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Food makers and
shopkeepers
Wm Morrison Supermarkets PLC
Annual Report and Financial Statements 2019/20
Living our purpose
Our core purpose is the reason the business
exists and underpins everything we do.
To make
and provide
As food makers and shopkeepers,
we make and provide food
food we’re
all proud of
Food is at our heart. Our manufacturing
capability and Market Street are unique
points of difference
where everyone’s
effort is worthwhile
Our colleagues are our biggest asset.
Food makers and shopkeepers, with talent
coming up through the organisation,
surrounded by experience and know how
Farming apprenticeship fund
£2m
We’ve opened up £2m of
our government apprenticeship
levy fund to develop the next
generation of farmers.
Market Street
92%
of our customers shop
Market Street. It is a key
reason for customers
choosing to shop
at Morrisons.
Group revenue
£17.5bn
2019/20
2018/19
2017/181
2016/17
2015/16
Financial highlights
Group like-for-like (LFL) sales (exc. fuel)*
(0.8)%
2019/20
2018/19
2017/18
2016/17
2015/161
(0.8)%
(2.0)%
17.5
17.7
17.3
16.3
16.1
Profit before tax, exceptional items
and net retirement benefit interest1
£408m +3.0%
4.8%
2.8%
1.9%
2019/20
2018/192
2017/183
2016/17
2015/164
408
396
374
337
242
1 2017/18 Group revenue on a 53 week basis.
1 2015/16 does not include wholesale
contribution to LFL sales.
1 Referred to as ‘profit before tax and exceptionals*’.
2 Restated following the application of IFRS 16.
3 £369m 52 week equivalent.
4 2015/16 profit before tax and exceptionals*
excluding £60m one-offs was £302m.
Free cash flow*
£238m
238
281
350
2019/20
2018/191
2017/18
2016/17
2015/16
Net debt*
£2,458m
Total dividend
8.77p
2019/20
2018/19
2017/18
2016/17
2015/16
1,082
997
973
2,458
2,394
2,386
1,194
1,746
2019/201
2018/192
2017/183
2016/17
2015/16
8.77p
12.60p
10.09p
6.67p
6.60p
6.09p
5.43p
5.00p
670
854
1 Restated following application of IFRS 16.
Net debt excluding lease liabilities
Lease liabilities
2019/20, 2018/19 and 2017/18 on a post-IFRS 16 basis,
2016/17 and 2015/16 on a pre-IFRS 16 basis.
Ordinary
Special
1 Including 2.00p special interim dividend.
2 Including 6.00p special dividend.
3 Including 4.00p special dividend.
Throughout the Directors’ report and Strategic report:
Unless otherwise stated, 2019/20 refers to the 52 week period ended 2 February 2020 and 2018/19 refers to the 52 week period ended 3 February 2019. 2019 and 2020 refer to calendar years.
so more and
more people
To grow sustainably, we must continue
to listen and respond to societal changes
and serve more and more customers
better every day
can afford to
enjoy eating well
We invest in the products that really
matter to our customers, ensuring they
are at the right price and always available
Locally-produced products
Our Nation’s Local Food Maker
events help us to identify local
suppliers who can work and grow
with us to supply Morrisons stores
in their area.
Strategic report
Our business model
Chair’s statement
Chief Executive’s statement
Seven priorities in action
Morrisons sites and brand
Our customers
Our colleagues
Working with suppliers
Our shareholders
Supporting communities
Protecting the environment
Risk
Governance
Corporate governance report
Directors’ remuneration report
Directors’ report
Financial statements
Independent auditors’ report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
General information
Notes to the Group financial statements
Company statement of financial position
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
12
14
16
18
20
23
24
27
31
46
67
70
78
78
79
80
81
82
85
127
128
129
132
147
149
151
152
155
157
Non-financial highlights
Business highlights
Customer satisfaction index
+18% pts vs baseline
Colleague engagement index
77% +1.0% pts
Jan 20
Jan 19
Jan 18
Jan 17
Jan 16
118
120
112
105
103
2019/20
2018/19
2017/18
2016/17
2015/16
Measured at January each year.
Movement vs Jan 15 baseline (index at 100).
Colleague engagement index as measured
in the annual ‘Your Say’ survey.
77%
76%
78%
76%
76%
Alignment of highlights to our stakeholder ambitions:
Customers
Suppliers
Colleagues
Shareholders
All
• Significant investments in price, service,
and Market Street are improving the
shopping trip for customers
• £1.1bn disposal proceeds target exceeded
following sale of our Camden store
and site
• Morrisons store on Amazon Prime Now
extended to eight cities, supplied from
17 Morrisons stores across the UK
• A further 44 Fresh Look store
improvements complete, bringing the
total to around 350 since the start of
the programme
• New overseas export wholesale supply
partner, CP Lotus in China
• ‘Nutmeg’ clothing launched online
in February 2020
* Alternative Performance Measures as defined in the Glossary on pages 152 to 154.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
1
Strategic reportGovernanceFinancial statementsInvestor information Our business model
Our 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 98,000 friendly and
skilled colleagues, supported by
a high quality management team
Sites
• 492 conveniently located
supermarkets
• 18 manufacturing sites,
eight distribution centres and
an increasing digital presence
Brand
• A well-loved brand becoming
more relevant and accessible
to more customers
• Online delivery service available
to over 90% of British households
• Stores across Britain giving the
brand national reach
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 is different in many ways …
Food maker
Our food making skills provide
customers with products that are
fresh, good quality, great value
and made by us
Distributor
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
We are a diverse team, 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
• We make fresh food in our manufacturing
sites across the UK
• Our automated production lines increase
productivity and efficiency, and reduce waste
• We work with our suppliers to carefully source
the products we do not make ourselves
Our national distribution network
moves the food we make and buy
• Our stores are serviced by seven regional
distribution centres and one national
distribution centre
• This network supports our growth through
other channels
• Technology simplifies the links between
sites and stores
… delivering through our seven priorities …
1
To be more competitive
2 To serve customers better
3
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
7 Naturally digital
p8
For more detail
2
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Wholesaler
Through stores, manufacturing, online
and our wholesale partners, we can
leverage our brand to achieve meaningful
and sustainable capital light growth
Retailer
Understanding our customers power
the decisions we make. Customers love
our brand and see us as competitive
and locally relevant
We are a wholesaler, providing products
to retail partners and wholesale customers
We sell the products we make and buy,
in our stores and online
• We aim to make our brands more popular and
accessible, and to increase volume through
our existing assets
• We leverage the strength of our brands
and manufacturing capability to deliver
good quality products at great value
• We have the Safeway brand which we provide
for wholesale partners
• Listening informs the improvements we make
• 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
for them
• Over 90% of British households now have
access to our online offer, and we continue
to expand our ‘reach’
… and supported by our five ways of working
1 Customers first
2 Teamwork
3
4
5
Freedom in the framework
Listening and responding
Selling, controlling costs, growing profits and removing waste
p16
For more detail
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
p14
For more detail
Colleagues
• Engaged and motivated colleagues
• Colleagues sharing in the success
of the business
• A fair day’s pay for a fair day’s work
p16
For more detail
Suppliers
• Establishing lasting relationships
• Working together with simplified terms
• Ways of working that comply with the
Groceries Supply Code of Practice
p18
For more detail
Shareholders
• A strong balance sheet
• A cash generative business with
low levels of debt
• Strong financial performance
and returns
p20
For more detail
Community
• Making a positive contribution
to society
• Respecting human rights and
ethical trading practices
• Supporting good causes and
helping people in times of need
p23
For more detail
Environment
• Reducing, reusing and recycling
the plastic we use
• Reducing food waste
• Supporting British farmers to be
more sustainable
• Tackling climate change
p24
For more detail
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
3
Strategic reportGovernanceFinancial statementsInvestor information Chair’s statement
“ Our consistent, sustained progress was pleasing,
with another year of profit growth, strong free
cash flow, and the payment of both an ordinary
and special dividend, all of which have been
constant features of Morrisons strategy over
the last few years.”
Andrew Higginson, Chair
Looking forward in
a competitive market
Last year was another packed full of
retail incident. The market remained
very competitive and crowded,
with Brexit uncertainty a persistent
concern for customers.
Further retailer failures, especially in non-food,
were reminders of both the pressures on the
UK high street and how critical it is to stay
relevant for customers. The Competition and
Markets Authority’s (CMA) decision on the
Sainsbury’s/Asda deal seems to block large-scale,
intra-sector mergers for the foreseeable future,
but also raises some uncertainty regarding
what both companies may do now. In addition,
two of our major competitors announced
they will soon be changing Chief Executive.
In this context, our consistent, sustained
progress was pleasing, with another year
of profit growth, strong free cash flow,
and the payment of both an ordinary and
special dividend, all of which have been
constant features of Morrisons Fix, Rebuild
and Grow strategy over the last few
years. Since 2014/15, the balance sheet has
strengthened considerably and we have paid
and declared 64.7p per share in dividends
to shareholders, equivalent to over £1.5bn.
It is particularly pleasing that the continuity
of the Morrisons team effort is being
maintained from within, as home grown
management talent is coming through.
While this broad-based progress is
encouraging, sales momentum did ease
somewhat. Perhaps after several years of
strong, uninterrupted growth, some degree
of slow down was to be expected. That is not
really the way that Morrisons is wired though.
We are looking to get back to being the best
we possibly can, and do the best possible
job for customers.
Turnaround momentum
As always, we will take some learnings into
next year. I am confident that, despite the
competitive, crowded market, Morrisons
can thrive.
We will keep improving in key areas such
as price, service and availability and we have,
in our shops and our colleagues, the ability
to be more on the front foot this year in
delivering an even better shopping trip
for customers.
As the Fresh Look programme and the
innovations from the new stores are rolled
out across the estate, Morrisons stores
are looking more and more like a great fit
for today’s customers. They are neither too
big nor too small, located in the heart of
communities, with the emphasis on great
value and good, British quality.
As I said last year, we are investing more and
more into our Market Street butchers, bakers,
fishmongers and other skilled craftspeople
just as some of our competitors are coming
out of service counters, a trend that
accelerated further last year.
Our unique British fresh food manufacturing
businesses give us an unrivalled provenance
just as issues such as local, traceability
and sustainability are becoming even
more important for customers. Sections
of this Annual Report and our Corporate
Responsibility Report deal directly with
many of these issues and show some of the
excellent work Morrisons is doing on behalf
of its multiple different types of stakeholder.
4
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
2019/20 quarterly Group LFL sales
(exc. fuel)
Basic earnings per share before
exceptionals (pence)
Q4
(2.1)%
(1.9)%
(1.2)%
Q3
Q2
Q1
Q4*
2019/20
2018/191
2017/18
2016/17
2015/16
2.3%
3.8%
13.18
12.85
12.19
10.86
7.77
Definition
See the Glossary on page 152 for a definition.
* 2018/19
1 Restated for application of IFRS 16 ‘Leases’.
Definition
See the Glossary on page 153 for a definition.
Strong management
succession plans
Complementing the best colleagues in our
shops, is a talented senior team.
We were delighted to strengthen the Board
with the appointment of a third Executive
Director, Michael Gleeson, as Chief Financial
Officer. Michael is a chartered accountant
and joined Morrisons in 2014, initially as Group
Financial Controller and then Supermarkets
Finance Director. For the last three years he
has been Trading Director, latterly responsible
for ambient grocery, frozen, dairy, fuel and
services. Both at Morrisons and before, he has
a first-class track record and extensive financial,
commercial and retail experience.
We were also delighted to promote
Trevor Strain, already a proven business leader,
to the new role of Chief Operating Officer.
Trevor has been an Executive Director of
Morrisons since 2013, initially as Chief Financial
Officer and, for more than a year, as Group
Chief Finance and Commercial Officer. In his
new role, Trevor’s responsibilities will include
commercial, manufacturing, supply chain,
logistics, operations development, online
and wholesale.
The Board and I welcome both Michael and
Trevor to their new roles and wish them every
success in the future.
Together with changes to the Executive
Committee that David describes, these
important appointments are the result of a
careful planning process that is bringing new
generations of talent through, from within the
Morrisons ranks. Continuity and management
succession are vital parts of the turnaround
and ones the Board will keep focusing on
very closely as the evolution of the senior
Executive and Non-Executive team continues.
COVID-19
At the time of writing, in mid-March, there
is unprecedented challenge for our country,
with the COVID-19 pandemic affecting almost
everyone in the UK. The confidence in food
supply is one of the key stabilising elements of
a public health crisis and it is our duty to steer
the Company through this period and support
the country more widely. As a food maker
ourselves, much of our supply chain is in our
own hands, and we are all working incredibly
hard throughout Morrisons to keep the shelves
stocked, to keep store standards high and to
serve our customers. Managing the business
through the crisis, getting on the front foot,
doing our best work, building our resilience
and becoming even more central to the
communities we operate in will help us
beat this pandemic together.
Andrew Higginson, Chair
Governance highlights
Board leadership and
Company purpose
• The Company’s purpose, values
p31
and strategy are aligned to its culture
• The views of key stakeholders are
considered in Board discussions
and decision making
p34
p38
p40
Division of responsibilities
• The Board comprises a majority
of Non-Executive Directors
• There is an appropriate mixture of
skills and experience on the Board
• Rooney Anand is the Senior
Independent Director
• Tony van Kralingen is the Non-
Executive Director designated to
engage with colleagues on behalf
of the Board
Composition, Succession
and Evaluation
• All Directors are subject to
re-election at our AGM
• The internal Board effectiveness
review found the Board to be
effective, with a well balanced
set of capabilities, experiences
and expertise
Audit, Risk & Internal
Control
• 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 is satisfied with the
effectiveness of internal control
and that risk is being managed
effectively across the Group
Remuneration
• The Board is satisfied that
p46
remuneration policies and practices
support the strategy and promote
long-term sustainable success
• The updated Directors’ Remuneration
Policy will be tabled for shareholder
approval at the 2020 AGM
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
5
Strategic reportGovernanceFinancial statementsInvestor information Chief Executive’s statement
“ During the year, the tough trading conditions
weighed on sales, but we kept focussed on our
customers and our priorities – investing in
the Morrisons price list, delivering good quality,
improving availability, and closely managing
our costs.”
David Potts, Chief Executive
Momentum maintained in
a more challenging year
2019/20 was our fourth year of
turnaround and, in many ways, proved
to be our most challenging to date.
In more difficult conditions, I was
pleased with the further progress we
made, continuing the momentum of
our Fix, Rebuild and Grow strategy.
However, at the time of writing in mid-March
we are facing into a very rapidly developing
crisis, the COVID-19 pandemic. It is a time
of unprecedented challenges and we are
managing the business through the crisis with
the welfare of colleagues, customers and
all stakeholders at the front of mind.
The last year
The very favourable summer weather
and events such as the football World Cup
in 2018, we always knew we were going to make
for tougher year-on-year sales comparatives
in 2019, but we also faced added challenges.
Prolonged and unprecedented political debate
over Brexit, plus a mid-December general
election during our peak trading period,
meant elevated levels of customer uncertainty
throughout the year which weighed on
shoppers’ confidence.
In 2019/20, the food retail market, always very
competitive, became collectively more so with
much higher levels of promotional activity.
So, after three years of positive like-for-like,
it was disappointing to report lower sales
for the year. We will, of course, take some
learnings into the new year.
However, despite the tough trading conditions
weighing on sales, we kept focussed on our
customers and our priorities – investing in the
Morrisons price list, delivering good quality,
improving availability, and closely managing our
costs – and it was particularly pleasing to both
grow profits for the fourth consecutive year
and pay another special dividend.
Important plans
We are confident we have some important
plans for the year ahead and beyond. We have
introduced a fourth phase of our strategy –
‘Sustain’ – emphasising the critical importance
of our broader societal and environmental
responsibilities, and also striving to sustain
the strong momentum of the turnaround
so far and take opportunities to
differentiate Morrisons.
Further progress is on many fronts: We are
continuing to invest in the Morrisons price list,
and are becoming cheaper across a basket
of our customers’ favourite items, both
Morrisons own-brand and manufacturers’
brands. For example, our basket of hundreds
of Christmas items was once again very
competitive, with most prices the same or
lower than last year. We will keep on investing
– lower prices mean more customers coming
to Morrisons more often and more volume
through our stores, both of which are key for
the continued momentum of the turnaround.
6
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Morrisons unique brands are taking shape.
‘Morrisons Makes It’, ‘Naturally Wonky Naturally
Wonderful’, ‘Best’, ‘Free From’ and our vegan
range, ‘V Taste’, are all going from strength to
strength and are good examples of our great
value, authentically British fresh food, made by
our skilled team of food makers. In non-food
‘Nutmeg’ clothing is growing very rapidly,
as too is Home and Leisure.
In addition, we are unique in owning our own
fresh food businesses and brands, including
International Seafoods Ltd, based in the port
town of Grimsby, and Woodhead Bros, our
fresh meat business. We are introducing low
price, great value ranges under these and
other exclusive Morrisons brands.
On Market Street we employ thousands of
butchers, bakers, fishmongers, florists, and other
highly skilled food specialists. Throughout the
whole store, our knowledgeable and friendly
colleagues are part of what makes us different
from other supermarkets, and something
our customers love most about Morrisons.
We recently announced that we would be
investing in 4,000 net new frontline jobs,
all aimed at serving our customers better.
We are removing over 3,000 managerial roles
and creating 7,000 new customer-facing roles.
This new colleague structure is exactly aligned
with our food maker, shopkeeper credentials,
and will put more pairs of hands on the shop
floor, helping us stand out from the retail
crowd and realise some of the productivity
opportunities in our stores.
New format innovation is also beginning to
come through, creating further opportunities
for us. Our new store in Canning Town is our
first with a Market Kitchen food-to-go offer, and
we opened our first smaller community store,
in Bolsover. We hope to develop many of these
format and property learnings across our store
estate over coming years. We were also very
pleased to achieve a total consideration of
around £120m for our store and site in Camden,
which will be re-developed into a new Morrisons
store, residences and businesses.
4,000
Net new front line jobs
38
Stores picking online orders
7th priority
Digitalising all aspects of our
business is becoming increasingly
important. Naturally digital
has become our seventh priority
Broader, stronger, naturally digital
Away from our supermarkets, we are also
making further good progress towards
becoming a broader and stronger business.
In wholesale, with McColl’s we are trialling the
conversion of some of its shops to Morrisons
Daily convenience stores. Sales so far are
strong, and we are currently further tailoring
and testing the proposition as we begin to
transition McColl’s remaining ex-Co-op stores
to Morrisons wholesale supply. We are
growing sales with all our other wholesale
customers, including with Amazon, where the
Morrisons store on Prime Now, our ultra-fast,
same day online grocery home delivery
service, has now extended to eight cities
across the UK.
In online, we continue to grow quickly.
We have deferred our entry into Ocado’s
Erith Customer Fulfilment Centre (CFC) until
early-2021, when we expect reduced start-up
costs. In the meantime, our part of the existing
Dordon CFC is running at near-capacity and
we are now picking Morrisons.com orders
from almost 40 of our stores, and have
extended our coverage area to over 90%
of British households. In addition, we have
begun a click and collect trial for customers
in six stores, and have recently launched our
‘Nutmeg’ clothing offer online.
As we plan progress across many fronts,
digitalising all aspects of our business is
becoming increasingly important and relevant.
So much so that ‘naturally digital’ has now
become our seventh priority. We have set
up a team to identify opportunities and act
at pace to create value for all stakeholders
by building digital solutions which will help
us organise our colleagues and processes:
to simplify all aspects of Morrisons, eliminate
wasted effort, improve the shopping trip,
and become more popular and accessible
for customers. It will involve working with
existing teams and infrastructure to improve
or accelerate what we have, rather than invest
significant new capital.
Sustainability spotlight
Our sustainability focus
‘Sustain’ is a core priority of
our business and underpins
everything we do.
A key part of this is the role Morrisons
is playing in helping lower the use of
carbon, and reducing our business and
customers’ reliance on plastic. It also
means supporting British farmers,
reducing food waste and supporting
our suppliers to source responsibly.
We are committed to being a positive
force in the communities we serve,
and are working towards making our
business truly integrated locally.
www.morrisons-corporate.com/cr/
corporate-responsibility/
A strong team
In the end though it’s about people.
Digital technology plays a key part, but
Morrisons people are making the difference.
We were delighted to welcome Michael
Gleeson to the Board as Chief Financial
Officer and Trevor Strain to his new role
as Chief Operating Officer. We have also
recently made some changes to the
Executive Committee, which is responsible
for day-to-day operations and strategy of
the business. Andy Atkinson is now Group
Commercial Director and David Lepley, an
experienced retailer, has been promoted
to the role of Group Retail Director. I am
excited as these new generations of talent
rise through the Morrisons ranks.
Most importantly though, I would like
to thank all our colleagues – in the stores,
manufacturing, distribution, and offices.
Last year was more difficult, and recent weeks
facing into COVID-19 have been incredibly
testing for all, but our colleagues have been
exceptional in their flexibility, professionalism,
resourcefulness and positivity. We promise
to keep working as hard as we can for
all stakeholders as we overcome this
virus together.
David Potts, Chief Executive
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
7
Strategic reportGovernanceFinancial statementsInvestor information Seven priorities
in action
We are making progress on our priorities
as we continue to listen to and learn from our
colleagues and customers.
These case studies illustrate progress
made this year in building a broader,
stronger Morrisons and delivering against
our seven priorities.
1
To be more competitive
2 To serve customers better
3
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
7 Naturally digital
Any case studies identified with the
symbol below are part of our corporate
responsibility objectives.
CR Corporate Responsibility
To be more competitive
Customers trust and rely on Morrisons
to provide great value, especially on
their favourite items.
• We continue to invest in the shopping trip
and improve our relative competitiveness
for customers.
• Being more competitive is about good
quality as well as great prices. During the
year we improved product specification,
packaging and merchandising across
hundreds of our customers’ favourite items.
• We are making good progress developing
our brands such as ‘Morrisons Makes It’,
‘Naturally Wonky Naturally Wonderful’,
‘Best’, ‘Free From’ and our vegan range
‘V Taste’. We are also adding items from
our unique manufacturing business, with
brands such as International Seafoods
and Woodhead Bros.
• In non-food, our Home and Leisure range
is progressing well. ‘Nutmeg’ clothing is
growing very rapidly and is now available
online for both home delivery or click
and collect from any Morrisons store.
Sustainability spotlight
Reducing plastic packaging in our loose fruit and veg areas
We are extending our plastic-free
fruit and veg areas in stores.
This follows a ten-month trial in three of our stores
in Skipton, Guiseley and St Ives, where the amount
of loose fruit and veg bought by customers
increased by an average of 40%. Customers are
able to purchase up to 127 varieties of loose
fruit and veg including everyday essentials such
as potatoes, cabbages, cauliflowers and apples,
as well as seasonal varieties such as celeriac.
The move to loose fruit and veg will reduce our
use of plastic by an average of three tonnes per
week, equating to around 160 tonnes per year.
This initiative rolled out to over 60 stores
during 2019.
1
2
3
6
CR
www.morrisons-corporate.com/cr/
policy/plastics/
Price crunch
customer favourites
1,300
own-brand
customer
favourites
During 2019, we commenced
our ‘Customer Favourites’
initiative, lowering prices on the
products that matter the most
to customers.
We’ve identified around 1,300
own-brand customer favourites
to focus on, cutting prices
within this basket.
The programme looks to improve
both the quality and value of
these products, carrying out
benchmarking activities to ensure
product and packaging quality.
In store, additional focus is given
to merchandising, point of sale
and product availability.
1
2
6
8
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Find local solutions
Our aim is to be truly integrated locally,
to be part of local communities, helping
them thrive in a sustainable way.
• We hosted another ten Local Food Maker
events during the year, at venues from
Fort William to Folkestone. We have now
surpassed a key milestone of 1,000 new,
local products, which we have sourced
from 37 Local Food Maker events held
across Britain in just three years.
• Many local food makers are continuing
to expand their geographic reach through
their relationship with Morrisons.
• Our Fresh Look programme continues
to provide us with local opportunities.
At Lake, on the Isle of Wight, our Fresh
Look refit delivered our most integrated
local store so far.
• We provide support for local communities
through dedicated in-store Community
Champions, community rooms where local
groups can meet, and education and support
programmes to help local customers enjoy
eating well and address local issues.
• We also continue to improve our offer
around events and local demographics.
To serve customers better
Customers tell us provenance, authenticity
and service are very important.
• We are making investments to improve
service for customers and in Market Street,
and to increase the amount of plastic-free
loose fruit and veg.
• Morrisons.com continues to grow. We can
now access over 90% of British households
through a combination of central fulfilment
and store pick in almost 40 Morrisons
supermarkets. We have also begun a click
and collect service in six stores.
• We have introduced an initiative called
‘Too good to go’ in all of our stores allowing
customers to purchase goods which are at
risk of being wasted, at a discount.
Sustainability spotlight
Truly local at our Lake store
Customers are increasingly looking
to buy local products and we
now stock more than 1,000 local
products, from 220 local suppliers.
Our store at Lake, Isle of Wight, is our
most integrated store so far, stocking locally
supplied milk, cheese, cream, coffee, eggs,
meat, tomatoes, biscuits and garlic, and
the top selling cream in the store is supplied
by Briddlesford Lodge Farm & Dairy, situated
just seven miles from the store.
1
2
3
4
6
CR
my.morrisons.com/
foodmakers/local-sourcing/
BRITISH GROWN
‘Nutmeg’ range expands
489 stores
‘Nutmeg’ clothing is available
in 489 stores, with womenswear
growing throughout the year
and now being stocked in almost
300 stores, alongside our already
established childrenswear
range. We have also released
‘Nutmeg’ gift cards, launched
‘Nutmeg’ online and have plans
to introduce menswear.
1
2
3
4
6
7
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
9
Strategic reportGovernanceFinancial statementsInvestor information
Seven priorities
in action
continued
Expanding our services
Market
Kitchen
Our new store in Canning
Town is the first to include
a Market Kitchen which offers
food-to-go options including
smoothies, wraps and stir-fries.
1
2
3
4
6
Develop popular
and useful services
We continue to develop and expand
popular and useful services at Morrisons,
providing more reasons for our customers
to visit us.
• We have installed 100 rapid electric vehicle
chargers at our stores, which are of the
highest specification available, and allow
Morrisons customers to fully recharge their
electric vehicles within 20 to 60 minutes.
• After a successful start last year, we now
have 50 Travel Money currency exchange
kiosks in our stores.
• We now have around 35 hand car washes
through our partner, Car Park Valeting,
and are part of the Responsible Car Wash
Scheme. We are also starting to introduce
more high street offers onto our car parks.
For example, we have launched the
cash-for-clothes service, Smart Recycling,
into nine stores, and have plans for more
popular services such as barbers, beauty
bars, windscreen repairs and travel pods.
• We have launched both Morrisons and
‘Nutmeg’ gift cards, introduced new third
party gift card fixtures, digital gift card
screens, and expanded the range of gift
card services.
10
To simplify and speed up
the organisation
Many components of our Fix, Rebuild, Grow
and Sustain strategy aim at simplifying
and speeding up, demonstrating how our
priorities are interconnected.
• We are identifying several sources of
productivity and cost saving opportunities.
• We made good progress in improving the
shopping trip and being more competitive
for our customers across areas such as
merchandising, on-shelf stock holding,
and range optimisation. We also introduced
enhanced in-store systems to reduce waste
and markdown and to enable better visibility
of stock levels which improves availability.
• Work continues in our supply chain to
introduce forecasting tools to enable better
short and long-term order planning, and
for promotions. We have also completed
the implementation of a new fresh food
warehouse management system in
two depots.
• We have outsourced transportation
planning and operations at three of our
distribution centres and vehicle maintenance
at five sites, bringing greater simplicity and
flexibility to our distribution infrastructure.
• We are working more closely with suppliers,
forming simpler, more collaborative
relationships.
Investing in manufacturing
capability
9,000+
manufacturing colleagues
• We provide fresh food straight from
the factory
• A short supply chain keeps prices low
for customers and provides choice
• Over 9,000 colleagues at food
maker sites
• Increased automation is simplifying
and speeding up
1
2
5
6
7
CR
To make the core
supermarkets strong again
We continue to improve our existing store
network through our Fresh Look refresh
programme and are opening a handful
of new stores each year.
• Our Fresh Look refits and new stores
continue to provide learnings and changes
across the Morrisons estate.
• 44 Fresh Look refits were completed in the
year, bringing the total to almost 350 since
the start of the programme.
• We will continue the Fresh Look programme
and aim to have completed the refresh
on the whole estate over coming years.
• We introduced almost 70 more garden
centres for the summer season and
around 50 additional enhanced Home
& Leisure departments.
• We have started a programme to increase
investment in our Market Street service
counters. Customers tell us that our Market
Street fresh food offer and our skilled
craftspeople are highly valued and part
of what makes Morrisons different.
• All three of 2018/19’s new store openings,
at Abergavenny, St Ives in Cambridgeshire,
and Acocks Green in Birmingham are
performing well.
• We opened four new stores during the
year, which included two replacements.
The new stores include Canning Town,
which is our first store with a ‘Market
Kitchen’ food-to-go offer, and Bolsover,
our first smaller, ‘community store’ format.
• ‘Nutmeg’ womenswear is now in almost
300 stores and we have plans for a launch
of menswear.
Naturally digital
With technology changing the way customers
live and shop, we have added a seventh priority
– to be naturally digital.
• We have set up a team to identify
opportunities and act at pace to create
value for all stakeholders by building
digital solutions.
• This team and technology will help us
organise our colleagues and processes to;
simplify all aspects of Morrisons; eliminate
wasted effort; improve the shopping trip;
and become more popular and accessible
for customers.
• It will involve working with existing teams
and infrastructure to improve or accelerate
what we have, rather than re-invent or invest
significant new capital.
• As digital solutions aim to change things
fast and once, they are increasingly the
natural way to execute many elements
of our Fix, Rebuild, Grow and Sustain
turnaround strategy.
Garden centres
250+
We introduced almost 70 more
garden centres for the summer
season, taking the total across
the estate to over 250, as our
Fresh Look refits and new stores
continue to drive innovation.
1
2
3
4
6
Sustainability spotlight
Our charity partner: CLIC Sargent
Our fundraising partnership with
CLIC Sargent reached a total of
£11m in January 2020. In late 2019,
we decided to extend the initial
three year partnership by a further
12 months, until February 2021.
The highlight of this final year of
fundraising will be the opening of
a new CLIC Sargent ‘Home from
Home’ in Manchester.
2019 saw increased colleague fundraising
with more people than ever before taking on
challenges and organising fundraising events.
133 colleagues took part in CLIC Sargent’s
sponsored Snowdon trek in July, and many
more took part in store and site activities,
such as Childhood Cancer Awareness Month.
Other notable events included four ‘Every
Pack Gives Back’ campaigns, together with
the launch of a special own-brand ice cream
and a bespoke shopper bag, designed by CLIC
Sargent children, to raise money for the charity.
To date, the partnership has funded over
7,800 grants for families facing the unexpected
costs of cancer, a ‘home comforts’ scheme
at CLIC Sargent ‘Home from Home’, and has
created a Nurse Educator programme to help
improve young people’s cancer care.
“ Morrisons are incredible and
we feel so grateful to have
their support as a charity
partner. We’re in awe of
what they’ve raised for CLIC
Sargent in the last year –
our partnership just keeps
getting better and better.”
Kate Lee, Chief Executive, CLIC Sargent
www.morrisons-corporate.com/cr/
charity-of-the-year/
BRITISH GROWN
11
Strategic reportGovernanceFinancial statementsInvestor information
Morrisons sites and brand
Our brand is more accessible, more popular
and we are broadening the markets we operate
in to become more relevant to more people.
12m
We serve an average
of around 12 million
customers every week
50There are 50 Morrisons
Daily convenience
stores on our own
forecourts and we
have 335 petrol filling
stations in total
492Supermarkets conveniently
located across the UK
90%
Our online home
delivery service
is now available
to over 90% of
British households
North
117
00
Number of stores by area
Distribution centre
Manufacturing site
Central
145
South
230
12
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Our brands
Our wide range of brands cater for all tastes
and budgets, from our entry price ranges:
Savers, Woodhead Bros, International Seafoods
and Greenside Deli to The Best range, for those
special occasions and treats.
Veganism is becoming increasingly popular
and we have extended our own-brand vegan
range, V Taste. Our Free From range continues
to expand and includes products such as
jackfruit pizza, as well as vegan pasties and
rolls available at our Market Street counters.
Renowned for provenance and authenticity,
our own-brand crumpets and pitta bread,
are manufactured at our Rathbones bakery.
Market Street is a brand in its own right.
Recognised and valued by customers, it offers
traditional market counters where skilled
colleagues prepare food exactly the way
customers want, in exactly the portions they
want – from hand cut steak and filleted fish,
to hand finished cream cakes and personalised
giant cookies.
‘Nutmeg’ is increasing in popularity and we have
extended the range into other categories such
as baby accessories, toothpaste, mouthwash
and skincare. Our ‘Nutmeg’ Womenswear
range is now available in 293 stores and is
available to buy online.
Our sites
At Morrisons we have 492 conveniently located
supermarkets, along with 50 Morrisons
Daily convenience stores located on our
petrol forecourts, served by our seven
regional distribution centres and our
national distribution centre.
During 2019, we opened two new stores;
one at Bolsover, which is a ‘community’ format
store of 15,000 square feet, and one at Canning
Town, along with two replacement stores
at Folkestone and Oswestry, all of which are
proving very popular with new and existing
customers. The store at Canning Town is
our first to incorporate ‘Market Kitchen’,
an innovative food-to-go offer.
During the year, 44 stores received a Fresh
Look refit and now benefit from a new look,
innovation in produce, Food To Go, Café, Barista,
Home & Leisure, Garden and Party. Our store-
pick online delivery service has been extended to
38 stores and, together with our central fulfilment
model, over 90% of British households now
have access to our online offer. Morrisons store
on Prime Now, the ultra-fast same day grocery
service, in partnership with Amazon, has been
expanded to 17 stores, in eight cities.
As the UK’s biggest fresh food maker, our
18 well invested manufacturing sites make
and supply our stores with meat, fish, bakery,
flowers, cooked meats, pies, quiches, pastries,
cheese and eggs, as well as fruit and veg.
This provides unrivalled provenance and we
work closely with British farmers and growers,
to utilise whole crops, reduce food waste and
provide good quality, great value products,
which customers love. In addition to our
‘Naturally Wonky Naturally Wonderful’ brand,
we have partnered with ‘Too Good To Go’
to offer discounted one kilo boxes of fresh
products which have come to the end of their
shelf life, but are still perfectly good to eat.
A few of our brands:
220
local food makers
p9
For more detail
Over
50%
of the fresh food
we sell is made
by us
8Distribution centres
18Manufacturing sites
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
13
Strategic reportGovernanceFinancial statementsInvestor information Our customers
Listening hard and responding to changing
demands of our customers.
In addition, more and more colleagues are
spending more time in stores with customers,
understanding their views on the shopping
experience and learning how we can improve.
As a result of all this listening, we know
that great value for money, good quality and
a quick and easy shopping trip is important
to customers. The IGD reports that 85% of
shoppers are trying to improve their diet in
some way, adopting a variety of techniques
to achieve this. Our customer listening helps
us understand these trends and how we
can better serve customer needs.
Morrisons More Card continues to be popular
with customers who enjoy earning points and
money off their shopping trip. Through the
More Card we capture millions of transactions
a year, giving us a huge source of data which
helps us further understand customer
behaviours. This year, we developed tools
which enable us to analyse data more quickly
and easily, making this crucial information
available to more colleagues around the
business, so that we can continue to
improve the shopping trip.
Truly integrated locally
Customers tell us how important ‘local’ is to
them, particularly within produce, meat and
dairy, and our local sales continue to grow.
Our ambition is to become ‘truly integrated
locally’ providing more locally produced
food and drink to more stores and being
more locally relevant and integrated in the
communities we serve. See page 9 for detail
on progress of Local Solutions.
Love index
18,256
We had 18,256 ‘love’ reactions and
7,405 ‘love’ mentions on social
media this year.
The Love Index is all about sharing
the reasons why customers
love Morrisons.
Grocery market and
consumer confidence
The Institute of Grocery Distribution (IGD)
forecasts modest growth in the grocery
market over the next few years, with the UK
grocery market expected to grow +12.5% by
2024. Online is set to be the fastest growing
channel, driven by improving fulfilment
options and multi-channel developments.
Supermarkets will remain the largest channel,
with marginal growth and a focus on
competing harder on price and offering
a differentiated customer experience.
UK consumer confidence has been declining
since August 2018 and through much of 2019
was at a six-year low. The lack of confidence
is particularly apparent with regards to the
general economic situation.
Brexit continues to cause uncertainty
for customers. While Brexit Day passed on
31 January 2020, uncertainty still remains
around the conclusion of the transition
period and detail of future trading relationship
with the EU. The subsequent potential
for price increases is causing concern for
many. Media coverage of potential delays to
imports and government contingency plans
for food and medical shortages have added
to existing fears.
Our vertically integrated supply chain means
we are well placed to mitigate the potential
impacts of different UK – EU trade scenarios,
and we have been working hard to put plans
in place to minimise the impact of all scenarios.
In these times of uncertainty we continue
to focus on our priorities. Driven by our
core purpose, we are seeking to find ways
in which we can continue to improve and
be more competitive.
Listening and responding
to customers
Listening to customers and responding
quickly is at the heart of our business.
We must understand customers’ constantly
evolving needs and expectations in order
to grow and compete.
In the last year, almost a quarter of a million
of our shoppers gave us feedback regarding
their experiences in our stores, while one and
a half million customers got in touch with us
via our customer service contact centre team.
These interactions provide a rich and valuable
source of data, feedback which we capture,
analyse and share across the business.
Outcomes for 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
Consumer confidence
-6
-7
-8
-9
-10
-11
-12
-13
-14
-15
Jun
18
Dec
18
Jun
19
Dec
19
Source
GFK monthly consumer confidence index,
20 December 2019.
UK grocery market size forecast
(£bn)
2024
2023
2022
2021
2020
2019
218
212
207
202
198
194
Source
Institute of Grocery Distribution (IGD).
Composition of UK grocery market size
2019 vs 2024 (% share)
2019
2024
2024
forecast
2019
Supermarkets
46.5% 42.6%
Convenience
21.4% 22.2%
Discounters
12.6% 15.8%
Hypermarkets
7.4%
8.4%
Online
6.0%
7.7%
Other Retailers
6.1%
3.3%
Source
Institute of Grocery Distribution (IGD) (June 2019).
14
Sustainability spotlight
Healthier choices: chilled ready meals
85%
of shoppers are trying to improve
their diet in some way1
Service and value
We have made improvements to the customer
shopping experience this year, increasing our
average customer satisfaction score by +3% pts
across 2019/20, driven by improvements in item
availability and presentation of fresh food.
Customers continue to tell us that they rate us
highly for the expertise and friendliness of our
colleagues, which they regard as important.
Value for money is one of the most
important reasons customers choose a
grocery retailer. We continue to reduce prices
through ‘Price Crunch’ and a compelling
promotional programme.
This year we launched an initiative to reduce
prices and benchmark quality on ‘Customer
Favourites’ (see case study on page 8). This has
already driven increased sales and volumes.
Within own-brand, we also improved our entry
price point brands with the launch of value
brands which are primarily produced in our
own fresh food sites including ‘International
Seafood Co’ and ‘Woodhead Bros’. In addition,
January 2020 saw the early stages of a new
brand direction within the rest of our entry
price point range.
Offering healthier choices
Our listening programmes tell us that
customers are more conscious than ever about
their food choices. Free From and Veganism
are important trends and growth areas, as is
providing healthier choices, such as products
with lower calorie, sugar and salt content.
We recognise that we have an important role
to play in helping customers lead healthier
lives, and this year we continued our nutritional
reformulation removing more salt, sugar and
fat from our own-brand products.
We have made, or are making, improvements
to our brands which support customers
with healthier eating or specific dietary
requirements.
Our ‘Counted’ range, which provides a calorie
controlled alternative to our customers’
favourite meals, launched in January 2019.
The range focuses on improved quality,
new products, revised nutritional criteria
and clearer on pack communication.
We have also extended our ‘Fresh Ideas’
brand, providing fresh and nutritious meals,
meal components and ‘on the go’ solutions
to help our customers enjoy eating well.
Free From is an important and rapidly
growing area of our business and this year
we continued to develop our offer in this
area for customers.
Veganism and vegetarianism are growing
trends, and many customers are consciously
choosing to reduce meat consumption for
health, sustainability and ethical reasons2.
Having launched our ‘V Taste’ range in
November 2018, we continue to develop
our range of vegan and vegetarian products,
to meet increased demand.
Customer service and Market Street
We have commenced a programme focussed
on improving our customers’ experiences.
This programme is about listening hard
and responding quickly to feedback from
colleagues and customers; and by doing so,
we have seen average customer satisfaction
improve and colleague engagement increase.
Over 4,500 colleagues have completed
additional customer service training, where
the emphasis has been on putting customers
first through teamwork to deliver great
service for our customers.
We relaunched our range of Morrisons
chilled ready meals, comprising 100
new or improved products.
Based on 52 weeks of sales, the reformulated
range now has over 679 million fewer calories,
58 tonnes less sugar, and 38 tonnes less fat
compared with the previous range. The new
products include a number of popular cuisines
such as Chinese, Indian, Italian and Korean.
For further information, please see our 2019/20
Corporate Responsibility Report which can be
found at www.morrisons-corporate.com/cr/
corporate-responsibility/
Customers value the expertise of our food
makers on Market Street, and we continue to
provide training and development for our
team. Since November 2018, over 3,000 Market
Street colleagues have completed training
sessions focussed on offering customers
the very best service across our counters,
including tastings and advice.
As well as the service we provide in store,
we believe that Morrisons has an important
role within local communities. In a number of
stores, we have increased the hours our store
teams can dedicate to supporting local causes
each week, and we have also made more
cafés available for use by community groups.
Minimising our
environmental impact
Reducing packaging, particularly plastic,
continues to be an important issue
for customers.
Although plastic remains important to protect
and preserve food, we have nevertheless made
significant progress in reducing unnecessary
plastic packaging by removing expanded
polystyrene from all of our own-brand food
and drink products. We also provide customers
with more opportunities to reduce their
plastic consumption by offering reusable paper
bags and more loose products such as fruit,
veg and eggs (see page 24 for more detail
on our progress on plastic).
In addition, we are continuing to make recycling
easier for customers by moving recycling
information to the front of our packaging.
Where a product is widely recyclable we have
added a green logo to the front of packs to
increase awareness among customers while
also continuing to provide the usual icons
on the back of packs.
1 IGD Report, June 2019.
2 Mintel Meat Free Foods, 2018.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
15
Strategic reportGovernanceFinancial statementsInvestor information Our colleagues
United by our ways of working, our team of talented
food makers and shopkeepers are our biggest asset.
Outcomes for colleagues
Engaged and motivated colleagues
Colleagues sharing in the success
of the business
A fair day’s pay for a fair
day’s work
Our 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 across our stores, sites and
central teams:
1 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.
2 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 those
times of the year that mean the most to
them, such as Christmas and Easter, all
colleagues working in central roles help
out in stores.
3
4
5
Freedom in the framework
Freedom in the framework means
colleagues have the freedom to, 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.
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
We want all our people to have their say on
what matters, so we are involving all 98,000
food makers and shopkeepers in delivering
our Fix, Rebuild, Grow and Sustain plan.
Acting on their frontline insights means we
can continually improve the business for all
our stakeholders.
This year we were pleased that 79% of
colleagues took the opportunity to complete
our annual ‘Your Say’ survey. This was the
highest ever proportion of colleagues to
participate, and we recorded a strong overall
engagement score of 77%, which was up on
last year’s result.
Highlights from the survey included colleagues
telling us they are clear on what they are
expected to achieve in their job (91%) and that
they understand how their work contributes to
the success of the business (88%). The survey
also identified improvement areas where
we have ways to improve, such as increasing
the regularity of our ‘Your Say’ forums and
providing colleagues with more opportunities
for them to develop and progress.
77%
Colleague engagement index
(2019: 76%)
Our ‘Your Say’ forum meetings take place
monthly in stores and sites, as well as quarterly
at a regional level and twice a year nationally.
They provide a mechanism for colleagues to
share opportunities to improve the business,
and discuss these with local management,
members of the Executive Committee and
Non-Executive Directors. Recent improvements
suggested by colleagues have included more
time to complete product markdown in some
stores to improve sell-through, additional
messages on product shippers to highlight
product protection, and increasing the number
of locations that our office colleagues are able
to support through ‘Teamwork days’ to include
depots and manufacturing sites.
Managers who listen, help and support
By creating and developing the right culture
and environment for all our colleagues, they
are able to make the maximum contribution
to our turnaround.
This year we invited store and people managers
to attend our ‘Leading with Purpose’ programme,
which incorporated specific additions to
support the managers’ work on workplace
culture. The programme equips managers with
the tools to lead their teams in solving increasingly
complex business problems. It also enables
them to adapt and lead in different situations,
while continuing to provide high levels of
support to get the best out of their teams.
Over half of our store and people managers
attended the programme in 2019, with the
remainder due to attend in 2020. This investment
was complemented by our ‘Teamwork Meeting’
for leaders across the business at which we
focussed on the ‘Core Purpose’ and how this
is continuing to guide our plans into the future,
including by increasing the involvement of all
our colleagues in running the business.
Sustainability spotlight
‘My Wellbeing’ continues to provide helpful advice
‘My Morri’, our digital platform
for colleagues, provides useful tools
and resources. Recent additions
include ‘My Wellbeing’ which gives
colleagues helpful advice on topics
such as nutrition, sleep, stress
awareness and mental health.
my.morrisons.com/blog/lifestyle/
16
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Tools and training to do the job
We have continued to invest in digital tools
for colleagues, expanding our colleague
platform ‘MyMorri’ to include resources for
shrinkage, guidance on wellbeing and an
improved electronic handbook.
We have also been listening to colleagues
through our ‘Company-wide effort’ initiative.
This has led to, for example, improved systems
such as our ‘Stock and Systems App’ which,
supported by training at the shelf edge, is
saving colleagues time on core processes so
they can focus on serving our customers.
Furthermore, we were pleased to introduce
our new people, payroll and time and
attendance system into Head Office and a
small number of stores. This new, modern
system simplifies existing people processes,
allows colleagues to manage their own data
and availability to work, and to swap shifts
with other colleagues or pick up overtime
electronically. We will roll out the system
into all stores and sites, and expect to see
significant colleague work-life balance and
flexibility benefits.
A fair day’s pay for a fair day’s work
One of our ambitions for our people is
ensuring everyone receives fair rewards for
their contribution to our turnaround and
business performance.
During the year we again improved our hourly
rate of pay for frontline store colleagues,
moving it from £8.70 to £9.00 per hour, with
a further increase to £9.20 an hour from April
2020, maintaining our competitive position
in the marketplace. Our frontline colleagues
in stores and sites also shared in our annual
colleague bonus scheme.
At the same time we reduced the weekly
contract hours of our store management
team, with no loss of pay, to support better
work-life balance.
Social Mobility Employer Index
Top 30
In 2019, we were again placed in the top 30
in the Social Mobility Employer Index by
the Social Mobility Foundation.
Working with greater purpose
During the year we also continued to listen
hard to our colleagues about how we could
enable them all to work with greater purpose.
In January 2020 we confirmed our plans
to introduce a flatter management team
structure into all our stores, focussed
on taking end-to-end accountability for
their department areas and more directly
supporting their colleagues.
At the same time, we also described our
plans to create more colleague roles in
store, to better serve customers as well as
improvements to colleague communications
and the processes for involving colleagues
in business improvement initiatives.
An opportunity to develop,
progress and grow
Nurturing existing talent and bringing new
talent into the business continues to be a
priority. During the year, we were pleased
to place a further 250 colleagues onto craft
apprentice schemes in butchery, bakery
and fish as we continue our tradition of
growing real craft food makers. This number
is in addition to the 45 colleagues who took
up apprenticeships in areas as diverse as
floristry, abattoirs and food science.
Our degree apprentice and graduate
programmes continue to play an important
role in attracting young talent and create a
pipeline for management roles. This year, over
150 colleagues started on these schemes, with
one in three joining through our ‘Generations’
campaign, which provides priority assessment
for friends and families of existing colleagues.
We also expanded our ‘Morrisons in schools’
programme, partnering with almost 400 schools,
as we work locally to offer opportunities and
support social mobility. We were pleased to
be recognised as the Top Retail Employer for
school leavers for the second year running in
the ‘All About School Leavers’ award scheme1,
and have again been placed in the top 30 in
the Social Mobility Employer Index2.
Very highly valued and treated
with respect
Colleague wellbeing is very important,
and this year we took significant strides
to improve the support we offer.
For example, our new ‘My Wellbeing’ site
provides guidance for mental, physical, social
and financial wellbeing, as well as offering
access to resources provided through our
partnership with ‘Retail Trust’.
During the year we supported a number of
national campaigns, providing visibility and
creating good conversations around topics
such as mental health, the menopause and
testicular cancer.
Responding to issues raised by colleagues
in our ‘Your Say’ forums, we invested in
our store staffrooms, introducing new hot
and cold water fountains, reviewing and
improving menus and providing dedicated
fridges, so that colleagues are better able to
manage their own hydration and nutrition.
Our work to celebrate diversity continues
to progress. This year, our LGBT+ community
attended more Pride events than in any
previous year. We also developed plans to
create more opportunities for Black Asian and
Minority Ethnic (BAME) colleagues informed
by listening, while our ‘Women in Morrisons’
events were attended by over 600 colleagues.
The ‘Women in Morrisons’ initiative supports
our strong pipeline of female talent. Over the
last few years, we have seen our proportion
of female store managers increase from 7%
to around 20%, female buying managers and
senior buying managers increase from 44% to
55%, and female members of our leadership
team increase from 17% to 33%.
‘Your Say’ Forum
79%
of colleagues completed the ‘Your
Say’ survey this year, the highest
proportion of participation yet.
We also held many local, regional
and national ‘Your Say’ forums,
with suggestions, such as expanding
‘Teamwork’ days to depots and
manufacturing sites, being just
some of the recent improvements
we have made based on
colleague feedback.
1 ‘All About School Leavers Awards’ 2019 Retail Industry winner.
2 Social Mobility Foundation, Social Mobility Employer Index 2019.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
17
Strategic reportGovernanceFinancial statementsInvestor information Working with suppliers
Strong supplier relationships, based on mutual respect and benefit,
continue to be key to Morrisons becoming broader and stronger –
our growth means growth for our suppliers.
Outcomes for suppliers
Establishing lasting relationships
Working together with
simplified terms
Ways of working that comply
with the Groceries Supply Code
of Practice
Listening and responding
Strong supplier relationships, based on mutual
respect and benefit, continue to be 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 longer-term
relationships with suppliers and developing a
consistent framework for our ways of working
together. Our progress was reflected in this
year’s scores in the industry survey carried
out by the Groceries Code Adjudicator (GCA),
which shows us continuing to be recognised
for the overall improvement in the way we
work with suppliers.
Listening is central to this progress. By regularly
engaging with suppliers at all levels, and
understanding their views, we can simplify how
we work, and improve the areas that matter
most to them. For example, during the year,
we continued to focus on improving how
we work together on promotional activity
and planning.
This included planning further in advance,
simplifying the way we execute promotions
in store and collaboratively agreeing forecasts
with our suppliers.
In 2018/19, we introduced our supplier portal,
a free-to-use platform that enables suppliers
and buyers to document and store agreements.
We have listened to suppliers’ feedback and
have continued to improve the tool to simplify
the way we work together.
Food we are all proud of
We are food makers and shopkeepers, with our
Market Street colleagues making a huge range
of fresh products in store every day, that our
customers truly value. We work closely with all
our suppliers to ensure we provide products
we are all proud of, and offer customers
great quality, removing unnecessary cost
to improve competitiveness.
We value innovation, and work together with
suppliers to bring new and exciting products to
our customers as well as ensuring the products
we sell are sourced in a sustainable way. In the
past 18 months, we removed over 4,000 tonnes
of plastic by various means including an increase
in the amount of loose fruit and veg we sell.
This alone is saving around 160 tonnes of plastic
packaging each year, while moving our 2019
Christmas cards from plastic to cardboard
boxes, saved more than 42 tonnes.
Best of British
100%
of our own-brand fresh meat,
milk and eggs are British. We work
with around 3,400 UK farmers
to give our customers the
best and freshest produce
all year round.
Direct sourcing, farmers and
small suppliers
We are proud to be British farming’s biggest
supermarket customer, supporting farmers and
the wider community throughout the British
food supply chain. We remain committed
to sourcing all of our fresh beef, pork, lamb,
chicken, turkey, milk, eggs and cream from
British farmers, and continue to strengthen
our relationships by working directly with,
for example, potato, onion and carrot growers.
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.
We continue to grow and expand our
manufacturing division. This year we integrated
our new Yorkshire egg packing business,
focusing on delivering the best quality
products while enhancing our efficiencies
to improve costs for our customers.
This year also saw us again conduct our Local
Food Makers events and to grow our range
of locally supplied products. This helps us stay
close to small British suppliers, giving them
an opportunity to engage with us and to
bring their products to our stores.
We continue to support British Farming and
our smaller suppliers by offering shorter
payment terms to these suppliers.
Paying suppliers on time is important to us,
with 99.5% of our suppliers paid on time,
as presented in the report covering 5 August
2019 to 2 February 2020 featured on the
government website1.
1 Government website www.gov.uk/check-when-businesses-
pay-invoices/ for the period 5 August 2019 to 2 February 2020.
18
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Sustainability spotlight
Free-range eggs
We have moved away from caged
eggs after doubling the number
of free-range farmers that supply
our egg packing business.
This means that 100% of our fresh eggs will
come from hens that have outdoor access
for at least eight hours each day, as well as
nest boxes with wide perches and spaces
for scratching and dust bathing.
We are also working to ensure that 100%
of eggs used as ingredients in our own-brand
products are cage free by 2025.
www.morrisons-corporate.com/media-
centre/corporate-news/free-range-eggs/
220
Local food makers and over
1,000 local products in 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 take our responsibilities
to suppliers seriously and have established
ways of working that enable us to build strong
collaborative relationships. For more details see
www.morrisons-corporate.com/suppliers/
supplier-information/
We listen closely to ideas on how we
can improve and, in response to supplier
feedback, have continued to invest in our
supply chain and commercial systems and
processes. Over the last year we made further
improvement to our promotional execution in
stores, invested in a new improved Morrisons
Supplier Database and provided further
enhancements to our Supplier Portal.
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. As in
previous years, our Code Compliance Officer
(CCO) has provided support to the GCA to
help familiarise new retailers designated to
operate under the Code.
Effective compliance risk management is
critical to delivering on our commitments to
all our stakeholders. We have well established
governance structures to support GSCOP
compliance, which we discussed in detail
with the GCA during the course of the year.
This includes a group consisting of senior
leadership team members from all relevant
functions. Routine updates are also provided
to our Executive Committee and to our
Corporate Compliance and Responsibility
Committee including developments about
the operation of the Code. We formally report
details of activity over the year as well as
specific concerns raised with our CCO to the
GCA and to the CMA at the financial year end.
Our Legal, Compliance and Internal Audit
teams work closely together to provide
colleagues across the business with the
tools needed to comply with the Code.
Using a range of formats, we provide training,
guidance and support to all colleagues in
our trading teams, together with bespoke
training for relevant colleagues in our supply
chain and finance teams. Throughout the
year, we review and update all of our training
activities and materials taking account of
any new learnings, building in current real-life
examples and reflecting additional guidance
from the GCA.
The 2019 GSCOP supplier survey conducted
by YouGov on behalf of the GCA placed
Morrisons sixth overall and the fourth most
improved of the 12 designated retailers.
Suppliers rated Morrisons as complying with
the Groceries Code ‘mostly’ or ‘consistently
well’ with a score of 92%. Working with the
GCA, we encouraged suppliers to complete
the anonymous survey, and this led to more
of our suppliers taking part than those of
any other designated retailer.
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 2019/20
we were contacted by suppliers to review
concerns including in the following areas:
• queries relating to goods and invoice
receipting processes;
• requesting review of supplier de-listing
decisions; and
• asking for clarification of contractual terms.
At all stages, we try to resolve the concern
by talking to the supplier openly and honestly
and this approach is generally successful
in reaching a swift resolution. As at the
end of the financial year there were two
direct Code related complaints which were
yet to be resolved. Contact details and
up-to-date information can be found at
www.morrisons-corporate.com/suppliers/
meet-our-buyers/
92%
Suppliers rated Morrisons as
complying with GSCOP ‘mostly’
or ‘consistently’ well
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
19
Strategic reportGovernanceFinancial statementsInvestor information Our shareholders
A robust balance sheet with low debt, a strong maturity
profile and significant cash flow generation.
“ Our capital allocation framework has
served the Company and its stakeholders
well and remains unchanged. Free cash flow
generation is significant and sustainable.”
Michael Gleeson, Chief Financial Officer
Outcomes for our shareholders
A strong balance sheet
A cash generative business
with low levels of debt
Strong financial performance
and returns
Introduction
I am pleased to be your new CFO.
Morrisons has a proud heritage, built on strong
financial foundations and we remain focussed
on maintaining our capital discipline principles.
2019/20 was another year of growth in profit,
significant free cash flow and increased ordinary
dividend, despite a tougher sales environment,
demonstrating that Morrisons turnaround can
be both consistent and sustained.
Momentum in building a broader, stronger
business continued, with wholesale again
expanding and further development of
different Morrisons brands and store format
innovations. As we enter our fifth year of
turnaround, we are taking some important
learnings and opportunities into 2020/21.
Summary income statement
2019/20
£m
17,536
2018/19
restated1
£m
17,735
521
(87)
1
435
432
(130)
1
303
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*
Revenue
Total revenue during the period was £17.5bn,
down 1.1% year-on-year. Revenue excluding
fuel was £13.9bn, down 0.8%. Group like-for-
like (LFL) sales excluding fuel were down 0.8%
over the year, including a negative contribution
from supermarkets of 1.4% and a positive
contribution from wholesale of 0.6%. Fuel sales
were down 2.5% to £3.7bn, impacted by a
highly promotional market.
For wholesale, sales grew with all our major
partners during the year, and we remain on
track for our target of £1bn of annualised
wholesale supply sales.
Morrisons.com continues to grow. In addition
to the Dordon customer fulfilment centre
(CFC), we now store pick our customers’ online
orders from almost 40 Morrisons supermarkets,
and have extended our coverage area to over
90% of British households. We have also begun
a click & collect trial for customers in six stores.
Operating profit
Operating profit
Adjustments:
– Impairment and provision
for onerous contracts
– Profit/loss on disposal
and exit of properties
– Store restructuring
and closure costs
– Other exceptional items
– Retirement benefit
exceptional items
Operating profit
before exceptionals*
2019/20
£m
521
2018/19
restated1
£m
432
(2)
(66)
51
9
–
10
–
–
42
26
513
510
We managed our costs well throughout
the period, which offset some of the
operating leverage impact of the lower sales.
Operating profit before exceptionals was £513m
(2018/19: £510m), with margin up 5 basis points
year-on-year to 2.9%. EBITDA* margin before
exceptionals was up 22 basis points, to 5.9%.
Group LFL sales
(exc. fuel)
2019/20
2018/19
2017/18
2016/17
2015/161
(0.8)%
(2.0)%
4.8%
2.8%
1.9%
Definition
See the Glossary on page 152 for a definition.
1 2015/16 does not include wholesale contribution
to LFL sales.
Net debt
(£m)
2019/20
2018/19
2017/18
2016/17
2015/16
1,082
997
973
2,458
2,394
2,386
1,194
1,746
Net debt excluding lease liabilities
Lease liabilities
Definition
See the Glossary on page 153 for a definition.
2019/20, 2018/19 and 2017/18 on post-IFRS 16 basis,
2016/17 and 2015/16 on pre-IFRS 16 basis.
£408m
Profit before tax
and exceptionals*
408
396
1 Restated for application of IFRS 16 ‘Leases‘.
13.18p
12.85p
Basic earnings per share
14.60p
9.89p
1 Restated for application of IFRS 16 ‘Leases’.
* Defined in the Glossary on pages 152 to 154.
20
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Profit before tax
Profit before tax
Adjustments:
– Impairment and provision
for onerous contracts
– Profit/loss on disposal
and exit of properties
– Store restructuring
and closure costs
– Other exceptional items
– Costs associated with the
repayment of borrowings
– Retirement benefit
exceptional items
– Net retirement
benefit interest
Profit before tax
and exceptionals*
Profit before tax and
exceptionals margin
2019/20
£m
435
2018/19
restated1
£m
303
(2)
(66)
51
9
–
–
10
–
–
42
33
26
(19)
(18)
408
396
2.3%
2.2%
1 Restated for application of IFRS 16 ‘Leases’.
Reported profit before tax was £435m
(2018/19: £303m). Profit before tax and
exceptionals was £408m (2018/19: £396m),
up £12m or 3% year-on-year.
Exceptional items recognised outside profit
before tax and exceptionals (as fully detailed
in note 1.4 of the financial statements),
were a net credit of £27m.
Of these, property disposal profit was £66m,
the majority of which relates to our Camden
store. Following a tender process, we sold
Camden and our eight acre surrounding site
to Berkeley Group for a total consideration
of around £120m. Berkeley will pay £85m cash
in stages over the years of the project, and
will build a new Morrisons supermarket and
convenience store on the site with a value of
£34m. The consideration will be received over
a number of years, so the proceeds have been
discounted, resulting in a property disposal
profit of £64m.
Restructuring costs were £51m, the majority
of which relates to the announcement in
January 2020 that we are investing in creating
more frontline jobs, and reducing some team
manager roles within stores.
Other exceptional items were £9m, mainly
relating to costs associated with improvements
in the Group’s logistics network. A £2m net
credit (2018/19: £10m charge) has been recognised
in respect of impairment and provisions for
onerous contracts following the Group’s annual
impairment review. Net retirement benefit
interest income, which as usual was recognised
outside of profit before tax and exceptionals,
was £19m.
The net incremental profit before tax from
wholesale, services, interest and online during
2019/20 was £14m, bringing the cumulative
profit so far to £68m. We remain confident
of our medium-term target of £75–£125m
incremental profit from these four areas.
Net finance costs
Net finance costs were £87m (2018/19: £130m).
Net finance costs before exceptionals were
£106m (2018/19: £115m).
Earnings per share
Basic earnings per share increased to 14.60p
(2018/19: 9.89p), and basic earnings per share
before exceptionals increased to 13.18p
(2018/19: 12.85p).
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 2019/20, Morrisons made net payments
of £1,178m to the UK Government of which
£611m was borne by Morrisons and the
remaining £567m was collected on behalf
of our colleagues, customers and suppliers.
Corporation tax payments made during the
year were £87m which was in line with the
tax charge of £87m in the income statement.
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
Debt acquired on acquisition
of business
Leases non-cash
Other non-cash movements
Movement in net debt*
Opening net debt*
Closing net debt*
2019/20
£m
2018/19
restated1
£m
1,058
(41)
983
(6)
1,017
977
34
(511)
(302)
9
(10)
(190)
–
12
–
(66)
(57)
(64)
22
(461)
(289)
7
(9)
(195)
(30)
15
(2)
(53)
10
(8)
(2,394)
(2,386)
(2,458)
(2,394)
1 Restated for application of IFRS 16 ‘Leases’.
Group net debt remained low at £2,458m,
compared to £2,394m at the end of 2018/19.
Of the £64m increase, £57m related to non-
cash movements ex-leases. On a pre-IFRS
16 basis (i.e. excluding lease liabilities), net
debt was £1,082m, up £85m since the end of
2018/19 (£997m). Free cash flow was £238m
(2018/19: £281m), or £295m prior to £57m
non-cash movements, which is up £24m
year-on-year.
Property disposal proceeds were £34m
(2018/19: £22m), the majority of which relates
to the initial instalment from the sale of
our Camden store to Berkeley Group.
The cash outflow from ordinary and special
dividends paid in the year was £302m, a
£13m increase year-on-year (2018/19: £289m).
The operating working capital* inflow was
£18m (2018/19: £9m outflow).
* Defined in the Glossary on pages 152 to 154.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
21
Strategic reportGovernanceFinancial statementsInvestor information Our shareholders continued
Capital expenditure
(£m)
2019/20
2018/19
2017/18
2016/17
2015/16
511
461
500
419
365
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.
Return on capital employed
(ROCE)
2019/20
2018/191
2017/181
2016/171
2015/16
7.0%
6.9%
6.7%
6.3%
5.6%
Definition
See the Glossary on page 154 for a definition.
1 Restated for application of IFRS 16 ‘Leases’.
Net retirement benefit surplus
(£m)
2019/20
2018/19
2017/18
2016/17
2015/16
272
186
944
688
594
7.0%
Return on capital employed*
* Defined in the Glossary on pages 152 to 154.
22
Summary balance sheet
Key balance sheet metrics
Fixed assets and investments
Working capital*
Provisions and tax
Net retirement
benefit surplus
Net debt*
Net assets
2019/20
£m
8,641
2018/19
restated1
£m
8,581
(2,038)
(2,013)
(548)
(537)
944
688
(2,458)
(2,394)
4,541
4,325
1 Restated for application of IFRS 16 ‘Leases’.
Retirement benefit
We recently completed the triennial pension
valuation as at April 2019, with a funding surplus
of £682m across the schemes. This compares
to a surplus of £111m at the last valuation at
April 2016.
At year end, the net retirement benefit surplus
on the balance sheet was £944m, up from
£688m in 2018/19. Net retirement benefit interest
income was £19m, up £1m year-on-year, reported
outside profit before tax and exceptionals.
Capital expenditure
Cash capital expenditure of £511m,
(2018/19: £461m) is at a sustainable level and
we maintained our capital discipline and
adherence to our capital allocation framework.
In the year, a further 44 stores went through
our Fresh Look programme, taking the total
to almost 350. Four new stores were opened
(including two replacements), and four stores
were closed during the period, with an overall
net reduction in space (including extensions),
of 4,000 square feet.
Borrowings
The maturity profile of our remaining debt
facilities is strong.
In September 2019, in advance of the upcoming
maturity of our Euro Bond, the Group issued
a £350m Sterling bond at a low fixed rate of
2.5%, which expires in October 2031. This was
issued under the £3bn Euro Medium Term Note
Programme. During the year, we also extended
our revolving credit facility by a further year,
resetting its five year term and resulting in a
maturity date of June 2024. In addition, we also
secured a further £100m 364 day committed
revolving credit facility which matures in July 2020.
Return on capital employed (ROCE)*
Return on capital employed increased to 7.0%.
The growth opportunities we are focussed on are
capital light and accretive to profit and returns.
Interest cover*
Net debt*/EBITDA*2
Gearing*
ROCE*
2019/20
4.8 times
2018/19
restated1
4.4 times
2.4
54%
7.0%
2.4
55%
6.9%
1 Restated for application of IFRS 16 ‘Leases’.
2 EBITDA before exceptionals.
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 proposed final ordinary dividend is 4.84p,
bringing the total ordinary dividend for the
year to 6.77p. Including the 2.00p interim
special dividend paid at the half year, the total
dividend for the year is 8.77p.
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 discipline principles around
low debt, well-funded pension schemes,
sustainable capex and our overwhelmingly
freehold store portfolio are fundamental, and
our strong track record in all of these makes
us distinct. Our capital allocation framework
has served the Company and its stakeholders
well and remains unchanged. Free cash flow
generation is significant and, over the last six
years, we have generated over £3.2 billion of
free cash flow and paid or declared 64.7 pence
per share in dividends, including four special
dividends. With sales on an improving trend,
profit growing for a fourth consecutive year,
and free cash flow continuing to be strong,
we had anticipated announcing another
special dividend at year end. Instead, during
the usual process of reviewing surplus capital
payments, we determined it would be prudent
to defer that announcement given current
unprecedented events around COVID-19.
This enables maximum future flexibility around
how we prioritise uses of our strong cash
flow and surplus capital, and we will keep
our capital allocation options under review.
Michael Gleeson, Chief Financial Officer
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Supporting communities
We aim to make a positive contribution
to the communities we serve, and to society more widely.
Our stores were at the heart of the community
effort; arranging food parcels for people
affected, helping keep the emergency services
fed and watered and opening up our spaces
to others – including to a bus company which
parked its entire fleet on one of our store car
parks following the flooding of their depot.
Community Champions
Community Champions across all our stores
and sites lead the way in building relationships
with local charities and groups.
In 2019/20, their work with local charities led
us to donating £900,000 worth of products to
good causes; helped to redistribute over five
million items of unsold food; and conducted
hundreds of tours for local school children.
We continue to increase the hours available
to our Community Champions and add to
the number of stores which have community
rooms. These rooms are dedicated spaces for
local community groups and charities to get
together free of charge. In addition, we are
encouraging the use of our cafés as a meeting
place for social groups such as craft and
parent and baby groups.
Charity
We support local good causes through the
Morrisons Foundation, which has now donated
£29m to charity since it was launched in 2015.
In total more than 2,200 charities across
England, Scotland and Wales have benefited
from grant funding. This money has supported
projects in a wide range of areas including
social inclusion, homelessness, mental health,
hospice care, environmental improvement
and veterans. The Morrisons Foundation has
also given a boost to our colleagues’ efforts
by providing match funding totalling over
£350,000 in the last year alone.
Outcomes for communities
Making a positive contribution
to society
Respecting human rights and
ethical trading practices
Supporting good causes and
helping people in times of need
Making a positive difference
to local communities
We are committed to being a positive force
in the communities we serve.
We continue to source more locally produced
food, which is good for our customers, the
environment and local economies. We support
local charities with donations and fundraising
opportunities, and we share our spaces with
community groups who need a place to meet.
We strive to be there for the communities
we serve every day, but especially in times
of need. During 2019, this included when
flooding hit parts of South Yorkshire, when
fires engulfed moorland between Huddersfield
and Manchester, and when the dam failed
at Toddbrook Reservoir in Whaley Bridge.
Community initiatives
at our Bolsover store
Since opening in November 2019,
our new store in Bolsover has
donated £1,000 worth of products
to local good causes.
Our Community Champion
has spent time volunteering in
the local area including helping
paint the Parish Community Hall
and has worked with the local
foodbank to raise awareness
and donations. She’s also set up
a relationship with a local care
home that sees us donate our
excess flowers for residents.
Sustainability spotlight
Unsold food programme
Since 2016, our stores have
worked with local community
group partners to ensure that
edible unsold food in our stores is
redistributed to those who need it.
Our stores work with over 450 local
community groups across the UK.
Since the programme began, we’ve
redistributed over five million unsold
food products from our stores.
my.morrisons.com/community-and-charity/
unsold-food-waste-programme/
In addition, we support a number of important
national charities. Our charity partnership
with CLIC Sargent raised £4m in 2019/20 and in
doing so passed the milestone of £11m raised
cumulatively since the start of the partnership.
This money is being used to provide support
for young cancer patients and their families,
for example through financial grants, places
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 a long weekend in March, as well
as £1.8m for the Poppy Appeal.
£11m
raised for CLIC Sargent
Modern slavery
At Morrisons, we are committed to playing
an active role in tackling modern slavery,
forced labour, human trafficking and
exploitation which impacts workers across
all aspects of our global supply chain and
represents an unacceptable affront to human
rights. We have continuously developed
and improved our approach to these issues
over the past three years.
Further details on the steps that Morrisons
has taken to tackle modern slavery and human
trafficking within our Group businesses and
supply chains can be found in our 2019/20
Modern Slavery Act Statement on our corporate
website at www.morrisons-corporate.com/cr/
ethical-trading/tackling-modern-slavery-and-
forced-labour/
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
23
Strategic reportGovernanceFinancial statementsInvestor information Protecting the environment
It’s important we minimise environmental risks to our business,
protect natural capital and create efficiencies, respecting and
valuing the food we serve to our customers.
Outcomes for the environment
Reducing, reusing and recycling
the plastic we use
Reducing food waste
Supporting British farmers
to be more sustainable
Tackling climate change
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 24 to 26;
• information on our colleagues is
shown in Our colleagues section on
page 16 and as part of the Directors’
report on page 67;
• information on social matters
is shown in the Supporting
communities section on page 23;
• our respect for human rights is set
out in our Corporate governance
report on page 44;
• our approach to anti-corruption
and anti-bribery matters is set out
in our Corporate governance report
on page 44;
• our business model is described
on pages 2 and 3;
• our principal risks, and how we
manage them, are described on
pages 28 and 29; and
• other non-financial key performance
indicators are shown on page 1.
Plastic
Changing the way we use plastics on
our products and in our operations.
Reducing the impact plastic is having on the
environment is important to our customers
and society more generally. Our good progress
to date is supported by strong commitments
to further improve by 2025.
As a result of our efforts on plastics, in 2019
we were awarded Business in the Community’s
‘Responsible Business Award’ for Environmental
Sustainability1. The award recognises those
companies taking an innovative approach to
addressing the big environmental challenges
facing society.
Reducing plastic
We are committed to reducing the plastic
we use in our own-brand packaging by 50%
by 2025. In 2019/20, we introduced a number
of initiatives to remove plastic:
• offering the highest proportion of loose fruit
and vegetables sales of any UK supermarket;
• launching a 100% unbleached and untreated
recycled cotton string produce bag;
• introducing paper produce bags saving
176 million single-use bags, the equivalent
of 269 tonnes of plastic; and
• increasing the price of our plastic bags for
life from 10p to 20p to encourage customers
to reuse them.
Improving recyclability
By 2025, all of the primary plastic packaging
used on our own-brand products will be
recyclable, reusable or compostable.
In 2019/20, we made progress against
our commitment through a number
of initiatives including:
• removing hard to recycle black plastic
from all of Morrisons packaging;
• removing expanded polystyrene from
all of Morrisons packaging; and
• ensuring front of pack ‘recycle me’ and
‘recycle in store’ logos now feature on 400
of the most popular Morrisons products.
Sourcing responsibly
Our customers care where their food comes
from and want to know that it has been
responsibly and sustainably sourced. This not
only means being able to trace the origins of
the food we buy, but also knowing the food
that we buy has not had a negative effect
on the environment which produced it.
Deforestation
Every year, 32 million acres of natural forest
are destroyed due to illegal logging, poor forest
management practices and increasing global
demand for forest and agricultural products.
We have a new commitment in place to
support zero deforestation by the end of 2025.
This strengthens our position on the sourcing
of key commodities including soy, palm,
timber and beef.
‘Nutmeg’ environmental plan
We have set a number of stretching
environmental targets for our ‘Nutmeg’ clothing
range to be delivered by 2025. These include
100% of the polyester used in ‘Nutmeg’ clothing
to be from recycled sources and 100% of viscose
to be sourced from responsibly managed forests
and produced using closed-loop manufacturing.
For further information, please see our 2019/20
Corporate Responsibility Report which can be
found at www.morrisons-corporate.com/cr/
corporate-responsibility/
Sustainability spotlight
Award winning bee friendly eggs
Morrisons won the first ever ‘Sustainable
Food and Farming Award’ from Compassion
in World Farming for our bee-friendly eggs.
This award recognises those businesses
that are taking steps to produce meat, dairy
and eggs in ways that protect, improve and
restore wildlife and the environment.
Since 2013, under a partnership with the
Bumblebee Conservation Trust, farmers
supplying eggs to our manufacturing site
Chippindale Foods need to plant an acre of
wildflower meadow for every laying hen range.
1 Business in the Community, Responsible Business Awards, 2019.
24
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
↓50%
targeted reduction in
operational food waste
by 2030
Food waste
Following the food waste hierarchy
to reduce, reuse and recycle.
We have set a target to reduce our operational
food waste by 50% by 2030. Working with
third party data analysts, we have developed
a methodology to accurately record food
wasted in our stores by weight. We are
also working with our manufacturing sites
to accurately measure the amount of
food wasted. Further information on our
figures can be found in our latest Corporate
Responsibility Report 2019/20.
Reducing food waste in stores
In all of our stores, customers can now buy
discounted goods at risk of being wasted,
thanks to the ‘Too Good to Go’ initiative.
Customers use this app to buy a ‘magic box’
of Market Street products that are just past
‘Best Before’ date but still perfectly good
to eat.
Surplus food redistribution to charity
In our manufacturing and distribution centres,
we work with charities FareShare and The
Bread and Butter Thing to redistribute edible
surplus food. Since 2017, we’ve redistributed
3.4 million meals to FareShare.
Supporting British farming
Working with our suppliers to keep them
competitive, profitable and sustainable.
Sustainability spotlight
Investing in electric vehicle charging points
In 2019, we installed 100 GeniePoint rapid
charging points for electric vehicles in our
stores’ car parks allowing customers to
charge their cars in as little as 20 minutes.
The GeniePoint charging points can charge an
average family car’s battery from flat to full in
under 45 minutes which is at least three times
quicker than the standard charging points at
other supermarkets.
www.morrisons-corporate.com/cr/corporate-
responsibility/ev-charging-points/
Tackling climate change
Reducing our impact and creating efficiencies.
Science-based carbon target
Working with the Carbon Trust, we have set
an ambitious science-based carbon reduction
target to reduce scope 1 and 2 (direct) emissions
by 33% by 2025 and 53% by 2030 against a
2017 baseline.
In our first year, we’ve achieved a 28%
reduction in emissions against our target.
↓33%
targeted reduction in
operational emissions by 2025,
53% by 2030 and net zero by
2040 (2017 baseline)
Group greenhouse gas emissions for year ending 31 December 2019
Emission source (Scope 1)
Combustion of fuel and operation of facilities
Natural Gas1
Haulage2
Company Cars3
Fugitive Emissions
Refrigerant
2017/18
Baseline Year
2018/19
Prior Year
2019/20
Current Year
Change vs
baseline
Change vs
2018/19
166,154
135,029
1,791
156,348
141,002
1,828
141,572
139,164
2,140
15%
(3%)
(19%)
9%
1%
(17%)
183,207
130,281
85,039
54%
35%
Award winning bee friendly eggs
See the ‘Sustainability spotlight’ panel opposite.
Energy purchased for Own Use (Scope 2)
Electricity4
456,682
362,706
311,954
Total
Intensity Ratio: Tonnes of CO2e per m2 GIA
942,863
0.356
792,165
0.296
679,869
0.252
32%
28%
29%
14%
14%
15%
Bull calves
We are guaranteeing a market for all male
calves born on our dairy suppliers’ farms.
At present, any male calves are either killed
at birth or exported.
Under our scheme, farmers will be required
to rear the calves to a certain weight until
15–40 days of age, at which point they will be
bought by our partner beef-rearing company
and processed in our manufacturing sites.
Underlying Energy Use (MWh)
Electricity
Natural Gas
Haulage
Company Cars
Total
1,299,017
1,281,330
1,220,479
902,207
508,955
7,308
849,900
770,039
453,654
455,917
7,402
2,866
2,717,487 2,592,286 2,449,301
6%
15%
10%
61%
10%
5%
9%
(0%)
61%
6%
1 Data taken from most recent invoice data which includes subsequent adjustments for rebilling; re-baselining of site inclusions/
exclusions; and adjustments to the way data is apportioned across the year to ensure ongoing consistency.
2 Haulage data includes well to tank emissions which takes into account the extraction and transportation of fuel bringing reporting
in line with our science based targets.
3 Company car data does not include scope 3 – employee commuting.
4 Transmission and distribution, electricity excludes scope 3. Data taken from most recent invoice data which includes subsequent
adjustments for rebilling; re-baselining of site inclusions/exclusions; and adjustments to the way data is apportioned across the
year to ensure ongoing consistency.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
25
Strategic reportGovernanceFinancial statementsInvestor information
Protecting the environment continued
Group greenhouse gas (‘GHG’)
emissions methodology
We have reported for the calendar year
1 January to 31 December 2019 in order to
remain consistent with our historical footprint
report and baseline year verification. We have
used the Government’s Environmental
Reporting Guidelines (2019) to prepare these
numbers, and the emissions factors from the
UK Government GHG Conversion Factors for
Company Reporting (2019). 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, 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 their energy and carbon, and four sites
which have fuel oil (less than 0.1% of the
total footprint).
In line with Streamlined Energy and Carbon
Reporting (SECR) requirements we have also
reported on the underlying energy use used
to calculate Group GHG gas emissions.
Where original data was provided in litres of
diesel, petrol or gas oil it has been converted
to kWh. The reporting boundary has been
determined by operational control, whereby
all emissions within operational control have
been included within scope, i.e. scope 1 and 2.
Group greenhouse gas emissions
verification
The review was based on the requirements
of WRI GHG Protocol, Defra ‘Environmental
Reporting Guidelines: Including mandatory
greenhouse gas emissions reporting guidance’
2013 and ISO 14064, in particular Part 3
Specification with guidance for the validation
and verification of GHG assertions.
Verification was also carried out to ensure the
reporting requirements of SECR were met, to
ensure correct format and inclusion of relevant
emissions sources and underlying energy use.
Carbon Trust and PricewaterhouseCoopers
LLP (PwC) validated our 2017 baseline data,
following ISAE – 3410 accounting standard.
We then worked with the Carbon Trust to
define our new carbon target, and continue
to work with them for Scope 3.
26
Energy efficiency initiatives
We’ve carried out a number of energy
efficiency initiatives in stores. This included LED
lighting replacement; a voltage optimisation
programme; and freezer door heater control
installation across our stores.
We’ve achieved a further reduction in electricity
consumption by ensuring energy efficient
equipment is considered during the design
phase of our Fresh Look and maintenance
and replacement programmes. Fresh Look
store upgrades currently include refrigeration,
heating, ventilation, air conditioning, lighting
and counter operations efficiencies.
We have improved the monitoring and control
of heating, ventilation and air conditioning
systems by upgrading controls and optimising
software strategies. Reduction in gas
consumption was also achieved through
our boiler replacement programme.
We have improved the quality of gas
measurement across the estate with the
installation of Automated meter reading
(AMR) devices.
ESOS Phase 2 was carried out during the
summer of 2019, with compliance being
registered in November 2019. As a direct result
of the output of ESOS, we have begun carrying
out a number of feasibility studies across
refrigeration, motors, fans and onsite solar
electricity generation.
During 2019 an increased focus was placed on
behaviour change to reduce consumption at
our manufacturing sites, giving site managers
increased visibility of the site level energy
budget and carbon footprint.
Our logistics division has continued to
undertake a number of activities designed
to reduce kilometres travelled and the fuel
consumed while delivering food to our stores.
These initiatives include:
Longer semi-trailers – Increasing store
deliveries that are carried out using longer
semi-trailers, which helps to increase loads.
Increased pallet sizes – Reducing the number
of pallets required to service each site.
Driving styles – By using our vehicle telematics
system we have improved the average miles
to the gallon of our drivers by reducing harsh
braking, acceleration and engine idling time.
Fleet investment – All 463 units are compliant
with Euro 6 technology, these new units have
shown an improvement of miles to the gallon.
Network efficiency – Through rescheduling
we have removed 700 trips and collaborated
where possible with our manufacturing sites
to include collecting goods using empty
wagons returning to depot.
Reducing value chain emissions
We will be setting a science-based target
for scope 3 (indirect) emissions including
supply chain, purchased goods and services.
Working with the Carbon Trust, we will
establish baseline data during 2020/21.
We have a new and stretching target to be
zero net emissions in our UK agriculture supply
chain by 2030. This builds on the National
Farmers’ Union ambition to be net zero by
2040. We will achieve this through the work
of the Farming Programme by supporting
Morrisons UK farming suppliers to increase
on-farm productivity, invest in farmland carbon
storage and renewable energy utilisation.
Governance and climate-related
risk management
The Corporate Compliance and Responsibility
(CCR) Committee has delegated responsibility
from the Board to oversee strategy
and process in climate-related issues.
Members of the CCR and its activities can be
found on page 37.
Climate-related risks are identified and
incorporated into the Company risk register
and include an associated improvement plan.
The improvement plan is embedded into
annual business plans.
We monitor the issues that affect our
business, engage with our stakeholders and
take specialist advice. We analyse business
risks and opportunities and raise this within
our wider Leadership teams. Business leads
are appointed to manage each area and
reduce the risk or develop opportunities
for progress. This is then upwardly reported
through our formal governance process.
We keep each commitment and KPI under
review. Business leads are required to provide
quarterly updates. Each commitment is mapped
and reviewed as well as an overall end of
year review.
We welcome the recommendations
from the Task Force on Climate-related
Financial Disclosures and plan to build
the recommendations into our reporting
process in 2020/21.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Risk
Managing our risks
The achievement of our seven 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.
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
The risk
management
process
Identif y
r
o
t
i
n
o
M
Eval
u
a
t
e
Mitigate
The risk management framework
Board of
Directors
T
o
p
d
o
w
n
Audit
Committee
Executive
Committee
Risk and
Internal
Audit
Operational
Management
B
o
t
t
o
m
u
p
Maintains sound
risk management
and control systems,
assesses principal risks
Sets risk management
framework, assesses
effectiveness of risk
and control systems
and maintains oversight
of risk monitoring
Assesses principal and
operational risks and
undertakes regular
monitoring of risk
Coordinates risk
management activity
through review of risk
registers, agreement
of risk mitigation plans
and preparation of
risk reporting
Reviews operational
risks, operates controls
and implements risk
mitigation plans
Our established risk management framework
has been built to identify, evaluate, mitigate
and monitor those risks which threaten
the achievement of our seven 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.
Risk registers for each of the key business
functions sit at the heart of this process.
These registers detail the main functional risks
and are used to assess the gross level of risk
(likelihood and impact), mitigating controls,
and the resultant net level of risk, as well
as risk mitigation plans with dates and target
level of risk. The impact assessment of a risk
includes considering its reputational, financial
and operational effect. We assign targets to
each risk based on the risk appetite framework
established and agreed with the Board.
The risk registers are owned and managed
by operational management, with the head
of each function certifying annually that these
have been reviewed and that 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.
This sub-group reviews coverage across the
ten Group Principal risks, key controls already in
place and the mitigating actions. The Executive
Committee reviews the output from the
sub-group at half year and reviews the Group
risks at year end. Their review considers the
completeness of risks captured in the detailed
functional risk registers, strategic risks, external
factors and any emerging risks. This year we have
formalised our assessment of emerging risks in
light of the new Corporate Governance Code.
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 the Group’s 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 mitigating actions.
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 40 to 43.
UK – EU Trade
Throughout the year, uncertainty around
the UK’s future relationship with the EU has
impacted customer confidence. At the half
year, in light of this continued uncertainty
and potential impact on the operational
environment for Morrisons, and the United
Kingdom generally, the decision was taken
to create a separate Brexit Group Risk.
This was approved by the Audit Committee
in September and included in the risk disclosure
in the Interim Statement. This risk has now
been renamed as UK – EU Trade.
Whilst the UK left the EU on 31 January
2020, uncertainty still remains over the UK’s
future trading relationship with the EU and
the implications for the movement of goods
across borders when the transition period
ends on 31 December 2020.
In February 2020, the UK government confirmed
plans to introduce import controls on EU goods
at the border after the transition period ends on
31 December 2020. There is also the potential
for substantial extra costs if the objective of
a zero tariff trade agreement is not achieved.
In our planning for the two previous Brexit
deadlines in March 2019 and October 2019,
we had evaluated a number of scenarios and
will continue to respond as further details
emerge. Actions previously taken include
securing Authorised Economic Operator status,
maintaining a robust Treasury Policy for foreign
exchange transactions, actively engaging with
our freight partners and suppliers to ensure
their preparedness and considering alternative
routes of supply. Potential impacts on the
availability of labour are being mitigated by
further investment in automation, particularly
in our Manufacturing division and are being
closely monitored on a site by site basis.
The business remains focussed on executing
its plans to mitigate the identified risks arising
from the UK’s changing relationship with the
EU. This will include the impact of a proposed
new points based immigration system which is
due to come into force on 1 January 2021, which
may reduce access to EU labour. The Group
is monitoring ongoing developments through
the transition period and co-ordinating
operational responses.
COVID-19
At the time of reporting, in March 2020,
the Group continues to closely monitor the
constantly changing risk of the global COVID-19
pandemic. Our response is being coordinated
through a COVID-19 Business Continuity team
with full time representatives from all business
areas. The potential impact will depend on
the severity and length of the UK outbreak.
The key risks to our operations include:
• The impact on our colleagues, especially
those who are at high risk and need to
self isolate;
• Disruption to our global supply chain
through restrictions on movement;
• The impact on our suppliers, who we are
continuing to work closely with, especially
those with smaller operations;
• Short-term spikes in customer demand
and the impact on ongoing availability
of key staple lines; and
• A prolonged significant outbreak in the UK
resulting in geographical movement restrictions.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
27
Strategic reportGovernanceFinancial statementsInvestor information
Risk continued
Principal risks
Principal risks
The Directors have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten
its business model, the achievement of our seven priorities, solvency or liquidity.
The Directors consider these to be the most significant risks facing the business, however, they do not comprise all the risks that the business
is facing. These principal risks are set out on the following pages.
Risk
Description
Mitigation
UK – EU Trade
1 2 5
Brexit and continued trade negotiations with
the EU and other countries, presents ongoing
uncertainty to the UK economy and continues
to impact consumer confidence.
Failure to adequately prepare for a range of
outcomes could have significant implications
on business performance, including: supply
chain disruption; availability of product;
changes to taxes and tariffs; impact of
pronounced currency fluctuations; and the
ability to secure labour.
Business
Interruption
#
There is a risk that a major incident, such as a
significant failure of technology or a strategic
third party, a natural disaster, a global pandemic
such as COVID-19, 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.
Competitiveness
1 7
The Grocery Sector continues to be highly
competitive with considerable promotional
activity. If we do not engage with our
suppliers or effectively manage our trade
plan to remain competitive there is a risk this
will adversely impact like-for-like sales and
financial performance.
Customer
1 2 3
4 6 7
There is a risk that we do not meet the needs
of our customers in respect of price, range,
quality, service, responding to changes in
eating habits and sustainability concerns.
If we do not provide the shopping trip that
customers want, both in store and online, we
could lose sales and market share particularly in
an environment of weaker customer sentiment.
• A business-wide Stability Group is monitoring developments through the transition period
and coordinating operational responses. We have focussed action plans in place, ready to
implement as the political and economic environment evolves;
• We continue to actively engage with key suppliers to assess specific impacts to our
business and maintain a strong focus on UK sourcing;
• We have achieved Authorised Economic Operator status to enable more straight forward
border checks;
• We have also been working with our suppliers and freight providers to identify alternative
supply routes avoiding the busiest ports;
• The Group has a treasury policy in place for hedging to mitigate risks on currency
fluctuations. We have assessed, and continue to plan for, potential changes to taxes
and tariffs; and
• We continue to monitor any changes which may impact the availability of labour across
the Group. Our manufacturing and logistics sites have specific people plans in place.
• 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;
• There has been continued investment in cloud technologies to provide further resilience
to the Technology systems; and
• We work alongside our strategic third party partners ensuring both parties’ continuity
plans are robust and aligned.
• Our pricing, trade plan and promotional and marketing campaigns are actively managed;
• Our strong balance sheet and strong cash flow 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.
• One of our seven priorities is ‘to serve customers better’ and we have a range of activities
to support that;
• The ongoing programme of customer listening helps us to gain a deep understanding
of what our customers want and has informed key activities such as our store Fresh
Look programme as well as changes to range and the introduction of more locally
sourced products;
• We closely monitor research on customer perceptions and respond quickly wherever
possible, such as, plastics, palm oil, red meat and changes to eating habits;
• We have reduced plastic in the products we supply and launched our 2025 own-brand
plastic commitment; and
• We have worked to make Morrisons products accessible to more customers by working
with new wholesale partners and continuing to expand the geography covered by our
online offering.
Data
#
28
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.
• 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
• Focussed 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Risk
Description
Mitigation
Financial
and Treasury
#
Food Safety
and Product
Integrity
1 2 3
The main areas of this principal risk are the
availability of funding and management of
cash flow, including liquidity requirements and
debt maturity profiles, 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 could lead
to some terms being reviewed.
In addition, exposure to movement in foreign
exchange rates continues to require management.
The growth of wholesale supply contracts
introduces credit risk which requires policies
and monitoring to manage.
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.
• The Group’s Treasury function is responsible for the forward-planning and management
of funding, interest rate, foreign currency exchange rates 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;
• For livestock and produce, we track prices and forecasts and enter into long-term
contracts where appropriate to ensure stability of price and supply; and
• We have policies to control and monitor the credit risk across our increasing number
of Wholesale customers.
• 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 production
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, such
as the new allergen regulation which comes into force in 2021;
• The process is supported by external accreditation and internal training programmes; and
• We work closely with our supply chain to understand food provenance, sustainable
and ethical practices.
• 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.
People
#
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.
• 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;
• We have worked to give colleagues increased visibility and flexibility of their hours and
rotas with the introduction of a new People System and modernised working patterns; and
• Colleague engagement surveys, listening sessions and networking forums are used to
understand and respond to our colleagues.
Regulation
#
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.
• 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.
Key
Link to our seven 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
5
6
Develop popular and useful services
7 Naturally digital
To simplify and speed up the organisation
#
Underpins all seven priorities
To make the core supermarkets strong again
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
29
Strategic reportGovernanceFinancial statementsInvestor information
Risk continued
Principal risks
Emerging Risk Disclosure
Our Risk Management process incorporates the identification and
management of emerging risks, alongside our known principal risks.
The scenarios which have been modelled encompass the Group’s
principal risks. The hypothetical scenarios are deliberately severe
and designed to test the viability of the Group.
We employ the following strategies to ensure that our business
is adequately prepared for the potential threats or opportunities
these present:
• strategic and operational horizon scanning across the business;
• working with our key strategic partners to share emerging consumer
trends; and
• using third party experts to assist with the consideration of emerging
risks and legislation.
A non-exhaustive list of emerging risks currently being monitored include:
• consumer eating habits and trends;
• sustainability and ethical trading;
• environmental and climate change; and
• continued innovation in technology.
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 2023. 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, business
model (pages 2 and 3), opportunities for growth, performance of its
strategy (including seven priorities (pages 8 to 11)), as well as the principal
risks (pages 28 and 29). The latest strategic planning update with the
Board was held in November 2019 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.
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.
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.
At the time of reporting, in March 2020, the situation around the
COVID-19 pandemic is rapidly evolving. Whilst the current situation
is unprecedented, we have considered the potential impacts of the
pandemic with respect to the scenarios tested and in the light of the
reverse stress testing performed. Based on the facts available at the
time of reporting, the Directors believe the conclusions reached in
the viability testing remain appropriate.
Scenario
Principal risks Description
Competitive
pressure
Competitiveness,
Customer
Compliance
Failure to remain competitive (e.g. through
price or keeping pace with the change
in the market) resulting in declining sales
and profitability.
A serious data security or regulatory breach
results in a significant monetary penalty and
an impact on reputation among customers
leading to an impact on sales and profit.
Financial Treasury A banking crisis leads to one or more of the
members of the Group’s banking syndicate
choosing not to or being unable to honour
the facility agreement, leading to a reduction
in committed or uncommitted facilities.
UK – EU trade
Competitiveness,
Customer,
regulation,
Financial Treasury
Increased inflation and import costs as
a result of the UK’s decision to leave the
European Union, including the impact
of reversion to WTO rates in the case
of a no deal Brexit and an impact on the
labour market.
Business
interruption
or regulatory
breach
Banking
crisis
Impact
of Brexit
Section 172
The Board has provided a statement on page 33 explaining how it has
had regard to the requirements in s.172 of the 2006 Companies Act.
As part of the Board’s decision making process, our Directors regard
the likely consequences of any decision to the long-term success
of the Company, our four stakeholder groups, the community
and the environment.
Approval of the Strategic report
Pages 1 to 30 of the Annual Report form the Strategic report.
The Strategic report was approved by the Board on 17 March 2020
and signed on its behalf by:
Jonathan Burke, Company Secretary
17 March 2020
30
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Corporate governance report
Chair’s governance statement
“ On behalf of the Board, I’m pleased
to introduce Morrisons Corporate
governance report for the financial
year 2019/20.”
Andrew Higginson, Chair
Dear Shareholder,
Corporate governance continues to be
discussed and reviewed in ever greater detail.
I’m proud of the work we have done and
continue to do as a Board to ensure Morrisons
remains committed to maintaining robust and
effective standards of corporate governance.
All decisions are made with the long-term
benefits of all our stakeholders firmly on
the Board’s mind.
Corporate Governance Code
Throughout the year, the Company has applied the 2018 UK Corporate
Governance Code (‘the Code’). The Board has spent significant time
ensuring that our corporate governance standards and processes remain
aligned to the updated guidance, the changing environment in which we
work, the needs of all our stakeholders and the delivery of our strategy.
The Board fully support Morrisons underlying strategy which aligns to
our core purpose which is ‘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’. Throughout the year, the Board has ensured
that we fully consider our four stakeholder groups, the community and
the environment in every decision that we make.
Colleague voice at the Board
The culture of listening is well established throughout Morrisons and at
the heart of everything we do. In addition to the appointment of Tony
van Kralingen as the designated Non-Executive Director of workforce
engagement, each member of the Board meets hundreds of colleagues
every year through functional updates at Board meetings, store and site
visits and personal shopping experiences. These encounters support and
add richness to our annual ‘Your Say’ survey, which this year saw more
than three-quarters of colleagues across the business share their
thoughts about the Group.
Twice a year, representatives from each store region, manufacturing site,
distribution centre and head office gather to discuss the issues that are
most important to the colleagues they represent. Tony van Kralingen and
David Potts each attended at least one of these forums, along with other
senior members of the Group’s management team, to hear colleague
views for themselves.
More information on how we listen to colleagues can be found in Our
colleagues section on pages 16 and 17.
Engaging with all stakeholders
We continue to review and improve our operating business model based
on the listening activities we carry out across all our stakeholder groups.
Our Corporate Responsibility Report outlines how we engage with these
stakeholder groups to ensure that our responsibilities to wider society
are understood and embedded in how we work.
The Board and the Group are committed to listening hard to all our
stakeholders and responding quickly wherever we can.
Andrew Higginson, Chair
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
31
Strategic reportGovernanceFinancial 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, save as described in the Directors’
remuneration report regarding Executive Directors’ pensions, complied with the detailed
provisions of the 2018 UK Corporate Governance Code (‘the Code’) throughout the
financial year 2019/20 and to the date of this Annual Report.
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 we comply with each of the provisions of the Code. It is available
in the Investor Centre section of the Group’s website, www.morrisons-corporate.com.
More details on how the Group has complied with these provisions is found throughout this Annual Report as referenced in the table.
Board Leadership and Company Purpose
Audit, Risk and Internal Control
Basis of generating and preserving long-term value
Morrisons culture
Understanding shareholder views
Section 172 reporting
Workforce engagement
Whistleblowing policy
Managing conflicts of interest
Division of Responsibilities
The Chair’s role and responsibilities
Non-Executive Directors
2
16
39
33
16
44
38
Audit Committee membership and responsibilities
Audit Committee activities
Director responsibility for the Annual Report and accounts
36
40
69
Assessment of emerging and principal risks
27 to 30
Risk management and internal control systems
Going concern
Viability statement
Remuneration
36
Remuneration Committee membership and responsibilities
34 and 35
Non-Executive Director remuneration
Senior Independent Director role and responsibilities
Board and Director performance
Board meeting attendance
External appointment approval process
Company Secretary
Composition, Succession and Evaluation
Nomination Committee membership and responsibilities
Director annual re-election
Chair tenure
Director recruitment process
Board evaluation
36
38
35
45
35
37
34
34
45
38
Remuneration consultants
Post employment shareholding requirement
Executive pensions
Contract periods
Director remuneration policy
Remuneration Committee considerations
27
67
30
37
56
66
51
51
55
50
46
32
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
How we have considered compliance with Section 172 of the 2006 Companies Act
Section 172 requires that Directors act in the way they consider, in good faith, would be most likely to promote the success of the Group
for the benefit of its members as a whole.
In doing so the Directors should have regard (amongst other matters) to the likely consequences of any decision in the long term; the interests
of employees; the need to foster relationships with suppliers, customers and others; the impact of its operations on the community and
the environment; the maintaining of a reputation for high standards of business conduct; and the need to act fairly as between members
of the Company.
Element
S172 factors
What we do
Examples of where the Board have considered these factors
Our Four
Stakeholder
Groups
Employee
Interests
• Our annual ‘Your Say’ survey was completed
by 79% of colleagues.
• Overall colleague engagement score
was 77%.
• Hourly rate of pay for frontline store colleagues
increased to £9.00 per hour during 2019/20.
p16
For more
detail on
what we
do regarding
colleagues
• Tony van Kralingen is the designated Non-Executive Director (NED)
for workforce engagement. Tony attended the National ‘Your Say’
Forum and took part in discussions with representatives from each
store region, manufacturing site and distribution centre. After
attending this session, Tony reported back to the Board regarding
the matters discussed and the thoughts of colleagues. This insight
added further detail to the ‘Your Say’ results which were reviewed
by the Board.
Relationships
with Customers
• We track customer complaints and customer
satisfaction scores.
• Identified around 1,300 own-brand ‘customer
favourites’ and commenced a programme
to reduce prices on them.
• Looked to find ways to allow customers
to make healthier choices through removing
calories, sugar and fat from our ranges.
• We strive to act fairly between members
by maintaining a strong balance sheet and
a cash generative business with low levels
of debt.
• There are opportunities for all shareholders
to have informal discussions with our
Directors after the AGM each year.
Act Fairly
between
Members
Relationships
with
Suppliers
• Establishing lasting relationships with
suppliers informed by listening.
• Continuing to work together with
The
Community
and the
Environment
Impact on
Community,
Environment
and Wider
Society
simplified terms.
• Complying with the Groceries Supply
Code of Practice (GSCOP), promoting
involvement in GCA Supplier Survey.
• Working hard to provide support
for communities in times of need.
• Donating £29m to charity since the launch
of the Morrisons Foundation in 2015.
• Redistributing 3.4 million meals of edible
surplus food to FareShare and The Bread
and Butter Thing, since 2017.
• Reducing plastic packaging and improving
recyclability.
• Supporting British Farmers through
initiatives such as bee-friendly eggs and
providing a market for bull calves.
• The Board receive regular updates on our customer listening activities
including verbatim quotes, customer perception data and analysis
from external sources.
• All shareholders are invited to the AGM and can ask questions of the
Directors in the meeting. After the 2019 meeting, all Directors were
available to discuss shareholder views in a more informal setting.
p14
For more
detail on
customers
p20
For more
detail on
financial
results
p18
For more
detail on
supplier
relationships
• The Board receive regular updates on the Group’s compliance to
GSCOP. As Chair of the Corporate Compliance and Responsibility
(CCR) Committee, Neil Davidson also meets with the Grocery Code
Adjudicator (GCA) on an annual basis to discuss best practice and
supplier views in more detail.
• The Board and CCR Committee receive regular updates on
the community and environmental initiatives within the Group.
These include regular updates on the work to reduce the use
of single use plastics.
p23
For more
detail on
community,
environment
and wider
society
Strong
Corporate
Governance
High standards
of Business
conduct
• Compliance with the 2018 UK Corporate
Governance Code.
• Clear divisions of responsibility and roles.
p32
For more
detail
• The Board reviewed all requirements of the 2018 Code to ensure
that the Group maintains high standards of business conduct.
Long-Term
Consequences
of Decisions
• All decisions are aligned to our Core Purpose.
• All decisions are made with long-term
consequences in mind.
• The Board carefully reviewed the short and long-term consequences
of providing Ocado with sole use of the new Erith Customer
Fulfilment Centre (CFC) until January 2021 before concluding that
such an agreement was in the long-term interests of all
Morrisons stakeholders.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
33
Strategic reportGovernanceFinancial statementsInvestor information Corporate governance report continued
Board of Directors and Executive Committee
Composition of the Board
The Board is independent and comprises an appropriate mixture of skills and experience. The Board is satisfied that all Non-Executive Directors,
including the Non-Executive Chair, 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 Centre 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. All current Directors submit themselves for re-election at the AGM
to be held on 11 June 2020.
1. Andrew Higginson
Chair
3. Trevor Strain
Chief Operating
Officer
5. Rooney Anand
Senior Independent
Non-Executive Director
7. Kevin Havelock
Independent
Non-Executive
Director
2. David Potts CBE
Chief Executive
4. Michael Gleeson
Chief Financial
Officer
6. Neil Davidson CBE
Independent
Non-Executive
Director
8. Belinda Richards
Independent
Non-Executive
Director
1. Andrew Higginson
Appointment
Andrew joined the Group as Deputy Chair
and Chair Elect in October 2014 and became
Chair at the end of January 2015. Andrew met
the Independence criteria detailed in the
Code upon appointment.
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 Tesco’s Retailing
Services business. His early career was with
Unilever, Guinness, Laura Ashley and the Burton
Group. Andrew was previously the Chair of
Poundland Group PLC and N Brown Group PLC,
Senior Independent Director of BSkyB PLC and
a Non-Executive Director of the Rugby Football
Union and Woolworths Holdings Limited.
External Roles
Non-Executive Director of Flutter PLC
Non-Executive Director of
Majid Al Futtaim Group
Chair of the IGD
Chair of Evergreen Garden Care Limited
Adviser to Shore Capital
Adviser to Clearwater International
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
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. In
December 2019, Trevor became the Chief
Operating Officer.
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. Michael Gleeson
Appointment
Michael joined the Group in 2014 as Group
Financial Controller. In 2015 he became the
Supermarkets Financial Director before taking
up post as Trading Director of Ambient, Frozen,
Dairy, Fuel and Services. Michael joined the Board
on 3 February 2020 as Chief Financial Officer.
Experience
Prior to joining Morrisons, Michael worked for
Tesco PLC in a number of senior finance roles
including Group Financial Planning and Analysis
Director and CFO of Tesco.com. Michael began
his career with Arthur Andersen and is a member
of the Institute of Chartered Accountants
in Ireland.
External Roles
None
5. 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 stepped
down from this role last year.
External Roles
Chair of Purity Soft Drinks
Chair of the Casual Dining Group
Chair of WorldSkills UK
Chair of Away Resorts
6. Neil Davidson1
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.
Experience
Neil’s extensive career in manufacturing started
with Northern Foods PLC where he rose to
become Managing Director of its milk division.
He was subsequently appointed CEO of Express
Dairies PLC and then Arla PLC. He has also been a
Non-Executive Director of Produce Investments
PLC, Persimmon PLC and Northern Recruitment
Group PLC.
External Roles
Chair of OptiBiotix Health PLC
Chair of the Youth Sports Trust
7. 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 as a
member of the Executive Committee at Unilever
and President of Global Refreshment, which
comprises Unilever’s drinks and ice cream brands.
External Roles
Non-Executive Director of Fevertree Drinks PLC
Trustee of The British Council
Trustee of The Eden Project
8. Belinda Richards1
Appointment
Belinda joined the Board as a Non-Executive
Director in September 2015 and became
Chair of the Audit Committee in January 2016.
Experience
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.
The Board is satisfied that Belinda has recent
and relevant financial experience appropriate
to her position as Chair of the Audit Committee.
Belinda is considered to have sufficient finance
experience, having been a corporate finance
partner at Deloitte for over ten years, has served
on the Advisory Group of the Audit Committee
Chairman at the FRC and has been a member
of the Governing Council of the Centre for
the Study of Financial Innovation.
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
Trustee of the Youth Sports Trust
1 On 6 February 2018, Belinda Richards was appointed Trustee of the Youth Sports Trust, a national charity, of which Neil Davidson is Chair.
The Board has considered this cross-directorship and is satisfied that it does not compromise the independence of Belinda or Neil.
34
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
9. Tony van Kralingen
Independent Non-
Executive
Director
10. Paula Vennells CBE
Independent
Non-Executive
Director
Executive Committee
1. David Potts CBE
Chief Executive
4. Andy Atkinson
Group Commercial
Director
9. 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, Group Director
Human Resources, Chair and Managing Director
SAB, and Chair and CEO: Plzensky Prazdroj.
External Roles
Chair of Crown Commercial Services
Honorary Professor of Global Corporate
Strategy at Nottingham University
10. 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 was Group Chief Executive
of the Post Office, a role she held from 2012 to
2019, 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.
External Roles
Non-Executive Board Member of the
Cabinet Office
Chair of Imperial College Healthcare NHS Trust
Non-Executive Director of Dunelm Group PLC
Jonathan Burke
Company
Secretary
Board composition
30
70
Executive
Non-Executive
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.
Attendance at meetings
Main
Board
Nomination
Committee
Remuneration
Committee
Audit
Committee
CCR
Committee
Andrew Higginson
David Potts
Trevor Strain
Michael Gleeson
Rooney Anand
Neil Davidson4
Kevin Havelock
Belinda Richards6
Tony van Kralingen
Paula Vennells
10/10
10/10
9/91
0/03
10/10
9/10
9/105
8/10
10/10
10/10
3/3
–
–
–
3/3
3/3
3/3
3/3
3/3
3/3
6/6
–
–
–
6/6
5/6
6/6
4/6
6/6
6/6
–
–
–
–
5/5
4/5
5/5
3/5
5/5
5/5
5/5
5/5
3/32
–
5/5
4/5
5/5
3/5
5/5
5/5
Committee key
Audit Committee
Corporate Compliance and
Responsibility Committee
Remuneration Committee
Nomination Committee
Committee Chair
2. Trevor Strain
Chief Operating
Officer
5. Clare Grainger
Group People
Director
3. Michael Gleeson
Chief Financial
Officer
6. David Lepley7
Group Retail
Director
1. David Potts
See Board of Directors on page 34.
2. Trevor Strain
See Board of Directors on page 34.
3. Michael Gleeson
See Board of Directors on page 34.
4. 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. In February 2020, Andy was
appointed Group Commercial Director, retaining
responsibility for Customer and Marketing on
an interim basis.
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.
5. 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.
6. David Lepley
Appointment
David joined Morrisons in June 2016 as Store
Replenishment Director. In February 2017,
he became Operations Director for Central and
took responsibility for a third of the Group’s retail
stores. David joined the Executive Committee as
Group Retail Director on 3 February 2020.
Experience
David began his career at Asda in 2004 and
rapidly worked his way up from Store Manager
to Regional Director for North Supermarkets.
In 2015, David was appointed Senior Strategy
and Development Director for Grocery Home
Shopping before becoming Vice President
of Online Grocery Operations later that year.
1 To avoid potential conflicts of interest, Trevor was not invited to the meeting that was
held to discuss and approve his appointment as Chief Operating Officer.
2 Trevor was appointed to the CCR committee on 10 September 2019.
3 Michael was appointed to the Board at the start of the 2020/21 Financial Year.
4 Neil was unable to attend one meeting date due to a family emergency. He received papers
on all subjects to be discussed and provided the Board with his comments prior to the meeting.
5 Occasionally, Board meetings are arranged to deal with matters outside the normal meeting
schedule and therefore at shorter notice. In this instance, Kevin was unable to attend a
meeting that was arranged with shorter notice due to time zone issues. Prior to this meeting,
Kevin received all paperwork and provided his views on the subject tabled for discussion
to the Board.
6 Belinda was unable to attend one meeting due to a family bereavement and one due to
another commitment. Prior to the meetings, Belinda read all the papers tabled for discussion
and provided feedback to the Board. She also held calls between management, PwC and the
designated deputy Audit Committee Chair prior to the meeting to allow all to understand
and update the Committee on her views of the Audit Committee meeting content.
7 Gary Mills was Group Retail Director from August 2015 to 3 February 2020.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
35
Strategic reportGovernanceFinancial 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 2019/20 are shown in the table below and on the following page.
Function
Main
Board
Executive
Committee
Audit
Committee
Corporate Compliance and
Responsibility Committee
Remuneration
Committee
Nomination
Committee
p38 See page 38 for details of activities.
p39 See page 39 for details of activities.
p40 See page 40 for details of activities.
p44 See page 44 for details of activities.
p46 See page 46 for details of activities.
p45
See page 45 for details of activities.
Members
Andrew Higginson (Chair)
David Potts
Trevor Strain
Michael Gleeson1
Rooney Anand
Neil Davidson
Kevin Havelock
Tony van Kralingen
Belinda Richards
Paula Vennells
David Potts (Chair)
Trevor Strain
Michael Gleeson2
Andy Atkinson
Clare Grainger
David Lepley3
Belinda Richards (Chair)
Rooney Anand
Neil Davidson
Kevin Havelock
Tony van Kralingen
Paula Vennells
Neil Davidson (Chair)
Kevin Havelock
Tony van Kralingen (Chair)
Kevin Havelock
Andrew Higginson (Chair)
Tony van Kralingen
Andrew Higginson
David Potts
Rooney Anand
Andrew Clappen4
Tony van Kralingen
Belinda Richards
Trevor Strain5
Paula Vennells
Andrew Higginson
Rooney Anand
Neil Davidson
Belinda Richards
Paula Vennells
Rooney Anand
Neil Davidson
Kevin Havelock
Belinda Richards
Paula Vennells
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 the composition of the
Board and its Committees.
• Maintaining oversight of strategy and process in areas
• Setting the remuneration policy for the Group’s
• Evaluating the current and required mixture
Chief Executive, Chair, Executive Directors
of skills and experience on the Board;
of corporate responsibility, including:
– Groceries Supply Code of Practice (GSCOP);
– food safety and food integrity;
– health and safety;
– gender pay;
– environmental responsibilities, including energy
usage, packaging and food waste;
– cybersecurity;
– ethical trading;
– modern slavery;
– competition compliance;
– governance and reputation;
– General Data Protection Regulation (GDPR); and
– The Morrisons Foundation and charitable giving.
and Executive Committee;
• Reviewing workforce remuneration;
• Aligning incentives and rewards to the corporate
culture and objectives;
• 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 Chair’s expenses.
• Reviewing succession planning for the Board;
• Sourcing and selecting Board candidates
(more information can be found on page 45);
• Maintaining general oversight of people and
capability within the business, and their diversity
(more information can be found on page 45);
• Reviewing the talent pool for the Executive
Committee and levels below Executive
Committee; and
• Reviewing and setting policy on diversity.
Key objectives
Overall conduct of the business
and setting strategy.
Implementing strategy and actions in respect
of financial planning and performance; day-to-day
management of operations.
Responsibilities
• Understanding, reviewing and responding
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, interim financial report and
trading statements;
• Approving changes to the Group’s capital
structure and major expenditure;
• Approving membership of the Board
on recommendation of the Nomination
Committee; and
• Appointing and removing the Company
Secretary.
• Developing and implementing 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).
Effective governance of financial reporting,
internal controls and risk management systems;
reviewing significant accounting judgements,
assumptions and estimates; managing the
relationship and appointment of the external
auditor; monitoring and reviewing the
effectiveness of the Group’s Risk and Internal
Audit function.
• Reviewing and making recommendations
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; and
– approval of Tax and Treasury policies.
Chair
Chief Executive
Senior Independent Director
Role
Responsibilities
• Providing leadership to the Board;
• Taking responsibility for the Board’s
composition and development;
• Planning and conducting Board
meetings effectively; and
• Ensuring all Directors are involved
and focus on the key tasks.
• Engaging the Board in assessing and
improving its performance;
• Overseeing the induction and
development of Directors; and
• Providing advice and assistance to
the Chief Executive.
• Developing strategic operating plans that
reflect the longer-term objectives and
priorities established by the Board;
• Closely monitoring the operating and
financial results against plans and budgets
taking remedial action where necessary and
informing the Board of significant changes; and
• Putting in place adequate operational
planning control systems.
• Building and maintaining an effective
executive management team;
• Ensuring that the operating objectives
and standards of performance are not only
understood but owned by the management
and other employees; and
• Maintaining ongoing dialogue with the
Chair of the Board.
• Acting as a sounding board for the Chair,
supporting the delivery of their objectives
and leading the Chair’s evaluation on the
Board’s behalf; and
• Meeting with the Non-Executive Directors
to review the Chair’s performance at least
once a year.
• Being available to shareholders and other
Non-Executive Directors to address any
concerns or issues they feel have not been
adequately dealt with through the usual
channels of communications; and
• Working closely with the Nomination
Committee to support the succession
of the Chair.
36
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Chair
Key objective: Governance of the Board
Main Board
Executive
Committee
Audit
Committee
Corporate Compliance and
Responsibility Committee
Remuneration
Committee
Nomination
Committee
Function
Main
Board
Executive
Committee
Audit
Committee
Corporate Compliance and
Responsibility Committee
Remuneration
Committee
Nomination
Committee
p38 See page 38 for details of activities.
p39 See page 39 for details of activities.
p40 See page 40 for details of activities.
p44 See page 44 for details of activities.
p46 See page 46 for details of activities.
p45
See page 45 for details of activities.
Members
Andrew Higginson (Chair)
Neil Davidson
David Potts (Chair)
David Potts
Trevor Strain
Michael Gleeson1
Rooney Anand
Kevin Havelock
Trevor Strain
Tony van Kralingen
Michael Gleeson2
Belinda Richards
Paula Vennells
Andy Atkinson
Clare Grainger
David Lepley3
Belinda Richards (Chair)
Kevin Havelock
Rooney Anand
Neil Davidson
Tony van Kralingen
Paula Vennells
Neil Davidson (Chair)
Andrew Higginson
David Potts
Rooney Anand
Andrew Clappen4
Kevin Havelock
Tony van Kralingen
Belinda Richards
Trevor Strain5
Paula Vennells
Tony van Kralingen (Chair)
Andrew Higginson
Rooney Anand
Neil Davidson
Kevin Havelock
Belinda Richards
Paula Vennells
Andrew Higginson (Chair)
Rooney Anand
Neil Davidson
Kevin Havelock
Tony van Kralingen
Belinda Richards
Paula Vennells
Key objectives
Overall conduct of the business
and setting strategy.
Implementing strategy and actions in respect
Effective governance of financial reporting,
of financial planning and performance; day-to-day
internal controls and risk management systems;
management of operations.
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 the composition of the
Board and its Committees.
• Understanding, reviewing and responding
• Developing and implementing the strategy;
• Reviewing and making recommendations
• Maintaining oversight of strategy and process in areas
• Setting the remuneration policy for the Group’s
• Evaluating the current and required mixture
of corporate responsibility, including:
– Groceries Supply Code of Practice (GSCOP);
– food safety and food integrity;
– health and safety;
– gender pay;
– environmental responsibilities, including energy
usage, packaging and food waste;
– cybersecurity;
– ethical trading;
– modern slavery;
– competition compliance;
– governance and reputation;
– General Data Protection Regulation (GDPR); and
– The Morrisons Foundation and charitable giving.
Chief Executive, Chair, Executive Directors
and Executive Committee;
• Reviewing workforce remuneration;
• Aligning incentives and rewards to the corporate
culture and objectives;
• 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 Chair’s expenses.
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 45);
• Maintaining general oversight of people and
capability within the business, and their diversity
(more information can be found on page 45);
• Reviewing the talent pool for the Executive
Committee and levels below Executive
Committee; and
• Reviewing and setting policy on diversity.
1 Michael Gleeson was appointed to the Main Board on 3 February 2020.
2 Michael Gleeson was appointed to the Executive Committee on 9 December 2019.
3 Gary Mills was a member of the Executive Committee from August 2015 to 3 February 2020. David Lepley joined the Executive Committee on 3 February 2020.
4 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.
5 Trevor Strain was appointed to the Corporate Compliance & Responsibility Committee on 10 September 2019.
Leadership around the business
David Potts
Chief Executive
Clare Grainger
Group People Director
Michael Gleeson
Chief Financial Officer
Andy Atkinson
Group Commercial Director
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
37
reviewing significant accounting judgements,
assumptions and estimates; managing the
relationship and appointment of the external
auditor; monitoring and reviewing the
effectiveness of the Group’s Risk and Internal
Audit function.
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; and
– approval of Tax and Treasury policies.
Responsibilities
to the views of all stakeholders;
• Understanding, reviewing and responding
to the Board on:
• Developing and approving the strategy
to the feedback from stakeholders including
– the integrity of financial reports, including
and key policies of the Group;
• Managing culture and values;
customers and colleagues;
• Maintaining oversight of:
• Monitoring progress towards achieving
– financial performance, reporting and control;
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, interim financial report and
trading statements;
• Approving changes to the Group’s capital
structure and major expenditure;
• Approving membership of the Board
on recommendation of the Nomination
• Appointing and removing the Company
Committee; and
Secretary.
– risk management;
– operational improvement programmes; and
– review and supervision of operational
• Making recommendations to the Board
activities.
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).
Strategic reportGovernanceFinancial statementsInvestor information Corporate governance report continued
Board and Committee Activities in 2019/20
Main Board
Activities in 2019/20
During the year, the Board has:
Strategy and Planning
• set the strategy and plans for the Group;
• approved the 2019/20 budget and commercial plans, including
productivity savings required to invest in the customer offer;
• approved the Group’s capital allocation framework; and
• reviewed the Core Purpose of Morrisons.
Operational Performance
• reviewed the annual business plan and received regular updates from the
Executive Committee regarding its delivery and resource requirements;
• reviewed the performance of the Chief Executive; and
• reviewed the Group’s continued operations and growth opportunities
in online, wholesale and manufacturing.
Financial Performance
• reviewed the results and forecasts throughout the year and reviewed
and approved regulatory announcements;
• approved the proposed dividends including special dividends;
• approved the issue of a bond; and
• approved the extension of the revolving credit facility.
Risk
• assessed the Group’s emerging and principal risks; and
• monitored the Group’s risk management and internal control systems.
Governance
• ensured that business is conducted in accordance with the Group’s values;
• approved the formal Terms of Reference for the Senior Independent
Director;
Board evaluation
Each year, a review is undertaken to evaluate the performance of
the Board, along with its Committees and Directors, in accordance
with the requirements of the Code. The review is carried out externally
every third year. The last external evaluation was facilitated by Consilium
Board Review in 2017/18. Consilium Board Review has no connection
to the Group.
Following last year’s review, the Non-Executive Directors meet more
frequently on an informal basis. Having gained a lot of value from
these sessions, the frequency of these meetings will be increased
as identified in this year’s review outcomes.
This year, the evaluation was facilitated internally by the Company
Secretary, who is considered by the Board to be suitably independent
for this purpose. The review was conducted between November 2019
and January 2020 and covered each of the key aspects of the Board’s
performance. These aspects included, for example, the Board’s structure,
its composition and dynamics, and the extent to which it fulfils its
role in terms of strategy development, assessment of operational
performance, and risk management.
Overall, the 2019/20 review concluded that the performance of the
Board, along with its Committees and individual Directors, continues
to be effective and is well placed to lead the Group going forward.
The following were highlighted as being particular strengths:
• the structure and composition of the Board, including the breadth
of skills and experience that the Directors contribute to its operation;
• Board meeting papers that are accurate, timely, clear and
comprehensive and provide a positive contribution to effective
decision making;
• the leadership of the Chair and the contribution that he has made
to the development of an effective and cohesive Board with a culture
of openness and debate; and
• the effectiveness of the various Board Committees and the strength
of the individual Committee Chairs.
The review also identified a number of possible opportunities
to develop the Board’s effectiveness further. These included:
• providing more opportunities for the Non-Executive Directors
to spend more time with the Group’s wider leadership team;
• providing the Non-Executive Directors with additional opportunities
to meet on a more informal basis, outside of the normal Board
timetable; and
• providing additional focus on discussions relating to succession
• reviewed the governance structure and activities of the sub-committees
planning for the Board.
of the Board;
• appraised the performance of the Chair through a meeting of
Non-Executive Directors;
• identified and managed any potential conflicts of interests as
appropriate; and
• established the External Appointment Sub-Committee to approve
requests from Directors to undertake external appointments.
Stakeholders
• ensured that the strategy is aligned to long-term success for all
stakeholders;
• considered feedback received from customers, colleagues, suppliers,
shareholders and other stakeholders; and
• reviewed the values and culture of the Group through ‘Your Say’
survey responses and feedback provided from the ‘Your Say’ forums.
The Board formally discussed the findings of the review in January 2020.
Over the course of 2020/21, the Chair and Company Secretary will
continue to review the progress of the related actions as they are put
in place.
In addition to the review described above, the Senior Independent
Director performed an evaluation of the Chair’s performance, taking
into consideration the views and inputs of each of the other Directors.
The outputs of this exercise were shared and discussed with the Chair.
The Chair also formally appraised the performance of each of the
other Directors.
38
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 financial results;
• trading statements;
• regular meetings between institutional investors, the Chief Executive,
the Chief Financial Officer and the Investor Relations team in the UK
and overseas following the full and half year results;
• regular correspondence and meetings between the Chair and
major shareholders to discuss any aspect of the Group or its
governance arrangements;
• attending key investor conferences;
• communication between the Chair 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 2020 AGM will be held on 11 June 2020 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 2020 AGM of the Group is to be sent to shareholders
with an accompanying letter from the Chair.
The format of the meeting is:
• a summary presentation of results is provided before the Chair
deals with the formal business;
• all shareholders present can put questions to the Chair, 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.
Executive
Committee
Activities in 2019/20
During the year, the Executive Committee has:
Strategy and Planning
• developed plans to implement the Group’s strategy and seven priorities;
• agreed a plan for the seventh priority – naturally digital;
• determined the draft budget and long-term plan; and
• approved capital budgets.
Operational Performance
• continued to implement the Group’s seven priorities;
• overseen the Group’s continued development of its wholesale,
online and manufacturing operations;
• periodically reviewed performance against strategic objectives;
• reviewed changes to speed up and simplify the business; and
• agreed improvements to the Group’s technology infrastructure.
Financial Performance
• driven trading performance and reviewed financial performance
throughout the period; and
• reduced the cost base of the organisation through productivity
and procurement improvements.
Risk
• determined principal risks for the Group;
• reviewed functional risk registers; and
• reviewed the Group’s risk management systems and the findings
from the Internal Audit reports.
Governance
• overseen the Group’s compliance with its obligations under the
GSCOP; and
• reviewed GDPR compliance.
Stakeholders
• considered regular updates on customer views including attending
customer listening sessions and shopping trips with customers;
• overseen the Group’s commitment to corporate social responsibility,
in particular the drive to minimise food waste, as well as its support
for the Group’s charity partner CLIC Sargent, and for the charitable
Morrisons Foundation;
• continued to review the Group’s reduction programme for energy
and plastic;
• reviewed the talent, capabilities and capacity within the Group;
• listened to views of colleagues including reviewing the ‘Your Say’
survey results agreeing of improvement actions; and
• recommended the ordinary and special dividends to the Board.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
39
Strategic reportGovernanceFinancial statementsInvestor information Corporate governance report continued
Board and Committee Activities in 2019/20
Activities in 2019/20
During the year, the Committee has:
• considered the appropriateness of the Group’s Annual Report
and Financial Statements and Interim 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 Group’s internal controls and the
work of the Risk and Internal Audit function;
• discussed principal risks (described in more detail on pages 28 and 29);
• 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 going concern and viability statements,
reviewed assumptions made by management and challenged the
scenarios modelled;
• considered the requirements and impact of new accounting standards,
including the adoption of IFRS 16 ‘Leases’ during the period; 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,
right-of-use assets, intangible assets and provision
for onerous contracts
Impairment and provision for onerous contracts continue to be focus
areas for the Committee, on the basis of their materiality and level of
inherent judgement and estimation.
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 2 February
2020, my fifth as Chair. 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 the 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 38 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 and estimates made by
management, with particular focus on property assets and provisions,
inventory and alternative performance measures. In addition, the
Committee reviewed the Group’s adoption of IFRS 16 ‘Leases’ during
the period and understood the key judgements made and the impact
on the financial statements.
This report provides further detail on these areas and other key
activities of the Committee during the year.
40
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Inventories
Inventory is a material balance in the Group’s financial statements,
with inventories held across a large number of locations. As such, it
remains an area of focus for the Committee. Store inventory counts
are a key control of the Group’s inventory balance. The Committee has
reviewed outcomes of third party store inventory counts conducted
during the year and understood trends concerning inventory loss
(shrinkage) as well as other factors influencing loss levels.
Estimation is required in determining provisions, particularly in respect
of inventory loss (shrinkage) risk. The Committee reviews these estimates
as part of the twice-yearly review of judgements and estimates.
The Committee has reviewed the level of provision and assumptions
underpinning this assessment and considers them to be appropriate.
Leases
The implementation of the new leasing standard, IFRS 16 ‘ Leases’,
continued to be an area of focus for the Committee during the year,
given the level of change to the Group’s financial statements and the
complexities of effecting the transition.
The Committee received regular progress updates during the year as
the Group transitioned to the new standard. Many of the key decisions,
including transition approach, judgements and estimation methods have
been discussed and understood by the Committee in the prior year.
These judgements and estimates included approaches to determining
lease length and assessing discount rates. These were determined by
management, working with external advisers. On implementing the
change in accounting policy, management affirmed to the Committee
its adherence to these principles, together with final assessment of
the financial impacts. The Committee reviewed the Group’s restated
financials and assessed disclosures as part of its review of the
Group’s interim report and financial statements.
In addition, at the request of the Committee, the Board undertook
a technical training session with its advisers, covering the principles
and key considerations of the new standard, as well as the impact
on the Group and more widely.
The Committee, having overseen the delivery of the implementation
project, is satisfied that the transition had been conducted appropriately
and that the key assumptions and estimates applied are appropriate.
The Group’s policy is to assess impairment on an annual basis, or where
changes in circumstances indicate impairment (or impairment reversal) as
disclosed in note 3.1 of the financial statements. The impairment review
is comprehensive, covering non-financial assets, principally the Group’s
store and 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 £15m recognised in 2019/20, 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 focussed on
understanding the methodology, the basis of key assumptions
(discount rate and growth rate) and understanding the outcomes of the
impairment assessment performed by management. The Committee
challenged how management had reflected expected future performance
and potential changes in market conditions. The Committee has
also reviewed management’s key assumptions around the market
valuation of the store portfolio.
In addition, for unused or closed properties where the expected future
cash flows are less than the future commitments associated with those
properties such as business rates, an onerous provision is recognised.
This resulted in a net £2m charge in relation to amounts provided for
onerous contracts. The key estimates relate to the discount and growth
rates applied to future cash flows.
Having reviewed all key assumptions in respect of impairment and
provision for onerous contracts 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.
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 scale, 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Board and Committee Activities in 2019/20
Retirement benefit schemes
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, and considered the appropriateness and sensitivity of the
assumptions used by the independent actuaries in the valuation,
including the discount rate. The Committee is satisfied that the
assumptions are appropriate.
The Committee reviewed 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 considers the treatment appropriate.
Presentation of financial statements
The Committee has considered the Group’s use of Alternative
Performance Measures (APMs) as set out in a Glossary on pages 152 to 154,
and is satisfied that they adequately follow the Guidelines issued by
the European Securities and Markets Authority (ESMA).
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 with the Group’s policy and that the level
of disclosure provided in note 1.4 is appropriate.
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 with the results presented to the Board.
The Group’s principal risks are set out on pages 28 and 29.
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 the 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 reports on 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 business 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 of internal control and risk management by each
function of the business.
The Committee regularly reviews the Group’s processes for risk
management and internal control, carrying out a formal review annually.
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 improvement opportunities 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
• review of the effectiveness of the Internal Audit function.
The Committee reviewed the effectiveness of the Internal Audit
function through a survey which was completed by Non-Executive
Directors, members of the Executive Committee and Leadership
Team and other key stakeholders. The effectiveness assessment
also included a review against the Institute of Internal Auditors
International Professional Practices Framework and the principles
outlined in the new Internal Audit Code of Practice released in
January 2020. An external review of the effectiveness of Internal
Audit is conducted every five years and last took place in 2018/19,
concluding that the function performs well, with a small number
of minor improvement opportunities.
42
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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, in order to understand
the auditor’s views on the control and governance environment,
and management’s effectiveness within it.
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 completed by the Directors
and management.
Each year, the Internal Audit team facilitates an independent assessment
of the effectiveness of the external auditor. This 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. The outcomes of this assessment is shared with
and considered by the Audit Committee.
In line with the CMA Order, our intention is to put the external audit
out to tender on or before 2024/25. Lead partner rotation is taking place
in 2020/21, in line with the five year service guidance.
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 five
years. After a period of five years, rotation of audit partner is due for
2020/21. PwC have identified a replacement partner, John Ellis, who will
replace Andrew for the 2020/21 audit. John has already met members
of the Board, the Audit Committee Chair and members of management.
He has also begun a handover with Andrew Paynter.
The Group confirms that it has complied with the provisions of
the Competition and Markets Authority’s (CMA) 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.
Independence of the external auditor
The independence and objectivity of the Group’s external auditor 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;
• reviewed details of the non-audit services 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 Centre 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Board and Committee Activities in 2019/20
Corporate
Compliance and
Responsibility (CCR)
Committee
Neil Davidson CBE,
Chair of the 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 the Groceries Supply Code of Practice
(GSCOP) and General Data Protection Regulations (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 2019/20
During the year, the CCR Committee has:
• reviewed GSCOP compliance including training and results
of internal reviews;
• considered cyber and technology security risk;
• assessed General Data Protection Regulations (GDPR) compliance;
• reviewed health and safety incidents, actions taken and progress
of health and safety initiatives;
• assessed energy strategy and carbon reduction measures;
• reviewed Corporate Responsibility Strategy and approved
publication of our Assured Corporate Responsibility Report;
• reviewed progress against ambitions for:
– ethical trading;
– redistribution of food waste;
– food safety and improvements; and
– fisheries and agriculture;
• evaluated Market Abuse Regulation compliance;
• reviewed policies and progress regarding;
– food integrity and testing;
– plastic waste;
– supply chain human rights; and
– modern slavery;
• reviewed non-financial whistleblowing reports.
Further details on the Group’s corporate responsibility activities
can be found on pages 23 to 26. We also publish a Corporate
Responsibility Report that provides more details on these areas
(see www.morrisons-corporate.com/cr/corporate-responsibility/).
For more detail on the Group’s work to ensure compliance with
GSCOP, see page 19.
Human rights policy
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.
Whistleblowing policy
The Company is committed to ensuring that all individuals have
the ability to raise genuine concerns in good faith without fear of
victimisation, subsequent discrimination or disadvantage, even if they
turn out to be mistaken. More information on our whistleblowing policy
can be found on our website (www.morrisons-corporate.com).
All Board members review the whistleblowing policy on an annual
basis and receive detailed reports which include an analysis of
whistleblowing trends.
Anti-bribery and anti-corruption policy
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.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Nomination
Committee
Andrew Higginson,
Chair of the Nomination
Committee
Dear Shareholder,
The Nomination Committee’s role is
recognised as increasingly important by
shareholders and other stakeholders. During
the year, we have continued to drive focus
on succession planning and improving
diversity within the Group.
I am satisfied that the Group has an effective approach to ensuring
that we have the right capability and capacity throughout the Group
and that the correct level of focus is placed on increasing our diversity.
The Board recognises the benefits of diversity throughout the Group,
and ensures that clear processes and policies are adhered with to
further increase our diversity within the Group as a whole.
The Committee receives comprehensive updates from David Potts
and Clare Grainger, our Group People Director, on our colleagues
twice a year, with one of these updates aligning with the Group’s
strategy discussions.
Each Director has a good understanding of our colleagues and culture
provided by the ‘Your Say’ survey results, Tony van Kralingen’s feedback
from the ‘Your Say’ Forum, formal and information discussions with
the Leadership of the Group, and day-to-day interactions with our
colleagues in store.
From these various sources, the Board is able to confirm that the
culture of our colleagues is aligned to the purpose, values and strategy
that the Board has set.
Activities in 2019/20
During the year, the Committee has:
• scrutinised the performance of management;
• reviewed colleagues throughout the organisation, and considered
issues including diversity, succession planning, capability and capacity;
• considered the Board’s structure; including nominating Trevor Strain
to the role of Chief Operating Officer; and
• nominated Michael Gleeson for appointment to the Board.
Board appointments
Following a rigorous process, the Committee recommended the
appointment of Michael Gleeson to the Board as Chief Financial Officer.
This appointment supports an ongoing programme to develop capability
and talent within the Group.
The appointment process included:
• reviewing a gender balanced shortlist of candidates for the role;
• feedback from interviews with a carefully selected and sufficiently
diverse Non-Executive Director recruitment panel; and
• the Committee’s consideration of an external assessment
of Michael’s strengths and suitability for the role.
Diversity
The Group remains committed to the Diversity Policy that was
approved last year. This policy fully supports the Hampton-Alexander
recommendations that the Board should comprise at least one-third females
and continues to work towards achieving these targets in the required
timescale. It also supports the Parker recommendations that the Board
should include at least one Black, Asian and Minority Ethnic (BAME) Director.
Throughout the year, the Committee assisted the development of a pipeline
of high-calibre candidates by encouraging a broad range of senior individuals
within the business to take on additional roles to gain relevant experience.
For more details on the full Board, Executive Committee and Leadership
Team Diversity Policy see www.morrisons-corporate.com/investor-
centre/corporate-governance/
At the end of the 2019/20 financial year, the Board included two female
members, representing 22% of its total composition and one BAME Director.
Upon the appointment of Michael Gleeson at the start of the 2020/21
financial year, the female representation of the Board decreased to 20%.
Gender composition at 2 February 2020
Main Board1
Executive Committee
Direct reports to
Executive Committee
Total Morrisons
Male
7
5
Female
2
1
31
43,173
21
53,877
% Female
22%
17%
40%
56%
1 Michael Gleeson joined the Main Board on 3 February 2020. Upon his appointment,
the percentage of females on the Main Board decreased to 20%.
Succession planning
Succession plans are developed using objective criteria, with the
Committee meeting twice a year to discuss succession planning of the
Board, Executive Committee and senior management. At these sessions,
the Board is presented with profiles of key individuals, which are
considered alongside diversity metrics including, but not limited to,
gender, social and ethnic backgrounds, age and personal strengths.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Annual Statement by the Chair
of the Remuneration Committee
“ A challenging year with
sustained progress, despite
a competitive market.”
Tony van Kralingen, Remuneration Committee Chair
Dear Shareholder,
As Remuneration Committee Chair I enjoyed
the interaction with a variety of shareholders
during the course of last year and at the 2019
Annual General Meeting (AGM). The Committee
was pleased with the 95% vote in favour of
our 2018/19 Directors’ remuneration report,
and remains conscious of the views of our
shareholders, through regular engagement,
in particular, on the updated Directors’
remuneration policy.
2019/20 was a challenging year; however, the management team showed
strong leadership in balancing competing demands and particularly
challenging market conditions, to deliver profit growth for the fourth
consecutive year, an increased ordinary dividend and, as announced at
the half year, another interim special dividend. The business continues
to make progress against the seven priorities, which are summarised
on pages 8 to 11. Despite a difficult trading environment, the business
again delivered significant levels of free cash flow, a measure which
shareholders continue to tell me is very important to them.
We have, of course, announced changes to the Executive team this year,
with Trevor Strain promoted into the role of Chief Operating Officer
(COO) managing our operations from suppliers to stores, as well as
our manufacturing businesses and our growth platforms of online and
wholesale. Michael Gleeson has been promoted and joins the Board
as Chief Financial Officer (CFO). These moves strengthen our
management team as we move into the next phase of fix, rebuild,
grow and sustaining the turnaround of this great British business.
Pay for performance
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 unprecedented and prolonged
political and economic uncertainty, reduced customer confidence
and an already competitive market increasing levels of promotional
activity, management have delivered:
• Group LFL sales (excluding fuel) growth of (0.8)%;
• profit before tax and exceptional items of £408m, an increase of 3%
on last year;
• further strong free cash flow, a total ordinary dividend of 6.77p,
up 2.6%, together with the already paid interim special dividend
of 2.00p, bringing the total dividend to 8.77p; and
• further progress in cost and productivity savings, resulting in cost
reduction/productivity improvement of £147m.
Group performance
£408m
£396m
12.85p 13.18p
4.8%
(0.8)%
Profit before tax
and exceptionals1, 2
Basic earnings
per share (EPS)
before exceptionals1, 2
Group like-for-like
sales (LFL) growth1
2018/19
2019/20
1 As defined in the Glossary on pages 152 to 154.
2 2018/19 restated for application of IFRS 16 ‘Leases’.
46
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Policy changes
When reviewing the Policy, the Committee considered a wide range
of inputs. The renewed Policy has been informed by the 2018 Corporate
Governance Code changes, market practice, shareholder views, our risk
appetite, the Morrisons culture and strategic plan, and the pay and
conditions of the wider workforce.
Governance developments
The Committee has considered 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.
We have always said our turnaround would be led by colleagues,
and consequently the Committee has always paid close attention
to wider workforce remuneration, being regularly briefed on
employee pay and conditions.
In addition, the Committee is already responsible for setting the
remuneration of the Executive Committee; and I have continued
as the designated Non-Executive Director responsible for
engagement with our colleagues.
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.
Colleague pay has continued to increase faster than the market,
and we have retained our Colleague Bonus Scheme, which has paid
out an average of £319 this year. 2019/20 saw a further increase
in the hourly rate for store colleagues to £9.00 from £8.70, with
a further increase to £9.20 from April 2020, whilst still retaining
the annual colleague bonus.
Outcomes in 2019/20
Annual Bonus Plan
The Annual Bonus Plan is based on both business and personal
performance. Performance against the targets for sales, profit and
productivity, has resulted in a formulaic outcome of 30.7% of a
maximum of 80% for these elements.
The Committee was satisfied that this represented a fair outcome,
and no discretion needed to be applied. Further detail on the targets
set and performance against them can be found on page 60.
Taking into account performance against personal objectives,
the Committee has decided to award David Potts and Trevor Strain
18% of the maximum 20% for this element. This takes the total bonus
achieved to a payout of 48.7% of maximum, half of which will be
deferred into shares, which must be held for three years under
the deferred share bonus plan.
Shareholders will be asked to approve our updated Directors’
remuneration policy at the 2020 AGM. Here is a summary of the
key changes we are introducing:
Element
Change
Pension allowance (new hires)
Reduced to 5% of salary
Post employment
shareholding requirement1
Annual bonus share
deferral scheme
1 See notes below for details of operation.
Lower of actual shareholding or:
• 250% in year one
• 125% in year two
Reduced to two years from
three years
Pension allowance for new Executive Director hires (including the new
CFO) will be at 5% – in line with what the majority of our workforce
actually receive. We are very proud to have one of the higher company
contributions in our industry, and are therefore able to take this simple
and transparent approach. If the majority of workforce company
contribution changes, this may be reviewed. Over the course of our
consultations, we listened carefully to our shareholders. Whilst most
were comfortable with our proposed approach and are pragmatic
regarding the difficulties involved in reducing pensions for incumbents,
some shareholders expected us to go further. The Committee has
therefore formally committed to make further reductions to incumbent
pension contributions over the life of the new remuneration policy.
Further reductions will be disclosed in the relevant Directors’
remuneration report.
Having already introduced a two year holding period on Long Term
Incentive Plan (LTIP) vests last year, the Committee have decided
to introduce a post employment shareholding requirement.
Executive Directors will be required to hold the lower of their actual
shareholding or 250% of base salary in the first year after leaving,
and 125% (or the actual if lower) in the second. This will be achieved
through the deferral period on annual bonus deferred shares, and the
holding period on LTIPs from policy adoption, on grants made after
the policy is approved.
Having the opportunity to step back and review the policy in its entirety,
the Committee has decided to reduce the deferral period for the annual
bonus, to be in line with the LTIP holding period and post employment
requirement. This is felt to be appropriate as retail is a very fast paced
industry, and it is likely that any issues generated in the performance year
for an annual bonus, would become apparent in the following two years.
There is no change in quantum of earnings potential.
How our Directors’ remuneration report is structured
Our new Directors’ remuneration policy
pages 50 to 56
Implementation of the remuneration policy in 2020/21
pages 57 and 58
Annual Report on remuneration – 2019/20
pages 59 to 66
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Annual Statement by the Chair
of the Remuneration Committee
LTIP 2017-20
The performance over the period is summarised below:
Measure1
Total sales growth (excluding fuel) £400m £750m
(100%) Weighting
40%
Minimum
(25%)
Maximum
Adjusted free cash flow
£600m £800m
40%
Actual
performance
£899m
£1,005m2
Basic earnings per share (EPS)
before exceptionals growth p.a.
1 See the definitions on page 58.
2 Calculation of vesting on pre-IFRS 16 basis.
5%
10%
20%
7.8%2
The original targets were set prior to the application of IFRS 16 ‘Leases’.
As noted in the 2018/19 Directors’ remuneration report, for the purposes
of LTIP reporting, standards in place at the time of grant will be used in
calculation of vesting. Accordingly, both the EPS and adjusted cash flow
measures have been recalculated on a pre-IFRS 16 equivalent basis.
See pages 58 and 63 for more detail.
As a consequence of the strong performance over the period
as outlined above and shown on page 63, the 2017-20 LTIP is vesting
at 93.5% of maximum. The Committee believe the formulaic outcome
is reflective of the value created for shareholders over the period.
Key Committee activities during the year
Alignment to
strategy
and wider workforce
• Assessed the ongoing alignment of remuneration
structures, measures and targets to the strategy.
Regularly reviewed wider workforce remuneration.
Implementation in 2020/21
Base salary
The Committee awarded David Potts an increase of 2.3% in line with the
wider workforce, which David has waived for the fifth consecutive year.
For Trevor Strain, as a consequence of his strong performance and
promotion to the Chief Operating Officer role, the Committee
approved an increase of 2.3% in line with wider workforce to
£665,000 effective 3 February 2020.
Michael Gleeson has been appointed as Chief Financial Officer on a
salary of £490,000.
Pension allowance for incumbents: The Chief Executive has offered
to reduce his pension allowance to 24% from 25%, in line with the
Chief Operating Officer. The Committee has also decided to freeze
24% of current base salary as an absolute cash amount, with no increase
to this amount as future base pay increases occur. If base pay increases
are made and accepted in future, this will have the effect of reducing
the pension allowance percentage over time.
Michael Gleeson will receive a pension allowance equivalent to 5%
of base salary. This is in line with the majority of the workforce.
Chair and Non-Executive Director fees
The Chair’s fees were increased in February 2019 and therefore fees
for the Chair will next be reviewed in 2022.
Having last been reviewed in 2017, the non-executive base fee has
been increased from £61,200 to £62,500.
Shareholder
engagement
Policy
Pay for
performance
• Considered investor feedback and proposed
changes to remuneration policy from the 2019
AGM and through ongoing dialogue.
• Consulted on executive remuneration, and
proposed changes to remuneration policy.
• Assessed performance against target sets
for 2019/20 annual bonus and 2017-20 LTIP and
considered whether any discretion should be
used to adjust formulaic outcomes if necessary;
• Reviewed and approved targets for 2020/21
annual bonus and 2020-23 LTIP; and
• Reviewed the performance of the Executives.
Annual Bonus
The performance measures of the Annual Bonus Plan and their
weightings remain unchanged from 2019/20 and are summarised on page
57. Subject to no longer being commercially sensitive, the performance
against targets will be disclosed in next year’s report. 50% of any bonus
is deferred in shares under the deferred share bonus plan. The 2020/21
scheme is subject to a two-year vesting period for deferred shares
(subject to policy approval).
LTIP
In line with the policy approved by shareholders in 2017, awards will be
300% of salary. Performance measures and weightings are unchanged
from the 2019-22 LTIP award. Further detail on the targets can be found on
page 57. This grant will be subject to a two year holding period at vest.
Governance
• Reviewed and considered consequences of
the changing investor, governance and reporting
landscape following 2019 AGM season and
issuance of the Code and updated Directors’
remuneration reporting regulations;
• Reviewed progress of Executives against
shareholding requirements;
• Approved the 2018/19 Directors’ remuneration
report; and
• Approved the remuneration for the new CFO
and COO.
• Reviewed Executive Director, Executive
Committee and Company Secretary base
salaries, in line with wider workforce.
Pay
48
Looking forward
I have had valuable conversations with many of our shareholders this
year, and was pleased to have so much support for the performance
of the Committee and for management. 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 2020.
I look forward to your support at the 2020 AGM.
Tony van Kralingen, Remuneration Committee Chair
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Directors’ remuneration report continued
At a glance
Looking at performance from the perspective
of shareholders, customers and colleagues.
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)
Post IFRS 16 basis
2019/20
£408m
Post IFRS 16 basis
2018/192
£396m2
Pre IFRS 16 basis
2017/183
£374m4
13.18p
(0.8)%
12.85p2
4.8%
12.19p
2.8%
£2,660m
£2,339m
£2,053m
1 Definitions of these measures are set out on page 58.
2 Adjusted for application of IFRS 16 ‘Leases’. The impact of restatement for IFRS 16 was to reduce reported profit before tax and exceptionals by £10m and reduce basic EPS before exceptionals by 0.32p.
3 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.
4 For 2017/18 the adjusted profit measure was underlying profit before tax. There is no change in the reported numbers under the previous and current definition.
Stakeholder performance indicators
5 year dividend
12 month total shareholder return (TSR)
12.60p
10.09p
8.77p
5.00p
5.43p
6.09p
6.60p
6.67p
2015/16
2016/17
2017/181
2018/192
2019/203
Value of a £100 holding
£
120
115
110
105
100
95
90
85
80
75
70
Feb 19
Apr 19
Jul 19
Oct 19
Feb 20
1 Including 4.00p special dividend.
2 Including 6.00p special dividend.
3 Including 2.00p special dividend.
Ordinary
Special
The graph above shows the Group’s total dividend over the
five year period to 2 February 2020.
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 12 month
period to 31 January 2020 (the last trading day before the year end).
Investment in colleague pay
Customer satisfaction index
+32%
+18%
£8.20
£8.50
£8.70
£9.00
£6.83
100
103
105
112
120
118
2015
2016
2017
2018
2019
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
Since 2016, we have continued to invest in colleague pay. In 2019/20,
we increased the hourly rate for front-line store colleagues to £9.00
an hour, increasing colleague pay by almost a third in four years.
Customer satisfaction measured at January each year, index vs Jan 15 baseline.
The above graph demonstrates the continued progress the Group
has made in terms of customer satisfaction over the last five years.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
49
Strategic reportGovernanceFinancial statementsInvestor information Directors’ remuneration report continued
Directors’ remuneration policy
As outlined on page 47, the updated Directors’ remuneration policy will be subject to a vote at the 2020 AGM. The current Directors’ remuneration
policy was approved by shareholders on 15 June 2017 at the AGM. The current full policy can be found at www.morrisons-corporate.com. The policy
has been in operation for three years.
The principles that underpin our Directors’ remuneration policy are:
Drive a long-term sustainable business
Provide clear alignment of directors and shareholders
Incentivise a balanced approach to the needs of the four stakeholders –
shareholders, suppliers, customers and colleagues
Sustainably secure the talent to lead our business, now and in the future
The Committee is committed to ongoing dialogue and consultation with shareholders and their representative bodies.
Alignment of remuneration to strategy and culture
The Annual Bonus Plan and Long Term Incentive Plan (LTIP) link to our seven priorities, five ways of working and four shareholder ambitions by driving
profitable, sustainable growth. The choice of measures in the LTIP are designed to hold dynamic tension and create a long-term sustainably successful
business. Drive for sales growth is incentivised, but must be profitable to achieve the basic earnings per share before exceptionals growth, which in
turn creates the free cash flow which can then be reinvested into the business, shared with colleagues and returned to shareholders.
Equally, the Annual Bonus Plan measures create focus on the short-term health of a fast moving business in a rapidly changing industry. Sales growth is a
key driver of health in a fresh food retailer – higher sales improve productivity, reduce waste and allow for more competitive pricing – a combination
which again delivers in year profit and productivity benefits which can then be reinvested for the benefit of all stakeholders.
The personal objectives element, under the Annual Bonus Plan, allows us to include diverse but important other measures, and everyone in our
business is evaluated equally both on what they do, and how they do it, in line with our five ways of working.
Everyone from store manager level and above participates in the Annual Bonus Plan and LTIP with the same measures, which creates strong alignment
between those running our stores and sites and shareholders, and means all our colleagues are able to share in our financial success.
The Committee reviews incentives and rewards several times a year when setting targets, reviewing performance outturns, and takes time to step
back outside the remuneration cycle to consider the alignment of executive remuneration to our purpose, strategy, desired behaviours and culture,
and wider workforce remuneration.
50
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Policy change rationale
The Committee agreed the policy remained aligned to strategy and the long-term success of the business; however we have reflected the
shareholder feedback from consultation and changes to the Corporate Governance Code. The outcome of this review resulted in four changes:
Element for change
Change and rationale
1) Pension allowance for
new Executive Director
appointments
2) Pension allowance for
current Executive Directors
3) Post employment
shareholding requirement
4) Deferred bonus share
holding period
Executive Directors shall receive a contribution no higher than the majority of the workforce, which is currently 5%.
Where an Executive Director receives a cash supplement only, the maximum supplement will also be limited to
that of the majority of the workforce.
If the majority of workforce company contribution changes, this may be reviewed.
The Chief Executive has offered to reduce his pension allowance from 25% to 24% in line with the COO, with
effect from the new policy and there will be no compensatory action for this voluntary reduction.
The Committee has also decided to freeze the 24% pension allowance as an absolute cash amount, with no
increase to this amount if future base pay increases occur. If base pay increases are made and accepted in
future, this will have the effect of reducing the pension allowance percentage over time.
Over the course of our consultations, we listened carefully to our shareholders. Whilst most were comfortable
with our proposed approach and are pragmatic regarding the difficulties involved in reducing pensions for
incumbents, some shareholders expected us to go further. The Committee has therefore formally committed
to make further reductions to incumbent pension contributions over the life of the new remuneration policy.
Further reductions will be disclosed in the relevant Directors’ remuneration report.
We already have a shareholding requirement of 250% of salary, which both the CEO and COO have met. A two
year holding period on vested LTIPs was also introduced last year.
The Committee decided to adopt a policy as follows:
• Year one post employment – the lower of the Director’s shareholding or 250% of salary
• Year two post employment – the lower of the Director’s shareholding or 125% of salary
Vested LTIP awards and bonus deferrals made from awards from 2021 onwards, will count towards the post
employment shareholding requirement.
Executive Director notice periods are 12 months, so the second year post employment is the third year after
the start of the notice period. Given the fast moving nature of the industry and relative volatility, as well as the
fact that those departing will not choose or appoint their successors, it is felt to be fair and equitable to reduce
the exposure to share price movements in this third year.
The Company currently operates a deferred share bonus plan whereby 50% of earned bonus is deferred into
shares for three years. The Committee decided to reduce the holding period for bonus deferred shares from
three years to two. This is in light of the Corporate Governance Code’s recommendation that the
Remuneration Committee spend more time considering the strategic alignment of reward and business plans.
It is also a reflection of the introduction of the LTIP holding period and a post employment shareholding
requirement, and the Committee has significantly increased the alignment of Executive interests with
shareholders, over a five-year period.
While recognising the desire for long-term alignment with shareholders, given the short-term, cyclical nature of
the retail industry, it has also been appropriate to consider the salience of shorter-term incentives, and reduce
the holding period on what is intended to be a short-term reward for in year performance.
As outlined on page 47, the Directors’ remuneration policy will be subject to a vote at the 2020 AGM. If approved, the changes will take effect
following the AGM. In designing and setting the policy on Directors’ remuneration, the Committee has considered the reward structure, market levels
of pay and general pay increases throughout the Group.
Pay and conditions in the wider Group
In updating the policy, the Committee has considered our fix, rebuild, grow and sustain plan. The industry remains fiercely competitive, and therefore
we are seeking to attract, motivate and retain the best talent at all levels of the market. For store colleagues, in 2019/20 we increased our hourly rate
to £9.00 an hour, with a further increase to £9.20 an hour from April 2020, while retaining colleague bonus and other benefits such as a market leading
default pension rate, subsidised canteens, three colleague discount cards, and facilities in colleague areas. Colleagues’ views on pay form part of our
engagement survey and colleague ‘Your Say’ forums. The results of the survey are communicated to the Board, and both Executive and Non-
Executive Directors attend the national ‘Your Say’ forum.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
51
Strategic reportGovernanceFinancial statementsInvestor information Directors’ remuneration report continued
Directors’ remuneration policy
Remuneration policy table – new policy 2020
Element
Operation
Opportunity
Performance measures
and period
Not applicable.
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 57.
Base salary
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
are 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.
Benefits
The Group provides a market competitive benefits
package for Executive Directors to support in the ability
to recruit and retain the best talent.
Pension
Executive Directors are entitled to a car allowance (and
other car/transport 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).
New Hires
Executive Directors are entitled to participate in the
Morrisons Personal Retirement Scheme. Colleagues
contribute 5% of salary and the Group also makes a
contribution of 5% of salary.
A 5% cash alternative in lieu of Group pension contributions
is provided where the Group’s pension provision is not
appropriate, for example, where an Executive Director
has reached the Lifetime Allowance.
If the majority of workforce company contribution
changes, this may be reviewed.
Current Executive Directors
Executive Directors appointed to the Board prior to the
3 February 2020 are entitled to participate in the Morrisons
Personal Retirement Scheme or receive a cash alternative
in lieu of Group pension contributions.
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.
Not applicable.
New Hires
Executive Directors receive a contribution equal
to a maximum of 5% of base salary.
Where an Executive Director receives a cash
salary supplement only, the maximum supplement
payable is 5% of salary.
Current Executive Directors
The 24% cash alternative has been frozen for each
Executive Director as an absolute cash amount,
with no increase to this amount as future base pay
increases occur. If base pay increases are made
and accepted in future, this will have the effect
of reducing the pension allowance percentage
over time.
The Committee has committed to make further
reductions to incumbent pension contributions
over the life of the new remuneration policy.
Further reductions will be discussed in the
relevant Directors’ remuneration report.
52
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Element
Operation
Opportunity
Performance measures and period
Annual
bonus
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
(DSBP), normally for a period of two years. The Committee
has discretion to allow a differing 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.
Long Term
Incentive
Plan (LTIP)
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.
A two year holding period applies 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, weightings and shape of the vesting
curve are set by the Committee on an annual basis,
and may be changed, including removing or
introducing new measures 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 two 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 and
with straight-line vesting in-between. 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
2019/20’ section. The Committee has the discretion to
amend the weightings and shape of the vesting curve,
introduce new measures and exclude measures in
order to best align to long-term shareholder interests.
Malus and clawback policies apply.
Shareholding
requirements
Executive Directors are required to hold 250% of base salary
in shares, and have up to five years from appointment or any
increase in requirement to achieve that. Deferred share and
LTIP awards made following the approval of the policy are
subject to a post-employment requirement as follows:
• Year one – the lower of the Director’s shareholding
or 250% of salary
• Year two – the lower of the Director’s shareholding
or 125% of salary
Not applicable.
Not applicable.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information Directors’ remuneration report continued
Directors’ remuneration policy
Notes to Policy table
Annual Bonus Plan and Deferred Share Plan
The Annual Bonus Plan is measured over the financial year. The current
measures are profit before tax and exceptionals (50%), a strategic
scorecard (30%) and personal performance (20%). The weightings are
reviewed each year to ensure strategic alignment and the Committee
has the flexibility to adjust weightings and measures to ensure
alignment to the strategy and our seven priorities. Weightings for
each year are disclosed in the statement of implementation.
Profit before tax and exceptionals is a widely accepted measure
of Group and Director performance and is in line with how the
Board assesses financial performance. Directors are able to impact
it within the year, and it is directly aligned to shareholder experience.
The Committee has the discretion to adjust for material exceptional
events or actions which were not contemplated at the time of target
setting, to ensure that vesting is accurate and fair. As a point of
principle, the Committee has decided that the threshold for profit
targets will always be higher than actual profit achieved in the
previous financial year.
Strategic scorecard measures are set annually in line with the Group’s
strategy and key objectives for the financial year. The Committee
uses objective measures where possible (for example, achievement of
productivity improvement/cost reduction) and exercises its judgement
to assess the outcome of each element at the end of the year.
Personal objectives for the CEO are set by the Chair, in line with
objectives for the next 12 months and the longer-term Group strategy.
The CEO sets objectives for the other Executive Director(s).
The Committee assesses performance against objectives and personal
bonus achievement at the end of each year. 50% of any bonus payable
is paid in cash, with the other 50% deferred in shares under the
Deferred Share Bonus Plan (DSBP). Deferred share awards are
not subject to any further performance conditions.
LTIP
The Committee believes the mix of measures and weightings are
appropriate for the Group’s current strategy and aims. The current
measures are:
• total sales growth (excluding fuel) (40%);
• adjusted free cash flow (40%); and
• basic earnings per share (EPS) before exceptionals growth (20%).
Application of the remuneration policy –
Remuneration Scenarios
The below charts set out the minimum, mid and maximum total
remuneration scenarios based on current salaries, and how they would
vary subject to differing performance outcomes for Executive Directors
under the proposed remuneration policy (subject to shareholder
approval at the 2020 AGM). In addition a ‘Max +’ scenario has been
included, which is the maximum scenario + 50% share price growth.
Notes
• Fixed pay includes 2020 base salaries, benefits and pension benefits
(based on expected benefits for 2020/21).
• Minimum bonus opportunity is zero. Mid bonus opportunity
is 60% of the Maximum bonus opportunity, 200% of salary.
• Minimum LTIP opportunity is zero. Mid LTIP opportunity is
60% of the Maximum LTIP opportunity, 300% of salary.
• Prospective Annual Bonus Plan and LTIP awards are based
on 2020/21 salaries.
Chief Executive Officer
D Potts
£3,634k
42%
28%
30%
Mid
£1,084k
100%
Min
Chief Operating Officer
T Strain
£2,856k
42%
28%
30%
Mid
£861k
100%
Min
£5,334k
48%
32%
20%
Max
£4,186k
48%
32%
20%
Max
£2,998k
49%
33%
18%
Max
£6,609k
58%
26%
16%
Max+*
£5,184k
58%
26%
16%
Max+*
£3,733k
59%
26%
15%
Max+*
The Committee has the discretion to amend the weightings, shape of
vesting curve, introduce new measures and exclude measures in order
to best align to long-term shareholder interests.
Chief Financial Officer
M Gleeson
Targets are determined by the Committee at the time of grant, and
are based on the internal financial plan, external expectations and
the need to ensure it is incentivised long-term sustainable value creation
for shareholders. Definitions of the performance measures are set
out on page 58.
The Committee uses a ROCE (Return on capital employed) underpin
to ensure that ROCE exceeds weighted average cost of capital for the
performance period. The calculation of ROCE is as described in the
Glossary on page 154.
The Committee has discretion to amend the calculation of measures
in the interests of fairness and accuracy. In this event, full disclosure
will be given in the Directors’ remuneration report.
£2,018k
44%
29%
27%
Mid
£548k
100%
Min
Fixed Pay
Annual Bonus
LTIP
* Maximum + 50% share price growth.
54
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Remuneration for the wider Group
Everyone at store manager level and above participates in the Annual Bonus Plan, with the same measures and targets as the Executive Directors.
The same population participate in the LTIP, again with the same measures and targets. This alignment within the organisation is an important part
of ‘Teamwork’, one of our five ways of working. Further detail on pay and conditions in the wider Group is provided on page 58.
Statement of consideration of shareholder views
In reviewing the policy and making changes there has been significant consultation with shareholders and consideration of the varied views
put forward.
The Committee carefully considered the insights from shareholders, along with their knowledge of the business and industry, in reaching this policy.
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.
Directors’ service contracts, notice periods, termination payments and change of control
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.
Termination payments
The table below sets out the treatment of elements of remuneration that would normally apply for Executive Directors whose service with the
Group terminates:
Circumstances
of termination
Resignation or
gross misconduct
Injury/ill health,
disability, death,
retirement (with
agreement of
the Group)
Negotiated
termination at
the discretion of
the Committee
Salary and contractual benefits Annual Bonus Plan
Unvested deferred shares
Unvested LTIP awards
Paid to date of termination
No bonus paid for year
of termination
Awards lapse when
employment ends
Awards lapse when
employment ends
Paid to date of termination
Eligible to be considered for
a bonus, normally calculated
on a time pro-rata basis
Deferred shares are retained
and will typically vest on
the normal two year cycle.
The Committee has discretion
to bring forward vesting in
exceptional circumstances
Eligible to be considered
for good leaver status, which
gives entitlement to retain
the award granted, normally
calculated on a time
pro-rata basis
Paid to date of termination
As above
As above
As above
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Directors’ remuneration policy
Under the Annual Bonus Plan and LTIP rules, the Committee has discretion in relation to termination of employment, including:
• whether a bonus payment is made;
• whether unvested deferred shares and LTIP awards are retained or not;
• level of vesting; and
• timing of any payment arising from vesting.
In exercising discretion, the Committee will take into account factors such as personal performance and conduct, overall Group performance and
the specific circumstances of the departure (including but not limited to whether it is by mutual agreement). The Committee may take into account
payments it considers reasonable in consideration of potential legal claims, including reasonable reimbursement of legal fees. The Committee may
also consider providing support related to the ending of employment, including outplacement support, continuation of benefits for a limited period
or reimbursement of repatriation costs.
Change of control
In the event of a change of control, deferred share awards vest immediately. Annual bonus and LTIP awards vest to the extent that any performance
conditions have been met and, unless the Committee decides otherwise, with a pro-rata reduction to reflect the performance period not
yet completed.
Clawback and malus
All annual cash bonus, Deferred Share Bonus Plan (DSBP) and LTIP awards are subject to clawback and malus provisions. Clawback provisions apply for
three years following payment of a cash bonus (malus applies to the deferred share element for a two year period) and two years following vesting of
an LTIP award (i.e. five years from grant). Awards may be subject to a malus adjustment, or clawed back in the following circumstances:
• material misstatement of results;
• gross misconduct;
• reputational damage; and/or
• performance assessment error.
The Committee can adjust clawback and malus periods as they deem appropriate.
Policy on remuneration for Non-Executive Directors
Fees
Fees for the Non-Executive Directors are determined by the Chair 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 Chair’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
chairship, Committee membership and for the appointed Senior Independent Director. The Chair receives a single fee only. Base Non-Executive
Director fees have not changed since the last remuneration policy review in 2017, and are therefore being increased by 2.1%, to £62,500. No other
fee changes have been proposed. Current fee levels are disclosed below:
Fee type
Chair
Senior Independent Director
Non-Executive Director base fee
Committee chair fee
Committee membership fee (per Committee)
2020/21
£
420,000
20,000
62,500
20,000
7,000
2019/20
£
420,000
20,000
61,200
20,000
7,000
Benefits and other items in the nature of remuneration
The Chair has use of a car with fuel and driver and receives private health provision. The Chair and Non-Executive Directors are entitled to normal
colleague discount. Neither the Chair nor any of the Non-Executive Directors participate in any Group incentive scheme.
56
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Directors’ remuneration report continued
Implementation of remuneration
policy in 2020/21
Base salary
The Committee awarded David Potts an increase of 2.3% in line with the
wider workforce, which David has waived for the fifth consecutive year,
and therefore remains unchanged at £850,000. Trevor Strain has been
promoted to Chief Operating Officer, and has been awarded an increase
of 2.3% in line with wider workforce, taking his base salary to £665,000.
As announced on appointment, Michael Gleeson’s salary will be £490,000.
The Committee decided on this salary level at the lower end of the
market, taking into account the fact this is his first Executive Director
appointment. The Committee would expect to award increases higher
than the wider workforce in future years, to reflect his anticipated
rate of progression as he develops in role.
Benefits and pension
David Potts and Trevor Strain each receive a pension supplement of 24%,
frozen at their 2019/20 benefit level. Following the pay increase noted
above, Trevor Strain’s pension supplement now equates to 23% of base
salary. Michael Gleeson will receive a pension supplement of 5% of
base salary, in line with the new remuneration policy.
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 (pages 50 to 56).
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, 2019/20 was a difficult year for
the wider retail industry and high street, and it is the opinion of many
analysts that trading conditions are likely to remain challenging.
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 Directors’ remuneration report.
There is a ROCE* (Return on capital employed) underpin which allows
the Committee to adjust vesting options if ROCE is below weighted
average cost of capital.
In line with the policy approved by shareholders, the LTIP awards for
Executive Directors for 2020-23 will be 300% of salary. This grant will
be subject to a two year post vest holding period.
LTIP targets 2020-23
The targets for the 2020-23 LTIP are in the table below:
Measure1
Profit before tax and exceptionals
Strategic scorecard
Personal objectives
1 Performance measures are defined on page 58.
Weightings
(% of maximum bonus opportunity)
50%
30%
20%
Measure1,2
Total sales growth
(excluding fuel)
Adjusted free cash flow
Basic EPS before
exceptionals growth
Weighting
Threshold
(25% payout)
Mid point
(50% payout)
Maximum
(100% payout)
40%
40%
20%
£630m
£800m
£780m
£850m
£1,065m
£950m
5%
6%
8%
Scorecard measures for 2020/21 will continue to focus on strategic
objectives in the areas of Group like-for-like sales growth excluding
fuel (20%) and productivity improvement/cost reduction (10%).
Personal objectives will be linked to strategy, and the areas under
each Executive’s 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.
The Committee sets bonus and LTIP targets for normal, highly competitive,
food retailing conditions. However, as we finalise the report we are in
abnormal times, coping with the COVID-19 pandemic. The Committee
will monitor the situation from a remuneration targets perspective
as it develops, retaining (as always) the discretion to amend formulaic
outcomes in light of relevant context. Our primary responsibility
remains making and providing food for our customers.
LTIP
2020-23 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 interests of any stakeholder.
1 Performance measures are defined on page 58.
2 Vesting is on a straight-line basis between points.
Sales growth
The range is equivalent to annual growth of +1.5% to +2.5%. Achieving
maximum would require an increase of over 3% from actual performance in
the base year. This level of annual growth would represent high performance
in our industry. The target has been set above near years’ consensus
recognising the importance of top line growth.
The maximum target for sales growth has reduced from the previous year,
as it assumes the roll out of wholesale supply to McColl’s will now be to
a total of c.1,100 stores versus an original plan of c.1,600, following McColl’s
ongoing store closure programme. The change also takes into account the
strategic decision to delay our online operations launching from Ocado’s
Erith depot, which has created flexibility for the business. This means we
reach capacity in Erith beyond 2023.
Adjusted free cash flow
The Committee appreciates that this remains a very important measure
for shareholders, and Management continues to be very focused on
delivering against it. Notwithstanding the strong progress of previous
years, including a high level of property disposals and working capital
improvements, the free cash target is set at levels consistent with last
year taking into account the changes to timing of payments of
corporation tax liabilities.
* Alternative Performance Measures as defined in the Glossary on pages 152 to 154.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
57
Strategic reportGovernanceFinancial statementsInvestor information Directors’ remuneration report continued
Implementation of remuneration
policy in 2020/21 continued
Pay and conditions in the wider Group – investing in a
colleague-led turnaround
One of our people ambitions 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. We have continued to invest each year, with a further increase
to £9.20 from April 2020. Our total package including colleague bonus
and cash long service award (paid every five years) remains market
leading as additional cash benefits such as bonus are equivalent
to a further 32p an hour.
• Colleagues are sharing in the value they create, with over one in
five of our people in a Sharesave scheme (providing colleagues with
the opportunity to purchase the Company’s shares at a discount).
• Colleagues continue to share in the success they create via our
Colleague Bonus Scheme. This year’s average payment was £319.
• We have reorganised our store management teams to remove
colleague tasks from manager roles, invested in additional colleague
hours, and freed managers up to realise our ambition of everyone
having a ‘manager who listens, helps and supports me’.
• Our colleague discount portal ‘My Perks’ 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
£17 per month per user, equivalent to nearly two hours extra pay.
• 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 have a monthly
meeting, a regional quarterly and a national meeting twice a year.
Tony van Kralingen, along with other Non-Executive Directors, attends
the national meeting, to hear views from colleagues on a range of
issues, not just remuneration. Successes from the last year include:
changing the markdown times on Food to Go items to reduce waste,
changing store opening times to meet local demand, one of our
distribution centres suggesting that our Rathbones bakery use flour
bags to wrap waste saving on salvage costs, and automatic receipts
being generated at self-scans for anything over £5 to improve customer
returns. We also made significant investments in staff facilities for
stores – installing hot and cold water fountains and fridges in staff
rooms, offering healthier menu choices, and introducing a £3.50 meal
deal in our cafés for colleagues to purchase a hot meal after the
staff room has closed.
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.
Basic EPS before exceptionals growth
EPS and profit are a function of sales and, as a proportion of sales, the
level of stretch has increased from previous years, with profit having to
grow more than three times as fast as sales to achieve the stretch target.
The Committee is very mindful of balancing sales and profit growth,
investing in improving the shopping trip for customers, and sustaining
performance for shareholders. Given challenging industry trading
conditions, this range is very stretching.
Chair and Non-Executive Director fees
The base fee for Non-Executive Directors has not been reviewed since
2017, and therefore an increase of 2.1% was awarded, taking the fee from
£61,200 to £62,500. Having been increased last year, the fees for the Chair
will next be reviewed in 2022.
Directors’ remuneration report – Performance
Measures Definitions
Annual Bonus Performance Measures
Measure
Group
financial
Strategic
scorecard
Other
measures
Definition
Profit before tax and
exceptionals
As defined in the
Glossary on page 152
Group like-for-like sales
growth (exc. fuel)
As defined in the
Glossary on page 152
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
Long Term Incentive Plan (LTIP) Performance Measures
Measure
Definition
Total sales growth
(exc. fuel)
Adjusted free
cash flow1
The change in total sales (excluding fuel and
VAT) over the performance period of the award
Total sales growth (excluding fuel and VAT)
is defined in the Glossary on page 152
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
• Less: capital repayment of leases (exc onerous)1
Basic earnings
per share before
exceptionals
(EPS) growth
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 153
1 Whilst the overall cash flows do not change on application of IFRS 16 ‘Leases’, the presentation
does and therefore the adjustment to deduct capital repayments of leases is required to ensure
consistency with targets and performance.
58
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Directors’ remuneration report continued
Annual Report on remuneration – 2019/20
Audited information
Single total figure of remuneration
The table below sets out the single total figure of remuneration and breakdown for each Director for 2019/20 and the comparative figure for 2018/19.
Michael Gleeson was appointed as Chief Financial Officer on 3 February 2020, and his remuneration will be reported in the 2020/21 Directors’
remuneration report.
Salary/fees
£000
Benefits1
£000
2019/20
Annual
bonus2
£000
LTIP3
£000
Pension
benefits4
£000
Total
£000
Salary/fees
£000
Benefits
£000
Executive Directors
D Potts
T Strain
Non-Executive
Directors
A Higginson
R Anand
N Davidson
K Havelock
CA van Kralingen
B Richards
P Vennells
850
650
420
109
102
89
102
102
89
28
46
84
–
–
–
–
–
–
828
633
2,270
1,593
213
156
4,189
3,078
850
622
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
504
109
102
89
102
102
89
400
103
102
89
102
102
89
27
35
38
–
–
–
–
–
–
2018/19
Annual
bonus2
£000
LTIP5
£000
Pension
benefits4
£000
1,037
759
2,375
1,607
213
149
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
4,502
3,172
438
103
102
89
102
102
89
1 Taxable benefits for the Executive Directors include a car allowance (or other car benefit), transport costs and private health provision. The Chair previously had use of a car and driver. In 2018/19,
he moved to company car only. Whilst this change has the appearance of increasing the Chair’s benefit provision (because he has full use of the car), it actually reduces the overall cost to the
business. 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 the deferred elements other than continued service.
3 Awards granted under the LTIP in March 2017 are due to vest in March 2020. The performance conditions relating to the 2017-20 LTIP award ended on 2 February 2020 and the vest value of the 2017-20
award is therefore calculated on the three month average closing price of £1.955 up to 31 January 2020 (the last trading day before year end). The 2019/20 figures also include the value of dividends
accrued on the 2017-20 LTIP award at the time of vesting. Further detail in the 2017-20 LTIP is provided on page 63.
4 D Potts received cash in lieu of pension, equal to 25% of base salary. T Strain received cash in lieu of pension of 24% of base salary. None of the Executive Directors have a prospective entitlement
to a defined benefit pension by reason of qualifying services.
5 The value of the 2016-19 LTIP vest that was disclosed in the 2018/19 Directors’ remuneration report was based on an indicative price at 1 February 2019. The value of the 2016-19 LTIP vest has been
restated to reflect the actual April 2019 vest value.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Annual Report on remuneration – 2019/20
Audited information continued
Annual Bonus Plan
Annual bonus achieved 2019/20
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)
Other measures
Personal objectives
Maximum
bonus
opportunity
(% of salary)
200%
200%
Weighting
(as a % of total
annual bonus
opportunity)
50%
10%
20%
20%
Actual
bonus
(% of salary)
97.4%
97.4%
Actual
bonus
(£000)
828
633
Bonus deferred
into shares
(% of award)
50%
50%
Cash bonus
paid in respect
of 2019/20
(£000)
414
317
Achieved as a % of maximum
Threshold
20% payout
£397m2
20% payout
Maximum
100% payout
£437m2
100% payout
Actual
achievement
Payout
(as a % of total
annual bonus
opportunity)
£408m
20.7%
£100m
1%
£130m
3%
£147m
(0.8)%
10.0%
0%
18.0%
1 Performance measures are defined on page 58.
2 Targets for profit before exceptionals reflect the application of IFRS 16 ‘Leases’.
Profit before tax and exceptionals
As disclosed in the restated financial statements, 2018/19 has been impacted by the application of IFRS 16. In 2019/20, profit before tax and
exceptionals was £408m, up 3% year-on-year. This is towards the lower end of the target range and reflects the challenging trading environment
retailers have faced. Despite the challenging consumer context, and the subsequent impact on sales, management have balanced the competing
demands of growing profit and investing in the shopping trip, to deliver a fourth year of profit growth, 20.7% out of a maximum of 50% has
been delivered.
Productivity improvement/cost reduction
Following three years of strong delivery against stretching targets, the maximum was set slightly lower than 2018/19, given the performance in
accelerating benefits since 2016/17. The maximum of £130m 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 £147m being delivered meaning 10% was achieved for this element.
Group LFL sales growth (excluding fuel)
The Committee set a target range of 1% to 3% growth, which was felt to be very stretching given the industry context at the time.
Performance did not meet threshold and therefore nothing is earned for this element.
60
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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. Some specific targets have been removed as they
are commercially sensitive.
D Potts
Objective
Deliver key actions against the improvement plan,
and continued implementation of fix, rebuild and
grow strategy for profitable growth, i.e. the six
priorities, five ways of working and four sets
of ambitions
Morrisons price list – further improvement relative
to competitor prices
Develop capability:
• Continue to develop leadership team capability
through development and talent hires
• Maintain succession plans for Executive
Committee and leadership team
• Finalise roll out of Team manager ‘My Job’
• Roll out ‘leading with purpose’ to store, site
and people managers
Continue to reach ‘more and more people’
through convenience, online, wholesale and
popular & useful services businesses:
• Increase reach to Amazon customers
• Start trading with two new wholesale partners
• Increase reach of online/Morrisons.com
Lead the business through the challenges driven
through Brexit
Summary of Performance
• Four new stores opened, including new format innovations with our first
Weighting
4%
Market Kitchen stores and first new style community store
• 44 ‘Fresh Look’ stores completed and outperforming control group
• ‘Outstanding in Service’ trials completed in a higher number of stores
than originally planned
• On GSCOP, Morrisons was the fourth most improved Retailer in the GCA’s
2019 supplier survey (out of 12), with a net improvement score of 7% and strong
positive feedback from the GCA
• Stretch customer satisfaction target achieved
• In 2019 prices on hundreds of items cut, including eggs, seafood, core grocery
and household items
• Planned gradual renewal of Executive team executed, as well as changes to store
leadership, to set Company up for next phase of turnaround, plus key leadership
team appointments
• Robustness of internal talent pipeline and smooth implementation shows
strength of succession plans
• All Team manager ‘My Jobs’ were completed as well as the planned number
of store and people managers for ‘Leading with Purpose’
4%
4%
• Four new stores opened, including new format innovations with our first
4%
Market Kitchen stores and first new style community store
• Now offer Amazon Prime Now in eight cities
• Over 50 ‘Morrisons Daily’ format stores opened
• Over 90% of British households now covered by Morrisons.com
Strong plans in place regarding Brexit in terms of trade, supply chain and resourcing
4%
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Annual Report on remuneration – 2019/20
Audited information continued
T Strain
Objective
Improve Commercial
• Simplify and speed up the function
• Create value for stakeholders with suppliers
Build capability
Control costs
• Improve productivity
• Plan to improve availability
• Reduce stock loss
Deliver growth
Summary of Performance
• Detailed review and improvements implemented
• Invested in sustained price cuts
• Improved all aspects of the shopping trip for customers
• New innovations such as ‘Party’ concept
• Continued to develop the team’s capability
• Internal successor developed and appointed to CFO role
• Productivity cost savings target exceeded
• Availability and stock loss improved with future detailed plans developed
• Improving existing own-brand ranges and introducing new products and ranges
• Fresh Look ‘modular’ improvements introduced across the estate
• Wholesale and online business met or exceeded plan
Weighting
5%
5%
5%
5%
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. Individual objectives were
achieved in full and often exceeded, and while the LFL sales target in the financial element was not achieved, the Committee are satisfied that
strong progress was made on longer-term strategic objectives.
Taking into account performance against personal objectives, the Committee has decided to award David Potts and Trevor Strain each 18% of
this element. This takes the total bonus achieved to a payout of 48.7% 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 subject
to continued service. 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.
62
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
LTIP awards
2017-20 LTIP
Awards granted under the LTIP in March 2017 are scheduled to vest in March 2020. The performance period relating to these awards ended
on 2 February 2020.
The Committee believe the formulaic outcome is reflective of the value created for shareholders over the period.
The original targets for the 2017-20 LTIP awards were set prior to the application of the IFRS 16 ‘Leases’. As noted in the 2018/19 Directors’ remuneration
report, for the purposes of LTIP reporting, standards in place at the time of grant will be used in the calculation of vesting. Accordingly, Basic EPS
before exceptionals has been restated on a pre-IFRS 16 basis.
Details of the performance conditions and the extent to which they have been satisfied are set out below:
Measure1
Total sales growth (excluding fuel)
Adjusted cumulative free cash flow2
Basic earnings per share (EPS) before
exceptionals growth p.a.3
Weighting
40%
40%
(25%) Threshold
performance
required
£400m
(100%) Maximum
performance
required
£750m
Reported
outcome
£899m
LTIP 2016-194
vesting and IFRS 16
adjusted outcome
£899m
Actual LTIP vesting
(% of maximum)
40.0%
£600m
£800m
£1,005m
£1,005m
40.0%
20%
5% p.a.
10% p.a.
6.7% p.a.
7.8% p.a.4
13.5%
1 Performance measures are defined on page 58.
2 Cumulative adjusted free cash flow over the vesting period. Adjusted free cash flow as defined on page 58.
3 Basic earnings per share (EPS) before exceptionals growth rate p.a. over the vesting period. Baseline basic EPS before exceptionals of 10.86p based on 2016/17 profit before exceptionals of £337m.
4 Basic EPS before exceptionals adjusted to reflect pre IFRS 16 in line with standards in place at date of grant and to remove the dilutive impact of shares issued to settle Group’s LTIPs, during the
vesting period.
2019-22 LTIP
The table below sets out the share awards made to the Executive Directors during 2019/20 under the Group’s LTIP:
Director
D Potts
T Strain
Grant date
Award type
17 April 2019 Conditional award
17 April 2019 Conditional award
Basis on which
award made
300% of salary
300% of salary
Face value
of award (£000)1
2,550
1,950
Percentage of award
vesting at threshold
performance
Performance
period end date
25% 30 January 2022
25% 30 January 2022
Performance conditions
see table below
see table below
1 The value of the award is based on the five day average close price of the trading days prior to grant: £2.2278.
The table below sets out the performance conditions attached to the awards made during the year. These awards were granted in April 2019.
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 58.
2 Vesting is on a straight-line basis between points.
Period over which
the measure applies
Three year performance period
Three year performance period
Three year performance period
Weighting (% of
maximum award)
40%
40%
20%
Threshold
(25%)
£650m
£800m
5%
Maximum
(100%)
£1.5bn
£950m
10%
As noted in the 2018/19 Directors’ remuneration report, the 2019-22 LTIP targets were set based on accounting standards in place for the financial
period ended 3 February 2019, prior to the application of IFRS 16 ‘Leases’. Accordingly for the purposes of LTIP reporting, standards in place at the
time of grant will be used in calculation of vesting. As such this will require an adjustment to a comparable pre-IFRS 16 basis.
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 Directors’ remuneration report. There is a ROCE underpin which allows the Committee
to adjust vesting options if ROCE is below weighted average cost of capital.
Sharesave
D Potts has an option to buy 7,078 shares for a fixed price of £1.78p on 1 July 2022 under the Morrisons Sharesave award subject to continued service.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
63
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Annual Report on remuneration – 2019/20
Unaudited information
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 and Trevor Strain have met their respective shareholding requirement.
Executive Director
D Potts
T Strain
Shareholding
requirement
(% salary)
250%
Shareholding as at
31 January 2020
(% salary)1,2
657%
Shares owned
outright
2,322,134
Deferred shares
not subject to
performance3
992,153
Sharesave options
not subject to
performance
7,078
LTIP shares
subject to
performance4
3,436,632
Total interests
in shares
6,757,997
250%
270%
528,911
693,891
–
2,503,603
3,726,405
1 Includes shares held under the deferred share bonus plan (DSBP) on an after tax basis. DSBP awards are conditional awards.
2 For the purpose of calculating the shareholding as a percentage of salary, the three month average share price of £1.955 up to 31 January 2020 (the last trading day of the financial year ended
2 February 2020) has been used.
3 The number of shares awarded in respect of the 2018/19 Annual Bonus Plan (deferred element) was D Potts 230,045 and T Strain 168,322 shares. These were awarded based on a share price of £2.25.
4 1,074,589 and 753,824 shares represent LTIP awards granted to D Potts and T Strain respectively in March 2017 which are due to vest in March 2020. Performance targets for these awards and associated
outcomes are provided in the section headed ‘2017-20 LTIP’ on page 63. 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. 40% of the award is linked to a total sales growth target. 25% of this element vests for achieving £1.1bn over the performance period, and 100% vests for achieving £2bn over
the period. 40% of the award is linked to an adjusted free cash flow target. 25% of this element will vest for achieving £730m against this measure, and 100% will vest for achieving £1bn 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. 1,144,627 and 875,302 shares granted to D Potts and T Strain respectively represent LTIP awards made in April 2019
which are due to vest in April 2022. Performance targets for these awards are disclosed in the section headed ‘2019-22 LTIP’ on page 63. Each LTIP award is a conditional award.
All shares are exercised at vest, details of which are included in the notes to the Group Financial Statements, notes 9.3 and 9.4.
Non-Executive Director shareholdings as at 31 January 2020 (the last trading day of the financial year ended 2 February 2020) are set out in the table below.
31 January 2020 Total
(owned outright)
63,560
Shareholding Met
No
22,500
12,800
100,000
13,000
14,014
12,475
Yes
No
Yes
No
No
No
Non-Executive Directors
A Higginson
R Anand
N Davidson
K Havelock
C A van Kralingen
B Richards
P Vennells
There have been no changes in the Directors’ interests since the year end.
Total shareholder return (TSR)
Performance graph and table
Value of a £100 holding
£
300
250
200
150
100
50
0
2010
Morrisons
2011
FTSE 100
2012
2014
2013
FTSE All Share food and drug retailers
2015
2016
2017
2018
2019
2020
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
31 January 2020 (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.
64
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Chief Executive remuneration
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 Bolland1
2010/11
–
3,3282
304
–
70%
–
–
–
–
2011/12
–
2,502
–
–
90%
–
–
–
–
2012/13
–
1,089
–
–
0%
–
–
0%
–
2013/14
–
1,089
–
–
2014/15
–
2,101
–
–
2015/163
2,252
50
–
2016/17
2,794
366
–
2017/18
5,957
2018/194
4,502
2019/20
4,189
–
–
–
–
–
–
73%
100%
98.7%
61% 48.7%
0%
60%
–
–
0%
–
–
–
0%
–
–
–
–
0%
–
–
–
–
50%
–
–
–
–
–
96.3% 94.6%
–
–
–
–
–
–
93.5%
–
–
1 M Bolland was not treated as a good leaver and therefore lost any eligibility to shares that may have otherwise vested following his departure.
2 Total remuneration includes value of unrestricted share award over 319,401 shares and restricted share award over 120,965 shares granted on recruitment.
3 D Potts was appointed on 16 March 2015 and D Philips stepped down from the Board on 16 February 2015.
4 2018/19 total remuneration has been updated. The value of the 2016-19 LTIP vest that was disclosed in the 2018/19 Directors’ remuneration report was based on an indicative price at 1 February 2019.
The value of the 2016-19 LTIP vest has been restated to reflect the actual April 2019 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 2018/19 to 2019/20 and the average percentage change
from 2018/19 to 2019/20 for employees of the Group as a whole.
D Potts
All Group employees1
1 Reflects the change in average pay for all Group employees employed in both 2018/19 and 2019/20.
2 Reflects the increase in the average bonus payout for eligible employees.
% increase in element between 2018/19 and 2019/20
Salary and fees
0%
Taxable benefits
4%
2.6%
0%
Annual bonus
(20)%
(9)%2
Pay ratios
The below table sets out the ratio of the Chief Executive’s pay (as outlined on page 66), to the median, 25th and 75th percentile full-time equivalent
remuneration of Morrisons UK employees.
Year
2019/20
Method
Option B
25th percentile pay ratio
230:1
Median pay ratio
217:1
75th percentile pay ratio
180:1
Option B under the reporting requirements has been chosen to identify the colleagues at the median, 25th and 75th percentiles as it provides the
most effective method to identifying the reference colleagues for calculation purposes. The reference colleagues’ annual pay has been calculated
from their hourly rate, benefits and pension eligibility (annualised) at the close of the financial year. Bonus figures have been calculated using the
business median, 25th and 75th percentile payouts rather than the bonus payments to the reference colleagues as bonus payments vary across the
business dependent upon business unit performance. The business is satisfied these are the right reference colleagues based upon their role in the
business and frequency of similar rates across the organisation.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
65
Strategic reportGovernanceFinancial statementsInvestor information Directors’ remuneration report continued
Annual Report on remuneration – 2019/20
Unaudited information continued
In line with the regulations, the following table sets out the total pay and benefits, and the salary element for the CEO, and colleagues at each percentile.
CEO
75th percentile colleague
50th percentile colleague
25th percentile colleague
Base salary
£850,000
£21,591
£18,055
£17,100
Total pay
and benefits
£4,189,520
£23,321
£19,340
£18,202
The ratio reflects the goal of rewarding the achievement of short and long-term financial and strategic objectives under Morrisons remuneration policy.
This is the first time Morrisons has disclosed its pay ratio.
Relative importance of spend on pay
The table below sets out the total spend on remuneration in the 2018/19 and 2019/20 financial years compared with distributions to shareholders.
Total cost of remuneration for all Group employees
Profit distributed by way of dividends
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
2019/20
£m
1,845
302
2018/19
£m
1,900
289
Difference
£m
(55)
13
1 September 2017
21 January 2016
3 November 2015
1 February 2018
22 January 2015
2 September 2015
21 January 2016
To date
To date
To date
To date
To date
To date
To date
The Chief Executive, the Chief Operating Officer, the Group People Director and other People Team 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 £50,500 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 2019 AGM on the remuneration report
Remuneration report
Votes for
1,790,715,172
For as a %
of votes cast
95.16%
Votes against
91,085,559
Votes against
as a % of votes cast
4.84%
Abstentions
6,124,872
Total
1,887,925,603
Tony van Kralingen, Remuneration Committee Chair
17 March 2020
66
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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
pages 113 to 115
pages 113 and 114
pages 1 to 30
page 91
page 25
pages 31 to 45
pages 34 and 35
pages 16, 17 and 33
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
pages 95 to 103
page 123
page 57
Political donations
No political donations were made in the financial year, in line with the
Group’s 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 28 and 29 and
the other matters discussed in connection with the viability statement
on page 30, the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements.
Forward-looking statements
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.
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 unless otherwise
approved by the Company by ordinary resolution.
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 2 February and 16 March 2020, 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.
As at 2 February 2020
As at 16 March 2020
Number of shares
capital Number of shares
% of share
% of share
capital
Silchester International
Investors LLP
290,371,673
12.08 310,779,289
Schroders PLC
269,219,152
11.20
261,018,636
Amerprise Financial Inc
177,966,342
7.62
177,966,342
BlackRock Inc
162,136,599
6.84
162,136,599
Majedie Asset
Management Limited
Deutsche Bank AG
Brandes Investment
Partners, LP
119,982,348
117,399,109
5.00
4.96
119,982,348
117,399,109
115,902,280
4.96
115,902,280
4.96
12.92
10.85
7.62
6.84
5.00
4.96
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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
67
Strategic reportGovernanceFinancial 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 6.6 of the financial statements.
At the AGM held in June 2019, a special resolution was passed to renew
the authority given at the AGM held in June 2018 for the purchase by the
Group of up to 239,230,467 ordinary shares, representing approximately
10% of the issued ordinary share capital at that time.
During the period, 36,699,143 (2019: 12,440,132) ordinary shares were
issued to employees exercising share options and under the LTIP scheme.
In addition, 551,491 (2019: 1,721,480) share 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, age, sex, marital or
civil partnership status, disability, religion or belief, sexual orientation,
gender re-assignment or trade union membership are offered the
opportunity to be their best, using their individual talents and abilities.
Applications for employment are encouraged from all people and
differences embraced. Every application, including those from people with
disabilities, people who are transgender, or those who have particular
religious beliefs will be given full and fair consideration. Respect underpins
behaviour towards all candidates and all our colleagues. A full review
of individual needs is undertaken and the Group will make reasonable
adjustments to the selection process, work environment or practices
in order to help those who require it. With a heightened awareness
of the impact of mental health on society, the Group is more mindful
than ever that through our practices we should ensure the same respect
and support is provided to every candidate and colleague, and to treat
them equally in respect of recruitment, promotion, training, pay and
other employment policies and conditions. Decisions are made based
on relevant merits and abilities, and made free from bias.
Remaining receptive to the needs of customers and the wider
communities is a priority – Morrisons operates in an inclusive
and respective manner where everyone is welcome.
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. The Group’s health and safety policy is approved by the
Executive Committee. In order to deliver our policy, each division has a
comprehensive Health and Safety management system across the Group
and subsidiary companies within the Group. The management systems
contain 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 activities across the Group. To drive
continuous improvement in performance and practices, each division
has a schedule of audits completed by our central Health and Safety
team as well as nine divisional health and safety improvement plans.
By order of the Board
Jonathan Burke, Company Secretary
17 March 2020
68
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 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 coordination by the Chief Financial 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
17 March 2020
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
69
Strategic reportGovernanceFinancial statementsInvestor information 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 2 February 2020 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 and Company statement of financial position as at 2 February 2020; the consolidated income statement and consolidated statement
of comprehensive income; the consolidated statement of cash flows; the consolidated and 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 4 February 2019 to 2 February 2020.
Our audit approach
Overview
Materiality
Audit scope
Areas of
focus
Key Audit Matters
(Group and Company)
• Impairment of property, plant and
equipment and right-of-use assets
• Inventory provisions
• Exceptional items
• Pension accounting
• Commercial income and manual
promotional funding
• IFRS 16 – lease accounting
• Impairment of intangible assets
Materiality
• Overall Group materiality: £20.4 million
(2019: £20.0 million), based on 5% of profit
before exceptional items and net retirement
benefit interest.
• Overall Company materiality: £18.3 million
(2019: £18.0 million), 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 the Group audit, which
accounted for 99% of total Group revenue
and 93% 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.
70
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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.
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 Companies Act 2006, the Listing Rules, Pensions legislation, UK tax legislation, health and safety legislation, employment law and Grocery
Supply Code of Practice, 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
identifying and testing journal entries, in particular those posted with unusual account combinations, 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 non-compliance
with laws and regulation, or 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 and right-of-use assets
(Group and Company)
Refer to page 84 (sources of estimation uncertainty), note 3.1 (accounting
policies), notes 3.3 and 11.7 (property, plant and equipment) and notes 3.4 and 11.8
(Right-of-use assets).
The Group has a large freehold store estate recognised within property, plant
and equipment (Group: £5,756m, Company: £1,542m) at 2 February 2020, and for
the first time following the adoption of IFRS 16, the Group and Company has
recognised right-of-use assets of £888m and £1,009m respectively of leasehold
land and buildings on the balance sheet.
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 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 judgement required in applying various
estimations when testing for impairment and impairment reversals and the
significant carrying value of freehold and leasehold 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 relating to certain key inputs including,
for example, discount rates and future growth rates.
Fair value less costs of disposal
Fair value less costs of disposal is estimated by management based on market
knowledge of individual stores and likely demand from grocers or other retailers
in the event these stores were for sale. The key judgements made by the
Directors relate to the estimated rental values and yields for these stores.
How our audit addressed the key audit matter
Value in use
In relation to the value-in-use assessment we have:
• obtained the Group’s and Company’s Board approved FY21 budget and
medium term financial plans (upon which the forecasts underpinning
the value in use calculations are based);
• challenged management’s forecasts and compared future cash flow
performance to historic levels to ensure that the planned performance
is considered reasonable;
• assessed the accuracy of management’s discounted cash flow model
including testing the mathematical accuracy of the calculations included
within the model and the application of the requirements of IAS 36
‘impairment of assets’ and impact of IFRS 16;
• assessed the discount rate applied, with the support of our internal valuations
specialists; and
• considered the sensitivity of the model to changes in these key assumptions.
We found, based on our audit work, that the key assumptions and calculations
used by management were supportable and appropriate.
Fair value less costs of disposal
We evaluated and challenged the estimates of store rental values and yields
used by management in their calculation of store market values. This involved
using our own internal valuation experts, with a particular focus on the
assumptions and methodology used, obtaining third party evidence and
market data to corroborate the assumption.
We determined that the valuations performed by management were
reasonable.
In addition, we evaluated the adequacy of the disclosures made in notes 3.3, 3.4
(Group) and notes 11.7, 11.8 (Company) of the financial statements, including
disclosures regarding the key assumptions and sensitivities as required by IAS 36
‘Impairment of assets’ and found them to be appropriate.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Key audit matter
How our audit addressed the key audit matter
Impairment of property, plant and equipment and right-of-use assets
(Group and Company) (continued)
Fair value less costs of disposal (continued)
The Group has recognised a net impairment reversal of £35m (£117m impairment
reversal offset by £82m impairment charge). The £82m impairment charge
includes £59m in relation to property, plant and equipment, £23m in relation
to right-of-use assets. The £117m impairment reversal includes £93m in relation
to property, plant and equipment, £24m in relation to right-of-use assets.
The Company has recognised a net impairment reversal of £11m (£58m
impairment reversal offset by £47m impairment charge). The £47m impairment
charge includes £32m in relation to property, plant and equipment, £15m in
relation to right-of-use assets. The £58m impairment reversal includes £39m in
relation to property, plant and equipment, £19m in relation to right-of-use assets.
Inventory provisions (Group and Company)
Refer to page 84 (sources of estimation uncertainty), note 5.1 (accounting
policies), note 5.2 (inventory).
Inventory of £660m is recognised on the balance sheet of the Group and £409m
on the Company balance sheet. The inventory valuation is reduced by provisions
including those relating to estimated losses due to shrinkage (note 5.1).
The inventory valuation is further reduced for commercial income and
promotional funding (where inventory which this income and/or funding relates
to, is yet to be sold). When the inventory is sold, the commercial income and/or
promotional funding is recognised in the income statement. Also, inventory is
reduced for provisions related to estimated obsolescence and other known
specific risks.
We focused on this due to the estimation uncertainty and judgements involved
in determining the level of provisions required, in particular those relating to
shrinkage (inventory loss).
Exceptional items (Group only)
Refer to page 83 (critical accounting judgements) and note 1.4
(profit before exceptionals).
The Group’s Alternative Performance Measure is ‘Profit before exceptional items
and net retirement benefit interest’. Management use this measure to improve
the transparency and clarity of the Group’s financial performance.
The Group’s profit before exceptional items and net retirement benefit interest
of £408m is stated before £19m of IAS 19 retirement benefit interest income
and net income from exceptional items of £8m, representing:
• £66m of profit on disposal and exit of properties;
• £51m of store restructuring and closure costs;
• £2m net reversal of impairment and provision for onerous contracts; and
• £9m of other exceptional items.
The determination of which items are to be excluded from profit before
exceptionals is subject to judgement and therefore users of the Group financial
statements could be misled if amounts are not classified and disclosed in a
transparent manner and consistently with the Group’s accounting policy.
In assessing the adequacy of the inventory provisions, we have:
• assessed the assumptions included in the shrinkage provision, including
testing the key inputs to supporting evidence;
• challenged the reasonableness of management’s estimates of shrinkage
through review of recent count results and other available information to
ensure that the year-end provision adequately reflects the best estimate
of current levels of inventory loss; and
• attended inventory counts and performed sample counts at a number of the
Group’s supermarkets, petrol forecourts and depots throughout the period.
Based on the work performed, we satisfied ourselves that the year-end
shrinkage provision adequately reflected the levels of stock loss experienced.
For other provisions applied to inventory we have:
• assessed the amounts deducted in respect of unearned commercial income
and promotional funding, by verifying the inputs to, and the methodology of,
the provision calculation; and
• considered the adequacy of the obsolescence provision including challenging
management on key assumptions, taking into account the current profile of
stock and expected stock life.
We have assessed the other specific provisions with reference to the risks
identified by management and noted no issues.
We considered whether the presentation of profit before exceptional items
and net retirement benefit interest was appropriate. We performed the
following procedures:
• reviewed management’s definition and classification of exceptional items,
including the sub-categorisation of these items;
• obtained supporting evidence to corroborate the accuracy and completeness
of exceptional items;
• where estimation uncertainty exists (e.g. restructuring costs), we challenged
the key assumptions in light of information available and historic assessments
made for similar circumstances; and
• challenged management on the classification of exceptional items through
consideration of the application of the accounting policy, including those
items classified as ‘other exceptional items’.
We did not identify any material issues in respect of those items presented
as exceptional.
We reviewed management’s disclosures relating to exceptional items and
consider these to be appropriate and consistent with work performed.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Key audit matter
Pension accounting (Group and Company)
Refer to page 83 (critical accounting judgements), page 84 (sources of
estimation uncertainty), note 8 (retirement benefits) and note 11.20 (pensions).
We have focused on the valuation of the Group and Company’s defined
benefit pension schemes because of the level of estimation required in
determining the year end valuation. In addition, the size of the gross assets
(Group: £5,402m and Company: £1,857m) and liabilities (Group: £4,458m and
Company £1,509m) within the schemes are significant and material. The net
surplus position of the schemes at 2 February 2020 was £944m for the
Group and £348m for the Company.
Where a defined benefit scheme is in a surplus position, management needs
to consider whether the Group and Company has the right to recognise a
surplus, or whether it is necessary to restrict the amount of surplus recognised.
This requires judgement as to the rights of the Group, Company and Trustees
in each of the Group’s schemes.
Commercial income and manual promotional funding (Group and Company)
Refer to page 84 (sources of estimation uncertainty), note 1.1 (accounting policies)
and note 1.6 (operating profit).
Commercial income
The Group and Company 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 accounting policies (note 1.1). 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 and
Company is entitled to where transactions span the financial period end.
As such we have identified this as a key audit matter, recognising also that there
could be a potential for fraud through possible manipulation of this income.
Manual promotional funding
The Group and Company 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. However, there are some elements
of promotional funding which include a manual element to the invoicing.
We focused on the manual elements of promotional funding because of
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.
How our audit addressed the key audit matter
We performed the following procedures:
• obtained the IAS 19 valuation reports produced by the Group’s
independent actuaries;
• used our internal pensions experts to assess the judgemental assumptions
used in calculating the valuation of the pension schemes’ liabilities,
including discount rates, inflation and mortality rates;
• obtained the detailed reports relating to the valuation of the schemes’
assets and agreed the valuations to third party confirmations;
• assessed the membership data used in valuing the schemes’ liabilities
and tested any significant changes since the last valuation; and
• agreed a sample of contributions made by the Group to bank statements.
Based on our work performed, the actuarial assumptions used in calculating
the pension surplus were within an acceptable range.
We considered management’s assessment of the Group’s right to recognise
the net surplus in two of the three schemes by reference to the requirements
of IFRIC 14 ‘Limit on defined benefit asset’, including reviewing legal advice
provided to management, and satisfied ourselves that it is appropriate
to recognise the net surplus on the balance sheet.
We performed the following procedures in relation to both commercial
income and manual promotional funding:
• understood, evaluated and tested management’s key controls, including
the monitoring of invoices raised and the accuracy of confirmations
received from suppliers;
• tested a sample of items to supporting documentation including supplier
agreements and confirmations direct from suppliers;
• used data analytics to identify any unusual items, where such items were
identified these were agreed to supporting documentation;
• tested the settlement of a sample of supplier arrangements recognised
in the income statement, which included settlement in cash or by off-set
to accounts payable;
• agreed a sample of accrued income to evidence of post-year end invoicing
and tested credit notes raised after the period end in order to identify
any subsequent reversals;
• assessed the recoverability of unsettled balances included within trade
receivables in note 5.3 to the financial statements (where the Group
does not have the right of offset against trade creditors); and
• considered the adequacy of related disclosure within the Group’s
financial statements.
No significant issues were identified as a result of this work.
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Key audit matter
How our audit addressed the key audit matter
IFRS 16 – Lease Accounting (Group and Company)
Refer to page 82 (new accounting standards, amendments and interpretations
adopted by the Group), page 83 (critical accounting judgements), notes 3.1
and 6.1 (accounting policies), notes 3.4 and 11.8 (right-of-use assets) and notes 6.4
and 11.16 (lease liabilities) and notes 10.3 and 11.25 (changes in accounting policies).
The transition to IFRS 16 ‘Leases’ took place on 4 February 2019 and the Group
and Company has adopted the fully retrospective transition approach.
Right-of-use assets of £942m for the Group and £1,093m for the Company have
been recognised on the Group balance sheet, relating to leasehold land and
buildings (Group: £888m, Company £1,009m) and leased plant, equipment,
fixtures and vehicles (Group: £54m, Company £84m) with corresponding lease
liabilities of £1,376m for the Group and £1,483m for the Company.
The transition to IFRS 16 is reliant upon a number of key estimates and
judgements including determining the appropriate discount rate for each lease
and assessing lease extension options. Additionally, there is a risk that the lease
data which underpins the IFRS 16 transition is incomplete or inaccurate.
Impairment of intangible assets (Group and Company)
Refer to page 84 (sources of estimation uncertainty), note 3.1 (accounting
policies) and notes 3.2 and 11.6 (goodwill and intangible assets).
Intangible assets of £381m are recognised on the Group balance sheet and £361m
on the Company, of which the majority relates to software development costs
incurred in connection with the Group’s technology improvement programme.
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 £15m for the Group and £15m for the Company has been recognised
in relation to intangible assets.
We have assessed the design and implementation of key controls in relation
to the transition to IFRS 16.
We have performed the following procedures to assess the key estimates
and completeness/accuracy of the underlying lease data:
• tested the mathematical accuracy of the schedules obtained;
• assessed the discount rates used to calculate the lease obligation, with
support from our internal valuation specialists;
• confirmed the accuracy of the lease data by agreeing supporting lease
documentation for a sample of leases;
• tested the completeness of the lease data by reconciling the Group’s and
Company’s existing lease commitments to the lease data underpinning the
model;
• considered management’s assessment for impairment both in the restated
prior year opening balance sheet (5 February 2018) and at 2 February 2020
as part of overall impairment assessment for property, plant and equipment
and right-of-use assets;
• assessed the tax impact, with support from our internal tax specialists; and
• reviewed relevant disclosures to ensure in line with requirements of IFRS 16.
No significant issues were identified as a result of this work.
We consider that the key estimates and judgements underpinning the Group’s
and Company’s adoption of IFRS 16, and related disclosures, are appropriate.
We have performed the following procedures:
• 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;
• reviewed management’s assessment of the future expected benefit from
capital projects; and
• applied our own understanding of both new and existing projects and
challenged management as to whether, in our view, any existing software
was no longer in use or whether its life had been shortened by
development activity.
No significant issues were identified as a result of this work.
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 93% 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
£20.4 million (2019: £20 million).
Company financial statements
£18.3 million (2019: £18 million).
5% of profit before exceptional items and net retirement
benefit interest income.
We applied this benchmark because, in our view, this is the
most relevant metric against which the performance of the
Group is most commonly measured.
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 £18.3m.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1m (Group audit) (2019: £1m)
and £913,500 (Company audit) (2019: £900,000) 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
Outcome
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 twelve months
from the date of approval of the financial statements.
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 of the United Kingdom’s
withdrawal from the European Union are not clear, and it is difficult to evaluate
all of the potential implications on the Group’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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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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 2 February 2020 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 27 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 30 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 69, 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 pages 40 to 43 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)
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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, 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 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 6 years, covering the years
ended 1 February 2015 to 2 February 2020.
Andrew Paynter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
17 March 2020
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information Consolidated income statement
52 weeks ended 2 February 2020
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 taxation)
Profit before taxation
Taxation
Profit for the period attributable to the owners of the Company
Earnings per share (pence)
Basic
Diluted
Before
exceptionals
£m
17,536
(16,855)
681
94
–
(262)
513
(111)
5
1
408
(94)
314
Exceptionals
(note 1.4)
£m
–
(52)
(52)
–
66
(6)
8
–
19
–
27
7
34
Note
1.2
1.6
6.2
6.2
4.2
2.2
1.5
1.5
2020
Total
£m
17,536
(16,907)
629
94
66
(268)
521
(111)
24
1
435
(87)
348
14.60
14.44
Before
exceptionals
£m
17,735
(17,039)
696
88
–
(274)
510
(120)
5
1
396
(93)
303
Exceptionals
(note 1.4)
£m
–
(44)
(44)
–
–
(34)
(78)
(33)
18
–
(93)
23
(70)
2019 restated1
Total
£m
17,735
(17,083)
652
88
–
(308)
432
(153)
23
1
303
(70)
233
9.89
9.67
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
All of the results shown above relate to continuing operations.
Consolidated statement of comprehensive income
52 weeks ended 2 February 2020
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit schemes
Tax on defined benefit schemes
Items that may be reclassified subsequently to profit or loss
Cash flow hedging movement
Exchange differences on translation of foreign operations
Tax on items that may be reclassified subsequently to profit or loss
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
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Note
8.2
2.3
2.3
2020
£m
231
(38)
193
(57)
(2)
10
(49)
144
348
492
2019 restated1
£m
100
(17)
83
9
–
(1)
8
91
233
324
78
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Consolidated statement of financial position
As at 2 February 2020
Note
2020
£m
2019 restated1
£m
2018 restated1
£m
Assets
Non-current assets
Goodwill and intangible assets
Property, plant and equipment
Right-of-use assets
Investment property
Retirement benefit surplus
Investment in joint venture
Trade and other receivables
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Assets classified as held-for-sale
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial liabilities
Current tax liabilities
Non-current liabilities
Borrowings
Lease liabilities
Derivative financial liabilities
Retirement benefit deficit
Deferred tax liabilities
Provisions
Total liabilities
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
3.2
3.3
3.4
3.6
8.2
4.2
3.7
7.3
5.2
5.3
7.3
6.5
3.5
5.4
6.3
6.4
7.3
6.3
6.4
7.3
8.2
2.3
5.5
6.6
6.6
6.7
6.7
6.7
381
7,147
942
58
960
39
71
–
9,598
660
353
1
305
1,319
3
1,322
10,920
(3,051)
(237)
(72)
(36)
–
(3,396)
(1,108)
(1,304)
(7)
(16)
(472)
(76)
(2,983)
(6,379)
4,541
240
192
39
2,578
1,492
4,541
404
7,094
929
60
730
47
8
15
9,287
713
344
19
264
1,340
39
1,379
10,666
(3,070)
(178)
(69)
(5)
(27)
(3,349)
(1,110)
(1,328)
(2)
(42)
(414)
(96)
(2,992)
(6,341)
4,325
237
178
39
2,578
1,293
4,325
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
The notes on pages 85 to 126 form part of these financial statements. The financial statements on pages 78 to 126 were approved by the Board
of Directors on 17 March 2020 and were signed on its behalf by:
Michael Gleeson, Chief Financial Officer
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
428
7,027
970
69
612
53
8
16
9,183
686
247
15
327
1,275
4
1,279
10,462
(2,921)
(72)
(59)
(13)
(15)
(3,080)
(1,245)
(1,354)
(1)
(18)
(415)
(99)
(3,132)
(6,212)
4,250
236
159
39
2,578
1,238
4,250
79
Strategic reportGovernanceFinancial statementsInvestor information
Consolidated statement of cash flows
52 weeks ended 2 February 2020
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 disposal of property, plant and equipment, investment property, right-of-use assets
and assets held for sale
Purchase of property, plant and equipment, investment property and right-of-use assets
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
New borrowings
Repayment of borrowings
Costs incurred on repayment of borrowings
Repayment of lease obligations
Dividends paid
Net cash outflow from financing activities
Net increase/(decrease) 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 debt2 in the period
Net increase/(decrease) in cash and cash equivalents
Cash inflow from increase in borrowings
Debt acquired on acquisition of business
Cash outflow from repayment of borrowings
Cash outflow from repayment of lease liabilities
Non-cash movements on lease liabilities
Other non-cash movements
Opening net debt2
Closing net debt2
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
2 Net debt is defined in the Glossary on page 153.
Note
5.6
10.1
6.6
6.6
6.6
1.8
6.5
Note
6.5
2020
£m
2019 restated1
£m
1,017
(104)
(87)
826
1
9
34
(429)
(81)
(1)
(467)
(10)
(2)
14
347
(278)
–
(87)
(302)
(318)
41
264
305
2020
£m
41
(347)
–
278
87
(66)
(57)
(2,394)
(2,458)
977
(120)
(76)
781
1
7
22
(381)
(77)
(3)
(431)
(9)
(5)
20
275
(306)
(30)
(69)
(289)
(413)
(63)
327
264
2019 restated1
£m
(63)
(275)
(2)
306
69
(53)
10
(2,386)
(2,394)
80
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Consolidated statement of changes in equity
52 weeks ended 2 February 2020
Current period
At 4 February 2019 (reported)
Adjustment on the adoption of IFRS 16
At 4 February 2019 (restated1)
Profit for the period
Other comprehensive (expense)/income:
Cash flow hedging movement
Exchange differences on translation
of foreign operations
Remeasurement of defined benefit 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
Tax in relation to components of equity
Dividends
Total transactions with owners
At 2 February 2020
Prior period
At 5 February 2018 (reported)
Adjustment on the adoption of IFRS 16
At 5 February 2018 (restated1)
Profit for the period (restated1)
Other comprehensive income/(expense):
Cash flow hedging movement
Remeasurement of defined benefit 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 (restated1)
Note
10.3
8.2
2.3
6.6
1.7
6.6
6.6
2.3
1.8
Note
10.3
8.2
2.3
6.6
1.7
6.6
6.6
1.8
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
Attributable to the owners of the Company
237
–
237
–
–
–
–
–
–
–
–
–
3
–
–
3
240
178
–
178
–
–
–
–
–
–
–
–
–
14
–
–
14
192
39
–
39
–
–
–
–
–
–
–
–
–
–
–
–
–
39
2,578
–
2,578
–
–
–
–
–
–
–
–
–
–
–
–
–
2,578
10
–
10
–
(57)
–
–
10
(47)
–
–
–
–
–
–
–
(37)
1,589
(306)
1,283
348
–
(2)
231
(38)
539
(10)
26
(2)
(3)
(2)
(302)
(293)
1,529
4,631
(306)
4,325
348
(57)
(2)
231
(28)
492
(10)
26
(2)
14
(2)
(302)
(276)
4,541
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
Attributable to the owners of the Company
236
–
236
–
–
–
–
–
–
–
–
1
–
1
237
159
–
159
–
–
–
–
–
–
–
–
19
–
19
178
39
–
39
–
–
–
–
–
–
–
–
–
–
–
39
2,578
–
2,578
–
–
–
–
–
–
–
–
–
–
–
2,578
2
–
2
–
9
–
(1)
8
–
–
–
–
–
–
10
1,531
(295)
1,236
233
–
100
(17)
316
(9)
34
(5)
–
(289)
(269)
1,283
4,545
(295)
4,250
233
9
100
(18)
324
(9)
34
(5)
20
(289)
(249)
4,325
81
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Strategic reportGovernanceFinancial 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 00358949). 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
2 February 2020 (2019: 52 weeks ended 3 February 2019) 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, as such, the
reporting date for the current period is 2 February 2020.
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 2 February 2020:
• IFRS 16 ‘Leases’;
• IFRIC 23 ‘Uncertainty over income tax treatments’;
• Amendments to the following standards:
– IAS 19 ‘Employee Benefits’;
– IAS 28 ‘Investments in Associates’;
– IFRS 9 ‘Financial Instruments’; and
– Improvements to IFRSs (2015-2017).
The Group has considered the above new standards, and amendments
to published standards, and has concluded that only IFRS 16, IFRIC 23,
and the amendment to IAS 19 are relevant to the Group. Only IFRS 16
has a material impact on the Group’s consolidated financial statements.
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ was published in January 2016 and has become effective
for the Group for the period beginning 4 February 2019. The standard
replaces IAS 17 ‘Leases’, IFRIC 14 ‘Determining whether and Arrangement
contains a lease’, SIC-15 ‘Operating Leases-Incentives’ and SIC-27
‘Evaluating the Substance of Transactions Involving the Legal Form
of a Lease’. The standard applies a single recognition and measurement
approach for all applicable leases under which the Group is the lessee.
The Group has lease contracts for property and equipment. Before
the adoption of IFRS 16, leases in which substantially all the risks and
rewards of ownership were retained by the lessor were classified
as operating leases; all other leases were classified as finance leases.
Under the previous standard, lease payments on operating leases
were recognised as rental costs in the consolidated income statement.
There was no recognition of the associated assets or liability in the
consolidated statement of financial position, except to the extent
that there were any prepaid or accrued rents.
Upon adoption of IFRS 16, for all leases where the Group is a lessee,
the Group recognises a right-of-use asset and a lease liability in its
consolidated statement of financial position. The consolidated income
statement includes depreciation in relation to the right-of-use assets
and a finance charge in relation to the lease liabilities.
Lessor accounting is substantially unchanged under IFRS 16, except for
sub-leases previously classified as operating leases. These leases have
been re-assessed as to whether they are operating or financing in
nature, using the requirements of IFRS 16.
The transition to IFRS 16 for the Group took place on 4 February 2019
and the Group has adopted the fully retrospective transition approach.
In accordance with this transition method, the Group has applied
IFRS 16 at the date of initial application as if it had been effective at
the commencement date of the existing lease contracts. Accordingly,
the comparative information in these financial statements has been
restated, unless otherwise stated. The nature and effect of these
changes are disclosed in note 10.3.
On transition the Group elected to use the practical expedient
allowing the standard to be applied only to contracts that were
previously identified as leases when applying IAS 17 and IFRIC 4
‘Determining whether an Arrangement contains a Lease’ at the
date of initial application.
IFRIC 23 ‘Uncertainty over income tax treatments’
IFRIC 23 ‘Uncertainty over income tax treatments’ was issued
in June 2017 and has become 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
HM Revenue & Customs 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.
82
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
New accounting standards, amendments and
interpretations adopted by the Group continued
IFRIC 23 ‘Uncertainty over income tax treatments’ continued
The Group adopted the modified retrospective approach to
transition on 4 February 2019. Under this approach, no restatement
of comparative financial statements was required.
The Group has referred to the IFRIC guidance, including Draft
Interpretation DI/2015/1 in previous periods, resulting in the accounting
policy prior to the adoption of IFRIC 23 applying similar principles
for selecting measurement methods as in the new interpretation.
Accordingly, the impact of IFRIC 23 has had an immaterial impact
on the consolidated financial statements and there has been
no adjustment necessary to the opening statement of financial
position as at 4 February 2019.
Amendment to IAS 19 ‘Employee Benefits’
An amendment to IAS 19 ‘Employee Benefits’ was published
in February 2018 and has become 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 impact of this amendment has had an immaterial impact on
the consolidated financial statements.
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, there are
none that are expected to have a material impact on the Group’s
consolidated financial statements.
Basis of consolidation
Subsidiaries (including partnerships) are all entities over which the Group
has control. The Group has control 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 where necessary, adjustments are made to bring the
accounting policies in line with those used by the Group. 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 reporting date,
monetary assets and liabilities that are denominated in foreign
currency are retranslated at the rates of exchange at the reporting
date. Gains and losses arising on retranslation are included in the
income statement for the period.
Fair value measurement
All assets and liabilities for which fair value is measured or disclosed
in the financial statements are categorised within fair value hierarchy,
described as follows, based on the lowest level input that is significant
to the fair value measurement as a whole:
• Level 1 – Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
• Level 2 – Valuation techniques for which the lowest level input that
is significant to the fair value measurement is directly or indirectly
observable
• Level 3 – Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
For assets and liabilities that are recognised in the financial statements
at fair value on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by re-assessing
categorisation at the end of each reporting 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 152 to 154.
Critical accounting judgements and key sources
of estimation uncertainty
In the process of applying its accounting policies the Group is required
to make certain judgements, estimates and assumptions that it believes
are reasonable based on the information available. These judgements,
estimates and assumptions affect the carrying amounts of assets
and liabilities at the date of the financial statements and the amounts
of revenues and expenses recognised during the reporting periods
presented. Changes to these could have a material effect on the
financial statements.
The judgements, estimates and assumptions are evaluated on an
ongoing basis and are based on historical experience, consultation with
experts and other factors that the Directors believe to be reasonable.
Actual results may differ significantly from the estimates and
assumptions made, the effect of which is recognised in the period
in which the facts become known.
Critical accounting judgements
The critical judgements made in the process of applying the Group’s
accounting policies are detailed below:
Profit before exceptionals
Profit before exceptionals is defined as ‘Profit before exceptional
items and net retirement benefit interest’. For further details,
see the Glossary on page 152.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
83
Strategic reportGovernanceFinancial statementsInvestor information General information continued
Critical accounting judgements continued
Profit before exceptionals continued
The Directors consider that this 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 Directors.
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 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 statement of financial position, movements in
impairment and other property-related provisions would typically
be included as exceptional items, as would significant impairments
or impairment reversals of other non-current assets.
Despite being a recurring item, the Group has chosen to also exclude
net retirement benefit 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.
Leases
In determining the value of lease liabilities and associated right-of-use
assets, the Group must make an assessment of the lease term.
This assessment requires judgement with regard to the likelihood that
any extension or break options included in a lease will be exercised.
The duration of the lease term can have a significant impact on the
amounts recognised in the financial statements for the lease.
During the period the Group has applied IFRS 16 ‘Leases’ for the first
time which requires that an assessment is made for all existing leases
at the implementation date, without the use of hindsight.
To assess whether the Group is reasonably certain to extend a lease,
or to not exercise a break, all relevant facts and circumstances that
create an incentive to continue that lease are considered.
Currently only the Group’s leases of stores and depots contain major
extension and break options. For these the main factors considered
are the lease specific terms and the business forecasts for these stores.
At both the implementation date and subsequently for new leases,
this has typically led to periods after breaks, which are exercisable
in the short-to-medium term, being included in the lease term. The
periods covered by extension options, which are normally exercisable
in the longer-term, are generally excluded from the lease term.
These judgements are re-assessed as required by the Group’s accounting
policies for lease liabilities. Further detail is provided in note 6.1.
Retirement benefit schemes in surplus
Where a defined benefit scheme is in a surplus position, consideration
is made as to whether the Group has the right to recognise a surplus
or whether it is necessary to restrict the amount of surplus recognised.
This requires judgement as to the rights of the Group and Trustees
under the terms of the Group’s Schemes. The Directors have
concluded that the Group has the right to recognise a surplus,
following legal advice received. Further details are provided
in note 8.5.
Sources of estimation uncertainty
The areas of estimation uncertainty the Group believes to have
the most significant risk of causing a material adjustment to the
carrying value of assets and liabilities within the next financial
year are detailed below:
Impairment of property, plant and equipment, right-of-use assets
and intangible assets and onerous contracts
Property, plant and equipment, right-of-use assets and intangible
assets are reviewed annually for impairment or where changes
in circumstances indicate impairment (or impairment reversal).
This requires the carrying value of assets to be compared to the
recoverable amount, where the recoverable amount is based
on the higher of value-in-use and fair value less costs of disposal.
The assessment of value-in-use in the calculation requires expected
future cash flows discounted using an appropriate discount rate.
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, 3.3, and 3.4.
Where contracts exist for which expected future cash flows are less
than the future contract commitments, an onerous contract provision
is recognised. Judgement is required when determining whether
a contract meets the definition of being onerous and in making
estimates in relation to discount rates of future cash flows.
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 for certain agreements 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.
Inventories
Certain estimates are required to assess the net realisable value
of inventories, along with provisions for obsolete and slow moving
inventories and inventory loss, where estimation is required. Estimating
the level of loss between inventory counts is inherently judgemental
and is based on past information of loss rates and other relevant
information. The Group’s accounting policy for inventories is provided
in note 5.1.
Retirement benefit schemes
Accounting for defined benefit retirement schemes requires the
application of a number of assumptions which have an impact on
the valuation of the schemes’ assets and obligations. The significant
assumptions include discount rate, inflation, rate of salary increases
and longevity. The Group uses an independent actuary to calculate
defined benefit obligations. Details of these assumptions are
provided in note 8.4.
84
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements
52 weeks ended 2 February 2020
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 sales proceeds 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 history of 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. 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 reporting 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
Description
Recognition
Marketing and
advertising funding
Examples include income in respect of
in-store and online marketing and point
of sale, as well as funding for advertising.
Volume-based rebates
Income earned by achieving volume
or spend targets set by the supplier for
specific products over specific periods.
Income is recognised dependent on the terms of the specific supplier
agreement in line with when performance obligations in the agreement
are met. 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
85
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 2 February 2020
1 Performance in the period continued
1.1 Accounting policies continued
Commercial income continued
Uncollected commercial income at the reporting date is classified within the financial statements as follows:
• Trade and other payables: 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 reporting date is included within trade payables.
Any amounts received in advance of income being recognised are included in accruals and deferred income.
• Trade and other receivables: Where the trading terms described above do not exist, the Group classifies outstanding commercial income within
trade receivables. Where commercial income is earned and not invoiced to the supplier at the reporting date, this is classified within accrued
commercial income.
• Inventories: The carrying value of inventories is adjusted to reflect unearned elements of commercial income when it relates to inventory 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 statement of financial
position 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.
2020
£m
13,065
800
13,865
3,671
17,536
2019
£m
13,265
705
13,970
3,765
17,735
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 focussed 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 statement of financial position containing assets
and liabilities.
86
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
1 Performance in the period continued
1.4 Profit before exceptionals
‘Profit before exceptionals’ is defined as profit before exceptional items and net retirement benefit interest. Further detail on the definition
of profit before tax and exceptionals, profit before exceptionals after tax and earnings per share before exceptionals is provided in the Glossary
on pages 152 to 154.
The Directors consider that these adjusted profit and adjusted earnings per share measures referred to in the results provide useful information
on ongoing trends and performance. The adjustments made to reported profit are to: exclude exceptional items, which are significant in size and/or
nature; exclude net retirement benefit interest; and to apply a normalised tax rate of 23.1% (2019: 23.5%).
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 statement of financial position, movements in impairment and other property-related provisions would typically be included as
exceptional items, as would significant impairments or impairment reversals of other non-current assets.
Despite being a recurring item, the Group has chosen to also exclude net retirement benefit 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 period2
Profit before tax
Adjustments for:
Impairment and provision for onerous contracts2
Profit/loss arising on disposal and exit of properties2
Store restructuring and closure costs2
Other exceptional items2
Costs associated with the repayment of borrowings2
Retirement benefit exceptional items2
Net retirement benefit interest (note 8.2)2
Profit before tax and exceptionals
Normalised tax charge at 23.1% (2019: 23.5%)2,3
Profit before exceptionals after tax
Earnings per share before exceptionals (pence):
Basic (note 1.5.2)
Diluted (note 1.5.2)
2020
£m
348
87
435
(2)
(66)
51
9
–
–
(19)
408
(94)
314
13.18
13.03
2019 restated1
£m
233
70
303
10
–
–
42
33
26
(18)
396
(93)
303
12.85
12.57
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
2 Adjustments marked 2 decrease post-tax adjusted earnings by £34m (2019: increase of £70m), as shown in the reconciliation of earnings disclosed in note 1.5.2.
3 Normalised tax is defined in the Glossary, see page 153 for details.
Impairment and provision for onerous contracts
Following the Group’s annual impairment and onerous contract review a net credit of £2m has been recognised. This includes a net impairment
reversal of £15m (£123m impairment reversal offset by £108m impairment charge). The £108m impairment charge includes £59m in relation to property,
plant and equipment, £23m in relation to right-of-use assets, £11m in relation to investment property and £15m in relation to intangible assets
(see notes 3.3, 3.4, 3.6 and 3.2 respectively). The £123m impairment reversal includes £93m in relation to property, plant and equipment, £24m in relation
to right-of-use assets and £6m in relation to investment property (see notes 3.3, 3.4 and 3.6 respectively). A net £2m charge has been recognised in
relation to provisions for onerous contracts (see note 5.5). A £10m credit has been recognised following changes to estimates in respect of lease terms.
In addition, there has been a charge in respect of amounts provided for onerous commitments and receivables in respect of contract payments
of £21m.
Impairment and provision for onerous contracts in the 52 weeks ended 3 February 2019 totalled a net charge of £10m. This comprised of a net
impairment reversal of £2m (£175m impairment reversal offset by £173m impairment charge), a net £11m charge relating to provisions for onerous
contracts, a release of accruals for onerous commitments of £6m, and an increase in other property provisions of £7m.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
87
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 2 February 2020
1 Performance in the period continued
1.4 Profit before exceptionals continued
Profits/loss arising on disposal and exit of properties
Profits/loss arising on disposal and exit of properties, net of fees incurred, amounted to £66m (2019: £nil). Of this amount, £64m was realised following
the sale of land and buildings in respect of the Camden store (see note 3.5).
Store restructuring and closure costs
Store restructuring and closure costs recognised in the 52 weeks ended 2 February 2020 totalled £51m (2019: £nil). This includes £46m in respect of
restructuring of store management teams (2019: £nil) and £5m of restructuring costs relating to the closure of four stores during the period (2019: £nil).
Other exceptional items
Other exceptional items include:
• a £6m 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 (2019: £12m); and
• a net charge of £3m relating to costs incurred in relation to legal cases in respect of historic events and costs associated with other restructuring
activity (2019: £2m).
In the 52 weeks ended 3 February 2019, other exceptional items also included a £28m charge in relation to increased inventory provisioning as the
Group continued to automate its ordering systems; leading to operational changes, additional information regarding stock levels, and a change
in methodology for estimating inventory provisions.
Costs associated with the repayment of borrowings
The costs incurred in the 52 weeks ended 3 February 2019 comprised £30m relating to financing charges on redemption of financial instruments
(primarily premiums) and £3m of fees and premiums written off on the repayment of bonds. 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.
Retirement benefit exceptional items
In the 52 weeks ended 3 February 2019, the retirement benefit exceptional items included costs of £19m in relation to an exceptional curtailment
charge following the closure of the Group’s Retirement Saver Plan to future accrual in September 2018. In addition, there was a charge of £7m
in relation to the estimated cost of the equalisation of guaranteed minimum retirement benefits for men and women, following a ruling by the
High Court in October 2018 (see note 8.2).
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 potentially dilutive ordinary shares.
The Company has two (2019: 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
347.9
–
347.9
2,382.5
26.3
2,408.8
2020
EPS
Pence
14.60
(0.16)
14.44
Earnings
£m
Weighted average
number of shares
millions
233.1
–
233.1
2,356.8
53.2
2,410.0
2019 restated1
EPS
Pence
9.89
(0.22)
9.67
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
88
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 retirement benefit 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
Earnings
£m
Weighted average
number of shares
millions
2020
EPS
Pence
Earnings
£m
Weighted average
number of shares
millions
2019 restated1
EPS
Pence
347.9
2,382.5
14.60
(34.0)
313.9
–
313.9
–
2,382.5
26.3
2,408.8
(1.42)
13.18
(0.15)
13.03
233.1
69.8
302.9
–
302.9
2,356.8
–
2,356.8
53.2
2,410.0
9.89
2.96
12.85
(0.28)
12.57
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
1.6 Operating profit
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)
Right-of-use assets (note 3.4)
Investment property (note 3.6)
Net impairment reversal (notes 1.4, 3.3, 3.4 and 3.6)
Amortisation and impairment:
Intangible assets (note 3.2)
Net impairment charge (notes 1.4 and 3.2)
Other lease expenses:
Short-term leases longer than one month
Leases of low-value assets, excluding short-term
Variable lease payments
Value of inventories expensed
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
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
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
2020
£m
2019 restated1
£m
1,845
1,900
371
60
3
(30)
91
15
5
2
–
13,608
2020
£m
78
113
191
348
58
2
(13)
93
11
7
2
1
13,772
2019
£m
51
135
186
89
Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 2 February 2020
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
Fees payable to the Group’s auditor for the audit of the Group’s subsidiaries pursuant to legislation
Non-audit services
Other services
2020
£m
0.8
0.3
0.1
1.2
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
Retirement benefit costs
2020
£m
1,605
126
24
90
1,845
2019
£m
0.6
0.2
0.1
0.9
2019
£m
1,643
129
34
94
1,900
In the 52 weeks ended 2 February 2020, there was £49m of restructuring costs in addition to the employee benefit expenses shown in the table above
(see note 1.4). This amount included £2m in the form of share-based payments.
Average monthly number of people, including Directors
Stores
Manufacturing
Distribution
Centre
2020
No.
81,092
9,373
5,763
2,391
98,619
2019
No.
86,552
8,799
6,004
2,275
103,630
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 59). There are no Executive Directors (2019: none) who have retirement benefits accruing under any of the Group’s defined
benefit retirement 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
Retirement benefit costs
2020
£m
19
4
8
1
32
2019
£m
17
4
12
1
34
90
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 3 February 2019 of 4.75p (2018: 4.43p)
Special final dividend for the period ended 3 February 2019 of 4.00p (2018: 4.00p)
Interim dividend for the period ended 2 February 2020 of 1.93p (2019: 1.85p)
Special interim dividend for the period ended 2 February 2020 of 2.00p (2019: 2.00p)
2020
£m
113
95
46
48
302
2019
£m
104
94
44
47
289
The Directors propose a final ordinary dividend in respect of the financial period ended 2 February 2020 of 4.84p per share which will absorb an
estimated £116m of shareholders’ funds. Subject to approval at the Annual General Meeting (AGM), the final dividend will be paid on 29 June 2020
to shareholders who are on the register of members on 22 May 2020.
The dividends paid and proposed during the year are from cumulative realised distributable reserves of the Company.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
91
Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 2 February 2020
2 Taxation
The Group takes a compliance-focussed 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 £0.7m were paid
during 2020 (2019: £1.6m);
• Hong Kong: Offices in Hong Kong were established in 2011 and source many of the Group’s non-food products. Local corporation taxes of £0.5m
were paid during 2020 (2019: £0.4m); and
• Isle of Man, Jersey and Guernsey: The Group’s insurance company was based in the Isle of Man for regulatory reasons but is no longer active.
Companies based in Jersey and Guernsey hold UK property assets with a net book value of £53m 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
Uncertain tax positions are assessed in line with IFRIC 23 ‘Uncertainty over income tax treatments’ which provides guidance on the determination
of taxable profit and tax bases. The Group uses in-house tax specialists, professional advisers and relevant previous experience to assess tax risks.
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.
92
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
2 Taxation continued
2.2 Taxation
2.2.1 Analysis of charge in the period
Current tax
UK corporation tax
Foreign 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
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
2.2.2 Tax on items charged in other comprehensive income and equity
Remeasurements of defined benefit retirement schemes
Cash flow hedges
Share-based payments
Total tax on items included in other comprehensive income and equity (note 2.3)
2020
£m
2019 restated1
£m
60
3
(4)
59
22
6
28
87
2020
£m
38
(10)
2
30
79
4
7
90
(25)
5
(20)
70
2019
£m
17
1
–
18
2.2.3 Tax reconciliation
The reconciliation below shows how the tax charge of £87m (2019: £70m) has arisen on profit before taxation of £435m (2019: £303m).
The tax for the period is higher (2019: higher) than the standard rate of corporation tax in the UK of 19% (2019: 19%). The differences are explained below:
Profit before taxation
Profit before taxation at 19% (2019: 19%)
Effects of:
Recurring items:
Expenses not taxable/deductible for tax purposes
Disallowed depreciation on UK properties
Deferred tax on Safeway acquisition assets
Non-recurring items:
Profit on property transactions
Adjustments in respect of prior periods
Exceptional costs
Tax charge for the period
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
2020
£m
435
83
(5)
24
(6)
(3)
2
(8)
87
2019 restated1
£m
303
58
(1)
18
(2)
(1)
12
(14)
70
93
Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 2 February 2020
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 20.0% (2019: 23.1%). The normalised tax rate for the year (excluding the impact of property transactions,
store restructuring and other adjustments) was 23.1% (2019: 23.5%).
The normalised tax rate was 4.1% 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 predominantly 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 a previous period.
Accordingly, deferred tax has been provided at 19% or 17% depending upon when the temporary difference is expected to reverse (2019: 19% or 17%).
The March 2020 Budget cancelled the planned reduction to 17% so the UK statutory tax rate will remain at 19% from 1 April 2020. The legislation
was not enacted during the year so deferred tax has been provided using the 17% rate. If deferred tax was calculated using the 19% rate, the net
deferred tax liability recognised at the reporting date would be increased from £472m to £527m.
2.3 Deferred tax liabilities
Deferred tax liability
2020
£m
472
2019 restated1
£m
414
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 4 February 2019 (restated)1
Charged to profit for the period
Charged/(credited) to other comprehensive income and equity
At 2 February 2020
Prior period
At 5 February 2018 (restated)1
Credited to profit for the period (restated)1
Charged to other comprehensive income and equity
At 3 February 2019
The analysis of deferred tax liabilities are as follows:
Deferred tax liability/(asset) to be settled within 12 months
Deferred tax liability to be settled after more than 12 months
Property,
plant and
equipment
£m
Retirement benefit
obligation
£m
Other
short-term
temporary
differences
£m
349
3
–
352
355
(6)
–
349
117
4
38
159
101
(1)
17
117
(52)
21
(8)
(39)
(40)
(13)
1
(52)
2020
£m
12
460
472
Total
£m
414
28
30
472
416
(20)
18
414
2019 restated1
£m
(3)
417
414
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
94
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 is charged from when the asset is available to use. Depreciation rates used to write off cost less residual value on a straight line basis:
Freehold land
Freehold buildings
Leasehold property improvements
Plant, equipment, fixtures and vehicles
Assets under construction
0%
2.5%
2.5% or the lease term if shorter
10% to 33%
0%
Depreciation expense is primarily charged in cost of sales with an immaterial amount in administration expenses.
Right-of-use assets
Right-of-use assets are stated at cost less accumulated depreciation and accumulated impairment losses. Costs include the initial amount of the lease
liability, any initial direct costs incurred, and an estimate of any applicable dilapidation costs. Also included are the costs of lease payments made,
less any lease incentives received, at or before the commencement date.
Depreciation is charged from the commencement date which is when the underlying asset is made available for use. Depreciation rates used to write
off cost on a straight line basis:
Leasehold land
Leasehold buildings
Leased plant, equipment, fixtures and vehicles
The lease term
2.5% or the lease term if shorter
10% to 33% or the lease term if shorter
Depreciation expense is primarily charged in cost of sales with an immaterial amount in administration expenses.
Subsequent to initial measurement, the right-of-use asset is also adjusted for certain remeasurements of the associated lease liability and provision
for dilapidations, details of which are provided in note 6.1 and note 5.1 respectively.
Investment property
Property held to earn rental income is classified as investment property and is held at cost less accumulated depreciation and impairment.
This includes leasehold properties which are held as right-of-use assets. 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
95
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 2 February 2020
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.
Trade and other receivables
Leases – Group is the lessor
Where the Group is a lessor, the Group classifies each lease at lease inception either as a finance lease or an operating lease. Leases in which
substantially all the risks and rewards of ownership are retained by the Group 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. The risks and rewards of ownership considered for sub-leases are those granted by the underlying lessee agreement rather
than the underlying assets.
Operating lease payments are recognised as income on a straight-line basis over the term of the lease.
At the commencement date of finance leases the Group recognises a receivable equal to the discounted contractual lease payments receivable
and any residual value of the asset. The discount rate uses the interest rate implicit in the lease or, if that rate cannot be readily determined for a
sub-lease, a rate based on the head-lease discount rate. Each lease payment is allocated between the capital repayment of the receivable and the
finance income element. The finance income is recognised over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the receivable for each period.
Other receivables
Other receivables that are financial assets are initially recognised at fair value and subsequently held at amortised cost. Provision for impairment
of other receivables is based on expected credit losses (ECL) at each reporting date. Other receivables that are non-financial assets, such as deferred
non-cash sale consideration, are recognised at fair value.
3.2 Goodwill and intangible assets
Current period
Cost
At 4 February 2019
Additions
Interest capitalised
Disposals
Fully written down assets
At 2 February 2020
Accumulated amortisation and impairment
At 4 February 2019
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
Goodwill
£m
Other intangibles
£m
10
–
–
–
–
10
–
–
–
–
–
–
10
741
82
2
(32)
(58)
735
347
91
15
(31)
(58)
364
371
Total
£m
751
82
2
(32)
(58)
745
347
91
15
(31)
(58)
364
381
96
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
3 Operating assets continued
3.2 Goodwill and intangible assets continued
Other intangibles include software development costs and licences. Within this asset class, there are assets under construction of £73m (2019: £30m).
The net book amount of licences at 2 February 2020 was £15m (2019: £16m).
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 £15m (2019: £11m) 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.
Software development costs
The cumulative interest capitalised in respect of software development costs included within other intangibles is £43m (2019: £42m). The cost of internal
labour capitalised during the year is not material for separate disclosure.
Prior 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
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
97
Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 2 February 2020
3 Operating assets continued
3.3 Property, plant and equipment
Current period
Cost
At 4 February 2019 (restated1)
Additions
Transfers to assets classified as held-for-sale
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019 (restated1)
Depreciation charge for the period
Impairment
Impairment reversal
Transfers to assets classified as held-for-sale
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
Assets under construction included above
Freehold
land
£m
Freehold
buildings
£m
Leasehold
property
improvements
£m
Plant,
equipment,
fixtures and vehicles
£m
3,846
2
(2)
(5)
–
3,841
479
–
11
(50)
–
(1)
–
439
3,402
3
4,153
56
(4)
(1)
(12)
4,192
1,769
107
9
(32)
(3)
–
(12)
1,838
2,354
6
629
17
–
(8)
(2)
636
378
16
8
(7)
–
(8)
(2)
385
251
–
1,947
323
–
(28)
(123)
2,119
855
248
31
(4)
–
(28)
(123)
979
1,140
19
Total
£m
10,575
398
(6)
(42)
(137)
10,788
3,481
371
59
(93)
(3)
(37)
(137)
3,641
7,147
28
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
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.
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 (2019: £199m).
Impairment
The Group considers that each store is a separate 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;
• discount the cash flows using a pre-tax rate of 9.0% (2019: 9.0%). The Group takes into account a number of factors when assessing the discount
rate, including the Group’s WACC and other wider market factors. The Group has evaluated its discount rate following application of IFRS 16 and
has concluded that the discount rate applied is appropriate. The Group will continue to assess this as market practice as this area develops; and
• consideration is given to any significant one-off factors impacting the stores during the current year and any strategic or market factors which
may impact future store performance.
98
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
3 Operating assets continued
3.3 Property, plant and equipment continued
‘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 £34m (£93m impairment
reversal offset by £59m impairment charge) during the year in respect of property, plant and equipment (2019: net £63m impairment reversal;
£155m impairment reversal offset by £92m impairment charge). This movement reflects fluctuations from store level trading performance
and local market conditions.
At 2 February 2020, the assumptions to which the value in use calculation is most sensitive are the discount and growth rates. The Group has
estimated a reasonably possible change of +/- 1% in either would result in a change in impairment of c.£60m.
Prior period (restated1)
Cost
At 5 February 2018
Acquisition of business
Additions
Reclassifications
Transfers to right-of-use assets
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 right-of-use assets
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
Freehold
land
£m
Freehold
buildings
£m
Leasehold
property
improvements
£m
Plant,
equipment,
fixtures and vehicles
£m
3,898
–
3
(2)
(13)
6
(28)
(18)
–
3,846
572
–
15
(85)
–
(13)
(2)
(8)
–
479
3,367
2
4,189
4
7
–
–
–
(26)
(13)
(8)
4,153
1,737
102
13
(55)
–
–
(11)
(9)
(8)
1,769
2,384
1
625
–
12
7
–
–
–
(3)
(12)
629
381
15
6
(10)
1
–
–
(3)
(12)
378
251
0
1,736
1
375
(5)
–
–
–
(44)
(116)
1,947
731
231
58
(5)
(1)
–
–
(43)
(116)
855
1,092
4
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Total
£m
10,448
5
397
–
(13)
6
(54)
(78)
(136)
10,575
3,421
348
92
(155)
–
(13)
(13)
(63)
(136)
3,481
7,094
7
99
Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 2 February 2020
3 Operating assets continued
3.4 Right-of-use assets
Current period
Cost
At 4 February 2019 (restated1)
Additions
Transfers from investment property
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019 (restated1)
Depreciation charge for the period
Impairment
Impairment reversal
Transfers from investment property
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
Leasehold land
and buildings
£m
Leased plant,
equipment,
fixtures and vehicles
£m
1,739
39
14
(17)
(6)
1,769
844
44
23
(24)
14
(14)
(6)
881
888
78
36
–
(5)
(12)
97
44
16
–
–
–
(5)
(12)
43
54
Total
£m
1,817
75
14
(22)
(18)
1,866
888
60
23
(24)
14
(19)
(18)
924
942
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
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.
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.
Impairment
Having applied the same methodology and key assumptions as for property, plant and equipment as set out in note 3.3, the Group has recognised
a net impairment reversal of £1m (£24m impairment reversal offset by £23m impairment charge) during the year in respect of right-of-use assets
(2019: net £49m impairment; £69m impairment charge offset by £20m reversal of impairment). This movement reflects fluctuations from store
level trading performance and local market conditions.
At 2 February 2020, the assumptions to which the value in use calculation is most sensitive are the discount and growth rates. The Group has
estimated a reasonably possible change of +/- 1% in either would result in a change in impairment of c.£15m.
100
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
3 Operating assets continued
3.4 Right-of-use assets continued
Prior period (restated1)
Cost
At 5 February 2018
Additions
Transfers from property, plant and equipment
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
Transfers from property, plant and equipment
Disposals
Fully written down assets
At 3 February 2019
Net book amount at 3 February 2019
Leasehold land
and buildings
£m
Leased plant,
equipment,
fixtures and vehicles
£m
1,694
39
13
(2)
(5)
1,739
757
44
57
(20)
13
(2)
(5)
844
895
56
27
–
–
(5)
78
23
14
12
–
–
–
(5)
44
34
2020
£m
39
3
(39)
3
Total
£m
1,750
66
13
(2)
(10)
1,817
780
58
69
(20)
13
(2)
(10)
888
929
2019
£m
4
41
(6)
39
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
3.5 Assets classified as held-for-sale
At start of period
Transfers from property, plant and equipment at net book value
Disposals
At end of period
On 13 December 2019, the Group disposed of £38m of assets previously classified as held-for-sale in relation to its Camden site. The consideration
includes £85m in cash (£25m received in the period, with a further £20m due in 2020 and the remaining £40m due in 2025) together with £34m in
non-cash consideration due by 2024 (representing the undiscounted value of the future lease of a new store on part of the same site). The total
consideration has been discounted, resulting in a profit on disposal of £64m after disposal costs in the 52 week period ended 2 February 2020.
Consideration receivable as at the period end is included within both current and non-current trade and other receivables, on a discounted basis.
Assets with a cost of £6m and accumulated depreciation of £3m were transferred from property, plant and equipment to assets classified as
held-for-sale in the 52 weeks ended 2 February 2020 (2019: £54m and £13m respectively).
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
101
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 2 February 2020
3 Operating assets continued
3.6 Investment property
Current period
Cost
At 4 February 2019 (restated1)
Additions
Transfers to right-of-use assets
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019 (restated1)
Depreciation charge for the period
Impairment
Impairment reversal
Transfers to right-of-use assets
Disposals
Fully written down assets
At 2 February 2020
Net book amount at end of period
Freehold
£m
Leasehold
£m
45
–
–
(2)
–
43
19
1
4
(3)
–
(1)
–
20
23
172
7
(14)
(2)
(2)
161
138
2
7
(3)
(14)
(2)
(2)
126
35
Total
£m
217
7
(14)
(4)
(2)
204
157
3
11
(6)
(14)
(3)
(2)
146
58
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Included in other operating income is £15m (2019: £12m) of rental income generated from investment properties. At the end of the period the fair value
of freehold investment properties was £37m (2019: £44m), with leasehold investment properties supported by their value in use. Freehold investment
properties are valued by independent surveyors on a vacant possession basis using observable inputs (fair value hierarchy level 2).
Prior period (restated1)
Cost
At 5 February 2018
Additions
Transfers to property, plant and equipment
Disposals
At 3 February 2019
Accumulated depreciation and impairment
At 5 February 2018
Depreciation charge for the period
Impairment
Disposals
At 3 February 2019
Net book amount at end of period
Freehold
£m
Leasehold
£m
52
–
(6)
(1)
45
19
–
–
–
19
26
191
1
–
(20)
172
155
2
1
(20)
138
34
Total
£m
243
1
(6)
(21)
217
174
2
1
(20)
157
60
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
102
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
3 Operating assets continued
3.7 Trade and other receivables – non-current
Finance leases – Group is lessor
Other receivables
2020
£m
8
63
71
2019 restated1
£m
8
–
8
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
The Group is the lessor on a number of property leases – many of which contain rent review terms that require rents to be re-assessed on a
periodic basis. The rent re-assessments are normally based on changes in market rents or capped increases in measures of inflation.
Finance leases
The table below summarises the maturity profile of undiscounted finance lease payments due to the Group.
Less than one year
After one year but not more than five years
More than five years
Total undiscounted lease payments
Unearned finance income
Net investment in the lease
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Finance lease income of £1m (2019: £1m) has been recognised in the 52 weeks ended 2 February 2020.
Operating leases
The table below summarises the maturity profile of undiscounted minimum operating lease payments due to the Group.
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total undiscounted lease payments receivable
2020
£m
1
4
7
12
(4)
8
2020
£m
10
9
6
5
4
17
51
2019 restated1
£m
1
4
8
13
(5)
8
2019 restated1
£m
12
10
9
5
4
21
61
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Operating lease income of £15m (2019: £12m) has been recognised in the 52 weeks ended 2 February 2020. This includes £1m (2019: £1m) relating
to variable lease payments that do not depend on an index or rate.
Other receivables
Other receivables comprise deferred consideration due after more than one year in relation to the disposal of the Camden site (see note 3.5).
The amount includes £33m of deferred cash consideration on a discounted basis and £30m representing the fair value of a future lease of a newly
constructed supermarket and convenience store on part of the site.
As at 2 February 2020, none of the other receivables were past due and have not been impaired. The carrying value of the deferred cash
consideration approximates to its fair value. The fair value of the future lease is based on the net present value of observable market rentals
for similar developments in the surrounding locality (fair value hierarchy level 2).
3.8 Capital commitments
Contracts placed for future capital expenditure not provided in the financial statements
(property, plant and equipment, right-of-use assets and intangible assets)
Contracts placed for future leases not provided in the financial statements
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
2020
£m
37
34
2019
£m
36
–
103
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 2 February 2020
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 (2019: 51.1%). Decisions regarding MHE JVCo Limited require the unanimous
consent of both parties. The Directors have considered the requirements 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
2020
£m
55
22
(1)
76
39
2
1
2019
£m
71
22
(1)
92
47
2
1
4.3 Business combinations
There were no new business combinations in the 52 weeks ended 2 February 2020. During the period, the Group paid £1m deferred consideration
relating to the prior year acquisition of Chippindale Foods Limited. This was part of the total consideration of £5m.
During the 52 weeks ended 3 February 2019, 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.
104
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
5 Working capital and provisions
5.1 Accounting policies
Inventories
Inventories represent 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 inventory losses relating to shrinkage and obsolescence. Losses relating to shrinkage in stores are
based on historical losses, verified by physical inventory counts conducted by an independent third party. Provision is made for obsolete and slow
moving items.
Trade and other receivables
Trade and other receivables are initially recognised at fair value, which is generally equal to face value, and subsequently held at amortised cost.
Provision for impairment of trade receivables is recognised based on lifetime expected credit losses at each reporting date, 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, bank overdrafts and deposits readily convertible to known
amounts of cash. In the statement of financial position, 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 payables
Trade and other payables are initially recognised at fair value, which is generally equal to face value of the invoices received, and subsequently held
at amortised cost. Trade payables 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.
Supply chain financing
The Group offers suppliers the option to access supply chain financing through certain third party providers. These facilities allow suppliers to receive
payments earlier than the contractual payment terms. The Group does not receive any fees or rebates from the providers where the suppliers choose
to utilise these facilities. Payment terms continue to be agreed directly between the Group and suppliers, and is independent of supply chain
financing being available.
The Group makes an assessment of its supply chain finance arrangements to determine if the associated balance is appropriately presented as trade
payables or as borrowings. This assessment considers factors such as the commercial purpose of the facility, the nature and specific terms of the
arrangements and the credit terms in place with the banks and suppliers. Based on this assessment, the Group has determined that it is appropriate
to present amounts outstanding through the supply chain financing arrangement as trade payables.
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 a requirement for repairs or reinstatement is identified. Provisions
for 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 Inventories
Finished goods
Unearned elements of commercial income are deducted from finished goods as the inventory has not been sold.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
2020
£m
660
2019
£m
713
105
Strategic reportGovernanceFinancial statementsInvestor information 5 Working capital and provisions continued
5.3 Trade and other receivables
Commercial income trade receivables
Accrued commercial income
Other trade receivables
Less: provision for impairment of trade receivables
Trade receivables
Prepayments and accrued income
Other receivables
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
The carrying amounts of trade and other receivables approximates to their fair value at 2 February 2020 and 3 February 2019.
Current period
Expected credit loss rate
Gross carrying amount – trade receivables
Provision for impairment of trade receivables
Prior period
Expected credit loss rate
Gross carrying amount – trade receivables
Provision for impairment of trade receivables
Current
%/£m
0%
191
–
Current
%/£m
0%
192
–
1 to 30 days
past due
%/£m
6%
15
(1)
1 to 30 days
past due
%/£m
6%
2
(0)
31 to 60 days
past due
%/£m
22%
2
(1)
31 to 60 days
past due
%/£m
25%
1
(0)
61 to 90 days
past due
%/£m
51%
1
(1)
61 to 90 days
past due
%/£m
41%
1
(1)
2020
£m
7
28
175
(4)
206
116
31
353
91 days plus
past due
%/£m
100%
1
(1)
91 days plus
past due
%/£m
100%
3
(3)
2019 restated1
£m
4
28
167
(4)
195
132
17
344
Total
£m
210
(4)
Total
£m
199
(4)
As at 2 February 2020 and 3 February 2019, trade receivables 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 receivables do not contain impaired assets.
As at 15 March 2020, £6m of the £7m commercial income trade receivables balance had been settled and £20m of the £28m accrued commercial
income balance had been invoiced and settled.
5.4 Trade and other payables
Trade payables
Less: commercial income due, offset against amounts owed
Other taxes and social security payable
Other payables
Accruals and deferred income
2020
£m
2,467
(21)
2,446
131
58
416
3,051
2019 restated1
£m
2,449
(27)
2,422
113
109
426
3,070
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Included within accruals and deferred income is £1m (2019: £1m) in respect of deferred commercial income. Amounts accrued in relation to store
restructuring activity are included within accruals and deferred income at 2 February 2020.
As at 15 March 2020, £17m of the £21m commercial income due above had been offset against payments made.
106
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 5 Working capital and provisions continued
5.5 Provisions
At 4 February 2019 (restated1)
Charged to profit for the period
Utilised during the period
Released during the period
Unwinding of discount
At 2 February 2020
Onerous
contracts
£m
74
16
(30)
(14)
2
48
Other
provisions
£m
22
9
(3)
–
–
28
Total
£m
96
25
(33)
(14)
2
76
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Included with the above balance at 2 February 2020 is £16m (2019: £33m) relating to a balance due within one year. The provision is revised regularly in
response to market conditions. During the period, a net £2m charge (£16m charge offset by £14m release) has been recognised in respect of onerous
contract provisions due to changes in circumstances or performance relating to certain contracts.
Other provisions include a petrol filling station decommissioning reserve for the cost of decommissioning petrol tanks, a provision for costs relating
to recent store closures and provisions for dilapidations on certain leased buildings, for the cost of restoring assets to their required 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
Gain arising on reduction of lease terms
Defined benefit scheme contributions paid less operating expenses
Share-based payments charge
Decrease/(Increase) in inventories2
Increase in Trade and other receivables2
Increase in Trade and other payables2
Decrease in provisions2
Cash generated from operations
2020
£m
348
87
87
(1)
521
525
108
(123)
(66)
(10)
(5)
26
53
(14)
29
(27)
1,017
2019 restated1
£m
233
130
70
(1)
432
501
173
(175)
–
–
21
34
(27)
(89)
114
(7)
977
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Total working capital inflow (the sum of items marked 2 in the table) is £41m in the year (2019: £9m outflow). This includes £2m (2019: £12m) as a result of
the current year charges in respect of onerous contracts and accruals of onerous commitments and £63m of non-cash exceptional charges (2019: £nil),
net of £41m (2019: £6m) of onerous payments and other non-operating payments of £1m (2019: £5m). When adjusted to exclude these items, the
operating working capital inflow is £18m (2019: £10m outflow).
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
107
Strategic reportGovernanceFinancial 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 and fees. Subsequent to initial
recognition they are measured at amortised cost, with 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% (2019: 5%). Capitalised interest
is included within interest paid in cash flow from operating activities.
Lease liabilities
For leases where the Group is a lessee, the Group recognises a right-of-use asset and a lease liability at the commencement date of the lease.
Lease liabilities are initially measured at the present value of the lease payments due during the lease term but that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental
borrowing rate.
Lease payments included in the measurement of the lease liability comprise fixed payments and applicable variable lease payments (which depend
on an index or a rate). The exercise price of purchase options are also included if reasonably certain to exercise the option.
The lease term includes periods covered by extension and break options if the Group is reasonably certain to extend the lease or to not exercise
the break.
The incremental borrowing rates are determined through a build up approach, starting with a risk-free rate specific to the term and economic
environment of the lease, adjusted for both the credit risk of the lessee and other characteristics of the lease (for example the quality of the
underlying assets). The inputs used to determine the rates are regularly re-assessed, based on historical experience and other factors which
the Directors believe to be reasonable.
Each lease payment is allocated between the capital repayment of the liability and the finance cost element. The finance cost is charged to the
consolidated income statement over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability
for each period.
Lease liabilities are remeasured when there is a change in future lease payments arising from a change in an index, rate or a lease modification.
When purchase, extension or break options are exercised, (or not exercised) in a way inconsistent with the prior assessments of those options,
or if those assessments are changed, then lease liabilities will also be remeasured. The likelihood of options being exercised will only be re-assessed
on the occurrence of a significant event or change in circumstance within the control of the Group (for example when a final decision to close
or vacate a site is made).
The Group has elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or
less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’).
Lease payments on short-term leases and leases of low-value assets are recognised as an expense in the consolidated income statement on a
straight-line basis over the lease term.
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 statement of financial position 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, lease liabilities and derivative financial
instruments (stated at current fair value).
108
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 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 on lease liabilities
Interest capitalised
Total interest payable
Provisions: unwinding of discount (note 5.5)
Other finance costs
Finance costs before exceptionals2
Costs associated with the repayment of borrowings (note 1.4)
Finance costs
Bank interest and other finance income
Finance lease income
Finance income before exceptionals2
Net retirement benefit interest (notes 1.4 and 8.2)
Finance income
Net finance costs
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
2 Net finance costs before exceptionals marked 2 amount to £106m (2019: £115m).
6.3 Borrowings
The Group had the following current borrowings and other financial liabilities measured at amortised cost:
Current
€282m euro bond 2.25% June 2020
Other short-term borrowings
The Group had the following non-current borrowings and other financial liabilities measured at amortised cost:
Non-current
€282m euro bond 2.25% June 2020
£250m sterling bonds 4.625% December 2023
£250m sterling bonds 3.50% July 2026
£250m sterling bonds 4.75% July 2029
£350m sterling bonds 2.50% October 2031
Revolving credit facility
2020
£m
(4)
(43)
(63)
2
(108)
(2)
(1)
(111)
–
(111)
4
1
5
19
24
(87)
2020
£m
237
–
237
2020
£m
–
249
269
245
347
(2)
1,108
2019 restated1
£m
(3)
(48)
(66)
1
(116)
(3)
(1)
(120)
(33)
(153)
4
1
5
18
23
(130)
2019
£m
–
178
178
2019
£m
247
249
272
245
–
97
1,110
On 24 September 2019 the Group issued a £350m sterling bond at a fixed interest rate of 2.50% expiring October 2031. This was issued under the
Group’s £3bn Euro Medium Term Note Programme.
Borrowing facilities
In addition to the bonds detailed in the table above, the Group has the following borrowing facilities.
The Group has a syndicated committed revolving credit facility of £1.35bn. During the 52 weeks ended 2 February 2020, the Group extended this
facility by a further year, resetting its five-year term and resulting in a maturity date of June 2024. The revolving credit facility incurs commitment fees
and interest charges at a spread above LIBOR. The Group had £1.35bn of undrawn committed headroom available on this facility as at 2 February 2020.
In addition the Group has £100m 364 day committed revolving credit facility which matures in July 2020. The facility was undrawn as at 2 February 2020.
In the prior period, the Group entered into an additional £250m revolving credit facility to provide flexibility on refinancing the €282m euro bond
when it matures in June 2020. As a result of this bond having been refinanced during the year through the issuance of the £350m bond, this facility
has subsequently lapsed and is no longer available as at 2 February 2020.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
109
Strategic reportGovernanceFinancial statementsInvestor information
6 Capital and borrowings continued
6.3 Borrowings continued
Borrowing facilities continued
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.
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 in the statement of financial position for borrowings.
Trade and other payables (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
2020
£m
280
41
41
290
29
978
2019
£m
216
282
32
32
381
587
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
1,345
2020
Fair value
£m
1,475
Amortised cost
£m
1,288
2019
Fair value
£m
1,360
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 Lease liabilities
Current lease liabilities
Non-current lease liabilities
Maturity of lease liabilities
The table below summarises the maturity profile of the Group’s lease liabilities based on contractual, undiscounted payments.
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
2020
£m
72
1,304
1,376
2020
£m
131
125
120
113
106
1,601
2019 restated1
£m
69
1,328
1,397
2019 restated1
£m
130
125
119
114
107
1,719
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
The interest expense on lease liabilities during the periods ended 2 February 2020 and 3 February 2019 are shown in note 6.2. The value of contracts
placed for future leases not provided in the financial statements is disclosed in note 3.8.
Other information
The Group is the lessee on a diverse portfolio of leases for property and equipment, with the vast majority of lease liabilities relating to property
(see note 3.4 and note 3.6). Certain property leases contain rent review terms that require rents to be adjusted on a periodic basis which may be
subject to market rent or capped increases in inflation measurements. In addition, certain property leases contain break clauses that would allow the
Group to exit leases early. The depreciation expense for leases during the periods ended 2 February 2020 and 3 February 2019 are shown in note 1.6.
This note also includes the expense of variable lease payments incurred during the periods and expenses incurred on both low value leases and
short-term leases longer than one month. The total cash outflow for leases was £157m (2019: £145m).
110
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 6 Capital and borrowings continued
6.5 Analysis of net debt1
Cross-currency interest rate swaps3
Fuel and energy price contracts
Non-current financial assets
Foreign exchange forward contracts
Fuel and energy price contracts
Current financial assets
Bonds3
Other short-term borrowings3
Cross-currency interest rate swaps3
Lease liabilities3
Foreign exchange forward contracts
Fuel and energy price contracts
Current financial liabilities
Bonds3
Revolving credit facility3
Lease liabilities3
Fuel and energy price contracts
Non-current financial liabilities
Cash and cash equivalents
Net debt1
Note
7.3
7.3
6.3
6.3
7.3
6.4
7.3
7.3
6.3
6.3
6.4
7.3
2020
£m
–
–
–
–
1
1
(237)
–
(4)
(72)
(17)
(15)
(345)
(1,110)
2
(1,304)
(7)
(2,419)
305
(2,458)
2019 restated2
£m
9
6
15
3
16
19
–
(178)
–
(69)
(4)
(1)
(252)
(1,013)
(97)
(1,328)
(2)
(2,440)
264
(2,394)
1 Net debt is defined in the Glossary on page 153.
2 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
Total net liabilities from financing activities (the sum of items marked 3 in the table) is £2,725m in the 52 weeks ended 2 February 2020 (2019: £2,676m).
Of the £49m increase (2019: £42m decrease) in net liabilities from financing activities, £67m (2019: £56m) relates to non-cash movements offset by £18m
(2019: £98m) related to cash movements.
Cash and cash equivalents include restricted balances of £nil (2019: £3m) which is held by Farock Insurance Company Limited, a subsidiary of
Wm Morrison Supermarkets PLC.
6.6 Called-up share capital
At 4 February 2019
Share options exercised and shares issued under LTIP schemes1
At 2 February 2020
Number of
shares
millions
2,368.3
36.7
2,405.0
Share capital
£m
237
3
240
Share premium
£m
178
14
192
Total
£m
415
17
432
1 The £3m movement in share capital has been rounded down to ensure that the total movement and total share capital positions, are correctly stated.
All issued shares are fully paid and have a par value of 10p per share (2019: 10p per share). The Group did not acquire any of its own shares for
cancellation in the 52 weeks ended 2 February 2020 or the 52 weeks ended 3 February 2019. 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 £30m (2019: £21m) in respect of own shares held at the reporting date. This represents the cost of
14,215,041 (2019: 9,885,248) of the Group’s ordinary shares (nominal value of £1.4m (2019: £1.0m)). 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 2 February
2020 was £26m (2019: £23m). 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 4,881,284 (2019: 3,945,258) of its own shares to hold in trust for consideration of £10m (2019: £9m), and utilised
551,491 (2019: 1,721,480) trust shares to satisfy awards under the Group’s employee share plans.
Proceeds from exercise of share awards
The Group issued 8,532,407 (2019: 12,440,132) new shares to satisfy options exercised by employees during the period in respect of the Group’s
Sharesave schemes. Proceeds received on exercise of these shares amounted to £14m (2019: £20m) and these have been recognised as an addition
to share capital and share premium in the period. In addition, the Group issued 28,166,736 (2019: nil) shares under the Group’s Long Term Incentive Plan
(LTIP) scheme for nominal value.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information 6 Capital and borrowings continued
6.6 Called-up share capital continued
Settlement of share awards
During the 52 weeks ended 2 February 2020, the Group has settled 551,491 of share options out of trust shares which have vested during the period
net of tax. The Group paid the £2m (2019: £5m) in cash on behalf of the employees, rather than selling shares on the employees’ behalf to settle the
employees’ tax liability on vesting of share options.
6.7 Reserves
Capital redemption reserve
Merger reserve
Hedging reserve
Retained earnings
Total
2020
£m
39
2,578
(37)
1,529
4,109
2019 restated1
£m
39
2,578
10
1,283
3,910
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 10.3.
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.
6.8 Capital management
The Group defines the capital that it manages as the Group’s total equity and net debt balances.
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 2 February 2020, net debt
has increased by £64m. Throughout the period, the Group has comfortably complied with the gearing and fixed charge cover covenants attaching
to its revolving credit facility.
112
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 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 reasonably possible change (+/-10%) in the US dollar and euro exchange rates would equate to a £7m 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 £34m for the hedged amount.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information 7 Financial risk and hedging continued
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 2 February 2020 was £1,078m across a number of banks and platforms. The level of utilisation is dependent on the
individual supplier requirements and varies significantly over time, dependent on suppliers’ requirements.
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 reporting date, 100% (2019: 78%) 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 principal areas of credit risk relate to financial institution and trading counterparties such as wholesale customers. The Group has well established
credit verification procedures in place for key exposures. Limits on the total exposure to a counterparty or Group of connected counterparties are
established within the Treasury Policy. Compliance with limits is regularly monitored. With respect to wholesale customers, the Group establishes
a credit limit for each individual entity, which takes into account a number of factors including the level of credit insurance in place, the customer’s
payment history, third party credit reports and other relevant factors including the Group’s rights within the specific terms of the contract.
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 reporting date would affect other comprehensive income by £6m (2019: £12m)
for the hedged amount.
114
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 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
2020
Fair Value
£m
2020
Notional Value
£m
2019
Fair Value
£m
2019
Notional Value
£m
–
1
1
–
–
–
32
1
33
–
–
–
3
16
19
9
6
15
112
55
167
240
38
278
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
Cross-currency interest rate swaps
Foreign exchange forward contracts
Fuel and energy price contracts
Non-current
Fuel and energy price contracts
2020
Fair Value
£m
2020
Notional Value
£m
2019
Fair Value
£m
2019
Notional Value
£m
4
17
15
36
7
7
240
411
53
704
35
35
–
4
1
5
2
2
–
262
3
265
18
18
The amounts disclosed in the table below are the contractual undiscounted derivative cash flows and therefore differ to those in the statement
of financial position.
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:
(Outflow)/inflow
< 1 year
£m
(247)
242
(443)
426
2020
£m
1-5 years
£m
–
–
–
–
< 1 year
£m
(7)
6
(374)
372
(15)
(7)
15
2019
£m
1-5 years
£m
(247)
253
–
–
4
Cash flow hedges
At 2 February 2020 and at 3 February 2019, the Group held cross-currency swaps designated as cash flow hedges. The notional principal amount
of the outstanding cross-currency swaps at 2 February 2020 was €282m (2019: €282m).
The fuel and energy price contracts and foreign currency derivatives are designated as cash flow hedges.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information
8 Retirement benefits
8.1 Accounting policies
A defined contribution scheme is a retirement 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
Retirement scheme assets are valued at fair market value as required by IAS 19. Retirement benefit 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 retirement benefit deficit or surplus recognised in the consolidated statement of financial position 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 statement of cash flows and is part of
adjusted earnings. Net interest income/expense is calculated by applying the discount rate on liabilities to the net retirement benefit deficit or surplus
(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 the consolidated statement of comprehensive income as a reduction
in the return on scheme assets. Other scheme expenses are recognised in the consolidated income statement 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 the consolidated statement of 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 retirement 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 2 February 2020 is as follows:
CARE Schemes
RSP
Net retirement benefit surplus
The disclosures below show the details of the schemes combined:
Statement of financial position
Fair value of scheme assets
Present value of obligations
Net retirement benefit surplus/(deficit)
Income statement:
Current service cost – recognised in cost of sales
Current service cost – recognised in administrative expenses
Past service cost (guaranteed minimum pension)
Administrative costs paid by the Schemes – recognised in administrative expenses
Settlement and curtailment gain
Curtailment loss from closure of the retirement scheme
Net interest on net retirement benefit surplus/deficit – finance (income)/expense
Total expense (credited)/charged to income statement
Statement of other comprehensive income:
Remeasurements in other comprehensive income – credit
2020
£m
960
(16)
944
2019
CARE
£m
4,471
(3,741)
730
2019
CARE
£m
–
–
7
2
(2)
–
(18)
(11)
(100)
2019
£m
730
(42)
688
2019
RSP
£m
349
(391)
(42)
2019
RSP
£m
35
18
–
1
–
19
–
73
–
2020
CARE
£m
5,013
(4,053)
960
2020
CARE
£m
–
–
–
2
–
–
(20)
(18)
2020
RSP
£m
389
(405)
(16)
2020
RSP
£m
–
–
–
1
–
–
1
2
(204)
(27)
116
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 8 Retirement benefits 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 losses in the 52 weeks ended 3 February 2019 include a £19m exceptional charge as a result of the closure of the RSP
to future accrual in September 2018.
The Group recognised a past service cost of £7m in the 52 weeks ended 3 February 2019 in relation to the estimated cost of the equalisation
of guaranteed minimum retirement benefits for men and women, following a ruling by the High Court in October 2018 (see note 8.7 of the
Group’s 2018/19 Annual Report and Financial Statements).
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), income assets (comprising credit
investments and corporate bonds) and protection assets (comprising a liability driven investment (LDI) portfolio and the two buy-in 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)
2020
CARE
£m
574
511
–
466
2,782
649
31
5,013
2020
RSP
£m
158
–
40
–
190
–
1
389
2019
CARE
£m
507
442
120
444
2,264
665
29
4,471
2019
RSP
£m
135
–
76
–
137
–
1
349
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 the Schemes’ 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
The Safeway Scheme has two buy-in annuity policies that provide insurance for a proportion of the pensioner population. 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information 8 Retirement benefits 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
Benefits paid
Administrative expenses
Fair value of scheme assets at end of period
2020
CARE
£m
4,471
121
554
8
–
(139)
(2)
5,013
2020
RSP
£m
349
9
70
1
–
(39)
(1)
389
2019
CARE
£m
4,542
124
(53)
7
–
(147)
(2)
4,471
2019
RSP
£m
315
9
(6)
49
3
(20)
(1)
349
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 retirement
benefit 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.
118
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 8 Retirement benefits 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 (loss)/gain – financial assumptions
Actuarial gain – experience
Settlement and curtailment gain
Curtailment loss from closure of the retirement scheme
Employee contributions
Benefits paid
Defined benefit obligation at end of period
2020
CARE
£m
(3,741)
–
–
(101)
92
(592)
150
–
–
–
139
(4,053)
2020
RSP
£m
(391)
–
–
(10)
–
(58)
15
–
–
–
39
(405)
2019
CARE
£m
(3,930)
–
(7)
(106)
123
30
–
2
–
–
147
(3,741)
The durations of the defined benefit obligations at the end of the 2020 reporting period are: RSP 20 years; Morrison CARE 23 years;
Safeway CARE 20 years. The weighted average duration of all three Schemes is 21 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
2020
CARE
1.8%
2.9%
2020
CARE
20.9
22.3
22.6
24.2
2020
RSP
1.8%
2.9%
2020
RSP
n/a
n/a
n/a
n/a
2019
CARE
2.8%
3.2%
2019
CARE
22.0
23.3
23.7
25.2
2019
RSP
£m
(333)
(53)
–
(9)
–
3
3
–
(19)
(3)
20
(391)
2019
RSP
2.7%
3.2%
2019
RSP
n/a
n/a
n/a
n/a
For deriving discount rates, the Group estimates these rates with reference to high quality corporate bonds. 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. The Group
believes that this approach appropriately reflects expected yields on high quality corporate bonds over the duration of the Group’s retirement
schemes, as required by IAS 19.
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 2 February 2020 are the S2PMA/S2PFA-Heavy mortality tables (males/females) based on year of birth with
a scaling factor of 110% applied to the mortality rates in both the Morrison and Safeway Schemes, with CMI 2018 core projections and a long-term
rate of improvement of 1.5% p.a. For the 52 weeks ended 3 February 2019, 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 2017
projections and a long-term rate of improvement of 1.5% p.a.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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Strategic reportGovernanceFinancial statementsInvestor information
8 Retirement benefits continued
8.4 Present value of obligations continued
8.4.1 Significant actuarial assumptions continued
Related actuarial assumptions (expressed as weighted averages)
Rate of increase of retirement benefits in payment: RPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.)
Rate of increase of retirement benefits in deferment: CPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.)
CPI inflation (% p.a.)
2020
CARE
2020
RSP
2019
CARE
2.0%/2.8%
–
2.1%/3.1%
2019
RSP
–
–/2.0%
2.0%
2.0%/–
2.0%
–/2.1%
2.1%
2.1%/–
2.1%
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
2020
CARE
£m
-/+85
+/-65
+145
2020
RSP
£m
-/+8
+/-7
–
2019
CARE
£m
-/+90
+/-80
+155
2019
RSP
£m
-/+7
+/-7
–
120
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 8 Retirement benefits continued
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 2019 for the Safeway Scheme and 5 April 2019 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 £518m, £157m and £7m 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 2019 actuarial valuations for the CARE Schemes have been used and updated for IAS 19 ‘Employee benefits’ purposes for the
period to 2 February 2020 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 2 February 2020, schemes in surplus have been disclosed within the assets in the consolidated statement of financial position. The Group obtained
legal advice with regard to the recognition of a retirement benefit 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 materially affected by the 2015 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 3 February 2020
is £9m (2019: £7m). This estimate includes amounts payable from the SLP.
8.6 Defined contribution scheme
The Group opened a defined contribution retirement benefit 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. 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 2 February 2020, the Group paid contributions of £78m to the MPRS (2019: £28m), and expects to contribute £80m for the following period
(2019: £79m).
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
121
Strategic reportGovernanceFinancial 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 £26m (2019: £34m).
9.2 Sharesave schemes
All employees (including Executive Directors) are eligible for the Sharesave 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
17 May 2019
£2.11
£6.3m
£1.78
4.6%
0.71%
20.61%
15 May 2018
£2.55
£13.2m
£1.87
3.96%
0.56%
24.9%
16 May 2017
£2.44
£16.5m
£1.84
2.08%
0.30%
28.1%
16 May 2016
£1.91
£5.1m
£1.70
2.62%
0.87%
26.8%
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.
The requirement that the employee has to save in order to purchase shares under the Sharesave 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
2020
Options
thousands
47,570
20,905
(8,532)
(8,637)
51,306
19
Weighted average
exercise price in
£ per share
1.75
1.87
1.64
1.82
1.83
1.64
Weighted average
exercise price in
£ per share
1.83
1.78
1.70
1.82
1.83
1.70
2020
Share options exercised in the financial period
Share options outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual life
Weighted average
share price at date
of exercise
£
2.03
Weighted average
option price at date
of exercise
£
1.70
Number of
shares
thousands
8,532
Weighted average
share price at date
of exercise
£
2.51
Weighted average
option price at date
of exercise
£
1.64
2020
£1.70 to £1.87
1.44 years
2019
Options
thousands
44,676
22,166
(12,441)
(6,831)
47,570
14
2019
Number of
shares
thousands
12,441
2019
£1.64 to £1.87
1.64 years
122
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020
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. The schemes granted in 2016 all vested during the 52 weeks ended 2 February 2020.
All 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 determine it are as follows:
Grant date
Option fair value at grant date
Fair value of share awards
14 Oct
2019
£1.96
£1.0m
19 April
2019
£2.23
£27.2m
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 April
2016
£2.00
£73.6m
Movement in outstanding share awards
Outstanding at start of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
2020
Share awards
thousands
2019
Share awards
thousands
54,168
12,714
(28,167)
(4,730)
33,985
–
47,967
13,386
(3,474)
(3,711)
54,168
–
The weighted average remaining contractual life of the share awards is 1.2 years (2019: 0.9 years).
9.4 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 1.0 year (2019: 1.3 years).
2019/20 scheme
£2.25
£nil
£1.7m
2018/19 scheme
£2.09
£nil
£2.8m
2020
Share awards
thousands
2019
Share awards
thousands
3,549
771
(947)
3,373
2,491
1,355
(297)
3,549
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
123
Strategic reportGovernanceFinancial 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 retirement benefit 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 2 February 2020, the Group received a dividend of £9m (2019: £7m) 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 through until 2038. If the lessee were to default during the period of guarantee, their lease obligations could revert
back to the Group under the terms and become a liability of the Group. Should the lessee default, the additional future commitment is estimated
at up to £30m (2019: £31m).
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
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 appealed to the Supreme Court. The Supreme Court hearing took place in November 2019 and the Group is waiting for the decision.
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.
10.3 Changes in accounting policies
The Group has adopted the fully retrospective approach to transition for IFRS 16 ‘Leases’ and under this approach, the opening consolidated
statement of financial position as at 5 February 2018 and the comparative consolidated statement of financial position as at 3 February 2019
have been restated.
Impact on the consolidated income statement
The adoption of IFRS 16 resulted in changes to the consolidated income statement, as previously recognised straight line rental costs were removed
and replaced with a depreciation charge on the right-of-use assets and a finance cost on the lease liabilities. The impact of IFRS 16 in the 52 weeks
ended 3 February 2019 was to change each line as follows:
Cost of sales
Gross profit
Profit/loss on disposal and exit of properties
Administrative expenses
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the period attributable to the owners of the Company
Earnings per share (pence)
Basic
Diluted
Before exceptionals
£m
45
45
–
–
45
(56)
1
(10)
2
(8)
Exceptionals
£m
–
–
(2)
(5)
(7)
–
–
(7)
4
(3)
2019
Total
£m
45
45
(2)
(5)
38
(56)
1
(17)
6
(11)
(0.45)
(0.44)
During the 52 weeks ended 3 February 2019, the following lines in the consolidated income statement were principally impacted by IFRS 16:
Impact on profit before exceptionals after tax:
• cost of sales – a net credit of £45m was recognised, being the reversal of previously recognised rent payments (£103m) offset by the depreciation
charge on the right-of-use assets and leased assets in investment property (£58m);
• net finance costs – additional finance costs of £55m were recognised on IFRS 16 lease liabilities; and
• the net impact of all of the adjustments in the table above reduced reported profit before tax and exceptionals by £10m and profit before
exceptionals after tax by £8m.
124
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 10 Other continued
10.3 Changes in accounting policies continued
Impact on the consolidated income statement continued
Impact on exceptional items:
• profit/loss on disposal and exit of properties – an additional £2m of lease disposal costs were recognised;
• administrative expenses – an additional £5m net charge was recognised being the net impact of additional impairment from applying IFRS 16
of £53m (being £49m charge for right-of-use assets, £3m charge for property, plant and equipment and £1m charge for investment property)
offsetting the reversal of previously recognised onerous lease provisions and amounts provided for onerous commitments (£48m);
• the net impact of all of the adjustments in the table above reduced exceptionals after tax by £3m; and
• all of the above items were classified as exceptional items in line with the Group’s policy (see note 1.4 for further details).
Impact on the consolidated statement of financial position
Upon adoption of IFRS 16, the Group recognised right-of-use assets (representing the right to use the underlying assets) and lease liabilities for
lease payments on the discounted future obligations.
The impact of IFRS 16 as at 5 February 2018 and at 3 February 2019 was to change each line as follows:
Assets
Property, plant and equipment
Right-of-use assets
Investment property
Trade and other receivables
Non-current assets
Trade and other receivables
Current assets
Liabilities
Trade and other payables
Lease liabilities
Current liabilities
Lease liabilities
Deferred tax liabilities
Provisions
Non-current liabilities
Net assets
Shareholders’ equity
Retained earnings and other reserves
Total equity attributable to the owners of the Company
2019
£m
(218)
929
34
8
753
(3)
(3)
15
(69)
(54)
(1,328)
69
257
(1,002)
(306)
(306)
(306)
2018
£m
(216)
970
36
8
798
(3)
(3)
60
(59)
1
(1,354)
63
200
(1,091)
(295)
(295)
(295)
As at 3 February 2019, IFRS 16 principally impacted the following lines in the consolidated statement of financial position:
Right-of-use assets of £929m (2018: £970m) were recognised and presented separately in the consolidated statement of financial position. Included within this
balance were assets reclassified from property, plant and equipment of £218m (2018: £216m) and additional accumulated impairment of £386m (2018: £352m).
Investment property right-of-use assets of £34m (2018: £36m), have been recognised in respect of leasehold investment property. Included within
this balance was additional accumulated impairment of £75m (2018: £96m).
Lease liabilities of £1,397m (2018: £1,413m) were recognised and split between current and non-current on the face of the consolidated statement
of financial position.
Deferred tax liabilities decreased by £69m (2018: £63m) in relation to the tax relief available for the transition adjustment that will be realised over
the remaining life of the leases.
Provisions reduced by £257m (2018: £200m) as onerous lease provisions are derecognised on application of IFRS 16.
The net impact of all of the adjustments in the table above has decreased retained earnings and other reserves by £306m (2018: £295m).
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
125
Strategic reportGovernanceFinancial statementsInvestor information 10 Other continued
10.3 Changes in accounting policies continued
Impact on the consolidated cash flow statement
The net cash movement has not changed following the adoption of IFRS 16. However, the presentation in the consolidated cash flow statement
has changed, with lease payments, which were previously recognised within cash flows from operating activities, being split between the interest
element (which remains within cash flows from operating activities) and the capital element (now disclosed within cash flows from financing activities).
This is detailed below:
Cash flows from operating activities
Cash generated from operations
Interest paid
Net cash inflow from operating activities
Cash flows from financing activities
Repayment of lease obligations
Net cash outflow from financing activities
Net movement in cash and cash equivalents
During the 52 weeks ended 3 February 2019, the following lines in the consolidated cash flow statement were principally impacted by IFRS 16:
• cash generated from operations – increased by £135m as straight line rent payments are no longer recognised;
• interest paid – £66m of interest payments were recognised relating to the finance element of lease payments;
• repayment of lease obligations – £69m of payments were recognised relating to the capital element of lease payments; and
• there was no net impact of these adjustments on cash flow in the period.
2019
£m
135
(66)
69
(69)
(69)
–
126
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Notes to the Group financial statements continued52 weeks ended 2 February 2020 Wm Morrison Supermarkets PLC
Company statement of financial position
As at 2 February 2020
Fixed assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investment property
Investments
Investment in joint venture
Current assets
Inventories
Debtors due within one year
Debtors due after more than one year
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
Lease liabilities 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
Lease liabilities 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
Shareholders’ equity
Share capital
Share premium
Capital redemption reserve
Merger reserve
Retained earnings and other reserves2
Total shareholders’ funds
Note
11.6
11.7
11.8
11.9
11.10
11.11
11.12
11.13
11.20
11.17
11.17
11.14
11.16
11.17
11.15
11.16
11.17
11.20
11.18
11.19
11.21
11.21
11.22
11.22
11.22
2020
£m
361
2,258
1,093
18
6
39
3,775
409
5,757
8
364
1
–
218
6,757
(4,050)
(120)
(36)
(4,206)
2,551
6,326
(1,108)
(1,363)
(7)
(16)
(118)
(58)
(2,670)
3,656
240
192
39
940
2,245
3,656
2019
restated1
£m
384
2,219
1,136
19
6
67
3,831
447
5,744
8
284
19
15
169
6,686
(3,691)
(106)
(5)
(3,802)
2,884
6,715
(1,110)
(1,452)
(2)
(42)
(86)
(79)
(2,771)
3,944
237
178
39
1,202
2,288
3,944
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
2 Included within Retained earnings and other reserves is loss after tax of £33m (2019: £156m). After adjusting for exceptionals, profit before exceptionals after tax is £66m (2019: £4m).
The accounting policies on pages 129 to 131 and the notes on pages 132 to 146 form part of these financial statements.
The financial statements on pages 127 to 146 were approved by the Board of Directors and authorised for issue on 17 March 2020. They were signed
on its behalf by:
Michael Gleeson, Chief Financial Officer
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
127
Strategic reportGovernanceFinancial statementsInvestor information
Wm Morrison Supermarkets PLC
Company statement of changes in equity
52 weeks ended 2 February 2020
Current period
At 4 February 2019 (reported)
Adjustment on the adoption of IFRS 16
At 4 February 2019 (restated1)
Loss for the period
Other comprehensive (expense)/income:
Cash flow hedging movement
Remeasurement of defined benefit 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
Tax in relation to components of equity
Dividends
Realisation of merger reserve
Total transactions with owners
At 2 February 2020
Prior period
At 5 February 2018 (reported)
Adjustment on the adoption of IFRS 16
At 5 February 2018 (restated1)
Loss for the period (restated1)
Other comprehensive income/(expense):
Cash flow hedging movement
Remeasurement of defined benefit 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
Note
11.25
11.20
11.18
6.6
11.5
6.6
6.6
11.18
1.8
11.22
Note
11.25
11.20
11.18
6.6
11.5
6.6
6.6
1.8
11.22
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
237
–
237
–
–
–
–
–
–
–
–
3
–
–
–
3
240
178
–
178
–
–
–
–
–
–
–
–
14
–
–
–
14
192
39
–
39
–
–
–
–
–
–
–
–
–
–
–
–
–
39
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
236
–
236
–
–
–
–
–
–
–
–
1
–
–
1
237
159
–
159
–
–
–
–
–
–
–
–
19
–
–
19
178
39
–
39
–
–
–
–
–
–
–
–
–
–
–
–
39
Attributable to the owners of the Company
Hedging
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
10
–
10
–
(57)
–
10
(47)
–
–
–
–
–
–
–
–
(37)
2,569
(291)
2,278
(33)
–
100
(17)
50
(10)
11
(2)
(3)
(2)
(302)
262
(46)
2,282
4,235
(291)
3,944
(33)
(57)
100
(7)
3
(10)
11
(2)
14
(2)
(302)
–
(291)
3,656
Attributable to the owners of the Company
Hedging
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
2
–
2
–
9
–
(1)
8
–
–
–
–
–
–
–
10
2,568
(290)
2,278
(156)
–
49
(8)
(115)
(9)
16
(5)
–
(289)
402
115
2,278
4,608
(290)
4,318
(156)
9
49
(9)
(107)
(9)
16
(5)
20
(289)
–
(267)
3,944
Merger
reserve
£m
1,202
–
1,202
–
–
–
–
–
–
–
–
–
–
–
(262)
(262)
940
Merger
reserve
£m
1,604
–
1,604
–
–
–
–
–
–
–
–
–
–
(402)
(402)
1,202
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
The accounting policies on pages 129 to 131 and the notes on pages 132 to 146 form part of these financial statements.
128
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Wm Morrison Supermarkets PLC
Company accounting policies
52 weeks ended 2 February 2020
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 2 February 2020 (2019: 52 weeks ended 3 February 2019). 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) IFRS 16 ‘Leases’:
(i) paragraph 52 (single lease disclosure note);
(ii) paragraph 58 (maturity analyses); and
(iii) the second sentence of paragraph 89, paragraphs 90-91, 93 (lessor disclosures);
e) 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’;
f) The following paragraphs of IAS 1 ‘Presentation of financial statements’:
(i) 10(d) (statement of cash flows);
(ii) 40(a) (third balance sheet on restatement);
(iii) 111 (cash flow statement information); and
(iv) 134-136 (capital management disclosures);
g) IAS 7 ‘Statement of cash flows’;
h) IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (paragraphs 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;
i) 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.
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Wm Morrison Supermarkets PLC
Company accounting policies continued
52 weeks ended 2 February 2020
11 Company financial statements continued
11.2 Basis of preparation continued
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 82 in the Group financial statements.
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 2 February 2020:
• IFRS 16 ‘Leases’;
• IFRIC 23 ‘Uncertainty over income tax treatments’;
Amendments to the following standards:
• IAS 19 ‘Employee Benefits’;
• IAS 28 ‘Investments in Associates’;
• IFRS 9 ‘Financial Instruments’; and
• Improvements to IFRSs (2015-2017).
The Company has considered the above new standards, and amendments to published standards and has concluded that only IFRS 16, IFRIC 23,
and the amendment to IAS 19 are relevant to the Company. Only IFRS 16 has a material impact on the Company’s financial statements.
Although IFRIC 23, and the amendment to IAS 19 are relevant to the Company for the 52 weeks ended 2 February 2020, the Directors have concluded
that these 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 82 and 83 in the consolidated financial statements.
The transition to IFRS 16 for the Company took place on 4 February 2019 and the Company has adopted the fully retrospective transition approach.
In accordance with this transition method, the Company has applied IFRS 16 at the date of initial application as if it had been effective at the
commencement date of the existing lease contracts. Accordingly, the comparative information in these financial statements has been restated,
unless otherwise stated. The nature and effect of these changes are disclosed in note 11.25. On transition the Company elected to use the practical
expedient allowing the standard to be applied only to contracts that were previously identified as leases when applying IAS 17 and IFRIC 4
‘Determining whether an Arrangement contains a Lease’ at the date of initial application.
Accounting reference date
The accounting period of the Company ends on the Sunday falling between 29 January and 4 February each year.
130
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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:
Investment property (3.1);
Impairment of non-financial assets (3.1);
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) Right-of-use assets (3.1);
i)
j)
k) Lease – Group is the lessor (3.1);
l)
m) Trade and other receivables (5.1);
n) Cash and cash equivalents (5.1);
o) Trade and other payables (5.1);
p) Provisions (5.1);
q) Borrowings and borrowing costs (6.1);
r) Lease liabilities (6.1);
s) Share capital (6.1);
t) Derivative financial instruments and hedge accounting (7.1);
u) Pensions (8.1); and
v) Share-based payments (9.1).
Inventories (5.1);
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 11.24). 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.
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52 weeks ended 2 February 2020
11 Company financial statements continued
11.4 Profit and loss account
The loss after tax for the Company for the 52 weeks ended 2 February 2020 was £33m (2019: £156m adjusted for IFRS 16). After adjusting for
exceptional items, profit before exceptionals after tax is £66m (2019: £4m adjusted for IFRS 16). The profit before exceptionals after tax in the
52 weeks ended 2 February 2020 includes dividends received from subsidiary undertakings of £23m (2019: £nil).
Employee benefit expense for the Company during the period
Wages and salaries
Social security costs
Other pensions costs
Share-based payments
2020
£m
866
72
51
11
1,000
2019
£m
863
70
50
16
999
The average monthly number of people, including Directors, employed by the Company is 50,527 (2019: 52,078).
The Company’s auditor, PricewaterhouseCoopers LLP charged £0.6m (2019: £0.5m) for audit services in the year and £0.1m (2019: £0.1m) 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 £11m (2019: £16m).
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 4 February 2019
Additions
Interest capitalised
Disposals
Fully written down assets
At 2 February 2020
Accumulated amortisation and impairment
At 4 February 2019
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
Other intangibles
£m
726
80
2
(32)
(57)
719
342
89
15
(31)
(57)
358
361
Total
£m
726
80
2
(32)
(57)
719
342
89
15
(31)
(57)
358
361
132
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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 £73m (2019: £30m).
The net book amount of licences at 2 February 2020 totals £13m (2019: £14m).
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 Company’s annual impairment review, an impairment charge of £15m (2019: £11m) 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 (2019: £42m). Interest is capitalised at the effective interest rate of 5% (2019: 5%)
incurred on borrowings.
11.7 Property, plant and equipment
Cost
At 4 February 2019 (restated1)
Additions
Transfers from right-of-use assets
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019 (restated1)
Depreciation charge for the period
Impairment
Impairment reversal
Transfers from right-of-use assets
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
Freehold
land
£m
Freehold
buildings
£m
Leasehold property
improvements
£m
Plant,
equipment,
fixtures and vehicles
£m
873
1
–
(5)
–
869
151
–
7
(16)
–
(1)
–
141
728
1,543
21
–
–
(7)
1,557
714
38
8
(10)
–
–
(7)
743
814
513
15
–
(7)
(1)
520
288
12
3
(10)
–
(7)
(1)
285
235
859
137
24
(22)
(51)
947
416
98
14
(3)
14
(22)
(51)
466
481
Total
£m
3,788
174
24
(34)
(59)
3,893
1,569
148
32
(39)
14
(30)
(59)
1,635
2,258
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
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 £869m (2019: £873m) relating to non-depreciable land and £17m (2019: £3m) of assets under construction.
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 £71m (2019: £73m). Interest is capitalised at the effective interest rate of 5% (2019: 5%) incurred
on borrowings.
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 £7m (£39m impairment reversal offset
by £32m impairment charge) during the year in respect of property, plant and equipment (2019: net £6m impairment reversal; £54m impairment
reversal offset by £48m impairment charge). This movement reflects fluctuations from store level trading performance and local market conditions.
At 2 February 2020, the assumptions to which the value in use calculation is most sensitive to are the discount and growth rates. The Company
has estimated a change of +/- 1% in either would result in a change in impairment of c.£30m.
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52 weeks ended 2 February 2020
11 Company financial statements continued
11.8 Right-of-use assets
Cost
At 4 February 2019 (restated1)
Additions
Transfer from investment property
Transfer to property, plant and equipment
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019 (restated1)
Depreciation charge for the period
Impairment
Impairment reversal
Transfer from investment property
Transfer to property, plant and equipment
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
Leasehold land
and buildings
£m
Leased plant,
equipment,
fixtures and vehicles
£m
1,985
27
14
–
–
(6)
2,020
941
66
15
(19)
14
–
–
(6)
1,011
1,009
206
36
–
(24)
(5)
(30)
183
114
34
–
–
–
(14)
(5)
(30)
99
84
Total
£m
2,191
63
14
(24)
(5)
(36)
2,203
1,055
100
15
(19)
14
(14)
(5)
(36)
1,110
1,093
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
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. Fully depreciated assets are retained in the Company’s fixed asset register. In order to provide
greater understanding of the Company’s annual depreciation charge, assets which have been fully depreciated in the year have been removed
from both cost and accumulated depreciation.
Impairment
Having applied the methodology and assumptions set out in section 11.7, the Company has recognised a net impairment reversal of £4m (£19m impairment
reversal offset by £15m impairment charge) during the year in respect of right-of-use assets (2019: net £31m impairment; £68m impairment charge
offset by £37m reversal of impairment). This movement reflects fluctuations from store level trading performance and local market conditions.
At 2 February 2020, the assumptions to which the value in use calculation is most sensitive to are the discount and growth rates. The Company has
estimated a change of +/- 1% in either would result in a change in impairment of c.£15m.
134
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11 Company financial statements continued
11.9 Investment property
Cost
At 4 February 2019 (restated1)
Additions
Transfers to right-of-use assets
Disposals
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019 (restated1)
Impairment
Reversal of impairment
Transfers to right-of-use assets
Disposals
At 2 February 2020
Net book amount at end of period
Freehold
£m
Leasehold
£m
24
–
–
(2)
22
10
4
(1)
–
(1)
12
10
97
3
(14)
(2)
84
92
3
(3)
(14)
(2)
76
8
Total
£m
121
3
(14)
(4)
106
102
7
(4)
(14)
(3)
88
18
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
Included in other operating income is £8m (2019: £6m) of rental income generated from investment properties. At the end of the period the fair value
of investment properties was £17m (2019: £18m). Investment properties are valued by independent surveyors on a vacant possession basis using
observable inputs (fair value hierarchy level 2).
11.10 Investments
Net book amount
At start of period
Additions
At end of period
2020
£m
6
–
6
2019
£m
–
6
6
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.
In addition to the investment detailed above, the Company continues to hold investments in other related undertakings, which in aggregate are
less than £1m as at 2 February 2020. 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 reporting date is shown on page 147.
11.11 Investment in joint venture
The Company’s interest in joint venture comprises its interest in MHE JVCo Limited, which is jointly owned and controlled with a third party,
Ocado Operating Limited. The carrying value of the Company’s investment in the joint venture at 2 February 2020 is £39m (2019: £67m). The Company
has assessed this investment for impairment as at the reporting date and accordingly recognised a £28m impairment (2019: £nil) in respect of its
investment. This impairment has arisen as a result of an evolution in the operation of the joint venture. The Directors believe that the carrying value
of these investments is supported by their underlying net assets.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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52 weeks ended 2 February 2020
11 Company financial statements continued
11.12 Debtors – amounts falling due within one year
Trade debtors
Amounts owed by Group undertakings
Current tax asset
Prepayments and accrued income
2020
£m
181
5,333
140
103
5,757
2019
restated1
£m
174
5,341
135
94
5,744
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
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 2 February 2020 (2019: £nil).
11.13 Debtors – amounts falling due after more than one year
Finance leases – Company is lessor
2020
£m
8
2019 restated1
£m
8
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
The Company is the lessor on a diverse portfolio of leases for property – for example retail units located by stores. Most property leases contain
rent review terms that require rents to be adjusted upwards on a periodic basis. The increases are normally either to market rent or to follow capped
increases in inflation measurement.
Finance leases
The table below summarises the maturity profile of undiscounted finance lease payments due to the Company.
Less than one year
After one year but not more than five years
More than five years
Total undiscounted lease payments receivable
Unearned finance income
Net investment in the lease
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
Finance lease income of £1m (2019: £1m) has been recognised in the 52 weeks ended 2 February 2020.
Operating leases
The table below summarises the maturity profile of undiscounted operating lease payments due to the Company.
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total undiscounted lease payments receivable
2020
£m
1
4
7
12
(4)
8
2020
£m
5
4
3
3
2
8
25
2019
restated1
£m
1
4
8
13
(5)
8
2019
restated1
£m
5
4
4
3
3
10
29
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
Operating lease income of £8m (2019: £6m) has been recognised in the 52 weeks ended 2 February 2020. This includes £nil (2019: £nil) relating
to variable lease payments that do not depend on an index or rate.
136
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11 Company financial statements continued
11.14 Creditors – amounts falling due within one year
Trade creditors
€282m euro bond 2.25% June 2020
Other short-term borrowings
Amounts owed to Group undertakings
Other taxation and social security
Other creditors
Accruals and deferred income
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
Amounts owed to Group undertakings within one year are unsecured and repayable on demand.
11.15 Creditors – amounts falling due after more than one year
€282m euro bond 2.25% June 2020
£250m sterling bonds 4.625% December 2023
£250m sterling bonds 3.50% July 2026
£250m sterling bonds 4.75% July 2029
£350m sterling bonds 2.5% October 2031
Revolving credit facility
2020
£m
2,264
237
–
1,025
125
54
345
4,050
2020
£m
–
249
269
245
347
(2)
1,108
2019
restated1
£m
2,220
–
178
779
94
85
335
3,691
2019
restated1
£m
247
249
272
245
–
97
1,110
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
As at 2 February 2020, there are £978m (2019: £587m) of contractual, undiscounted creditor payments (including interest) falling due after more
than five years. If lease liabilities are included on a consistent basis, the amounts falling due after more than five years are £2,469m (2019: £2,218m).
On 24 September 2019 the Company issued a £350m sterling bond at a fixed interest rate of 2.5% expiring October 2031. This is part of the Company’s
£3bn Euro Medium Term Note Programme.
In addition to the bonds detailed in the table above, the Company has the following borrowing facilities:
The Company has a syndicated committed revolving credit facility of £1.35bn. During the 52 weeks ended 2 February 2020, the Company extended
this facility by a further year, resetting its five year term and resulting in a maturity date of June 2024. The revolving credit facility incurs commitment
fees and interest charges at a spread above LIBOR. The Company had £1.35bn of undrawn committed headroom available on this facility as at
2 February 2020. In addition, the Company has a £100m 364 day committed revolving credit facility which matures in July 2020. The facilities were
undrawn as at 2 February 2020.
In the prior period, the Company entered into an additional £250m revolving credit facility to provide flexibility on refinancing the €282m euro bond
when it matures in June 2020. As a result of this bond having been refinanced during the year through the issuance of the £350m bond, this facility
has subsequently lapsed and is no longer available as at 2 February 2020.
In the event of default of covenants the principal amounts of borrowings and any interest accrued become 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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52 weeks ended 2 February 2020
11 Company financial statements continued
11.16 Lease liabilities
Current lease liabilities
Non-current lease liabilities
2020
£m
120
1,363
1,483
2019
restated1
£m
106
1,452
1,558
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
The Company is the lessee on a diverse portfolio of leases for property and equipment, with the vast majority of lease liabilities relating to property
(see notes 11.8 and 11.9). Certain property leases contain rent review terms that require rents to be adjusted on a periodic basis which may be subject
to market rent or capped increases in inflation measurements. In addition, certain property leases contain break clauses that would allow the
Company to exit leases early.
Total cash outflow for lessee leases
Interest expense on lease liabilities
Expense for short-term leases longer than one month
Expense for leases of low-value assets, excluding short-term
Expense of variable lease payments
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
11.17 Derivative financial assets and liabilities
2020
£m
196
63
5
2
–
2019
restated1
£m
202
66
6
2
1
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
Cross-currency interest rate swaps
Foreign exchange forward contracts
Fuel and energy price contracts
Liabilities due after more than one year
Fuel and energy price contracts
2020
Fair Value
£m
2020
Notional Value
£m
2019
Fair Value
£m
2019
Notional Value
£m
–
1
1
–
–
–
4
17
15
36
7
7
32
1
33
–
–
–
240
411
53
704
35
35
3
16
19
9
6
15
–
4
1
5
2
2
112
55
167
240
38
278
–
262
3
265
18
18
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.
138
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11 Company financial statements continued
11.18 Deferred tax liabilities
Deferred tax liability
Deferred tax asset
Net deferred tax liability
2020
£m
192
(74)
118
2019
restated1
£m
166
(80)
86
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
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 4 February 2019
Charged to profit for the period
Charged/(credited) to other comprehensive income and equity
At 2 February 2020
Prior period (restated1)
At 5 February 2018
Charged/(credited) to profit for the period
Charged to other comprehensive income and equity
At 3 February 2019
Property, plant and
equipment
£m
Pensions
£m
Other
short-term
temporary
differences
£m
125
8
–
133
124
1
–
125
41
1
17
59
36
(3)
8
41
(80)
14
(8)
(74)
(75)
(6)
1
(80)
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
11.19 Provision for liabilities
At 4 February 2019 (restated1)
Charged to profit for the period
Utilised during the period
Released during the period
Unwinding of discount
At 2 February 2020
Onerous
contracts
£m
66
16
(27)
(14)
2
43
Other property
provisions
£m
13
4
(2)
–
–
15
Total
£m
86
23
9
118
85
(8)
9
86
Total
£m
79
20
(29)
(14)
2
58
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
Included with the above balance at 2 February 2020 is £11m (2019: £29m) relating to a balance due within one year. The provision is revised regularly
in response to market conditions. During the period, a net £2m charge (£16m charge offset by a £14m release) has been recognised to onerous
contracts provisions due to changes in circumstances or performance relating to certain contracts.
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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
139
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Company financial statements continued
52 weeks ended 2 February 2020
11 Company financial statements continued
11.20 Pensions
11.20.1 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 is not open to new members and was closed to future accrual in September 2018.
The position of each scheme at the reporting date is as follows:
CARE Scheme
RSP
Net pension asset
Statement of financial position:
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)
Administrative costs paid by Schemes – recognised in administrative expenses
Curtailment loss from closure of the pension scheme
Net interest on net pension (asset)/liability – finance (income)/expense
Total expense (credited)/charged to income statement
Statement of other comprehensive income:
Remeasurements in other comprehensive income – credit
2020
£m
364
(16)
348
2019
CARE
£m
1,261
(977)
284
2019
CARE
£m
–
–
2
1
–
(6)
(3)
(49)
2019
£m
284
(42)
242
2019
RSP
£m
349
(391)
(42)
2019
RSP
£m
35
18
–
1
19
–
73
–
2020
CARE
£m
1,468
(1,104)
364
2020
CARE
£m
–
–
–
1
–
(8)
(7)
(73)
2020
RSP
£m
389
(405)
(16)
2020
RSP
£m
–
–
–
1
–
1
2
(27)
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 losses in the 52 weeks ended 3 February 2019 include £19m as a result of the closure of the RSP to future accrual
in September 2018.
The Company recognised a past service cost of £2m in the 52 weeks ended 3 February 2019 in relation to the estimated cost of the equalisation
of guaranteed minimum retirement benefits for men and women, following a ruling by the High Court in October 2018.
140
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
11 Company financial statements continued
11.20 Pensions continued
11.20.2 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), income assets (comprising credit
investments and corporate bonds) and protection assets (comprising a liability driven instruments (LDI) 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)
2020
CARE
£m
212
119
–
178
924
26
9
1,468
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
Benefits paid
Administrative expenses
Fair value of scheme assets at end of period
2020
CARE
£m
1,261
35
204
–
–
(31)
(1)
1,468
2020
RSP
£m
158
–
40
–
190
–
1
389
2020
RSP
£m
349
9
70
1
–
(39)
(1)
389
2019
CARE
£m
187
103
120
163
657
26
5
1,261
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
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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
141
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Company financial statements continued
52 weeks ended 2 February 2020
11 Company financial statements continued
11.20 Pensions continued
11.20.3 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 (loss)/gain – financial assumptions
Actuarial gain – experience
Curtailment loss from closure of the pension scheme
Employee contributions
Benefits paid
Defined benefit obligation at end of period
2020
CARE
£m
(977)
–
–
(27)
27
(162)
4
–
–
31
(1,104)
2020
RSP
£m
(391)
–
–
(10)
–
(58)
15
–
–
39
(405)
2019
CARE
£m
(1,019)
–
(2)
(27)
31
11
–
–
–
29
(977)
The durations of the defined benefit obligations at the end of the 2020 reporting period are: RSP 20 years; CARE 23 years. The weighted average
duration of the Schemes is 22 years.
11.20.4 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
2020
CARE
1.9%
2.9%
2020
CARE
20.9
22.3
22.6
24.2
2020
RSP
1.8%
2.9%
2020
RSP
n/a
n/a
n/a
n/a
2019
CARE
2.8%
3.2%
2019
CARE
21.4
22.8
23.2
24.7
2019
RSP
£m
(333)
(53)
–
(9)
–
3
3
(19)
(3)
20
(391)
2019
RSP
2.7%
3.2%
2019
RSP
n/a
n/a
n/a
n/a
For deriving discount rates, the Group estimates these rates with reference to high quality corporate bonds. 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. The Company
believes that this approach appropriately reflects expected yields on high quality corporate bonds over the duration of the Company’s pension
schemes, as required by IAS 19.
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 2 February 2020 are the S2PMA/S2PFA-Heavy mortality tables (males/females) based on year of birth with a scaling
factor of 110% applied to the mortality rates, with CMI 2018 core projections and a long-term rate of improvement of 1.5% p.a. For the 52 weeks ended
3 February 2019, the Company used the S2PMA/S2PFA-Heavy mortality tables (males/females) based on year of birth with a scaling factor of 110%
applied to the mortality rates, with CMI 2017 projections and a long-term rate of improvement of 1.5% p.a.
142
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
11 Company financial statements continued
11.20 Pensions continued
11.20.4 Significant actuarial assumptions continued
Related actuarial assumptions (expressed as weighted averages)
Rate of increase of pensions in payment: RPI inflation capped at either
2.5% p.a. or 5% p.a. (% 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.)
2020
CARE
2.0%/2.8%
2020
RSP
–
–/2.0%
2.0%
2.0%/–
2.0%
2019
CARE
2.1%/3.1%
–/2.1%
2.1%
2019
RSP
–
2.1%/–
2.1%
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
2020
CARE
+/-25
+/-20
+40
2020
RSP
+/-8
+/-7
n/a
2019
CARE
-/+25
+/-20
+50
2019
RSP
-/+7
+/-7
n/a
11.20.5 Funding
The CARE Scheme is entirely funded by the Company. The Company along with other subsidiaries of the Group participated in the RSP. 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 is currently 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 2019 for the CARE Scheme and the RSP. The valuations indicated that, on the agreed
funding basis, the CARE and RSP Schemes had surpluses of £157m and £7m 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 2019 actuarial valuations for the CARE Scheme have been used and updated for IAS 19 ‘Employee benefits’ purposes for the period
to 2 February 2020 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 2 February 2020, schemes in surplus have been disclosed within the assets in the Statement of financial position. 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 materially affected by the
2015 exposure draft of the 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 2 February 2020
is £3m (2019: £3m). This estimate includes amounts payable from the SLP.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
143
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Company financial statements continued
52 weeks ended 2 February 2020
11 Company financial statements continued
11.20 Pensions continued
11.20.6 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. 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 2 February 2020, the Company paid contributions of £50m to the MPRS (2019: £21m), and expects to contribute £50m
for the following period (2019: £52m).
11.21 Share capital
At 4 February 2019
Share options exercised
At 2 February 2020
All issued shares are fully paid and have a par value of 10p per share (2019: 10p per share).
For further details on share capital and share premium, see note 6.6.
11.22 Reserves
Capital redemption reserve
Merger reserve
Hedging reserve
Retained earnings
Total
Number of
shares
millions
2,368.3
36.7
2,405.0
Share capital
£m
237
3
240
Share premium
£m
178
14
192
2020
£m
39
940
(37)
2,282
3,224
Total
£m
415
17
432
2019
restated1
£m
39
1,202
10
2,278
3,529
1 For further details on the restatement of the reported results for the 52 weeks ended 3 February 2019 from adopting IFRS 16 ‘Leases’, see note 11.25.
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 the 52 weeks ended 2 February 2020, this intercompany
loan balance was partially settled through £262m of qualifying consideration (2019: £402m). As a result, £262m of the merger reserve balance
was realised in the period (2019: £402m).
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging.
144
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
11 Company financial statements continued
11.23 Capital commitments
Contracts placed for future capital expenditure not provided in the financial statements
(property, plant and equipment, right-of-use assets and intangible assets)
Contracts placed for future leases not provided in the financial statements
2020
£m
31
34
2019
£m
32
–
11.24 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 2 February 2020 was £nil (2019: £nil). 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 £30m (2019: £31m).
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 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 appealed to the Supreme Court. The Supreme Court hearing took place in November 2019 and the Company is waiting for the
decision. It is the Directors’ view that at this stage of the process the Company cannot 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
145
Strategic reportGovernanceFinancial statementsInvestor information Notes to the Company financial statements continued
52 weeks ended 2 February 2020
11 Company financial statements continued
11.25 Changes in accounting policies
The Company has adopted the fully retrospective approach to transition for IFRS 16 ‘Leases’ and therefore the comparative consolidated statement
of financial position as at 3 February 2019 has been restated.
Impact on the consolidated income statement
The adoption of IFRS 16 resulted in changes to the consolidated income statement, as previously recognised rental costs were removed and replaced
with a depreciation charge on the right-of-use assets and a finance cost on the lease liabilities.
The impact of IFRS 16 increased the loss after tax for the Company for the 52 weeks ended 3 February 2019 by £1m. After adjusting for exceptionals,
the impact on profit before exceptionals after tax was a reduction of £3m.
Impact on the consolidated statement of financial position
Upon adoption of IFRS 16, the Company recognised right-of-use assets (representing the right to use the underlying assets) and lease liabilities for
lease payments on the discounted future obligations.
The impact of IFRS 16 as at 3 February 2019 was to change each line as follows:
Fixed assets
Property, plant and equipment
Right-of-use assets
Investment property
Current assets
Debtors
Other debtors
Creditors
Lease liabilities
Net current assets
Total assets less current liabilities
Creditors
Lease liabilities
Deferred tax liabilities
Provisions
Net assets
Shareholders’ equity
Retained earnings and other reserves
Total shareholders’ funds
2019
£m
(136)
1,136
4
1,004
(193)
8
(185)
67
(106)
(224)
780
88
(1,452)
59
234
(291)
(291)
(291)
As at 3 February 2019, IFRS 16 principally impacted the following lines in the statement of financial position:
Right-of-use assets of £1,136m were recognised and presented separately in the statement of financial position. Included within this balance were
assets reclassified from debtors of £192m and property, plant and equipment of £136m.
Investment property right-of-use assets of £4m have been recognised in respect of leasehold investment property.
Lease liabilities of £1,558m were recognised and split between current and non-current on the face of the consolidated statement of financial
position. Included within this balance were liabilities reclassified from creditors of £130m.
Deferred tax liabilities decreased by £59m in relation to the tax relief available for the transition adjustment that will be realised over the remaining life
of the leases.
Provisions reduced by £234m as onerous lease provisions are derecognised on application of IFRS 16.
The net impact of all of the adjustments in the table above has decreased retained earnings and other reserves by £291m.
146
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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 2 February 2020 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
Chippindale Foods Limited
De Mandeville Gate Management Limited
Dordon SPV Limited2
Farock Insurance Company Limited3
Fisherdale Properties Limited
Flower World Limited
Ipsolus Limited
MHE JVCo Limited4
MoClo Limited
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
Country of incorporation
Netherlands
United Kingdom
United Kingdom
United Kingdom
Isle of Man
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Hong Kong
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Principal activity
Acquirer of food products
Supplier of eggs
Property maintenance
Lease company
Insurance company
Dormant
Dormant
Dormant
Joint venture with Ocado
Dormant
Dormant
Property development
Acquirer of non-food products
Dormant
Dormant
Dormant
Dormant
General partner in a partnership
Holding company
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
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
Guernsey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Principal activity
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Property investment
Dormant
Dormant
Dormant
Property maintenance
Dormant
Manufacturer and distributor of fresh food products
Dormant
Dormant
Dormant
Property investment
Dormant
Preparation and supply of seafood
Dormant
Dormant
Property investment
Investment company
Dormant
Dormant
Fresh meat processor
Property development
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
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%
147
Strategic reportGovernanceFinancial 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 Limited
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
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Gibraltar
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
United Kingdom
United Kingdom
Gibraltar
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Principal activity
Dormant
Property development
Property investment
Dormant
Dormant
Dormant
Manufacturer and distributor of morning goods and bread
Property investment
Grocery retailer (overseas)
Dormant
Dormant
Holding company
Dormant
Dormant
Property investment
Dormant
Dormant
Dormant
Grocery retailer
Dormant
Dormant
Dormant
Property investment
Investment company
Dormant
Pharmaceutical licence holder (Gibraltar)
Charity
Dormant
Property development
Dormant
Technical testing and analysis
Property investment
Dormant
General partner in a partnership
Dormant
Acquirer of fresh produce
Dormant
Limited partner in a partnership
Dormant
Produce packer and purchaser
Scottish Limited Property Partnership
Dormant
Property partnership
Property partnership
Dormant
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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, Goldie House, 1-4 Goldie Terrace, Douglas, Isle of Man, IM1 1EB.
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 19/F Millenium City 2, No 378 Kwun Tong Road, Kowloon, 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 1EW.
10 Registered address Suites 41/42 Victoria House, 26 Main Street, Gibraltar.
11 Registered address 1st Floor, 5 Secretary’s Lane, Gibraltar GX11 1AA.
148
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Five year summary
52 weeks ended 2 February 2020
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
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
Profit before tax and exceptionals3
Profit before exceptionals after tax3
Earnings per share (pence):
Basic
Diluted
Basic earnings per share before exceptionals3
Dividend per ordinary share (pence)
1 Reported on a 53 week basis.
2 Not restated for the impact of IFRS 16 ‘Leases’, these years are presented as reported, under IAS 17.
3 For definitions, see the Glossary on pages 152 to 154.
2020
£m
17,536
(16,907)
629
94
66
(268)
521
(111)
24
1
435
(87)
348
408
314
14.60
14.44
13.18
8.77
Restated
2019
£m
17,735
(17,083)
652
88
–
(308)
432
(153)
23
1
303
(70)
233
396
303
9.89
9.67
12.85
12.60
20181,2
£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
20172
£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
20162
£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
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
149
Strategic reportGovernanceFinancial statementsInvestor information Five year summary continued
As at 2 February 2020
Consolidated statement of financial position
Assets
Goodwill and intangible assets
Property, plant and equipment
Right-of-use assets
Investment property
Retirement benefit surplus
Investment in joint venture
Investments
Trade and other receivables
Derivative financial assets
Non-current assets
Current assets
Assets classified as held-for-sale
Liabilities
Current liabilities
Other financial liabilities
Lease liabilities
Deferred tax liabilities
Retirement benefit deficit
Provisions
Non-current liabilities
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
1 Not restated for the impact of IFRS 16 ‘Leases’.
2020
£m
381
7,147
942
58
960
39
–
71
–
9,598
1,319
3
(3,396)
(1,115)
(1,304)
(472)
(16)
(76)
(2,983)
4,541
240
192
39
2,578
1,492
4,541
Restated
2019
£m
Restated
2018
£m
404
7,094
929
60
730
47
–
8
15
9,287
1,340
39
(3,349)
(1,112)
(1,328)
(414)
(42)
(96)
(2,992)
4,325
237
178
39
2,578
1,293
4,325
428
7,027
970
69
612
53
–
8
16
9,183
1,275
4
(3,080)
(1,246)
(1,354)
(415)
(18)
(99)
(3,132)
4,250
236
159
39
2,578
1,238
4,250
20171
£m
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
20161
£m
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
150
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Supplementary information
52 weeks ended 2 February 2020
(Decrease)/increase on previous year %
Revenue
Operating profit before exceptionals
Profit before taxation
Profit after taxation
Profit before taxation and exceptionals
Diluted earnings per share
Ordinary dividend per share
% of revenue
Operating profit before exceptionals
Profit before taxation
Profit after taxation
Retail portfolio
Total number of stores
Petrol filling stations
Total sales area (000s square feet)2
Total supermarket takings ex fuel (gross) £m3
Average takings per store per week ex fuel (£000)3
Average number of customers per store per week3
Average take per customer (£)3
Employees
Full time
Part time
Total
Full time equivalent (average)
Average per FTE employee:
Revenue (£000s)
Operating profit before exceptionals (£)
Employee costs (£)
2020
20191
20181
20171
20161
(1.12)
0.59
43.56
49.36
3.03
49.33
2.58
2.93
2.48
1.98
492
335
14,880
13,735
535
23,673
22.60
37,924
60,695
98,619
71,263
246
7,199
25,890
2.74
14.61
(20.26)
(25.08)
5.88
(25.79)
8.37
2.88
1.71
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
1 2019 restated for the impact of IFRS 16 ‘Leases’. 2016-2018 not restated.
2 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.
3 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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
151
Strategic reportGovernanceFinancial 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.
On transition to IFRS 16, the definitions of net debt and return on capital employed (ROCE) changed. Net debt now includes current and non-current
lease liabilities. Previously, ROCE took into account the operating lease rentals charge (on land and buildings) as part of the return and a lease adjustment
(10 times rent charged) for the capital employed element. Following adoption of IFRS 16 and the recognition of lease liabilities and assets, these
adjustments are no longer necessary in the ROCE calculation. Amounts relating to these measures included within this statement have been restated
unless detailed otherwise.
Closest equivalent
IFRS measure
Definition and purpose
Reconciliation for 2019/20 Group measures1
Measures
Profit measures
Like-for-like
(LFL) sales growth
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 58 in the
Directors’ remuneration report for more information.
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 58 in the Directors’ remuneration
report for more information.
Profit before tax and exceptionals is defined as profit before tax,
exceptional items and net retirement benefit interest. This excludes
exceptional items which are significant in size and/or nature and
net retirement benefit 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 58
in the Directors’ remuneration report for more information.
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.
Total sales growth
Revenue
Profit before tax
and exceptionals
Profit
before tax
Profit
after tax
Profit before
exceptionals
after tax
Operating
profit before
exceptionals
Operating
profit2
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.
Net finance
costs before
exceptionals
Finance
costs
Reported net finance costs excluding the impact of net retirement
benefit 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.
Group LFL (exc. fuel)
Group LFL (inc. fuel)
Net new space (inc. fuel)
Total revenue year-on-year
52 weeks ended
2 February
2020 %
(0.8)%
(1.1)%
(0.0)%
(1.1)%
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.
£314m being profit before tax and exceptionals
(£408m) less a normalised tax charge (£94m)
(see note 1.4 of the financial statements).
£513m being reported operating profit
(£521m) less profit/loss on disposal and exit
of properties (£66m), and impairment and
provisions for onerous contracts (£2m), plus
store restructuring and closure costs (£51m)
and other exceptional items (£9m).
A reconciliation of this measure is provided
in note 6.2 of the financial statements.
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.
152
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Measures
Closest equivalent
IFRS measure
Definition and purpose
Profit measures continued
Reconciliation for 2019/20 Group measures1
Earnings before
interest, tax,
depreciation
and amortisation
(EBITDA) before
exceptionals
EBITDA margin
before
exceptionals
Operating
profit2
Operating profit before exceptional items including share of
profit from joint venture, before depreciation and amortisation.
This measure is used by the Directors as it provides key information
on ongoing trends and the performance of the Group before
capital investment and financing costs.
£1,039m being operating profit before
exceptionals (£513m), plus share of profit from
joint venture (£1m), plus depreciation (£434m)
and amortisation (£91m).
No direct
equivalent
EBITDA before exceptional items, as a percentage of revenue.
This measure is used by the Directors as it provides key information
on ongoing trends and the performance of the Group before
capital investment and financing costs.
5.9% being EBITDA before exceptional items
(£1,039m) divided by revenue (£17,536m).
Interest cover
No direct
equivalent
Operating profit before exceptionals divided by net finance costs
before exceptionals.
This measure is used by the Directors as a measure of the Group’s
ability to meet its financing costs.
4.8x being operating profit before exceptionals
(£513m) divided by net finance costs before
exceptionals (£106m).
Basic earnings
per share before
exceptionals
Basic
earnings
per share
Basic 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.
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 58 in the Directors’ remuneration
report for more information.
Diluted earnings
per share before
exceptionals
Tax measures
Normalised tax
Diluted
earnings
per share
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.
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 retirement benefit 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
Gearing
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.
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 current and non-current: borrowings, lease liabilities
and derivative financial assets & liabilities; net of cash and
cash equivalents.
Net debt as a percentage of net assets.
This measure is used by the Directors as a measure of the capital
structure of the Group and its ability to maintain its credit ratings
and covenants.
£238m being the movement in net debt
(£(64)m) before payment of dividend (£302m).
See page 58 in the Directors’
remuneration report.
A reconciliation of this measure is provided
in note 6.5 of the financial statements.
54% being net debt (£2,458m) as a percentage
of net assets (£4,541m).
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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
153
Strategic reportGovernanceFinancial statementsInvestor information Glossary continued
Measures
Closest equivalent
IFRS measure
Definition and purpose
Cash flows and net debt measures continued
Reconciliation for 2019/20 Group measures1
Working capital
movement
Operating working
capital movement
No direct
equivalent
No direct
equivalent
Movement in inventories, trade and other receivables,
trade and other payables and provisions.
A reconciliation of this measure is provided
in note 5.6 of the financial statements.
Working capital movement adjusted for onerous contract charges,
onerous payments and other non-operating payments.
A reconciliation of this measure is provided
in note 5.6 of the financial statements.
Other measures
Return on Capital
Employed (ROCE)
No direct
equivalent
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.
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 retirement benefit surplus
and deficit, less average net debt.
This measure is used by the Directors as it is a key ratio in
understanding the performance of the Group.
Onerous
payments
No direct
equivalent
Payments made to settle onerous contractual commitments,
includes amounts paid to exit ‘pipeline’ sites or sums paid to
exit onerous contracts early (e.g. leases).
ROCE (7.0%) equals return divided by average
capital employed:
Return (£420m) = Profit before exceptionals
after tax annualised (£314m) adjusted
for annualised net finance costs before
exceptionals (£106m).
Average capital employed (£6,043m) = Average
net assets excluding the net retirement
benefit surplus (£3,617m) and average net
debt (£2,426m).
Onerous capital payments (£41m) plus
payment to exit leases (£17m), included
within repayment of lease obligations in
the consolidated cash flow statement.
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).
154
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Investor relations and financial calendar
Financial calendar 2020/21
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
12 May 2020
22 May 2020
11 June 2020
29 June 2020
2 Aug 2020
10 Sep 2020
25 Sep 2020
30 Oct 2020
31 Jan 2021
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 11 June 2020 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.
‘My Share’ Corporate Sponsored
Nominee Account
Morrisons and Equiniti Financial Services
Limited have set up a Corporate Sponsored
Nominee Account called ‘My Share’.
By transferring shares into this account
shareholders will still enjoy the benefits of
owning shares. Shareholders will retain the
right to receive dividend payments and
the Company will make available financial
information and arrange for attendance
at and voting on matters put to general
meetings of the Company. The benefits
of using ‘My Share’ instead of paper
certificates are:
• there are no certificates to lose providing
protection against lost certificate fees;
• increased privacy as shareholder details
are taken off the register;
• access to competitive dealing rates and
faster settlement;
• simplified personal records with regular
share statements;
• benefits from the reassurance of regulation
by the Financial Conduct Authority (FCA); and
• it’s free to join and there are no annual
charges, although a fee may apply if
shareholders do not hold all their
share certificates.
More information is available at
www.shareview.co.uk/info/csn/ or
by Equiniti directly (see page 156).
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 Equiniti,
our 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 2019/20 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 2019/20
Annual Report and our communications with
shareholders, 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.
To change your communication preferences
please contact Equiniti using the details on
page 156.
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.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
155
Strategic reportGovernanceFinancial statementsInvestor information Investor relations and financial calendar continued
Registrars and shareholding
enquiries
Administrative enquiries about the holding of
Morrisons shares, such as change of address,
change of ownership, dividend payments, ‘My
Share’ Corporate Sponsored Nominee
Account, and the dividend reinvestment plan
should be directed to:
Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
Eversheds Sutherland (international) LLP
1 Wood Street
London EC2V 7WS
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 am – 17:30 pm,
Monday to Friday excluding public holidays
in England and Wales.
Web: www.shareview.co.uk
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 2 February 2020 was 36,349 (2019: 39,090) and the number of shares in issue was 2,404,954,127 (2019: 2,368,256,205).
Analysis by shareholder (type)
Private shareholder
Nominee companies
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
33,440
1,056
1,774
57
8
9
5
Number of holders
19,940
13,874
2,352
183
% holders
92.00
2.91
4.88
0.16
0.02
0.02
0.01
% holders
54.86
38.17
6.47
0.50
Balances at 2 Feb 20
90,026,709
2,132,681,676
152,336,211
28,113,938
1,760,099
11,845
23,649
Balances at 2 Feb 20
8,203,213
42,944,118
183,417,309
2,170,389,487
% capital
3.74
88.68
6.34
1.17
0.07
0.00
0.00
% capital
0.34
1.78
7.63
90.25
156
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
Information at your fingertips
Customers
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 90% of Great Britain.
The geography that we cover is growing all
the time, with more areas in Scotland and
England 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 750 ‘Best’ products
and 4,000 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; and
• read content on healthy eating, reducing
food waste and our support for various
charitable causes such as CLIC Sargent
or the Morrisons Foundation.
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.
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.
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-corporate.
com/cr/corporate-responsibility/
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 2019/20 on-screen,
viewing only the parts they want to, at
www.morrisons-corporate.com/investor-
centre/financial-reports/
Presentations
An audio-cast of the Directors delivering the
preliminary results for 2019/20 on 18 March 2020
is 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/investor-
centre/shareholder-information/shareholder-
communication/ and follow the investor
eComms link.
Designed & Produced by
Printing by
Radley Yeldar
ry.com
Photography
Geoff Neal Group
Paper stock: This report is printed
on Revive 100 Offset uncoated,
a 100% recycled paper.
Board and Executive
Committee portraits by
Chris Leah Photography
Revive 100 Offset is manufactured
to the certified environmental
management system ISO 14001.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2019/20
157
Wm Morrison Supermarkets PLC
Hilmore House, Gain Lane
Bradford BD3 7DL
Telephone: 0845 611 5000
Visit our website:
www.morrisons.com