Tesco 2006 Annual Report Download - page 19

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17Tesco plc
We hedge the majority of our investments in our international
subsidiaries via foreign exchange transactions in matching
currencies. Our objective is to maintain a low cost of borrowing
and hedge against material movements in our Balance Sheet
value. During the year, currency movements increased the net
value of the Group’s overseas assets by £27m (last year £19m).
We translate overseas profits at average exchange rates which
we do not currently seek to hedge.
Credit risk The objective is to reduce the risk of loss arising
from default by parties to financial transactions across an
approved list of counterparties of high credit quality. The
Group’s positions with these counterparties and their credit
ratings are routinely monitored.
Tesco Personal Finance (TPF) TPF lending is predominantly
toindividuals through its credit card and unsecured personal
loan products. TPF has also developed a significant insurance
business, with motor insurance a major component. 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, including its subsidiary Direct Line.
All policies pertaining to riskwithin TPF are subject to the
governanceprocedures of the Royal Bank of Scotland Group
and ratified by the TPF Board, which has representation from
both Tesco and the Royal Bank of Scotland Group. This has
delivered a portfolio of products with strong asset quality. This
asset quality is maintained through proactive risk management,
both at the time of acquisition and ongoing account
maintenance.
The Tesco Group would support its 50% share of any further
funding TPF might require to sustain liquidity ratios. However,
we believe that provisions for bad debts and insurance losses
(supported by re-insurance of significant risks) are at
prudent levels.
Insurance We purchased Assets, Earnings and Combined
Liability protection from the open insurance market at
‘catastrophe’ level only. The risk not transferred to the insurance
market is retained within the business by using
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 Limited covers
Combined Liability.
Statement of compliance
This review has been prepared in accordance with the
Directors’ Report Business Review Requirements in section
234ZZB of the Companies Act 1985. It also incorporates much
of the guidance set out in the Accounting Standards Board’s
Reporting Statement on the Operating and Financial Review.
The OFR’s intent is to provide information to shareholders
and should notbe relied on by any other party or for any
other purpose.
Wherethis review contains forward-looking statements,
theseare made by the Directors in good faith based on the
information available to them at the time of their approval of
this report. These statements should be treated with caution
due tothe inherent uncertainties underlying any such forward-
looking information.
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 also in our
Corporate Responsibility Review 2006.
4
Customers can
buy everything
under one roof in
our Extra stores.
3
We launched Tesco
On-line Photo
Centre last year,
available through
tesco.com