Morrisons Annual Report 2013 PDF

Annual report and financial statements 2012/13
Wm Morrison Supermarkets PLC
More of what matters
Performance and strategy review Annual report and financial statements 2012/13
Morrisons at a glance
Who we are We are the UKs fourth largest food retailer by sales, with annual turnover in excess of 18bn. We have c500 stores across theUK, which includes 12 convenience formats. Over 11 million customers visit ourstores each week, served by 129,000 friendly colleagues. Financial performance 2012/13
Turnover
Like-for-like sales
53 week v 53 week basis
Profit before tax
Basic earnings per share Net debt
Total dividend per share
18.1bn (2.1) % 879m 26.7 p 2.2bn 11.8p
We provide great service to our customers by offering the best value fresh food, prepared in-store by our experts. We are unique because of the transparency of our supply chain and our focus on traditional crafts we do more of what matters.
Note: Throughout the Directors report and business review (1) Unless otherwise stated, 2012/13 refers to the 53 week period ended 3 February 2013 and 2011/12 refers to the 52 week period ended 29 January 2012. 2012 and 2013 refer to calendar years. (2) Underlying profit is defined as profit before one off costs and credits, property transactions and IAS 19 pension interest, at a normalised tax rate, as reconciled in note 1 of the Group financial statements. Underlying operating profit is operating profit before property disposals. (3) Like-for-like sales reflects the percentage change in year-on-year store sales (excluding VAT and fuel), stripping out the impact of new store openings and closures in the current or previous financial year.
Morrisons at a glance
How weve performed against our strategic objectives
WHAT wE SAiD wE wOULD DO
Performance and strategy review Governance Financial statements
Directors report and business review

Performance and strategy review 2 Our business model doing more of what matters 4 Understanding our customers and the challenges of our marketplace 6 Chairmans review 8 Chief Executives review 12 Focused on our strategic objectives 14 Measuring performance against our strategic objectives 16 Driving the topline 19 Increasing efficiency 21 Capturing growth 24 Financial review 28 Managing risks and uncertainties 30 More of what matters for our people 33 Corporate responsibility Governance 36 Board of Directors and Management Board 40 Corporate governance report 45 Directors remuneration report 55 General information 58 Statement of Directors responsibilities
Deliver even better value for our customers Develop our core business through opening more supermarkets and convenience stores Continue to explore multi-channel capabilities
WHAT wE DiD
Continued to offer customers great value on fresh food prepared in store Opened 17 new stores and nine convenience stores Launched Morrisons Cellar, developed our Kiddicare online offer and continued to explore food online
WHAT wE wiLL DO NEXT
Financial statements
59 Group financial statements 59 Independent auditors report 60 Consolidated statement of comprehensive income 61 Consolidated balance sheet 62 Consolidated cash flow statement 63 Consolidated statement of changes in equity 64 Group accounting policies 70 Notes to the Group financial statements 96 Company financial statements 96 Company balance sheet 97 Company accounting policies 100 Notes to the Company financial statements Investor information 109 Five year summary of results 110 Supplementary information 111 Investor relations and financial calendar
Increase our accessibility to customers by building our convenience portfolio to 100 stores Continue to offer great value on Market Street with our pick of the street deals Launch Morrisons online food offer in 2014
Our business model

doing more of what matters What we do
Our business model is underpinned by the manufacturing and sourcing of great food, sold across our stores by our friendly people put simply we make, we buy, we move and we sell.
Where we do it
We operate throughout the UK so were closer to our suppliers and customers the people who matter.
Morrisons has grown from a market stall in Bradford to the UKs fourth largest supermarket group with c500 stores including 12 Morrisons M local convenience stores. We employ 129,000 people across our business, including over 5,000 trained butchers, bakers and fishmongers. We have over 600 lorries and 150,000 trolleys! Each of our stores (including convenience) has its own Market Street, complete with trained colleagues using their craft skills to bring fresh products to our customers, prepared just the way they like it. Every day in-store we bake 128,000 loaves, filet 5,000 fish and make 11,500 sandwiches. We make more fresh food in-store than any other supermarket. We have always cared about the origin of our food. In the 1960s we began sourcing our meat from Woodhead Brothers, a company which became part of the Morrisons family in 1991. We are now the UKs second largest fresh food manufacturer and our vertical integration gives us both transparency over our supply chain and the flexibility to run industry leading promotions to support our profitability. Our business model has evolved to reflect the changing demands of todays consumer, in particular when, where and how they shop. We continue to invest in the convenience market, recently buying 62 stores from other retailers. We have made progress with our multi-channel offer, with Kiddicare and Morrisons Cellar, and the development of our online food proposition. Our head office, logistics and distribution teams support our stores and we continuously invest in technology. Our Evolve programme has helped us increase efficiency by making sure we have the right systems in place to deliver continuous improvement across our operations. We recognise the importance of developing our people and the Morrisons Academy gives colleagues the opportunity to learn skills to take them from shop floor to top floor. We are committed to behaving responsibly (page 33) in everything we do, for example reducing waste through our Great Taste, Less Waste scheme. We understand the need to protect our business from operational and reputational risk. Details of our risk management and mitigating factors are set out on page 28.
Key Head office Online head office Distribution centres Manufacturing M local Supermarkets
58
Scotland
90
North
99
Midlands
85
70
South West
84
South East
South Central
We are proud to be a British Group and close to both our customers and suppliers. We are continuing to grow so that we can reach even more customers. In 2013/14 we plan to open 20 stores and increase our convenience store portfolio to 100. Our continued store roll out means were creating local jobs across the UK. We work closely with our communities to support local initiatives, such as Lets Grow (our fun educational scheme for schools) and Raise a Smile (our charity partnership scheme).
How we do it differently
We provide great service to our customers by offering the best value fresh food, prepared in-store by our experts. We are unique because of the transparency of our supply chain and our focus on traditional crafts.
How were building on
Fresh Value Service
Fresh more of what matters fresh food from field to fork, catch to kitchen in hours made from scratch in-store every day vertical integration we own the supply chain and we source locally we guarantee our fresh credentials
In Market Street our customers can see their food being prepared. Even our Morrisons M local stores have Market Street made products giving customers the same great fresh food. Owning our supply chain means we know where our food comes from. Wecan also react more quickly to customer demands throughout the day, resulting in less waste.
Value more of what matters honest prices affordable for everyone transparent promotions great availability
We price our food honestly to offer the best value to our customers. Our vertical integration allows us to drive out efficiencies and quickly pass savings on to customers.
Fre sh
Max im i
e for our valu sh g a sin
V s lder ho re
e alu
Service
Service more of what matters craft skills in-store see and taste the food on Market Street friendly people, offering the best advice and service knowledgeable HOT (Hello, Offer, Thank) service
We pride ourselves on our in-store craft skills. We have over 5,000 trained butchers, bakers and fishmongers preparing food and delivering exactly what our customers want, tailored to suit local markets.
Understanding our customers

and the challenges of our marketplace
Challenging economic conditions
The economy continues to be extremely challenging and the tough trading conditions look set to remain as the UK faces slow economic growth. Inflation averaged 2.8% through the year, with CPI food inflation averaging 4.1%1. Inflation remains the number one issue for consumers with rises in food and commodity prices outstripping wage growth. This squeeze is being felt by a wider group of people than ever.
1
GFK Consumer Confidence
As a result of Confidence these external pressures, customers are becoming Consumer increasingly savvy about when, where and how they shop, trading -15 down and using coupons, only buying whats needed and using the internet to check prices and shop around for the best deals.
-20 -25 -30 -35 -40
3 Feb 2013
74%3 monitor item pricing as away to manage their budget

Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2013 Jan 2013
Average earnings and inflation

6 5 4
Jan 2012
source: GFK NOP Consumer Confidence
3 2 1 0 2007 2008 2009 CPI inflation 2010 2011 2012
63%3 look more closely at the price of products before deciding what to buy
us) uring
Base salary + cash bonus (000)
Share price performance over 3 the last three years

350 325
Average earnings source: Capital Economics
000 500 000
44% take more time choosing their groceries
Share price (p)
500
000
Consumer confidence remains low, c60%2 of households are worried about their levels of debt; c50%2 of consumers are struggling to manage until payday and over 50%2 of households have little or no savings.
source: Office of National Statistics 2 source: Association of Business Recovery Practitioners, 2012
1
300
275 source: IDG, 2012 250 225 200
500
,000
500
r2
Ap
Fe
Wm Morrison Supermarkets PLC
Se
pt
00
20 10 De c2 01 0 Fe b 20 1 1 Ap r2 01 1 Se pt 20 De 11 c2 01 1 Fe b 20 12 Ap r2 01 2 Se pt 20 12 De c2 01 2 Fe b 20 13
,000
20 10
01 0
Stated importance most important aspects in driving store choice (%)

Value for money
Value is more crucial than ever

Value remains the number one driver of store choice and is at the forefront of shoppers minds. There has been a further shift in 2012, as low prices become the biggest consideration of value across all socio-economic groups. Promotions in isolation are no longer seen as a differentiator and customers expect more personalised offers and vouchers. Our promotions, such as Fuel Saver, have been well received by customers.
Saves money on shopping New channels to market Good parking
Local
64 60 53
49 The marketplace is continually evolving and being truly multiConsistently prices channel haslow never been more important. Customers 47 want to buy how and when they want evidenced by significant growth in Product availability 45 online and convenience channels. Great quality food 41
4 InRange 2012, the food online grocery market grew by 15.7% and online of fresh 33 4 sales now account for 3.9% of the market. Online grocery retail is expected to almost double4 over the next five years as source: Driverstablets of store choice (IPI), Kantar segmentation panel, October 2012 smartphone, and other technology enhancements make online access easier.
Stated importance most important aspects in driving store choice (%)

Value for money Local Saves money on shopping Good parking Consistently low prices Product availability Great quality food Range of fresh food
64 60 53 49 47 45 41 33
Customers also demand easy access to convenience stores with almost half of all households topping up on staple products and shopping three or more times per week in order to reduce waste. Morrisons has made progress in the convenience channel, opening nine stores this year, with plans to reach 100 by the end of 2013/14. Development of these channels represents an opportunity to gain market share and continue to meet the needs of our customers.
4
source: IDG
Convenience sales bn
2012 2017
33.9 43.6
source: Drivers of store choice (IPI), Kantar segmentation panel, October 2012
Online sales bn
Own label growth

Retailer own brand sales have again performed more strongly than branded products this year, as customers seek efficient ways to manage their budgets. Value ranges in particular have seen the most significant growth and the M savers range remains a key part of our value proposition.
2012 2017 Actual
5.6 11.1
Forecast
source: IGD
Convenience sales bn
2012 2017
33.9 43.6
Online sales bn
2012 2017 Actual source: IGD
5.6 11.1
Forecast
Value of UK grocery market: 101bn Morrisons market share:

source: Kantar Worldpanel
11.8
%
5
Chairmans review
delivering value in the short term and for the long term
Sir Ian Gibson Chairman
Our strategic objectives See page 12 for further information How our KPIs link to strategy See page 14 for further information See our report visit: morrisons.co.uk/corporate/ar2013
As anticipated, market conditions during the year have been challenging with ongoing commodity inflation continuing to put further pressure on household budgets and an already fragile consumer confidence.
Against this difficult backdrop, Morrisons has worked hard to deliver a unique combination of value, freshness and quality to its customers. Although our overall performance has not been as good as we would have wished, an increase in underlying earnings per share and a significant increase in the dividend demonstrate both the resilience of our business model in a tough economic environment and the Boards confidence in the future. At the start of the year, we outlined a range of strategic initiatives: the essential building blocks needed to support the development of our business. These initiatives will enable us to deliver, over time, profitable sales growth, make Morrisons more efficient and secure new growth opportunities to deliver enhanced long term value to shareholders. I am delighted to report that we have made real progress in all these areas, particularly in the accelerated development of our convenience store programme and our decision to launch Morrisons online food offer in 2014. We will continue to implement a wide range of measures to address the sales performance of the business, and progress our strategic initiatives in order to provide a platform for successful long term growth. Our expectations are that the challenging consumer and market environment we saw in 2012 will persist through the coming year.
Operational highlights
Underlying profit before tax Underlying earnings per share Final proposed dividend per share Profit share pool for colleagues Raised for Save the Children charity
901m 27.3p 8.31p 46m 2.1m
Results Profit before tax of 879m was 7% below prior year. The underlying operating margin of 5.2% fell by 30bps compared to last year. Adjusting for the impact of a higher proportion of fuel sales in the mix this year, the reduction was 20bps. Net finance costs were 70m, an increase of 44m over the prior period, of which 17m related to IAS 19 pension interest. The balance was primarily a result of a planned increase in net debt arising from an additional investment in capital expenditure and an acceleration of the equity retirement programme.
Underlying profit is calculated after removing property disposals, multi-channel and convenience development costs and IAS 19 pension interest. Underlying operating profit of 950m fell by 24m (2%) when compared to the prior year, with underlying profit before tax of 901m down by 4%. Underlying basic earnings per share (EPS) increased by 7% to 27.3p (2011/12: 25.6p) with a reduction in the rate of corporation tax and the positive impact of the Groups equity retirement programme more than offsetting a reduction in underlying earnings. Statutory basic earnings per share of 26.7p were in line with the previous year. In accordance with our policy of increasing the dividend in line with underlying earnings growth, subject to a minimum increase of 10% in each of the three years to 2013/14, the Board is recommending a final dividend of 8.31p per share. This brings the total dividend for the year to 11.80p, an increase of 10% on 2011/12. The dividend is covered 2.3 times by underlying earnings. Cash flow from operations of 1,432m was 168m (13%) higher than in the previous year, primarily as a result of improved working capital management. As anticipated, capital expenditure and investments rose slightly to 1,016m, an increase of 115m (13%) over prior year. This capital investment reflected a planned acceleration in our new store opening programme, continuing investments in Evolve, our industry leading IT systems development programme, and continuing expansion of our vertical integration capacity. It also included new investments to support our multi-channel expansion, through the addition of new Kiddicare stores and in an online shopping capability. We will continue to accelerate these essential investments in future growth and expect capital expenditure in 2013/14 to be 1.1bn, which includes 150m for multi-channel development. A further 579m was invested in our equity retirement programme of which 65m related to the purchase of shares held in treasury. By the end of the financial year, a total of 947m had been invested and 312m shares had been cancelled in the period since we commenced the programme in 2011. We have now met our objective of returning 1bn to shareholders, in addition to normal dividend payments, over the two years to March 2013. The programme has had a positive impact of 4.2% on our reported underlying earnings per share in the year, and will have a further positive impact in the year ahead. Net debt rose as expected to 2,181m (2011/12: 1,471m), reflecting these investments and increased tax payments. This brings our gearing to 42% which remains a conservative level for the sector. In line with its stated principles, the Group continues to maintain a strong balance sheet position. This is securely financed by a number of long dated bonds and revolving credit facilities at competitive rates. During the period we strengthened our financial position by increasing the funds available to the Group and extending the maturity profile of our borrowings. We increased the revolving credit facilities we have with our banks, which are available until 2016, by a further 150m to 1,350m. In July 2012 we issued a 400m sterling bond to institutional investors repayable in 2026, and in November 2012 we agreed a 200m term loan with our bankers, repayable in 2014.
At the year end the Group had committed but undrawn facilities of 675m and a strong investment grade from Moodys. In March 2012 we introduced Return on Capital Employed (ROCE) as a key performance measure, emphasising our focus on capital discipline which was reflected in our decision to reduce planned capital expenditure during the year by 200m. ROCE fell slightly during the year to 9.6%, a consequence of like-for-like performance headwinds. We will continue to focus on delivering improvements in this key measure over the coming years, although the immediate priority is on driving our sales performance. Industry recognition Morrisons is committed to providing its customers with great service and shop keeping, and to making it a great place to work for our colleagues. This has again been recognised with a number of prestigious industry awards. These include Grocer of the Year; Employer of the Year, for the third year in a row; Best Service at the Grocer Gold awards; six Grocer Own Label Food and Drink awards and Retail Week Employer of the Year for the second successive year. Community and the environment Our customers expect us to trade responsibly. We are committed to working with the communities in which we operate, maintaining ethical standards and managing resources carefully. Food matters to us; where it comes from and how its produced. Over the past year we have increased our support for British dairy farmers and invested further in research into the long term viability of British farming. We continue to support the Governments Public Health Responsibility Deal and have committed to join a consistent national scheme of front of pack labelling. Our Lets Grow programme, which aims to support the next generation of food growers, is currently in its fifth year and we have donated 18m of gardening equipment to schools. We have made good progress towards our long term energy reduction targets. Our colleagues and customers always go the extra mile to support our selected charity. For the third consecutive year we have worked with Save the Children and this year raised over 2.1m. Our colleagues These awards could not have been achieved without the dedication, hard work and passion of all our 129,000 colleagues throughout the business who every day seek to make Morrisons Different and Better Than Ever for the c11 million customers on average who visit our stores each week. I am delighted that their efforts have enabled them to share a profit share pool of 46m this year. We believe in creating long term partnerships with our colleagues by giving them the time, qualifications and support they need to develop their skills. We have maintained our position as the largest provider of apprenticeships in the UK with over 11,000 apprentices graduating during the year. We have supported this by provision of over 750,000 training days, the introduction of a number of specialised development courses and the creation of Morrisons Centre of Excellence. On behalf of the Board, I want to express our thanks to every one of our colleagues for their dedication, professionalism and service throughout the year.
Chief Executives review
a clear vision and strategy that makes us different

Dalton Philips Chief Executive
Our strategic objectives See page 12 for further information How our KPIs link to strategy See page 14 for further information See our report visit: morrisons.co.uk/corporate/ar2013
This has been a challenging year for Morrisons but we have continued to grow sales and invest in the long term success of our business. Customers have felt the effects of the tough economy but our strategy remains on track. Were continuing to open convenience stores, develop our online capabilities and doing more of what matters to help our customers.
Operational highlights
Average basket spend (LFL basis) Market share
22.85 11.8%
Stores opened (includes nine convenience) Gross profit
26
1.2bn
Over 2.7m customers visit our Fresh Format stores each week.
1
source: IDG
Turnover analysis
Like-for-like stores Other sales 2012/13 Total 2011/12 Total
In-store (m) Fuel (m) Other sales (m) Total turnover (ex-VAT) (m) In-store sales Sales per square foot () Customer numbers per week (m) Customer spend ()
13,294 4,172 17,466 20.24 11.0 22.85
380 69 201 650 11.70 0.4 16.93
13,674 4,241 201 18,116 19.84 11.4 22.63
13,436 4,039 188 17,663 20.74 11.4 22.67
Turnover growth During the period total turnover increased by 3% to 18.1bn (2011/12: 17.7bn). On a like-for-like basis, total store sales, excluding fuel, decreased slightly by 0.2% which included a contribution from new store openings of 1.9% and a decrease in like-for-like sales of 2.1%. Disposable incomes continued to come under pressure during the year from the unwelcome impact of inflation on commodities, with the increasing price of oil again being felt at the pump and throughout the supply chain. For the third year in a row, consumers were faced with increases in the price of oil, albeit at a slower rate than previously, and in this environment consumers shop around carefully to find the best deals. Our Fuel Britannia programmes and innovative Fuel Saver initiative have proved highly attractive to budget conscious drivers. Total fuel sales increased by 5.0% in the year. Consumers also had to absorb the effects of significant increases in the prices of other core commodities, adding to the pressure on household budgets. In this environment customers inevitably changed their shopping habits. They shopped around in different
formats, using convenience stores for top up shopping, increasing their use of the online channel, putting fewer items into their baskets and managing their spend carefully. Average basket size, despite inflation, was in line with the prior year. However, although we welcomed an average of 11.4m customers each week into our stores, this was 0.4m fewer than in the prior year on a like-for-like basis. Once again sales growth was generally strongest in London and the South East although it is a mixed picture and in all regions of the country there are areas that are growing well. Our below market sales performance was disappointing. Whilst we are at a structural disadvantage in that we do not yet have a meaningful presence in either convenience stores or in online, the two fastest growing sectors of the market, we did not perform as well as we should have in a trading environment that should have played more to Morrisons strengths. Whilst our base pricing was strong, we do need to do more to communicate our value message and our unique points of difference. We did run some good promotions but we need to do more to improve the overall effectiveness of our promotional programme and ensure that our pricing is clear and consistent. We will be addressing these issues in the coming year.
Our value proposition of everyday low prices, coupled with industry leading offers, and the flexibility of our vertical integration enabled us to meet our customers need for great fresh food at affordable prices.
Reinforce our differences
Seize the opportunities
Chief Executives review a clear vision and strategy that makes us different continued
Operating results Summary income statement Turnover Gross profit Gross profit margin % Other operating income Administrative expenses Underlying operating profit Property transactions Operating profit Underlying operating profit margin % Net finance charges Taxation Profit for the period
2012/13 m 2011/12 m
18,116 1,206 6.7% 80 (336) 950 (1) 949 5.2% (70) (232) 647
17,663 1,217 6.9% 86 (329) 974 (1) 973 5.5% (26) (257) 690
During the year Group turnover grew by 3%. In a low sales growth environment it is important that we manage our cost base tightly. After costs of goods sold, the two main areas of cost are store wages and distribution costs and we have continued to focus on improving efficiency in both of these areas, whilst maintaining the highest standards of customer service. During the year, with improved processes and systems, we were once again able to improve our store labour costs relative to sales, with in-store labour productivity increasing by 4%. The investments we have made in systems improvements also enabled us to build on previous successes by improving Distribution productivity by 4%. Other operating income fell by 6m (7%) primarily due to a decrease in recycling credits. Continuing the trend we reported last year, administration expenses increased by 2.1%, a rate below the rate of inflation, which reflects the Groups commitment to ongoing strong cost control.
We bring great value fresh food to our customers every day.
10
Market overview In a tough economic climate, the UK grocery market continued to be a very challenging environment in which to operate, with consumers seeing no respite in the economy. Market growth was driven by inflation, which averaged 2.8%1 during the year. CPI food inflation averaged 4.1%1 reaching 5.5%1 by the end of the year. With commodity and energy costs increasing faster than average wages, household incomes continued to be squeezed throughout 2012. In 2012, the UK grocery market grew by 3.7%2 over the previous year and was worth 101bn2. The fundamental changes that are taking place in the market show shoppers being increasingly drawn away from traditional supermarkets towards the online, convenience and discount channels. The online grocery market grew by 15.7%3 during the year to 6.5bn3. Online sales now account for 3.9%3 of the UK grocery market and are expected to grow significantly faster than traditional grocery over the coming years. The convenience market too is expected to continue growing at a faster rate than the traditional grocery market for some time to come. More shoppers now regard price as their first consideration when choosing between products compared with a year ago. Consumers are also growing increasingly forensic in the way they shop; building their knowledge of how much things cost, down trading and switching to own label products, managing their consumption and actively searching and taking advantage of promotions. The proliferation of promotional activity amongst retailers has driven consumers to seek more personalised offers in return for their loyalty and spend. Retailers are responding to this by leveraging their customer relationship management systems and improving their in-store experience. Strategy In 2010 we outlined our vision to make Morrisons Different and Better than Ever. Three years on, we believe that our vision is even more relevant today and that we have the right strategy to achieve it. We are proud of what makes us different a distinctive offer to customers centred around fresh food, craft skills and vertical integration through our manufacturing businesses; the way we lead and support our colleagues; and our unique heritage. Being different means building on these advantages, which set us apart from all our competitors and position us to succeed. Being better than ever is about improving the way we do business doing more of the things that matter for our customers making great food, offering outstanding service and being more efficient so we can pass on the best savings possible. It also means seizing opportunities to grow the business profitably through new formats, channels and categories, to meet more of our existing customers needs and to reach new customers. Our strategy reflects our view of how the market will evolve, what will be most appealing to our customers and how we make best use of our existing capabilities. It is based on six convictions about the type of business that our customers want us to be:
Food focused not generalist Experiential over purely functional Value is forever Skills not just drills General merchandise clicks not bricks Multi-format and multi-channel
We set these convictions out for the first time last year and they form the base for the business we are building today. Over the past year we have seen continuing changes in the market. Value for money has come even more to the fore for consumers and there is an ongoing shift towards multi-format, multi-channel shopping, with more and more general merchandise being bought online. These changes confirm our convictions and we are confident that we have the right strategy for future growth. We have a clearly defined set of initiatives which will enable us todeliver our vision. These are grouped under the three strategic objectives of driving the topline, increasing efficiency and capturinggrowth.
1 2 3
source: Office of National Statistics source: Kantar Worldpanel source: IDG
11
Focused on our strategic objectives

Our vision
Our vision for the business, being Different and Better than Ever, is anchored by our convictions, and we have a clearly defined set of strategic initiatives that will help us deliver more of what matters.
Our convictions
Our vision reflects our view of how the market will evolve, what will be most appealing to our customers and how we make best use of our internal capabilities. It is based on six convictions about the type of business that our customers want us to be.
Driving the topline
1 Food focused not generalist
2 Experiential over purely functional
Increasing efficiency
3 Value is forever
4 Skills not just drills
Capturing growth
5 General merchandise clicks not bricks
6 Multi-format and multi-channel
12
Our strategic objectives

Our strategic objectives are based on our vision and our convictions. They are at the heart of Morrisons.
Our strategic initiatives

Our strategic initiatives provide a framework for delivering more of what matters in everything we do..
Driving the topline

See pages 16 to 18 for further information
> Completing National to Nationwide > Strengthening our own brand > Moving further ahead on fresh
Measuring performance through our KPIs
> Driving in-store productivity > Tackling indirect procurement > Revamping our systems
Capturing growth
> Becoming multi-channel > Growing convenience > Vertical integration
13
Measuring performance
against our strategic objectives
We have identified measures that areimportant to the success of the Groups financial performance and operational excellence, and to our stakeholders, customers, suppliers and colleagues. The Board considers these in assessing the achievement ofthe Groups strategy.
How do we identify our key performance indicators (KPIs)? There are many internal and external factors affecting theperformance of our business. We have focused on the key indicators that are measurable, comparable, and canbe acted on to reflect the performance and progress of our business. These KPIs have been identified to present afair, balanced and understandable picture of Morrisons. KPIs are reviewed regularly and updated as appropriate. Why link our KPIs with our strategic objectives? By linking our KPIs with our strategic objectives we are able to monitor and focus on areas that can be improved to increase sales, efficiency and growth in the future and help us achieve our vision of being Different and Better than Ever. A strategy linked to sustainability When we consider our future outlook and the goals we wish to achieve, we focus our attention on those areas of greatest significance to our business. We assess whether there are any potential sustainability issues relating to these areas and make a direct link between the sustainability challenges we face and our business strategy. We recognise the importance of developing the right sustainability KPIs, so that we can evaluate our performance against our strategy.
Like-for-like sales
Definition Measures the percentage change inyear-on-year store sales (excluding VAT and fuel), stripping out the impact of new store openings and closures in the current or previous financial year. Performance Like-for-like sales have decreased by 2.1% on a 53 week v 53 week basis, and decreased by 0.3% on a 53 week v 52 week basis. We aim to increase like-for-like sales by continuing to strengthen our own brand and fresh food offering and enhancing the service we provide to our customers. 2012/13 2011/12 2010/11 (2.1)% 1.8% 0.9%
Measuring performance against our strategic objectives
UK grocery market share
Definition The Groups percentage of retail sales in the UK grocery sector, as measured by Kantar Worldpanel at the end of January. Performance Our market share has fallen slightly during the year. We aim to grow our share by investing in new stores (including convenience) and continuing to develop our online offering. 2012/13 2011/12 2010/11 11.8% 12.8% 12.8%
Sales growth new
Definition Measures sales across the Group, excluding VAT and fuel. Shows the impact of space increases through investment in the store estate and the convenience market. Performance Store sales have grown by 1.8% to 13.7bn. The Group has increased space by 4.0%, reflecting 17 new stores and the opening of nine further convenience stores. 2012/13 2011/12 2010/11 1.8% 3.9% 4.0%
Key to KPIs Financial KPIs Non-financial KPIs
Key to strategic objectives D Delivering the topline E Increasing efficiency G Capturing growth
14
Underlying profit
Return on capital employed (ROCE)
Definition Measures the normal underlying business performance. Profits are adjusted to remove volatile or one-off costs and credits. A reconciliation of underlying profit is provided in note 1 of the Group financial statements. Performance Underlying profit before tax decreased by 34m. We plan to increase underlying profit by increasing like-for-like sales, opening new stores and continuing to realise efficiencies across the business. 2012/13 2011/12 2010/11 901m 935m 869m
Definition ROCE is a relative profit measure showing the return generated from investment in assets, see page 27. Performance ROCE decreased slightly during the year reflecting the weaker trading performance and increased capital spend on new stores. 2012/13 2011/12 2010/11 9.6% 10.1% 10.1%
Colleague engagement new

Definition Colleague engagement is measured through our annual Climate surveys, supplemented by our shorter bi-monthly Pulse surveys. Participation in our annual survey was >90%. Performance During the year, colleague engagement improved by 6.2%. 2012/13 2011/12 2010/11
Underlying basic earnings per share (EPS)
Definition The EPS measure uses underlying profit, as defined above, divided by the weighted average number of shares in issue at the year end date. A calculation is provided in note 9 of the Group financial statements. Performance Underlying basic EPS has increased to 27.3p, reflecting the benefit of the equity retirement plan. We aim to grow underlying EPS in line with underlying profit. 2012/13 2011/12 2010/11 27.3p 25.6p 23.0p
75.6pts 71.2pts 69.5pts
Carbon footprint reduction
Net debt
Definition The Groups overall debt position at the year end. A summary of net debt is provided in note 25 of the Group financial statements.
Definition Our carbon footprint includes energy, waste, refrigeration and transport for our stores, offices, manufacturing and packing facilities. Performance We have set a long term commitment to reduce emissions in absolute terms by 30% by 2020 (2005 baseline). Progress slowed against continued business expansion but remains on a downward trend. We started measuring absolute reduction in 2010/11. 2012/13 2011/12 2010/11 19.3% 14.6% 12.0%
Performance Net debt has increased by 710m, reflecting our planned acceleration in capital expenditure, investment in a multi-channel capability and our equity retirement programme. We will look to maintain our strong investment grade balance sheet going forward. 2012/13 2011/12 2010/11 2,181m 1,471m 817m
Waste to landfill reduction
Capital investment
Definition Measured as waste from our stores that we are unable to recycle or have processed, expressed as a percentage of total waste compared to the prior year. Performance Our commitment is to reduce direct waste to landfill to zero by December 2013. We made further progress towards this target in the year. 2012/13 2011/12 1.7% 5.6%
Definition Measured as additions to property, plant and equipment, investment properties, intangible assets and investments. Performance During the year, we invested 1,016m in capital projects reflecting our commitment to increasing space and investing in future growth, in particular through opening new stores (including convenience) and the Evolve programme. 2012/13 2011/12 2010/11 1,016m 901m 592m
15
Driving the topline

Completing National to Nationwide There are currently 6.4m households inBritain notin close proximity to aMorrisons store.
There are therefore significant opportunities for us to grow, particularly in the South where we are less well represented. In March 2011, we announced an accelerated programme to open 2.5m square feet of new space over the three years to 2013/14. During the current year we added a further 17 new core stores to our estate, including three replacement stores, as well as nine convenience format stores. We ended the year with 13.4m square feet of net retail space in total and an estate of 498 stores, including 12 in convenience format. Including convenience stores, our overall net selling space increased by 517,000 square feet (4.0%), of which 40,000 square feet came from extensions. This is in line with the revised target we set out at the time of our interim results in September 2012 and is a result of our determination to maintain capital discipline in a period of difficult trading. It also reflects a recognition that it is important that management is able to fully focus on current trading and our ambitious growth agenda. Deferring the addition of some of our planned new stores helps achieve these objectives. We will maintain this approach in 2013/14, when we now expect to add a further 500,000 square feet of new space, a decrease of 44% from our previous guidance. Over the three years to 2013/14 we have reduced the amount of core space we will open by 800,000 square feet (32%) from our original target, and now expect to add a total of 1.7m square feet over that period. This excludes convenience space, which was not included in our original estimates. In 2013/14 we also expect to add 250,000 square feet of new space from the convenience channel.
Roll out our Fresh Format to 90 stores Liberate 114,000 square feet of space Launch 5,000 new own brand lines
WHAT wE DiD
Rolled out Fresh Format to over 90 stores Continued to liberate space in our grocery aisles Launched over 5,000 own brand lines, including NuMe
Continue the Fresh Format roll out, tailoring the concept to local markets Relaunch 10,000 products by 2013/14 Launch Nutmeg, Morrisons own label childrens clothing
Own brand
Own brand lines launched this year Sales growth of M savers brand
5,000 37%
16
Our meat goes from field to fork in a matter of hours.
Strengthening our own brand Having great own brand products can give customers a reason to switch supermarkets.
Based on intensive research and customer insight, we are now around half way through a three year programme to deliver greater quality, whilst maintaining our strong value perception across the whole of our own brand range of some 10,000 products by Christmas 2013. Since the programme started, we have re-launched over 5,000 products and introduced four new Morrisons brands, in addition to our core range of everyday family favourites, and we have had great feedback from our customers. M Kitchen, our exciting range of ready meals, continues to progress well, building on the success of its launch in 2011. M savers, our new entry price-point range, is designed to be a clear proposition of good quality at the best price, in strong support of our conviction that value is forever. This has resonated strongly with our customers, making M savers the fastest growing value own label brand in the year with market share growth of 110bps. The range now has over 500 products, which allows our customers to do a full price led shop should they choose. In May we announced the introduction of our new healthy eating range, NuMe, with over 300 products across chilled, ambient and frozen categories. Customers are responding well to the broader range as well as to the healthier versions of old favourites. With the launch of our new premium M Signature range in March, which will include over 500 products when complete, we are well on our way to building an appealing family of relevant brands. Our customers have responded very positively and own label participation in our sales mix has increased consistently through the year and now stands at 48.3%. During the Autumn we re-launched Food To Go which now includes over 90 new and improved lines with a majority freshly made in-store. We have also announced that we will launch Nutmeg, our new range of clothing for children aged 0 to 13, which will be available inover 90 stores from March 2013.
I always shop at Morrisons because I know therell be a great selection of fresh food available.
Judith Hutton, customer, Leeds
17
Driving the topline continued
Moving further ahead on fresh Fresh Format is about providing customers with the best fresh food in the UK, unrivalled value for money and fantastic service from an environment that really feels different.
This initiative is a key part of our strategy and is underpinned by our core convictions that customers want fresh food, great value and a more experiential and engaging shopping environment. From the outset we have been very conscious that the new format would have to be tailored to reflect different stores sizes and the requirements of local demographics one size would certainly not fit all. To highlight our points of difference and provide more of what matters to our customers, we have rationalised the space given over to ambient grocery items and added a new wow factor into Market Street, including introducing category experts to provide advice to customers. In some stores we have knocked down walls so that customers can see our craft skills in practice, and in others we have introduced childrens clothing, a category customers now expect to see in-store. During the year we introduced new packaging and new signage to our fish counters. We trained over 1,000 fishmongers in how to prepare and advise on fish to encourage customers to enjoy our range of over 250 fish and seafood lines.
We have continued to build on the initial progress we made in 2011 by applying the Fresh Format concept to a further 76 of our existing stores, and implementing it in the 17 new stores we opened during the year. In all we have now introduced this new thinking into 105 stores in our estate. These stores now account for 26% of our retail store space and around 30% of our in-store sales, with over 2.7m customers now visiting a Fresh Format store each week. Customer feedback has been very positive. The Fresh Format stores that have been updated with the new fresh concept continue to deliver like-for-like sales growth of 4% to 6% above their control group benchmark. Their sales and margin progression is in line with the targets we set for them, and we are encouraged by their performance to date when compared with their control group. We will continue to use the learnings from these stores as we take the concept into smaller stores and different demographics. We will tailor the core concept to meet local requirements, introducing only those elements that will meet customers needs. We also have plans to expand our food range further and introduce new, relevant categories by reducing our non-food ranges rather than moving aisles or replacing refrigeration, thereby reducing investment cost whilst meeting customer needs. By the end of 2013/14 a further 100 stores will have benefited from the new fresh treatment. This will be at a reduced average capital cost of 0.5m per store, which is contained within our 2013/14 capital expenditure targets. This continuing evolution will see some 40% of our stores refreshed by the end of 2013/14.
Our fruit and veg is so fresh its award winning weve won produce retailer of the year three years running.
18
Driving in-store productivity Efficiency remains paramount, particularly in a low growth sales environment and with value for money at the forefront of customers minds.
We continue to look for better ways of working, to improve the service we offer and to reduce unnecessary spend. We have implemented a number of long term initiatives to make Morrisons more efficient but always with the guiding principle that great customer service is central to our business. In March 2011 we launched an initiative to focus on in-store productivity and have made further good progress in the year, delivering productivity savings of 4% in addition to the 25m reported for 2011/12. During the year we completed the roll out of intelligent labour planning across Market Street, reconfigured our check outs to reduce the amount of time required to process a till transaction, introduced more self service checkouts, increased our case rates and redesigned a number of other work processes including receipting systems for newspapers and magazines. Individually each of these is a relatively small benefit but as every hour per day we save across all of our stores equates to approximately 1.5m of annual cost saving, even small changes can deliver big results. During the coming year we will continue to trial and roll out new ideas and we are well on track to deliver our target savings of 100m by 2013/14.
Implement new IT systems at our Woodheads meat manufacturing site Introduce a new distribution centre forecasting system Deliver 40m of efficiency savings
WHAT wE DiD
Rolled out new financial systems to all three meat manufacturing sites Implemented our new distribution centre forecasting system Continued to focus on cost control, delivering over 90m of savings
Roll out supply chain forecasting solution to four further distribution centres Deliver new commercial systems and processes to increase focus on promotions Deliver 100m of further efficiency savings
Tackling indirect procurement Our indirect procurement programme aims to reduce the cost of our goods and services without impacting customers.
Our colleagues have played a significant part in helping us to identify and remove unnecessary costs from the business. The programme involves reviewing every area of spend in the business, both revenue and capital expenditure, looking for ways to sensibly reduce cost, including the use of e-auctions, rate negotiations, consolidating spend and reducing consumption. During the year we made further good progress delivering a further 45m of annual revenue benefit in addition to the 40m we achieved in 2011/12. Some of the initiatives, such as rationalising our waste collections and consolidating the purchase of consumables, were significant. Others, including the respecification of our flower buckets, the consolidation and renegotiation of napkins purchases, a reduction in postage stamps and the introduction of energy-efficient lighting, were smaller, but they are all contributing to our cost savings targets. We are on track to deliver our planned savings of 100m annually by 2013/14.
Key savings
In-store and distribution productivity improvements in 2012/13 Indirect procurement savings
4% 45m
19
Increasing efficiency continued
Our Evolve programme has delivered significant improvements across all areas of the business.
Revamping our systems We are now well over the half way stage of our six year Evolve programme.
When complete, the programme will replace all the systems in our business and provide us with industry leading software capability. Throughout the life of the programme we have taken great care to manage it through a comprehensive governance process, including external assurance, to enable us to carefully manage any risks to the business. As expected, it has been a long journey but we are delighted with the improvements we are delivering to the business. 2012/13 saw the deployment of new systems to many parts of the business. During the year we concluded the implementation of our EPOS till system, introducing it into our petrol filling stations and our stores. We substantially completed the roll out of new meat manufacturing solutions in Woodheads which link our buying, delivery, production and despatch to stores processes onto a single system, helping us to trace our meat products from field to fork. We also commenced the implementation of the important supply chain module which has initially been introduced into the Stockton warehouse and will ultimately enable us to consolidate our accounting, supplier ordering and distribution systems onto asingle platform. This is a significant step towards us delivering improved inventory control across the business. All of these completed projects are now providing the benefits expected in our business case and during the year the programme delivered a further 28m of savings. In the coming year we will be building still further on this solid base and will be making changes to our core manufacturing, logistics, trading and retail systems, supported by improved management information. We are on track to meet our target of delivering 100m of annual benefits by 2013/14.
The last few years have seen a lot ofchanges in the way we work, butweve made sure we keep great customer service at the forefront ofeverything we do.
Paul Finch, Store Manager, Cheadle Heath
20
Capturing growth
Becoming multi-channel Customers are changing the way they shop.

Online, with a total market value of 31bn and forecast growth of 13.6% in 2013 is now the fastest growing channel in the UK. General merchandise is migrating online, away from the high street and from big box supermarkets. There is a significant trend towards the growth of the multi-channel retailer and this is an exciting opportunity for Morrisons. Morrisons took the first steps in establishing itself in online retail through its acquisition, in 2011, of Kiddicare, a leading online baby and infant merchandising retailer. We have expanded Kiddicare as a true multi-channel retailer. In March we announced the acquisition of ten stores from Best Buy which will be converted into flagship Kiddicare showrooms to support its online proposition, allowing customers to try before they buy. We are making good progress with our store opening programme, having opened stores in Nottingham, Dudley and Thurrock during the year. Since the year end, our new Rotherham store has opened and six further outlets are planned for 2013. We are also leveraging the c11 million customers who shop in Morrisons each week by increasing their awareness of the Kiddicare business. As planned, we have continued to integrate Morrisons and Kiddicare brands using Kiddicares industry leading technology platform to provide the foundation for Morrisons first own online offer. In the second half of the year we launched Morrisons Cellar, to offer an outstanding range of wines at great prices, with fulfilment from our distribution centre in Peterborough. We also announced that in the Spring of 2013 we will expand our non-food business online by entering a partnership with Lakeland, offering kitchenware to customers through Morrisons.com. We will continue to expand our online presence by adding further new categories that are relevant to our customers. In order to support our multi-channel non-food ambitions we have appointed Nigel Robertson as CEO of Kiddicare, with overall responsibility for all Morrisons general merchandise online offer. The online food market is currently growing at 16% and over the next five years is set to grow by 98%. In 2011 we took an initial step in online grocery through the acquisition of a minority stake in Fresh Direct, a leading online, fresh food retailer in New York. We established a very positive relationship with Fresh Direct which enabled us to embed a Morrisons team into their business for nearly a year. During that time we developed a detailed understanding of Fresh Directs operating model and how those learnings could be applied to launch a successful online business in the UK. We have completed that evaluation and are now confident that we have identified a model that will enable us to provide food online in a distinctive, customer focused way that reinforces Morrisons leadership in fresh food by putting fresh food at the heart of its offer. Accordingly we will be launching Morrisons first online food offer in line with previous guidance by the end of January 2014. In order to do this, we will accelerate the development of our technology infrastructure and will further strengthen our online food management team.
Trial more convenience stores Open our first Kiddicare store Continue to develop Morrisons online food proposition Open Grimsby seafood factory
WHAT wE DiD
Opened nine convenience stores including a petrol forecourt and city centre locations Acquired a dedicated convenience store distribution centre in Feltham Successfully opened three Kiddicare stores and our Grimsby seafood plant Launched wine online (Morrisons Cellar)
Continue to roll out convenience stores, particularly in the South East Further develop Morrisonscellar.com and other online non-food categories Launch Morrisons online food offer in 2014
Convenience
New convenience stores in 2012/13 Target convenience stores by the end of 2013/14
9 100
21
Capturing growth continued
Growing convenience Customers want to be able to top up on the items they need without having to travel to their nearest large supermarket.
The UK convenience market, which is currently worth 36bn, is a huge opportunity for Morrisons. It already accounts for 21% of UK grocery sales and is expected to grow by a further 30% in the five years to 2017. Convenience is a market that Morrisons has only recently entered. It is an outstanding opportunity to leverage our points of difference, our unique vertical integration and great fresh and value credentials, and to develop a truly compelling new fresh food experience at the heart of local communities. In this sector it is important to develop a proposition that is flexible enough to meet the specific needs of different locations. During the year we continued to experiment with the format, opening a Morrisons M local in a petrol filling station in Doncaster and at a city centre location in Birmingham. By the end of the year we had 12 convenience stores open, primarily in the North of England. These stores offer a very different and attractive shopping experience, with the same fresh food pricing as our core stores, and with half of the space dedicated to fresh food and scratch cooking. The performance in these stores has been well ahead of our expectations and customer feedback has been particularly encouraging. In February 2013, we announced that we had acquired a total of 62 stores from a variety of other retailers. These will be converted to the Morrisons M local format and will open over the course of the coming year. We are delighted to have acquired these stores, and as a result have increased our target for new convenience format openings in 2013/14 by some 40%, taking our expected total at the end of 2013/14 to 100. We will be looking to increase that number in the future. Increasing our presence in London and the South East, where we are significantly under represented, is a major opportunity for Morrisons and convenience outlets have a key role to play in that development. Increasing our convenience presence in this region is a priority for 2013/14. After the year end we opened our first two London convenience stores, in Ealing and Elm Park their initial performance has been very encouraging. We will support our expansion in London and the South East from a 100,000 square foot distribution centre in Feltham, West London, which opened in the first quarter of 2013. In the coming year we will be looking to acquire a new convenience distribution centre (CDC) in the north of England to support our planned growth of convenience formats in that region. Outside of the major conurbations we will supplement this expanding CDC network with our unique hub and spoke distribution system. We believe that capturing strategic growth through the development of multi-channel opportunities will be an important driver of shareholder value in future years. Building these businesses has required incremental revenue expenditure of 17m in the year. This will increase to 40m in 2013/14 as we accelerate these opportunities. We also invested 40m of capital expenditure in our multi-channel operations in the year which will increase to 150m in the coming year. This sum is included within our projected total capital expenditure of 1.1bn for 2013/14.
22
We have over 50 species of fish available seasonally.
Vertical integration Vertical integration is crucial to our leadership in fresh food.

Sourcing and processing fresh food through our own facilities has long been a key point of difference for Morrisons. In addition to the flexibility that controlling our own supply chain brings to the business, it is a true source of competitive advantage which enables us to offer great quality products for great prices. It also enables us to have control over the provenance, safety and quality of our fresh products. It is becoming increasingly important to consumers that they are able to understand and trust where their food comes from. With half of the fresh products we sell in-store being processed through our own factories, Morrisons is uniquely placed to offer customers the reassurances they seek. In 2010, we set out our strategic objective to increase the scope of our vertical integration by investing 200m over three years in additional capacity for relevant fresh categories to support our retail operations. Since then we have expanded into several new categories. These include fresh flowers through the purchase of Flower World in 2011, and fresh meat packing following the acquisition of a facility from Vion Group in the first half of the year. This will enable us to extend the range of categories we produce through Farmers Boy. In addition, we have expanded our authority in fresh fish by establishing a seafood processing facility in Grimsby which is now on stream. We have also started to expand our Colne abattoir to facilitate further pork processing and are adding further capacity through the expansion of our bakery in Wakefield.
Morrisons own their own farm, so I can trust where the meat comes from.
Nicola Jones, customer, St Albans
At our Grimsby site we fillet around 10,000 salmon, 10,000 cod and 10,000 haddock each week.
23
Financial review
Richard Pennycook Group Finance Director
Our Group financial statements See page 60 for further information How our KPIs link to strategy See page 14 for further information See our report visit: morrisons.co.uk/corporate/ar2013
Our financial performance has continued to be robust in difficult trading conditions. We remain committed to investing in the future of the business and to sharing the benefits of our success with our shareholders.
Highlights
Cash generated from operations Gearing
Capital investment, including capital expenditure, investments and acquisitions Investment in equity retirement programme during the year
1.4bn 42% 1.0bn 579m
We have over 500 varieties of fruit and vegetables in our stores.
Financial strategy The underlying principles behind this strategy are: growing sales ahead of market; delivering earnings that meet the expectations of shareholders; and maintaining a strong investment grade balance sheet. We are meeting these principles by: growing sales organically; converting sales growth into profitable growth; and investing in our business to yield an appropriate rate of return.
24
The Chief Executives review on page 8 contains information about the Groups financial performance for the year, in particular turnover growth, like-for-like sales and operating profit. Underlying profit is the measure we use to assess normal underlying business performance and trends. Earnings are adjusted to remove volatile or one-off costs and credits. A reconciliation of underlying profit is provided in note 1 of the Group financial statements. Summary cash flow
2012/13 m 2011/12 m
Tax Corporation tax paid in the year was 243m. This cash outflow represented 50% of the total tax bill for the year to 29 January 2012, and 50% of the tax for the year to 3 February 2013. In the year the effective tax rate was 26.4% (2011/12: 27.1%) which is slightly above the prevailing corporation tax rate of 24%. This is due to a combination of non-qualifying depreciation and expenses, for which the Group is unable to obtain a tax deduction and which has the effect of increasing the tax rate above the statutory level. Offsetting this, the tax charge was reduced by a change in the main rate of corporation tax from 26% in the prior year to 24%. Our in-house tax departments primary focus is on ensuring that the Group continues to pay the appropriate level of tax at the right time. We actively engage with the UK tax authorities and aim to be transparent in all our activities with the tax authorities in all the territories where we have operations. The Group, which is predominantly UK-based, operates a simple business model and does not engage in sophisticated tax planning structures. Capital expenditure The Group continues to invest in the infrastructure required to support long term growth. This includes building new stores, the ongoing replacement of IT systems, the strengthening of supply chain, and the development of new business channels. During the period total capital expenditure (including acquired businesses) was 1,016m. This included 512m on new store space (including convenience), 104m for the continuing development of IT infrastructure and 33m on multi-channel investment. During the period, we opened 17 new stores (a net 14 after three replacements/closures) and nine Morrisons M local convenience stores. We also invested in acquiring new sites to support our planned future growth. We extended five existing stores and refurbished a further 71 stores to incorporate our Fresh Format concept. At the end of the period, we had a total of 13.4m square feet of net selling space, an increase of 4.0% over prior year.
At 29 Jan 2012 New stores1 Store extensions2 At 3 Feb 2013
Cash generated from operations Tax, interest and servicing of finance Capital expenditure Proceeds from sale of plant, property and equipment Acquisitions (including debt acquired) Investments Dividends paid Proceeds from exercise of share options Equity retirement Net cash outflow Non-cash movements Opening net debt Closing net debt
1,432 (325) (980) 5 (36) (270) 42 (579) (711) 1 (1,471) (2,181)
1,264 (330) (796) 4 (74) (31) (301) (368) (632) (22) (817) (1,471)
Net cash outflow increased by 79m during the period in line with our planning assumptions around capital expenditure and our equity investment programme. Cash generated from operations Cash from operating activities increased by 168m reflecting strong working capital management. Interest As planned, our average net debt increased during the year and as aresult net interest paid of 82m was higher than in the prior year (2011/12: 49m). The Groups effective interest rate of 4% was consistent with the prior year (2011/12: 4%). Interest was covered 14times (2011/12: 37 times). Excluding net pension interest expense (2011/12: income) interest was covered 14 times (2011/12: 25 times).
Number of core stores Number of convenience stores Total number of stores Total area in square feet (000) Number of petrol filling stations
1 2
472 3 475 12,904 300
14 9 23 477 13
5 5 40
486 12 498 13,421 313
Net of replacements. Number of store extensions is included in total number of stores.
25
Financial review continued
The Group maintains a rigorous capital expenditure programme and all potential investments are required to meet prescribed hurdle rates. A post expenditure review programme is in place and appraisals of all major expenditure projects are carried out by independent review teams. The findings of these appraisals are reviewed by the Board regularly. Acquisitions During the year the Group invested 36m in extending the scope of its manufacturing operations. In March 2012, it extended its capability in cooked meat production through the acquisition of the Winsford site for 21m and acquired the remaining 49% of Farmers Boy Deeside for 15m. Further information on the nature of the acquisitions can be found in note 27 of the Group financial statements. Net debt In line with previous guidance, net debt at the end of the year was 2,181m, an increase of 710m over the previous year. This increase was due to a combination of increased capital expenditure, strategic investments in growth opportunities in multi-channel and manufacturing, increased dividend payments and the continuation of our equity retirement programme. During the year we have taken steps to increase the amount of funds and facilities available to the Group and sought to do this in a way which extends and balances the maturity profile of our borrowings. In May 2012, the Group concluded a bilateral revolving credit facility of 150m with Svenska Handelbanken AB which matures in March 2016. Combined with the multi-bank facility concluded in March 2011, we now have committed facilities of 1,350m to March 2016. At the balance sheet date 675m of those facilities remained undrawn. In July 2012, the Group issued a 14 year sterling bond to institutional investors, which provided 400m of funding through to July 2026. In November 2012, the Group concluded a 200m term loan with Lloyds Banking Group, which matures in May 2014. The Group ended the year with a well diversified and mature funding base. Gearing Our gearing ratio increased during the year, as planned, to 42% (2011/12: 27%). Moodys, a leading credit agency, continues to recognise the strength of our balance sheet.
Pensions The two defined benefit pension arrangements sponsored by the Group are both managed externally to, and independently of, the Groups operations. This year we launched our Retirement Saver scheme (accounted for on a defined benefit basis) which provides a lump sum benefit based on a defined proportion of earnings. This replaces the previous defined contribution scheme and is open to all colleagues. We retain a prudent approach to valuing our defined benefit pension obligations. At 3 February 2013, the schemes had a deficit of 20m. The movement, from the deficit of 11m at 29 January 2012, is summarised in the table below.
Pension bridge m
Net pension deficit at 29 January 2012 Actuarial gain recognised Actuarial loss recognised Funding above annual service cost Net pension interest Net pension deficit at 3 February 2013
(11) 145 (151) 1 (4) (20)
IAS 19 Employee benefits requires the Group to assess the liabilities with reference to the market conditions at the balance sheet date and the Directors best estimate of the experience expected from the schemes. The movement in the year has been influenced by changes in assumptions due to changes in market conditions. Scheme assets performed better than assumed returns; however, scheme liabilities increased to a greater extent due to a combination of financial and demographic changes in assumptions. Over the year, market conditions fluctuated significantly with corporate bond yield returns and inflationary expectations decreasing. There has been no further update to longevity this year. The Trustees will undertake their triennial valuation of the pension schemes in April 2013.
Our strawberries are handpicked first thing in the morning, packed inrecyclable punnets and delivered to stores within 24 hours.
26
Returns to shareholders In March 2011, our preliminary results announcement set out our policy of maintaining a progressive dividend, whereby dividend growth would be in line with underlying earnings per share growth. Additionally, we confirmed that in each of the three years to 2013/14 the year-on-year increase would be at least 10%. In accordance with this policy, the Board has recommended a final dividend of 8.31 pence per share, making the total dividend for the year 11.80 pence per share, an increase of 10%. On this basis dividend cover was 2.3 times (2011/12: 2.4 times). Payment of the final dividend will be made on 19 June 2013 for shareholders registered on 17 May 2013.
2012/13 2011/12 Change
Return on capital employed (ROCE) ROCE is the key metric behind our investment strategy and in driving management performance. In order to monitor the progress of our capital efficiency measures we will publish a ROCE performance figure with our interim and preliminary results. The measure of ROCE that we have selected is calculated as: ROCE =
underlying profit before interest and rent paid, less tax Net assets + net debt + 20 times rent payable
Despite a slight decrease this year, over the past five years we have delivered progressive improvement in returns, which stand well above the Groups weighted average cost of capital.
2008/09 2009/10 2010/11 2011/12 2012/13
Interim dividend paid Final dividend proposed Total dividend for the year
3.49p 8.31p 11.80p
3.17p 7.53p 10.70p
+10% +10% +10%
Adjusted underlying profit after tax (m) Capital employed (m) ROCE (%)
504
616
682
738
778
5,730 8.8%
6,191 10.0%
6,765 10.1%
7,299 10.1%
8,085 9.6%
Equity retirement In March 2011, we announced an equity retirement plan to purchase 1bn of ordinary shares in the market over a two year period, for subsequent cancellation. During the year, 579m was invested in this ongoing programme and 186m shares were repurchased and cancelled, bringing the total invested under the scheme to 947m. The programme was completed on 8 March 2013. Basic underlying earnings per share for the year was 27.3p, an increase of 6.7% over prior year. The impact of the investment in the equity retirement plan in the year has been to increase basic underlying earnings per share by 4.2%.
Key judgements and assumptions Judgements and assumptions made in these financial statements are reviewed each reporting period. Whilst some outcomes have been affected by the volatility in the financial markets, all judgements and assumptions in the accounting policies remain consistent with previous years. Consideration of impairment to the carrying value of assets has been made and we have concluded that the individual carrying values of stores and other operating assets are supportable either by value in use or by market values. The impact of the current economic conditions on the assessment of going concern has been considered in the general information section of the Directors report.
27
Managing risks and uncertainties

Our approach to risk management As with all businesses, we face risk and uncertainty, which could impact the delivery of our strategy. The Board has overall accountability for ensuring that risks are effectively managed across the Group, and that there is a system for internal control. The Management Board is responsible for implementing and maintaining the system of controls. Managing the risk management process
The Board believes a successful risk management framework balances risk and reward, and applies reasoned judgement and consideration of likelihood and impact in determining the Groups principal risks. The Groups risks are reviewed regularly and updated as appropriate.
r ito on o ns m ti ac
1D e s t r ve l o ate p gy a
Business change
Risk The Group is undertaking a number of major change programmes that will significantly impact existing ways of working. There is a risk that the business fails to build the capacity and capability to support business changes resulting in service disruption or unintended costs. Mitigation Organisation Design structures and support established for multi-channel and other change programmes. Multi-channel governance structure exists including Business Design Authority.
Business interruption
Risk Our distribution and systems infrastructures are fundamental to ensuring the normal continuity of trading in our stores. If a major incident occurred to this infrastructure or another key facility, this could have a detrimental impact on our ability to operate effectively. Mitigation Recovery plans exist for individual sites. Investment in remote IT disaster recovery site and regular testing of recovery plans for key systems. Adherence to a stringent process for evaluating new suppliers/third parties. Contingency arrangements documented for key suppliers. Annual crisis simulation exercise.
Business strategy
4 Re v su c i e w ces an so d f
Risk Effective long term management of the Groups strategic risks will deliver benefits to all our stakeholders. The Board understands that, if the strategy and vision are not properly formulated, communicated or implemented, then the long term aims of the Group may not be met and the business may suffer. Mitigation Strategy development led by the Chief Executive and senior management with Main Board scrutiny and approval. Engagement with a wide group of stakeholders to ensure the strategy remains current. Communication of strategy via numerous channels. Clear link between strategic targets and business plans to drive implementation. Close Board monitoring of business performance.
ate u ni c m m t i ve s co bjec nd d o an
risks
ate
Strong governance
isk s
ntif 2 I de
nd ya
ev
1. Our strategy informs the setting of objectives across the business and is widely communicated. 2. Risks are identified by colleagues fro m all business areas through a variety of mechanisms, including facilitated workshops. The likelihood and impact of identified risks is considered and captured. 3. Responsibility for actions to mitigate risks is delegated to appropriate colleagues within the business, and risks and controls are recorded in the functional risk registers. 4. The Management Board considers the risks reported in the functional risk registers and, with assistance from Risk and Internal Audit, prepares a Group risk register. This is reviewed and approved by the Board of Directors.
ga i ti 3M
te r
Colleague engagement and retention
a lu
Risk We are a people business and our 129,000 colleagues make it happen for our customers. If we fail to retain, develop and motivate our colleagues, we will not provide our customers with the quality of service they expect. Mitigation Competitive employment policies, remuneration and benefits packages established. Significant investment in training and development, including Morrisons Academy and Coaching for Performance programmes. Regular talent reviews and refresh of succession plans to meet the future needs of the business. Climate and Pulse surveys undertaken to understand and respond to colleague concerns.
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Customer proposition
Regulation
Risk We operate in a highly competitive industry and our customers shopping habits are influenced by broader economic factors that our business does not control. Ifwe fail to keep our proposition aligned with customers expectations, then they may choose not to shop with us and sales will suffer. Mitigation Insight team provides data and analysis to help identify customer needs and wants which inform product ranging, marketing, advertising and the location of new stores. Regular review of positioning against competitors.
Risk The Group operates in an environment governed by strict regulations to ensure the safety and protection of customers, shareholders, colleagues and other stakeholders, and the operation of an open and competitive market. These regulations include alcohol licensing, health and safety, the handling of hazardous materials, data protection, the rules of the stock exchange and competition law. In all cases, the Board takes its responsibilities very seriously, and recognises that breach of regulation can lead to reputational and financial damage to the Group. Mitigation Clear accountabilities for compliance with all areas of regulation exist. Policies and procedures designed to accord with relevant laws and regulations, including GSCOP and Competition Law training. Health and Safety and Compliance Steering Group together with the Management Board and Corporate Compliance and Responsibility Committee oversee compliance with regulatory requirements.
Financial and treasury
Risk The main financial risks that the Group is exposed to relate to the availability of funding, the loss of a financial counterparty and the uncertainty produced by fluctuations in interest and foreign exchange rates. All of these things have the potential to undermine the Groups ability to finance its trading activities and its financial results. Mitigation Treasury Committee controls activities in line with Board approved policies and procedures and reports twice a year to the Audit Committee. Hedging and derivatives used to control risk and protect the business rather than create profit. Board approval of budgets and business plans.
Reputation
Risk Morrisons is committed to taking good care and, if we fail to act as a responsible corporate citizen or misjudge the mood of the nation, this could damage our reputation and, therefore, potentially lose the trust of our stakeholders and increase costs. Mitigation Morrisons Values embedded into colleague Performance Development Review (PDR) process. Corporate Responsibility policies, targets and key performance measures clearly defined and integrated into operational management activities. Responsible Sourcing Group, Management Board and Corporate Compliance and Responsibility Committee oversee delivery against targets. External assurance of Morrisons Corporate Responsibility report. Further information is available in our Corporate Responsibility report at www.morrisons.co.uk/cr.
Food and product safety
Risk If we fail to deliver excellent standards of hygiene and safety in our products, there is a potential to harm our customers and damage our business reputation. Our business focuses on fresh food and we have a vertically integrated business model; therefore, food safety is of paramount importance. Mitigation Strict standards and monitoring processes established to manage food safety risks throughout the Group and supply chain. ISO22000 accreditation of food manufacturing businesses. Regular supplier assessments undertaken to ensure adherence to standards. Stock withdrawal procedures operate throughout our supply chain to minimise the impact to customers of any supplier recalls. Food Safety Steering Group, Management Board and Main Board provide oversight of operational activities.
Space optimisation
Risk The business is growing the size of its retail space through acquisition and by modernising and extending existing stores and facilities. If we fail to grow our space profitably, we will lose market share and earnings will suffer. Mitigation Property strategy develops stores to a well proven format. Formal capital approval process, overseen by the Investment Board.
IT systems
Risk A number of existing systems are approaching the end of their useful lives and the Group is investing significantly in a multi-channel technology platform. Morrisons is aware of the risks faced by any organisation seeking to successfully design and implement new systems. Mitigation We partner with some of the worlds leading technology companies for key projects. Project management methodology (The Method) used to manage delivery. Regular reviews undertaken by Risk and Internal Audit and other specialists provide assurance over Evolve and multi-channel programmes.
Key to strategic objectives Delivering the topline Increasing efficiency Capturing growth Change in the level of risk from 2011/12
D E G
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More of what matters for our people

Our people are at the forefront of Developing talent everything we do. Having the right Talented people are our greatest asset and the way we engage and train our colleagues helps us deliver more of what matters to people is a key differentiator, allowing our customers. usto deliver excellent customer service We believe in bringing the best out of people by offering and meet our strategic objectives. At continuous training. A career at Morrisons starts with the Best First Day; a comprehensive induction to the Morrisons vision, culture Morrisons, we create long term and values. partnerships with our people by giving Each colleagues development includes regular feedback, them the time, qualifications and support supplemented by more formal performance reviews. Our colleagues also take part in the Morrisons Academy, our training needed to grow and develop their skills. function focusing on skills and qualifications development,
leadership, and coaching and talent.
Highlights
Labour turnover
This year, we have provided over 750,000 training days to our colleagues, seen over 14,000 colleagues trained in retail skills and promoted over 2,100 people following successful job skills qualification.
Colleague engagement increased by

measured through our colleague engagement survey
15.0 +6.2%
%
Colleagues at our new Fresh Format stores have received specific training focusing on excellence in preparation and customer service. In our Manufacturing team, weve helped 5,500 colleagues get closer to understanding what great food looks like through our Pinnacle Food Quality Standard. We have maintained our position as the largest apprenticeship provider in the country with 11,000 colleagues graduating this year. We pride ourselves on our colleagues craft skills. Our apprenticeships and training programmes are vital in transforming our people into skilled and knowledgeable butchers, bakers and fishmongers. Alongside the apprenticeship programme, this year we have inducted our largest ever cohort of graduates. We have also launched a number of other development courses such as level 3 apprenticeships, which 6,000 colleagues are in the process of completing. We pride ourselves on our craft skills and in September we held Morrisons second Mastercraft competition. This year, the competition was expanded and as well as butchers, bakers, fishmongers and cheesemongers our wine experts, produce specialists, cake shop and florists were invited to compete. The competition saw a number of challenges including live product knowledge tests, demonstration of craft skills, and for our wine experts blind taste tests.
Employee stability
measured as colleagues with more than one year service
86.2
Female managers increased by People progressing from shop floor to management Participants in annual colleague opinion survey
+2.0 1,205 121,000

%
source: 1 12 months to 31 January 2013 2 Latest Pulse survey (Pulse 6), compared with Climate survey 2012 3 12 months to 31 December 2012 4 3 February 2013, compared with 31 January 2012 5 Climate survey 2012
Awards won in 2012/13
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Our Mastercraft competition saw colleagues from all over the UK showcasing their craft skills.
Employer of choice
Following a number of qualifying rounds, 48 finalists were invited to a live final where they demonstrated their skills in front of 2,500 colleagues in our busy head office. The winners of each category were invited to take part in specially arranged European industry visits to learn more about their crafts so that they could bring what they had learnt back to their local stores. We continue to support the progression of women in our business and 25% of our Main Board is female. This year we have increased the number of females in senior roles to 22%, an increase of 2% on last year. We expect to meet our 2013/14 target of 30%. At the end of their careers, our colleagues celebrate their Best Last Day. We then continue to support and keep in touch with them through the M Plus scheme. At Morrisons, we are passionate about providing a great place to work for our colleagues, which in turn provides a better experience for our customers. We are proud to have won the Grocer Gold Employer of Year Award for the third time in a row and the Retail Week Employer of the Year for the second year. We know that the current economic conditions are challenging for our colleagues and this year we launched the Save your Dough education programme, featuring finance expert Alvin Hall. The scheme has been received positively with over 45,000 colleagues saying it has helped them manage and improve their finances. We listen to what our people tell us and colleague suggestions have been a key part of our strategic objective of improving efficiency. We also know the importance of communicating with our colleagues so that they know whats going on at Morrisons. Our teams receive regular updates through our Fresh news magazine and colleague communication boards. This year, against a backdrop of significant pension changes, we introduced our ground breaking Retirement Saver colleague pension scheme, which offers colleagues a guaranteed pension pot when they choose to retire. The scheme received positive feedback and pension participation trebled within one month of its launch. The health and wellbeing of our colleagues is key to a happy workforce. As well as offering healthy food options for our colleagues we also have free of charge health check machines available for colleagues. Absence and sickness are important metrics which are closely monitored. Our current absence rate is 3.7% and our sickness rate is 3.5%. Formal feedback from colleagues is important and our annual Climate survey, supported by bi-monthly Pulse surveys are a key part of monitoring engagement. This year, our response rate is over 90% and our year-on-year engagement has increased by 6.2%.
This year marked the launch of our Retirement Saver scheme.
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More of what matters for our people continued
This year we launched the Feeding Britains Future scheme to help young people (16 to 24) get first hand experience of working in retail. The participants spent three days in-store, visiting a number of different departments. We also provided skills training, including CV writing, interviewing skills and marketing experience. The scheme received excellent feedback and we are pleased to have had more than 100 placement candidates join us as permanent colleagues.
Heart of the community

At Morrisons, we want our stores to be truly part of the communities they serve. We are committed to growing our people to build a loyal and committed workforce, which provides the basis of a strong Morrisons culture and increased social mobility. We also want our communities to benefit from our growth plans by creating opportunities. We continue to open new stores and, on average, 75% of colleagues in our new stores are recruited from the local area. We are committed to paying our colleagues fairly and all our apprentices earn at least twice the apprentice minimum wage. Each of our stores has a community champion interacting with and benefiting our local communities. In particular, through our Raise a Smile scheme, we have worked with Save the Children and since April 2011 raised 4.5m.
We have a Market Street in all our stores.
The Morrisons Academy has increased my confidence, allowing me to develop my skills in a supportive learning environment.
Stacey Holmes, Morrisons Finance Graduate
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Corporate responsibility
Our commitment At Morrisons, we dont just sell products. We think about the life cycle of our products, from the suppliers that make them to the customers that buy them.
Our vertical integration model allows us to carefully and efficiently manage our supply chain, giving customers quality products at affordable prices. We are committed to operating our business responsibly, protecting valuable resources whilst making a positive contribution to the communities in which we operate. Management and responsibility for delivery of our core published commitments is led by our Management Board. Formal reports on innovation, progress, integration and challenges are made to both our Management Board and Corporate Compliance and Responsibility Committee. Engaging with key stakeholder groups is essential to delivering an effective and impactful CR programme. We regularly communicate with a variety of stakeholders including investors, customers, government, non-governmental organisations, colleagues, communities and suppliers. Responsibility for overall stakeholder engagement falls within the Corporate Services function of the business. It enables Morrisons to identify the issues that matter most and ensure continuous improvement of strategy. In turn, this helps us to make informed and responsible decisions, respond to changing needs and adhere to regulatory and best practice. Last year we were the first of the top four supermarket retailers to have our corporate responsibility review independently assured to AA1000AS (2008) standard. We were recognised in Carbon Smarts sustainability assurance report, On the right track?, as out in front of our competition for assurance reporting. This section highlights just a few of our achievements in corporate responsibility in the year. Details of our full programme can be found in our corporate responsibility review 2012/13 at www.morrisons.co.uk/cr.
Corporate responsibility highlights

Big Tick for our Lets Grow programme at Business in the Communitys annual Awards of Excellence Reduction in carbon emissions (2005 baseline)
achieved to date Raised for our charity partner Save the Children
19.3% 4.5m
raised to date
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Corporate responsibility continued
Were passionate about doing more of what matters ... ...for customers
The past year has seen a number of developments in our work to provide customers with the information and products they need to make healthier choices. In May, we launched our new healthier eating brand, NuMe, replacing our previous Eat Smart offering. NuMe offers a wide range of healthier products across all meal and snacking occasions. The range was developed by our in-house professional chefs, nutritional experts and product development team. Innovative labelling systems using clear labelling helps customers to easily identify healthier options. Morrisons continues to support the Governments Public Health Responsibility Deal which includes commitments such as working towards 2012 salt reduction targets and putting calorie information on our out of home eating options. Our in-store caf menus and counter items provide calorie information at point of choice, so that our customers can make informed decisions about the food they enjoy. This has been extended so that calorie information is also displayed in our colleague canteens and further nutritional information about our dishes are available on request. Customers who shop in Market Street can find nutrition information for those products on our website.
At Morrisons we take the welfare of livestock in our food chain very seriously. Its an important issue to our farmers and our customers. We continue to invest in research that helps raise the bar for animal wellbeing. One example is our work with University of Bristol, investigating the benefits of raising broiler chickens in sheds which have windows offering natural daylight, easy access to perches and pecking objects. We continue to work with our farmers to help them with current farming challenges, including cutting costs and improving efficiency. Were proud to be British and are committed to supporting whole crop farming. This means our farmers know exactly what we will buy, reducing their wastage. The Morrisons farm at Dumfries House hosted Scotsheep, a key event in the British sheep farming calendar. For Morrisons, it was a chance to welcome our fellow farmers to the House and show them the progress weve made in transforming derelict farm buildings and barren land into a thriving beef and sheep enterprise. Nearly 8,000 farmers joined our guest of honour HRH The Prince of Wales for an action packed day which included farm tours, insights into new technologies and debates on the future of the British sheep industry. Over 350 farmer suppliers converged at the Great Yorkshire Show ground for Keep Britain Farming, our second farming conference. We engaged with producers drawn from across the farming spectrum on how we can work together to build industry sustainability and produce British food that is both attractive and affordable for our customers.
...for farmers
Now in its fourth year of operation, Morrisons farming programme has completed a number of industry led projects over the last year. Ideas for projects come from farmers themselves with Morrisons providing funding and expertise to help improve their profitability. A number of the projects have been trialled at our own farm, Dumfries House, in Ayrshire, Scotland. The programmes core aim is to provide producers with new information that can help them build sustainable farm businesses and enable Morrisons to secure a supplier base ready to meet our customers need for transparency, quality and affordable food. The programme spans the UK and covers all areas, from red meat to poultry to dairy.
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...for communities
Since 2008, through our Lets Grow scheme, we have given away:
11,000 wellies
In 2012, we engaged communities across the UK by opening up the programme to Incredible Edible sites. These community growing groups take over unused flower beds and planting areas, allowing local people to grow and harvest their own crops. Thanks to Lets Grow they can now collect vouchers in-store and receive free equipment. In 2013, we are continuing to work with over 28,000 schools taking the field to fork story even further by expanding our focus into cooking and preparing fresh food. Morrisons actively supports Save the Childrens Families and Schools Together (FAST) programme; working with families, schools and communities to support children across the UK.
34,000 watering cans
Lets Grow is our award winning community investment programme that teaches schoolchildren about the story of fresh food and the practical experience of growing their own fruit and vegetables. Since our programme began in 2008, weve given away 18m worth of gardening equipment to schools all over the UK. Working closely with DEFRA to implement the recommendations of the Growing Schools taskforce, we ensure teachers have valuable online teaching resources to support childrens learning, including tutorial videos, activity sheets and assembly guides. Stores are also an integral part of the Lets Grow story. Hundreds of schools have taken part in educational store visits, bringing the food story to life and showing how their produce, meat and bread goes from field to fork.
The FAST programme has a huge impact on the lives of families and children in the UK by helping them to improve learning, develop confidence and become more actively involved in their community. At the launch of the partnership in April 2011, we set an ambitious target to raise 1m in our first year; thanks to the outstanding support and dedication of our colleagues and customers, an incredible 2m was raised within the first ten months. To date our partnership has raised over 4.5m. This means weve supported over 2,200 children, and their families, funding 49 FAST programmes. In 2013, we are continuing to work with Save the Children and aim to fund another 48 programmes, making a difference to thousands of childrens lives.
Schemes like Lets Grow keep Morrisons at the heart of the community.
35
Governance
Board of Directors and Management Board
Board of Directors (left to right)

Sir Ian Gibson N R C Johanna Waterous N Nigel Robertson N R Philip Cox N R A Penny Hughes N R C Richard Pennycook Dalton Philips N C
R C C A A
Committee key Nomination Committee Remuneration Committee Corporate Compliance and Responsibility Committee Audit Committee
N R C A
Board Director biographies See page 38 for further information See our report visit: morrisons.co.uk/corporate/ar2013
36
Management Board (left to right)

Neal Austin Trevor Strain Mark Amsden Dalton Philips Richard Pennycook Martyn Fletcher Martyn Jones Terry Hartwell Mark Harrison
Management Board biographies See page 39 for further information See our report visit: morrisons.co.uk/corporate/ar2013
37
Governance
Board of Directors and Management Board continued
1 Sir Ian Gibson CBE

Chairman
Sir Ian joined the Group as Non-Executive Deputy Chairman in September 2007 and was appointed Chairman in March 2008. Sir Ian is Chair of the Boards Nomination Committee and a member of its Remuneration Committee and Corporate Compliance and Responsibility Committee. He is a Non-Executive Member of the Public Interest Body of the UK firm of PricewaterhouseCoopers LLP. Previous Board appointments include Non-Executive Chairman of Trinity Mirror Plc, Chairman of BPB Plc, Deputy Chairman of Asda Group Plc, and a Director of Chelys Limited, GKN Plc, Greggs Plc and Northern Rock Plc. He is also a former member of the Court of the Bank of England. Sir Ian enjoyed a distinguished 30-year career in the motor industry, most recently as President of Nissan Europe.
5 Philip Cox CBE
Chair of Audit Committee

Philip joined the Group as a Non-Executive Director in April 2009. He is a member of the Audit, Nomination and Remuneration Committees. Philip has been the Chief Executive Officer of International Power Plc since 2003; he will retire from this position on 30 April 2013. Philip is a Non-Executive Director of Meggitt Plc and will be appointed as a Non-Executive Director of PPL Corporation with effect from 1 April 2013. He was a NonExecutive Director at Wincanton Plc from 2001 to 2009, having chaired their Audit Committee from 2001 to 2008 and was Chair of their Remuneration Committee from 2008. His previous Board positions were as Chief Financial Officer at Siebe Plc.
6 Penny Hughes CBE
2 Dalton Philips
Chief Executive
Dalton joined the Group as Chief Executive in March 2010. He is a member of the Boards Nomination Committee and Corporate Compliance and Responsibility Committee. Prior to joining Morrisons, he was Chief Operating Officer of Loblaw Companies Limited, Canadas largest food distributor and a leading provider of general merchandise. Prior to that position, he was Chief Executive of Irish department store group, Brown Thomas. Between 1998 and 2005 he worked for Walmarts international divisions latterly as Chief Operating Officer in Germany. Dalton started his career with Jardine Matheson, working in New Zealand and Spain. Dalton is a Non-Executive Director at the Department for Business, Innovation & Skills.
Chair of the Corporate Compliance and Responsibility Committee

Penny joined the Group as a Non-Executive Director in January 2010. She is a member of the Audit, Nomination, Remuneration and Corporate Compliance and Responsibility Committees. Penny is currently a Non-Executive Director of The Royal Bank of Scotland Plc and a trustee of the British Museum. Pennys previous experience includes 10 years with Coca-Cola GB and Ireland and various Non-Executive roles including Body Shop International Plc, GAP Inc, Reuters Plc, Skandinaviska Enskilda Banken, Trinity Mirror Plc, Vodafone Plc, Home Retail Group Plc and Cable and Wireless Worldwide Plc.
7 Johanna Waterous CBE
3 Richard Pennycook
Group Finance Director
Richard joined the Board as Group Finance Director in October 2005 and has responsibility for finance, IT, strategy and multichannel development. Prior to joining Morrisons he was the Group Finance Director of RAC Plc, the quoted specialist motoring and vehicle management company. Previous senior roles include Group Finance Director of HP Bulmer Holdings Plc, Laura Ashley Plc and JD Wetherspoon Plc and Chief Executive of Welcome Break Holdings Plc. He is also Senior Independent Director and Chairman of the Audit Committee of Persimmon Plc, Chairman of the Hut Group Limited and will be appointed as a Non-Executive Director of Thomas Cook Group Plc with effect from 1 April 2013. Richard will retire from the board on 10 April 2013.
Chair of the Remuneration Committee

Johanna joined the Group as a Non-Executive Director in February 2010. She is a member of the Audit, Nomination, Remuneration and Corporate Compliance and Responsibility Committees. She is currently a Non-Executive Director of RSA Group Plc, NonExecutive Director and Senior Independent Director of Rexam Plc and a Non-Executive Director of Shoppers Drug Mart Corporation (listed on the TSE), as well as being an Operating Partner of Duke Street LLP and Chairman of Sandpiper CI. Her previous experience includes 22 years with McKinsey & Co, London, ultimately as Co-Leader of the firms Global Marketing and Sales Practice. She is a Trustee of the Royal Botanic Garden Kew Foundation and of Kew Enterprises Ltd. Between 1998 and 2006, she was Chairman of Tate Enterprises.
4 Nigel Robertson
Senior Independent Director

Nigel joined the Group as a Non-Executive Director in July 2005 and has been Senior Independent Director since March 2011. He is a member of the Nomination, Remuneration, Audit and Corporate Compliance and Responsibility Committees and was Chair of the Corporate Compliance and Responsibility Committee from September 2009 to March 2011. Working in the private equity sector, he is the Group Chief Executive of Health and Surgical Holdings Limited. Until the business was sold in 2007 he was the Chief Executive Officer of Chelsea Stores Holdings Limited and he was previously the Managing Director of Ocado, the online grocery shopping business set up in partnership with Waitrose. Nigel retired from the board on 13 March 2013.
38
8 Neal Austin
Group Logistics and Supply Chain Director and interim HR Director

Neal joined the Management Board in October 2010 and is responsible for logistics and supply chain. He is also currently overseeing the Human Resources function on an interim basis. He joined Morrisons in October 2006 from MFI, where, as Logistics Director, he was involved in the sale of the retail business to private equity. Neal began his career in 1989 with Tesco as a graduate trainee in the buying division, where he undertook a number of buying and marketing roles, progressing to senior wine buyer. He then took a role with Asda as a senior buyer and progressed through the supply chain in a number of roles before being appointed Supply Director.
12 Terry Hartwell
Group Property Director

Terry was appointed to the Management Board in October 2010 after joining the Group in May 2009 as Group Property Director. Prior to joining Morrisons, Terry was Group Property Director for the worldwide operations at Kingfisher Plc. He spent 25 years with Kingfisher Plc and, during that time, held a number of senior property positions, including a spell in front line operations, running the new depot division in the mid 1990s. He is a Chartered Surveyor with experience in all aspects of commercial property development, retail acquisition and property management.
13 Martyn Jones
Group Corporate Services Director

Martyn was appointed to the Management Board in October 2010 as Group Corporate Services Director, and is responsible for policy and technical standards. He joined Morrisons in 1990 as Trading Manager and was promoted to Trading Operations Director in 1993, Grocery Director in 1997 and then Senior Trading Director in 2002. Martyn spent three years on the Board as Group Trading Director before changing role at the end of 2010 to Group Corporate Services Director on the Management Board. Prior to joining Morrisons, he spent eight years with J. Sainsbury Plc before moving into manufacturing with RHM Plc and then Campbells, gaining wide buying, marketing and product development experience in fresh and frozen foods.
9 Martyn Fletcher
Group Manufacturing Director

Martyn became a member of the Management Board in October 2010 and is responsible for the Groups food manufacturing operations, including abattoirs, bakeries, processing and packing facilities. He joined the Group in 1985 and has held a number of roles within stores and in head office. In 1988, he was appointed as Purchasing Manager and promoted to Purchasing Director in 1995. In 2002, he was appointed as Production Director, responsible for the food manufacturing operation, before being appointed as Group Manufacturing Director in 2007.
10 Mark Harrison
Group Retail Director
Mark joined the Management Board in October 2010 and was appointed Group Retail Director in June 2011. His responsibilities are retail operations, central retail operations and other retail related projects. He joined the Group in 1980 as a management trainee and quickly progressed to Store General Manager. After a successful career in store management, he held progressively senior positions of regional management between 1996 and 2004. In 2004 he became Stores Director.
14 Trevor Strain
Group Finance Director designate

Trevor joined Morrisons in June 2009 as Commercial and Operations Finance Director. In June 2011 he became Finance Director Corporate and took responsibility for the Companys productivity programmes. Prior to joining Morrisons he worked for Tesco in a number of roles until his appointment as UK Property Finance Director in 2006 and subsequently UK Planning and Reporting Finance Director. Trevor began his career with Arthur Andersen and is a member of the Institute of Chartered Accountants in England and Wales. Trevor will succeed Richard Pennycook as Group Finance Director in April 2013.
11 Mark Amsden
Group General Counsel and Company Secretary

Mark is a qualified lawyer who joined the Group and the Management Board on 1 February 2013. Prior to his arrival, Mark spent 25 years with a number of law firms. Between 1998 and 2013 he was a partner in leading national law firm Addleshaw Goddard LLP (previously Addleshaw Booth & Co), where he specialised in commercial litigation and was Head of the national IT Litigation team. Marks clients included many of the UKs leading companies, including retailers, manufacturers and suppliers.
3 8 14 11 2 9 13 12 10
39
Governance
Corporate governance report

The Board
Membership On 3 February 2013, the Board comprised a Non-Executive Chairman, two Executive Directors and four Non-Executive Directors. There is a clear division of responsibilities between the Chairman and the Chief Executive, which has been set out in writing and agreed by the Board. On 1 March 2013, Richard Gillingwater was appointed as a Non-Executive Director. As part of the orderly handover of responsibilities from outgoing Group Finance Director Richard Pennycook to Trevor Strain, it was announced on 8 March 2013 that Richard would retire from the Board, and Trevor would be appointed to the Board with effect from 10 April 2013. On 13 March 2013, Nigel Robertson stood down as a Non-Executive Director. Throughout the year, the majority of the Board consisted of independent Non-Executive Directors. Details of appointments, roles and backgrounds of the Directors are set out on page 38. Board diversity The Board currently includes two women members, 25% of its total composition. The Boards policy is that female representation should be maintained at not less than 20% and aspires that this should be higher than 30%. This policy will continue to be considered as part of the Nomination Committees regular review of the Boards composition and skills. Performance evaluation and training The performance of the Board, its committees and its Directors is assessed and appraised regularly. The Chairman is responsible for monitoring the performance of the Chief Executive, who in turn is responsible for monitoring the performance of the Group Finance Director. Board review A review of the Board was carried out during the financial year. The review took the form of the completion of questionnaires by each Director, prepared by the Company Secretary, and approved by the Boards Corporate Compliance and Responsibility Committee. Those responses were collated by the Company Secretarys office and reviewed by the Chairman and the Corporate Compliance and Responsibility Committee. The conclusions of that review were that the Board was effective, well informed and active, worked well as a team, and provided appropriate but supportive challenge to management as befits an effective board. The effectiveness of the Board was considered within the context of three key criteria: the Boards ability to achieve its objectives, particularly with regard to the development of strategy, the oversight of risk and control, the monitoring of executive performance and the protection of shareholder and stakeholder interests; the Boards ability to work together effectively; and the Boards ability to maximise its use of time.
Sir Ian Gibson Chairman
UK Corporate Governance Code The Board has prepared this report with reference to the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010.
During 2011/12, the Boards Corporate Compliance and Responsibility Committee reviewed and updated, and the Board approved, its Corporate Governance Compliance Statement, which sets out how the Group complies with each of the provisions of the UK Corporate Governance Code (the Code). In light of the fact that there were relatively few changes to the Code in the year, there were no significant changes to the Corporate Governance Compliance Statement during 2012/13. That document also sets out the statement of the division of responsibilities between the Chairman and the Chief Executive, the list of matters reserved for the Board, the membership of the Board and the various Board committees, together with the terms of reference of the various standing Board committees. This document is available in the investor relations section of the Groups website, www.morrisons.co.uk/corporate.
40
The Board has accepted the recommendations of the Corporate Compliance and Responsibility (CCR) Committee and in 2013/14 there will be a further independently facilitated external evaluation. The Board is satisfied that the arrangements for review and appraisal of the performance of the Board, its committees and individual Directors are appropriate. The Board is also confident that the initiatives which have been implemented already or which are in progress will enable the Group to satisfy the best practice recommendations of the Code in relation to Board evaluation. During the course of 2012/13, the Group has continued with ad-hoc Board training sessions and built on the extensive training programme conducted by the Board in the two previous financial years, including training on food safety and competition law. Nigel Robertson was appointed to the Audit Committee on 9 February 2012. There were no further changes to the composition of the Boards principal committees or the chairmanship of those committees during the year. Senior Independent Director Nigel Robertson was the Boards Senior Independent Director from March 2011 until his resignation on 13 March 2013. He has, and had, extensive knowledge of the Groups business and its activities. Throughout his period of tenure as Senior Independent Director, he was available to shareholders as an alternative to the Chairman, the Chief Executive and the Group Finance Director. Nigel also coordinated the review of the performance of the Chairman by the Non-Executive Directors, the latest having been carried out in January 2013. Non-Executive Directors The Non-Executive Directors bring a varied range of skills and experience to the Group. Details of their experience outside the Group are set out in their respective biographies on page 38. The Board is satisfied that all Non-Executive Directors, including the Non-Executive Chairman, remain independent according to the definition contained in the Code. No Non-Executive Director: has previously been employed by the Group within the past five years; has had a material business relationship with the Group within the past three years; receives remuneration other than Directors fees; has close family ties with any of the Groups advisers, Directors or senior employees; holds cross-directorships or has significant links with other Directors through involvement in other companies or bodies; represents a significant shareholder; or has served on the Board for more than nine years. All Directors are provided with a comprehensive, formal and tailored induction to the business. The minimum time commitment expected of the Non-Executive Directors is one day per month attendance at meetings, together with attendance at the AGM, Board away days and site visits, plus adequate preparation time. The Board is satisfied that each of the Non-Executive Directors commits sufficient time to the business of the Group and contributes to the governance and operations of the Group. This has been confirmed by the Board effectiveness evaluation referred to earlier in this report.
During the year, the Non-Executive Directors met five times without management present to discuss the performance of the business and management, and the wider economic, commercial and social environment in which the Group operates. The Chairman arranges regular discussions between all the NonExecutive Directors (including himself) as a group. These are not part of a strict timetable, as they are influenced by circumstances from time to time. However, these discussions take place roughly at or around every alternate Board meeting. The Senior Independent Director has also coordinated a meeting of the Non-Executive Directors which carried out an appraisal of the Chairmans performance. As part of this process, he also sought the views of the Executive Directors. Board responsibilities The Board is responsible for setting and approving the strategy and key policies of the Group, and for monitoring the progress towards achieving these objectives. It monitors financial performance, critical operational issues and risks, including regular review and formal approval of the Groups risk register. The Board also approves all circulars, listing particulars, resolutions and correspondence to shareholders, including the annual report and financial statements, half-yearly financial report and interim management statements. The formal schedule of matters reserved for the Board remains unaltered and further details are available in the Corporate Governance Compliance Statement set out in the investor relations section of the Groups website, www.morrisons.co.uk/corporate. Management Board The Management Board is made up of representatives of the senior management of the Group and is chaired by the Chief Executive. It has detailed terms of reference and has responsibility for the day-to-day operations of the Group. This includes development and implementation of strategy (subject to overall supervision by the Board), financial performance, reporting and control, risk management, operational improvement programmes, the entry by the Group into major contracts and commitments, the development of corporate policies and procedures, and the ongoing review and supervision of the operational activities of the business of the Group. It reviews and makes recommendations to the Board in respect of budgets, long term planning and dividend levels, as well as reviewing proposed announcements, whether financial or related to ad-hoc events. It also keeps under supervision the Groups senior management talent, capabilities and succession plans. The Company Secretary organises the appropriate level of insurance cover for all Directors to defend themselves against legal claims and civil actions. The level of cover is currently 75m in aggregate. Trevor Strain was appointed to the Management Board during the year.
41
Governance
Corporate governance report continued
Committees of the Board The principal committees of the Board are the Audit, Remuneration, Nomination and CCR Committees. Full terms of reference of the Boards committees are available on request and in the Corporate Governance Compliance Statement set out in the investor relations section of the Groups website, www.morrisons.co.uk/corporate. a) Nomination Committee The Nomination Committee is chaired by the Chairman, Sir Ian Gibson. During the year, the activities of the Committee were focused on advice to the executive management on the search for anew Group Finance Director, a new Commercial Director, a new Company Secretary, the composition of the Management Board and on senior management succession planning. The Committee has engaged an executive search agency, MWM Consulting, to assist in the process of identification of potential Non-Executive candidates to join the Board as and when appropriate.
b) Remuneration Committee The Remuneration Committee is chaired by Non-Executive Director Johanna Waterous. The objective of the Groups remuneration policy is to encourage a strong performance culture and an emphasis on long term shareholder value creation. The intention is to position remuneration arrangements competitively against the market with a clear reward structure to enable the Group to attract, retain and motivate the best talent who are key to the Groups past and future success. The HR Director and the HR and reward and benefits teams have advised the Group on all remuneration related matters, including pensions and Executive Directors contracts. Where necessary, this was supplemented by advice from external advisers. The Committee also receives guidance from its appointed advisers on remuneration matters: Pension Capital Strategies Limited (a member of the Jardine Lloyd Thompson Group) in respect of pensions, and Ashurst LLP in respect of Executive Directors contracts and PricewaterhouseCoopers LLP as its remuneration adviser. The activities of the Remuneration Committee during the year are set out in more detail in the Remuneration report from page 45.
During the year, membership of the Committees was as follows:

Committee membership Name Nomination Remuneration Audit CCR
Sir Ian Gibson Dalton Philips Philip Cox Penny Hughes Nigel Robertson Johanna Waterous
1
Chair of the Committee
The Directors attended the following number of Board and Committee meetings:
Committee membership Name Nomination Remuneration Audit CCR CCR
Sir Ian Gibson Dalton Philips Richard Pennycook Philip Cox Penny Hughes Nigel Robertson Johanna Waterous
11/11 11/11 11/11 10/11 10/11 11/11 11/11
5/5 5/5 5/5 4/5 5/5 5/5
9/9 9/9 9/9 9/9 9/9
5/5 4/5 5/5 5/5
3/3 3/3 3/3 3/3 3/3
42
c) Audit Committee The Audit Committee is chaired by Non-Executive Director Philip Cox, who has the requisite recent and relevant financial experience. The Board has delegated to the Audit Committee the responsibility for reviewing on its behalf and making recommendations to the Board as to: the integrity of financial reports, including reviewing significant financial reporting issues and considering how these issues have been addressed; the effectiveness of the Groups internal control and risk management system; and the independence of the external auditor. The Audit Committees responsibilities have not changed during the year. The Audit Committee regularly considers the professional development needs of its members, and whether adequate technical information is being provided. Where necessary, it will seek independent external advice at the Groups expense, with such arrangements made through the Company Secretary. The Chairman, the Chief Executive, the Group Finance Director, the Head of Risk and Internal Audit and other finance department representatives have attended meetings by invitation. (i) Overview of actions taken by the Audit Committee in discharging its duties The Committee has received and reviewed reports and presentations from senior management to fulfil its terms of reference. To meet its responsibilities in this respect, the Committee considered: interim and preliminary announcements, together with any other formal announcements relating to financial performance; the accounting principles, policies and procedures adopted in the Groups financial statements, including, where necessary, challenging the judgements made; and the potential effects of tax and pensions accounting, and other significant judgemental and complex accounting issues dealt with in the financial statements. The Audit Committee oversees the Groups relationship with the external auditor. Private meetings are held with the external auditor, without management present. The purpose of these meetings is to understand their views on the control and governance environment and managements effectiveness within it. To fulfil its responsibilities in respect of the independence and effectiveness of the external auditor, the Committee reviewed: the terms, areas of responsibility, duties and scope of work of the external auditor as set out in the engagement letter; the external auditors work plan for the Group; the detailed findings of the audit, including a discussion of any major issues that arose during the audit; the letter from the external auditor confirming their independence and objectivity; and the audit fee and the extent of non-audit services provided by the external auditor. In the year, the external auditor has continued to provide a significant level of non-audit work, primarily to provide the Board with independent assurance in respect of IT systems replacement. The Board believes that this activity is a reasonable extension of the auditors statutory work and that there are safeguards in place to avoid a threat to the auditors independence or objectivity. The Board has a policy on the engagement of the external auditor to
supply non-audit services and the Committee has reviewed the scope of non-audit services provided by the external auditor to ensure that there was no impairment of objectivity. A copy of the non-audit services policy is available in the Corporate Governance Compliance Statement set out in the investor relations section of the Groups website at www.morrisons.co.uk/corporate. This non-audit services policy is designed to assist the Company and each of its subsidiaries in ensuring that the engagement of the external auditor to provide non-audit services: is only carried out in appropriate circumstances; is transparent; and does not impair the judgement or independence of the external auditor. When assessing the non-audit services for approval, the Audit Committee will take the following into consideration: whether the skills and experience of the audit firm make it the most suitable supplier of the non-audit service; whether there are safeguards in place to ensure that there is no threat to the objectivity or independence in the conduct of the audit resulting from the provision of such services by the external auditor; the nature of the non-audit services, the related fee levels and the fee levels, individually and in aggregate, relative to the audit fee; and the criteria which govern the compensation of the individuals performing the audit. The external auditor also follows its own ethical guidelines and continually reviews its audit team to ensure that its independence is not compromised. Although the auditor has been in place for a number of years, the auditor periodically changes its audit partners in accordance with professional and regulatory standards in order to protect independence and objectivity and provide fresh challenge to the business. The Audit Committee has noted the revisions to the UK Corporate Governance Code introduced by the FRC in September 2012 and, in particular, the recommendation to put the external audit out to tender at least every ten years. The Audit Committee is satisfied with the auditors effectiveness and independence; and the degree of diligence and professional scepticism in the external audit process. As such, the Committee has not considered it necessary to conduct a tender process for the appointment of its auditor and has recommended to the board that the auditor be reappointed for 2013/14. The Audit Committee will review, not less than annually, whether the incumbent auditor should remain in place or whether an auditor selection process should be initiated. (ii) Internal control The Board is responsible for setting a system of internal controls for the Group and reviewing its effectiveness. Executive management is responsible for implementing and maintaining the system of controls. This system is intended to manage rather than eliminate the risk of not meeting the Groups strategic objectives; recognising that certain inherent risks may be outside the Groups control.
43
Governance
Corporate governance report continued
The Board delegates to the Audit Committee the review of the effectiveness of the Groups internal controls and risk management systems. During the year, the Committee discharged this responsibility by: receiving and considering regular reports from the Risk and Internal Audit function on the status of internal control and risk management systems across the Group. The Committee also reviewed the departments findings, annual plan and the resources available to it to perform its work; reviewing the external auditors management letters on internal financial control; seeking reports from senior management on the effectiveness of the management of key risk areas; and monitoring the adequacy and timeliness of managements response to identified audit issues. The Audit Committee receives regular reports from the Head of Risk and Internal Audit on any whistle blowing activity in respect of concerns expressed by colleagues about possible malpractice or wrongdoing. While there were no significant concerns raised by colleagues, all actions required were discussed and agreed with the Committee. The Audit Committee also reviews the progress of the Groups significant system changes. The Board is satisfied that a continual process for identifying, evaluating and managing significant risks has been in place for the financial year and up to the date of this annual report and financial statements. To date, no material financial problems have been identified that would affect the results reported in these financial statements. The Board confirms that, if significant weaknesses had been identified during this review, the Board would have taken the necessary steps to remedy them. The Groups internal controls over the financial reporting and consolidation processes are designed under the supervision of the Group Finance Director to provide reasonable assurance regarding the reliability of financial reporting, and the preparation and fair presentation of the Groups published financial statements for external reporting purposes in accordance with International Financial Reporting Standards. Due to its inherent limitations, internal control over financial reporting cannot provide absolute assurance, and may not prevent or detect all misstatements, whether caused by error or fraud. The Groups internal control over financial reporting and the preparation of consolidated financial information includes policies and procedures that provide reasonable assurance that transactions have been recorded and presented accurately. Management regularly conducts reviews of the internal controls in place in respect of the processes of preparing consolidated financial information and financial reporting. d) Corporate Compliance and Responsibility (CCR) Committee The CCR Committee, chaired by a Non-Executive Director, Penny Hughes, reviews and oversees the development and implementation of policy in relation to health and safety, environmental, competitive and ethical compliance, corporate responsibility (CR), including the Groups engagement with community organisations and charitable bodies, and governance and other reputational management issues.
The Committees remit does not cover operational matters, but it performs an oversight, monitoring and advisory role in relation to these key areas in the Groups governance and development. The Committee, which reports to the Board, met three times during the year and, as well as reviewing its terms of reference, it received presentations on the Groups CR, health and safety, and competition compliance policies and procedures. Our CR programme is published in our 2012/13 Corporate Responsibility Review, produced concurrently with this report. The programme has been independently assured by Two Tomorrows under the AA1000AS (2008) framework. See www.morrisons.co.uk/cr. Shareholder relations The Chief Executive and the Group Finance Director meet regularly with analysts and institutional shareholders. The Investor Relations Director also carries out a regular programme of work that reports to the Board the views and information needs of institutional and major investors. This is part of the regular contact that the Group maintains with its institutional shareholders. The Chairman regularly meets with major shareholders and he actively encourages major shareholders to contact him if they wish to discuss any aspect of the Group or its governance arrangements with him. Additionally, the Groups brokers sought independent feedback from investors following the 2011/12 annual and 2012/13 interim results. This feedback was reported to the Board. All Directors, Executive and Non-Executive, attend the AGM unless unavoidably unable to do so. The Chairman and the Chairs of the Audit, Nomination, Remuneration and CCR Committees are available to answer any questions. Code compliance The Board is confident that its corporate governance policies and procedures are appropriate and that the Company is fully compliant with the Code. In line with the best practice recommendation set out in Code Principle B.7.1, all Directors will be submitted for re-election at its AGM. Share capital and control Details relating to share capital and control are contained within the General Information section on page 55.
44
Total shareholder return

Value of hypothetical 100 holding
140 130 120 110 100 90 80 70 60 3 Feb 2008 2 Feb 2009 1 Feb 2010 1 Feb 2011 30 Jan 2012 3 Feb 2013
Directors remuneration report

Remuneration summary
How Executive Director pay is structured at Morrisons The major components of executive pay in 2012/13 were: base salary; annual bonus plan, based on underlying profit before tax, strategic scorecard and personal objectives, of which 50% of any payment is deferred in shares for three years; and long term incentive plan (LTIP) delivered in shares, based 75% on earnings per share (EPS) growth and 25% on like-for-like sales growth over three years. Key points from the 2012/13 remuneration report are: base salary levels for Dalton Philips and Richard Pennycook were unchanged in 2012/13; no annual bonus was paid for the year 2012/13 as the business missed the stretching underlying profit before tax growth target; the LTIP for the 2010/13 cycle did not vest as a result of the EPS growth over that three year performance period falling short of target; following a review in February 2013, the Committee decided that there will be no base salary increases for Executive Directors in 2013/14; the balance of the annual bonus weighting between personal objectives and strategic scorecard will be 20:20 (changed from 10:30) for 2013/14; the like-for-like sales growth and earnings per share targets attached to the LTIP will be amended for grants from 2013/14 so that maximum vesting will occur if LFL sales growth equals or exceeds 1% v the IGD index and EPS reaches 10% above RPI; a return on capital employed (ROCE) underpin will be implemented for LTIP grants from 2013/14; clawback provisions will apply to deferred shares and LTIP awards from 2013/14; and shareholding guidelines have been increased for Directors to 200% of salary. We pay for performance our principles encourage a strong performance culture; emphasise long term shareholder value creation; and position pay competitively in relation to our major peers. Key performance indicators
2012/13 2011/12
Average
6 5 4
Wm Morrison Supermarkets PLC FTSE 100 Pay for performance at Morrisons FTSE all share food and drug retailers index The Remuneration Committee believes that the executive source: Thompson Reuters remuneration policy and the supporting reward structure provide clear alignment with the performance of Morrisons. To maintain this relationship, the Remuneration Committee constantly reviews Morrisons business priorities and the environment in which the Company operates.
%
6 5 4
3 2 1 0
The overall relationship is shown in the graph below.

PBT v total remuneration (base salary + cash bonus) for Chief Executive and Group Finance Director during the period 2008/09 to 2012/13
900 800 700 4,500 4,000 3,500 3,000 2,500 (3) (1) (2) 2,000 1,500 1,000 500 2008/09 PBT 2009/10 2010/11 2011/12 2012/13 0
2007
Av
sourc
PBT (m)
600 500 400 300 200 100 0
Base salary + cash bonus
Notes 1. No Chief Executive bonus paid in year due to departure of Marc Bolland 2. Dalton Philips appointed as Chief Executive during year (salary and bonus shown on annualised basis for 2010/11) 3. 2010/11 bonus opportunity increased to 200% to reflect competitive benchmarks; and introduction of bonus deferral into shares to reinforce the linkage of pay to long term shareholder value
Performance graph The graph below shows the Companys total shareholder return (TSR) compared with the TSR of the FTSE 100 and FTSE food and drug retailers indices over the five year period to 3 February 2013. These indices have been selected as being appropriate in giving a broad equity view and the Company is aconstituent of both indices. 8.4%
Total shareholder return
Value of hypothetical 100 holding
140 130 120 110 100 90 80 70 60 3 Feb 2008 2 Feb 2009 1 Feb 2010 1 Feb 2011 FTSE 100 30 Jan 2012 3 Feb 2013
PBT growth over one year Underlying EPS growth over one year Average share price growth Dividend payment
(7.2)% 6.7% (6.1)% 11.8p
10.9% 4.4% 10.7p
Base salary + cash bonus (000)
1000
5,000
Average
Wm Morrison Supermarkets PLC source: Thompson Reuters
FTSE all share food and drug retailers index
3 2 1
45
Governance
Directors remuneration report continued Introduction from the Chairman
Short term incentives are based on a combination of underlying profit before tax targets, strategic corporate scorecard measures and personal objectives. For 2013/14, the Committee has increased the weighting for personal objectives metrics to 20%. This is intended to drive greater emphasis on personal impact in the business. Long term incentives are based on EPS and like-for-like sales growth to support a sustainable approach to growth. The mix of the total remuneration package and the use of stretching performance targets ensures that there is alignment between pay and performance. In 2013/14, in addition to the EPS and sales growth measures, we will introduce a ROCE underpin to reinforce a focus on efficient use of capital. The like-for-like sales growth stretch target will be set at IGD +1% and the EPS performance range will be set at 1% to 10% above RPI, which the Committee believes remains challenging and reflects the structure and strategic growth priorities of the business. As a Committee, we are mindful of our responsibilities and review executive remuneration arrangements with a critical eye on corporate governance. We also welcome the recently published guidance from BIS in this regard. With this in mind, we have raised the shareholding guideline for Executive Directors from 100% to 200% of salary, to be achieved over five years. We have also introduced clawback provisions for both the deferred shares and LTIP which would be triggered in the event of financial misstatement or such similar acts by the Directors that could bring the business into disrepute. The Committee believes that the adjustments to remuneration policy for 2013/14 set out above reinforce our focus on delivering stretching performance, driving the right behaviours in the executive team and doing the right thing for our shareholders. I would like to thank my fellow Committee members for their support on these crucial issues for the business. Johanna Waterous Chairman of the Remuneration Committee
Johanna Waterous Chairman of the Remuneration Committee
Dear Shareholder The Remuneration Committee remains focused on ensuring rewards throughout the business incentivise a clear focus on both short and long term financial performance as well as the key strategic objectives for the Company.
Elsewhere within the annual report you will read about the challenges facing the business over the last year. Tough conditions resulted in the business missing performance targets for both the annual bonus plan and long term incentive plan. Therefore no bonus payments will be made to Executive Directors for 2012/13 and the 2010/13 LTIP will not vest. In addition, there will be no base salary increases for Executive Directors for 2013/14. The Remuneration Committee and I strongly believe that these remuneration outcomes are appropriate given the performance of the business, and it demonstrates to shareholders that incentives for executives will only pay out when stretching performance targets have been achieved. Looking forward the Committee remains focused on encouraging astrong performance culture, positioning pay competitively whilst doing the right things for our shareholders. In response to shareholders feedback, the Remuneration Committee has reviewed our reward policies and made a number of changes with effect from 2013/14.
46
The Group is required to prepare a Directors remuneration report for the 53 weeks ended 3 February 2013 and put that report to a shareholder vote. A resolution to approve this report will be proposed at the AGM of the Company to be held on 13 June 2013. The auditor is required to report on part of the Directors remuneration report and to state whether, in their opinion, that part of the report has been properly prepared in accordance with the Companies Act 2006 and Schedule 8 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008. The report has, therefore, been divided into separate sections for unaudited and audited information.
Unaudited information
Remuneration Committee During the year, the following individuals were members of the Remuneration Committee.
Membership Name of Director From To
The Remuneration Committees key activities during the year are set out below: approval of the 2011/12 bonus payments for Executive Directors and senior managers; approval of vesting of 2009/12 LTIP; approval of annual bonus targets (including scorecard measures and personal objectives) for 2012/13; approval of 2012/15 LTIP awards and performance conditions; annual review of Executive Directors base salaries and Chairmans fee review; approval of sharesave invitation, including assessment of ABI limits on share issue guidelines; changes to shareholding guidelines; amendment to the stretch attached to the like-for-like sales growth and EPS metrics for the 2013/16 LTIP; implementation of aROCE underpin; and implementation of clawback provisions for the deferred shares and LTIP. Remuneration policy The Remuneration Committee remains of the view that the Companys executive remuneration policies: should encourage a strong performance culture and emphasise long term shareholder value creation, with clear links between executive performance goals and business strategy; and need to be positioned competitively to enable it to attract, retain and motivate the best talent, which has been key to the Companys success over the last few years and will be critical to its future performance. To achieve this, the Committee aims to: position base salaries competitively; operate a competitive and stretching suite of annual and long term incentives, so that a substantial proportion of total remuneration is subject to performance and so that executives are aligned with shareholders through share awards and share ownership; and ensure that total remuneration packages are competitive, reward stretching performance and are aligned to the Companys strategy. In determining remuneration policy, the Remuneration Committee is mindful of environmental, social and governance concerns, and the approach to pay and conditions taken within the Group. The Committee seeks to ensure that remuneration arrangements do not encourage inappropriate behaviour.
J Waterous (Chairman from 10 March 2011) P Cox I Gibson P Hughes N Robertson
1 Feb 2010 1 Apr 2009 1 Sep 2007 1 Jan 2010 1 Jul 2005
To date To date To date To date To date
The remit of the Committee covers the total remuneration of the Executive Directors and other senior managers comprising the Management Board. The full terms of reference for the Committee, which are reviewed annually, can be obtained from the Company Secretary and can be found on the Companys website at www.morrisons.co.uk/corporate. The Committee has access to external advice as required. PricewaterhouseCoopers LLP are appointed by the Committee to provide external advice on executive remuneration. Pension Capital Strategies Limited (a member of the Jardine Lloyd Thompson Group) also provided advice in respect of pensions and Ashurst LLP provided legal advice to the Committee on senior executive contracts. PricewaterhouseCoopers LLP also provides a range of unrelated human resource consulting services and advice on tax and accounting. Pension Capital Strategies provides advice to management on relevant pension matters and Ashurst LLP provides other legal services to the Company. The Chief Executive, the Human Resources Director and other HR representatives are also invited to attend meetings (other than where their own remuneration is being discussed) by invitation. The Company Secretary acts as secretary to the Committee. The Committee met on nine occasions during the year and the meeting attendance record is set out on page 42 within the corporate governance report.
47
Only buying what is needed Reducing food waste
53 48
Governance Cooking with leftovers

Cooking smaller portions Growing my own produce
35
32 24
20 Directors remuneration report continued

Removing items form trolley Missing meals 0% Share of respondents (%)
14
100%
source: Shoppervista. IGD Research, Performance-related versus fixed remuneration August 2012, IGD May 2012
DATA?
More
Same
Less
A substantial proportion of the Executive Directors pay is performance-related. The following chart demonstrates the balance between fixed and performance-related pay for the 2013/14 financial year for the Chief Executive and the Group Finance Director at target and maximum performance levels. Maximum performance assumes the achievement of maximum bonus and full vesting of shares under the LTIP. Performance-related versus fixed remuneration (%) Dalton Philips
Target Maximum
Annual bonus
Structure Maximum bonus potential for Executive Directors is 200% of base salary. 50% of any bonus payable is deferred in shares under the Deferred Share Bonus Plan (DSBP). Under the DSBP, the shares comprising the deferred element of the bonus payment will vest three years from the date that the deferred share award is made, and it is intended that dividend equivalents will accrue and be paid on shares that vest. These deferred shares are normally forfeited if the individual leaves the Company prior to vesting. Performance measures The performance measures are underlying profit before tax, achievements against the strategic scorecard and personal objectives. These measures remain unchanged in 2013/14, however the weightings for strategic and personal objectives have been equalised at 20% each. Scorecard measures for 2012/13 focused on driving the topline, increasing efficiencies, and capturing growth in areas of new space, food production, the convenience sector and e-commerce. These are aligned with the key deliverables of the Groups vision to be Different and Better than Ever. Scorecard measures for 2013/14 will again focus on major strategic objectives. For 2013/14, achievement of strategic corporate scorecard measures and personal objectives will be assessed independently of the profit target. The management tier immediately below Executive Director level participates in an annual bonus plan with a similar structure. As in prior years, specific performance targets have not been disclosed, as they are considered to be commercially confidential. 2012/13 bonus payments Underlying profit before tax for 2012/13 did not meet the required performance target for threshold payout. Positive performance was achieved against the strategic corporate scorecard and personal objectives of Directors, however as the threshold profit before tax target was not achieved, no bonus is payable for the 2012/13 financial year. Long term incentive plan The long term incentive plan is designed to reward management for achieving the Groups strategic objectives and to provide an appropriate level of long term performance pay. Each year, participants receive conditional awards of shares in the Group, which will normally vest three years after they are awarded subject to the satisfaction of performance conditions, measured over a three year period, and continued service. The plans individual annual limit is 300% of salary (face value of shares).
Richard Pennycook
Target Maximum 0% Salary 20% Pension 40% Bonus 60% LTIP 80% 100%
Base salary In order to set the right balance in Executive Directors packages, the policy is to set salaries competitively. The Remuneration Committee has regard to the following when reviewing salary levels: the rates for similar roles in comparator companies, both in FTSE 100 retailers, particularly the Companys major competitors, and, more generally, in UK-based companies of a similar size and complexity; the performance of the individual concerned, together with any change in responsibilities that may have occurred; avoiding the automatic ratcheting effects of following median or upper quartile levels of salary derived from comparator company analyses; and pay levels and structure throughout the Company. Base salaries are normally reviewed annually in light of personal performance, market data, where appropriate, and internal relativities. Following a review in February 2013, the Committee decided that there will be no base salary increase for Executive Directors for 2013/14. Base salaries for the Executive Directors are set out below:
2013/14 at 3 Feb 2013
D Philips R Pennycook
850,000 570,000
850,000 570,000
48
Award levels An award of shares worth 275% of salary was made to Dalton Philips and an award worth 240% of salary was made to Richard Pennycook, both in April 2012. For tiers below Executive Director, awards are made at lower levels dependent upon seniority. Performance measures Performance under both the 2012/15 and 2013/16 LTIP plans are measured over three years. To guard against the possibility of individuals receiving value from the LTIPs as a result of sales targets being hit but EPS targets being missed, no awards can vest under the sales targets, unless the minimum EPS target has been met. Underlying EPS will be as referred to in note 9 of the Group financial statements. The Group will report EPS in this way in its annual report and financial statements. Like-for-like sales are defined as the reported sales from existing space, less total fuel sales (measured on a consistent basis to the IGD index). 2012/15 LTIP
Measure Proportion of award Target1
2013/16 LTIP
Measure Proportion of award Target1
Underlying earnings per share (EPS) growth Like-for-like non-fuel sales growth relative to the Institute of Grocery Distribution (IGD) index
75% of maximum award 25% of maximum award
25% of EPS element vests at growth of RPI +1% p.a. 100% of EPS element vests at growth of RPI +10% p.a. 25% of sales growth element vests for matching the index 80% of sales growth element vests for outperforming the index by 0.8% over the three year period 100% of sales growth element vests for outperforming the index by at least 1% over the three year period
Vesting is on a straight line basis between each of the above points.
Underlying earnings per share (EPS) growth
75% of maximum award
25% of EPS element vests at growth of RPI +4% p.a. 35% of EPS element vests at growth of RPI +5% p.a. 90% of EPS element vests at growth of RPI +9% p.a. 100% of EPS element vests at growth of RPI +12% p.a. 25% of sales growth element vests for matching the index 100% of sales growth element vests for outperforming the index by at least 2% over the three year period
For the 2013/16 LTIP and all future awards, the Committee has agreed new performance requirements for the maximum award to vest. The Committee has considered market expectations, strategic plans and general economic conditions in determining the LTIP targets. For the 2013/16 LTIP the Committee will take account of the Groups Return on Capital Employed (ROCE) over the performance period. If the Committee is not satisfied with ROCE performance over the period it will retain discretion to adjust vesting outcomes downwards. This is to ensure that EPS performance is achieved in an efficient and sustainable manner. The ROCE underpin will apply for awards made from 2013 onwards and any application of discretion by the Committee will be explained in the relevant Remuneration Report. The Committee believes the performance measures provide direct alignment between performance against the objectives set out in the Groups strategy and the outcomes under the plan. This provides participants and shareholders with a clear line of sight between performance and reward.
Like-for-like non-fuel sales growth relative to the Institute of Grocery Distribution (IGD) index
1
25% of maximum award
Vesting is on a straight line basis between each of the above points.
49
Governance
Directors remuneration report continued
Vesting outcomes 2009/12 The LTIP awards granted in 2009 for the period 2009/12 matured in April 2012. Following the end of the 2011/12 financial year, the Remuneration Committee was satisfied that the EPS performance (based on our audited figures) of 25.55p delivered 100% vesting of the EPS element and that the sales measure vested at 89% of maximum. Therefore 97% of the total 2009 LTIP award vested. 2010/13 The awards granted in 2010 for the period 2010/13 will not vest as EPS performance did not reach the required levels for threshold vesting. All employee sharesave scheme The Group operates a sharesave scheme which is approved by HM Revenue & Customs. All eligible employees, including Executive Directors, may be invited to participate on similar terms to save up to a maximum of 250 each month for a fixed period of three years. At the end of the savings period, individuals may use their savings plus a tax-free bonus to buy ordinary shares in the Company at a discount capped at up to 20% of the market price, set at the relevant launch date. A grant was made under the plan during 2012/13 at the maximum 20% discount, details of which are set out in note 26 of the Group financial statements. Share ownership guidelines The Committee reviewed the shareholding guidelines for Executive Directors during the year and approved an increase in the requirements to 200% of salary from 100% 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 such time as they own shares worth 200% of their salary, after which point they will be expected to retain, as a minimum, this level of holding. Shares held under the Deferred Share Bonus Plan (DSBP) (calculated on a post tax basis) will be included in assessing the level of shareholding. This shareholding guideline should be reached within five years of appointment to the Board or five years after the date of adoption of the policy for incumbent directors. The table below sets out the Executive Directors shareholding as at 3 February 2013. Outstanding awards under the long term incentive plan, and restricted share awards are not included in the Directors shareholding figures.
Dalton Philips Richard Pennycook
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. Pension arrangements Dalton Philips received a salary supplement equal to 25% of base salary during the year. Richard Pennycook participates in the Morrisons defined benefit pension scheme. His pension entitlement accrues at the rate of a maximum of 3% for each year under career average revalued earnings (CARE). Accrued benefits, including those preserved from the former final salary arrangement, increase in line with the RPI to the date of leaving the Group. The maximum pension of two-thirds pensionable pay at age 62 has been retained for CARE accrual. Pensionable pay for the Executive Directors is annual salary as at 6 April each year. Richard Pennycook is subject to the Companys maximum earnings limit, which is currently 134,136 and is reviewed annually from 1 April in line with RPI. Richard Pennycook received a cash supplement of 15% of basic salary in excess of the Company maximum earnings limit in 2012/13. The pension arrangements include life assurance cover whilst in employment, a pension in the event of ill health or disability, and apension for the individuals spouse and any dependant children on death. No contributions were paid or are payable by any Directors under the terms of the scheme. There are no enhanced early retirement rights. Post-retirement pensions increase in line with the annual increase in the RPI or by 5% per annum compound for pensions accrued prior to 6 April 2006 and 2.5% for pensions accrued from 6April 2006, whichever is the lower. Benefits Benefits in kind include transport costs, private health provision and, in certain cases, a telephone allowance. The Executive Directors are eligible for an allowance towards the cost of independent financial advice and also receive the Companys normal staff discount entitlement which is not taxable. Changes to Executive Directors In June 2012, Richard Pennycook announced his intention to resign as Group Finance Director. He will stand down from the Board on 10 April 2013, to be succeeded by Trevor Strain, Group Finance Director designate. Richard Pennycook will be eligible for a bonus payment in respect of 2013/14 on a pro rata basis to the date he leaves employment. Any payment will be subject to satisfaction of the performance targets and to deferral as to 50% in the usual way. Richard Pennycook will be treated as a good leaver for the purposes of his LTIP award and Share Award due to vest in 2013. Again, entitlement is subject to satisfaction of the performance conditions and will be calculated on a pro rata basis. He will be entitled to any bonuses deferred under the DSBP on the normal date of vesting, i.e. three years after the grant date of the deferred bonus award.
Base salary1 Shareholding as at 3 February 2013 Value of shareholding2 Percentage of base salary Shareholding requirement
3
850,000 570,000 246,119 73% 200% 300,346 133% 100% 619,482 755,971
Notes 1 Base salary is as at 3 February 2013 2 Value of shareholding calculated using the closing mid-market price on the last trading day of the financial year ended 3 February 2013 of 2.517 3 Shareholding requirement maintained at 100% pending Richard Pennycooks retirement
50
Directors contracts
a) Executive Directors All Executive Directors have a service agreement without an expiry date. These contracts can be terminated by either the Group or the relevant Director giving 12 months notice. The Remuneration Committee has in place a model contract which provides that any compensation provisions for termination without notice will only extend to 12 months of salary, benefits and pension (which may be payable in instalments and subject to mitigation). Going forward, all new director contracts will be on that basis. The model contract does not contain change of control provisions. This policy was applied to Dalton Philips at the time of his recruitment.
Name of Director Date of contract Notice period from Company (months)
D Philips R Pennycook
26 Jan 2010 23 May 2006
12 12
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards or committees as long as these are not deemed to interfere with the business of the Company. Any fees received in respect of these appointments, which are disclosed under the Directors emoluments table, are retained by the Executive Directors concerned. b) Non-Executive Directors The Board of Directors has adopted the best practice guidance set out in Provision B.7.1 of the UK Corporate Governance Code such that all Directors will be submitted for re-election at each AGM. In light of this, the terms of engagement of each of the Non-Executive Directors have been amended and they are all now engaged on letters of appointment which expire at the AGM. If a NonExecutive Director is re-elected at the AGM, a further letter of appointment will be entered into in respect of the period until the next AGM. With the exception of Sir Ian Gibson, the appointments may be terminated earlier by, and at the discretion of, either party upon one months written notice. Sir Ians notice period is three months. The remuneration of the Non-Executive Directors is a matter for the Non-Executive Chairman and executive members of the Board, and is reviewed from time to time with regard to the time commitment required and the level of fees paid in comparable companies. The remuneration of the Non-Executive Chairman is a matter for the Remuneration Committee and the Board, and is reviewed from time to time with regard to the time commitment required and the level of fees paid in comparable companies. Non-Executive Directors receive no benefits from their office other than fees and staff discount entitlement, and are not eligible to participate in the Groups pension arrangements.
51
Governance
Current fee levels are as follows:

Name Base 000 Committee Chairmanship 000 Senior Independent Director 000 Total 000
I Gibson P Cox P Hughes N Robertson J Waterous
375 60 60 60 60
20 10 20
20
375 80 70 80 80
Audited information
Directors emoluments and pension entitlements. The emoluments of the Directors were as follows:
Name Directors salaries/fees 000 Benefits in kind1 000 Pension supplement 000 Annual cash bonus2 000 Total year to 3 Feb 2013 000 Total year to 29 Jan 20123 000
Non-Executive Chairman I Gibson Executive Directors D Philips R Pennycook Non-Executive Directors P Cox P Hughes N Robertson J Waterous Total
1
375 850 570 80 70 80 80 2,105
26 32 58
213 65 278
375 1,089 667 80 70 80 80 2,441
375 1,782 1,178 80 69 79 78 3,641
etails of benefits in kind are set out on page 50 of this Directors remuneration report and comprise transport costs, private health provision and, in certain cases, a D telephone allowance. 2 For all Executive Directors, 50% of any total bonus earned is paid in cash, with 50% deferred in shares for three years under the Deferred Share Bonus Plan. Details of this plan are described under the annual bonus section on page 48 of this Directors remuneration report. 3 In addition to the amounts shown in the table for the year ended 29 January 2012, 472,000 was paid to Executive Directors and 33,000 was paid to Non-Executive Directors, who resigned from the Board during that year.
None of the Directors has a material interest in any contract significant to the Groups business. For the period 2012/13, Richard Pennycook received cash fees from Persimmon of 61,000 and 8,000 from The Hut for his role as a Non-Executive Director. The following Directors had accrued entitlements under defined benefit pension schemes as follows:
Name Accrued pension entitlement at 29 Jan 2012 000 Accrued pension entitlement at 3 Feb 2013 000 Additional pension earned during the period 000 Additional pension earned during the period above inflation 000 Transfer value of accrued pension at 29 Jan 2012 000 Transfer value of accrued pension at 3 Feb 2013 000 Transfer value of increase in accrued pension during the period above inflation 000
Executive Director R Pennycook 27 32 5 4 316 475 61
52
Share awards As at 3 February 2013, Directors interests under the Long Term Incentive Plan (LTIP), shares awarded under the DSBP, and Restricted Share Awards were as follows:
Date of grant Share price on date awards granted At 29 Jan 2012 Shares granted Shares lapsed Shares vested At 3 Feb 2013 Share price at date awards vested Vesting date
D Philips Restricted Share Award LTIP LTIP LTIP DSBP DSBP 31 Mar 2010 22 Apr 2010 18 Apr 2011 13 Apr 2012 28 Mar 2011 27 Mar 2012 293.50p 296.80p 284.50p 291.14p 270.20p 303.04p 120,965 744,148 772,309 173,517 1,810,939 R Pennycook Restricted Share Award LTIP LTIP LTIP LTIP LTIP DSBP DSBP 16 Mar 2011 9 Apr 2009 29 Jan 2010 22 Apr 2010 18 Apr 2011 13 Apr 2012 28 Mar 2011 27 Mar 2012 272.20p 260.25p 289.10p 296.80p 284.50p 291.14p 270.20p 303.04p 456,037 415,562 184,770 438,979 480,235 123,409 2,098,992 469,877 168,908 638,785 18,011 582,321 12,467 5,544 403,095 179,226 456,037 438,979 480,235 469,877 123,409 168,908 2,137,445 288.17p 256.80p 16 Mar 2013 9 Apr 2012 29 Jan 2013 22 Apr 2013 18 Apr 2014 13 Apr 2015 28 Mar 2014 27 Mar 2015 802,878 237,592 1,040,470 120,965 120,965 744,148 772,309 802,878 173,517 237,592 2,730,444 306.80p 25 Mar 2012 22 Apr 2013 18 Apr 2014 13 Apr 2015 28 Mar 2014 27 Mar 2015
53
Governance
Share options Options granted to Directors to acquire ordinary shares in the Company under the sharesave scheme are as follows:
Number of options during the 53 weeks ended 3 Feb 2013 Date of grant At 29 Jan 2012 Granted Exercised Lapsed At 3 Feb 2013 Exercise price Market price on day of exercise Gain on exercise 000 Exercisable From To
D Philips 17 May 2011 R Pennycook 17 May 2011 3,958 3,958 228p 1 Jul 2014 1 Jan 2015 3,958 3,958 228p 1 Jul 2014 1 Jan 2015
The ordinary share mid-market price ranged from 266.5p to 328.0p and averaged 295.2p during the period. The price on 3 February 2013 was 251.7p, compared to 292.6p on 29 January 2012. Dilution and share usage Awards under the Groups share option scheme (under which no options remain outstanding) and the SAYE scheme are satisfied by the issue of new shares within the limits agreed by shareholders when the plans were approved. These limits comply with the Association of British Insurers guidelines restricting dilution from employee share plans. The overall limits under the guidelines are that no more than 10% of a Groups issued share capital may be used in any ten year period. Within the 10% limit, up to 5% may be used for discretionary share plans. As at 3 February 2013, the Groups share usage against these limits was 6.57% and 1.53%, respectively. It is currently intended that awards made under the LTIP will be satisfied by market purchased shares which are held in an Employee Benefit Trust. Market purchase shares will also be used to satisfy awards made under the Deferred Share Bonus Plan and restricted share plans.
Directors interests
The beneficial interests of the Directors and their families in the shares of the Company were as follows:
3 Feb 2013 ordinary shares 29 Jan 2012 ordinary shares
I Gibson D Philips R Pennycook P Cox P Hughes N Robertson J Waterous
108,055 246,119 300,346 6,716
108,055 188,183 441,440 6,716
Approval This report, in its entirety, has been approved by the Remuneration Committee and the Board of Directors, and signed on its behalf by
Johanna Waterous Chairman of the Remuneration Committee 13 March 2013
54
General information
Directors report and business review Pages 2 to 58, inclusive, of this annual report and financial statements consist of a Directors report and business review that has been drawn up and presented in accordance with, and in reliance on, English company law. The liabilities of the Directors in connection with that Directors report and business review shall be subject to the limitations and restrictions provided by the Companies Act 2006. Forward-looking statements The Directors report and business review is prepared for the members of the Group and should not be relied upon by any other party or for any other purpose. Where the Directors report and business review includes forward-looking statements, these are made by the Directors in good faith based on the information available to them at the time of their approval of this report. Consequently, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking statements and information. Result and dividend The profit for the period after taxation attributable to the owners of the Group amounted to 647m (2011/12: 690m). The Directors have declared and recommend the following dividends:
m
Share capital The authorised and called-up share capital of the Company, together with details of shares allotted and cancelled during the year, are shown in note 22 of the Group financial statements. At the AGM of the Company held in June 2012, a special resolution was passed to renew the authority given at the AGM held in June 2011 for the purchase by the Company of up to 248,797,066 ordinary shares representing approximately 10% of the issued ordinary share capital at that time. This authority remained valid on 3 February 2013. During the period, the Company purchased 185,805,022 of its own shares pursuant to that authority, which will expire at the close of the 2013 AGM. In addition, 60,783 ordinary shares were issued during the period to employees exercising share options. Borrowing powers The Articles of Association of the Company restrict the borrowings of the Company and its subsidiary undertakings to a maximum amount equal to twice the share capital and consolidated reserves. Substantial shareholdings As at 13 March 2013, the Company has been notified by the following shareholders (excluding Directors) that they have interests in 3% or more of the total voting rights in the Company:
Number of shares % of holding
Paid interim dividend of 3.49p per share (2011/12: 3.17p) Recommended final dividend of 8.31p per share (2011/12: 7.53p)
84 195
Invesco Brandes Investment Partners LP Ameriprise Financial Inc Nigel Pritchard Walter Scott & Partners Limited BlackRock Inc Legal & General Group Plc Susan Pritchard Zurich Financial Services
133,357,656 132,155,077 131,284,252 112,883,882 107,775,155 107,035,375 104,976,462 94,720,169 81,286,130
5.74% 5.69% 5.65% 4.86% 4.64% 4.61% 4.52% 4.08% 3.50%
The final dividend, if approved by shareholders at the Annual General Meeting (AGM), is to be paid on 19 June 2013 to ordinary shareholders on the register of members at close of business on 17 May 2013. If the final dividend is approved by shareholders, the total ordinary dividend for the year will be 11.80p per share. Auditor A resolution to re-appoint KPMG Audit Plc as auditor and a separate resolution to authorise the Directors to set their remuneration is to be proposed at the forthcoming AGM. Annual General Meeting The notice of the 2013 AGM of the Company (to be held at the Companys headquarters at Gain Lane in Bradford on 13 June 2013) is to be sent to shareholders with an accompanying explanatory letter from the Chairman. The Directors believe each of the resolutions to be proposed at the AGM are in the best interests of the Group and recommend shareholders to vote in favour of each of them. Shareholders will also receive notification of the availability of the annual report and financial statements on the Groups website, unless they have positively elected to receive a printed version of the annual report and financial statements.
The number of shares appearing above is that appearing in the relevant notification to the Company. The percentage appearing above is the percentage that number represents of the issued share capital of the Company as at 13 March 2013.
55
Governance
General information continued
Relating to beneficial owners of shares with information rights Beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Companys registrar, Capita Registrars, or to the Group directly. Directors The current Directors of the Group and their biographies are shown on pages 38 and 39. In line with the best practice guidance of Provision B.7.1 of the UK Corporate Governance Code, the Board has resolved that all Directors will submit themselves for re-election annually. Accordingly, all of the current Directors, being eligible, will offer themselves for re-election at the 2013 AGM. The interests of the Executive and Non-Executive Directors of the Company and their immediate families in the shares of the Company, along with share options, are contained in the Directors remuneration report set out on pages 45 to 54. At no time during the year did any of the Directors have a material interest in any significant contract with the Company or any of its subsidiaries. Employee relations Morrisons is an equal opportunities employer. Equal opportunities are offered to all regardless of race, colour, nationality, ethnic origin, sex (including gender reassignment), marital or civil partnership status, disability, religion or belief, sexual orientation, age or trade union membership. The Group gives full and fair consideration to applications for employment made by people with disabilities. The policy is to offer equal opportunity to all disabled candidates and employees who have a disability or become disabled in any way during the course of their employment. A full assessment of the individuals needs is undertaken and reasonable adjustments are made to the work environment or practices in order to assist those with disabilities. All candidates and employees are treated equally in respect of recruitment, promotion, training, pay and other employment policies and conditions. All decisions are based on relevant merits and abilities. Political and charitable donations During the period, the Group made charitable donations amounting to 0.1m (2011/12: 0.1m). The donations were mainly small donations to support local communities. In addition, the Group supported various charities and, in the year, over 2.1m (2011/12: 2.3m) was raised by customers and colleagues for the Charity of the Year. No political donations were made, which is Group policy.
Disclosure of information to the auditor 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 audit information of which the Groups auditor is unaware; and each Director has taken all steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Groups auditor is aware of that information. Going concern The Directors assessment of the Group and the Companys ability to continue as a going concern has taken into consideration the effect that the current economic climate has on the Group. The Groups ability to borrow cash has not been adversely affected by the continuing lack of liquidity in the financial markets and the Group has negotiated, and has available to it, committed, competitive facilities that will meet the Groups needs in the short and medium term. The principal risks that the Group is challenged with have been set out on pages 28 and 29, along with how the Directors mitigate these risks in the current economic climate. After reviewing the Groups financial forecasts, including an assessment of working capital and other medium term plans, the Directors are confident that the Company and the Group have adequate financial resources available to continue in operational existence for the foreseeable future. The going concern basis has continued to be adopted in the preparation of the financial statements. Payment to creditors Supplier credit is an important factor in the success of the business. It is Group policy to ensure all payments are made within mutually agreed credit terms. Where disputes arise, the Group attempts to sort these out promptly and amicably to ensure delays in payment are kept to a minimum. Trade creditors for the Group at the financial year end represented 30 days of purchases (2011/12: 30 days). Groceries Supply Code of Practice The Groceries Supply Code of Practice (GSCOP) came into effect on 4 February 2010 and applies to all grocery retailers with an annual turnover in excess of 1bn. The Group undertook a number of measures to ensure compliance before commencement, including appointing a Code Compliance Officer (CCO), amending its standard Terms & Conditions of Purchase to incorporate the GSCOP, and undertaking a full training regime for its buyers and associated supporting colleagues. Over the last year the Group has built on its initial work by undertaking a second full re-training programme for all relevant colleagues. The Group has also had all of its supporting processes reviewed during the year by the Internal Audit team. Alleged breaches were dealt with in accordance with the regulations and escalated internally up to and including the CCO where required. These matters are reported to the Corporate Compliance and Responsibility Committee. Since the GSCOP came into effect the Group has successfully worked with suppliers to resolve disputes that have arisen with
56
reference to its provisions. Details of such disputes have been reported to the Office of Fair Trading (OFT) periodically on request as part of the OFTs monitoring. Ten matters have been reported by Morrisons to the OFT (two carried over from the previous financial year). Of those, eight were withdrawn by suppliers or resolved and two reported during the period were unresolved at the year end. No matters reported during the financial year progressed to arbitration during the period. As initially intended, the Government has appointed an Adjudicator through new legislation to oversee the operation of the GSCOP. The Group looks forward to working with the Adjudicator to ensure that it adheres to best practice and remains in line with new guidance. Health and safety policy It is the Groups intention, so far as is reasonably practicable, to ensure the health, safety and welfare of all its employees, customers and visitors to its premises. In order to achieve this, a comprehensive health and safety manual is in place for each division of the Company and subsidiary companies within the Group. Each health and safety manual contains the policy and procedures for complying with the Health and Safety at Work Act 1974, including the provision, based on risk assessment, of safe working practices for all work activities across the Group. The Groups health and safety policy is approved by the Management Board. The Group has adopted the national targets set by the Health and Safety Commission for the reduction of workplace accidents and work-related ill health, and is on course to meet or exceed these targets. Health and safety performance is monitored to ensure continuous improvement in all areas. Additional shareholder information Additional information for shareholders is required by the implementation of the EU Takeover Directive into UK law. Pursuant to section 992 of the Companies Act 2006, the Company is required to disclose certain additional information. Such disclosures, which are not covered elsewhere in this report, include the following paragraphs. The disclosures set out below are in some cases a summary of the relevant provisions of the Companys Articles of Association and the relevant full provisions can be found in the Articles which are available for inspection at the Companys registered office. Share capital and rights attaching to the Companys shares Under the Companys Articles of Association, any share in the Company may be issued with such rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Company may from time to time by ordinary resolution determine (or, in the absence of any such determination, as the Directors may determine). 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 general meeting specifies deadlines for exercising voting rights either by proxy or present in person in relation to resolutions to be passed at a general meeting. 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 any other right conferred by being a shareholder if they or any person with an interest in shares has been sent a notice under section 793 of the Companies Act 2006 (which confers upon public companies the power to require information with respect to
interests in their voting shares) and they or any interested person failed to supply the Company with 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 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 notice of an approved transfer of the shares or all the information required by the relevant section 793 notice, whichever is the earlier. The Directors may refuse to register any transfer of any share which is not a fully paid share, although such discretion may not be exercised in a way which the Financial Services Authority regards as preventing dealings in the shares of the relevant class or classes from taking place on an open or proper basis. The Directors may likewise refuse to register any transfer of a share in favour of more than four persons jointly. The Company is not aware of any other restrictions on the transfer of shares in the Company other than certain restrictions that may from time to time be imposed by laws and regulations (for example, insider trading laws). The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities or voting rights. Appointment and powers of Directors Directors are appointed by ordinary resolution at a general meeting of ordinary shareholders. The Directors have the power to appoint a Director during the year, but any person so appointed must be put up for appointment at the next AGM. 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 special resolution, the business of the Company shall be managed by the Directors, who may exercise all powers of the Company which are not required to be exercised by the Company in general meeting. Articles of Association The Companys Articles of Association may only be amended by aspecial resolution at a general meeting of shareholders. Other disclosures There are no persons with whom the Group has contractual or other arrangements which are essential to the business of the Group. The Company is not party to any significant arrangements which take effect, alter or terminate upon a change of control of the Company following a takeover bid. The Company does not have any employee share schemes where the shares to which the scheme relates have rights with regard to the control of the Company which are not exercisable by employees. By order of the Board
Mark Amsden Company Secretary 13 March 2013
57
Governance
Statement of Directors responsibilities in respect of the annual report and financial statements
The Directors are responsible for preparing the annual report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Companys transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors report, Directors remuneration report and Corporate governance statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Companys website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge: the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and its subsidiaries included in the consolidation as a whole; and the Directors report includes a fair review of the development of the business and the position of the Company and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board
Mark Amsden Company Secretary 13 March 2013
58
Independent auditors report to the members of Wm Morrison Supermarkets PLC

We have audited the financial statements of Wm Morrison Supermarkets PLC for the 53 week period ended 3 February 2013 set out on pages 60 to 108. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the Companys members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors responsibilities statement set out on page 58, 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 International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards (APBs) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRCs website at www.frc.org.uk/ auditscopeukprivate Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the Groups and of the Parent Companys affairs as at 3 February 2013 and of the Groups profit for the 53 week period then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the Parent Company financial statements have been properly prepared in accordance with UK 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. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors report for the financial period for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting reports have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent 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 certain disclosures of Directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: the Directors statement, set out on page 56, in relation to going concern; the part of the Corporate governance statement on pages 40 to 44 relating to the Companys compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and certain elements of the report to shareholders by the Board on directors remuneration.
Adrian Stone (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 13 March 2013
59
Consolidated statement of comprehensive income

53 weeks ended 3 February 2013
Note
2013 m
2012 m
Turnover Cost of sales Gross profit Other operating income Administrative expenses Losses arising on property transactions Operating profit Finance costs Finance income Profit before taxation Taxation Profit for the period attributable to the owners of the Company Other comprehensive expense Actuarial loss arising in the pension scheme Cash flow hedging movement Tax in relation to components of other comprehensive expense Other comprehensive expense for the period, net of tax Total comprehensive income for the period attributable to the owners of the Company Earnings per share (pence) basic diluted
18,116 (16,910) 1,206 80 (336) (1) 949 (75) 5 879 (232) 647
17,663 (16,446) 1,217 86 (329) (1) 973 (47) 21 947 (257) 690
5 6 6 7
20 7
(6) (2) (2) (10) 637
(65) (23) 19 (69) 621
9 9
26.65 26.57
26.68 26.03
60
Consolidated balance sheet

3 February 2013
Note
2013 m
2012 m
Assets Non-current assets Goodwill and intangible assets Property, plant and equipment Investment property Investments Other financial assets Current assets Stocks Debtors Other financial assets Cash and cash equivalents Liabilities Current liabilities Creditors Other financial liabilities Current tax liabilities Non-current liabilities Other financial liabilities Deferred tax liabilities Net pension liabilities Provisions Net assets Shareholders equity Called-up share capital Share premium Capital redemption reserve Merger reserve Retained earnings and hedging reserve Total equity attributable to the owners of the Company
10 11 12 13 14
415 8,616 123 31 9,185 781 291 5 265 1,342
303 7,943 259 31 1 8,537 759 320 2 241 1,322
15 14
16 17
(2,130) (55) (149) (2,334) (2,396) (471) (20) (76) (2,963) 5,230
(2,025) (115) (163) (2,303) (1,600) (464) (11) (84) (2,159) 5,397
17 19 20 21
22 22 23 23 23
235 107 37 2,578 2,273 5,230
253 107 19 2,578 2,440 5,397
The accounting policies on pages 64 to 69 and notes on pages 70 to 95 form part of these financial statements. The financial statements on pages 60 to 95 were approved by the Board of Directors on 13 March 2013 and were signed on its behalf by:
61
Consolidated cash flow statement

Note
2013 m
2012 m
Cash flows from operating activities Cash generated from operations Interest paid Taxation paid Net cash inflow from operating activities Cash flows from investing activities Interest received Investments Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment, investment property and software Purchase of intangible assets Cash outflow from acquisition of businesses Net cash outflow from investing activities Cash flows from financing activities Purchase of own shares Purchase of treasury shares Proceeds from exercise of share options New borrowings Repayment of borrowings Dividends paid to equity shareholders Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at start of period Cash and cash equivalents at end of period
24
1,432 (85) (243) 1,104
1,264 (55) (281) 928
27
3 5 (846) (134) (36) (1,008)
6 (31) 4 (724) (72) (74) (891)
23 23 23
(514) (65) 42 843 (81) (270) (45) 51 212 263
(368) 1,102 (486) (301) (53) (16) 228 212
25
Reconciliation of net cash flow to movement in net debt in the period

Note 2013 m 2012 m
Net increase/(decrease) in cash and cash equivalents Cash outflow from decrease in debt and lease financing Cash inflow from increase in borrowings Other non-cash movements Opening net debt Closing net debt
25
51 81 (843) 1 (1,471) (2,181)
(16) 486 (1,102) (22) (817) (1,471)
62
Consolidated statement of changes in equity

Attributable to the owners of the Company Share capital m Share premium m Capital redemption reserve m Merger reserve m Hedging reserve m Retained earnings m Total equity m
Note
Current period At 29 January 2012 Profit for the period Other comprehensive income: Actuarial loss arising in the pension scheme Cash flow hedging movement Tax in relation to components of other comprehensive expense Total comprehensive income for the period Shares purchased for cancellation Employees share options schemes: Treasury share purchases and utilisation for share options Share-based payments Dividends Total transactions with owners At 3 February 2013
253 20 (18) (18) 235
107 107
19 18 18 37
2,578 2,578
(12) (2) (2) (14)
2,452 647 (6) (2) 639 (514) (24) 4 (270) (804) 2,287
5,397 647 (6) (2) (2) 637 (514) (24) 4 (270) (804) 5,230
22, 23 23 26 8
Attributable to the owners of the Company Share capital m Share premium m Capital redemption reserve m Merger reserve m Hedging reserve m Retained earnings m Total equity m
Note
Prior period At 30 January 2011 Profit for the period Other comprehensive income: Actuarial loss arising in the pension scheme Cash flow hedging movement Tax in relation to components of other comprehensive expense Total comprehensive income for the period Shares purchased for cancellation Employees share options schemes: Share-based payments Dividends Total transactions with owners At 29 January 2012
266 20 (13) (13) 253
107 107
6 13 13 19
2,578 2,578
5 (23) 6 (17) (12)
2,458 690 (65) 13 638 (368) 25 (301) (644) 2,452
5,420 690 (65) (23) 19 621 (368) 25 (301) (644) 5.397
22 26 8
63
Group accounting policies
General information Wm Morrison Supermarkets PLC is a public limited company incorporated in the United Kingdom under the Companies Act 2006 (Registration number 358949). The Company is domiciled in the United Kingdom and its registered address is Hilmore House, Gain Lane, Bradford, BD3 7DL, United Kingdom. Basis of preparation The financial statements have been prepared for the 53 weeks ended 3 February 2013 (2012: 52 weeks ended 29 January 2012) in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee interpretations (IFRIC) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. IFRS and IFRIC are issued by the International Accounting Standards Board (the IASB) and must be adopted into European Union law, referred to as endorsement, before they become mandatory under the IAS Regulation. Shown below are recent standards and interpretations that have been issued by the IASB, indicating their status of endorsement. The financial statements have been prepared on a going concern basis. The Directors assessment of going concern has been considered within the general information section of the Directors report. The financial statements are presented in pounds sterling, rounded to the nearest million, except in some instances, where it is deemed relevant to disclose the amounts up to two decimal places. They are drawn up on the historical cost basis of accounting, except as disclosed in the accounting policies set out below. The Groups accounting policies are set out below and have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. The following amendments to standards are mandatory for the first time for the financial period beginning 30 January 2012, but do not have a material impact on the Group: Amendments to IFRS 7, Financial Instruments: Disclosures on transfers of assets; Amendment to IFRS 1, First time adoption, on fixed dates and hyperinflation; and Amendment to IAS 12, Income taxes, on deferred tax. Accounting reference date The accounting period of the Group ends on the Sunday falling between 29 January and 4 February each year.
New IFRS and amendments to IAS and interpretations There are a number of standards and interpretations issued by the IASB that are effective for financial statements after this reporting period. The following have not been early adopted by the Group:
International Financial Reporting Standards Effective for accounting periods starting on or after
IAS 1* IAS 19* IFRS 10** IFRS 11** IFRS 12** IFRS 10, 11 and 12 IFRS 13* IAS 27** IAS 28** IFRS 7* IFRS 1 IAS 32*
Amendment to financial statement presentation Amendment to employee benefits Consolidated financial statements Joint arrangements Disclosures of interests in other entities Amendments in transition guidance Fair value measurement Separate financial statements (revised 2011) Associates and joint ventures (revised 2011) Amendment to financial instruments: disclosures Amendment to first time adoption Amendment to financial instruments: presentation
1 July 2012 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2014
* Endorsed by the European Union. ** Endorsed by the European Union for periods starting on or after 1 January 2014.
IAS 19 Employee benefits was amended in June 2011. The impact on the Group will be immediately to recognise all past service costs, and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability. The application of these standards and interpretations is not anticipated to have a material effect on the Groups financial statements. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries (together the Group), being those undertakings that it controls. Control is achieved where the Company has the power to govern the financial and operating policy of an investee entity so as to obtain benefits from its activities. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting period as the parent Company and are based on consistent accounting policies. The results of subsidiaries acquired or disposed of during the period are included in the consolidated financial statements from the effective date of acquisition up to the effective date of disposal, as appropriate. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
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Significant accounting policies The Directors consider the following to be significant accounting policies in the context of the Groups operations: Segmental reporting 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 assess performance of the operating segments. The Directors consider, based on its internal reporting framework, management and operating structure, that it has one operating segment, that of retailing. The level of disclosure of segmental and other information is driven by such assessment. Further details of the considerations made and the resulting disclosures are provided in note 3 to these financial statements. Turnover recognition Turnover comprises the fair value of consideration received or receivable for the sale of goods in the ordinary course of the Groups activities. It is recognised when significant risks and rewards of ownership have been transferred to the buyer, there is reasonable certainty of recovery of the consideration and the amount of revenue, associated costs and possible return of goods can be estimated reliably. a) Sale of goods in-store and fuel Sale of goods in-store is recorded net of VAT, returns, staff discounts, coupons, vouchers and the free element of multi-save transactions. Sale of fuel is recognised net of VAT and Morrisons Miles award points. Revenue is recognised when transactions are completed in-store. b) Other sales Other revenue primarily comprises 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 turnover, other than the related commission. Sales are recorded net of value added tax and intra-group transactions. Cost of sales Cost of sales consists of all costs to the point of sale including manufacturing, warehouse and transportation costs. Store depreciation, store overheads and store-based employee costs are also allocated to cost of sales. Supplier income Supplier incentives, rebates and discounts are collectively referred to as supplier income in the retail industry. Supplier income is recognised as a deduction from cost of sales on an accruals basis, based on the expected entitlement which has been earned up to the balance sheet date for each relevant supplier contract. The accrued incentives, rebates and discounts receivable at year end are included within prepayments and accrued income. Where amounts received are in the expectation of future business, these are recognised in the income statement in line with that future business.
Other operating income Other operating income primarily consists of income not directly related to the operating of supermarkets and mainly comprises rental income from investment properties and income generated from recycling of packaging. Rental income arising from operating leases on investment properties is accounted for on a straight-line basis to the date of the next rent review. Details of rental income from investment property are provided in note 12. Property transactions Property includes the balance sheet headings of property, plant and equipment and investment property. The results of transactions relating to disposal of property are reported in profit for the period under profit/loss arising on property transactions. Depreciation and any impairment charges or reversals are recognised in cost of sales or administrative expenses, as appropriate. Borrowing costs All borrowing costs are recognised in the Groups 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 of interest ceases when the asset is ready for use. Deferred and 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 for the period, except when it relates to items charged or credited directly in equity in which case the current tax is reflected in equity. 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 is 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, in which case the deferred tax is reflected in other comprehensive income. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the asset can beutilised. Deferred tax assets recognised are reviewed at eachreporting 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 ultimate exposures in relation to tax compliance issues. All accruals are included in current liabilities. 65
Group accounting policies continued
Intangible assets a) Business combinations and goodwill The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interests proportionate share of the acquirees net assets. The excess of consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Groups share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in profit for the period. 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 goodwill may be impaired. Goodwill is allocated to cash generating units for the purpose of impairment testing. Any impairment is recognised immediately in profit or loss. Amortisation is included within cost of sales. b) Brands Brands acquired through a business combination are initially 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. Any impairment in value is recognised immediately in profit or loss. c) 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. Borrowing costs are capitalised until such time as the software is substantially ready for its intended use. All other software development and maintenance costs are recognised as an expense as incurred. Software development costs recognised as 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. d) 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. 66
Property, plant and equipment a) Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Costs include directly attributable costs. Annual reviews are made of estimated useful lives and material residual values. b) Depreciation rates used to write off cost less residual value on a straight line basis are: Freehold land Freehold buildings Leasehold land Leasehold buildings Plant, equipment, fixtures and vehicles Assets under construction 0% 2.5% Over the lease period Over the shorter of lease period and 2.5% 10% to 33% 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. Investment property is recorded at cost, less accumulated depreciation and any recognised impairment loss. The depreciation policy is consistent with that described for property, plant and equipment. Impairment of non-financial assets Property, plant and equipment, Investment property and Intangible assets are annually reviewed for indications of impairment, or when events or changes in circumstances indicate that the carrying amount may not be recoverable. This is performed for each cash generating unit, which in the case of a supermarket is an individual retail outlet. If there are indications of possible impairment then a test is performed on the asset affected to assess its recoverable amount against carrying value. An impaired asset is written down to its recoverable amount which is the higher of value in use or its fair value less costs to sell. 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 ofthe time value of money and the risks specific to the asset. Ifthere is indication of an increase in fair value of an asset that had been previously impaired, then this is recognised by reversing the impairment, 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 for the asset. Impairment losses previously recognised relating to goodwill cannot be reversed. Stocks Stocks are measured at the lower of cost and net realisable value. Provision is made for obsolete and slow moving items. Cost is calculated on a weighted average basis and comprises purchase price, import duties and other non-recoverable taxes less rebates. Stocks represent goods for resale. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.
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. Lessor accounting operating leases Assets acquired and made available to third parties under operating leases are recorded as property, plant and equipment and 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. Lessee accounting operating leases Rental payments are taken to profit for the period on a straight line basis over the life of the lease. Property leases are analysed into separate components for land and buildings and tested to establish whether the components are operating leases or financeleases. Lessee accounting finance leases The present value, calculated using the interest rate implicit in the lease, of the future minimum lease payments is included within property, plant and equipment and financial liabilities as an obligation to pay future rentals. Depreciation is provided at the same rates as for owned assets, or over the lease period, if shorter. 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. Provisions Provisions are created where the Group has a present obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits to settle the obligation, and where it can be reliably measured. Provisions are made in respect of individual properties where there are obligations for onerous contracts, dilapidations and certain decommissioning obligations for petrol filling stations. The amounts provided are based on the Groups best estimate of the likely committed outflow to the Group. Where material, these estimated outflows are discounted to net present value. Foreign currencies 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 income statement for the period except when they are deferred in other comprehensive income as qualifying cash flow hedges.
Retirement benefits The Group operates defined benefit and defined contribution schemes. A defined contribution scheme is a pension scheme under which the Group pays fixed contributions into a separate entity. A defined benefit scheme is one that is not a defined contribution scheme. Pension benefits under defined benefit schemes are defined on retirement based on age at date of retirement, years of service and a formula using either the employees compensation package or career average revalued earnings. The Group operates two defined benefit retirement schemes which are funded by contributions from the Group and members. The defined benefit schemes are not open to new members. Pension scheme assets, which are held in separate trustee administered funds, are valued at market rates. Pension scheme obligations are measured on a discounted present value basis using assumptions as shown in note 20. The operating and financing costs of the scheme are recognised separately in profit for the period when they arise. Death-in-service costs are recognised on a straight line basis over their vesting period. Actuarial gains and losses are recognised immediately in other comprehensive income. The Group has a right to recognise an asset, should one arise, in respect of the Groups net obligations to the pension schemes. Therefore either an asset or a liability is recognised in the balance sheet, calculated separately for each scheme. The Group also operates a cash balance scheme, which provides a lump sum benefit based upon a defined proportion of an employees earnings each year. This scheme is defined benefit in nature and is accounted for on that basis. Payments by the Group to the defined contribution scheme are charged to profit for the period as they arise. Share-based payments 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 Groups 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. Fair value is measured by use of a binomial stochastic model. The expected life used in the model has been adjusted, based on managements best estimate, for effects of non-transferability, exercise restrictions and behavioural considerations. Financial instruments Financial assets and liabilities are recognised on the Groups balance sheet when the Group becomes a party to the contractual provisions of the instrument.
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Group accounting policies continued
a) Financial assets i) Trade and other debtors Trade and other debtors are initially recognised at fair value and subsequently held at amortised cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full, with the charge being included as an administrative expense. Balances are written off when the probability of recovery is assessed as being remote. ii) Cash and cash equivalents Cash and cash equivalents for cash flow purposes includes cash-in-hand, cash-at-bank and bank overdrafts. In the balance sheet, bank overdrafts that do not have right of offset are presented within current liabilities. Cash held by the Groups captive insurer is not available for use by the rest of the Group as it is restricted for use against the specific liability of the captive. As the funds are available on demand, they meet the definition of cash in IAS 7 Cashflow statements. iii) Investments Investments comprise investments in equity instruments. All equity instruments are held for long term investment and 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 investment will be recognised at cost less accumulated impairment losses, in accordance with IAS 39 Financial instruments: recognition and measurement. Any impairment is recognised immediately in profit or loss. b) Financial liabilities i) Trade and other creditors Trade and other creditors are initially recognised at fair value and subsequently held at amortised cost. ii) 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. c) Derivative financial instruments and hedge accounting Derivative financial instruments are initially measured at fair value and are remeasured at fair value through profit or loss, except where the derivative qualifies for hedge accounting. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Cash flow hedges Derivative financial instruments are classified as cash flow hedges when they hedge the Groups exposure to variability in cash flows that are either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecasted transaction. 68
The Group has cross-currency swaps designated as cash flow hedges. These derivative financial instruments are used to match or minimise risk from potential movements in foreign exchange rates inherent in the cash flows of the US dollar private placement loan notes. To minimise the risk from potential movements in energy prices, the Group has energy price contracts which are designated as cash flow hedges. To minimise the risk from potential movements in foreign exchange rates, the Group uses forward exchange contracts with financial institutions which are designated as cash flow hedges. Derivatives are reviewed annually for effectiveness. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or highly probable forecast transaction, the effective part of any gain or loss on the movement in fair value of the derivative financial instrument is recognised in other comprehensive income and presented in the hedging reserve in equity. The gain or loss on any ineffective part of the hedge is immediately recognised in profit for the period within cost of sales in relation to the energy price contracts and within finance income/costs in relation to the cross-currency swaps. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or liability, the associated cumulative gains or losses that were recognised directly in equity are reclassified into profit for the period when the transaction occurs. 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 Companys 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. Net debt Net debt is cash and cash equivalents, long term cash on deposit, bank and other current loans, finance lease debt, bonds, private placement loan notes and derivative financial instruments (stated at current fair value). Own shares held The Group has an employee trust for the granting of Group shares to executives and members of the employee share plans. Shares in the Group held by the employee share trust are presented in the balance sheet as a deduction from retained earnings. The shares are deducted for the purpose of calculating the Groups earnings per share. Use of critical accounting assumptions and estimates Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying value of assets and liabilities are discussed below. a) Property provisions Provisions have been made for onerous leases, dilapidations and decommissioning costs. These provisions are estimates based on the condition of each property and market conditions for the relevant location. The actual costs and timing of future cash flows are dependent on future events. Any difference between expectations and the actual future liability is accounted for in the period when such determination is made. b) Pension scheme assumptions and mortality table The carrying value of defined benefit pension schemes is valued using actuarial valuations. These valuations are based on assumptions including the selection of mortality tables for the profile of members in each scheme. All these are estimates of future events. The mortality experience study conducted as part of the Safeway scheme triennial valuation is statistically significant and the longevity assumption is adjusted to reflect its results. As both of the Groups schemes have a similar composition and type of members, this adjustment is also made to the Morrisons scheme. The mortality assumptions, financial assumptions and mortality experience study are based on advice received from the schemes actuaries. Where appropriate these are corroborated from time-to-time with benchmark surveys and ad hoc analysis. A sensitivity analysis of key assumptions is contained in note 20. c) Determination of useful lives, residual values and carrying values of intangible assets, property, plant and equipment and investment property Depreciation and amortisation are provided so as to write down the assets to their residual values over their estimated useful lives as set out in the accounting policies for intangible assets, property, plant and equipment and investment property. The selection of these residual values and estimated lives requires the exercise of judgement. The Group is required to assess whether there is indication of impairment to the carrying values of assets. In making that assessment, judgements are made in estimating value in use in relation to future cash flows and discount rates. The Directors consider that the individual carrying values of stores and other operating assets are supportable either by value in use or market values. Appropriate provision is made for impairment.
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Notes to the Group financial statements

1 Underlying profit
The Directors consider that underlying earnings and underlying adjusted earnings per share measures referred to in the Chairmans review, Chief Executives Review and financial review provide useful information for shareholders on underlying trends and performance. The adjustments are made to reported profit to (a) remove the impact of pension interest income volatility on the statement of comprehensive income; (b) remove losses or profits arising on property transactions since they do not form part of the Groups principal activities; (c) remove significant one-off costs that do not relate to the Groups principal activities; and (d) apply a tax rate of 26.5% (2012: 29.3%), being an estimated normalised tax rate.
2013 m 2012 m
Profit after tax Add back: tax charge for the period1 Profit before tax Adjustments for: Net pension interest expense/(income) (note 6)1 Loss arising on property transactions1 One-off costs multi-channel and convenience development1 Underlying profit before tax Taxation1 Underlying profit after tax Underlying earnings per share (pence) basic (note 9(b)) diluted (note 9(b))
1
647 232 879 4 1 17 901 (239) 662 27.26 27.17
690 257 947 (13) 1 935 (274) 661 25.55 24.93
Adjustments marked 1 equal 15m (2012: 29m) as shown in the reconciliation of earnings disclosed in note 9(b).
2 Sales analysis
This table is provided to reconcile the like-for-like sales described in the performance and strategy review with the total turnover:
Like-for-like stores Other 2013 Total m 2012 Total m
Sale of goods in-stores Fuel Total store-based sales Other sales Total turnover
13,294 4,172 17,466 17,466
380 69 449 201 650
13,674 4,241 17,915 201 18,116
13,436 4,039 17,475 188 17,663
Fuel sales are removed from quoted like-for-like figures, given the volatility in the fuel price, to provide a more stable measure.
3 Segmental reporting
The Groups 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. Consideration of IFRS 8 Operating segments The Group has made the following considerations in arriving at conclusions and the corresponding disclosure in these financial statements. IFRS 8 requires consideration of the chief operating decision maker (CODM) within the Group. In line with the Groups internal reporting framework and management structure, the key operating decisions and resource allocations are made by the Management Board. The Directors therefore consider the Management Board to be the CODM. Consideration in particular was given to retail outlets, the fuel resale operation, the manufacturing entities and multi-channel operations.
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3 Segmental reporting continued

Key internal reports received by the CODM, primarily the Board 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. Given this, the Group has considered the overriding core principles of IFRS 8 and has determined that it has one operating segment. Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items Performance is measured by the CODM based on profit as reported in the Board Management Accounts. This report presents the financial position before (a) income tax; (b) pension interest income volatility; and (c) profit/loss arising from property related transactions; (d) significant one-off costs that do not relate to the Groups principal activities. This underlying profit figure is used to measure performance as management believes that this is the most relevant in evaluating the results of the Group relative to other entities that operate within the retail industry. This information and the reconciliation to the statutory position can be found in note 1. In addition, the Board Management Accounts present a Group balance sheet containing assets and liabilities. This balance sheet is as shown within the Consolidated balance sheet.
4 Employees and Directors

2013 m 2012 m
Employee benefit expense for the Group during the period Wages and salaries Social security costs Share-based payments (note 26) Pension costs
1,780 118 4 45 1,947
1,733 124 24 35 1,916
2013 No.
2012 No.
Average monthly number of people, including Directors Stores Manufacturing Distribution Centre
112,965 6,598 6,248 2,894 128,705
116,750 6,062 5,489 2,906 131,207
Directors remuneration A detailed analysis of Directors remuneration, including salaries, bonuses and long term incentives, and the highest paid Director, is provided under the headings Directors emoluments and pension entitlements, share awards and share options in the audited section of the Directors remuneration report, which forms part of these financial statements. There is one Executive Director (2012: two) who has retirement benefits accruing under the Groups defined benefit pension scheme. The table below shows the remuneration of the Management Board, excluding members already included in the Directors remuneration report. The Management Board is considered to be key management personnel in accordance with the requirements of IAS 24 Related party disclosures.
2013 m 2012 m
Management Board Short term employee benefits Post-employment benefits Share-based payments
4.5 0.1 (0.2) 4.4
4.7 0.3 2.1 7.1
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Notes to the Group financial statements continued

5 Operating profit
2013 m 2012 m
The following items have been included in arriving at operating profit: Employee costs (note 4) Depreciation and impairment: Property, plant and equipment (note 11) Investment property (note 12) Amortisation (note 10) Operating lease rentals: minimum lease payments sublease receipts Value of stock expensed During the period KPMG Audit Plc, the Groups auditor, provided the following services:
1,947 335 4 29 69 (5) 13,760
1,916 311 8 21 52 (5) 13,346
2013 m
2012 m
Audit services Fees payable to the Groups auditor for the audit of the Group and the Company financial statements Other services Fees payable to the Groups auditors and its associates for other services: the audit of the Groups subsidiaries pursuant to legislation services relating to taxation other services Other services includes 0.2m (2012: 0.4m) in relation to independent project assurance.
0.4
0.4
0.2 0.1 0.4 1.1
0.2 0.2 0.5 1.3
6 Finance costs and income

2013 m 2012 m
Interest payable on short term loans and bank overdrafts Interest payable on bonds Interest capitalised Total interest payable Fair value movement of derivative instruments Provisions: unwinding of discount Other finance costs Net pension interest expense (note 20) Finance costs Bank interest received Amortisation of bonds Net pension interest income (note 20) Finance income Net finance cost
(11) (69) 15 (65) (4) (2) (4) (75) 3 2 5 (70)
(12) (39) 12 (39) (1) (4) (3) (47) 6 2 13 21 (26)
Interest is capitalised at the effective interest rate incurred on borrowings before taxation of 5% (2012: 4%). Tax relief is obtained on interest paid and this reduces the tax charged for the period.
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7Taxation
a) Analysis of charge in the period
2013 m 2012 m
Corporation tax current period adjustment in respect of prior period Deferred tax origination and reversal of timing differences adjustment in respect of prior period impact of change in tax rate Tax charge for the period b) Tax on items charged/(credited) in other comprehensive expense and equity
2013 m 2012 m
261 (32) 229 (3) 47 (41) 3 232
292 (20) 272 5 22 (42) (15) 257
Actuarial gain/(loss) arising in the pension scheme Cash flow hedges Total tax on items included in other comprehensive expense Share-based payments Total tax on items included in other comprehensive expense and equity Analysis of items charged/(credited) to other comprehensive expense and equity: Deferred tax (note 19)
2 2 2 4
(13) (6) (19) (1) (20)
(20)
c) Tax reconciliation The tax for the period is higher (2012: higher) than the standard rate of corporation tax in the UK of 24.3% (2012: 26.3%). The differences are explained below:
2013 m 2012 m
Profit before tax Profit before tax at 24.3% (2012: 26.3%) Effects of: Expenses not deductible for tax purposes Non-qualifying depreciation Deferred tax on Safeway acquisition assets Effect of change in tax rate Other Prior period adjustments Tax charge for the period
879 214 10 39 (10) (41) 5 15 232
947 249 12 38 (12) (42) 10 2 257
Factors affecting current and future tax charges Legislation to reduce the rate of corporation tax from 24% to 23% was included in the Finance Act 2012, and as it had been substantively enacted at the balance sheet date the deferred tax balances as at 3 February 2013 have been measured at this rate. The impact of this change in tax rate is a credit of 41m to the income statement. In addition, further changes to the UK corporation tax system were announced in the Autumn Statement 2012. This includes a further reduction to the main rate to reduce the rate to 21% from 1 April 2014. This change had not been substantively enacted at the balance sheet date, and, therefore, is not included in these financial statements. The proposed reduction of the main rate of corporation tax to 21% from 1 April 2014 will be enacted separately. The overall effect of this further change, if it applied to the deferred tax balance at 3 February 2013, would be to further reduce the deferred tax liability by an additional 40m.
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8Dividends
Amounts recognised as distributed to equity holders in the period:
2013 m 2012 m
Interim dividend for the period ended 3 February 2013 of 3.49p (2012: 3.17p) Final dividend for the period ended 29 January 2012 of 7.53p (2011: 8.37p)
84 186 270
81 220 301
The Directors are proposing a final dividend in respect of the financial period ending 3 February 2013 of 8.31p per share which will absorb an estimated 195m of shareholders funds. Subject to approval at the AGM, it will be paid on 19 June 2013 to shareholders who are on the register on 17 May 2013.
9 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 outstanding 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 (2012: 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 Companys ordinary shares during the period and contingently issuable shares under the Groups long term incentive plan (LTIPs). a) Basic and diluted EPS (unadjusted) Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
2013 2013 Weighted average number of shares millions 2013 2012 2012 Weighted average number of shares millions 2012
Earnings m
EPS pence
Earnings m
EPS pence
Unadjusted EPS Basic EPS Earnings attributable to ordinary shareholders Effect of dilutive instruments Share options and LTIPs Diluted EPS
647 647
2,428.0 7.0 2,435.0
26.65 (0.08) 26.57
690 690
2,586.6 64.3 2,650.9
26.68 (0.65) 26.03
b) Underlying EPS The reconciliation of the earnings used in the calculations of underlying earnings per share is set out below:
2013 2013 Weighted average number of shares millions 2013 2012 2012 Weighted average number of shares millions 2012
Earnings m
EPS pence
Earnings m
EPS pence
Underlying EPS Basic EPS Earnings attributable to ordinary shareholders Adjustments to determine underlying profit (note 1) Effect of dilutive instruments Share options and LTIPs Diluted EPS
647 15 662 662
2,428.0 2,428.0 8.5 2,436.5
26.65 0.61 27.26 (0.09) 27.17
690 (29) 661 661
2,586.6 2,586.6 64.3 2,650.9
26.68 (1.13) 25.55 (0.62) 24.93
The weighted average number of shares has decreased compared to the prior period as a result of the Groups equity retirement programme, see note 23.
74
10 Intangible assets
Goodwill m Brands m Software development costs m Licences m Total m
Current period Cost At 29 January 2012 Additions Interest capitalised At 3 February 2013 Accumulated amortisation and impairment At 29 January 2012 Charge for the period At 3 February 2013 Net book amount at 3 February 2013
34 34
15 15
269 130 7 406
22 4 26
340 134 7 481
34
1 1 2 13
25 24 49 357
11 4 15 11
37 29 66 415
The cumulative interest capitalised included within software development costs is 20m (2012: 13m). The cost of internal labour capitalised is not material for separate disclosure. The goodwill arose on the acquisition of kiddicare.com Limited (Kiddicare) (24m), Flower World Limited (3m) and Farmers Boy (Deeside) Limited 7m. The value of goodwill has been tested for impairment during the current financial year by comparing the recoverable amount on a value in use basis of each cash generating unit to the carrying value of goodwill. The key assumptions for the Kiddicare value in use calculations are based on the latest Board approved cash flow projections, with long term projections based on a growth rate of 2%. These cash flows have been discounted at a pre-tax rate of 8%. Changes in income and expenditure are based on expectations of future changes in the market. No impairment arose during the year as a result of this test. Impairment tests have been performed on the remaining goodwill based on value in use and similar assumptions to those above, or on a net asset basis where appropriate. No impairment loss was identified in the current financial year (2012: nil). The valuations indicate sufficient headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment of the related goodwill.
Goodwill m Brands m Software development costs m Licences m Total m
Prior period Cost At 30 January 2011 Acquired in a business combination Additions Interest capitalised At 29 January 2012 Accumulated amortisation and impairment At 30 January 2011 Charge for the period At 29 January 2012 Net book amount at 29 January 2012
7 27 34
15 15
173 19 70 7 269
20 2 22
200 61 72 7 340
34
1 1 14
9 16 25 244
7 4 11 11
16 21 37 303
75

11 Property, plant and equipment

Land and buildings Freehold m Leasehold m Plant, equipment, fixtures & vehicles m Total m
Current period Cost At 29 January 2012 Acquired in a business combination (note 27) Additions at cost Interest capitalised Transfer from investment properties Disposals At 3 February 2013 Accumulated depreciation and impairment At 29 January 2012 Charge for the period Transfer from investment properties Disposals At 3 February 2013 Net book amount at 3 February 2013 Assets under construction included above
7,565 14 492 8 136 (10) 8,205
930 79 1,009
2,073 6 283 (22) 2,340
10,568 20 854 8 136 (32) 11,554
977 95 4 (6) 1,070 7,135 306
153 27 180 829 2
1,495 213 (20) 1,688 652 87
2,625 335 4 (26) 2,938 8,616 395
The cost of financing property developments prior to their opening date has been included in the cost of the project. The cumulative amount of interest capitalised in the total cost above amounts to 259m (2012: 251m).
Land and buildings Freehold m Leasehold m
Plant, equipment, fixtures & vehicles m
Total m
Prior period Cost At 30 January 2011 Acquisition of subsidiary undertakings Additions at cost Interest capitalised Transfer to investment properties Disposals At 29 January 2012 Accumulated depreciation and impairment At 30 January 2011 Charge for the period Transfer to investment properties Disposals At 29 January 2012 Net book amount at 29 January 2012 Assets under construction included above
7,152 11 438 5 (35) (6) 7,565
886 46 (2) 930
1,845 1 233 (6) 2,073
9,883 12 717 5 (35) (14) 10,568
885 97 (4) (1) 977 6,588 187
125 30 (2) 153 777 1
1,316 184 (5) 1,495 578 62
2,326 311 (4) (8) 2,625 7,943 250
76
11 Property, plant and equipment continued

Property, plant and equipment is reviewed for impairment when trigger events are identified. Impairment is measured at a cash generating unit level (CGU), with each store considered to be a CGU. Impairment losses are recognised for the amount by which the carrying amount may not be recoverable, calculated as the higher of fair value less costs to sell and value in use. Value in use has been assessed by projecting individual store cash flows over their useful life, with a growth rate applied after five years (based on long term growth rates for the UK food retail sector), and discounted back to present value at the Groups weighted average cost of capital. The store cash flows are based on budgets reviewed by the Board. Analysis of assets held under finance leases:
2013 m 2012 m
Leasehold land and buildings Cost Accumulated depreciation Net book value
308 (16) 292
285 (14) 271
12 Investment property
2013 m 2012 m
Cost At start of period Additions Transfer (to)/from property, plant and equipment At end of period Accumulated depreciation and impairment At start of period Charge for the period Transfer (to)/from property, plant and equipment At end of period Net book amount at end of period
325 (136) 189
283 7 35 325
66 4 (4) 66 123
54 8 4 66 259
Included in other operating income is 23m (2012: 23m) of rental income generated from investment properties. The fair value of investment properties at the end of the period was 255m (2012: 277m). The Directors do not believe that there has been a material change in yield since the last period. Investment properties transferred (to)/from property, plant and equipment have arisen following areview of asset categories, and remain within the same asset class for depreciation purposes.
13Investments
2013 m 2012 m
Equity investments
31
31
The equity investments held for long term investment represents a 12% stake in Fresh Direct Inc, an internet grocer serving the New York market. The investment was made on 9 March 2011 and is held at cost.
77

14 Other financial assets

2013 m 2012 m
Non-current assets Energy price contracts Current assets Energy price contracts Foreign exchange forward contracts
1 4 5
1 2 2
15Debtors
2013 m 2012 m
Trade debtors Less: provision for impairment of trade debtors Other debtors Prepayments and accrued income The ageing analysis of trade debtors is as follows:
`
173 (5) 168 37 86 291
196 (5) 191 46 83 320
2013 m
2012 m
Neither past due nor impaired Past due but not impaired: Not more than three months Greater than three months Impaired debt
158 9 1 5 173
183 7 1 5 196
As at 3 February 2013 and 29 January 2012, 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.
16 Creditors current
2013 m 2012 m
Trade creditors Other taxes and social security payable Other creditors Accruals and deferred income
1,501 31 112 486 2,130
1,409 34 143 439 2,025
78
17 Other financial liabilities

The Group had the following current and non-current borrowings and other financial liabilities:
2013 m 2012 m
Current Bank loans and overdrafts due within one year or on demand: Bank overdraft Short term borrowings Energy price contracts Forward foreign exchange contract
2 50 52 3 55
2013 m
29 80 109 5 1 115
2012 m
Non-current 150m Sterling bonds 6.50% August 2014 200m Sterling bonds 6.00% January 2017 200m Sterling bonds 6.12% December 2018 400m Sterling bonds 4.625% December 2023 400m Sterling bonds 3.50% July 2026 $250m US private placement loan notes 4.4% November 2026 Total non-current bonds and loan notes Floating credit facility 1.4% (2012: 1.4%) Term loan 0.9% Cross-currency swaps Energy price contracts Finance lease obligations
152 201 203 397 393 156 1,502 671 200 12 4 7 2,396
153 202 203 397 156 1,111 470 8 4 7 1,600
Borrowing facilities Borrowings are denominated in sterling and US dollars and bear fixed interest rates, with the exception of the floating credit facility and the term loan which bear floating interest rates. All borrowings are unsecured. On 18 July 2012, the Group issued 400m of sterling bonds at a fixed rate of 3.50%, expiring in July 2026. The issue is part of a 3,000m Euro Medium Term Note Programme where the Group can from time-to-time issue notes denominated in any agreed currency. As at 3 February 2013, the Group had issued, in total, 800m of fixed rate sterling bonds as part of this programme. On 26 November 2012, the Group entered into a 200m term loan, which expires on 28 May 2014. In the event of default of covenants on the bank facility, the principal amounts and any interest accrued are repayable on demand. The Group has the following undrawn floating committed borrowing facilities available in respect of which all conditions present had been met at the balance sheet date:
2013 m 2012 m
Undrawn facilities expiring: Between three and five years
675
725
79

18 Financial instruments
a) Financial risk management The Groups treasury operations are controlled centrally by the Treasury Committee in accordance with clearly defined policies and procedures that have been authorised by the Board. There is an amount of delegated authority to the Treasury Committee, but all activities are summarised in half yearly treasury reports which are presented to the Audit Committee. The Groups principal financial liabilities, other than derivatives, comprise bank loans and overdrafts, bonds, other borrowings, finance leases and trade and other creditors. The main purpose of these financial liabilities is to raise finance for the Groups operations. The Group has various financial assets such as trade debtors and cash and short term deposits which arise directly from its operations. The Group enters into derivative transactions, in the form of forward currency contracts, cross-currency swaps and energy price contracts. The purpose of these derivative instruments is to manage risks arising from the Groups operations and its sources of finance. As part of normal banking arrangements, the Group utilises letters of credit in order to facilitate contracts with third parties. The financial derivatives relating to commitments entered into during the year are to manage the risks arising from its usage of energy and foreign currency. It remains the Groups policy not to engage in speculative trading of financial instruments. The objectives, policies and processes for managing these risks are stated below: i) Foreign currency risk The Group makes the majority of its purchases in sterling, however it incurs currency exposure in respect of overseas trade purchases made in currencies other than sterling, primarily being euro and US dollar. The Groups objective is to reduce risk to short term profits and losses from exchange rate fluctuations. It is Group policy that any transactional currency exposures recognised to have a material impact on short term profits and losses will be hedged through the use of derivative financial instruments. At the balance sheet date, the Group had entered into forward foreign exchange contracts to mitigate foreign currency exposure on up to 74% (2012: 50%) of its forecasted purchases within the next six months. Cross-currency swaps are used to mitigate the Groups currency exposure arising from payments of interest and repayment of the principal in relation to US dollar private placement loan notes. The sensitivity to a reasonably possible change (+/- 10%) in the US dollar and euro exchange rates has been determined as being immaterial. ii) Liquidity risk The Group policy is to maintain a balance of funding with a range of maturities and a sufficient level of undrawn committed borrowing facilities to meet any unforeseen obligations and opportunities. Short term cash balances, together with undrawn committed facilities, enable the Group to manage its liquidity risk. The Group finances its operations with a combination of bank credit facilities, bonds and US private placement loan notes. The Treasury Committee monitors rolling forecasts of the Groups liquidity reserve on a quarterly basis, which comprises committed and uncommitted borrowing facilities on the basis of expected cash flow. At 3 February 2013, the Group had undrawn committed facilities of 675m (2012: 725m) (note 17). These facilities remain available to the Group. The table below summarises the maturity profile of the Groups other financial liabilities based on contractual undiscounted payments, which includes interest payments. Creditors and current tax liabilities have been excluded from this analysis. These balances are due within 12 months and their contractual undiscounted payments equal their carrying balances as the impact of discounting is not significant. Where borrowings are subject to a floating rate, an estimate for interest has been made. The amounts included in the table are the contractual undiscounted cash flows, and therefore do not agree to the amounts disclosed on the balance sheet for borrowings.
2013 m 2012 m
Less than one year One to two years Two to three years Three to four years Four to five years More than five years
133 433 71 946 252 1,264
149 68 224 57 732 988
The table on page 81 analyses the Groups derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
80
18 Financial instruments continued

At 3 February 2013 Derivatives settled on a gross basis Cross-currency swaps cash flow hedges Outflow Inflow Forward contracts cash flow hedges Outflow Inflow Derivatives settled on a net basis Energy price contracts cash flow hedges Outflow
< 1 year m 1 5 years m 5 + years m
(8) 7 (73) 77
(31) 28
(226) 223
(4)
< 1 year m
(3)
1 5 years m
5 + years m
At 29 January 2012 Derivatives settled on a gross basis Cross-currency swaps cash flow hedges Outflow Inflow Forward contracts cash flow hedges Outflow Inflow Derivatives settled on a net basis Energy price contracts cash flow hedges Outflow Inflow
(8) 7 (67) 66
(31) 28
(234) 230
(4) 2
(3)
iii) Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, deposits with banking groups as well as credit exposures from other sources of income such as supplier income and tenants of investment properties. The Group maintains deposits with banks and financial institutions who must possess a long term credit rating of A3 or higher with Moodys for a period not exceeding six months. Further, the Group has specified limits that can be deposited with any banking group or financial institution at any point. The maximum exposure on cash and cash equivalents and deposits is equal to the carrying amount of these instruments. The Group does not expect any significant performance losses from counterparties. The Group trades only with recognised third parties. It is the Groups policy that tenants of investment properties who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Groups exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in note 15. There are no significant concentrations of credit risk within the Group. iv) Other risks Pricing risk: The Group manages the risks associated with the purchase of electricity, gas and diesel consumed by its activities (excluding fuel purchased for resale to customers) by entering into bank swap contracts to fix prices for expected consumption. The Treasury Committee reviews the Groups market price exposure to these commodities on a quarterly basis and determines a strategy for utilising derivative financial products in order to mitigate the volatility of energy prices. A +/- 10 % change in the fair value of the commodity price at the balance sheet date impacts the hedging reserve by 24m (2012: 16m). The Group intends to hold derivatives to maintain cover of its energy purchases of up to 75% over an appropriate timescale. Cash flow interest rate risk: The Groups long term policy is to protect itself against adverse movements in interest rates by maintaining at least 60% of its total borrowings at fixed interest rates. As at the balance sheet date 62% (2012: 66%) of the Groups borrowings are at fixed rate, thereby substantially reducing the Groups exposure to adverse movements in interest rates.
81


b) Capital management The Group defines the capital that it manages as the Groups total equity and net debt balances, with an adjustment to reflect rental commitments. The Groups objectives are to safeguard its ability to continue as a going concern providing returns to shareholders, through the optimisation of the debt and equity balances, maintaining a strong investment grade credit rating and, having adequate liquidity headroom. The Group manages its capital structure and makes appropriate decisions in light of the current economic conditions and strategic objectives of the Group. Initiatives available to achieve the Groups desired capital structure include adjusting the amount of dividends paid to shareholders, issuing new shares and buying back share capital. During the current financial year, the proportion of debt relative to equity has increased, resulting from 579m incurred on the equity retirement programme, and a strategy of pursuing a more diversified funding portfolio. Additional funding of 400m has been obtained through the Groups bond programme and a 200m term loan with Lloyds Banking Group. This has contributed to a significant increase in average maturity period of the Groups debt. A key objective of the Groups capital management is to maintain compliance with the covenants set out in the revolving credit facility. The Groups covenants require maintenance of a gearing ratio of less than 3.5 and interest cover of at least 3.0 times. Throughout the year, the Group has comfortably complied with these covenants. c) Fair values i) Financial assets All financial derivatives are held at fair value, which has been determined by reference to prices available from the markets on which the instruments are traded. Cash and cash equivalents and debtors are held at book value, which equals the fair value. The values of other financial assets are disclosed within note 14. ii) Financial liabilities All financial liabilities are carried at amortised cost. The US dollar private placement loan notes are retranslated at balance sheet date spot rates. The fair value of the sterling bonds and US dollar private placement loan notes are measured using closing market prices. These compare to carrying values as follows:
2013 Amortised cost m 2013 Fair value m 2012 Amortised cost m 2012 Fair value m
Total bonds: non-current Total loan notes: non-current
1,346 156 1,502
1,455 169 1,624
955 156 1,111
1,057 164 1,221
The fair value of other items within current and non-current borrowing equals their carrying amount, as the impact of discounting is not significant. d) Hedging activities Cash flow hedges At 3 February 2013 and 29 January 2012, the Group held cross-currency swaps which have been designated as cash flow hedges. Prior to this, the cross-currency swaps were designated as fair value hedges against the commitment to issue US private placement loan notes. This derivative financial instrument is used to minimise risk from potential movements in foreign exchange rates inherent in cash flow of certain liabilities. The cross-currency swaps cover the Group from currency exposure arising from payments of interest and repayment of the principal in relation to US dollar private placement loan notes (note 17). The notional principal amount of the outstanding cross-currency swaps at 3 February 2013 was $250m (2012: $250m). To minimise the risk from potential movements in energy prices, the Group has energy price contracts which are also designated as cash flow hedges.
82

The Group uses forward foreign exchange contracts to hedge the cost of future purchases of goods for resale, where those purchases are denominated in a currency other than the functional currency of the purchasing company. The hedging instruments are primarily used to hedge purchases in euros and US dollars. The cash flows hedged will occur within six months of the balance sheet date. At 3 February 2013, the total notional amount of outstanding forward foreign exchange and option contracts to which the Group has committed was 154m (2012: 67m). The fair value of these outstanding contracts at the balance sheet date was an asset of 4m (2012: liability of 1m). e) Fair value hierarchy IFRS 7 requires an analysis of financial instruments carried at fair value, by valuation method. All financial instruments carried at fair value within the Group at 3 February 2013 and 29 January 2012 are financial derivatives and all are categorised as Level 2 instruments.
19 Deferred tax
2013 m 2012 m
Deferred tax liability Deferred tax asset Net deferred tax liability
(519) 48 (471)
(509) 45 (464)
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. The movements in deferred tax (liabilities)/assets during the period are shown below:
Property, plant and equipment m Share-based payments m Other short term temporary differences m
Pensions m
Total m
Current period At 29 January 2012 (Charged)/credited to profit for the period Charged to other comprehensive expense and equity At 3 February 2013 Prior period At 30 January 2011 Credited/(charged) to profit for the period Credited to other comprehensive expense and equity At 29 January 2012
(509) (10) (519)
2 5 (2) 5
6 (4) (2)
37 6 43
(464) (3) (4) (471)
(534) 25 (509)
(10) (1) 13 2
3 2 1 6
42 (11) 6 37
(499) 15 20 (464)
Included within the total (charged)/credited to profit for the period is an amount credited of 41m (2012: 42m), and within the total charged to other comprehensive expense a charge of 4m (2012: 2m) in respect of the change in the tax rate at which deferred tax balances are expected to reverse.
83

20Pensions
a) Defined benefit pension scheme The Group operates two defined benefit pension schemes, the Morrison and Safeway schemes (the schemes), providing benefits defined on retirement based on age at date of retirement, years of service and a formula using either the employees compensation package or career average revalued earnings (CARE). The assets of the schemes are held in separate trustee administered funds; no part of the schemes is wholly unfunded. The latest full actuarial valuations, which were carried out at 6 April 2010 and 1 April 2010 for the Morrison and Safeway schemes respectively, were updated for IAS 19 Employee benefits purposes for the period to 3 February 2013 by a qualified independent actuary. The Deed and Rules of the Morrison Pension Scheme gives the Trustees power to set the level of contributions. In the Safeway Scheme this power is given to the Group, subject to regulatory override. The current best estimate of employer contributions to be paid for the period commencing 4 February 2013 is 33m (2012: 31m). b) Assumptions The major assumptions used in this valuation to determine the present value of the schemes defined benefit obligation are shown below: i) Financial
2013 2012
Rate of increases in salaries Rate of increase in pensions in payment and deferred pensions Discount rate applied to scheme liabilities Inflation assumption (RPI/CPI)
3.70% 2.30%-3.70% 4.85% 3.70%/2.90%
4.55% 2.50%3.30% 4.75% 3.30%/2.50%
ii) 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:
2013 2012
Male Female The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:
24.5 25.4
24.4 25.3
2013
2012
Male Female
22.1 23.1
22.0 23.0
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. This particular adjustment, described in the mortality tables below, is known as long cohort and is in line with the latest advice from the Pension Regulator. In calculating the present value of the liabilities, the actuary selects the appropriate mortality table that reflects the longevity assumption. The most up-to-date tables are used in each period. The current mortality table used is S1PMA/S1PFA-Heavy YOB (2012: S1PMA/S1PFA-Heavy YOB). As disclosed in the critical accounting assumptions and estimates section on page 69, the results of the experience study conducted for the Safeway scheme have been used to adjust the longevity assumption for both schemes.
84
20 Pensions continued
iii) Expected return on assets The major assumptions used to determine the expected future return on the schemes assets, were as follows:
2013 2012
Long term rate of return on: Equities Corporate bonds Gilts Liability driven investments Cash
7.30% 4.85% 3.30% 0.60%
5.90% 4.75% 2.90% 1.50%
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. The expected return on plan assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation. c) Valuations Assets of the schemes are held in order to generate cash to be used to satisfy the schemes obligations, and are not necessarily intended to be realised in the short term. The allocation of assets between categories is governed by the investment principles of each scheme and is the responsibility of the trustees of each respective scheme. The trustees should take due consideration of the Groups views and a representative of the Group attends Trustee Investment Committees. The fair value of the schemes assets, which may be subject to significant change before they are realised, and the present value of the schemes liabilities which are derived from cash flow projections over long periods and are inherently uncertain, are as follows:
2013 m 2012 m
Equities Corporate bonds Gilts Liability driven investments Cash Total fair value of schemes assets Present value of defined benefit funded obligation Net pension liability recognised in the balance sheet Related deferred tax asset (note 19) Net deficit The movement in the fair value of the schemes assets over the period was as follows:
1,213 793 831 2 2,839 (2,859) (20) 5 (15)
1,054 724 805 6 2,589 (2,600) (11) 2 (9)
2013 m
2012 m
Fair value of scheme assets at start of period Expected return on scheme assets Actuarial gain recognised in other comprehensive income Employer contributions Employee contributions Benefits paid Fair value of scheme assets at end of period
2,589 120 145 33 10 (58) 2,839
2,304 140 148 31 10 (44) 2,589
The above pension scheme assets do not include any investments in the parent Companys own shares or property occupied by any member of the Group.
85

The movement in the present value of the defined benefit obligation during the period was as follows:
2013 m 2012 m
Defined benefit obligation at start of period Current service cost Employee contributions Interest on defined benefit obligation Actuarial loss recognised in other comprehensive income Benefits paid Defined benefit obligation at end of period
(2,600) (32) (10) (124) (151) 58 (2,859)
(2,266) (28) (10) (127) (213) 44 (2,600)
d) Sensitivities Below is listed the impact on the liabilities of changing key assumptions whilst holding other assumptions constant:
2013 m 2012 m
Discount factor Longevity
+/- 0.1% +/- 1 year
72 87
65 80
e) Profit for the period The following amounts have been charged in employee benefits in arriving at operating profit:
2013 m 2012 m
Current service cost The amounts for current service cost have been charged in the following statement of comprehensive expense lines:
32
28
2013 m
2012 m
Cost of sales Administrative expenses The following amounts have been included in finance (expense)/income:
25 7 32
22 6 28
2013 m
2012 m
Expected return on pension scheme assets Interest on pension scheme liabilities
120 (124) (4)
140 (127) 13
86
f) Actuarial gains and losses recognised in other comprehensive expense The amounts included in other comprehensive expense were:
2013 m 2012 m
Actual return less expected return on scheme assets Experience gains and losses arising on scheme obligation Changes in financial assumptions underlying the present value of scheme obligations Actuarial movement recognised in other comprehensive expense Taxation on actuarial movement in other comprehensive expense (note 19) Net actuarial movement recognised in other comprehensive expense
145 (151) (6) (2) (8)

2013 m
148 2 (215) (65) 13 (52)

2012 m
Cumulative gross actuarial movement recognised in other comprehensive expense Taxation on cumulative actuarial movement recognised in other comprehensive expense Cumulative net actuarial movement recognised in other comprehensive expense The actual return on schemes assets can therefore be summarised as follows:
(196) 45 (151)
(190) 47 (143)
2013 m
2012 m
Expected return on schemes assets Actuarial movement recognised in other comprehensive expense reflecting the difference between expected and actual return on assets Actual return on schemes assets
120 145 265
140 148 288
The expected return on the schemes 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. g) History of experience gains and losses
2013 m 2012 m 2011 m 2010 m 2009 m
Difference between the expected and actual return on scheme assets: Amount Percentage of scheme assets Experience gains and losses arising on scheme liabilities: Amount Percentage of present value of scheme obligation Effects to changes in the demographic and financial assumptions underlying the present value of the scheme liabilities: Amount Percentage of present value of scheme obligation Total amount recognised in other comprehensive income: Amount Percentage of present value of scheme obligation Total value of schemes assets Present value of defined benefit obligation Net pension (liability)/asset recognised in the balance sheet
145 5.1%
148 5.7%
62 2.7%
245 11.6%
(425) (24.2)%
2 0.1%
(128) (5.6)%
(4) (0.2)%
(151) (5.3)%
(215) (8.3)%
100 4.4%
(316) (14.8)%
328 18.2%
(6) (0.2)% 2,839 (2,859) (20)
(65) (2.5)% 2,589 (2,600) (11)
34 1.5% 2,304 (2,266) 38
(71) (3.3)% 2,111 (2,128) (17)
(101) (5.6)% 1,758 (1,807) (49) 87

h) Defined contribution pension scheme Employees joining the Group after September 2000 are no longer eligible to gain automatic entry into the defined benefit pension scheme. In June 2001, the Group established a stakeholder pension scheme, open to all employees, to which the Group makes matching contributions of a maximum of 5% of eligible earnings. This was closed to new members with effect from September 2012 following the introduction of the Morrisons Retirement Saver Plan. Pension costs for the defined contribution scheme are as follows:
2013 m 2012 m
Stakeholder pension scheme
i) Post retirement benefit plan On 24 September 2012, the Group opened a new post retirement benefit plan, the Morrisons Retirement Saver Plan. The scheme provides a lump sum benefit based upon a defined proportion of an employees earnings each year, revalued in line with a guaranteed rate prior to retirement. All employees joining the Group after 24 September 2012 are automatically enrolled. Existing employees are also eligible to join. In the year contributions of 4m were made into the scheme by the Group. On 31 January 2013, the Group made a contribution to the Morrison and Safeway pension schemes of 90m. On the same day the pension schemes trustees invested 90m in Wm Morrison Property Partnership (SLP) as limited partners. SLP was established by Wm Property Investments Limited, a wholly owned subsidiary of the Group, to hold investments in retail and distribution properties of the Group with a market value of 141m. The Group retains control over the SLP, and as such it is fully consolidated within these Group financial statements. These properties have been leased to Wm Morrison Supermarkets Plc and Safeway Stores Limited. As a partner in SLP the Morrison and Safeway pension schemes are entitled to a semi-annual share of the profits of SLP each year for 20 years. The profits shared with the pension schemes will be reflected in the Group financial statements as pension contributions.
21Provisions
Property provisions m
At 29 January 2012 Charged to profit for the period Unused amounts reversed during the period Utilised in period Unwinding of discount At 3 February 2013
84 3 (3) (12) 4 76
Property provisions comprise onerous leases provision, petrol filling station decommissioning reserve and provisions for dilapidations on leased buildings. Onerous leases relate to sublet and vacant properties. Where the rent receivable on the properties is less than the rent payable, a provision based on present value of the net cost is made to cover the expected shortfall. The lease commitments range from one to 59 years. Market conditions have a significant impact and hence the assumptions on future cash flows are reviewed regularly and revisions to the provision made where necessary. Other property provisions comprise petrol filling station decommissioning reserve and dilapidations cost. Provision is made for decommissioning costs for when the petrol filling station tanks reach the end of their useful life or when they become redundant and is based on the present value of costs to be incurred to decommission the petrol tanks. Dilapidation costs are incurred to bring a leased building back to the condition in which it was originally leased. Provision is made for these costs, which are incurred on termination of the lease.
88
22 Called-up share capital

Number of shares millions Share capital m Share premium m Total m
Current period At 29 January 2012 Shares cancelled At 3 February 2013 Prior period At 30 January 2011 Shares cancelled At 29 January 2012
2,532 (186) 2,346
253 (18) 235
107 107
360 (18) 342
2,658 (126) 2,532
266 (13) 253
107 107
373 (13) 360
The total authorised number of ordinary shares is 4,000 million shares (2012: 4,000 million shares) with a par value of 10p per share (2012: 10p per share). All issued shares are fully paid.There were 60,783 shares issued pursuant to the exercise of options (2012: 245,378) with a nominal value of 0.01m (2012: 0.02m) and an aggregate consideration of 0.1m (2012: 0.5m). Shares cancelled of 185,805,022 (2012: 125,699,939) relate to the equity retirement programme (note 23). 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.
23Reserves
2013 m 2012 m
Capital redemption reserve Merger reserve Hedging reserve Retained earnings Total
37 2,578 (14) 2,287 4,888
19 2,578 (12) 2,452 5,037
Trust shares Included in retained earnings is a deduction of 5m (2012: 21m) in respect of own shares held at the balance sheet date. This represents the cost of 2,284,993 (2012: 8,887,915) of the Companys ordinary shares (nominal value of 0.3m (2012: 0.9m). These shares are held by a trust using funds provided by the Group and were acquired to meet obligations under the Groups share option schemes. The market value of the shares at 3 February 2013 was 6m (2012: 26m). The trust has waived its rights to dividends. These shares are not treasury shares as defined by the London Stock Exchange. Treasury shares In addition the Company acquired 23,803,406 of its own shares (nominal value of 2m) to hold as treasury shares for the same purposes. The total amount paid to acquire the shares, net of tax, was 65m and has been deducted from retained earnings. During the period, the Company utilised 21,033,186 treasury shares to satisfy options exercised by employees during the period. Proceeds received on exercise of these shares amounted to 42m and has been credited to retained earnings. At 3 February 2013, the remaining treasury shares of 2,770,220 had a nominal value of 0.3m. The Company has the right to re-issue these shares at a later date. a) Capital redemption reserve The capital redemption reserve at the start of the period related to 57,788,600 of the Companys own shares which it purchased on the open market for cancellation between 31 March 2008 and 21 November 2008 at a cost of 146m, and 125,699,939 which it purchased between 10 March 2011 and 27 January 2012 at a cost of 368m. The movement in the period of 18m relates to 185,805,022 of the Companys own shares which it purchased on the open market for cancellation between 30 January 2012 and 1 February 2013. The total amount paid to acquire the shares, net of tax, was 514m and has been deducted from retained earnings within shareholders equity. The shares purchased represent 7% of the ordinary share capital at 3February 2013. b) Merger reserve The merger reserve represents the reserve in the Companys 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. c) Hedging reserve This represents the gains and losses arising on derivatives used for cash flow hedging, principally from the Groups cross-currency swaps, energy price contracts and forward exchange contracts (note 17). 89

24 Cash flow from operating activities

2013 m 2012 m
Profit for the period Adjustments for: Taxation Depreciation and impairment Amortisation Loss on disposal of property, plant and equipment Net finance cost Other non-cash charges Excess of contributions over pension service cost Increase in stocks Decrease/(increase) in debtors Increase in creditors Decrease in provisions Cash generated from operations
647 232 339 29 1 70 1 (22) 29 114 (8) 1,432
690 257 319 21 2 26 25 (3) (117) (49) 101 (8) 1,264
25 Analysis of net debt

2013 m 2012 m
Cash and cash equivalents per balance sheet Bank overdrafts (note 17) Cash and cash equivalents per cash flow Foreign exchange forward contracts Energy price contracts Other financial assets (note 14) Short term borrowings (note 17) Energy price contracts Forward foreign exchange contracts Current financial liabilities (note 17) Bonds Private placement loan notes Floating credit facility Other unsecured loans Cross-currency swaps Energy price contracts Finance lease obligations Non-current financial liabilities (note 17) Net debt
265 (2) 263 4 1 5 (50) (3) (53) (1,346) (156) (671) (200) (12) (4) (7) (2,396) (2,181)
241 (29) 212 3 3 (80) (5) (1) (86) (955) (156) (470) (8) (4) (7) (1,600) (1,471)
Cash and cash equivalents include restricted balances of 39m (2012: 67m) held by the Groups captive insurer subsidiary, Farock Insurance Company Limited. The cash is held to cover the liabilities of this entity.
90
26 Share-based payments
The Group operates a number of share-based payments schemes: the Executive share option scheme, the Sharesave scheme, an equity-settled long term incentive plan (LTIP), restricted share awards and deferred share awards. The net charge for the period relating to employee share-based payment plans was 4m (2012: 24m), all of which related to equity-settled share-based payment transactions. a) Share option schemes The Sharesave scheme has been in operation since 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 only subject to service conditions and is equity-settled. The scheme launched in May 2011 and is under the new scheme rules, approved by the shareholders in June 2010. Options which have been granted to those eligible employees, including Directors, who chose to participate in the scheme have been fair valued using a binomial stochastic option pricing model. The fair value of options granted and the assumptions were as follows:
Grant date 14 May 2012 17 May 2011 18 May 2010 14 May 2009
Share price at grant date Fair value of options granted Exercise price Dividend yield Annual risk free interest rate Expected volatility*
2.79 9.12m 2.36 3.69% 0.53% 19.4%
3.01 11.5m 2.28 3.20% 1.65% 24.2%
2.70 9.7m 2.37 3.04% 1.63% 26.5%
2.43 17.4m 1.98 2.38% 2.10% 28.0%
* 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.
The requirement that the employee has to save in order to purchase shares under the Sharesave 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 using the assumptions disclosed above. The discount has been determined by estimating the probability that the employee will stop saving based on expected future trends in the share price and employee behaviour.
2013 Weighted average exercise price in per share 2013 Options thousands 2012 Weighted average exercise price in per share 2012 Options thousands
Movement in outstanding options Outstanding at start of period Granted Exercised Forfeited Outstanding at end of period Exercisable at end of period
2.17 2.36 1.98 2.30 2.34 1.98
48,402 23,135 (21,094) (6,783) 43,660 37
2.14 2.28 2.09 2.25 2.17
38,701 15,380 (88) (5,591) 48,402
2013 Weighted average share price at date of exercise
2013 Number of shares thousands
2012 Weighted average share price at date of exercise
2012 Number of shares thousands
Share options exercised in the financial period
1.98
21,094
2.94
88
91

26 Share-based payments continued

2013 2012
Share options outstanding at the end of the period Range of exercise prices Weighted average remaining contractual life
1.98 to 2.37 2.0 years
1.98 to 2.37 1.7 years
b) Long term incentive plans In May 2007, a discretionary LTIP for the benefit of certain employees as approved by the Remuneration Committee was introduced. The awards are free share-based awards, with non-market vesting conditions attached, that accrue the value of dividends over the vesting period. The maximum total market value of shares over which awards may be granted to any employee during any financial period of the Company is 300% of salary. Awards normally vest three years after the original grant date, provided the relevant performance criteria have been met. The fair value at the date of grant, which is being charged to profit for the period over the three year vesting period, has been calculated based on the following assumptions:
Grant date 15 Oct 2012 13 Apr 2012 1 Oct 2011 18 Apr 2011 14 Oct 2010 22 Apr 2010 29 Jan 2010
Share price at grant date Assumed leavers Performance criteria Fair value of share awards granted
2.68 5% 65% 28.1m
2.93 5% 65% 1.5m
3.02 5% 77% 1.4m
2.85 5% 77% 23.3m
2.96 8% 80% 1.7m
2.97 8% 80% 21.9m

2013 Share awards thousands
2.93 90% 1.1m

2012 Share awards thousands
Movement in outstanding share awards Outstanding at start of period Granted Exercised Forfeited Outstanding at end of period Exercisable at end of period
22,706 10,185 (6,114) (2,147) 24,630
19,725 8,651 (4,258) (1,412) 22,706
2013
2012
Share awards outstanding at the end of the period Weighted average remaining contractual life
1.4 years 1.8 years
c) Restricted 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 only subject to service conditions and is equity-settled.
92
26 Share-based payments continued

The fair value at the date of grant, which is being charged to profit for the period over the vesting period, has been calculated based on the following assumptions:
Grant date 2013 2012
Share price at grant date Assumed leavers Exercise price Fair value of share awards granted
2.71 0% nil 1.9m
2.71 0% nil 1.9m
Share awards outstanding at the end of the period are 566,250 (2012: 817,000). The movement in share awards during the period relates to share options being exercised. The weighted average remaining contractual life of the share awards is 0.3 years (2012: 1 year). d) Deferred share bonus plan As part of the annual bonus plan, certain members of senior management are eligible for the deferred share bonus plan which allows 33% to 50% of any bonus payable to be deferred in shares for three years from the date the deferred shares award is made. Dividend equivalents accrue over the vesting period, to be paid when the shares vest. Vesting of these share awards is only subject to service conditions and is equity-settled. The fair value at the date of grant, which is being charged to profit for the period over the vesting period, has been calculated based on the following assumptions:
Grant date 2012/13 scheme 2011/12 scheme
Share price at grant date Assumed leavers Exercise price Fair value of share awards granted
3.03 0% nil 2.9m
2.76 0% nil 1.8m
Share awards outstanding at the end of the period are 1,423,512 (2012: 658,501). The movement in share awards during the period relates to new awards being granted of 968,148 and options exercised of 203,137. No awards have vested during the period. The weighted average remaining contractual life of the share awards is 1.8 years (2012: 2.2 years).
93

27 Business combinations
IFRS 3 (revised) Business combinations has been applied to the acquisitions completed during the current and prior periods. 53 weeks ended 3 February 2013 On 27 March 2012, the Group acquired a site at Winsford from Vion Food Group Limited, a meat packaging business based in Cheshire. Total cash consideration for the purchase was 21m; of this 20m is attributable to the property, plant and equipment acquired and 1m to other net assets. There was no goodwill arising. In March 2012, the Group acquired from Cranswick plc the outstanding 49% shareholding in Farmers Boy (Deeside) Limited which it did not already own, for cash consideration of 15m. This business had previously been accounted for as a subsidiary due to the existence of option arrangements between the Group and Cranswick plc. 52 weeks ended 29 January 2012 On 28 February 2011, the Group acquired the trade and assets of kiddicare.com Limited (Kiddicare), a multi-channel online retailer. The total cash consideration for the purchase was 70m. Assets and liabilities recognised as a result of the acquisition: Property, plant and equipment (note 11) Brand (included in intangibles) (note 10) IT hardware and software Other assets Net identifiable assets acquired Goodwill Total cash consideration Goodwill relates to the technological know-how and potential future multi-channel sales and is tax deductible. The revenue included in the Consolidated statement of comprehensive income since 28 February 2011 up to 29 January 2012 contributed by Kiddicare was 43m. Kiddicare also contributed operating profit of 1m over the same period. Given the close proximity of the acquisition date to the beginning of the financial period, it is not considered material to disclose annualised revenue and profit results since 31 January 2011. On 10 June 2011, the Group acquired 100% of the ordinary share capital of Flower World Limited, a wholesale flower business. Total consideration (including deferred consideration) was 6m. Goodwill and intangible assets acquired were 3m and other assets acquired were 3m.
Fair values on acquisition m
9 15 20 2 46 24 70
28 Capital commitments
2013 m 2012 m
Contracts placed for future capital expenditure not provided in the financial statements (property, plant and equipment)
77
103
29 Operating lease arrangements

a) Lessee arrangements 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:
2013 Vehicles, plant and equipment m 2012 Vehicles, plant and equipment m
Property m
Property m
Within one year More than one year and less than five years After five years
58 218 691 967
11 27 38
50 184 669 903
10 9 19
94
29 Operating lease arrangements continued

b) Lessor arrangements The Group has non-cancellable agreements with tenants with varying terms, escalation clauses and renewal rights. The future minimum lease income is as follows:
2013 m 2012 m
Within one year More than one year and less than five years After five years
26 89 114 229
28 95 127 250
30 Post balance sheet events

On 18 February 2013, the Group announced it had acquired 49 stores from Blockbuster Entertainment Limited, and on 26 February 2013 six stores were acquired from the administrators of HMV. These will be used to expand the Groups portfolio of Morrisons M local convenience stores.
31Principal subsidiaries
Subsidiaries of Wm Morrison Supermarkets PLC Farmers Boy Limited Neerock Limited Wm Morrison Produce Limited Safeway Limited Optimisation Developments Limited Subsidiaries of other Group companies Safeway Stores Limited Farmers Boy (Deeside) Limited Principal activity Manufacturer and distributor of fresh food products Fresh meat processor Produce packer Holding company Property development Grocery retailer Manufacturer and distributor of fresh food products Equity holding % 100 100 100 100 100 100 100
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 affected the financial statements. All of the above companies are registered in England and Wales and the principal area of trading for all the above companies is the United Kingdom. All equity holdings are in ordinary shares. In March 2012, the Group purchased the remaining 49% of the share capital of Farmers Boy (Deeside) Limited for 15m by exercising existing options. In the prior period, and up to the date of purchase of the options, the subsidiary was consolidated and therefore treated as 100% owned for accounting purposes. The Company is also part of a joint venture, with The Great Steward of Scotland Dumfries House Trust, to form 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. This has been accounted for as a joint venture in accordance with IFRS, however, as the results are not material to the Group, no further disclosure has been made of the accounting policies within the consolidated financial statements. 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.
32 Related party transactions

The Groups related party transactions in the period include the remuneration of the Management Board (note 4), 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.
95
Wm Morrison Supermarkets PLC Company balance sheet

3 February 2013
Note
2013 m
2012 m
Fixed assets Tangible assets Derivative financial assets Investments Current assets Stocks goods for resale Derivative financial assets Debtors amounts falling due within one year Cash at bank and in hand Creditors amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors amounts falling due after more than one year Provisions for liabilities Net assets excluding pension asset Net pension asset Net assets including pension asset Capital and reserves Called-up share capital Share premium Capital redemption reserve Merger reserve Hedging reserve Profit and loss account Total shareholders funds
35 36 37
3,528 1 3,521 7,050 502 5 1,146 94 1,747 (3,697) (1,950) 5,100
3,288 1 3,467 6,756 478 2 668 91 1,239 (3,594) (2,355) 4,401 (1,035) (109) 3,257 3,257
36 38
39
40 41
(1,906) (128) 3,066 26 3,092
42
44 45 45 45 45 45
235 107 37 2,578 (14) 149 3,092
253 107 19 2,578 (12) 312 3,257
The accounting policies on pages 97 to 99 and notes on pages 100 to 108 form part of these financial statements. The financial statements on pages 96 to 108 were approved by the Board of Directors on 13 March 2013 and were signed on its behalf by:
96
Wm Morrison Supermarkets PLC Company accounting policies

Basis of preparation These separate financial statements of Wm Morrison Supermarkets PLC (the Company) have been prepared on a going concern basis under the historic cost convention, except as disclosed in the accounting policies set out below, and in accordance with applicable accounting standards under UK GAAP and the Companies Act 2006. The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Companys financial statements. Accounting reference date The accounting period of the Company ends on the Sunday falling between 29 January and 4 February each year. Turnover recognition Turnover comprises the fair value of consideration received or receivable for the sale of goods in the ordinary course of the Companys activities. It is recognised when significant risks and rewards of ownership have been transferred to the buyer, there is reasonable certainty of recovery of the consideration and the amount of revenue, associated costs and possible return of goods can be estimated reliably. a) Sale of goods in-store and fuel Sale of goods in-store is recorded net of value added tax, returns, staff discounts, coupons, vouchers and the free element of multi-save transactions. Sale of fuel is recognised net of value added tax and Morrisons Miles award points. Revenue is recognised when transactions are completed in-store. b) Other sales Other revenue primarily comprises income from concessions and commissions based on the terms of the contract. Revenue collected on behalf of others is not recognised as turnover, other than the related commission. Sales are recorded net of value added tax and intra-group transactions. Cost of sales Cost of sales consists of all costs to the point of sale including manufacturing, warehouse and transportation costs. Store depreciation, store overheads and store based employee costs are also allocated to cost of sales. Supplier income Supplier incentives, rebates and discounts are collectively referred to as supplier income in the retail industry. Supplier income is recognised as a deduction from cost of sales on an accruals basis based on the expected entitlement which has been earned up to the balance sheet date for each relevant supplier contract. The accrued incentives, rebates and discounts receivable at period end are included within prepayments and accrued income. Where amounts received are in the expectation of future business, these are recognised in the income statement in line with that future business.
Other operating income Other operating income primarily consists of income not directly related to the operating of supermarkets and mainly comprises rental incomes and income generated from recycling of packaging. Rental income arising from operating leases is accounted for on a straight-line basis to the date of the next rentreview. Investments a) Investments in subsidiary undertakings Investments in subsidiary undertakings are stated at cost less provision for impairment. b) Investments in equity instruments All equity instruments are held for long term investment and are measured at fair value, where the fair value can be measured reliably. Where the fair value of the instruments cannot be measured reliably, the investment will be recognised at cost less accumulated impairment losses in accordance with FRS 26 Financial instruments: recognition and measurement. Any impairment is recognised immediately in profit or loss. Tangible assets Tangible assets are stated at cost less accumulated depreciation and accumulated impairment losses. Costs include directly attributable costs. Annual reviews are made of estimated useful lives and material residual values. Depreciation The policy of the Company is to provide depreciation at rates which are calculated to write off the cost less residual value of tangible fixed assets on a straight line basis. The rates applied are: Freehold land Freehold buildings Leasehold improvements Plant, equipment, fixtures and vehicles Assets under construction 0% 2.5% Over the shorter of lease period and 2.5% 10% to 33% 0%
Fixed assets are reviewed for indications of impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. This is performed for each income generating unit, which in the case of a supermarket is an individual retail outlet. If there are indications of possible impairment, then a test is performed on the asset affected to assess its recoverable amount against carrying value. An impaired asset is written down to its recoverable amount, which is the higher of value in use or its net realisable value. 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. If there is indication of an increase in fair value of an asset that had been previously impaired, then this is recognised by reversing the impairment, 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 for the asset.
97
Wm Morrison Supermarkets PLC Company accounting policies continued

Financial instruments Financial assets and liabilities are recognised on the Companys balance sheet when the Company becomes a party to the contractual provisions of the instrument. a) Financial assets i) Trade and other debtors: Trade and other debtors are initially recognised at fair value and subsequently held at amortised cost. Provision is made when there is objective evidence that the Company will not be able to recover balances in full, with the charge being recognised in the profit and loss account. Balances are written off when the probability of recovery is assessed as being remote. ii) Cash: Cash and cash equivalents includes cash-in-hand, cash-at-bank and bank overdrafts together with short term, highly liquid investments that are readily convertible into known amounts of cash, with an insignificant risk of a change in value, within three months from the date of acquisition. b) Financial liabilities i) Trade and other creditors: Trade and other creditors are initially stated at fair value and subsequently held at amortised cost. ii) Borrowings: Borrowings 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. c) Derivative financial instruments Derivative financial instruments are initially measured at fair value, which normally equates to cost, and are remeasured at fair value through profit or loss, except where the derivative qualifies for hedge accounting. Cash flow hedges Derivative financial instruments are classified as cash flow hedges when they hedge the Companys exposure to variability in cash flows that are either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction. The Company has cross-currency swaps designated as cash flow hedges. These derivative financial instruments are used to match or minimise risk from potential movements in foreign exchange rates inherent in the cash flows of the US dollar private placement loan notes. To minimise the risk from potential movements in energy prices, the Company has energy price contracts which are designated as cash flow hedges. To minimise the risk from potential movements in foreign exchange rates, the Company uses forward exchange contracts which are designated as cash flow hedges. Derivatives are reviewed annually for effectiveness. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or highly probable forecast transaction, the effective part of any gain or loss on the movement in fair value of the derivative financial instrument is recognised directly in equity through the statement of total recognised gains and losses (STRGL). 98
The gain or loss on any ineffective part of the hedge is immediately recognised in the profit and loss account within cost of sales for the energy price contracts and within interest payable in relation to the cross-currency swaps. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or liability, the associated cumulative gains or losses that were recognised directly in equity are reclassified into the profit and loss account when the transaction occurs. Capital management The capital management policy of the Company is consistent with that of the Group set out in note 18. Borrowing costs All borrowing costs are recognised in the Companys profit and loss account on an accruals 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 of interest ceases when the asset is ready for use. Pension costs The Company operates defined benefit and defined contribution schemes. A defined contribution scheme is a pension scheme under which the Company pays fixed contributions into a separate entity. A defined benefit scheme is one that is not a defined contribution scheme. Pension benefits under defined benefit schemes are defined on retirement based on age at date of retirement, years of service and a formula using either the employees compensation package or career average revalued earnings. The Company operates a defined benefit retirement scheme which is funded by contributions from the Company and members. The defined benefit scheme is not open to new members. Pension scheme assets, which are held in separate trustee administered funds, are valued at market rates. Pension scheme obligations are measured on a discounted present value basis using assumptions as shown in note 41. The operating and financing costs of the scheme are recognised separately in the profit and loss account in the period in which they arise. Death-inservice costs are recognised on a straight line basis over their vesting period. Actuarial gains and losses are recognised immediately in the STRGL. The Company has a right to recognise an asset, should one arise, in respect of the Companys net obligations to the pension schemes. Therefore either an asset or a liability is recognised in the balance sheet, and is stated net of deferred tax. A liability or asset is recognised in the balance sheet in respect of the Companys net obligations to the scheme and is stated net of deferred tax.The Company also operates a stakeholder pension scheme and contributions are charged to the profit and loss account as they arise. Foreign currencies 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 except when they deferred in reserves as qualifying cash flow hedges.
Provisions Provisions are created where the Company has a present legal or constructive obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits to settle the obligation from the Company, and where it can be reliably measured. Provisions are made in respect of individual properties where there are obligations for onerous contracts, dilapidations and certain decommissioning obligations for petrol filling stations. The amounts provided are based on the Companys best estimate of the likely committed outflow to the Company. Where material, these estimated outflows are discounted to net present value. 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. Lessor accounting operating leases Assets acquired and held for use under operating leases are recorded as fixed assets and are depreciated on a straight line basis to their estimated residual values over their estimated useful lives. Operating lease income is recognised on a straight line basis to the date of the next rent review. Lessee accounting operating leases Rental payments are taken to the profit and loss account on a straight line basis over the life of the lease. Lessee accounting finance leases The present value of the minimum lease payments payable during the lease term is included within fixed assets and the corresponding lease commitments are shown as obligations to the lessor. Lease payments are split between capital and interest elements using the annuity method. Depreciation on the relevant assets and interest are charged to the profit and loss account. 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 reported in the profit and loss account as it is adjusted both for items that will never be taxable or deductible and timing differences. Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at average rates expected to apply when they crystallise, based on tax rates enacted or substantively enacted at the balance sheet date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in different periods from those in which they are included in the financial statements. A net deferred tax asset is recognised only when it is recoverable on the basis that it is more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted. Deferred tax assets and liabilities are not discounted.
Stocks Stocks are measured at the lower of cost and net realisable value. Provision is made for obsolete and slow moving items. Cost is calculated on a weighted average basis and comprises purchase price, import duties and other non-recoverable taxes less rebates. Stocks represent goods for resale. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Share-based payments The Company 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 Companys 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 equity-settled awards granted is not subsequently revisited. Fair value is measured by use of a binomial stochastic option pricing model. The expected life used in the model has been adjusted, based on managements best estimate, for effects of non-transferability, exercise restrictions and behavioural considerations. The cost of the share-based award relating to each subsidiary is calculated, based on an appropriate apportionment and recharged through intercompany. Financial contracts 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. 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 the Company has purchased its own 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. 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. 99
Notes to the Company financial statements

33 Profit and loss account

The profit after tax for the Company for the 53 week period ended 3 February 2013 was 647m (52 weeks ended 29 January 2012: 86m). The Companys auditor, KPMG Audit Plc, charged 0.4m (2012: 0.4m) for audit services in the year, 0.1m (2012: 0.2m) for services related to taxation and 0.4m (2012: 0.5m) for other services.
34 Employees and directors

2013 m 2012 m
Employee benefit expense for the Company during the period Wages and salaries Social security costs Share-based payments (note 46) Pension costs
892 64 2 26 984
886 64 14 19 983
The average number of persons employed by the Company during the period was as follows:
2013 No. 2012 No.
Stores Distribution Centre
53,092 6,248 2,894 62,234
54,048 5,489 2,906 62,443
The aggregate remuneration paid to or accrued for the key management for services in all capacities during the period is the same as the Group and is shown in note 4.
35 Tangible assets
Land and buildings Freehold m Leasehold m Plant, equipment, fixtures & vehicles m Total m
Cost At 29 January 2012 Additions at cost Interest capitalised Transfers to another group subsidiary Disposals At 3 February 2013 Accumulated depreciation and impairment At 29 January 2012 Charged in the period Disposals At 3 February 2013 Net book value At 3 February 2013 At 29 January 2012 Assets under construction included above At 3 February 2013 At 29 January 2012
2,859 241 (1) (14) 3,085
586 53 639
1,391 168 8 (1) (16) 1,550
4,836 462 8 (2) (30) 5,274
640 76 (4) 712
90 16 106
818 124 (14) 928
1,548 216 (18) 1,746
2,373 2,218
533 495
622 575
3,528 3,288
6 2
230 138
236 140
100
35 Tangible assets continued

Included above is an amount of 740m (2012: 728m) relating to non-depreciable land. The cost of assets held under finance leases at 3 February 2013 is 91m (2012: 20m), with related accumulated depreciation of 21m (2012: 1m). The cost of property assets held as lessor included above is 165m at 3 February 2013 (2012: 267m) and accumulated depreciation of 57m (2012: 58m). Since 3 February 1985, the cost of financing property developments prior to their opening date has been included in the cost of the project. The cumulative amount of interest capitalised in the total cost above amounts to 111m (2012: 103m). Interest is capitalised at the effective interest rate of 5% (2012: 4%) incurred on borrowings.
36 Derivative financial assets

2013 m 2012 m
Fixed assets Energy price contracts Current assets Energy price contracts Forward foreign currency contracts
1 1 4 5
1 2 2
37Investments
Investment in equity instruments m Investment in subsidiary undertakings m Total m
Cost At 29 January 2012 Additions At 3 February 2013 Provision for impairment At 29 January 2012 and 3 February 2013 Net book value At 3 February 2013 At 29 January 2012
31 31
3,437 54 3,491
3,468 54 3,522
(1)
(1)
31 31
3,490 3,436
3,521 3,467
A list of the Companys principal subsidiaries is shown in note 31. The Directors believe that the carrying value of the investments is supported by their underlying net assets.
38 Debtors amounts falling due within one year

2013 m 2012 m
Trade debtors Amounts owed by group undertakings Other debtors Prepayments
123 753 8 262 1,146
145 333 14 176 668
Prepayments includes 211m (2012: 130m) relating to amounts falling due after more than one year. Amounts owed by group undertakings are unsecured, interest free, and repayable on demand.
101
Notes to the Company financial statements continued

39 Creditors amounts falling due within one year

2013 m 2012 m
Trade creditors Amounts owed to Group undertakings Other taxation and social security Other creditors Bank overdraft Floating credit facility Energy price contracts Accruals and deferred income Amounts owed to Group undertakings are unsecured, interest free and repayable on demand.
1,335 1,730 50 37 214 50 4 277 3,697
1,282 1,856 67 45 80 5 259 3,594
40 Creditors amounts falling due after more than one year

2013 m 2012 m
Revolving credit facility 1.4% (2012: 1.4%) US dollar private placement loan notes November 2026 400m Sterling bonds 4.625% December 2023 400m Sterling bonds 3.50% July 2026 Term loan 0.9% Amounts owed to subsidiary undertakings Cross-currency swaps Energy price contracts
671 156 397 393 200 73 12 4 1,906
470 156 397 8 4 1,035
On 18 July 2012, the Company issued 400m of sterling bonds at a fixed rate of 3.50%, expiring in July 2026. The issue is part of a 3,000m Euro Medium Term Note Programme where the Company can from time to time issue notes denominated in any agreed currency. As at 3 February 2013, the Company had issued, in total, 800m of fixed rate sterling bonds as part of this programme. On 26 November 2012, the Group entered into a 200m term loan, which expires on 28 May 2014. The revolving credit facility entered into in the prior period expires in March 2016. 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 71m (2012: 20m) are payable in two to five years, and are included in amounts owed to subsidiary undertakings in the table above.
41 Provisions for liabilities

Deferred taxation m Property provisions m Total m
At 29 January 2012 Charge recognised in profit and loss Charge recognised directly in the STRGL Unwinding of discount At 3 February 2013 Further details of the property provisions are provided in note 21.
93 16 4 113
16 (2) 1 15
109 14 4 1 128
Included within the deferred taxation provision, 11m (2012: 10m) has been credited to the profit and loss and 4m (2012: 3m) has been charged to the STRGL in the period in respect of the change in the tax rate at which deferred tax balances are expected to reverse.
102
41 Provisions for liabilities continued

The potential deferred taxation on timing differences, calculated at 23% (2012: 25%), is set out below and has been provided for in full.
2013 m 2012 m
Excess of capital allowances over depreciation Provisions and short term timing differences Share-based payments Provision at the period end excluding deferred tax on pension asset Deferred tax liability on pension asset (note 42) Provision at the period end including deferred tax on pension asset
129 (15) (1) 113 2 115
123 (24) (6) 93 93
The deferred tax liability of 2m (2012: nil) relating to the pension asset has been deducted in arriving at the net pension asset on the balance sheet.
42Pensions
a) Defined benefit pension scheme The Company operates a pension scheme (the scheme) providing benefits defined on retirement based on age at date of retirement, years of service and a formula using either the employees compensation package or career average revalued earnings (CARE). The assets of the scheme are held in a separate trustee administered fund. The latest full actuarial valuation was carried out at 6 April 2010 and was updated for FRS 17 Retirement benefits purposes for the period to 3 February 2013 by a qualified independent actuary. Under FRS 17 the investment held by the scheme represents a scheme asset in the Company financial statements. As a partner in SLP the scheme is entitled to a semi-annual share of the profits of SLP each year for 20 years. The current best estimate of employer contributions to be paid for the year commencing 4 February 2013 is 18m (2012: 18m). b) Assumptions The major assumptions used in this valuation to determine the present value of the schemes defined benefit obligation are shown below. i) Financial
2013 2012
Rate of increases in salaries Rate of increase in pensions in payment and deferred pensions Discount rate applied to scheme liabilities Inflation assumption (RPI/CPI)
3.70% 4.55% 2.30% to 3.70% 2.50% to 3.30% 4.85% 4.75% 3.70%/2.90% 3.30%/2.50%
ii) 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:
2013 2012
Male Female The average life expectancy in years of a member retiring at the age of 65 at balance sheet date is as follows:
24.5 25.4
24.4 25.3
2013
2012
Male Female
22.1 23.1
22.0 23.0
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. This particular adjustment, described in the mortality tables below, is known as long cohort and is in line with the latest advice from the Pension Regulator. In calculating the present value of the liabilities the actuary selects the appropriate mortality table that reflects the longevity assumption. The most up-to-date tables are used in each period. The current mortality table used is S1PMA/S1PFA-Heavy YOB (2012: S1PMA/S1PFA-Heavy YOB).
103

iii) Expected return on assets The major assumptions used to determine the expected future return on the schemes assets, were as follows:
2013 2012
Long term rate of return on: Equities Bonds Gilts Liability driven investments Scottish Limited Partnership Cash
7.30% 4.85% 3.30% 4.05% 0.60%
5.90% 4.75% 2.90% 1.50%
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. c) Valuations The fair value of the schemes 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 schemes liabilities which are derived from cash flow projections over long periods and are inherently uncertain, were as follows:
2013 m 2012 m
Equities Bonds Gilts Liability driven investments Scottish Limited Partnership Cash Total market value of assets Present value of scheme liabilities Net pension asset Related deferred tax liability Net pension asset after deferred tax The movement in the fair value of the schemes assets over the period was as follows:
310 196 208 30 1 745 (717) 28 (2) 26
260 178 199 1 638 (638)
2013 m
2012 m
Fair value of scheme assets at start of period Expected return on scheme assets Actuarial gain Employer contributions Employee contributions Benefits paid Fair value of scheme assets at end of period
638 30 37 48 5 (13) 745
553 34 36 18 5 (8) 638
104
The movement in the present value of the defined benefit obligation during the period was as follows:
2013 m 2012 m
Defined benefit obligation at the beginning of the period Current service cost Employee contributions Other finance income Actuarial loss Benefits paid Defined benefit obligation at the end of the period
(638) (17) (5) (31) (39) 13 (717)
(537) (17) (5) (30) (57) 8 (638)
d) Sensitivities Below is listed the impact on the liabilities of changing key assumptions whilst holding other assumptions constant:
2013 m 2012 m
Discount factor Longevity
+ / 0.1% + / 1 year
18 22
16 19
e) Profit and loss account impact The following amounts have been charged in arriving at operating profit in respect of pension costs:
2013 m 2012 m
Current service cost
(17)
17
The amounts for current service cost and pensions credit have been charged in the following profit and loss account lines:
2013 m 2012 m
Cost of sales Administrative expenses
(14) (3) (17)
(14) (3) (17)
The following amounts have been included in other finance income:

2013 m 2012 m
Expected return on pension scheme assets Interest on pension scheme liabilities
30 (31) (1)
34 (30) 4
f) Amounts recognised in statement of total recognised gains and losses The amounts included in the statement of total recognised gains and losses (STRGL) were:
2013 m 2012 m
Actual return less expected return on scheme assets Experience gains and losses arising on scheme liabilities Changes in assumptions underlying the present value of scheme liabilities Actuarial loss recognised in the STRGL
37 (39) (2)
36 1 (58) (21)
105

2013 m 2012 m
Cumulative gross actuarial movement recognised in the STRGL Taxation on cumulative actuarial movement recognised in the STRGL Cumulative net actuarial movement recognised in the STRGL The actual return on the schemes assets can therefore be summarised as follows:
(166) 38 (128)
(164) 41 (123)
2013 m
2012 m
Expected return on schemes assets Actuarial movement recognised in the STRGL reflecting the difference between expected and actual return on assets Actual return on schemes assets
30 37 67
34 36 70
The expected return on schemes 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. g) History of experience gains and losses
2013 m 2012 m 2011 m 2010 m 2009 m
Difference between the expected and actual return on scheme assets: Amount Percentage of scheme assets Experience gains and losses arising on scheme liabilities: Amount Percentage of present value of scheme liabilities Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities: Amount Percentage of present value of scheme liabilities Total amount recognised in statement of total recognised gains and losses Amount Percentage of present value of scheme liabilities Total value of schemes assets Present value of defined benefit obligation Net pension asset/(liability)
37 5.0%
36 5.6% 1 0.3%
13 2.4% (52) (9.7)%
48 9.8%
(85) (21.4)%
(39) (5.4)% (2) (0.3)% 745 (717) 28
(58) (9.1)% (21) (3.3)% 638 (638)
20 3.7% (19) (3.5)% 553 (537) 16
(72) (15.4)% (24) (5.1)% 490 (468) 22
82 20.5% (3) (0.8)% 397 (400) (3)
h) Defined contribution pension scheme Employees joining the Company after September 2000 are no longer eligible to gain automatic entry into the final salary pension scheme. In June 2001 the Company established a stakeholder pension scheme, open to all employees, to which the Company makes matching contributions of a maximum of 5% of eligible earnings. Pension costs for the defined contribution scheme are as follows:
2013 m 2012 m
Stakeholder pension scheme
(3)
(4)
i) Other schemes On 24 September 2012, the Group opened a new cash balance scheme, the Morrisons Retirement Saver Plan. The scheme provides a lump sum benefit based upon a defined proportion of an employees earnings each year, revalued in line with a guaranteed rate prior to retirement. All employees joining the Company after 24 September 2012 are automatically enrolled. Existing employees are also eligible to join. In the year contributions of 3m were made by the Company into the scheme. As explained further in note 20 of the Wm Morrison Supermarkets Plc consolidated financial statements, on 31 January 2013 the Company made a contribution to the pension scheme of 30m and, on the same day, the pension scheme invested this in Wm Morrison Property Partnership (SLP), a limited partnership controlled by Wm Morrison Supermarkets Plc group.
106
43 Reconciliation of movements in equity shareholders funds

2013 m 2012 m
Profit for the financial period Dividends (note 8) Retained profit/(loss) for the financial period Share-based payment (note 46) Cash flow hedging movement Tax relating to cash flow hedging movement Actuarial loss on pension scheme Tax relating to pension scheme Shares purchased for cancellation Treasury share purchases and utilisation for share options Net reduction in equity shareholders funds Opening shareholders funds Closing equity shareholders funds
647 (270) 377 2 (2) (2) (2) (514) (24) (165) 3,257 3,092
86 (301) (215) 25 (23) 6 (21) 2 (368) (594) 3,851 3,257
44 Share capital
2013 m 2012 m
Authorised Equity share capital 4,000,000,000 ordinary shares of 10p each (2012: 4,000,000,000) Issued and fully paid Equity share capital 2,346,567,871 ordinary shares of 10p each (2012: 2,532,312,110) Ordinary shares
400
400
235
253
2013 m
2012 m
At start of period Shares cancelled Shares options exercised At end of period
253 (18) 235
266 (13) 253
45Reserves
Share premium account m Capital redemption reserve m Merger reserve m Hedging reserve m Profit and loss account m
At start of period Retained in the period Shares purchased for cancellation Treasury share purchases and utilisation for share options Share-based payments Cash flow hedging movement Actuarial loss recognised Tax arising on actuarial loss At end of period
107 107
19 18 37
2,578 2,578
(12) (2) (14)
312 377 (514) (24) 2 (2) (2) 149
107

45 Reserves continued
a) Capital redemption reserve The capital redemption reserve at the start of the period related to 57,788,600 of the Companys own shares which it purchased on the open market for cancellation between 31 March 2008 and 21 November 2008 at a cost of 146m, and 125,699,939 which it purchased between 10 March 2011 and 27 January 2012 at a cost of 368m. The movement in the period of 18m relates to 185,805,022 of the Companys own shares which it purchased on the open market for cancellation between 30 January 2012 and 1 February 2013. The total amount paid to acquire the shares, net of tax, was 514m and has been deducted from retained earnings within shareholders equity. The shares purchased represent 7% of the ordinary share capital at 3 February 2013. b) 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. c) Hedging reserve This represents the gains and losses arising on cash flow hedges from the Companys energy price contracts and forward exchange contracts.
46 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 2m (2012: 14m). Full IFRS 2 disclosures are provided in note 26.
47 Capital commitments
2013 m 2012 m
Contracts placed for future capital expenditure not provided in the financial statements (property, plant and equipment)
36
15
48 Operating lease commitments

Annual commitments under non-cancellable operating leases:
2013 Land and buildings m 2013 Plant, equipment, fixtures and vehicles m 2012 Land and buildings m 2012 Plant, equipment, fixtures and vehicles m
Expiring within one year Expiring within two to five years inclusive Expiring over five years
2 23 25
3 7 10
1 2 23 26
2 7 9
49 Contingent liabilities
The Company has given an unlimited guarantee in respect of the overdraft of all the subsidiary undertakings within the Groups banking offset agreement. The overdraft position at 3 February 2013 was 99m (2012: 164m). The Company has also provided a guarantee in respect of sterling bonds amounting to 633m at fair value (2012: 633m) 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.
50 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. Transactions between the Company and Farmers Boy (Deeside) Limited during the period it remained a non-wholly owned subsidiary within the Group (prior to the acquisition of its remaining shareholding disclosed in note 31) are as follows: The Company paid for goods and services on behalf of Farmers Boy (Deeside) Limited totalling cash payments of 0.2m (2012: 3m) and provided additional cash advances of nil (2012: 15m). In addition, Farmers Boy (Deeside) Limited sold goods to the Company totalling 17m (2012: 79m).
108
Five year summary of results

Consolidated statement of comprehensive income

2013 m 2012 m 2011 m 2010 m 2009 m
Turnover Cost of sales Gross profit Other operating income Administrative expenses (Losses)/profits arising on property transactions Operating profit before pensions credit Pensions credit Operating profit Net finance costs Profit before taxation Taxation Profit for the period attributable to the owners of the Company Underlying profit before tax Earnings per share (pence) basic diluted underlying basic Dividend per ordinary share (pence)
18,116 (16,910) 1,206 80 (336) (1) 949 949 (70) 879 (232) 647 901 26.65 26.57 27.26 11.80
17,663 (16,446) 1,217 86 (329) (1) 973 973 (26) 947 (257) 690 935 26.68 26.03 25.55 10.70
16,479 (15,331) 1,148 80 (323) (1) 904 904 (30) 874 (242) 632 869 23.93 23.43 23.03 9.60
15,410 (14,348) 1,062 65 (315) 4 816 91 907 (49) 858 (260) 598 767 22.80 22.37 20.47 8.20
14,528 (13,615) 913 37 (281) 2 671 671 (16) 655 (195) 460 636 17.39 17.16 16.67 5.80
Consolidated balance sheet

2013 m 2012 m 2011 m Restated1 2010 m Restated1 2009 m
Assets Intangible assets Property, plant and equipment Investment property Net pension asset Investments Other financial assets Non-current assets Current assets Liabilities Current liabilities Other financial liabilities Deferred tax liabilities Net pension liabilities Provisions Non-current liabilities Net assets Shareholders equity Called-up share capital Share premium Capital redemption reserve Merger reserve Retained earnings and hedging reserves Total equity attributable to the owners of the Company
1
415 8,616 123 31 9,185 1,342 (2,334) (2,396) (471) (20) (76) (2,963) 5,230 235 107 37 2,578 2,273 5,230
303 7,943 259 31 1 8,537 1,322 (2,303) (1,600) (464) (11) (84) (2,159) 5,397 253 107 19 2,578 2,440 5,397
184 7,557 229 38 3 8,011 1,138 (2,086) (1,052) (499) (92) (1,643) 5,420 266 107 6 2,578 2,463 5,420
7,439 229 7,668 1,092 (2,152) (1,027) (515) (17) (100) (1,659) 4,949 265 92 6 2,578 2,008 4,949
6,838 242 81 7,161 1,065 (2,024) (1,049) (472) (49) (112) (1,682) 4,520 263 60 6 2,578 1,613 4,520
Restated for amendment to IAS 17 Leases.
109
Supplementary information
2013 %
2012 %
2011 %
2010 %
2009 %
Increase/(decrease) on previous year % Turnover Operating profit Profit before taxation Profit after taxation Underlying profit before taxation Diluted earnings per share Dividend per ordinary share % of turnover Operating profit Profit before taxation Profit after taxation Retail portfolio Size 000s sq ft (net sales area) 05 515 1525 2540 40+ Total number of stores Petrol filling stations Total sales area (000s sq ft) Total sales area excluding convenience (000s sq ft) Average store size (000s sq ft)3 Average sales area (000s sq ft)2 Total supermarket takings ex petrol (gross) m3 Average takings per sq ft per week ()3 Average takings per store per week3 Average number of customers per store per week3 Average take per customer ()3 Employees Full time Part time Total Full time equivalent Average per FTE employee: Turnover (000s) Operating profit () Employee costs ()
Before pensions credit. Includes sales area of divested stores. 3 Excludes convenience.
1 2
2.56 (2.47) (7.18) (6.23) (3.64) 1.92 10.28
7.18 7.63 8.35 9.18 7.56 11.10 11.46
6.94 10.78 1.86 5.69 13.30 4.74 17.07
6.07 21.601 30.99 30.00 20.60 30.36 41.38
12.02 9.74 6.98 (17.02) 12.97 (17.01) 20.83
5.24 4.85 3.57
5.51 5.36 3.91
5.49 5.30 3.84
5.59 5.57 3.88
4.62 4.51 3.16
12 64 135 239 48 498 312 13,421 13,383 26.9 13,396 14,875 21.62 591 23,905 24.73
3 65 135 228 44 475 300 12,904 12,894 27.4 12,456 14,585 22.52 618 25,083 24.62
45 137 213 44 439 296 12,261 12,261 27.9 11,959 13,916 22.38 624 25,583 24.40
42 141 199 43 425 293 11,867 11,867 28.5 11,452 13,241 22.24 632 25,932 24.90
13 135 190 44 382 287 11,131 11,131 29.1 11,061 12,180 21.41 617 25,928 23.86
56,177 72,528 128,705 91,760
57,169 74,038 131,207 94,114
58,287 73,787 132,074 95,181
55,703 78,041 133,743 94,724
50,934 73,596 124,530 89,855
197 10,342 21,327
188 10,339 19,530
173 9,498 19,311
163 8,6151 18,021
162 7,472 17,996
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.
110
Investor relations and financial calendar
Financial calendar 2013/14

Financial events and dividends Quarterly management statement Final dividend record date Annual General Meeting Final dividend payment date Half year end Interim results announcement Interim dividend record date Interim dividend payment date Quarterly management statement Financial year end Company Secretary Mark Amsden Registered office Wm Morrison Supermarkets PLC Hilmore House Gain Lane Bradford BD3 7DL Telephone: 0845 611 5000 www.morrisons.co.uk Investor relations Telephone: 0845 611 5710 Email: accinvr@morrisonsplc.co.uk Corporate responsibility enquiries Telephone: 0845 611 5000 9 May 2013 17 May 2013 13 Jun 2013 19 Jun 2013 4 Aug 2013 12 Sep 2013 4 Oct 2013 11 Nov 2013 7 Nov 2013 2 Feb 2014
Annual General Meeting The AGM will be held on Thursday 13 June 2013 at Wm Morrison Supermarkets PLC Head Office, Gain Lane, Bradford BD3 7DL. A separate notice convening the meeting is sent to shareholders, which includes an explanation of the items of special business to be considered at the meeting. Dividend reinvestment plan The Company has a dividend reinvestment plan which allows shareholders to reinvest their cash dividends in the Companys shares bought in the market through a specifically arranged share dealing service. Full details of the plan and its charges, together with mandate forms, are available from the Registrars. Morrisons website Shareholders are encouraged to visit our website, www.morrisons.co.uk, to obtain information on Company history, stores and services, latest offers, press information and a local store finder. Share price information The investor information section of our website provides our current and historical share price data and other share price tools. Share price information can also be found in the financial press and the Cityline service operated by the Financial Times. Telephone: 0906 843 3545. Online reports and accounts Our annual and interim Group financial statements are available to download from the website along with Corporate Responsibility reports and other financial announcements. The 2012/13 annual report is also available to view in HTML format at www.morrisons.co.uk/corporate/ar2013. The information in the annual report and financial statements, Annual review and summary financial statements, 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 2012/13 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 Groups website, www.morrisons.co.uk/corporate, 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.
111
Investor relations and financial calendar continued
Registrars and shareholding enquiries Administrative enquiries about the holding of Morrisons shares, such as change of address, change of ownership, dividend payments and the dividend reinvestment plan should be directed to: Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: 0871 664 0300 Overseas: +44 208 639 3399 Calls cost 10p per minute plus network extras. www.capitaregistrars.com Solicitors Gordons LLP Riverside West Whitehall Road Leeds LS1 4AW Ashurst LLP Broadwalk House 5 Appold Street London EC2A 2HA Wragge & Co LLP 55 Colmore Row Birmingham B3 2AS
Auditor KPMG Audit Plc 1 The Embankment Neville Street Leeds LS1 4DW Stockbrokers Jefferies Hoare Govett Vintners Place 68 Upper Thames Street London EC4V 33J Bank of America Merrill Lynch Merrill Lynch Financial Centre 2 King Edward Street London EC1A 1HQ Investment bankers NM Rothschild & Sons Limited 1 King William Street London EC4N 7AR Credit Suisse Securities (Europe) Limited One Cabot Square London E14 4QJ
Shareholder information The number of shareholders at 3 February 2013 was 48,082 (2012: 46,410) and the number of shares in issue was 2,346,567,871 (2012: 2,532,312,110).
Analysis by shareholder Number of holders % holders Balances at 3 Feb 2013 % capital
Private shareholder Nominee companies Deceased accounts Limited companies Other institutions Bank and bank nominees Investment trusts Pension funds Family interests Insurance companies
41,322 6,037 311 205 70 78 24 24 6 5
85.94 12.56 0.65 0.43 0.14 0.16 0.05 0.05 0.01 0.01
270,452,415 2,025,736,920 949,765 5,532,695 8,171,052 32,351,279 130,404 3,177,200 8,433 57,708
11.52 86.33 0.04 0.23 0.35 1.38 0.01 0.14 0.00 0.00
Analysis by shareholder
Number of holders
% holders
Balances at 3 Feb 2013
% capital
11,000 1,00110,000 10,0011,000,000 Over 1,000,000
25,187 20,270 2,402 223
52.38 42.16 5.00 0.46
11,127,666 59,865,047 213,942,209 2,061,632,949
0.47 2.55 9.12 87.86
112
Compiled by Wm Morrison Supermarkets PLC Hilmore House, Gain Lane Bradford BD3 7DL Design Salterbaxter www.salterbaxter.com Telephone: 020 7229 5720 The annual report and financial statements, the annual review and summary financial statements in both paper and HTML format, and the Corporate responsibility review were designed and produced by Salterbaxter. Photography Richard Moran Oliver Wright Printing Pureprint Paper stock: This report is printed on Amadeus Offset uncoated, a 100% recycled paper. Amadeus Offset is manufactured to the certified environmental management system ISO 14001.
Information at your fingertips

Consumer
Our website, www.morrisons.co.uk, allows you to learn more about Morrisons and our offering. Offers Latest promotions Specific product offerings Press releases/marketing Sign up for our latest offers by email Market Street More about our unique in-store offering, along with video presentations of where our food comes from and how to buy, cook and present it. You can now find nutrition information for Market Street on our website. Food and drink Information about our food ranges, healthy eating and mouth-watering recipes along with ideas of what drink goes well with each recipe. Family life From entertainment to bringing up baby and looking after your pets. View our current and archived bi-monthly magazine and read our handy health information for the whole family. Our suppliers Read about what food is produced fresh near your home and explore our seasonal calendar to see which foods are fresh at different times of the year. Lets Grow Information about our Lets Grow scheme, including how to register, facts, how it works and teaching resources. Kiddicare See our range of baby and toddler products and order online at www.kiddicare.com
Corporate
Our corporate website, www.morrisons.co.uk/corporate, has the following sections. Work with Morrisons Career opportunities and information about working for Morrisons. For our dedicated recruitment website, go to www.iwantafreshstart.com Media centre Latest releases about the growing estate of Morrisons, along with promotions and product news. Corporate responsibility Here you can find out about our corporate responsibility ethos, including how we take good care of our environment, society and how we go about business. www.morrisons.co.uk/cr Investors User-friendly Presentations, announcements and financial reports can be quickly and easily downloaded or viewed on-screen as PDFs. You can easily navigate around the annual report and financial statements 2012/13 on-screen, viewing only the parts you want to, at www.morrisons.co.uk/corporate/ar2013 Webcasts Webcasts of the Directors delivering the preliminary results for 2012/13 on 14 March 2013 are available. 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.co.uk/corporate and follow the investor eComms link. About Morrisons You will find information about the Group, its operations, strategy and structure, and past financial information.
Wm Morrison Supermarkets PLC Hilmore House, Gain Lane Bradford BD3 7DL Telephone: 0845 611 5000 Visit our website: www.morrisons.co.uk

Morrisons Annual Report 2013 PDF

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Morrisons Annual Report 2013 PDF

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Annual report and financial statements 2012/13

Wm Morrison Supermarkets PLC

More of what matters

53 week v 53 week basis

Profit before tax

Basic earnings per share Net debt

Total dividend per share

18.1bn (2.1) % 879m 26.7 p 2.2bn 11.8p

Performance and strategy review Governance Financial statements

Directors report and business review

Our business model

Performance and strategy review Governance Financial statements

Fresh Value Service

e for our valu sh g a sin

Understanding our customers

GFK Consumer Confidence

74%3 monitor item pricing as away to manage their budget

Average earnings and inflation

source: GFK NOP Consumer Confidence

3 2 1 0 2007 2008 2009 CPI inflation 2010 2011 2012

Share price performance over 3 the last three years

Average earnings source: Capital Economics

000 500 000

44% take more time choosing their groceries

Share price (p)

275 source: IDG, 2012 250 225 200

Wm Morrison Supermarkets PLC

Performance and strategy review Governance Financial statements

Stated importance most important aspects in driving store choice (%)

Value is more crucial than ever

Saves money on shopping New channels to market Good parking

Stated importance most important aspects in driving store choice (%)

Own label growth

2012 2017 Actual

Value of UK grocery market: 101bn Morrisons market share:

901m 27.3p 8.31p 46m 2.1m

Performance and strategy review Governance Financial statements

Chief Executives review

a clear vision and strategy that makes us different

Stores opened (includes nine convenience) Gross profit

Performance and strategy review Governance Financial statements

13,294 4,172 17,466 20.24 11.0 22.85

380 69 201 650 11.70 0.4 16.93

13,674 4,241 201 18,116 19.84 11.4 22.63

13,436 4,039 188 17,663 20.74 11.4 22.67

Reinforce our differences

Seize the opportunities

We bring great value fresh food to our customers every day.

Performance and strategy review Governance Financial statements

source: Office of National Statistics source: Kantar Worldpanel source: IDG

Focused on our strategic objectives

Driving the topline

1 Food focused not generalist

2 Experiential over purely  functional

4 Skills not just drills

5 General merchandise clicks not bricks

6 Multi-format and multi-channel 

Performance and strategy review Governance Financial statements

Our strategic objectives

Our strategic initiatives

Driving the topline

Measuring performance through our KPIs

> Becoming multi-channel > Growing convenience > Vertical integration

2 Experiential over purely functional

6 Multi-format and multi-channel