TIDMMRW
RNS Number : 8759R
Morrison(Wm.)Supermarkets PLC
11 March 2021
News Release
Release date: 11 March 2021
PRELIMINARY RESULTS FOR THE 52 WEEKSED 31 JANUARY 2021
Building on momentum
2020/21 financial summary
-- Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT up 8.6% (2019/20:
down 0.8%), with Q4 LFL up 9.0% (Q4 2019/20: down 2.1%)
-- Total revenue up 0.4% to GBP17.6bn (2019/20: GBP17.5bn)
-- Profit before tax and exceptionals(2) down 50.7% to GBP201m (2019/20:
GBP408m), including GBP290m direct COVID-19 costs to help feed the
nation through the crisis
-- Profit before tax and exceptionals(2) would have been up 5.6% to
GBP431m before the payment of GBP230m of waived government business
rates relief
-- EPS before exceptionals(2) down 54.9% to 5.95p (2019/20: 13.18p)
-- Profit before tax down 62.1% to GBP165m (2019/20: GBP435m) after
net exceptional costs of GBP36m including online capacity transformation,
impairment and restructuring
-- Free cash outflow(3) GBP450m (2019/20: GBP238m inflow) due to lower
profit and temporary impacts of lower fuel sales, higher stock and
paying small suppliers immediately
-- Net debt GBP3,169m (2019/20: GBP2,458m), or GBP1,798m pre-IFRS 16
(2019/20: GBP1,082m)
-- Net pension accounting surplus GBP718m (2019/20: GBP944m)
-- ROCE down to 3.9% (2019/20: 7.0%) due to lower profit before exceptionals
-- Special dividend of 4.00p per share deferred from H2 2019/20 declared
in December 2020 and paid in January 2021
-- Final ordinary dividend 5.11p, taking the full-year ordinary dividend
up 5.6% to 7.15p (2019/20: 6.77p) and full-year total dividend up
27.1% to 11.15p (2019/20: 8.77p)
Strategic and operating highlights
-- Proud to play our full part to help feed the nation. Our purpose,
priorities and ways of working are evolving and adapting well, and
we are emerging broader and stronger
-- Recognised by customers as best for brand warmth and net promoter
score(4)
-- Very strong absolute and relative sales, with deflation and high
volume growth
-- Strong operational gearing and profit growth when adjusted for waived
rates relief
-- Online sales tripled during the year, with capacity up fivefold.
Both online and wholesale are profitable and we expect profits to
keep improving
-- 'Morrisons on Amazon' is now available in c.50 towns and cities,
and already accounts for more than 10% of sales in the majority
of our stores where we offer the service
-- Morrisons is supplying the new Amazon Fresh grocery store which
opened last week
-- Wholesale supply roll-out to a further 236 McColl's stores now complete
Guidance
-- We expect 2021/22 profit before tax and exceptionals including rates
paid to be higher than the GBP431m profit achieved in 2020/21 excluding
the GBP230m waived rates relief
-- During 2021/22, we expect strong free cash flow and a significant
reduction in net debt, with net debt/EBITDA expected to be no higher
than the 2019/20 level of 2.4x
-- 300 McColl's stores to be converted to Morrisons Daily over the
next three years, and new contract with McColl's signed to extend
the partnership to 2027
-- Plan for a 100% carbon-neutral direct British farm supply chain
by 2030
Outlook
Our business has reacted and responded very well throughout the
pandemic, and both our absolute and relative trading performance
has been consistently strong. We are confident we can continue our
momentum into the new year, and expect both profit growth and a
significant reduction in net debt.
In early January we guided 2020/21 profit before tax and
exceptionals to be in the range GBP420m-GBP440m prior to the waived
rates relief payment of GBP230m. Our profit before tax and
exceptionals of GBP431m, after adjusting for the waived rates
relief, is in the middle of that range, and was achieved despite
the impact of the third national lockdown. During January 2021 we
again experienced higher colleague absence, thereby incurring
GBP10m more direct COVID-19 costs than guided. In addition, our
cafés were again required to close and fuel LFL fell to -43%
(compared to -23% for the first 22 weeks of H2), both of which also
had a negative effect on profit. However, retail LFL and
operational gearing continued to be very strong thereby offsetting
all of these impacts. Since year end colleague absence is gradually
returning to lower levels and fuel sales have started to
improve.
For 2021/22, with the anniversary of the first lockdown imminent
and still some uncertainty as to how COVID-19 restrictions will
evolve in future, there are many variables within our scenario
sales and profit planning, especially so early in the new financial
year. However, we recognise these are highly unusual times and want
to provide whatever guidance we can for stakeholders for profit,
debt and leverage.
We expect 2021/22 profit before tax and exceptionals including
rates paid to be higher than the GBP431m profit achieved for
2020/21 excluding the GBP230m waived rates relief. This target
assumes a gradual return to more normal trading conditions, no
significant increases in expected direct COVID-19 costs such as
elevated colleague absence, and no further restrictions such as
another period of prolonged café closures. However, we enter
2021/22 with strong trading and operational gearing momentum, and
further productivity and cost efficiency opportunities supported by
our very robust underlying cash flow and balance sheet, all of
which allows us flexibility around the choices we make for all
stakeholders and gives us confidence in our profit guidance.
We expect free cash flow and net debt will now improve
significantly. 2020/21 pre-IFRS 16 year-end net debt was GBP1,798m,
broadly in line with our guidance of c.GBP1.7bn. Fuel LFL of -43%
during January was lower than we had assumed, meaning fuel working
capital outflow as at year end of GBP347m compared to GBP220m
reported in early January. In addition, we continued to invest in
both higher levels of stock availability and paying our smaller
suppliers immediately.
We expect some of the working capital impacts to start to
reverse during Q1 2021/22, and others to reverse as trading
conditions normalise thereafter. Looking forward and beyond these
temporary impacts, we expect strong free cash flow and a
significant fall in net debt during 2021/22 , with net debt/EBITDA
expected to be no higher than the 2019/20 year-end level of 2.4x.
As we have done consistently over recent years, we will retain a
strong and flexible balance sheet, and will be guided each year by
the principles of our capital allocation framework in assessing the
uses of that free cash flow. As previously announced, we will take
a decision regarding a potential special dividend once a year at
the time of our preliminary results in March.
Andrew Higginson, Chair, said:
"This has been a year where Morrisons resilience has been
severely tested and I could not be more proud of the way the whole
business has met that test. As we look forward to brighter times
ahead, Morrisons is developing into a stronger, better business
with deeper and closer relationships with our customers and the
communities we serve."
David Potts, Chief Executive, said:
"Morrisons key workers have played a vital role for all our
stakeholders during the pandemic, especially the most vulnerable in
British society, and their achievements over the last year have
been remarkable. I am delighted that we are recognising their
enormous contribution by becoming the first supermarket to pay a
minimum of GBP10 an hour to all store colleagues. We are also today
showing our continuing gratitude and appreciation for the
incredible work of other key workers in the nation, by extending
our 10% discount for NHS staff for the whole of 2021.
"I'm pleased with the greater recognition, warmth and affection
for the Morrisons brand from all corners of the nation, following a
year like no other. We must now look forward with hope towards
better times for all, and we're confident we can take our strong
momentum into the new year, targeting profit growth and
significantly lower net debt during 2021/22."
Figure 1 - 2020/21 COVID-19 direct costs
GBPm change year on year
Extra payroll 99
----
Extra cost of colleague bonus(*) 68
----
Colleague and customer protection 46
----
Food banks and other donations 12
----
Other costs (inc. extra seasonal waste/markdown,
extra distribution costs) 65
----
Total COVID-19 direct costs 290
----
* We paid a 6% 'thank you' guaranteed annual bonus for all
frontline colleagues, on average triple last year
Figure 2 - 2020/21 profit reconciliation
FY FY Y on
GBPm 19/20 20/21 Y
Operating profit 521 254 (51.2)%
Profit before tax 435 165 (62.1)%
------- ------- --------
Exceptional items:
Impairment and provision for onerous
contracts (net) (2) (7)
(Profit)/loss on disposal and exit of
properties (66) (2)
Restructuring and store closure costs 51 56
Online and home delivery transformation
costs - 66
Online and home delivery impairment write-back - (76)
Net retirement benefit interest income(*) (19) (16)
Other exceptional items 9 15
Operating profit before exceptionals 513 306 (40.4)%
Profit before tax and exceptionals 408 201 (50.7)%
Operating profit before exceptionals and
waived rates relief 513 536 4.5%
Profit before tax, exceptionals and waived
rates relief 408 431 5.6%
------- ------- --------
* 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
FY Q1 Q2 H1 Q3 Q4 H2 FY
------- ------- ------ ------- ----- ----- ----- -----
Retail contribution
to LFL (1.4)% 5.1% 11.1% 7.9% 7.1% 8.2% 7.6% 7.8%
------- ------- ------ ------- ----- ----- ----- -----
Wholesale contribution
to LFL 0.6% 0.6% 1.2% 0.8% 0.7% 0.8% 0.8% 0.8%
------- ------- ------ ------- ----- ----- ----- -----
Group LFL ex-fuel (0.8)% 5.7% 12.3% 8.7% 7.8% 9.0% 8.4% 8.6%
------- ------- ------ ------- ----- ----- ----- -----
Group LFL inc-fuel (1.1)% (3.9)% 2.1% (1.1)% 2.2% 0.7% 1.4% 0.1%
------- ------- ------ ------- ----- ----- ----- -----
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 IFRS, and consider these to be important measures
in evaluating the Group's results and financial position.
Definitions and additional requirements:
A full glossary of terms and alternative measures is provided in
this announcement. The Directors believe the key metrics are the
ones outlined below because they are used for internal reporting of
the performance of the Group, they provide key information on the
underlying trends and performance, and they are key measures for
director and management remuneration.
(1) Like-for-like (LFL) sales: percentage change in year-on-year
sales (excluding VAT), removing the impact of new store openings
and closures in the current or previous financial year. A reconciliation
between LFL sales and total revenue is provided in the glossary
at the end of this announcement.
(2) Profit before tax and exceptionals: defined as profit before
tax, exceptional items and net retirement benefit interest. Reference
is also made to what profit would have been before waiving rates
relief where this information is useful in understanding the results,
as this is the basis on which we managed the business during the
year.
Earnings per share (EPS) before exceptionals: defined as profit
before exceptional items and net retirement benefit interest,
adjusted for a normalised tax charge. A reconciliation between
profit before tax, 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 payment
of dividends. Free cash flow for the period is GBP(450)m (2019/20:
GBP238m), being the movement in net debt of GBP(711)m (2019/20:
GBP(64)m) adjusted for dividends paid of GBP261m (2019/20: GBP302m).
Other We expect 2021/22 profit before tax and exceptionals including
rates paid to be higher than the GBP431m profit achieved in 2020/21
excluding the GBP230m waived rates relief
During 2021/22, we expect strong free cash flow and a significant
reduction in net debt, with net debt/EBITDA expected to be no
higher than the 2019/20 level of 2.4x
300 McColl's stores to be converted to Morrisons Daily over the
next three years, and new contract with McColl's signed to extend
the partnership to 2027
Plan for a 100% carbon-neutral direct British farm supply chain
by 2030
(4) Compared to other Big 4 supermarkets. Source: YouGov Plc 2021
(c) All rights reserved
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: Simon Rigby 07771 784446
Citigate Dewe Rogerson: Kevin Smith 07710 815924
Ellen Wilton 07921 352851
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) 33 0551 0200
Password: Morrisons
Replay facility available
for 7 days:
Replay access number: +44 (0) 20 8196 1480
Replay access code: 9063531#
-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 2020/21 our main focus was playing our full part in
helping feed the nation. Our business performed well, with strong
sales, operating leverage and growth in profit before tax and
exceptionals (adjusting for GBP230m waived rates relief). Direct
COVID-19 costs and other lost profit as a result of the various
restrictions impacted reported profit.
Group LFL excluding fuel was very strong, up 8.6%, comprising a
retail contribution of 7.8% and wholesale contribution of 0.8%. For
Q4, LFL excluding fuel was 9.0% (8.2% retail contribution, 0.8%
wholesale contribution).
Total revenue for 2020/21 was GBP17.6bn, up 0.4% year on year,
with net new space sales contribution of 0.4%. Total revenue
excluding fuel was up 8.9%.
Fuel sales were down 32.1% to GBP2.49bn, severely affected by
the COVID-19 restrictions, especially during the periods of
lockdown.
For retail, LFL sales were strong from the start of the COVID-19
pandemic in March 2020. There was initial volatility around the
first lockdown and some moderation as the eat-out market
temporarily opened up towards the end of Q2, but sales have
generally remained strong throughout, following a general pattern
of increasing as more severe restrictions were initially
implemented and moderating as they eased. The anniversary of the
first COVID-19 related step-up in sales was week commencing 1st
March.
For wholesale, sales to all our partners were strong throughout
the year. Since Q4 2020/21, we started to supply the remaining
McColl's stores not previously covered by our initial wholesale
supply agreement. By year end we had started to supply 130 stores,
with the remaining 106 stores since.
Operating profit before exceptionals was down 40.4% to GBP306m
(2019/20: GBP513m), and EBITDA before exceptionals was down 18.5%
to GBP847m (2019/20: GBP1,039m). After net finance costs before
exceptionals of GBP105m (2019/20: GBP106m), profit before tax and
exceptionals was down 50.7% to GBP201m (2019/20: GBP408m).
All these profit measures were significantly impacted by both
the considerable direct costs of COVID-19 and other
pandemic-related impacts on profit. Total direct COVID-19 costs
were GBP290m, which was GBP10m higher than guided in our
Q3/Christmas trading statement as a result of an increase in
colleague absence during lockdown three in January compared to
lockdown two in November. As well as extra payroll, the direct
COVID-19 costs during the year related to: extra colleague 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 addition, there
was a significant impact on profit during the period due to the
temporary closure (for an average of 24 weeks each during the year)
and prolonged disruption of our 407 profitable cafés, plus lower
sales and profit throughout the year in key categories such as
Market Street service counters, food-to-go and fuel.
Mitigating these various cost and profit impacts, operational
gearing was strong and sustained throughout, 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. We also invested our operational gearing into extra
discounts for the benefit of our colleagues, farmer suppliers, and
key workers in the NHS, teaching and blue light professions.
In December 2020 we announced our decision to waive our
entitlement to business rates relief. The total amount of waived
business rates is GBP274m, of which GBP230m related to 2020/21 and
was paid before year end. Without this payment our profit before
tax and exceptionals would have been GBP431m, up 5.6% year on year.
Operating profit before exceptionals adjusted for the rates payment
would have been GBP536m, up 4.5% year on year, and margin would
have been up 12 basis points. EBITDA before exceptionals adjusted
for the rates payment would have been GBP1,077m, up 3.7% year on
year, and margin would have been up 20 basis points.
As stated at the Interim results, 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 debit of GBP36m as listed in Figure 2
(2019/20: net credit of GBP27m).
Of the GBP36m, GBP56m were restructuring costs. These include
completing the previously announced modernisation of our ways of
working at head office by adopting more digital and flexible
initiatives for colleagues and a more streamlined central
structure. In addition, we have now completed our major retail
restructuring initiative announced in January 2020, and
successfully launched projects to reorganise transport and insource
some of our depots within our logistics network. These
restructuring initiatives will simplify and speed up the business
in line with one of our seven priorities, and continue to improve
our efficiency and productivity.
In addition, the transformation and other exceptional costs of
the rapid expansion of online and home delivery amounted to GBP66m,
and there was a store impairment write-back of GBP76m due to the
improved utilisation of store assets for our online and home
delivery offers. The overall position in relation to online and
home delivery is a net credit of GBP10m.
Within the GBP66m, we incurred GBP42m of costs across our
various online channels as we transformed our online operations
very quickly and significantly grew our capacity, offering
customers completely new ways to shop remotely with Morrisons and
enabling a rapid fivefold increase in capacity for customers. In
response to unprecedented demand, we accelerated our multi-year
online expansion plans and made one-off changes to transform our
online business, operational processes and ways of working. The
scale and speed of the implementation of these programmes resulted
in significant start-up costs during the year. We also incurred
one-off costs of GBP24m relating to exceptional stock wastage as
new process and systems integrations relating to store pick were
being adapted.
The GBP76m store impairment write-back relates to stores where
store-pick online operations have become established and asset
utilisation has improved, thereby generating a structural increase
in sales and profit.
Other exceptional costs of GBP15m include a GBP9m bonus for
temporary colleagues not ordinarily eligible and GBP4m in respect
of legal costs.
In addition, net retirement benefit interest income was GBP16m,
property disposal profits were GBP2m, and the annual impairment
review produced a net credit of GBP7m after adjusting for the
write-back related to online capacity acceleration. This GBP7m
comprises GBP65m release relating to other tangible assets, GBP9m
credit on onerous contracts, and a GBP67m impairment charge on
intangible assets following adoption of more cloud-based
technology.
Basic EPS before exceptionals was down 54.9% to 5.95p (2019/20:
13.18p).
Cash capital expenditure was GBP539m (2019/20: GBP511m).
Group net debt was GBP3,169m, compared to GBP2,458m at the end
of 2019/20. Excluding lease liabilities, net debt was GBP1,798m,
broadly in line with guidance of c.GBP1.7bn (2019/20 year end:
GBP1,082m). Debt continues to be temporarily adversely affected by:
the impact on working capital of the ongoing lower national demand
for fuel and fuel deflation (GBP347m at year end, up from GBP220m
in early January due to fuel LFL during lockdown of -43%);
investment in higher levels of stock availability both during
COVID-19 and in our preparations for Brexit (GBP67m); and the
extension of the scheme to pay our smaller suppliers immediately
during the crisis (GBP45m). Due to these effects and the impact of
COVID-19 on profit, there was a free cash outflow of GBP(450)m
(2019/20: GBP238m inflow).
The proposed final ordinary dividend is 5.11p per share, taking
the full-year ordinary dividend up 5.6% to 7.15p (2019/20: 6.77p).
This is both consistent with our announcement in December 2020 that
the final 2020/21 dividend would be based on underlying profit
before the impact of waiving GBP230m of business rates relief, and
is in line with our policy to pay a sustainable ordinary dividend
covered around two times by EPS before exceptionals. In addition,
with the previously deferred H2 2019/20 special dividend of 4.00p
declared in December 2020 and paid in January 2021, the full-year
total dividend is up 27.1% to 11.15p (2019/20: 8.77p).
Three new supermarkets opened in the second half, at
Helensburgh, Glenfield and Dalton Park, bringing the total to six
this year, plus a Nutmeg store on our Bolsover site. Together with
extensions, net new space sales area increased by c.157,000 square
feet.
ROCE was 3.9%, down from 7.0% for 2019/20 due to the impact of
COVID-19 on profit before exceptionals.
Strategy update and summary of progress for stakeholders
Our Fix, Rebuild, Grow, Sustain strategy has proved highly
flexible in allowing us to respond and adapt to each phase of the
COVID-19 pandemic while we continue executing many of our prior
plans. Despite the unprecedented and unique challenges we have
continued to grow our business and retained real momentum
throughout the crisis. We have grown sales and profit (adjusted for
waived rates relief), while playing our full part in feeding the
nation, and making sure no part of society gets left behind.
Our response to the crisis has included unprecedented measures
and investment in protecting our colleagues and customers. In
addition, we guaranteed pay for thousands of affected colleagues
and tripled the average annual bonus as a 'thank you' to those on
the frontline. In the first months of the pandemic, we recruited
over 45,000 new colleagues to both cover absence and to invest
significantly in expanding our online and home delivery services,
including a doorstep delivery service for the most vulnerable. We
have paid c.3,000 smaller suppliers immediately and are giving
extra discounts to our colleagues, NHS workers, teachers, blue
light workers and our farmer suppliers. We are also restocking
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.
As we move through the stages of Fix, Rebuild, Grow, Sustain we
have evolved our seven priorities and six ways of working to
re-validate them against the increased spirit of teamwork,
community and support that has prevailed at Morrisons since the
start of COVID-19. We have listened and responded, and will keep
doing so. We have added Pride in Hygiene to our seven priorities
and evolved Local Integration and Serving the Community, and
Creating and Scaling for Profitable Growth to reflect both our
significant progress against our original priorities and the world
we are in today. We have also added to and refined our ways of
working which are now: Customers First; Teamwork; Listening Hard,
Responding Quickly Wherever Possible; Freedom in the Framework;
Driving Sales, Tough on Costs; We Care.
New Morrisons enters 2021/22 a broader, stronger business that
is becoming more popular and accessible to all. Our shops are
thriving in the local communities they serve, and our new online
and wholesale channels are growing very quickly and are both
profitable. We are fulfilling our ambitions for all our stakeholder
groups, recently adding Environment and Community in recognition of
how central they are to everything we do.
Customers
Price, service and range are the key components of the customer
shopping trip, and we have ambitious plans for each. We are cutting
the price of our customer favourites basket, improving our
own-brand ranges, and investing in outstanding service programmes,
especially in our unique Market Street counters and key Fresh areas
such as fruit & veg. Morrisons is becoming more accessible to
customers, especially as our online offer and channels grow very
quickly. We are also becoming a more popular brand, with net
promoter score and brand warmth (1) consistently strong during 2020
and ahead of other Big 4 retailers throughout the whole year.
(1) Source: YouGov Plc 2021 (c) All rights reserved
Colleagues
Everyone is welcome and celebrated at Morrisons, treated with
respect and encouraged to have their say. Morrisons colleagues were
recognised by government as key workers early on in the pandemic
and stepped up to play their full part in helping feed the nation.
We have several key ambitions for colleagues including "A fair
day's pay for a fair day's work", and we have been rewarding and
saying 'thank you' for our colleagues' recent hard work and
commitment. As well as the guaranteed triple average annual bonus
for 2020/21, we have also announced a new pay award for 2021/22 of
at least GBP10 an hour for all Morrisons supermarkets colleagues
from April 2021. That is an annual increase of around 9% and now up
a cumulative 46% since 2015, and means Morrisons is the first
supermarket to pay GBP10 per hour.
Suppliers
We aim to build trust and collaborative relationships with our
suppliers, working to achieve profitable growth together. We want
to be easy to work with: easy to buy, easy to order, easy to fill
and easy to sell. On range, our focus with our partner suppliers is
on quality and innovation.
Environment and Community
We aim for sustainable growth with a lower environmental impact.
This includes stretching targets around: reducing carbon emissions;
cutting waste and preserving natural resources through 'reducing,
reusing, recycling'; sourcing from sustainable, ethical and
resilient supply chains; and playing our full part in growing and
developing British agriculture. In addition, we have an ambition to
play our full part supporting the communities we serve and the
lives of our colleagues: helping our customers live healthier
lives; making a positive impact in every local community we serve;
and providing a great place to work where everyone's effort is
worthwhile and where everyone can make progress and a
contribution.
Shareholders
Our key ambition for shareholders is to keep growing and create
value. We are building a strong track record: since 2015/16 profit
before tax and exceptionals has grown 43% (after adjusting for the
waived rates relief in 2020/21) and we have generated GBP2.7bn of
free cash flow, and total shareholder return is up 30% since
2014/15. At the core of our business and strategy there remains a
strong balance sheet supported by a freehold store portfolio, low
underlying debt and a net pension surplus. We also remain very cash
generative, targeting growth that is capital light. We remain
committed to the principles and disciplines of our capital
allocation framework and will review the uses of free cash flow
each year.
Seven priorities update
1. To be more competitive
Our customer favourites basket comprises around 2,000 items that
our customers care most about, especially fresh food and our
mid-tier own brand. Over the year, we cut the price of that basket
by GBP120, with deflation sustained throughout 2020/21 and volume
growth exceeding sales growth. Our premium 'Best' range also
continued to grow, with sales up another 20% in the year. We are
also working hard to keep improving the quality and nutrition of
our own brand for customers and have ambitious plans to improve
6,000 items over the next two years, spanning mid tier, 'Best', and
Nutmeg Home. In addition, we have recently launched a new healthier
food range, 'Nourish', specially designed to provide different
health benefits: good for bones, gut, heart, skin health or
immunity. Our innovation continues to be recognised, with recent
accolades including the Good Housekeeping award for the Best
Valentine's Day meal deal and a BBC Good Food award for our Free
From hot cross buns.
Supporting our investments in price, service and range, we
continue to realise substantial cost-saving, productivity and costs
of goods sold (COGS) opportunities. These include end-to-end
distribution and supply chain costs, mix, volume-related discounts,
replenishment, packaging and digitisation. There are also further
specific opportunities within the centre, logistics, manufacturing
and the stores. For example, we are now experiencing the benefits
of our store reorganisation carried out during 2020/21, with fewer
senior roles and bigger, broader roles elsewhere on the shop
floor.
2. To serve customers better
Customer service and serving customers better are at the heart
of Morrisons. We have friendly, helpful, food makers and
shopkeepers, and uniquely skilled colleagues on our fresh food
counters and at our manufacturing sites. We have invested an
annualised GBP100m in more labour hours, improved availability,
improved ranges, and upgraded technology, equipment and uniforms.
This supports our 'outstanding' programmes in service, Market
Street and fruit & veg.
The pandemic has meant unprecedented challenges while also
bringing out the best in our colleagues. Initially this included
adapting fast and with determination to the multiple practical
demands around protecting customers and colleagues: social
distancing, hygiene, queue management, marshals, and initiatives
such as speedy shopping for smaller-basket shoppers. In addition,
colleagues have reacted with real pace to serve customers better
and adapt to their changing needs during the pandemic. Our online
sales growth was particularly strong, with sales more than tripling
by the end of the year and online capacity up fivefold. We are
still learning and growing online but it is already profitable, and
we expect it to become more so as we continue to develop our offers
for customers.
Together with our partner Ocado, Morrisons.com sales grew
through the Dordon CFC, and especially through a substantial
increase in the number of store-pick home delivery stores, up from
33 to 197 by year end. In addition, we now offer click &
collect from almost 450 stores. Both store pick for home delivery
and click & collect use Ocado's in-store fulfilment solution.
From February, our Morrisons.com capacity increased further as we
re-entered Ocado's Erith CFC, where our capacity will build to 30%
of delivery slots.
Our other online offers also continued to grow at pace. Together
with our partner Amazon, the same-day delivery service 'Morrisons
on Amazon' expanded very rapidly during the year, and is now
available to millions of Prime members on the Amazon.co.uk website
and app. Orders are currently being delivered in and around 50
British towns and cities, with 'Morrisons on Amazon' already
accounting for more than 10% of sales in the majority of our stores
where we offer the service for customers . In addition, Morrisons
has started supplying the new Amazon Fresh grocery store with a
range of branded and own-brand items. Amazon Fresh opened in
Ealing, London last week, and is the first store in the UK to offer
customers just walk out technology with all grocery purchases
charged digitally without the need for checkouts or scanning
barcodes.
The food box channel is now supplying a variety of different
delivered boxes for customers. Orders can be placed online, and the
boxes are then prepared and packed in our food manufacturing sites
and delivered direct to customers. There have been many different
boxes developed during the year, either for seasonal events or a
specific need. For example, a Christmas Dinner Box feeding a family
of four for GBP50, and a School Meal Box providing five days of
breakfasts and lunches that schools can order and have delivered
direct to those children entitled to free school meals.
In addition, our partnership with Deliveroo is progressing well.
Groceries can be ordered and delivered to customers in as little as
30 minutes, with the service now available from over 180 Morrisons
stores.
As a food maker as well as shopkeeper, Morrisons is uniquely
positioned to serve customers better. We have recently added two
more manufacturing facilities to further enhance our vertical
integration capabilities. We acquired Lansen Nursery, a leading
grower and supplier of outdoor plants based in Spalding,
Lincolnshire. Since year end we have acquired Falfish, a
family-owned wholesaler of sustainably sourced seafood based in
Cornwall. Falfish has been a supplier of high-quality fresh fish
and shellfish to Morrisons for over 16 years and around half of
Falfish's c.GBP40 million turnover is with Morrisons. Both
acquisitions are further investments by Morrisons in manufacturing
and will mean improvements in range, quality and availability for
customers.
3. Local integration and serving the community
In addition to those online channels targeted for all customers,
we also introduced doorstep delivery, a very popular service
provided especially for the vulnerable and self-isolating in local
communities. It is a telesales service, offering a lifeline for the
elderly and most vulnerable customers who do not have online access
or other help with their grocery shopping. Customers simply call a
central number, order groceries by talking direct to a Morrisons
colleague, and the groceries are delivered next day, often by the
local store's Community Champion. We are very proud of this
doorstep delivery service, and have recently passed the 800,000
deliveries milestone.
Sales to all our local convenience store operator partners -
McColl's, Rontec, MPK, Harvest Energy, and Sandpiper CI - were
strong throughout the year. From the start of Q4, the remaining
McColl's stores not so far covered by Morrisons wholesale supply
began to transfer over to us. During the period we started to
supply 130 stores, with the remaining 106 started since year end.
In total, all our other wholesale channels and partners contributed
0.8% to Group LFL during the year. Along with 58 of our own
Morrisons Daily forecourt shops (including three new builds during
the year), we now supply over 1,350 convenience stores serving
customers in their local catchment areas.
Since year end, McColl's and Morrisons have announced that 300
McColl's stores are to be converted to Morrisons Daily, including
the 31 successful conversions already operating. The stores will
offer a full Morrisons convenience range and will be branded
Morrisons Daily, but will continue to be owned and operated by
McColl's. In addition, Morrisons and McColl's have extended their
partnership by a further three years, with a new contract out to
2027.
Our local supplier and community initiatives continue albeit
some, such as the successful local food maker events, have
temporarily gone online. However, as we are located in the heart of
local communities, we have been ideally placed in other ways to
leverage our local credentials. For example, as soon as the
pandemic started we helped restock the nation's food banks with
GBP10m of dedicated stock, and recently announced an extra
GBP5m.
4. Simplify and speed up the organisation
Our six ways of working continue to help us act fast and with
agility, enabling the momentum of change and improvement to
accelerate throughout COVID-19, which is something we intend to
sustain beyond the crisis. Most of our initiatives have the dual
benefits of greater simplification while also reducing cost.
During the year we successfully completed the restructuring of
colleagues' roles in stores and moved to more flexible, remote
working hours across a six-day week for colleagues in the offices.
In stores, we introduced capped shelves, with items stored above
fixture to both improve availability and replenishment time and
enable repurposing of back-of-house space for our online
operations. This programme will accelerate during 2021/22.
In the supply chain, we continue to work hard at improving
end-to-end product handling and productivity. For example, during
the year we introduced wheeled cages and dollies for all our fresh
foods, enabling more efficient in-store replenishment. We realigned
our network through our 'right product, right depot' initiative,
moving over 3,000 products between national and regional depots to
help optimise efficiency, and insourced our Willow Green depot to
give us better control over service and cost. We also invested in
further improving our fresh infrastructure with the introduction of
a Fresh Warehouse Management System in two more depots, and
increased our double-decker transport fleet capacity.
For COGS savings, we are reducing range, increasing volume of
our customer-favourite items, and investing in fewer, better
promotions while removing those that customers do not value. By
improving our end-to-end supply chain efficiency we and our
suppliers are able to save significant shared cost.
5. Naturally digital
As well as the new trial Scan and Shop app and payment
digitisation introduced in the first half we are making good
progress with introducing more digital initiatives into stores. We
are currently rolling out headsets for colleagues at all stores
which will help improve service, availability and communication,
and reduce shrink. We have also started to test digital shelf-edge
labels, which will automate price changes, help us simplify stock
and systems routines, and improve the online pick process.
In manufacturing, we are investing in automation and robotics
for production lines and grading technology, improving product flow
and raw material yield, and removing repetitive manual tasks.
Examples include investment in automated grading and packing in our
carrot and citrus sites. In distribution we are moving towards more
depot automation with benefits including transport optimisation and
reduced packaging.
6. Pride in hygiene
As food makers and shopkeepers, we have very high hygiene
standards. We aim for customers and colleagues to always have a
safe place to shop and work, and have a hygiene culture that
maximises cleaning hours and cleaning stations across our stores,
depots, manufacturing sites and offices. During 2021/22, we are
continuing to invest in extra touch-point cleaning, thousands of
sanitiser dispensers and extra colleagues responsible for
hygiene.
7. Creating and scaling for profitable growth
We pursue opportunities with an owner's spirit and
entrepreneurial hunger that is fast and fearless so we can swiftly
scale up the ideas that work. Our various online and wholesale
channels are good examples of this during the year, with both
profitable and both driving their own scale and innovation.
Our existing Morrisons.com online channel has grown very quickly
and was the inspiration for our new click & collect, boxes and
doorstep delivery businesses, while also informing developments
with our partners such as Amazon and Deliveroo.
For wholesale, our supply partnership with McColl's is scaling
up very quickly, and there is significant future potential for the
Morrisons Daily fascia and format. We have taken our doorstep
delivery idea and scaled it further by forming partnerships with
organisations such as retirement homes and charities. For example,
we are now providing McCarthy & Stone with a doorstep delivery
service to almost 450 of its retirement communities across Britain.
We are also supplying local councils, care homes and some charities
with great-value bulk supplies at wholesale prices.
In supermarkets, we continue to innovate, learn and apply
modular improvements across the estate. Much of that innovation and
learning is provided by our new stores. During the year we opened
six new stores - in Amble, Bradwell, Stirchley, Helensburgh,
Glenfield and Dalton Park - plus a new Nutmeg store on our Bolsover
site. We further developed our new food-to-go Market Kitchen
concept, which is now in four stores and, despite the challenges of
COVID-19, completed another 18 Fresh Look refits and extensions. In
addition we upgraded fascia and signage to the new, more modern
look and feel at over 130 stores, as well as refreshing nearly 390
cafés for relaunch. We also introduced our new Nutmeg Menswear
range and fixtures into over 50 stores, added over 70 new
single-stem florist departments, and installed rapid electric
vehicle chargers at a further 89 stores to take the number to
almost 200, with another 100 planned for 2021/22.
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 accounting
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.
Our capital allocation framework has guided us in building a
track record of capital discipline over recent years. Our first
priority is to invest in the stores and infrastructure and reduce
costs. Second, we will seek to maintain debt ratios that support
our target of an investment-grade credit rating. Third, we will
invest in profitable growth opportunities. Fourth, we will pay
dividends in line with our stated policy, and then any surplus
capital will be returned to shareholders.
Shareholder returns
Our policy is for the ordinary annual dividend to be sustainable
and covered around two times by underlying EPS. In December 2020,
we announced that we would declare a final 2020/21 dividend based
on profit before tax, exceptionals and the impact of waiving
GBP230m of business rates relief. The proposed final ordinary
dividend is 5.11p per share, taking the full-year ordinary dividend
up 5.6% to 7.15p (2019/20: 6.77p).
In addition, in December 2020 we also announced a previously
deferred H2 2019/20 special dividend of 4.00p, which was paid in
January 2021.
In total for 2020/21, the full-year ordinary plus special
dividends are up 27.1% to 11.15p per share (2019/20: 8.77p).
Subject to shareholder approval at our 2021 AGM, the final
ordinary dividend of 5.11p per share will be payable on 28 June
2021 to shareholders on the share register at the close of business
on 21 May 2021.
As previously announced, with year-end net debt temporarily
higher, we will not be paying a special dividend relating to
2020/21. However, our business is weathering the significant
financial challenges of COVID-19 very well, which is testimony to
our financial and operational strength. While there remains
uncertainty as to how COVID-19 may impact future customer behaviour
and the British economy, we are confident Morrisons can continue to
generate strong free cash flow. We will take a decision regarding a
potential 2021/22 special dividend at the end of the year.
Cost savings
We have programmes to improve productivity spanning many work
streams end to end across the business, many with the dual aims of
improving the shopping trip for customers and saving costs. In
addition, there are several ongoing opportunities within COGS and
digitising Morrisons further that will both improve our business
and reduce cost. We expect these cost saving programmes to remain
significant and sustainable for many years to come.
Cash flow and working capital
Free cash flow was an outflow of GBP450m (2019/20: inflow of
GBP238m). This was primarily due to the lower profit plus an
operating working capital outflow of GBP390m (2019/20: GBP18m
inflow) caused mainly by temporary impacts: lower fuel demand and
deflation during lockdown (GBP347m); investment in higher levels of
stock availability (GBP67m); and the extension of the scheme to pay
our smaller suppliers immediately (GBP45m) . We are confident that
working capital will improve significantly once trading conditions
normalise.
The new rules around UK corporation tax quarterly instalments
mean companies now pay tax in the year to which it relates. We paid
quarterly tax instalments for second-half 2019/20 and for 2020/21
during the year, which resulted in an additional tax payment in the
period.
Property disposal proceeds were GBP27m (2019/20: GBP34m).
Cash capital expenditure, depreciation and amortisation
Cash capital expenditure was GBP539m (2019/20: GBP511m),
compared to guidance of c.GBP525m. We expect 2021/22 cash capital
expenditure to be around GBP600m, slightly higher than in recent
years largely due to an increase in online capital expenditure as
we invest in the infrastructure to support the much larger
business. In addition, we incurred GBP22m of onerous cash payments,
in line with our guidance of c.GBP25m, as we continued to
renegotiate a small number of legacy leases. We expect onerous cash
payments of c.GBP5m during 2021/22. As previously stated, our
programme around onerous cash payments for freehold stores is now
complete.
Depreciation and amortisation was up GBP16m to GBP541m (2019/20:
GBP525m), in line with guidance of c.GBP550m. During 2021/22 we
expect another increase in depreciation and amortisation, to
c.GBP580m.
Debt and interest
Group net debt was GBP3,169m (2019/20 year end: GBP2,458m).
Excluding lease liabilities, net debt was GBP1,798m (2019/20 year
end: GBP1,082m), with the increase mostly due to the temporary
outflow in working capital and the impact of COVID-19 on
profit.
Morrisons continues to operate from a very robust financial
position, with a strong balance sheet, low underlying debt and a
strong debt maturity profile. As previously announced, 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 RCFs from
GBP1.45bn to GBP1.75bn. Of the GBP1.75bn, GBP1.35bn runs until 2025
and, since year end, the four GBP100m facilities' maturities have
been extended to dates between Sept 2021 and July 2022. As at the
end of 2020/21 we were GBP880m drawn on our RCF, with still
significant liquidity headroom.
Net finance costs before exceptionals were GBP105m (2019/20:
GBP106m). This is in line with our guidance of c.GBP105m. We expect
2021/22 net finance costs before exceptionals to be c.GBP105m.
Impairment review
We perform an annual store-by-store review of impairment and
onerous contracts. After adjusting for the write-back related to
online capacity acceleration, the net credit was GBP7m, recognised
outside profit before tax and exceptionals. This comprises GBP65m
release relating to other tangible assets, GBP9m credit on onerous
contracts, and a GBP67m impairment charge on intangible assets,
following adoption of more cloud-based technology.
Pension
The net pension accounting surplus on the balance sheet was
GBP718m (2019/20 year end: GBP944m).
Net retirement benefit interest income was GBP16m for the year,
reported outside profit before tax and exceptionals.
Net new space
During the year we opened six new stores plus a Nutmeg store,
and closed one store. Net new space sales contribution was 0.4%,
slightly higher than guided. During 2021/22, we plan to open four
new stores and expect net new space sales contribution to be around
0.2%.
Future reporting
As previously announced, due to the first May bank holiday in
2020 moving from Monday to Friday, we will again report a 14-week
Q1 for 2021/22. The first 14 weeks of 2021/22 will be compared to
the corresponding 14 weeks in 2020/21, allowing both periods to
include the run-up to the first May bank holiday. Q1 will be
reported on 11 May 2021.
Q2 will again this year be 12 weeks and will be reported within
the first-half results as usual in September. Beyond 2021/22, both
Q1 and Q2 will revert back to 13 weeks as they were before the bank
holiday move in 2020.
From 2021/22, we will be adopting the Task Force on
Climate-related Financial Disclosures (TCFD) reporting framework,
which will enable all companies to more effectively report
climate-related financial disclosures around governance, strategy,
risk management, and metrics and targets.
Sustainability
We are committed to lowering our environmental footprint and
playing our full part in the communities we serve. As well as being
the right thing to do, we know how important it is to our
customers, colleagues and investors.
We have set stretching targets to reduce our carbon footprint,
plastic packaging and food waste. Our approach to sustainability
also covers sourcing from ethical and resilient supply chains,
helping to grow and develop British agriculture, and becoming
integrated into the communities we serve.
Carbon emissions
We are a signatory to the British Retail Consortium's (BRC's)
Climate Action Roadmap, which is designed to guide British retail
along the steps necessary to achieve a net zero UK, ahead of the
Government's 2050 target. Our current target, which was developed
with the help of the Carbon Trust, is to reduce operational
emissions (scope 1 and 2) by 33% by 2025, 53% by 2030 and to reach
net zero emissions by 2040. In 2020 we reduced our carbon footprint
by 32% against our 2017 baseline.
As British farming's biggest supermarket customer, we have also
committed to net zero agriculture by 2030.This will cover products
from the UK farmers directly sourced for our own brand products in
beef, pork, lamb, potatoes, and eggs.
Energy efficiency initiatives
We introduced shelf-edge technology in 2020 to around 200 of our
stores. This technology draws cold air back into the fridge and
helps reduce electricity consumption. We continued with our
investment in LED lighting and our programme to control voltage in
stores to reduce power demand. A reduction in gas consumption has
been achieved through our boiler replacement programme and the
reinstatement of 'heat harvest' technology, which uses heat from
refrigeration to provide hot water in store. Alongside energy
efficiency we continue to consider the role of on-site renewables.
We currently have five megawatts of on-site solar power installed
across 28 sites and in 2020 prioritised optimising these panels to
maximise generation.
Food waste
We have committed to reducing food waste in our stores by 50% by
2030 compared to a 2016 baseline. We sold over 100,000 'Magic Bags'
through our 'Too Good To Go' app, which gives customers access to
good quality products at a fraction of the retail price, and we
encourage our stores to give surplus food to local causes, such as
food banks. We redistribute edible surplus food from our
manufacturing and distribution centre sites through a range of
partners including Company Shop, FareShare and The Bread and Butter
Thing. In 2020 we redistributed the equivalent of almost 6.5
million meals. Where food cannot be redistributed we send it to
anaerobic digestion plants which generate renewable energy.
Plastics
Our target is to reduce own-brand plastic packaging by 50% by
2025 against a 2017 baseline. We were founding signatories to the
UK Plastic Pact and have committed that all of our own-brand
plastic packaging will be reusable, recyclable or compostable by
2025. In 2020 we trialled replacing plastic 'bags for life' with
sustainable paper-based alternatives, and have brought our extended
range of loose fruit and vegetables to an additional 269 stores,
giving customers even more choice to buy products without
plastic.
Deforestation
Deforestation is a contributing factor to biodiversity losses
and climate change. We have committed to zero deforestation in our
supply chains by 2025. This includes the use of both palm oil and
soya, two important forest-risk commodities. Our target is for 100%
of soya (including in animal feed) in own-brand products to come
from sustainably certified sources by 2025. We also became members
of the UK Roundtable on Sustainable Soy, committing to reporting
our progress publicly.
Animal welfare
Ensuring every animal in our supply chain is content and has a
good life through well managed farm animal welfare is a key
priority for us and our customers. We met our target to procure
100% of our eggs from free-range production systems in 2020 - five
years ahead of target. We also introduced a new 'For Farmers' range
of eggs, giving customers the option to pay more for eggs from
farms which are investing in biodiversity and welfare measures.
Compassion in World Farming recognised our commitment to improve
the health and welfare of beef from the dairy chain with a Good
Calf Award in 2020. Managing the responsible use of antibiotics has
remained a key area of focus and we do not permit routine use. In
2020 we took the additional step of banning the use of colistin, an
antibiotic deemed a last-resort treatment for human health.
Our Community
In response to COVID-19, we strengthened our commitment to
communities by investing 450,000 hours into our network of
Community Champions, in-store colleagues who work with the local
community, so they can better respond to local needs. We launched a
new meal delivery service for primary school children who were
eligible for free school meals and having to self-isolate, and
helped restock the nation's food banks with GBP10m of dedicated
stock. We also set up Food Bank Hubs in our stores, giving
customers the option to purchase pre-packed bags of groceries
designed around the needs of local food banks, and also introduced
ways for customers to make monetary donations to the Trussell Trust
when doing their online shopping.
Supporting charities
Our colleagues, customers and suppliers raised over GBP3m for
CLIC Sargent and we have made the decision to extend our
partnership to February 2022 so we can deliver on our fundraising
target to raise GBP15m. We also raised GBP1.25m for the Poppy
Appeal, GBP750k for Marie Curie's Great Daffodil Appeal and GBP65k
for Children In Need.
The Morrisons Foundation donated a further GBP3m in grants to
registered charities during the year, taking the total to GBP30m.
It also set up a dedicated fund to support charities working with
homeless people, donating GBP500k.
Responsible supply chain management
We acknowledge the responsibility we share with our suppliers to
respect the human rights of the people who make and sell our
products. This includes fair working conditions, health and safety
in the workplace, gender equity and respect for the diverse
communities in which we operate. In 2020 we 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.
Supporting the British Farming & Fishing Industry
To support farmers at the start of the crisis we shortened
payment terms to improve their cash flow and also opened our steak
counters to offer products that, in normal times, would have been
supplied to cafés and restaurants. We also opened seafood bars and
launched British fish boxes to help sell fish previously destined
for the food service sector.
Consolidated income statement
52 weeks ended 31 January 2021
2021 2020
------------------- --------------------------------------------------- ------------------------------------------
Before Exceptionals Before Exceptionals
exceptionals (note 4) exceptionals (note 4)
Note GBPm GBPm Total GBPm GBPm GBPm Total GBPm
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Revenue 3 17,598 - 17,598 17,536 - 17,536
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Cost of sales (17,097) (113) (17,210) (16,855) (52) (16,907)
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Gross profit 501 (113) 388 681 (52) 629
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Other operating
income 92 - 92 94 - 94
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Profit/loss on
disposal and exit
of properties - 2 2 66 66
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Administrative
expenses (287) 59 (228) (262) (6) (268)
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Operating profit 306 (52) 254 513 8 521
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Finance costs 5 (111) - (111) (111) - (111)
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Finance income 5 6 16 22 5 19 24
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Share of profit of
joint venture
(net of taxation) - - - 1 - 1
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Profit before
taxation 201 (36) 165 408 27 435
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Taxation 6 (58) (11) (69) (94) 7 (87)
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Profit for the period
attributable to the owners
of the Company 143 (47) 96 314 34 348
---------------------------- -------------- ------------- ----------- -------------- ------------- -----------
Earnings per share
(pence)
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
- Basic 8 3.99 14.60
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
- Diluted 8 3.95 14.44
------------------- ------- -------------- ------------- ----------- -------------- ------------- -----------
Consolidated statement of comprehensive income
52 weeks ended 31 January 2021
--------------------------------------------------------------------------------------------------------------------
2021 2020
Other comprehensive (expense)/income Note GBPm GBPm
----------------------------------------------------------- ----------- ----------------------------- -----------
Items that will not be reclassified to profit or loss:
----------------------------------------------------------- ----------- ----------------------------- -----------
Remeasurement of defined benefit schemes 17 (248) 231
----------------------------------------------------------- ----------- ----------------------------- -----------
Tax on defined benefit schemes 32 (38)
----------------------------------------------------------- ----------- ----------------------------- -----------
(216) 193
----------------------------------------------------------- ----------- ----------------------------- -----------
Items that may be reclassified subsequently to profit or
loss:
----------------------------------------------------------- ----------- ----------------------------- -----------
Cash flow hedging movement 41 (57)
----------------------------------------------------------- ----------- ----------------------------- -----------
Exchange differences on translation of foreign operations 1 (2)
----------------------------------------------------------- ----------- ----------------------------- -----------
Tax on items that may be reclassified subsequently to
profit or loss (7) 10
----------------------------------------------------------- ----------- ----------------------------- -----------
35 (49)
----------------------------------------------------------- ----------- ----------------------------- -----------
Other comprehensive (expense)/income for the period, net
of tax (181) 144
----------------------------------------------------------- ----------- ----------------------------- -----------
Profit for the period attributable to the owners of the
Company 96 348
----------------------------------------------------------- ----------- ----------------------------- -----------
Total comprehensive (expense)/income for the period
attributable to the owners of the Company (85) 492
----------------------------------------------------------- ----------- ----------------------------- -----------
Consolidated statement of financial position
As at 31 January 2021
2021 2020
Note GBPm GBPm
-------------------------------------------------------- ------- -------- --------
Assets
Non-current assets
Goodwill and intangible assets 9 328 381
Property, plant and equipment 10 7,358 7,147
Right-of-use assets 11 997 942
Investment property 12 59 58
Retirement benefit surplus 17 754 960
Investment in joint venture 31 39
Trade and other receivables 15 70 71
Derivative financial assets 20 9 -
9,606 9,598
-------------------------------------------------------- ------- -------- --------
Current assets
Inventories 14 814 660
Trade and other receivables 15 336 353
Current tax asset 27 -
Derivative financial assets 20 13 1
Cash and cash equivalents 19 240 305
1,430 1,319
Assets classified as held-for-sale 13 - 3
-------------------------------------------------------- ------- -------- --------
1,430 1,322
-------------------------------------------------------- ------- -------- --------
Total assets 11,036 10,920
-------------------------------------------------------- ------- -------- --------
Liabilities
Current liabilities
Trade and other payables 16 (2,837) (3,051)
Borrowings 20 (54) (237)
Lease liabilities 19 (72) (72)
Derivative financial liabilities 20 (18) (36)
(2,981) (3,396)
-------------------------------------------------------- ------- -------- --------
Non-current liabilities
Borrowings 20 (1,986) (1,108)
Lease liabilities 19 (1,299) (1,304)
Derivative financial liabilities 20 (2) (7)
Retirement benefit deficit 17 (36) (16)
Deferred tax liabilities (463) (472)
Provisions (53) (76)
-------------------------------------------------------- ------- -------- --------
(3,839) (2,983)
-------------------------------------------------------- ------- -------- --------
Total liabilities (6,820) (6,379)
-------------------------------------------------------- ------- -------- --------
Net assets 4,216 4,541
-------------------------------------------------------- ------- -------- --------
Shareholders' equity
Share capital 21 241 240
Share premium 21 201 192
Capital redemption reserve 39 39
Merger reserve 2,578 2,578
Retained earnings and other reserves 1,157 1,492
-------------------------------------------------------- ----------------- --------
Total equity attributable to the owners of the Company 4,216 4,541
-------------------------------------------------------- ----------------- --------
Consolidated statement of cash flows
52 weeks ended 31 January 2021
2021 2020
Note GBPm GBPm
----------------------------------------------------------------------------------------------- ----- ------ ------
Cash flows from operating activities
Cash generated from operations 18 286 1,017
Interest paid (116) (104)
Taxation paid (81) (87)
----------------------------------------------------------------------------------------------- ----- ------ ------
Net cash inflow from operating activities 89 826
----------------------------------------------------------------------------------------------- ----- ------ ------
Cash flows from investing activities
Interest received - 1
Dividends received from joint venture 23 8 9
Proceeds from the disposal of property, plant and equipment, investment property, right-of-use
assets and assets held for sale 27 34
Purchase of property, plant and equipment, investment property and right-of-use assets (461) (429)
Purchase of intangible assets (77) (81)
Acquisition of business (net of cash received) (1) (1)
Net cash outflow from investing activities (504) (467)
----------------------------------------------------------------------------------------------- ----- ------ ------
Cash flows from financing activities
Purchase of trust shares 21 - (10)
Settlement of share awards 21 (10) (2)
Proceeds from exercise of employee share options 21 9 14
New borrowings 934 347
Repayment of borrowings (237) (278)
Repayment of lease obligations (85) (87)
Dividends paid 7 (261) (302)
----------------------------------------------------------------------------------------------- ----- ------ ------
Net cash inflow/(outflow) from financing activities 350 (318)
----------------------------------------------------------------------------------------------- ----- ------ ------
Net (decrease)/increase in cash and cash equivalents (65) 41
Cash and cash equivalents at start of period 305 264
----------------------------------------------------------------------------------------------- ----- ------ ------
Cash and cash equivalents at end of period 19 240 305
----------------------------------------------------------------------------------------------- ----- ------ ------
Reconciliation of net cash flow to movement in net debt(1) in
the period
2021 2020
Note GBPm GBPm
----------------------------------------------------- ---- ------- -------
Net (decrease)/increase in cash and cash equivalents (65) 41
Cash inflow from increase in borrowings (934) (347)
Cash outflow from repayment of borrowings 237 278
Cash outflow from repayment of lease liabilities 85 87
Non-cash movements on lease liabilities(2) (80) (66)
Other non-cash movements 46 (57)
Opening net debt(1) (2,458) (2,394)
----------------------------------------------------- ---- ------- -------
Closing net debt (1) 19 (3,169) (2,458)
----------------------------------------------------- ---- ------- -------
(1) Net debt is defined in the Glossary.
(2) Non-cash movement on lease liabilities comprise GBP15m
(2020: GBP36m) in relation to new leases and GBP65m (2020: GBP30m)
from the remeasurement of existing leases.
Consolidated statement of changes in equity
Attributable to the owners of the Company
------------------------------------------------------------------------------------------
52 weeks ended 31 Share Share Capital Merger Hedging Retained Total equity
January 2021 capital premium redemption reserve reserve earnings
reserve
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 - - - - - 96 96
Other
comprehensive
income/(expense):
Cash flow hedging
movement - - - - 41 - 41
Exchange
differences on
translation of
foreign
operations - - - - - 1 1
Remeasurement of
defined benefit
schemes 17 - - - - - (248) (248)
Tax in relation to
components of
other
comprehensive
income - - - - (7) 32 25
------------------- ----- ----------- ----------- ----------- ----------- ----------- ---------- -------------
Total
comprehensive
income/(expense)
for the period - - - - 34 (119) (85)
------------------- ----- ----------- ----------- ----------- ----------- ----------- ---------- -------------
Employee share
option schemes:
Share-based
payments charge - - - - - 20 20
Settlement of
share awards 21 - - - - - (9) (9)
Share options
exercised 21 1 9 - - - - 10
Dividends 7 - - - - - (261) (261)
------------------- ----- ----------- ----------- ----------- ----------- ----------- ---------- -------------
Total transactions
with owners 1 9 - - - (250) (240)
------------------- ----- ----------- ----------- ----------- ----------- ----------- ---------- -------------
At 31 January 2021 241 201 39 2,578 (3) 1,160 4,216
------------------- ----- ----------- ----------- ----------- ----------- ----------- ---------- -------------
Attributable to the owners of the Company
------------------------------------------------------------------------------------------
52 weeks ended 2 Share Share Capital Merger Hedging Retained Total equity
February 2020 capital premium redemption reserve reserve earnings
reserve
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 17 - - - - - 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 21 - - - - - (10) (10)
Employee share
option schemes:
Share-based
payments charge - - - - - 26 26
Settlement of
share awards 21 - - - - - (2) (2)
Share options
exercised 21 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
The financial information, which comprises the consolidated
income statement, consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of cash flows, consolidated statement of changes in
equity, and related notes, is derived from the full Group financial
statements for the 52 week period ended 31 January 2021, which have
been prepared for the 52 weeks ended 31 January 2021 (2020: 52
weeks ended 2 February 2020) in accordance with International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 (IFRS) and the applicable legal requirements of
the Companies Act 2006. In addition to complying with international
accounting standards in conformity with the requirements of the
Companies Act 2006, the financial statements also comply with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
It does not constitute statutory financial statements within the
meaning of section 434 of the Companies Act 2006. This financial
information has been agreed with the auditor for release. The
Group's financial statements (comprising the consolidated income
statement, consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of cash flows, consolidated statement of changes in
equity, and related notes) are available for download on the
Group's website at
https://www.morrisons-corporate.com/investor-centre/financial-reports/
The Annual Report and Financial Statements for the 52 week
period ended 31 January 2021 on which the auditor has given an
unqualified report and which does not contain a statement under
section 498 of the Companies Act 2006, will be delivered to the
Registrar of Companies in due course.
The accounting policies used in completing this financial
information have, unless otherwise stated, been consistently
applied in all periods shown. These accounting policies are
detailed in the Group's financial statements for the 52 week period
ended 31 January 2021 which can be found on the Group's website
https://www.morrisons-corporate.com/investor-centre/financial-reports/
Going concern
The 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 and emerging
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 52 weeks ended 31 January 2021, with
stockpiling in the early weeks of the pandemic and then the effects
of transitioning in and out of 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 52 weeks ended 31 January 2021.
Fuel sales were affected by reduced demand during periods of
lockdown, with some recovery in between those periods. Profit
before tax and exceptionals was impacted in the period by the
considerable direct costs associated with COVID-19 .
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 severe but
plausible scenarios based on the experiences during the 52 weeks
ended 31 January 2021, recognising the degree of uncertainty that
continues to exist.
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.
In September 2019 the Group issued a 12-year GBP350m sterling
bond, ahead of the maturity of the EUR282m Eurobond which was
repaid in June 2020. During the year the Group took up the option
of extending its main GBP1,350m revolving credit facility (RCF) by
a year to June 2025 and obtained three new GBP100m RCFs. Since 31
January 2021, all four of the GBP100m RCFs have been extended with
GBP200m now maturing in September 2021, GBP100m in March 2022 and
GBP100m in July 2022, taking the total committed RCFs from
GBP1,450m to GBP1,750m. As at 31 January 2021, the Group had net
debt (excluding leases) of GBP1,798m.
As at 31 January 2021, the Group covenant basis net debt
(excluding leases)/EBITDA ratio was 2.4x and the EBITDA/net
interest expense ratio was 4.8x, providing sufficient headroom
against the covenant limits. 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.
New accounting standards, amendments and interpretations adopted
by the Group
The following new standards, interpretations and amendments to
standards are mandatory for the Group for the first time for the 52
weeks ended 31 January 2021:
-- Amendments to the following standards:
IFRS 3 'Definition of a Business'
IFRS 7, IFRS 9 and IAS 39 'Interest rate benchmark reform'
IAS 1 and IAS 8 'Definition of Material'
-- Amendments to references to the conceptual framework in
IFRS standards
The Group has considered the above amendments to published
standards, and has concluded that these are not relevant to the
Group.
New accounting standards, amendments and interpretations in
issue but not yet effective
There are a number of standards and interpretations issued by
the IASB that are effective for financial statements after this
reporting period.
Of these new standards, amendments and interpretations, there
are none that are expected to have a material impact on the Group's
consolidated financial statements.
Principal risks
The Directors have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, the achievement of its seven
priorities, solvency or liquidity.
The Directors consider these to be the most significant risks
facing the business, however, they do not comprise all the risks
that the business is facing. These principal risks are set out
below.
RISKS DESCRIPTION MITIGATION
Business interruption There is a risk that a major -- We have recovery plans in place
incident, such as a significant covering our stores, depots, online
failure of technology or a strategic operations, sites and
third party, a natural disaster, a offices;
global pandemic such as COVID-19, -- These plans include, where
disruption in the supply appropriate, secondary locations
chain or strike action, could cause which would be used as backup
significant disruption to business in case of an incident;
operations. The Group's -- Business continuity resilience and
response must be appropriate to disaster recovery exercises are
minimise disruption and reputational undertaken to test processes
damage. and management's ability to respond
effectively;
-- A Crisis Management Group is in
place to oversee these plans and to
manage and respond
to any major incidents;
-- We conduct supplier risk
assessments and have contingency
plans in place, where possible,
to manage the risk of loss of supply;
-- There has been continued
investment in cloud technologies to
provide further resilience
to the Technology systems; and
-- We work alongside our strategic
third party partners ensuring both
parties' continuity
plans are robust and aligned.
-------------------------------------- --------------------------------------
Competitiveness The Grocery Sector continues to be -- Our pricing, trade plan and
highly competitive. If we do not promotional and marketing campaigns
engage with our suppliers are actively managed;
or effectively manage our trade plan, -- Our strong balance sheet and
harnessing the benefits of new strong cash flow allow us to continue
technology to remain to invest in our proposition;
competitive, there is a risk this -- Long-term agreements are
will adversely impact like-for like established with suppliers, ensuring
sales and financial a competitive customer offer
performance. to help maintain security of supply;
-- We continue to work closely with
British growers and farmers; and
-- We continually review our range,
category plans and quality and
respond to customer feedback.
-------------------------------------- --------------------------------------
COVID-19 (new) COVID-19 continues to have a -- A dedicated team is in place to
significant and widespread impact on coordinate our response with
our business. representation from all key
business areas;
Failure to appropriately respond to -- The safety and wellbeing of our
and manage the impacts of COVID-19 on colleagues and customers remains our
our colleagues, top priority and we
customers and suppliers or to adapt continue to adhere to the UK and
our ways of working could adversely devolved Government guidelines in all
affect our business areas;
performance. -- We continue to apply social
distancing measures in all stores and
sites, through installing
protective screens and making hand
sanitiser, gloves and face coverings
available for all
colleagues;
-- Increased focus on cleaning and
hygiene;
-- We have a well managed balance
sheet and liquidity strategy which
has provided resilience
to operate through the pandemic as
well as take actions to support our
customers, colleagues
and suppliers;
-- We continue to closely monitor
colleague absence and recruited new
colleagues in stores,
manufacturing, logistics, online and
home delivery;
-- No colleagues have been
furloughed. 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;
-- Increased our online capacity,
introduced click and collect,
launched food boxes and expanded
our partnerships with Amazon and
Deliveroo. We also introduced a
telephone order grocery doorstep
delivery service to support the most
vulnerable; and
-- We continue to work hard with all
our suppliers including supporting
British Farmers and
moving to immediate payment terms for
small suppliers.
-------------------------------------- --------------------------------------
Customer There is a risk that we do not meet -- One of our seven priorities is to
the needs and expectations of our 'Serve customers better' and we have
customers in respect a range of activities
of price, range, quality, service or to support that;
respond to changes in eating and -- The ongoing programme of customer
shopping habits. listening helps us to gain a deep
understanding of what
If we do not provide the shopping our customers want and has informed
trip that customers want, both in key activities such as our store
store and online, we could Fresh Look programme
lose sales and market share as well as changes to range and the
particularly in an environment of introduction of more locally sourced
weaker customer sentiment. products;
-- We closely monitor research on
customer perceptions and respond
quickly wherever possible,
such as, plastics, palm oil, red meat
and changes to eating habits;
-- We have worked to make Morrisons
products accessible to more customers
by working with
new wholesale partners and continuing
to expand the geography covered by
our online offering;
-- We actively respond to customer
complaints and aim to continually
improve the customer
experience; and
-- Community Champions actively
engage local communities to support
local charities and initiatives
such as doorstep deliveries.
-------------------------------------- --------------------------------------
Environment and sustainability (new) This risk relates to a failure to -- Developments and progress in our
reduce the environmental impact of sustainability agenda are reported to
the business, meet the the new Sustain
external sustainability commitments subcommittee and to the Corporate
and expectations of our customers and Compliance and Responsibility
wider stakeholders Committee;
which could result in financial -- The Corporate Compliance and
penalties and/or reputational damage. Responsibility Committee meets
regularly during the year and
performs an oversight, monitoring and
advisory role for key areas including
environment, ethical
compliance and corporate
responsibility;
-- Each Sustain Workstream commitment
has a responsible business owner
providing updates to
the Corporate Responsibility team,
the Sustain subcomittee and their
relevant Executive Committee
Director;
-- Our Corporate Responsibility
report is published annually on our
corporate website, sharing
progress against our environmental,
ethical and sustainability targets;
-------------------------------------- --------------------------------------
Environment and sustainability (new) -- We have a clear strategy to reduce
(continued) Morrisons emissions footprint and
expect to achieve
Net Zero emissions by 2040;
-- This includes our ambition to be
Net Zero in our UK agriculture supply
chain by 2030, working
with the farmers who directly supply
us to reduce emissions from livestock
and produce, increase
carbon sequestration and improve the
use of renewable energy on farm; and
-- We pledge to reduce the plastic we
use in our products by 50% with 100%
of plastic packaging
used on our products to be
recyclable, reusable or compostable
by 2025.
-------------------------------------- --------------------------------------
Financial and treasury The main areas of this principal risk -- The Group's treasury policy is to
are the availability of funding and maintain an appropriate borrowing
management of cash maturity profile and
flow, including liquidity a sufficient level of headroom in
requirements and debt maturity committed facilities. This includes
profiles, to meet business needs. an assumption that supply
There is a risk of a working capital chain finance facilities are not
outflow if there was a significant available for the benefit of
reduction in payment suppliers;
terms to suppliers. Some suppliers -- The Group's Treasury function is
benefit from access to supply chain responsible for the forward-planning
finance facilities. and management of
The withdrawal of these facilities funding, interest rates, foreign
could lead to some terms being currency exchange rates and certain
reviewed. commodity price risks.
They report to the Treasury Committee
In addition, exposure to movement in and operate within clear policies and
foreign exchange rates continues to procedures which
require management. are approved by the Board. The
appropriateness of policies are
The growth of wholesale supply reviewed on a regular basis;
contracts introduces credit risk -- There are governance processes in
which requires policies and place to control purchases in foreign
monitoring to manage. currency and management
of commodity prices;
-- For livestock and produce, we
track prices and forecasts and enter
into long-term contracts
where appropriate to ensure stability
of price and supply; and
-- We continue to monitor credit risk
across our Wholesale customers.
-------------------------------------- --------------------------------------
Food safety, product integrity and There is a risk that the products we -- Monitoring processes are in place
ethical sourcing sell are unsafe or not of the to manage food safety and product
integrity that our customers integrity throughout
expect. It is of utmost importance to the Group and supply chain;
us, and to the confidence that -- Regular assessments of our
customers have in our suppliers and own manufacturing and
business, that we meet the required store production facilities
standards. If we do not do this it are undertaken to ensure adherence to
could impact business standards;
reputation and financial performance. -- Our vertical integration model
gives us control over the integrity
It is also important to us to support of a significant proportion
sustainable, ethical and resilient of our fresh food;
supply chains. -- Management regularly monitors food
safety and product integrity
performance and compliance
as well as conducting horizon
scanning to anticipate emerging
issues, such as the new allergen
regulation which comes into force in
2021;
-- The process is supported by
external accreditation and internal
training programmes;
-- Our Ethical Trading Policy and
Code establish key requirements for
all suppliers. We actively
monitor compliance through an
extensive third party audit programme
and provide support for
suppliers when issues are identified;
-- We work closely with our supply
chain to understand food provenance,
sustainable and ethical
practices including animal welfare;
and
-- Our measures to tackle Modern
Slavery are reported annually in our
Modern Slavery Act Statement.
-------------------------------------- --------------------------------------
Health and safety The main aspect of this principal -- We have clear policies
risk is of injury or harm to and procedures detailing
customers or colleagues. Failure the controls required to
to prevent incidents could impact manage health
business reputation and customer and safety risks across
the business;
-------------------------------------- --------------------------------------
Health and safety (continued) confidence and lead to financial -- An ongoing training programme is
penalties. in place for frontline operators and
management. These
have been updated in light of our
expanded online operations;
-- A programme of health and safety
audits is in place across the Group
with resource dedicated
to manage this risk effectively;
-- Introduced a programme of store
and site COVID-19 health and safety
audits; and
-- Management regularly monitors
health and safety performance and
compliance and has introduced
new electronic accident reporting
across all stores and sites to help
us identify and respond
to any trends.
-------------------------------------- --------------------------------------
Information security (new) A cyber attack or security breach -- The Data Steering Group has the
could lead to a loss of customer, responsibility for overseeing data
colleague or Group confidential management practices,
data, business disruption, policies, regulatory awareness and
reputational damage and significant training. This includes change
fines. management activities and
a review of third parties managing
The risk environment is challenging, data on our behalf;
with increased levels of -- Information security policies,
sophisticated cyber-crime, complex procedures and controls are in place,
regulatory requirements and our use including encryption,
of a number of third parties. network security, systems access and
data protection;
-- This is supported by ongoing
monitoring, reporting and
rectification of vulnerabilities;
and
-- Focused working groups are in
place which review the management of
data across the business
including colleague data, customer
data, commercial data, financial data
and the sharing of
any data with third parties.
-------------------------------------- --------------------------------------
People Our colleagues are key to the -- We have fair employment policies,
achievement of our plan, particularly and competitive remuneration and
as we improve the business. benefits packages;
There is a risk that if we fail to -- A Group-wide reward framework is
attract, retain or motivate talented in place and roles are evaluated
colleagues, we will against an external framework,
not provide the quality of service driving stronger consistency of
that our customers expect. rewards;
-- Our training and development
programmes are designed to give
colleagues the skills they
need to do their job and support
their career aspirations;
-- Line managers conduct regular
talent reviews and processes are in
place to identify and
actively manage talent;
-- We have worked to give colleagues
increased visibility and flexibility
of their hours and
rotas with the introduction of a new
People System and modernised working
patterns;
-- During the year, no colleagues
have been furloughed and we awarded a
'6% thank you' guaranteed
annual bonus for all our frontline
colleagues;
-- Colleague engagement surveys,
listening sessions and networking
forums are used to understand
and respond to our colleagues; and
-- We take pride in creating an
inclusive work environment where
everyone feels welcome and
we celebrate our differences.
-------------------------------------- --------------------------------------
Regulation The Group operates in an environment -- The Group monitors for potential
governed by numerous regulations regulatory and legislative changes
including GSCOP (Groceries and the impact on contractual
Supply Code of Practice), General arrangements;
Data Protection Regulation, -- We actively engage with government
competition, employment and and regulatory bodies on policy
regulations over the Group's changes which could
products. The Board takes its impact our colleagues and our
responsibilities very seriously customers;
and recognises that breach of -- We have a GSCOP compliance
regulation can lead to framework in place including training
for relevant colleagues
and processes to monitor compliance;
-- We have a senior level working
group in place to review and improve
GSCOP compliance activity;
-------------------------------------- --------------------------------------
Regulation (continued) reputational damage and financial -- We have an independent
damages to the Group. whistleblowing line for suppliers to
provide feedback to the Group
Consideration is also given to any and a Code Compliance Officer so that
potential changes to regulations. action can be taken as necessary;
-- We have an established General
Data Protection Regulation governance
framework including
data management practices, policies,
regulatory awareness and training;
and
-- We have training, policies and
legal guidance in place to support
compliance with Competition
Law and other regulations.
-------------------------------------- --------------------------------------
UK - EU Trade Failure to adequately adapt to -- A business-wide Stability Group
the post-Brexit trading and continues to monitor regulatory
regulatory environment could have requirements and supply
significant implications for chain impacts and coordinate our
business performance; including operational responses.
supply chain disruption, availability -- We continue to actively engage our
and rising costs due key suppliers to reduce any impact to
to currency fluctuations. our supply chains
and have maintained our focus on UK
sourcing;
-- We increased the stock holding on
a number of key lines to ensure
availability for our
customers;
-- We have maintained Authorised
Economic Operator status to enable
streamlined border checks
and have introduced additional
procedures to support our store in
Gibraltar;
-- We have also continued to work
with our suppliers and freight
providers to identify alternative
supply routes to avoid the busiest
ports;
-- The Group has a treasury policy in
place for hedging to mitigate risks
on currency fluctuations.
All required changes to taxes and
tariffs have been applied; and
-- We continue to monitor the
availability of labour across the
Group and we have enacted
specific people plans across our
manufacturing and logistics sites
including supporting EU
colleagues through the process of
applying for settled status and
increasing the number of
apprentices.
-------------------------------------- --------------------------------------
Responsibility statement
This statement is given pursuant to Rule 4 of the Disclosure and
Transparency Rules. It is given by each of the Directors.
To the best of each Director's knowledge:
a) The consolidated financial statements, prepared in accordance
with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Group and its subsidiaries included in the
consolidation as a whole; and
b) the strategic report includes a fair review of the
development of the business and the position of the Group and its
subsidiaries included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
2. Segmental Reporting
The Group's principal activity is that of retailing, derived
from the UK both in-store and online.
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 in servicing their customer base, both in-store and through
the various online channels.
The Group has considered the overriding core principles of IFRS
8 'Operating segments' as well as its internal reporting framework,
management and operating structure. In particular, the Group
considered its retail outlets, the fuel sale operation,
the manufacturing entities, online operations and wholesale
supply. The Directors' conclusion is that the Group has one
operating segment, that of retailing.
3. Revenue
2021 2020
GBPm GBPm
---------------------------------- ------ ------
Sale of goods in-store and online 14,183 13,065
Other sales 922 800
---------------------------------- ------ ------
Total sales excluding fuel 15,105 13,865
Fuel 2,493 3,671
---------------------------------- ------ ------
Total revenue 17,598 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 performance 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
28.7% (2020: 23.1%).
'Profit before exceptionals' and 'earnings per share before
exceptionals' measures are not recognised measures under IFRS and
may not be directly comparable with adjusted measures used by other
companies. The classification of items excluded from profit before
exceptional requires judgement including considering the nature,
circumstances, scale and impact of a transaction. Reversals of
previous exceptional items are assessed based on the same
criteria.
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 onerous and property-related provisions would
typically be included as exceptional items, as would significant
impairments or impairment write backs of other non-current assets.
During the year the appropriateness of the policy has been reviewed
and the policy expanded to capture significant one off costs
incurred where they have resulted in a significant write back of
impairments of tangible assets as part of the annual impairment
exercise, to provide consistent treatment between the cost of
development incurred and the recognition of the impairment write
back. As a result the costs in the year relating to the
considerable expansion of the online and home delivery business
have been treated as exceptional.
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.
2021 2020
GBPm GBPm
-------------------------------------------------------------------- ------ ------
Profit after tax 96 348
Add back: tax charge for the period(1) 69 87
-------------------------------------------------------------------- ------ ------
Profit before tax 165 435
Adjustments for:
Restructuring and online costs(1) 56 51
Online and home delivery expansion:
Transformation costs(1) 66 -
Impairment write back - store pick(1) (76) -
Net impairment and provision for onerous contracts(1) (7) (2)
Profit/loss arising on disposal and exit of properties(1) (2) (66)
Other exceptional items(1) 15 9
Net retirement benefit interest (1) (16) (19)
Profit before tax and exceptionals 201 408
Normalised tax charge at 28.7% (2020: 23.1%)(1,2) (58) (94)
-------------------------------------------------------------------- ------ ------
Profit before exceptionals after tax 143 314
-------------------------------------------------------------------- ------ ------
Earnings per share before exceptionals (pence)
- Basic (note 8) 5.95 13.18
- Diluted (note 8) 5.89 13.03
------------------------------------------------------------------- ------ ------
(1) Adjustments marked 1 increase post-tax adjusted earnings by
GBP47m (2020: decrease of GBP34m) as shown in the reconciliation of
earnings disclosed in note 8.
(2) Normalised tax is defined in the Glossary.
Restructuring and store closure costs
Restructuring and store closure costs totalled GBP56m (2020:
GBP51m). Of this amount, there was an additional GBP21m (2020:
GBP46m) charge for the restructuring of the store management and
operations following a delay in the completion of the activity
which commenced in the prior year; a GBP17m charge relating to the
costs of organising and modernising the ways of working across the
head office; a GBP16m (2020: GBPnil) charge from reorganisations
within logistics to increase the flexibility of the network to
respond to changes in the business; GBP3m (2020: GBPnil) for
restructuring of the manufacturing operations; and GBP1m credit
(2020: GBP5m cost) relating to store closures.
Online and home delivery expansion
Transformation costs
The costs of the rapid roll out of online and home delivery
amount to GBP66m and comprise of GBP42m of transformation costs
from rapidly increasing the number and capacity of online and home
delivery channels available and GBP24m relating to stock wastage as
new process and system integrations relating to store pick were
being adapted.
Impairment write back - store pick
Following the Group's annual impairment exercise a write back of
GBP76m has been recognised. The write back relates to the improved
utilisation of store assets where store pick online operations have
become sufficiently established.
Net impairment and provision for onerous contracts
Following the Group's annual impairment and onerous contract
review a net credit of GBP7m (2020: GBP2m) has been recognised,
excluding the GBP76m (2020: GBPnil) impairment write back relating
to the online and home delivery expansion as set out above. The net
credit of GBP7m includes:
-- a net GBP2m impairment charge, comprising a GBP67m impairment
charge on intangible assets, a GBP58m impairment charge
on tangible assets offset by a GBP123m write back of impairment
on tangible assets (net GBP65m tangible asset write back);
and
-- a net GBP9m credit recognised in relation to provisions
for onerous contracts.
In total a GBP74m net impairment write back has been recognised
including the GBP76m write back relating to the improved asset
utilisation of store assets from the online and home delivery
expansion (GBP199m impairment write back offset by GBP125m
impairment charge). The GBP199m impairment write back includes
GBP144m in relation to property, plant and equipment, GBP54m in
relation to right-of-use assets and GBP1m in relation to investment
property. The GBP125m impairment charge includes GBP42m in relation
to property, plant and equipment, GBP13m in relation to
right-of-use assets, GBP3m in relation to investment property and
GBP67m in relation to intangible assets.
Store impairment and provision for onerous contracts
(continued)
In the 52 weeks ended 2 February 2020, there was a net annual
impairment and onerous contract credit of GBP2m. An impairment
write back of GBP15m was recognised in addition to a GBP2m charge
in relation to provisions for onerous contracts. A further GBP10m
credit recognised following changes to estimates in respect of
lease terms and a GBP21m charge in respect of amounts provided for
onerous commitments and receivables in respect of contract
payments.
Profit/loss arising on disposal and exit of properties
Profit arising on disposal and exit of properties was GBP2m, net
of fees incurred.
In the 52 weeks ended 2 February 2020 a GBP66m profit was
realised of which GBP64m related to the sale of land and buildings
of the Camden store.
Other exceptional items
Other exceptional items include:
-- a GBP9m charge relating to additional bonuses paid to Colleagues
during the year who would not ordinarily have been eligible for
the bonus scheme;
-- a GBP4m net charge relating to costs incurred in relation to legal
cases in respect of historic events; and
-- a GBP2m charge relating to the increased mark down of excess stock
and one off costs relating to Brexit.
In the 52 weeks ended 2 February 2020, there was GBP9m of other
exceptional items, including a GBP6m charge 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 in respect of other net exceptional costs.
Taxation
The total tax charge for the 52 period ended 31 January 2021 of
GBP69m includes an exceptional tax charge of GBP11m (2020: GBP7m
credit) being a GBP41m (2020; GBPnil) charge due to the change in
the standard rate of corporation tax in respect of deferred tax
(see note 6) and a GBP30m (2020: GBP7m) credit in relation to other
exceptional items.
5. Finance costs and income
2021 2020
GBPm GBPm
--------------------------------------------------------- ----- -----
Interest payable on short-term loans and bank overdrafts (5) (4)
Interest payable on bonds (45) (43)
Interest on lease liabilities (60) (63)
Interest capitalised 2 2
--------------------------------------------------------- ----- -----
Total interest payable (108) (108)
Provisions: unwinding of discount (1) (2)
Other finance costs (2) (1)
--------------------------------------------------------- ----- -----
Finance costs (1) (111) (111)
Bank interest and other finance income 3 4
Finance lease income - 1
Other receivables: unwinding of discount 3
Finance income before exceptionals(1) 6 5
Net retirement benefit interest (notes 4 and 17) 16 19
Finance income 22 24
--------------------------------------------------------- ----- -----
Net finance costs (89) (87)
--------------------------------------------------------- ----- -----
(1) Net finance costs before exceptionals marked 1 amount to
GBP105m (2020: GBP106m).
6. Taxation
2021 2020
GBPm GBPm
-------------------------------------------------- ----- -----
Current tax
- UK corporation tax 47 60
- Foreign tax 2 3
- Adjustments in respect of prior periods 4 (4)
------------------------------------------------- ----- -----
53 59
-------------------------------------------------- ----- -----
Deferred tax
- Origination and reversal of timing differences (20) 22
- Adjustments in respect of prior periods (5) 6
- Impact of change in tax rate 41 -
16 28
-------------------------------------------------- ----- -----
Tax charge for the period 69 87
-------------------------------------------------- ----- -----
The effective tax rate for the year was 42.0% (2020: 20.0%). The
effective tax rate for the year was 23.0% (2020: 1.0%) above the UK
statutory tax rate of 19.0% (2020: 19.0%). The main item increasing
the effective tax rate is a deferred tax charge arising as a result
of a change in the rate at which deferred tax is provided (see
below).
The normalised tax rate for the year was 28.7% (2020: 23.1%).
The normalised tax rate was 9.7% (2020: 4.1%) above the UK
statutory tax rate of 19.0% (2020: 19.0%). 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 normalised tax rate increased year-on-year due to a
reduction in profit before exceptionals.
Legislation to reduce the standard rate of corporation tax to
17% from 1 April 2020 was enacted in Finance Act 2016. 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 year so at 31 January 2021 all
deferred tax balances have been calculated at 19%. The deferred tax
liability recognised on the balance sheet increased by GBP55m due
to the change in rate at which deferred tax is provided which
resulted in a GBP41m deferred tax charge recognised within
exceptional items in the income statement for the period (see note
4) and a GBP14m deferred tax charge recognised in other
comprehensive income.
The March 2021 Budget announced an increase in the UK standard
rate of corporation tax to 25% from 1 April 2023. The legislation
was not enacted during the year so deferred tax has been provided
using the enacted rate of 19%. If deferred tax was calculated using
the 25% rate the net deferred tax liability recognised at the
balance sheet date would be increased from GBP463m to GBP602m.
7. Dividends
Amounts recognised as distributed to equity holders in the
period:
2021 2020
GBPm GBPm
------------------------------------------------------------------------------------- ----- -------
Final dividend for the period ended 2 February 2020 of 4.84p (2019: 4.75p) 116 113
Special final dividend for the period ended 2 February 2020 of nil (2019: 4.00p) - 95
Interim dividend for the period ended 31 January 2021 of 2.04p (2019: 1.93p) 49 46
Special interim dividend for the period ended 31 January 2021 of 4.00p (2020: 2.00p) 96 48
------------------------------------------------------------------------------------- ----- -------
261 302
-------------------------------------------------------------------------------------- ----- -----
The Directors propose a final ordinary dividend in respect of
the financial period ended 31 January 2021 of 5.11p per share which
will absorb an estimated GBP123m of shareholders' funds. Subject to
approval at the Annual General Meeting (AGM), the final dividend
will be paid on 28 June 2021 to shareholders who are on the
register of members on 21 May 2021.
The dividends paid and proposed during the year are from
cumulative realised distributable reserves of the Company.
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 (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).
a) Basic and diluted EPS (unadjusted)
Reconciliations of the earnings and weighted average number of
shares used in the calculations are set out below:
2021 2020
-------- ---------- ------ -------- ---------- ------
Weighted Weighted
Average Average
number of number of
Earnings shares EPS Earnings shares EPS
GBPm millions pence GBPm millions pence
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Unadjusted EPS
Basic EPS
Profit attributable to ordinary shareholders 95.8 2,398.1 3.99 347.9 2,382.5 14.60
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Effect of dilutive instruments
Share options and LTIPs - 25.2 (0.04) - 26.3 (0.16)
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
Diluted EPS 95.8 2,423.3 3.95 347.9 2,408.8 14.44
--------------------------------------------- -------- ---------- ------ -------- ---------- ------
b) EPS before exceptionals
EPS before exceptionals is defined as earnings per share before
exceptional items and net retirement benefit interest. Basic EPS is
adjusted to more appropriately reflect ongoing business
performance.
The reconciliation of the earnings used in the calculations of
EPS before exceptionals is set out below:
2021 2020
-------- ---------- ------ -------- ---------- ------
Weighted Weighted
average average
number of number of
Earnings shares EPS Earnings shares EPS
GBPm millions pence GBPm millions pence
-------------------------------------------------------- -------- ---------- ------ -------- ---------- ------
EPS before exceptional
Basic EPS before exceptionals
Profit attributable to ordinary shareholders 95.8 2,398.1 3.99 347.9 2,382.5 14.60
Adjustments to determine profit before exceptionals
(note 4) 47.0 - 1.96 (34.0) - (1.42)
-------------------------------------------------------- -------- ---------- ------ -------- ---------- ------
142.8 2,398.1 5.95 313.9 2,382.5 13.18
Effect of dilutive instruments
Share options and LTIPs - 25.2 (0.06) - 26.3 (0.15)
-------------------------------------------------------- -------- ---------- ------ -------- ---------- ------
Diluted EPS before exceptionals 142.8 2,423.3 5.89 313.9 2,408.8 13.03
-------------------------------------------------------- -------- ---------- ------ -------- ---------- ------
9. Goodwill and intangible assets
2021 2020
GBPm GBPm
----------------------------------- ----- -----
Net book value
At start of period 381 404
Additions 84 82
Interest capitalised 1 2
Disposals - (1)
Impairment (67) (15)
Amortisation charge for the period (71) (91)
------------------------------------ ----- -----
At end of period 328 381
------------------------------------ ----- -----
The Group has performed its annual assessment of its
amortisation policies and asset lives and deemed them to be
appropriate. Following the annual impairment review conducted by
the Group, an impairment charge of GBP67m (2020: GBP15m) has been
recognised in relation to intangible assets. This impairment
primarily relates to software assets impacted by a move to more
cloud based solutions during the 52 weeks ended 31 January
2021.
10. Property, plant and equipment
2021 2020
GBPm GBPm
-------------------------- ----- -----
Net book value
At start of period 7,147 7,094
Additions 516 398
Interest capitalised 1 -
Disposals (3) (5)
Depreciation charge (405) (371)
Net impairment write back 102 34
--------------------------- ----- -----
At end of period 7,358 7,147
--------------------------- ----- -----
The Group has performed its annual assessment of its
depreciation policies and asset lives and deemed them to be
appropriate. There have been no changes made to asset category
lives during the year.
The cost of financing property developments prior to their
opening date has been included in the cost of the asset. The
cumulative amount of interest capitalised in the total cost above
amounts to GBP199m (2020: GBP199m).
Impairment
The Group considers each store location as a separate cash
generating unit (CGU) and therefore considers every location for
impairment annually. The Group calculates each location's
recoverable amount and compares this amount to its book value. The
recoverable amount is determined as the higher of 'value-in-use'
and 'fair value less costs of disposal'. If the recoverable amount
is less than the book value, an impairment charge is recognised
based on the following methodology:
'Value-in-use' is calculated by projecting individual locations
pre-tax cash flows over the life of the store, based on forecasting
assumptions. The methodology used for calculating future cash flows
is to:
-- use the actual cash flows for each location in the current
year, adjusted for COVID-19 one off costs;
-- allocate a proportion of the Group's central costs to each
location on an appropriate basis;
-- allocate online store pick cash flows to locations where a
reliable store pick trading history has been established (included
for the first time this year, due to the rapid expansion of
online store pick during the year);
-- allocate an element of future capital cost, including energy
efficiency spend required as part of environmental strategy;
-- project store cash flows over the next three years by applying
forecast sales and cost growth assumptions in-line with the
Group budget;
-- project cash flows beyond year three by applying a long-term
growth rate;
-- discount the cash flows using a pre-tax rate of 9.0% (2020:
9.0%). The Group takes into account a number of factors when
assessing the discount rate, including the Group's WACC and
other wider market factors; and
-- consideration is given to any significant one-off factors
impacting the stores during the current year and any strategic,
climate-related, Brexit or market factors which may impact
future store performance.
'Fair value less costs of disposal' is estimated by the
Directors based on their knowledge of individual stores, the
markets they serve and likely demand from grocers or other
retailers. This assessment takes into account the continued low
demand from major grocery retailers for supermarket space, when
assessing rent and yield assumptions on a store by store basis. In
certain years, the Directors also obtain store level valuations
prepared by independent valuers to aid this assessment. When
assessing the assumptions at individual store level the Directors
take into account the following factors:
-- whether a major grocery operator might buy the store, taking
into consideration whether they are already located near the
store, and whether the store size is appropriate for their business
model, and then if not;
-- assessing whether a smaller store operator might buy the store,
in which case the value has been updated to reflect the Directors'
assessment of the yield which would be achievable if such an
operator acquired the store, and then if not; and
-- assessing whether a non-food operator might buy the store, in
which case the value has been updated to reflect the Directors'
assessment of the yield which would be achievable if such an
operator acquired the store.
The Group also considers its corporate assets for impairment
annually. The Group calculates the recoverable amount of its
corporate assets and compares this amount to its book value. The
recoverable amount is based on the 'value-in-use' calculation
undertaken for the store location CGU assessment, less the carrying
value of the location CGUs. As at 31 January 2021, there was no
indication of impairment of the corporate assets as part of this
assessment. In addition to this assessment, the Group undertakes an
obsolescence review to identify any specific corporate assets which
require impairment on an ongoing basis.
Having applied the above methodology and assumptions, the Group
has recognised a net impairment write back of GBP102m (GBP144m
impairment write back offset by GBP42m impairment charge) during
the year in respect of property, plant and equipment (2020: net
GBP34m impairment write back; GBP93m impairment write back offset
by GBP59m impairment charge). This movement reflects fluctuations
from store level trading performance and local market
conditions.
At 31 January 2021, the assumptions to which the value-in-use
calculation is most sensitive are the discount and cash flow growth
rates. The Group has estimated a reasonably possible change of +1%
discount rate or -1% growth rate would result in a c.GBP70m loss
and -1% discount rate or +1% growth rate would result in a c.GBP40m
gain. The impairment model is also sensitive to the inclusion of
store pick in individual CGUs which could impact future impairment
assessments.
11. Right-of-use assets
2021 2020
GBPm GBPm
-------------------------- ----- -----
Net book value
At start of period 942 929
Additions 78 75
Disposals (1) (3)
Depreciation charge (63) (60)
Net impairment write back 41 1
--------------------------- ----- -----
At end of period 997 942
--------------------------- ----- -----
The Group has performed its annual assessment of its
depreciation policies and asset lives and deemed them to be
appropriate. There have been no changes made to asset category
lives during the year.
Impairment
Having applied the same methodology and key assumptions as for
property, plant and equipment as set out in note 10, the Group has
recognised a net impairment write back of GBP41m (GBP54m impairment
write back offset by GBP13m impairment charge) during the year in
respect of right-of-use assets (2020: net GBP1m impairment write
back; GBP24m impairment write back offset by GBP23m impairment
charge). This movement reflects fluctuations from store level
trading performance and local market conditions.
At 31 January 2021, the assumptions to which the value-in-use
calculation is most sensitive are the discount and cash flow growth
rates. The Group has estimated a reasonably possible change of +1%
discount rate or -1% growth rate would result in a c.GBP15m loss
and a -1% discount rate or +1% growth rate would result in a
c.GBP10m gain. The impairment model is also sensitive to the
inclusion of store pick in individual CGUs which could impact
future impairment assessments.
12. Investment property
2021 2020
GBPm GBPm
-------------------- ----- -----
Net book value
At start of period 58 60
Additions 6 7
Disposals (1) (1)
Depreciation charge (2) (3)
Net impairment (2) (5)
-------------------- ----- -----
At end of period 59 58
-------------------- ----- -----
13. Assets classified as held-for-sale
2021 2020
GBPm GBPm
-------------------------------------------- ----- -----
Net book value
At start of period 3 39
Transfer from property, plant and equipment - 3
Disposals (3) (39)
-------------------------------------------- ----- -----
At end of period - 3
-------------------------------------------- ----- -----
14. Inventories
2021 2020
GBPm GBPm
--------------- ----- -----
Finished goods 814 660
--------------- ----- -----
Unearned elements of commercial income are deducted from
finished goods as the inventory has not been sold.
15. Trade and other receivables
2021 2020
GBPm GBPm
---------------------------------------------------- ----- -----
Finance leases - Group is lessor 8 8
Other receivables 62 63
---------------------------------------------------- ----- -----
Total non-current 70 71
---------------------------------------------------- ----- -----
Commercial income trade receivables 6 7
Accrued commercial income 47 28
Other trade receivables 142 175
Less: provision for impairment of trade receivables (5) (4)
---------------------------------------------------- ----- -----
Trade receivables 190 206
Prepayments and accrued income 128 116
Other receivables 18 31
---------------------------------------------------- ----- -----
Total current 336 353
---------------------------------------------------- ----- -----
In the 52 weeks ended 31 January 2021, GBP20m (2020: GBP25m) of
deferred cash consideration has been received in relation to the
sale of the Camden site on the 13 December 2019. Within the
Consolidated statement of cash flows this has been included within
Proceeds from the disposal of property, plant and equipment,
investment property, right-of-use assets and assets held for
sale.
As at 31 January 2021 and 2 February 2020, trade receivables
that were neither past due nor impaired, related to a number of
debtors for whom there is no recent history of default. The other
classes of receivables do not contain impaired assets.
As at 7 March 2021, GBP6m of the GBP6m commercial income trade
receivables balance had been settled and all of the GBP47m accrued
commercial income balance invoiced, of which GBP35m had been
settled.
16. Trade and other payables
2021 2020
GBPm GBPm
--------------------------------------------------------- ----- -----
Trade payables 2,335 2,467
Less: commercial income due, offset against amounts owed (32) (21)
--------------------------------------------------------- ----- -----
2,303 2,446
Other taxes and social security payable 64 131
Other payables 104 58
Accruals and deferred income 366 416
--------------------------------------------------------- ----- -----
2,837 3,051
--------------------------------------------------------- ----- -----
Included within accruals and deferred income is GBP2m (2020:
GBP1m) in respect of deferred commercial income. Amounts accrued in
relation to store restructuring activity are included within
accruals and deferred income at 31 January 2021.
As at 7 March 2021, GBP24m of the GBP32m commercial income due
above had been offset against payments made.
17. Retirement benefits
Defined benefit schemes
The Group operates a number of defined benefit retirement
schemes (together 'the Schemes') providing benefits based on a
benefit formula that depends on factors including the employee's
age and number of years of service. The Morrison and Safeway
Schemes provide 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 position of each scheme at 31 January 2021 is a follows:
2021 2021 2020 2020
CARE RSP CARE RSP
Statement of financial position GBPm GBPm GBPm GBPm
------------------------------------------ -------- ------ -------- ------
Fair value of scheme assets 5,111 407 5,013 389
Present value of obligations (4,357) (443) (4,053) (405)
------------------------------------------- -------- ------ -------- ------
Net retirement benefit surplus/(deficit) 754 (36) 960 (16)
------------------------------------------- -------- ------ -------- ------
The movement in the fair value of the Schemes' assets over the
period was as follows:
2021 2020
GBPm GBPm
------------------------------------------------------- ------ -----
Net retirement benefit surplus at start of the period 944 688
Net interest income 16 19
Settlement and curtailment gain 3 -
Remeasurement in other comprehensive income(1) (247) 231
Employer contributions 5 9
Administrative expenses (3) (3)
-------------------------------------------------------- ------ -----
Net retirement benefit surplus at end of the period 718 944
-------------------------------------------------------- ------ -----
(1) In the 52 weeks ended 31 January 2021, there was a further
GBP1m charge following the write off of a receivable balance
relating to retirement benefits which was not part of the net
retirement benefit surplus.
At 31 January 2021, schemes in surplus have been disclosed
within the 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 recognition of a surplus
is appropriate on the basis that the Group has an unconditional
right to a refund of a surplus. In respect of the Morrison Scheme,
this is on the basis that paragraph 11(b) or 11(c) of IFRIC 14
applies enabling a refund of surplus assuming the gradual
settlement of the scheme liabilities over time until all members
have left the scheme or the full settlement of the Scheme's
liabilities in a single event (i.e. as a scheme wind up). In
respect of the Safeway Scheme, a refund is available on the basis
that paragraph 11(b) of IFRIC 14 applies. The International
Accounting Standards Board (IASB) have been considering amendments
to 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 has
concluded that the above accounting treatment should not be
materially affected by the previous proposed amendments to IFRIC
14.
Assumptions
The main financial assumptions used by the Group to calculate
the net retirement benefit surplus/deficit were as follows:
2021 2021 2020 2020
CARE RSP CARE RSP
Discount rate applied to scheme liability (% p.a.) 1.5% 1.5% 1.8% 1.8%
Inflation assumption (RPI) (%p.a.) 3.0% 3.0% 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 52 weeks ended 31 January 2021
are 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
2019 core projections and a long-term rate of improvement of 1.5%
p.a. For the 52 weeks ended 2 February 2020, the Group used 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 respectively, with CMI
2018 core projections and a long-term rate of improvement of 1.5%
p.a
The latest full actuarial valuations were carried out as at 1
April 2019 for the Safeway Scheme and 5 April 2019 for the Morrison
Scheme and the RSP. The valuations indicated that, on the agreed
funding basis, the Safeway, Morrison and RSP Schemes had surpluses
of GBP518m, GBP157m and GBP7m respectively. As a result of these
funding positions there are currently no deficit contributions
payable. As such there is no 'minimum funding requirement' in
force.
Defined contribution scheme
The Group opened a defined contribution retirement benefit
scheme called the Morrisons Personal Retirement Scheme ('MPRS') for
colleagues during the 53 weeks ended 4 February 2018. The MPRS
became the auto enrolment scheme for the Group. As the MPRS is a
defined contribution scheme, the Group is not subject to the same
investment, interest rate, inflation or longevity risks as it is
for the defined benefit schemes. The benefits that employees
receive are dependent on the contributions paid, investment returns
and the form of benefit chosen at retirement. During the 52 weeks
ended 31 January 2021, the Group paid contributions of GBP97m to
the MPRS (2020: GBP78m), and expects to contribute GBP105m for the
following period (2020: GBP80m).
18. Cash generated from operations
2021 2020
GBPm GBPm
------------------------------------------------------------------- ------ ------
Profit for the period 96 348
Net finance costs 89 87
Taxation charge 69 87
Share of profit of joint venture (net of tax) - (1)
Operating profit 254 521
Adjustments for:
Depreciation and amortisation 541 525
Impairment 125 108
Impairment write back (199) (123)
Profit/loss arising on disposal and exit of properties (2) (66)
Gain arising on reduction of lease terms - (10)
Defined benefit scheme contributions paid less operating expenses (6) (5)
Share-based payments charge 20 26
Decrease/(Increase) in inventories(1) (154) 53
Increase in Trade and other receivables(1) (3) (14)
Increase in Trade and other payables(1) (267) 29
Decrease in provisions(1) (23) (27)
Cash generated from operations 286 1,017
------------------------------------------------------------------- ------ ------
Total working capital outflow (the sum of items marked (1) in
the table) is GBP447m (2020: GBP41m inflow) in the year. This
includes GBPnil (2020: GBP2m) as a result of the current year
charges in respect of onerous contracts and accruals of onerous
commitments and GBP7m (2020: GBP63m) of non-cash exceptional
charges, net of GBP22m (2020: GBP41m) of onerous payments and
GBP42m (2020: GBP1m) exceptional and other non-operating payments.
When adjusted to exclude these items, the operating working capital
outflow is GBP390m (2020: GBP18m inflow).
19. Analysis of net debt(1)
2021 2020
GBPm GBPm
--------------------------------------- -------- --------
Fuel and energy price contracts 9 -
--------------------------------------- -------- --------
Non-current financial assets 9 -
--------------------------------------- -------- --------
Foreign exchange forward contracts 1 -
Fuel and energy price contracts 12 1
Current financial assets 13 1
--------------------------------------- -------- --------
Bonds(2) - (237)
Other short-term borrowings(2) (54) -
Cross-currency interest rate swaps(2) - (4)
Lease liabilities(2) (72) (72)
Foreign exchange forward contracts (17) (17)
Fuel and energy price contracts (1) (15)
Current financial liabilities (144) (345)
--------------------------------------- -------- --------
Bonds(2) (1,109) (1,110)
Revolving credit facility(2) (877) 2
Lease liabilities(2) (1,299) (1,304)
Foreign exchange forward contracts (1) -
Fuel and energy price contracts (1) (7)
Non-current financial liabilities (3,287) (2,419)
--------------------------------------- -------- --------
Cash and cash equivalents 240 305
--------------------------------------- -------- --------
Net debt(1) (3,169) (2,458)
--------------------------------------- -------- --------
(1) Net debt is defined in the Glossary.
Total net liabilities from financing activities (the sum of
items marked (2) in the table) is GBP3,411m in the 52 weeks ended
31 January 2021 (2020: GBP2,725m). Of the GBP686m increase (2020:
GBP49m) in net liabilities from financing activities, GBP74m (2020:
GBP67m) relates to non-cash movements and GBP612m (2020: GBP18m
decrease) related to cash movements.
20. Financial instruments
2021 2021 2020 2020
Carrying amount Fair Value Carrying amount Fair Value
GBPm GBPm GBPm GBPm
----------------------------------------- ----------------- ------------ ----------------- ------------
Derivative financial assets 9 9 - -
----------------------------------------- ----------------- ------------ ----------------- ------------
Total non-current financial assets 9 9 - -
----------------------------------------- ----------------- ------------ ----------------- ------------
Derivative financial assets 13 13 1 1
----------------------------------------- ----------------- ------------ ----------------- ------------
Total current financial assets 13 13 1 1
Borrowings (54) (54) (237) (237)
Derivative financial liabilities (18) (18) (36) (36)
----------------------------------------- ----------------- ------------ ----------------- ------------
Total current financial liabilities (72) (72) (273) (273)
Borrowings (1,986) (2,145) (1,108) (1,238)
Derivative financial liabilities (2) (2) (7) (7)
----------------------------------------- ----------------- ------------ ----------------- ------------
Total non-current financial liabilities (1,988) (2,147) (1,115) (1,245)
----------------------------------------- ----------------- ------------ ----------------- ------------
The fair value of bonds are measured using closing market prices
(level 1) (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) (2 February 2020: Level 2).
21. Share capital and share premium
Number of shares Share capital Share premium Total
millions GBPm GBPm GBPm
-------------------------------------------------------- ----------------- -------------- -------------- ------
At 2 February 2020 2,405 240 192 432
Share options exercised and shares issued under LTIP
schemes(1) 5 1 9 10
--------------------------------------------------------- ----------------- -------------- -------------- ------
At 31 January 2021 2,410 241 201 442
--------------------------------------------------------- ----------------- -------------- -------------- ------
(1) The GBP1m and GBP9m movement in share capital and share
premium has been rounded up to ensure that the total share capital
and total share premium positions, are correctly stated.
All issued shares are fully paid and have a par value of 10p per
share (2020: 10p per share). The Group did not acquire any of its
own shares for cancellation in the 52 weeks ended 31 January 2021
or the 52 weeks ended 2 February 2020. The holders of ordinary
shares are entitled to receive dividends as declared and are
entitled to one vote per share at the meetings of the Company.
Trust shares
Included in retained earnings is a deduction of GBP19m (2020:
GBP30m) in respect of own shares held at the reporting date. This
represents the cost of 8,720,882 (2020: 14,215,041) of the Group's
ordinary shares (nominal value of GBP0.9m (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 31 January
2021 was GBP16m (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 (2020: 4,881,284) of
its own shares to hold in trust for consideration of GBPnil (2020:
GBP10m), and utilised 5,494,159 (2020: 551,491) trust shares to
satisfy awards under the Group's employee share plans.
Proceeds from exercise of share awards
The Group issued 4,751,802 (2020: 8,532,407) new shares to
satisfy options exercised by employees during the period in respect
of the Group's Share save schemes. Proceeds received on exercise of
these shares amounted to GBP9m (2020: GBP14m), which has been
presented as a GBP1m addition to share capital and a GBP9m addition
to share premium in the period to ensure that share capital and
share premium agree in total. In addition, the Group issued no
(2020: 28,166,736) shares under the Group's Long Term Incentive
Plan ('LTIP') scheme for nominal value, with all current year
schemes being settled through trust shares.
Settlement of share awards
During the 52 weeks ended 31 Janu ary 2021, the Group has
settled 5,494,159 of share options out of trust shares which have
vested during the period net of tax. During the period there was a
GBP9m (2020: GBP2m) charge to retained earnings in relation to the
settlement of share awards, comprising GBP10m (2020: GBP2m) of cash
paid on behalf of the employees, rather than selling shares on the
employees' behalf to settle the employees' tax liability on vesting
of the share options, offset by a GBP1m non-cash settlement credit
(2020: GBPnil).
22. Commercial income
Types of commercial income recognised by the Group and the
recognition policies are:
Type of commercial income Description Recognition
Marketing and Examples include income in respect of Income is recognised dependent on the
advertising funding in-store and online marketing and point of terms of the specific supplier agreement
sale, as in line with
well as funding for advertising. when performance obligations in the
agreement are met. Income is invoiced
once the performance
conditions in the supplier agreement have
been achieved.
-------------------------------------------- -------------------------------------------
Volume-based Income earned by achieving volume or spend Income is recognised through the year
rebates targets set by the supplier for specific based on forecasts for expected sales or
products purchase volumes,
over specific periods. informed by current performance, trends
and the terms of the supplier agreement.
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
relating to the two types of commercial income are detailed as
follows:
2021 2020
GBPm GBPm
----------------------------------- ------ ------
Commercial income:
Marketing and advertising funding 88 78
Volume-based rebates 152 113
----------------------------------- ------ ------
Total commercial income 240 191
----------------------------------- ------ ------
23. Related party transactions
The Group's related party transactions in the period include the
remuneration of the senior managers, and the Directors' emoluments
and retirement benefit entitlements, share awards and share options
as disclosed in the audited section of the Directors' remuneration
report, which forms part of the Group's Annual Report and Financial
Statements.
During the 52 weeks ended 31 January 2021, the Group received a
dividend of GBP8m (2020: GBP9m) from MHE JVCo Limited. The Group
has a c.51% interest in MHE JVCo Limited.
24. 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, 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 (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 form 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. Since 31
January 2021, the Group has received full and final settlement of
outstanding legal costs.
Interchange fee claim
The Group, along with other claimants, has had an ongoing claim
against Mastercard in respect of bank interchange fees. In the 52
weeks ended 31 January 2021, the Supreme Court found in favour of
the claim against Mastercard and determined 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 settlement which it will receive, and
accordingly no asset has been recognised in the financial
statements in the 52 weeks ended 1 February 2021. 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'.
10.3 Post balance sheet events
On 27 February 2021, the Group acquired 100% of the share
capital of Falfish (Holdings) Limited, a leading supplier of fresh
seafood, for consideration of GBP9m. The Directors consider this
event to be a non-adjusting post balance sheet event.
Since 31 January 2021, the Group has extended the duration of
its four existing GBP100m committed revolving credit facilities
(RCF) as follows: two GBP100m RCFs now mature in September 2021, a
GBP100m RCF matures in March 2022 and a GBP100m RCF matures in July
2022.
Glossary
Alternative Performance Measures
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authority (ESMA), we have provided additional information on the
APMs used by the Group. The Directors use the APMs listed below as
they are critical to understanding the financial performance and
financial health of the Group. As they are not defined by IFRS,
they may not be directly comparable with other companies who use
similar measures.
Measures Closest Definition and Reconciliation for 2020/21
equivalent purpose Group measures (1)
IFRS
Measure
Profit Measures
Like-for-like Revenue Percentage 52 weeks ended 2 February 2021 %
(LFL) change in Group LFL (exc. fuel) 8.6%
sales growth year-on-year Group LFL (inc. fuel) 0.1%
sales (excluding Net new space (inc. fuel) 0.3%
VAT), removing Total revenue year-on-year 0.4%
the impact of
new store
openings and
closures in the
current or
previous
financial year.
The measure is
used widely in
the retail
industry as an
indicator of
ongoing sales
performance.
It is also a key
measure for
Director and
management
remuneration.
Total sales Revenue Including fuel: A reconciliation of total sales including and excluding fuel is
growth Percentage provided in note 3.
change in
year-on-year
total reported
revenue.
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 A reconciliation of this measure is provided in note 4.
before tax and tax tax and
exceptionals exceptionals is
defined as
profit before
tax, exceptional
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 GBP143m being profit before tax and exceptionals (GBP201m) less
exceptionals tax tax and a normalised tax charge (GBP58m)
after tax exceptionals (see note 4).
after a
normalised tax
charge.
This measure is
used by the
Directors as it
provides key
information on
ongoing trends
and
performance of
the Group,
including a
normalised tax
charge.
(1) Certain ratios referred to in the financial statements are
calculated using more precise numbers rather than rounded numbers.
These stated ratios may therefore differ slightly to those
calculated by the numbers in this report due to rounding (as
numbers in the financial statements are presented in round
millions).
Measures Closest equivalent IFRS Definition and purpose Reconciliation for 2020/21
measure Group measures (1)
Profit Measures (continued)
Operating profit before Operating profit(2) Reported operating profit GBP306m being reported
exceptionals before exceptional items, operating profit (GBP254m)
which are significant less profit/loss on disposal
in size and/or nature. and exit of
properties (GBP2m), net
This measure is used by the online and home delivery
Directors as it provides key expansion (GBP10m) and
information on on-going impairment and provisions
trends and for onerous contracts
performance of the Group. (GBP7m) plus store
restructuring and closure
costs (GBP56m) and other
exceptional items (GBP15m).
Net finance costs before Finance costs Reported net finance costs A reconciliation of this
exceptionals excluding the impact of net measure is provided in note
retirement benefit interest 5.
and 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 before Operating profit(2) Operating profit before GBP847m being operating
interest, tax, exceptional items including profit before exceptionals
depreciation and share of profit from joint (GBP306m), plus share of
amortisation (EBITDA) venture, before profit from joint
before exceptionals depreciation and venture (GBPnil), plus
amortisation. depreciation (GBP470m) and
amortisation (GBP71m).
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.
EBITDA margin before No direct equivalent EBITDA before exceptional 4.8% being EBITDA before
exceptionals items, as a percentage of exceptional items (GBP847m)
revenue. divided by revenue
(GBP17,598m).
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 cover No direct equivalent Operating profit before 2.8x being operating profit
exceptionals divided by net before exceptionals
finance costs before (GBP306m) divided by net
exceptionals. finance costs before
exceptionals (GBP105m).
This measure is used by the
Directors as a measure of
the Group's ability to meet
its financing
costs.
Basic Basic earnings per share Basic earnings per share A reconciliation of this
earnings per share before based on profit before measure is included in note
exceptionals exceptionals after tax 8.
rather than 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 financial statements are
calculated using more precise numbers rather than rounded numbers.
These stated ratios may therefore differ slightly to those
calculated by the numbers in this report due to rounding (as
numbers in the financial statements are presented in round
millions).
(2) Operating profit is not defined under IFRS. However, it is a
generally accepted profit measure.
Measures Closest equivalent IFRS Definition and purpose Reconciliation for 2020/21
measure Group measures (1)
Diluted earnings per share Diluted earnings per share Diluted earnings per share A reconciliation of this
before exceptionals based on profit before measure is included in note
exceptionals after tax 8.
rather than reported
profit after tax as
described above.
Tax measures
Normalised tax Effective tax Normalised tax is the tax A reconciliation of the tax
rate applied to the Group's charge is found in note
principal activities on an 2.2.3 of the Group
ongoing basis. financial statements.
This is calculated by
adjusting the effective tax
rate for the period to
exclude the impact
of exceptional items and
net retirement benefit
interest.
This measure is used by the
Directors as it provides a
better reflection of the
normalised
tax charge for the Group.
Cash flows and net debt measures
Free cash flow No direct equivalent Movement in net debt before GBP450m outflow being the
dividends. movement in net debt
(GBP711m) before payment of
This measure is used by the dividend (GBP261m).
Directors as it provides
key information on the
level of cash
generated by the Group
before the payment of
dividends.
Adjusted free cash flow No direct equivalent This measure is a key See page 63 in the
measure used by the Directors' remuneration
Directors. It provides key report within the Group's
information on the level annual report.
of cash generated by the
Group and is used for
Director and management
remuneration.
Net debt No direct equivalent Net debt is current and A reconciliation of this
non-current: borrowings, measure is provided in note
lease liabilities and 19.
derivative financial
assets & liabilities; net
of cash and cash
equivalents.
Gearing No direct equivalent Net debt as a percentage of 75% being net debt
net assets. (GBP3,169m) as a percentage
of net assets (GBP4,216m).
This measure is used by the
Directors as a measure of
the capital structure of
the Group and
its ability to maintain its
credit ratings and
covenants.
Working capital No direct equivalent Movement in inventories, A reconciliation of this
movement trade and other measure is provided in note
receivables, trade and 18.
other payables and
provisions.
Operating working capital No direct equivalent Working capital movement A reconciliation of this
movement adjusted for onerous measure is provided in note
contract charges, onerous 18.
payments and other
non-operating payments.
This measure is used by the
Directors as it provides a
more appropriate reflection
of the
working capital movement by
excluding certain
non-recurring movements.
(1) Certain ratios referred to in the financial statements are
calculated using more precise numbers rather than rounded numbers.
These stated ratios may therefore differ slightly to those
calculated by the numbers in this report due to rounding (as
numbers in the financial statements are presented in round
millions).
Measures Closest equivalent IFRS Definition and purpose Reconciliation for 2020/21 Group
measure measures (1)
Other measures
Return on capital No direct equivalent ROCE is calculated as return ROCE (3.9%) equals return divided
Employed (ROCE) divided by average capital by average capital employed:
employed. Return is defined as
annualised Return (GBP248m) = profit before
profit before exceptionals after exceptionals after tax annualised
tax adjusted for net finance costs (GBP143m) adjusted for
before exceptionals. Capital annualised net finance costs
employed is defined as average net before exceptionals (GBP105m).
assets excluding net retirement
benefit surplus and deficit, Average capital employed
less average net debt. (GBP6,361m) = Average net assets
excluding the net retirement
This measure is used by the benefit
Directors as it is a key ratio in surplus (GBP3,548m) and average
understanding the performance net debt (GBP2,813m).
of the Group.
Onerous payments No direct equivalent Payments made to settle onerous Onerous capital payments (GBP22m)
contractual commitments, include plus GBPnil payment to exit
amounts paid to exit 'pipeline' leases, included within repayment
sites or sums paid to exit onerous of lease obligations in the
contracts early (e.g. leases). consolidated cash flow statement.
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END
FR ZZGMFZGFGMZZ
(END) Dow Jones Newswires
March 11, 2021 02:00 ET (07:00 GMT)
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