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Morrison W.Sprmkts (MRW)

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Thursday 10 September, 2015

Morrison W.Sprmkts

Half Yearly Report

RNS Number : 6159Y
Morrison(Wm.)Supermarkets PLC
10 September 2015
 

 

 

10 September 2015

 

 

INTERIM RESULTS FOR THE HALF YEAR TO 2 AUGUST 2015

Making the core supermarkets strong again

 

Financial summary

 

·   

H1 like-for-like (LFL) sales (ex-fuel/ex-VAT) down 2.7%, Q2 LFL down 2.4%

·   

Total turnover down 5.1% to £8.1bn (2014/15: £8.5bn)

·   

Underlying profit before tax(1) (UPBT) down 35% to £117m (2014/15: £181m)

·   

UPBT £141m pre-restructuring costs (2014/15: £216m)

·   

Free cash flow pre-dividend of £479m (2014/15: £423m)

·   

Generated £64m of cash, post-dividend and pre-property disposals

·   

Underlying earnings per share(1) (EPS) down 35% to 3.73p (2014/15: 5.74p)

·   

Profit before tax £126m (2014/15: £239m)

·   

Operating working capital improvement of £125m

·   

Property disposal proceeds of £181m, profit of £96m achieved

·   

Impairment and provision for onerous contracts of £87m

·   

Interim dividend of 1.50p (2014/15: 4.03p). Full year dividend confirmed at not less than 5.00p

·   

Net debt reduced by £254m since year end, to £2,086m

 

Strategic and operating highlights

 

·   

Listening programme shaping new strategy

·   

Six priorities to build on our strengths and improve the customer shopping trip:

1.   To be more competitive

2.   To serve customers better

3.   Find local solutions

4.   Develop popular and useful services

5.   To simplify and speed up the organisation

6.   To make the core supermarkets strong again

·    Progress being made on the six priorities and customer satisfaction improving

·    Key appointments to the new Executive team

·    £1bn cost savings programme on-track, a further £189m delivered in first half

·    Substantial proposition re-investment, up year-on-year to £181m in first half

·    £2bn operating free cash flow target on-track for 2014/15-2016/17

·    Sale of 140 M local convenience stores announced yesterday

·    Proposed closure of a further 11 supermarkets announced today

 

Andrew Higginson, Chairman, said:

 

"David has very quickly formed a new team that combines the best of Morrisons home grown and external talent. I am also delighted that two new non-executive directors - Belinda Richards and Irwin Lee - have recently joined and strengthened the Board. They bring a wealth of experience, which will prove invaluable to Morrisons.

 

"During the first half, the team has made good progress in starting the turnaround journey. Whilst the management team need time to settle in, make the changes they see as important, and build trading momentum, I believe the team will deliver much improved profits and returns for shareholders."

 

David Potts, Chief Executive, said:

 

"Since joining Morrisons, I have been struck by the passion and commitment of all our colleagues, and I want to thank them for their continued good work. Our colleagues have the key role in delivering an improved shopping trip for customers both in stores and online.

 

"Morrisons will be an organisation that listens. During the first half, the new Executive and leadership teams have been listening hard to colleagues, customers, suppliers and shareholders. They tell us there is a lot for us to do.

 

"The immediate priority is to deliver a better shopping trip to stabilise trading performance. Our six strategic priorities will then deliver improvement in the core supermarkets, where we have the greatest opportunity.

 

"It will be a long journey. We approach the challenge with energy, confidence and many strengths, particularly our strong balance sheet and cash flow, which enables investment in improving the customer shopping trip."

 

Outlook

 

Customers and colleagues are beginning to notice improvements, but the turnaround will take time and require sustained investment in the proposition.

 

As previously guided, we expect underlying profit before tax will be higher in the second half of 2015/16 than the first.

 

Sales performance (ex-VAT)

 

2014/15

2015/16

 

Q1

Q2

Q3

Q4

Q1

Q2

Group LFL:

 

 

 

 

 

 

Sales ex-fuel*

-7.1%

-7.6%

-6.3%

-2.6%

-2.9%

-2.4%

Sales inc-fuel*

-8.2%

-7.5%

-8.0%

-5.1%

-6.6%

-5.4%

* For supermarkets, online and convenience stores, reported ex-VAT and in accordance with IFRIC 13

 

Summary of operational key performance indicators (KPIs)

 

2014/15

2015/16

 

Q1

Q2

Q3

Q4

Q1

Q2

LFL Items per Basket

y-on-y change*

-5.9%

-3.2%

-2.4%

-0.1%

-0.1%

-1.1%

LFL Number of Transactions

y-on-y change*

-3.6%

-5.0%

-3.3%

-1.9%

-3.2%

-2.6%

* Excludes online and convenience

 

 

Notes:

 

 

1

Underlying profit before tax and underlying earnings per share include new business development and restructuring costs, but exclude profit/loss relating to property disposals and sale of businesses, IAS 19 pension interest, impairment and provision for onerous contracts. 

 

 

 

Enquiries:

 

Wm Morrison Supermarkets PLC

 

 

 

Trevor Strain - Chief Financial Officer

0845 611 5000

Andrew Kasoulis - Investor Relations Director

07785 343 515

 

Media Relations

 

Wm Morrison Supermarkets PLC:

Julian Bailey

07969 061092

 

 

 

 

 

 

Citigate Dewe Rogerson:

Simon Rigby

020 7282 2847

 

Kevin Smith           

020 7282 1054

 

 

 

           

 

Management will host an analyst presentation this morning at 09:30. A webcast of this meeting is available at http://www.morrisons-corporate.com/Investor-centre/

 

Dial-in details:

 

Dial-in number:          +44 (0) 20 3427 1915         

Password:                  Morrisons                  

 

Replay facility available for 7 days:

Replay access number:

+44 (0) 20 3427 0598

Replay access code: 

1679501#

 

 

 

- ENDS -

 

This announcement may include forward-looking statements, which are statements made about potential future events or occurrences. These statements are made by the Directors in good faith, based on the information available to them at the time of the announcement. Consequently such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking statements and information.

 

Morrisons has a commitment to reducing its impact on the environment. Accordingly we no longer send half-yearly communications to shareholders in paper format. Copies of this release are available to download.

 

 

Financial overview

 

Total turnover during the period was £8.1bn, down 5.1% year-on-year. Store turnover of £6.4bn, excluding fuel, was down by 1.1%, which comprised a LFL decrease of 2.7% (including a contribution of 1.0% from online) and 1.6% from new stores.

 

Fuel sales fell by 16.8% to £1.6bn, with deflation again a key feature as lower oil prices were passed on to customers.

 

Q2 ex-fuel LFL was down 2.4%, a slight improvement on Q1 (-2.9%), with online contributing 1.0%. For Q2, Items per Basket was down 1.1% year-on-year, and LFL Number of Transactions down 2.6%.

 

Underlying operating profit, which excludes impairment and provision for onerous contracts and property disposal profits, was £163m, with operating margin down 67bps year-on-year to 2.0%.

 

Impairment and provision for onerous contracts was £87m, driven by changes in estimates to provisions made relating to stores in the new space pipeline. Property disposal profits were £96m. Operating profit, including impairment and provision for onerous contracts and property disposal profits, was £172m.

 

Our definition of underlying profit includes restructuring costs and new business development costs. Restructuring costs were £24m, primarily comprising head office restructuring (2014/15: £35m). This was part of the £30m-£40m 2015/16 restructuring costs we announced at the time of the first quarter trading update in May. New business development (NBD) losses for online and convenience were £30m (2014/15: £38m).

 

In addition, we are today announcing further restructuring and one-off costs, which will be incurred in the second half as we continue to reshape the business.

 

The proposed closure of 11 further stores will incur a restructuring cost of £20m, which will be included in underlying profit.

 

As announced yesterday, the sale of M local will result in a loss on disposal of around £30m. The intent to establish a new defined contribution pension scheme, which it is proposed will become the auto-enrolment scheme for colleagues in the future, will result in a charge of £35m. Both of these one-off costs will be excluded from our definition of underlying profit.

 

Net finance costs were £47m (2014/15: £49m).   

 

UPBT(1) was £117m (2014/15: £181m). Adding back the £24m one-off restructuring costs, UPBT was £141m (2014/15: £216m). Reported profit before tax, after £9m net profit on property, was £126m (2014/15: £239m).

 

Underlying basic EPS(1) reduced by 35% to 3.73p (2014/15: 5.74p), reflecting the decrease in UPBT.

 

Capital expenditure fell to £139m, from £257m for 2014/15, with cuts in all areas, in particular new store openings.

 

Free cash flow pre-dividend was £479m, which included a further £125m improvement in operating working capital and £181m of property disposal proceeds. Half way into our three year plan to generate £2bn of operating free cash flow by the end of 2016/17, we have achieved £1,264m.

 

Overall, post-dividend and pre-property disposal proceeds, Morrisons was again cash flow positive, generating £64m during the first half.

 

Group net debt fell - to £2,086m - from £2,340m at the end of 2014/15, and is down over £500m from the same time last year.

 

The proposed interim dividend is 1.50p.

 

We opened one new supermarket (26,000 square feet) and five M locals (14,000 square feet). As previously announced, we closed ten smaller supermarkets and 23 M locals. The impact was a reduction of 94,000 square feet in net new space.

 

Return on Capital Employed (ROCE) was 5.3%.  

 

Market update

 

The economic recovery has been sustained in recent months. A rise in consumer confidence, real wage growth, and higher disposable income are all potentially positive for food retailers. Fuel prices have fallen and are expected to remain low.

 

However, we have seen no change in shopping habits, with customers continuing to shop around for value and shopping more frequently. In addition, as we continue to lower prices, deflation has been a consistent recent feature of our LFL. Although some commentators predict the return of food price inflation, driven perhaps by higher global commodity prices, we expect deflation to continue as we keep investing in our proposition.

 

Strategy update

 

Morrisons has many strengths. It is a strong British business, with a reputation for fresh food, value-for-money, customer service, and the provenance provided by our unique vertical integration. Our colleagues are committed, passionate and highly skilled. The business is cash generative, with a strong balance sheet, a freehold property portfolio, a well-funded pension, falling debt and a well-invested manufacturing business.

 

However, sales, profitability and returns all need to improve. Our immediate priority is to deliver a better customer shopping trip to stabilise trading performance. We then need to rebuild.

 

We are defining our improvement programme by listening to key stakeholders - customers, colleagues, suppliers and shareholders - and this is shaping the development of our strategy. Today we are announcing six strategic priorities:

 

·    To be more competitive

·    To serve customers better

·    Find local solutions

·    Develop popular and useful services

·    To simplify and speed up the organisation

·    To make core supermarkets strong again

 

These priorities will deliver an improvement in the shopping trip and a turnaround of the core supermarkets. It will take time, and some components are still being developed or carefully reviewed by the new leadership team. However, we are confident the strategy is right for all industry trading conditions.

 

The six priorities also provide the business with many opportunities. The cost base can be reshaped and we can improve all elements of the Morrisons shopping trip. Improving the operational levers - sales, margin and asset intensity - will drive profit and ROCE. Improving the capital levers - addressing underperforming assets and capital returns - will grow the dividend and further enhance EPS. Throughout the process, debt will continue to fall.

 

The financial foundations of our strategy are unchanged. As previously guided, our proposition investment will increase this year. We also still expect to generate £1bn of cost savings and £2bn of free cash flow in the three years to 2016/17.

 

Initial success will be measured through execution and outcome. Improving the shopping trip will mean more customers and more volume growth. Then, once the business is stabilised, we expect to improve LFL sales, rebuild profits and improve Return on Capital, while continuing to generate cash.

 

The six priorities

 

1. To be more competitive

 

Morrisons is a value-for-money brand and must always be competitive. We invested over £300m into the proposition last year and will invest more this year, with a further £181m already invested in the first half.

 

In March we cut the prices of key commodities and in June we did the same for everyday items. There will be more to come. We are working towards a simple, great value-for-money Morrisons price list that is right for our customers.

 

Being competitive is not just about price. We need to set out an offer that has real resonance with customers and organise the business to deliver this consistently. This means striking the right balance of price, coupons and promotions. As part of this process, we are currently reviewing our Match & More proposition.

 

In addition, we are providing much simpler and clearer in-store messaging for customers. In June, we re-set all in-store point-of-sale material. We further clarified and simplified our promotions, especially at front-of-store and on the key promotion ends. We now have fewer and more impactful promotions, with the typical display now carrying two or three of our very best deals at a simple price point.

 

2. To serve customers better

 

Morrisons has a reputation for good customer service. Our butchers, bakers, fishmongers and other skilled colleagues combine to make Morrisons different from other supermarkets. We are doing more to enhance that reputation. During the first half, we recruited 5,000 new in-store colleagues and re-scheduled the mix of hours to serve customers better at the busiest times of the week.

 

We have launched initiatives to remove wasted effort, improve on-shelf availability and ease pressure on the tills. For example, we have introduced express checkouts into all our stores. We are also currently replacing and upgrading the self-scan checkouts in all stores in time for Christmas, a programme of 40 stores per week.

 

We have listened to the preferences of our customers and will be re-laying Wine to a new look, by colour and country of origin throughout the next few weeks. In addition, all our Produce departments are currently being given a new look and feel. These are the first of many improvements to come. Customers are beginning to notice and our customer satisfaction scores have improved.

 

3. Find local solutions

 

Morrisons stores are generally well located, serving neighbourhoods and communities. We have an opportunity to improve our local customer offer store-by-store and make every square foot work harder to increase sales and profit.

 

We will tailor each store's offer to local tastes and demographics. A core offer will apply for each store, with managers given autonomy to flex outside the core to best suit local customers. The organisation will be largely central, but the execution local.

 

In addition, we are introducing programmes to be more active with local marketing and to better utilise our stores as centres of the local community.

 

4. Develop popular and useful services

 

We plan to further enhance Morrisons reputation for great customer service. We already have some very strong service areas - for example dry cleaning, where we are the second biggest in the UK, petrol stations, pharmacies, and popular cafés.

 

Plans are at an early stage, but we see several opportunities to provide third-party in-store or on-site services that will drive footfall to our stores. These will not require us to commit significant capital, but will generate income and enhance returns.

 

5. To simplify and speed up the organisation

 

Morrisons is at its best when it keeps things simple. We are delayering the business and building a culture based on speed and teamwork, so we can become more agile and responsive.

 

During the first half, we completed the in-store restructure and now have fewer management layers, allowing colleagues to focus more on serving customers better.

 

In addition, we have just completed a major consultation and restructuring at head office, which will result in the removal of 720 roles. The leadership team has reduced from 110 to 65 people. This smaller team will have greater responsibility and accountability for bigger areas of the business.

 

6. To make core supermarkets strong again

 

We aim to deliver our strengths in every store. We have nearly completed a programme to get all of the estate to a consistent standard, Back-to-Best, both inside and out. This will be done by the end of October.

 

We will accelerate the refit programme. We have over 200 stores that have not been brightened-up for over five years. Our new Fresh Look refit programme will upgrade the estate by the end of 2018/19.

 

All these improvements will be achieved within our existing capital expenditure expectations.

 

 

New leadership team

 

Key to delivering the strategy and six priorities will be a strong management team. We have made good progress during the first half and now have a leadership team comprising home grown talent and experienced industry professionals recruited from outside Morrisons.

 

We have almost completed the formation of a new Executive team, which oversees the day-to-day operations of the business. It will comprise seven people. Alongside David Potts (CEO) and Trevor Strain (CFO), are Darren Blackhurst (Commercial Director), Gary Mills (Retail Director), Clare Grainger (People Director) and Mark Amsden (Company Secretary and General Counsel). We are seeking to fill the one remaining vacancy, Customer Director. After 25 years' service, Martyn Jones (Corporate Services Director) will retire at the end of October.

 

Darren has extensive commercial experience. He joined Morrisons from B&Q, where he was Commercial Director. Previously he was Chief Executive of Matalan, and Chief Merchandising Officer of Asda.

 

Gary has more than 30 years' retail experience, with Stewarts Supermarkets in Northern Ireland and with Tesco in both Ireland and the UK. Gary's experience covers all areas of retail and all formats, including supermarkets and convenience.

 

Clare has nearly 25 years of experience in Human Resources and management, mostly in the retail sector with Morrisons and, before that, Asda. Most recently she has been Morrisons interim Group Retail Director and has been leading the business through a number of measures to improve the customer shopping trip.

 

Outside the Executive team, we have also made some key internal and external appointments in Commercial, Operations, Property, and Human Resources. We continue to identify the talent required to improve capability and are confident we are developing a strong leadership team to deliver the turnaround.

 

Online

 

We remain pleased with the key customer metrics of our online business and are on track with our original plan. We are also considering the broader digital opportunity, and how we can grow our online proposition while achieving an attractive return on capital.

 

Convenience

 

Yesterday we announced the sale of 140 M local convenience stores for a consideration of c.£25m in cash. We expect to incur a loss on disposal of around £30m during the second half of 2015/16. Morrisons retains a guarantee on individual lease obligations, which could revert to Morrisons if the new business does not succeed. The residual contingent liability in this event is estimated at up to £20m.

 

Convenience remains an important growth channel, and we will continue to consider capital-light, returns-enhancing opportunities in the future.

 

Financial strategy and update

 

Capital allocation framework

Our capital allocation framework is unchanged. Our first priority is to invest to support the store estate 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 and; finally, any surplus capital will be returned to shareholders.

 

Optimise assets

We are continually reviewing the performance of our supermarket store portfolio. In addition to the ten stores closed earlier this year, we are today announcing the proposed closure of 11 further stores which do not cover their cost of capital. For 2014/15, sales of the 11 stores were £86m and they were slightly EBIT loss making. 

 

There will be a related one-off closure cost of £20m for the 11 stores during the second half of 2015/16.

 

We have opened one new store this year and do not plan to open any more during the remainder of 2015/16. In 2016/17, we expect the sales contribution from net new stores to be negative.

 

Shareholder returns

The 2015/16 total dividend will be not less than 5p per share, which the Board believes reflects the commitment to the capital allocation framework, while enabling cash flow flexibility to invest in delivering the turnaround. Beyond 2015/16, the dividend will be determined and communicated as appropriate by the Board.

 

£1bn cost savings

We achieved first half cost savings of £189m, bringing the total to £419m in 18 months. We continue to expect £1bn of cost savings in the three years to the end of 2016/17, but are reviewing the different opportunities and re-prioritising components.

 

The recently announced head office restructure and harmonisation of the pension schemes will have immediate benefits. We have also been developing some new in-store cost saving initiatives, many of which have been successful and are already being introduced. For example, improved planning and control initiatives in our in-store warehouses have enabled better visibility of stock flow.

 

We are not rolling-out sales based ordering (SBO) immediately. One of our key priorities is better on-shelf availability, through improved and streamlined in-store process and updated stock ordering technology. These changes will deliver many of the cost saving benefits of SBO without the time, capital, and disruption risks SBO roll-out could have brought.

 

Cash flow and working capital

Our free cash flow plans are progressing well, and we remain on-track to generate £2bn operating free cash flow in the three years to end-2016/17. This includes a target of £600m of operating working capital improvement. With £125m in the first half, we have now generated £331m of operating working capital 18 months into that plan.

 

Property disposals

Our £1bn three year property disposal plan is on-track with £629m achieved so far, including £181m during the first half. We remain committed to a freehold store portfolio of over 80%, and are currently at 85%. The focus is now on property development opportunities and non-core asset disposals. We expect a net annual rent impact towards the lower end of the previously guided £20m-£25m range.

 

Capital expenditure

We have reviewed our capital expenditure plans in detail. All components fell during the first half - new stores, non-core channels and IT. We still expect full year capital expenditure to be around £400m, as the Fresh Look refits start in the second half.

 

In future, we expect core supermarkets' capital expenditure to be sustainable at around £400m-£450m per annum. In addition, we now expect the previously announced 2015/16 £100m onerous contracts to be spread over the next two years, meaning £50m is now expected in 2015/16 and a total of £100m in 2016/17.

 

Debt

Net debt has fallen by £254m since year-end, and we expect further progress in future. The half-year position of £2,086m is already within our 2015/16 year-end target range of £1.9bn-£2.1bn.

 

Pension

We intend to launch a defined contribution scheme to sit alongside our Retirement Saver scheme. This will provide a lower cost option for our colleagues to save for retirement. Subject to consultation, we anticipate this will become the auto-enrolment scheme for colleagues in the future, and we expect to incur a related charge of £35m in the second half.

 

Commercial income

During the first half, commercial income was £179m (2014/15: £194m). Our definition comprises suppliers' marketing contributions and volume-based rebates, but excludes promotional funding as these are automatic deductions from costs and are triggered as units are sold with no subjectivity or judgement applied.

 

ROCE

We remain focussed on ROCE as an important KPI, and are committed to improving future returns.

 

2015 Long Term Incentive Plan awards

Once the performance targets for the 2015 Long Term Incentive Plan awards have been determined, they will be communicated to shareholders via a disclosure in the Investor Relations section of the Morrisons website.

 

 

Corporate responsibility and community

 

How we operate is very important to us. Our corporate responsibility programme ensures we work in a way that is right for our customers, colleagues, suppliers and communities, creating longer term sustainable growth. In June, we published our 2014/15 CR Review, which was independently verified by our assurance providers, DNV GL. It is available to download at www.morrisons-corporate.com/cr

 

Shortlisted for Most Sustainable Retailer of the Year

We've been recognised for our responsible business programme at this year's Retail Industry Awards and have been shortlisted for Most Sustainable Retailer of the Year. This award is for retailers who can demonstrate their full commitment to driving change by improving the sustainability of their operations.

 

Sustainable Fisheries - Ocean Disclosure Project

It is important that our customers know where our fish comes from and how it has been caught. We continue to work hard with our suppliers to ensure that all fish we stock is responsibly sourced, and to improve and certify all areas of our supply chain.

 

We have taken part in the Ocean Disclosure Project and demonstrated our commitment to corporate transparency by publishing the full lists of fisheries we use for sourcing alongside data on sustainability. The initiative, conducted with the Sustainable Fisheries Partnership, represents a step forward in corporate reporting.

 

Supporting National charity partner, Sue Ryder

Our customers and colleagues have so far raised a fantastic £3.2m for our partnership with Sue Ryder. We are working with the charity to help and support families throughout the UK. At the heart of the partnership is a shared belief that everyone should be able to get the care they want when they need it most, and that their families should be supported through the most difficult times.

 

Morrisons partnership will enable the charity to establish community clinics, end-of-life-care online support communities, and family support teams.

 

Reducing our carbon emissions

Our commitment to reduce operational carbon emissions by 30% by 2020, from a 2005 baseline remains a significant focus within our business. With five years of investment still to go, we have so far achieved a reduction of 23%.

 

Colleagues

 

Earlier this year we introduced flexible benefits for colleagues - with the opportunity to sacrifice salary for childcare vouchers, cycle-to-work, laptops, tablets and mobile phones, plus a range of health and wellbeing options such as health assessments, dental and optical cover.

 

We are committed to supporting our colleagues in playing an active part in their communities. We have launched the Morrisons Foundation, through which we aim to improve people's lives, through match funding colleagues and offering grants to registered charities throughout the UK.

 

Notes:

 

 

1

Underlying profit before tax and underlying earnings per share include new business development and restructuring costs, but exclude profit/loss relating to property disposals and sale of businesses, IAS 19 pension interest, impairment and provision for onerous contracts. 

 

 

 

Wm Morrison Supermarkets PLC

Condensed consolidated financial statements

Consolidated statement of comprehensive income 

26 weeks ended 2 August 2015

 

Note

26 weeks ended

2 August 2015

(unaudited)

£m

26 weeks ended

3 August 2014

(unaudited)

£m

52 weeks ended

1 February 2015 (audited)

£m  

Revenue

3

8,064

8,496

16,816

Cost of sales

 

(7,753)

(8,100)

(16,055)

Gross profit

 

311

396

761

 

 

 

 

 

Other operating income

 

34

39

78

Profit/loss on disposal and exit of properties and sale of businesses

2

96

58

135

Administrative expenses

 

(269)

(206)

(1,670)

Operating profit/(loss)

 

172

287

(696)

 

 

 

 

 

Finance costs

4

(52)

(49)

(105)

Finance income

4

5

-

7

Share of profit of joint venture (net of tax)

 

1

1

2

Profit/(loss) before taxation

 

126

239

(792)

Analysed as:

 

 

 

 

Underlying profit before tax

 

117

181

345

Adjustments for:

 

 

 

 

        Impairment and provision for onerous contracts

 

(87)

-

(1,273)

        Profit/loss on disposal and exit of properties

 

96

54

131

 

 

9

54

(1,142)

        Profit arising on disposal of Kiddicare.com Limited

 

-

4

4

        Net pension interest income

 

-

-

1

 

 

126

239

(792)

Taxation

5

(19)

(56)

31

Profit/(loss) for the period attributable to the owners of the Company

 

107

183

(761)

 

 

 

 

 

Other comprehensive income/(expense)

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

Remeasurement of defined benefit pension schemes

11

61

11

(31)

Tax on defined benefit pension schemes

 

(12)

(2)

6

 

 

49

9

(25)

Items that may be reclassified subsequently to profit or loss:

 

 

Cash flow hedging movement

 

11

20

(9)

Tax on cash flow hedging movement

 

(2)

(4)

2

 

 

9

16

(7)

Other comprehensive income/(expense) for the period, net of tax

 

58

25

(32)

Total comprehensive income/(expense) for the period attributable to the owners of the Company

 

165

208

(793)

 

Earnings per share (pence)

6

 

 

 

 

- basic

 

4.59

7.84

(32.63)

 

- diluted

 

4.57

7.81

(32.63)

 

 

Consolidated balance sheet

2 August 2015

 

 

 

 

 

 

2 August 2015

(unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

 

Note

£m  

£m  

£m  

 

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Goodwill and intangible assets

7

536

503

520

 

Property, plant and equipment

8

7,158

8,334

7,252

 

Investment property

9

40

76

68

 

Net pension asset

11

27

-

4

 

Investment in joint venture

 

69

67

68

 

Investments

 

31

31

31

 

Derivative financial assets

 

13

-

-

 

 

 

 

7,874

9,011

7,943

 

Current assets

 

 

 

 

 

Stock

 

639

667

658

 

Debtors

 

208

403

239

 

Derivative financial assets

 

1

1

6

 

Cash and cash equivalents

 

156

164

241

 

 

 

 

1,004

1,235

1,144

 

Non-current assets classified as held-for-sale

10

49

107

84

 

 

 

1,053

1,342

1,228

 

Liabilities

 

 

 

 

 

Current liabilities

 

 

 

 

 

Creditors

 

(2,316)

(2,232)

(2,221)

 

Short term borrowings

 

(1)

(550)

(11)

 

Derivative financial liabilities

 

(16)

(11)

(18)

 

Current tax liabilities

 

(42)

(36)

(23)

 

 

 

 

(2,375)

(2,829)

(2,273)

 

Non-current liabilities

 

 

 

 

 

Borrowings

 

(2,139)

(2,182)

(2,508)

 

Derivative financial liabilities

 

(100)

(30)

(50)

 

Deferred tax liabilities

 

(427)

(454)

(415)

 

Net pension liabilities

11

(14)

(5)

(43)

 

Provisions

 

(333)

(171)

(288)

 

 

 

 

(3,013)

(2,842)

(3,304)

 

Net assets

 

3,539

4,682

3,594

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Share capital

 

234

234

234

 

Share premium

 

127

127

127

 

Capital redemption reserve

 

39

39

39

 

Merger reserve

 

2,578

2,578

2,578

 

Retained earnings and hedging reserve

 

561

1,704

616

 

Total equity attributable to the owners of the Company

 

3,539

4,682

3,594

 

Consolidated cash flow statement

26 weeks ended 2 August 2015

 

 

 

  

Note

26 weeks ended

2 August 2015

(unaudited)

£m

26 weeks ended

3 August 2014

(unaudited)

£m  

52 weeks ended

1 February 2015

(audited)

£m  

 

Cash flows from operating activities

 

 

 

 

 

Cash generated from operations

12

471

551

970

 

Interest paid

 

(41)

(45)

(106)

 

Taxation (paid)/received

 

(2)

(39)

10

 

Net cash inflow from operating activities

 

428

467

874

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Interest received

 

-

-

4

 

Proceeds from the sale of property, plant and equipment and businesses

 

181

202

450

 

Purchase of property, plant and equipment and investment property

 

(72)

(189)

(385)

 

Purchase of intangible assets

 

(67)

(68)

(135)

 

Net cash inflow/(outflow) from investing activities

 

42

(55)

(66)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Purchase of own shares for trust

17

-

(8)

(8)

 

New borrowings

 

-

291

296

 

Net repayment of revolving credit facility

 

(320)

-

(256)

 

Repayment of other borrowings

 

(10)

(575)

(550)

 

Dividends paid to equity shareholders

15

(225)

(214)

(308)

 

Net cash outflow from financing activities

 

(555)

(506)

(826)

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(85)

(94)

(18)

 

Cash and cash equivalents at start of period

 

240

258

258

 

Cash and cash equivalents at end of period

13

155

164

240

 

 

 

 

 

 

 

 

Reconciliation of net cash flow to movement in net debt in the period

 

 

 

 

26 weeks ended

26 weeks ended

52 weeks ended

 

 

 

2 August 2015

(unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

Note

£m  

£m  

£m  

 

Net decrease in cash and cash equivalents

 

(85)

(94)

(18)

 

Cash outflow from decrease in debt

 

330

575

806

 

Cash inflow from increase in borrowings

 

-

(291)

(296)

 

Other non-cash movements

 

9

19

(15)

 

Opening net debt

 

(2,340)

(2,817)

(2,817)

 

Closing net debt

13

(2,086)

(2,608)

(2,340)

 

                             

 

 

Consolidated statement of changes in equity

 

 

 

Attributable to the owners of the Company

 

Note

Share capital

 

£m

Share premium

 

£m

Capital redemption reserve

£m

Merger reserve

 

£m

Hedging reserve

 

£m

Retained earnings

 

£m

  Total     equity

 

£m

26 weeks ended 2 August 2015 (unaudited)

 

 

 

 

 

 

 

 

At 2 February 2015

 

234

127

39

2,578

(22)

638

3,594

Profit for the period

 

-

-

-

-

-

107

107

Other comprehensive income/(expense):

 

 

 

 

 

 

 

 

Cash flow hedging movement

 

-

-

-

-

11

-

11

Pension remeasurement

 

-

-

-

-

-

61

61

Tax in relation to components of other comprehensive income

 

-

-

-

-

(2)

(12)

(14)

Total comprehensive income for the period

 

-

-

-

-

9

156

165

Employee share option schemes:

 

 

 

 

 

 

 

 

Share-based payments

 

-

-

-

-

-

5

5

Dividends

15

-

-

-

-

-

(225)

(225)

Total transactions with owners

 

-

-

-

-

-

(220)

(220)

At 2 August 2015

 

234

127

39

2,578

(13)

574

3,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to the owners of the Company

 

Note

Share capital

 

£m

Share premium

 

£m

Capital redemption reserve

£m

Merger reserve

 

£m

Hedging reserve

 

£m

Retained earnings

 

£m

  Total     equity

 

£m

26 weeks ended 3 August 2014 (unaudited)

 

 

 

 

 

 

 

 

At 3 February 2014

 

234

127

39

2,578

(15)

1,729

4,692

Profit for the period

 

-

-

-

-

-

183

183

Other comprehensive income/(expense):

 

 

 

 

 

 

 

 

Cash flow hedging movement

 

-

-

-

-

20

-

20

Pension remeasurement

 

-

-

-

-

-

11

11

Tax in relation to components of other comprehensive income

 

-

-

-

-

(4)

(2)

(6)

Total comprehensive income for the period

 

-

-

-

-

16

192

208

Purchase of trust shares

17

-

-

-

-

-

(8)

(8)

Employee share option schemes:

 

 

 

 

 

 

 

 

Share-based payments

 

-

-

-

-

-

4

4

Dividends

15

-

-

-

-

-

(214)

(214)

Total transactions with owners

 

-

-

-

-

-

(218)

(218)

At 3 August 2014

 

234

127

39

2,578

1

1,703

4,682

 

 

 

 

 

 

 

 

 

 

Consolidated statement of changes in equity (continued)

 

 

 

Attributable to the owners of the Company

 

 

Note

Share capital

 

£m

Share premium

 

£m

Capital redemption reserve

£m

Merger reserve

 

£m

Hedging reserve

 

£m

Retained earnings

 

£m

Total equity

 

£m

52 weeks ended 1 February 2015 (audited)

 

 

 

 

 

 

 

 

At 3 February 2014

 

234

127

39

 2,578

(15)

1,729

4,692

Loss for the period

 

-

-

-

-

-

(761)

(761)

Other comprehensive (expense)/income:

 

 

 

 

 

 

 

 

Cash flow hedging movement

 

-

-

-

-

(9)

-

(9)

Pension remeasurement

 

-

-

-

-

-

(31)

(31)

Tax in relation to components of other comprehensive income

 

-

-

-

-

2

6

8

Total comprehensive expense for the period

 

-

-

-

-

(7)

(786)

(793)

Purchase of trust shares

17

-

-

-

-

-

(8)

(8)

Employee share option schemes:

 

 

 

 

 

 

 

 

Share-based payments

 

-

-

-

-

-

11

11

Dividends

15

-

-

-

-

-

(308)

(308)

Total transactions with owners

 

-

-

-

-

-

(305)

(305)

At 1 February 2015

 

234

127

39

2,578

     (22)

638

3,594

                       

 

Notes to the condensed consolidated financial statements

26 weeks ended 2 August 2015

 

1       SEGMENTAL REPORTING

Following the change in management structure, the Executive Committee is considered to be the Group's chief operating decision maker. The information received by the Executive Committee is consistent with that received by the previous Management Board. There are no differences from the 2014/15 Annual report and financial statements in the basis of segmentation. The Directors consider there to be one operating segment, that of retailing.

 

The Executive Committee uses the underlying profit figure to measure performance. A reconciliation of underlying profit to the statutory position can be found in note 2. The Executive Committee also reviews a balance sheet containing assets and liabilities which is as shown within the Consolidated balance sheet.  

 

2

 

 UNDERLYING EARNINGS

 

 

 

 

The Directors consider that the underlying earnings and underlying adjusted earnings per share measures referred to in the results provide useful information for shareholders on underlying trends and performance. The adjustments are made to reported profit/loss to (a) remove impairment, provision for onerous contracts, or other similar items that do not relate to the Group's principal activities on an ongoing basis; (b) remove profit/loss arising on disposal and exit of properties and sale of businesses; (c) apply a normalised tax rate of 25.3% (3 August 2014: 26.0%, 1 February 2015: 26.1%); and (d) remove the impact of pension interest volatility.

 

 

 

 

26 weeks ended

 

26 weeks ended

 

52 weeks ended

 

 

 

2 August 2015

(unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

         Note

£m  

£m  

£m  

 

Profit/(loss) after tax

107

183

(761)

 

Add back: tax charge/(credit) for the period 1

19

56

(31)

 

Profit/(loss) before tax

126

239

(792)

 

Adjustments for:

 

 

 

 

       Impairment and provision for onerous contracts 1

87

-

1,273

 

       Profit/loss arising on disposal and exit of properties 1         

(96)

(54)

(131)

 

 

(9)

(54)

1,142

 

Profit on disposal of Kiddicare.com 
Limited 1            16

-

(4)

(4)

 

Net pension interest income1

-

-

(1)

 

Underlying profit before tax

117

181

345

 

Normalised tax charge at 25.3%/26.0%/26.1% 1

(30)

(47)

(90)

 

Underlying profit after tax

87

134

255

 

Adjustments marked 1 decrease post-tax underlying earnings by £20m (3 August 2014: decrease £49m, 1 February 2015: increase £1,016m), as shown in the reconciliation of earnings disclosed in note 6.

 

Net profit on property is £9m. This includes profits arising on disposal of properties amounting to £96m. Following our continued review of the Group's store opening programme, this profit has been offset by an additional charge of £87m for changes in estimates related to the provisions for stores in the new space pipeline.

 

In the period ended 1 February 2015, included within profit/loss arising on disposal and exit of properties is a charge of £19m relating to the closure of ten stores and six convenience stores.

 

Impairment and provisions for onerous contracts in the period ended 1 February 2015 consists of £1,273m in relation to trading stores, of which £1,116m is impairment, £118m is onerous lease provisions, £30m relates to onerous commitments and £9m relating to lease premiums.

 

 

 

Notes to the condensed consolidated financial statements (Continued)

26 weeks ended 2 August 2015

 

 

 

 

 

 

3

REVENUE

 

 

 

 

 

 

 

26 weeks ended

26 weeks ended

52 weeks ended

 

 

 

2 August 2015

(unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

 

£m  

£m  

£m  

 

Sale of goods in stores and online

 

6,388

6,457

12,999

 

Fuel

 

1,583

1,902

3,576

 

Total store-based and online sales

 

7,971

8,359

16,575

 

Other sales

 

93

137

241

 

Total revenue

 

8,064

8,496

16,816

 

 

 

4

 

 

 

 

FINANCE COSTS AND INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26 weeks ended

2 August 2015

(unaudited)

26 weeks ended

3 August 2014

(unaudited)

52 weeks ended

1 February 2015

(audited)

 

 

 

 

£m  

£m  

£m  

 

 

 

Interest payable on short term loans and bank overdrafts

(2)

(6)

(10)

 

 

 

Interest payable on bonds and loan notes

(47)

(45)

(96)

 

 

 

Interest capitalised

3

5

11

 

 

 

Total interest payable

(46)

(46)

(95)

 

 

 

Provisions: unwinding of discount

(5)

(3)

(7)

 

 

 

Other finance costs

(1)

-

(3)

 

 

 

Finance costs 

(52)

(49)

(105)

 

 

 

Bank interest received

-

-

5

 

 

 

Amortisation of bonds

-

-

1

 

 

 

Net pension interest income

-

-

1

 

 

 

Other finance income

5

-

-

 

 

 

Finance income 

5

-

7

 

 

 

Net finance cost

(47)

(49)

(98)

 

                             

 

Notes to the condensed consolidated financial statements (Continued)

26 weeks ended 2 August 2015

 

 

5

TAXATION

 

The standard rate of corporation tax changed from 21% to 20% with effect from 1 April 2015.

 

The normalised rate of tax of 25.3% (3 August 2014: 26.0%, 1 February 2015: 26.1%) has been calculated using full year projections and has been applied to the half year underlying profit. The standard rate of corporation tax of 20.2% (3 August 2014: 21.3%, 1 February 2015: 21.3%) for the year has been applied to the half year impairment and provision for onerous contracts charge, and the profit/loss on property related transactions, on an item by item basis.

 

Legislation to reduce the standard rate of corporation tax from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020 was included in Summer Finance Bill 2015. The legislation was not substantially enacted by the balance sheet date. Accordingly, deferred tax has been provided at 20%, being the rate substantively enacted by 2 August 2015, as required by IAS 34 Interim Financial Reporting. If deferred tax was provided at 18%, the deferred tax liability recognised on the balance sheet would be reduced by £34m.

 

 

 

6

EARNINGS PER SHARE

 

 

Basic earnings/(loss) per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

 

For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. 

 

Underlying EPS

It is the Directors' view that underlying EPS is the fairest reflection of the underlying results of the business.

 

 

 

 

26 weeks ended

26 weeks ended

52 weeks ended

 

 

 

2 August 2015

(unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

 

Pence

Pence

Pence

 

 

 

Basic

Diluted

Basic

Diluted

Basic

Diluted

 

 

Basic EPS

4.59

4.57

7.84

7.81

(32.63)

(32.63)1

 

 

Underlying EPS

3.73

3.71

5.74

5.72

10.93

10.89

 

 

 

 

 

 

 

 

 

 

£m

£m

£m

 

 

 

Basic

Diluted

Basic

Diluted

Basic

Diluted

 

 

Basic earnings/(loss)

 

 

 

 

 

 

 

 

Earnings/(loss) attributable to ordinary shareholders

107

107

183

183

(761)

(761)

 

 

 

 

 

 

 

 

Underlying earnings

 

 

 

 

 

 

 

 

Earnings/(loss) attributable to ordinary shareholders

107

107

183

183

(761)

(761)

 

 

Adjustments to determine underlying profit (note 2)

(20)

(20)

(49)

(49)

1,016

1,016

 

 

Underlying earnings attributable to ordinary shareholders

87

87

134

134

255

255

 

 

 

 

 

 

 

 

 

Millions

Millions

Millions

 

 

 

Basic

Diluted

Basic

Diluted

Basic

Diluted

 

 

Weighted average number of shares

 

 

 

 

 

 

 

 

Ordinary shares in issue/diluted ordinary shares

2,333.0

2,342.0

2,333.0

2,344.0

2,332.5

2,341.5

 

 

 

1 The effect of dilutive instruments would improve basic EPS, as total earnings for the 52 weeks ended 1 February 2015, is a loss of £761m. Diluted EPS cannot exceed basic EPS, therefore the diluted EPS disclosed above has been adjusted so that it equals basic EPS.

 

Notes to the condensed consolidated financial statements (Continued)

26 weeks ended 2 August 2015

 

 

 

7

GOODWILL AND INTANGIBLE ASSETS

 

 

 

 

 

 

 

 

 

 

2 August 2015

(unaudited)

3 August 2014

 (unaudited)

1 February 2015

(audited)

 

 

 

 

£m  

£m  

£m  

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

At beginning of the period

 

520

 

458

 

458

 

 

 

Additions

 

59

 

70

 

126

 

 

 

Interest capitalised

 

3

 

4

 

9

 

 

 

Reclassifications

 

-

 

(1)

 

-

 

 

 

Amortisation

 

(46)

 

(28)

 

(70)

 

 

 

Impairment

 

-

 

-

 

(3)

 

 

 

At end of the period

 

536

 

503

 

520

 

 

 

 

 

 

 

 

 

 

 

 

The carrying value of goodwill and intangible assets principally consists of software development costs of £514m

(3 August 2014: £477m, 1 February 2015: £495m). During the period assets costing £23m became fully depreciated (3 August 2014: £3m, 1 February 2015: £5m).

 

Included within software development costs are assets under construction of £122m (3 August 2014: £212m, 1 February 2015: £153m).

 

 

 

 

 

 

8

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 August 2015

(unaudited)

3 August 2014

 (unaudited)

1 February 2015

(audited)

 

 

 

 

£m  

£m  

£m  

 

 

 

Net book value

 

 

 

 

 

 

At beginning of the period

7,252

8,625

8,625

 

 

 

Additions

74

164

388

 

 

 

Interest capitalised

-

1

2

 

 

 

Transfers to investment property

(3)

-

(1)

 

 

 

Transfers to assets held-for-sale

(4)

(283)

(323)

 

 

 

Reclassifications

-

1

-

 

 

 

Disposals

(18)

(11)

(11)

 

 

 

Depreciation charge for the period

(143)

(163)

(315)

 

 

 

Impairment

-

-

(1,113)

 

 

 

At end of the period

7,158

8,334

7,252

 

                                           

 

During the period assets costing £66m became fully depreciated (3 August 2014: £361m, 1 February 2015: £439m). Included above are assets under construction of £12m (3 August 2014: £84m, 1 February 2015: £27m) and the net book value of land is £3,328m (3 August 2014: £3,764m, 1 February 2015: £3,329m).

 

 

Notes to the condensed consolidated financial statements (Continued)

              26 weeks ended 2 August 2015

 

 

 

9

INVESTMENT PROPERTIES

 

 

 

 

 

 

2 August 2015

(unaudited)

£m

3 August 2014 (unaudited)

 £m

1 February 2015

(audited)

£m

Net book value

 

 

 

At beginning of period

68

119

119

Additions

-

3

1

Transfers from property, plant and equipment

3

-

1

Transfers to assets held-for-sale

(30)

(45)

(51)

Depreciation charge for the period

(1)

(1)

(2)

At end of the period

40

76

68

 

 

 

10

NON-CURRENT ASSETS CLASSIFIED AS HELD-FOR-SALE

 

 

 

2 August 2015

(unaudited)

£m

3 August 2014 (unaudited)

 £m

1 February 2015

(audited)

£m

Net book value

 

 

 

At beginning of period

84

-

-

Additions

-

-

3

Transfers from property, plant and equipment at net book value

4

283

323

Transfers from investment property at net book value

30

45

51

Disposals

(69)

(221)

(293)

At end of the period

49

107

84

 

 

 

 

 

11

PENSIONS

 

 

 

 

 

 

 

 

 

The Group operates a number of defined benefit retirement schemes (together 'the Schemes') providing benefits based on a formula that depends on factors including the employee's age and number of years of service. The Morrison and Safeway Schemes provide pension benefits based on either the employee's compensation package or career average revalued earnings (CARE) (the 'CARE Schemes'). 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, which is revalued each year in line with inflation.

 

The movement in the net pension asset/(liability) during the period was as follows:

 

 

2 August 2015

(unaudited)

£m

3 August 2014 (unaudited)

 £m

1 February 2015

(audited)

£m

Net pension liability at start of the period

(39)

(11)

(11)

Net interest income

-

-

1

Curtailment gain

2

-

1

Remeasurement in other comprehensive income

61

11

(31)

Employer contributions

40

38

85

Current service cost

(50)

(42)

(80)

Administrative expenses

(1)

(1)

(4)

Net pension asset/(liability) at the end of the period

13

(5)

(39)

 

 

This is disclosed in the balance sheet as follows:

 

 

 

2 August 2015

(unaudited)

£m

Safeway CARE scheme

 

20

Retirement Saver Plan

 

7

Morrison CARE scheme

 

(14)

Net pension asset at the end of the period

 

13

 

Closure of CARE Schemes to future accrual

In January 2015 the Group announced that it had reached an agreement in principle with the Trustees of the CARE Schemes to close them to future accrual, subject to the outcome of consultation with current scheme members. This consultation has concluded and an agreement has been reached, with changes effective from 5 July 2015. The financial effect of closing these schemes to future accrual is to reduce the Group's exposure to future volatility, increases in pension liabilities and cost.

 

Subsequently, the Group has entered into an agreement in principle with the Trustees of the Scottish Limited Partnership. In addition to the £90m of properties contributed to the existing pension funding structure in 2012/13, the Group has provided an additional asset contribution of £150m. Under this agreement, the Group retains control of these additional properties unless the Group becomes insolvent. In the event of insolvency, these assets would form part of the Scheme assets.

 

 

12

CASH GENERATED FROM OPERATIONS

 

 

 

 

 

26 weeks ended

26 weeks  ended

   

52 weeks ended

 

 

2 August 2015

(unaudited)

£m

3 August 2014

 (unaudited)

£m

1 February 2015

(audited)

£m

 

Profit/(loss) for the period

107

183

(761)

 

Net finance costs

47

49

98

 

Taxation charge/(credit)

19

56

(31)

 

Share of profit of joint venture

(1)

(1)

(2)

 

Operating profit/(loss)

172

287

(696)

 

Adjustments for:

 

 

 

 

Depreciation and amortisation

190

192

387

 

Impairment of property, plant and equipment and intangible assets

-

-

1,116

 

Profit arising on disposal and exit of properties and sale of businesses

(96)

(58)

(135)

 

Adjustment for non-cash element of pensions charges

9

5

(5)

 

Other non-cash charges

5

5

14

 

Decrease in stock 1

19

171

180

 

Decrease/(increase) in debtors 1

28

(7)

77

 

Increase/(decrease) in creditors 1

107

(40)

(76)

 

Increase/(decrease) in provisions 1

37

(4)

108

 

Cash generated from operations

471

551

970

 

Total working capital movement (the sum of items marked 1 above) is £191m in the period (3 August 2014: £120m, 1 February 2015: £289m). This includes £83m (3 August 2014: £nil, 1 February 2015: £157m) as a result of the impairment and provision for onerous contracts charge in the period (see note 2) and is net of £17m (3 August 2014: £24m, 1 February 2015: £74m) of onerous capital payments. The working capital inflow excluding impairment and provision for onerous contracts is £125m (3 August 2014: £144m, 1 February 2015: £206m).

 

Included within debtors in the Consolidated balance sheet is £1m in respect of property disposals recognised in the period (3 August 2014: £80m, 1 February 2015: £nil).

 

Notes to the condensed consolidated financial statements (Continued)

        26 weeks ended 2 August 2015

 

13    ANALYSIS OF NET DEBT

 

 

 

 

 

2 August 2015

(unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

 

 

£m  

£m  

£m  

 

Cash and cash equivalents per balance sheet

156

164

241

 

Bank overdrafts

(1)

-

(1)

 

Cash and cash equivalents per cash flow 

155

164

240

 

Interest rate swaps

13

-

-

 

Non-current financial assets

13

-

-

 

Foreign exchange forward contracts 

1

1

6

 

Current financial assets

 

 

1

1

6

 

Short term borrowings and current bonds

-

(550)

(10)

 

Fuel and energy price contracts

(10)

(11)

(12)

 

Foreign exchange forward contracts 

(6)

-

(6)

 

Current financial liabilities 

(16)

(561)

(28)

 

Bonds

 

 

(1,986)

(2,036)

(2,030)

 

Private placement loan notes

(158)

(146)

(164)

 

Revolving credit facility

 

5

-

(314)

 

Cross-currency contracts and interest rate swaps

(94)

(30)

(45)

 

Fuel and energy price contracts

(6)

-

(5)

 

Non-current financial liabilities 

(2,239)

(2,212)

(2,558)

 

Net debt

 

 

(2,086)

(2,608)

(2,340)

 

                                         

 

14

FINANCIAL INSTRUMENTS

 

 

 

 

 

 

 

 

 

 

            2 August 2015 

               (unaudited)

3 August 2014

(unaudited)

1 February 2015

(audited)

 

 

Carrying amount

Fair

value

Carrying amount

Fair

value

Carrying amount

Fair

value

 

 

£m  

£m  

£m  

£m  

£m  

£m  

 

Non-current financial assets

 

 

 

 

 

 

 

Derivative financial instruments

13

-

-

-

-

 

Total non-current financial assets

13

13

-

-

-

-

 

Current financial assets

 

 

 

 

 

 

 

Derivative financial instruments

1

1

1

1

6

   6

 

Total current financial assets

1

1

1

1

6

6

 

Current financial liabilities 

 

 

 

 

 

 

 

Short-term borrowings

-

(550)

(550)

(10)

(10)

 

Derivative financial instruments

(16)

(16)

(11)

(11)

(18)

(18)

 

Total current financial liabilities

(16)

(16)

(561)

(561)

(28)

(28)

 

Non-current financial liabilities 

 

 

 

 

 

 

 

Borrowings

(2,176)

(2,182)

(2,367)

(2,508)

(2,604)

 

Derivative financial instruments

(100)

(100)

(30)

(30)

(50)

(50)

 

Total non-current financial liabilities

(2,239)

(2,276)

(2,212)

(2,397)

(2,558)

(2,654)

                 

 

 

 

  14        FINANCIAL INSTRUMENTS (continued)

 

All financial instruments carried at fair value within the Group at 2 August 2015 are financial derivatives and all are categorised as Level 2 instruments (3 August 2014 and 1 February 2015: Level 2). Level 2 fair values for simple over-the-counter derivatives are calculated by using benchmark observable market interest rates to discount future cash flows.

 

Notes to the condensed consolidated financial statements (Continued)

              26 weeks ended 2 August 2015

 

 

15

DIVIDENDS

 

 

 

 

 

 

26 weeks ended

26 weeks ended

52 weeks ended

 

 

 

2 August 2015

(unaudited)

£m

3 August 2014

(unaudited)

£m

1 February 2015

(audited)

£m

 

 

Equity dividends paid in the period

225

214

308

 

 

 

The dividend paid in the period represents the cash payment of the final dividend of 9.62p from the 52 weeks ended 1 February 2015 (26 weeks ended 3 August 2014: represents the cash payment of the final dividend of 9.16p for the 52 weeks ended 2 February 2014. 52 weeks ended 1 February 2015: represents the cash payment of the final dividend of 9.16p for the 52 weeks ended 2 February 2014 and the interim dividend of 4.03p for the 26 weeks ended 3 August 2014).
 

The Directors are proposing an interim dividend of 1.50p per share which will be paid on 9 November 2015 to shareholders who are on the register of members on 2 October 2015. The interim dividend will absorb an estimated £35m of shareholders' funds. This amount will be charged to retained earnings when paid.

 

 

 

 

 

 

16

DISPOSAL OF KIDDICARE.COM LIMITED

 

 

 

In the prior year, the Group disposed of Kiddicare.com Limited to Endless LLP, receiving consideration of £2m for the sale of the shares. This resulted in a profit on disposal of £4m in the comparative period. This profit was one-off in nature and so was excluded from reported underlying profit. As at 2 August 2015, one out of the ten leases relating to Kiddicare remained unassigned.

 

 

 

 

17

SHARE CAPITAL

 

 

 

 

 

 

 

 

 

Trust shares

Included in retained earnings is a deduction of £46,485 (3 August 2014: £5m, 1 February 2015: £6m) in respect of own shares held at the balance sheet date. This represents the cost of 21,722 (3 August 2014: 2,915,374, 1 February 2015: 2,907,374) of the Group's ordinary shares (nominal value of £2,172 (3 August 2014: £0.3m, 1 February 2015: £0.3m)). These shares are held in a trust and were acquired by the business to meet obligations under the Group's employee share plans using funds provided by the Group. The market value of the shares at 2 August 2015 was £39,643 (3 August 2014: £5m, 1 February 2015: £5m). 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 116,663 (3 August 2014: 4,000,000, 1 February 2015: 4,000,000) of its own shares to hold in trust for consideration of £0.2m (3 August 2014: £8m, 1 February 2015: £8m), and utilised 3,002,315 (3 August 2014: 3,023,234, 1 February 2015: 3,031,234) trust shares to satisfy awards under the Group's employee share plans.

 

Issue of new shares

The Group issued 35,119 (3 August 2014: 37,970, 1 February 2015: 41,962) new shares to satisfy options exercised by employees during the period. Proceeds received on exercise of these shares amounted to £0.1m (3 August 2014: £0.1m, 1 February 2015: £0.1m).

 

 

 

 

 

Notes to the condensed consolidated financial statements (Continued)

26 weeks ended 2 August 2015

 

 

 

 

 

 

 

18

 

 

COMMERCIAL INCOME

 

Commercial income remains an area of focus for the Group. This is an area which is currently not directly covered by accounting standards and there is no prescriptive disclosure best practice. The Financial Reporting Council ('FRC') has urged the Boards of retailers and suppliers to provide greater clarity in this area.

 

Commercial income controls were disclosed within the Corporate Governance section of the 2014/15 Annual report and financial statements. The disclosure below is the first time the Group has made commercial income disclosures at the half year. The disclosure summarises the quantum earned in the income statement and the balance sheet position as at 2 August 2015.

  

Commercial income is recognised as a deduction from cost of sales, based on expected entitlement that has been earned up to the balance sheet date for each relevant supplier contract. The Group only recognises commercial income where there is documented evidence of an agreement with an individual supplier.

 

The types of commercial income recognised by the Group and the recognition policies are:

 

Type of deduction

Description

Recognition

Marketing and

advertising funding

Examples include income in respect of in-store marketing and point of sale, as well as funding for advertising.

Income is recognised over the period as set out in the specific supplier agreement. Income is invoiced once the performance conditions in the supplier agreement have been achieved.

Volume-based

rebates

Income earned by achieving volume or spend targets set by the supplier for specific products over specific periods.

Income is recognised through the year based on forecasts for expected sales or purchase volumes, 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, prior to it being invoiced.

 

Commercial income earned in the period, by type of income, is summarised below:

 

 

26 weeks ended

2 August 2015

 

26 weeks ended

3 August 2014

 

52 weeks ended

1 February 2015

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

£m

 

 

£m

 

 

£m

Commercial income:

 

 

 

 

 

 

 

 

Marketing and advertising funding

 

109

 

 

131

 

 

291

Volume-based rebates

 

70

 

 

63

 

 

134

Total commercial income

 

179

 

 

194

 

 

425

 

 

The following table summarises the uncollected commercial income at the balance sheet date at the end of each period:

 

 

2 August 2015

(unaudited)

£m

3 August 2014

(unaudited)

£m 

1 February 2015

(audited)

£m 

Commercial income trade debtor

12

11

10

Accrued commercial income

30

48

37

Commercial income due, offset against amounts owed

42

46

96

 

84

105

143

 

As of 6 September 2015, £8m of the £12m commercial income trade debtor balance had been settled and £2m of the £30m accrued commercial income balance had been invoiced and settled.  In addition, £31m of the £42m commercial income due had been offset against payments made. As at the 6 September 2015 all of the £143m commercial income held on the balance sheet at 1 February 2015 had been settled.

 

 

Notes to the condensed consolidated financial statements (Continued)

26 weeks ended 2 August 2015

 

 

 

19

POST BALANCE SHEET EVENTS

 

 

 

 

 

 

 

Disposal of Wm Morrison Convenience Stores Limited and associated M local assets

 

Since the end of the period, on 9 September 2015, the Group has agreed the sale of its subsidiary Wm Morrison Convenience Stores Limited and associated M local assets to MLCG Limited for a cash consideration of c.£25m. The sale will result in an estimated loss on disposal of around £30m, which will be recognised in the second half.

 

Following the sale, Wm Morrison Supermarkets PLC continues to guarantee leases in respect of its former

convenience stores. If a lessee were to default, their lease obligations could revert back to the Group under the

terms of the guarantees and become a liability of the Group. The contingent liability for the future rental commitment is estimated at up to £20m, although in the event of lessee default the Group will look to minimise its liability by finding alternative occupiers for each property as soon as possible.

 

 

 

                 

 

Responsibility statement

We confirm that to the best of our knowledge: 

·      the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; 

·      the Interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure and Transparency Rules.

 

By order of the Board 

9 September 2015

 

 

The Board

The Board of Directors that served during the 26 weeks to 2 August 2015 and their respective responsibilities were:

 

Andrew Higginson - Chairman*

David Potts - Chief Executive Officer (appointed 16 March 2015)

Trevor Strain - Chief Financial Officer

Philip Cox CBE *

Belinda Richard * (appointed 1 September 2015)

Penny Hughes CBE*

Johanna Waterous CBE*

Irwin Lee * (appointed 1 September 2015)

Richard Gillingwater CBE* (resigned 4 June 2015)

Dalton Philips - Chief Executive Officer (resigned 16 February 2015)

* Non-Executive Director

 

Principal risks and uncertainties

The principal risks and uncertainties set out in Wm Morrison Supermarkets PLC's Annual report and financial statements for the 52 weeks ended 1 February 2015 remain the same for this Half-yearly financial report. Those risks and uncertainties can be summarised as follows:

 

High Impact Low Likelihood risks that may affect the Group:

·      Food and product safety

·      Major business interruption

·      Data security

 

Strategic risks which would impact the successful execution of the Group's strategy:

·      Business strategy

·      Financial strategy

·      Colleague engagement and development

·      External market forces

·      Supply chain management and integrity

·      Competitor proposition and price

·      IT systems upgrade

·      Regulation

 

 

More information on the principal risks and how the Group mitigates those risks can be found on pages 30 to 33 of the 2014/15 Annual report and financial statements. You can view the 2014/15 Annual report and financial statements online on our corporate website, www.morrisons-corporate.com/ar2015.

 

Notes to the condensed consolidated financial statements (Continued)

26 weeks ended 2 August 2015

 

 

General information

Wm Morrison Supermarkets PLC (the 'Company') is a public limited company incorporated in the United Kingdom (Registration number 358949). The Company is domiciled in the United Kingdom and its registered address is Hilmore House, Gain Lane, Bradford, BD3 7DL, United Kingdom.

 

The 2015/16 Half-yearly financial report does not constitute financial statements within the meaning of Section 434 of the Companies Act 2006 and does not include all of the information and disclosures required for full annual financial statements.

 

The condensed consolidated financial statements for the 26 weeks to 2 August 2015 are unaudited. However, the auditor, PricewaterhouseCoopers LLP has carried out a review of the condensed consolidated financial statements and their report is included in this Half-yearly financial report.

 

The comparative financial information contained in the condensed consolidated financial statements in respect of the 52 weeks ended 1 February 2015 has been extracted from the 2014/15 Annual report and financial statements. Those financial statements have been reported on by PricewaterhouseCoopers LLP, and delivered to the Registrar of Companies. The report was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under Section 498 of the Companies Act 2006.

 

The 2015/16 Half-yearly financial report was approved by the Board of Directors on 9 September 2015.

 

The Directors' assessment of the Group's ability to continue as a going concern is based on cash flow forecasts for the Group and the committed borrowing and debt facilities of the Group. These forecasts include consideration of future trading performance, working capital requirements, retail market conditions and the wider economy.

 

The Group remains able to borrow cash at competitive rates and the Group has negotiated, and has available to it, committed competitive facilities that will meet the Group's needs in the short and medium term.

 

Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information. 

 

Basis of preparation

The condensed consolidated financial statements of the Group for the 26 weeks ended 2 August 2015 have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority and the requirements of IAS 34 Interim financial reporting as adopted by the European Union. It should be read in conjunction with the 2014/15 Annual report and financial statements which have been prepared in accordance with IFRSs as adopted by the European Union. This is available either on request from the Company's registered office or to download from www.morrisons-corporate.com/ar2015.

 

Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated financial statements are consistent with those set out in the 2014/15 Annual report and financial statements.

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

 

Whilst there have been a number of minor changes to standards which will become applicable for the financial period ended 31 January 2016, none have been assessed as having a significant impact on the Group.

 

Judgements and estimates

In preparing the condensed consolidated financial statements, management are required to make accounting judgements, assumptions and estimates. The judgements, assumptions and estimation methods are consistent with those applied to the 2014/15 Annual report and financial statements.

 

Forward looking statements

Certain statements in this Half-yearly financial report are forward-looking. Where the Half-yearly 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.

 

Independent review report to Wm Morrison Supermarkets PLC

Report on the condensed consolidated financial statements

Our conclusion

We have reviewed the condensed consolidated financial statements, defined below, in the Half-yearly financial report of Wm Morrison Supermarkets PLC for the 26 weeks ended 2 August 2015. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed consolidated financial statements, which are prepared by Wm Morrison Supermarkets PLC, comprise:

·      the consolidated balance sheet as at 2 August 2015;

·      the consolidated statement of comprehensive income for the period then ended;

·      the consolidated cash flow statement for the period then ended;

·      the consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the condensed consolidated financial statements.

As disclosed in the basis of preparation note, the financial reporting framework that has been applied in the preparation of the full 2014/15 annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated financial statements included in the Half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed consolidated financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the Half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated financial statements.

 

Independent review report to Wm Morrison Supermarkets PLC (continued)

Report on the condensed consolidated financial statements (continued)

Responsibilities for the condensed consolidated financial statements and the review

Our responsibilities and those of the Directors

The Half-yearly financial report, including the condensed consolidated financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express to the Company a conclusion on the condensed consolidated financial statements in the Half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

Leeds

9 September 2015

 

 

 

Notes:

The maintenance and integrity of the Wm Morrison Supermarkets PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 


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