Tesco 2003 Annual Report Download

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TESCO PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2003

Table of contents

  • Page 1
    TESCO PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2003

  • Page 2
    ... of movements in shareholders' funds 52 4.8m sq ft 17 6 THAILAND 21 2.1m sq ft 7 8 SOUTH KOREA 3 0.3m sq ft 1 1 TAIWAN 26 27 28 30 54 Balance sheets Group cash flow statement Accounting policies Notes to the financial statements Five year record 3 0.3m sq ft 3 1 MALAYSIA 2,291 39...

  • Page 3
    ... per share (p) Dividend per share (p) + 13.3% UNDERLYING DILUTED EARNINGS PER SHARE †+ 15.2% DILUTED EARNINGS PER SHARE Group enterprise value (market capitalisation plus net debt) †16,896 21,290 + 13.2% DIVIDEND PER SHARE Excluding net loss on disposal of fixed assets, integration...

  • Page 4
    ... business; non-food growth; retailing services and international. This customer focused strategy has again delivered strong results by bringing value, choice and convenience to millions of customers every week. Underlying diluted earnings per share (excluding net loss on disposal of fixed assets...

  • Page 5
    ...the last year, total shareholder return in Tesco was (31.9)% compared to the FTSE 100 average of (24.0)%. UK Sales grew by 7.9% to £23,407m (2002 - £21,685m). Of this, 4.1% came from existing stores and 3.8% from net new stores, which includes 0.7% relating to the acquisition of T&S Stores PLC. UK...

  • Page 6
    ...managed as described below. The balance sheet positions at 22 February 2003 are representative of the positions throughout the year. The Group finances its operations by a combination of retained profits, long and medium-term debt capital market issues, commercial paper, bank borrowings and leases...

  • Page 7
    ... weeks ended 22 February 2003. PRINCIPAL ACTIVITY AND BUSINESS REVIEW The principal activity of the Group is the operation of food stores and associated activities in the UK, Republic of Ireland, France, Hungary, Poland, Czech Republic, Slovakia, Thailand, South Korea, Taiwan and Malaysia. A review...

  • Page 8
    ... a variety of schemes, principally the Tesco employee profit-sharing scheme, the savings-related share option scheme (Save-AsYou-Earn) and the Partnership Share Plan (Buy-As-You-Earn). EMPLOYMENT POLICIES The Directors consider that the Group and the company have adequate resources to remain in...

  • Page 9
    ... committed to high standards of corporate governance. This statement describes the manner in which the company has applied the principles set out in the Combined Code on Corporate Governance. The Board of Tesco PLC comprises eight Executive Directors and six independent Non-executive Directors. The...

  • Page 10
    ... the Board, together with monitoring regimes based upon our Steering Wheel, agrees the annual revenue and capital budgets. The Steering Wheel is the term used to describe our balanced scorecard approach, which we believe is the best way to achieve results for our shareholders. It sets out a broad...

  • Page 11
    ...our business practices centre on serving the customer and in meeting those challenges we recognise our responsibility to deliver quality products at the right price. All companies have to face ethical dilemmas in the normal course of business. Our approach comes from the Tesco Values. The Values set...

  • Page 12
    ... fund managers have discretion to invest in shares of Tesco PLC, but only to the proportional weighting of the shares in the total market. Details of pension commitments are set out in note 26 to the financial statements on pages 47 to 49. Throughout the year ended 22 February 2003 the company...

  • Page 13
    ...(b) Ms V Morali (c) Dr H Einsmann (d) Mr J W Melbourn (e) Executive Directors Sir Terry Leahy Mr R S Ager Mr P A Clarke (a) (b) (c) (d) (e) Mr C L Allen retired from the Audit Committee on 14 June 2002. Mr R F Chase was appointed to the Board and the Nominations, Remuneration and Audit Committees on...

  • Page 14
    ... salary; • short and long-term performance-related share awards via the Executive Incentive Scheme; • performance-related share options awards via the Executive Share Option Scheme; • benefits (which comprise car benefits, life assurance, disability and health insurance); and • pensions...

  • Page 15
    ... Report Regulations 2002. Details of Directors' emoluments and interests, including executive and savings-related share options, are set out on pages 15 to 21. The following summarises the remuneration packages for Executive Directors. Copies of the Executive Directors' contracts of employment...

  • Page 16
    ... Executive Directors. Under this scheme, employees save on a four-weekly basis via a bank/building society with an option to buy shares Sir Terry Leahy, Mr D E Reid, Mr R S Ager, Mr P A Clarke, Mr J Gildersleeve, Mr A T Higginson, Mr T J R Mason and Mr D T Potts have service agreements dated...

  • Page 17
    ...reserves the right to vary this period for the initial period of appointment. NON - EXECUTIVE DIRECTORS The Group's total shareholder return performance (i.e. share price movements plus dividends reinvested) over the last five financial years relative to the FTSE 100 index of companies is set out...

  • Page 18
    ....00p. The share price during the 52 weeks to 22 February 2003 ranged from 163.00p to 266.25p. The performance criteria for share options set out on page 14 is audited information. Pension details of the Directors Increase in accrued pension during the year (net of inï¬,ation) £000 Transfer value of...

  • Page 19
    ... to be reported during the year. The subscription price for options granted during the year under the savings-related share option scheme was 159.0p and the options mature in either 2006 (three-year scheme) or 2008 (five-year scheme). The shares relating to options exercised in the year were all...

  • Page 20
    ...TESCO PLC report of the directors on remuneration TABLE 6 continued Directors' interests in incentive plans Number of shares at 23 Feb 2002 Number of shares at 22 Feb 2003 Value vested £000 Name Cycle ending Award date Shares awarded Shares vested Vesting date... 2006 The award price on 25 ...

  • Page 21
    TESCO PLC 19 TABLE 6 Directors' interests in incentive plans continued Number of shares at 23 Feb 2002 Number of shares at 22 Feb 2003 Value vested £000 Name Cycle ending Award date Shares awarded Shares vested Vesting date Mr P A Clarke 2004 2004 2004 2004 2005 2005 2005 2006 2006 13....

  • Page 22
    20 TESCO PLC report of the directors on remuneration TABLE 6 continued Directors' interests in incentive plans continued Number of shares at 23 Feb 2002 Number of shares at 22 Feb 2003 Value vested £000 Name Cycle ending Award date Shares awarded Shares vested Vesting date Mr T J R Mason...

  • Page 23
    ... above comprise options under the executive share option schemes (1984), (1994), (1996) and the savings-related share option scheme (1981) (note 25). Between 22 February 2003 and 7 April 2003, 1,152 shares were purchased by Executive Directors as part of the Partnership Share Plan (BAYE) operated...

  • Page 24
    ... TESCO PLC directors' responsibilities for the preparation of the financial statements The Directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the Group as at the end...

  • Page 25
    ... of accounting policies. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the Directors' remuneration report ('the auditable part'). RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND We review whether the corporate governance statement re...

  • Page 26
    24 TESCO PLC group profit and loss account 52 weeks ended 22 February 2003 Continuing operations 2003 £m Acquisitions 2003 £m 2003 £m 2002 £m note Sales at net selling prices Turnover including share of joint ventures Less: share of joint ventures' turnover Group turnover excluding value ...

  • Page 27
    ... weeks ended 22 February 2003 Group 2003 £m 2002 £m 2003 £m Company 2002 £m Profit for the financial year Dividends Gain on foreign currency net investments New share capital subscribed less expenses Payment of dividends by shares in lieu of cash Net addition to shareholders' funds Opening...

  • Page 28
    ...: falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Share premium account Other reserves Profit and loss account Equity shareholders' funds Minority interests Total capital employed 17 (5,372) (2,932) 11,129 (4,809...

  • Page 29
    ...ow from acquisitions and disposals Equity dividends paid Cash outï¬,ow before management of liquid resources and financing Management of liquid resources (Increase)/decrease in short-term deposits Financing Ordinary shares issued for cash Increase in other loans New finance leases Capital element...

  • Page 30
    ..., 'Impairment of Fixed Assets and Goodwill'. Any impairment is recognised in the profit and loss account in the year in which it occurs. TURNOVER Turnover consists of sales through retail outlets and sales of development properties excluding value added tax. LEASING STOCKS Stocks comprise goods...

  • Page 31
    ... start interest rate swaps, cross currency swaps, forward rate agreements and forward exchange contracts and options. Termination payments made or received in respect of derivatives are spread over the life of the underlying exposure in cases where the underlying exposure continues to exist. Where...

  • Page 32
    ... 1 Segmental analysis of sales, turnover, profit and net assets The Group's operations of retailing and associated activities and property development are carried out in the UK, Republic of Ireland, France, Hungary, Poland, Czech Republic, Slovakia, Thailand, South Korea, Taiwan and Malaysia. The...

  • Page 33
    ...1m relating to acquisition advice. NOTE 5 Employment costs 2003 £m 2002 £m Employment costs during the year Wages and salaries Social security costs Other pension costs (note 26) 2,385 146 122 2,653 2,103 129 104 2,336 Number of persons employed The average number of employees per week during...

  • Page 34
    ... receivable and similar income on money market investments and deposits Less interest payable on: Short-term bank loans and overdrafts repayable within five years Finance charges payable on finance leases 4% unsecured deep discount loan stock 2006 (a) 4% RPI bonds 2016 (b) 3.322% LPI bonds 2025...

  • Page 35
    ..., with the average daily mid-market closing price over the period. 2003 million 2002 million Weighted average number of dilutive share options Weighted average number of shares in issue in the period Total number of shares for calculating diluted earnings per share 62 6,989 7,051 114 6,887...

  • Page 36
    ... is included in fixed asset investment additions (note 13). Tangible fixed assets Plant, equipment, fixtures and Land and fittings and buildings motor vehicles £m £m NOTE 12 Total £m Cost At 23 February 2002 Currency translation Additions at cost (a) Acquisitions Disposals At 22 February...

  • Page 37
    ...years At 22 February 2003 (d) Capital work in progress does not include land. 9,992 493 470 10,955 8,492 505 487 9,484 NOTE 13 Fixed asset investments Group Joint ventures (b) £m Own shares (d) £m Other investments £m Share in Group undertakings (a) £m Loans to Group undertakings £m Company...

  • Page 38
    ... Tesco Home Shopping Limited iVillage UK Limited dunnhumby Limited Nutri Centres Limited Taiwan Charn Yang Developments Limited Retail Property Company Limited Tesco Card Services Limited Property Investment Property Investment Property Investment Property Investment Personal Finance Mail Order...

  • Page 39
    ... at market value. Funding is provided to the QUEST by Tesco Stores Limited, the company's principal operating subsidiary. The QUEST has waived its right to dividends on these shares. Stocks Group 2003 £m 2002 £m 2003 £m Company 2002 £m NOTE 14 Goods held for resale Development property 1,122...

  • Page 40
    38 TESCO PLC notes to the financial statements NOTE 17 continued Creditors falling due within one year Group 2003 £m 2002 £m 2003 £m Company 2002 £m Bank loans and overdrafts (a) Trade creditors Amounts owed to Group undertakings Corporation tax Other taxation and social security Other ...

  • Page 41
    ... - 5 4,494 Due within one to two years: Bank and other loans Finance leases Due within two to five years: Bank and other loans Finance leases Due otherwise than by instalments after five years: Gross debt Less: Cash at bank and in hand Money market investments and deposits Net debt Bank and other...

  • Page 42
    40 TESCO PLC notes to the financial statements NOTE 20 continued Financial instruments An explanation of the objectives and policies for holding and issuing financial instruments is set out in the operating and financial review on pages 2 to 5. Other than where these items have been included...

  • Page 43
    ... ended 28 February 2004. All facilities incur commitment fees at market rates and would provide funding at ï¬,oating rates. Currency exposures Within the Group, the principal differences on exchange arising, which are taken to the profit and loss account, relate to purchases made by Group companies...

  • Page 44
    ... foreign currency denominated purchases. On a mark-to-market basis, these contracts show a gain of £1m (2002 - £1m). The fair values of interest rate swaps, forward foreign exchange contracts and long-term sterling denominated fixed rate debt have been determined by reference to prices available...

  • Page 45
    ... share capital Ordinary shares of 5p each Number £m Authorised at 23 February 2002 Authorised during the year Authorised at 22 February 2003 Allotted, issued and fully paid: Issued at 23 February 2002 Issued in connection with the acquisition of T&S Stores PLC Scrip dividend election Share options...

  • Page 46
    ...shares linked to a building society/bank save-as-you-earn contract for a term of three or five years with contributions from employees of an amount between â,¬12 and â,¬320 per four-weekly period. Options are capable of being exercised at the end of the three and five-year period at a subscription...

  • Page 47
    ... be no discounted options granted under this scheme. The company has granted outstanding options in connection with the six schemes as follows: Savings-related share option scheme (1981) Date of grant Number of executives and employees Shares under option 22 Feb 2003 Subscription price (pence) 31...

  • Page 48
    46 TESCO PLC notes to the financial statements NOTE 25 Share options continued Executive share option scheme (1984) continued Date of grant Number of executives Shares under option 22 Feb 2003 Subscription price (pence) 10 June 1994 29 September 1994 27 2 Number of executives 539,127 42,...

  • Page 49
    ... average remaining service lifetime of employed members. The next actuarial valuation is due at 31 March 2005. The T&S Stores PLC Senior Executive Pension Scheme is a funded defined benefit scheme open to senior executives and certain other employees at the invitation of the company. At the...

  • Page 50
    ... rates of return were: 2003 Long-term rate of expected return % Market value £m Long-term rate of expected return % 2002 Market value £m Equities Bonds Property Other Total market value of assets Present value of schemes' liabilities Deficit in the schemes Related deferred tax asset Net pension...

  • Page 51
    ... profit and loss account and consolidated statement of total recognised gains and losses for the year ended 22 February 2003 are set out below: 2003 £m Analysis of the amount charged to operating profit Current service cost Past service cost Total operating charge Analysis of the amount credited...

  • Page 52
    ... BL Holdings Limited, Tesco British Land Property Partnership, Tesco Personal Finance Group Limited, Tesco Home Shopping Limited, iVillage UK Limited, dunnhumby Limited, Nutri Centres Limited, Taiwan Charn Yang Developments Limited, Retail Property Company Limited and Tesco Card Services Limited...

  • Page 53
    ... NOTE 32 Analysis of changes in net debt At 23 Feb 2002 £m Cash ï¬,ow £m Acquistions £m Other noncash changes £m Exchange movements £m At 22 Feb 2003 £m Cash at bank and in hand Money market investments and deposits Bank and other loans Finance leases Debt due within one year Bank and other...

  • Page 54
    ...The net assets and results of acquired businesses are included in the consolidated accounts from their respective dates of acquisition. The following tables set out the effect of the material acquisitions of the Group companies in the year to 22 February 2003 on the consolidated balance sheet. Other...

  • Page 55
    ... balance sheet at 22 February 2003. The purchase consideration was £366m. The net assets of T&S Stores PLC on acquisition and the provisional fair values were as follows: Adjustments to align accounting policies £m Book values of acquired business £m Revaluations £m Fair values at date...

  • Page 56
    54 TESCO PLC five year record Year ended February Financial statistics £m Group sales Turnover excluding VAT UK Rest of Europe Asia Underlying operating profit UK Rest of Europe Asia Operating margin UK Rest of Europe Asia Total Group Share of operating profit before goodwill amortisation ...

  • Page 57
    ... Underlying diluted earnings per share Underlying earnings per share Dividend per share Return on shareholders' funds Return on capital employed Group statistics Number of stores Total sales area - 000 sq ft Full-time equivalent employees UK retail statistics Number of stores Total sales area - 000...

  • Page 58
    56 TESCO PLC

  • Page 59
    Designed and produced by Corporate Edge 020 7855 5888 • Cover photography by Arnhel De Serra • Printed by CTD Capita

  • Page 60
    Tesco PLC, Tesco House, Delamare Road, Cheshunt, Hertfordshire EN8 9SL