TIDMMRW
RNS Number : 6285H
Morrison(Wm.)Supermarkets PLC
14 March 2018
News Release
Release date: 14 March 2018
PRELIMINARY RESULTS FOR THE 53 WEEK YEARED 4 FEBRUARY 2018
Broader, stronger, more competitive
Financial summary
-- Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT
up 2.8% (2016/17: 1.9%)
-- Revenue up 5.8% to GBP17.3bn (2016/17: GBP16.3bn)
-- UPBT(2) up 11.0% to GBP374m (2016/17: GBP337m),
up 9.5% on a 52-week basis
-- Underlying EPS(2) up 12.2% to 12.19p (2016/17:
10.86p)
-- Reported PBT up 16.9% to GBP380m (2016/17:
GBP325m)
-- Free cash flow(3) of GBP350m (2016/17: GBP670m)
-- Net debt reduced by GBP221m to GBP973m,
below our GBP1bn year-end target
-- Net pension surplus of GBP594m (2016/17:
GBP272m)
-- Return on capital employed increased to
7.7% (2016/17: 7.3%)
-- Final ordinary dividend of 4.43p, taking
the full year ordinary dividend up 12.2%
to 6.09p (2016/17: 5.43p)
-- Special dividend of 4.00p, taking the full
year total dividend up 85.8% to 10.09p
Strategic and operating highlights
-- Meaningful, sustainable sales and profit
growth, with strong cash flow
-- Improving capability, and becoming more
differentiated for all stakeholders
-- Returning GBP237m to shareholders in accordance
with the principles of our capital allocation
framework
-- Started a rolling programme to supply McColl's
nationwide with both branded products and
our own revived Safeway brand
-- Store-pick online service extending Morrisons.com
into further new areas
-- 'Morrisons at Amazon' expanded into more
postcodes and more cities
-- Since year end, announced a new wholesale
supply agreement with SandpiperCl, bringing
Morrisons to the Channel Islands, and acquired
egg business, Chippindale Foods
Financial targets update
-- On track for GBP700m of annualised wholesale
supply sales by the end of 2018
-- GBP24m incremental profit delivered in the
year, bringing the total achieved so far
to GBP42m of the GBP75m-GBP125m target
-- Ongoing strong free cash flow expected.
We will retain a strong and flexible balance
sheet, and review uses of that free cash
flow each year
-- Net debt below GBP1bn as guided, and expected
to fall further during 2018/19
Andrew Higginson, Chairman, said:
"Morrisons is now entering its third consecutive year of growth,
which is a credit to the whole team.
"We will continue to prioritise consistent, meaningful and
sustainable growth, which I am confident we are well placed to keep
delivering."
David Potts, Chief Executive, said:
"We had a strong year, becoming more competitive and
increasingly differentiating Morrisons for all stakeholders. We are
pleased to be paying shareholders a special dividend of 4p a share,
which reflects our good performance so far and confidence for the
future.
"All parts of our progress so far have one common link: our
colleagues. Listening to customers, responding, and improving the
shopping trip are as important now as when we started this
turnaround three years ago."
Outlook
We are confident that a broader, stronger Morrisons will
continue to grow.
We are on track for our target for annualised wholesale supply
sales to all our partners to exceed GBP700m (inc. tobacco) by the
end of 2018, and to be more than GBP1bn in due course.
We have now achieved GBP42m of incremental profit from
wholesale, services, interest and online, and are still on track
for our GBP75m-GBP125m medium-term target.
We are today announcing a special dividend of 4.00p per share.
We are growing sales and profit, and expect that growth to continue
to be meaningful and sustainable in the future. We are generating
significant levels of free cash flow, which we also expect to
sustain. The special dividend reflects our good progress so far and
our expectations for continued growth. Looking forward, we will
retain a strong and flexible balance sheet. We will be guided each
year by the principles of our capital allocation framework in
assessing the uses of free cash flow.
Net debt ended 2017/18 below GBP1bn as guided, and we expect it
will be lower again in 2018/19.
Figure 1 - 2017/18 profit reconciliation
FY H1 H2 FY
GBPm 16/17 17/18 17/18 17/18 Y-on-Y
------------------------------------------------------------- ------- ------- ------- ------- -------
Reported operating profit 468 233 225 458 -2.1%
Reported profit before
tax 325 200 180 380 16.9%
------------------------------------------------------------- ------- ------- ------- ------- -------
Underlying adjustments
* Net impairment and provision for onerous commitments -6 - -6 -6
* Profit on disposal and exit of properties, and sale
of businesses and investments -32 -13 -6 -19
* Costs associated with repayment of borrowings(*) 56 - 16 16
* Pension scheme set-up credit - -10 -3 -13
* Net pension income(*) -8 -4 -5 -9
* Other 2 4 21 25
------------------------------------------------------------- ------- ------- ------- ------- -------
Underlying operating profit 432 214 231 445 3.0%
Underlying profit before
tax 337 177 197 374 11.0%
------------------------------------------------------------- ------- ------- ------- ------- -------
* Adjusted in underlying profit before tax but not underlying
operating profit
Figure 2 - LFL sales performance (ex-VAT)
2016/17 2017/18
------------------------ -------- -----------------------------------------------
Q4 Q1 Q2 H1 Q3 Q4 H2 FY
------------------------ -------- ----- ----- ----- ----- ----- ----- -----
Retail contribution
to LFL(1) 2.5% 3.0% 2.1% 2.5% 2.1% 2.0% 2.0% 2.3%
------------------------ -------- ----- ----- ----- ----- ----- ----- -----
Wholesale contribution
to LFL(2) 0.4% 0.4% 0.5% 0.5% 0.4% 0.8% 0.6% 0.5%
------------------------ -------- ----- ----- ----- ----- ----- ----- -----
Group LFL ex-fuel 2.9% 3.4% 2.6% 3.0% 2.5% 2.8% 2.6% 2.8%
------------------------ -------- ----- ----- ----- ----- ----- ----- -----
Group LFL inc-fuel 4.8% 6.3% 4.1% 5.2% 3.4% 2.8% 3.0% 4.1%
------------------------ -------- ----- ----- ----- ----- ----- ----- -----
Reported in accordance with IFRIC 13
(1) Includes supermarkets and Morrisons.com sales. Morrisons.com
sales through Dordon CFC contributed 0.2% in Q4 2017/18
(2) Wholesale comprises sales to third parties, including those
via our manufacturing business
Figure 3 - Summary of retail operational key performance
indicators(3)
2016/17 2017/18
------------------ -------- ------------------------------------------------------
Q4 Q1 Q2 H1 Q3 Q4 H2 FY
------------------ -------- ------ ------ ------ ------ ------ ------ ------
LFL Number of
transactions(3) 4.6% 4.6% 3.2% 3.9% 2.1% 2.0% 2.0% 2.9%
------------------ -------- ------ ------ ------ ------ ------ ------ ------
LFL Items per
basket(3) -5.3% -6.9% -5.5% -6.2% -3.6% -3.9% -3.7% -4.9%
------------------ -------- ------ ------ ------ ------ ------ ------ ------
(3) Excludes Morrisons.com sales through Dordon CFC
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 turnover is
provided in the glossary at the end of this announcement.
(2) Underlying profit before tax (UPBT), underlying operating
profit and underlying earnings per share (EPS): excludes impairment
and provision for onerous contracts, profit/loss on disposal and
exit of properties and sale of businesses and investments, the
impact of pension volatility, and other items that do not relate to
the Group's principal activities on an ongoing basis.
A reconciliation between reported and underlying profit before
tax and operating profit is shown in Figure 1. See Note 8 for a
reconciliation between basic and underlying EPS.
(3) Free cash flow: movement in net debt before the payment of
dividends. Free cash flow for the period is GBP350m (2016/17:
GBP670m), being the movement in net debt of GBP221m (2016/17:
GBP552m) adjusted for dividends paid of GBP129m (2016/17:
GBP118m).
Enquiries:
Wm Morrison Supermarkets PLC
Trevor Strain - Chief Financial
Officer 0845 611 5000
Andrew Kasoulis - Investor
Relations Director 0778 534 3515
Media Relations
Wm Morrison Supermarkets Julian
PLC: Bailey 0796 906 1092
Citigate Dewe Rogerson Simon Rigby 0207 282 2847
Kevin Smith 0207 282 1054
Management will host an analyst presentation this morning at
09:30.
*** 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:
+44 (0) 33
Participant dial in: 3300 0804
Participant pin: 06088548#
Password: Morrisons
Replay facility available for 7 days:
+44 (0) 33
Replay access number: 3300 0819
Replay access code: 301217681#
-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
Our sales performance for the year was strong. Total revenue was
GBP17.3bn, up 5.8% year on year, including -0.3% contribution from
net new space. 2017/18 was a 53-week year, with the 53(rd) week
contributing around 2% to total revenue as previously guided.
Revenue excluding fuel was GBP13.5bn, up 4.4%.
Group LFL excluding fuel was up 2.8%, comprising contributions
from retail of 2.3% (supermarkets 1.9%, online through Dordon
customer fulfilment centre (CFC) 0.4%), and wholesale of 0.5%. In
Q4, Group LFL was 2.8% which, against a strong comparative, meant
two-year LFL accelerated to 5.7%. This performance was again driven
by more customers and volume growth.
Fuel sales were up 11.2% to GBP3.7bn, all of which was LFL.
Underlying operating profit was up 3.0% to GBP445m (2016/17:
GBP432m), with margin slightly lower (7 basis points).
Underlying net finance costs were GBP73m (2016/17: GBP97m).
Reported net finance costs were GBP80m (2016/17: GBP145m).
Reported profit before tax (PBT) was GBP380m (2016/17: GBP325m).
Underlying PBT (UPBT) was up 11.0% to GBP374m (2016/17: GBP337m),
including GBP5m for the 53(rd) week as previously guided. UPBT
included a further GBP24m of the incremental GBP75m-GBP125m profit
target from wholesale, services, interest and online, bringing the
cumulative total so far to GBP42m. Net adjustments recognised
outside UPBT were GBP6m, as listed in Figure 1. On a 52-week basis,
UPBT growth was 9.5%.
Underlying basic EPS was up 12.2% to 12.19p (2016/17: 10.86p).
Reported basic EPS was up 1.4% to 13.30p (2016/17: 13.11p), with
2016/17 benefitting from an effective tax rate of 6.2%.
Capital expenditure was GBP500m (2016/17: GBP419m). No stores
were opened or closed during the period.
Free cash flow was GBP350m, which included GBP35m improvement in
operating working capital and GBP108m of disposal proceeds.
Overall, post dividend and pre disposal proceeds, the business was
again cash flow positive, generating GBP132m.
Group net debt fell to GBP973m, down GBP221m since the end of
2016/17, and below our GBP1bn year-end target.
The proposed final ordinary dividend is 4.43p, taking the full
year ordinary dividend up 12.2% to 6.09p (2016/17: 5.43p). This is
in line with our policy to pay a sustainable ordinary dividend
covered around two times by underlying EPS. In addition, in
accordance with the principles of our capital allocation framework,
we are proposing returning surplus capital to shareholders via a
special dividend of 4.00p, taking the full year total dividend up
85.8% to 10.09p (2016/17: 5.43p).
Return on capital employed (ROCE) was 7.7%, up from 7.3% for
2016/17.
Strategy update
Morrisons is becoming a broader, stronger business, aiming to be
more popular and accessible for customers. Growth is capital light,
meaningful and sustainable, built on strong free cash flow and
balance sheet foundations.
2017/18 performance was strong. There were challenges,
particularly the impact of higher imported cost of goods inflation
and other cost headwinds. However, by continuing to listen to
customers, we improved the shopping trip, served customers better,
and became more competitive, making further good progress with our
six priorities and all three concurrent parts of our strategy: Fix,
Rebuild and Grow.
Our core supermarkets are showing strong annual growth on growth
as we enter a fourth year of turnaround, driven by more customers
and more volume. We are now around half-way through our Fresh Look
programme, and new and improved ranges in areas such as 'Best',
'Free From' and our 'Nutmeg' clothing range are showing multi-year
growth.
We are improving capability, and becoming increasingly
differentiated for all our stakeholders. Customers tell us how
friendly our colleagues are, and our customer satisfaction scores
once again improved, showing growth on growth there too. Capability
in technology and data is improving, but we still have substantial
cost-saving opportunities in automated ordering, in-store
administration, distribution, and procurement of goods not for
resale.
We made further progress in the year with our plans for a
broader, stronger Morrisons. We recently started a rolling
programme to supply McColl's nationwide, and have also announced we
will be supplying SandpiperCI in the Channel Islands, demonstrating
we are open for business as a wholesaler and are on track for our
target of GBP700m of annualised wholesale supply sales by the end
of 2018. Our newly revived Safeway brand is now available in some
McColl's shops and will soon be in some SandpiperCI shops. In
addition, we are adding extra online capacity to Morrisons.com
through new store-pick capability in areas not covered by the
Dordon CFC, and we have also recently added more capital light
manufacturing capacity in areas such as potatoes and eggs, which
will both improve the offer and make us more competitive for
customers.
Our strategy aims at driving sales, margins and asset intensity
through capital light growth. Sales (Group LFL inc-fuel up 4.1%)
and profit growth (UPBT up 11.0%) were again strong; we are making
good progress with our recently increased target of GBP75m-GBP125m
incremental profit from wholesale, services, interest and online;
and debt has fallen to less than GBP1bn, as we guided. Sustaining
meaningful sales and profit growth in a reasonable range is
generating strong free cash flow and helping rebuild ROCE.
Reflecting our expectations for future growth and cash flow, and
in accordance with the principles of our capital allocation
framework, we are today announcing a special dividend of 4.00p per
share. In the future, we will retain a strong and flexible balance
sheet, and assess the uses of free cash flow each year.
Six priorities update
1. To be more competitive
Broader, stronger Morrisons is becoming more differentiated for
customers.
During the year, the impact of lower sterling on imported food
prices was a headwind for the industry but, helped by being a
British business with a largely British supply chain, we took this
as an opportunity to become more competitive for customers. Through
the year 'Price Crunch', 'Way Down', and 'Morrisons Makes It'
successfully communicated Morrisons good quality and great value.
For example, at Christmas, despite the cost inflation pressures, a
basket of our customers' key items was the same price as in the
prior year. Customers responded and volume was positive.
As a food maker and shopkeeper, we have a unique opportunity to
differentiate ourselves and build a great-value Morrisons price
list, category by category. During the year we simplified our
manufacturing business, moving it from profit centre to cost
centre. A greater focus on cost, yield and volume, assisted by
investment in technology and improved digital capability, has
improved productivity and capacity utilisation. We recently bought
two new businesses - one potatoes, the other eggs - that allow us
to own more of the supply chain; meaning closer relationships with
farmers and growers, improved product quality and consistency,
lower costs of production, and the lowest possible prices for our
customers. Both acquisitions required little capital expenditure
and both complement our existing manufacturing businesses.
We are also becoming more competitive by selling more things our
customers want to buy. We introduced new and improved ranges in
areas such as Home & Leisure and 'Eat Smart'; and more
innovation in 'Best', 'Free From', 'Food to Go', and 'Nutmeg' is
leading to multi-year growth. For example, in its second Christmas,
sales of our premium 'Best' range grew by 25%.
Many of these ranges again won recognition. In addition to
several awards during the first half - including 'Best' being named
Own-label Range of the Year at the Grocer Gold Awards - in the
second half we were awarded Supply Chain Innovation of the Year for
our automated ordering system at the IGD Awards; Innovator of the
Year at the International Wine and Spirits Competition; and
Multiple Beer Retailer of the Year and Multiple Cider Retailer of
the Year at the 2018 Drinks Retailing Awards. Demonstrating the
opportunity to extend our Nutmeg brand beyond clothing, we also won
Best Disposable Nappy for our Nutmeg Ultra Dry Nappy at the Mumii
Awards.
2. To serve customers better
Morrisons colleagues are doing an outstanding job for
customers.
Our team of food makers and shopkeepers is unique. Colleagues
are differentiating Morrisons offer for customers, helped by our
new automated ordering system and other productivity initiatives
which are beginning to free up more time. We are striving to
recognise and reward our colleagues' outstanding contribution by
investing in colleague pay, bonus, and other rewards. Our hourly
pay rate for front-line colleagues has increased by 27% in three
years, and will be GBP8.70 per hour from April 2018.
Customers are noticing the difference in an improving and more
consistent shopping trip, and responding. LFL transactions were up
2.9% during the year, building on last year's very strong growth of
4.0%. Customer satisfaction scores for service, quality, range,
availability and price continue to improve, with our survey showing
another 7% overall improvement for the year and up 12% since
2014/15.
There were new initiatives during the year aimed at serving
customers better. For example, we are serving more customers online
through a new store-pick delivery service launched with our partner
Ocado in areas not served by the CFC in Dordon. Customers in North
East England, parts of East Anglia and Lincolnshire, and the Isle
of Wight can now access this service with more to follow in
2018/19. Our new 'Food to Order' service is now available online
and in-store all year round and is proving popular with customers,
with sales up over 50% at Christmas.
As previously announced, we intend to open a small number of new
stores each year, with three in 2018/19. There are some areas in
Britain either without a Morrisons store, or where there is an
opportunity to renew or replace an existing store. As with the
Fresh Look programme, each new store will be an opportunity for us
to test our latest innovations and thinking, and provide learnings
and benefits across the business. Each new store will be subject to
stringent investment returns criteria.
3. Find local solutions
Customers tell us they love local. Local solutions are now
driving national benefit.
During the year over 200 of the nation's best local growers,
farmers, fishermen and other food makers began supplying Morrisons
with local products. For example, Plumgarth's sausages, initially
launched in our Kendal store, are now available across all our
Cumbrian stores; and the Friday Beer Co. brews beer just two miles
from our Malvern store, and is one of the best-selling bottled ales
in the store.
We introduced over 750 new local products. For example, a range
of locally-sourced meat in South West England, and local market
street vegetables in our stores in Yorkshire. In Skipton, as part
of our Fresh Look, we have showcased local products and introduced
many new local lines such as Yockenthwaite Farm Cereals, Box Pizza
and Voakes Pies; and since the Fresh Look, local sales are up by
over 30% in the store.
Overall, sales of local suppliers' products are now up 50% over
the last two years.
We also continue to improve key local events, with particular
focus on different demographics and seasons. For example, we tailor
ranges and space allocation around Passover, Ramadan and Diwali, or
around the holiday season in areas such as Devon and Cornwall. For
student stores, we focus our offer around term dates, attend
freshers' fairs, and have launched our 'More for Students'
card.
In addition, listening to customers and learning through our
More Card data is allowing us to understand much better how we can
improve the shopping trip. As more of our stores go through the
Fresh Look programme, we are able to target our local offer very
specifically. What customers tell us is becoming a powerful tool
store by store: in refits, against competitor openings, in local
marketing and ranging; and is helping local solutions drive
benefits across the whole estate.
4. Develop popular and useful services
Popular and useful services help make Morrisons a place
customers want to go, and provide capital light profit growth.
During the year, we completed the modernisation of almost all
our cafés, providing a brighter and more contemporary look and feel
for customers. We also introduced over 50 new coffee barista
bars.
We have now opened 30 Morrisons Daily stores on our forecourts,
offering a full convenience offer and longer trading hours. Many of
these are extensions of former kiosks and allow customers a new
convenience-store service on an existing Morrisons site. Initial
results are strong with sales up 40%, and we expect to open many
more over coming months. In addition, as our low-price fuel becomes
more popular with customers, we now open 24 hours a day in 110 of
our petrol stations.
We made further progress in the second half with parcel pick-up
services. Doddle is now in over 160 stores, up from around 50 at
the end of the first half. This follows the successful roll-out of
Amazon lockers into over 400 Morrisons stores.
Our successful partnership with Timpson continues to grow.
Morrisons had around 150 stores with a dry cleaning unit, all of
which have now been converted to a full-service Timpson. In recent
months, Timpson has grown further with Morrisons and is now in
around 180 stores. We are trialling a similar service with new
partner, Sunlite.
We now have five partner-operated hand car washes open in our
store car parks, and, since year end, have opened the first
tyre-change concessions.
5. To simplify and speed up the organisation
As capability improves, there are more opportunities to simplify
and speed up, leading to higher levels of productivity.
We are realising efficiencies in automated ordering, in-store
administration, distribution, and procurement of goods not for
resale. Our automated ordering system is now fully operational and
is saving labour hours, improving availability and reducing
stock-holding, as we have previously stated. We are also starting
to unlock significant productivity opportunities in several other
end-to-end work streams across Morrisons. These include:
manufacturing and Market Street efficiency and yield; the flow and
forecasting of products and goods; distribution interfaces;
customer payments; and more efficient ways of working.
In addition, we have simplified our in-store structures and
improved the offer for customers. Improving capability across
Morrisons means we need fewer managers and are able to invest in
more front-line colleagues to serve our customers. We recently
announced a proposal to remove around 1,500 managerial roles and
create around 1,700 customer service roles in stores.
6. To make core supermarkets strong again
Our Fresh Look refit programme extended to another 80 stores
during the year, and we have now completed around half of our
estate. In addition, many of the Fresh Look learnings are being
applied across the whole estate as we go. For example, the majority
of our cafés, Fruit & Veg, and Florist departments were updated
with a new look and feel during the year. We also further extended
our new Nutmeg womenswear range into almost 100 stores, and have
plans for more during 2018/19.
We are pleased with the Fresh Look results. A modernised
Morrisons is emerging, with its roots firmly in fresh food and
Market Street, for which we are renowned.
Wholesale supply
We are now open for business as a new wholesaler. We are making
our brand more popular and accessible while allocating very little
extra capital, which will further improve asset intensity and be
accretive for ROCE.
During the year we signed a new agreement with McColl's and, in
January, started a rolling programme to supply McColl's nationwide
with both Safeway products and national brands. The new Safeway
range of around 400 fresh, frozen and ambient products - much of it
developed and made by our skilled food makers - is now available in
stores, and is already proving popular with McColl's customers.
In addition, since year end we have announced we will be
supplying around 40 SandpiperCI stores in the Channel Islands.
During 2018 and 2019, many of these will convert to Morrisons Daily
selling Morrisons products and national brands, with some
non-converted stores selling Safeway alongside national brands.
Our other wholesale supply initiatives continued to make good
progress during the year. Amazon grew its various offers for
customers, and expanded the Prime Now service 'Morrisons at Amazon'
into more London and Hertfordshire postcodes, and into parts of
Leeds, Birmingham, and Manchester.
A further 32 Rontec owned and operated Morrisons Daily stores
have opened on its forecourts, taking the total so far to 40. We
are pleased with their performance.
As previously announced, we expect total annualised wholesale
supply sales to all our partners to exceed GBP700m (inc. tobacco)
by the end of 2018 and, in due course, we expect wholesale supply
sales to be more than GBP1bn.
Financial strategy and update
Capital allocation framework
The capital allocation framework is unchanged. 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 earnings per share. The
final ordinary dividend will be 4.43p, bringing the ordinary
dividend for the full year to 6.09p.
In addition to the final ordinary dividend, the Board is
proposing a special dividend of 4.00p per share, taking the total
dividend for the year to 10.09p, an increase of 85.8% on last
year.
The principles of our capital allocation framework guide us to
reinvest to deliver profitable growth and return surplus capital to
shareholders. In recent years, we have made strong progress with
the turnaround and our Fix, Rebuild and Grow strategy. While there
is still much we plan to do, a new Morrisons is now emerging. We
are growing sales and profit, and expect that growth to continue to
be meaningful and sustainable in the future. We are generating
significant levels of free cash flow, which we also expect to
sustain. The special dividend reflects our good progress so far and
our expectations for continued growth. Looking forward, we will
retain a strong and flexible balance sheet. We will be guided each
year by the principles of our capital allocation framework in
assessing the uses of free cash flow.
Subject to shareholder approval at our 2018 AGM, both the final
ordinary and special dividends of 4.43p and 4.00p per share
respectively will be payable on 28 June 2018 to shareholders on the
share register at the close of business on 25 May 2018.
Optimise assets
As previously announced, we sold the CFC in Dordon for GBP92.3m
during the first half. It continues to be operated by Ocado,
serving both Morrisons and Ocado's online home delivery
services.
Cost savings
As capability improves and we simplify and speed up Morrisons,
there is a still a substantial cost-saving opportunity. We are
recycling the benefits back into improving the shopping trip for
customers.
In addition, we are beginning to realise some of the goods not
for resale cost savings that we identified at the half year in
areas such as retail, logistics, manufacturing, property, marketing
and head office. These are multi-year opportunities.
As previously stated, we further simplified in-store structures
during the year, removing some managerial roles and replacing them
with more front-line colleagues dedicated to serving customers. The
one-off restructuring cost of these changes has been reported
outside of UPBT.
Cash flow and working capital
Free cash flow was again strong, with another GBP350m during the
year, bringing the total to GBP2.7bn since the start of
2014/15.
Operating working capital generation was GBP35m and is now
GBP949m over the last four years, close to our GBP1bn medium-term
target. As previously guided, there was some seasonal working
capital unwind in the second half. In addition, the 53(rd) week and
earlier timing of Mother's Day and Easter 2018 led to a slightly
higher year-end stock position. Supplying tobacco to McColl's
earlier than initially planned also had a slight impact on working
capital. Although we have almost achieved our original working
capital generation target, we expect further improvements in future
as long as sales remain robust and we continue to simplify
processes in store and with our suppliers.
Disposal proceeds were GBP108m, the largest component being the
sale of Dordon, bringing the total to GBP1,001m since we started
the programme. Profit from disposals was GBP19m, reported outside
UPBT. We remain confident in our medium-term disposals target of
GBP1.1bn.
Capital expenditure/depreciation and amortisation
Capital expenditure was GBP500m, within our GBP450m-GBP500m
guided range. For 2018/19, we expect capital expenditure to be
around GBP500m. We will open three new stores and expect 2018/19
net new space sales contribution to be +0.2%.
In addition, we incurred GBP42m of onerous payments, lower than
our guidance of around GBP100m. In future years, we expect to incur
around GBP100m of further onerous payments, around GBP60m of which
we expect in 2018/19.
We expect 2018/19 depreciation/amortisation to be
GBP440m-GBP450m, reflecting the mix of our capital expenditure.
Impairment review
We perform an annual store-by-store review of impairment and
onerous contracts. The net write-back was GBP6m, recognised outside
of UPBT. It comprised GBP119m impairment charge, GBP126m of
freehold store write-backs, and GBP1m net charges on onerous
contracts and commitments.
Debt and interest
Group net debt fell to GBP973m, below our target of less than
GBP1bn and down a further GBP221m since the end of 2016/17.
Including the cash outflow from the special dividend (GBP94m),
we expect net debt to fall further during 2018/19.
Underlying net finance costs were GBP73m (2016/17: GBP97m).
During the year, we completed tender offers of GBP241m across two
sterling bonds and one euro bond. One-off costs relating to these
debt repayments were GBP16m, recognised outside UPBT. We expect
2018/19 net finance costs to be around GBP65m. Liquidity remains
very strong, and our GBP1.35bn revolving credit facility has been
undrawn since October 2015.
Towards the end of the year, Moody's upgraded its Morrisons
credit rating from Baa3 (positive outlook) to Baa2 (stable
outlook), reflecting the sustained improvement in Morrisons
financial results and credit profile.
Pension
The net pension surplus was GBP594m at year end, up from GBP392m
at the end of the first half and GBP272m at the end of 2016/17.
During the year we continued to work with the pension trustees to
identify opportunities to de-risk the schemes. In December 2017,
the trustees completed a GBP377m buy-in of part of the Safeway
scheme liabilities.
During the year, we updated the methodology for deriving the
discount rate assumption used in valuing the pension scheme
liabilities. We believe that this revised approach better reflects
expected yields on high quality corporate bonds over the duration
of the Group's pension schemes, as required by IAS 19. The new
method uses high quality corporate bond yields where available. At
very long durations, where there are no high quality corporate
bonds, the yield curve is extrapolated based on available corporate
bond yields of mid to long duration. This change reduced the value
placed on the IAS 19 pensions liabilities of the Group by GBP242m
and improved the pre-tax balance sheet position by GBP234m.
Around 30,000 colleagues were enrolled into the new defined
contribution pension scheme during the year, thereby almost
doubling the number of colleagues saving for retirement in a
company sponsored scheme. At the half-year, we announced a
provision release of GBP10m, relating to backdating the cost of
auto-enrolment for the new scheme. Updating to reflect the actual
number of colleagues eligible for backdated contributions, the
provision release is now GBP13m which is reported outside of
UPBT.
Net pension income was GBP9m, also reported outside of UPBT.
People update
Our turnaround is colleague-led. Customers notice great service
and how friendly our colleagues are. We value our colleagues'
significant contribution and are committed to them sharing in
Morrisons success. We have again increased the hourly pay rate for
front-line colleagues, this time to GBP8.70 per hour from April
2018, and the average colleague bonus payment has more than doubled
over the last two years.
In our recent 'Your Say' survey, the number of colleagues who
said they received a fair day's pay has increased by 25% in the
last three years. Our overall colleague engagement score is now at
its highest level since we started the 'Your Say' survey, with
every business function in positive growth.
Our new 'MyMorri' website provides colleagues with all the
information they need on a single digital communication platform
and is proving very popular, with over 95% of colleagues using it
since the recent launch. It gives access to online learning,
company information and updates, the colleague handbook, and
payslips. We have also launched 'MyPerks'; giving colleagues access
to discounts across many high-street retailers; and 'MyLearning'
providing a single platform to access all training materials.
We remain committed to improving the representation of females
in leadership roles. We now have around 100 females who are either
store managers or on the development programme to store manager,
and nearly 30% of the senior leadership team are female.
Corporate responsibility and community
Our corporate responsibility programme ensures we operate in a
way that is right for our customers, colleagues, suppliers and
shareholders whilst making a positive contribution to society and
taking good care of the environment.
Supporting British farmers
In 2017/18, we reinforced our commitment to British products by
announcing our intention to sell only 100% fresh British
Morrisons-branded meat. Our 'Milk for Farmers' range comes from a
dedicated pool of British farmers, who produce to a higher welfare
standard. The extra 10p per litre paid by customers is shared among
all the British farmers in the dedicated Morrisons dairy group.
Since the 'For Farmers' range launched we have contributed an
additional GBP9m to farmers.
Reducing food waste
Through our Unsold Food programme our stores partner with local
community groups to donate any unsold food that is safe to eat.
Since the programme began in 2016, we have donated 3.5 million
unsold food products, involving 80% of our stores working with over
420 community groups. We launched our 'Wonky Veg' range in 2015 and
now sell 18 varieties throughout the year, selling over 500 tonnes
per week.
Reducing the environmental impact of our packaging
We are committed to removing or reducing unnecessary packaging,
using recyclable or recycled material wherever possible, and
working with suppliers on packaging innovation to ensure our
packaging is only there to protect and preserve the product it
contains, thereby preventing food waste. We also use On Pack
Recycling Labels to help customers clearly identify products that
can be recycled. We prohibited the use of plastic microbeads ahead
of legislation, as well as plastic stem cotton buds in our
own-brand cosmetic and personal care products. In 2018, we are
removing the sale of single-use plastic bags and phasing out
plastic drinking straws, as well as offering customers the option
to refill their water bottles for free in our cafés.
Making a positive difference to the communities we serve
Each of our stores works with local communities and supports a
range of other important charity campaigns during the year
including, the Marie Curie Great Daffodil Appeal, the Poppy Appeal,
and Children in Need. Last year the Morrisons Foundation donated a
total of GBP10m to more than 400 charities, with an additional
GBP577,000 in colleague match-funding. Our three-year national
charity partnership with CLIC Sargent began in February 2017, and
we have raised over GBP3.3m so far - money which is already being
spent supporting young cancer patients and their families.
Consolidated statement of comprehensive income
53 weeks ended 4 February 2018
2018 2017
Note GBPm GBPm
------------------------------------------------------------------------------------- ------- --------- ---------
Revenue 4 17,262 16,317
Cost of sales (16,629) (15,713)
------------------------------------------------------------------------------------- ------- --------- ---------
Gross profit 633 604
------------------------------------------------------------------------------------- ------- --------- ---------
Other operating income 78 76
Profit/loss on disposal and exit of properties and sale of investments 3 19 32
Administrative expenses (272) (244)
------------------------------------------------------------------------------------- ------- --------- ---------
Operating profit 458 468
------------------------------------------------------------------------------------- ------- --------- ---------
Finance costs 5 (94) (160)
------------------------------------------------------------------------------------- ------- --------- ---------
Underlying finance costs 5 (78) (104)
Adjustments for:
Costs associated with the repayment of borrowings 3 (16) (56)
------------------------------------------------------------------------------------- ------- --------- ---------
Finance income 5 14 15
Share of profit of joint venture (net of tax) 2 2
------------------------------------------------------------------------------------- ------- --------- ---------
Profit before taxation 380 325
Analysed as:
------------------------------------------------------------------------------------- ------- --------- ---------
Underlying profit before tax 3 374 337
Adjustments for:
Impairment and provision for onerous contracts 3 6 6
Profit/loss on disposal and exit of properties 3 19 19
Profit arising on disposal of investment 3 - 13
Costs associated with the repayment of borrowings 3 (16) (56)
Pension scheme set-up credit 3,17 13 -
Net pension income 3,17 9 8
Other exceptional costs 3 (25) (2)
380 325
Taxation 6 (69) (20)
------------------------------------------------------------------------------------- ------- --------- ---------
Profit for the period attributable to the owners of the Company 311 305
------------------------------------------------------------------------------------- ------- --------- ---------
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes 17 323 86
Tax on defined benefit pension schemes (55) (17)
------------------------------------------------------------------------------------- ------- --------- ---------
268 69
------------------------------------------------------------------------------------- ------- --------- ---------
Items that may be reclassified subsequently to profit or loss:
Cash flow hedging movement (18) 30
Items reclassified from hedging reserve in relation to repayment of borrowings 3 (2) 6
Tax on items that may be reclassified subsequently to profit or loss (2) 1
Exchange differences on translation of foreign operations (1) (1)
------------------------------------------------------------------------------------- ------- --------- ---------
(23) 36
------------------------------------------------------------------------------------- ------- --------- ---------
Other comprehensive income for the period, net of tax 245 105
------------------------------------------------------------------------------------- ------- --------- ---------
Total comprehensive income for the period attributable to the owners of the Company 556 410
------------------------------------------------------------------------------------- ------- --------- ---------
Earnings per share (pence)
- basic 8 13.30 13.11
- diluted 8 13.03 12.95
------------------------------------------------------------------------------------- ------- --------- ---------
Consolidated balance sheet
4 February 2018
2018 2017
Note GBPm GBPm
------------------------------------ ------- -------- --------
Assets
Non-current assets
Goodwill and intangible
assets 9 428 445
Property, plant and equipment 10 7,243 7,227
Investment property 11 33 33
Pension asset 17 612 293
Investment in joint venture 53 56
Investments 13 - -
Derivative financial assets 19 16 16
8,385 8,070
------------------------------------ ------- -------- --------
Current assets
Stock 14 686 614
Debtors 15 250 214
Derivative financial assets 19 15 22
Cash and cash equivalents 19 327 326
------------------------------------ ------- -------- --------
1,278 1,176
Assets classified as held-for-sale 12 4 -
------------------------------------ ------- -------- --------
1,282 1,176
------------------------------------ ------- -------- --------
Liabilities
Current liabilities
Creditors 16 (2,981) (2,837)
Short term borrowings 19 (72) -
Derivative financial liabilities 19 (13) (3)
Current tax liabilities (15) (24)
------------------------------------ ------- -------- --------
(3,081) (2,864)
------------------------------------ ------- -------- --------
Non-current liabilities
Borrowings 19 (1,245) (1,550)
Derivative financial liabilities 19 (1) (5)
Pension liability 17 (18) (21)
Deferred tax liabilities (478) (417)
Provisions (299) (326)
------------------------------------ ------- -------- --------
(2,041) (2,319)
------------------------------------ ------- -------- --------
Net assets 4,545 4,063
------------------------------------ ------- -------- --------
Shareholders' equity
Share capital 236 234
Share premium 159 128
Capital redemption reserve 39 39
Merger reserve 2,578 2,578
Retained earnings and other
reserves 1,533 1,084
------------------------------------ ------- -------- --------
Total equity attributable to the
owners of the Company 4,545 4,063
--------------------------------------------- -------- --------
Consolidated cash flow statement
53 weeks ended 4 February 2018
2018 2017
Note GBPm GBPm
----------------------------------- ----- ------ ------
Cash flows from operating
activities
Cash generated from operations 18 884 1,113
Interest paid (66) (100)
Taxation paid (74) (35)
----------------------------------- ----- ------ ------
Net cash inflow from operating
activities 744 978
----------------------------------- ----- ------ ------
Cash flows from investing
activities
Interest received 4 6
Dividends received from joint
venture 8 8
Proceeds from sale of property,
plant and equipment 108 79
Proceeds from sale of businesses
and investments 13 - 44
Purchase of property, plant
and equipment, investment
property and assets classified
as held-for-sale (429) (374)
Purchase of intangible assets (71) (45)
Net cash outflow from investing
activities (380) (282)
----------------------------------- ----- ------ ------
Cash flows from financing
activities
Purchase of own shares for
trust (4) (5)
Settlement of employee tax
liability for share awards (7) -
Proceeds from exercise of
employee share options 33 -
Proceeds on settlement of
derivative financial instruments 6 37
Repayment of borrowings (245) (729)
Costs incurred on repayment
of borrowings (17) (42)
Dividends paid 7 (129) (118)
----------------------------------- ----- ------ ------
Net cash outflow from financing
activities (363) (857)
----------------------------------- ----- ------ ------
Net increase/(decrease) in
cash and cash equivalents 1 (161)
Cash and cash equivalents
at start of period 326 487
----------------------------------- ----- ------ ------
Cash and cash equivalents
at end of period 19 327 326
----------------------------------- ----- ------ ------
Reconciliation of net cash flow to movement in net debt in the
period
2018 2017
Note GBPm GBPm
----------------------------------------------------- ---- ------- -------
Net increase/(decrease) in cash and cash equivalents 1 (161)
Cash outflow from decrease in debt 239 692
Non-cash movements (19) 21
Opening net debt (1,194) (1,746)
----------------------------------------------------- ---- ------- -------
Closing net debt 19 (973) (1,194)
----------------------------------------------------- ---- ------- -------
Consolidated statement of changes in equity
53 weeks ended 4 February 2018
Current period
Attributable to the owners of
the Company
------------------------------------------------------------------------------
Share Share Capital Merger Hedging Retained Total
capital premium redemption reserve reserve earnings equity
reserve
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
At 30 January 2017 234 128 39 2,578 18 1,066 4,063
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Profit for the
period - - - - - 311 311
Other comprehensive
(expense)/income:
Cash flow hedging
movement - - - - (18) - (18)
Items reclassified
from hedging reserve
in relation to
repayment of borrowings 3 - - - - (2) - (2)
Exchange differences
on translation
of foreign operations - - - - - (1) (1)
Remeasurement of
defined benefit
pension schemes 17 - - - - - 323 323
Tax in relation
to components of
other comprehensive
income - - - - 4 (61) (57)
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Total comprehensive
(expense)/income
for the period - - - - (16) 572 556
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Purchase of trust
shares - - - - - (4) (4)
Employee share
option schemes:
Share-based payments
charge - - - - - 33 33
Settlement of employee
tax liability for
share awards - - - - - (7) (7)
Share options exercised 2 31 - - - - 33
Dividends 7 - - - - - (129) (129)
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Total transactions
with owners 2 31 - - - (107) (74)
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
At 4 February 2018 236 159 39 2,578 2 1,531 4,545
--------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Consolidated statement of changes in equity (continued)
53 weeks ended 4 February 2018
Prior period
Attributable to the owners of
the Company
------------------------------------------------------------------------------
Share Share Capital Merger Hedging Retained Total
capital premium redemption reserve reserve earnings equity
reserve
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
At 1 February 2016 234 127 39 2,578 (10) 788 3,756
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Profit for the
period - - - - - 305 305
Other comprehensive
income/(expense):
Cash flow hedging
movement - - - - 30 - 30
Items reclassified
from hedging reserve
in relation to
repayment of borrowings - - - - 6 - 6
Exchange differences
on translation
of foreign operations - - - - - (1) (1)
Remeasurement of
defined benefit
pension schemes 17 - - - - - 86 86
Tax in relation
to components of
other comprehensive
income - - - - (8) (8) (16)
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Total comprehensive
income for the
period - - - - 28 382 410
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Purchase of trust
shares - - - - - (5) (5)
Employee share
option schemes:
Share-based payments
charge - - - - - 20 20
Proceeds and settlements
of employee share
award - 1 - - - (1) -
Dividends 7 - - - - - (118) (118)
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
Total transactions
with owners - 1 - - - (104) (103)
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
At 29 January 2017 234 128 39 2,578 18 1,066 4,063
----------------------------- ----- --------- --------- ------------ --------- --------- ---------- --------
1. General information and basis of preparation
The financial information, which comprises the consolidated
statement of comprehensive income, consolidated balance sheet,
consolidated cash flow statement, consolidated statement of changes
in equity, and related notes, is derived from the full Group
financial statements for the 53 week period ended 4 February 2018,
which have been prepared under European Union endorsed
International Financial Reporting Standards (IFRS) and those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS.
It does not constitute statutory financial statements within the
meaning of section 434 of the Companies Act 2006. This financial
information has been agreed with the auditor for release. The
Group's financial statements (comprising the consolidated statement
of comprehensive income, consolidated balance sheet, consolidated
cash flow statement, consolidated statement of changes in equity,
and related notes) are available for download on the Group's
website at
https://www.morrisons-corporate.com/investor-centre/financial-reports/
The Annual Report and Financial Statements for the 53 week
period ended 4 February 2018 on which the auditor has given an
unqualified report and which does not contain a statement under
section 498 of the Companies Act 2006, will be delivered to the
Registrar of Companies in due course.
The accounting policies used in completing this financial
information have been consistently applied in all periods shown.
These accounting policies are detailed in the Group's financial
statements for the 53 week period ended 4 February 2018 which can
be found on the Group's website
https://www.morrisons-corporate.com/investor-centre/financial-reports/
New IFRS and amendments to IAS and interpretations
The following amendments to standards are mandatory for the
first time for the financial period ended 4 February 2018:
Amendments to IAS 7 'Statement of Cash Flows'
The amendment to IAS 7 requires additional disclosures about
changes in an entity's financing liabilities arising from both cash
flow and non-cash flow items. The amendment applies to changes in
financial assets as well as liabilities if the cash flows from
those financial assets are included in cash flows from financing
activities in the cash flow statement. The Group has applied the
amendment to the disclosures in the financial statements and has
modified the presentation of the analysis of net debt. There is no
material impact on the Group as a result of applying this
amendment.
Other than the amendment to IAS 7 noted above, there have been
no significant changes to accounting under IFRS which have affected
the Group's reported results for the period. The Group has
considered the following amendments to published standards that are
effective for the first time for the 53 weeks ended 4 February 2018
and concluded that they are either not relevant to the Group or
they do not have a significant impact on the Group's financial
statements. These amendments are:
-- Amendments to IAS 12 'Income taxes' on recognition of
deferred tax assets for unrealised losses; and
-- Annual improvements 2014-2016.
There are a number of standards and interpretations issued by
the IASB that are effective for financial statements after this
reporting period. These are detailed below:
IFRS 9 'Financial Instruments'
IFRS 9 'Financial Instruments' was published in July 2014 and
will be effective for the Group from the period beginning 5
February 2018. The standard replaces IAS 39 'Recognition and
Measurement' and is applicable to financial assets and financial
liabilities. The main changes the new standard introduces are:
-- new requirements for the classification and measurement of
financial assets and financial liabilities;
-- a new model for recognising impairments of financial assets; and
-- changes to hedge accounting by aligning hedge accounting more
closely to an entity's risk management objectives.
The Group will apply the modified retrospective approach for
transition, including no requirement to restate comparative
amounts. Any differences in carrying values will be recognised as
an adjustment to the opening balance sheet at 5 February 2018.
1. General information and basis of preparation (continued)
New IFRS and amendments to IAS and interpretations
(continued)
IFRS 9 'Financial Instruments' (continued)
The Group has assessed in detail the impact of the three areas
of the new standard on the consolidated financial statements. The
Group does not expect any material changes in relation to
accounting policies, classification and measurement of financial
assets and liabilities, nor for hedge accounting as detailed in
notes to the financial statements. IFRS 9 also introduces a forward
looking approach to impairment of financial assets which results in
earlier recognition of credit losses. The Group has assessed the
impact of IFRS 9 in this area (with reference to all financial
assets including trade receivables) and concluded that the impact
will be immaterial.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 'Revenue from Contracts with Customers' was published in
May 2014 and will be effective for the Group from the period
beginning 5 February 2018. The standard replaces IAS 18 'Revenue',
IAS 11 'Construction contracts' and related interpretations. The
standard introduces a five-step approach to the timing and
recognition of revenue based on performance obligations in customer
contracts. Under IFRS 15, revenue should only be recognised when a
customer obtains control of goods or services and has the ability
to direct the use and obtain the benefits from the goods or
services. It applies to all contracts with customers, except those
in the scope of other standards.
The Group will apply the modified retrospective approach for
transition set out in the standard. The cumulative effect of
initial application will be recognised as an adjustment to the
opening balance sheet at 5 February 2018, without restating
comparative amounts.
The Group has performed a detailed impact assessment,
identifying all current sources of revenue and analysing accounting
requirements for each under IFRS 15. The Group believes that the
adoption of IFRS 15 will not have a material impact on the
consolidated financial statements as the vast majority of
transactions (volume and value) are for sale of goods in stores or
online where the transfer of control is clear (either at the till
or on delivery of goods). The impact assessment also covered areas
which require further specific consideration such as customer
loyalty schemes, rights of return and wholesale supply arrangements
and concluded that there is no material impact on the current
accounting policies for revenue recognition applied by the Group,
which are disclosed in notes to the financial statements.
IFRIC 22 'Foreign Currency Transactions and Advance
Consideration'
IFRIC 22 'Foreign Currency Transactions and Advance
Consideration' was issued in December 2016 and will be effective
for the Group from the period beginning 5 February 2018. The
interpretation clarifies the date to be used in determining the
initial exchange rate for transactions, relating to advance
payments or receipts in a foreign currency, to be the date the
related non-monetary asset or liability is first recognised. The
Group will apply the interpretation prospectively to assets,
expenses and income recognised on or after 5 February 2018,
including where related non-monetary assets and liabilities from
advance consideration have been recognised before this date.
The Group has performed an impact assessment and believes that
the interpretation will not have a material impact on the
consolidated financial statements as sales and purchases involving
advanced consideration in a foreign currencies are negligible.
IFRS 16 'Leases'
IFRS 16 'Leases' was published in January 2016 and will be
effective for the Group from the period beginning 4 February 2019,
replacing IAS 17 'Leases'. The main principal of the standard is to
eliminate the dual accounting model for lessees under IAS 17, which
distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases, and to provide a single model
for lessee accounting. IFRS 16 requires lessees to recognise
right-of-use assets and lease liabilities for leases. Accounting
requirements for lessors will be substantially unchanged from IAS
17.
The standard represents a significant change in the accounting
and reporting of leases for lessees and it will impact the income
statement and balance sheet as well as statutory and alternative
performance measures used by the Group.
1. General information and basis of preparation (continued)
New IFRS and amendments to IAS and interpretations
(continued)
IFRS 16 'Leases' (continued)
The impact on the financial statements on transition to IFRS 16,
where the Group is the lessee, will depend on the approach taken by
the Group. The new standard allows for two different transition
approaches, fully retrospective and modified retrospective. Both
approaches will impact the income statement, balance sheet and
disclosure when adopted including the opening balance sheet at 4
February 2019, although the amounts will differ dependent on the
approach taken.
The Group is currently in the process of assessing the impact of
the new standard, deciding on the transition approach and
identifying process, systems and information required when adopted.
The initial phase of work, which is still in progress, has involved
assessing and modelling the impact of the new standard for a sample
of leases and beginning to consider assumptions and assessing data
requirements.
The Group has not yet concluded on a transition approach and as
such it is not possible to fully quantify the impact of IFRS 16 at
this stage.
Amendment to IAS 19 'Employee Benefits'
An amendment to IAS 19 'Employee Benefits' was published in
February 2018 and will be effective for the Group from the period
beginning 4 February 2019. The amendment applies prospectively in
connection with accounting for plan amendments, curtailments and
settlements. The amendment requires entities to use updated
assumptions to determine current service cost and net interest for
the remainder of the period after a plan amendment, curtailment or
settlement.
The Group is in the process of assessing the impact of the
amendment. However, at this stage it is not yet practicable to
fully quantify the effect of this amendment on these consolidated
financial statements.
IFRIC 23 'Uncertainty over income tax treatments'
IFRIC 23 'Uncertainty over income tax treatments' was issued in
June 2017 and will be effective for the Group from the period
beginning 4 February 2019. The interpretation covers how the Group
accounts for taxation, where there is some uncertainty over whether
treatments in the tax return will be accepted by 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. Otherwise 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 new standard allows for two different transition approaches,
fully retrospective and modified retrospective. The Group has not
yet concluded on a transition method and as such it is not possible
to fully quantify the impact of IFRIC 23 at this stage, though it
is not expected to be material as the Group has taken a comparable
approach to the interpretation in previous periods.
1. General information and basis of preparation (continued)
Principal risks
As with all businesses, we face risk and uncertainty, which
could impact the delivery of our strategy. The Board has overall
accountability for ensuring that risks are effectively managed
across the Group, and that there is a system for internal control.
The Executive Committee is responsible for implementing and
maintaining the system of controls. In accordance with the
Companies Act 2006, a description of the principal risks (and the
mitigating factors in place in respect of these) is included below.
The risks are shown in no particular order.
RISKS DESCRIPTION MITIGATION
---------------- ------------------------- ------------------------------------------------------------------------
Business There is a risk
Interruption that a major * We have recovery plans in place covering our stores,
incident, such depots, factories and offices;
as a significant
failure of technology,
a natural disaster * These plans include, where appropriate, secondary
or strike action, locations which would be used as a backup in case of
could cause significant an incident;
disruption to
business operations.
The Group's response * Business continuity resilience exercises are
must be appropriate undertaken to test processes and management's ability
to minimise disruption to respond effectively;
and reputational
damage. The growing
wholesale business * A Crisis Management Group is in place to oversee
increases the these plans and to manage and respond to any major
complexity of incidents;
operations and
technology.
* We conduct supplier risk assessments and have
contingency plans in place, where possible, to manage
the risk of loss of supply; and
* The technology plan is aligned with the business
strategy and considers the future needs of the
business including greater investment in cloud
technologies to provide further resilience.
---------------- ------------------------- ------------------------------------------------------------------------
Competitiveness The Grocery sector
continues to * We review and actively manage our pricing, trade plan
have high levels and promotional and marketing campaigns;
of competitive
activity. The
continued impact * We have simplified how we work with suppliers
of the EU referendum, building joint business plans, ensuring a competitive
and subsequent customer offer;
negotiations,
on exchange rates
and the supply * We continually review our range, category plan, and
chain has affected quality and respond to customer
costs of goods.
If we do not feedback, for example
engage with our the 'Best' premium own
suppliers and brand range has grown to
effectively manage meet customer demand;
our trade plan * Competitor pricing positions and market trends are
to remain competitive reviewed on a weekly basis; and
there is a risk
this will adversely
impact performance. * Our strong balance sheet and strong cash flow will
allow us to continue to invest in our proposition.
---------------- ------------------------- ------------------------------------------------------------------------
Customer There is a risk
that we do not * One of our six priorities is 'to serve customers
meet better' and we have a range of activities to support
the needs of that;
our customers
in respect of
price, range, * A large scale programme of customer listening groups
quality and service. is in place to gain a deep understanding of what our
We need to be customers want and, where we can improve, these have
responsive to informed key activities such as our store Fresh Look
changes in customer programme and changes to range;
confidence and
trends which
have been impacted
by changes to
the economy and
the UK's planned
exit from the
EU. If we do
not provide the
shopping trip
that customers
want, we could
lose sales and
market share.
---------------- ------------------------- ------------------------------------------------------------------------
RISKS DESCRIPTION MITIGATION
-------------- -------------------------- ------------------------------------------------------------------------
Customer
(continued) * We closely monitor research on customer perceptions
and respond quickly where possible with support from
a senior level steering group to address any
particular risks arising from the UK's exit from the
EU; and
* We have worked with wholesale partners to make
Morrisons products accessible to more customers and
continue with plans to further expand the geography
covered by our Online offering.
-------------- -------------------------- ------------------------------------------------------------------------
Data A security breach
leading to loss * The Group's Data Steering Group has the
of customer, responsibility for overseeing data management
colleague or practices, policies, regulatory awareness and
Group training;
confidential
data is a key
aspect of this * Information security policies and procedures are in
principal risk. place, including encryption, network security,
A major data systems access and data protection;
security breach
could lead to
significant reputational * This is supported by ongoing monitoring, reporting
damage and fines. and rectification of vulnerabilities;
The risk environment
is challenging, * Focused working groups are in place - looking at the
with increased management of data across the business including
levels of cybercrime colleague data, customer data, commercial data and
and regulatory financial data; and
requirements.
* A project team is in place which is implementing the
plan to meet General Data Protection Regulations
(GDPR) in advance of May 2018.
-------------- -------------------------- ------------------------------------------------------------------------
Financial The main areas
and treasury of this principal * The Group's treasury function is responsible for the
risk are the forward planning and management of funding, interest
availability rate, foreign currency exchange rate and certain
of funding and commodity price risks. They report to the Treasury
management of Committee and operate within clear policies and
cash flow to procedures which are approved by the Board;
meet business
needs. There
is a risk of * The Group's treasury policy is to maintain an
a working capital appropriate borrowing maturity profile and a
outflow if there sufficient level of headroom in committed facilities.
was a significant This includes an assumption that supply chain finance
reduction in facilities are not available for the benefit of
payment terms suppliers;
to suppliers.
Some suppliers
benefit from * There are governance processes in place to control
access to supply purchases in foreign currency and management of
chain finance commodity prices; and
facilities. The
withdrawal of
these facilities * For livestock and produce, we track prices and
may require some forecasts and enter into long term contracts where
terms to be reviewed. appropriate to ensure stability of price and supply.
In addition,
fluctuations
in commodity
prices and foreign
exchange rates
could impact
the
Group's profitability.
-------------- -------------------------- ------------------------------------------------------------------------
Food safety There is a risk
and product that the products * Monitoring processes are in place to manage food
integrity we sell are unsafe safety and product integrity throughout the Group and
or not of the supply chain;
integrity that
our customers
expect. It is * Regular assessments of our suppliers and own
of utmost importance manufacturing and store facilities are undertaken to
to us, and to ensure adherence to standards;
the confidence
that customers
have in our business, * Our vertical integration model gives us control over
that we meet the integrity of a significant proportion of our
the required fresh food;
standards. If
we do not do
this it could
impact business
reputation and
financial performance.
-------------- -------------------------- ------------------------------------------------------------------------
RISKS DESCRIPTION MITIGATION
------------- ---------------------------- -----------------------------------------------------------------------
Food safety
and product * Management regularly monitors food safety and product
integrity integrity performance and compliance as well as
(continued) conducting horizon scanning to anticipate emerging
issues; and
* The process is supported by external accreditation
and internal training programmes.
------------- ---------------------------- -----------------------------------------------------------------------
Health The main aspect
and safety of this principal * We have clear policies and procedures detailing the
risk is of injury controls required to manage health and safety risks
or harm to customers across the business;
or colleagues.
Failure to prevent
incidents could * An ongoing training programme is in place for front
impact business line operators and management;
reputation and
customer confidence
and lead to financial * A programme of health and safety audits is in place
penalties. across our stores, depots, sites and offices with
resources dedicated to manage this risk effectively;
and
* Management regularly monitors health and safety
performance and compliance.
------------- ---------------------------- -----------------------------------------------------------------------
People Our colleagues
are key to the * We have fair employment policies, and competitive
achievement of remuneration and benefits packages;
our plan, particularly
as we improve
the business. * A Group wide reward framework is in place and roles
There is a risk are evaluated against an external framework, driving
that if we fail stronger consistency of rewards;
to attract, retain
or motivate talented
colleagues, we * Our training and development programmes are designed
will not provide to give colleagues the skills they need to do their
the quality of job and support their career aspirations;
service that
our customers
expect. * Line managers conduct regular talent reviews and
processes are in place to identify and actively
Business change manage talent;
and the challenging
trading environment
may impact on * Colleague engagement surveys, listening sessions and
colleagues leading networking forums are used to understand and respond
to an increase to our colleagues; and
in this risk.
There is uncertainty
about potential * A steering group is in place to monitor and take
changes to employment action on any particular people risks relating to the
regulations when UK's exit from the EU.
the UK leaves
the EU and this
could result
in a retention
and recruitment
risk, particularly
at some manufacturing
sites.
------------- ---------------------------- -----------------------------------------------------------------------
Regulation The Group operates
in an environment * We have a GSCOP compliance framework in place
governed by numerous including training for relevant colleagues and
regulations including processes to monitor compliance;
GSCOP (Groceries
Supply Code of
Practice), competition, * We have a senior level working group in place to
employment, health review and improve GSCOP compliance activity;
and safety, and
regulations over
the Group's products. * We have an independent whistleblowing line for
There is uncertainty suppliers to provide feedback to the Group and a Code
about any potential Compliance Officer so that action can be taken as
changes to regulations necessary;
relating to the
UK's exit from
the EU. In all * We have a senior level steering group in place to
cases, the Board monitor and take action on any potential regulatory
takes its responsibilities change resulting from the UK's exit from the EU;
very seriously
and recognises
that breach of * We have training, policies and legal guidance in
regulation can place to support compliance with Competition Law and
lead to reputational other regulations; and
damage and financial
damages to the
Group. * We actively engage with government and regulatory
bodies on policy changes which could impact our
colleagues and our customers.
------------- ---------------------------- -----------------------------------------------------------------------
1. General information and basis of preparation (continued)
Responsibility statement
This statement is given pursuant to Rule 4 of the Disclosure and
Transparency Rules. It is given by each of the Directors.
To the best of each Director's knowledge:
a) the consolidated financial statements, prepared in accordance
with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Group and the undertakings included in the
consolidation taken as a whole; and
b) the strategic report includes a fair review of the
development and performance of the business and the position of the
Group and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
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 and online operations. The Directors'
conclusion is that the Group has one operating segment, that of
retailing.
3. Underlying profit
The definition of underlying profit is consistent with the prior
year. The Directors consider that the underlying profit and
underlying adjusted earnings per share measures referred to in the
results provide useful information for shareholders on underlying
trends and performance. The adjustments are made to reported
profit/loss to: (a) remove impairment, provision for onerous
contracts, or other items that do not relate to the Group's
principal activities on an ongoing basis; (b) remove profit/loss
arising on disposal and exit of properties and sale of investments;
(c) remove the impact of pension volatility; and (d) apply a
normalised tax rate of 23.8% (2017: 25.0%).
2018 2017
GBPm GBPm
---------------------------------------------- ------ ------
Profit after tax 311 305
Add back: tax charge for the
period(1) 69 20
---------------------------------------------- ------ ------
Profit before tax 380 325
Adjustments for:
Impairment and provision for
onerous contracts(1) (6) (6)
Profit/loss arising on disposal
and exit of properties(1) (19) (19)
Profit arising on disposal of
investment(1) - (13)
Costs associated with the repayment
of borrowings(1) 16 56
Pension scheme set-up credit(1) (13) -
Net pension income(1) (9) (8)
Other exceptional costs(1) 25 2
Underlying profit before tax 374 337
Normalised tax charge at 23.8%
(2017: 25.0%)(1) (89) (84)
---------------------------------------------- ------ ------
Underlying profit after tax 285 253
---------------------------------------------- ------ ------
Underlying earnings per share
(pence)
- basic 12.19 10.86
- diluted 11.94 10.73
--------------------------------------------- ------ --------
(1) Adjustments marked (1) decrease post-tax underlying earnings
by GBP26m (2017: decrease of GBP52m) as shown in the reconciliation
of earnings disclosed in note 8(b).
Following the Group's annual impairment and onerous contract
review a net credit of GBP6m has been recognised. This included a
net impairment reversal of GBP7m (GBP126m impairment reversal
offset by GBP119m impairment charge). The GBP119m impairment charge
includes GBP118m in relation to property, plant and equipment and
GBP1m in relation to intangible assets. The GBP126m impairment
reversal relates entirely to property, plant and equipment. A net
GBP1m credit has been recognised in relation to provisions for
onerous contracts (GBP22m charge offset by GBP23m release). In
addition, amounts provided for onerous commitments has increased by
a net GBP2m. Impairment and provision for onerous contracts in
2016/17 totalled a net credit of GBP6m. This included a net
impairment reversal of GBP44m (GBP191m impairment reversal offset
by GBP147m impairment) and charge of GBP38m relating to provisions
for onerous contracts.
Profits/losses arising on disposal and exit of properties
amounted to GBP19m (2017: GBP19m) and includes GBP14m (2017:
GBPnil) relating to the disposal of the customer fulfilment centre
(CFC) at Dordon in June 2017. In the 52 weeks ended 29 January
2017, a profit of GBP13m was recognised on the disposal of the
Group's investment in Fresh Direct Inc.
Costs associated with the early repayment of borrowing
facilities and other refinancing activities total GBP16m (2017:
GBP56m). This includes GBP17m relating to financing charges on
redemption of financial instruments (primarily premiums) and GBP1m
of fees written off on the repayment of bonds, offset by GBP2m
relating to gains which had previously been recognised in reserves
which have been reclassified to the income statement on termination
of hedging arrangements.
The pension scheme set-up credit of GBP13m relates to back dated
contributions in respect of the Group's new defined contribution
scheme which was established in the year and is the auto enrolment
scheme for the Group. The credit represents the difference between
the expected back dated contributions and the cost based on actual
participation rates.
3. Underlying profit (continued)
Other exceptional costs include restructuring costs of GBP21m
(2017: GBPnil) primarily relating to the restructuring of store
management teams, and legal costs incurred in relation to cases in
respect of historic events.
The adjustments above are classified within the consolidated
statement of comprehensive income on the following lines:
-- impairment and provision for onerous contracts has been
included within administrative expenses;
-- profit/loss arising on disposal and exit of properties,
profit arising on disposal of investments are classified within
profit/loss arising on disposal and exit of properties and sale of
investments;
-- pension scheme set-up credit is classified within administrative expenses;
-- costs associated with the repayment of borrowings are classified within finance costs;
-- net pension income is included within finance income; and
-- other exceptional costs have been recognised in administrative expenses.
4. Revenue
2018 2017
GBPm GBPm
---------------------------------- ------ ------
Sale of goods in-store and online 13,246 12,747
Other sales 290 219
---------------------------------- ------ ------
Total sales excluding fuel 13,536 12,966
Fuel 3,726 3,351
---------------------------------- ------ ------
Total revenue 17,262 16,317
---------------------------------- ------ ------
5. Finance costs and income
2018 2017
GBPm GBPm
--------------------------------------------------------- ----- -----
Interest payable on short term loans and bank overdrafts (2) (3)
Interest payable on bonds (63) (86)
Interest capitalised 1 1
--------------------------------------------------------- ----- -----
Total interest payable (64) (88)
Provisions: unwinding of discount (13) (13)
Other finance costs (1) (3)
--------------------------------------------------------- ----- -----
Underlying finance costs(1) (78) (104)
--------------------------------------------------------- ----- -----
Costs associated with the repayment of borrowings (16) (56)
Finance costs (94) (160)
--------------------------------------------------------- ----- -----
Bank interest received 5 6
Amortisation of bonds - 1
Underlying finance income(1) 5 7
Net pension income 9 8
Finance income 14 15
--------------------------------------------------------- ----- -----
Net finance cost (80) (145)
--------------------------------------------------------- ----- -----
(1) Underlying net finance costs marked (1) amount to GBP73m
(2017: GBP97m).
6. Taxation
2018 2017
GBPm GBPm
-------------------------------------------------- ----- -----
Current tax
- UK corporation tax 69 57
- overseas tax 4 2
- adjustments in respect of prior periods (8) (11)
------------------------------------------------- ----- -----
65 48
-------------------------------------------------- ----- -----
Deferred tax
- origination and reversal of timing differences (2) (10)
- adjustments in respect of prior periods 6 3
- impact of change in tax rate - (21)
------------------------------------------------- ----- -----
4 (28)
-------------------------------------------------- ----- -----
Tax charge for the period 69 20
-------------------------------------------------- ----- -----
The effective tax rate for the year was 18.2% (2017: 6.2%). The
normalised tax rate for the year (excluding the impact of property
transactions, business disposals and tax rate changes) was 23.8%
(2017: 25.0%). The normalised tax rate was 4.64% above the UK
statutory tax rate of 19.16%. The main factor increasing the
normalised tax rate is disallowed depreciation on UK properties
which reflects the Group's strategy to maintain a majority freehold
estate.
Legislation to reduce the standard rate of corporation tax to
17% from 1 April 2020 was included in the Finance Bill 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 (2017: 19% or 17%).
There have been no indications of any further changes to the
rate of corporation tax after 1 April 2020.
7. Dividends
Amounts recognised as distributed to equity holders in the
period:
2018 2017
GBPm GBPm
---------------------------------------------------------------------------- ----- -----
Interim dividend for the period ended 4 February 2018 of 1.66p (2017:1.58p) 39 37
Final dividend for the period ended 29 January 2017 of 3.85p (2016: 3.50p) 90 81
129 118
---------------------------------------------------------------------------- ----- -----
The Directors propose a final ordinary dividend in respect of
the financial period ended 4 February 2018 of 4.43p per share which
will absorb an estimated GBP104m of shareholders' funds. The
Directors also propose a special dividend of 4.00p per share which
will absorb an estimated GBP94m of shareholders' funds. Subject to
approval at the AGM, these dividends will be paid on 28 June 2018
to shareholders who are on the register of members on 25 May
2018.
The dividends paid and proposed during the year are from
cumulative realised distributable reserves of the Company.
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 all potentially dilutive ordinary shares.
The Company has two (2017: 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 (LTIP).
a) Basic and diluted EPS (unadjusted)
Reconciliations of the earnings and weighted average number of
shares used in the calculations are set out below:
2018 2017
-------------------- ------ --------
Weighted Weighted
average average
number of number of
Earnings shares EPS Earnings shares EPS
GBPm millions pence GBPm millions pence
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Unadjusted EPS
Basic EPS
Profit attributable to ordinary shareholders 311.1 2,338.6 13.30 305.0 2,327.1 13.11
Effect of dilutive instruments
Share options and LTIPs - 49.3 (0.27) - 27.9 (0.16)
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Diluted EPS 311.1 2,387.9 13.03 305.0 2,355.0 12.95
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
b) Underlying EPS
Basic EPS is adjusted to more accurately show underlying
business performance. Below is the reconciliation of the earnings
used in the calculations of underlying earnings per share:
2018 2017
-------- ---------- ------ -------- ---------- ------
Weighted Weighted
average average
number of number of
Earnings shares EPS Earnings shares EPS
GBPm millions pence GBPm millions pence
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Underlying EPS
Basic EPS
Profit attributable to ordinary shareholders 311.1 2,338.6 13.30 305.0 2,327.1 13.11
Adjustments to determine underlying profit
(note 3) (26.1) - (1.11) (52.2) - (2.25)
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
285.0 2,338.6 12.19 252.8 2,327.1 10.86
Effect of dilutive instruments
Share options and LTIPs - 49.3 (0.25) - 27.9 (0.13)
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Diluted EPS 285.0 2,387.9 11.94 252.8 2,355.0 10.73
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
9. Goodwill and intangible assets
2018 2017
GBPm GBPm
----------------------- ----- -----
Net book value
At beginning of period 445 483
Additions 68 55
Impairment (1) -
Amortisation charge (84) (93)
At end of period 428 445
------------------------ ----- -----
The carrying value of goodwill and intangible assets principally
consists of software development costs of GBP404m (2017:
GBP418m).
Following the annual impairment review conducted by the Group,
an impairment charge of GBP1m (2017: GBPnil) has been recognised in
relation to intangible assets. This has been included as an
adjustment to underlying earnings (see note 3).
10. Property, plant and equipment
2018 2017
GBPm GBPm
------------------------------------------------ ----- -----
Net book value
At beginning of period 7,227 7,161
Additions 427 367
Disposals (87) (17)
Interest capitalised 1 1
Transfers to investment properties - (4)
Transfers to assets classified as held-for-sale - (20)
Depreciation charge (333) (305)
Net impairment reversal 8 44
At end of period 7,243 7,227
------------------------------------------------- ----- -----
The Group has performed its annual assessment of its
depreciation policies and asset lives and deemed them to be
appropriate. No changes have been made to asset lives during the
year.
During June 2017, the Group sold the land and buildings of its
customer fulfilment centre (CFC) at Dordon to a third party for
cash consideration of GBP92m. The disposal is included within the
disposals during the 53 weeks ended 4 February 2018. The disposal
resulted in a profit of GBP14m. This profit has been included in
profit/loss on disposal and exit of properties as an adjustment to
underlying earnings (see note 3).
Included within the table above are leasehold land and buildings
held under finance lease with a cost of GBP293m (2017: GBP294m) and
accumulated depreciation of GBP75m (2017: GBP72m).
The cost of financing property developments prior to their
opening date has been included in the cost of the asset. The
cumulative amount of interest capitalised in the total cost above
amounts to GBP199m (2017: GBP198m).
10. Property, plant and equipment (continued)
Impairment
The Group considers that each store is a separate cash
generating unit (CGU) and therefore considers every store for an
indication of impairment annually. The Group calculates each
store's recoverable amount and compares this amount to its book
value. The recoverable amount is determined as the higher of 'value
in use' and 'fair value less costs of disposal'. If the recoverable
amount is less than the book value, an impairment charge is
recognised based on the following methodology:
'Value in use' is calculated by projecting individual store
pre-tax cash flows over the remaining useful life of the store,
based on forecasting assumptions. The methodology used for
calculating future cash flows is to:
-- use the actual cash flows for each store in the current year;
-- allocate a proportion of the Group's central costs to each store on an appropriate basis;
-- project each store's cash flows over the next five years by
applying forecast sales and cost growth rate; and
-- project each store's cash flows beyond year five for the
remaining useful life of each store by applying a long term growth
rate; and
-- discount the cash flows using a pre-tax rate of 9.0% (2017:
9.0%). The discount rate takes into account the Group's weighted
average cost of capital.
'Fair value less costs of disposal' is estimated by the
Directors based on their knowledge of individual stores and the
markets they serve and likely demand from grocers or other
retailers. The Directors also obtain valuations by store prepared
by independent valuers and consider these in carrying out their
estimate of fair value less cost of disposal for the purposes of
testing for impairment. In determining their valuation, the
independent valuers assume an expected rent and yield for each
store based on the quality of the asset, local catchment and the
store being occupied by a supermarket tenant with a similar
covenant to Morrisons.
In order to reflect specific local market conditions, in
particular the continued low demand from major grocery retailers
for supermarket space, the Directors consider it appropriate for
the purpose of testing for impairment to revise downwards the rent
and yield assumptions in the independent valuation to reflect the
following factors on a store by store basis:
-- Whether a major grocery operator might buy the store, taking
into consideration whether they are already located near the store,
and whether the store size is appropriate for their business model,
and then if not;
-- Assessing whether a smaller store operator might buy the
store, in which case the value has been updated to reflect the
Directors' assessment of the yield which would be achievable if
such an operator acquired the store, and then if not; and
-- Assessing whether a non-food operator might buy the store, in
which case the value has been updated to reflect the Directors'
assessment of the yield which would be achievable if such an
operator acquired the store.
Having applied the above methodology and assumptions, the Group
has recognised a net impairment reversal of GBP8m (GBP126m
impairment reversal offset by GBP118m impairment charge) during the
year in respect of property, plant and equipment (2017: GBP44m;
GBP191m impairment reversal offset by GBP147m impairment charge).
This movement reflects fluctuations from store level trading
performance and local market conditions.
At 4 February 2018, the key assumption to which the value in use
calculation is most sensitive to is the discount rate. Specific
sensitivity analysis with regard to this assumption shows that an
increase of 1% in the discount rate would result in an additional
impairment charge of GBP96m.
11. Investment property
2018 2017
GBPm GBPm
------------------------------------------------ ----- -----
Net book value
At beginning of period 33 37
Additions 5 -
Transfer from property, plant and equipment - 4
Transfers to assets classified as held-for-sale (4) (7)
Depreciation charge (1) (1)
At end of period 33 33
------------------------------------------------- ----- -----
12. Assets classified as held-for-sale
2018 2017
GBPm GBPm
-------------------------------------------- ----- -----
Net book value
At beginning of period - -
Additions - 19
Transfer from property, plant and equipment - 20
Transfers from investment properties 4 7
Disposals - (46)
At end of period 4 -
--------------------------------------------- ----- -----
13. Investments
2018 2017
GBPm GBPm
----------------------- ----- -----
Net book value
At beginning of period - 31
Fair value adjustments - 14
Disposals - (45)
At end of period - -
------------------------ ----- -----
In the 52 weeks ended 29 January 2017, the Group disposed of its
10% stake in Fresh Direct Inc, a US internet grocer, for cash
consideration of GBP45m, net of GBP1m of transaction costs. In line
with IAS 39 'Financial Instruments: Recognition and Measurement',
the asset was remeasured to fair value before the sale completed,
resulting in a GBP14m increase in the book value of the investment.
On disposal the GBP14m revaluation gain was recognised in the
income statement net of GBP1m of transaction costs. This profit is
one-off in nature and was excluded from reported underlying
earnings for the 52 weeks ended 29 January 2017 (see note 3).
Following the transaction the undrawn loan facility provided to
Fresh Direct Inc ceased.
14. Stock
2018 2017
GBPm GBPm
--------------- ----- -----
Finished goods 686 614
--------------- ----- -----
Unearned elements of commercial income are deducted from
finished goods as the stock has not been sold.
15. Debtors
2018 2017
GBPm GBPm
---------------------------------- ----- -----
Trade debtors:
- Commercial income trade debtors 3 4
- Accrued commercial income 29 38
- Other trade debtors 123 101
Less: provision for impairment of
trade debtors (6) (6)
---------------------------------- ----- -----
149 137
Prepayments and accrued income 91 68
Other debtors 10 9
---------------------------------- ----- -----
250 214
---------------------------------- ----- -----
As at 4 February 2018 and 29 January 2017, trade debtors that
were neither past due nor impaired related to a number of debtors
for whom there is no recent history of default. The other classes
of debtors do not contain impaired assets.
As of 11 March 2018, GBP2m of the GBP3m commercial income trade
debtor balance had been settled and GBP16m of the GBP29m accrued
commercial income balance had been invoiced and settled.
16. Creditors - current
2018 2017
GBPm GBPm
---------------------------------------- ----- -----
Trade creditors 2,298 2,160
Less: commercial income due, offset
against amounts owed (28) (34)
---------------------------------------- ----- -----
2,270 2,126
Other taxes and social security payable 93 68
Other creditors 147 198
Accruals and deferred income 471 445
---------------------------------------- ----- -----
2,981 2,837
---------------------------------------- ----- -----
Included within accruals and deferred income is GBP4m (2017:
GBP3m) in respect of deferred commercial income.
As of 11 March 2018, GBP20m of the GBP28m commercial income due
above had been offset against payments made.
17. 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 Morrison and Safeway
Schemes provide pension benefits based on either the employee's
compensation package and/or career average revalued earnings (CARE)
(the 'CARE Schemes'). The CARE Schemes are not open to new members
and were closed to future accrual in July 2015. The Retirement
Saver Plan ('RSP') is a cash balance scheme, which provides a lump
sum benefit based upon a defined proportion of an employee's annual
earnings in each year, which is revalued each year in line with
inflation subject to a cap.
17. Pensions (continued)
The disclosures below show the details of the schemes
combined:
2018 2018 2017 2017
CARE RSP CARE RSP
GBPm GBPm GBPm GBPm
------------------------------- -------- ------ -------- ------
Fair value of scheme assets 4,542 315 4,455 219
Present value of obligations (3,930) (333) (4,162) (240)
-------------------------------- -------- ------ -------- ------
Net pension asset/(liability) 612 (18) 293 (21)
-------------------------------- -------- ------ -------- ------
The movement in the net pension asset during the period was as
follows:
2018 2017
GBPm GBPm
--------------------------------------------- ----- -----
Net pension asset at start of the period 272 186
Net interest income 9 8
Settlement and curtailment gain 10 1
Remeasurement in other comprehensive income 323 86
Employer contributions 75 66
Current service cost (91) (71)
Administrative cost (4) (4)
---------------------------------------------- ----- -----
Net pension asset at end of the period 594 272
---------------------------------------------- ----- -----
At 4 February 2018, schemes in surplus have been disclosed
within the assets on the balance sheet. The Group has taken legal
advice with regard to the recognition of a pension surplus and also
recognition of a minimum funding requirement under IFRIC 14 'IAS 19
- The limit on a defined benefit asset, minimum funding requirement
and their interaction'. This advice concluded that recognition of a
surplus is appropriate on the basis that the Group has an
unconditional right to a refund of a surplus. In respect of the RSP
this is on the basis that paragraph 11(a) of IFRIC 14 applies
enabling a refund of surplus during the life of the RSP. In respect
of the Morrison Scheme, it is on the basis that paragraph 11(b) or
11(c) of IFRIC 14 applies enabling a refund of surplus assuming the
gradual settlement of the scheme liabilities over time until all
members have left the scheme or the full settlement of the Scheme's
liabilities in a single event (i.e. as a scheme wind up). In
respect of the Safeway Scheme, a refund is available on the basis
that paragraph 11(b) of IFRIC14 applies. Amendments to the current
version of IFRIC 14 are currently being considered. The legal
advice received by the Group has considered the proposed new
wording to paragraph 12(A) of IFRIC 14 concerning whether other
parties have a unilateral power to use a scheme's surplus to settle
in full the scheme's liabilities and has concluded that the above
accounting treatment should not be affected by the current exposure
draft of the revised wording to IFRIC 14.
Settlement and curtailment gains in the 53 weeks ended 4
February 2018 include GBP8m relating to the settlement of
retirement benefits resulting from actions taken to further de-risk
the Group's pension schemes.
During the year, the Group has updated the methodology for
deriving the discount rate assumption used in valuing the pension
scheme liabilities. The Group believes that this revised approach
better reflects expected yields on high quality corporate bonds
over the duration of the Group's pension schemes, as required by
IAS 19. The previous methodology estimated the discount rate with
reference to both corporate bond and gilt yields. The new method
uses high quality corporate bond yields where available. At very
long durations, where there are no high quality corporate bonds,
the yield curve is extrapolated based on available corporate bond
yields of mid to long duration. This change reduced the value
placed on the IAS 19 pensions liabilities of the Group by GBP242m
and improved the pre-tax balance sheet position by GBP234m.
17. Pensions (continued)
Defined Contribution Scheme
As previously announced, the Group opened a new defined
contribution pension scheme called the Morrisons Personal
Retirement Scheme ('MPRS') for colleagues during the 53 weeks ended
4 February 2018. The MPRS has become the auto enrolment scheme for
the Group and as such the Group was liable for backdated
contributions for eligible colleagues to 1 October 2012. This was
paid in January 2018. The pension scheme set-up credit of GBP13m
recognised as an adjustment to underlying earnings (see note 3),
relates to the cost of back dated contributions in respect of this
new defined contribution scheme. The credit represents the
difference between the expected back dated contributions previously
accrued for and the cost based on actual participation rates.
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. Over the period, the Group paid contributions of GBP4m
to the MPRS, and expects to contribute GBP23m for the following
period.
18. Cash generated from operations
2018 2017
GBPm GBPm
-------------------------------------------------------------------------- ----- -------
Profit for the period 311 305
Net finance costs 80 145
Taxation charge 69 20
Share of profit of joint venture (net of tax) (2) (2)
-------------------------------------------------------------------------- ----- -------
Operating profit 458 468
Adjustments for:
Depreciation and amortisation 418 399
Impairment charge 119 147
Impairment reversal (126) (191)
Profit arising on disposal and exit of properties and sale of investments (19) (32)
Adjustment for non-cash element of pension charges 10 7
Share-based payments charge 33 20
Other non-cash charges - 2
(Increase)/decrease in stocks(1) (72) 2
Increase in debtors(1) (50) (19)
Increase in creditors(1) 153 306
(Decrease)/increase in provisions(1) (40) 4
-------------------------------------------------------------------------- ----- -----
Cash generated from operations 884 1,113
-------------------------------------------------------------------------- ----- -----
Total working capital outflow (the sum of items marked (1) in
the table) is GBP9m in the year (29 January 2017: GBP293m inflow).
This includes GBP1m (29 January 2017: GBP38m) as a result of the
current year charges in respect of onerous contracts and accruals
of onerous commitments, net of GBP42m (29 January 2017: GBP94m) of
onerous payments and other non--operating payments of GBP3m (29
January 2017: GBP11m). When adjusted to exclude these items, the
working capital inflow is GBP35m (29 January 2017: GBP360m).
19. Analysis of net debt
2018 2017
GBPm GBPm
------------------------------------ -------- --------
Cross-currency contracts and
interest rate swaps(1) 12 6
Fuel and energy price contracts 4 10
------------------------------------ -------- --------
Non-current financial assets 16 16
------------------------------------ -------- --------
Foreign exchange forward contracts 1 11
Fuel and energy price contracts 14 11
Current financial assets 15 22
------------------------------------ -------- --------
Bonds(1) (72) -
Foreign exchange forward contracts (13) (2)
Fuel and energy price contracts - (1)
Current financial liabilities (85) (3)
------------------------------------ -------- --------
Bonds(1) (1,245) (1,550)
Fuel and energy price contracts (1) (5)
Non-current financial liabilities (1,246) (1,555)
------------------------------------ -------- --------
Cash and cash equivalents per
balance sheet 327 326
------------------------------------ -------- --------
Net debt (973) (1,194)
------------------------------------ -------- --------
Total net liabilities from financing activities (the sum of
items marked (1) in the table) is GBP1,305m in the 53 weeks ended 4
February 2018 (2017: GBP1,544m).
Cash and cash equivalents include restricted balances of GBP7m
(2017: GBP9m) which is held by Farock Insurance Company Limited, a
subsidiary of Wm Morrison Supermarkets PLC.
20. Commercial income
The types of commercial income recognised by the Group and the
recognition policies are:
Type Description Recognition
of deduction
--------------- --------------------- ------------------------------------
Marketing Examples include Income is recognised over
and income in respect the period as set out in
advertising of in-store the specific supplier agreement.
funding marketing and Income is invoiced once
point of sale, the performance conditions
as well as funding in the supplier agreement
for advertising. have been achieved.
--------------- --------------------- ------------------------------------
Volume-based Income earned Income is recognised through
rebates by achieving the year based on forecasts
volume or spend for expected sales or purchase
targets set volumes, informed by current
by the supplier performance, trends, and
for specific the terms of the supplier
products over agreement. Income is invoiced
specific periods. 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
relating to the two types of commercial income are detailed as
follows:
2018 2017
GBPm GBPm
----------------------------------- ------ ------
Commercial income:
Marketing and advertising funding 34 52
Volume-based rebates 192 257
----------------------------------- ------ ------
Total commercial income 226 309
----------------------------------- ------ ------
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 Annual Report and Financial
Statements.
During the year, the Group received a dividend of GBP8m (2017:
GBP8m) from MHE JVCo. The Group has a 51.5% interest in MHE JV
Co.
22. Guarantees and contingent liabilities
Following the disposal of the land and building of its customer
fulfilment centre (CFC) at Dordon to a third party (see note 10)
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.
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 has since
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 appeal has been concluded. 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.
23. Post balance sheet events
Following IAS 10 'Events after the Balance Sheet Date', the
Group continues to disclose events that it considers material and
non-disclosure of which can influence the economic decisions of
users of the financial statements.
On 19 February 2018, the Group acquired Chippindale Foods
Limited, a leading supplier of free range eggs, for a consideration
of GBP6m. The Directors consider this event as a non-adjusting post
balance sheet event.
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.
Measures Closest Definition and Reconciliation
equivalent purpose for 2017/18
IFRS Group measures
measure (1)
-------------- ----------------- ---------------- -----------------------------------------------------------------
Profit Measures
----------------------------------------------------------------------------------------------------------------------
Like-for-like Revenue Percentage 53 weeks ended 4 February 2018 %
(LFL) change ---------------------------- ---------------------------------
sales in year-on-year Group LFL (exc. fuel) 2.8%
growth sales ---------------------------- ---------------------------------
(excluding Group LFL (inc. fuel) 4.1%
VAT), removing ---------------------------- ---------------------------------
the impact of 53(rd) week impact 2.0%
new store ---------------------------- ---------------------------------
openings Impact of store closures (0.3)%
and closures in ---------------------------- ---------------------------------
the current or Total revenue year on year 5.8%
previous ---------------------------- ---------------------------------
financial
year.
The measure is
used widely in
the retail
industry
as an indicator
of underlying
sales
performance.
It is also a
key
measure for
Director
and management
remuneration.
-------------- ----------------- ---------------- -----------------------------------------------------------------
Total Revenue Including fuel: A reconciliation
sales Percentage of total sales
growth change including
in year-on-year and excluding
total reported fuel is provided
revenue. in note 4.
Excluding fuel:
Percentage
change
in year-on-year
total reported
sales excluding
fuel.
This measure
illustrates
the total
year-on-year
sales growth.
This measure is
a key measure
for Director
and
management
remuneration.
-------------- ----------------- ---------------- -----------------------------------------------------------------
Underlying Profit before Reported profit A reconciliation
profit tax before tax of this measure
before excluding is provided
tax (UPBT) impairment and in note 3.
provisions for
onerous
contracts,
profit/loss on
disposal and
exit
of properties
and sale of
businesses
and
investments,
the impact of
pension
volatility
and other items
that do not
relate
to the Group's
principal
activities
on an ongoing
basis.
This measure is
a key measure
used by the
Directors.
It provides key
information on
underlying
trends
and performance
of the Group
and
is used for
Director
and management
remuneration.
-------------- ----------------- ---------------- -----------------------------------------------------------------
Underlying Profit after UPBT adjusted UPBT of GBP374m
profit tax for a less a normalised
after normalised tax charge
tax tax charge. of GBP89m
(note 3).
This measure is
used by the
Directors
as it provides
key information
on underlying
trends and
performance
of the Group,
including a
normalised
tax charge.
-------------- ----------------- ---------------- -----------------------------------------------------------------
(1) Certain ratios referred to in the financial statements are
calculated using more precise numbers rather than rounded numbers.
These stated ratios may therefore differ slightly to those
calculated by the numbers in this report due to rounding (as
numbers in the financial statements are presented in round
millions).
Glossary (continued)
Measures Closest equivalent Definition and Reconciliation
IFRS purpose for 2017/18
measure Group measures
(1)
----------- ------------------- ------------------------- ----------------------
Profit Measures (continued)
-----------------------------------------------------------------------------------
Underlying Operating Reported operating Reported operating
operating profit(2) profit excluding profit (GBP458m)
profit impairment and less impairment
provisions for and provisions
onerous contracts, for onerous
profit/loss on contracts
disposal and exit (GBP6m), profit/loss
of properties on disposal
and sale of investments and exit of
and other items properties
impacting operating and sale of
profit that do investments
not relate to (GBP19m),
the Group's principal pension scheme
activities on set-up credit
an ongoing basis. (GBP13m),
plus other
This measure is exceptional
used by the Directors costs of GBP25m.
as it provides
key information
on underlying
trends and performance
of the Group.
----------- ------------------- ------------------------- ----------------------
Underlying Finance costs Reported net finance A reconciliation
net costs excluding of this measure
finance net pension income is provided
costs and other items in note 5.
impacting net
finance costs
that do not relate
to the Group's
principal activities
on an ongoing
basis.
This measure is
used by the Directors
as it provides
key information
on underlying
cost of financing
excluding the
impact of exceptional
items.
----------- ------------------- ------------------------- ----------------------
Underlying Basic earnings Basic earnings A reconciliation
basic per share per share based of this measure
earnings on underlying is included
per share profit after tax in note 8.
rather than reported
profit after tax
as described above.
This measure is
a key measure
used by the Director's.
It provides key
information on
underlying trends
and performance
of the Group and
is used for Director
and management
remuneration.
----------- ------------------- ------------------------- ----------------------
Underlying Diluted earnings Diluted earnings A reconciliation
diluted per share per share based of this measure
earnings on underlying is included
per share profit after tax in note 8.
rather than reported
profit after tax
as described above.
----------- ------------------- ------------------------- ----------------------
Tax measures
-----------------------------------------------------------------------------------
Normalised Effective Normalised tax A reconciliation
tax tax is the tax rate of the tax
applied to the charge is
Group's principal found in note
activities on 2.2.3 of the
an ongoing basis. Group financial
This is calculated statements.
by adjusting the
effective tax
rate for the period
to exclude the
impact of profit/loss
relating to property
disposals and
sale of investments,
pension interest
volatility, impairment
and provisions
for onerous contracts,
and other items
that do not relate
to the Group's
principal activities
on an ongoing
basis.
This measure is
used by the Directors
as it provides
a better reflection
of the normalised
tax charge for
the Group.
----------- ------------------- ------------------------- ----------------------
(1) Certain ratios referred to in the financial statements are
calculated using more precise numbers rather than rounded numbers.
These stated ratios may therefore differ slightly to those
calculated by the numbers in this report due to rounding (as
numbers in the financial statements are presented in round
millions).
(2) Operating profit is not defined under IFRS. However, it is a
generally accepted profit measure.
Glossary (continued)
Measures Closest equivalent Definition and Reconciliation
IFRS purpose for 2017/18
measure Group measures
(1)
------------ ------------------- -------------------------- ----------------------
Cash flows and net debt measures
-------------------------------------------------------------------------------------
Free cash No direct Movement in net GBP350m being
flow equivalent debt before dividends. the movement
in net debt
This measure is (GBP221m)
used by the Directors before payment
as it provides of dividend
key information (GBP129m).
on the level of
cash generated
by the Group before
the payment of
dividends.
------------ ------------------- -------------------------- ----------------------
Net debt Borrowings Net debt is cash A reconciliation
less cash and cash equivalents, of this measure
and cash non-current financial is provided
equivalents assets and current in note 19.
and financial financial assets,
assets and less borrowings,
liabilities current financial
liabilities and
non-current financial
liabilities.
------------ ------------------- -------------------------- ----------------------
Working No direct Movement in stock, A reconciliation
capital equivalent movement in debtors, of this measure
movement movement in creditors is provided
and movement in in note 18.
provisions.
------------ ------------------- -------------------------- ----------------------
Operating No direct Working capital A reconciliation
working equivalent movement adjusted of this measure
capital for charges for is provided
movement onerous contracts, in note 18.
onerous payments
and 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 nonrecurring
movements relating
to property balances.
------------ ------------------- -------------------------- ----------------------
Other measures
-------------------------------------------------------------------------------------
Return No direct Return on capital ROCE (7.7%)
on capital equivalent employed is calculated equals return
employed as return divided divided by
by average capital average capital
employed. Return employed:
is defined as
annualised underlying Return (GBP451m)
profit after tax = Underlying
adjusted for underlying profit after
net finance costs tax annualised
and operating (GBP285m)
lease rentals adjusted for
(on land and buildings). underlying
Capital employed net finance
is defined as costs (GBP73m)
average net assets and operating
excluding net lease rentals
pension assets (on land and
and liabilities, buildings)
less average net (GBP93m).
debt, plus the
lease adjustment Average capital
(10 times rent employed (GBP5,884m)
charged). = Average
net assets
This measure is excluding
used by the Directors the net pension
as it is a key asset (GBP3,871m),
ratio in understanding average net
the performance debt (GBP1,084m)
of the Group. and the lease
adjustment
(GBP929m).
------------ ------------------- -------------------------- ----------------------
(1) Certain ratios referred to in the financial statements are
calculated using more precise numbers rather than rounded numbers.
These stated ratios may therefore differ slightly to those
calculated by the numbers in this report due to rounding (as
numbers in the financial statements are presented in round
millions).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UORRRWOAOAUR
(END) Dow Jones Newswires
March 14, 2018 03:01 ET (07:01 GMT)
Morrison (wm) Supermarkets (LSE:MRW)
Historical Stock Chart
From Aug 2024 to Sep 2024
Morrison (wm) Supermarkets (LSE:MRW)
Historical Stock Chart
From Sep 2023 to Sep 2024
