 ‘Revenue from Contracts with Customers’;
• IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’;
Amendments to the following standards:
• IAS 40 ‘Transfers of Investment Property’;
• IFRS 2 ‘Classification and Measurement of Share-based Payment Transactions’;
• IFRS 4 ‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’;
• Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’; and
• Improvements to IFRSs (2014-2016).
The Company has considered the above new standards, and amendments to published standards and has concluded that, except for IFRS 9
and IFRS 15, they are either not relevant to the Company or they do not have a significant impact on the Company’s financial statements.
Although IFRS 9 and IFRS 15 are relevant to the Company for the 52 weeks ended 3 February 2019, the Directors have concluded that both new
standards do not have a material impact on the financial statements of the Company. For more details on this assessment and the conclusions
made by the Directors, see pages 70 to 71 in the consolidated financial statements.
Accounting reference date
The accounting period of the Company ends on the Sunday falling between 29 January and 4 February each year.
114
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 11 Company financial statements continued
11.3 Summary of accounting policies
The accounting policies listed below are the same for the Company as for the Group. As such, for further detail see the following notes:
a) Revenue recognition (1.1);
b) Cost of sales (1.1);
c) Promotional funding and commercial income (1.1);
d) Other operating income (1.1);
e) Taxation (2.1);
f) Intangible assets (3.1);
g) Property, plant and equipment (3.1);
h) Investment property (3.1);
i)
Impairment of non-financial assets (3.1);
j) Lessor accounting – operating leases (3.1);
k) Finance leases (3.1);
l) Stock (5.1);
m) Trade and other debtors (5.1);
n) Cash and cash equivalents (5.1);
o) Trade and other creditors (5.1);
p) Provisions (5.1);
q) Borrowings and borrowing costs (6.1);
r) Leases (6.1);
s) Sale and leaseback (6.1);
t) Share capital (6.1);
u) Derivative financial instruments and hedge accounting (7.1);
v) Pensions (8.1); and
w) Share-based payments (9.1).
The following accounting policies are those policies which are specific, and which deal with items considered material, in relation to the
Company’s financial statements.
Investments
Investments in subsidiary undertakings and joint ventures are stated at cost less provision for impairment.
All other equity instruments are held for long-term investment and are measured at fair value. Gains or losses arising from changes in the fair value
are presented in the profit and loss account within finance income or expenses in the period they arise.
Impairment losses or reversals of previous impairment losses are presented in the profit and loss account in the period they arise.
Amounts owed to/by Group undertakings
Amounts owed to/by Group undertakings are initially recorded at fair value, which is generally the proceeds received. They are subsequently
carried at amortised cost. The amounts are non-interest bearing and repayable on demand.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or non-occurrence of uncertain future
events outside the Company’s control, or present obligations that are not recognised because it is not probable that an outflow of economic
benefits will be required to settle the obligation or the amount cannot be measured reliably. The Company does not recognise contingent
liabilities but does disclose any such balances (see note 11.21). The disclosure includes an estimate of their potential financial effect and any
uncertainties relating to the amount or timing of any outflow, unless the possibility of settlement is remote.
Financial guarantees
Where the Company enters into financial contracts to guarantee the indebtedness 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.
115
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Notes to the Company financial statements
52 weeks ended 3 February 2019
11 Company financial statements continued
11.4 Profit and loss account
The loss after tax for the Company for the 52 weeks ended 3 February 2019 was £155m (2018: Profit after tax of £186m). After adjusting for
exceptionals, profit before exceptionals after tax is £7m (2018: £184m). The profit before exceptionals after tax in the 52 weeks ended 3 February
2019 includes dividends received from subsidiary undertakings of £nil (2018: £150m).
Employee benefit expense for the Company during the period
Wages and salaries
Social security costs
Share-based payments
Other pensions costs
2019
£m
863
70
16
50
999
2018
£m
873
72
33
51
1,029
The average monthly number of people, including Directors, employed by the Company is 52,078 (2018: 52,284).
The Company’s auditor, PricewaterhouseCoopers LLP charged £0.5m (2018: £0.5m) for audit services in the year, £nil (2018: £nil) for services related
to taxation and £0.2m (2018: £0.2m) for other services.
11.5 Share-based payments
The Company issues equity-settled share-based payments to certain employees in exchange for services rendered by them. These awards are
issued by the Company to employees of other Group companies and during the year these have been cross-charged to the relevant company.
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 share options is measured by use of the Black-Scholes 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 charge in the period for share-based payments was £16m (2018: £33m).
Further details of the Company’s share schemes are disclosed in note 9, including:
a) a description of the type of share-based payment arrangements that existed during the reporting period, including general terms and
conditions, maximum terms of options granted, and the method of entitlement;
b) weighted average share price information in respect of options exercised during the reporting period; and
c) the range of exercise prices and weighted average remaining contractual life of share options outstanding at the end of the reporting period.
11.6 Intangible assets
Cost
At 5 February 2018
Additions
Interest capitalised
Disposals
Fully written down assets
At 3 February 2019
Accumulated amortisation and impairment
At 5 February 2018
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 3 February 2019
Net book amount at 3 February 2019
116
Other intangibles
£m
703
74
1
(18)
(34)
726
292
91
11
(18)
(34)
342
384
Total
£m
703
74
1
(18)
(34)
726
292
91
11
(18)
(34)
342
384
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
11 Company financial statements continued
11.6 Intangible assets continued
Other intangibles include software development costs and licences. Within this asset class, there are assets under construction of £30m
(2018: £20m). The net book amount of licences at 3 February 2019 totals £14m (2018: £12m).
The Company has performed its annual assessment of its amortisation policies and asset lives and deemed them to be appropriate. As in
previous years, fully amortised assets have been retained in the Company’s fixed asset register. In order to provide greater understanding of
the Company’s annual amortisation charge, assets which have become fully amortised in the year have been removed from both cost and
accumulated amortisation.
Following the annual impairment review, an impairment charge of £11m (2018: £1m) has been recognised in relation to intangible assets.
The cost of financing asset developments prior to them being ready for use has been included in the cost of the project. The cumulative amount
of interest capitalised in the total cost above amounts to £42m (2018: £41m). Interest is capitalised at the effective interest rate of 5% (2018: 5%)
incurred on borrowings.
11.7 Property, plant and equipment
Cost
At 5 February 2018
Additions
Reclassifications
Transfers from other Group companies
Disposals
Fully written down assets
At 3 February 2019
Accumulated depreciation and impairment
At 5 February 2018
Depreciation charge for the period
Impairment
Impairment reversal
Reclassifications
Transfers from other Group companies
Disposals
Fully written down assets
At 3 February 2019
Net book amount at 3 February 2019
Freehold
land
£m
Freehold
buildings
£m
Leasehold
land and
buildings
£m
Plant,
equipment,
fixtures and vehicles
£m
839
30
(2)
17
(11)
–
873
174
–
1
(16)
–
–
(7)
–
152
721
1,474
72
(2)
12
(13)
–
1,543
691
45
3
(17)
–
5
(9)
–
718
825
636
13
9
23
(5)
(12)
664
357
14
13
(22)
1
21
(4)
(12)
368
296
903
197
(5)
56
(22)
(140)
989
433
134
36
(3)
(1)
39
(22)
(140)
476
513
Total
£m
3,852
312
–
108
(51)
(152)
4,069
1,655
193
53
(58)
–
65
(42)
(152)
1,714
2,355
The Company has performed its annual assessment of its depreciation policies and asset lives and deemed them to be appropriate. There have
been no changes made to asset category lives during the year. As in previous years, fully depreciated assets have been retained in the Company’s
fixed asset register. In order to provide greater understanding of the Company’s annual depreciation charge, assets which have become fully
depreciated in the year have been removed from both cost and accumulated depreciation.
Included in the table above is a cost of £873m (2018: £839m) relating to non-depreciable land and £3m (2018: £15m) of assets under construction.
The cost of assets held under finance leases at 3 February 2019 is £267m (2018: £334m), with related accumulated depreciation of £135m
(2018: £162m).
The cost of financing asset developments prior to them being ready for use has been included in the cost of the project. The cumulative amount
of interest capitalised in the total cost above amounts to £73m (2018: £73m). Interest is capitalised at the effective interest rate of 5% (2018: 5%)
incurred on borrowings.
Included within additions in the 52 weeks ended 3 February 2019 is £121m relating to assets which were previously subject to intra-group leasing
arrangements, which had been dissolved and full ownership reverted to the Company. Included within deprecation is £27m relating to the period
since the leases were dissolved.
117
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Notes to the Company financial statements continued
52 weeks ended 3 February 2019
11 Company financial statements continued
11.7 Property, plant and equipment continued
The Company considers that each store is a separate cash generating unit (CGU) and therefore considers every store for an indication of
impairment annually. The Company calculates each store’s recoverable amount and compares this amount to its book value. The recoverable
amount is determined as the higher of ‘value in use’ and ‘fair value less costs of disposal’. If the recoverable amount is less than the book value,
an impairment charge is recognised. The methodology applied by the Company is the same methodology as applied by the Group, see note 3.3
for further details.
Having applied the methodology and assumptions, the Company has recognised a net impairment reversal of £5m (£58m impairment reversal
offset by £53m impairment charge) during the year in respect of property, plant and equipment (2018: net £17m impairment reversal; £62m
impairment reversal offset by £45m impairment charge). This movement reflects fluctuations from store level trading performance and local
market conditions.
At 3 February 2019, the assumptions to which the value in use calculation is most sensitive to are the discount and growth rates. The Company
as estimated a change of +/- 1% in either would result in a change in impairment of c.£30m.
11.8 Investment property
Cost
At 5 February 2018
Transfers from other Group companies
At 3 February 2019
Accumulated depreciation and impairment
At 3 February 2019 and at 5 February 2018
Net book amount at 3 February 2019
Total
£m
20
5
25
10
15
Included in other operating income is £4m (2018: £3m) of rental income generated from investment properties. At the end of the period the fair
value of investment properties was £18m (2018: £17m). Investment properties are valued by independent surveyors on a vacant possession basis
using observable inputs (fair value hierarchy level 2).
11.9 Investments
Net book amount
At start of period
Additions
Disposals
At end of period
2019
£m
–
6
–
6
2018
£m
3,439
–
(3,439)
–
On 19 February 2018, the Company acquired 100% of the ordinary share capital of Chippindale Foods Limited, a leading supplier of free range eggs.
Total consideration was £6m.
During the 53 weeks ended 4 February 2018, the Company disposed of investments with a net book amount of £3,439m after an internal
restructuring exercise undertaken by the Group. As part of this exercise, the Company sold certain investments it held in its subsidiaries to
Wm Morrison Supermarkets Holdings Limited, a fellow group subsidiary, for consideration of £3,439m. No further disposals have taken place
in the 52 weeks ended 3 February 2019.
After the internal restructuring exercise undertaken by the Group in the 53 weeks ended 4 February 2018, the Company continues to hold
investments in other related undertakings, which in aggregate are less than £1m as at 3 February 2019. The Directors believe that the carrying value
of these investments is supported by their underlying net assets. A list of all of the Company’s related undertakings at the balance sheet date is
shown on page 127.
118
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
11 Company financial statements continued
11.10 Debtors – amounts falling due within one year
Trade debtors
Amounts owed by Group undertakings
Current tax asset
Prepayments and accrued income
2019
£m
174
5,339
135
289
5,937
2018
£m
136
5,387
110
268
5,901
Prepayments includes £192m (2018: £176m) relating to amounts falling due after more than one year. Amounts owed by Group undertakings are
unsecured and repayable on demand.
Provision for impairment of amounts owed by Group undertakings have been assessed based on lifetime expected credit losses. As all balances
are repayable on demand, and the Company expects to be able to recover the outstanding intercompany balances if demanded, no provision has
been recognised in the 52 weeks ended 3 February 2019 (2018: £nil).
11.11 Creditors – amounts falling due within one year
Trade creditors
Other short-term borrowings
Amounts owed to Group undertakings
Other taxation and social security
Other creditors
Accruals and deferred income
2019
£m
2,220
178
821
94
105
340
3,758
2018
£m
2,088
–
420
75
115
392
3,090
Amounts owed to Group undertakings within one year are unsecured and repayable on demand.
The Company has a number of uncommitted facilities which are available to meet short-term borrowing requirements, and incur interest charges
according to usage.
11.12 Creditors – amounts falling due after more than one year
€280m euro bond 2.25% June 2020 (2018: €280m)
£250m sterling bonds 4.625% December 2023 (2018: £365m)
£250m sterling bonds 3.50% July 2026 (2018: £318m)
£250m sterling bonds 4.75% July 2029 (2018: £300m)
Revolving credit facility
Amounts owed to Group undertakings
2019
£m
247
249
272
245
97
88
1,198
2018
£m
247
363
342
293
–
130
1,375
The movements in the nominal value of the bonds are due to partial early repayment during the 52 weeks ended 3 February 2019. During the
period, the Company continued to reduce its level of debt, through the partial early settlement of the 2023, 2026 and 2029 sterling bonds.
The Company has a syndicated committed revolving credit facility of £1.35bn with a maturity date of June 2023. The revolving credit facility incurs
commitment fees and interest charges at a spread above LIBOR. The Company had £1.25bn of undrawn committed headroom available on this
facility as at 3 February 2019.
On 29 January 2019, the Company entered into a new £250m revolving credit facility to provide flexibility on refinancing the €280m euro bond
when it matures in June 2020. The Company can borrow under the facility from 19 May 2020. The facility has an initial maturity date of July 2020
and includes options to extend for up to 24 months.
In the event of default of covenants the principal amounts of borrowings and any interest accrued become repayable on demand.
Finance leases
Net obligations under finance leases of £88m (2018: £130m) are payable in two to five years, and are included in amounts owed to Group
undertakings in the table above.
119
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Notes to the Company financial statements continued
52 weeks ended 3 February 2019
11 Company financial statements continued
11.13 Derivative financial assets and liabilities
Assets due within one year
Foreign exchange forward contracts
Fuel and energy price contracts
Assets due after more than one year
Cross-currency interest rate swaps
Fuel and energy price contracts
Liabilities due within one year
Foreign exchange forward contracts
Fuel and energy price contracts
Liabilities due after more than one year
Fuel and energy price contracts
2019
£m
2018
£m
3
16
19
9
6
15
4
1
5
2
2
1
14
15
12
4
16
13
–
13
1
1
Further details of the derivative financial instruments are provided in note 7, including significant assumptions underlying the valuation; and fair
value and the amounts recognised in profit and loss.
11.14 Deferred tax liabilities
Deferred tax liability
Deferred tax asset
Net deferred tax liability
2019
£m
167
(22)
145
IAS 12 ‘Income taxes’ permits the offsetting of balances within the same tax jurisdiction. All of the deferred tax assets are available for offset
against deferred tax liabilities. The movements in deferred tax liabilities/(assets) during the period are shown below:
Current period
At 5 February 2018
Charged/(credited) to profit for the period
Charged to other comprehensive income and equity
At 3 February 2019
Prior period
At 30 January 2017
Credited to profit for the period
Charged to other comprehensive income and equity
At 4 February 2018
11.15 Provision for liabilities
At 5 February 2018
Charged to profit for the period
Utilised/released during the period
Unwinding of discount
At 3 February 2019
Property, plant and
equipment
£m
Pensions
£m
Other
short-term
temporary
differences
£m
124
2
–
126
131
(7)
–
124
36
(3)
8
41
17
(5)
24
36
(17)
(6)
1
(22)
(18)
(2)
3
(17)
Onerous leases and
onerous contracts
£m
243
74
(28)
11
300
Other property
provisions
£m
7
7
(1)
–
13
120
2018
£m
160
(17)
143
Total
£m
143
(7)
9
145
130
(14)
27
143
Total
£m
250
81
(29)
11
313
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
11 Company financial statements continued
11.15 Provision for liabilities continued
Part of the onerous leases relates to sublet and vacant properties, with commitments ranging from one to 55 years. Included with the above
balance at 3 February 2019 is £18m (2018: £nil) relating to a balance due within one year. The provision is revised regularly in response to market
conditions. During the period, £74m has been charged to onerous lease and onerous contracts provisions due to changes in circumstances
or performance relating to certain contracts.
The utilisation of provisions relates to the ongoing utilisation of onerous contracts and the assignment of onerous leases. Other property
provisions include a petrol filling station decommissioning reserve for the cost of decommissioning petrol tanks, and provisions for dilapidations
on leased buildings, for the cost of restoring assets to their original condition.
11.16 Pensions
11.16.1 Defined benefit schemes: summary and description
The Company operates two defined benefit retirement schemes (together ‘the Schemes’) providing benefits based on a benefit formula that
depends on factors including the employee’s age and number of years of service. The Morrison Scheme provides pension benefits based on
either the employee’s compensation package or career average revalued earnings (CARE) (the ‘CARE Scheme’). The CARE Scheme is no longer
open to new members and was closed to future accrual in July 2015. The Retirement Saver Plan (RSP) is a cash balance scheme, which provides
a lump sum benefit based upon a defined proportion of an employee’s annual earnings, which is revalued each year in line with inflation subject
to a cap. The RSP was open to colleagues across the Group with the applicable cost recharged to the relevant group company. The RSP was
closed to future accrual in September 2018 (see note 11.16.6).
The position of each scheme at the balance sheet date is as follows:
CARE Scheme
RSP
Net pension asset
Balance sheet:
Fair value of scheme assets
Present value of obligations
Net pension asset/(liability)
Income statement
Current service cost – recognised in cost of sales
Current service cost – recognised in administrative expenses
Past service cost (guaranteed minimum pension) (note 11.16.7)
Administrative costs paid by Schemes – recognised in administrative expenses
Settlement and curtailment gain
Curtailment loss from closure of the pension scheme (note 11.16.6)
Net interest on net pension asset – finance income
Total expense (credited)/charged to income statement
Statement of other comprehensive income:
Remeasurements in other comprehensive income – credit
2019
£m
284
(42)
242
2018
CARE
£m
1,249
(1,019)
230
2018
CARE
£m
–
–
–
1
(9)
–
(3)
(11)
(99)
2018
£m
230
(18)
212
2018
RSP
£m
315
(333)
(18)
2018
RSP
£m
60
31
–
1
–
–
–
92
(28)
2019
CARE
£m
1,261
(977)
284
2019
CARE
£m
–
–
2
1
–
–
(6)
(3)
(49)
2019
RSP
£m
349
(391)
(42)
2019
RSP
£m
35
18
–
1
–
19
–
73
–
The Schemes are registered schemes under the provisions of Schedule 36 of the Finance Act 2004 and the assets are held in legally separate,
trustee-administered funds. The Board of each Scheme is required by law to act in the best interests of the Scheme participants within the
context of administering the Scheme in accordance with the purpose for which the trust was created, and is responsible for setting the
investment, funding and governance policies of the fund. A representative of the Group attends Trustee Investment Committee meetings
in order to provide the Group’s view on investment strategy, but the ultimate power lies with the Trustees. The Deed and Rules of the Morrison
Scheme gives the Trustees the power to set contributions, while in the RSP this power is given to the Group, subject to regulatory override.
Settlement and curtailment gains in the 53 weeks ended 4 February 2018 include £8m relating to the settlement of retirement benefits resulting
from actions taken to further de-risk the Company’s pension schemes.
121
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Notes to the Company financial statements continued
52 weeks ended 3 February 2019
11 Company financial statements continued
11.16 Pensions continued
11.16.2 Scheme assets
Assets of the Schemes generate returns and ultimately cash that is used to satisfy the Schemes’ obligations. They are not necessarily intended
to be realised in the short term. The Trustees of each Scheme invest in different categories of asset and with different allocations amongst those
categories, according to the investment principles of that Scheme.
Currently, the investment strategy of the CARE Scheme is to maintain a balance of growth assets (equities and diversified growth funds), income
assets (comprising credit investments, corporate bonds and absolute return bonds) and protection assets (comprising a liability driven instruments
portfolio), with a weighting towards protection assets. There are no direct investments in the Group’s own shares or property occupied by any
member of the Group.
Fair value of Scheme assets:
Equities (quoted)
Corporate bonds (quoted)
Diversified growth funds (quoted)
Credit funds (unquoted)
Liability driven investments (unquoted)
Scottish Limited Partnership (unquoted)
Cash (quoted)
2019
CARE
£m
187
103
120
163
657
26
5
1,261
For definitions of liability driven investments, diversified growth funds and credit funds, see note 8.3.
The movement in the fair value of the Schemes’ assets over the period was as follows:
Fair value of scheme assets at start of period
Interest income
Return on scheme assets excluding interest
Employer contributions
Employee contributions
Settlement and curtailment
Benefits paid
Administrative expenses
Fair value of scheme assets at end of period
2019
CARE
£m
1,249
33
7
2
–
–
(29)
(1)
1,261
2019
RSP
£m
135
–
76
–
137
–
1
349
2019
RSP
£m
315
9
(6)
49
3
–
(20)
(1)
349
2018
CARE
£m
206
106
196
153
555
27
6
1,249
2018
CARE
£m
1,222
34
57
–
–
(37)
(26)
(1)
1,249
2018
RSP
£m
130
–
82
–
102
–
1
315
2018
RSP
£m
219
7
25
67
3
–
(5)
(1)
315
Scottish Limited Partnership
The Company has previously entered into a pension funding partnership structure. In January 2013, the Company made a contribution to the
CARE Scheme of £30m. On the same day, the CARE Scheme invested £30m in the Wm Morrison Property Partnership (SLP) as a limited partner.
The SLP holds properties which have been leased back to the Company in return for rental income payments. The Group retains control over
these properties, including the flexibility to substitute alternative properties.
As a partner in the SLP, the CARE Scheme is entitled to receive a fixed distribution of £2.2m p.a. from the profits of the SLP for 20 years from
2013, subject to certain conditions. In July 2015, the SLP was amended to enhance the security provided to the Schemes by including additional
properties. The terms of these additional properties are such that the CARE Scheme has no entitlement to receive a distribution.
The CARE Scheme’s interests in the SLP increases the net pension asset on an IAS 19 accounting basis because the investments held by the
CARE Scheme qualify as an asset for Company IAS 19 purposes.
122
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 11 Company financial statements continued
11.16 Pensions continued
11.16.3 Present value of obligations
The movement in the defined benefit obligation over the period was as follows:
Defined benefit obligation at start of period
Current service cost
Past service cost (guaranteed minimum pension)
Interest expense
Actuarial gain – demographic assumptions
Actuarial gain – financial assumptions
Actuarial gain/(loss) – experience
Settlement and curtailment gain
Curtailment loss from closure of the pension scheme (note 11.16.6)
Employee contributions
Benefits paid
Defined benefit obligation at end of period
2019
CARE
£m
(1,019)
–
(2)
(27)
31
11
–
–
–
–
29
(977)
2019
RSP
£m
(333)
(53)
–
(9)
–
3
3
–
(19)
(3)
20
(391)
2018
CARE
£m
(1,102)
–
–
(31)
–
42
–
46
–
–
26
(1,019)
2018
RSP
£m
(240)
(91)
–
(7)
–
4
(1)
–
–
(3)
5
(333)
The durations of the defined benefit obligations at the end of the 2019 reporting period are: RSP 19 years; CARE 26 years. The weighted average
duration of the Schemes is 24 years.
11.16.4 Significant actuarial assumptions
The following are the principal actuarial assumptions at the reporting date (expressed as weighted averages):
Financial assumptions
Discount rate applied to scheme liabilities (% p.a.)
Inflation assumption (RPI) (% p.a.)
Life expectancies
Longevity in years from age 65 for current pensioners
Male
Female
Longevity in years from age 65 for current members aged 45
Male
Female
2019
CARE
2.8%
3.2%
2019
CARE
21.4
22.8
23.2
24.7
2019
RSP
2.7%
3.2%
2019
RSP
n/a
n/a
n/a
n/a
2018
CARE
2.8%
3.3%
2018
CARE
21.8
23.3
24.0
25.7
2018
RSP
2.7%
3.3%
2018
RSP
n/a
n/a
n/a
n/a
During the 53 weeks ended 4 February 2018, the Company updated the methodology for deriving the discount rate assumption used in valuing
the pension scheme liabilities. The methodology has also been used in the IAS 19 valuation at 3 February 2019. The Company believes that this
approach better reflects expected yields on high quality corporate bonds over the duration of the Company’s pension schemes, as required by
IAS 19. The previous methodology estimated the discount rate with reference to both corporate bond and gilt yields. The updated method uses
high quality corporate bond yields where available. At very long durations, where there are no high quality corporate bonds, the yield curve is
extrapolated based on available corporate bond yields of mid to long duration.
Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The mortality
tables used for the 52 weeks ended 3 February 2019 are the S2PMA/S2PFA-Heavy tables (males/females) based on year of birth with a scaling
factor of 110%/100% applied to the mortality rates in the Care Scheme, with CMI 2017 projections and a long-term rate of improvement of 1.5% p.a.
For the 53 weeks ended 4 February 2018, the Company used the S2PMA/S2PFA-Heavy mortality tables (males/females) based on year of birth with
a scaling factor of 110%/100% applied to the mortality rates in the Care Scheme, with CMI 2015 projections and a long-term rate of improvement
of 1.5% p.a.
123
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Notes to the Company financial statements continued
52 weeks ended 3 February 2019
11 Company financial statements continued
11.16 Pensions continued
11.16.4 Significant actuarial assumptions continued
Related actuarial assumptions (expressed as weighted averages)
Rate of increases in salaries (% p.a.)
Rate of increase of pensions in payment: RPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.)
Pre-retirement revaluation for active members (% p.a.)
Rate of increase of pensions in deferment: CPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.)
CPI inflation (% p.a.)
2019
CARE
–
2.1%/3.1%
–
–/2.1%
2.1%
2019
RSP
–
–
–
2.1%/ –
2.1%
2018
CARE
–
2.1%/3.1%
–
–/2.2%
2.2%
2018
RSP
2.2%
–
1.8%
2.2%/–
2.2%
Sensitivity analysis on significant actuarial assumptions
The following table summarises the impact on the defined benefit obligation at the end of the reporting period if each of the significant actuarial
assumptions listed above were changed, in isolation, assuming no other changes in market conditions at the accounting date. In practice any
movement in assumptions could be accompanied by a partially offsetting change in asset values, and the corresponding overall impact on the net
asset/(liability) is therefore likely to be lower than the amounts below in a number of scenarios. Extrapolation of the sensitivities shown may not
be appropriate.
Discount rate applied to Scheme obligations
Inflation assumption (RPI and associated assumptions)
Longevity
+/-0.1% p.a.
+/-0.1% p.a.
+one year
2019
CARE
-/+25
+/-20
+50
2019
RSP
-/+7
+/-7
n/a
2018
CARE
-/+25
+/-25
+50
2018
RSP
-/+7
+/-3
n/a
11.16.5 Funding
The CARE Scheme is entirely funded by the Company. The Company along with other subsidiaries of the Group participated in the RSP until its
closure. There is no contractual agreement or stated policy for charging the net defined benefit cost between the Company and its subsidiaries.
The contribution of each participating subsidiary to the RSP was calculated in proportion to the number of employees that are members of
the RSP.
The latest full actuarial valuations were carried out as at 5 April 2016 for the CARE Scheme and the RSP. The valuations indicated that, on the
agreed funding basis, the CARE and RSP Schemes had surpluses of £1m and £10m respectively. As a result of these funding positions there are
currently no deficit contributions payable. As such there is no ‘minimum funding requirement’ in force. The results of the 2016 actuarial valuations
for the CARE Scheme has been used and updated for IAS 19 ‘Employee benefits’ purposes for the period to 3 February 2019 by a qualified
independent actuary.
For the RSP an actuarial valuation for the purposes of IAS 19, based on member data as at 31 December 2017, has been completed and updated to
3 February 2019 by a qualified independent actuary. The Schemes expose the Company to inflation risk, interest rate risk and market investment
risk. In addition, the CARE Scheme exposes the Company to longevity risk.
At 3 February 2019, schemes in surplus have been disclosed within the assets on the balance sheet. The Company has taken legal advice with
regard to the recognition of a pension surplus and also recognition of a minimum funding requirement under IFRIC 14 ‘IAS 19 – The limit on a
defined benefit asset, minimum funding requirement and their interaction’. This advice concluded that recognition of a surplus is appropriate
on the basis that the Company has an unconditional right to a refund of a surplus. In respect of the RSP, this is on the basis that paragraph 11(a)
of IFRIC 14 applies enabling a refund of surplus during the life of the RSP. In respect of the CARE Scheme, it is on the basis that paragraph 11(b)
or 11(c) of IFRIC 14 applies enabling a refund of surplus assuming the gradual settlement of the scheme liabilities over time until all members have
left the scheme or the full settlement of the Scheme’s liabilities in a single event (i.e. as a scheme wind up). Amendments to the current version
of IFRIC 14 are currently being considered. The legal advice received by the Company has concluded that the above accounting treatment should
not be affected by the current exposure draft, including the planned revised wording, to IFRIC 14.
The current best estimate of Company contributions to be paid to the defined benefit schemes for the accounting period commencing
3 February 2019 is £2m (2018: £67m). This estimate includes amounts payable from the SLP and salary sacrificed contributions from employees.
124
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 11 Company financial statements continued
11.16 Pensions continued
11.16.6 Closure of the RSP
Following the conclusion of a consultation process, the Company announced the closure of the RSP to future accrual in September 2018.
This resulted in an exceptional curtailment charge of £19m recognised in 52 weeks ended 3 February 2019 (2018: £nil).
11.16.7 Guaranteed minimum pension
On 26 October 2018, the High Court issued a judgement in a claim involving Lloyds Banking Group’s defined benefit pension schemes.
This judgement concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum
pension benefits. The issues determined by the judgement have a potential consequence for many other defined benefit pension schemes and
are likely to result in an increase in the liabilities of the CARE Scheme. The Company has worked with the Trustees of the scheme and independent
actuaries and has estimated the cost of equalising benefits at £2m. This cost has been recognised in the income statement as an exceptional item
in the 52 weeks ended 3 February 2019 (2018: £nil). Any subsequent changes to this amount in future periods will be treated as a change in actuarial
assumption, and as such will be recognised in other comprehensive income.
11.16.8 Defined contribution scheme
The Company opened a defined contribution pension scheme called the Morrisons Personal Retirement Scheme (MPRS) for colleagues during the
53 weeks ended 4 February 2018. The MPRS has become the auto enrolment scheme for the Company and as such the Company was liable for
backdated contributions for eligible employees to 1 October 2012. This was paid in January 2018.
As the MPRS is a defined contribution scheme, the Company is not subject to the same investment, interest rate, inflation or longevity risks as
it is for the defined benefit schemes. The benefits that employees receive are dependent on the contributions paid, investment returns and
the form of benefit chosen at retirement. During the 52 weeks ended 3 February 2019, the Company paid contributions of £21m to the MPRS
(2018: £3m), and expects to contribute £52m for the following period (2018: £15m).
11.17 Share capital
At 5 February 2018
Share options exercised
At 3 February 2019
All issued shares are fully paid and have a par value of 10p per share (2018: 10p per share).
For further details on share capital and share premium, see note 6.5.
11.18 Reserves
Capital redemption reserve
Merger reserve
Hedging reserve
Retained earnings
Total
Number of
shares
millions
2,355.9
12.4
2,368.3
Share capital
£m
236
1
237
Share premium
£m
159
19
178
2019
£m
39
1,202
10
2,569
3,820
Total
£m
395
20
415
2018
£m
39
1,604
2
2,568
4,213
Capital redemption reserve
The capital redemption reserve at the start of the period related to 389,631,561 of the Company’s own shares which it purchased on the open
market for cancellation between 31 March 2008 and 8 March 2013 at a total cost of £1,081m.
Merger reserve
The merger reserve represents the reserve arising on the acquisition in 2004 of Safeway Limited. This merger reserve was initially considered
unrealised on the basis it was represented by investments held by the Company, which is not qualifying consideration in accordance with Tech
02/17 issued by the Institute of Chartered Accountants in England and Wales (ICAEW).
During the 53 weeks ended 4 February 2018, the majority of the Company’s investments were transferred to another group company,
Wm Morrison Supermarkets Holdings Limited, in exchange for an intercompany loan. To the extent that this intercompany balance is settled in
qualifying consideration, the same proportion of the merger reserve becomes realised. During 52 weeks ended 3 February 2019, this intercompany
loan balance was partially settled through £402m of qualifying consideration (2018: £974m). As a result, £402m of the merger reserve balance was
realised in the period (2018: £974m).
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging.
125
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information
Notes to the Company financial statements continued
52 weeks ended 3 February 2019
11 Company financial statements continued
11.19 Capital commitments
Contracts placed for future capital expenditure not provided in the financial statements
(property, plant and equipment and intangible assets)
11.20 Operating lease commitments
Total outstanding commitments for future minimum lease payments under non-cancellable operating leases are:
Within one year
More than one year and less than five years
After five years
2019
Plant, equipment,
fixtures and vehicles
£m
17
33
–
50
Land and
buildings
£m
94
376
1,480
1,950
2019
£m
32
2018
£m
27
2018
Land and
buildings
£m
87
339
1,308
1,734
Plant, equipment,
fixtures and vehicles
£m
13
22
–
35
In addition to the above, the Company has operating lease commitments of £252m (2018: £372m) with other Group companies.
11.21 Guarantees and contingent liabilities
The Company has given an unlimited guarantee in respect of the overdraft of all the subsidiary undertakings within the Group’s banking offset
agreement. The overdraft position at 3 February 2019 was £nil (2018: £nil). The Company has also provided a guarantee in respect of sterling bonds
amounting to £nil at fair value (2018: £75m) in respect of a subsidiary undertaking. Where the Company enters into financial contracts to guarantee
the indebtedness 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.
Following the disposal of the land and building of its customer fulfilment centre at Dordon to a third party in the 53 weeks ended 4 February 2018,
the Company continues to guarantee the lease in respect of this site. If the lessee were to default, their lease obligations could revert back to the
Company under the terms of the guarantee and become a liability of the Company. Should the lessee default, the additional future commitment
is estimated at up to £31m (2018: £32m).
The Company has an ongoing legal case brought by a number of current and former colleagues relating to employee data theft in the 52 weeks
ended 1 February 2015. In December 2017, the High Court concluded that the Company was liable for the actions of the former employee who
conducted the data theft. The Company launched an appeal to this judgement and the High Court has confirmed that there will be no hearings
on the level of compensation until the appeals have been concluded. During the 52 weeks ended 3 February 2019 the High Court rejected this
appeal and the Company is now appealing to the Supreme Court. It is the Directors’ view that at this stage of the process the Company can not
reliably assess the outcome of the case nor reasonably estimate the quantum of any loss and as such no provision has been recognised in these
consolidated financial statements.
126
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19
Related undertakings
In accordance with section 409 of the Companies Act 2006, a full list of related undertakings including the country of incorporation, the principal
activity and the effective percentage of equity owned as at 3 February 2019 is disclosed below. The registered address of all undertakings is
Hilmore House, Gain Lane, Bradford, BD3 7DL unless otherwise stated.
Related undertakings of Wm Morrison Supermarkets PLC
Name
Bos Brothers Fruit and Vegetables B.V. 1
Chippendale Foods Limited
De Mandeville Gate Management Company Limited
Dordon SPV Limited2
Farock Insurance Company Limited3
Fisherdale Properties Limited2
Flower World Limited
Ipsolus Limited2
MHE JVCo Limited4
MoClo Limited2
Neerock Farming Limited5
Perimeter Holdings Limited
Wm Morrison (HK) Limited6
Wm Morrison Nominee 1 Limited
Wm Morrison Nominee 2 Limited
Wm Morrison Nominee 3 Limited
Wm Morrison Pension Trustee Limited
Wm Morrison Property Investments Limited7
Wm Morrison Supermarkets Holdings Limited
Insurance company
Principal activity
Acquirer of food products
Country of incorporation
Netherlands
United Kingdom Supplier of eggs
United Kingdom Property maintenance
United Kingdom Dormant
Isle of Man
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Joint venture with Ocado
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Property development
Hong Kong
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom General partner in a partnership
United Kingdom Holding company
Acquirer of non-food products
Related undertakings of other Group companies
Name
Alliance Property Holdings Limited
Amos Hinton & Sons Limited
Argyle Securities Limited7
Argyll Foods Limited
Argyll Stores (Holdings) Limited
Ascot Road Watford Limited
Cancede Limited
Cordon Bleu Freezer Food Centres Limited
Divertigo Limited
English Real Estates Limited
Erith Pier Company Limited
Evermere Limited
Farmers Boy Limited
Farmers Boy (Deeside) Limited
Federated Properties Limited
Firsdell Ltd
Freehold Investments Limited8
Holsa Limited
International Seafoods Limited
J3 Property Limited7
Kiddicare Properties Limited
Lease Securities Limited8
Maypole Limited9
MDW (Eastbourne) Limited
Monument Hill Properties Limited
Neerock Limited
Newincco 1072 Limited
Country of incorporation
Principal activity
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Holding company
United Kingdom Property investment
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Property maintenance
United Kingdom Dormant
United Kingdom Manufacturer and distributor of fresh food products
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Property investment
Jersey
Property investment
United Kingdom Dormant
United Kingdom Preparation and supply of seafood
United Kingdom Dormant
United Kingdom Lease company
Jersey
Guernsey
United Kingdom Dormant
United Kingdom Dormant
United Kingdom Fresh meat processor
United Kingdom Property development
Property investment
Investment company
Interest
100%
100%
51%
100%
100%
100%
100%
100%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
127
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Related undertakings continued
Related undertakings of other Group companies continued
Name
Oldwest Limited7
Optimisation Developments Limited
Optimisation Investments Limited
Presto Stores (LC) Limited
Presto Stores Limited
Rathbones Bakeries Limited
Rathbone Kear Limited
RP (No. 37) Limited8
Safeway (Overseas) Limited
Safeway Development Limited
Safeway Food Stores Limited
Safeway Limited
Safeway Pensions Trustees Company Limited
Safeway Pension Trustees Limited
Safeway Properties Limited
Safeway QUEST Trustees Limited
Safeway Stores (Gibraltar) Pension Trustees Limited10
Safeway Stores (Ireland) Limited
Safeway Stores Limited
Safeway Trustee (FURB) Limited
Safeway Wholesale Limited
Simply Fresh Foods Holdings Limited
Stalwart Investments Limited8
Stores Group Limited
The Home & Colonial Stores Limited
The Medical Hall Limited11
The Morrisons Foundation
Tower Centre Hoddesdon Limited
Trilogy (Leamington Spa) Limited
Velligrist Limited
Wm Morrison At Source Limited
Wm Morrison Bananas Limited
Wm Morrison GP 1 Limited
Wm Morrison GP 2 Limited
Wm Morrison GP 3 Limited
Wm Morrison Growers Limited12
Wm Morrison LP 1 Limited
Wm Morrison LP 2 Limited
Wm Morrison LP 3 Limited
Wm Morrison Produce Limited
Wm Morrison Property Partnership LP7
Wm Morrison Property Partnership 1 Limited Partnership
Wm Morrison Property Partnership 2 Limited Partnership
Wm Morrison Property Partnership 3 Limited Partnership
Wm Morrison Supermarket Stores Ltd
Principal activity
Property investment
Interest
Country of incorporation
100%
United Kingdom Dormant
100%
United Kingdom Property development
100%
United Kingdom Property investment
100%
United Kingdom Dormant
100%
United Kingdom Dormant
United Kingdom Dormant
100%
United Kingdom Manufacturer and distributor of morning goods and bread 100%
100%
Jersey
100%
United Kingdom Grocery retailer (overseas)
100%
United Kingdom Dormant
100%
United Kingdom Dormant
100%
United Kingdom Holding company
100%
United Kingdom Dormant
100%
United Kingdom Dormant
100%
United Kingdom Property investment
100%
United Kingdom Dormant
100%
Gibraltar
Dormant
100%
United Kingdom Dormant
100%
United Kingdom Grocery retailer
100%
United Kingdom Dormant
100%
United Kingdom Dormant
100%
United Kingdom Dormant
100%
Property investment
Jersey
100%
United Kingdom Investment company
100%
United Kingdom Dormant
100%
Gibraltar
100%
United Kingdom Charity
100%
United Kingdom Property development
100%
United Kingdom Property development
100%
United Kingdom Dormant
100%
United Kingdom Technical testing and analysis
100%
United Kingdom Property investment
100%
United Kingdom General partner in a partnership
100%
United Kingdom General partner in a partnership
100%
United Kingdom General partner in a partnership
100%
United Kingdom Acquirer of fresh produce
100%
United Kingdom Limited partner in a partnership
100%
United Kingdom Limited partner in a partnership
100%
United Kingdom Limited partner in a partnership
100%
United Kingdom Produce packer and purchaser
100%
United Kingdom Scottish Limited Property Partnership
100%
United Kingdom Property partnership
100%
United Kingdom Property partnership
100%
United Kingdom Property partnership
100%
United Kingdom Dormant
Pharmaceutical licence holder (Gibraltar)
1 Registered address 3151, ZJ Hoek van Holland, the Netherlands, Amersgat 17.
2 Registered address 1 Ashley Road, 3rd Floor, Altrincham, WA14 2DT.
3 Registered address 1st Floor, Rose House, 51-59 Circular Road, Douglas, Isle of Man, IM1 1AZ.
4 Registered address Buildings 1 & 2, Trident Place, Mosquito Way, Hatfield, Hertfordshire, AL10 9UL.
5 Registered address Market Hill, Market Hill Road, Turriff, Aberdeenshire, Scotland, AB53 4PA.
6 Registered address 4304 China Resources Building, 26 Harbour Road, Wanchai, Hong Kong.
7 Registered address Capella Building (Tenth Floor), 60 York Street, Glasgow, G2 8JX.
8 Registered address Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST.
9 Registered address 1st & 2nd floors, Elizabeth House, Les Ruettes Brayes, St Peter Port,
Guernsey, GY1 4LX.
10 Registered address Suites 41/42 Victoria House, 26 Main Street, Gibraltar.
11 Registered address 1st Floor, 5 Secretary’s Lane, Gibraltar GX11 1AA.
12 Registered address Stubbings Farm, Otley, West Yorkshire, United Kingdom, LS21 1DN.
128
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Five year summary
52 weeks ended 3 February 2019
Consolidated income statement
Revenue
Cost of sales
Gross profit
Other operating income
Profit/loss on disposal and exit of properties
and sale of business and investments
Administrative expenses
Operating profit/(loss)
Finance costs
Finance income
Share of profit of joint venture (net of tax)
Profit/(loss) before taxation
Taxation
Profit/(loss) for the period attributable to the owners
of the Company
Profit before tax and exceptionals2
Profit before exceptionals after tax2
Earnings per share (pence):
Basic
Diluted
Basic before exceptionals2
Dividend per ordinary share (pence)
1 Reported on a 53 week basis.
2 For definitions, see the Glossary on pages 132 and 133.
2019
£m
17,735
(17,128)
607
88
2
(303)
394
(97)
22
1
320
(76)
244
406
311
10.34
10.11
13.17
12.60
20181
£m
17,262
(16,629)
633
78
19
(272)
458
(94)
14
2
380
(69)
311
374
285
13.30
13.03
12.19
10.09
2017
£m
16,317
(15,713)
604
76
32
(244)
468
(160)
15
2
325
(20)
305
337
253
13.11
12.95
10.86
5.43
2016
£m
16,122
(15,505)
617
72
97
(472)
314
(112)
13
2
217
5
222
242
181
9.51
9.47
7.77
5.00
2015
£m
16,816
(16,055)
761
78
135
(1,670)
(696)
(105)
7
2
(792)
31
(761)
345
255
(32.63)
(32.63)
10.93
13.65
129
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Five year summary continued
52 weeks ended 3 February 2019
Consolidated balance sheet
Assets
Goodwill and intangible assets
Property, plant and equipment
Investment property
Pension asset
Investment in joint venture
Investments
Other financial assets
Non-current assets
Current assets
Assets classified as held-for-sale
Liabilities
Current liabilities
Other financial liabilities
Deferred tax liabilities
Pension liabilities
Provisions
Non-current liabilities
Net assets
Shareholders’ equity
Called-up share capital
Share premium
Capital redemption reserve
Merger reserve
Retained earnings and other reserves
Total equity attributable to the owners of the Company
2018
£m
2017
£m
2016
£m
2015
£m
428
7,243
33
612
53
–
16
8,385
1,278
4
(3,081)
(1,246)
(478)
(18)
(299)
(2,041)
4,545
236
159
39
2,578
1,533
4,545
445
7,227
33
293
56
–
16
8,070
1,176
–
(2,864)
(1,555)
(417)
(21)
(326)
(2,319)
4,063
234
128
39
2,578
1,084
4,063
483
7,161
37
186
63
31
30
7,991
1,316
–
(2,755)
(2,058)
(429)
–
(309)
(2,796)
3,756
234
127
39
2,578
778
3,756
520
7,252
68
4
68
31
–
7,943
1,144
84
(2,273)
(2,558)
(415)
(43)
(288)
(3,304)
3,594
234
127
39
2,578
616
3,594
2019
£m
404
7,312
26
730
47
–
15
8,534
1,343
39
(3,295)
(1,112)
(483)
(42)
(353)
(1,990)
4,631
237
178
39
2,578
1,599
4,631
130
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Supplementary information
52 weeks ended 3 February 2019
Increase/(decrease) on previous year %
Revenue
Operating profit/(loss) before exceptionals
Profit/(loss) before taxation
Profit/(loss) after taxation
Profit before taxation and exceptionals
Diluted earnings per share
Ordinary dividend per share
% of revenue
Operating profit before exceptionals
Profit/(loss) before taxation
Profit/(loss) after taxation
Retail portfolio
Total number of stores
Petrol filling stations
Total sales area (000s square feet)1
Total supermarket takings ex petrol (gross) £m2
Average takings per store per week ex petrol (£000)2
Average number of customers per store per week2
Average take per customer (£)2
Employees
Full time
Part time
Total
Full time equivalent (average)
Average per FTE employee:
Revenue (£000s)
Operating profit before exceptionals (£)
Employee costs (£)
2019
2018
2017
2016
2015
2.74
4.49
(15.79)
(21.54)
8.56
(22.41)
8.37
2.62
1.80
1.38
494
335
14,884
14,023
547
24,399
22.52
39,581
64,049
103,630
72,120
246
6,448
26,345
5.79
3.01
16.92
1.97
10.98
0.62
12.15
2.58
2.20
1.80
491
334
14,094
14,061
540
24,164
22.36
40,162
65,325
105,487
73,210
236
6,078
26,472
1.21
27.43
49.77
37.39
39.26
36.74
8.60
2.65
1.99
1.87
491
334
14,094
13,591
531
23,532
22.62
42,054
70,311
112,365
77,300
211
5,589
24,900
(4.13)
(23.30)
(127.40)
(129.17)
(29.86)
(129.17)
(18.32)
2.10
1.35
1.38
498
336
14,142
13,700
521
22,573
23.44
47,925
72,988
120,913
82,992
194
4,085
23,424
(4.89)
(44.60)
349.35
219.38
(52.02)
(218.96)
5.00
2.63
(4.71)
(4.52)
667
335
14,732
14,033
531
22,034
23.83
48,519
71,259
119,778
85,545
197
5,167
23,029
1 During the 52 weeks ended 3 February 2019, we adjusted the internal sales area of several stores to incorporate refits, re-configurations and other changes in gross to net space.
2 Excludes convenience and online.
The impact of week 53 in the period ended 3 February 2018 was to increase revenue by £318m and increase profit before taxation by £5m.
131
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Glossary
Alternative Performance Measures
In response to the Guidelines on Alternative Performance Measures (APMs) issued by the European Securities and Markets Authority (ESMA), we have
provided additional information on the APMs used by the Group. The Directors use the APMs listed below as they are critical to understanding the
financial performance and financial health of the Group. As they are not defined by IFRS, they may not be directly comparable with other companies
who use similar measures.
After a review of emerging practice around Alternative Performance Measures, the Group has amended its primary measure for adjusted profit. As a
result ‘underlying profit’ has been replaced by ‘Profit before exceptional items and net pension interest’. ‘Profit before exceptional items and net pension
interest’ is referred to as ‘Profit before exceptionals’. This change has no impact on amounts previously reported under the previous definition.
In moving to this measure, the Group has also adopted a three-column approach to the consolidated income statement. The Directors believe this
new definition and presentation provides additional clarity on the treatment of adjusting items and is consistent with how the Directors assess the
performance of the Group.
Measures
Profit measures
Like-for-like
(LFL) sales
growth
Closest equivalent
IFRS measure
Definition and purpose
Reconciliation for 2018/19 Group measures1
Revenue
Percentage change in year-on-year sales (excluding VAT), removing
the impact of new store openings and closures in the current or previous
financial year.
The measure is used widely in the retail industry as an indicator of
ongoing sales performance. It is also a key measure for Director and
management remuneration. See page 46 in the Directors’ remuneration
report for more information.
Group LFL (exc. fuel)
Group LFL (inc. fuel)
53rd week impact
Net new space
Total revenue year-on-year
52 weeks ended
3 February
2019 %
4.8%
4.3%
(1.9)%
0.3%
2.7%
Total sales
growth
Revenue
Profit before
tax and
exceptionals
Profit before
tax
Profit before
exceptionals
after tax
Operating
profit before
exceptionals
Profit after
tax
Operating
profit2
Including fuel:
Percentage change in year-on-year total reported revenue.
Excluding fuel:
Percentage change in year-on-year total sales excluding fuel.
This measure illustrates the total year-on-year sales growth.
This measure is a key measure for Director and management
remuneration. See page 46 in the Directors’ remuneration report
for more information.
Profit before tax and exceptionals is defined as profit before tax,
exceptional items and net pension interest. This excludes exceptional
items which are significant in size and/or nature and net pension interest.
This measure is a key measure used by the Directors. It provides key
information on ongoing trends and performance of the Group and is
used for Director and management remuneration. See page 46 in the
Directors’ remuneration report for more information.
A reconciliation of total sales including and
excluding fuel is provided in note 1.2 of the
financial statements.
A reconciliation of this measure is provided
in note 1.4 of the financial statements.
Profit before tax and exceptionals after a normalised tax charge.
This measure is used by the Directors as it provides key information on
ongoing trends and performance of the Group, including a normalised
tax charge.
£311m being profit before exceptionals
and tax of £406m less a normalised tax
charge of £95m (see note 1.4 of the financial
statements).
Reported operating profit before exceptional items, which are significant
in size and/or nature.
This measure is used by the Directors as it provides key information
on ongoing trends and performance of the Group.
£465m being reported operating profit
(£394m) less profit/loss on disposal and
exit of properties (£2m), plus impairment
and provisions for onerous contracts (£5m),
pensions exceptional costs (£26m) and other
exceptional items of (£42m).
A reconciliation of this measure is provided
in note 6.2 of the financial statements.
Net finance
costs before
exceptionals
Finance costs
Reported net finance costs excluding the impact of net pension interest
and other exceptional items, which are significant in size and/or nature.
This measure is used by the Directors as it provides key information on
ongoing cost of financing excluding the impact of exceptional items.
1 Certain ratios referred to in the financial statements are calculated using more precise numbers rather than rounded numbers. These stated ratios may therefore differ slightly to those calculated by
the numbers in this report due to rounding (as numbers in the financial statements are presented in round millions).
2 Operating profit is not defined under IFRS. However, it is a generally accepted profit measure.
132
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Measures
Closest equivalent
IFRS measure
Definition and purpose
Reconciliation for 2018/19 Group measures1
Profit measures continued
Basic earnings
per share before
exceptionals
Basic
earnings
per share
Diluted earnings
per share before
exceptionals
Diluted
earnings
per share
Tax measures
Basic earnings per share based on profit before exceptionals after tax
rather than reported profit after tax as described above.
This measure is a key measure used by the Directors. It provides key
information on ongoing trends and performance of the Group and
is used for Director and management remuneration, and in setting the
dividend policy. See page 46 in the Directors’ remuneration report
for more information.
A reconciliation of this measure is included
in note 1.5 of the financial statements.
Diluted earnings per share based on profit before exceptionals after tax
rather than reported profit after tax as described above.
A reconciliation of this measure is included
in note 1.5 of the financial statements.
Normalised tax
Effective tax Normalised tax is the tax rate applied to the Group’s principal activities
on an ongoing basis. This is calculated by adjusting the effective tax
rate for the period to exclude the impact of exceptional items and net
pension interest.
This measure is used by the Directors as it provides a better reflection
of the normalised tax charge for the Group.
A reconciliation of the tax charge is found in
note 2.2.3 of the financial statements.
Cash flows and net debt measures
Free cash flow
No direct
equivalent
Adjusted free
cash flow
No direct
equivalent
Net debt
Working capital
movement
Operating
working capital
movement
Other measures
Return on
Capital
Employed
(ROCE)
Borrowings
less cash
and cash
equivalents
and financial
assets and
liabilities
No direct
equivalent
No direct
equivalent
No direct
equivalent
Movement in net debt before dividends.
This measure is used by the Directors as it provides key information
on the level of cash generated by the Group before the payment
of dividends.
See page 46 in the Directors’ remuneration report.
This measure is a key measure used by the Directors. It provides key
information on the level of cash generated by the Group and is used for
Director and management remuneration.
Net debt is cash and cash equivalents, non-current financial assets and
current financial assets, less borrowings, current financial liabilities and
non-current financial liabilities.
£265m being the movement in net debt
(£(24)m) before payment of dividend (£289m).
See page 46 in the Directors’
remuneration report.
A reconciliation of this measure is provided
in note 6.4 of the financial statements.
Movement in stock, movement in debtors, movement in creditors and
movement in provisions.
A reconciliation of this measure is provided
in note 5.6 of the financial statements.
Working capital movement adjusted for charges for onerous contracts,
onerous payments and other non-operating payments.
A reconciliation of this measure is provided
in note 5.6 of the financial statements.
This measure is used by the Directors as it provides a more appropriate
reflection of the working capital movement by excluding certain non-
recurring movements relating to property balances.
ROCE is calculated as return divided by average capital employed.
Return is defined as annualised profit before exceptionals after tax
adjusted for net finance costs before exceptionals and operating lease
rentals (on land and buildings). Capital employed is defined as average net
assets excluding net pension assets and liabilities, less average net debt,
plus the lease adjustment (10 times rent charged).
This measure is used by the Directors as it is a key ratio
in understanding the performance of the Group.
ROCE (7.9%) equals return divided by
average capital employed:
Return (£463m) = Profit before exceptionals
after tax annualised (£311m) adjusted for net
finance costs before exceptionals (£60m)
and operating lease rentals (on land and
buildings) (£92m).
Average capital employed (£5,852m) =
Average net assets excluding the net
pension asset (£3,947m), average net debt
(£985m) and the lease adjustment (£920m).
1 Certain ratios referred to in the financial statements are calculated using more precise numbers rather than rounded numbers. These stated ratios may therefore differ slightly to those calculated by
the numbers in this report due to rounding (as numbers in the financial statements are presented in round millions).
133
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Investor relations and financial calendar
9 May 2019
24 May 2019
13 Jun 2019
1 Jul 2019
4 Aug 2019
12 Sep 2019
27 Sep 2019
1 Nov 2019
2 Feb 2020
Financial calendar 2018/19
Financial events and dividends
Quarter 1 trading statement
Final dividend record date
Annual General Meeting
Final dividend payment date
Half year end
Interim results announcement
Interim dividend record date
Interim dividend payment date
Financial year end
Company Secretary
Jonathan Burke
Company number
00358949
Registered office
Wm Morrison Supermarkets PLC
Hilmore House
Gain Lane
Bradford
BD3 7DL
Telephone: 0845 611 5000
www.morrisons.com
Investor relations
Telephone: 0845 611 5710
Email: accinvr@morrisonsplc.co.uk
Corporate responsibility enquiries
Telephone: 0845 611 5000
Annual General Meeting
The AGM will be held on 13 June 2019 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.com, 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 financial
statements are available to download
from the website along with Corporate
responsibility reports and other financial
announcements. The 2018/19 Annual Report
is also available to view in HTML format at
www.morrisons-corporate.com/investor-
centre/financial-reports/
The information in the online Annual Report
and Financial Statements, Strategic report,
and the Interim reports is exactly the same as
in the printed version.
Environmental matters
Our environmental footprint is taken very
seriously. In the production of the 2018/19
Annual Report, we have contributed to the
reduction in environmental damage in the
following ways:
a) Website
Shareholders receive notification
of the availability of the results to view
or download on the Group’s website,
www.morrisons-corporate.com, unless they
have elected to receive a printed version
of the results.
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) Recycled paper
This document has been printed on recycled
paper that is manufactured in mills with ISO
14001 accreditation from 100% recycled fibre.
It is totally chlorine free and is an NAPM
certified recycled product.
134
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 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:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone: 0333 207 6513
Overseas: +44 (0) 121 415 0992
We are open between 09:00 – 17:30,
Monday to Friday excluding public holidays
in England and Wales.
Web: www.shareview.co.uk
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
Eversheds Sutherland (international) LLP
1 Wood Street
London EC2V 7WS
DWF LLP
1 Scott Place
2 Hardman Street
Manchester M3 3AA
Allen & Overy LLP
One Bishops Square
London E1 6AD
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Central Square
29 Wellington Street
Leeds LS1 4DL
Stockbrokers
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Credit Suisse
One Cabot Square
London E14 4QJ
Shore Capital
Bond Street House
14 Clifford Street
London W1S 4JU
Investment bankers
NM Rothschild & Sons Limited
St Swithin’s Lane
London EC4N 8AL
Shareholder information
The number of shareholders at 3 February 2019 was 39,090 (2018: 41,444) and the number of shares in issue was 2,368,256,205 (2018: 2,355,814,852).
Analysis by shareholder (type)
Private shareholder
Nominee companies
Deceased accounts
Limited companies
Other institutions
Bank and bank nominees
Investment trusts
Pension funds
Analysis by shareholder (holding)
1–1,000
1,001–10,000
10,001–1,000,000
Over 1,000,000
Number of holders
35,492
1,138
631
1,761
50
7
7
4
Number of holders
21,776
15,029
2,091
194
% holders
90.80
2.91
1.61
4.50
0.13
0.02
0.02
0.01
% holders
55.71
38.44
5.35
0.50
Balances at 4 Feb 19
85,967,300
2,017,487,484
1,570,016
229,169,281
32,630,184
1,413,627
9,664
8,649
Balances at 3 Feb 19
9,030,344
45,573,898
198,133,122
2,115,518,841
% capital
3.63
85.19
0.07
9.67
1.38
0.06
0.00
0.00
% capital
0.38
1.92
8.37
89.33
135
Strategic reportGovernanceWm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19Financial statementsInvestor information Information at your fingertips
Investors
Presentations, announcements and financial
reports can be quickly and easily downloaded
or viewed on-screen as PDFs. Investors can
easily navigate around the Annual Report
and Financial Statements 2018/19 on-screen,
viewing only the parts they want to, at
www.morrisons-corporate.com/investor-
centre/financial-reports/
Webcasts
Webcasts of the Directors delivering the
preliminary results for 2018/19 on 13 March 2019
are available.
Shareholder information
Other relevant shareholder information is
available, for example share price history,
dividends, financial calendar and corporate
governance information.
Electronic communications
Electronic communications (eComms) is the
fastest and most environmentally friendly way
to communicate with our shareholders.
Instead of receiving paper copies of the annual
and financial results, notices of shareholder
meetings and other shareholder documents,
shareholders will receive an email to let
them know this information is available on
our website.
Visiting our website to obtain our results
reduces our environmental impact by saving
on paper and also reduces our print and
distribution costs.
Sign up to eComms on our website at
www.morrisons-corporate.com and follow
the investor eComms link.
Not all products are available online. However,
the website is an excellent vehicle for finding
out more about things we offer and customers
can do this on the website through a desktop,
a smartphone (using our App) and even using
their voice through an Alexa device –
a first for a UK supermarket.
Customers are also able to preview selected
items from ranges such as ‘Nutmeg’ and Market
Street, and our new café offers, in-store
services, award wins, pharmacies, glass hire
and details of our new store openings online.
As standard, morrisons.com also provides
a mobile-friendly online Store Finder where
customers can find details of their nearest
store, opening times and services it offers.
Corporate
Our corporate website,
www.morrisons-corporate.com, is a one-stop
portal that exists for the benefit of our
investors, the public and the media. This site
has the following sections:
About Morrisons
Find information about the Group, its
operations, strategy and structure, and
past financial information.
Jobs
Career opportunities and information about
working for Morrisons. For our dedicated
recruitment website, go to www.morrisons.jobs
Media centre
Latest releases about the growing estate
of Morrisons, along with promotions and
product news.
Corporate responsibility
Find out about our corporate responsibility
ethos, including how we take good care of our
environment, society and how we go about
business. www.morrisons.com/cr
Customer
Our website, www.morrisons.com, allows
customers to shop online, search thousands
of inspirational products and recipes for the
food we make and provide, and find out useful
information about our stores and the services
they offer.
The delivery service of Morrisons.com
now covers over 75% of Great Britain.
The geography that we cover is growing all
the time with the Scotland, Wales and the
South East opened up to customers in the last
12 months. A postcode checker makes it easy
to see if customers are eligible for our home
delivery service.
At Morrisons.com customers can:
• Purchase over 28,000 Morrisons grocery
products, including over 500 ‘Best’
products and 8,000 General Merchandise
branded products;
• Navigate from our home page to all our
various websites, including our new all year
round order and collect service for gatherings
and special occasions;
• Benefit from competitive ‘one-off’ delivery
charges or purchase a delivery pass for
unlimited deliveries for a one-off fee;
• Check out latest promotions and seasonal
events, including online exclusive deals;
• Sign up for our latest offers and our
marketing by email;
• Find recipes based on our ingredients and
inspired by our campaigns and events;
• Read content on healthy eating, reducing
food waste and our support for various
charitable causes such as CLIC Sargent
or the Morrisons Foundation; and
• Leave or research a Trustpilot review about
the customer service received at Morrisons,
and with four stars Morrisons is rated the
highest of the UK multiples.
Customers can also sign up to and manage their
‘More’ Card account on our website, and earn
points on all their purchases. In our dedicated
area, customers can find out what our loyalty
card scheme has to offer, check their points
balance and make changes to preferences.
136
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2018/19 Designed & Produced by
Printing by
Radley Yeldar
ry.com
Photography
Board and Executive
Committee portraits by
Chris Leah Photography
Geoff Neal Group
Paper stock: This report is printed
on Revive 100 Offset uncoated,
a 100% recycled paper.
Revive 100 Offset is manufactured
to the certified environmental
management system ISO 14001.
137
Wm Morrison Supermarkets PLC
Hilmore House, Gain Lane
Bradford BD3 7DL
Telephone: 0845 611 5000
Visit our website:
www.morrisons.com