Tesco 2005 Annual Report Download

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Annual report and financial statements 2005

Table of contents

  • Page 1
    Annual report and financial statements 2005

  • Page 2
    ...review 9 Directors' report 1 1 Corporate governance 1 7 Directors' remuneration report 3 2 Statement of directors' responsibilities 3 3 Independent auditors' report 3 4 Group profit and loss account 3 5 Statement of total recognised gains and losses Reconciliation of movements in shareholders' funds...

  • Page 3
    ... per share (p) Dividend per share (p) Group enterprise value (£m) (market capitalisation plus net debt) 2,029 1,962 1,708 1,600 1,684 1,576 18.30 17.50 7.56 16.31 14.93 6.84 27,853 11.5% 23,866 10.4% Return on capital employed# †Excluding net profit/(loss) on disposal of fixed assets...

  • Page 4
    ...Diluted earnings per share (p) Dividend per share (p) Strategy The Group's four-part strategy - to grow the core UK business, be as strong in non-food as in food, develop retailing services and become a successful international retailer, was laid down in 1997 and it has been the foundation of Tesco...

  • Page 5
    ...July 2005. Total Shareholder Return Total Shareholder Returns (TSR), which is measured as the percentage change in the share price, plus the dividend paid, has increased by 108.7% over the last five years, compared to the decrease in the FTSE 100 average of 6.2%. Over the last three years, Tesco TSR...

  • Page 6
    ... employees across the Group. In addition, our Save-as-You-Earn scheme, which gives employees the opportunity to buy shares at a 20% discount, resulted in a further £104m worth of shares being issued to staff during the year. Pensions We are convinced our award-winning defined benefit pension scheme...

  • Page 7
    ... of this, which is based on our in-store picking of Tesco.com orders, shows that availability improved by a full percentage point compared with last year. • Self-service checkouts, which save time for customers, are now in over 100 stores, with over half a million shoppers now regularly using...

  • Page 8
    ... to the needs of their local customers. They are run by strong local management teams who share Tesco Group expertise. In almost every country we are continuing to grow market share as we build our store networks and improve our like-for-like sales. At constant exchange rates, sales increased by...

  • Page 9
    ... sales, profit and market share growth despite a slowing economy and some restriction on hypermarket opening hours. We now have 107 stores trading across four formats, including 46 Express stores and 12 Value stores. All the newer formats are performing well, giving us more opportunities to develop...

  • Page 10
    ... Group relate to the availability of funds to meet business needs, the risk of default by counterparties to financial transactions (credit risk), and fluctuations in interest and foreign exchange rates. These risks are managed as described below. The balance sheet positions at 26 February 2005 are...

  • Page 11
    ... presentations can be accessed on our website, www.tesco.com/corporate and in our Corporate Responsibility Review 2005. The Directors present their annual report to shareholders on the affairs of the Group, together with the audited consolidated financial statements of the Group for the year ended...

  • Page 12
    ... of the Group through a variety of schemes, principally the Tesco employee profit-sharing scheme (Sharesin-Success), the savings-related share option scheme (Save-AsYou-Earn) and the partnership share plan (Buy-As-You-Earn). Political and charitable donations Cash donations to charities amounted to...

  • Page 13
    ... Combined Code provides a useful guide from which to review corporate governance within the Group. This statement describes the Board's approach to corporate governance. Board composition and independence As at 26 February 2005, the Board of Tesco PLC comprised six Executive Directors and eight...

  • Page 14
    Corporate governance continued The Executive Committee has also set up further operational groups or boards aimed at seeing through the key elements of the strategic plan, managing the UK and international operations, Joint ventures, property acquisitions, trading, finance, funding and people ...

  • Page 15
    ... and international businesses. Procedures exist to ensure that significant risks and control failures are escalated to senior management and the Board on a timely basis. We have a five-year rolling business plan that focuses on delivering the Group's strategy. Each business unit and support function...

  • Page 16
    ... a year to support, develop and monitor policies on social, ethical and environmental issues. It reviews threats and opportunities for the Group. Key Performance Indicators (KPIs) for key areas of corporate responsibility are tracked through the 'Responsible and safe' segment of our 14 Tesco PLC

  • Page 17
    ... and working environment for customers, staff and contractors. The company has established policies, procedures and training to identify and minimise the risks inherent in a retail and distribution business. The Group has established, over many years, a comprehensive due diligence process supported...

  • Page 18
    ... Annual Review and Summary Financial Statement. At the half year, all shareholders receive an Interim Report. These reports, together with publicly-made trading statements, are available on the Group's website, www.tesco.com/corporate Pension funds The Tesco PLC Pension Scheme is a defined benefit...

  • Page 19
    ... services in respect of corporate tax planning, share schemes, pensions and international taxation to the Group during the year. Members' attendance at committee meetings is listed in the Directors' Corporate Governance report on page 13. The role of the Committee The Remuneration Committee's key...

  • Page 20
    ... car benefits, disability and health insurance and staff discount); • pension, and • Executive Directors are also eligible to participate in the company's all-employee savings related share option scheme (SAYE), Shares in Success and Buy As You Earn scheme on the same terms as all other UK...

  • Page 21
    ... return, Earnings per share and specified corporate objectives Return on capital employed over a three year period Earnings per share relative to retail price index with more stretching performance targets for the balance of awards over 100% of salary Performance Share Plan Share options Tesco PLC...

  • Page 22
    ... the Group has operated the partnership shares element of an Inland Revenue approved share investment plan for the benefit of employees, including Executive Directors. Under this scheme, employees save up to a limit of £110 on a fourweekly basis, to buy shares at market value in Tesco PLC. Pensions...

  • Page 23
    ... Remuneration Report Regulations 2002. Details of Directors' emoluments and interests, including executive and savings-related share options, are set out on pages 22 to 31. Mr C L Allen Chairman of the Remuneration Committee Director Mr A T Higginson Mr T J R Mason B Sky B C&J Clark Capital Radio...

  • Page 24
    ...' emoluments Fixed emoluments Short-term Cash (new scheme) £000 Performance-related emoluments Short-term Deferred Shares (new scheme) £000 Salary £000 Benefits £000 Profit-sharing £000 Long-term (old scheme) £000 Total 2005 £000 Total 2004 £000 Executive Directors Sir Terry Leahy Mr...

  • Page 25
    ... would be paid annually on retirement at 60, based on service to 26 February 2005. (b) The method used for calculating transfer values was revised during the year to bring it in line with latest actuarial professional guidance. Changes in financial conditions and improving mortality rates have meant...

  • Page 26
    ... on exercise is the difference between the market value at exercise and the exercise price of the option, although the shares may have been retained. The share price at 26 February 2005 was 308.5p. The share price during the 52 weeks to 26 February 2005 ranged from 241.0p to 323.25p. 24 Tesco PLC

  • Page 27
    ...Executive share options held by Directors Executive share option schemes (1984), (1994) and (1996) As at 28 Feb 2004 Options granted in year(b) Options exercised in year As at 26 Feb 2005 Exercise price (pence) Date from which exercisable Date of grant Expiry date... 15.04.2012 14.04....Tesco PLC 25

  • Page 28
    Directors' remuneration report continued Table 4 Executive share options held by Directors continued Executive share option schemes (1984), (1994) and (1996) As at 28 Feb 2004 Options granted in year(b) Options exercised in year As at 26 Feb 2005 Exercise price (pence) Date from which exercisable ...

  • Page 29
    Table 5 Save as you earn share options continued Savings-related share option scheme (1981) As at 28 Feb 2004 Options granted in year Options exercised in year (c) Options lapsed in year As at 26 Feb 2005 Exercise price (pence) Value realisable 2005 £'000 Value realisable 2004 £'000 Date of grant...

  • Page 30
    ... lapsed in the year under this scheme. Table 7 Directors' interests in the long-term incentive plan Year of release Award date No of shares at 28 Feb 2004 Shares awarded during year Shares released during year No of shares at 26 Feb 2005 Value released £000 Date of release MMP on release (pence...

  • Page 31
    ... 7 Directors' interests in the long-term incentive plan continued Year of release Award date No of shares at 28 Feb 2004 Shares awarded during year Shares released during year No of shares at 26 Feb 2005 Value released £000 Date of release MMP on release (pence) Name Mr R Brasher 2004 2004 2005...

  • Page 32
    Directors' remuneration report continued Table 7 Directors' interests in the long-term incentive plan continued Year of release Award date No of shares at 28 Feb 2004 Shares awarded during year Shares released during year No of shares at 26 Feb 2005 Value released £000 Date of release MMP on ...

  • Page 33
    ...April 2005, 420 shares were purchased by Executive Directors as part of the Partnership Share Plan (BAYE) operated by the Group. (b) Options to acquire ordinary shares shown above comprise options under the executive share option schemes and the savings-related share option scheme (1981). Tesco PLC...

  • Page 34
    ... 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 Group's Corporate website. Legislation in the UK concerning the preparation and...

  • Page 35
    ... review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the company's or Group's corporate governance...

  • Page 36
    ...Group turnover excluding value added tax Operating expenses - Normal operating expenses - Employee profit-sharing - Integration costs - Goodwill amortisation Operating profit/(loss) Share of operating profit/(loss) of joint ventures and associates Net profit/(loss) on disposal of fixed assets Profit...

  • Page 37
    ... in shareholders' funds Year ended 26 February 2005 Group†2005 £m 2004 restated £m 2005 £m Company 2004 £m Profit for the financial year Dividends Gain/(loss) on foreign currency net investments Tax effect of exchange adjustment offset in reserves Application of UITF 38 New share capital...

  • Page 38
    ... 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 18 (6,072) (2,615) 14,338 (5,516) (2,391) 13,004...

  • Page 39
    ... paid Cash inflow/(outflow) before management of liquid resources and financing Management of liquid resources Decrease/(increase) in short-term deposits Financing Ordinary shares issued for cash Net purchase of own shares for share trusts Net decrease in other loans New finance leases Capital...

  • Page 40
    ... associates. The accounts of the parent company's subsidiary undertakings are prepared to dates around 26 February 2005 apart from Tesco Global Aruhazak Rt., ˇR a.s., Tesco Stores SR a.s., Tesco Polska Sp. z o.o., Tesco Stores C Tesco Kipa A.S ., Samsung Tesco Co. Limited, Tesco Malaysia , Sdn Bhd...

  • Page 41
    ... in which timing differences reverse, based on tax rates and laws substantively enacted at the balance sheet date. Pensions The expected cost of pensions in respect of the Group's defined benefit pension schemes is charged to the profit and loss account over the working lifetimes of employees in the...

  • Page 42
    ... 2 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, Hungary, Poland, Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia, Japan...

  • Page 43
    ... distribution costs and store operating costs. Employee profit-sharing is included within administrative expenses. Note 4 Employee profit-sharing This represents the amount allocated to the trustees of the profit-sharing scheme and is based on the UK profit after interest, before net profit/(loss...

  • Page 44
    ...and interests are given in the Directors' remuneration report on pages 17 to 31. Note 8 Net interest payable 2005 £m £m £m 2004 £m Interest receivable and similar income on money market investments and deposits Less interest payable on: Short-term bank loans and overdrafts repayable within five...

  • Page 45
    ...daily mid-market closing price over the period. The alternative measure of earnings per share is provided because it reflects the Group's underlying trading performance excluding the effect of the profit/(loss) on disposal of fixed assets, integration costs and amortisation of goodwill. 2005 million...

  • Page 46
    ... in fixed asset investments (note 14). Note 13 Tangible fixed assets Land and buildings £m Plant, equipment, fixtures and fittings and motor vehicles £m Total £m Cost At 28 February 2004 Currency translation Additions at cost (a) Acquisitions Disposals At 26 February 2005 Depreciation At...

  • Page 47
    ... £m Loans to Group undertakings £m Company Joint ventures £m Associates (c) £m As previously reported Restatement (i) At 28 February 2004 (restated) Additions (ii) Effect of foreign exchange rate changes Share of profit/(loss) of joint ventures and associates Transfer to provisions (iii...

  • Page 48
    ...: Business Share of equity capital and voting rights Country of incorporation Tesco Stores Limited Tesco Property Holdings Limited Tesco Insurance Limited Valiant Insurance Company Limited Tesco Distribution Limited Tesco Card Services Limited T&S Stores Limited Tesco Ireland Limited Tesco Global...

  • Page 49
    ... The Group's principal associate is: Business Share of issued share capital, loan capital and debt securities Country of incorporation and principal country of operation GroceryWorks Holdings Inc. Internet Retailer 39% United States of America The net assets and goodwill of associates are: 2005...

  • Page 50
    ... than one year. Included in Prepayments and accrued income is £2m (2004 - £1m) due after more than one year. †Prior year comparatives have been restated (see note 1). Note 17 Investments Group 2005 £m 2004 £m 2005 £m Company 2004 £m Money market deposits 346 430 150 99 48 Tesco PLC

  • Page 51
    ... one year Group 2005 £m 2004 restated†£m 2005 £m Company 2004 £m Bank loans and overdrafts (a) (b) (c) Trade creditors Amounts owed to Group undertakings Corporation tax Other taxation and social security Other creditors Amounts payable to joint ventures and associates Accruals and deferred...

  • Page 52
    ... and in hand Money market investments and deposits Net debt Bank and other loans Bank and other loans Finance leases Note 21 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...

  • Page 53
    ... 0.0%. Analysis of interest rate exposure and currency profile of financial assets The interest rate exposure and currency profile of the financial assets of the Group at 26 February 2005 were: 2005 Cash at bank and in hand £m Short-term deposits £m Cash at bank and in hand £m Short-term deposits...

  • Page 54
    ...fees at market rates and would provide funding at floating 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 in currencies other than their reporting currencies. After...

  • Page 55
    ... the Group's share of net liabilities within certain joint venture companies. Amount provided 2005 £m 2004 restated †£m Deferred taxation Excess capital allowances over depreciation Other timing differences Losses carried forward †714 20 (3) 731 629 (45) (5) 579 Prior year comparatives...

  • Page 56
    ... have been exercised under the terms of the savings-related share option scheme (1981) and the executive share option schemes (1994 and 1996), respectively. As at 26 February 2005, the Directors were authorised to purchase up to a maximum in aggregate of 768.4 million ordinary shares. 54 Tesco PLC

  • Page 57
    ... 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. The employee benefit trusts hold shares in Tesco PLC for the purpose of the various executive share incentive and profit share schemes...

  • Page 58
    ... is no charge to the profit and loss account. The company has granted outstanding options in connection with the six open schemes as follows: Savings-related share option scheme (1981) Date of grant Number of executives and employees Shares under option 26 Feb 2005 Subscription price (pence) 28...

  • Page 59
    ... Irish savings-related share option scheme (2000) Date of grant Number of executives and employees Shares under option 26 Feb 2005 Subscription price (pence) 2 June 2000 26 October 2000 8 November 2001 8 November 2002 6 November 2003 4 November 2004 Executive share option scheme (1994) Date of...

  • Page 60
    ... 2005 valuation are known. (a) Pension commitments United Kingdom The principal plan within the Group is the Tesco PLC Pension Scheme, which is a funded defined benefit pension scheme in the UK, the assets of which are held as a segregated fund and administered by trustees. The total profit and loss...

  • Page 61
    ... average benefits Discount rate Price inflation 3.9 2.6 2.6 2.6 5.4 2.6 3.8 2.5 2.5 2.5 5.7 2.5 3.6 2.3 2.3 2.3 5.5 2.3 The assets in the schemes and the expected rates of return were: 2005 Long-term rate of expected return % Market value £m Long-term rate of expected return % 2004 Market value...

  • Page 62
    ... credited/(charged) to other finance income Expected return on pension schemes' assets Interest on pension schemes' liabilities Net return Analysis of the amount recognised in the statement of total recognised gains and losses Actual return less expected return on pension schemes' assets Experience...

  • Page 63
    ... Limited, Tesco Mobile Limited, Nutri Centres Limited, Taiwan Charn Yang Developments Limited, Retail Property Company Limited, Tesco Card Services Limited, Tesco Property Partnership ELP and Hymall. During the year the Group also traded with it's five associates: Broadfields Management Limited...

  • Page 64
    ...) (19) (16) (35) (49) - - (15) - (15) (2) - (2) (17) 9 13 (15) - (15) 45 - 45 52 800 346 (471) (6) (477) (4,486) (25) (4,511) (3,842) (a) Liquid resources comprises short-term deposits with banks and money-market investments which mature within 12 months of the date of inception. 62 Tesco PLC

  • Page 65
    ...consolidated balance sheet at 26 February 2005. The purchase consideration was £56m. The net assets of Adminstore 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 66
    ...UK Rest of Europe Asia Total Group Share of operating profit before goodwill amortisation from joint ventures and associates Net interest payable Underlying pre-tax profit 2 Integration costs Goodwill amortisation Net profit/(loss) on disposal of fixed assets Profit...2003 2004 53 weeks 2005 21 (125) ...

  • Page 67
    ...earnings per share 2 Dividend per share Return on shareholders' funds 4 Return on capital employed 5 Group statistics Number of stores 6 Total sales area - 000 sq ft 6/7 Full-time equivalent employees UK retail statistics Number of stores Total sales area - 000 sq ft 7 Average store size (sales area...

  • Page 68
    ... waste paper. FSC Trademark © 1996 Forest Stewardship Council A.C. SGS-COC-0912 Printed by CTD Printers Ltd, Middlesex, an ISO 14001 registered company. Produced under FSC chain of custody. www.tesco.com/corporate Cover: Rama 1 hypermarket, Bangkok, Thailand Tesco PLC, Tesco House, Delamare...