Wm Morrison Supermarkets PLC
Hilmore House, Gain Lane
Bradford BD3 7DL
Telephone: 0345 611 5000
Visit our website:
www.morrisons.com
We are responding
Wm Morrison Supermarkets PLC
Annual Report and Financial Statements 2020/21
650,000+
doorstep deliveries
to the vulnerable
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2
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W E A R E D O N AT I N G
L U N C H B OX E S DA I LY
O V E R T H E S C H O O L
H O L I DAYS
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Feeding the nation
We are responding to the global
crisis by playing our full part in
feeding the nation. Our core purpose
remains: 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.
Financial highlights
Group revenue
£17.6bn
16.3
17.3
17.7
17.5
17.6
2016/17 2017/181 2018/19
1 2017/2018 Group revenue on a 53 week basis.
2019/20
2020/21
Free cash flow*
£(450)m
670
Group like-for-like (LFL) sales (exc. fuel)*
8.6%
Profit before tax, exceptional items*
and net retirement benefit interest1
£201m (50.7)%
8.6%
337
374
396
408
4314
201
4.8%
2.8%
1.9%
(0.8)%
2016/17 2017/18 2018/19
2019/20
2020/21
2016/17 2017/182 2018/193 2019/20 2020/21
Profit before tax, exceptional and net retirement
benefit interest
Waived business rates relief
1 Referred to as ‘profit before tax and exceptionals*’.
2 £369m 52 week equivalent.
3 Restated following the application of IFRS 16.
4 Profit before tax, exceptional item and net retirement
benefit interest adjusted for the waiver of rates relief.
Net debt*
£3,169m
Total dividend
11.15p
350
281
238
(450)
2,386
2,394
2,458
2016/171 2017/181 2018/19
1 Calculated on a pre-IFRS 16 basis.
2019/20
2020/21
1,194
997
973
2016/171 2017/18 2018/19
Net debt excluding lease liabilities
1,082
2019/20
Lease liabilities
1 Calculated on a pre-IFRS 16 basis.
* Alternative Performance Measures as defined in the Glossary on pages 157 to 159.
3,169
1,798
2020/21
12.60p
10.09p
11.15p
8.77p
5.43p
6.09p
6.60p
6.77p
7.15p
2016/17 2017/181 2018/192 2019/203 2020/214
Ordinary
Special
1
2
3
4
Including 4.00p special dividend.
Including 6.00p special interim dividend.
Including 2.00p special interim dividend.
Including 4.00p special dividend paid and declared in 2021.
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.
Throughout the Directors’ report and Strategic report:
Unless otherwise stated, 2020/21 refers to the 52 week period ended 31 January 2021 and 2019/20 refers to the 52 week period ended 2 February 2020. 2021 and 2020 refer to calendar years.
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Our suppliers
Our suppliers
page 20
page 20
F A R M E R S ’
D I S C O U N T
Delivering against our ambitions
Our customers
Our customers
page 14
page 14
NHS hour
Thank
you
Our colleagues
Our colleagues
page 18
page 18
Our environment
Our environment
and community
and community
page 26
page 26
Our shareholders
Our shareholders
page 22
page 22
Non-financial highlights
Underlying energy use (MWh) down to
Investment in colleague pay increased to
2,455,235
2,717,487 2,592,286
2,454,972 2,455,235
£10.00 per hour
£8.50
£8.70
£9.00
£9.20
£10.00
2017/18 2018/19
2019/20
2020/21
Apr 2017 Apr 2018 Apr 2019
Apr 2020
Apr 2021
Brand warmth
e
r
o
c
S
n
a
e
M
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
Morrisons
Competitor 1
Competitor 2
Competitor 3
Business highlights
• Proud to be there for stakeholders during
the pandemic and to play our full part to
help feed the nation
• Recognised by customers as best for brand
warmth and net promoter score
• Improved the offer for customers, enabling
our strong absolute and relative momentum
to be sustained
• Online sales tripled during the year including
with Amazon, now available in around
50 towns and cities
Alignment of highlights to our stakeholder ambitions
Customers
Colleagues
Suppliers
Shareholders
Environment and communities
All
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Contents
Strategic report
How we are responding to COVID-19
Our business model
Chair’s statement
Chief Executive’s statement
Seven priorities in action
Responding to our customers
Rewarding our colleagues
Working with suppliers
Delivering returns to our shareholders
Protecting the environment
and supporting communities
Risk
Governance
Corporate governance report
Directors’ remuneration report
Directors’ report
Financial statements
2
4
6
8
10
14
18
20
22
26
33
39
54
73
77
86
86
Independent auditors’ report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of financial position 87
Consolidated statement of cash flows
88
Consolidated statement of changes in equity 89
90
General information
94
Notes to the Group financial statements
134
Company statement of financial position
135
Company statement of changes in equity
136
Company accounting policies
139
Notes to the Company financial statements
152
Related undertakings
Investor information
Five year summary
Supplementary information
Glossary
Investor relations and financial calendar
Information at your fingertips
154
156
157
160
162
Sustainability
spotlight
Our commitment to
corporate responsibility
‘Sustain’ is a key part of our
strategy and underpins everything
we do.
Throughout the report, look out
for this icon to read examples of
how we are meeting our corporate
responsibility objectives.
1
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How we are responding
to COVID-19
External
restrictions
National lockdown
one begins
• Wide ranging restrictions
on freedom of movement
Restrictions on freedom
of movement continue
Impacts
Group
Quarterly
LFLs (exc. fuel)
Initiatives
and actions
throughout
the year
Customers stocking
up on essentials
Colleagues are
recognised as
key workers
All food-to-go
counters and
cafés close
Mar
Trading hours are
restricted to allow
for restocking
Significant
growth in online
channels
70% decline
in fuel sales
Apr
Q1 +5.7%
+
£500k
Morrisons Foundation
Morrisons Foundation
fund set up to support
fund set up to support
the homeless
the homeless
Guaranteed pa y for
Guaranteed pa y for
sick, shielding and
sick, shielding and
affected colleagues and
affected colleagues and
greater flexibility
greater flexibility
around shifts and
around shifts and
annual leave
annual leave
Immediate payment
to around 3,000
small suppliers
Social
distancing
measures introduced at all sites
including marshal-controlled
entry in store and reconfigured
customer flows
NHS food boxes
NHS food boxes
website live with
website live with
free delivery and
free delivery and
click and collect in
click and collect in
hospital car parks
hospital car parks
Partnership with
Partnership with
Deliveroo from over
Deliveroo from over
180 stores
180 stores
Free doorstep delivery
Free doorstep delivery
telephone grocery service
telephone grocery service
launched for the elderl y
launched for the elderl y
and vulnerable
and vulnerable
F A R M E R S ’
D I S C O U N T
Lockdown
easing begins
• Go to work
if required
• Easing of outdoor
restrictions
‘New normal’
starts to emerge
Counters fully
reopen
May
Q2 +12.3%
Speed y shopping and
Speed y shopping and
basket-onl y queuing
basket-onl y queuing
launched
launched
£10m
of food to
restock Britain’s
food banks
Contactless
Contactless
pa yment increased to
pa yment increased to
£45
NHS Gingerbread
NHS Gingerbread
hero launched
hero launched
New wholesale
New wholesale
and bulk delivery
and bulk delivery
service for local councils,
service for local councils,
care homes and
care homes and
charities
charities
MAXIMUM CAPS
introduced to
maintain availability
Support for
farmers and
fishermen...
...by selling
restaurant quality
steak and seafood
in store
All food-to-go, counters and cafés closed
Colleague discount increased to 15%
Food boxes launched to provide essentials
for the vulnerable and self-isolating
Protective screens introduced at
6,500 checkouts in 14 days
Guaranteed colleague bonus,
triple that of last year’s average and
paid each quarter
Hardship fund to support
colleagues in financial difficulty
SELL BAGS OF
FLOUR
FROM OUR
BAKERIES
to meet
rising demand
2
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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.
Our purpose during
the COVID-19 pandemic
To play our full part in feeding
the nation. It’s more than our job.
Our purpose
during recession
Making good food available
for everyone. It’s all of our jobs.
Further easing of restrictions
• Reduction in social distancing
to ‘one metre plus’
• Restaurants, pubs and cafés
allowed to reopen
• Two households able to meet
in or outside
Increased
footfall in store
Cafés reopen
Re-tightening
of local
restrictions
Value continues
to be important
to those feeling
the economic
squeeze
Cafés close
in some areas
National
lockdown two
begins
• 4 weeks
• Non-essential
retailers closed
• Schools stay open
Less impact
than lockdown
one as customers
and colleagues
understand the
well established
routines and
processes
Cafés close
Tier
system
introduced
• Business rates
relief waived
National
lockdown three
begins
• Similar to
lockdown one
• Schools closed
We work hard
to help families
enjoy the best
Christmas possible
Cafés reopen
in tiers one
and two
Some level
of stocking up
but not as severe
as lockdown one
Cafés close
43% decline
in fuel sales
Jun–Sep
Oct
Nov
Dec
Jan
Q3 +7.8%
Q4 +9.0%
100,000
doorstep deliveries
doorstep deliveries
milestone reached
milestone reached
N OW
AVAI L AB L E
NATI O N WI D E
AN D O N
AMA ZO N .CO.U K
S S
SERVE OUR
STUDENTS
food delivery service
food delivery service
for students
for students
SUNFLOWER
LANYARDS
for customers
for customers
exempt from wearing
exempt from wearing
face coverings
face coverings
Quieter hour
introduced into all
stores on a Sunday
10%
Teachers’ discount
Teachers’ discount
introduced
introduced
10%
10%
BLUE LIGHT
WORKERS’ DISCOUNT
ANNOUNCED
10% discount for
10% discount for
NHS, Blue Light
NHS, Blue Light
workers and teachers
workers and teachers
extended
extended
15,000
lunches provided
daily to school
children during
the holidays
Lunches provided
Lunches provided
for eligible school
for eligible school
children who are unable
children who are unable
to attend school
to attend school
5
colleagues
colleagues
recognised in the
recognised in the
Queen’s New Year
Queen’s New Year
Honours list
Honours list
1.2m
meals provided to
meals provided to
families in need working
families in need working
with the charity
with the charity
'The Bread and
'The Bread and
Butter Thing'
Butter Thing'
650,000
doorstep deliveries
doorstep deliveries
milestone reached
milestone reached
Morrisons
store car parks
to be used as
vaccination
centres
Clear face masks to support
Clear face masks to support
the deaf community
the deaf community
Fivefold capacity increase across
all online and home delivery channels
45,000 additional colleagues recruited
so far to cover absence and support
growth channels
Berwick store
Berwick store
manager awarded
manager awarded
OBE for services
OBE for services
to the community
to the community
CAFÉS OFFER
TAKEAWAY
SERVICE
FOR SECOND
LOCKDOWN
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Together with
a number of other
retailers, we announce
we are waiving the
business rates relief
School meal box
delivery service launched
Online sales
tripled by Q4
Announced we expect
£280m of direct COVID-19
costs in the full year
3
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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 9 million customer
transactions every week
• A well-loved brand becoming
more relevant and accessible
to more customers
• 497 conveniently located
supermarkets
• A rapid expansion of online
capacity
Colleagues
• Colleagues are our key asset
• Over 118,000 friendly and
skilled colleagues, supported by
a high quality management team
Suppliers
• Trusted and collaborative
relationships
• Our focus with our partner
suppliers is on quality and
innovation
Shareholders
• A strong balance sheet, with
a largely freehold estate and
low debt
• A net pension surplus
• Continued focus on cash
generation
Environment and
Communities
• Investment in energy
efficient solutions to reduce
environmental impact
• Community champions to support
the communities we serve
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
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
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
Our national distribution network
moves the food we make and buy
• Our stores are serviced by eight regional
distribution centres and one national
distribution centre
• This network supports our growth
through all channels
• Technology simplifies the links between
• We make fresh food in our manufacturing
sites and stores
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
…delivering through our seven priorities…
p10
1. Be more competitive
2. Serve customers better
3. Local integration and serving the community
4. Simplify and speed up the organisation
5. Naturally digital
6. Pride in hygiene
7. Creating and scaling for profitable growth
4
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Outcomes
Responding to
our customers
p14
• An easy shopping experience with
everything always available
• Good quality groceries and a wide choice
• Friendly colleagues who care about
customers and the community
• Market Street and Market Kitchen
investment
• Fresh food, good and trusted
quality which is always great value
• Online delivery service available
to over 97% of British households
Rewarding our colleagues
p18
• Everyone is welcome and
celebrated at Morrisons
• Colleagues can have their say
and are treated with respect
• Managers who help and support
• The opportunity to succeed
• The tools and training to do the job
Working with suppliers
p20
• Easy to buy, easy to order,
easy to fill and easy to sell
• Achieve profitable growth
• Always do what we say, build trust
and collaborative relationships
• Focus on quality, innovation and
protecting the environment
p22
Delivering returns
to our shareholders
• Focus on the core
• Growth
• Keep a strong balance sheet
• Create shareholder value
Protecting the
environment and
supporting communities
p26
• Leading on reducing our carbon, plastic,
pollution and food waste footprint
• Buying from sustainable, ethical and
resilient supply chains
• Growing British agriculture
• Making a positive contribution to
every local community we serve
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
powers 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
• Our Morrisons price list provides good
quality fresh food and great value
• Our shopkeepers care deeply about service
• Our online and home delivery offer has
expanded at an unprecedented pace
• Most customers across Britain have
access to several different options to
shop with us, with almost every Morrisons
supermarket now offering at least one
home delivery service
…and supported by our six ways of working
p18
1. Customers first
2. Teamwork
3. Listening hard, responding quickly wherever possible
4. Freedom in the framework
5. Driving sales, tough on costs
6. We care
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5
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Strategic reportGovernanceFinancial statementsInvestor information Chair’s statement
“ This has been a year where Morrisons
resilience has been severely tested and
I could not be more proud of the way the
whole business has met that test. As we
look forward to brighter times ahead,
Morrisons is developing into a stronger,
better business with deeper and closer
relationships with our customers and
the communities we serve.”
Andrew Higginson
Chair
Proud of our colleagues
2020 marked my 40th year in business,
and was the most extraordinary I have
experienced. It has always been clear to
me that, in a business like Morrisons, people
come to work every day driven by a greater
sense of purpose than simply making
money for themselves or shareholders.
Our primary role is to provide safe, delicious,
good quality food at great prices, and make
life a little better for our customers. It is
maybe a somewhat modest claim, but never
has it been more important than during
the pandemic.
All businesses have worked hard for their
stakeholders when called upon, and we did
too, but our role was right on the front line.
Just as most of Britain was being told to ‘stay
home, protect the NHS, save lives,’ Morrisons
colleagues were asked to go to work and
help feed the nation.
We are so proud of our colleagues.
They stepped up to the challenge with
remarkable resourcefulness, determination
and bravery, ensuring a smooth food supply
chain and looking after our customers.
Those colleagues can truly say “we played
our full part”.
There for all stakeholders
One of our ambitions for colleagues
is ‘A fair day’s pay for a fair day’s work’,
and I am delighted that we have been able
to reward all that hard work and dedication.
As soon as the pandemic started, we
guaranteed a triple average annual bonus for
2020/21 for all front line colleagues, as David
says, as a ‘thank you’. We have also recently
announced a new pay award for 2021/22
of at least £10 an hour for all Morrisons
supermarkets colleagues. That is an
annual increase of around 9%, and up by
a fantastic 46% since 2015. It is an important
and symbolic milestone, and we are the first
major supermarket to reach £10 an hour.
And while our first priority has been
protecting and looking after our colleagues
and customers, I am pleased to say our
financial performance was also strong
in the year. Our supermarket sales were
strong, both absolute and, importantly,
relative to our key competitors as we grew
market share. While the costs of managing
through the pandemic were huge, we grew
profit before exceptionals after adjusting
for waived business rates relief. I am also
pleased to say we did not take any other
form of government support. In addition,
we paid a previously deferred 4.00p special
dividend to shareholders.
Proud of how
we have responded
We are so proud of our colleagues.
They stepped up to the challenge
with remarkable resourcefulness,
determination and bravery. They can
truly say “we played our full part.”
Our colleagues
Our colleagues
responded
responded
rapidl y to
rapidl y to
local needs
local needs
We raised over £3m
We raised over £3m
for our charity partner
for our charity partner
CLIC Sargent
CLIC Sargent
6
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S
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We see all of these factors – being at
the heart of local communities, being
a responsible and accountable corporate
citizen, and targeting strong financial
performance – as complementary not
contradictory. Achieved simultaneously,
they will enable us to thrive.
Building on the momentum
We are building on the momentum
we created during the year. We have
demonstrated resilience, innovation, speed
to market and a relentless focus on the
customer. Our online channels are good
examples of this, with sales tripling by
the end of the year. We also leveraged
and benefitted from our unique food
manufacturing businesses, and were at the
forefront of new ideas such as delivery
boxes, doorstep deliveries and wholesale
bulk supplies.
Looking forward, I am now more confident
than ever that Morrisons can continue to
grow and prosper, be quick to keep learning
from the many lessons of the pandemic,
and adapt to changing customer needs.
We can come out of COVID-19 even
stronger. We are a successful, popular,
much-loved, brand, and have always been
a great mix of a modern business with
traditional family values that has been able
to adapt and flourish. We are also a British
retailer and food maker, with nineteen food
manufacturing sites, and a predominantly
British supply chain that is well positioned,
post-Brexit, to emphasise those credentials
further for the benefit of all.
For all the successes, clearly it was a year
of immense sadness under the most extreme
and testing conditions. Our thoughts and
reflections are with those affected, especially
with the families and loved ones of all of
those, including some Morrisons colleagues,
who sadly passed away.
Board changes
We were very pleased to welcome three
new Non-Executive Directors to the Board
last year: Susanne Given, Lyssa McGowan
and Jeremy Townsend, who was also
appointed Chair of the Audit Committee.
All bring a wealth of experience and a variety
of skills that further strengthen the Board.
Welcome all.
Andrew Higginson, Chair
2020/21 Group LFL sales (exc. fuel)
8.6% Full year LFL
12.3%
7.8%
9.0%
5.7%
Q1
Q2
Q3
Q4
Definition
See the Glossary on page 157 for a definition.
Total dividend
11.15p
12.60p
10.09p
11.15p
8.77p
5.43p
6.09p
6.60p
6.77p
7.15p
2016/17 2017/181 2018/192 2019/203 2020/214
Ordinary
Special
1
2
3
4
Including 4.00p special dividend.
Including 6.00p special interim dividend.
Including 2.00p special interim dividend.
Including 4.00p special dividend paid and declared in 2021.
We continue to target and expect
further strong financial performance, and
will do so while also aligning with broader
ambitions for the environment, society
and governance. One specific framework
we will be adopting for the 2021/22 Annual
Report will be the Task Force on Climate-
related Financial Disclosures (TCFD),
which will enable all companies to more
effectively report climate-related financial
disclosures around governance, strategy,
risk management, and metrics and targets.
We are a local business, trading where
people live, work and go to school.
The pandemic has put Morrisons even
more at the heart of local communities,
and emphasised what an impact we can
have and force for good we can be across
many areas of society and the environment.
David explains what we are doing to help
with our impact on the environment and
to support the communities we serve, and
you will see the details of our plans for
important areas such as carbon emissions,
plastics, food waste, deforestation and animal
welfare throughout this Annual Report.
Governance highlights
p39
Board leadership and
Company purpose
• The Company’s purpose, values and
strategy are aligned to its culture
• The views of all key stakeholders
are considered in Board discussions
and decision making
• The Board was strengthened by
the appointment of three new
Non-Executive Directors
Division of responsibilities
• The Board comprises a majority
of Non-Executive Directors
p42
• There is an appropriate mixture
of skills and experience on the Board
• Rooney Anand is the Senior
Independent Director
• Kevin Havelock 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
p46
at our AGM
• The External Board Effectiveness
Review found both governance and
compliance to be strong, and that
the Board operates in an effective
and efficient manner
• KPMG conducted a review of governance
confirming that Morrisons has a strong
governance base
Audit, Risk & Internal Control
• The Audit Committee is satisfied
p48
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
p54
remuneration policies and practices
support the strategy and promote
long-term sustainable success
• We have further engaged with
shareholders to understand feedback
regarding the 2020 AGM policy vote
• The CEO’s and COO’s pension levels
will be reduced to those available
to the workforce by the end of 2022
• The CEO’s shareholding requirement
has increased from 250% to 300%
of base salary
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Chief Executive’s statement
“ I look back on what was an
undeniably terrible pandemic year
with an immense and profound
sense of pride. Morrisons colleagues
in the shops, offices, depots
and manufacturing sites really
stepped up when they were
needed most by the nation.”
David Potts
Chief Executive
Doing the right thing
2020/21 was a year when, more so than
ever, we listened hard and responded.
We often found ourselves in uncharted
territory, following our instincts and doing
what we felt was the right thing. Not because
of how it would make us look as a company,
but because it was how we felt we could
and should react in often unprecedented
and extreme situations. We have tried hard
to protect and value all our stakeholders,
especially the most vulnerable in society,
making sure as far as possible that nobody
is left behind during this awful pandemic.
I look back on what was an undeniably
terrible pandemic year with an immense
and profound sense of pride. Morrisons
colleagues in the shops, offices, depots and
manufacturing sites really stepped up when
they were needed most by the nation.
Rightly recognised as key workers by
government, I am truly grateful and humbled
by what our colleagues have achieved.
I’ve called them ‘brave’, ‘rock stars’ and paid
many other deserved compliments over
the last year, but nothing quite expresses
my thanks for the scale of the achievement.
When British society all but closed down
at the start of the pandemic, Morrisons
galvanised and organised itself into a highly
responsive and effective force for good.
The swift and selfless actions of all Morrisons
colleagues across the business was truly
heart‑warming and invaluable for the nation.
Playing our full part
Our initial actions focused on protecting
colleagues and customers with sanitisation
and social distancing measures. We guaranteed
pay for thousands of affected colleagues,
and tripled the average annual bonus
payout as a ‘thank you’ for those on the
frontline. We recruited an incredible 68,000
new colleagues to cover absence and to
allow us to invest significantly in expanding
our online and other home delivery services.
Morrisons.com introduced new store pick
home delivery and click & collect channels
at pace, and we developed new food boxes
and doorstep delivery services, plus a new
relationship with Deliveroo. In addition,
we very quickly expanded with Amazon,
especially our same‑day delivery service,
Morrisons on Amazon, which is newly
available across Britain on Amazon.co.uk.
By the start of Q4 our online sales had
more than tripled year‑on‑year.
We helped with the cash flow of around
3,000 smaller suppliers by paying immediately,
and are giving extra discounts to our
colleagues, NHS workers, teachers, blue light
workers and our farmer suppliers. We are
also restocking Britain’s foodbanks, and have
made various donations to homeless charities,
and developed new bulk delivery services
to provide vital supplies to customers,
charities and local authorities quickly and
at great prices.
These are just some of the ways that
we have played our full part in helping feed
the nation during the pandemic. There are
full details of these and our other efforts
throughout this Annual Report. Of course,
this has all come at a cost: direct COVID‑19
costs of £290m; and, our decision to waive
£230m of business rates relief, plus tens of
millions of pounds of lost profit in areas such
as café and food‑to‑go means Group profit
was down year‑on‑year despite the part‑
offset of significant operational gearing from
the sustained very strong exc. fuel like‑for‑like
sales growth.
68,000
new colleagues recruited to both
cover temporary absence and to
invest significantly in expanding our
online and home delivery services
8
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We are a caring, modern business facing into
both the pre‑ and post‑pandemic challenges,
and I am confident that we can also continue
to develop and grow, and execute on our
ambitious plans. We are continuing to
become broader, stronger, and more popular
and accessible, and there are many initiatives
that we refer to in this Annual Report that
will drive that growth: online; wholesale;
outstanding in service, Market Street, and
fruit & veg; our work around investing in price
and range; and new formats and stores to
name but a few.
As always, we are targeting growth that is
capital light and we remain committed to
the principles and disciplines of our capital
allocation framework. Our business and
strategy are supported by a strong balance
sheet and we remain cash generative.
Last, another word on our wonderful
Morrisons colleagues. More than ever the
last year has demonstrated how the business
is built on its people. You truly were there
at a time of desperate need to help feed
the nation. Thank you again to you all.
David Potts, Chief Executive
While unfortunate, this decline is a one‑off
in a year where we prioritised doing the right
things first. A good example is doorstep
delivery, our telephone order service that
we set up in a matter of days right at the start
of the pandemic for the most vulnerable and
those that are self‑isolating. It is old school.
Customers pick up a phone and dial an order
through to us that we then pick from a store
and deliver direct to the customer for either
no fee or a voluntary contribution. It is
mostly used by the elderly and vulnerable
who are unable to visit a shop and are often
without internet access. It is literally a lifeline
for thousands of customers, and has been
the source of amazing feedback both from
those customers and their families and friends
grateful for us helping out. It doesn’t make
money for us, but that is not the point.
We care
As we move into a new year, there is a
determination at Morrisons that we keep up
the pace and effectiveness of our actions.
While understandably much of last year
will not be missed by many, we created an
underlying momentum in the business that we
will seek to keep going. Our Fix, Rebuild, Grow,
Sustain strategy has proved highly flexible
in allowing us to respond and adapt and, as
we have moved through the stages of the
pandemic, we have evolved our priorities and
ways of working to re‑validate them against an
increased spirit of teamwork, community and
support for all in society and all stakeholders.
We have added Pride in Hygiene to our
seven priorities, and evolved Local Integration
and Serving the Community, and Creating
and Scaling for Profitable Growth to reflect
both our significant progress against our
original priorities and the world we are in
today. We have also added to and refined
our ways of working: Customers First;
Teamwork; Listening Hard, Responding
Quickly Wherever Possible; Freedom in the
Framework; Driving Sales, Tough on Costs; and
We Care. We are fulfilling our ambitions for
all our stakeholder groups, recently adding
Environment and Community in recognition
of how central they are to everything we do.
We are playing our full part in helping
Britain address climate change by delivering
sustainable growth with a lower environmental
impact. This is the right thing to do, something
we care about, and something our customers,
colleagues and investors expect of us. We have
set stretching targets around: reducing carbon
emissions; cutting waste and preserving
natural resources through ‘reducing, reusing,
recycling’; sourcing from sustainable, ethical
and resilient supply chains; and helping to grow
and develop British agriculture. We also have
an ambition to play our full part supporting
the communities we serve and the lives of
our colleagues: helping our customers live
healthier lives; making a positive impact in
every local community we serve; and providing
a great place to work where everyone’s effort
is worthwhile and where everyone can make
progress and a contribution.
Thank you to all our
brilliant colleagues
Here are just some of them.
Neil, Myra, Ella, Michelle and
Pam were all recognised in
the New Year Honours list.
Thank
you
M yra Smith – ‘Community
M yra Smith – ‘Community
Champion’ at Morrisons
Champion’ at Morrisons
Dumfries
Dumfries
At the start of the pandemic,
Myra began posting notes to
vulnerable neighbours offering
to pick up essential shopping
items, and delivering them after
she finished work. At Easter,
she hand-delivered over 500
Easter eggs to support local
key workers
Neil Ferries – Warehouse
Neil Ferries – Warehouse
Manager based in Kent
Manager based in Kent
Neil safeguarded the delivery
of fresh foods to around 80
Morrisons stores in the south
of England where local residents
would have faced empty
shelves after issues developed
at a Morrisons warehouse
Ella Collins – Occupational
Ella Collins – Occupational
Health Manager
Health Manager
Ella has consistently gone
above and beyond in supporting
Morrisons colleagues and working
with Public Health England
to manage the impact of the
COVID-19 pandemic
Michelle Leary – 'Community
Michelle Leary – 'Community
Champion’ at Morrisons
Champion’ at Morrisons
Basingstoke
Basingstoke
Michelle had the idea of making
pick up bags near the checkouts in
stores, which customers purchase as
a donation towards local food banks
Pam Abbott – ‘Community
Pam Abbott – ‘Community
Champion’ at a Morrisons
Champion’ at a Morrisons
depot in Wakefield
depot in Wakefield
Pam worked tirelessly to
ensure fresh foods and other
essentials continued to make
their way to local food banks,
youth groups and animal
shelters when donations from
their regular sources were
running low
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Strategic reportGovernanceFinancial statementsInvestor information Seven priorities in action
As we move through the stages
of Fix, Rebuild, Grow, Sustain, we have
evolved our seven priorities to re-validate
them against the increased spirit of
teamwork, community and support
that has prevailed at Morrisons since
the start of COVID-19.
We have listened and responded, and will keep doing so
to reflect both our significant progress against our original
priorities and the world we are in today.
Over a thousand
Over a thousand
new jobs created
new jobs created
to fulfil ‘Morrisons
to fulfil ‘Morrisons
on Amazon’ orders
on Amazon’ orders
1 2 3 4 5 7
Delivering food to the
Delivering food to the
vulnerable and elderl y
vulnerable and elderl y
2 3
2 7
We have expanded
We have expanded
online and home
online and home
delivery to reach
delivery to reach
more customers
more customers
1 2 3 5 7
650,000+
doorstep deliveries
to the vulnerable
WE HIRED
14,000
14 days*
COLLEAGUES IN
*We have hired 68,000 colleagues in total since March 2020.
Our seven
priorities
1. Be more competitive
2. Serve customers better
3. Local integration and serving the community
4. Simplify and speed up the organisation
5. Naturally digital
6. Pride in hygiene
7. Creating and scaling for profitable growth
Sustainability
spotlight:
our commitment
to corporate
responsibility
‘Sustain’ is a key part of
our strategy and underpins
everything we do.
Look out for this icon throughout
the report for examples of how
we are meeting our corporate
responsibility objectives.
10
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We are making progress
We are making progress
towards sourcing all Nutmeg
towards sourcing all Nutmeg
viscose from responsibl y
viscose from responsibl y
managed forests
managed forests
2
We have stocked new
We have stocked new
Fettle cheese in all our
Fettle cheese in all our
stores across Yorkshire
stores across Yorkshire
to support the county’s
to support the county’s
sheep‑milk farmers
sheep‑milk farmers
2 3
10%
We extended our
10% discount to
the NHS, Blue Light
workers, teachers,
school, nursery
and college staff
F A R M E R S ’
D I S C O U N T
3
W E A R E D O N AT I N G
LU N C H BOXE S DAI LY *
*Over the school holidays.
1 Be more competitive
Helping customers make every penny
go further, saving them money on the
everyday items they want and need
• We have continued to improve the
Morrisons price list by investing in prices
and improving product specification,
packaging and merchandising across
hundreds of our customers’ favourite items
• We are working hard to continue to
2 Serve customers better
We listen to our customers to make
improvements across the business.
We continually improve our offer with
helpful and friendly colleagues available
whenever and wherever they are needed
• Our colleagues have faced the
unprecedented challenges of COVID-19
with professionalism, enthusiasm
and resourcefulness
improve our own brand for customers
• Our online and home delivery offer
• We have substantial cost saving and
productivity opportunities which we are
accessing in partnership with our suppliers.
These include end-to-end distribution and
supply chain costs, mix, volume-related
discounts, replenishment, packaging
and digitisation
• We have introduced flat pricing across
our Nutmeg kids clothing offer, allowing
standardised prices across all ages and sizes
• Our acquisition of Lansen Nurseries
enables us to offer customers a wider range
of locally sourced and grown outdoor
plants at competitive prices
expanded at an unprecedented pace.
Most customers across Britain have access
to several different options, with almost
every Morrisons supermarket now offering
at least one home delivery service
• We launched the ‘Food Box Company’,
with production facilities at our food
manufacturing sites and depots
• We have formed a partnership with
Deliveroo and significantly expanded
‘Morrisons on Amazon’, the same-day
online home delivery service
• We adapted well to the crisis and introduced
new initiatives, such as speedy shopping
• New paper carrier bags were introduced in
May, and we extended our range of loose
fruit and vegetables giving customers more
choice to buy products without plastic
3 Local integration and
serving the community
We contribute to the communities we are
part of by providing local jobs, products,
services and facilities
• We continue to champion and support
local farmers, growers and other
suppliers and moved to pay our smallest
3,000 suppliers immediately
• Every store’s Community Champion has
been allocated more hours to help local
charities and community groups
• We are very proud of our doorstep delivery
service for the vulnerable and self-isolating,
which has passed the 650,000 deliveries
milestone at year end
• We have donated £10m of food to help
restock Britain’s food banks
• Our quieter hour has been extended to the
first hour every Sunday, enabling customers
with sensory needs a calmer, quieter time
to shop
• Our Too Good To Go initiative sold 100,000
‘magic bags’ through an app which gives
customers access to good quality products
at a fraction of the retail price
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Strategic reportGovernanceFinancial statementsInvestor information Seven priorities in action continued
We have partnered with Deliveroo
We have partnered with Deliveroo
to enable customers to order
to enable customers to order
essential groceries to be delivered
essential groceries to be delivered
in as little as 30 minutes
in as little as 30 minutes
1 2 5 7
Our new look cafés
Our new look cafés
moved to takeawa y
moved to takeawa y
for part of the year
for part of the year
2
We have
doubled
our number
of florists
2
5 Naturally digital
We use digital technology to provide
increasingly easy, accessible and convenient
services for customers. We are digitising
the customer shopping trip, and continually
help colleagues to work with purpose while
reducing wasted effort
• We are starting the trial of a new Scan and
Go app enabling customers to checkout
more quickly
• Early in the pandemic we quickly increased
the contactless payment limit to £45
• We have almost completed the roll out of
headsets for colleagues at all stores, which
will help improve service, availability and
communication and reduce stock loss
• We have started to test digital shelf edge
labels, which will automate price changes
• In manufacturing, we are investing in
automation and robotics for production
lines and grading technology, improving
product flow and raw material yield,
removing repetitive manual tasks
• In distribution we are increasingly using
technology in our depots, with benefits
including improved pallet and transport
utilisation, and reduced packaging
We have provided
We have provided
special see-through masks
special see-through masks
to colleagues who regularl y
to colleagues who regularl y
interact with deaf customers
interact with deaf customers
2 6
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
387
We refreshed nearly
390 cafés for relaunch
in the year
4 Simplify and speed
up the organisation
We continue to simplify and speed up,
building a culture based on teamwork.
We are cost conscious, always finding
ways to be a more efficient business that
is responsive to customers
• One of our six ways of working is
‘freedom in the framework’, which has
been key in enabling new innovation
such as our new boxes and doorstep
delivery initiatives
• We successfully completed the
restructuring of colleagues’ roles in stores
and moved to more flexible, remote
working across a six-day week for office
based colleagues
• We continue to work hard at improving
end-to-end product handling and
productivity in the supply chain
• We are reducing range and increasing
volume of our customer favourite items,
and investing in fewer, better promotions
while removing those that customers
don’t value
• We introduced shelf-edge technology
to c.200 stores – this draws cold-air
back into the fridge, helping to reduce
electricity consumption
12
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6 Pride in hygiene
As food makers and shopkeepers we
have very high standards of hygiene.
Customers and colleagues must always
have a safe place to shop and work
• Our hygiene culture maximises cleaning
hours and cleaning stations across our
stores, depots, manufacturing sites
and offices
• We are continuing to invest in extra touch
point cleaning, thousands of sanitiser
dispensers and extra colleagues responsible
for hygiene
We introduced paper
We introduced paper
carrier bags in Ma y
carrier bags in Ma y
2
7 Creating and scaling
for profitable growth
We see opportunities, pursuing them
with an owner’s spirit and entrepreneurial
hunger, acting fast and fearlessly so we can
swiftly scale the ideas that work
• Our online channel was the foundation
of click & collect, boxes, doorstep delivery,
and informed developments with our
partners such as Amazon and Deliveroo
• We have taken our doorstep delivery
idea and scaled it further by forming
partnerships with organisations such as
retirement homes and charities
• Our supply partnership with McColl’s is
scaling very quickly, and there is significant
future potential for the Morrisons Daily
fascia and format
• In supermarkets, we continue to innovate,
learn and apply improvements across
the estate
• We opened six new stores and a new
Nutmeg store during the year. We also
further developed our new food-to-go
Market Kitchen concept in three stores and
completed another 18 Fresh Look refits
We have invested
We have invested
to maintain first class
to maintain first class
h ygiene standards
h ygiene standards
6
100
Over 100 tonnes of
plastic fishing netting
has been recycled
We have provided bulk
We have provided bulk
deliveries to councils
deliveries to councils
and care homes
and care homes
3 4
Throughout the
Throughout the
pandemic we made
pandemic we made
immediate pa yments
immediate pa yments
to smaller suppliers
to smaller suppliers
3
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Strategic reportGovernanceFinancial statementsInvestor information Responding to our customers
We have been listening hard and responding to our
customers in playing our full part to help feed the nation.
Easy shopping
experience with
availability for
all customers
Consumer confidence
0
-5
-10
-15
-20
-25
-30
-35
-40
Dec
19
Mar
20
Jun
20
Sep
20
Dec
20
Source
GFK monthly consumer confidence index, December 2020
UK grocery market size forecast (£bn)
192
205
208.5
211
2019
2020
2021
2022
Source
Institute of Grocery Distribution (IGD)
Composition of UK grocery market size
2019 vs 2022 (% share)
2022
forecast
2019
Supermarkets 46.1% 42.3%
Convenience
21.4% 22.0%
Discounters
12.8% 14.6%
Hypermarkets 8.4% 7.6%
2019
2022
Online
6.2% 8.9%
Other Retailers 5.1% 4.6%
Source
Institute of Grocery Distribution (IGD)
Customer uncertainty and concerns
This has been a year unlike any other, with
consumers feeling uncertain and concerned.
COVID-19 – Customers have been deeply
concerned about when the pandemic will end
and how they will keep themselves and their
families healthy.
COVID-19 and the recession have
shifted people’s priorities and behaviour
Lockdown accelerated the shift towards
online consumption, with people going
online even more than usual for shopping and
socialising; behaviours which are expected to
be maintained.
The number of customers we have been
able to serve online increased from 132,000
per week to over 500,000.
We developed our Food Box service in
response to the pandemic and this proved
hugely popular, with over 450,000 orders
so far. Initially, it was set up to get essential
food and drink to those in need. However,
it has grown to cover everything from gifting
occasions to seasonal boxes.
COVID-19 has meant that people have new
expectations about hygiene, and a clean and
safe shopping environment has become an
important determining factor in store choice.
Customers tell us that they feel reassured
and safe when shopping in Morrisons,
and we will be continuing this important work.
We know that the most important safety
measures for our customers are: colleagues
social distancing; hand sanitiser and cleaning
products being readily available; a safe
number of people in store; and the wearing
of face coverings. We have worked hard
to implement these measures, alongside
many more, to create a safe shopping and
working environment.
Recession – With the news that the UK
fell into the deepest recession since records
began, people became very nervous about
the economic outlook.
Brexit – Brexit is now complete, but
customers still have many questions, and
uncertainties remain as to how it will affect
their day-to-day lives.
In times of uncertainty, and in particular
economic uncertainty, supermarkets have
a significant impact on customers and their
families. To best support our customers, we
have been listening hard so we can feed the
nation in the best way possible.
As a result of the unprecedented turbulence
of the last year, we have seen consumer
confidence fall to its lowest level since the
2008 recession. As we came out of the first
national lockdown in May/June, optimism
started to rise slowly, however it declined
following the tightening of restrictions over
the winter and fell further as we headed into
the third national lockdown in January.
Throughout the pandemic, the grocery
industry has performed relatively strongly,
benefitting from its ability to adapt current
capacities to accommodate growing
consumer demand. We listened to customers
on a daily basis and analysed shopper
behaviour to help us make customer-led
decisions day by day.
CHRISTMAS
DINNER DELIVERED
Customers were able
Customers were able
to order a Christmas
to order a Christmas
Dinner Box online
Dinner Box online
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Caring about
quality,
customers and
our community
70+
We offered a free online
delivery pass for the over 70s
We continue to listen
We continue to listen
carefull y to customers
carefull y to customers
and cut almost 1,200 prices
and cut almost 1,200 prices
during the year
during the year
PRICE
CUT
Value and service
Value for money is even more front of mind
again, with people evaluating their outgoings
so that they can manage on a budget, and
adopting recession-proofing measures.
Supporting key workers and our
communities
The crisis has brought people together and
increased customers’ awareness of the need
to support others locally.
To provide our customers with great value for
money, we have invested in over 1,200 price
cuts through the year, backed up by stable
prices every day.
We are so grateful to all key workers across
the country, and have thanked key workers
in the NHS, schools, nurseries and emergency
services by offering them 10% discount.
Our stores and Community Champions
continue to make a significant positive impact
on our local communities, by delivering food
to students in universities in local lockdown,
supporting schools with school meals, and
continuing to stock local food banks.
Customers are looking forward to a fresh
start. There is a desire to reset their priorities,
including doing more exercise, focusing on
their mental health and being mindful about
what they are consuming.
We are excited to continue supporting
customers with this through 2021, by
providing options that are lower in salt, sugar,
fat or alcohol, as well as healthy alternatives
such as plant-based, free from or immunity
boosting options.
Customers noticed and appreciated these
actions, with perception improving across
price measures when the cuts were made.
Supporting the vulnerable in society has
become even more important to many, with
people more conscious of supporting those
in need.
Our doorstep delivery service helped many
vulnerable and elderly in our communities.
Through this service, customers are able to
call to place an order by phone with a friendly
colleague, and have their groceries delivered
direct to their door.
We also supported elderly and vulnerable
customers by offering priority online delivery
slots and a free delivery pass for the over 70s.
The lockdown has seen more people stay
at home for longer periods than ever before.
That in turn has meant more meals are being
eaten in the home, and we continue to see
a big rise in the popularity of scratch cooking
and baking.
We helped customers to embrace their home
through campaigns such as ‘Holidays at Home’
which provided recipe inspiration based on
popular cuisines of holiday destinations.
We launched click and
We launched click and
collect food boxes for
collect food boxes for
NHS workers struggling
NHS workers struggling
to bu y essentials
to bu y essentials
I C K AN
D
L
C
S
R
E
K
R
O
NHS W
C
O
L
L
E
C
T FO
R
OPENED SAFE SPACES FOR THOSE EXPERIENCING
DOMESTIC ABUSE
DOORSTEP
DELIVERY
Consulting rooms in pharmacies
in 117 of our stores are designated
as safe spaces where our
specially‑trained pharmacists can
direct those seeking help to the
support they need.
The National Domestic Abuse
Helpline has reported a 25%
increase in calls for help since
lockdown began. We are proud
to be the first supermarket to
offer a safe space where victims
of domestic abuse can contact
support services.
We have joined forces with the
charity Hestia’s UK SAYS NO
MORE campaign, building on
the fact that the routine nature
of a trip to the supermarket is
unlikely to alert an abuser.
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Dedicated telesales
Dedicated telesales
service launched for the
service launched for the
vulnerable and elderl y
vulnerable and elderl y
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Strategic reportGovernanceFinancial statementsInvestor information
Responding to our customers continued
Responding to
our customers
with a wide range
of brands and
different sales
channels
Our brands
Our wide range of brands means we can
cater for all tastes and budget requirements,
from our entry point ranges such as Savers,
Woodhead Bros, International Seafood Co
and Greenside Deli, through to our premium
range, The Best. In addition, we cater for
all types of dietary and lifestyle choices,
for example through our Free From, V Taste,
Fresh Ideas, Counted and Nourish ranges.
Our unique range of traditional Market Street
counters gives us the flexibility to cater to
customers’ exact needs, meaning less food
is wasted. Skilled colleagues cut and prepare
products to customers’ specific requirements
and are happy to help with cooking advice.
As veganism continues to gain popularity,
we continue to innovate with the launch
of a vegan ‘no pepperoni’ pizza from our
pizza counter as well as vegan-friendly fruit
salad and gingerbread flavoured doughnuts.
We expanded our range of vegan-friendly
products for Christmas with products such
as The Best Tempura No-Prawns, No-Duck
Spring Rolls, The Best Beefless Wellington,
and The Best Vegan Trifle.
In addition to selling only free range eggs,
we have also introduced Chuckle Eggs into
our ‘For Farmers’ range, which guarantees that
12p from every pack sold is given to farmers
to help improve hen welfare.
Our Market Kitchen format, now in four
stores, provides hot and cold food-to-go
from food stations such as ‘The Soup Kitchen’
freshly made vegan soups, or ‘The Hot Pan’
where a different dish is available each day,
ranging from risottos, paellas and Korean fried
rice to baltis. All meals are prepared in-store
by our trained chefs, using ingredients from
Market Street.
We launched The Food Box Company,
initially to provide much needed essential
products to customers who were shielding.
These popular boxes have expanded over the
course of the year to encompass occasions
such as VE Day and Ramadan. With customers
finding themselves with more time at
home, scratch cooking boxes provide all the
ingredients to make five meals for a family
of four for just £30.
Our Nutmeg clothing range continues
to go from strength to strength. In addition
to children’s and womenswear, we have
introduced a range of menswear, all of which
are available to purchase in store or online,
and expanded into various health and beauty
products, including liquid hand wash and
hand sanitiser.
WE HAVE
INTRODUCED
COFFEE BARS
IN OUR MARKET
KITCHENS
Catering for all types
Catering for all types
of dietary needs
of dietary needs
and lifestyle choices
and lifestyle choices
Our brands and awards
Some of our awards
The Best
Melt in the Middle
Chocolate Orange
Pudding
The Best
Christmas Tarte
The Best
Fruit Panettone
The Best
Toscana 2018
Winner of Good
Housekeeping’s Best
Centerpiece Dessert
Winner of Olive
Magazine’s Best
Vegan Main Course
Winner of Olive
Magazine’s
Best Panettone
Which?’s
Best Winter Wine
Adrien Chopin
Brut Champagne
Which?’s
Best Champagne
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Investing to
meet changing
shopping patterns
through our stores
and distribution
network
497
stores
18
FRESH LOOK
REFITS
We continue to refit and
We continue to refit and
refresh our stores and cafés,
refresh our stores and cafés,
our ‘Fresh Look’ is helping
our ‘Fresh Look’ is helping
improve the shopping trip for
improve the shopping trip for
our customers
our customers
Opened our first standalone
Opened our first standalone
store for our own-brand Nutmeg
store for our own-brand Nutmeg
clothing and home ranges
clothing and home ranges
We have 58 Morrisons Daily kiosks located
on our own petrol forecourts and, through
franchise partnerships with McColl’s, Rontec,
MPK, Harvest Energy and Sandpiper CI,
we supply an additional 137 Morrisons Daily
convenience shops, with our wholesale
partners located across England, Scotland,
Wales and the Channel Islands.
Our 19, well-invested, vertically integrated
food manufacturing facilities supply our
stores with many fresh products such as
fruit and veg from our site at Cutler Heights
in Bradford; bacon, cheese, pies, quiches
and cooked meats from Farmers Boy also
in Bradford; fresh bread baked at our site
in Wakefield; and fresh fish processed at
our site in Grimsby. Since the year end we
acquired Falfish, a family owned wholesaler
of sustainably sourced seafood based
in Cornwall. This ‘field to fork’ model
allows us to support growers, farmers and
fishermen by buying the whole crop, herd
or catch and provides unrivalled provenance
and traceability.
Our stores are served by eight regional
distribution centres and one national
distribution centre, a network which has
enabled the Company to act flexibly during
the pandemic and to increase deliveries of
products to our stores in times of need.
Our brand new Morrisons
Our brand new Morrisons
Dail y store and our new
Dail y store and our new
Dalton Park store
Dalton Park store
Our stores and sites
During the year we opened six new stores
at Amble, Bradwell, Stirchley, Glenfield,
Dalton Park and Helensburgh, taking the
total number of conveniently located
Morrisons supermarkets to 497. In addition,
we launched Market Kitchen, trialled last
year at Canning Town, in our existing stores
at Manchester Piccadilly, Edgbaston and
Camden. We opened our first standalone
Nutmeg clothing & home store at Bolsover
and, despite the challenges of the year,
completed 18 Fresh Look refits as part of
our existing refurbishment programme.
Although our 407 popular cafés were closed
for a significant part of the year, we were
able to offer customers a takeaway service
while the hospitality sector was closed.
In addition, our 15 barista bars offered
a takeaway service.
This year, customers have shown a
preference for online shopping and we
responded very quickly to increase our
capacity fivefold. Together with our partner
Ocado, Morrisons.com sales grew through
the Dordon CFC, and through a substantial
increase in the number of store-pick
stores, up from 33 to 197 by year end.
In addition, we now offer click & collect
from almost 450 stores. From February our
Morrisons.com capacity increased further as
we re-entered Ocado’s Erith CFC, where we
are building to 30% of delivery slots.
Our wholesale partnership with Amazon
has continued to grow, with the same-day
service, Morrisons on Amazon, expanding
very rapidly during the year. It is now
available to millions of Prime Now members
on the amazon.co.uk website and app, and is
currently available in around 50 British towns
and cities. A new partnership with Deliveroo,
available in over 180 stores, means customers
can now order groceries for delivery in as
little as 30 minutes. We continue to supply
McColl’s convenience shops with Safeway
and branded products and the remaining
240 McColl’s stores have transitioned over
to Morrisons supply.
NOW AVAILABLE
IN AROUND
50
TOWNS AND
CITIES
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Strategic reportGovernanceFinancial statementsInvestor information Rewarding our colleagues
Our food makers and shopkeepers have been working hard
to keep our colleagues and customers safe, while also dealing
with unprecedented new demands to produce, pick, pack,
deliver, replenish and serve.
A culture and
environment to
promote success
STORE
MANAGER
OF THE
YEAR
Joanne Bennet-McNall y – Store
Joanne Bennet-McNall y – Store
manager at Morrisons Widnes, went
manager at Morrisons Widnes, went
above and be yond during one of the
above and be yond during one of the
most challenging years and was crowned
most challenging years and was crowned
as the Gold Grocer Store Manager
as the Gold Grocer Store Manager
of the Year
of the Year
Working with greater purpose
At the start of the year we set out plans to
help all of our food makers and shopkeepers
work with greater purpose. By creating the
right culture and environment, continuing to
listen hard to colleagues’ feedback and involve
them in improving the business, we knew
we could go further and faster.
While the global pandemic meant we had
to rapidly adapt our plans. The need to find
innovative ways of supporting the most
vulnerable in our local communities and to
play our full part in feeding the nation truly
galvanised our colleagues, giving them a clear
purpose to fulfil.
Following national recognition of their role
as key workers, our colleagues worked right
through the national lockdown, the summer
unlock, the second wave and beyond.
They served our customers day in and day
out, managed donations to local food banks,
supported local community groups and
charities, checked in on elderly and vulnerable
customers (even before we introduced our
doorstep delivery service), and were on
the front line through every changing set
of restrictions, social distancing guidelines
and new legal requirements.
The opportunity to succeed
With the pandemic leading to customers
stocking up, followed quickly by many
colleagues needing to shield and others absent
due to the virus, we made recruiting, inducting
and training large numbers of new colleagues a
priority, so that we could be there for customers
when they needed us most. Our teams
rapidly recruited 18,000 colleagues in the first
five weeks of the pandemic, ensuring that
resources were in place so we could continue
to serve our customers safely and well.
From early March, we adapted our
operations and ways of working. As we
implemented these changes we increased
our communication updates to colleagues,
sharing the latest information every day via
email and on our digital colleague platform
MyMorri. We also increased our colleague
listening, ensuring we were hearing the front
line experiences each day, along with their
ideas and suggestions so that we could
respond more quickly.
For example, when one colleague explained
how she had purchased stylus pens for
her self-checkout team in order to reduce
contact points, we quickly sourced pens for
every store. Similarly, when the site-based
colleagues raised the challenges of social
distancing on breaks, we introduced marquees
to provide additional rest space.
As we worked through national lockdown,
with many of our central colleagues working
from home, we reviewed the effectiveness
of different teams and quickly resolved
to further modernise our ways of working
to capture increases in productivity.
We permanently adapted our central offices
to operate six days per week, providing
improved support for our sites and stores,
while also moving colleagues to a more
flexible working week with ongoing support
for home working.
Our six ways of working
We updated our ways of working to capture the increased spirit, teamwork and pace that we have seen over the year.
1 Customers First
We care about our customers and do
everything we can to meet their needs.
2 Teamwork
Colleagues play their part in the team
and recognise we go further together.
The importance of supportive managers,
helping each other, and open and honest
communication is recognised.
3 Listening Hard, Responding
Quickly Wherever Possible
Taking the time to talk with and listen
to colleagues and customers and always
do the right thing for them, is at the
heart of our plans.
4 Freedom in the Framework
Colleagues are trusted to make their
own decisions within the Morrisons plan,
and are encouraged to improve things
for customers and for themselves.
5 Driving Sales, Tough on Costs
It is recognised, that every ounce
of effort and every penny matters.
Colleagues should spend every penny
as if it were their own.
6 We Care
Everyone is welcome and celebrated
at Morrisons. We care more and try
harder – for customers, for each other,
for everyone around Morrisons.
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Welcoming
and supporting
all colleagues
We care
During the year, more than ever, we prioritised
the safety of our colleagues and customers
by creating COVID-19 secure places to
work and shop. We sourced hand sanitiser
for our colleagues and communicated the
importance of regular hand washing.
While the debate about the relative safety of
face coverings continued, we ordered supplies
of disposable face coverings so our colleagues
at sites and stores could choose to wear
them. We have since made reusable, washable
face coverings available for all colleagues who
want them. We have also increased cleaning,
particularly around contact points.
We quickly installed protective screens
at checkouts, order points and other areas
where it was difficult to maintain social
distancing. We also developed our own-brand
hand sanitiser, provided cleaning stations
at the front of store and sanitiser dispensers
throughout for all our colleagues and
customers to use.
£10 an hour
at least, for our front line colleagues
in sites and stores from April 2021
30,000+
acts of kindness
We supported our Community
We supported our Community
Champions colleagues who
Champions colleagues who
pla yed a vital role in giving back
pla yed a vital role in giving back
to their communities through
to their communities through
small acts of kindness
small acts of kindness
To support our most vulnerable colleagues
at the beginning of the first national lockdown
we took the decision to provide full pay to
all those required to shield – a policy we have
continued throughout the second and third
lockdown. We also created our Colleague
Hardship Fund. Financed by the Company,
and administered by GroceryAid, this provides
charitable grants for colleagues suffering
from extreme detrimental financial impact
as a result of the COVID-19 outbreak.
We reviewed and reiterated our zero tolerance
policy to any abuse of our colleagues. This was
important at a time when rapidly changing
guidance and legislation increased the risk
of friction between customers and colleagues.
Additional guards have been brought in to
ensure safer shopping and safer working, and
we led the way on tightening policy on face
masks being worn in store, as set out in the
government’s regulations.
A fair day’s pay for a fair day’s work
Given their incredible contribution during
the year, it was more important than ever that
we delivered on our ambition of a fair day’s
pay for a fair day’s work. We increased our
front line retail colleague hourly rate to £9.20
in April 2020, maintaining our competitive
position in the market.
We announced in March that the first quarter
of our annual colleague bonus scheme would
be paid in full, immediately after the end of
the quarter. As the full scale of the disruption
from the pandemic became clear, we chose to
invest further in the scheme to say ‘thank you’
to our key workers. The average payout was
tripled to 6% and quarterly payments were
guaranteed in full throughout the year.
At the same time, we also increased our
colleague discount to 15% from 10% as a further
‘thank you’, which remained in place for our
full financial year. As the financial year came
to a close, we announced an industry-leading
proposed pay deal for our front line colleagues
in stores and manufacturing sites, which will
mean colleagues move to a rate of at least
£10 per hour. This substantial investment means
payments to colleagues are guaranteed and
more regular.
A manager who helps and supports me
At the start of the year we confirmed
plans for a flatter colleague structure in
our stores, with managers taking end-to-end
accountability for their department areas and
providing greater support to their colleagues.
While the introduction of the new structure
was delayed by the pandemic, we have now
completed this work. Our training approach
was adapted to incorporate more elements
of remote digital learning so we could still
prove the appropriate skills to managers
appointed to new roles.
We also achieved a significant milestone
during the year, with the transfer of all
our retail colleagues onto our new People
System. This modern, cloud-based app
not only provides colleagues with improved
access to their schedules and the ability
to manage their holiday requests, but also
gives our line managers the tools they need
to more effectively manage and support
their teams.
I can have my say and I am treated
with respect
During the summer, with the first wave
of COVID-19 behind us, we made further
improvements to the processes that allow
colleagues to have their say.
We simplified our annual ‘Your Say’
survey so it could be run more regularly.
After initially trialling the new survey in
our distribution sites in July, we then carried
out a larger survey for all other areas of
the business in September.
The survey measures ‘workplace happiness’
and on the basis of this index we recorded
a score 2% favourable to the current
benchmark for retail businesses. We were
also particularly pleased to see a positive
response of 71% to the statement ‘I am
happy at work and enjoy my job’ which
is an improvement of 3% year-on-year.
In the year, we also adapted our national
Your Say forum meetings. Instead of being
conducted face-to-face with a group of
front line colleagues from across the business,
we ran digital ‘live stream’ meetings so that
members of the Executive Committee
and Non-Executive Directors could hear
the questions our colleagues most wanted
to ask and provide appropriate responses.
Everyone is welcome and celebrated
at Morrisons
We were very pleased during the year to
make considerable progress on our ambition
of everyone feeling welcome and celebrated
at Morrisons. We hosted a digital colleague
conference for every one of our food
makers and shopkeepers. During the
conference we focused on the incredible
contribution that all our key workers
had made and shared a dedicated ‘thank
you’ video with messages from charities,
community groups, our suppliers, customers
and other key workers.
We also established a steering group and
working groups to accelerate our efforts
to improve our diversity and inclusion work
for women, BAME and LGBT+ colleagues,
family and carers, and those with additional
needs. Our BAME group led on colleague
communications and videos following the
international focus on the Black Lives Matter
movement. A much broader celebration
and education programme during Black
History Month this year, ranged from inviting
guest speakers into the business to videos
celebrating authentic black cooking, and the
sale of books by influential black authors in
our stores.
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Strategic reportGovernanceFinancial statementsInvestor information Working with suppliers
Strong supplier relationships, based on mutual trust
and respect, are at the heart of what we do, and continue
to be a key priority in our growth and development.
Listening hard to
build collaborative
relationships
WE HAVE
CONTINUED
OUR SEARCH FOR
THE NATION’S
LOCAL FOOD
MAKERS
We continue to sponsor
We continue to sponsor
the agricultural industry’s
the agricultural industry’s
biggest online event, Farm24
biggest online event, Farm24
Listening and responding
Despite the unprecedented events of
the past year, we have continued to prioritise
listening and responding to our suppliers.
We held three virtual conferences with our
supplier base in order to gain an understanding
of the key priorities and how we can work
better together. We shared information on
our performance, outlined our response to
COVID-19, demonstrated how we are delivering
growth, advised on our movements towards
Brexit, and provided updates on our expanding
business channels across online and wholesale.
We are responding to feedback. We used
commercial conferences as a platform to
highlight our moves to improve demand
forecasting, to ensure we continue to develop
the right tools to do the job, and maintain a
focus on clear and effective communication.
Supporting local communities
At Morrisons, we are committed to
supporting our local communities and
suppliers wherever possible.
We make it easy for local food makers
to work with us and develop their brands
by offering mentoring, simple six month
contracts and trial agreements, as well as
allowing for deliveries direct to their local
stores. We know that supporting local
communities is important to our customers
and we have seen growth in sales of locally
sourced food and drinks of +26.6% year-on-
year, regional food and drink sales also grew
year-on-year. We have continued our search
for the ‘nation’s local food makers’, albeit
now virtual. Local food panels of customers
receive discovery boxes with new and exciting
locally sourced products to sample and
provide feedback on.
3,000
small suppliers were able to benefit
from immediate payment terms
It has also been important for us to continue
to support our existing suppliers, especially
throughout the uncertainty of the past year.
We have quickly on-boarded and launched
new suppliers who have lost business through
the closure of the hospitality industry.
In addition, we have increased distribution
and range for existing suppliers who have also
suffered the loss of sales through channels
other than supermarket retail, and we were
able to pick up the volume in our efforts
to ‘feed the nation’.
We moved to immediate payment terms
for all existing small suppliers, as well as
new smaller suppliers on-boarded since
March 2020. We reclassified our definition
of a smaller supplier, from those with
£100,000 of business per year with Morrisons,
to include those with up to £1m. As a result,
a further 1,000 suppliers qualified for these
new payment terms.
Backing British farmers
We pride ourselves on being British food
makers. As British farming’s biggest direct
supermarket customer, we value the efforts
of farmers who work hard all year round.
Our fresh meat, milk and eggs are 100% British.
To support farmers during the pandemic, we
opened our counters to offer products that,
in normal times, would have been supplied
to cafés and restaurants. By encouraging
customers to buy prime cuts, this helped to
stimulate demand and stabilise prices at the
farm gate.
We have continued to support our farmers
through our ‘For Farmers’ range partnership
with Arla, Lactalis and Ornua which has
donated £3.5m to British farmers in 2020 for
milk cream and cheese. We also welcomed
2,700 farmers and local food makers into
our 5% discount offering. Through our food
boxes, launched to meet the needs of
isolating customers, we developed a
‘Buy British’ foodbox. The sale of each
box included a £1 donation to farming
help charities.
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Working with
suppliers to fulfil
our responsibility
to protect the
environment
Promoting the British fishing industry
2020 was a year of unprecedented challenge
for the fishing industry. During the COVID-19
crisis, we opened seafood bars and launched
British fish boxes and re-opened fish counters
to help sell fish previously destined for the
food service sector, thus helping to secure
the livelihoods of fishermen and colleagues
in the fishing sector. We continued to offer
the broadest range of fresh British fish
of any major retailer, helping customers to
make more sustainable choices which are
not threatened by overfishing.
Reducing plastics
We continue to work with suppliers to fulfil
our responsibility to protect the environment,
with each food category having a defined set
of plastic reduction targets. We have made
a commitment to reduce use of primary
plastic packaging in our own-brand products
by 50%, and to move towards 100% of plastic
packaging being recyclable, reusable or
compostable by 2025. Furthermore, we are
eliminating problematic or unnecessary single
use packaging through redesign or innovation.
Supporting
British
farming
Supporting British Farmers
Supporting British Farmers
by selling surplus stock
by selling surplus stock
ffrom producers hit by the
rom producers hit by the
closure of restaurants
closure of restaurants
WEBINARS TO SUPPORT
SUPPLIERS
Working with other supermarkets,
we hosted webinars to support
our suppliers during the crisis.
Topics ranged from managing
impacts on employee mental
health to furloughing staff
responsibly. These webinars
reached 4,000 participants in
56 countries and were later
supported by the establishment
of the Food Farm Help website,
which provided additional
guidance for the UK food sector
during the second wave of
the crisis.
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
morrisons-corporate.com/suppliers.
We listen hard to our suppliers at all times
and this became even more important
during the last year. We responded quickly to
support suppliers, particularly small suppliers,
facing difficulties as a result of the pandemic.
This included moving to immediate
payment terms for all existing and any new
smaller suppliers (over 3,000 in total), on-
boarding new small suppliers and increasing
distribution for existing small suppliers
who had suffered reduced demand from
food service and hospitality and opening
steak and seafood bars in store to support
British farmers.
Over the past year, we have made significant
investments into our commercial and supply
chain systems and processes, including our
Delivery Scheduling, Warehouse Management
and Supplier Database systems to improve
the ways in which we communicate with
our suppliers.
We actively engage with the relevant
regulatory bodies, the Groceries Code
Adjudicator (GCA) and the Competition
and Markets Authority (CMA), to build best
practice. We meet regularly with the GCA
and provide updates on our activity and
details on specific areas of interest to the
Adjudicator. 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. 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 and
specific concerns raised with our CCO to
the GCA and to the CMA at the financial
year end.
Our Legal, Compliance and Audit teams
work closely together to provide colleagues
across the business with the support and
guidance needed to comply with the Code.
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 through a range of formats. We review
and update all of our training activities
and materials throughout the year to take
account of any new learnings, build in current
real life examples and to reflect additional
guidance from the GCA.
In the 2020 GSCOP supplier survey
conducted by YouGov on behalf of the
GCA, 93% of suppliers rated Morrisons as
complying with the Groceries Code ‘mostly’
or ‘consistently well’. Working with the GCA,
our encouragement of suppliers to complete
the anonymous survey led to Morrisons
having the second most suppliers complete
the survey of all designated retailers.
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 2020/21
we were contacted by suppliers to review
concerns including in the following areas:
• Requesting review of supplier de-
listing decisions including extensions
to notice periods
• Queries relating to resolution of goods
receipt and invoice disputes
• Asking for clarification on details of
discussions regarding commercial 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
three direct Code related complaints which
are yet to be resolved. Contact details and
further up-to-date information can be found
at morrisons.co.uk/gscop.
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Strategic reportGovernanceFinancial statementsInvestor information Delivering returns
for our shareholders
Capital light growth and improving total return
are our key ambitions for shareholders.
“ With a very strong balance sheet,
freehold store portfolio, net pension
surplus, and strong underlying free
cash flow, Morrisons continues to
be well positioned to deliver for all
its stakeholders.”
Michael Gleeson
Chief Financial Officer
Our financial
strengths have
helped us be agile
and decisive
Group like-for-like (LFL) sales (exc. fuel)*
8.6%
8.6%
4.8%
2.8%
1.9%
(0.8)%
2016/17 2017/18 2018/19
2019/20
2020/21
Summary income statement
Revenue
Operating profit
Net finance costs
Share of profit of joint
ventures (net of tax)
Profit before tax
Profit before tax
and exceptionals*
Basic earnings per share
before exceptionals*
Basic earnings per share
2020/21
£m
17,598
2019/20
£m
17,536
254
(89)
–
165
521
(87)
1
435
201
408
5.95p
13.18p
3.99p
14.60p
Introduction
It was a very different first year as CFO than
I expected, but Morrisons strengths have
been familiar and very much provided the
foundations for everything we have been
able to do for stakeholders during the year.
The balance sheet is very strong, both
absolute and relative, 87% of our sites are
freehold and the pension schemes are in a
net £718m surplus position. Underlying debt
is low, we have a strong maturity profile
and, fundamentally, Morrisons is a very cash
generative business.
These attributes have been hard won and
carefully preserved over many years and will
continue to be cornerstones of Morrisons.
With the added benefit of significant
operational gearing during a year of very
strong sales growth (exc. fuel), we have been
able to do some unique things in what are
unique times and have more than played
our full part during the crisis.
* Alternative Performance Measures as defined in the Glossary on pages 157 to 159.
22
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Revenue
Total revenue during the period was £17.6bn,
up 0.4% year-on-year, with net new space
contribution of 0.4%. Total revenue excluding
fuel was up 8.9%, with Group LFL excluding
fuel very strong at 8.6%. Fuel sales were
down 32.1% to £2.5bn, severely affected
by the COVID-19 restrictions, especially
during the periods of lockdown. For retail,
LFL sales were strong from the start of the
COVID-19 pandemic in March 2020, with retail
contribution to LFL of 7.8%.
For wholesale, sales to all our partners were
strong throughout the year. Since year end,
we jointly announced with McColl’s that
300 McColl’s stores are to be converted to
Morrisons Daily over the next three years.
In addition, we have extended our partnership
with McColl’s by a further three years, with
a new contract out to 2027.
Our online offer continues to grow at pace
and sales more than tripled by the end of the
year, with growth through Ocado’s Dordon
CFC, a significant increase in store pick and
click and collect, and with the same-day
delivery service ‘Morrisons on Amazon’.
Profit
Operating profit
Adjustments:
Net impairment and
provision for onerous
contracts
Profit/loss on disposal
and exit of properties
Restructuring and store
closure costs
Other exceptional items
Online and home delivery
transformation cost
Online and home delivery
impairment write back
Operating profit
before exceptionals*
2020/21
£m
254
2019/20
£m
521
(7)
(2)
56
15
66
(76)
(2)
(66)
51
9
–
–
306
513
Operating profit before exceptionals
was down 40.4% to £306m (2019/20: £513m),
and EBITDA before exceptionals down
18.5% to £847m (2019/20: £1,039m). After net
finance costs before exceptionals of £105m
(2019/20: £106m), profit before tax and
exceptionals was down 50.7% to £201m
(2019/20: £408m).
All these profit measures were significantly
impacted by both the considerable direct
costs of COVID-19 and other pandemic-
related impacts on profit. Total direct
COVID-19 costs were £290m, comprising extra
payroll, extra colleague bonus, colleague
and customer safety protection measures,
distribution costs, seasonal waste and
markdown, plus various initiatives for food
banks, charities and local communities.
In addition, there was a significant impact
on profit during the periods of temporary
closure of our 407 profitable cafés (for an
average of 24 weeks each during the year),
plus lower sales and profit throughout
the year in key categories such as Market
Street service counters, food-to-go and
fuel. Mitigating these various cost and profit
impacts, operational gearing was strong and
sustained throughout. This was helped by
the benefits of vertical integration and the
further significant investment in price cuts
driving strong volume growth, and we again
performed well in reducing both stock loss
and the number of less effective promotions.
We also invested our operational gearing
into extra discounts for the benefit of
our colleagues, farmer suppliers, and key
workers in the NHS, teachers, and blue light
professions. In addition, in December 2020
we announced our decision to waive our
entitlement to business rates relief. The total
amount of waived business rates is £274m,
of which £230m related to 2020/21 and was
paid before year end. Without this payment,
our profit before tax and exceptionals would
have been £431m, up 5.6% year-on-year.
Operating profit before exceptionals and
the rates payment would have been £536m,
up 4.5% year-on-year, and margin would
have been up 12 basis points. EBITDA before
exceptionals and the rates payment would
have been £1,077m, up 3.7% year-on-year, and
margin would have been up 20 basis points.
Exceptional items
Exceptional items recognised outside profit
before tax and exceptionals (as fully detailed
in note 1.4 of the financial statements) were
a net debit of £36m (2019/20: net credit of
£27m). Of the £36m, £56m were restructuring
costs. We have now completed our major
retail restructuring initiative announced
in January 2020, and successfully launched
projects to reorganise transport and insource
some of our depots within the logistics
network. These restructuring initiatives
will simplify and speed up the business in
line with one of our seven priorities, and
continue to improve our efficiency and
productivity. In addition, we modernised our
ways of working at head office by adopting
more digital and flexible ways of working
for colleagues and a more streamlined
central structure.
Net debt*
£3,169m
2,386
2,394
2,458
1,194
997
973
2016/171 2017/18 2018/19
Net debt excluding lease liabilities
1,082
2019/20
3,169
1,798
2020/21
Lease liabilities
1 Calculated on a pre-IFRS 16 basis.
COVID-19 costs incurred during
the year total £290m
Extra payroll
Extra cost colleague bonus
Colleague and customer protection
Foodbanks and donations
Other costs
Total
2020/21
£m
99
68
46
12
65
290
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
* Alternative Performance Measures as defined in the Glossary on pages 157 to 159.
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Strategic reportGovernanceFinancial statementsInvestor information
Delivering returns for our shareholders continued
Guided by our
capital allocation
framework
The rapid expansion of online and home
delivery capacity resulted in transformation
costs of £66m being incurred, offset by
a store impairment write back of £76m due
to the improved utilisation of store assets
for our online and home delivery offers.
Within the £66m, we incurred £42m of costs
across our various online channels as we
transformed our online operations very
quickly and significantly grew our capacity,
offering customers new ways to shop
remotely with Morrisons and enabling a
rapid fivefold increase in delivery capacity
for customers.
In response to demand, we accelerated our
multi-year online expansion plans and made
one-off changes to transform our online
business, operational processes and ways of
working. The unprecedented scale and speed
of the implementation of these programmes
resulted in significant start-up costs during the
year. We also incurred one-off costs of £24m
relating to exceptional stock wastage.
The £76m store impairment write back related
to stores where store pick online operations
have become established, and asset utilisation
has improved thereby generating a structural
increase in sales and profit.
The annual impairment review produced
a net credit of £7m after excluding the write
back related to online capacity acceleration.
This comprises a £65m release relating
to other tangible assets, £9m credit on
onerous contracts and a £67m impairment on
intangible assets following adoption of more
cloud-based technology.
Other exceptional costs of £15m includes
£9m bonus for temporary colleagues
not ordinarily eligible and £4m in respect of
legal costs. In addition, net retirement benefit
interest income was £16m, and property
disposal profits were £2m.
Earnings per share
Basic earnings per share decreased
to 3.99p (2019/20: 14.60p), and earnings
per share before exceptionals decreased
to 5.95p (2019/20: 13.18p).
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
Proceeds on settlement
of share options
Leases non-cash
Other non-cash movements
Movement in net debt*
Opening net debt*
Closing net debt*
2020/21
£m
2019/20
£m
308
(22)
1,058
(41)
286
1,017
27
(539)
(261)
8
–
(197)
(1)
(80)
46
(711)
34
(511)
(302)
9
(10)
(190)
12
(66)
(57)
(64)
(2,458)
(2,394)
(3,169)
(2,458)
Group net debt was £3,169m, compared
to £2,458m at the end of 2019/20. Excluding
lease liabilities, net debt was £1,798m
(2019/20: £1,082m). Debt continues to be
temporarily adversely affected by the impact
on working capital of the ongoing lower
national demand for fuel and fuel deflation,
investment in higher levels of stock availability
both during COVID-19 and in our preparations
for Brexit, and the extension of the scheme
to pay our smaller suppliers immediately
during the crisis. Due to these effects and
the impact of COVID-19 on profit, there was
a free cash outflow of £450m (2019/20: £238m
inflow). The cash outflow from ordinary and
special dividends was £261m, a £41m decrease
year-on-year (2019/20: £302m). The operating
working capital outflow was £390m
(2019/20: £18m inflow).
Net finance costs
Net finance costs were £89m (2019/20: £87m),
and net finance costs before exceptionals
were £105m (2019/20: £106m).
* Alternative Performance Measures as defined in the Glossary on pages 157 to 159.
24
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Total dividend up
27%
Net retirement benefit surplus
£718m
944
688
594
718
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 2020/21, Morrisons made net
payments of £1,260m to the UK government
of which £633m was borne by Morrisons and
the remaining £627m was collected on behalf
of our colleagues, customers and suppliers.
Corporation tax payments made during the
year were £81m.
Return on Capital Employed (ROCE)
ROCE was 3.9%, down from 7.0% for 2019/20
due to the impact of COVID-19 on profit
before tax and exceptionals. The growth
opportunities we are focused on are capital
light and accretive to profit and returns.
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
272
Summary balance sheet
2016/17 2017/18 2018/19
2019/20
2020/21
Capital expenditure
£539m
500
461
419
511
539
2019/20
2016/17 2017/18 2018/19
Definition
Measured as additions to property, plant and equipment,
investment properties, intangible assets, assets held-for-sale
and investments as per the cash flow statement.
2020/21
Return on Capital Employed (ROCE)
3.9%
6.3%
6.7%
6.9%
7.0%
3.9%
2016/17 2017/18 2018/19
Definition
See the Glossary on page 159 for a definition.
2019/20
2020/21
Fixed assets and investments
Working capital*1
Provisions and tax
Net retirement
benefit surplus
Net debt*
Net assets
1 Excluding provisions.
2020/21
£m
8,843
2019/20
£m
8,641
(1,687)
(2,038)
(489)
(548)
718
944
(3,169)
(2,458)
4,216
4,541
Pensions
At year end, the net pension accounting
surplus on the balance sheet was £718m
(2019/20: £944m). Net retirement benefit
interest income was £16m for the year,
reported outside profit before tax
and exceptionals.
Capital expenditure
Cash capital expenditure was £539m
(2019/20: £511m). In the year a further 18 stores
went through our Fresh Look programme.
We also further developed our new
food-to-go Market Kitchen concept, which
is now in four stores. Six new stores were
opened, and one store was closed during
the period, with an overall net increase of
c.157k square feet.
Borrowings
Despite the temporarily higher level of debt,
liquidity remains very strong. At year end
we were £880 million drawn on our total
revolving credit facilities of £1.75 billion,
so with still very significant headroom.
In addition, since the year end, the Group has
extended the duration of £400m of revolving
credit facilities to dates between September
2021 and July 2022.
Our capital allocation framework has guided
us in building a track record of capital
discipline over recent years. Our first priority
is to invest in the stores and infrastructure
and reduce costs. Second, we will seek
to maintain debt ratios that support our
target of an investment-grade credit
rating. Third, we will invest in profitable
growth opportunities. Fourth, we will pay
dividends in line with our stated policy, and
then any surplus capital will be returned
to shareholders.
Our policy is for the ordinary annual dividend
to be sustainable and covered around
two times by underlying earnings per share
before exceptionals. In December 2020,
we announced that we would declare a
final 2020/21 dividend based on underlying
profit before the impact of waiving £230m
of business rates relief. The proposed final
ordinary dividend is 5.11p per share, taking the
full-year ordinary dividend up 5.6% to 7.15p
(2019/20: 6.77p). In addition, in December
2020 we announced a previously deferred
H2 2019/20 special dividend of 4.00p, which
was paid in January 2021. In total, the full-year
ordinary for 2020/21 plus special dividend is up
27% to 11.15p per share (2019/20: 8.77p).
With a very strong balance sheet, freehold
store portfolio, net pension surplus, and
strong underlying free cash flow, Morrisons
continues to be well positioned to deliver
for all its stakeholders. The capital allocation
framework is the foundation of our Fix,
Rebuild, Grow, Sustain strategy and guides
our decisions. It has served the Company and
its stakeholders well and remains unchanged.
We are confident Morrisons can continue to
generate strong free cash flow and surplus
capital for shareholders, and will take a
decision regarding a potential 2021/22 special
dividend at the end of the year.
Michael Gleeson, Chief Financial Officer
* Alternative Performance Measures as defined in the Glossary on pages 157 to 159.
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Strategic reportGovernanceFinancial statementsInvestor information Protecting the environment
and supporting communities
Lowering our environmental footprint and making
a positive contribution to the communities we serve.
Buying from
sustainable,
ethical and
resilient supply
chains
Our environment
Our long-term success depends on the
sustainable use of the planet’s resources
Our planet faces many environmental
challenges and we know we must be part
of the solution. This includes: reducing our
carbon footprint and use of plastic; helping to
end deforestation; reducing food waste; and
sourcing our products in a sustainable way.
Taking urgent action on these issues is not
only the right thing to do and something
we care about, but it is also important
to our customers who regularly highlight
environmental matters in their top ten
issues in our annual sustainability survey.
In addition, it is increasingly important to our
investors who see responsible environmental
stewardship as being integral to sustainable
long-term success, and are increasingly
factoring such considerations into their capital
investment decisions. See blackrock.com/
corporate/investor-relations/2020-larry-fink-
ceo-letter for details.
We are committed to playing our full part,
which is why we have committed to Net Zero
greenhouse gas emissions by 2040 in our own
operations, supporting the UK to reach Net
Zero by 2050. It is also why we set a stretching
target to reduce our own-brand plastic
packaging by 50% by 2025. But we can’t do
this alone, which is why working closely with
our key stakeholders, and particularly with
our suppliers and forming partnerships with
other organisations to bring about change,
will be important.
To drive our strategy forward at greater
pace, we have strengthened our environment
and sustainability governance and have
committed to reporting against the TCFD
(The Task Force on Climate-related Financial
Disclosures) framework in full for the 2021/22
Annual Report.
Net Zero
greenhouse gas emissions in
our own operations by 2040
50%
reduction in own-brand primary
plastic packaging by 2025
3,510
tonnes
OF PLASTIC
A YEAR REMOVED
BY PROVIDING
PAPER-BASED
BAGS
We provide customers
We provide customers
with more opportunities
with more opportunities
to reduce their plastic
to reduce their plastic
consumption by offering
consumption by offering
reusable paper bags
reusable paper bags
Governance
Our Board has overall accountability
for setting the strategy in relation to
the environment and our communities.
Governance has been further strengthened
this year with the formation of both the
Sustain Group and the Sustain Sub-Committee
of the Executive Committee.
• Sustain Sub-Committee of the Executive
Committee – comprising our Chief
Operating Officer and other senior leaders
from across the business, this committee
is responsible for reviewing the progress
and recommendations proposed by the
Sustain Group.
• Sustain Group – comprising leaders from
across our business, this Group is responsible
for ensuring we deliver sustainable growth
with a lower environmental and positive
supply chain impact; and we play our full
part supporting the lives of our colleagues
and the communities we serve. Alongside
reporting to the Sustain Sub-Committee
of the Executive Committee, updates
are provided directly to the Executive
Committee and Corporate Compliance
and Responsibility Committee.
• Sustain Workstreams – several working
groups have been established to coordinate
work on the specific elements of our
sustainability ambitions. Each workstream
is headed up by an appropriate leader, who
reports directly into the Sustain Group.
26
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Risk management
Environment and sustainability has been
elevated to a principal risk during the
year, as it has the potential to impact our
business in the short, medium and long term.
The physical risks and opportunities that
we face include extreme weather and water
scarcity, which could impact food availability
from certain countries. The transitional risks
and opportunities we face arise from moving
towards a cleaner more sustainable economy,
including aligning with future regulation,
meeting customers’ expectations and the
associated costs of doing business.
Our process for identifying and assessing
environment and sustainability risks is
the same robust process we apply to all
our Group emerging and principal risks,
as described on pages 33 to 38.
We are committed to undertaking a
comprehensive scenario analysis in 2021
to further develop our understanding
of the potential impacts of environmental
and sustainability risks, which will help
us to further refine our strategy and
financial planning.
Task Force on Climate-related Financial
Disclosures
We have been reporting our carbon footprint
since 2007, transparently showing the impact
of the emissions from our operations (scope 1
and 2) on the climate. We have responded to
the Carbon Disclosure Project’s requests for
disclosure for climate change since 2018 and
in 2020 were rated C for climate change.
In response to TCFD requirements, we have
enhanced our climate disclosures in this year’s
Annual Report with a view to becoming fully
compliant in next year’s Annual Report.
What we have done this year:
• strengthened our governance structure and
disclosed how our Board has oversight over
the environmental risks and opportunities;
• enhanced our risk disclosures to explain
how we identify, assess and manage the
environmental and sustainability risks; and
• further clarified what our targets represent.
What we will do next year:
• undertake a comprehensive scenario analysis;
• reassess our existing strategy and business
processes to ensure we have the right
embedded frameworks in place for the
future; and
• look to incorporate more performance
reporting, currently disclosed in our
standalone Sustainability Report, within
our Annual Report.
Carbon emissions
We are proud to be a signatory to the British
Retail Consortium’s (BRC’s) Climate Action
Roadmap, which is designed to guide British
retail along the steps necessary to achieve
a Net Zero UK, ahead of the Government’s
2050 target.
We have set targets, which were developed
with the help of the Carbon Trust, to reduce
operational emissions against a 2017 baseline
by 33% by 2025, 53% by 2030 and to reach
Net Zero emissions by 2040.
Our Net Zero target covers our own
operations, such as the vehicles that deliver
food to our customers’ homes and the
electricity we use in our stores (otherwise
known as scopes 1 and 2).
As we are British farming’s biggest direct
supermarket customer, we have also
committed to Net Zero agriculture by 2030
– this forms part of our scope 3 emissions,
so originating within our wider value chain.
This will cover products from UK farmers
directly sourced for our own-brand products
in beef, pork, lamb, potatoes and eggs.
We report scopes 1 and 2 in this report, and
we are working with partners, wider industry
and suppliers to be in a position to report
our scope 3 in the future.
Please see our 2020/21 Sustainability report
for further information about our climate
change plans.
Managing
environmental
risks
50%
reduction in food waste in stores
by 2030 vs 2016 baseline
Extended our range of
Extended our range of
loose fruit and vegetables
loose fruit and vegetables
giving customers more
giving customers more
opportunities to bu y
opportunities to bu y
products without plastic
products without plastic
NO
PLASTIC
CHRISTMAS
Completel y removed
Completel y removed
glitter across all
glitter across all
own-brand ranges
own-brand ranges
ahead of Christmas
ahead of Christmas
Task Force on Climate-related Financial Disclosures (TCFD)
The Financial Stability Board established the TCFD to develop recommendations for more
effective climate-related disclosures that could promote more informed investment, credit,
and insurance underwriting decisions and, in turn, enable stakeholders to understand better
the concentrations of carbon-related assets in the financial sector and the financial system’s
exposures to climate-related risks.
Source: https://www.fsb-tcfd.org/about/
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Strategic reportGovernanceFinancial statementsInvestor information Protecting the environment and supporting communities continued
Commitment
to lowering our
impact
Fridges fitted with doors
Fridges fitted with doors
provide energ y savings
provide energ y savings
of estimated 30-40%
of estimated 30-40%
S A V I N G
A L M O S T
300k
S I N C E 2 0 1 7
2020 performance
Scope 1 and 2 footprint
Improved energy efficiency alongside more
renewables in the UK grid helped us to reduce
our absolute scope 1 and 2 carbon footprint
by 5% (over 35,000 tonnes) in 2020 compared
to 2019. This is despite an increase in emissions
associated with haulage due to growth in
online sales and increased volumes being
delivered into stores. So far, since 2017 (our
baseline year) we have reduced our emissions
by 32%.
Energy efficiency initiatives
Energy efficient solutions are considered
as part of our capital investment plan.
During 2020 we introduced shelf-edge
technology to around 200 of our stores –
this technology draws cold-air back into
the fridge and helps reduce electricity
consumption. We also continued to invest
in LED lighting and to control voltage in
stores to reduce power demand.
We have installed 194 electric
We have installed 194 electric
vehicle charging points across our
vehicle charging points across our
stores, so far enabling customers
stores, so far enabling customers
to drive the equivalent of over
to drive the equivalent of over
four million miles
four million miles
We have achieved further reductions
in electricity use by ensuring that energy
efficient equipment is considered during
the design phase when building or when
refitting new stores. These upgrades
include heating, ventilation, air conditioning,
lighting and counter operations efficiencies.
We have also started to move away from
hydrofluorocarbons (HFC) based refrigerant
towards CO2 alternatives wherever possible,
which will have a positive impact on our
carbon footprint.
A reduction in gas consumption has been
achieved through our boiler replacement
programme and the reinstatement of ‘heat
harvest’ technology, which uses heat from
refrigeration to provide hot water in store.
Building Management System upgrades
have also allowed us to improve our control
of the electricity and gas associated with
heating and ventilation.
Alongside energy efficiency, we continue
to consider the role of ‘onsite’ renewables.
We currently have five Megawatts of
onsite solar power installed across 28 sites
and prioritised optimising these panels to
maximise generation during 2020.
Our logistics division has continued to
undertake a number of activities designed
to reduce distance travelled and fuel
consumed while delivering to our stores.
This includes careful scheduling to minimise
mileage, longer semi-trailers, and using
vehicle telematics systems to encourage
drivers to reduce harsh braking, acceleration
and engine idling time.
Group greenhouse gas emissions for year ending 31 December 2020
Tonnes of CO2e
2019/20
Prior Year
2020/21
Current Year
Change vs
baseline
Change vs
2019/20
Emission source
Combustion of fuel and operation of facilities
Natural Gas
Haulage 1
Company Cars2
Fugitive Emissions
Refrigerant
Total – Scope 1
Energy purchased for Own Use (Scope 2)
Electricity3
Total – Scope 1 and 24
2017/18
Baseline
Year6
166,154
135,029
1,791
141,572
139,164
2,140
130,353
170,634
1,221
183,207
486,181
85,039
367,914
68,011
370,218
456,682
311,954
273,799
942,863
679,869
644,016
Intensity Ratio: Tonnes of CO2e per m2 GIA
0.356
0.252
0.236
Underlying Energy Use (MWh)
Electricity
Natural Gas
Haulage
Company Cars5
Total
1,299,017
1,220,479
1,174,396
902,207
508,955
7,308
770,039
455,917
8,537
708,610
567,022
5,207
2,717,487
2,454,972
2,455,235
22%
(26%)
32%
63%
24%
40%
32%
34%
10%
21%
(11%)
29%
10%
8%
(23%)
43%
20%
(1%)
12%
5%
6%
4%
8%
(24%)
39%
(0%)
Combustion of fuel and
operation of facilities
2017/18–2020/21
942,863
792,165
679,869
644,016
2017/18 2018/19 2019/20 2020/21
Underlying energy use (MWh)
2017/18–2020/21
2,717,487 2,592,286
2,454,972 2,455,235
2017/18 2018/19 2019/20 2020/21
1 Haulage data includes scope 3 Well-to-Tank emissions which takes into account the extraction and transportation of fuel bringing reporting in line with our science based targets.
2 Company car data does not include scope 3 – employee commuting.
3 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. Electricity is reported using a location based approach, focusing on absolute reductions rather than sourcing.
4 Plus scope 3 Well-to-Tank emissions for Haulage.
5 Company Car data – revision to MWh conversion 2019.
6 Re-baselining of site inclusions/exclusions where material.
28
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2.1m
meals redistributed
to FareShare this year
Partnering with
Partnering with
Too Good To Go
Too Good To Go
100,000
meals
Food waste
We have committed to reducing food waste
in our stores by 50% by 2030 compared to
a 2016 baseline. This is in line with the United
Nations Sustainable Development Goal
(SDG) 12.3. Our first priority is to minimise the
levels of surplus we create. When waste does
occur, our ‘Unsold Food’ programme works
with a range of partners to ensure it can be
redistributed. This includes:
• Too Good To Go – we sold over 100,000
‘Magic Bags’ through an app, which gives
customers access to good quality products
at a fraction of the retail price; and
• charities and community partners – our
stores are empowered to give surplus food
to local causes, such as food banks.
Across our manufacturing and distribution
centre sites, we redistributed food through
a range of partners including Company Shop
and The Bread and Butter Thing. Where food
cannot be redistributed, we use anaerobic
digestion to generate electricity, which in turn
contributes to renewable energy generation
across the UK.
Plastics
Reducing plastic packaging is consistently
highlighted as one of the top issues
our customers care about in our annual
sustainability survey. Our target is to reduce
own-brand plastic packaging by 50% by
2025 against a 2017 baseline.
We were founding signatories to the
UK Plastic Pact and have committed that
all of our own-brand plastic packaging will
be reusable, recyclable or compostable
by 2025.
Some of the steps we took in 2020 include:
• trialling the replacement of plastic
‘bags for life’ with sustainable paper-based
alternatives to establish viability for a full
store-wide roll out in 2021;
• bringing our extended range of loose fruit
and vegetables to an additional 269 stores,
giving customers even more opportunities
to buy products without plastic; and
• removing glitter, which can be an
ecological hazard if it becomes dispersed
on land, rivers and oceans – across all our
own-brand ranges.
We redistributed over a
We redistributed over a
million meals to Manchester-
million meals to Manchester-
based charity 'The Bread
based charity 'The Bread
and Butter Thing' this year
and Butter Thing' this year
Our carbon footprint has been based on
the requirements of World Resources
Institute (WRI) GHG Protocol, and 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.
Group greenhouse gas emissions
verification
Verification was carried out in line with the
reporting requirements of the SECR. Scope 1
and scope 2 Greenhouse Gas Emissions are
subject to independent assurance by
Challenge Sustainability in accordance with
the ISAE 3000 standard. The full assurance
statement with Challenge Sustainability’s
scope of work, and basis of conclusion, will
be published in our 2020/21 Sustainability
Report on our website in May 2021.
Group greenhouse gas (GHG)
emissions methodology
We have reported for the calendar year
1 January to 31 December 2020 in order
to remain consistent with our historical
footprint report and baseline year
verification. We have used the Government’s
Environmental Reporting Guidelines (2020)
to prepare these numbers, and the emissions
factors from the UK Government
GHG Conversion Factors for Company
Reporting (2020).
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.
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. The reporting boundary has been
determined by operational control, which
includes emissions from the operation of
the Group’s supermarkets, manufacturing,
distribution sites and operation of its
haulage fleet. We exclude our Hong Kong
office and Bos Brothers Fruit & Vegetables
BV, one supermarket which consumes fuel
oil (representing less than 0.1% of the total
footprint). We also exclude liquid CO2 at
Winsford, a new process identified which
we will look to include going forward.
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Strategic reportGovernanceFinancial statementsInvestor information Protecting the environment and supporting communities continued
Growing British
agriculture
Our range of ‘For Farmers’ milk has
Our range of ‘For Farmers’ milk has
now returned over £18.5m to farmers
now returned over £18.5m to farmers
to advance health, welfare and
to advance health, welfare and
environmental measures
environmental measures
Deforestation
Deforestation is a contributing factor to
biodiversity losses and climate change.
We have committed to zero deforestation in
our supply chains by 2025, including the use
of both palm oil and soya – two important
forest risk commodities.
In 2020 we reported use of 99% Roundtable
on Sustainable Palm Oil (RSPO) certified
palm derived ingredients. In addition, we
implemented a sustainable soy sourcing
policy, setting out targets for 100% of soya
(including in animal feed) in own-brand
products to come from sustainably certified
sources by 2025. We also became members
of the UK Roundtable on Sustainable Soy,
committing to reporting our progress publicly.
Fish
We have continued to support a range of
projects to help support sustainable domestic
and international fisheries. These include
the development of a fishing gear recycling
programme for harbours in the South West
of England, working with Seafish & Odyssey
Innovations. Since we started supporting this
programme over 100 tonnes of plastic netting
have been recycled. We have also become
a member of the Global Tuna Alliance,
supporting improvement in the management
of international stocks.
Textiles
We continue to make progress towards
our sustainability targets across our Nutmeg
clothing range. We are increasing the amount
of recycled polyester that we use within
our ranges and, as part of our commitment
to zero deforestation, we are making progress
towards all our viscose being sourced from
responsibly managed forests.
We are also part of the Better Cotton Initiative,
which makes global cotton production better
for the people who produce it, better for the
environment it grows in, and better for the
sector’s future. 27% of our cotton was sourced
as Better Cotton in 2020, and we are aiming
to reach 100% by 2025.
Animal welfare
Ensuring every animal in our supply chain
is content and has a good life through well
managed farm animal welfare is a key priority
for us and our customers:
• Chicken: 100% of our fresh chicken will be
sourced from farms where chicks are ‘born
in the barn’ by 2023 (70% achieved to date).
We are also working with our integrated
supplier to lay down a breeding flock so
we can provide a range of chicken grown
to higher welfare requirements. We will
also support the launch of the UK’s first
‘Windstreek’ farm to improve sustainable
poultry production.
• Eggs: We met our target to procure 100%
of our eggs from free-range production
systems in 2020 – five years ahead of
target. We also introduced a new ‘For
Farmers’ range of eggs, giving customers
the option to pay more for eggs from farms
which are investing in biodiversity and
welfare measures.
• Beef: Compassion in World Farming
recognised our commitment to improve
the health and welfare of beef from the
dairy chain by 2025 with a Good Calf Award
in 2020.
• Pork: To improve welfare, we continued
our research into environmental enrichment
with the University of Leeds and introduced
new farm standards that require all supplying
farms to undertake additional stockmanship
and welfare training alongside the installation
of CCTV by 2022.
• Dairy: We are the only retailer in the UK
with fresh milk supply 100% aligned to and
compliant with the industry-leading Arla
UK 360 standard. This includes the policy
to ensure every calf has a value. Our range
of ‘For Farmers’ milk has now returned over
£18.5m to farmers to advance health, welfare
and environmental measures.
Managing the responsible use of antibiotics
has remained a key area of focus and we
do not permit routine use. In 2020 we took
the additional step of banning the use of
colistin – an antibiotic deemed as a last resort
treatment for human health.
100% of our eggs came
100% of our eggs came
from free-range production
from free-range production
systems in 2020, five years
systems in 2020, five years
ahead of target
ahead of target
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100%FREE RANGE Responding
to the
communities
we serve
£500,000
donated by the Morrisons
Foundation to charities working
with homeless people
CELEBRATING WORLD
BOOK DAY
The Morrisons Foundation
donated 7,300 new books
to schools nominated by
Community Champions across
England, Scotland and Wales.
Working in partnership with
the National Literacy Trust (NLT),
the project offered 125,000
pupils the opportunity to enjoy
a free bundle of books.
Our community
Each of our 497 stores across the UK is
part of its own unique community, which
we are proud to serve
Responding to local needs
In response to the COVID-19 crisis, we
strengthened our commitment to communities
by investing the equivalent of an extra £5m
(450,000 hrs) into our network of Community
Champions. These are in-store colleagues
who work with the local community, so they
can better respond to local needs.
As part of our strategy to become
integrated into the communities we serve,
our Community Champions have undertaken
an extensive ‘listening’ programme with
community stakeholders to better understand
priorities and needs locally. This has enabled
each store to develop a detailed local
Community Plan, which will be implemented
in 2021.
During the pandemic, we recognised that
many of our elderly, vulnerable and isolated
customers would struggle to access food,
especially if they were not able to use digital
platforms. To play our full part in feeding the
nation, we launched our doorstep delivery
service, which enables customers to order
food by phone for free next day delivery
from their nearest store.
As schools reopened after the first lockdown,
we launched a new meal delivery service for
primary school children who were eligible for
free school meals and having to self isolate.
The Morrisons Kids Meal Pack, developed in
partnership with our company nutritionist,
was designed to provide healthy and balanced
meals. To make it as easy as possible, schools
were able to call and order packs from the
Morrisons doorstep delivery team and have
them sent direct to children’s homes.
Tackling food poverty
In March 2020, food bank charities across
the country began reporting significant
reductions in donations, whilst at a time when
demand for their services was increasing.
To help restock the nation’s food banks we
committed to donating £10m of dedicated
stock, which was distributed locally by our
Community Champions.
We also set up Food Bank Hubs in our stores
– giving customers the option to purchase
pre-packed bags of groceries designed around
the needs of local food banks, which we
then distributed on their behalf. In addition,
we introduced ways for customers to make
monetary donations to the Trussell Trust
when doing their online shopping. The Trussell
Trust works to stop UK hunger and poverty,
through a network of over 1,200 food banks.
Morrisons Foundation
In 2020 the Morrisons Foundation donated
£3m in grants to registered charities.
Since launch it has donated over £32m and
has supported over 2,500 charities to make
a positive difference in local communities.
During the COVID-19 crisis, the Foundation
helped charities to respond to the
immediate needs of their communities.
This included prioritising COVID-19 related
applications, giving charities greater flexibility
over how they spend funds, and making
faster payments.
The Foundation also set up a dedicated fund
to support charities working with homeless
people. Over £500,000 was awarded to
charities across the UK, providing shelter,
hot meals and essential supplies to people
experiencing homelessness, including rough
sleepers who are particularly vulnerable to
COVID-19.
Customers can purchase
Customers can purchase
pre-packed bags of groceries
pre-packed bags of groceries
designed around the needs
designed around the needs
of local food banks
of local food banks
£10m
of dedicated stock
donated to the
nation’s food banks
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 four years.
Further details on the steps that we have
taken to tackle modern slavery and human
trafficking within our Group businesses and
supply chains can be found on our corporate
website at www.morrisons-corporate.com/cr/
ethical-trading/tackling-modern-slavery-and-
forced-labour/
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Strategic reportGovernanceFinancial statementsInvestor information Protecting the environment and supporting communities continued
Supporting charities
During the year, our colleagues, customers
and suppliers raised over £3m in the year for
our national partnership with CLIC Sargent,
a charity which provides vital support to
young cancer patients and their families.
The money was used to provide grants to
help families with the financial costs of cancer
and has funded the purchase of a property
in Manchester which will open as a ‘Home
from Home’ for cancer patients in late 2021.
We have decided to extend our partnership
with CLIC Sargent to February 2022 so that we
can deliver on our fundraising target of £15m.
As a strategic partner of the Poppy Appeal,
we worked hard to adapt our support in light
of the pandemic. Alongside implementing
systems to collect donations at our checkouts
and online, many of our in-store colleagues
also volunteered to fundraise – together this
helped us to raise over £1.25m. We also raised
over £750,000 for Marie Curie’s Great Daffodil
Appeal in March 2020 and £65,000 for Children
In Need in November.
Responsible supply chain management
We continue to acknowledge the
responsibility we share with our suppliers
to respect the internationally recognised
human rights of the people who make
and sell our products. This includes fair
working conditions, health and safety in the
workplace, gender equity and respect for the
diverse communities in which we operate.
COVID-19 has exacerbated existing
supply chain vulnerabilities relating to
labour exploitation and modern slavery.
We responded by strengthening partnerships
with external organisations, including regional
police teams. We have also delivered bespoke
e-learning to over 10,000 colleagues in our
manufacturing and logistics operations, and
hosted an online event in partnership with
‘Invest in Bradford’ to build awareness and
capacity in the local business community.
We understand that our customers and
stakeholders expect us to be increasingly
transparent about our structure, business
and supply chains. We work closely with
our suppliers to ensure they operate in
a responsible manner, and we want to make it
possible for customers and other stakeholders
to raise concerns directly with us. In 2020
we published details of all first tier factories
producing our Nutmeg branded range
of clothing and our own-brand food and
non-food products, including data relating to
gender and access to worker representation.
In 2020 we commissioned an expert third
party to undertake a review of environmental
and human rights risks in our global food
supply chains. The results of this study will
inform our approach to risk mitigation and
improvement from 2021 onwards.
Making a positive
contribution
During the year our colleagues
During the year our colleagues
and customers helped raise
and customers helped raise
significant amounts of mone y
significant amounts of mone y
for good causes, including:
for good causes, including:
£750,000
Marie Curie Daffodil Appeal
£1.25m
Poppy Appeal
£65,000
Children In Need
£200,000
The Trussell Trust
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 social matters is shown in this
section on pages 31 and 32;
• information on environmental matters
• our approach to anti-corruption and
anti-bribery matters is set out in our
Corporate governance report on page 52;
is shown in this section on pages 26 to 30;
• our business model is described on
• information on our colleagues is shown
in Rewarding our colleagues section on
pages 18 and 19 and as part of the Directors’
report on page 75;
pages 4 and 5;
• our principal and emerging risks, and
how we manage them, are described
on pages 33 to 38; and
• our respect for human rights is set out in
• other non-financial key performance
our Corporate governance report on page 52;
indicators are shown on page 1.
32
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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 helps us deliver our ambitions
for all of our stakeholders and means that
we are in a better position to achieve our
priorities, respond to emerging risks and
create opportunities.
The risk management process
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 to the business (likelihood and impact),
the extent of any mitigating controls and the
resultant net level of risk. They also detail any
further plans to mitigate or reduce risks and
the associated 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 subgroup of the Executive Committee
each year.
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, risk appetite and key risk indicator
reporting on a regular basis. Read more on risk
governance in the Audit Committee report
on pages 48 to 51.
This subgroup reviews coverage across
the Group’s principal risks, the key controls
already in place and any risk mitigation
plans. The Executive Committee reviews the
output from the subgroup at half year and
reviews the Group’s principal 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.
The Group’s 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 new risks or 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 systems
of internal control and has also established a
rotational monitoring process for key controls.
Where potential weaknesses are identified,
the Risk and Internal Audit team work with
the business to agree robust mitigating actions.
Principal and emerging 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.
Changes to principal risks
During the year, two new Group risks have
been added. One in response to COVID‑19 and
one relating to protecting our environment.
We have also replaced the Data risk with a new
Information Security risk.
COVID-19
Following the extensive and enduring impact
of the COVID‑19 pandemic, the Board chose
to include COVID‑19 as a new separate Group
principal risk at the half year.
Our response continues to be coordinated
through a business wide COVID‑19 business
continuity team. Our key focus remains
on providing a safe working and shopping
environment for our colleagues and
customers respectively, responding to any
changing regulations and local restrictions
and working closely with our suppliers.
We continue to follow all COVID‑19 UK
and devolved Government guidelines and
are hopeful that the progress being made in
rolling out the vaccine will continue to reduce
the impact of this risk to our colleagues
and customers.
The risk management process
The risk management framework
Identif y
r
o
t
i
n
o
M
Eval
u
a
t
e
Mitigate
Board of Directors Maintains sound risk management and control systems, assesses
principal risks
Audit Committee
Sets risk management framework, assesses effectiveness of risk
and control systems and maintains oversight of risk monitoring
Executive
Committee
Assess principal, operational and emerging risks and undertakes
regular monitoring of risk
Risk and Internal
Audit
Coordinates risk management activity through review of risk
registers, agreement of risk mitigation plans and preparation of
risk reporting
Operational
Management
Reviews operational risks, operates controls and implements risk
mitigation plans
T
o
p
d
o
w
n
B
o
t
t
o
m
u
p
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Strategic reportGovernanceFinancial statementsInvestor information
Risk continued
Managing our risks continued
Environment and Sustainability
Our processes to identify emerging risks have
consistently shown us how important the
environment and sustainability are to our
customers and wider stakeholders.
This year the Board has decided to add a new
Group risk for Environment and Sustainability
to capture the risks associated with not
achieving our commitments to lower our
carbon, plastic, pollution and waste footprint.
UK – EU Trade
Following the agreement of a zero‑tariff
deal on the movement of goods , we have
reduced the net risk associated with the
UK‑EU principal risk. We remain focused on
executing our plans to mitigate any impacts
arising from the UK’s changing relationship
with the EU, including new border controls,
any increased costs and the new points based
immigration system.
The Group will continue to monitor ongoing
developments and requirements through 2021.
This will include working with suppliers ahead
of additional UK border checks on goods
entering the UK from the EU.
Competitiveness
The net risk for Competitiveness has
increased in the year. This is due to the
increased pressure on costs, competitor
activity and customer price sensitivity due to
the additional external economic risk factors
and the impact of COVID‑19.
Information Security
Given the rapidly evolving external threats,
increased levels of cyber attacks and the
complex nature of managing information
security risks, we have replaced the previous
Data Group key risk to one which focuses
on Information Security.
As the governance framework for the
General Data Protection element of the
Data risk has matured, this is now included
within the existing Regulation Group risk.
Food Safety, Product Integrity and
Ethical Sourcing
Our previous analysis of emerging risks
has repeatedly highlighted the increasing
importance that customers place on product
integrity, provenance and ethical sourcing.
Therefore, we are expanding the existing
risk of Food Safety and Product Integrity,
to include Ethical Sourcing. This risk will
now encompass all aspects of ‘Product’
with the exception of price which is included
within Competitiveness.
Emerging risks
Our Risk Management process incorporates
the formal identification and management
of emerging risks. These are reported to
the Audit Committee alongside our known
principal risks.
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.
We continue to review and assess the
potential impacts of key risks including climate
change, consumer eating habits and trends,
innovations in technology, future pandemics
and public health concerns.
Climate change risk management
Climate change can impact our business in a number of ways including security of food supply, price inflation, impacts on economies and
disruptions to communities. Reductions in Greenhouse Gas emissions not only minimise these threats but can also deliver efficiencies,
operational cost savings and create new market opportunities. Stakeholder pressure for businesses to act also continues to grow, with
customer awareness of climate change at an all‑time high.
• These impacts and the evolving nature of the associated risks have been considered as part of our review of both emerging risks and the
Group’s principal risks and have been recognised through the introduction of a new Group risk for Environment and Sustainability.
• We continue to consider the threats and opportunities climate change presents to our business. These risks, and the processes in place
to identify and manage them, are discussed as part of our regular functional risk register reviews.
• Addressing climate change is one of the ten key focus areas in our Corporate Responsibility strategy and in 2019 we launched our science‑
based operational carbon reduction target which will see us achieve Net Zero emissions by 2040. We are also working on a target for
our indirect or scope 3 emissions, including working with British farmers who directly supply us.
• Our corporate responsibility programme is formally incorporated into our governance structures through the Sustain Sub‑Committee
for climate and environmental considerations with representatives from across the business.
• This is in line with our new stakeholder ambition ‘the environment and communities’.
We continue to report our progress in this area in our annual Corporate Social Responsibility report and have considered the additional
requirements created by the new Task Force on Climate‑related Financial Disclosures (TCFD) required for the 2021/22 Annual Report.
See page 27 for more details.
34
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Principal risks
Risk
Description
Mitigation
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 4 5 7
COVID-19
NEW
#
The Grocery Sector continues to
be highly competitive. If we do not
engage with our suppliers or effectively
manage our trade plan, harnessing the
benefits of new technology to remain
competitive, there is a risk this will
adversely impact like‑for‑like sales and
financial performance.
COVID‑19 continues to have a significant
and widespread impact on our business.
Failure to appropriately respond to and
manage the impacts of COVID‑19 on
our colleagues, customers and suppliers
or to adapt our ways of working
could adversely affect our business
performance.
Customer
#
There is a risk that we do not meet
the needs and expectations of our
customers in respect of price, range,
quality, service or respond to changes
in eating and shopping habits.
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.
• We have recovery plans in place covering our stores, depots, online operation,
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 plans and quality and respond to
customer feedback.
• A dedicated team is in place to coordinate our response with representation from
all key business areas;
• The safety and wellbeing of our colleagues and customers remains our top priority
and we continue to adhere to the UK and devolved Government guidelines in
all areas;
• We continue to apply social distancing measures in all stores and sites, through
installing protective screens and making hand sanitiser, gloves and face coverings
available for all colleagues;
• Increased focus on cleaning and hygiene;
• We have a well managed balance sheet and liquidity strategy which has provided
resilience to operate through the pandemic as well as take actions to support our
customers, colleagues and suppliers;
• We continue to closely monitor colleague absence and recruited new colleagues
in stores, manufacturing, logistics, online and home delivery;
• No colleagues have been furloughed. We have enhanced pay guarantees for sick,
self‑isolating and affected colleagues. We have provided greater flexibility around
shifts and annual leave and in the year awarded a 6% ‘thank you’ guaranteed annual
bonus for all front line colleagues;
• Increased our online capacity, introduced click & collect, launched food boxes
and expanded our partnerships with Amazon and Deliveroo. We also introduced
a telephone order grocery doorstep delivery service to support the most
vulnerable; and
• We continue to work hard with all our suppliers including supporting British farmers
and moved to immediate payment terms for smaller suppliers.
• 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 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;
• We actively respond to customer complaints and aim to continually improve the
customer experience; and
• Community Champions actively engage local communities to support local
charities and initiatives such as doorstep deliveries.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
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Strategic reportGovernanceFinancial statementsInvestor information
Risk continued
Principal risks continued
Risk
Description
Mitigation
Environment and
Sustainability
NEW
1 2 3
4 7
This risk relates to a failure to reduce
the environmental impact of the
business, meet the external sustainability
commitments and expectations of our
customers and wider stakeholders which
could result in financial penalties and/or
reputational damage.
Financial
and Treasury
#
Food Safety,
Product Integrity
and Ethical
Sourcing
1 2 3
5 6 7
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.
It is also important to us to support
sustainable, ethical and resilient
supply chains.
Health
and Safety
2 5 6 7
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.
• Developments and progress in our sustainability agenda are reported to the new
Sustain Sub‑Committee and to the Corporate Compliance and Responsibility
Committee;
• The Corporate Compliance and Responsibility Committee meets regularly during
the year and performs an oversight, monitoring and advisory role for key areas
including environment, ethical compliance and corporate responsibility;
• Each Sustain Workstream commitment has a responsible business owner providing
updates to the Corporate Responsibility team, the Sustain Sub‑Committee and their
relevant Executive Committee Director;
• Our Corporate Responsibility Report is published annually on our corporate website,
sharing progress against our environmental, ethical and sustainability targets;
• We have a clear strategy to reduce Morrisons emissions footprint and expect to
achieve Net Zero emissions by 2040;
• This includes our ambition to be Net Zero in our UK agriculture supply chain by 2030,
working with the farmers who directly supply us to reduce emissions from livestock
and produce, increase carbon sequestration and improve the use of renewable
energy on farm; and
• We pledge to reduce the plastic we use in our products by 50% with 100% of plastic
packaging used on our products to be recyclable, reusable or compostable by 2025.
• 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;
• The Group’s Treasury function is responsible for the forward‑planning and
management of funding, interest rates, 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 is reviewed on a regular basis;
• 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 continue to monitor credit risk across our 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;
• Our Ethical Trading Policy and Code establish key requirements for all suppliers.
We actively monitor compliance through an extensive third party audit programme
and provide support for suppliers when issues are identified;
• We work closely with our supply chain to understand food provenance, sustainable
and ethical practices including animal welfare; and
• Our measures to tackle Modern Slavery are reported annually in our Modern Slavery
Act Statement.
• 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.
These have been updated in light of our expanded online operations;
• A programme of health and safety audits is in place across the Group with resource
dedicated to manage this risk effectively;
• Introduced a programme of store and site COVID‑19 health and safety audits; and
• Management regularly monitors health and safety performance and compliance and
has introduced new electronic accident reporting across all stores and sites to help
identify and respond to any trends.
36
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Information
Security
NEW
1 2 3
4 5 7
People
#
Regulation
#
Risk
Description
Mitigation
A cyber attack or security breach could
lead to a loss of customer, colleague
or Group confidential data, business
disruption, reputational damage and
significant fines.
The risk environment is challenging,
with increased levels of sophisticated
cyber‑crime, complex regulatory
requirements and our use of a number
of third parties.
• The Data Steering Group has the responsibility for overseeing data management
practices, policies, regulatory awareness and training. This includes change
management activities and a review of third parties managing data on our behalf;
• Information security policies, procedures and controls are in place, including
encryption, network security, systems access and data protection;
• This is supported by ongoing monitoring, reporting and rectification of
vulnerabilities; and
• Focused working groups are in place which review the management of data across
the business including colleague data, customer data, commercial data, financial data
and the sharing of any data with third parties.
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.
The Group operates in an environment
governed by numerous regulations
including GSCOP (Groceries Supply
Code of Practice), General Data
Protection Regulation, competition,
employment and regulations over the
Group’s products. The Board takes
its responsibilities very seriously and
recognises that a 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 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;
• During the year, no colleagues have been furloughed and we awarded a 6% ‘thank you’
guaranteed annual bonus for all our front line colleagues;
• Colleague engagement surveys, listening sessions and networking forums are used
to understand and respond to our colleagues; and
• We take pride in creating an inclusive work environment where everyone feels
welcome and we celebrate our differences.
• The Group monitors for potential regulatory and legislative changes and the impact
on contractual arrangements;
• We actively engage with government and regulatory bodies on policy changes
which could impact our colleagues and our customers;
• 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;
• We have an established General Data Protection Regulation governance framework
including data management practices, policies, regulatory awareness and training; and
• We have training, policies and legal guidance in place to support compliance with
Competition Law and other regulations.
• A business‑wide Stability Group continues to monitor regulatory requirements
and supply chain impacts and coordinate our operational responses;
• We continue to actively engage our key suppliers to reduce any impact to our
supply chains and have maintained our focus on UK sourcing;
• We increased the stock holding on a number of key lines to ensure availability for
our customers;
• We have maintained Authorised Economic Operator status to enable streamlined border
checks and have introduced additional procedures to support our store in Gibraltar;
• We have also continued to work with our suppliers and freight providers to identify
alternative supply routes to avoid the busiest ports;
• The Group has a Treasury policy in place for hedging to mitigate risks on currency
fluctuations. All required changes to taxes and tariffs have been applied; and
• We continue to monitor the availability of labour across the Group and we have
enacted specific people plans across our manufacturing and logistics sites including
supporting EU colleagues through the process of applying for settled status and
increasing the number of apprentices.
UK – EU Trade
1 2 4
5 7
Failure to adequately adapt to the
post‑Brexit trading and regulatory
environment could have significant
implications for business performance;
including supply chain disruption,
availability and rising costs
due to currency fluctuations.
Key
Increase in net risk
No change in net risk
Decrease in net risk
NEW New risk
Link to our
seven priorities
Be more competitive
1
2 Serve customers better
3 Local integration and
serving the community
Simplify and speed up
4
the organisation
5 Naturally digital
6 Pride in hygiene
7 Creating and scaling for
profitable growth
# Underpins all seven priorities
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Risk continued
Principal risks continued
Viability statement
The Group’s business model and strategy, as outlined on pages 4 to 5,
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 2024. 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 4 to 5), opportunities for growth, performance
of its strategy (including seven priorities (pages 10 to 13)), as well as the
principal risks (pages 35 to 37). The latest strategic planning update with
the Board was held in November 2020 with involvement of all relevant
functions across the business.
As part of the strategic planning process, the Directors make a number
of assumptions about business performance and the ability of the
Group to raise debt financing. The Group carefully plans and reviews
the maturity profile of debt facilities to avoid coterminous maturity
dates and liquidity forecasting gives visibility of headroom under
committed facilities over the period of the financial plans. The Group’s
policy is to maintain sufficient headroom in committed facilities to
mitigate the risk that supply chain finance facilities are not available.
Key metrics, such as cash flow, interest cover, liquidity and the ability
to raise debt financing, were subject to sensitivity testing by flexing
a number of the main financial assumptions in order to assess the
impact of principal risks in severe but plausible scenarios.
The scenarios which have been modelled encompass the Group’s
principal risks. The hypothetical scenarios are deliberately severe and
designed to test the viability of the Group.
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.
The Group continues to closely monitor the constantly changing
risk of the global COVID‑19 pandemic, which has significantly
impacted the Group in 2020/21, for example with regard to the closure
of cafés, reduced fuel volumes and the additional costs of ensuring
colleague and customer safety. The future impact will depend on
the severity and length of the UK outbreak, which continues to be
uncertain. The key risks to our operations have been considered
within the scenarios tested and in the reverse stress testing performed.
Based on these, the Directors believe the conclusions reached in
the viability testing remain appropriate.
Scenario
Principal risks
Description
Competitive
pressure
Competitiveness,
Customer
Business
interruption
or regulatory
breach
Business
interruption,
Compliance,1
Regulation
Banking
crisis
Financial and
Treasury
Impact
of Brexit
COVID-19
Competitiveness,
Customer,
Regulation,
Financial and
Treasury
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 a loss of reputation among
customers leading to an impact on
sales and profit.
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.
Increased inflation and import costs
as a result of the new trade deal with
the European Union.
COVID‑19
Competitiveness,
Customer,
Financial and
Treasury
A scenario where COVID restrictions
continue for a prolonged period
of time resulting in increased costs,
constraints on café hours and reduced
fuel sales.
1 This captures multiple principal risks relating to compliance, including food safety,
health and safety.
Section 172
In addition to examples throughout the Strategic report the Board
has provided a statement on page 41 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 five stakeholder groups, the community
and the environment.
Approval of the Strategic report
Pages 1 to 38 of the Annual Report form the Strategic report.
The Strategic report was approved by the Board on 10 March 2021
and signed on its behalf by:
Jonathan Burke, Company Secretary
10 March 2021
38
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Corporate governance report
Chair’s governance statement
Dear Shareholder,
On behalf of the Board, I’m pleased to introduce
Morrisons Corporate governance report for the
financial year, 2020/21.
Like each and every one of our 118k colleagues,
during 2020/21 the Board very quickly adapted
to new ways of working, ensuring smooth
decision making and maintaining high standards
of corporate governance.
Andrew Higginson
Chair
2020 has been a truly unforgettable year for the nation and has required
large changes in both our Group’s operations and our Board processes.
The pandemic significantly changed how the Board communicates
and how members engage with each other. The use of technological
solutions ensured that the Board’s operations continued smoothly in the
midst of a very challenging year. As always, we approached all decisions
during the year with the long-term benefits of all our stakeholders firmly
in mind. As a Board, we recognise the unique impact that Morrisons
can have in ensuring that our nation remains safe and fed during the
pandemic. We are also particularly proud of the work we do to help
protect the environment and support communities.
Board effectiveness
Despite the removal of ‘face-to-face’ meetings, the Board and
management team continue to work well together. The Board draws
on the Directors’ range of experiences, knowledge and skills to help
improve the Group for all our stakeholders.
We are delighted that Jeremy Townsend, Susanne Given and
Lyssa McGowan have joined the Board. They bring with them a wealth
of experience and knowledge that will truly benefit our Group. They
have each completed an in depth initial induction programme, which
will continue with further visits to our manufacturing sites, distribution
centres and stores over the coming year once allowed.
During the year, an external review of the effectiveness of our Board
was undertaken by Consilium Board Review, and KPMG LLP carried out
a review of our governance processes. We were pleased that both
reviews found that governance and compliance within Morrisons remains
strong, and the recommendations that they made to further enhance
the Board’s effectiveness have already started to be put into practice.
AGM
For many of our shareholders, the AGM is the highlight of our
corporate calendar, therefore the Board was very mindful of this
when we made the decision to hold a closed AGM this year, to support
the country in preventing the further spread of COVID-19. As with
many matters this year, we had to very quickly find different ways
to ensure that communications with our shareholders would not
be detrimentally impacted by the way the formal meeting was held.
We were very pleased with the response we received from our
shareholders, and many of the answers to their questions were
included in a video that was made available on our corporate website.
The Board was delighted by the 97% support for the Annual Report
on remuneration, but noted that the Remuneration policy only
received 65% support. As we communicated in December, the Board
has discussed this with shareholders to better understand the reasons
for the voting outcomes, and the Chief Executive and Chief Operating
Officer have since voluntarily committed to a reduction in their pension
levels to those available to the workforce by the end of 2022. Our Chief
Financial Officer was appointed in February 2020 with a 5% pension level.
The Board also noted that the voting outcome for the re-appointment
of Belinda Richards to the Board was primarily driven by the votes
from a small number of institutional shareholders who applied a more
stringent voting policy on Directors’ external commitments than is
market practice. Whilst the Board supported Belinda’s re-appointment,
she has subsequently stepped down from the Board. We are delighted
with the experience that Jeremy Townsend has brought to the Audit
Committee, by utilising his previous experience as a FTSE 100 CFO to
truly bolster his Chairmanship of this Committee.
Corporate Governance Code
Throughout the year, the Group 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 this guidance, the changing environment in which we work,
the needs of all our stakeholders and the delivery of our strategy.
Colleague voice at the Board
While the culture of listening is well established throughout Morrisons,
this year has truly focused the Board members’ minds on its value.
As the designated Non-Executive Director for workforce engagement,
Kevin Havelock has attended virtual sessions with colleagues in various
roles within the Group to understand the culture and their opinions
in greater depth.
Engaging with all stakeholders
We continue to review and improve our business operating model based
on 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 continue to be committed to listening hard
to all our stakeholders and responding quickly wherever we can.
“ In an extremely challenging year, our Board
is very proud of what it has achieved on
behalf of each of our stakeholder groups.”
Andrew Higginson, Chair
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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, other than 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 2020/21 and to the date of this Annual Report.
In accordance with Provision 4 of the 2018 UK Corporate Governance Code, we published an update on the key actions that have been taken by the
Board of Directors and Remuneration Committee in respect of two of the resolutions put to our shareholders at the 2020 Annual General Meeting (AGM).
Remuneration Policy (Resolution 3)
In addition to the comprehensive shareholder engagement programme undertaken during the development of the Directors’ Remuneration
Policy, the Chair of the Remuneration Committee has further engaged with shareholders to understand their feedback regarding the policy vote.
From this engagement, it is understood that the significant factor regarding the vote was the treatment of pension allowance for incumbent
Executive Directors. More information on the actions taken in response to this vote is included in the Directors’ remuneration report on page 56.
Belinda Richards (Resolution 12)
The Board also noted that the outcome of the vote for the re-appointment of Belinda Richards to the Board was primarily driven by the votes of
a small number of institutional shareholders who applied a more stringent voting policy on Directors’ external commitments than is market practice.
The Board strongly supported Belinda’s re-appointment; however, as announced on 6 July 2020, Belinda stepped down from the Board in order to
take up a new role as an independent Non-Executive Director of Jupiter Fund Management PLC. The Nomination Committee continues to carefully
monitor all Directors’ external time commitments and would take appropriate action should concerns be identified regarding their commitment
to the Company or their ability to dedicate sufficient time to their duties.
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
4 to 5
Audit Committee membership and responsibilities
18 to 19
Audit Committee activities
Director responsibility for the Annual Report and accounts
Assessment of emerging and principal risks
33 to 37
61
41
53
52
42
Risk management and internal control systems
Going concern
Viability statement
Remuneration
Remuneration consultants
Post-employment shareholding requirement
Executive pensions
Contract periods
Director remuneration policy
Remuneration Committee considerations
44
Remuneration Committee membership and responsibilities
42 and 43
Non-Executive Director remuneration
44
48
76
33
73
38
45
62
72
60
59
61
58
54
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
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
40
44
46
43
42
43
45
42
42
53
46
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Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
Doing the right thing for all our stakeholders
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.
As shown on page 4, Morrisons has outlined five main stakeholder groups; however, the Board and Group also regularly consider the needs of
other stakeholders such as the Government, Regulatory Bodies, Charities and Non-Governmental Organisations (NGOs) when making decisions.
Our business model and Board operations are focused on delivering long-term benefits for all our stakeholders while maintaining a high standard
of business conduct. The Board recognises the need for genuine, well informed and dynamic engagement with our stakeholders and believes
the Group has the right representatives formally and informally engaging with a wide and diverse selection of stakeholders (more information
on this can be seen on pages 14 to 32 of this report). The Board spends a lot of time listening to and understanding the views of our stakeholders
to form an integral part of any decision making.
COVID-19
Throughout the COVID-19 pandemic, the Board has considered
all stakeholders in the decisions made, striving to balance all
their needs, alongside considering the long-term and reputation
impacts. Some examples of our decision making are set out below:
The Board set the purpose through the pandemic to truly galvanise
colleagues and offer the full weight of the Company behind
actions that could really make a difference. The Board supported
management in responding very quickly to ensure that our stores
and sites remained safe places to work and shop and rapidly
increased our online operations for customers to provide them
with greater choice in their shopping method. Our doorstep delivery
service and foodboxes have been a lifeline for our most vulnerable
customers, responding quickly to the anxiety we were hearing from
these customers on how to access groceries.
Early in the pandemic, the Board recognised the exceptional efforts
of our colleagues and decided to guarantee an enhanced colleague
Bonus scheme as a way of thanking them for their dedication and
hard work. This decision benefits each of our stakeholders because
it is our motivated and dedicated colleagues that implement and
maintain all of the improvements made in the business. Further
to this, the Board also approved an increase in our front line retail
colleague hourly pay rate from £9.20 to £10 to start in April 2021.
Despite the AGM having to be limited this year because of contact
restrictions, the Board considered it imperative that all shareholders
were provided with full opportunity to challenge the Directors,
and raise questions with them, in the usual way. To enable this,
shareholders were invited to submit questions, with the Directors’
responses recorded on video and made available on our website.
Alongside the normal day-to-day interactions with our suppliers,
we have used our supplier engagement programmes to listen and
respond to feedback. Suppliers have told us that it has been a very
difficult year for them. Understanding the impact of the pandemic
on our suppliers, the Board acted swiftly to approve the immediate
payment of smaller suppliers to ensure that we continue to support
these vital industries. The Board has continued to monitor the Group’s
compliance to the Groceries Supply Code of Practice (GSCOP)
to ensure this remains a priority in these unprecedented times.
We care about supporting our communities, and our network
of Community Champions plays a vital role in helping us to develop
both national initiatives and targeted local responses. Our purpose
through the pandemic set the tone for playing a wider part in our
communities. Responding to the reduction in food bank donations,
we donated £10m of stock targeted to where it was needed most
through the Community Champions network.
Acquisition of Lansen Nursery Limited (‘Lansens’)
In a year that required more immediate responses to changes
in operations than ever before, the Board also considered many
long-term strategic decisions. One such example was the acquisition
of Lansen Nursery Limited (now renamed Lowlands Nursery
Limited). The Board considered the various benefits for customers
and, ultimately, shareholders that further integration of our
horticulture supply chain will bring. The potential benefits for
the colleagues of both Lansens and Morrisons were also carefully
considered. The ability to grow flowers and plants within the
Group will allow us to better balance crops throughout the
growing seasons, meaning less waste and therefore a reduced
environmental impact.
Special dividend
At the beginning of the year, the Board anticipated announcing
another special dividend. However, the Directors determined that it
would be prudent to defer the decision given the unprecedented
events and uncertainty around the pandemic. The Board decided
that this decision would give the Company maximum future
flexibility around how we prioritise uses of our strong cash flow
to ensure long-term benefits for all stakeholders.
The Board continued to review all capital allocation options
throughout the year, and, in December 2020, after considering the
strong balance sheet and underlying cash flow positions, supported
by our freehold property portfolio and pension surplus, decided to
pay a special dividend relating to the previously deferred payment
for H2 2019/20 (the period before COVID-19) of 4.00p per share.
In making this decision for shareholders, the Board once again
evaluated the impact on customers, colleagues, suppliers,
the environment and community.
Reducing our carbon and plastic footprint
The Board continued to recognise that reducing plastic packaging is
a key issue for our customers. The Board considered the exceptional
work that the Group has already done in this area, deciding to
increase our target on reducing our own-brand primary plastic
packaging by 50% by 2025. In making this decision, the Board
recognised that the removal of plastic packaging needs to be
carefully managed to ensure that it does not reduce the safety,
the quality, or the shelf life of products. The Board also recognises
the need to work alongside our suppliers to achieve this
stretching target.
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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.
Any additional external appointments require approval by the Chair, Chief Executive, Senior Independent Director and Company Secretary.
Significant appointments are only approved if it is not believed that these appointments will negatively impinge on the Directors’ commitment
or time to Morrisons. All current Directors submit themselves for election or re-election at the AGM to be held on 10 June 2021.
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
Officer
4. Michael Gleeson
Chief Financial
Officer
6. Susanne Given
Independent
Non-Executive
Director
8. Lyssa McGowan
Independent
Non-Executive
Director
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 (ICAEW).
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. He became Interim Chair of the
Corporate Compliance and Responsibility (CCR)
Committee in April 2020.
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 in 2019.
External roles
Chair of Purity Soft Drinks
Chair of WorldSkills UK
Chair of Away Resorts
Senior Advisor to Portland Communications
Executive Chair of RedCat Pub Company
6. Susanne Given
Appointment
Susanne joined the Board as a Non-Executive
Director in August 2020.
Experience
Susanne has deep retail experience, across
a variety of channels, and particularly in the
clothing and homeware categories. Susanne was
previously a Non-Executive Director of Deloitte
NSE, Eurostar International Ltd, Chair of Push
Doctor Ltd and Chair of Outfittery GmbH.
Between 2012 and 2015, she was Chief Operating
Officer at Superdry PLC and was Group Director
of Fashion & Beauty for John Lewis & Partners
between 2011 and 2012.
External roles
Chair of Made.com Ltd
Non-Executive Director of Tritax Big Box REIT PLC
Non-Executive Director of Trent Holdings Ltd
Non-Executive Director of Al-Tayer Insignia
7. Kevin Havelock
Appointment
Kevin joined the Board as a Non-Executive
Director in February 2018. He was appointed as
Chair of the Remuneration Committee in
April 2020.
Experience
Kevin has significant fast moving consumer goods
(FMCG) industry experience, and until 2019 as a
member of the Executive Committee at Unilever
and President of Global Refreshment, which
comprises Unilever’s drinks and ice cream brands.
He was previously a Trustee of The British
Council.
External roles
Non-Executive Director of Fevertree Drinks PLC
Trustee of The Eden Project
Board Member of The All England
Lawn Tennis Club
Non-Executive Director of Ben and Jerry’s
8. Lyssa McGowan
Appointment
Lyssa joined the Board as a Non-Executive
Director in August 2020.
Experience
Lyssa is currently Chief Consumer Officer at
Sky UK, responsible for the TV, Broadband and
Mobile categories. She has held various other
senior roles at Sky since joining them in 2010.
Prior to that, Lyssa was at McKinsey & Company
and Telewest, and holds an MBA from Harvard
Business School.
Lyssa has wide experience in digital
transformation and brand building within
large consumer facing businesses.
External roles
Chief Consumer Officer at Sky UK
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, N Brown Group PLC and
the IGD, 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 Evergreen Garden Care Limited
Chairman of the PRL (Premiership Rugby)
Adviser to Shore Capital
2. David Potts
Appointment
David joined the Group as Chief Executive
Officer 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
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9. Jeremy Townsend
Independent
Non-Executive
Director
10. Paula Vennells CBE
Independent
Non-Executive
Director
1. David Potts CBE
Chief Executive
Officer
4. Andy Atkinson
Group Commercial
Director
Executive Committee
9. Jeremy Townsend
Appointment
Jeremy joined the Board as a Non-Executive
Director in July 2020. In September 2020, he
was appointed as Chair of the Audit Committee.
Experience
Jeremy recently retired from his position as
Chief Financial Officer of Rentokil Initial PLC.
He was previously Group Finance Director of
Mitchells & Butlers PLC and prior to that held
various senior finance positions at J Sainsbury PLC.
Jeremy started his career at Ernst & Young LLP
and is a fellow of the Institute of Chartered
Accountants in England and Wales. Until
recently, Jeremy was a Non-Executive Director
and Chair of Audit Committee of Galliford Try
Holdings PLC.
External roles
Non-Executive Director of PZ Cussons PLC
A Board member of NHS England
A director of Parkrun Global Limited
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. Paula has
also been a Non-Executive Board Member of the
Cabinet Office.
External roles
Chair of Imperial College Healthcare NHS Trust
Non-Executive Director of Dunelm Group PLC
Board composition
Role
30%
Executive
Ethnicity
90%
White
Gender
70%
Male
70%
Non-Executive
10%
BAME
30%
Female
Jonathan Burke
Company
Secretary
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
Audit
Committee
Nomination
Committee
CCR
Committee
Remuneration
Committee
Andrew Higginson
David Potts
Trevor Strain
Michael Gleeson
Rooney Anand
Neil Davidson4
Susanne Given1, 2
Kevin Havelock
Lyssa McGowan1
Belinda Richards4
Jeremy Townsend3
Tony van Kralingen4
Paula Vennells
Committee key
9/9
9/9
9/9
9/9
9/9
1/1
5/6
9/9
6/6
4/4
6/6
1/1
9/9
–
–
–
–
5/5
1/1
2/3
5/5
3/3
3/3
3/3
1/1
5/5
4/4
–
–
–
4/4
0/0
0/0
4/4
0/0
4/4
1/1
0/0
4/4
4/4
4/4
4/4
–
4/4
1/1
2/2
4/4
2/2
3/3
2/2
1/1
4/4
5/5
–
–
–
5/5
1/1
2/3
5/5
3/3
3/3
3/3
1/1
5/5
Audit Committee
Corporate Compliance and Responsibility Committee
Remuneration Committee
Nomination Committee
Committee Chair
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2. Trevor Strain
Chief Operating
Officer
5. Clare Grainger
Group People
Director
3. Michael Gleeson
Chief Financial
Officer
6. David Lepley
Group Retail
Director
1. David Potts
See Board of Directors on page 42.
2. Trevor Strain
See Board of Directors on page 42.
3. Michael Gleeson
See Board of Directors on page 42.
4. Andy Atkinson
Appointment
Andy joined Morrisons in 2011 and was appointed
as Group Customer and Marketing Director
in January 2016. In February 2020, Andy was
appointed Group Commercial Director.
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 the Central
region 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 Susanne and Lyssa joined the Board and the Committees on 12 August 2020.
2 Susanne was unable to attend one meeting of the Board and its Committees as she was
called up for Jury Service. She received all papers on all subjects to be discussed and shared
any comments on the subject matters tabled for discussion prior to the meeting.
3 Jeremy Townsend joined the Board and the Committees on 6 July 2020.
4 Neil Davidson, Belinda Richards and Tony van Kralingen stepped down from the Board and the
Committees on 26 April 2020, 10 September 2020 and 29 April 2020 respectively.
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Structure of the Board and its Committees
The decisions delegated by the Board to its Committees during the
financial year 2020/21 are shown in the table below and on the following page.
Function
Members
Main
Board
See page 46 for details of activities
Executive
Committee
See page 47 for details of activities
Audit
Committee
See page 48 for details of activities
Corporate Compliance and
Responsibility Committee
Remuneration
Committee
Nomination
Committee
See page 52 for details of activities
See page 54 for details of activities
See page 53 for details of activities
Andrew Higginson
(Chair)
David Potts
Trevor Strain
Michael Gleeson
Rooney Anand
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Jeremy Townsend2
Paula Vennells
David Potts (Chair)
Trevor Strain
Michael Gleeson
Andy Atkinson
Clare Grainger
David Lepley
Jeremy Townsend
(Chair)2
Rooney Anand
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Paula Vennells
Rooney Anand (Chair)
Andrew Higginson
David Potts
Trevor Strain
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Jeremy Townsend2
Paula Vennells
Andrew Clappen3
Kevin Havelock (Chair)
Lyssa McGowan1
Andrew Higginson
Jeremy Townsend2
Paula Vennells
Rooney Anand
Susanne Given1
Andrew Higginson (Chair)
Lyssa McGowan1
Rooney Anand
Susanne Given1
Kevin Havelock
Jeremy Townsend2
Paula Vennells
Developing and implementing the Group’s policies on
corporate compliance and corporate responsibility;
Developing and implementing the Group’s
remuneration framework and policies for Directors
reviewing and ensuring compliance with those policies
and colleagues including all long-term incentive plans,
and with ethical and governance standards.
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:
– 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 53);
• Maintaining general oversight of people and
capability within the business, and their diversity
(more information can be found on page 53);
• Reviewing the talent pool for the Executive
Committee and levels below Executive
• Reviewing and setting policy on diversity
Committee; and
and inclusiveness.
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 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:
– departmental performance reviews;
– oversight of improvements to process
for supplier and compliance with The
Groceries Supply Code of Practice (GSCOP);
and
– progress against our sustainability plan.
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
• 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 focused on the key tasks.
• Developing strategic operating plans that
reflect the longer-term objectives and
priorities established by the Board;
• Closely monitoring the operating and
• Acting as a sounding board for the Chair,
supporting the delivery of his objectives
and leading the Chair’s evaluation on the
Board’s behalf; and
financial results against plans and budgets,
taking remedial action where necessary and
informing the Board of significant changes; and
• Meeting with the Non-Executive Directors
to review the Chair’s performance at least
once a year.
• Putting in place adequate operational
planning control systems.
Responsibilities
• Engaging the Board in assessing and improving
• Building and maintaining an effective
its performance;
• Overseeing the induction and
development of Directors; and
• Providing advice and assistance
to the Chief Executive.
executive management team;
• Ensuring that the operating objectives
and standards of performance are not only
understood but owned by management
and other employees; and
• Maintaining ongoing dialogue with the
Chair of the Board.
• 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.
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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 and
to the feedback from stakeholders including
– the integrity of financial reports, including
key policies of the Group;
• Managing culture and values;
customers and colleagues;
• Maintaining oversight of:
• Monitoring progress towards achieving all
– financial performance, reporting and control;
Board objectives;
• Monitoring 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:
– departmental performance reviews;
– oversight of improvements to process
for supplier and compliance with The
Groceries Supply Code of Practice (GSCOP);
and
– progress against our sustainability plan.
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
See page 46 for details of activities
See page 47 for details of activities
See page 48 for details of activities
Corporate Compliance and
Responsibility Committee
See page 52 for details of activities
Remuneration
Committee
See page 54 for details of activities
Nomination
Committee
See page 53 for details of activities
Members
Andrew Higginson
(Chair)
David Potts
Trevor Strain
Michael Gleeson
Rooney Anand
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Jeremy Townsend2
Paula Vennells
David Potts (Chair)
Trevor Strain
Michael Gleeson
Andy Atkinson
Clare Grainger
David Lepley
Jeremy Townsend
(Chair)2
Rooney Anand
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Paula Vennells
Rooney Anand (Chair)
Andrew Higginson
David Potts
Trevor Strain
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Jeremy Townsend2
Paula Vennells
Andrew Clappen3
Kevin Havelock (Chair)
Andrew Higginson
Rooney Anand
Susanne Given1
Lyssa McGowan1
Jeremy Townsend2
Paula Vennells
Andrew Higginson (Chair)
Rooney Anand
Susanne Given1
Kevin Havelock
Lyssa McGowan1
Jeremy Townsend2
Paula Vennells
Key objectives
strategy.
Overall conduct of the business and setting
Implementing strategy and actions in respect of
Effective governance of financial reporting,
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:
– 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
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 53);
• Maintaining general oversight of people and
capability within the business, and their diversity
(more information can be found on page 53);
• Reviewing the talent pool for the Executive
Committee and levels below Executive
Committee; and
• Reviewing and setting policy on diversity
• Reviewing the Chief Executive and Chair’s expenses.
and inclusiveness.
1 Susanne Given and Lyssa McGowan joined the Board on 12 August 2020.
2 Jeremy Townsend joined the Board on 6 July 2020. Jeremy is considered to have recent and relevant financial experience.
3 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.
Leadership around the business
David Potts
Chief Executive
Clare Grainger
Group People Director
Michael Gleeson
Chief Financial Officer
Andy Atkinson
Group Commercial Director
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Board and Committee activities
in 2020/21
Main Board
Activities in 2020/21
During the year, the Board has:
Strategy and Planning
• set the strategy and plans for the Group;
• approved the 2020/21 budget and commercial plans, including
productivity savings to invest in the customer offer;
• approved the Group’s capital allocation framework; and
• reviewed the Core Purpose of Morrisons; and reset the priorities,
ways of working and stakeholder groups.
Operational Performance
• overseen the response to the COVID-19 pandemic;
• reviewed the annual business plan and received regular updates
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 interim and special dividend and proposed final dividend;
• approved the waiver of the rates relief;
• approved the extension of the revolving credit facility; and
• consideration of the Annual Report including assessing whether the
report is fair, balanced and understandable, that a going concern basis
of accounting is appropriate, and assessing the viability statement.
Risk
• assessed the Group’s emerging and principal risks; and
• monitored the Group’s risk management and internal control systems.
Governance
• ensured business is conducted in accordance with the Group’s values;
• instructed and reviewed the results from the KPMG Governance
Review and the External Board Effectiveness Review;
• reviewed the governance structure and activities of the
sub-committees of the Board;
• appraised the performance of the Chair through a meeting of
Non-Executive Directors; and
• identified and managed any potential conflicts of interests as appropriate.
Colleagues
• viewed the values and culture of the Group through ‘Your Say’
survey responses and feedback provided from the ‘Your Say’ forums;
• approved the guaranteed enhanced colleague bonus; and
• approved the increased hourly pay rate to £10.
Stakeholders
• ensured that the strategy is aligned to long-term success for all
stakeholders; and
• considered feedback received from customers, colleagues, suppliers,
shareholders and other stakeholders.
46
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. Following last year’s review, discussions
regarding succession planning for the Board have received additional focus.
COVID restrictions throughout the year have restrained our plans to
increase the opportunities for the Board to spend time more with the
wider Leadership Team, however we continue to seek opportunities for
this. There has also been increased levels of informal communication
amongst the Non-Executive Directors throughout the year. This year,
Consilium Board Review (‘Consilium’) completed this review in accordance
with the requirement that this should be carried out externally every
three years. Consilium has no connection to the Group. Consilium was
selected to complete the External Board Effectiveness Review having
completed the last external review in 2017/18. The Board was keen to
understand the progress and improvements made since the last review,
and believed that using this same evaluator would provide additional
insight into the development of the Board over time. The review
concluded that both governance and compliance are strong, and that the
Board operates in an effective and efficient manner. It was also noted that
the Board has in place an effective governance framework in place.
The review recommended some actions that could be taken to further
improve the performance of the Board. The Board action plan for
2021/22 will include:
• ensuring that Board agendas are set to allow additional time for the
NEDs to have more informal time without management present;
• reviewing the format, structure and content of the papers presented
to the Board ahead of the meetings to ensure these remain relevant
and insightful; and
• completing a workshop to help define the way of working and key
responsibilities within the Board which are deemed especially
relevant given the appointments of three new Non-Executive
Directors over the last year.
During the year, the Group also reviewed and considered the
effectiveness of its principal advisers to ensure they remain appropriate
and relevant to the Group’s needs. The Board formally discussed the
findings of the review in November 2020. Over the course of 2021/22, the
Chair and Company Secretary will continue to review the effectiveness
of the related actions as they are put in place. With regard to the findings
from the last review, it was felt by the Board that the opportunities for
the Non-Executive Directors to spend more time with the Group’s wider
leadership team or more informal time with the other Non-Executive
Directors was significantly impacted by the pandemic. The Board will
continue to seek opportunities for this next year. 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.
KPMG Review of Governance
Two of the departing Non-Executive Directors this year raised
questions about Morrisons’ Governance practices and policies.
The Board took these matters very seriously and appointed KPMG LLP
to complete a review of our Governance procedures. To ensure this
review was independent, it was led by our Senior Independent Director,
Rooney Anand. The review found that Morrisons is starting from a very
strong base of Corporate Governance that could be further enhanced
by: a structured process for the Board to agree on the desired culture
and operational standards that it wishes to embed; increased structure
to the Nomination Committee; and by continuing to strengthen
the communication between members of the Board. The Board has
agreed that an action plan for each of these recommendations will
be implemented and evaluated during 2021/22.
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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, the Chief Operating Officer and the
Investor Relations team following the full and half year results;
• 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 regular updates
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 2021 AGM will be held on 10 June 2021 at the Group’s headquarters
at Gain Lane in Bradford. We will be reviewing Government guidance
ahead of the meeting, to ensure that this meeting is conducted in a
safe way for both our shareholders and the Board. The whole Board
is expected to attend and be available to answer any questions
shareholders may have. In addition, the individual Board members and
Committee Chairs remain available throughout the year to respond
to queries from any stakeholders.
Notice of the 2021 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 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 2020/21
During the year, the Executive Committee has:
Strategy and Planning
• developed plans to implement the Group’s strategy;
• agreed the updated priorities including the priority for ‘outstanding
in hygiene’;
• determined the draft budget and long-term plan; and
• approved capital budgets.
Operational Performance
• implemented a purpose through the pandemic ‘to play our full part
in feeding the nation’;
• adapted to the changing regulations, government guidelines and best
practice to ensure that our colleagues and customers remain as safe
as possible during the pandemic;
• further developed the home delivery and click & collect channels;
• continued to implement the Group’s priorities;
• 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;
• managed and controlled the necessary investment in ensuring our
operations remain safe for colleagues and customers; and
• reduced the cost base of the organisation through productivity
and procurement improvements.
Risk
• determined principal and emerging 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
virtual customer listening sessions and shopping trips with customers;
• overseen the Group’s commitment to Corporate Social
Responsibility, in particular the targets around carbon and plastic
reduction, as well as its support for the Group’s charity partner
CLIC Sargent, and for the charitable Morrisons Foundation;
• implemented food boxes and telesales functionalities to support
vulnerable customers;
• reviewed the talent, capabilities and capacity within the Group;
• listened to views of colleagues including reviewing the ‘Your Say’
survey results and agreeing improvement actions; and
• recommended the ordinary and special dividends to the Board.
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Board and Committee activities
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Audit
Committee
Dear Shareholder,
I am pleased to present my first report of
the Audit Committee for the 52 weeks ended
31 January 2021, following my appointment as
Chair of the Committee in September 2020.
Jeremy Townsend
Chair of the
Audit Committee
This 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. The composition of
the Committee has changed in the year with the addition
of the new non-executives, myself included, but continues to
have the necessary balance of skills, experience and professional
qualifications. An appropriate induction has taken place for
all new members of the Committee.
During the year, the Committee considered 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.
The Committee has spent time reviewing revised internal audit
plans in response to the pandemic restrictions and changing
priorities and considering the impacts on the control in place.
I would like to take this opportunity to thank all Morrisons
colleagues who have worked hard to maintain the control
environment across the Group during this very challenging year.
The Committee is responsible for reviewing and making
recommendations to the Board on the integrity of the
financial statements, and challenging 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 the impact and disclosures relating to the
pandemic, including in the explanation of performance in the
year and the going concern disclosure. The Committee has also
considered the findings of the Financial Reporting Council’s
thematic reviews which took place during the year. This report
provides further detail on these areas and other key activities
of the Committee.
Activities in 2020/21
During the year, the Committee has:
• considered the appropriateness of the Group’s Annual Report and
Financial Statements and Interim report;
• discussed and challenged key judgements made by management
in respect of the Group’s financial statements including recognition
of exceptional items;
• considered the impact that COVID-19 has had on the financial
performance of the Group;
• 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 and how this has
been adapted in response to the pandemic;
• discussed and agreed the revised principal risks, in light of changes
in the Group’s priorities and due to the pandemic (described in more
detail on pages 35 to 37);
• considered reports produced by Internal Audit covering topics
including business responses to key events, regulatory compliance
and the control environment;
• reviewed key policies including those governing tax, treasury and
non-audit fees;
• reviewed the recognition of commercial income and the controls
in place regarding compliance with GSCOP;
• understood the impact of the climate related reporting requirements
which will become mandatory for the 2021/22 financial year;
• assessed the proposed going concern and viability statements,
reviewed assumptions made by management and challenged the
scenarios modelled; and
• reviewed and understood pension 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 had been applied, and has reviewed and challenged the
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 and intangible assets
Impairment continues to be a focus area for the Committee, on the
basis of the materiality and level of inherent judgement and estimation.
The Group’s policy is to assess impairment on an annual basis, or
where changes in circumstances indicate impairment (or impairment
write back) 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, online assets,
technology assets and goodwill.
Management estimates the recoverable amount of assets to
determine the extent of any impairment charge or whether a write
back of a previous impairment charge is required. This assessment
led to a write back of previous impairment of assets in certain cash
generating units and an impairment charge being recognised on
others, resulting in an impairment charge of £125m and an impairment
write back of £199m in 2020/21, as disclosed in note 1.4 of the
financial statements.
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The Committee reviewed reports produced by management
detailing the outcomes of the impairment testing. This review focused
on understanding the methodology, the basis of key assumptions
(discount rate, cash flows, growth rate and separate trigger events) and
understanding the outcomes of the impairment assessment performed
by management. The Committee challenged how management had
reflected changes in the business model, such as the expansion of
online operations and how expected future performance, potential
changes in market conditions and potential environmental factors had
been considered. The Committee also reviewed management’s key
assumptions around the market valuation of the store portfolio.
Having reviewed all key assumptions in respect of impairment and the
impact on the value of the Group’s assets, 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 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.
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
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 impact of IFRS 16 ‘Leases’ on the financial statements continued
to be an area of focus for the Committee during the year.
The Committee understood the key judgements and estimation
methods in relation to the accounting for leases in the current year.
These judgements and estimates included approaches to determining
lease length and assessing impairment of right-of-use assets and the
Committee understood the financial impacts of the judgements taken.
Having considered the key assumptions and estimates applied, and the
associated disclosures, the Committee is satisfied that the approach
taken is appropriate. The Committee considered the output of the
Financial Reporting Council’s thematic review of lease accounting and
disclosures as part of its review of the Group’s financial statements
including disclosure regarding lease breaks and extensions.
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 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 considered the Group’s use of Alternative Performance
Measures (APMs) as set out in the Glossary on pages 157 to 159, and is
satisfied that they adequately follow the guidelines issued by the
European Securities and Markets Authority (ESMA).
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.
In addition, the Committee has specifically considered the treatment
of costs incurred associated with COVID-19 and compliance with the
Financial Reporting Council’s guidance. The Committee has considered
that the reporting of COVID-19 costs is appropriate, as such costs have
not been adjusted for through alternative performance measures in
line with the guidance. The direct cost impacts of COVID-19 have been
presented separately in the Strategic report to enable investors to better
understand the cost impact on the business during the year.
Going concern assessment
The Committee recognised the uncertainty that the pandemic
has caused and considered the Group’s ability to continue as a going
concern, taking into account budgets, borrowing facilities and the
viability scenarios prepared by management for discussion at the
Audit Committee along with the mitigating action. The Committee
concluded that the going concern basis of preparation for the financial
statements, and the associated enhanced disclosure of the Directors’
going concern assessment and the expanded disclosure regarding the
Group’s liquidity, is appropriate. For further information see page 90.
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Board and Committee activities
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Internal control and risk management
The Board has overall accountability for ensuring that risk is effectively
managed across the Group. Principal and emerging risks are reviewed
by the Executive Committee twice a year with the results presented
to the Board.
The Group’s principal risks, which have been revised in the year, are
set out on pages 35 to 37.
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:
The Committee regularly reviews the Group’s processes for risk
management and internal control, carrying out a formal review
annually. Any internal control findings identified have been quickly
addressed and 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. In the current year,
the Committee have considered how the control environment
has been adapted due to the impact of COVID-19 with additional
executive sign off processes introduced for COVID-19 related costs.
• 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
Internal Audit
The Committee is regularly updated on the work and findings
of Internal Audit throughout the year, including:
the Group; and
– the department’s findings, annual plan and the resources available
to perform the work.
• reviewing 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 control areas; monitoring the adequacy and
timeliness of management’s response to identified audit issues; and
• reviewing the conclusions and themes from the Internal Audit
reviews completed during the year.
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.
• 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.
In the current environment, the need for flexibility in the delivery of
the Internal Audit plan was recognised and the Committee received
regular updates on how resources had been deployed and how the
audit plan had been adapted to respond to the changing risks. 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 International Professional Practices Framework developed
by the Institute of Internal Auditors and the principles outlined in the
Internal Audit Code of Practice. An external review of the effectiveness
of Internal Audit is conducted every five years. This last took place in
2018/19, and concluding that the function performs well, with a small
number of minor improvement opportunities, which have since been
addressed.
External audit tenure
The Board appointed PricewaterhouseCoopers LLP (PwC) as external
auditor in June 2014.
John Ellis has taken on the position of lead audit partner in the year
following the rotation of Andrew Paynter who had held the position for
five years. John met with members of the Board, the Audit Committee
Chair and members of management as part of his transition into the role
and gaining an understanding of the business.
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.
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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 to gather 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 has taken
place in 2020/21, in line with the five year service guidance.
The Committee will continue to pay close attention to developments
in the audit landscape in response to: the findings of Sir Donald
Brydon’s independent review into the quality and effectiveness of audit;
and the outcome of the BEIS consultations on the recommendations
made (i) by Sir John Kingman in his independent review of the FRC, and
(ii) by the CMA in its market study into the statutory audit market,
and will take these into account as and when appropriate.
FRC thematic reviews
In November 2020, the FRC published on its website names of
all companies whose Report and Accounts had been subject to
a completed review. The Group was included on that published list.
This related to the FRC’s thematic review of IFRS 16 disclosures in
the Group’s 2019/20 Annual Report and Financial Statements, which
had been included in the sample selected for review. The outcome of
the review was that no substantive issues were raised, with only minor
disclosure improvement opportunities noted, the majority of which
are reflected in our 2020/21 Annual Report and Financial Statements.
The FRC also included certain disclosures from our 2019/20 financial
statements as good examples of disclosure in their cash flow and
liquidity disclosures thematic review.
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, as reviewed in the year, is set out in the Investor Centre
section of the Group’s website (see www.morrisons-corporate.com and
complies with the Financial Reporting Council’s (FRC’s) Ethical Standards).
PwC 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 are disclosed in note 1.6 of the financial statements. The
Committee is satisfied that this non-audit activity carried out by the
statutory auditors is subject to safeguards to avoid a threat to the
auditor’s independence or objectivity. These safeguards include separate
teams for audit versus non-audit work.
Effectiveness of the external auditor
The Committee considered the effectiveness of PwC as auditor during
the year. The Committee and the Committee Chair hold meetings
with the auditor without management present, 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 output from the FRC’s Audit Quality review on PwC and other
external audit practices;
• the level of professional scepticism and independence applied; and
• the output of an effectiveness survey completed by the Directors
and management.
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Board and Committee activities
in 2020/21 continued
Corporate Compliance and
Responsibility (CCR) Committee
Dear Shareholder,
The CCR Committee acts as a custodian
of the policies and practices that define
and safeguard the reputation of Morrisons.
The Committee members bring experience,
insight and perspectives to help guide the
work of this Committee.
Rooney Anand
Chair of the
CCR Committee
In this exceptional year, the policies and practices that define
and safeguard the reputation of Morrisons have never been
more important. Whilst it was appropriate to cover many
of the significant pandemic related changes at Board level,
the Committee continued to pay close attention to the evolving
views and expectations of the Group’s broad range of key
stakeholders, and receive 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 priority for the Committee along
with consideration of the Group’s response to environmental and
sustainability challenges.
I am satisfied the Group makes decisions in a very thoughtful and
informed manner and that the Group is well positioned to ensure
that its role and reputation with all our stakeholders remains
strong during the upcoming year.
Activities in 2020/21
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 the Corporate Responsibility Strategy and approved
publication of the 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 26 to 32. 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 21.
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 Group 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 https://www.morrisons-corporate.com/about-us/
whistleblowing-policy/. All Board members review the whistleblowing
policy on an annual basis and receive 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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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.
Andrew Higginson
Chair of the
Nomination Committee
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 and
ensures that clear processes and policies are adhered to in order
to further increase 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.
Each Director has a good understanding of our colleagues and
culture provided by the ‘Your Say’ survey results, Kevin Havelock’s
feedback from the ‘Your Say’ Forum, formal and informal 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 2020/21
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; and
• considered the Board’s structure; including nominating Jeremy
Townsend, Susanne Given and Lyssa McGowan for appointment
as Non-Executive Directors.
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 2020/21
Board appointments
Following a rigorous process, the Committee recommended the
appointment of Jeremy Townsend, Susanne Given and Lyssa McGowan
for appointment as Non-Executive Directors.
The Group appointed Russell Reynolds to assist in identifying long lists
of candidates with the requisite skills and experience for the roles
of Chair of the Audit Committee and Non-Executive Director. Russell
Reynolds was deemed independent with no other connections to
the Group and has signed up to the voluntary Code of Conduct
on gender diversity and best practice. In line with our diversity policy,
the Committee instructed Russell Reynolds to consider a wide range
of candidates for appointment as Non-Executive Directors, including
those with little or no previous FTSE board experience.
From Russell Reynolds’ search, Jeremy Townsend was identified as a
suitable candidate for the role of Chair of the Audit Committee, given
his recent and relevant experience as CFO of Rentokil, and was included
in a diverse shortlist of potential candidates. Potential candidates were
then interviewed by the Chairman and a sufficiently diverse selection
of other Directors, following which Jeremy was put forward to the
Nomination Committee for its consideration.
From Russell Reynolds’ search, Susanne Given and Lyssa McGowan were
also identified as suitable candidates for Non-Executive Director. A short
list of potential candidates were then interviewed by the Chairman and
a sufficiently diverse selection of the Directors, following which Susanne
and Lyssa were put forward to the Nomination Committee for its
consideration.
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. It also supports the Parker recommendations that the Board
should include at least one Black, Asian and Minority Ethnic (BAME)
Director. The Board also take steps to ensure that it is diverse in
characteristics such as age, experience, education and thought.
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/
Throughout the year we planned to increase our female representation
on the Board to at least 33%. This plan was disrupted by an unexpected
resignation, which meant that we ended the year with a 30% female
representation on the Board. We remain firmly committed to achieving
and maintaining our gender diversity target of 33% females on the Board
by the time of our 2022 AGM. This will include, for example, through
policies such as ensuring that all recruitment ‘long lists’ include at least
50% female candidates.
At the end of the 2020/21 financial year, the Board included one BAME
Director, representing 10% of its total composition.
Gender composition at 31 January 2021
Main Board
Executive Committee
Direct reports to Executive Committee1
Total Morrisons
1 Using the Hampton-Alexander definition.
Male
7
5
20
53,881
Female
3
1
21
66,228
% Female
30%
17%
52%
56%
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Strategic reportGovernanceFinancial statementsInvestor information Directors’ remuneration report
Annual statement by the Chair
of the Remuneration Committee
Remuneration
Committee
Dear Shareholder,
As the new Remuneration Committee Chair,
I am pleased to present how management
and colleagues are being rewarded for
their outstanding performance in an
unprecedented year.
Kevin Havelock
Chair of the
Remuneration Committee
2020 was of course an unprecedented year, with our colleagues
at every level working as part of the front line effort to feed the
nation. When the country was told to stay at home, our team,
including management, went to work in stores and sites across
the UK to make sure everyone had access to food and services,
ensuring nobody was left behind. Through listening to colleagues
and customers about their concerns we responded quickly
to ensure a safe shopping trip and working environment.
At the onset of the pandemic, management had to pivot the
business, its activities and resources, to feeding the nation,
keeping customers and colleagues safe and supporting suppliers.
In March 2020 we made it clear to management that they would
be fully supported by the Board for doing the right thing: to feed
and protect the nation, recognising the need to take on significant
COVID-19 related costs to be able to do this. We highly appreciate
how management have led the Company to play our full part in
responding to the crisis.
COVID-19 brought a great many challenges – for example the
direct costs of ensuring colleague and customer safety, navigating
significant lost profit in cafés, fuel and food-to-go, managing high
sickness rates, guaranteeing sick pay for shielding and other affected
colleagues, managing social distancing and safe working in depots
and factories, hiring and inducting 18,000 new colleagues in a few
weeks, and supporting our small suppliers and British farming.
Management also had the considerable challenge of scaling
our online business fast enough to meet sudden demand, and
finding innovative ways to ensure no one in society was left behind
– through food boxes, doorstep deliveries, restocking Britain’s
food banks with nutritious food and lunch boxes for school
children, as well as local community initiatives.
In addition, management have continued to make progress against
the seven priorities, which are summarised on pages 10 to 13.
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, resulting in great value for customers and high demand
for talent.
Financial performance
Over the last 12 months, despite unprecedented demands and
challenges, prolonged economic uncertainty, reducing customer
confidence, and significant unplanned costs directly relating to COVID-19,
management has delivered:
• Group LFL sales (excluding fuel) growth of 8.6%;
• Profit before tax and exceptional items of £201m, a decrease of 50.7%
on last year or 5.6% increase when adjusting for £230m of waived
business rates relief; and
• Further progress in cost and productivity savings, resulting in an
improvement of £152m.
This is in addition to ‘feed the nation’ activities such as creating new
channels, rapidly expanding online and store pick, restocking Britain’s
foodbanks, making stores and sites COVID-19 safe and supporting
the NHS and other keyworkers.
Group performance
£408m £431m2
13.18p
8.6%
£201m
5.95p2
(0.8)%
Profit before tax
and exceptionals1
Basic earnings per share (EPS)
before exceptionals1
Group like-for-like (LFL)
sales (exc. fuel) growth1
2019/20
2020/21 Waived business rates relief
1 As defined in the Glossary on pages 157 to 159.
2 Profit before tax, exceptional item and net retirement benefit interest adjusted
for the waiver of rates relief.
How stakeholders have benefitted from performance
None of what has been delivered could have been done without our
colleagues, quickly recognised as key workers in the pandemic, who
have put their health on the line every day to feed the nation. We acted
quickly to protect their physical wellbeing as the first supermarket to
install screens at checkouts, as well as introducing queue and social
distancing marshalls, and providing masks, gloves and sanitiser. We have
shown the nation’s gratitude by guaranteeing triple the average
colleague bonus – a pot of over £100m with payments for a full time
colleague of over £1,000, and by increasing colleague discount from
10% to 15%. We have also thought about their mental wellbeing –
marking occasions such as ‘time to talk’ day and making new resources
available on our wellbeing site. In addition, we considered the adverse
impact of job losses in other industries on household finances, creating
a hardship fund which has paid out over £200,000 in grants to
our colleagues.
Most importantly, to recognise the vital role our hard working key
worker colleagues have played in feeding the nation through the
pandemic, we have increased the hourly rate for customer assistants in
store from £9.20/hour to £10/hour from April 2021, an increase of nearly
9%, and the first food retailer to pay £10/hour. This means that the hourly
rate for store colleagues has increased 46% from £6.83/hour in 2015 as we
fulfil our people ambition of ‘a fair day’s pay for a fair day’s work’.
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Shareholders have benefitted from a total ordinary dividend for the
period ended 31 January 2021 of 7.15p, up 5.6%, and a special dividend of
4p paid in January 2021. We have also accelerated the expansion of our
online business, created new channels and increased brand warmth,
which will benefit the business for years to come.
Finally, being mindful of the impact of the pandemic on the communities
we live and work in, we have donated £10m of food to restock Britain’s
food banks (and committed to a further £5m in 2021/22), increased
our Community Champion hours, donated £500,000 to charities
supporting homelessness through the Morrisons Foundation and are
the only supermarket to make all of our pharmacies domestic violence
safe spaces. The rapid expansion of our business and creation of new
channels has created over 23,000 much needed jobs in the communities
we operate in. We have also supported the other keyworkers keeping
the nation going through the pandemic through shopping hours for NHS,
discounts for keyworkers, and delivering food box orders to hospitals.
Outcomes in 2020/21
When deciding on outcomes for the incentive plans, the Committee
carefully considered what the appropriate and fair result should be
given the unprecedented impact of COVID-19 and the experience of
all stakeholders. As stated in last year’s report, targets had been set
with normal competitive trading conditions in mind, and of course this
year has been highly abnormal. The Committee carefully weighed the
beneficial impact of closed hospitality and non-essential retail on sales,
as well as the substantial costs and short term cash flow impacts of
managing COVID-19, and the negative profit impact on aspects of trade
– cafés and fuel particularly. At the start of the pandemic, management
were asked to play their full part in feeding the nation and were asked
to do what was right for customers, colleagues, suppliers, shareholders,
the community, and the environment.
This year, in addition to business performance, the Committee also
considered the following factors relating to the wider impact of
the pandemic:
• Morrisons did not utilise any government support such as the job
retention scheme. We are one of the few businesses to have created
jobs and positively contributed to the economy in the last year.
• Colleagues have been financially rewarded, with triple the average
bonus guaranteed (an investment of over £100m), to recognise the
challenges they have faced as keyworkers.
• Shareholder experience has been positive with the special
dividend paid.
• Small suppliers were supported through immediate payment terms,
and as Britain agriculture’s biggest customer we have partnered with
farmers to promote products such as the very popular
steak promotion.
For both the Annual Bonus Plan and the LTIP, the Committee decided
to adjust for the impact of all COVID-19 related costs, such as paying
colleagues to shield, over £100m in colleague bonus payments, installing
screens and other protective equipment, social distancing measures,
payroll for marshals, and restocking Britain’s food banks. Having been
directed in March 2020 to feed the nation, and protect colleagues and
customers, the Committee felt very strongly that management and
other incentive participants (all store managers and above) should not
be penalised for their outstanding performance through the pandemic,
or for taking the necessary steps to protect colleagues and recognise
their hard work in difficult circumstances.
Annual Bonus Plan
The Annual Bonus Plan is based on both business and personal
performance. The business measures are like-for-like sales growth,
profit and productivity.
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Like-for-like sales growth (excluding fuel) was 8.6%, which was
significantly above the maximum target. The Committee carefully
considered the impact of closed hospitality and non-essential retail,
but given the sales growth outperformed the grocery market, and
a significant proportion came from the rapid expansion of the online
business which had to be scaled at speed, felt that the sales result was
fully deserved. This gave a full 20% out of 20%.
Productivity savings were £152m which exceeded the maximum target of
£150m, despite managing the complexity and disruption of the pandemic
and therefore this element also achieved in full, 10% out of 10%.
Profit for the year was significantly impacted by the full costs of
managing COVID-19 (£290m), significant lost profit from cafés, fuel,
food-to-go and Market Street counters and the decision taken by the
Board in December to waive the business rates relief in the year of
£230m. This gives a profit before tax and exceptionals result of £201m
which is below the threshold for the profit element. The Committee
spent considerable time discussing the right and fair treatment of the
profit element, and concluded that the full costs of feeding and
protecting the nation (£290m) should be adjusted and therefore this
element earned 50% out of 50%.
Given management’s outstanding response to the pandemic, and
the extraordinary levels of personal commitment shown to delivering
for all stakeholders, the Committee has decided to award David Potts,
Trevor Strain and Michael Gleeson a full 20% out of the maximum
20% for the personal element of the bonus. This takes the total
bonus achieved to a payout of 100% of maximum, half of which will
be deferred into shares which vest two years after the award under the
terms of the deferred share bonus plan. The Committee is satisfied that
on balance this is a fair outcome. More information on the targets set
and performance against them can be found on pages 66 and 67.
LTIP 2018/21
The performance over the period is summarised below:
Measure1
Total sales growth (exc. fuel)
Minimum
(25%)
Maximum
£1,100m £2,000m
(100%) Weighting
40%
Actual
performance
33.5%
Adjusted cumulative free cash flow £730m £1,000m
40%
0%
Basic earnings per share (EPS)
before exceptionals growth p.a.2
1 See the definitions on page 64.
2 Adjusted for full costs of COVID-19 of £290m.
5%
10%
20%
20.0%
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, both the EPS and adjusted cash flow
measures have been recalculated on a pre-IFRS 16 equivalent basis.
The formulaic outcome of the LTIP was 33.5%, which was earned on
the sales growth measure only. Both the EPS and the free cash measures
were significantly adversely impacted by COVID-19 and did not earn
anything on a formulaic basis. The Committee carefully considered
the impact of closed hospitality and non-essential retail on sales
performance, but considered that like-for-like sales growth (much
of which came from the rapid expansion of the online business)
outperformed the market and was therefore not an unearned windfall.
This element has therefore earned 33.5% out of 40%.
The Committee also carefully considered the impact of the pandemic
on the free cash element, which at the end of the second year had been
on track for a strong final out turn. The Committee weighed the fact
that decisions such as paying small suppliers immediately and increasing
stock levels to meet changing customer needs, as well as the significant
adverse timing impact of items such as the substantial reduction in fuel
volumes, had negatively impacted the free cash result, but decided on
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Annual statement by the Chair
of the Remuneration Committee continued
balance not to adjust for these. This element therefore earned 0%
out of 40%.
The Committee considered that but for the actions taken to feed the
nation and create a safe shopping and working environment, the EPS
element would have been achieved in full, and therefore the Committee,
as for the Annual Bonus Plan, decided to adjust for the full costs of
COVID-19 (£290m). The EPS element has therefore earned 20% out of 20%.
This gives an adjusted LTIP outturn of 53.5%, which the Committee
believes is a more fair and reflective outcome of the value created for
shareholders over the period than a purely formulaic basis.
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.
Shareholder
engagement
Pay for
performance
Governance
Pay
• Considered investor feedback, particularly on
the remuneration policy, through ongoing dialogue.
• Assessed performance against targets set for 2020/21
annual bonus and 2018-21 LTIP and considered
whether any discretion should be used to adjust
formulaic outcomes if necessary.
• Reviewed and approved targets for 2021/22 annual
bonus and 2021-24 LTIP.
• Reviewed the performance of the Executives.
• Reviewed and considered consequences of the
changing investor, governance and reporting
requirements.
• Reviewed progress of Executives against shareholding
requirements.
• Approved the 2019/20 Directors’ remuneration report.
• Approved the remuneration for the new
Chief Customer and Marketing Officer.
• Reviewed Executive Director, Executive Committee
and Company Secretary base salaries, in line with
wider workforce.
• Approved guaranteed triple the average colleague
bonus in recognition of work through the pandemic.
• Assessed performance of management against the
direction to prioritise feeding the nation.
Committee
membership
• Welcomed and inducted three new Non-Executive
Directors to the Committee.
How our Directors’ remuneration report is structured
Implementation of the remuneration policy in 2021/22
pages 63 and 64
Annual Report on remuneration – 2020/21
pages 65 to 72
2020/21 Policy vote
The Committee was pleased with the 97% vote for the implementation
of policy at the 2020 AGM, and whilst pleased that the majority of investors
similarly voted for the new policy noted the significant vote against.
I therefore engaged extensively with our major shareholders to understand
the reasons why. A range of views were shared, with the common theme
that shareholders wanted greater clarity on how pension allowances
for incumbent Executive Directors would be brought into line with the
rate for the majority of colleagues. Therefore, following that investor
consultation, we have clarified that both the CEO and COO have
voluntarily committed to a reduction in their pension levels to those
available to the workforce by the end of 2022. The CFO already receives
a pension allowance of 5%, in line with the majority of the workforce.
Further, David Potts has agreed to increase his shareholding requirement
from 250% to 300% of base salary. The Committee believes that
along with the CEO’s current shareholding of over 700%, this further
demonstrates the Committee’s and CEO’s commitment to aligning
management and shareholders’ interests and listening to
shareholders’ views.
Implementation of the remuneration policy
in 2021/22
Base salary
It was agreed with management, being mindful of the pandemic’s impact
on the wider economy and despite the 9% increase in colleague pay
to £10/hour, that the salaries for Trevor Strain and Michael Gleeson would
not be increased this year. Their salaries remain unchanged at £665,000
and £490,000 respectively. The Committee was conscious that David Potts
has not accepted a pay rise since his appointment in 2015 and therefore
offered an increase in line with inflation; however David waived his award
for a sixth year and therefore his salary is unchanged at £850,000.
Pension allowance for incumbents
Pension allowances for incumbents were frozen as an absolute cash
amount in 2019 and therefore allowances do not increase with any pay
awards. Having discussed shareholder feedback with the Committee
and management, both the CEO and COO have voluntarily committed
to a reduction in their pension levels to those available to the workforce
by the end of 2022. Michael Gleeson receives a pension allowance
equivalent to 5% of base salary. This is in line with the majority of
the workforce.
Chairman and Non-Executive Director fees
The Chairman’s fees were increased in February 2019 and therefore
fees for the Chairman will next be reviewed in 2022. The Non-Executive
base remains at £62,500.
Annual Bonus Plan
The performance measures of the Annual Bonus Plan and their
weightings remain unchanged from 2020/21 and are summarised
on page 63. 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 which vest in two years under
the deferred share bonus plan.
LTIP
In line with the policy approved by shareholders in 2020, awards will
be 300% of salary. Performance measures and weightings are unchanged.
Further detail on the targets can be found on page 63. This grant will be
subject to a two year holding period at vest, and to a post-termination
holding requirement.
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 the year. I look forward to your
support at the 2021 AGM.
Kevin Havelock, Remuneration Committee Chair
10 March 2021
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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 (exc. fuel) (%)
Cumulative adjusted free cash flow (2015/16 onwards)
2020/21
£201m
5.95p
8.6%
2019/20
£408m
13.18p
(0.8%)
2018/192
£396m2
12.85p2
4.8%
£2,173m
£2,660m
£2,339m
1 Definitions of these measures are set out on page 64.
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.
Stakeholder performance indicators
5 year dividend
12 month total shareholder return (TSR)
12.60p
10.09p
11.15p
8.77p
5.43p
6.09p
6.60p
6.77p
7.15p
2016/17
2017/181
2018/192
2019/203
2020/214
Value of a £100 holding
£
115
110
105
100
95
90
85
80
75
Feb 20
Apr 20
Jul 20
Oct 20
Feb 21
Ordinary
Special
Morrisons
FTSE 100
1 Including 4.00p special dividend.
2 Including 6.00p special interim dividend.
3 Including 2.00p special interim dividend.
4 Including 4.00p special dividend declared and paid in 2021.
The graph above shows the Group’s total dividend
over the five year period to 31 January 2021.
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 29 January 2021 (the last trading day before the year end).
Investment in colleague pay
Customer satisfaction index
£8.20
£8.50
£8.70
£9.00
£9.20
£6.83
+46%
£10.00
e
r
o
c
S
n
a
e
M
Apr 15
Apr 16
Apr 17
Apr 18
Apr 19
Apr 20
Apr 21
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Since 2016, we have continued to invest in colleague pay.
In 2020/21, we increased the hourly rate for front line store
colleagues to £9.20 an hour. A further increase to £10 has been
agreed from April 2021.
Morrisons
Competitor 1
Competitor 2
Competitor 3
The above graph illustrates customer satisfaction quarterly
over the last year as the method of data collection changed
in the current year.
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Directors’ remuneration report continued
Directors’ remuneration policy
The current Directors’ remuneration policy was approved by shareholders on 11 June 2020 at the AGM. The current full policy can be found at
www.morrisons-corporate.com. The policy has been in operation for one year.
The principles that underpin our Directors’ remuneration policy are:
Drive a long-term
sustainable
business
Provide clear
alignment
between Directors
and shareholders
Incentivise a
balanced approach
to the needs of our
stakeholders
Sustainably secure
the talent to lead
our business, now
and in the future
Pay and conditions in the wider Group
In 2020/21, an already demanding industry has been challenged
more so than any other year. Despite the hospitality restrictions in
the UK, the market remains fiercely competitive and we continue
to need to attract, motivate and retain the best talent at all levels.
Our recruitment drive in the early stages of the pandemic introduced
a new talent pool, and we have enjoyed welcoming colleagues and
managers with a range of backgrounds into our organisation.
Fair day’s pay for colleagues
To recognise the vital role our hard working key worker colleagues
have played in feeding the nation through the pandemic, in 2020/21
they were guaranteed triple the average colleague bonus and it
was paid quarterly instead of annually to reward our loyal colleagues
on a more timely basis. This was worth over £1,000 for a full time
colleague. Through the year, colleagues told us they valued having
a guaranteed amount and it being paid more regularly, and so when
deciding on pay for 2021/22 we listened and responded by increasing
the store customer assistant role from £9.20 to £10/hour, with 20p
of the 80p increase being funded by the normalised cost of colleague
bonus. We are proud to be the first grocery retailer to hit this
milestone rate.
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, six ways of working and five stakeholder
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 to invest in the shopping trip, reward colleagues and be
paid 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 six ways of working.
Everyone from store manager level and above participates in the
Annual Bonus Plan and LTIP with the same measures and targets,
which creates strong alignment between those running our stores
and sites and our shareholders, and means all our colleagues are able
to share in our financial success.
The Committee carefully considers 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, ways of working, and wider workforce remuneration.
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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 63.
Base salary
Benefits
Pension
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.
The Group provides a market competitive benefits package
for Executive Directors to support in the ability to recruit
and retain the best talent.
Executive Directors are entitled to a car allowance
(and other car/transport benefits), 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
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.
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Directors’ remuneration policy continued
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
straightline 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.
Not applicable.
Not applicable.
Shareholding
requirements
Executive Directors are required to hold 250%1 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.
1 From 2021/22, the CEO has volunteered to increase his shareholding
requirement to 300%.
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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, other than continued employment.
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%).
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 six ways of working.
Further detail on pay and conditions in the wider Group is provided
on page 64.
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.
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.
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.
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 64.
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 159.
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.
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Directors’ remuneration policy continued
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
Paid to date
of termination
No bonus paid for year
of termination
Awards lapse when
employment ends
Awards lapse when
employment ends
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
As above
As above
As above
As above
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. 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
2019/20
£
420,000
20,000
61,200
20,000
7,000
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.
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 it deems
appropriate.
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Implementation of remuneration policy
in 2021/22
Base salary
It was agreed with management, being mindful of the pandemic’s
impact on the wider economy and despite the 9% increase in colleague
pay to £10/hour, that the salaries for Trevor Strain and Michael Gleeson
would not be increased this year. Their salaries remain unchanged at
£665,000 and £490,000 respectively. The Committee was conscious that
David Potts has not accepted a pay rise since his appointment in 2015
and therefore offered an increase in line with inflation; however this was
waived for a sixth year and therefore his salary is unchanged at £850,000.
Benefits and pension
David Potts and Trevor Strain each receive a pension supplement frozen
at their 2019/20 benefit level. Having discussed shareholder feedback
with the Committee and management, both the CEO and COO have
voluntarily committed to a reduction in their pension levels to those
available to the workforce by the end of 2022.
Michael Gleeson receives a pension allowance equivalent to
5% of base salary. This is in line with the majority of the workforce.
Annual Bonus
The structure of the bonus, including maximum potential (200% of salary)
and the requirement to defer 50% of any bonus in shares which vest in
two years under the deferred share bonus plan (DSBP) is in line with the
Directors’ remuneration policy (pages 58 to 62).
Measure1
Profit before tax and exceptionals
Strategic scorecard
Personal objectives
1 Performance measures are defined on page 64.
Weightings
(% of maximum bonus opportunity)
50%
Scorecard measures for 2021/22 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 are linked to strategy, and the areas under the
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.
All targets have been set on the assumption of current rates of tax
(including 19% corporation tax) and the impact of any changes will be
considered at vesting.
LTIP
2021-24 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.
Instead, the Committee is striving to set targets that achieve the
right balance between continuing to drive the sustained turnaround,
maximising shareholder returns, and incentivising management to
prioritise consistent and sustainable growth over short-term profit.
The Committee considered the distorting effect of the pandemic,
particularly on the 2020/21 sales result as a base for future targets.
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 2021-24 will be 300% of salary. This grant will
be subject to a two year post-vest holding period.
All targets have been set on the assumption of current rates of tax
(including 19% corporation tax) and the impact of any changes will be
considered at vesting.
2021-24 LTIP Target setting
30%
20%
Measure1
Total sales growth
(exc. fuel)
Weighting
Threshold
(25% payout)
Mid point
(50% payout)
Maximum
(100% payout)
40% +£400m +£633m +£1,100m
Adjusted free cash flow
40% +£800m +£900m +£1,100m
EPS before exceptionals
growth
1 Vesting on a straight line basis.
20%
5%
6%
8%
Sales
The Committee has set the threshold for sales growth lower than the
prior year, but the maximum higher. Total sales in 2020/21 benefitted
from the closure of hospitality and the growth in online, which means
the base level is higher than in normal trading conditions. Consensus
for like-for-like sales growth is negative for 2021/22, meaning significant
growth rates would be required in years two and three to achieve the
£1.1bn+ of additional sales.
Free cash flow
The threshold target is unchanged from prior year, but the maximum
has been increased by £150m, even though continued free cash flow
generation should be viewed in the context of significant property
disposals and structural improvements in working capital already
achieved by management.
EPS
8% profit growth every year for three years is an extremely stretching
target, and significantly above consensus, which averages at 3% per
annum for the next two years. The Committee remains firmly of the
belief that it is not in the best interests of shareholders to incentivise
profit growth at the expense of investments in the shopping trip.
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Implementation of remuneration policy
in 2021/22 continued
Chairman and Non-Executive fees
Having been recently reviewed, there are no changes to the fees
for the Chairman or Non-Executive Directors.
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 157
Group like-for-like sales
growth (exc. fuel)
As defined in the
Glossary on page 157
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
Basic earnings
per share (EPS)
before
exceptionals
growth
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 157
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
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 158
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.
Pay and conditions in the wider Group –
investing in a colleague-led turnaround
One of our people ambitions is to pay ‘a fair day’s pay for a fair
day’s work’. The Board receives 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 market leading increase from £9.20 to £10/hour agreed for
April 2021 – an increase of over 45% in six years and, the first
grocery retailer to achieve this milestone rate.
• 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).
• In 2020/21, to recognise the key role they were playing in
feeding the nation in difficult and challenging circumstances,
front line, hourly paid colleagues were paid triple the average
colleague bonus, guaranteed and paid quarterly rather than
annually. For full time colleagues, this was an additional
payment for the year of more than £1,000.
• We have reorganised our store and depot 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 be
popular, offering a range of discounts to colleagues such as
discounts with online retailers. This has continued to be well
used, with average savings of nearly £14 per month per user.
• 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. Kevin Havelock, 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: suggestion
of our very popular food bank ‘pick up packs’ which customers
can buy and donate in store, additions to our food box range
including the Eid box, ‘big night in’ and afternoon tea boxes,
adding a ‘bags’ option to the tills to save scanning the barcode,
engineers in our manufacturing sites designing their own PPE,
and introducing colour coded hygiene kits in store.
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.
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Annual Report on remuneration – 2020/21
Audited information
Single total figure of remuneration
The table below sets out the single total figure of remuneration and breakdown for each Director for 2020/21 and the comparative figure for 2019/20.
Michael Gleeson was appointed as Chief Financial Officer on 3 February 2020.
Salary/
fees
£000
Benefits1
£000
Annual
bonus2
£000
LTIP3
£000
2020/21
Pension
benefits4
£000
Total
fixed
remuneration
Total
variable
remuneration
Total
£000
Salary/
fees
£000
Benefits
£000
Annual
bonus2
£000
LTIP5
£000
Pension
benefits4
£000
Total
fixed
remuneration
Total
variable
remuneration
Total
£000
2019/20
Executive
Directors
D Potts
T Strain
M Gleeson6
Non-Executive
Directors
R Anand
N Davidson7
S Given7
K Havelock
A Higginson
L McGowan7
B Richards7
J Townsend7
C A van
Kralingen7
P Vennells
850
665
490
120
24
43
100
420
43
63
57
25
90
28
40
48
–
–
–
–
94
–
–
–
–
–
1,700
1,330
980
1,396
1,003
131
204
156
26
4,178
3,194
1,675
1,082
861
564
3,096
2,333
1,111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120
24
43
100
514
43
63
57
25
90
120
24
43
100
514
43
63
57
25
90
–
–
–
–
–
–
–
–
–
–
850
650
n/a
109
102
–
89
420
–
102
–
102
89
28
46
n/a
828 2,057
1,444
633
n/a
n/a
213
149
n/a
3,976
2,922
n/a
1,091
845
n/a
2,885
2,077
n/a
–
–
–
–
84
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
109
102
–
89
504
–
102
–
102
89
109
102
–
89
504
–
102
–
102
89
–
–
–
–
–
–
–
–
–
–
1 Taxable benefits for the Executive Directors include a car allowance (or other car benefit), transport costs and private health provision. All Directors received the Group’s normal staff discount entitlement,
which is non-taxable. Applicable Sharesave plans granted in given financial years are also included in this figure (for Executive Directors). M Gleeson’s benefits include £3,365 of relocation costs.
2 50% of the annual bonus is deferred in shares for a period of two years. There are no performance conditions attached to the deferred elements other than continued service.
3 Awards granted under the LTIP in March 2018 are due to vest in March 2021. The performance conditions relating to the 2018-21 LTIP award ended on 31 January 2021 and the vest value of the 2018-21
award is therefore calculated on the average share price of the last quarter of the financial year £1.7848 up to 29 January 2021 (the last trading day before year end). The 2020/21 figures also include the
value of dividends accrued on the 2018-21 LTIP award at the time of vesting. The values of the dividends are £233,432, £167,676 and £21,970 for D Potts, T Strain and M Gleeson respectively.
Further detail on the 2018-21 LTIP is provided on page 68.
4 D Potts received cash in lieu of pension, equal to 24% of base salary. T Strain received cash in lieu of pension of 23% of base salary. M Gleeson received cash in lieu of pension, equal to 5% of salary.
None of the Executive Directors have a prospective entitlement to a defined benefit pension by reason of qualifying services. Due to the timing of his appointment as CFO versus payroll dates
M Gleeson received £1,500 of pension allowance relating to his previous role in the 2020/21 financial year.
5 The value of the 2017-20 LTIP vest that was disclosed in the 2019/20 Directors’ remuneration report was based on an indicative price as 1 February 2020. The value of the 2017-20 LTIP has been restated
to reflect the actual March 2020 vest value.
6 M Gleeson was appointed to CFO on 3 February 2020.
7 N Davidson and C A van Kralingen resigned on 24 April 2020, B Richards resigned on 10 September 2020. J Townsend was appointed on 6 July 2020, and S Given and L McGowan on 12 August 2020.
Annual Bonus Plan
Annual bonus achieved 2020/21
Director
D Potts
T Strain
M Gleeson
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
1 Performance measures are defined on page 64.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
Actual
bonus
(% of salary)
200%
200%
200%
Actual
bonus
(£000)
1,700
1,330
980
Bonus deferred
into shares
(% of award)
50%
50%
50%
Achieved as a % of maximum
Threshold
Maximum
Actual
achievement
£409m
£441m
£201m
£100m
1%
£150m
2.5%
£152m
8.6%
Maximum
bonus
opportunity
(% of salary)
200%
200%
200%
Weighting
(as a % of total
annual bonus
opportunity)
50%
10%
20%
20%
Cash bonus
paid in respect
of 2020/21
(£000)
850
665
490
Payout
(as a % of total
annual bonus
opportunity)
50%
10%
20%
20%
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Audited information continued
2020/21 Annual Bonus Plan outturn
For the Annual Bonus Plan the Committee decided to adjust for the impact of all COVID-19 related costs, such as tripling the average colleague bonus
at a cost of over £100m, absence, paying colleagues to shield, social distancing measures, payroll for marshals, and restocking Britain’s food banks.
Having been directed in March 2020 to feed the nation, and protect colleagues and customers, the Committee felt very strongly that management
should not be penalised for their outstanding performance through the pandemic.
Profit before tax and exceptionals
At the time targets were set, consensus for profit was £432m, and therefore the maximum target of £441m (an 8% increase on prior year and following
a 3% increase during 2019/20) was appropriately stretching. Due to the costs of operating through the COVID-19 pandemic, the actual profit outturn
was £201m. As above, the Committee decided it was fair and reasonable to adjust for these costs (£290m), and therefore this element earned 50% out
of 50%.
Like-for-like
In a non pandemic year, 1%-2.5% like-for-like sales growth would have been a strong performance, and a stretching range in the context of the prior
year growth of (0.8)%. Clearly the whole industry benefitted from the closure of hospitality, leisure industries and non-essential retail for large parts
of the year, and the Committee considered this when assessing the actual outcome of 8.6%. The Committee also took into consideration the facts
that Morrisons had grown its online and other delivery channels very quickly, further expanded wholesale supply, and outperformed the markets in
which it operates for the majority of the year, and therefore a significant proportion of the additional sales growth was as a result of actions taken
by management. This element has earned a full 20% out of 20%.
Productivity
Despite five years of strong performance on productivity and therefore the addressable cost base being a reducing opportunity, the maximum target
was increased from £130m in the prior year to £150m. £152m was achieved against this stretch target, and so 10% out of 10% has been earned. In setting
productivity targets going forward, the Committee is mindful of the need to balance productivity savings with investing in the customer shopping
trip, and will set targets accordingly.
Personal objectives
Stretching and measurable objectives are set by the Committee at the start of the financial year, taking into account our seven priorities,
and the ambitions for our five stakeholders: customers, colleagues, suppliers, shareholders and environment & community. Some specific
targets have been removed as they are commercially sensitive.
D Potts
Objective
Summary of performance
Implementation of fix, rebuild, grow and sustain
strategy for profitable growth
• Delivered a wide reaching property improvement programme including new
store openings, refits and the rapid expansion of Amazon and store pick facilities
Develop capability
• Delivered retail store restructure to increase management cover and capability
• Conducted a complete review of the leadership team including hiring critical
operational leadership roles in retail, manufacturing and logistics
• Completed the external hiring process to appoint a new Chief Customer and
Marketing Officer for the Group
Continue to reach ‘more and more people’
through convenience, online, wholesale and
popular and useful services
• Rapid expansion of Amazon and store pick locations
• Won new wholesale partners plus creation of new ‘bulk orders’ business
• Launched three other new channels: food boxes, doorstep deliveries, and
groceries via Deliveroo
Lead the business through the challenges driven
by Brexit
• Brexit stability group has been leading planning across 12 work streams
Develop the growth plan to include food
services
• Opened second and third Market Kitchens with a fourth underway
• Pivoted cafés and baristas to take out operations, drove footfall back into cafés
To develop a clear internal plan and be on track
at the end of the financial year to reduce our
own-brand plastic footprint by 50% in 2025
after first lockdown
• Achieved continued plastic reduction throughout the year – on track to hit target
Weighting
3.33%
3.33%
3.33%
3.33%
3.33%
3.33%
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T Strain
Objective
Summary of performance
Improve competitiveness by delivering planned
activity for the year
• Accelerated investment in Morrisons price list and customer favourites.
Price deflation throughout the year
Deliver improvement in margin in line with plan
• Strong cash margin growth and operational leverage, enabling reinvestment back
Improve availability
M Gleeson
Objective
Deliver cost reduction programmes, and cash
flow objectives
into price, service, range and an improved customer shopping trip
• Good availability and kept shelves full, with supply chain, manufacturing and
logistics responding to pandemic plans with flexibility and speed
Summary of performance
• Led the delivery of productivity improvements despite the impact of absence
and other disruption, particularly in half one. Navigated the impact of COVID-19
on debt, particularly its impact on demand and consequently on working capital.
Took the prudent step of securing £400m of additional short-term facilities early
in the crisis
Help lead a better Morrisons, where the finance
function is an enabler of the Company’s plans
and delivery
• Recognising the impacts of the pandemic on the business’s priorities, reorganise
the finance team to enable a more effective response to the challenges and
introduced modernised ways of working
Execute plans for non-core/non-strategic assets
• Moved focus early in the pandemic to navigate the capital and productivity and
operational investments to deliver the additional capacity required to feed the
nation in very short timescales
Weighting
6.67%
6.67%
6.67%
Weighting
6.67%
6.67%
6.67%
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 each Director contributed personally and materially to the Company’s COVID-19 response, as follows:
• programme of customer and colleague safety measures including screens at checkouts, in cafés and the hygiene stations in stores.
We were the first retailer to have screens installed at every checkout and every till updated with £45 contactless limit;
• tripled our online business;
• maintained service to customers despite absence peaking at 18% across the Group, increased colleagues by over 30% and hired 18,000 in the first few weeks
of the pandemic;
• distribution of £10m of food to food banks;
• attracted new customers through our proposition, and our key worker discounts for NHS, teachers and blue light card holders;
• as a result of playing our full part in feeding the nation, brand warmth has increased throughout the year;
• the benefit of our vertically integrated manufacturing business was evident as we were able to respond quickly to customer demand, streamlining
ranges which enabled us to increase volume 25% in the early days of lockdown, despite also dealing with high sickness absence and the complexities
of social distancing etc. in factories;
• logistics were able to respond to sustained increased demand through the first lockdown and subsequent waves despite challenges of absence
and social distancing;
• developed four new channels: food boxes, doorstep deliveries, groceries via Deliveroo and bulk orders;
• navigated the profit challenges of COVID-19 costs, lost profit through closed cafés, changing customer demand across the product range,
reduced demand for fuel and food-to-go; and
• thought proactively about how to support small suppliers, and changed our payment terms with them to pay immediately.
Taking into account performance against personal objectives, the Committee has decided to award David Potts, Trevor Strain and Michael Gleeson
each the maximum of this element. This takes the total Annual Bonus achieved to a payout of maximum of 100% 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 two 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.
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Audited information continued
LTIP awards
2018-21 LTIP
For the LTIP, the Committee decided to adjust for the impact of all COVID-19 related costs, such as tripling the average colleague bonus at a cost of
over £100m, absence, paying colleagues to shield, installing screens and other protective equipment, social distancing measures, payroll for marshals,
and restocking Britain’s food banks. Having been directed in March 2020 to feed the nation, and protect colleagues and customers, the Committee
felt very strongly that management and the other LTIP participants (store manager and above) should not be penalised for their outstanding
performance through the pandemic.
The formulaic outcome of the LTIP was 33.5%, which was earned on the sales growth measure only. Both the EPS and the free cash measures were
significantly adversely impacted by the COVID-19 pandemic and did not earn anything on a formulaic basis.
Total sales growth
The Committee carefully considered the impact of closed hospitality and other industries on sales performance in the financial year, but considered
that like-for-like sales growth (much of which came from the rapid expansion of the online business) outperformed the market and was therefore not
an unearned windfall. This element has therefore earned 33.5% out of 40%
Earnings per share (EPS)
The Committee considered that but for the actions taken to feed the nation and create a safe shopping and working environment, the EPS element
would have been achieved in full, and therefore the Committee, as for the Annual Bonus, decided to adjust for the full costs of COVID-19 (£290m).
The EPS element has therefore earned 20% out of 20%.
Adjusted free cash flow
The Committee also carefully considered the impact of the pandemic on the free cash element, which at the end of the second year had been on
track for a strong final outturn. The Committee weighed the fact that decisions such as paying small suppliers immediately and increasing stock levels
to meet changing customer needs as well as the significant adverse impact of items such as the substantial reduction in fuel volumes had adversely
impacted the free cash result, but decided on balance not to adjust for these. This element therefore earned 0% out of 40%.
This gives an adjusted LTIP outturn of 53.5%, which the Committee believes is a more fair and reflective outcome of the value created for
shareholders over the period than a purely formulaic basis.
Awards granted under the LTIP in March 2018 are scheduled to vest in March 2021. The performance period relating to these awards ended on
31 January 2021.
The original targets for the 2018-21 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 (exc. fuel)
Adjusted cumulative free cash flow 2
Basic earnings per share (EPS) before
exceptionals growth p.a.3
Weighting
40%
40%
(25%) Threshold
performance
required
£1,100m
(100%) Maximum
performance
required
£2,000m
£730m
£1,000m
Reported
outcome
£1,806m
£120m
LTIP 2018-214
vesting and IFRS 16
adjusted outcome
£1,806m
Actual LTIP vesting
(% of maximum)
33.5%
£366m
0%
20%
5%
10%
(20.9%)
10.3%5
20.0%
1 Performance measures are defined on page 64.
2 Cumulative adjusted free cash flow over the vesting period. Adjusted free cash flow as defined on page 64.
3 Basic earnings per share (EPS) before exceptionals growth rate p.a. over the vesting period. Baseline basic EPS before exceptionals of 12.03p based on 2017/18 profit before exceptionals.
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.
5 Adjusted for full £290m of COVID-19 costs.
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2020-23 LTIP
The table below sets out the share awards made to the Executive Directors during 2020/21 under the Group’s LTIP:
Director
D Potts
T Strain
M Gleeson
Grant date
Award type
31 March 2020 Conditional award
31 March 2020 Conditional award
31 March 2020 Conditional award
Basis on which
award made
300% of salary
300% of salary
300% of salary
Face value
of award (£000)1
2,550
1,995
1,470
Percentage of award
vesting at threshold
performance
Performance
period end date
25% 29 January 2023
Performance conditions
see table below
25% 29 January 2023
25% 29 January 2023
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 (£1.7911 per share). The exercise price is £nil.
The table below sets out the performance conditions attached to the awards made during the year. These awards were granted in March 2020.
Measure1,2
Total sales growth (exc. fuel)
Adjusted free cash flow
Basic earnings per share (EPS) before
exceptionals growth p.a.
1 Performance measures are defined on page 64.
2 Vesting is on a straight-line basis between points.
Period over which
the measure applies
Three year performance period
Weighting (% of
maximum award)
40%
Three year performance period
40%
Threshold
(25%)
+£630m
+£800m
Maximum
(100%)
+£1,065m
+£950m
Three year performance period
20% 5% growth p.a.
8% growth p.a.
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 and M Gleeson has an option to purchase 6,737 shares at a
fixed price of £1.87p on 1 July 2021, both under the Morrisons Sharesave award subject to continued service.
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 (increasing to 300% for the CEO only from 2021/22 financial year).
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. Michael Gleeson has not yet met his requirement, but is within the
five year period to build up his shareholding.
Executive Director
D Potts
T Strain
M Gleeson
Shareholding
requirement
(% salary)1
250%
250%
250%
Shareholding as at
31 January 2021
(% salary)2,3
736%
365%
93%
Shares owned
outright6
3,046,282
1,032,104
249,188
Deferred shares
not subject to
performance4
860,533
625,145
–
Sharesave options
not subject to
performance
7,078
–
6,737
LTIP shares
subject to
performance5
3,785,749
2,863,619
1,188,216
Total interests
in shares
7,699,642
4,520,868
1,444,141
1 Increased to 300% from financial year 2021/22 for CEO.
2 Includes shares held under the deferred share bonus plan (DSBP) on an after tax basis. DSBP awards are conditional awards.
3 For the purposes of calculating the shareholding as a percentage of salary, the three month average share price of £1.7824 up to 29 January 2021 (the last trading day of the financial year ended
31 January 2021) has been used.
4 The number of shares awarded in respect of the 2019/20 Annual Bonus Plan (deferred element) (conditional award) was D Potts 229,959 and T Strain 175,851 shares. These were awarded on a share price
of £1.8001 (the five day average close price of the trading days prior to grant), and based on grant price their values were £413,950 for D Potts and £316,550 for T Strain. M Gleeson was not granted
shares under this award due to his appointment for the 2020/21 financial year.
5 1,217,416, 874,477 and 114,580 shares represent LTIP awards granted to D Potts, T Strain and M Gleeson respectively in March 2018 which are due to vest in March 2021. Performance targets for these
awards are disclosed in the section headed ‘2018/21 LTIP’ on page 68. 70,796 shares represent an additional LTIP award granted to M Gleeson in March 2017 which are due to vest in March 2021.
Performance targets for these awards are disclosed in the section headed ‘2017/20 LTIP’ on page 63 of the 2019/20 Directors’ remuneration report.
6 The LTIP 2017/20, which vested on 23 March 2020, resulted in 532,512, 373,557, and 46,777 shares for D Potts, T Strain and M Gleeson respectively.
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Audited information continued
Non-Executive Director shareholdings as at 29 January 2021 (the last trading day of the financial year) are set out in the table below. All Non-Executive
Directors have three years from their appointment to build up their shareholding.
Non-Executive Directors
R Anand
N Davidson3
S Given2
K Havelock
A Higginson
C A van Kralingen3
L McGowan
B Richards3
J Townsend
P Vennells
Current shareholding
22,500
12,800
–
100,000
126,402
13,000
20,000
14,407
25,000
12,745
Shareholding met1
Yes
No
No
Yes
Yes
No
Yes
No
Yes
No
1 The three month average price to 29 January 2021 was £1.7824.
2 In accordance with the NED Shareholding policy, Susanne Given has until 12 August 2023 to build her shareholding and has committed to do so.
3 The shareholding stated for N Davidson, B Richards and C A van Kralingen was the shareholding at the point of their resignation.
There have been no changes in the Directors’ interests since the year end.
Unaudited information
Total shareholder return (TSR)
Performance graph and table
300
250
200
150
100
50
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Morrisons
FTSE 100
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
29 January 2021 (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.
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
D Potts
D Philips
D Potts
D Philips
2011/12
–
2,502
–
90%
–
–
2012/13
–
1,089
–
0%
–
0%
2013/14
–
1,089
–
0%
–
0%
2014/15
–
2,101
–
60%
–
0%
2015/161
2,252
50
73%
–
–
0%
2016/17
2,794
366
100%
–
–
50%
2017/18
5,957
–
98.7%
–
96.3%
–
2018/19
4,502
–
61%
–
94.6%
–
2019/202
3,976
–
48.7%
–
93.5%
–
2020/21
4,178
–
100%
–
53.5%
–
1 D Potts was appointed on 16 March 2015 and D Philips stepped down from the Board on 16 February 2015.
2 2019/20 remuneration has been updated. The value of the 2017-20 LTIP vest that was disclosed in the 2019/20 Directors’ remuneration report was based on an indicative price, calculated on the three month
average closing price of £1.955 up to 31 January 2020 (the last trading day before year end). The value of the 2017/20 LTIP award has been updated to reflect the March 2020 value.
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Unaudited information continued
Percentage change in Directors’ remuneration
The table below sets out the change in total remuneration paid to the Directors from 2019/20 and 2020/21 and the average percentage change from
2019/20 and 2020/21 paid to employees of the PLC and the Group as a whole.
Executive Directors
Non-Executive Directors
Employee pay
D Potts
T Strain
M Gleeson
R Anand
N Davidson
S Given
K Havelock
A Higginson
L McGowan
B Richards
J Townsend
C A van Kralingen
P Vennells
All PLC employees
All Group employees
Salary and fees
0.0%
2.3%
n/a
10.1%
(76.5%)
n/a
12.4%
0.0%
n/a
(38.2%)
n/a
(75.5%)
1.1%
2.3%
2.4%
Taxable benefits
0.0%
(13.0%)
n/a
n/a
n/a
n/a
n/a
11.9%
n/a
n/a
n/a
n/a
n/a
0.0%
0.0%
Annual bonus
105.3%
110.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
209.2%
209.2%
The changes in fees above represent a number of changes in role. The following appointments were made: Susanne Given and Lyssa McGowan
on 12 August 2020, Jeremy Townsend on 6 July 2020 and the following stepped down from the Board, C A van Kralingen on 29 April 2020, B Richards
on 10 September 2020 and N Davidson on 26 April 2020.
Pay ratios
The table below sets out the ratio of the Chief Executive’s pay (as outlined on page 65), to the median, 25th and 75th percentile full-time equivalent
remuneration of Morrisons UK employees.
Year
2020/21
2019/20
Method
Option B
Option B
25th percentile pay ratio
219:1
230:1
Median pay ratio
199:1
217:1
75th percentile pay ratio
171:1
180:1
Option B under the reporting requirements has again 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. 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.
The change in ratio from 2019/20 to 2020/21 is due to tripling the average colleague bonus payment and the increase in the colleagues’ hourly rate,
as well as a significant reduction in LTIP vest year-on-year The business is satisfied that the median pay ratio is consistent with the pay, reward and
progression policies for the Company’s UK employees as whole.
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
£22,006
£19,044
£17,515
Total pay
and benefits
£4,178,395
£24,435
£20,965
£19,038
The ratio reflects the goal of rewarding the achievement of short and long-term financial and strategic objectives under Morrisons
remuneration policy.
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Annual Report on remuneration – 2020/21 continued
Unaudited information continued
Relative importance of spend on pay
The table below sets out the total spend on remuneration in the 2019/20 and 2020/21 financial years compared with distributions to shareholders.
Total cost of remuneration for all PLC employees
Profit distributed by way of dividends
The Committee and its advisers
During the year, the following individuals were members of the Remuneration Committee:
R Anand
N Davidson
S Given
K Havelock (Chair since 1 May 2020)
A Higginson
L McGowan
B Richards
J Townsend
C A van Kralingen
P Vennells
2020/21
£m
£1,109m
£261m
2019/20
£m
£1,000m
£302m
Difference
£m
£109m
£(41)m
21 January 2016
To date
3 November 2015
26 April 2020
12 August 2020
1 February 2018
22 January 2015
12 August 2020
To date
To date
To date
To date
2 September 2015
10 September 2020
6 July 2020
To date
1 September 2017
29 April 2020
21 January 2016
To date
The Chief Executive Officer, the Chief Operating Officer, the Chief Financial 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. During the year the Committee chair attended Group-wide listening and responding forums and national meetings
where colleagues have the opportunity to ask questions and discuss a broad range of company matters including remuneration. Any feedback from
employees and shareholders is taken into account as part of the Code expectations regarding items such as clarity, culture and risk. For example,
the Committee regularly communicates with its shareholders both publicly and through consultation, all store managers participate in the same LTIP
as the Executive Directors and incentive metrics and targets are designed to hold dynamic tension and create a long-term sustainably successful
business without encouraging unnecessary risk.
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.
As Willis Towers Watson are members of the Remuneration Consultants Group and operate in accordance with their Code of Conduct the
Committee is satisfied that their advice 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 £65,980 on a time and expense basis.
Statement of voting at the 2020 AGM on the remuneration policy
Remuneration policy
Votes for
1,247,787,105
For as a %
of votes cast
65.17%
Votes against
666,751,457
Votes against
as a % of votes cast
34.83%
Abstentions
5,108,456
Total
1,919,647,018
Statement of voting at the 2020 AGM on the remuneration report
Remuneration report
Votes for
1,862,012,229
For as a %
of votes cast
97.21%
Votes against
53,344,784
Votes against
as a % of votes cast
2.79%
Abstentions
4,289,959
Total
1,919,646,972
Kevin Havelock, Remuneration Committee Chair
10 March 2021
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Directors’ report
Statutory disclosures
The following disclosures have been included elsewhere within the
Annual Report and are incorporated into the Directors’ report
by reference.
Political donations
No political donations were made in the financial year, in line with the
Group’s policy (2020: nil).
Disclosure
Financial instruments
Financial risk management
Future developments
Dividends
Greenhouse gas emissions
Corporate governance report
Directors of the Group
Employee involvement
pages 122 to 124
pages 122 to 123
pages 1 to 38
page 100
page 28
pages 39 to 53
pages 42 to 43
pages 18, 19 and 41
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 104 to 111 and 117
page 132
page 63
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 and emerging risks as set out on pages 33
to 38 and the other matters discussed in connection with the viability
statement on page 38, the Directors considered it appropriate to adopt
the going concern basis of accounting in preparing the financial
statements. Further information can be found on page 90.
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.
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Statutory disclosures continued
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 Directors for such liabilities and costs to the fullest
extent permitted by law.
Substantial shareholdings
As at 31 January and 9 March 2021, 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 31 January 2021
As at 9 March 2021
Number of shares
capital Number of shares
% of share
% of share
capital
Silchester International
Investors LLP
289,355,491
12.01
310,779,289
Amerprise Financial Inc
177,966,342
7.62
177,966,342
13.01
7.62
BlackRock Inc
Schroders PLC
Majedie Asset
Management Limited
Deutsche Bank AG
Brandes Investment
Partners, LP
162,136,599
122,203,920
6.84
5.07
162,136,599
6.84
Less than 5%1
119,982,348
117,399,109
5.00
4.96
119,982,348
117,399,109
5.00
4.96
115,902,280
4.96
115,902,280
4.96
1 In the period from 31 January 2021 to the date of this report, we received a further notification
in accordance with DTR5 from Silchester International Investors LLP, disclosing a holding of
310,779,289 ordinary shares (13.01%). We also received a notification from Schroders PLC that
they have reduced their holdings to below 5%.
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.
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 2020, a special resolution was passed to renew
the authority given at the AGM held in June 2019 for the purchase by the
Group of up to 240,504,106 ordinary shares, representing approximately
10% of the issued ordinary share capital at that time.
During the period, 4,751,802 (2020: 36,699,143) ordinary shares were
issued to employees exercising share options and under the LTIP scheme.
In addition, 5,494,159 (2020: 551,491) 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.
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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. To deliver our policy, each division and subsidiary
company has a comprehensive health and safety management system,
which contains the policy and procedures for complying with the Health
and Safety at Work Act 1974, including the provision, based on risk
assessment, of safe working practices for all 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.
Over the past year, our intense management of the COVID-19
pandemic has shown how we prioritise the health and safety of
customers, colleagues and stakeholders. We have monitored COVID-19
developments at different levels, across different communities and work
type situations; giving us an understanding of COVID-19 Safety.
We are proud of our fast paced response and pleased with the
feedback from hundreds of Enforcement visits to our stores, food
factories and logistics depots. These inspections have resulted in
numerous compliments about our leading COVID-19 Safe standards and
our practices have been shared as best practice in the industry. As the
pandemic continues, our response to feeding the nation and keeping
COVID-19 Safe will remain a top priority.
By order of the Board
Jonathan Burke, Company Secretary
10 March 2021
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
We have always described that the turnaround of this great British
business would be led by colleagues, and as such we have five people
ambitions, which includes being a business where everyone feels
welcome and celebrated. This is promoted through a safe and
supportive environment free from racism, discrimination, harassment,
bullying and victimisation.
We strive towards an environment where 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 have the opportunity to progress. We also
encourage employment from anyone who wants to make a positive
impact, with every application given full and fair consideration.
Dignity and respect underpins our behaviour towards all customers,
colleagues and candidates. To ensure individual needs are considered, the
Group will make reasonable adjustments, where required, to the selection
process, work environment or practices to support those who need it.
The Group is more mindful than ever of mental health and wellbeing;
and 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.
Like most businesses, we know we are on a journey around diversity,
inclusion, belonging and wellbeing; however we are committed to
improving and remaining responsive to customers, colleagues and the
wider communities we serve, and truly being a business where everyone
is welcome and celebrated.
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Strategic reportGovernanceFinancial statementsInvestor information 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 year. Under that law the Directors have prepared the
Group financial statements in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006. Additionally, the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules require the Directors to prepare the
Group financial statements in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in 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, 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 for the Group, international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union, and
for the Company, United Kingdom Accounting Standards, comprising
FRS 101 have been followed, 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 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 keeping adequate accounting records
that are sufficient to show and explain the Group’s 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 comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
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’s 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 Accounting Standards, comprising
FRS 101, give a true and fair view of the assets, liabilities, financial
position and loss of the Company; 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’s 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’s 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.
• the Group financial statements, which have been prepared in
By order of the Board
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union, give a true and fair view of the assets, liabilities, financial
position and profit of the Group;
Jonathan Burke, Company Secretary
10 March 2021
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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 31 January 2021 and of the Group’s profit and the Group’s cash flows for the 52 week period
then ended;
• the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006;
• 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.
We have audited the financial statements, included within the Annual Report and Financial Statements (the ‘Annual Report’), which comprise: the
consolidated and Company statements of financial position as at 31 January 2021; the consolidated income statement, the consolidated statement
of comprehensive income, the consolidated statement of cash flows, and the consolidated and Company statements of changes in equity for the
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.
Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union
As explained in the basis of preparation note on page 90, the Group, in addition to applying international accounting standards in conformity
with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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.
Other than those disclosed in note 1.6 to the financial statements, we have provided no non-audit services to the Group in the period under audit.
Our audit approach
Context
As a result of COVID-19 the majority of our audit procedures have been performed remotely. During the course of the audit we have however been
able to attend stock counts, fixed asset inspections and cash cycle counts whilst carefully observing the lockdown restrictions and pandemic safety
protocols. Despite the remote working, we have been able to obtain the audit evidence requested to support our opinion, and we have been able to
appropriately challenge management on the key accounting and audit matters. Our challenge has been most prominent in terms of the treatment
and disclosure of exceptional items, and the key assumptions used within the trading stores’ impairment model.
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Our audit approach
Overview
Materiality
Audit scope
Areas of
focus
• The Group engagement team performed
the audit procedures for each reporting unit
in the scope of our Group audit, which
accounted for 99% of total Group revenue
and 99% 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.
Key Audit Matters (Group and
Company)
• Impairment of property, plant
and equipment and right-of-use assets.
• Commercial income and manually
calculated promotional funding.
• Impairment of intangible assets.
• Shrinkage provision.
• Exceptional items (Group only).
• Valuation of Retirement benefits.
• Impact of COVID-19.
Materiality
• Overall Group materiality: £20,000,000
based on professional judgement having
considered a number of profit before tax
and exceptionals bases and a revenue basis
(2020: £20,400,000, which was based on 5%
of profit before exceptional items and net
retirement benefit interest income).
The change of basis in how we set
materiality to 2020 was due to the impacts
of COVID-19 on profit in 2021.
• Overall Company materiality: £18,000,000
(2020: £18,300,000) allocated to the company
as part of the Group audit.
• Performance materiality: £15,000,000 (Group)
and £13,500,000 (Company).
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.
In addition, we determined that a certain
account balance in a further reporting unit
was 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.
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
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
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. Audit procedures
performed by the engagement team included:
• 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; and
• auditing the risk of management override of controls, including through testing journal entries and other adjustments for appropriateness, testing
accounting estimates (because of the risk of management bias), and evaluating the business rationale of significant transactions outside the normal
course of business.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws
and regulations that are not closely related to events and transactions reflected in the financial statements. 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.
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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.
The impact of COVID-19 is a new key audit matter this year. IFRS 16 Lease Accounting, which was a key audit matter last year, is no longer included
because of the prior year key audit matter being specific to the transition accounting for IFRS 16. As this was audited in the prior year and no
significant issues were identified as a result of this work, the subsequent accounting under IFRS 16 is not deemed to be a key audit matter. Otherwise,
the key audit matters below are consistent with last year.
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 financial plan covering FY22 and
medium term outlook (upon which the forecasts underpinning the value in
use calculations are based);
• challenged management’s forecasts by seeking evidence over the key
assumptions and compared future cash flow performance to historical 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 assumptions.
We determined that the valuations performed by management were
reasonable.
In addition, we evaluated the adequacy of the disclosures made in notes 3.3 and
3.4 (Group) and notes 11.7 and 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.
Key audit matter
Impairment of property, plant and equipment and right-of-use assets
(Group and Company)
Refer to page 93 (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: £5,772m, Company: £1,572m) and right of use assets
representing leasehold land and buildings (Group: £997m, Company: £1,090m) at
31 January 2021.
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. In addition, the COVID-19 pandemic has created
greater consumer uncertainty.
We focused on this area because of the judgement required in applying various
estimations when testing for impairment and impairment write backs and the
significant carrying value of freehold and leasehold property.
Management considers each store location 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.
The Group has recognised a net impairment write back of £141m (£199m
impairment write back offset by £58m impairment charge). The £58m
impairment charge includes £42m in relation to property, plant and equipment,
£13m in relation to right-of-use assets and £3m in relation to investment property.
The £199m impairment write back includes £144m in relation to property, plant
and equipment, £54m in relation to right-of-use assets and £1m in relation to
investment property.
The Company has recognised a net impairment write back of £77m (£108m
impairment write back offset by £31m impairment charge). The £31m impairment
charge includes £15m in relation to property, plant and equipment, £14m in
relation to right-of-use assets and £2m in relation to investment property.
The £108m impairment write back includes £64m in relation to property, plant
and equipment, £43m in relation to right-of-use assets and £1m in relation to
investment property.
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Key audit matter
How our audit addressed the key audit matter
Commercial income and manually calculated promotional funding
(Group and Company)
Refer to page 93 (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 on page 94. 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.
We also recognise 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 manually calculated element to the invoicing. We focused on the
manually calculated 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.
Impairment of intangible assets (Group and Company)
Refer to page 93 (sources of estimation uncertainty), note 3.1 (accounting
policies) and notes 3.2 and 11.6 (goodwill and intangible assets).
Intangible assets of £328m are recognised on the Group balance sheet and
£309m on the Company balance sheet, 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 £67m for the Group and the Company has been
recognised in relation to intangible assets (software and systems).
We performed the following procedures in relation to both commercial income
and manually calculated 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 balance sheet items to supporting documentation
including supplier agreements and independent external confirmations from
supplier. This included testing accrued items on the balance sheet to
subsequent post year end invoicing as well as independent confirmations;
• used data analytics to identify any unusual items and where such items were
identified these were agreed to supporting documentation;
• tested a sample of supplier arrangements recognised in the income statement
to supporting agreements and invoices. We have also assessed supplier
dispute provisions at the year-end for comfort over items recognised in the
income statement;
• cut-off work involved testing a sample of commercial income and the
manually calculated elements of promotional funding recognised both pre
and post the period end and evaluating by reference to documentation from
suppliers that the timing of recognition was appropriate;
• our credit note testing focused on credit notes raised after the period end in
order to identify any instances of commercial income or the manually
calculated elements of promotional funding being subsequently reversed;
• 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.
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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Key audit matter
How our audit addressed the key audit matter
Shrinkage provision (Group and Company)
Refer to page 93 (sources of estimation uncertainty), note 5.1 (accounting
policies), notes 5.2 and 11.3 (inventory).
Inventory of £814m is recognised on the balance sheet of the Group and £514m
on the Company balance sheet. The inventory valuation is reduced by provisions
including those relating to estimated losses due to shrinkage (note 5.1 and 11.3).
We focused on this due to the estimation uncertainty and judgements involved
in determining the level of provision required for shrinkage (inventory loss).
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.
Exceptional items (Group)
Refer to page 92 (critical accounting judgements) and note 1.4 (profit before
exceptionals).
We considered whether the presentation of profit before exceptional items
and net retirement benefit interest was appropriate. We performed the
following procedures:
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 £201m is stated before £16m of IAS 19 pension interest income and a net
charge from exceptional items of £52m, representing:
• £66m of costs associated with the online and home delivery expansion;
• an impairment write back from the impact of store picks of £76m;
• £56m of restructuring and store closure costs;
• £7m net write back of impairment and provision for onerous contracts, which
includes a net £2m impairment for property, plant and equipment (excluding
impact of store pick above) and intangible assets, and a net £9m credit in
relation to provision for onerous contracts;
• £2m profit arising on disposal and exit of properties; and
• £15m of other exceptional costs.
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.
Valuation of Retirement benefits (Group and Company)
Refer to page 93 (critical accounting judgements), 93 (sources of estimation
uncertainty), notes 8 and 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: £5,518m and
Company: £1,952m) and liabilities (Group: £4,800m and Company £1,661m) within
the schemes are significant and material. The net surplus position of the
schemes at 31 January 2021 was £718m for the Group and £291m 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.
• 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 historical
assessments made for similar circumstances;
• challenged management on the classification of exceptional items through
consideration of the application of the accounting policy including those
items classified as ‘other exceptional costs’; and
• challenged management over disclosures relating to exceptional items to
ensure that these were appropriate and consistent with the individual
exceptional items and the work performed.
We did not identify any material issues in our work over those items presented
as exceptional.
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.
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Key audit matter
How our audit addressed the key audit matter
Impact of COVID-19 (group and parent)
Refer to the strategic report for the impact of COVID-19 on the Group and
Company’s financial performance during the year.
Management has considered the implications of COVID-19 across its business,
with specific focus on its going concern assessment, the impairment of
non-financial assets, liquidity disclosures and the disclosures within the Annual
Report and Financial Statements.
Management has considered a base case model using a like-for-like sales
assumptions and assessed the forecast underlying profit, liquidity headroom and
net debt position as part of their going concern assessment.
Management has further modelled a severe but plausible downside by reducing
the like-for-like sales assumption, and concluded that the forecast underlying
profit, liquidity exposure and level of net debt are not impacted sufficiently to
change their assessment on the entity’s ability to continue as a going concern.
Furthermore, management has performed a reverse stress test which shows
like-for-like sales would have to reduce by an implausible level for the business
to be considered unviable.
Management’s view is that there are no additional impairment triggers from the
impact of COVID-19 beyond the impact of the annual impairment reviews in
relation to fixed and intangible assets previously described in this report.
As a result of the impact of COVID-19 on the wider economy, we have
determined that management’s consideration of the impact of COVID-19 to be
a key audit matter.
We considered the impact of COVID-19 in our audit risk assessment, including
the going concern risk of the Group. Based on the Directors’ assessment and
our audit procedures described below, we consider going concern to be a
normal risk for both the Group and the Company.
In assessing management’s consideration of the impact of COVID-19, we have
undertaken the following audit procedures:
• obtained from management their latest assessments that support the Board’s
conclusions with respect to the going concern basis of preparation of the
financial statements;
• evaluated management’s base case forecast and severe but plausible
downside scenarios and challenged the adequacy and appropriateness of the
underlying assumptions, including a decrease in like-for-like sales; and
• in conjunction with the above we have also reviewed management’s analysis
of both liquidity and covenant compliance to satisfy ourselves that no
breaches are anticipated over the period of assessment.
Our conclusion in respect of going concern is included in the ‘Going concern’
section on page 83.
We have reviewed management’s assessment of the impact of COVID-19 on
the carrying value of each category of assets and any adjustments made. We
evaluated and challenged management on how they reflected the impact on
future cash flows, of COVID-19, in their impairment analyses and the
consistency of their assumptions with the forecasts used in their going concern
assessment.
We have reviewed management’s disclosures in the financial statements in
relation to COVID-19 and are satisfied that they are consistent with the risks
affecting the Group, their impact assessment and the procedures that we have
performed.
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 two components, being Wm Morrison Supermarkets PLC and Safeway Stores Limited, which were determined as
financially significant because they individually contribute more than 15% of the Group’s profit before tax. In addition, we determined that a certain
account balance (Investments in Joint Ventures) in a further reporting unit was 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.
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 99% 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.
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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
£20,000,000.
£18,000,000.
Group financial statements
Company financial statements
How we determined it
Rationale for benchmark applied
Professional judgement having considered a number of
profit before tax and exceptionals bases and a revenue basis.
We applied this benchmark as profit before exceptionals
and tax is the most relevant metric against which the
performance of the Group is most commonly measured.
However, revenue is also another key benchmark used to
assess the performance and growth of the Group.
In the current year, there have been significant one-off costs
which have reduced the profit levels and, therefore, using
an unadjusted profit measure is not deemed appropriate.
As such, we have used our professional judgement in
selecting a materiality level that sits within a range of profit
before tax and exceptionals bases and a revenue basis, that is
more reflective of the size of the Group and its performance
in the year, excluding these one-off costs.
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 components 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 £18,000,000.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent
of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75%
of overall materiality, amounting to £15,000,000 for the Group financial statements and £13,500,000 for the Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and
the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1,000,000 (Group audit)
(2020: £1,000,000) and £900,000 (Company audit) (2020: £913,500) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Conclusions relating to going concern
Our evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of
accounting included:
• We obtained from management their latest assessments that support the Board’s conclusions with respect to the going concern basis of preparation of
the financial statements;
• We evaluated management’s base case forecast and severe but plausible downside scenarios and challenged the adequacy and appropriateness of the
underlying assumptions, including a decrease in like-for-like sales; and
• In conjunction with the above we have also reviewed management’s analysis of both liquidity and covenant compliance to satisfy ourselves that no
breaches are anticipated over the period of assessment.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s ability to
continue as a going concern.
In relation to the Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
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Strategic reportGovernanceFinancial statementsInvestor information Independent auditors’ report continued
to the members of Wm Morrison Supermarkets PLC
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there
is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on
these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have
been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
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
period ended 31 January 2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
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.
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.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other
information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement,
included within the Corporate governance report is materially consistent with the financial statements and our knowledge obtained during the audit, and
we have nothing material to add or draw attention to in relation to:
• the Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• the disclosures in the Annual Report and Financial Statements that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
• the Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so over a period of
at least twelve months from the date of approval of the financial statements;
• the Directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the period is
appropriate; and
• the Directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the Directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only consisted of
making inquiries and considering the Directors’ process supporting their statement; checking that the statement is in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge
and understanding of the Group and Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information
necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• the section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when 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.
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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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However,
it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular
items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the
population from which the sample is selected.
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 obtained 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 7 years, covering the years ended
1 February 2015 to 31 January 2021.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
10 March 2021
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Strategic reportGovernanceFinancial statementsInvestor information Consolidated income statement
52 weeks ended 31 January 2021
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
All of the results shown above relate to continuing operations.
Before
exceptionals
£m
17,598
(17,097)
501
92
–
(287)
306
(111)
6
–
201
(58)
143
Exceptionals
(note 1.4)
£m
–
(113)
(113)
–
2
59
(52)
–
16
–
(36)
(11)
(47)
Note
1.2
1.6
6.2
6.2
4.2
2.2
1.5
1.5
2021
Total
£m
17,598
(17,210)
388
92
2
(228)
254
(111)
22
–
165
(69)
96
3.99
3.95
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
Consolidated statement of comprehensive income
52 weeks ended 31 January 2021
Other comprehensive (expense)/income
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 (expense)/income for the period, net of tax
Profit for the period attributable to the owners of the Company
Total comprehensive (expense)/income for the period attributable to the owners of the Company
Note
8.2
2.3
2.3
2021
£m
(248)
32
(216)
41
1
(7)
35
(181)
96
(85)
2020
Total
£m
17,536
(16,907)
629
94
66
(268)
521
(111)
24
1
435
(87)
348
14.60
14.44
2020
£m
231
(38)
193
(57)
(2)
10
(49)
144
348
492
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Consolidated statement of financial position
As at 31 January 2021
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
Current tax asset
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
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
Note
2021
£m
2020
£m
3.2
3.3
3.4
3.6
8.2
4.2
3.7
7.3
5.2
5.3
7.3
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
328
7,358
997
59
754
31
70
9
9,606
814
336
27
13
240
1,430
–
1,430
11,036
(2,837)
(54)
(72)
(18)
(2,981)
(1,986)
(1,299)
(2)
(36)
(463)
(53)
(3,839)
(6,820)
4,216
241
201
39
2,578
1,157
4,216
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
The notes on pages 90 to 133 form part of these financial statements. The financial statements on pages 86 to 133 were approved by the Board
of Directors on 10 March 2021 and were signed on its behalf by:
Michael Gleeson, Chief Financial Officer
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Strategic reportGovernanceFinancial statementsInvestor information
Consolidated statement of cash flows
52 weeks ended 31 January 2021
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
Repayment of lease obligations
Dividends paid
Net cash inflow/(outflow) from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net debt1 in the period
Net (decrease)/increase in cash and cash equivalents
Cash inflow from increase in borrowings
Cash outflow from repayment of borrowings
Cash outflow from repayment of lease liabilities
Non-cash movements on lease liabilities2
Other non-cash movements
Opening net debt1
Closing net debt1
Note
5.6
10.1
4.3
6.6
6.6
6.6
1.8
6.5
Note
6.5
2021
£m
286
(116)
(81)
89
–
8
27
(461)
(77)
(1)
(504)
–
(10)
9
934
(237)
(85)
(261)
350
(65)
305
240
2021
£m
(65)
(934)
237
85
(80)
46
(2,458)
(3,169)
2020
£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)
1 Net debt is defined in the Glossary on page 159.
2 Non-cash movement on lease liabilities comprise £15m (2020: £36m) in relation to new leases and £65m (2020: £30m) from the remeasurement of existing leases.
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Consolidated statement of changes in equity
52 weeks ended 31 January 2021
Current period
At 3 February 2020
Profit for the period
Other comprehensive income/(expense):
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 income/(expense) for the period
Employee share option schemes:
Share-based payments charge
Settlement of share awards
Share options exercised
Dividends
Total transactions with owners
At 31 January 2021
Prior period
At 4 February 2019
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
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Note
Merger
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
Attributable to the owners of the Company
240
–
192
–
–
–
–
–
–
–
–
1
–
1
241
–
–
–
–
–
–
–
9
–
9
201
8.2
2.3
1.7
6.6
6.6
1.8
39
–
–
–
–
–
–
–
–
–
–
–
39
2,578
–
(37)
–
1,529
96
4,541
96
–
–
–
–
–
–
–
–
–
–
2,578
41
–
–
(7)
34
–
–
–
–
–
(3)
–
41
1
(248)
32
(119)
20
(9)
–
(261)
(250)
1,160
1
(248)
25
(85)
20
(9)
10
(261)
(240)
4,216
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Note
Merger
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
Attributable to the owners of the Company
237
–
178
–
–
–
–
–
–
–
–
–
3
–
–
3
240
–
–
–
–
–
–
–
–
14
–
–
14
192
8.2
2.3
6.6
1.7
6.6
6.6
2.3
1.8
39
–
–
–
–
–
–
–
–
–
–
–
–
–
39
2,578
–
–
–
–
–
–
–
–
–
–
–
–
–
2,578
10
–
(57)
–
–
10
(47)
–
–
–
–
–
–
–
(37)
1,283
348
4,325
348
–
(2)
231
(38)
539
(10)
26
(2)
(3)
(2)
(302)
(293)
1,529
(57)
(2)
231
(28)
492
(10)
26
(2)
14
(2)
(302)
(276)
4,541
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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
31 January 2021 (2020: 52 weeks ended 2 February 2020) in accordance
with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 (IFRS) and the applicable legal
requirements of the Companies Act 2006. In addition to complying
with international accounting standards in conformity with the
requirements of the Companies Act 2006, the financial statements
also comply with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
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 to one decimal place. 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.
Going concern
The financial statements have been prepared on the going concern
basis as the Directors have a reasonable expectation that the Group
has adequate resources for a period of at least 12 months from the date
of approval, having reassessed the principal and emerging risks facing
the Group and determined that there are no material uncertainties
to disclose.
The COVID-19 pandemic has had a significant impact on customer
behaviour during the 52 weeks ended 31 January 2021, with stockpiling
in the early weeks of the pandemic and then the effects of
transitioning in and out of lockdown across the UK. This has created
unprecedented challenges for the sector and impacted the Group’s
near-term priorities. The Group responded quickly to these challenges,
to play its part in feeding the nation. As an essential retailer providing
groceries across the UK, all stores continued to trade throughout
the period, and with increasing trends towards the ‘in-home’ market,
supermarket and online sales have had strong like-for-like growth
during the 52 weeks ended 31 January 2021. Fuel sales were affected
by reduced demand during periods of lockdown, with some recovery
in between those periods. Profit before tax and exceptionals was
impacted during the year by the considerable direct costs associated
with COVID-19.
The Directors’ assessment of the Group’s ability to continue as a
going concern includes an assessment of cash flow forecasts which
incorporate an estimated impact of the ongoing COVID-19 pandemic
on the Group. This includes the modelling of a number of severe but
plausible scenarios based on the experiences during the 52 weeks
ended 31 January 2021, recognising the degree of uncertainty that
continues to exist.
The Group continues to maintain a robust financial position providing
it with sufficient access to liquidity, through a combination of cash and
committed facilities, to meet its needs in the short and medium term.
The Group has a centralised treasury function which manages funding,
liquidity and other financial risk in accordance with the Board-approved
Treasury Policy, as detailed on page 122.
In September 2019 the Group issued a 12 year £350m sterling bond,
ahead of the maturity of the €282m Eurobond which was repaid in June
2020. During the year the Group took up the option of extending its
main £1,350m revolving credit facility (RCF) by a year to June 2025 and
obtained three new £100m RCFs. Since 31 January 2021, all four of the
£100m RCFs have been extended with £200m now maturing in
September 2021, £100m in March 2022 and £100m in July 2022, taking the
total committed RCFs from £1,450m to £1,750m. As at 31 January 2021,
the Group had net debt (excluding leases) of £1,798m.
As at 31 January 2021, the Group covenant basis net debt (excluding
leases)/EBITDA ratio was 2.4x and the EBITDA/net interest expense
ratio was 4.8x, providing sufficient headroom against the covenant
limits detailed on page 123. The scenarios modelled demonstrate
sufficient liquidity and financial covenant headroom being available.
Whilst not a key factor in the Directors’ going concern conclusion,
the Group does also have other significant potential mitigations at
its disposal to improve its short-term liquidity position should the
need arise, including scaling back its capital investment programme,
and deferring future dividends.
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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 31 January 2021.
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 31 January 2021:
• Amendments to the following standards:
– IFRS 3 ‘Definition of a Business’
– IFRS 7, IFRS 9 and IAS 39 ‘Interest rate benchmark reform’
– IAS 1 and IAS 8 ‘Definition of Material’
• Amendments to references to the conceptual framework in
IFRS standards.
The Group has considered the above amendments to published
standards, and has concluded that these are not relevant to the Group.
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 reassessing
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
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 157 to 159.
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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 157.
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 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 write backs of other non-current assets.
During the year the appropriateness of the policy has been reviewed
and the policy expanded to capture significant one-off costs incurred
where they have resulted in a significant write back of impairments of
tangible assets as part of the annual impairment exercise, to provide
consistent treatment between the cost of development incurred and
the recognition of the impairment write back. As a result the costs in
the year relating to the considerable expansion of the online and home
delivery business have been treated as exceptional.
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.
In relation to the COVID-19 pandemic, the Directors have ensured that
COVID-19 specific costs are within underlying earnings in compliance
with the Financial Reporting Council’s guidance.
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.
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.
Typically this has 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 reassessed as required by the Group’s
accounting policies for lease liabilities. Further detail is provided
in notes 6.1 and 6.4.
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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
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 write back).
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.
In calculating future cash flows for each store location this year,
judgement has been applied in making adjustments for both the
one-off costs related to the COVID-19 pandemic and the allocation
of online store pick cash flows to locations for the first time where a
reliable store pick trading history has been established.
Further detail is provided in notes 3.1, 3.2, 3.3 and 3.4.
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 historical 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.
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements
52 weeks ended 31 January 2021
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 (including doorstep delivery), 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.
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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
2021
£m
14,183
922
15,105
2,493
17,598
2020
£m
13,065
800
13,865
3,671
17,536
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 both in-store and online. The Group is required to determine and present its
operating segments based on the way in which financial information is organised and reported to the chief operating decision-maker (CODM). The
CODM has been identified as the Executive Committee, as this makes the key operating decisions of the Group and is responsible for allocating
resources and assessing performance.
Key internal reports received by the CODM, primarily the management accounts, focus on the performance of the Group as a whole. The operations
of all elements of the business are driven by the retail sales environment and hence have fundamentally the same economic characteristics. All
operational decisions made are focused on the performance and growth of the retail outlets and the ability of the business to meet the supply
demands of the stores in servicing their customer base, both in-store and through the various online channels.
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.
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52 weeks ended 31 January 2021
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 157 to 159.
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, and are consistent with how business performance is measured internally. 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 28.7% (2020: 23.1%).
‘Profit before exceptionals’ and ‘earnings per share before exceptionals’ measures are not recognised measures under 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 onerous and property-related provisions would typically be
included as exceptional items, as would significant impairments or impairment write backs of other non-current assets. During the year the
appropriateness of the policy has been reviewed and the policy expanded to capture significant one-off costs incurred where they have resulted in a
significant write back of impairments of tangible assets as part of the annual impairment exercise, to provide consistent treatment between the cost
of development incurred and the recognition of the impairment write back. As a result the costs in the year relating to the considerable expansion of
the online and home delivery business have been treated as exceptional.
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 period1
Profit before tax
Adjustments for:
Restructuring and store closure costs1
Online and home delivery expansion:
Transformation costs1
Impairment write back – store pick1
Net impairment and provision for onerous contracts1
Profit/loss arising on disposal and exit of properties1
Other exceptional items1
Net retirement benefit interest (note 8.2)1
Profit before tax and exceptionals
Normalised tax charge at 28.7% (2020: 23.1%)1,2
Profit before exceptionals after tax
Earnings per share before exceptionals (pence):
Basic (note 1.5.2)
Diluted (note 1.5.2)
2021
£m
96
69
165
56
66
(76)
(7)
(2)
15
(16)
201
(58)
143
5.95
5.89
2020
£m
348
87
435
51
–
–
(2)
(66)
9
(19)
408
(94)
314
13.18
13.03
1 Adjustments marked 1 increase post-tax adjusted earnings by £47m (2020: decrease of £34m), as shown in the reconciliation of earnings disclosed in note 1.5.2.
2 Normalised tax is defined in the Glossary, see page 158 for details.
Restructuring and store closure costs
Restructuring and store closure costs totalled £56m (2020: £51m). Of this amount, there was an additional £21m (2020: £46m) charge for the
restructuring of the store management and operations following a delay in the completion of the activity which commenced in the prior year;
a £17m (2020: £nil) charge relating to the costs of organising and modernising the ways of working across the head office; a £16m (2020: £nil) charge
from reorganisations within logistics to increase the flexibility of the network to respond to changes in the business; £3m (2020: £nil) for restructuring
of the manufacturing operations; and £1m credit (2020: £5m cost) relating to store closures.
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1 Performance in the period continued
1.4 Profit before exceptionals continued
Online and home delivery expansion
Transformation costs
The costs of the rapid roll out of online and home delivery amount to £66m and comprise of £42m of transformation costs from rapidly increasing
the number and capacity of online and home delivery channels available and £24m relating to stock wastage as new process and system integrations
relating to store pick were being adapted.
Impairment write back – store pick
Following the Group’s annual impairment exercise a write back of £76m has been recognised. The write back relates to the improved utilisation
of store assets where store pick online operations have become sufficiently established.
Net impairment and provision for onerous contracts
Following the Group’s annual impairment and onerous contract review a net credit of £7m (2020: £2m) has been recognised, excluding the
£76m (2020: £nil) impairment write back relating to the online and home delivery expansion as set out above. The net credit of £7m includes:
• a net £2m impairment charge, comprising a £67m impairment charge on intangible assets, a £58m impairment charge on tangible assets offset
by a £123m write back of impairment on tangible assets (net £65m tangible asset write back); and
• a net £9m credit recognised in relation to provisions for onerous contracts (see note 5.5).
In total a £74m net impairment write back has been recognised including the £76m write back relating to the improved asset utilisation of store assets
from the online and home delivery expansion (£199m impairment write back offset by £125m impairment charge). The £199m impairment write back
includes £144m in relation to property, plant and equipment, £54m in relation to right-of-use assets and £1m in relation to investment property (see
notes 3.3, 3.4 and 3.6 respectively). The £125m impairment charge includes £42m in relation to property, plant and equipment, £13m in relation to
right-of-use assets, £3m in relation to investment property and £67m in relation to intangible assets (see notes 3.3, 3.4, 3.6 and 3.2 respectively).
In the 52 weeks ended 2 February 2020, there was a net annual impairment and onerous contract credit of £2m. An impairment write back of £15m
was recognised in addition to a £2m charge in relation to provisions for onerous contracts. A further £10m credit recognised following changes to
estimates in respect of lease terms and a £21m charge in respect of amounts provided for onerous commitments and receivables in respect of
contract payments.
Profit/loss arising on disposal and exit of properties
Profit arising on disposal and exit of properties was £2m, net of fees incurred.
In the 52 weeks ended 2 February 2020 a £66m profit was realised of which £64m related to the sale of land and buildings of the Camden store.
Other exceptional items
Other exceptional items include:
• a £9m charge relating to additional bonuses paid to Colleagues during the year who would not ordinarily have been eligible for the bonus scheme;
• a £4m net charge relating to costs incurred in relation to legal cases in respect of historical events; and
• a £2m charge relating to the increased mark down of excess stock and one-off costs relating to Brexit.
In the 52 weeks ended 2 February 2020, there was £9m of other exceptional items, including a £6m charge relating to one-off costs associated with
improvements to the Group’s distribution network as part of a programme to increase network capacity and support the accelerated roll out of
wholesale supply and a net £3m charge in respect of other net exceptional costs.
Taxation
The total tax charge for the 52 week period ended 31 January 2021 of £69m includes an exceptional tax charge of £11m (2020: £7m credit) being a
£41m (2020: £nil) charge due to the change in the standard rate of corporation tax in respect of deferred tax (see note 2.3) and a £30m (2020: £7m)
credit in relation to other exceptional items.
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52 weeks ended 31 January 2021
1 Performance in the period continued
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 (2020: 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
95.8
–
95.8
2,398.1
25.2
2,423.3
2021
EPS
Pence
3.99
(0.04)
3.95
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
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
95.8
47.0
142.8
–
142.8
2,398.1
–
2,398.1
25.2
2,423.3
2021
EPS
Pence
3.99
1.96
5.95
(0.06)
5.89
Earnings
£m
Weighted average
number of shares
millions
347.9
(34.0)
313.9
–
313.9
2,382.5
–
2,382.5
26.3
2,408.8
2020
EPS
Pence
14.60
(1.42)
13.18
(0.15)
13.03
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1 Performance in the period continued
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 write back (notes 3.3, 3.4 and 3.6)
Amortisation and impairment:
Intangible assets (note 3.2)
Net impairment charge (note 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
2021
£m
2,138
405
63
2
(141)
71
67
16
2
–
13,472
20201
£m
1,845
371
60
3
(30)
91
15
5
2
–
13,608
During the year, the Group waived the £230m of 2020/21 business rates relief for the 52 weeks ended 31 January 2021 it had received from the UK
Government to support businesses through the early days of the COVID-19 pandemic. This has been recognised within profit before exceptionals.
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
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
2021
£m
88
152
240
2021
£m
0.8
0.3
0.2
1.3
2020
£m
78
113
191
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.
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Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 31 January 2021
1 Performance in the period continued
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
2021
£m
1,870
144
20
104
2,138
2020
£m
1,605
126
24
90
1,845
In the 52 weeks ended 31 January 2021, there was £57m (2020: £49m) of exceptional costs in addition to the employee benefit expenses shown in the table
above (see note 1.4). This amount included £nil (2020: £2m) in the form of share-based payments.
Average monthly number of people, including Directors
Stores
Manufacturing
Distribution
Centre
2021
No.
99,769
9,006
6,220
3,052
118,047
2020
No.
81,092
9,373
5,763
2,391
98,619
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 65). There are no Executive Directors (2020: 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
1.8 Dividends
Amounts recognised as distributed to equity holders in the period:
Final dividend for the period ended 2 February 2020 of 4.84p (2019: 4.75p)
Special final dividend for the period ended 2 February 2020 of nil (2019 4.00p)
Interim dividend for the period ended 31 January 2021 of 2.04p (2020: 1.93p)
Special interim dividend for the period ended 31 January 2021 of 4.00p (2020: 2.00p)
2021
£m
21
4
5
1
31
2021
£m
116
–
49
96
261
2020
£m
19
4
8
1
32
2020
£m
113
95
46
48
302
The Directors propose a final ordinary dividend in respect of the financial period ended 31 January 2021 of 5.11p per share which will absorb an
estimated £123m of shareholders’ funds. Subject to approval at the Annual General Meeting (AGM), the final dividend will be paid on 28 June 2021
to shareholders who are on the register of members on 21 May 2021.
The dividends paid and proposed during the year are from cumulative realised distributable reserves of the Company.
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2 Taxation
The Group takes a compliance-focused approach to its tax affairs, and has a transparent relationship with the UK and overseas tax authorities
and interacts with HMRC on a regular basis. The Group’s tax policy provides a governance framework with all related risks and stakeholder interests
taken into consideration. The tax policy is approved by the Audit Committee, who also review updates on tax compliance and governance matters.
The Group’s approach to tax is to ensure compliance with the relevant laws of the territories in which the Group operates. The majority of the
Group’s stores and sales are in the UK so the majority of the Group’s taxes are paid in the UK.
The Group operates a small number of branches and subsidiary companies outside of the UK based in the following overseas jurisdictions:
• The Netherlands: The Group has operations in the Netherlands as part of its produce supply chain. Local corporation taxes of £2.1m were paid
during 2021 (2020: £0.7m);
• Hong Kong: Offices in Hong Kong were established in 2011 and source many of the Group’s non-food products. Local corporation taxes of £nil were
paid during 2021 (2020: £0.5m); 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 £38m as a result of historical 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.
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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
Impact of change in tax rate
Tax charge for the period
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)
2021
£m
47
2
4
53
(20)
(5)
41
16
69
2021
£m
(32)
7
–
(25)
2020
£m
60
3
(4)
59
22
6
–
28
87
2020
£m
38
(10)
2
30
2.2.3 Tax reconciliation
The reconciliation below shows how the tax charge of £69m (2020: £87m) has arisen on profit before taxation of £165m (2020: £435m).
The tax for the period is higher (2019: higher) than the standard rate of corporation tax in the UK of 19% (2020: 19%). The differences are explained below:
Profit before taxation
Profit before taxation at 19% (2020: 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
Effect of change in tax rate
Impairment write back non-taxable
Tax charge for the period
2021
£m
165
31
(3)
27
(6)
(1)
(1)
41
(19)
69
2020
£m
435
83
(5)
24
(6)
(3)
2
–
(8)
87
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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 42.0% (2020: 20.0%). The effective tax rate was 23.0% (2020: 1.0%) above the UK statutory tax rate of
19% (2020: 19%). The main item increasing the effective tax rate is a deferred tax charge arising as a result of a change in the rate at which deferred
tax is provided (see below).
The normalised tax rate for the year was 28.7% (2020: 23.1%), The normalised tax rate was 9.7% (2020: 4.1%) above the UK statutory tax rate of
19% (2020: 19%). The main item increasing the normalised tax rate is disallowed depreciation on UK properties which reflects the Group’s strategy
to maintain a majority freehold estate. The normalised tax rate increased year-on-year due to a reduction in profit before exceptionals.
Legislation to reduce the standard rate of corporation tax to 17% from 1 April 2020 was enacted in Finance Act 2016. The Budget on 11 March 2020
announced that the standard rate of corporation tax would remain at 19% from 1 April 2020 and the legislation was substantively enacted during the
year so at 31 January 2021 all deferred tax balances have been calculated at 19%. The deferred tax liability recognised on the balance sheet increased by
£55m due to the change in rate at which deferred tax is provided which resulted in a £41m deferred tax charge recognised within exceptional items in
the income statement for the period (see note 1.4) and a £14m deferred tax charge recognised in other comprehensive income.
The March 2021 Budget announced an increase in the UK standard rate of corporation tax to 25% from 1 April 2023. The legislation was not enacted
during the year so deferred tax has been provided using the enacted rate of 19%. If deferred tax was calculated using the 25% rate the net deferred
tax liability recognised at the balance sheet date would be increased from £463m to £602m.
2.3 Deferred tax liabilities
Deferred tax liability
2021
£m
463
2020
£m
472
IAS 12 ‘Income taxes’ requires 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 3 February 2020
(Credited)/charged to profit for the period
Charged/(credited) to profit for the period – impact of rate change
(Credited)/charged to other comprehensive income and equity
Charged/(credited) to other comprehensive income and equity – impact of rate
change
At 31 January 2021
Prior period
At 4 February 2019
Charged to profit for the period
Charged/(credited) to other comprehensive income and equity
At 2 February 2020
The analysis of deferred tax liabilities are as follows:
Deferred tax liability 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
352
(6)
41
–
–
387
349
3
–
352
159
5
4
(47)
15
136
117
4
38
159
(39)
(24)
(4)
8
(1)
(60)
(52)
21
(8)
(39)
2021
£m
25
438
463
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
Total
£m
472
(25)
41
(39)
14
463
414
28
30
472
2020
£m
12
460
472
103
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 historical 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 historical 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 reassessed 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.
104
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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 other 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 store locations is a CGU, which together form a grocery group of CGUs supported by corporate assets.
Corporate assets include assets which typically service the store estate such as intangible assets, and those used by head office, centralised online
operations and vertically integrated suppliers. With the expansion of online store pick, which is operated from store locations to the same pool of
customers serviced directly by the store, the cash flows of this sales channel have been considered for the first time this year as part of the store
location CGUs where a reliable store pick trading history has been established.
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 write back 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 within other operating 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 3 February 2020
Additions
Interest capitalised
Disposals
Fully written down assets
At 31 January 2021
Accumulated amortisation and impairment
At 3 February 2020
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 31 January 2021
Net book amount at 31 January 2021
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
Goodwill
£m
Other intangibles
£m
10
–
–
–
–
10
–
–
–
–
–
–
10
735
84
1
(4)
(237)
579
364
71
67
(4)
(237)
261
318
Total
£m
745
84
1
(4)
(237)
589
364
71
67
(4)
(237)
261
328
105
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 £14m (2020: £73m).
The net book amount of licences at 31 January 2021 was £12m (2020: £15m).
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. The
monitoring of specific impairment triggers and the annual impairment review conducted by the Group, having applied the same methodology and key
assumptions as for property, plant and equipment as set out in note 3.3, resulted in an impairment charge of £67m (2020: £15m) in relation to intangible
assets. This impairment primarily relates to software assets impacted by a move to more cloud-based solutions during the 52 weeks ended 31 January
2021. 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 £44m (2020: £43m). The cost of internal
labour capitalised during the year is £22m (2020: £15m).
Prior 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
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3 Operating assets continued
3.3 Property, plant and equipment
Current period
Cost
At 3 February 2020
Additions
Interest capitalised
Disposals
Fully written down assets
At 31 January 2021
Accumulated depreciation and impairment
At 3 February 2020
Depreciation charge for the period
Impairment
Impairment write back
Disposals
Fully written down assets
At 31 January 2021
Net book amount at 31 January 2021
Assets under construction included above
Freehold
land
£m
Freehold
buildings
£m
Leasehold
property
improvements
£m
Plant,
equipment,
fixtures and vehicles
£m
3,841
10
–
(3)
–
3,848
439
–
15
(68)
–
–
386
3,462
–
4,192
20
1
(6)
(6)
4,201
1,838
108
6
(49)
(6)
(6)
1,891
2,310
4
636
9
–
(6)
(4)
635
385
15
–
(18)
(6)
(4)
372
263
–
2,119
477
–
(53)
(188)
2,355
979
282
21
(9)
(53)
(188)
1,032
1,323
15
Total
£m
10,788
516
1
(68)
(198)
11,039
3,641
405
42
(144)
(65)
(198)
3,681
7,358
19
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 (2020: £199m).
Impairment
The Group considers each store location as a separate CGU and therefore considers every location for impairment annually. The Group
calculates each location’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 locations 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 location in the current year, adjusted for COVID-19 one-off costs;
• allocate a proportion of the Group’s central costs to each location on an appropriate basis;
• allocate online store pick cash flows to locations where a reliable store pick trading history has been established (included for the first time this year,
due to the rapid expansion of online store pick during the year);
• allocate an element of future capital cost, including energy efficiency spend required as part of environmental strategy;
• project cash flows over the next three years by applying forecast sales and cost growth assumptions in line with the Group budget;
• project cash flows beyond year three by applying a long-term growth rate;
• discount the cash flows using a pre-tax rate of 9.0% (2020: 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; and
• consideration is given to any significant one-off factors impacting the locations during the current year and any strategic, climate-related, Brexit or
market factors which may impact future performance.
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Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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.
The Group also considers its corporate assets for impairment annually. The Group calculates the recoverable amount of its corporate assets and
compares this amount to its book value. The recoverable amount is based on the ‘value-in-use’ calculation undertaken for the store location CGU
assessment, less the carrying value of the location CGUs. As at 31 January 2021, there was no indication of impairment of the corporate assets as part of
this assessment. In addition to this assessment, the Group undertakes an obsolescence review to identify any specific corporate assets which require
impairment on an ongoing basis.
Having applied the above methodology and assumptions, the Group has recognised a net impairment write back of £102m (£144m impairment write
back offset by £42m impairment charge) during the year in respect of property, plant and equipment (2020: net £34m impairment write back;
£93m impairment write back offset by £59m impairment charge). This movement reflects fluctuations from store level trading performance
and local market conditions.
At 31 January 2021, the assumptions to which the value-in-use calculation is most sensitive are the discount and cash flow growth rates. The Group has
estimated that a reasonably possible change of +1% discount rate or -1% growth rate would result in a c.£70m loss and -1% discount rate or +1% growth rate
would result in a c.£40m gain. The impairment model is also sensitive to the inclusion of store pick in individual CGUs which could impact future
impairment assessments.
Prior period
Cost
At 4 February 2019
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
Depreciation charge for the period
Impairment
Impairment write back
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
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3 Operating assets continued
3.4 Right-of-use assets
Current period
Cost
At 3 February 2020
Additions
Transfers from investment property
Disposals
Fully written down assets
At 31 January 2021
Accumulated depreciation and impairment
At 3 February 2020
Depreciation charge for the period
Impairment
Impairment write back
Transfers from investment property
Disposals
Fully written down assets
At 31 January 2021
Net book amount at 31 January 2021
Leasehold land
and buildings
£m
Leased plant,
equipment,
fixtures and vehicles
£m
1,769
78
15
(6)
(23)
1,833
881
47
8
(54)
15
(5)
(23)
869
964
97
–
–
–
(5)
92
43
16
5
–
–
–
(5)
59
33
Total
£m
1,866
78
15
(6)
(28)
1,925
924
63
13
(54)
15
(5)
(28)
928
997
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 write back of £41m (£54m impairment write back offset by £13m impairment charge) during the year in respect of right-of-use assets
(2020: net £1m impairment write back; £24m impairment write back offset by £23m impairment charge). This movement reflects fluctuations from
store level trading performance and local market conditions.
At 31 January 2021, the assumptions to which the value-in-use calculation is most sensitive are the discount and cash flow growth rates. The Group
has estimated that a possible change of +1% discount rate or -1% growth rate would result in a c.£15m loss and -1% discount rate or +1% growth rate
would result in a c.£10m gain. The impairment model is also sensitive to the inclusion of store pick in individual CGUs which could impact future
impairment assessments.
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
3 Operating assets continued
3.4 Right-of-use assets continued
Prior period
Cost
At 4 February 2019
Additions
Transfers from investment property
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019
Depreciation charge for the period
Impairment
Impairment write back
Transfers from investment property
Disposals
Fully written down assets
At 2 February 2020
Net book amount at 2 February 2020
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
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
2021
£m
3
–
(3)
–
Total
£m
1,817
75
14
(22)
(18)
1,866
888
60
23
(24)
14
(19)
(18)
924
942
2020
£m
39
3
(39)
3
During the 52 weeks ended 2 February 2020, 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.
During the 52 weeks ended 2 February 2020, the Group disposed of £38m of assets previously classified as held-for-sale in relation to its Camden site.
The consideration included £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 was discounted, resulting in a profit on disposal of £64m after disposal costs in the 52 week period ended 2 February 2020.
Consideration receivable is included within trade and other receivables, on a discounted basis.
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3 Operating assets continued
3.6 Investment property
Current period
Cost
At 3 February 2020
Additions
Transfers to right-of-use assets
Disposals
At 31 January 2021
Accumulated depreciation and impairment
At 3 February 2020
Depreciation charge for the period
Impairment
Impairment write back
Transfers to right-of-use assets
Disposals
At 31 January 2021
Net book amount at end of period
Freehold
£m
Leasehold
£m
43
1
–
(1)
43
20
–
2
–
–
(1)
21
22
161
5
(15)
(27)
124
126
2
1
(1)
(15)
(26)
87
37
Total
£m
204
6
(15)
(28)
167
146
2
3
(1)
(15)
(27)
108
59
Included in other operating income is £9m (2020: £15m) of rental income generated from investment properties. At the end of the period the fair value
of freehold investment properties was £32m (2020: £37m), 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
Cost
At 4 February 2019
Additions
Transfers to right-of-use assets
Disposals
Fully written down assets
At 2 February 2020
Accumulated depreciation and impairment
At 4 February 2019
Depreciation charge for the period
Impairment
Impairment write back
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
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
3 Operating assets continued
3.7 Trade and other receivables – non-current
Finance leases – Group is lessor
Other receivables
2021
£m
8
62
70
The Group is the lessor on a number of property leases, many of which contain rent review terms that require rents to be reassessed on
a periodic basis. The rent reassessments 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
Finance lease income of £nil (2020: £1m) has been recognised in the 52 weeks ended 31 January 2021.
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
2021
£m
1
4
6
11
(3)
8
2021
£m
10
6
6
5
4
22
53
2020
£m
8
63
71
2020
£m
1
4
7
12
(4)
8
2020
£m
10
9
6
5
4
17
51
Operating lease income of £13m (2020: £15m) has been recognised in the 52 weeks ended 31 January 2021. This includes £nil (2020: £1m) relating
to variable lease payments that do not depend on an index or rate.
Other receivables
Other receivables of £62m (2020: £63m) comprise deferred consideration due after more than one year in relation to the disposal of the Camden site
in the prior period. The amount includes £35m (2020: £33m) of deferred cash consideration on a discounted basis and £27m (2020: £30m) representing
the fair value of a future lease of a newly constructed supermarket and convenience store on part of the site.
As at 31 January 2021, 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
2021
£m
55
31
2020
£m
37
34
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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 c.51% interest in MHE JVCo Limited. 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
2021
£m
41
21
(1)
61
31
1
–
2020
£m
55
22
(1)
76
39
2
1
The Group’s share of profit amounted to £0.3m in the year (2020: £0.9m).
4.3 Business combinations
On 9 September 2020, the Group acquired 100% of the ordinary share capital of Lowlands Nursery Limited (formerly known as Lansen Nursery
Limited), a leading supplier of outdoor plants. This acquisition complements the Group’s existing Flowerworld business, providing more locally grown
horticulture at a more competitive price for customers. Total consideration was £4m and goodwill recognised in the transaction was negligible.
In the 52 weeks ended 2 February 2020, the Group paid £1m deferred consideration relating to the acquisition of Chippindale Foods Limited in the
52 weeks ended 3 February 2019.
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 and that have an original maturity of three months or less. 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.
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. Consistent with this classification, the reported
cash flows are reported within cash generated from operations within the Consolidated statement of cash flows.
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
2021
£m
814
2020
£m
660
Unearned elements of commercial income are deducted from finished goods as the inventory has not been sold.
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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
2021
£m
6
47
142
(5)
190
128
18
336
2020
£m
7
28
175
(4)
206
116
31
353
The carrying amounts of trade and other receivables approximates to their fair value at 31 January 2021 and 2 February 2020.
In the 52 weeks ended 31 January 2021, £20m (2020: £25m) of deferred cash consideration has been received in relation to the sale of the Camden site
on 13 December 2019. Within the Consolidated statement of cash flows this has been included within Proceeds from the disposal of property, plant
and equipment, investment property, right-of-use assets and assets held-for-sale.
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%
149
–
Current
%/£m
0%
191
–
1 to 30 days
past due
%/£m
1%
38
–
1 to 30 days
past due
%/£m
6%
15
(1)
31 to 60 days
past due
%/£m
11%
4
(1)
31 to 60 days
past due
%/£m
22%
2
(1)
61 to 90 days
past due
%/£m
61%
1
(1)
61 to 90 days
past due
%/£m
51%
1
(1)
91 days plus
past due
%/£m
100%
3
(3)
91 days plus
past due
%/£m
100%
1
(1)
Total
£m
195
(5)
Total
£m
210
(4)
As at 31 January 2021 and 2 February 2020, 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 7 March 2021, £6m of the £6m commercial income trade receivables balance had been settled and all of the £47m accrued commercial income
balance invoiced, of which £35m had been 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
2021
£m
2,335
(32)
2,303
64
104
366
2,837
2020
£m
2,467
(21)
2,446
131
58
416
3,051
Included within accruals and deferred income is £2m (2020: £1m) in respect of deferred commercial income. Amounts accrued in relation to store
restructuring activity are included within accruals and deferred income at 31 January 2021.
As at 7 March 2021, £24m of the £32m commercial income due above had been offset against payments made.
Trade payables include £556m (2020: £672m) where suppliers have chosen to receive early payment under the Group’s supply chain finance facilities
(see note 7.2).
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
5 Working capital and provisions continued
5.5 Provisions
At 3 February 2020
Charged to profit for the period
Utilised during the period
Released during the period
Unwinding of discount
At 31 January 2021
Onerous
contracts
£m
48
7
(7)
(16)
1
33
Other
provisions
£m
28
1
(5)
(4)
–
20
Total
£m
76
8
(12)
(20)
1
53
Included within the above balance at 31 January 2021 is £7m (2020: £16m) relating to a balance due within one year. The provision is revised regularly in
response to market conditions. During the period, a £9m credit 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 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 write back
(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
(Increase)/decrease in inventories1
Increase in Trade and other receivables1
(Decrease)/increase in Trade and other payables1
Decrease in provisions1
Cash generated from operations
2021
£m
96
89
69
–
254
541
125
(199)
(2)
–
(6)
20
(154)
(3)
(267)
(23)
286
2020
£m
348
87
87
(1)
521
525
108
(123)
(66)
(10)
(5)
26
53
(14)
29
(27)
1,017
Total working capital outflow (the sum of items marked 1 in the table) is £447m (2020: £41m inflow) in the year. This includes £nil (2020: £2m) as a
result of the current year charges in respect of onerous contracts and accruals of onerous commitments and £7m (2020: £63m) of non-cash
exceptional charges, net of £22m (2020: £41m) of onerous payments and £42m (2020: £1m) exceptional and other non-operating payments. When
adjusted to exclude these items, the operating working capital outflow is £390m (2020: £18m inflow).
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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 term 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 4% (2020: 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 discount rates applied in the measurement of the lease liabilities represent the Group’s incremental borrowing rates. 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 reassessed, 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. In the Consolidated statement of cash flows the finance cost element is reported within interest paid and the capital repayment
of the liability is reported within Repayment of lease obligations.
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 reassessed
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).
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 costs1
Bank interest and other finance income
Finance lease income
Other receivables: unwinding of discount
Finance income before exceptionals1
Net retirement benefit interest (notes 1.4 and 8.2)
Finance income
Net finance costs
1 Net finance costs before exceptionals marked 1 amount to £105m (2020: £106m).
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
£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
Borrowing facilities
Information in relation to the Group’s borrowing facilities are detailed in the liquidity risk section of note 7.2.
2021
£m
(5)
(45)
(60)
2
(108)
(1)
(2)
(111)
3
–
3
6
16
22
(89)
2021
£m
–
54
54
2021
£m
249
267
246
347
877
1,986
2020
£m
(4)
(43)
(63)
2
(108)
(2)
(1)
(111)
4
1
–
5
19
24
(87)
2020
£m
237
–
237
2020
£m
249
269
245
347
(2)
1,108
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6 Capital and borrowings continued
6.3 Borrowings continued
Maturity of borrowings
The table below summarises the maturity profile of the Group’s borrowings based on contractual, undiscounted payments, which include future interest
payments. As a result, amounts shown below do not agree to the amounts disclosed in the statement of financial position for borrowings, which exclude
future interest payments. Trade and other payables (note 5.4) are also 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
2021
£m
95
41
290
29
909
948
2020
£m
280
41
41
290
29
978
Fair values
The fair value of 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
2,040
2021
Fair value
£m
2,199
Amortised cost
£m
1,345
2020
Fair value
£m
1,475
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
2021
£m
72
1,299
1,371
2021
£m
129
124
117
110
107
1,557
2020
£m
72
1,304
1,376
2020
£m
131
125
120
113
106
1,601
Lease liabilities include periods beyond extension and break option dates if the Group is reasonably certain to extend or continue the lease. As at
31 January 2021, the undiscounted future rentals payments relating to periods beyond what is considered reasonably certain total £58m for breaks and
£912m for lease extensions (2020: £57m and £841m respectively). The lease extensions relate to leases where the initial term expires between 13 and 63
years after the year end, with some extensions available of up to 25 years.
The interest expense on lease liabilities during the periods ended 31 January 2021 and 2 February 2020 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.
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52 weeks ended 31 January 2021
6 Capital and borrowings continued
6.4 Lease liabilities continued
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). Property leases typically include rent review terms that require rents to be adjusted on a periodic basis, following market
rent or capped increases in inflation measurements. A number of these property leases also contain clauses to extend, or exit leases early. These
clauses are negotiated with the lessors to ensure appropriate options are available for the Group’s operations in future years, for example to minimise
the risk that a store, still profitable at the end of the initial lease term, will be forced to close.
The depreciation expense for leased assets during the periods ended 31 January 2021 and 2 February 2020 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 £163m (2020: £157m).
6.5 Analysis of net debt1
Fuel and energy price contracts
Non-current financial assets
Foreign exchange forward contracts
Fuel and energy price contracts
Current financial assets
Bonds2
Other short-term borrowings2
Cross-currency interest rate swaps2
Lease liabilities2
Foreign exchange forward contracts
Fuel and energy price contracts
Current financial liabilities
Bonds2
Revolving credit facility2
Lease liabilities2
Foreign exchange forward contract
Fuel and energy price contracts
Non-current financial liabilities
Cash and cash equivalents
Net debt1
1 Net debt is defined in the Glossary on page 159.
Note
7.3
7.3
7.3
6.3
6.3
7.3
6.4
7.3
7.3
6.3
6.3
6.4
7.3
7.3
2021
£m
9
9
1
12
13
–
(54)
–
(72)
(17)
(1)
(144)
(1,109)
(877)
(1,299)
(1)
(1)
(3,287)
240
(3,169)
2020
£m
–
–
–
1
1
(237)
–
(4)
(72)
(17)
(15)
(345)
(1,110)
2
(1,304)
–
(7)
(2,419)
305
(2,458)
Total net liabilities from financing activities (the sum of items marked 2 in the table) is £3,411m in the 52 weeks ended 31 January 2021 (2020: £2,725m).
Of the £686m increase (2020: £49m) in net liabilities from financing activities, £74m (2020: £67m) relates to non-cash movements and £612m
(2020: £18m decrease) relates to cash movements.
6.6 Called-up share capital
At 3 February 2020
Share options exercised and shares issued under LTIP schemes1
At 31 January 2021
Number of
shares
millions
2,405
5
2,410
Share capital
£m
240
1
241
Share premium
£m
192
9
201
Total
£m
432
10
442
1 The £1m and £9m movement in share capital and share premium have been rounded up to ensure that the total share capital and total share premium positions are correctly stated.
All issued shares are fully paid and have a par value of 10p per share (2020: 10p per share). The Group did not acquire any of its own shares for
cancellation in the 52 weeks ended 31 January 2021 or the 52 weeks ended 2 February 2020. 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.
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6 Capital and borrowings continued
6.6 Called-up share capital continued
Trust shares
Included in retained earnings is a deduction of £19m (2020: £30m) in respect of own shares held at the reporting date. This represents the cost
of 8,720,882 (2020: 14,215,041) of the Group’s ordinary shares (nominal value of £0.9m (2020: £1.4m)). 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 31 January 2021 was £16m (2020: £26m). 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 none (2020: 4,881,284) of its own shares to hold in trust for consideration of £nil (2020: £10m), and utilised
5,494,159 (2020: 551,491) trust shares to satisfy awards under the Group’s employee share plans.
Proceeds from exercise of share awards
The Group issued 4,751,802 (2020: 8,532,407) 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 £9m (2020: £14m), which has been presented as a £1m addition to
share capital and a £9m addition to share premium in the period to ensure that share capital and share premium agree in total. In addition, the Group
issued no (2020: 28,166,736) shares under the Group’s Long Term Incentive Plan (LTIP) scheme for nominal value, with all current year schemes being
settled through trust shares.
Settlement of share awards
During the 52 weeks ended 31 January 2021, the Group has settled 5,494,159 of share options out of trust shares which have vested during the
period net of tax. During the period there was a £9m (2020: £2m) charge to retained earnings in relation to the settlement of share awards, comprising
£10m (2020: £2m) of cash paid on behalf of the employees, rather than selling shares on the employees’ behalf to settle the employees’ tax liability on
vesting of the share options, offset by a £1m non-cash settlement credit (2020: £nil).
6.7 Reserves
Capital redemption reserve
Merger reserve
Hedging reserve
Retained earnings
Total
2021
£m
39
2,578
(3)
1,160
3,774
2020
£m
39
2,578
(37)
1,529
4,109
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. During the 52 weeks ended 31 January 2021, net debt has increased by £711m. Throughout the period, the Group has
comfortably complied with the gearing and fixed charge cover covenants attaching to its revolving credit facility (see note 7.2).
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 are 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.
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 31 January 2021 was £1,078m (2020: £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 (see note 5.4).
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.
Cash and committed facilities
As at 31 January 2021, the Group has £240m (2020: £305m) of cash and cash equivalent and £2,850m (2020: £2,797m) of total committed facilities,
comprising bond debt of £1,100m (2020: £1,347m) and £1,750m (2020: £1,450m) of committed bank facilities. As at 31 January 2021, the Group has £870m
(2020: £1,450m) of undrawn committed bank facilities available.
The Group has a syndicated committed revolving credit facility of £1.35bn. During the 52 weeks ended 31 January 2021, the Group extended this
facility by a further year, resetting its five year term and resulting in a maturity date of June 2025. The revolving credit facility incurs committed fees
and interest charges at a spread above LIBOR. The Group had £470m (2020: £1,350m) of undrawn committed headroom available on this facility as at
31 January 2021.
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7 Financial risk and hedging continued
7.2 Financial risk management continued
Cash and committed facilities continued
In the 52 weeks ended 31 January 2021, the Group has obtained three new £100m 364 day committed revolving credit facilities, the maturity dates
of which were extended following the year end, to September 2021 (£200m) and March 2022 (£100m). In addition, the Group has a further £100m
revolving credit facility with an original maturity date of July 2020, which was extended to mature in July 2022 (see note 10.3). These committed
facilities were undrawn as at 31 January 2021 (2020: undrawn).
All committed bank facilities have the same financial covenants. These financial covenants are set at a ratio of a maximum 3.5x ‘net debt (excluding
leases)/EBITDA’ and a minimum 2.0x ‘EBITDA/net interest expense’ (ratios as defined in the lending agreements). As at 31 January 2021, the Group
covenant basis net debt (excluding leases)/EBITDA ratio was 2.4x (2020: 1.1x) and the EBITDA/net interest expense ratio was 4.8x (2020: 6.0x). In the
event of default of covenants, the principal amounts of borrowings and any interest accrued become repayable on demand.
The Group also has a number of uncommitted facilities which are available to meet short-term borrowing requirements, and incur interest charges
according to usage. As at 31 January 2021, the Group had £54m of borrowings on uncommitted facilities (2020: £nil).
Wm Morrison Supermarkets PLC’s senior unsecured debt obligations continue to be rated Baa2 with Moody’s, on a stable outlook. Moody’s
reaffirmed its rating on 9 June 2020, following the release of the results for the period ended 2 February 2020 and considering the impact
of COVID-19.
Interest rate risk
The Group seeks to protect itself against adverse movements in interest rates by aiming to maintain at least 60% of its total borrowings at fixed
interest rates. As at the reporting date, 54% (2020: 100%) of the Group’s borrowings are at a fixed interest rate. The reduction in the proportion of
borrowings at fixed interest rates is due to a temporary increase in net debt funded by committed bank facilities which are at a floating interest rate.
The proportion of fixed rate borrowings is expected to return above 60% in the relatively short-term.
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.
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 £8m
post-tax profit or loss exposure in relation to the euro and £3m 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.
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 £15m (2020: £6m)
for the hedged amount.
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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
Foreign exchange forward contracts
Fuel and energy price contracts
2021
Fair Value
£m
2021
Notional Value
£m
2020
Fair Value
£m
2020
Notional Value
£m
1
12
13
–
9
9
46
49
95
1
67
68
–
1
1
–
–
–
32
1
33
–
–
–
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
Foreign exchange forward contracts
Fuel and energy price contracts
2021
£m
2021
Notional Value
£m
2020
Fair Value
£m
2020
Notional Value
£m
–
17
1
18
1
1
2
–
435
11
446
25
15
40
4
17
15
36
–
7
7
240
411
53
704
–
35
35
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:
Inflow/(outflow)
< 1 year
£m
–
–
(462)
445
11
2021
£m
1-5 years
£m
–
–
(23)
23
9
< 1 year
£m
(247)
242
(443)
426
(15)
2020
£m
1-5 years
£m
–
–
–
–
(7)
Cash flow hedges
In the 52 weeks ended 31 January 2021, cross-currency swaps designated as cash flow hedges with a notional principal amount of €282m, settled on
the maturity of the €282m euro bond.
The fuel and energy price contracts and foreign currency derivatives are designated as cash flow hedges.
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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 profit
before exceptionals. 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.
The position of each scheme at 31 January 2021 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:
Past service cost
Administrative costs paid by the Schemes – recognised in administrative expenses
Settlement and curtailment gain
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 – charge/(credit)1
2021
£m
754
(36)
718
2020
CARE
£m
5,013
(4,053)
960
2020
CARE
£m
–
2
–
(20)
(18)
(204)
2021
CARE
£m
5,111
(4,357)
754
2021
CARE
£m
–
2
(3)
(16)
(17)
225
2021
RSP
£m
407
(443)
(36)
2021
RSP
£m
–
1
–
–
1
22
1 In the 52 weeks ended 31 January 2021, there was a further £1m charge following the write off of a receivable balance relating to retirement benefits which was not part of the Net retirement
benefit surplus.
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
2020
£m
960
(16)
944
2020
RSP
£m
389
(405)
(16)
2020
RSP
£m
–
1
–
1
2
(27)
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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.
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 four 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)
2021
CARE
£m
560
519
–
441
2,628
936
27
5,111
2021
RSP
£m
126
–
31
–
249
–
1
407
2020
CARE
£m
574
511
–
466
2,782
649
31
5,013
2020
RSP
£m
158
–
40
–
190
–
1
389
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
During the 52 weeks ended 31 January 2021, the Morrisons and Safeway CARE Schemes entered into new buy-in policies that provide insurance for a
proportion of the pensioner populations. These policies are in addition to the two buy-in policies previously entered into by the Safeway Scheme.
The policies pay income to the Schemes that is exactly equal to the benefits paid to the insured populations. 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 populations.
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8 Retirement benefits continued
8.3 Scheme assets continued
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
Benefits paid
Administrative expenses
Fair value of scheme assets at end of period
2021
CARE
£m
5,013
84
126
2
(112)
(2)
5,111
2021
RSP
£m
389
7
17
3
(8)
(1)
407
2020
CARE
£m
4,471
121
554
8
(139)
(2)
5,013
2020
RSP
£m
349
9
70
1
(39)
(1)
389
Scottish Limited Partnership
The Group has previously entered into a pension funding partnership structure with the CARE Schemes whereby the partnership structure holds
properties which are 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. The CARE Schemes were entitled to receive fixed distributions of £6.6m p.a. until 2033 subject to certain
conditions.
During the 52 weeks ended 31 January 2021, the Group and the Schemes’ Trustees have agreed to reorganise the limited partnership structure, so that
future distributions will be made to the RSP. The pension funding partnership structure was amended to permanently cease fixed distributions to the
CARE Schemes. On the same day, Wm Morrison Supermarkets PLC and the RSP, entered into a new pension funding partnership. As a partner, the RSP is
entitled to receive a fixed distribution of £6.8m p.a. from the profits of the partnership for 13 years from 2020, subject to certain conditions. The fixed
distribution is comparable to the distributions that would have been made under the previous partnership structure.
The fixed distributions made to the RSP are reflected in the Group financial statements as employer retirement benefit contributions. The RSP’s interest
in the partnership structure reduces the scheme’s deficit on a funding basis, although the agreement does not affect the position directly on an IAS 19
accounting basis, because the investment held by the RSP does not qualify as a scheme asset for IAS 19 purposes.
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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
Interest expense
Actuarial (loss)/gain – demographic assumptions
Actuarial loss – financial assumptions
Actuarial gain – experience
Settlement and curtailment gain
Benefits paid
Defined benefit obligation at end of period
2021
CARE
£m
(4,053)
(68)
(32)
(371)
52
3
112
(4,357)
2021
RSP
£m
(405)
(7)
–
(49)
10
–
8
(443)
2020
CARE
£m
(3,741)
(101)
92
(592)
150
–
139
(4,053)
The durations of the defined benefit obligations at the end of the 2021 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
2021
CARE
1.5%
3.0%
2021
CARE
21.1
22.5
22.8
24.4
2021
RSP
1.5%
3.0%
2021
RSP
n/a
n/a
n/a
n/a
2020
CARE
1.8%
2.9%
2020
CARE
20.9
22.3
22.6
24.2
2020
RSP
£m
(391)
(10)
–
(58)
15
–
39
(405)
2020
RSP
1.8%
2.9%
2020
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 31 January 2021 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 2019 core projections and a long-term rate of
improvement of 1.5% p.a. For the 52 weeks ended 2 February 2020, the Group 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 in both the Morrison and Safeway Schemes, with CMI 2018 core
projections and a long-term rate of improvement of 1.5% p.a.
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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.)
2021
CARE
2021
RSP
2020
CARE
2.0%/2.9%
–
2.0%/2.8%
2020
RSP
–
-/2.3%
2.3%
2.3%/-
2.3%
-/2.0%
2.0%
2.0%/-
2.0%/-
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
2021
CARE
£m
-/+90
+/-70
+150
2021
RSP
£m
-/+9
+/-9
–
2020
CARE
£m
-/+85
+/-65
+145
2020
RSP
£m
-/+8
+/-7
–
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Strategic reportGovernanceFinancial statementsInvestor information Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 31 January 2021 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 31 January 2021, 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 Morrison Scheme this 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. The International Accounting Standards Board (IASB) have been
considering amendments to the current version of IFRIC 14, however the IASB has decided not to finalise these amendments and is considering
whether to develop new proposals. The legal advice received by the Group has concluded that the above accounting treatment should not be
materially affected by the previous proposed amendments to IFRIC 14.
The current best estimate of Group contributions to be paid to the defined benefit schemes for the accounting period commencing 1 February 2021
is £9m (2020: £9m). 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 31 January 2021, the Group paid contributions of £97m to the MPRS (2020: £78m), and expects to contribute £105m for the following period
(2020: £80m).
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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 £20m (2020: £26m).
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
19 May 2020
£1.88
£6.8m
£1.52m
5.59%
0.40%
19.35%
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%
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
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
£
1.90
Weighted average
option price at date
of exercise
£
1.84
2021
Options
thousands
51,306
28,060
(4,752)
(20,088)
54,526
199
Weighted average
exercise price in
£ per share
1.83
1.78
1.70
1.82
1.83
1.70
Weighted average
share price at date
of exercise
£
2.03
Weighted average
option price at date
of exercise
£
1.70
Weighted average
exercise price in
£ per share
1.83
1.52
1.84
1.79
1.68
1.84
2021
Number of
shares
thousands
4,752
2021
2020
Options
thousands
47,570
20,905
(8,532)
(8,637)
51,306
19
2020
Number of
shares
thousands
8,532
2020
£1.52 to £1.87
1.62 years
£1.70 to £1.87
1.44 years
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
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Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Group financial statements continued
52 weeks ended 31 January 2021
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 2020. The schemes granted in 2020 vest in 2023 and 2024.
All LTIP schemes granted 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
6 Oct
2020
£1.71
£3.2m
31 March
2020
£1.79
£29.3m
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
Movement in outstanding share awards
Outstanding at start of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
2021
Share awards
thousands
2020
Share awards
thousands
33,985
18,273
(8,920)
(5,752)
37,586
–
54,168
12,714
(28,167)
(4,730)
33,985
–
The weighted average remaining contractual life of the share awards is 1.3 years (2020: 1.2 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
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 0.9 years (2020: 1.0 year).
2020/21 scheme
£1.80
£nil
£1.3m
2019/20 scheme
£2.25
£nil
£1.7m
2021
Share awards
thousands
2020
Share awards
thousands
3,373
695
(1,247)
2,821
3,549
771
(947)
3,373
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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 31 January 2021, the Group received a dividend of £8m (2020: £9m) from MHE JVCo Limited. The Group has a c.51% interest
in MHE JVCo Limited (see note 4.2).
10.2 Guarantees, contingent liabilities and contingent assets
Guarantees
Following the disposal of the land and building of its customer fulfilment centre at Dordon to a third party in June 2017, 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 £29m (2020: £30m).
Data theft claim
The Group has previously had a legal case brought by a number of current and former colleagues relating to employee data theft in the 52 weeks
ended 1 February 2015. In December 2017, the High Court concluded that the Group was vicariously liable for the actions of the former employee
who conducted the data theft. The Group launched an appeal of this judgment to the High Court and subsequently to the Supreme Court.
The Supreme Court hearing took place in November 2019. On 1 April 2020, the Supreme Court ruled in favour of the Group and the claim was entirely
dismissed. This brought an end to the matter, other than for recovery of legal costs from the claimants. An interim payment has been received by the
Group in respect of these costs and a debtor recognised for additional amounts to be received. These amounts have been included within ‘other
exceptional items’. The Group has previously disclosed an unquantified contingent liability in respect of the potential settlement. Following the
Supreme Court ruling, this contingent liability no longer exists. Since 31 January 2021, the Group has received full and final settlement of outstanding
legal costs.
Interchange fee claim
The Group, along with other claimants, has had an ongoing claim against Mastercard in respect of bank interchange fees. In the 52 weeks ended
31 January 2021, the Supreme Court found in favour of the claim against Mastercard and determined the fixing of interchange fees by Mastercard over
many years was an unlawful infringement of competition law. The Supreme Court’s definitive decision means that the case will now be remitted back
to the Competition Appeal Tribunal to determine the level of damages payable to the Group. At this stage the Group is not able to quantify the
amount of settlement which it will receive, and accordingly no asset has been recognised in the financial statements in the 52 weeks ended 31 January
2021. In addition, legal costs associated with this claim will be recovered, and the Group has made an estimate of the amount of fees to be recovered.
The income receivable has been included within ‘other exceptional items’.
10.3 Post-balance sheet events
On 27 February 2021, the Group acquired 100% of the share capital of Falfish (Holdings) Limited, a leading supplier of fresh seafood, for consideration
of £9m. The Directors consider this event to be a non-adjusting post-balance sheet event.
Since 31 January 2021, the Group has extended the duration of its four existing £100m committed revolving credit facilities (RCF) as follows: two £100m
RCFs now mature in September 2021, a £100m RCF matures in March 2022 and a £100m RCF matures in July 2022.
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Company statement of financial position
As at 31 January 2021
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 reserves1
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
2021
£m
309
2,450
1,090
22
307
31
4,209
514
5,456
8
291
13
9
156
6,447
(3,667)
(99)
(18)
(3,784)
2,663
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
6,872
6,326
(1,986)
(1,331)
(2)
–
(109)
(46)
(3,474)
3,398
241
201
39
940
1,977
3,398
(1,108)
(1,363)
(7)
(16)
(118)
(58)
(2,670)
3,656
240
192
39
940
2,245
3,656
1 Included within Retained earnings and other reserves is profit after tax of £45m (2020: £33m loss). After adjusting for exceptionals, profit before exceptionals after tax is £28m (2020: £66m).
The accounting policies on pages 136 to 138 and the notes on pages 139 to 151 form part of these financial statements.
The financial statements on pages 134 to 151 were approved by the Board of Directors and authorised for issue on 10 March 2021. They were signed
on its behalf by:
Michael Gleeson, Chief Financial Officer
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Wm Morrison Supermarkets PLC
Company statement of changes in equity
52 weeks ended 31 January 2021
Current period
At 3 February 2020
Profit for the period
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
Employee share option schemes:
Share-based payments charge
Settlement of share awards
Share options exercised
Dividends
Total transactions with owners
At 31 January 2021
Prior period
At 4 February 2019
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
Note
11.20
11.18
11.5
6.6
6.6
1.8
Note
11.20
11.18
6.6
11.5
6.6
6.6
11.18
1.8
11.22
Share
capital
£m
240
–
–
–
–
–
–
–
1
–
1
241
Share
capital
£m
237
–
–
–
–
–
–
–
–
3
–
–
–
3
240
Share
premium
£m
Capital
redemption
reserve
£m
192
–
–
–
–
–
–
–
9
–
9
201
39
–
–
–
–
–
–
–
–
–
–
39
Share
premium
£m
Capital
redemption
reserve
£m
178
–
–
–
–
–
–
–
–
14
–
–
–
14
192
39
–
–
–
–
–
–
–
–
–
–
–
–
–
39
Attributable to the owners of the Company
Hedging
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
(37)
–
41
–
(7)
34
–
–
–
–
–
(3)
2,282
45
3,656
45
–
(103)
16
(42)
10
(9)
–
(261)
(260)
1,980
41
(103)
9
(8)
10
(9)
10
(261)
(250)
3,398
Attributable to the owners of the Company
Hedging
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
10
–
(57)
–
10
(47)
–
–
–
–
–
–
–
–
(37)
2,278
(33)
3,944
(33)
–
100
(17)
50
(10)
11
(2)
(3)
(2)
(302)
262
(46)
2,282
(57)
100
(7)
3
(10)
11
(2)
14
(2)
(302)
–
(291)
3,656
Merger
reserve
£m
940
–
–
–
–
–
–
–
–
–
–
940
Merger
reserve
£m
1,202
–
–
–
–
–
–
–
–
–
–
–
(262)
(262)
940
The accounting policies on pages 136 to 138 and the notes on pages 139 to 151 form part of these financial statements.
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Company accounting policies
52 weeks ended 31 January 2021
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 31 January 2021 (2020: 52 weeks ended 2 February 2020). 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 presentation requirements of international accounting standards in conformity with the requirements of the Act, but
make amendments where necessary in order to comply with the Act and take advantage of FRS 101 disclosure exemptions.
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) paragraphs 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) 111 (cash flow statement information); and
(iii) 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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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 92 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 31 January 2021:
• Amendments to the following standards:
– IFRS 3 ‘Definition of a Business’
– IFRS 7, IFRS 9 and IAS 39 ‘Interest rate benchmark reform’
– IAS 1 and IAS 8 ‘Definition of Material’
• Amendments to references to the conceptual framework in IFRS standards
Accounting reference date
The accounting period of the Company ends on the Sunday falling between 29 January and 4 February each year.
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Company accounting policies continued
52 weeks ended 31 January 2021
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 write backs 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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Notes to the Company financial statements
52 weeks ended 31 January 2021
11 Company financial statements continued
11.4 Profit and loss account
The profit after tax for the Company for the 52 weeks ended 31 January 2021 was £45m (2020: £33m loss). After adjusting for exceptional items, profit
before exceptionals after tax is £28m (2020: £66m). The profit before exceptionals after tax in the 52 weeks ended 31 January 2021 includes dividends
received from subsidiary undertakings of £nil (2020: £23m).
Employee benefit expense for the Company during the period
Wages and salaries
Social security costs
Other pensions costs
Share-based payments
2021
£m
963
76
60
10
1,109
2020
£m
866
72
51
11
1,000
The average monthly number of people, including Directors, employed by the Company is 61,734 (2020: 50,527).
The Company’s auditor, PricewaterhouseCoopers LLP charged £0.7m (2020: £0.6m) for audit services in the year and £0.2m (2020: £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 £10m (2020: £11m).
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 3 February 2020
Additions
Interest capitalised
Disposals
Fully written down assets
At 31 January 2021
Accumulated amortisation and impairment
At 3 February 2020
Amortisation charge for the period
Impairment
Disposals
Fully written down assets
At 31 January 2021
Net book amount at 31 January 2021
Other intangibles
£m
719
84
1
(4)
(236)
564
358
70
67
(4)
(236)
255
309
Total
£m
719
84
1
(4)
(236)
564
358
70
67
(4)
(236)
255
309
Other intangibles include software development costs and licences. Within this asset class, there are assets under construction of £13m (2020: £73m).
The net book amount of licences at 31 January 2021 totals £11m (2020: £13m).
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52 weeks ended 31 January 2021
11 Company financial statements continued
11.6 Intangible assets continued
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 £67m (2020: £15m) has been recognised in relation to intangible assets.
The methodology applied by the Company is the same methodology as applied by the Group, see note 3.2 for further details.
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 £44m (2020: £42m). Interest is capitalised at the effective interest rate of 4% (2020: 5%)
incurred on borrowings.
11.7 Property, plant and equipment
Cost
At 3 February 2020
Additions
Acquisition of business
Transfers from right-of-use assets
Disposals
Fully written down assets
At 31 January 2021
Accumulated depreciation and impairment
At 3 February 2020
Depreciation charge for the period
Impairment
Impairment write back
Transfers from right-of-use assets
Disposals
Fully written down assets
At 31 January 2021
Net book amount at 31 January 2021
Freehold
land
£m
Freehold
buildings
£m
Leasehold property
improvements
£m
Plant,
equipment,
fixtures and vehicles
£m
869
13
–
–
(2)
–
880
141
–
3
(24)
–
–
–
120
760
1,557
15
2
–
(1)
(6)
1,567
743
36
2
(20)
–
–
(6)
755
812
520
7
–
–
(6)
–
521
285
12
–
(15)
–
(6)
–
276
245
947
277
–
19
(25)
(78)
1,140
466
128
10
(5)
11
(25)
(78)
507
633
Total
£m
3,893
312
2
19
(34)
(84)
4,108
1,635
176
15
(64)
11
(31)
(84)
1,658
2,450
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 £880m (2020: £869m) relating to non-depreciable land and £2m (2020: £17m) 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 (2020: £71m). Interest is capitalised at the effective interest rate of 4% (2020: 5%) incurred
on borrowings.
The Company considers that each store location is a separate cash generating unit (CGU) and therefore considers every location for impairment annually.
The Company calculates each location’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. Consistent with the Group,
the methodology applied by the Company has changed as at 31 January 2021 to include cash flows from online store pick as part of the store location
CGU assessment, where a reliable store pick trading history has been established. This has been included on the basis that the expansion in online
store pick is serviced from store locations to the same pool of customers directly serviced by the store.
Having applied the methodology and assumptions, the Company has recognised a net impairment write back of £49m (£64m impairment write back
offset by £15m impairment charge) during the year in respect of property, plant and equipment (2020: net £7m impairment write back; £39m impairment
write back offset by £32m impairment charge). This movement reflects fluctuations from store level trading performance and local market conditions.
Of the £64m impairment write back, £62m was due to the inclusion of cash flows from online store pick during the year.
At 31 January 2021, the assumptions to which the value in use calculation is most sensitive to are the discount and cash flow growth rates. The Company
has estimated a possible change of +1% discount rate or -1% growth rate would result in a c.£20m loss and a -1% discount rate or +1% growth rate
would result in a c.£20m gain. The impairment model is also sensitive to the inclusion of store pick in individual CGUs which could impact future
impairment assessments.
140
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11 Company financial statements continued
11.8 Right-of-use assets
Cost
At 3 February 2020
Additions
Transfer from investment property
Transfer to property, plant and equipment
Disposals
Fully written down assets
At 31 January 2021
Accumulated depreciation and impairment
At 3 February 2020
Depreciation charge for the period
Impairment
Impairment write back
Transfer from investment property
Transfer to property, plant and equipment
Disposals
Fully written down assets
At 31 January 2021
Net book amount at 31 January 2021
Leasehold land
and buildings
£m
Leased plant,
equipment,
fixtures and vehicles
£m
2,020
73
15
–
(5)
(6)
2,097
1,011
71
10
(43)
15
–
(5)
(6)
1,053
1,044
183
–
–
(19)
–
(36)
128
99
26
4
–
–
(11)
–
(36)
82
46
Total
£m
2,203
73
15
(19)
(5)
(42)
2,225
1,110
97
14
(43)
15
(11)
(5)
(42)
1,135
1,090
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 write back of £29m (£43m
impairment write back offset by £14m impairment charge) during the year in respect of right-of-use assets (2020: net £4m impairment write back;
£19m write back of impairment offset by £15m impairment charge). This movement reflects fluctuations from store level trading performance and
local market conditions.
At 31 January 2021, the assumptions to which the value in use calculation is most sensitive to are the discount and cash flow growth rates. The Company
has estimated a change of +1% discount rate or -1% growth rate would result in a c.£10m loss and a -1% discount rate or +1% growth rate would result in a
c.£10m gain. The impairment model is also sensitive to the inclusion of store pick in individual CGUs which could impact future impairment assessments.
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52 weeks ended 31 January 2021
11 Company financial statements continued
11.9 Investment property
Cost
At 3 February 2020
Additions
Transfers to right-of-use assets
Disposals
At 31 January 2021
Accumulated depreciation and impairment
At 2 February 2020
Depreciation charge
Impairment
Impairment write back
Transfers to right-of-use assets
Disposals
At 31 January 2021
Net book amount at end of period
Freehold
£m
Leasehold
£m
22
1
–
–
23
12
–
1
–
–
–
13
10
84
5
(15)
–
74
76
1
1
(1)
(15)
–
62
12
Total
£m
106
6
(15)
–
97
88
1
2
(1)
(15)
–
75
22
Included in other operating income is £4m (2020: £8m) of rental income generated from investment properties. At the end of the period the fair value
of freehold investment properties was £14m (2020: £17m), 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).
11.10 Investments
Net book amount
At start of period
Additions
At end of period
2021
£m
6
301
307
2020
£m
6
–
6
On 30 July 2020, the Company established Wm Morrison Property Partnership 4 Limited Partnership with a £297m investment as its Capital partner.
This entity was created as part of the restructure of the Scottish Limited Partnership arrangement as detailed on page 148.
On 9 September 2020, the Company acquired 100% of the ordinary share capital of Lowlands Nursery Limited (formerly known as Lansen Nursery
Limited), a leading supplier of outdoor plants. Total consideration was £4m.
In addition to the investments detailed above, the Company continues to hold a £6m investment in Chippindale Foods Limited and investments in
other related undertakings, which in aggregate are less than £1m as at 31 January 2021.
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 152.
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. During the 52 weeks ended 31 January 2021, the Company received £8m (2020: £9m) of dividend income from its
investment. The carrying value of the Company’s investment in the joint venture at 31 January 2021 is £31m (2020: £39m). The Company has assessed
this investment for impairment as at the reporting date and accordingly recognised a £8m impairment (2020: £28m) in respect of its investment. The
Directors believe that the carrying value of these investments is supported by their underlying net assets.
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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
2021
£m
168
5,019
137
132
5,456
2020
£m
181
5,333
140
103
5,757
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 31 January 2021 (2020: £nil).
11.13 Debtors – amounts falling due after more than one year
Finance leases – Company is lessor
2021
£m
8
2020
£m
8
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 rent reassessments are normally based on changes in market rate
or capped increase in measures of inflation.
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
Finance lease income of £nil (2020: £1m) has been recognised in the 52 weeks ended 31 January 2021.
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
2021
£m
1
4
6
11
(3)
8
2021
£m
5
4
4
3
3
13
32
2020
£m
1
4
7
12
(4)
8
2020
£m
5
4
3
3
2
8
25
Operating lease income of £7m (2020: £8m) has been recognised in the 52 weeks ended 31 January 2021. This includes £nil (2020: £nil) relating to variable
lease payments that do not depend on an index or rate.
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52 weeks ended 31 January 2021
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
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
£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
2021
£m
1,936
–
54
1,238
33
95
311
3,667
2021
£m
249
267
246
347
877
1,986
2020
£m
2,264
237
–
1,025
125
54
345
4,050
2020
£m
249
269
245
347
(2)
1,108
As at 31 January 2021, there are £948m (2020: £978m) 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 £2,389m (2020: £2,469m).
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 31 January 2021, the Company extended this
facility by a further year, resetting its five year term and resulting in a maturity date of June 2025. The revolving credit facility incurs committed fees
and interest charges at a spread above LIBOR. The Company had £470m (2020: £1,350m) of undrawn committed headroom available on this facility as
at 31 January 2021.
In the 52 weeks ended 31 January 2021, the Company has obtained three new £100m 364 day committed revolving credit facilities, the maturity dates
of which were extended following the year end, to September 2021 (£200m) and March 2022 (£100m). In addition the Company has a further £100m
revolving credit facility with an original maturity date of July 2020, which was extended to mature in July 2022 (see note 11.25). The committed facilities
were undrawn as at 31 January 2021 (2020: undrawn).
The Company also has a number of uncommitted facilities which are available to meet short-term borrowing requirements, and incur interest charges
according to usage. As at 31 January 2021, the Company had £54m of borrowings on uncommitted facilities (2020: £nil).
144
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11 Company financial statements continued
11.16 Lease liabilities
Current lease liabilities
Non-current lease liabilities
2021
£m
99
1,331
1,430
2020
£m
120
1,363
1,483
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
11.17 Derivative financial assets and liabilities
Derivative financial assets
Current
Foreign exchange forward contracts
Fuel and energy price contracts
Non-current
Foreign exchange forward contracts
Fuel and energy price contracts
Derivative financial liabilities
Current
Cross-currency interest rate swaps
Foreign exchange forward contracts
Fuel and energy price contracts
Non-current
Foreign exchange forward contracts
Fuel and energy price contracts
2021
£m
210
60
16
2
–
2020
£m
196
63
5
2
–
2021
Fair Value
£m
2021
Notional Value
£m
2020
Fair Value
£m
2020
Notional Value
£m
1
12
13
–
9
9
–
17
1
18
1
1
2
46
49
95
1
67
68
–
435
11
446
25
15
40
–
1
1
–
–
–
4
17
15
36
–
7
7
32
1
33
–
–
–
240
411
53
704
–
35
35
Further details of the derivative financial instruments are provided in note 7, including significant assumptions underlying the valuation and the
amounts recognised in profit and loss.
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Notes to the Company financial statements continued
52 weeks ended 31 January 2021
11 Company financial statements continued
11.18 Deferred tax liabilities
Deferred tax liability
Deferred tax asset
Net deferred tax liability
2021
£m
188
(79)
109
2020
£m
192
(74)
118
IAS 12 ‘Income taxes’ requires 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 3 February 2020
Charged to profit for the period
Charged/(credited) to other comprehensive income and equity
At 31 January 2021
Prior period
Charged to profit for the period
Charged/(credited) to other comprehensive income and equity
At 2 February 2020
11.19 Provision for liabilities
At 3 February 2020
Charged to profit for the period
Utilised during the period
Released during the period
Unwinding of discount
At 31 January 2021
Property, plant and
equipment
£m
Pensions
£m
Other
short-term
temporary
differences
£m
133
2
–
135
125
8
–
133
59
10
(16)
53
41
1
17
59
(74)
(12)
7
(79)
(80)
14
(8)
(74)
Onerous
contracts
£m
43
7
(5)
(13)
1
33
Other property
provisions
£m
15
1
(1)
(2)
–
13
Total
£m
118
–
(9)
(109)
86
23
9
118
Total
£m
58
8
(6)
(15)
1
46
Included with the above balance at 31 January 2021 is £7m (2020: £11m) relating to a balance due within one year. The provision is revised regularly
in response to market conditions. During the period, £7m has been charged to the onerous contracts provision 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 certain leased buildings, for the cost of restoring assets to their required condition.
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
2021
£m
249
42
291
2020
£m
364
(16)
348
146
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11 Company financial statements continued
11.20 Pensions continued
11.20.1 Defined benefit schemes: summary and description continued
Statement of financial position:
Fair value of scheme assets
Present value of obligations
Net pension asset
Income statement
Administrative costs paid by Schemes – recognised in administrative expenses
Settlement and curtailment gain
Change in SLP asset
Net interest on net pension (asset)/liability – finance (income)/expense
Total expense charged/(credited) to income statement
Statement of other comprehensive income:
Remeasurements in other comprehensive income – charge/(credit) 1
2021
CARE
£m
1,467
(1,218)
249
2021
CARE
£m
1
(2)
26
(6)
19
96
2021
RSP
£m
485
(443)
42
2021
RSP
£m
1
–
–
(1)
–
6
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)
1 In the 52 weeks ended 31 January 2021, there was a further £1m charge following the write off of a receivable balance relating to retirement benefits which was not part of the net pension asset.
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.
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 and one buy-in annuity policy),
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 Company.
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)
Annuity policies (unquoted)
Cash (quoted)
2021
CARE
£m
157
121
–
173
852
–
156
8
1,467
2021
RSP
£m
126
–
31
–
249
78
–
1
485
2020
CARE
£m
212
119
–
178
924
26
–
9
1,468
2020
RSP
£m
158
–
40
–
190
–
–
1
389
For definitions of liability driven investments, annuity policies and credit funds, see note 8.3.
During the 52 weeks ended 31 January 2021, the CARE Scheme entered into a new buy-in policy that provides insurance for a proportion of the
pensioner population. The policy pays 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.
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52 weeks ended 31 January 2021
11 Company financial statements continued
11.20 Pensions continued
11.20.2 Scheme assets continued
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
Change in SLP assets
Benefits paid
Administrative expenses
Fair value of scheme assets at end of period
2021
CARE
£m
1,468
25
25
–
(26)
(24)
(1)
1,467
2021
RSP
£m
389
8
33
64
–
(8)
(1)
485
2020
CARE
£m
1,261
35
204
–
–
(31)
(1)
1,468
2020
RSP
£m
349
9
70
1
–
(39)
(1)
389
Scottish Limited Partnership
The Company has previously entered into a pension funding partnership structure with the CARE Scheme whereby the partnership structure holds
properties which are leased back to the Company in return for rental income payments. The Company retains control over these properties,
including the flexibility to substitute alternative properties. The CARE Scheme was entitled to receive fixed distributions of £2.2m p.a. until 2033 subject
to certain conditions.
During the 52 weeks ended 31 January 2021, the Company and the Schemes’ Trustees have agreed to reorganise the limited partnership structure, so that
future distributions will be made to the RSP. The pension funding partnership structure was amended to permanently cease fixed distributions to both
the Company and Safeway Stores Limited CARE Schemes. On the same day, the Company and the RSP, entered into a new pension funding partnership.
As a new partner, the RSP is entitled to receive a fixed distribution of £6.8m p.a. from the profits of the SLP for 13 years from 2020, subject to certain
conditions. The fixed distribution is comparable to the distributions that would have been made to the Group’s CARE Schemes under the previous
partnership structure (see page 127).
The RSP Scheme’s (2020: CARE Scheme’s) interests in the SLP increases the net pension asset on the FRS 101 accounting basis because the investments
held by the Scheme qualify as an asset for Company FRS 101 purposes.
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
Interest expense
Actuarial (loss)/gain – demographic assumptions
Actuarial loss – financial assumptions
Actuarial gain – experience
Settlement and curtailment gain
Benefits paid
Defined benefit obligation at end of period
2021
CARE
£m
(1,104)
–
(19)
(30)
(108)
17
2
24
(1,218)
2021
RSP
£m
(405)
–
(7)
–
(49)
10
–
8
(443)
2020
CARE
£m
(977)
–
(27)
27
(162)
4
–
31
(1,104)
2020
RSP
£m
(391)
–
(10)
–
(58)
15
–
39
(405)
The durations of the defined benefit obligations at the end of the 2021 reporting period are: RSP 20 years; CARE 23 years. The weighted average
duration of the Schemes is 22 years.
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11 Company financial statements continued
11.20 Pensions continued
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
2021
CARE
1.5%
3.0%
2021
CARE
21.1
22.5
22.8
24.4
2021
RSP
1.5%
3.0%
2021
RSP
n/a
n/a
n/a
n/a
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
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 FRS 101.
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 31 January 2021 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 2019 core projections and a long-term rate of improvement of 1.5% p.a. For the 52 weeks ended
2 February 2020 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 2018 core projections and a long-term rate of improvement of 1.5% p.a.
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.)
2021
CARE
2021
RSP
2020
CARE
2.0%/2.9%
–
2.0%/2.8%
-/2.3%
2.3%
2.3%/-
2.3%
-/2.0%
2.0%
2020
RSP
–
2.0%/-
2.0%
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
2021
CARE
-/+30
+/-20
+40
2021
RSP
-/+9
+/-9
–
2020
CARE
-/+25
+/-20
+40
2020
RSP
-/+8
+/-7
n/a
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Strategic reportGovernanceFinancial statementsInvestor information
Notes to the Company financial statements continued
52 weeks ended 31 January 2021
11 Company financial statements continued
11.20 Pensions continued
11.20.5 Funding
The CARE Scheme is entirely funded by the Company. The Company along with other subsidiaries of the Company 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 FRS 101 purposes for the period to 31 January 2021
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 31 January 2021, 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). The International Accounting Standards Board (IASB) have been
considering amendments of the current version of IFRIC 14, however the IASB has decided not to finalise these amendments and is considering
whether to develop new proposals. The legal advice received by the Company has concluded that the above accounting treatment should not be
materially affected by the previous proposed amendments to IFRIC 14.
The current best estimate of Company contributions to be paid to the defined benefit schemes for the accounting period commencing
31 January 2021 is £7m (2020: £3m). This estimate includes amounts payable from the SLP.
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 31 January 2021, the Company paid contributions of £56m to the MPRS (2020: £50m), and expects to contribute £57m
for the following period (2020: £50m).
11.21 Share capital
At 2 February 2020
Share options exercised
At 31 January 2021
All issued shares are fully paid and have a par value of 10p per share (2020: 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
2,405
5
2,410
Share capital
£m
240
1
241
Share premium
£m
192
9
201
2021
£m
39
940
(3)
1,980
2,956
Total
£m
432
10
442
2020
£m
39
940
(37)
2,282
3,224
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.
150
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11 Company financial statements continued
11.22 Reserves continued
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 31 January 2021, this intercompany
loan balance was partially settled through a qualifying consideration of £nil (2020: £262m). As a result, none of the merger reserve balance was realised
in the period (2020: £262m).
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging.
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
2021
£m
36
31
2020
£m
31
34
11.24 Guarantees, contingent liabilities and contingent assets
Guarantees
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 31 January 2021 was £nil (2020: £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 £29m (2020: £30m).
Data theft claim
The Company has previously had a legal case brought by a number of current and former colleagues relating to employee data theft in the 52 weeks
ended 1 February 2015. The details of this case can be found in note 10.2.
Interchange fee claim
The Company, along with other claimants, has had an ongoing claim against Mastercard in respect of bank interchange fees. In the 52 weeks ended
31 January 2021, the Supreme Court found in favour of the claim against Mastercard and determined that the fixing of interchange fees by Mastercard
over many years was an unlawful infringement of competition law. The details of this case can be found in note 10.2.
11.25 Post-balance sheet events
Since 31 January 2021, the Company has extended the duration of its four existing £100m committed revolving credit facilities (RCF) as follows:
two £100m RCFs now mature in September 2021, a £100m RCF matures in March 2022 and a £100m RCF matures in July 2022.
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Strategic reportGovernanceFinancial statementsInvestor information 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 31 January 2021 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
Country of incorporation
Name
Bos Brothers Fruit and Vegetables B.V.1
Netherlands
United Kingdom
Chippindale Foods Limited
United Kingdom
De Mandeville Gate Management Limited
Dordon SPV Limited2
United Kingdom
Farock Limited3
Isle of Man
United Kingdom
Fisherdale Properties Limited
United Kingdom
Flower World Limited
United Kingdom
Ipsolus Limited
United Kingdom
Lowlands Nursery Limited
MHE JVCo Limited4
United Kingdom
United Kingdom
MoClo Limited
Neerock Farming Limited5
United Kingdom
United Kingdom
Perimeter Holdings Limited
Wm Morrison (HK) Limited6
Hong Kong
United Kingdom
Wm Morrison Nominee 1 Limited
United Kingdom
Wm Morrison Nominee 2 Limited
United Kingdom
Wm Morrison Nominee 3 Limited
United Kingdom
Wm Morrison Pension Trustee Limited
Wm Morrison Property Investments Limited7
United Kingdom
Wm Morrison Property Partnership 4 Limited Partnership7 United Kingdom
United Kingdom
Wm Morrison Supermarkets Holdings Limited
Principal activity
Acquirer of food products
Supplier of eggs
Property maintenance
Lease company
Holding company
Dormant
Dormant
Dormant
Wholesale of flowers and plants
Joint venture with Ocado
Dormant
Dormant
Property development
Acquirer of non-food products
Dormant
Dormant
Dormant
Dormant
General partner in a partnership
Property 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
Falfish (Holdings) Limited8
Farmers Boy Limited
Farmers Boy (Deeside) Limited
Federated Properties Limited
Firsdell Ltd
Freehold Investments Limited9
Glowrace Limited
Holsa Limited
International Seafoods Limited
J3 Property Limited7
Kiddicare Properties Limited
Lease Securities Limited9
Maypole Limited10
MDW (Eastbourne) Limited
Monument Hill Properties Limited
Neerock Limited
Newincco 1072 Limited
Oldwest Limited9
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
United Kingdom
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
Guernsey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Principal activity
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Property investment
Dormant
Dormant
Dormant
Property maintenance
Dormant
Preparation and supply of seafood
Manufacturer and distributor of fresh food products
Dormant
Dormant
Dormant
Property investment
Real estate management
Dormant
Preparation and supply of seafood
Dormant
Dormant
Property investment
Investment company
Dormant
Dormant
Fresh meat processor
Dormant
Dormant
Interest
100%
100%
51%
100%
100%
100%
100%
100%
100%
51%
100%
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%
37%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
152
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Related undertakings of other Group companies continued
Name
Optimisation Developments Limited
Optimisation Investments Limited
Presto Stores (LC) Limited
Presto Stores Limited
Rathbones Bakeries Limited
Rathbone Kear Limited
RP (No. 37) Limited9
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 Limited11
Safeway Stores (Ireland) Limited
Safeway Stores Limited
Safeway Trustee (FURB) Limited
Safeway Wholesale Limited
Simply Fresh Foods Holdings Limited
Stalwart Investments Limited9
Stores Group Limited
The Home & Colonial Stores Limited
The Medical Hall Limited12
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
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
Property development
Property investment
Dormant
Dormant
Dormant
Manufacturer and distributor of morning goods and bread
Property investment
Grocery retailer (overseas)
Dormant
Dormant
Dormant
Dormant
Dormant
Property investment
Dormant
Dormant
Dormant
Grocery retailer
Dormant
Dormant
Dormant
Property investment
Dormant
Dormant
Pharmaceutical licence holder (Gibraltar)
Charity
Dormant
Dormant
Dormant
Technical testing and analysis
Dormant
Dormant
Dormant
Dormant
Acquirer of fresh produce
Dormant
Dormant
Dormant
Produce packer and purchaser
Scottish Limited Property Partnership
Dormant
Dormant
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%
Registered address 3151, ZJ Hoek van Holland, the Netherlands, Amersgat 17.
1
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 Unit 15 Cardew Industrial Estate, Redruth, Cornwall, TR15 1SS.
9 Registered address IFC1, Esplanade, St Helier, Jersey, JE1 2ST.
10 Registered address 1st & 2nd floors, Elizabeth House, Les Ruettes Brayes, St Peter Port,
Guernsey, GY1 1EW.
11 Registered address Suites 41/42 Victoria House, 26 Main Street, Gibraltar.
12 Registered address 1st Floor, 5 Secretary’s Lane, Gibraltar GX11 1AA.
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Strategic reportGovernanceFinancial statementsInvestor information Five year summary
52 weeks ended 31 January 2021
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 157 to 159.
2021
£m
17,598
(17,210)
388
92
2
(228)
254
(111)
22
–
165
(69)
96
201
143
3.99
3.95
5.95
11.15
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
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
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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
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’.
2021
£m
328
7,358
997
59
754
31
70
9
9,606
1,430
–
(2,981)
(1,988)
(1,299)
(463)
(36)
(53)
(3,839)
4,216
241
201
39
2,578
1,157
4,216
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
2019
£m
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
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Strategic reportGovernanceFinancial statementsInvestor information Supplementary information
52 weeks ended 31 January 2021
(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 exc. fuel (gross) £m3
Average takings per store per week exc. 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 (£)
2021
2020
2019
20181
20171
0.35
(40.35)
(62.07)
(72.41)
(50.74)
(72.65)
5.61
1.74
0.94
0.55
497
338
15,037
14,087
544
18,134
29.97
35,291
82,756
118,047
76,991
229
3,974
27,769
(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
1 2017 and 2018 have not been restated for the impact of IFRS 16 ‘Leases’.
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.
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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.
Definition and purpose
Reconciliation for 2020/21 Group measures1
Measures
Profit measures
Like-for-like
(LFL) sales growth
Closest
equivalent
IFRS measure
Revenue
Total sales growth
Revenue
Profit before tax
and exceptionals
Profit
before tax
Profit
after tax
Profit before
exceptionals
after tax
Operating
profit before
exceptionals
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 64 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 64 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 64 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.
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.
Group LFL (exc. fuel)
Group LFL (inc. fuel)
Net new space (inc. fuel)
Total revenue year-on-year
52 weeks ended
2 February 2020
%
8.6%
0.1%
0.3%
0.4%
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.
£143m being profit before tax and exceptionals
(£201m) less a normalised tax charge (£58m)
(see note 1.4 of the financial statements).
£306m being reported operating profit
(£254m) less profit/loss on disposal and exit
of properties (£2m), net online and home
delivery (£10m) and impairment and provisions
for onerous contracts (£7m), plus store
restructuring and closure costs (£56m) and
other exceptional items (£15m).
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.
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Strategic reportGovernanceFinancial statementsInvestor information Glossary continued
Measures
Closest
equivalent
IFRS measure
Definition and purpose
Profit measures continued
Reconciliation for 2020/21 Group measures1
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.
A reconciliation of this measure is provided
in note 6.2 of the financial statements.
Earnings before
interest, tax,
depreciation
and amortisation
(EBITDA) before
exceptionals
EBITDA margin
before
exceptionals
This measure is used by the Directors as it provides key
information on ongoing cost of financing excluding the impact
of exceptional items.
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.
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.
£847m being operating profit before
exceptionals (£306m), plus share of profit from
joint venture (£nil), depreciation (£470m) and
amortisation (£71m).
4.8% being EBITDA before exceptional items
(£847m) divided by revenue (£17,598m).
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.
2.8x being operating profit before exceptionals
(£306m) divided by net finance costs before
exceptionals (£105m).
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 applying
the dividend policy. See page 64 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.
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.
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Measures
Closest
equivalent
IFRS measure
Definition and purpose
Reconciliation for 2020/21 Group measures1
Cash flows and net debt measures
Free cash flow
No direct
equivalent
Adjusted free cash
flow
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.
£450m outflow being the movement in net
debt (£711m) before payment of dividend
(£261m).
See page 64 in the Directors’ remuneration
report.
Net debt
Gearing
No direct
equivalent
No direct
equivalent
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.
A reconciliation of this measure is provided
in note 6.5 of the financial statements.
75% being net debt (£3,169m) as a percentage
of net assets (£4,216m).
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 (3.9%) equals return divided by average
capital employed:
Return (£248m) = Profit before exceptionals after
tax annualised (£143m) adjusted for annualised
net finance costs before exceptionals (£105m).
Average capital employed (£6,361m) = Average
net assets excluding the net retirement benefit
surplus (£3,548m) and average net debt (£2,813m).
Onerous capital payments (£22m) plus payment
to exit leases (£nil), 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).
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Strategic reportGovernanceFinancial statementsInvestor information Investor relations and financial calendar
11 May 2021
21 May 2021
10 June 2021
28 June 2021
1 Aug 2021
9 Sep 2021
24 Sep 2021
29 Oct 2021
30 Jan 2022
Financial calendar 2021/22
Financial events and dividends
Quarter one trading statement
Final dividend record date
Annual General Meeting
Final dividend payment date
Half year end
Interim results announcement
Interim dividend record date
Interim dividend payment date
Financial year end
Company Secretary
Jonathan Burke
Company number
00358949
Registered office
Wm Morrison Supermarkets PLC
Hilmore House
Gain Lane
Bradford
BD3 7DL
Telephone: 0345 611 5000
www.morrisons.com
Investor relations
Telephone: 0345 611 5000
Email: accinvr@morrisonsplc.co.uk
Corporate responsibility enquiries
Telephone: 0345 611 5000
Annual General Meeting
The AGM will be held on 10 June 2021 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 161).
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 2020/21 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 2020/21
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 161.
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.
160
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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:
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 08:30 am – 17:30 pm,
Monday to Friday excluding public holidays
in England and Wales.
Web: www.shareview.co.uk
Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
Eversheds Sutherland (international) LLP
1 Wood Street
London EC2V 7WS
DWF LLP
1 Scott Place
2 Hardman Street
Manchester M3 3AA
Allen & Overy LLP
One Bishops Square
London E1 6AD
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Central Square
29 Wellington Street
Leeds LS1 4DL
Stockbrokers
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Credit Suisse
One Cabot Square
London E14 4QJ
Shore Capital
Bond Street House
14 Clifford Street
London W1S 4JU
Investment bankers
NM Rothschild & Sons Limited
St Swithin’s Lane
London EC4N 8AL
Shareholder information
The number of shareholders at 31 January 2021 was 36,099 (2020: 36,349) and the number of shares in issue was 2,409,705,929 (2020: 2,404,954,127).
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
33,077
1,071
1,834
97
9
6
5
Number of holders
19,769
13,735
2,385
210
% holders
91.64
2.97
5.08
0.26
0.02
0.02
0.01
% holders
54.76
38.05
6.61
0.58
Balances at 31 Jan 21
87,575,080
2,075,211,868
173,692,971
72,576,299
616,655
9,477
23,649
Balances at 31 Jan 21
8,081,431
42,737,008
202,011,456
2,156,876,034
% capital
3.63
86.12
7.21
3.01
0.03
0.00
0.00
% capital
0.34
1.77
8.38
89.51
Wm Morrison Supermarkets PLC Annual Report and Financial Statements 2020/21
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Strategic reportGovernanceFinancial statementsInvestor information 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 97% 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 20,000 Morrisons grocery
products, including over 700 ‘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.
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 2020/21 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 2020/21 on 11 March 2021
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.
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Feeding the nation
We are responding to the global
crisis by playing our full part in
feeding the nation. Our core purpose
remains: 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.
Financial highlights
Group revenue
£17.6bn
16.3
17.3
17.7
17.5
17.6
2016/17 2017/181 2018/19
1 2017/2018 Group revenue on a 53 week basis.
2019/20
2020/21
Free cash flow*
£(450)m
670
Group like-for-like (LFL) sales (exc. fuel)*
8.6%
Profit before tax, exceptional items*
and net retirement benefit interest1
£201m (50.7)%
8.6%
337
374
396
408
4314
201
4.8%
2.8%
1.9%
(0.8)%
2016/17 2017/18 2018/19
2019/20
2020/21
2016/17 2017/182 2018/193 2019/20 2020/21
Profit before tax, exceptional and net retirement
benefit interest
Waived business rates relief
1 Referred to as ‘profit before tax and exceptionals*’.
2 £369m 52 week equivalent.
3 Restated following the application of IFRS 16.
4 Profit before tax, exceptional item and net retirement
benefit interest adjusted for the waiver of rates relief.
Net debt*
£3,169m
Total dividend
11.15p
350
281
238
(450)
2,386
2,394
2,458
2016/171 2017/181 2018/19
1 Calculated on a pre-IFRS 16 basis.
2019/20
2020/21
1,194
997
973
2016/171 2017/18 2018/19
Net debt excluding lease liabilities
1,082
2019/20
Lease liabilities
1 Calculated on a pre-IFRS 16 basis.
* Alternative Performance Measures as defined in the Glossary on pages 157 to 159.
3,169
1,798
2020/21
12.60p
10.09p
11.15p
8.77p
5.43p
6.09p
6.60p
6.77p
7.15p
2016/17 2017/181 2018/192 2019/203 2020/214
Ordinary
Special
1
2
3
4
Including 4.00p special dividend.
Including 6.00p special interim dividend.
Including 2.00p special interim dividend.
Including 4.00p special dividend paid and declared in 2021.
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.
Throughout the Directors’ report and Strategic report:
Unless otherwise stated, 2020/21 refers to the 52 week period ended 31 January 2021 and 2019/20 refers to the 52 week period ended 2 February 2020. 2021 and 2020 refer to calendar years.
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Wm Morrison Supermarkets PLC
Hilmore House, Gain Lane
Bradford BD3 7DL
Telephone: 0345 611 5000
Visit our website:
www.morrisons.com
We are responding
Wm Morrison Supermarkets PLC
Annual Report and Financial Statements 2020/21
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