Tesco 2005 Annual Report Download - page 11

Tesco PLC 9
Directors’ report
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 26 February 2005.
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, Hungary,
Poland, Czech Republic, Slovakia, Turkey, Thailand, South
Korea, Taiwan, Malaysia and Japan. During the year, we
entered into a Joint venture in China, through an investment
of £145m in Hymall. A review of the business is contained
in the Annual Review and Summary Financial Statement
2005 which is published separately and, together with this
document, comprises the full Tesco PLC Annual Report and
Financial Statements.
Group results Group sales including VAT rose by £3,513m
to £37,070m, representing an increase of 10.5%. Group
underlying profit on ordinary activities before taxation, net
profit/(loss) on disposal of fixed assets, integration costs and
goodwill amortisation was £2,029m, compared with £1,708m
for the previous year, an increase of 18.8%. Including net
profit on disposal of fixed assets, integration costs and
goodwill amortisation, Group profit on ordinary activities
before taxation was £1,962m. The amount allocated to the
employee profit-sharing scheme this year was £65m, against
£57m last year. After provision for tax of £593m, minority
interests of £3m and dividends, paid and proposed, of £587m,
profit retained for the financial year amounted to £779m.
Dividends The Directors recommend the payment of a final
dividend of 5.27p per ordinary share, to be paid on 1 July
2005 to members on the Register at the close of business on
22 April 2005. Together with the interim dividend of 2.29p per
ordinary share paid in November 2004, the total for the year
will be 7.56p compared with 6.84p for the previous year, an
increase of 10.5%.
Tangible fixed assets Capital expenditure amounted to
£2,417m compared with £2,285m the previous year. In the
Directors’ opinion, the properties of the Group have a market
value in excess of the bookvalue of £13,175m included in
these financial statements. In the year we received £646m
from our new property Joint venture with Topland.
Share capital The authorised and called-up share capital
of the company, together with details of the shares allotted
during the period, are shown in note 24 to the financial
statements. Details of investments held in Tesco PLC are
shown in note 25 in the financial statements.
During the year TPF changed its mechanism for hedging
interest rate risk from the use of derivatives to cash instruments.
This had the effect of increasing both the assets and liabilities
in the TPF balance sheet by approximately £2bn as at the
TPF year end of 31 December 2004.
The Tesco Group would support its 50% share of any further
funding TPF may require to sustain liquidity ratios. However,
we believe that provisions for bad debts and insurance losses
(supported by the re-insurance of significant risks) are at
prudent levels.
Insurance We have taken the decision to purchase Assets,
Earnings and Combined Liability protection from the open
insurance market at a ‘catastrophe’ level only. The risk not
transferred to the insurance market is retained within the
business up to various limits, with the balance self insured
on a multinational basis by use of our captive insurance
companies, Tesco Insurance Limited in Guernsey and Valiant
Insurance Company Limited in the Republic of Ireland. Tesco
Insurance Limited covers Assets and Earnings, while Valiant
Insurance Company Limited covers Combined Liability.
Other information Additional financial and non-
financial information, including press releases and year
end presentations can be accessed on our website,
www.tesco.com/corporate and in our Corporate
Responsibility Review 2005.