Building

Momentum
Annual Report and
Financial Statements 2014/15

Wm Morrison Supermarkets PLC

Throughout the Directors’ report and Strategic report:
(1) Unless otherwise stated, 2014/15 refers to the 52 week period ended 1 February 2015 and
2013/14 refers to the 52 week period ended 2 February 2014. 2014 and 2015 refer to calendar
years. (2) Underlying profit is defined as profit before impairment, onerous lease provisions
and other similar items that do not relate to the Group’s principal activities on an ongoing basis,
profit/loss arising on disposal and exit of properties and sale of businesses and IAS 19 pension
interest, at a normalised tax rate, as reconciled in note 1.4 of the Group financial statements.
Underlying operating profit is operating profit before impairment, onerous lease provisions and
other similar items that do not relate to the Group’s principal activities and profit/loss arising
on disposal and exit of properties and sale of businesses. (3) LFL sales reflects the percentage
change in year-on-year store sales (excluding VAT and fuel), removing the impact of new store
openings and closures in the current or previous financial year.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
1

Strategic report Financial statements

Morrisons overview 2 Statement of Directors’ responsibilities 61
Chairman’s review 4 Independent auditors’ report 62
Our business model 6 Consolidated statement of
comprehensive income 71
The market context 8
Consolidated balance sheet 72
Our strategy 10
Consolidated cash flow statement 73
KPIs 11
Consolidated statement of changes in equity 74
Review of the year 12
General information 75
Relationships 22
Notes to the Group financial statements 76
Corporate responsibility 26
Company balance sheet 113
Our risks 30
Company accounting policies 114
Governance Notes to the Company financial statements 117
Corporate governance report 36
Investor information
Directors’ remuneration report 47
Five year summary 127
Directors’ report 59
Supplementary information 129
Investor relations and financial calendar 130

Below:
Online Annual report 2015
For more information visit:
www.morrisons-corporate.com/ar2015
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
2

Morrisons overview
This is Morrisons
“Morrisons has grown from a market stall to the
UK’s fourth largest supermarket group.”

Who we are Online

We are a value-led grocer, British born and bred, Our online delivery
focused on fresh food. High quality, fresh products service now covers
are at the heart of everything we do. We have nearly 50% of
our own manufacturing production facilities that UK households.
supply our stores to ensure that we sell only the
best products. Our vertical integration gives us 79
both control over the provenance of our supply
chain and the flexibility to meet the demands
of customers. We have adapted to the changing 2
demands of our customers by launching a
multi-channel offer that gives the same great
supermarket experience to customers in our
convenience stores and online business.
95
Key
Supermarkets 42
Morrisons M local
Online coverage
Distribution centres
Manufacturing
This data is based on internal reporting
115
regions and excludes our store in Gibraltar.
15

Fresh
Our vertically integrated
g
supply chain and d strong
supplier relationships
ships
110
ensure only the freshest
reshest
produce is sold to
our customers.
o 114 66

28

Number of customers who Online Stores across UK,

visit stores per week orders, over of which 153 are
convenience stores

12.1M 1.1M 667

60% Number of
colleagues, over

of the fresh food we sell

we make ourselves 117,000
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
3

Building momentum...

Strategic report
...In the year ahead, we will further improve our
customer offer through lowering prices, providing better
service and great new products.

We will be Morrisons. Making great quality fresh

Governance
food in our factories and shops. Selling at low prices.
Market Street is Morrisons. Our unique craftspeople –
butchers, bakers, fishmongers, greengrocers –
are Morrisons.

If we get all the everyday small details right, more

Financial statements
customers will shop with us more often.

And more customers mean more sales, which will

ultimately mean more profit to invest back into improving
our customer offer even further...

...Building momentum
by being Morrisons.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
4

Chairman’s review
Creating value
“We need to put the customer at the heart of what we do.”
Andrew Higginson Chairman

I am delighted and honoured to be your new I am delighted that David Potts joins us as our new
Chairman, a role I started in January having been CEO. He brings more than 40 years’ experience in
with Morrisons as Deputy Chairman since last grocery retailing and, having worked alongside him
October. Following a successful handover period, my for 15 years, I know he will bring a focus on the
predecessor, Sir Ian Gibson, retired from Morrisons in customer, a track record of delivery, flair, talent, and
January. On behalf of the Board, I wish to express our immense energy to his new role. He will lead our
gratitude to Sir Ian for his very considerable colleagues from the front, and with distinction.
contribution to the Company over the last eight years.
Dalton Philips was CEO for five years. He brought
Morrisons is a business I know well, having been a great personal qualities and values to his leadership
competitor for nearly 20 years – 15 years when I was of the business, having had to manage against a
at Tesco and, for over two years at Poundland. I got backdrop of considerable industry turmoil and change
to know Morrisons even better in late-2014, ahead and we thank him for his contribution.
of joining and during my induction period. From my
many visits to the shops, I could see that Morrisons The strategy, as laid out in March 2014, is broadly
still has many of the attributes and characteristics correct. We now need to up the pace, especially in
that made the business such a formidable competitor our core supermarkets, to regain trading momentum.
– great traders, a strong fresh offer, and a deserved First and foremost this will be done via a relentless
reputation for offering good value. focus on the customer. We need to put the customer
at the heart of what we do – a simple aim, but not easy
Morrisons is the most distinctive of the ‘Big 4’ to do well. However, it has traditionally been one of
supermarkets. We manufacture much of our fresh Morrisons strengths and, I believe, is engrained in
food and Morrisons Brand product – in Meat, Produce, our great colleagues across the business.
Deli, Fish and Bakery – in factories that we own and
operate ourselves. This is unique in the UK and gives We will free up resources from within the business
Morrisons a flexibility, speed-to-market, and to re-invest more in the customer proposition – price
provenance not available to our competitors. Market cuts, but also service and availability. We will work
Street is also a distinct part of the Morrisons offer that harder than before to restore Morrisons value offer
helps set us apart. We have more qualified butchers, and improve all the everyday small details of the
fishmongers, bakers, and greengrocers than any of customer shopping experience. Success measures
our competitors – they are the heart of the business will be simple – more customers buying more from
and are what helps make Morrisons unique. us. More customers means more volume growth.
Ultimately, more customers and more volume will
On joining the business, the Board and I decided that lead to better LFLs and profitability, but this will be
we needed to build on these firm foundations and a gradual improvement and, near-term, the focus is
return the business to growth by improving trading more on freeing up resources to invest in the
momentum. This, we concluded, required a change in customer proposition.
leadership, to see the business through the next three
to five year period. Throughout, our primary focus will be on free cash
flow generation and optimising our capital structure.

Highlights

Cost savings achieved Final dividend Total stores opened in 2014/15

£224M 9.62p 68
of which 57 were convenience stores
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
5

Strategic report
In the last year we have made good progress in
freeing up resources – cost savings and cash flow – Governance highlights
to invest in our customer offer. We remain optimistic

Governance
that we will deliver on our targets for costs, working Board composition and membership
capital and debt. We also have a strong balance sheet
and remain committed to a predominantly freehold • Our Board comprises five independent Non-Executive
property portfolio (currently 86% of supermarkets). Directors and following the appointment of David Potts on
We will maintain a tight control over capital 16 March 2015, two Executive Directors.
expenditure, focusing our spend on our core • All Directors, stand for re-election annually at the AGM,
supermarkets, to improve the shopping trip for our except for Richard Gillingwater who steps down from the
customers. This all provides good future cash flow Board at the AGM.
visibility, and enables us to commit to an annual • The Board is committed to a clear division of responsibilities
dividend for our shareholders of not less than 5.0p between the roles of Chairman and the CEO.
per share for 2015/16.
• Phil Cox has been the Board’s Senior Independent Director
We expect the trading environment to continue to since May 2013 and a Non-Executive Director since April 2009.

Financial statements
be tough in the year ahead. Although, lower energy • As Audit Committee Chairman, the Board is satisfied that
prices may well drive lower commodity prices and Phil Cox has recent and relevant experience appropriate to
slightly higher disposable income for customers. his position.
Our outlook assumes a period of price deflation as we
reinvest back into the customer proposition. However, Board effectiveness
our destiny is in our own hands. It may take time, but
it is this investment in customers that will improve • The Board contains the skills and experience necessary in
every detail of the shopping trip, restore our fresh and light of the Group’s current activities and strategic direction.
value credentials, drive our trading momentum and,
• The Directors have all attended an appropriate number
ultimately, return Morrisons to health.
of Board and Committee meetings.
Andrew Higginson • The Board is satisfied that Non-Executive Directors commit
Chairman sufficient time to the Group and contribute to its governance
and operations.
Below:
External auditor
Customer proposition
We will free up resources from • During 2014/15 we conducted a tender process for the
within the business to re-invest appointment of the external auditor. As a result,
more in the customer proposition
PricewaterhouseCoopers LLP (PwC) were formally appointed
as our new statutory auditor at the 2014 AGM.
• The Board has a clear policy on the engagement of the
external auditor to supply non-audit services.

Risk and control

• The Board is satisfied with the effectiveness of internal control

and that risk is being managed effectively across the Group.
• The Group’s Internal Audit function perform periodic reviews
of the key areas of our business.
• Consideration has been given to financial reporting matters
with sufficient challenge provided to management relating to
judgemental areas.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
6

Our business model

What we do differently
The Morrisons difference
At Morrisons, we focus on fresh food. Our Market Our focus on fresh is supported by our vertically
Street departments, and particularly our butchers, integrated ‘farm to fork’ business model. Unlike
bakers, fishmongers and greengrocers are skilled any other major UK supermarket, we manufacture
in a way no other supermarket in the UK can match, more than half of the fresh food we sell ourselves,
and are passionate about what they do. They prepare operating our own abattoirs and food production
food the way our customers like it, and often to factories as well as our own farm for research and
individual customer specifications. That focus on development purposes. We also operate our own
fresh food is present across the Group as well as in distribution network.
our new online and convenience businesses.

What we do

We make things Then we

• We are the second largest fresh food manufacturer in the UK. move them
• We own, operate and control a greater proportion of our fresh food supply
chain than any other major grocery retailer in the UK.
• Every day we make more than half of the fresh food we sell in store and online.
• Our vertically integrated supply chain gives our customers assurance
over the provenance, quality and safety of our food.
• We buy direct from farmers and have the ability to process whole animals
or crops, therefore we utilise more of what we buy with less wastage.
• We employ qualified butchers, bakers, fishmongers and greengrocers in store,
allowing our customers to tailor quantities and cuts of meat and fish to suit
their preferences.

And we buy things

• We pride ourselves on buying as much fresh food in the UK as we can –
100% of our Morrisons own brand fresh meat is British sourced, supporting
British farmers.
• We work with our suppliers through the Morrisons farming programme
to ensure British farming remains competitive and sustainable.
• We are committed to sustainable supply chains through purchasing
our products ethically.
• We have made our supply chain shorter by dealing direct with
more of our suppliers.
• We insist on high manufacturing standards from our suppliers
to ensure the integrity and quality of our products.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
7

Strategic report
Direct control over our vertically integrated supply To further reassure customers of our commitment to Above:
chain is a clear competitive advantage. It helps us to offering great value we have introduced our Match & Fresh food
better manage materials and resources, allows us to More card during the year. This means price is never a We focus on fresh food
minimise waste and costs, and makes it easier to react reason for customers to shop elsewhere, and allows across the Group as well
swiftly to changing customer demands. In addition, customers to focus on what is different, and better, as in our new online and
convenience businesses
it gives us confidence in the provenance and safety about Morrisons.
of our products. The Elliott report into the horsemeat
scandal highlighted that Morrisons stood out in its
supply chain integrity.

Governance
How we are different

And sell them in Fresh • From field to fork in hours

Controlling food provenance, safety and quality.
Getting food onto our shelves fresher and faster.
our stores and online • Prepared by us
Making more fresh food than any
other supermarket.
• Consistently excellent
Delivering our fresh-focused customer

Financial statements
experience in stores and online.
• Monitoring to our standards
Through our Ethical Trading Code
and Manufacturing Standard.

Value • Passing savings on to the customer

Our vertical integration model allows us to take
cost out of the supply chain to pass on to customers.
• Honest, clear pricing
Transparent promotions and clear shelf edge
pricing are complemented by our Match &
More guarantee.
• Quality
If a customer is not 100% satisfied, neither are we.
We offer refunds and replacements on products
prepared by us.
• Reducing our waste
Buying whole animals and crops direct from
farmers and processing through our own
operations eliminates needless waste.

Service • Friendly customer service

Our warm customer service provides enhanced
perception, engagement and loyalty.
• Skilled colleagues
Our in-store skilled colleagues tailor portion
sizes to suit customers’ personal preferences.
• Availability
In store, our operation allows us to react quickly
and efficiently to customer needs, catering for
local demand.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
8

The market context

Challenging conditions

Customer confidence
The Consumer confidence has started to recover in recent Customer confidence
market months, however, savvy shopping continues, with
customers expecting, and seeking out, great value for Source: GfK NOP consumer confidence Economic situation
Personal finances
money by shopping around. The reductions in oil prices 15
and low interest rates are likely to sustain this growth in
confidence. However, real disposable income has a way 12
to go to regain pre-2008 levels, and customers tell us
9
that they are unlikely to return to old shopping patterns
in the near term. Shopping around for the best value will 6
continue. We saw a notable drop in food inflation through
3
the year, and we expect downward pressure on prices to
be a feature for some time. 0

This shift in shopping behaviour, alongside societal -3

trends such as an ageing population and more single
-6
person households, continues to result in customers Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
making more frequent grocery shopping trips. 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2015

Kantar Worldpanel has the average UK household

making 4.9 grocery shops each week across all channels
and formats. The days of a ‘once a week big shop’ are
over, replaced with several trips and possibly one larger
trip for the weekend. Consequently, the importance of
fresh food continues to grow for customers.

Market share and growth

The 2008 recession enabled rapid growth of the Sales, Volume and RSP Growth in the Market
‘Discount Sector’ causing a structural shift in consumer
Source: Kantar Worldpanel 12 week YoY Growth %
behaviour as they searched for best value from multiple rolling Total Grocery data
Sales
retailers. We have reacted to this shift by investing
Volumes
heavily in price during the year, starting with the ‘I’m
% RSP
Cheaper’ campaign. During October we launched 2.8
Match & More, our new price match and points card.
2.2

1.6
Combined market share
1.0
Morrisons
The rest of the big 4 0.4
Premium retailers
Discounters -0.2
Others -0.8
2014/15
-1.4
Source: Kantar
Worldpanel 52 week -2.0
ending Till Roll data Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2015

What customers want

Shopper Unsurprisingly, customers continue to tell us that price Our strategy, set out on the following pages, addresses
remains the biggest driver of store choice. Importantly, these trends. Alongside our price investment activity, we
trends they want more trust as too many retailers are putting launched Match & More during the year, price matching
prices up at the same time as shouting about prices Tesco, Sainsbury’s, Asda, Aldi and Lidl – ensuring that
they’ve put down. price is never a reason for customers to shop elsewhere
and gives them the trust they demand, which has been
Research also shows that customers want more very well received. We have seen an improvement in
than just cheap prices. Other factors such as range, volume per basket with Match & More playing a part
quality, ease of shop and service all play a part in in this.
a customer’s decision making process when choosing
where to shop.
Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
9

Strategic report
Governance
Financial statements
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
10

Our strategy
Strategy overview
Strategic objectives

Invest Save
We will invest £1bn over three years through: Unlock £1bn of savings over three years1 allowing us
• Lowering prices on a permanent basis to invest in our value proposition:
• Offering fewer but more impactful promotions • £300m improving our end-to-end supply operations
• Making Morrisons own brand a competitive advantage • £200m indirect procurement and loss prevention
• Continuing to improve quality and range • £500m promotional investment and sourcing
• Making our stores easier and more pleasant places to shop
• Rewarding customers through Match & More
• Delivering focused, consistent customer communication

What we did in 2014/15 What we did in 2014/15

Awards achieved for
Morrisons products nearly
Launched ‘I’m Cheaper’
campaign cutting
1,200
1, products by
Improved systems
and focused on
reducing shrinkage,
Items on promotion
reduced in second half
of the year by
1ST
200 an average waste and mark down
costs and indirect
10.6%
phase of store
restructure
completed
Launched Match & More
17% procurement

£50M Range reduction –

SKU count reduced by Plans to
introduce
Improved customer experience
in-store – removed trolley locks,
extended opening hours
10% sales-based
ordering are
on track
Productivity savings delivered through our
Invested in chill chain vertical integration, including transferring beef
to improve produce quality cutting and packing from stores to production sites

£20M £70M
Grow the What we did in 2014/15 − Core New channels

core business Over UK households with access

and accelerate our presence

in new channels
60%
of the fresh food
13,000
skilled colleagues
to our online proposition nearly

50%
that we sold, we made M local stores opened
serving customers on
ourselves Market Street
57

Generate cash What we did in 2014/15

Reduced capital Improvement in Property disposals
expenditure to working capital generated proceeds of
• Generate at least £2bn of free
cash flow over three years1 by adhering
to strong financial principles £520M £206M £448M
1
The three year period comprises 2014/15, 2015/16 and 2016/17.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
11

We have identified measures that are important to

the success of the Group’s financial performance
and operational excellence, and to our stakeholders,
customers, suppliers and colleagues. These KPIs
are summarised below and throughout the Strategic
report, identifiable by a KPI logo.

KPIs

Strategic report
KPI KPI
2014/15 Quarterly Group LFL sales performance 2014/15 Quarterly number of transactions

Definition (5.7%) (7.1%) (7.6%) (6.3%) (2.6%) Definition

(1.4%) (3.6%) (5.0%) (3.3%) (1.9%)
LFL sales performance Q4* Q1 Q2 Q3 Q4 LFL number of Q4* Q1 Q2 Q3 Q4
measures the percentage transactions,
change in year-on-year year-on-year change.
sales (excluding VAT Excludes online and
and fuel), removing convenience.
the impact of new store
openings and closures * 2013/14

Governance
in the current or previous
financial year.
* 2013/14

KPI KPI
2014/15 Quarterly LFL items on promotion 2014/15 Quarterly items per basket

Definition 6.0% (5.0%) (12.9%) (13.6%) (8.1%) Definition (6.9%) (5.9%) (3.2%) (2.4%) (0.1%)
Year-on-year change LFL items per basket, Q4* Q1 Q2 Q3 Q4
in the number of items year-on-year change.
on promotion. Excludes online and
* 2013/14 convenience.

Financial statements
Q4*
* 2013/14
Q1 Q2 Q3 Q4

KPI KPI
Colleague engagement Number of SKUs

Definition 68.4% 72.9% 71.8% 75.6% Definition 24,500 23,600 22,400 22,150 21,950
Colleague engagement Number of product lines
is measured through within our stores.
our annual Climate * Q4 2013/14 number is
surveys supplemented for SKU count as at start
by our shorter Pulse of programme
surveys conducted
every two months.

2012 2013 2014 2015 Q4* Q1 Q2 Q3 Q4

KPI KPI
Sales growth UK grocery market share

Definition 4.0% 3.9% 1.8% (1.8%) (3.2%) Definition 12.8% 12.8% 11.8% 11.4% 11.1%
Measures total store and The Group’s percentage
online sales across the of retail sales in the UK
Group, excluding VAT grocery sector, as
and fuel. measured by Kantar
2010/11 2011/12 2012/13 Worldpanel at the end
of January.
2013/14 2014/15

2011 2012 2013 2014 2015

 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
12

Review of the year

A strong platform
“Investing in our customer proposition.”
Trevor Strain Chief Financial Officer

Introduction More customers will mean more volume growth,

A year ago we took actions to invest in the customer so KPIs such as number of transactions and items
proposition and make £1bn of cost savings over three per basket remain important. Ultimately, more
years. I am pleased with some of the progress so far. customers and more volume will lead to better LFLs
We achieved or beat the components of our guidance and profitability.
for 2014/15 – on profit, cash flow, working capital
and cost savings. I was particularly pleased that we The proposition
generated £785m of free cash flow1 and were cash flow Improving the Morrisons value offer starts with lower
positive before disposals. prices. We are committed to consistently lowering
prices and keeping them low.
Like-for-like sales decline slowed during the year.
This was driven by volume KPIs such as items per In 2014/15, we invested a net £315m into our
basket and number of transactions, which showed proposition, the majority of which was in price.
particular progress towards the end of the second We started in Q1 with a rolling programme of price
half. We will look to continue this volume momentum cuts in Produce and Meat. In May, we launched the
into 2015/16. ‘I’m Cheaper’ campaign, cutting 1,200 Morrisons own
brand products and branded everyday products by an
However, as Andy says in the Chairman’s review, average of 17%, and we followed these with more cuts
there is still much to do. We need to invest more in in June.
the customer in order to build trading momentum.
During October, we launched Match & More, our
Consistent with Morrisons transparent approach, new price match and points card which provides a
Below: there are disclosures on commercial income and unique price guarantee against Aldi and Lidl, as well
‘I’m Cheaper’ campaign depreciation in these financial statements, which as Tesco, Sainsbury’s and Asda. In February 2015, we
Our rolling programme we believe provide added insight for shareholders. reduced the price of 130 high volume everyday lines
of major price cuts launched by an average of 22%.
in May 2014 Within the results, there is property impairment
and onerous lease charges of £1,273m, reflecting We are just one year into our plan, and are determined
a prudent assessment of market conditions. to keep lowering prices for customers. During
2015/16 and 2016/17, we are targeting almost £800m
Strategy more cost savings, the majority of which we expect
All aspects of our strategy start with the customer. to invest back into the customer proposition.
We will work harder to restore the Morrisons value
offer and improve all the everyday small details of As well as low, consistent and transparent pricing,
the in-store customer shopping experience. we are focusing on fewer but more impactful
promotions. This will help make our business
Initially success will be measured by winning back simpler for customers, and cheaper for us to
customers and encouraging them to spend more. operate. Good progress was made during 2014/15.
1
Free cash flow is the movement in net debt adjusted The number of weekly items on promotion fell by
for dividends. 10.6% year-on-year in the second half of the year.

Highlights

Full year dividend Closing net debt Underlying earnings per share

13.65p £2,340M 10.9p

+5% -17% -53%
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
13

Below: Overall, year-on-year promotional participation was During the period, we developed hundreds of

Strategic report
Match & More down 200bps in the second half of the year, which products, with some very good results. The progress
We launched our was 340bps better than the +140bps in Q4 2013/14. we are making on Morrisons own brand is being
Morrisons card in We intend to keep simplifying and improving independently recognised. We won nearly 200
October 2014 promotions for customers. product awards during 2014/15, over three times
the number for 2013/14.
During 2015/16, our communication to customers
will prioritise our low prices, great promotions and At the same time, we continued to make our ranges
fresh food strengths. We will also begin to leverage simpler and more relevant for customers. During the
the new Match & More data in many ways across year, we reduced Morrisons own brand SKUs in
our business, including more personalised offers some of our categories by over 20%, with an average
for customers. reduction across all categories of more than 10%.
As well as everyday low prices, we will also focus on During 2015/16, we will continue to refine our

Governance
other key attributes of the Morrisons brand – Market Morrisons own brand offer, with the focus on
Street and the provenance provided by our food improving the value we offer customers and product
production facilities. innovation. We will continue to leverage our fresh and
Market Street credentials, and will utilise Match &
Not all supermarkets are the same. Morrisons is the More by tailoring more points to our Morrisons
most distinct of the ‘Big 4’. We manufacture much of brand offer.
our fresh food and Morrisons own Brand – in Meat,
Produce, Deli, Fish and Bakery – in factories that we Saving to invest
own and operate ourselves in the UK. This is unique The investment in our value proposition is being
Below: and gives Morrisons a flexibility, speed-to-market, funded by a £1bn three-year self-help programme.
Match & More app and provenance not available to our competitors. This is an ambitious plan, however many cost savings
Our app allows customers to are initiatives that other retailers have benefitted from
Market Street is also a distinct and vibrant part of the for some time, and will be accessed as we develop
monitor their points, create Morrisons offer that helps set us apart. Our people

Financial statements
shopping lists and become our IT infrastructure. We remain confident that,
aware of offers
are different too – we have more qualified butchers, with these opportunities ahead, we will deliver our
fishmongers, bakers, and other craftspeople than any £1bn plan.
of our competitors – they are the heart of the business
and are what helps make Morrisons unique.
Morrisons own brand is a big opportunity,
especially where we can leverage our manufacturing
capabilities. Our Morrisons own brand sourcing
team is beginning to make real progress in the areas
of product development, reducing complexity and
removing duplication.

Own brand
redesign, increased
tea sales by nearly

+20%
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
14

Review of the year

A strong platform continued

End−to−end operations Our plans for the introduction of sales-based ordering

£70m of savings were delivered during the period, (SBO) are well on track. The first category, Frozen, will
and we confirm our three-year target of £300m. go live soon, with a phased roll-out across the range
over coming quarters. Both during implementation
During 2014/15, we announced plans to restructure and once operational, we expect significant cost
our in-store teams to make them more efficient, with savings and stock reduction opportunities.
clearer lines of responsibility and fewer layers of
management. The changes are currently in progress. Several competencies that we are building ahead of
This will not affect the number of colleagues in SBO are already beginning to benefit the business
customer-facing roles. and our customers. For example, we have recently
Above:
introduced Availability Champions to over 400
Loss prevention As planned, we are increasingly leveraging our stores, giving colleagues extra responsibility in key
We have focused on ways manufacturing capabilities by moving many product areas to ensure best levels of customer
to reduce loss from stores by non-customer-facing, non-value added, in-store tasks
improving product protection service and product display. We are also working
to our manufacturing businesses. Most of these tasks in-store to optimise labour scheduling and better
on high risk lines are invisible to our customers and have freed-up our phasing of promotions. Within the supply chain,
skilled in-store colleagues to serve customers better. we are working on initiatives such as improving
During the period, we moved production of warehouse operations, increasing shelf-ready
almost 120 beef and pork lines from in-store to packaging and improving the processes around
our manufacturing facilities, which has led to longer replenishment management.
shelf life with less waste and higher sales. For example, We will continue to introduce initiatives that improve
sales of our Signature Beef range are up 100% efficiency and productivity throughout 2015/16,
year-on-year since we started cutting and skin- whilst at the same time enhancing the customer offer.
packing the product in our meat processing plants.
With more of our butchers’ time freed up to do what Indirect procurement and loss prevention
they do best – serve customers – counter sales are up £50m of savings were delivered during the period,
by more than 10%. and we confirm our three-year target of £200m.
There are several similar initiatives planned for During the period we saved an annualised £9m
2015/16, many of which are opportunities around our in packaging costs across various in-store and
unique Market Street and manufacturing capabilities. manufacturing initiatives. Energy consumption
For example, lamb will follow beef and pork in initiatives and different buying strategies saved
benefitting from moving some production to our in excess of £15m.
manufacturing facilities, and our counters will
become even more of a focus for our unique
butchers’ skills.

Left:
Vertical integration
This gives us unique
opportunities to
drive efficiencies
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
15

Promotional investment and sourcing During 2015/16, we will open at least one additional

Strategic report
£104m of savings were delivered during the period, spoke. Our focus will be on increasing our delivery
and we confirm our three-year target of £500m. density within our extensive and highly populated
existing coverage area. We will also trial other
As highlighted above, we made substantial progress methods of customer delivery.
in reducing the number of weekly items on promotion
and promotional participation, two KPIs that we now For M local, we opened 57 stores and closed six
measure and report externally every quarter. underperforming stores during the period, bringing
the total to 153.
Another KPI, number of SKUs, also moved very
favourably during the year, with a reduction of more Convenience is a channel that we expect will continue
than 2,500 SKUs (over 10%). Range reduction and to grow in future. Over recent years, we have been
streamlined promotions remains a key future cost working to grow M local at pace in order to quickly
saving opportunity, as are the related areas of refining gain critical mass and learn. However, for stores now

Governance
our marketing spend and utilising Match & More data. in their second year, we are not yet seeing the level
of trading performance we had anticipated.
On our first New channels
online anniversary, We are pleased with our first year online. From a We will slow new openings significantly, and review
we delivered our standing start and first delivery in January 2014, we the M local proposition and approach to site selection
exited 2014/15 with around £200m of annualised rather than pursue store number and turnover targets.
1,000,000th sales and near-50% coverage of all UK households, We will update our future M local plans once the
order in line with our ambitious initial targets. On our review is complete.
first online anniversary, we delivered our one
millionth order. In July, we announced the sale of Kiddicare. The exit
from the business is now almost complete. All but two
Alongside our partner Ocado, we started to operate of the ten leases have been assigned. As reported at
out of Dordon, initially servicing Warwickshire and the interims, profit on disposal was £4m.
Yorkshire. During the year, we began distributing

Financial statements
from spokes in Leeds, Manchester, North London,
Sheffield, Merseyside and Bristol.
Although our growth is strong, we are most pleased
with our consistently high levels of customer service.
We continued to achieve industry-leading customer
service metrics throughout our first year. Even during
the busiest week of the year pre-Christmas, Morrisons
on-time delivery was 97.5% and product substitutions
were just 1.4%.
Below:
Doorstep freshness check
Our online grocery business also
showcases our expertise and experience
in fresh food, including a doorstep
freshness check and virtual craftsmen Photo: Imagewise
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
16

Review of the year

A strong platform continued

Financial results Operating profit

2014/15 2013/14
Summary income statement £m £m

2014/15 2013/14 Operating loss (696) (95)

£m £m
Underlying adjustments:
Turnover 16,816 17,680
– Impairment and onerous
Operating loss1 (694) (94) lease provisions 1,273 903
Net finance costs (98) (82) – Profit/loss on disposal and exit
Loss before tax (792) (176) of properties (131) (9)
Underlying profit before tax2 345 719 – Profit arising on disposal
Underlying earnings per share2 10.9p 23.1p of Kiddicare.com Limited (4) −
1
Included here is £2m (2013/14: £1m) share of profit from joint venture.
Underlying operating profit1 442 799
2 1
The comparative has been restated to reflect the amended underlying earnings The comparative has been restated to reflect the amended underlying earnings
definition described in note 1.4 in the financial statements. definition described in note 1.4 to the financial statements.

Turnover Underlying operating profit, which excludes impairment and property

Total turnover during the period was £16.8bn, down 4.9% year-on-year. disposal profits, was £442m, with underlying operating margin down
Store and online turnover of £13.0bn, excluding fuel, was down by around 1.9% pts year-on-year as anticipated. This is primarily due to
3.2%, which comprised a like-for-like (LFL) decrease of 5.9% (including a our investment in the customer proposition. Operating loss, including
contribution of 0.6% from online) and 2.7% from new stores. Fuel sales fell impairment and property disposal profits, was £696m.
by 10.2% to £3.6bn, with deflation a key feature as we passed the lower oil
prices on to customers. Net finance costs were £98m, up £16m on last year reflecting a
changed debt profile (we have raised £900m of bonds over the last
Items excluded from underlying profit 24 months) and less capitalised interest as a result of the reduced
We consider that underlying operating profit and underlying profit development programme.
before tax are useful measures to understand underlying trends and
performance of our business. Adjustments are made to reported One-off costs were £68m (2013/14: nil), comprising Kiddicare trading
profit figures to remove items that do not form part of the Group’s losses, restructuring costs, and the launch costs of the Match & More
principal activities. card. New business development (NBD) costs for online and convenience
were £71m (2013/14: £66m).

KPI

Group like-for-like (LFL) sales performance

0.9% 1.8% (2.1%) (2.8%) (5.9%)

2010/11 2011/12
2012/13 2013/14 2014/15

Definition
LFL sales performance measures the percentage
change in year-on-year sales (excluding VAT and fuel),
removing the impact of new store openings and
closures in the current or previous financial year.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
17

Underlying profit Summary cash flow

Strategic report
2014/15 2013/14 2014/15 2013/14
£m £m £m £m

Reported loss before tax (792) (176) Cash generated from operations
Underlying adjustments: before onerous capital payments 1,044 1,031
– Impairment and onerous Onerous capital payments (74) −
lease provisions 1,273 903 Cash generated from operations 970 1,031
– Profit/loss arising on disposal Proceeds from sale of plant, property
and exit of properties (131) (9) and equipment and sale of businesses 450 34
– Profit on disposal Capital expenditure (520) (1,086)
of Kiddicare.com Limited (4) − Dividends paid (308) (283)
– Net pension interest (income)/cost (1) 1

Governance
Equity retirement − (53)
Underlying profit before tax1 345 719 Purchase of own shares (8) –
Underlying profit margin1 2.1% 4.1% Proceeds from issue of shares − 28
1
The comparative has been restated to reflect the amended underlying earnings Tax and interest (92) (309)
definition described in note 1.4 to the financial statements.
Other non-cash movements (15) 2
Underlying profit before tax reduced to £345m, compared to £719m Net cash flow 477 (636)
for 2013/14, (or £785m as reported under the previous definition, which Opening net debt (2,817) (2,181)
excluded £66m of NBD costs).
Closing net debt (2,340) (2,817)
Underlying basic earnings per share (EPS) reduced by 53% to 10.9p
(2013/14: 23.1p) reflecting the decrease in underlying profit. As we planned, there has been a significant improvement in the Group’s
net cash flow, which was better by over £1.1bn year-on-year. Free cash

Financial statements
Impairment and onerous lease provisions flow, i.e. adjusting for dividends, was £785m.
Morrisons tests for property impairment each year by comparing every
store’s recoverable amount to its book value. The recoverable amount is The Group generated operating cash flow before onerous capital
the higher of value in use and market value less cost to sell. Where book payments of £1,044m, slightly up year-on-year despite both lower profit
value is greater than the recoverable value, the asset is impaired. and the tough trading conditions that impacted all UK food retailers.
Having applied the above methodology the Group has recognised an There has been a rigorous focus on working capital improvement which
impairment and onerous lease provision of £1,273m in the year. There is ongoing. The business is now very focused day-to-day on stock, debt
are two key drivers of this impairment charge. Firstly, a change in some and terms. Operating working capital improved by £206m driven by
forward-looking assumptions, including performance, and an increase various factors including four days less stock cover. Importantly this has
in the discount rate. Secondly, a prudent assessment of market value. been achieved without impacting our on-shelf availability. Our supply
After impairment, the loss before tax was £792m (2013/14: loss of £176m). chain finance initiative is also up and running and progressing well.
Further working capital benefits will come in years two and three of
the overall programme, as initiatives such as sales-based ordering
start to land. We remain on track for a target of £600m working capital
KPI improvement over three years. There was an outflow for onerous capital
Underlying profit before tax (£M) payments in the year of £74m.
869 935 901 719 345 Capital expenditure fell by over 50%, to £520m, from £1,086m for
2013/14, as we cut back on new store expansion and there was no
repeat of last year’s online launch expenditure.
Overall, post-dividend and pre-property disposal proceeds, Morrisons
was £42m cash flow positive.
Property disposals were £448m, with property profits of £131m, net
of £19m costs associated with the closure of ten superstores and six
2010/11 2011/12 2012/13 2013/14* 2014/15
convenience stores announced in the final quarter of 2014/15.

Definition
Measures the normal underlying business performance.
Profits are adjusted to remove non-recurring exceptional
costs, property transactions and IAS 19 pension interest.
A reconciliation of underlying profit is provided in note
1.4 of the Group financial statements.
*2013/14 has been restated to reflect the changes to the definition
of underlying earnings described in note 1.4.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
18

Review of the year

A strong platform continued

Net debt Summary balance sheet

As a result of the above Group net debt fell £477m to £2,340m, from 2014/15 2013/14
£2,817m at the end of 2013/14. This represents a £1.1bn improvement £m £m
in cash flow year-on-year, and free cash flow pre-dividend of £785m. Fixed assets and investments 8,023 9,299
During 2014/15, we issued a 15-year (2029) £300m bond (4.75% coupon), Working capital (1,324) (1,104)
and replaced our £1.2bn revolving credit facility with a five-year £1.35bn Provisions and tax (726) (675)
facility, which means we now have £350m of debt maturities over the
Net pension liability (39) (11)
next three years compared to around £2bn 12 months ago. At the year
end debt level, there is headroom of over £1.1bn versus the Group’s Net debt (2,340) (2,817)
committed facilities. Net assets 3,594 4,692
Tax Pensions
Morrisons has always been committed to ensuring that we pay our fair The triennial pension valuation was completed in July 2014. At the time
share of tax, and that this tax is paid in the territory in which our activities of the previous triennial valuation in 2010, the pension schemes were
are based. The management of our tax affairs is focused on ensuring that almost fully funded, and that position is virtually unchanged, with the
we pay the tax we are obliged to pay in accordance with the law and that funding deficit as at April 2013 falling to £40m and the schemes being
our tax affairs are consistent with our broader corporate objectives. over 97% funded.
We regard this as being important in protecting our reputation and
brand, and have a tax management framework which ensures that the In January 2015, we announced a proposal, to harmonise our various
needs of all of our stakeholders are considered. pension schemes. We have reached an agreement in principle with the
Trustees of the two CARE Schemes to close them to future accrual,
In 2014/15 the Group was in a net corporation tax refund position of subject to the outcome of consultation with current scheme members.
£10m (2013/14: £220m payment), reflecting reduced underlying profits,
impairment of assets and overpayment of corporation tax in earlier years. The Group’s proposal is that scheme members’ accrued benefits will be
frozen (subject to inflationary revaluation), and that future benefits will
The Group is committed to paying all of its taxes in full and on time. It is a no longer accrue in these schemes.
major contributor across a wide range of UK taxes. In 2014/15, Morrisons
made net payments of £1,025m to the UK government of which £458m Following this agreement the Group has entered into a Consultation
was borne by Morrisons and the remaining £557m was collected on with scheme members on 23 February 2015. The Group expects that
behalf of our colleagues, customers and suppliers. Morrisons participate the consultation process will conclude during May 2015. Subject to the
in the ‘Total Tax Contribution’ PwC Survey for the 100 Group of Finance outcome of the consultation, any changes would become effective in
Directors. In the year to January 2014 (the most recent for which figures early July 2015.
are available), our total taxes borne ranked 10th amongst the
survey participants. The financial effect of closing these schemes to future accrual would
be to reduce the Group’s exposure to future volatility and increases in
pension liabilities and costs.

KPI
Underlying basic earnings per share
23.0p 25.6p 27.3p 23.8p 10.9p KPI
Net debt (£M)
817 1,472 2,181 2,817 2,340

2010/11 2011/12 2012/13 2013/14* 2014/15

Definition
2010/11 2011/12 2012/13 2013/14 2014/15
The EPS measure uses underlying profit, divided by
the weighted average number of shares in issue at the
year end date. A calculation is provided in note 1.5.2 Definition
of the Group financial statements The Group’s overall debt position at the year end.
*2013/14 has been restated to reflect the changes to the A summary of net debt is provided in note 6.4 of
definition of underlying earnings described in note 1.4 the Group financial statements
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
19

Dividend Enhanced disclosure

Strategic report
The final dividend has been increased to 9.62p. It will be paid on 10 June
2015 to shareholders on the register on 8 May 2015. This brings the full Commercial income
year dividend to 13.65p, an increase of 5% in line with the commitment The industry context around commercial income has changed
made last year (2013/14: 13.00p). significantly in recent months. Morrisons notes that the Financial
Reporting Council (FRC) has urged companies to provide clarity in
Space this area, and the Board considers greater transparency appropriate.
At At
2 February Store 1 February
2014 New stores1 closures 2015 Commercial income is a deduction from cost of sales and is not
consistently defined. Our definition comprises marketing contributions
Number of core stores 503 11 − 514
from suppliers and volume-based rebates. It does not include promotional
Number of funding, as these are mechanical deductions from costs, and are
convenience stores 102 57 (6) 153 triggered as units are sold or purchased with no subjectivity or
Total number of stores 605 68 (6) 667 judgement applied.

Governance
Total area in square For most marketing contributions and volume-based rebates, there
feet (000) 14,233 510 (11) 14,732 is also little or no subjectivity or judgement. However, we have chosen
Number of to provide full income statement and balance sheet disclosures.
petrol filling stations 328 6 − 334 For 2014/15, commercial income was £425m (2013/14: £396m).
1
Net of replacements. By its nature, a proportion of commercial income will only become
billable towards the end of the year. We expect the majority to be
We opened 11 new supermarkets (356,000 square feet) and collected during Q1 of the next financial year.
57 M locals (154,000 square feet) during the year. We also closed six
underperforming M locals, and announced a proposal to close ten Depreciation
smaller supermarkets in 2015. In previous years, fully depreciated assets have been retained in the
Group’s fixed asset register. In order to provide greater understanding of
Key balance sheet metrics the annual depreciation charge, these have been removed from both cost

Financial statements
2014/15 2013/14 and accumulated depreciation. At balance sheet date, fully depreciated
£m £m
assets were £1,656m. This additional disclosure provides assurance to
Interest cover 5 times 10 times the users of the financial statements that our underlying depreciation
Net debt/EBITDA 2.6 2.4 charge is in line with our stated depreciation policy.
Gearing 65% 60%
ROCE 5.6% 8.2%

Return on capital employed (ROCE) fell to 5.6% from 8.2% in 2013/14,

primarily due to the fall in profit.

KPI
Return on capital employed (ROCE) KPI
Capital investment (£M)
10.4% 10.4% 9.8% 8.2% 5.6%
592 901 1,016 1,086 520

2010/11 2011/12 2012/13 2013/14 2014/15

2010/11 2011/12 2012/13 2013/14 2014/15

Definition
ROCE is a relative profit measure showing the return Definition
generated from investments in assets Measured as additions to property, plant and
Prior years restated for 14x multiplier of lease commitments and adjusted equipment, investment properties, intangible
for the change in underlying profit definition assets and investments
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
20

Review of the year

A strong platform continued

Financial strategy Capital expenditure

During 2015/16, we expect capital expenditure to fall further to around
Capital allocation framework £400m, as previously guided. This will comprise fewer new convenience
Morrisons adheres to strong financial principles through a capital store openings than initially planned, with more capital allocated to
allocation framework. Our overall capital allocation framework is maintaining and updating the core estate. As announced, in future we
unchanged. We are committed to an investment grade credit rating. will only add new core supermarkets to the space pipeline in exceptional
In the current food retail market, a strong investment grade rating is circumstances. This guidance excludes any additional capital we may
not considered realistic near-term, despite our predominantly freehold commit to a new online facility. In addition, we expect £100m of onerous
supermarket estate and strong free cash flow. property payments during 2015/16.
Our first priority is to invest to support the store estate and infrastructure Property disposals
and reduce costs. Secondly we will seek to maintain debt ratios that Morrisons values the flexibility and control associated with a
support our target of an investment grade credit rating. Third, we will predominantly freehold property portfolio. While maintaining that
invest in profitable growth opportunities. Fourth, we will pay dividends approach, over the last year we have managed our property portfolio
and, finally, any surplus capital will be returned to shareholders. more actively than in the past in order to release some cash and improve
shareholder returns.
Shareholder returns
For 2015/16, the total annual dividend will be not less than 5p per share. Over the remaining two years of the plan, we will continue towards our
The Board believes that this reflects an appropriate balance between three-year target of £1bn of property disposals, and are committed to the
our commitment to the capital allocation framework, the investment freehold component of our supermarket estate remaining above 80%,
in building trading momentum and the importance of dividends to which is by far the highest ratio in the sector. The sale and leaseback
our shareholders. element of the programme is mostly complete, and future focus will be
on property development opportunities and non-core disposals.
Beyond 2015/16, the dividend policy will be determined and
communicated as appropriate by the Board and new CEO. ROCE
We remain committed to ROCE as a KPI, and remain focused on
Morrisons is committed to generating strong operational free cash flow. growing future returns and optimising our capital base.
For the medium-term, the priority will be to further reduce the level
of debt. Summary
Over the coming years we are committed to investing in the customer
Cash flow and working capital proposition and improving trading momentum. We will continue to
All components of our free cash flow generation plans are progressing reduce costs, maintain rigorous capital discipline and focus on all aspects
well, and we remain on track to generate £2bn operating free cash flow of cash flow to enable a good platform to build that momentum.
by 2016/17 including a £600m improvement in working capital.

Approval of the Strategic Report

Pages 2 to 33 of the Annual report form the Strategic report.
The Strategic report was approved by the Board on 11 March 2015
and signed on its behalf by
Mark Amsden
Company Secretary
11 March 2015
Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
21

Strategic report
Governance
Financial statements
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
22

Relationships
Our colleagues and partners

Our people us up to two hours earlier and two hours later than
our previous opening hours. Changes to working
Awards “We continue to focus on getting the right people patterns were made on a purely voluntary basis with
2014/15 in the right place at the right time to support our colleagues offering to change their shifts to support
customers’ needs and to deliver our strategy. our new opening hours.
We are working to ensure that our colleagues are
really engaged in working for Morrisons, and that Store management teams
our leaders are the best they can be. We will make We are simplifying accountability and ensuring
sure that all our colleagues are absolutely clear on decisions are taken at the right level in stores by
what a great job looks like at Morrisons, so that every changing the store management structure, allowing
one of our team is completely focused on delivering us to better serve our customers and operate more
for customers.” efficiently. We have consulted with our colleagues on
the structure itself and on the restructure process, and
Emily Lawson, Group Human Resources Director will have completed the restructure in all 514 of our
supermarket stores by Spring 2015. A comprehensive
How are our colleagues supporting training programme is in place to support the store
our strategy? leadership team in their new roles including topics
Match & More such as leading change and engaging leadership.
As part of launching our new Match & More card, we Continuous improvement
invested time to train Checkout Operators, Customer In our manufacturing division we have invested
Services Assistants, petrol station teams and those in continuous improvement methods by training
stepping into temporary front of house ‘Ambassador’ all managers in problem solving techniques, and
roles. As a result, colleagues have been able to over 200 colleagues are involved in the Business
confidently and proactively explain our new Improvement Techniques Apprenticeship scheme,
Match & More proposition to our customers. which has delivered significant efficiency gains
Opening hours across our sites.
As part of our plans to make our stores easy to shop We have also introduced a structured and
we have increased our opening hours in 246 stores. standardised approach to site meetings,
Our customers told us that they wanted to shop with which has improved the quality of daily
performance discussions.

Highlights
Employee People progressing from the Percentage of colleagues Colleague Engagement
stability1 shop floor to more senior who participated in the Index: How engaged
positions in 2014/15 engagement surveys are colleagues?

90.4% 1,650 79% 75%

2014: 88.05% 2014: 1,292 2014: 93% 2014: 72.9%

1
Total number of active colleagues with one or more years’ service divided by the total number of active colleagues one year earlier.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
23

How have we supported our colleagues • Sponsored degrees – 17 colleagues started studying

Strategic report
to help create value during the year? for their sponsored degree with Bradford University
School of Management, our third cohort of the
Engagement programme, and we continue to deliver our Foundation
During 2014/15 we’ve focused on making a sustained Degrees to colleagues within retail, logistics and
change from ‘doing engagement’ to ‘being engaging’. supply chain through our university partners.
Three key initiatives have underpinned our • Future business leaders – this year we have
engagement plans: launched our refreshed Future Business Leaders
1. We’re building the skills of our leaders. 775 leaders Programme for colleagues making the transition
have already started our new leadership programme, to senior management roles. The programme is
which includes training on managing change, as designed to build our internal senior succession
well as engaging leadership. pipeline, and includes a placement within a
local charity.

Governance
2. We’re giving colleagues a stronger voice. We’ve
made it much easier for our colleagues to share Colleague retention
their feedback via the engagement survey, a 90.4% of our colleagues have been with us for more than
colleague Facebook page and an internal social a year, a rise of around 2% versus last year. Set against
media platform for colleagues. our overall headcount reduction of 5.3%, this
demonstrates our ongoing commitment to retain
3. We’re focusing on engagement. From our annual experienced colleagues alongside new talent whilst
climate survey we identified five action themes continuing our drive for a more cost effective and
where we needed to take sustained, decisive action flexible workforce.
to improve. These are sponsored by senior leaders.
Incentives
Colleague training We offer a highly attractive benefits package, including
During the year we invested in a new training enhanced maternity packages, store discount cards, a
facility to support central functions such as trading share in company profits and our annual long service

Financial statements
and marketing. award. Colleagues can also participate in the
Our training approaches build both specific technical Company share save scheme.
skills required to do the job, and broader leadership We will further strengthen our benefits offering with
skills. Our training this year included the following: the introduction of flexible benefits such as discounted
• Mastercraft – our annual competition, which tests childcare vouchers in early 2015/16, with additional
the specialist knowledge and practical skills of benefits being made available to colleagues later
colleagues, was bigger and better this year. in the year.
The competition included colleagues from our Wellness and health enhancement
eight craft trades – butchers, bakers, fishmongers, We have introduced support to identify and help
cheesemongers, wine advisers, florists, cake shop those colleagues most at risk of long term health issues
and produce. such as mental health and musculoskeletal conditions,
• Craft qualifications – 187 colleagues completed and have reviewed and revised our health surveillance
a Level 2 Craft Apprenticeship in Butchery and programme to ensure colleagues are monitored via
Bakery which includes visits to our abattoir for our the latest health screening technology. In addition this
butchery apprentices. In total over 800 colleagues year we initiated a new approach to helping colleagues
completed apprenticeships last year. build resilience, a much-requested area of support
• e-Learning in stores and at home – we’ve set up from colleagues.
Below: brand new e-learning zones in every store. We’ve
Mastercraft competition
Human rights and diversity
also given colleagues access to some training We pride ourselves on being a diverse organisation.
Celebrates colleagues’ achievements modules from their own devices so they can learn We respect the human rights of all individuals as
when and where they want to. well as the communities in which we work and are
• Animal welfare – colleagues at our Colne, Spalding committed to providing a workplace free from
and Turriff abattoirs became the first in England to harassment and offering equal opportunities for
be awarded the new Welfare of Animals at the Time promotion and advancement. During 2014/15,
of Killing (WATOK) qualification. Morrisons employed 53,272 men and 66,506 women.
In addition, 101 of our senior managers and five of
Talent development our Board Directors were men, while 33 of our senior
We continue to build our talent pipeline from within, managers and two of our Board Directors were women.
through a variety of programmes accessible at all
levels of the business. This year we have continued work to ensure our
workforce is representative of the communities we
• Graduates – this year we recruited 72 graduates and serve. We have agreed a three year diversity strategy
have 136 graduate trainees completing programmes which operates across all our talent activities, and
across the organisation. will focus on addressing the identified gaps in our
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
24

Relationships
Our colleagues and partners continued

pipeline, will ensure a balanced slate for all senior We also understand the importance of relationships,
promotion and hiring decisions, and adopt a standard, for smaller suppliers, where we have focused on
externally verified assessment process so that our having simpler, clearer processes. We are working
talent is assessed on an unbiased basis. on sharing corporate and events calendars, and the
enhanced promotional opportunities through our
ground breaking Match & More scheme, to enable
Our suppliers more efficient and productive arrangements
with suppliers.
Our love of food means we search the globe to source
the best quality produce for our customers. We have We work with our trading partners to ensure mutual
Above: worked hard to shorten the supply chain to ensure our commercial growth and responsible and fair trading
Our farming programme food reaches our shelves in the freshest possible terms, and in accordance with the applicable
We run our own farming programme condition. For example we are currently making a regulations including the Grocery Supply Code
investing £2m into the research major investment in our fish processing facility at of Practice.
and development of sustainable
Grimsby which will enable us to further extend
British farming. The Groceries Supply Code of Practice
product shelf life by 24 hours.
The Groceries Supply Code of Practice (GSCOP)
However we also never forget we are British. 100% (the ‘Code’) applies to all grocery retailers with an
of our Morrisons branded fresh beef, lamb, pork, annual turnover in excess of £1bn. Essentially the
chicken, milk and eggs, and many of our fresh fruit Code creates certain specific rights and obligations
and vegetables, are sourced in the UK. As a leading that regulate our trading relationship with suppliers.
fresh food manufacturer and a major British retailer
we work with local farmers to create shorter, more We actively engage with the relevant regulatory
efficient supply chains. This ensures greater control bodies, the Office of the Groceries Code Adjudicator
over supply chain traceability, quantity and quality, (GCA) and the Competition & Markets Authority
and reduces risk. Buying British also reduces food (CMA), to build best practice in relation to the Code.
miles, adds to the national economy, strengthens Over the course of the year we provided information
agricultural industries and supports our for both the GCA and CMA on a range of areas
rural communities. of interest across the sector including contract
formation, deliveries into our depots, forecasting
British farming and its long term viability is essential and supplier charges.
to our business. To help ensure it remains competitive
we run our own farming programme, investing £2m Alongside other retailers, we agreed with the GCA
into the research and development of sustainable to create a new reciprocal policy on profit recovery
British farming. charges to help address industry-wide concerns over
historic claims for income made by retailers and
Whilst the produce we supply must be right for suppliers. This was positively received by the GCA
customers today, we must also do this in a way which and promoted at the GCA’s first annual conference
protects the supply for future generations. We work in June 2014.
closely with our suppliers to encourage and promote
responsible practices throughout the supply chain Specifically related to Morrisons, the GCA requested
helping to ensure sustainable supply. details for charges requested of suppliers who were
offered multi-channel sales in stores, online and
We actively listen to our suppliers and we are a convenience. The GCA published a case study on the
participant in the Advantage survey, a comprehensive review which, in relation to the substantive issue of
and independent survey of over 400 suppliers’ views multi-channel participation, concluded that Morrisons
on the status of their relationship with major grocery was not in breach of the Code (Part 9).
retailers in the UK. We take actions based on
supplier feedback. We undertook an enhanced annual training
programme for all supplier-facing colleagues. This
We continue to focus on simplifying our payment involved a bespoke face to face presentation for all
processes and have successfully launched a buyers and relevant trading colleagues and a follow
competitive supply chain financing option during up e-learning module. We also undertook a further
the year. We are pleased with the take-up which has detailed review of relevant processes utilising our
exceeded our expectations. Internal Audit team. Actions were identified for
continued process improvement including the
Our M Partner scheme, which was introduced in
establishment of an additional compliance and
2013, continues to develop. We have partnered with
monitoring function within the trading division.
more than 20 of our largest suppliers. We are working
with them to improve our customer proposition Enquiries from suppliers on Code related matters
through shared insight, maximising the efficiency were dealt with in accordance with the regulations.
in our supply chains and promoting more regular Any matter not resolved directly is escalated to the
dialogue at all levels of our respective organisations. relevant Category Director and, if requested, to our
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
25

Reducing emissions

Strategic report
appointed Code Compliance Officer (CCO).
Additional guidance and advice is provided by
the Group’s legal function. Group GHG Emissions for year ending 31 December
2005 2014 2015 Change
During 2014/15 we have successfully worked with Emission Baseline Prior Current vs.
source Year Year Year Baseline
suppliers to resolve the majority of complaints that
have arisen with reference to the provisions of the Combustion of fuel and operation of facilities
Code. In summary 18 new complaints were made by Natural Gas 102,470 148,122 146,911 +43.4%
suppliers and then notified to our CCO. In total, 14 of Haulage 139,847 97,294 109,990 (21.3%)
those were withdrawn or resolved directly with the Business Miles 4,511 4,217 3,643 (19.2%)
relevant supplier during the course of the year.
Fugitive Emissions
Routine reports and updates are provided to our Refrigerant 455,929 190,793 105,173 (76.9%)
Corporate Compliance and Responsibility Committee

Governance
Energy purchased for own use
and Management Board on all aspects of the Code
including developments about its operation or Electricity 798,596 697,309 756,595 (5.3%)
regulation. We formally report details of activity Other
over the year and specific complaints made by the Staff Travel 37,282 35,081 24,162 (35.2%)
suppliers to our CCO to the GCA and the CMA at
Waste 36,730 21,606 22,197 (39.6%)
the financial year end. Members of our PLC Board
have also met with the GCA in recognition of the Total 1,575,365 1,194,422 1,168,671 (25.8%)
importance of achieving best practice in supplier Intensity ratio:
relationships and maintaining level focus. kg CO2e per
ft2 GIA 50.4 31.3 29.5 (41.5%)
Contact details and further information can be found
at www.morrisons.co.uk/gscop Methodology
The information above is taken from our Group Carbon

Financial statements
Our communities Footprint, prepared by SKM Enviros on our behalf
since 2007. We have reported for the calendar year
Investing in a new and more significant presence in 1 January to 31 December for all years in order to
postcodes across the UK, means we also have to work remain consistent with these reports.
with and invest in the communities we serve. We have used UK Government’s Environmental
Beyond protecting our local licence to operate, Reporting Guidance (2013 version) to prepare these
community engagement and investment engages numbers, and the latest emissions factors from
existing and future customers, generates customer DEFRA/DECC’s GHG Conversion Factors for
loyalty, colleague engagement, and trust in our brand. Company Reporting.
In 2014/15, our award winning Let’s Grow campaign The report includes all major sources of carbon emissions
that engages schools with growing fruit and from the operation of the Group’s supermarkets,
vegetables distributed a record amount of vouchers manufacturing and distribution sites and operation
to customers. of its haulage fleet. Some minor exemptions are:
We also recognise the importance of community Subsidiaries and joint ventures
engagement and have developed a programme • Bos Bros – Dutch vegetable packer that deals
that supports local community charitable causes. with energy locally;
In 2014/15, we raised over £2.2m for our national
charity partner Sue Ryder, our in-store Community • Wm Morrison (HK) Ltd – Hong Kong office
Champions also gave 200,000 hours to local that deals with energy locally;
community activity. • The Morrisons Farm at Dumfries House Ltd –
Below: joint-venture that deals with energy locally; and
We are also working hard to ensure our recruitment
Let’s Grow
process supports applicants from across the community • Wm Morrison Bananas Ltd – a subsidiary that
Since the start of our Let’s Grow
and can up-skill people once they are part of is operated by the minority shareholders Global
programme we have given away Ripeners Limited.
over £20m of equipment the business.
Sites
• A number of distribution sites are operated by third
Our shareholders parties who are responsible for the energy and carbon,
See page 46 of our Governance section of the Annual including Dordon, Birstall, Feltham, Bury, Willand,
report for information on how we have engaged with Droitwich, Clipper, Northfleet, Bathgate and Bunzl.
our shareholders this year. Sources
• Fuel oil – only four sites have fuel oil, which is
estimated to account for less than 0.1% of the
total footprint.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
26

Corporate responsibility

Responsible retailing
Our priorities What we’ve done in 2014/15

1
Responsible
100%
UK wild caught and landed Own brand
seafood is from Responsible suppliers that are

buying Fishing Scheme vessels Sedex members

100%
British own brand 100%
fresh meat sold in
our stores

2
Healthy 1BN
lifestyles
calories removed
from our Italian ready
meal range
26
pledges signed in
the Government’s
Public Health
Change4Life Responsibility Deal
partner

3
Our People
Colleague stability

90.4% 94%
colleague participation in the Over
annual engagement survey
780,000+ training days
delivered

KPI KPI

4 Carbon footprint reduction Waste to landfill reduction

Environmental Definition 15% 19% 24% 26% Definition 5.6% 3.2% 2.0% 2.2%*

management Includes energy,

waste, refrigeration
and transport for
Measured as
waste from our
stores that we
our stores, offices, are unable to
manufacturing recycle or have
and packing processed.
facilities.
2012 2013 2014 2015 2012 2013 2014 2015

5
Supporting £2.2M
raised for charity
200,000
hours given to local

communities partner Sue Ryder

Providing food waste tips via
community activity through
our in-store Community
Champions
our social media channels to
0.5 million followers
*2015 figure is at 2 November 2014. End of year figure will be published in 2014/15,
Corporate Responsibility Review later in the year.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
27

CR

The full Corporate Responsibility review 2014/15

will be available for you to download at
www.morrisons.co.uk/cr later in the year

Why it matters What we will do next

Strategic report
• Sustainable supply chains • Further investment in applied farm research.
• Traceability and control • We will only source Roundtable on Sustainable Palm Oil (RSPO)
• Securing the best suppliers certified mass balance or fully segregated palm oil for all own
brand products.
• Risk management • All wood and wood derived products will be FSC or equivalent.
• Quality • Focus on inherent higher risk supply base through monitoring
• Brand integrity and auditing.

Governance
• Product quality and value • Continued delivery of the Government’s Public Health
• Customer benefit Responsibility Deal commitments.
• Colleague choice • Continue with Market Street deals on fresh produce.
and productivity • Extend calorie labelling at the point of choice for products
made and prepared in-store.
• Reflects social need
• Revive and further improve healthy product ranges in line
• Positive social value with the re-launch of our chilled meal solutions.

Financial statements
• Customer service • Build a skilled workforce that supports the broader UK economy.
• Attracting talent • Monitor, measure and improve colleague conditions
• More engaged colleagues and workplace experience across the Group.
• Monitor and measure the diversity of our workforce.
• Retention and attendance
• Develop and deliver an ‘unconscious bias’ programme to
• Productivity assist our managers in the recruitment of a diverse workforce.

• Greater resilience • Support WRAP’s delivery of Courtauld Commitment III.

• Resource efficiency • Deliver 30% reduction by 2020 in our operational carbon
• Increased productivity emissions (2005 baseline).
• Reduce waste direct to landfill in stores and manufacturing.
• Asset management
• Make sure edible food that we can use never goes to waste.
• Cost management to
• Deliver 20% reduction in operational water consumption
drive affordability
by 2020 (2012 baseline).

• Integrity • Enhance effective community engagement through stores’

• Community acceptance Community Champions.
• Future customers • Raise more funds for Sue Ryder, providing support and care
for people with life-changing illnesses.
• Colleague feel good factor • Greater encouragement for stores and communities to become
• Giving something back more involved with Let’s Grow schools gardening campaign.
• Trust • Through our pre-employment programme ‘Our Club’ we’re helping
to get people who have been disadvantaged in society into work.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
28
Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
29

Strategic report
Governance
Financial statements
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
30

Our risks
Managing our risks
Recognising the effect of uncertainty on our business
means that we are in a better position to achieve our objectives,
respond to emerging risks and create opportunities.

The realisation of our business strategy depends on Risk is managed via our choice of business strategy,
our ability to make sound, risk-informed decisions. underpinned by our culture and values.
Managing risk and uncertainty is an integral part
of doing business. Now more than ever, we manage The annual and on-going elements of our risk
increasing uncertainty as we continue to expand into management framework are embedded within
new channels, and transform our business systems the business. These support the identification and
and processes to respond to rapid changes in effective management of risks across the business.
our industry. We continue to conduct activity to increase colleague
awareness of risk and risk appetite, and to further
We maintain a business wide understanding of our embed a risk management culture in the business.
key risks and how to manage them. This assists in
Read more on the risk management process
delivering our promises to customers and shareholders.
in the Audit Committee report on page 43.

Risk management framework

Top down Board of Directors

The Board is responsible for establishing a robust and appropriate risk management framework. It has primary
responsibility for setting the overall Group strategy which informs the setting of objectives across the business and is
widely communicated. It is also responsible for risk governance and overseeing the risks associated with the Group’s
activities to ensure that they align with our risk appetite. The Board approves the Group Risk Register.

Audit Committee Management Board

Supports the Board in monitoring risk exposure against our Provides challenge to operational management through
risk appetite. Reviews the effectiveness of our risk its review of cross-functional risks and considers key risks
management and internal control systems, including the reported in functional risk registers. During the year it
Risk and Internal Audit function. Agrees the Internal Audit conducted a full bottom up exercise to refresh the Group
plan and audit scope which is designed to provide assurance Risk Register with assistance from Risk and Internal Audit.
over principal risks. Each Board member certifies annually that functional risk
registers (following the process set out below) have been
refreshed, and that action plans are in place, where necessary.

Risk and Internal Audit

Operational Management

Bottom up
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
31

The risk management process Plans for 2015/16

Strategic report
The risk management process is applied to all identified We will continue to develop and build on our existing
risks. It allows us to understand, evaluate and take risk management framework, and align with recent
appropriate action in relation to our risks. Operational changes to the UK Corporate Governance Code.
management within the business bear most of the Our priorities for 2015/16 include:
responsibility for risk management. Following the
identification and measurement of risks, depending • formalising key risk indicators for Group risks and
on our risk appetite, we either accept the risks or take commencing regular reporting of these; and
action to reduce, transfer or mitigate them. • reviewing and updating the Internal Audit activity
plan following the Group Risk Register refresh.
Significant effort is placed on risk management activities
within each function. This includes ensuring the The refresh of the Group Risk Register in the year has
control frameworks are designed to address risks, are resulted in some changes from those risks disclosed

Governance
embedded properly within day-to-day procedures, last year. Specifically external market, competitor
and that monitoring and reporting takes place. proposition, supply chain and data are now reported
as separate risks following industry and market
Key activity and developments during 2014/15 include: events in the year. Previously these were included
• full refresh of the Group Risk Register by the in business strategy, trading optimisation, customer
Management Board; proposition and regulation.
• creation and review of Risk Registers for new Space optimisation has been removed as a separate
business areas; risk with capital discipline being included in the
• more frequent review of cross-functional financial strategy risk.
risks at Management Board level, for example, The risks have been split into two categories based
risks relating to health and safety and data on how the Board review and manage the risks.
protection; and

Financial statements
• functional Risk Register reviews. High Impact, Low Likelihood (HILL) risks:
those which have a low inherent likelihood but which,
if they did occur, could have a major impact. These are
typically managed by policies and procedures which are
reviewed and tested by the Board on an annual basis.
Strategic risks:
those which would impact the successful execution
of the Group’s strategy. These are reviewed by the
Board on a more frequent basis as the risk level can
alter based on the actions taken by us or in the market.
Each principal risk has been mapped to the relevant
key strategic priorities. All strategic risks are owned
by at least one member of the Management Board.
Process level risks are not seen as principal
risks for the Group. These risks are managed
by operational management.
The movement of each risk at a gross level and
the mitigations in place to manage the risk are
also disclosed.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Strategic report
32

Our risks
Principal risks and uncertainties
The Board has identified those risks which it sees as most significant
HILL risks Strategic risks

S I G S I

Food and product safety Business strategy

Risk Mitigation Risk Mitigation
If we fail to deliver excellent • Strict standards and monitoring The Board understands that • We have a clear strategy based
standards of hygiene and processes established to manage if the strategy and vision of on four pillars of save, invest,
safety in our products, there food safety risks throughout the the business are not properly grow and cash generation;
is potential to harm our Group and supply chain; formulated, communicated or • Engagement with a wide group
customers and damage • ISO 22000 accreditation of food implemented, then the long of stakeholders to ensure the
our business reputation. manufacturing businesses; term aims of the Group may strategy remains current;
Our business focuses on fresh • Regular supplier assessments not be met and the business • Communication of strategy
food and we have a vertically undertaken to ensure adherence may suffer and benefits via numerous channels;
integrated business model; to standards; and may not be delivered
• Clear link between strategic
therefore, food safety and the to stakeholders.
• Food Safety Steering Group, targets and business plans
integrity of our supply chain
the Board and Management to drive implementation; and
are of paramount importance.
Board provide oversight of • Close Board monitoring
operational activities. of business performance.

S I G C

Major business interruption Financial strategy

Risk Mitigation Risk Mitigation
Our distribution and • Detailed recovery plans exist The main risks are the • The Group’s treasury function
systems infrastructures are for sites and systems; availability of funding and is responsible for the forward
fundamental to ensuring the • Investment in remote IT disaster management of cash flow planning and management
normal continuity of trading, recovery site and regular testing to meet business needs. of funding. They report to the
whether that is via our stores of recovery plans; Treasury Committee and
or online. If a major incident • Adherence to a stringent process operate within clear policies and
occurred to this infrastructure for evaluating new suppliers/ procedures which are reviewed
or another key facility, this third parties; and audited; and
could have a detrimental • Progress against the financial
• Contingency arrangements
impact on our ability to strategy is regularly reviewed
confirmed for key suppliers; and
operate effectively. and monitored by the
• A Crisis Management Group is in
Management Board.
place to deal with any unplanned
or unforeseen events.

S I G

Data security
Risk Mitigation
The Group believes it is • The Group has a number of
essential that the security information security policies Key
of customer, colleague, and procedures in place;
supplier and company Save S
• The Information Management
confidential data is maintained Steering Group has the Invest I
securely. A major breach of responsibility for looking at data
information security could management practices, policies,
Grow G
have a significant impact on awareness and training; and Generate cash C
the reputation of the business. • Ongoing monitoring, reporting
and mediation of vulnerabilities
is in place. No change
Increase to residual risk
Decrease to residual risk
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
33

Strategic report
I S I G

Colleague engagement and development Competitor proposition and price

Risk Mitigation Risk Mitigation
We are a people business and our • Competitive employment policies, The UK grocery market • Competitor pricing positions and
colleagues are key to being able remuneration and benefits packages continues to be extremely market trends are reviewed on a
to fulfil our promises. If we fail to are established and regularly reviewed; competitive. The impact weekly basis. We also review and

Governance
retain, develop and motivate our • Significant investment in training of competitor proposition actively manage our own key price
colleagues, we will not provide and development, including and pricing changes could points, sales proposition, and
the quality of service that our Morrisons Academy; affect the performance of promotional and marketing
customers expect. Development • Regular talent reviews and refresh the Group in terms of sales, campaigns; and
of new channels and delivery of succession plans to meet the future costs and operations. • Credit checks and monitoring
of strategic objectives increases needs of the business; There is also a risk that of suppliers are conducted. We also
the risk of being able to attract supplier failure or a change maintain open and regular dialogue
• Colleague engagement surveys
specific talent. The change in supplier pricing could with suppliers.
undertaken to understand and
in leadership will need to be have operational or financial
respond to colleague concerns; and
managed to ensure colleague consequences for the Group.
engagement is maintained. • Plan to manage leadership change
in place.

C S I G

Financial statements
External market forces IT systems upgrade
Risk Mitigation Risk Mitigation
Economic changes including • The Group’s pension liabilities We have replaced and • We partner with some of the
changes in the value of the are monitored by the Treasury upgraded systems in our world’s leading technology companies
Group’s pension schemes Committee with a clear investment business to provide for key projects;
and commodity fluctuations strategy in place. In February 2015 industry-leading software • Project management methodology
could impact the Group’s we announced the start of consultation capability. We continue to is applied to all IT projects and
profitability and balance to close the Group’s defined benefit roll out new systems and programmes; and
sheet strength. schemes to future accrual which will decommission legacy IT • Regular reviews are undertaken
help reduce this risk; and systems. We are aware of by Risk and Internal Audit
• Commodity prices are reviewed and the risks and potential and other specialists to provide
monitored each week. The Group for delays and increased assurance over significant IT projects
has clear policies around hedging of costs associated with and programmes delivering into
commodity risks and seeks to hedge delivering successful IT the business.
exposure where possible. systems change.

S I G S I G

Supply chain management and integrity Regulation

Risk Mitigation Risk Mitigation
Recent issues in the sector • Morrisons manufactures a large The Group operates in an • An established governance framework
regarding the integrity and proportion of the fresh food it environment governed by including compliance monitoring and
sourcing of food include the sells, contracting directly with farmers strict regulations including reporting is in place;
discovery of horsemeat and growers; competition, employment, • There are clear accountabilities and
substituted for beef in 2013. • Thorough checks are in place at health and safety, and processes in place for the monitoring
Our vertical integration model all our own production facilities as regulations over the Group’s of regulatory developments and the
and focus on supply chain well as those who produce for us; and products. In all cases, the Board compliance with existing regulation;
integrity means that these • We have visibility over all own takes its responsibilities very • Processes are in place for delivering
have not impacted Morrisons, brand suppliers’ ethical and responsible seriously and recognises that training to impacted colleagues in
as highlighted in the Elliott business practices through Sedex. breach of regulation can lead relation to regulation; and
report (July 2014). However, to reputational and financial
• The internal legal department provides
it remains a risk that damages to the Group.
advice and guidance.
management is focused on
and continues to monitor.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
34
Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
35

Strategic report
Governance
Financial statements
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
36

Corporate governance report

Chairman’s governance statement

Introduction from Andrew Higginson I am satisfied that the Board is performing effectively
and contains an appropriate mixture of skills,
I am pleased to introduce on behalf of the Board, experience and independence. I also consider that
Morrisons Corporate governance report for the each of the Non-Executive Directors is able to commit
financial year 2014/15. an appropriate amount of time in fulfilling their role
and responsibilities on the Board effectively.
As noted in previous reports, the Board believes that
how the business does something is just as important Diversity
as what it does. Morrisons values are embedded in We recognise the importance of diversity across our
our corporate governance policies and principles colleague base, and the Board itself, in delivering an
and cascaded throughout the organisation. effective blend of knowledge, skills and experience.
Although with two female members (28% of total
Maintaining high standards of corporate governance composition), the Board complies with its policy
is a priority of the Board. Our corporate governance requirement to maintain formal representation at
compliance statement has been reviewed and not less than 20%, there is an aspiration to increase
updated during the year and will continue to be this to at least 30%. In addition, steps are being taken
reviewed on a regular basis to ensure that we meet towards increasing diversity across our colleague
best practice standards in corporate governance. base as a whole. Further detail on our diversity policy
During the year, a number of our colleagues have is provided on page 23.
undertaken a comprehensive training programme
on effective Board reporting. This has resulted in Good corporate governance is an essential part of
improvements in the quality of papers presented running our business effectively, in the interests of
to our Board and Committees, assisting effective our shareholders and other stakeholders. We will
decision making and enabling meetings to continue to develop our governance policies and
run more efficiently. processes in line with good practice thereby enabling
our team to best utilise their skills in effectively
The Board has made a number of site visits to implementing business strategy.
supermarkets and convenience stores during the
year to observe and engage with the business at an
Andrew Higginson
operational level. The October Board meeting was
Chairman
held at Morrisons online customer fulfilment centre in
Dordon and included a tour of the distribution centre,
enabling the Board to observe the online operation
first hand.
CEO succession
Dalton Philips stepped down as CEO on 16 February
2015. We have recently announced the appointment
of David Potts as our new CEO. We will expect him
to build on the positive foundations and to return the Corporate governance statement
business to growth.
The Board considers that its corporate governance policies
Board effectiveness and procedures are appropriate and that the Group has been
Below: Following the external review of Board effectiveness fully compliant with the 2012 UK Corporate Governance
Compliance statement Code (the Code) throughout the financial year 2014/15 and
in 2013/14, we have undertaken an internal to the date of this Annual report. The Code is available on
The full Compliance statement evaluation of the effectiveness of the Board and its the Financial Reporting Council’s website (www.frc.org.uk).
can be found at: Committees this year. The evaluation required each The Board’s Corporate governance compliance statement sets
www.morrisons-corporate.com member of the Board to complete a comprehensive out how the Group complies with each of the provisions of the
questionnaire. The results are summarised on page Code and is available in the investor relations section of the
39. Although the evaluation did not highlight any Group’s website, www.morrisons-corporate.com.
particular areas of concern, there are a number of The Board acknowledges the changes to the Code that were
announced in September 2014 and will apply to the Company
development actions which we plan to take during from the 2015/16 financial year. These changes will be an area
2015/16 to further strengthen the effectiveness of of focus for the Board and the relevant committees over the
the Board. next year and the Company will report on compliance against
the revised Code in the 2015/16 Annual report.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
37

Committee key
Nomination Committee N
Remuneration Committee R
Corporate Compliance and Responsibility Committee C
Audit Committee A

Board of Directors

Strategic report
Andrew Higginson Trevor Strain Philip Cox CBE
Chairman Chief Financial Officer Senior Independent Director and
Chairman of the Audit Committee

N R C N R A

Andrew joined the Group as Deputy Chairman and Trevor joined the Group in June 2009 as Commercial and Philip joined the Group as a Non-Executive Director in
Chairman Elect in October 2014 and became Chairman Operations Finance Director. In June 2011 he became April 2009. He was appointed as the Senior Independent
in January 2015. Andrew is currently the Chairman of N Finance Director Corporate and took responsibility for Director in May 2013. Philip is a Non-Executive Director
Brown Group Plc, a Non-Executive Director of Woolworth the Company’s productivity programmes. Trevor joined and Chairman Elect of Drax Group Plc and Non-Executive

Governance
Holdings Limited (South Africa), McCurrach UK Limited the Board as Chief Financial Officer on 10 April 2013. Director of PPL Corporation. He was a Non-Executive
and the RFU (Rugby Football Union). Andrew was Upon Dalton Philips’ departure as CEO on 16 February Director at Wincanton Plc from 2001 to 2009, having
previously the Chairman of Poundland Group Plc, Senior 2015, Trevor, on an interim basis, took over Dalton’s chaired their Audit Committee from 2001 to 2008 and was
Independent Director of BSkyB Plc and an Executive executive responsibilities and chairs the Management Chair of their Remuneration Committee from 2008. He was
Director at Tesco Plc for 15 years. Board. Prior to joining Morrisons he worked for Tesco in also a Non-Executive Director of Meggitt Plc until January
a number of roles until his appointment as UK Property 2015. His previous Board positions were as Chief Financial
Finance Director in 2006 and subsequently UK Planning Officer and then Chief Executive Officer of International
and Reporting Finance Director. Trevor began his career Power Plc and Chief Financial Officer at Siebe Plc.
with Arthur Andersen and is a member of the Institute of
Chartered Accountants in England and Wales.

Richard Gillingwater CBE Penny Hughes CBE Johanna Waterous CBE

Financial statements
Non-Executive Director Chairman of the Corporate Compliance Chairman of the Remuneration
and Responsibility Committee Committee

N R C A N R C A N R C A

Richard joined the Group as a Non-Executive Director Penny joined the Group as a Non-Executive Director in Johanna joined the Group as a Non-Executive Director in
in March 2013. Richard is currently the Chairman of January 2010. Penny is currently a Non-Executive Director February 2010. She is currently the Senior Independent
Henderson Group Plc, Deputy Chairman and Chairman of The Royal Bank of Scotland Plc and a Trustee of the Director of RSA Group Plc and of Rexam Plc. Her previous
Elect of SSE Plc and the Senior Independent Director of British Museum. Penny’s previous experience includes experience includes 22 years with McKinsey & Co, London,
Hiscox Ltd and Helical Bar Plc. He is stepping down from ten years with Coca-Cola GB and Ireland and various as Head of the Retail Practice in Europe and latterly as
the Board of Hiscox Ltd in May 2015. He was previously the Non-Executive roles including Body Shop International Co-Leader of the firm’s Global Marketing & Sales Practice.
Dean of Cass Business School, CEO and then Chairman Plc, GAP Inc, Reuters Plc, Skandinaviska Enskilda Banken, Johanna is a Trustee of the Royal Botanic Gardens, Kew
of the Shareholder Executive and Joint Head of Global Trinity Mirror Plc, Vodafone Plc, Home Retail Group Plc Foundation and of Kew Enterprises Ltd. Previous board
Corporate Finance at BZW. He has been the Chairman and Cable and Wireless Worldwide Plc. roles include Chairman of Tate Enterprises, from 1998 to
of CDC Group and a Non-Executive Director of P&O, 2006 and a Non-Executive Director of Shoppers Drugmart
Debenhams, Tomkins, Qinetiq Group and Kidde. In light in Canada.
of Richard’s forthcoming appointment as Chairman
of SSE Plc, he does not intend to seek re-election as a
Non-Executive Director of the Company and will therefore
stand down from the Board at the AGM in June 2015.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
38

Corporate governance report

continued

Leadership
Structure of the Board and its Committees

Chairman
Key objectives: Governance of the Board

PLC Board
Key objectives: Overall conduct of the
business and strategy setting

Management Audit Corporate Compliance Remuneration Nominations

Board Committee and Responsibility Committee Committee
Committee

PLC Board Throughout the year, the majority of the Board consisted of independent
1
Non-Executive Directors. Sir Ian Gibson retired from the Board and its
Members Andrew Higginson2, Trevor Strain, Philip Cox, committees on 22 January 2015. Dalton Philips stepped down as CEO
Richard Gillingwater, Penny Hughes, Johanna on 16 February 2015.
Waterous, Sir Ian Gibson3, Dalton Philips3
Key objective Board responsibilities
Overall conduct of the business and strategy setting.
Responsibilities • Development and approval of the strategy and key The formal schedule of matters reserved for the Board remains unaltered
policies of the Group; from 2013/14 and is set out in the Corporate governance compliance
• Management of culture and values; statement which can be found in the investor relations section of the
Group’s website, www.morrisons-corporate.com.
• Monitoring of progress towards achieving all
Board objectives; The Board is committed to a clear division of responsibilities between the
• Monitoring of financial performance, critical Chairman and the CEO. This has been reviewed and updated by the
operational issues and risks by reviewing of Board during the year and is also set out in the Corporate governance
performance against strategy, objectives, business compliance statement.
plans and budgets; During the year, Sir Ian Gibson stepped down as a member of the Public
• Formal approval of the Group’s Risk Register; Interest Body of PwC before the decision to recommend PwC for
• Approval of all communications to shareholders, appointment as Group auditors.
including the Annual report and financial Andrew Higginson stepped down as Chairman of Poundland Group Plc
statements, half-yearly financial report and interim following the announcement of his appointment as Deputy Chairman
management statements; and Chairman Elect of the Company in July 2014.
• Approval of changes to the Group’s capital structure,
external financial reports, major expenditure; and Following the announcement that Dalton Philips would step down as
CEO on 16 February 2015, it was also announced that Trevor Strain
• Membership of the Board on recommendation of would chair the Management Board and assume Dalton’s executive
the Nomination Committee. responsibilities with Andrew Higginson, spending more time in the
1
All Non-Executive Directors are independent. business in the interim period until the new CEO was appointed.
2
Appointed 1 October 2014.
3
D Philips stepped down from the Board on 16 February 2015 and Sir Ian Gibson retired
David Potts will join the Board as CEO on 16 March 2015.
in January 2015.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
39

Board committees Effectiveness

Strategic report
The decisions delegated by the Board to its Committees and the activities
of those Committees during the financial year 2014/15 are described Non−Executive Directors
within each Committee’s report below. The Corporate governance
compliance statement contains the terms of reference of the Committees The Non-Executive Directors bring a varied range of skills and
which have recently been updated in line with the guidance notes issued experience to the Group. Details of their experience outside the
by ICSA in 2013 and to take into account changes agreed by the Board Group are set out in their respective biographies on page 37.
during the year. The Board is satisfied that all Non-Executive Directors, including
Senior Independent Director the Non-Executive Chairman, remain independent according to
Philip Cox has been the Board’s Senior Independent Director since May the definition contained in the Code. The criteria used to determine
2013. Philip has been a Non-Executive Director of Morrisons since April independence are set out in the Corporate governance compliance
2009 and has acquired extensive knowledge of the Group’s business and statement, which can be found in the investor relations section of the
its activities. The Senior Independent Director provides shareholders Group’s website, www.morrisons-corporate.com.

Governance
with an alternative contact to the Chairman, the CEO and the CFO. The minimum time commitment expected of the Non-Executive
Board activities in 2014/15 Directors is 12 days per year, together with attendance at the AGM, Board
away days and site visits, plus adequate preparation time. The Board is
The Board’s focus in this financial year was: satisfied that each of the Non-Executive Directors commits sufficient
time to the business of the Group and contributes to the governance
• review of results and forecasts and approval of and operations of the Group. This has been confirmed by the Board
regulatory announcements; effectiveness evaluation referred to below.
• the conduct of the business in accordance with its values;
The Chairman arranges regular discussions between all the
• review of the development of the online business and Non-Executive Directors (including himself) as a group. During the
convenience stores; year, the Non-Executive Directors met a number of times without
• review of the recommendation from the Nomination Committee management present to discuss the performance of the business
in respect of the appointment of Andrew Higginson;

Financial statements
and management, and the wider economic, commercial and social
• review of the performance of the CEO and the decision to search environment in which the Group operates.
for a successor; Board evaluation
• review of the governance structure and activities of the subcommittees
of the Board; The Board arranges for its own performance, and that of its committees
• review of the annual business plan and monthly updates from the and Directors, to be reviewed annually. This is usually facilitated by an
Management Board regarding its delivery; and external agency every three years with the most recent external review
taking place last year.
• review of the 2015/16 budget and commercial plans regarding our
core supermarkets, including productivity savings required to invest In 2014/15, the Board’s effectiveness, and that of its committees,
in the core offer. was the subject of an internal review led by the Chairman and the
Company Secretary.
Attendance at meetings
Board Nomination Remuneration Audit CCR
The evaluation required each member of the Board to complete a
comprehensive questionnaire covering the following key areas:
Andrew Higginson1 3/3 2/2 1/1 – 2/2
Trevor Strain 11/11 – – – – • overall Board and committee effectiveness;
Philip Cox 11/11 7/7 6/6 7/7 – • the work of the Board, including the approach to control, risk, strategy
and transactions, and the regulatory environment;
Richard Gillingwater 11/11 7/7 5/6 6/7 4/5
• organisation and conduct of Board meetings;
Penny Hughes 11/11 7/7 6/6 7/7 5/5
• timing and content of Board papers;
Johanna Waterous 11/11 7/7 6/6 7/7 5/5
• maximising its use of time;
Dalton Philips2 11/11 7/7 – – 5/5
• Board and senior management succession;
Sir Ian Gibson3 11/11 7/7 6/6 − 5/5
1
• training and awareness;
Appointed to the Board on 1 October 2014. Appointed to the CCR Committee
in November 2014, the Nomination Committee in December 2014 and to the • effectiveness of advisers; and
Remuneration Committee in January 2015. • overall Director performance.
2
Dalton Philips stepped down as CEO on 16 February 2015.
3
Sir Ian Gibson retired from all Boards and Committees on 22 January 2015. Responses were collated by the Company Secretary and discussed
with the Chairman. The review concluded that the Board operates
well and cohesively.
The agreement to move to fewer Board meetings but more two day
meetings (as recommended last year) will come into full effect in 2015/16
and it was acknowledged that this should provide more opportunity for
site visits (Company and competitor) and spending time with customers
to understand their views.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
40

Corporate governance report

continued

The length and tone of Board papers will also be the subject of focus Management Board
during 2015/16 with a view to further improvement and ensuring that
papers provide insightful and quality data in a concise manner. Members Dalton Philips1, Trevor Strain, Mark Amsden,
The performance of the Chairman is evaluated annually by the Directors. Neal Austin, Nick Collard, Martyn Fletcher, Mark
Appraisals of the Non-Executive Directors’ performance are conducted Harrison, Martyn Jones, Emily Lawson, Casper
by the Chairman following discussion with Board members. Meijer, Gordon Mowat2, Nigel Robertson
Key objectives Implementation of strategy and actions in respect
Executive Directors are included in the Group’s performance appraisal
of financial planning and performance; day-to-day
process, which includes setting clear and measurable objectives and
management of operations.
reviewing performance against those objectives on a bi-annual basis.
Responsibilities • Development and implementation of strategy;
The Chairman and Non-Executive Directors are responsible for
monitoring and reviewing the performance of the CEO, who in turn • Oversight of:
is responsible for monitoring the performance of the CFO. – financial performance, reporting and control;
Membership – risk management; and
– operational improvement programmes;
As described earlier in this report, the Board has been strengthened by
the appointment of Andrew Higginson as Chairman and, as announced • Review and supervision of operational activities;
on 25 February 2015, the appointment of David Potts as CEO who • Making recommendations to the Board in respect of:
further enhances the relevant experience and skills on the Board. – budgets and long term plans;
The Nomination Committee considers that the Board and Management
Board contain the skills and experience necessary in light of the Group’s – dividend levels;
current activities and strategic direction. – ad-hoc events; and
Re−election of Directors • Succession planning for senior management.
1
Dalton Philips stepped down as CEO on 16 February 2015.
All the Directors submit themselves for re-election at the AGM to be 2
Appointed October 2014 as replacement for Terry Hartwell.
held on 4 June 2015, with the exception of Richard Gillingwater who
will step down at the AGM. After reviewing the outcome of performance Management Board activities in 2014/15
evaluation, the Board confirms that the contributions made by the
Directors offering themselves for re-election at the AGM in June 2015 The Management Board’s focus in this financial year was:
continue to be effective and that the Company should support their
re-election. • implementation of the price investment strategy;
• launch of the Match & More card;
Directors’ interests
• up-streaming of manufacturing capabilities;
The interests of the Executive and Non-Executive Directors of the • streamlining and modernisation of the management structure
Company and their immediate families in the shares of the Company, in stores;
along with share options, are contained in the Directors’ remuneration • targeted implementation of the food online offer into different regions;
report set out on pages 47 to 58. At no time during the year did any of
the Directors have a material interest in any significant contract with • the continuing roll out of M local convenience stores network including
the Company or any of its subsidiaries. acquisition of appropriate sites;
• oversight of major systems development including its roll out
into stores;
• new in-store standard KPIs;
• response to trading results via implementation and adaptation
of the commercial strategy, including promotional strategy;
• periodic review of performance against strategic objectives;
• review of the Group’s weekly and periodic trading results and
market conditions;
• determination of principal risks for the Group;
• new leadership framework;
• review of customer proposition and relaunch of Morrisons
own brand products;
• approval of capital budgets;
• enhanced colleague engagement process and review colleague
engagement scores; and
• the conduct and management of the business in accordance
with its values.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
41

A Transformation Steering Committee was set up during the year to • conducted a full tender of external audit service and recommended

Strategic report
ensure that the right level of focus is placed on delivering transformation the appointment of PwC (described in more detail on page 44); and
projects in the business. All operational members of the Management • discussed the new Governance Code and reporting requirements.
Board are members of the Transformation Steering Committee.
The main purposes of the Committee are: In respect of financial reports, the Committee’s focus was:
• to sign off all strategic business cases which underpin transformation; • the accounting judgements made by management that could have
• to agree timing of implementation; and a significant effect on the Group’s financial results;
• to manage change coherently around the customer experience. • oversight of IT changes affecting financial systems and controls;
• the clarity of disclosure of financial information; and
• whether the Annual report, taken as a whole, is fair, balanced and
Audit Committee report understandable – the Directors’ statement on this can be found
Members Philip Cox (Chair), Richard Gillingwater, on page 61 of this Annual report.

Governance
Penny Hughes, Johanna Waterous
Key objectives Effective governance of financial reporting, internal Financial reporting matters
controls and risk management systems; review of
significant accounting judgements, assumptions The Audit Committee discussed the following financial
and estimates; management of the relationship and reporting matters:
appointment of the external auditor; monitoring and
review of the effectiveness of the Group’s Risk and Commercial income
Internal Audit function.
Commercial income remains an area of focus for the Audit Committee.
Responsibilities The Board has delegated to the Audit Committee the
responsibility for reviewing on its behalf and making Commercial income is inconsistently defined. It is a deduction from the
recommendations to the Board as to: cost of purchase and it is recognised in accordance with signed supplier
agreements. Subjectivity and judgement is therefore minimised.
• the integrity of financial reports, including

Financial statements
reviewing significant financial reporting issues and This is an area which is currently not directly covered by accounting
considering how these issues have been addressed; standards and there is no prescriptive disclosure best practice. The
• whether the Annual report is fair, balanced Financial Reporting Council (FRC) recently urged the Boards of
and understandable; retailers and suppliers to provide greater clarity in this area.
• the effectiveness of the Group’s internal control It is important to the Board that the Group takes the initiative and
and risk management system; brings clarity and transparency to commercial income and so is
• the effectiveness of the Risk and Internal Audit providing increased disclosure on controls, on the quantum earned in
function; and the income statement and the balance sheet position. Despite most of
this income being subject to no or little subjectivity or judgement we
• the independence and appointment of the external
have chosen to provide full disclosure – see note 1.6 in the
auditor and approval of their fees.
financial statements.
Our definition of commercial income includes marketing and
Audit Committee Chairman
advertising funding and volume based rebates. Some commentators
The Board is satisfied that Philip Cox has recent and relevant financial
include promotional funding in commercial income. We consider such
experience appropriate to his position as Chairman of the Audit
funding as a mechanical deduction from the purchase cost, triggered
Committee. Philip is a Fellow of the Institute of Chartered Accountants
immediately by Morrisons realising a sale, or a purchase, with no
in England and Wales and has previously held a number of senior
judgement or subjectivity applied. We do not therefore include
finance positions including Chief Financial Officer of International
promotional funding in our definition of commercial income.
Power Plc and Siebe Plc.
In addition to disclosing the quantum of commercial income in the
Audit Committee activities in 2014/15
income statement, we have also disclosed the quantum of commercial
During the year the Committee has: income included in debtors and accrued commercial income at the
balance sheet date – see notes 5.3 and 5.4 in the financial statements.
• considered the appropriateness of the Group’s Annual report and By its nature a proportion of commercial income will only become
financial statements and Half-yearly report; billable to suppliers at or near the reporting period end. However we
• reviewed the effectiveness of the internal controls and the work of the expect the majority of commercial income outstanding at 1 February
Risk and Internal Audit function, including approval of the Internal 2015 to be collected by the end of the first quarter of the new
Audit plan and discussion on key risks (described in more detail on financial year.
pages 30 to 33); In considering the appropriateness of commercial income recognised
• considered systems design, implementation and related project in the year and the financial position at the year end, the Committee has
management in respect of changes to the Group’s financial reporting reviewed in detail reports from management outlining the accounting
systems and processes; judgements and the control environment.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
42

Corporate governance report

continued

In reviewing the assumptions made by management, the Audit Controls in operation for promotional funding
Committee challenged and understood the key assumptions and and commercial income
judgements including: 1. Periodic review of control KPIs by Senior Management which is
focused on confirming promotional funding and commercial income
• commercial income accrued but not invoiced at half year and has been recognised appropriately in line with policy. The review
year end; and includes an assessment of the following:
• recoverability of outstanding invoices.
• accrued income that has not been invoiced following the end
The Audit Committee considered the effectiveness of the operation of of a promotional period;
key controls as set out below, through review of management’s work and • ageing profile of invoices raised that are outstanding from
that of Internal Audit. The Committee considered the frequency of the suppliers; and
operation of controls, the size of samples and challenged management
on how controls could be further improved. • credit notes raised after the period end.

The controls in operation provide assurance over: 2. Segregation of duties between trading teams who negotiate
with suppliers and the finance function that approve the recognition
• completeness of supplier agreement documentation; of income.
• accuracy of income recognition in line with agreed policies and 3. All accrued amounts above set thresholds are checked to supplier
the supplier agreements; and documentation.
• recoverability of commercial income.
4. Sample compliance checks are performed for invoices over set
thresholds plus an additional random sample. These checks include:
• ensuring compliance with supplier terms and agreements; and
• reviewing the timing of invoicing following completion of a
promotional period.
5. Internal Audit performs a review of a sample of supplier agreements,
checking the appropriateness of recognition. Their focus is on key
areas of judgement including multi-year contracts and accrued income
which has not yet been invoiced. The scope of work includes checking
that income is recognised in line with the supplier agreement.

Promotional funding specific controls

Type of deduction Description Specific process and controls

Promotional Customer Investment by Agreed supplier terms are recorded on systems which generate accruals and recognise
funding way of promotions, partially the funding mechanically based on these terms and sales volume data fed from the till
funded by suppliers for system. There is no judgement or estimation involved.
specific products, or multi- The system also automatically generates invoices to suppliers each week, or at the end
purchases, such as buy one of a promotional cycle.
get one free.

Commercial income specific controls by type of income

Type of deduction Description Specific process and controls

Marketing and Examples include income in All supplier agreements are logged once a contract is signed. The details recorded
advertising respect of in-store marketing include the agreed activity, timeframe, performance criteria and amounts.
funding and point of sale, as well as Income is then only recognised and invoiced conditional on satisfying specified
funding for advertising. criteria in the supplier agreements.

Volume−based Income driven by achieving Agreed supplier terms are recorded in systems which generate accruals and recognise
rebates volume targets set by the commercial income automatically based on these terms. Details entered into the system
supplier for specific products are validated by an independent team.
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.
Supplier confirmations are obtained half-yearly, including at year end, to confirm volume
performance and therefore that the appropriate level of rebate is being accrued.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
43

Impairment of property, plant and equipment, intangible The policies and procedures for stock accounting, reporting and

Strategic report
assets and onerous property commitments provisioning have been reviewed by the Audit Committee as part of
the annual policy review which includes external benchmarking and
The Group has a policy of assessing impairment on an annual basis, sensitivity analysis where appropriate. Changes to stock count
or where changes in circumstances result in a risk of impairment. procedures, including the appointment of independent third party
The impairment review includes non-financial assets, principally the counters, have been implemented in the year. The Committee receives
Group’s property portfolio, IT assets not in use and goodwill. updates on stock count results throughout the year.

There are a number of assumptions used in the impairment reviews Internal control and risk management
including discount rates, growth rates and the market value of The Board has overall accountability for ensuring that risk is effectively
the properties. managed across the Group. Risks are reviewed by the Management
The Group considers that structural changes in the market have Board for all functions annually and results are brought to the Board.
intensified in the year. This coupled with others in the sector cutting On behalf of the Board the Audit Committee has responsibility for

Governance
space forecasts and capital spending has led to a further decline in the reviewing the effectiveness of internal control including financial,
market value of supermarkets. This has resulted in an additional operational and compliance controls. In order to do this, as a matter
impairment charge of £1,273m being recognised this year against of course in any one year, the Committee:
trading stores and onerous leases. • receives and agrees appropriate actions in response to regular reports
Further details of the assumptions used are set out on page 89. from the Risk and Internal Audit function on:
Management has presented a number of papers to the Audit Committee – the status of internal control and risk management
setting out the judgements and assumptions underpinning the systems across the Group;
impairment reviews. The Committee has understood management’s – the department’s findings, annual plan and the resources
view on all the assumptions including the market valuations of the stores. available to it to perform its work; and
It has also reviewed the methodology and approach to obtaining forecast – any concerns expressed by colleagues about possible
store cash flows, which remain consistent with the prior year. malpractice or wrongdoing;

Financial statements
In addition, for leasehold arrangements where the expected future • reviews financial whistle-blowing reports from colleagues;
benefits from a store are less than the future lease commitment, the • reviews the external auditor’s management letters on internal
Committee has reviewed the judgements required in recognising an financial control;
onerous lease provision. • seeks reports from senior management on the effectiveness of the
The Audit Committee discussed the sensitivity of key assumptions along management of key risk areas; and
with their impact on the impairment and onerous lease provision charge • monitors the adequacy and timeliness of management’s response
in the year. The Committee challenged the assumptions and is satisfied to identified audit issues.
they are appropriate.
The main features of the Group’s internal control and risk management
IT systems systems relating to the accuracy and reliability of financial reporting,
including the process for preparing consolidated accounts, are:
The Group is in the process of upgrading and developing its core
systems, the cost of which is a material element of capital expenditure • recruitment of suitably qualified and experienced finance colleagues;
for the current year. These upgrades have enabled a number of the • segregation of duties, clear lines of accountability and delegation
Group’s plans to be executed during the year including the launch of authority;
of the Match & More card and other promotional tools. • policies and procedures that cover financial planning and reporting,
As well as the risk of impairment considered above the Committee has preparation of financial information, and capital expenditure;
considered the nature of costs being capitalised to ensure they are • a robust period end review process including review and commentary
capital in nature. It has also regularly reviewed progress against system from process owners;
implementation plans which has included engaging external consultants • a tiered review process for external financial reports involving internal
to give the Committee independent assurance. The Committee is stakeholders from relevant areas of the business;
satisfied that costs have been capitalised in line with the Group’s policy.
• information and data security policies and procedures; and
Stock • self certification by each section of the business.
Stock remains a material balance in the Group’s financial statements. The Audit Committee has undertaken a review of effectiveness of
It is held in multiple locations and a system upgrade is in the process internal control areas during the financial year. No significant failings of
of being implemented to consolidate the legacy stock systems. internal control were identified during these reviews, limited weaknesses
Judgement is required in determining provisions for shrinkage and were identified, none of which are significant. Clear action plans are in
other stock provisioning. place to address the weaknesses and are captured as part of functional
risk registers with defined management responsibility.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
44

Corporate governance report

continued

The Audit Committee has completed its review of the effectiveness of The Committee holds meetings with the auditor without management
the Group’s systems of internal control during the financial year and present. The purpose of these meetings is to understand the auditor’s
up to the date of the report. In accordance with the requirements of the views on the control and governance environment and management’s
revised Turnbull guidance on Internal Control published by the FRC, it effectiveness within it. To fulfil its responsibilities in respect of the
confirms that ‘no significant failings of internal control were identified in independence and effectiveness of the external auditor, the
the review for 2014/15’. Committee reviewed:
External audit tender • the terms, areas of responsibility, duties and scope of work of the
external auditor as set out in the engagement letter;
As noted in last year’s report, following the FRC recommendation to put • the audit work plan for the Group;
the external audit out to tender at least every ten years, the Audit
Committee conducted a tender process for the external audit • the detailed findings of the audit, including a discussion of any
appointment during 2014/15. major issues that arose during the audit;
• the letter from the external auditor confirming its independence
The tender process was initiated in January 2014 and concluded in April and objectivity; and
2014. The Audit Committee recommended the appointment of PwC as
external auditor. The Board accepted this recommendation and PwC • the audit fee and the extent of non-audit services provided
were formally appointed at the 2014 AGM. during 2014/15.

The audit tender team was created and led by the Chair of the Audit In the period from the start of the year to the AGM, KPMG provided
Committee and comprised the Group CFO, Director of Risk and Internal non-audit work, primarily to provide the Board with independent
Audit, the Group Financial Controller and Procurement. Six firms were assurance in respect of IT systems replacement. Prior to their
invited to tender, two of which were ‘mid-tier’ audit firms. Four audit firms appointment as auditor PwC provided a number of non-audit services,
reached the final stage of the tender process. including advisory services to the Remuneration Committee. PwC
resigned from this post on appointment as statutory auditors but have
In arriving at the short-list for the final stage the process involved: continued to provide non-audit services. In the year the ratio of audit to
meetings with and presentations to senior finance, IT and procurement non-audit services was 1:0.5, see note 1.6 in the Annual report.
colleagues, and formal responses to the Request For Proposal (RFP).
The feedback from the meetings as well as the RFP responses were The Committee believes that this non-audit activity carried out by the
reviewed in detail by the audit tender team and summarised for the statutory auditors is subject to safeguards to avoid a threat to the auditor’s
Audit Committee. independence or objectivity. These safeguards comprise separate teams
for audit versus non-audit work.
The audit tender team plus one of the NEDs held meetings with each of
the short-listed firms during which the firms presented their proposed The Board has a policy on the engagement of the external auditor
audit approach. This was followed by a ‘question and answer’ session, to supply non-audit services, which is available in the Corporate
including questions on matters of accounting. Following each meeting governance compliance statement set out in the investor relations
the Group discussed the presentation both in content and team, the view section of the Group’s website at www.morrisons-corporate.com.
presented, answers to questions and the strengths and weaknesses of Going concern
each team. At the end of all of the meetings the audit tender team had
an extensive debate about all of the firms that had been shortlisted. The Directors’ assessment of the Group and the Company’s ability to
The summary of these assessments was presented to the Audit continue as a going concern is based on cash flow forecasts for the Group
Committee, who after further discussion felt that PwC had shown a and the committed borrowing and debt facilities of the Group. These
greater understanding of Morrisons and through their proposed audit forecasts include consideration of future trading performance, working
approach would be able to drive greater challenge of processes and capital requirements, retail market conditions and the wider economy.
controls, which would benefit the Group. The Group remains able to borrow cash at competitive rates, as
The Committee would like to thank all of the firms that participated and evidenced by the issue of a £300m bond in July 2014 and the
specifically to KPMG for their contribution to the Group over the years. refinancing of the £1.35bn revolving credit facility in September
2014. The Group has negotiated, and has available to it, committed,
Effectiveness and independence of the external auditor competitive facilities that will meet the Group’s needs in the short
and medium term.
Due to the change in auditor during the year, the Committee has
considered the effectiveness of both KMPG and PwC for the periods in The principal risks that the Group is challenged with have been set
which they were auditor. In making this assessment the Audit Committee out on pages 32 to 33, along with how the Directors mitigate these risks
has considered the information presented by the auditors, management in the current economic climate. After reviewing the Group’s financial
responses to the auditor’s findings, including any adjustments and the forecasts, the Directors are confident that the Company and the Group
level of non-audit fees. have adequate financial resources available to continue in operational
existence for the foreseeable future. Accordingly, the going concern basis
is adopted in the preparation of these financial statements.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
45

Corporate Compliance and Responsibility Remuneration Committee report

Strategic report
(CCR) Committee
The report from the Remuneration Committee is contained
Members Penny Hughes (Chair), Andrew Higginson1, in the Directors’ remuneration report on pages 47 to 58.
Dalton Philips2, Mark Amsden, Richard Gillingwater,
Martyn Jones, Johanna Waterous
Key objectives
Nomination Committee report
Development and implementation of the
Group’s policies on corporate compliance and Members Andrew Higginson (Chair)1, Dalton Philips2,
corporate responsibility. Reviewing and ensuring Philip Cox, Penny Hughes, Richard Gillingwater,
compliance with these policies and ethical and Johanna Waterous
governance standards. Key objectives Advice to the Board on Board and senior
Responsibilities Oversight that the business is doing the right thing management appointments and succession
in areas of corporate responsibility including: planning; monitoring of the composition of the

Governance
• ethical trading; Board and its committees.
Responsibilities • Evaluating the current and required mixture
• food safety;
of skills and experience on the Board; and
• health and safety;
• Sourcing and selecting candidates.
• environmental and competition compliance;
1
• GSCOP; and Appointed December 2014.
2
D Philips stepped down from the Board and its Committees on 16 February 2015.
• governance and reputation.
Generally ensuring that the Company is acting Nomination Committee’s activities in 2013/14
as a good corporate citizen.
1
Selection process
Appointed November 2014. The Nomination Committee is responsible for succession planning
2
D Philips stepped down from the Board and its committees on 16 February 2015.

Financial statements
and the recommendation of Director appointments to the Board.
The Committee considers the size and composition of the Board on an
CCR activities in 2013/14 ongoing basis. The Committee will consider the skills of outgoing and
The Committee’s focus in this financial year was a review of: remaining Board members to assess any gaps and develop a candidate
profile. The Board uses external search consultancies to source suitable
• cyber and IT security risk; candidates. The Committee recommends appointments on merit against
• health and safety incidents and actions taken and the criteria applied in developing the candidate profile and taking into
progress of health and safety initiatives; account the mix of skills, experience and diversity on the Board.
• energy strategy and carbon reduction measures; Appointment of Chairman and Chairman Elect
• ethical trading; Following the announcement by Sir Ian Gibson of his intention to
retire in 2015, the Nomination Committee appointed a sub-committee
• food safety and improvements; comprising Philip Cox, Richard Gillingwater, Penny Hughes,
• food integrity and testing; Johanna Waterous and Dalton Philips, with responsibility for sourcing
• GSCOP compliance including training and results and selecting his successor. The sub-committee used an external search
of internal reviews; and agency, MWM Consulting, in identifying a short list of candidates with
• non-financial whistle-blowing reports. the requisite skills and experience for the role. The sub-committee
interviewed each of the candidates shortlisted and recommended the
appointment of Andrew Higginson to the Nomination Committee and
the Board. His appointment was announced on 29 July 2014. Andrew
stepped down as Chairman of Poundland Group Plc in order to manage
his other time commitments outside Morrisons and thereby ensure he
is able to devote an appropriate amount of time in fulfilling his current
role and future role as Chairman of the Company. Andrew succeeded
Sir Ian Gibson as Chairman in January 2015.
MWM Consulting is also used by the Company in the search and
selection process for other senior hires. This agency has no connection
to the Group other than its provision of recruitment services.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
46

Corporate governance report

continued

Induction Relations with shareholders

All Directors are provided with a comprehensive, formal and tailored
induction to the business. The Board is committed to communicating our strategy to analysts,
investors and shareholders on a regular basis through a
Prior to his appointment to the Board in October 2014, planned programme.
Andrew Higginson spent a month in the business to commence
the induction programme which continued following his formal The Investor Relations programme includes:
appointment. The programme was designed to provide Andrew with a
comprehensive introduction to the business and included the following: • formal presentations of full and half year results;
• interim management statements;
• review of Board/Committee minutes and supporting papers for
recent meetings; • regular meetings between institutional investors, the CEO, the CFO
and the Investor Relations team in the UK and the US following the
• meeting with the Company Secretary to provide a briefing on Board/ full and half year results;
Committee processes and procedures and governance structure;
• regular meetings between the Chairman and major shareholders to
• store and other site visits; and discuss any aspect of the Group or its governance arrangements;
• meetings with senior management. • attending key investor conferences;
CEO succession • communication between the Chairman of the Remuneration
Committee and major shareholders on remuneration policy and
Following the decision to search for a new CEO, the Committee significant changes in remuneration arrangements;
discussed and approved a job role and appointed Ridgeway Partners to
assist in identifying a long list of candidates with the requisite skills and • responding to enquiries from shareholders and analysts through
experience for the role. the Investor Relations team; and
• dedicated shareholder and investor sections on the website.
After an extensive and international search, four candidates were
shortlisted and interviewed by the Board resulting in the appointment In addition, the Investor Relations team provides a regular update to the
of David Potts who will join the Board as CEO on 16 March 2015. Board and feedback from meetings held between executive management
and institutional shareholders. The Group’s brokers seek independent
Diversity
feedback from analysts and investors following the full and half year
Diversity has been a particular area of focus during 2014/15. The Board results meetings which is reported to the Board.
recognises the benefits of a diverse colleague base across the Group and is Matters dealt with elsewhere in the Strategic report
supportive of initiatives within the business to improve diversity at all levels.
The Company sought to increase female representation in the senior The way that the Group generates value and the Board’s strategy for
management group (SMG) to at least 30% by the end of 2014. Although delivering the Group’s objectives are described in the Business model
positive progress has been made, this target has not yet been achieved on pages 6 to 7, and the Strategy section on pages 10 to 15.
and the Board recognises that more work is needed in this area. Annual General Meeting
Recruitment and promotion policies have been reviewed with a view to
attracting candidates with a wide range of backgrounds and experience All Executive Directors and Non-Executive Directors attend the AGM
and ensuring that the best individual for the role is appointed. Specific unless unable to do so due to circumstances outside of their control.
targets have not been set as it is considered that they may drive the
wrong behaviours. However, guidelines are in place to ensure that the Notice of the 2015 AGM of the Company is to be sent to shareholders
long list for any particular vacancy at management level includes a with an accompanying letter from the Chairman. The AGM will be held
balanced profile of candidates. at the Company’s headquarters at Gain Lane in Bradford on 4 June 2015.
Format of the meeting:
Progress on the diversity agenda is measured through regular talent
reviews. Although there is particular focus on the SMG, these reviews • a summary presentation of results is provided before the Chairman
also consider the ethnicity, gender, age and length of service mix lower deals with the formal business;
down the organisation. • all shareholders present can question the Chairman, Chairmen
At the end of the 2014/15 financial year the Board included two women of the Committees and the Board during the meeting and
members, 28% of its total composition. The Board’s policy is that female informally afterwards;
representation should be maintained at not less than 20% and aspires • the Board encourages participation of individual investors at the
that this should be higher than 30%. This policy will continue to be AGM; and
considered as part of the Nomination Committee’s regular review • following the meeting, details of the voting on the resolutions will
of the Board’s composition and skills. be made available on the website www.morrisons-corporate.com/
Diversity will continue to be a key topic on the Nomination Committee Investor-centre/generalmeetings/
agenda in 2015/16.
The Directors recommend shareholders vote in favour of each resolution,
Other areas of focus believing them to be in the best interests of the Group. Shareholders
will be notified of the availability of the Annual report and financial
The Committee also spent time reviewing succession planning for both statements on the website unless they have elected to receive a
the Board and Management Board as well as of the talent pool for levels printed version.
below Management Board.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
47

Directors’ remuneration report

How we are rewarded

Strategic report
Annual statement by the Chairman Remuneration principles and alignment
of the Remuneration Committee to strategy

Governance
Dear Shareholder The UK food retail sector is currently going through
an unprecedented period of uncertainty and change.
On behalf of the Remuneration Committee and
As described in detail on pages 10 to 15 of this
the Board, I am pleased to present the Directors’
Annual report, the Board has developed a robust
remuneration report for the financial year 2014/15.
strategy for our business to address these challenges,
Last year, we completed a strategic review of our the execution of which is in the best interests of all
remuneration framework and engaged extensively of our stakeholders.
with major institutional shareholders and investor
Our remuneration framework is based on the
representative bodies on the key changes. The
following key principles:
framework was set out in the remuneration policy
which was approved by shareholders at the 2014 • The structure of our incentives is designed to
AGM. No changes are proposed at this year’s AGM. align with the delivery of the short and long term

Financial statements
objectives set out in our strategy, which also
We listen to feedback on the report and continue to
aligns with the creation of sustainable long term
strive to improve the transparency and clarity on
shareholder value.
executive pay. For example, this year we have sought
to provide a greater level of disclosure on our bonus • We encourage a strong and rigorous performance
outcomes so that shareholders can better understand culture through a remuneration package heavily
how the Committee links pay to performance. weighted towards performance-related pay, with
stretching performance targets calibrated to
In this introductory statement, I have set out the appropriately reflect the challenging environment.
principles and key features of our executive
• Pay must be positioned competitively in our key
remuneration framework, a summary of the out-turns
talent markets to ensure we can attract people
in respect of 2014/15 performance, and how we intend
of the calibre needed to execute the strategy
to approach remuneration in 2015/16, including
for shareholders.
the remuneration arrangements for recent Board
changes. We will be seeking shareholder approval
for this report at the AGM on 4 June 2015.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
48

Directors’ remuneration report

How we are rewarded continued

Incentive out−turns for 2014/15

Key features of our framework
The annual bonus targets set by the Committee at the start of the
Salary • Market competitive fixed remuneration year were built around the objectives which the business set and
reflecting skills and expertise. communicated within the context of the current environment for the UK
Benefits and • Market competitive benefits package. food retail sector. The out-turns for the Executive Directors for 2014/15
pension reflect that the business has delivered on a substantial portion of these
• Executive Directors may receive a maximum objectives for the year. The underlying PBT performance was in line with
cash pension allowance of 25% of salary. the target level set and the strategy communicated to the market at the
Annual bonus • Maximum opportunity 200% of salary. beginning of the year. Against the strategic scorecard, the business
• Performance-related remuneration based on achieved against its operating cash flow, online service and cost savings
targets aligned to our annual financial and targets. Overall this resulted in annual bonus awards of 60% and 62% of
operational strategic objectives. For 2015/16: maximum for Dalton Philips and Trevor Strain.
Growth in EPS over the performance period for the 2012/15 LTIP fell
Underlying PBT 50%
below the threshold target and as a result LTIP awards will not vest for
Strategic measures 30% a third consecutive year.
Personal performance 20%
The remuneration received by the Executive Directors in respect of
2014/15 is summarised in the table below. Further detail can be found
on pages 50 to 56.
Benefits/
Salary Pension Bonus LTIP Total

• 50% of any bonus deferred for three years. Dalton Philips £850k £239k £1,010k £0k £2,099k
• Malus and clawback apply. Trevor Strain £490k £118k £602k £0k £1,210k

LTIP • An opportunity to earn Morrisons shares Board changes

based on performance against key strategic
metrics over a three year performance period. Stepping down of former CEO
Dalton Philips stepped down as CEO on 16 February 2015. He received
• Normal award level 240% of salary. a contractual payment in respect of salary, benefits and pension for the
• Awards made in 2014 were subject to the unworked portion of his 12 month notice period, paid in instalments and
following performance measures: subject to mitigation. Taking into account his contribution to the business
through a period of significant industry change, as well as the importance
Free cash flow 50%
of ensuring a smooth transition, the Committee determined that Dalton
Underlying EPS 30% was a good leaver for the purposes of his incentive awards. He was
Total sales 20% awarded a bonus in respect of 2014/15 performance and will receive the
deferred shares in respect of performance in the 2011/12 financial year.
He will also remain eligible for unvested 2013 and 2014 LTIP awards,
subject to performance and reduced pro-rata for time. His 2012 LTIP
award has lapsed. Full details are set out on page 53.
Appointment of new CEO
• Malus and clawback apply. David Potts will be appointed as CEO on 16 March 2015. His base salary
Shareholding
will be £850,000 which is the same as his predecessor. His annual bonus
• 200% of salary.
guidelines maximum and LTIP will be within the policy approved by shareholders.
His first LTIP award will be 300% of salary which is intended to provide
an immediate performance driver and alignment with shareholders.
Thereafter LTIP awards will revert to the normal level of 240%. To
support his immediate start with the business following appointment,
he will also receive relocation expenses. There will be no buyout awards.
Deputy Chairman and Chairman Elect
Andrew Higginson commenced his induction with the Company
on 1 September 2014 and joined the Board as Deputy Chairman and
Chairman Elect on 1 October 2014. He became Chairman following
Sir Ian Gibson’s retirement on 22 January 2015 on an annual base fee
of £400,000.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
49

Strategic report
Decisions for 2015/16 Structure of this report

Base salary The remainder of the report is split into the following sections:
In reviewing the salary for Trevor Strain, the Committee took into
account the considerable progress made in his role as CFO in the two • Policy summary.
years since his appointment, his substantial contribution to the business This section (pages 50 to 51) presents an extract from the Policy Table
in this time of transition, and current positioning against market data. (as approved by shareholders in 2014) for information purposes. It also
The Committee determined that it was appropriate to increase his salary includes details of our new clawback provisions.
with effect from 2 February 2015 to £525,000, representing an increase • Implementation for 2015/16.
of 7%. This section (page 52) sets out how we intend to operate the policy
for 2015/16.
Annual bonus
The Committee adjusted the weightings of the annual bonus measures • Outcomes for 2014/15.
to reflect the strategic objectives for the year. The weighting for the This section (pages 53 to 58) describes the implementation of our

Governance
strategic scorecard (which this year will focus on just two strategic policies in 2014/15, including the ‘single figure of remuneration’,
priorities – like-for-like sales and cost reduction) has been increased supporting narrative for our bonus and long term outcomes, and
to 30%. Consequently, the weighting for underlying PBT has decreased additional supporting disclosures.
from 60% to 50%. The weighting given to financial measures is therefore
80% of the total bonus. Johanna Waterous
Chairman of the Remuneration Committee
LTIP
We plan to make LTIP awards in April 2015 following the
announcement of results, in line with the normal grant cycle for the
Company. The Committee considers that the new CEO should have
an incentive interest in Morrisons shares from the earliest opportunity
ensuring that his interests are aligned to shareholders.

Financial statements
The performance targets for the 2015 LTIP award should be aligned with
Morrisons strategy and be meaningful and robust. In this transitional
period, the Committee believes that it is important to allow David Potts
time to assess the business and provide his input into the formation of
the long term business plan under his leadership. We therefore intend to
wait until the outcome of this process before setting targets for the 2015
award, and we will revert to shareholders at this time. We expect this
to be by the time of the interim results announcement in September.
Holding period
The Committee reviewed the potential use of a post vesting holding
period for the LTIP and concluded that the combination of a three year
performance period and substantial shareholding guidelines created
sufficient long term alignment with shareholders. The Committee will
continue to monitor practice in this area.
Clawback
In line with the revised UK Corporate Governance Code, from 2015/16,
we will be introducing clawback provisions into our annual bonus and
LTIP plans, to supplement the malus arrangements already in place.
Full details of the malus/clawback provisions are set out on page 51.

The Group is required to prepare a Directors’ remuneration report

for the 52 weeks ended 1 February 2015. The report has been
prepared in accordance with the Companies Act 2006 and the
Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
50

Directors’ remuneration report

Directors’ remuneration policy – extract

Our Directors’ remuneration policy was approved at the 2014 AGM held
on 5 June 2014 and applies from that date.
An extract of the remuneration policy table from last years Directors’
remuneration policy report, is re-produced below for information only.
The full Directors’ remuneration policy report is contained on pages
61 to 66 of the 2013/14 Annual report which is available in the investor
relations section of the Group’s website, www.morrisons-corporate.com.

Remuneration policy table

Executive Directors
Element and how it Performance
supports strategy Operation Opportunity measures and period

Base salary Base salaries are set by the Committee on appointment Salary increases will ordinarily Not applicable.
The Committee’s policy and then normally reviewed annually. be in line with salary increases
is to set base salaries In setting and reviewing salary levels, the Committee across the Group. The Committee
competitively to attract and considers the responsibilities of the role, progression in may award increases above this
retain the best talent, which the role, individual performance (including any change level where this is warranted
is critical to the Group’s in responsibilities), skills, experience and pay levels and due to a change in the scope
success and delivery of structure throughout the Group. or responsibilities of the role,
the strategy. to reflect progression in the
The Committee also has regard to rates for similar roles role (e.g., staged increases for a
Base salary is part of a total in comparator companies, both in FTSE 100 retailers and recent appointment) or to remain
remuneration package UK-based companies of a similar size and complexity, competitive in the market.
which rewards stretching but seeks to avoid the automatic ratcheting effects of Current base salary levels are
performance aligned to the following benchmark levels of salary. disclosed on page 52.
Group’s strategy.
Benefits Executive Directors are entitled to a car allowance The maximum car allowance is Not applicable.
The Company provides a (or other car benefit), transport costs, private health currently £24,000. The cost to
market competitive benefits provision, life assurance, an allowance towards the cost the Company of providing other
package for Executive of independent financial advice, normal staff discount benefits depends on the nature
Directors to support in the entitlement and, in certain cases, a telephone allowance. of the benefit and can vary from
ability to recruit and retain Executive Directors are also entitled to participate in year to year. Benefit provision
the best talent. the all employee share save schemes (and any other all will be maintained at a level
employee share plan which the Company may operate) which is competitive.
on the same terms as all other UK-based employees.
The Committee reviews benefit provision from time-
to-time and retains flexibility to add or remove benefits
if necessary to ensure that benefit provision remains
market competitive or to meet the operational needs
of the business (for example through the payment of
relocation expenses).
Pension benefits Executive Directors are entitled to membership of the The Morrisons Retirement Saver Not applicable.
The Company provides Group’s cash balance pension arrangement known as the Plan guarantees a value of the
a market competitive Morrisons Retirement Saver Plan. Individuals contribute cash balance in the plan of 24%
retirement provision 5% of capped base salary and all new eligible employees of pensionable pay (assuming
for Executive Directors are automatically enrolled into this arrangement. retirement at age 65 years)
which is aligned with A 10% cash salary supplement in lieu of Company adjusted for inflation capped
retirement benefits available pension contributions applies on base salary above the at 2% p.a.
throughout the Group. capped amount. A maximum 10% cash salary
A cash alternative to pension provision is provided where supplement applies above
the Group’s standard pension provision is not appropriate, capped base salary.
for example, where an Executive Director has reached Where an Executive Director
the Lifetime Allowance. Executive Directors may elect receives a cash salary
to receive this cash salary supplement in lieu of pension supplement only, the maximum
of broadly the same value as would accrue on an annual supplement payable is 25%
basis in the pension plan. of salary.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
51

Remuneration policy table continued

Strategic report
Executive Directors
Element and how it
supports strategy Operation Opportunity Performance measures and period

Annual bonus Bonus awards are made annually The maximum Annual bonus awards are subject to the following performance
Annual bonus subject to a mix of financial bonus potential measures:
awards are designed and non-financial performance for Executive • 60% is based on underlying profit before tax performance;
to incentivise and measures. Achievement of each Directors
performance element is assessed is 200% of • 20% is linked to achievement of a number of strategic corporate
reward achievement scorecard measures; and
of the Group’s short independently and the level of base salary.
term financial and payout is determined by the The number • 20% is linked to achievement of personal objectives.
strategic objectives Committee after the end of the of shares The measures and weightings are set by the Committee on an

Governance
and personal relevant financial year. subject to the annual basis and each element is assessed independently at the
performance 50% of any bonus payable is paid deferred award end of each year. Achievement of threshold performance will
objectives. in cash with the other 50% deferred is determined result in a payout of 20% of the underlying profit element
Compulsory deferral in shares under the deferred share by reference to (i.e., 12% of the maximum bonus potential).
is designed to bonus plan, normally for a period the bonus and Achievement of one of the strategic corporate scorecard measures
encourage retention of three years. The Committee has the share price or one of the personal objectives is regarded as threshold
and further align discretion to allow a higher level on the date performance for that element.
the interests of the of deferral. of award.
Executive Directors Dividend equivalents accrue over Deferred share awards are not subject to any further performance
with shareholders. the vesting period and are paid at conditions. Awards will normally vest three years after the date of
the time of vesting on the number award but may be forfeit if the individual leaves employment before
of shares that vest. the vesting date.

Financial statements
LTIP Awards are made annually subject The maximum LTIP awards are subject to the following performance measures:
Awards under the to performance measures set by annual • 50% is based on cumulative free cash flow;
LTIP are designed the Committee, which are aligned individual
with business strategy and the award level • 30% is based on underlying earnings per share (EPS); and
to incentivise and
reward achievement Group’s stated KPIs. under the plan is • 20% is based on total sales.
of the Group’s long Achievement of each element is 300% of salary. Achievement of threshold performance will ordinarily result in
term strategic assessed independently. The current vesting of 25% of each element with 100% vesting for maximum
objectives and Awards will normally vest three annual award performance. However, the Committee has discretion to reduce
creation of value years after the award is made. level for the level of vesting at threshold.
for shareholders The Committee retains discretion Executive A return on capital employed (ROCE) underpin applies to the
through execution to introduce a holding period Directors is vesting of the total LTIP award.
of the strategy. which would apply after the award 240% of salary. LTIP awards granted prior to 2014 are subject to the following
has vested. performance measures:
Dividend equivalents accrue over • 75% is based on growth in underlying EPS relative to RPI; and
the performance period and are • 25% is based on like-for-like non-fuel sales relative to the Institute
paid at the time of vesting on the of Grocery Distribution (IGD) index.
number of shares that vest.
Achievement of threshold performance will result in vesting of 25%
of each element with 100% vesting for maximum performance.
No award can vest under the like-for-like sales element unless the
threshold EPS target has been met.
For all awards, the Committee has the discretion to adjust the
vesting calculations as set out in the notes to the policy table below.
Clawback and malus

Following changes to the UK Corporate Governance Code announced in Clawback provisions will apply for three years following payment of a
September 2014, the Committee agreed to incorporate clawback into the cash bonus (malus already applies to the deferred share element for a
Company’s incentive plans in addition to the existing malus provisions in three year period) and two years following vesting of an LTIP award
the Company’s DSBP and LTIP. The cash element of the annual bonus and (i.e. five years from grant). The first awards which will be subject to the
vested LTIP awards may be clawed back in the following circumstances: clawback provisions are annual bonus plan awards made in respect of
• material misstatement of results; 2015/16 (paid in early 2016) and any LTIP awards granted in the
2015/16 financial year.
• gross misconduct;
• reputational damage; and/or Malus provisions (which also apply in respect of earlier awards) apply in
certain circumstances which include financial misstatement or similar
• performance assessment error. acts that bring the business in disrepute.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
52

Directors’ remuneration report

Implementation of remuneration policy in 2015/16

Base salary LTIP

Annual base salaries for the Executive Directors are set out below: The LTIP awards for David Potts and Trevor Strain for 2015 will be
300% and 240% of salary respectively. David Potts’ 2015 award is
2015/16 2014/15
intended to provide an immediate performance driver and alignment
D Philips1 £850,000 £850,000 with shareholders. Thereafter LTIP awards will revert to the normal
D Potts2 £850,000 − level of 240%.
T Strain £525,000 £489,600 It is intended to make LTIP awards in April 2015 following the
1
D Philips stepped down as CEO on 16 February 2015. announcement of 2014/15 results, in line with the normal grant cycle for
2
D Potts will be appointed as CEO on 16 March 2015. the Company. The Committee considers that the new CEO should have
an incentive interest in Morrisons shares from the earliest opportunity
Trevor Strain was promoted to the role of CFO in April 2013 on a base ensuring that his interests are aligned to shareholders.
salary below that of his predecessor. In reviewing his salary for 2015, the The performance targets for the 2015 LTIP award should be aligned with
Committee took into account the considerable progress made in the CFO Morrisons strategy and be meaningful and robust. In this transitional
role in the two years since his appointment, his substantial contribution period the Committee believes that it is important to allow David Potts
to the business in this time of transition, and current positioning against time to assess the business and provide his input into the formation of
market data. The Committee determined that it was appropriate to the long term business plan under his leadership. We therefore intend to
increase his salary with effect from 2 February 2015 to £525,000, wait until the outcome of this process before setting targets for the 2015
representing an increase of 7%. The Committee believes that further award, and we will revert to shareholders at this time. We expect this
increases may be required to appropriately reflect his progress and to be by the time of the interim results announcement in September.
contribution but prefers for such increases to be staged over time.
Chairman and Non−Executive Director fees
Benefits and pension
Base fees and fees for Committee chairmanship and membership
The Executive Directors will receive benefits and a pension are unchanged for 2015/16 at £60,000, £20,000 and £4,000 (per
salary supplement in line with the current Policy. David Potts and Committee) respectively. The fee for the Senior Independent Director
Trevor Strain receive a pension salary supplement of 25% and 24% is also unchanged at £20,000. Andrew Higginson joined the Board as
of base salary, respectively. Deputy Chairman and Chairman Elect in October 2014 with a base fee
David Potts will receive relocation benefits to support his immediate of £200,000. On succeeding Sir Ian Gibson as Chairman, his base fee
start with the business following appointment. became £400,000.
Annual bonus

The structure of the bonus, including maximum potential (200% of

salary) and the requirement to defer 50% of any bonus in shares under
the DSBP, is in line with Directors’ remuneration policy (extract set out
on page 51).
The performance measures and weightings for the Executive Directors
are as follows:
Weightings
(% of maximum bonus opportunity)

Underlying profit before tax 50%

Strategic scorecard 30%
Personal objectives 20%

Underlying profit before tax targets are set by reference to

internal budgets.
Scorecard measures for 2015/16 will focus on strategic objectives in
the areas of like-for-like sales growth (20%) and cost reduction (10%).
Personal objectives will underpin the strategic objectives.
Detail on the performance targets has not been disclosed as this
information is regarded by the Directors as commercially sensitive
and of value to competitors beyond the end of the performance period.
Dalton Philips will not be eligible for any bonus in respect of 2015/16.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
53

Directors’ remuneration report

Annual report on remuneration

Audited information

Strategic report
Single total figure of remuneration

The table below sets out the single total figure of remuneration and breakdown for each Director for 2014/15 and the comparative figure for 2013/14.
2014/15 2013/14
LTIP/
Annual Pension Annual restricted Pension
Salary/fees Benefits1 bonus LTIP benefits2 Total Salary/fees Benefits1 bonus share award benefits Total
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Executive Directors
D Philips 850 28 1,0105 – 213 2,101 850 26 –3 – 213 1,089
T Strain4 490 28 6025 – 118 1,238 415 23 1825 – 92 712

Governance
Non-Executive
Directors
I Gibson 4636 – – – – 463 375 2 – – – 377
A Higginson7 94 – – – – 94 – – – – – –
P Cox 108 – – – – 108 99 – – – – 99
R Gillingwater 76 – – – – 76 668 – – – – 66
P Hughes 92 – – – – 92 85 – – – – 85
J Waterous 92 – – – – 92 88 – – – – 88
1
Taxable benefits for the Executive Directors include a car allowance (or other car benefit), transport costs, private health provision, life assurance and, in certain cases, a
telephone allowance. The Executive Directors are eligible for an allowance towards the cost of independent financial advice. The Chairman and Deputy Chairman have use
of a car and driver for Company business and receive private health provision. All Directors receive the Company’s normal staff discount entitlement which is not taxable.

Financial statements
The value of Sharesave awards granted in 2014/15 is also included in this figure.
2
D Philips received a salary supplement equal to 25% of base salary during the year. T Strain received a salary supplement of 24% of base salary during the year.
3
D Philips declined to be considered for an annual bonus in 2013/14.
4
T Strain was appointed to the Board on 10 April 2013. The comparative figures disclosed for 2013/14 for salary, taxable benefits, annual bonus and pension benefits are
for the period following appointment to the Board.
5
50% of the annual bonus is deferred in shares for a period of three years. There are no performance conditions attached. For D Philips, the 2014/15 bonus was paid in cash.
6
Sir Ian Gibson stepped down at the Board meeting on 22 January 2015. The figure disclosed includes a payment in lieu of notice of 3 months (£93,750) payable under his
letter of appointment dated 30 September 2010. During this period, Sir Ian Gibson agreed to be available to carry out activities on behalf of the Group.
7
A Higginson was appointed to the Board on 1 October 2014. The figure disclosed includes fees in respect of his induction period (including legal costs) which commenced
on 1 September 2014.
8
R Gillingwater was appointed to the Board on 1 March 2013. The figure disclosed for 2013/14 for salary is for the period following appointment to the Board.

CEO arrangements on loss of office

Dalton Philips stepped down as CEO on 16 February 2015.

Dalton’s notice period commenced on 13 January 2015 and he was paid his normal base salary and contractual benefits up to the date of cessation on
16 February 2015. In accordance with his contractual entitlements, Dalton will receive phased payments in lieu of base salary, pension supplement and
benefits for the remainder of his 12 month notice period. These payments are being made in instalments and are subject to mitigation.
The Remuneration Committee carefully considered the circumstances of Dalton’s departure, taking into account his contribution to the business
through a period of significant industry change, as well as the importance of ensuring a smooth transition. Against that background, the Committee
agreed to exercise its discretion to treat Dalton as a good leaver for the purposes of his incentive awards in accordance with the remuneration policy
approved by shareholders at the 2014 AGM. As a good leaver, the Committee agreed that:
• Dalton would remain eligible for an annual bonus in respect of 2014/15. Performance against the applicable performance conditions is set out
on page 51.
• Dalton will not be eligible for a bonus in respect of 2015/16.
• Dalton’s 237,592 deferred shares (including dividend equivalents) will vest in full in March 2015 in accordance with the rules of the DSPB.
These relate to his annual bonus in respect of 2011/12.
• The unvested LTIP awards granted to Dalton in 2013 and 2014 will vest on the normal vesting date (three years from the date of grant) subject to
achievement of the applicable performance conditions and a time pro-rata reduction. The maximum number of shares under award after reduction
for time pro-rating are 2013: 550,999 and 2014: 269,696. As noted elsewhere in this report, the performance conditions for the 2012 award were not
met and this award therefore lapsed.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
54

Directors’ remuneration report

Annual report on remuneration continued

Annual bonus

The chart below summarises the performance measures and weightings for the annual bonus for the Executive Directors in respect of 2014/15.
A summary of performance in each area and bars which illustrate the performance against the performance ranges are also provided for
each measure.
Performance in the range % of max achieved
Weighting Below Threshold Target Maximum CEO CFO

Underlying PBT 60% 60%

Strategic scorecard 20%

– Convenience 2.5% 0%
– Online 2.5% 50%
– Operating cash-flow 5% 100%
– Cost savings 5% 40%
– Like-for-like sales 5% 24%

Personal 20% 70% 80%

Total (% of max) 60% 62%

Additional commentary on this performance is provided below:

• Underlying PBT. The target range was built around the objectives which the business set and communicated at the start of the year.
Performance was at the target level.
• Strategic scorecard. For 2014/15, the strategic scorecard focused on delivery against key elements of the strategy for the year, with targets set in
the context of the strategic plan and the current retail environment, and included both financial and operational elements. Further discussion of
performance in these areas is set out on pages 10 to 20 of the Annual report. Key highlights include: operating cash flow which delivered strong
performance above the maximum target set, good progress on cost savings initiatives and on target operational achievement in the roll out of
online capability. Performance in convenience was below expectations resulting in no payout for this element.
• Personal. The personal measures are specific to the individual and were designed to support the delivery of our key financial and
strategic objectives.
The Directors consider the specific details of the performance targets to contain commercially sensitive information linked to the Company’s strategic
priorities and internal budgets, which would be potentially valuable to competitors beyond the end of the financial year. The disclosure of such
information could therefore damage the Company’s competitive position and shareholder value and is therefore not considered appropriate.
50% of any bonus payable is deferred in shares under the DSBP which vest three years after the date of award. Dividend equivalents will accrue and be
paid on the shares that vest. These deferred shares are normally forfeited if the individual leaves the Company before they vest. Dalton Philips’ bonus
for 2014/15 was paid in cash under the terms of his settlement agreement.
LTIP awards

Awards granted under the LTIP in April 2012 are scheduled to vest in April 2015. The performance period relating to these awards ends
on 1 February 2015. Details of the performance conditions and the extent to which they have been satisfied are set out below:
Actual LTIP vesting
Weighting Threshold performance required Maximum performance required1 Actual outcome (% of maximum)

Performance condition
Underlying earnings 75% EPS growth EPS growth EPS growth below 0%
per share (EPS) growth of RPI +4% p.a. of RPI +10% p.a.1 threshold of RPI +4% p.a.
Like-for-like non-fuel sales 25% Matching IGD Outperformance of IGD Below IGD index over 0%
relative to the Institute index over the index by at least 2% over three year period
of Grocery Distribution three year period the three year period3
(IGD) index2
LTIP vesting (% of maximum) 0%
1
Vesting is on a straight-line basis between points (RPI + 4%, 5%, 9% and 12%).
2
No award can vest under the like-for-like sales element unless the threshold EPS target has been met.
3
Vesting is on a straight-line basis between threshold and maximum.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
55

Share awards granted in 2014/15

Strategic report
The table below sets out the share awards made to the Executive Directors during 2014/15 under the Company’s LTIP. No further awards were made
during the year.
Percentage of award
Basis on which Face value vesting at threshold Performance Performance
Grant date Award type award made of award (£)1 performance period end date conditions

D Philips 20 June 2014 Conditional award 225% of salary 1,912,500 25% 31 January 2016 See table below
T Strain 20 June 2014 Conditional award 225% of salary 1,101,600 25% 31 January 2016 See table below
1
The face value in the table above has been calculated by multiplying the maximum number of shares that could vest by the average share price used to determine the number of shares awarded. The average share price
used was £1.909 and this was calculated over a period of five business days prior to the date of grant.

The table below sets out the performance conditions attached to the awards made during the year. These awards were granted in June 2014 following
shareholder approval of remuneration policy at the 2014 AGM.

Governance
Measure Weighting (% of maximum award) Targets

Cumulative free cash flow 50% 25% of the free cash flow element vests for achieving cumulative
free cash flow of £1bn over the three year performance period
100% vests for achieving cumulative free cash flow of £2bn over
the three year performance period1
Underlying earnings per share (EPS) 30% 25% of the underlying EPS element vests for achieving underlying
EPS of 17p for the financial year 2016/17
100% vests for achieving underlying EPS of 23p for the financial
year 2016/171
Total sales (excluding fuel and VAT) 20% 25% of the total sales element vests for achieving total sales of £14bn

Financial statements
for the financial year 2016/17
50% vests for achieving total sales of £14.4bn for the financial
year 2016/17
100% vests for achieving total sales of £15bn for the financial
year 2016/172
1
Vesting is on a straight-line basis between threshold and maximum.
2
Vesting is on a straight-line basis between points.

The Committee will take account of the Group’s ROCE over the performance period. If the Committee is not satisfied with ROCE performance
over the period it will retain discretion to adjust outcomes downward.
For the free cash flow measure, the Committee has set maximum and minimum ‘guardrails’ for maintenance expenditure and cumulative net
proceeds from property sales over the performance period. When considering vesting against the free cash flow measure, the Committee will review
and adjust as appropriate in the event of operation outside the agreed parameters. The Committee will disclose these parameters and any decision
taken to adjust outcomes retrospectively in the relevant Annual report on remuneration. It should be noted that decisions in relation to material
property sales and expenditure on maintenance and infrastructure are taken by the Board as a whole.
For the revenue targets, as set out in the Directors’ Remuneration Policy, the Committee will retain the discretion to adjust the targets in the event
of material disposals or store closures during the performance period which were not taken into account in setting the target range.
The Committee has discretion to adjust these calculations for material exceptional events or actions (which may include strategic changes to capital
expenditure approved by the Board and material acquisitions or disposals) which were not in the contemplation of the Committee at the time the
targets were set and which might otherwise materially distort the outcome, in order to ensure that vesting of the LTIP is an accurate and fair reflection
of performance. If the Committee exercises its discretion to amend the calculation, a full disclosure of the reason for the amendment and an
explanation of the impact will be given in the relevant Annual report on remuneration.
Payments to past Directors and loss of office payments

Sir Ian Gibson received a payment of £93,750 in lieu of notice of three months payable under his letter of appointment dated 30 September 2010.
During this period, Sir Ian Gibson agreed to be available to carry out activities on behalf of the Group. No other payments (including loss of office
payments) have been made during 2014/15 to any individual who was previously a Director of the Company.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
56

Directors’ remuneration report

Annual report on remuneration continued

Statement of Directors’ shareholding

The Company has share ownership guidelines for Executive Directors of 200% of salary. Under the guidelines, Executive Directors are expected
to retain 50% of vested share awards (net of tax), including shares from the deferred element of the annual bonus, until the guideline is reached.
Shares held under the DSBP (calculated on a post-tax basis) which are subject only to a continuing service requirement will be included in assessing
the level of shareholding. The shareholding guideline should be reached within five years of appointment to the Board.
The Company has share ownership guidelines for Non-Executive Directors of 50% of base fees. This guideline should be reached within three
years of appointment to the Board or three years after the date of adoption of the policy for incumbent Directors.
Dalton Philips has fully complied with the shareholding requirement in respect of the share awards that have vested since he was appointed
in March 2010. No share awards have vested for Trevor Strain since his appointment to the Board.
Trevor Strain does not yet meet the 200% shareholding guideline but is within the five year period allowed to build up his shareholding. Dalton Philips
stepped down as CEO on 16 February 2015.
Directors’ shareholdings – Executive Directors
Shareholding
Shareholding as at Deferred shares not Share save options
requirement 1 February 20151 Shares owned subject to not subject to LTIP shares subject Total interests
(% salary) (% salary)2 outright performance performance to performance3 in shares

Executive Directors
D Philips 200% 98% 337,919 237,592 5,487 1,836,2514 2,417,249
T Strain 200% 26% 39,341 50,180 5,487 988,276 1,083,284
1
Includes shares held under the DSBP on an after tax basis.
2
For the purpose of calculating the shareholding as a percentage of salary, the share price of £1.799 as at 30 January 2015 (the last trading day of the financial year ended
1 February 2015) has been used (other than for shares purchased in the market which are valued at the acquisition price).
3
834,523 shares and 411,281 shares represent LTIP awards granted to D Philips and T Strain respectively in April 2013 which are due to vest in April 2016. 75% of the awards are
linked to underlying earnings per share (EPS) growth targets (25% of this element vests at growth of RPI +1% p.a. and 100% vests at growth of RPI +10% p.a.). 25% of the awards
are linked to like-for-like non-fuel sales relative to the Institute of Grocery Distribution (IGD) index (25% of this element vests for matching the index; 80% vests for outperforming
the index by at least 0.8% and 100% vests for outperforming the index by at least 2% over the three year period). Vesting is on a straight-line basis between each of the points.
No award can vest under the like-for-like sales element unless the threshold EPS target has been met. 1,001,728 shares and 576,995 shares represent LTIP awards granted to
D Philips and T Strain respectively in June 2014 which are due to vest in June 2017. Performance targets for those awards are disclosed in the section headed ‘Share awards
granted in 2014/15’.
4
Following his departure on 16 February 2015, the remaining LTIP shares subject to performance for Dalton Philips are 820,695 as at 11 March 2015.

Directors’ shareholdings – Non−Executive Directors

All Non-Executive Directors are still within the three year period allowed to build up their shareholding. Shareholdings as at 1 February 2015 are set
out in the table below.

1 February 2015
Total (owned outright)

P Cox 25,000
A Higginson 266,209
I Gibson1 127,750
R Gillingwater 19,695
P Hughes 9,848
J Waterous 20,216
1
Sir Ian Gibson retired on 22 January 2015. The shareholding shown is as at that date.

There have been no changes in the Directors’ interests since the year end.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
57

Unaudited information

Strategic report
Performance graph and table Change in remuneration of CEO compared to Group employees

The graph below shows the Company’s total shareholder return (TSR) The table below sets out the change in total remuneration paid to the
compared with the TSR of the FTSE 100 and FTSE food and drug CEO from 2013/14 to 2014/15 and the average percentage change from
retailers indices over the six year period to 1 February 2015. These indices 2013/14 to 2014/15 for employees of the Group as a whole.
have been selected as being appropriate in giving a broad equity view
% increase in element between 2013/14 and 2014/15
and the Company is a constituent of both indices.
Salary and fees Taxable benefits Annual bonus

Value of a £100 holding D Philips 0% 0% n/a1

FTSE 100 Morrisons All Group
£
FTSE all share food and drug retailers employees2 2% 2% 130%3

Governance
250 1
D Philips declined to be considered for an annual bonus in 2013/14.
2
Reflects the change in average pay for all Group employees employed
200
in both the financial year 2013/14 and the financial year 2014/15.
3
150 Represents the increase in the average bonus payout for eligible employees.

100 Relative importance of spend on pay

50 The table below sets out the total spend on remuneration in the 2014/15
0
and 2013/14 financial years compared with distributions to shareholders.
2009 2010 2011 2012 2013 2014 2015 (£m) 2014/15 2013/14 Difference

Total spend on £1,970m £1,972m (£2m)

The table below sets out the total remuneration figure for the CEO over remuneration for all

Financial statements
the same six year period, valued using the methodology applied to the Group employees
single total figure of remuneration.
Profit distributed by £308m £336m (£28m)
Chief way of dividends and
Executive 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
share buyback
Total Dalton
remuneration Philips – 3,3281 2,502 1,089 1,089 2,101 The Committee and its advisers
(£000s) Marc
Bolland 1,159 304 – – – – During the year, the following individuals were members of the
Remuneration Committee:
Annual bonus Dalton
payment (% Philips – 70% 90% 0% 0% 60% Membership
of maximum Marc From To
opportunity) Bolland 0%2 – – – – – Name of Director
LTIP vesting Dalton J Waterous (Chairman) 1 Feb 2010 To date
level achieved Philips – – – 0% 0% 0% P Cox 1 Apr 2009 To date
(% of maximum Marc
I Gibson 1 Sept 2007 To date
opportunity) Bolland – – – – – –
R Gillingwater 1 Mar 2013 To date
1
Total remuneration includes value of unrestricted share award over 319,401 shares
and restricted share award over 120,965 shares granted on recruitment.
A Higginson 22 Jan 2015 To date
2
Marc Bolland was not treated as a good leaver and therefore did not receive P Hughes 1 Jan 2010 To date
a bonus in 2009/10.
The CEO, the Group Human Resources Director and other HR
representatives also attend meetings (other than where their own
remuneration is being discussed) by invitation. The Company
Secretary acts as secretary to the Committee.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
58

Directors’ remuneration report

Annual report on remuneration continued

PricewaterhouseCoopers LLP (PwC) stepped down as advisers to the Statement of voting at 2014 AGM
Committee following the decision to appoint them as auditor to the
Group. Total fees for advice provided to the Committee during 2014/15 The table below shows the voting outcome at the June 2014 AGM for
prior to them stepping down were £28,400. approval of the 2013/14 Remuneration report and Remuneration
policy respectively.
Following a competitive tender process, the Committee appointed
Deloitte LLP (Deloitte) in July 2014 to provide independent external For as a % Against
of votes Votes as a % of
advice on market practice and Executive and Non-Executive Votes for cast against votes cast Abstentions
remuneration. Fees are agreed by the Committee according to services Remuneration 1,381,444,825 89.10 169,058,218 10.90 40,652,834
provided. Total fees paid during 2014/15 to Deloitte for advice and report
assistance in relation to remuneration matters were £79,250.
Remuneration 1,142,938,356 73.46 412,940,651 26.54 35,276,870
Deloitte are also engaged from time-to-time to provide a range of policy
unrelated human resource consulting services and advice on tax and
accounting. The Chairman of the Committee monitors such The Committee recognises that Morrisons has a diverse mix of
engagements on an ongoing basis to ensure that there is no impact on shareholders who can have different views on a range of issues, including
Deloitte’s independence as adviser to the Committee. Deloitte and PwC executive remuneration. In advance of the approval of the remuneration
are members of the Remuneration Consultants Group and signatories to policy at the 2014 AGM, the Committee consulted widely with
its Voluntary Code of Conduct. The Committee is satisfied that the advice institutional shareholders and investor representative bodies and
received during the year from both PwC and Deloitte is objective received broad support from those consulted. While the level of support
and independent. for the Remuneration Policy indicates some shareholder concerns, the
Committee also notes that the majority of Morrisons top 20 shareholders
Allen & Overy LLP provided legal advice to the Committee on the
voted in favour of the Policy. Where shareholders vote against our
leaving arrangements for the Chairman and CEO. Fees paid for this
remuneration resolutions, the Committee is committed to listening to
advice during 2014/15 totalled £14,080.
them and engaging with them to understand their concerns as part of
Allen & Overy LLP also provide other legal advice and services to an ongoing dialogue.
the Group.
Johanna Waterous
Chairman of the Remuneration Committee
11 March 2015
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
59

Directors’ report
Statutory disclosures

The following disclosures have been included elsewhere within Substantial shareholdings

Strategic report
the Annual report and are incorporated into the Directors’ report
by reference. The company has been notified by the following shareholders (excluding
Directors) that they have interests in 3% or more of the total voting rights
Disclosure Page in the Company. The shares relate to the number informed by the
shareholders on the notification rather than the current share register:
Financial instruments 103 to 104
Financial risk management 103 As at 1 February 2015 As at 11 March 2015
Future developments 2 to 33 Number of % of share Number of % of share
shares capital shares capital
Dividend 82
Black Rock Inc 122,022,032 5.23 122,022,032 5.23
Greenhouse gas emissions 25
Schroeders plc 119,757,406 5.13 119,757,406 5.13
Corporate governance report 36 to 46
Majedie Asset

Governance
Directors of the Company 37 Management Limited 118,752,647 5.09 118,752,647 5.09
Employee involvement 22 to 23 Silchester International
Going concern 44 Investors LLP 117,553,329 5.04 117,553,329 5.04
Brandes Investment
Partners, LP 117,121,738 5.02 117,121,738 5.02
Political donations Amerprise
No political donations were made, which is Group policy. Financial Inc 116,763,649 5.00 116,763,649 5.00
First Eagle Investment
Management, LLC 114,296,273 4.90 114,296,273 4.90
Forward−looking statements
Invesco Limited 111,082,524 4.76 111,082,524 4.76
The Strategic report and Directors’ report are prepared for the members Andrea Shelley 92,869,309 3.98 92,869,309 3.98

Financial statements
of the Company and should not be relied upon by any other party or for Eleanor Kernighan 92,182,396 3.95 92,182,396 3.95
any other purpose. Where the Strategic report and Directors’ report
include forward-looking statements, these are made by the Directors in Zurich Financial
good faith based on the information available to them at the time of their Services 81,286,130 3.48 81,286,130 3.48
approval of the Annual report. The percentage appearing above is the percentage that number
Consequently, such statements should be treated with caution due to represents of the issued share capital of the Company as at 1 February
the inherent uncertainties, including both economic and business risk 2015 and 11 March 2015 respectively.
factors, underlying such forward-looking statements and information.
The liabilities of the Directors in connection with the Strategic report, the Additional shareholder information
Directors’ remuneration report and the Directors’ report shall be subject
to the limitations and restrictions provided by the Companies Act 2006. Additional information for shareholders is required by the
implementation of the EU Takeover Directive into UK law.

Borrowing powers Pursuant to section 992 of the Companies Act 2006, the Company is
required to disclose certain additional information. Such disclosures,
The Articles of Association of the Company restrict the borrowings which are not covered elsewhere in this report, include the following
of the Company and its subsidiary undertakings to a maximum paragraphs. The disclosures set out below are in some cases a summary
amount equal to twice the share capital and consolidated reserves. of the relevant provisions of the Company’s Articles of Association
and the relevant full provisions can be found in the Articles which
are available for inspection at the Company’s registered office.
Relating to beneficial owners of shares with
‘information rights’ Appointment and powers of Directors

Beneficial owners of shares who have been nominated by the registered Directors are appointed by ordinary resolution at a general meeting
holder of those shares to receive information rights under section 146 of ordinary shareholders. The Directors have the power to appoint a
of the Companies Act 2006 are required to direct all communications Director during the year, but any person so appointed must be put up
to the registered holder of their shares rather than to the Company’s for appointment at the next AGM.
registrar, Capita Registrars, or to the Group directly. Subject to its Articles of Association and relevant statutory law, and to
such direction as may be given by the Company in general meeting by
Directors’ and Officers’ liability insurance special resolution, the business of the Company shall be managed by the
Directors, who may exercise all powers of the Company which are not
The Company maintains insurance cover for the protection of Directors required to be exercised by the Company in general meeting.
and senior management from personal liabilities and costs which may
arise in the course of fulfilling their duties. The Company also agreed
during the year to provide an indemnity to the Non-Executive Directors
for such liabilities and costs to the fullest extent permitted by law.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Governance
60

Directors’ report
Statutory disclosures continued

Articles of Association Distributions

The Company’s Articles of Association may only be amended by As noted in the Annual report and financial statements for the year ended
a special resolution at a general meeting of shareholders. 2 February 2014, the Directors were advised that certain distributions
(including share repurchases) carried out in the years ended 3 February
Share capital 2013 and 2 February 2014 were made otherwise than in accordance with
the Companies Act 2006. At a general meeting of the Company’s
The authorised and called-up share capital of the Company, together shareholders, held on 6 March 2015, a resolution was passed which
with details of shares allotted and cancelled during the year, are shown ratified the payment of the relevant dividends, authorised the re-execution
in note 6.5 of the Group financial statements. of the relevant share repurchases and removed any right for the Company
to pursue shareholders or Directors for the repayment of the relevant
At the AGM of the Company held in June 2012, a special resolution was
funds. The overall effect of this resolution being passed is to return all
passed to renew the authority given at the AGM held in June 2011 for the
parties to the position that they would have been in had the relevant
purchase by the Company of up to 248,797,066 ordinary shares distributions been made in accordance with the Companies Act 2006.
representing approximately 10% of the issued ordinary share capital at
that time. During the prior period, the Company purchased 20,338,000 Other disclosures
of its own shares pursuant to that authority, which expired at the close of
the 2013 AGM. The Company is not party to any significant arrangements which take
effect, alter or terminate upon a change of control of the Company
During the period, 41,962 (2014: 8,811,865) ordinary shares were
following a takeover bid.
issued to employees exercising share options, along with a further nil
(2014: 2,770,220) out of the Group’s treasury shares and 3,031,234 The Company does not have any employee share schemes where the
out of the Group’s trust shares. shares to which the scheme relates have rights with regard to the control
of the Company which are not exercisable by employees.
Share capital and rights attaching to the Company’s shares
Equal opportunities for all
Under the Company’s Articles of Association, any share in the Company
may be issued with such rights or restrictions, whether in regard to Integral to a high performing culture is the concept of equal opportunity
dividend, voting, return of capital or otherwise as the Company may from for all colleagues, which we offer regardless of race, colour, nationality,
time-to-time by ordinary resolution determine (or, in the absence of any ethnic origin, gender (including gender reassignment), marital or civil
such determination, as the Directors may determine). partnership status, disability, religion or belief, sexual orientation, age
or trade union membership.
At a general meeting of the Company, every member has one vote on a
show of hands and, on a poll, one vote for each share held. The notice of This includes applications for employment made by people with disabilities,
general meeting specifies deadlines for exercising voting rights either which are given full and fair consideration. Respect underpins our
by proxy or present in person in relation to resolutions to be passed at behaviour towards all disabled candidates, as well as colleagues who
a general meeting. have a disability or become disabled in any way during the course of
their employment.
No member is, unless the Board decides otherwise, entitled to attend
or vote either personally or by proxy at a general meeting, or to exercise A full assessment of the individual’s needs is undertaken and we will
any other right conferred by being a shareholder if they or any person make reasonable adjustments to the work environment or practices in
with an interest in shares has been sent a notice under section 793 of the order to help people with disabilities.
Companies Act 2006 (which confers upon public companies the power All candidates and colleagues are treated equally in respect of recruitment,
to require information with respect to interests in their voting shares) promotion, training, pay and other employment policies and conditions.
and they or any interested person failed to supply the Company with The decisions we make are based on relevant merits and abilities.
the information requested within 14 days after delivery of that notice.
The Board may also decide that no dividend is payable in respect of those Health and safety policy
default shares and that no transfer of any default shares shall be registered.
These restrictions end seven days after receipt by the Company of a It is the Group’s intention, so far as is reasonably practicable, to ensure the
notice of an approved transfer of the shares or all the information required health, safety and welfare of all its employees, customers and visitors to
by the relevant section 793 notice, whichever is the earlier. its premises. In order to achieve this, a comprehensive health and safety
manual is in place for each division of the Company and subsidiary
The Directors may refuse to register any transfer of any share which is companies within the Group. Each health and safety manual contains the
not a fully paid share, although such discretion may not be exercised policy and procedures for complying with the Health and Safety at Work
in a way which the Financial Conduct Authority regards as preventing Act 1974, including the provision, based on risk assessment, of safe
dealings in the shares of the relevant class or classes from taking place working practices for all work activities across the Group. The Group’s
on an open or proper basis. The Directors may likewise refuse to health and safety policy is approved by the Management Board.
register any transfer of a share in favour of more than four persons jointly. The Group has adopted the national targets set by the Health and Safety
The Company is not aware of any other restrictions on the transfer of Commission for the reduction of workplace accidents and work-related ill
shares in the Company other than certain restrictions that may from health, and is on course to meet or exceed these targets. Health and safety
time-to-time be imposed by laws and regulations (for example, insider performance is monitored to ensure continuous improvement in all areas.
trading laws). By order of the Board
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities or voting rights. Mark Amsden
Company Secretary
11 March 2015
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
61

Directors’ report
Statement of Directors’ responsibilities in respect of the
Annual report and financial statements

The Directors are responsible for preparing the Annual report, the Disclosure of information to auditors

Strategic report
Directors’ remuneration report and the Group and Company financial
statements in accordance with applicable law and regulations. The Directors who held office at the date of approval of this Directors’
report confirm that, so far as they are each aware, there is no relevant
Company law requires the Directors to prepare Group and Company audit information of which the Group’s auditor is unaware; and each
financial statements for each financial period. Under that law they are Director has taken all steps that he or she ought to have taken as a
required to prepare the Group financial statements in accordance with Director to make himself or herself aware of any relevant audit
International Financial Reporting Standards (IFRSs) as adopted by the information and to establish that the Group’s auditor is aware of
EU and applicable law and have elected to prepare the Company that information.
financial statements in accordance with UK Generally Accepted
Accounting Practice (UK Accounting Standards and applicable law).
Under Company law the Directors must not approve the financial
Assessment of whether the Annual report is fair,
statements unless they are satisfied that they give a true and fair view balanced and understandable

Governance
of the state of affairs of the Group and Company and of their profit or loss
As required by the Code, the Directors confirm that they consider that
for that period. In preparing each of the Group and Company financial
the Annual report, taken as a whole, is fair, balanced and understandable
statements, the Directors are required to:
and provides the information necessary for shareholders to assess the
• select suitable accounting policies and then apply them consistently; Company’s performance, business model and strategy.
• make judgements and estimates that are reasonable and prudent; When arriving at this position the Board was assisted by a number of
• for the Group financial statements, state whether they have processes including the following:
been prepared in accordance with IFRSs as adopted by the EU;
• the Annual report is drafted by appropriate senior management with
• for the Company financial statements, state whether overall coordination by the Chief Financial Officer to ensure
applicable UK Accounting Standards have been followed, subject consistency across sections;
to any material departures disclosed and explained in the Company
• an extensive verification process is undertaken to ensure factual
financial statements; and
accuracy; and

Financial statements
• prepare the financial statements on the going concern basis
• comprehensive reviews of drafts of the report are undertaken by
unless it is inappropriate to presume that the Group and the Company
members of the Management Board and other senior management;
will continue in business.
and the final draft is reviewed by the Audit Committee prior to
The Directors are responsible for keeping adequate accounting records consideration by the Board.
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that its financial Responsibility statement
statements and Directors’ remuneration report comply with the We confirm that to the best of our knowledge:
Companies Act 2006, and as regards the Group financial statements,
Article 4 of the IAS Regulations. They are also responsible for • the financial statements, prepared in accordance with the applicable
safeguarding the assets of the Company and the Group and hence for set of accounting standards, give a true and fair view of the assets,
taking reasonable steps for the prevention and detection of fraud and liabilities, financial position and profit or loss of the Company and its
other irregularities. subsidiaries included in the consolidation as a whole; and
The Directors are responsible for the maintenance and integrity of the • the Strategic report includes a fair review of the development of the
corporate and financial information included on the Company’s website. business and the position of the Company and its subsidiaries included
Legislation in the UK governing the preparation and dissemination of in the consolidation taken as a whole, together with a description of the
financial statements may differ from legislation in other jurisdictions. principal risks and uncertainties that they face.
By order of the Board

Mark Amsden
Company Secretary
11 March 2015
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62

Independent auditors’ report to the members

of Wm Morrison Supermarkets PLC

Report on the Group financial statements

Our opinion

In our opinion:
• Wm Morrison Supermarkets PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 1 February 2015 and of the Group’s loss and cash flows for the 52 week period
then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
What we have audited

Wm Morrison Supermarket PLC’s financial statements comprise:

• the consolidated and Company balance sheet as at 1 February 2015;
• the consolidated statement of comprehensive income for the 52 week period then ended;
• the consolidated cash flow statement for the 52 week period then ended;
• the consolidated statement of changes in equity for the 52 week period then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Financial Statements (“Annual Report”), rather than in the
notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted
by the European Union. The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable
law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
Our audit approach

Overview Materiality
• Overall Group materiality: £17.25m which represents 5% of underlying profit before tax. Underlying profit
before tax is defined in note 1.4 to the financial statements on page 78.

Audit scope
Materiality
• We conducted the majority of our audit work in the UK, with a small amount of work undertaken by
a component auditor in the Isle of Man. A separate PwC component audit team undertook work on
the UK Manufacturing subsidiaries.
• Taken together, the territories and functions where we performed our audit work accounted for 99%
Audit scope of Group revenues.

Areas of focus
• Commercial income and promotional funding
Areas of • Impairment of property, plant and equipment
focus • Onerous lease provisions and onerous property commitments
• Capitalisation and impairment of intangible assets
• Stock valuation
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The scope of our audit and areas of focus

Strategic report
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we
looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of
internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due
to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas
of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the
financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list
of all risks identified by our audit.

Governance
Area of focus How our audit addressed the area of focus

Commercial income and promotional funding Our audit work in respect of commercial income and promotional funding
comprised a combination of controls testing, substantive testing of a sample
Refer to note 1.1 (Accounting policies), page 75 (Critical of income and funding recognised during the period, testing of amounts
accounting estimates and judgements) and notes 1.6, 5.2, recognised in the balance sheet and an assessment of the Group’s disclosures
5.3 and 5.4. in this area. Each element of our work is considered in more detail below.
The Group has two categories of commercial income: Controls testing
marketing and advertising funding and volume based Our controls work encompassed understanding, evaluating and testing
rebates on purchases. management’s key controls in respect of the recognition of both commercial
Commercial income is recognised as a deduction from cost income and promotional funding. These key controls included the monitoring
of sales and is earned over the period of the contractual of invoices raised and the accuracy of confirmations from suppliers. We

Financial statements
agreements with individual suppliers, as disclosed in the found no significant deficiencies in these key controls, and our testing
Group’s accounting policy on page 76. The total income of management’s key system controls contributed to our evidence in
recognised in a year is therefore based on the expected determining whether commercial income and promotional funding had been
entitlement earned up to the balance sheet date under each recorded appropriately and in the correct period.
supplier agreement. Income statement testing
The Group separately recognises promotional funding on We requested confirmations directly from suppliers, in respect of a sample
promotions that are partially funded by suppliers. of commercial income and promotional funding. This sample included 141
Promotional funding is an automated deduction from cost different suppliers covering 342 individual transactions. The confirmations
of sales, triggered when a sale is recognised. The funding is received allowed us to evaluate whether commercial income or promotional
recognised when the transaction occurs in accordance with funding had been appropriately recognised in the period, as well as assessing
the terms of supplier agreements. The amount receivable the validity of accruals made at the period-end. We found three exceptions,
is wholly based on sales volumes achieved, multiplied by all of which were manual input errors and not areas of judgement. Two of
rates agreed with each supplier up-front. these exceptions resulted in an under recognition of promotional funding of
£34,000 and one resulted in an over recognition of promotional funding of
We focused on commercial income because of the £20,000, giving a net position of £14,000 under recognition.
significance of the amounts to the Group’s gross profit, the
significant number of transactions and agreements in place We also analysed commercial income and promotional funding recognised
with suppliers covering a range of periods and the industry- each month and compared it to the previous period to identify whether there
wide focus on this area of accounting. were any unusual trends in the amounts or timing of commercial income
and promotional funding recognised in each period. We also considered
We focused on promotional funding for the same reasons, management’s own Key Performance Indicators in this analysis. No unusual
although we acknowledge that the level of judgement and trends were identified.
subjectivity in the calculations is negligible because of the
level of automation. Balance sheet testing
We wrote to a further sample of suppliers, and obtained independent evidence
The amount to be recognised in the income statement of the value and timing of commercial income and promotional funding to
for commercial income requires management to apply evaluate that it had been recognised in the correct period. We also agreed the
judgement based on the contractual terms in place with accrued income to evidence of post-year end cash receipt, or offset from trade
each of its suppliers together with estimates of amounts the creditors, where relevant.
Group is entitled to where transactions span the financial
period-end. We performed cut-off procedures and credit note testing to provide further
evidence to support the timing of the recognition of both commercial
The relative level of judgement in each of the categories income and promotional funding. Cut-off work involved testing a sample of
of commercial income and promotional funding is commercial income and promotional funding recognised both pre and post
considered below: the period-end and evaluating by reference to documentation from suppliers
that the timing of recognition was appropriate.
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Independent auditors’ report to the members of

Wm Morrison Supermarkets PLC continued

Area of focus How our audit addressed the area of focus

Commercial income − marketing and Our credit note testing focused on credit notes raised after the period-end in
advertising funding order to identify any instances of commercial income or promotional funding
This income is varied with regards to the nature and timing being subsequently reversed. We did not identify any exceptions from this work.
of the activity to which it relates, and is recognised in
accordance with written agreements with suppliers. We tested the recoverability of invoiced commercial income and promotional
This income involves a significant number of agreements funding (unsettled balances included within trade debtors in note 5.3 to the
and its recognition requires limited judgement or financial statements and where the Group does not have the right of offset
estimation by management in determining the amount against trade creditors). We assessed the ageing of both outstanding commercial
that the Group is entitled to. Our focus was therefore on income and promotional funding debtors together with understanding the
assessing whether a written agreement for the marketing details of any disputes, and obtained explanations from management to assess
and advertising funding existed, whether the relevant whether any provisions were appropriate. No exceptions were noted.
marketing or advertising had taken place and whether the Disclosures
income recognised was recorded in the appropriate period. We read the disclosures within the Annual Report in respect of commercial
Commercial income − volume based rebates income and promotional funding and, based on our work, determined that
Volume based rebates are driven by the Group achieving they are consistent with accounting standards and the recent guidance on
purchase volume targets set by individual suppliers for the reporting of complex supplier arrangements issued by the Financial
specific products over a pre-determined period. There is Reporting Council.
therefore judgement involved in estimating the volume of
purchases, particularly where rebate agreements span a
financial period-end. In order to narrow this judgement,
management endeavours to structure agreements to
coincide with the Group’s financial period-end, thereby
reducing or eliminating the degree of estimation.
In instances where the rebate agreement does not fully
coincide with the period-end the key judgement that we
focused on was the estimate of commercial income to be
accrued at the period-end.
Promotional funding
Promotional funding covers in-store promotions which are
partially funded by suppliers. Funding is automatically
recognised as goods are sold. The degree of judgement is
limited because the amount receivable is wholly based on
sales volumes achieved, multiplied by rates agreed with
each supplier up-front. Our focus was therefore on whether
a written agreement for the promotional funding existed,
whether the relevant promotion had taken place, and
whether the funding recognised was recorded in the
appropriate period.

Impairment of Property, Plant and Equipment We obtained, understood and evaluated management’s impairment models.

Refer to note 3.1 (Accounting policies), page 75 Our audit procedures included a detailed evaluation of the Group’s budgeting
(Critical accounting estimates and judgements) and procedures (upon which forecasts are based) and an assessment of the principles
note 3.3 (Tangible assets). of management’s discounted cash flow models. We tested the mathematical
accuracy of the calculations derived from each forecast model and assessed key
At 1 February 2015 management assessed the Group’s inputs in the calculations such as revenue growth and discount rate, by reference
property, plant and equipment for an indication of to management’s forecasts, data external to the Group and our own expertise.
impairment. The UK grocery retail market continues to We focused on these key assumptions because small subjective changes can
evolve rapidly, with customers’ purchasing habits adapting have a material impact on the value in use assessment and any resultant
to include convenience store and online offerings, and this impairment charge. We found, based on our audit work, that the key
has adversely impacted the market values of traditional assumptions used by management were supportable and appropriate
supermarket freehold stores. As such, the Group has faced in light of the current environment.
an environment where market values for retail space
have declined.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
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Strategic report
Area of focus How our audit addressed the area of focus

Management considers each store to be a cash generating Management has determined their own view of estimated rental values and
unit (“CGU”) and has calculated the recoverable amount of yields for each store which are the key assumptions used in their calculation of
each CGU as the higher of value in use and fair value less market values. Management derived these assumptions having considered
costs of disposal. The value in use is based on discounted available information such as industry data on market conditions, offers recently
future cash flow forecasts over which the Directors make received for properties and information from an independent third party valuer.
judgements on certain key inputs including, for example, We evaluated management’s supporting information, including the third party
discount rates and long term growth rates. The fair value valuation, and assessed this for reasonableness using our own property
less costs of disposal is estimated by the Directors based expertise, with a particular focus on the assumptions and methodology used and
on their knowledge of individual stores and the markets obtained third party evidence and market data to corroborate the assumptions.
they serve, likely demand from grocers or other retailers in We determined that the valuations performed by management are reasonable.
the event those stores were for sale and is further informed
by a valuation performed by a third party valuer. The We note that models used by management are sensitive to changes in key

Governance
key judgements made by management in this fair value assumptions such as rental values and yields, revenue growth and discount rate
calculation relate to the estimated rental values and the which, if not achieved, could reasonably be expected to give rise to further
yields of the stores. impairment charges in the future.
We focused on this area because of these judgemental We also evaluated the competency, qualifications, experience and objectivity
factors, the significant carrying value of freehold property of management’s property valuation experts.
and the size of management’s impairment charge of In addition, we evaluated the adequacy of the disclosures made in note 3.3 of
£1,113m in the year. the financial statements, including those regarding the key assumptions and
sensitivities to changes in such assumptions. We compared the disclosures
against the requirements of IAS 36 ‘Impairment of assets’ and found them to
be consistent.

Onerous lease provisions and onerous Having considered the possibility of impairment in the value of freehold

Financial statements
property commitments properties (see above), we also challenged management’s calculations in respect
of leasehold stores where the estimated future benefits are not expected to
Refer to note 5.1 (Accounting policies), page 75 (Critical exceed the future lease commitments, resulting in an onerous lease.
accounting estimates and judgements) and note 5.5.
We obtained management’s models and considered the accuracy and
Accounting standards require management to assess the completeness of key data by agreeing inputs such as store locations and lease
Group’s leasehold stores to identify where the expected expiry dates for a sample of stores to the original signed lease agreements,
future benefits from a store are less than the future lease noting no issues.
commitments, indicating that an onerous lease provision
is required. Under IAS 37 ‘Provisions, contingent liabilities We evaluated the Group’s budgeting procedures (upon which forecasts are
and contingent assets’ such a provision is made for the based) and assessed the principles of the Group’s discounted cash flow model.
unavoidable costs of the contract, defined in the standard We tested the mathematical accuracy of the calculation derived from each
as the “least net cost of exit.” forecast model and assessed key inputs in the calculations such as revenue
We focused on this area because of the judgements growth and discount rate, by reference to management’s forecasts, data external
required to be made by management in identifying to the Group and our own expertise. The discount rate used is consistent with the
those stores requiring an onerous lease provision and Group’s cost of debt and the requirements of IAS 37, which specifies that the rate
the assumptions used in the models, such as the discount should be ‘liability specific’.
rate and those used in developing the associated cash We also considered the disclosures made in note 5.5 to the financial statements
flow forecasts. and determined that they are consistent with the requirements
of accounting standards.
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Independent auditors’ report to the members of

Wm Morrison Supermarkets PLC continued

Area of focus How our audit addressed the area of focus

Capitalisation and impairment We obtained a breakdown of each individual internal development project
of intangible assets capitalised in the period and reconciled this to the amounts recorded in the
general ledger, identifying no significant reconciling differences.
Refer to note 3.2 (Accounting policies) and page 75 We tested a sample of costs capitalised in the period to assess whether these
(Critical accounting estimates and judgements). had been appropriately treated in line with the Group’s accounting policy
The Group balance sheet includes capitalised intangible and accounting standards, most notably IAS 38 ‘Intangible assets’. We also
assets of £520 million, of which £496 million relates to met with management responsible for particular costs to obtain explanations
software development costs incurred in connection with and an understanding of the projects the costs related to. This enabled us to
the Group’s IT systems transformation project, details of independently assess whether project costs met the criteria for capitalisation
which are shown on page 87 of the Annual Report. The as set out in accounting standards. We found the explanations obtained from
Group has developed a significant amount of its own management to be consistent with our understanding of developments in
software and systems which is used in the business. the business and supported management’s assessment that the costs met the
We focused on this area because of the significance of relevant capitalisation criteria.
the costs capitalised and the fact that there is judgement Where external third party contractors were used, we agreed the hours
involved in assessing whether the criteria, set out in and charge out rates to the invoices issued by the contractor, and assessed
accounting standards, required for capitalisation of such whether the costs were directly related to a capital project.
costs have been met, including the likelihood of the project To determine whether internal employee costs were directly attributable
delivering sufficient future economic benefits. Where to projects, we obtained listings of hours worked on individual projects for
the costs incurred are internally generated (for example the employment costs capitalised. We selected a sample of the individual
employee costs) there is further judgement required hours recorded and obtained an understanding of the work performed by
in the calculation, such as the amount of time spent on the employee. We also checked that the hours charged equated to the value
the projects. of costs capitalised by comparing the proportion of costs capitalised to the
In light of the development of new software and systems, employee’s salary, without exception.
we also focused on whether the carrying value of existing We challenged management as to whether the development of new software
capitalised software or systems was impaired. or systems superseded or impaired any of the existing assets on the balance
sheet. We also applied our own understanding of both new and existing
projects and considered whether, in our view, any existing software is no
longer in use or whether its life had been shortened by development activity.
We found no such items. In performing this testing, we also re-visited the
assumptions made by management in the prior period and compared them
to actual outcomes in the current period, with no significant variances being
identified by our work.
We performed analytical procedures on the amortisation charge to assess
compliance with the Group’s accounting policy, and determined that the
charge incurred in the period was in-line with this policy.
Overall we found that the costs capitalised were supportable and consistent
with the requirements of accounting standards for capitalising such costs. No
material impairment of the intangible assets was identified from our work.
We also considered whether the disclosures made in note 3.2 to the financial
statements met the requirements set out in accounting standards and noted
no issues.
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Strategic report
Area of focus How our audit addressed the area of focus

Stock valuation We attended stock counts throughout the period at a sample of the Group’s
supermarkets, convenience stores, distribution centres and manufacturing
Refer to note 5.1 (Accounting policies), page 75 (Critical locations. In addition to performing sample test counts, we assessed the
accounting estimates and judgements) and note 5.2. effectiveness of the count controls in operation at each site. We also evaluated
The valuation of stock was focused on because of the the results of other cycle counts performed by management and third parties
nature of the judgements made by management when throughout the period to assess the level of count variances.
assessing the level of provisions required. As disclosed We tested the shrinkage assumptions determined by the count procedures by
in note 5.1 to the financial statements, provisions are held comparing them to historical data. The historical data included the results of the
against stock for estimated losses related to shrinkage last three counts at each location, and our analytical procedures did not identify
and obsolescence as well as a deduction for unearned any significant unusual fluctuations in the data.
commercial income (as the stock related to that commercial The obsolescence provision is calculated by applying a judgemental percentage
income and promotional income has yet to be sold).

Governance
to the period-end stock levels, with this judgement being informed by historical
As stock is counted by the Group on a cyclical basis, rather data on the levels of obsolescence as well as management’s view of the current
than in full at the period-end date, the shrinkage provision stock profile and age. We assessed this provision by assessing the accuracy of
at 1 February 2015 contains a degree of estimation. the historical data and the explanations provided by management on the current
profile, noting no issues.
We tested the unearned commercial income deduction by performing a
recalculation using the profile of period-end stock and the trends of commercial
income historically received, with no issues noted.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking

Financial statements
into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group’s accounting process is structured around a group finance function at its head office in Bradford. Within the head office, supporting finance
functions exist for each of the key business operating areas (Group, Supermarkets (including Manufacturing) and Property), and these report to the
Group finance team as appropriate. The Group also maintains local finance teams at each of its key Manufacturing sites. Other than group reporting
from a component audit team from a PwC member firm in the Isle of Man auditing specific account balances only, and from a component team from
the UK firm auditing the complete financial information of a UK Manufacturing subsidiary, both of which operated under our instructions, all work
was conducted in the UK by the same audit team. Our work also included, in this our first year as the Group’s auditors, a review of the predecessor
auditor working papers.
Where the work was performed by the component auditor, we determined the level of involvement we needed to have in their audit work to be able to
conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.
As part of our year-end audit procedures, we held detailed discussions with the Isle of Man and UK Manufacturing component audit teams, including
holding a detailed planning meeting with them and attending the audit clearance meeting with management by conference call (Isle of Man) or in
person (UK Manufacturing).
Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall group materiality £17.25m

How we determined it 5% of underlying profit before tax (defined in note 1.4 to the financial statements on page 78).
Rationale for benchmark applied We applied this benchmark because, in our view, this is the most relevant metric against which the
performance of the Group is most commonly measured.

We agreed with the Audit Committee that we would report to them all individual misstatements identified during our audit above £875,000, as well as
misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
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Independent auditors’ report to the members of

Wm Morrison Supermarkets PLC continued

Going concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 44, in relation to going concern. We have nothing to report
having performed our review.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the financial statements using the going concern
basis of accounting. The going concern basis presumes that the Group and the Company have adequate resources to remain in operation, and that the
Directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the
Directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Company’s ability to
continue as a going concern.

Other required reporting

Consistency of other information

Companies Act 2006 opinions

In our opinion:
• the information given in the Strategic Report (on pages 2 to 33) and the Directors’ Report (on pages 59 to 61) for the financial period for which the
financial statements are prepared is consistent with the financial statements; and
• the information given in the Corporate Governance Statement set out on pages 36 to 46 with respect to internal control and risk management
systems and about share capital structures is consistent with the financial statements.
ISAs (UK & Ireland) reporting

Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

• information in the Annual Report is: We have no exceptions

– materially inconsistent with the information in the audited financial statements; or to report arising from
this responsibility.
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group
and the Company acquired in the course of performing our audit; or
– otherwise misleading.

• the statement given by the Directors on page 61, in accordance with provision C.1.1 of the UK Corporate We have no exceptions
Governance Code (“the Code”), that they consider the Annual Report taken as a whole to be fair, balanced to report arising from
and understandable and provides the information necessary for members to assess the Group’s and this responsibility.
Company’s performance, business model and strategy is materially inconsistent with our knowledge
of the Group and Company acquired in the course of performing our audit.

• the section of the Annual Report on page 41, as required by provision C.3.8 of the Code, describing We have no exceptions
the work of the Audit Committee does not appropriately address matters communicated by us to to report arising from
the Audit Committee. this responsibility.

Adequacy of information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not
visited by us; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• We have no exceptions to report arising from this responsibility.
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69

Directors’ remuneration

Strategic report
Directors’ remuneration report − Companies Act 2006 opinion

In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Other Companies Act 2006 reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are
not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement

Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the
Company. We have no exceptions to report arising from this responsibility.

Governance
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company’s compliance with ten
provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the Directors

As explained more fully in the Statement of Directors’ Responsibilities set out on page 61, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Financial statements
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s and Company’s circumstances and have been consistently applied and
adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and
evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for
us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by
us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications
for our report.

Steve Denison (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
11 March 2015
(a) 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.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
70
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
71

Consolidated statement of comprehensive income

52 weeks ended 1 February 2015

Strategic report
2015 2014
Note £m £m

Revenue 1.2 16,816 17,680

Cost of sales (16,055) (16,606)
Gross profit 761 1,074

Other operating income 78 81

Profit/loss on disposal and exit of properties and sale of businesses 1.4, 4.6 135 9
Administrative expenses (1,670) (1,259)
Operating loss 1.6 (696) (95)
Finance costs 6.2 (105) (87)

Governance
Finance income 6.2 7 5
Share of profit of joint venture (net of tax) 4.3 2 1
Loss before taxation (792) (176)
Analysed as:
Underlying profit before tax 345 719
Impairment and onerous lease provisions 1.4 (1,273) (903)
Profit/loss on disposal and exit of properties 1.4 131 9
Profit arising on disposal of Kiddicare.com Limited 1.4, 4.6 4 –
Net pension interest income/(cost) 8.2 1 (1)
(792) (176)

Financial statements
Taxation 2.2 31 (62)
Loss for the period attributable to the owners of the Company (761) (238)

Other comprehensive (expense)/income

Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes 8.2 (31) 11
Tax on defined benefit pension schemes 2.3 6 (8)
(25) 3
Items that may be reclassified subsequently to profit or loss:
Cash flow hedging movement (9) –
Tax on cash flow hedging movement 2.3 2 (1)
(7) (1)
Other comprehensive (expense)/income for the period, net of tax (32) 2

Total comprehensive expense for the period attributable to the owners of the Company (793) (236)

Earnings per share (pence)

– basic 1.5 (32.63) (10.23)
– diluted 1.5 (32.63) (10.23)
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
72

Consolidated balance sheet

1 February 2015

2015 2014
Note £m £m

Assets
Non-current assets
Goodwill and intangible assets 3.2 520 458
Property, plant and equipment 3.3 7,252 8,625
Investment property 3.5 68 119
Net pension asset 8.2 4 –
Investment in joint venture 4.3 68 66
Investments 4.4 31 31
7,943 9,299
Current assets
Stock 5.2 658 852
Debtors 5.3 239 316
Derivative financial assets 7.3 6 1
Cash and cash equivalents 6.4 241 261
1,144 1,430
Non-current assets classified as held-for-sale 3.4 84 –
1,228 1,430
Liabilities
Current liabilities
Creditors 5.4 (2,221) (2,272)
Short term borrowings 6.3 (11) (553)
Derivative financial liabilities 7.3 (18) (10)
Current tax liabilities (23) (38)
(2,273) (2,873)
Non-current liabilities
Borrowings 6.3 (2,508) (2,480)
Derivative financial liabilities 7.3 (50) (36)
Deferred tax liabilities 2.3 (415) (430)
Net pension liabilities 8.2 (43) (11)
Provisions 5.5 (288) (207)
(3,304) (3,164)
Net assets 3,594 4,692

Shareholders’ equity
Share capital 6.5 234 234
Share premium 6.5 127 127
Capital redemption reserve 6.6 39 39
Merger reserve 6.6 2,578 2,578
Retained earnings and hedging reserve 6.6 616 1,714
Total equity attributable to the owners of the Company 3,594 4,692

The notes on pages 75 to 112 form part of these financial statements.

The financial statements on pages 71 to 112 were approved by the Board of Directors on 11 March 2015 and were signed on its behalf by:

Trevor Strain
Chief Financial Officer
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
73

Consolidated cash flow statement

52 weeks ended 1 February 2015

Strategic report
2015 2014
Note £m £m

Cash flows from operating activities

Cash generated from operations 5.6 970 1,031
Interest paid (106) (91)
Taxation received/(paid) 10 (220)
Net cash inflow from operating activities 874 720

Cash flows from investing activities

Interest received 4 2
Investment in joint venture – (66)

Governance
Proceeds from the sale of property, plant and equipment and businesses 450 34
Purchase of property, plant and equipment and investment property (385) (835)
Purchase of intangible assets (135) (185)
Net cash outflow from investing activities (66) (1,050)

Cash flows from financing activities

Purchase of own shares for cancellation 6.5 – (53)
Purchase of own shares for trust 6.5 (8) –
Proceeds from exercise of share options, including issues from treasury shares 6.5 – 28
New borrowings 296 790

Financial statements
Net repayment of revolving credit facility (256) (100)
Repayment of other borrowings (550) (57)
Dividends paid to equity shareholders 1.8 (308) (283)
Net cash (outflow)/inflow from financing activities (826) 325

Net decrease in cash and cash equivalents (18) (5)

Cash and cash equivalents at start of period 258 263
Cash and cash equivalents at end of period 6.4 240 258

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

2015 2014
Note £m £m

Net decrease in cash and cash equivalents (18) (5)

Cash outflow from decrease in debt 806 157
Cash inflow from increase in borrowings (296) (790)
Other non-cash movements (15) 2
Opening net debt (2,817) (2,181)
Closing net debt 6.4 (2,340) (2,817)
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
74

Consolidated statement of changes in equity

52 weeks ended 1 February 2015

Attributable to the owners of the Company

Capital
Share Share redemption Merger Hedging Retained Total
capital premium reserve reserve reserve earnings equity
Note £m £m £m £m £m £m £m

Current period
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 8.2 – – – – – (31) (31)
Tax in relation to components of other
comprehensive income 2.3 – – – – 2 6 8
Total comprehensive expense for the period – – – – (7) (786) (793)
Purchase of trust shares 6.5 – – – – – (8) (8)
Employee share option schemes:
Share-based payments 1.7 – – – – – 11 11
Dividends 1.8 – – – – – (308) (308)
Total transactions with owners – – – – – (305) (305)
At 1 February 2015 234 127 39 2,578 (22) 638 3,594

Attributable to the owners of the Company

Capital
Share Share redemption Merger Hedging Retained Total
capital premium reserve reserve reserve earnings equity
Note £m £m £m £m £m £m £m

Prior period
At 4 February 2013 235 107 37 2,578 (14) 2,287 5,230
Loss for the period – – – – – (238) (238)
Other comprehensive income/(expense):
Pension remeasurement 8.2 – – – – – 11 11
Tax in relation to components of other
comprehensive income 2.3 – – – – (1) (8) (9)
Total comprehensive expense for the period – – – – (1) (235) (236)
Shares purchased for cancellation 6.5 (2) – 2 – – (53) (53)
Employee share option schemes:
Issue of shares and utilisation of treasury shares 6.5 1 20 – – – 7 28
Share-based payments 1.7 – – – – – 6 6
Dividends 1.8 – – – – – (283) (283)
Total transactions with owners (1) 20 2 – – (323) (302)
At 2 February 2014 234 127 39 2,578 (15) 1,729 4,692
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
75

General information

Strategic report
Company information New IFRS and amendments to IAS and interpretations

Wm Morrison Supermarkets PLC is a public limited company There are a number of standards and interpretations issued by the IASB
incorporated in the United Kingdom under the Companies Act 2006 that are effective for financial statements after this reporting period,
(Registration number 358949). The Company is domiciled in the United including IFRS 9 Financial instruments and IFRS 15 Revenue from
Kingdom and its registered address is Hilmore House, Gain Lane, contracts with customers, both of which are effective for annual periods
Bradford, BD3 7DL, United Kingdom. beginning on or after 1 January 2017.
The Group is in the process of assessing the impact that the application
Basis of preparation of these standards and interpretations will have on the Group’s
The financial statements have been prepared for the 52 weeks ended financial statements.
1 February 2015 (2014: 52 weeks ended 2 February 2014) in accordance
with International Financial Reporting Standards (IFRS) and Basis of consolidation

Governance
International Financial Reporting Standards Interpretation Committee
(IFRS IC) interpretations as adopted by the European Union and Subsidiaries are all entities over which the Group has control. The Group
with those parts of the Companies Act 2006 applicable to companies controls an entity when it has power over an entity, is exposed to, or
reporting under IFRS. IFRS and IFRS IC interpretations are issued by has rights to, variable returns from its involvement with the entity and
the International Accounting Standards Board (the IASB) and must be has the ability to affect those returns through its power over the entity.
adopted into European Union law, referred to as endorsement, before they Subsidiaries are fully consolidated from the date on which control is
become mandatory under the IAS Regulation. transferred to the Group. They are deconsolidated from the date the
control ceases. The financial statements of subsidiaries used in the
The financial statements have been prepared on a going concern basis. consolidation are prepared for the same reporting period as the parent
The Directors’ assessment of going concern has been considered within Company and are based on consistent accounting policies. Intra-group
the Corporate governance report on page 44. balances and any unrealised gains and losses or income and expenses
arising from intra-group transactions are eliminated on consolidation.
The financial statements are presented in pounds sterling, rounded to the
nearest million, except in some instances, where it is deemed relevant to As described in note 4.6, the Group disposed of its investment in

Financial statements
disclose the amounts up to two decimal places. They are drawn up on the Kiddicare.com Limited on 11 July 2014. This subsidiary has been
historical cost basis of accounting, except as disclosed in the accounting deconsolidated from that date.
policies set out within these financial statements. The presentational
currency of the Group is sterling. Foreign currencies
The Group’s accounting policies have, unless otherwise stated, been Transactions in foreign currencies are recorded at the rates of exchange
applied consistently to all periods presented in these financial statements. at the dates of the transactions. At each balance sheet date, monetary
assets and liabilities that are denominated in foreign currency are
Accounting reference date retranslated at the rates of exchange at the balance sheet date. Gains and
losses arising on retranslation are included in the income statement for
The accounting period of the Group ends on the Sunday falling between the period.
29 January and 4 February each year.
The following amendments to standards are mandatory for the first time Critical accounting judgements and estimates
for the financial period ended 1 February 2015:
The judgements that have the most significant effect on the amounts
IFRS 10 Consolidated financial statements recognised in these financial statements, and sources of estimation
uncertainty that have a significant risk of resulting in material
IFRS 10 establishes a single control model that applies to all entities adjustment to carrying amounts in the next financial year are:
including special purpose entities. The changes introduced by IFRS 10 • Commercial income (note 1.1, 1.6, 5.2, 5.3, 5.4);
required management to exercise judgement to determine which entities
are controlled and therefore are required to be consolidated. The Group • Impairment of property, plant and equipment, and intangible assets
has applied IFRS 10 retrospectively in accordance with the transition and onerous property commitments (note 1.4, 3.1, 3.2, 3.3);
provisions of IFRS 10. There is no material impact on the Group as a • IT systems (note 3.2);
result of applying this standard. • Stock (note 5.1, 5.2); and
• Taxation (note 2.1, 2.2, 2.3).
IFRS 11 Joint arrangements
These are also described within the Corporate governance report
Under IFRS 11, investments in joint arrangements are classified either on page 41 to 43.
as joint operations or joint ventures, depending on the contractual
rights and obligations each investor has rather than the legal structure
of the joint arrangement. Before 2 February 2014, the Group’s interest
in its jointly controlled entity, MHE JVCo Limited, was accounted for
using the equity method. Under IFRS 11, the jointly controlled entity has
been assessed to be a joint venture and so the equity method continues
to be appropriate.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
76

Notes to the Group financial statements

52 weeks ended 1 February 2015

1 Performance in the period

1.1 Accounting policies

Revenue recognition
Sale of goods in−store and online, and fuel
Revenue from the sale of goods in-store and online comprises cash from customers and excludes VAT. It is net of returns, colleague discounts,
coupons, vouchers, Match & More points earned in-store and online and the free element of multi-save transactions. Sale of fuel is recognised net of
VAT and Match & More points earned on fuel. Revenue is recognised when transactions are completed in-store, or, in the case of food online, when
goods are accepted by the customer on delivery.
Other sales
Other revenue includes income from concessions and commissions based on the terms of the contract, and manufacturing sales made direct to
third party customers recognised on despatch of goods. Revenue collected on behalf of others is not recognised as revenue, other than the related
commission. Sales are recorded net of VAT and intra-group transactions.
Match & More and other initiatives
The fair value of Match & More and other initiatives is determined to be the value to the customer of the points issued, adjusted for factors such as the
expected redemption rate. Given Match & More was launched in the year the Group will continue to assess the appropriateness of the rates against
actual redemptions going forward.
The fair value is treated as a deduction from revenue at the time the points are issued, and is deferred until the rewards are redeemed by the customer
in a future sale.
Cost of sales
Cost of sales consists of all costs of the goods being sold to the point of sale, net of promotional funding and commercial income, and includes property,
manufacturing, warehouse and transportation costs. Store depreciation, store overheads and store-based employee costs are also allocated to cost of sales.
Promotional funding
Promotional funding refers to investment in the customer offer by suppliers by way of promotion. The calculation of funding is mechanical and system
generated based on a funding level agreed in advance with the supplier. Funding is recognised as units are sold and invoiced in accordance with the
specific supplier agreement. Funding is recorded effectively as a direct adjustment to the cost price of the product in the period. Funding is invoiced
and collected through the year, shortly after the promotions have ended.
Commercial income
Commercial income is recognised as a deduction from cost of sales, based on the 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 commercial income Description Recognition

Marketing and Examples include income in respect Income is recognised over the period as set out in the specific supplier agreement.
advertising funding  of in-store marketing and point of Income is invoiced once the performance conditions in the supplier agreement
sale, as well as funding for advertising have been achieved.
Volume-based Income earned by achieving Income is recognised through the year based on forecasts for expected sales or
rebates volume or spend targets set by the purchase volumes, informed by current performance, trends, and the terms of the
supplier for specific products over supplier agreement. Income is invoiced throughout the year in accordance with the
specific periods 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.

Uncollected commercial income at the balance sheet date is classified within the financial statements as follows:
• Creditors: A large proportion of the Group’s trading terms state that income due from suppliers will be netted against amounts owing to that
supplier. Any outstanding invoiced commercial income relating to these suppliers at the balance sheet date will be included within trade payables.
• Debtors: Where the trading terms described above do not exist, the Group classifies outstanding commercial income within trade debtors. Where
commercial income is earned and not invoiced to the supplier at the balance sheet date, this is classified within accrued commercial income.
• Stock: The carrying value of stock is adjusted to reflect unearned elements of commercial income as the stock has not yet been sold. This income is
subsequently recognised in cost of sales when the product has been sold.
In order to provide users of the accounts with greater understanding in this area additional income statement and balance sheet disclosure is provided
in notes 1.6, 5.2, 5.3 and 5.4 to the financial statements.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
77

1 Performance in the period continued

Strategic report
1.1 Accounting policies continued

Other operating income

Other operating income primarily consists of income not directly related to in-store and online grocery retailing and mainly comprises rental income
from investment properties and income generated from recycling of packaging.
Profit/loss on disposal and exit of properties
Profit/loss from the disposal and exit of properties includes gains and losses on disposal of property assets and other costs incurred by the Group
following a decision to dispose, close or no longer purchase properties. Where the Group disposes of a property, this disposal transaction is accounted
for upon unconditional exchange of contracts. Gains and losses are determined by comparing sale proceeds with the asset’s carrying amount and are
presented net of costs associated with disposal.

Governance
1.2 Revenue analysis
2015 2014
Like−for−like Total Total
sales Other £m £m

Sale of goods in stores and online 12,639 360 12,999 13,434

Fuel 3,521 55 3,576 3,984
Total store-based and online sales 16,160 415 16,575 17,418
Other sales – 241 241 262
Total revenue 16,160 656 16,816 17,680

1.3 Segmental reporting

Financial statements
The Group’s principal activity is that of retailing, derived solely from the UK. The Group is not reliant on any major customer for 1% or more
of revenues.
The Group is required to determine and present its operating segments based on the way in which financial information is organised and reported
to the chief operating decision-maker (CODM). The CODM has been identified as the Management Board as it is this Board that makes the key
operating decisions of the Group, is responsible for allocating resources and assessing performance.
Key internal reports received by the CODM, primarily the management accounts, focus on the performance of the Group as a whole. The operations
of all elements of the business are driven by the retail sales environment and hence have fundamentally the same economic characteristics. All
operational decisions made are focused on the performance and growth of the retail outlets and the ability of the business to meet the supply demands
of the stores.
The Group has considered the overriding core principles of IFRS 8 as well as its internal reporting framework, management and operating structure.
In particular, the Group considered its retail outlets, the fuel resale operation, the manufacturing entities and multi-channel operations. The Directors’
conclusion is that the Group has one operating segment, that of retailing.
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items
Performance is measured by the CODM based on underlying profit before tax as reported in the management accounts. Management believes that
this underlying profit measure is the most relevant in evaluating the results of the Group to its peers. This information and the reconciliation to the
statutory position can be found in note 1.4. In addition, the management accounts present a Group balance sheet containing assets and liabilities.
This balance sheet is as shown within the Consolidated balance sheet.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
78

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

1 Performance in the period continued

1.4 Underlying profit

The definition of underlying profit has been amended to include new business development costs as they are considered to be ongoing activities and
part of the Group’s underlying business. The underlying profit reconciliation for the comparative period presented below has been restated to reflect
this change. This has resulted in a decrease in post-tax underlying profit from amounts previously reported last year of £49m (pre-tax: £66m).
The amendment of the definition has resulted in the following changes to underlying profit in the comparative period:

2014
Pre−tax Post−tax
£m £m

Restated underlying profit 719 537

New business development costs 66 49
Underlying profit as previously reported 785 586

The Directors consider that the underlying profit and underlying adjusted earnings per share measures referred to in the results provide useful
information for shareholders on underlying trends and performance. The adjustments are made to reported loss to (a) remove impairment, onerous
lease provisions, 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 26.1% (2014: 25.3%); and (d) remove the impact of pension
interest volatility.

Restated
2015 2014
£m £m

Loss after tax (761) (238)

Add back: tax (credit)/charge for the period1 (31) 62
Loss before tax (792) (176)
Adjustments for:
Impairment and onerous lease provisions1 1,273 903
Profit/loss arising on disposal and exit of properties1,2 (131) (9)
Profit on disposal of Kiddicare.com Limited (note 4.6)1 (4) –
Net pension interest (income)/cost (note 8.2)1 (1) 1
Underlying profit before tax 345 719
Normalised tax charge at 26.1% (2014: 25.3%)1 (90) (182)

Underlying profit after tax 255 537

Underlying earnings per share (pence)
– basic (note 1.5.2) 10.93 23.08
– diluted (note 1.5.2) 10.89 22.99
1
Adjustments marked 1 increase post-tax underlying earnings by £1,016m (2014: increase £775m), as shown in the reconciliation of earnings disclosed in note 1.5.2.
2
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.

The adjustments above are classified within the Consolidated statement of comprehensive income on the following lines:
• impairment and onerous lease provisions adjustment has been included within administrative expenses;
• profit/loss arising on disposal and exit of properties and profit on disposal of Kiddicare.com Limited are classified within profit/loss arising
on disposal and exit of properties and sale of businesses; and
• net pension interest (income)/expense is classified within finance income/costs in the Consolidated statement of comprehensive income.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
79

1 Performance in the period continued

Strategic report
1.4 Underlying profit continued

2014/15 impairment
Impairment and onerous lease provisions in 2014/15 consist 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 relates to lease premiums.
2013/14 impairment
Impairment and onerous lease provisions in 2013/14 consisted of £379m in relation to trading stores, £319m in relation to the property pipeline
(which consists of undeveloped land), £163m in respect of Kiddicare and £42m of other costs.
The trading stores’ costs of £379m consisted of £330m impairment and £49m onerous leases. Pipeline costs of £319m included impairment of £90m
and a further £229m in respect of onerous leases and capital contracts. Charges in respect of Kiddicare consisted of £24m of goodwill, £12m brand,

Governance
£70m impairment and £57m onerous lease provisions. Other impairments of £42m principally included £27m write off of the costs incurred in the
development of our own food online offer which was no longer required as a result of our arrangement with Ocado.

1.5 Earnings per share

Basic earnings per share (EPS) is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion
of all potentially dilutive ordinary shares.
The Company has two (2014: two) classes of instrument that are potentially dilutive: those share options granted to employees where the exercise
price is less than the average market price of the Company’s ordinary shares during the period and contingently issuable shares under the Group’s
long term incentive plans (LTIP).
1.5.1 Basic and diluted EPS (unadjusted)

Financial statements
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

2015 2014
Weighted average Weighted average
Earnings number of shares EPS Earnings number of shares EPS
£m millions pence £m millions pence

Unadjusted EPS
Basic EPS
Loss attributable to ordinary shareholders (761) 2,332.5 (32.63) (238) 2,327.0 (10.23)
Effect of dilutive instruments
Share options and LTIPs1 – – – – – –
Diluted EPS (761) 2,332.5 (32.63) (238) 2,327.0 (10.23)
1
The effect of dilutive instruments would improve basic EPS as total earnings is a loss of £761m (2014: loss of £238m). Diluted EPS cannot exceed basic EPS, therefore
the diluted EPS disclosed above has been adjusted so that it equals basic EPS.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
80

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

1 Performance in the period continued

1.5 Earnings per share continued

1.5.2 Underlying EPS

Basic EPS is adjusted to more accurately show underlying business performance. The reconciliation of the earnings used in the calculations
of underlying earnings per share (restated) is set out below:

2015 2014
Weighted average Weighted average
Earnings number of shares EPS Earnings number of shares EPS
£m millions pence £m millions pence

Underlying EPS (restated)1

Basic EPS
Loss attributable to ordinary shareholders (761) 2,332.5 (32.63) (238) 2,327.0 (10.23)
Adjustments to determine underlying profit
(note 1.4) (restated)1 1,016 – 43.56 775 – 33.31
255 2,332.5 10.93 537 2,327.0 23.08
Effect of dilutive instruments
Share options and LTIPs – 9.0 (0.04) – 9.0 (0.09)
Diluted EPS (restated)1 255 2,341.5 10.89 537 2,336.0 22.99
1
Underlying EPS measures have been restated to reflect the change in definition of underlying earnings as described in note 1.4.

1.6 Operating loss

2015 2014
£m £m

The following items have been included in arriving at operating loss:

Employee costs (note 1.7) 1,970 1,972
Depreciation and impairment:
– Property, plant and equipment (note 3.3) 315 336
– Investment property (note 3.5) 2 5
– Impairment of property, plant and equipment (note 3.3) 1,113 457
Amortisation and impairment (note 3.2)
– Intangible assets 70 53
– Impairment of goodwill and intangible assets 3 89
Operating lease rentals:
– Land and buildings 87 71
– Other 16 12
– Sublease receipts (6) (7)
Value of stock expensed 12,875 13,437
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
81

1 Performance in the period continued

Strategic report
1.6 Operating loss continued

Value of stock expensed

In order to provide context on commercial income earned in the period, each is shown below as a percentage of the value of stock expensed (VSE)
before commercial income is deducted.

2015 2014
£m % of VSE £m % of VSE

Commercial income:
Marketing and advertising funding 291 2.2 280 2.0

Governance
Volume-based rebates 134 1.0 116 0.9
Total commercial income 425 3.2 396 2.9
1
See additional disclosure in notes 5.2, 5.3 and 5.4.

Auditor remuneration
During the period PricewaterhouseCoopers LLP (2014: KPMG Audit Plc), the Group’s auditor, provided the following services:

2015 2014
£m £m

Audit services
Fees payable to the Group’s auditor for the audit of the Group and the Company financial statements 0.4 0.4

Financial statements
Other services
Fees payable to the Group’s auditor and its associates for other services:
– the audit of the Group’s subsidiaries pursuant to legislation 0.2 0.2
– services relating to taxation – 0.1
– other services 0.3 0.1
0.9 0.8

The Board has a policy on the engagement of the external auditor to supply non-audit services, which is available in the Corporate governance
compliance statement set out in the investor relations section of the Group’s website at www.morrisons-corporate.com.

1.7 Employees and Directors

2015 2014
£m £m

Employee benefit expense for the Group during the period

Wages and salaries 1,755 1,787
Social security costs 118 121
Share-based payments 11 6
Other pension costs 86 58
1,970 1,972
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
82

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

1 Performance in the period continued

1.7 Employees and Directors continued
2015 2014
No. No.

Average monthly number of people, including Directors

Stores 104,047 111,199
Manufacturing 7,497 7,320
Distribution 5,731 5,996
Centre 2,503 2,888
119,778 127,403

Directors’ remuneration
A detailed analysis of Directors’ remuneration, including salaries, bonuses and long term incentives, and the highest paid Director, is provided
in the Single total figure of remuneration table, in the audited section of the Directors’ remuneration report, which forms part of these financial
statements (page 53). There are no Executive Directors (2014: none) who have retirement benefits accruing under any of the Group’s defined
benefit pension schemes.
Senior management remuneration
The table below shows the remuneration of senior managers. It excludes members already included in the Directors’ remuneration report.
Senior managers are considered to be key management personnel in accordance with the requirements of IAS 24 ‘Related party disclosures’,
and senior manager in the context of gender disclosures required by the Companies Act 2006.

2015 2014
£m £m

Senior managers
Wages and salaries 37 27
Social security costs 5 4
Share-based payments 2 3
Other pension costs 2 1
46 35

1.8 Dividends

Amounts recognised as distributed to equity holders in the period:

2015 2014
£m £m

Interim dividend for the period ended 1 February 2015 of 4.03p (2014: 3.84p) 94 90
Final dividend for the period ended 2 February 2014 of 9.16p (2013: 8.31p) 214 193
308 283

The Directors propose a final dividend in respect of the financial period ending 1 February 2015 of 9.62p per share which will absorb an estimated
£225m of shareholders’ funds. Subject to approval at the AGM, it will be paid on 10 June 2015 to shareholders who are on the register on 8 May 2015.
The dividends paid and proposed during the year are from cumulative realised distributable reserves of Wm Morrison Supermarkets PLC.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
83

2 Taxation

Strategic report
The focus of the Group’s approach to tax affairs is to ensure compliance with the relevant laws of the territories in which the Group operates.
Almost all of the Group’s stores and sales are in the UK, therefore the majority of taxes are paid in the UK.
The Group takes a compliance-focused approach to its tax affairs, and has a transparent relationship with the UK and overseas tax authorities
and interacts with HMRC on a regular basis. The Group’s tax policy provides a governance framework with all related risks and stakeholder interests
taken into consideration. The tax policy is approved by the Board, with updates on tax compliance and governance matters being provided to the
Audit Committee.
The Group operates a small number of branches and subsidiary companies outside of the UK based in the following overseas jurisdictions:
• The Netherlands: The Group has manufacturing operations in the Netherlands as part of its produce supply chain. Local corporation taxes of £1.9m
were paid during 2015 (2014: £2.2m);

Governance
• Hong Kong: Offices in Hong Kong were established in 2011 and source many of the Group’s non-food products. Local corporation taxes of £0.4m
were paid during 2015 (2014: £0.3m); and
• Isle of Man, Jersey and Guernsey: The Group’s insurance company is based in the Isle of Man for regulatory reasons, and property assets with a net
book value of £44m are held in Jersey and Guernsey as a result of historic acquisitions. All profits in each of these jurisdictions are subject to UK tax.

2.1 Accounting policies

Current tax
The current income tax charge is calculated on the basis of the tax laws in effect during the period and any adjustments to tax payable in respect of
previous periods. Taxable profit differs from the reported profit for the period as it is adjusted both for items that will never be taxable or deductible,
and temporary differences. Current tax is charged to profit or loss for the period, except when it relates to items charged or credited directly in other
comprehensive income or equity in which case the current tax is reflected in other comprehensive income or equity as appropriate.

Financial statements
Deferred tax
Deferred tax is recognised using the balance sheet method. Provision is made for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. No deferred tax is recognised for temporary differences that
arise on the initial recognition of goodwill or the initial recognition of assets and liabilities that are not a business combination and that affects neither
accounting nor taxable profits.
Deferred tax is calculated based on tax law that is enacted or substantively enacted at the reporting date and provided at rates expected to apply when
the temporary differences reverse. Deferred tax is charged or credited to profit for the period except when it relates to items charged or credited directly
to other comprehensive income or equity, in which case the deferred tax is reflected in other comprehensive income or equity as appropriate.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the asset can be utilised. Deferred
tax assets recognised are reviewed at each reporting date as judgement is required to estimate the availability of future taxable income. Deferred tax
assets and liabilities are offset where amounts will be settled on a net basis as there is a legally enforceable right to offset.
Accruals for tax contingencies require management to make judgements and estimates of the probable outcome of tax compliance issues. All accruals
are included in current liabilities.

2.2 Taxation

2.2.1 Analysis of (credit)/charge in the period

2015 2014
£m £m

Current tax
– UK corporation tax 71 153
– overseas tax 4 5
– adjustments in respect of prior periods (99) (46)
(24) 112
Deferred tax
– origination and reversal of timing differences 1 (12)
– adjustments in respect of prior periods (8) 30
– impact of change in tax rate – (68)
(7) (50)
Tax (credit)/charge for the period (31) 62
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
84

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

2 Taxation continued
2.2 Taxation continued

2.2.2 Tax on items charged in other comprehensive expense and equity

2015 2014
£m £m

Remeasurements arising in the pension scheme (of which rate change is £nil (2014: £6m)) (6) 8
Cash flow hedges (2) 1
Total tax on items included in other comprehensive income and equity (8) 9

Analysis of items charged to other comprehensive income and equity:

Deferred tax (note 2.3) (8) 9

2.2.3 Tax reconciliation

The reconciliation below shows how the tax credit of £31m has arisen on loss before tax of £792m.
The tax for the period is higher (2014: higher) than the standard rate of corporation tax in the UK of 21.3% (2014: 23.2%). The differences are
explained below:

2015 2014
£m £m

Loss before taxation (792) (176)

Loss before taxation at 21.3% (2014: 23.2%) (169) (41)
Effects of:
Expenses not deductible for tax purposes 3 4
Disallowed depreciation on UK properties 28 35
Deferred tax on Safeway acquisition assets (22) (5)
Profit on property transactions (4) 1
Impairment and onerous lease provisions not deductible for tax 240 154
Effect of change in tax rate – (68)
Other – (3)
Adjustments in respect of prior periods (107) (15)
Tax (credit)/charge for the period (31) 62

Factors affecting current and future tax charges

The Group’s tax charge has reduced from the prior year. The reduction in the current tax charge reflects the lower underlying profit, whilst elements
of the asset impairments announced by the Group are also deductible for tax purposes. The Group also benefited from adjustments in respect of prior
periods for which the liability has now been settled with HMRC. The Group’s deferred tax liabilities have also reduced year on year, primarily as a
result of impairments reducing the carrying value of property assets for which the Group provides for deferred tax.
Legislation to reduce the rate of corporation tax to 20% was included in the Finance Act 2013. The 20% rate will apply from April 2015. Deferred tax
is already provided at 20%. There has not been any indication of any further changes in the rate of corporation tax from 20%.

2.3 Deferred tax

2015 2014
£m £m

Deferred tax liability (462) (472)

Deferred tax asset 47 42
Net deferred tax liability (415) (430)

IAS 12 ‘Income taxes’ permits the offsetting of balances within the same tax jurisdiction. All of the deferred tax assets are available for offset against
deferred tax liabilities.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
85

2 Taxation continued

Strategic report
2.3 Deferred tax continued

The movements in deferred tax (liabilities)/assets during the period are shown below:

Other
Property, short term
plant and temporary
equipment Pensions differences Total
£m £m £m £m

Current period
At 3 February 2014 (456) 2 24 (430)
Credited/(charged) to loss for the period 28 – (21) 7

Governance
Credited to other comprehensive income and equity – 6 2 8
At 1 February 2015 (428) 8 5 (415)

Prior period
At 4 February 2013 (519) 5 43 (471)
Credited/(charged) to loss for the period 63 5 (18) 50
Charged to other comprehensive income and equity – (8) (1) (9)
At 2 February 2014 (456) 2 24 (430)

3 Operating assets

Financial statements
3.1 Accounting policies

Intangible assets
Goodwill
Goodwill arising on a business combination is not amortised but is reviewed for impairment on an annual basis or more frequently if there are
indicators that it may be impaired. Goodwill is allocated to cash generating units that will benefit from the synergies of the business combination
for the purpose of impairment testing.
Brands
Brands acquired through a business combination are recognised at their fair value at the acquisition date and amortised to profit or loss on a straight-
line basis over their estimated useful economic life. During the year the Group disposed of £15m of fully written down brands relating to Kiddicare.
Software development costs
Costs that are directly attributable to the creation of identifiable software, which meet the development asset recognition criteria as laid out in IAS 38
‘Intangible assets’ are recognised as intangible assets.
Direct costs include consultancy costs, the employment costs of internal software developers and borrowing costs. All other software development
and maintenance costs are recognised as an expense as incurred. Software development assets are held at historic cost less accumulated amortisation
and impairment, and are amortised over their estimated useful lives (3 to 10 years) on a straight-line basis.
Licences
Separately acquired pharmaceutical licences and software licences are recognised at historic cost less accumulated amortisation and impairment.
Those acquired in a business combination are recognised at fair value at the acquisition date. Pharmaceutical licences and software licences are
amortised over their useful lives (3 to 10 years) on a straight-line basis.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Costs include directly
attributable costs such as borrowing costs and employment costs of those people directly working on the construction and installation of property,
plant and equipment.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
86

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

3 Operating assets continued

3.1 Accounting policies continued

Depreciation rates
Depreciation rates used to write off cost less residual value on a straight-line basis are:

Freehold land 0%
Freehold buildings 2.5%
Leasehold land Over the lease period
Leasehold buildings Over the shorter of lease period and 2.5%
Plant, equipment,
fixtures and vehicles 10% to 33%
Assets under construction 0%

Depreciation expense is primarily charged in cost of sales with an immaterial amount in administration expenses.
Investment property
Property held to earn rental income is classified as investment property and is held at cost less accumulated depreciation and impairment.
The depreciation policy is consistent with that described for property above.
Non−current assets classified as held−for−sale
Non-current assets are classified as held-for-sale if their carrying amount is to be recovered principally through a sale transaction, rather than
continuing use within the Group, and the sale is considered highly probable. The sale is expected to complete within one year from the date of
classification and the assets are available for sale in their current condition. Non-current assets held-for-sale are stated at the lower of carrying
amount and fair value less costs to dispose and are not depreciated.
Lessor accounting – operating leases
Assets acquired and made available to third parties under operating leases are recorded as property, plant and equipment or investment property
and are depreciated on a straight-line basis to their estimated residual values over their estimated useful lives. Operating lease income is credited
on a straight-line basis to the date of the next rent review.
Finance leases
Assets funded through finance leases are capitalised as property, plant and equipment and depreciated over their useful economic life or lease term,
whichever is shorter. The amount capitalised is the lower of the fair value and the present value, calculated using the interest rate implicit in the lease,
of the future minimum lease payments. The obligations to pay future rentals are included within liabilities. Rental payments are apportioned between
the finance charge and the outstanding obligation so as to produce a constant rate of finance charge on the remaining balance.
Impairment of non−financial assets
Intangible assets with indefinite lives, such as goodwill, and those in construction that are not yet being amortised, are tested for impairment annually.
Other non-financial assets are tested if events or changes in circumstances indicate that the carrying amount may not be recoverable.
Testing is performed at the level of a cash generating unit (CGU) in order to compare the CGU’s recoverable amount against its carrying value.
An impaired CGU is written down to its recoverable amount, which is the higher of value in use or its fair value less costs to dispose. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
The Group considers that each of its stores is a CGU, which together form a grocery group of CGUs supported by corporate assets such as head office
and vertically integrated suppliers.
Impairment losses are reversed if there is evidence of an increase in the recoverable amount of a previously impaired asset, but only to the extent
that the recoverable amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised.
Impairment losses relating to goodwill are not reversed. Any reversal of impairment losses would be excluded from underlying earnings.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
87

3 Operating assets continued

Strategic report
3.2 Goodwill and intangible assets
Software
Goodwill Brands development costs Licences Total
Current period £m £m £m £m £m

Cost
At 3 February 2014 34 15 577 40 666
Additions – – 121 5 126
Interest capitalised – – 9 – 9
Disposals (24) (15) (30) – (69)
Fully written down assets – – (44) (12) (56)

Governance
At 1 February 2015 10 – 633 33 676

Accumulated amortisation and impairment

At 3 February 2014 24 15 147 22 208
Charge for the period – – 63 7 70
Impairment – – 2 1 3
Disposals (24) (15) (30) – (69)
Fully written down assets – – (44) (12) (56)
At 1 February 2015 – – 138 18 156

Financial statements
Net book amount at 1 February 2015 10 – 495 15 520

Included within software development costs are assets under construction of £153m (2014: £175m).
In previous years, fully depreciated assets have been retained in the Group’s fixed asset register and included in the table above. In order to
provide greater understanding of the Group’s annual depreciation charge in the current year, these assets have been removed from both cost
and accumulated depreciation.
Goodwill
The goodwill arose on the acquisition of Flower World Limited (£3m) and Farmers Boy (Deeside) Limited (£7m).
Impairment testing of goodwill
Goodwill of £10m is allocated to the grocery group of CGUs. This group of CGUs has been tested for impairment via the value in use calculation
described in note 3.3. The growth rate applied to the period after five years is 2% (2014: 2%).
Software development costs
The cumulative interest capitalised included within software development costs is £36m (2014: £27m). The cost of internal labour capitalised is not
material for separate disclosure.

Software
Goodwill Brands development costs Licences Total
Prior period £m £m £m £m £m

Cost
At 4 February 2013 34 15 406 26 481
Additions – – 164 14 178
Interest capitalised – – 7 – 7
At 2 February 2014 34 15 577 40 666

Accumulated amortisation and impairment

At 4 February 2013 – 2 49 15 66
Charge for the period – 1 46 6 53
Impairment 24 12 52 1 89
At 2 February 2014 24 15 147 22 208

Net book amount at 2 February 2014 10 – 430 18 458

Included within the above is £51m of assets that were fully depreciated. These assets have been removed within the current year disclosure.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
88

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

3 Operating assets continued

3.2 Goodwill and intangible assets continued

Prior year impairment of software development costs, goodwill and brand

As explained in note 1.4, the 2013/14 impairment included £27m write off of the investment in the development of Morrisons own food online
offer. Also included is £24m of goodwill which arose on acquisition of Kiddicare, £24m of software development assets, principally relating to
Kiddicare, and £12m relating to the Kiddicare brand. A discount rate of 6.5% and a nil growth rate after five years were applied in the value in
use calculation underpinning this impairment loss. These assets have subsequently been disposed of in the current year following the sale of
Kiddicare.com Limited (note 4.6).

3.3 Property, plant and equipment

Leasehold Plant,
Freehold Freehold land and equipment,
land buildings buildings fixtures & vehicles Total
Current period £m £m £m £m £m

Cost
At 3 February 2014 4,046 4,519 1,112 2,673 12,350
Additions at cost 53 107 22 206 388
Interest capitalised – 2 – – 2
Transfers to investment properties – (4) – – (4)
Transfers to assets held-for-sale (104) (237) (44) (28) (413)
Disposals (6) (18) (7) (17) (48)
Fully written down assets – (39) (28) (1,533) (1,600)
At 1 February 2015 3,989 4,330 1,055 1,301 10,675

Accumulated depreciation and impairment

At 3 February 2014 211 1,264 355 1,895 3,725
Charge for the period – 116 27 172 315
Impairment 449 302 214 148 1,113
Transfers to investment properties – (3) – – (3)
Transfers to assets held-for-sale – (50) (14) (26) (90)
Disposals – (14) (6) (17) (37)
Fully written down assets – (39) (28) (1,533) (1,600)
At 1 February 2015 660 1,576 548 639 3,423
Net book amount at 1 February 2015 3,329 2,754 507 662 7,252

Assets under construction included above 5 8 1 13 27

The Group has performed its annual assessment of its depreciation policies and asset lives and deemed them to be appropriate. No changes have been
made to asset lives during the year.
In previous years, fully depreciated assets have been retained in the Group’s fixed asset register and included in the table above. In order to
provide greater understanding of the Group’s annual depreciation charge in the current year, these assets have been removed from both cost and
accumulated depreciation.
Included within the above are leasehold land and buildings held under finance lease with a cost of £319m (2014: £308m) and accumulated
depreciation of £22m (2014: £19m).
The cost of financing property developments prior to their opening date has been included in the cost of the asset. The cumulative amount of interest
capitalised in the total cost above amounts to £271m (2014: £269m).
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
89

3 Operating assets continued

Strategic report
3.3 Property, plant and equipment continued

Impairment
The Group considers that each store is a separate cash generating unit (CGU) and therefore considers every store for an indication of impairment
annually. The Group calculates each store’s recoverable amount and compares this amount to its book value. The recoverable amount is determined
as the higher of ‘value in use’ and ‘fair value less costs of disposal’. If the recoverable amount is less than the book value, an impairment charge is
recognised based on the following methodology:
‘Value in use’ is calculated by projecting individual store pre-tax cash flows over the remaining useful life of the store, based on forecasting
assumptions. The methodology used for calculating future cash flows is to:
• use the actual cash flows for each store in the current year;

Governance
• allocate a proportion of the Group’s central costs to each store on an appropriate basis;
• project each store’s cash flows over the next five years by applying forecast sales and cost growth assumptions;
• project cash flows beyond year five for the remaining useful life of each store by applying a long term growth rate; and
• discount the cash flows using a pre-tax rate of 9.0% (2014: 6.5%). The discount rate takes into account the Group’s weighted average cost of capital.
‘Fair value less costs of disposal’ is estimated by the Directors based on their knowledge of individual stores and the markets they serve and likely
demand from grocers or other retailers. The Directors also obtain valuations by store prepared by independent valuers and consider these in carrying
out their estimate of fair value less cost of disposal for the purposes of testing for impairment. In determining their valuation, the independent valuers
assume an expected rent and yield for each store based on the quality of the asset, local catchment and the store being occupied by a supermarket
tenant with a similar covenant to Morrisons.
In order to reflect recent changes in market conditions, in particular the very significant decrease in demand from major grocery retailers for

Financial statements
supermarket space, the Directors consider it appropriate for the purpose of testing for impairment to revise downwards the rent and yield assumptions
in the independent valuation to reflect the following factors on a store by store basis:
• Whether a major grocery operator might buy the store, taking into consideration whether they are already located near the store, and whether the
store size is appropriate for their business model, and then if not;
• Assessing whether a smaller store operator might buy the store, in which case the value has been updated to reflect the Directors’ assessment of the
yield which would be achievable if such an operator acquired the store, and then if not;
• Assessing whether a non-food operator might buy the store, in which case the value has been updated to reflect the Directors’ assessment of the
yield which would be achievable if such an operator acquired the store.
Having applied the above methodology and assumptions, the Group has recognised an impairment charge of £1,116m (tangible assets: £1,113m and
intangible assets: £3m) during the year (2014: £459m).
An increase of 1% in the discount rate would result in an additional impairment charge of £70m.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
90

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

3 Operating assets continued

3.3 Property, plant and equipment continued
Leasehold Plant,
Freehold Freehold land and equipment,
land buildings buildings fixtures & vehicles Total
Prior period £m £m £m £m £m

Cost
At 4 February 2013 3,994 4,211 1,009 2,340 11,554
Additions at cost 57 308 103 339 807
Interest capitalised – 10 – – 10
Transfer to investment properties (5) (8) – – (13)
Disposals – (2) – (6) (8)
At 2 February 2014 4,046 4,519 1,112 2,673 12,350

Accumulated depreciation and impairment

At 4 February 2013 98 972 180 1,688 2,938
Charge for the period – 109 35 192 336
Impairment 113 183 140 21 457
Transfer to investment properties – 2 – – 2
Disposals – (2) – (6) (8)
At 2 February 2014 211 1,264 355 1,895 3,725

Net book amount at 2 February 2014 3,835 3,255 757 778 8,625

Assets under construction included above 112 43 2 79 236

Included within the above is £1,161m (of which £1,097m relates to plant and equipment) of assets that were fully depreciated. These assets have been
removed within the current year disclosure.
As described in note 1.4, the impairment from the prior year related to costs incurred on stores the Group no longer intended to open, trading stores
and assets of the Kiddicare business.

3.4 Non−current assets classified as held−for−sale

2015 2014
£m £m

At start of period − −
Transfers from property, plant and equipment at net book value 323 −
Transfers from investment property at net book value 51 –
Additions 3 −
Disposals (293) −
At end of period 84 −

Assets transferred from property, plant and equipment had a cost of £413m and accumulated depreciation of £90m. Assets transferred from
investment property had a cost of £77m and accumulated depreciation of £26m.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
91

3 Operating assets continued

Strategic report
3.5 Investment property
2015 2014
£m £m

Cost
At start of period 183 189
Additions 1 3
Transfers from property, plant and equipment 4 13
Transfers to assets held-for-sale (77) –
Disposals (3) (22)

Governance
At end of period 108 183

Accumulated depreciation and impairment

At start of period 64 66
Charge for the period 2 5
Transfers from/(to) property, plant and equipment 3 (2)
Transfers to assets held-for-sale (26) –
Disposals (3) (5)
At end of period 40 64

Net book amount at end of period 68 119

Financial statements
Included in other operating income is £21m (2014: £26m) of rental income generated from investment properties. At the end of the period the
fair value of investment properties, including those held in assets held-for-sale, was £200m (2014: £230m). Investment properties are valued
by independent surveyors on a vacant possession basis using observable inputs (fair value hierarchy Level 2).

3.6 Operating leases – lessor

The Group has non-cancellable agreements with tenants with varying terms, escalation clauses and renewal rights. The future minimum lease
income is as follows:

2015 2014
£m £m

Within one year 26 30

More than one year and less than five years 85 99
After five years 114 140
225 269

3.7 Capital commitments

2015 2014
£m £m

Contracts placed for future capital expenditure not provided in the financial statements
(property, plant and equipment and intangible assets) 149 179
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
92

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

4 Interests in other entities

4.1 Accounting policies

Joint ventures
The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or
joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements
and determined them to be joint ventures. Joint ventures are accounted for under the equity method and are initially recognised at cost.
The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of the equity accounted
investees, from the date that joint control commences until the date that joint control ceases.
Investments
Investments comprise investments in equity instruments held for long term investment. They are measured at fair value through other comprehensive
income, where the fair value can be measured reliably. Where the fair value of the instruments cannot be measured reliably, for example, when there
is variability in the range of estimates, the investments are recognised at cost less accumulated impairment losses.
Business combinations
The acquisition method is used to account for business combinations. Consideration is the fair value of the assets transferred, the liabilities incurred
and the equity interests issued by the Group, including the fair value of any contingent consideration arrangement. Acquisition related costs are
expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed, 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.
Goodwill is the excess of consideration transferred, plus any non-controlling interest and the fair value of any previous equity interest in the acquiree,
over the fair value of the identifiable net assets acquired. In the event that this excess is negative the difference is recognised directly in profit for
the period.
Disposal of subsidiaries
When the Group ceases to have control over a subsidiary, any retained interest in the entity is remeasured to its fair value at the date when control
is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

4.2 Principal subsidiaries

The Group has taken advantage of the exemption under section 410(2) of Companies Act 2006 by providing information only in relation to subsidiary
undertakings whose results or financial position, in the opinion of the Directors, principally affect the financial statements. All of the companies below
are registered in England and Wales and the principal area of trading is the United Kingdom. All equity holdings are in ordinary shares.

Subsidiaries of Wm Morrison Supermarkets PLC Principal activity Equity holding %

Farmers Boy Limited Manufacturer and distributor of fresh food products 100
Neerock Limited Fresh meat processor 100
Wm Morrison Produce Limited Produce packer 100
Safeway Limited Holding company 100
Optimisation Developments Limited Property development 100
Subsidiaries of other Group companies
Safeway Stores Limited Grocery retailer 100
In addition to the above, the Company has a number of other subsidiary companies, particulars of which will be annexed to the next annual return.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
93

4 Interests in other entities continued

Strategic report
4.2 Principal subsidiaries continued

This includes the following overseas subsidiaries:

Country of
Overseas subsidiaries of the Group registration Principal activity Equity holding %

Bos Bros Fruit and Vegetables BV Netherlands Manufacturer and distributor of fresh food products 100%
Safeway Stores (Gibraltar) Pension Trustees Limited Gibraltar Dormant 100%
RP (No. 37) Limited Jersey Property development 100%
Stalwart Investments Limited Jersey Property holding company 100%

Governance
Freehold Investments Limited Jersey Property holding company 100%
Lease Securities Limited Jersey Property holding company 100%
Maypole Limited Guernsey Holding company 100%
Wm Morrison (HK) Limited Hong Kong Acquirer of non food products 100%
Farock Insurance Limited Isle of Man Insurance captive 100%

4.3 Joint ventures

The Group and Ocado Group plc are sole investors in a company (MHE JV Co), which owns the plant and equipment at the Dordon Customer
Fulfilment Centre (CFC) (see note 4.5). Each party owns 50% of the equity of MHE JV Co and decisions regarding MHE JV Co require the
unanimous consent of both parties. The Directors have considered the impact of IFRS 11 Joint arrangements, applicable this financial year, and
determined that the Group continues to jointly control MHE JV Co.

Financial statements
2015 2014
MHE JV Co £m £m

Current assets 24 17
Non-current assets 117 118
Current liabilities (5) (17)
Net assets 136 118
Profit 4 2

The Company is also part of a joint venture, with The Great Steward of Scotland Dumfries House Trust, in respect of The Morrisons Farm at Dumfries
House Limited, whose principal activity is to farm 859 acres of agricultural land located on the Dumfries House Estate near Cumnock in Ayrshire,
Scotland. The Farm’s results are immaterial to the Group.

4.4 Investments
2015 2014
£m £m

Equity investments at cost 31 31

The equity investments held for long term investment represents the Group’s 10% stake in Fresh Direct Inc, a US internet grocer. The investment
was made on 9 March 2011, and at that point, the Group made available to Fresh Direct a $15m 8% unsecured seven year loan facility. The facility is
undrawn at the balance sheet date.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
94

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

4 Interests in other entities continued 5 Working capital and provisions

4.5 Business combinations 5.1 Accounting policies

In the 52 weeks ended 1 February 2015 there have been no Stock

business combinations. Stock represents goods for resale and is measured at the lower of cost and
net realisable value. Net realisable value is the estimated selling price
52 weeks ended 2 February 2014 in the ordinary course of business, less the estimated costs necessary
On 24 July 2013 Wm Morrison Produce Limited acquired 51% of the to make the sale. Cost is calculated on a weighted average basis and
equity of Global Ripeners Limited, a company within Global Pacific comprises purchase price, import duties and other non-recoverable taxes,
group, for £4m cash consideration. This acquisition further expands reduced by promotional funding and commercial income and a provision
the Group’s manufacturing capability in a key product, bananas. Global for estimated losses relating to shrinkage and markdowns. Losses
Pacific has retained 49% of the issued share capital. As part of the relating to shrinkage in stores are based on historical losses verified
transaction a put and call option has been put in place between the Group by physical stock counts conducted by an independent third party.
and Global Pacific. As a result of the nature of these options, Global Provision is made for obsolete and slow moving items.
Ripeners Limited has been treated as a 100% subsidiary from acquisition,
with the stake of Global Pacific being treated as debt. The fair value of the Trade and other debtors
Group’s commitment in relation to the 49% shareholding at the date of Trade and other debtors are initially recognised at fair value, which is
acquisition is £4m. No goodwill arose on this acquisition and plant and generally equal to face value, and subsequently held at amortised cost.
machinery of £4m has been recognised in the Group. Global Ripeners Provision is made when there is objective evidence that the Group will
Limited had £4m of cash on acquisition. not be able to recover balances in full, with the charge being included
in administrative expenses.
On 31 July 2013, Global Ripeners Limited changed its name to
Wm Morrison Bananas Limited. Cash and cash equivalents
Cash and cash equivalents for cash flow purposes includes cash-in-hand,
Investment in food online cash-at-bank and bank overdrafts. In the balance sheet, bank overdrafts
On 25 July 2013, Morrisons entered into an agreement with Ocado to that do not have right of offset are presented within current liabilities.
provide operational and distribution services in relation to Morrisons
online grocery offering. Cash held by the Group’s captive insurer, Farock Insurance Company
Limited, is not available for use by the rest of the Group as it is restricted
As part of the agreement, Morrisons acquired a Customer Fulfilment for use against the specific liability of the captive. As the funds are
Centre (CFC) in Dordon, which is leased back to Ocado under an available on demand, they meet the definition of cash in IAS 7 ‘Cash
operating lease. This acquisition has been effected via the purchase of flow statements’.
100% of the equity of Last Mile Developments Limited (LMD), which
is controlled by, and becomes a subsidiary of, the Group. The Directors Trade and other creditors
have considered the application of IFRS 3 Business Combinations to Trade and other creditors are initially recognised at fair value, which is
this acquisition and concluded that it is not in the scope of this standard. generally equal to face value of the invoices received, and subsequently
LMD is a single-asset leasing vehicle with no strategic processes and held at amortised cost. Trade creditors are presented net of commercial
so does not meet the definition of a business. Consequently, the cash income due when the Group’s trading terms state that income from
consideration paid of £81m has been allocated to Property in the suppliers will be netted against amounts owing to that supplier.
Consolidated balance sheet and Cash flow statement in the prior year.
Provisions
The Directors have considered the impact of IFRS 10 Consolidated Provisions are created where the Group has a present obligation as a
financial statements, applicable this financial year, and determined that result of a past event, where it is probable that it will result in an outflow
the Group continues to control LMD on application of that standard. of economic benefits to settle the obligation, and where it can be reliably
On 14 August 2013, LMD changed its name to Firsdell Limited. measured. For petrol filling station decommissioning costs this is when
the filling station is first constructed and for dilapidations on leased
In addition, Morrisons entered into a joint venture agreement with Ocado buildings, when the lease is entered into. Provisions for onerous leases
(see note 4.3) and invested £30m in the technology required to operate are recognised when the Group believes that the unavoidable costs of
an online grocery business, which is recognised in the Group’s software meeting the lease obligations exceed the economic benefits expected
intangibles (see note 3.2). to be received under the lease. The amounts provided are based on the
Group’s best estimate of the least net cost of exit. Where material, these
4.6 Disposals relating to the Kiddicare business estimated outflows are discounted to net present value using a pre-tax
rate that reflects current market assumptions. The unwinding of this
A charge of £163m (comprising the write off of goodwill £24m, brand discount is recognised as a financing cost in the income statement.
£12m, asset impairment £70m and onerous lease provisions £57m)
was made last year in respect of the Kiddicare business. On 11 July
2014, 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. This profit is one-off in nature and so has
been excluded from reported underlying profit. As at the year end, seven
of the ten leases relating to Kiddicare had been assigned and two leases
had been exchanged but not yet completed.
One of these two leases was subsequently assigned in February 2015.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
95

5 Working capital and provisions continued

Strategic report
5.2 Stock
2015 2014
£m £m

Finished goods 658 852

Included in finished goods is a deduction for unearned elements of commercial income as the stock has not been sold.

5.3 Debtors
2015 2014
£m £m

Trade debtors:

Governance
– Commercial income trade debtors 10 21
– Accrued commercial income 37 20
– Other trade debtors 136 147
Less: provision for impairment of trade debtors (5) (8)
178 180
Prepayments and accrued income 51 116
Other debtors 10 20
239 316

The ageing analysis of trade debtors is as follows:

Financial statements
2015 2014
£m £m

Neither past due nor impaired 178 176

Past due but not impaired:
Not more than three months – 1
Greater than three months – 3
Impaired debt 5 8
183 188

As at 1 February 2015 and 2 February 2014, trade debtors that were neither past due nor impaired related to a number of debtors for whom there is no
recent history of default. The other classes of debtors do not contain impaired assets.
As of 5 March 2015, £7m of the £10m commercial income trade debtor balance had been settled and £21m of the £37m accrued commercial income
balance had been invoiced and settled.

5.4 Creditors – current

2015 2014
£m £m

Trade creditors 1,493 1,568

Less: commercial income due, offset against amounts owed (96) (132)
1,397 1,436
Other taxes and social security payable 96 58
Other creditors 241 315
Accruals and deferred income 487 463
2,221 2,272

As of 5 March 2015, £83m of the £96m commercial income due above had been offset against payments made.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
96

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

5 Working capital and provisions continued

5.5 Provisions
Onerous lease Other property
provision provisions Total
£m £m £m

At 3 February 2014 176 31 207

Charged to profit for the period 118 − 118
Utilised/released during the period (42) (2) (44)
Unwinding of discount 6 1 7
At 1 February 2015 258 30 288

Part of onerous leases relate to sublet and vacant properties, with commitments ranging from one to 58 years. The provision is revised regularly in
response to market conditions. During the year, £118m has been charged to onerous lease provisions in respect of the impairment detailed in note 1.4.
The utilisation of onerous lease provisions this year mostly relates to the assignment of Kiddicare leases.
The majority of other property provisions relate to a petrol filling station decommissioning reserve for the cost of decommissioning petrol tanks, and
provision for dilapidations on leased buildings, for the cost of restoring the asset to its original condition.

5.6 Cash generated from operations

2015 2014
£m £m

Loss for the period (761) (238)

Net finance costs 98 82
Taxation (credit)/charge (31) 62
Share of profit of joint venture (2) (1)
Operating loss (696) (95)
Adjustments for:
Depreciation and amortisation 387 393
Impairment 1,116 547
Profit arising on disposal and exit of properties and sale of businesses (135) (9)
Adjustment for non-cash element of pension charges (5) 2
Other non-cash charges 14 4
Decrease/(increase) in stocks1 180 (71)
Decrease/(increase) in debtors1 77 (25)
(Decrease)/increase in creditors1 (76) 154
Increase in provisions1 108 131
Cash generated from operations 970 1,031

Total working capital (the sum of items marked 1 above) is £289m in the year. This includes £157m as a result of the current year impairment and
onerous leases charge (see note 1.4) and is net of £74m of onerous capital payments in the year. When adjusted to exclude these items, the working
capital inflow is £206m.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
97

6 Capital and borrowings

Strategic report
6.1 Accounting policies

Borrowings
Interest-bearing loans and overdrafts are initially recorded at fair value, net of attributable transaction costs. Subsequent to initial recognition, any
difference between the redemption value and the initial carrying amount is recognised in profit for the period over the period of the borrowings on
an effective interest rate basis.
Borrowing costs
All borrowing costs are recognised in the Group’s profit for the period on an effective interest rate basis except for interest costs that are directly
attributable to the construction of buildings and other qualifying assets, which are capitalised and included within the initial cost of the asset.
Capitalisation commences when both expenditure on the asset and borrowing costs are being incurred, and necessary activities to prepare the asset
for use are in progress. In the case of new stores, this is generally once planning permission has been obtained. Capitalisation ceases when the asset is

Governance
ready for use. Interest is capitalised at the effective rate incurred on borrowings before taxation of 5% (2014: 5%). Capitalised interest is included within
interest paid in cash flow from operating activities.
Leases
Leases in which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases; all other leases
are classified as finance leases. Property leases are analysed into separate components for land and buildings and tested to establish whether the
components are operating leases or finance leases. Rental payments on operating leases in which the Group is lessee are taken to profit for the period
on a straight-line basis over the life of the lease.
Sale and leaseback of properties
The accounting treatment of the sale and leaseback depends upon the substance of the transaction (by applying the lease classification principles
described above). For sale and operating leasebacks, the assets are sold at fair value, and accordingly the profit or loss from the sale is recognised
immediately in the Statement of comprehensive income. A number of new property operating leases have been entered into in the year ended

Financial statements
1 February 2015 (see property commitments note 6.8). When forming the conclusion of operating lease classification, consideration was given to the
key lease classification indicators of IAS 17. The leases are typically for a 25 year period. The Directors have reviewed the remaining useful lives for
these particular properties and concluded they are significantly longer than the period of the lease. As disclosed on page 88 a review of the useful
economic lives of each of the property, plant and equipment categories has been performed in the year with no changes made. Other key indicators
considered in reaching an operating lease classification were the present value of the minimum lease payments and the ownership clauses in the
contracts upon expiry of the lease.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
98

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

6 Capital and borrowings continued

6.1 Accounting policies continued

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company’s equity share capital, the consideration paid,
including directly attributable incremental costs, is deducted from retained earnings until the shares are cancelled. On cancellation, the nominal
value of the shares is deducted from share capital and the amount is transferred to the capital redemption reserve.
Own shares held
The Group has employee trusts for the granting of Group shares to executives and members of the employee share plans. Shares in the Group held
by the employee share trusts are presented in the balance sheet as a deduction from retained earnings. The shares are deducted for the purpose of
calculating the Group’s earnings per share.
Net debt
Net debt is cash and cash equivalents, long term cash on deposit, bank and other current loans, bonds, private placement loan notes and derivative
financial instruments (stated at current fair value).

6.2 Finance costs and income

2015 2014
£m £m

Interest payable on short term loans and bank overdrafts (10) (12)
Interest payable on bonds (96) (86)
Interest capitalised 11 17
Total interest payable (95) (81)
Provisions: unwinding of discount (7) (3)
Other finance costs (3) (2)
Net pension interest cost (section 8) – (1)
Finance costs (105) (87)
Bank interest received 5 3
Amortisation of bonds 1 2
Net pension interest income (section 8) 1 –
Finance income 7 5
Net finance cost (98) (82)

6.3 Borrowings

The Group had the following current borrowings and other financial liabilities:

2015 2014
£m £m

Current
Bank overdraft 1 3
Short term borrowings 10 400
£150m Sterling bonds 6.50% August 2015 – 150
11 553
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
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6 Capital and borrowings continued

Strategic report
6.3 Borrowings continued

The Group had the following non-current borrowings and other financial liabilities:

2015 2014
£m £m

Non-current
£200m Sterling bonds 6.00% January 2017 201 201
£200m Sterling bonds 6.12% December 2018 202 203
£400m Sterling bonds 4.625% December 2023 397 397
£400m Sterling bonds 3.50% July 2026 421 390

Governance
£300m Sterling bonds 4.75% July 2029 291 –
$250m US private placement loan notes (USPP) 4.4% November 2026 164 149
€700m Euro bond 2.25% June 2020 518 568
Total non-current bonds and loan notes 2,194 1,908
Revolving credit facility 314 572
2,508 2,480

Borrowing facilities
Borrowings are denominated in sterling, US dollars and euros, and bear fixed interest rates, with the exception of the revolving credit facility which
bears floating interest rates. All borrowings are unsecured. In July 2014, the Group issued a £300m sterling bond at a fixed interest rate of 4.75%
expiring in July 2029. This is part of the Group’s £3bn Euro Medium Term Note programme. In September 2014 the Group entered into a new five

Financial statements
year syndicated committed revolving credit facility of £1.35bn, replacing the £1.2bn facility that was due to mature in March 2016. The revolving
credit facility incurs commitment fees at market rates and drawdowns bear interest at a spread above LIBOR.
In the event of default of covenants on the bank facility, the principal amounts and any interest accrued are repayable on demand.
At the balance sheet date, the Group has £1,180m (2014: £775m) of undrawn, floating, committed borrowing facilities available in respect of which all
conditions present had been met.
Maturity of borrowings
The table below summarises the maturity profile of the Group’s borrowings based on contractual, undiscounted payments, which include interest
payments. As a result, amounts shown below do not agree to the amounts disclosed on the balance sheet for borrowings. Creditors (note 5.4) are
excluded from this analysis.
Where borrowings are subject to a floating rate, an estimate for interest has been made.

2015 2014
£m £m

Less than one year 100 647

One to two years 290 88
Two to three years 78 858
Three to four years 277 69
Four to five years 386 268
More than five years 2,145 1,805
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
100

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

6 Capital and borrowings continued

6.3 Borrowings continued

Fair values
The fair value of the sterling and euro denominated bonds is measured using closing market prices (level 1). The fair value of the USPP is estimated
by comparing the interest rate to market rates available to the Group at the balance sheet date (level 2). The fair values of borrowings included in level
2 are based on the net present value of the anticipated future cash flows associated with these instruments using rates currently available for debts on
similar terms, credit risk and remaining maturities.
These compare to carrying values as follows:

2015 2014
Amortised Fair Amortised Fair
cost value cost value
£m £m £m £m

Total bonds: non-current and current 2,030 2,115 1,909 1,959

Total loan notes: non-current 164 175 149 171
2,194 2,290 2,058 2,130

The fair value of other items within current and non-current borrowing equals their carrying amount, as the impact of discounting is not material.

6.4 Analysis of net debt

2015 2014
Note £m £m

Cash and cash equivalents per balance sheet 241 261

Bank overdrafts 6.3 (1) (3)
Cash and cash equivalents per cash flow 240 258
Foreign exchange forward contracts 6 1
Other financial assets 7.3 6 1
Short term borrowings and current bonds 6.3 (10) (550)
Forward foreign exchange contracts 7.3 (6) (4)
Energy price contracts 7.3 (12) (6)
Current financial liabilities (28) (560)
Bonds 6.3 (2,030) (1,759)
Private placement loan notes 6.3 (164) (149)
Revolving credit facility 6.3 (314) (572)
Cross-currency contracts and interest rate swaps 7.3 (45) (34)
Energy price contracts 7.3 (5) (2)
Non-current financial liabilities (2,558) (2,516)
Net debt (2,340) (2,817)

Cash and cash equivalents include restricted balances of £21m (2014: £37m) which is held by Farock Insurance Company Limited.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
101

6 Capital and borrowings continued

Strategic report
6.5 Called−up share capital
Number of
shares Share capital Share premium Total
millions £m £m £m

Current period
At 3 February 2014 and 1 February 2015 2,335 234 127 361

Prior period
At 4 February 2013 2,346 235 107 342
Shares cancelled net of options exercised (11) (1) 20 19

Governance
At 2 February 2014 2,335 234 127 361

The total authorised number of ordinary shares is 4,000 million shares (2014: 4,000 million shares) with a par value of 10p per share (2014: 10p
per share). All issued shares are fully paid. There were 41,962 shares issued pursuant to the exercise of options (2014: 8,811,865) for an aggregate
consideration of £0.1m (2014: £21m). During the 52 weeks to 2 February 2014, the Group acquired 20,338,000 of its own shares for cancellation as
part of the equity retirement programme for consideration of £53m. The equity retirement programme completed in March 2013 and the Group did
not acquire any of its own shares for cancellation in the 52 weeks ended 1 February 2015.
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to one vote per share at the meetings
of the Company.
Trust shares
Included in retained earnings is a deduction of £6m (2014: £5m) in respect of own shares held at the balance sheet date. This represents the cost

Financial statements
of 2,907,374 (2014: 1,938,608) of the Group’s ordinary shares (nominal value of £0.3m (2014: £0.2m)). 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 1 February 2015 was £5m (2014: £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 4,000,000 of its own shares to hold in trust for consideration of £8m, and utilised 3,031,234 trust shares to
satisfy awards under the Group’s employee share plans.
Treasury shares
During the 52 weeks ended 1 February 2015 the Group received nil proceeds (2014: £7m) in respect of treasury shares utilised to satisfy share options
exercised by employees during the period. At 1 February 2015, no treasury shares remain (2014: nil).
Issue of new shares
The Group issued 41,962 (2 February 2014: 8,811,865) new shares to satisfy options exercised by employees during the period. Proceeds received
on exercise of these shares amounted to £0.1m (2014: £21m).

6.6 Reserves
2015 2014
£m £m

Capital redemption reserve 39 39

Merger reserve 2,578 2,578
Hedging reserve (22) (15)
Retained earnings 638 1,729
Total 3,233 4,331
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
102

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

6 Capital and borrowings continued

6.6 Reserves continued

Capital redemption reserve

The capital redemption reserve at the start of the period related to 389,631,561 of the Company’s own shares which it purchased on the open market
for cancellation between 31 March 2008 and 8 March 2013 at a total cost of £1,081m.
Merger reserve
The merger reserve represents the reserve in the Company’s balance sheet arising on the acquisition in 2004 of Safeway Limited. In the opinion
of the Directors, this reserve is not distributable and accordingly it will be carried forward as a capital reserve.
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging.

6.7 Capital management

The Group defines the capital that it manages as the Group’s total equity and net debt balances, as well as its lease commitments.
The Group’s capital management objectives are to safeguard its ability to continue as a going concern providing returns to shareholders via
optimising debt and equity balances, maintaining an investment grade credit rating and having adequate liquidity headroom. The Group manages
its capital structure by issuing new debt or shares. During the current financial year, net debt has reduced by £477m, reflecting strong operating
cash flow, reduced capital expenditure and £448m of property disposals. Additional funding of £300m has been obtained through the Group’s bond
programme, whilst the Group’s syndicated revolving credit facility has been renewed and extended to £1.35bn. The overall impact of this additional
funding has been an increase in the average maturity period of the Group’s debt. Throughout the year, the Group has comfortably complied with the
gearing and fixed charge cover covenants attaching to its revolving credit facility, and the USPP.

6.8 Operating leases – lessee

The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases. The leases have varying
terms, escalation clauses and renewal rights, and fall due as follows:

2015 2014
Vehicles, plant Vehicles, plant
Property and equipment Property and equipment
£m £m £m £m

Within one year 108 15 77 11

More than one year and less than five years 411 28 292 25
After five years 1,520 – 934 –
2,039 43 1,303 36

The movement in the property lease commitments within one year is summarised below:

Property operating lease commitment within one year £m

At 3 February 2014 77
Impact of disposal programme 15
Leases on new stores 14
Other 2
At 1 February 2015 108
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
103

7 Financial risk and hedging

Strategic report
7.1 Accounting policies within the next six months are hedged and at least 40% of exposures
in the following six months. At the balance sheet date, the Group had
Derivative financial instruments and hedge accounting hedged 84% of its exposure within the next six months (2014: 84%).
Derivatives are transacted to mitigate financial risks that arise as a result
of the Group’s operating activities and funding arrangements. At the Cross-currency interest rate swaps are used to mitigate the Group’s
inception of a hedge, the Group documents the relationship between the currency exposure arising from payments of interest and principal in
hedging instrument and the hedged item, the risk management objective relation to foreign currency funding, including the US dollar private
and strategy for undertaking the hedge. placement (USPP) loan notes and the euro denominated bond.

The Group assesses whether the hedging instrument is highly effective At the reporting date, the sensitivity to a reasonable possible change
in offsetting changes in fair values or cash flows of the hedged item (+/– 10%) in the US dollar and euro exchange rates would equate to a £7m
at inception and it also assesses whether the hedge has been and will post tax profit or loss exposure in relation to the euro and £5m in relation

Governance
continue to be effective on an ongoing basis. to the US dollar, for the unhedged forecast foreign currency exposures
over the next 12 months. The impact on other comprehensive income
All derivatives are initially recognised at fair value and are also measured would be £20m.
at fair value at each reporting date. Derivatives with positive fair values
are recognised as assets and those with negative fair values as liabilities. Liquidity risk
They are also categorised as current or non-current according to the The Group policy is to maintain a balance of funding borrowings across
maturity of each derivative. All gains or losses arising due to changes in a range of maturities and a sufficient level of committed headroom to
the fair value of derivatives are recognised in profit or loss except when meet obligations. The Group finances its operations using a diversified
the derivative qualifies for cash flow hedge accounting. range of funding providers including banks, bondholders, and
USPP noteholders.
Cash flow hedges
The Group designates derivatives into a cash flow hedge where they A central cash forecast is maintained by the treasury function who
have been transacted to hedge a highly probable forecast transaction or monitor the availability of liquidity to meet business requirements and
any unexpected variances. The treasury function seek to centralise all

Financial statements
a particular risk associated with an asset or liability. The effective portion
of the change in the fair value of the derivatives, that are designated into surplus cash balances to minimise the level of gross debt. Short term
cash flow hedge relationships, are recognised in other comprehensive cash balances, together with undrawn committed facilities, enable the
income. Cumulative gains or losses on derivatives are reclassified from Group to manage its day to day liquidity risk. Any short term surplus
other comprehensive income into profit or loss in the period when the is invested in accordance with the approved investment policy.
transaction occurs. Any ineffective portion of the gain or loss on the The Treasury Committee compares the committed liquidity available
derivative is immediately recognised in profit or loss. to the Group against the forecast requirements and policy headroom.
Fair value hedge Interest rate risk
The Group designates derivatives into a fair value hedge relationship The Group’s long term policy is to protect itself against adverse
when they hedge the Group’s exposure to changes in the fair value of a movements in interest rates by maintaining at least 60% of its total
recognised asset or liability, or a firm commitment. The change in fair borrowings at fixed interest rates. As at the balance sheet date 79%
value of the hedged asset or liability that is attributable to the hedged (2014: 62%) of the Group’s borrowings are at fixed rate.
risk is recognised in profit for loss or the period as well as the gain or
loss from changes in the fair value of the derivative. Whilst still applying the policy described above, from time-to-time the
Group enters into fixed-to-floating interest rate swaps to achieve the
7.2 Financial risk management appropriate proportion of fixed versus floating rate borrowings.
Credit risk
The Group has a centralised treasury function which manages As a retailer, the majority of the Group’s revenue is received in
funding, liquidity and other financial risk in accordance with the cash at the point of sale and therefore credit risk is not considered
Board approved treasury policy. The objective of the policy and significant to the Group. Some credit risk does arise from cash and
controls that are established are to mitigate the risk of an adverse cash equivalents, deposits with banking groups and exposures from
impact on the performance of the Group as a result of its exposure other sources of income such as commercial income and tenants
to financial risks arising from the Group’s operations and its sources of investment properties.
of finance. It is the Group’s policy not to engage in speculative trading
of financial instruments. The Group has established appropriate credit verification procedures
in respect of financial institutions. Limits on the total exposure to any
The Board retains ultimate responsibility for treasury activity and is counterparty or Group of connected counterparties are established
involved in key decision making. A Treasury Committee is established within treasury policy taking into account credit ratings. Compliance
to provide governance and oversight to treasury activity within delegated with limits is regularly monitored.
authority limits and formally reports to the Audit Committee.
There are no significant concentrations of credit risk within the Group.
Foreign currency risk
The majority of purchases made by the Group are denominated in Commodity price risk
sterling, however some trade purchases are made in other currencies, The Group manages the risks associated with the purchase of electricity,
primarily the euro and US dollar. The Group’s objective is to reduce short gas and diesel consumed by its activities (excluding fuel purchased
term profit volatility from exchange rate fluctuations. It is Group policy for resale to customers) by entering into hedging contracts to fix prices
that a minimum of 80% of committed and highly probable exposures for expected consumption.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
104

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

7 Financial risk and hedging continued

7.2 Financial risk management continued

The Group has adopted a capital at risk model for hedging its fuel and power consumption. The Treasury Committee reviews the Group’s exposure
to commodity prices and ensures it remains within policy limits. A change of +/– 10 % in the market value of the commodity price at the balance sheet
date would affect other comprehensive income by £9m (2014: £10m).

7.3 Derivative financial assets and liabilities

2015 2014
Derivative financial assets £m £m

Current
Foreign exchange contracts 6 1
6 1

All derivatives are categorised as level 2 instruments. Level 2 fair values for simple, over-the-counter derivatives are calculated by using benchmark,
observable market interest rates to discount future cash flows.

2015 2014
Derivative financial liabilities £m £m

Current
Foreign exchange contracts 6 4
Energy price contracts 12 6
18 10
Non-current
Cross-currency swaps and interest rate swaps 45 34
Energy price contracts 5 2
50 36

2015 2014
£m £m
< 1 year 1 – 5 years 5 + years < 1 year 1 – 5 years 5 + years
Maturity analysis of derivatives £m £m £m £m £m £m

Derivatives settled on a gross basis

Cross-currency swaps – cash flow hedges
– Outflow (25) (80) (823) (25) (99) (830)
– Inflow 19 77 756 20 78 793
Interest rate swaps – fair value hedges
– Outflow (3) (11) (18) (3) (11) (22)
– Inflow 7 28 46 7 28 56
Forward contracts – cash flow hedges
– Outflow (215) – – (232) – –
– Inflow 210 – – 212 – –
Derivatives settled on a net basis
Energy price contracts – cash flow hedges
– Outflow (12) (4) – (10) – –

The amounts disclosed in the table above are the contractual undiscounted derivative cash flows and therefore differ to those in the balance sheet.

7.4 Hedging activities

Cash flow hedges

At 1 February 2015 and 2 February 2014, the Group held US dollar cross-currency swaps designated as cash flow hedges. Prior to this, the
cross-currency swaps were designated as fair value hedges against the commitment to issue the USPP. At 1 February 2015, the Group also held euro
cross-currency swaps designated as cash flow hedges. The notional principal amount of the outstanding cross-currency swaps at 1 February 2015 was
$250m (2014: $250m) and €700m (2014: €700m).
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
105

7 Financial risk and hedging continued

Strategic report
7.4 Hedging activities continued

The energy price contracts and foreign currency derivatives shown in note 7.3 are also designated as cash flow hedges. The cash flows hedged will
occur within 12 months of the balance sheet date.
Fair value hedges
Profits recognised on fixed-to-floating interest rate swaps designated in fair value hedges are £31m (2014: loss of £4m). The change in fair value of the
underlying hedged item was a loss of £31m (2014: gain of £4m).

8 Pensions

Governance
8.1 Accounting policies

A defined contribution scheme is a pension scheme under which the Group pays fixed contributions into a separate entity and provides no guarantee
as to the quantum of retirement benefits that those contributions will ultimately purchase. A defined benefit scheme is one that is not a defined
contribution scheme.
Defined benefit schemes
Pension scheme assets are valued at market rates. Pension scheme obligations are an estimate of the amount required to pay the benefits that
employees have earned in exchange for current and past service, assessed and discounted to present value using the assumptions shown in note 8.4.1.
The net pension liability or asset recognised in the Consolidated balance sheet is the net of the schemes’ assets and obligations, which are calculated
separately for each scheme. The Group has a right to recognise the net pension asset in the Retirement saver plan (RSP).
Current service cost is treated as an operating cost in the Consolidated statement of income and Statement of cash flows and is part of underlying
earnings. Net interest income/expense is calculated by applying the discount rate on liabilities to the net pension liability or asset (adjusted for cash

Financial statements
flows over the accounting period) and is recognised in finance income/costs and excluded from underlying earnings.
Expenses incurred in respect of the management of scheme assets are included in Other comprehensive income as a reduction in the return on
scheme assets. Other scheme expenses are recognised in profit or loss as an operating expense.
Remeasurements comprise actuarial gains and losses on the obligations and the return on scheme assets (excluding interest). They are recognised
immediately in Other comprehensive income. Amounts shown within section 8 are before any adjustments for deferred taxation.

8.2 Defined benefit schemes: summary and description

The Group operates three defined benefit retirement schemes (together ‘the Schemes’) providing benefits based on a benefit formula that depends on
factors including the employee’s age and number of years of service. The Morrison and Safeway Schemes provide pension benefits based on either the
employee’s compensation package or career average revalued earnings (CARE) (the ‘CARE Schemes’). The CARE Schemes are generally not open
to new members. The 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 position of each scheme at 1 February 2015 is as follows:

2015 2014
Net position (liability)/asset: £m £m

CARE schemes (43) (13)

RSP 4 2
Combined net position (39) (11)

At the year end, schemes in surplus have been disclosed within assets on the balance sheet and schemes in deficit have been disclosed within
liabilities. In the prior year a net position was disclosed within liabilities since the surplus was considered immaterial.
The disclosures below show the details of the schemes combined:

2015 2015 2014 2014

CARE RSP CARE RSP
Balance sheet: £m £m £m £m

Fair value of scheme assets 4,047 87 3,055 39

Present value of obligations (4,090) (83) (3,068) (37)
Net pension (liability)/asset (43) 4 (13) 2
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
106

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

8 Pensions continued
8.2 Defined benefit schemes: summary and description continued
2015 2015 2014 2014
CARE RSP CARE RSP
Consolidated statement of comprehensive income £m £m £m £m

Current service cost – recognised in cost of sales 39 33 24 –

Current service cost – recognised in administrative expenses 4 4 8 –
Administrative costs paid by Schemes – recognised in administrative expenses 3 1 3 –
Curtailment gain (1) – – –
Net interest on net pension asset/liability – finance (income)/costs – (1) 1 –
Total expense charged to statement of comprehensive income 45 37 36 –
Statement of other comprehensive income:
Remeasurements in other comprehensive income charge/(credit) 31 – (11) –

The Schemes are registered schemes under the provisions of Schedule 36 of the Finance Act 2004 and the assets are held in legally separate, trustee-
administered funds. The Board of each Scheme is required by law to act in the best interest of the Scheme participants and is responsible for setting
the investment, funding and governance policies of the fund. A representative of the Group attends Trustee Investment Committee meetings in order
to provide the Group’s view on investment strategy, but the ultimate power lies with the Trustees. The Deed and Rules of the Morrison Scheme gives
the Trustees the power to set contributions. In the Safeway Scheme and the RSP this power is given to the Group, subject to regulatory override.
The latest full actuarial valuations have been carried out as at 1 April 2013 for the Safeway Scheme and 5 April 2013 for the Morrison Scheme and
the RSP. The results of these valuations for the CARE Schemes have been used and updated for IAS 19 ‘Employee benefits’ purposes for the period
to 1 February 2015 by a qualified independent actuary. For the RSP, an actuarial valuation for the purposes of IAS 19, based on member data as at
1 February 2015, has been completed by an independent actuary. The Schemes expose the Group to inflation risk, interest rate risk and market
investment risk. In addition, the CARE Schemes expose the Group to longevity risk.

8.3 Scheme assets

Assets of the Schemes generate returns and ultimately cash that is used to satisfy the Schemes’ obligations. They are not necessarily intended to
be realised in the short term. The Trustees of each Scheme invest in different categories of asset and in different allocations amongst those assets,
according to the investment principles of that Scheme.
Currently, the investment strategy of the CARE Schemes is to maintain a balance of approximately 40% equities and 60% bond-like investments.
RSP investments are currently based primarily in equities. There are no direct investments in the parent Company’s own shares or property occupied
by any member of the Group.
Fair value of Scheme assets:
2015 2015 2014 2014
CARE RSP CARE RSP
£m £m £m £m

Equities (quoted) 1,401 84 1,289 39

Corporate bonds (quoted) 1,109 – 891 –
Government bonds (quoted) – – 6 –
Liability driven investments (unquoted) 1,534 – 863 –
Cash (quoted) 3 3 6 –
Total 4,047 87 3,055 39

Liability driven investments (LDI)

The policy in the CARE Schemes is to limit investment risk and to manage the liabilities in order to reduce fluctuations in the Schemes’ funding
levels. This is achieved through the use of ‘liability driven investments’ (LDI), whose main goal is to have sufficient assets to meet all current and
future liabilities as they fall due. LDI involves the use of derivatives such as swaps and other investment instruments. There are no annuities or
longevity swaps.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
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8 Pensions continued

Strategic report
8.3 Scheme assets continued

The movement in the fair value of the Schemes’ assets over the period was as follows:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Fair value of scheme assets at start of period 3,055 39 2,839 –

Recognition of RSP scheme assets – – – 39
Interest income 137 3 137 –
Return on scheme assets excluding interest 879 9 96 –

Governance
Employer contributions 46 39 34 –
Employee contributions 1 2 10 –
Benefits paid (68) (4) (58) –
Administrative expenses (3) (1) (3) –
Fair value of scheme assets at end of period 4,047 87 3,055 39

The Group has previously entered into a pension funding partnership structure under which it has contributed interests in a Scottish Limited
Partnership (‘SLP’) valued at £90m (as at 31 January 2013) to the CARE schemes. The CARE Schemes’ interests in the SLP reduce the respective
deficits on a funding basis, although the agreements do not affect the position directly on an IAS 19 accounting basis because the investments held
by the CARE Schemes do not qualify as assets for IAS 19 purposes.
As partners in the SLP, the CARE Schemes are entitled to receive a share of the profits of the SLP twice a year for 20 years. The profits shared with the

Financial statements
Schemes are reflected in the Group financial statements as pension contributions. The SLP made a cash contribution of £6.6m during the year ending
1 February 2015, and will make annual contributions of £6.6m for a further 18 years.

8.4 Present value of obligations

The movement in the defined benefit obligation over the period was as follows:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Defined benefit obligation at start of period (3,068) (37) (2,859) –

Recognition of RSP defined benefit obligation – – – (37)
Current service cost (43) (37) (32) –
Interest expense (137) (2) (138) –
Actuarial loss – demographic assumptions (21) – – –
Actuarial loss – financial assumptions (889) (16) (118) –
Actuarial gain – experience – 7 31 –
Curtailment gain 1 – – –
Employee contributions (1) (2) (10) –
Benefits paid 68 4 58 –
Defined benefit obligation at end of period (4,090) (83) (3,068) (37)

The durations of the defined benefit obligations at the end of the 2015 reporting period are: RSP 20 years; Morrisons CARE 27 years; Safeway CARE
26 years. The weighted average duration of all three schemes is 26 years.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
108

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

8 Pensions continued
8.4 Present value of obligations continued

8.4.1 Significant actuarial assumptions

The following are the principal actuarial assumptions at the reporting date (expressed as weighted averages):

2015 2015 2014 2014

Financial assumptions CARE RSP CARE RSP

Discount rate applied to scheme liabilities (% p.a.) 3.10% 3.10% 4.50% 4.40%
Inflation assumption (RPI) (% p.a.) 3.10% 3.10% 3.50% 3.50%

2015 2015 2014 2014

Life expectancies CARE RSP CARE RSP

Longevity in years from age 65 for current pensioners

Male 22.6 n/a 22.3 n/a
Female 24.0 n/a 23.2 n/a
Longevity in years from age 65 for current members aged 45
Male 24.8 n/a 24.7 n/a
Female 26.4 n/a 25.6 n/a

Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The mortality
tables used at both year ends 2014 and 2015 are the S1PMA/S1PFA-Heavy tables (males/females) based on year of birth. Following analysis
completed as part of the 2013 actuarial valuations a scaling factor of 110% was applied to the mortality tables used in the Morrison Scheme as at
1 February 2015. Amongst the UK population, there is a continuing trend for a generation to live longer than the preceding generation, and this has
been reflected in the longevity assumption as at 2 February 2014 by adopting 80%/60% (males/females) of the ‘long cohort’ longevity projections
and also incorporating a minimum annual rate of improvement in longevity of 1.25% p.a. For the 2015 year end, and in line with the 2013 actuarial
valuations this projection was updated to use the CMI 2012 rates with an annual rate of improvement of 1.5% p.a.
Related actuarial assumptions (expressed as weighted averages)
2015 2015 2014 2014
CARE RSP CARE RSP

Rate of increases in salaries (% p.a.) 3.10% 2.30% 3.50% 3.50%

Rate of increase of pensions in payment: RPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.) 2.10%/3.10% – 2.30%/3.50% –
Pre-retirement revaluation for active members (% p.a.) 3.10% 1.80% 3.50% 2.10%
Rate of increase of pensions in deferment: CPI inflation capped
at either 2.5% p.a. or 5% p.a. (% p.a.) −/2.30% 2.30%/− −/2.70% 2.50%/−
CPI inflation (% p.a.) 2.30% 2.30% 2.70% 2.70%

8.4.2 Sensitivity analysis on significant actuarial assumptions

The following table summarises the impact on the defined benefit obligation at the end of the reporting period if each of the significant actuarial
assumptions listed above were changed, in isolation, assuming no other changes in market conditions at the accounting date. In practice any
movement in assumptions could be accompanied by a partially offsetting change in asset values, and the corresponding overall impact on the
net asset/(liability) is therefore likely to be lower than the amounts below in a number of scenarios. Extrapolation of the sensitivities shown may
not be appropriate.

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Discount rate applied to Scheme obligations +/– 0.1% pa −/+ 99 −/+ 2 –/+ 73 –/+ 1
Inflation assumption (RPI and associated assumptions) +/– 0.1% pa +/− 89 +/− 1 +/– 64 +/− 1
Longevity +/– one year + 159 – +/− 94 –
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
109

8 Pensions continued

Strategic report
8.5 Funding

The CARE Schemes and the RSP are funded schemes to which both employees and the Group contribute. The Morrison Scheme is entirely funded
by the parent Company and the Safeway Scheme is funded by Safeway Limited and its subsidiaries. The Group’s subsidiaries participate in the
RSP. There is no contractual agreement or stated policy for charging the net defined benefit cost between the parent Company and its subsidiaries.
The contribution of each participating subsidiary to the RSP is calculated in proportion to the number of employees that are members of the RSP.
The current best estimate of Group contributions to be paid for the accounting period commencing 2 February 2015 is £92m. This estimate includes
amounts payable from the SLP and salary sacrificed contributions from employees.

8.6 Proposed closure of CARE schemes to future accrual

Governance
During January 2015, the Group 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. The Group’s proposal is that scheme members’ accrued benefits will be frozen (subject
to inflationary revaluation), and that future benefits will no longer accrue in these schemes. Following this agreement the Group has entered into a
consultation with scheme members on 23 February 2015. The Group expects that the consultation process will conclude during May 2015. Subject to
the outcome of the consultation, any changes would become effective in early July 2015. The financial effect of closing these schemes to future accrual
would be to reduce the Group’s exposure to future volatility, and increases in pension liabilities and costs.

9 Share−based payments
9.1 Accounting policy

Share−based payments

Financial statements
The Group issues equity-settled share-based payments to certain employees in exchange for services rendered by them. The fair value of the share-
based award is calculated at the date of grant and is expensed on a straight-line basis over the vesting period with a corresponding increase in equity.
This is based on the Group’s estimate of share options that will eventually vest. This takes into account movement of non-market conditions, being
service conditions and financial performance, if relevant.
The fair value of share options is measured by use of a binomial stochastic model. The expected life used in the model has been adjusted, based on
management’s best estimate, for effects of non-transferability, exercise restrictions and behavioural considerations.
The charge in the period for share-based payments was £11m (2014: £6m).

9.2 Share save schemes

The Share save scheme began in May 2000 and all employees (including Executive Directors) are eligible once the necessary service requirements
have been met. The scheme allows participants to save up to a maximum of £250 each month for a fixed period of three years. Options are offered
at a discount of 20% to the mid-market closing price on the day prior to the offer and are exercisable for a period of six months commencing after the
end of the fixed period of the contract. The exercise of options under this scheme is subject only to service conditions. The schemes that launched in
May 2011 and subsequently are under the new scheme rules approved by the shareholders in June 2010.
The fair value of options granted, and the inputs used to determine it are as follows:

Grant date 20 May 2014 13 May 2013 14 May 2012 17 May 2011

Share price at grant date £2.10 £2.92 £2.79 £3.01

Fair value of options granted £11.6m £8.1m £9.1m £11.5m
Exercise price £1.64 £2.25 £2.36 £2.28
Dividend yield 6.21% 4.17% 3.69% 3.2%
Annual risk free interest rate 1.00% 0.45% 0.53% 1.65%
Expected volatility* 18.3% 16.8% 19.4% 24.2%
* The volatility measured at the standard deviation of expected share price returns is based on statistical analysis on weekly share prices over the past 3.37 years prior to the date
of grant.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
110

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

9 Share−based payments continued

9.2 Share save schemes continued

The requirement that the employee has to save in order to purchase shares under the Share save plan is a non-vesting condition. This feature has
been incorporated into the fair value at grant date by applying a discount to the valuation obtained from the binomial stochastic option pricing model.
The discount is determined by estimating the probability that the employee will stop saving based on expected future trends in the share price and
employee behaviour.

2015 2014
Weighted average Weighted average
exercise price in Options exercise price in Options
£ per share thousands £ per share thousands

Movement in outstanding options

Outstanding at start of period 2.30 42,993 2.34 43,660
Granted 1.64 41,208 2.25 18,901
Exercised 2.28 (42) 2.37 (11,578)
Forfeited 2.16 (33,374) 2.32 (7,990)
Outstanding at end of period 1.85 50,785 2.30 42,993
Exercisable at end of period 2.28 56 2.37 36

2015 2014
Weighted average Weighted average
share price at date Number of share price at date Number of
of exercise shares of exercise shares
£ thousands £ thousands

Share options exercised in the financial period 2.14 42 2.73 11,578

2015 2014

Share options outstanding at the end of the period

Range of exercise prices £1.64 to £2.36 £2.25 to £2.37
Weighted average remaining contractual life 2.5 years 2.0 years

9.3 Long term incentive plans

In May 2007, a discretionary LTIP for the benefit of certain employees was introduced. The awards have no exercise price and accrue the value
of dividends over the vesting period.
LTIP grants issued before 2013 are subject to the performance conditions, as stated below. Since 2013, the performance conditions apply to
Management Board members only. Senior employees eligible for LTIPs have to satisfy a service condition only. Given the size of the Management
Board, the fair value of the LTIP grants assumes no leavers. The leavers assumptions below relate to the senior employees only.
Awards normally vest three years after the original grant date, provided the relevant performance criteria have been met.
The fair value of awards granted and the inputs used to determined it are as follows:

16 Oct 20 Jun 22 Apr 17 Oct 22 Apr 15 Oct 13 Apr 1 Oct

Grant date 2014 2014 2014 2013 2013 2012 2012 2011

Share price at grant date £1.57 £1.91 £2.02 £2.79 £2.80 £2.75 £2.91 £3.02
Assumed leavers (Senior employees only) 7% − 7% 8% 8% 5% 5% 5%
Performance criteria (Management Board only) − − 55% 50% 50% 65% 65% 77%
Fair value of share awards  £0.9m £3.0m £16.7m £1.5m £18.8m £1.5m £28.1m £1.4m
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
111

9 Share−based payments continued

Strategic report
9.3 Long term incentive plans continued
2015 2014
Share awards Share awards
thousands thousands

Movement in outstanding share awards

Outstanding at start of period 10,444 24,630
Granted 10,484 7,267
Forfeited (2,135) (21,453)
Outstanding at end of period 18,793 10,444
Exercisable at end of period – –

Governance
The weighted average remaining contractual life of the share awards is 2.6 years (2014: 2.0 years).

9.4 One−off share awards

As part of the package for certain senior management, restricted share awards may be granted. These are primarily designed to replace the value
of share scheme awards forfeited from the previous employer. Vesting of these awards is subject only to service conditions.
The fair value of awards granted and the inputs used to determined it are as follows:

Grant date 2015 2014

Share price at grant date £2.12 –

Financial statements
Assumed leavers – –
Fair value of share awards granted £0.4m –

There are 165,358 share awards outstanding at the end of the period (2014: nil). The movement during the period is entirely the result of options being
granted. The weighted average remaining contractual life of the share awards is 1.1 years (2014: nil years).

9.5 Restricted share award

Following the non vesting of the 2011 and 2012 LTIP, a decision was made to replace the LTIP for those colleagues below Management Board
with restricted share awards. This scheme is not subject to financial performance measures. The awards vest subject to a requirement to remain
in employment for a certain period; half the awards vest after one year and the remaining half after two years.
The fair value of awards granted and the inputs used to determined it are as follows:

Grant date 22 April 20131 22 April 20132 17 October 2013

Share price at grant date £2.80 £2.80 £2.79

Assumed leavers 8% 8% 8%
Fair value of share awards granted £7.1m £7.1m £0.6m
1
Vested in April 2014.
2
Vests April 2015.

2015 2014
Share awards Share awards
thousands thousands

Movement in outstanding share awards

Outstanding at start of period 4,926 –
Granted − 4,926
Exercised (2,453) –
Lapsed (133) –
Outstanding at end of period 2,340 4,926
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
112

Notes to the Group financial statements continued

52 weeks ended 1 February 2015

9 Share−based payments continued

9.6 Deferred share bonus plan

Certain members of senior management participate in the deferred share bonus plan under which 33% to 50% of any bonus payable is deferred in
shares for three years from the date the deferred share award is made. Dividend equivalents accrue over the vesting period, to be paid when the shares
vest. Vesting of these share awards is subject only to service conditions.
The fair value of awards granted and the inputs used to determine it:

Grant date 2014/15 scheme 2013/14 scheme

Share price at grant date £2.10 –

Assumed leavers 0% –
Exercise price £nil –
Fair value of share awards granted £0.6m –

2015 2014
Share awards Share awards
thousands thousands

Movement in outstanding share awards

Outstanding at start of period 937 1,424
Granted 286 –
Exercised (408) (487)
Outstanding at end of period 815 937

The weighted average remaining contractual life of the share awards is 0.8 years (2014: 0.8 years).

10 Other
10.1 Related party transactions

As identified on page 60 of the Directors’ report, the Directors were advised during the year that certain distributions made in the years ended
3 February 2013 and 2 February 2014 were not in accordance with the Companies Act 2006. The resolution referred to in this section of the
Directors’ Report also meets the criteria of a related party transaction under IAS 24. The matter has been resolved through the filing of a circular
with the UK Listings Authority on 10 February 2015 and a general meeting of the Company’s shareholders on 6 March 2015.
The Group’s other related party transactions in the period include the remuneration of the senior managers (note 1.7), and the Directors’ emoluments and
pension entitlements, share awards and share options in the audited section of the Remuneration report, which forms part of these financial statements.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
113

Wm Morrison Supermarkets PLC – Company balance sheet

1 February 2015

Strategic report
2015 2014
Note £m £m

Fixed assets
Intangible assets 11.3.1 26 30
Tangible assets 11.3.2 2,866 3,541
Investments 11.5 3,470 3,470
Investment in joint venture 68 66
6,430 7,107
Current assets
Stock 420 543
Derivative financial assets 11.4 6 1

Governance
Debtors – amounts falling due within one year 11.6 2,290 2,824
Cash at bank and in hand − 99
2,716 3,467
Creditors – amounts falling due within one year 11.7 (2,011) (4,291)

Net current assets/(liabilities) 705 (824)

Total assets less net current assets/(liabilities) 7,135 6,283

Creditors – amounts falling due after more than one year 11.8 (2,346) (2,320)

Financial statements
Provisions for liabilities 11.9 (279) (185)

Net assets – excluding pension asset 4,510 3,778

Net pension asset 11.10 12 9
Net assets – including pension asset 4,522 3,787

Capital and reserves

Called-up share capital 11.12 234 234
Share premium 11.13 127 127
Capital redemption reserve 11.13 39 39
Merger reserve 11.13 2,578 2,578
Hedging reserve 11.13 (22) (15)
Profit and loss account 11.13 1,566 824
Total shareholders’ funds 4,522 3,787

The accounting policies on pages 114 to 117 and notes on pages 117 to 126 form part of these financial statements.
The financial statements on pages 113 to 126 were approved by the Board of Directors on 11 March 2015 and were signed on its behalf by:

Trevor Strain
Chief Financial Officer
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
114

Wm Morrison Supermarkets PLC –

Company accounting policies
52 weeks ended 1 February 2015

11 Company financial statements Cost of sales

Cost of sales consists of all costs to the point of sale including property,
11.1 Accounting policies manufacturing, warehouse and transportation costs. Store depreciation,
store overheads and store-based employee costs are also allocated to cost
Basis of preparation of sales.
These separate financial statements of Wm Morrison Supermarkets PLC
(the Company) have been prepared on a going concern basis under the Other operating income
historical cost convention, except as disclosed in the accounting policies Other operating income primarily consists of income not directly
set out below, and in accordance with applicable accounting standards related to grocery retailing and mainly comprises rental incomes and
under UK GAAP and the Companies Act 2006. income generated from recycling of packaging. Rental income arising
from operating leases is accounted for on a straight-line basis to the date
As noted in the annual report and financial statements for the year ended of the next rent review.
2 February 2014, the Directors were advised that certain distributions
(including share repurchases) carried out in the years ended 3 February Investments
2013 and 2 February 2014 were made otherwise than in accordance Investments in subsidiary undertakings and joint ventures
with the Companies Act 2006. At a general meeting of the Company’s Investments in subsidiary undertakings and joint ventures are stated
shareholders, held on 6 March 2015, a resolution was passed which at cost less provision for impairment.
ratified the payment of the relevant dividends, authorised the re- Investments in equity instruments
execution of the relevant share repurchases and removed any right for All equity instruments are held for long term investment and are measured
the Company to pursue shareholders or directors for the repayment of at fair value, where the fair value can be measured reliably. Where the fair
the relevant funds. The overall effect of this resolution being passed is value of the instruments cannot be measured reliably, the investment will
to return all parties to the position that they would have been in had the be recognised at cost less accumulated impairment losses in accordance
relevant distributions been made in accordance with the Companies with FRS 26 ‘Financial instruments: recognition and measurement’.
Act 2006. Any impairment is recognised immediately in profit or loss.
The following accounting policies have been applied consistently in Tangible assets
dealing with items which are considered material in relation to the Tangible assets are stated at cost less accumulated depreciation
Company’s financial statements. and accumulated impairment losses. Costs include directly attributable
Accounting reference date costs. Annual reviews are made of estimated useful lives and material
The accounting period of the Company ends on the Sunday falling residual values.
between 29 January and 4 February each year. Depreciation
Revenue recognition The policy of the Company is to provide depreciation at rates that are
Sale of goods in−store and online, and fuel calculated to write off the cost less residual value of tangible fixed assets
Revenue from the sale of goods in-store and online comprises cash from on a straight-line basis. The rates applied are:
customers and excludes VAT. It is net of returns, colleague discounts,
coupons, vouchers, Match & More points earned in-store and online and Freehold land 0%
the free element of multi-save transactions. Sale of fuel is recognised net Freehold buildings 2.5%
of VAT and Match & More points earned on fuel. Revenue is recognised
when transactions are completed in-store, or, in the case of online sales, Leasehold improvements Over the shorter of lease period and 2.5%
when goods are accepted by the customer on delivery. Plant, equipment, 10% to 33%
fixtures and vehicles
Other sales
Other revenue includes income from concessions and commissions Software development costs 10% to 33%
based on the terms of the contract. Revenue collected on behalf of Assets under construction 0%
others is not recognised as turnover, other than the related commission.
Sales are recorded net of value added tax. Fixed assets are reviewed for indications of impairment when events
or changes in circumstances indicate that the carrying amount may
Match & More and other initiatives not be recoverable. This is performed for each income generating unit,
The fair value of Match & More and other initiatives is determined to be which in the case of a supermarket is an individual retail outlet. If there
the value to the customer of the points issued, adjusted for factors such as are indications of possible impairment, then a test is performed on the
the expected redemption rate. Given Match & More was launched in the asset affected to assess its recoverable amount against carrying value.
year the Company will continue to assess the appropriateness of the rates An impaired asset is written down to its recoverable amount, which is the
against actual redemptions going forward. higher of value in use or its net realisable value. In assessing value in use,
The fair value is treated as a deduction from revenue at the time the the estimated future cash flows are discounted to their present value
points are issued, and is deferred until the rewards are redeemed by using a pre-tax discount rate that reflects current market assessments
the customer in a future sale. of the time value of money and the risks specific to the asset.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
115

11 Company financial statements continued

Strategic report
The effective part of any movement in the fair value of the derivative
is recognised in the statement of total recognised gains and losses
11.1 Accounting policies continued (STRGL) and presented in the hedging reserve within equity.
Ineffectiveness is immediately recognised in profit for the period,
If there is indication of an increase in fair value of an asset that had energy price contracts within cost of sales and cross-currency swaps
been previously impaired, then this is recognised by reversing the within finance income/costs. Cumulative gains or losses on derivatives
impairment, but only to the extent that the recoverable amount does held in the hedging reserve are reclassified into profit for the period
not exceed the carrying amount that would have been determined if when the transaction occurs.
no impairment loss had been recognised for the asset.
Fair value hedges
Software development costs A fair value hedge mitigates the Company’s exposure to changes in fair
Costs that are directly attributable to the creation of identifiable software, value of a recognised asset or liability or a firm commitment. The change
which meet the development asset recognition criteria as laid out in FRS in fair value of the hedged asset or liability that is attributable to the
15 ‘Tangible fixed assets’ are recognised as tangible assets. hedged risk is recognised in profit for the period.

Governance
Direct costs include consultancy costs, the employment costs of Capital management
internal software developers and borrowing costs. All other software The capital management policy of the Company is consistent with that
development and maintenance costs are recognised as an expense when of the Group set out in note 6.7.
incurred. Software development assets are held at historical cost less
accumulated depreciation and impairment, and are depreciated over Borrowing costs
their estimated useful lives (3 to 10 years) on a straight-line basis. All borrowing costs are recognised in the Company’s profit and loss
account on an accruals basis, except for interest costs that are directly
Financial instruments attributable to the construction of buildings and other qualifying assets
Trade and other debtors which are capitalised and included within the initial cost of the asset.
Trade and other debtors are initially recognised at fair value, which Capitalisation commences when both expenditure on the asset and
is generally equal to face value, and subsequently held at amortised borrowing costs are being incurred, and necessary activities to prepare
cost. Provision is made when there is objective evidence that the the asset for use are in progress. In the case of new stores, this is generally

Financial statements
Company will not be able to recover balances in full, with the charge once planning permission has been obtained. Capitalisation ceases
being recognised in the profit and loss account. Balances are written when the asset is ready for use. Interest is capitalised at the effective
off when the probability of recovery is assessed as being remote. rate incurred on borrowings before taxation of 5% (2014: 5%).
Cash at bank and in hand Pension costs
Cash at bank and in hand includes cash-in-hand, cash-at-bank and bank A defined contribution scheme is a pension scheme under which the
overdrafts. In the balance sheet, bank overdrafts that do not have a right Company pays fixed contributions into a separate entity and provides
of offset are presented within current liabilities. no guarantee as to the quantum of retirement benefits that those
Trade and other creditors contributions will ultimately purchase. A defined benefit scheme
Trade and other creditors are initially stated at fair value, which is is one that is not a defined contribution scheme.
generally equal to face value, and subsequently held at amortised cost. Pension scheme assets are valued at market rates. Pension scheme
Borrowings obligations are an estimate of the amount required to pay the benefits
Borrowings are initially recorded at fair value, net of attributable that employees have earned in exchange for current and past service,
transaction costs. Subsequent to initial recognition, any difference assessed and discounted to present value using the assumptions
between the redemption value and the initial carrying amount is shown in note 11.10). The net pension liability or asset recognised
recognised in profit for the period over the period of the borrowings in the Company’s balance sheet is the net of the schemes’ assets
on an effective interest rate basis. and obligations, which are calculated separately for each scheme.
The operating and financing costs of the schemes are recognised
Derivative financial instruments separately in the profit and loss account in the period in which they arise.
Derivative financial instruments are initially measured at fair value, Death-in-service costs are recognised on a straight-line basis over their
and are remeasured at fair value through profit or loss, except where vesting period. Actuarial gains and losses are recognised immediately
the derivative qualifies for hedge accounting. in the STRGL.
Cash flow hedges A liability or asset is recognised in the balance sheet in respect of the
A cash flow hedge mitigates the Company’s exposure to variability in Company’s net obligations to the schemes and is stated net of deferred tax.
cash flows attributable either to a recognised asset or liability or a highly
probable forecasted transaction. The Company has cross-currency swaps Foreign currencies
and energy price contracts designated as cash flow hedges. Transactions in foreign currencies are recorded at the rates of exchange
at the dates of the transactions. At each balance sheet date, monetary
assets and liabilities that are denominated in foreign currency are
retranslated at the rates of exchange at the balance sheet date. Gains and
losses arising on retranslation are included in the profit and loss account
for the period.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
116

Wm Morrison Supermarkets PLC –

Company accounting policies continued
52 weeks ended 1 February 2015

11 Company financial statements continued reported in the profit and loss account as it is adjusted both for items that
will never be taxable or deductible and timing differences.
11.1 Accounting policies continued
Deferred tax is provided in full on timing differences which result in
Provisions an obligation at the balance sheet date to pay more tax, or a right to pay
Provisions are created where the Company has a present obligation as a less tax, at a future date, at average rates expected to apply when they
result of a past event, where it is probable that it will result in an outflow crystallise, based on tax rates enacted or substantively enacted at the
of economic benefits to settle the obligation, and where it can be reliably balance sheet date. Timing differences arise from the inclusion of items
measured. For petrol filling station decommissioning costs this is when of income and expenditure in taxation computations in different periods
the filling station is first constructed and for dilapidations on leased from those in which they are included in the financial statements.
buildings, when the lease is entered into. Provisions for onerous leases A net deferred tax asset is recognised only when it is recoverable on
are recognised when the Company believes that the unavoidable costs the basis that it is more likely than not that there will be suitable taxable
of meeting the lease obligations exceed the economic benefits expected profits against which to recover carried forward tax losses and from
to be received under the lease. The amounts provided are based on the which the future reversal of underlying timing differences can be
Company’s best estimate of the least net cost of exit. Where material, deducted. Deferred tax assets and liabilities are not discounted.
these estimated outflows are discounted to net present value using a pre-
tax rate that reflects current market assumptions. The unwinding of this Stock
discount is recognised as a financing cost in the profit and loss account. Stock represents goods for resale and is measured at the lower of cost and
net realisable value. Net realisable value is the estimated selling price
Leases in the ordinary course of business, less the estimated costs necessary
Leases in which substantially all the risks and rewards of ownership are to make the sale. Cost is calculated on a weighted average basis and
retained by the lessor are classified as operating leases; all other leases comprises purchase price, import duties and other non-recoverable
are classified as finance leases. taxes, reduced by commercial income and a provision for estimated
Lessor accounting – operating leases losses relating to shrinkage. Losses relating to shrinkage in stores are
Assets acquired and held for use under operating leases are recorded as based on historical losses verified by physical stock counts conducted
fixed assets and are depreciated on a straight-line basis to their estimated by an independent third party. Provision is made for obsolete and slow
residual values over their estimated useful lives. Operating lease income moving items.
is recognised on a straight-line basis to the date of the next rent review. Share−based payments
Sale and leaseback The Company issues equity-settled share-based payments to certain
The accounting treatment of the sale and leaseback depends upon employees in exchange for services rendered by them. The fair value of
the substance of the transaction (by applying the lease classification the share-based award is calculated at the date of grant and is expensed
principles described above). For sale and operating leasebacks, the assets on a straight-line basis over the vesting period with a corresponding
are sold at fair value, and accordingly the profit or loss from the sale is increase in equity. This is based on the Company’s estimate of share
recognised immediately in the profit and loss account. A number of options that will eventually vest. This takes into account movement
new property operating leases have been entered into in the year ended of non-market conditions, being service conditions and financial
1 February 2015 (see property commitments note 6.8). When forming the performance, if relevant. Fair value is measured by use of a binomial
conclusion of operating lease classification, consideration was given to stochastic option pricing model. The expected life used in the model
the key lease classification indicators of SSAP 21. The leases are typically has been adjusted, based on management’s best estimate, for effects of
for a 25 year period. The Directors have reviewed the remaining useful non-transferability, exercise restrictions and behavioural considerations.
lives for these particular properties and concluded they are significantly The cost of the share-based award relating to each subsidiary is
longer than the period of the lease. As disclosed on page 88 a review of calculated, based on an appropriate apportionment, and recharged
the useful economic lives of each of the property, plant and equipment through intercompany.
categories has been performed in the year with no changes made. Other
Financial contracts
key indicators considered in reaching an operating lease classification
Where the Company enters into financial contracts to guarantee the
were the present value of the minimum lease payments and the
indebtedness of other companies within its Group, the Company
ownership clauses in the contracts upon expiry of the lease.
considers these to be insurance arrangements, and accounts for them
Lessee accounting – operating leases as such. In this respect, the Company treats the guarantee contract as
Rental payments are taken to the profit and loss account on a straight-line a contingent liability until such time as it becomes probable that the
basis over the life of the lease. Company will be required to make a payment under the guarantee.
Lessee accounting – finance leases Share capital
The lower of the fair value and the present value, calculated using the Ordinary shares are classified as equity. Incremental costs directly
interest rate implicit in the lease, of the future minimum lease payments attributable to the issue of new shares or options are shown in equity
is included within property, plant and equipment and financial liabilities as a deduction, net of tax, from the proceeds.
as an obligation to pay future rentals. Depreciation is provided at the
Where the Company has purchased its own equity share capital, the
same rates as for owned assets, or over the lease period, if shorter.
consideration paid, including directly attributable incremental costs,
Rental payments are apportioned between the finance charge and the
is deducted from retained earnings until the shares are cancelled.
outstanding obligation so as to produce a constant rate of finance charge
On cancellation, the nominal value of the shares is deducted from share
on the remaining balance.
capital and the amount is transferred to the capital redemption reserve.
Deferred and current taxation
Current tax payable is based on the taxable profit for the period using tax
rates in effect during the period. Taxable profit differs from the profit as
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
117

Notes to the Company financial statements

52 weeks ended 1 February 2015

11 Company financial statements continued

Strategic report
11.1 Accounting policies continued

Exemptions
The Company has taken advantage of the exemption from the disclosure requirements of FRS 29 ‘Financial instruments: disclosures’. The cash flows
of the Company and financial instruments disclosures are included in the consolidated financial statements.
The Company is exempt under the terms of FRS 8 ‘Related parties’ from disclosing related party transactions with wholly owned entities that are part
of the Wm Morrison Supermarkets PLC Group.
The Company has taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented a profit and loss
account for the Company.

Governance
11.2 Profit and loss account

The profit after tax for the Company for the 52 week period ended 1 February 2015 was £1,055m (52 weeks ended 2 February 2014: £1,023m).
The Company’s auditor, PricewaterhouseCoopers LLP (2014: KPMG Audit Plc), charged £0.4m (2014: £0.4m) for audit services in the year, £nil
(2014: £0.1m) for services related to taxation and £0.3m (2014: £0.1m) for other services.

11.3 Intangible and tangible assets

11.3.1 Intangible assets

Acquired
intangibles
£m

Financial statements
Cost
At 3 February 2014 30
Additions at cost −
At 1 February 2015 30

Accumulated depreciation and impairment

At 3 February 2014 −
Charged in the period 4
At 1 February 2015 4

Net book value

At 1 February 2015 26
At 2 February 2014 30

Intangible assets primarily consist of purchased technology required to operate an online grocery business.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
118

Notes to the Company financial statements continued

52 weeks ended 1 February 2015

11 Company financial statements continued

11.3 Intangible and tangible assets continued

11.3.2 Tangible assets

Land and buildings

Plant, equipment, Software

Freehold Leasehold fixtures & vehicles development costs Total
£m £m £m £m £m

Cost
At 3 February 2014 3,436 624 1,722 − 5,782
Additions 25 173 185 − 383
Interest capitalised − − 9 − 9
Reclassifications (484) − (168) 652 −
Transfers 28 − − − 28
Disposals (402) (75) (68) − (545)
At 1 February 2015 2,603 722 1,680 652 5,657

Accumulated depreciation and impairment

At 3 February 2014 855 251 1,135 − 2,241
Charged in the period 109 13 113 − 235
Reclassifications (175) − (2) 177 −
Transfers 2 − − − 2
Impairment 186 168 127 − 481
Disposals (93) (13) (62) − (168)
At 1 February 2015 884 419 1,311 177 2,791

Net book value

At 1 February 2015 1,719 303 369 475 2,866
At 2 February 2014 2,581 373 587 − 3,541

In previous years software development costs have been held within other categories of property, plant and equipment. In order to provide greater
understanding of the depreciation charge, these have been reclassified and presented separately above.
Included in the note above is an amount of £907m (2014: £955m) relating to non-depreciable land and £163m (2014: £222m) of assets under
construction. The cost of assets held under finance leases at 1 February 2015 is £336m (2014: £285m), with related accumulated depreciation
of £101m (2014: £75m). The cost of property assets held as lessor included above is £57m at 1 February 2015 (2014: £144m) and accumulated
depreciation of £46m (2014: £42m).
The cost of financing asset developments prior to them being ready for use has been included in the cost of the project. The cumulative amount
of interest capitalised in the total cost above amounts to £128m (2014: £119m). Interest is capitalised at the effective interest rate of 5% (2014: 5%)
incurred on borrowings.
Included in the charge for the period is an impairment charge of £481m. The events and circumstances resulting in this loss are explained in
note 1.4 and the key assumptions used in the calculation of recoverable amount are discussed in note 3.3.

11.4 Derivative financial assets

2015 2014
£m £m

Current assets
Forward foreign currency contracts 6 1
6 1
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
119

11 Company financial statements continued

Strategic report
11.5 Investments
Investment in Investment in
equity subsidiary
instruments undertakings Total
£m £m £m

Cost
At 3 February 2014 31 3,510 3,541
Disposals – (70) (70)
At 1 February 2015 31 3,440 3,471

Governance
Provision for impairment
At 3 February 2014 – 71 71
Disposals – (70) (70)
At 1 February 2015 – 1 1

Net book value

At 1 February 2015 and 2 February 2014 31 3,439 3,470

On 11 July 2014, the Company disposed of Kiddicare.com Limited to Endless LLP.

A list of the Company’s principal subsidiaries is shown in note 4.2.

Financial statements
The Directors believe that the carrying value of remaining investments is supported by their underlying net assets.

11.6 Debtors – amounts falling due within one year

2015 2014
£m £m

Trade debtors 118 167

Amounts owed by Group undertakings 1,950 2,258
Other debtors 6 14
Prepayments 216 385
2,290 2,824

Prepayments includes £180m (2014: £330m) relating to amounts falling due after more than one year. Amounts owed by Group undertakings are
unsecured, interest free, and repayable on demand.

11.7 Creditors – amounts falling due within one year

2015 2014
£m £m

Trade creditors 1,379 1,247

Amounts owed to Group undertakings 113 2,087
Other taxation and social security 73 63
Other creditors 89 73
Bank overdraft 24 155
Term loan − 400
Foreign currency swaps 6 4
Energy price contracts 12 6
Accruals and deferred income 315 256
2,011 4,291

Amounts owed to Group undertakings are unsecured, interest free and repayable on demand.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
120

Notes to the Company financial statements continued

52 weeks ended 1 February 2015

11 Company financial statements continued

11.8 Creditors – amounts falling due after more than one year
2015 2014
£m £m

Revolving credit facility 314 572

$250m US private placement loan notes (USPP) 4.4% November 2026 164 149
£400m sterling bonds 4.625% December 2023 397 397
£400m sterling bonds 3.50% July 2026 421 389
€700m euro bond 2.25% June 2020 518 569
£300m sterling bonds 4.75% July 2029 291 –
Amounts owed to Group undertakings 191 208
Cross-currency swaps and interest rate swaps 45 34
Energy price contracts 5 2
2,346 2,320

Borrowings are denominated in sterling, US dollars and euros, and bear fixed interest rates, with the exception of the revolving credit facility which
bears floating interest rates. All borrowings are unsecured. In July 2014, the Company issued a £300m sterling bond at a fixed interest rate of 4.75%
expiring in July 2029. This is part of the Company’s £3bn Euro Medium Term Note programme. In September 2014 the Company entered into a new
five year syndicated committed revolving credit facility of £1.35bn, replacing the £1.2bn facility that was due to mature in March 2016. The revolving
credit facility incurs commitment fees at market rates and drawdowns bear interest at a spread above LIBOR.
In the event of default of covenants on the bank facility, the principal amounts and any interest accrued are repayable on demand.
Finance leases
Net obligations under finance leases of £191m (2014: £139m) are payable in two to five years, and are included in amounts owed to Group
undertakings in the table above.

11.9 Provisions for liabilities

Onerous lease Other property Deferred
provision provisions taxation Total
£m £m £m £m

At 3 February 2014 88 10 87 185

Charge/(credit) recognised in profit and loss 117 – (22) 95
Credit recognised directly in the STRGL − − (2) (2)
(Utilised)/released during the period (3) − − (3)
Unwinding of discount 3 1 − 4
At 1 February 2015 205 11 63 279

Further details of the property provisions are provided in note 5.5. The potential deferred taxation on timing differences, calculated at 20% (2014: 20%),
is set out below and has been provided for in full.

2015 2014
£m £m

Excess of capital allowances over depreciation 100 114

Provisions and short term timing differences (37) (27)
Provision at the period end excluding deferred tax on pension asset 63 87
Deferred tax liability on pension asset (note 11.10.3) 3 3
Provision at the period end including deferred tax on pension asset 66 90

The deferred tax liability of £3m (2014: £3m) relating to the pension asset has been deducted in arriving at the net pension asset on the balance sheet.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
121

11 Company financial statements continued

Strategic report
11.10 Pensions

11.10.1 CARE scheme

The Company operates a defined benefit pension scheme (‘CARE’) and a cash balance scheme. The CARE scheme is called the Wm Morrison
1967 Pension Scheme and provides benefits defined on retirement based on age at date of retirement, years of service and a formula using either the
employee’s compensation package or career average revalued earnings (CARE). 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 latest full actuarial valuations have been carried out as at 5 April 2013 for the CARE Scheme and the RSP. The results of these valuations have
been used and updated for FRS 17 ‘Retirement benefits’ purposes for the period to 1 February 2015 by a qualified independent actuary.
The Group has previously entered into a pension funding partnership structure under which it has contributed interests in a Scottish Limited

Governance
Partnership (SLP) valued at £90m (as at 31 January 2013) to the Group’s two CARE Schemes, of which £30m (as at 31 January 2013) related to
the Morrison CARE Scheme. The CARE Schemes’ interests in the SLP reduce the respective deficits on a funding basis and an accounting basis
because the investments held by the CARE Schemes qualify as assets for FRS 17 purposes.
As partners in the SLP, the CARE Schemes are entitled to receive a share of the profits of the SLP twice a year for 20 years. The SLP made a cash
contribution of £6.6m (£2.2m during the year ending 1 February 2015) and will make annual contributions of £6.6m (£2.2m in respect of the
Morrison CARE Scheme) for a further 18 years.
11.10.2 Assumptions
The major assumptions used in this valuation to determine the present value of the scheme’s defined benefit obligation are shown below.
Financial
2015 2015 2014 2014
CARE RSP CARE RSP

Financial statements
Rate of increase in salaries 3.10% 2.30% 3.50% 2.70%
Rate of increase in pensions in payment and deferred pensions 2.10% to 3.10% 1.80% to 2.30% 2.30% to 3.50% 2.10% to 2.50%
Discount rate applied to scheme liabilities 3.10% 3.10% 4.50% 4.40%
Inflation assumption (RPI/CPI) 3.10%/2.30% 3.10%/2.30% 3.50%/2.70% 3.50%/2.70%

Longevity
The average life expectancy in years of a member who reaches normal retirement age of 65 and is currently aged 45 is as follows:

2015 2015 2014 2014

CARE RSP CARE RSP

Male 24.2 n/a 24.7 n/a

Female 25.8 n/a 25.6 n/a

The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:

2015 2015 2014 2014

CARE RSP CARE RSP

Male 22.0 n/a 22.3 n/a

Female 23.4 n/a 23.2 n/a

Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with published statistics. The longevity
assumption considers how long a member will live when they reach the age of retirement. Amongst the UK population there is a continuing trend for
a generation to live longer than the preceding generation, and this has been reflected in the longevity assumption. This means that a 45 year-old today
is assumed to live on average longer than a 65 year-old today.
The projection used as at 1 February 2015 is the CMI 2012 projection table and incorporates a long term rate of improvement in longevity of 1.5% pa.
This compares to a projection of 80%/60% (males/females) of the ‘long cohort’ projection as at 2 February 2014.
In calculating the present value of the liabilities an appropriate mortality table that reflects the longevity assumption is used. The current mortality
table used is 110% S1PFA/110% S1PFA-Heavy YOB (2014: S1PMA/S1PFA-Heavy YOB).
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
122

Notes to the Company financial statements continued

52 weeks ended 1 February 2015

11 Company financial statements continued

11.10 Pensions continued

The major assumptions used to determine the expected future return on the scheme’s assets, were as follows:

2014 2014
CARE RSP

Long term rate of return on:

Equities 7.40% 7.40%
Bonds 4.50% n/a
Gilts 3.40% n/a
Liability driven investments 3.40% n/a
Scottish Limited Partnership 4.65% n/a
Cash 1.10% n/a

The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescales
covered, may not necessarily be borne out in practice.
Due to changes in UK accounting standards which apply to the Company from 1 February 2015 the expected return on scheme assets assumptions
is no longer required.
11.10.3 Valuations
The fair value of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change before they are
realised, and the present value of the scheme’s liabilities which are derived from cash flow projections over long periods and are inherently uncertain,
were as follows:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Equities 364 87 339 39

Bonds 288 − 228 −
Gilts − − 2 −
Liability driven investments 421 − 218 −
Scottish Limited Partnership 32 − 29 −
Cash 1 − 1 −
Total market value of assets 1,106 87 817 39
Present value of scheme liabilities (1,095) (83) (805) (37)
Net pension asset 11 4 12 2
Related deferred tax liability (2) (1) (3) –
Net pension asset after deferred tax 9 3 9 2

The movement in the fair value of the scheme’s assets over the period was as follows:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Fair value of scheme assets at start of period 817 39 745 −

Expected return on scheme assets 44 4 41 −
Actuarial gain 239 7 19 −
Employer contributions 21 39 18 −
Employee contributions 1 2 5 −
Benefits paid (16) (4) (11) −
Recognition of RSP scheme assets at end of period − − − 39
Fair value of scheme assets at end of period 1,106 87 817 39
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
123

11 Company financial statements continued

Strategic report
11.10 Pensions continued

The movement in the present value of the defined benefit obligation during the period was as follows:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Defined benefit obligation at the beginning of the period (805) (37) (717) −
Current service cost (24) (37) (16) −
Employee contributions (1) (2) (5) −
Other finance income (36) (2) (35) −

Governance
Actuarial loss (245) (9) (43) −
Benefits paid 16 4 11 −
Recognition of RSP scheme assets at end of period − − − (37)
Defined benefit obligation at the end of the period (1,095) (83) (805) (37)

11.10.4 Sensitivities
Listed below is the impact on the liabilities of changing key assumptions whilst holding other assumptions constant:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Discount factor +/− 0.1% −/+28 −/+2 −/+ 20 −

Financial statements
Longevity +/− 1 year +/− 44 n/a +/− 25 n/a

11.10.5 Profit and loss account impact

The following amounts have been charged in arriving at operating profit in respect of pension costs:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Current service cost (24) (37) (16) −

The amounts for current service cost and pensions credit have been charged in the following profit and loss account lines:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Cost of sales (19) (30) (13) −

Administrative expenses (5) (7) (3) −
(24) (37) (16) −

The following amounts have been included in other finance income:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Expected return on pension scheme assets 44 4 41 −

Interest on pension scheme liabilities (36) (2) (35) −
8 2 6 −
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
124

Notes to the Company financial statements continued

52 weeks ended 1 February 2015

11 Company financial statements continued

11.10 Pensions continued

11.10.6 Amounts recognised in the statement of total recognised gains and losses
The amounts included in the Statement of total recognised gains and losses (STRGL) were:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Actual return less expected return on scheme assets 239 7 19 −

Experience gains and losses arising on scheme liabilities − 7 (7) −
Changes in assumptions underlying the present value of scheme liabilities (245) (16) (36) −
Recognition of the RSP in the balance sheet at the end of the period − − − 2
Actuarial loss recognised in the STRGL (6) (2) (24) 2

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Cumulative gross actuarial movement recognised in the STRGL (152) 2 (190) 2

Taxation on cumulative actuarial movement recognised in the STRGL − − 38 –
Cumulative net actuarial movement recognised in the STRGL (152) 2 (152) 2

The actual return on scheme assets can therefore be summarised as follows:

2015 2015 2014 2014

CARE RSP CARE RSP
£m £m £m £m

Expected return on scheme assets 44 4 41 n/a

Actuarial movement recognised in the STRGL reflecting the difference between
expected and actual return on assets 239 7 19 n/a
Actual return on scheme assets 283 11 60 n/a

The expected return on scheme assets was determined by considering the expected returns available on the assets underlying the current investment
policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity
and property investments reflect long term real rates of return experienced in the respective markets.
11.10.7 History of experience gains and losses
2015 2014 2013 2012 2011
£m £m £m £m £m

Difference between the expected and actual return

on scheme assets:
Amount 246 19 37 36 13
Percentage of scheme assets 20.6% 2.3% 5.0% 5.6% 2.4%
Experience gains and losses arising on scheme liabilities:
Amount 7 (7) – 1 (52)
Percentage of present value of scheme liabilities 0.6% (0.9)% – 0.3% (9.7)%
Effects of changes in the demographic and financial assumptions
underlying the present value of the scheme liabilities:
Amount (261) (36) (39) (58) 20
Percentage of present value of scheme liabilities (22.2)% (4.4)% (5.4)% (9.1)% 3.7%
Total amount recognised in statement of total recognised gains
and losses:
Amount (8) (24) (2) (21) (19)
Percentage of present value of scheme liabilities (0.68)% (3.0)% (0.3)% (3.3)% (3.5)%
Total value of scheme assets 1,193 817 745 638 553
Present value of defined benefit obligation (1,178) (805) (717) (638) (537)
Net pension asset 15 12 28 – 16
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
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11 Company financial statements continued

Strategic report
11.11 Reconciliation of movements in equity shareholders’ funds
2015 2014
£m £m

Profit for the financial period 1,055 1,023

Cash flow hedging movement (9) –
Actuarial losses on pension schemes (8) (24)
Tax relating to pension schemes and cash flow hedging 2 (2)
Purchase of trust shares (8) –
Shares purchased for cancellation − (53)

Governance
Share options exercised net of treasury shares purchased − 28
Share-based payments (note 11.14) 11 6
Dividends (note 1.8) (308) (283)
Net increase in equity shareholders’ funds 735 695
Opening equity shareholders’ funds 3,787 3,092
Closing equity shareholders’ funds 4,522 3,787

11.12 Share capital

2015 2014
£m £m

Authorised

Financial statements
4,000 million ordinary shares of 10p each (2014: 4,000 million) 400 400
Issued and fully paid
2,335 million ordinary shares of 10p each (2014: 2,335 million) 234 234

Ordinary shares
2015 2014
£m £m

At start of period 234 235

Shares cancelled − (2)
Share options exercised − 1
At end of period 234 234

11.13 Reserves
Share premium Capital redemption Profit and loss
account reserve Merger reserve Hedging reserve account
£m £m £m £m £m

At start of period 127 39 2,578 (15) 824

Profit for the period − − − − 1,055
Cash flow hedging movement − − − (9) −
Actuarial losses on pension schemes − − − − (8)
Tax relating to pension schemes and cash flow hedging − − − 2 −
Purchase of trust shares − − − − (8)
Share-based payments − − − − 11
Dividends − − − − (308)
At end of period 127 39 2,578 (22) 1,566
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Financial statements
126

Notes to the Company financial statements continued

52 weeks ended 1 February 2015

11 Company financial statements continued

11.13 Reserves continued

Capital redemption reserve

The capital redemption reserve at the start of the period related to 389,631,561 of the Company’s own shares which it purchased on the open market
for cancellation between 31 March 2008 and 8 March 2013 at a total cost of £1,081m.
Merger reserve
The merger reserve represents the reserve arising on the acquisition in 2004 of Safeway Limited. In the opinion of the Directors, this reserve is not
distributable and accordingly it will be carried forward as a capital reserve.
Hedging reserve
This represents the gains and losses arising on derivatives used for cash flow hedging.

11.14 Share−based payments

The disclosure requirements for FRS 20 ‘Share-based payment’ are identical to that of IFRS 2 ‘Share-based payment’. The charge for the year relating
to the Company net of tax was £11m (2014: £6m). Full IFRS 2 disclosures are provided in section 9.

11.15 Capital commitments

2015 2014
£m £m

Contracts placed for future capital expenditure not provided in the financial statements (property, plant and
equipment and intangible assets) 144 129

11.16 Operating lease commitments

Annual commitments under non-cancellable operating leases:

2015 2014
Plant, equipment, Plant, equipment,
Land and fixtures and Land and fixtures and
buildings vehicles buildings vehicles
£m £m £m £m

Expiring within one year − 2 1 1

Expiring within two to five years inclusive 2 13 2 11
Expiring over five years 63 − 37 –
65 15 40 12

11.17 Contingent liabilities

The Company has given an unlimited guarantee in respect of the overdraft of all the subsidiary undertakings within the Group’s banking offset
agreement. The overdraft position at 1 February 2015 was £178m (2014: £21m).
The Company has also provided a guarantee in respect of sterling bonds amounting to £440m at fair value (2014: £605m) in respect of a subsidiary
undertaking. Where the Company enters into financial contracts to guarantee the indebtedness of other companies within its Group, the Company
considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a
contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

11.18 Related party transactions

The Company has taken the exemption available in FRS 8 ‘Related parties’ from disclosing related party transactions with wholly owned entities that
are part of the Wm Morrison Supermarkets PLC Group.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
127

Five year summary

52 weeks ended 1 February 2015

Consolidated statement of comprehensive income

Strategic report
2015 2014 2013 2012 2011
£m £m £m £m £m

Turnover 16,816 17,680 18,116 17,663 16,479

Cost of sales (16,055) (16,606) (16,910) (16,446) (15,331)
Gross profit 761 1,074 1,206 1,217 1,148
Other operating income 78 81 80 86 80
Profit/loss arising on disposal and exit of properties and sale of
businesses 135 9 (1) (1) (1)
Administrative expenses (1,670) (1,259) (336) (329) (323)
Operating (loss)/profit (696) (95) 949 973 904

Governance
Finance costs (105) (87) (75) (47) (43)
Finance income 7 5 5 21 13
Share of profit of joint venture (net of tax) 2 1 – – –
(Loss)/profit before taxation (792) (176) 879 947 874
Analysed as:
Underlying profit before tax 345 719 880 948 875
Impairment and onerous lease provisions (1,273) (903) – – –
Profit/loss on disposal and exit of properties 131 9 (1) (1) (1)
Profit arising on disposal of Kiddicare.com Limited 4 – – – –
Net pension interest income/(cost) 1 (1) – – –

Financial statements
(792) (176) 879 947 874

Taxation 31 (62) (232) (257) (242)

(Loss)/profit for the period attributable to the owners
of the Company (761) (238) 647 690 632
Earnings per share (pence)
– basic (32.63) (10.23) 26.65 26.68 23.93
– diluted (32.63) (10.23) 26.57 26.03 23.43
– underlying basic (2014 restated) 10.93 23.08 27.26 25.55 23.03
Dividend per ordinary share (pence) 13.65 13.00 11.80 10.70 9.60
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Investor information
128

Five year summary continued

52 weeks ended 1 February 2015

Consolidated balance sheet

2015 2014 2013 2012 2011
£m £m £m £m £m

Assets
Goodwill and intangible assets 520 458 415 303 184
Property, plant and equipment 7,252 8,625 8,616 7,943 7,557
Investment property 68 119 123 259 229
Net pension asset 4 – – – 38
Investment in joint venture 68 66 – – –
Investments 31 31 31 31 –
Other financial assets − – – 1 3
Non-current assets 7,943 9,299 9,185 8,537 8,011
Current assets 1,144 1,430 1,342 1,322 1,138
Non-current assets classified as held-for-sale 84 – – – –
Liabilities
Current liabilities (2,273) (2,873) (2,334) (2,303) (2,086)
Other financial liabilities (2,558) (2,516) (2,396) (1,600) (1,052)
Deferred tax liabilities (415) (430) (471) (464) (499)
Net pension liabilities (43) (11) (20) (11) –
Provisions (288) (207) (76) (84) (92)
Non-current liabilities (3,304) (3,164) (2,963) (2,159) (1,643)
Net assets 3,594 4,692 5,230 5,397 5,420
Shareholders’ equity
Called-up share capital 234 234 235 253 266
Share premium 127 127 107 107 107
Capital redemption reserve 39 39 37 19 6
Merger reserve 2,578 2,578 2,578 2,578 2,578
Retained earnings and hedging reserves 616 1,714 2,273 2,440 2,463

Total equity attributable to the owners of the Company 3,594 4,692 5,230 5,397 5,420
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
129

Supplementary information
52 weeks ended 1 February 2015

Strategic report
2015 2014 2013 2012 2011
% % % % %

(Decrease)/increase on previous year %

Turnover (4.89) (2.41) 2.56 7.18 6.94
Operating (loss)/profit (44.60) (14.86)3 (2.47) 7.63 10.78
(Loss)/profit before taxation 349.35 (120.02) (7.18) 8.35 1.86
(Loss)/profit after taxation 219.38 (136.79) (6.23) 9.18 5.69
Underlying profit before taxation (52.02) (12.87) (3.64) 7.56 13.30
Diluted earnings per share (218.96) (138.50) 1.92 11.10 4.74
Dividend per ordinary share 5.00 10.17 10.28 11.46 17.07

Governance
% of turnover
Operating profit 2.63 4.573 5.24 5.51 5.49
(Loss)/profit before taxation (4.71) (1.00) 4.85 5.36 5.30
(Loss)/profit after taxation (4.52) (1.35) 3.57 3.91 3.84

Retail portfolio
Size 000s square feet (net sales area)
0–5 153 102 12 3 –
5–15 75 76 64 65 45
15–25 126 123 135 135 137

Financial statements
25–40 260 252 239 228 213
40+ 53 52 48 44 44
Total number of stores 667 605 498 475 439
Petrol filling stations 334 328 312 300 296
Total sales area (000s square feet) 14,723 14,233 13,421 12,904 12,261
Total sales area excluding convenience (000s square feet) 14,332 13,976 13,383 12,894 12,261
Average store size (000s square feet)2 27.9 27.8 26.9 27.4 27.9
Average sales area (000s square feet)1 14,442 13,640 13,396 12,456 11,959
Total supermarket takings ex petrol (gross) £m2 14,033 14,593 14,875 14,585 13,916
Average takings per square feet per week (£)2 19.11 20.58 21.62 22.52 22.38
Average takings per store per week ex petrol (£000)2 518 558 591 618 624
Average number of customers per store per week2 22,034 22,874 23,905 25,083 25,583
Average take per customer (£)2 23.83 24.41 24.73 24.62 24.40

Employees
Full time 48,519 52,315 56,177 57,169 58,287
Part time 71,259 75,088 72,528 74,038 73,787
Total 119,778 127,403 128,705 131,207 132,074
Full time equivalent (average) 85,545 90,264 91,760 94,114 95,181

Average per FTE employee:

Turnover (£000s) 197 196 197 188 173
Operating profit (£) 5,167 8,9523 10,342 10,339 9,498
Employee costs (£) 23,029 21,847 21,327 19,530 19,311
1
Includes sales area of divested stores.
2
Excludes convenience.
3
Before non-recurring exceptional costs.

The impact of week 53 in the period ended 3 February 2013 was to increase turnover by £328m and increase profit before taxation by £11m.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Investor information
130

Investor relations and financial calendar

Financial calendar 2015/16 Annual General Meeting

Financial events and dividends The AGM will be held on 4 June 2015 at Wm Morrison Supermarkets
Quarterly management statement 7 May 2015 PLC Head Office, Gain Lane, Bradford BD3 7DL.
Final dividend record date 8 May 2015 A separate notice convening the meeting is sent to shareholders, which
Annual General Meeting 4 Jun 2015 includes an explanation of the items of special business to be considered
Final dividend payment date 10 Jun 2015 at the meeting.
Half year end 2 Aug 2015
Dividend reinvestment plan
Interim results announcement 10 Sep 2015
Interim dividend record date 1 Oct 2015 The Company has a dividend reinvestment plan which allows
shareholders to reinvest their cash dividends in the Company’s shares
Interim dividend payment date 5 Nov 2015
bought in the market through a specifically arranged share dealing
Quarterly management statement 9 Nov 2015 service. Full details of the plan and its charges, together with mandate
Financial year end 31 Jan 2016 forms, are available from the Registrars.

Company Secretary Morrisons website

Mark Amsden Shareholders are encouraged to visit our website, www.morrisons.com, to

obtain information on Company history, stores and services, latest offers,
press information and a local store finder.
Registered office

Wm Morrison Supermarkets PLC Share price information

Hilmore House
Gain Lane The investor information section of our website provides our current
Bradford and historical share price data and other share price tools. Share price
BD3 7DL information can also be found in the financial press and the Cityline
Telephone: 0845 611 5000 service operated by the Financial Times. Telephone: 0906 843 3545.
www.morrisons.com
Online reports and accounts
Investor relations
Our annual and interim Group financial statements are available
Telephone: 0845 611 5710 to download from the website along with Corporate responsibility
Email: [email protected] reports and other financial announcements. The 2014/15
Annual report is also available to view in HTML format at
www.morrisons-corporate.com/ar2015
Corporate responsibility enquiries
The information in the Annual report and financial statements,
Telephone: 0845 611 5000 Strategic report, and the Interim reports is exactly the same as
in the printed version.

Environmental matters

Our environmental footprint is taken very seriously. In the production

of the 2014/15 Annual report, we have contributed to the reduction
in environmental damage in the following ways:
a) Website
Shareholders receive notification of the availability of the results to
view or download on the Group’s website, www.morrisons-corporate.com,
unless they have elected to receive a printed version of the results.
Shareholders are encouraged to view the report on the website
which is exactly the same as the printed version, but using the
internet has clear advantages such as lowering costs and reducing
the environmental impact.
b) Recycled paper
This document has been printed on recycled paper that is manufactured
in mills with ISO 14001 accreditation from 100% recycled fibre. It is
totally chlorine free and is an NAPM certified recycled product.
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15
131

Strategic report
Registrars and shareholding enquiries Independent auditors

Administrative enquiries about the holding of Morrisons shares, such PricewaterhouseCoopers LLP
as change of address, change of ownership, dividend payments and the Chartered Accountants and Statutory Auditors
dividend reinvestment plan should be directed to: Benson House
33 Wellington Street
Capita Asset Services Leeds LS1 4JP
The Registry
34 Beckenham Road
Beckenham Stockbrokers
Kent BR3 4TU Jefferies Hoare Govett
Telephone: 0871 664 0300 Vintners Place
Overseas: +44 208 639 3399 68 Upper Thames Street

Governance
Calls cost 10p per minute plus network extras. London EC4V 33J
www.capitaassetservices.com Bank of America Merrill Lynch
ssd.capita.co.uk Merrill Lynch Financial Centre
2 King Edward Street
Solicitors London EC1A 1HQ

Ashurst LLP Investment bankers

Broadwalk House
5 Appold Street NM Rothschild & Sons Limited
London EC2A 2HA 1 King William Street
London EC4N 7AR
Eversheds LLP
Eversheds House

Financial statements
70 Great Bridgewater Street
Manchester M1 JES
Gordons LLP
Riverside West
Whitehall Road
Leeds LS1 4AW

Shareholder information

The number of shareholders at 1 February 2015 was 47,955 (2014: 48,347) and the number of shares in issue was 2,335,084,014 (2014: 2,335,041,736).

Analysis by shareholder Number of holders % holders Balances at 1 Feb 2015 % capital

Private shareholder 41,653 86.86 106,203,913 4.55

Nominee companies 5,630 11.74 2,026,936,970 86.80
Deceased accounts 323 0.67 571,238 0.02
Limited companies 163 0.34 3,197,812 0.14
Other institutions 70 0.15 8,870,692 0.38
Bank and bank nominees 58 0.12 62,380,049 2.67
Investment trusts 20 0.04 111,453 0.005
Pension funds 16 0.03 94,899 0.004
Family interests 21 0.04 126,714,348 5.43
Insurance companies 1 0.002 2,640 0.0001

Analysis by shareholder Number of holders % holders Balances at 1 Feb 2015 % capital

1–1,000 25,673 53.54 11,136,901 0.48

1,001–10,000 19,763 41.21 59,071,735 2.53
10,001–1,000,000 2,331 4.86 187,776,430 8.04
Over 1,000,000 188 0.39 2,077,098,948 88.95
 Wm Morrison Supermarkets PLC Annual report and financial statements 2014/15 Investor information
132

Information at your fingertips

Customer Corporate
Our website, www.morrisons.com, allows you to learn Our corporate website, www.morrisons-corporate.com,
more about Morrisons and our offering. has the following sections.
Offers Work with Morrisons
• Latest promotions Career opportunities and information about working for Morrisons.
• Specific product offerings For our dedicated recruitment website, go to www.morrisons.jobs/
• Marketing Media centre
• Sign up for our latest offers by email Latest releases about the growing estate of Morrisons, along with
promotions and product news.
• Online service
Corporate responsibility
Market Street Here you can find out about our corporate responsibility ethos,
More about our unique in-store offering, along with video presentations including how we take good care of our environment, society and
of where our food comes from and how to buy, cook and present it. You how we go about business. www.morrisons.co.uk/cr
can now find nutrition information for Market Street on our website.
Investors
Recipe and ranges User−friendly
Information about our food ranges, healthy eating and Presentations, announcements and financial reports can be quickly
mouth-watering recipes along with ideas of what drink goes and easily downloaded or viewed on-screen as PDFs. You can
well with each recipe. easily navigate around the Annual report and financial statements
Lifestyle 2014/15 on-screen, viewing only the parts you want to, at
View our current and archived monthly magazine and read our handy www.morrisons-corporate.com/ar2015
health information for the whole family.
Webcasts
Let’s Grow Webcasts of the Directors delivering the preliminary results
Information about our Let’s Grow scheme, including how to register, for 2014/15 on 12 March 2015 are available.
facts, how it works and teaching resources.
Shareholder information
Other relevant shareholder information is available, for example
share price history, dividends, financial calendar and AGM minutes.

Electronic communications
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 shareholder meetings and other shareholder
documents, you will receive an email to let you know this information
is available on our website.
Visiting our website to obtain our results reduces our environmental
impact by saving on paper and also reduces our print and
distribution costs.
Sign up to eComms on our website at www.morrisons-corporate.com
and follow the investor eComms link.
About Morrisons
You will find information about the Group, its operations, strategy
and structure, and past financial information.
Designed & Produced by Printing by

Radley Yeldar Pureprint

www.ry.com Paper stock: This report is printed
on Amadeus Offset uncoated,
Photography by a 100% recycled paper. Amadeus
Offset is manufactured to the certified
Richard Moran environmental management system
ISO 14001.
Wm Morrison Supermarkets PLC
Hilmore House, Gain Lane
Bradford BD3 7DL
Telephone: 0845 611 5000

Visit our website:

www.morrisons.com