Summary financial statement (52 weeks ended 3 February 2008)
Notes to the summary financial statement
1 Ordinary dividends
| Pence per share | 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|---|
| Interim dividend | 0.675 | 0.625 | 0.625 | 0.625 | 0.550 |
| Final dividend | 4.125 | 3.375 | 3.075 | 3.075 | 2.700 |
| Total dividend | 4.800 | 4.000 | 3.700 | 3.700 | 3.250 |
A final dividend of 4.125p has been proposed, taking the total for the year to 4.8p. This represents total dividend growth of 20% (2007: 8.1%). Subject to approval at the AGM, the final dividend will be paid on 6 June 2008 to shareholders who are on the register of members on 2 May 2008.
2 Earnings per share
Unadjusted earnings per share are shown in the Summary consolidated income statement.
The Directors consider that adjusted and underlying earnings per share measures referred to in the Chairman's statement and CEO's review provide additional useful information for shareholders on underlying trends and performance.
| 2008 pence |
2007 pence |
|
|---|---|---|
| Underlying normalised earnings per share | ||
| - basic | 14.4 | 8.3 |
| - diluted | 14.3 | 8.3 |
| Adjusted earnings per share | ||
| - basic | 19.7 | 8.3 |
| - diluted | 19.6 | 8.3 |
3 Adjusted and underlying normalised earnings
The adjustments are made to reported profit to:
(a) remove profits arising on property transactions since these profits do not form part of the Group's principal activities,
(b) remove income statement volatility within net pension interest income caused by market conditions,
(c) to apply an effective tax rate of 32%, being an estimated normalised tax rate, since the current year's effective tax rate is considerably lower due to reasons set out in note 6.
Underlying normalised earnings are:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Profit before tax | 612 | 369 |
| Adjustments for Profits arising on property transactions | (32) | (38) |
| Adjustments for net pension interest income | (17) | (7) |
| Underlying earnings before tax | 563 | 324 |
| Normalised tax charge at 32% tax rate | (180) | (104) |
| Underlying earnings after normalised tax charge | 383 | 220 |
Adjusted earnings are:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Profit after tax | 554 | 248 |
| Adjustments for Profits arising on property transactions (net of tax) | (29) | (27) |
| Adjusted earnings | 525 | 221 |
4 Share performance
The Company's total shareholder return performance (i.e. share price movements plus dividends reinvested) over the last five years relative to the FTSE 100 and the FTSE Food and Drug Retailers indices is shown in the Summary Directors' remuneration report.
| 3 Feb 2008 £m |
4 Feb 2007 £m |
29 Jan 2006 £m |
|
|---|---|---|---|
| Total shareholder return (Morrisons) | 204.2 | 202.8 | 125.1 |
| Total shareholder return (FTSE 100) | 200.7 | 203.0 | 180.2 |
The table shows the value of £100 invested in Morrisons shares on 2 February 2003 compared with the value of £100 invested in the FTSE 100 Index from the same date.
5 Turnover
| 2008 £m |
2007 £m |
|
|---|---|---|
| Sales of goods in-stores | 10,439 | 10,087 |
| Fuel | 2,443 | 2,301 |
| Total store based sales | 12,882 | 12,388 |
| Direct manufacturing sales | 27 | 28 |
| Income from concessions and commission | 60 | 46 |
| Total turnover | 12,969 | 12,462 |
Turnover is shown excluding VAT.
6 Taxation
The tax charge in the year of £58m represents a tax rate of 9.5%, which is below a normal rate for the following reasons.
The current corporation tax charge of £142m was lower than the charge expected at a 'normal' tax rate, which would have been £184m. This was largely as a result of a tax deduction in respect of a £100m special cash contribution to the Group's pension schemes and also the benefit of final agreement with respect to the broughtforward tax position for Safeway.
An additional contributor to the low effective tax rate was the change of the UK corporation tax rate from 30% to 28%. This change required the Group to recalculate its deferred tax liabilities, resulting in a partial release of the deferred tax provision.
7 Property
We opened eight new stores, compared with four in the previous year, as well as the fitting out of the new Swindon depot and the acquisition and development costs of the new Spalding abattoir planned to open in the second half of 2008. The programme to freshen-up our stores started in 2007 and is expected to be completed by July 2008. All capital expenditure was fully funded from operational cash flow.
There were a small number of individual divestments of surplus, non-retail property, which generated proceeds of £94m and provided a profit on disposal of £32m.
8 Pension liabilities
The Group has two defined benefit retirement schemes and one defined contribution scheme.
During the year a review of the two defined benefit pension schemes was completed. A range of measures have been agreed designed to strengthen the schemes, reduce their volatility, lower future costs, and eliminate the deficit. A contribution of £100m from the Group has been made in the financial year and a further £100m will be made in 2008/09. These measures and the contributions will eliminate the deficit shown in the balance sheet.
Movement in the net pension liability
| £m | |
|---|---|
| Net pension deficit at 4 February 2007 | (198) |
| Funding above annual service cost | 148 |
| Interest cost greater than asset return | (95) |
| Strengthening longevity assumptions | (127) |
| Higher discount factor | 122 |
| Impact of triennial valuation | 70 |
| Other | 12 |
| Net pension deficit at 3 February 2008 | (68) |
>> Net pension deficit at 4 February 2007 (£198m)
- Pension liabilities in excess of the fair value of the schemes assets.
>> Funding above annual service cost £148m
- £100 additional contribution has been made into the schemes being the first of two instalments designed to eliminate the deficit.
>> Interest cost greater than asset return (£95m)
- The downturn in the equity markets at the end of 2007 and early 2008 eliminated any gains or returns on assets leaving a net interest cost.
>> Strengthening longevity assumptions (£127m)
- We have increased the average life expectancy of a member retiring at the age of 65 at the balance sheet date from 19.9 years to 22.2 years for males and from 22.8 years to 24.7 years for females in line with the latest advice from the Pension Regulator.
>> Higher discount factor £122m
- The volatility in the capital markets has caused us to change the discount rate applied to the scheme assets.
>> Impact of triennial valuation £70m
- An actuarial valuation took place on one of the schemes on 1 April 2007.
>> Other £12m.
>> Net pension deficit at 3 February 2008 (£68m)
- Pension liabilities in excess of the fair value of the schemes assets.
9 Provisions
| Restructuring £m |
Property provisions £m |
Total £m |
|
|---|---|---|---|
| At 4 February 2007 | 50 | 95 | 145 |
| At 3 February 2008 | 29 | 110 | 139 |
Restructuring provision
The restructuring provision of £29m includes £20m for ongoing activity associated with the 2007/08 rebranding initiative described in the Chief Executive's review. This programme will be complete by July 2008.
Property provisions
The property provision of £110m comprise petrol filling station decommissioning reserve, onerous lease provision and provision for dilapidations on leased buildings. The onerous lease provision is the largest component at £73m at 3 February 2008 and is to cover the shortfall between expected rent received and the rent payable on sublet properties, taking into account the vacant tenancy periods during the terms of the lease. The vacant property provision assumptions were reviewed during the last quarter and adjustments were made to reflect the worsening economic conditions and legislative changes that reduce rates relief from April 2008. This resulted in increases to the provision of £8m and £6m to address each of these respective issues.
10 Operating cash flow
Cash from operations was £52m better than 2006/07. This is after an additional contribution of £100m to the two pension schemes. In spite of an increase in operating profit by £200m, the rate of cash conversion has declined compared to 2006/07. This is due to a number of one-time working capital gains in the prior year.
11 Net debt
During the year, the outstanding amount of net debt fell from £772m to £543m. This reduction in debt levels was a consequence of the improving profit performance of the business and lower levels of capital investment than we originally anticipated.
The bonds, acquired with the Safeway acquisition in 2004, constitute the major component of borrowings within net debt. The next bond repayment is due in April 2010. Outstanding loan notes amounting to £2m will mature in 2008 and will be repaid from operational cash flow.
The Group entered into a new revolving credit facility in September 2007 with eight banks providing committed facilities of £1.1bn for five years. At the balance sheet date the facility was undrawn. With this facility and the bonds the Group now has available committed facilities of £1,800m (2007: £1,450m) maturing between 2010 and 2018.
Analysis of net debt
| 2008 £m |
2007 £m |
|
|---|---|---|
| Cash and cash equivalents | 118 | 231 |
| Interest and cross-currency swaps | 117 | 19 |
| Loans, bonds and other current financial liabilities | (4) | (254) |
| Bonds and other non-current financial liabilities | (774) | (768) |
| Net debt | (543) | (772) |
Further information
Further information on all aspects of our financial performance can be found in the Annual report and financial statements 2008. Details of how to obtain a copy of the Annual report are explained in the Investor relations and financial calendar section.
The Annual review and summary financial statement 2008 were approved by the Board on 24 April 2008. M Bolland and R Pennycook signed the Summary financial statement on behalf of the Board.