TIDMTSCO
RNS Number : 8023N
Tesco PLC
21 May 2015
21 May 2015
Tesco PLC
Annual Financial Report and Notice of Annual General Meeting
2015
Tesco PLC (the "Company") announces that its Notice of Annual
General Meeting 2015 has been sent to shareholders. The Annual
General Meeting will be held at The QEII Centre, Broad Sanctuary,
Westminster, London SW1P 3EE at 11.00 a.m. on Friday 26 June
2015.
The Notice of Annual General Meeting 2015, together with the
Company's Annual Report and Financial Statements 2015 and Strategic
Report 2015, can be viewed on the Company's website at
www.tescoplc.com.
In accordance with Listing Rule 9.6.1R, copies of the following
documents have been submitted to the National Storage Mechanism and
will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM:
-- Annual Report and Financial Statements 2015;
-- Strategic Report 2015;
-- Notice of Annual General Meeting 2015; and
-- Proxy Forms for the 2015 Annual General Meeting.
The Company's preliminary consolidated financial information and
information on important events that have occurred during the year
and their impact on the financial statements were included in the
Company's preliminary results announcement on 22 April 2015. That
information, together with the information set out below, which is
extracted from the Annual Report and Financial Statements 2015,
constitute regulated information, which is to be communicated to
the media in full unedited text through a Regulatory Information
Service in accordance with Disclosure and Transparency Rule ("DTR")
6.3.5R. This announcement is not a substitute for reading the full
Annual Report and Financial Statements 2015. Page and note
references in the text below refer to page numbers and note
references in the Annual Report and Financial Statements 2015. To
view the preliminary results announcement, visit the Company's
website: www.tescoplc.com
Enquiries: Paul Moore
Company Secretary
Tesco PLC
Delamare Road
Cheshunt
Hertfordshire
EN8 9SL
Telephone: 01992 632222
Principal risks and uncertainties
We have an established risk management process to identify the
principal risks that we face as a business. The risk management
process relies on our judgement of the risk likelihood and impact
and also developing and monitoring appropriate controls. We
maintain a Group Key Risk Register of the principal risks faced by
the Group and this is an important component of our governance
framework and how we manage our business. Our risk management
process is cascaded down the Group. The content of the Group Key
Risk Register is considered and discussed through regular meetings
with senior management 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 mitigating factors.
The Board considers these to be the most significant risks faced by
our Group that may impact the achievement of our three strategic
priorities as set out on page 3 of the Annual Report and Financial
Statements 2015. They do not comprise all of the risks associated
with our business and are not set out in priority order.
Additional risks not presently known to management, or currently
deemed to be less material, may also have an adverse effect on the
business.
In September 2014, we identified an overstatement of the
expected financial results. This is now the subject of an
investigation by the Serious Fraud Office and civil proceedings in
the United States. Details can be found on page 33 and in Note 32
on page 136 of the Annual Report and Financial Statements 2015.
There are significant uncertainties as to the outcome of the
existing investigation and proceedings, as to whether further
proceedings may be brought against the Group in connection with the
overstatement of the expected financial results and as to whether
any proceedings brought against the Group would be likely to have a
significant effect on the results of its operations or its
financial condition.
Principal risks Key controls and mitigating factors
Customer (Risk Movement: no risk movement)
If we do not meet customer needs and compete on
price, product range, quality and service * We have strategically re-positioned our business to
in the competitive UK and overseas retail markets, focus on the customer
then we lose our share of customer purchases
By not considering the customer at the heart of our
decision-making processes, we adversely * We are investing further in our customer proposition,
impact our relationship with customers reducing prices across our ranges and improving
service with additional colleague hours
* Our performance is tracked within our business
against measures that customers tell us are important
to their shopping experience
* Customer perceptions of Tesco and our competitors are
regularly monitored to allow us to react quickly and
appropriately
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Financial strategy (Risk Movement: risk increasing)
There is a risk that the financial strategy is
unclear or unsustainable * Strategic matters are regularly reviewed by the
Weak performance could put further pressure on free Executive Committee and Board and we seek external
cash flow and impact our ability to improve advice as required
our credit rating
Our ability to operate successfully in
international markets may be restricted if we * We have clear processes for the evaluation and
cannot identification of underperforming assets to ensure
get the returns required in each market and this that appropriate action is taken
could adversely impact our profitability
There is a risk that future legal and regulatory
changes to the pension scheme could introduce * Our plans and budgets are developed and presented to
more onerous requirements and increase our our Executive Committee and Board for approval to
financial liability and that the deficit on the ensure targets and objectives are clear and
existing scheme could increase due to changes in consistent
assumptions on inflation, mortality and discount
rates applied in determining liabilities of the
scheme and the performance of its assets * Our Group Property strategy ensures that there is a
Investor support may be impacted if it takes longer clear plan to address and control retail space,
than expected to demonstrate that our re-purpose space effectively where needed and ensure
strategy is achieving the turnaround the right balance between freehold and leasehold
space
* We are consulting on the closure of our UK pension
scheme to all future accrual which, if approved,
would stop the future growth of liabilities and
significantly reduce liability risk in the scheme
* External expert advisors and the pension scheme
Trustee are fully engaged to consider the funding
position and fund performance of the pension scheme
as well as the impact of legislative and regulatory
changes
* There has been a triennial revaluation of the pension
scheme assets and liabilities in the year and a
deficit funding plan has been agreed with the Trustee
* We engage regularly with our investors to communicate
details of our strategy and plans
* Further detail on the management of financial risks
is set out on page 25 and in Note 22 on page 120 of
the Annual Report and Financial Statements 2015
-----------------------------------------------------------------
Brand, reputation and trust (Risk Movement: risk increasing)
Our brand will suffer if we do not rebuild trust
and transparency in our business * Rebuilding trust and transparency in our brand is one
If we cannot be firm in the face of ethical, legal, of our three strategic priorities
moral or operational challenges, our reputation
may be damaged
* Our Group processes and policies set out how we can
make the right decisions for our customers,
colleagues, suppliers, communities and investors
* We have developed communication and engagement
programmes to listen to our stakeholders and reflect
their needs in our plans
* We maximise the value and impact of our brand with
the advice of specialist external agencies and
in-house marketing expertise
* We are developing new Corporate Responsibility goals
that are aligned with customer priorities and our
brand
-----------------------------------------------------------------
Data security and privacy (Risk Movement: risk increasing)
Increasing risks of cyber-attack threaten the
security of customer, colleague and supplier * We have active monitoring processes to identify and
data deal with IT security incidents
We must ensure that we understand the types of data
that we hold and secure it adequately
to manage the risk of data breaches * A new Cyber Security team has been established to
investigate and mitigate the risks of cyber-attack
* A Group-wide Information Security Blueprint has been
rolled out across our businesses
* There is a programme of compliance monitoring and
review being rolled out with training across our
businesses
* A programme to review the use, storage and security
of customer data is in progress
-----------------------------------------------------------------
Transformation (Risk Movement: new)
If the scale of the change across our business
disrupts our focus, there is a risk that we * There is Executive sponsorship of the Transformation
will not transform the business to where it needs programme with the creation of a Transformation
to be Director role
There is a risk that we underestimate the wider
impacts of the changes that we are making
* New Group structures have been designed to simplify
our business and clarify accountability
* A new Programme Management Office has been
established to manage the Transformation programme
and will be supported by experienced resource from
within the business and externally as required
-----------------------------------------------------------------
Competition and markets (Risk Movement: risk increasing)
If we fail to address the differing challenges of
the budget retailers, the premium retailers * We actively seek to be competitive on price, range
and online entrants, it may adversely impact our and service as well as developing our online and
market share and profitability multiple formats to allow us to compete in different
markets
* Our Executive Committee and operational units
regularly review markets, trading opportunities and
competitor strategy and activity
-----------------------------------------------------------------
Performance (Risk Movement: no risk movement)
If our strategy is not effectively communicated or
implemented, our business may underperform * Our Board, Executive Committee and operational units
against plan and competitors meet regularly to review performance risks
The delivery of long term plans may be impacted if
the business focuses on short term targets
only * All businesses have targets based on a new balanced
scorecard of performance against KPIs and financial
targets. Plans are monitored and reviewed regularly
by the Executive Committee and the Board
* An ongoing communication process informs our
colleagues about the long term strategy and ensures
that they understand their part in it
* There are clear guidelines and policies set out to
ensure that there is an appropriate focus on balance
between short term and longer term delivery
-----------------------------------------------------------------
Political and regulatory (Risk Movement: risk increasing)
In each country in which we operate, we may be
impacted by legal and regulatory changes, increased * We engage with government and regulatory bodies to
scrutiny from competition authorities and political represent the views of our customers, colleagues and
changes that affect the retail market communities and to manage the impact of political and
The regulatory landscape is becoming more regulatory changes
restrictive in many markets and may impact our
trading
* We aim to contribute to important discussions 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 Treating Customers
Fairly Board oversee Tesco Bank's compliance with
regulatory requirements
-----------------------------------------------------------------
Product (Risk Movement: no risk movement)
Our business may suffer if we fail to work with our
suppliers to ensure that our products * Group and country Compliance Committees have been
are designed and delivered to meet a high standard re-structured to simplify the identification and
and to ensure we can trace their provenance monitoring of the risks associated with products,
If we do not build mutual and trusting suppliers and operations
relationships with our suppliers, this could impact
our range and price proposition
If we do not manage our supply chain, we may risk * We publish results of internal testing (e.g.
not being able to ensure the quality and provenance tests of content in our food) and we have
security of product supply for customers in place ethical trading teams working with suppliers
* Appropriate controls are in place around: product
development; supplier management, including the
introduction of a new Supplier Feedback forum and an
independent Protector Line and Helpline; distribution
standards; third party contract management; and
compliance with regulatory standards
* Clear procedures are operated globally to ensure
product integrity and comprehensive supplier audit
programmes are in place to monitor product integrity
and labour standards
* A comprehensive compliance programme is in place to
promote, monitor and review compliance with the
Groceries Supply Code of Practice in the UK.
Appropriate programmes are in place in other markets
* Sustainability considerations are integrated into our
long-term decision making to ensure that the
development of our products is aligned with our goal
of reducing our impact on the environment. We look,
in particular, at sustainable sourcing, improved
security of supply and mitigating the impact of
climate change
-----------------------------------------------------------------
Technology (Risk Movement: no risk movement)
Any significant failure in the IT processes of our
retail operations in stores, online or * Our IT strategy is reviewed and approved by the
in our supply chain could impact our ability to Executive Committee
trade
If we do not invest enough or efficiently or invest
in the wrong areas, we may not be able * We have governance processes in place around new
to deliver our customer proposition which could system implementations and change management of
impact our competitiveness existing IT, adherence to which is closely monitored
As we develop new technologies, we must maintain
the controls over existing platforms or it
may impact systems availability and security * There is a clear programme of investment to maintain
the integrity and efficiency of our IT infrastructure
and its security
* Business continuity plans are in place for key
business processes
-----------------------------------------------------------------
People (Risk Movement: risk increasing)
Failure to attract, retain, develop and motivate
the best people with the right capabilities * The Executive Committee meets regularly to review and
across all levels, geographies and through the monitor people policies and procedures and talent
business transformation process could limit development
our ability to succeed
There is a risk that our leaders may not play their
critical role in shaping the organisation * We seek to understand and respond to employees' needs
that we want to be and that they do not inspire by listening to their feedback from open
great performance from our teams conversations, social media, colleague surveys and
performance reviews
* Talent planning, training and people development
processes are embedded across our Group
* Objectives and remuneration arrangements for senior
management are approved by the Executive Committee
and have been re-designed to reward behaviours as
well as delivery of results
-----------------------------------------------------------------
Safety, fraud, control and compliance (Risk Movement: risk increasing)
If we do not implement safety standards
effectively, we may endanger our customers or * Standards for Health and Safety are defined for all
colleagues of our sites, monitoring processes are in place and
Given the existing size, geographical scope and we have created a Group team whose primary objective
complexity of our Group, the potential for is to ensure that safety standards are met
fraud and dishonest activity by our suppliers,
customers and employees increases
There is a risk that if the compliance monitoring * Product safety standards are communicated to our
to our Group standards and policies is not suppliers and tested through audit programmes
sufficient, we could fail to identify weaknesses or
breaches
* Procedures and controls are set out across the
business to reduce fraud and compliance risks,
including our Group Accounting Policy, key financial
controls self-assessment programme, IT access
controls and appropriate segregation of duties. Group
Loss Prevention and Security monitors fraud, bribery
and other compliance risks
* Compliance Committees monitor compliance with
relevant laws and regulations
* Our Group Code of Conduct has been recently refreshed
and re-launched with appropriate training across the
Group. This sets out clear behavioural guidance,
consistent with our Values
* We have comprehensive guidance across the Group to
ensure compliance with the UK Bribery 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 (Risk Movement: no risk movement)
The continually changing regulatory environment
could impact the levels of capital and liquidity * The Bank has a defined 'Risk Appetite', approved and
the Bank expects to hold, could impact the earnings regularly reviewed by both the Bank's Board and the
profile as a result of interchange fee Tesco PLC Board, which sets out the key risks, their
caps, and may affect the governance of the Bank as optimum ranges, alert limits and the controls
the new regulatory Senior Managers Regime required to manage them within their approved
is finalised tolerance limits
* The Bank has formed good working relationships with
the Prudential Regulation Authority and Financial
Conduct Authority
* There is a comprehensive structure of governance and
oversight in place, including through the Bank's
Governance and Conduct Committees, to help ensure the
Bank's compliance with applicable laws and
regulations
* The Group is actively engaged in developing and
implementing plans to respond to interchange fee
developments to manage the impact on our
profitability
-----------------------------------------------------------------
Financial risks review
The main financial risks faced by the Group relate to the
availability of funds to meet business needs, fluctuations in
interest and foreign exchange rates and credit risks relating to
the risk of default by parties to financial transactions. Further
explanation of these risks is set out in Note 22 on page 120 of the
Annual Report and Financial Statements 2015. An overview of the
management of these risks is set out below. Details of the main
financial risks relating to Tesco Bank and the management of those
risks can be found in Note 22 on page 123 of the Annual Report and
Financial Statements 2015.
Financial risks Key controls and mitigating factors
Funding and liquidity risk
The risk of being unable
to continue to fund our * The Group finances its operations by a combination of
operations on an ongoing retained profits, disposals of assets, debt capital
basis market issues, commercial paper, bank borrowings and
leases
* New funding of GBP2.3 billion was raised during the
year, including GBP2.1 billion from long term debt
and GBP0.2 billion from property disposals. At the
year end, net debt was GBP8.5 billion (2014: GBP6.6
billion)
* The policy is to smooth the debt maturity profile, to
arrange funding ahead of requirements and to maintain
sufficient undrawn committed bank facilities and to
maintain access to capital markets so that maturing
debt may be refinanced as it falls due
* Tesco has put in place GBP5 billion of committed
facilities consisting of a revolving credit facility
and bilateral lines as alternate sources of liquidity
* At the year end, the Group had a long-term credit
rating of BBB- (negative) from Fitch, Ba1 (stable)
from Moody's and BB+ (stable) from Standard & Poor's
------------------------------------------------------------------
Interest rate risk
The risk to our profit
and loss account resulting * Forward rate agreements, interest rate swaps, caps
from rising interest rates and floors may be used to achieve the desired mix of
fixed and floating rate debt
* Our policy is to fix interest rates for the year on a
minimum of 40% of actual and projected debt interest
costs of the Group excluding Tesco Bank. At the year
end, the percentage of interest-bearing debt at fixed
rates was 79% (2014: 84%). The remaining balance of
our debt is in floating rate form. The average rate
of interest paid on an historic cost basis this year,
excluding joint ventures and associates, was 4.09%
(2014: 4.5%)
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Foreign exchange risk
The risk that exchange
rate volatility may have * Transactional currency exposures that could
an adverse impact on our significantly impact the Group Income Statement are
balance sheet or profit managed, typically using forward purchases or sales
and loss account of foreign currencies and purchased currency options.
At the year end, forward foreign currency
transactions, designated as cash flow hedges,
equivalent to GBP2.2 billion were outstanding (2014:
GBP2.9 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
* We only hedge a proportion of the investment in our
international subsidiaries as well as ensuring that
each subsidiary is appropriately hedged in respect of
its non-functional currency assets. During the year,
currency movements increased the net value, after the
effects of hedging, of the Group's overseas assets by
GBP5 million (last year decrease of GBP1,102 million)
------------------------------------------------------------------
Counterparty risk
The risk of loss arising
from default by parties * The Group holds positions with an approved list of
to financial transactions highly rated counterparties
* Tesco monitors the exposure, credit rating, outlook
and credit default swap levels of these
counterparties on a regular basis
------------------------------------------------------------------
Insurance risk
The risk of being inadequately
protected from liabilities * We purchased assets, earnings and combined liability
arising from unforeseen protection from the open insurance market for higher
events value losses only
* The risk not transferred to the insurance market is
retained within the business with some cover being
provided by our captive insurance companies, ELH
Insurance Limited in Guernsey and Valiant Insurance
Company Limited in the Republic of Ireland. ELH
Insurance Limited covers Assets, Earnings and
Combined Liability, while Valiant Insurance Company
Limited covers Combined Liability only
------------------------------------------------------------------
Related Party Transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its
joint ventures and associates are disclosed below:
Trading transactions
Amounts owed
Sales to Purchases from by related Amounts owed
related parties related parties parties to related parties
2015 2014 2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- -------- -------- ------ ------ ---------- ---------
Joint ventures 430 366 549 533 17 19 22 6
-------- -------- -------- -------- ------ ------ ---------- ---------
Associates - 7 14 18 26 - 1 17
-------- -------- -------- -------- ------ ------ ---------- ---------
Sales to related parties consists of services/management fees
and loan interest.
Purchases from related parties include GBP430m (2014: GBP412m)
of rentals payable to the Group's joint ventures (including those
joint ventures formed as part of the sale and leaseback
programme).
Non-trading transactions
Sale and
leaseback of Loans to Loans from Injection of
assets related parties related parties equity funding
2015 2014 2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ -------- -------- -------- -------- -------- -------
Joint ventures - - 207 218 16 16 14 3
------- ------ -------- -------- -------- -------- -------- -------
Associates - 46 - 37 - - 10 7
------- ------ -------- -------- -------- -------- -------- -------
Transactions between the Group and the Group's pension plans are
disclosed in Note 26 to the Annual Report and Financial Statements
2015.
A number of the Group's subsidiaries are members of one or more
partnerships to whom the provisions of the Partnerships (Accounts)
Regulations 2008 ('Regulations') apply. The accounts for those
partnerships have been consolidated into these accounts pursuant to
Regulation 7 of the Regulations.
In the prior year, the Group completed one sale and leaseback
transaction involving property assets in Thailand. On 24 January
2014, one trading mall was sold to the Tesco Lotus Growth Fund, an
associated entity of the Group, for a consideration of GBP46m.
There were no sale and leaseback transactions in the current
year.
Transactions with key management personnel
Members of the Board of Directors and Executive Committee of
Tesco PLC are deemed to be key management personnel.
Key management personnel compensation for the financial year was
as follows:
2015 2014
GBPm GBPm
Salaries and short-term benefits 14 16
----- -----
Pensions 3 3
----- -----
Share-based payments 4 2
----- -----
Joining costs and loss of office costs 8 1
----- -----
29 22
----- -----
Of the total remuneration to key management personnel, GBP16m
(2014: GBP16m) relates to Executive Committee members who are not
on the PLC Board.
Of the key management personnel who had transactions with Tesco
Bank during the financial year, the following are the balances at
the year end:
Credit card and personal Current and saving
loan balances deposit accounts
Number of Number of
key management key management
personnel GBPm personnel GBPm
------------------- ----- ---------------- ----
At 28 February 2015 19 1 16 1
------------------- ----- ---------------- ----
At 22 February 2014 12 - 4 -
------------------- ----- ---------------- ----
Statement of Directors' responsibilities
In compliance with DTR 4.1.12R, the Annual Report and Financial
Statements 2015 contains a Directors' responsibility statement.
This is reproduced below, in line with DTR 6.3.5R. The statement
relates to and is extracted from the Annual Report and Financial
Statements 2015 and does not attach to the extracted information
presented in this announcement or the preliminary results
announcement released on 22 April 2015.
The Directors are required by the Companies Act 2006 to prepare
financial statements for each financial year which give a true and
fair view of the state of affairs of the Group and the Company as
at the end of the financial year and of the profit or loss of the
Group for the financial year. Under that law the Directors are
required to prepare the Group financial statements in accordance
with International Financial Reporting Standards ('IFRS') as
adopted by the European Union ('EU') and have elected to prepare
the Parent Company financial statements in accordance with UK
Generally Accepted Accounting Practice (UK Accounting Standards and
applicable law).
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether IFRSs as adopted by the European Union and
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the Group and
Parent Company financial statements respectively; and
-- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that disclose with reasonable accuracy at any time the
financial position of the Group and the Company and which enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They also have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
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 names and functions are set out on
pages 28 and 29 of the Annual Report and Financial Statements 2015
confirm that, to the best of their knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRS as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and loss of the
Group; and
-- the Strategic report contained within this document includes
a fair review of the development and performance of the business
and the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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