Morrisons | Annual Report and Financial Statements 2010

Forward-looking statements

The Directors' report is prepared for the members of the Company and should not be relied upon by any other party or for any other purpose. Where the Directors' report includes forward-looking statements, these are made by the Directors in good faith based on the information available to them at the time of their approval of this report. Consequently such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forwardlooking statements and information.

Result and dividend

The profit for the period after taxation attributable to the owners of the Company amounted to £632m (2009/10: £598m). The Directors have declared and recommend the following dividends:

The final dividend, if approved by shareholders at the Annual General Meeting (AGM), is to be paid on 15 June 2011 to ordinary shareholders on the register of members at close of business on 13 May 2011. If the final dividend is approved by shareholders, the total ordinary dividend for the year will be 9.60p per share.

Auditors

A resolution to re-appoint KPMG Audit Plc as auditors 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 2011 AGM of the Company (to be held at the Company's headquarters at Gain Lane in Bradford on 9 June 2011) 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 results on the Group's website, unless they have positively elected to receive a printed version of the results.

Share capital

The authorised and called-up share capital of the Company, together with details of shares allotted during the year, are shown in note 22 of the Group financial statements.

At the AGM of the Company held in 2010, a special resolution was passed to renew the authority given at the AGM held in June 2009 to the purchase by the Company of up to 262,983,160 ordinary shares representing approximately 10% of the issued ordinary share capital at that time. This authority remained valid on 31 January 2011. During the period the Company did not purchase any of its own shares pursuant to that authority, which will expire at the close of the 2011 AGM.

In addition, 6,666,293 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

Substantial shareholdings As at 9 March 2011 the Company has been notified by the following shareholders (excluding Directors) that they have interests in 3% or more of the issued share capital of the Company:

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 9 March 2011.

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 Company's registrar, Capita Registrars, or to the Group directly.

Directors

The current Directors of the Group and their biographies are shown here. Marc Bolland resigned from the Board on 1 February 2010 and Johanna Waterous was appointed as a Non-Executive Director on the same day. Martyn Jones retired from the Board on 9 September 2010. On 31 January 2011, the Company announced that Mark Gunter will step down from the Board at the 2011 AGM, scheduled for 9 June 2011, and will leave the Group in June 2012. Paul Manduca served on the Board throughout the year and retired from the Board on 9 March 2011.

On 9 March 2011, Brian Flanagan informed the Board that he will step down from the Board at the 2011 AGM.

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, save for Mark Gunter and Brian Flanagan, who will both step down from the Board at the 2011 AGM, all of the current Directors, being eligible, will offer themselves for re-election at the 2011 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 here.

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 individual's 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 (2010: £0.1m). The donations were mainly small donations to support local communities. In addition the Group supported various charities and in the year over £1.3m (2010: £1.8m) was raised by customers and colleagues for the Charity of the Year and £0.4m raised for the Pakistan flood appeal. No political donations were made, which is Group policy.

Disclosure of information to auditors

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 Group's auditors are 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 Group's auditors are aware of that information.

Going concern

The Directors' assessment of the Group and the Company's ability to continue as a going concern has taken into consideration the effect that the current economic climate has on the Group. The Group's 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 Group's needs in the short and medium term.

The principal risks that the Group is challenged with have been set out here along with how the Directors mitigate these risks in the current economic climate.

After reviewing the Group's 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 28 days of purchases (2010: 29 days).

Groceries Supply Code of Practice

The Groceries Supply Code of Practice (GSCOP) came into effect on 4 February 2010. GSCOP replaced the existing Supermarket Code of Practice.

The new code, which applies to all grocery retailers with annual turnover in excess of £1bn, was part of a package of remedies introduced to address a number of issues identified by the Competition Commission at the conclusion of its market investigation into the supply of groceries in the UK.

Prior to implementation of GSCOP, the Group appointed a Code Compliance Officer and provided comprehensive training to in excess of 650 colleagues who work with the GSCOP code in their everyday dealings with suppliers. As required under the provisions of GSCOP, training has also been provided to all new employees who will be subject to the GSCOP code.

During the period since implementation, matters relating to GSCOP have been reported to the Board, through appropriate sub-committees, on a periodic basis. Although only recently implemented, the GSCOP process appears to be working well. The Board will continue to keep the important issue of GSCOP compliance under close supervision.

Health and safety policy

It is the Group's 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 Group's 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 Company's Articles of Association and the relevant full provisions can be found in the Articles which are available for inspection at the Company's registered office.

Share capital and rights attaching to the Company's shares

Under the Company's 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 he 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 he 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 Company's Articles of Association may only be amended by a special 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 the order of the Board

Greg McMahon

Company Secretary
9 March 2011