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Working to make
what matters
better, together
Tesco PLC Annual
Report and Financial
Statements 2013

Table of contents

  • Page 1
    Working to make what matters better, together Tesco PLC Annual Report and Financial Statements 2013

  • Page 2
    ... market positioning (14.5)% Underlying profit before tax** 3,146 stores Around loyalty scheme members 16m 2,131 stores Around loyalty scheme members 20m (14.0)% Underlying diluted earnings per share**†14.76p Full year dividend per share maintained • Plan to 'Build a Better Tesco...

  • Page 3
    ... in five markets 3,390 colleagues £6.0bn savings deposits 1,507 stores Over loyalty scheme members 7m 6.6m customer accounts • Customers affected by severe economic conditions • Slovakia and Hungary proved more resilient • Successfully launched online grocery businesses, now in...

  • Page 4
    ... Values* 12 Vision and Strategy* 14 Business Model* Performance review 16 Key performance indicators* 20 Financial review* Governance 24 Board of Directors 26 Executive Committee 28 Corporate governance* 44 Directors' remuneration report 67 General information* Financial statements 70 Statement...

  • Page 5
    Tesco PLC Annual Report and Financial Statements 2013 1 Chairman's statement OVERVIEW This time last year, I referred to the business going through a transition and said: "We will continue in 2012/13 to address long-standing business issues in the UK and elsewhere in order to secure future ...

  • Page 6
    2 Tesco PLC Annual Report and Financial Statements 2013 Chairman's statement continued The Board also has been reshaped during the year. We now have a smaller Board, of ten, with a different balance of Executives and Non-executives. Three Executive Directors - Andrew Higginson, Tim Mason and Lucy...

  • Page 7
    Tesco PLC Annual Report and Financial Statements 2013 3 Report from the Chief Executive OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW Philip Clarke Chief Executive "I've worked in retailing for nearly 40 years but never in that time has there been a period of such profound and rapid change as I ...

  • Page 8
    ...plan to 'Build a Better Tesco' in the UK, resetting our margins to fund the scale and pace of change required; 3. Put an end to the big store space race - placing a much greater emphasis on growth through both digital and convenience retailing, wherever we operate; 4. Reviewed our entire UK property...

  • Page 9
    Tesco PLC Annual Report and Financial Statements 2013 5 OVERVIEW These decisive actions are necessary in order to ensure sustainable longer-term growth. I am acutely aware that withdrawing from the US and writing down the value of property developments no longer appropriate for the future have ...

  • Page 10
    ... markedly better. The 'Building a Better Tesco' plan is firmly on track. I am proud of the work our teams have done to improve the look and feel of certain stores, to develop new products and to reformulate existing product ranges, whilst delivering better service and availability for customers. We...

  • Page 11
    ... in March 2012. Chris Bush, who has over 30 years' experience in Tesco, has taken over the leadership as UK Managing Director. The strategic importance of Tesco Bank to the Group is being increased by the impact of the internet on the way our customers shop - and I believe it is a key part of...

  • Page 12
    8 Tesco PLC Annual Report and Financial Statements 2013 Report from the Chief Executive continued (iii) Pursue disciplined international growth The single most important step we took in 2012/13 in our international business was to launch a strategic review of Fresh & Easy in the United States and...

  • Page 13
    ... to roll out grocery home shopping - which is now in eight international markets and we plan to launch in China later this financial year. Culture For a consumer business above all, what you represent is critical and it is right that we should be responsive and open about our Values and what we...

  • Page 14
    ... we think and behave as a business. Today, our brand must be about more than simply function. It's about the way we work, the values we live by, the legacy we leave. We can't solve the world's problems but we want Tesco to always do the right thing, to inspire and to earn trust and loyalty from all...

  • Page 15
    Tesco PLC Annual Report and Financial Statements 2013 11 OVERVIEW Our Values help us to understand how to put this into practice: 1 No one tries harder for customers BUSINESS REVIEW • Understand customers • Be first to meet their needs • Act responsibly for our communities ...

  • Page 16
    12 Tesco PLC Annual Report and Financial Statements 2013 Vision and Strategy Wanted and needed around the world We see it as essential not only to be the shop of choice for customers but also the place people want to work, a business that communities welcome and the retailer in which every ...

  • Page 17
    ...success over the coming years. To grow the UK core To grow the UK core, the largest business in the Group and a key driver of sales and profit, is a priority. Our 'Building a Better Tesco' plan has been restoring growth to the business through a comprehensive series of improvements for customers...

  • Page 18
    14 Tesco PLC Annual Report and Financial Statements 2013 Business Model Our Business Model is how we put our Strategy into action: the Tesco bran Building d Inno vat ing ou ro ffe r conomies of sc elop e ale Dev up Gro e ing al rag nd sc ve Le kill a s Insight Buy Core Purpose: We make what...

  • Page 19
    Tesco PLC Annual Report and Financial Statements 2013 15 OVERVIEW Our core activities Like all retailers, we buy, move and sell products and services for our customers. They rely on us to do these things consistently well and we strive to do them better, more simply and more efficiently each time...

  • Page 20
    16 Tesco PLC Annual Report and Financial Statements 2013 Key performance indicators Group performance Growth in underlying profit before tax Return on capital employed ('ROCE') (14.5)% 09/10 8.7% 10/11 12.3% 11/12 2.1%†12/13 (14.5)% Definition Our underlying profit provides information on the ...

  • Page 21
    ... 'Building a Better Tesco' plan. We expect the plan to continue delivering stronger like-for-like sales in 2013/14. Customer rating of overall shopping experience as excellent or good 09/10 10/11 11/12 12/13 Performance UK profits declined, reflecting the £1 billion investment into the UK business...

  • Page 22
    18 Tesco PLC Annual Report and Financial Statements 2013 Key performance indicators continued 3. To be as strong in everything we sell as we are in food UK general merchandise, clothing and electricals range image Definition Our relative position among competitors, as rated by customers. ...

  • Page 23
    ... Food Support Office and simplifying our systems to make it easier for suppliers to do business with us. We will work more closely with suppliers to develop joint business plans and recognise success through our Supplier Values Awards. Donation of pre-tax profits to charities and good causes...

  • Page 24
    ... Chief Financial Officer - Europe - Tesco Bank Underlying profit before tax Underlying diluted earnings per share ROCE (adjusted for one-off items) Capex £72.4bn Group sales £3.5bn Group trading profit Statutory profit before tax includes the following one-off items: - UK property write-down...

  • Page 25
    Tesco PLC Annual Report and Financial Statements 2013 21 OVERVIEW Group statutory profit before tax declined by (51.5)% to £1,960 million due to the impact of three main one-off charges: • UK property write-down of £(804) million, following an in-depth review of our property pipeline in the ...

  • Page 26
    ... to deliver an appropriate balance of growth and returns in the years ahead. We are managing the business in order to: • Generate positive free cash flow • Ensure a disciplined allocation of capital within a range of 3.5% to 4% of sales • Maintain a strong investment grade credit rating We...

  • Page 27
    Tesco PLC Annual Report and Financial Statements 2013 23 OVERVIEW This means that, in the current economic environment, investors can expect us to deliver: • Mid-single digit trading profit growth • Return on capital employed within a range of 12% to 15% • Dividend growth, broadly in ...

  • Page 28
    ... to the Board of Tesco Bank as a Non-executive Director effective from 17 July 2012. He is also a member of the Audit Committee. Gareth was Group Executive Director of Standard Chartered plc until his retirement in April 2010 and was also responsible for the Group's risk and special asset management...

  • Page 29
    ...has worked for BT since 2002 and has been CEO of Openreach since 2011. Prior to that she carried out a range of senior strategic and operational roles, including Group Director Strategy, Portfolio and Regulation, Managing Director Commercial and Brands, Global Services and Vice President UK Customer...

  • Page 30
    ... Managing Director - Developing Businesses Jill joined Tesco in 2001 and has held leadership roles across a range of business areas including Retail Operations, Group Strategy, Corporate Affairs and Clothing (stores and online). In January 2013 she took up her current position as Managing Director...

  • Page 31
    ...Strategy and Development Director Asia and various retail, marketing and general management roles. Prior to taking up his current position as Group Business Improvement Director, Bob held the role of Chief Operating Officer UK. 14 Rebecca Shelley Group Corporate Affairs Director Rebecca joined Tesco...

  • Page 32
    ... focus on strategic and longer-term issues. We do not anticipate further substantial changes in size in the foreseeable future although the exact number of Directors may rise or fall slightly in line with the normal process of Board development and succession planning. Sir Richard Broadbent...

  • Page 33
    ... covered in detail a range of important matters such as remuneration, succession planning, talent development, audit and social responsibility. In addition to its regular programme of activities, the Board made a number of key strategic decisions in the year, including to dispose of our business in...

  • Page 34
    ... The Board is kept up to date with developments in the business, including the work of the Group Executive Committee and its sub-committees, through the CEO's monthly report, which is also discussed in detail at each Board meeting. Group Executive Committee members regularly attend Board meetings to...

  • Page 35
    ... changes in size in the foreseeable future, although the exact number of Directors may rise or fall slightly in line with the normal process of Board development and succession planning. BUSINESS REVIEW PERFORMANCE REVIEW Chairman's responsibilities Ensuring the Directors receive accurate, timely...

  • Page 36
    32 Tesco PLC Annual Report and Financial Statements 2013 Corporate governance continued The following changes to the Board took place during the year ended 23 February 2013 and between that date and the date of publication of this document: Conflicts of interest The Company has comprehensive ...

  • Page 37
    ... in-depth review of our UK business. Board trips allow the Directors to view first-hand the progress, development, challenges and direction of our businesses, as well as meeting our teams in those businesses. Board attendance The Board held eight scheduled meetings in the year ended 23 February 2013...

  • Page 38
    34 Tesco PLC Annual Report and Financial Statements 2013 Corporate governance continued Audit Committee Audit Committee responsibilities The Committee's Terms of Reference can be found at www.tescoplc.com. The Committee Chairman, Ken Hanna, and Gareth Bullock, a member of the Committee, both have ...

  • Page 39
    Tesco PLC Annual Report and Financial Statements 2013 35 OVERVIEW PricewaterhouseCoopers LLP ('PwC') has served as the Company's auditors since 1983. The partner engaged on the audit is changed regularly. The services provided by PwC have been reviewed periodically and the Audit Committee is ...

  • Page 40
    ... appropriate communications policies are in place and working effectively to build and protect the Group's reputation both internally and externally. Sir Richard Broadbent Corporate Responsibility Committee Chairman Corporate Responsibility Committee attendance Number of possible meetings attended...

  • Page 41
    ... will add to the balance of skills and experience on the Board; and whether the Director will be able to allocate sufficient time to the Company to discharge his or her responsibilities. We work with a number of independent external executive search companies, as well as using our own networks to...

  • Page 42
    ...People Matters Group, Property Strategy and Social Responsibility Committees • Significant resource invested to communicate strategy effectively to those delivering it • Consistent Operational Plans developed throughout the Group to ensure delivery • Steering Wheel balanced scorecard system...

  • Page 43
    ... to recruit and retain good people • Tesco Values embedded in how we do business at every level • Our embedded Group Code of Business Conduct and Bribery Act Guidelines guide our behaviour in dealing with customers, employees and suppliers • Stakeholder communication and engagement to...

  • Page 44
    ... needs of the business • Pay, pension and share plan arrangements help us to attract and retain good people Group Treasury Failure to ensure the availability of funds to meet the needs of the business or to manage interest or exchange rate fluctuations could limit our ability to trade profitably...

  • Page 45
    Tesco PLC Annual Report and Financial Statements 2013 41 OVERVIEW Principal risks Key controls and mitigating factors Tesco Bank The impact on the Group of financial risks taken by Tesco Bank • The Bank has a defined 'Risk Appetite', approved and regularly reviewed by both the Bank's Board ...

  • Page 46
    42 Tesco PLC Annual Report and Financial Statements 2013 Corporate governance continued Financial risks review The main financial risks faced by the Group relate to the availability of funds to meet business needs, fluctuations in interest and foreign exchange rates and credit risks relating to ...

  • Page 47
    ... Remuneration Reporting Regulations and Enhanced Shareholder Voting Rights and the Financial Reporting Council consultation on revisions to the UK Corporate Governance Code and Guidance on Audit Committees. Our Annual General Meeting The AGM is seen as a good opportunity for the Board to communicate...

  • Page 48
    ... measure but is better suited to long-term incentives. Management have more line-of-sight and control of Working Capital over the short term. • The measures for customer service and colleague engagement will reflect overall Group performance rather than just the UK as used in previous years. Long...

  • Page 49
    ... are linked to local business performance and Group success in a structure that is consistent with the Executive Directors' annual bonus with a focus on profit growth, strategic financial and strategic non-financial measures. Si m i PERFORMANCE REVIEW GOVERNANCE Our seven-part long-term strategy...

  • Page 50
    ... our all-employee schemes and hold over 125 million shares in our Share Incentive Plan and over 140 million options over shares in our Save As You Earn scheme. When determining Executive Director remuneration arrangements the Committee takes into account pay conditions throughout the Group to ensure...

  • Page 51
    ... detailed plans to 'Build a Better Tesco', which included investing in the UK business to improve the shopping experience for customers and - 26% based on some fundamental changes strategic financial to our approach to capital performance allocation - focusing on measures. improving returns through...

  • Page 52
    48 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued Remuneration outcomes in different performance scenarios Tesco remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery of short-term ...

  • Page 53
    Tesco PLC Annual Report and Financial Statements 2013 49 OVERVIEW Service contracts At a glance Provision Current service contracts Notice period • 12 months' notice by the Company and six months' notice by the Executive. • For new appointments the Committee reserves the right to vary ...

  • Page 54
    50 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued How remuneration policy will be applied in 2013/14 Salary Policy Benchmarking group Relationship to all-employee pay • Base salary is designed to attract and retain talented individuals. • It is...

  • Page 55
    ...) Strategic non-financial (24% of short-term performance) Measured in relation to Trading Profit performance. Based on performance against key strategic financial measures. For 2013/14 these metrics will be: • Group internet sales - 10% • UK like-for-like - 8% • Group working capital...

  • Page 56
    ...• Salaries for Executive Directors were reviewed and increased by 2% with effect from 1 July 2012, in line with the general increase for other colleagues across the Group. • Next base salary review is with effect from 1 July 2013. Annual • Despite good progress against a number of strategic...

  • Page 57
    ... sales growth UK return on capital employed UK customer satisfaction Group internet sales Group CO2 reduction Group employee engagement Despite good progress against a number of strategic operational measures and encouraging financial performance in the latter part of the year, annual profitability...

  • Page 58
    54 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued Performance measures and payout Maximum opportunity 2012/13 Payout Group ROCE Return on capital employed - Group • Maximum vesting for Group ROCE of • Maximum award 13.6% with threshold ...

  • Page 59
    ...ending in the relevant financial year. Awards valued based on the share price at the date of vesting. 5 Share options - The 'gain' in relation to share options that vested in respect of the performance period ending in the relevant financial year. Gain calculated based on the share price at the date...

  • Page 60
    56 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued Other information Leaving arrangements for Executive Directors David Potts, Andrew Higginson, and Lucy Neville-Rolfe retired from the business after 68 years of combined service. Richard Brasher and ...

  • Page 61
    ...time commitment expected. The letters are available to shareholders to view from the Company Secretary upon request. • Review of performance - The Chairman meets with each Non-executive Director separately to review individual performance. • Reappointment policy - In line with the UK Corporate...

  • Page 62
    ... feedback in relation to proposed changes. • Review of the first draft of the 2012/13 Directors' Remuneration Report. • Committee effectiveness review. April 2013 (Following year end) • Review and agree payout outcomes for short-term annual bonus, long-term PSP and share option awards...

  • Page 63
    ... Governance Code, Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Financial Conduct Authority Listing Rules. Details of Directors' emoluments and interests are set out on pages 60 to 66 of this report. Approved by the Board on 1 May 2013...

  • Page 64
    60 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued Tables 1-9 are audited information Table 1 Directors' emoluments Fixed emoluments Performance related emoluments Short-term deferred Short-term shares cash £000 £000 Loss of office Total 2012/13 £...

  • Page 65
    ... the period 2010/11 to 2012/13 did not meet the performance target and therefore the share options awarded in 2010 will lapse on 7 May 2013. Market prices of Tesco PLC shares • The share price as at 23 February 2013 was 372.25p. The share price during the 52 weeks to 23 February 2013 ranged from...

  • Page 66
    ... Save As You Earn Scheme • Save As You Earn is an HMRC approved all-employee 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 67
    Tesco PLC Annual Report and Financial Statements 2013 63 OVERVIEW Table 5 Long Term Performance Share Plan Date of award/ grant Share price on award date (pence) As at 25 February 2012 Shares Shares awarded/ options exercised/ granted released in year in year As at 23 February 2013 Date of ...

  • Page 68
    64 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued Table 5 Long Term Performance Share Plan continued PSP targets 2011 and 2012 The targets for the awards granted on 11 July 2011 and 30 July 2012 are set out below. Performance against these targets ...

  • Page 69
    Tesco PLC Annual Report and Financial Statements 2013 65 OVERVIEW Table 7 Executive Incentive Plan Date of award/ grant Share price on award (pence) As at 25 February 2012 Shares awarded/ options granted Shares released/ options exercised As at 23 February 2013 Share price on exercise/ release (...

  • Page 70
    66 Tesco PLC Annual Report and Financial Statements 2013 Directors' remuneration report continued Table 8 Directors' interests in the Long Term Incentive Plan Price on award (pence) Number of shares as at 25 February 2012 Shares awarded Number of shares as at 23 February 2013 Share price on ...

  • Page 71
    ... to the Company's business. of Tesco PLC, along with details of Directors' share options, are contained in the Directors' Remuneration Report set out on pages 44 to 66. At no time during the year did any of the Directors have a material interest in any significant contract with the Company or any...

  • Page 72
    ... and conditions are agreed with suppliers in advance and the Group pays its creditors in accordance with those terms. Payment terms vary according to the type of product and territory in which the suppliers operate. Tesco PLC is a holding company and therefore has no trade creditors on its Balance...

  • Page 73
    ... as well as our five year record, financial calendar and glossary of financial KPI definitions. 70 Statement of Directors' responsibilities 71 Independent auditors' report to the members of Tesco PLC 72 Group income statement 73 Group statement of comprehensive income 74 Group balance sheet 75 Group...

  • Page 74
    ... PLC Annual Report and Financial Statements 2013 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 Group and the Company as at the end...

  • Page 75
    ... the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board on Directors' remuneration. OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW Other matter We have reported separately on the Parent Company financial statements of Tesco PLC...

  • Page 76
    72 Tesco PLC Annual Report and Financial Statements 2013 Group income statement Year ended 23 February 2013 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Profits/losses arising on property-related items Operating profit Share of post-tax profits of joint ventures...

  • Page 77
    Tesco PLC Annual Report and Financial Statements 2013 73 Group statement of comprehensive income Year ended 23 February 2013 Change in fair value of available-for-sale financial assets and investments Currency translation differences Reclassification adjustment for movements in foreign exchange ...

  • Page 78
    ... Tesco PLC Annual Report and Financial Statements 2013 Group balance sheet notes 23 February 2013 £m 25 February 2012 £m Non-current assets Goodwill and other intangible assets Property, plant and equipment Investment property Investments in joint ventures and associates Other investments Loans...

  • Page 79
    ... At 25 February 2012 Profit for the year Other comprehensive income Change in fair value of available-for-sale financial assets and investments Currency translation differences Reclassification adjustment on subsidiaries disposed Actuarial losses on defined benefit pension schemes Gains on cash...

  • Page 80
    ... Own shares purchased Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents including cash held in disposal group at the end of the year Cash...

  • Page 81
    Tesco PLC Annual Report and Financial Statements 2013 77 Notes to the Group financial statements Note 1 Accounting policies General information Tesco PLC ('the Company') is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act 2006 (Registration number ...

  • Page 82
    78 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 1 Accounting policies continued ('PPI') customer redress and evidential provisions to the FCA Handbook with an implementation date of 1 December 2010. The Group continues to handle complaints and ...

  • Page 83
    ... assets are recognised at fair value. BUSINESS REVIEW PERFORMANCE REVIEW GOVERNANCE Refer to the financial instruments accounting policy for further detail. Inventories Inventories comprise goods and properties held for resale and properties held for, or in the course of, development with a view...

  • Page 84
    ... losses are recognised immediately in the Group Statement of Comprehensive Income. Payments to defined contribution schemes are recognised as an expense as they fall due. Share-based payments The fair value of employee share option plans is calculated at the grant date using the Black-Scholes model...

  • Page 85
    Tesco PLC Annual Report and Financial Statements 2013 81 OVERVIEW Note 1 Accounting policies continued Impairment of loans and advances to customers At each balance sheet date the Group reviews the carrying amounts of its loans and advances to determine whether there is any indication that those ...

  • Page 86
    ..., the reported results reflect the movement in fair value of related derivatives due to changes in foreign exchange and interest rates. In addition, at each year end, any gain or loss accruing on open contracts is recognised in the Group Income Statement for the financial year, regardless...

  • Page 87
    Tesco PLC Annual Report and Financial Statements 2013 83 OVERVIEW Note 1 Accounting policies continued • IAS 19 'Employee Benefits' - non-cash Group Income Statement charge for pensions. Under IAS 19, the cost of providing pension benefits in the future is discounted to a present value at the ...

  • Page 88
    ... and insurance services through Tesco Bank in the UK. The CODM uses trading profit, as reviewed at monthly Executive Committee meetings, as the key measure of the segments' results as it reflects the segments' underlying trading performance for the financial year under evaluation. Trading profit is...

  • Page 89
    Tesco PLC Annual Report and Financial Statements 2013 85 OVERVIEW Note 2 Segmental reporting continued Year ended 25 February 2012 At actual exchange rates** Continuing operations Sales including VAT (excluding IFRIC 13) Revenue (excluding IFRIC 13) Effect of IFRIC 13 Revenue Trading profit ...

  • Page 90
    86 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 2 Segmental reporting continued Other segment information Tesco Bank £m Total continuing operations £m Discontinued operations £m Year ended 23 February 2013 Capital expenditure (including ...

  • Page 91
    ... Wages and salaries Social security costs Post-employment defined benefits (Note 26) Post-employment defined contributions (Note 26) Share-based payments expense (Note 25) 2013 £m 2012 £m 5,980 480 482 19 89 7,050 5,594 459 492 20 151 6,716 PERFORMANCE REVIEW The average number of employees by...

  • Page 92
    ... Net pension finance income (Note 26) IAS 32 and IAS 39 'Financial Instruments' - fair value remeasurements Total finance income Finance costs Interest payable on short-term bank loans and overdrafts repayable within five years Finance charges payable under finance leases and hire purchase contracts...

  • Page 93
    ...Group Statement of Changes in Equity Tax relating to components of the Group Statement of Comprehensive Income (6) 1 (5) (1) (5) (6) PERFORMANCE REVIEW 2013 £m 2012 £m Current tax credit/(charge) on: Pensions Foreign exchange movements Fair value of movement on available-for-sale investments...

  • Page 94
    ...the disposal group* Total net assets classified as held for sale * The year ending 23 February 2013 represents the US, while the year ending 25 February 2012 represents Japan. 307 324 631 (282) 349 65 445 510 (69) 441 The non-current assets held for sale consist mainly of properties in the UK and...

  • Page 95
    Tesco PLC Annual Report and Financial Statements 2013 91 OVERVIEW Note 7 Discontinued operations and non-current assets classified as held for sale continued Discontinued operations The decision to sell the Group's operations in the US was taken in February 2013. An active programme to locate a ...

  • Page 96
    92 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 7 Discontinued operations and non-current assets classified as held for sale continued Balance sheet As the Group's operations in Japan were disposed of during the year, assets and liabilities of ...

  • Page 97
    ... 2013 pence/share £m 2012 pence/share GOVERNANCE Profit from continuing operations (Diluted) Adjustments for: IAS 32 and IAS 39 'Financial Instruments' - fair value remeasurements IAS 19 'Employee Benefits' - non-cash Group Income Statement charge for pensions IAS 17 'Leases' - impact of annual...

  • Page 98
    ... Transfer to disposal group classified as held for sale At 23 February 2013 Accumulated amortisation and impairment losses At 25 February 2012 Foreign currency translation Amortisation for the year Impairment losses for the year At 23 February 2013 Net carrying value At 23 February 2013 At 25...

  • Page 99
    ... which are reviewed by the Board. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and...

  • Page 100
    96 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 11 Property, plant and equipment Land and buildings £m Other(a) £m Total £m Cost At 25 February 2012 Foreign currency translation Additions(b) Acquired through business combinations ...

  • Page 101
    ...selling prices and direct costs are based on past experience and expectations of future changes in the market. The forecasts are extrapolated beyond five years based on estimated long-term growth rates of 1% to 5% (2012: 1% to 5%). The pre-tax discount rates used to calculate value in use range from...

  • Page 102
    ... Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 12 Investment property 2013 £m 2012 £m Cost At beginning of the year Foreign currency translation Additions Acquisitions through business combinations Reclassification Classified as held for sale...

  • Page 103
    ...The accounting period ends of the joint ventures consolidated in these financial statements range from 31 December 2012 to 28 February 2013. The accounting period end dates differ from those of the Group for commercial reasons and depend upon the requirements of the joint venture partner as well as...

  • Page 104
    100 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 13 Group entities continued The share of the assets, liabilities, revenue and profit of the joint ventures, which are included in the Group financial statements, are as follows: 2013 £m 2012 £m...

  • Page 105
    ... years. Note 17 Loans and advances to customers GOVERNANCE Tesco Bank has loans and advances to customers. 2013 £m 2012 £m Non-current Current 2,465 3,094 5,559 1,901 2,502 4,403 The maturity of these loans and advances is as follows: At 23 February 2013 Repayable on demand or at short...

  • Page 106
    ...of deposit Loans and advances to banks Cash and cash equivalents Cash of £522m (2012: £1,243m) held on money market funds is classed as short-term investments. 2,309 63 140 - 2,512 1,995 182 35 93 2,305 Note 19 Trade and other payables 2013 £m 2012 £m Trade payables Other taxation and social...

  • Page 107
    Tesco PLC Annual Report and Financial Statements 2013 103 OVERVIEW Note 20 Borrowings Current Par value Maturity year 2013 £m 2012 £m Bank loans and overdrafts Loan from joint ventures (Note 28) 5.625% MTN Other MTNs Finance leases (Note 34) - - â,¬1,500m - - - - 2012 - - 730 16 - 14 6 766...

  • Page 108
    ... cross currency interest rate swaps and forward foreign currency contracts. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the Group Income Statement within finance income or costs. The fair value of derivative financial...

  • Page 109
    ... foreign currency contracts Total financial assets Liabilities Short-term borrowings: Amortised cost Bonds in fair value hedge relationships Long-term borrowings: Amortised cost Bonds in fair value hedge relationships Finance leases (Note 34) Customer deposits - Tesco Bank Deposits by banks - Tesco...

  • Page 110
    ... 2012 are as follows: Loans and receivables/ Available- other financial liabilities for-sale £m £m Fair value through profit or loss £m At 23 February 2013 Cash and cash equivalents Loans and advances to customers - Tesco Bank Short-term investments Other investments - Tesco Bank Joint venture...

  • Page 111
    Tesco PLC Annual Report and Financial Statements 2013 107 OVERVIEW Note 21 Financial instruments continued Fair value measurement The following table presents the Group's financial assets and liabilities that are measured at fair value at 23 February 2013, by level of fair value hierarchy: • ...

  • Page 112
    ... managed using derivative instruments to hedge interest rate risk as follows: Fixed £m Floating £m 2013 Total £m Fixed £m Floating £m 2012 Total £m Cash and cash equivalents Loans and advances to customers - Tesco Bank Short-term investments Other investments Joint venture and associate, loan...

  • Page 113
    ... £14.4bn (2012: £18.6bn offset by financial assets and trade receivables of £14.3bn). The undiscounted cash flows will differ from both the carrying values and fair value. Floating rate interest is estimated using the prevailing rate at the balance sheet date. Cash flows in foreign currencies are...

  • Page 114
    ... assumed for RPI-linked debt which has been swapped to fixed rates; • changes in the carrying value of derivative financial instruments designated as fair value hedges from movements in interest rates or foreign exchange rates have an immaterial effect on the Group Income Statement and equity due...

  • Page 115
    Tesco PLC Annual Report and Financial Statements 2013 111 OVERVIEW Note 22 Financial risk factors continued Tesco Bank Interest rate risk Interest rate risk arises where assets and liabilities in Tesco Bank's banking activities have different repricing dates. Tesco Bank policy seeks to minimise ...

  • Page 116
    ... disclosure for reporting and monitoring purposes. The Group has prepared a prior year comparator using this new methodology. The credit risk exposure from off balance sheet items, mainly undrawn credit card facilities and mortgage offers, was £8.5bn (2012: £7.4bn). Insurance risk Tesco Bank is...

  • Page 117
    ... other provisions balance relates mainly to a provision for Tesco Bank customer redress in respect of potential complaints arising from the historic sales of Payment Protection Insurance ('PPI'). During the year, a full-scale proactive customer contact programme was initiated for customers who were...

  • Page 118
    ...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 119
    ...return on capital employed over the seven-year plan. The following tables reconcile the number of share options outstanding and the weighted average exercise price ('WAEP'): For the year ended 23 February 2013 Savings-related Share Option Scheme Options WAEP Irish savings-related Share Option Scheme...

  • Page 120
    ... US business over the seven-year plan. The Executive Directors participate 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...

  • Page 121
    ... payable for defined contribution schemes of £19m (2012: £20m) have been recognised in the Group Income Statement. Defined benefit plans 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...

  • Page 122
    ... year Changes in the fair value of defined benefit pension assets are as follows: 2013 £m 2012 £m Opening fair value of defined benefit pension assets Expected return Actuarial gains/(losses) Contributions by employer Additional contribution by employer* Actual member contributions Foreign...

  • Page 123
    ... 2013 £m 2012 £m PERFORMANCE REVIEW Deficit in schemes at beginning of the year Current service cost Past service gains Net pension finance income Contributions by employer Additional contribution by employer Foreign currency translation Actuarial losses Deficit in schemes at the end of the year...

  • Page 124
    120 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 26 Post-employment benefits continued A change of 1% in assumed healthcare cost trend rates would have the following effect: 2013 £m 2012 £m Effect of a 1% increase in assumed healthcare cost ...

  • Page 125
    ... the PLC Board. Transactions of key management personnel with Tesco Bank during the financial year were as follows: Credit card and personal loan balances Number of key management personnel £m Saving deposit accounts Number of key management personnel £m FINANCIAL STATEMENTS At 23 February 2013...

  • Page 126
    ... in working capital includes the impact of translating foreign currency working capital movements at average exchange rates rather than year end exchange rates. Note 30 Analysis of changes in net debt At Tesco Bank at 25 February 25 February 2012 2012* £m £m Cash flow £m Business combinations...

  • Page 127
    ...Holdings, Nabola Development Limited, PEJ Property Development Limited, Cirrus Finance Limited, Tesco Ireland Limited, Wanze Properties (Dundalk) Limited, Valiant Insurance Company Limited, Tesco Ireland Holdings Limited. For details of assets held under finance leases, which are pledged as security...

  • Page 128
    124 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Group financial statements Note 33 Capital resources continued The movement of tier 1 capital during the financial year is analysed as follows: 2013 £m 2012 £m At beginning of the year Share capital and share premium Profit ...

  • Page 129
    ... financial year. The terms of these sale and leasebacks vary, however, common factors include: the sale of the properties to the joint venture at market value; options within the lease for the Group to repurchase the properties at market value; market rent reviews; and 20 to 30 full-year lease terms...

  • Page 130
    126 Tesco PLC Annual Report and Financial Statements 2013 Tesco PLC - Parent Company balance sheet notes 23 February 2013 £m 25 February 2012 £m Non-current assets Investments Derivative financial instruments Current assets Derivative financial instruments Debtors Current asset investments Cash...

  • Page 131
    ... currencies Assets and liabilities that are denominated in foreign currencies are translated into Pounds Sterling at the exchange rates prevailing at the balance sheet date of the financial year. Share-based payments The fair value of employee share option plans is calculated at the grant date using...

  • Page 132
    ... Tesco PLC Annual Report and Financial Statements 2013 Notes to the Parent Company financial statements Note 1 Accounting policies continued Fair value hedging Derivative financial instruments are classified as fair value hedges when they hedge the Company's exposure to changes in the fair value...

  • Page 133
    ... for the audit of the Company and Group financial statements 0.8 0.7 Note 3 Employment costs, including Directors' remuneration 2013 £m 2012 £m Wages and salaries* Social security costs Pension costs Share-based payment expense** 20 2 2 6 30 16 2 1 7 26 BUSINESS REVIEW * The wages and...

  • Page 134
    ... instruments £m Other timing differences £m Total £m At 25 February 2012 Charge to the Profit and Loss Account for the year At 23 February 2013 6 (1) 5 (2) 1 (1) 4 - 4 Note 7 Current asset investments 2013 £m 2012 £m Short-term investments Short-term deposits and cash at bank 522 - 522...

  • Page 135
    Tesco PLC Annual Report and Financial Statements 2013 131 OVERVIEW Note 9 Borrowings Par value Maturity year 2013 £m 2012 £m Bank loans and overdrafts Loans from joint ventures...249 242 896 174 635 274 124 246 10,870 BUSINESS REVIEW PERFORMANCE REVIEW * The 4% RPI MTN is redeemable at par, ...

  • Page 136
    ... schemes designed to reward Executive Directors. For further information on these schemes, including the valuation models and assumptions used, see Note 25 in the Group financial statements. Share option schemes The number of options and WAEP of share option schemes relating to the Company employees...

  • Page 137
    ... Tesco PLC Pension Scheme can be found in Note 26 of the Group financial statements. Note 13 Called up share capital 2013 Ordinary shares of 5p each Number £m 2012 Ordinary shares of 5p each Number £m Allotted, called up and fully paid: At beginning of the year Share options Share bonus awards...

  • Page 138
    134 Tesco PLC Annual Report and Financial Statements 2013 Notes to the Parent Company financial statements Note 14 Reserves 2013 £m 2012 £m Share premium At beginning of the year Premium on issue of shares less costs At end of the year Profit and loss reserve At beginning of the year Share-...

  • Page 139
    ... REVIEW PERFORMANCE REVIEW Other matter We have reported separately on the Group financial statements of Tesco PLC for the financial year ended 23 February 2013. Mark Gill (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London...

  • Page 140
    136 Tesco PLC Annual Report and Financial Statements 2013 Five year record 2009 2010 2011 2 2012 1 2013 1 Financial statistics (£m) Sales including VAT excluding IFRIC 13 Revenue excluding IFRIC 13 UK Rest of Europe Asia US Tesco Bank Group revenue excluding IFRIC 13 Trading profit UK Rest of ...

  • Page 141
    ... year end 2012/13 Final ex-dividend date Record date Q1 Interim Management Statement Annual General Meeting Final dividend payment date Half-year end 2013/14 Interim Results Q3 Interim Management Statement Financial year end 2013/14 Please note that dates are provisional and subject to change...

  • Page 142
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