www.morrisons.co.uk
Information at your fingertips
Consumer
This area of our website allows you to learn more
about Morrisons and our offering.
Offers
• Latest promotions
• Specific product offerings
• Competitions
• Press releases/marketing
Market Street
More about our unique in-store offering, along
with video presentations of where our food
comes from and how to buy, cook and present it.
Food
Information about our ranges, healthy eating and
more mouth-watering recipes.
Drink
Information on how and what to buy, where
our wines come from and, yes, more recipes.
Family life
From entertainments to bringing up baby
and looking after your pets. Including gardening
tips and even how to track where your eggs
come from.
Fresh food
Giving details of seasonal food and how and
what to buy.
Let’s Grow
Information about our Let’s Grow scheme,
including how to register, facts, how it works
and teaching resources.
Great Taste Less Waste
All about getting more meals for your money
by reducing waste and making the most of fresh
food. Includes how to store food and keep
leftovers fresher for longer and more recipes.
Seasonal
Guide on what to buy for, say, Easter, Christmas
and those other special times of year.
Today
Here you can find out about our Corporate
and Social Responsibility ethos, including
how we take good care of our environment,
society and how we go about business.
www.morrisons.co.uk/today
Corporate
Work with Morrisons
Career opportunities and information
about working for Morrisons. For our
dedicated recruitment website go to
www.iwantafreshstart.com
Press Office
Latest releases about the growing estate
of Morrisons, along with promotions and
product news.
Investors
User-friendly
Presentations, announcements and financial
reports can be quickly and easily downloaded
or viewed on-screen as PDFs. You can easily
navigate around the Annual report and financial
statements 2010 on-screen, viewing only the
parts you want to
www.morrisons.co.uk/annualreport10
Webcasts
Webcasts of the Directors delivering the
preliminary results 2010 on 11 March 2010
are available.
Shareholder information
Other relevant shareholder information
is available, like share price history,
financial calendar and AGM minutes.
Wm Morrison Supermarkets PLC Annual report and financial statements 2010
Wm Morrison Supermarkets PLC
Hilmore House
Gain Lane
Bradford
BD3 7DL
Telephone: 0845 611 5000
Keeping things simple
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 interim financial results, notices of
shareholder meetings and other shareholder
documents, you will receive an email to let you
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.co.uk/corporate/investors
and follow the investor eComms link.
About Morrisons
You will find information about the Group,
its operations, its strategy and structure,
and past financial information.
Annual report and
financial statements 2010
89
Contents and introduction
CONTENTS
The Directors’ report
and business review
1 Highlights
2 Chairman’s statement
4 Strategic review
4 Business review
5 Market overview
6 Our strategy
8 Key Performance Indicators
10 Our business model
12 Risks and uncertainties
14 CSR/Today
16Our people – Values in action
18 Performance review
18Operating review
23Financial review
26 Governance
26 Board of Directors
28Corporate governance report
32Directors’ remuneration report
41General information
Financial statements
43 Group financial statements
43Directors’ statements of
responsibilities
44Independent auditors’ report
45Consolidated financial statements
45Group accounting policies
50Consolidated statement of
comprehensive income
51Consolidated balance sheet
52Consolidated cash flow statement
53Consolidated statement
of changes in equity
54Notes to the Group financial
statements
75 Company financial statements
75Company accounting policies
77Company balance sheet
78Notes to the Company
financial statements
Investor relations and financial calendar – continued
Our business
We are the UK’s fourth largest food retailer by
sales with an annual turnover in excess of £15bn.
We have 425 stores across Britain, ranging in size
from 10,000 to 40,000 square feet.
Over 10m customers visit our stores each week
served by over 134,000 employees.
Registrars and Shareholding enquiries
Administrative enquiries about the holding of Morrisons shares,
such as change of address, change of ownership, dividend payments
and the Dividend Reinvestment Plan should be directed to:
Auditors
KPMG Audit Plc
1 The Embankment, Neville Street
Leeds LS1 4DW
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0GA
Stockbrokers
RBS Hoare Govett Limited
250 Bishopsgate
London EC2M 4AA
Telephone: 0871 664 0300 Overseas: +44 208 639 3399
Calls cost 10p per minute plus network extras.
www.capitaregistrars.com
Solicitors
Gordons LLP
Riverside West, Whitehall Road
Leeds LS1 4AW
Our strategy and vision
See page 6 to find out more
Our vision is to be the ‘Food Specialist For Everyone’.
As a food specialist we differentiate ourselves
from our major competitors by having:
• our own manufacturing and packing facilities;
• more people in-store preparing food than any
other retailer; and
•more specialist butchers, fishmongers and bakers
in-store than our competitors.
Investment bankers
NM Rothschild & Sons Limited
1 King William Street, London EC4N 7AR
Designed by salterbaxter
Printed by Pureprint Group
Ashurst LLP
Broadwalk House, 5 Appold Street
London EC2A 2HA
Cert no. SGS-COC-0620
Wragge & Co LLP
55 Colmore Row
Birmingham B3 2AS
Shareholder information
The number of shareholders at 31 January 2010 were 46,959 (1 February 2009 were 43,949) and the number of shares in issue was 2,651,100,378
(1 February 2009: 2,629,813,268)
Analysis by shareholder
Number of holders
% holders
Balance at 31 January 2010
% capital
40,627
5,532
336
248
79
59
34
29
9
6
87.09
11.86
0.72
0.53
0.17
0.13
0.07
0.06
0.02
0.01
432,006,887
2,156,765,323
659,413
4,891,206
17,244,002
34,077,574
340,782
5,038,065
10,401
66,725
16.30
81.35
0.02
0.18
0.65
1.29
0.01
0.19
0.00
0.00
Analysis by shareholder
Number of holders
% holders
Balance at 31 January 2010
% capital
1–1,000
1,001–10,000
10,001–1,000,000
over 1,000,000
24,503
19,611
2,537
308
52.18
41.76
5.40
0.66
11,007,279
57,192,577
251,183,410
2,331,717,112
0.42
2.16
9.47
87.95
Private shareholder
Nominee companies
Deceased accounts
Limited companies
Other institutions
Bank & bank nominees
Investment trusts
Pension funds
Family interests
Insurance companies
Investor information
86Five year summary of results
87Supplementary information
88Investor relations
and financial calendar
Merrill Lynch
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
Investor information 88 —— 89
View our report online...
You can easily navigate around the 2010
Annual report and financial statements
on-screen, viewing only the parts you want
to. Information can be quickly and easily
downloaded or viewed on-screen as PDFs.
Visit w ww.morrisons.co.uk/
annualreport10
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
1
Highlights
The Morrisons approach is simple
Our unique offer of high quality,
fresh food at great prices continues
to attract customers.
We have made considerable progress in
our strategy to be the ‘food specialist for
everyone’ as we focus on the provenance,
quality and freshness of food served by
experts who know their trade.
Financial highlights
£15.4
+6.0%
bn
Group turnover
Like-for-like sales (ex-fuel, ex-VAT)
2010
£15.4bn
2009
£14.5bn
£767
m
2010
£767m
£636m
£924
+8.2%
20.5
2010
20.5p
16.7p
pence
Total dividend per share
£924m
£642m
Underlying earnings per share
8.2
m
2010
www.morrisons.co.uk/annualreport10
2009
2009
Net debt
2009
+6.0%
pence
Underlying profit before tax
2009
2010
2010
2009
8.2p
5.8p
Annual report and financial statements 2010
2
Chairman’s statement
highlights 2009/10
Strong financial performance
•Profit before tax £858m
•Underlying profit increased 21%
•Underlying basic earnings
per share 20.5p
See page 18 for more on Operating results
Dividend growth once again
•Total dividend for the year 8.2p
•Increase of 41% from 2009
•Dividend cover 2.5 times
Board changes
•New CEO Dalton Philips, March 2010
•Two new Non-Executive Directors
See page 26 for Board of Directors
biographies
Sir Ian Gibson, Chairman
Morrisons had another good year. Once again
our focus on fresh food and great value appealed
to shoppers everywhere, and we have successfully
grown sales and profits to record levels. We completed
delivery of the Optimisation Plan first launched four
years ago, and we are well on the way to cementing
our position as the ‘food specialist for everyone’.
The opening of 43 stores in the year accelerated our
journey from National to Nationwide.
£858
23
7.12
£42
m
Profit before tax increased £203m
compared to last year £655m.
pence
The Board has recommended a final dividend
of 7.12p per share, bringing the total dividend
for the year to 8.20p per share.
Wm Morrison Supermarkets PLC
%
increase
Underlying earnings per share increased
to 20.5p from 16.7p in 2009.
m
The profit share pool for our colleagues
is £42m, an increase of 24% on the
previous year.
41
%
increase
Total dividend for the year has increased 41%,
making dividend cover 2.5 times.
£1.8
m
raised for our Charity of the Year
– Cancer Research UK.
Annual report and financial statements 2010
3
In a difficult period for the UK economy and for
the consumer, Morrisons has again demonstrated
its strength. I am pleased to report another
year of significant progress, during which we
successfully concluded the Optimisation Plan
launched in 2006, delivered market beating
sales growth, record profits and a strong
dividend. We made great strides towards our
goal of being the ‘food specialist for everyone’
and welcomed more customers through our
doors than ever before on our journey to take
the business from National to Nationwide.
Results
Profit before tax was £858m compared with
£655m last year. This included an exceptional
credit of £91m arising from steps taken to
strengthen our pension schemes. Underlying
profit before tax was £767m, up 21% on last
year. Underlying basic earnings per share (EPS)
increased by 23% to 20.5p, whilst statutory
basic EPS increased by 31%. The Board is
recommending a final dividend of 7.1p per
share, to bring the total for the year to 8.2p
– an increase of 41%, which brings dividend
cover in line with our policy of 2.5 times.
Cash generation was strong, with cash from
operations of £1.0bn, up £40m on the previous
year. Capital expenditure increased, as
anticipated, to £906m (2008/09: £678m),
following the development of a new South East
regional distribution centre at Sittingbourne
and an expanded store opening programme
that saw 45 stores open in the year, two of
which were replacements. These investments
in future growth resulted in an increase in net
debt to £924m (2008/09: £642m). Gearing was
19%, a level well below average for the sector,
and at the year end the Group had undrawn
committed bank facilities of £650m. The Group’s
credit rating was upgraded by Moody’s for the
second consecutive year, to A3 – this is a strong
investment grade rating which is held by only
two other European retailers.
Board changes
We are pleased to welcome Dalton Philips as our
new Chief Executive, following Marc Bolland’s
resignation in November 2009. Dalton joins from
Loblaw, where he was Chief Operating Officer,
having spent much of his career in grocery retail
worldwide. He takes up his post with effect
from 29 March 2010. We thank Marc for his
contribution to the development of the business
over the past three years.
As part of the Board’s progressive succession
strategy, Susan Murray retired as a Non-Executive
Director on 31 December 2009. We are
extremely appreciative of Susan’s efforts and
valued contribution throughout her four years
on the Board and are grateful to her for the
support she gave to the Group through its
business recovery and development.
We are pleased to welcome two new
Non-Executive Directors. Penny Hughes,
whose previous experience includes 10 years
with Coca-Cola, ultimately as President of
Coca-Cola GB and Ireland, joined us on 1 January
2010. Johanna Waterous joined the Board on
1 February 2010 and brings 22 years experience
with McKinsey & Co, latterly as Co-Leader of
the firm’s Global Marketing and Sales Practice.
Industry recognition for colleagues
We are delighted that our commitment to
providing our customers with the best value,
quality and service has again been recognised
in numerous industry awards, including Retailer
of the Year from Retail Week for the second
consecutive year, and top accolades at The
Grocer Gold Awards 2009 including Customer
Service Champion, Best Product Availability
and Store Manager of the Year.
These awards are a testament to the hard
work and passion of all our 134,000 colleagues
who day-to-day strive to make Morrisons the
‘food specialist for everyone’. During the year
we launched the Morrisons Academy, the next
step in the training and development of our
people, and already we have 20,000 colleagues
working towards nationally recognised
qualifications. I am delighted that our growth
will provide a profit share pool of £42m, a 24%
increase on the previous year, in recognition
of their commitment to living our values.
On behalf of the Board I want to express our
continuing thanks for the commitment,
dedication and professionalism shown
by our colleagues every day.
Charitable donations
Throughout the business, our colleagues
and customers have once again enthusiastically
supported a variety of charitable activities,
community initiatives and national events.
These have included raising £220,000 for
Children in Need and £600,000 for the
Haiti Disaster Emergency Committee
earthquake appeal.
For 2009/10, Morrisons employees voted
Cancer Research UK as their Charity of the Year,
and the fundraising campaign was the most
successful charity partnership we have had.
To date we have raised in excess of £1.8m
through an array of fundraising activities such
as coast-to-coast cycle rides, charity collection
weeks and sales of special charity products.
Outlook
The completion of the Optimisation Plan means
that the business is well positioned to meet its
goal of being the ‘food specialist for everyone’.
The investments made in new store acquisition
and the early success of the smaller store format
represent good progress on our journey from
National to Nationwide and we see opportunities
to deliver further profitable growth.
We expect the economic environment to remain
challenging, disposable incomes to be under
pressure and value to be a high priority for
consumers. The Board believes that Morrisons
unique offer of high quality fresh food at great
value prices will continue to attract customers
from our competitors and drive market share
growth in the year ahead. For the longer term,
we will utilise our balance sheet strength
to invest for growth, with new space, new
manufacturing capability and new systems
a priority in the year ahead.
Sir Ian Gibson
Chairman
Introducing our new Chief Executive
Dalton Philips
“I have worked in retail organisations
worldwide and have often looked at Morrisons,
particularly how it combined its fresh food
offer and great value.
I am therefore delighted to be joining what I
would regard as a retailers’ retailer at a time
when they have delivered outstanding results.
I am looking forward to working with the
team to build on those strong foundations
for the future.”
www.morrisons.co.uk/annualreport10
Morrisons Academy, launched in 2009, will
provide training for professional and vocational
qualifications. By April 2010 our retail colleagues
will all be accredited and qualified to Royal
Society for Public Health standards of food
safety, making us the only retailer to operate
to this standard.
Annual report and financial statements 2010
4
Business review
business highlights 2009/10
Continuing strategic success
•‘Food specialist for everyone’ gains
further recognition
•Retail Week ‘Retailer of the Year’
for second consecutive year
Store estate development
•13% increase in selling space since 2007
– exceeding our target
We continued to broaden our customer appeal over
the year by maintaining our focus on fresh food and
value and providing great customer service through a
wide range of stores from 10,000 to 40,000 square feet.
With the building blocks now in place we have a strong
platform to take Morrisons to a nationwide company.
•Net 43 new stores opened in the year
•Smaller store format expected to help
us in our target to add a further 1.5m
square feet of new selling space over
the next three years
Shareholder returns
•In the past four years total shareholder
return has averaged 16% p.a. compared
to FTSE 100 at 3% and European grocery
retail sector at 9%
Strategy updaTE
Morrisons has made considerable progress
in its strategy to position the business as
the UK’s ‘food specialist for everyone’.
Food specialist
We really understand food...
•we know where it comes from;
•we pack it and make it in our factories;
•we make it in our stores; and
•we employ craft skills in every store.
For everyone
• Great food which is also great value
• Great food which is for every day
not just special days
As a food specialist we differentiate
ourselves from our major competitors,
all of whom have significant non-food
offers. We are unique in having our own
manufacturing and packing facilities, and
being farmers ourselves. We also prepare
more food and employ more specialist
butchers, fishmongers and bakers in-store
than our competitors. We can clearly
demonstrate our deep understanding
of food and ensure that everyone who
shops with us receives outstanding value,
freshness and service.
Wm Morrison Supermarkets PLC
Our strategy will enable the business to continue
sustainable, long term growth. It builds on our
strengths, and is in tune with our customers’
needs for excellent value and their increasing
focus on the provenance, quality and freshness
of the food they buy. In order to deliver our
strategy, we have previously outlined the
building blocks that need to be put in place,
and our plans to do this were incorporated in
the Optimisation Plan that has now completed.
These include freshening our stores and the
first phases of improving and developing the
infrastructure of the business in relation to
IT operating systems, manufacturing and
distribution. Our progress towards these goals
is set out in the Operating review on page 21.
The early performance of the stores acquired
from the Co-operative Group last year has
confirmed that our offer works well in a wide
range of store sizes, from 10,000 to 40,000
square feet, giving us increased flexibility when
finding sites. We expect to add a further 1.5m
square feet of selling space in the three years
to January 2013.
We believe that the delivery of our strategy
of space expansion and the optimisation of our
business model has delivered strongly improved
profit margins whilst also positioning the Group
for long term growth.
Shareholder investment and returns
Delivery of our Optimisation Plan has ensured
We will continue to invest in our strategy of being strong growth in sales, profits and dividends,
whilst we have also invested to generate future
the ‘food specialist for everyone’. Colleagues
in the business now have access to the Morrisons growth. In line with the policy we announced
in 2008, dividend per share has been increased
Academy, enabling them to be trained further
in food-related skills. We will invest in additional by 41% to give a total for the full year of 8.2p.
manufacturing capabilities in order to strengthen As a result, dividend cover has been reduced
this point of difference with our competitors and to 2.5 times, the average for the European
grocery retail sector.
we will continue to offer our customers new
and innovative fresh food items of great quality
In the four years since the launch of the
produced in Market Street, fresh on the day.
Optimisation Plan, annual dividend growth has
averaged 30% p.a. and total shareholder return
Store estate development
16% p.a. This return compares with equivalent
In 2007, we set out an objective to add an
figures for the FTSE 100 and European Retail
additional 1m square feet of new selling space
sector of 3% and 9% respectively.
to our estate over the three years to January
2010. We are pleased to have exceeded
The Group has a strong balance sheet and is
that target by 0.4m square feet, through
securely financed, with competitive revolving
a combination of store extensions and 57
credit facilities available until 2012 and a number
net store openings (including 34 stores we
acquired from the Co-operative Group in 2009). of long dated bonds. £650m of the revolving
credit facility remained undrawn at the end of
the period.
As the fourth largest grocery retailer in the UK,
we see significant opportunities to expand our
We will continue to pursue a prudent approach
store estate further. As the ‘food specialist for
to financial management which is based on four
everyone’, we offer a real difference in grocery
key principles:
retailing that is highly attractive to a wide range
of consumers as evidenced by the increasing
• we will maintain a strong investment grade
number of customers who are shopping in our
balance sheet;
stores and enjoying the Morrisons experience.
However, there are still many parts of the
• operational control of our stores is fundamental
country where we are under-represented.
to us;
We estimate that there are some seven million
households in the UK not located within
• we are a prudent organisation and we structure
a convenient 15 minute drive time from
our finances accordingly; and
a Morrisons store – a higher target customer
base than any of our three larger competitors.
• our defined benefit pension schemes’ assets
A key part of our strategy, therefore, is to
and liabilities are effectively part of our balance
grow the number of Morrisons stores.
sheet, and will be managed as such.
Annual report and financial statements 2010
5
Market overview
2007
11.9
2008
12.1
2010
12.6
2009
12.3
Morrisons share of grocers UK 2010
(percentage %)
A
Scotland
(Source: Kantar Worldpanel)
Lancashire
and North East
Market growth
22.0%
(21.4%)
East England
Wales & West
Central
12.4%
12.5%
(12.2%)
(12.2%)
15.3
%
11.7%
(11.3%)
London
6.7%
South &
South East
South West
4.7
9.1
(6.5%)
6.1%
(14.1%)
(6.1%)
6.0
Morrisons
Tesco, Asda, Sainsbury’s average
40%
10
Ja
n
24
De
c
09
9
Total Own Label
Value
27
9
N
ov
0
ct
N
ov
0
29
09
01
09
O
Au
g
09
Ju
l
12
09
09
9
Ju
n
14
09
M
ay
0
17
9
Ap
ril
19
09
M
ar
0
22
09
Ja
n
22
50%
09
Figures in brackets are from 2008/09
Source: Kantar Worldpanel
Source: Kantar Worldpanel
Standard
Premium
30%
20%
10%
0%
-10%
-20%
www.morrisons.co.uk/annualreport10
Yorkshire
Market share growth in 2009/10
(Percentage %)
12 weeks sales growth vs LY%
By the end of 2009, value sales growth had eased,
whilst sales of premium products were starting to
see some growth.
(16.4%)
Morrisons market share growth was greater
than the total market growth year-on-year
and as a result we grew market share.
Private label growth by tier
2009 – 2010
‘Value’ versus ‘Premium’
Last year, the recession affected the balance
between supermarkets’ premium own label
products and their value own label products, with
value growing by over 40% by December 2008.
16.6%
A. Morrisons
12.6%
B. Tesco, Asda, Sainsbury’s (combined) 63.5%
5.8%
C. Premium (combined)
D. Discounters and others (combined) 18.1%
Fe
b
Home-cooking trends and lifestyle
Consumers are cooking from scratch as
home-cooked foods offer an economic meal.
When treating themselves, consumers are
buying premium ready meals rather than
eating out. Eating healthily remains important.
(15.1%)
C
22
Consumer confidence
Consumer confidence has steadily improved
during the year, albeit from an all-time low at
the start of the year and it is now back to where
it was at the beginning of 2008. Historically
there has been a strong link between consumer
confidence and house prices. House prices
continued to fall* in the first half of 2009
but started to recover in July and are now
4.5% up year-on-year. *(Source: Halifax)
16.1%
B
D
The effects of inflation
Inflation in food, caused by rising commodity
prices and exacerbated by the weakness of
Sterling, peaked in the mid part of 2009 and
had fallen sharply by the year end. Whilst official
figures suggested double-digit inflation at one
point, the competitive nature of the marketplace
and the promotional deals available to customers
meant that individuals never experienced this
cost of real inflation in their shopping basket.
Strategic review 4 —— 17
Morrisons market share
(percentage %)
p
The UK grocery market
For the financial year 2009/10 the grocery
market was worth £90.2bn, an increase of
4.7%. The top four supermarkets combined
accounted for around 76% of the market.
Morrisons market share by region
2009/10
Morrisons share of UK grocery market
Our market share continues to increase as we
move from National to Nationwide.
04
Understanding our markets
We keep a regular eye on consumer trends,
we have programmes where we talk to our
customers about their shopping trip and how
they feel about grocery shopping in the
broader context of their personal
circumstances. We also make good use of
market data to understand what we need to
do to improve our business for customers.
Se
Like every business, the marketplace affects
the way we do business. This page explains
what has impacted us this year.
The UK grocery market continues to be affected
by the difficult current economic climate. Consumer
trends have stabilised compared to the prior year
when behaviours changed to adapt to rising food
inflation and constraints on disposable income.
06
overview
Source: Kantar Worldpanel
Total grocery market
Annual report and financial statements 2010
6
Our strategy
overview
Positioning
Morrisons has three distinct brand values
that strengthen our vision. The brand
values give us the flexibility to react to
market changes and consumer trends.
Fresh
Value
Service
Keeping things simple: Our vision to be the
‘Food Specialist for Everyone’ is now well advanced.
Our constant focus on freshness, great value and
outstanding service is appealing to more and more
people. And we’re now closer to more customers,
having opened 43 new stores last year.
Freshness, great value and outstanding
service mean our brand and our products are
appealing to more people for more reasons.
Value
Fresh
Our research supports this as we are
attracting more customers from higher
income groups as well as younger customers.
We are consistently ranked higher than
our competitors for having ‘the freshest
food possible’.
Great selling and service
for our customers
Moving from ‘National
to Nationwide’
Our employees
Success at Morrisons relies on our
134,000 people delivering great service
to our customers each and every day by
living our values.
Fresh in-store
preparation
Visit w ww.morrisons.co.uk/today
Service
Vertical integration
in the supply chain
The ‘Food Specialist
for Everyone’.
See page 16 for more information
A sustainable and responsible retailer
We aim to build responsible and sustainable
values into our business and the products
we sell.
Keeping costs low
to ensure our prices
are competitive
Brand values
Objectives
Ensuring the right
product is always
available
Great value across
our ranges
Vision
Vision
Our vision to become the ‘food specialist
for everyone’ means:
Food specialist
We really understand food...
• we know where it comes from;
• we pack it and make it in our factories;
• we make it in our stores; and
• we employ craft skills in every store.
For everyone
Great food which is also:
• great value; and
• for every day, not just special days.
This vision is supported by our brand values
and strategic objectives.
Brand values
Our brand values are important to delivering
our strategy and underpin all our strategic
objectives. Fresh, Value and Service are
discussed in the box above.
Wm Morrison Supermarkets PLC
Objectives
Our strategic objectives build on Morrisons
historic strengths and make us unique in
the UK grocery market. They are aligned
to our brand values.
Fresh
We aim to offer more freshly prepared food
than any other supermarket retailer, through
our own manufacturing facilities and in-store
food preparation.
We can better control fresh and quality produce
through being vertically integrated. Having our
own manufacturing, packing facilities and
distribution network means we can get food
to our stores faster so that it’s always fresher.
Value
We offer quality and freshness at a price people
like. Our famous promotional offers always
save our customers money. We don’t just offer
value on a few items – our prices are great value
across the ranges.
Annual report and financial statements 2010
7
What we do
We have 425 food supermarkets across the
UK. Our strength is that we take pride in
being great shopkeepers and providing fresh,
great value food with outstanding service.
National to Nationwide
We identified an opportunity for space growth
so that more households in the UK are within
a 15 minute drive of one of our stores. This
space growth started with the acquisition of
38 stores from Co-operative/Somerfield in
2009, 34 of which were converted and fully
trading as Morrisons during 2009. This added
480,000 square feet of space during the year.
A simple strategy
Our strategy is simple and builds on our
historical strengths of offering great value
and fresh food.
Unlike other retailers we are focused almost
entirely on food. It’s this focus that’s delivering
our increased sales and market share.
What makes us different
We are different from other supermarkets
as we produce fresh food for our stores by
making it in-store or in our own manufacturing
facilities. We deliver to our stores using
our own distribution network.
What we mean by fresh
It’s a commitment to sourcing locally and
preparing as much as possible in-store.
It means people who know their trade
providing service and choice for people who
know what they like. This means freshly baked
bread; meat cut to order; advice on fresh fish;
seasonal deli selections; and a constantly
changing selection of fresh cakes and treats.
We will also be increasing our number of
smaller stores. These are stores with less than
20,000 square feet of sales area but still with
a complete Market Street. These smaller stores
are not convenience shops but do provide
convenient shopping.
Key
Stores
Manufacturing sites
Distribution centres
Sittingbourne distribution centre, Kent
(opened August 2009)
56
Scotland
78
49
North
Scotland
74
North
81
Midlands
64
70
Midlands
54
South West
56
South West
Service
It is our aim that, in the future, most households
in the UK will be within a 15 minute drive of one
of our stores. Our plan to move from National
to Nationwide will make our stores accessible
to more people.
We aim to have the right product always
available for our customers. Our integrated
supply chain means we can get food to our
stores quickly, increasing choice and availability.
Our craft-skilled employees prepare more fresh
food in-store than any other supermarket. They
know their trade and they give our customers
what they want – fresh food served by helpful,
friendly, well-trained employees.
www.morrisons.co.uk/annualreport10
72
74
South East
South Central
65
South East
South Central
Visit www.morrisons.co.uk/corporate
4 —— 17
DeliVeRing Results
Strategic review
Business aCtiVity
2007
2010
Total stores 368
total stores 425
Optimisation Plan
The Optimisation Plan was announced in
March 2006 and set out a number of
programmes designed to deliver by this
year end. The programmes have helped deliver
our strategy in this time and will continue
to shape the business for growth. Further
information on how we have performed against
these objectives can be found on page 21.
sustainaBle fOOD fOR...
2010 and beyond
Our strategy continues to be based on delivering
our vision of being the ‘food specialist for
everyone’. A major extension to our strategy,
announced in 2009, is our programme to take
the business from National to Nationwide.
There continue to be large parts of Great Britain
where potential customers do not have easy
access to a Morrisons store. We want to open
stores in these parts of the country, so that we
can take our food specialist offer to everyone.
Today
fresh fish: 100% of our own
brand fresh fish complies with our
sustainable sourcing policy. Our
counters have been certified under
the Marine Stewardship Council
(MSC) Chain of Custody programme.
Visit www.morrisons.co.uk/today
Annual report and financial statements 2010
8
Key Performance Indicators
Identifying our KPIs: We have identified a number of measures
that are important to the success of the business and to stakeholders,
financial performance, operational excellence, customers, suppliers
and employees. Below are the measures the Board consider to be
key to the achievement of the Group’s goals.
KPI
update
Financial KPIs
Definition
Commitment
Like-for-like sales (ex-fuel, ex-VAT)
Measures store based sales on the same basis as the previous
year, excluding the impact of new store openings or store
disposals. Also excluded is the impact of major refurbishments
and extensions.
Sales growth, particularly organic growth, is key to retail
success and long term expansion.
UK grocery market share
The business’ percentage of retail sales in the grocery sector.
We aim to increase our share of the market year-on-year.
Underlying profit
Measures the normal underlying business performance.
Profits are adjusted to remove volatile or one-off costs.
A reconciliation of underlying earnings is provided in
note 1 of the Group financial statements.
The Directors consider that underlying profit provides
additional useful information for shareholders on trading
trends and performance.
Underlying basic earnings per share
The EPS measure uses underlying profits as defined above.
Calculated by taking Underlying earnings divided by the
number of shares in issue.
Our earnings should meet the expectations of our
shareholders and as such we aim to improve sales and
margins whilst investing for long term growth.
Dividend cover
Underlying profit after tax attributable to equity shareholders
divided by total value of dividends declared during the year.
Our aim is that dividend cover will be the same as the average
for the European grocery market.
Net debt
The Group’s overall debt position at the year end. A summary of
net debt is provided in note 26 of the Group financial statements.
To maintain a strong investment grade balance sheet.
Capital expenditure
Cash outflow on capital investment in the year.
We commit to investing for the long term growth of the
business and providing shareholders with forward guidance
on our plans.
Non-financial KPIs
Definition
Commitment
The retention of employees to indicate that the Company is an
employer of choice.
Our aims are to attract, develop and motivate skilled people.
We encourage employee engagement and implement
education programmes for all employees to further their
skills, thus encouraging employee stability.
Carbon footprint
Our carbon footprint includes energy, waste, refrigeration
and transport for our stores, offices, manufacturing and
packing facilities.
To reduce our carbon footprint cumulatively by 36%
(from a baseline in 2005).
Group energy use
Gas, electricity and fuel used across the whole business,
including stores, head office, distribution and our
manufacturing and packing facilities.
We aim to reduce use by 8% per square metre by the
end of December 2010 (based on 2005 emissions).
Waste to landfill
Any remaining waste that we are unable to recycle and
that we send to landfill from our stores.
Volume of waste to landfill to be reduced by 50%
by the end of December 2010.
Each year our customers and colleagues choose a national
charity for national fund raising.
Since 2006 we have aimed to raise at least £1m per annum
for the charity through collections and fund raising events.
See page 5
Colleagues
Employee stability
See page 16 and 17
CSR
For further information on our CSR KPIs, please visit
our online CSR section at www.morrisons.co.uk/today
Charity
Charity of the Year
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
Strategic review 4 —— 17
9
Status
Future
Performance
2009/10
2008/09
2007/08
Once again we have increased our like-for-like sales in excess
of the market (source: Nielsen).
6.0%
8.2%
6.1%
To maintain momentum in growth as the ‘food specialist
for everyone’.
Independent data (Kantar Worldpanel) shows that we have
increased our market share during the period to 12.6%,
an increase of 0.3%.
12.6%
12.3%
12.1%
To continue market share growth as we evolve from
National to Nationwide.
Underlying earnings before tax increased by £131m to £767m,
driven primarily by strong like-for-like sales performance as well
as store openings. The Operating review contains further
information on turnover, customer numbers and retail space.
£767m
£636m
£580m
To continue to grow underlying profit.
Underlying basic earnings per share have increased from
16.7p to 20.5p.
20.5p
16.7p
14.4p
Underlying earnings per share to continue to grow in line
with underlying profit.
Our dividend cover is 2.5 times for the year, the European
average. This resulted in dividend growth of 41%.
2.5 times 2.9 times 3.0 times
To maintain average dividend cover for the European
retail sector.
Net debt has increased by £282m, despite £906m capital
investment.
£924m
£642m
£543m
To continue to maintain a strong investment grade
balance sheet.
Capital expenditure cash outflow has increased over the
past three years reflecting the acquisition of 38 stores
from Co-operative/Somerfield, supporting the Optimisation
Plan and additional focus on growing the estate.
£906m
£678m
£402m
To continue expansion to move from National to Nationwide.
Performance
2009/10
2008/09
2007/08
Our employee stability rate has improved, increasing from
78% last year to 84%. Moreover, some 33% of our employees
have been with us for at least five years, with 236 celebrating
25 years service during 2009.
84%
78%
76%
We achieved our target one year early.
56%
36%
25%
reduction reduction reduction
Introduce further sustainable solutions for improving energy
efficiency, reducing waste, renewable energy to achieve
30% absolute reduction by 2020 (from our 2005 baseline).
We have moved from the original cumulative method
agreed with Carbon Trust to an absolute method,
representing best practice.
Not achieved due to new manufacturing facilities, higher volume
production and the unanticipated increase in stores due to the
acquisition of 38 Co-operative/Somerfield stores.
5.2%
6.0%
5.0%
Going forward this will be measured and reported as part
of our carbon footprint.
We have nearly doubled the amount of waste diverted from
landfill from 8,465 to 16,808 tonnes. We are on track to achieve
our target by December 2010.
34%
17%
9%
Explore a variety of routes to continue reduction and aim
to achieve zero waste to landfill by end of 2013.
We have raised in excess of £1m for charity since 2007 and,
indeed, this year the target was achieved before Christmas 2009
with Cancer Research UK awarded an initial cheque for funds.
£1.8m
£1m
£1m
Money still being raised for Cancer Research UK until end
March 2010. From April 2010 the Charity of the Year will
be Help the Hospices.
Our credit rating has been upgraded for the second successive
year to A3.
www.morrisons.co.uk/annualreport10
To continue to improve our employee engagement and make
Morrisons the employer of choice.
Annual report and financial statements 2010
10
Our business model
A simple model: Where possible, we source locally
and manufacture in our own sites. We distribute to
our stores through our own network. The benefits?
We’re able to deliver consistent freshness at a reduced
cost whilst being in control of our supply chain.
how our model works
Stage
Supply chain element
1
Being closer to source means we can better
control the provenance and quality of our
food. Sustainable and responsible sourcing
is important to us and we work with the
producers to develop a relationship that
is reasonable and fair to all parties.
2
We own manufacturing facilities, which means
we reduce our supply chain lead times, allowing
us to maximise the freshness in-store and reduce
waste and costs. Many of these facilities are
situated close to our distribution centres, enabling
us also to reduce our food miles. The majority
of our fresh food is prepared by our production
plants providing us with security of supply.
From selection…
To packhouse…
3
Distributed and
delivered to…
4
All our stores.
Wm Morrison Supermarkets PLC
We own and operate a very modern transport
fleet, ensuring freshness and cost control.
We believe we have the quickest turnaround
time between order and delivery compared
to any other supermarket.
Because we prepare food in-store, we can
react to customer trends throughout the day,
only producing what the customer wants.
This reduces waste, makes us cost efficient
and keeps our prices low to the customer,
as well as ensuring our products are always
freshly made.
Annual report and financial statements 2010
11
OuR integRity...
supply chain integrity: Our policy
is to be fair and honest in our
dealings with farmers and suppliers.
Visit www.morrisons.co.uk/today
Business model facts
Business model highlights 2009/10
100% British fresh beef, pork,
lamb and poultry.
• Regional milk
We source all our standard milk from farms that are in the same region as the Morrisons
store it is sold in. This means that the milk has not travelled far, stays fantastically fresh
and supports our local British farmers.
100% sustainable fresh fish
on our fish counters.
• Morrisons Farm at Dumfries House
We launched a Farm Programme focused on research to help improve the efficiency
and sustainability of British farming. Morrisons Farm at Dumfries House will work in
a new partnership with the Scottish Agricultural College, with support of the National
Farmers Union Scotland, to become one of the leading centres of excellence for
applied farming research. More information about the farm is on our website
www.morrisons.co.uk/Fresh-Food/The-Morrisons-Farm-at-Dumfries-house
100% own brand British free
range eggs from April 2010.
We own:
3 abattoirs
3 bakeries
6 fruit & vegetable packhouses
1 food preparation factory
• Packing house at Flaxby
Our packing house at Flaxby, North Yorkshire, has been extended and refurbished
during the year, bringing efficiency improvements.
1.9m trays of loose fruit are
packed each week.
18m cases delivered to stores
each week.
• Sittingbourne distribution centre
A new purpose-built distribution centre opened during the year, supplying our stores
in London and the South East. It will reduce the distance our fleet travels by around
20m km every year and has created around 1,000 new jobs.
We have 12 distribution centres
across the UK.
Distribution fleet of over 700
tractor units and 1,800 trailers.
Market Street – where we have
more craft-skilled employees
preparing more fresh food
in-store than any other
supermarket – over 6,000 people.
www.morrisons.co.uk/annualreport10
• Training Academy
The Morrisons Fresh Food Academy was launched in-stores to give all Market Street
colleagues a nationally recognised qualification in Retail Skills.
Annual report and financial statements 2010
Strategic review
Product stewardship: We know
and care about where the food
we sell comes from.
4 —— 17
Today
12
Risks and uncertainties
identifying and
monitoring our risks
Like all businesses, our business faces risks
and uncertainties that could impact on the
Group’s achievement of its objectives. Risk
is accepted as being a part of doing business.
Within the Group, responsibility for risk
management and internal control lies
with the Board. Executive management
implements and maintains the system
of controls.
Balancing risk and reward: Through the application
of reasoned judgement and consideration of the
likelihood and consequence of events, the Board
believes a successful risk management framework
balances risk and reward.
The business uses a corporate scorecard to
monitor the achievement of its objectives
and the performance of colleagues.
2
The scorecard is made up of the following
four elements:
Identify and
evaluate the risks
Financial
Operational excellence
Customers and suppliers
Our people
3
Values
1
Develop and
communicate
corporate
objectives
Our Values define what we
expect of our people and
what our stakeholders can
expect from us.
Take action to
manage risk
4
Review and monitor
the success of
actions
Risk management process
1. Develop and communicate
corporate objectives
We develop our strategy based on our vision
to be the ‘food specialist for everyone’. This
informs the setting of objectives across the
business and is widely communicated within
the business through the use of the scorecard.
2. Identify and evaluate the risks
Colleagues use a variety of mechanisms to
identify the risks to the achievement of the
corporate objectives including the use of
facilitated workshops. The likelihood and
consequence of the risks identified is considered.
3. Take action to manage risk
Responsibility for taking necessary actions
to manage risk is delegated to appropriate
colleagues within the business. The risks and
related controls are recorded in risk registers.
Wm Morrison Supermarkets PLC
4. Review and monitor the success of actions
The Executive Board and the other operating
boards consider the risks reported within the
risk registers. Key risks are reported to the
Board, which reviews and monitors the status
of risk and control across the Group.
Values
We understand that any system of control is
dependent on the people operating it. Our
Values define what we expect of our people
and what our stakeholders can expect from
us. The Board sets the tone at the top and
this is cascaded throughout the organisation.
Further details of our Values are set out on
pages 16 and 17.
Annual report and financial statements 2010
13
The list does not include all risks that the Group faces
and it does not list the risks in any order of priority.
Business interruption
Financial and treasury
Property
Risk
Our distribution and systems infrastructure is fundamental
to ensuring the normal continuity of trading in our stores.
If a major incident occurred to this infrastructure or another
key facility this could have a detrimental impact on the
business’s ability to operate effectively.
Risk
Meeting the expectations of our shareholders is
important to maintain their trust and to uphold the
business’s reputation.
Risk
The business is growing the size of its retail space through
acquisition and by modernising and extending existing
stores and facilities. In this context there is the possibility
that the business fails to deliver an acceptable return on
this investment or that there is damage to the business’s
reputation if this is not done in a safe and timely manner.
Mitigation
To reduce the chances of this happening and also to reduce
the impact of such an event if it were to happen, we have
developed recovery plans and invested in the creation of
a remote IT disaster recovery site.
Business strategy
Risk
In the long term, effectively managing the strategic risks
that the Group faces will deliver benefits to all our
stakeholders. The Board understands that if the strategy
and vision are not properly formulated or communicated
then the business may suffer. The strategy is developed
by the CEO and senior executives and is considered and
approved by the Board, which takes time each year to
review and monitor its delivery.
Mitigation
To ensure that our strategy is communicated and
understood, the Group engages with a wide range of
stakeholders including shareholders, employees, suppliers
and other groups. This continual process helps to ensure
that the strategy remains relevant and improves the
likelihood of success.
Colleague engagement and retention
Risk
The continued success of the Group relies heavily on the
investment in the training and development of our 134,000
colleagues.
Mitigation
The Group’s employment policies, remuneration and
benefits packages are designed to be competitive with
other companies, as well as providing colleagues with
fulfilling career opportunities. The Group continually
engages with colleagues across the business to ensure
that we keep strengthening our team at every level.
The Group’s financial results may be subject to volatility
arising from movements in commodity prices, foreign
currencies, interest rates and the availability of sources
of funding. See note 18 on page 60.
Mitigation
The Group’s treasury operations are controlled centrally by
the Treasury Committee in accordance with clearly defined
policies and procedures that have been authorised by the
Board. See note 18 on page 60 for more details.
To meet shareholder expectations the Group has regular
contact with analysts and institutional shareholders.
The Investor Relations Director also maintains a programme
of work that reports to the Board the requirements and
information needs of institutional and major investors.
Pensions
Risk
The Group operates defined benefit and defined
contribution schemes.
The liabilities of the Group’s two defined benefit schemes
are derived from cash flow projections over long periods
and are therefore inherently uncertain. These are subject to
changes in life expectancy, inflation, future salary increases,
volatility regarding the value of investments and the returns
derived from such investments.
The operating and financial costs are recognised in the
income statement in the period in which they arise.
Therefore, any variation from these assumed values has
the potential to introduce volatility to the Group’s results.
Mitigation
In consultation with our pension scheme members the
Group has taken a number of steps to put the schemes onto
a sound financial footing for the long term and reduce the
risk to the Group. Previously these have included additional
contributions to the schemes of £200m, changes to the
investment strategy as well as using a prudent basis of
assumptions for the actuarial valuation. During the year, the
defined benefit pension schemes moved from a final salary
basis to a career average revalued earnings basis. This has
reduced the financial exposure to future salary increases
with growth in accrued benefits being linked to inflation.
Corporate Social Responsibility
Risk
In line with our commercial objectives we have identified
three areas, Environment, Society and Business where, by
‘doing the right thing’, we protect valuable resources, meet
demand for sustainable products and make our business
more efficient. Morrisons is committed to taking good care
of what we do and if we fail to meet our commitments this
could damage our reputation and potentially lose the trust
of our stakeholders.
Mitigation
A cross-functional steering group of senior executives
ensures that the appropriate management, evaluation
and verification systems are integrated into operational
management activities. Delivery against targets and
key performance indicators is regularly monitored and
reported. In 2009, the Corporate Compliance and
Responsibility (CCR) Committee was established. Part of
the Committee’s responsibilities is to review and oversee
the development and implementation of CSR policies.
www.morrisons.co.uk/annualreport10
Product quality and safety
Risk
We recognise that the quality and safety of our products
are of critical importance to us and that any failure in this
regard would affect the confidence our customers have
in us. We are aware that if we fail, or are perceived to fail,
to deliver to our customers’ satisfaction, the expected
standards of quality and safety in our products this has
the potential to impact on their loyalty to us. This in
turn could adversely impact on our market share and
our financial results.
Mitigation
The business mitigates against these risks through:
• a property strategy that develops stores to a well
proven format;
• the application of a formal capital approval process
and a requirement to achieve the Group’s required
rate of return; and
• long-standing relationships and agreements with
contractors known to achieve required quality,
safety and cost standards.
Regulation
Risk
The Group operates in an environment governed by strict
regulations to ensure the safety and protection of
customers, shareholders, employees and other stakeholders
and the operation of an open and competitive market.
These regulations include food hygiene, health and safety,
the handling of hazardous materials, data protection,
the rules of the UK Listing Authority and competition law.
Mitigation
In all cases, the Board takes its responsibilities very
seriously, and recognises that breach of regulation can lead
to reputational and financial damage to the Group. There is
clear, ultimate accountability with Directors for compliance
with all areas of regulation. In 2009, we announced the
creation of the Corporate Compliance and Responsibility
Committee of the Board to provide greater oversight over
many of these areas. Additionally, a new position of Head of
Competition Compliance was created to monitor and report
on the business’s compliance with competition law and the
Grocery Supply Code of Practice.
IT systems and infrastructure
Risk
The Board has identified that many of the Group’s
existing systems are approaching the end of their
useful lives and that a comprehensive programme
of replacement is required.
Mitigation
The Board is aware of the risks faced by any organisation
seeking to successfully implement new systems, and has
established a programme and assurance structure to
manage these. Our business, like other similar businesses,
has a capacity to absorb a level of change without having
a detrimental impact on continuing business operations.
Change programmes within the Group have been designed
with this in mind, and are structured and governed in a
manner that allows the Board to monitor their impact.
Mitigation
We work with our suppliers to ensure the integrity of the
products supplied. As a manufacturer of food products, we
have established strict standards and monitoring processes
to manage the risks associated with food safety throughout
our Group and its supply chain. Food hygiene practices
are taken very seriously throughout our Group, and are
monitored both through internal audit procedures and
external bodies such as environmental health departments.
We have well prepared procedures for crisis management
in order to act quickly when required.
Annual report and financial statements 2010
Strategic review 4 —— 17
The list below sets out the most significant risks
to the achievement of the Group’s goals with respect
to the four elements listed in the panel opposite.
14
CSR/Today
Overview
‘Let’s Grow’
The ‘Let’s Grow’ programme is now into its
second year. We’ve been helping children
across the UK to learn about food
provenance by growing their own fresh
produce. Over 22,500 schools registered in
2009, with over 60% of all primary schools,
and 40% of all secondary schools in the UK
actively taking part.
Fresh Food Academy
We are on track to train 100,000 colleagues
to the government’s QCF* Level 2 Certificate
by 2011 to enhance craft food knowledge,
food safety and customer service skills. This
is the biggest programme of its kind in the
UK and provides employees with tailored
training leading to a nationally recognised
qualification in retail skills.
Sustainable sourcing
The Marine Conservation Society Survey
in 2009 found Morrisons to have a
‘strong seafood sourcing policy’ and the
‘largest choice of sustainable seafood’
(from their ‘Fish to Eat’ list).
Championing British farming
We are the only major supermarket to source
100% British fresh beef, pork, lamb and
poultry. We have set up a Farm Programme,
investing in a series of activities with the
core aim of working with farmers to develop
a sustainable British farming industry.
More information on all these initiatives
can be found in our CSR Review and on
our website.
Visit w ww.morrisons.co.uk/today
Today: We believe by taking good care of what
we do today, we can make a real difference for
tomorrow. Our Corporate Social Responsibility
(CSR) programme and our vision to be the ‘food
specialist for everyone’ are how we demonstrate
our commitment to acting sustainably.
How we manage CSR
The management of CSR at Morrisons is led by
senior directors and integrated into the business
by a Project Team of senior executives. Steering
groups are tasked with key areas: Environment,
Society and Business, and operational colleagues
across the business deliver the programme.
Environment
We focus on cutting carbon and preventing
waste. These closely linked issues are integral to
tackling the effects of climate change, business
and resource efficiency and cost reduction.
and business impact. Those issues considered
most important are addressed through our
CSR programme. Policies that address our
responsible business practices are available
on our website.
Stakeholders
We engage with stakeholders on a regular basis,
and their input is vital to the way we develop
our CSR policies and programme.
Progress
Our current CSR programme has been managed
over a three year time scale (2007–2010)
operating towards achieving a set of targets in
Society
We focus on supporting our vision to be the ‘food each of the three areas: Environment, Society
and Business. This has proven a solid foundation
specialist for everyone’ and taking good care of
of performance on which we can continue to
our colleagues, shoppers and communities.
build and develop our programme. Highlights
include reducing our carbon footprint whilst
Business
growing the business, take-up of the ‘Let’s Grow’
We focus on being ‘closer to source’ through
campaign in schools across the country,
having our own supply chain. The principles
launching our Fresh Food Academy to train over
of ‘Responsible’ and ‘Sustainable’ sourcing
100,000 colleagues and a commitment to
underline our approach to business, recognising
responsible and sustainable sourcing including
the value of the resources on which we depend
100% British fresh beef, pork, lamb and poultry.
to carry out our business.
A selection of our CSR targets can be seen below.
Issues and policies
Processes are in place to capture and address
issues that are important to our stakeholders
and material to our business. The risks and
opportunities of each issue to our business are
considered and assessed in terms of strategic
* Qualifications and Credit Framework (QCF) replaces
National Vocational Qualification (NVQ)
Tonnes of carbon emissions (CO2e)
(Tonnes t)
2009
CSR programme 2007–2009/10
Key highlights and achievements.
1,235,760
CSR target
Performance update
Status
Reduce carbon footprint cumulatively
by 36% by 2010 (2005 baseline)
Cumulative saving of 56%
Achieved in excess of target
Reduce Group energy use by 8% per
square metre by 2010 (2005 baseline)
Reduced by 5.2%
Not achieved due to new manufacturing
facilities, higher volume production and
the unanticipated increase in stores due
to the acquisition of 38 Co-operative/
Somerfield stores
Our carbon footprint includes energy, waste,
refrigeration and transport for our stores,
offices, manufacturing and packing facilities.
Reduce the environmental impact of standard
plastic carrier bag use by 25% by the end of
2008 (2006 baseline)
Reduced by 39%
Achieved
NB: All years are calendar years
Volume of waste to landfill reduced
by 50% by 2010 (2005 baseline)
34% and on target
Will be achieved by the end of the
calendar year 2010
Choose and support a Charity of the Year
for national fundraising, aiming for at least
£1m donated each year
£1.8m raised for Cancer
Research UK in 2009
Achieved
2008*
2007*
1,270,608
1,235,410
2006*
2005*
1,334,842
1,477,141
*Morrisons carbon emissions from 2005 to 2008
(inclusive) have been updated based on increased
accuracy in the measurement and recording of
electricity consumption.
SKM Enviros (Environmental Consultancy)
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
setting out targets for...
Tomorrow
We have reviewed the targets for
our CSR programme covering a
new three year period from 2010
to 2013. These targets focus our
programme on the important areas
that matter most to our business and
those involved with it, and where
we can continue to have a positive
impact in the future. We have also
set ourselves a longer term target
to help us manage our carbon
footprint to 2020. This target is a
30% reduction in carbon emissions
by 2020.
More information on our CSR vision
and full details of our targets for
2013 can be found in our CSR
Review and on our website:
Visit www.morrisons.co.uk/today
Tomorrow: We continue to look ahead and have
set new targets and initiatives for the next three
years to 2013, to continuously develop our CSR
programme. Our aim is to maximise the impact
our actions have on our material issues, making
a real difference for tomorrow.
Managing CSR tomorrow
The management and governance structures for
our CSR programme will continue in their current
form. They will be regularly reviewed.
Environment: Carbon management
We will focus on carbon management and
contributing towards creating a low carbon
economy. The reduction of carbon emissions and
prevention of waste are the two material areas
where we can deliver good carbon management.
Emissions reductions
We have set a long term target to reduce carbon
emissions by 30% by 2020. Our strategy to
achieve this includes: the use of energy efficient
low emission technologies, effective energy
monitoring, management and control, colleague
awareness, ‘good housekeeping’ practices,
refrigeration efficiency and improvements,
renewables, and transport efficiency.
Waste prevention
We have set a target for 2013 to bring our
waste to landfill down to zero. Our strategy
to achieve this is based on waste minimisation in
the supply chain and the use of waste processing
technologies. We will also be encouraging our
customers to reduce food waste.
Society: ‘Food Specialist for Everyone’
We will focus on demonstrating the benefits
of being the ‘food specialist for everyone’.
This will be delivered through three working
groups focusing on: Our People, Community
and Health & Well-being.
Emissions by type
(Percentage %)
Electricity 49.9%
Gas 8.9%
Haulage 11.6%
Waste 5.9%
Employees travel
to work 3.1%
Business miles 0.4%
Refrigeration 20.2%
Targets for these are as follows:
Our people
100,000 colleagues to be trained to nationally
recognised qualifications by 2011. This will be
achieved through our Fresh Food Academy.
Community
Extend the ‘Let’s Grow’ scheme to include
supporting the development of cooking skills
in the home. This will be delivered by building
food skills knowledge and practical experience.
Health & Well-being
Contribute to food education and support
healthy, balanced lifestyles. We will continue
to provide useful and relevant nutritional advice
and information for customers and colleagues.
Business: Closer to source
We will focus on responsible sourcing, aiming
to be a leading supporter of British farming,
to raise standards in the supply chain and to
be a positive influence on sustainability. This
will be achieved through Responsible and
Sustainable sourcing initiatives.
Responsible sourcing
We are committed to establishing an applied
farm research programme and set an audited
‘gold standard’ for quality of supply, extending
our code of practice with suppliers. We will
also extend our commitment to selling
British products.
Sustainable sourcing
We will positively influence sustainability within
our supply chain and avoid harm to vulnerable
natural habitat.
Today: Taking Good Care for Tomorrow
Our CSR programme for 2010 – 2013 focuses our efforts and aligns them with overall business goals.
Environment
Society
Business
Carbon
management
‘Food Specialist
for Everyone’
Closer to
source
Focus
Initiative
• Emissions reduction
• Waste prevention
• Our people
• Community
• Health & Well-being
• Responsible sourcing
• Sustainable sourcing
• Farm Programme
Key programmes
• ‘Great Taste Less Waste’
www.morrisons.co.uk/annualreport10
• ‘Let’s Grow’
Annual report and financial statements 2010
Strategic review 4 —— 17
15
16
Our people – Values in action
our values
Our Values help bring us together to achieve
our vision of becoming the ‘food specialist
for everyone’. The Values set out what we
expect of each other in the business and
what our customers can expect from us.
Can do
Getting things done
Fresh thinking
Our aim is to attract, motivate and develop
people to ensure that Morrisons becomes
the ‘food specialist for everyone’.
Our building blocks
1 Values
2 Leadership
Values are incorporated in everything we do and
are at the core of what we expect our leaders and
colleagues to be about.
We will develop effective leaders working to our
Values because they create the right workplace
conditions in which customers receive a great service.
4 Performance
3 Talent
Sustainable performance relies on having people in
place to: grow the business; strengthen our unique
Morrisons culture and deliver our vision of being the
‘food specialist for everyone’.
At Morrisons we believe that everyone has talent
and we are committed to selecting, developing
and growing the best people for our business.
Always looking for new and
better ways of doing things
One team
Working well together
Great selling and service
We love to sell and serve
Bringing the best out
of our people
We’re constantly learning and looking
to improve on where we are
Great shopkeeping
Setting high standards in all areas
of the business
At Morrisons we thrive on having highly
committed people who know how the business
works and take pride in doing a great job.
We continually invest in our people to ensure
that we deliver great business performance
and outstanding customer service.
In order to achieve this our People Agenda
focuses on four key areas: Values, Leadership.
Talent and Performance.
Talent
Growing our own people has been part of
the Morrisons success story for many years.
We believe in giving everyone the opportunity
to progress from the shop floor to the top floor
in our business. With 80% of our employees
promoted from within, we believe this approach
creates a very strong culture and supports our
commitment to the CSR social mobility agenda.
Morrisons
Fresh Food Academy
747 Level 2 NVQs have been awarded
across the business in 2009.
Engagement
We have engaged and consulted with
thousands of employees at over
1,700 Joint Consultation Committee
meetings during 2009.
Wm Morrison Supermarkets PLC
To support this objective we launched the
Morrisons Academy in 2009. It delivers a range
of training and development that we use to bring
the best out of our people at all stages in their
career covering everything from basic skills
training to leadership coaching. Structured
training builds confidence and a sense of pride,
ownership and an ability to provide customers
with the best service possible.
The Academy also encompasses professional and
vocational qualifications. Our Market Street
retail training has been accredited to level two
QCF standards meaning we can offer employees
a nationally recognised qualification. By April
2010 all our Market Street colleagues will be
accredited and qualified to Royal Society for
Public Health standards of food safety. We will
be the only food retailer to operate to this
standard – a major step towards realising our
vision of being the ‘food specialist for everyone’.
There are 20,000 colleagues already working
towards their qualification, making this the
largest programme of its kind currently in the
UK. The Academy also incorporates our Craft
Skills Apprenticeship Programme. Morrisons
trains more fishmongers, bakers and butchers
than any other retailer. In the past year, 325
people have successfully completed Traditional
Craft apprenticeships. Our focus on developing
people is grounded in the belief that better
trained people provide better service to
customers. A great example of this can be seen
in our wine department where we train our
department managers to the highest standards
so they can provide the best advice to customers.
In 2009, our approach was recognised by the
Wine & Spirit Education Trust with an award
of Educator of the Year.
We are committed to ensuring that all employees,
new and existing, are engaged in the future of
our business. Success in this area is evidenced by:
• company labour turnover dropped from 34.5%
to 20.07% during 2009;
• 236 people celebrated 25 years’ service in 2009
and approximately 260 more to follow in 2010;
• over 57% of our Senior Management Group
have over 10 years’ experience in Morrisons;
• more than 30% of our Senior Management
Group started on the shop floor; and
• 95% of our store General Managers are
promoted internally.
Annual report and financial statements 2010
Today
Performance
Morrisons has always had a unique view of
service and performance. Our philosophy is
to drive high standards by coaching our people
to perform at their best. Working with the UK
Centre for Coaching Excellence we are ensuring
that the best examples of world beating sport are
translated into the front line of our business to
give us a sharper edge. In the past year, over 500
managers have been trained in coaching skills so
that they can focus both on developing our people,
as well as driving performance and results.
Recognition of our talent
In 2009, Oracle Retail Week awarded
one of our managers ‘Retail Manager
of the Year’. Similarly the General
Manager of Kidderminster store, also
became the third Morrisons manager
to be awarded the ‘Store Manager of
the Year’ title at the Retail Industry
Awards, following in the footsteps
of the Newquay store manager in
2008, and Anniesland store manager
in 2007. Our Retail HR Director was
also recognised at the Everywoman
in Retail Awards as ‘Hidden Talent
of the Year’.
We set clear expectations and equip managers
to build pride in performance. In this respect,
every manager across the business has been
provided with a performance toolkit to enable
them to drive great results every day. This has
been underpinned by the introduction of a clear
accountability framework that sets the standard
for performance across all areas of the business.
employee stability*
(Percentage %)
2010
84
2009
2008
78
76
* Employee stability is measured as the percentage of
employees who have been with us for over one year.
“Morrisons is a company that is
moving forward in a way that
gives every employee better
prospects for the future. What
Morrisons is doing is changing
the whole culture of this industry
so that everybody who starts at
the company will have the chance
of promotion and a qualification…
Morrisons is therefore leading
the way in the whole of the
retail trade.”
The Prime Minister
The Rt Hon Gordon Brown MP
22 October 2009
Retail industry Award
store Manager of the year
3 years running – 2007, 2008 and 2009.
www.morrisons.co.uk/annualreport10
trained and operational prior to opening their
doors as Morrisons stores. The result is that
the entire re-brand, retraining and opening
programme took less than six months.
Additionally, all team managers at our newly
opened state of the art distribution centre in
Sittingbourne were recruited against our new
Values-centric role profiles. They then took
part in a series of workshops and leadership
programmes to establish their own ways of
working in line with our corporate values and
coaching culture. Engaging the team in this
process has resulted in a high performance,
motivated culture that provides a blueprint
for the rest of the business to follow.
2009 has seen a step-up in how we engage
our colleagues. We have adopted an approach
that gives each division clear ownership for the
communications agenda within their business
area built around a well-supported framework
for engagement. We have continued to invest
in our relationships with trade unions whilst also
developing non-unionised forums designed to
drive continuous improvement and personal
involvement in the business. After a qualifying
period, all employees participate in either the
Profit Share Scheme or Management Bonus
Plan, ensuring that everyone feels a part of the
challenges and successes of the organisation.
The performance of our people not only drives
our business forward, it also consistently attracts
external recognition for being best in class. 2009
saw Morrisons collect the Store Manager of the
Year award at the Retail Industry Awards for the
third year running. We also collected the Oracle
Retail Week award for Retail Manager of the Year. leadership
Strong leadership is key to bringing the best
Values & engagement
out of our people and delivering business results.
As we expand from a National to Nationwide
Our continued investment in this area has seen
business, it is essential that everyone entering
a further 500 managers take part in the Leading
into the organisation understands and feels
the Morrisons Way programme, designed to
committed to our values.
equip our managers and leaders of the future
with the skills and support necessary to drive
Our recruitment processes have been completely our business forward.
revised to focus on selecting people who reflect
the values. Getting the right people in the right
We have continued to integrate the Values-led
roles, demonstrating the right behaviours,
leadership profiles into our development
is key, and we ensure that our selection process
programmes and, working in conjunction with
is supported by our values-led induction
Bradford Business School, we have introduced
programmes. Our values are a key part of our
a mini MBA programme for our senior leaders,
winning performance and we recognise the
specifically tailored to the needs of our
importance they play in developing future
growing business.
talent. This year has seen the launch of our
Morrisons Essentials people development
programmes designed to ensure values-led
behaviour is embedded from the start.
Over 20,000 managers will complete the
programme during 2010.
We carried out our second engagement survey
in January 2009 and the results have informed
our people strategy in 2009. This year we will
continue to build on the feedback building a
strong foundation for the future of our business.
Taking the time to engage and involve our
employees pays off. In 2009, we acquired
38 Co-operative and Somerfield stores.
This resulted in thousands of new employment
opportunities and the training of 7,000
employees nationwide. This has been supported
by 350 existing colleagues travelling between
stores to ensure that our new employees were
welcomed into the business and were fully
80
%
of our employees are promoted from within.
We believe in giving everyone the opportunity
to progress from shop floor to top floor.
10,000
new jobs created in the year.
Annual report and financial statements 2010
Strategic review
All of this demonstrates that our way of working
and our approach to developing future talent sit
hand in glove with our strong heritage.
PeRfORManCe in aCtiOn...
4 —— 17
17
18
Operating review
operating highlights 2009/10
Strong turnover growth
•Total turnover increased 6%
•Store sales grew ahead of the market
•Like-for-like sales increased 6%
•Customer numbers increased 7%
See below for Turnover analysis
Optimisation Plan
•Completed, with all key targets exceeded
•Total Plan EBITDA1 improvements
£526m per annum
•New regional distribution centre opened
in the South East, ahead of schedule
Corporate Social Responsibility progress
•Great progress in meeting our CSR targets
•‘Great Taste Less Waste’ launched
•‘Let’s Grow’ scheme had 22,500
participating schools and won an award
•Carrier bag consumption reduced by 126m
See page 14 for more on our
CSR initiatives
1
BITDA is earnings before interest,
E
tax, depreciation and amortisation
2009/10 was another strong year for Morrisons.
With the economic environment continuing to weigh
heavily on consumers, our focus on value allowed our
customers to stretch their household budgets further.
Turnover growth
Total turnover was £15.4bn, an increase of
£0.9bn (6.0%) and we were pleased that our
store sales (excluding fuel) again grew ahead
of the market. Like-for-like sales (excluding fuel),
which reflect performance in existing stores,
increased by 6.0% with good growth in all
regions. Total average basket size increased by
2.4% and customer numbers were up 6.7%.
On average 10.5m customers are now visiting
our stores each week.
Based on market research data from Kantar
(formerly Taylor Nelson Sofres), we believe
our grocery market share grew from 12.3%
to 12.6% in the year, building on similar
growth the year before.
There is now much greater awareness of our
brand throughout the country and as a result
we grew sales well in all regions, particularly
in the South and Scotland. Our market research
showed that we continued to attract new
customers from competitors, including both the
premium grocery segment and the Discounters.
The easing of the worldwide spike in oil prices
in 2008 resulted in a welcome reduction in fuel
prices at the pumps, although prices again began
to rise during the second half. Fuel sales were
down by 6% in line with the average reduction
in pump prices seen through the year.
New retail space
The Group has made good progress in its plans
to become a truly nationwide retailer. During
the year we opened 43 stores and now have a
total of 425 trading. Of these, 34 were acquired
from the Co-operative Group and we also
opened 11 other stores. Of these, two were
replacements for existing stores. All of our new
stores are listed on our website. With a total
of 667,000 square feet of new store space
and a further 69,000 square feet from the 13
extensions completed during the year, we now
operate 11.9m square feet of selling space,
an increase of 7%.
In November 2008, we announced the
acquisition of 38 stores from the Co-operative
Group and we opened 34 of these during the
year. In the original package were four stores
which do not naturally fit the Morrisons
operating model. As planned, they will remain
closed until we are in a position to evaluate the
results of other stores. Excluding these, the
acquisition has enabled us to add 480,000
square feet of net new store space with final
acquisition and development costs of £325m
as projected. In addition, we incurred £32m of
one-off costs relating to pre-opening activities
which has been included within Operating Profit.
This was below our initial projection of £40m
due to tight cost control and the timely manner
in which the OFT approvals were granted.
Turnover analysis
Sales of goods (£m)
Fuel (£m)
Other sales (£m)
Turnover exc VAT (£m)
+6.7%
Sales per square foot (£)
Customer numbers (m)
Customer spend (£)
Like-for-like
stores
Other
2010
Total
2009
Total
12,029
2,844
94
14,967
394
49
–
443
12,423
2,893
94
15,410
11,378
3,069
81
14,528
21.03
520
23.08
16.07
25
16.13
20.82
545
22.76
19.94
511
22.23
footfall
This year we attracted an additional 500,000
customers to our stores each week.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
19
New jobs created
Our continued growth resulted in 10,000 new
jobs created over the period. We welcomed
2,300 colleagues formerly employed by the
Co-operative Group or Somerfield. As part
of the conversion of these stores to the
Morrisons format, all of these colleagues
have undergone training to introduce our
great customer service and fresh food offer.
The combination of our organic store opening
programme and the Co-operative/Somerfield
acquisition has given us a great next step in
our move from National to Nationwide.
Trading
Whilst we have continued to maintain focus on
the quality and provenance of our food, we have
responded to the challenges our customers face
through the provision of consistently innovative
value. In all we initiated over 30,000 price cuts
through the year and delivered a promotional
programme that enabled our customers to save
money whilst eating good, fresh food. Our
‘Big Price Crunch’ weeks and ‘Essentials For Less’
were popular with customers. Treats too were in
evidence, and after months of belt-tightening
we saw customers trading up to enjoy Christmas.
Our party food ranges and champagnes on
offer at less than half price sold extremely well.
Building on its success last year we relaunched
and expanded our ‘Collector Card’ scheme over
the Christmas period, rewarding our loyal
customers with a £25 shopping voucher.
Market Street performed particularly well, not
only because of our very sharp everyday pricing
but because we are able to offer deeper, more
attractive promotions on fresh products,
supported by our own preparation facilities,
than others who do not have this capability.
We continue to lead the market, not just on
fresh value, but also on quality and provenance,
and we remain the only major British retailer to
offer 100% British fresh pork, beef, lamb and
poultry. Our customers strongly endorse this
policy, which supports British farming, reduces
food miles and means that we sell only fresh
meat raised to British standards of animal welfare.
Sales of our own label ‘Value’ range grew by
34% as consumers tightened their belts in a
challenging economic environment. Many of
these products were relaunched in the year, and
they are routinely blind-tasted to ensure their
quality is as good as the best in the market, whilst
being significantly better value. Sales of organic
and fair-trade products continued to decline,
with consumers unable or unwilling to bear the
premium prices that these products command.
We did however see a resurgence in sales of
the healthy eating ‘Eat Smart’ range following a
relaunch, up 7% reflecting consumers’ continuing
demand for a healthier diet and their concern
over the nutritional value of the food they eat.
We are unique amongst major UK food retailers
in owning our own factories and fruit and
vegetable packhouses and in the proportion of
fresh food preparation that takes place in our
stores every day. We also employ more qualified
bakers, butchers and fishmongers than any other
supermarket. All these factors mean that we can
talk with authority to our customers about the
provenance and freshness of our food offer,
a quality which is becoming more important
in a more health conscious environment.
New space
Supermarkets number
Sales area (000 square feet)
As at 1 February 2009
New stores (net of replacements)
382
43
11,131
667
Extensions
As at 31 January 2010
–2
425
69
11,867
2
Represented by 13 store extensions completed in the year
Made fresh in-store
33,000 sandwiches are made fresh
in-store every day.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Performance review 18 —— 25
Although early days, we are pleased with the
customer response to the new stores, many
of which were community stores operating
2010
10.5 with a limited range and high prices under the
Somerfield fascia. As Morrisons, these stores
offer a full weekly shop, with a strong fresh
2009
9.8
offer, at the normal nationwide prices charged
throughout our estate. Whilst these stores are
2008
9.3
smaller than our average, being below 20,000
square feet, we are confident that we can operate
2007
9.0
this size of store very successfully. There are
Weekly average customer numbers have continued now 96 such stores in our estate, and we
to grow, rising by 7% in the current year.
expect that smaller store formats will form
an important element of our ongoing new
space acquisition strategy.
Weekly average customer numbers
(Millions m)
20
Operating review – continued
Environmentally
friendly stores...
Today
Our Halifax store followed
Kidderminster’s success to receive
one of the greenest awards for a
supermarket, achieving an Excellent
rating from the Building Research
Establishment Environmental
Assessment Method (BREEAM).
Our ongoing design and build
programme incorporates lessons
learnt from stores like Kidderminster
and Halifax. It enables us to
make practical applications
across our estate to reduce
environmental impact.
Our broadening appeal and involvement in the
community is reflected in the expansion of our
award winning ‘Let’s Grow’ initiative in which we
provide free gardening equipment and materials
to schools to teach children how to grow food.
The scheme has been a huge success with over
22,500 schools throughout the country,
including 60% of UK primary schools registering
to take part. During the year we dispatched
thousands of pieces of free gardening equipment
to participating schools, ranging from watering
cans to wormeries, wellington boots to weather
stations and packets of seeds to bags of compost.
This initiative was a grand prix winner at the
Institute of Practitioners in Advertising
Effectiveness Awards 2009.
Our like-for-like sales momentum, which has
been industry leading for a sustained period, has
allowed us to invest strongly in the value that our
customers seek, ensuring that we maintain a very
competitive position in the market. We continue
to target annual sales growth ahead of market
growth. Over and above our investment in
customer value, our volume growth delivered
supply chain benefits allowing us to continue the
process of recovering our margins which began
with the launch of the Optimisation Plan in 2006.
The UK grocery retail market
The consumer continued to face a difficult
economic environment last year. Unemployment
and the fear of unemployment, limited credit
availability, the impact of tax increases and, with
an election due in 2010, uncertainty about future
government tax and fiscal policy, all affected
consumer confidence and behaviour. Although
commodity prices continued to ease, the cost of
an average shopping basket rose year-on-year,
partly due to the weakness of Sterling. Kantar
reported that in the year to January 2010 grocery
market growth was 4.7%.
2.4
The grocery sector continues to be under a
close focus from the Office of Fair Trading
(OFT), despite the findings of the Competition
Commission that the sector is highly competitive.
We always cooperate fully with such inquiries.
In the case of the OFT investigation into milk,
which began in 2004, we continue to believe
strongly that Morrisons has no case to answer
and have made representations in detail
to this effect. Our view is unchanged by the
Supplementary Statement of Objections issued
by the OFT in July 2009. In the case of the
tobacco inquiry which started in early 2003,
there is a complex legal question as to whether
well established industry practices represented
a breach of competition law. It is likely that this
can only be settled clearly through a formal
judicial process, although the OFT have
indicated an intention to reach their own
conclusion in the first quarter of 2010.
Operating results
Total turnover grew by 6% in the year with
in-store sales increasing by 9%, reflecting strong
like-for-like growth and the benefit of our
investment in new space. Oil prices were lower
than in the previous year and we maintained our
competitive position. As oil prices began to fall
so too did prices at the pump and this was
reflected in a fall of 6% in fuel sales.
Our gross profit grew ahead of turnover growth,
in part reflecting a reduction of low margin
fuel sales in the mix. The gross profit margin of
6.9% increased by 60 basis points (bps) which
we estimate was 30bps higher than it would have
been had the proportion of fuel sales in the mix
remained at the same level as the previous year.
We have continued to make good progress
in delivering further supply chain benefits
as our business expands as well as driving
further outperformance from our gross
margin Optimisation Plan initiatives.
%
increase
Basket size (total average)
has increased 2.4% in the year.
Operating results
Summary income statement
Turnover
Gross profit
Other operating income
Administrative expenses3
Underlying Operating profit
Pensions credit
Property transactions
Operating profit
Net finance charges
Taxation
Profit for the period
3
Wm Morrison Supermarkets PLC
2010
£m
2009
£m
Change
%
15,410
14,528
6
1,062
913
16
37
(281)
669
–
2
671
(16)
(195)
460
76
(12)
21
–
100
35
(205)
(33)
30
65
(315)
812
91
4
907
(49)
(260)
598
Excluding pensions credit
Annual report and financial statements 2010
21
50% of British households say they throw
away food because they’ve cooked too much.
‘Great Taste Less Waste’ aims to help
customers get more meals for their money
by reducing waste and making the most
of fresh food.
Organising weekly menus
and store cupboard essentials.
In-store advice on meat
and fish, and on portion size.
Great recipe ideas.
Storing food at home so it stays
fresher for longer; Best Kept
labelling on fruit and vegetables.
How to turn leftovers into tasty
new meals.
New technology
New voice-picking technology has been rolled
out across our grocery warehouses, increasing
depot productivity and pick accuracy, and hence
improving in-store availability.
After cost of goods sold the Group’s two biggest
costs are store wages and distribution costs. The
significant increase in new store space opened
during the year and the higher proportion of
smaller stores in that mix, impacted our store
labour costs performance. However, we
continued to deliver further in store labour
efficiencies through Optimisation Plan initiatives,
such as self-scan checkouts and queue
management and these helped to deliver an
overall year-on-year improvement in store labour
costs relative to sales. Our distribution costs,
measured on a cost per case basis, fell by 2% as
we benefited from our investment in improved
systems such as voice-picking in our warehouses
and from a network rebalance following the
opening of our new South East Regional
Distribution Centre.
Other Operating income increased by 76%
reflecting improved income from our investment
properties and miscellaneous sales.
Our Administration expenses3 were up 12%,
well below the level of profit growth in the
past. This was in part due to increased
investment in marketing in support of our
significant sales growth albeit that we were
able to take advantage of lower advertising
rates available. We incurred additional costs
as the Group’s Long Term Incentive Plan
programme was extended for a third year.
Optimisation Plan
Our Optimisation Plan, first launched in 2006,
concluded in January 2010, with all major
milestones achieved or exceeded. In total,
sustainable annual EBITDA improvements of
£526m have been delivered through the various
initiatives contained in the Plan.
During the year, our continuing work on store
ranging and segmentation delivered good
benefits, with all our major categories showing
solid growth. We believe our management of the
economics of promotions to be industry leading.
As part of our commitment to continuous quality
improvement and innovation we introduced
some 3,000 new fresh and core grocery
products. Additionally, our in-store efficiency
benefited from the industry leading queue
management self-scan checkout systems,
which we began rolling out in 2008.
The Optimisation Plan included significant
investment in infrastructure, and a key milestone
was the opening, three months early, of our
new Regional Distribution Centre (RDC) at
Sittingbourne in Kent. The 900,000 square foot
site services 65 stores in the South East, eases
capacity issues created by our rapid growth in
recent years and reduces the distance travelled in
servicing these stores by around 22m kilometres
annually. We have now submitted a planning
application for a new RDC in the South West,
at Bridgwater, which will provide further capacity
when needed in 2011/12 to support our National
to Nationwide expansion.
The roll-out of voice-picking technology across
all our grocery warehouses has been completed
and has proved particularly successful in
increasing depot productivity and pick accuracy,
and hence improving in-store availability.
Replacement of our systems
The Optimisation Plan included the first phase
(£110m) of a major programme of systems
renewal, which will continue for a number of
years. The programme will see the replacement
of all the Group’s core systems, including store
based point of sale, warehousing, manufacturing,
supply chain, product management, HR, payroll
and financial systems. The primary technology
is being provided by Oracle, the store based
systems by Retailix and systems integration
is being undertaken by Wipro.
3,000
new fresh and core grocery products in 2009.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Performance review 18 —— 25
‘Great Taste Less Waste’
22
Operating review – continued
Our farmers mean
a great deal
We launched a Farm Programme focused
on research to help improve the efficiency
and sustainability of British Farming.
Our research farm is a ground-breaking
joint venture to establish a 700-acre farm
on the Dumfries House Estate in East
Ayrshire. Morrisons Farm at Dumfries
House will work in a new partnership
with the Scottish Agricultural College,
to become one of the leading centres of
excellence for applied farming research.
Much of the work in 2009 related to systems
design and development activity, but we also
began implementation in a number of areas.
We successfully delivered the first phase of our
new financial systems, continued the roll-out
of new HR and payroll processes (now covering
82% of our employees) and implemented
voice-picking into our distribution centres
as mentioned above. This is already having a
positive impact on the efficiency of our order
fulfilment process. We have also installed
self-scan checkout units in around 75% of
our estate, implemented sophisticated queue
management software into the majority of our
stores and begun a pilot of our new Electronic
Point of Sale (EPOS) system in-store, which will
provide a common platform replacing the five
separate systems we currently operate.
The programme will continue at high levels
of activity until 2013. In the year ahead,
we plan to roll-out the new EPOS system to all
stores, to implement new manufacturing systems
into our packing houses and to begin the
roll-out of the warehouse management system.
Additionally, we will begin to populate the new
product master file which will, in due course,
replace our legacy system.
The next phase of the programme is expected
to involve further investment of £200m over the
three years to 2013. The Board recognises the
strategic importance of this activity, and has
established a separate committee to provide
appropriate oversight. Additionally, independent
programme assurance is provided by KPMG.
Corporate social Responsibility
We continued to work hard on our CSR
programme which is a key focus of our
management agenda. We have made great
progress in meeting the challenging targets
Retail industry Award
Retailer of the year 2009
For the second consecutive year.
we set out when the programme was launched
three years ago. Carbon emissions have been
cumulatively reduced by more than 830,000
tonnes since 2006, 56% better than we planned.
We have also reduced the amount of waste sent
to landfill by 34% over the period. Over 17,000
tonnes of packaging has been saved.
Our commitment to helping cut food waste
saw the launch during the year of a major new
initiative called ‘Great Taste Less Waste’, which
gives practical tips on how to store food more
effectively. Key elements of the programme
include ‘Best Kept’ stickers on packs giving
storage advice and recipe ideas on how to
make the most of leftovers.
During the year, we again issued free reusable
bags to our customers, and as a result of this
and other initiatives we reduced carrier bag
consumption by 126m bags. We also completed
the conversion of our filling station pumps to
highly efficient vapour recovery pumps which
emit much reduced levels of fuel vapour into the
atmosphere; a £16m investment in improved
environmental performance.
As the ‘food specialist for everyone’, Morrisons
understands where food comes from. To build
further on our food specialist credentials, we
have launched a ground-breaking joint venture
to farm 700 acres on the Dumfries House Estate
in East Ayrshire. The Morrisons Farm aims to
become a leading centre of excellence for farming
research, working in a new partnership with the
Scottish Agricultural College to drive research
into sustainable and commercial farming models
and share best practice throughout the industry.
‘let’s gROw’...
Today
Following the success of ‘Let’s Grow’
in 2008, the scheme was repeated in
2009. Vouchers earned in-store are
redeemed by participating schools
for gardening kit. ‘Let’s Grow’ ties
into the National Curriculum and also
supports the Government’s ‘Growing
Schools’ initiative.
Visit www.morrisons.co.uk/today
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
23
Financial review
Morrisons financial performance for 2009/10
was strong once again despite the current
challenging economic environment.
in this section
Prudent financial approach
We will continue to pursue a prudent
approach to financial management
which is based on four key principles:
Investment in new and acquired stores and infrastructure
stepped up in the year, funded by strong cash flows,
secure financing and a robust balance sheet.
•We will maintain a strong investment
grade balance sheet;
•Operational control of our stores
is fundamental to us;
•Our defined benefit pension schemes’
assets and liabilities are effectively
part of our balance sheet, and will be
managed as such.
Solid shareholder investment
Shareholder returns greater than market,
sector and FTSE 100.
Strong balance sheet
+53%
share price
Capital expenditure
Expenditure on acquisition of 38
Co-operative stores, 11 new stores
and Optimisation Plan investment.
Despite net debt increasing £282m to £924m,
gearing remains well below the sector average
at 19%. At the year end we had undrawn
committed bank facilities of £650m.
From January 2006 to January 2010,
Morrisons share price increased 53%,
compared to a fall in the FTSE 100 of 10%.
Financial strategy
The Group’s financial strategy has been to deliver strongly improved profit margins, whilst positioning the Group for long term growth.
The underlying principles behind this strategy are:
Sales growth that exceeds the market
Earnings that meet the expectations
of shareholders
Maintaining a strong balance sheet
whilst retaining prudent principles
We are meeting these principles by:
Increasing our customer appeal
and growing sales organically
Converting sales growth into
profitable growth
Retaining our prudent principles
and targeting investments to yield
an appropriate rate of return
Underlying basic earnings
per share
(Pence p)
Assumptions and judgements used
in the valuation of the Group’s
balance sheet build on our strong
financial position:
• 89% of our estate is freehold
• we use prudent assumptions
to value our defined benefit
pension schemes
• our long term financing
facilities will adequately cover
our planned investments
How we are doing?:
Like-for-like sales growth in excess
of the market
(Percentage %)
2010
+2.3
2010
2009
+2.3
2009
2008
2007
+1.1
+1.2
Source: Nielsen
www.morrisons.co.uk/annualreport10
20.5
16.7
2008
2007
14.4
8.3
Underlying basic earnings per share
has increased 23%
Annual report and financial statements 2010
Performance review 18 —— 25
•We are a prudent organisation and we
structure our finances accordingly; and
24
Financial review – continued
Turnover and operating profit
Turnover for 2009/10 was £15,410m (2008/09:
£14,528m) and operating profit was £907m, an
increase of £236m from last year.
Summary cash flow
2010
£m
Cash generated from
operations
The Operating review as shown on page 18
Interest and tax
contains further information on our turnover
Capital expenditure
increase and includes an analysis of like-for-like
and new store turnover, sales densities and
Proceeds from sale
customer numbers. Operating margins and
of property, plant
operating profit are also discussed. Operating
& equipment
profit includes £32m one-off costs related
Dividends paid
to the acquisition of 38 stores from the
Financing activities
Co-operative Group.
Share issues and
buyback
Underlying earnings
Long term cash on
2010
2008/09
deposit movement
Operating profit
£907m
£671m
Net cash
Underlying earnings
(outflow)/inflow
before tax
£767m
£636m
The Group uses Underlying earnings as its
measure to assess normal underlying business
performance and trends. Earnings are adjusted
to remove volatile or one-off costs and credits.
A reconciliation of Underlying earnings is provided
in note 1 of the Group financial statements.
Our Underlying earnings have, in previous years,
adjusted Operating profit for net pension
interest and profits arising on the sale of
properties. This year we have further adjusted
for a one-off pensions credit of £91m. This is
discussed in the pension section.
The increase in Underlying earnings is discussed
in the Operating review on page 18.
Earnings per share
Basic earnings per share increased from 17.4p
to 22.8p.
Underlying earnings per share provides a more
consistent measure of EPS as earnings are
adjusted to remove volatile and one-off costs.
Underlying earnings per share increased to 20.5p
from 16.7p last year. The growth in underlying
EPS is primarily from the increase in underlying
profit as described above as there were no
significant changes in the number of issued
shares or tax rate effects.
1,004
(261)
(906)
7
(159)
199
Capital expenditure
Cash outflows from capital expenditure increased
2009
£m by £228m to £906m. As expected, expenditure
on stores increased significantly with the
964 purchase of the Co-operative/Somerfield stores
at the beginning of the year. The total investment
(145) in these stores was £325m, with an initial capital
(678) purchase of £223m and £102m of refurbishment
and fit-out costs. In addition we opened
11 new stores and extended a further 13.
22 We also invested £100m in IT infrastructure
of which £57m related to our systems renewals
(131)
programme. £48m was spent completing our
246 new regional distribution centre at Sittingbourne.
34
(143) Financing
The Group is securely financed with a £1.1bn
–
74 revolving credit facility (RCF) and £759m of
long term bonds. At the year end £450m of
RCF was utilised allowing significant headroom
(82)
209 for investments and the forthcoming bonds
repayment. The facility is not due to mature
Net debt
924
642 until September 2012. €250m bonds are due
to mature in April 2010 and will be repaid
Cash generated from operations
using the existing credit facility.
Cash from operating activities increased by £40m
reflecting the overall growth in profits offset by
Interest cover
increases in working capital. Stocks increased in
As anticipated, interest cover fell as a result of
the year by £83m as a result of the high number
the increase in average net debt and the very low
of store openings and the stocking of the new
levels of interest received on money on deposit.
regional distribution centre at Sittingbourne.
In addition, the net pension interest income
Working capital management remains strong
reduced by £21m all of which resulted in interest
with yearly average stock turnover at 22 times
cover reducing to 19 times from 42 times in
(2008/09: 24 times).
2008/09.
Interest & tax
Interest
Net interest paid increased by £11m year-onyear. Low interest rates throughout the year on
borrowings reduced our interest paid, but this
was offset by the reduction in interest received.
In addition, interest received reduced further due
to a lower than average cash on deposit balance
through the year. With no movement on the total
bonds, the amount of bond interest paid of £45m
is the same as the prior year. The repayment of a
Euro bond due in April 2010 will see a reduction
in bond interest payable of £9m in 2010/11.
Pension
Tax
Corporation tax paid in the year was £209m
(2008/09: £104m). This cash outflow
represented 50% of the total tax bill for the year
to 1 February 2009, and 50% of the expected tax
charge for the year to 31 January 2010, as well as
repayments received for prior years.
We continue to calculate the Group’s defined
benefit pension obligations on a prudent basis,
consistent with prior years, and update
assumptions for market fluctuations.
Pension deficit bridge
Net pension deficit at 1 February 2009
Actual vs expected return on
scheme assets
Actuarial loss due to changes
in financial assumptions
Pensions credit
Funding above annual service cost
Other
Net pension deficit at 31 January 2010
£m
(49)
245
(316)
91
16
(4)
(17)
The net pension deficit has decreased by £32m
as outlined in the table above. The improving
stability in the markets in recent months has
The effective tax rate for the year was 30% which provided a better than expected return on assets
is 2% above the prevailing corporation tax rate
and required us to slightly reduce the discount
of 28%. The higher rate is primarily as a result
factor applied to the liabilities.
of non-qualifying depreciation, and expenses
for which the Group is unable to obtain a tax
Following consultation with members of the
deduction. The principal objective of the
schemes and approval by the Board and Trustees,
in-house tax department continues to be to pay
the Group became committed to the final
the appropriate level of tax at the right time.
proposals from the Pension Review on 2 July
2009. The move from a final salary basis to
We actively engage with the UK tax authorities
career average earnings (CARE) represents
and aim to be transparent in all our activities.
an accounting curtailment of certain pension
The Group is predominantly UK-based, operates
liabilities. In accordance with IAS 19 Employee
a simple business model, and does not engage
Benefits, the defined pension schemes’
in sophisticated tax planning structures.
obligations were revalued by the schemes’
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
25
Net debt
Net debt increased by £282m in the year to
£924m from £642m in 2008/09. The anticipated
increase was primarily from capital expenditure
on the Optimisation Plan which has increased
significantly from previous years reflecting the
costs of purchasing and refitting the Cooperative stores.
20
10
20
09
20
08
20
07
Gearing
1000
25.0%
900
800
20.0%
700
2010
2.5
2009
2.9
2008
600
£
The 2010 triennial valuation is underway and
will be completed later in the year. The
reassessment of the liabilities and assumptions
will be incorporated in the financial statements
from our year ended January 2011 onwards.
Dividend cover
(Times)
Net debt
3.0
15.0%
2007
500
10.0%
400
300
5.0%
200
100
0.0%
0
Returns to shareholders
Progressive dividend growth
The final dividend proposed is 7.1 pence
per share, an increase of 2.1 pence from last
year. This brings the total dividend for the
Gearing
year to 8.2 pence per share, making dividend
Our gearing ratio is well below the sector average cover 2.5 times.
at 19% (2009:14%) demonstrating the strength
in our balance sheet and cash efficiency given the Since 2008, our policy has been to grow the
increased level of operating and investing activity dividend over and above underlying earnings
throughout the year.
growth to bring dividend cover in line with the
sector average, which is around 2.5 times.
Our credit rating has been upgraded by
Payment of the final dividend will bring us in
Moody’s for the second successive year to A3.
line with this policy.
We are one of only three retailers in Europe
to have this rating.
Total shareholder return & share price
The company’s share price has risen to 289.1p
on 31 January 2010, an increase of 7% from
the start of the year.
2.1
Our final dividend proposal makes dividend
cover consistent with our policy to be in line
with the European grocery retail average,
which is around 2.5 times.
Strong investment grade rating
The Group’s credit rating was upgraded
by Moody’s for the second consecutive
year to A3, making us one of only three
European retailers to hold this grade.
Since 30 January 2006, the Company’s
share price has risen 53% compared with
a fall of 10% in the FTSE 100 index.
Optimisation Plan
The Optimisation Plan established in 2006 concluded successfully. The plan contained a series of programmes designed to bring profit back in line with
sector standards following the integration of Safeway and to make investments to shape the business for growth.
Savings**
Gross margin
In-store
Manufacturing
Distribution
Centre/IT
Better buying, sales mix and wastage control
Realising efficiencies
Managing capacity
Rationalisation
Elimination of dual running costs
Total savings
Total
planned
£m
Total
completed
£m
210
140
15
55
40
460
240
149
15
79
43
526
Investment
Total
planned
£m
–
Store refresh programme
New abattoir/packhouse
New capacity in the South
New systems across the business
–
180
70
90
110
450
Total
completed
£m
–
188
45
111
91*
435
* Capital expenditure on new IT systems has reached £91m of the expected £110m with the balance of £19m due to be completed in the first half of 2010/11. In addition, we anticipate an investment
of £200m over the next 3 years. This will bring the total value of IT expenditure on enterprise systems to £310m over 6 years from inception in 2007, close to an average annual expenditure on IT for a
group of Morrisons size and complexity.
**Contributions to EBITDA.
Key judgements & assumptions
Judgements and assumptions made in the financial statements are continually reviewed. Whilst some outcomes have been affected by the volatility in
the financial markets, all judgements and assumptions in the accounting policies remain consistent with previous years. Consideration of impairment to
the carrying values of assets has been made and we concluded that the individual carrying values of stores and other operating assets are supportable
either by value in use or market values. The impact of the current economic conditions on the assessment of going concern has been considered in the
general information section of the Directors’ report.
Provisions
Property provisions decreased by £12m from £112m last year (note 22 of the Group financial statements). The decrease is primarily a release in the
onerous lease provision. The release was for a store we have re-opened as it fits well with our new smaller stores format and for a number of tenants’
lease breakpoints being passed resulting in a continuing commitment from the tenant to continue the leases. A small charge has been made in the year
as a result of the difficult conditions in the property market.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Performance review 18 —— 25
actuaries immediately prior to the change and
assumptions reviewed at that date. The change
resulted in a pensions credit of £91m which is
presented separately in the Consolidated
statement of comprehensive income.
26
Board of Directors
1. Sir Ian Gibson
Chairman
Sir Ian Gibson (aged 63) joined the Group as
Non-Executive Deputy Chairman in September
2007. He was appointed Chairman, following the
retirement of Sir Ken Morrison, in March 2008.
He is also Non-Executive Chairman of Trinity
Mirror plc. Previous Board appointments include
Chairman of BPB PLC, Deputy Chairman of Asda
Group PLC, and a Director of Chelys Limited,
GKN PLC, Greggs Plc and Northern Rock Plc.
He is also a former member of the Court of the
Bank of England. Sir Ian enjoyed a distinguished
30-year career in the motor industry, most
recently as President of Nissan Europe.
Executive Directors
Dalton Philips
Chief Executive
We welcome Dalton Philips (aged 41) who joins
us as Chief Executive from 29 March 2010.
2. Mark Gunter
Group Retail Director
Mark Gunter (aged 51) joined the Group in 1986
as a Store General Manager. In 1993, he was
appointed Regional Director and subsequently
Stores Director in 1999. He was appointed
to the Board of the Group in 2000 as Group
Store Operations Director with additional
responsibility for retail operations, retail fuel,
retail projects and Company-wide security. Prior
to joining Morrisons, he gained wide experience
in UK food retailing, which included working at
Iceland, Fine Fare, Tesco, Argyll Foods and Asda.
3. Martyn Jones
Group Trading Director
Martyn Jones (aged 51) joined the Group in
1990 after gaining wide buying, marketing and
product development experience in fresh and
frozen foods. After eight years with J Sainsbury,
he moved into manufacturing with RHM and
Campbells before joining Morrisons. Starting
as Trading Manager for frozen foods, he was
promoted to Trading Operations Director
in 1993. He was appointed Grocery Director
in 1997 and then Senior Trading Director
in 2002. He was appointed to the Board
as Group Trading Director in March 2007.
He is also a member of the Corporate
Compliance and Responsibility Committee.
Wm Morrison Supermarkets plc
4. Richard Pennycook
Group Finance Director
Richard Pennycook (aged 46) joined the Board
as Group Finance Director in October 2005.
Prior to that, he was the Group Finance Director
of RAC Plc, the quoted specialist motoring and
vehicle management company. Previous senior
roles include Group Finance Director of
HP Bulmer Holdings PLC, Laura Ashley Plc
and JD Wetherspoon plc and Chief Executive
of Welcome Break Holdings plc. He is also
a Non-Executive Director of Persimmon Plc.
Non-Executive Directors
5. Philip Cox
Philip Cox (aged 58) joined the Group as a
Non-Executive Director in April 2009. He is a
member of the Audit Committee and became
its Chair in September 2009. He is also Chief
Executive Officer of International Power plc,
a position that he has held since 2003, when
he was promoted from his previous role of Chief
Financial Officer (2000–2003). He is a member
of the President’s Committee of the CBI. He was
a Non-Executive Director at Wincanton Plc
from 2001 to 2009, having chaired their Audit
Committee from 2001 to 2008 and was Chair of
their Remuneration Committee from 2008. His
previous board position was as Chief Financial
Officer at Siebe Plc.
6. Brian Flanagan
Brian Flanagan (aged 57) was appointed to
the Board as a Non-Executive Director in July
2005. He is a member of the Audit, Nomination
and Remuneration Committees. He is also a
Non-Executive Director of The Financial Services
Authority and is an adviser to Jet Environmental
Systems. Previously, he worked for the Mars
Corporation for 26 years and possesses broad
international business experience. He has
held senior management positions in finance,
information systems, manufacturing, purchasing
and was, most recently, the global Vice President
of Business Transformation for Mars Inc.
7. Penny Hughes
Penny Hughes (aged 50) joined the Group
as a Non-Executive Director in January 2010.
She is currently a Non-Executive Director of
Cable & Wireless Plc and Home Retail Group plc,
the president of the Advertising Association
and a trustee of the British Museum and she has
recently accepted a Non-Executive Directorship
of Royal Bank of Scotland. Her previous experience
includes 10 years with Coca-Cola ultimately
as president of Coca-Cola GB & Ireland and
various non-executive roles including Body
Shop International plc, GAP Inc, Reuters plc,
Skandinaviska Enskilda Banken, Trinity Mirror
plc and Vodafone plc.
8. Paul Manduca
Senior Independent Director
Paul Manduca (aged 58) was appointed as a
Non-Executive Director in September 2005.
He is a member of the Nomination and
Remuneration Committees and became the
Chair of the Remuneration Committee from
September 2009. He is also Chairman of Aon
(UK) Limited and Henderson Diversified Income
plc, and a Non-Executive Director of
Development Securities PLC, JPMF European
Fledgling Investment Trust Plc, JSC KazMunaiGas
Exploration Production Plc, as well as other
companies. He was the Chairman of Bridgewell
Group plc until August 2007, when it was sold
to Landsbanki Securities (UK) Ltd. Prior to that,
he was the Global CEO of Rothschild Asset
Management Limited and CEO of Deutsche
Asset Management Europe.
9. Nigel Robertson
Nigel Robertson (aged 50) joined the Group
as a Non-Executive Director in July 2005.
He is a member of the Audit, Nomination and
Remuneration Committees, and became Chair
of the Corporate Compliance and Responsibility
Committee in September 2009. Working in the
private equity sector, he is the Group Chief
Executive of Covenant Healthcare Ltd. Until
the business was sold in 2007 he was the Chief
Executive Officer of Chelsea Stores Holdings
Ltd and he was previously the Managing Director
of Ocado, the online grocery shopping business
set up in partnership with Waitrose. Prior to
this he held senior positions in Marks and
Spencer Group PLC both in the UK and USA.
10. Johanna Waterous
Johanna Waterous (aged 52) joined the Group
as a Non-Executive Director in February 2010.
She is currently a Non-Executive Director of RSA
Group Plc and Sandpiper CI, as well as being an
Operating Partner of Global Leisure Partners.
Her previous experience includes 22 years with
McKinsey & Co, London, ultimately as Co-Leader
of the firm’s Global Marketing and Sales Practice.
She is a Non-Executive Director of the Kew
Foundation, the Chair of Royal Horticultural
Society Enterprises and a Trustee of English
National Opera. Between 1998 and 2006,
she was Chairman of Tate Enterprises.
Morrisons Annual report and accounts 2010
27
2
3
4
5
6
7
8
9
10
www.morrisons.co.uk/annualreport10
Governance 26 —— 42
1
28
Corporate governance report
IN THIS SECTION
28 Combined code
28 The Board
28 Membership
28Performance evaluation
and training
29 Senior Independent Director
29 Non-Executive Directors
29 Board responsibilities
29 Executive Board
29 Committees of the Board
30 Nomination Committee
30 Remuneration Committee
30 Audit Committee
31Corporate Compliance and
Responsibility Committee
31 Shareholder relations
31UK Corporate governance code
Combined code
The Board has prepared this report with
reference to the UK Combined Code of Corporate
Governance issued by the Financial Reporting
Council as revised in June 2008.
In light of recent Board changes the process for
the external review of the performance of the
Board, which had been scheduled for the early
part of 2010, has been postponed and will now
take place in the second half of the current
financial year. In the meantime, however, a
During the year the Group has developed, and
review process has been commissioned as to the
the Board has approved, a Corporate Governance effectiveness of the individual board committees,
Compliance Statement which sets out how the
and of their members, which will take place
Group complies with each of the provisions of the during the first half of the current financial year.
Combined Code. That document also sets out the That committee review will be conducted by an
statement of the division of responsibilities
external agency and the results and any major
between the Chairman and the Chief Executive
findings of that process will be considered and,
Officer, the list of matters reserved to the Board, as appropriate, acted upon in the second half of
the membership of the Board and of the various
the financial year.
Board Committees together with the terms
of reference of the various standing Board
A full external review of the Board, the standing
Committees. This document is available in the
Board Committees and the individual Directors
Investor relations section of the Group’s website, will be carried out before the end of the 2011/12
www.morrisons.co.uk/corporate
financial year and any major findings will be
reported upon in the Corporate governance
The Board
report for the period ending in January 2012.
a) Membership
On 31 January 2010, the Board comprised
The Board is satisfied that, in the light of changed
a Non-Executive Chairman, four Executive
circumstances that exist at the time of the
Directors and five Non-Executive Directors.
publication of this report, the arrangements
for review and appraisal of the performance
There is a clear division of responsibilities
of the Board, its Committees and individual
between the Non-Executive Chairman and
Directors are appropriate. The Board is
the Chief Executive (CEO), which has been
also confident that the initiatives it has
set out in writing and agreed by the Board.
commenced will enable the Group to satisfy any
recommendations of the revised Combined Code
Marc Bolland resigned from the Board on
(the UK Corporate Governance Code) in relation
1 February 2010. Dalton Philips joined the Board to Board evaluation which it is understood will
on 29 March 2010. On 31 December 2009,
come into force during the current financial year.
Susan Murray retired as a Non-Executive
Director. On 1 January 2010 and 1 February
During the course of the 2009/10 financial
2010 respectively, Penny Hughes and Johanna
year, the Group has put in place a series of
Waterous joined the Group as Non-Executive
Board training sessions, presented by the
Directors. Throughout the period, the majority
Group’s external financial advisers on various
of the Board consisted of independent Nonkey issues of importance to the Group. This
Executive Directors. Details of appointments,
training was designed to address matters of
roles and backgrounds of the Directors are set
specific relevance to the Group and covered
out on page 26.
a range of topics including:
b) Performance evaluation and training
The performance of the Board, its committees
and its Directors are assessed and appraised
regularly. The Chairman is responsible for
monitoring the performance of the Chief
Executive, who in turn is responsible
for monitoring the performance of the
Executive Directors.
• Listing rules obligations;
• developments in corporate governance
practices and policies; and
• Directors’ duties.
The training programme now established is
intended to be refreshed and updated so that
regular updates are provided to the Board on
key governance , corporate practice and legal/
accounting issues.
Throughout the financial year 2009/10 the Group has complied with the provisions set out in
Section 1 of the Combined Code and applied its principles, as reported below in this Corporate
governance report, except in the following area:
Wm Morrison Supermarkets PLC
Combined Code provision
Status
Explanation
C.3.1
At least one member of the audit
committee has recent relevant
financial experience.
The Audit Committee did not have a
member with recent relevant financial
experience for the whole year.
Philip Cox was appointed as chair
of the Audit Committee on 4 June
2009. He has recent and relevant
financial experience.
Annual report and financial statements 2010
29
c) Senior Independent Director
Paul Manduca, the Senior Independent
Director (SID), is available to shareholders
as an alternative to the Chairman, CEO and
the Group Finance Director. The SID ensures
that he is available to meet shareholders
during the year and reports any relevant
findings to the Board or Chairman.
Executive Board
The Board delegates day-to-day operational responsibility to the Executive Board. The CEO,
Group Finance Director, Group Retail Director, and Group Trading Director are all members
of the Executive Board.
d) Non-Executive Directors
The Non-Executive Directors provide a varied
range of skills and experience to the Group.
The Board is satisfied that all Non-Executive
Directors, including the Non-Executive
Chairman, remain independent according to
the definition contained in the Combined Code.
No Non-Executive Director:
During the year, the membership of those Committees was:
• has had a material business relationship with
the Group within the last three years;
• receives remuneration other than
Director’s fees;
• has close family ties with any of the Group’s
advisers, Directors or senior employees;
Committee membership
Name
Nomination
Marc Bolland
Brian Flanagan
Sir Ian Gibson
Paul Manduca
Nigel Robertson
Philip Cox
Susan Murray
Martyn Jones
•
•
•*
•
•
•
Remuneration
Audit
CCR
•
•
•
•*
•
•
•
•
•
•
•
•*
•
•*
•
* Chair of the Committee
The Directors attended the following number of Board and Committee meetings:
Number of meetings
Board
Nomination
Remuneration
Audit
CCR
Marc Bolland
12/14
4/9
1/1
Philip Cox
10/12
1/1
4/4
• holds cross-directorships or has significant links
Brian Flanagan
12/14
9/9
9/13
5/6
with other directors through involvement in
Sir Ian Gibson
14/14
9/9
12/13
1/1
other companies or bodies;
Mark Gunter
14/14
• represents a significant shareholder; or
Penny Hughes
1/2
Martyn Jones
14/14
1/1
• has served on the Board for more than
Paul Manduca
12/14
9/9
11/13
4/4
nine years.
Susan Murray
12/14
5/5
8/8
5/5
All Non-Executive Directors are provided with
Richard Pennycook
14/14
a comprehensive, formal and tailored induction
Nigel Robertson
13/14
9/9
13/13
6/6
1/1
to the business. The minimum time commitment
expected of the Non-Executive Directors is one
The Company Secretary organises the appropriate level of insurance cover for Directors to defend
day per month attendance at meetings, together themselves against legal claims and civil actions. The level of cover is currently £60m in aggregate.
with attendance at the Annual General Meeting,
Board away days and site visits, plus adequate
Full terms of reference of the Committees are available on request and in the Corporate
preparation time. The Board is satisfied that
Governance Compliance Statement set out in the Investor Relations section of the Group’s website
each of the Non-Executive Directors commits
www.morrisons.co.uk/corporate
sufficient time to the business of the Group
and contributes to the governance and
operations of the Group.
e) Board responsibilities
The Board is responsible for setting and
approving the strategy and key policies of the
Group, and for monitoring the progress towards
achieving these objectives. It monitors financial
performance, critical operational issues and
risks. The Board also approves all circulars, listing
particulars, resolutions and correspondence
to shareholders including the Annual report,
half yearly financial report and interim
management statements.
The formal schedule of matters reserved for
the Board remains unaltered and further details
are available in the Corporate Governance
Compliance Statement set out in the ‘Investor
Relations’ section of the Group’s website
www.morrisons.co.uk/corporate
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Governance 26 —— 42
• has previously been employed by the Group
within the last five years;
Committees of the Board
The principal committees of the Board are the Audit, Remuneration, Nomination and Corporate
Compliance and Responsibility (CCR) Committees.
30
Corporate governance report – continued
a) Nomination Committee
During the year the activities of the Committee
were focused on recruiting two Non-Executive
Directors and a new Chief Executive Officer.
c) Audit Committee
The Board has delegated to the Audit Committee
the responsibility for reviewing on its behalf and
making recommendations to the Board as to:
The Committee engaged an executive search
agency, MWM Consulting, to identify candidates
who were then interviewed by members of the
Committee. Meetings also took place with other
Executive Directors as appropriate. Following
this process, the Nomination Committee
recommended the appointments of Penny
Hughes and Johanna Waterous to the Main Board.
• the integrity of financial reports;
The Committee also engaged MWM Consulting
to assist in the process of identification of
external candidates for the position of CEO
who were then interviewed by members of the
Committee. The Committee considered both
internal and external candidates and internal
presentations and interviews were also
conducted. That process culminated in the
appointment of Dalton Philips as CEO
announced on 27 January 2010.
b) Remuneration Committee
The objective of the Group’s remuneration
policy is to encourage a strong performance
culture and emphasise long term shareholder
value creation. The intention is to position
remuneration arrangements competitively
against the market, with a clear reward structure
to enable the Group to attract, retain and
motivate the best talent who are key to the
Group’s recent and future success.
The Human Resources Director has advised
the Group on all remuneration related matters,
including pensions and Executive Directors
contracts. Where necessary this advice was
supplemented by external advisers.
The committee also receives advice from its
appointed advisers Hewitt New Bridge Street
on remuneration matters, Pension Capital
Strategies Limited (a member of the Jardine
Lloyd Thompson Group) in respect of pensions,
and Ashurst LLP in respect of Executive
Directors’ contracts.
Wm Morrison Supermarkets PLC
• the effectiveness of the Group’s internal
control and risk management system; and
The Audit Committee oversees the Group’s
relationship with the external auditors. Private
meetings are held with the external auditors,
without management present. The purpose of
these meetings is to understand their views on
the control and governance environment and
management’s effectiveness within it. To fulfil
its responsibilities in respect of the independence
and effectiveness of the external auditors,
the Committee reviewed:
• the independence of the external auditors.
The Audit Committee’s responsibilities have
not changed during the year.
The Audit Committee regularly considers the
professional development needs of its members,
and whether adequate technical information is
being provided. Where necessary, it will seek
independent external advice at the Group’s
expense, with such arrangements made through
the Company Secretary.
The Audit Committee is chaired by Philip Cox
who has the requisite recent and relevant
financial experience. The Chairman, the CEO,
the Group Finance Director, the Head of Risk
and Internal Audit and other finance
department representatives have attended
meetings by invitation.
(i)Overview of actions taken by the Audit
Committee in discharging its duties
The Committee has received and reviewed
reports and presentations from senior
management to fulfil its terms of reference.
To meet its responsibilities in this respect,
the Committee considered:
• interim and preliminary announcements,
together with any other formal announcements
relating to financial performance;
• the accounting principles, policies and
procedures adopted in the Group’s financial
statements, including, where necessary,
challenging the judgements made; and
• the potential effects of tax and pensions
accounting and other significant judgemental
and complex accounting issues dealt with
in the accounts.
• the terms, areas of responsibility, duties and
scope of work of the external auditors as set
out in the engagement letter;
• the external auditors’ work plan for the Group;
• the detailed findings of the audit, including a
discussion of any major issues that arose during
the audit;
• the letter from KPMG Audit Plc confirming
its independence and objectivity; and
• the audit fee and the extent of non-audit
services provided by the external auditors.
In this period the external auditors have
continued to provide a significant level of
non-audit work, primarily to provide the Board
with independent assurance in respect of IT
systems replacement. The Board believes that
this activity is a reasonable extension of their
statutory audit work and that there are
safeguards in place to avoid a threat to their
independence or objectivity. The Board has
a policy on the engagement of the external
auditors to supply non-audit services and the
Committee has reviewed the scope of
non-audit services provided by the external
auditors to ensure that there was no impairment
of objectivity.
KPMG also follows its own ethical guidelines and
continually reviews its audit team to ensure that
its independence is not compromised.
(ii)Internal control
The Board is responsible for setting a system
of internal controls for the Group and reviewing
its effectiveness. Executive management is
responsible for implementing and maintaining
the system of controls. This system is intended
to manage rather than eliminate the risk of not
meeting the Group’s strategic objectives,
whilst recognising that certain inherent risks
may be outside the Group’s control. The Board
recognises that any system of internal control
can only seek to provide reasonable, not
absolute, assurance against material
misstatement or loss.
Annual report and financial statements 2010
31
The Board delegates to the Audit Committee
the review of the effectiveness of the Group’s
internal controls and risk management systems.
During the year, the Committee discharged this
responsibility by:
The Committee’s remit does not cover
operational matters but it performs an oversight,
monitoring and advisory role in relation to
these key areas in the Company’s governance
and development.
• receiving and considering regular reports from
the internal audit function on the status of
internal control and risk management systems
across the Group. The Committee also
reviewed the department’s findings, annual
plan and the resources available to it to perform
its work;
The Committee, which reports to the Board,
was set up and met once during the financial year
and, as well as agreeing its terms of reference,
it received presentations on the Group’s CSR,
health and safety and competition compliance
policies and procedures.
• seeking reports from senior management on
the effectiveness of the management of key
risk areas; and
• monitoring the adequacy and timeliness
of management’s response to identified
audit issues.
The Audit Committee receives regular reports
from the Head of Risk and Internal Audit on any
whistle blowing activity in respect of concerns
expressed by colleagues about possible
malpractice or wrongdoing. Whilst there were
no significant concerns raised by colleagues,
all actions required were discussed and agreed
with the Committee.
The Board is satisfied that a continual process for
identifying, evaluating and managing significant
risks has been in place for the financial year and
up to the date of this Annual report. To date, no
material financial problems have been identified
that would affect the results reported in these
financial statements. The Board confirms that
if significant weaknesses had been identified
during this review the Board would have taken
the necessary steps to remedy them.
d) Corporate Compliance and
Responsibility Committee (CCR)
The CCR Committee, chaired by a Non-Executive
Director, Nigel Robertson, reviews and oversees
the development and implementation of policy
in relation to health and safety, environmental,
competitive and ethical compliance, corporate
social responsibility (CSR) , including the Group’s
engagement with community organisations and
charitable bodies, and governance and other
reputational management issues.
www.morrisons.co.uk/annualreport10
Shareholder relations
The CEO and the Group Finance Director meet
regularly with analysts and institutional
shareholders. The Investor Relations Director
also maintains a programme of work that reports
to the Board the requirements and information
needs of institutional and major investors. This
is part of the regular contact that the Group
maintains with its institutional shareholders.
All Directors, Executive and Non-Executive,
attend the AGM unless unavoidably unable
to do so.
The Chairs of the Audit, Nomination,
Remuneration and CCR Committees are
available to answer any questions.
Governance 26 —— 42
• reviewing the external auditor’s management
letters on internal financial control;
Additionally, the Group’s brokers sought
independent feedback from investors following
the annual and interim results in 2009.
This feedback was reported to the Board.
UK Corporate Governance Code
The Board has been kept fully up to date by
the Company Secretary and the Head of Risk
and Internal Audit as to the developments in
corporate governance following the Walker
Review and during the Financial Reporting
Council’s review of the Combined Code. The
review process for the Combined Code is ongoing
and the Group has participated, where it felt it
appropriate to do so, in the consultation process.
The Board is confident that its corporate
governance policies and procedures are
appropriate and will ensure that it remains able
to comply with (or explain clearly any divergences
from) the proposed new UK Corporate
Governance Code.
Annual report and financial statements 2010
32
Directors’ remuneration report
IN THIS SECTION
Dear Shareholder
32Letter to Shareholders from the
Chair of the Remuneration Committee
33Unaudited information
The Remuneration Committee reviews, on a regular basis, the operation and overall
competitiveness of the total remuneration packages for Executive Directors and senior executives.
33Remuneration policy
33Performance-related versus
fixed remuneration
33 Base salary
33 Annual bonus
34All Employee Sharesave Scheme
34 Long Term Incentive Plan
35 Share ownership guidelines
35 Pension arrangements
35 Benefits
35Appointment of new Chief Executive
36 Performance graph
36 Directors’ contracts
36Executive Directors
37Non-Executive Directors
38 Audited information
38Directors’ emoluments
and pension entitlements
39Share awards
40Share options
40Dilution and share usage
40Directors’ interests
40Approval
Following a review at the end of 2008/09 of the Company’s remuneration arrangements against
the stated remuneration policy, and in light of the Company’s performance, the Committee
concluded that incentive pay needed to increase to enable the Company to pay its executives
competitively. However, taking into account the views of certain shareholders and representative
bodies, and with support from the Company’s Executive Directors, the Committee concluded that
the proposals were not appropriate to the wider external climate at that time and were withdrawn.
The Committee, however, remained clear that incentive pay needed to increase to enable the
Company to pay its executives competitively where success was demonstrated. Accordingly,
in 2009/10, the Committee re-considered the position and decided that it is vital that the
Company’s remuneration arrangements are positioned competitively (the recruitment of a
new Chief Executive has re-emphasised how important this is to the business).
Therefore, the Committee has decided to:
• maintain Executive Director base salary levels;
• increase the maximum annual bonus potential for Executive Directors from 100% of base
salary to 200% of base salary for 2010/11. Bonus potential will also be increased for other
less senior executives. Reflecting the increased bonus potential, the bonus vesting schedule
has been made more stretching;
• introduce bonus deferral, so that 50% of any bonus payable to Executive Directors is deferred
in shares for three years; and
• increase the level of Long Term Incentive Plan (LTIP) awards for Executive Directors
(with the exception of the incoming Chief Executive) for 2010/11 from 200% of salary to
240% of salary. The incoming Chief Executive will receive an LTIP award equal to 275% of salary.
These award levels are within the individual limit of 300% of salary contained in the LTIP rules.
As a result of these changes, the Executive Directors’ ongoing total remuneration, with base
salary at current levels and a greater focus on performance-related elements, will be consistent
with the stated remuneration policy in the Summary remuneration report which follows and
will be broadly comparable to the packages provided by the Company’s key competitors.
The Committee considers that this is critical to the Group’s future success and the recruitment
and retention of key individuals.
During the year, the Committee has also had to deal with the change of Chief Executive. Details
of the termination arrangements for Marc Bolland, and Dalton Philips’ ongoing remuneration
package from appointment on 1 March 2010 (which is consistent with the revised Executive
Director remuneration policy) and share awards required to facilitate his recruitment, are set
out in the detailed Directors’ remuneration report which follows. Following Marc Bolland’s
resignation the Remuneration Committee considered that it was responsible and commercially
appropriate to secure the services of Richard Pennycook and Mark Gunter. The Committee,
therefore, very quickly took certain steps to this end and agreed to an additional LTIP award of
100% of salary to these two individuals, in addition to the 200% of salary award already received
in 2009/10 and within the 300% of salary annual limit contained in the LTIP rules. Within the
limitations imposed by the urgency to communicate the proposals to these individuals, the
Committee consulted with major shareholders who understood the reasons for the increased
LTIP grant and the future increases to incentive pay and who were, in the majority, supportive.
More details of all of these changes are set out in the detailed Directors’ remuneration report
which follows.
Paul Manduca
Chair of the Remuneration Committee
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
33
The auditors are required to report on part of
the Directors’ remuneration report and to state
whether in their opinion that part of the report
has been properly prepared in accordance with
the Companies Act 2006 and Schedule 8 of the
Large- and Medium-Sized Companies and Groups
(Accounts and Reports) Regulations 2008. The
report has therefore been divided into separate
sections for unaudited and audited information.
UNAUDITED INFORMATION
The members of, and advisers to, the
Remuneration Committee appear in the
Corporate governance report.
Remuneration policy
The Remuneration Committee remains of the
view that the Company’s remuneration policies:
• should encourage a strong performance culture
and emphasise long term shareholder value
creation, with clear links between executive
performance goals and business strategy; and
• need to be positioned competitively in relation
to its major competitors to enable it to attract,
retain and motivate the best talent which has
been key to the Company’s success over
the last few years and will be critical to its
future performance.
To achieve this, the Committee aims to:
• position base salaries around the mid-market;
• operate a competitive suite of annual and
long term incentives, so that a substantial
proportion of total remuneration is subject to
performance and so that executives are aligned
with shareholders through share awards and
share ownership; and
• ensure that total remuneration packages are
competitive against the market, particularly
the Company’s major competitors.
Performance-related
versus fixed remuneration
A substantial proportion of the Executive
Directors’ pay is performance-related.
The following chart demonstrates the balance
between fixed and performance-related pay for
the 2010/11 financial year for the incoming
Chief Executive at target and maximum
performance levels (Dalton Philips commenced
employment with the Company on 1 March 2010
and full details of the package are set out on
page 35). Maximum performance assumes the
achievement of maximum bonus and full vesting
of shares under the Long Term Incentive Plan (LTIP).
www.morrisons.co.uk/annualreport10
Performance-related versus
fixed remuneration
(Percentage %)
Annual bonus
An annual bonus plan was operated for
Executive Directors and other senior managers
during 2009/10.
Target
For 2009/10, the maximum bonus was 100%
of base salary, with measurement based upon
profit before taxation (excluding exceptionals),
strategic corporate scorecard measures and
personal objectives, weighted as set out below:
Maximum
0
20
40
60
100
80
Fixed pay (base salary and pension, excluding benefits)
Bonus
LTIP
Base salary
Base salary is a fixed cash sum payable monthly
in arrears. In order to set the right balance in
Executive Directors’ packages, the policy is
generally to set salaries around mid-market
levels. The Remuneration Committee has regard
to the following when reviewing salary levels:
• the rates for similar roles in comparator
companies, both in FTSE 100 retailers,
particularly the Company’s major competitors,
and more generally in UK-based companies of
a similar size and complexity (specifically FTSE
100 companies ranked 20 to 60 by market
capitalisation excluding those whose turnover
is substantially derived from outside the UK);
• the performance of the individual concerned,
together with any change in responsibilities
that may have occurred;
• avoiding the automatic ratcheting effects
of following ’median’ or ’upper quartile’ levels
of salary derived from comparator company
analyses; and
• pay quantum and structure throughout
the Company.
Base salaries are normally reviewed annually in
the light of personal performance, benchmark
data and internal relativities. No increases have
been awarded following the annual base salary
review. Current base salaries together with the
previous salaries are set out below:
D Philips*
M Gunter
R Pennycook
M Jones
Appointed March 2010
*
2010/11
2009/10
£800,000
£540,750
£540,750
£450,000
–
£540,750
£540,750
£450,000
Measures
Profit before tax,
excluding exceptionals
Strategic corporate
scorecard measures
Personal objectives
% of bonus potential
65%
20%
15%
Scorecard measures for 2009/10 were structured
around financial objectives, operational
excellence, customers and employees. No bonus
would have been payable for the achievement
of strategic corporate scorecard measures or
personal objectives unless the minimum profit
target had been achieved.
Bonus awards made to the executives for the
financial year ended 31 January 2010 reflect an
excellent overall performance during the year.
Profit outperformed the Company’s initial
expectations and the maximum target set for this
element of the bonus plan, resulting in an award
of 100% of the potential bonus payable for this
measure. The Remuneration Committee
reviewed performance against the various
corporate scorecard elements of the plan in
detail, as well as the delivery of individual
objectives. A high level of overall performance
has resulted in an award of 90% of the potential
bonus payable for the scorecard measures and
payments of between 95% and 100% of the
potential bonus payable for the achievement
of personal objectives. Bonus payments for the
financial year ending 31 January 2010 therefore
ranged from 97% to 98% of base salary. Marc
Bolland received no annual bonus for 2009/10
as a consequence of his resignation. Details of
the actual amounts paid for 2009/10 are set out
in the Directors’ emoluments table on page 38.
Following the review of remuneration referred
to above, the 2010/11 maximum bonus potential
for Executive Directors has been increased to
200% of base salary, with 50% of any bonus
payable deferred in shares for three years. The
shares comprising the deferred element of the
bonus payment will vest three years from the
date that the deferred share award is made and it
is intended that dividend equivalents will accrue
on shares that vest. These deferred shares are
normally forfeited if the individual leaves the
Company prior to vesting.
Annual report and financial statements 2010
Governance 26 —— 42
The Group is required to prepare a Directors’
remuneration report for the 52 weeks ended
31 January 2010 and put that report to a
shareholder vote. A resolution to approve
this report will be proposed at the Annual
General Meeting of the Company to be held
on 3 June 2010.
34
Directors’ remuneration report – continued
The performance measures and weightings for the
2010/11 bonus are set out in the table below.
Measures
% of bonus potential
Profit before tax,
excluding exceptionals
Strategic corporate
scorecard measures
Personal objectives
60%
30%
10%
For the profit measure 42% of the bonus
potential will be payable for target performance,
which is a reduction on the 50% opportunity
available in 2009/10. In addition, reflecting the
increase in potential bonus, there will be a
significantly greater level of outperformance of
plan profit to receive full payment. The threshold
profit target, at which point bonuses begin to
accrue, is higher than the 2009/10 out-turn.
Scorecard measures for 2010/11 will focus on
delivery of major strategic projects; employee
related objectives; continued sales growth and
actions to increase operating margin. No bonus
will be payable for the achievement of strategic
corporate scorecard measures or personal
objectives unless the minimum profit target
has been achieved.
Long Term Incentive Plan
The Long Term Incentive Plan is designed to
reward management for achieving the Group’s
strategic objectives and to provide an appropriate
level of long term performance pay.
Performance under the plan is measured over
three years. As was the case in 2009/10, the
performance measures for 2010/11 awards will
be 75% based on earnings per share (EPS) and
25% based on like-for-like non-fuel sales growth
as measured against the IGD (Institute of
Each year, participants receive conditional awards Grocery Distribution) Index. These performance
of shares in the Group which will normally vest
metrics were selected for the following reasons:
three years after they are awarded subject to the
satisfaction of performance conditions measured • they are directly linked to the objectives set
over a three-year period and continued service.
out in the Group’s strategy – improving EPS
The plan’s individual annual limit is 300% of
and sales performance reflects the need for
salary (face value of shares).
basic profit growth and should flow through
to increased shareholder value;
In 2009, awards were made to 838 participants,
including Executive Directors, their direct reports • there is a clear line of sight between
and management tiers below (including
performance and reward; and
supermarket store managers). An award of shares
worth 250% of salary was made to Marc Bolland • they are relatively easy to understand
as the then Chief Executive (which has now
and communicate.
lapsed on his termination of employment), with
awards worth 200% of salary for the other
To guard against the possibility of individuals
Executive Directors, in each case in April 2009.
receiving value from the LTIP as a result of sales
For tiers below Executive Director, awards were
targets being hit but EPS targets being missed,
made during 2009 at lower levels dependent
no awards can vest under the sales targets
upon seniority.
unless the threshold EPS target has been met.
As noted above, following the resignation
of Marc Bolland as Chief Executive the
Remuneration Committee considered that it
As in prior years specific performance targets
was responsible and commercially appropriate
have not been disclosed as they are considered
to secure the services of Richard Pennycook
to be commercially confidential but they will
and Mark Gunter. Therefore, the Remuneration
be demanding.
Committee made a further LTIP award to these
two executives of 100% of salary. These awards
Bonuses for the management tier immediately
below Executive Director level will be awarded on were made within the 300% of salary individual
limit contained in the LTIP rules and they will
similar terms to the above but at reduced levels.
vest in January 2013, subject to the LTIP rules
regarding cessation of employment. The same
All Employee Sharesave Scheme
The Group operates a Sharesave Scheme which is performance conditions apply to these awards
approved by HM Revenue & Customs. All eligible as apply to the April 2009 awards.
employees, including Executive Directors, may be
invited to participate on similar terms to save up Following the Remuneration Committee’s review
of remuneration, Executive Directors, with the
to a maximum of £250 each month for a fixed
exception of the incoming Chief Executive, will
period of three years. At the end of the savings
receive an LTIP award in 2010/11 equal to 240%
period, individuals may use their savings plus a
of base salary, instead of the 200% granted in
tax-free bonus to buy ordinary shares in the
previous years. The incoming Chief Executive will
Group at a discount capped at up to 20% of the
receive an award in 2010/11 of 275% of salary.
market price, set at the launch of each Scheme.
Senior executives below Board level will receive
LTIP awards on the same terms as Executive
Directors, at reduced levels.
For the awards intended to be granted in
April 2010, the following targets will apply.
25% of the EPS related component of the award
will vest if the Group’s Underlying EPS grows in
line with the growth in the Retail Prices Index
(RPI) plus an average of 4% per annum, rising
on a pro rata basis until 100% vests for
outperforming the index by at least 10% per
annum. Underlying EPS will be as referred to in
note 8 to the financial statements. The Group
will report EPS in this way in its Annual report.
25% of the sales growth related component of
the award will vest if the Group’s like-for-like
sales match the IGD Index, rising on a pro-rata
basis until 100% vests for outperforming the
Index by at least 2% over the three years ending
with the 2012/13 financial year. Like-for-like
sales are defined as the reported sales from
existing space (excluding VAT), less total fuel
sales. As has been the previous practice, no part
of the award relating to sales growth can vest
unless the minimum EPS target is achieved.
The Remuneration Committee considers that
the targets set out above are more demanding
compared to those set in 2009, reflecting the
increased award levels for senior executives.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
35
• a restricted share award over the Company’s
shares to a value of £356,000 at the grant date
and which will vest on 25 March 2012 subject
to continued employment. Listing Rule 9.4.3
requires the following additional detail to be
disclosed in the Company’s Annual Report and
Accounts. No performance conditions will
govern the vesting of this award. The award will
lapse if Mr Philips resigns or is dismissed for
Dalton Philips receives a pension supplement
cause during the vesting period. If, however, Mr
equal to 25% of base salary.
Philips ceases employment for any other reason
during the vesting period the award will vest on
Benefits
the date of cessation. The award will also vest
Benefits in kind include transport costs, private
Pension arrangements
early in the event of a change of control or
health provision, telephone expenses (excluding
The Executive Directors (with the exception of
winding up of the Company and may also vest
Marc Bolland), and a Company leased apartment
Marc Bolland who received a salary supplement
early in the event of a demerger, special
used by Mr Bolland (which will terminate on
equal to 30% of salary during the year)
dividend or other similar event which, in the
30 April 2010 in line with his termination
participate in the Morrisons Defined Benefit
Remuneration Committee’s opinion, materially
arrangements set out on page 36). The Executive
Pension Scheme. On 29 May 2009, the Group
affects the price of the Company’s shares. The
completed consultation with the active members, Directors are eligible for an allowance towards
award will not, unless the Committee decides
the cost of independent financial advice and
including the three participating Executive
otherwise, vest on an internal reorganisation
also receive a staff discount entitlement which
Directors, of its defined benefit schemes.
but will instead be exchanged for an equivalent
is not taxable.
From 5 October 2009, the basis of future
award over shares in the new holding company.
pension accrual changed from final salary
The award will not confer any shareholder
Appointment of new Chief Executive
to career average revalued earnings (CARE).
rights on Mr Philips until it vests, except that
Dalton Philips was appointed Chief Executive
Benefits earned under the previous final salary
Mr Philips will be entitled to a payment (in cash
from 1 March 2010. A summary of his ongoing
arrangement are preserved at that date and
and/or shares) shortly after vesting to reflect
remuneration package, which is consistent with
will increase in line with the Retail Prices Index
the dividends that would have been paid on
the existing Executive Director remuneration
to the date of leaving the Group. Under these
those shares between grant and vesting. In the
policy as outlined above, is as follows:
new defined benefit arrangements, pension
event of any variation of the Company’s share
entitlements for participating Executive Directors
capital or any other event which materially
• base salary: £800,000 per annum;
accrue at the rate of a maximum of 3% for each
affects the price of the Company’s shares, the
year, which is a reduction from the previous
award may be adjusted in such manner as the
• annual bonus: 200% of base salary maximum
maximum final salary accrual of three and one
Committee sees fit. The terms of the award
potential, to be reduced pro-rata for 2010/11
third per cent.
may be amended in such manner as the
service, with 50% of any bonus deferred into
Committee and Mr Philips may agree provided
shares for a period of three years;
The maximum pension of two-thirds pensionable
that amendments to the benefit of Mr Philips
salary at age 62 has been retained for CARE
may only be made with the prior consent
• LTIP: 275% of base salary (with the first award
accrual. Pensionable pay for the Executive
of shareholders (unless they are minor
to be granted in April 2010); and
Directors is annual salary as at 6 April each year.
amendments to benefit the administration
Mark Gunter, Richard Pennycook and Martyn
of the award, to take account of a change in
• pension: supplement equal to 25% of annual
Jones are all subject to a Company maximum
legislation or to obtain or maintain favourable
base salary.
earnings limit which is currently £123,600 and
tax, exchange control or regulatory treatment
is reviewed annually from 1 April in line with RPI.
for the Company or Mr Philips).
Additionally, in order to facilitate his recruitment,
Mr Philips will shortly be granted the following
The expected cost of providing retirement
share awards to compensate him for share awards The above awards, which are non-pensionable,
benefits to the Directors is assessed in
forfeited upon leaving his previous employer and will be granted pursuant to the authority
accordance with the advice of independent
contained in Listing Rule 9.4.2R2. Shares
where vesting was dependent upon continued
qualified actuaries. The pension arrangements
received from these awards will be subject to the
employment with no performance conditions:
include life assurance cover whilst in
retention provisions set out in the Company’s
employment, a pension in the event of ill health
shareholding guidelines for Executive Directors.
• an unrestricted share award over the
or disability and a pension for the spouse and
Company’s shares to a value of £940,000
any dependent children on death.
The Remuneration Committee confirms that it
at the grant date. The award will be granted
is of the view that the package agreed with
on an unrestricted basis as it is designed to
No contributions were paid or are payable by
Mr Philips is appropriate and that the Company
replace an award which was due to vest in
any Directors under the terms of the scheme.
is not paying any more than was necessary to
March 2010; and
There are no enhanced early retirement rights.
facilitate his recruitment.
Post-retirement pensions increase in line with
the annual increase in the RPI or by 5% per
annum compound for pensions accrued prior
to 6 April 2006 and 2.5% for pensions accrued
from 6 April 2006, whichever is the lower.
www.morrisons.co.uk/annualreport10
Mr Pennycook, Mr Gunter and Mr Jones, who
were all subject to the pensions earnings cap in
place before April 2006 which has been retained
for benefits accruing thereafter, received a cash
supplement of 15% of basic salary in excess of
the Company maximum earnings limit in
2009/10.
Annual report and financial statements 2010
Governance 26 —— 42
Share ownership guidelines
The Group operates share ownership guidelines
for Executive Directors. Under the guidelines,
Executive Directors are expected to retain 50%
of vested share awards (net of tax) until such time
as they own shares worth 100% of their salary
after which point they will be expected to retain,
as a minimum, this level of holding. The
Remuneration Committee will review Executive
Directors’ shareholdings annually in the context
of this policy.
36
Directors’ remuneration report – continued
Performance graph
The graph below shows the Company’s total shareholder return (TSR) compared with the TSR of the FTSE 100 and FTSE Food & Drug Retailers indices
over the five-year period to 31 January 2010. These indices have been selected as being appropriate in giving a broad equity view and the Company is a
constituent of both indices.
Total shareholder return
Value of hypothetical £100 holding
180
160
140
120
100
80
60
30 Jan 05
29 Jan 06
Wm Morrison Supermarkets PLC 4 Feb 07
3 Feb 08
1 Feb 09
FTSE All Share Food & Drug Retailers Index FTSE 100
31 Jan 10
Source: Thomson Reuters
Directors’ contracts
a) Executive Directors
All Executive Directors have a service agreement without expiry dates. These contracts can be terminated by either the Group or the relevant Director
giving 12 months’ notice.
The Remuneration Committee has in place a model contract which provides that any compensation provisions for termination without notice will only
extend to 12 months of salary, benefits and pension (which may be payable in instalments and subject to mitigation). Going forward all new Director
contracts will be on that basis. The model contract does not contain change of control provisions. This policy was applied to Marc Bolland at the time
of his recruitment and to Mark Gunter and Martyn Jones from 2007, and was applied to Dalton Philips on his recent recruitment. Richard Pennycook’s
contract provides that he has an obligation to mitigate his loss in the event of termination in breach of contract.
Name of Director
Date of contract
Notice period from Company (months)
M Bolland
M Gunter
M Jones
R Pennycook
7 Jun 2006
5 Apr 2007
5 Apr 2007
23 May 2006
12
12
12
12
The date of contract for Dalton Philips, who commenced employment on 1 March 2010, is 26 January 2010 and Mr Philips’s notice period from
the Company is 12 months.
Marc Bolland tendered his resignation on 18 November 2009, following his decision to join Marks and Spencer Group plc. The Company shortly
afterwards decided that it was no longer appropriate that he should continue to fulfil his operational responsibilities and the relinquishment of those
responsibilities was announced on 4 December 2009. Mr Bolland’s contract of employment and directorship were terminated on 1 February 2010.
Under the terms of Mr Bolland’s termination arrangements the Company and Mr Bolland agreed that:
i. his employment terminated on 1 February 2010;
ii. he would not take up any other employment until after 30 April 2010;
iii.he would receive payment in lieu of notice of £282,331 for the period from 1 February 2010 to 30 April 2010, comprising salary, pension and other
benefits in kind;
iv.he relinquished all rights to an annual bonus payment in respect of the financial year ended 31 January 2010; and
v.all outstanding awards under the Company’s Long Term Incentive Plan lapsed, including the 2007 award that would otherwise have vested and been
paid had he remained employed for his full 12 month notice period.
The Remuneration Committee is satisfied that it has exercised its discretions appropriately and that Mr Bolland is being paid no more than is
contractually necessary.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
37
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards or committees as long as these are not
deemed to interfere with the business of the Company. Any fees received in respect of these appointments, which are disclosed under the Directors’
emoluments table, are retained by the Executive Directors concerned.
b) Non-Executive Directors
Brian Flanagan, Paul Manduca, Susan Murray and Nigel Robertson were appointed for a three year period from their original dates of appointment in
2005. Following the expiry of this initial period, each was re-appointed in 2008 for a further three year term, unless otherwise terminated earlier by,
and at the discretion of, either party upon one month’s written notice. Susan Murray ceased to be a Director on 31 December 2009.
Sir Ian Gibson was appointed to the Board for a three year period from 1 September 2007 unless otherwise terminated earlier by, and at the discretion
of, either party upon 12 months written notice. Sir Ian was appointed as Non-Executive Chairman on 13 March 2008. Philip Cox and Penny Hughes were
appointed to the Board for a three year term on 1 April 2009 and 1 January 2010 respectively.
Name of Director
Date original term commenced
Date current term commenced
Expected date of expiry of current term
1 Apr 2009
1 Jul 2005
1 Sep 2007
1 Jan 2010
6 Sep 2005
1 Jul 2005
1 Jul 2005
1 Apr 2009
1 Jul 2008
1 Sep 2007
1 Jan 2010
6 Sep 2008
1 Jul 2008
1 Jul 2008
1 Apr 2012
1 Jul 2011
1 Sep 2010
1 Jan 2013
6 Sep 2011
ended 31 Dec 2009
1 Jul 2011
P Cox
B Flanagan
I Gibson
P Hughes
P Manduca
S Murray
N Robertson
Johanna Waterous was appointed to the Board for a three year term on 1 February 2010.
The remuneration of the Non-Executive Directors is a matter for the Non-Executive Chairman and Executive members of the Board and is reviewed from
time-to-time with regard to the time commitment required and the level of fees paid in comparable companies. The remuneration of the Non-Executive
Chairman is a matter for the Remuneration Committee and the Board and is reviewed from time-to-time with regard to the time commitment required
and the level of fees paid in comparable companies. All Non-Executive Directors receive no benefits from their office other than fees and staff discount
entitlement, and are not eligible to participate in the Group’s pension arrangements.
The Chairman’s fee has not been increased since it was set in September 2007 when he joined the Company as Non-Executive Deputy Chairman.
Fee levels for Non-Executive Directors have remained unchanged since they were last increased in May 2008. Current fee levels are as follows:
Name
Base
£000
Committee Chairmanship
£000
Senior Independent Director
£000
Total
£000
P Cox
B Flanagan
I Gibson
P Hughes
P Manduca
N Robertson
J Waterous
60
60
300
60
60
60
60
10
–
–
–
10
10
–
–
–
–
–
20
–
–
70
60
300
60
90
70
60
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Governance 26 —— 42
The Board makes the initial appointment of Directors who are then subject to re-election by the shareholders at the first AGM following appointment
and thereafter at least every three years.
38
Directors’ remuneration report – continued
AUDITED INFORMATION
Directors’ emoluments and pension entitlements
The emoluments of the Directors were as follows:
Name
Directors salaries/
fees
£000
Benefits
in kind
£000
Pension
supplement
£000
Annual
bonus
£000
Total year
to 31 Jan 2010
£000
Total year
to 1 Feb 2009
£000
300
–
–
–
300
279
850
541
450
541
54
38
32
31
255
63
49
63
–
530
438
530
1,159
1,172
969
1,165
1,700
1,054
819
1,011
54
60
5
90
61
63
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
54
60
5
90
61
63
–
56
–
84
66
56
–
–
3,015
–
–
155
–
–
430
–
–
1,498
–
–
5,098
84
949
6,158
Non-Executive Chairman
I Gibson
Executive Directors
M Bolland
M Gunter
M Jones
R Pennycook
Non-Executive Directors
P Cox1
B Flanagan
P Hughes1
P Manduca
S Murray2
N Robertson
Former Directors
K Morrison2
R Owen2
Total
1
2
Philip Cox was appointed as a Non-Executive Director on 1 April 2009 and Penny Hughes was appointed as a Non-Executive Director on 1 January 2010.
Sir Kenneth Morrison resigned from the Board with effect from 13 March 2008; Roger Owen resigned from the Board with effect from 1 February 2009; and Susan Murray resigned from the Board
with effect from 31 December 2009.
In addition to the emoluments detailed above, a charge of £1.9m has been made to the income statement in respect of Directors’ share-based payments.
Details of other benefits are set out on page 35 of this Remuneration report. Further details of the bonus payments to the Executive Directors are set out
on page 33 of this Remuneration report.
None of the Directors has a material interest in any contract significant to the Group’s business.
For the period 2009/10 Marc Bolland received cash fees from Manpower Inc. to a Sterling equivalent of £50,608, and deferred and restricted stock
worth a Sterling equivalent of £63,260 for his role as Non-Executive Director at Manpower Inc.
For the period 2009/10 Richard Pennycook received cash fees from Persimmon Plc of £48,600 for his role as Non-Executive Director at Persimmon Plc.
The following Directors had accrued entitlements under defined benefit schemes as follows:
Name
Accrued pension at
1 Feb 2009
£000
Executive Directors
M Gunter
M Jones
R Pennycook
Total
52
35
12
99
Increase in accrued
pension (excluding
inflation) in year
ended 31 Jan 2010
£000
Transfer value of
the increase in
accrued pension
during the year
£000
Accrued pension at
31 Jan 2010
£000
Transfer value of
accrued pension at
1 Feb 2009
£000
Transfer value of
accrued pension at
31 Jan 2010
£000
Movement in
transfer value
during the year
£000
1
8
6
15
6
107
56
169
53
43
18
114
514
339
84
937
748
599
186
1,533
234
260
102
596
Due to the move to career average revalued earnings, as set out on page 35, the pension disclosures as at 31 January 2010 include benefits calculated
on a different basis to those in the prior year.
The increase in transfer values of accrued pension over the year is predominantly due to the year-on-year change in transfer value assumptions.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
39
Share awards
As at 31 January 2010, Directors’ interests under LTIPs and one-off deferred share awards (Richard Pennycook) were as follows:
Notes
Date of grant
Share price
on grant
At 1 Feb
2009
Shares
granted
At 31 Jan
Shares vested 20107
Vesting date
M Bolland
LTIP
LTIP
LTIP
LTIP
LTIP
1
2,5
3,5
3,5
4,5
24 May 2007
24 May 2007
14 Apr 2008
14 Oct 2008
9 Apr 2009
313.75p
313.75p
277.25p
243.50p
260.25p
294,256
557,445
682,518
175,547
–
1,709,766
–
–
–
–
816,523
816,523
294,256
–
–
–
–
294,256
–
557,445
682,518
175,547
816,523
2,232,033
1 Sep 2009
24 May 2010
14 Apr 2011
14 Oct 2011
9 Apr 2012
M Gunter
LTIP
LTIP
LTIP
LTIP
2
3
4
4
24 May 2007
14 Apr 2008
9 Apr 2009
29 Jan 2010
313.75p
277.25p
260.25p
289.10p
318,540
390,010
–
–
708,550
–
–
415,562
184,770
600,332
–
–
–
–
–
318,540
390,010
415,562
184,770
1,308,882
24 May 2010
14 Apr 2011
9 Apr 2012
29 Jan 2013
M Jones
LTIP
LTIP
LTIP
LTIP
2
2
3
4
24 May 2007
24 Oct 2007
14 Apr 2008
9 Apr 2009
313.75p
296.75p
277.25p
260.25p
168,857
78,553
306,527
–
553,937
–
–
–
345,821
345,821
–
–
–
–
–
168,857
78,553
306,527
345,821
899,758
24 May 2010
24 Oct 2010
14 Apr 2011
9 Apr 2012
1 Apr 2007
308.75p
309,073
–
309,073
–
1 Apr 2009
313.75p
277.25p
260.25p
289.10p
305,798
374,410
–
–
989,281
–
–
415,562
184,770
600,332
–
–
–
–
309,073
305,798
374,410
415,562
184,770
1,280,540
24 May 2010
14 Apr 2011
9 Apr 2012
29 Jan 2013
R Pennycook Deferred
share award
LTIP
LTIP
LTIP
LTIP
6
(notional grant date)
2
3
4
4
24 May 2007
14 Apr 2008
9 Apr 2009
29 Jan 2010
1Following shareholder approval at the 2007 AGM, Marc Bolland received a one-off LTIP reflecting the five months worked from appointment in 2006/07, with the value of shares equal
to 5/12ths of 250% of £700,000 (his salary on 1 September 2006) based on the average closing share prices on the day of the announcement of the interim results for 2006/07
(declared on 21 September 2006) and the following four business days (247.80p). This award was treated as having been made on 1 September 2006 (when Mr Bolland joined the
Company) and it vested in September 2009 (i.e. three years after it was deemed to have been awarded). Vesting of the award was based on performance over the period ending with
2008/09, to reflect the position which would have applied had he received an award during the 2006/07 financial year. Performance measures were 75% based on EPS (25% of the EPS
related part of the award vested for Group EPS of 13.3p per share in 2008/09, rising on a pro rata basis to 100% for an EPS of 16p per share) and 25% based on like-for-like non-fuel
sales growth (25% of the sales growth related component vested if the Group’s like-for-like non-fuel sales grew by 3% per annum compound over 2007/08 and 2008/09, rising on a pro
rata basis to 100% for growth of 5% p.a. compound). In addition, no awards would have vested under the sales targets unless the threshold EPS target had been met. This award vested
in full on 15 September 2009. The share price at vesting was 285.8p. In accordance with the terms of the award, Mr Bolland also received a cash sum of £42,961 as payment for the
equivalent of dividends that would have been paid on the vested shares during the period between 1 September 2006 and the vesting date.
2LTIP awards granted on 24 May 2007 and 24 October 2007 (Martyn Jones received an additional LTIP award in October 2007 to reflect an increase in salary upon joining the Board)
were subject to three year performance targets, measured to 31 January 2010. Performance measures were 75% based on EPS (25% of the EPS related component of the award vested
for Group EPS in 2009/10 of 15.8p per share, rising on a pro rata basis to 100% for an EPS of 19.0p per share) and 25% based on like-for-like non-fuel sales growth (25% of the sales
growth related component vested if the Group’s like-for-like non-fuel sales grew by 3% p.a. compound rising on a pro rata basis to 100% for growth of 5% p.a. compound). In addition,
no awards would have vested under the sales targets unless the threshold EPS target had been met. Following the end of the 2009/10 financial year, the Remuneration Committee is
satisfied that these performance targets have been met in full. To allow the taxation of the 24 May 2007 LTIP awards to fall within the 2009/10 tax year (potentially leading to a
taxation saving for participants at no cost to the Company), the Remuneration Committee has concluded that all participants (including Executive Directors) should be given the
opportunity to elect to pay the tax due on the awards in March 2010 (i.e. before the normal vesting date of the third anniversary of grant date). For individuals electing to pay the
relevant taxes early, May 2007 LTIP awards will be converted into forfeitable shares in March 2010, with the relevant number of shares sold to meet the income tax and National
Insurance liability on the awards. The net number of forfeitable shares will be held by the Company’s employee benefit trust and will be released to individuals on the normal vesting
date. Dividends will continue to accrue on forfeitable shares held in the trust although post March 2010,this accrual will be based on the net number of shares held. The tax paid in
March 2010, via a sale of shares, will be subject to a claw-back provision providing that if the LTIP awards would otherwise have been forfeited between the accelerated tax payment and
the normal vesting date (e.g. in a ‘bad leaver’ situation), the Company may recover an amount from the participant equal to the income tax and National Insurance charge paid by the
employee on that award.
3LTIP awards granted on 14 April 2008 and 14 October 2008 (Marc Bolland received an additional LTIP award in October 2008 to reflect his personal contribution since appointment
and to act as a further incentivisation and retention mechanism over and above his existing awards) are subject to three year performance targets. Performance measures are 75%
based on EPS and 25% based on like-for-like non-fuel sales growth. 25% of the EPS related component of the award will vest if the Group’s EPS in 2010/11 is 19.6p per share rising on a
pro rata basis until 100% vests for an EPS of 23.5p per share. 25% of the sales growth related component will vest if the Group’s like-for-like non-fuel sales grow by 3% p.a. compound
rising on a pro rata basis until there is 100% vesting for growth of 5% p.a. compound. No awards can vest under the sales targets unless the threshold EPS target has been met.
4LTIP awards granted on 9 April 2009 and 29 January 2010 (Mark Gunter and Richard Pennycook received additional LTIP awards in January 2010 to secure their services and incentivise
them further following Marc Bolland’s resignation) are subject to three year performance targets. Performance measures are 75% based on EPS and 25% based on like-for-like non-fuel
sales growth against the IGD Index. 25% of the EPS related component of the award will vest if the Group’s Underlying EPS grows in line with the growth in the Retail Prices Index plus
an average of 4% per annum, rising on a pro rata basis until 100% vests for outperforming the Index by at least 10% per annum over the three years ending with the 2011/12 financial
year. 25% of the sales growth related component will vest if the Group’s like-for-like non-fuel sales match the IGD Index, rising on a pro rata basis until 100% vests for outperforming
the Index by at least 2% over the three years ending with the 2011/12 financial year. No awards can vest under the sales targets unless the threshold EPS target has been met.
5Marc Bolland’s outstanding LTIP awards lapsed on 1 February 2010 when he ceased to be employed by the Company.
6To fulfil promises made to Richard Pennycook at the time of his recruitment, as reported in prior year Remuneration reports, the annual bonus award made to him for 2006/07 included,
in addition to the cash element, a deferred share award as a result of no LTIP being adopted by shareholders in the 2006/07 financial year. That award was in shares of the Group with a
value equal to £950,400 (two times the amount of the cash bonus earned for the 2006/07 financial year) with the number of shares calculated by reference to the average share price
over the five dealing days prior to the deemed date of the award (1 April 2007) which was 307.5p. This deferred share award vested on 1 April 2009 when the share price was 254.25p.
In accordance with the terms of the award, Mr Pennycook also received a cash sum of £27,739 as payment for the equivalent of dividends that would have been paid on the vested
shares during the period between the deemed date of award and the vesting date.
7In addition to the awards set out in the table, Roger Owen who retired on 1 February 2009 retains LTIP awards in accordance with the leaver rules of the plan. These awards are in
respect of 305,798 shares granted on 24 May 2007 and 356,581 shares granted on 14 April 2008. These two awards will vest three years from the date of grant, subject to the
satisfaction of performance conditions and time pro-rating to reflect the shorter period of time served in the vesting period.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Governance 26 —— 42
Name
40
Directors’ remuneration report – continued
Share options
Options granted to Directors to acquire ordinary shares in the Group are as follows:
Date of grant
M Gunter
2 Apr 2003
12 Nov 2004
21 Apr 2006
14 May 2009
M Jones
5 Apr 2001
2 Apr 2003
21 Apr 2006
14 May 2009
R Pennycook
18 May 2007
†
At 1 Feb
2009
Number of options
during the 52 weeks ended 31 Jan 2010
Granted
Exercised
Lapsed
At 31 Jan
2010
Exercise
price
Market price
on day of
exercise
Gain on
exercise
£000
Exercisable
From
To
260,000
220,000
5,917†
–
485,917
–
–
–
4,621†
4,621
–
–
5,917
–
5,917
–
–
–
–
–
260,000
220,000
–
4,621
484,621
175p
222p
158p
198p
–
–
239.38p
–
– 2 Apr 2006 2 Apr 2013
– 12 Nov 2007 12 Nov 2014
14
1 Jul 2009 1 Jan 2010
–
1 Jul 2012 1 Jan 2013
14
50,000
88,000
5,917†
–
143,917
–
–
–
4,621†
4,621
–
–
5,917
–
5,917
–
–
–
–
–
50,000
88,000
–
4,621
142,621
187p
175p
158p
198p
–
–
239.38p
–
–
–
14
–
14
5 Apr 2004
2 Apr 2006
1 Jul 2009
1 Jul 2012
5 Apr 2011
2 Apr 2013
1 Jan 2010
1 Jan 2013
3,825†
3,825
–
–
–
–
–
–
3,825
3,825
247p
–
–
–
1 Jul 2010
1 Jan 2011
Options granted under the Sharesave scheme
The 1995 Senior Executive Share Option Scheme terminated at the end of its 10-year life on 25 May 2005 and no grants have been made under
it since November 2004. All performance conditions attached to options granted under this scheme have been satisfied in prior years.
The ordinary share mid-market price ranged from 234.50p to 300.80p and averaged 264.80p during the period. The price on 31 January 2010
was 289.10p compared to 259.75p on 2 February 2009.
Dilution and share usage
Awards under the Group’s share option and SAYE schemes are satisfied by the issue of new shares within the limits agreed by shareholders when the
plans were approved. These limits comply with the Association of British Insurers’ guidelines restricting dilution from employee share plans. The overall
limits under the guidelines are that no more than 10% of a Group’s issued share capital may be used in any 10-year period. Up to 5% may be used for
executive share plans. As at 31 January 2010, the Group’s share usage against these limits was 3.6% and 0.58% respectively.
It is currently intended that LTIP awards be satisfied by market purchased shares which are held in an Employee Benefit Trust.
Directors’ interests
The beneficial interests of the Directors and their families in the shares of the Company were as follows:
31 January 2010
Ordinary shares
1 February 2009
Ordinary shares
M Bolland
173,369
–
M Gunter
M Jones
R Pennycook
P Cox
B Flanagan
I Gibson
P Hughes
P Manduca
N Robertson
44,409
24,584
182,098
–
–
108,055
–
25,000
–
38,492
18,667
–
–
–
108,055
–
25,000
–
There were no changes in the above interests in the period from 31 January 2010 to 10 March 2010 or in the case of Marc Bolland to 1 February 2010
when he ceased to be a Director.
Approval
This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by
Paul Manduca
Chair of the Remuneration Committee
10 March 2010
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
41
General information
Forward-looking statements
The Directors’ report is prepared for the
members of the Company and should not be
relied upon by any other party or for any other
purpose. Where the Directors’ report includes
forward-looking statements, these are made
by the Directors in good faith based on the
information available to them at the time of
their approval of this report. Consequently
such statements should be treated with caution
due to the inherent uncertainties, including
both economic and business risk factors,
underlying such forward-looking statements
and information.
Result and dividend
The profit for the period after taxation
attributable to the owners of the Company
amounted to £598m (2008/09: £460m).
The Directors have declared and recommend
the following dividends:
£m
Paid interim dividend of 1.08p
per share (2009: 0.8p)
Recommended final dividend
of 7.12p per share (2009: 5.0p)
28
189
The final dividend, if approved by shareholders
at the Annual General Meeting (AGM), is to be
paid on 9 June 2010 to ordinary shareholders on
the register of members at close of business on
7 May 2010. If the final dividend is approved by
shareholders, the total ordinary dividend for the
year will be 8.2p per share.
Auditors
A resolution to re-appoint KPMG Audit Plc as
auditors and a separate resolution to authorise
the Directors to set their remuneration is to be
proposed at the forthcoming AGM.
Annual General Meeting
The notice of the 2010 AGM of the Company (to
be held at the Company’s headquarters at Gain
Lane in Bradford on 3 June 2010) is sent to
shareholders with an accompanying explanatory
letter from the Chairman. The Directors believe
each of the resolutions to be proposed at the
AGM are in the best interests of the Group and
recommend shareholders to vote in favour of
each of them. Shareholders will also receive
notification of the availability of the results on
the Group’s website, unless they have positively
elected to receive a printed version of the results.
Share capital
The authorised and called up share capital of the
Company, together with details of shares allotted
during the year, are shown in note 23 of the
Group Financial Statements.
www.morrisons.co.uk/annualreport10
At the AGM of the Company held in 2009,
a special resolution was passed to renew the
authority given at the AGM held on 5 June 2008
to purchase by the Company up to 262,983,160
ordinary shares representing approximately 10%
of the issued ordinary share capital at that time.
This authority remained valid on 1 February
2010. During the period the Company did not
purchase any of its own shares pursuant to that
authority, which will expire at the close of the
2010 AGM.
In addition, 21,287,110 ordinary shares were
issued during the period to employees exercising
share options.
Borrowing powers
The Articles of Association of the Company
restrict the borrowings of the Company and its
subsidiary undertakings to a maximum amount
equal to twice the share capital and consolidated
reserves.
Substantial shareholdings
As at 10 March 2010 the Company has been
notified by the following shareholders (excluding
Directors) that they have interests in 3% or more
of the issued share capital of the Company:
Black Rock Inc
Sir KD Morrison
Brandes
Investment
Partners LP
Legal & General
Group Plc
Ameriprise
Financial Inc
A Shelley
AR Wilson
Walter Scott &
Partner Ltd
Zurich Financial
Services
Number
of shares
% of
holding
202,811,625
171,346,034
7.65%
6.46%
132,155,077
4.98%
131,893,054
4.97%
131,284,252
129,886,316
128,272,840
4.95%
4.90%
4.84%
107,775,155
4.07%
81,286,130
3.07%
The number of shares appearing above is that
appearing in the relevant notification to the
Company. The percentage appearing above is
the percentage that number represents of the
issued share capital of the Company as at
10 March 2010.
Relating to beneficial owners of
shares with ‘information rights’
Beneficial owners of shares who have been
nominated by the registered holder of those
shares to receive information rights under
section 146 of the Companies Act 2006 are
required to direct all communications to the
registered holder of their shares rather than
to the Company’s registrar, Capita Registrars,
or to the Group directly.
Directors
The current Directors of the Group and their
biographies are shown on page 26.
Susan Murray retired from the Board on
31 December 2009.
Philip Cox, Penny Hughes and Johanna Waterous
joined the Board on 1 April 2009, 1 January
2010 and 1 February 2010 respectively as
Non-Executive Directors.
Marc Bolland resigned from the Board on
1 February 2010.
Martyn Jones retires by rotation at the AGM.
Penny Hughes and Johanna Waterous having been
appointed to the Board since the last AGM are also
eligible for re-election. All of them, being eligible,
offer themselves for re-election at the AGM.
The interests of the Executive and Non-Executive
Directors of the Company and their immediate
families in the shares of the Company, along with
share options, are contained in the Directors’
remuneration report set out on pages 32 to 40.
At no time during the year did any of the Directors
have a material interest in any significant contract
with the Company or any of its subsidiaries.
Employee relations
Morrisons is an Equal Opportunities employer.
Equal Opportunities are offered to all regardless
of race, colour, nationality, ethnic origin,
sex (including gender reassignment), marital
or civil partnership status, disability, religion
or belief, sexual orientation, age or trade
union membership.
The Group gives full and fair consideration to
applications for employment made by people
with disabilities. The policy is to offer equal
opportunity to all disabled candidates and
employees who have a disability or become
disabled in any way during the course of their
employment. A full assessment of the individual’s
needs is undertaken and reasonable adjustments
are made to the work environment or practices
in order to assist those with disabilities.
All candidates and employees are treated equally
in respect of recruitment, promotion, training,
pay and other employment policies and
conditions. All decisions are based on relevant
merits and abilities.
Political and charitable donations
During the period the Group made charitable
donations amounting to £0.1m (2009: £0.3m). The
donations were mainly small donations to support
local communities. In addition the Group supported
various charities and in the year over £1.8m (2009:
£0.9m) was raised by customers and colleagues
for the Charity of the Year and £0.8m raised for
Children in Need and the Haiti appeal. No political
donations were made, which is Group policy.
Disclosure of information to auditors
The Directors who held office at the date of
approval of this Directors’ report confirm that,
so far as they are each aware, there is no relevant
audit information of which the Group’s auditors
are unaware; and each Director has taken all steps
that he or she ought to have taken as a Director
to make himself or herself aware of any relevant
audit information and to establish that the
Group’s auditors are aware of that information.
Annual report and financial statements 2010
Governance 26 —— 42
The Directors’ Report
and business review
Pages 2 to 42 inclusive of this Annual report
consist of a Directors’ report and business review
that has been drawn up and presented in
accordance with, and in reliance on, English
company law. The liabilities of the Directors in
connection with that Directors’ report and business
review shall be subject to the limitations and
restrictions provided by the Companies Act 2006.
42
General information – continued
Going concern
The Directors’ assessment of the Group and the
Company’s ability to continue as a going concern
has taken into consideration the effect that the
current economic climate has on the Group.
The Group’s ability to borrow cash has not been
adversely affected by the continuing lack of
liquidity in the financial markets and the Group has
negotiated and available committed, competitive
facilities that will meet the Group’s needs in the
short and medium term. In addition, the credit
rating on the Group’s bonds has been upgraded
by Moody’s for the second successive year.
The principal risks that the Group is challenged
with have been set out on page 13 along with
how the Directors mitigate these risks in the
current economic climate.
After reviewing the Group’s financial forecasts
including an assessment of working capital and
other medium term plans, the Directors are
confident that the Company and the Group
have adequate financial resources available
to continue in operational existence for the
foreseeable future. The going concern basis
has continued to be adopted in the preparation
of the financial statements.
Payment to creditors
Supplier credit is an important factor in the
success of the business. It is Group policy to
ensure all payments are made within mutually
agreed credit terms. Where disputes arise the
Group attempts to sort these out promptly and
amicably to ensure delays in payment are kept
to a minimum. Trade creditors for the Group at
the financial year end represented 29 days of
purchases (2009: 33 days).
Groceries Supply Code of Practice
The Competition Commission published its final
report on the market investigation into the
supply of groceries in the UK on 30 April 2008.
The report included a package of remedies to
address a number of issues identified during
the investigation.
One such remedy was the introduction of a
new Groceries Supply Code of Practice (GSCOP)
to replace the existing Supermarket Code of
Practice. On 4 February 2010, the Groceries
(Supply Chain Practices) Market Investigation
Order 2009 came into effect, and the Group’s
obligations under GSCOP began on that date.
The new Code applies to all grocery retailers
with annual turnover in excess of £1bn.
Prior to 4 February 2010, the Group appointed
a Code Compliance Officer, as required under
the provisions of GSCOP, and provided
comprehensive training to in excess of 650
colleagues who will work with the code in
their everyday dealings with suppliers.
Health and safety policy
It is the Group’s intention, so far as is reasonably
practicable, to ensure the health, safety and
welfare of all its employees, customers and
visitors to its premises. In order to achieve this,
a comprehensive health and safety manual is
Wm Morrison Supermarkets PLC
in place for each division of the Company and
subsidiary companies within the Group. Each
health and safety manual contains the policy and
procedures for complying with the Health and
Safety at Work Act 1974, including the provision,
based on risk assessment, of safe working
practices for all work activities across the Group.
The Group’s health and safety policy is approved
by the Executive Board. The Group has adopted
the national targets set by the Health and Safety
Commission for the reduction of workplace
accidents and work-related ill health, and is on
course to meet or exceed these targets. Health
and safety performance is monitored to ensure
continuous improvement in all areas.
Additional shareholder information
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 Company is required to disclose
certain additional information. Such disclosures,
which are not covered elsewhere in this report,
include the following paragraphs. Where
reference is made to the Company’s Articles
of Association, this refers to the existing set of
Articles, although the changes proposed to be
made at the Company’s 2010 AGM will not
change the relevant sections. The disclosures
set out below are in some cases a summary of the
relevant provisions of the Company’s Articles of
Association and the relevant full provisions can
be found in the Articles which are available for
inspection at the Company’s registered office.
Share capital and rights attaching to the
Company’s shares
Under the Company’s Articles of Association, any
share 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 he 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 he or any interested person
failed to supply the Company with the
information requested within 14 days after
delivery of that notice. The Board may also
decide that no dividend is payable in respect
of those default shares and that no transfer of
any default shares shall be registered. These
restrictions end seven days after receipt by the
Company of a notice of an approved transfer of
the shares or all the information required by the
relevant section 793 notice, whichever is the earlier.
The Directors may refuse to register any transfer
of any share which is not a fully-paid share,
although such discretion may not be exercised
in a way which the Financial Services 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.
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 Company in general meeting by
special resolution, the business of the Company
shall be managed by the Directors, who may
exercise all powers of the Company which are
not required to be exercised by the Company
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. At the Company’s AGM
to be held on 3 June 2010, a resolution will be
put to shareholders proposing the adoption of
new Articles of Association to reflect changes
introduced by the new Companies Act 2006.
Other disclosures
There are no persons with whom the Group
has contractual or other arrangements which
are essential to the business of the Group.
The Company is not party to any significant
arrangements which take effect, alter or
terminate upon a change of control of the
Company following a takeover bid.
The Company does not have any employee share
schemes where the shares to which the scheme
relates have rights with regard to the control of the
Company which are not exercisable by employees.
By the order of the Board
Greg McMahon
Company Secretary
10 March 2010
Annual report and financial statements 2010
43
Statement of Directors’ responsibilities in respect
of the Annual report and financial statements
The Directors are responsible for preparing the Annual report and
the Group and Parent Company financial statements in accordance
with applicable law and regulations.
• for the Parent Company financial statements, state whether applicable
UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Parent Company financial
statements; and
Company law requires the Directors to prepare Group and Parent Company
• prepare the financial statements on the going concern basis unless it is
financial statements for each financial year. Under that law they are
inappropriate to presume that the Group and the Parent Company will
required to prepare the Group financial statements in accordance with IFRS
continue in business.
as adopted by the EU and applicable law and have elected to prepare the
Parent Company financial statements in accordance with UK Accounting
Standards and applicable law (UK Generally Accepted Accounting Practice). The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Parent Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Under company law the Directors must not approve the financial
Parent Company and enable them to ensure that its financial statements
statements unless they are satisfied that they give a true and fair
comply with the Companies Act 2006. They have general responsibility for
view of the state of affairs of the Group and Parent Company and
taking such steps as are reasonably open to them to safeguard the assets
of their profit or loss for that period. In preparing each of the Group
of the Group and to prevent and detect fraud and other irregularities.
and Parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been
prepared in accordance with IFRS as adopted by the EU;
Under applicable law and regulations, the Directors are also responsible
for preparing a Directors’ report, Directors’ remuneration report
and Corporate governance statement that complies with that law
and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Responsibility statement
Group financial statements 43 —— 74
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair review of the assets,
liabilities, financial position and profit or loss of the Company and its
subsidiaries included in the consolidation as a whole; and
• the Directors’ report includes a fair review of the development of the
business and the position of the Company and its subsidiaries included
in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
By order of the Board
10 March 2010
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
44
Independent auditors’ report to the members
of Wm Morrison Supermarkets PLC
We have audited the financial statements of Wm Morrison Supermarkets
PLC for the 52 weeks ended 31 January 2010 set out on pages 45 to 85.
The financial reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and International
Financial Reporting Standards (IFRS) as adopted by the EU. The financial
reporting framework that has been applied in the preparation of the Parent
Company financial statements is applicable law and UK Accounting
Standards (UK Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body,
in accordance with chapter 3 of part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body,
for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set
out on page 43, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s (APB) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided
on the APB’s website at www.frc.org.uk/apb/scope/UKP
Opinion on financial statements
In our opinion:
• The financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 January 2010
and of the Group’s profit for the year then ended;
• The Group financial statements have been properly prepared in
accordance with IFRS as adopted by the EU;
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• Adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• The Parent Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the
accounting records and returns; or
• Certain disclosures of Directors’ remuneration specified by law are not
made; or
• We have not received all the information and explanations we require for
our audit.
Under the Listing Rules we are required to review:
• The Directors’ statement, set out on page 42, in relation to going
concern; and
• The part of the Corporate governance statement relating to the
Company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review.
Chris Hearld
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
1 The Embankment
Neville Street
Leeds
LS1 4DW
10 March 2010
• The Parent Company financial statements have been properly prepared
in accordance with UK Generally Accepted Accounting Practice; and
• The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006; and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• The part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• The information given in the Directors’ report for the financial year for
which the financial statements are prepared is consistent with the
financial statements.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
45
Consolidated financial statements
under International Financial Reporting Standards
Group accounting policies
Customer loyalty schemes
IFRC 13 requires customer loyalty credits to be accounted for as a separate
component of the sales transaction in which they are granted. A portion of
General information
the fair value of the consideration received is allocated to the award credits
Wm Morrison Supermarkets PLC is a public limited company incorporated
and deferred. This is then recognised as revenue over the period that the
in the United Kingdom under the Companies Act 2006 (Registration
award credits are redeemed. This interpretation has not had a material
number 358949). The Company is domiciled in the United Kingdom
and its registered address is Hilmore House, Gain Lane, Bradford, BD3 7DL, impact on the Group as it is consistent with the accounting policy already
applied by the Group.
United Kingdom.
The financial statements have been prepared on a going concern basis.
The Directors’ assessment of going concern has been considered within
the general information section of the Directors’ report.
The financial statements are presented in Pounds Sterling, rounded to the
nearest million, except in some instances, where it is deemed relevant to
disclose the amounts up to one decimal place. They have been prepared on
the historical cost basis of accounting, except for share-based payments
and derivative financial instruments, which are measured at fair value, and
pension scheme liabilities that are measured using actuarial valuations.
There have been no further alterations made to the accounting policies
as a result of considering all amendments to IFRS and IFRIC interpretations
that became effective during the financial period as these were considered
to be immaterial to the Group’s operations or were not relevant.
New IFRS and amendments to IAS and interpretations
There are a number of standards and interpretations issued by the
International Accounting Standards Board that are effective for financial
statements after this reporting period. The following have not been
adopted by the Group:
IAS39
Embedded derivatives
(amendment)
IFRS 1
First time adoption of IFRS
(revised)
1 July 2009
IAS 27*
Consolidated and separate
financial statements
(amended)
1 July 2009
IAS 39
Financial instruments:
Recognition and
measurement:
Eligible hedged items
1 July 2009
IFRS 3*
Business combinations
(revised)
1 July 2009
Annual
improvements
Annual improvements
to IFRS 2009
Various effective dates
from 1 July 2009
IFRS 2
Group cash-settled
share-based payment
transactions (amendment)
1 January 2010
IFRS 1
Additional exemptions
for first time adopters
(amendment)
1 January 2010
The Group’s accounting policies are set out below and have, unless
otherwise stated, been applied consistently to all periods presented
in these consolidated financial statements.
Presentation of financial statements
IAS 1 (revised) Presentation of financial statements is mandatory for the first
time for this financial year. The standard provides that all owner changes
in equity may be presented in the consolidated statement of changes in
equity and non-owner changes in equity in the consolidated statement
of comprehensive income. The Group adopts this policy and there is no
impact to the financial statements other than presentation. The Group
has elected to present one statement of comprehensive income.
Comparative information has been represented so that it is also in
conformity with the revised standard.
Segmental reporting
From 2 February 2009, the Group has adopted IFRS 8 Operating
segments which requires the Group to determine and present its
operating segments based on information which is provided internally
to the chief operating decision-maker (CODM). The CODM has been
identified as the Executive Board as it is this Board that makes the key
operating decisions of the Group.
The Directors consider there to be one reporting segment, that of grocery
retailing. The CODM’s focus is on the performance and growth of this
activity. In making operational decisions, the CODM considers internal
reports presented regularly to it, primarily the Board Management
Accounts, in order to assess the Group’s performance. These internal
reports focus on the operation of the Group as a whole and it is these
reports that the CODM uses to make resourcing and operational decisions.
Therefore adoption of this standard has not led to any changes in operating
segments previously reported.
www.morrisons.co.uk/annualreport10
Effective for accounting
periods starting on or
after
International Financial
Reporting Standards
30 June 2009
International Financial Reporting
Interpretations Committee
IFRIC 9
Embedded derivatives
(amendment)
30 June 2009
IFRIC 17
Distribution of non-cash
assets to owners
1 July 2009
IFRIC 18
Transfers of assets
from customers
1 July 2009
* These standards and interpretations have been endorsed by the European Union.
The application of these standards and interpretations is not anticipated
to have a material effect on the Group’s financial statements.
Annual report and financial statements 2010
Group financial statements 43 —— 74
Basis of preparation
The financial statements have been prepared for the 52 weeks ended
31 January 2010 (2009: 1 February 2009) in accordance with International
Financial Reporting Standards (IFRS) and International Financial Reporting
Interpretation Committee interpretations (IFRIC) as adopted by the
European Union and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. IFRS and IFRIC are issued
by the International Accounting Standards Board (the IASB) and must be
adopted into European Union law, referred to as endorsement, before
they become mandatory under the IAS Regulation. Shown below are recent
standards and interpretations that have been issued by the IASB, indicating
their status of endorsement.
46
Group accounting policies – continued
Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the Company and its subsidiaries, being those undertakings that it
controls. Control is achieved where the Company has the power to govern
the financial and operating policy of an investee entity so as to obtain
benefits from its activities. The financial statements of subsidiaries used
in the preparation of the consolidated financial statements are prepared
for the same reporting period as the Parent Company and are based on
consistent accounting policies. The results of subsidiaries acquired or
disposed of during the period are included in the consolidated financial
statements from the effective date of acquisition up to the effective date
of disposal, as appropriate.
Intra-group balances and any unrealised gains and losses or income and
expenses arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements.
Significant accounting policies
The Directors consider the following to be significant accounting policies
in the context of the Group’s operations:
Revenue recognition
Revenue is recognised when significant risks and rewards of ownership
have been transferred to the buyer, there is reasonable certainty of
recovery of the consideration and the amount of revenue, associated
costs and possible return of goods can be estimated reliably.
a) Sale of goods in-store and fuel
Sale of goods in-store is recorded net of value added tax, staff discounts,
coupons, vouchers and the free element of multi-save transactions.
Sale of fuel is recognised net of value added tax and Morrisons Miles award
points. Revenue is recognised when transactions are completed in-store.
b) Other sales
Other revenue primarily comprises income from concessions and
commissions based on the terms of the contract and manufacturing sales
made direct to third party customers recognised on despatch of goods.
Revenue collected on behalf of others is not recognised as turnover, other
than the related commission. Sales are recorded net of value added tax
and intra-group transactions.
Other operating income
Other operating income primarily consists of income not directly related
to the operating of supermarkets and mainly comprises rental income from
investment properties and income generated from recycling of packaging.
Rental income arising from operating leases on investment properties is
accounted for on a straight-line basis over the lease term. Details of rental
income from investment property are provided in note 11.
Cost of sales
Cost of sales consists of all costs to the point of sale including
manufacturing, warehouse and transportation costs. Store depreciation,
store overheads and store based employee costs are also allocated to
cost of sales.
Supplier income
Supplier incentives, rebates and discounts are collectively referred to as
supplier income in the retail industry. Supplier income is recognised as a
deduction from cost of sales on an accruals basis based on the expected
entitlement which has been earned up to the balance sheet date for each
relevant supplier contract. The accrued incentives, rebates and discounts
receivable at year end are included within prepayments and accrued
income. Where amounts received are in the expectation of future
business, these are recognised in line with that future business.
Property transactions
Property includes the balance sheet headings of property, plant and
equipment, investment property, lease prepayments and non-current
assets classified as held for sale. The results of transactions relating to
disposal of property are reported in the income statement under ‘Profit
arising on property transactions’. Depreciation and any impairment
charges or reversals are recognised in cost of sales or administrative
expenses, as appropriate.
Borrowing costs
All borrowing costs are recognised in the Group’s income statement on
an 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 of interest ceases when the asset is ready for use.
Deferred and current tax
Current tax payable is based on the taxable profit for the period, using
tax rates enacted at the balance sheet date and any adjustments to tax
payable in respect of previous periods. Taxable profit differs from the
profit as reported in the income statement as it is adjusted both for items
that will never be taxable or deductible and temporary differences.
Current tax is charged in the income statement, except when it relates
to items charged or credited directly in equity in which case the current
tax is reflected in equity.
Deferred tax is recognised using the balance sheet method. Provision is
made for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
taxation purposes. No deferred tax is recognised for temporary differences
that arise on the initial recognition of goodwill or the initial recognition
of assets and liabilities that is not a business combination and that affects
neither accounting nor taxable profits. Deferred tax is calculated based
on tax law that is enacted or substantively enacted at the reporting date
and provided at rates expected to apply when the temporary differences
reverse. Deferred tax is charged or credited in the income statement except
when it relates to items charged or credited directly to equity in which case
the deferred tax is reflected in equity.
Deferred tax assets are recognised to the extent that it is probable that
taxable profit will be available against which the asset can be utilised.
Deferred tax assets recognised are reviewed at each reporting date as
judgement is required to estimate the availability of future taxable income.
Deferred tax assets and liabilities are not discounted and are offset where
amounts will be settled on a net basis as there is a legally enforceable
right to offset.
Accruals for tax contingencies require management to make judgements
and estimates of ultimate exposures in relation to tax compliance issues.
All accruals are included in current liabilities.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
47
Business combinations and goodwill
All business combinations are accounted for by applying the
purchase method.
The assets, liabilities and contingent liabilities of subsidiaries are measured
at their fair values at the date of acquisition. Any excess of the cost of
acquisition over the fair values of the identifiable net assets acquired is
recognised as goodwill.
Property, plant and equipment
a) Property, plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses. Costs include directly
attributable costs. Annual reviews are made of estimated useful lives and
material residual values.
Stocks
Stocks are measured at the lower of cost and net realisable value.
Cost is calculated on a weighted average basis and comprises purchase
price, import duties and other non-recoverable taxes less rebates.
Stocks represent goods for resale.
Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs necessary to make the sale.
Leases
Leases in which substantially all the risks and rewards of ownership are
retained by the lessor are classified as operating leases; all other leases
are classified as finance leases. The Group does not lease any assets on
a finance lease basis either as lessor or lessee.
Lessor accounting – operating leases
Assets acquired and made available to third parties under operating leases
are recorded as property, plant and equipment and are depreciated on a
0%
straight line basis to their estimated residual values over their estimated
2.5% useful lives. Operating lease income is charged on a straight line basis to
the date of the next rent review.
Over the shorter of lease period and 2.5%
b) Depreciation rates used to write off cost less residual value on a straight
line basis are:
Freehold land
Freehold buildings
Leasehold buildings
14-33% Lessee accounting – operating leases
Rental payments are taken to the income statement on a straight line
0% basis over the life of the lease. Property leases are analysed into separate
Assets under construction
components for land and buildings and tested to establish whether the
Investment property
components are operating leases or finance leases. Premiums paid for land
Property held to earn rental income is classified as Investment property.
are treated as a prepayment of an operating lease rental and recognised on
Investment property is recorded at cost less accumulated depreciation
a straight line basis over the life of the lease.
and any recognised impairment loss. The depreciation policy is consistent
with that described for property, plant and equipment.
Provisions
Plant, equipment, fixtures and vehicles
Impairment of non-financial assets
Property, plant and equipment and investment property are annually
reviewed for indications of impairment, or when events or changes in
circumstances indicate that the carrying amount may not be recoverable.
This is performed for each cash generating unit, which in the case of a
supermarket is an individual retail outlet. If there are indications of possible
impairment then a test is performed on the asset affected to assess its
recoverable amount against carrying value. An asset impaired is written
down to its recoverable amount which is the higher of value in use or its fair
value less costs to sell. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and
the risks specific to the asset.
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 from the Group, and where it
can be reliably measured.
Provisions are made in respect of individual properties where there are
obligations for onerous contracts, dilapidations and certain decommissioning
obligations for petrol filling stations. The amounts provided are based on the
Group’s best estimate of the likely committed outflow to the Group. Where
material, these estimated outflows are discounted to net present value.
Foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange at
the dates of the transactions. At each balance sheet date, monetary assets
and liabilities that are denominated in foreign currency are retranslated at
the rates of exchange at the balance sheet date. Gains and losses arising
on retranslation are included in the income statement for the period.
If there is indication of an increase in fair value of an asset that had been
previously impaired, then this is recognised by reversing the impairment,
but only to the extent that the recoverable amount does not exceed the
carrying amount that would have been determined if no impairment loss
had been recognised for the asset.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
Income from investment properties is disclosed in ‘Other operating
income’ and details are shown in note 11 ‘Investment property’.
The related operating costs are immaterial and are included within
Administrative expenses.
48
Group accounting policies – continued
Retirement benefits
The Group operates defined benefit and defined contribution schemes.
A defined contribution scheme is a pension scheme under which the Group
pays fixed contributions into a separate entity. A defined benefit scheme
is one that is not a defined contribution scheme. Pension benefits under
defined benefit schemes are defined on retirement based on age at date
of retirement, years of service and a formula using either the employee’s
compensation package or career average revalued earnings.
The Group operates two defined benefit retirement schemes which are
funded by contributions from the Group and members. The defined benefit
schemes are not open to new members. Pension scheme assets, which are
held in separate trustee administered funds, are valued at market rates.
Pension scheme obligations are measured on a discounted present value
basis using assumptions as shown in note 21. The operating and financing
costs of the scheme are recognised separately in the income statement in
the period in which they arise. Death-in-service costs are recognised on a
straight line basis over their vesting period. Actuarial gains and losses are
recognised immediately in other comprehensive income.
The Group has a right to recognise an asset, should one arise, in respect
of the Group’s net obligations to the pension schemes. Therefore either
an asset or a liability is recognised in the balance sheet, calculated
separately for each scheme.
Payments by the Group to the defined contribution scheme are charged
to the income statement as they arise.
Share-based payments
The Group issues equity settled share-based payments to certain
employees in exchange for services rendered by them. The fair value of
the share-based award is calculated at the date of grant and is expensed
on a straight line basis over the vesting period with a corresponding
increase in equity. This is based on the Group’s estimate of share options
that will eventually vest. This takes into account movement of non-market
conditions, being service conditions and financial performance, if relevant.
Fair value is measured by use of a binomial stochastic model. The expected
life used in the model has been adjusted, based on management’s best
estimate, for effects of non-transferability, exercise restrictions and
behavioural considerations.
The Group has applied fair values to all grants of equity instruments after
7 November 2002 which were unvested as of 1 January 2005 at each
balance sheet date.
Financial instruments
Financial assets and liabilities are recognised on the Group’s balance
sheet when the Group becomes a party to the contractual provisions
of the instrument.
a) Financial assets
i) Trade and other debtors
Trade and other debtors are carried at the lower of their original invoiced
value and recoverable amount. Provision is made when there is objective
evidence that the Group will not be able to recover balances in full, with
the charge being recognised in administrative expenses in the income
statement. Balances are written off when the probability of recovery
is assessed as being remote.
b) Financial liabilities
i) Trade and other creditors
Trade and other creditors are stated at cost.
ii) Borrowings
Interest-bearing bank loans and overdrafts are initially recorded at
fair value, net of attributable transaction costs. Subsequent to initial
recognition, any difference between the redemption value and the initial
carrying amount is recognised in the income statement over the period
of the borrowings on an effective interest rate basis.
c) Derivative financial instruments and hedge accounting
Derivative financial instruments are initially measured at fair value,
which normally equates to cost, and are remeasured at fair value
through profit or loss.
i) Cash flow hedges
Derivative financial instruments are classified as cash flow hedges when
they hedge the Group’s exposure to variability in cash flows that are either
attributable to a particular risk associated with a recognised asset or
liability, or a highly probable forecasted transaction.
The Group has a cross-currency swap which has been designated as a
cash flow hedge. This derivative financial instrument is used to match or
minimise risk from potential movements in foreign exchange rates inherent
in the cash flows of certain financial liabilities. To minimise the risk from
potential movements in energy prices, the Group has energy price
contracts which are also designated as cash flow hedges.
Derivatives are reviewed quarterly for effectiveness. Where a derivative
financial instrument is designated as a hedge of the variability in cash flows
of a recognised asset or liability, or highly probable forecast transaction,
the effective part of any gain or loss on the movement in fair value of the
derivative financial instrument is recognised in other comprehensive
income and presented in the hedging reserve in equity.
The gain or loss on any ineffective part of the hedge is immediately
recognised in the income statement within finance income/costs in relation
to the cross-currency swap and within cost of sales in relation to the energy
price contracts. If a hedge of a forecast transaction subsequently results in
the recognition of a financial asset or liability, the associated cumulative
gains or losses that were recognised directly in equity are reclassified into
the income statement when the transaction occurs.
Net debt
Net debt is cash and cash equivalents, long term cash on deposit,
bank and other current loans, bonds and derivative financial instruments
(stated at current fair value).
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.
ii) Cash and cash equivalents
Cash and cash equivalents for cash flow purposes includes cash-in-hand,
cash-at-bank and bank overdrafts together with short term, highly-liquid
investments that are readily convertible into known amounts of cash, with
an insignificant risk of a change in value, within three months from the date
of acquisition. In the balance sheet bank overdrafts are presented within
current liabilities.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
49
Treasury shares
The Group has an employee trust for the granting of Group shares to
executives and members of the employee share plans. Shares in the
Group held by the employee share trust are treated as treasury shares
and presented in the balance sheet as a deduction from retained earnings.
The shares are deducted for the purpose of calculating the Group’s
earnings per share.
Use of critical accounting assumptions and estimates
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have significant
risk of causing a material adjustment to the carrying value of assets and
liabilities are discussed below.
a) Provisions
Provisions have been made for onerous leases, dilapidations and
decommissioning costs. These provisions are estimates based on the
condition of each property and market conditions for the relevant location.
The actual costs and timing of future cash flows are dependent on future
events. Any difference between expectations and the actual future liability
will be accounted for in the period when such determination is made.
Group financial statements 43 —— 74
b) Pension scheme assumptions and mortality table
The carrying value of defined benefit pension schemes is valued using
actuarial valuations. These valuations are based on assumptions including
the selection of mortality tables for the profile of members in each scheme.
All these are estimates of future events. The mortality experience study
conducted as part of the Safeway scheme triennial valuation is statistically
significant and the longevity assumption is adjusted to reflect its results.
As both of the Group’s schemes have a similar composition and type of
members, this adjustment is also made to the Morrisons scheme. The
mortality assumptions, financial assumptions and mortality experience
study are based on advice received from the schemes’ actuaries. Where
appropriate these are corroborated from time-to-time with benchmark
surveys and ad-hoc analysis.
c) Determination of useful lives, residual values and carrying values
of property, plant and equipment, investment property and long
leasehold land prepayments
Depreciation is provided so as to write down the assets to their residual
values over their estimated useful lives as set out in the accounting policies
for property, plant and equipment, investment property and long leasehold
land prepayments. The selection of these residual values and estimated
lives, particularly in respect of plant and equipment, requires the exercise
of judgement.
The Group is required to assess whether there is indication of impairment
to the carrying values of assets. In making that assessment, judgements are
made in estimating value in use. The Directors consider that the individual
carrying values of stores and other operating assets are supportable either
by value in use or market values.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
50
Consolidated statement of comprehensive income
52 weeks ended 31 January 2010
Note
2010
£m
2009
£m
Turnover
2
Cost of sales
Gross profit
15,410
(14,348)
1,062
14,528
(13,615)
913
Other operating income
Administrative expenses
Profits arising on property transactions
Operating profit
4
65
(224)
4
907
37
(281)
2
671
Analysed as:
Operating profit before pensions credit
Pensions credit within administrative expenses
21
Operating profit
816
91
907
671
–
671
Finance costs
5
Finance income
5
Profit before taxation
Taxation
6
Profit for the period attributable to the owners of the Company
(60)
11
858
(260)
598
(60)
44
655
(195)
460
Other comprehensive (expense)/income:
Actuarial loss arising in the pension scheme
21
Foreign exchange movements
Cash flow hedging movement
Tax in relation to components of other comprehensive (expense)/income
6
Other comprehensive expense for the period, net of tax
(71)
(1)
(11)
22
(61)
(101)
6
6
31
(58)
Total comprehensive income for the period attributable to the owners of the Company
537
402
22.80
22.37
17.39
17.16
Earnings per share (pence)
– basic
– diluted
Wm Morrison Supermarkets PLC
8
8
Annual report and financial statements 2010
51
Consolidated balance sheet
31 January 2010
2010
£m
Assets
Non-current assets
Property, plant and equipment
9
7,180
Lease prepayments
10
257
Investment property
11
229
Other financial assets
13
–
7,666
Current assets
Stocks
14
577
Debtors
15
201
Other financial assets
13
71
Cash and cash equivalents
16
245
1,094
Liabilities
Current liabilities
Creditors
17
(1,845)
Other financial liabilities
18
(213)
Current tax liabilities
(94)
(2,152)
Non-current liabilities
Other financial liabilities
18
(1,027)
Deferred tax liabilities
20
(515)
Net pension liabilities
21
(17)
Provisions
22
(100)
(1,659)
Net assets
4,949
Shareholders’ equity
Called-up share capital
23
265
Share premium
23
92
Capital redemption reserve
24
6
Merger reserve
24
2,578
Retained earnings and hedging reserve
24
2,008
Total equity attributable to the owners of the Company
4,949
2009
£m
6,587
250
242
81
7,160
494
245
–
327
1,066
(1,915)
(1)
(108)
(2,024)
(1,049)
(472)
(49)
(112)
(1,682)
4,520
263
60
6
2,578
1,613
4,520
The financial statements on pages 45 to 74 were approved by the Board of Directors on 10 March 2010 and were signed on its behalf by:
Richard Pennycook
Group Finance Director
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
Note
52
Consolidated cash flow statement
52 weeks ended 31 January 2010
Note
2010
£m
2009
£m
Cash flows from operating activities
Cash generated from operations
25
Interest paid
Taxation paid
Net cash inflow from operating activities
1,004
(60)
(209)
735
964
(70)
(104)
790
Cash flows from investing activities
Interest received
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment and investment property
Net cash outflow from investing activities
8
7
(906)
(891)
29
22
(678)
(627)
Cash flows from financing activities
Proceeds from issue of ordinary shares
Shares repurchased for cancellation
Finance lease principal payments
New borrowings
Repayment of borrowings
Decrease in long term cash on deposit
Dividends paid to equity shareholders
Net cash inflow from financing activities
34
–
–
200
(1)
–
(159)
74
3
(146)
(2)
250
(2)
74
(131)
46
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
16
(82)
327
245
209
118
327
Note
2010
£m
2009
£m
Net (decrease)/increase in cash and cash equivalents
Cash outflow from decrease in debt and lease financing
Cash inflow from increase in loans
Long term cash on deposit
Other non-cash movements
Opening net debt
Closing net debt
26
(82)
2
(200)
–
(2)
(642)
(924)
209
4
(250)
(74)
12
(543)
(642)
Reconciliation of net cash flow to movement in net debt in the period
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
53
Consolidated statement of changes in equity
52 weeks ended 31 January 2010
Share
Share
capital
premium
Note
£m
£m
Current year
At 1 February 2009
Profit for the period
Other comprehensive income:
Actuarial loss arising in the pension scheme
21
Foreign exchange movements
Cash flow hedging movement
Tax in relation to components of other comprehensive income 6
Total comprehensive income for the period
Employees share options schemes:
Share-based payments
27
Share options exercised
Dividends
7
Total transactions with owners
At 31 January 2010
263
60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
32
–
–
2
32
265
92
Attributable to the owners of the Company
Capital
redemption
Merger
Hedging
RetainedTotal
reserve
reserve
reserve
earnings
equity
£m
£m
£m
£m
£m
6
–
2,578
–
12
–
1,601
598
–
–
–
(71)
–
–
–
(1)
–
–
(11)
–
–
–
2
20
–
–
(9)
546
–
–
–
17
–
–
–
–
–
–
–
(159)
–
–
–
(142)
6
2,578
3
2,005
4,520
598
(71)
(1)
(11)
22
537
17
34
(159)
(108)
4,949
Attributable to the owners of the Company
Capital
redemption
Merger
Hedging
RetainedTotal
reserve
reserve
reserve
earnings
equity
£m
£m
£m
£m
£m
Prior year
At 3 February 2008
269
57
–
2,578
6
1,468
Profit for the period
–
–
–
–
–
460
Other comprehensive income:
Actuarial loss arising in the pension scheme
21
–
–
–
–
–
(101)
Foreign exchange movements
–
–
–
–
–
6
Cash flow hedging movement
–
–
–
–
6
–
Tax in relation to components of other comprehensive income 6
–
–
–
–
–
31
Total comprehensive income for the period
–
–
–
–
6
396
Employees share options schemes:
Share-based payments
27
–
–
–
–
–
14
Share options exercised
–
3
–
–
–
–
Shares purchased for cancellation
(6)
–
6
–
–
(146)
Dividends
7
–
–
–
–
–
(131)
Total transactions with owners
(6)
3
6
–
–
(263)
At 1 February 2009 263
60
6
2,578
12
1,601
www.morrisons.co.uk/annualreport10
4,378
460
(101)
6
6
31
402
14
3
(146)
(131)
(260)
4,520
Annual report and financial statements 2010
Group financial statements 43 —— 74
Share
Share
capital
premium
Note
£m
£m
54
Notes to the Group financial statements
52 weeks ended 31 January 2010
1Underlying earnings
The Directors consider that underlying earnings per share measures referred to in the Chairman’s statement, Operating review and Financial review
provide additional useful information for shareholders on underlying trends and performance. The adjustments are made to reported profit to
(a) remove the impact of pension interest income volatility on the comprehensive income statement; (b) remove the one-off pensions credit as a
result of the move from final salary to CARE (note 21); (c) remove profits arising on property transactions since these profits do not form part
of the Group’s principal activities; and (d) apply an effective tax rate of 30%, being an estimated normalised tax rate.
In the prior period, we have used the actual tax charge as the difference between the actual tax charge and normalised charge is not significant.
2010
£m
2009
£m
Profit after tax
Add back: tax charge for the period1
Profit before tax
Adjustments for:
Net pension interest cost/(income) (note 5)1
Pensions credit1
Profits arising on property transactions1
Underlying earnings before tax
Taxation1
Underlying earnings after tax charge
598
260
858
460
195
655
4
(91)
(4)
767
(230)
537
(17)
–
(2)
636
(195)
441
Underlying earnings per share (pence)
– basic (refer note 8(b))
– diluted (refer note 8(b))
20.47
20.08
16.67
16.45
2010
£m
2009
£m
Sale of goods in-stores
Fuel
Total store based sales
Other sales
Total turnover
12,423
2,893
15,316
94
15,410
11,378
3,069
14,447
81
14,528
2010
£m
2009
£m
1
Adjustments marked 1 equal £61m (2009: £19m) as shown in the reconciliation of earnings disclosed in note 8(b).
2Turnover (excluding VAT)
3Employees and Directors
Employee benefit expense for the Group during the period
Wages and salaries
Social security costs
Share-based payments (note 27)
Pension costs
Pensions credit
Other employee costs
1,638
113
17
29
(91)
1
1,707
1,453
105
14
42
–
3
1,617
2010
No.
2009
No.
Average monthly number of people employed by business group
Stores
Manufacturing
Distribution
Centre2
120,135
4,810
5,890
2,908
133,743
111,462
5,042
4,886
3,140
124,530
2
Centre includes employees on maternity leave and long term sick leave.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
55
3Employees and Directors – CONTINUED
Key management comprises Executive and Non-Executive Directors as they have the responsibility of planning and controlling the operations of the
business as a whole. The aggregate remuneration paid to or accrued for the Directors for services in all capacities during the period is as follows:
2010
£m
2009
£m
Directors
Short term employee benefits
Pension costs
Share-based payments
4.7
0.4
1.9
7.0
5.8
0.4
3.9
10.1
There are three Executive Directors (2009: three) who have retirement benefits accruing under the Group’s defined benefit pension scheme.
Additional information on Directors’ emoluments (including the highest paid Director and gains on the exercise of share options) can be found in the
Directors’ remuneration report on pages 32 and 40.
4 Operating profit
The following items have been included in arriving at operating profit:
Depreciation:
– property, plant and equipment – owned assets
– investment property
Charge in the income statement
Operating lease rentals:
– minimum lease payments
– sublease receipts
Value of stock expensed
2010
£m
2009
£m
298
6
304
284
6
290
40
(6)
11,548
35
(5)
11,016
2010
£m
2009
£m
0.4
0.2
0.1
0.4
0.2
0.1
–
0.1
0.1
0.2
0.9
1.7
0.5
1.5
2010
£m
2009
£m
Interest payable on short term loans and bank overdrafts
Interest payable on bonds
Interest capitalised
Total interest payable
Fair value movement of derivative instruments
Other finance costs
Finance costs
Bank interest received
Amortisation of bonds
Other finance income
Pension liability interest cost
Expected return on pension assets
Net pension interest (expense)/income
Finance income
Net finance cost
(5)
(45)
5
(45)
(8)
(7)
(60)
4
8
3
(109)
105
(4)
11
(49)
(3)
(45)
4
(44)
(8)
(8)
(60)
17
8
2
(113)
130
17
44
(16)
Audit services
– statutory Group and Company audit
– statutory audit of subsidiaries
– audit related regulatory reporting
Tax services
– compliance services
– advisory services
Other
– independent project assurance
5 Finance costs and income
Interest is capitalised at the effective interest rate incurred on borrowings before taxation. Taxation relief is obtained on interest paid and this reduces
the tax charged for the period.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
Services provided by the Group’s auditor
During the period KPMG Audit Plc, the Group’s auditor, provided the following services:
56
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
6Taxation
a) Analysis of charge in the period
Corporation tax
– current period
– adjustment in respect of prior period
Deferred tax
– current period
– adjustment in respect of prior period
Tax charge for the period
2010
£m
2009
£m
205
(27)
178
145
(10)
135
54
28
82
260
69
(9)
60
195
2010
£m
2009
£m
b) Tax on items (credited)/charged in other comprehensive income
Actuarial loss arising in the pension scheme
(20)
(29)
Cash flow hedges
(2)
(2)
Total tax on items included in other comprehensive income
(22)
(31)
Analysis of items (credited)/charged to other comprehensive income:
Current tax
17
(19)
Deferred tax (note 20)
(39)
(12)
c) Tax reconciliation
The tax for both periods is higher than the standard rate of corporation tax in the UK of 28% (2009: 28%). The differences are explained below:
2010
£m
2009
£m
Profit before tax
Profit before tax at 28% (2009: 28%)
Effects of:
Expenses not deductible for tax purposes
Non-qualifying depreciation
Deferred tax on Safeway acquisition assets
Divestment profits not taxable
Other
Prior period adjustments
Tax charge for the period
858
240
655
183
4
24
(8)
1
(2)
1
260
8
31
(7)
(2)
1
(19)
195
2010
£m
2009
£m
7 Dividends
Amounts recognised as distributed to equity holders in the year:
Interim dividend for the year ended 31 January 2010 of 1.08p (2009: 0.8p)
28
21
Final dividend for the year ended 1 February 2009 of 5.0p (2009: 4.125p)
131
110
159
131
The Directors are proposing a final dividend in respect of the financial period ending 31 January 2010 of 7.12p per share which will absorb an estimated
£189m of shareholders funds. Subject to approval at the AGM, it will be paid on 9 June 2010 to shareholders who are on the register on 7 May 2010.
A dividend reinvestment plan is available in respect of the final dividend.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
57
8Earnings per share
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary
shares. The Company has two (2009: two) classes of financial instruments that are potentially dilutive: those share options granted to employees where
the exercise price is less than the average market price of the Company’s ordinary shares during the period and contingently issuable shares under the
Group’s Long Term Incentive Plan.
a) Basic and diluted earnings per share (unadjusted)
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
2010
Earnings
£m
Weighted
average
number of
sharesEPSEarnings
millions
pence
£m
Unadjusted EPS
Basic EPS
Earnings attributable to ordinary shareholders
Effect of dilutive instruments
Share options and LTIPs
Diluted EPS
2009
Weighted
average
number of
sharesEPS
millions
pence
598 2,623.3
22.80
460 2,644.9
–
50.5
(0.43)
–
36.5
598 2,673.8
22.37
460 2,681.4
17.39
(0.23)
17.16
b) Underlying earnings per share
Given below is the reconciliation of the earnings used in the calculations of underlying earnings per share:
2010
Weighted
average
number of
sharesEPSEarnings
millions
pence
£m
2009
Weighted
average
number of
sharesEPS
millions
pence
Underlying EPS
Basic EPS
Earnings attributable to ordinary shareholders
598 2,623.3
22.80
460 2,644.9
Adjustments to determine underlying profit (note 1)
(61)
–
(2.33)
(19)
–
537 2,623.3
20.47
441 2,644.9
Effect of dilutive instruments
Share options and LTIPs
–
50.5
(0.39)
–
36.5
Diluted EPS
537 2,673.8
20.08
441 2,681.4
17.39
(0.72)
16.67
(0.22)
16.45
c) Adjusted earnings per share
The following earnings per share calculations are for the purposes of the LTIP performance conditions:
2010
Earnings
£m
Weighted
average
number of
sharesEPSEarnings
millions
pence
£m
Adjusted EPS
Basic EPS
Earnings attributable to ordinary shareholders
Profits arising on property transactions1
Pensions credit1
1
598 2,623.3
(3)
–
(66)
–
529 2,623.3
22.80
(0.12)
(2.51)
20.17
460
(1)
–
459
2009
Weighted
average
number of
sharesEPS
millions
pence
2,644.9
–
–
2,644.9
17.39
(0.04)
–
17.35
Profits arising on property transactions and pensions credit as shown in the income statement after adjusting for tax charges.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
Earnings
£m
58
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
9 Property, plant and equipment
Land and buildings
Freehold
Leasehold
£m
£m
Plant,
equipment,
fixtures
& vehiclesTotal
£m
£m
Current year
Cost
At 1 February 2009
6,519
375
1,449
Additions at cost
346
186
337
Interest capitalised
5
–
–
Transfer from investment properties
28
2
–
Disposals
(4)
–
(9)
At 31 January 2010
6,894
563
1,777
8,343
869
5
30
(13)
9,234
Accumulated depreciation and impairment
At 1 February 2009
681
77
998
Charge for the period
107
18
173
Transfer from investment properties
10
–
–
Disposals
(1)
–
(9)
At 31 January 2010
797
95
1,162
1,756
298
10
(10)
2,054
Net book amount at 31 January 2010
6,097
468
615
7,180
Assets under construction included above
32
2
158
192
The acquisition of 38 stores from the Co-operative Group (note 12) has been treated as an asset purchase. No infrastructure was purchased with the
stores, and therefore this has not been treated as a business acquisition.
Since 3 February 1985, the cost of financing property developments prior to their opening date has been included in the cost of the project.
The cumulative amount of interest capitalised in the total cost above amounts to £245m (2009: £240m).
L
and and buildings
Freehold
Leasehold
£m
£m
Plant,
equipment,
fixtures
& vehiclesTotal
£m
£m
Prior year
Cost
At 3 February 2008
Additions at cost
Interest capitalised
Transfer from assets held for sale
Transfer to investment properties
Disposals
At 1 February 2009
6,142
380
4
9
(6)
(10)
6,519
372
18
–
–
–
(15)
375
1,165
286
–
–
–
(2)
1,449
7,679
684
4
9
(6)
(27)
8,343
Accumulated depreciation and impairment
At 3 February 2008
Charge for the period
Transfer from assets held for sale
Disposals
At 1 February 2009
566
110
5
–
681
69
13
–
(5)
77
839
161
–
(2)
998
1,474
284
5
(7)
1,756
Net book amount at 1 February 2009
5,838
298
451
6,587
Assets under construction included above
129
26
73
228
2010
£m
2009
£m
Long lease land premiums
257
250
10Lease prepayments
The current element of long lease land premiums is included within debtors (note 15). During the period, new long lease land premiums amounting to
£10m were paid (2009: £13m).
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
59
11 Investment property
2010
£m
2009
£m
Cost
At start of period
Additions
Transfer (to)/from property, plant and equipment
At end of period
294
13
(30)
277
285
3
6
294
Accumulated depreciation
At start of period
Charge for the period
Transfer to property, plant and equipment
At end of period
52
6
(10)
48
46
6
–
52
Net book amount at end of period
229
242
Included in other operating income is £21m (2009: £19m) of rental income generated from investment properties.
The fair value of investment properties at the end of the period was £281m (2009: £259m). The Directors do not believe that there has been a material
change in yield since last year and that the increase in value has been generated by a growth in the rental income stream.
12Capital commitments
2010
£m
2009
£m
Contracts placed for future capital expenditure not provided in the financial statements
95
321
Included above are capital commitments of £47m (2009: £46m) for future capital expenditure on the new IT systems.
13OTHER Financial assets
Non-current assets
Cross-currency swaps maturing 2010
Current assets
Cross-currency swaps maturing 2010
2010
£m
2009
£m
–
81
71
–
The cross-currency swaps cover the Group from currency exposure arising from payments of interest and repayment of the principal in relation to
Euro bonds.
The notional principal amount of the outstanding cross-currency swaps at 31 January 2010 was €250m (2009: €250m).
14Stocks
2010
£m
2009
£m
Goods for resale
577
494
2010
£m
2009
£m
Trade debtors
Less: Provision for impairment of trade debtors
Lease prepayment – long lease land premiums
Other debtors
Prepayments and accrued income
148
(3)
145
2
11
43
201
105
(3)
102
1
78
64
245
15Debtors
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
During the prior period, Morrisons entered into an agreement with the Co-operative Group to acquire over half a million square feet of additional
selling space through the purchase of a number of Co-operative Group and former Somerfield stores, at a cost of £223m. A deposit of £22m was
paid during the prior period and was classified within debtors. The transaction has been completed during the current financial period.
60
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
15Debtors – continued
The ageing analysis of trade debtors is as follows:
2010
£m
2009
£m
Neither past due nor impaired
Past due but not impaired:
– not more than three months
– greater than three months
Impaired debt
137
79
6
2
3
148
23
–
3
105
As at 31 January 2010, trade debtors that were neither past due nor impaired related to a number of independent customers for whom there is no recent
history of default.
The other classes of debtors do not contain impaired assets.
16Cash and cash equivalents
2010
£m
2009
£m
Cash and cash equivalents
245
327
2010
£m
2009
£m
Trade creditors
Other taxes and social security payable
Other creditors
Accruals and deferred income
Interest accrual
1,350
32
134
318
11
1,845
1,443
28
160
273
11
1,915
2010
£m
2009
£m
Current
Bank loans, overdrafts and bonds due within one year or on demand:
€250m Euro bonds 6.50% April 2010
198
198
–
–
Energy price contracts
Forward foreign exchange contracts
Finance lease obligations
14
1
–
213
–
–
1
1
2010
£m
2009
£m
Non-current
£150m Sterling bonds 6.50% August 2014
£200m Sterling bonds 6.00% January 2017
£200m Sterling bonds 6.12% December 2018
€250m Euro bonds 6.50% April 2010
Total non-current Sterling and Euro bonds
154
202
205
–
561
155
202
205
222
784
Floating credit facility – 0.81% (2009 2.08%)
Other loans – 9.38%
Energy price contracts
450
11
5
1,027
250
15
–
1,049
17 Creditors – current
18Other financial liabilities
The Group had the following current and non-current borrowings and other financial liabilities:
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
61
18Other financial liabilities – continued
Borrowing facilities
Borrowings are denominated in Sterling and Euros and bear fixed interest rates, with the exception of the floating credit facility which bears floating
interest rates. All borrowings are unsecured.
The expiry date for the floating credit facility is consistent with the undrawn element of the facility disclosed below.
In the event of default of covenants on the bank facility, the principal amounts and any interest accrued are repayable on demand.
The Group has the following undrawn floating committed borrowing facilities available in respect of which all conditions precedent had been met
at that date:
2010
£m
2009
£m
Undrawn facilities expiring:
– between 2 and 3 years
– between 3 and 4 years
650
–
–
850
19 Financial instruments
a) Financial risk management
The Group’s treasury operations are controlled centrally by the Treasury Committee in accordance with clearly defined policies and procedures that have
been authorised by the Board. There is an amount of delegated authority to the Treasury Committee, but all activities are summarised in half yearly
treasury reports which are presented to the Audit Committee.
The Group’s principal financial liabilities, other than derivatives, comprise bank loans and overdrafts, bonds, other borrowings, finance leases and trade
and other creditors. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has various financial assets
such as trade debtors and cash and short term deposits which arise directly from its operations.
The Group enters into derivative transactions, in the form of forward currency contracts, cross-currency swaps and energy price contracts. The purpose
of these derivative instruments is to manage risks arising from the Group’s operations and its sources of finance. As part of our normal banking
arrangements, we utilise letters of credit in order to facilitate contracts with third parties. The financial derivatives relating to commitments entered into
during the year are to manage the risks arising from its usage of energy and foreign currency. It remains the Group’s policy not to engage in speculative
trading of financial instruments.
i) Foreign currency risk
The Group makes the majority of its purchases in Sterling however it incurs currency exposure in respect of overseas trade purchases made in currencies
other than Sterling, primarily being Euro and US Dollar. The Group’s objective is to reduce risk to short term profits from exchange rate fluctuations.
It is Group policy that any transactional currency exposures recognised to have a material impact on short term profits will be hedged through the use of
derivative financial instruments. As at the balance sheet date, the Group had entered into forward foreign exchange contracts to mitigate foreign currency
exposure on up to 50% (2009: 50%) of its forecasted purchases within the next six months. Exposure on debt denominated in a foreign currency is fully
hedged using cross-currency swaps.
The sensitivity to a reasonably possible change (+/- 20%) in the US Dollar/Euro exchange rate has been determined as being immaterial.
ii) Liquidity risk
The Group policy is to maintain a balance of funding with a range of maturities and a sufficient level of undrawn committed borrowing facilities to meet
any unforeseen obligations and opportunities. Short term cash balances, together with undrawn committed facilities, enable the Group to manage its
liquidity risk. The Group finances its operations with a combination of bank credit facilities and bonds.
The Treasury Committee monitors rolling forecasts of the Group’s liquidity reserve on a quarterly basis, which comprises committed and uncommitted
borrowing facilities on the basis of expected cash flow. At the year end, the Group had undrawn committed facilities of £650m (note 18); these facilities
remain available to the Group.
The table below summarises the maturity profile of the Group’s other financial liabilities based on contractual undiscounted payments, which includes
interest payments. Creditors and current tax liabilities have been excluded from this analysis as these balances are due within 12 months and their
contractual undiscounted payments equal their carrying balances as the impact of discounting is not significant.
As the amounts included in the table are the contractual undiscounted cash flows, these amounts do not agree to the amounts disclosed on the balance
sheet for borrowings. Where borrowings are subject to a floating rate, an estimate for interest has been made.
2010
£m
2009
£m
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
270
39
487
35
185
493
52
281
40
288
35
677
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
The objectives, policies and processes for managing these risks, which remain unchanged from the prior year are stated below:
62
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
19 Financial instruments – continued
a) Financial risk management – continued
The table below analyses the Group’s derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet
date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
At 31 January 2010
< 1 year
£m
1–2 years
£m
2–3 years
£m
3–4 years
£m
Derivatives settled on a gross basis
Cross-currency swap – cash flow hedges
– Outflow
(160)
–
–
– Inflow
231
–
–
Forward contracts
– Outflow
(51)
–
–
– Inflow
50
–
–
Derivatives settled on a net basis
Energy price contracts – cash flow hedges
– Outflow
(14)
(4)
(2)
At 1 February 2009
< 1 year
£m
1–2 years
£m
2–3 years
£m
–
–
–
–
–
3–4 years
£m
Derivatives settled on a gross basis
Cross-currency swap – cash flow hedges
– Outflow
(11)
(156)
–
– Inflow
14
235
–
Forward contracts
– Outflow
(53)
–
–
– Inflow
56
–
–
Derivatives settled on a net basis
Energy price contracts – cash flow hedges
– Outflow
(2)
–
–
iii) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banking groups as well as credit exposures
from other sources of income such as supplier income and tenants of investment properties.
The Group maintains deposits with banks and financial institutions with an acceptable credit rating for a period not exceeding six months. Further,
the Group has specified limits that can be deposited with any banking group or financial institution at any point. The maximum exposure on cash and
cash equivalents and deposits is equal to the carrying amount of these instruments. The Group does not expect any significant performance losses
from counterparties.
The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that tenants of investment properties who wish to trade
on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that
the Group’s exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in note 15. There are no significant
concentrations of credit risk within the Group.
iv) Other risk
Pricing risk: The Group manages the risks associated with the purchase of electricity, gas and diesel consumed by its activities. This does not include
fuel purchased for resale to customers. The Treasury Committee reviews the Group’s market price exposure to these commodities on a quarterly basis
and determines a strategy for utilising derivative financial products in order to mitigate the volatility of energy prices.
The Group intends to hold derivatives to maintain cover of its energy purchases of up to 75% over an appropriate timescale.
Cash flow interest rate risk: The Group’s long term policy is to protect itself against adverse movements in interest rates by maintaining up to 60%
of its consolidated total net debt in fixed rate borrowings over a four-year horizon. As at the balance sheet date 61% (2009: 74%) of the Group’s
borrowings are at fixed rate, thereby substantially reducing the Group’s exposure to adverse movements in interest rates.
Cash and cash equivalents are a significant interest-bearing asset held by the Group. At year end, a 1% movement in interest rate would have had a
£2m (2009: £2m) impact on the Group’s annual finance income/(expense). There are no other significant interest-bearing assets held by the Group.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
–
–
–
–
–
63
19 Financial instruments – continued
b) Capital management
The Group’s objectives are to safeguard its ability to continue as a going concern providing returns to shareholders, through the optimisation of the
debt and equity balance, and to maintain a strong credit rating and headroom. The Group manages its capital structure and makes appropriate
decisions in light of the current economic conditions and strategic objectives of the Group.
A key objective of the Group’s capital management is to maintain compliance with the covenants set out in the revolving credit facility.
The Group’s policy is to maintain both a gearing ratio and interest cover, which represents headroom of at least 10% over and above the requirements
laid down in the revolving credit facility. Throughout the year, the Group has comfortably complied with this policy.
There has been no change in the objectives, policies or processes with regards to capital management during the years ended 31 January 2010 and
1 February 2009.
c) Fair values
i) Financial assets
All financial derivatives are held at fair value which has been determined by reference to prices available from the markets on which the instruments
are traded.
Cash and cash equivalents and Debtors are held at book value which equals the fair value. The values of the financial assets are disclosed within note 13.
ii) Financial liabilities
All financial liabilities are carried at amortised cost. The Euro bonds are retranslated at balance sheet date spot rates. The fair value of the Sterling and
Euro bonds are measured using closing market prices. These compare to carrying values as follows:
2010
2010
2009
2009
Amortised
cost
£m
Fair
value
£m
Amortised
cost
£m
Fair
value
£m
Total bonds – current
Total bonds – non-current
198
561
759
220
598
818
–
784
784
–
781
781
d) Hedging activities
i) Cash flow hedge
At 31 January 2010, the Company held a cross-currency swap which has been designated as a cash flow hedge. This derivative financial instrument is used
to minimise risk from potential movements in foreign exchange rates inherent in cash flow of certain liabilities. To minimise the risk from potential
movements in energy prices, the Group has energy price contracts which are also designated as cash flow hedges.
The hedged forecast transactions denominated in foreign currency are expected to occur in the next year (2009: two years). Gains and losses recognised
in the hedging reserve in equity (note 24) on cross-currency swaps as at 31 January 2010 are recognised in the income statement in the period or periods
during which the hedged forecast transaction affects the income statement, which is in the next year (2009: two years).
ii) Forward contracts
The Group uses forward foreign exchange contracts to hedge the cost of future purchases of goods for resale, where those purchases are denominated
in a currency other than the functional currency of the purchasing company. The hedging instruments are primarily used to hedge purchases in Euros and
US dollars. The cash flows hedged will occur within one year of the balance sheet date.
At 31 January 2010, the total notional amount of outstanding forward foreign exchange contracts to which the Group has committed was £51m
(2009: £53m). The fair value of these outstanding forward exchange contracts at the balance sheet date was a liability of £1m (2009: £nil).
e) Fair value hierarchy
IFRS 7 requires an analysis of financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices)
• Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
All financial instruments carried at fair value within the Group at 31 January 2010 and 1 February 2009 are financial derivatives and all are categorised
as Level 2 instruments.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
The fair value of other items within current and non-current borrowing equals their carrying amount, as the impact of discounting is not significant.
64
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
20Deferred tax
2010
£m
2009
£m
Deferred tax liability
Deferred tax asset
Net deferred tax liability
(563)
48
(515)
(546)
74
(472)
IAS 12 Income taxes permits the offsetting of balances within the same tax jurisdiction. All of the deferred tax assets were available for offset against
deferred tax liabilities.
The movements in deferred tax assets/(liabilities) during the period are shown below.
Property,
plant and
Share-based
equipment
Pensions
payments
£m
£m
£m
Current year
At 1 February 2009
Charged to income statement
Credited to other comprehensive income
At 31 January 2010
Other
short term
temporary
differences
£m
Total
£m
54
(33)
19
40
(472)
(82)
39
(515)
Prior year
At 3 February 2008
(554)
19
5
106
Credited/(charged) to income statement
8
(34)
1
(35)
Credited/(charged) to other comprehensive income
–
29
–
(17)
At 1 February 2009
(546)
14
6
54
(424)
(60)
12
(472)
(546)
(17)
–
(563)
14
(29)
20
5
6
(3)
–
3
The deferred income tax credited/(charged) through other comprehensive income during the period was as follows:
2010
£m
Actuarial losses
Short term temporary differences
20
19
2009
£m
29
(17)
21 Pensions
a) Defined benefit pension scheme
The Group operates two pension schemes, the ‘Morrison’ and ‘Safeway’ schemes, providing benefits based on pensionable pay of the final years of
membership. The assets of the schemes are held in separate trustee administered funds; no part of the schemes is wholly unfunded. The latest full
actuarial valuations, which were carried out at 6 April 2007 and 1 April 2007 for the Morrison and Safeway schemes respectively, were updated for
IAS 19 purposes for the periods to 31 January 2010, 1 February 2009, and 3 February 2008 by a qualified independent actuary.
Following consultation with members and approval by the Board of Trustees, the Group became committed to the final proposals from the Pension
Review on 2 July 2009.
The move from a final salary basis to career average revalued earnings (CARE) represents an accounting curtailment of certain pension liabilities.
In accordance with IAS 19 Employee benefits, the defined pension schemes’ obligations were revalued by the schemes’ actuaries immediately prior to
the change and assumptions reviewed at that date. As a result a pensions credit of £91m has been recognised in comprehensive income during the year.
The Deed and Rules of the Morrison Pension Scheme gives the Trustees power to set the level of contributions. In the Safeway Scheme this power
is given to the Group, subject to regulatory override.
The current best estimate of employer contributions to be paid for the year commencing 1 February 2010 is £42m (2009: £44m).
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
65
21 Pensions – CONTINUED
b) Assumptions
The major assumptions used in this valuation to determine the present value of the schemes’ defined benefit obligation are shown below.
The assumptions used at the valuation date of 2 July 2009, used in calculating the pension credit of £91m, remained the same as the prior
year end (1 February 2009) apart from the discount rate, which reduced from 6.25% to 6.0%.
i) Financial
2010
2009
2008
Rate of increases in salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate applied to scheme liabilities
Inflation assumption
4.85–5.85%
3.60%
5.65%
3.60%
4.75–5.75%
3.50%
6.25%
3.50%
5.00–6.00%
3.75%
5.75%
3.75%
ii) Longevity
The average life expectancy in years of a member who reaches normal retirement age of 65 and is currently aged 45 is as follows:
2010
2009
2008
Male
Female
23.5
25.8
23.5
25.8
23.5
25.8
2010
2009
2008
Male
Female
22.2
24.7
22.2
24.7
22.2
24.7
The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:
In calculating the present value of the liabilities the actuary selects the appropriate mortality table that reflects the longevity assumption. The most
up to date tables are used in each period. The current mortality table used is PNX00 YOB (2009 and 2008: PNX00 YOB LC). As disclosed in the Critical
accounting assumptions on page 49, the results of the experience study conducted for the Safeway scheme have been used to adjust the longevity
assumption for both schemes.
iii) Expected return on assets
The major assumptions used to determine the expected future return on the schemes’ assets, were as follows:
2010
2009
2008
Long term rate of return on:
Equities
Corporate bonds
Gilts
Property related funds
Cash
7.25%
5.65%
4.35%
5.65%
1.50%
7.00%
6.00%
4.25–4.50%
6.00%
2.50%
7.00%
6.00%
4.25–4.50%
6.00%
5.50%
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescales
covered, may not necessarily be borne out in practice. The expected return on plan assets is based on market expectation at the beginning of the
period for returns over the entire life of the benefit obligation.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The longevity
assumption considers how long a member will live when they reach the age of retirement. Amongst the UK population there is a continuing trend
for a generation to live longer than the preceding generation, and this has been reflected in the longevity assumption. This means that a 45-year-old
today is assumed to live on average longer than a 65-year-old today. This particular adjustment, described in the mortality tables below, is known as
‘Long Cohort’ and is in-line with the latest advice from the Pension Regulator.
66
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
21 Pensions – CONTINUED
c) Valuations
Assets of the schemes are held in order to generate cash to be used to satisfy the schemes’ obligations, and are not necessarily intended to be realised
in the short term. The allocation of assets between categories is governed by the Investment Principles of each scheme and is the responsibility of the
trustees of each respective scheme. The trustees should take due consideration of the Group’s views and a representative of the Group attends Trustee
Investment Committees. The fair value of the schemes’ assets, which may be subject to significant change before they are realised, and the present value
of the schemes’ liabilities which are derived from cash flow projections over long periods and are inherently uncertain, are as follows:
Equities
Corporate bonds
Gilts
Property and property related funds
Cash
Total fair value of schemes’ assets
Present value of defined benefit funded obligation
Net pension liability recognised in the balance sheet
Related deferred tax asset (note 20)
Net deficit
2010
£m
798
636
609
54
14
2,111
(2,128)
(17)
5
(12)
2009
£m
592
547
545
71
3
1,758
(1,807)
(49)
14
(35)
2008
£m
1,040
237
531
104
27
1,939
(2,007)
(68)
19
(49)
The movement in the fair value of the schemes’ assets over the year was as follows:
2010
£m
2009
£m
2008
£m
Fair value of scheme assets at start of period
Expected return on scheme assets
Actuarial gain/(loss) recognised in other comprehensive income
Employer contributions
Employee contributions
Benefits paid
Fair value of scheme assets at end of period
1,758
105
245
42
10
(49)
2,111
1,939
130
(425)
141
10
(37)
1,758
1,774
116
(113)
193
10
(41)
1,939
The above pension scheme assets do not include any investments in the Parent Company’s own shares or property occupied by any member of the Group.
The movement in the present value of the defined benefit obligation during the period was as follows:
Defined benefit obligation at start of period
Current service cost
Employee contributions
Interest on defined benefit obligation
Actuarial (loss)/gain recognised in other comprehensive income
Benefits paid
Pensions credit
Defined benefit obligation at end of period
2010
£m
(1,807)
(26)
(10)
(109)
(316)
49
91
(2,128)
2009
£m
(2,007)
(38)
(10)
(113)
324
37
–
(1,807)
2008
£m
(1,972)
(44)
(10)
(99)
77
41
–
(2,007)
d) Sensitivities
Below is listed the impact on the liabilities at 31 January 2010 of changing key assumptions whilst holding other assumptions constant:
Discount factor
Longevity
Wm Morrison Supermarkets PLC
+/- 0.1%
+/- 1 year
£50m
£61m
Annual report and financial statements 2010
67
21 Pensions – CONTINUED
e) Income statement
The following amounts have been (charged)/credited in employee benefits in arriving at operating profit:
Current service cost
Pensions credit
2010
£m
(26)
91
65
2009
£m
(38)
–
(38)
2008
£m
(44)
–
(44)
The amounts for current service cost and pensions credit have been (charged)/credited in the following income statement lines:
Cost of sales
Administrative expenses
2010
£m
(21)
86
65
2009
£m
(30)
(8)
(38)
2008
£m
(35)
(9)
(44)
The following amounts have been included in finance income:
2010
£m
2009
£m
2008
£m
Expected return on pension scheme assets
Interest on pension scheme liabilities
105
(109)
(4)
130
(113)
17
116
(99)
17
2010
£m
2009
£m
2008
£m
Actual return less expected return on scheme assets
Experience gains and losses arising on scheme obligation
Changes in financial assumptions underlying the present value of scheme obligations
Actuarial movement recognised in other comprehensive income
Taxation on actuarial movement in other comprehensive income
Net actuarial movement recognised in other comprehensive income
245
–
(316)
(71)
20
(51)
(425)
(4)
328
(101)
29
(72)
(113)
83
(6)
(36)
10
(26)
2010
£m
2009
£m
2008
£m
Cumulative gross actuarial movement recognised in other comprehensive income
Taxation on cumulative actuarial movement recognised in other comprehensive income
Cumulative net actuarial movement recognised in other comprehensive income
(159)
44
(115)
(88)
24
(64)
13
(5)
8
The actual return on schemes’ assets can therefore be summarised as follows:
2010
£m
2009
£m
2008
£m
Expected return on schemes’ assets
Actuarial movement recognised in other comprehensive income
reflecting the difference between expected and actual return on assets
Actual return on schemes’ assets
105
130
116
245
350
(425)
(295)
(113)
3
The expected return on schemes’ assets was determined by considering the expected returns available on the assets underlying the current investment
policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and
property investments reflect long term real rates of return experienced in the respective markets.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
f) Actuarial gains and losses recognised in other comprehensive income
The amounts included in the other comprehensive income were:
68
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
21 Pensions – CONTINUED
g) History of experience gains and losses
Difference between the expected and actual return on scheme assets:
– Amount
– Percentage of scheme assets
Experience gains and losses arising on scheme liabilities:
– Amount
– Percentage of present value of scheme obligation
Effects to changes in the demographic and financial assumptions
underlying the present value of the scheme liabilities:
– Amount
– Percentage of present value of scheme obligation
Total amount recognised in other comprehensive income:
– Amount
– Percentage of present value of scheme obligation
Total value of schemes’ assets
Present value of defined benefit obligation
Net pension liability recognised in the balance sheet
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
245
11.6%
(425)
(24.2%)
(113)
(5.8%)
78
4.4%
165
10.8%
–
–
(4)
(0.2%)
83
4.1%
37
1.9%
14
0.7%
(316)
(14.8%)
328
18.2%
(6)
(0.3%)
55
2.8%
(219)
(11.2%)
(71)
(3.3%)
2,111
(2,128)
(17)
(101)
(5.6%)
1,758
(1,807)
(49)
(36)
(1.8%)
1,939
(2,007)
(68)
170
8.6%
1,774
(1,972)
(198)
(40)
(2.1%)
1,536
(1,952)
(416)
h) Defined contribution pension scheme
Employees joining the Company after September 2000 are no longer eligible to gain automatic entry into the defined benefit pension scheme. In June
2001, the Company established a stakeholder pension scheme, open to all employees, to which the Company makes matching contributions of a maximum
of 5% of eligible earnings. Pension costs for the defined contribution scheme are as follows:
Stakeholder pension scheme
Life assurance scheme
Total costs
2010
£m
(3)
(2)
(5)
2009
£m
2008
£m
(3)
(1)
(4)
(3)
(1)
(4)
22Provisions
Property
provisions
£m
At 1 February 2009
Charged to the income statement
Unused amounts reversed during the period
Utilised in period
Unwinding of discount
At 31 January 2010
112
3
(15)
(6)
6
100
Provisions comprise onerous leases provision, petrol filling station decommissioning reserve and provisions for dilapidations on leased buildings.
Onerous leases relate to sublet and vacant properties. Where the rent receivable on the properties is less than the rent payable, a provision based
on present value of the net cost is made to cover the expected shortfall. The lease commitments range from 1 to 62 years. Market conditions have
a significant impact and hence the assumptions on future cash flows are reviewed regularly and revisions to the provision made where necessary.
As noted in the financial review, the amount reversed in the period primarily relates to a store that has been reopened as it fits well with our new smaller
stores format and a number of tenants’ lease breakpoints being passed resulting in a continuing commitment from the tenant to continue the lease.
Other property provisions comprise petrol filling station decommissioning reserve and dilapidations cost. Provision is made for decommissioning costs
for when the petrol filling station tanks reach the end of their useful life or when they become redundant and is based on the present value of costs to be
incurred to decommission the petrol tanks. Dilapidation costs are incurred to bring a leased building back to the condition in which it was originally leased.
Provision is made for these costs, which are incurred on termination of the lease.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
69
23Called-up share capital
Number of
shares
millions
Share
capital
£m
Share
premium
£m
Total
£m
Current year
At 1 February 2009
2,630
263
60
Share options exercised
21
2
32
At 31 January 2010
2,651
265
92
323
34
357
Prior year
At 3 February 2008
2,686
269
57
Shares purchased for cancellation
(58)
(6)
–
Share options exercised
2
–
3
At 1 February 2009
2,630
263
60
326
(6)
3
323
The total authorised number of ordinary shares is 4,000 million shares (2009: 4,000 million shares) with a par value of 10p per share
(2009: 10p per share). All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to one vote per share at the meetings
of the Company.
Preference shares
The Group had in issue 282,666 5.25% cumulative preference shares with nominal amount of £1, amounting to £0.3m classified as a current financial
liability in accordance with IFRS 7 Financial instruments: Disclosure. They did not carry any voting rights. These preference shares were redeemed at
par on 30 October 2009.
2010
£m
2009
£m
Capital redemption reserve
Merger reserve
Hedging reserve
Retained earnings
Total equity
6
2,578
3
2,005
4,592
6
2,578
12
1,601
4,197
Included in retained earnings is a deduction of £44m (2009: £44m) in respect of treasury shares held at balance sheet date. This represents the cost of
16,985,266 (2009: 17,641,448) of the Company’s ordinary shares (nominal value of £1.7m (2009: £1.8m)). These shares are held by a trust using funds
provided by the Group and were acquired to meet obligations under the share option schemes. The market value of the shares at 31 January 2010 was
£49m (2009: £48m). The trust has waived its rights to dividends. These shares are not treasury shares as defined by the London Stock Exchange.
a) Capital redemption reserve
The Company purchased 57,788,600 of its own shares in the open market for cancellation between 31 March 2008 and 21 November 2008 at a cost
of £146m. The shares repurchased represented 2.15% of the ordinary share capital at 3 February 2008. There has not been any movement in this reserve
in the current period.
b) Merger reserve
The merger reserve represents the reserve in the Company’s balance sheet arising on the acquisition in 2004 of Safeway Limited. In the opinion
of the Directors, this reserve is not distributable and accordingly it will be carried forward as a capital reserve.
c) Hedging reserve
This represents the gains and losses arising on the cash flow hedge from the Group’s cross-currency swaps and energy price contracts, see note 19.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
24Reserves
70
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
25Cash flow from operating activities
2010
£m
2009
£m
Profit for the period
Adjustments for:
Taxation
Depreciation
Profit on disposal of property, plant and equipment
Net finance cost (note 5)
Other non-cash changes¹
Excess of contributions over pension service cost
Increase in stocks
Decrease/(increase) in debtors
(Decrease)/increase in creditors
Decrease in provisions
Cash generated from operations
598
460
260
304
(5)
49
(81)
(16)
(83)
36
(46)
(12)
1,004
195
290
(2)
16
17
(103)
(52)
(44)
214
(27)
964
¹ Other non-cash changes includes the impact of the pensions credit arising on moving from a final salary basis to career average revalued earnings within the defined benefit pension schemes (note 21).
26Analysis of net debt
Cash and cash equivalents per cash flow
Cross-currency swaps
Other financial assets (note 13)
Bonds
Energy price contracts
Forward foreign exchange contracts
Finance lease obligations
Current financial liabilities (note 18)
Bonds
Floating credit facility
Other unsecured loans
Energy price contracts
Non-current financial liabilities (note 18)
Net debt
2010
£m
2009
£m
245
71
71
(198)
(14)
(1)
–
(213)
(561)
(450)
(11)
(5)
(1,027)
(924)
327
81
81
–
–
–
(1)
(1)
(784)
(250)
(15)
–
(1,049)
(642)
27 Share-based payments
The Group operates a number of share-based payments schemes; (i) the Executive share option scheme, (ii) the Sharesave scheme and (iii) an
equity-settled Long Term Incentive Plan (LTIP). In line with IFRS 2 Share-based payment, the Group has fair valued all grants of equity instruments
issued after 7 November 2002 which were unvested as of 1 January 2005.
The total charge for the period relating to employee share-based payment plans was £17m (2009: £14m), all of which related to equity-settled share-based
payment transactions. After corporation and deferred tax, the total charge in the income statement was £16m (2009: £11m).
a) Share option schemes
i) Executive share option scheme
In May 1995, the Group adopted the 1995 Senior Executive Share Option Scheme which was made available to Directors and other senior employees.
The scheme was terminated on 25 May 2005. The scheme offered options at the market price two weeks prior to the date of the grant which are normally
exercisable between three and ten years from the date of grant. The maximum exercise value of the ordinary shares subject to options held by an individual
must not exceed the greater of four times earnings and £100,000. The exercise of options under the scheme is subject to performance criteria broadly
requiring an increase in Group operating profits of at least 20% between the year prior to the date of the grant and its third or any succeeding anniversary.
The scheme is equity-settled.
Those options which have been granted after 7 November 2002 have been fair valued using a binomial stochastic option pricing model. The fair value of
options granted and the assumptions were as follows:
Grant date
12 Nov 2004
02 Apr 2003
Share price at grant date
Fair value of options granted
Exercise price
Dividend yield
Annual risk free interest rate
Expected volatility*
£2.33
£1.4m
£2.22
1.43%
4.61%
29.4%
£1.81
£1.9m
£1.75
1.49%
4.12%
29.4%
* The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the last six years prior to the date of grant.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
71
27 Share-based payments – continued
a) Share option schemes – continued
i) Executive share option scheme – continued
2010
Weighted
average
exercise price
Options
in £ per share
thousands
Movement in outstanding options
Outstanding at start of period
Exercised
Outstanding at end of period
Exercisable at end of period
1.84
1.80
1.88
1.88
1,814
(755)
1,059
1,059
2010
Weighted
average
share price
at date of
Number of
exercise
shares
Share options exercised in the financial period
£2.91
755,000
2009
Weighted
average
exercise price
in £ per share
1.90
1.98
1.84
1.84
3,223
(1,409)
1,814
1,814
2009
Weighted
average
share price
at date of
exercise
Number of
shares
£2.84
1,409,000
2010
Share options outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual life
Options
thousands
2009
£1.75–£2.22
3.0 years
£1.75–£2.22
3.8 years
ii) Sharesave scheme
The Sharesave scheme has been in operation since 18 May 2000 and all employees (including Executive Directors) are eligible once the necessary service
requirements have been met. The scheme allows participants to save up to a maximum of £250 each month for a fixed period of three years. Options are
offered at a discount of 20% to the mid-market closing price on the day prior to the offer and are exercisable for a period of six months commencing after
the end of the fixed period of the contract. The exercise of options under this scheme is only subject to service conditions and is equity-settled.
Options granted before 7 November 2002
The Group has not fair valued the Sharesave plan since the grants of the options were all made before 7 November 2002 and remained unvested as at
1 January 2005.
2010
Weighted
average
exercise price
Options
in £ per share
thousands
Movement in outstanding options
Outstanding at start of period
Exercised
Expired
Outstanding at end of period
Exercisable at end of period
–
–
–
–
–
–
–
–
–
–
2010
Weighted
average
share price
at date of
Number of
exercise
shares
Share options exercised in the financial period
www.morrisons.co.uk/annualreport10
–
–
2009
Weighted
average
exercise price
in £ per share
Options
thousands
1.79
1.76
1.79
–
–
179
(40)
(139)
–
–
2009
Weighted
average
share price
at date of
exercise
Number of
shares
£2.89
40,000
Annual report and financial statements 2010
Group financial statements 43 —— 74
72
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
27 Share-based payments – continued
a) Share option schemes – continued
ii) Sharesave scheme – continued
Options granted after 7 November 2002
Those options which have been granted after 7 November 2002 to those eligible employees, including Directors, who chose to participate in the scheme
have been fair valued using a binomial stochastic option pricing model. The fair value of options granted and the assumptions were as follows:
Grant date
14 May 2009
18 May 2007
24 Apr 2006
Share price at grant date
Fair value of options granted
Exercise price
Dividend yield
Annual risk free interest rate
Expected volatility*
£2.43
£17.4m
£1.98
2.38%
2.10%
28.0%
£3.26
£12.3 m
£2.47
1.23%
5.58%
23.5%
£1.94
£16.2m
£1.58
1.91%
4.57%
25.6%
*The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the past 3.25 years prior to the date of grant.
The 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 binomial stochastic option pricing model using the
assumptions disclosed above. The discount has been determined by estimating the probability that the employee will stop saving based on expected future
trends in the share price and employee behaviour.
2010
Weighted
average
exercise price
Options
in £ per share
thousands
Movement in outstanding options
Outstanding at start of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
1.83
1.98
1.58
2.16
2.07
1.58
29,073
27,650
(20,532)
(3,973)
32,218
29
2010
Weighted
average
share price
at date of
Number of
exercise
shares
2.48
Share options exercised in the financial period
2009
Weighted
average
exercise price
in £ per share
Options
thousands
1.84
–
1.61
2.01
1.83
–
32,335
–
(82)
(3,180)
29,073
–
2009
Weighted
average
share price
at date of
exercise
Number of
shares
£2.69
82,000
20,532,110
2010
2009
Share options outstanding at the end of the period
Range of exercise prices £1.58–£2.47
Weighted average remaining contractual life
2.5 years
£1.58–£2.47
1.2 years
b) Long Term Incentive Plans
i) Equity based Long Term Incentive Plan (LTIP)
In May 2007, a discretionary Long Term Incentive Plan for the benefit of certain employees as approved by the Remuneration Committee was introduced.
The awards are free share-based awards, with non-market vesting conditions attached, that accrue the value of dividends over the vesting period.
The maximum total market value of shares over which awards may be granted to any employee during any financial year of the company is 300% of salary.
Awards normally vest three years after the original grant date providing the relevant performance criteria have been met.
The fair value at the date of grant, which is being charged to the income statement over the three year vesting period, has been calculated based on the
following assumptions:
Grant date
29 Jan
2010
20 Oct 2009
9 April
2009
14 Oct
2008
14 Apr
2008
24 Oct
2007
6 Jun
2007
24 May
2007
Share price at grant date
Assumed leavers
Performance criteria achieved
Exercise price
Fair value of share awards granted
£2.93
–
90%
£nil
£1.1m
£2.71
5%
90%
£nil
£1.0m
£2.50
5%
90%
£nil
£18.8m
£2.42
5%
90%
£nil
£0.6m
£2.77
5%
90%
£nil
£12.5m
£2.88
4%
90%
£nil
£0.4m
£3.13
3%
90%
£nil
£0.1m
£3.23
3%
90%
£nil
£10.5m
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
73
27 Share-based payments – continued
b) Long Term Incentive Plans – continued
i) Equity based Long Term Incentive Plan (LTIP) – continued
2010
Weighted
average
exercise price
Options
in £ per share
thousands
Movement in outstanding share awards
Outstanding at start of period
Granted
Forfeited
Outstanding at end of period
Exercisable at end of period
–
–
–
–
–
10,598
8,055
(677)
17,976
–
2009
Weighted
average
exercise price
in £ per share
Options
thousands
–
–
–
–
–
4,470
6,128
–
10,598
–
2010
Share awards outstanding at the end of the period
Range of exercise prices
Weighted average remaining contractual life
2009
–
1.5 years
–
1.8 years
28Operating lease arrangements
a) Lessee arrangements
The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
2010
Property
£m
Within one year
More than one year and less than five years
After five years
35
134
427
596
2009
Vehicles, Vehicles,
plant and
plant and
equipment
Property
equipment
£m
£m
£m
7
14
–
21
33
125
422
580
8
19
–
27
The Group leases various offices, stores and warehouses under non-cancellable operating lease agreements. The leases have various terms ranging from
4 to 11 years for vehicles, plant and equipment and 25 to over 100 years for property (including land), with varying escalation clauses and renewal rights.
Generally all property leases are reviewed every five years to align them with market rentals.
b) Lessor arrangements
The Group has non-cancellable agreements with tenants and the future minimum lease income is as follows:
2010
£m
2009
£m
Within one year
More than one year and less than five years
After five years
26
88
148
262
28
94
159
281
The Group sub-lets buildings of various nature under non-cancellable agreements. The leases have various terms, escalation clauses and renewal rights.
29Contingent liabilities
In September 2007, the Office of Fair Trading (OFT) issued a Statement of Objections to a number of grocery retailers and milk producers, alleging
collusion in the setting of prices for certain dairy products in 2002 and 2003. The Board strongly believes that Morrisons has no case to answer and have
made representations in detail to this effect. Our view is unchanged by the Supplementary Statement of Objections issued by the OFT in July 2009. The
Board does not consider it probable that the Company will ultimately incur a fine and, accordingly, has made no provision for such liability.
The OFT also continues to investigate the market for the sale of tobacco, and in this case, there is a complex legal question as to whether well established
industry practices represented a breach of competition law. It is likely that this can only be settled through a formal judicial process. The Board has not
made a provision for such a liability.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Group financial statements 43 —— 74
74
Notes to the Group financial statements – continued
52 weeks ended 31 January 2010
30Principal subsidiaries
Wholly-owned subsidiaries of Wm Morrison Supermarkets PLC
Bos Brothers Fruit and Vegetables BV
Farmers Boy Limited
Farock Insurance Company Limited
Neerock Limited
Wm Morrison Produce Limited
Safeway Limited
Rathbone Kear Limited
Optimisation Developments Limited
Wholly-owned subsidiaries of Safeway Limited
Safeway Overseas Limited
Safeway Stores Limited
Principal activity
Produce wholesaler
Manufacturer and distributor of fresh food products
Captive insurer
Fresh meat processor
Produce packer
Holding company
Baker
Property development
Grocery retailer
Grocery retailer
All of the above companies are registered in England and Wales except Bos Brothers Fruit and Vegetables BV which is incorporated in the Netherlands
and Farock Insurance Company Limited which is incorporated in the Isle of Man.
The principal area of trading for all the above companies is the United Kingdom apart from Bos Brothers Fruit and Vegetables BV and Safeway Overseas
Limited who also trade in the rest of Europe.
During the year the Company has also entered into a Joint Venture, with The Great Steward of Scotland Dumfries House Trust, to form The Morrisons
Farm at Dumfries House Limited, whose principal activity is to farm 700 acres of agricultural land located on the Dumfries House Estate near Cumnock
in Ayrshire, Scotland. This has been accounted for as a Joint Venture in accordance with IFRS, however, as the results are not material to the Group,
no further disclosure has been made of the accounting policies within the consolidated financial statements.
In addition to the above, the Company has a number of other subsidiary companies, particulars of which will be annexed to the next annual return.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
75
Wm Morrison Supermarkets PLC
Company financial statements
52 weeks ended 31 January 2010 under UK GAAP
Basis of preparation
These separate financial statements of Wm Morrison Supermarkets PLC
(the Company) have been prepared on a going concern basis under the
historic cost convention, except for share-based payments and derivative
financial instruments, which are measured at fair value, and pension
scheme liabilities that are measured using actuarial valuations and in
accordance with applicable accounting standards under UK GAAP and
the Companies Act 2006.
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Company’s
financial statements.
Accounting reference date
The accounting period of the Company ends on the Sunday falling between
29 January and 4 February each year.
Investments
Investments in subsidiary undertakings are stated at cost less provision for
impairment.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation and
accumulated impairment losses. Costs include directly attributable
costs. Annual reviews are made of estimated useful lives and material
residual values.
Depreciation
The policy of the Company is to provide depreciation at rates which are
calculated to write off the cost less residual value of tangible fixed assets
on a straight line basis. The rates applied are:
Freehold land
0%
Freehold buildings
2.5%
Leasehold improvements
Over the shorter of lease period and 2.5%
Plant, equipment,
fixtures and vehicles
14–33%
Assets under construction
0%
Fixed assets are reviewed for indications of impairment when events or
changes in circumstances indicate that the carrying amount may not be
recoverable. This is performed for each income generating unit, which in
the case of a supermarket is an individual retail outlet. If there are
indications of possible impairment then a test is performed on the asset
affected to assess its recoverable amount against carrying value. An asset
impaired is written down to its recoverable amount which is the higher of
value in use or its net realisable value. In assessing value in use, the
estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset.
If there is indication of an increase in fair value of an asset that had been
previously impaired, then this is recognised by reversing the impairment,
but only to the extent that the recoverable amount does not exceed the
carrying amount that would have been determined if no impairment loss
had been recognised for the asset.
Financial instruments
Financial assets and liabilities are recognised on the Company’s balance
sheet when the Company becomes a party to the contractual provisions
of the instrument.
a) Financial assets
i) Trade and other debtors: Trade debtors are carried at the lower of their
original invoiced value and recoverable amount. Provision is made when
there is objective evidence that the Company will not be able to recover
balances in full, with the charge being recognised in the profit and loss
account. Balances are written off when the probability of recovery is
assessed as being remote.
ii) Cash: Cash includes cash-in-hand, cash-at-bank and bank overdrafts
together with short-term, highly-liquid investments that are readily
convertible into known amounts of cash, with an insignificant risk of a
change in value, within three months from the date of acquisition. In the
balance sheet bank overdrafts are presented within current liabilities.
b) Financial liabilities
Trade and other creditors: Trade and other creditors are stated at cost.
c) Derivative financial instruments
Derivative financial instruments are initially measured at fair value, which
normally equates to cost, and are remeasured at fair value through profit
or loss.
i) Cash flow hedges
Derivative financial instruments are classified as cash flow hedges when
they hedge the Company’s exposure to variability in cash flows that are
either attributable to a particular risk associated with a recognised asset
or liability, or a highly probable forecast transaction.
To minimise the risk from potential movements in energy prices,
the Company has energy price contracts which are designated as cash
flow hedges.
Derivatives are reviewed quarterly for effectiveness. Where a derivative
financial instrument is designated as a hedge of the variability in cash flows
of a recognised asset or liability, or highly probable forecast transaction,
the effective part of any gain or loss on the movement in fair value of the
derivative financial instrument is recognised directly in equity through the
statement of total recognised gains and losses (STRGL).
The gain or loss on any ineffective part of the hedge is immediately
recognised in the profit and loss account within cost of sales. If a hedge of
a forecast transaction subsequently results in the recognition of a financial
asset or liability, the associated cumulative gains or losses that were
recognised directly in equity are reclassified into the profit and loss account
when the transaction occurs.
Capital management
The capital management policy of the Company is consistent with that
of the Group set out in note 19.
Borrowing costs
All borrowing costs are recognised in the Company’s profit and loss
account on an accruals basis except for interest costs that are directly
attributable to the construction of buildings and other qualifying assets
which are capitalised and included within the initial cost of the asset.
Capitalisation of interest ceases when the asset is ready for use.
Pension costs
The Company operates defined benefit and defined contribution schemes.
A defined contribution scheme is a pension scheme under which the
Company pays fixed contributions into a separate entity. A defined benefit
scheme is one that is not a defined contribution scheme. Pension benefits
under defined benefit schemes are defined on retirement based on age at
date of retirement, years of service and a formula using either the
employee’s compensation package or career average revalued earnings.
The Company operates a defined benefit retirement scheme which is
funded by contributions from the Company and members. The defined
benefit scheme is not open to new members. Pension scheme assets, which
are held in separate trustee administered funds, are valued at market rates.
Pension scheme obligations are measured on a discounted present value
basis using assumptions as shown in note 39. The operating and financing
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Company financial statements 75 —— 85
Company Accounting policies
76
Wm Morrison Supermarkets PLC
Company financial statements – continued
52 weeks ended 31 January 2010 under UK GAAP
costs of the scheme are recognised separately in the income statement in
the period in which they arise. Death-in-service costs are recognised on a
straight line basis over their vesting period. Actuarial gains and losses are
recognised immediately in the STRGL.
The Company has a right to recognise an asset, should one arise, in respect
of the Company’s net obligations to the pension schemes. Therefore either
an asset or a liability is recognised in the balance sheet, and is stated net of
deferred tax.
Payments by the Company to the defined contribution scheme are charged
to the profit and loss account as they arise.
A liability or asset is recognised in the balance sheet in respect of the
Company’s net obligations to the scheme and is stated net of deferred tax.
The Company also operates a stakeholder pension scheme and
contributions are charged to the profit and loss account as they arise.
Foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange at
the dates of the transactions. At each balance sheet date, monetary assets
and liabilities that are denominated in foreign currency are retranslated at
the rates of exchange at the balance sheet date. Gains and losses arising on
retranslation are included in the profit and loss account for the period.
Provisions
Provisions are created where the Company has a present legal or
constructive obligation as a result of a past event, where it is probable that
it will result in an outflow of economic benefits to settle the obligation
from the Company, and where it can be reliably measured.
Stocks
Stocks are measured at the lower of cost and net realisable value. Cost
is calculated on a weighted average basis and comprises purchase price,
import duties and other non-recoverable taxes less rebates. Stocks
represent goods for resale.
Net realisable value is the estimated selling price in the ordinary course
of business, less estimated costs necessary to make the sale.
Share-based payments
The Company issues equity-settled share-based payments to certain
employees in exchange for services rendered by them. The fair value of the
share-based award is calculated at the date of grant and is expensed on a
straight line basis over the vesting period with a corresponding increase
in equity. This is based on the Company’s estimate of share options
that will eventually vest. This takes into account movement of non-market
conditions, being service conditions and financial performance, if relevant.
The fair value of equity-settled awards granted is not subsequently revisited.
Fair value is measured by use of a binomial stochastic model. The expected
life used in the model has been adjusted, based on management’s best
estimate, for effects of non-transferability, exercise restrictions and
behavioural considerations.
The cost of the share-based award relating to each subsidiary is calculated,
based on an appropriate apportionment and recharged through intercompany.
Financial contracts
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.
Provisions are made in respect of individual properties where there are
obligations for onerous contracts, dilapidations and certain
decommissioning obligations for petrol filling stations. The amounts
provided are based on the Company’s best estimate of the likely committed Share capital
Ordinary shares are classified as equity. Incremental costs directly
outflow to the Company. Where material, these estimated outflows are
attributable to the issue of new shares or options are shown in equity
discounted to net present value.
as a deduction, net of tax, from the proceeds.
Leases
Where the Company has purchased its own equity share capital, the
Leases in which substantially all the risks and rewards of ownership are
retained by the lessor are classified as operating leases; all other leases are consideration paid, including directly attributable incremental costs,
is deducted from retained earnings until the shares are cancelled.
classified as finance leases. The Company has no finance leases.
On cancellation, the nominal value of the shares is deducted from share
capital and the amount is transferred to the capital redemption reserve.
Lessor accounting – operating leases
Assets acquired and held for use under operating leases are recorded as
Exemptions
fixed assets and are depreciated on a straight line basis to their estimated
residual values over their estimated useful lives. Operating lease income is The Company has taken advantage of the exemption from preparing a
cash flow statement under the terms of FRS 1 Cash Flow Statement and
recognised on a straight line basis to the date of the next rent review.
exemption from the disclosure requirements of FRS 29 Financial
instruments: disclosures. The cash flows of the Company and financial
Lessee accounting – operating leases
instruments disclosures are included in the consolidated financial
Rental payments are taken to the profit and loss account on a straight line
statements.
basis over the life of the lease.
Deferred and current taxation
Current tax payable is based on the taxable profit for the year using tax
rates enacted at the balance sheet date. Taxable profit differs from the
profit as reported in the profit and loss account as it is adjusted both for
items that will never be taxable or deductible and timing differences.
Deferred tax is provided in full on timing differences which result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise,
based on tax rates enacted or substantively enacted at the balance sheet
date. Timing differences arise from the inclusion of items of income and
expenditure in taxation computations in different periods from those in
which they are included in the financial statements.
The Company is also exempt under the terms of FRS 8 Related Parties
from disclosing related party transactions with entities that are part
of the Wm Morrison Supermarkets PLC Group.
The Company has taken advantage of the exemption available under
section 408 of the Companies Act 2006 and not presented a profit
and loss account for the Company.
Deferred tax assets are recognised to the extent that it is more likely
than not that they will be recovered. Deferred tax assets and liabilities
are not discounted.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
77
Wm Morrison Supermarkets PLC Company balance sheet
31 January 2010
Note
2010
£m
2009
£m
Fixed assets
Tangible assets
33
Investments
34
Current assets
Stocks – goods for resale
Debtors – amounts falling due within one year
35
Cash-in-hand
Creditors – amounts falling due within one year
36
2,975
3,366
6,341
2,496
3,366
5,862
350
395
151
896
(2,766)
299
482
257
1,038
(2,588)
Net current liabilities
(1,870)
(1,550)
4,471
4,312
Total assets less current liabilities
Creditors – amounts falling due after more than one year
37
(455)
(250)
Provisions for liabilities
38
(90)
(61)
Net assets – excluding pension asset/(liability)
Net pension asset/(liability)
39
Net assets – including pension asset/(liability) 3,926
16
3,942
4,001
(2)
3,999
Capital and reserves
Called-up share capital
41
Share premium
42
Capital redemption reserve
42
Merger reserve
42
Profit and loss account and hedging reserve
42
Equity shareholders’ funds
265
92
6
2,578
1,001
3,942
263
60
6
2,578
1,092
3,999
The accounting policies on pages 75 to 76 and notes on pages 78 to 85 form part of these financial statements.
The financial statements on pages 75 to 85 were approved by the Board of Directors on 10 March 2010 and signed on its behalf by:
Company financial statements 75 —— 85
Richard Pennycook
Group Finance Director
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
78
Notes to the Company financial statements
52 weeks ended 31 January 2010
31 Profit and loss account
The profit for the Company for the 52 week period was £83m (2009: £66m).
32Employees and Directors
2010
£m
2009
£m
Employee benefit expense for the Company during the period
Wages and salaries
Social security costs
Share-based payments (note 27)
Pension costs
Pensions credit (note 39)
Other employee costs
817
62
9
16
(39)
–
865
690
54
7
21
–
2
774
2010
2009
No.No.
Average monthly number of people employed
62,588
56,629
Key management comprises Executive and Non-Executive Directors as they have the responsibility of planning and controlling the operations of the
business as a whole. The aggregate remuneration paid to or accrued for the Directors for services in all capacities during the period is the same as the
Group and is shown in note 3.
There are three Executive Directors (2009: three) who have retirement benefits accruing under the Company’s defined benefit pension scheme.
33Tangible fixed assets
Land and buildings
Freehold
Leasehold
£m
£m
Plant,
equipment,
fixtures &
vehicles
£m
Total
£m
Cost
At 1 February 2009
2,357
313
935
Additions at cost
307
184
212
Interest capitalised
5
–
–
Transfer to subsidiary
(99)
–
(7)
Disposals
(3)
–
(8)
At 31 January 2010
2,567
497
1,132
3,605
703
5
(106)
(11)
4,196
Accumulated depreciation
At 1 February 2009
Charged in the period
Transfer for subsidiary
Disposals
At 31 January 2010
1,109
136
(19)
(5)
1,221
Net book value
At 31 January 2010
At 1 February 2009
477
53
(13)
–
517
55
12
–
–
67
577
71
(6)
(5)
637
2,050
430
495
2,975
1,880
258
358
2,496
Assets under construction included above
At 31 January 2010
24
2
151
At 1 February 2009
129
26
73
177
228
Included above is an amount of £709m (2009: £706m) relating to non-depreciable land. The cost of property assets held as lessor included in the above
figures is £217m at 31 January 2010 (2009: £235m). The related accumulated depreciation is £42m (2009: £48m).
Since 3 February 1985, the cost of financing property developments prior to their opening date has been included in the cost of the project.
The cumulative amount of interest capitalised in the total cost above amounts to £95m (2009: £90m).
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
79
34Investments
Investment in
subsidiary
undertakings
£m
Cost
At 1 February 2009 and 31 January 2010
Provision for impairment
At 1 February 2009 and 31 January 2010
Net book value
At 1 February 2009 and 31 January 2010
3,367
(1)
3,366
A list of the Company’s principal subsidiaries is shown in note 30.
35 Debtors – amounts falling due within one year
2010
£m
2009
£m
Trade debtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments
121
237
9
28
395
93
271
72
46
482
2010
£m
2009
£m
Trade creditors
Amounts owed to subsidiary undertakings
Other taxes
Other creditors
Energy price contracts
Accruals and deferred income
1,252
1,155
32
147
14
166
2,766
1,395
873
27
95
–
198
2,588
2010
£m
2009
£m
Revolving credit facility – 0.81% (2009: 2.08%)
Energy price contracts
450
5
455
250
–
250
Property
provisions
£m
Total
£m
36Creditors – amounts falling due within one year
38Provisions for liabilities
At 1 February 2009
Charge recognised in profit and loss
Charge recognised directly in the STRGL
Utilisation of provisions
At 31 January 2010
Deferred
taxation
£m
49
34
(3)
–
80
12
3
–
(5)
10
61
37
(3)
(5)
90
Further details of the property provisions are provided in note 22.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Company financial statements 75 —— 85
37 Creditors – amounts falling due after more than one year
80
Notes to the Company financial statements – continued
52 weeks ended 31 January 2010
38PROVISION FOR LIABILITIES – continued
The potential deferred taxation on timing differences, calculated at 28% (2009: 28%), is set out below and has been provided for in full.
2010
£m
Excess of capital allowances over depreciation
Provisions and short-term timing differences
Share-based payments
Deferred tax liability/(asset) on pension asset/(liability) (note 39)
Provision at the year end including deferred tax on pension asset/(liability)
123
(40)
(3)
80
6
86
2009
£m
93
(38)
(6)
49
(1)
48
The deferred tax liability of £6m (2009: asset of £1m) relating to the pension asset/(liability) has been deducted in arriving at the net pension asset/
(liability) on the balance sheet.
39 Pensions
a) Defined benefit pension scheme
The Company operates a pension scheme providing benefits based on final pensionable pay. The assets of the scheme are held in a separate trustee
administered fund. The latest full actuarial valuations were carried out at 6 April 2007 and were updated for FRS 17 Retirement benefits purposes
for the periods to 31 January 2010, 1 February 2009 and 3 February 2008 by a qualified independent actuary.
Following consultation with members and approval by the Board of Trustees, the Company became committed to the final proposals from the Pension
Review on 2 July 2009.
The move from a final salary basis to career average revalued earnings (CARE) represents an accounting curtailment of certain pension liabilities.
In accordance with FRS 17, the defined pension scheme’s obligations were revalued by the scheme’s actuaries immediately prior to the change
and assumptions reviewed at that date. As a result a credit of £39m has been recognised in the profit and loss account during the year.
The current best estimate of employer contributions to be paid for the year commencing 1 February 2010 is £22m (2009: £25m).
b) Assumptions
The major assumptions used in this valuation to determine the present value of the scheme’s defined benefit obligation are shown below.
The assumptions used at the valuation date of 2 July 2009, used in calculating the pensions credit of £39m, remained the same as the prior
year end (1 February 2009) apart from the discount rate, which reduced from 6.25% to 6.0%.
i) Financial
2010
2009
2008
Rate of increases in salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate applied to scheme liabilities
Inflation assumption
4.85–5.85%
3.60%
5.65%
3.60%
4.75–5.75%
3.50%
6.25%
3.50%
5.00–6.00%
3.75%
5.75%
3.75%
ii) Longevity
The average life expectancy in years of a member who reaches normal retirement age of 65 and is currently aged 45 is as follows:
2010
2009
2008
Male
Female
23.5
25.8
23.5
25.8
23.5
25.8
2010
2009
2008
Male
Female
22.2
24.7
22.2
24.7
22.2
24.7
The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:
Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The longevity assumption
considers how long a member will live when they reach the age of retirement. Amongst the UK population there is a continuing trend for a generation to
live longer than the preceding generation, and this has been reflected in the longevity assumption. This means that a 45 year old today is assumed to live
on average longer than a 65 year old today. This particular adjustment, described in the mortality tables below, is known as ‘Long Cohort’ and is in-line
with the latest advice from the Pension Regulator.
In calculating the present value of the liabilities the actuary selects the appropriate mortality table that reflects the longevity assumption. The most up
to date tables are used in each period. The current mortality table used is PNX00 YOB (2009 and 2008: PNX00 YOB LC).
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
81
39 Pensions – continued
b) Assumptions – continued
iii) Expected return on assets
The major assumptions used to determine the expected future return on the scheme’s assets, were as follows:
2010
2009
2008
Long term rate of return on:
Equities
Corporate bonds
Gilts
Property related funds
Cash
7.25%
5.65%
4.35%
5.65%
1.50%
7.00%
6.00%
4.25–4.50%
6.00%
2.50%
7.00%
6.00%
4.25–4.50%
6.00%
5.50%
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescales covered,
may not necessarily be borne out in practice.
c) Valuations
The fair value of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change before they are
realised, and the present value of the scheme’s liabilities which are derived from cash flow projections over long periods and are inherently uncertain,
were as follows:
2010
£m
2009
£m
2008
£m
Equities
Bonds
Gilts
Property
Cash
Total market value of assets
Present value of scheme liabilities
Surplus/(deficit) in the scheme – pension asset/(liability)
Related deferred tax (liability)/asset
Net pension asset/(liability) in the balance sheet
158
162
142
26
2
490
(468)
22
(6)
16
127
125
119
25
1
397
(400)
(3)
1
(2)
252
57
60
31
7
407
(438)
(31)
9
(22)
2010
£m
2009
£m
2008
£m
Fair value of scheme assets at start of period
Expected return on scheme assets
Actuarial gain/(loss)
Employer contributions
Employee contributions
Benefits paid
Fair value of scheme assets at end of period
397
26
48
22
5
(8)
490
407
29
(85)
47
5
(6)
397
368
25
(32)
50
5
(9)
407
The above pension scheme assets do not include any investments in the Company’s own shares or property occupied by any member of the Group.
The movement in the present value of the defined benefit obligation during the period was as follows:
2010
£m
2009
£m
2008
£m
Defined benefit obligation at the beginning of the period
Current service cost
Employee contributions
Other finance income
Actuarial (loss)/gain
Benefits paid
Pensions credit
Defined benefit obligation at the end of the period
(400)
(14)
(5)
(24)
(72)
8
39
(468)
(438)
(19)
(5)
(26)
82
6
–
(400)
(406)
(21)
(5)
(21)
6
9
–
(438)
d) Sensitivities
Below is listed the impact on the liabilities at 31 January 2010 of changing key assumptions whilst holding other assumptions constant:
Discount factor
Longevity
www.morrisons.co.uk/annualreport10
+/- 0.1%
+/- 1 year
£12m
£12m
Annual report and financial statements 2010
Company financial statements 75 —— 85
The movement in the fair value of the scheme’s assets over the year was as follows:
82
Notes to the Company financial statements – continued
52 weeks ended 31 January 2010
39 Pensions – continued
e) Profit and loss account impact
The following amounts have been (charged)/credited in arriving at operating profit in respect of pension costs:
2010
£m
Current service cost
Pensions credit
(14)
39
25
2009
£m
(19)
–
(19)
2008
£m
(21)
–
(21)
The amounts for current service cost and pensions credit have been (charged)/credited in the following profit and loss account lines:
Cost of sales
Administrative expenses
2010
£m
(11)
36
25
2009
£m
(15)
(4)
(19)
2008
£m
(17)
(4)
(21)
The following amounts have been included in other finance income:
2010
£m
Expected return on pension scheme assets
Interest on pension scheme liabilities
26
(24)
2
2009
£m
29
(26)
3
2008
£m
25
(21)
4
f) Amounts recognised in statement of total recognised gains and losses
The amounts included in the statement of total recognised gains and losses were:
2010
£m
2009
£m
Actual return less expected return on scheme assets
Experience gains and losses arising on scheme liabilities
Changes in assumptions underlying the present value of scheme liabilities
Actuarial loss recognised in the STRGL
48
–
(72)
(24)
2010
£m
2009
£m
Cumulative gross actuarial movement recognised in the STRGL
Taxation on cumulative actuarial movement recognised in the STRGL
Cumulative net actuarial movement recognised in the STRGL
(124)
35
(89)
(100)
29
(71)
2010
£m
2009
£m
(85)
–
82
(3)
2008
£m
(32)
12
(6)
(26)
2008
£m
(97)
28
(69)
The actual return on the scheme’s assets can therefore be summarised as follows:
Expected return on scheme’s assets
26
29
Actuarial movement recognised in the STRGL reflecting the difference between expected and actual return on assets
48
(85)
Actual return on scheme’s assets
74
(56)
2008
£m
25
(32)
(7)
The expected return on scheme’s assets was determined by considering the expected returns available on the assets underlying the current investment
policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and
property investments reflect long term real rates of return experienced in the respective markets.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
83
39 Pensions – continued
g) History of experience gains and losses
Difference between the expected and actual return on scheme assets:
Amount
Percentage of scheme assets
Experience gains and losses arising on scheme liabilities:
Amount
Percentage of present value of scheme liabilities
Effects of changes in the demographic and financial assumptions
underlying the present value of the scheme liabilities:
Amount
Percentage of present value of scheme liabilities
Total amount recognised in statement of total recognised
gains and losses
Amount
Percentage of present value of scheme liabilities
Total value of scheme’s assets
Present value of defined benefit obligation
Pension asset/(liability) – surplus/(deficit) in the scheme
2010
£m
48
9.8%
–
–
(72)
(15.4%)
(24)
(5.1%)
490
(468)
22
2009
£m
2008
£m
2007
£m
2006
£m
(32)
(7.9%)
16
4.4%
35
11.6%
12
2.9%
6
1.6%
4
1.1%
82
20.5%
(6)
(1.4%)
12
2.9%
(46)
(12.2%)
(3)
(0.8%)
397
(400)
(3)
(26)
(5.9%)
407
(438)
(31)
34
8.4%
368
(406)
(38)
(7)
(1.8%)
306
(381)
(75)
(85)
(21.4%)
–
–
h) Defined contribution pension scheme
Employees joining the Company after September 2000 are no longer eligible to gain automatic entry into the final salary pension scheme. In June 2001
the Company established a stakeholder pension scheme, open to all employees, to which the Company makes matching contributions of a maximum of
5% of eligible earnings. Pension costs for the defined contribution scheme are as follows:
Stakeholder pension scheme
Life assurance scheme
Total costs
2010
£m
(2)
(1)
(3)
2009
£m
2008
£m
(2)
(1)
(3)
(1)
(1)
(2)
2010
£m
2009
£m
Profit for the financial period
Dividends (note 7)
Retained loss for the financial period
Share-based payment (note 27)
Cash flow hedging movement
Tax relating to cash flow hedging movement
Actuarial loss on pension scheme
Tax relating to pension scheme
Shares purchased for cancellation
Own shares acquired by the Safeway Employee Trust
Share options exercised
Net reduction in equity shareholders’ funds
Opening shareholders’ funds Closing equity shareholders’ funds
83
(159)
(76)
17
(19)
4
(24)
7
–
–
34
(57)
3,999
3,942
66
(131)
(65)
14
–
–
(3)
1
(146)
(42)
3
(238)
4,237
3,999
Own shares acquired by the Safeway Employee Trust represents 16,985,266 (2009: 17,641,448) of the Company’s ordinary shares that are held by
a trust using funds previously provided by Safeway Limited. During the prior period the loan obligation in respect of this investment was novated to
Wm Morrison Supermarkets PLC. These shares are treated as treasury shares at the balance sheet date. These shares are not treasury shares as defined
by the London Stock Exchange.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Company financial statements 75 —— 85
40Reconciliation of movements in equity shareholders’ funds
84
Notes to the Company financial statements – continued
52 weeks ended 31 January 2010
41Share capital
a) Equity
2010
£m
2009
£m
400
400
265
263
2010
£m
2009
£m
At start of period
Shares purchased for cancellation
Shares options exercised
At end of period
263
–
2
265
269
(6)
–
263
Authorised
Equity share capital
4,000,000,000 ordinary shares of 10p each
(2009: 4,000,000,000)
Issued and fully paid
Equity share capital
2,651,100,378 ordinary shares of 10p each
(2009: 2,629,813,268)
Ordinary shares
The Company purchased 57,788,600 of its own shares in the open market for cancellation between 31 March 2008 and 21 November 2008 at a cost of
£146m. The shares repurchased represented 2.15% of the ordinary share capital at 3 February 2008.
b) Non-equity
The authorised and issued preference share capital of the Company is as follows:
2010
£m
2009
£m
5.25% cumulative redeemable non-convertible preference shares of £1 each
Authorised 50,000,000 (2009: 50,000,000)
Issued and fully paid none (2009: 282,666)
50.0
–
50.0
0.3
The Company had in issue 5.25% cumulative preference shares with a nominal amount of £1, classified as a current financial liability in accordance with
FRS 25 Financial instruments. They did not carry any voting rights. These preference shares were redeemed at par on 30 October 2009.
42Reserves
Share
premium
account
£m
Capital
redemption
MergerHedging
Profit and loss
reserve
reserve
reserve
account
£m
£m
£m
£m
At start of period
60
6
2,578
–
Retained in the period
–
–
–
–
Share options exercised
32
–
–
–
Share-based payments
–
–
–
–
Cash flow hedging movement
–
–
–
(19)
Share-based payment reserve
–
–
–
4
Actuarial loss recognised
–
–
–
–
Tax arising on actuarial loss
–
–
–
–
At end of period
92
6
2,578
(15)
Net pension asset
Profit and loss account excluding pension asset
1,092
(76)
–
17
–
–
(24)
7
1,016
16
1,032
a) Capital redemption reserve
This arises from the purchase of own shares, see note 41.
b) Merger reserve
The merger reserve represents the reserve arising on the acquisition in 2004 of Safeway Limited. In the opinion of the Directors, this reserve is not
distributable and accordingly it will be carried forward as a capital reserve.
c) Hedging reserve
This represents the gains and losses arising on cash flow hedges from the Company’s energy price contracts.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
85
43Share-based payments
The disclosure requirements for FRS 20 Share-based payment are identical to that of IFRS 2 Share-based payment. Full IFRS 2 disclosures are provided
in note 27.
44Capital commitments
2010
£m
2009
£m
Contracts placed for future capital expenditure not provided in the financial statements
93
302
During the prior period, Morrisons entered into an agreement with the Co-operative Group to acquire over half a million square feet of additional selling
space through the purchase of a number of Co-operative Group and former Somerfield stores, at a cost of £223m. A deposit of £23m was paid during the
prior year and was classified within debtors. The transaction was completed during the current financial year.
45Operating lease commitments
Annual commitments under non-cancellable operating leases:
2010
Land and
buildings
£m
Expiring within one year
Expiring within two to five years inclusive
Expiring over five years
–
1
9
10
2009
Plant,
equipment,
fixtures &
Land and
vehicles
buildings
£m
£m
–
7
–
7
Plant,
equipment,
fixtures &
vehicles
£m
–
–
3
3
–
8
–
8
46Contingent liabilities
The Company has given an unlimited guarantee in respect of the overdraft of all the subsidiary undertakings. At 31 January 2010, there was a credit
balance of £nil including uncleared banking items (2009: £0.5m).
The Company has also provided a guarantee in respect of Sterling and Euro Bonds, amounting to £818m (2009: £781m) in respect of a subsidiary
undertaking.
Where the Company enters into financial contracts to guarantee the indebtedness of other Companies within its Group, the Company considers these
to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until
such time as it becomes probable that the Company will be required to make a payment under the guarantee.
The OFT also continues to investigate the market for the sale of tobacco, and in this case, there is a complex legal question as to whether well established
industry practices represented a breach of competition law. It is likely that this can only be settled through a formal judicial process. The Board has not
made a provision for such a liability.
47 Post balance sheet events
The Directors are proposing a final dividend in respect of the financial period ending 31 January 2010 of 7.12p per share which will absorb an estimated
£189m of shareholders’ funds. Subject to approval at the AGM, it will be paid on 9 June 2010 to shareholders who are on the register of members on
7 May 2010.
A Dividend Reinvestment Plan is available in respect of the final dividend.
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
Company financial statements 75 —— 85
In September 2007, the Office of Fair Trading (OFT) issued a Statement of Objections to a number of grocery retailers and milk producers, alleging
collusion in the setting of prices for certain dairy products in 2002 and 2003. The Board strongly believes that Morrisons has no case to answer and
have made representations in detail to this effect. Our view is unchanged by the Supplementary Statement of Objections issued by the OFT in July
2009. The Board does not consider it probable that the Company will ultimately incur a fine and, accordingly, has made no provision for such liability.
86
Five year summary of results
52 weeks ended 31 January 2010
Consolidated statement of comprehensive income
2010
£m
Turnover
15,410
Cost of sales
(14,348)
Gross profit
1,062
Other operating income
65
Administrative expenses
(315)
Profit arising on property transactions
4
Operating profit before one-off costs and pensions credit
816
One-off costs
–
Pensions credit
91
Operating profit/(loss)
907
Net finance costs
(49)
Share of joint venture operating profit
–
Profit/(loss) before taxation
858
Taxation
(260)
Operating profit/(loss) for the period
attributable to the owners of the Company
598
2009
£m
2008
£m
20071
£m
2006
£m
14,528
(13,615)
913
12,969
(12,151)
818
12,462
(11,826)
636
12,115
(11,793)
322
37
(281)
2
671
–
–
671
(16)
–
655
(195)
30
(268)
32
612
–
–
612
–
–
612
(58)
21
(272)
38
423
–
–
423
(54)
–
369
(121)
19
(236)
8
112
(374)
–
(263)
(52)
2
(313)
63
460
554
248
(250)
20.79
20.67
14.38
9.32
9.31
8.28
(9.46)
(9.46)
(7.91)
4.80
4.00
3.70
2008
£m
20071
£m
2006
£m
Assets
Property, plant and equipment
7,180
6,587
6,205
6,117
Lease prepayments
257
250
239
228
Investment property
229
242
239
241
Financial assets
–
81
43
19
Non-current assets
7,666
7,160
6,726
6,605
6,144
218
225
36
6,623
Earnings per share (pence)
– basic
22.80
17.39
– diluted
22.37
17.16
– underlying
20.47
16.67
Dividend per ordinary share (pence)
8.20
5.80
1
53 weeks.
Consolidated Balance sheet
Current assets
2010
£m
1,094
2009
£m
1,066
910
766
Liabilities
Current liabilities
(2,152)
(2,024)
(1,853)
(1,855)
Other financial liabilities
(1,027)
(1,049)
(774)
(769)
(515)
(472)
(424)
(478)
Deferred tax liabilities
(17)
(49)
(68)
(198)
Net pension liabilities
(100)
(112)
(139)
(145)
Provisions
Non-current liabilities
(1,659)
(1,682)
(1,405)
(1,589)
Net assets
4,949
4,520
4,378
3,927
Shareholders’ equity
Called up share capital
265
263
269
268
Share premium
92
60
57
42
Capital redemption reserve
6
6
–
–
Merger reserve
2,578
2,578
2,578
2,578
2,008
1,613
1,474
1,040
Retained earnings and other reserves
Total equity
4,949
4,520
4,378
3,927
1
821
(1,807)
(1,023)
(423)
(416)
(127)
(1,989)
3,649
267
37
–
2,578
766
3,649
53 weeks.
Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
87
Supplementary information
52 weeks ended 31 January 2010
2010
£m
2009
£m
2008
£m
20071
£m
Increase/(decrease) on previous year %
Turnover
6.07
12.02
4.07
2.86
Operating profit
35.17
9.74
44.57
260.97
Profit before taxation
30.99
6.98
65.89
217.93
Profit after taxation
30.00
(17.02)
123.67
198.90
Diluted earnings per share
30.36
(17.01)
122.13
198.37
Dividend per ordinary share
41.38
20.83
20.00
8.11
Shareholder funds
9.41
3.24
11.49
7.63
% of turnover
Operating profit
5.59
4.62
4.72
3.40
Profit/(loss) before taxation
5.57
4.51
4.72
2.96
Profit/(loss) after taxation
3.88
3.16
4.27
1.99
Retail portfolio
Size 000s sq ft (net sales area)
0–15
42
13
12
13
15–25
141
135
141
143
199
190
180
173
25–40
40+
43
44
42
39
Total
425
382
375
368
Petrol filling stations
293
287
284
278
Total sales area (000s sq ft)
11,867
11,131
10,837
10,505
28.5
29.1
28.9
28.5
Average store size (000s sq ft)
11,452
11,061
10,675
10,762
Average sales area (000s sq ft)2
Total supermarket takings ex petrol (gross) £m
13,241
12,180
11,238
10,841
Average per sq ft per week (£)
22.24
21.41
20.18
19.34
Average per store per week
632
617
576
541
Average number of customers per store per week
25,932
25,928
24,411
24,343
Average take per customer (£)
24.90
23.86
23.10
22.53
Employees
Full time
55,703
50,934
50,018
51,502
Part Time
78,041
73,596
67,436
66,302
Total
133,743
124,530
117,454
117,804
Full time equivalent
94,724
89,855
83,736
84,653
Average per FTE employee:
Turnover (£000s)
163
162
Operating profit before one-off costs (£)
8,615
7,472
Employee costs (£)
18,021
17,996
1
147
4,999
17,787
0.09
(202.62)
(262.12)
(338.38)
329.61
–
(8.92)
(2.17)
(2.58)
(2.07)
14
158
167
39
378
275
10,633
28.1
11,539
10,541
17.69
477
25,818
20.92
57,501
76,836
134,337
93,041
130
1,198
17,528
53 weeks.
Includes sales area of divested stores.
Investor information 86 —— 90
2
155
7,307
17,973
2006
£m
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
88
Investor relations and financial calendar
Financial calendar 2010/11
Financial events and dividends
Quarterly management statement
Final dividend record date
Annual General Meeting
Final dividend payment date
Half year end
Interim results announcement
Interim dividend record date
Quarterly management statement
Interim dividend payment date
Financial year end
Preliminary results announcement
6 May 2010
7 May 2010
3 Jun 2010
9 Jun 2010
1 Aug 2010
9 Sep 2010
1 Oct 2010
4 Nov 2010
8 Nov 2010
30 Jan 2011
10 Mar 2011
Company Secretary
Greg McMahon
Registered office
Wm Morrison Supermarkets PLC
Hilmore House
Gain Lane
Bradford
BD3 7DL
Telephone: 0845 611 5000
www.morrisons.co.uk
Investor relations
Telephone: 0845 611 5710
Email: accinvr@morrisonsplc.co.uk
Corporate Social Responsibility enquiries
Telephone: 0845 611 5000
Annual General Meeting
The AGM will be held at 11.00 a.m. on Thursday 3 June 2010 at
Wm Morrison Supermarkets PLC Head Office, Gain Lane, Bradford
BD3 7DL. A separate notice convening the meeting is sent to
shareholders, which includes an explanation of the items of special
business to be considered at the meeting.
Dividend Reinvestment Plan
The Company has a Dividend Reinvestment Plan which allows shareholders
to reinvest their cash dividends in the Company’s shares bought in the
market through a specifically arranged share dealing service. Full details
of the plan and its charges, together with mandate forms, are available
from the Registrars.
Wm Morrison Supermarkets PLC
Morrisons website
Shareholders are encouraged to visit our website, www.morrisons.co.uk
to obtain information on Company history, stores and services, latest
offers, press information and a local store finder.
Share price information
The Investor information section of our website provides our current
and historical share price data and other share price tools. Share price
information can also be found in the financial press and the Cityline
service operated by the Financial Times. Telephone: 0906 843 3545.
Online reports and accounts
Our Annual and Interim Group financial statements are available to download
from the website along with Corporate Social Responsibility reports and other
financial announcements. The 2010 Annual report is also available to view in
html format at www.morrisons.co.uk/annualreport10
The information in the Annual report and financial statements, Annual review
and Summary financial statement and the Interim reports is exactly the same
as in the printed version.
Environmental matters
The effect of our business on the environment is something that Morrisons
takes very seriously. In the production of the 2010 Annual reports, 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 on
the Group’s website, www.morrisons.co.uk, unless they have elected to receive
a printed version of the results. The full Annual report is available for viewing
or downloading from the corporate website www.morrisons.co.uk
Shareholders are encouraged to view the report on the website which is exactly
the same as the printed version, but using the internet has clear advantages
such as lowering costs and reducing the environmental impact.
b) 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.
Photography and design
Permission to publish photographs was received from each individual.
Where minors appear, parental approval was granted.
The Annual report and financial statements, the Annual review and Summary
financial statement in both paper and HTML format, and the Corporate
social responsibility report were designed and produced by salterbaxter.
Telephone: 020 7229 5720.
Annual report and financial statements 2010
89
Contents and introduction
CONTENTS
The Directors’ report
and business review
1 Highlights
2 Chairman’s statement
4 Strategic review
4 Business review
5 Market overview
6 Our strategy
8 Key Performance Indicators
10 Our business model
12 Risks and uncertainties
14 CSR/Today
16Our people – Values in action
18 Performance review
18Operating review
23Financial review
26 Governance
26 Board of Directors
28Corporate governance report
32Directors’ remuneration report
41General information
Financial statements
43 Group financial statements
43Directors’ statements of
responsibilities
44Independent auditors’ report
45Consolidated financial statements
45Group accounting policies
50Consolidated statement of
comprehensive income
51Consolidated balance sheet
52Consolidated cash flow statement
53Consolidated statement
of changes in equity
54Notes to the Group financial
statements
75 Company financial statements
75Company accounting policies
77Company balance sheet
78Notes to the Company
financial statements
Investor relations and financial calendar – continued
Our business
We are the UK’s fourth largest food retailer by
sales with an annual turnover in excess of £15bn.
We have 425 stores across Britain, ranging in size
from 10,000 to 40,000 square feet.
Over 10m customers visit our stores each week
served by over 134,000 employees.
Registrars and Shareholding enquiries
Administrative enquiries about the holding of Morrisons shares,
such as change of address, change of ownership, dividend payments
and the Dividend Reinvestment Plan should be directed to:
Auditors
KPMG Audit Plc
1 The Embankment, Neville Street
Leeds LS1 4DW
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0GA
Stockbrokers
RBS Hoare Govett Limited
250 Bishopsgate
London EC2M 4AA
Telephone: 0871 664 0300 Overseas: +44 208 639 3399
Calls cost 10p per minute plus network extras.
www.capitaregistrars.com
Solicitors
Gordons LLP
Riverside West, Whitehall Road
Leeds LS1 4AW
Our strategy and vision
See page 6 to find out more
Our vision is to be the ‘Food Specialist For Everyone’.
As a food specialist we differentiate ourselves
from our major competitors by having:
• our own manufacturing and packing facilities;
• more people in-store preparing food than any
other retailer; and
•more specialist butchers, fishmongers and bakers
in-store than our competitors.
Investment bankers
NM Rothschild & Sons Limited
1 King William Street, London EC4N 7AR
Designed by salterbaxter
Printed by Pureprint Group
Ashurst LLP
Broadwalk House, 5 Appold Street
London EC2A 2HA
Cert no. SGS-COC-0620
Wragge & Co LLP
55 Colmore Row
Birmingham B3 2AS
Shareholder information
The number of shareholders at 31 January 2010 were 46,959 (1 February 2009 were 43,949) and the number of shares in issue was 2,651,100,378
(1 February 2009: 2,629,813,268)
Analysis by shareholder
Number of holders
% holders
Balance at 31 January 2010
% capital
40,627
5,532
336
248
79
59
34
29
9
6
87.09
11.86
0.72
0.53
0.17
0.13
0.07
0.06
0.02
0.01
432,006,887
2,156,765,323
659,413
4,891,206
17,244,002
34,077,574
340,782
5,038,065
10,401
66,725
16.30
81.35
0.02
0.18
0.65
1.29
0.01
0.19
0.00
0.00
Analysis by shareholder
Number of holders
% holders
Balance at 31 January 2010
% capital
1–1,000
1,001–10,000
10,001–1,000,000
over 1,000,000
24,503
19,611
2,537
308
52.18
41.76
5.40
0.66
11,007,279
57,192,577
251,183,410
2,331,717,112
0.42
2.16
9.47
87.95
Private shareholder
Nominee companies
Deceased accounts
Limited companies
Other institutions
Bank & bank nominees
Investment trusts
Pension funds
Family interests
Insurance companies
Investor information
86Five year summary of results
87Supplementary information
88Investor relations
and financial calendar
Merrill Lynch
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
Investor information 88 —— 89
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Wm Morrison Supermarkets PLC
Annual report and financial statements 2010
www.morrisons.co.uk/annualreport10
Annual report and financial statements 2010
www.morrisons.co.uk
Information at your fingertips
Consumer
This area of our website allows you to learn more
about Morrisons and our offering.
Offers
• Latest promotions
• Specific product offerings
• Competitions
• Press releases/marketing
Market Street
More about our unique in-store offering, along
with video presentations of where our food
comes from and how to buy, cook and present it.
Food
Information about our ranges, healthy eating and
more mouth-watering recipes.
Drink
Information on how and what to buy, where
our wines come from and, yes, more recipes.
Family life
From entertainments to bringing up baby
and looking after your pets. Including gardening
tips and even how to track where your eggs
come from.
Fresh food
Giving details of seasonal food and how and
what to buy.
Let’s Grow
Information about our Let’s Grow scheme,
including how to register, facts, how it works
and teaching resources.
Great Taste Less Waste
All about getting more meals for your money
by reducing waste and making the most of fresh
food. Includes how to store food and keep
leftovers fresher for longer and more recipes.
Seasonal
Guide on what to buy for, say, Easter, Christmas
and those other special times of year.
Today
Here you can find out about our Corporate
and Social Responsibility ethos, including
how we take good care of our environment,
society and how we go about business.
www.morrisons.co.uk/today
Corporate
Work with Morrisons
Career opportunities and information
about working for Morrisons. For our
dedicated recruitment website go to
www.iwantafreshstart.com
Press Office
Latest releases about the growing estate
of Morrisons, along with promotions and
product news.
Investors
User-friendly
Presentations, announcements and financial
reports can be quickly and easily downloaded
or viewed on-screen as PDFs. You can easily
navigate around the Annual report and financial
statements 2010 on-screen, viewing only the
parts you want to
www.morrisons.co.uk/annualreport10
Webcasts
Webcasts of the Directors delivering the
preliminary results 2010 on 11 March 2010
are available.
Shareholder information
Other relevant shareholder information
is available, like share price history,
financial calendar and AGM minutes.
Wm Morrison Supermarkets PLC Annual report and financial statements 2010
Wm Morrison Supermarkets PLC
Hilmore House
Gain Lane
Bradford
BD3 7DL
Telephone: 0845 611 5000
Keeping things simple
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 interim financial results, notices of
shareholder meetings and other shareholder
documents, you will receive an email to let you
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.co.uk/corporate/investors
and follow the investor eComms link.
About Morrisons
You will find information about the Group,
its operations, its strategy and structure,
and past financial information.
Annual report and
financial statements 2010