Annual Report and Accounts 2002 building

Our goal is to be the first choice for those customers who have the opportunity to shop locally in a Safeway store.

To deliver this goal we will focus on: – product and price, and be – best at fresh – best at availability and – best at customer service store formats p14

best at fresh p8

best customer service p30

£1.79 89 p best deals p22 best availability p26

Safeway plc Annual Report Solicitors Chairman’s statement 2 Best availability 26 and Accounts 2002 Clifford Chance LLP David Webster summarises Safeway’s Keeping our shelves full throughout the Stockbrokers Contributing editors WestLB Panmure Limited performance during the year and trading day remains a key priority and Kevin Hawkins CSFB de Zoete highlights some of the key our performance goes from strength Simon Laffin & Bevan Limited Miles Collins developments in our industry. to strength. Steve Webb Design and production Janey Berry Addison Safeway Photography Chief executive’s review 4 Best customer service 30 Registered Office Food photography: Our new formats, product ranges, The key to being best at customer service 6 Millington Road Ian O’Leary Hayes, Middlesex Location photography: value offer and the commitment of is to train and motivate our colleagues UB3 4AY Andrew Wilson Safeway people are the themes of better than our competitors – which is 020 8848 8744 Board photography: John Wildgoose Carlos Criado-Perez’s review of the year. exactly what we’re doing. Internet Product photography: www.safeway.co.uk Ben Jennings Group Company Secretary Andrew Wilson Best at fresh 8 Our corporate responsibilities 32 & Legal Director Front cover: Leadership in product standards and We take our responsibilities to all our David Wilson Ian O’Leary innovation is a core brand value of stakeholders very seriously. Here we Registrars Inside back cover: Computershare Investor Andrew Wilson New Safeway and we are rapidly outline what we have been doing and Services PLC Typesetting making this a reality. what our priorities are for the current year. PO Box 435, Owen House Front section: Addison 8 Bankhead Crossway North Accounts section: Park Edinburgh Communications Limited Our New Safeway stores 14 The Safeway Board 34 EH11 4BR Printing The roll-out of New Safeway is Auditors The White Dove Press KPMG Audit Plc accelerating – here each of our new store Building for a profitable future 36 This document has been Principal bankers printed on Hello Gloss. It is formats is described and illustrated, Simon Laffin reports on our financial HSBC Bank plc produced in a mill with including a tour of our first megastore. performance. The Royal Bank of ISO 9002 and ISO 14001 Scotland plc accreditation. The bleaching Credit Suisse First Boston materials are Totally Chlorine Best deals 22 Free (TCF). We continue to develop our weekly flyers to drive sales locally.

Annual Report and Accounts 2002 Safeway plc 1 Chairman’s statement building the New Safeway

The overriding theme of our year and of this Report is our progress in building New Safeway. I said last year that we had completed the turnaround phase of our recovery and were well into the second phase of our growth strategy. Our goals in this phase are to transform our store portfolio, radically improve our product range and increase the value of the Safeway shopping basket. I am delighted to report that we have made a great deal of progress in each case.

Our results reformatting our stores during the year and which we plan to continue Our like-for-like sales increased by 4.8%, making this the third consecutive making at a similar level in the current year is, along with our focus on year of strong sales growth and driving an improvement of 14% in our product development, fundamental to the current phase of our strategy. sales per square foot since 1999. Profit before property and tax is up by Now that our financial performance is much stronger, our priorities for 11% to £355 million, earnings per share is also up by 11% to 24.5 pence this year and beyond are to continue our like-for-like sales growth and and our recommended dividend for the full year has increased by 5% to to complete the evolving transformation of our store portfolio. 9.52 pence per share. This performance has been achieved despite transitional costs of £34 million arising from our store reformatting programme. During the last two years, we have increased our pre-tax Our stakeholders profit by 45% and our net margin to sales by 0.8%, reflecting a better I am pleased to report that, in March, Safeway gained entry to the sales mix and improved efficiency. FTSE4Good index of socially responsible companies after a rigorous analysis of our policies and practices by the certifying authority. The criteria for membership of the index cover every aspect of our relationship Our strategy with our stakeholders. In the course of preparing our submission we Our four business goals of being best at fresh, having the best deals, discovered several areas for potential improvement, particularly in the being best at availability and being best at customer service remain the provision of independent auditing of our environmental standards, and cornerstone of our strategy. Since the Autumn of 1999, our deep-cut have taken the appropriate corrective action. The process of applying for deals, communicated weekly by nine million flyers delivered direct to membership has emphasised the importance of our wider responsibilities our customers, have increased our total transactions by 1.5 million to to society and Lawrence Christensen, our Supply Director, will ensure well over 11 million per week. The investment which we have made in that these issues continue to be given full weight at Board level.

2 Safeway plc Annual Report and Accounts 2002 Chairman’s statement

Awards won by Safeway – April 2001-2002

Queen’s Award for Enterprise Pizza and Pasta Industry Awards 2001 in the Sustainable Development category – Special Award for Innovation in the (April 2001). Pizza Retailer category.

Motor Transport Environmental Dried Fruit Awards 2001 Award in conjunction with Scania – Best New Convenience Product of the for CNG lorries. Year for “The Best” Pork Loin Joint with Apricot Stuffing. Retail Personality of the Year 2001 – Carlos Criado-Perez (Retail Week). Off-Licence News: Drinks Retailing Awards 2002 – Training Initiative of the Retail Week Awards 2002 Year for our Wine Advisor programme. Best Store Design – Woking and St Katharine Docks. International Wine Challenge 2001 – Great Value Champagne (Albert Etienne). PR Week Award 2001 – In house department of the year. MLC Supermeat Awards – Best Pork Product for our Pork & National Seafish Championships Bramley Apple Sausage and two regional – Seafish Champion of the Year awarded winners for best meat counters – Safeway to Christine Fisher, Fishmonger, at Weymouth and Up Hatherley. Safeway Devizes (September 2001). Meat Industry Training Award Retail Industry Awards 2001 for our meat training programme – Multiple Retailer of the Year, Off-licence for in-store butchers (endorsed by The Retailer of the year and Store Manager of Worshipful Company of Butchers, the Year (September 2001). the only supermarket to be endorsed).

The Board actively support the work of the Centre and thereby encourage greater Lisa Gernon is retiring from the Board as a non-executive director at the trust and cooperation between all stakeholders in the food industry. end of May. I would like, on behalf of the Board, to thank her warmly The DTI Code of Practice for suppliers came into effect in mid-March for her contribution to our business. We are in the process of recruiting and we are, of course, doing our best to make it effective. With this end two additional non-executive directors and an announcement will be in mind, in January we launched our Safeway Farmers’ Charter to build made shortly. on and extend the limited protection given to farmers, as distinct from On 15 May, the Board announced the appointment of Jack Sinclair as other suppliers, by the Code. Group Marketing and Trading Director, with effect from 31 May 2002. He joined Safeway in December 1989. Current trading In the first six weeks of the new financial year like-for-like sales growth was 2.0%, against last year's tougher comparatives. We remain, however, Our industry committed to driving strong sales growth and expect performance in In the aftermath of the Foot and Mouth crisis, the Government the remainder of our first quarter progressively to strengthen as the established a Policy Commission on the Future of Food and Farming pace of new format store relaunches picks up. in England, chaired by Sir Donald Curry, which reported its findings in January. A central theme in its Report is the need for more cooperation Finally, I should like to thank everyone in our business for their commitment throughout the food supply chain. To deliver this goal a Food Chain to building the New Safeway and for their hard work in making it happen. Centre has been created, facilitated by the Institute of Grocery Distribution, which will sponsor and coordinate both the analysis of specific problems and the agreed actions to resolve them. Safeway will David Webster Chairman 23 May 2002 Annual Report and Accounts 2002 Safeway plc 3 Chief executive’s review

building

Our new formats The key concept is the blending of catering, fresh foods, ambient groceries The Plymstock megastore is a landmark in our format development. and a growing range of non-food products and services in a multi-format It demonstrates how we can transform a 28,000 square foot superstore store portfolio. We have now proved that we can deliver in each of our into a 58,000 square foot hypermarket and do so in a way which breaks four formats a distinctive shopping experience which is proving successful. free of the standard model first developed by Carrefour in the 1960s Overall, we now have 121 stores, equivalent to 26% of our selling and subsequently replicated by our competitors in the UK. At the core space, which have been refitted in one or other of our new concepts. of our new megastore format is the Hub, which blends our “Fresh to Go” The sales performance of these stores and the feedback we are receiving and Café Fresco concepts with browsing for books, music, films and from our customers convinces us that we have a winning strategy. magazines in a relaxing environment. Our first new concept convenience store was launched at St Katharine We are on track to complete the reformatting of our entire portfolio Docks in December 2000 and since then we have refitted all but one of within the next three years. Obviously this will continue to cause some the 18 stores in this category in our portfolio, including stores in London, disturbance to our normal trading patterns and sales performance in the Leeds, Aberdeen and Glasgow. Our first new concept supermarket was current year. Going forward, however, the disruptive impact of further opened in Wimbledon in May 2001, closely followed by our new reformatting will begin to be offset by the cumulative contribution concept superstore at Woking which included our second Café Fresco. of refitted stores. Finally, in December 2001, we launched our first hypermarket, or megastore, at Plymstock, Devon.

4 Safeway plc Annual Report and Accounts 2002 Chief executive’s review

the New Safeway

Our new products Another vital part of being best at fresh is product innovation. During This year we have conclusively proved the year we completely revitalised our product development team by recruiting some talented and experienced senior people from our that not only are we the most innovative competitors. Their contribution is already evident in our much-improved range of ready meals. The initial success of our British Traditional and food retailer in the UK but that we can Eat Smart ranges has demonstrated how much scope we have to build our share of this market. We are now accelerating our new product translate new ideas into action faster than development programme. any of our competitors. These ideas all In addition to strengthening our prepared meals ranges, we are continuing to offer new ideas in fresh foods from around the world. Last summer we focus on delivering our vision of being the launched a month-long promotion of authentic Italian food, “Viva Italia”, rounding it off with a concert by Luciano Pavarotti in Hyde Park. This first choice retailer for those customers attracted a capacity audience of over 70,000 and raised £500,000 for charity. This summer we are offering a further promotion of international who have the opportunity to shop locally foods, “World Favourites”, ending with a celebrity musical event in Hyde Park. in one of our stores.

Annual Report and Accounts 2002 Safeway plc 5 6 Safeway plc Annual Report and Accounts 2002 Chief executive’s review

Not only are we the most innovative food retailer in the UK, but we can translate new ideas into action faster than any of our competitors.

New value New commitment Our deep-cut promotions now deliver the best value in the market. Successful retailing is ultimately about good and consistent execution As reported by the regular Taylor Nelson Sofres shopping basket in stores. That is what our customers remember on their way home. comparisons, based on 15,000 consumers, our basket is now consistently Execution in turn depends on the spirit and the skill of our store managers cheaper than most of our competitors’. and their teams who deal directly with our clients. Our clients’ perception of our Company is only as good as their most recent experience when We have also organised over 1,000 independent price challenges in shopping in our stores. So the spirit of our people and their commitment a representative sample of stores across the country. In these challenges, to building New Safeway is fundamental to our success. I am really our customers compare what they would pay for a given basket of delighted by the way in which our people have answered the many products at any of our competitors’ stores with what they actually pay challenges we encountered during the year and I look forward with for the same basket in their local Safeway. The comparative till rolls are enormous confidence to those that lie ahead. audited by an independent research agency and we refund double the difference if the Safeway basket proves to be more expensive. The results of these comparisons are conclusive – nine out of ten times we are cheaper than Sainsbury, eight out of ten cheaper than Tesco and seven out of ten cheaper than Asda. Carlos Criado-Perez Chief Executive

Annual Report and Accounts 2002 Safeway plc 7 fre

8 Safeway plc Annual Report and Accounts 2002 eshbest at

A core brand value of New Safeway is industry leadership in product standards and innovation. We have made rapid progress towards this goal, but there is much more to come this year. We have a new, totally dedicated team of 40 product developers who, working with our buyers, technologists and suppliers, are spearheading our drive to be best at fresh. Our goal is to achieve quality standards comparable with or better than those commonly associated with smaller, more specialist competitors but to deliver them on our scale of operations and lead times.

Annual Report and Accounts 2002 Safeway plc 9 Best at fresh

New Safeway, new products

Leading standards such as Eat Smart, Traditional and Italian ready Local and regional food We are taking a leading edge approach to meals. In total we have launched over 700 Local sourcing of quality products has an every aspect of our products. Values have new and improved lines across the business important part to play in our best at fresh been established for all own-brand products, and re-designed nearly half of our own-brand strategy. Over the past few years we have covering everything from ingredient integrity packaging. Our target for this year is substantially encouraged many small suppliers to develop to processing know-how, nutritional targets, to increase our own-brand ranges, which will products which we have successfully trialled and animal welfare and new labelling standards. All deliver significant benefits in terms of both grown into well-established regional brands. Last of these go beyond the legal minimum standards sales and margin mix. It will also include more year we were particularly active in expanding not just for Safeway but for our industry. activity in those ranges which spread over our range of traditional meat products: several different product categories. The total number of our own-brand lines will clearly Own-brand West Country Supplier relationships increase but, within this range, stores will sell Our beef range was launched at Tiverton in Developing new and exclusive products requires selected lines appropriate to their customer November and is now sold in 18 stores with long-term partnerships with suppliers who share profile and local competitive position. fresh meat counters. Our lamb range was our aspirations and are committed to helping relaunched in October, very soon after the us succeed in the market place. These suppliers end of the Foot and Mouth outbreak, and is may be large – for example, Northern Foods, Healthy eating now sold in 50 West Country stores. who won our Supplier of the Year award and Our Eat Smart range has been strictly developed Simultaneously we introduced our new is responsible for many of our new ranges. Or to meet a “three per cent fat or less” criterion. range of bacon, also in 50 stores. they may be small – for example, our Scottish The range is aimed both at men and women Supplier of the Year was Dean’s of Huntly who and includes many lines commonly regarded Our association with Westaways, a small sausage supplies us with “The Best” shortbread. as taboo for anyone trying to lose weight. manufacturer in the West Country, is a good The rationale behind our innovative approach example of how we are expanding our business Our future success will depend as much on suggests that many people start healthy eating with regional suppliers. Westaways supplies these special supplier relationships as on our regimes but fail to stick to them because they 50 of our stores with their produce and ran a ability to create new concepts. get bored with diets. Our Eat Smart range particularly successful promotion in our breaks new ground by challenging the popular Plymstock store. New ranges equation of healthy eating with self-denial. Own-brand Welsh Our strategy is to deliver the essentials Our customers’ initial response to Eat Smart In February 2001 we launched a new range of exceptionally well and then to add the confirms our analysis and this range will be pre-packed Welsh beef and, in March 2002, excitement. Our new range of traditional extended during the current year. following a 12 month trial in our Welsh stores, ready meals exemplifies this combination, To coincide with the launch of Eat Smart, we extended it to meat counters both in Welsh demonstrating how important it is to get the we relaunched our Nutrition Advice Service and Border stores. basics right. We will continue to strive to be which gives our customers the professional the best in our industry in terms of quality in support and advice they need to adopt and Following the outstanding success of our Welsh everything from a prawn cocktail sandwich maintain a healthier lifestyle. Our research has Mountain lamb range, now sold in 280 stores, we to lasagne, as well as setting new standards also underlined the difficulties which many are trialling the organic version of this product in in ranges such as Mediterranean, with more customers have in understanding nutritional our Welsh stores. Initial results are encouraging. exotic lines such as aubergine parmigiana. information as conventionally presented on During the year we have strengthened our packs and labels. We are therefore working own sub-brands, notably “The Best” and also hard to make this information more relevant our Savers range. We have added new ranges to the needs of the individual customer.

10 Safeway plc Annual Report and Accounts 2002

Best at fresh Our strategy is to deliver the essentials exceptionally well and then to add the excitement.

Jack Sinclair Jonathan Davies Managing Director Operations Stores Finance Director

rs

Own-brand Scottish As a result of these initiatives, backed by a weekly flyer, to increase our share of the health We launched our Highland lamb range in strong promotional programme, we increased and beauty market as part of our new format October 2001 to help Scottish sheep farmers our total meat sales in volume terms by 4% – roll-out and to achieve incremental sales growth weather the ban on exports resulting from the strongest growth rate among the big four in electrical products and home entertainment. the Foot and Mouth crisis. Celebrity Chef Nick retailers – and grew our share of the meat The sales growth which we have delivered in all Nairn helped to promote this product in stores. market to 9.4%.` these products at Plymstock offers huge scope All of our 114 Scottish stores sell local produce Other regional products to achieve similar results in all reformatted such as Orkney beef and cheese. All beef sold Other significant extensions to the range of superstores, as well as in future megastores. over meat counters in Scotland comes from cattle regional products include Scottish, Welsh and Health and beauty reared, slaughtered and processed in Scotland. West Country milk, a growing range of local The specially-designed format for our health Own-brand Northumbrian cheeses and continued support for local and and beauty range is a fundamental part of our In November, we were the first major retailer regional beers. megastore and “Fresh to Go” superstore offer to relaunch Northumbrian lamb after the end and is delivering substantial sales growth. At of Foot and Mouth. We now buy up to 1,000 Plymstock our new beauty zone, soap table of these lambs every week in season through Non-food sales growth and nail bar have more than doubled our our processors. Our strategy in non-food is to drive our sales volumes in household products through the previous sales of beauty products.

12 Safeway plc Annual Report and Accounts 2002 Non-food development

Home entertainment and home accessories. Over 100 new lines have Offering superb value The megastore concept has had an even more been introduced to give authority to these Selective sourcing of branded products from dramatic effect on this product range, with sales ranges, many of them exclusively designed for outside the UK is critical to our pricing strategy. of DVDs, videos and CDs seven times higher at Safeway. We present them in a stylish but not During the year we offered well-known new Plymstock than in the old store. In total our domineering environment, a major point of cosmetics at up to 50% off the recommended sales of these products in all stores increased difference from our competitors. price. We also offered up to a third off England by 30% during the year. We will continue to Electrical products football shirts and up to 40% off Levi jeans. drive sales in the current year through further Christmas was a big success for our electrical Overall, our “When It’s Gone It’s Gone” sales innovation in the way we merchandise this range, including mobile phones. We launched were up 37% on the previous year. We will range in our reformatted stores. our first own-label products and our REOC A3 continue to find great value products for our Homewares DVD player achieved a 5-star award in “What customers whenever we can. Plymstock has also enabled us to develop an Hi Fi” magazine. All our superstores now offer authoritative homewares offer. The central a range of DIY, kitchen and living room theme is coordinated solutions, focusing on electrical products. At Christmas, we more our cookshop and bed/bathroom ranges. To than doubled our sales of mobile phones in support coordination in these two areas, we a declining market for that product. have introduced a range of portable lighting

Annual Report and Accounts 2002 Safeway plc 13 Store formats A our New Safeway stores

B The roll-out of New Safeway continues at an accelerating pace. During the year we refitted 73 stores including opening two new concept stores at Wimbledon and Woking. Our four New Safeway formats have now been launched at:

• St Katharine Docks – convenience store • Wimbledon – supermarket • Woking – superstore • Plymstock – megastore

In the first week of the current financial year, we opened two additional new stores in Reddish, Greater Manchester, and Carnforth, Lancashire. Added to the work we did in 2000/1, we have now refitted and relaunched 121 stores, equivalent to 26% of our total selling space. We will continue to roll-out the new formats across our store portfolio, incorporating all of the operational lessons we have learnt up to now and adapting them to fit the local market. We have received a lot of very positive feedback from our customers and we have taken

14 Safeway plc Annual Report and Accounts 2002 Store formats

now fully refitted all but one of the 18 convenience stores in our portfolio. All of these stores have achieved industry- leading standards of product presentation.

“Fresh to Go” supermarkets We launched the first full prototype at Wimbledon in May 2001 and by the end of the year we had reformatted 66 of our 205 supermarkets. We have created the feeling Fernando Garcia-Valencia Jim Maclachlan Property and Stores Director of a larger store with more space in the Development Director fresh areas and have often introduced cross aisles to make it easier for customers to shop.

“Fresh to Go” superstores Wycombe and Woking were experimental, We launched the first prototype in Woking and having trialled them for 12 months, last May and so far we have reformatted we are satisfied that we have a profitable 38 of our 254 other superstores, including concept. The latest version of Fresco is in our new stores in Reddish and Carnforth. our reformatted Welwyn store and This format has introduced a new shopping incorporates the various operational lessons concept in the UK, combining retailing we have learnt. We have plans to put 30 and catering. The unique features of more Frescos into reformatted superstores “Fresh to Go” are an innovative range over the next year or so. Another feature of hot food and other meal solutions, of our “Fresh to Go” superstores is a new, delivered with enjoyment and a sense combined photoprocessing and dry of theatre by Safeway people. Equally cleaning service. This is highly visible to innovative thinking has gone into our customers, attractively presented and in-store restaurant, Café Fresco, where delivers a fast “while you shop” service. customers can now choose from a range Our goal this year is to achieve a further of pizzas, pasta, grilled food, salads and increase in the average basket size in desserts. Our first two Frescos at High these stores.

C note of constructive criticisms. Now that we are through the trial stage we are, as predicted, able to bring down the capital cost of the new formats, whilst still delivering dramatic improvements to our retail offer. We have emphasised from the beginning that our strategy for developing these concepts is flexible and that each element is transferable across the portfolio. Every store will have a unique offer which meets the needs of its customers locally. Some will have a full “Fresh to Go” offer while others will have elements of it which are both cost effective and appropriate to the store and the local catchment area. Early sales uplifts in fully-reformatted stores have been encouraging. The average sales increase from our refitted stores in the second half of the year was 10%, with fresh food sales increasing by 15% in those stores over the same period.

Looking at each format in more detail: Convenience stores Starting with St Katharine Docks, followed by High Street Kensington, we have

Annual Report and Accounts 2002 Safeway plc 15 megastores Last December we opened our first megastore at Plymstock, near Plymouth. This is a 58,000 square foot store, extended from the original 28,000 square foot superstore opened in 1996.

take a look inside

16 Safeway plc Annual Report and Accounts 2002 Store formats

taste

Megastores The key innovations are: entertainment. The success of our non- Last December we opened our first – A fusion of the best in superstore retailing food ranges in Plymstock has underlined megastore at Plymstock, near Plymouth. This with the best of a department store format. the potential to develop sales of all these is a 58,000 square foot store, extended from products in reformatted superstores. – Developing the “Fresh to Go” concept by the original 28,000 square foot superstore combining it with a restaurant, browsing opened in 1996. Plymstock is by far the area and seating to create a central “Hub”. most innovative hypermarket in the UK and represents a quantum leap from the – Establishing range authority in selected traditional concept of this format developed non-food categories such as health and by Carrefour in the 1960s. beauty, photography, homeware and home

17 Safeway plc Annual Report and Accounts 2002 save

These ranges are delivered through a price opened our second megastore at Anniesland, position which is competitive with the lowest Glasgow. The store, which has a sales area in the locality, reinforced by the now-familiar of 64,000 square feet, offers the same “power-aisle” and a weekly flyer tailor-made innovative range of products and services as for the store. Plymstock, together with a “power-aisle” and weekly flyer. Three more megastores – at Customer reaction to Plymstock has been Milton Keynes, Gamston and Rushden – will overwhelmingly enthusiastic and sales are up open during June 2002. by 75%. Since the end of the year we have

18 Safeway plc Annual Report and Accounts 2002 pamper

This is an area of tranquility and space in the centre of the store where customers can browse and experiment with testers. The cosmetics range includes brands from leading beauty houses and our in-store beautician is on hand to advise customers. Other features include a nail bar, soap bar and pharmacy.

Annual Report and Accounts 2002 Safeway plc 19 Store formats

browse

We stock the top 20 films and music CDs as well as a wide range of classical music and popular films, together with hundreds of magazine titles, the top 20 bestselling books and a wide range of cookery, fiction and popular autobiographies. Customers can also browse our range of televisions, videos, DVD players and cameras.

Annual Report and Accounts 2002 Safeway plc 20 Annual Report and Accounts 2002 Safeway plc 21 best deals

Our flyers, delivered weekly to nine million homes nationwide, have increased the number of customer transactions in our stores. As New Safeway evolves, they will reflect more and more the particular needs of our four store formats and drive profitable sales.

22 Safeway plc Annual Report and Accounts 2002 £1. 9 9 p

99£2.83 per kg

Annual Report and Accounts 2002 Safeway plc 23 Best deals

37P £1.79 25p p Safeway 79 15.8p per 100g White Grapefruit Kellogg’s Each Frosties 500g Promotional packs available while stocks last) £1.05 99P 69P 49 p 49 p £1.36 per kg KP Safeway Hula Hoops Broccoli Original/Assorted 7x27g 360g Pack (7 pack)

£3.99 £1.59 £1.19 £1.99 Safeway The Best Tomatoes Ripened on the Vine Coca-Cola All Varieties Pack 12x330ml Cans (12 pack)

Ever since we launched our weekly flyers we have been improving their effectiveness by fine-tuning the contents to match the needs of customers locally.

Ever since we launched our weekly flyers in the succeeded in adapting them locally and Autumn of 1999, we have been improving their managing the supply chain challenges effectiveness by adapting the contents to involved in delivering them at store level. match the needs of customers locally. We have also gained much more knowledge of the As our skill has developed, we have been responsiveness of individual product sales to able to modify the size and composition of price changes, promotional investment and the store groups through which our deals are store reformatting. These elasticities vary delivered. New-style flyers have now been Steven Webb Karen Bray considerably from product to product and the developed for “Fresh to Go” superstores, Corporate Development Marketing Director only way for any retailer to understand the supermarkets and convenience stores and Director dynamics and to apply them to drive sales is a special megastore flyer is now distributed through day-to-day operational experience. from Plymstock. Our flyer continues to Although almost all of our competitors are still evolve reflecting our new formats and attempting to imitate our flyers, none has yet product ranges.

24 Safeway plc Annual Report and Accounts 2002 £ £1.05 4.29 £ p Safeway Medium Whole Chicken 1.99 Fresh £1.33 per kg 49 1.5kg

KP Skips Prawn Cocktail 7 Pack

38p p £ 1910.9p per 100g 4.99 Müller Fruit Corner All Varieties 175g £ £ 2.59 1.75 £1.08 per kg

Persil p Laundry Powder All Varieties 99 2.3kg/2.43kg

Safeway Softest Bathroom Tissue All Varieties 4 Roll Pack

Another refinement in the content of our flyers is the development of inserts to drive incremental sales in selected product categories, for example beers, wines and spirits and health and beauty. These have been very effective.

Overall, therefore, our promotional investment is now much more closely geared to the responsiveness, profitability and sales potential of individual stores, our objective being not only to increase our sales but to grow profitable sales by format.

Annual Report and Accounts 2002 Safeway plc 25 bestava

Our availability continues to improve: – We are currently achieving 99% ambient availability and have reduced ambient out-of-stocks by 13% during the year. – Our core fresh availability is now consistently over 96%. – Availability of our “hero” promotions on the front of the flyer is now regularly 99.5%, a significant improvement on last year. – Measured against the comparative data on out-of-stocks at store level which regularly appears in The Grocer magazine, we have achieved a major improvement in our relative performance.

26 Safeway plc Annual Report and Accounts 2002 ailability

Annual Report and Accounts 2002 Safeway plc 27

Best availability we are currently achieving 99% availability Ric Francis Lawrence Christensen Chief Information Officer Supply Director

How has this been achieved? Expanding the network management teams are now able to fine-tune When our promotional strategy was first launched the central forecast on fresh sales to meet the in the autumn of 1999, our initial response to particular needs of their store. We have also the challenge of managing the supply chain was developed a reactive algorithm which adjusts quickly to acquire satellite distribution centres orders in the light of the pattern of sales in the to handle fast-moving promotional products. first part of the promotional week. Suppliers now We also introduced a cross-docking process in have more direct control over the progress of our fresh depots, allowing us to achieve a faster their products through our Supplier Information turn-around of fresh product on promotion. System. This gives them quick access to a We are now building a long-term, integrated database which identifies the size and location solution tailored to the specific needs of our of any mismatch between supply and demand. business. During the last year, this has involved Suppliers are now using this database up to the following changes to our depot network: 10,000 times a week. Improvements such as these have helped us manage key seasonal – The opening of a new 300,000 square foot changes in sales volumes more effectively and depot at Coventry to handle ambient and fast- achieve the best-ever levels of availability in stores. moving products. After only nine months in operation, this depot received full accreditation Integration with suppliers as an Investor in People. During the year we achieved a big improvement in supplier lead times. Negotiations with over – The conversion of Welwyn into a fresh-only 500 suppliers have resulted in a reduction in depot serving London and the South. As part of average lead times from six days and three the conversion, the facilities for our staff have deliveries a week to three days and five deliveries. been upgraded to include a fully-equipped Our top 20 suppliers will shortly be making learning centre and briefing room. seven deliveries a week on 24-hour lead times. – The extension of our depot at Willand, near Exeter, to include chilled lines for our West Moving upstream Country stores. Just-in-time delivery integrates our suppliers more closely into our business. Conversely, we – The extension of our frozen chamber are also taking more control of the distribution at Warrington. chain by moving towards “factory gate” pricing. – The creation of a dedicated chamber in our Under this system, a supplier offers us two Northampton depot to handle our growing prices – one including delivery to our depots, volumes of non-food lines. the other based on pick up at the factory by our own vehicles. This enables us to achieve People substantial cost savings by using our own fleet Since the end of the year, the whole of our more intensively while reducing the total number Supply Division – including supply chain, of “food miles” involved in the supply chain. central logistics and in-house depots – has been accredited as an Investor in People. This Wastage recognition also extends to the way in which A big risk with any rapidly-changing we work with our third party depots, the first promotional programme is that product of its kind in our industry. wastage levels will increase. In fact, as a result both of the changes described above and Transport many others across the business, we achieved We have introduced a satellite tracking system a 40% reduction in wastage as a percentage for our 1,600 trailer units so that we can more of sales. easily pinpoint their exact location and also ensure that we have the right profile of trailer fleet on each depot site and that they are being This year fully used. Our goal is to build on last year’s performance by taking more control of the upstream Forecasting and ordering supply chain, particularly from distant foreign The increasing sophistication and local focus of markets, and moving to factory gate pricing our promotional strategy has meant that store with more suppliers.

Annual Report and Accounts 2002 Safeway plc 29 Being best at fresh is about product range and quality, store formats, availability and customer service. The key to being best at customer service is to train and motivate our colleagues more effectively than our competitors. Over the past two years we have made significant progress towards this goal. best cust

Our training centres Industry-leading partnerships We now have three regional training centres – We are also continuing to develop partnerships in Burton-on-Trent, Alloa, near Edinburgh and with leading agencies at industry level both to Hayes. Designed to support the development ensure that the training we provide is of the of a wide range of fresh foods skills, these centres right quality and to acquire formal external are self-contained units equipped to support recognition of our activities. For example, we our “Fresh to Go”, Fresco and Deli operations. have worked with the Meat and Livestock The centres at Hayes and Burton are also Commission and the Sea Fish Authority in equipped with systems facilities which will developing butchery and fishmonger skills, improve our store systems training. including vocational qualifications. We have also worked with the Bakery Training Council We are now extending the training we provide and the Scottish Association of Master Bakers in these centres to include our more traditional to accredit our own Safeway bakery skills fresh foods skills in meat, fish and bakery. programme with a National Vocational Qualification. Over 100 bakers have now gained this qualification, with 50 more nearing completion. The long-term future of these programmes is being secured through the development of our qualified assessors. Safeway remains in the unique position of being an Approved Centre recognised by City and Guilds. Fiona Bailey Jim White Director for Culture Human Resources Director

30 Safeway plc Annual Report and Accounts 2002 Running header

Star Service Our investment in craft skills training and product reformatting programme. We have measured knowledge is complemented by our Star Service the effect of this training on customer satisfaction programme, designed for colleagues in our and we are confident that Star Service is helping reformatted stores. This programme focuses on us to create a New Safeway service culture. the behavioural aspects of customer service We are now supporting this investment with and embodies the concept of “retailtainment” additional training in supervisory and – a distinctive characteristic of our “Fresh to Go” management skills for senior teams in stores stores and of the Safeway brand. With the to help them motivate and inspire their staff. assistance of specialist consultants, this approach to customer service encourages colleagues to let Our training centres, fresh foods programmes their own personalities shine through when and Star Service together represent a substantial serving customers. Over 15,000 of our colleagues annual investment which we will continue to have now experienced Star Service and we will make this year and which will help us achieve continue to roll it forward in line with our our goal of best customer service in our industry. omer service Corporate and social responsibility

Lawrence Christensen Supply Director

In February, we published on the Safeway website our first comprehensive report on how we are meeting our corporate social responsibilities. Shareholders who wish to read the detail may do so on www.safeway.co.uk our corporate responsibilities

In February, we published on the Safeway website – We are pushing forward the various initiatives our first comprehensive report on how we are we have launched in recent years to reduce meeting our corporate social responsibilities. our impact on the environment. For example, Shareholders who wish to read the detail may we are aiming to increase the number of easily do so on www.safeway.co.uk Compressed Natural Gas vehicles in our fleet from 25 to 80, by working closely with our The key developments, gas supplier and the Government. We are however, include: also exploring opportunities to extend our rail operations in Scotland and move products Social and environmental between our Coventry depot and our bonded management systems warehouse at Mossend, near Glasgow. We have now formed a CSR steering group to drive our strategy forward. This is chaired – We will continue to drive forward with our by Supply Director Lawrence Christensen. Last Investors In People programme. This sets year, we commissioned management a level of good practice for improving the consultants to conduct an internal review performance of a company through the of our management systems and are now people it employs. implementing their recommendations. – We will continue to implement the Ethical In addition, we are pursuing the following Trading Initiative (ETI) Base Code to improve priorities for the current year: working conditions and employees’ rights in What is now commonly known as CSR focuses relevant countries. The ETI is an alliance of – We are continuing to roll out the ISO 14001 on how we incorporate the concerns of our companies, non-governmental organisations certification programme at our regional stakeholders into “business as usual”. Our and trade unions to promote better conditions distribution centres. This certificate shows stakeholders include our shareholders, customers, for those who work in the supply chain in that the site has a formal environmental staff, suppliers, the farming community, the developing countries. Its work is complemented management system in place and is media, special interest groups, local authorities by the Fair Trade Foundation, which encourages committed to continuous improvement. and, of course, the Government itself. All have the sale of products grown and produced their own, sometimes conflicting demands and – We have established key action plans for under ethical conditions. Safeway sells a expectations which we have to meet. Equally health and safety which focus on risk range of Fair Trade products and is looking important is the need to demonstrate how we reduction, training and support needs as for opportunities to extend it where there is are meeting them or planning to do so. well as monitoring and review. sufficient customer demand. A recent example

32 Safeway plc Annual Report and Accounts 2002 Corporate and social responsibility

is the replacement of our organic banana One example of our approach to stakeholder companies worldwide. Safeway has been range by Fair Trade organic bananas sourced engagement is the ongoing development of accepted into the DJSI World 2002 index. exclusively from a growers’ cooperative in a constructive dialogue with farmers and their FTSE4Good UK index Ecuador. The Local Authority Pension Fund representatives, resulting in practical steps to Safeway became a constituent of this Forum has said that Safeway is one of the help them adapt to change and manage index in March 2002. only two retailers to meet all internationally adversity. As a result of the Foot and Mouth recognised labour standards. crisis, for example, we agreed with our suppliers SERM (Safety and Environmental Risk that Welsh sheep farmers would be paid within Management Agency Ltd) – We will continue to engage in best practice 48 hours of delivering their animals to the This is an independent company set up to initiatives with other organisations. For abattoir. We said that we would maintain this provide companies and investors with a strategic example, we have joined Sustainable Arable commitment for six months until the end of benchmarking assessment of their safety, Farming for an Improved Environment January 2002 and we did so. We have also environmental and social risk exposure in hard (SAFFIE) to promote farmland biodiversity and funded the provision of lap-top computers financial terms. SERM has given Safeway an reduce the impact of intensive agriculture on to young farmers’ clubs in Devon and Wales AA+ rating (maximum possible score AAA+) the countryside. We are also supporting a to help them improve their day-to-day which is the highest in our industry. four-year research programme launched by management skills. Linking Environment and Farming (LEAF) to Next steps develop even more exacting standards of CSR reporting We have now completed phase one of our food production which build on those of As part of our commitment to greater CSR strategy, which was to take stock of where the Assured Produce Scheme (APS). transparency we will continue to improve the we are and identify areas for improvement. quality of information we produce to support In phase two, which will take up to at least Target setting and our CSR strategy. We will provide regular 12 months, we will deliver the aspirations performance indicators updates through our website on our outlined above, again with external assistance. We have been setting ourselves environmental performance against targets. We will also define our longer-term goals targets, for example on energy usage, recycling more rigorously, develop a more formalised and wastage, every year since 1996. We will We are already included in a number of indices environmental management system across extend this practice to include broader CSR which demonstrate our commitment to CSR the whole of our business and make a more objectives and regularly report on our progress. improvements, including: detailed assessment of how we engage with Shareholder engagement Dow Jones Sustainability Index all our stakeholders. A review of our current stakeholder (DJSI World) engagement processes is a priority for the Established in 1999, this index is the first one CSR Steering Group. to track the share prices of sustainability-driven

Annual Report and Accounts 2002 Safeway plc 33 The Board of directors

1

78

building the future

The Board of directors

1. David Webster 3. Simon Laffin 6. Michael Allen David Webster has been a director of the Company Simon Laffin joined the Company in 1990. He joined Michael Allen joined the Board as an independent since its formation in 1977 and was appointed the Board as Group Finance Director in May 1996, non-executive director in May 1995. He is a former Chairman at the end of March 1997. Prior to this, prior to which he was Chief Financial Officer and Group Vice-President of the Procter and Gamble from April 1989 he was Deputy Chairman. He has Finance Director of Safeway Stores. Following a four Company and a director of Alliance and Leicester plc. recently retired as a non-executive director of Reed month secondment managing the Wokingham store, Michael is Chairman of the Remuneration Committee International PLC after ten years’ service and is Simon additionally took on responsibility for Property and a member of the Board’s Audit and Nomination currently President of the Institute of Grocery and Development in January 2001. Aged 42. Committees. Aged 64. Distribution. Aged 57. 4. Lawrence Christensen CBE 7. Hugh Collum 2. Carlos Criado-Perez Lawrence Christensen has been with the Group since Hugh Collum joined the Board as an independent Carlos Criado-Perez joined the Company as Chief 1974, becoming a director of Safeway Stores in 1987. non-executive director in October 1997. He is Operating Officer in August 1999, and became He was appointed to the Board as Supply Director in Chairman of British Nuclear Fuels plc, a director of Chief Executive in November of that year. He joined November 1999. In October 1999 he was awarded Whitehead Mann Group plc and Deputy Chairman the Dutch-based retailer SHV Makro in 1976 and, the CBE in recognition of his long service to the of Celltech Group plc. He was previously Executive after a succession of international roles, became an freight transport and logistics industries. Aged 58. Vice President and Chief Financial Officer at executive director in 1990. When Makro was sold SmithKline Beecham plc. Hugh is Chairman of the in 1997, he was appointed Chief Operating Officer 5. Richard Williams Audit Committee and a member of the Board’s of the International Division of Wal-Mart, a post he Richard Williams joined the Company in 1990 and Remuneration and Nomination Committees. Aged 61. held until 1999. Aged 50. was appointed to the Safeway Stores Board in 1994, with responsibility for supply chain. In November 1998 he acquired responsibility for Human Resources and in February 2000 for Information Technology. He was appointed to the Board as Group Services Director in November 1999. Aged 45. 34 Safeway plc Annual Report and Accounts 2002 The Board of directors

23

456

9

8. Peter Foy Peter Foy joined the Board as an independent non-executive director in August 1999. He is Deputy Chairman of P&O Princess Cruises plc, a director of PepsiCo Inc., Omnicom Inc. and from 1982 to 1996 was Managing Director of McKinsey & Co. in the UK. He is a member of the Board’s Audit, Remuneration and Nomination Committees. Aged 61.

9. Lisa Gernon Lisa Gernon joined the Board as an independent non-executive director in August 1999. She is Chairman of MyNet plc, a director of Parity Group plc and has held several senior appointments in the international telecommunications industry over the past 15 years. She is a member of the Board’s Audit and Nomination Committees. Aged 42.

Annual Report and Accounts 2002 Safeway plc 35 Financial review

Simon Laffin Group Finance and Property Director As Group Finance and Property Director, Simon Laffin is actively managing the transition to New Safeway from both ends of the spectrum. As well as being directly responsible for the implementation of Safeway’s rapid transformation of its store portfolio, Simon must also review its performance. Here Simon talks not only about a second year of strong, double-digit profit growth and the reasons behind it, but also provides a progress report on the development of New Safeway. building for a p

36 Safeway plc Annual Report and Accounts 2002 Financial review rofitable future

– 11% growth in profit (before 1st 2nd Full Our 12 JV stores in Northern Ireland continued property and tax) to £355 million % Growth half half year to make good progress, breaking through – Two year profit growth of 45% Like-for-like: the £200 million per annum sales barrier – 11% growth in earnings per share Inflation 1.3 (0.4) 0.5 following a like-for-like increase of 11% in (pre property) Volume 4.4 4.2 4.3 the year, representing the third consecutive – 5% like-for-like sales growth Total 5.7 3.8 4.8 year of double-digit growth. Our Safeway/BP – Return on capital employed up Net new space 0.2 0.1 0.2 convenience store chain contributed Easter* – 0.3 0.1 to 12.2% (last year 11.5%) £360 million sales, of which our share is – Gearing down by 3%, reflecting Total 5.9 4.2 5.1 £180 million. stable net debt *Two Easter trading periods in year Effectiveness programme With the turnaround phase of our recovery Sales in the first half grew by 5.9%, including completed 12 months ago, the challenge like-for-like growth of 5.7%. Indeed, our driving sales growth during the last year has been to embark upon second quarter trading statement marked the In last year’s financial review I mentioned the second phase of our growth strategy, eighth consecutive quarter of like-for-like sales that, in order to fund the increases in price building New Safeway, whilst delivering another growth in excess of 5%, all achieved with competitiveness, on-shelf availability and strong set of results for our shareholders. minimal contribution from maturing space, customer service needed to drive further sales My financial review will outline how we have store extensions or closures, and against the growth, we had doubled our effectiveness been able to do this, highlighting some of background of the second anniversary of the programme to target 0.8% sales in 2001/2. the transitional revenue costs incurred in introduction of our deep cut promotional I am delighted to report that we achieved reformatting our stores and focusing on some programme in September 1999. this goal, producing savings in excess of of the drivers of our strong underlying profit £70 million. growth during the year. I will also provide you The pace of growth slowed during the second half as the store reformat programme Key amongst these efficiency projects was with a progress report on New Safeway, not a programme aimed at reducing product only in terms of the format roll-out but also accelerated, with the sales lost from stores undergoing transformation greater than the wastage, through a combination of reduced highlighting some of the key learning derived lead times on deliveries, new systems in from our experiences so far. sales gained from those relaunched. The step up in the reformat programme was depots and in-store and increased store particularly marked in the fourth quarter, manager discretion in terms of product Sales growth which included construction work on four ordering. As a result wastage as a percentage Our commercial strategy continued to drive megastore extensions which will not be of sales fell by 40% in 2001/2 versus the strong sales during the year. Sales growth in relaunched until the end of the first quarter previous year. like-for-like stores was 4.8%, similar to last year, of the current year. Of the 55 store reformats Other areas successfully targeted by the and a further 0.2% was contributed by net completed in the second half, 29 were effectiveness programme included distribution new space, reflecting new store openings in finished in March and are being relaunched (benefiting from network investment in the Wimbledon and Woking in the first half. Total in the first quarter of this year. The benefit previous year), store labour (particularly night sales grew by 5.1% to £9.4 billion, of which of these reformats, together with the launch replenishment processes and improved stock 0.1% came from an extra Easter trading period. of the four megastores, will therefore be felt management) and certain support areas, Sales per square foot averaged £17.30 in the progressively in the current year. where a variety of systems enhancements year, an increase of 4.7% over the previous year. have driven down costs.

Annual Report and Accounts 2002 Safeway plc 37 Financial review

4.8% increase in Safeway weekly sales per sq.ft. (£) Safeway sales area (million sq.ft.) Group net margin (%) Safeway like-for-like sales 5.2 17.30 10.2 10.2 10.3 6.1 16.52 10.0 10.1 4.8 15.18 15.66 5.6 14.98 4.8 4.9

3.5 4.1 3.3

2.2

98 99 00 01 02 98 99 00 01 02 98 99 00 01 02 98* 99 00 01 02

*1998 group net margin is before the costs of the store portfolio review and redundancy programme.

Net margin The significance of our effectiveness Overall net margin was up 0.1% year on programme in funding investment to drive year. The combination of this net margin sales can be seen in the analysis of the year improvement and 5% sales growth has enabled on year movement in the net margin below: us to deliver our profit growth in the year.

1st 2nd Full Profit growth half half Year Group operating profit totalled £417 million, %%% up £22 million (5%) on the previous year. Gross margin (0.6) 0.4 (0.2) Excluding the impact of higher depreciation Store wages (0.1) (0.3) (0.2) Distribution costs (0.1) 0.1 – costs, EBITDA grew by 6% to £618 million, Effectiveness 0.8 0.7 0.8 including 9% in the second half. Strong Transitional costs (0.1) (0.4) (0.2) cash flow enabled profit before tax and net Other – (0.3) (0.1) property losses to rise by 11% to £355 million. Overall change (0.1) 0.2 0.1 After net property losses, profit rose by 13%.

1st 2nd Full We invested 0.2% in the gross margin, half half Year including a major investment of 0.6% in the % Growth % % % first half as we continued to drive our deeply EBITDA 3 9 6 discounted promotions. During the second Operating profit 3 8 5 half, gross margin improved as we started Profit after interest 8 14 11 increasingly to see the benefits of the higher Profit before tax 9 17 13 New Safeway gross margins impacting on our total performance. We continued to invest As already mentioned, the additional revenue more in store staffing costs (0.2% of sales), costs of our reformatting performance were primarily in enhanced customer service in £34 million (last year £13 million). Excluding reformatted stores. these costs, operating profit rose by 11% and The transitional revenue costs of our reformat profit before tax and net property losses by programme were £34 million (up by 0.2% 17% (£56 million). sales compared with last year’s £13 million). These costs represent asset write-offs, 2002 2001 Increase % Growth £m £m % re-merchandising staff costs, repairs and marketing relaunch costs. In addition, Profit before tax* 355 320 11 Transitional costs 34 13 £36 million, equivalent to 0.4% sales, has been allocated to bonuses for all employees Underlying profit before tax* 389 333 17 (£9 million, or 0.1% sales, more than last year). *before net property losses

38 Safeway plc Annual Report and Accounts 2002 Financial review

EBITDA up by 6% to £618m Return on capital employed Capital expenditure rising in 2003 Interest cover rising (after tax) (%) (£m) 618 14.5 c.550 7.2 574 590 581 12.7 492 12.2 493 11.5 5.9 427 412 5.5 4.6 8.5 287 3.9

204

98 99 00 01 02 98 99 00 01 02 98 99 00 01 02 03 98 99 00 01 02

EBITDA calculated as operating profit (inc. ROCE for 1998 is before the costs of the store share of BPJV), with depreciation and loss portfolio review and redundancy programme. on disposal of fixed assets added back. Figures for the years to 2001 have been restated following the adoption of FRS 19.

Taxation, earnings and and promotional sales, how to drive fresh Whilst there are higher gross margins there dividends foods participation and the consequential are also some increased operating costs, We have provided £110 million for corporation increase in gross margin. As these reformatted particularly in store wages with more counters tax at a rate of 31% of our profit after interest. stores reach mature sales, our priorities are and higher service levels. However, we continue This compares with a rate of 32.3% last year, shifting towards fine tuning staffing levels and to seek productivity and method improvements as restated following the implementation of accelerating an already strengthening profit which will further enhance the New Safeway FRS 19, the new accounting standard requiring flow. We are confident that this programme is economics. We are also applying the lessons full provision for deferred tax. Had we not on track to deliver our target returns. learnt so far in reducing the cost of a typical adopted FRS 19, the group’s effective rate store reformat whilst still delivering dramatic of tax would have been 27.7% in 2001/2. improvements to our retail offer. Excluding New Safeway progress the megastore extensions, we will reduce the Earnings per share before property losses Early sales uplifts in fully reformatted stores average cost of refits to £1.5 million this year increased by 11% to 24.5p. Diluted earnings per have been encouraging, particularly in view (last year £2.4 million). share (which reflect the impact of outstanding of their reduced reliance on promotions to share options) rose by 13% to 24.0p. attract new customers and drive sales. The average sales increase from our reformatted Format roll-out The Board is recommending an increase of stores in the second half was 10%, including The roll-out of our new formats continues 5% in the final dividend to 6.61p per share fresh foods sales growth of 15%. Because so to go well. Including Plymstock megastore (last year 6.30p) bringing the full year payment many of the reformats carried out during the and two new stores, Wimbledon and Woking, to 9.52p (last year 9.07p), also up by 5%. year were not completed until March, it is which opened last May, we reformatted 73 too early yet to see the impact of these sales stores during the year. Of these 73 stores, 55, Format programme increases on the overall group number. The representing 13% of our total sales areas, At the core of New Safeway is the ambition to benefit of these reformats, together with the were completed in the second half. create a higher quality business and a stronger launch of four megastores, will therefore be consumer franchise. Because our new formats felt progressively during 2002/3. 2000/01 2001/02 feature new ranges, new services and focus Fresh foods mix improved by 2.5 percentage on fresh foods, they also have fundamentally Number Full 1st 2nd Full Total points in New Safeway. At our concept stores of stores Year half half Year to date different economics, with a more profitable in St Katharine Docks, Wimbledon, Woking, sales mix, largely driven by higher fresh foods Megastores – – 1 1 1 and Kensington High Street, this fresh foods Superstores 2 6 29 35 37 participation, and higher costs as we seek to mix now exceeds 50% of total sales, and Supermarkets 39 7 20 27 66 deliver great service through well-trained, because fresh food gross margins are Convenience 7 5 5 10 17 skilled staff. significantly higher, this better mix naturally 48 18 55 73 121 As more of our reformatted stores have come flows through into better gross margins. In % Total on stream, we have derived a much clearer addition, with greater investment in fresh sales area 9% 4% 13% 17% 26% understanding of what drives sales, the food counters, enhanced levels of customer optimum balance between full margin sales service should ensure that we are less reliant on promotions to drive sales.

Annual Report and Accounts 2002 Safeway plc 39 Financial review

During the year we extended seven stores Balance sheet and net debt and one megastore, adding a total of 68,000 With only a small cash outflow for the year, square feet of sales area. Our programme for net debt rose slightly to £1,133 million, the current year will accelerate to around 100 representing gearing of 54%, down from reformats, representing a further 26% of our 57% last year end. Following on from our sales area and including four megastores and £111 million generation of cash in 2001, up to ten smaller extensions. and reflecting a lower average cost of debt in the year, the net interest charge fell by In total the group invested £412 million of £12 million to £65 million. capital expenditure last year, including £280 million on existing stores. Interest cover (the number of times operating profit is greater than the net interest charge before adjusting for capitalised interest and Cash flow investment income) strengthened to 5.5 The group used £23 million of cash during times from 4.6 times last year. the year. Vs. Return on capital employed (post tax) 2002 2001 improved by 0.7% to 12.2%. £m £m Earnings 618 38 Working capital (22) 24 New accounting standards Capital spend (366) (177) The financial statements reflect the introduction Tax paid (106) (16) of three new accounting standards during the Interest paid (69) 8 Other 2 (16) year. The adoption of FRS 19, requiring us to A summary of the group’s treasury policies, make a full provision for deferred tax on all Cash available to shareholders 57 (139) including details of borrowing facilities, is Dividends paid (93) (4) timing differences, necessitated a restatement provided in Note 15 to the accounts. The Share issues 13 9 of previous years’ figures as this represented principal treasury objective is to provide Net cash flow (23) (134) a change in accounting policy. sufficient liquidity to meet the cash flow requirements of the business at the lowest Another new standard is FRS 17, Retirement possible cost to our shareholders. As highlighted above, the group generated Benefits, which initially results only in £618 million of earnings, which funded, disclosure in the notes of the main financial amongst other things, a significant step up in assumptions made in valuing the liabilities our capital expenditure during the year. Working of the group’s pension scheme and the fair capital used £22 million of cash in 2002, largely value of net assets held. Further disclosure will reflecting higher supplier contributions to our be included from next year. In line with the promotional programme, not all of which were transitional provision of FRS 17, the group received by year-end. Tax payments totalled has continued to account for pensions in £106 million, interest paid £69 million and accordance with SSAP 24. dividend payments £93 million, leaving cash flow broadly neutral for the year.

Dividend cover increased Enterprise value (£bn) to 2.6 times earnings 2.6 5.66 equityeeqquitity 2.4 5.3 5.0 4.4 1.9 3.9

1.5 1.5

leasesl

debt

98 99 00 01 02 98 99 00 01 02

Figures for the years to 2001 have been Enterprise value: Comprises year end restated following the adoption of FRS 19. market capitalisation and net debt together with the capitalised value of operating leases.

40 Safeway plc Annual Report and Accounts 2002 Financial review

Other financial ratios 2002 2001 Increase Safeway sales per sq. ft. per week Total Safeway sales (incl. VAT)/Weighted average sales area £ 17.30 16.52 +4.7% Sales per full time equivalent (FTE) Safeway employee Total Safeway sales (incl. VAT)/Average number of Safeway FTEs £K 159.5 151.5 +5.3% Operating margin (excl. VAT) Operating profit/Turnover (excl. VAT) % 4.9 4.8 +0.1% Operating profit per FTE Safeway employee Safeway operating profit/Average number of Safeway FTEs £K 7.2 6.8 +5.9% Return on capital employed (ROCE) Profit for the financial year/Average total capital employed % 12.2 11.5 +0.7% Net tangible assets per share Net assets/Year end number of shares in issue pence 200.3 186.0 +7.7% Earnings per share (EPS) (before property) Profit for the financial year/Average number of shares in issue pence 24.5 22.0 +11.4%

The future Following a review of pension arrangements, The successful transition to New Safeway the group has announced the closure of its represents the key to our future. I have already final salary scheme to new members. A new highlighted the fact that, as we roll-out more arrangement will be introduced later this year and more stores, we will continue to refine our that will still provide defined benefits but on formats and our offer, building on the a career average salary basis for new joiners. experience acquired from earlier refits and The group’s pension costs are expected to ensuring that we do more for less. It remains remain in line with current scheme amounts. our policy as a Board only to approve investments which yield returns in excess The third new standard, FRS 18, Accounting of our cost of capital, which we continue to Policies, replaces SSAP 2, the previous standard manage actively and which fell again in 2002 on accounting policies, and has had no to 7.1% (from 7.2% last year). Backed by a material impact. strong balance sheet we are confident that we are laying strong foundations for New Safeway in the years to come.

7.7% increase in net tangible Gearing down to 53.7% assets per share (p) 200 66.8 66.8 186 173 175 167 56.8 53.7 50.6

42.4

98 99 00 01 02 98 99 00 01 02

Figures for the years to 2001 have been Gearing: Net debt divided by total restated following the adoption of FRS 19. capital employed. Figures for the years to 2001 have been restated following the adoption of FRS 19.

Annual Report and Accounts 2002 Safeway plc 41 Group profit and loss account Year ended 30 March 2002

Notes and 2002 2001 page numbers (restated) £m £m

Group and share of joint venture sales 1 (p48) 9,395.6 8,937.3 Less: Value Added Tax (678.4) (641.1)

Group and share of joint venture sales, excluding Value Added Tax 8,717.2 8,296.2 Less: Share of joint venture sales excluding Value Added Tax (157.2) (144.9)

Group turnover, excluding Value Added Tax 1 (p48) 8,560.0 8,151.3 Cost of sales (6,731.5) (6,463.5)

Gross profit 1,828.5 1,687.8 Net operating expenses 2 (p48) (1,412.0) (1,292.4)

Group operating profit 1 (p48) 416.5 395.4 Share of operating profit of BP joint venture 3 (p48) 3.9 1.6

Total operating profit: Group and share of joint venture 420.4 397.0 Net property losses 4 (p48) (0.4) (5.8) Net interest payable and similar charges 5 (p48) (65.2) (76.7)

Profit on ordinary activities before taxation 6 (p48) 354.8 314.5 Tax on profit on ordinary activities 8 (p49) (110.1) (103.4)

Profit on ordinary activities after taxation 244.7 211.1 Equity minority interest 3.5 6.1

Profit for the financial year 248.2 217.2 Dividends paid and proposed 9 (p49) (97.0) (92.1)

Retained profit for the year 151.2 125.1 QUEST contribution to share capital 18(p53) (1.1) (0.2) Retained profit, beginning of the year 999.6 874.7

Retained profit, end of the year 1,149.7 999.6

Earnings per share 10 (p50) Before net property losses 24.5p 22.0p Net property losses (0.1p) (0.6p) Earnings per share 24.4p 21.4p

Diluted earnings per share 24.0p 21.3p

A summary of profit before taxation is shown in Note 1.0 on page 48. These accounts are for the 52 week period to 30 March 2002 compared with the 52 week period to 31 March 2001. All operations of the group continued throughout both periods and no operations were acquired or discontinued. Certain prior year comparative figures have been restated on the adoption of FRS 19, Deferred Tax, as explained in the statement of general accounting policies on page 47.

42 Safeway plc Annual Report and Accounts 2002 Group statement of total recognised gains and losses Year ended 30 March 2002

Notes and 2002 2001 page numbers (restated) £m £m Profit for the financial year 248.2 217.2 Prior year adjustment (see below) 22 (p54) (216.1)

Total gains since the last annual report 32.1

The adoption of FRS 19, Deferred Tax, has resulted in a £216.1 million reduction in the 2002 opening group profit and loss account reserves.

Reconciliations of movements in shareholders’ funds Year ended 30 March 2002

Group Company 2002 2001 2002 2001 (restated) (restated) £m £m £m £m Profit for the financial year 248.2 217.2 76.9 71.6 Dividends paid and proposed (97.0) (92.1) (97.0) (92.1)

Retained profit/(loss) for the year 151.2 125.1 (20.1) (20.5) New share capital subscribed, including premium 9.4 6.8 9.4 6.8 QUEST contribution to share capital (1.1) (0.2) (1.1) (0.2)

Net addition to/(reduction in) shareholders’ funds 159.5 131.7 (11.8) (13.9) Equity shareholders’ funds, beginning of year (£2,190.3 million before deducting the prior year adjustment of £216.1 million) 1,974.2 1,842.5 1,716.7 1,730.6

Equity shareholders’ funds, end of year 2,133.7 1,974.2 1,704.9 1,716.7

Annual Report and Accounts 2002 Safeway plc 43 Balance sheets at 30 March 2002

Group Company Notes and 2002 2001 2002 2001 page numbers (restated) (restated) £m £m £m £m Fixed assets Tangible fixed assets 11 (p50) 3,992.1 3,786.0 – – Investment in BP joint venture Share of gross assets 12 (p50) 62.8 58.8 – – Less: Share of gross liabilities 12 (p50) (10.2) (10.7) – – 52.6 48.1 – – Other investments 12 (p50) 95.3 100.6 1,874.6 1,879.9

4,140.0 3,934.7 1,874.6 1,879.9

Current assets Stocks 13 (p51) 379.8 373.4 – – Debtors 14 (p51) 164.0 135.8 782.1 723.6 Money market investments and deposits 15 (p51) 21.9 ––– Cash at bank and in hand 15 (p51) 193.3 126.2 383.4 333.0

759.0 635.4 1,165.5 1,056.6 Creditors (due within one year) Bank overdrafts 15 (p51) (46.1) (43.1) – (0.2) Loans 15 (p51) (305.1) (238.2) (150.0) (219.5) Other creditors 16 (p53) (1,210.6) (1,161.0) (205.2) (200.1)

(1,561.8) (1,442.3) (355.2) (419.8)

Net current (liabilities)/assets (802.8) (806.9) 810.3 636.8

Total assets less current liabilities 3,337.2 3,127.8 2,684.9 2,516.7 Creditors (due after one year) Loans 15 (p51) (996.8) (955.0) (980.0) (800.0) Provisions for liabilities and charges Deferred taxation 17 (p53) (229.8) (218.2) – –

Net assets 2,110.6 1,954.6 1,704.9 1,716.7

Capital and reserves Called-up share capital 18 (p53) 263.4 262.7 263.4 262.7 Share premium account 19 (p53) 690.0 681.3 690.0 681.3 Capital redemption reserve 20 (p53) 30.6 30.6 30.6 30.6 Merger reserve 21 (p54) – – 572.5 572.5 Profit and loss account 22 (p54) 1,149.7 999.6 148.4 169.6

Equity shareholders’ funds 2,133.7 1,974.2 1,704.9 1,716.7 Equity minority interest (23.1) (19.6) – –

Total capital employed 2,110.6 1,954.6 1,704.9 1,716.7

Certain prior year comparative figures have been restated on the adoption of FRS 19, Deferred Tax, as explained in the statement of general accounting policies on page 47.

Approved by the Board of Directors on 23 May 2002 and signed on its behalf by:

D.G.C. Webster, Director S.T. Laffin, Director

44 Safeway plc Annual Report and Accounts 2002 Group cash flow statement Year ended 30 March 2002

Notes and 2002 2001 page numbers £m £m

Net cash inflow from operating activities 24 (p54) 591.8 533.4

Returns on investments and servicing of finance Interest received 9.6 7.6 Interest paid (77.3) (84.5) Interest element of finance lease rental payments (0.8) (0.4)

Net cash outflow from returns on investments and servicing of finance (68.5) (77.3)

Taxation paid (105.5) (90.4)

Capital expenditure and financial investment Payments for tangible fixed assets (359.8) (182.9) Proceeds received from disposal of tangible fixed assets 5.5 27.2 Decrease/(increase) in own shares held by the Company 12 (p50) 5.3 (3.4)

Net cash outflow for capital expenditure and financial investment (349.0) (159.1)

Acquisitions and disposals Investment in joint venture (0.5) (6.9)

Net cash outflow from acquisitions and disposals (0.5) (6.9)

Equity dividends paid in cash (93.4) (88.8)

Net cash (outflow)/inflow before management of liquid resources and financing (25.1) 110.9

Financing and management of liquid resources Proceeds received from issue of share capital 8.3 6.6 Issue/(repayment) of new unsecured bonds and loans 105.5 (125.6) Capital element of finance lease rental payments (2.7) (2.1)

Net cash inflow/(outflow) from financing 111.1 (121.1) (Increase)/decrease in money market investments and deposits (21.9) 24.5

Net cash inflow/(outflow) from financing and management of liquid resources 89.2 (96.6)

Increase in net cash in the period 64.1 14.3

A summarised cash flow statement is also shown on page 40.

Annual Report and Accounts 2002 Safeway plc 45 Reconciliation of net cash flow to movement in net debt Year ended 30 March 2002

2002 2001 £m £m

Increase in net cash in the period 64.1 14.3 Net cash outflow/(inflow) from movements in money market investments and deposits 21.9 (24.5) New finance leases (5.9) (6.5) Cash (inflow)/outflow from net movement in loans (102.8) 127.7

Movement in net debt during the year (22.7) 111.0 Net debt at beginning of year (1,110.1) (1,221.1)

Net debt at end of year (1,132.8) (1,110.1)

Analysis of movement in net debt during the year Year ended 30 March 2002

At Non At 31 March Cash Cash 30 March 2001 Flow Changes 2002 £m £m £m £m Cash at bank and in hand 126.2 67.1 – 193.3 Bank overdrafts (43.1) (3.0) – (46.1)

Net cash 83.1 64.1 – 147.2 Money market investments and deposits – 21.9 – 21.9 Bank and other loans: Due within one year (235.5) (67.5) – (303.0) Due after one year (945.7) (38.0) – (983.7) Finance leases (12.0) 2.7 (5.9) (15.2)

(1,110.1) (16.8) (5.9) (1,132.8)

46 Safeway plc Annual Report and Accounts 2002 General accounting policies Year ended 30 March 2002

Basis of accounting Foreign currency The following principal accounting policies have been applied consistently Transactions in foreign currencies are translated into sterling at the rates of except as noted below in dealing with items which are considered material in exchange current at the dates of the transactions. Foreign currency monetary relation to the group’s financial statements. The accounts have been prepared assets and liabilities in the balance sheet are translated into sterling at the rates under the historical cost convention and in accordance with all applicable of exchange ruling at the end of the year. Resulting exchange gains and losses United Kingdom accounting standards. They are prepared to the Saturday are taken to the profit and loss account. nearest to 31 March, the Company’s accounting reference date. Accordingly, these accounts are for the 52 week period to 30 March 2002 compared with the Other 52 week period to 31 March 2001. All other accounting policies have been incorporated within the relevant notes on pages 48 to 54. Principles of consolidation The group accounts comprise the accounts of the Company, its subsidiary undertakings and its share of the profits or losses from joint ventures. The results of subsidiaries acquired or disposed of in the year are included in the group profit and loss account as from or up to their effective date of acquisition or disposal. Goodwill arising in connection with the acquisition of subsidiaries and businesses prior to 3 April 1999 has been written off against reserves and has not been reinstated on the balance sheet. When a business is disposed of, the applicable goodwill is charged to the profit and loss account in the year of disposal.

Changes in presentation of financial information Three new Financial Reporting Standards have been adopted in the preparation of the financial statements, as explained below. As outlined in more detail in Note 17.0, the group has changed its accounting policy to comply with FRS 19, Deferred Tax, and has therefore provided for deferred tax in full. Previously deferred tax was provided only to the extent that it was probable that a liability would crystallise. The prior year comparatives have been restated to comply with FRS 19. The effect is to reduce retained profit for the year ended 31 March 2001 by £7.1 million from £132.2 million to £125.1 million. The cumulative effect is a charge of £218.2 million, and this charge has been accounted for as a prior period adjustment. Of this prior period adjustment, £216.1 million has been charged to the group profit and loss account reserves and £2.1 million to the equity minority interest. Earnings per share for the year ended 31 March 2001 have been restated from 22.2p to 21.4p and diluted earnings per share from 22.0p to 21.3p. The group has also adopted FRS 18, Accounting Policies, and the transitional provisions of FRS 17, Retirement Benefits, which have had no material impact. Other than the adoption of these new accounting standards, these financial statements have been prepared on a basis consistent with that of last year.

Annual Report and Accounts 2002 Safeway plc 47 Notes to the accounts Year ended 30 March 2002

1.0 Sales and profit 3.0 Share of joint venture operating profit Sales represent proceeds from external customers and are inclusive of excise duty The group has a joint venture partnership with BP Oil UK Limited to develop, on and VAT. certain sites, a joint retailing business in the convenience store market linked to Cost of sales represents the purchase cost of goods for resale and includes petrol filling stations (Note 12.1). the cost of transfer to the point of sale. The total sales of £360.4 million (2001 – £332.8 million) during the year were The group’s trading activity is grocery retailing which is carried out almost generated from the 51 sites trading at the end of the year. The group’s share of entirely in the United Kingdom. these sales was 50% i.e. £180.2 million (2001 – £166.4 million). (Note 1.0). In order to provide shareholders with additional information, the group’s sales During the year, Safeway purchased products on behalf of the partnership and operating profit have been analysed as set out below: totalling £81.4 million (2001 – £69.8 million) and provided distribution services for a fee of £4.6 million (2001 – £3.9 million). 2002 2001 £m £m 4.0 Net property losses Group and share of joint venture sales, including VAT: Great Britain 9,004.3 8,580.8 2002 2001 Northern Ireland 211.1 190.1 £m £m Group sales 9,215.4 8,770.9 Profits on property disposals 3.0 4.0 Share of BP joint venture sales (50%) 180.2 166.4 Losses on property disposals (3.4) (9.8) Total 9,395.6 8,937.3 (0.4) (5.8) Turnover, excluding VAT: Great Britain 8,363.5 7,974.0 Northern Ireland 196.5 177.3 5.0 Net interest payable and similar charges 8,560.0 8,151.3 2002 2001 Group operating profit: £m £m Great Britain 412.7 396.1 Northern Ireland 3.8 (0.7) Interest payable: Short term bank loans and overdrafts repayable Total 416.5 395.4 within five years (18.1) (30.6) Sterling and Euro bonds (60.7) (56.9) % margin – VAT excl. 4.9% 4.8% Finance charges payable on finance leases (0.6) (0.5) Share of BP joint venture operating profit 3.9 1.6 (79.4) (88.0) Net interest payable and similar charges (65.2) (76.7) Interest capitalised on freehold and long leasehold developments 3.8 4.0 Profit after interest, excluding net property losses 355.2 320.3 Net property losses (0.4) (5.8) (75.6) (84.0) Interest receivable on money market Profit on ordinary activities before taxation 354.8 314.5 investments and deposits and other items 3.0 2.1 Other 7.4 5.2 (65.2) (76.7) 2.0 Net operating expenses Interest costs relating to the financing of freehold and long leasehold 2002 2001 developments are capitalised at the weighted average cost of the related £m £m borrowings up to the date of completion of the project. Distribution costs (1,264.6) (1,160.3) Administrative expenses (147.4) (132.1) 6.0 Profit on ordinary activities before taxation (1,412.0) (1,292.4) Profit on ordinary activities before taxation is stated after charging the following items: Distribution costs represent the cost of holding goods at the point of sale, 2002 2001 selling costs and the costs of transferring goods to the customer. They include £m £m store operating expenses. Administrative expenses represent central and field support costs. Depreciation of tangible fixed assets 184.2 178.9 Hire charges under operating leases: Plant and equipment 27.7 26.0 Property 55.0 54.0 Auditors’ remuneration 0.3 0.3 Staff costs, including directors’ emoluments (Note 7.2 below) 958.8 893.2 Other fees paid to the auditors during 2002 amounted to £55,000 (2001 – £264,000). The costs of operating leases of land and buildings and other assets are charged to the profit and loss account as incurred. Surpluses on sale and operating leaseback of properties are recognised as income in the year of disposal.

48 Safeway plc Annual Report and Accounts 2002 8.2 Reconciliation of the current tax charge: 7.0 Staff costs and directors’ emoluments The current tax charge for the year is lower than the standard rate of tax in the UK of 30% (2001 – 30%). The differences are explained below: 7.1 Numbers employed: The average monthly number of persons employed by the group was as follows: 2002 2001 (restated) 2002 2001 £m £m Number Number Profit on ordinary activities before taxation 354.8 314.5 Total employed 91,436 87,760 Full-time equivalent 57,769 57,904 Tax at standard rate of 30% 106.4 94.4 Effect of: At 30 March 2002, the total number of employees was 92,240 (2001 – 89,110) and Expenses not allowable for tax purposes the full-time equivalent number was 57,176 (2001 – 56,868). Non allowable depreciation 11.7 11.7 7.2 Staff costs: Other expenses 4.9 3.1 Tax losses unrelieved 1.0 3.2 2002 2001 Effect of overseas tax rates (3.6) (3.1) £m £m Non tax relieved property losses 0.1 1.7 Wages and salaries 880.4 819.6 Accelerated capital allowances (11.6) (7.3) Social security costs 56.5 53.1 Prior year items (10.4) 2.6 Other pension costs 21.9 20.5 Tax charge for the year 98.5 106.3 958.8 893.2 The prior year credit of £10.4 million (2001 – £2.6 million charge) arose largely from a reassessment of tax provisions no longer required.

7.3 The total amounts for directors’ remuneration and other benefits were as 8.3 In subsequent years, the group’s tax charge may be affected by the follows: movement in the currently unrecognised deferred tax asset in respect of 2002 2001 accumulated tax losses in Safeway Stores (Ireland) Limited. £’000 £’000 Fees 118 118 9.0 Dividends paid and proposed Fixed remuneration 2,320 2,093 Annual incentive payments 540 698 2002 2001 Gains on exercise of share options 114 46 £m £m Pension contributions to money purchase scheme 232 199 Ordinary shares: 3,324 3,154 Interim of 2.91p paid (2001 – 2.77p) 30.6 29.1 Final of 6.61p payable (2001 – 6.30p) 69.8 66.2 Compensation on termination of employment – 625 Dividends waived (3.4) (3.2) 3,324 3,779 97.0 92.1 Full details of the emoluments of directors (including those of the Chairman) and The total dividend for the year amounted to 9.52p per share (2001 – 9.07p). their interests in the share capital of the Company are given in the Report of the The Trustee of the Company’s Employee Share Ownership Plan (“ESOP”) has directors on pages 55 to 61. waived all but 0.01p per share of the dividends due on ordinary shares held by For money purchase schemes the amount charged to the profit and loss the Trust whilst the shares remain within the Trust. The amount waived in account in respect of pension costs and other post-retirement benefits is the respect of the 2001 final dividend and the 2002 interim dividend was £339,383 contributions payable in the year. (2001 – £235,879) and the maximum that could be waived in respect of the 2002 final dividend on shares currently held by the Trust is £261,255. The Trustee of the Company’s Customer Care Performance Share Option 8.0 Tax on profit on ordinary activities Plan (“CCPSOP”) has also waived all but 0.01p per share of the dividends due Corporation tax is provided on the taxable profits for the year at the rate current on ordinary shares held by the Trust whilst the shares remain within the Trust. during the year. The amount waived in respect of the 2001 final dividend and the 2002 interim dividend was £3,128,034 (2001 – £2,996,252) and the maximum that could be 8.1 Analysis of the charge in the year: waived in respect of the 2002 final dividend on shares currently held by the Trust 2002 2001 is £1,718,578. (restated) £m £m United Kingdom corporation tax at 30% (2001 – 30%) 106.9 102.4 Overseas taxes 2.0 1.3 Adjustments in respect of prior years (10.4) 2.6 Total current tax (see Note 8.2) 98.5 106.3 Deferred tax 11.6 7.3 Adjustments in respect of prior years – (10.2) Tax on profit on ordinary activities 110.1 103.4 No taxation relief has been assumed on the net property losses of £0.4 million (2001 – £5.8 million). Following the adoption of FRS 19 during the year, the prior year deferred tax charge has been increased by £7.3 million.

Annual Report and Accounts 2002 Safeway plc 49 Notes to the accounts Year ended 30 March 2002

10.0 Earnings per share 11.1.1 Freehold land included in the total cost above amounts to £1,416.0 million The calculation of earnings per share is based on the net profit attributable to (2001 – £1,355.0 million). ordinary shareholders of £248.2 million (2001 – £217.2 million as restated) divided by the weighted average number of ordinary shares in issue during the 11.1.2 At 30 March 2002, the cost and depreciation values for plant, equipment year, excluding those owned by the Company, totalling 1,015,411,924 and vehicles included £457.0 million of fully depreciated fixed assets (2001 – (2001 – 1,012,233,754). £448.6 million). In order to gain a clearer understanding of the group’s underlying performance, earnings per share statistics are also shown excluding the effect 11.1.3 At 30 March 2002, the net book value of tangible fixed assets included of net property losses. £14.8 million of leased plant, equipment and vehicles (2001 – £10.9 million). As required by FRS 14 – Earnings Per Share, set out below is the calculation behind the disclosure of diluted earnings per share. Earnings continue to be based 11.1.4 The depreciation charged in respect of leased plant, equipment and on net profit attributable to ordinary shareholders with the dilution effect of the vehicles during the year amounted to £2.0 million (2001 – £1.2 million). exercise of share options granted by the Company being arrived at by comparing the difference between the weighted average exercise price of the share options 11.1.5 Interest capitalised on freehold and long leasehold developments included with the average daily mid market closing share price over the year, as follows: in additions during the year amounted to £3.8 million (2001 – £4.0 million). The cumulative amount of interest capitalised in the total cost above amounts to 2002 2001 £143.6 million (2001 – £139.8 million). Weighted average exercise price of share options in the year 252.83p 205.47p 11.2 Company Average daily share price in the year 336.50p 276.99p The Company has no tangible fixed assets. Dilution ratio applied to share options 24.86% 25.82% Weighted average number of dilutive share options (millions) 17.2 6.6 12.0 Investments Weighted average number of shares in issue in the year (millions) 1,015.4 1,012.2 12.1 Investment in joint venture with BP Total number of shares for calculating diluted The group has a joint venture partnership with BP Oil UK Limited to develop, on earnings per share (millions) 1,032.6 1,018.8 certain sites, a joint retailing business in the convenience store market linked to petrol filling stations (Note 3.0). The investment of £52.6 million (2001 – £48.1 million) reflects the group’s share of the cost of developing and fitting out these 11.0 Tangible fixed assets sites and our share of the profits or losses. Tangible fixed assets are stated at cost less accumulated depreciation and any During the year, the increase in the investment of £4.5 million is explained by provision for impairment. Plant, equipment and vehicles which are leased but the group’s share of the cost of developing and fitting out sites (£0.6 million) and provide the group with substantially all the benefits and risks of ownership are its share of the profit (£3.9 million – Note 1.0). capitalised at the original cost to the lessor. At 30 March 2002, the group’s share of the gross assets and the gross liabilities Freehold land is not depreciated unless, in the opinion of the directors, a of the partnership are considered to be material to the group and are disclosed on diminution in value has occurred. the face of the balance sheet. They totalled £62.8 million (2001 – £58.8 million) Depreciation is provided to write off the cost of other tangible fixed assets over and £10.2 million (2001 – £10.7 million) respectively. their estimated economic lives on a straight-line basis as follows: Freehold and long leasehold buildings – maximum of 40 years 12.2 Other fixed asset investments comprise: Short leasehold buildings – maximum of 40 years or term of Group Company lease if less Plant and equipment – 4 years to a maximum of 8 years 2002 2001 2002 2001 Motor cars and commercial vehicles – 4 years to a maximum of 6 years £m £m £m £m Computer hardware and software – 4 years to a maximum of 6 years Own shares held by the In the case of poor performing or proposed replacement stores, provisions for Company’s ESOP 12.3 10.7 12.3 10.7 impairment are made in accordance with FRS 11 – Impairment of Fixed Assets Own shares held by the and Goodwill. Company’s CCPSOP 83.0 89.9 83.0 89.9 Subsidiaries – – 111.0 111.0 11.1 Group Loans to subsidiaries – – 1,668.3 1,668.3 Plant, Land and buildings equipment 95.3 100.6 1,874.6 1,879.9 Long Short and Own shares held by both the Company’s ESOP and CCPSOP are included at Freehold leasehold leasehold vehicles Total cost less any provision for impairment. £m £m £m £m £m Cost: 12.3 Own shares held by the Safeway plc Employee Share Ownership Plan Beginning of year 3,188.6 323.1 200.6 1,351.3 5,063.6 (“ESOP”). Additions 179.2 25.2 32.9 175.0 412.3 An independent Trustee based in Jersey holds a sufficient number of shares in Disposals (8.1) (0.7) – (121.8) (130.6) the Company to meet the anticipated future obligations of the ESOP in respect of the Company’s Long Term Incentive Plan arrangements which are disclosed more End of year 3,359.7 347.6 233.5 1,404.5 5,345.3 fully on page 58. The annual administrative costs and funding costs of the ESOP Depreciation: are charged to the profit and loss account as they accrue. The Trustee waives all Beginning of year 297.4 49.1 71.2 859.9 1,277.6 but 0.01p per share of the dividends due on shares held by the Trust. Charged during the year 47.3 7.8 7.5 121.6 184.2 At 30 March 2002, the Trust held 3,958,405 (2001 – 3,570,504) ordinary shares Disposals (0.3) (0.7) – (107.6) (108.6) of the Company at an aggregate cost of £12.3 million (2001 – £10.7 million). End of year 344.4 56.2 78.7 873.9 1,353.2 12.4 Own shares held by the Customer Care Performance Share Ownership Net book value: Plan (“CCPSOP”) Beginning of year 2,891.2 274.0 129.4 491.4 3,786.0 CCPSOP awards under the Plan in 1997, 1998 and 1999 were based on the customer service performance at each store, depot or office, as measured by a End of year 3,015.3 291.4 154.8 530.6 3,992.1 Mystery Shopper programme together with corresponding customer care Assets in course of construction included in cost above: measures for non-store employees. Options granted to employees are exercisable Beginning of year 122.2 0.2 – 10.6 133.0 normally between three and six and a half years after grant. Share options to subscribe for ordinary shares in the Company under the End of year 127.4 0.2 0.2 17.7 145.5 CCPSOP were as follows:

Number of shares Last date Subscription At At when options Date of grant price 30 March 2002 31 March 2001 exercisable 25.11.1997 333.00p 3,816,458 4,400,292 24.5.2004 2.12.1998 296.00p 8,573,454 11,804,031 1.6.2005 16.12.1999 205.00p 13,649,154 15,403,415 15.6.2006 26,039,066 31,607,738

50 Safeway plc Annual Report and Accounts 2002 An independent Trustee, based in Jersey, holds a sufficient number of shares in deposits repayable on demand, less overdrafts payable on demand. the Company to meet the anticipated future obligations of the CCPSOP, funded Money market investments and deposits are current asset investments which by an interest free loan from the Company. are disposable without curtailing or disrupting the business and are either readily At 30 March 2002, the Trust held 31,700,970 (2001 – 34,113,947) ordinary convertible into known amounts of cash at or close to their carrying values or shares of the Company at an aggregate cost of £83.0 million (2001 – traded in an active market. £89.9 million). The related loan from the Company is included within Investments on the balance sheet. The market value of the shares held by the 15.2 Financial liabilities Trust at 30 March 2002 was £93.1 million (2001 – £112.0 million). The group and the Company’s borrowings comprise: Interest Group Company 12.5 Investments in Subsidiaries rate In the Company’s accounts, investments in subsidiaries which include loans to 2002 2001 2002 2001 subsidiaries of a long-term nature are stated at cost, less amounts written off. £m £m £m £m Only dividends received and receivable are credited to the Company’s profit Unsecured bank loans and loss account. There was no movement on this account during the year or the and overdrafts: preceding year. 2001 Floating – 262.6 – 219.7 Set out below are the Company’s principal subsidiaries: 2002 Floating 199.1 142.0 – – 2003 Floating 30.0 – 30.0 – % Principal area Country of 2006 Floating 100.0 – 100.0 – Company holding of operation registration Business 329.1 404.6 130.0 219.7 Stores Group Ltd.* 100.00 Great Britain England Investment company Safeway Stores plc. 100.00 Great Britain England Grocery retailer Debenture and other loans: Safeway Stores Unsecured loan 2002 Floating – 16.0 – – (Ireland) Ltd. 50.01 N. Ireland England Grocery retailer Sterling Bonds 2002 Fixed 150.0 150.0 150.0 150.0 Sterling Bonds 2004 Fixed 150.0 150.0 150.0 150.0 *Direct subsidiary of the Company. Sterling Bonds 2014 Fixed 150.0 150.0 150.0 150.0 In addition to the above, the Company has a number of other subsidiary Sterling Bonds 2017 Fixed 200.0 – 200.0 – companies, particulars of which will be annexed to the next annual return of the Sterling Bonds 2018 Fixed 200.0 200.0 200.0 200.0 Company. Euro Bonds 2010 Fixed 150.0 150.0 150.0 150.0 Advantage has been taken of the exception conferred by Regulation 7 of The Lease loan capital Fixed 15.2 12.0 – – Partnerships and Unlimited Companies (Accounts) Regulations 1993 from the Other loan notes Floating 3.7 3.7 – – requirement to deliver to the Registrar of Companies and publish the accounts of the BP and Safeway Partnership. 1,018.9 831.7 1,000.0 800.0 Total financial liabilities 1,348.0 1,236.3 1,130.0 1,019.7 Less: Amount repayable 13.0 Stocks within one year (351.2) (281.3) (150.0) (219.7) Stocks for the group comprise finished goods for resale and are stated at the lower of cost and net realisable value. For stocks at retail stores, cost is calculated by 996.8 955.0 980.0 800.0 reference to selling price less appropriate trading margins. The figures shown in the table above do not take into account various interest rate swaps used to manage the interest rate profile of financial liabilities. At 14.0 Debtors 30 March 2002 the Company had swapped £150 million of fixed rate debt into floating rate debt based on LIBOR, subject to a minimum of 4% and maturing in Group Company 2008. The Company had also swapped a further £50 million of fixed rate debt 2002 2001 2002 2001 into floating rate debt, based on LIBOR, that matures in 2004. £m £m £m £m The proceeds of the Euro Bonds (Euro 250 million) were swapped into fixed rate Sterling on receipt on 12 April 2000. Amounts falling due within one year: At 30 March 2002, the weighted average interest rate of fixed rate borrowings, Trading debtors 105.3 82.5 – – after taking account of interest rate swaps, was 7.0% (2001 – 7.2%). The weighted Amounts owed by group undertakings – – 771.9 715.3 average period for which these borrowings are fixed is 9.8 years (2001 – 10.4 years). Amounts owed by joint venture – 0.1 – – The floating rate borrowings bear interest at rates based on the London Interest receivable 2.3 1.6 0.2 0.2 Interbank Offered Rate (“LIBOR”). Tangible fixed asset disposals 2.6 – – – Other debtors 32.1 31.3 10.0 8.1 15.3 Borrowing facilities Prepayments and accrued income 21.7 20.3 – – The group has the following undrawn committed borrowing facilities available in 164.0 135.8 782.1 723.6 respect of which all conditions precedent have been met: 2002 2001 £m £m 15.0 Derivatives and other financial instruments Expiring within one year 97.0 145.0 The numerical disclosures in this note deal with financial assets and financial Expiring within one to two years – 58.0 liabilities as defined in FRS 13 – Derivatives and Other Financial Instruments. As Expiring after two years 135.0 – permitted by FRS 13, short term debtors and creditors have been excluded from the disclosures, other than those relating to currency exposures. 232.0 203.0 A discussion of the group’s objectives, policies and strategies with regard to The group is in the process of negotiating replacement facilities for those which FRS 13 is shown in Note 15.8 below. expire within the next twelve months. 15.1 Financial assets: The group and the Company hold the following investments in financial assets: Group Company 2002 2001 2002 2001 £m £m £m £m

Cash at bank and in hand 193.3 126.2 383.4 333.0 Money market investments and deposits 21.9 – – – 215.2 126.2 383.4 333.0 In relation to cash balances held by group companies, there is a right of set-off where balances are held with the same bank. The money market investments and deposits were in fixed rate securities. As at 30 March 2002, the average yield to maturity on debt securities was 3.7% and the weighted average time for which the rate was fixed was one month. Cash at bank and in hand represents cash in transit or amounts held on short term deposit at floating rates. Cash, for the purpose of the cash flow statement, comprises cash in hand and

Annual Report and Accounts 2002 Safeway plc 51 Notes to the accounts Year ended 30 March 2002 15.4 Maturity profile of financial liabilities 15.7 Gains and losses on hedges Borrowings are repayable as follows: The group enters into forward foreign currency contracts to eliminate the currency exposures that arise on purchases denominated in foreign currencies Group Company immediately after those purchases are transacted. It also uses interest rate swaps 2002 2001 2002 2001 to manage its interest rate profile. Changes in the fair value of instruments used £m £m £m £m as hedges are not recognised in the financial statements until the hedged position matures or the interest swap is unwound. An analysis of the movement in Due within one year: unrecognised gains and losses is as follows: Bank 199.1 262.6 – 219.7 2002 2001 Lease 2.1 2.7 – – Sterling Bonds 150.0 – 150.0 – Gains Losses Net Gains Losses Net Other – 16.0 – – £m £m £m £m £m £m Due within one to two years: Unrecognised, Bank 30.0 142.0 30.0 – beginning of year 4.3 (3.5) 0.8 10.8 (14.7) (3.9) Lease 2.0 1.3 – – Arising in previous years Sterling Bonds 150.0 150.0 150.0 150.0 and recognised during Due within two to five years: the year (0.5) 0.4 (0.1) (10.8) 1.8 (9.0) Bank 100.0 – 100.0 – Arising during the year and Lease 6.5 4.3 – – not recognised during Sterling Bonds – 150.0 – 150.0 the year (2.8) (3.5) (6.3) 4.3 9.4 13.7 Due after five years: Lease 4.6 3.7 – – Unrecognised, Sterling Bonds 550.0 350.0 550.0 350.0 end of year 1.0 (6.6) (5.6) 4.3 (3.5) 0.8 Euro Bonds 150.0 150.0 150.0 150.0 Other 3.7 3.7 – – Of which: 1,348.0 1,236.3 1,130.0 1,019.7 Expected to be recognised within one year 0.5 (0.9) (0.4) 0.8 (0.5) 0.3 15.5 Currency analysis of net monetary assets and liabilities Expected to be recognised The functional currency of the group is Sterling. The table below shows the after more than one year 0.5 (5.7) (5.2) 3.5 (3.0) 0.5 group’s currency exposures; in other words, those transactional exposures that give rise to the net currency gains and losses recognised in the profit and loss 15.8 Treasury Policies account. Such exposures comprise the monetary assets and liabilities of the group The principal treasury objective is to provide sufficient liquidity to meet that are not denominated in Sterling. operational cash flows whilst maximising shareholder value within a tightly 2002 2001 defined and controlled risk management framework. The department does not operate as a profit centre. Financial instruments, including derivatives, are used to European Other European Other manage the main financial risks that arise in the course of our business. These currencies currencies currencies currencies risks are liquidity (funding) risk, interest rate risk, and foreign exchange risk, and £m £m £m £m are discussed further below. Sterling – 0.8 (0.6) (0.2) Over many years the group has established prudent, conservative treasury policies which are reviewed on a regular basis by the Board to ensure that they The amounts shown in the table above are stated after taking into account the remain relevant to our business as it evolves. Treasury activity is monitored on an effect of forward contracts to purchase foreign currency to manage these currency ongoing basis via a process of internal reviews, together with regular reports to exposures. the Board. It also operates within approved investment limits and is subject to dealing mandates issued to all financial institutions with which deals are 15.6 Fair values authorised. Set out below is a comparison of book values and fair values of the group’s (i) Liquidity risk financial assets and liabilities at 30 March 2002. The group’s objective in managing funding risk is to ensure that it can meet its 2002 2001 financial obligations as and when they fall due. The group’s debt consists Book Fair Book Fair primarily of sterling Eurobonds and committed bank facilities. In total we have value value value value committed borrowing facilities of just over £1.5 billion. £m £m £m £m It is our policy to ensure that the maturity of our debt is spread evenly in order to avoid significant refinancing risk. During the year, the maturity profile of our Primary financial instruments borrowings was extended when the group issued a fifteen year £200 million held or issued to finance the sterling bond in December 2001. In addition, a five year £235 million revolving group’s operations credit facility, together with bilateral facilities totalling £80 million, were Loans repayable within one year 351.2 353.8 281.3 281.3 arranged. As detailed in Note 15.4, 26% of the group’s financial liabilities will Loans repayable after one year 996.8 990.7 955.0 977.6 mature in the next twelve months, 21% will mature in one year but less than five Derivative financial instruments years, and 53% will mature in more than five years. held to manage the foreign currency and interest rate profile (ii) Interest rate risk Interest rate swaps 0.9 (2.2) – (1.9) It remains the policy of the group to balance evenly fixed and floating rate Cross currency interest rate swaps 4.6 2.1 –2.7funding. At the year end, after taking into account interest rate swaps, the proportion of our net borrowings at fixed interest rates was 53%. For this purpose, Fair values have been estimated using market values where available, or by all fixed rate debt with a maturity of less than one year is regarded as floating. discounting cash flows at prevailing interest and exchange rates where market During the year the fixed rate debt proportion ranged from 53% at its highest to prices are not available. The fair values of forward foreign currency contracts 37% at its lowest. It is our policy to use interest rate swaps on occasion to help equate to their carrying values at year end. The fair values of the financial assets the group attain its target level of fixed interest debt. also equate to their carrying values at year end. Details of the interest rate profile of our borrowings are provided in Note 15.2. (iii) Foreign exchange risk The group’s transactional foreign exchange exposures arise primarily from trade purchases denominated in foreign currencies. Such exposures on product purchases are hedged, generally up to three months ahead, by using forward contracts when the forecast exposure becomes reasonably certain. This policy was followed throughout the year. Following the establishment of our Euro Medium Term Note Programme in July 1999, loan notes have been issued in various currencies other than Sterling. In order to avoid any exposure to subsequent fluctuations in foreign exchange rates, the proceeds of all such medium term notes are swapped into Sterling on issue using cross currency interest rate swaps.

52 Safeway plc Annual Report and Accounts 2002 16.0 Other creditors 18.3 The Safeway Share Option Schemes Share options to subscribe for ordinary shares in the Company under the Safeway Group Company Executive Share Option Scheme (“Executive Scheme”) and the Safeway Sharesave 2002 2001 2002 2001 Scheme (“Sharesave”) were as follows: £m £m £m £m Number of shares Last date Amounts falling due within one year: Subscription At 30 March At 1 April when options Trade creditors 685.2 684.7 – – Date of grant price 2002 2001 exercisable Amounts due to group undertakings – – 110.9 110.9 Executive Scheme: Current taxation 70.0 77.0 – – 23.12.1991 272.00p – 167,000 22.12.2001 Interest payable 25.4 24.0 24.4 22.7 26.11.1992 363.00p 487,800 532,800 25.11.2002 Capital expenditure 120.7 77.9 – – 06.12.1993 255.00p 190,000 273,000 05.12.2003 Social security and PAYE 17.4 16.8 – – 13.12.1994 237.00p 326,500 504,000 12.12.2004 VAT 24.9 24.0 – – 19.12.1995 308.00p 1,488,000 1,783,000 18.12.2005 Other creditors 132.2 120.9 0.1 0.3 09.12.1996 375.50p 1,822,000 2,130,000 08.12.2006 Accruals and deferred income 64.5 69.3 – – 21.11.1997 318.75p 1,958,750 2,444,850 20.11.2007 Accrued pension contributions 0.5 0.2 – – 08.12.1998 283.00p 2,097,700 2,599,700 07.12.2008 Proposed dividends 69.8 66.2 69.8 66.2 17.08.1999 233.50p 321,200 321,200 16.08.2009 1,210.6 1,161.0 205.2 200.1 29.11.1999 182.75p 5,387,750 5,925,250 28.11.2009 12.06.2000 246.00p 100,000 100,000 11.06.2010 04.01.2001 296.00p 5,138,900 5,669,900 03.01.2011 22.11.2001 328.50p 6,361,700 – 21.11.2011 17.0 Deferred taxation With effect from 1 April 2001, the group has adopted FRS 19, Deferred Tax. In 25,680,300 22,450,700 accordance with this accounting standard, deferred tax is provided in full on Sharesave: timing differences that result in an obligation at the balance sheet date to pay 15.06.1995 260.00p 13,264 24,433 28.02.2002 more tax, or a right to pay less tax, at rates expected to apply when they 29.07.1996 271.00p 10,585 1,515,828 28.02.2002 crystallise, based on tax and laws enacted or substantially enacted at the balance 26.06.1997 286.00p 1,471,381 1,612,336 28.02.2003 sheet date. Timing differences arise from the inclusion of items of income and 25.06.1998 307.00p 1,166,176 2,287,233 29.02.2004 expenditure in taxation computations in periods different from those in which 23.06.1999 204.00p 5,525,959 6,342,085 28.02.2005 they are included in financial statements. 28.06.2000 197.00p 6,951,809 8,767,475 28.02.2006 Deferred tax is provided on gains arising from the disposal of fixed assets that 27.06.2001 296.00p 6,583,490 – 28.02.2007 have been rolled over into replacement assets only where, at the balance sheet 47,402,964 43,000,090 date, there is a commitment to dispose of the replacement asset. Deferred tax is not provided on unremitted earnings of overseas subsidiaries where there is no Subject to the rules of the Executive Scheme, options are normally exercisable at commitment to remit those earnings. any time after the expiration of three years from the date of the grant. During the Deferred tax assets are only recognised to the extent that it is regarded as more year, options in respect of 1,984,700 ordinary shares granted under the Executive likely than not that they will be recovered. Deferred tax assets and liabilities are Scheme lapsed. not discounted. The Executive Scheme options granted prior to 19 December 1995 are all available for exercise as all relevant performance criteria have been met. 17.1 The movement in deferred tax during the year was: The Executive Scheme options granted on and since 19 December 1995 will become exercisable normally only when the earnings per share growth of the Group Company Company, over a three year period, has exceeded the increase in the Retail Prices 2002 2001 2002 2001 Index over that same three year period by an average of at least 2% per annum. (restated) (restated) The group has a Qualifying Share Ownership Trust (QUEST) for the purposes of £m £m £m £m the Safeway Sharesave Scheme. During the year, contributions of £6.3 million were made to the QUEST, reducing reserves of the group and of the Company by Beginning of year 218.2 221.1 – – £1.1 million as outlined in Note 22.1. Charge/(release) to profit and loss account 11.6 (2.9) – – End of year 229.8 218.2 – – 19.0 Share premium account The deferred tax liability above arises wholly in respect of tax allowances in excess of recorded depreciation. No deferred tax asset has been recognised in 2002 2001 respect of unrelieved tax losses as there is insufficient certainty that these losses £m £m will be utilised within the immediate future. Beginning of year 681.3 675.1 Share options exercised 7.6 6.0 QUEST contribution to share capital 1.1 0.2 18.0 Called-up share capital End of year 690.0 681.3 18.1 Authorised: 2002 2001 £m £m 20.0 Capital redemption reserve In July 1996, 60 million ordinary shares with a nominal value of £15.0 million 1,500,000,000 ordinary shares of 25p each were repurchased and subsequently cancelled by the Company. During May and (2001 – 1,500,000,000) 375.0 375.0 June 1999, a further 62.4 million ordinary shares with a nominal value of £15.6 million were repurchased and subsequently cancelled by the Company. In each 18.2 Allotted, called-up and fully-paid: case, an amount equal to the nominal value of the shares repurchased has been Ordinary shares £m transferred to this reserve in order to maintain the capital base of the Company. Beginning of year 1,050,847,713 262.7 Share options exercised 2,976,189 0.7 End of year 1,053,823,902 263.4

Annual Report and Accounts 2002 Safeway plc 53 Notes to the accounts Year ended 30 March 2002 At the date of the latest actuarial valuation, the market value of the assets of 21.0 Merger reserve the scheme (excluding members’ Additional Voluntary Contributions) was £919 This represents the reserve in the Company’s balance sheet arising on the million and the actuarial value of the assets was sufficient to cover 110% of the acquisition in 1987 of Safeway Food Stores Limited, a subsidiary of Safeway benefits that had accrued to members, after allowing for expected future increases Incorporated (USA). In the opinion of the directors, this reserve is not in earnings. The excess is being eliminated as a uniform annual percentage of distributable and accordingly it will be carried forward as a merger reserve. pensionable pay over 12 years, this being the approximate average remaining service life of scheme members. Contributions to group pension schemes are charged to the profit and loss 22.0 Profit and loss account account so as to spread the cost of pensions at a substantially level percentage of No profit and loss account is presented for the Company, as permitted by Section payroll costs over employees’ working lives with the group. 230 of the Companies Act 1985. The total pension cost for the year amounted to £21.9million (2001 – £20.3 million). This reflected a regular cost of £28.8 million 22.1 The movement on the profit and loss account reserves of the group and of (2001 – £28.1 million) and a credit of £6.9 million (2001 – £7.8 million). The the Company comprises: credit relates primarily to the amortisation of the excess of assets over liabilities in Group Company the principal scheme, as described above. The pensionable payroll for the year in the principal scheme was £242.9 million (2001 – £229.3 million). 2002 2001 2002 2001 The group has continued to account for pensions in accordance with SSAP 24. £m £m £m £m The following additional disclosures are required under the transitional provisions Beginning of year of FRS 17. As previously reported 1,215.7 1,083.7 169.6 190.3 Prior year adjustment (216.1) (209.0) – – 23.4 FRS 17 In accordance with the requirements of FRS 17, ‘Retirement Benefits’, this note Restated 999.6 874.7 169.6 190.3 discloses the main financial assumptions made in valuing the liabilities of the Profit for the financial year 248.2 217.2 76.9 71.6 Safeway Pension Scheme and the fair value of assets held. Dividends paid and proposed (97.0) (92.1) (97.0) (92.1) The disclosures in this note are based on the calculations carried out in the QUEST contribution to most recent actuarial valuation of the scheme as at 1 April 2001, updated to 1 share capital (1.1) (0.2) (1.1) (0.2) April 2002 by a qualified independent actuary. The major assumptions used by End of year 1,149.7 999.6 148.4 169.6 the actuary for this purpose were: 2002 22.2 The cumulative amount of goodwill resulting from acquisitions in earlier Price inflation 2.8% financial years, principally due to the acquisition in 1987 of Safeway Food Salary increases (excluding promotional increases) 4.3% Stores Limited, which has been written off against the group’s reserves, is £608.0 Pension increases 2.8% million (2001 – £608.0 million). Discount rate for scheme liabilities 5.9% The above assumptions are the directors’ best estimates chosen from a range of 23.0 Commitments and contingencies possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice. 23.1 Capital commitments authorised and contracted for at the year end totalled The value of the assets in the scheme, the long term expected rate of return on £27.9 million (2001 – £28.6 million) each class of asset and the value of the scheme’s liabilities assessed using the 23.2 Lease commitments assumptions described above, are shown below: The group’s aggregate minimum annual rentals under non-cancellable leases 2002 inclusive of unconditional future obligations are as follows: Long-term 2002 2001 rate of Plant and Plant and return Value Property equipment Property equipment expected £m £m £m £m £m Equities 8.7% 717.0 Operating leases which expire: Bonds 5.9% 123.0 Within one year 0.2 12.0 0.3 5.3 Property 6.0% 10.0 Within two to five years 3.3 19.6 4.7 22.6 Cash 3.5% 45.0 After five years 49.6 – 48.8 – Total market value of scheme assets 895.0 53.1 31.6 53.8 27.9 Present value of scheme liabilities (841.0) Surplus in scheme 54.0 23.3 Pension schemes Related deferred tax liability (16.2) The group maintains pension schemes for all eligible full-time and part-time Net pension asset 37.8 employees. Scheme funds are administered by Trustees and are independent of group finances. Investment of pension scheme assets in group companies is not The fair value of the scheme’s assets may be subject to significant change permitted by the Trustees. before they are realised. The present value of the scheme’s liabilities is derived The principal scheme, the Safeway Pension Scheme, is a defined benefit from cash flow projections over long periods and is thus inherently uncertain. If scheme. The pension cost relating to the scheme is assessed in accordance with the amounts had been recognised in the financial statements, the group’s profit the advice of independent actuaries and is such as to spread the cost of pensions and loss account reserves would have been stated as follows: over the working lives of the employees who are scheme members. 2002 The latest valuation of the scheme was carried out as at 1 April 2001 using the £m projected unit method. The assumptions which have the most significant effect on the results of the valuation are those relating to the discount rate, the rate of Profit and loss account reserves excluding return on investments and the rates of increase in salaries and pensions. It was pension asset (see Note 22.1) 1,149.7 assumed that retail price inflation would be 2.3% per annum, that the discount Pension asset (net of related deferred tax liability) 37.8 rate would be 5.3% per annum, that the average rate of return on investments Profit and loss account reserves including pension asset 1,187.5 would be 6.9% per annum, that salary increases (excluding promotional increases) would average 3.8% per annum, and that pensions (in excess of the Guaranteed Minimum Pension) would increase at the rate of 2.3% per annum. 24.0 Net cash inflow from operating activities 2002 2001 £m £m Group operating profit 416.5 395.4 Net property losses (0.4) (5.8) Depreciation 184.2 178.9 Loss on disposal of tangible fixed assets 13.9 11.2 (Increase)/decrease in stock (6.4) 20.3 (Increase) in debtors (24.9) (21.7) Increase/(decrease) in creditors 8.9 (44.9) Net cash inflow from operating activities 591.8 533.4

54 Safeway plc Annual Report and Accounts 2002 Report of the directors The directors present their Annual Report on the affairs of the group together with the accounts and auditors' report for the year ended 30 March 2002. Acquisition of the Company’s Shares At last year's Annual General Meeting, shareholders renewed their consent to the Company purchasing up to 10% of the Company's issued share capital. No shares Principal Activities and Business Review have been purchased pursuant to this authority during the year. The principal activity of the group is grocery retailing in the United Kingdom. The Chairman's Statement and the Chief Executive's review of operations on pages 2 to 7, together with the financial review of the year on pages 36 to 41 Share Capital describe fully the activities and future developments of the group and the trading Details of share capital issued during the year are set out in Note 18.2 on page 53. results for the year.

Charitable and Political Contributions Results and Dividends During the year, the group donated £647,923 to charities (2001 - £84,101). No The profit of the group before taxation and net property losses amounted to political contributions were made during the year (2001 - £Nil). £355.2 million. After deducting net property losses of £0.4 million and taxation of £110.1 million and adding back a minority interest credit of £3.5 million, the profit for the financial year amounted to £248.2 million. The directors propose Suppliers’ Payment Policy the payment of dividends totalling £97.0 million. A strategic objective of the group is to have mutually beneficial long-term The final dividend recommended by the directors is 6.61p per ordinary share relationships with our suppliers and we seek to settle, in advance, the terms of which, together with the interim dividend already paid of 2.91p per ordinary payment with suppliers and abide by those terms. The average number of days share, makes a total dividend for the year of 9.52p. credit taken by the group for trade purchases at 30 March 2002 was 33 days (2001 - 36 days), whereas the average during the year was 31 days (2001 - 34 days). The Company has no trade creditors. Directors As outlined in the Chairman’s statement on page 3, we are complying with the The directors of the Company at the date of this Annual Report are shown on DTI Code of Practice which came into effect in mid-March. pages 34 and 35. In accordance with Article 97 of the Company's Articles of Association, Messrs. C Criado-Perez, S T Laffin and H R Collum retire by rotation at the forthcoming Employment Policies Annual General Meeting and, being eligible, offer themselves for re-election. We are committed to promoting policies to ensure that employees and those who There were no new appointments to the Board during the year ended 30 March seek to work for us are treated equally regardless of sex, marital status, age, creed, 2002. On 15 May 2002 the Board announced that it had appointed Mr. J L Sinclair colour, race, nationality or any other similar factors. as an additional director of the Company with effect from 31 May 2002. In It is the group's policy to give full and fair consideration to applications for accordance with Article 102 of the Company’s Articles of Association, Mr Sinclair employment by people who are disabled, to continue wherever possible the is required to retire and seek re-election as a director at the next Annual General employment of staff who become disabled and to provide equal opportunities for Meeting. A resolution will therefore also be proposed for the re-election of Mr. the career development of disabled employees. Sinclair as a director of the Company. The health and safety of the group's employees, customers and members of the Mr. C Criado-Perez has a service agreement which may be terminated by the general public who may be affected by the group's activities is a matter of primary Company on giving one year's notice and Mr. S T Laffin has a service agreement concern. Accordingly, it is the group's policy to manage its activities so as to which may be terminated by the Company on giving two years' notice. avoid causing any unnecessary or unacceptable risk to the health and safety of Ms. L Gernon has tendered her resignation as a director of the Company with employees and members of the public. effect from 31 May 2002. The number and wide geographic distribution of the group's operating On 18 September 2001, Mr. D Wilson was appointed as Group Company locations make it essential to communicate effectively with employees. Secretary & Legal Director. Communications and consultation within the group's retail activities are Details of the directors' interests are set out on pages 60 and 61. principally through the operational structure of store and area teams, with particular use being made of the Meeting for Everyone, which is held every two weeks, video conferencing with regional depots and Company magazines. Copies of the Company's Annual and Interim Reports are made available at the group's principal office and operating locations.

Substantial Interests At the date of this report, the following substantial interests (3% or more) in the Company’s share capital had been notified to the Company: Shareholder Ordinary shares % holding FMR Corp and Fidelity International Ltd. (USA) 85,154,797 8.08 Janus Capital Corporation (USA) 33,113,033 3.16 Scottish Widows Investment Partnership Limited 33,306,358 3.16 Legal & General Investment Management Ltd. 31,805,525 3.03

Annual Report and Accounts 2002 Safeway plc 55 Report of the directors

Auditors The Board During the year Arthur Andersen resigned as the Company’s auditors and the The Board leads and maintains full and effective control over the Company's directors appointed KPMG Audit Plc to fill the casual vacancy arising. A activities. The Company has separate posts of Chairman and Chief Executive. In resolution re-appointing KPMG Audit Plc as auditors for the ensuing year will be addition, the Board comprises three other executive and four non-executive placed before the Annual General Meeting. Special notice has been received for directors. Accordingly, over one third of the Board is made up of non-executive this resolution pursuant to section 388 of the Companies Act 1985. directors, all of whom are considered to be independent. All directors are subject to election by shareholders at the first opportunity after their appointment and to Pension Funds re-election by rotation at General Meetings at least every three years. Full details of the group’s pension schemes are set out in Note 23.3 on page 54. The directors have approved a schedule of matters which are reserved for the Pension scheme funds are administered by Trustees and are independent of group Board. They include, amongst other matters, approval of results announcements, finances. There is no investment in the shares of the Company nor do the material agreements, major capital expenditure, annual and medium term pension schemes own any property occupied by the group. business plans, risk management strategy and treasury policies and are reviewed The Safeway Pension scheme was open to all full-time and part-time employees periodically. Directors are briefed on the issues that will arise at Board and Board of wholly owned subsidiary companies of the group up to 8 May 2002. With Committee meetings. Board papers, including regular financial reports and other effect from 9 May 2002 this defined benefit “final salary” scheme was closed to necessary papers, are normally circulated seven days prior to a meeting being new entrants whilst continuing unchanged for current members. A new “career held. The Board meets formally at least seven times a year and the executive average salary” defined benefit scheme is replacing the “final salary” directors meet regularly to monitor and guide the group's performance. arrangements for current and future employees who are no longer able to join The Board has not identified a senior independent non-executive director that final salary scheme. The Scheme provides benefits additional to those from because it considers such an appointment is unnecessary at the present time but the State Basic Pension Scheme, whilst enabling members to be contracted-out of the matter will be kept under review. the State Earnings Related Pension Scheme. In addition to the normal retirement All directors have access to the advice and services of the Company Secretary, pension based on pay and length of service at retirement, there are further and the Board has established a procedure whereby directors may take benefits payable when members die in service. independent professional advice at the expense of the Company. The Company Secretary ensures that Board procedures are followed and he may only be Combined Code on Corporate Governance removed with the approval of the Board as a whole. The Financial Services Authority as UK Listing Authority, requires listed All executive directors, except Mr. C Criado-Perez, have service agreements, companies to disclose how they comply with the Code Provisions set out in which are terminable by the Company on not more than two years' notice and by Section 1 of the Combined Code on Corporate Governance. Save as specified the individual directors on one year's notice. Mr. C Criado-Perez has a service below, the Company considers that it has complied throughout the year with the agreement which may be terminated by the Company giving one year's notice. It Code's provisions. Specific matters to note regarding the Company's compliance is now the policy of the Remuneration Committee that any newly engaged with the Code are as follows: executive directors be granted a service agreement providing for one year's notice (i) With the exception of existing directors who already have Service by either party after the director's first full year of employment. Agreements subject to two years' notice, the Agreements with newly engaged directors will, after the first year of service as a director, be subject to one year's notice. Board Committees (ii) As explained below, the Board feels that it is unnecessary to appoint a senior The Board maintains three Standing Committees, all of which operate within independent non-executive director. written terms of reference. These Committees report back to the Board on decisions made and issues raised at meetings to ensure that all directors are kept informed of their activities. The Committees are: 1 Audit Committee. Consists wholly of non-executive directors and is chaired by Mr. H R Collum. It meets at least three times a year and assists the Board in meeting its responsibilities for ensuring that accounting, financial reporting, internal financial controls and compliance procedures are in place. It also liaises with the group’s external auditors. 2 Remuneration Committee. Consists wholly of non-executive directors and is chaired by Mr. M J Allen. It meets at least three times a year and its terms of reference include the review and recommendation of remuneration policy for executive directors, the terms of service agreements for executive directors, their pay and bonus arrangements, determination of participation in the Company's long-term incentive plan and grants of options under the Company's Executive Share Option Scheme. Details of individual directors' remuneration are contained on page 60. 3 Nomination Committee. Comprising the four non-executive directors together with Mr. D G C Webster who chairs the Committee. It reviews and makes proposals to the Board on each occasion when consideration is given to the appointment of a replacement or additional director. The members of each Committee are listed below. Their biographies are shown on pages 34 and 35.

1 Audit Committee – H.R Collum (Chairman) M.J Allen L.M Gernon P Foy

2 Remuneration Committee – M.J Allen (Chairman) H.R Collum P Foy

3 Nomination Committee – D.G.C Webster (Chairman) M.J Allen H.R Collum P Foy L.M Gernon

56 Safeway plc Annual Report and Accounts 2002 Investor Relations and Annual General Meeting Going Concern Directors meet regularly with institutional investors and analysts. Investors, The directors have reviewed the group's plans for 2002/2003 and for the particularly private investors, are encouraged to participate at the Annual General following two years. After taking into account the cash flow implications of the Meeting at which the Chairman and the Chief Executive present a review of the plans and after comparing these with the group's borrowing facilities and Company's results and comment on current business activity. The Chairmen of reviewing projected gearing ratios, the directors are satisfied that it is appropriate the Board Committees will be available to answer any shareholder questions. to produce the accounts on a going concern basis. The separate notice convening the Annual General Meeting to be held at The Dorchester Hotel, Park Lane, London, W1A 2HJ on Tuesday 9 July 2002 at 11 a.m. is sent to shareholders with this Annual Report and includes an explanation of Remuneration the items of business. The Board seeks to establish remuneration policies which reflect the need to The Company has put in place facilities to enable electronic communication provide a competitive compensation package designed to attract, retain and with shareholders. To make use of these facilities shareholders may, if they wish, motivate members of the senior management team, having regard to the best register their proxy appointment and instructions for this year’s Annual General interests of the Company and the shareholders. Meeting via the Company’s website www.safeway.co.uk, where full details of the The Remuneration Committee reviews and recommends overall policy and procedure are given. As required by the Combined Code, the Notice has been determines all aspects of remuneration and terms and conditions of service of circulated more than 20 working days before the meeting and the Board will individual executive directors. The remuneration of the Company's non- announce the proxy votes following voting on each resolution. executive directors is determined by the Board as a whole, with non-executive directors exempting themselves from voting as appropriate. The key policy objectives of the Remuneration Committee in respect of the Internal Control Company's executive directors are: The Company as required by the Listing Rules of the Financial Services Authority, (a) to ensure that the Company attracts and retains high quality executives who has complied with the Combined Code provisions on internal control having are fairly rewarded for their personal contribution to the Company's overall established the procedures necessary to implement the guidance on internal performance; and control issued by the Turnbull Committee and by reporting in accordance with (b) to act as an independent Committee ensuring that due regard, in respect of that guidance. remuneration matters, is given to the interests of the Company's In applying the principle that the Board should maintain a sound system of shareholders and to the financial and commercial health of the Company. control to safeguard shareholders' investment and the Company's assets, the Remuneration of executive directors is, by design, a mixture of salary, Board, through the Audit Committee, recognises that it has overall responsibility incentives and benefits which together form an appropriate total package. As for ensuring that the group maintains a system of internal control to provide it such it comprises (i) basic salary, (ii) an annual incentive award based on the with reasonable assurance regarding effective and efficient operations, internal performance of the group and on the attainment of pre-set key objectives, control and compliance with laws and regulations. It should be recognised that (iii) participation in the Company's Executive Share Option Scheme and (iv) such a system is designed to manage rather than eliminate the risk of failure to participation in a long-term incentive plan as described more fully below. achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board considers the risks associated with key parts of the business. It has Basic salary and benefits established internal control systems that are designed to identify those risks that The level of basic salary and benefits is established drawing upon annual market may restrict or seriously impact the ability of the Company to carry on its comparison surveys, conducted by external remuneration consultants, Towers operations or prevent it from taking advantage of opportunities for growth, or Perrin, with positions of similar responsibility and scope in the retail sector. which may lead to negative sentiment or damage to its reputation. Individual salaries of directors are reviewed annually by the Remuneration The key features of the internal control system operated throughout the year Committee and adjusted by reference to performance and market factors. Benefits are: comprise, in the main, a fully expensed company car and medical benefits 1 Performance Reporting. There is a comprehensive planning system with insurance. quarterly plans approved by the Board. Activities and results against the quarterly plan are reported daily, weekly and every four weeks in sufficient detail to allow the directors and senior management to monitor the financial and non-financial Annual incentive awards key performance indicators, business activities, risks and progress towards The Company operates a non-pensionable annual incentive award scheme in objectives. which all executive directors (except the Chairman) and senior executives of the 2 Investment Appraisal. The group has a clearly defined strategy and also group participate. The scheme provides for payments based on the achievement authorisation procedures for all investment expenditure. These include detailed of pre-set targets. The maximum bonus opportunity for executive directors, for plans, frequent formal appraisal and review procedures, well communicated levels significant outperformance of the pre-set objectives in 2001/2002, is 100% of of authority and regular re-forecasts. In addition, post expenditure reviews are basic salary paid in cash and in Safeway plc shares. An incentive award is conducted regularly. proposed to be paid at the rate of 36% in respect of the year ended 30 March 3 Business Risks. The Board reviews all significant business risks. They are 2002 and is fully disclosed on page 60. reviewed with the Audit Committee and form a key part of both external audit and Business Controls work plans. 4 Business Controls. This function supports Safeway management in establishing and maintaining effective risk management and internal controls. 5 Due Diligence Committees. In its review of risk, the Board is assisted by due diligence committees comprising executive and operations directors and other senior executives. These Committees keep under constant review and give direction with regard to the management of all aspects of due diligence as they affect the retail operations (such as food safety, pricing and back of store management) and health and safety. 6 Audit Committee. Reviews the operation and effectiveness of the overall control framework. It receives regular reports from both Business Controls and the external auditors. The directors confirm that reviews of the effectiveness of the system of internal control were carried out during the year and for the purpose of this Annual Report.

Annual Report and Accounts 2002 Safeway plc 57 Report of the directors The plan is a performance share plan. Under the terms of the plan, executives Special incentive plan receive a conditional award of shares at the beginning of a three year cycle. The A special incentive plan was agreed by the Remuneration Committee for the actual number of shares to which executives obtain vested rights depends on the Chief Executive, Carlos Criado-Perez, on 25 February 2002. Two equal tranches Company's performance over that same period. Executives have no rights or each of £2m in May 2004 and May 2005 become available following the entitlements to an award of shares and no awards are made if a participant has announcement of the Company's results for the prior financial year (the vesting left the Company's employment prior to the end of the performance period. dates). Each tranche is conditional on the Chief Executive remaining in Safeway's Shares for use in the plan are ordinary shares in the Company which are employment on the relevant vesting date, and on the achievement of EPS growth transferred out of the Safeway plc Employee Share Ownership Plan ("ESOP"), a targets over the three financial years commencing 1 April 2001 (the 2004 discretionary trust, set up to administer the plan (Note 12.3 on page 50). In order tranche), and the four financial years commencing 1 April 2001 (the 2005 to hedge the Company's liability to payments under the plan, the Company tranche). funds the anticipated payout over each three year cycle by ensuring that the No amount will be released if the Company's average EPS growth over the Trustee has sufficient funds to purchase the Company's ordinary shares through three or four years, as appropriate, before vesting, is less than the growth in the the ESOP. Index of Retail Prices (RPI) plus 4%. In May 2004, a payment will be made as follows:- Cycles: £1.0m for average EPS growth of RPI plus 4% per annum over three years; 1999, 2000, 2001 and 2002 cycles - In July 1996, the Company obtained the £1.5m for average EPS growth of RPI plus 6% per annum over three years; approval of shareholders to its long-term incentive plan as explained more fully £2.0m for average EPS growth of RPI plus 8% or more per annum over three above. The Remuneration Committee initiated a 1999, a 2000, a 2001 and intend years. to initiate a 2002 cycle which cover, respectively, the financial years ending in In May 2005, a payment will be made as follows:- 2002, 2003, 2004 and 2005 respectively. Awards will be determined by reference £1.0m for average EPS growth of RPI plus 4% per annum over four years; to the Company's performance in respect of: £1.5m for average EPS growth of RPI plus 6% per annum over four years (a) the Company's Total Shareholder Return compared to that of a basket of £2.0m for average EPS growth of RPI plus 8% or more per annum over four competitor companies; and years. (b) the increase in Earnings per Share of the Company. The Plan, which is non-pensionable, contains provisions to deal with the Both measures are determined independently and each may provide up to 50% calculation of any payment or any appropriate adjustments necessary to reflect a of an individual's personal maximum award. reconstruction, merger or amalgamation of the Company with any other The performance of the 1999 Cycle covered the three years ended 30 March company or business or a change of control of the Company. 2002. Awards due are determined by comparing the Company’s Total Shareholder The Plan was designed specifically to facilitate the retention and Return to that of a weighted, by market capitalisation, basket of competitor incentivisation of Mr Criado-Perez and was introduced following discussions with companies based on the average three month period up to both the 1999 and several leading shareholders. His retention was considered essential to the 2002 year-ends and the Company’s Earnings Per Share performance. delivery of the successful implementation of the Company's transformation. Over the three year period from April 1999 to March 2002, the Company’s Approval of the shareholders in General Meeting was not sought for this special Earnings Per Share performance did not trigger an award. However, the bonus plan, since it falls within the exemption to the normal shareholder Company’s Total Shareholder Return increased on average by 9.5% compared to consent requirements of the Listing Rules under rule 13.13A(b). No material the basket of competitor companies which increased by 8.3% per annum. changes to the terms of the Plan will be made without seeking the approval of Accordingly, the Company out-performed the index of competitor companies by shareholders. 1.2% per annum (resulting in a vesting of 24.5% of an individual’s maximum award), which dependent on the discretion of the Trustee, will give rise to the award of shares to the executive directors as shown in the table below. Share options schemes In addition to the 1999 Cycle, the maximum award that any executive director Executive directors are eligible for grants of options to acquire shares under both could receive under these Cycles is: the Safeway 1993 Executive Share Option Scheme ("Executive Scheme") and the Maximum possible share award Safeway Sharesave Scheme ("Sharesave"). Approximately 290 senior executives (including executive directors) participate in the Executive Scheme, under which 1999 Cycle 2000 2001 options are granted at the market price on the day of grant. In November 2001, Maximum Actual Cycle Cycle options totalling 6,361,700 shares were granted, of which, executive directors D.G.C Webster 210,000 51,450 350,000 210,000 were granted 501,615 options over new issue shares and 150,385 options over C Criado-Perez 137,000 33,565 280,000 125,000 market purchased shares. L.R Christensen 62,000 15,190 135,000 62,000 Grants under the Executive Scheme for executive directors are phased and all S.T Laffin 87,000 21,315 145,000 66,000 grants are controlled by the Remuneration Committee. Executive Scheme options R.G Williams 62,000 15,190 135,000 62,000 granted on and since 19 December 1995 will become exercisable normally only when the earnings per share growth of the Company, over a three year period, 558,000 136,710 1,045,000 525,000 has exceeded the increase in the Retail Prices Index over that same three year The actual vested award in respect of the 2000 and subsequent cycles will not be period by an average of at least 2% per annum. Executive Scheme options granted known until the end of the relevant three year period and could, dependent upon prior to 19 December 1995 are all available for exercise as all relevant performance, be a nil award or up to a maximum of the number of shares shown performance criteria have been met. Executive Scheme options granted in in the table above. Details of the actual awards will be reported in future Annual December 1995 and 1996, November 1997, December 1998 and November 1999 Reports. will normally be exercisable on their third (or subsequent) anniversary in November 2002 unless the performance criterion has not been achieved. The number of options held by executive directors in the Company is set out on page 61.

Long-term incentive plan The Company's long-term incentive plan is designed to align the efforts of the executive directors and other key executives with the Company's objective of creating shareholder value in the longer term. Executives are selected to participate on the basis that they are in a position to influence significantly the performance of the Company.

58 Safeway plc Annual Report and Accounts 2002 on the Company's contributions to the FURB, and is fixed such that the Pensions combination of the FURB contributions and this payment is 25% of pensionable All executive directors are members of the Safeway Pension Scheme which is a salary over the Cap. funded, Inland Revenue approved, defined benefit, occupational pension scheme Executive directors, who joined the Company before 31 May 1989, conditional (Note 23.3 on page 54). upon commencement date and length of service, are entitled to a maximum The Finance Act 1989 introduced a restriction ("Cap") for employees joining pension from the Safeway Pension Scheme of up to two thirds of pensionable the Company after 31 May 1989, on earnings that could be pensioned through salary on retirement at normal retirement age (age 60). An actuarially reduced an Inland Revenue approved pension scheme. The limit is based on a maximum pension is payable on early retirement after age 50. Executive directors' spouses annual pensionable salary (currently £97,200). Accordingly, the Company has are eligible for a pension of two-thirds of the directors pension on death before or established a Funded Unapproved Retirement Benefits Plan ("FURB") for executive after retirement. The pensions of executive directors and their spouses are eligible directors (currently three) subject to the Cap and pays a defined annual for regular increases each year after retirement in line either with inflation or contribution to this Plan which is based on a percentage of their basic salary over 8.5% per annum, whichever is the lower. Additional increases may be payable at the Cap. The Company also makes a discretionary annual pension related the discretion of the Pension Scheme Trustees subject to the approval of the payment in respect of executive directors subject to the Cap. This payment is Company. sufficient to meet the income tax liability that executive directors suffer

For the directors who held office during the year, the pension benefits earned in the Safeway Pension Scheme and the Company's contributions to the FURB (and related payments) were as follows:

Safeway Pension Scheme FURB Increase in accrued Company Directors’ pension Accumulated contribution contributions during the total pension including Age at Years of in the year year at year end related year end service (Note 1) (Note 2) (Note 3) payment £’000 £’000 £’000 £’000 D.G.C Webster 57 25 37 42 396 – C Criado-Perez 50 3538129 L.R Christensen 58 28 14 27 158 – S.T Laffin 42 12 5 3 26 56 R.G Williams 45 11 5 3 27 47 Notes: 1 These are the contributions paid in the year by the directors under the terms of the Safeway Pension Scheme. 2 The increase in accrued pension during the year excludes any increase for inflation. 3 The pension entitlement shown is that which would be paid annually on retirement at age 60, based on service at the year end. 4 The method of calculating transfer values from the Safeway Pension Scheme includes allowance for discretionary pension increases after retirement. Total pension increases after retirement are assumed to be at the full rate of inflation. 5 Directors have the option to pay Additional Voluntary Contributions to the Safeway Pension Scheme. Neither the contributions nor the resulting benefits are included in the above table.

External appointments policy Non-executive directors The Company recognises the value of the appointment of executive directors to Non-executive directors are appointed initially for a three year term after which the Boards of other major companies as non-executive directors, dependent upon their appointment may be extended upon mutual agreement. Non-executive time commitments, since this can broaden experience and knowledge. All such directors' fees comprise a basic amount and additional fees for the Chairmanship appointments are subject to the Board's approval. The fees receivable are retained of Board Committees. Non-executive directors do not have contracts of service, by the director concerned. are not eligible for pension scheme membership and do not participate in any of the group's bonus, share option or other incentive schemes.

Annual Report and Accounts 2002 Safeway plc 59 Report of the directors

Directors’ emoluments The table below analyses the emoluments of individual directors who held office during the year:

Annual Long-Term Basic Incentive Awards Incentive Plan Salary/ Performance Value of 2002 2001 Fees Benefits Payment Shares Total Total 2002 2001 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Chairman – D G C Webster 736 23 – – 759 680 – – Executive – C Criado-Perez 613 15 110 110 848 828 – – L R Christensen 285 11 51 51 398 406 – – S T Laffin 321 17 58 58 454 444 – – R G Williams 285 14 51 51 401 410 – – Non-executive – M J Allen 33 – – – 33 33 – – H R Collum 33 – – – 33 33 – – L M Gernon 26 – – – 26 26 – – P Foy 26 – – – 26 26 – –

Pension contributions paid by the Company in respect of the Chairman amounted to £64,086 (2001 – £58,051). Mr. P Foy's fees are paid to Peter Foy Services Limited. The aggregate profit made by directors on their exercise of share options during the year was £113,619.96 (2001 – £46,054).

Executive directors of the Company, as possible beneficiaries, are additionally Directors’ interests deemed to be interested in the Company's ESOP. At 30 March 2002, the Trustee of The interests of the directors, including family interests (all beneficial) but the ESOP held 3,958,405 (2001 – 3,570,504) ordinary shares of the Company. excluding the annual incentive award of shares, in the share capital of the The directors have no other interest in group securities. Since 30 March 2002, Company are set out below: Mr. L R Christensen's and Mr. S T Laffin's interests in the Company's ordinary 30 March 2002 31 March 2001 share capital has increased by 22 and 27 shares respectively as a result of Personal Ordinary Ordinary Equity Plan re-investments. shares shares At no time during the year or subsequently has any director had a material interest in any contract or arrangement with the Company or any of its D G C Webster 563,211 561,938 subsidiaries which was significant in relation to the group's business. C Criado-Perez 19,339 4,343 The movement in share options held by directors during the year together L R Christensen 20,512 12,588 with their exercise price and the middle market price and gain on date of exercise, S T Laffin 86,570 77,653 if applicable, is set out on page 61. Share options issued under the Executive R G Williams 16,800 9,178 Scheme normally expire ten years after date of grant and those issued under the M J Allen 20,690 20,690 Sharesave scheme normally expire six years after date of grant. H R Collum 5,000 5,000 P Foy 20,450 20,450 L M Gernon 800 800

60 Safeway plc Annual Report and Accounts 2002 Number of options Number of options At Granted Exercised At At Granted Exercised At 31 March during during 30 March Exercise 31 March during during 30 March Exercise 2001 the year the year 2002 price 2001 the year the year 2002 price D.G.C Webster L.R Christensen 23.12.1991 100,000 – (100,000) – 272.00p 19.12.1995 50,000 – – 50,000 308.00p 26.11.1992 100,000 – – 100,000 363.00p 09.12.1996 50,000 – – 50,000 375.50p 06.12.1993 100,000 – – 100,000 255.00p 21.11.1997 37,500 – – 37,500 318.75p 13.12.1994 100,000 – – 100,000 237.00p 08.12.1998 50,000 – – 50,000 283.00p 19.12.1995 100,000 – – 100,000 308.00p 23.06.1999 1,899 – – 1,899 204.00p 29.07.1996 1,273 – (1,273) – 271.00p 29.11.1999 150,000 – – 150,000 182.75p 09.12.1996 100,000 – – 100,000 375.50p 04.01.2001 115,000 – – 115,000 296.00p 21.11.1997 75,000 – – 75,000 318.75p 27.06.2001 – 1,963 – 1,963 296.00p 08.12.1998 38,900 – – 38,900 283.00p 22.11.2001 – 85,000 – 85,000 328.50p 29.11.1999 175,000 – – 175,000 182.75p 454,399 86,963 – 541,362 04.01.2001 135,000 – – 135,000 296.00p 27.06.2001 – 3,272 – 3,272 296.00p 22.11.2001 – 185,000 – 185,000 328.50p R.G Williams 26.11.1992 15,000 – – 15,000 363.00p 1,025,173 188,272 (101,273) 1,112,172 19.12.1995 50,000 – – 50,000 308.00p The market price on date of exercise of the 1991 Executive Option was 09.12.1996 50,000 – – 50,000 375.50p 378.6045p and the gain on date of exercise was £106,604.50. The market price 26.06.1997 3,618 – – 3,618 286.00p on date of exercise of the 1996 Sharesave Options was 345.75p and the gain on 21.11.1997 37,500 – – 37,500 318.75p date of exercise was £951.56. 08.12.1998 41,100 – – 41,100 283.00p 29.11.1999 150,000 – – 150,000 182.75p C Criado-Perez 28.06.2000 1,967 – – 1,967 197.00p 17.08.1999 321,200 – – 321,200 233.50p 04.01.2001 115,000 – – 115,000 296.00p 29.11.1999 200,000 – – 200,000 182.75p 22.11.2001 – 85,000 – 85,000 328.50p 12.06.2000 100,000 – – 100,000 246.00p 464,185 85,000 – 549,185 04.01.2001 200,000 – – 200,000 296.00p 22.11.2001 – 200,000 – 200,000 328.50p The middle market price of the Company's ordinary shares at 30 March 2002 was 293.75p and the range during the year ended 30 March 2002 was 293.75p to 821,200 200,000 – 1,021,200 418.75p.

S.T Laffin 23.12.1991 17,000 – (17,000) – 272.00p 26.11.1992 12,000 – – 12,000 363.00p 06.12.1993 20,000 – – 20,000 255.00p By Order of the Board 13.12.1994 50,000 – – 50,000 237.00p 19.12.1995 50,000 – – 50,000 308.00p David Wilson 09.12.1996 75,000 – – 75,000 375.50p Group Company Secretary & Legal Director 26.06.1997 1,206 – – 1,206 286.00p 23 May 2002 21.11.1997 56,250 – – 56,250 318.75p 25.06.1998 952 – (952) – 307.00p 08.12.1998 27,500 – – 27,500 283.00p 23.06.1999 1,424 – – 1,424 204.00p 29.11.1999 150,000 – – 150,000 182.75p 28.06.2000 1,713 – – 1,713 197.00p 04.01.2001 115,000 – – 115,000 296.00p 27.06.2001 – 981 – 981 296.00p 22.11.2001 – 97,000 – 97,000 328.50p 578,045 97,981 (17,952) 658,074 The market price on the date of exercise of the 1991 Executive Option was 305.5p and the gain on date of exercise was £5,695.00. The market price on date of exercise of the 1998 Sharesave options was 345.75p and the net gain on date of exercise was £368.90.

Annual Report and Accounts 2002 Safeway plc 61 Directors’ responsibilities

Company law requires the directors to prepare accounts for each financial year (d) to prepare the accounts on the going concern basis unless it is inappropriate which give a true and fair view of the state of affairs of the Company and the to presume that the group will continue in business. group and of the profit for that year. In preparing the accounts the directors are The directors are responsible for keeping proper accounting records which required: disclose with reasonable accuracy at any time the financial position of the (a) to select suitable accounting policies and then apply them consistently; Company and the group and to enable them to ensure that the accounts comply (b) to make judgements and estimates that are reasonable and prudent; with the Companies Act 1985. They have general responsibility for safeguarding (c) to state whether applicable accounting standards have been followed, subject the assets of the Company and the group and to prevent and detect fraud and to any material departures disclosed and explained in the accounts: other irregularities. and

Independent auditors’ report to the members of Safeway plc

We have audited the financial statements on pages 42 to 54. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of Respective responsibilities of directors and auditors evidence relevant to the amounts and disclosures in the financial statements. It The directors are responsible for preparing the Annual Report. As described above, also includes an assessment of the significant estimates and judgements made by this includes responsibility for preparing the financial statements in accordance the directors in the preparation of the financial statements, and of whether the with applicable United Kingdom law and accounting standards. Our accounting policies are appropriate to the group’s circumstances, consistently responsibilities, as independent auditors, are estalished in the United Kingdom by applied and adequately disclosed. statute, the Auditing Practices Board, the Listing Rules of the Financial Services We planned and performed our audit so as to obtain all the information and Authority, and by our profession’s ethical guidance. explanations which we considered necessary in order to provide us with sufficient We report to you our opinion as to whether the financial statements give a true evidence to give reasonable assurance that the financial statements are free from and fair view and are properly prepared in accordance with the Companies Act material misstatement, whether caused by fraud or other irregularity or error. In 1985. We also report to you if, in our opinion, the directors' report is not forming our opinion we also evaluated the overall adequacy of the presentation consistent with the financial statements, if the Company has not kept proper of information in the financial statements. accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors' remuneration and transactions with the group is not Opinion disclosed. In our opinion the financial statements give a true and fair view of the state of We review whether the statement on page 56 reflects the Company's affairs of the Company and of the group as at 30 March 2002 and of the profit of compliance with the seven provisions of the Combined Code specified for our the group for the year then ended and have been properly prepared in accordance review by the Listing Rules, and we report if it does not. We are not required to with the Companies Act 1985. consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group's corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report, including the KPMG Audit Plc corporate governance statement, and consider whether it is consistent with the Chartered Accountants audited financial statements. We consider the implications for our report if we Registered Auditor become aware of any apparent misstatements or material inconsistencies with the financial statements. London 23 May 2002

62 Safeway plc Annual Report and Accounts 2002 Shareholder Information

Decrease in number of Ordinary share prices shareholders (thousands) high/low (p) 42.4 418 405 396 33.6 33.8 33.5 31.7 335 319 279 293 238

190 155

98 99 00 01 02 98 99 00 01 02

*Based on a closing share price of 293.75p.

Analysis of ordinary shares at 30 March 2002 Shares held Shareholders (millions) % of Total

2002 2001 2002 2001 2002 2001 By Category: Individuals 27,496 28,031 50.0 51.5 4.7 4.9 Banks and Nominee Accounts 5,396 4,451 969.1 963.1 92.0 91.6 Insurance Companies 68 87 7.8 12.2 0.2 1.2 Investment Companies 53 64 0.6 4.9 0.1 0.5 Other Companies 483 1,172 23.8 17.3 0.7 1.6 Pension Funds 15 15 2.5 1.8 2.3 0.2

33,511 33,820 1,053.8 1,050.8 100.0 100.0

By Size of Holding: 1 – 1,000 18,769 18,288 8.3 8.5 0.8 0.8 1,001 – 5,000 11,662 12,595 24.8 26.7 2.4 2.6 5,001 – 10,000 1,203 1,259 8.5 8.9 0.8 0.8 10,001 – 100,000 1,191 1,086 38.5 34.1 3.7 3.2 100,001 – 500,000 414 355 99.4 84.7 9.4 8.1 500,001 – 1,000,000 107 105 79.1 76.5 7.5 7.3 1,000,001 and over 165 132 795.2 811.4 75.4 77.2

33,511 33,820 1,053.8 1,050.8 100.0 100.0

Annual Report and Accounts 2002 Safeway plc 63 Shareholder Information

Financial calendar 2002/03 9 July 2002 Annual General Meeting at The Dorchester Hotel, Park Lane, London W1A2HJ 5 August 2002 Payment of final dividend for the year ended 30 March 2002 to shareholders on the register on 24 May 2002 November 2002 Interim announcement of results for the 28 week period ending 12 October 2002 January 2003 Trading statement in respect of Christmas and the New Year February 2003 Anticipated payment of interim dividend for the year ending 29 March 2003 29 March 2003 Financial year end May 2003 Preliminary announcement of results for the year ending 29 March 2003 June 2003 Circulation of Annual Report

Scrip dividend option Safeway has previously offered shareholders the option to receive ordinary shares instead of cash dividends. However, since August 1999, the scrip dividend scheme has been suspended. Shares have been issued in respect of scrip dividends at the following prices: Financial Interim dividend Issue Final dividend Issue year payment date price payment date price 1990/91 25.2.1991 244.5p* 27.8.1991 286.2p 1991/92 24.2.1992 284.4p 25.8.1992 350.6p 1992/93 22.2.1993 383.2p 24.8.1993 329.2p 1993/94 21.2.1994 269.6p 23.8.1994 239.0p 1994/95 20.2.1995 243.8p 14.8.1995 325.2p 1995/96 19.2.1996 313.2p 5.8.1996 348.4p 1996/97 10.2.1997 378.9p 4.8.1997 357.6p 1997/98 9.2.1998 325.1p 3.8.1998 379.5p 1998/99 8.2.1999 293.6p – –

*Adjusted for the effect of the rights issue in June 1991.

Registrars Administrative enquiries concerning the holding of Safeway shares (including the payment of dividends) should be directed in the first instance to the Registrars at: Computershare Investor Services PLC, PO Box 435, Owen House, 8 Bankhead Crossway North, Edinburgh, EH11 4BR. Telephone 0870 702 0123. Computershare Investor Services Plc has introduced a facility whereby shareholders are able to access details of their shareholding in the Company over the internet, subject to complying with an identity check. This service can be accessed on their website at www.computershare.com.

Dividend reinvestment plan The Company provides a dividend reinvestment plan (“DRIP”). The DRIP enables shareholders to apply all of their cash dividends to buy additional ordinary shares in Safeway in the market at competitive dealing rates. Full details of the DRIP can be obtained from the Registrars. If you have previously completed a mandate form to join the DRIP you need take no further action.

Dividends Shareholders may have their dividends paid directly into their United Kingdom bank accounts if they so wish. Shareholders interested in this service should contact the Registrars in the first instance.

Amalgamation of shareholding accounts Shareholders who receive duplicate sets of mailings from Safeway, owing to their having multiple shareholding accounts, should write to the Registrars in the first instance in order to have their accounts amalgamated if they so wish.

Gifting shares to charity If you have a small holding of shares whose value makes them uneconomic to sell, you can donate them to charity under the Sharegift scheme administered by the Orr Mackintosh Foundation. Information can be obtained from their website: www.sharegift.org.

64 Safeway plc Annual Report and Accounts 2002 Corporate internet site – http://www.safeway.co.uk/corporate Safeway's Annual Report and Preliminary Results Statement are now also available on-line via the Internet and can be found on our corporate website. You can also surf our Investor, Company Information and “News and Views” sections (including the Preliminary Results presentation) at the above address. Additionally Shareholders can register their proxy appointment and instructions for this year’s Annual General Meeting by visiting the Company’s website, where full details of the procedure will be given.

CREST Safeway entered the CREST system in October 1996 and our ordinary shares are available for settlement in CREST. The membership of this system is voluntary, so shareholders who do not wish to participate may continue to hold their own share certificates and deal in our shares outside CREST.

Personal equity plans (PEP) Safeway continues to operate both a General PEP and a Single Company PEP. These plans were closed to new investors with effect from 6 April 1999. However, if you wish to receive information regarding these plans, please contact the Plan Manager, Halifax plc, Trinity Road, Halifax, West Yorkshire, HX1 2RG. Telephone 0870 606 6418.

Individual savings account (ISA) – cash Safeway operates a cash mini ISA with our financial services partner Abbey National. This permits an individual to invest without paying tax. Details are available from Abbey National. Telephone 0800 995 995.

Individual savings account (ISA) – shares The Company operates a Shares ISA administered by the Plan Manager, Halifax Share Dealing Limited. The Account enables shareholders to receive dividends on the shares held free of income tax or to reinvest dividends to increase their shareholding and to dispose of shares held without incurring any capital gains tax liability. Full details can be obtained from the Plan Manager on 0870 600 9966.

Share price information The latest share price and Company information can be obtained by calling the Financial Times Cityline Service (calls from within the UK cost 60p per minute, excluding VAT). Telephone 0906 843 1643.

Investor enquiries Please contact: Investor Relations Department, Safeway plc, Safeway House, 6 Millington Road, Hayes, Middlesex, UB3 4AY. Telephone 020 8848 8744. Facsimile 020 8970 3986. E-mail [email protected].

Annual Report and Accounts 2002 Safeway plc 65 Five year retail statistical summary

Year Year Year Year Year ended ended ended ended ended 28 March 3 April 1 April 31 March 30 March 1998 1999 2000 2001 2002 Store numbers Safeway – 20,000 sq. ft. sales area and over 253 256 260 261 263 Safeway – 10,000 – 19,999 sq. ft. sales area 130 139 142 138 138 Safeway – under 10,000 sq. ft. sales area 68 68 68 66 64 451 463 470 465 465 Safeway (Ireland) 15 13 12 12 12 Presto 20–––– 486 476 482 477 477 Sales area (‘000 sq. ft.) Safeway 9,554 9,775 9,928 9,890 9,991 Net % increase/(decrease) on previous year 6.6% 2.3% 1.6% (0.4%) 1.0% Safeway (Ireland) 415 340 305 305 305 Presto 103 – – – – 10,072 10,115 10,233 10,195 10,296 New store openings Safeway 15 14 12 – 2 Safeway (Ireland) 15 3 – – – New sales area (‘000 sq. ft.) (excluding extensions) Safeway 386 300 269 – 55 Safeway (Ireland) 415 83 – – – Average store sales area (‘000 sq. ft.) Safeway 21.2 21.1 21.1 21.3 21.5 Safeway (Ireland) 27.7 26.2 25.4 25.4 25.4 Presto 5.2 – – – – Sales per sq.ft. per week (£) Safeway 14.98 15.18 15.66 16.52 17.30 The year ended 3 April 1999 comprised 53 weeks. Based on weighted average sales area and sales including VAT (including petrol). The statistics for the years ended 28 March 1998 and 1 April 2000 are affected by there being no Easter during the year compared with two Easters in the years ended 29 March 1997, 3 April 1999 and 30 March 2002.

66 Safeway plc Annual Report and Accounts 2002 Five year financial summary

Year Year Year Year Year ended ended ended ended ended 28 March 3 April 1 April 31 March 30 March 1998 1999 2000 2001 2002 (restated) (restated) (restated) (restated) £m £m £m £m £m Sales 7,493.6 8,098.9 8,327.8 8,937.3 9,395.6 Group operating profit 409.9 421.8 317.4 395.4 416.5 Share of joint venture operating (loss)/profit (0.2) 0.2 0.1 1.6 3.9 Net property losses (18.5) (16.5) (9.0) (5.8) (0.4) Net interest payable and similar charges (51.0) (64.9) (72.4) (76.7) (65.2) Profit on ordinary activities before taxation 340.2 340.6 236.1 314.5 354.8 Tax on profit on ordinary activities (115.3) (115.1) (85.2) (103.4) (110.1) Minority interest 4.6 11.0 7.9 6.1 3.5 Profit for the financial year 229.5 236.5 158.8 217.2 248.2 Earnings per share Before net property losses 23.9p 23.2p 16.3p 22.0p 24.5p After net property losses 21.1p 21.7p 15.4p 21.4p 24.4p Dividends per share (net) 14.10p 14.40p 8.64p 9.07p 9.52p Net tangible assets Fixed assets 3,506.5 3,847.8 3,934.6 3,934.7 4,140.0 Net current liabilities (661.9) (901.8) (864.1) (806.9) (802.8) Creditors (due after one year) (822.3) (817.2) (1,020.4) (955.0) (996.8) Deferred taxation (203.9) (211.9) (221.1) (218.2) (229.8) Total capital employed 1,818.4 1,916.9 1,829.0 1,954.6 2,110.6 Net debt (771.6) (969.2) (1,221.1) (1,110.1) (1,132.8) Net gearing 42.4% 50.6% 66.8% 56.8% 53.7% Return on capital employed (after taxation) 14.5% 12.7% 8.5% 11.5% 12.2% Net tangible assets per ordinary share 166.5p 173.0p 174.5p 186.0p 200.3p Capital expenditure Booked in the year 426.7 492.3 286.7 203.8 412.3 Payments made in the year (FRS 1 basis) 464.7 459.8 319.3 182.9 359.8 Notes: 1 The year ended 3 April 1999 comprised 53 weeks. 2 Profit before taxation for the year ended 28 March 1998 was after charging £30.0 million for the costs of the store portfolio review and redundancy programme. 3 The £30.0 million costs of the store portfolio review and redundancy programme (less tax relief of £4.8 million), reduced earnings per share in the year ended 28 March 1998 by 1.8p. 4 Return on capital employed (after taxation) for the year ended 28 March 1998 was calculated before the costs (net of available tax relief) of the store portfolio review and redundancy programme. 5 Sales represent group sales including our share of BP joint venture. 6 The balance sheets for the four years to 2001 have been restated following the adoption of FRS 19, Deferred Tax, in 2002.

Annual Report and Accounts 2002 Safeway plc 67 Safeway stores at the end of May 2002 Where to find us

Fakenham Newcastle Byker Whitehaven Elgin Brecon England Farnham Newcastle Eldon Square Whitehouse Farm Ellon Caernarfon Abbeydale Felixstowe New Milton Whitley Bay Erskine Caerphilly Acocks Green Ferryhill Newport (Isle of Wight) Willerby Fort William Cardiff Acomb Filey Newport (Shropshire) Wilmslow Fraserburgh Carmarthen Aldridge Folkestone Newquay Wimborne Girvan Colwyn Bay Alnwick Formby Newton-le-Willows Wincanton Glenrothes Denbigh Andover Frome Northallerton Witham Hamilton Haverfordwest Armthorpe Gamston Northampton (2) Woking Hawick Neath Aylesbury Garforth Norton Wokingham Inverness (2) Newtown Barnard Castle Garstang Ormskirk Wolverhampton Inverurie Basingstoke Glastonbury Otley Workington Irvine Bath Gosport Oxted Worthing Johnstone Isle of Man Bearwood Grantham Paignton Yarm Kelso Douglas Beccles Gravesend Parkstone Yate Kilbirnie Ramsey Bedlington Guisborough Pendeford Yeovil Kilmarnock Belper Hadleigh Penrith Kilsyth Berwick Hale Penzance London (within M25) Kilwinning Guernsey Beverley (2) Halesowen Peterborough Acton Kinross St. Peter Port Bideford Harborne Peterlee Addlestone Kirkcudbright Bingley Harrogate Pickering Balham Kirkwall Birtley Harwich Plymouth Barbican Largs Jersey Bitterne Harwood Plymstock Becontree Heath Lerwick St. Helier Blandford Hastings Pocklington Biggin Hill Livingston (2) Blyth Haxby Ponteland Blackfen Lockerbie Bodmin Heaton Portsmouth Anchorage Park Blackheath Maybole Gibraltar Bognor Regis Hedon Portsmouth North End Bloomsbury Nairn Westside Bolton Hereford Reading Bow Newton Stewart Borrowash Herne Bay Redcar Camberwell Green North Berwick Bracknell Hexham Reddish Camden Paisley (2) Northern Ireland Bredbury High Wycombe Redditch Caterham Peebles Ballyclare Bridgwater Hinckley Redruth Chelsea Penicuik Belfast (2) Bridlington (2) Hitchin Reigate Croydon Perth Coleraine Bridport Horndean Ringwood Dartford Peterhead Cookstown Brighton Hucknall Ripon Ealing Port Glasgow Downpatrick Bristol Ilkeston Ross-on-Wye East Sheen Portree Dundonald Bromsgrove Ingleby Barwick Rubery Edgware Road Prestonpans Enniskillen Brough Kidderminster Rugeley Fulham Prestwick Kilkeel Bude Kings Heath Rushden Hammersmith Renfrew Newtownards Burntwood Kingswinford Ryton Hatch End Rothesay Omagh Burton upon Trent Kirkham St. Albans Hersham St. Andrews Strabane Buxton Lake (Isle of Wight) St. Helens Holloway St. Leonards Cannock Larkfield Sandbach Hounslow Saltcoats Canterbury (2) Leeds Bond Street Sandhurst Kensington Selkirk Safeway/BP Canvey Island Leeds Chapel Allerton Scarborough Kilburn Stevenston Bagshot Carnforth Leeds Headingley Scunthorpe Loughton Stewartfield Basildon Castle Bromwich Leeds Oakwood Seaford Morden Stewarton Bedford Chafford Hundred Leeds Swinnow Road Sedgley New Malden Stirling Bilston Chandlers Ford Leek Selby North Harrow Stornaway Birmingham Chapel-en-le-Frith Leicester Sheffield (3) Palmers Green Stranraer Blackpool Chester Leigh-on-Sea Sheldon Peckham Thurso Bolton Chesterfield Leighton Buzzard Shirley Petts Wood Troon Bournemouth Chippenham Leominster Shrewsbury Queensbury Turriff Bristol Chorlton cum Hardy Lewes Skegness St Katharine Docks Uddingston Bromley Clacton (2) Lichfield Slough Shepherds Bush Ullapool Cardiff Clevedon Lincoln Smethwick South Norwood Whitburn Chippenham Cockerton Linthorpe Solihull Southwark Wick Coventry Congleton Liskeard Southampton Stamford Hill (2) Wishaw Eastleigh Consett Littlehampton Southport Stratford Exmouth Corby Loftus South Shields Streatham Fareham Cottingham Longridge Southwood Sutton Edinburgh Folkestone Coulby Newham Loughborough Spalding Sydenham Comely Bank Gloucester Coventry (2) Lowestoft Stokesley Thamesmead Davidsons Main Greenock Cowgate Lutterworth Stone Upper Norwood East Craigs Guildford Cramlington Lymington Stourbridge Walton on Thames Ferry Road Harlow Crewe Lytham St. Annes Stratford-upon-Avon West Wickham Gyle Hillingdon Cromer Maidstone Strood Wimbledon Hunters Tryst Hitchin Crowborough Maldon Sunderland Wood Green Moredun Hounslow Darlington (2) Malton Swaffham Morningside Hove Devizes Malvern Swindon Portobello Road Ilford Dewsbury Mansfield Swinton Scotland Glasgow (3) Dinnington Market Drayton Tadcaster Aberdeen Cornhill King’s Lynn Diss Meltham Taunton Aberdeen King Street Glasgow London (4) Droitwich Melton Mowbray Tavistock Aberdeen Union Street Anniesland Margate Durham Midsomer Norton Team Valley Aberdeen Westhill Baillieston Middlesbrough Eastbourne Millom Tewkesbury Airdrie Bishopbriggs Northolt East Grinstead Milton Keynes Thornbury Alexandria Burnside Nottingham Eastleigh Morpeth Thornton Cleveleys Alloa Byres Road Plymouth Eastwood (Essex) Nantwich Tiverton Alness Cambuslang Romford Eastwood (Notts.) Newark Todmorden Annan Clydebank Sale Ellesmere Port Newcastle-under-Lyme Totnes Arbroath Crossmyloof Solihull Evesham Totton Ayr Giffnock South Croydon Towcester Banchory Greenock Southampton Tunbridge Wells Bathgate Knightswood Southend-on-Sea Up Hatherley Bellshill Muirend St. Helens Verwood Brechin Newlands Warwick Walderslade Bridge of Weir Paisley Road West Wednesbury Walsall Broughty Ferry Partick West Bromwich Warminster Buckie Rutherglen Whyteleafe Welshpool Carluke Springburn Wolverhampton Welwyn Cumnock Worthing West Bromwich Dumbarton West Kirby Dumfries Wales Weston-Super-Mare Dundee Abergavenny Weymouth Dunfermline Aberystwyth Whickham Dunoon Bangor Whitby East Kilbride (2) Barry

68 Safeway plc Annual Report and Accounts 2002 New Safeway stores denoted in red

Safeway 6 Millington Road Hayes, Middlesex UB3 4AY ∆020 8848 8744 www.safeway.co.uk