TIDMMRW
RNS Number : 5483Y
Morrison(Wm.)Supermarkets PLC
10 September 2020
News Release
Release date: 10 September 2020
INTERIM RESULTS FOR THE HALF YEAR TO 2 AUGUST 2020
Responding and growing
Financial summary
-- Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT up 8.7%
(2019/20: up 0.2%)
-- Q2 Group LFL ex-fuel/ex-VAT up 12.3% (Q2 2019/20: down
1.9%), including a very strong retail contribution to LFL
of 11.1% (Q2 2019/20: down 2.4%)
-- Total revenue down 1.1% to GBP8.73bn (2019/20: GBP8.83bn),
significantly impacted by very low demand for fuel during
and after lockdown, which is now rebuilding
-- Total revenue ex-fuel up 8.8% to GBP7.55bn (2019/20: GBP6.93bn)
-- PBT and exceptionals(2) down 25.3% to GBP148m (2019/20:
GBP198m), after COVID-19 direct net costs of GBP62m (GBP155m
costs, partly offset by GBP93m lower business rates)
-- Basic EPS before exceptionals(2) down 26.2% to 4.71p (2019/20:
6.38p)
-- Statutory profit before tax down 28.2% to GBP145m (2019/20:
GBP202m)
-- Free cash outflow(3) GBP228m (2019/20: inflow GBP244m),
due primarily to the temporary impact on working capital
of the lower demand for fuel
-- Net debt GBP2,802m (2019/20 year end: GBP2,458m)
-- Interim ordinary dividend up 5.7% to 2.04p (2019/20: 1.93p).
Decision on special dividend remains deferred
Strategic and operating highlights
-- In response to the unprecedented COVID-19 challenges, we
adopted a purpose to guide us: 'To play our full part in
feeding the nation - it's more than our job'
-- Deployed Morrisons assets to protect and support colleagues,
customers, local communities, the NHS, smaller suppliers,
British farmers and charities
-- Very strong ex-fuel sales growth sustained throughout the
first half
-- Substantial investment in price, payroll and service, which
continues into second half
-- Growing in new stores, formats, online and wholesale
-- Online and home delivery order capacity up fivefold, with
five new growth channels: Morrisons.com store pick, food
boxes, doorstep, 'Morrisons on Amazon' and Deliveroo
-- Introduced more flexible and productive ways of working
into head office
-- Recruited over 45,000 new and temporary colleagues
-- Increased our target to reduce own-brand plastic packaging
from 25% to 50% by 2025
Financial targets update
-- GBP1bn annualised wholesale supply sales target almost
achieved
-- Start supplying the remaining c.240 McColl's stores during
the second half
-- Due to the exceptional circumstances created by COVID-19
we are not reporting against our GBP75m-GBP125m incremental
profit target
-- We are confident of continued strong momentum into the
second half, improved free cash flow and net debt, and
another year of profit growth
David Potts, Chief Executive, said:
"From the start of the pandemic we stepped up and put the
company's assets at the disposal of the country to help feed the
nation. Morrisons is at the heart of local communities and
responded quickly when it mattered most, and we are very grateful
for the British public's appreciation of all the vital work our
colleagues are doing. I believe we are seeing the renaissance of
British supermarkets.
"We are now looking forward to holding on to what we created in
the first half, building on our colleagues' inspiration and
innovation, and sustaining the momentum of a broader, stronger
Morrisons. I'd like to again thank every Morrisons colleague for
their incredible efforts: you've earned your key worker status
several times over."
Andrew Higginson, Chairman, said:
"I am so proud of all our colleagues, including our leadership
team, for the contribution they are making during the COVID-19
crisis. From the first days of the virus and lockdown our teams
have continued to turn in for work and serve our customers,
whatever their own personal concerns. It is a tremendous effort,
and Morrisons has played a leading role in keeping the nation's
food supply open. In so doing, we have been able to help customers,
colleagues, local communities and other key stakeholders such as
the NHS, smaller suppliers, British farmers and charities."
Dividend update
The 2020/21 interim ordinary dividend is 2.04p per share, up
5.7% (2019/20: 1.93p), reflecting the strong first-half trading
performance and our confident outlook.
As stated at both our 2019/20 preliminary results in March and
Q1 2020/21 trading statement in May, we had anticipated announcing
another final special dividend relating to the second half of
2019/20, which was the period before the onset of COVID-19.
However, given the unprecedented nature of events and uncertainty
around COVID-19, we determined it would be prudent to defer the
decision on both occasions.
While we have a good understanding of how COVID-19 is currently
affecting our business and visibility of future cash flows, our
decision regarding the second half 2019/20 special dividend remains
deferred. This prudent approach reflects some sustained uncertainty
around the potential future impact of COVID-19 on both our
customers' behaviour and the broader British economy. We will again
review our decisions around both the second half 2019/20 and full
year 2020/21 special dividends at the time of our preliminary
results in March 2021. In future we will take a decision on a
potential special dividend once a year, at the time of our
preliminary results in March.
Outlook
Despite the unprecedented crisis and many challenges of the
first half, our business responded very well and our trading
performance was strong.
As previously described, COVID-19 has led us to incur many extra
direct costs as we help feed the nation. In total these extra
direct costs were c.GBP155m during the first half, as listed in
Figure 1. They were part-mitigated by four months of business rates
relief of GBP93m, meaning a net first half COVID-19 cost of GBP62m
which is reported within profit before tax and exceptionals. In May
we estimated that the costs relating directly to COVID-19 during
2020/21 would be broadly offset by the in-year business rates cost
saving*. This remains our expectation: we anticipate that the
GBP62m first - half net cost will be offset by a similar second -
half net benefit, with extra COVID-19 specific costs at around half
the level of the first half and a full six months of rates relief
of c.GBP137m.
As well as the timing of direct COVID-19 costs/lower business
rates, the mix of the very strong first - half sales growth was
weighted towards online channels and lower margin categories. In
addition, fuel sales growth was very negative, our cafés were
temporarily closed, and we invested in supporting our colleagues,
NHS workers and farmers with extra discounts. We also continued to
invest in price cuts, and delayed planned productivity initiatives
to focus on our response to COVID-19. While some of these margin
impacts may persist into the second half, we are confident that we
have a plan for continued LFL growth and that our ongoing programme
of significant price cuts and investment in service for customers
will drive continued operational gearing.
In wholesale, we are to start supplying the remaining c.240
McColl's stores during the second half, and now expect to be
supplying all by early 2021. In addition, during the second half
the same - day delivery service 'Morrisons on Amazon' will become
available to millions of customers on the Amazon.co.uk website.
We are confident of continued strong momentum into the second
half, improved free cash flow and net debt, and another year of
growth in profit before tax and exceptionals.
* For 2020/21, we estimate April to January business rates
relief of GBP230m (GBP2m higher than our estimate in May) in
England and Scotland, of which four monthly instalments would have
been due in the first half and six in the second half. For 2021/22,
we will receive business rates relief for February and March 2021,
and resume payments in April 2021.
Figure 1 - Estimated 2020/21 COVID-19 direct net (costs)/lower
business rates
GBPm change year-on-year H1 H2 estimate
Extra payroll (47)
------ ------------
Extra cost of colleague bonus(**) (35) (30-35)
------ ------------
Colleague and customer protection (25)
------ ------------
Food banks and other donations (9)
------ ------------
Other costs (inc. extra seasonal waste/markdown,
extra distribution costs) (39)
------ ------------
Total COVID-19 direct costs (155) (70-85)
------ ------------
Lower business rates 93 137
------ ------------
Total net (cost)/benefit (62) c.60
------ ------------
** We are paying a 6% 'thank you' guaranteed annual bonus for
all frontline colleagues, up threefold on last year
Figure 2 - H1 2020/21 profit reconciliation
GBPm H1 19/20 H1 20/21 Y-on-Y
Statutory operating profit 246 190 (22.8)%
Statutory profit before tax 202 145 (28.2)%
--------------------------------------------------------- --------- --------- --------
Exceptional items:
* Impairment and provision for onerous contracts - (4)
* Restructuring and store closure costs - 15
* Net pension interest income (***) (10) (8)
6
* Other exceptional items -
------------------------------------------------------- --------- --------- --------
Operating profit before exceptionals 252 201 (20.2)%
Profit before tax and exceptionals 198 148 (25.3)%
--------------------------------------------------------- --------- --------- --------
*** Adjusted in profit before tax and exceptionals, but not in
operating profit before exceptionals
Figure 3 - LFL sales performance (ex-VAT, reported in accordance
with IFRS 15)
2019/20 2020/21
Q1 Q2 H1 H2 FY Q2 H1
Q1 ****
----- ------- ------- ------- ------- ------- ------ -------
Retail contribution
to LFL 0.2% (2.4)% (1.1)% (1.7)% (1.4)% 5.1% 11.1% 7.9%
----- ------- ------- ------- ------- ------- ------ -------
Wholesale contribution
to LFL 2.1% 0.5% 1.3% 0.0% 0.6% 0.6% 1.2% 0.8%
----- ------- ------- ------- ------- ------- ------ -------
Group LFL ex-fuel 2.3% (1.9)% 0.2% (1.7)% (0.8)% 5.7% 12.3% 8.7%
----- ------- ------- ------- ------- ------- ------ -------
Group LFL inc-fuel 2.7% (2.2)% 0.2% (2.5)% (1.1%) (3.9%) 2.1% (1.1)%
----- ------- ------- ------- ------- ------- ------ -------
****As previously announced, Q1 2020/21 was extended by a week
to 14 weeks and compared to the same 14 weeks last year to allow
for the later May bank holiday this year and to ensure comparable
trading periods. As a result, Q2 was 12 weeks and compared to the
same 12 weeks last year.
Alternative Performance Measures
Guidelines on Alternative Performance Measures issued by the
European Securities and Markets Authority came into effect for all
communications released on or after 3 July 2016 for issuers of
securities on a regulated market. The key alternative performance
measures identified by the Group and contained in this announcement
are detailed below.
The Directors measure the performance of the Group based on the
following financial measures which are not recognised under
EU-adopted IFRS, and consider these to be important measures in
evaluating the Group's results and financial position.
Definitions and additional requirements:
A full glossary of terms and alternative measures is provided in
this announcement. The Directors believe the key metrics are the
ones outlined below because: they are used for internal reporting
of the performance of the Group; they provide key information on
the underlying trends and performance; and they are key measures
for director and management remuneration.
(1) Like-for-like (LFL) sales: percentage change in year-on-year
sales (excluding VAT), removing the impact of new store openings
and closures in the current or previous financial year. A reconciliation
between LFL sales and total revenue is provided in the glossary
at the end of this announcement.
(2) Profit before tax (PBT) and exceptionals: defined as profit
before tax, exceptional items and net retirement benefit interest.
Earnings per share (EPS) before exceptionals: based on profit
before exceptional items and net retirement benefit interest,
adjusted for a normalised tax charge. A reconciliation between
statutory profit before tax, statutory operating profit, profit
before tax and exceptionals, and operating profit before exceptionals
is shown in Figure 2. See Note 8 for a reconciliation between
basic EPS and EPS before exceptionals.
(3) Free cash flow: defined as movement in net debt before the
payment of dividends. Free cash flow for the period is an outflow
of GBP228m (2019/20: inflow of GBP244m), being the increase
in net debt of GBP344m (2019/20: GBP36m lower) adjusted for
dividends paid of GBP116m (2019/20: GBP208m).
Other Alternative Performance Measures used in this announcement
are defined in the glossary.
This announcement includes inside information.
Enquiries:
Wm Morrison Supermarkets PLC
Michael Gleeson - Chief Financial Officer 0345 611 5000
Andrew Kasoulis - Investor Relations Director 0778 534 3515
Media Relations
Wm Morrison Supermarkets
PLC: Julian Bailey 0796 906 1092
Citigate Dewe Rogerson: Simon Rigby 0777 178 4446
Kevin Smith 0771 081 5924
Ellen Wilton 0792 135 2851
Management will host an audio-only webcast this morning at 09:30
available at
https://www.morrisons-corporate.com/investor-centre/
Dial-in details:
Participant dial in: +44 (0) 20 3003 2666
Password: Morrisons
Replay facility available for 7 days :
Replay access number: +44 (0) 20 8196 1998
Replay access code: 8451521#
-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
During the first half of 2020/21, all our efforts were fully
focused on deploying our assets in the best way to enable our
colleagues to help feed the nation during the COVID-19 crisis.
Those colleagues responded with extraordinary dedication and
professionalism, and our business performed very well.
Group LFL excluding fuel was up 8.7%, comprising a retail
contribution of 7.9% and wholesale contribution of 0.8%.
Q2 accelerated significantly on Q1 with Group LFL excluding fuel
of 12.3%, comprising retail of 11.1% and wholesale of 1.2%.
Total revenue was GBP8.73bn, down 1.1% year on year. Total
revenue growth excluding fuel was up 8.8%.
Fuel sales were down 37.4% to GBP1.19bn, severely affected
during lockdown and the immediate aftermath by the impact of
COVID-19. Fuel sales volume has been gradually recovering
throughout Q2.
For retail, LFL sales had been improving since the start of 2020
and improved again before the impact of COVID-19, to flat for the
first four weeks of 2020/21. Trading during the rest of Q1 was
volatile, with stocking up driving very strong sales, then negative
LFL during the initial lockdown and Easter period, followed by a
significant improvement towards the end of Q1. LFL improved further
into Q2 and remained very strong throughout, with some moderation
towards the end of the quarter as the eat-out market began to open
up. Growth in all our online and home delivery channels -
Morrisons.com, Amazon, food boxes, doorstep delivery and Deliveroo
- was very substantial during the first half.
For wholesale, sales to our convenience store operator partners
were strong throughout the first half. Sales at the 30 trial
McColl's to Morrisons Daily conversions were strong, and we will
start supplying the remaining c.240 McColl's stores during the
second half.
Operating profit before exceptionals was down 20.2% to GBP201m
(2019/20: GBP252m), with margin down 55 basis points (bps) to 2.3%.
EBITDA before exceptionals was down 8.2% to GBP472m (2019/20:
GBP514m), with margin down 42 bps to 5.4%.
Profit was temporarily impacted by the considerable costs of
COVID-19, especially extra payroll, bonus, colleague and customer
safety protection measures, distribution costs, and seasonal waste
and markdown, plus various initiatives for food banks, charities
and local communities. In total these extra costs were c.GBP155m
during the first half. They were part-mitigated by four months of
business rates relief of GBP93m, meaning a net first half COVID-19
cost impact of GBP62m. Without this extra cost, operating profit
before exceptionals would have grown GBP11m year on year, with
margin up 16 bps and EBITDA margin up 29 bps.
Net finance costs before exceptionals were GBP53m (2019/20:
GBP54m).
Profit before tax and exceptionals was down 25.3% to GBP148m
(2019/20: GBP198m). Without the extra net GBP62m COVID-19 direct
costs/lower business rates, profit before tax and exceptionals
would have grown GBP12m (+6.1%) year on year.
As well as the impact of the direct COVID-19 net costs,
operational leverage was limited as the mix of the very strong
first - half sales growth was weighted towards lower margin ambient
grocery categories, beers, wines and spirits, and online, while
sales in higher margin food-to-go and our Market Street service
counters were severely limited for a period, and our café business
was closed between late March and early July. Profit was also
impacted by the very low demand for fuel, our efforts to support
colleagues, NHS workers and farmers with extra discounts, and by
temporary delays to various productivity initiatives as we focused
all our efforts on playing our full part in feeding the nation.
Mitigating these profit impacts, underlying operational gearing
was strong, helped by the benefits of vertical integration and the
further significant investment in price cuts driving strong volume
growth, and we again performed well in reducing both shrink and the
number of less effective promotions.
Due to the exceptional circumstances created by COVID-19, we are
not reporting against our target for GBP75m - GBP125m incremental
profit from wholesale, services, online and interest.
Exceptional items recognised outside profit before tax and
exceptionals were a net GBP3m (Figure 2). Of these, there was a
GBP9m restructuring charge for modernising our ways of working at
head office. As we adopt more digital and flexible initiatives for
colleagues we are moving to a more streamlined structure in the
centre, with fewer senior colleagues and broader, bigger roles for
more junior colleagues. This is simplifying and speeding up the
business, and improving our efficiency and productivity. In
addition, there was a GBP6m cost relating to a slight delay in the
retail restructuring that we announced in January. There was also a
GBP4m net credit relating to impairment and provision for onerous
contracts, and net retirement benefit interest income was
GBP8m.
Basic EPS before exceptionals was down 26.2% to 4.71p (2019/20:
6.38p).
Cash capital expenditure was GBP200m (2019/20: GBP212m).
There was a free cash outflow of GBP228m (2019/20: GBP244m
inflow). This was due primarily to an operating working capital
outflow of GBP284m, which was caused by temporarily significantly
lower fuel sales together with a low retail price for fuel, plus
the impact of paying our smaller suppliers immediately and some
investment in stock availability. In addition, first half profit
was lower due to the impact of COVID-19.
Group net debt was GBP2,802m, compared to GBP2,458m at the end
of 2019/20. Excluding lease liabilities, net debt was GBP1,412m
(2019/20 year end: GBP1,082m).
The interim ordinary dividend is up 5.7% to 2.04p (2019/20
1.93p).
Three new supermarkets opened in the period, in Amble, Bradwell
and Stirchley, plus a Nutmeg store on our Bolsover site, with an
overall net increase of c.67k square feet.
Return on capital employed (ROCE) was 6.2%, down from the first
half of 2019/20 (7.1%) due to the temporary impact of COVID-19.
COVID-19 and strategy update
COVID-19 has created unprecedented challenges and changed both
our near-term priorities and how we operate. In responding to the
crisis we adopted a purpose to guide us through the pandemic: 'To
play our full part in feeding the nation - it's more than our job'.
All our recent efforts have been focused on that purpose:
protecting our colleagues and customers, and working together with
our own food makers and our other suppliers to provide food to all
across Britain, especially the self-isolating and the most in
need.
Initially that response focused on protecting our colleagues and
customers with screens, sanitiser, social distancing measures,
extra cleaning, other hygiene initiatives and extra marshals. We
also guaranteed pay for sick, self-isolating and other affected
colleagues, and tripled the annual bonus for those on the
frontline, while recruiting over 45,000 new colleagues to both
cover absence and to invest significantly in expanding our online
and home delivery services, including a free doorstep delivery
service for the most vulnerable.
In addition, we are paying c.3,000 smaller suppliers immediately
and giving extra discounts to our colleagues, 10% off for NHS
workers and 5% for our farmer suppliers. We are spending GBP10m to
restock Britain's foodbanks, have made various donations to
homeless charities, and developed new boxes and bulk delivery
services to provide vital supplies to customers, charities and
local authorities quickly and at great prices.
In the early phases of the pandemic (panic buying and lockdown)
when food retailers were one of the few lifelines able to function
in British society, the Government's quick decision on business
rates relief for all retailers allowed us the certainty and
flexibility to apply some of these initiatives immediately, when
any delay would have made the situation even worse. While these
initiatives have initially cost us considerably more than the rates
relief, we are pleased and proud that we were able to act so
quickly and decisively for all our stakeholders, and that many of
the initiatives still continue into the second half. We have
summarised our COVID-19 initiatives in Appendix 1.
The business has managed the near-term challenges of COVID-19
well, while also remaining focused on our longer-term Fix, Rebuild,
Grow, Sustain strategy. Some planned Fresh Look, productivity and
customer service initiatives were slightly delayed during the
initial stages of the crisis, but we have continued to grow a
broader, stronger Morrisons throughout and are hitting the ground
running as lockdown gradually eases.
We plan to emerge from the crisis even better for customers.
Head office processes and structures are being simplified and
digitised to encourage more permanent remote working and greater
freedom for teams to effect change and improvement more quickly. We
want to continue to seize what seem like step-change opportunities
in the online and at-home markets, holding on to the new growth we
have created so far and developing new ideas, in both retail and
wholesale, to be even bigger and better in the future. Value will
remain at the heart of Morrisons: whether or not Britain's
recession is prolonged, great prices and good quality are
paramount, and we are currently redoubling our efforts on
delivering those, as well as continuing to invest in jobs and
service to provide the best shopping trip we possibly can.
Our growth will continue to be capital light, we will always
strictly adhere to the principles of our capital allocation
framework, and will review the uses of free cash flow each
year.
Seven priorities update
Throughout the years of our turnaround, while executing our Fix,
Rebuild, Grow, Sustain strategy, we have been guided by our
priorities. This has been especially so recently, with our
priorities providing a framework for responding and growing during
COVID-19.
1. To be more competitive
Value is of paramount importance to our customers, and even more
so in periods of economic uncertainty and recession. We have
continued to improve the Morrisons price list by investing in
prices and improving product specification, packaging and
merchandising across hundreds of our customers' favourite items.
Inflation was flat throughout the first half, including deflation
in some categories such as fruit & veg, leading to a further
improvement in our relative competitiveness for customers.
In addition, we have substantial cost-saving, productivity, and
COGS opportunities which we are accessing in partnership with our
suppliers. These include distribution and supply chain costs, mix,
volume-related discounts, replenishment, packaging and
digitisation. These give us extra opportunities to invest further
in price, service and range, and keep improving the shopping trip
for customers.
We have also extended our great-value offer into other areas
such as non-food and fuel. For example, we have introduced flat
pricing across our Nutmeg kids clothing offer, allowing
standardised prices across all ages and sizes, starting with the
Back to School range. As lockdown eased, we also acted quickly to
reduce the fuel price to below 100p per litre for unleaded, our
lowest price since 2016.
2. To serve customers better
Our colleagues have been outstanding during the crisis, facing
into unprecedented challenges with professionalism, enthusiasm and
resourcefulness. We adapted well to the many new practical demands
around social distancing, such as extra protection, queues,
marshals and hygiene. We also introduced new initiatives, such as
speedy shopping to ensure our smaller-basket shoppers can access
and navigate our stores quickly.
In addition, our online and home delivery offer expanded at
unprecedented pace, with order capacity up fivefold during the
first half. Most customers across Britain have access to several
different options, with almost every Morrisons supermarket now
offering at least one home delivery service.
For Morrisons.com, we more than doubled the number of weekly
home deliveries during the first half, well in excess of the 60%
increase we initially planned for. This was achieved, together with
our partner Ocado, through a substantial increase in the number of
store-pick stores (up from 33 to 193) and a further optimisation of
the capacity in the Dordon customer fulfilment centre. In addition,
from a trial of just six stores in March, we now offer
click-and-collect pick-up from almost 280 Morrisons stores.
Home delivery for customers has been further extended beyond
Morrisons.com. During the first half we launched the 'Food Box
Company', with production facilities at our food manufacturing
sites and depots to prepare food boxes which are delivered direct
to customers' houses by a third party. Many different home delivery
food boxes have been introduced, all available either online or via
a telephone call. These were initially aimed at providing
essentials to vulnerable and self-isolating people, and then
extended to other options such as British meat, gluten free, BBQ,
Ramadan, and more recently, a 'Five Meals to Feed a Family of Four'
scratch cook box for GBP30, which is just GBP1.50 per meal. In
addition, we have formed a partnership with Deliveroo to deliver
groceries in as little as 30 minutes to customers, currently
available from over 180 Morrisons stores.
During the period we also significantly expanded 'Morrisons on
Amazon', the same-day online home delivery service. At the time of
the 2019/20 preliminary results in March, the service operated from
17 Morrisons stores in eight cities. It has now been extended
nationwide to around 50 stores, covering most major cities and many
towns. New areas covered include Edinburgh, Cardiff, Bristol,
Portsmouth, Cambridge and most of the major conurbations of the
West and East Midlands, as well as more London stores thereby
expanding delivery coverage to over 90% of Greater London
postcodes. In addition, since half-year end, we and Amazon have
jointly announced that 'Morrisons on Amazon' is now available on
Amazon.co.uk, initially in Leeds, and expanding to millions of
Prime members across the country before the end of the year. These
initiatives further strengthen our partnership, and give more
customers in more cities and towns across Britain easier access to
a full Morrisons range including, for the first time, many fresh
Market Street items.
We are constantly looking to improve the shopping trip for
customers. Although our plans for a new colleague structure were
slightly delayed by the pandemic they are now complete, and we have
thousands more colleagues on the shop floor to serve customers
better. We have removed over 3,000 managerial roles and created
7,000 new customer-facing roles, further aligning our shop floor
with our food maker, shopkeeper credentials.
With our service counters and Market Street now fully reopen, we
are also making additional payroll investments for customers in
these areas. This means more specialist fresh food hours,
particularly on our service counters and in key departments such as
fruit & veg. Initial trial stores have been successful, with
improvements in both sales and profit, and we now intend to
introduce these initiatives into many more stores.
3. Find local solutions
Morrisons has continued to champion and support local farmers,
growers and other suppliers, especially during this more difficult
period, where the temporary closure of a substantial part of the
catering industry continues to affect many. Right at the start of
the crisis we moved to immediate payment for c.3,000 small
suppliers and increased the eligibility threshold to GBP1m of
annual sales from GBP100,000, which meant a GBP65m working capital
investment to support our local partners.
We are also supporting many local products. For example, in
Yorkshire we are selling 'Fettle' cheese, which is made by a local,
family-run company, in over sixty stores across the county. It is a
version of feta made from sheep's milk which was previously in
falling demand due to the steep decline of the catering sector
during COVID-19.
In addition, we recently announced the acquisition of Lansen
Nursery, a leading supplier of outdoor plants based in Spalding,
Lincolnshire. The acquisition complements our existing Flowerworld
business, and means we will offer more locally grown horticulture
and become more competitive for customers.
Our supermarkets are now even more at the centre of the local
communities they serve. Each store's Community Champion has been
allocated more hours to help local charities and community groups.
These colleagues are also personally distributing doorstep delivery
orders to vulnerable and self-isolating customers in their local
catchment areas.
Local convenience shopping is proving more popular with
customers during COVID-19. Sales to our convenience store operator
partners - including McColl's, Rontec, MPK, Harvest Energy, and
Sandpiper CI in the Channel Islands - were strong throughout the
first half. Together with 55 of our own Morrisons Daily forecourt
shops, we now supply over 1,300 convenience stores, all of which
are serving customers in their local catchments. Overall for
wholesale supply, we are almost at our target of GBP1bn of
annualised sales.
During the second half we are to start supplying the remaining
c.240 McColl's local convenience stores that we do not already
supply. We expect to be supplying all c.240 by early 2021, slightly
later than initially expected as the roll-out has been delayed due
to the impact of COVID-19.
4. Develop popular and useful services
Many of our popular and useful services have been severely
disrupted during the first half with many, such as Timpsons, closed
during the crisis, and our own important café business closed
between late March and early July.
However, it has also been a period of innovation for services.
Our very popular new doorstep delivery service is a telesales
offer, introduced at all our stores and offering a lifeline for the
elderly and most vulnerable who do not have access to online or
other help. Customers simply call a central support number, order
groceries largely from a pre-set list by talking directly to a
Morrisons colleague, and the groceries are delivered next day by
the local store's Community Champion. In a variation of this
service, we have recently agreed with McCarthy & Stone, the
leading developer and manager of retirement communities, to provide
a doorstep delivery service to all its homeowners in almost 450
neighbourhoods across the UK.
In addition, we have recently launched a new wholesale supply
bulk delivery service. We have started to supply local councils,
care homes and some charities, such as The Salvation Army, across
Britain with great-value bulk supplies at wholesale prices.
Our existing popular and useful services are also starting to
re-open. For example, from mid-June we became the first supermarket
to open a national takeaway service, with all of our 402 cafés
offering new hot-to-go dishes, such as two portions of fish and
chips for GBP10. From 4(th) July, when catering restrictions were
relaxed, we launched our café business, with 320 open for the first
time since March. We installed 11,000 protective screens and
introduced new social distancing protocols to keep our customers
and colleagues safe. The cafés were launched with a new menu,
including many traditional favourites at great value prices.
5. To simplify and speed up the organisation
COVID-19 has required and empowered a renewed pace,
determination and creativity at Morrisons. One of our five ways of
working is 'freedom within the framework', which has been key in
enabling new innovation. For example, our new boxes and doorstep
delivery initiatives went from idea to execution very quickly, and
our home delivery services have multiplied as we found new and
innovative ways to adapt and grow our various offers.
We are determined to embed these simpler, quicker ways of
working into Morrisons. During the first half we completed our
restructuring of colleague roles in stores, with a significant
increase in customer-facing roles. We have also recently
reorganised the offices in the centre, moving to a more modern,
digitalised structure, allowing colleagues fewer, more flexible and
more remote working hours across a six-day week. We have reduced
the number of senior roles and introduced bigger, broader roles
elsewhere, thereby allowing the flexibility and freedom for
individuals and teams to organise themselves so as to effect
change, efficiency and improvement more quickly. New and young
talent is now shining through at Morrisons and is the driving force
behind many of our best new ideas.
6. To make core supermarkets strong again
COVID-19 has prompted a reappraisal of Morrisons supermarkets by
many customers, with the return of the 'big weekly shop' and a
greater appreciation of the full breadth of our range, our great
prices, friendly customer service and food-maker expertise. We
intend to keep investing in improving the shopping trip further and
maintain the momentum of this renaissance of supermarkets.
We have also made significant further progress in new store and
new format development during the first half. We opened three new
stores, in Amble, Bradwell and Stirchley, plus a new clothing and
home & leisure Nutmeg store at our site in Bolsover. In
addition, developing learnings from our new Canning Town store, we
have recently converted our store in Manchester Piccadilly to
include a food-to-go Market Kitchen. This includes a 'dark
kitchen', where food is freshly prepared behind the scenes in store
and delivered to customers by Deliveroo. As usual, we will take
learnings from all these new stores and new formats and, where
appropriate, incorporate them into our Fresh Look and modular
plans.
7. Naturally Digital
Naturally Digital has enabled many of our new initiatives and
our new ways of working. For example, doorstep delivery, GBP45
contactless payments, the systems behind the growth in online and
with Amazon, plus the step-change in the restructuring of our
central offices to more remote and flexible working, have all been
powered by new digital technology and methods.
In addition, we are also starting to trial a new Scan and Go app
that allows customers to scan shopping via their smartphone and pay
quickly at the checkout.
Financial strategy and update
Capital allocation framework
A strong balance sheet is the foundation of our Fix, Rebuild,
Grow, Sustain strategy. Debt is low, the property estate is
predominantly freehold, and the pension is in a net surplus
position. Capital expenditure has halved since its peak and is at a
sustainably lower level. In recent years, we have generated
significant and sustained levels of free cash flow, and managed the
business with consistent capital discipline and capital allocation
principles.
Shareholder returns
Our capital allocation framework has guided us in building a
track record of capital discipline over recent years. Our first
priority is to invest in the stores and infrastructure and reduce
costs. Second, we will seek to maintain debt ratios that support
our target of an investment-grade credit rating. Third, we will
invest in profitable growth opportunities. Fourth, we will pay
dividends in line with our stated policy, and then any surplus
capital will be returned to shareholders.
Our policy is for the ordinary annual dividend to be sustainable
and covered around two times by underlying EPS.
The interim ordinary dividend is 2.04p, up 5.7% (2019/20:
1.93p).
As stated at both our 2019/20 preliminary results in March and
Q1 2020/21 trading statement in May, we had anticipated announcing
another final special dividend relating to the second half of
2019/20, which was the period before the onset of COVID-19.
Instead, given the unprecedented nature of events and uncertainty
around COVID-19, we determined it would be prudent to defer the
decision on both occasions.
While we have a good understanding of how COVID-19 is currently
affecting our business and visibility of future cash flows, our
decision regarding the second half 2019/20 special dividend remains
deferred. This prudent approach reflects some sustained uncertainty
around the potential future impact of COVID-19 on both our
customers' behaviour and the broader British economy. We will again
review our decisions around both the second half 2019/20 and full
year 2020/21 special dividends at the time of our preliminary
results in March 2021. In future we will take a decision on a
potential special dividend once a year, at the time of our
preliminary results in March.
Cash flow and working capital
Free cash flow was an outflow of GBP228m (2019/20: inflow of
GBP244m). This was due primarily to an operating working capital
outflow of GBP284m (2019/20: GBP81m inflow). Although the very
strong retail sales were favourable for working capital, there was
a large impact from lower fuel demand as customers took
significantly fewer car journeys, especially at the start of
COVID-19. Very low fuel prices also impacted cash flow. We expect
the fuel effect will be temporary; it is already reversing as fuel
sales are improving. In addition: there was a GBP65m impact from
paying small suppliers immediately, which was slightly higher than
previously announced as more suppliers than initially expected were
able to benefit from the scheme; we invested in higher stock
availability levels; and first half profit was lower due to the
impact of COVID-19.
There has been a change in the rules around UK corporation tax
quarterly instalments, with companies now paying tax in the year to
which it relates. As previously guided, we paid quarterly tax
instalments for second half 2019/20 and first half 2020/21, which
resulted in an additional tax payment in the period.
Capital expenditure/depreciation and amortisation
Cash capital expenditure was GBP200m (2019/20: GBP212m), and we
still expect full-year capital expenditure of c.GBP525m. We opened
four new stores during the first half as planned and expect to open
a further three in the second half. Our refits were largely paused
during the first half, with only two Fresh Looks completed. We plan
to restart our Fresh Look programme during the second half, with 25
projects expected. During the first half we also introduced a new
people system and fresh warehouse management system..
In addition, we incurred GBP7m of onerous cash payments in the
first half and now expect c.GBP25m for 2020/21. This is higher than
previously guided as we are now anticipating a small number of
additional re-negotiations of legacy leases. Our programme around
onerous cash payments for freehold stores is now complete.
Depreciation and amortisation was GBP271m (2019/20: GBP262m),
and we still expect full year 2020/21 to be c.GBP550m.
Debt and interest
Group net debt was GBP2,802m (2019/20 year end: GBP2,458m).
Excluding lease liabilities, net debt was GBP1,412m (2019/20 year
end: GBP1,082m). The increase was mostly due to the temporary
outflow in working capital, which we expect to normalise as fuel
sales continue to recover. We expect net debt to improve during the
second half.
Morrisons continues to operate from a very robust financial
position, with a strong balance sheet, low debt and a strong debt
maturity profile. In the early stages of the COVID-19 crisis, we
took the opportunity to further improve our liquidity. On
attractive financial terms, we extended one GBP100m revolving
credit facility (RCF) from July, and put in place another three new
GBP100m RCFs, taking our total RCF facilities from GBP1.45bn to
GBP1.75bn. Of the GBP1.75bn, GBP1.35bn runs until 2025, and the
four GBP100m facilities run for a year with two having options to
extend by six months. As at the end of the first half we were
GBP470m drawn on our RCF, with still very significant liquidity
headroom.
Net finance costs before exceptionals were GBP53m, down GBP1m
from last year (2019/20: GBP54m). We still expect full year 2020/21
net finance costs before exceptionals to be c.GBP105m as previously
guided.
Pension
The net pension accounting surplus was GBP880m (GBP944m as at 2
February 2019/20). First-half net pension interest income was GBP8m
(2019/20: GBP10m), again reported outside of profit before tax and
exceptionals.
Net new space
As well as the three new stores and the Nutmeg clothing and home
& leisure store that we opened during the first half, we plan
to open a further three stores in the second half. We still expect
2020/21 net new space sales contribution (ex-fuel) to be 0.3%.
Future reporting
Due to the exceptional circumstances created by COVID-19 we are
not reporting against our target for GBP75m - GBP125m incremental
profit from wholesale, services, online and interest.
In future, we intend to take decisions on a potential special
dividend once a year at the time of our preliminary results in
March.
Corporate responsibility and community
Our corporate responsibility programme ensures we operate in a
way that is right for our customers, colleagues, suppliers and
shareholders, while making a positive contribution to society and
taking good care of the environment.
Recognising the vital role of Britain's food banks during the
COVID-19 crisis, we are donating GBP10m of food supplies to help to
meet increased demand across our local communities. The food was
distributed through our Community Champions (in-store colleagues
who work with the local community) to where it was most needed.
As charity shops were forced to close temporarily, we offered
Marie Curie and CLIC Sargent workers the opportunity to work in our
stores alongside our Community Champions. By joining forces we were
able to better support elderly and vulnerable customers with their
shopping trip and do even more in the local community.
The Morrisons Foundation also set up a special fund to support
charities working with homeless people. In just 12 weeks,
GBP570,000 was donated to charities across the UK providing
shelter, hot meals and essential supplies to rough sleepers who are
particularly vulnerable to COVID-19.
COVID-19 is an unprecedented challenge for many of the farmers,
fishermen and other food makers that supply us. As well as paying
our smaller suppliers immediately, at the height of the pandemic
our fresh food counters stepped in to offer fresh meat and fish
products that, in normal times, may otherwise have been supplied to
cafés and restaurants. In addition, one of our new food boxes is a
British Food Box, containing products from our 'For Farmers' range.
For every box sold, there is a GBP1 donation to British Farming
Charities via The Prince's Countryside Fund.
We continued our sponsorship of Farm24, an initiative which
celebrates British Farming. To support social distancing we used
digital channels to share stories from our farmers and local
suppliers, giving customers and colleagues a chance to learn more
about British agriculture.
Reducing our plastic footprint
Reducing plastic packaging is consistently highlighted as one of
the top three issues our customers care most about in our annual
corporate responsibility survey. We are responding at pace on this
issue, and have recently increased our target to reduce our
own-brand primary plastic packaging from 25% to 50% by 2025.
Following the introduction of paper carrier bags at checkouts in
all our stores, one in three customers has already made the switch
from plastic bags to paper. We are now planning to remove all
plastic 'bags for life' from checkouts, if a trial in eight stores
proves popular.
Tackling deforestation
We have made a commitment for key commodities, including soy,
palm and timber, to assure zero deforestation or conversion of high
conservation value land in our supply chains by 2025. Building on
the progress we have made in our palm supply chains, which are now
Roundtable on Sustainable Palm Oil certified, we have implemented
an action plan for soy, another important commodity widely used in
agricultural supply chains. We will be requiring sustainability
certification for soy used as an ingredient in own-brand products
from 2021, and we are working towards introducing certified soy in
animal feeds.
We have also become members of the UK Roundtable on Sustainable
Soy, a collaboration between the UK Government and industry which
includes a commitment to source soya that is cultivated in a way
that protects against conversion of forests and valuable native
vegetation.
Good Calf Award
We have been awarded the Good Calf Award as part of the 2020
Good Farm Animal Welfare Awards, presented on behalf of Compassion
in World Farming. This was in recognition of our joint venture
partnership with Arla Foods and Buitelaar to set up a new higher
welfare dairy beef scheme. By 2025, we aim for all Morrisons dairy
beef to be sourced as part of this scheme.
Partnering with the Better Cotton initiative
Morrisons has committed to sourcing 100% of cotton used in its
Nutmeg clothing range as Better Cotton by 2025. The Better Cotton
initiative makes global cotton production better for the people who
produce it, better for the environment it grows in, and better for
the sector's future. Additionally, Nutmeg is participating in the
CanopyStyle initiative, which is focused on ending the use of
ancient and endangered forests in viscose clothing. By 2022, Nutmeg
will take steps to ensure that all man-made cellulosic fibres used
in its clothing range, such as viscose, come from responsibly
managed forest sources.
Focusing on human rights in our supply chain
As a responsible retailer we understand that our customers and
stakeholders expect us to be transparent about how we operate.
We have published details of all first-tier factories producing
our Nutmeg branded range of clothing and our own-brand food and
non-food products, including data relating to gender and access to
worker representation. In addition, we have signed up to the UN
Women's Empowerment Principles, which are designed to advance
gender equality and women's empowerment in the workplace,
marketplace and community.
Supporting those with hidden disabilities
Morrisons has joined the sunflower lanyard scheme. This is a
national initiative designed to act as a discreet sign that
somebody has a hidden disability like autism, mental ill-health,
dementia or sensory impairments, which may mean they need a little
extra help or time when shopping. Lanyards are free of charge to
customers and available at all our stores.
We see this as particularly important during the current
pandemic as lanyards may help us identify customers who might be
exempt from wearing a face covering due to their hidden
disability.
Raising vital funds for our charity partner
Our partnership with CLIC Sargent aims to raise GBP16m by
February 2022. Whilst COVID-19 has meant we have had to adapt our
ways of working, it hasn't stopped our colleagues and customers
from raising vital funds to support young cancer patients and their
families. Together, in the first half of 2020 we raised GBP1.5m,
bringing the total since the partnership began to over GBP12.5m.
Money raised in the final two years of the partnership will fund a
brand new CLIC Sargent Home from Home in Manchester, where families
from all over the country will stay whilst undergoing treatment
nearby.
Appendix 1 - COVID-19 initiatives during H1 2020/21
Protecting our colleagues and customers:
-- Protective screens introduced around the till area of almost
6,500 main bank checkouts in ten days, plus further screens
introduced at self-service tills, and in front of checkouts,
pharmacy counters and customer service desks
-- Social distancing measures at all Morrisons sites, including
marshal-controlled entry, basket-only queuing and reconfigured
customer flow at all our stores
-- Hand sanitiser, gloves and masks available for all store
colleagues
-- Increased cleaning and other hygiene initiatives at all
our sites
-- Temporarily closed cafés, food-to-go and service counters,
all of which have now successfully re-opened incorporating
protection and social distancing measures
-- Contactless in-store card payment limit lifted from GBP30
to GBP45
Supporting colleagues, customers, suppliers, local communities
and the NHS:
-- Enhanced pay guarantees for sick, self-isolating and affected
colleagues, plus greater flexibility around shifts and annual
leave
-- A 6% 'thank you' guaranteed annual bonus for all frontline
colleagues, up threefold on last year, and payable quarterly
rather than at year end
-- Colleague discount increased
-- A hardship fund to support colleagues in financial difficulty
due to the crisis
-- Recruited over 45,000 new and temporary colleagues in stores,
manufacturing, supply chain, and in online and home delivery
as we significantly expand capacity
-- No colleagues furloughed
-- A new wholesale bulk delivery service for local councils,
care homes and charities
-- Investment in higher stock availability, plus immediate
payment to all our c.3,000 small suppliers which has been
a temporary working capital investment of c.GBP65m
-- A 5% Morrisons discount for our c.3,000 British farmer suppliers
-- GBP10m of food being distributed by Morrisons Community
Champions to help re-stock Britain's food banks
-- GBP500,000 of emergency funds being donated by the Morrisons
Foundation to homeless charities to help them through the
extra demands of the crisis
-- NHS workers' hour early in the morning, allowing queue-free
access
-- NHS workers' 10% Morrisons discount
-- NHS workers' click-and-collect food boxes delivered to hospital
car parks
Feeding the nation:
-- Morrisons colleagues on the frontline, in stores, manufacturing,
supply chain and home delivery recognised by government
as key workers
-- 'Morrisons on Amazon' now nationwide, and soon becoming
available to millions of customers on Amazon.co.uk
-- Online and home delivery order capacity up fivefold, Morrisons.com
home deliveries more than doubled, and click-and-collect
service now at almost 280 stores
-- Many types of home delivery food boxes introduced, initially
providing essentials for the vulnerable and self-isolating,
and since expanded into new options
-- A free doorstep delivery telesales grocery service introduced
at all our stores for the most vulnerable and elderly without
access to online or help
-- A partnership with Deliveroo to deliver groceries in as
little as 30 minutes to customers by courier from over 180
Morrisons stores
Consolidated income statement
26 weeks ended 2 August 2020
26 weeks ended 26 weeks ended 52 weeks ended
2 August 2020 4 August 2019 2 February 2020
(unaudited) (unaudited)
--------------------- --------------------------------------------- -------------------------------------- ---------------------------------------
Before Exceptionals Before Exceptionals Before Exceptionals
exceptionals (note 4) Total exceptionals (note Total exceptionals (note Total
4) 4)
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----- ------------- ------------- -------- ------------- ------------- -------- ------------- ------------- ---------
Revenue 3 8,734 - 8,734 8,831 - 8,831 17,536 - 17,536
Cost of sales (8,437) (6) (8,443) (8,490) (4) (8,494) (16,855) (52) (16,907)
--------------------- ----- ------------- ------------- -------- ------------- ------------- -------- ------------- ------------- ---------
Gross profit 297 (6) 291 341 (4) 337 681 (52) 629
Other operating
income 45 - 45 44 - 44 94 - 94
Profit/loss on
disposal
and exit of
properties - - - - - - - 66 66
Administrative
expenses (141) (5) (146) (133) (2) (135) (262) (6) (268)
--------------------- ----- ------------- ------------- -------- ------------- ------------- -------- ------------- ------------- ---------
Operating profit 201 (11) 190 252 (6) 246 513 8 521
Finance costs 5 (57) - (57) (55) - (55) (111) - (111)
Finance income 5 4 8 12 1 10 11 5 19 24
Share of profit of
joint
venture (net of
taxation) - - - - - - 1 - 1
--------------------- ----- ------------- ------------- -------- ------------- ------------- -------- ------------- ------------- ---------
Profit before
taxation 148 (3) 145 198 4 202 408 27 435
Taxation 6 (35) (40) (75) (46) - (46) (94) 7 (87)
--------------------- ----- ------------- ------------- -------- ------------- ------------- -------- ------------- ------------- ---------
Profit for the
period
attributable to the
owners of the
Company 113 (43) 70 152 4 156 314 34 348
--------------------- ----- ------------- ------------- -------- ------------- ------------- -------- ------------- ------------- ---------
Earnings per share
(pence)
Basic 8 2.92 6.56 14.60
Diluted 8 2.91 6.47 14.44
--------------------- ----- ------------- ----------------------- ---------------------------- -------- ---------------------------------------
Consolidated statement of comprehensive income
26 weeks ended 2 August 2020
26 weeks 26 weeks
ended ended
2 August 4 August 52 weeks
2020 2019 ended
2 February
(unaudited) (unaudited) 2020
Other comprehensive (expense)/income Note GBPm GBPm GBPm
--------------------------------------------- ------ ------------- ------------- ----------------
Items that will not be reclassified
to profit or loss
Remeasurement of defined benefit
schemes 14 (75) 50 231
Tax on defined benefit schemes (1) (9) (38)
---------------------------------------------- ----- ------------- ------------- ----------------
(76) 41 193
---------------------------------------------- ----- ------------- ------------- ----------------
Items that may be reclassified subsequently
to profit or loss
Cash flow hedging movement 21 4 (57)
Exchange differences on translation
of foreign operations 2 - (2)
Tax on items that may be reclassified
subsequently to profit or loss (3) (2) 10
20 2 (49)
---------------------------------------------- ----- ------------- ------------- ----------------
Other comprehensive (expense)/income
for the period, net of tax (56) 43 144
---------------------------------------------- ----- ------------- ------------- ----------------
Profit for the period attributable
to the owners of the Company 70 156 348
---------------------------------------------- ----- ------------- ------------- ----------------
Total comprehensive income for the
period attributable to the owners
of the Company 14 199 492
---------------------------------------------- ----- ------------- ------------- ----------------
Consolidated statement of financial position
As at 2 August 2020
2 August 4 August
2020 2019
2 February
(unaudited) (unaudited) 2020
Note GBPm GBPm GBPm
------------------------------------ ------ ------------- ------------- -----------
Assets
Non-current assets
Goodwill and intangible assets 9 386 392 381
Property, plant and equipment 10 7,120 7,076 7,147
Right-of-use assets 11 960 923 942
Investment property 12 58 59 58
Retirement benefit surplus 14 909 774 960
Investment in joint venture 39 47 39
Trade and other receivables 69 8 71
Derivative financial assets 17 3 22 -
9,544 9,301 9,598
------------------------------------ ------ ------------- ------------- -----------
Current assets
Inventories 691 583 660
Trade and other receivables 365 341 353
Derivative financial assets 17 6 26 1
Current tax assets 18 - -
Cash and cash equivalents 16 229 225 305
------------------------------------ ------ ------------- ------------- -----------
1,309 1,175 1,319
Assets classified as held-for-sale 13 6 38 3
------------------------------------ ------ ------------- ------------- -----------
1,315 1,213 1,322
------------------------------------ ------ ------------- ------------- -----------
Total assets 10,859 10,514 10,920
------------------------------------ ------ ------------- ------------- -----------
Liabilities
Current liabilities
Trade and other payables (2,787) (2,991) (3,051)
Borrowings 17 (47) (403) (237)
Lease liabilities 16 (72) (69) (72)
Derivative financial liabilities 17 (20) (2) (36)
Current tax liabilities - (22) -
------------------------------------ ------ ------------- ------------- -----------
(2,926) (3,487) (3,396)
------------------------------------ ------ ------------- ------------- -----------
Non-current liabilities
Borrowings 17 (1,577) (842) (1,108)
Lease liabilities 16 (1,318) (1,314) (1,304)
Derivative financial liabilities 17 (6) (1) (7)
Retirement benefit deficit 14 (29) (23) (16)
Deferred tax liabilities (502) (430) (472)
Provisions (54) (74) (76)
------------------------------------ ------ ------------- ------------- -----------
(3,486) (2,684) (2,983)
------------------------------------ ------ ------------- ------------- -----------
Total liabilities (6,412) (6,171) (6,379)
------------------------------------ ------ ------------- ------------- -----------
Net assets 4,447 4,343 4,541
------------------------------------ ------ ------------- ------------- -----------
Shareholders' equity
Share capital 18 241 240 240
Share premium 18 198 189 192
Capital redemption reserve 39 39 39
Merger reserve 2,578 2,578 2,578
Retained earnings and other
reserves 1,391 1,297 1,492
------------------------------------ ------ ------------- ------------- -----------
Total equity attributable to the
owners of the Company 4,447 4,343 4,541
-------------------------------------------- ------------- ------------- -----------
Consolidated statement of cash flows
26 weeks ended 2 August 2020
26 weeks 26 weeks
ended ended
2 August 4 August 52 weeks
2020 2019 ended
2 February
(unaudited) (unaudited) 2020
Note GBPm GBPm GBPm
---------------------------------------- ----- ------------- ---------------------------- ------------
Cash flows from operating activities
Cash generated from operations 15 130 567 1,017
Interest paid (64) (61) (104)
Taxation paid (67) (46) (87)
---------------------------------------- ----- ------------- ---------------------------- ------------
Net cash (outflow)/inflow from
operating activities (1) 460 826
---------------------------------------- ----- ------------- ---------------------------- ------------
Cash flows from investing activities
Interest received - - 1
Dividends received from joint
venture 21 - - 9
Proceeds from the disposal of
property, plant and equipment,
right-of-use assets, investment
property and assets classified
as held-for-sale 4 3 34
Purchase of property, plant
and equipment, right-of-use
assets and investment property (162) (173) (429)
Purchase of intangible assets (38) (39) (81)
Acquisition of business (net
of cash received) - - (1)
Net cash outflow from investing
activities (196) (209) (467)
---------------------------------------- ----- ------------- ---------------------------- ------------
Cash flows from financing activities
Purchase of trust shares 18 - (3) (10)
Settlement of share awards 18 (10) (2) (2)
Proceeds from exercise of employee
share options 6 12 14
New borrowings 517 - 347
Repayment of borrowings (237) (53) (278)
Repayment of lease obligations (39) (36) (87)
Dividends paid 7 (116) (208) (302)
---------------------------------------- ----- ------------- ---------------------------- ------------
Net cash inflow/(outflow) from
financing activities 121 (290) (318)
---------------------------------------- ----- ------------- ---------------------------- ------------
Net (decrease)/increase in cash
and cash equivalents (76) (39) 41
Cash and cash equivalents at
start of period 305 264 264
---------------------------------------- ----- ------------- ---------------------------- ------------
Cash and cash equivalents at
end of period 16 229 225 305
---------------------------------------- ----- ------------- ---------------------------- ------------
Reconciliation of net cash flow to movement in net debt(1) in
the period
26 weeks
26 weeks ended ended
4 August 52 weeks
2 August 2020 2019 ended
2 February
(unaudited) (unaudited) 2020
Note GBPm GBPm GBPm
----------------------------- ----- --------------- ------------- ------------
Net (decrease)/increase in
cash and cash equivalents (76) (39) 41
Cash inflow from increase
in borrowings (517) - (347)
Cash outflow from repayment
of borrowings 237 53 278
Cash outflow from repayment
of lease liabilities 39 36 87
Non-cash movements on lease
liabilities (53) (22) (66)
Other non-cash movements 26 8 (57)
Opening net debt(1) (2,458) (2,394) (2,394)
----------------------------- ----- --------------- ------------- ------------
Closing net debt(1) 16 (2,802) (2,358) (2,458)
----------------------------- ----- --------------- ------------- ------------
(1) Net debt is defined in the Glossary.
Consolidated statement of changes in equity
Attributable to the owners of the Company
Capital
26 weeks ended 2 August
2020 Share Share redemption Merger Hedging Retained Total
(unaudited) capital premium reserve reserve reserve earnings equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- -------- -------- ----------- -------- -------- --------- -------
At 3 February 2020 240 192 39 2,578 (37) 1,529 4,541
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Profit for the period - - - - - 70 70
Other comprehensive
income/(expense):
Cash flow hedging movement - - - - 21 - 21
Exchange differences
on translation of foreign
operations - - - - - 2 2
Remeasurement of defined
benefit schemes 14 - - - - - (75) (75)
Tax in relation to
components of other
comprehensive income - - - - (3) (1) (4)
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Total comprehensive
income/(expense) for
the period - - - - 18 (4) 14
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Employee share option
schemes:
Share-based payments
charge - - - - - 10 10
Settlement of share
awards 18 - - - - - (9) (9)
Share options exercised 1 6 - - - - 7
Dividends 7 - - - - - (116) (116)
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Total transactions
with owners 1 6 - - - (115) (108)
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
At 2 August 2020 241 198 39 2,578 (19) 1,410 4,447
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Attributable to the owners of the Company
Capital
Share Share redemption Merger Hedging Retained Total
------------------------------
capital premium reserve reserve reserve earnings equity
26 weeks ended 4 August
2019 (unaudited) Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
At 4 February 2019 237 178 39 2,578 10 1,283 4,325
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Profit for the period - - - - - 156 156
Other comprehensive
income/(expense):
Cash flow hedging movement - - - - 4 - 4
Remeasurement of defined
benefit schemes 14 - - - - - 50 50
Tax in relation to
components of other
comprehensive income - - - - (1) (10) (11)
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Total comprehensive
income for the period - - - - 3 196 199
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Purchase of trust shares 18 - - - - - (3) (3)
Employee share option
schemes:
Share-based payments
charge - - - - - 20 20
Settlement of share
awards 18 - - - - - (2) (2)
Share options exercised 3 11 - - - (2) 12
Dividends 7 - - - - - (208) (208)
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Total transactions
with owners 3 11 - - - (195) (181)
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
At 4 August 2019 240 189 39 2,578 13 1,284 4,343
------------------------------ ----- -------- -------- ----------- -------- -------- --------- -------
Attributable to the owners of the Company
Capital
Share Share redemption Merger Hedging Retained Total
capital premium reserve reserve reserve earnings equity
52 weeks ended 2 February
2020 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- -------- -------- ----------- -------- -------- --------- ------------
At 4 February 2019 237 178 39 2,578 10 1,283 4,325
--------------------------------- ----- -------- -------- ----------- -------- -------- --------- ------------
Profit for the period - - - - - 348 348
Other comprehensive
(expense)/income:
Cash flow hedging movement - - - - (57) - (57)
Exchange differences on
translation of foreign
operations - - - - - (2) (2)
Remeasurement of defined
benefit schemes 14 - - - - - 231 231
Tax in relation to components
of other comprehensive
income - - - - 10 (38) (28)
--------------------------------- ----- -------- -------- ----------- -------- -------- --------- ------------
Total comprehensive
(expense)/income
for the period - - - - (47) 539 492
--------------------------------- ----- -------- -------- ----------- -------- -------- --------- ------------
Purchase of trust shares 18 - - - - - (10) (10)
Employee share option
schemes:
Share-based payments charge - - - - - 26 26
Settlement of share awards 18 - - - - - (2) (2)
Share options exercised 3 14 - - - (3) 14
Tax in relation to components
of equity - - - - - (2) (2)
Dividends 7 - - - - - (302) (302)
--------------------------------- ----- -------- -------- ----------- -------- -------- --------- ------------
Total transactions with
owners 3 14 - - - (293) (276)
--------------------------------- ----- -------- -------- ----------- -------- -------- --------- ------------
At 2 February 2020 240 192 39 2,578 (37) 1,529 4,541
--------------------------------- ----- -------- -------- ----------- -------- -------- --------- ------------
1. General information and basis of preparation
Wm Morrison Supermarkets PLC (the 'Company') is a public limited
company incorporated in the United Kingdom under the Companies Act
2006 (Registration number 00358949). The Company is domiciled in
the United Kingdom and its registered address is Hilmore House,
Gain Lane, Bradford, BD3 7DL.
The 2020/21 condensed con solidated interim financial statements
do not constitute financial statements within the meaning of
Section 434 of the Companies Act 2006 and do not include all of the
information and disclosures required for full annual financial
statements.
The condensed consolidated interim financial statements for the
26 weeks ended 2 August 2020 are unaudited. However, the auditor,
PricewaterhouseCoopers LLP, has carried out a review of the
condensed consolidated interim financial statements and their
report is included in this interim financial report.
The comparative financial information contained in the condensed
consolidated interim financial statements in respect of the 52
weeks ended 2 February 2020 has been extracted from the 2019/20
Annual Report and Financial Statements.
The financial statements included in the 2019/20 Annual Report
and Financial Statements have been reported on by
PricewaterhouseCoopers LLP, and delivered to the Registrar of
Companies. The report was unqualified, did not include a reference
to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and did not contain a
statement under Section 498 of the Companies Act 2006.
The 2020/21 interim financial report was approved by the Board
of Directors on 9 September 2020.
Going concern
The condensed consolidated interim financial statements have
been prepared on the going concern basis as the Directors have a
reasonable expectation that the Group has adequate resources for a
period of at least 12 months from the date of approval, having
reassessed the principal risks facing the Group and determined that
there are no material uncertainties to disclose.
The COVID-19 pandemic has had a significant impact on customer
behaviour during the 26 weeks ended 2 August 2020, with stockpiling
in the early weeks of the pandemic and then the effects of
transitioning in and out of initial lockdown across the UK. This
has created unprecedented challenges for the sector and impacted
the Group's near-term priorities. The Group responded quickly to
these challenges, to play its part in feeding the nation. As an
essential retailer providing groceries across the UK, all stores
continued to trade throughout the period, and with increasing
trends towards the 'in-home' market, supermarket and online sales
have had strong like-for-like growth during the 26 weeks ended 2
August 2020. Fuel sales were affected by reduced demand from
customers in the immediate aftermath of entering lockdown, although
this has begun to recover. Profit before tax and exceptionals was
temporarily impacted in the period by the considerable direct costs
associated with COVID-19, which were only partly mitigated by four
months of business rates relief.
The Directors' assessment of the Group's ability to continue as
a going concern includes an assessment of cash flow forecasts which
incorporate an estimated impact of the ongoing COVID-19 pandemic on
the Group. This includes the modelling of a number of more extreme
downside scenarios than those experienced during the 26 weeks ended
2 August 2020, recognising the uncertainty that currently
exists.
The Group continues to maintain a robust financial position
providing it with sufficient access to liquidity, through a
combination of cash and committed facilities, to meet its needs in
the short and medium term. The Group has a centralised treasury
function which manages funding, liquidity and other financial risk
in accordance with the Board-approved Treasury Policy, as detailed
on page 114 of the 2019/20 Annual Report and Financial
Statements.
In September 2019 the Group issued a 12-year GBP350m sterling
bond, ahead of the repayment of the existing 2020 Eurobond in June
2020. In addition, the Group took up the option of extending its
main GBP1,350m revolving credit facility (RCF) by a year to June
2025, extended an existing GBP100m RCF to July 2021 and secured
three new GBP100m RCFs, taking the total committed RCFs from
GBP1,450m to GBP1,750m. As at 2 August 2020, the Group therefore
has total committed facilities of GBP2,850m, comprising GBP1,100m
of bond debt and GBP1,750m of committed RCFs. As at 2 August 2020,
the Group has net debt (excluding leases) of GBP1,412m. The Group's
covenant limits in relation to its committed RCFs are set at a
ratio of a maximum 3.5x 'net debt (excluding leases)/EBITDA' [1]
and a minimum 2.0x 'EBITDA/net interest expense'(1) .
As at 2 August 2020, the Group covenant basis net debt
(excluding leases)/EBITDA ratio was 1.5x and the EBITDA/net
interest ratio was 5.5x. The scenarios modelled demonstrate
sufficient liquidity and financial covenant headroom being
available. Whilst not a key factor in the Directors' going concern
conclusion, the Group does also have other significant potential
mitigations at its disposal to improve its short-term liquidity
position should the need arise, including scaling back its capital
investment programme, and deferring future dividends.
Basis of preparation
The condensed consolidated interim financial statements of the
Group for the 26 weeks ended 2 August 2020 have been prepared in
accordance with the Disclosure and Transparency Rules of the UK
Financial Conduct Authority and the requirements of IAS 34 'Interim
Financial Reporting' as adopted by the European Union. It should be
read in conjunction with the 2019/20 Annual Report and Financial
Statements which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. This is available either on request from the
Company's registered office or to download from
www.morrisons-corporate.com
Significant accounting policies
The accounting policies applied in these condensed consolidated
interim financial statements are the same as those applied in the
Group's consolidated financial statements in the 2019/20 Annual
Report and Financial Statements.
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to the expected total annual profit
or loss.
Judgements and estimates
In preparing the condensed consolidated interim financial
statements, the Group is required to make accounting judgements,
assumptions and estimates. The judgements, assumptions and
estimation methods are consistent with those applied to the 2019/20
Annual Report and Financial Statements. Recognising the impact of
COVID-19 in the 26 w eeks ended 2 August 2020, the Group has
provided more information in relation to its consideration of the
following area of estimation uncertainty.
Impairment of non-financial assets
The Group's policy is to test non-financial assets for
impairment annually, or if events or changes in circumstances
indicate that the carrying amount of these assets may not be
recoverable. The Group has considered whether there have been any
indicators of impairment during the 26 weeks ended 2 August 2020,
which would require an impairment review to be performed. The Group
has considered indicators of impairment with regard to a number of
factors, including those outlined in IAS 36 'Impairment of assets'.
Based upon this review, the Group has concluded that there are no
such indicators of impairment as at 2 August 2020.
The considerable economic and social impacts of the COVID-19
pandemic during the period could represent a potential indicator of
impairment. However, the Group has continued to trade strongly
throughout the pandemic, and whilst there have been some additional
associated direct costs incurred during the 26 weeks ended 2 August
2020, these are expected to be temporary.
In addition, the Group has assessed the impacts on specific
groups of Cash Generating Units (CGUs) during the first half of the
year, including those with trade most positively or adversely
impacted by the temporary effects of the pandemic. It was concluded
that whilst some CGUs had been temporarily impacted by the change
in customer behaviour during the pandemic, there is insufficient
evidence of a significant change in the long term outlook for these
CGUs to indicate that a full impairment review is required.
Principal risks and uncertainties
The Board assesses and monitors the principal risks of the
business on a regular basis. The principal risks for the Group and
the key mitigating activities were set out in Wm Morrison
Supermarkets PLC's Annual Report and Financial Statements for the
52 weeks ended 2 February 2020.
Since the date of approval of the Annual Report and Financial
Statements on 17 March 2020, the extensive and enduring impact of
the COVID-19 pandemic has created uncertainty and had a significant
impact on the business. We continue to focus our efforts on
protecting colleagues and customers, and working with suppliers to
ensure food is available to all across Britain, especially the
vulnerable and most in need.
The Board has assessed the Group risks following the impact of
COVID-19 and chosen to include COVID-19 as a separate principal
risk as detailed below, alongside the existing principal risks,
some of which already referenced COVID-19.
RISKS DESCRIPTION MITIGATION
COVID-19 COVID-19 continues to -- A dedicated team is in place to
have a significant and coordinate our response with representation
widespread impact on from all key business areas;
our business.
Failure to appropriately
respond to and manage
the impacts of COVID-19
on our colleagues, customers
and suppliers or to adapt
our ways of working could
adversely affect our
business performance
and our ability to play
our part in feeding the
nation.
.
------------------------------
-- The safety and wellbeing of our
colleagues and customers remains
our top priority and we continue
to adhere to the UK government
guidelines in all areas;
------------------------------
-- We have introduced social distancing
measures in all stores and sites,
installed protective screens, made
hand sanitiser, gloves, and masks
or visors available for all colleagues,
and increased the focus on cleaning
and hygiene;
-- We continue to closely monitor
colleague absence to enable us
to respond accordingly in a timely
manner. In addition, we have recruited
many new colleagues in stores,
manufacturing, supply chain, online
and home delivery;
-- No colleagues have been furloughed,
and we have enhanced pay guarantees
for sick, self-isolating and affected
colleagues. We have provided greater
flexibility around shifts and annual
leave and in the year awarded a
6% 'thank you' guaranteed annual
bonus for all frontline colleagues;
-- We have increased our online capacity,
introduced click and collect, launched
food boxes and expanded our partnerships
with Amazon and Deliveroo;
-- We have introduced a telephone
order grocery doorstep delivery
service to support the most vulnerable
and play our part in feeding the
nation;
-- We continue to work hard with all
our suppliers including British
------------------------------ --- ---------------------------------------------
The Board believes that since the publication of the 2019/20
Annual Report and Financial Statements there have been no other
material changes to the Group's risk exposure and appropriate
mitigating actions are in place to manage them and the impact of
COVID-19.
Our updated risks and uncertainties are summarised in the 11
Group Risks as follows:
-- Business Interruption
-- Competitiveness
-- COVID-19
-- Customer
-- Data
-- Financial and Treasury
-- Food Safety and Product Integrity
-- Health and Safety
-- People
-- Regulation
-- UK-EU Trade
Our Risk Management process incorporates the identification and
management of emerging risks, alongside our known principal
risks.
More information on the principal risks and the Group's approach
to mitigate those risks can be found on pages 27 to 30 of the
2019/20 Annual Report and Financial Statements, which can be viewed
online on our corporate website,
https://www.morrisons-corporate.com/investor-centre/annual-report/
The Board
The Board of Directors that served during the 26 weeks to 2
August 2020 and up to the date of sign ing, and their respective
responsibilities, were:
Andrew Higginson - Chairman*
David Potts - Chief Executive
Trevor Strain - Chief Operating Officer
Michael Gleeson - Chief Financ ial Officer (appointed on 3
February 2020)
Rooney Anand*
Kevin Havelock*
Belinda Richards * (resignation applicable from 10 September
2020)
Paula Vennells*
Susanne Given* (appointed on 12 August 2020)
Lyssa McGowan* (appointed on 12 August 2020)
Jeremy Townsend* (appointed on 6 July 2020)
Neil Davidson* (resigned on 26 April 2020)
Tony Van Kralingen* (resigned on 29 April 2020)
* Non-Executive Director
Forward looking statements
Certain statements in this interim financial report are
forward-looking. Where the interim financial report includes
forward-looking statements, these are made by the Directors in good
faith based on the information available to them at the time of
their approval of this report. Such statements are based on current
expectations and are subject to a number of risks and
uncertainties, including both economic and business risk factors
that could cause actual events or results to differ materially from
any expected future events or results referred to in these
forward-looking statements. Unless otherwise required by applicable
law, regulation or accounting standards, the Group undertakes no
obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
2. Segmental reporting
The Group's principal activity is that of retailing, derived
from the UK.
The Group is required to determine and present its operating
segments based on the way in which financial information is
organised and reported to the chief operating decision-maker
(CODM). The CODM has been identified as the Executive Committee, as
this makes the key operating decisions of the Group and is
responsible for allocating resources and assessing performance.
Key internal reports received by the CODM, primarily the
management accounts, focus on the performance of the Group as a
whole. The operations of all elements of the business are driven by
the retail sales environment and hence have fundamentally the same
economic characteristics. All operational decisions made are
focussed 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 sales operation, the
manufacturing entities, online operations and wholesale supply. The
Directors' conclusion is that the Group has one operating segment,
that of retailing.
3. Revenue
26 weeks
26 weeks ended ended
2 August 2020 4 August 2019 52 weeks ended
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
Sale of goods in-store and online 7,087 6,536 13,065
Other sales 460 398 800
---------------------------------- -------------- ---------------- --------------
Total sales excluding fuel 7,547 6,934 13,865
Fuel 1,187 1,897 3,671
---------------------------------- -------------- ---------------- --------------
Total revenue 8,734 8,831 17,536
---------------------------------- -------------- ---------------- --------------
All revenue is derived from contracts with customers.
4. Profit before exceptionals
'Profit before exceptionals' is defined as profit before
exceptional items and net retirement benefit interest. Further
detail on the definition of profit before tax and exceptionals,
profit before exceptionals after tax and earnings per share before
exceptionals is provided in the Glossary.
The Directors consider that these adjusted profit and adjusted
earnings per share measures, referred to in the results, provide
useful information on ongoing trends and performance, and are
consistent with how business perfor mance is measured internally.
The adjustments made to reported profit are to: exclude exceptional
items, which are significant in size and/or nature; exclude net
retirement benefit interest; and to apply a normalised tax rate of
23.5% (4 August 2019: 23.5%, 2 February 2020: 23.1%).
'Profit before exceptionals' and 'earnings per share before
exceptionals' measures are not recognised measures under EU-adopted
IFRS and may not be directly comparable with adjusted measures used
by other companies. The classification of items excluded from
profit before exceptionals requires judgement including
consideration of the nature, circumstances, scale and impact of a
transaction. Reversals of previous exceptional items are assessed
based on the same criteria.
Given the significance of the Group's property portfolio and the
quantum of impairment and property-related provisions recognised in
the consolidated statement of financial position, movements in
impairment and other property-related provisions would typically be
included as exceptional items, as would significant impairments or
impairment reversals of other non-current assets.
Despite being a recurring item, the Group has chosen to also
exclude net retirement benefit interest from 'profit before
exceptionals' as it is not part of the operating activities of the
Group, and its exclusion is consistent with the way it has
historically been treated and with how the Directors assess the
performance of the business.
26 weeks 26 weeks
ended ended
2 August 4 August 52 weeks
2020 2019 ended
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
------------------------------------------------- --------------- ------------- --------------
Profit after tax 70 156 348
Add back: tax charge for the
period(1) 75 46 87
Profit before tax 145 202 435
Adjustments for:
Impairment and provision for
onerous contracts(1) (4) - (2)
Profit/loss arising on disposal
and exit of properties(1) - - (66)
Restructuring and store closure
costs(1) 15 - 51
Other exceptional items(1) - 6 9
Net retirement benefit interest(1) (8) (10) (19)
------------------------------------------------- --------------- ------------- --------------
Profit before tax and exceptionals 148 198 408
Normalised tax charge at 23.5%
(4 August 2019: 23.5%,
2 February 2020: 23.1%) (1,2) (35) (46) (94)
------------------------------------------------- --------------- ------------- --------------
Profit before exceptionals after
tax 113 152 314
------------------------------------------------- --------------- ------------- --------------
Earnings per share before
exceptionals (pence)
Basic (note 8) 4.71 6.38 13.18
Diluted (note 8) 4.69 6.29 13.03
-------------------------------------------- ----------------------- ------------- --------------
(1) Adjustments marked 1 increase post-tax adjusted earnings by
GBP43m (4 August 2019: GBP4m decrease, 2 February 2020: GBP34m
decrease) as shown in the reconciliation of earnings disclosed in
note 8.
(2) Normalised tax is defined in the Glossary.
Impairment and provision for onerous contracts
A net GBP4m credit (4 August 2019: GBPnil, 2 February 2020:
GBP2m net credit) has been recognised for impairment and provision
for onerous contracts. This includes an impairment charge of GBP8m
in respect of property, plant and equipment offset by a GBP12m
release from provisions for onerous contracts and amounts provided
for onerous commitments in the 26 weeks ended 2 August 2020. The
impairment recognised relates to specific items of property, plant
and equipment identified as being impaired during the 26 weeks
ended 2 August 2020 due to specific events. It is the Group's
policy to perform a full impairment review of all Cash Generating
Units (CGUs) annually or where there is a change in circumstance.
The Group has considered potential indicators of impairment and
concluded there have been no impairment indicators that warrant a
full review being performed at 2 August 2020.
The GBP2m net credit in the 52 weeks ended 2 February 2020
consisted of a net impairment reversal of GBP15m (GBP123m
impairment reversal offset by GBP108m impairment charge). The
GBP108m impairment charge included GBP59m in relation to property,
plant and equipment, GBP23m in relation to right-of-use assets,
GBP11m in relation to investment property and GBP15m in relation to
intangible assets. The GBP123m impairment reversal included GBP93m
in relation to property, plant and equipment, GBP24m in relation to
right-of-use assets and GBP6m in relation to investment property. A
net GBP2m charge was recognised in relation to provisions for
onerous contracts. A net GBP10m credit was recognised following
changes to estimates in respect of lease terms and a GBP21m charge
was recognised in respect of amounts provided for onerous
commitments and receivables in respect of contract payments.
Profit/loss arising on disposal and exit of properties
In the 26 weeks ended 2 August 2020, there has been GBP nil
profit/loss arising on disposal and exit of properties, net of fees
incurred (4 August 2019: GBPnil, 2 February 2020: GBP66m
profit).
Restructuring and store closure costs
Restructuring and store closure costs recognised in the 26 weeks
ended 2 August 2020 totalled GBP15m (4 August 2019: GBPnil, 2
February 2020: GBP51m). There was an additional GBP6m charge in
respect of restructuring of store management teams and site closure
costs, relating to the amounts initially recognised in the 52 weeks
ended 2 February 2020, following a slight delay to completion of
the activity. Also included within restructuring costs is a GBP9m
charge relating to the costs of reorganising and modernising ways
of working across our head office.
In the 52 weeks ended 2 February 2020, store restructuring and
site closure costs of GBP51m included GBP46m in respect of
restructuring of store management teams and GBP5m of costs relating
to the closure of four stores during the period.
Other exceptional items
Other exceptional items recognised in the 26 weeks ended 2
August 2020 of GBP nil included GBP4m fees relating to legal cases
in respect of historical events, offset by GBP4m credit in respect
of legal costs recovery following the successful outcome of certain
legal cases.
In the 52 weeks ended 2 February 2020, total other exceptional
items of GBP9m (4 Au gust 2019: GBP6m) included a GBP6m charge (4
August 2019: GBP4m), relating to one-off costs associated with
improvements to the Group's distribution network, as part of a
programme to increase network capacity and support the accelerated
roll out of wholesale supply, and a net GBP3m charge (4 August
2019: GBP2m) in respect of other net exceptional costs.
Taxation
A normalised tax charge of 23.5% (4 August 2019: 23.5%, 2
February 2020: 23.1%) has been applied in arriving at profit before
exceptionals after tax. The total tax charge for the 26 week period
ended 2 August 2020 of GBP75m includes an exceptional tax charge of
GBP40m being a GBP41m charge due to the change in the standard rate
of corporation tax in respect of deferred tax (see note 6) and a
net GBP1m credit in relation to other exceptional items.
5. Finance costs and income
26 weeks ended 26 weeks ended
2 August 2020 4 August 2019 52 weeks ended
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
Interest payable on short-term
loans and bank overdrafts (2) (2) (4)
Interest payable on bonds (24) (20) (43)
Interest on lease liabilities (30) (32) (63)
Interest capitalised (note 9) 1 1 2
-------------------------------------- -------------- -------------- --------------
Total interest payable (55) (53) (108)
Provisions: unwinding of discount (1) (1) (2)
Other finance costs (1) (1) (1)
-------------------------------------- -------------- -------------- --------------
Finance costs before exceptionals(1) (57) (55) (111)
Finance costs (57) (55) (111)
Bank interest and other finance
income 2 1 4
Finance lease income - - 1
Other receivables: unwinding
of discount 2 - -
Finance income before exceptionals(1) 4 1 5
Net retirement benefit interest
(notes 4 and 14) 8 10 19
-------------------------------------- -------------- -------------- --------------
Finance income 12 11 24
Net finance costs (45) (44) (87)
-------------------------------------- -------------- -------------- --------------
(1) Net finance costs before exceptionals marked (1) amount to
GBP 53m (4 August 2019: GBP54m, 2 February 2020: GBP106m). Net
finance costs before exceptionals are defined in the Glossary.
6. Taxation
Tax charged within the 26 weeks ended 2 August 2020 has been
calculated by applying the effective rate of tax which is expected
to apply to the Group for the period ending 31 January 2021 using
rates substantively enacted by 2 August 2020 as required by IAS 34
'Interim Financial Reporting'.
The normalised rate of tax of 23.5% (4 August 2019: 23.5%, 2
February 2020: 23.1%) has been calculated using the full year
projections and has been applied to profit before exceptionals for
the 26 weeks ended 2 August 2020. The standard rate of corporation
tax of 19% (4 August 2019: 19%, 2 February 2020: 19%) for the full
year has been applied to the exceptional profits and losses in the
26 weeks ended 2 August 2020, on an item by item basis.
Legislation to reduce the standard rate of corporation tax to
17% from 1 April 2020 was enacted in the Finance Act 2016, so at 2
February 2020 and 4 August 2019, deferred tax balances were
calculated at 19% or 17% depending upon when the balance was
expected to unwind. The Budget on 11 March 2020 announced that the
standard rate of corporation tax would remain at 19% from 1 April
2020 and the legislation was substantively enacted during the
period. As a result, at 2 August 2020, all deferred tax balances
have been calculated at 19%. The deferred tax liability recognised
in the consolidated statement of financial position increased by
GBP55m as a result of the rate change, comprising a GBP41m deferred
tax charge recognised within exceptional items in the consolidated
income statement for the period and a GBP14m deferred tax charge
(principally in relation to defined benefit retirement schemes)
recognised in other comprehensive income.
Factors affecting current and future tax charges
The normalised tax rate was 4.5% above the UK statutory tax rate
of 19%. The main item increasing the normalised tax rate is
disallowed depreciation on UK properties which reflects the Group's
strategy to maintain a majority freehold estate. The Group
considers its normalised tax rate to be sustainable.
7. Dividends
26 weeks 26 weeks
ended ended
2 August 4 August 52 weeks
2020 2019 ended
2 February
(unaudited) (unaudited) 2020
Amounts recognised as distributed to equity
holders in the period: GBPm GBPm GBPm
Final dividend for the period ended 3 February
2019 of 4.75p - 113 113
Special final dividend for the period ended
3 February 2019 of 4.00p - 95 95
Interim dividend for the period ended 2
February 2020 of 1.93p - - 46
Special interim dividend for the period
ended 2 February 2020 of 2.00p - - 48
Final dividend for the period ended 2 February
2020 of 4.84p 116 - -
116 208 302
----------------------------------------------- ------------ ------------ -----------
The Directors propose an interim ordinary dividend of 2.04p per
share, which will absorb an estimated GBP49m of shareholders'
funds. This dividend will be paid on 30 October 2020 to
shareholders who are on the register of members on 25 September
2020. The dividends paid and proposed during the period are from
cumulative realised distributable reserves of Wm Morrison
Supermarkets PLC.
8. Earnings per share (EPS)
Basic EPS is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary
shares in issue during the period, excluding shares held in trust.
For diluted EPS, the weighted average number of ordinary shares in
issue is adjusted to assume conversion of potentially dilutive
ordinary shares.
The Company has two (4 August 2019: two, 2 February 2020: two)
classes of instrument that are potentially dilutive: those share
options granted to employees where the exercise price together with
the future IFRS 2 charge of the option is less than the average
market price of the Company's ordinary shares during the period and
contingently issuable shares under the Group's Long Term Incentive
Plans (LTIPs).
26 weeks ended 26 weeks ended
2 August 2020 4 August 2019 52 weeks ended
(unaudited) (unaudited) 2 February 2020
-------------------- -------------------- --------------------
Basic Diluted Basic Diluted Basic Diluted
Pence Pence Pence Pence Pence Pence
--------------------------------- --------- --------- --------- --------- --------- ---------
EPS 2.92 2.91 6.56 6.47 14.60 14.44
EPS before exceptionals(1) 4.71 4.69 6.38 6.29 13.18 13.03
--------------------------------- --------- --------- --------- --------- --------- ---------
Basic Diluted Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------- --------- --------- --------- ---------
Basic earnings
Earnings attributable to
ordinary shareholders 69.9 69.9 155.8 155.8 347.9 347.9
--------------------------------- --------- --------- --------- --------- --------- ---------
Earnings before exceptionals
Earnings attributable to
ordinary shareholders 69.9 69.9 155.8 155.8 347.9 347.9
Adjustments to determine
profit before exceptionals
(note 4) 42.9 42.9 (4.2) (4.2) (34.0) (34.0)
--------------------------------- --------- --------- --------- --------- --------- ---------
Earnings before exceptionals
attributable to ordinary
shareholders 112.8 112.8 151.6 151.6 313.9 313.9
--------------------------------- --------- --------- --------- --------- --------- ---------
Basic Diluted Basic Diluted Basic Diluted
Millions Millions Millions Millions Millions Millions
--------------------------------- --------- --------- --------- --------- --------- ---------
Weighted average number of
shares
Ordinary shares in issue/diluted
ordinary shares 2,395.4 2,403.8 2,374.7 2,408.3 2,382.5 2,408.8
--------------------------------- --------- --------- --------- --------- --------- ---------
(1) Basic earnings per share before exceptionals and diluted
earnings per share before exceptionals are defined in the
Glossary.
9. Goodwill and intangible assets
2 August
2020 4 August 2019
2 February
(unaudited) (unaudited) 2020
Net book value GBPm GBPm GBPm
----------------------- ----------- ------------- ----------
At start of the period 381 404 404
Additions 43 35 82
Interest capitalised 1 1 2
Disposals - - (1)
Amortisation charge (39) (48) (91)
Impairment charge - - (15)
At end of the period 386 392 381
----------------------- ----------- ------------- ----------
The net book value of goodwill and intangible assets principally
consists of software development costs and licences of GBP 376m (4
August 2019: GBP382m, 2 February 2020: GBP371m). Within this asset
class, there are assets under construction of GBP46m (4 August
2019: GBP30m, 2 February 2020: GBP73m).
10. Property, plant and equipment
2 August 2020 4 August 2019
2 February
(unaudited) (unaudited) 2020
Net book value GBPm GBPm GBPm
---------------------------------- ------------- ------------- ----------
At start of the period 7,147 7,094 7,094
Additions 189 168 398
Disposals (3) (2) (5)
Transfers to assets classified as
held-for-sale (6) - (3)
Depreciation charge (199) (184) (371)
Net impairment (charge)/reversal (8) - 34
---------------------------------- ------------- ------------- ----------
At end of the period 7,120 7,076 7,147
---------------------------------- ------------- ------------- ----------
The Group has recognised a net impairment charge of GBP8m (4
August 2019: GBPnil, 2 February 2020: GBP34m reversal). The charge
in the 26 weeks ended 2 August 2020 relates to specific assets
identified as being impaired (rather than at a CGU level) and an
impairment in relation to one site, which has met the criteria for
classification as held for sale during the period and therefore has
been valued at fair value less cost to sell.
11. Right-of-use assets
2 August
2020 4 August 2019
2 February
(unaudited) (unaudited) 2020
Net book value GBPm GBPm GBPm
At start of the period 942 929 929
Additions 51 23 75
Disposals (1) - (3)
Depreciation charge (32) (29) (60)
Net impairment reversal - - 1
------------------------ ------------ ------------- ----------
At end of the period 960 923 942
------------------------ ------------ ------------- ----------
Included within the table above are land and buildings with a
net book value of GBP 916m (4 August 2019: GBP880m,
2 February 2020: GBP 888m) and plant and equipment with a net
book value of GBP44m (4 August 2019: GBP43m,
2 February 2020: GBP 54m).
12. Investment property
4 August
2 August 2020 2019
2 February
(unaudited) (unaudited) 2020
Net book value GBPm GBPm GBPm
----------------------- ------------- ------------ -----------
At start of the period 58 60 60
Additions 1 - 7
Disposals - - (1)
Depreciation charge (1) (1) (3)
Net impairment charge - - (5)
--------------------------- ------------- ------------ -----------
At end of the period 58 59 58
--------------------------- ------------- ------------ -----------
Included within the table above are right-of-use leasehold land
and buildings with a net book value of GBP 35m
(4 August 2019: GBP33m, 2 February 2020: GBP 35m).
13. Assets classified as held-for-sale
4 August
2 August 2020 2019
2 February
(unaudited) (unaudited) 2020
Net book value GBPm GBPm GBPm
------------------------------ ------------- ------------ -----------
At start of the period 3 39 39
Transfer from property, plant
and equipment 6 - 3
Disposals (3) (1) (39)
------------- ------------ -----------
At end of the period 6 38 3
---------------------------------- ------------- ------------ -----------
14. Retirement benefits
The Group operates a number of defined benefit retirement
schemes (together 'the Schemes') providing benefits based on a
formula that depends on factors including the employee's age and
number of years of service. The Morrison and Safeway Schemes
provide retirement benefits based on either the employee's
compensation package and/or career average revalued earnings (CARE)
(the 'CARE Schemes'). The CARE Schemes are not open to new members
and were closed to future accrual in July 2015. The Retirement
Saver Plan ('RSP') is a cash balance scheme, which provides a lump
sum benefit based upon a defined proportion of an employee's annual
earnings in each year, which is revalued each year in line with
inflation subject to a cap. The RSP was closed to future accrual in
September 2018.
The disclosures below show the details of the Schemes
combined:
4 August
2 August 2020 2019
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
------------------------------- ------------- ----------- ----------
CARE Schemes 909 774 960
RSP (29) (23) (16)
Net retirement benefit surplus 880 751 944
-------------------------------- ------------- ----------- ----------
The movement in the net retirement benefit surplus during the
period was as follows:
26 weeks 26 weeks
ended ended
2 August 4 August 52 weeks
2020 2019 ended
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
Net retirement benefit surplus
at start of the period 944 688 688
Net interest income 8 10 19
Remeasurement in other comprehensive
income (75) 50 231
Employer contributions 1 4 9
Administrative expenses (1) (1) (3)
Curtailment gain 3 - -
-------------------------------------- ------------- ------------- ------------
Net retirement benefit surplus
at end of the period 880 751 944
-------------------------------------- ------------- ------------- ------------
At 2 August 2020, schemes in surplus have been disclosed within
assets in the consolidated statement of financial position. The
Group obtained legal advice with regard to the recognition of a
retirement benefit surplus and also recognition of a minimum
funding requirement under IFRIC 14 'IAS 19 - The limit on a defined
benefit asset, minimum funding requirement and their interaction'.
This advice concluded that the continuing recognition of a surplus
is appropriate on the basis that the Group has an unconditional
right to a refund of a surplus. The International Accounting
Standards Board (IASB) have been considering amendments of the
current version of IFRIC 14, however the IASB has decided not to
finalise these amendments and is considering whether to develop new
proposals. The legal advice received by the Group concluded that
the above accounting treatment should not have been materially
affected by the previous proposed amendments to IFRIC 14.
Scottish Limited Partnership
The Group has previously entered into a pension funding
partnership structure with the CARE Schemes whereby the partnership
structure holds properties which are leased back to the Group in
return for rental income payments. The Group retains control over
these properties, including the flexibility to substitute
alternative properties. The CARE schemes were entitled to receive
fixed distributions of GBP6.6m per annum until 2033 subject to
certain conditions.
During the 26 weeks ended 2 August 2020, the Group and the
Schemes' Trustees have agreed to reorganise the limited partnership
structure, so that future distributions will be made to the RSP.
The pension funding partnership structure was amended to
permanently cease fixed distributions to the CARE schemes. On the
same day, Wm Morrison Supermarkets PLC and the RSP, entered into a
new pension funding partnership. As a partner, the RSP is entitled
to receive a fixed distribution of GBP6.8m p.a. from the profits of
the partnership for 13 years from 2020, subject to certain
conditions. The fixed distribution is comparable to the
distributions that would have been made under the previous
partnership structure.
The fixed distributions made to the RSP are reflected in the
Group financial statements as employer retirement benefit
contributions. There were no distributions made in the 26 weeks
ended 2 August 2020. The RSP's interest in the partnership
structure reduces the scheme's deficit on a funding basis, although
the agreement does not affect the position directly on an IAS 19
accounting basis, because the investment held by the RSP does not
qualify as a scheme asset for IAS 19 purposes.
Assumptions
The main financial assumptions used by the Group to calculate
the net retirement benefit surplus/deficit were as follows:
2 August 2020 4 August
2019
(unaudited) (unaudited) 2 February
2020
---------------------------- ----------------------------------------- ----------------- -----------
CARE RSP CARE RSP CARE RSP
Discount rate applied to
scheme liability (% p.a.) 1.4% 1.4% 2.2% 2.2% 1.8% 1.8%
Inflation assumption (RPI)
(%p.a.) 2.9% 2.9% 3.2% 3.2% 2.9% 2.9%
---------------------------- ---------------------------- ----- -------- ------ ----- -----------
Assumptions regarding future mortality experience are set based
on actuarial advice and in accordance with published statistics.
The mortality tables used for the 26 weeks ended 2 August 2020 and
the 52 weeks ended 2 February 2020 were the S2PMA/S2PFA-Heavy
mortality tables (males/females) based on year of birth with a
scaling factor of 110% applied to the mortality rates in both the
Morrison and Safeway Schemes, with CMI 2018 core projections and a
long-term rate of improvement of 1.5% p.a. The mortality tables
used for the 26 weeks ended 4 August 2019 were the
S2PMA/S2PFA-Heavy mortality tables (males/females) based on year of
birth with a scaling factor of 110%/100% applied to the mortality
rates in the Morrison/Safeway Scheme respectively, with CMI 2017
core projections and a long-term rate of improvement of 1.5%
p.a.
15. Cash generated from operations
26 weeks ended 26 weeks ended
2 August 2020 4 August 2019 52 weeks ended
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
Profit for the period 70 156 348
Net finance costs 45 44 87
Taxation charge 75 46 87
Share of profit of joint venture
(net of taxation) - - (1)
----------------------------------------------- -------------- -------------- ---------------
Operating profit 190 246 521
Adjustments for:
Depreciation and amortisation 271 262 525
Impairment 8 - 108
Impairment reversal - - (123)
Profit/loss arising on disposal
and exit of properties - - (66)
Gain arising on reduction of lease
terms - - (10)
Defined benefit scheme contributions
paid less operating expenses (3) (5) (5)
Share-based payments charge 10 20 26
(Increase)/decrease in inventories(1) (31) 130 53
Increase in Trade and other receivables(1) (11) (10) (14)
(Decrease)/increase in Trade and
other payables(1) (282) (53) 29
Decrease in provisions(1) (22) (23) (27)
----------------------------------------------- -------------- -------------- ---------------
Cash generated from operations 130 567 1,017
----------------------------------------------- -------------- -------------- ---------------
Total working capital outflow (the sum of items marked (1)
above) is GBP346m in the period (4 August 2019: GBP44m inflow, 2
February 2020: GBP41m inflow). This includes GBPnil as a result of
current year charges in respect of onerous contracts and accruals
of onerous commitments (4 August 2019: GBPnil, 2 February 2020:
GBP2m) and GBP6m of non-cash exceptional charges (4 August 2019:
GBPnil, 2 February 2020: GBP63m), net of GBP7m of onerous payments
(4 August 2019: GBP37m, 2 February 2020: GBP41m), GBP12m of
releases in respect of onerous contracts and accruals of onerous
commitments (4 August 2019: GBPnil, 2 February 2020: GBPnil) and
GBP49m exceptional and other non-operating payments (4 August 2019:
GBPnil, 2 February 2020: GBP1m). When adjusted to exclude these
items, the operating working capital outflow is GBP284m (4 August
2019: GBP81m inflow, 2 February 2020: GBP18m inflow).
16. Analysis of net debt(1)
4 August
2 August 2020 2019
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
----------------------------------- ------------- ------------ -----------
Cross-currency interest rate
swaps (2) - 20 -
Fuel and energy price contracts 3 2 -
----------------------------------- ------------- ------------ -----------
Non-current financial assets 3 22 -
----------------------------------- ------------- ------------ -----------
Foreign exchange forward contracts 6 17 -
Fuel and energy price contracts - 9 1
----------------------------------- ------------- ------------ -----------
Current financial assets 6 26 1
----------------------------------- ------------- ------------ -----------
Bonds (2) - (258) (237)
Other short-term borrowings
(2) (47) (145) -
Cross-currency interest rate
swaps(2) - - (4)
Lease liabilities(2) (72) (69) (72)
Foreign exchange forward contracts (8) - (17)
Fuel and energy price contracts (12) (2) (15)
----------------------------------- ------------- ------------ -----------
Current financial liabilities (139) (474) (345)
----------------------------------- ------------- ------------ -----------
Bonds (2) (1,110) (765) (1,110)
Revolving credit facility (2) (467) (77) 2
Lease liabilities(2) (1,318) (1,314) (1,304)
Forward foreign exchange contracts (1) - -
Fuel and energy price contracts (5) (1) (7)
----------------------------------- ------------- ------------ -----------
Non-current financial liabilities (2,901) (2,157) (2,419)
----------------------------------- ------------- ------------ -----------
Cash and cash equivalents 229 225 305
----------------------------------- ------------- ------------ -----------
Net debt(1) (2,802) (2,358) (2,458)
----------------------------------- ------------- ------------ -----------
(1) Net debt is defined in the Glossary.
Total net liabilities from financial activities (the sum of the
items marked (2) in the table) is GBP3,014m in the 26 weeks ended 2
August 2020 (4 August 2019: GBP2,608m, 2 February 2020:
GBP2,725m).
Available facilities
At 2 August 2020, the Group has total committed facilities of
GBP2,850m, comprising bond debt of GBP1,100m (maturing between 2023
and 2031) and GBP1,750m of committed bank facilities. Of these, the
Group has GBP1,280m (4 August 2019: GBP1,370m, 2 February 2020:
GBP1,450m) of undrawn facilities available.
During the period ended 2 August 2020, the Group secured the
following new facilities:
-- Two additional GBP100m 364 day committed revolving credit
facilities which mature in March 2021, with the option to
extend for a further six months. These were undrawn as at
2 August 2020; and
-- GBP100m 364 day committed revolving credit facility which
matures in March 2021. This was undrawn as at 2 August 2020.
In addition:
-- An existing GBP1.35bn syndicated committed revolving credit
facility, was extended by a further year resetting its five
year term and resulting in a maturity date of June 2025.
Commitment fees and interest charges are incurred at a spread
above LIBOR. Undrawn committed headroom available on this
facility was GBP880m as at 2 August 2020.
-- An existing GBP100m committed revolving credit facility
with an original maturity date of July 2020 was extended
to mature in July 2021. This was undrawn as at 2 August
2020.
All committed bank facilities have the same financial covenants.
In the event of default of covenants, the principal amounts of
borrowings and any interest accrued become repayable on demand.
The Group also has a number of uncommitted facilities which are
available to meet short-term borrowing requirements, and incur
interest charges according to usage. As at 2 August 2020 the Group
had GBP47m of borrowings on uncommitted facilities (4 August 2019:
GBP145m, 2 February 2020: GBPnil).
Wm Morrisons Supermarkets PLC's senior unsecured debt
obligations continue to be rated Baa2 with Moody's, on a stable
outlook. Moody's reaffirmed its rating on the 9 June 2020,
following the release of the results for the period ended 2
February 2020 and considering the impact of COVID-19.
17. Financial instruments
2 August 2020 4 August 2019
(unaudited) (unaudited) 2 February 2020
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- ------- -------- ------ -------- -------
Derivative financial assets 3 3 22 22 - -
--------------------------------- -------- ------- -------- ------ -------- -------
Total non-current financial
assets 3 3 22 22 - -
--------------------------------- -------- ------- -------- ------ -------- -------
Derivative financial assets 6 6 26 26 1 1
Total current financial
assets 6 6 26 26 1 1
--------------------------------- -------- ------- -------- ------ -------- -------
Borrowings (47) (47) (403) (408) (237) (237)
Derivative financial liabilities (20) (20) (2) (2) (36) (36)
--------------------------------- -------- ------- -------- ------ -------- -------
Total current financial
liabilities (67) (67) (405) (410) (273) (273)
--------------------------------- -------- ------- -------- ------ -------- -------
Borrowings (1,577) (1,726) (842) (873) (1,108) (1,238)
Derivative financial liabilities (6) (6) (1) (1) (7) (7)
--------------------------------- -------- ------- -------- ------ -------- -------
Total non-current financial
liabilities (1,583) (1,732) (843) (874) (1,115) (1,245)
--------------------------------- -------- ------- -------- ------ -------- -------
The fair value of the sterling and euro denominated bonds are
measured using closing market prices (level 1) (4 August 2019 and 2
February 2020: level 1). The fair value of all derivative financial
instruments are calculated by using benchmark observable market
interest rates and discounted future cash flows (level 2) (4 August
2019 and 2 February 2020: level 2).
18. Share capital and share premium
Number of Share capital Share premium Total
shares GBPm GBPm GBPm
millions
--------------------------- --------- ------------- ------------- -----
At 3 February 2020 2,405.0 240 192 432
Share options exercised(1) 3.2 1 6 7
At 2 August 2020 2,408.2 241 198 439
---------------------------- --------- ------------- ------------- -----
(1) The GBP1m movement in share capital has been rounded up to
ensure that the total share capital position is correctly
stated.
Trust shares
Included in retained earnings is a deduction of GBP19m (4 August
2019: GBP24m, 2 February 2020: GBP30m) in respect of own shares
held at the reporting date. This represents the cost of 8,720,882
(4 August 2019: 10,825,933, 2 February 2020: 14,215,041) of the
Group's ordinary shares (nominal value of GBP0.9m (4 August 2019:
GBP1.1m, 2 February 2020: GBP1.4m)). These shares are held in a
trust and were acquired by the business to meet obligations under
the Group's employee share plans using funds provided by the Group.
The market value of the shares at 2 August 2020 was GBP16m (4
August 2019: GBP21m, 2 February 2020: GBP26m). The trust has waived
its right to dividends. These shares are not treasury shares as
defined by the London Stock Exchange.
During the period, the Group acquired none (4 August 2019:
1,492,176, 2 February 2020: 4,881,284) of its own shares to hold in
trust for consideration of GBPnil (4 August 2019: GBP3m, 2 February
2020: GBP10m), and utilised 5,494,159 (4 August 2019: 551,491, 2
February 2020: 551,491) trust shares to satisfy awards under the
Group's employee share plans.
Proceeds from exercise of share awards
During the period the Group issued 3,218,515 (4 August 2019:
6,925,156, 2 February 2020: 8,532,407) new shares to satisfy
options exercised by employees during the period in respect of the
Group's Sharesave schemes. Proceeds received on exercise of these
shares amounted to GBP6m (4 August 2019: GBP12m, 2 February 2020:
GBP14m) and these have been recognised as an addition to share
capital and share premium in the period. During the period the
Group issued no (4 August 2019: 24,864,804, 2 February 2020:
28,166,736) shares under the Group's Long Term Incentive Plan
('LTIP') scheme for nominal value.
Settlement of share awards
In the 26 weeks ended 2 August 2020, the Group has settled
5,494,159 (4 August 2019: 551,491, 2 February 2020: 551,491) of
share options out of trust shares which have vested during the
period net of tax. During the period, there was a GBP9m (4 August
2019: GBP2m, 2 February 2020: GBP2m) charge to retained earnings in
relation to the settlement of share awards, comprising GBP10m (4
August 2019: GBP2m, 2 February 2020: GBP2m) of cash paid on behalf
of the employees, rather than selling shares on the employees'
behalf to settle the employee's tax liability on vesting of share
options, offset by a GBP1m non-cash settlement credit (4 August
2019: GBPnil, 2 February 2020: GBPnil).
19. Commercial income
The types of commercial income recognised by the Group, and the
recognition policies are:
Type of Description Recognition
commercial
income
Marketing Examples include Income is recognised dependent on
and income in respect the terms of the specific supplier
advertising of in-store and agreement in line with when performance
funding online marketing obligations in the agreement are
and point of sale, met. Income is invoiced once the
as well as funding performance conditions in the supplier
for advertising. agreement have been achieved.
------------------------- --------------------------------------------
Volume-based Income earned by Income is recognised through the
rebates achieving volume year based on forecasts for expected
or spend targets sales or purchase volumes, informed
set by the supplier by current performance, trends and
for specific products the terms of the supplier agreement.
over specific periods. Income is invoiced throughout the
year in accordance with the specific
supplier terms. In order to minimise
any risk arising from estimation,
supplier confirmations are also obtained
to agree the final value to be recognised
at year end.
------------------------- --------------------------------------------
The amounts recognised as a deduction from cost of sales for the
two types of commercial income are detailed as follows:
26 weeks 26 weeks
ended ended
2 August 4 August 52 weeks
2020 2019 ended
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
----------------------------------- ------------- ------------- ------------
Marketing and advertising funding 31 30 78
Volume-based rebates 71 58 113
----------------------------------- ------------- ------------- ------------
Total commercial income 102 88 191
----------------------------------- ------------- ------------- ------------
The following table summarises the uncollected commercial income
at the balance sheet date at the end of each period:
2 August 4 August
2020 2019
2 February
(unaudited) (unaudited) 2020
GBPm GBPm GBPm
--------------------------------- ------------- ------------- -----------
Commercial income trade debtors 5 6 7
Accrued commercial income 49 37 28
Commercial income due, offset
against amounts owed 10 14 21
--------------------------------- ------------- ------------- -----------
64 57 56
--------------------------------- ------------- ------------- -----------
At 6 September 2020, GBP4m of the GBP5m commercial income trade
debtor balance had been settled and GBP16m of the GBP49m accrued
commercial income balance had been invoiced and settled. In
addition, GBP7m of the GBP10m commercial income due had been offset
against payments made. As at 6 September 2020, GBP56m of the GBP56m
of commercial income held on the balance sheet at 2 February 2020
had been settled.
20. Guarantees, contingent liabilities and contingent assets
Guarantees
Following the disposal of the land and building of its customer
fulfilment centre at Dordon to a third party in June 2017, the
Group continues to guarantee the lease in respect of this site
through until 2038. If the lessee were to default during the period
of guarantee, their lease obligations could revert back to the
Group under the terms and become a liability of the Group. Should
the lessee default, the additional future commitment is estimated
at up to GBP29m (4 August 2019: GBP32m, 2 February 2020:
GBP30m).
Data Theft Claim
The Group has previously had a legal case brought by a number of
current and former colleagues relating to employee data theft in
the 52 weeks ended 1 February 2015. In December 2017, the High
Court concluded that the Group was vicariously liable for the
actions of the former employee who conducted the data theft. The
Group launched an appeal of this judgement to the High Court and
subsequently to the Supreme Court.
The Supreme Court hearing took place in November 2019. On 1
April 2020, the Supreme Court ruled in favour of the Group and the
claim was entirely dismissed. This brings an end to the matter,
other than for recovery of legal costs from the claimants. An
interim payment has been received by the Group in respect of these
costs and an estimate made of the amount to be received. These
amounts have been included within 'other exceptional items'. The
Group has previously disclosed an unquantified contingent liability
in respect of the potential settlement. Following the Supreme Court
ruling, this contingent liability no longer exists.
Interchange Fee Claim
The Group, along with other claimants, has had an ongoing claim
against Mastercard in respect of bank interchange fees. In the 26
weeks ended 2 August 2020, the Supreme Court found in favour of the
claim against Mastercard and determined that the fixing of
interchange fees by Mastercard over many years was an unlawful
infringement of competition law. The Supreme Court's definitive
decision means that the case will now be remitted back to the
Competition Appeal Tribunal to determine the level of damages
payable to the Group. At this stage the Group is not able to
quantify the amount of the settlement which it will receive, and
accordingly no asset has been recognised in the financial
statements in the 26 weeks ended 2 August 2020. In addition, legal
costs associated with this claim will be recovered, and the Group
has made an estimate of the amount of fees to be recovered. The
income receivable has been included within 'other exceptional
items'.
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 2019/20 Annual Report and
Financial Statements.
In the 26 weeks ended 2 August 2020, the Group received a
dividend of GBPnil (4 August 2019: GBPnil, 2 February 2020: GBP9m)
from MHE JVCo Limited. The Group has a 51.1% interest in MHE JVCo
Limited.
22. Post balance sheet events
On 9 September 2020, the Group acquired 100% of the share
capital of Lansen Nursery Limited, a leading supplier of outdoor
plants, for consideration of GBP4m. The Directors consider this
event to be 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. The measures are consistent with the definitions
used in the 2019/20 Annual Report and Financial Statements.
Measures Closest equivalent Definition and purpose Reconciliation
IFRS for the interim
measure 2020/21 Group measures
(1)
Profit measures
Like-for-like Revenue Percentage change 26 weeks
(LFL) in year-on-year sales ended
sales growth (excluding VAT), removing 2 August
the impact of new 2020
store openings and %
closures in the current Group LFL
or previous financial (exc. fuel) 8.7%
year. --------------- ----------
Group LFL
The measure is used (inc. fuel) (1.1)%
widely in the retail ----------
industry as an indicator Net new
of ongoing sales performance. space (inc.
It is also a key measure fuel) 0.0%
for Director and management ----------
remuneration. Total revenue
year-on-year (1.1)%
----------
------------------- ------------------------------- ------------------------------
Total sales Revenue Including fuel: A reconciliation
growth Percentage change of total sales
in year-on-year total including and excluding
reported revenue. fuel is provided
in note 3.
Excluding fuel:
Percentage change
in year-on-year total
sales excluding fuel.
This measure illustrates
the total year-on-year
sales growth.
This measure is a
key measure for Director
and management remuneration.
------------------- ------------------------------- ------------------------------
Profit Profit before Profit before tax A reconciliation
before tax tax and exceptionals is of this measure
and exceptionals defined as profit is provided in
before tax, exceptional note 4.
items and net retirement
benefit interest.
This excludes exceptional
items which are significant
in size and/or nature
and net retirement
benefit interest.
This measure is a
key measure used by
the Directors. It
provides key information
on ongoing trends
and performance of
the Group and is used
for Director and management
remuneration.
------------------- ------------------------------- ------------------------------
Profit before Profit after Profit before tax GBP113m being profit
exceptionals tax and exceptionals after before tax and
after tax a normalised tax charge. exceptionals (GBP148m)
less a normalised
This measure is used tax charge (GBP35m)
by the Directors as (see note 4).
it provides key information
on ongoing trends
and performance of
the Group, including
a normalised tax charge.
------------------- ------------------------------- ------------------------------
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
Measures Closest equivalent Definition and purpose Reconciliation
IFRS for the interim
measure 2020/21 Group measures
(1)
Profit measures (continued)
Operating Operating profit(2) Reported operating GBP201m being reported
profit before profit before exceptional operating profit
exceptionals items, which are significant (GBP190m) less
in size and/or nature. impairment and
provisions for
This measure is used onerous contracts
by the Directors as (GBP4m) plus restructuring
it provides key information and store closure
on on-going trends costs (GBP15m).
and performance of
the Group.
--------------------- ------------------------------ ----------------------------
Net finance Finance costs Reported net finance A reconciliation
costs before costs excluding the of this measure
exceptionals impact of net retirement is provided in
benefit interest and note 5.
other exceptional
items, which are significant
in size and/or nature.
This measure is used
by the Directors as
it provides key information
on ongoing cost of
financing excluding
the impact of exceptional
items.
--------------------- ------------------------------ ----------------------------
Earnings Operating profit(2) Operating profit before GBP472m being operating
before interest, exceptional items profit before exceptionals
tax, depreciation including share of (GBP201m), plus
and amortisation profit from joint share of profit
(EBITDA) venture, before depreciation from joint venture
before exceptionals and amortisation. (GBPnil), plus
depreciation (GBP232m)
This measure is used and amortisation
by the Directors as (GBP39m).
it provides key information
on ongoing trends
and the performance
of the Group before
capital investment
and financing costs.
--------------------- ------------------------------ ----------------------------
EBITDA margin No direct equivalent EBITDA before exceptional 5.40% being EBITDA
before exceptionals items, as a percentage before exceptionals
of revenue. (GBP472m) divided
by revenue (GBP8,734m).
This measure is used
by the Directors as
it provides key information
on ongoing trends
and the performance
of the Group before
capital investment
and financing costs.
--------------------- ------------------------------ ----------------------------
Interest No direct equivalent Operating profit before 4.4x being annualised
cover exceptionals divided operating profit
by net finance costs before exceptionals
before exceptionals. (GBP462m) divided
Operating profit before by annualised net
exceptionals and net finance costs before
finance costs are exceptionals (GBP105m).
both on an annualised
basis.
This measure is used
by the Directors as
a measure of the Group's
ability to meet its
financing costs.
--------------------- ------------------------------ ----------------------------
Basic Basic earnings Basic earnings per A reconciliation
earnings per share share based on profit of this measure
per share before exceptionals is included in
before exceptionals after tax rather than note 8.
reported profit after
tax as described above.
This measure is a
key measure used by
the Directors. It
provides key information
on ongoing trends
and performance of
the Group and is used
for Director and management
remuneration, and
in applying the dividend
policy.
--------------------- ------------------------------ ----------------------------
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
(2) Operating profit is not defined under IFRS. However, it is a
generally accepted profit measure.
Measures Closest equivalent Definition and purpose Reconciliation
IFRS for the interim
measure 2020/21 Group measures
(1)
Profit measures (continued)
Diluted Diluted earnings Diluted earnings per A reconciliation
earnings per share share based on profit of this measure
per share before exceptionals is included in
before after tax rather than note 8.
exceptionals reported profit after
tax as described above.
Tax measures
Normalised Effective tax Normalised tax is The normalised
tax the tax rate applied tax rate is based
to the Group's principal on full year projections
activities on an ongoing and as such a
basis. This is calculated tax reconciliation
by adjusting the effective will be provided
tax rate for the period in the Annual
to exclude the impact Report and Financial
of exceptional items Statements for
and net retirement the 52 weeks ended
benefit interest. 31 January 2021.
This measure is used Details of the
by the Directors as normalised tax
it provides a better rate used in the
reflection of the 26 weeks ended
normalised tax charge 2 August 2020
for the Group. is provided in
note 6 of the
condensed consolidated
interim financial
statements.
Cash flows and net debt measures
Free cash No direct equivalent Movement in net debt GBP(228)m outflow
flow before dividends. being the movement
in net debt (GBP(344)m)
This measure is used before payment
by the Directors as of dividends (GBP116m).
it provides key information
on the level of cash
generated by the Group
before the payment
of dividends.
Net debt No direct equivalent Net debt is current A reconciliation
and non-current: borrowings, of this measure
lease liabilities is provided in
and derivative financial note 16.
assets & liabilities;
net of cash and cash
equivalents.
Gearing No direct equivalent Net debt as a percentage 63% being net
of net assets. debt (GBP2,802m)
as a percentage
This measure is used of net assets
by the Directors as (GBP4,447m).
a measure of the capital
structure of the Group
and its ability to
maintain its credit
ratings and covenants.
Working No direct equivalent Movement in inventories, A reconciliation
capital trade and other receivables, of this measure
movement trade and other payables is provided in
and provisions. note 15.
Operating No direct equivalent Working capital movement A reconciliation
working adjusted for onerous of this measure
capital contract charges, is provided in
movement onerous payments and note 15.
other non-operating
payments.
This measure is used
by the Directors as
it provides a more
appropriate reflection
of the working capital
movement by excluding
certain non-recurring
movements.
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
Measures Closest equivalent Definition and purpose Reconciliation
IFRS for the interim
measure 2020/21 Group measures
(1)
Other measures
Return on No direct equivalent ROCE is calculated ROCE (6.2%) equals
Capital as return divided return divided
Employed by average capital by average capital
(ROCE) employed. Return is employed:
defined as annualised
profit before exceptionals Return (GBP380m)
after tax adjusted = Profit before
for net finance costs exceptionals after
before exceptionals. tax annualised
Capital employed is (GBP275m) adjusted
defined as average for annualised
net assets excluding net finance costs
net retirement benefit before exceptionals
surplus and deficit, (GBP105m).
less average net debt.
Average capital
This measure is used employed (GBP6,160m)
by the Directors as = Average net
it is a key ratio assets excluding
in understanding the the net retirement
performance of the benefit asset
Group. (GBP3,580m), and
average net debt
(GBP2,580m)
Onerous No direct equivalent Payments made to settle Onerous capital
payments onerous contractual payments (GBP7m)
commitments, include plus payment to
amounts paid to exit exit leases (GBPnil),
'pipeline' sites or included within
sums paid to exit repayment of lease
onerous contracts obligations in
early (e.g. leases). the consolidated
statement of cash
flows.
(1) Certain ratios referred to in the condensed consolidated
interim financial statements are calculated using more precise
numbers rather than rounded numbers. These stated ratios may
therefore differ slightly to those calculated by the numbers in
this report due to rounding (as numbers in the condensed
consolidated interim financial statements are presented in round
millions).
Statement of Directors' responsibilities
The Directors' confirm that these condensed consolidated interim
financial statements have been prepared in accordance with IAS 34
'Interim Financial Reporting', as adopted by the European Union and
that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred
in the first 26 weeks and their impact on the condensed
consolidated interim financial statements, and a description
of the principal risks and uncertainties for the remaining
26 weeks of the period; and
-- material related-party transactions in the first 26 weeks
and any material changes in the related party transactions
described in the last annual report.
The Directors of the Wm Morrison Supermarket PLC are lis ted in
the Wm Morrison Supermarket PLC Annual Report and Financial
Statements for 2 February 2020. Further updates since 2 February
2020 are included within note 1 of these condensed consolidated
interim financial statements. A list of current Directors is
maintained on the Wm Morrison Supermarket PLC website:
www.morrisons-corporate.com
By order of the Board
Jonathan Burke
Company Secretary
9 September 2020
Independent review report to Wm Morrison Supermarkets PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Wm Morrison Supermarkets PLC's condensed
consolidated interim financial statements (the 'interim financial
statements') in the interim financial report of Wm Morrison
Supermarkets PLC for the 26 week period ended 2 August 2020. Based
on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in
all material respects, in accordance with International Accounting
Standard 34 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated statement of financial position as
at 2 August 2020;
-- the consolidated income statement and consolidated
statement of comprehensive income for the period then
ended;
-- the consolidated statement of cash flows for the period
then ended;
-- the consolidated statement of changes in equity for
the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim
financial report have been prepared in accordance with
International Accounting Standard 34 'Interim Financial Reporting',
as adopted by the European Union and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The interim financial report, including the interim financial
statements, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the interim
financial report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim financial report based on our
review. This report, including the conclusion, has been prepared
for and only for the Company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Leeds
9 September 2020
Notes:
The maintenance and integrity of the Wm Morrison Supermarkets
PLC website is the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
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