TIDMMRW
RNS Number : 0442M
Morrison(Wm.)Supermarkets PLC
12 September 2019
News Release
Release date: 12 September 2019
INTERIM RESULTS FOR THE HALF YEAR TO 4 AUGUST 2019
Maintaining momentum
Financial summary
-- Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT up 0.2% (2018/19:
4.9%)
-- Q2 Group LFL ex-fuel/ex-VAT down 1.9% (Q2 2018/19: up 6.3%)
-- Total revenue up 0.4% to GBP8.83bn (2018/19: GBP8.80bn)
-- Profit before tax and exceptionals(2) up 5.3% to GBP198m (2018/19:
GBP188m)
-- EPS before exceptionals(2) up 4.1% to 6.38p (2018/19: 6.13p)
-- Statutory profit before tax up 48.5% to GBP202m (2018/19: GBP136m)
-- Free cash flow(3) up GBP15m to GBP244m (2018/19: GBP229m)
-- Free cash flow adjusted for disposal proceeds, operating working
capital, onerous payments, and non-cash movements up GBP30m
to GBP211m (2018/19: GBP181m)
-- Net debt GBP2,358m (2018/19 year end: GBP2,394m). Pre-IFRS
16 net debt GBP975m, down GBP22m since the end of 2018/19
-- Interim ordinary dividend up 4.3% to 1.93p (2018/19: 1.85p)
-- Special interim dividend of 2.00p, taking total interim dividend
up 2.1% to 3.93p
Strategic and operating highlights
-- Maintaining meaningful, sustained cash generation, profit and
dividend growth
-- Significant investment and improvement in competitiveness
-- Expansion of the Morrisons store on Amazon Prime Now to many
more cities across the UK, starting in Q3
-- Trial conversion of ten McColl's stores to Morrisons Daily
started well
-- Today announcing four new or extended wholesale supply initiatives:
* Multi-year partnership signed with Amazon extending
relationship in time and scope
* New forecourt partner Harvest Energy
* New export partner LuLu in the Middle East
* Further convenience store trial formats with Rontec
Financial targets update
-- On track for GBP1bn annualised wholesale supply sales target
-- Further GBP7m incremental profit from wholesale, services,
interest and online, taking the total so far to GBP61m. On
track for our GBP75m-GBP125m target
Note: 2018/19 has been restated for the new lease accounting
standard, IFRS 16
Andrew Higginson, Chairman, said:
"I'm confident that Morrisons is on the right path for continued
and sustainable growth. The team are listening and responding to
customers, and making the right choices to benefit all
stakeholders, including strong dividends for shareholders."
David Potts, Chief Executive, said:
"We stayed focussed on our Fix, Rebuild and Grow strategy, and
were pleased to maintain the momentum of the turnaround against
strong comparatives last year. Sales and profit progress was
robust, and we again invested in improving our competitiveness for
customers.
"News today of new wholesale initiatives, including a further
extension of our partnership with Amazon, and of another special
dividend, again show how new Morrisons continues to become broader
and stronger for all stakeholders, and how progress can be
meaningful and sustainable even in more testing trading conditions.
Such progress is only made possible by Morrisons exceptional team
of food makers and shopkeepers."
Outlook
Sales comparatives were strong, with 2018/19 assisted by very
favourable summer weather and events such as the World Cup and
royal wedding. In contrast, this year's summer weather was largely
unfavourable and there were no similar events to boost sales.
Consumer confidence also continued to be weak, again affecting
customer behaviour. In this more testing period, our profit
performance was robust, free cash flow generation remained strong,
and we were satisfied with our relative LFL performance.
During the second half, we are planning both for retail LFL to
improve, and for various additional cost saving opportunities. In
addition, we expect the contribution from our incremental
GBP75m-GBP125m profit opportunity to continue to grow, including
previously guided online cost savings after our recent temporary
exit from the Erith customer fulfilment centre (CFC) and lower
wholesale start-up costs. We remain on track for our medium-term
target of GBP75m-GBP125m incremental profit from wholesale,
services, interest and online.
We are confident that Morrisons will continue to become broader
and stronger. We have many meaningful and sustainable growth
opportunities ahead, and are pleased today to be announcing
extensions of our wholesale supply partnerships with Amazon and
Rontec, and two new partnerships, with Harvest Energy in the UK,
and LuLu in the Middle East.
Reflecting our growth opportunities, sustained profit and cash
flow progress, and future expectations, we are today announcing a
further special dividend of 2.00p per share. We will continue to
retain a strong and flexible balance sheet, and we will be guided
each year by the principles of our capital allocation framework in
assessing the uses of free cash flow.
Figure 1 - H1 2019/20 profit reconciliation
GBPm H1 18/19 H1 19/20 Y-on-Y
---------
Statutory operating profit 219 246 12.3%
Statutory profit before tax 136 202 48.5%
----------------------------------------------------------- --------- --------- -------
Exceptional items:
* (Profit)/loss on disposal and exit of properties 1 -
* Costs associated with repayment of borrowings(*) 33 -
* Net pension interest income(*) (8) (10)
* Other exceptional items 26 6
----------------------------------------------------------- --------- --------- -------
Operating profit before exceptionals 246 252 2.4%
Profit before tax and exceptionals 188 198 5.3%
----------------------------------------------------------- --------- --------- -------
* Adjusted in profit before tax and exceptionals, but not in
operating profit before exceptionals
Figure 2 - LFL sales performance (ex-VAT)
2018/19 2019/20
Q1 Q2 H1 H2 FY Q1 Q2 H1
Retail contribution
to LFL 1.8% 2.5% 2.1% 0.9% 1.5% 0.2% (2.4)% (1.1)%
Wholesale contribution
to LFL 1.8% 3.8% 2.8% 3.7% 3.3% 2.1% 0.5% 1.3%
Group LFL ex-fuel 3.6% 6.3% 4.9% 4.6% 4.8% 2.3% (1.9)% 0.2%
Group LFL inc-fuel 1.9% 6.4% 4.2% 4.5% 4.3% 2.7% (2.2)% 0.2%
Reported in accordance with IFRS 15
This announcement includes inside information.
Alternative Performance Measures
Guidelines on Alternative Performance Measures issued by the
European Securities and Markets Authority came into effect for all
communications released on or after 3 July 2016 for issuers of
securities on a regulated market. The key alternative performance
measures identified by the Group and contained in this announcement
are detailed below.
The Directors measure the performance of the Group based on the
following financial measures which are not recognised under
EU-adopted IFRS, and consider these to be important measures in
evaluating the Group's results and financial position.
Definitions and additional requirements:
A full glossary of terms and alternative measures is provided in
this announcement. The Directors believe the key metrics are the
ones outlined below because: they are used for internal reporting
of the performance of the Group; they provide key information on
the underlying trends and performance; and they are key measures
for director and management remuneration.
(1) Like-for-like (LFL) sales: percentage change in year-on-year
sales (excluding VAT), removing the impact of new store openings
and closures in the current or previous financial year.
A reconciliation between LFL sales and total revenue is provided
in the glossary at the end of this announcement.
(2) Profit before tax and exceptionals: defined as profit before
tax, exceptional items and net pension interest. Earnings per share
(EPS) before exceptionals: based on profit before exceptional items
and net pension interest, adjusted for a normalised tax charge.
A reconciliation between statutory profit before tax, statutory
operating profit, profit before tax and exceptionals, and operating
profit before exceptionals is shown in Figure 1. See Note 8 for a
reconciliation between basic EPS and EPS before exceptionals.
(3) Free cash flow: movement in net debt before the payment of
dividends. Free cash flow for the period is GBP244m (2018/19:
GBP229m), being the movement in net debt of GBP36m (2018/19:
GBP31m) adjusted for dividends paid of GBP208m (2018/19:
GBP198m).
Other Alternative Performance Measures used in this announcement
are defined in the glossary.
Enquiries:
Wm Morrison Supermarkets PLC
Group Chief Finance and
Trevor Strain - Commercial Officer 0845 611 5000
Andrew Kasoulis - Investor Relations Director 0778 534 3515
Media Relations
Wm Morrison Supermarkets
PLC: Julian Bailey 0796 906 1092
Citigate Dewe Rogerson: Simon Rigby 020 3926 8522
Kevin Smith 020 3926 8509
Management will host an analyst presentation this morning at
09:30 at the London Stock Exchange.
*** Pre-registration is required to attend the meeting. ***
If you are not already registered and would like to attend,
please email Dawn Kershaw by 09:00 this morning
(dawn.kershaw@morrisonsplc.co.uk)
A webcast of this meeting is available at
https://www.morrisons-corporate.com/investor-centre/
Dial-in details:
Participant dial in: +44 (0)20 3003 2666
Password: Morrisons
Replay facility available for 7 days:
Replay access number: +44 (0)20 8196 1998
Replay access code: 6083544#
-S -
Certain statements in this financial report are forward looking.
Where the financial 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. Such statements are based on current expectations and are
subject to a number of risks and uncertainties, including both
economic and business risk factors that could cause actual events
or results to differ materially from any expected future events or
results referred to in these forward-looking statements. Unless
otherwise required by applicable law, regulation or accounting
standards, the Group undertakes no obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
Financial overview
The 2019/20 interim condensed Financial Statements are the first
to be prepared in accordance with the new IFRS 16 lease standard.
We published IFRS 16 restated 2018/19 Financial Statements on 2
July, and all comparative figures included within this announcement
have been restated for IFRS 16.
Total revenue for the first half of 2019/20 was GBP8.83bn, up
0.4% year on year, including a contribution of 0.1% (excluding
fuel) from net new space. Total revenue growth was 0.3% (excluding
fuel).
Fuel sales were up 0.6% to GBP1.9bn, with LFL of 0.4%.
Group LFL excluding fuel was up 0.2%, comprising retail of
(1.1)% and wholesale of 1.3%. In Q2, Group LFL excluding fuel was
(1.9)%, with retail of (2.4)% and wholesale of 0.5%.
For retail, as guided at the time of our Q1 trading update, the
market remained competitive and challenging throughout the first
half. Customer behaviour continued to be impacted by the
uncertainties around the prolonged Brexit process, and consumer
confidence continued to be low. Very favourable summer weather last
year became unfavourable this year, particularly in May and June,
and there were no similar events to match last year's boosts from
the World Cup and royal wedding.
We continued to invest in improving the shopping trip and
becoming more competitive, especially for customers' favourite
items. We increased this investment during the first half,
significantly reducing prices across hundreds of the Morrisons
price list items and, while this is having a deflationary impact
relative to the market, we have been pleased so far with the volume
uplift of those items.
For wholesale, the contribution to LFL growth fell during the
first half as expected. During Q2, we passed the anniversary of
last year's accelerated wholesale supply roll-out to 1,300 McColl's
stores. In addition, as recently announced by McColl's, it closed
over 40 stores during its first half, which impacted our wholesale
sales slightly.
Operating profit before exceptionals was up 2.4% to GBP252m
(2018/19: GBP246m), with margin up 6 basis points year on year to
2.9%. EBITDA margin before exceptionals was 5.8%, up 20 basis
points.
Net finance costs before exceptionals were GBP54m (2018/19:
GBP59m).
Profit before tax and exceptionals was up 5.3% to GBP198m
(2018/19: GBP188m).
Exceptional items recognised outside profit before tax and
exceptionals were a net credit of GBP4m, as listed in Figure 1.
Within this, there was GBP10m net pension interest income and GBP6m
other exceptional costs.
Statutory profit before tax after exceptionals was up 48.5% to
GBP202m (2018/19: GBP136m, after GBP52m of net exceptional
costs).
The net incremental profit before tax from wholesale, services,
interest and online was GBP7m, bringing the total cumulative profit
so far to GBP61m. We remain confident of our medium-term target of
GBP75-GBP125m incremental profit from these four areas.
EPS before exceptionals was up 4.1% to 6.38p (2018/19:
6.13p).
Cash capital expenditure was GBP212m (2018/19: GBP185m).
Free cash flow was up GBP15m to GBP244m (2018/19: GBP229m).
Adjusting for disposal proceeds, operating working capital, onerous
payments, and non-cash movements, free cash flow was up GBP30m to
GBP211m (2018/19: GBP181m).
Group net debt was GBP2,358m (2018/19: GBP2,394m). On a pre-IFRS
16 basis, net debt was GBP975m, down GBP22m since the end of
2018/19.
The proposed interim ordinary dividend is up 4.3% to 1.93p. In
addition, we are again proposing a special dividend of 2.00p per
share, which will take the total interim dividend up 2.1% to 3.93p
(2018/19: 3.85p).
Return on capital employed (ROCE) was up 20 basis points since
2018/19 year end, to 7.1%, and up from 7.0% for the first half of
2018/19.
Strategy update - A broader Morrisons and strong progress in
wholesale supply
Our Fix, Rebuild and Grow strategy continues to progress well.
Against strong first-half 2018/19 LFL sales comparatives, and with
ongoing low consumer confidence and uncertainty, we remained
focussed on progress for all stakeholders: customers, colleagues,
suppliers and shareholders.
In this tougher trading environment, we continued to invest in
improving the shopping trip for customers, and further improved the
relative competitiveness of our Morrisons price list. At the same
time, we again grew first-half LFL, profit and ROCE and, consistent
with the principles of our capital allocation framework, are
announcing a further special dividend of 2.00p per share.
Our ability to keep building a broader, stronger business is key
to maintaining meaningful and sustainable growth. Wholesale's
continued significant expansion helped to maintain the momentum of
building a broader Morrisons during the first half. After
surpassing our initial target of GBP700m of annualised wholesale
supply sales, we remain on track for GBP1bn in due course.
That momentum is gathering pace. We are today announcing several
wholesale supply initiatives, including the expansion of our
long-term relationship with Amazon. We have a new convenience
forecourt partner, Harvest Energy, in the UK, and a new overseas
export partner, Lulu, in the Middle East. We have also extended our
partnership with Rontec, and begun trialling conversions of
McColl's stores to Morrisons Daily.
Amazon
Morrisons and Amazon are today announcing a further extension of
the relationship, both in time and scope, by agreeing a multi-year
partnership.
We have signed an agreement to partner together over a number of
years rather than on a rolling basis, and will be exploring new
opportunities to innovate and improve the shopping experience for
both Morrisons and Amazon customers.
This agreement is in addition to the announcement in June of the
expansion of the Morrisons store on Prime Now to many more cities
across the UK. This ultra-fast same day, online grocery home
delivery service, previously called 'Morrisons at Amazon', is
currently available to Amazon Prime Now customers in four cities:
Leeds, Manchester, Birmingham, and parts of London and the Home
Counties. Customers can order a full Morrisons shop online, which
is then picked at a local Morrisons store, and delivered by Amazon.
The option for delivery within one hour of the order being placed
is available for many customers across these cities.
During 2019, this ultra-fast same day service will begin to be
rolled out to other cities, including Glasgow, Newcastle,
Liverpool, Sheffield and Portsmouth. In future years, the Morrisons
store on Prime Now will be expanded to further cities across the
UK.
Harvest Energy
In addition, we are pleased to announce a new wholesale
partnership with Harvest Energy. Harvest operates over 80
convenience stores on its petrol station forecourts, mostly in the
Midlands and the South East. We expect to convert a number of these
to Morrisons Daily in coming months.
Rontec
We are extending our wholesale partnership with Rontec, through
further store format trials. There are already around 50 Morrisons
Daily convenience stores on Rontec petrol forecourts, with more to
come. In addition, in recent weeks we and Rontec have together
started to trial different formats in four of its smaller
convenience stores. Two are branded Morrisons Select, offering
predominantly a food-to-go Morrisons range, and two remain branded
Shop'N Drive with small Morrisons food-to-go inserts.
Y-International / LuLu
Today we are also announcing a new overseas export wholesale
partnership with Y-International, part of LuLu Group International,
to supply Morrisons branded products, including our 'Best' and
'Free From' ranges.
LuLu is the second largest grocer in the Middle East and has
over 150 stores, with more expansion planned in coming years.
Morrisons will initially supply LuLu in Qatar from later this year,
with plans to roll out to further countries thereafter.
McColl's
During the first half, ten trial stores were converted from
McColl's to Morrisons Daily. The stores, which are branded
Morrisons Daily, offer a full Morrisons convenience range, and will
continue to be owned and operated by McColl's. Morrisons is
providing assistance with conversion, staff training, store
operations and other central support. Distribution to the stores
will continue to be via Morrisons existing infrastructure and third
party provider.
Initial signs from these Morrisons Daily conversions are
encouraging, and customer reaction has been positive.
In addition, as previously announced, we expect to begin to
start supplying McColl's c.300 ex-Co-op stores from the end of
2019.
Six priorities update
1. To be more competitive
Customers trust and rely on Morrisons to provide great value,
particularly given the current uncertainty around Brexit and how it
may affect customers' daily lives. During the first half we again
invested in the shopping trip and improved our relative
competitiveness, especially of customers' favourite items. We
reduced prices across hundreds of the Morrisons price list items
and, while this is having a deflationary impact relative to the
market, we have been pleased so far with the response from
customers.
Provenance and authenticity are also very important for
customers. Morrisons has a strong British food manufacturing
heritage, and owns some unique fresh food businesses and brands.
These include International Seafoods Ltd, based in Grimsby, and
Woodhead Bros, our fresh meat business. During the first half, we
introduced some exclusive low price, great value items under these
brands.
Being more competitive is about good quality as well as great
prices, and our food makers and shopkeepers were once again
recognised for that quality during the first half. Our meat was
very widely recognised, winning: Best Bacon Product for The Best
Traditionally Cured Smoked Back Bacon at the Meat Management
Awards; several awards at The World Steak Challenge, including
golds for our Fillet Steak and Rib Eye Steak; and The Best British
Beef Burgers enriched with Bone Marrow won the BBC Good Food Summer
Taste Awards. Our cheese also continues to win awards: at the
Nantwich International Cheese Awards, we won Deli Retailer of the
Year, Artisan Retailer of the Year and, for the second consecutive
year, Supreme Retailer of the Year. We won 115 awards at the
Decanter World Wine Awards, including a platinum award for The Best
Chablis 1(er) Cru, and Morrisons The Best Ruby Easter Egg won its
category in the Good Housekeeping Awards.
2. To serve customers better
Customer satisfaction remains our key measure of how we are
serving customers better. We have now entered a fifth year of
improvement, with our overall customer satisfaction score up
another one percentage point during the first half, including
further improvements in availability and colleague
friendliness.
We are rolling out plans to serve online customers more widely.
In May, we announced that Ocado will have sole use of the new Erith
CFC until January 2021, allowing Ocado extra capacity following the
recent fire at its Andover CFC. All our existing Morrisons.com
customers will still be offered the same online home delivery
service, and Morrisons.com will still grow for new customers both
by adding new store-pick capacity, and by increasing orders through
the Dordon CFC. During the first half, we added several store-pick
stores for Morrisons.com, extending our online catchment to new
areas including Falkirk and Dundee in Scotland, and parts of Devon,
Cornwall and the North-West in England.
In addition, Ocado will no longer be Morrisons exclusive digital
partner. For Morrisons, this potentially enables other significant
opportunities and partnerships, and more strategic flexibility to
improve the digital offer for customers in this important growth
area for us.
3. Find local solutions
During the first half, we hosted another eight local food maker
events, at venues from Fort William to Folkestone. Since the start
of the local food maker programme in 2017, we have launched 775
products in our stores sourced from those events and supplied by
165 local food makers. Successes in the first half included Norfolk
asparagus, stocked and sold in five local stores on the same day it
is picked.
Many local food makers are continuing to have success with
Morrisons by expanding to a wider region. Dartmoor Lamb, supplied
by the Dartmoor Farmers Association, was first launched in five
stores in 2018, and is now available in 42 stores in the South
West. Warner's Rhubarb Gin was originally launched in our new St
Ives store, and is now in 34 stores across the region.
Our Fresh Look programme continues to provide us with local
opportunities. At Lake, on the Isle of Wight, our Fresh Look refit
during the first half delivered our most integrated local store so
far. Locally supplied items include dairy, coffee, eggs, meat,
biscuits, tomatoes and garlic.
We also continue to improve our offer around events and local
demographics. For example, Ramadan sales were up 25% and Passover
sales were up 7% compared to last year.
4. Develop popular and useful services
Popular and useful services continue to grow at Morrisons.
During the first half, we got off to a good start with our plans
to install electric vehicle chargers at our stores. We are
introducing 50-100kW rapid chargers which are of the highest
specification available and allow Morrisons customers to fully
recharge their electric vehicles within just 20 to 60 minutes,
depending on the vehicle. We expect to install these at around 100
stores during 2019, which will mean Morrisons will have Britain's
biggest supermarket network of rapid electric-vehicle chargers.
In addition during the period, the roll-out of Doddle continued
into almost 90 more Morrisons stores, bringing the total to over
375. After a successful start last year, a further 22 Travel Money
currency exchange kiosks were opened. We now have over 30 hand car
washes with our partner, Car Valeting, and are part of the
Responsible Car Wash Scheme. We are also starting to introduce more
high street offers onto our car parks, for example, the
cash-for-clothes service, Smart Recycling, was introduced into
seven stores, and we have plans for more popular services such as
barbers and beauty bars.
During the second half, we expect to develop our gift card
service, with the launches of both Morrisons and Nutmeg gift cards
in time for Christmas.
5. To simplify and speed up the organisation
We are identifying several sources of productivity and cost
savings opportunities, which we expect to continue for many years
to come.
During the first half, our work to invest in the shopping trip
and improve competitiveness for our customers included progress in
areas such as merchandising, on-shelf stock holding, and range
optimisation. We also introduced enhanced in-store systems to
reduce waste and markdown and enable better visibility of
availability.
Work continues in our supply chain to introduce forecasting
tools to enable better order planning, both short- and long-term
and for promotions. We have also completed the introduction of a
new fresh food warehouse management system into two depots.
In addition, we have recently outsourced transportation planning
and operations at three of our distribution centres and vehicle
maintenance at five sites, which enables greater simplicity and
flexibility within our distribution infrastructure.
6. To make core supermarkets strong again
Around 20 Fresh Look refits were completed in the first half,
with around 45 in total planned for the year.
Our Fresh Look refits and new stores continue to drive learning
and innovation across the Morrisons estate. During the first half,
we introduced 25 more Nutmeg womenswear departments, taking the
total to nearly 300. We also introduced over 60 more Garden Centres
for the summer season, around 20 more Home & Leisure
departments, and now have nearly 80 barista bars.
In addition, we have started a programme to increase investment
in our Market Street service counters. Customers tell us that our
Market Street fresh food offer and our skilled craftspeople are
highly valued and part of what makes Morrisons different.
All three of last year's new store openings, at Abergavenny, St
Ives in Cambridgeshire, and Acocks Green in Birmingham are
performing well, with the St Ives and Abergavenny stores now past
their anniversary and showing strong second-year LFL sales
growth.
In the second half we will open two new stores, in Canning Town
and Bolsover, and two replacement stores, in Oswestry and
Folkestone.
Financial strategy and update
Our strong balance sheet is the foundation of the turnaround.
Debt is low, the property estate is predominantly freehold, and the
pension is in surplus. Capital expenditure has halved since peak
and is at a sustainably lower level. We generate significant and
sustainable levels of free cash flow, and manage the business with
consistent capital discipline and capital allocation
principles.
Capital allocation framework
Our capital allocation framework has guided us in building a
track record of capital discipline over recent years. Our first
priority is to invest in the stores and infrastructure and reduce
costs. Second, we will seek to maintain debt ratios that support
our target of an investment-grade credit rating. Third, we will
invest in profitable growth opportunities. Fourth, we will pay
dividends in line with our stated policy, and then any surplus
capital will be returned to shareholders.
Shareholder returns
Our policy is for the ordinary annual dividend to be sustainable
and covered around two times by underlying EPS.
The 2019/20 interim ordinary dividend will be 1.93p, up
4.3%.
In addition to the ordinary dividend, the Board is proposing
another special dividend, this time of 2.00p per share. We remain
confident that Morrisons has many meaningful and sustainable sales
and profit growth opportunities ahead, and we also expect free cash
flow to remain strong and sustainable. This further special
dividend reflects our continued progress and expectations. We will
continue to retain a strong and flexible balance sheet, and be
guided by the principles of our capital allocation framework in
assessing the uses of free cash flow.
Both the ordinary interim and special interim dividends of 1.93p
and 2.00p per share respectively will be payable on 1 November 2019
to shareholders on the share register at the close of business on
27 September 2019.
Since 2014/15, dividends paid and declared are 59.86p per share,
equivalent to GBP1.4bn.
Cost savings
As previously noted, Ocado will have sole use of the Erith CFC
until January 2021. In the meantime, Morrisons.com will still grow
for customers through the Dordon CFC and extra store-pick capacity,
but will not incur either the start-up or running costs of Erith.
On Morrisons return to Erith in 2021, the CFC is expected to be
operating at a higher capacity, and we will be able to ramp up our
online offer more quickly and cost effectively.
In addition, we continue to make investments to improve our
efficiency, with areas such as distribution and all elements of
loss remaining key future productivity and cost saving
opportunities, and are planning for various additional cost saving
opportunities.
Cash flow and working capital
Free cash flow was up GBP15m to GBP244m (2018/19: GBP229m),
bringing the total to GBP3.2bn since the start of the programme in
2014/15. Adjusting for disposal proceeds, operating working
capital, onerous payments, and non-cash movements, free cash flow
was up GBP30m to GBP211m (2018/19: GBP181m).
Stock was GBP130m lower than 2018/19 year end due to seasonal
and timing benefits, some of which were temporary, plus operational
improvements, which we expect to be sustainable.
Capital expenditure/depreciation and amortisation
Cash capital expenditure was GBP212m (2018/19: GBP185m), and we
still expect full-year capital expenditure of c.GBP550m. In
addition, we incurred GBP37m of onerous cash payments and still
expect c.GBP60m for 2019/20.
Depreciation and amortisation was GBP262m (2018/19: GBP248m). We
expect full-year 2019/20 depreciation and amortisation to be
GBP530m-GBP540m, equivalent to the previously guided
GBP470m-GBP480m on a non-IFRS 16 basis.
Debt and interest
Group net debt was GBP2,358m (2018/19: GBP2,394m). Excluding
IFRS 16 lease liabilities, net debt was GBP975m, down GBP22m since
the end of 2018/19.
Net finance costs before exceptionals were GBP54m, down GBP5m
from last year (2018/19: GBP59m). We expect full-year 2019/20 net
finance costs to be GBP105m-GBP110m, equivalent to the previously
guided c.GBP55m on a non-IFRS 16 basis.
During the period, we extended the term of our existing
GBP1.35bn revolving credit facility by one year, to 2024.
Pension
The net pension surplus was GBP751m, up from GBP688m at the end
of 2018/19. First-half net pension interest income was GBP10m,
reported outside profit before tax and exceptionals.
We have almost completed the pensions triennial review, with all
the key assumptions substantively agreed subject to final
ratification by the trustees. The schemes remain well funded and in
surplus.
Net new space
No new stores were opened during the period. We will open two
new stores, in Canning Town and Bolsover, and two replacement
stores, in Oswestry and Folkestone, during the second half.
In reviewing the performance of our existing estate, we have
identified four stores that we are proposing to close during the
second half. Pending the outcome of the consultation process and
the precise timing of the proposed closures, we now expect 2019/20
net new space sales contribution to be 0.0%.
Future reporting
The new IFRS 16 lease standard came into effect from 2019/20.
The 2019/20 first half results are the first condensed Financial
Statements to be prepared under the new standard, and all future
reporting will be on the same basis.
Restated 2018/19 results on a post-IFRS 16 basis were published
on 2 July, and are available on the Investor Centre section of our
corporate website and reflected in this statement.
Morrisons is predominantly a freehold business and we own 86% of
our stores, which means the impact of the new lease accounting
standard on profit is relatively low. For the first half of
2018/19, restated profit before tax and exceptionals reduced by
GBP5m under IFRS 16, from GBP193m to GBP188m (2.6%). Operating
profit before exceptionals increased by GBP23m, to GBP246m, and
operating margin increased by 26 basis points, to 2.8%.
On the restated first-half 2018/19 balance sheet, the Group has
recognised lease liabilities of GBP1,426m and corresponding
right-of-use assets of GBP808m. The restated net assets for first
half 2018/19 were GBP4,406m, GBP300m lower than pre-IFRS 16.
The recently announced expansion of the Morrisons store on Prime
Now will mean Morrisons becoming a retailer on Amazon's Prime Now
website and app, selling directly to customers. As a result, from
Q4 2019/20 sales from Morrisons store on Prime Now will be reported
within retail LFL rather than wholesale LFL. Morrisons will
continue as a wholesaler for all Amazon's other UK grocery offers
for customers, and those sales will continue to be reported in
wholesale LFL.
As also recently announced, Morrisons will not be using the new
Erith CFC for Morrisons.com until early 2021, with online home
delivery orders instead being fulfilled by the existing Dordon CFC
and increasing store-pick capacity. As a result, we will no longer
split out the contribution to LFL from sales through CFCs.
People update
We continue to invest in the development and wellbeing of our
colleagues. Over 400 Store Managers and People Managers have
completed our 'Leading With Purpose' programme, and we have
extended the scope of our technical training to keep improving the
capability of our colleagues to deliver in-store process
improvements. We continue to use 'My Morri', our digital platform
for colleagues, to provide useful tools and resources, with recent
additions such as 'My Wellbeing' providing helpful advice on topics
such as nutrition, sleep, stress awareness and mental health.
We are modernising the way we work, reducing the contracted
hours of our store management team, and implementing improved
working patterns to provide greater flexibility to balance work and
home. We are also updating in-store colleague areas, improving
menus in our staff rooms, and installing new equipment such as
fridges, water dispensers and coffee machines. As well as
benefiting colleagues, particularly those working outside staff
restaurant hours, this will remove an estimated 61 tonnes of
plastic each year.
Listening and responding remains a key focus area. This year
almost 80% of our colleagues contributed feedback in the 'Your Say'
survey and we recorded a strong engagement score of 77%. We also
held our fourth national 'Your Say' meeting in May, where
representatives from stores, sites and the support centre met with
executive and non-executive board directors to ask questions and
share feedback on opportunities to continue to improve for
customers and colleagues.
We continue to build a pipeline of new talent through graduate
schemes, degree apprenticeships and craft apprenticeships, and were
recently awarded 'Top Retail Employer' for school leavers for the
second year running.
Corporate responsibility and community
Our corporate responsibility programme ensures we operate in a
way that is right for our customers, colleagues, suppliers and
shareholders while making a positive contribution to society and
taking good care of the environment.
Science-based carbon reduction target
We achieved our target to reduce operational carbon emissions by
30% by 2020 earlier than planned. We have now set a new target in
collaboration with the Carbon Trust using a science-based
methodology, to reduce absolute scope 1 and 2 carbon emissions by
33% by 2025, 53% by 2030 and 97% by 2050, from a 2017 baseline.
We believe that setting a science-based target creates a
meaningful first step towards reducing our operational impact, and
demonstrates our commitment to contribute to the global goals set
out in the Paris Agreement in 2015 to limit global temperature
increases to well below two degrees Celsius.
Farming apprenticeship fund
We have invested GBP2m of our government apprenticeship levy in
developing the next generation of farmers. The funding will seek to
equip aspiring future farmers with the skills and business
knowledge needed to succeed in the industry, thereby helping
farmers to provide for food manufacturers and retailers and meet
the UK's food needs.
Arla UK 360
We were the first retailer to commit our entire milk supply to
Arla Food's new farming standards programme, Arla UK 360. The
standards cover six areas: animal health; people; environment and
natural resources; community; economic reinvestment and resilience;
and research and development. The move means approximately 200 Arla
farmer owners will be directly supported by Morrisons to deliver
key targets within these identified areas.
Environmental Sustainability Award
We were awarded a prestigious award for work on plastic
reduction: Business in the Community's Responsible Business Award
for Environmental Sustainability recognises companies that are
taking urgent and innovative action to address key environmental
challenges that affect society today. This accolade highlights our
continued commitment to helping customers live their lives less
reliant on plastic.
In addition, Compassion in World Farming has announced our
Chippindale Foods' bee-friendly eggs project as winner of the 2019
Sustainable Food and Farming Award.
Increasing the amount of loose fruit and vegetables we sell
We were the first UK supermarket to introduce loose fruit and
veg areas in our stores, helping our customers to go bag-free or to
place items into a reusable bag. This follows the success of a
trial in three stores in 2018, where we monitored the impact on
food waste and customer demand. The loose fruit and veg areas will
be in 60 stores by the end of 2019.
Reusable and recyclable paper carrier bags in all stores
We were the first UK supermarket to launch a reusable paper
carrier bag in all of our stores. These bags are 100% PEFC
accredited, suitable for reuse and can be recycled along with other
domestic waste. No bleaches are used in the paper production
process.
In developing the bags we have worked hard to ensure both that
they are genuinely reusable and that production has an equivalent
or lower carbon footprint than the plastic alternative.
Fishing net recycling project
Abandoned, lost and discarded fishing gear is thought to make up
10% of all marine litter and can take hundreds of years to
decompose, posing a threat to marine life. Morrisons is working
with Seafish, a non-departmental public body set up to support the
UK seafood industry, to fund a fishing net recycling project in
south-west England. The project provides facilities for fishermen
to enable them to recycle old and damaged fishing nets for free in
ports across the region.
CLIC Sargent and national charities
Our national charity partnership with CLIC Sargent launched in
February 2017 with the aim of providing support for young cancer
patients and their families. So far our colleagues, customers and
suppliers have raised over GBP9m, with GBP1.9m generated in the
first half of 2019/20. We also supported other national charity
appeals, raising over GBP600k for the Marie Curie Daffodil Appeal
in March, and celebrated Armed Forces Day in June to raise funds
for Walking With The Wounded. Our stores also play an active role
in the community, with an emphasis on supporting local good causes
and helping in times of need.
Morrisons Foundation
The Morrisons Foundation continues to provide vital funding for
local charities. So far this year, over GBP1.75m has been donated
in grants and colleague match funding. The majority of donations
have been awarded to charities close to a Morrisons store,
supporting our aim to make a positive difference in the local
communities we serve.
Consolidated income statement
26 weeks ended 4 August 2019
Restated(1)
26 weeks
26 weeks ended ended Restated(1)
5 August 52 weeks
4 August 2019 2018 ended
3 February
(unaudited) (unaudited) 2019
------------------ -------------------------------------------------- ------------- ----------------------- ------------- -------------------------------------------
Exceptionals
Before Exceptionals Before Exceptionals Before (note
exceptionals (note 4) Total exceptionals (note 4) Total exceptionals 4) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------ ----------------- ------------- -------- ------------- ------------- -------- ------------- ---------------------- -------------------
Revenue 3 8,831 - 8,831 8,800 - 8,800 17,735 - 17,735
Cost of sales (8,490) (4) (8,494) (8,458) (30) (8,488) (17,039) (44) (17,083)
------------------ ------ ----------------- ------------- -------- ------------- ------------- -------- ------------- ---------------------- -------------------
Gross profit 341 (4) 337 342 (30) 312 696 (44) 652
Other operating
income 44 - 44 43 - 43 88 - 88
Profit/loss on
disposal
and exit of
properties - - - - (1) (1) - - -
Administrative
expenses (133) (2) (135) (139) 4 (135) (274) (34) (308)
------------------ ------ ----------------- ------------- -------- ------------- ------------- -------- ------------- ---------------------- -------------------
Operating profit 252 (6) 246 246 (27) 219 510 (78) 432
Finance costs 5 (55) - (55) (61) (33) (94) (120) (33) (153)
Finance income 5 1 10 11 2 8 10 5 18 23
Share of profit
of
joint venture
(net
of tax) - - - 1 - 1 1 - 1
------------------ ------ ----------------- ------------- -------- ------------- ------------- -------- ------------- ---------------------- -------------------
Profit before
taxation 198 4 202 188 (52) 136 396 (93) 303
Taxation 6 (46) - (46) (44) (3) (47) (93) 23 (70)
------------------ ------ ----------------- ------------- -------- ------------- ------------- -------- ------------- ---------------------- -------------------
Profit for the
period
attributable to
the
owners of the
Company 152 4 156 144 (55) 89 303 (70) 233
------------------ ------ ----------------- ------------- -------- ------------- ------------- -------- ------------- ---------------------- -------------------
Earnings per
share
(pence)
Basic 8 6.56 3.80 9.89
Diluted 8 6.47 3.73 9.67
------------------ ------ ------------- ----------------------- -------------------------------------- ------------- -------------------------------------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
Consolidated statement of comprehensive income
26 weeks ended 4 August 2019
Restated(1)
26 weeks ended 26 weeks ended Restated(1)
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
Other comprehensive income/(expense) Note GBPm GBPm GBPm
--------------------------------------------------------- ----- --------------- ---------------- -----------------
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension schemes 14 50 240 100
Tax on defined benefit pension schemes (9) (41) (17)
--------------------------------------------------------- ----- --------------- ---------------- -----------------
41 199 83
--------------------------------------------------------- ----- --------------- ---------------- -----------------
Items that may be reclassified subsequently to profit or
loss
Cash flow hedging movement 4 41 9
Tax on items that may be reclassified subsequently to
profit or loss (2) (5) (1)
Exchange differences on translation of foreign - 1 -
operations
2 37 8
--------------------------------------------------------- ----- --------------- ---------------- -----------------
Other comprehensive income for the period, net of tax 43 236 91
--------------------------------------------------------- ----- --------------- ---------------- -----------------
Profit for the period attributable to the owners of the
Company 156 89 233
--------------------------------------------------------- ----- --------------- ---------------- -----------------
Total comprehensive income for the period attributable
to the owners of the Company 199 325 324
--------------------------------------------------------- ----- --------------- ---------------- -----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August
2018 and the 52 weeks ended 3 February 2019, see notes 1 and 22.
Consolidated balance sheet
4 August 2019
Restated(1)
4 August 5 August
2019 2018 Restated(1)
3 February
(unaudited) (unaudited) 2019
Note GBPm GBPm GBPm
------------------------------------ ------ -------------- ------------- ------------
Assets
Non-current assets
Goodwill and intangible assets 9 392 414 404
Property, plant and equipment 10 7,076 7,011 7,094
Right-of-use assets 11 923 987 929
Investment property 12 59 63 60
Pension asset 14 774 852 730
Investment in joint venture 47 54 47
Debtors 8 8 8
Derivative financial assets 17 22 28 15
9,301 9,417 9,287
------------------------------------ ------ -------------- ------------- ------------
Current assets
Stock 583 646 713
Debtors 341 344 344
Derivative financial assets 17 26 38 19
Cash and cash equivalents 16 225 203 264
------------------------------------ ------ -------------- ------------- ------------
1,175 1,231 1,340
Assets classified as held-for-sale 13 38 41 39
------------------------------------ ------ -------------- ------------- ------------
1,213 1,272 1,379
------------------------------------ ------ -------------- ------------- ------------
Liabilities
Current liabilities
Creditors (2,991) (3,071) (3,070)
Borrowings 17 (403) (181) (178)
Lease liabilities 16 (69) (64) (69)
Derivative financial liabilities 17 (2) (1) (5)
Current tax liabilities (22) (25) (27)
------------------------------------ ------ -------------- ------------- ------------
(3,487) (3,342) (3,349)
------------------------------------ ------ -------------- ------------- ------------
Non-current liabilities
Borrowings 17 (842) (1,015) (1,110)
Lease liabilities 16 (1,314) (1,362) (1,328)
Derivative financial liabilities 17 (1) (1) (2)
Pension liability 14 (23) (18) (42)
Deferred tax liabilities (430) (460) (414)
Provisions (74) (85) (96)
------------------------------------ ------ -------------- ------------- ------------
(2,684) (2,941) (2,992)
------------------------------------ ------ -------------- ------------- ------------
Net assets 4,343 4,406 4,325
------------------------------------ ------ -------------- ------------- ------------
Shareholders' equity
Share capital 18 240 237 237
Share premium 18 189 177 178
Capital redemption reserve 39 39 39
Merger reserve 2,578 2,578 2,578
Retained earnings and other
reserves 1,297 1,375 1,293
------------------------------------ ------ -------------- ------------- ------------
Total equity attributable to the
owners of the Company 4,343 4,406 4,325
-------------------------------------------- -------------- ------------- ------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August
2018 and the 52 weeks ended 3 February 2019, see notes 1 and 22.
Consolidated cash flow statement
26 weeks ended 4 August 2019
Restated(1)
26 weeks 26 weeks
ended ended Restated(1)
4 August 5 August 52 weeks
2019 2018 ended
3 February
(unaudited) (unaudited) 2019
Note GBPm GBPm GBPm
----------------------------------- ----- --------------------------------------------- ------------- ------------
Cash flows from operating
activities
Cash generated from operations 15 567 541 977
Interest paid (61) (65) (120)
Taxation paid (46) (38) (76)
----------------------------------- ----- --------------------------------------------- ------------- ------------
Net cash inflow from operating
activities 460 438 781
----------------------------------- ----- --------------------------------------------- ------------- ------------
Cash flows from investing
activities
Interest received - - 1
Dividends received from joint
venture 21 - - 7
Proceeds from sale of property,
plant and equipment, investment
property and assets classified
as held-for-sale 3 4 22
Purchase of property, plant and
equipment and investment property (173) (146) (381)
Purchase of intangible assets (39) (39) (77)
Acquisition of business (net of
cash received) - (3) (3)
Net cash outflow from investing
activities (209) (184) (431)
----------------------------------- ----- --------------------------------------------- ------------- ------------
Cash flows from financing
activities
Purchase of trust shares 18 (3) (2) (9)
Settlement of share awards 18 (2) (5) (5)
Proceeds from exercise of employee
share options 12 19 20
New borrowings - 107 275
Repayment of borrowings (53) (235) (306)
Costs incurred on repayment of
borrowings 4 - (30) (30)
Repayment of lease obligations (36) (34) (69)
Dividends paid 7 (208) (198) (289)
----------------------------------- ----- --------------------------------------------- ------------- ------------
Net cash outflow from financing
activities (290) (378) (413)
----------------------------------- ----- --------------------------------------------- ------------- ------------
Net decrease in cash and cash
equivalents (39) (124) (63)
Cash and cash equivalents at start
of period 264 327 327
----------------------------------- ----- --------------------------------------------- ------------- ------------
Cash and cash equivalents at end
of period 16 225 203 264
----------------------------------- ----- --------------------------------------------- ------------- ------------
Reconciliation of net cash flow to movement in net debt(2) in
the period
Restated(1)
26 weeks ended 26 weeks ended Restated(1)
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
Note GBPm GBPm GBPm
------------------------------------------------- ---- ----------------- --------------- ----------------
Net decrease in cash and cash equivalents (39) (124) (63)
Cash inflow from increase in borrowings - (107) (275)
Debt acquired on acquisition of business - (2) (2)
Cash outflow from repayment of borrowings 53 235 306
Cash outflow from repayment of lease obligations 36 34 69
Non-cash movements (14) (5) (43)
Opening net debt (2,394) (2,386) (2,386)
------------------------------------------------- ---- ----------------- --------------- ----------------
Closing net debt 16 (2,358) (2,355) (2,394)
------------------------------------------------- ---- ----------------- --------------- ----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August
2018 and the 52 weeks ended 3 February 2019, see notes 1 and 22.
(2) Net debt is defined in the Glossary.
Consolidated statement of changes in equity
Attributable to the owners of the Company
Capital
Share Share redemption Merger Hedging Retained Total
capital premium reserve reserve reserve earnings equity
26 weeks ended 4
August 2019
(unaudited) Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----- -------- --------- ----------- --------- --------- --------- --------
At 4 February 2019
(reported) 237 178 39 2,578 10 1,589 4,631
Change in
accounting
policies 22 - - - - - (306) (306)
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
At 4 February 2019
(restated) 237 178 39 2,578 10 1,283 4,325
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
Profit for the
period - - - - - 156 156
Other comprehensive
income/(expense):
Cash flow hedging
movement - - - - 4 - 4
Remeasurement of
defined benefit
pension schemes 14 - - - - - 50 50
Tax in relation
to components of
other
comprehensive
income - - - - (1) (10) (11)
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
Total comprehensive
income for the
period - - - - 3 196 199
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
Purchase of trust
shares 18 - - - - - (3) (3)
Employee share
option schemes:
Share-based
payments charge - - - - - 20 20
Settlement of
share awards 18 - - - - - (2) (2)
Share options
exercised 3 11 - - - (2) 12
Dividends 7 - - - - - (208) (208)
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
Total transactions
with owners 3 11 - - - (195) (181)
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
At 4 August 2019 240 189 39 2,578 13 1,284 4,343
-------------------- ----- -------- --------- ----------- --------- --------- --------- ----------
Consolidated statement of changes in equity (continued)
Attributable to the owners of the Company
Capital
Share Share redemption Merger Hedging Retained Total
capital premium reserve reserve reserve earnings equity
26 weeks ended 5
August 2018
(unaudited) Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ------- ------ ----------- -------- -------- --------- --------
At 5 February 2018
(reported) 236 159 39 2,578 2 1,531 4,545
Change in
accounting
policies 22 - - - - - (295) (295)
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
At 5 February 2018
(restated) 236 159 39 2,578 2 1,236 4,250
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
Profit for the
period (restated) - - - - - 89 89
Other comprehensive
income/(expense):
Cash flow hedging
movement - - - - 41 - 41
Exchange
differences on
translation of
foreign
operations - - - - - 1 1
Remeasurement of
defined benefit
pension schemes 14 - - - - - 240 240
Tax in relation
to components of
other
comprehensive
income - - - - (7) (39) (46)
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
Total comprehensive
income for the
period - - - - 34 291 325
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
Purchase of trust
shares 18 - - - - - (2) (2)
Employee share
option schemes:
Share-based
payments charge - - - - - 17 17
Settlement of
share awards 18 - - - - - (5) (5)
Share options
exercised 18 1 18 - - - - 19
Dividends 7 - - - - - (198) (198)
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
Total transactions
with owners 1 18 - - - (188) (169)
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
At 5 August 2018
(restated) 237 177 39 2,578 36 1,339 4,406
-------------------- -------- ------- ------ ----------- -------- -------- --------- ----------
Consolidated statement of changes in equity (continued)
Attributable to the owners of the Company
Capital
Share Share redemption Merger Hedging Retained Total
capital premium reserve reserve reserve earnings equity
52 weeks ended 3
February 2019 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ------ ----- ----------- -------- -------- --------- ---------------
At 5 February 2018
(reported) 236 159 39 2,578 2 1,531 4,545
Change in
accounting
policies 22 - - - - - (295) (295)
-------------------- -------- ------ ----- ----------- -------- -------- --------- -------------
At 5 February 2018
(restated) 236 159 39 2,578 2 1,236 4,250
-------------------- -------- ------ ----- ----------- -------- -------- --------- -------------
Profit for the
period (restated) - - - - - 233 233
Other comprehensive
income/(expense):
Cash flow hedging
movement - - - - 9 - 9
Remeasurement of
defined benefit
pension schemes 14 - - - - - 100 100
Tax in relation
to components of
other
comprehensive
income - - - - (1) (17) (18)
-------------------- -------- ------ ----- ----------- -------- -------- --------- -------------
Total comprehensive
income for the
period - - - - 8 316 324
-------------------- -------- ------ ----- ----------- -------- -------- --------- -------------
Purchase of trust
shares 18 - - - - - (9) (9)
Employee share
option schemes:
Share-based
payments charge - - - - - 34 34
Settlement of
share awards 18 - - - - - (5) (5)
Share options
exercised 18 1 19 - - - - 20
Dividends 7 - - - - - (289) (289)
Total transactions
with owners 1 19 - - - (269) (249)
-------------------- -------- ------ ----- ----------- -------- -------- --------- -------------
At 3 February 2019
(restated) 237 178 39 2,578 10 1,283 4,325
-------------------- -------- ------ ----- ----------- -------- -------- --------- -------------
1. General information and basis of preparation
Wm Morrison Supermarkets PLC (the 'Company') is a public limited
company incorporated in the United Kingdom under the Companies Act
2006 (Registration number 358949). The Company is domiciled in the
United Kingdom and its registered address is Hilmore House, Gain
Lane, Bradford, BD3 7DL, West Yorkshire, United Kingdom.
The 2019/20 interim financial report does not constitute
financial statements within the meaning of Section 434 of the
Companies Act 2006 and does not include all of the information and
disclosures required for full annual financial statements.
The condensed consolidated interim financial statements for the
26 weeks to 4 August 2019 are unaudited. However, the auditor,
PricewaterhouseCoopers LLP, has carried out a review of the
condensed consolidated interim financial statements and their
report is included in this interim financial report.
The comparative financial information contained in the condensed
consolidated interim financial statements in respect of the 52
weeks ended 3 February 2019 has been extracted from the 2018/19
Annual Report and Financial Statements. Certain comparatives have
been restated on adoption of IFRS 16 'Leases'. See note 22 for
further detail.
The financial statements included in the 2018/19 Annual Report
and Financial Statements have been reported on by
PricewaterhouseCoopers LLP, and delivered to the Registrar of
Companies. The report was unqualified, did not include a reference
to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and did not contain a
statement under Section 498 of the Companies Act 2006.
The 2019/20 interim financial report was approved by the Board
of Directors on 11 September 2019.
The Directors' assessment of the Group's ability to continue as
a going concern is based on cash flow forecasts for the Group and
the committed borrowing and debt facilities of the Group. These
forecasts include consideration of future trading performance,
working capital requirements, retail market conditions and the
wider economy.
The Group remains able to borrow cash at competitive rates and
the Group has negotiated, and has available to it, committed
competitive facilities that will meet the Group's needs in the
short and medium term.
Having reassessed the principal risks, the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the interim financial information.
Basis of preparation
The condensed consolidated interim financial statements of the
Group for the 26 weeks ended 4 August 2019 have been prepared in
accordance with the Disclosure and Transparency Rules of the UK
Financial Conduct Authority and the requirements of IAS 34 'Interim
Financial Reporting' as adopted by the European Union. It should be
read in conjunction with the 2018/19 Annual Report and Financial
Statements which have been prepared in accordance with IFRSs as
adopted by the European Union. This is available either on request
from the Company's registered office or to download from
www.morrisons-corporate.com
Significant accounting policies
Except as described below, the accounting policies applied in
these condensed consolidated interim financial statements are the
same as those applied in the Group's consolidated financial
statements in the 2018/19 Annual Report and Financial
Statements.
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to the expected total annual profit
or loss.
1. General information and basis of preparation (continued)
Adoption of new accounting standards
From 4 February 2019, the following standards, amendments and
interpretations were adopted by the Group:
Amendment to IAS 19 'Employee Benefits'
An amendment to IAS 19 'Employee Benefits' was published in
February 2018. The amendment applies prospectively in connection
with accounting for plan amendments, curtailments and
settlements.
The amendment requires entities to use updated assumptions to
determine current service cost and net interest for the remainder
of the period after a plan amendment, curtailment or settlement.
The Group concluded that the amendment did not have a material
impact on these condensed consolidated interim financial
statements.
IFRIC 23 'Uncertainty over income tax treatments'
IFRIC 23 'Uncertainty over income tax treatments' was issued in
June 2017. The interpretation covers how the Group accounts for
taxation, where there is some uncertainty over whether treatments
in the tax return will be accepted by HMRC or the relevant overseas
jurisdictions.
Each uncertain treatment (or combination of treatments) is
considered for whether it will be accepted, and if probable taxable
profits/losses, tax bases, unused tax losses, unused tax credits
and tax rates are accounted for consistently with the tax return.
The Group accounts for each treatment using whichever of the two
allowed measurement methods is expected to best predict the final
outcome - the single most likely outcome or a probability
weighted-average value of a range of possible outcomes.
The Group adopted the modified retrospective approach to
transition on 4 February 2019. Under this approach, no restatement
of comparative financial statements was required. The Group has
referred to the IFRIC guidance, including DI/2015/1 in previous
periods, and the accounting policy prior to the adoption of IFRIC
23 applied similar principles for selecting measurement methods as
in the new interpretation.
IFRS 16 'Leases'
IFRS 16 'Leases' was published in January 2016 and replaces IAS
17 'Leases', IFRIC 4 'Determining whether an Arrangement contains a
Lease', SIC-15 'Operating Leases-Incentives' and SIC-27 'Evaluating
the Substance of Transactions Involving the Legal Form of a Lease'.
The standard applies a single recognition and measurement approach
for all applicable leases under which the Group is the lessee.
The Group has lease contracts for property and equipment. Before
the adoption of IFRS 16, at the inception date leases in which
substantially all the risks and rewards of ownership were retained
by the lessor were classified as operating leases; all other leases
were classified as finance leases. Under the previous standard,
lease payments on operating leases were recognised as rental costs
in the consolidated income statement on a straight-line basis over
the lease term. Any prepaid rent and accrued rent were recognised
under prepayments and accruals in the consolidated balance sheet
respectively.
The Group has applied IFRS 16 for the first time in the 26 weeks
ended 4 August 2019 using the fully retrospective transition
approach. In accordance with this transition method, the Group has
applied IFRS 16 at the date of initial application as if it had
already been effective at the commencement date of existing lease
contracts. Accordingly, the comparative information in these
condensed consolidated interim financial statements has been
restated. As required by IAS 34 'Interim Financial Reporting', the
nature and effect of these changes on lessee accounting are
disclosed below and in note 22.
As part of the transition to IFRS 16, the Group elected to use
the practical expedient allowing the standard to be applied only to
contracts that were previously identified as leases applying IAS 17
and IFRIC 4 at the date of initial application. The Group has also
elected to use the recognition exemptions for lease contracts that,
at the commencement date, have a lease term of 12 months or less
and do not contain a purchase option ('short-term leases'), and
lease contracts for which the underlying asset is of low value
('low-value assets'). Lease payments on short-term leases and
leases of low-value assets are recognised as an expense in the
consolidated income statement on a straight-line basis over the
lease term.
1. General information and basis of preparation (continued)
Adoption of new accounting standards (continued)
IFRS 16 'Leases' (continued)
Upon adoption of IFRS 16, for leases where the Group is a
lessee, the Group recognises a right-of-use asset and a lease
liability at the lease commencement date. The Group's new
accounting policies for leases are detailed below:
Lessee accounting
a) Right-of-use assets
Right-of-use assets are stated at cost less accumulated
depreciation and accumulated impairment losses. Right-of-use assets
are initially measured at cost, which comprises the initial amount
of the lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs
incurred, less any lease incentives received.
Right-of-use assets are depreciated on a straight line basis
from the commencement date to the earlier of the end of the useful
life of the right-of-use asset or at the end of the lease term.
Right-of-use assets are reduced by impairment charges (and
increased by impairment reversals) where necessary, and adjusted
for certain remeasurements of the lease liability.
The carrying value of investment properties held on the balance
sheet includes properties which are held as right-of-use assets,
where leased assets are held to earn rental income.
b) Lease liabilities
Lease liabilities are initially measured at the present value of
the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability comprise fixed payments, including in-substance fixed
payments, and applicable variable lease payments (which depend on
an index or a rate).
Each lease payment is allocated between the capital repayment of
the liability and the finance cost element. The finance cost is
charged to the consolidated income statement over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Lease
liabilities are remeasured when there is a change in future lease
payments arising from a change in an index or rate or a lease
modification. On the occurrence of a significant event or change in
circumstance within the control of the Group, the Group will
re-assess whether it will exercise a purchase, extension or
termination option of the individual lease and the lease liability
will be remeasured if necessary.
Lessor accounting
Lessor accounting under IFRS 16 is substantially unchanged from
IAS 17 as disclosed in the 2018/19 Annual Report and Financial
Statements, except for sub-leases which were previously classified
as operating leases. These have been re-assessed as to whether the
lease is either operating or financing in nature using the
requirements of IFRS 16.
For more details on the impact of IFRS 16 on the condensed
consolidated financial statements, see note 22.
1. General information and basis of preparation (continued)
Judgements and estimates
In preparing the condensed consolidated interim financial
statements, the Group is required to make accounting judgements,
assumptions and estimates. The judgements, assumptions and
estimation methods are consistent with those applied to the 2018/19
Annual Report and Financial Statements, with the exception of
leases (following the adoption of IFRS 16) as detailed below:
Critical accounting judgements
Lease assessments
IFRS 16 requires judgement to be applied in assessing a lease.
The main elements of the judgement are:
-- determining whether or not a contract contains a lease;
-- establishing whether or not it is reasonably certain that an
extension option will be exercised; and
-- considering whether or not it is reasonably certain that a
termination option (or break) will not be exercised.
Sources of estimation uncertainty
Lease estimation
When accounting for lease liabilities, the Group applies an
appropriate discount rate to use on commencement or modification of
a lease. The assumptions used in determining the discount rate are
regularly evaluated and are based on historical experience and
other factors which the Directors believe to be reasonable.
When assessing whether right-of-use assets are impaired, the
Group uses the same approach taken for property, plant and
equipment, intangible assets and investment property as reported in
the 2018/19 Annual Report and Financial Statements.
Principal risks and uncertainties
The Group has chosen to identify 'Brexit' as a separate
principal risk. Previously this risk was reflected across a number
of principal risks identified by the Group as reported in the
2018/19 Annual Report and Financial Statements. How and when the UK
will leave the EU presents ongoing uncertainty to the UK economy
and continues to impact consumer confidence. This could have a
negative impact on the operational environment for the Group and
the UK generally.
RISKS DESCRIPTION MITIGATION
Brexit Brexit and how and
when the UK will leave * A business wide Stability Group is in place
the EU presents ongoing co-ordinating operational impact assessments and
uncertainty to the scenario planning. We have focused action plans for
UK economy and continues our peak trading period which coincides with a
to impact consumer revised deadline of 31 October 2019 for the UK to
confidence. leave the EU;
Failure to adequately
prepare for any scenario * We continue to actively engage with key suppliers to
could have significant assess specific impacts to our business and maintain
implications on our a strong focus on UK sourcing;
business performance,
including; supply
chain disruption; * We have achieved Authorised Economic Operator status
availability; changes to enable more straight forward border checks.
to taxes and tariffs;
and the ability to
secure labour. * We have also been working with our suppliers and
freight providers to identify alternative supply
routes;
* The Group has a treasury policy in place for hedging
to mitigate risks on currency fluctuations. We have
assessed and continue to plan for potential changes
to taxes and tariffs; and
* We continue to invest in process automation and adapt
our labour model. Our Manufacturing and Logistics
sites have specific people plans in place.
1. General information and basis of preparation (continued)
Principal risks and uncertainties (continued)
Other than identifying Brexit as a separate risk, the Board
believes that since the publication of the 2018/19 Annual Report
and Financial Statements there has been no other material change to
the Group's risk exposure and appropriate mitigating actions are in
place to manage them.
Our updated principal risks and uncertainties can be summarised
as follows:
-- Brexit
-- Business interruption --
-- Competitiveness
-- Customer
-- Data
-- Financial and treasury
-- Food safety and product integrity
-- Health and safety
-- People
-- Regulation
Our risk management process incorporates the identification and
management of emerging risks, alongside our known principal risks.
More information on the principal risks and how the Group mitigates
those risks can be found on pages 24 to 25 of the 2018/19 Annual
Report and Financial Statements. You can view the 2018/19 Annual
Report and Financial Statements online on our corporate website at
www.morrisons-corporate.com
The Board
The Board of Directors that served during the 26 weeks to 4
August 2019 and their respective responsibilities were:
Andrew Higginson - Chairman*
David Potts - Chief Executive
Trevor Strain - Chief Finance and Commercial Officer
Rooney Anand*
Neil Davidson*
Kevin Havelock*
Tony Van Kralingen*
Belinda Richards *
Paula Vennells*
* Non-Executive Director
Forward looking statements
Certain statements in this interim financial report are
forward-looking. Where the interim financial 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. Such statements are based on current
expectations and are subject to a number of risks and
uncertainties, including both economic and business risk factors
that could cause actual events or results to differ materially from
any expected future events or results referred to in these
forward-looking statements. Unless otherwise required by applicable
law, regulation or accounting standards, the Group undertakes no
obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
2. Segmental reporting
The Group's principal activity is that of retailing, derived
from the UK.
The Group is required to determine and present its operating
segments based on the way in which financial information is
organised and reported to the chief operating decision-maker
(CODM). The CODM has been identified as the Executive Committee, as
this makes the key operating decisions of the Group and is
responsible for allocating resources and assessing performance.
Key internal reports received by the CODM, primarily the
management accounts, focus on the performance of the Group as a
whole. The operations of all elements of the business are driven by
the retail sales environment and hence have fundamentally the same
economic characteristics. All operational decisions made are
focused on the performance and growth of the retail outlets and the
ability of the business to meet the supply demands of the
stores.
The Group has considered the overriding core principles of IFRS
8 'Operating segments' as well as its internal reporting framework,
management and operating structure. In particular, the Group
considered its retail outlets, the fuel sale operation, the
manufacturing entities, online operations and wholesale supply. The
Directors' conclusion is that the Group has one operating segment,
that of retailing.
3. Revenue
26 weeks ended 26 weeks ended
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
GBPm GBPm GBPm
Sale of goods in-store and online 6,536 6,610 13,265
Other sales 398 305 705
---------------------------------- -------------- --------------------- ----------------
Total sales excluding fuel 6,934 6,915 13,970
Fuel 1,897 1,885 3,765
---------------------------------- -------------- --------------------- ----------------
Total revenue 8,831 8,800 17,735
---------------------------------- -------------- --------------------- ----------------
All revenue is derived from contracts with customers.
4. Profit before exceptionals
Profit before exceptionals is defined as profit before
exceptional items and net pension interest. Further detail on
profit before tax and exceptionals, profit before exceptionals
after tax and earnings per share before exceptionals is provided in
the Glossary.
The Directors consider that these adjusted profit and adjusted
earnings per share measures referred to in the results provide
useful information for shareholders on ongoing trends and
performance. The adjustments made to reported profit/loss are to:
exclude exceptional items, which are significant in size and/or
nature; exclude net pension interest; and to apply a normalised tax
rate of 23.5% (5 August 2018: 23.5%, 3 February 2019: 23.5%).
Profit before exceptionals and earnings per share before
exceptionals measures are not recognised measures under EU-adopted
IFRS and may not be directly comparable with adjusted measures used
by other companies. The classification of items excluded from
profit before exceptionals requires judgement including considering
the nature, circumstances, scale and impact of a transaction.
Reversals of previous exceptional items are assessed based on the
same criteria.
4. Profit before exceptionals (continued)
Given the significance of the Group's property portfolio and the
quantum of impairment and property-related provisions recognised in
the consolidated balance sheet, movements in impairment and other
property-related provisions would typically be included as
exceptional items, as would significant impairments of other
non-current assets.
Despite being a recurring item, the Group has chosen to also
exclude net pension interest from profit before exceptionals as it
is not part of the operating activities of the Group, and its
exclusion is consistent with the way it has historically been
treated and with how the Directors assess the performance of the
business.
Restated(1)
26 weeks 26 weeks
ended ended Restated(1)
4 August 5 August 52 weeks
2019 2018 ended
3 February
(unaudited) (unaudited) 2019
GBPm GBPm GBPm
------------------------------------------ ----- ------------- ------------- ------------
Profit after tax 156 89 233
Add back: tax charge for the
period(2) 46 47 70
Profit before tax 202 136 303
Adjustments for:
Impairment and provision
for onerous contracts(2) - - 10
Profit/loss arising on disposal
and exit of properties(2) - 1 -
Costs associated with the
repayment of borrowings(2) - 33 33
Pension exceptional items(2) - - 26
Other exceptional items(2) 6 26 42
Net pension interest(2) (10) (8) (18)
------------------------------------------ ----- ------------- ------------- ------------
Profit before tax and exceptionals 198 188 396
Normalised tax charge at 23.5%
(5 August 2018: 23.5%,
3 February 2019: 23.5%)(2,3) (46) (44) (93)
------------------------------------------ ----- ------------- ------------- ------------
Profit before exceptionals
after tax 152 144 303
------------------------------------------ ----- ------------- ------------- ------------
Earnings per share before
exceptionals (pence)
Basic (note 8) 6.38 6.13 12.85
Diluted (note 8) 6.29 6.01 12.57
----------------------------------------- -------------------- ------------- ------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
(2) Adjustments marked 2 decrease post-tax adjusted earnings by
GBP4m (5 August 2018: GBP55m increase, 3 February 2019: GBP70m
increase) as shown in the reconciliation of earnings disclosed in
note 8.
(3) Normalised tax is defined in the Glossary.
Impairment and provision for onerous contracts
There has been no charge (5 August 2018: GBPnil, 3 February
2019: GBP10m) for impairment and provision for onerous contracts.
It is the Group's policy to review for impairment annually and
there have been no indicators of impairment in the 26 weeks ended 4
August 2019.
The GBP10m charge in the 52 weeks ended 3 February 2019
consisted of:
-- a net impairment reversal of GBP2m (GBP175m impairment
reversal offset by a GBP173m impairment charge). The
GBP173m impairment charge included GBP92m in relation
to property, plant and equipment, GBP69m in relation
to right-of-use assets, GBP1m in relation to investment
property and GBP11m in relation to intangible assets.
The GBP175m impairment reversal related to property,
plant and equipment (GBP155m) and right-of-use assets
(GBP20m);
-- a net GBP11m charge recognised in relation to provisions
for onerous contracts;
-- amounts released from accruals for amounts provided
for onerous commitments of GBP6m; and
-- an increase in other property provisions of GBP7m mainly
relating to provisions for dilapidations.
4. Profit before exceptionals (continued)
Profit/loss arising on disposal and exit of properties
In the 26 weeks ended 4 August 2019, there has been no
profit/loss arising on disposal and exit of properties, net of fees
incurred (5 August 2018: GBP1m loss, 3 February 2019: GBPnil).
Costs associated with the repayment of borrowings
In the 26 weeks ended 4 August 2019, there were no costs
associated with the early repayment of borrowing facilities and
other refinancing activities (5 August 2018: GBP33m, 3 February
2019: GBP33m).
The costs incurred in the 52 weeks ended 3 February 2019
comprised of GBP30m of financing charges on redemption of financial
instruments (primarily premiums) (5 August 2018: GBP30m) and GBP3m
of fees and premiums written off on the repayment of bonds (5
August 2018: GBP3m). There were no amounts relating to gains or
losses reclassified to the consolidated income statement on
termination of hedging arrangements, which had previously been
recognised in reserves (5 August 2018: GBPnil).
Pension exceptional items
In the 26 weeks ended 4 August 2019, there have been no pension
exceptional items (5 August 2018: GBPnil, 3 February 2019:
GBP26m).
In the 52 weeks ended 3 February 2019, pension exceptional items
of GBP26m included the following:
-- Costs associated with the closure of pension schemes
of GBP19m (5 August 2018: GBPnil) related to an exceptional
curtailment charge following the closure of the Group's
Retirement Saver Plan to future accrual in September
2018. Further detail is provided in note 14.
-- Guaranteed minimum pension of GBP7m (5 August 2018:
GBPnil) related to the estimated cost of equalising
guaranteed minimum pension benefits for men and women,
following a ruling by the High Court in October 2018.
Further detail is provided in note 14.
Other exceptional items
Other exceptional items recognised in the 26 weeks ended 4
August 2019 of GBP6m include the following:
-- a GBP4m charge for costs associated with improvements
to the Group's distribution network as part of a programme
to increase network capacity and support the accelerated
roll out of wholesale supply (5 August 2018: GBPnil,
3 February 2019: GBP12m); and
-- a GBP2m charge primarily in relation to previously
recognised provisions for restructuring and other costs
incurred including in relation to legal cases in respect
of historic events (5 August 2018: GBP2m net credit,
3 February 2019: GBP2m net charge).
In the 52 weeks ended 3 February 2019, other exceptional items
also included a GBP28m charge in relation to increased stock
provisioning (5 August 2018: GBP28m charge) as the Group continued
to automate its ordering systems. This led to operational changes
and additional information regarding stock levels, and a change in
methodology for estimating stock provisions.
5. Finance costs and income
Restated(1)
26 weeks ended 26 weeks ended Restated(1)
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
GBPm GBPm GBPm
Interest payable on short-term loans and bank overdrafts (2) (1) (3)
Interest payable on bonds (20) (26) (48)
Interest payable on lease obligations (32) (33) (66)
Interest capitalised (note 9) 1 1 1
----------------------------------------------------------- -------------- --------------- ----------------
Total interest payable (53) (59) (116)
Provisions: unwinding of discount (1) (1) (3)
Other finance costs (1) (1) (1)
----------------------------------------------------------- -------------- --------------- ----------------
Finance costs before exceptionals(2) (55) (61) (120)
Costs associated with the repayment of borrowings (note 4) - (33) (33)
----------------------------------------------------------- -------------- --------------- ----------------
Finance costs (55) (94) (153)
Interest income 1 2 4
Interest received on lease receivables - - 1
----------------------------------------------------------- -------------- --------------- ----------------
Finance income before exceptionals(2) 1 2 5
Net pension interest (notes 4 and 14) 10 8 18
----------------------------------------------------------- -------------- --------------- ----------------
Finance income 11 10 23
Net finance costs (44) (84) (130)
----------------------------------------------------------- -------------- --------------- ----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
(2) Net finance costs before exceptionals marked (2) amount to
GBP54m (5 August 2018: GBP59m, 3 February 2019: GBP115m). Net
finance costs before exceptionals are defined in the Glossary.
6. Taxation
Tax charged in the consolidated income statement for the 26
weeks ended 4 August 2019 was GBP46m (5 August 2018: GBP47m, 3
February 2019: GBP70m). This has been calculated by applying the
rate of tax which is expected to apply to the Group for the period
ending 2 February 2020 using rates substantively enacted by 4
August 2019 as required by IAS 34 'Interim Financial Reporting'.
This includes the impact of any adjustments in respect of prior
periods.
The normalised rate of tax of 23.5% (5 August 2018: 23.5%, 3
February 2019: 23.5%) has been calculated using the full year
projections and has been applied to profit before tax and
exceptionals for the 26 weeks ended 4 August 2019. The standard
rate of corporation tax of 19% (5 August 2018: 19%, 3 February
2019: 19%) for the 52 weeks ended 2 February 2020 has been applied
to the exceptional profits and losses on an item by item basis for
the 26 weeks ended 4 August 2019.
Legislation to reduce the standard rate of corporation tax to
17% from 1 April 2020 was included in Finance Act 2016 and was
enacted in the prior period. Accordingly, deferred tax has been
provided at 19% or 17% depending upon when the temporary difference
is expected to reverse (5 August 2018: 19% or 17%, 3 February 2019:
19% or 17%).
Factors affecting current and future tax charges
The effective tax rate for the period was 23% (5 August 2018:
35%, 3 February 2019: 23%). The normalised tax rate applied is 4.5%
above the UK statutory tax rate of 19%. The main item increasing
the normalised tax rate is disallowed depreciation on UK properties
which reflects the Group's strategy to maintain a majority freehold
estate. The Group considers its normalised tax rate to be
sustainable so it is expected to reduce over the medium term in
line with the planned reduction in the UK statutory tax rate. There
has not been any further announcement of changes to the rate of
corporation tax after 1 April 2020.
7. Dividends
26 weeks ended 26 weeks ended
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
Amounts recognised as distributed to equity holders in the period: GBPm GBPm GBPm
Final dividend for the period ended 4 February 2018 of 4.43p - 104 104
Special final dividend for the period ended 4 February 2018 of 4.00p - 94 94
Interim dividend for the period ended 3 February 2019 of 1.85p - - 44
Special interim dividend for the period ended 3 February 2019 of
2.00p - - 47
Final dividend for the period ended 3 February 2019 of 4.75p 113 - -
Special final dividend for the period ended 3 February 2019 of 4.00p 95 - -
-------------------------------------------------------------------- -------------- -------------- ----------------
208 198 289
-------------------------------------------------------------------- -------------- -------------- ----------------
The Directors propose an interim ordinary dividend of 1.93p per
share, which will absorb an estimated GBP46m of shareholders'
funds. The Directors also propose a special dividend of 2.00p per
share, which will absorb an estimated GBP48m of shareholders'
funds. These dividends will be paid on 1 November 2019 to
shareholders who are on the register of members on 27 September
2019. The dividends paid and proposed during the year are from
cumulative realised distributable reserves of Wm Morrison
Supermarkets PLC.
8. Earnings per share
Basic earnings per share ('EPS') is calculated by dividing the
earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the period
excluding shares held in trust. For diluted EPS, the weighted
average number of ordinary shares in issue is adjusted to assume
conversion of potentially dilutive ordinary shares. The Company has
two (5 August 2018: two, 3 February 2019: two) classes of
instrument that are potentially dilutive: those share options
granted to employees where the exercise price together with the
future IFRS 2 charge of the option is less than the average market
price of the Company's ordinary shares during the period and
contingently issuable shares under the Group's Long Term Incentive
Plans ('LTIPs').
Restated(1)
26 weeks ended 26 weeks ended Restated(1)
4 August 2019 5 August 2018 52 weeks ended
3 February
(unaudited) (unaudited) 2019
Pence Pence Pence
------------------ ------------------ --------------------
Basic Diluted Basic Diluted Basic Diluted
---------------------------------- -------- -------- -------- -------- -------- --------
EPS 6.56 6.47 3.80 3.73 9.89 9.67
EPS before exceptionals(2) 6.38 6.29 6.13 6.01 12.85 12.57
---------------------------------- -------- -------- -------- -------- -------- --------
GBPm GBPm GBPm
------------------ ------------------ ------------------
Basic Diluted Basic Diluted Basic Diluted
---------------------------------- -------- -------- -------- -------- -------- --------
Basic earnings
Earnings attributable
to ordinary shareholders 155.8 155.8 89.3 89.3 233.1 233.1
---------------------------------- -------- -------- -------- -------- -------- --------
Earnings before exceptionals
Earnings attributable
to ordinary shareholders 155.8 155.8 89.3 89.3 233.1 233.1
Adjustments to determine
profit before exceptionals
(note 4) (4.2) (4.2) 54.7 54.7 69.8 69.8
---------------------------------- -------- -------- -------- -------- -------- --------
Earnings before exceptionals
attributable to ordinary
shareholders 151.6 151.6 144.0 144.0 302.9 302.9
---------------------------------- -------- -------- -------- -------- -------- --------
Millions Millions Millions
Basic Diluted Basic Diluted Basic Diluted
---------------------------------- -------- -------- -------- -------- -------- --------
Weighted average number
of shares
Ordinary shares in issue/diluted
ordinary shares 2,374.7 2,408.3 2,350.3 2,397.3 2,356.8 2,410.0
---------------------------------- -------- -------- -------- -------- -------- --------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
(2) Basic earnings per share before exceptionals and diluted
earnings per share before exceptionals are defined in the
Glossary.
9. Goodwill and intangible assets
4 August 2019 5 August 2018
(unaudited) (unaudited) 3 February 2019
Net book value GBPm GBPm GBPm
At beginning of the period 404 428 428
Additions 35 35 79
Interest capitalised 1 1 1
Amortisation charge (48) (50) (93)
Impairment charge - - (11)
--------------------------- ------------- ------------- ---------------
At end of the period 392 414 404
--------------------------- ------------- ------------- ---------------
The net book value of goodwill and intangible assets principally
consists of software development costs and licences of GBP382m (5
August 2018: GBP404m, 3 February 2019: GBP394m).
10. Property, plant and equipment
Restated(1)
4 August 2019 5 August 2018 Restated(1)
(unaudited) (unaudited) 3 February 2019
Net book value GBPm GBPm GBPm
At beginning of the period 7,094 7,027 7,027
Additions 168 183 397
Acquisition of business - 5 5
Disposals (2) (3) (15)
Transfers from investment property - 6 6
Transfers to assets classified as held-for-sale - (37) (41)
Depreciation charge (184) (170) (348)
Net impairment reversal - - 63
------------------------------------------------ -------------- -------------- ----------------
At end of the period 7,076 7,011 7,094
------------------------------------------------ -------------- -------------- ----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
11. Right-of-use assets
Restated(1)
4 August 2019 5 August 2018 Restated(1)
(unaudited) (unaudited) 3 February 2019
Net book value GBPm GBPm GBPm
At beginning of the period 929 970 970
Additions 23 44 66
Depreciation charge (29) (27) (58)
Net impairment charge - - (49)
--------------------------- -------------- -------------- ----------------
At end of the period 923 987 929
--------------------------- -------------- -------------- ----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
Included within the table above are land and buildings with a
net book value of GBP880m (5 August 2018: GBP948m,
3 February 2019: GBP895m) and plant and equipment with a net
book value of GBP43m (5 August 2018: GBP39m,
3 February 2019: GBP34m).
12. Investment property
Restated(1)
4 August 2019 5 August 2018 Restated(1)
(unaudited) (unaudited) 3 February 2019
Net book value GBPm GBPm GBPm
------------------------------------------- --- -------------- -------------- ----------------
At beginning of the period 60 69 69
Additions - 1 1
Disposals - - (1)
Transfers to property, plant and equipment - (6) (6)
Depreciation charge (1) (1) (2)
Impairment charge - - (1)
------------------------------------------------ -------------- -------------- ----------------
At end of the period 59 63 60
------------------------------------------------ -------------- -------------- ----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August
2018 and the 52 weeks ended 3 February 2019, see notes 1 and 22.
Included within the table above are right-of-use leasehold land
and buildings with a net book value of GBP33m
(5 August 2018: GBP36m, 3 February 2019: GBP34m).
13. Assets classified as held-for-sale
4 August 2019 5 August 2018
(unaudited) (unaudited) 3 February 2019
Net book value GBPm GBPm GBPm
--------------------------------------------- --- ------------- ------------- ---------------
At beginning of the period 39 4 4
Transfers from property, plant and equipment - 37 41
Disposals (1) - (6)
At end of the period 38 41 39
-------------------------------------------------- ------------- ------------- ---------------
14. Pensions
The Group operates a number of defined benefit retirement
schemes (together 'the Schemes') providing benefits based on a
benefit formula that depends on factors including the employee's
age and number of years of service. The Morrisons and Safeway
Schemes provide pension benefits based on either the employee's
compensation package and/or career average revalued earnings (the
'CARE Schemes'). The CARE Schemes are not open to new members and
have been closed to future accrual in July 2015. The Retirement
Saver Plan ('RSP') is a cash balance scheme, which provides a lump
sum benefit based upon a defined proportion of an employee's annual
earnings in each year, which is revalued each year in line with
inflation subject to a cap. The RSP was closed to future accrual in
September 2018.
The disclosures below show the details of the Schemes
combined:
4 August 2019 5 August 2018
(unaudited) (unaudited) 3 February 2019
GBPm GBPm GBPm
CARE Schemes 774 852 730
RSP (23) (18) (42)
Net pension asset 751 834 688
------------------------- -------------- -------------- ----------------
14. Pensions (continued)
The movement in the net pension asset during the period was as
follows:
26 weeks ended 26 weeks ended
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
GBPm GBPm GBPm
Net pension asset at beginning of the period 688 594 594
Net pension interest 10 8 18
Settlement and curtailment gain - 2 2
Curtailment charge from closure of the pension scheme - - (19)
Remeasurement in other comprehensive income 50 240 100
Employer contributions 4 35 56
Current service cost - (43) (53)
Past service cost (guaranteed minimum pension) - - (7)
Administrative cost (1) (2) (3)
------------------------------------------------------- --------------- --------------- -----------------
Net pension asset at end of the period 751 834 688
------------------------------------------------------- --------------- --------------- -----------------
At 4 August 2019, schemes in surplus have been disclosed within
non-current assets on the consolidated balance sheet. The Group
obtained legal advice with regard to the recognition of a pension
surplus and also recognition of a minimum funding requirement under
IFRIC 14 'IAS 19 - The limit on a defined benefit asset, minimum
funding requirement and their interaction'. This advice concluded
that recognition of a surplus is appropriate on the basis that the
Group has an unconditional right to a refund of a surplus. In
respect of the RSP this is on the basis that paragraph 11(a) of
IFRIC 14 applies enabling a refund of surplus during the life of
the RSP. In respect of the Morrisons Scheme, it is on the basis
that paragraph 11(b) or 11(c) of IFRIC 14 applies enabling a refund
of surplus assuming the gradual settlement of the scheme
liabilities over time until all members have left the scheme or the
full settlement of the Scheme's liabilities in a single event (i.e.
as a scheme wind up). In respect of the Safeway Scheme, a refund is
available on the basis that paragraph 11(b) of IFRIC 14 applies.
Amendments to the current version of IFRIC 14 are currently being
considered. The legal advice received by the Group has concluded
that the above accounting treatment should not be affected by the
current exposure draft of the revised wording to IFRIC 14.
Closure of the RSP
Following the conclusion of a consultation process, the Group
announced the closure of the Group's RSP to future accrual in
September 2018, resulting in an exceptional curtailment charge of
GBP19m recognised in 52 weeks ended 3 February 2019 (5 August 2018:
GBPnil). No further costs have been incurred in the 26 weeks ended
4 August 2019.
Guaranteed minimum pension
On 26 October 2018, the High Court issued a judgement in a claim
involving Lloyds Banking Group's defined benefit pension schemes.
This judgement concluded the schemes should be amended to equalise
pension benefits for men and women in relation to guaranteed
minimum pension benefits. The issues determined by the judgement
have a potential consequence for many other defined benefit pension
schemes and are likely to result in an increase in the liabilities
of the Morrisons and Safeway Schemes. The Group worked with the
Trustees of the schemes and independent actuaries, and estimated
the cost of equalising benefits at GBP7m. This cost was recognised
in the consolidated income statement as an exceptional item in the
52 weeks ended 3 February 2019 (5 August 2018: GBPnil). Any
subsequent changes to this amount will be treated as a change in
actuarial assumption, recognised in other comprehensive income.
Defined contribution scheme
The Group opened a defined contribution pension scheme called
the Morrisons Personal Retirement Scheme ('MPRS') for colleagues
during the 53 weeks ended 4 February 2018. The MPRS became the auto
enrolment scheme for the Group. As the MPRS is a defined
contribution scheme, the Group is not subject to the same
investment, interest rate, inflation or longevity risks as it is
for the defined benefit schemes. The benefits that colleagues
receive are dependent on the contributions paid, investment returns
and the form of benefit chosen at retirement. During the 26 weeks
ended 4 August 2019, the Group paid contributions of GBP25m (5
August 2018: GBP5m, 3 February 2019: GBP28m) to the MPRS.
15. Cash generated from operations
Restated(1)
26 weeks ended 26 weeks ended Restated(1)
4 August 2019 5 August 2018 52 weeks ended
(unaudited) (unaudited) 3 February 2019
GBPm GBPm GBPm
Profit for the period 156 89 233
Net finance costs 44 84 130
Taxation charge 46 47 70
Share of profit of joint venture (net of tax) - (1) (1)
------------------------------------------------------- --------------- --------------- ----------------
Operating profit 246 219 432
Adjustments for:
Depreciation and amortisation 262 248 501
Impairment charge - - 173
Impairment reversal - - (175)
Profit/loss on disposal and exit of properties - 1 -
Adjustment for non-cash element of pension charges (5) 7 21
Share-based payments charge 20 17 34
Decrease/(increase) in stock(2) 130 40 (27)
Increase in debtors(2) (10) (92) (89)
(Decrease)/increase in creditors(2) (53) 116 114
Decrease in provisions(2) (23) (15) (7)
------------------------------------------------------- --------------- --------------- ----------------
Cash generated from operations 567 541 977
------------------------------------------------------- --------------- --------------- ----------------
(1) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
Total working capital inflow (the sum of items marked (2) above)
is GBP44m in the period (5 August 2018: GBP49m inflow, 3 February
2019: GBP9m outflow). This includes GBPnil (5 August 2018: GBPnil,
3 February 2019: GBP12m) as a result of charges in respect of
onerous contracts and accruals of onerous commitments, net of
GBP37m (5 August 2018: GBP3m, 3 February 2019: GBP6m) of onerous
payments and other non-operating payments of GBPnil (5 August 2018:
GBP1m, 3 February 2019: GBP5m). When adjusted to exclude these
items, the operating working capital inflow is GBP81m
(5 August 2018: GBP53m inflow, 3 February 2019: GBP10m
outflow).
16. Analysis of net debt(1)
Restated(2)
4 August 5 August
2019 2018 Restated(2)
3 February
(unaudited) (unaudited) 2019
GBPm GBPm GBPm
------------------------------------ -------------- ------------- ------------
Cross-currency interest rate
swaps(3) 20 15 9
Fuel and energy price contracts 2 13 6
------------------------------------ -------------- ------------- ------------
Non-current financial assets 22 28 15
------------------------------------ -------------- ------------- ------------
Foreign exchange forward contracts 17 7 3
Fuel and energy price contracts 9 31 16
------------------------------------ -------------- ------------- ------------
Current financial assets 26 38 19
------------------------------------ -------------- ------------- ------------
Bonds(3) (258) (71) -
Other short-term borrowings(3) (145) (110) (178)
Lease liabilities(3) (69) (64) (69)
Foreign exchange forward contracts - (1) (4)
Fuel and energy price contracts (2) - (1)
Current financial liabilities (474) (246) (252)
------------------------------------ -------------- ------------- ------------
Bonds(3) (765) (1,018) (1,013)
Revolving credit facility(3) (77) 3 (97)
Lease liabilities(3) (1,314) (1,362) (1,328)
Fuel and energy price contracts (1) (1) (2)
------------------------------------ -------------- ------------- ------------
Non-current financial liabilities (2,157) (2,378) (2,440)
------------------------------------ -------------- ------------- ------------
Cash and cash equivalents 225 203 264
------------------------------------ -------------- ------------- ------------
Net debt(1) (2,358) (2,355) (2,394)
------------------------------------ -------------- ------------- ------------
(1) Net debt is defined in the Glossary.
(2) For further details on the restatement of the reported
results for IFRS 16 for the 26 weeks ended 5 August 2018 and the 52
weeks ended 3 February 2019, see notes 1 and 22.
(3) Total net liabilities from financial activities (the sum of
the items marked (3) in the table) is GBP2,608m in the 26 weeks
ended 4 August 2019 (5 August 2018: GBP2,607m, 3 February 2019:
GBP2,676m).
Cash and cash equivalents include restricted balances of GBP1m
(5 August 2018: GBP4m, 3 February 2019: GBP3m) which are held by
Farock Insurance Company Limited, a subsidiary of Wm Morrison
Supermarkets PLC.
The Group has the following bank facilities:
-- A syndicated committed revolving credit facility of GBP1.35bn.
During the 26 weeks ended 4 August 2019, the Group extended
this facility by a further year, resetting its five year
term and resulting in a maturity date of June 2024. Commitment
fees and interest charges are incurred at a spread above
LIBOR. Undrawn committed headroom available on this facility
was GBP1.27bn as at 4 August 2019.
-- A GBP250m committed revolving credit facility to provide
flexibility on refinancing the EUR280m euro bond when it
matures in June 2020. The Group can borrow under the facility
from 19 May 2020. The facility has an initial maturity date
of July 2020 and includes options to extend for up to 24
months.
-- A GBP100m 364 day committed revolving credit facility which
matures in July 2020. This was undrawn as at 4 August 2019.
All committed bank facilities have the same financial covenants.
In the event of default of covenants, the principal amounts of
borrowings and any interest accrued become repayable on demand.
The Group also has a number of uncommitted facilities which are
available to meet short-term borrowing requirements, and incur
interest charges according to usage.
In the 26 weeks ended 4 August 2019, total payments made by the
Group in respect of lease liabilities were GBP68m (5 August 2018:
GBP67m, 3 February 2019: GBP135m).
17. Financial instruments
4 August 2019 5 August 2018
(unaudited) (unaudited) 3 February 2019
GBPm GBPm GBPm
Fair
Carrying amount Fair value Carrying amount Fair value Carrying amount value
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Derivative financial assets 22 22 28 28 15 15
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Total non-current financial
assets 22 22 28 28 15 15
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Derivative financial assets 26 26 38 38 19 19
Total current financial
assets 26 26 38 38 19 19
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Borrowings (403) (408) (181) (182) (178) (178)
Derivative financial
liabilities (2) (2) (1) (1) (5) (5)
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Total current financial
liabilities (405) (410) (182) (183) (183) (183)
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Borrowings (842) (873) (1,015) (1,096) (1,110) (1,182)
Derivative financial
liabilities (1) (1) (1) (1) (2) (2)
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
Total non-current financial
liabilities (843) (874) (1,016) (1,097) (1,112) (1,184)
---------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------
The fair value of the sterling and euro denominated bonds are
carried at amortised cost are measured using closing market prices
(level 1) (5 August 2018 and 3 February 2019: level 1) All
derivative financial instruments are categorised as level 2
instruments (5 August 2018 and 3 February 2019: level 2). The fair
values for these simple over-the-counter derivatives are calculated
by using benchmark observable market interest rates and discounted
future cash flows.
18. Share capital and share premium
Number of shares Share capital Share premium Total
millions GBPm GBPm GBPm
------------------------ ---------------- ------------- ------------- -----
At 4 February 2019 2,368.3 237 178 415
Share options exercised 31.8 3 11 14
At 4 August 2019 2,400.1 240 189 429
------------------------- ---------------- ------------- ------------- -----
Share options exercised
The Group issued 6,925,156 (5 August 2018: 11,281,189, 3
February 2019: 12,440,132) new shares to satisfy options exercised
by employees during the period in respect of the Group's Share save
schemes and 24,864,804 (5 August 2018 and 3 February 2019: nil) new
shares to satisfy certain LTIP share awards which vested during the
period. The additions to share capital and share premium from these
share issues amounted to GBP14m in total (5 August 2018: GBP19m, 3
February 2019: GBP20m).
Trust shares and settlement of share awards
Included in retained earnings is a deduction of GBP24m (5 August
2018: GBP15m, 3 February 2019: GBP21m) in respect of own shares
held at the balance sheet date. This represents the cost of
10,825,933 (5 August 2018: 7,520,347, 3 February 2019: 9,885,248)
of the Group's ordinary shares (nominal value of GBP1.1m (5 August
2018: GBP0.8m, 3 February 2019: GBP1.0m)). These shares are held in
a trust and were acquired to meet obligations under the Group's
employee share plans using funds provided by the Group. The market
value of the shares at 4 August 2019 was GBP21m (5 August 2018:
GBP20m, 3 February 2019: GBP23m). The trust has waived its right to
dividends. These shares are not treasury shares as defined by the
London Stock Exchange.
18. Share capital and share premium (continued)
Trust shares and settlement of share awards (continued)
During the period, the Group acquired 1,492,176 (5 August 2018:
945,258, 3 February 2019: 3,945,258) of its own shares to hold in
trust for consideration of GBP3m (5 August 2018: GBP2m, 3 February
2019: GBP9m), and utilised 551,491 (5 August 2018: 1,086,381, 3
February 2019: 1,721,480) trust shares to satisfy awards under the
Group's employee share plans.
The Group paid GBP2m (5 August 2018: GBP5m, 3 February 2019:
GBP5m) in cash on behalf of the employees, rather than selling
shares on the employees' behalf to settle the employee's tax
liability on vesting of share options.
19. Commercial income
The types of commercial income recognised by the Group, and the
recognition policies are:
Type of Description Recognition
commercial
income
Marketing Examples include Income is recognised over the period
and income in respect as set out in the specific supplier
advertising of in-store and online agreement. Income is invoiced once
funding marketing and point the performance conditions in the
of sale, as well supplier agreement have been achieved.
as funding for advertising.
------------------------------ --------------------------------------------
Volume-based Income earned by Income is recognised through the
rebates achieving volume year based on forecasts for expected
or spend targets sales or purchase volumes, informed
set by the supplier by current performance, trends, and
for specific products the terms of the supplier agreement.
over specific periods. Income is invoiced throughout the
year in accordance with the specific
supplier terms. In order to minimise
any risk arising from estimation,
supplier confirmations are also obtained
to agree the final value to be recognised
at year end, prior to it being invoiced.
------------------------------ --------------------------------------------
The amounts recognised as a deduction from cost of sales for the
two types of commercial income are detailed as follows:
26 weeks 26 weeks
ended ended
4 August 5 August 52 weeks
2019 2018 ended
3 February
(unaudited) (unaudited) 2019
GBPm GBPm GBPm
----------------------------------- ------------- ------------- ------------
Marketing and advertising funding 30 11 51
Volume-based rebates 58 76 135
----------------------------------- ------------- ------------- ------------
Total commercial income 88 87 186
----------------------------------- ------------- ------------- ------------
The following table summarises the uncollected commercial income
at the balance sheet date at the end of each period:
4 August 5 August
2019 2018
3 February
(unaudited) (unaudited) 2019
GBPm GBPm GBPm
--------------------------------- ------------- ------------- -----------
Commercial income trade debtors 6 3 4
Accrued commercial income 37 33 28
Commercial income due, offset
against amounts owed 14 22 27
--------------------------------- ------------- ------------- -----------
57 58 59
--------------------------------- ------------- ------------- -----------
At 8 September 2019, GBP3m of the GBP6m commercial income trade
debtor balance had been settled and GBP6m of the GBP37m accrued
commercial income balance had been invoiced and settled. In
addition, GBP11m of the GBP14m commercial income due had been
offset against payments made. As at 8 September 2019, GBP59m of the
GBP59m of commercial income held on the balance sheet at 3 February
2019 had been settled.
20. Guarantees and contingent liabilities
Following the disposal of the land and buildings of its customer
fulfilment centre (CFC) at Dordon to a third party in the 53 weeks
ended 4 February 2018, the Group continues to guarantee the lease
in respect of this site. If the lessee were to default, their lease
obligations could revert back to the Group under the terms of the
guarantee and become a liability of the Group. Should the lessee
default, the additional future commitment is estimated at up to
GBP32m (5 August 2018: GBP31m, 3 February 2019: GBP31m).
The Group has an ongoing legal case brought by a number of
current and former colleagues relating to employee data theft in
the 52 weeks ended 1 February 2015. In December 2017, the High
Court concluded that the Group was liable for the actions of the
former employee who conducted the data theft. The Group launched an
appeal to this judgement and the High Court has confirmed that
there will be no hearings on the level of compensation until the
appeals have been concluded. During the 52 weeks ended 3 February
2019, the High Court rejected this appeal and the Group is now
appealing to the Supreme Court. It is the Director's view that at
this stage of the process the Group cannot reliably assess the
outcome of the case nor reasonably estimate the quantum of any loss
and as such no provision has been recognised in these condensed
consolidated interim financial statements.
21. Related party transactions
The Group's related party transactions in the period include the
remuneration of the senior managers, and the Directors' emoluments
and pension entitlements, share awards and share options as
disclosed in the audited section of the Directors' remuneration
report, which forms part of the Group's 2018/19 Annual Report and
Financial Statements.
During the 26 weeks ended 4 August 2019, the Group received a
dividend of GBPnil (5 August 2018: GBPnil, 3 February 2019: GBP7m)
from MHE JVCo Limited. The Group has a 51.1% interest in MHE JVCo
Limited.
22. Change in accounting policies
The Group has adopted the fully retrospective approach to
transition for IFRS 16 'Leases' and under this approach, the
opening consolidated balance sheet as at 5 February 2018 and the
comparative consolidated balance sheets as at 5 August 2018 and at
3 February 2019 have been restated.
Impact on the consolidated income statement
The adoption of IFRS 16 resulted in changes to the consolidated
income statement, as previously recognised straight-line rental
costs were removed and replaced with a depreciation charge on the
right-of-use assets and a finance cost on the lease liabilities.
The impact of IFRS 16 in the 52 weeks ended 3 February 2019 and the
26 weeks ended 5 August 2018 was to change each line as
follows:
52 weeks ended 26 weeks ended
3 February 2019 5 August 2018
GBPm GBPm
------------------------ ------------------------------------- -------------------------------------
Before Before
exceptionals Exceptionals Total exceptionals Exceptionals Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------------- ------------- ------ -------------- ------------- ------
Cost of sales 45 - 45 23 - 23
Gross profit 45 - 45 23 - 23
Profit/loss on
disposal and exit
of properties - (2) (2) - (1) (1)
Adminstrative expenses - (5) (5) - - -
Operating profit 45 (7) 38 23 (1) 22
Finance costs (56) - (56) (28) - (28)
Finance income 1 - 1 - - -
Profit before taxation (10) (7) (17) (5) (1) (6)
Taxation 2 4 6 1 - 1
------------------------ -------------- ------------- ------ -------------- ------------- ------
Profit for the
period attributable
to the owners of
the Company (8) (3) (11) (4) (1) (5)
------------------------ -------------- ------------- ------ -------------- ------------- ------
During the 52 weeks ended 3 February 2019, the following lines
in the consolidated income statement were principally impacted by
IFRS 16:
Impact on profit before exceptionals after tax
-- Cost of sales - a net credit of GBP45m was recognised,
being the reversal of previously recognised rent payments
(GBP103m) offset by the depreciation charge on the
right-of-use assets and leased assets in investment
property (GBP58m) (5 August 2018: net credit of GBP23m,
being rent payments reversed of GBP50m offset by the
depreciation charge of GBP27m).
-- Net finance costs - additional finance costs of GBP55m
were recognised on IFRS 16 lease liabilities (5 August
2018: GBP28m).
-- The net impact of all of the adjustments in the table
above reduced reported profit before tax and exceptionals
by GBP10m (5 August 2018: GBP5m) and profit before
exceptionals after tax by GBP8m (5 August 2018: GBP4m).
Impact on exceptional items
-- Profit/loss on disposal and exit of properties - an
additional GBP2m of lease disposal costs were recognised
(5 August 2018: GBP1m).
-- Administrative expenses - an additional GBP5m net charge
was recognised (5 August 2018: GBPnil) being the net
impact of additional impairment from applying IFRS
16 of GBP53m (being GBP49m charge for right-of-use
assets, GBP3m charge for property, plant and equipment
and GBP1m charge for investment property) offsetting
the reversal of previously recognised onerous lease
provisions and amounts provided for onerous commitments
(GBP48m).
-- The net impact of all of the adjustments in the table
above reduced exceptionals after tax by GBP3m (5 August
2018: GBP1m).
-- All of the above items were classified as exceptional
items in line with the Group's policy (see note 4 for
further details).
22. Change in accounting policies (continued)
Impact on the consolidated balance sheet
Upon adoption of IFRS 16, the Group recognised right-of-use
assets (representing the right to use the underlying assets) and
lease liabilities for lease payments on the discounted future
obligations.
The impact of IFRS 16 as at 5 February 2018, 5 August 2018 and
at 3 February 2019 was to change each line as follows:
3 February 5 August 5 February
2019 2018 2018
GBPm GBPm GBPm
------------------------------------- ----------- --------- -----------
Assets
Property, plant and equipment (218) (215) (216)
Right-of-use assets 929 987 970
Investment property 34 36 36
Debtors 8 8 8
Non-current assets 753 816 798
------------------------------------- ----------- --------- -----------
Debtors (3) (3) (3)
Current assets (3) (3) (3)
------------------------------------- ----------- --------- -----------
Liabilities
Creditors 15 52 60
Lease liabilities (69) (64) (59)
Current liabilities (54) (12) 1
------------------------------------- ----------- --------- -----------
Lease liabilities (1,328) (1,362) (1,354)
Deferred tax liabilities 69 64 63
Provisions 257 197 200
Non-current liabilities (1,002) (1,101) (1,091)
Net assets (306) (300) (295)
Shareholders' equity
Retained earnings and other reserves (306) (300) (295)
Total equity attributable to the
owners of the Company (306) (300) (295)
As at 3 February 2019, IFRS 16 principally impacted the
following lines in the consolidated balance sheet:
-- Right-of-use assets of GBP929m (5 August 2018: GBP987m,
5 February 2018: GBP970m) were recognised and presented
separately in the consolidated balance sheet. Included
within this balance were assets reclassified from property,
plant and equipment of GBP218m (5 August 2018: GBP215m,
5 February 2018: GBP216m).
-- Investment property right-of-use assets of GBP34m (5
August 2018: GBP36m, 5 February 2018: GBP36m), have
been recognised in respect of leasehold investment
property.
-- Lease liabilities of GBP1,397m (5 August 2018: GBP1,426m,
5 February 2018: GBP1,413m) were recognised and split
between current and non-current on the face of the
consolidated balance sheet.
-- Deferred tax liabilities decreased by GBP69m (5 August
2018: GBP64m, 5 February 2018: GBP63m).
-- Provisions reduced by GBP257m (5 August 2018: GBP197m,
5 February 2018: GBP200m) as onerous lease provisions
are derecognised on application of IFRS 16.
-- The net impact of all of the adjustments in the table
above has decreased retained earnings and other reserves
by GBP306m (5 August 2018: GBP300m, 5 February 2018:
GBP295m).
22. Change in accounting policies (continued)
Impact on the consolidated cash flow statement
The net cash movement has not changed following the adoption of
IFRS 16. However, the presentation in the consolidated cash flow
statement has changed, with lease payments, which were previously
recognised within cash flows from operating activities, being split
between the interest element (which remains within cash flows from
operating activities) and the capital element (now disclosed within
cash flows from financing activities). This is detailed below:
52 weeks 26 weeks
ended ended
3 February 5 August
2019 2018
GBPm GBPm
---------------------------------------- ------------ ----------
Cash flows from operating activities
Cash generated from operations 135 67
Interest paid (66) (33)
Net cash inflow from operating
activities 69 34
------------------------------------------ ------------ ----------
Cash flows from financing activities
Repayment of lease obligations (69) (34)
Net cash outflow from financing
activities (69) (34)
Net movement in cash and cash
equivalents - -
During the 52 weeks ended 3 February 2019, the following lines
in the consolidated cash flow statement were principally impacted
by IFRS 16:
-- Cash generated from operations - increased by GBP135m
(5 August 2018: GBP67m) as straight-line rent payments
are no longer recognised.
-- Interest paid - GBP66m of interest payments were recognised
relating to the finance element of lease payments (5
August 2018: GBP33m).
-- Repayment of lease obligations - GBP69m of payments
were recognised relating to the capital element of
lease payments (5 August 2018: GBP34m).
-- There was no net impact of these adjustments on cash
flow in the period (5 August 2018: GBPnil).
Glossary
Alternative Performance Measures
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authority (ESMA), we have provided additional information on the
APMs used by the Group. The Directors use the APMs listed below as
they are critical to understanding the financial performance and
financial health of the Group. As they are not defined by IFRS,
they may not be directly comparable with other companies who use
similar measures.
On transition to IFRS 16, the definitions of net debt and return
on capital employed (ROCE) changed. Net debt now includes current
and non-current lease liabilities. Previously, ROCE took into
account the operating lease rentals charge (on land and buildings)
as part of the return and a lease adjustment (10 times rent
charged) for the capital employed element. Following adoption of
IFRS 16 and the recognition of lease liabilities and assets, these
adjustments are no longer necessary in the ROCE calculation.
Amounts relating to these measures included within this statement
have been restated unless detailed otherwise.
Measures Closest equivalent Definition and Reconciliation
IFRS purpose for the interim
measure 2019/20 Group measures
(1)
Profit measures
Like-for-like Revenue Percentage change 26
(LFL) in year-on-year weeks ended 4 August 2019 %
sales growth sales Group LFL
(excluding VAT), (exc. fuel) 0.2%
removing Group LFL
the impact of new (inc. fuel) 0.2%
store openings and Net new space (inc. fuel) 0.2%
closures in the Total revenue year-on-year 0.4%
current
or previous
financial
year.
The measure is
used
widely in the
retail
industry as an
indicator
of ongoing sales
performance.
It is also a key
measure
for Director and
management
remuneration.
Total sales Revenue Including fuel: A reconciliation
growth Percentage change of total sales
in year-on-year including and excluding
total fuel is provided
reported revenue. in note 3.
Excluding fuel:
Percentage change
in year-on-year
total
sales excluding
fuel.
This measure
illustrates
the total
year-on-year
sales growth.
This measure is a
key measure for
Director
and management
remuneration.
Profit Profit before Profit before tax A reconciliation
before tax tax and exceptionals of this measure
and exceptionals is is provided in
defined as profit note 4.
before tax,
exceptional
items and net
pension
interest. This
excludes
exceptional items
which are
significant
in size and/or
nature
and net pension
interest.
This measure is a
key measure used
by
the Directors. It
provides key
information
on ongoing trends
and performance of
the Group and is
used
for Director and
management
remuneration.
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
Glossary (continued)
Measures Closest equivalent Definition and purpose Reconciliation
IFRS for the interim
measure 2019/20 Group measures
(1)
Profit measures (continued)
Profit before Profit after Profit before tax GBP152m being profit
exceptionals tax and exceptionals after before tax and
after tax a normalised tax charge. exceptionals of
GBP198m less a
This measure is used normalised tax
by the Directors as charge of GBP46m
it provides key information (see note 4).
on ongoing trends
and performance of
the Group, including
a normalised tax charge.
Operating Operating profit Reported operating GBP252m being reported
profit before (2) profit before exceptional operating profit
exceptionals items, which are significant (GBP246m) before
in size and/or nature. exceptional items
of (GBP6m).
This measure is used
by the Directors as
it provides key information
on on-going trends
and performance of
the Group.
Net finance Finance costs Reported net finance A reconciliation
costs before costs excluding the of this measure
exceptionals impact of net pension is provided in
interest and other note 5.
exceptional items,
which are significant
in size and/or nature.
This measure is used
by the Directors as
it provides key information
on ongoing cost of
financing excluding
the impact of exceptional
items.
Basic Basic earnings Basic earnings per A reconciliation
earnings per share share based on profit of this measure
per share before exceptionals is included in
before exceptionals after tax rather than note 8.
reported profit after
tax.
This measure is a
key measure used by
the Directors. It
provides key information
on ongoing trends
and performance of
the Group and is used
for Director and management
remuneration, and
in setting the dividend
policy.
Diluted Diluted earnings Diluted earnings per A reconciliation
earnings per share share based on profit of this measure
per share before exceptionals is included in
before exceptionals after tax rather than note 8.
reported profit after
tax.
Tax measures
Normalised Effective tax Normalised tax is The normalised
tax the tax rate applied tax rate is based
to the Group's principal on full year projections
activities on an ongoing and as such a tax
basis. This is calculated reconciliation
by adjusting the effective will be provided
tax rate for the period in the Annual Report
to exclude the impact and Financial Statements
of exceptional items for the 52 weeks
and net pension interest. ended 2 February
2020.
This measure is used
by the Directors as Details of the
it provides a better normalised tax
reflection of the rate used in the
normalised tax charge 26 weeks ended
for the Group. 4 August 2019 is
provided in note
6 of the condensed
consolidated interim
financial statements.
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
(2) Operating profit is not defined under IFRS. However, it is a
generally accepted profit measure.
Glossary (continued)
Measures Closest equivalent Definition and purpose Reconciliation
IFRS for the interim
measure 2019/20 Group measures
(1)
Cash flows and net debt measures
Free cash No direct equivalent Movement in net debt GBP244m being the
flow before dividends. movement in net
debt (GBP36m) before
This measure is used payment of dividends
by the Directors as (GBP208m).
it provides key information
on the level of cash
generated by the Group
before the payment
of dividends.
Net debt No direct equivalent Net debt is cash and A reconciliation
cash equivalents, of this measure
non-current financial is provided in
assets and current note 16.
financial assets,
less current and non-current
borrowings, current
financial liabilities
and non-current financial
liabilities, and current
and non-current lease
liabilities.
Working No direct equivalent Movement in stock, A reconciliation
capital movement in debtors, of this measure
movement movement in creditors is provided in
and movement in provisions. note 15.
Operating No direct equivalent Working capital movement A reconciliation
working adjusted for charges of this measure
capital for onerous contracts, is provided in
movement onerous payments and note 15.
other non-operating
payments.
This measure is used
by the Directors as
it provides a more
appropriate reflection
of the working capital
movement by excluding
certain non-recurring
movements relating
to property balances.
Other measures
Return on No direct equivalent ROCE is calculated ROCE (7.1%) equals
Capital as return divided return divided
Employed by average capital by average capital
(ROCE) employed. Return is employed:
defined as annualised
profit before exceptionals Return (GBP421m)
after tax adjusted = Profit before
for net finance costs exceptionals after
before exceptionals. tax annualised
Capital employed is (GBP311m) adjusted
defined as average for annualised
net assets excluding net finance costs
net pension assets before exceptionals
and liabilities, less (GBP110m).
average net debt.
Average capital
This measure is used employed (GBP5,939m)
by the Directors as = Average net assets
it is a key ratio excluding the net
in understanding the pension asset (GBP3,582m),
performance of the and average net
Group. debt (GBP2,357m)
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
Statement of Directors' responsibilities
The Directors' confirm that these condensed consolidated interim
financial statements have been prepared in accordance with IAS 34
'Interim Financial Reporting', as adopted by the European Union and
that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first 26 weeks and their impact on the condensed consolidated
interim financial statements, and a description of the principal
risks and uncertainties for the remaining 26 weeks of the
period; and
-- material related-party transactions in the first 26 weeks
and any material changes in the related party transactions
described in the last annual report.
The Directors of the Wm Morrison Supermarket PLC are listed in
the Wm Morrison Supermarket PLC Annual Report and Financial
Statements for 3 February 2019. A list of current Directors is
maintained on the Wm Morrison Supermarket PLC website:
www.morrisons-corporate.com
By order of the Board
Jonathan Burke
Company Secretary
11 September 2019
Independent review report to Wm Morrison Supermarkets PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Wm Morrison Supermarkets PLC's condensed
consolidated interim financial statements (the 'interim financial
statements') in the interim financial report of Wm Morrison
Supermarkets PLC for the 26 week period ended 4 August 2019. Based
on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in
all material respects, in accordance with IAS 34 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 4 August 2019;
-- the consolidated income statement for the period then ended;
-- the consolidated statement of comprehensive income for the
period then ended;
-- the consolidated cash flow statement for the period then
ended;
-- the consolidated statement of changes in equity for the
period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim
financial report have been prepared in accordance with IAS 34
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The interim financial report for the 26 week period ended 4
August 2019, including the interim financial statements, is the
responsibility of, and has been approved by, the Directors. The
Directors are responsible for preparing the interim financial
report in accordance with the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim financial report for the 26
week period ended 4 August 2019 based on our review. This report,
including the conclusion, has been prepared for and only for the
Company for the purpose of complying with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
Independent review report to Wm Morrison Supermarkets PLC
(continued)
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Leeds
11 September 2019
Notes:
The maintenance and integrity of the Wm Morrison Supermarkets
PLC website is the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SFEFUFFUSELU
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September 12, 2019 02:01 ET (06:01 GMT)
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