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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