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Annual Report and
Financial Statements
2015
Annual Report and
Financial Statements
2015

Table of contents

  • Page 1
    Annual Report and Annual Report and Financial Statements Financial Statements 2015 2015

  • Page 2
    ... to work on customer service - it makes a big difference." Newton Abbot "When I shop in Tesco now there is an overall better feel." Maldon "The store is of vital importance to the local community, long may it continue to be so." London In this report: Strategic report Chairman's statement CEO...

  • Page 3
    ... to make our customers' lives easier, every day. In other words: Every Little Helps. We have changed our reporting this year to reflect our approach across the business - that is, to keep it simple. The strategic report is our top level of reporting, with signposting to further detail online at www...

  • Page 4
    ... right team and the right strategy to deliver the longer-term performance our shareholders expect and deserve. John Allan Chairman John Allan Chairman Visit www.tescoplc.com/ar2015 to hear more from John Allan on his first months at Tesco 2 Tesco PLC Annual Report and Financial Statements 2015

  • Page 5
    ... of service. When I lookat our business, I see a sea of opportunity. What we need to do now is unlockthe potential which exists within Tesco - and to do that, we need to do some key things differently. Strategic report Dave Lewis Group Chief Executive Tesco has always been a champion for customers...

  • Page 6
    ... stronger and we believe our destiny is in our own hands. If we keep focusing on our customers, and challenging ourselves to make every single customer experience better every day, we know we can succeed. Dave Lewis Group Chief Executive 4 Tesco PLC Annual Report and Financial Statements 2015

  • Page 7
    ... to close 43 unprofitable stores in the UK, and not to proceed with plans for 49 new stores. These decisions have been difficult but have been made to put the needs of the business and customers first. Financial statements Other information Tesco PLC Annual Report and Financial Statements 2015 5

  • Page 8
    ... changes is a cultural shift. Every pound we spend needs to be considered from the point of view of our customers. We want every spending decision to be weighed up against how many hours of store service the same investment would provide. 6 Tesco PLC Annual Report and Financial Statements 2015

  • Page 9
    ... partnerships, with a greater focus on cost prices than on the commercial income we receive back from suppliers for promoting their products. • A new Code of Business Conduct, supported by a company-wide training programme to help colleagues follow key policies. • A speak-up culture, with...

  • Page 10
    ...refocused our business under three operational headlines: • listening to, understanding and reaching out to customers to create the best possible offer • working with growers and suppliers to make great products, and helping to deliver the best value to customers • and working across different...

  • Page 11
    ...our customers. Product The offer we create for customers is developed by our Product team. They work with our suppliers to source the best possible range of quality products which meet and anticipate our customers' needs. Our relationships with suppliers are crucial to delivering our customer offer...

  • Page 12
    ..., we need to build trusted partnerships with suppliers to provide the best offer for customers. We also rely at a local level on partnerships with communities and wider society as part of our licence to operate. We survey our suppliers to capture how they feel about their relationship with Tesco and...

  • Page 13
    ...working hard to have a positive impact on their shopping trip. As customers recommend us and keep returning to shop with us, our profitability will improve and we will achieve a stronger financial position. Group trading profit declined to £1.4bn in 2014/15, driven by a challenging year for the UK...

  • Page 14
    Financial review The reported year has been both an extremely challenging year for Tesco and a year in which we began a process of considerable change. Against this backdrop we delivered sales of £70bn in 2014/15, (1.3)% below last year on a 52 week basis at constant currency. Trading profit ...

  • Page 15
    ... business with our suppliers, with significantly less focus on commercial income, further impacted profitability. The investment we have made in service, availability and, selectively in price in the second half is also a contributing factor. Financial statements Other information Tesco PLC Annual...

  • Page 16
    ... margin * (trading profit/revenue) 1.93% (66)bp (64)bp Excludes the accounting impact of IFRIC 13. Sales in Europe reduced by (8.5)% on a 52 week basis including a (7.9)% foreign exchange effect as the Euro fell to seven-year lows against Sterling by year-end. Whilst we saw some improvement...

  • Page 17
    ... year-on-year at actual tax rates ((70.5)% lower on a 52 week basis), driven by the decline in our trading profit performance. Statutory losses per share were (70.24)p reflecting one-off items. Net finance costs TY Interest receivable and similar income Interest payable on short term bank loans...

  • Page 18
    ... our pension liability. TY £m Net debt* (excludes Tesco Bank) LY £m (6,597) (9,419) (2,559) Property As at the year end, the estimated market value of fully-owned property across the Group was £22.9bn. This represents a reduction of £7.6bn year-on-year driven mainly by the weakening of the UK...

  • Page 19
    ... of certain benefits such as marketing materials or promotional product positioning, and costs incurred for unplanned variations in product specification. In most instances, the arrangements that set out these terms cover periods that are within or end at the same point as our financial year. Where...

  • Page 20
    ...food poverty; and working with our suppliers to source responsibly and sustainably. While the last year has been challenging for Tesco, we remain incredibly proud of the efforts we have made to tackle sustainability issues, support important causes and help local communities. As we begin the process...

  • Page 21
    ... waste does occur, customers tell us they want us to give edible food to charity. We have made great progress on this over the last year, and we will be looking at what more we can do to ensure no edible food is wasted. Other information Tesco PLC Annual Report and Financial Statements 2015 19

  • Page 22
    ... and Corporate Responsibility Committees in particular consider risks related to our Human Rights Policy, which are maintained on our company risk register. This year we launched a new Code of Business Conduct, supported by a company-wide training programme to help colleagues follow key policies...

  • Page 23
    Strategic report Governance Food waste In 2014/15 we have calculated that 55,400∆ tonnes of food were wasted in Tesco stores and distribution centres in the UK which is equivalent to 0.9%∆ of the number of food products we sold in our stores over the same period. The chart on the right shows ...

  • Page 24
    ... and review by the Executive Committee and the Board. Our process for identifying and managing risk is set out in more detail on page 44 of the Annual Report and Financial Statements 2015. The table below sets out our key risks, their movement during the year and examples of relevant controls and...

  • Page 25
    ... in public policy wherever we operate • Country developments are monitored by our local management teams • Group and country Compliance Committees monitor and guide legal and regulatory compliance with support from our Group Regulatory Ethics and Compliance team • The Tesco Bank Executive and...

  • Page 26
    ...Act (and applicable local legislation) and use an externally managed Whistleblowing service (Protector Line) to allow colleagues to report any instances of inappropriate behaviour • A Fraud Blueprint setting out risks, controls and operational strategies informs a preventative approach Tesco Bank...

  • Page 27
    ... year end, forward foreign currency transactions, designated as cash flow hedges, equivalent to £2.2 billion were outstanding (2014: £2.9 billion) as detailed in Note 21 on page 116 of the Annual Report and Financial Statements 2015. We translate overseas profits at average foreign exchange rates...

  • Page 28
    26 Tesco PLC Annual Report and Financial Statements 2015

  • Page 29
    Strategic report Governance Corporate governance 28 30 32 46 70 Board of Directors Executive Committee Corporate governance report Directors' remuneration report Directors' report Financial statements Other information Tesco PLC Annual Report and Financial Statements 2015 27

  • Page 30
    ... UK and international corporate experience to the Board. He has been the Group CEO of the Compass Group PLC since 2006 and is also a member of the advisory board of Lancaster University Business School. Prior to joining Compass, Richard worked for 15 years for BPB PLC and was Group Chief Executive...

  • Page 31
    ... = Remuneration Committee = Corporate Responsibility Committee There have been a number of changes to the Board since last year which are described in the Chairman's statement on page 2 and the corporate governance report on pages 32 to 36. Other information Tesco PLC Annual Report and Financial...

  • Page 32
    ... for the Americas and Global President, Personal Care. During his career, Dave has been responsible for a number of business turnarounds. Dave is a Non-executive Director of British Sky Broadcasting Group plc. Alan Stewart Chief Financial Officer Alan joined the Board on 23 September 2014. Alan has...

  • Page 33
    ... & Managing Director, with responsibility for Amazon's UK and French businesses. Robin has also held senior e-commerce and multichannel roles at Figleaves.com, John Lewis and House of Fraser. In January 2015, Robin was appointed Chief Customer Officer. Other information Tesco PLC Annual Report and...

  • Page 34
    .... Ensuring we have the right skills and experience is a key priority and the Board will continue to evolve to best meet the needs of the business. The UK Corporate Governance Code We recognise and support the principles of the UK Corporate Governance Code. This year we complied with the relevant...

  • Page 35
    ... conduct under provisions of the Code relating to delays in payments to suppliers and payments for shelf positioning. We are continuing to co-operate fully with the Adjudicator's investigation. Strategic report Governance Financial statements Other information Tesco PLC Annual Report and Financial...

  • Page 36
    ... normal process of Board development and succession planning. To ensure appropriate balance and succession potential in the Board's Committees a number of changes have been made. Changes to the Board and Board Committees are detailed in the following table. 34 Tesco PLC Annual Report and Financial...

  • Page 37
    ...-executive Director and Remuneration and Corporate Responsibility Committee member. The tailored induction programme included an oversight of the Group's governance requirements, a detailed overview of the Group's operations and discussions with key senior management to support both their main Board...

  • Page 38
    ... Chairman's succession, the Board agreed that an externally facilitated Board evaluation in 2014/15 would have limited value and that an internal interview-based evaluation process, tailored to the need to respect the Serious Fraud Office investigation, would be conducted. The review covered a range...

  • Page 39
    ... of the Company's processes and procedures in relation to internal control, risk management and financial reporting. The Committee supports the Board in assessing whether the Annual Report and Financial Statements are fair, balanced and understandable and provide sufficient information to allow...

  • Page 40
    ... for closed stores, investments, WIP, intangibles and head office properties, together with an onerous lease provision of £(669) million in the year. See Note 11 to the financial statements for Fixed assets impairment, and Note 24 for Property Provisions. The Committee reviewed management's process...

  • Page 41
    ...accepted and are in the process of being implemented. Internal control The Board conducted a review of the effectiveness of the Company's risk management and internal controls during the year. To support the Board in their annual assessment, a report is prepared by Internal Audit which describes the...

  • Page 42
    ...funds for good causes in their communities. Going forward, the Corporate Responsibility ('CR') Committee will continue to support the development and evolution of our CR strategy. John Allan Corporate Responsibility Committee Chairman Activities during the year As our business goes through a process...

  • Page 43
    ... In the coming year Board composition and effectiveness will be a key focus for the Committee along with developing succession plans for the longer term to ensure appropriate plans are in place to meet the needs of the business. John Allan Nominations Committee Chairman Strategic report John Allan...

  • Page 44
    ... we are determined to develop a culture and an environment where our people can advance whilst having the time to be good parents, partners and active members of their local community. Our policy is to find, develop and keep a diverse workforce at all levels within our Company and we are committed...

  • Page 45
    ...directed and controlled to achieve standards of good corporate governance. In September 2014 the Financial Reporting Council made changes to the Code. The 2012 version of the Code applies to the Company for the year ended 28 February 2015. A copy of the Code is available at www.frc.org.uk. The Board...

  • Page 46
    ... the review of the effectiveness of risk management and internal control arrangements. These include: the outputs from the Group and Business Unit Compliance Committee processes; the returns from the Annual Code of Business Conduct declaration process; the results of the Key Financial Controls Self...

  • Page 47
    ... enable clear communication of our position. The Chairman, CEO and CFO hold regular meetings with shareholders and update the Board on the outcome of those meetings. Investor Relations keep the Board informed of broker and analyst views, and report and present formally to the Board twice a year. In...

  • Page 48
    ... a five year period and both are on track to meet these requirements. Changes to remuneration framework With new Executive leadership in place, the Board has been working hard to develop a strategy to improve financial performance by building a more sustainable, customer-focused Tesco. The Committee...

  • Page 49
    ... changes to our Remuneration Policy will be required as a result of this review, we will consult shareholders again once this review has been completed. Deanna Oppenheimer Chair of the Remuneration Committee Strategic report Governance Financial statements Other information Tesco PLC Annual Report...

  • Page 50
    ...policy will be applied in 2015/16 to Executive Directors. Key changes from last year • Simplification of annual bonus to focus on fewer, more relevant measures • Performance Share Plan measures changed to align with priorities to deliver significant value to shareholders and return the business...

  • Page 51
    ... share price and dividend performance; and • Returning the business to be one that generates sustainable, quality cash flow. Therefore, we will use a combination of relative Total Shareholder Return and Cumulative Retail Cash Generated from Operations to determine awards. Tesco PLC Annual Report...

  • Page 52
    ... consumer business and services companies Cumulative Retail Cash Generated from Operations * Weighting 70% Definition of measure Growth in share price plus dividends reinvested Link to strategy Directly aligns Executives with shareholders in delivering relative high share price growth and returns...

  • Page 53
    ... benefits (£'000) Security (£'000) Description Dave Lewis Company car or cash alternative, fuel and driver Disability and health insurance Installation of security measures to meet business standards Shares in Success awarded under the all-employee Share Incentive Plan Legal fees and other costs...

  • Page 54
    Directors' remuneration report continued Annual remuneration report Pension Dave Lewis and Alan Stewart receive a cash allowance in lieu of pension. For Philip Clarke and Laurie McIlwee, pension is calculated as the difference between the end-of-year defined benefit accrued pension and the beginning...

  • Page 55
    ... shares, the Executive Committee and a number of 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 28 February 2015 of 209.6p per share, compared...

  • Page 56
    ... share price to 28 February 2015 of 209.6p. Figures on ceasing to be a Director of Tesco PLC (Philip Clarke - 1 September 2014, Laurie McIlwee - 4 April 2014). After ceasing to be Directors and before the end of the financial year, Philip Clarke and Laurie McIlwee exercised vested nil cost options...

  • Page 57
    ... 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. Other information Tesco PLC Annual Report and Financial...

  • Page 58
    Directors' remuneration report continued Annual remuneration report Details of the rights under the Tesco pension scheme are set out below. Age at 28 Years of February Company 2015 service Total accrued pension at 28 February 20152,3 (£'000) Increase Increase in accrued in accrued pension pension ...

  • Page 59
    ... (11,956 shares) were transferred from the Trust on 20 October 2014 in accordance with the rules of the plan. The Company will pay for outplacement services up to a maximum of £50,000 excluding VAT. Other policy information Risk management When developing our remuneration structures, the Committee...

  • Page 60
    ...). Total employee pay includes wages and salaries, social security, pension and share-based costs (£7,271m in 2013/14 and £8,269m in 2014/15 - see Note 4 of the accounts on page 100). Distributions to shareholders include interim and final dividends paid in respect of each financial year (£1,193m...

  • Page 61
    ... stood down from the Board of Tesco Personal Finance Group Limited on 4 February 2014. The Chairman's benefits are made up solely of car benefits, driver, security and medical insurance. The Non-executive Directors' benefits comprise taxable travel expenses. The benefit costs shown have been grossed...

  • Page 62
    ... activities 2014/15 The following provides a summary of the key areas of focus at each of the Committee's meetings during the year and shortly following the end of the financial year: April 2014 July 2014 Sept 2014 Dec 2014 Feb 2015 April 2015 (following the year-end) Strategy and policy Review...

  • Page 63
    ... Group CEO and the Group CFO attend meetings at the invitation of the Committee. They are not present when their own remuneration is being discussed. The Committee is supported by Alison Horner (Chief People Officer) as well as Reward, Corporate Secretariat and Finance functions. Strategic report...

  • Page 64
    ... of Executive experience and their performance Directors of the calibre - Salary levels at leading FTSE required to develop and companies and other large • deliver the strategy consumer business companies • Base salary provides in the UK and internationally fixed remuneration for - Pay and...

  • Page 65
    ... Executive Directors for the delivery of our annual financial, operational and strategic goals • The performance measures have been selected as they are considered to be key to delivering long-term shareholder value creation • Deferral into Company shares provides alignment with shareholders...

  • Page 66
    ... report continued Directors' remuneration policy Information supporting the policy table Shareholding guidelines Tesco also operates shareholding guidelines. See page 53 of the Annual Remuneration Report for further details. Dividend equivalents Awards may incorporate the right (in cash or shares...

  • Page 67
    ... in our all-employee schemes and hold more than 119 million shares in our Share Incentive Plan and more than 127 million options over shares in our Sharesave scheme. When determining Executive Director remuneration arrangements, the Committee takes into account pay conditions throughout the...

  • Page 68
    ... report continued Directors' remuneration policy 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 as set out in the table below: Salary From appointment CEO...

  • Page 69
    ... the Company will meet an Executive Director's reasonable legal fees in connection with the termination of his employment and/or the reasonable cost of outplacement services Governance The service agreements are available to shareholders to view at the Company's registered office. Share plan rules...

  • Page 70
    ... in line with other members of this Board. Fees for membership of the Board of Tesco Personal Finance Group Limited are determined by the Board of Tesco Personal Finance Group Limited and are reviewed at appropriate intervals • The Non-executive Chairman of Tesco PLC receives an all-inclusive...

  • Page 71
    ... part of shaping future plans and taking action to improve. The Committee reviews information regarding the typical remuneration structure and reward levels for other UK-based employees to provide context when determining executive remuneration policy. Considering shareholders' views The Committee...

  • Page 72
    ...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 132 of the Annual Report and Financial Statements 2015. No shareholder holds securities carrying special rights with regards to control of...

  • Page 73
    ... continue to lease the stores at these sites at market rents which are not subject to RPI-indexed increases. Directors' statement of disclosure of information to auditors Having made the requisite enquiries, the Directors in office at the date of this Annual Report and Financial Statements have each...

  • Page 74
    72 Tesco PLC Annual Report and Financial Statements 2015

  • Page 75
    Strategic report Governance Financial statements Financial statements 74 Statement of Directors' responsibilities 75 Independent auditors' report to the members of Tesco PLC 83 Group income statement 84 Group statement of comprehensive income 85 Group balance sheet 86 Group statement of changes in ...

  • Page 76
    .... The Directors consider that 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 Group's and the Company's performance, business model and strategy. Each of the Directors, whose...

  • Page 77
    ... 2014/15 was £50 million, which was based on applying professional judgement, taking into consideration a number of profit based measures and the overall scale of the business. Overall Group materiality in 2013/14 was £150 million. Financial statements Other information Tesco PLC Annual Report...

  • Page 78
    ... of commercial income Refer to page 37 (Audit Committee Report), page 88 (Accounting Policies). Tesco has agreements with suppliers whereby discounts and rebates are received retrospectively according to the quantity of goods bought and promotional and marketing activity performed in stores and...

  • Page 79
    ... the process by which they were drawn up, including comparing them to the latest Board approved budgets, and we tested the mechanics of the underlying calculations. We understood and challenged: • the assumptions used in the Group's five-year Plan and the long term growth rates by comparing them...

  • Page 80
    ... Chinese retail operations. The Group holds a 20% equity interest in the enlarged retail operations and accounts for this interest as an associated undertaking. Following a reduction in the trading performance of the combined business in China management has performed an impairment review of...

  • Page 81
    ... the Group this year have caused the and senior management positions; directors to examine closely those areas of the financial • consideration of the Group's code of conduct and whistle-blowing statements where higher levels of management judgement processes and the communication of these across...

  • Page 82
    ... of 19 operating and head office reporting units and a number of joint ventures and associates. The geographical locations and the shared service centre maintain their own accounting records and controls and report to the Group finance team through an integrated consolidation system. In establishing...

  • Page 83
    ...the statement given by the directors on page 74, in accordance with Code Provision C.1.1, that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's performance, business model and strategy is...

  • Page 84
    ... into whose hands it may come save where expressly agreed by our prior consent in writing. Other matter We have reported separately on the parent company financial statements of Tesco PLC for the 53 week period ended 28 February 2015 and on the information in the Directors' Remuneration Report that...

  • Page 85
    ... statement 53 weeks ended 28 February 2015 Continuing operations Revenue Cost of sales Gross (loss)/profit Administrative expenses (Losses)/profits arising on property-related items Operating (loss)/profit Share of post-tax (losses)/profits of joint ventures and associates Finance income Finance...

  • Page 86
    ... benefit pension schemes Tax on items that will not be reclassified Items that may subsequently be reclassified to income statement Change in fair value of available-for-sale financial assets and investments Currency translation differences: Retranslation of net assets Movements in foreign exchange...

  • Page 87
    ... Derivative financial instruments and other liabilities Post-employment benefit obligations Deferred tax liabilities Provisions Net assets Equity Share capital Share premium All other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity 10...

  • Page 88
    ...(5,741) (25) Total equity £m 14,722 (5,766) At 22 February 2014 Loss for the year Other comprehensive (loss)/income Change in fair value of available-for-sale financial assets and investments Retranslation of net assets Movements in foreign exchange reserve and net investment hedging on subsidiary...

  • Page 89
    ... 2015 Cash flows from operating activities Cash generated from operations Interest paid Corporation tax paid Net cash generated from operating activities Cash flows from investing activities Acquisition/disposal of subsidiaries, net of cash acquired/disposed Proceeds from sale of property, plant...

  • Page 90
    ... 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 53 weeks ended 28 February 2015 (prior financial year 52 weeks ended 22 February 2014...

  • Page 91
    ... activities or promotional product positioning. Whilst there is no standard definition, these amounts receivable from suppliers in connection with the purchase of goods for resale are generally termed commercial income. Financial statements Other information Tesco PLC Annual Report and Financial...

  • Page 92
    ...Refer to the financial instruments accounting policy for further detail. Inventories Inventories comprise goods and development properties held for resale. Inventories are valued at the lower of cost and fair value less costs to sell using the weighted average cost basis. Directly attributable costs...

  • Page 93
    ... the Group Income Statement. Post-employment and similar obligations For defined benefit plans, obligations are measured at discounted present value (using the projected unit credit method) whilst plan assets are recorded at fair value. The operating and financing costs of such plans are recognised...

  • Page 94
    ..., 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 95
    ... measure of the cost of providing post-employment benefits; • IAS 17 'Leases' - impact of annual uplifts in rent and rent-free periods. Some operating leases have been structured in a way to increase annual lease costs as the businesses expand. IAS 17 requires the total expected cost of a lease...

  • Page 96
    ...insurance services through Tesco Bank in the UK ('Bank'). 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...

  • Page 97
    ... reporting continued Reconciliation of trading profit to operating (loss)/profit Trading profit Adjustments: IAS 19 'Employee Benefits' - non-cash Group Income Statement charge for pensions IAS 17 'Leases' - impact of annual uplifts in rent and rent-free periods IFRS 3 'Business Combinations...

  • Page 98
    ... segment information UK £m Asia £m Europe £m Tesco Bank £m Total continuing Discontinued operations operations £m £m Total £m 53 weeks ended 28 February 2015 Capital expenditure (including acquisitions through business combinations): Property, plant and equipment Investment property Goodwill...

  • Page 99
    ... in property-related items Adjustment for non-cash element of pensions charges Additional contribution into pension scheme Share-based payments Tesco Bank non-cash items included in profit before tax Cash flow from operations excluding working capital Decrease/(increase) in working capital Cash...

  • Page 100
    ... capital Cash generated from/(used in) operations Interest paid Corporation tax paid Net cash generated from/(used in) operating activities Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale Purchase of intangible assets Non-GAAP measure...

  • Page 101
    ... operations (Loss)/profit before tax from continuing operations 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 uplifts in rent and rent...

  • Page 102
    ... non-audit services are provided by PricewaterhouseCoopers LLP. Note 4 Employment costs, including Directors' remuneration Continuing operations Wages and salaries Social security costs Post-employment defined benefits (Note 26) Post-employment defined contributions (Note 26) Share-based payments...

  • Page 103
    ...in respect of prior years Change in tax rate Total income tax (credit)/charge 2015 £m (141) 73 (16) (84) (641) 36 32 (573) (657) 2014 £m 519 203 (50) 672 (93) (85) (147) (325) 347 Strategic report The Finance Act 2013 included legislation to reduce the main rate of UK corporation tax from 23% to...

  • Page 104
    ... of Changes in Equity Credit/(charge) to the Group Statement of Comprehensive Income Discontinued operations Business combinations Foreign exchange and other movements** At 28 February 2015 * Propertyrelated items* £m (1,622) 282 - - - - 32 (1,308) 363 - - 2 - (10) (953) Retirement benefit Share...

  • Page 105
    ... (11.66)p Total 2014 £m 2015 £m Non-GAAP measure: underlying profit/(loss) before tax Underlying loss before tax of discontinued operations in the US & China * ** 2015* £m (25) 2015 £m (14) Financial statements 11 (192) The results of China are for the 13 weeks ended 28 May 2014, at which...

  • Page 106
    .../share 10.13 4.63 14.76 10.13 2014 £m 815 374 1,189 819 As announced by the Company on 8 January 2015, the Board of Directors has decided not to recommend the payment of a final dividend in respect of the financial year ended 28 February 2015. 104 Tesco PLC Annual Report and Financial Statements...

  • Page 107
    ...) 32.05 (Loss)/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 uplifts in rent and rent-free periods...

  • Page 108
    ... Group financial statements continued Note 10 Goodwill and other intangible assets Internally generated development costs £m Cost At 22 February 2014 Foreign currency translation Additions Acquired through business combinations Reclassification Disposals At 28 February 2015 Accumulated amortisation...

  • Page 109
    ...years using data from the Group's latest internal forecasts, the results of 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...

  • Page 110
    ... to the Group financial statements continued Note 11 Property, plant and equipment Land and buildings £m Cost At 22 February 2014 Foreign currency translation Additions(b) Acquired through business combinations Reclassification Classified as held for sale Disposals At 28 February 2015 Accumulated...

  • Page 111
    ... included within cost of sales' and £97m (2014: £98m) has been classified as 'Impairment of PPE and onerous lease provisions included within (losses)/profits arising on property-related items'. Financial statements Other information Tesco PLC Annual Report and Financial Statements 2015 109

  • Page 112
    ...Co. Limited Tesco Stores (Malaysia) Sdn Bhn Dobbies Garden Centres Limited Tesco Personal Finance Group Limited* (trading as Tesco Bank) Tesco Distribution Limited Tesco Property Holdings Limited Tesco International Sourcing Limited dunnhumby Limited Tesco Corporate Treasury Services PLC* Tesco Food...

  • Page 113
    ... in key management decisions. The accounting period end dates of the joint ventures and associates consolidated in these financial statements range from 31 December 2014 to 28 February 2015. The accounting period end dates of the joint ventures differ from those of the Group for commercial reasons...

  • Page 114
    ..., the rights are strictly limited and are at fair value, hence do not provide control to the Group; and • where the Group carries out property management activities for third party rentals in shopping centres, these additional activities are controlled through joint venture agreements or lease...

  • Page 115
    ...-sale financial assets Available-for-sale financial assets mainly comprise investments in bonds with varied maturities of which £111m (2014: £167m) is current. Note 15 Inventories 2015 £m 2,825 132 2,957 2014 £m 3,467 109 3,576 Goods held for resale Development properties Governance Goods...

  • Page 116
    ...trade and other payables is £347m (2014: £547m) amounts receivable from suppliers in relation to commercial income that has been invoiced, for which there is a current legal right and intention to offset against amounts payable at the balance sheet date. 114 Tesco PLC Annual Report and Financial...

  • Page 117
    ...years Other information The current year undrawn committed facilities include £2.2bn of bilateral facilities and a £2.6bn revolving credit facility. All facilities incur commitment fees at market rates and would provide funding at floating rates. Tesco PLC Annual Report and Financial Statements...

  • Page 118
    ... changes in value due to changes in foreign exchange rates. A net finance income of £nil (2014: £7m) 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 119
    ... 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 120
    ... venture and associates loan receivables (Note 28) Other receivables Customer deposits - Tesco Bank 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...

  • Page 121
    ... in finance costs in the Group Income Statement Gains/(losses) recognised in the Group Statement of Changes in Equity Purchase of non-controlling interests At end of the year 2015 £m 96 - (16) 32 112 2014 £m - - - 96 96 Other information During the financial year, £nil (2014: £nil) of Level...

  • Page 122
    ... and foreign exchange rates, the risk of default by counterparties to financial transactions and the availability of funds to meet business needs. The management of these risks is set out below. Risk management is carried out by a central treasury department under policies approved by the Board of...

  • Page 123
    ... 2014 Total £m 2,506 6,915 1,016 1,015 255 1 (121) (11,092) (6,078) (780) - - - (6,363) Strategic report Cash and cash equivalents Loans and advances to customers - Tesco Bank Short-term investments Other investments Joint venture and associate loan receivables (Note 28) Other receivables Finance...

  • Page 124
    ... effect on the Group Income Statement and equity due to compensating adjustments in the carrying value of debt; • changes in the carrying value of derivative financial instruments designated as net investment hedges from movements in foreign exchange rates are recorded directly in the Group...

  • Page 125
    ... market funds, investments in transferable securities and interest rate and foreign exchange derivatives. In addition, credit risk arises from contractual arrangements with third parties where payments and commissions are due to the Bank for short periods of time. Retail credit policy is managed...

  • Page 126
    ...on motor insurance the cost of settling bodily injury claims. Exposure to this risk is actively managed within TU with close monitoring of performance metrics and the use of reinsurance to limit TU's exposure above predetermined limits. Note 23 Customer deposits and deposits by banks 2015 £m 6,914...

  • Page 127
    ...use of the leased property to the Group is based on the same assumptions for discount rates, growth rates and expected change in margins as those for Group owned properties, as discussed in detail in Note 11. The provision calculations also assume that the Group can sublet properties at market rents...

  • Page 128
    ... return on capital employed over the seven-year plan. The Performance Period for the Plan ended at the end of the 2013/14 financial year. Options did not vest under the Plan and lapsed on 14 April 2014, as stated in the Directors' Remuneration Report for the 2013/14 financial year. 126 Tesco PLC...

  • Page 129
    ... 2015 Exercise price range (pence) Irish Savings-related Share Option Scheme Options WAEP Approved Share Option Scheme Options WAEP Unapproved Share Option Scheme Options WAEP International Executive Share Option Scheme Options WAEP Nil cost Share Option Schemes* Options WAEP Strategic report...

  • Page 130
    ... 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 these schemes is their market value on the date...

  • Page 131
    ... % 55 21 24 Strategic report The table below shows a breakdown of the liabilities for active members held by the Scheme as at 31 March 2014: Pension Builder Final Salary % 57 43 Governance Overseas The most significant overseas schemes are the funded defined benefit schemes which operate in the...

  • Page 132
    ... are calculated using a discount rate set with reference to corporate bond yields. If the return on the Scheme's assets underperform this rate, the accounting deficit will increase. The Trustee and the Group regularly monitor the funding position and operate a diversified investment strategy...

  • Page 133
    ... contribution by employer Actual member contributions Foreign currency translation Benefits paid Closing fair value of defined benefit pension assets 2015 £m 8,124 386 874 563 13 11 (15) (279) 9,677 2014 £m 7,206 372 253 531 4 12 (14) (240) 8,124 Strategic report Changes in the present value of...

  • Page 134
    ... benefit pension assets Experience gains/(losses) on defined benefit pension obligation Post-employment benefits other than pensions The Group operates a scheme offering post-retirement healthcare benefits. The cost of providing these benefits has been accounted for on a similar basis to that used...

  • Page 135
    ... at the year end: Credit card and personal loan balances Number of key management personnel £m 19 1 12 - Current and saving deposit accounts Number of key management personnel £m 16 1 4 - At 28 February 2015 At 22 February 2014 Financial statements Other information Tesco PLC Annual Report and...

  • Page 136
    ... Bank increase in customer and bank deposits and trade and other payables Tesco Bank (decrease)/increase in provisions Decrease/(increase) in working capital Cash generated from operations Decrease/(increase) in working capital includes the impact of translating foreign currency working capital...

  • Page 137
    ... 30 Analysis of changes in net debt Strategic report At 22 February 2014 £m Total Group Cash and cash equivalents Short-term investments Joint venture loans Interest and other receivables Bank and other borrowings Interest payables Finance lease payables Net derivative financial instruments Net...

  • Page 138
    ... Cirrus Finance Limited; Tesco Ireland Limited; Wanze Properties (Dundalk) Limited; Valiant Insurance Company; Tesco Ireland Holdings Limited. Tesco Bank At 28 February 2015, Tesco Bank had commitments of formal standby facilities, credit lines and other commitments to lend, totalling £11.5bn (2014...

  • Page 139
    ...1,041 2014 £m 705 140 115 1 (100) 11 (30) - 842 - 32 39 913 Strategic report At beginning of the year Share capital and share premium Profit attributable to shareholders Other reserves Ordinary dividends Movement in material holdings Increase in intangible assets Other - Tier 1 At end of the year...

  • Page 140
    ...the buy-back date. The current market value of these properties is £4.7bn (2014: £5.4bn) and the total lease rentals, if they were to be incurred following the option exercise date, would be £3.9bn (2014: £4.2bn) using current rent values. The lease break options are exercisable between 2015 and...

  • Page 141
    ... less current liabilities Creditors - amounts falling due after more than one year Borrowings Derivative financial instruments Net assets Capital and reserves Called up share capital Share premium Profit and loss reserve Total equity 5 10 28 February 2015 £m 13,504 1,439 14,943 19 12,248 593 22 12...

  • Page 142
    ... denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. 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...

  • Page 143
    ... and salaries* Social security costs Other pension costs Share-based payment expense * The wages and salaries expense includes a recharge from Tesco Stores Limited for Board-related functions. The average number of employees (all Directors of the Company) during the financial year was 10 (2014: 10...

  • Page 144
    ... to the Parent Company financial statements continued Note 7 Short-term investments 2015 £m 593 2014 £m 1,016 Short-term investments Note 8 Other creditors 2015 £m Amounts falling due within one year: Amounts owed to Group undertakings Other creditors Taxation and social security Accruals and...

  • Page 145
    ... 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 146
    ...the financial year relating to the Company employees are: 2015 Shares number 1,302 - - WAFV pence 307.15 - - Shares number 847 - - 2014 WAFV pence 383.55 - - Shares In Success Executive Incentive Scheme Performance Share Plan Note 12 Pensions The total cost of the pension scheme to the Company was...

  • Page 147
    ...other information Companies Act 2006 opinion In our opinion, the information given in the Strategic Report and the Directors' Report for the financial period for which the financial statements are prepared is consistent with the financial statements. ISAs (UK & Ireland) reporting Under International...

  • Page 148
    146 Tesco PLC Annual Report and Financial Statements 2015

  • Page 149
    Strategic report Governance Financial statements Other information Other information 148 Supplementary information (unaudited) 155 Financial calendar 155 Glossary 156 Five-year record Tesco PLC Annual Report and Financial Statements 2015 147

  • Page 150
    Supplementary information (unaudited) Total sales performance at actual rates (52 week year)* Q1 2014/15 Including Fuel: UK Asia Europe International Tesco Bank Group Excluding Fuel: UK Asia Europe International Tesco Bank Group (2.0)% (8.9)% (7.1)% (8.0)% 3.6% (3.7)% Q2 2014/15 (3.2)% (6.4)% (10...

  • Page 151
    ... (inc. fuel, exc. IFRIC 13) Sales growth (inc. VAT) Constant rates Like-for-Like % Net new stores % Total % Actual rates Total % In local currency m Average exchange rate Closing exchange rate Revenue (exc. VAT) Continuing operations £m Including Fuel: UK* (3.3)% 1.6% (1.7)% (1.7)% 42,778 42,778...

  • Page 152
    ... of total sq. ft. 12.5% 9.5% 21.5% 24.5% 18.7% 9.6% 3.7% 100.0% No. of stores 2,378 322 305 193 121 45 14 3,378 February 2014 Million sq. ft. 5.0 4.1 9.1 10.2 7.7 4.1 1.6 41.8 % of total sq. ft. 12.0% 9.7% 21.8% 24.4% 18.5% 9.8% 3.8% 100.0% 150 Tesco PLC Annual Report and Financial Statements 2015

  • Page 153
    ... totals include one store conversion that is therefore included in the net gain for 'number of stores'. (b) Based on Group including franchise stores. (c) Excluding franchise stores. (d) Including franchise stores. Strategic report Governance Financial statements Other information Tesco PLC Annual...

  • Page 154
    ... ** 34,067 International** 67,264 Group ** 109,077 South Korea Franchise 356 Czech Franchise 129 One Stop (UK) Franchise 10 Total Franchise 495 Group *** 109,572 * Based on Group including franchise stores. ** Excluding franchise stores. *** Including franchise stores. 2014/15 year end 17,763 488...

  • Page 155
    ... Group at year end* 16.2% 0.3% 12.7% 1.8% 3.7% 0.6% 35.3% 1.2% 1.5% 38.0% 3.8% 11.8% 14.4% 30.0% 5.0% 6.3% 8.7% 3.6% 3.3% 3.2% 30.1% 60.1% 98.1% 1.5% 0.1% 0.3% 1.9% 100.0% Strategic report Governance Financial statements Other information Tesco PLC Annual Report and Financial Statements 2015 153

  • Page 156
    ...*** Deduct: management charges Deduct: IAS 17 Leasing charge Operating profit Net finance costs: Movements on derivatives and hedge accounting Net finance costs: interest Share of profit of joint ventures and associates Profit before tax These results are for the 12 months ended 28 February 2015 and...

  • Page 157
    ... pension schemes (net of associated deferred tax) plus the present value of future minimum rentals payable under non-cancellable operating leases. Financial statements Total shareholder return The notional annualised return from a share, measured as the percentage change in the share price, plus...

  • Page 158
    ... US Tesco Bank Group revenue excluding IFRIC 13 Trading profit UK Europe Asia US Tesco Bank Group trading profit Operating profit (c) Operating profit margin (c) Share of post-tax profits/(losses) of joint ventures and associates Net finance costs Profit/(loss) before tax Taxation Profit/(loss) for...

  • Page 159
    Designed and produced by Addison Group www.addison-group.net Printed by DST Output Limited This Report is printed on Amadeus Silk paper and has been independently certified on behalf of the Forest Stewardship Council® (FSC). The inks used are all vegetable oil based.

  • Page 160
    Tesco PLC Tesco House Delamare Road Cheshunt Hertfordshire EN8 9SL www.tescoplc.com/ar2015