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Tesco PLC
Annual Report and
Financial Statements 2014

Table of contents

  • Page 1
    Tesco PLC Annual Report and Financial Statements 2014

  • Page 2
    ... 30 41 62 Board of Directors Executive Committee Corporate governance report Directors' remuneration report Directors' report Financial statements 64 Statement of Directors' responsibilities 65 Independent auditors' report to the members of Tesco PLC 69 Group income statement 70 Group statement of...

  • Page 3
    ...+1.6% Trading profit growth We are a team of over 500,000 people in 12 markets dedicated to providing the most compelling offer to our customers. With retail operations in the UK, Asia and Europe, we strive to bring the best value, choice and service to millions of customers each week. Group sales...

  • Page 4
    ... to meet the changes being driven by the internet. Let me say a word about brand; and about how we view our international businesses. Visit www.tescoplc.com/ar2014 to hear more from Sir Richard Broadbent and other members of the leadership team Tesco PLC Annual Report and Financial Statements 2014...

  • Page 5
    ...world where retailers will need to operate across multiple channels while meeting wholly different customer expectations for service levels, choice, convenience and overall experience." International Our priority is to deliver value to our shareholders. The last two years or so have seen us address...

  • Page 6
    ...Building a Better Tesco plan in the UK two years ago and invested £1 billion in six key areas of the business: Service & Staff, Stores & Formats, Range & Quality, Price & Value, Brand & Marketing and Clicks & Bricks. As I made clear at the time, we had been running our stores 'too hot' for too long...

  • Page 7
    ... we relaunched our Healthy Living range in January. The customer response to the improvements we have made across our Tesco products has been pleasing, and our own-label sales account for around half of our total UK sales (excluding petrol). 04 Tesco PLC Annual Report and Financial Statements 2014

  • Page 8
    ...is about putting the customer at the centre of our offer and building a seamless experience around them, whether they want to shop in a store, online, in our restaurants, at the Bank or across a combination of them all. Other information T Tesco PLC Annual Report and Financial Statements 2014 05

  • Page 9
    ... Executive continued 2014/15: to provide market-leading delivery pricing, twice the number of Click & Collect locations, including alternative locations such as London tube stations, and added-value products and services, including Tesco Bank's current account and digital wallet. In the medium term...

  • Page 10
    ... cards, loans, mortgages and savings up 14%. In its first full year of trading, our mortgage product has made good progress with balances reaching £0.7 billion. We remain on track to launch current accounts in the first half of 2014/15. Financial statements Conclusion While we do face short-term...

  • Page 11
    ... compare prices or look up customer reviews while shopping in store. The influence of the internet is rising across all our markets; two thirds of Malaysians have access to the internet, for example, while almost half of Czechs own a smartphone. 08 Tesco PLC Annual Report and Financial Statements...

  • Page 12
    ... of consumers and respond to demand for better value. Other information UK largest four grocery retailers '000 sq ft 6,000 5,000 4,000 3,000 2,000 1,000 0 2009 2010 Source: IGD Datacentre 2011 2012 2013 38% less new space than in 2009 Tesco PLC Annual Report and Financial Statements 2014 09

  • Page 13
    ... Co Ins responsibly ting era Op e Bu co br an d Usin g our scale for good r ve l Le ski Drive custo er loyalty m Visit www.tescoplc.com/businessmodel to watch a short animation explaining how our business model works 10 Tesco PLC Annual Report and Financial Statements 2014 a l a ging nd...

  • Page 14
    ... will be and the more we will grow our sales. This combination of scale and growth is the driving force of the business model. 12 markets Other information with retail operations delivering 85 million customer shopping trips each week. Tesco PLC Annual Report and Financial Statements 2014 11

  • Page 15
    ... review Group results 2013/14 (on a continuing operations basis) 52 weeks ended 22 February 2014 Group sales (inc. VAT) * Sales growth excluding petrol Group trading profit - UK - Asia - Europe - Tesco Bank Underlying profit before tax Underlying diluted earnings per share ROCE (pro-forma inc. China...

  • Page 16
    ... as external pressures. We implemented a strong plan, including steps to address some parts of our offer which underperformed in the first half. This included the remerchandising and remarketing of our 'Clubpack' range of bulk buy products, Tesco PLC Annual Report and Financial Statements 2014 13

  • Page 17
    ... seen good growth in our core banking products with customer accounts for credit cards, loans, mortgages and savings up 14%. After the first full year of trading, mortgage balances have grown to £0.7 billion and we have helped over 4,000 customers to own their homes. Those customers have borrowed...

  • Page 18
    ...Laurie Mcllwee Chief Financial Officer* Other information * After 14 years' service at Tesco, Laurie resigned as Chief Financial Officer on 4 April 2014. He will continue to work with us until October 2014 while a successor is appointed. Tesco PLC Annual Report and Financial Statements 2014 15

  • Page 19
    ... stores, convenience stores, grocery home shopping, Tesco Direct and Wine by the case. Current results do not include Blinkbox, Clothing online, Nutricentre, Dobbies and our new coffee shops and restaurants. These will be tracked going forward. 16 Tesco PLC Annual Report and Financial Statements...

  • Page 20
    ...return on capital employed, gearing, TSR, net indebtedness and fixed charge cover) exclude the results from our operations in the United States and China for 2012/13 and 2013/14, with the exception of reduction in CO2e emissions which includes China. Tesco PLC Annual Report and Financial Statements...

  • Page 21
    ... shows how we are strengthening our work in the four essential areas - trading responsibly, reducing our impact on the environment, being a great employer and supporting local communities - which are fundamental to the way we do business. 18 Tesco PLC Annual Report and Financial Statements 2014

  • Page 22
    ...multichannel retailer we buy, move and sell products through our stores and online and our business interacts with millions of people every day. We have a responsibility to respect the human rights of our colleagues, our customers, the communities we operate in and the people who work throughout our...

  • Page 23
    ... aim to improve customer perception of our relative price position • The structure of our executive sub-committees is designed to focus on key risks through the work of the Group Commercial, Compliance, Multichannel, Technology, People Matters Group, Property Strategy and Social Responsibility...

  • Page 24
    ... we can continue to provide quality, affordable products at a great price and which are sourced responsibly • Our embedded Group Code of Business Conduct, Bribery Act and UK Groceries Supply Code of Practice guidelines guide our behaviour in dealing with customers, employees, suppliers and other...

  • Page 25
    ..., customer, supplier and data protection, corporate crime and heightened banking regulation Product safety and ethical trading Failures could damage customer trust and confidence, impacting our customer base and therefore financial results 22 Tesco PLC Annual Report and Financial Statements 2014

  • Page 26
    ... to the running of the business. Failure to ensure the availability of funds to meet the needs of the business or to manage interest or exchange rate fluctuations or credit risks could limit our ability to trade profitably Other information Tesco PLC Annual Report and Financial Statements 2014 23

  • Page 27
    ... including liaison with the UK National Co-ordinator for Counterterrorism Business continuity and crisis management A major incident, from a natural disaster to a system failure, could impact colleague safety or the Group's ability to trade 24 Tesco PLC Annual Report and Financial Statements 2014

  • Page 28
    ... the year end, forward foreign currency transactions, designated as cash flow hedges, equivalent to £2,862 million were outstanding (2013: £1,835 million) as detailed in Note 21 on page 99 of the Annual Report and Financial Statements 2014. We translate overseas profits at average foreign exchange...

  • Page 29
    ..., Philip held several positions in Store Management before holding a number of roles in commercial and marketing. He joined the Tesco PLC Board as Supply Chain Director and a year later added Information Technology to his responsibilities. Laurie McIlwee 03 Chief Financial Officer Laurie McIlwee was...

  • Page 30
    ... Corporate Secretariat Director in April 2005 from Freshfields Bruckhaus Deringer. Jonathan is also Company Secretary of Tesco Bank. Financial statements Board diversity and experience Experience "Managing and developing the Board is a continuous process. We seek to achieve an effective balance...

  • Page 31
    ... 2011 he was Asia, Europe & IT Director. Philip began his career with Tesco in store during 1974 and worked part-time through school and university. Philip held several positions in Store Management before holding a number of roles in commercial and marketing. Laurie McIlwee Chief Financial Officer...

  • Page 32
    ...Executive Committee in 2011 and has responsibility for commercial practice across our markets and sourcing from over 70 countries worldwide. Governance Financial statements Trevor Masters CEO Asia Trevor joined Tesco in 1979, starting his Tesco career as a Store Manager, and later a Store Director...

  • Page 33
    ... on this time last year have settled in and the Board has focused on its task of balancing the short-term competitive and economic pressures with the need to invest to ensure the business is a leader in the world of multichannel retailing. 30 Tesco PLC Annual Report and Financial Statements 2014

  • Page 34
    ... functions in the Group • Budgets and long-term plans for the Group • Financial statements and announcements • Reviewing reports from its Committees, notably on management development, succession and remuneration • Corporate and social responsibility • Pensions • Health and safety...

  • Page 35
    .... The effectiveness of this approach was reviewed at the end of last year and the Board will plan to have seven formal meetings annually henceforth. 1 April 2013 1 Considered independent upon appointment Board attendance Number of possible meetings attended Non-executive Directors Sir Richard...

  • Page 36
    ...operates. Financial statements This year, pursuant to the new requirements under the UK Corporate Governance Code (the 'Code') the Committee was requested by the Board to support it in assessing whether the report and accounts were fair, balanced and understandable and provide sufficient information...

  • Page 37
    ... Board on whether the financial statements, taken as a whole, were fair, balanced and understandable and provide the necessary information to assess the Company's performance, business model and strategy. The Committee assessed the effectiveness of the external audit process by means of a detailed...

  • Page 38
    ... Group Key Risk Register • Reviewing and reporting on the effectiveness of risk management systems and internal controls to senior management, the Executive Committee, the Audit Committee and ultimately to the Board Governance Financial statements Other information Tesco PLC Annual Report and...

  • Page 39
    ...in China and legislative compliance in South Korea; and, in Europe and the UK, the advice centred around compliance with VAT regulations. £0.6m The fees paid to the auditors in the year are disclosed in Note 3 of the financial statements. 36 Tesco PLC Annual Report and Financial Statements 2014

  • Page 40
    ... for millions of people around the world These three ambitions build on our essential responsibilities as a good corporate citizen - in terms of trading responsibly, reducing our impact on the environment, being a great employer and supporting local communities. Financial statements Over the last...

  • Page 41
    ... year was marked by a continued focus on executive bench strength and succession reflecting the priority being given to building talent development and succession options at all levels. The Committee also devoted time to reviewing Board development over the short and medium term. The Group CEO and...

  • Page 42
    ... by the Board include: the Group's strategy; annual budgets; oversight of risk management processes; changes to the capital structure; and material transactions or litigation. The Board held six scheduled meetings in the year ended 22 February 2014 and ad hoc meetings were also arranged to deal with...

  • Page 43
    ... C. Accountability C.1 Financial and business reporting The Directors' statement of responsibilities for the preparation of the Annual Report and Financial Statements 2014 can be found on page 64. Information on the Company's business model can be found on pages 10 and 11 and its strategy can...

  • Page 44
    ... strategy, evolving our offering as the way customers shop evolves. Management have been working hard to deliver this business transformation, making difficult decisions today to position Tesco to be the leading retailer of tomorrow. This strategy is starting to yield results: Group internet sales...

  • Page 45
    ... m Long-term performance Cash bonus Deferred share bonus Performance Share Plan Financial measures (76%): Profitability (50%) and strategic financial measures (26%) Strategic non-financial measures (24%) Matrix of EPS growth and return on capital employed ('ROCE') 42 Tesco PLC Annual Report...

  • Page 46
    How remuneration policy will be applied in 2014/15 Strategic report Element Fixed pay Base salary Operation and opportunity • CEO - £1,145,000 • Next review 1 July 2014. • The average increase for Executive Directors in 2013 was 2%. This was the same as the 2% average increases for other ...

  • Page 47
    ... to invest in a strong UK business. A focus on improving like-for-like performance will support this. A working capital metric is included to focus Executives on the effective management of stock, cash and suppliers. Strategic non-financial performance (24% of short-term) • Group customer service...

  • Page 48
    ... Target Stretch Financial statements The business has made good progress this year against our key strategic objectives designed to strengthen our underlying business. We have increased internet sales by 15% reflecting our focus on our multichannel strategy. We are getting better feedback from...

  • Page 49
    ...out in the 2012/13 Directors' Remuneration Report. Aligning pay with performance The following charts illustrate performance at Tesco against key performance indicators over the past five years. 2012/13 financial information has been restated for retrospective changes to an accounting standard (IAS...

  • Page 50
    ... Base salary £3.6m £3.4m Financial statements Executive Director * Benefits includes car, fuel and driver, security, taxable travel, medical insurance, membership at clubs, Shares in Success and Sharesave awards. Philip Clarke was promoted to the role of CEO with effect from 1 March 2011 and...

  • Page 51
    ... shares, the Executive Committee and over 100 other senior managers are also required to build a holding of Tesco shares. The chart below illustrates the value of Executive Directors' shareholdings, based on the three-month average share price to 22 February 2014 of 330.3p per share compared...

  • Page 52
    ...February 2014 and 24 April 2014 Philip Clarke acquired 71 partnership shares under the all-employee Share Incentive Plan. There were no other changes in share interests. Share dealing policy Tesco has a share dealing policy in place for Executive Directors and for members of the Executive Committee...

  • Page 53
    ...751 Executive Incentive Plan (EIP) 22.06.2010 27.05.2011 25.05.2012 388.05 411.75 308.25 163,414 163,706 38,044 365,164 1 Includes dividend equivalents added to awards during the year. 2 Philip Clarke and Laurie McIlwee exercised their 2008 SAYE options on 3 February 2014 when the market share...

  • Page 54
    ... delivered through an unfunded retirement benefit scheme ('SURBS'). The SURBS is secured by using a fixed and floating charge over a cash deposit in a designated account. Executive Directors who are members of the final salary scheme are required to contribute 10% of salary. Details of the rights...

  • Page 55
    ...total employee pay compared to distributions to shareholders. At Tesco our colleagues are an essential part of how we do business and how we meet our customer needs. Over the last two years we have invested in our colleagues, increasing the number of colleagues in store to improve the offering...

  • Page 56
    ... year ending 22 February 2014. As the Non-executive Directors are not paid a pension and do not participate in any of the Company's variable incentive schemes, this information is not included in the table below. This table has been audited. Financial statements Single total figure of remuneration...

  • Page 57
    ... can be found on pages 26 and 27 of this report. No member of the Committee has 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. 54 Tesco PLC Annual Report and Financial Statements 2014

  • Page 58
    ... provided unrelated advisory services in respect of corporate tax planning, technology consulting, risk management, share schemes, international taxation, corporate finance and treasury to the Group during the year. Deloitte is one of the founding members of the Remuneration Consultants Code...

  • Page 59
    ... is to support the recruitment and retention of Executive Directors of the calibre required to develop and deliver the strategy. • Base salary provides fixed remuneration for the role, which reflects the size and scope of the Executive Directors' responsibilities and their experience. Operation...

  • Page 60
    ... for management. Maximum opportunity Performance measures Fixed Governance Annual bonus Performance related pay Financial statements Performance Share Plan • The role of the PSP is to reward Executive Directors for achieving Tesco's long-term strategy and creating sustainable shareholder...

  • Page 61
    ... by the Committee each year to ensure that Executive Directors are appropriately focused on the key objectives for the next 12 months. Performance share plan The ultimate goal of our strategy is to provide long-term sustainable returns for all of our shareholders. Tesco believes that the best...

  • Page 62
    ...our policy in relation to Executive Director service contracts and payments in the event of loss of office. No share price growth or the payment of dividend equivalents has been assumed. Potential benefits under all-employee share schemes have not been included. Fixed pay is based on current values...

  • Page 63
    Directors' remuneration report continued 2013/14 Policy Report Provision Notice period Current service contracts • 12 months' notice by the Company and six months' notice by the Executive Director. • For new appointments the Committee reserves the right to vary this period to 24 months for the...

  • Page 64
    ... their views on working for Tesco and how this can be improved. Feedback on employee reward is provided as part of this survey. The Committee reviews information regarding the typical remuneration structure and reward levels for other UK based employees to provide context when determining executive...

  • Page 65
    ... Company's share capital, including changes during the year in the issued share capital and details of the rights attaching to the Company's ordinary shares, are set out in Note 27 on page 116 of the Annual Report and Financial Statements 2014. No shareholder holds securities carrying special rights...

  • Page 66
    ...limited to, those discussed under 'Principal risks and uncertainties' on pages 20 to 25 of this Annual Report. By order of the Board Strategic report Governance Financial statements Jonathan Lloyd Company Secretary 2 May 2014 Other information Tesco PLC Annual Report and Financial Statements 2014...

  • Page 67
    ...the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and Group's performance, business model and strategy. The Directors are responsible for keeping proper accounting records...

  • Page 68
    ...scope of our audit The Group is primarily structured as three geographic regions, being UK, Asia and Europe, and Tesco Bank. The Group financial statements are a consolidation of nineteen reporting units, comprising the Group's operating businesses and centralised functions, within these regions. In...

  • Page 69
    ... at the year end are judgemental. We focused on this area because of the judgement required in accounting for the commercial income deals and the risk of manipulation of these balances. We tested the controls management has in place, focusing on controls over price changes and margin reviews. We...

  • Page 70
    ...substantive testing of revenue recorded during the year. We tested that retail sales transactions are supported by cash receipts and also tested journal entries posted to revenue accounts to identify unusual or irregular items. Other information Tesco PLC Annual Report and Financial Statements 2014...

  • Page 71
    ... provides the information necessary for members to assess the Group's performance, business model and strategy. On page 34, as required by C.3.8 of the Code, the Audit Committee has set out the significant issues that it considered in relation to the financial statements, and how they were addressed...

  • Page 72
    ...) 24 Strategic report Year ended 22 February 2014 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 and associates Finance income Finance costs Profit before...

  • Page 73
    ...) 61 97 (1,183) (1,829) 970 (859) 52 weeks 2013 (restated *) £m (610) 99 (511) (11) 420 20 84 (63) (24) 426 (85) 24 (61) Year ended 22 February 2014 Items that will not be reclassified to income statement Remeasurements on defined benefit pension schemes Tax on items that will not be reclassified...

  • Page 74
    ... part of these financial statements. Other information Philip Clarke Directors The financial statements on pages 69 to 121 were authorised for issue by the Directors on 2 May 2014 and are subject to the approval of the shareholders at the Annual General Meeting on 27 June 2014. Tesco PLC Annual...

  • Page 75
    ... - Dividends authorised in the year - - Tax on items charged to equity 1 56 Total transactions with owners 403 5,020 At 23 February 2013 * Restated for amendments to IAS 19 as explained in Note 1. The notes on pages 74 to 121 form part of these financial statements. 72 Tesco PLC Annual Report and...

  • Page 76
    ... debt and lease financing Dividend received from Tesco Bank Increase/(decrease) in Retail short-term investments (Decrease)/increase in Retail joint venture loan receivables Other non-cash movements Elimination of other Tesco Bank non-cash movements Decrease in net debt for the year Opening net debt...

  • Page 77
    ... Scheme of Arrangement established with the support of the relevant regulatory and customer protection bodies to address customer redress relating to the historic sale of certain cardholder protection products ('CPP') to credit card customers. 74 Tesco PLC Annual Report and Financial Statements...

  • Page 78
    ...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. Governance Financial statements Other information Tesco PLC Annual Report and Financial Statements...

  • Page 79
    ... fair value less costs to sell. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 76 Tesco PLC Annual Report and Financial Statements 2014

  • Page 80
    ...the effective interest rate of the instrument at initial recognition. Impairment losses are assessed individually for financial assets that are individually significant and collectively for assets that are not individually significant. Financial statements Other information Tesco PLC Annual Report...

  • Page 81
    ... recognised when the Group believes that the unavoidable costs of meeting the lease obligations exceed the economic benefits expected to be received under the lease. Provisions for dilapidation costs are recognised on a lease by lease basis. 78 Tesco PLC Annual Report and Financial Statements 2014

  • Page 82
    ... on the accounting for contributions from employees or third parties set out in the formal terms of a defined benefit plan. • Annual Improvements 2010-2012 and Annual Improvements 2011-2013 are effective from periods commencing on or after 1 July 2014. The Annual Improvements process covers minor...

  • Page 83
    ... financial year. ** Actual exchange rates are the average actual periodic exchange rates for that financial year. †Trading margin is based on revenue excluding the accounting impact of IFRIC 13. Tesco Bank £m 1,003 1,003 - 1,003 194 19.3% 80 Tesco PLC Annual Report and Financial Statements...

  • Page 84
    ... 2 Segmental reporting continued Strategic report Tesco Bank £m 1,021 1,021 - 1,021 191 18.7% Total at actual exchange £m 70,712 63,967 (561) 63,406 3,525 5.5% Year ended 23 February 2013 At actual exchange rates* Continuing operations Sales including VAT (excluding IFRIC 13) Revenue (excluding...

  • Page 85
    ... financial statements continued Note 2 Segmental reporting continued Other segment information UK £m Asia £m Europe £m Tesco Bank £m Total continuing Discontinued operations operations* £m £m Year ended 22 February 2014 Capital expenditure (including acquisitions through business combinations...

  • Page 86
    Note 4 Employment costs, including Directors' remuneration Strategic report Continuing operations Wages and salaries Social security costs Post-employment defined benefits (Note 26) Post-employment defined contributions (Note 26) Share-based payments expense (Note 25) 2014 £m 6,144 471 542 32 82 7,...

  • Page 87
    ... year Effective tax rate Tax on items credited directly to the Group Statement of Changes in Equity Current tax credit/(charge) on: Share-based payments Deferred tax (charge)/credit on: Share-based payments Total tax on items charged to Group Statement of Changes in Equity 2014 £m 1 (1) - 2013...

  • Page 88
    ... China and the US, while the year ending 23 February 2013 represents the US. Financial statements The non-current assets classified as held for sale consist mainly of properties in the UK and Korea due to be sold within one year. Other information Tesco PLC Annual Report and Financial Statements...

  • Page 89
    ...in Japan ** Total underlying loss before tax of discontinued operations * Comprises fair value remeasurements, less costs to sell. ** The results of Japan are for the 44 weeks ended 1 January 2013, when there was an exit from the operations. 86 Tesco PLC Annual Report and Financial Statements 2014

  • Page 90
    ... from investing activities Net cash flows from financing activities Net cash flows from discontinued operations Intra-Group funding and intercompany transactions Net cash flows from discontinued operations, net of intercompany Other information Tesco PLC Annual Report and Financial Statements 2014...

  • Page 91
    ... of members at close of business on 2 May 2014. Note 9 Earnings per share and diluted earnings per share Basic earnings per share amounts are calculated by dividing the profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial year...

  • Page 92
    ... 2012 Foreign currency translation Amortisation for the year Impairment losses for the year At 23 February 2013 1,454 1 161 40 (1) - 1,655 Financial statements 777 2 121 16 916 340 9 91 - 440 241 - 20 - 261 99 32 - 495 626 1,457 43 232 511 2,243 Other information Tesco PLC Annual Report...

  • Page 93
    ... was made in the previous year and arose from Poland (£373m), Czech Republic (£69m) and Turkey (£53m) CGUs (all included in the European operating segment). This loss was recognised in the cost of sales line in the Group Income Statement. 90 Tesco PLC Annual Report and Financial Statements 2014

  • Page 94
    ... provided to tenants of some malls operated by the Group are no longer considered insignificant and as a result a number of malls with a net book value of £1,623m have been reclassified from investment property to property, plant and equipment. Tesco PLC Annual Report and Financial Statements 2014...

  • Page 95
    ...which are reviewed by the Board. The forecasts are extrapolated beyond five years based on estimated long-term growth rates of 2% to 5% (2013: 1% to 5%). The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management...

  • Page 96
    ...(China) Co. Limited Retail Dobbies Garden Centres Limited Retail Fresh & Easy Neighborhood Market Inc. Retail Tesco Personal Finance Group Limited* (trading as Tesco Bank) Financial Services Tesco Distribution Limited Distribution Tesco Property Holdings Limited Property Tesco International Sourcing...

  • Page 97
    ...-tax profits of joint ventures includes £(9)m loss attributable to joint venture operations of China for the first six months of the year ended 22 February 2014. Significant joint ventures The Group's principal joint ventures are: Share of issued share capital, loan capital and debt securities 50...

  • Page 98
    ...-sale financial assets mainly comprise investments in bonds with varied maturities of which £167m (2013: £57m) is current. Note 15 Inventories 2014 £m 3,467 109 3,576 2013 £m 3,643 101 3,744 Other information Goods held for resale Development properties Tesco PLC Annual Report and Financial...

  • Page 99
    ... £0.8bn (2013: £1.3bn) that has been prepositioned with the Bank of England for the purposes of contingent liquidity via the discount window facility and consequently is eligible for future participation in the Funding for Lending Scheme. 96 Tesco PLC Annual Report and Financial Statements 2014

  • Page 100
    ... social security Other payables Amounts payable to joint ventures and associates (Note 28) Accruals and deferred income Financial statements Included in other payables are amounts of £154m (2013: £262m) which are non-current. Other information Tesco PLC Annual Report and Financial Statements...

  • Page 101
    ... Group financial statements continued Note 20 Borrowings Current Par value - - £600m $500m - - Maturity year - - 2014 2014 - - 2014 £m 830 16 628 300 130 6 1,910 2013 £m 730 16 - - 14 6 766 Bank loans and overdrafts Loans from joint ventures (Note 28) 5% MTN 2% USD Bond Other MTNs Finance leases...

  • Page 102
    ... to changes in foreign exchange rates. A net finance income of £7m (2013: a net finance cost of £6m) was recorded resulting from net investment hedging ineffectiveness. Gains and losses accumulated in equity are recycled to the Group Income Statement on disposal of overseas operations. Financial...

  • Page 103
    ... Index-linked swaps Forward 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...

  • Page 104
    ... Deposits by banks - Tesco Bank Short-term borrowings Long-term borrowings Finance leases (Note 34) Derivative financial instruments: Interest rate swaps and similar instruments Cross currency swaps Index-linked swaps Forward foreign currency contracts Availablefor-sale £m 140 - - 818 958 Loans...

  • Page 105
    ...-linked swaps Forward foreign currency contracts Total liabilities Total - - - - - 808 (185) (79) (539) (77) (880) 1,293 - - - - - - (185) (79) (539) (77) (880) 2,101 The following table presents the changes in Level 3 instruments for the year ending 22 February 2014: 2014 £m - - - 96 96 2013...

  • Page 106
    ...2014 Financial assets offset Cash and cash equivalents Derivative financial instruments Trade and other receivables Total Financial liabilities offset Bank loans and overdrafts (1,206) 376 (830) - Repurchases, securities... Other information Tesco PLC Annual Report and Financial Statements 2014 103

  • Page 107
    ... Short-term investments Other investments Joint venture and associate loan receivables (Note 28) Other receivables Finance leases (Note 34) Bank and other borrowings Customer deposits - Tesco Bank Deposits by banks - Tesco Bank Derivative effect: Interest rate swaps Cross currency swaps Index-linked...

  • Page 108
    ...Loans to non-UK subsidiaries that are hedged via foreign currency transactions and borrowings in matching currencies. These are not formally designated as hedges as gains and losses on hedges and hedged loans will naturally offset. Other information Tesco PLC Annual Report and Financial Statements...

  • Page 109
    ... the capital structure, the Group may adjust the dividend payment to shareholders, buy back shares and cancel them, or issue new shares. The Group finances its operations by a combination of retained profits, disposals of property assets including sale and leaseback transactions, debt capital market...

  • Page 110
    ... repricing dates. Tesco Bank policy seeks to minimise the sensitivity of net interest income to changes in interest rates. Potential exposures to interest rate movements in the medium to long-term are measured and controlled through position and sensitivity limits. Short-term exposures are measured...

  • Page 111
    ...current customer deposits and £8m (2013: £6m) non-current deposits by banks. Deposits by banks include liabilities of £765m (2013: £5m) secured on investment securities balances which have been sold under sale and repurchase agreements. 108 Tesco PLC Annual Report and Financial Statements 2014

  • Page 112
    ...in order to reflect the operation of the CCA in respect of the customers' liability. These provisions may be used over several years although the timing of utilisation is uncertain. The balance is classified as current at the year end. Financial statements Other information Tesco PLC Annual Report...

  • Page 113
    ... the date of grant for nil consideration. The exercise of options will normally be conditional upon the achievement of specified performance targets related to the return on capital employed and earnings per share over a three-year period. 110 Tesco PLC Annual Report and Financial Statements 2014

  • Page 114
    ... targets related to the 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 22 February 2014 Savings-related Share Option Scheme Options Outstanding at 23...

  • Page 115
    ...13 - Number of shares - 110,234 4,591,717 27,025,617 178,914 2013 WAFV pence - 301.08 301.13 317.34 314.91 Shares In Success Irish Share Bonus Scheme Executive Incentive Scheme Performance Share Plan US Long-Term Incentive Plan Note 26 Post-employment benefits Pensions The Group operates a variety...

  • Page 116
    ...for male senior managers. 105% of the SAPS normal female pensioners for female staff and 90% for female senior managers. These assumptions were used for the calculation of the pension liability as at 22 February 2014 for the main UK scheme. Tesco PLC Annual Report and Financial Statements 2014 113

  • Page 117
    ... their limitation is the effect of varying the assumption whilst holding all other assumptions constant. Plan Assets The table below shows a breakdown of the combined investments held by the Group's schemes 2014 £m Equities UK Europe Rest of the World Bonds Government Corporates - Investment grade...

  • Page 118
    ... Statement of Comprehensive Income for the year ended 22 February 2014 are set out below: 2014 £m Analysis of the amount charged to operating profit: Current service cost Total charge to operating profit Analysis of the amount (charged)/credited to finance (cost)/income: Interest on defined benefit...

  • Page 119
    ... in aggregate of 806.5 million (2013: 804.0 million) ordinary shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. 116 Tesco PLC Annual Report and Financial Statements 2014

  • Page 120
    ... 21 Financial statements Salaries and short-term benefits Pensions Share-based payments Loss of office costs Of the total remuneration to key management personnel, £16m (2013: £7m) relates to Executive Committee members who are not on the PLC Board. Transactions of key management personnel with...

  • Page 121
    ... of translating foreign currency working capital movements at average exchange rates rather than year end exchange rates. Included in (decrease)/increase in provisions are movements in respect of provisions for onerous contracts relating to continuing operations of £(46)m (2013: £129m) which are...

  • Page 122
    ... Total regulatory capital 913 235 33 (21) 1,160 2013* £m 705 372 25 (64) 1,038 Financial statements Following the publication of the Capital Requirements Directive ('CRD') IV rules in the year, the Prudential Regulation Authority ('PRA') issued a policy statement on 19 December 2013 detailing...

  • Page 123
    ... 256 196 645 2013 £m 258 348 260 866 Future minimum lease payments that are contractually receivable from tenants associated with the discontinued operations in China are excluded from the 2014 figures in the above tables (2013: £153m). 120 Tesco PLC Annual Report and Financial Statements 2014

  • Page 124
    ..., acquired Sociomantic Labs ('Sociomantic'), a Berlin-based global leader in digital advertising solutions, for £124m. Sociomantic operates in 14 countries worldwide, with clients in retail, financial services and travel services. Governance Financial statements Other information Tesco PLC Annual...

  • Page 125
    ... Clarke Directors The Parent Company financial statements on pages 122 to 130 were authorised for issue by the Directors on 2 May 2014 and are subject to the approval of the shareholders at the Annual General Meeting on 27 June 2014. Tesco PLC Registered number 00445790 122 Tesco PLC Annual Report...

  • Page 126
    ... 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 the Black-Scholes model. The resulting cost is charged to the Profit and Loss Account over the vesting...

  • Page 127
    ... the Company has accounted for the scheme as a defined contribution scheme, and the charge for the period is based upon the cash contributions payable. Taxation Corporation tax payable is provided on the taxable profit for the year, using the tax rates enacted or substantively enacted by the Balance...

  • Page 128
    ... the Company's investments in China to the value consolidated in the Group financial statements, which reflects the fair value for disposal. Please refer to Note 7 in the Group financial statements for further details. Other information Tesco PLC Annual Report and Financial Statements 2014 125

  • Page 129
    ... by the Company, and the movements thereon, during the financial year are as follows: Financial instruments £m 4 (2) 18 20 At 23 February 2013 Charge to the Profit and Loss Account for the year Movement in reserves for the year At 22 February 2014 Note 7 Short-term investments 2014 £m 1,016 2013...

  • Page 130
    ... one and two years Amounts falling due between two and five years Amounts falling due after more than five years 1,705 1,705 528 2,829 4,596 7,953 9,658 2013 £m 292 292 1,093 2,934 5,409 9,436 9,728 Financial statements Other information Tesco PLC Annual Report and Financial Statements 2014 127

  • Page 131
    ... 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 132
    ....5 million (2013: 804.0 million) ordinary shares. The holders of ordinary shares are entitiled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. Other information Tesco PLC Annual Report and Financial Statements 2014 129

  • Page 133
    ... to the Parent Company financial statements continued Note 14 Reserves 2014 £m Share premium account 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-based payments Dividends authorised in the year Net movement...

  • Page 134
    ... are prepared by Tesco PLC, comprise: • the Parent Company Balance Sheet as at 22 February 2014; and • the notes to the Parent Company financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has...

  • Page 135
    ... 2012/13 includes a one-off credit of £30m. The above is not a primary statement, nor a note to the financial statements and does not form part of the Group Income Statement. It is supplementary information to aid understanding of our non retail business. 132 Tesco PLC Annual Report and Financial...

  • Page 136
    ... commission. The above is not a primary statement, nor a note to the financial statements and does not form part of the Group Balance Sheet. It is supplementary information to aid understanding of our non retail business. Other information Tesco PLC Annual Report and Financial Statements 2014 133

  • Page 137
    ... operations reported within assets of the disposal group. The above is not a primary statement, nor a note to the financial statements. It does not replace the Group Cash Flow but is supplementary information to aid understanding. 134 Tesco PLC Annual Report and Financial Statements 2014

  • Page 138
    ...Free cash flow Governance The above is not a primary statement, nor a note to the financial statements. It does not replace the Group Cash Flow but is supplementary information to aid understanding. Financial statements Other information Tesco PLC Annual Report and Financial Statements 2014 135

  • Page 139
    ...23.4% 23.5% 19.3% 10.6% 2.5% 100.0% No. of stores 1,527 313 299 165 113 43 10 2,470 5 639 32 3,146 February 2013 Million sq ft 3.6 4.0 8.9 8.7 7.1 3.9 1.1 37.4 0.6 1.0 1.5 40.5 % of total sq ft 9.7% 10.6% 23.9% 23.3% 19.1% 10.5% 2.9% 100.0% 136 Tesco PLC Annual Report and Financial Statements 2014

  • Page 140
    ...introduction of legislation preventing large retailers from selling tobacco in mid-July 2013, Hungary like-for-like growth is shown on an excluding tobacco basis. 2 Wholesale sales to F&F franchisees. Financial statements Other information Tesco PLC Annual Report and Financial Statements 2014 137

  • Page 141
    ... not included in the net gain for 'number of stores', since they are expansions/reductions in the space of existing stores. China is excluded from Asia's store and space numbers. 3 China is excluded from Group store and space numbers. 1 2 138 Tesco PLC Annual Report and Financial Statements 2014

  • Page 142
    ... net gain for 'number of stores', since they are expansions/reductions in the space of existing stores. For a list of UK store openings, information can be found within the Analyst pack on our website at www.tescoplc.com. Other information Tesco PLC Annual Report and Financial Statements 2014 139

  • Page 143
    ... in the net gain for 'number of stores', since they are expansions/reductions in the space of existing stores. South Korea and Franchise totals include one store conversion that is therefore included in the net gain for 'number of stores'. 140 Tesco PLC Annual Report and Financial Statements 2014

  • Page 144
    ...Europe (inc. Franchise) Total Czech Republic Financial statements Note 1 Extensions/Repurposed stores are not included in the net gain for 'number of stores', since they are expansions/reductions in the space of existing stores. Other information Tesco PLC Annual Report and Financial Statements...

  • Page 145
    ... financial year ended 28 February 2014 (prior financial year ended 28 February 2013). 3 Effective rate of tax on profit before tax for 2012/13 has been restated on a continuing operations basis. 1 2 The above is not a note to the financial statements. It does not replace Note 9 Earnings per share...

  • Page 146
    ... Annual General Meeting Final dividend payment date Half-year end 2014/15 Interim Results Q3 Interim Management Statement Financial year end 2014/15 Please note that these dates are provisional and subject to change. The 2014/15 financial year will comprise of 53 weeks. 22 February 2014 Strategic...

  • Page 147
    ...of full-time equivalent employees in the UK and revenue excluding IFRIC 13. 17 Based on weighted average sales area and average weekly sales, excluding Dobbies stores. 18 Includes Profits/Losses on property-related items. 19 Excludes China. 144 Tesco PLC Annual Report and Financial Statements 2014