Half-yearly financial report 2010/11

Transcription

1 Half-yearly financial report /11

2 Interim management report sir Ian Gibson, Chairman Group HIGHlIGHts solid financial performance Profit before tax 412m Underlying profit before tax up 14% Underlying basic earnings per share 10.9p shareholder returns Interim dividend increased 14% to 1.23p per share Net debt reduced by 75m from the year end position to 849m csr programme moving firmly forward Carbon emissions remain on a downward trend despite the growth of our business in both retailing and manufacturing On track to cease sending waste to landfill by 2013 Our first half performance has been solid, in a tight market. At a time when value is a priority for everyone we have continued our run of market-beating sales growth, attracting more customers to Morrisons than ever before, reflecting our broad appeal. Our new CEO, Dalton Philips, has made a great start in the business and with the leadership team is developing positive plans for the next phase of growth for Morrisons. contents Interim management report Chairman s message 1 Chief Executive s message 6 c ondensed financial statements 11 Notes to the condensed financial statements 17 Accounting policies 19 Principal risks and uncertainties 19 Responsibility statement 20 Independent auditors review report 21 Investor relations and financial calendar Financial highlights 8.1bn Group turnover +9.1% 2009/10 7.5bn 410m Underlying profit before tax +14% 2009/10 359m +0.9 % Like-for-like sales (ex VAT and fuel) 2009/ % 10.9pence Underlying earnings per share +14% 2009/ pence 849m Net debt / m 1.23pence Interim dividend per share 2009/ pence Wm Morrison Supermarkets PLC Half-yearly financial report /11

3 1 Dalton philips, Chief Executive operating and strategic HIGHlIGHts Market-beating sales growth again 2.8% sales growth above market in the first half year* Total turnover increased 9.1% Record weekly average number of customers, up 800,000 store estate development 425 stores with 11.9m square feet of net selling space 15 new stores to open in second half of the year, adding a further 0.4m square feet Investments Investing further in food manufacturing, a unique point of difference for us Major systems replacement programme on track Development of new South West regional distribution centre underway strategic development First convenience store trials to take place in 2011 Internet grocery assessment underway *Source: Kantar Over the last six months I have spent a lot of time getting to know every aspect of this unique business and its people. Three observations stand out: Morrisons is a world class retailer; it has real and positive differences in its fresh offer, food production and craft skills; and there are many opportunities ahead to drive our top line, increase efficiencies in the business and to capture growth. We are outlining plans to build on our strengths and generate profitable growth. I am delighted to be leading a great company and with the whole team, I am determined to make Morrisons Better than Ever. 11.1m Average weekly number of customers up 8%. 24,000 colleagues have now been awarded a national qualification for in-store skills. 14 % increase Underlying earnings per share increased 14% from 9.6p to 10.9p in the period. 47 m increase Cashflow from operations improved from 533m to 580m in the same comparative half year.

4 2 Interim management report continued Retail Employer of the Year We were delighted to receive the Retail Employer of the Year award at The Grocer Gold Awards. Market share growth in the financial half year /11 3.0% Market Morrisons source: Kantar 5.8% overview This report covers trading for the 1 August. Total turnover was 8.1bn, an increase of 9.1% compared to the prior period. Excluding fuel, store turnover was up 5.8%, comprising a like-for-like increase of 0.9% and a contribution of 4.9% from our new stores. Profit before tax was 412m (2009/10: 449m). The prior period included an exceptional pensions credit of 91m and gains of 3m from property disposals. Underlying profit before tax was 410m, compared to 359m in the prior period, an increase of 14%. The operating margin of 5.2% was up by 10 basis points from the prior year primarily reflecting the benefit delivered by the Group s new South East RDC opened in The Group generated positive cash flow of 98m before repayment of borrowings. This compares to an outflow of 238m in the same period last year when there was a high level of capital expenditure arising from the acquisition of 38 stores from the Co-Operative Group. Cash generated from operations was 580m, an improvement of 47m over the prior period. Net debt reduced by 75m from the year end position to 849m, to leave gearing at 17%. During the period a 250m ( 150m) bond was repaid using the Group s existing credit facility. At the period end 650m of this facility remained undrawn. Throughout the period the Group operated 425 stores, with 11.9m square feet of net selling space. Our new stores programme will see 15 stores open in the second half, adding a further 0.4m square feet to the estate. The Group s dividend policy, as previously announced, is to maintain a payout ratio consistent with the European grocery sector average and to grow the dividend in line with underlying earnings. The Board is therefore pleased to confirm its intention to increase the interim dividend by 14% to 1.23 pence per share (2009/10: 1.08p). This will be paid on 8 November to shareholders on the register on 1 October. the uk grocery retail market As anticipated, the consumer environment has remained challenging, with disposable incomes coming under pressure from a rising tax burden and consumer confidence impacted by concerns over unemployment and public sector spending cuts. In the grocery market, pressure on the consumer was eased through the virtual elimination of the food price inflation seen in the previous two years. Additionally, the highly competitive nature of the market saw a record level of promotional activity. Market growth in the first half was 3.0%, whilst Morrisons equivalent growth was 5.8% (source: Kantar). This level of market growth was the lowest for five years. Wm Morrison Supermarkets PLC Half-yearly financial report /11

5 3 We anticipate a similar low level of market growth in the remainder of, although with a slight rise in prices due to the re-emergence of some commodity price pressures. For example, wheat prices are currently more than 60% above 2009 levels due to poor harvests, and oil has risen 13% in the past 12 months. Higher wheat and grain prices lead rapidly to increases in bread prices, and in the following months to higher protein prices as the costs of animal feeds rise. Higher oil prices affect most products as a result of higher costs of distribution and packaging. Morrisons strong value credentials and focus on high quality fresh foods leave us well placed to continue to be successful in a low growth environment in the coming 18 months. In considering our strategy for growth, our financial strength allows us to look through the recession in order to invest for the long term. We believe the UK grocery market will continue to offer attractive growth in the medium to long term. The UK population is expected to grow at a higher rate in the coming ten years, and the pre-recessionary trend towards healthier eating and concern for the provenance and quality of food will strengthen again as the economic recovery takes hold. The long term trend of food expenditure falling as a proportion of GDP reversed in the past two years, and we believe it is likely to continue to rise given the growing global demand for commodities. trading Our total store sales growth of 5.8% and like-for-like growth of 0.9% were once again ahead of the market. The squeeze on consumer disposable income was reflected in a marginally lower (0.2%) basket spend in like-for-like stores, although the strength of our offer saw a 1.1% increase in the number of customers visiting these stores. Overall, including customers visiting our new stores, there was an 8.0% increase in total customers with a record average of 11.1m visiting our stores each week. On our forecourts, the rise in the price of oil, exacerbated by sterling weakness and a rise in fuel duty, meant that consumers were paying on average 17p per litre more at the pump than in the previous period, with average unleaded prices per litre of 115p. This represented a 240m adverse effect on the disposable income of our customers. Our strong value positioning in the market attracted more customers onto our forecourts with total unleaded and diesel litreage up 4%. Overall, like-for-like fuel sales were up 23% in the period. Although the economy has started to show the first tentative signs of recovery for the consumer, the prospects of a higher tax burden and a background of rising unemployment have continued to undermine confidence. Saving has become a more important consideration for many than spending. In this challenging environment Morrisons continuing strong focus on its quality and value offer has, for the third year in a row, enabled us to deliver sales growth ahead of the market. The fresh products offered in Market Street continue to perform well, reflecting our sharp everyday pricing and extremely attractive promotions. We have continued to exploit the flexibility delivered by our food production facilities, coupled with specialist food preparation skills that our competitors cannot match. The market remained highly promotional during the period, and we ensured that Morrisons continued to offer the broadest range and greatest depth of promotional discounts in the market. Whilst some promotions were aimed at giving our customers affordable treats, such as a very successful Pimms promotion, most were designed to offer savings on everyday essentials. Our promotional offers with milk and bread at 50p and fresh fruit and vegetables at 30p, representing the lowest priced staple products in the country, were extremely popular. Our volume momentum has been ahead of the sector for a sustained period and has enabled us to invest strongly in value for our customers, both in base price and in the promotional programme. Towards the end of the period we launched our new television advertising campaign. This continues the strong emphasis on the provenance, quality and freshness of our food and on our in-store skills, with food stories told to school children. Early research from the campaign has shown it to be highly effective.

6 4 Interim management report continued New stores 15 new stores to open in the second half of the financial year. Eat fresh, pay less Our new advertising campaign focuses attention on how we give our customers the freshest food, at great value, by doing things differently to our competitors. strategy update and operating review In 2009/10 the Group opened 43 new stores, including 34 acquired from the Co-Operative Group and converted to Morrisons after complete refurbishment. The management and staff of these new stores have continued to establish Morrisons reputation for quality and value in areas of the country where we were under-represented, and their operational performance has been very much in line with our projections at the time of the acquisition. Our expansion into new areas of the country continues successfully, through the National to Nationwide programme. We reiterate our space expansion target of 1.5m square feet in the three years to the end of January The development of our new South West Regional Distribution Centre (RDC) at Bridgwater is now underway and the site will become fully operational in early This is a few months later than we had originally planned, due to delays experienced by the site developer in achieving a viable total scheme for the site, which depends also on residential development that has proved challenging given the state of the housing market. Our facility will be freehold, and at 800,000 square feet will serve 63 stores and provide further capacity to support our National to Nationwide expansion. The total investment will be 95m. Our supply chain is key to enabling us to deliver a unique fresh offer to our customers and really demonstrating that we understand the provenance of our food. We previously announced that we were reviewing further opportunities to expand our manufacturing operations and in the period we made two investments: We acquired a stir fry and prepared vegetable business for which Morrisons was the biggest customer, but which had significant further capacity. This will enable us to consolidate our sourcing of all these products in-house. We acquired a cooked meat production plant which will add to our existing capacity and allow us to produce nearly all of our requirements in-house. We have identified a number of other areas of production which would fit well into the Morrisons model and are continuing to evaluate these. In addition, we intend to develop a new produce packhouse facility alongside the Bridgwater RDC in During the period we began in earnest the deployment of our new IT systems across all areas of the business. This six year, 310m programme of investment, will result in the replacement of all the Group s core systems and technology infrastructure. To date, the bulk of the Group s payroll, HR and financial systems have been replaced, a complete new wide-area network installed, the majority of store hardware renewed and voice-picking Wm Morrison Supermarkets PLC Half-yearly financial report /11

7 5 technology implemented in our grocery and frozen distribution centres. Additionally, the Group s new store electronic point of sale system is being rolled out in a programme that will complete in 2012 and the new trading product master file is also being populated, a process that will complete in early The software required to run our distribution centres and our food production facilities is currently undergoing pilot running in one depot and one produce plant, and has been successful. Roll out to other depots and plants will take place through 2011 and The success of these activities, and our proven ability to implement changes with no impact on the business, gives us great confidence for the remainder of the programme. The Board believes that Morrisons core business of operating grocery stores from 10,000 to 40,000 square feet of retail space remains highly attractive, with good long term growth prospects. This has been confirmed by the review carried out following the arrival of Dalton Philips as Chief Executive. Dalton, together with the leadership team, has developed a range of internal programmes which will strengthen the core further, to make the business better than ever. These programmes include new initiatives to emphasise our fresh food credentials, a focus on creating powerful own label brands, activities to improve our customer service delivery and work to use our new systems to our advantage in increasing productivity, reducing cost and improving our use of analytical tools. The Board also recognises that certain aspects of the grocery market where Morrisons does not currently operate afford attractive opportunities for future growth, and these are under review. In the first half of 2011 we will begin a trial of a new convenience format and we are currently investigating the opportunities for Morrisons in the internet grocery channel. Morrisons past success has been built on being different, in the offer we bring to customers, and this will continue in any new areas for business development. corporate social responsibility (csr) Our CSR programme remains a key focus of our management agenda and we are moving forward with targets covering a new three year period from Our emissions remain on a downward trend despite the growth of our business in both retailing and manufacturing. We are also on track to have ceased sending waste from our stores to landfill by We have now completed our first full farming year at The Morrisons Farm at Dumfries House, in Ayrshire, Scotland. This is a cornerstone of our wider programme of farming research, aimed at supporting a sustainable British agriculture industry, spanning the beef, lamb, pork, dairy and poultry sectors. Our latest research work includes a review of the welfare of free range hens by the University of Bristol. colleagues Our colleagues are at the heart of our business. We continue to invest heavily in training, and the Morrisons Academy marked the country s largest ever vocational programme with more than 24,000 colleagues, including butchers, bakers, greengrocers and fishmongers receiving their national qualifications. We were delighted to receive the Employer of the Year Award from The Grocer magazine, a fitting recognition of the great work performed by our colleagues in delivering for our customers every day. outlook We expect low market growth to continue in the second half of the year, with further pressure on the consumer. We entered anticipating this tight environment, and are managing the business accordingly. We continue to gain new customers and to exercise strong control of costs, and as a result the Board has confidence that we will deliver our profit expectations for the year.

8 6 consolidated statement of comprehensive income 1 August note 1 august 2 august weeks 31 January turnover 2 8,135 7,458 15,410 Cost of sales (7,567) (6,940) (14,348) Gross profit ,062 Other operating income Administrative expenses (177) (167) (315) Pensions credit Profits arising on property transactions 3 4 operating profit analysed as: Operating profit before pensions credit Pensions credit operating profit Finance costs 3 (23) (34) (60) Finance income profit before taxation Taxation 4 (126) (140) (260) profit for the period attributable to the owners of the company other comprehensive income/(expense): Actuarial gain/(loss) arising in the pension scheme 6 (71) Foreign exchange movements (1) (1) Cash flow hedging movement (11) (7) (11) Tax in relation to components of other comprehensive income 5 22 other comprehensive expense for the period, net of tax (6) (2) (61) total comprehensive income for the period attributable to the owners of the company Earnings per share (pence) 5 basic diluted Wm Morrison Supermarkets PLC Half-yearly financial report /11

9 consolidated balance sheet 1 August 7 note 1 august 2 august January assets non-current assets Goodwill 12 7 Property, plant and equipment 6 7,283 6,985 7,180 Lease prepayments Investment property Financial assets 67 Pension surplus ,768 7,604 7,666 current assets Stocks Debtors Financial assets 71 Cash and cash equivalents ,022 1,094 liabilities current liabilities Creditors (1,831) (1,895) (1,845) Other financial liabilities (58) (236) (213) Current tax liabilities (162) (148) (94) (2,051) (2,279) (2,152) non-current liabilities Other financial liabilities (1,032) (1,024) (1,027) Deferred tax liabilities (516) (481) (515) Pension liabilities 7 (6) (17) Provisions (113) (108) (100) (1,667) (1,613) (1,659) net assets 5,048 4,734 4,949 shareholders equity Called up share capital Share premium Capital redemption reserve Merger reserve 2,578 2,578 2,578 Retained earnings and hedging reserve 2,094 1,798 2,008 total equity attributable to owners of the company 5,048 4,734 4,949

10 8 consolidated cash flow statement 1 August note 1 august 2 august weeks 31 January cash flows from operating activities Cash generated from operations ,004 Interest paid (11) (12) (60) Taxation paid (62) (92) (209) Net cash inflow from operating activities cash flows from investing activities Interest received Proceeds from the sale of property, plant and equipment Purchase of property, plant and equipment (236) (572) (906) Cash outflow from acquisition of subsidiary 12 (3) Net cash outflow from investing activities (234) (564) (891) cash flows from financing activities Proceeds from the issue of ordinary shares New borrowings Repayment of borrowings 11 (150) (2) (1) Dividends paid to equity shareholders 9 (188) (131) (159) Net cash (outflow)/inflow from financing activities (325) net decrease in cash and cash equivalents (52) (40) (82) Cash and cash equivalents at start of period cash and cash equivalents at end of period reconciliation of net cash flow to movement in net debt in the period note 1 august 2 august weeks 31 January Net decrease in cash and cash equivalents (52) (40) (82) Cash outflow from decrease in debt and lease financing Cash inflow from increase in loans (200) (200) Net increase/(decrease) in cash before debt financing 98 (238) (280) Other non-cash movements (19) (5) (2) Debt acquired on acquisition of subsidiary 12 (4) Opening net debt (924) (642) (642) closing net debt 10 (849) (885) (924) Wm Morrison Supermarkets PLC Half-yearly financial report /11

11 consolidated statement of changes in equity 9 share capital share premium attributable to the owners of the company capital redemption reserve Merger reserve Hedging reserve retained earnings total equity current half year At 31 January , ,005 4,949 Profit for the period Other comprehensive income: Cash flow hedging movement (11) (11) Tax in relation to components of other comprehensive income Total comprehensive income for the period (9) Employees share options schemes: Share options charge (6) (6) Share options exercised Dividends (188) (188) Total transactions with owners 1 12 (194) (181) at 1 august ,578 (6) 2,100 5,048 share capital share premium attributable to the owners of the company capital redemption reserve Merger reserve Hedging reserve retained earnings total equity prior half year At 1 February , ,601 4,520 Profit for the period Other comprehensive income: Actuarial gain arising in the pension scheme 6 6 Cash flow hedging movement (7) (7) Foreign exchange movements (1) (1) Tax in relation to components of other comprehensive income Total comprehensive income for the period (7) Employees share options schemes: Share options charge 9 9 Share options exercised Dividends (131) (131) Total transactions with owners 2 27 (122) (93) At 2 August , ,793 4,734

12 10 consolidated statement of changes in equity continued share capital share premium attributable to the owners of the company capital redemption reserve Merger reserve Hedging reserve retained earnings total equity prior year At 1 February , ,601 4,520 Profit for the period Other comprehensive income: Actuarial loss arising in the pension scheme (71) (71) Cash flow hedging movement (11) (11) Foreign exchange movements (1) (1) Tax in relation to components of other comprehensive income Total comprehensive income for the period (9) Employees share options schemes: Share options charge Share options exercised Dividends (159) (159) Total transactions with owners 2 32 (142) (108) At 31 January , ,005 4,949 Wm Morrison Supermarkets PLC Half-yearly financial report /11

13 notes to the condensed financial statements 1 August 11 1 underlying earnings The Directors consider that the underlying earnings and underlying adjusted earnings per share measures referred to in the Interim management report provide useful information for shareholders on underlying trends and performance. The adjustments are made to reported profit to (a) remove the impact of pension interest income volatility on the Statement of comprehensive income; (b) remove the one-off pensions credit as a result of the move from final salary to CARE; (c) remove profits arising on property transactions since these profits do not form part of the Group s principal activities; and (d) apply an effective tax rate of 30%, being an estimated normalised tax rate. 1 august 2 august weeks 31 January Profit after tax Add back: tax charge for the period Profit before tax Adjustments for: Net pension interest (income)/cost 1 (2) 4 4 Pensions credit 1 (91) (91) Profits arising on property transactions 1 (3) (4) underlying earnings before tax Normalised tax charge at 30% 1 (123) (108) (230) underlying earnings after tax charge Adjustments marked 1 increase underlying earnings by 1m (2 August 2009: decrease by 58m, 31 January : decrease by 61m), as shown in reconciliation of earnings disclosed in note 5. 2 turnover 1 august 2 august weeks 31 January Sale of goods in stores 6,356 6,009 12,423 Fuel 1,720 1,405 2,893 Total store based sales 8,076 7,414 15,316 Other sales total turnover 8,135 7,458 15,410

14 12 notes to the condensed financial statements continued 1 August 3 FInance costs and IncoMe 1 august 2 august weeks 31 January Interest payable on short term loans and bank overdrafts (3) (4) (5) Interest payable on bonds (19) (22) (45) Interest capitalised Total interest payable (19) (25) (45) Fair value movement of derivative instruments (1) (4) (8) Other finance costs (3) (5) (7) Finance costs (23) (34) (60) Bank interest received Amortisation of bonds Other finance income Pension liability interest cost (60) (56) (109) Expected return on pension assets Net pension interest income/(cost) 2 (4) (4) Finance income net finance costs (15) (27) (49) 4 taxation On 22 June it was announced that the rate of corporation tax will be reducing from 28% over a four year period to 24% at a rate of 1% per year. The first reduction to 27% became substantively enacted in the Finance Act (no. 2) on 27 July. The tax charge within the interim report has been calculated by applying the effective rate of tax which is expected to apply to the Group for the year 30 January 2011 as permitted by IAS 34 Interim financial reporting. This therefore incorporates the reduction in the tax rate to 27% which has reduced the half-year tax charge by 9m. Subsequent changes in the rate of corporation tax have not yet been substantively enacted. The tax charge in the interim financial report is based on the rates applicable at the balance sheet date and therefore do not reflect those changes in tax rate which have not yet become effective. 5 earnings per share Basic earnings per share are calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held by the Group as treasury shares, which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially issuable dilutive ordinary shares. underlying earnings per share It is the Directors view that Underlying earnings per share is a fairer reflection of the underlying results of the business. Wm Morrison Supermarkets PLC Half-yearly financial report /11

15 13 5 earnings per share continued 1 august pence 2 august 2009 pence 52 weeks 31 January pence Basic Diluted Basic Diluted Basic Diluted Basic earnings per share underlying earnings per share Basic Diluted Basic Diluted Basic Diluted Basic earnings Earnings attributable to ordinary shareholders underlying earnings Earnings attributable to ordinary shareholders Adjustments to determine underlying profit (note 1) 1 1 (58) (58) (61) (61) underlying earnings attributable to ordinary shareholders Millions Millions Millions Basic Diluted Basic Diluted Basic Diluted Weighted average number of shares Ordinary shares in issue/diluted ordinary shares 2,642 2,685 2,615 2,631 2,623 2,674 6 property, plant and equipment 1 august 2 august January net book value At beginning of the period 7,180 6,587 6,587 Acquisition of subsidiary undertakings (note 12) 14 Additions at cost Interest capitalised Transfers from investment property 5 20 Disposals (2) (3) (3) Depreciation charge for the period (153) (147) (298) at end of the period 7,283 6,985 7,180 In addition to the depreciation charge above of 153m, 2m (2 August 2009: 4m, 31 January : 6m) is charged on Investment properties. Contracts placed for future capital expenditure not provided in the financial statements amount to 141m (2 August 2009: 120m, 31 January : 95m).

16 14 notes to the condensed financial statements continued 1 August 7 pensions The market assumptions used in the calculation of the defined benefit pension schemes deficit at the prior year end have not been updated for the half-yearly financial report as the impact is not considered to be significant. Furthermore, the Government announced on 8 July that the Consumer Price Index rather than the Retail Price Index will be used as the basis for inflationary increases to pensions in its next update of the statutory requirement. The Group is currently consulting with their advisers as to the impact of this announcement on its defined benefit pension schemes. The impact of the change, which might reduce the Group s pension obligation, is dependent upon certain clauses within the schemes trust deeds which are currently being reviewed. The findings from this review will be implemented in the year end financial report. 8 cash FloWs FroM operating activities 1 august 2 august weeks 31 January Profit for the period Adjustments for: Taxation Depreciation Profit on disposal of property, plant and equipment (3) (5) Net finance cost Other non-cash changes Pensions credit (91) (91) Excess of contributions over pension service cost (8) (7) (16) Decrease/(increase) in stocks 41 1 (83) (Increase)/decrease in debtors (19) Decrease in creditors and provisions (22) (28) (58) Cash generated from operations ,004 Wm Morrison Supermarkets PLC Half-yearly financial report /11

17 15 9 DIVIDenDs 1 august 2 august weeks 31 January Equity dividends paid in the period The dividend paid in the period represents the cash payment of the final dividend for the 52 weeks 31 January. The Directors are proposing an interim dividend of 1.23p per share which will be paid on 8 November to shareholders who are on the register of members on 1 October. The interim dividend will absorb an estimated 33m of shareholders funds. This amount will be charged to retained earnings when paid. 10 analysis of net DeBt 1 august 2 august January Cash and cash equivalents Bank overdrafts (48) (21) cash and cash equivalents per cash flow Cross-currency swaps Financial assets Bonds (201) (198) Finance lease obligations (1) (1) Derivative financial instruments (9) (13) (15) current financial liabilities (excluding bank overdrafts) (10) (215) (213) Bonds (560) (561) (561) Floating credit facility (450) (450) (450) Other unsecured loans (12) (13) (11) Finance lease obligations (10) Derivative financial instruments (5) non-current financial liabilities (1,032) (1,024) (1,027) net debt (849) (885) (924) 11 non-current BorroWInGs In April, the Group s 250m 6.5% Euro bonds matured and were settled. At the half year end date the Group had undrawn floating committed borrowing facilities available in respect of which all conditions precedent had been met at that date of 650m (2 August 2009: 650m, 31 January : 650m).

18 16 notes to the condensed financial statements continued 1 August 12 BusIness combinations IFRS 3 (revised) Business combinations has been applied to the two acquisitions completed during the period, which increase the manufacturing capabilities of the Group. Farmers Boy (Deeside) limited On 9 July Farmers Boy (Deeside) Limited acquired the trade of production of sliced meats and delicatessen products and associated assets of Brookfield Foods Limited, a company within the Cranswick plc group, with 49% of the shares of Farmer s Boy (Deeside) Limited being issued as consideration. 51% of the issued share capital was retained within the Group. As part of the transaction a put and call option has been put in place between the Group and Cranswick plc. As a result of the nature of these options, Farmers Boy (Deeside) Limited has been treated as a 100% subsidiary from acquisition, with the stake of Cranswick plc being treated as debt. The fair value of the Group s commitment in relation to the 49% shareholding at the date of acquisition was 13m. Band camp limited On 12 July the Group acquired 100% of the issued share capital of Band Camp Limited from its previous owners for a cash consideration of 2m. Band Camp Limited is the parent company of Simply Fresh Foods Limited which is a producer of prepared vegetable products. assets and liabilities recognised as a result of the acquisitions Fair value Farmers Boy (Deeside) limited Band camp limited Property, plant and equipment 6 8 Trade and other receivables 1 Trade and other payables (2) Bank overdraft (1) Borrowings (4) Net identifiable assets acquired 6 2 Goodwill 7 Total consideration contingent liabilities In April, the Office of Fair Trading (OFT) issued a decision, alleging that Morrisons was engaged in unlawful practices in relation to retail prices for tobacco products in the UK. The Board considers the OFT s stance to be illogical and without foundation and expects that when the case is considered with proper judicial scrutiny by the Competition Appeals Tribunal, it will be overturned. The Board has not made a provision for such a liability. Wm Morrison Supermarkets PLC Half-yearly financial report /11

19 accounting policies 17 Basis of preparation This Half-yearly financial report /11 is the condensed consolidated financial information of the Group for the 1 August. It has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority and the requirements of IAS 34 Interim financial reporting as adopted by the European Union. The Half-yearly financial report /11 was approved by the Board of Directors on 8 September. The Half-yearly financial report /11 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. It should be read in conjunction with the Annual report and financial statements for the 52 weeks 31 January which is available either on request from the Company s registered office or to download from The financial information contained in the Half-yearly financial report /11 in respect of the 52 weeks 31 January has been extracted from the Annual report and financial statements which have been filed with the Registrar of Companies. The auditors report on these financial statements was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act The half-yearly results for the current and comparative periods are unaudited. The auditors have carried out a review of the Half-yearly financial report /11 and their report is set out on page 20. significant accounting policies Except as described below, the accounting policies applied by the Group in these condensed consolidated financial statements are consistent with those set out in Wm Morrison Supermarkets PLC Annual report and financial statements for the 52 weeks 31 January. In preparing the condensed consolidated financial statements, management are required to make accounting assumptions and estimates. The assumptions and estimation methods were consistent with those applied to the Annual report and financial statements for the 52 weeks 31 January. Business combinations IFRS 3 (revised) Business combinations and consequential amendments to IAS 27 Consolidated and separate financial statements, IAS 28 Investments in associates and IAS 31 Interests in joint ventures, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July During the period, the Group has made two acquisitions as set out in note 12, and the requirements of these standards have been applied in accounting for these transactions. The Group s accounting policy under the new standards is set out below. The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisitionrelated costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquiree s net assets.

20 18 accounting policies continued The excess of consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the Statement of comprehensive income. The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 February, but have no material effect on the Group s financial statements. IFRIC 17 Distributions of non-cash assets to owners* IFRIC 18 Transfers of assets from customers* Additional exemptions for first time adopters (Amendment to IFRS 1)* Improvements to International Financial Reporting Standards 2009* 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 standard, the Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. * These standards and interpretations have been endorsed by the European Union. Wm Morrison Supermarkets PLC Half-yearly financial report /11

21 principal risks and uncertainties 19 The principal risks and uncertainties set out in Wm Morrison Supermarkets PLC s Annual report and financial statements for the 52 weeks 31 January remain the same for the Half-yearly financial report /11. Those risks and uncertainties can be summarised as follows: operational risks that may affect reputation, market share and financial results: Business strategy Product quality and safety Regulation Corporate Social Responsibility Business interruption Property IT Systems and infrastructure Colleague engagement and retention Pensions Financial risks that may affect financial results or the financial position of the company: Foreign currency risk Liquidity risk Credit risk More information on the principal risks and how we mitigate those risks can be found on page 13 of the Annual report and financial statements. You can view the Annual report and financial statements online on our corporate website, responsibility statement We confirm that to the best of our knowledge: the condensed 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 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules. By order of the Board 8 September the Board The Board of Directors that served during the to 1 August and their respective responsibilities are: Sir Ian Gibson Chairman* Dalton Philips Chief Executive Richard Pennycook Group Finance Director Mark Gunter Group Retail Director Martyn Jones Group Trading Director Philip Cox* Brian Flanagan* Paul Manduca* Nigel Robertson* Penny Hughes* Johanna Waterous* *Non-Executive Director Dalton Philips and Johanna Waterous joined the Board on 29 March and 1 February respectively.

22 20 Independent review report to Wm Morrison supermarkets plc Introduction We have been engaged by the Company to review the condensed set of financial statements in the Half-yearly financial report for the 1 August which comprises the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related explanatory notes. 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 set of financial statements. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules (the DTR) of the UK s Financial Services Authority (the UK FSA). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors responsibilities The Half-yearly financial report 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 DTR of the UK FSA. The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this Half-yearly financial report has been prepared in accordance with IAS 34 Interim financial reporting as adopted by the EU. our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-yearly financial report based on our review. scope of review 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 UK. 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. conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-yearly financial report for the 1 August is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA. chris Hearld for and on behalf of KPMG Audit Plc Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 8 September Wm Morrison Supermarkets PLC Half-yearly financial report /11

23 Investor relations and financial calendar 21 FInancIal calendar /11 Financial events and dividends Interim dividend record date 1 oct Q3 Quarterly management statement 4 nov Interim dividend payment date 8 nov Financial year end 30 Jan 2011 Preliminary results announcement 10 Mar 2011 Final dividend record date 7 May 2011 Annual General Meeting and Q1 Quarterly management statement 9 Jun 2011 Final dividend payment date 15 Jun 2011 Half year end 31 Jul 2011 Interim results announcement and Interim management report 8 sep 2011 company secretary Greg McMahon registered office Wm Morrison Supermarkets PLC Hilmore House Gain Lane Bradford BD3 7DL Telephone: Investor relations Telephone: accinvr@morrisonsplc.co.uk corporate social responsibility enquiries Telephone: registrars and shareholding enquiries Administrative enquiries about the holding of Morrisons shares, such as change of address, change of ownership, dividend payments and the Dividend Reinvestment Plan should be directed to: Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA Telephone: Overseas: Calls cost 10p per minute plus network extras. Lines are open 8.30am to 5.30pm excluding bank holidays. Important information regarding tax vouchers In line with many other companies, and in order to simplify the dividend process and provide cost savings to the Company, we will be changing the procedure for issuing tax vouchers starting next year. Going forward, we will issue only one consolidated tax voucher in relation to all dividends paid in a tax year. This will apply with effect from the autumn of 2011 so that any interim dividend payment would be accompanied by a consolidated tax voucher in respect of all dividends paid in the /11 tax year. If you have registered for e-communications the tax voucher will be ed to you. If you wish to continue to receive a tax voucher when each dividend is paid, please notify our registrars at the address opposite. Dividend reinvestment plan The Company has a Dividend Reinvestment Plan which allows shareholders to reinvest their cash dividends in the Company s shares bought in the market through a specifically arranged share dealing service. Full details of the plan and its charges, together with mandate forms, are available from the Registrars.

24 Wm Morrison Supermarkets PLC Hilmore House Gain Lane Bradford BD3 7DL Telephone: Further information... at your fingertips What you ll find online Our website contains a corporate section with lots of information that, as a shareholder, you may find useful. user-friendly Presentations, announcements and financial reports can be quickly and easily downloaded as PDFs or viewed on-screen. You can easily navigate around the Annual report and financial statements on-screen, viewing only the parts you want to. Webcasts Webcasts of the Directors delivering their statements at the Preliminary and interim results announcements are available. Information about Morrisons You will find further information about the Group, its operations, its strategy and past financial information. shareholder information Other shareholder information is available, like share price history, financial calendar and AGM notice. for investors registered office Wm Morrison Supermarkets PLC Hilmore House Gain Lane Bradford BD3 7DL Telephone: Investor relations Telephone: accinvr@morrisonsplc.co.uk registrars and shareholding enquiries Administrative enquiries about the holding of Morrisons shares, such as change of address, change of ownership, dividend payments and the Dividend Reinvestment Plan should be directed to: Capita Registrars Details on page 21. stockbrokers RBS Hoare Govett Limited 250 Bishopsgate London EC2M 4AA Merrill Lynch Merrill Lynch Financial Centre 2 King Edward Street London EC1A 1HQ What is ecomms? Electronic communications (ecomms) is the fastest and most environmentally friendly way to communicate with our shareholders. Instead of receiving paper copies of the annual and interim financial results, notices of meetings and other shareholder documents, you will receive an to let you know this information is available on our website. Benefit of ecomms In addition to reducing the environmental impact, the main benefit of being an ecomms shareholder is that you can manage your shareholding online if you wish, for example changing your personal details or voting at the AGM. How do I sign up? Sign up for a Share Portal account with our registrars by visiting our Investors section of our website and following the link to sign up to receive investor report ecomms. investors recycled paper This document has been printed on recycled paper that is manufactured in mills with ISO accreditation from 100% recycled fibre. It is totally chlorine free and is a NAPM certified recycled product. Cert no. SGS-COC-0620