Tesco 2004 Annual Report Download

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TESCO PLC ANNUAL REPORT
AND FINANCIAL STATEMENTS 2004

Table of contents

  • Page 1
    TESCO PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2004

  • Page 2
    ... sq ft 6 6 1 2 Financial highlights Operating and financial review DirectorsÂ' report Corporate governance Report of the directors on remuneration Statement of directorsÂ' responsibilities Independent auditorsÂ' report Group profit and loss account Statement of total recognised gains and losses...

  • Page 3
    ... earnings per share † (p) Diluted earnings per share Dividend per share (p) (p) 14.93 6.84 23,866 10.5% Group enterprise value (£m) (market capitalisation plus net debt) Return on capital employed † Excluding net loss on disposal of fixed assets £9m (2003 Â- £13m), integration costs £45m...

  • Page 4
    ... management. 33,557 GROUP SUMMARY 2004 2003 restated Change £m £m % GROUP STRATEGY We have a four-part strategy for 25,401 20,189 22,585 Group sales (including value added tax) long-term growth that we set out seven years ago: strong UK core business; non-food growth; retailing services...

  • Page 5
    ... net loss on disposal of fixed assets, integration costs and goodwill amortisation, our underlying tax rate was 29.5% (2003 - 29.6%). SHAREHOLDER RETURNS AND DIVIDENDS Underlying diluted earnings per share (excluding net loss on disposal of fixed assets, integration costs and goodwill amor tisation...

  • Page 6
    ... FOREIGN CURRENCY RISK MANAGEMENT Our principal 00 01 02 03 04 I N T E R N AT I ON AL U N D E R L YIN G OP E R AT I N G P R OF I T £m operations by a combination of retained profits, long and medium-term debt capital market issues, commercial paper, bank borrowings and leases. The objective...

  • Page 7
    ...credit card and unsecured personal loan products. TPF has also developed a significant insurance business, with motor insurance a major component part. TPF risk is managed by observing and adopting industry best practices and drawing upon the expertise and systems of the Royal Bank of Scotland Group...

  • Page 8
    ...Â' shopping experience for customers. Ongoing training programmes seek to ensure that employees understand the GroupÂ's customer service objectives and strive to achieve them. The GroupÂ's selection, training, development and promotion policies ensure equal opportunities for all employees regardless...

  • Page 9
    ... performance of the Group through a variety of schemes, principally the Tesco employee profit-sharing scheme, the savingsrelated share option scheme (Save-As-You-Earn) and the Partnership Share Plan (Buy-As-You-Earn). POLITICAL AND CHARITABLE DONATIONS Contributions to community projects and to...

  • Page 10
    ... CODE The Group is committed to high standards of corporate governance. This statement describes the manner in which the company has applied the principles set out in the 1998 Combined Code on Corporate Governance. DIRECTORS AND THE BOARD For the year ended February 2004, the Board of Tesco PLC...

  • Page 11
    ... and other stakeholders take an interest in how companies are managing non-financial risks. The company endeavours to provide detailed information on its approach to corporate responsibility and its policies in the annual Tesco Corporate Social Responsibility Review, and on the website www.tesco.com...

  • Page 12
    ... at the right price. All companies have to face ethical dilemmas in the normal course of business and the companyÂ's approach comes from the Tesco Values. The Values set out the standards that the Board wish to uphold in how it treats its people. These are supported by Codes of Ethics and govern the...

  • Page 13
    ... on the Trustee Company Board. Management of the assets is delegated to a number of independent fund managers. These 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...

  • Page 14
    CORPORATE GOVERNANCE CONTINUED Nominations Committee Remuneration Committee (c) Audit Committee (d) BOARD COMMITTEE MEMBERSHIP AS AT 28 FEBRUARY 2004 Independent Directors Mr J A Gardiner Mr G F Pimlott Mr C L Allen Mr R F Chase Ms V Morali Dr H Einsmann Mr E M Davies (a) Mr K J Hydon (b) ...

  • Page 15
    ...M Chapman, Human Resources Director of Tesco Stores Ltd, and has appointed Deloitte & Touche LLP as an external, independent advisor. Deloitte & Touche LLP also provided advisory services in respect of Corporate tax planning, share schemes, pensions and international taxation to the Group during the...

  • Page 16
    ... Executive Directors who have completed one yearÂ's service are also eligible to participate in the companyÂ's all-employee savings related share option scheme (SAYE), and Buy As You Earn (BAYE) on the same terms as all other UK employees. Subject to shareholder approval being received at the Annual...

  • Page 17
    ... upon continuous service with the company. The share equivalent of dividends, which would have been paid on the shares, is added to the award during the deferral period. Short-term share bonuses are awarded annually to each of the Executive Directors, the maximum short-term bonus payable is...

  • Page 18
    ...-related share option scheme for the beneÞt of employees including Executive Directors. Under this scheme, employees save on a four-weekly basis via a bank/building society, with an option to buy shares in Tesco PLC at the end of a three or Þve-year period, at a discount of up to 20% of the market...

  • Page 19
    ... are also paid to Nonexecutives who chair committees and to the senior Nonexecutive Director. Mr D E Reid has the beneÞt of the use of a company car. PERFORMANCE GRAPH The graph highlights the GroupÂ's total shareholder return performance (i.e. share price movements plus dividends reinvested) over...

  • Page 20
    .... The share price during the 53 weeks to 28 February 2004 ranged from 159.0p to 262.0p. The performance criteria for share options set out on page 16 is audited information. TABLE 3 Pension details of the Directors Increase in accrued pension during the year (net of inßation) £000 Transfer value...

  • Page 21
    ...-market price on date of grant 202.75p). The performance criteria for share options set out on page 16 is audited information. TABLE 5 Share options held by Directors and not exercised at 28 February 2004 Savings-related share option scheme (1981) As at 23 Feb 2003 Granted(a) Exercised Number of...

  • Page 22
    REPORT OF THE DIRECTORS ON REMUNERATION CONTINUED TABLE 6 DirectorsÂ' interests in the long-term incentive plan No of shares at 22 Feb 2003 No of shares at 28 Feb 2004 Value vested £000 MMP on vesting (p) Name Cycle ending Award date Shares awarded Shares vested Vesting date Sir Terry Leahy...

  • Page 23
    ...DirectorsÂ' interests in the long-term incentive plan continued No of shares at 22 Feb 2003 No of shares at 28 Feb 2004 Value vested £000 MMP on vesting (p) Name Cycle ending Award date Shares awarded Shares vested Vesting date Mr P A Clarke 2004 2004 2004 2004 2005 2005 2005 2005 2006 2006...

  • Page 24
    REPORT OF THE DIRECTORS ON REMUNERATION CONTINUED TABLE 6 DirectorsÂ' interests in the long-term incentive plan continued No of shares at 22 Feb 2003 No of shares at 28 Feb 2004 Value vested £000 MMP on vesting (p) Name Cycle ending Award date Shares awarded Shares vested Vesting date Mr T J...

  • Page 25
    ... under the executive share option schemes (1984), (1994), (1996) and the savings-related share option scheme (1981) (note 26). Between 28 February 2004 and 19 April 2004, 586 shares were purchased by Executive Directors as part of the Partnership Share Plan (BAYE) operated by the Group. The ordinary...

  • Page 26
    ...statements comply with the Companies Act 1985. The Directors are responsible for the maintenance and integrity of the Annual Review and Summary Financial Statement and Annual Report and Financial Statements published on the GroupÂ's Corporate website. Legislation in the UK concerning the preparation...

  • Page 27
    ... of accounting policies. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the DirectorsÂ' remuneration report (Â'the auditable partÂ'). RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS We review whether the corporate governance...

  • Page 28
    ... Acquisitions 2004 £m 2004 £m 2003 restated £m note Sales at net selling prices Turnover including share of joint ventures Less: share of joint venturesÂ' turnover Group turnover excluding value added tax Operating expenses Â- Normal operating expenses Â- Employee proÞt-sharing Â- Integration...

  • Page 29
    ... 2004 Group 2004 £m 2003 £m 2004 £m Company 2003 £m ProÞt for the Þnancial year Dividends (Loss)/gain on foreign currency net investments New share capital subscribed less expenses Payment of dividends by shares in lieu of cash Net addition to shareholdersÂ' funds Opening shareholders...

  • Page 30
    ... Group note £m 2004 £m £m 2003 £m 2004 £m Company 2003 £m Fixed assets Intangible assets Tangible assets Investments Investments in joint ventures Share of gross assets Less: share of gross liabilities Goodwill Investments in associates Current assets Stocks Debtors Investments Cash at bank...

  • Page 31
    ...outßow from returns on investments and servicing of Þnance Taxation Corporation tax paid Capital expenditure and Þnancial investment Payments to acquire tangible Þxed assets Receipts from sale of tangible Þxed assets Purchase of own shares Net cash outßow from capital expenditure and Þnancial...

  • Page 32
    ... 28 February 2004 apart from Global T.H., Tesco Polska Sp. z o.o., ÿ R a.s., Tesco Stores SR a.s., Tesco Kipa A.S Tesco Stores C , ., Samsung Tesco Co. Limited, Tesco Malaysia Sdn Bhd, Tesco Taiwan Co. Limited, Ek-Chai Distribution System Co. Ltd and C Two-Network Co. Ltd which prepared accounts to...

  • Page 33
    ... and laws substantively enacted at the balance sheet date. PENSIONS The expected cost of pensions in respect of the GroupÂ's deÞned beneÞt pension schemes is charged to the proÞt and loss account over the working lifetimes of employees in the schemes. Actuarial surpluses and deÞcits are spread...

  • Page 34
    ...2 Segmental analysis of sales, turnover, proÞt and net assets The GroupÂ's operations of retailing and associated activities and property development are carried out in the UK, Republic of Ireland, Hungary, Poland, Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia and Japan...

  • Page 35
    ...lease costs (a) Employment costs (note 6) (a) Operating lease costs include £55m for hire of plant and machinery (2003 Â- £39m). 631 69 54 221 3,234 542 39 23 172 2,653 Amounts payable to auditors: 2004 £m 2003 £m Assurance Â- audit (i) Â- other assurance services Tax services Other services...

  • Page 36
    ... interest payable 2004 £m £m £m 2003 £m Interest receivable and similar income on money market investments and deposits Less interest payable on: Short-term bank loans and overdrafts repayable within Þve years Finance charges payable on Þnance leases 4% unsecured deep discount loan stock 2006...

  • Page 37
    ... assets, integration costs and amortisation of goodwill. 2004 million 2003 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 61 7,307 7,368 62 6,989 7,051 TESCO PLC...

  • Page 38
    ... in Þxed asset investment (note 14). NOTE 13 Tangible Þxed assets Land and buildings £m Plant, equipment, Þxtures and Þttings and motor vehicles £m Total £m Cost At 22 February 2003 Currency translation Additions at cost (a) Acquisitions Disposals At 28 February 2004 Depreciation At 22...

  • Page 39
    ... 28 February 2004 (d) Capital work in progress does not include land. 11,023 501 485 12,009 9,992 493 470 10,955 NOTE 14 Fixed asset investments Group Joint ventures (b) £m Own shares (d) £m Other investments £m Shares in Group undertakings(a) £m Loans to Group undertakings £m Company Joint...

  • Page 40
    ... Insurance Company Limited Tesco Distribution Limited Tesco Card Services Limited T&S Stores Limited Tesco Ireland Limited Global T.H. Tesco Polska Sp. z o.o. ù R a.s. Tesco Stores C Tesco Stores SR a.s. Samsung Tesco Co. Limited Ek-Chai Distribution System Co. Ltd Tesco Taiwan Co. Limited Tesco...

  • Page 41
    ... at market value. Funding is provided to the QUEST by Tesco Stores Limited, the companyÂ's principal operating subsidiary. The QUEST has waived its right to dividends on these shares. NOTE 15 Stocks Group 2004 £m 2003 £m 2004 £m Company 2003 £m Goods held for resale Development property 1,196...

  • Page 42
    ...Group 2004 £m 2003 £m 2004 £m Company 2003 £m Bank loans and overdrafts (a) (b) Trade creditors Amounts owed to Group undertakings Corporation tax Other taxation and social security Other creditors Loans from joint ventures Accruals and deferred income (c) Finance leases (note 23) (d) Dividends...

  • Page 43
    ... Euro medium term notes 2010 were transacted. A new 20bn Yen medium term note valued at £98m was issued during the year. (m) Various bank loans maturing in 2005 and 2008. NOTE 20 Net debt Group 2004 £m 2003 £m 2004 £m Company 2003 £m Due within one year : Bank and other loans Finance leases...

  • Page 44
    ... objectives and policies for holding and issuing Þnancial instruments is set out in the Operating and Financial Review on pages 2 to 5. Other than where these items have been included in the currency risk disclosures, short-term debtors and creditors have been excluded from the following analysis...

  • Page 45
    ... continued Analysis of interest rate exposure and currency of Þnancial assets The interest rate exposure and currency proÞle of the Þnancial assets of the Group at 28 February 2004 were: 2004 Cash at bank and in hand £m Short-term deposits £m Cash at bank and in hand £m Short-term deposits...

  • Page 46
    ... taxation £m Total £m At 22 February 2003 Currency translation Acquisition of Group companies Amount (credited)/charged in year At 28 February 2004 16 (1) Â- (1) 14 505 Â- (5) 72 572 521 (1) (5) 71 586 Property provisions comprise future rents payable net of rents receivable on onerous and...

  • Page 47
    ...have been exercised under the terms of the savings-related share option scheme (1981) and the executive share option schemes (1984, 1994 and 1996) respectively. As at 28 February 2004, the Directors were authorised to purchase up to a maximum in aggregate of 723 million ordinary shares. TESCO PLC 45

  • Page 48
    ... the middle-market quotation of an ordinary share immediately prior to the date of grant. (ii) The Irish savings-related share option scheme (2000) permits the grant to Irish employees of options in respect of ordinary shares linked to a building society/bank save-as-you-earn contract for a term of...

  • Page 49
    ... to the proÞt and loss account. 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 28 Feb 2004 Subscription price (pence) 29 October 1998 28...

  • Page 50
    ... share option scheme (1984) Date of grant Number of executives Shares under option 28 Feb 2004 Subscription price (pence) 10 June 1994 29 September 1994 18 1 Number of executives 392,000 21,000 Shares under option 28 Feb 2004 70.0 77.3 Subscription price (pence) Executive share option scheme...

  • Page 51
    ...years, being the expected 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 deÞned beneÞt scheme open to senior executives and certain other employees at the invitation of the...

  • Page 52
    ... The assets in the schemes and the expected rates of return were: 2004 Long-term rate of expected return % Market value £m Long-term rate of expected return % 2003 Market value £m Long-term rate of expected return % 2002 Market value £m Equities Bonds Property Other Total market value of assets...

  • Page 53
    ... 2004 are set out below: 2004 £m 2003 £m Analysis of the amount charged to operating proÞt Current service cost Past service cost Total operating charge Analysis of the amount credited/(charged) to other Þnance income Expected return on pension schemesÂ' assets Interest on pension schemes...

  • Page 54
    ... Properties Limited, Tesco BL Holdings Limited, Tesco British Land Property Partnership, Tesco Personal Finance Group Limited, Tesco Home Shopping Limited, iVillage UK Limited (iVillage became a subsidiary in March 2003), dunnhumby Limited, Tesco Mobile Limited, Nutri Centres Limited, Taiwan Charn...

  • Page 55
    ...(4) (4) (5) Â- Â- Â- (1) (1) (20) (1) (21) (22) (11) (29) 15 Â- 15 19 Â- 19 (6) 670 430 (775) (69) (844) (4,180) (166) (4,346) (4,090) (a) Liquid resources comprises short-term deposits with banks and money-market investments which mature within 12 months of the date of inception. TESCO PLC 53

  • Page 56
    ... 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 by the Group in the year to 28 February 2004 on the consolidated balance sheet. Acquisition accounting...

  • Page 57
    ...February 2004. The purchase consideration was £96m. The net assets of Kipa 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 of acquisition £m Fixed assets Stock...

  • Page 58
    ...UK Rest of Europe Asia Operating margin UK Rest of Europe Asia Total Group Share of operating proÞt before goodwill amortisation from joint ventures and associates Net interest payable Underlying pre-tax proÞt Integration costs Goodwill amortisation Net loss on disposal of Þxed assets... TESCO PLC

  • Page 59
    ... earnings per share and underlying diluted earnings per share exclude net loss on disposal of fixed assets, integration costs and goodwill amortisation. 2004, 2003, 2002 and 2001 statistics have been calculated based on the adoption of FRS 19 Â'Deferred TaxÂ'. Market capitalisation plus net...

  • Page 60
    COVER: BARRY AUSTIN, SANDHURST EXTRA Tesco PLC, Tesco House, Delamare Road, Cheshunt, Hertfordshire EN8 9SL