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A business for
a new decade
Tesco PLC Annual Report and Financial Statements 2010

Table of contents

  • Page 1
    A business for a new decade Tesco PLC Annual Report and Financial Statements 2010

  • Page 2
    ... Tesco at a glance Chief Executive's review Report of the Directors Our business Our strategy International Core UK Non-food Retailing Services Community Our people Our Board of Directors Key performance indicators Group financials Risks and uncertainties General information Corporate governance...

  • Page 3
    ... Tesco team is now 472,000 strong - and we remain united by our goal to improve the shopping trip for our customers. I would like to thank all our people for their hard work which I know will continue in the year ahead. David Reid Chairman Tesco PLC Annual Report and Financial Statements 2010 1

  • Page 4
    A growth busi People Sales area 472,000 (000s) 94m sq ft (m sq ft) International UK 472 94 237 28 01 02 03 04 05 06 07 08 09 2010 01 02 03 04 05 06 07 08 09 2010 2 Tesco PLC Annual Report and Financial Statements 2010

  • Page 5
    Overview Our position amongst the leading global retailers hasn't happened by chance. For well over a decade, our long-term strategy has been delivering strong and consistent growth. ness...Group sales Operating profit Total shareholder return* £62.5bn (£bn) (£bn) £3.5bn 3.5 1.2 Tesco FTSE ...

  • Page 6
    ...and new services, we're developing a business for the future - with sustainable growth for years to come. ...for a new de 53% In 2000, Tesco was operating in markets representing 8% of global GDP; today it's 53%. Zero We are committed to being carbon-neutral by 2050 and helping our customers halve...

  • Page 7
    ... to local customers - wherever they are - from Extra hypermarkets to Express convenience stores. Local We've learnt how to be 'local'; in South Korea, our largest international business, we have over 22,000 employees and just six UK expats. Tesco PLC Annual Report and Financial Statements 2010 5

  • Page 8
    ... profit Group space by region 2006 2007 2008 2009 2010 Stores worldwide US 1.5% People worldwide Europe 29.5% UK 35.1% Asia 33.8% Countries Group sales Tesco Bank 7% Asia £9.1bn Europe £10.0bn UK £42.3bn International 22% UK 71% 6 Tesco PLC Annual Report and Financial Statements...

  • Page 9
    ... VAT. In India, we have an exclusive franchise agreement with Trent, the retail arm of the Tata Group. We are supporting the development of their Star Bazaar format. We plan to open our first cash and carry store by the end of the year. Tesco PLC Annual Report and Financial Statements 2010 7

  • Page 10
    ... the prospect of an improving global economy and recent investments in acquisitions and new selling space making a greater contribution going forward, returns will improve significantly - starting this year. Sir Terry Leahy Chief Executive 8 Tesco PLC Annual Report and Financial Statements 2010

  • Page 11
    ... This Business Review analyses the performance of the Tesco Group in the financial year ended 27 February 2010. It also explains other aspects of the Group's markets, results and operations, including strategy and risk management. • to be a successful international retailer; The Directors present...

  • Page 12
    ... Trading profit Trading profit up New stores £749m 5.6% 324 Countries China Czech Republic Hungary India Japan Malaysia Poland Republic of Ireland Slovakia South Korea Thailand Turkey United States Regional results Asia £m Sales (including VAT) Trading profit Trading margin Europe £m Sales...

  • Page 13
    ... and the Tesco Operating Model sharing our global best practice to the benefit of all our businesses. After a very tough first half of the year we are now seeing encouraging sales trends across almost all our markets; we saw strong improvements in likefor-like sales in the fourth quarter compared to...

  • Page 14
    ...Asian investors. Malaysia Our business in Malaysia made good progress with sales growing 9% this year - increasing our market share. We continue to invest in Clubcard with more than one million customers signed up and with a dunnhumby team working with us locally to provide insight on pricing, range...

  • Page 15
    "...I get special offers with my Member card" Our business Ji Tesco customer Shanghai, China Tesco works for me... Tesco PLC Annual Report and Financial Statements 2010 13

  • Page 16
    ... brand buying with our UK business we have been able to reduce the prices of 12,500 products by an average Poland of around 20%. In Poland, we have had another good year with strong growth in sales and Customers are responding profits on a constant exchange rate enthusiastically to our improved...

  • Page 17
    ... our new businesses, we are adapting and improving our offer in response to customer feedback. During the year we've broadened the range in some key categories - like cereals and pet food - and added larger pack sizes for families. We have also introduced a range of lower-priced house brands to help...

  • Page 18
    ...glance Our market-leading UK business has continued to grow well by helping customers to spend less during the downturn. Sales Sales up Trading profit Trading profit up £42.3bn 4.2% £2.4bn 6.7% £m % growth 4.2%* 6.7% 0.1% 42,254 2,413 6.2% 15m active Clubcard holders Clubcard - 15 years of...

  • Page 19
    ... about delivering all elements of the shopping trip. Consequently, we have continued to invest in availability, service, range and quality with pleasing results: Availability Availability has improved again this year as a result of a number of initiatives to improve stock management including more...

  • Page 20
    ... will deliver savings of £800m and we'll invest most of these savings back into our offer for customers. New space Through the experience and expertise of our property teams we • it's simpler for staff because it is have developed over a number of now easier to locate stock to fill years a good...

  • Page 21
    "...Tesco Express - it's the easiest thing at lunchtime" Our business Tesco works for us...Kevin and Allan Tesco customers East Ham and Islington Tesco PLC Annual Report and Financial Statements 2010 19

  • Page 22
    ... available online through Tesco Direct Sales (£bn) 11.8 10.4 12.5 13.1 68m 14% 1 in 4 F&F items sold in Central Europe Like-for-like clothing sales in Central Europe up 14% We sell 1 in every 4 small-screen TVs sold in the UK 2006/7 2007/8 2008/9 2009/10 20 Tesco PLC Annual Report...

  • Page 23
    ... of 2006. Our business As part of our drive to lower prices for customers, we make every effort to cut out the middlemen and source products from manufacturers or developers. For example, we teamed up with DreamWorks studio for the exclusive rights to sell the short animated Christmas film Merry...

  • Page 24
    Sasha with Schmoo Tesco customer Friern Barnet Tesco works for me... "...everything is in one location - I just bought a washing line" 22 Tesco PLC Annual Report and Financial Statements 2010

  • Page 25
    ... as Ireland and the UK - has brought the benefits of Group expertise and scale, helping to improve quality and costs. Online Shopping habits are changing - customers want to buy online as well as from stores and catalogues - and many will use a combination of these to research before buying. With...

  • Page 26
    ...Tesco Bank 13.1% 400,000 tesco.com 1bn 26% Telecoms grocery items delivered last year profits up 2m+ 100+ dunnhumby Tesco Mobile customers Phone Shops 26 24 dunnhumby serves other retailers and manufacturers in 26 international markets Tesco PLC Annual Report and Financial Statements 2010

  • Page 27
    ... approval we anticipate launching new savings products and mortgages by the end of financial year 2010/11, with current accounts to follow in the second half of 2011. Our business Double-digit customer growth in our banking products Tesco PLC Annual Report and Financial Statements 2010 25

  • Page 28
    ... profitability. Tesco Telecoms Profit from our telecoms business grew, driven primarily by Tesco Mobile, which achieved a 14% increase in customer numbers - to more than two million - in a declining pre-pay phone market. Tesco Mobile also successfully entered the 'pay monthly' market this year...

  • Page 29
    "...I have my cat insured with Tesco - they were very reasonable" Our business Tesco works for me... Sue with Lexi Tesco customer Muswell Hill Tesco PLC Annual Report and Financial Statements 2010 27

  • Page 30
    ... business by 2050 Community promises Caring for the environment Actively supporting local communities Buying and selling products responsibly Giving customers healthy choices Creating good jobs and careers 100% of eligible ownbrand products now have nutritional labelling We helped 6.2 million people...

  • Page 31
    ... new set of challenging long-term targets: to become a zero-carbon business by 2050; to reduce the carbon impact of products in our supply chain by 30% by 2020; and to help our customers halve their own footprints by 2020. Actively supporting local communities Our Values at Tesco mean that we listen...

  • Page 32
    "...Tesco is environmentally friendly" Tesco works for me... Julia with Krystian Tesco customer Krakow, Poland 30 Tesco PLC Annual Report and Financial Statements 2010

  • Page 33
    ...the right thing to do, it is also in our business interest. We know that if you treat people decently they perform better. This approach also helps to improve the sustainability of our supply chain. By investing for the long term in businesses that understand our needs, our customers benefit through...

  • Page 34
    ...in shares awarded under Shares In Success scheme People Improved attendance levels put an additional four million hours into UK stores and depots 195,000 50% New graduates recruited this year of our people have a personal stake in Tesco of people on the boards of our international businesses are...

  • Page 35
    ...open defined benefit pension scheme, which is greatly valued by staff. We regularly offer staff the opportunity to experience our brand. For example, we offer staff great deals on our Retailing Services - Tesco Mobile offers exclusive staff tariffs and Tesco Bank offers deals on Home Insurance, Life...

  • Page 36
    ... of our people in Asia keeps pace with the rapidly growing business. In the UK, our European Academy provides a hub to bring our managers and directors from around the world to the UK. We annually bring our 100 most senior leaders together to share the long-term strategy, develop their leadership...

  • Page 37
    Tesco works for me... Our business Marcia Tesco employee Cheshunt "...you are given the opportunity to go as far as you want" Tesco PLC Annual Report and Financial Statements 2010 35

  • Page 38
    ..., the UK India Business Council and the Corporate Leaders Group on Climate Change. Sir Terry Leahy - 53• Chief Executive Terry Leahy became Chief Executive in 1997. Joining Tesco in 1979, he held a number of marketing and commercial positions prior to being appointed to the Board of Tesco PLC on...

  • Page 39
    ... and Pearson plc. Our business Dr Harald Einsmann - 76• Non-executive Director Dr Harald Einsmann was appointed a Non-executive Director on 1 April 1999. He is on the Board of Carlson Group of Companies, Harman International Industries Inc. and Checkpoint Systems Inc. in the United States. He is...

  • Page 40
    ... MANAGE HELPS ME 2010 2009 O 2008 Sales growth Change in Group sales over the year (including value added tax) UK sales growth International sales growth International sales growth (at constant exchange rates) Retailing Services sales growth Profit before tax Underlying profit before tax Trading...

  • Page 41
    ...Source: Verdict Research, Non-food in Grocers. 'New non-food' defined as non-food retail sales excluding Household and Health & Beauty categories. All figures are reported on a calendar year basis. ††2009 figures adjusted for 52-week comparison. Tesco PLC Annual Report and Financial Statements...

  • Page 42
    ... end of the 2010/11 financial year. The strength of our property-backed balance sheet was further demonstrated with profitable market-leading sale and leaseback transactions. Group capital expenditure was £3.1bn (last year £4.7bn). This reduced level of spend was achieved whilst still delivering...

  • Page 43
    ...and foreign exchange rates. The risks associated with operating Tesco Bank are covered under Financial services risks below. The Treasury function is mandated by the Board to manage the financial risks that arise in relation to underlying business needs. The function has clear policies and operating...

  • Page 44
    ...is reported quarterly. Our Group Compliance Committee and the Compliance Committees in our business units monitor the level of compliance with both health and safety laws and our internal policies on a regular basis. Ethical risks in the supply chain Millions of people around the world work directly...

  • Page 45
    ... in its investment strategy. Financial review The main financial risks faced by the Group relate to the availability of funds to meet business needs, the risk of default by counterparties to financial transactions, fluctuations in interest and foreign exchange rates and credit rating risks. These...

  • Page 46
    ... objective is to reduce the effect of exchange rate volatility on short-term profits. Transactional currency exposures that could significantly impact the Group Income Statement are hedged, typically using forward purchases or sales of foreign currencies and currency options. At the year end...

  • Page 47
    ... the Directors' opinion, the properties of the Group have an open market value well in excess of the carrying value of £24.8bn which has been included in these financial statements. Share capital and control of the Company Details of the Company's share capital, including changes during the year in...

  • Page 48
    ... goverdadce Tesco PLC is committed to the highest standards of corporate governance as we recognise that strong governance is crucial in helping the business to deliver its strategy, generating shareholder value and safeguarding our shareholders' long-term interests. Below Board level, the company...

  • Page 49
    ... • Corporate Responsibility Committee • Compliance Committee • Finance Committee Monitoring Committees* Operational Committees * Reports are discussed by the PLC Board on a regular basis. Joint Venture Boards Subsidiary Boards Tesco PLC Annual Report and Financial Statements 2010 47

  • Page 50
    ... and commercial changes affecting the Group and the market in which it operates. Individual members of the Committee were involved during the year in interviewing candidates for Board and senior executive positions. Full terms of reference of the Tesco PLC Nominations Committee are available at www...

  • Page 51
    ... way of personal objectives. Key to delivering effective risk management is ensuring our people have a good understanding of the Group's strategy and our policies, procedures, values and expected performance. We have a structured internal communications programme that provides employees with a clear...

  • Page 52
    ... with approved financial and operational policies. Audit Committee The Audit Committee reports to the Board each year on its review of the effectiveness of the internal control systems for the financial year and the period to the date of approval of the financial statements. Throughout the year the...

  • Page 53
    ... Lloyd Company Secretary 5 May 2010 Tesco PLC Registered Number: 445790 Registered in England and Wales Registered Office: Tesco House, Delamare Road, Cheshunt, Hertfordshire EN8 9SL VAT Registration Number: GB 220 4302 3 Corporate governance Tesco PLC Annual Report and Financial Statements 2010...

  • Page 54
    ... year ended 27 February 2010. The report has been drawn up in accordance with the Combined Code on Corporate Governance, Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Financial Services Authority Listing Rules. Executive summarh Tesco...

  • Page 55
    ... of improved bottom-line financial results, measured through earnings, both in the present year and sustainably over time; • enhancement of efficient profitability, measured through return on capital, whilst growing the business; • improving share price via the use of share options throughout...

  • Page 56
    ... their increased experience since their appointment. Includes ordinary shares and awards of shares and nil cost options made to Directors which remain subject only to a holding period. Excludes unexercised vested executive share options. 54 Tesco PLC Annual Report and Financial Statements 2010

  • Page 57
    ... buy shares at market value in Tesco PLC. • Save as You Earn. An HMRC approved savings-related share option scheme under which employees save up to a limit of £250 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-year or five-year...

  • Page 58
    ... of service with Tesco and the early age of his appointment as CEO, Sir Terry Leahy's service agreement provides for his full pension entitlement to become available on retirement on or after his 57th birthday. The Remuneration Committee has agreed that new appointments of Executive Directors will...

  • Page 59
    ... any personal financial interest in the matters being decided, other than as a shareholder, nor any day-to-day involvement in running the business of Tesco. Jonathan Lloyd, the Company Secretary, is Secretary to the Committee. David Reid, Non-executive Chairman, Sir Terry Leahy, Chief Executive of...

  • Page 60
    ...purposes. 4 Sir Terry Leahy is entitled to retire at any age from 57 to 60 inclusive with an immediate pension of two-thirds of base salary. 5 Inflation over the year has been allowed for using the September 2009 statutory revaluation order. 58 Tesco PLC Annual Report and Financial Statements 2010

  • Page 61
    ...3 Gains made on executive share options2, 3 Number of options exercised Option price (pence) Market price at exercise (pence) Value realisable1 Date of grant Date exercisable Date of exercise 2009/10 £000 2008/9 £000 Richard Brasher Philip Clarke Andrew Higginson Sir Terry Leahy Tim Mason...

  • Page 62
    ... of the date of grant to exercise their options. 2 The market price at exercise is shown in Table 3. The share price as at 27 February 2010 was 420.00p. The share price during the 52 weeks to 27 February 2010 ranged from 301.40p to 437.05p. 60 Tesco PLC Annual Report and Financial Statements 2010

  • Page 63
    ... the year of grant. All options expire 6 months from their exercise date (i.e. on 1 August of the relevant year). All directors exercised their 04.11.04 options on 1 February 2010 when the market price was 422.30p. No options lapsed in the year. Tesco PLC Annual Report and Financial Statements 2010...

  • Page 64
    Directors' remuneration report continued Table 6 Long-Term Performance Share Plan1 Share price Date of award/ on award date grant (pence) Shares Options As at awarded/ exercised/ 28 February options shares released 2009 granted in year in year 7 As at 27 Februarh 2010 Date of release/date from ...

  • Page 65
    ...Table 7 Group New Business Incentive Plan Share price on award date (pence) As at 28 February 2009 Shares awarded/ options granted in year Options exercised/ shares released in year As at 27 Februarh 2010 Date from which exercisable Date of award/grant Expiry date Sir Terry Leahy 14.11.2007 482...

  • Page 66
    ... Short-term Executive Incentive Scheme. The first award under the new plan was made in 2005. The awards are subject to performance conditions based on TSR, earnings per share and corporate objectives. 2 Since 2007 Tim Mason's awards have been made in the form of an unfunded promise to deliver shares...

  • Page 67
    ... the Long-Term Incentive Plan1 Year of release Award date Number of shares as at 28 February 2009 Shares awarded Shares released Number of shares as at 27 Februarh 2010 Value of shares released £000 Release date 3 Market price on release (pence) Philip Clarke Total Andrew Higginson Total Sir Terry...

  • Page 68
    ..., in Tesco PLC 5p Ordinary shares 27 Februarh 2010 Options to acquire ordinarh shares2,3 28 February 2009 (or on appointment if later) Options to acquire ordinary shares2 Ordinarh shares1,3 Ordinary shares1 Executive Directors Richard Brasher Philip Clarke Andrew Higginson Sir Terry Leahy Tim...

  • Page 69
    ... cash flow to movement in net debt note Notes to the Group financial statements Five year record Tesco PLC - Parent Company balance sheet Notes to the Parent Company financial statements Independent auditors' report to the members of Tesco PLC Financial calendar 68 69 70 71 72 73 74 74 75 121 122...

  • Page 70
    Statement of Directors' responsibilities The Directors are required by the Companies Act 2006 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 of the financial year and of the profit or loss of...

  • Page 71
    ... part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review. Other matter We have reported separately on the Parent Company financial statements of Tesco PLC for the 52 weeks ended 27 February 2010...

  • Page 72
    ... statement 52 weeks 2010 Year ended 27 February 2010 Continuing operations Revenue (sales excluding VAT) Cost of sales Gross profit Administrative expenses Profit arising on property-related items Operating profit Share of post-tax profits of joint ventures and associates Finance income Finance...

  • Page 73
    Group statement of comprehensive income 52 weeks 2010 Year ended 27 February 2010 Change in fair value of available-for-sale financial assets and investments Currency translation differences Total loss on defined benefit pension schemes (Losses)/gains on cash flow hedges: Net fair value (losses)/...

  • Page 74
    ... Sir Terry Leahy Laurie McIlwee Directors The financial statements on pages 70 to 120 were authorised for issue by the Directors on 5 May 2010 and are subject to the approval of the shareholders at the Annual General Meeting on 2 July 2010. 72 Tesco PLC Annual Report and Financial Statements 2010

  • Page 75
    ... shares £m Retained earnings £m Minority interests £m Total equity £m Total £m At 28 February 2009 (restated*) 395 Profit for the year - Other comprehensive income Change in fair value of available-for-sale financial assets - Currency translation differences - Loss on defined benefit schemes...

  • Page 76
    ... on acquisition of Tesco Bank Net cash inflow/(outflow) from debt and lease financing Dividend received from Tesco Bank Increase in short-term investments Increase in joint venture loan receivables Other non-cash movements Decrease/(increase) in net debt in the year Opening net debt Closing net debt...

  • Page 77
    ...Tesco PLC is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006 (Registration number 445790). The address of the registered office is Tesco House, Delamare Road, Cheshunt, Hertfordshire, EN8 9SL, UK. The financial year represents the 52 weeks ended...

  • Page 78
    ...and associated sale and repurchase agreement entered into as part of the Special Liquidity Scheme during the year ended 28 February 2009. The effect of the change in the prior year is a reduction in loans and advances to banks and other financial assets of £588m, with a related reduction in current...

  • Page 79
    ... financial services, in the period in which they occur. For Tesco Bank finance cost on financial liabilities is determined using the effective interest rate method and is recognised in cost of sales. Investment property Investment property is property held to earn rental income and/or for capital...

  • Page 80
    ... unit) in prior years. A reversal of an impairment loss is recognised as a credit to the Group Income Statement immediately. Other investments Other investments in the Group Balance Sheet comprise loan receivable and available-for-sale financial assets. Refer to the financial instruments accounting...

  • Page 81
    ..., net of direct issue costs. Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to hedge its exposure to foreign exchange, interest rate and commodity risks arising from operating, financing and investing activities. The Group does not hold or issue...

  • Page 82
    ... Statement within finance income or costs for the year. Where the liability is in a currency other than Pounds Sterling, the liability has been designated as a net investment hedge. Any change in the value of the liability resulting from changes in exchange rates is recognised directly in equity...

  • Page 83
    ... on the last day of the previous financial year. Corporate bond yield rates vary over time which in turn creates volatility in the Group Income Statement and Group Balance Sheet. IAS 19 also increases the charge for young pension schemes, such as Tesco's, by requiring the use of rates which do not...

  • Page 84
    ... consolidated financial information are as follows: Year ended 27 February 2010 Atoconstantoexchangeorates Continuing operations Sales inc. VAT (excluding IFRIC 13) Revenue (excluding IFRIC 13) Effect of IFRIC 13 Revenue Trading profit/(loss) Trading margin* Tesco Bank £m Total at constant exchange...

  • Page 85
    ...Segmental reporting continued Tesco Bank £m Total at actual exchange £m Yearoendedo28oFebruaryo2009 Atoactualoexchangeorateso Continuing operations Sales inc. VAT (excluding IFRIC 13) Revenue (excluding IFRIC 13) Effect of IFRIC 13 Revenue Trading profit/(loss) Trading margin* * Trading margin is...

  • Page 86
    ... Fromocontinuingooperations Profit before tax is stated after charging/(crediting) the following: Profit arising on property-related items Rental income, of which £351m (2009 - £304m) relates to investment properties Direct operating expenses arising on rental earning investment properties Costs...

  • Page 87
    ...403 300 6,195 4,707 410 439 246 5,802 The average number of employees by operating segment during the year was: Average number of employees 2010 Restated 2009 Average number of full-time equivalents 2010 Restated 2009 UK Rest of Europe Asia US Tesco Bank Total 287,266 86,642 94,536 3,246 404 472...

  • Page 88
    ...)o o IAS 32 and IAS 39 'Financial Instruments' - fair value remeasurements Totalofinanceoincome Financeocosts Interest payable on short-term bank loans and overdrafts repayable within five years Finance charges payable under finance leases and hire purchase contracts 6% 125m GBP MTN 2008 5.25...

  • Page 89
    ... 15 3 18 46 14 60 2010 £m 2009 £m Current tax (charge)/credit on: Foreign exchange movements Deferred tax credit on: Pensions Total tax on items credited to other comprehensive income (33) 87 54 199 176 375 Financial statements Tesco PLC Annual Report and Financial Statements 2010 87

  • Page 90
    ... Retirement benefit obligation £m Short-term timing differences £m Other pre/post tax temporary differences £m Share-based payments £m Tax losses £m IAS 32 and IAS 39 £m Total £m At 23 February 2008 (restated) (Charge)/credit to the Group Income Statement Credit directly to equity Credit...

  • Page 91
    ...been earned. All operations are continuing for the years presented. 52 weeks ended 27 February 2010 Potentially dilutive share options 53 weeks ended 28 February 2009 Restated Potentially dilutive share options Basic Diluted Basic Diluted Profit (£m) Weighted average number of shares (millions...

  • Page 92
    ...year Disposals Ato27oFebruaryo2010o Netocarryingovalue Ato27oFebruaryo2010o o At 28 February 2009 (restated) Cost At 23 February 2008 Foreign currency translation Additions Acquisitions through business... 115 276 41 3,234 1,829 4,076 2,336 90 Tesco PLC Annual Report and Financial Statements 2010

  • Page 93
    ... growth rates and expected changes in margins. Management estimate discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and...

  • Page 94
    ... years Net carrying value 17,855 971 1,859 20,685 17,332 1,450 1,027 19,809 (e) Carrying value of land and buildings includes £3m (2009 - £4m) relating to the prepayment of lease premiums. (f) Capital work in progress does not include land. 92 Tesco PLC Annual Report and Financial Statements...

  • Page 95
    ... growth rates and expected changes in margins. Management estimate discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and...

  • Page 96
    ... trading levels. The reversal of previous impairment losses arose principally due to improvements in stores' performances over the last year which increased the net present value of future cash flows. Note 12 Investment property 2010 £m 2009 £m Cost At beginning of year Foreign currency...

  • Page 97
    ... & Easy Neighborhood Market Inc Tesco Personal Finance Group Limited(a) (trading as Tesco Bank) Tesco Distribution Limited Tesco Property Holdings Limited Tesco International Sourcing Limited dunnhumby Limited ELH Insurance Limited (formerly Tesco Insurance Limited) Valiant Insurance Company Limited...

  • Page 98
    ... During the year ended 28 February 2009, the Group acquired the remaining 50% of the share capital of Tesco Personal Finance Group Limited (trading as Tesco Bank), previously a joint venture, making the company a wholly-owned subsidiary entity which has been consolidated within the...

  • Page 99
    ...2006. Note 14 Other investments 2010 £m 2009 £m Loan receivable Available-for-sale financial assets 259 604 863 259 - 259 Financial statements The loan receivable comprises an interest-free subordinated loan made by Tesco Bank to Direct Line Group Limited. This loan has no interest receivable...

  • Page 100
    ... previously written off At 28 February 2009 Foreign currency translation Charge for the year Uncollectible amounts written off Recoveries of amounts previously written off Ato27oFebruaryo2010o o (29) (2) (21) 3 5 (44) (5) (3) - 5 (47) 98 Tesco PLC Annual Report and Financial Statements 2010

  • Page 101
    ...amounts previously written off Unwind of discount Ato27oFebruaryo2010o o * Tesco Personal Finance Group Limited (trading as Tesco Bank) was acquired on 19 December 2008. (229) (130) 109 (7) 7 (250) (177) 119 (10) 4 (314) Tesco PLC Annual Report and Financial Statements 2010 99 Financial statements

  • Page 102
    ...2009 - £68m) which are non-current. The impact of adopting IFRIC 13 on the 2009 opening balance sheet was to increase other payables by £38m and accruals and deferred income by £2m. Overall trade and other payables increased to £7,359m. 100 Tesco PLC Annual Report and Financial Statements 2010

  • Page 103
    ... one year Expiring between one and two years Expiring in more than two years - 1,000 1,600 2,600 100 - 2,600 2,700 Financial statements All facilities incur commitment fees at market rates and would provide funding at floating rates. Tesco PLC Annual Report and Financial Statements 2010 101

  • Page 104
    ...contracts qualify for hedge accounting, mark-to-market gains and losses are deferred in equity. The hedging instruments are primarily used to hedge purchases in Euros and US Dollars. The cash flows hedged will occur and will affect the Group Income Statement within one year of the balance sheet date...

  • Page 105
    ... investments Other investments - Tesco Bank Joint venture loan receivables (note 30) Derivative financial assets: Interest rate swaps and similar instruments Cross currency swaps Forward foreign currency contracts Totalofinancialoassets Liabilities Short-term borrowings: Amortised cost Bonds in fair...

  • Page 106
    ... Bank Short-term investments Other investments - Tesco Bank Joint venture loan receivables (note 30) Customer deposits - Tesco Bank Deposits by banks - Tesco Bank Short-term borrowings Long-term borrowings Finance leases (Group as lessee - note 35) Derivative financial instruments: Interest rate...

  • Page 107
    ... that are measured at fair value at 27 February 2010: Level 1 £m Level 2 £m Level 3 £m Total £m Assets Available-for-sale financial assets Derivative financial instruments: Interest rate swaps and similar instruments Cross currency swaps Forward foreign currency contracts Totaloassets...

  • Page 108
    ... - Tesco Bank Short-term investments Other investments - Tesco Bank Joint venture loan receivables Finance leases Bank and other borrowings Customer deposits - Tesco Bank Deposits by banks - Tesco Bank Future purchases of minority interests Derivative effect: Interest rate swaps Cross currency swaps...

  • Page 109
    .... • Loans to non-UK subsidiaries. These are hedged via foreign currency transactions and borrowings in matching currencies, which are not formally designated as hedges, as gains and losses on hedges and hedged loans will naturally offset. Tesco PLC Annual Report and Financial Statements 2010 107

  • Page 110
    ...(222) 218 (1) (204) - A decrease in interest rates and a depreciation of foreign currencies would have the opposite effect to the impact in the table above. The impact on equity from changing exchange rates results principally from foreign currency deals used as net investment hedges. The impact on...

  • Page 111
    ... position and sensitivity limits. Short-term exposures are measured and controlled in terms of net interest income sensitivity over 12 months to a 1% parallel movement in interest rates. Tesco Bank also use value at risk (VaR) for risk management purposes with a time horizon of one trading day...

  • Page 112
    ...to a provision for customer redress in respect of potential customer complaints. This is likely to be utilised over several years. The balances are analysed as follows: 2010 £m 2009 Restated £m Current Non-current 39 172 211 10 200 210 110 Tesco PLC Annual Report and Financial Statements 2010

  • Page 113
    ...share over the three dealing days immediately preceding the offer date. 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 three or five years...

  • Page 114
    ... and seven years after the date of award, for nil consideration. Vesting will normally be conditional on the achievement of specified performance targets related to the return on capital employed in the US business over the seven-year plan. 112 Tesco PLC Annual Report and Financial Statements 2010

  • Page 115
    ... in short-term and long-term bonus schemes designed to align their interests with those of shareholders. Full details of these schemes can be found in the Directors' Remuneration Report. The fair value of shares awarded under these schemes is their market value on the date of award. Expected...

  • Page 116
    ... date. Movement in pension deficit during the year Changes in the fair value of defined benefit pension plan assets are as follows: 2010 £m 2009 £m Opening fair value of plan assets Expected return Actuarial gains/(losses) Contributions by employer Actual member contributions Foreign currency...

  • Page 117
    ... present value of defined benefit obligations are as follows: 2010 £m 2009 £m Opening defined benefit obligation Current service cost Interest cost (Loss)/gain on change of assumptions Experience losses Foreign currency translation Benefits paid Actual member contributions Closing defined benefit...

  • Page 118
    ... to the Group financial statements continued Note 28 Post-employment benefits continued Post-employment benefits other than pensions The Company operates a scheme offering retirement healthcare benefits. The cost of providing these benefits has been accounted for on a similar basis to that used for...

  • Page 119
    ...basis with Tesco Bank during the year were as follows: Credit card and personal loan balances Number of key management personnel Saving deposit accounts Number of key management personnel £m £m At 28 February 2009 At 27 February 2010 2 - - - 2 4 - 1 During the current and prior year, there...

  • Page 120
    ... foreign currency working capital movements at average exchange rates rather than period end exchange rates. Note 32 Analysis of changes in net debt At 28 February 2009 £m Tesco Bank at 28 February 2009 Restated £m Other non-cash movements £m Elimination of Tesco Bank £m At 27 February 2010...

  • Page 121
    ...in intangible assets End of the year * Tesco Personal Finance PLC was acquired as part of Tesco Personal Finance Group Limited on 19 December 2008. 521 230 37 (153) (59) 576 514 - 7 - - 521 Financial statements It is Tesco Personal Finance PLC's (TPF) policy to maintain a strong capital base, to...

  • Page 122
    ... at market value, options within the lease for the Group to repurchase the properties at market value, market rent reviews and 20-30 year lease terms. The Group reviews the substance as well as the form of the arrangements when making the judgement as to whether these leases are operating or finance...

  • Page 123
    ...US and Tesco Direct employees - profit per employee would be £11,317. 20 Excluding acquisition of Tesco Bank and Homever, and India start-up costs, and after adjusting for assets held for sale. Calculated on a 52-week basis, ROCE for 2009 is 12.8%. Financial statements Tesco PLC Annual Report and...

  • Page 124
    ... one year Borrowings Derivative financial instruments Net assets Capital and reserves Called up share capital Share premium account Profit and loss reserve Total equity Accounting policies and notes forming part of these financial statements are on pages 123 to 130. Sir Terry Leahy Laurie McIlwee...

  • Page 125
    ...in foreign currencies are translated into Pounds Sterling at the exchange rates at the end of the financial year. Share-based payments Employees of the Company receive part of their remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares...

  • Page 126
    ...the Parent Company Profit and Loss Account when the foreign operation is disposed of. Derivative instruments qualifying for net investment hedging are principally forward foreign exchange transactions and cross currency options. Pensions The Company participates in the Tesco PLC Pension Scheme which...

  • Page 127
    ...financial statements 0.6 0.6 Note 3 Employment costs, including Directors' remuneration 2010 £m 2009 £m Wages and salaries Social security costs Pension costs Share-based payment expense 18 2 1 30 51 15 1 1 18 35 The average number of employees (all Directors of the Company) during the year...

  • Page 128
    ... 100 8 14,184 8,587 106 112 10 8,815 Other timing differences £m Total £m At 28 February 2009 Charge to profit and loss account for the year At 27 February 2010 11 (1) 10 (1) (1) (2) 10 (2) 8 Note 7 Current asset investments 2010 £m 2009 £m Bonds and deposits 1,997 2,970 Note 8 Other...

  • Page 129
    ... Price Index (RPI) over the life of the ...years Amounts falling due between two and five years Amounts falling due after more than five years 932 932 699 2,795 7,311 10,805 11,737 1,981 1,981 867 2,784 8,099 11,750 13,731 Financial statements Tesco PLC Annual Report and Financial Statements 2010...

  • Page 130
    ... number of options and weighted average exercise price (WAEP) of share option schemes relating to Tesco PLC employees are: Savings-related share option scheme Approved share option scheme Options WAEP Unapproved share option scheme Options WAEP Options Nil cost share options WAEP For the year ended...

  • Page 131
    ... relating to the Tesco PLC Pension Scheme can be found in note 28 of the Group financial statements. Note 13 Called up share capital 2010 Ordinary shares of 5p each Number £m Number 2009 Ordinary shares of 5p each £m Authorised: At beginning of year Authorised during the year At end of year...

  • Page 132
    ... £m Share premium account At beginning of year Premium on issue of shares less costs At end of year Profit and loss reserve At beginning of year Share-based payments Purchase of treasury shares Dividend Change in fair value of available-for-sale financial assets Share buy-back (capital redemption...

  • Page 133
    ... Company financial statements of Tesco PLC for the 52 weeks ended 27 February 2010 which comprise the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United...

  • Page 134
    ... Year Trading Statement Financial year end 2010/11 Please note that dates are provisional and may be liable to change. 27 February 2010 28 April 2010 30 April 2010 June 2010 2 July 2010 9 July 2010 28 August 2010 October 2010 December 2010 January 2011 26 February 2011 132 Tesco PLC Annual Report...

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