Serving our customers,
communities and planet
a little better every day.
Annual Report and
Financial Statements
2023.
Contents
2023 highlights
Strategic report
2023 highlights ...............................................................................IFC
Introduction .......................................................................................1
Tesco at a glance ...............................................................................2
Supporting stakeholders through the cost-of-living crisis ...............4
Purpose and values ...........................................................................6
Chairman’s statement ...................................................................... 7
Group Chief Executive’s review ........................................................8
Our market context .......................................................................... 11
Our strategic priorities ....................................................................12
Key performance indicators ............................................................14
Our business model .........................................................................15
Our colleagues..................................................................................16
Climate .............................................................................................18
Task Force on Climate-related Financial Disclosures .....................20
Section 172 statement .....................................................................25
Stakeholder engagement ................................................................26
Non-financial information statement .............................................28
Financial review ...............................................................................30
Principal risks and uncertainties .....................................................38
Longer term viability statement ......................................................46
Corporate governance
Governance introduction ................................................................48
Governance at a glance ...................................................................50
Board of Directors ...........................................................................51
Executive Committee ......................................................................55
Corporate governance, purpose and culture .................................56
Board effectiveness .........................................................................61
Board leadership in action ..............................................................62
Board activity ..................................................................................64
Nominations and Governance Committee .....................................66
Corporate Responsibility Committee .............................................69
Audit Committee ..............................................................................71
Directors’ remuneration report ...................................................... 77
Directors’ report ............................................................................102
Financial statements
Independent auditor’s report ........................................................107
Group income statement ...............................................................120
Group statement of comprehensive income/(loss) .......................121
Group balance sheet ......................................................................122
Group statement of changes in equity ..........................................123
Group cash flow statement ...........................................................124
Notes to the Group financial statements ......................................125
Tesco PLC – Parent Company balance sheet ................................ 191
Tesco PLC – Parent Company statement
of changes in equity .......................................................................192
Notes to the Parent Company financial statements .....................193
Related undertakings of the Tesco Group .....................................199
Other information
Supplementary information (unaudited) .......................................204
Glossary – Alternative performance measures ............................207
Five-year record ............................................................................213
Shareholder information ................................................................214
Performance highlights
Group salesΔ(a)
£57.7bn
5.3%
(2022: £54.8bn)
Adjusted operating
profitΔ(b)
£2,630m
(6.9)%
(2022: £2,825m)
Dividend per share
10.90p
Unchanged
(2022: 10.90p)
UK market share
(sales value)(d)
27.3%
(39)bps
(2022: 27.7%)
Adjusted
diluted EPSΔ(b)
21.85p
(0.0)%
(2022: 21.86p)
Retail free cash flowΔ(c)
£2,133m
(6.3)%
(2022: £2,277m)
Net debtΔ(c)
£(10,493)m
(0.2) %
(2022: £(10,516)m)
Group net
promoter score(e)
15pts
(5)pts
(2022: 20pts)
Statutory measures
Statutory revenue
£65.8bn
7.2%
(2022: £61.3bn)
Operating profit
£1,525m
(40.4)%
(2022: £2,560m)
Statutory profit
before tax
£1,000m
(50.8)%
(2022: £2,033m)
Statutory diluted EPS
10.08p
(48.7)%
(2022: 19.64p)
Δ Alternative performance measures (APMs)
All measures apart from Net debt are shown on a continuing operations basis unless
otherwise stated, with growth stated at actual exchange rates. The Group has defined
and outlined the purpose of its APMs in the Glossary starting on page 207.
(a) Group sales exclude VAT and fuel.
(b) Adjusted operating profit and Adjusted diluted EPS exclude the impact of adjusting items.
(c) Net debt and Retail free cash flow exclude the impact of Tesco Bank.
(d) UK market share based on Kantar Grocers Total Till Roll on a 12-week basis ending
19 February 2023.
(e) Basis – Tesco Global Brand tracker on a three-month rolling basis. 2022 NPS was
reported on a 12-month rolling basis at 18pts.
Hello.
Tesco was built to be a champion for customers, serving them
every day with affordable, healthy and sustainable food.
Our commitment to our customers extends beyond our
stores, and into every local community we serve – in the UK,
Republic of Ireland (ROI), Slovakia, the Czech Republic and
Hungary. We provide extra support to those that need it,
through food banks, donation schemes and community grants.
This year, we have been laser-focused on keeping the cost of
the weekly shop affordable for our customers. At the same time,
we have invested in our colleagues and worked in partnership
with our suppliers, providing additional support where needed.
At the heart of Tesco is our fantastic team of more than 330,000
colleagues, who go above and beyond to make a difference.
We work hard to be an inclusive workplace, where all colleagues
can be at their best and build the skills to grow their careers.
In challenging times, our purpose has guided every part of the
Group, from Booker and One Stop to Tesco Bank, Tesco Mobile
and dunnhumby. Serving our customers, communities and
planet a little better every day is what we do.
Tesco PLC Annual Report and Financial Statements 2023
1
Tesco at a glance
The Tesco Group.
Tesco is a British grocery retailer, with its headquarters in the
United Kingdom.
We serve millions of customers every week, in stores and online
and provide additional services across the Tesco family.
Founded in 1919, Tesco began as a market stall in the East End of
London. Today we operate 4,859* stores in five markets: the UK,
the ROI, the Czech Republic, Slovakia and Hungary.
Our businesses
The Tesco Group also
includes: Tesco Bank;
Tesco Mobile; a network
of One Stop convenience
stores; Booker, the UK’s
leading wholesale business;
and our data-science
business, dunnhumby.
3,712
stores in the
United Kingdom
166
stores in the
Republic of Ireland
187
stores in the
Czech Republic
157
stores in Slovakia
197
stores in Hungary
Key facts
£57.7bn
Group sales
2022: £54.8bn
£2,630m
Adjusted operating profit
2022: £2,825m
£2,133m
Retail free cash flow
2022: £2,277m
To read more about our financial
performance go to page 30
* including franchises
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Tesco PLC Annual Report and Financial Statements 2023
Our businesses
Tesco is a leading multinational grocery retailer,
which aims to serve customers affordable, healthy
and sustainable food.
www.tesco.com
Booker is the UK’s leading food and drink wholesaler,
serving caterers, independent retailers and other
businesses. Booker also owns symbol brands
including Budgens, Londis and Premier.
www.booker.co.uk
dunnhumby is a global leader in customer data
science. It works with brands, grocery retail, retail
pharmacy and retail financial services to provide
technology, software and consultancy services.
www.dunnhumby.com
One Stop is a retail convenience business with more
than 1,000 shops and a focus on being the best
store for customers in every neighbourhood.
www.onestop.co.uk
Tesco Bank offers a range of personal banking and
insurance products with the aim of making financial
products easier and better value for its customers.
The Bank helps more than five million customers
manage their money every day.
www.tescobank.com
Tesco Mobile is a mobile operator serving more than
five million UK customers. Established in 2003 as a
joint venture between Tesco and O2, Tesco Mobile
has grown into an award-winning network with
more than 500 phone shops.
www.tescomobile.com
Tesco PLC Annual Report and Financial Statements 2023
3
Strategic report Supporting stakeholders through the cost-of-living crisis
Helping customers
spend less.
Our value proposition
UK & ROI
Central Europe
Aldi Price Match and Price Guarantee: price
matching on the most important products
means customers can be confident they don’t
need to shop elsewhere for great value.
Low Everyday Prices: consistent low prices on
products customers buy regularly, so they can
confidently plan and manage their spend.
Clubcard Prices: rewarding customers for
their loyalty with exclusive deals/discounts.
We understand the pressures that our
customers have faced this year, and
have been doing everything we can to
support them. We work relentlessly to
keep the weekly shop as affordable as
possible, offering great value in more
places than anyone else – from grocery
to mobile to banking.
Our priorities throughout this period have been clear: to help our
customers spend less; to continue investing in our colleagues;
and to deliver a positive difference in the communities we serve.
We have worked closely with our supplier partners to support
them through these challenging market conditions.
>8,000
value lines in the UK
Customers | Lowering the
price of the weekly shop
through our powerful
combination of Aldi Price
Match, Low Everyday Prices
and Clubcard Prices.
~8%
increase in UK hourly
colleague pay in 2022
Colleagues | Substantial
investment in colleague
base pay, on top of
other benefits.
4
Tesco PLC Annual Report and Financial Statements 2023
Unwavering support for customers.
Our research with customers told us they wanted help with four key things:
1
Affordable food
and clothing
2
Healthy, affordable
choices
3
Fuel and
travel costs
4
Occasional
treats
We leveraged our scale
and capabilities across the
Group to help customers
spend less during the year
and provide help where
they wanted it most.
CE
UK
Booker
£27.5m
support package
Suppliers | We have invested
£27.5m in the UK egg sector
in the past year.
Mobile
ROI
Bank
More than
52 million
meals donated this year
Communities | We have given more than
52 million meals to food banks and charity
partners across the Group during
the past year.
Tesco PLC Annual Report and Financial Statements 2023
5
Strategic report Purpose and values
Purpose and values.
A clear purpose unites the Tesco Group and supports the
ambitions and commitments of our business strategy. This
year, we lived our purpose through the many different ways
we served customers, stepped up for local communities and
progressed against our environmental commitments.
Serving our customers,
communities and planet
a little better every day.
Our values.
Our three values underpin our purpose, setting out how we work together as a team
and guiding the decisions and choices we make across the Group.
No one tries
harder for
customers.
We listen to our customers, our
communities and each other, and use the
feedback provided to make better
decisions as a business. With the
expertise and knowledge of our
colleagues, we change, innovate and
adapt to meet customer needs.
We treat people
how they want
to be treated.
People will always be at the heart of Tesco
– a place where everyone is welcome. An
inclusive, supportive workplace for our
colleagues, where they feel recognised
and rewarded for the work they do and
have opportunities to get on. A business
where we build strong, long-term
relationships with our suppliers and other
external partners. Respect, trust and
understanding is in our culture.
Every little help
makes a big
difference.
Help comes in all shapes and sizes. From
supporting local food banks and
community projects via our Community
Grants programme, to delivering great
service, our colleagues continue to
change things for the better. When we
add up the many things we do at a local
level, together we make a big difference.
6
Tesco PLC Annual Report and Financial Statements 2023
Chairman’s statement
This has been another significant year for Tesco, once again
shaped by circumstances outside our control. The business has
demonstrated incredible resilience, as we stepped up to support
customers, colleagues, suppliers and communities through the
impact of rising cost pressures. At the same time, we have made
further progress towards achieving our strategic priorities and,
in turn, we have seen strong sales growth across the Group.
I want to say a big thank you to our colleagues for their hard work
and dedication throughout the year. Every team and colleague had
their own challenges to face, and have risen collectively to meet
those challenges incredibly well.
Balancing the needs of all our stakeholders
You will see throughout this report what we have done during
the year to support our customers, colleagues, suppliers
and communities.
It has been a year when the Board and the executive team have
taken great care to ensure we strike the right balance in everything
we do. In short, that we do the right thing by all our stakeholders.
We have invested in our value offer so we can help our customers
save money whether they are buying groceries or banking with us.
Our strong customer focus has meant we are the only full-line
grocer to grow UK market share in the past three years and our
brand NPS score is the highest of the full-line grocers.
It has also been important to invest in our colleagues throughout
these challenging times, improving reward packages delivered
across the Group. This recognises that our colleagues are at the
heart of Tesco, playing a vital role in ensuring we remain a strong
business and continue to deliver for customers.
It was also important to continue recognising the essential role
we play in the communities we serve, in particular how we stepped
up for them when they needed it most.
By getting this balance right, we have been able to deliver
top-line growth, profit and cash and this approach is delivering
for all our stakeholders.
Continued growth
This year, we have delivered strong sales performance in all
segments, with Group sales increasing 5.3% at constant rates
and Retail like-for-like sales up 5.1%. Retail adjusted operating
profit decreased by (6.3)% to £2.5 billion. This reflects our
continued investment in great value and great quality for our
customers, at the same time as looking after our colleagues.
By delivering value
for customers,
we create
sustainable
value for
shareholders too.
Board changes
In June 2022, we said goodbye to Steve Golsby and Simon
Patterson who retired from the Board. We thank them for their
valuable contribution to Tesco over several years. Alison Platt
succeeded Steve Golsby as Chair of the Remuneration Committee.
Last October, we welcomed Caroline Silver to the Board as an
independent Non-executive Director and member of the Audit
Committee. Caroline has a wealth of experience across a number
of commercial, financial and governance roles and has brought
valuable knowledge and perspective to the Board.
In September 2023, Dame Carolyn Fairbairn will be joining the
Board as an independent Non-executive Director. Dame Carolyn
will also be appointed as a member of the Remuneration
Committee and Corporate Responsibility Committee.
Lindsey Pownall will be retiring from the Board at the conclusion
of the 2023 AGM. Lindsey’s retirement from the Board will mean
that she also steps down from her role as Chair of the Corporate
Responsibility Committee, where she will be succeeded by
Stewart Gilliland.
I am pleased that we continue to make progress on gender
equality on the Board, reaching 42% female representation in line
with our target. We remain committed to equality across our
business and continue to work towards that goal.
Looking ahead
In the coming months, we will continue to manage the impact
of cost-of-living pressures and focus relentlessly on delivering
value for our customers. Significant uncertainty in the economic
environment remains, but Tesco is a strong business, with
more than 330,000 exceptional colleagues guided by the one
purpose of serving our customers, communities and planet a
little better every day.
Whatever the circumstances, I am confident our colleagues will go
above and beyond to support our customers and that by working
together we can continue to deliver against our strategy and
create sustainable long-term value.
John Allan CBE
Non-executive Chair
12 April 2023
For more information about how we have helped our
stakeholders see pages 4 to 5, 8 to 13 and 16.
Tesco PLC Annual Report and Financial Statements 2023
7
Strategic report Group Chief Executive’s review
Guided by our
purpose, we are
building a
stronger
business.
Last year we set out our new strategic priorities, and I am pleased
to say that we have made strong progress against them this year
as set out on pages 12 and 13.
We have continued to support our customers and delivered a
strong performance, responding with speed and agility to the new
and ongoing challenges we faced during the year. It is testament
to our resilience as a business, our careful planning, and our
flexibility that we have been able to do so with such success.
It is also testament to the brilliant work of the Tesco team,
and I want to thank each and every colleague for all they have
done. Individually and collectively, we have been guided by
our purpose to serve our customers, communities and planet
a little better every day. This united effort, as well as our
collaborative and supportive culture, is one of our biggest
advantages in tough times.
Supporting our customers with a relentless
focus on value
Inflation is a pressing reality for everyone – customers,
colleagues, suppliers, and every member of our communities.
At Tesco, we know it is our job to listen, to understand and then
to act to help customers through these challenges. We also know
customers are looking for value but do not want to compromise
on the other aspects of their shop that are important to them.
This is why we are focused on keeping the weekly shop not just
reliably affordable, but also healthy and sustainable, while
delivering great quality and convenience.
When it comes to value, we know that customers are looking for
it wherever, whenever and however they choose to shop with us.
This is why we have doubled down on value across the whole
Group, see page 4.
We have price-matched more than 600 every day items to Aldi in
the UK, and locked our Low Everyday Prices on hundreds of
everyday staples until Easter in the UK and ROI. We’ve also fully
rolled out Clubcard Prices to every market, and launched
new initiatives via Tesco Bank and Tesco Mobile. And, following the
launch of our cost-of-living hub through Tesco Bank, we can offer
8
Tesco PLC Annual Report and Financial Statements 2023
guidance and advice to help people manage their finances. Booker
has also been a champion of value, supporting customers with a
price freeze on 450 key catering lines. For further details on all
these initiatives and more, see pages 4-5.
Recognising our colleagues
Our colleagues are at the heart of everything we do. We recognised
that with household costs rising in the UK, the ROI and Central
Europe, we needed to reflect their value in our reward package.
Colleagues in every market have therefore received substantial
investments in their base pay. In the UK, this included a nearly 8%
increase for hourly-paid colleagues in 2022.
Working in partnership with suppliers
Our partnerships with suppliers have been essential this year
as we all worked hard to keep the weekly shop as affordable as
possible for customers. We recognise the inflationary pressures
that suppliers are facing and have therefore been committed to
working collaboratively to manage all associated impacts.
We’ve always been clear that where there are pressures, we will
play our part in providing support. For example, we’ve announced
additional support for a number of agricultural sectors including a
£27.5m investment in the British egg industry and a 10% increase
in contract pricing for the 2022 potato harvest.
As a result, suppliers have voted us the number 1 retailer in
the independently run Advantage survey for seven years
running, reflecting our commitment to strong partnerships
and collaboration.
Supporting our local communities
Having a positive impact on the communities we serve is central
to our purpose, and it was essential that we stepped up for them
when they most needed our support. We did this through our £1m
Golden Grant programme, offering a £10,000 grant to 100 local
charities chosen by customers. We also introduced Kids Eat Free
at Tesco Cafés during school holidays, giving away nearly 440,000
meals to children.
Delivering for shareholders
For shareholders, we have delivered another year of strong
growth. Regardless of the external challenges, we have remained
focused on our strategic priorities and have been guided by our
purpose at all times.
While there is significant uncertainty in the year ahead, we have
confidence in our ability to continue to generate cash in the
coming years, and we are committed to a progressive dividend
policy, this year announcing a full-year dividend of 10.90p per share.
We are building good momentum and have strong plans in place
that will make the most of our unique strengths. Above all, we have
a fantastic team of colleagues helping to build a stronger business.
Ken Murphy
Group Chief Executive
12 April 2023
Reduced in price. Just as nice.
To help our customers find bargains more easily and
support our commitment to providing customers with
great value, we launched our ‘Reduced in price. Just as
nice.’ areas in over 100 stores. These reduced-to-clear
sections feature a wide range of products at lower prices,
including fresh produce like salads, meat, bread and sweet
treats that are close to their expiry date. They not only
help customers find something tasty for dinner, or to pop
in the freezer, at a lower price - they also contribute to
our goal of halving food waste by 2025.
But it’s the meals we provide to food charities and food banks
that deliver the greatest positive impact. Tesco is the biggest
supplier of food distributed by FareShare, and alongside our
customers we are also the largest single source of food donations
for food banks for The Trussell Trust. I have been bowled over
this year by the continued generosity of Tesco colleagues and
customers in all our markets.
Looking after the planet
While we focused on the rising cost of living during the year, we
were acutely aware that we could not put the environment on
hold. We needed to press ahead with urgency on reducing our
impact on the planet and we did just that. The relentless efforts
of our teams towards our net zero commitment have helped us
achieve a 55% reduction in emissions in our own operations
since our 2015 baseline.
We also became the first UK retailer to ban plastic wet wipes
and, in addition, we have removed two billion pieces of plastic
from the UK business to date. In the UK, by summer 2023, all
Tesco tea bags will be compostable – that amounts to more
than one billion bags a year.
We are working closely with our farmers and suppliers to promote
biodiversity in farming practices. We were particularly pleased this
year to launch a large-scale commercial field trial with five major
fresh produce suppliers to identify the most planet-friendly and
cost-effective alternatives to conventional fertilisers. This trial will
help reduce reliance on chemical fertilisers as well as reducing
greenhouse gas (GHG) emissions in the supply chain.
We continue to roll out electric vans for customer deliveries, and
our fleet has now grown to include nearly 300 vans. We also now
provide 2,500 customer electric vehicle (EV) charging points
across 600 stores, as we seek to minimise our own emissions
while working towards our overarching goal of net zero by 2050.
This remains an ongoing journey, and one where we need to work
closely with our suppliers and the industry.
Progress on our strategic priorities
I am delighted with the progress we have made since launching
our strategic priorities and performance framework last year.
As we have responded to the various challenges involved, our
priorities have only become more relevant as we build on our
unique strengths and focus on doing the basics brilliantly.
We dig into the details of our strategic priorities on pages 12 and
13, but I do want to say a few words on Clubcard. Since launching
Clubcard Prices in all our markets, we have had a great response
from customers. The number of active Clubcard holders we have
in Central Europe has trebled this year, with sales penetration
reaching 83%. Penetration in the ROI has risen to nearly 77%
this year, while we are at nearly 79% in the UK. We are on a
journey to make Clubcard more personalised, and have rolled
out individualised digital coupons to four million customers in
the UK alone.
Our data science business, dunnhumby, is helping us to access
new revenue streams from Clubcard. Since launching the Tesco
Media and Insight platform with dunnhumby last year, we have
helped 450 leading brands increase the effectiveness of their
campaigns, build more interactive, two-way relationships with
customers, and grow loyalty for Tesco and our suppliers.
Visit www.tescoplc.com/news/2022/reduced-to-
clear-signage-revamp
Tesco PLC Annual Report and Financial Statements 2023
9
Strategic report Group Chief Executive’s review continued
Q&A
with Ken.
What is your highlight from this year?
My highlight is the time I have spent in stores, when I’m able to talk
to colleagues and customers and see some of the team’s great work
come to life. It’s also a chance to get some honest feedback about
what is working and what isn’t. Retail is a fast-moving industry, and
you learn so much from being on the shop floor. There’s never a
better time to be in stores than at Christmas. I travelled around
various stores in the Christmas week and the atmosphere was
fantastic – I loved every minute.
How has Tesco responded to the cost-of-living
challenges faced by colleagues this year?
It has been really important to recognise that colleagues have
faced rising household bills just as much as customers. Of course,
we have invested in pay, see page 16 for details. But we’ve also
made a number of smaller changes that colleagues say have made a
huge difference. These range from doubling our Colleague Clubcard
discount over Christmas, to ensuring colleagues have plenty of
good food available for free in colleague rooms – not to mention
introducing a pay advance for any colleague who might be facing
an unexpected bill.
How have you balanced the needs of all
stakeholders?
This has been a year when all our stakeholders have faced their own
challenges and balancing those needs has been a delicate task. We
always strive to make sure we’re doing the right thing and that we’re
aligned to our purpose of serving our customers, communities and
planet a little better every day. All that work helps give stakeholders
confidence in our business, which in turn can create significant
value for our shareholders.
How has Tesco managed some of the year’s
broader macroeconomic and political instability?
In the same way that we’ve managed the various challenges over
the last three years. We have focused on what we can control.
Where there was expected disruption, we had excellent plans in
place to mitigate that. Where we needed to respond quickly, we
demonstrated just how flexible we can be. In my view, that mixture
of resilience and flexibility is a great strength of Tesco.
Has Tesco had to press pause on any
sustainability initiatives as it focused on serving
customers through the cost-of-living pressures?
No, and that’s been really important. While the external focus may
have been on value and prices, it was essential that we didn’t drop
the ball on sustainability. In fact, we took our plans even further.
Now is a critical time to take action on climate change, and we’re
doing that by driving improvements and innovation at every point
in our value chain. That’s first in our own operations, then in our
supply chain and for our customers. Our plan on climate action
focuses on the areas where we can make the biggest difference
– energy, transport, waste, food production and diets.
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Tesco PLC Annual Report and Financial Statements 2023
You have talked previously about food
security. Is this still a concern?
I believe that people haven’t talked about food security enough
until now. If you look at the droughts in China, the floods in
Pakistan, the crop failures in Canada and the US last year, you
have to assume that we’re going to see an even greater increase
in food insecurity. After energy, the food system has the greatest
impact on the environment. We continue to work closely with our
suppliers to improve food systems around the world and support
them in making more sustainable choices. We have invested
significantly in UK agricultural supply chains as they face
challenging market conditions, aiming to ensure they’re
sustainable in the long term. We continue to work on tackling
deforestation in Brazil. During COP27, we joined forces with
40 UK food companies and soy suppliers in announcing a landmark
set of actions to ensure all soy used in animal feed in the UK is
deforestation-free. These commitments will help us to deliver
against the aims of the UK Soy Manifesto, which was agreed by
the industry at COP26 in Glasgow.
What progress have you made towards your
health targets?
Eating a well-balanced, healthy, sustainable diet is one of the best
ways we can look after our health and the health of the planet
– and we want to make it easier than ever for our customers to
do this. We launched our Better Baskets campaign to help to
make Tesco the easiest place to shop for affordable, healthy,
sustainable food. This year we’ve driven an improvement in our
health scores, from 58% to 60% in the UK & ROI and maintained
the baseline position of 49% in Central Europe. We’ve removed
more than 71 billion calories since 2018 through reformulation.
We continue to look for ways to support customers and remove
barriers to healthier eating, such as the Kids Eat Free offer in our
cafés that helps children access a nutritionally balanced meal
outside term time.
What are the key priorities for the
year ahead?
I’m excited about the momentum we are building. We have a
formula that’s working and that we can build on and accelerate.
For me, it’s about really making progress against those key
strategic priorities. There’s plenty of exciting innovation in
the pipeline – in product development, channels and
customer experience.
What is your outlook for the year ahead?
As we build on our momentum over the coming year, we believe
that it’s as important as ever to remain focused on investing in
our customers and delivering them the great value and quality
they expect when shopping.
Our market context
Meeting market needs.
Market drivers
How we are responding
Concerns over cost of living
The rise in household costs means that more than ever
before, customers are looking for affordable solutions while
maintaining their standard of living. Customers are more
selective and deliberate on what they spend their money on,
looking for ways to make their food budget go further.
For us, that makes it essential to deliver the best quality at the best
price. Our value proposition of Low Everyday Prices combined with
exceptional value offered by Clubcard Prices and Aldi Price Match
means we are at the most competitive position we have been in for
many years. As customers look for the best value, we offer that right
across the store – from the volume-driven success of our Price Lock
campaign through to the growth of our Finest range. For some
customers, it is trading down from national brands to great value Tesco
products. For others, it is seeking out Tesco from one of the higher-
priced, premium-focused retailers, or using our great range of ready
meals instead of a takeaway or restaurant meal.
Planet protection
With the effects of climate change becoming more pronounced
and happening more frequently across the globe, customers
want to take action to reduce their impact on the environment.
They expect responsible businesses to do the same. As a result,
many customers are seeking responsibly sourced, less resource-
intensive goods that safeguard the planet.
The efforts of our teams towards our net zero commitment have
helped us achieve a 55% reduction in emissions in our own operations
against a 2015/16 baseline, see more on pages 18 and 19. We became
the first UK retailer to ban plastic wet wipes and, in addition, we have
removed 2 billion pieces of plastic from the UK business to date. We
are also taking action to reduce emissions across our supply chains,
trialling agricultural innovations such as low-carbon fertilisers,
alternative animal feeds and vertical farming techniques.
Recognising diversity
As society is projected to become more diverse, the need
for representation and recognition is growing. Customers
are increasingly looking to brands that take pride in – and
champion – differences.
As one of the largest employers in the UK, we recognise the importance
of representing the communities we serve. Central to achieving this goal
is our diversity and inclusion strategy, and the support we give to our
colleagues on their individual career journeys. During the year we
launched our Black Action Plan and were named among The Times Top
50 Employers for Women for the second year running. For more
information, see our Everyone’s Welcome report at www.tescoplc.com/
media/759669/tesco-everyones-welcome-report-2022.
We continue to look for ways to promote inclusivity and increase
representation for our customers. These include; the launch of a
basics range with skin tone colours, introducing products specifically
designed for Black hair, and reflecting the diversity of our customers
in our advertising.
Digital retail
Recent years have seen a significant increase in the number
of businesses focusing on online, quick, and checkout-free
commerce. Customers have access to shopping whenever,
wherever and however they want it. And they continue to expect
better, faster, integrated digital retail to make shopping easier.
One of our strategic priorities is to be Easily the most convenient for
our customers. Our extensive store footprint reached a milestone
with the opening of our 2,000th UK Tesco Express store in Cambridge
in March. That, combined with more than 1,000 One Stop stores and
more than 7,000 Booker fascias, means we have the largest network of
convenience stores across the UK. This is complemented by the UK’s
biggest online grocery service and exciting new initiatives such as our
Whoosh rapid-delivery service and our frictionless GetGo stores.
Local community respect
The effects of the pandemic led to many people spending more
time in their local areas. The continued prevalence of
homeworking has continued this, with a knock-on effect being
increased care for and prioritisation of local environments.
Having a positive impact on the communities we serve is central to
our purpose. We stepped up for them in the past year through our £1m
Golden Grant programme, offering a £10,000 grant to 100 local
charities chosen by customers. We also introduced Kids Eat Free
at Tesco Cafés during school holidays, giving away nearly 440,000
meals to children.
Tesco PLC Annual Report and Financial Statements 2023
11
Strategic report Our strategic priorities
Progress against our
strategic priorities.
Taken together, these strategic priorities enable us to continue delivering great value, increasing customer loyalty, and staying
competitive while ensuring we remain agile and efficient as a business. These four priorities help us maintain our focus on doing
the basics brilliantly and leveraging our unique strengths to accelerate growth.
Magnetic value for customers
Redefining value to become the customer’s favourite
Why it is important
Progress during the year
– Demonstrating the importance of value underpinned
by price, quality and sustainability
– Removing price as a reason to shop elsewhere
– Making healthy, sustainable food affordable for everyone
– Working with suppliers to develop sustainably sourced
products of the highest quality
– Continuing to make a positive contribution to the
communities in which we operate
– Continued to strengthen our value proposition with
thousands of products now available through Aldi
Price Match, Low Everyday Prices and Clubcard Prices
in the UK & ROI, and Low Price Guarantee and
Clubcard Prices in Central Europe
– Launched two price locks in the UK & ROI on thousands
of everyday products, giving customers great value on
their weekly shop
– Launched 998 new products over the year, including
349 Finest products. Drove 6.8% growth in Finest sales
– Continued to make progress on minimising our impact
on the planet including accelerating plans to halve food
waste; launching a zero-emission electric lorry; and
investing in a new facility to protect the Brazilian
rainforest against deforestation from soy cultivation
– Launched our Better Baskets campaign to help
customers make healthier, more sustainable
shopping choices
I love my Tesco Clubcard
Increase loyalty and access new sources of revenue
Why it is important
Progress during the year
– Creating a personalised shopping experience for
– Clubcard penetration reached 79% in the UK, 77%
customers by leveraging unique insights offered by
one of the UK’s leading digital retail platforms
– Developing incremental revenue opportunities with
suppliers to help them offer customers tailored and
relevant products
in the ROI and 83% in Central Europe
– 21 million active Clubcard households
– 11.7 million Clubcard app users in the UK, 2 million
in Central Europe and 0.7 million in the ROI
– Doubled the number of UK customers receiving in-app
personalised coupons to 4 million
– Celebrated the first anniversary of our Media and Insight
platform and new-product suite – now working with
more than 450 consumer goods brands
12
Tesco PLC Annual Report and Financial Statements 2023
Easily the most convenient
Incremental capital-light growth
Why it is important
Progress during the year
– Serving customers wherever, whenever and however
– Opened three more GetGo stores with new
they want to be served.
hybrid format.
– Supporting growth of our core online business.
– Continuing strong growth of convenience through
capital-light opportunities to maximise return.
– Whoosh now available in 1,000 stores, with up
to 10,000 products available to customers.
– Opened our fifth and sixth urban fulfilment centres.
– Continuing evolution of large stores as the backbone
– Opened our 2,000th UK Express store in March.
of online grocery business as we maximise our
existing assets.
– Continuing to test and learn from trials of new
on-demand services to develop the right offer focused
on convenience stores that complements our existing
online business.
– More than 70% of UK households are now within
25 minutes of a Click & Collect site.
– Celebrated 4,000th Premier opening, bringing the
total number of fascias across Premier, Londis
and Budgens to more than 7,000.
– Completed the conversion of nine Joyce’s stores
to Tesco stores in ROI.
Save to invest
A cost-efficient retailer
Why it is important
Progress during the year
– Aiming to simplify, be more productive and reduce costs.
– Focus on offsetting inflation in the medium term and
creating headroom to fund investments.
– Committed to spending money only where it adds value
– Strong track record of savings delivery across four
streams: goods & services not for resale; property;
operations; and central overheads.
– Delivered accelerated savings in excess of £550m.
for customers and makes a real difference.
– On track to deliver original three-year plan 12 months
early with at least £1bn cumulative savings by
February 2024.
Performance framework
The framework we will use to guide
our actions and track our progress
over the coming years.
Drive top-line growth, underpinned by
– Increasing customer satisfaction relative to the market.
– Growing or at least maintaining our core UK market share.
Grow absolute profits while maintaining
sector-leading margins
– Leverage assets efficiently across all channels.
– Access new revenue streams across our digital platform.
– Target productivity initiatives that at least offset inflation
in the medium term.
In doing so, generate between £1.4bn and £1.8bn Retail free cash flow per year
Tesco PLC Annual Report and Financial Statements 2023
13
Strategic report Key performance indicators
Our Big 6 KPIs.
Grow sales
Why it is important
Sustainable growth in sales is important
to our business model.
What we measure
Group sales is a measure of revenue
excluding sales made at petrol filling
stations. It demonstrates the Group’s
performance in the retail and financial
services businesses by removing
volatilities associated with the
movement in fuel prices that are
outside the control of management.
How we performed
Group sales rose 5.3% at constant
rates, driven by strong growth across
all segments.
Group salesΔ
£57.7bn
(2022: £54.8bn)
5.3%(a)
Customers recommend
us and come back time
and again
Why it is important
Customers are at the heart of everything
we do, and customer satisfaction is an
important driver of loyalty.
What we measure
Our score reflects the percentage of
Fans minus Critics answering the
question ‘How likely is it that you
would recommend Tesco to a friend
or colleague?’
How we performed
Cost-of-living pressures have resulted in a
slight decline in our Group NPS score but
we remain resilient versus the market.
Group NPS
Three-month rolling
15pts
(2022: 20pts)
(5)pts(d)
Deliver profit
Why it is important
Delivering profitable growth is
essential as we aim to create
long-term value for all stakeholders.
What we measure
Adjusted operating profit is the
headline measure of the Group’s
performance.
How we performed
Adjusted operating profit was down
(7.1)% at constant rates to £2.6bn,
reflecting the significant investment
we have made in our customers and
colleagues this year.
Adjusted operating profitΔ
£2.6bn
(2022: £2.8bn)
(7.1)%(b)
Colleagues recommend us
as a great place to work
and shop
Why it is important
When we get things right for our more
than 330,000 colleagues, we make it even
easier for them to do what they do best
– serving our customers, communities and
planet a little better every day.
What we measure
Our Great Place to Work measure is
the percentage of colleagues who agree
or strongly agree with the statement
‘I would recommend Tesco as a great
place to work’.
Great Place to Shop is an NPS measure,
answering the question ‘I would
recommend Tesco as a place to shop’.
How we performed
Although there has been a small decline in
colleagues recommending Tesco as a
Great Place to Shop, our Great Place to
Work score remains high at 82%.
(1)pts
Recommend as a place to shop
40pts
(2022: 41pts)
Great Place to Work
82%
(2022: 80%)
+2pts
Improve operating cash flow
Why it is important
Strong cash generation is important to our
underlying philosophy with which we
manage our business.
What we measure
Retail operating cash flow is the cash
generated from continuing operations.
It is a measure of the cash generation
and working capital efficiency of the retail
business, excluding the effects of Tesco
Bank’s cash flows. This is because Tesco
Bank is run and regulated independently
of our retail operations.
How we performed
We saw strong operating cash generation,
with a high working capital inflow, driven
largely by inflation.
Retail operating cash flow(c)
£4.5bn
(2022: £4.5bn)
1.1%
Climate - reduce Scope 1 and
2 emissions by 60% by 2025
Why it is important
This year, we have added a new measure
– reducing our carbon emissions –
reflecting the importance we are placing
on minimising our impact on the planet.
What we measure
Based on our commitment to reduce
Scope 1 and 2 carbon emissions by 60%
by 2025, we measure the reduction in
tonnes of CO2 equivalent (tCO2e) vs our
2015/16 baseline.
How we performed
We have achieved a reduction in carbon
emissions by switching to renewable
electricity, maintaining a consistent focus
on driving energy efficiencies and making
significant inroads to decarbonising our
remaining key hotspots. Improving our
energy efficiency delivered a further
3%pts saving versus our baseline to a
cumulative reduction of 55%.
Carbon emissions
1.0m
(2022: 1.1m)
7%(e)
vs last year
3%pts
55% cumulative
vs baseline
∆ Alternative performance measures (APMs). Measures with the ∆ symbol are defined in the Glossary section on pages 207 to 212.
(a) Group sales exclude VAT and fuel. Growth is at constant exchange rates on a comparable days basis.
(b) Growth is at constant exchange rates.
(c) Retail operating cash flow is the same as the statutory measure ‘Retail cash generated from operations’. Growth is at actual exchange rates.
(d) Basis Tesco Global Brand tracker on a three-month rolling basis. 2022 NPS was reported on a 12-month rolling basis at 18pts.
(e) Carbon emissions are based on total Scope 1 and 2 (market-based) footprint and stated as tonnes of CO2 equivalent (tCO2e), refer to the Climate section on pages 18
and 19 for further detail.
14
Tesco PLC Annual Report and Financial Statements 2023
Our business model
Our business model.
Unique combination of strengths
Understanding
customers
We use our expertise
to understand and
meet our customers’
needs better than
anybody else.
Our
colleagues
We have more than
330,000 colleagues
who share our
purpose and live by
our values.
Scale and
reach
Our unparalleled
reach allows us to
bring great quality
products to more
customers.
Own Brand
products
We source quality
products, with
expert teams and
close supplier
partnerships.
Services
Services, such as
mobile and banking,
focus on the needs of
Tesco shoppers and
allow us to earn and
retain their loyalty.
Innovation
We encourage a
culture of innovation
so that our business
remains at the
cutting edge of new
trends and demand.
Business model
Products
We partner with our
suppliers to source the
best possible products
that meet and anticipate
customers’ evolving
needs.
Customers
Tesco exists
to serve
customers
Reinvest
We focus on making Tesco
the best it can be. The
better we do our job for
customers, the more we
can reinvest.
Channels
We work through a range
of channels – from small
shops to large stores, and
online. Booker gives us
access to further channels,
including business centres
and delivered wholesale.
To create value for all
Customers
Our business model
allows us to bring
our customers the
best products at the
best possible prices,
no matter how
they choose to
shop with us.
Colleagues
The expertise of our
colleagues drives
every part of our
business model –
from our store
teams to new
product
development.
Suppliers
Our conversations
with suppliers focus
on delivering great
value, great quality
products for our
customers. When
we get it right, our
business grows.
Communities
Our commitment
to our customers
goes beyond
stores and into
every community
we serve.
Planet
At this critical time
for our planet,
we are working to
reduce our impact
and help suppliers
and customers to
do the same.
Shareholders
We work to maintain
a strong and efficient
balance sheet, invest
for growth and
deliver improved
returns for our
shareholders.
Voted Britain’s
Favourite
Supermarket* by
customers for
Colleagues who feel
able to be
themselves without
fear of judgement
Record level of
Group supplier
satisfaction
Number of meals
donated across
the Group
Reduction in Scope 1
and 2 GHG emissions
vs 2015/16 baseline
Full-year dividend
8 yrs
85%
86.6%
more than
52m
55%
10.90p
* Grocer Gold Awards
Tesco PLC Annual Report and Financial Statements 2023
15
Strategic report
Our colleagues
A great place
to work.
Our dedicated and hardworking colleagues are at the heart
of our success. We are committed to ensuring everyone feels
welcome and has the support they need to be at their best.
Building a culture of trust is a key part of this aim and has
been recognised in our annual colleague engagement survey,
Every Voice Matters, where 82% of colleagues recommended
us as a great place to work.
Investing in colleagues
Our more than 330,000 colleagues are at the heart of our
business and how we win together plays a vital role in delivering
our core purpose and enabling us to deliver for our customers,
communities and planet. Winning together means helping to
develop the next generation of talent as well as equipping our
colleagues with the skills they need to thrive.
Recognising the vital role store colleagues play in serving our
customers, in 2022 we increased pay for our hourly-paid
colleagues in the UK by nearly 8%. This new deal recognises
the contribution our colleagues make to our business at a time
when household budgets are under pressure. In other markets
our Central Europe (CE) colleagues have seen an increase of up
to 12% in 2022, while Republic of Ireland (ROI) colleagues will have
received a 10% cumulative increase to their pay by April 2023.
In November 2022, Booker and One Stop colleagues received an
increase of between 2.5% and 3.9% to their basic hourly rate.
All colleagues enjoy a competitive and comprehensive benefits
package, which provides access to share schemes, pensions and
wellbeing benefit. This includes our Colleague Clubcard, which
offers a 10% discount, increasing to 15% for four days each pay day
for UK colleagues. Over the peak of Christmas week last year, we
increased discounts by up to 20% for UK, ROI and CE colleagues.
In the UK, we delivered on our commitment to always offer any
vacant hours in stores to colleagues working fewer than 16 hours
a week before recruiting externally. All new contracts are based
on a minimum of 16 hours per week, with the exception of our
smallest Convenience stores.
To provide further support to our UK store colleagues we launched
My Tesco App, which instantly retrieves available hours to match
colleagues’ skills and incentivises them to build more capabilities in
other areas. In 2024 we will continue its rollout to UK distribution
and customer fulfilment centres, followed by CE and the ROI.
In 2022/23 we launched three new products to support managers
during the rollout of our Group-wide Your Contribution proposition
to manage performance: create a winning performance culture;
master feedback; and set strategic objectives.
We also continued to roll out our manager development
programme. More than 7,000 colleagues Group-wide attended
courses on being an inclusive manager, adaptable thinking
and mastering conversations. In CE, more than 300 store
managers and deputy managers participated in our manager
capability training.
For the third year running, in Bengaluru we have partnered
with the Great Manager Institute to deliver the Great Manager
Programme, which aims to build the skills and capabilities of our
managers with bespoke certified training. Since launching the
programme, close to 300 colleagues have been certified.
Jobs, skills and training for young people
We support both existing colleagues and young people starting
their careers with a variety of apprenticeship programmes.
So far, more than 3,500 apprentices have benefited. Our CE
business provided more than 2,700 apprentices with in-store
work experience, and in the ROI apprentices were given a range
of work experience opportunities.
In 2021, we announced the extension of our three-year
partnership with the Prince’s Trust for a further five years, with
an ambition to reach 200,000 more young people in secondary
school, helping to build their employability skills and confidence.
Alongside our delivery partners IGD, Speakers Schools and The
Careers and Enterprise Company, we are tracking ahead of our
ambition to help 45,000 young people through Achieve Clubs,
with a continued focus in areas that are vital for young people,
such as mental health and wellbeing.
Our final cohort of Kickstart colleagues finished their placements
in April 2022, with 94% satisfied with their experience of the
programme. 52% of young people who completed the programme
gained employment with Tesco. Through our cross-sector
collaboration with Movement to Work, we have trialled a new
approach to short work placements for young people aged 16
to 30, with and without a disability, and not in education,
employment or training.
Health, safety and wellbeing
The physical and mental health, safety, and wellbeing of our
colleagues is central to our ways of working. Based on our latest
Every Voice Matters results, 86% of Group colleagues agreed
that Safety at my workplace is taken seriously.
Recognising the challenges our store colleagues continue to face,
we supported USDAW’s campaign to protect retail workers from
abuse, threats and violence. The Police, Crime, Sentencing and
Courts Bill (PCSC) received Royal Assent in May 2022 and will
bring the same protections for our colleagues as those given to
emergency service workers.
We continued to offer free annual heath checks for our colleagues
in Bengaluru. For colleagues in CE, we provide access to food
packages consisting of fruit and vegetables to help improve diets.
At Tesco Bank, we have rolled out ‘Be well building blocks’ to all
colleagues to help drive healthier working practices and
healthier living.
Following a pilot involving more than 6,000 UK colleagues, in
November 2022 we launched Pay Advance, an initiative which
enables colleagues to access up to 25% of the money they have
earned ahead of pay day to help deal with any unexpected costs.
Safeguards on the service help to protect colleague pay and
future income.
After becoming a signatory of the Menopause Workplace Pledge,
a commitment to ensuring colleagues going through menopause
are supported, we updated our sickness and absence policy so
that absence due to menopause-related symptoms is not counted
as part of sickness absence calculation. We also introduced a
range of resources including menopause-friendly uniforms, a
colleague guide on menopause and a Talking Menopause Colleague
Café to build a support network.
16
Tesco PLC Annual Report and Financial Statements 2023
Diversity and inclusion
Creating a diverse and inclusive workplace that represents the
communities we serve is vital to building an inclusive culture,
where everyone feels welcome. It is embedded in our values
‘we treat people how they want to be treated’ and is an integral
part of our success at Tesco. We strive to make progress year on
year and are proud that 85% of colleagues feel they can be
themselves without fear of judgement, while 86% say their
manager makes everyone in their team feel welcome.
Across Tesco Group, we champion diversity and inclusion, from
how we attract, recruit and develop our colleagues to retaining
diverse talent. In 2022, we made further strides in strengthening
our commitment to equitable representation.
This year, examples include:
– Continuing to require diverse shortlists for senior vacancies and
making positive changes to hiring practices, resulting in 36% of
external senior appointments being female and 40% ethnically
diverse this year.
– Following the success in 2021 of our diverse talent communities
for high potential colleagues, we have expanded our reach
across more parts of the Tesco Group and to more under-
represented groups, welcoming more than 210 colleagues who
identify as Black, ethnically diverse, LGBTQ+ and/or disabled.
The community helps us nurture talent, accelerate individual
development and address barriers to progression.
– In line with our commitment to operating in a responsible and
sustainable way, in 2021 we linked executive Performance Share
Plan to our 2025 global leaders target. In 2022 we took a step
further by linking refinancing of Tesco’s revolving credit facility
to this 2025 diversity target.
– Since the start of 2023, we have made good progress towards
achieving Disability Confident Leader Status in the UK. Progress
made includes: improved attraction and selection processes
for disabled candidates; improved candidate communication;
and partnering with disability-focused job boards. This year we
were the first retailer to achieve the RNIB Visibly Better
Employer status.
– Our colleague networks play a vital role in underpinning our
strategy by amplifying the unique challenges diverse groups at
Tesco face and play an ever-increasing role as strategic
business advisors. Alongside our colleague networks, we
continue listening to and elevating diverse voices, utilising the
results from our Group-wide colleague engagement survey,
Every Voice Matters, and feedback from executive-led colleague
listening sessions, to understand where we can do more.
– To better understand the diversity of our workforce we have
continued to request diversity data through our internal survey,
This is Me. Completion is currently more than 60%. This year we
have launched in Booker and Tesco Pensions Investment. As one
of the UK’s largest private sector employers, we know that
collecting this data will take time, our aim is to achieve a full
completion rate in the near future. Diversity data from our
colleagues will enable us to: identify additional areas of
improvement; make more inclusive decisions; and support our
ambition to participate in voluntary reporting, such as the
ethnicity pay gap and Workforce Disclosure Initiative (WDI).
We launched our Black action plan in the UK in May 2022 to help
us understand the challenges faced by the Black community and
deliver lasting change across Tesco. Driven by our colleagues,
predominantly those in our Black advisory group and colleague
network, we aspire to achieve fair and equitable representation
across four key areas: community, talent, commercial and brand.
We have already seen progress since implementing the plan,
including introducing new Black-owned brands to our offer and
launching a specific cohort (and Black learning offer) as part of
the diverse talent community to help us better accelerate the
careers of Black talent. Our work has been strengthened by
partnerships with organisations including The Black British
Network and Making of Black Britain.
We continue to work towards our global leadership representation
targets. We have made progress against our voluntary commitment
to the external FTSE Women Leaders target of 40% female
representation at Board executive level and their direct reports by
2025. As a business we have achieved 34% female representation
this year, an increase from 29% last year.
Board(a)
Executive Committee(a)(c)
Top global leaders(b)(c)
All colleagues
Male
7
9
190
156,907
Female
58%
5
69%
4
79
71%
47% 175,908
Ethnically diverse
42%
17%
31%
17%
15%◊
29%
53% Not reported
2
2
37
(a) Our CEO and CFO are members of the Board and Executive Committee and are
included within both groups in the above table.
(b) Our top global leaders relates to directors and business leaders across the Group,
including Executive Committee members.
(c) One Executive Committee member and a number of global leaders declined to provide
ethnicity information and were therefore not included in the percentage calculations.
◊ Deloitte LLP was engaged to provide independent limited assurance over the selected
diversity data highlighted in this report with a ◊ using the assurance standard ISAE
3000. Deloitte has issued an unqualified opinion over the selected data. Deloitte’s full
assurance statement is available at: www.tescoplc.com/sustainability/reporting-hub.
Diverse talent communities
“Being part of Tesco’s diverse talent community
(DTC) has increased my confidence in bringing
my full authentic self to work. The DTC is vitally
important for Black colleagues and other
under-represented groups at Tesco, including
members of the LGBTQ+ community or people
with disabilities. It’s a step towards true talent
equity at Tesco by ensuring that everyone has
access to the same opportunities.”
Jahnae Gumbs, Business Graduate
Our diverse talent communities support our emerging talent
colleagues from under-represented groups through career
planning, guidance and increased visibility. In 2022/23 we
launched a dedicated Black colleague cohort as part of the
DTC initiative. Our aim is to address the barriers and
challenges faced by many Black colleagues in the workplace.
Visit www.tescoplc.com/sustainability/colleagues/
diversity-and-inclusion-at-tesco
Tesco PLC Annual Report and Financial Statements 2023
17
Strategic report Climate
Climate.
Commitment
Climate change remains the biggest and most complex challenge
facing the world, with its impacts felt across our supply chain,
operations and the communities we serve. The food sector is
responsible for more than a third of greenhouse gas (GHG)
emissions. We are committed to playing a leading role in helping to
tackle these emissions and avoid the most severe consequences
of climate change. We strengthened our commitment to being
carbon neutral across our Group operations by 2035 and hitting
net zero by 2050 across our full value chain, aligned to 1.5˚C.
These targets act as the overarching goal, recognising that bringing
nature and climate together into one holistic environmental
strategy is critical, alongside packaging and food waste, healthy,
sustainable diets, sustainable agriculture, and protecting forests.
With these agendas orientated towards our overarching net zero
target, it allows us to explore new opportunities through their
interconnectivity and ultimately nurture entire ecosystems that
are truly sustainable end to end.
Our goal to reach net zero needs transformational change in how
we grow, produce and consume food. To achieve this, we are
developing detailed, timebound plans to decarbonise key areas of
our emissions footprint, particularly the production of our most
material agricultural products.
Recognising that we cannot achieve our climate ambitions alone,
we continue to promote cross-industry action and advocate to
align public policy with net zero across our markets. We do this
through our flagship partnership with WWF, as well as our
membership with forums such as the Aldersgate Group and the
Climate Group, and involvement in leading industry initiatives such
as the WRAP Courtauld Commitment 2030 and the British Retail
Consortium’s Climate Action Roadmap. We have also made
commitments to RE100 and EV100, pledging to reach 100%
renewable electricity and 100% electric van fleets respectively.
Integration
In 2022 we relaunched our purpose, placing sustainability at its
core. We also added climate emissions to our Big 6 KPIs and
introduced ESG metrics into our executive remuneration policy.
The Performance Share Plan includes three ESG targets, including
our near-term emissions reduction milestone, each with an equal
weighting of 8.33% (25% in total). In 2021 climate became a
standalone principal business risk, recognising the critical impact
climate change has on our business. See page 14 for details on
our Big 6 KPIs.
To underpin our new purpose and substantiate our public
commitments, we have established Group-wide, interdepartmental
governance with accountability across the leadership team. Our
governance groups maintain oversight of progress made against
our interim decarbonisation milestones and have accountability
for ensuring the business delivers on climate commitments.
As a result of integrating climate change action throughout our
business, we have been able to make further progress on
engagement and investment in decarbonisation.
Working toward decarbonisation
The majority of our GHG emissions come from producing the
things we sell, and customers using what they buy from us,
mainly from fuel and energy. We are more able to influence the
way things are produced than how they are used, so our strategy
focuses largely on decarbonising the upstream supply chain.
While transport, running our stores and waste are relatively
smaller contributors, they are still significant and lie almost fully
within our control and therefore have a prominent role in our
decarbonisation strategy. Our TCFD report starting on page 20
provides more detail on our emissions footprint.
Scopes 1 and 2: running our stores
and logistics
To date, we have achieved a 55% absolute emissions reduction
in our own operations vs a 2015/16 baseline. This has largely been
driven by switching to renewable electricity; however, we have
maintained consistent focus on driving energy efficiencies while
making significant inroads into decarbonising our remaining key
hotspots. Our Group Scope 1 emissions now account for around
one million tonnes of CO2 equivalent (tCO2e), split roughly a third
each across heating, refrigeration and transport.
– Refrigeration – we are switching the refrigerant gases in our
store fridges to reduce emissions quickly and replacing
depreciated systems with recovered CO2 systems to minimise
emissions.
– Heating – we have installed heat pumps in 13 stores in the
UK and are trialling 100% heat pump heated stores in
Czech Republic and Slovakia.
– Transport – as signatories of EV100, we are committed to having
a fully electric home delivery fleet by 2030 and installing EV
charging for customers and colleagues.
Further information on the steps we have taken to drive energy
efficiency are contained within the Streamlined Energy and
Carbon Reporting disclosure on page 105.
We have already met our 2030 ambition to switch to 100%
renewable electricity in our own operations across the Group.
Our strategy is designed to ensure we increasingly source our
electricity directly, going beyond renewable energy certificates
and supporting the development of new renewable assets, helping
bridge the gap in investment and infrastructure needed to hit the
UK’s net zero target. Our target is to source 60% of our electricity
by 2030 from power purchase agreements (PPAs) and onsite
power generation.
Underpinning this work to transition to zero carbon energy
sources, it is imperative that we continually work to minimise
our overall energy demand, by investing in efficiencies across our
logistics and store operations. This is a critical enabler to ensure
we have sufficient capacity to electrify the elements of our
operations that continue to rely on fossil fuels.
Scope 3
Our 2019/20 end to end footprint showed that more than 90%
of our GHG emissions sit in our value chain (Scope 3). Building a
comprehensive supplier engagement programme, encouraging
carbon reporting and reduction and finding active opportunities to
decarbonise our Own Brand product range are critical steps in our
net zero journey. These programmes will feed into our upcoming
transition plan in accordance with UK regulatory requirements and
the latest guidance from the Transition Plan Task Force.
18
Tesco PLC Annual Report and Financial Statements 2023
In 2022, we successfully mapped close to two-thirds of our UK
grocery suppliers’ operational footprint. As a result of our
engagement with suppliers, more than half of our top suppliers
have already announced their ambition of setting a net zero
plan and of validating their net zero targets with Science Based
Targets initiative (SBTi). We are successfully tracking carbon and
energy data from more than 87% of our clothing supply chain
factories and close to 91% of our mills via the Sustainable Apparel
Coalition’s Higg tool, giving us enough primary data to design
targeted decarbonisation projects moving forward. For our Home
supply chain, we will collaborate with Amfori in deploying their
Business Environmental Performance Initiative tool to ensure
similar coverage by the end of 2023.
To gather carbon and other sustainability metrics from our
suppliers with a simplified and harmonised methodology, in 2023
we made a commitment to Manufacture 2030 with an ambition
to scale up our carbon data coverage. The transition will enable
us to reach more than 80% of our grocery supply chain in the UK,
Czech Republic, Hungary, Slovakia and ROI, as well as subsidiaries,
Booker and One Stop.
Engaging suppliers is an important element of our decarbonisation
roadmap and we need to go further. Close to 25% of our footprint
can be traced back to just 30 agricultural products where Tesco
frequently holds a significant share in terms of total volume.
Therefore, we will set specific decarbonisation work programmes
in these emission hotspots, primarily working through our Tesco
sustainable farming groups as well as our agriculture forum.
Some of the recent initiatives we have launched from early 2023
include the UK’s first commercial trial of low-carbon fertilisers
with our five largest field vegetable suppliers in the UK. The roll
out of the LEAF Marque Standard certification by 2025 for all
domestic and international fresh produce suppliers, and on-farm
carbon data tracking in our main meat, fish, poultry and eggs,
and dairy supply chains. In preparation for our transition plan
disclosure, our plan is to design tailored decarbonisation
roadmaps for these agricultural products with the aim of
driving down emission intensity.
As a food retailer, almost 40% of our emissions sit downstream
with our customers. Understanding the importance of helping
customers to make more sustainable choices, in 2022 we
launched our Better Baskets campaign. This campaign aims
to signpost our customers to options which can be lower in
environmental footprint, healthier and affordable at the same
time, gradually leading the transition towards lower-carbon
purchasing decisions.
More detail on how we are pushing forward with renewable energy
sources and progressing our decarbonisation strategy can be
found in our TCFD update on pages 20 to 24.
Greenhouse gas emissions and energy consumption*
Scope 1 (tonnes of CO2e)
Scope 2(a)
Market-based method (tonnes of CO2e)
Location-based method (tonnes of CO2e)
Total Scope 1 and 2 market-based (tonnes of CO2e)
Scope 1 and 2 carbon intensity (kg CO2e/sq.ft. of stores and DCs)
Selected Scope 3(b) (tonnes of CO2e)
Total gross emissions (tonnes of CO2e)
CO2e from renewable energy exported to the National Grid (tonnes of CO2e)
Total net emissions (tonnes of CO2e)
Overall net carbon intensity(c)
(total net emissions kg CO2e/sq.ft. of stores and DCs)
Total annual energy consumption (GWh)
UK only total Scope 1 and 2 market-based (tonnes of CO2e)
UK only Scope 1 and 2 carbon intensity (kg CO2e/per sq.ft. of stores and DCs)
UK only annual energy consumption (GWh)
2022/23
1,039,346◊
7,796◊
575,462◊
1,047,142◊
11.91◊
567,191◊
1,614,333◊
281
1,614,053
18.43
6,000
888,676
13.88
5,037
2021/22
1,110,098
16,107
642,337
1,126,205
12.16
593,405
1,719,610
279
1,719,331
18.56
6,263
936,257
13.67
5,203
2020/21
1,053,131
13,631
718,222
1,066,762
11.63
471,195
1,537,957
350
1,537,607
16.76
6,089
880,039
12.99
5,037
Base year
2015/16
1,240,871
1,095,671
1,657,316
2,336,542
26.29
684,079
3,020, 621
–
3,020, 621
33.88
6,823
1,751,572
26.29
5,502
* For both energy and emissions data, we have included all major subsidiaries within Group measures and have included all UK-based subsidiaries in our consolidated UK disclosures.
◊ We engaged Deloitte LLP to provide independent limited assurance over the GHG emissions data highlighted in the above table with a ◊ using the assurance standards ISAE (UK) 3000
and 3410. Deloitte has issued an unqualified opinion over the selected data. Deloitte’s full assurance statement is available at: www.tescoplc.com/sustainability/reporting-hub.
(a) Our method statement can be accessed at www.tescoplc.com/sustainability/reporting-hub. We use the market-based method for calculating Scope 2 emissions for our total
emissions to account for our efforts in generating and purchasing low-carbon energy. The location-based method is provided for disclosure only and all intensity, net and gross
emissions shown are calculated using the Scope 2 market-based method.
(b) Under Scope 3 emissions we report business travel and emissions from distribution arranged by Tesco but provided by third parties (including secondary distribution globally and
emissions from primary distribution in the UK). Scope 3 emissions also include transmission and distribution impacts of electricity and heat supply and well-to-tank embodied impacts of
fuel. Further information on our carbon calculations is available at www.tescoplc.com/sustainability/reporting-hub.
(c) Carbon intensity calculations for 2020/21 were previously revised to reflect changes in the sq.ft. of our business to include all subsidiaries.
Tesco PLC Annual Report and Financial Statements 2023
19
Strategic report
Task Force on Climate-related Financial Disclosures
TCFD.
Climate-related financial disclosures
In addition to this TCFD report, we provide further information
on climate change in the principal risks and uncertainties section,
on page 41. You can also find details on our greenhouse gas
emissions on page 19. We continue to consider the potential
financial impacts of climate change in the cash flow scenario
modelling within our viability statement on page 47 and
impairment note on page 148 to 151.
Governance
We implemented an enhanced climate governance framework last
year encompassing the Board, its associated committees and the
Executive Committee. This year, we broadened the scope of this
governance framework to include all major elements of our plans,
reflecting our holistic approach to the delivery of our sustainability
ambitions. In addition to climate, the governance framework
now encompasses elements including food waste, sustainable
agriculture, biodiversity, healthy diets, and packaging. As a result
of this wider governance scope, we have made minor changes to
the membership and titles of the committees involved, which are
described in more detail below.
The Board is responsible for the long-term success of the Group
and has ultimate responsibility for climate-related risks and
opportunities. The Board’s most recent discussion was in
February 2023. The Corporate Responsibility Committee
oversees the Group’s social and environmental obligations,
including climate-related matters, and is responsible for
monitoring progress towards our commitments. The Corporate
Responsibility Committee reviews progress to date and forward
projections against our stated commitments through formal
papers presented by and discussed with the relevant delivery
teams. The Committee meets four times each year and has
discussed climate on every occasion during 2022/23, with similar
plans to discuss at all 2023/24 meetings. Further information
about the activities discussed at the Corporate Responsibility
Committee meetings can be found on pages 69 and 70.
The Audit Committee monitors climate-related risk management,
internal controls and reporting.
The Executive Committee reviewed our progress against our
climate targets twice this year, in June and December 2022.
In December, the Committee discussed and approved our
broadened governance framework described above and our
climate-related plans for the 2023/24 financial year. These
discussions were led by the Chief Product Officer, as executive
sponsor of our net zero climate commitment. The Executive
Committee reviewed and approved the capital investments
required to achieve our net zero objectives. These investments
are fully integrated into our three-year strategic plan and our
annual budget. The strategic plan and the budget are both
reviewed and formally approved by the Board with reference to
the capital and associated operating cost investments required to
deliver our carbon reduction commitments. In 2023/24, the Board
will oversee progress against the climate targets twice a year.
Reflecting the broader scope of our new planet-related plans,
the Group climate committee has been renamed to become the
Group planet committee. The change was endorsed by the
Executive Committee in December 2022 and is designed to
facilitate delivery of our purpose. The Committee provides
strategic oversight and is responsible for ensuring the delivery of
all our sustainability targets. These include interim decarbonisation
and food waste reduction goals, climate risk management and our
climate-related disclosures. The Group planet committee met
twice in the past 12 months, in June 2022 and March 2023. The
committee continues to be chaired by the Chief Product Officer
and comprises representatives from significant business
functions, which materially influence our ability to achieve our
planet related commitments and regulatory obligations.
Three steering groups continue to underpin the implementation
and compliance component of our planet governance structure.
They are responsible for delivering initiatives to meet operational
climate targets (Group operational decarbonisation steering
group) and interim milestones, propel decarbonisation in our
supply chain (planet steering group) and enable the business to
report our progress (ESG reporting & disclosure group). These
steering groups are chaired by senior leaders; our Chief Property
Officer leads operational decarbonisation (Scope 1 and Scope 2),
our Group Quality Director leads product sustainability, which
encompasses our Scope 3 value chain decarbonisation, and our
Group Finance team leads reporting and disclosure. The steering
committees are more broadly supported by a number of
cooperative workstreams that each focus on carbon reduction
within material emissions hotspots across the business.
Audit Committee
Corporate Responsibility Committee
Board-level
strategic oversight
Management-level
implementation
& compliance
Executive Committee
Group planet committee
Group operational
decarbonisation
steering group
Planet steering
group
ESG reporting &
disclosure group
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Tesco PLC Annual Report and Financial Statements 2023
Risk management
Following the establishment of climate change as a standalone
principal risk in 2020/21, reviews have been conducted at various
levels including the Executive Committee and the Board. These
include the identification and documentation of climate-related
risks and the review and consideration of appropriate risk
responses. This consolidated view provides an input to our
review of the Group risk profile.
The most recent principal risk review was presented to the Board
and Executive Committee in February 2023. Our sustainability
efforts focus on our ability to create and preserve long-term value
for our customers, colleagues, the planet and the communities
we serve. To address the effect of climate change, Tesco has set
sustainability targets, aligned to a 1.5°C pathway, and has
committed to achieving net zero across Scopes 1, 2 and 3 by 2050.
These sustainability targets are underpinned by plans and formal
oversight through dedicated forums, which continue to provide
support for delivering against our long-term targets. Further
information about our principal risks and uncertainties can be
found on pages 38 to 45.
We have reviewed and refreshed our approach to further
embed the management of climate-related risks and opportunities
into our enterprise risk management processes. Climate and
sustainability task forces have been created for our Republic of
Ireland, Central Europe and Booker businesses, and for categories
including non-food and Tesco Mobile. We continue to track
emerging climate regulations including any requirements for
the reporting and disclosure of climate risks.
Metrics & targets
We underpin our net zero strategy with three key commitments:
1. reduce Scope 1 and 2 market-based emissions by 60% by 2025;
2. be carbon neutral across our own operations by 2035; and
3. achieve net zero across our value chain (Scope 3) by 2050.
In the 2022/23 financial year, we reduced our Scope 1 and 2
emissions by a further 3%pts, taking our cumulative reduction
against a 2015/16 baseline to 55%. During the year, we invested
more than £60m into decarbonising our refrigeration systems,
aligned to our ongoing store refresh programme, and the
electrification of our online delivery fleet.
In recognition of how critical sustainability is to our business
success, our 2023 Performance Share Plan (PSP) continues to
incorporate several sustainability metrics, following their inclusion
for the first time last year. These include those for Scope 1 and 2
emission reduction; food waste reduction; and diversity and
inclusion targets for our leadership teams. For more information
on the sustainability metrics included within our PSP, see page 83.
You can find detailed GHG emissions data, including disclosure
across Scopes 1, 2 and selected Scope 3 disclosure on page 19,
we have reviewed the Group’s physical and transition risks and
opportunities, the financial values at risk are quantified in the
strategy section below and in the Principal risks section.
We continue to review our targets and metrics and focus on
disclosing recognised cross-industry metrics where these align
to the risk and opportunities we identify.
Strategy
During the year, we continued to build on our internal climate-
related risk scenario modelling capabilities. In partnership with
Risilience, part of the Centre for Risk Studies at the University of
Cambridge, this involved creating a ‘digital twin’ of our business.
The digital twin maps the key areas of our value chain and allows
us to stress test our business under five warming scenarios,
for both physical and transition risks. The output provides a
range of financial value at risk impacts across several risk
categories over the short to medium term, which are described
in more detail below. Each risk type was assessed based on
materiality and likelihood within the five-year time frame on which
the quantitative modelling is based. We can also leverage the
outputs from this model to estimate the longer-term exposure to
each risk category. Our enhanced scenario modelling capabilities
allow us to better understand the exposure of the business to the
effects of climate change, build effective mitigation plans, stress
test our organisational resilience and improve the execution of
our net zero strategy.
The tables overleaf summarise the financial value at risk
associated with three of the modelled risk categories (policy,
consumer and technology) over the short to medium term (five
years) and a qualitative assessment of how these risks could
evolve over the longer term (10 to 20 years). The modelled impacts
refer to transition risks and are quoted based on a 1.5°C pathway
aligned to the Paris Ambition and Tesco’s stated targets, and a 3°C
pathway aligned to the current warming pathway. We have quoted
the financial value at risk below as a range, reflecting the uncertain
and heavily assumption-based nature of climate-related modelling.
We assess that our business has a high degree of resilience to the
climate-related risks detailed below across a spectrum of warming
scenarios, including one where warming is limited to 1.5°C. This
assessment is based on a variety of factors, which include:
– a broad, comprehensive range of grocery products and core
capabilities in adapting our existing ranges while launching new
products to meet emerging consumer demands;
– an extensive plant-based meat alternative range, which we
continue to innovate; and
– a geographically diversified sourcing base characterised by
strong and established strategic relationships with suppliers
across the globe, which gives us a natural hedge against weather
extremities.
We modelled three further transition risks in relation to: the risk of
climate-related litigation, the risk of a negative shift in consumer
sentiment; and negative investor sentiment due to a perceived lack
of action to address climate change. We believe that stakeholders
recognise our sustainability commitments and the progress we
have made to date. This includes our significant investment in the
decarbonisation of our property estate and transport fleet, our
market-leading sustainable product ranges, and the provision of the
largest electric vehicle (EV) charging network of any UK supermarket.
We also considered the potential financial impacts the Group
could face as a result of physical risks, largely driven by the
potential for weather extremes and related to raw material supply,
key facility risks, and market disruption. The geographically diverse
nature of our supply base as well as our store and distribution
network provides a degree of structural resilience. Our enhanced
modelling capabilities allow us to understand the potential physical
climate risks at a site level. This enables our property teams to
ensure we have robust plans in place in high-risk flood zones to
mitigate potential flood risks in the years ahead. The financial value
at risk is not material either individually or in aggregate, and we
have therefore not disclosed these separately.
Our focus for the 2023/24 financial year will be on further exploring
each risk identified as part of this modelling and working with
relevant business teams to develop our risk management and
mitigation plans.
Tesco PLC Annual Report and Financial Statements 2023
21
Strategic report Task Force on Climate-related Financial Disclosures continued
Policy risk
Pathway
3°C
Mitigated annual impact
five-year outlook
Not material
1.5°C
£0-50m
10-year outlook
Carbon prices remain at current levels or rise marginally, with an inconsistent global approach, which leads to
minimal financial impact to our business
20-year outlook
Carbon prices increase by 20-fold between the current
year and 2030, with rapid adoption across developed
economies
Carbon prices begin to plateau beyond 2030 (by an
additional threefold) and are sustained at this level,
with further adoption across the developed and
developing economies
The policy risk models an increase in future carbon pricing. For our 3°C pathway, we have used $20 ($/tCO2e) and for 1.5°C we have used $80.
We are actively working to reduce carbon emissions across our value chain in line with our 2035 net zero commitment across Scope 1 and 2,
and our 2050 commitment including Scope 3. This activity will naturally contribute to reducing our exposure to increases in carbon pricing. We
have assumed that together with shifts in consumer behaviour and general market pricing we are able to mitigate the majority of this risk.
Our expectation for the 1.5°C pathway over the medium and longer term would be for carbon pricing to continue to increase and eventually
plateau, while for the 3°C pathway we would expect current global carbon prices to remain stable with an inconsistent global implementation
and therefore an immaterial financial impact.
Consumer market risk
Pathway
3°C
Unmitigated annual impact
five-year outlook
£0-50m
1.5°C
£50-100m
10-year outlook
Conventional shopping preferences continue, with existing levels of uptake for sustainable options continuing,
resulting in only a minor impact to our current business
20-year outlook
A greater proportion of our customers switch
rapidly from less sustainable products to more
sustainable options
Demand for sustainable products and services
becomes mainstream in the market, the purchasing
behaviours and associated financial risk seen in the
10-year horizon stabilise over a longer time period
rather than increasing in a linear fashion
This risk models the impact of customers’ sustainable purchasing decisions, for example, switching from animal to plant-based protein.
Meat and egg-based protein constituted 82% of all our protein sales for UK food and soft drink product categories in 2022/23. The 1.5°C
pathway assumes a fast adoption and a significant reduction in demand for less-sustainable and carbon intensive products, whereas the
3°C pathway assumes a limited reduction in current demand.
Our expectation over the medium term is that for the 1.5°C pathway, consumers will increasingly move away from non-sustainable products.
In the longer term more sustainable products will become the mainstream option in the 3°C pathway. Less-sustainable products would
continue to dominate the market with only minimal decline in demand.
The short-term risk value presented assumes no mitigation; however our broad plant-based product ranges provide an opportunity for us
to attract new customers and continue to grow in this category as customer behaviour evolves. Our modelling of consumer preference
changes allows our product development and buying teams to work with our supplier partners to evolve our product ranges to remain at
the forefront of emerging customer behaviours and demands.
Technology risk
Pathway
3°C
Unmitigated annual impact
five-year outlook
£0-50m
1.5°C
£25-75m
10-year outlook
Green technology grows in certain sectors; however,
fossil fuel assets remain in widespread use and
therefore write-off costs are at a low level with minimal
financial risk to the business
Green technology grows in all sectors, and fossil fuels
and associated technology are phased out resulting in a
write off of existing asset values
20-year outlook
Green technology uptake grows at a continued slow
rate; we continue to see impairment of fossil fuel
assets, but this also remains at a low level
Green technology is established and dominates the
energy mix, as the remaining carbon-intensive assets
get phased out the initial incremental cost of
write-offs fall away longer term
This risk relates to the write off of existing assets due to increasing levels of low carbon-based investment. The 1.5°C pathway assumes a
fast-paced transition to green technology whereas as our 3°C pathway assumes a much slower transition.
Risk levels for both pathways remain low even with no mitigation activity considered. Our mitigation plan for this risk is to continue
to maintain both short and long-term investment plans with a clear connection between these plans and our sustainability targets
and commitments.
Over the medium term in our 1.5°C pathway, we would expect green technology uptake to continue to grow and in the long term all
non-green technology to have been phased out, whereas in our 3°C scenario green technology uptake will continue to grow, but
carbon-based technologies remain in use.
22
Tesco PLC Annual Report and Financial Statements 2023
The Group’s three-year strategic plan integrates the delivery of
our sustainability ambitions, of which the decarbonisation of our
own operations is the most material in the short term. The
strategic plan is reviewed and approved by the Board annually,
including a review of the key decarbonisation initiatives and
associated costs and capital investments. Our review process
for proposed capital investments ensures we understand how
different projects will impact our emissions levels. This enables us
to balance the best carbon return for our investment, considering
the maturity of emerging technologies and supply capacity.
Beyond our three-year strategic plan, we have also created a
capital investment profile and associated decarbonisation impact
to 2035 to align to our own operations decarbonisation target.
We understand that our best strategy to mitigate our main
physical and transition climate risks is to become a net zero
business across the whole Group, entailing fast, large-scale, and
effective decarbonisation of our operations and our supply chain.
Therefore, in 2021 we announced a renewed commitment to be
net zero across the whole Group and all GHG emission scopes by
2050, while maintaining our own operational (Scope 1 and 2) target
of being net zero by 2035. As a company with a sizeable footprint
in the agricultural sector (roughly 25% of our Group GHG
emissions can be traced back to just 30 agricultural products), we
are the first retailer in the UK to join the design and validation pilot
of a decarbonisation target in the forest, land and agriculture
(FLAG) sectors. The chart below shows the disaggregation of our
footprint according to Scope 1, 2 and 3 GHG Protocol categories.
Scope 1 and 2 have been updated with our 2022/23 emissions
data and Scope 3 emissions are as of 2019/20.
Our priority will be to focus on finding the most scalable and
effective solutions to accelerate our decarbonisation across
all scopes. Our strategy will concentrate primarily on three
main components:
1. continuing to reduce our operational footprint, with a focus on
increasing energy efficiency, generating and directly procuring
renewable electricity, reducing our dependency on fossil fuels
across transport and our property estate and switching the
refrigerants we use in our fresh network and stores;
2. enhancing supplier engagement across all business units,
geographies and subsidiaries to ensure our supply chain is
adequately disclosing footprint data and setting targets to
reduce it; and
3. working directly with producers in our agricultural supply chains
to identify opportunities to reduce and sequester land-based
emissions associated with our own label product range.
We are committed to reaching net zero Scope 1 and 2 operations
by 2035, on a 1.5°C aligned pathway. Since our baseline in 2015/16,
we have reduced our Scope 1 and 2 Group footprint by 55%. While
this has largely been driven by switching to renewable electricity,
we have maintained consistent focus on driving energy efficiencies
while making significant inroads to decarbonise our remaining key
hotspots: transport; refrigeration; and heating.
We led early on electricity; in 2020 we reached our RE100
commitment to 100% renewable electricity 10 years ahead
of our 2030 target. We designed our strategy to ensure we
increasingly source our electricity directly via power purchase
agreements, going beyond renewable energy certificates to
help boost domestic UK renewable capacity. We have also
installed wind turbines at our depots and solar panels on our
store roofs, supporting our energy security. In total, onsite and
offsite direct power deals will supply around a quarter of our
electricity demand.
It is critical that we de-risk our business from stranded assets,
write-off costs and potential future carbon legislation. We will
do this by innovating early to scale up decarbonised operations
in line with our pathway towards net zero. We are switching away
from our depreciated HFC refrigerant systems to recovered CO2
systems. To replace gas boilers, we are trialling air source heat
pumps and heat reclaim systems across the UK and Central
Europe. We have several large fleets of vehicles to decarbonise.
To date we have deployed 293 electric home delivery vans and are
on track to be 100% electric by 2030 as we continue to replace
fully depreciated diesel vehicles. This prepares us for the UK’s
phase out of vehicles powered by internal combustion engine.
We continue to trial various models across the UK and
Central Europe as well as electrical refrigeration units in
our chilled network.
Our transition to zero carbon energy sources is underpinned by a
focus on continually reducing our overall energy demand, through
investing in efficiencies across our logistics and store operations.
This is a critical enabler to bolster our energy security, manage
energy costs and secure sufficient capacity as we continue to
electrify our operations.
Our total emissions footprint
76.6m
tCO2e/year
1.4%
Scope 1: refrigerants, HVAC, transport (logistics)
1.5%
Scope 3: category 12: end-of-life
0.01%
Scope 2: purchased electricity
50.2%
Scope 3: category 1: purchased goods
and services (including deforestation)
3.1%
Scope 3: category 4: upstream
transportation and distribution
3.0%
Scope 3: category 9: downstream
transportation and distribution
39.1%
Scope 3: category 11: use of sold products
treatment of sold products
0.39%
1.3%
Scope 3: category 15: investments
Scope 3: category 3, 5, 6, 7: fuel and
energy-related activities, waste
generated in operations, business
travel and employee commuting
We report on the categories that are material to Tesco based on their contribution to our end-to-end footprint. Our 2019 estimation of our capital goods (category 2) footprint shows a
very small contribution compared to our purchased goods and services (category 1); however, as a result of recent methodological updates in the goods and services not for resale sector,
we will run new calculations this year ahead of our FY23/24 reporting cycle. Upstream leased assets (category 8) are not singled out as a separate category as any emissions coming from
leased buildings are already incorporated into our operational footprint. All other categories not included, such as: processing of goods sold (category 10); downstream leased assets
(category 13); and franchises (category 14), are irrelevant for our sector and the scope of our business.
Tesco PLC Annual Report and Financial Statements 2023
23
Strategic report
Task Force on Climate-related Financial Disclosures continued
Alongside our operational decarbonisation roadmap, we are
setting a comprehensive Group-wide strategy to decarbonise
our value chain. This is both upstream, with our suppliers, and
downstream to support a sustainable transition in our customers’
purchasing behaviour. This helps both to mitigate the risk of
consumers shifting to our competitors because of sustainability
preferences and to insulate us against rising future carbon prices.
Our Scope 3 emissions constitute more than 90% of our total
emissions footprint. Upstream activities account for 50% of this,
while 30% is driven by emissions from rearing, growing and
transporting agricultural products, mainly within the animal
protein categories. The remaining 20% is linked to the
manufacture of our product ranges, including packaging and
production of the fuel that we sell. Downstream activities
represent 40% of our footprint including primarily emissions
resulting from customers using our products. This includes
cooking at home, preparational processes including washing
and drying products, and the emissions associated with the
fuel that customers buy from our petrol filling stations.
Our two main strategic priorities for our upstream emissions
are strengthening our supplier engagement programme around
carbon reporting and climate targets and working directly with
farmers to scale up decarbonisation on farms. We have asked
all of our direct suppliers to report their GHG emissions and set
science-based targets, which should aim for net zero across all
emission scopes and attain validation by the SBTi by the end of
2025. At January 2023, close to two-thirds of our UK suppliers by
value of total cost of goods sold (COGs) report their operational
footprint. They do this either through CDP or directly to Tesco
by filling in a questionnaire that we circulate via the Tesco supplier
network. Suppliers complying with our climate requirements are
also eligible to join the UK retail sector’s first sustainability-linked
supply chain finance programme. We launched this in 2021 in
partnership with Santander, offering preferential invoice
payment rates to climate-compliant suppliers.
In 2023, we will build on the success of our supplier engagement
programme by joining Manufacture 2030, a global cross-industry
software platform on which suppliers can submit their carbon
data and other sustainability metrics to Tesco and our
competitors. This will enable us to increase coverage of our
suppliers’ climate compliance to go beyond UK suppliers and
include an equivalent coverage of around 80% of all suppliers
(in terms of COGs) across the Tesco Group. We will also continue
our supply chain finance programme with Santander with a focus
on supporting smaller suppliers who might require additional
resources to be able to comply with the climate requirements.
Decarbonising our agriculture and animal protein supply chains
is a priority to mitigate our transition risk. Our model has also
mapped the physical risk associated with sourcing these products
to understand where our exposure to at-risk commodities is
greatest. Our main focus will be to decarbonise the three
commercial categories with the highest dependency on these
products. These collectively represent close to 40% of production
emissions of which 75% is linked to our own label range: (i) meat,
fish, poultry and eggs; (ii) bakery and dairy; and (iii) produce.
Within these three categories, we have identified the main
emission sources we must tackle. For example, in our ruminant
supply chains, such as cattle and sheep, the focus will be on
improving feed and protein efficiency while reducing methane
resulting from enteric fermentation.
In monogastric animal supply chains, such as pork, poultry and
aquaculture, the focus will be on ensuring that all feed comes
from 100% deforestation and conversion-free sources, a target
we have committed to implement by 2025. When it comes to
fresh produce, we are working on reducing our dependency
on fossil-fuel fertilisers. In early 2023, we launched our first
commercial trial of low-carbon fertiliser options with our
main field vegetable suppliers in the UK.
Moving forward, we will continue to pilot decarbonisation
interventions through our Tesco sustainable farming groups
(TSFGs), integrated by producers in the animal protein and
produce sectors. We will also explore new ways to use supply
chain finance to support our farmers in their green transition.
When it comes to our downstream emissions, we launched our
Better Baskets campaign in 2022, which helps our customers make
informed decisions on the sustainability of their shopping basket.
Our Better Baskets on-shelf communication is available at all
Tesco Extra stores and signposts consumers to a product range
with enhanced sustainability credentials beyond carbon footprint
alone. Our commitment is to ensure 65% healthy sales by 2025 in
the UK & ROI, and 53% by the end of 2027 in Central Europe, which
will require scaling up the sustainability performance of our
product range. To that end, we will develop new product-level
data collection platforms, such as Mondra. This UK-based
sustainability data start-up aims to estimate the environmental
footprint of our own-label product range by understanding their
composition and the sourcing areas of their ingredients. We also
continue to ask our TSFGs to provide sustainability information
from their farms, so our commercial teams are better informed
about the sustainability performance of our sourcing partners.
To support the wider electrification of our customers’ vehicles,
we have scaled up the network of pod points to more than 2,500
charging bays across 600 stores across the UK. We are also
committed to cutting food waste across the supply chain by 50%
by 2030. This is aligned with the WRAP Courtauld 2030 framework,
which will also entail working in customer-led campaigns to reduce
the waste of our products in customers’ households.
In line with UK Treasury regulatory requirements following COP26,
Tesco will present our Group transition plan in accordance with UK
regulatory requirements and guidance from the Transition Plan Task
Force. This plan will give our stakeholders insight into our sector and
product-specific decarbonisation plans as well as details of our
supplier engagement programme and more information on our
climate risk mapping and financial planning. To ensure alignment
with the guidelines and recommendations of the Transition Plan
Task Force, Tesco is part of a cohort of companies participating
actively in the consultation phase for the document’s
implementation guidance. Tesco also co-chairs, together with WWF,
the working group tasked with developing the Sectorial Guidance for
Food and Agriculture, with a first draft expected to enter
consultation phase in August.
Next steps
Our priorities in 2023/24 will include further developing our
internal capabilities in climate-related scenario modelling through
our partnership with Risilience. We are contributing closely to
the Transition Plan Task Force in preparation of our upcoming
transition plan. We will also be updating our end to end footprint
in this context, considering all available improvements in
methodology and emission factors, as well as inclusion of primary
data collected from our supplier base via Manufacture 2030.
Listing Rule 9.8.6R Compliance Statement
Tesco PLC has complied with all of the requirements of LR 9.8.6R
by including climate-related financial disclosures in this section
(and in the information available at the locations referenced
therein) consistent with the TCFD recommendations.
24
Tesco PLC Annual Report and Financial Statements 2023
Section 172 statement
Section 172 statement.
The needs of our stakeholders and the consequences of any
decision in the long term are taken into consideration by the
Board when making decisions. In addition, the interests and
views of Tesco pensioners and our relationship with regulators
and NGOs are taken into consideration. The differing interests of
stakeholders are considered in the business decisions we make
across Tesco and are reinforced by the Board. In performing their
duties during the year, the Directors have had regard for the
matters set out in Section 172(1) (a)–(f) of the Companies Act 2006.
Examples of how the Directors have oversight of stakeholder
matters and had regard for these matters when making
decisions are included throughout this Annual Report, together
with details of strategic decisions and actions set out below
which are supportive of this Section 172 statement.
Our strategic decisions: long-term direction and
purpose-led engagement
Delivering sustainable profitable growth is essential as we aim
to create value for all stakeholders over the long term. Our
purpose is underpinned by our strategic priorities, as set out
on pages 12 and 13. Both our purpose and strategic priorities
guide all parts of the business within the Group. Together
these strategic priorities enable us to continue to deliver
great value, increase customer loyalty, and stay competitive
while ensuring we remain agile and efficient as a business.
These four strategic priorities: Magnetic value for customers,
Easily the most convenient, I love my Tesco Clubcard and Save
to invest, help us maintain focus on doing the basics brilliantly and
are overlaid with opportunities to accelerate growth.
The Board uses its governance framework to guide its actions
and track the Group’s progress. Detailed updates and
oversight by the Board and its Committees have led the Board
to approve our ongoing commitment to return capital to
shareholders through dividend declarations and a share
buyback programme, together with the listing of additional
debt issuance of £250,000,000 5.50% Notes due 2035 and
€500,000,000 4.25% Notes due 2031, under the Euro
medium term note (EMTN) programme.
Our strategic decisions: sustainability
Climate change remains the biggest and most complex challenge
facing the world, with its impacts felt across our supply chain,
operations and the communities we serve. The food sector is
responsible for more than one third of global GHG emissions.
We remain committed to embedding sustainability across all of
our business operations and working to reduce our environmental
impact. Throughout the year, the Board has sharpened its focus
on our sustainability initiatives with a deep dive into our sustainability
strategy, which brought our net zero commitments to life, looking
at progress so far against some key milestones. The targets that
we set as a Board not only support our core purpose of serving
our customers, communities and planet a little better every day,
but are also essential for the delivery of our net zero
commitments of being climate neutral within our own operations
by 2035 and through our supply chain by 2050. Our climate
initiatives are linked to our strategic drivers and our Big 6 KPIs.
The Board discussed our sustainability journey to ensure we
deliver against the 2030 ambition to halve the environmental
impact of the average shopping basket and the 2035 and 2050
net zero targets, while understanding the needs and behaviours
of our customers and in turn our impact on the environment.
The Board is looking to improve our overall societal impact through
sustainability initiatives relating to:
– improving our products;
– decarbonising transport;
– reducing store emissions;
– supporting sustainable consumption;
– eliminating waste (food and packaging); and
– strengthening our communities with a focus on human rights,
diversity and inclusion and community priorities such as food banks.
The Board, through its regular updates, understands what is
important to our stakeholders and took this into consideration
when setting the sustainability strategy and agreeing targets.
The Board agreed that a focus on these material initiatives, with
affordability, simplicity and ease of understanding in mind, were key.
The Board is supported by the Corporate Responsibility
Committee, Executive Committee, Group planet committee and
other senior management level committees in delivering our
sustainability initiatives. Deep dives into sustainability matters,
together with the updates from these committees, support the
Board in navigating the challenges along the way. The Board
discussed feedback following a session with 250 suppliers that
sought ways to learn from and collaborate with Tesco and join
forces, where appropriate, to build climate solutions in the food
sector together. The Board has met with Tesco experts in the
development kitchens and explored the customer journey, looking
at how we use customer insights based on customer attitudes and
behaviours, exploring the barriers and challenges faced from cost
to convenience, to the delivery of a better basket for a better planet.
Our strategic decisions: helping customers
spend less
The Board recognises that our customers and colleagues are
facing a challenging time through the cost-of-living crisis. A
key focus of the Board is to keep the cost of the weekly shop
as affordable as possible, through a combination of Aldi Price
Match, Low Everyday Prices and Clubcard Prices, together
covering more than 8,000 products.
Through our brand and marketing in store, it helps customers
to understand healthier choices, supporting our sustainability
strategy and spotlights better prices for customers, making it
affordable and simple. By staying focused on quality, value
and sticking to our strategy, our price position has become
even more competitive, which supports our stakeholders.
Cost inflation remains significant and, despite these
uncertainties, our priorities are clear. We have the right
long-term strategy, and we will continue to balance the
needs of all of our stakeholders. Most importantly, we will
stay focused on delivering value for our customers and
colleagues, supporting them in every way we can. During the
year, the Corporate Responsibility Committee approved a
£1m donation to support food banks run by The Trussell Trust
and FareShare and a further £4.6m has been allocated in
community grants across the UK, ROI and Central Europe
over the next three years.
In addition, we are investing significantly in our colleagues,
with a nearly 8% increase for UK hourly-paid colleagues in
2022. More details can be found on page 16.
Tesco PLC Annual Report and Financial Statements 2023
25
Strategic report Stakeholder engagement
Understanding our
stakeholders.
We strive to create value for each of our stakeholders. While we continue to make
progress against our strategic priorities, we also ensure we live up to our purpose and
aim to factor local communities and the planet into every decision we make. Against
the backdrop of cost-of-living pressures, our commitment to serving our customers,
communities and planet a little better every day is more important than ever.
Why they are
important
Customers
We serve millions of customers
every week, in stores and online.
Key engagement
metrics
Customers recommend us and
come back time and again: our
customer net promoter score
(NPS), which is measured based on
customers recommending us
as a place to shop.
Colleagues
We cannot deliver our
purpose without our
colleagues’ dedication;
they are at the heart of
everything we do.
Colleagues recommend
us as a great place to
work and shop; our
Great Place to Work
score, which is
measured through our
Every Voice Matters
colleague engagement
survey.
What matters
to them
Our research with customers
told us they wanted help with:
affordable food and clothing;
healthy, affordable choices;
fuel and travel costs; and
occasional treats.
Being treated fairly and
feeling supported with
their health, safety and
wellbeing, while being
recognised and rewarded
for their contribution.
Ways we are
responding
We believe that looking
after our colleagues and
building a culture of
trust is essential to the
success of Tesco, as well
as promoting a healthier
working environment,
where everyone can
be at their best.
We want colleagues to
feel recognised and
respected wherever
they work, as well as
experiencing the
reward of our
collective success.
Our leading value proposition
including Aldi Price Match, Low
Everyday Prices and Clubcard
Prices in UK & ROI, and Low
Price Guarantee and Clubcard
Prices in Central Europe continues
to provide customers with the
reassurance that they can trust
Tesco for reliable value. We
continue to offer great offers and
value through Clubcard across
groceries, toiletries and beauty
products, F&F clothing, mobile
and banking. Going forward we
will be making greater use of our
Clubcard insights to offer
enhanced and personalised
rewards to our most loyal
customers. Tesco Clubcard was
ranked best supermarket loyalty
scheme in the UK.
We have implemented the HFSS
location changes, such that
products high in fat, salt and sugar
are no longer located in certain
prominent areas within our stores.
Suppliers
Our partnerships with
suppliers focus on
delivering great value and
great quality products for
our customers. When we
get it right together, our
business grows.
Our Supplier Viewpoint
survey results continue
to reflect our progress on
building trusted relationships
with our suppliers. Meeting
our Scope 3 net zero
commitments by 2050 and
supporting suppliers in
improving diversity within
their businesses.
Long-term collaborative
partnerships to give them
security. This year, other
factors included the rising
cost of fuel, feed, fertiliser,
labour and raw materials,
which put pressure on
many of them.
We signed five-year
contracts with some of
our supply partners to
give them the security to
invest in their businesses.
We committed to reviewing
our prices more frequently
and to ensuring that any
investment is passed back
to farmers as quickly as
possible.
We are working with
suppliers to help them in
achieving their net zero
commitments, which will in
turn support our initiatives.
Shareholders
Our shareholders want
to work with us to
achieve positive
long-term, sustainable
growth and returns.
Drive top-line growth
and grow absolute profits
while maintaining sector
leading margins. This is
expected to generate
between £1.4bn and
£1.8bn of Retail free
cash flow.
Create value for
shareholders and deliver
long-term, sustainable
growth and returns.
Regular dialogue with
our institutional investors,
potential investors and
analysts provides insight
to their views and
policies, which is
reflected in our
decision making.
Engagement with
shareholders during the
year, with a particular
focus on the ESG agenda,
helps us to understand
their priorities and views
on how we are
progressing.
We have tested every
element of our capital
allocation framework –
refreshing our leverage
target, the application of
our dividend policy and
continuation of our share
buyback programme.
26
Tesco PLC Annual Report and Financial Statements 2023
Example
outcomes of our
engagement
Customers
We announced two new price
locks on more than 1,000
products in the UK and around
400 products in ROI on Low
Everyday Prices to help
customers spend less.
At Booker, we supported
customers by offering
outstanding value, including
a price freeze on 450 key
catering lines.
We have removed more than
71 billion calories from our
Own Brand ranges since
2018 through reformulation.
We are offering great prices to
ensure healthy options feature
prominently within our market-
leading combination of Aldi Price
Match, Low Everyday Prices and
Clubcard Prices.
In the UK, through food banks,
charities and together with our
charity partners and customers,
we have donated more than 52
million meals in our communities.
In addition, we have donated
more than £100m in community
grants, supporting more than
50,000 projects through 738.4
million votes from our customers.
Colleagues
We have made three
increases in base pay
across our core UK business
in the past 12 months,
totalling nearly 8% increase
for hourly-paid colleagues
in 2022.
We have launched My Tesco,
a digital app that instantly
retrieves available hours to
match colleagues’ skills and
incentivises them to build
more capabilities in
other areas.
To support the roll out of
our Group-wide Your
Contribution proposition
to manage performance,
we launched three new
products to create a
winning performance culture,
master feedback and set
strategic objectives.
More detail on diversity and
inclusion can be found on
pages 17 and 67.
Suppliers
Over the course of
2022/23 we made an
investment of £27.5m
in the UK egg sector.
We supported the
British dairy industry,
increasing the price we
pay for our milk by
around 20%. We invested
more than £30m into the
British pig supply chain
helping to support with
increased on-farm costs
such as wheat and soya.
In the January 2023
Supplier Viewpoint
survey, suppliers
reported their highest
level of satisfaction to
date, with 86.6% saying
that they are satisfied
working with Tesco.
79.4% of suppliers agreed
that we put sustainability
at the heart of everything
we do, which was an
increase on the same
period last year and the
highest level of agreement
with the measure since it
was introduced in 2021.
Shareholders
Following the return
of £300m of capital
between October 2021
and March 2022, we
have returned an
additional £750m of
capital through our share
buyback programme.
During the year, we
welcomed engagement
with investors to
understand their views
on ESG matters and from
private shareholders at
our Annual General
Meeting.
Understanding the views
of our shareholders
supports the decisions
we take and the
opportunities we create.
How we engage
and Board
oversight
Issues that matter to our
customers also matter to the
Board. Independent consumer
research commissioned each
year helps identify where
consumers and influencers
think we should be focusing
our attention and how well they
feel we are addressing these
issues currently. The Board uses
customer surveys, customer
engagement and data analysis
to listen to customer views and
act on what is most important
to them. With the skills, expertise
and dedication of colleagues
worldwide, we are well placed
to achieve this.
The Board recognises the
need to create conditions that
foster talent, encourage all
colleagues to achieve their
full potential and create an
inclusive working environment.
Safety is central to how we
do business, with the aim of
protecting our colleagues and
customers from injury. Through
our Colleague Contribution
Panels, the Board engages with
the colleague representatives
to understand the views of the
workforce. In addition, the
colleague Every Voice Matters
survey results, are discussed
by the Board.
The Board recognises the
importance of suppliers
being treated fairly to
align with our values.
This fosters long-term
relationships and trusted
partnerships with our
suppliers. Through
supplier surveys and
day-to-day contact with
our product teams, the
Board has visibility of
delivery against our
commitments under
the Groceries Supply
Code of Practice (GSCOP).
Directors, senior
management and
Investor Relations hold
regular meetings with
existing and potential
institutional investors
and analysts to
understand their views
and policies. The Group
Company Secretary’s
team engages with
private shareholders
with the support of our
registrar, Equiniti, who
provide services to
private shareholders
on our behalf.
LEAF Marque certification
We have completed the roll out of LEAF Marque certification with our nearly 500 UK fruit and vegetable
growers. The robust environmental standards will help increase environmental protections across our entire
UK supply base, working towards whole-farm, continuous improvement in: climate resilience; biodiversity;
habitat area and quality; GHG emissions and carbon footprinting; soil health; deforestation; collaboration; and
collective action. By benchmarking growers’ progress against practices, the standard identifies target areas
and helps producers drive further improvements. It is expected that our entire global fresh produce supply
chain will move to LEAF Marque certification by 2025.
Visit www.tescoplc.com/news/2023/tesco-completes-most-significant-
roll-out-of-environmental-standards-in-uk-with-leaf-marque-
certification-for-all-fruit-and-veg-grower
Tesco PLC Annual Report and Financial Statements 2023
27
Strategic report Non-financial information statement
NFIS.
The table below constitutes the Company’s non-financial information statement as
required by sections 414CA and 414CB of the Companies Act 2006. In addition, our
website www.tescoplc.com contains a wide range of non-financial information,
including actions we take to manage our environmental and social impact and
look after our colleagues. The due diligence carried out for each policy is contained
within each respective policy’s documentation.
Reporting
requirement
Environmental
matters
Associated risks
Climate
change
Responsible
sourcing
Our approach
We are committed
to reducing our
environmental impact,
helping to tackle climate
change and protecting
and restoring ecosystems
(including biodiversity
and nature). Our Group
environment policy sets
out how we manage
our environmental
responsibilities and the
expectations we have
of our suppliers.
Relevant policies
and documents that
govern our approach
– Group
environment policy
– Sustainability
policies on key
risk commodities
including soy,
palm oil, seafood
Purpose and scope
We have committed to
being carbon neutral across
our Group operations by
2035 and net zero across
our full value chain by 2050,
aligned to 1.5˚C. We have
implemented an enhanced
climate governance
framework encompassing
the Board, its associated
committees and the
Executive Committee.
Colleagues
People
Health and
safety
Social matters
Customer
Product
safety and
food integrity
Responsible
sourcing
People
Our purpose, values and
leadership behaviours are
a vital part of our culture
to ensure that through
our conduct and decision
making we do the right thing
for the business and our
stakeholders.
Our ‘how to’ and ‘when to’
speak up programmes
include our Protector Line
and complaints process.
These allow colleagues to
raise in confidence any
workplace concerns such
as dishonest activity, bias
or anything that endangers
colleagues, the public or
the environment.
Our Code of Business
Conduct governs
standards of conduct in
relation to our colleagues,
as well as our other
stakeholders. We have a
confidential Protector Line
allowing any colleague or
third party to report a
violation of the Code of
Business Conduct, local
law or regulation, or
unethical behaviour. In
addition, we have policies
committing to equal
opportunities at work and
to providing a safe and
healthy working
environment.
We are proud to be part of
thousands of communities
around the world. We want
to make a positive
difference: through the
local people we employ;
the local businesses we
work with; and the local
causes we support. We
have policies in place to
ensure we act responsibly
when it comes to working
with suppliers, paying tax,
retailing age-restricted
products and giving to
charities.
– Code of Business
Conduct
– Health and safety
policy
– Bullying and
harassment policy
– Diversity and
inclusion strategy
– Group
whistleblowing
policy
– Colleague
engagement
– Groceries Supply
Code of Practice
(GSCOP)
– Group
whistleblowing
policy
– Our tax principles
– Group charitable
donations policy
– Responsible
retailing of alcohol,
tobacco and other
age-restricted
products
– Corporate
Responsibility
Committee terms
of reference.
Where to find more
information and outcomes
– Purpose and values
– Our market context
– KPIs
– Climate
– TCFD
– Principal risks and
uncertainties
Page
6
11
14
18
20
38
– Corporate Responsibility
69
Committee report
– Audit Committee:
environmental
disclosures
71
– Directors’ report (SECR)
105
Details of our sustainability
strategy together with our
ESG factsheets can be
found on our website at
www.tescoplc.com
– Purpose and values
– KPIs
– Our colleagues
– Stakeholder
engagement
– Principal risks and
uncertainties
– Corporate governance,
purpose and culture
– Board leadership in
action
– Nominations and
6
14
16
26
38
56
62
66
Governance Committee:
D&I
– Directors’ remuneration
77
report
– Directors’ report:
employment policies
– Supporting stakeholders
through the cost-of-
living crisis
– Purpose and values
– Our strategic priorities
– KPIs
– Section 172 statement
– Stakeholder
engagement
– Principal risks and
uncertainties
– TCFD
– Board leadership in
action
103
4
6
12
14
25
26
38
20
62
– Corporate Responsibility
69
Committee report
Details of our sustainability
strategy together with fact
sheets can be found
on our website at
www.tescoplc.com
28
Tesco PLC Annual Report and Financial Statements 2023
Reporting
requirement
Respect for
human rights
Associated risks
Responsible
sourcing
Anti-
corruption
and anti-
bribery
matters
Political,
regulatory
and
compliance
How we
manage risk
Business
model
Our approach
We are committed to
upholding human rights
and support in full the
United Nations Universal
Declaration of Human
Rights and the
International Labour
Organization Core
Conventions on freedom
of association and
collective bargaining,
forced labour, child labour
and discrimination at work.
We also uphold standards
on working hours and
health and safety for
workers.
We take a zero-tolerance
approach to bribery and to
those involved in bribery.
Our policy requires every
Tesco business unit to
adopt and implement an
effective anti-bribery
compliance programme
and for the policy to be
communicated to all
colleagues on an annual
basis. The Audit
Committee receives and
reviews biannual ethics
and compliance data
covering: privacy; fraud;
anti-bribery; gifts and
entertainment; and the
annual Code of Business
Conduct declarations.
Effective risk management
is core to our management
practices. We have
established a risk
management framework,
enabling us to clearly
identify, prioritise, respond
to and monitor our most
significant risks and
emerging risks themes. We
regularly assess our
exposure to fraud risks and
test our resilience to
disruptive events.
To create value for all. We
have a unique combination
of strengths and expertise
to deliver on our strategic
priorities.
Relevant policies
and documents that
govern our approach
– Human rights
policy
– Group
whistleblowing
policy
– Health and
safety policy
– Code of Business
Conduct
– GSCOP
– Group
anti-bribery
policy
– Group gift and
entertainment
policy
– Tesco’s political
donations policy
– Cyber security
– Data privacy
– Schedule of
matters reserved
for the Board
– Audit Committee
terms of
reference
Purpose and scope
We are dedicated to tackling
modern slavery not just within
our own operations and supply
chains, but the issue of forced
labour more broadly. Modern
slavery is one of our four key
human rights strategic priority
areas, in which we work to bring
about change through our
Improve, Transform and
Advocate model.
Our human rights policy sets out
how we integrate human rights
into our business operations,
including colleague and supplier
training and through our due
diligence framework.
Our anti-bribery programme
operates across the Group.
The programme is built around a
clear understanding of how and
where bribery risks affect our
business and comprises key
controls such as: policies
(anti-bribery, gifts and
entertainment, conflicts of
interest, charitable donations);
procedures such as conducting
due diligence on suppliers (in
particular those who will engage
public officials on our behalf);
training colleagues on bribery
risks every year; and ongoing
assurance programmes to test
that the controls are functioning
effectively.
Our risk management framework
continues to be embedded
throughout the organisation,
enabling us to clearly identify,
prioritise, respond to and
monitor our most significant risks
and emerging risks themes.
The Audit Committee is informed
of potential risks and responses
relating to fraud risks and
resilience testing.
– Strategic drivers
– Performance
framework
– Schedule of
matters reserved
for the Board
The Board is responsible for
establishing the Company’s
purpose and strategy to deliver
our long-term sustainable
success and generate value.
Page
38
69
105
Where to find more
information and outcomes
– Principal risks and
uncertainties
– Corporate
Responsibility
Committee report
– Directors’ report:
Modern Slavery Act
– More detail on human
rights and our Modern
Slavery Statement
can be found on
our website at
www.tescoplc.com
– Principal risks and
uncertainties
– Corporate
governance, purpose
and culture
38
56
– Directors’ report:
103
political donations;
anti-bribery matters
– TCFD: climate-related
20
risks
– Principal risks and
uncertainties
– Audit Committee
report
38
71
– Tesco at a glance
– Purpose and values
– Our market context
– Our strategic priorities
– KPIs
– Our business model
– Section 172 statement
– Corporate
governance, purpose
and culture
2
6
11
12
14
15
25
56
Non-financial KPIs
Combining colleague input, customer and stakeholder insights and
AI data analysis, we have identified which sustainability issues are
most material to Tesco and our stakeholders. Our performance
against these issues is tracked using the following KPIs:
Climate: percentage reduction of Scope 1 and 2 market-based
GHG emissions compared with 2015/16 baseline year and Scope 3
targets by 2050, see page 18.
Healthy sustainable diets: percentage of volume sales from
products with a ‘healthy’ score, see page 10.
Diversity and inclusion: percentage gender representation,
and percentage ethnicity representation of our top global leaders,
see page 67.
Food waste: percentage change in tonnes of food wasted as
percentage of tonnes of food handled compared with 2016/17
baseline year, see page 88.
Community: more than 52 million meals donated to charity
partners and food banks.
Tesco discloses more information and data, including our SASB
disclosure, at www.tescoplc.com/sustainability/reporting-hub.
Policies are available on our website.
Tesco PLC Annual Report and Financial Statements 2023
29
Strategic report Financial review
Group
review of
performance.
52 weeks ended 25 February 20231,2
Sales (exc. VAT, exc. fuel)3
Fuel
Revenue (exc. VAT, inc. fuel)
Adjusted operating profit4
Adjusting items
Statutory operating profit
Net finance costs
Joint ventures and associates
Statutory profit before tax
Group tax
Statutory profit after tax
Adjusted diluted EPS4
Statutory diluted EPS
Dividend per share
Net debt2,5
Retail free cash flow5
Capex7
FY 22/23
£57,656m
£8,106m
£65,762m
£2,630m
£(1,105)m
£1,525m
£(533)m
£8m
£1,000m
£(247)m
£753m
21.85p
10.08p
10.90p
£(10,493)m
£2,133m
£1,235m
FY 21/22
£54,768m
£6,576m
£61,344m
£2,825m
£(265)m
£2,560m
£(542)m
£15m
£2,033m
£(510)m
£1,523m
21.86p
19.64p
10.90p
£(10,516)m
£2,277m
£1,101m
Change at
actual rates
5.3%
23.3%
7.2%
Change at
constant rates
5.3%
23.2%
7.3%
(6.9)%
(7.1)%
(40.4)%
(50.8)%
(50.6)%
(0.0)%
(48.7)%
–
0.2%
(6.3)%
12.2%
Notes:
1. The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 207.
2. All measures apart from Net debt are shown on a continuing operations basis unless otherwise stated. Further details on discontinued operations can be found in Note 7 on page 142.
3. Group sales exclude VAT and fuel. Sales change shown on a comparable days basis for Central Europe.
4. Adjusted operating profit and adjusted diluted EPS exclude adjusting items.
5. Net debt and Retail free cash flow exclude Tesco Bank.
6. Like-for-like (LFL) is a measure of growth in Group online sales and sales from stores that have been open for at least a year (at constant exchange rates, excluding VAT and fuel).
7. Capex excludes additions arising from business combinations and buybacks of property (typically stores). Refer to page 211 for a full reconciliation.
30
Tesco PLC Annual Report and Financial Statements 2023
Group sales3 increased by 5.3% at constant rates, driven by
strong sales performance in all segments as volumes held up
relatively well despite cost-of-living pressures and some further
post-pandemic normalisation. We delivered a market-leading
performance over the important Christmas trading period,
continuing to inflate behind the market as overall levels of inflation
increased. Booker delivered an exceptionally strong performance,
particularly in catering, with higher out-of-home consumption.
Revenue increased by 7.3% at constant rates, including fuel sales
growth of 23.2%.
Group adjusted operating profit4 decreased by (7.1)% at constant
rates, primarily reflecting the impact of lower year-on-year
volumes, the ongoing investment in our customer offer and
significant operating cost inflation, partially offset by a very
strong Booker catering recovery and the acceleration of our
Save to invest programme, which delivered in excess of £550m
of savings in the year.
Group statutory operating profit reduced by (40.4)% year-on-year
due to the operating profit impacts above and an increase in
adjusting items, with the key driver being a £(982)m non-cash
impairment charge on non-current assets (primarily property),
mainly due to an increase in discount rates.
Net finance costs were broadly flat year-on-year as the benefit
from higher interest receivable and net pension finance income
was partially offset by non-cash fair value remeasurements.
Further detail is shown on page 34. Our share of profits from joint
ventures and associates was lower year-on-year due to a
reduction in profits from UK property joint ventures. The reduction
in tax this year reflects the lower retail operating profits and a
one-off charge in the prior year related to the revaluation of
deferred tax.
Adjusted diluted EPS4 was in line with last year, as the impact
of the reduction in operating profit was offset by lower finance
costs and tax charges, and the benefit of our ongoing share
buyback programme. We have announced a full year dividend
of 10.90p per ordinary share, in line with last year.
Net debt2,5 was broadly flat year-on-year, with strong cash
generation funding over £1.6bn of shareholder returns in the
form of share buybacks and dividends. We generated £2,133m
of Retail free cash flow5, including a net £468m working capital
inflow. Retail free cash flow reduced by £(144)m due to lower
retail operating profits and higher levels of capital investment,
offset by a reduction in cash tax. The net debt/EBITDA ratio was
2.6 times, up from 2.5 times in the prior year due to a reduction
in retail EBITDA.
Further commentary on these metrics can be found below and a
full income statement can be found on page 120.
Segmental review of performance
Sales performance
(exc. VAT, exc. fuel)3
UK
ROI
Booker
UK & ROI
Central Europe
Retail
Bank
Group sales
Fuel
Group revenue
Sales
(£m)
41,040
2,645
8,684
52,369
4,181
56,550
1,106
57,656
8,106
65,762
LFL sales
change6
3.3%
3.3%
12.0%
4.7%
10.4%
5.1%
23.0%
Total sales change
Change at
actual rates
3.3%
6.3%
12.0%
4.8%
8.3%
5.0%
20.1%
5.3%
23.3%
7.2%
Change at
constant rates
3.3%
5.4%
12.0%
4.7%
10.0%
5.1%
20.1%
5.3%
23.2%
7.3%
Further information on sales performance is included in the supplementary information starting on page 204.
Adjusted operating profit4 performance
UK & ROI
Central Europe
Retail
Bank
Group
Profit
(£m)
2,307
180
2,487
143
2,630
Change
actual rates
(7.0)%
7.1%
(6.1)%
(18.8)%
(6.9)%
Change at
constant rates
(7.0)%
3.6%
(6.3)%
(18.8)%
(7.1)%
Margin %
at actual rates
3.8%
4.1%
3.8%
12.9%
4.0%
Margin % change
at actual rates
(57) bps
(10) bps
(54) bps
(616) bps
(61) bps
Further information on operating profit performance is included in Note 2 starting on page 133.
Tesco PLC Annual Report and Financial Statements 2023
31
Strategic report Financial review continued
UK & ROI overview
In the UK, Republic of Ireland (ROI) and Booker, like-for-like
sales increased by 4.7% versus last year, with growth of 6.7% in
the second half. We delivered a very strong performance over
Christmas (with like-for-like sales growth of 7.8%), continuing to
inflate behind the market as overall levels of inflation increased.
Booker delivered particularly strong sales growth of 12.0%,
benefiting from continued market share growth in its
catering business.
Clothing sales declined by (1.2)%, which mainly reflects the impact
of trading over exceptionally strong lockdown-linked demand in
the first half of the 2021/22 financial year, partly offset by our
efforts to rebalance space from Home to Clothing. We saw a
significant improvement in value perception, ahead of other
clothing retailers, and the number of customers purchasing
at least one product from our Home and Clothing ranges
increased by 11.0% and 7.6% respectively. Clothing delivered
growth of 7.0% in the fourth quarter.
UK & ROI adjusted operating profit was £2,307m, down (7.0)% at
constant rates, primarily reflecting the impact of lower year-on-
year volumes, the ongoing investment in our customer offer and
significant operating cost inflation, partially offset by a very strong
Booker catering recovery and the acceleration of our Save to
invest programme.
Sales grew well in both large and convenience store formats,
by 4.0% and 6.4% respectively, driven by particularly strong
performance in food and higher footfall as some customers
switched back into stores from online. Growth was particularly
strong in our city centre convenience stores, notably in the
London region where sales grew by 9.4%.
Adjusted operating margin was 3.8%, (57)bps lower year-on-year,
reflecting a margin mix benefit last year from higher non-food
sales and the year-on-year operating profit impacts above.
Online sales declined by (5.4)%, in line with overall normalisation
in the market. Online sales participation stabilised to c.13%,
around 4%pts higher than pre-pandemic, driven by strong
customer retention.
Further information on each of the UK & ROI businesses
follows below.
Online performance
UK – strong customer offer and relentless
focus on value
Like-for-like sales grew by 3.3%, with particularly strong
growth of 7.2% across the six-week Christmas trading period.
In the first half, like-for-like sales grew by 0.7%, reflecting
reduced year-on-year volumes due to higher levels of in-home
consumption in the prior year. Growth accelerated in the
second half, with like-for-like sales of 6.0%, driven by rising
levels of general market inflation and strong demand in the fourth
quarter, particularly during the key Christmas trading period.
Food sales grew by 4.6% for the full year, with own brand volume
participation increasing by 46bps as customers responded to
our overall value proposition, driving growth at both ends of our
range; Finest sales were up 6.8% and sales of our entry price and
Exclusively at Tesco ranges were up 5.9%. We are at the most
competitive we have ever been, with our strongest price index
to date, as we continue to invest in our value proposition for
customers. The powerful combination of Aldi Price Match,
Low Everyday Prices and Clubcard Prices, supported by our
market-leading ranges, is helping customers manage higher
costs of living. We maintained a strong market share at 27.3% and
were the only full-line grocer to grow share versus pre-pandemic,
while also growing our overall brand index ahead of the market
across the three years, most noticeably in quality, up 492bps.
Customers took greater advantage of our exclusive Clubcard
Prices promotions, with promotional participation increasing
by 3.8%pts to 25.5% in February. Clubcard sales penetration
reached 78.5% by the end of the year, up 4.4%pts, with
penetration in convenience up 9.9%pts, benefiting from
the roll out of Clubcard Prices to our Express stores in the
second half of last year and more recently the launch of
our market-leading Clubcard Price Meal Deal.
Non-food sales declined by (4.5)% as we traded over strong sales
in Home and Clothing categories last year. Home sales declined by
(6.4)%, driven by a (9.8)% reduction in our range as we selectively
exited low margin categories such as electricals. We outperformed
the market in key categories, such as gifting and stationery (by
8.7%pts and 4.3%pts respectively). We purchased the Paperchase
brand in January, and we look forward to introducing a wider
range of cards, gifting and stationery later this year.
Sales (inc. VAT)
Orders per week
Basket size £
Online % of UK total sales
Delivery saver subscribers
Click & Collect (C&C) locations
FY 22/23
£5.6bn
1.14m
£95
One-year
change
(5.4)%
(6.7)%
1.0%
12.8% (1.2)%pts
0.8%
688k
10.4%
563
Three-year
change
57.0%
52.1%
3.2%
3.6%pts
39.1%
71.1%
We opened our fifth and sixth urban fulfilment centres (UFCs)
in Rutherglen, Glasgow (in May) and Bar Hill, Cambridge (in
January). Tesco Whoosh – our rapid delivery service – is now
in 1,000 stores, exceeding our original target of 800 stores.
Our average delivery times have improved by around five
minutes to c.25 minutes with nearly two million orders delivered
to customers to date. Satisfaction scores are among the highest
in the Group, with Whoosh proving particularly popular amongst
our most loyal customers.
ROI – consistently outperforming the market
Like-for-like sales grew by 3.3% for the full year, including growth
of 6.6% in the second half as general market inflation increased.
We delivered a particularly strong Christmas, despite trading over
high levels of in-home consumption in the prior year as a result of
hospitality restrictions. We grew our market share to 22.9% by the
end of the year, with gains of 64bps year on year and 110bps versus
pre-pandemic.
Total sales grew by 5.4% at constant rates, including a 1.5%pts
contribution from the nine Joyce’s stores we acquired in June
which were fully converted and reopened as Tesco stores in the
third quarter. In addition, we opened four new convenience
stores, which contributed 0.7%pts to total sales growth.
Our continued investment in value through Aldi Price Match,
Low Everyday Prices and Clubcard Prices is proving to be a
winning formula for customers in Ireland. Clubcard Prices has
been a particular success, with sales penetration increasing by
22.8%pts to 76.5%.
32
Tesco PLC Annual Report and Financial Statements 2023
BOOKER – an exceptionally strong performance
across both catering and retail
Total Retail
Retail
Tobacco
Total Catering
Catering
Best Food Logistics
Total Booker*
Sales
£m
4,796
2,888
1,908
3,629
2,109
1,520
8,684
LFL
3.2%
9.9%
(5.6)%
26.7%
25.2%
29.0%
12.0%
* Total Booker also includes small business sales of £259m
Booker delivered exceptionally strong like-for-like sales growth of
12.0%. Catering sales were particularly strong, increasing by 35.5%
in the first half as we lapped subdued demand due to pandemic-
related restrictions in the prior year. Catering grew by 18.9% in
the second half as we continued to significantly outperform the
market, working with hospitality customers to ensure they could
continue to offer outstanding value while maintaining strong menu
choice. This included our price freeze on around 450 key catering
lines across the festive period. The number of customers signing
up to our Food Clubs has further increased, with 44,000 members
now able to access exclusive deals and discounts.
The retail business also continued to grow well, with sales up
9.9% excluding tobacco. Our Jack’s product range is proving
popular with our Booker retail partners, enabling them to offer
their customers a great value own brand alternative on over
500 lines.
Retail tobacco sales declined by (5.6)%, reflecting the market
trend as customers returned to overseas travel and duty-free
imports increased. Excluding tobacco, total Booker sales growth
was 18.4%.
CENTRAL EUROPE – strong delivery of cost reduction
plans delivering profit growth
Like-for-like sales grew by 10.4%, with strong growth in all three
markets. Inflationary pressures were felt to a greater extent
across our Central European markets with even more significant
levels of input cost inflation. Food sales grew by 11.9%, with strong
growth in both fresh and packaged categories.
We rolled out Clubcard Prices to c.95% of promotions and our
Low-Price Guarantee continues to be positively received across
all countries. Clubcard penetration is now at 83% versus 60% last
year and we have seen strong improvements across our reward
perceptions. Our reward scheme is now ranked number 1 in all
three countries.
Central Europe adjusted operating profit was £180m, an increase
of 3.6% at constant rates. Our cost reduction programme helped
offset significant energy inflation, foreign exchange headwinds and
an incremental £(25)m charge related to a new extraordinary retail
tax in Hungary.
In June, we completed the sale of 17 malls and one retail park,
generating proceeds of £203m and a £37m profit on disposal
within adjusting items. We are continuing to operate the Tesco
hypermarkets in these malls on a leasehold basis.
TESCO BANK
Revenue
Adjusted operating profit
Lending to customers
Customer deposits
Net interest margin
Total capital ratio
FY 22/23
£1,106m
£143m
£7.1bn
£(5.8)bn
4.9%
25.7%
FY 21/22
£922m
£176m
£6.5bn
£(5.3)bn
5.0%
27.2%
YoY change
20.1%
(18.8)%
9.1%
8.3%
(0.1)%pts
(1.5)%pts
Revenue grew by 20.1%, driven by an increase in credit card
spend, a recovery in demand for travel money and an increase
in ATM transactions year on year as cash usage continued to
recover post-pandemic. In addition, insurance revenue increased
due to an additional two-month benefit from the acquisition of
Tesco Underwriting Limited in May 2021 as well as underlying
growth in policies.
Tesco Bank adjusted operating profit was £143m, down (18.8)%
year on year, predominantly due to the impact of a significant
provision release in the prior year related to the improved
macroeconomic outlook post-pandemic. This was partially
offset by a strong performance in our travel money and ATM
businesses, combined with higher credit card income, in addition
to a higher contribution from the full consolidation of Tesco
Underwriting Limited.
Overall lending to customers has increased by 9.1% to £7.1bn, due
mainly to higher credit card balances as a result of both increased
retail spending and growth in newly acquired accounts. Loan
balances remained stable year on year. Our level of customer
defaults remains low and the Bank’s balance sheet remains in a
strong position, with sufficient capital and liquidity to absorb
changes in both regulatory and funding requirements.
In addition to winning Credit Builder Card Provider of the Year
and Best Card Provider (Introductory Rate) at the Moneyfacts
Awards in the first half, Tesco Bank has since won Credit Card
Provider of the year at the 2023 Moneyfacts Consumer Awards
in recognition of the wide range of credit cards we offer for
customers, combined with the unique benefit of being able to
earn Tesco Clubcard points.
We announced our two new charity partnerships with The Trussell
Trust, who work to end the need for food banks in the UK, and
Maggie’s, the cancer support charity.
PLANET - serving our customers, communities and
planet a little better every day
We continue to roll out innovations to help achieve our aim of net
zero emissions across our entire value chain by 2050, aligned to a
1.5°C pathway. In the fourth quarter we announced two new trials
with our farmer suppliers. We launched a low-carbon fertiliser
trial with five of our key field vegetable suppliers. With 75% of the
fertiliser alternatives manufactured in the UK, the trial is focused
on increasing food security and cutting greenhouse gas emissions
for the harvests linked to the low-carbon fertiliser of those key
suppliers. We also launched a fava bean trial to help scale up this
UK-native, low-carbon alternative protein to pea and soya,
including using it as an ingredient and as alternative feed for pigs.
We have made further progress towards our commitment to be
carbon neutral in our own operations by 2035. We introduced a
further 243 electric vans into our home delivery fleet, and in an
industry first, we introduced a zero-emissions electric lorry to trial
deliveries across the 400 London stores served by our Dagenham
distribution centre.
Tesco PLC Annual Report and Financial Statements 2023
33
Strategic report Financial review continued
This year we launched our Better Baskets campaign, bringing
together affordable products to help customers make healthier
and more sustainable choices. Healthy products now account for
60% of sales volumes, up from 58% last year, and we are on track
to achieve our target of 65% by 2025. Reformulation of Own Brand
ranges has contributed to the removal of 71 billion calories to date,
putting us well on track to delivering our 100 billion calorie
reduction ambition by 2025.
In the third quarter, we announced our new aim to halve food
waste in our own operations by 2025, five years ahead of our
previous commitment and the UN Sustainable Development Goals
(SDG) of 2030. In November, we rebranded reduced to clear with
new signage to let customers know that products are Reduced in
price. Just as nice., helping them to save on their weekly shop and
reduce food waste.
To help support the unprecedented demand in our communities,
we have given daily donations to food banks and local charities.
In the third quarter we launched The Give Back Express, allowing
customers to purchase products most needed by charities and
donate them in store. Alongside our winter food collection, which
provided an equivalent of 2.4 million meals this year, these
initiatives are made possible through our longstanding
partnerships with Community Food Connection, The Trussell Trust,
FareShare and free sharing app Olio.
Adjusting items in statutory operating profit
FY 22/23
£m
(982)
(138)
91
(76)
2
(2)
–
Net impairment charge on non-current assets
Save to invest restructuring provisions
Property transactions
Amortisation of acquired intangible assets
Disposal of Asia operations/China associate
Other*
Litigation costs
Total adjusting items in statutory
operating profit
FY 21/22
£m
(115)
(44)
128
(76)
41
(6)
(193)
* Other includes fair value less cost of disposal movements on assets held for sale, ATM
business rates refund, and release of onerous contract provision. See page 138.
Adjusting items are excluded from our adjusted operating profit
performance by virtue of their size and nature to provide a helpful
alternative perspective of the year-on-year performance of the
Group’s ongoing trading business. Total adjusting items in statutory
operating profit resulted in a charge of £(1,105)m, compared to a
£(265)m charge in the prior year.
We recognised a £(982)m non-cash net impairment charge on
non-current assets, primarily property, driven mainly by a
significant increase in discount rates as a result of macroeconomic
factors. The majority of the charge (£(626)m) was booked in the
first half the year, with an additional amount charged in the
second half as discount rates further increased.
We recognised a £(138)m restructuring provision related to the
Save to invest programme, which includes changes made to our
store management structures and the closure of our remaining
UK counters.
We generated a £91m profit on the disposal of properties in the
year, including the sale of our Middlewich distribution centre in
the UK, and the disposal of 17 mall properties and a retail park in
Central Europe.
34
Tesco PLC Annual Report and Financial Statements 2023
Amortisation of acquired intangible assets is excluded from our
headline performance measures. We incurred a charge of £(76)m
in the year, which relates to the intangible assets that were
recognised as a result of our merger with Booker in March 2018.
In the prior year, we recognised litigation costs of £(193)m in
adjusting items, relating to proceedings issued against us by two
claimant law firms in relation to the overstatement of expected
profits announced in 2014. The cash flow related to these claims
was also settled in the prior year. Given the legal timeframe for
bringing a claim has now elapsed, no further related claims can
be brought by shareholders.
Further detail on adjusting items can be found in Note 4, starting
on page 138, with additional information relating to the non-cash
net impairment charge in Note 14, starting on page 148.
Joint ventures and associates
Our share of post-tax profits from joint ventures and associates
was £8m, compared to £15m in the prior year, primarily due to a
reduction in profits from UK property joint ventures.
As announced within our interim results, we completed the
buyback of our partner’s stake in The Tesco Dorney Limited
Partnership property joint venture in October 2022, bringing back
seven large stores into full ownership. This results in annual cash
rental savings of c.£31m and has a broadly neutral impact on net
debt, as a £(0.4)bn increase in borrowings is offset by a £0.4bn
reduction in lease liabilities.
Following this transaction, we have five UK property joint ventures
still in place, from a peak of 13 structures in 2015. These five
remaining structures contain properties worth £3.0bn and debt of
£2.0bn, with £2.0bn of associated lease liabilities on our balance
sheet. The three largest remaining property JVs are with the
Tesco Pension Scheme.
Net interest on medium term notes, loans and
bonds
Other interest receivable/(payable)
Finance charges payable on lease liabilities
Net finance costs before adjusting items
Fair value remeasurements of financial
instruments
Net pension finance income/(costs)
Net finance costs
FY 22/23
£m
FY 21/22
£m
(231)
42
(373)
(562)
(51)
80
(533)
(208)
(30)
(405)
(643)
123
(22)
(542)
Net interest on medium term notes, loans and bonds was £(231)m,
up £(23)m. The combined impact of debt acquired through the
acquisition of property partnerships and increased interest rates
on floating rate debt was largely offset by the benefit of debt
refinanced at a lower coupon in the prior year and the buyback of
a portion of secured debt in November 2022.
Other interest receivable totalled £42m, up £72m year on year due
to higher interest income on our cash balances and short-term
deposits.
Finance charges payable on lease liabilities reduced by £32m year
on year. This was driven by the derecognition of £385m of lease
liabilities relating to the buyback of The Tesco Dorney Limited
Partnership mentioned above and £355m of lease liabilities related
to the buyback of The Tesco Sarum Limited Partnership in
December 2021.
(1,105)
(265)
Net finance costs
The non-cash fair value remeasurement charge of £(51)m primarily
relates to the mark-to-market movement on inflation-linked
swaps, driven by an increase in discount rates. These swaps
eliminate the impact of future inflation on the Group’s cash flow
in relation to historical sale and leaseback property transactions.
Net pension finance income of £80m was driven by the IAS 19
pension surplus as at the end of the 2021/22 financial year,
compared to a charge of £(22)m last year when the scheme
was in an opening deficit position.
Further detail on finance income and costs can be found in Note 5
on page 139, as well as further detail on the adjusting items in Note
4 on page 138.
Group tax
Tax on adjusted profit
Tax on adjusting items
Tax on profit
FY 22/23
£m
(442)
195
(247)
FY 21/22
£m
(502)
(8)
(510)
Tax on adjusted Group profit was £(442)m, £60m lower than last
year, reflecting a reduction in retail operating profit and a one-off
charge in the prior year related to the revaluation of deferred tax
following the decision to increase the corporation tax rate in the
UK from 19% to 25% from April 2023. Adjusting items resulted in
a £195m tax credit, driven predominantly by taxable deductions
relating to the higher impairment charge.
The effective tax rate on adjusted Group profit was 21.3%,
higher than the current UK statutory rate of 19%, primarily due
to the depreciation of assets which do not qualify for tax relief.
We expect our effective tax rate to be around 26% in FY
23/24 following the increase in the UK corporation tax rate on
1 April 2023.
Earnings per share
Adjusted diluted EPS
Statutory diluted EPS
Statutory basic EPS
FY 22/23
21.85p
10.08p
10.17p
FY 21/22
21.86p
19.64p
19.86p
YoY change
(0.0)%
(48.7)%
(48.8)%
Adjusted diluted EPS was 21.85p, in line with last year, as the
impact of reduced adjusted operating profit was offset by lower
finance costs and tax charges year on year, and the benefit of
our share buyback programme.
Statutory diluted earnings per share was 10.08p, (48.7)% lower
year on year due to an increase in adjusting items, principally
a higher net impairment charge on non-current assets.
Dividend
We propose to pay a final dividend of 7.05 pence per ordinary
share, taking the full year dividend to 10.90 pence per ordinary
share, in line with last year. This includes the payment of an
interim dividend of 3.85 pence per ordinary share in
November 2022.
The proposed final dividend was approved by the Board of
Directors on 12 April 2023 and is subject to the approval of
shareholders at this year’s Annual General Meeting. The final
dividend will be paid on 23 June 2023 to shareholders who are on
the register of members at close of business on 12 May 2023 (the
record date). Shareholders may elect to reinvest their dividend in
the dividend reinvestment plan (DRIP). The last date for receipt of
DRIP elections and revocations will be 2 June 2023.
Summary of total indebtedness (excludes Tesco Bank)
Movement
£m
(205)
228
23
(58)
(35)
Net debt before lease liabilities
Lease liabilities
Net debt
Pension deficit, IAS 19 basis (post-tax)
Total indebtedness
February 23
£m
(2,775)
(7,718)
(10,493)
(300)
(10,793)
February 22
£m
(2,570)
(7,946)
(10,516)
(242)
(10,758)
Net debt/EBITDA
Total indebtedness ratio
2.6x
2.7x
2.5x
2.5x
Total indebtedness was £(10,793)m, broadly in line with last year as
increases in net debt and the IAS 19 pension deficit were largely
offset by a reduction in lease liabilities. Net debt before lease
liabilities increased by £(205)m year on year to £(2,775)m, driven by
the impact of fair value remeasurement of net derivatives and the
purchase of a portion of the secured debt of our property joint
ventures, in order to reduce our ongoing net interest cost.
Lease liabilities were £(7,718)m, down £228m year on year, primarily
due to the derecognition of £385m of lease liabilities following the
purchase of our partner’s stake in The Tesco Dorney Limited
Partnership. This was partially offset by an increase in lease
liabilities as a result of higher rent payments this year due to the
effect of RPI inflation and the lease back of 17 stores situated in
the mall properties sold in Central Europe.
We now carry an IAS 19 pension deficit, totalling £(300)m (post-
tax), which includes £(157)m relating to the main scheme and
£(143)m related to other Group pension schemes. The main
scheme was in a surplus of £2.4bn (post-tax) in the prior year and
was therefore disregarded in total indebtedness as only pension
schemes which are in a net deficit position are included. The
movement in the main scheme was driven by movements in
discount rates and gilt yields.
The accounting surplus/deficit does not drive contributions to
the pension schemes and can be volatile. As disclosed within our
interim results, we have agreed the actuarial pension valuation
as at 31 March 2022 with the Tesco Plc Pension Scheme Trustee at
a surplus of £0.9bn. It was also agreed with the Trustee that no
pension deficit contributions are expected to be required ahead
of the next triennial valuation in 2025.
We had strong levels of liquidity at the end of the year of £2.7bn
and our £2.5bn committed facility remained undrawn. We
refinanced the facility in November 2022 for an initial three-year
term. The rate of interest payable on this facility continues to be
linked to three of our sustainability commitments.
Our net debt to EBITDA ratio was 2.6 times at the end of the year,
up from 2.5 times in the prior year end and around the middle of
our targeted range of 2.8 to 2.3 times. The year-on-year increase
was driven by a reduction in retail EBITDA. The total indebtedness
ratio was 2.7 times compared to 2.5 times last year end.
Fixed charge cover was 3.5 times this year, which was stable year
on year, as a reduction in retail EBITDA offset lower net finance
costs and lease interest payments.
Tesco PLC Annual Report and Financial Statements 2023
35
Strategic report
Total retail cash tax paid in the year was £(107)m, compared to
£(195)m last year. The reduction reflects lower retail adjusted
operating profits year on year and the impact of tax allowable
deductions relating to adjusting items, primarily the impairment
charge and fair value remeasurements. We continue to benefit
from a super-deduction allowance on certain capital investments
and we received in-year tax relief of £121m in relation to the £2.5bn
one-off pension contribution made in 2021, which is required to be
spread over four years for tax purposes. FY 23/24 will be the final
year in which we receive this pension-related tax relief. In the
Spring Budget 2023, the UK Government announced that full
expensing relief on certain capital investments would be available
from 1 April 2023 through to 31 March 2026, and we expect this to
have a broadly similar cash tax impact as the super-deduction
allowance that it replaces.
The net cash outflow of £(86)m for the purchase of our own
shares comprises a £(134)m purchase of shares to offset dilution
from share scheme issuance, offset by £48m proceeds received
from colleagues in relation to those schemes. The lower outflow
compared to last year was driven by the timing of purchases to
satisfy FY 23/24 maturities.
The net cash impact of acquisitions and disposals was £(281)m,
of which c.£(200)m related to the purchase of a portion of the
secured debt of our property joint ventures, in order to reduce
our ongoing net interest cost.
We generated £266m of proceeds from property transactions,
including the sale of 17 malls and one retail park in Central Europe
and our distribution centre in Middlewich in the UK. This was
partially offset by the purchase of our partner’s stake in
The Tesco Dorney Limited Partnership in October 2022.
Financial review continued
Summary retail free cash flow
The following table reconciles Group adjusted operating profit to
retail free cash flow. Further details are included in Note 2 starting
on page 133.
Adjusted operating profit
Less: Tesco Bank adjusted operating
(profit)/loss
Retail adjusted operating profit
Add back: Depreciation and amortisation
Other reconciling items
Pension deficit contribution
Decrease in working capital
Retail cash generated from operations
before adjusting items
Cash capex
Net interest
– Interest related to Net debt before lease
liabilities
– Interest related to lease liabilities
Tax paid
Dividends received
Repayment of obligations under leases
Own shares purchased for share schemes
Retail free cash flow
Memo (not included in Retail free cash flow):
– Net acquisitions & disposals
– Property proceeds & purchases
– Cash impact of adjusting items
FY 22/23
£m
2,630
FY 21/22
£m
2,825
(143)
2,487
1,570
61
(23)
468
4,563
(1,143)
(573)
(202)
(371)
(107)
68
(589)
(86)
2,133
(281)
266
(61)
(176)
2,649
1,577
61
(19)
501
4,769
(1,050)
(641)
(239)
(402)
(195)
109
(571)
(144)
2,277
122
228
(316)
We delivered strong Retail free cash flow of £2,133m, significantly
ahead of our target range of between £1.4bn and £1.8bn, driven by
another strong working capital performance. The year on year
reduction of £(144)m was primarily driven by lower retail adjusted
operating profit and an increase in capital expenditure, partially
offset by lower tax and net interest payments.
Our total working capital inflow was £468m, driven primarily by
higher trade payable balances due to cost price inflation in
addition to good working capital management.
Net interest paid was lower year on year due to higher interest
received as a result of higher interest rates on cash balances and
lower interest relating to lease liabilities as a result of the buyback
of the property partnerships mentioned above.
36
Tesco PLC Annual Report and Financial Statements 2023
Capital expenditure and space
Capex
Openings (k sq. ft.)
Closures (k sq. ft.)
Repurposed (k sq. ft.)
Net space change (k sq. ft.)
UK & ROI
Central Europe
Tesco Bank
Group
FY 22/23
£1,069m
318
(233)
9
94
FY 21/22
£963m
180
(146)
–
34
FY 22/23
£115m
77
(25)
(407)
(355)
FY 21/22
£91m
54
(25)
(125)
(96)
FY 22/23
£51m
–
–
–
–
FY 21/22
£47m
–
–
–
–
FY 22/23
£1,235m
395
(258)
(398)
(261)
FY 21/22
£1,101m
234
(171)
(125)
(62)
Retail selling space is defined as net space in store adjusted to exclude checkouts, space behind checkouts, customer service desks and customer toilets. The data above excludes space
relating to franchise stores. A full breakdown of space by segment is included in the Supplementary information on page 205.
Capital expenditure (capex) shown in the table above reflects expenditure on ongoing business activities across the Group, excluding
property buybacks.
Our capital expenditure for the year was £1,235m, £134m higher year on year, which primarily relates to simplification projects within our UK
stores and the opening of convenience stores across both the UK and Ireland. We opened our fifth and sixth UFCs in Rutherglen, Glasgow, in
May 2022 and Bar Hill, Cambridge, in January 2023.
In the UK, we opened two new superstores, at Freshwater and Cinderford, 18 new One Stop stores and a further 50 Tesco Express stores,
taking our total number of Tesco Express stores to 1,998 at the end of the financial year. We opened our 2,000th Express store in Cambridge
in March, after the year end. In the Republic of Ireland, we opened four new Tesco Express stores and converted the nine Joyce’s stores we
acquired in June last year.
In Central Europe, we opened seven new small format stores and refreshed 35 large stores in the year, right sizing our selling space, to
ensure our offer remains relevant for customers. A further 56 store refreshes are planned this year.
Statutory capital expenditure for the year was £1.5bn.
Further details of current and forecast space can be found in the Supplementary information starting on page 204.
Property
Property1 – fully owned
– Estimated market value
– NBV
% store selling space owned
% property owned by value2
UK & ROI
Central Europe
Group
February 23
February 22
February 23
February 22
February 23
February 22
£15.4bn
£14.9bn
58%
59%
£16.6bn
£15.1bn
56%
58%
£1.8bn
£1.5bn
68%
65%
£1.5bn
£1.4bn
68%
64%
£17.2bn
£16.4bn
60%
60%
£18.1bn
£16.5bn
58%
58%
1. Stores, malls, investment property, offices, distribution centres, fixtures and fittings, work-in-progress. Excludes joint ventures.
2. Excludes fixtures and fittings.
The estimated market value of our fully-owned property as at the year end reduced by £(0.9)bn to £17.2bn due to the weakening of the UK
property investment market in the past six months. The market value represents a surplus of £0.8bn over the net book value (NBV).
Our Group freehold property ownership percentage was 60%, an increase of 2% year on year. The completion of the purchase of our
partner’s 50% stake in The Tesco Dorney Limited Partnership in October brought back into full ownership seven sites, contributing a 1%
increase in the percentage of fully-owned properties in the UK & ROI. We also repurchased the Tesco Extra stores in Mansfield and Melton
Mowbray in the UK.
In Central Europe, the increase in the market value of fully-owned property reflects the assets that were held for sale last year, which were
not sold, coming back into the ‘Property – fully owned’ balance. In the year, we realised £203m of proceeds from the completed sale of 17
malls and one retail park.
Tesco PLC Annual Report and Financial Statements 2023
37
Strategic report
Principal risks and uncertainties
Managing our risks.
Effective risk management is core to our management practices,
which help deliver our strategy and our commitments to our
customers, community, and the planet. We are focused on
conducting our business responsibly, safely, and legally, while
making risk-informed decisions when responding to opportunities
or threats that present themselves. The Board and Executive
Committee are responsible for the effective management of risk
across the Group. We manage our risks in line with the risk
appetite set by the Board.
Risk management framework
The diagram below provides an overview of our risk management
framework defining Tesco’s risk management process and
governance. Our risk management framework continues to be
embedded throughout the organisation, enabling us to clearly
identify, prioritise, respond, and monitor our most significant risks
and emerging risk themes. Our risk management framework
supports decision making, with culture and leadership being at
the heart of our framework, including a clear tone from the top
on the importance of risk management.
Governance
Risk process
Risk management framework
Board
Audit
Committee
Group Chief
Executive and
Executive
Committee
n B
w
o
t
o
t
d
o
m
p
o
u
T
p
Group risk and
compliance
committee
Business and
functional
leadership team
dit &
surance
u
A
s
a
m
D
o
a
n
t
i
t
a
o
&
r
i
n
g
6
5
I d e ntification
1
Culture &
leadership
4
Governan c e &
reporti n g
2
3
P
r
i
o
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i
t
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i
o
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e
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o
Controls &
resp
Principal risks are those significant risks that could affect our strategic ambitions, future performance, viability, and/or reputation.
Full disclosure of these risks is included on pages 40 to 45.
38
Tesco PLC Annual Report and Financial Statements 2023
Risk identification and prioritisation
A complete view of our risk universe starts with the analysis of our
business, the external environment within which we operate, the
regulatory landscape and our internal operations. This includes the
impacts on our strategy, initiatives, governance, and processes.
We use a consistent assessment criterion to identify and prioritise
risks at the Group, functional, and business unit level, along with
horizon scanning for emerging risk themes. The identified risks are
categorised into one or more of the following risk types: strategic,
change, operational, finance or compliance. This enables effective
governance and monitoring of the risks.
Management assesses the risks on a continuous basis, taking
into account the risk to Tesco’s strategy, our colleagues and
our operations, as well as our impact on society and the
environment. There is regular formal oversight through clearly
defined governance structures, e.g. the Cyber risk committee
oversees the various elements of the cyber security risk.
Risk controls and responses
For risks where our risk appetite is low, termed, ‘risks requiring
standards’, we take a robust and uniform approach to determine
appropriate risk controls and responses, leaving no room for
discretion or deviation. For these risks (typically regulatory and
compliance risks) we have established policies and blueprints
to guide the business in managing the risks. These risks are
monitored formally by one or more of our various governance
bodies, such as our Group risk and compliance committee,
Privacy executive committee and Investment committee, as
well as, biannually by the Audit Committee. For other risks,
termed, ‘risks requiring judgements’, which are typically
strategic, pervasive, or dynamic in nature, the risk controls
and responses are determined on a case-by-case basis in line
with the strategic goals of the organisation. We determine
appropriate risk responses by measuring against the target risk
score that articulates the risk appetite, after considering any
existing risk mitigations.
Governance and monitoring
A strong risk culture is at the heart of our Risk management
framework with clear risk ownership and proactive leadership.
The responsibility for identifying, assessing, escalating, and
managing risks resides with management at a functional, business
unit and executive level. The Board has overall responsibility for
risk management and is actively engaged in risk discussions.
The Audit Committee, on behalf of the Board, undertakes an
annual effectiveness assessment of the risk management
framework, as well as, detailed reviews of the risks twice a year,
to support the external reporting process, see page 75. The Group
risk and compliance committee is responsible for the oversight of
key risks on behalf of the Executive Committee. During the year,
the Chief Audit and Risk Officer (CARO) left the business, and a
PwC audit partner acted in an intermediary capacity to oversee
the function. A new CARO joined in April 2023.
Audit and assurance
Assurance over risks requiring standards is robust and integrated
across all three lines of defence. To mitigate these risks, the
second-line functions such as, finance controls, ethics and
compliance, safety, responsible sourcing, technology compliance,
and people compliance, systematically test the processes and
controls established by management.
Group Audit undertakes functional reviews on a rotational
basis over the effectiveness of the first two lines of defence.
It also carries out targeted controls testing for the risk
requiring standards. For risks requiring judgements, Group
Audit undertakes risk-based internal audits to ensure
sufficient risk coverage.
Principal risks and uncertainties
The most significant risks – those that could affect our strategic
ambitions, future performance, viability, and/or reputation – form
our principal risks.
The table sets out our principal risks. This includes a summary
of key information including, the type of risk, links to our strategic
drivers, risk movement, key responses and controls, and the
oversight committees at the Executive Committee and Board level.
Please note, this list does not include all our risks. Additional risks,
not presently known, or those we currently consider to be less
material, may also have adverse effects. We also highlight
principal risks that are included in our long-term viability
scenarios, see page 46.
At present, there continues to be a heightened level of
macroeconomic uncertainty relating to cost and wage inflation,
as well as energy supply issues, leading to rising prices, which are
continuing to impact our customers’ disposable income, thereby
changing the way they shop. These also result in an increase in
operational costs for us as well as our suppliers, which is further
exacerbated by the war in Ukraine. The inflationary and economic
risk factors continue to influence our business and are therefore
key components of our customer and financial performance
principal risks. We understand the short-term risks and impacts,
and we have the right teams, governance mechanisms, customer
offerings and strategies in place. However, the long-term impacts
remain uncertain, and we will continue to monitor the situation
closely and respond accordingly.
There are two notable changes to our principal risks this year.
Brand, reputation, and trust is no longer a standalone principal
risk, but continues to be monitored as a component of our other
principal risks. Furthermore, given the impact of the external
macroeconomic and geopolitical situation on supply chains, we
have elevated security of supply as a new principal risk. A deep
dive of this risk was also presented at the February 2023
Board meeting.
Tesco PLC Annual Report and Financial Statements 2023
39
Strategic report Principal risks and uncertainties continued
Strategic drivers
Magnetic value
for customers
I love my Tesco
Clubcard
Easily the most
convenient
Risk type
S ChStrategic
S Ch OChange
Save to invest
Ch O Operational
O F CFinance
F C Compliance
Residual risk movement
(after taking current responses
and controls into consideration)
Risk increasing
No risk movement
Risk decreasing
† Indicates that the
principal risk has been
included as part of
the longer-term
viability scenarios
detailed on pages
46 and 47
N
New risk
Risk movement
There continues to be a growing level
of sophistication and scale of
targeted cyber incidents. However,
the risk has remained stable in line
with the previous year as we continue
to invest in building the right
capabilities and skills across our
teams, which combined with
colleague training and Executive-level
oversight supports us in managing the
risk effectively on an ongoing basis.
Principal risk
Cyber security†
S ChStrategic
Ch O Operational
A cyber security incident can result in
unauthorised access to, or misuse of,
our information systems, technology,
or data. This could lead to leakage of
sensitive information, loss of our
critical assets, impact on trade, and
reputational damage.
Oversight: Cyber risk committee,
Group risk and compliance
committee, Executive Committee,
Audit Committee, Board.
We hold customer and colleague
personal data. Although the threat
landscape has been ever-changing,
the risk remains unchanged, and we
continue to monitor and manage the
risk closely through structured
implementation of our Group data
privacy programme, robust
governance and oversight
mechanisms.
Data privacy†
F C Compliance
Failure to comply with legal or
regulatory requirements relating to
data privacy in the course of our
business activities results in
reputational damage, fines, or other
adverse consequences. These can
include criminal penalties and
consequential litigation, which may
result in an adverse impact on our on
our ability to do business.
Oversight: Privacy executive
committee, Group risk and
compliance committee, Executive
Committee, Audit Committee, Board.
Key responses and controls
– Our cyber strategy focuses on enhancing the Group-wide control
framework, including leak prevention, early detection, and
prevention of cyber attacks.
– There is regular reporting on the progress and results of the
cyber security programme to governance and oversight
committees at both management and Board level.
– We operate a layered security defence model consisting of
preventative, detective, and responsive technical controls and
foundational capabilities. The security model is underpinned by
a detailed roadmap, which is tracked against set milestones and
defined outcomes.
– We have further heightened our vigilance and monitoring related
to potential cyber threats. This includes gathering intelligence from
the National Cyber Security Centre, our security partners, and
financial services organisations via Tesco Bank.
– We have an experienced team in our security operations centre
to detect, report, and respond to security incidents.
– We continue to grow our experienced team to ensure we have
the right skills and capabilities.
– We recognise the importance of training and communication to
help prevent cyber security incidents. We hold regular induction,
awareness, and refresher courses for our colleagues.
– We have a third-party supplier assurance programme focusing
on third-party cyber security risks.
– We put our customers and colleagues at the heart of all decisions
we make when using their personal data. Our data privacy policies
and processes (including via privacy impact assessments and data
governance) establish how we protect and appropriately use
personal data.
– There is regular reporting on progress and performance of the
data privacy programme to governance and oversight committees.
Our multi-year technology security programme is driving enhanced
data security capabilities.
– Our Group data privacy programme includes ongoing assessment
and monitoring of privacy risks and controls across our businesses.
– We have an established team in our security operations centre to
detect, report and respond to security incidents (including personal
data incidents).
– We have a third-party supplier assurance programme focusing on
third-party data security and privacy risks.
– We recognise the importance of ongoing training and
communication to raise awareness of good data-handling
practices, and to help prevent personal data incidents. We carry
out regular induction, awareness, risk-based tailored training
(including refresher training) for our colleagues.
40
Tesco PLC Annual Report and Financial Statements 2023
Principal risk
Climate change†
S ChStrategic
Ch O Operational
Failure to effectively respond to
climate change and influence our
value chain towards a net zero
emission future, may have an adverse
impact on our financial performance,
colleagues and reputation and also
result in loss of licence to operate.
Delivery against our 1.5°C-aligned
ambition to reach net zero by 2050
along the value chain, meeting our
ESG targets and regulatory obligations
to mitigate climate change is vital.
This is because the longevity and
prosperity of our business depends
intrinsically on the health of the
natural environment.
Oversight:
Group planet committee, Executive
Committee, Corporate Responsibility
Committee, Audit Committee, Board.
Pandemics
Ch O Operational
Failure to rapidly adapt and respond
to the impacts of future pandemics,
and their implications for the global
economy, may result in disruption to
our supply chain, increase colleague
absenteeism, and could negatively
impact our operations as well as our
financial performance. This includes
addressing any operational
complexities due to evolving
mutations and strains associated
with a pandemic.
Oversight: Executive Committee,
Audit Committee, Board.
Technology
S ChStrategic
Ch O Operational
S Ch OChange
Failure to design, build, operate and
maintain resilient key IT systems and
infrastructure, may result in loss of
operating capabilities, financial
impacts, and damage to our
reputation.
Oversight: Executive Committee,
Audit Committee, Board.
Risk movement
Climate change is a widely
acknowledged global emergency,
with the need to act faster becoming
evident. Managing the greenhouse gas
emissions associated with our supply
chain is critical to reducing our
impact on climate change. This risk
remains in line with the previous year.
Our sustainability efforts focus on our
ability to create and preserve
long-term value for people, planet,
and the key communities we serve.
We consider the likelihood of the risk
to have decreased since the previous
year given the successful rollout of
vaccines, reduction in infection rates
and the easing of government
restrictions across our markets.
This risk also covers other infectious
disease outbreaks, and we continue
to keep a watching brief over any
developments.
Key responses and controls
– We have established a Group planet committee (previously named
Group climate committee) to extend oversight and governance for
monitoring the delivery of Tesco’s sustainability commitments
including those related to climate change. The committee is chaired
by the Chief Product Officer, and brings together the different
parts of the business, further enabling coordination during key
decision making.
– We have stated a commitment to be net zero by 2050. This pledge
is in the process of being supported by roadmaps and targeted
decarbonisation plans. These combine supplier engagement with
innovative farming methods to support the reduction of our carbon
footprint, e.g. technology investments in pursuit of low-carbon
energy and transport.
– We also initiated an exercise to strengthen our baseline data for
carbon emissions across our value chain last year, which has
further progressed this year. Combined with governance
mechanisms in place, this will support effective monitoring,
tracking, and reporting of our progress against our commitments.
– We have established several metrics with appropriate
management oversight and governance mechanisms to enable
us to monitor progress. We are working internally and with
third-party organisations to continue developing this suite of
metrics. There is a level of external assurance over the metrics,
and we are working to further enhance and extend this.
– We have aligned our climate-related ambitions with our reward
policies and launched our second sustainability-linked bond. We
also continue to report our climate-related financial disclosures,
see TCFD section on pages 20 to 24.
– The safety and wellbeing of our colleagues and customers has
been and continues to be our overriding priority. Management
continues to monitor events closely with regular Board oversight,
evaluating the change in infection rates, impacts and designing
appropriate response strategies.
– Our teams have developed a playbook to respond to any future
outbreak of new variants or diseases. The playbook includes
the learnings from our previous pandemic response and
includes specific actions such as securing supply chain capacity,
hygiene protocols, additional store security, and extending
support to colleagues, customers and suppliers who could
be at increased risk.
– We closely monitor developments and the government guidelines.
We will continue to work closely with the government and relevant
labour bodies to develop the right safeguards to ensure our
customers and colleagues are safe.
Our dependence on technology is
growing across the Group given the
innovative propositions and initiatives
that we are introducing. This risk is
also influenced by a highly
competitive environment for
technology talent. We consider this
risk stable compared to the previous
year, as we continue to invest in our
underlying technology platforms and
infrastructure, upskilling our team
and attracting new talent.
– We continue to enhance our technology infrastructure and
platforms to improve their resilience. This involves significant
investment in our software, as well as our hosting strategy.
We are partnering with cloud providers as well as reinforcing our
internal infrastructure, re-engineering some of our legacy retail
systems, and building redundancy for key business systems.
– Our continued investment in data centre and cloud-hosting
facilities is providing greater resilience and control for our
key systems.
– We continue to invest in the capabilities of our team to improve
our key technology solutions.
– We have IT development, change management and life-cycle
procedures in place and skilled colleagues to build, operate and
maintain our systems.
– We have disaster recovery and business continuity plans to
minimise disruption in the event of a technology failure.
We govern through a structured approach to managing events.
– We prioritise, monitor, and manage our tech-innovation across
Tesco, through an effective governance and oversight process.
Tesco PLC Annual Report and Financial Statements 2023
41
Strategic report
Principal risks and uncertainties continued
Principal risk
Political, regulatory and
compliance†
F C Compliance
Failure to comply with legal and other
requirements (such as anti-bribery,
competition law, grocery regulations
and supplier code) in a complex
political and increasingly litigious
environment, may result in fines,
criminal penalties for Tesco or
colleagues, litigation (including class
actions, e.g. the ongoing equal pay
claim), that may lead to adverse
financial, legal, and reputational
consequences.
Oversight: Group risk and compliance
committee, Executive Committee,
Audit Committee, Board.
Risk movement
The increase in geopolitical
activity across the globe has
added to the challenges
being currently faced by the
UK economy. These
geopolitical developments
have resulted in an increased
uncertainty in terms of
future trading opportunities
with certain countries,
however, we continue to
closely monitor the global
developments to implement
appropriate responses. We
have assessed the risk to be
in line with the previous year
given our current response
strategies, monitoring, and
control environment.
People
S ChStrategic
Ch O Operational
Failure to attract, retain and develop
the required workforce and
capabilities, and to embed our values
in our culture, could impact on the
delivery of our purpose and business
performance.
Oversight: Nominations and
Governance Committee,
Remuneration Committee, Executive
Committee, Audit Committee, Board.
Market competition for key
leadership and specialist
talent remains strong, with
the retail sector and wider
UK economy experiencing
specific challenges, such as
a shortage of skilled talent.
Furthermore, wage inflation
and other macroeconomic
conditions also have an
impact on the risk. In
response, we continue to
have mitigations in place to
retain and fulfil any gaps in
specific skillsets. We also
have specific mechanisms
in place to ensure our
colleagues receive
appropriate compensation
as well as a defined career
path for progression. On a
residual basis, therefore,
this risk has remained
unchanged.
Health and safety
F C Compliance
Failure to meet safety standards in
relation to our workplace may
unfortunately result in death or injury
to our customers, colleagues, or third
parties, or in damage to our
operations, and lead to adverse
financial, legal, and reputational
consequences.
Oversight: Group risk and compliance
committee, Executive Committee,
Audit Committee, Board.
The changes in external
conditions, in particular the
spike in cost of living, has
posed a greater threat to
the wellbeing of our
colleagues as instances of
theft and in-store violence
showed an upward trend this
year. However, the risk
remains stable when
compared to the previous
year, as we monitor and
implement specific response
strategies, to ensure we
continue to provide safe
workspaces for all our
colleagues.
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Tesco PLC Annual Report and Financial Statements 2023
Key responses and controls
– Wherever we operate, we aim to ensure that we incorporate the impacts
of political and regulatory changes in our strategic planning and policies.
This includes engagement with trade, government and industry bodies and
ongoing monitoring of potential changes to the future regulatory and political
landscape, e.g. our assessment and ongoing monitoring of the war in Ukraine
and adherence to government directives.
– We have compliance programmes and committees to manage our most
important risks (e.g. grocery regulations, supplier code, anti-bribery, and
competition law). We conduct assurance activities for each key risk area.
– We support our code of business conduct and various policies by
new starter and annual compliance training and other tools such as
our Protector Line.
– The engagement of leadership and senior management is critical to the
successful management of this risk area. We have established structured
communication plans to provide a clear tone from the top.
– Our talent planning and people development processes are established
across the Group to monitor, understand and grow the skills required to fulfil
strategic objectives of the business. The talent planning process includes
succession planning for key roles, and identification of any new skillsets and
plans to secure these via internal development or recruitment routes.
– There are formal talent development programmes in place with regular
discussions on talent and succession planning by management and the
Executive Committee, with oversight by the Nomination and Governance
Committee and the Board.
– Our Remuneration Committee agrees the objectives and remuneration
arrangements for senior management. Additionally, we perform a regular
review of our ‘total reward’ offers to ensure remuneration offered for
colleagues is competitive and appropriate. We also continue to engage
closely with trade unions to inform and adapt our future plans and strategy.
– We conduct an independent assessment of all leadership level promotions
and external hires to ensure capability, potential, leadership, and values
remains central to our decision making related to hiring.
– Our ‘how to’ and ‘when to’ speak up programmes across all areas include our
Protector Line and complaints process. These allow colleagues to raise in
confidence any workplace concerns such as dishonest activity, bias or
anything that endangers colleagues, the public or the environment.
– We continue to roll out measures to ensure the overall wellbeing of our
colleagues, including mental, social and financial wellbeing.
– Our established Group diversity and inclusion strategy helps to ensure that
everyone is welcome and that we provide all our colleagues with equal
opportunities for growth and development. This is embedded in our values,
and we are committed to building an inclusive workplace.
– Our business-wide, risk-based safety framework defines how we implement
and report on safety controls to ensure that colleagues, contractors, and
customers have a safe place to work and shop.
– The health and safety framework is regularly reviewed and refreshed, to
ensure we continue to address any complexities arising due to operational
changes. This includes implementing enhanced controls and safety measures
to ensure colleague wellbeing, e.g. including physical security controls to
protect colleagues against the increased threat of violence and abuse.
– We require each business to maintain a comprehensive health and safety
risk assessment and risk improvement plan to document and track
enhancements.
– Governance and oversight are established in the form of our Group risk
and compliance committee and business unit-specific health and safety
committees. These committees review critical metrics and monitor the
effectiveness of related controls.
– Our safety audits, Protector Line arrangements, and the results of our annual
colleague surveys inform management on the delivery of targeted safety
initiatives, including communication plans.
– Our assurance activities, such as store and distribution compliance reviews,
safety health checks and audits, help us assess our compliance with
established policies and processes. They also enable us to continuously seek
and identify areas for potential improvement.
– We have launched a new information exchange platform, which provides
leading indicators of safety, enabling early identification of threats and design
of action plans that support injury prevention.
Principal risk
Product safety and food
integrity
F C Compliance
Failure to meet regulatory standards
and customer expectations related to
product safety, traceability and
integrity could result in illness, injury
or death damaging our relationships
with customers, with negative effects
on our performance and corporate
reputation.
Oversight: Group risk and compliance
committee, Executive Committee,
Audit Committee, Board.
Risk movement
Given the changes in the regulatory
landscape, increased economic
pressures being faced by our
suppliers (e.g. rise in energy costs,
wage inflation) and evolution in
consumer preferences, the external
risk has increased. In response, we
continue to have well-established
and comprehensive food safety and
quality management systems to
manage this risk, resulting in the risk
showing no significant movement
compared to the previous year.
Responsible sourcing †
S ChStrategic
F C Compliance
Failure to ensure that products are
sourced responsibly across our
supply chains (adhering to respect for
fundamental human rights, including
ensuring clean and safe working
conditions and fair pay to workers)
may result in supply chain disruption,
regulatory breaches, and
reputational impact.
Oversight: Group risk and compliance
committee, Corporate Responsibility
Committee, Executive Committee,
Audit Committee, Board.
Exploitation of workers and human
rights breaches remain the key
drivers of this risk.
Continued pressures on global
economies have resulted in an
increased risk of worker exploitation,
particularly in some of our key
sourcing countries. We continue
to implement targeted response
strategies, including the
implementation of innovative
monitoring methods to ensure
our standards are met. This risk
has therefore not shown any
significant movement compared
to the previous year.
The risk remains stable as we
continue to monitor drivers for
macroeconomic changes and
implement appropriate response
strategies to manage their impact on
the Group’s performance in areas
such as energy costs, commodity
prices, taxation, and tariffs. This has
enabled us to ensure that the risk is
managed appropriately in line with
any evolution and/or changes to
external conditions on an ongoing
basis.
Financial performance†
O F CFinance
F C Compliance
Our financial performance may be
adversely impacted by uncertain and
volatile macroeconomic conditions
that may drive inflationary pressures,
rising energy costs, fluctuations in
commodity prices and unpredictable
tax exposures due to changes in tax
laws and their interpretation. These
factors, if not managed appropriately,
may impact the Group’s ability to
meet our external financial
commitments.
Oversight: Executive Committee,
Audit Committee, Board.
Key responses and controls
– Our product standards, policies and guidance, help ensure that
products are safe, legal and of the required quality. They cover
food and non-food, as well as goods and services not for resale.
– We closely monitor any updates to product safety regulations,
to ensure our standards and products continue to conform with
all relevant regulations.
– We conduct detailed due diligence of our suppliers prior to
onboarding, to ensure that adequate infrastructure, capabilities,
and capacities are in place to meet Tesco’s standards.
– We run colleague training programmes on food and product safety
and hygiene controls, and also provide support for stores for
product safety.
– Our crisis management procedures are embedded within our
operations to quickly resolve issues if non-compliant products are
produced or sold. Clear escalation protocols include the product
recall processes.
– We operate unannounced supplier audit and product analysis
programmes to monitor product safety, traceability, and integrity.
We use data analytics to identify which supplier sites may have
increased risk exposure, adjusting our audit frequency accordingly.
This approach allows us to use our resources effectively, while
ensuring appropriate assurance over suppliers’ sites is maintained.
– We operate a risk-based quality assurance programme, which is
focused on sample-based testing of our products to ensure
compliance with our standards and regulations.
– We have policies and guidance to help ensure human rights are
respected across our supply chain. These include a focus on
appropriately monitoring conditions and progress, tackling
endemic sector risks, and addressing wider community needs.
– Our contractual agreements with suppliers clearly articulate the
expected standards related to human rights and modern slavery.
Suppliers’ obligations are monitored and discussed as part of
regular governance meetings. We are increasing transparency of
our supply chains to drive up standards, such as by publishing our
Tier 1 supplier list.
– We also provide targeted training for colleagues and suppliers
dealing with specific regulations related to human rights and
modern slavery.
– We operate supplier audit programmes to monitor supplier
compliance with our standards related to human rights. These
include unannounced audits of supplier sites and facilities and
the review of any prior approvals for subcontracting.
– We qualify and review supplier factories through due diligence
before use to ensure they can meet our standards.
– We use certification schemes and participation in voluntary
industry schemes to drive up our standards.
– We maintain an infrastructure of systems, policies, and reports to
ensure discipline and oversight on all financial matters including tax,
treasury, financial reporting, and performance. The policies are
reviewed and annually approved by the Executive Committee,
Audit Committee, and the Board.
– The Chief Financial Officer and Group Finance Director, who lead a
team of in-house professionals, monitor our adherence to our
principles and policies through regular oversight and
governance meetings.
– We manage market factors such as cost and wage inflation,
commodity prices, and currency fluctuations in line with our
Group treasury policy.
– Long-term plans are flexed to consider sensitivities and scenario
planning that relate to the wider macroeconomic environment.
– We regularly review liquidity levels and sources of cash, and access
to committed credit facilities and debt capital markets is
maintained.
– We monitor proposed changes in tax legislation and given the
complex nature of tax law, seek professional advice when required.
– The Audit Committee maintains regular oversight and governance
of key areas, including liquidity and funding strategy, Group tax
obligations, our viability and going concern statements, and Group
key financial controls.
– Our Group finance team actively scans the external environment
for new regulations and/or requirements, developing detailed plans
with specific milestones and dedicated oversight to ensure we can
demonstrate compliance.
– We employ a system of financial controls across our business units.
The key financial controls are then subjected to rigorous second-
line and third-line testing.
Tesco PLC Annual Report and Financial Statements 2023
43
Strategic report
Principal risks and uncertainties continued
Principal risk
Customer†
S ChStrategic
The macroeconomic and geopolitical
conditions affecting economies in
which we operate may impact our
customers’ budgets and force
customers to reappraise the
concepts of value and loyalty in a way
to which we are unable to respond.
Oversight: Executive Committee,
Audit Committee, Board.
Risk movement
Customers are facing multiple
challenges from the increased cost of
living, which has reduced their
disposable income leading to changes
in shopping behaviours, resulting in
the risk being higher when compared
to the previous year. Management has
implemented focused response
strategies.
Tesco Bank
O F CFinance
F C Compliance
Tesco Bank is exposed to several
risks, the most significant of which
are operational, regulatory, credit,
funding and capital adequacy,
liquidity, market, and business risk.
These risks pose a reputational,
financial, and legal impact for
Tesco PLC should they materialise.
Oversight: Tesco Bank board,
Executive Committee, Audit
Committee, Board.
The macroeconomic environment has
become more challenging for Tesco
Bank this year due to factors such as
inflationary pressures, rising interest
rates and cost-of-living concerns for
our customers. However, the Bank
has proactively taken action to
manage the impact of these,
principally through its pricing
strategies, product offerings and
associated underwriting criteria.
Our response strategies are well
developed, and as Bank performance
remains stable, we have made no
change to the overall risk profile.
We continue to face the challenges of
a changing competitive landscape and
inflationary pressures across our
business units. The risk is deemed to
be unchanged, when compared to
the previous year, as our response
strategies are well developed, and we
review them regularly to ensure we
remain competitive and informed by
competitor and market activity.
Competition and markets†
S ChStrategic
Failure to deliver an effective,
coherent, and consistent strategy in
response to an increasingly complex
and fast-evolving competitor
landscape, and/or changes in market
conditions, may result in a negative
impact on our market share, causing
damage to our profitability and
business performance.
Oversight: Executive Committee,
Audit Committee, Board.
Key responses and controls
– Our key strategic drivers underpin decision making and are central
to the design of our customer offerings, propositions and
experience being provided through our different channels.
– Our product ranges, propositions and Clubcard benefits are
designed to provide our customers with the flexibility to achieve
balance between value and quality.
– We have a consistent approach to building impactful customer
propositions by offering high-quality and competitive value while
improving the customer experience.
– Our Group-wide customer insight analysis enables us to dynamically
improve our propositions. It does this by monitoring customer
behaviour and buying sentiments (including any changes due to
external factors such as inflation). This approach includes enriching
customer engagement through tailored campaigns, which also
helps to improve customer retention as well as loyalty.
– Our well-established product development and quality
management processes ensure the needs of our customer are
central to our decision making.
– We monitor the effectiveness of our processes by regularly tracking
our business and competitors against measures that customers tell
us are important to their shopping experience.
– The Bank has a formal structure for reporting, monitoring, and
managing risks supported by a robust risk management framework.
This comprises, at its highest level, the Bank’s risk appetite,
approved by the Bank risk committee and the Bank board.
– The Tesco PLC board also reviews and approves the Bank’s financial
risk appetite, which defines the type and amount of risk that the
Bank is prepared to accept to meet its strategic objectives. It also
forms a link between the day-to-day risk management of the
business, its objectives, long-term plan, capital planning and
stress-testing. We monitor adherence to risk appetite on a
monthly basis.
– The risk management framework brings together governance, risk
appetite, the three lines of defence, the policy framework and risk
management tools to support the business in managing risk as part
of its day-to-day activities. The framework includes scenario
analysis and regular stress-testing of financial resilience.
– Bank board risk reporting throughout the year, includes updates
to the Tesco PLC Audit Committee provided by the Bank’s Chief
Financial Officer and audit committee chair. A member of the
Tesco PLC Executive Committee is also a member of the Bank’s
board to enhance visibility and knowledge sharing.
– Our Board develops and regularly challenges the strategic direction
of our business to enhance our ability to remain competitive on
price, range, and service. This includes developing our online
channels and multiple formats to allow us to compete in
different markets.
– Our Executive Committee and operational management regularly
review markets, trading opportunities, competitor strategy and
activity.
– We carry out market scanning and competitor analysis to refine
our customer proposition.
– We are continuously improving our digital platform, adding more
flexibility, delivery options and increased range of merchandise on
offer, to compete against new players in the market.
– We continue to improve our Clubcard offerings and have
introduced promotions and targeted campaigns to compete with
other retailers on price and product quality.
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Tesco PLC Annual Report and Financial Statements 2023
Risk movement
Uncertain macro-events and
disruptions, such as inclement
weather patterns, crop failures,
logistical disruptions, and conflict
between countries, are leading to
greater volatility in the availability of
raw material and food supply. This
may be exacerbated further by
unknown political and global events in
the future. The risk impacts product
availability across our stores and how
we serve our customers, thereby
requiring elevation as a principal risk.
N
Principal risk
Security of supply†
S ChStrategic
Ch O Operational
Disruption in our supply chain due to
adverse macroeconomic conditions,
geopolitical events, and/or loss of
resilience in our key supplier network,
may result in Tesco being unable to
secure the products required to fulfil
customer demand on time and at
acceptable prices. This could result in
customer dissatisfaction, reputational
impact, loss of market share, loss of
sales, and erosion of expected
profit margins.
Oversight: Group risk and compliance
committee, Executive Committee,
Audit Committee, Board.
Key responses and controls
– We have a diversified portfolio of suppliers to reduce reliance on
single suppliers or multiple key suppliers from the same region.
This is further supplemented by a wide product range, which
enables us to offer alternate products to our customers, in case
of supply chain disruptions.
– We have an established mechanism to identify products that are
key in our customer baskets and have identified alternate or
contingent suppliers to fulfil any slack in supply. Additionally, we
maintain appropriate stock levels within our warehouses for fast
moving goods.
– We have a detailed supplier onboarding and due diligence process,
which allows us to review resilience of suppliers, in terms of
appropriate infrastructure as well as financial stability.
Furthermore, the due diligence process includes assessment of any
third parties or raw materials that the supplier may be reliant upon.
– We have established regular governance forums through which
our dedicated teams engage with suppliers to proactively identify
and resolve any issues (or upcoming threats) being faced by
our suppliers.
– We have committed significant investment with some of our key
suppliers to enhance the underlying infrastructure to ensure they
are able to meet any increases or spike in demand volumes.
Furthermore, we monitor the financial stability of our key suppliers,
and where possible, provide support to those suppliers that may
be facing financial duress (e.g. additional pay for our farmers).
– We have developed business continuity plans, which can be
executed in case of any logistical disruptions or inclement
weather events that may affect our ability to transport goods.
Emerging risk themes
Emerging risk themes are reported to the Audit Committee alongside our principal risks. We conduct horizon-scanning to enable a medium
and longer-term view of potential disruptors to our business. As part of our risk assessment process, we analyse internal and external
sources of emerging risk themes through review of leading external publications including attending industry seminars and forums, gathering
insights via top-down and bottom-up risk workshops with internal stakeholders, and seeking professional consultation where required. We
are currently tracking several emerging risk themes such as political, economic, technological, environment and talent. Those emerging
themes that have a potential impact and require a response, have been considered as part of our risk assessment process described on
pages 38 and 39.
Tesco PLC Annual Report and Financial Statements 2023
45
Strategic report
Longer term viability statement
Longer term
viability
statement.
Assessing the Group’s longer-term
prospects and viability
The Directors have based their assessment of viability on the
Group’s current long-term plan, which is updated and approved
annually by the Board. The plan delivers the Group’s purpose of
‘serving our customers, communities and planet a little better
every day’ and is underpinned by a clear strategic focus on
creating sustainable, long-term value for every Tesco stakeholder.
The Group conducts an annual strategic planning process,
comprising a comprehensive reassessment of progress against
the Group’s strategic objectives, alongside an evaluation of the
longer-term opportunities and risks in each market in which
the Group operates. The process for identifying the principal
and emerging risks in each market is an important input to
this process.
The Group’s strategic plan and viability statement are both
considered over a three-year period, as this time horizon
most appropriately reflects the dynamic and changing retail
environment in which the Group operates.
Long-term planning process
The long-term planning process builds from the Group’s current
position and considers the evolution of the strategic objectives
over the next three years. Three years is selected as the Group’s
planning horizon and viability period based on the pace of change
in both the competitive landscape and customer shopping
behaviours within the retail sector.
Current position
Our multi-year performance framework, strategic drivers and
capital allocation framework, which were announced in 2021,
continue to guide management’s actions. The multi-year
performance framework sets out the objectives of the business:
to drive top-line growth; to grow absolute profits while maintaining
sector leading margins; and to generate stable retail free cash flow
each year. The delivery of these objectives will enable the Group
to maintain a strong balance sheet, invest for growth and deliver
improved returns for shareholders.
Management recognise that customers across the Group currently
face significant cost-of-living pressures, and continue to prioritise
offering great value during these challenging times, while delivering
sustainable growth, supported by:
– A strategic focus on driving growth and continued focus on cost
reduction from simplification of the operating model;
– A clear set of financial priorities to deliver cash profit, free cash
flow and earnings per share growth, underpinned by a robust
capital allocation framework; and
– A diversified business portfolio covering retail, wholesale,
banking and data science.
Refer to the Group Chief Executive’s review from page 8 and the
Financial review on pages 30 to 37 for further detail regarding the
Group’s strategic and financial progress.
Longer-term prospects
The following factors are considered both in the formulation of
the Group’s strategic plan, and in the longer-term assessment
of the Group’s prospects:
– The principal risks and uncertainties faced by the Group, as well
as emerging risks as they are identified, and the Group’s
response to these;
– The prevailing economic climate and global economy,
competitor activity, market dynamics and changing customer
behaviours;
– Any structural changes in how customers shop, additional costs
incurred by the Group and potential macroeconomic
consequences of rising unemployment and inflation due to
geopolitical events and global supply challenges;
– Opportunities for further cost reduction through operational
simplification and leveraging technology; and
– The resilience afforded by the Group’s operational scale.
Assessing the Group’s viability
The viability of the Group has been assessed, considering the
Group’s current financial position, including external funding in
place over the assessment period, and after modelling the impact
of certain scenarios arising from the Group’s principal risks
outlined on pages 38 to 45.
Four ‘severe but plausible’ hypothetical scenarios have been
modelled which address the principal risks that the Group has
assessed would have the most direct and material impact on the
Group. None of these scenarios, either individually or in aggregate
threaten the viability of the Group. The hypothetical scenarios
described are also used as the basis for the risk-weighted cash
flows which are included in our impairment of non-current asset
sensitivity analysis. For more information, please refer to Note 14
of the financial statements.
46
Tesco PLC Annual Report and Financial Statements 2023
Associated
principal risk
– Competition and
markets
– Customer
Scenario
Recessionary
impacts on
customer
disposable
income
Global supply
pressures
– Responsible
sourcing
– Financial
performance
– Security of supply
Climate
change
Data breach
– Climate change
– Responsible
sourcing
– Political, regulatory
and compliance
– Cyber security
– Political, regulatory
and compliance
– Customer
– Data privacy
Description
Global economies are facing elevated levels of inflation and rising interest rates. The resultant
impact on disposable incomes, employment rates and consumer confidence contributes
towards a contraction in customer demand, driving like-for-like sales decline across our retail
businesses. To deliver our medium-term performance ambitions and maintain our competitive
position in such a recessionary environment, further investment in our value proposition will be
required which puts pressure on operating margins. Management have applied a downside
scenario which reduces the projected like-for-like sales growth in each of the three years of the
Group strategic plan by (5)%, increased from (4)% in last year’s modelling to account for further
downside risk given unprecedented disposable income impacts in the prior year. To maintain our
competitive position in such a recessionary environment, further investment in our value
proposition will be required which puts pressure on operating margins. In addition, management
have considered the potential for customers to manage a contraction in disposable incomes by
switching from more expensive to lower-priced ranges. Management have applied a downside
scenario in this instance which assumes 1% of the existing sales in higher-priced ranges transfers
into lower-priced and lower-margin ranges.
Geopolitical events, availability of labour and commodity shortages drive high domestic inflation
in the markets in which we operate, which results in significant cost inflation. The Group absorbs
elevated levels of cost inflation across goods purchased for sale to customers and the operating
cost base, particularly in costs related to colleague payroll. The ability of the Group to manage
these cost tensions through cost savings or retail pricing is constrained. Management have
applied a downside scenario which assumes the Group absorbs further cost inflation in colleague
pay and cost of goods sold. These cost tensions are assumed to be fully absorbed by the Group,
with no assumed mitigation through additional cost savings or retail pricing. The adverse
consumer impact from this risk is dealt with in the recessionary impacts on customer disposable
income scenario described above.
Global action to address rising temperatures results in a shift in consumer sentiment towards
more sustainable products and an increase in carbon taxes levied against Group emissions.
The costs associated with these risks are based on our climate-related risk modelling, which is
described in further detail in the Task Force on Climate-related Financial Disclosures (TCFD)
section, starting on page 20. The viability modelling estimates the potential annual financial
impact on the Group of three key risk areas, covering consumer sentiment, technology write
offs and policy (carbon pricing) risks, based on a 3°C warming pathway.
The volume and nature of the customer and supplier data we hold as a business could result in a
serious data or security breach which sees a significant financial penalty levied against the Group,
aligned to the UK GDPR penalty framework which could see a maximum fine levied of 4% of
Group revenue. For the purposes of this stress test, management have included a fine quantified
as 2% of Group revenue, being the mid-point of the potential maximum fine. A significant data
breach poses a reputational risk, resulting in a decline in customer sentiment and an adverse
trading impact. The extent of this trading impact is very uncertain, both in terms of the financial
impact and the period it may take to recover customer trust. As such, the potential brand
reputation element of this scenario has been modelled via a ‘reverse stress test’. This assesses
the risk in the context of the residual headroom after all other scenarios have been applied.
The resultant like-for-like sales decline which would have to occur to eliminate the residual cash
headroom, including all other scenarios happening in aggregate, is around twice as severe as any
decline the Group has faced in recent years.
We expect to be able to refinance external debt and renew committed facilities as they become due, which is the assumption made in the
viability scenario modelling. Our committed facilities remain undrawn as at the end of the financial year. Please refer to Note 21 of the
financial statements for further details on our debt profile, including maturity dates. The scenarios above are hypothetical and purposefully
severe with the aim of creating outcomes that could threaten the viability of the Group. In the case of these scenarios arising, various
options are available to the Group in order to maintain liquidity to continue in operation, such as: (i) accessing new external funding early; (ii)
short-term cost reduction actions; and (iii) reducing capital expenditure. None of these mitigating actions are assumed in our current
scenario modelling.
Viability statement
Based on these severe but plausible scenarios, the Directors have a reasonable expectation that the Company will continue in operation and
meet its liabilities as they fall due over the three-year period considered.
This Strategic report has been prepared in accordance with the requirements of the
Companies Act 2006, and has been approved and signed on behalf of the Board.
Robert Welch
Group Company Secretary
12 April 2023
Tesco PLC Annual Report and Financial Statements 2023
47
Strategic report Corporate governance report
Governance
introduction.
Governance framework supporting
oversight
This section of the Annual Report focuses on corporate
governance. Our governance framework contributes to the
development and delivery of our strategy. It ensures that
we, as a Board, have the right information, with appropriate
detail and at appropriate intervals to oversee progress and
challenge management.
“Our refreshed purpose and leadership
behaviours are now embedded into the
Group’s culture, which supports the
delivery of our strategic drivers.”
John Allan CBE
Chair
Compliance with the UK Corporate
Governance Code
The UK Corporate Governance Code 2018 (Code) is
applicable to all companies with a premium listing.
Companies subject to the Code are required to make
a statement demonstrating how they have applied the
principles of the Code. Details of how the principles of
the Code have been applied can be found throughout
this Corporate governance report, the Strategic report
and Committee reports as signposted on page 50.
During the year the Company was in full compliance with
all applicable principles and provisions set out in the Code.
Pages 48 to 106 of this report form our Corporate
Governance Statement.
Monitoring compliance with the Code is the responsibility
of the Nominations and Governance Committee,
which receives regular updates and reports its findings
to the Board.
The Financial Reporting Council (FRC) is
responsible for the publication and periodic
review of the UK Corporate Governance Code,
which can be found on the FRC website:
www.frc.org.uk.
48
Tesco PLC Annual Report and Financial Statements 2023
Our governance framework allows our dedicated Committees
to explore matters in depth. In support of enhancing the
oversight of sustainability matters, a full review of our Committee
responsibilities was undertaken during the year to strengthen
sustainability governance and ensure that all material matters
are reviewed by the Board or at a Board-level Committee.
Management committees feed into this process as the
responsibility and oversight cascades throughout the
organisation to achieve a common purpose.
More detail on the Corporate governance framework
can be found on page 57.
Leading on culture
It has been a year since we expanded our purpose and developed
our new strategic drivers. Our strong and healthy culture, both in
the Boardroom and across the business, plays a major role
in our success.
Our culture comes to life through our purpose and values: No one
tries harder for customers; We treat people how they want to be
treated; and Every little help makes a big difference. Our values
are integral to the way we behave and do business. They ensure
that every colleague at Tesco should understand what is important,
how we work together as a team, the choices we make across the
Group, and why customers, the community and planet are at the
centre of everything we do. We monitor progress through
reporting to the Board and receive insight through customer,
colleague and supplier feedback surveys, which provide metrics
and KPIs to assess our progress and respond accordingly.
Our values and leadership behaviours ensure that the Tesco
culture is embedded throughout the organisation. The Board,
through its Remuneration Committee, is responsible for ensuring
appropriate arrangements are in place for rewarding and
incentivising management with specific performance targets
linking our culture and purpose to the delivery of our strategy.
More detail on our leadership behaviours and how
the Board oversee culture can be found on page 58.
An active and engaged Board
The Board continues to focus on our key priorities. It takes
important decisions necessary to progress them, and is held
accountable for doing so by our shareholders and other
key stakeholders. Strategic deep dives into all areas of the
business continued throughout the year with a dashboard of
progress against our strategic drivers being presented at each
meeting, which we have debated and challenged. This provides
great insight and highlights the challenges we face.
The Board is responsible for the delivery of the Group’s net zero
commitments, with sustainability being a key theme of Board and
Committee discussions. The Board is committed to taking a leading
role in protecting our planet, addressing the impact of climate
change and the contribution we can make as a business to
mitigate our own impact and that of our supply chain. Our
sustainability ambitions are shared across the Group.
There have been a number of changes to Board composition
during the year. In June 2022, Steve Golsby and Simon Patterson
retired from the Board, and in February we announced that
Lindsey Pownall had decided to retire as a Director in June 2023.
We are grateful to each of them for their outstanding
contributions and commitment to the Board and committees.
Stewart Gilliland will succeed Lindsey Pownall as Sustainability
Committee Chair.
In October 2022, we welcomed Caroline Silver as a Director, who
brings a wealth of knowledge and experience across a number of
commercial, financial, international and governance roles. Caroline
has undertaken a bespoke on-boarding induction programme to
better understand the business. In September 2023, we look
forward to welcoming Dame Carolyn Fairbairn as an independent
Non-executive Director of the Board. She is a highly regarded
business leader with a deep understanding of the macroeconomic
and political environment and will be a real asset to the Board.
We continue to have a strong and stable Board composed of
Directors with a wide range of relevant knowledge, skills and
experience. This was confirmed in our 2022/23 Board evaluation.
As Chair, I am responsible for ensuring the effectiveness of the
Board, its Committees and individual Directors. I led the
performance evaluation and Board effectiveness review and
further details of the conclusions of the evaluation are set out
on pages 61. The Board and committees continue to perform
effectively with clear terms of reference, appropriate agendas
and a good balance of support and challenge.
More detail on the composition of the Board and the
skills and expertise of our Directors can be found in
their biographies on pages 51 to 53.
Conclusion
As a Board, our overarching objective is to ensure we remain a
successful and responsible Company, making decisions for the
benefit of all our stakeholders and promoting the long-term
sustainable success of the Company. We are proud of the way
our businesses have adapted to the macroeconomic environment
over the past three years, demonstrating that we have an agile and
resilient business. I would like to thank colleagues for their hard
work and dedication through a challenging period and my fellow
Board members for continuing to provide strong leadership in
these changing times.
2023 Board priorities
– Inflation and the cost of living and the impact on our
customers and other stakeholders.
– Sustainability agenda.
– Delivery of the strategic drivers.
More detail on the activities of the Board during
the year can be found on pages 64 to 65.
We are deeply committed to our sustainability agenda and
welcome collaboration with our colleagues, suppliers and
customers collectively to achieve success. With this in mind,
our Corporate Responsibility Committee will be renamed
Sustainability Committee to reflect its sustainability focus.
The Board recognises the need to create conditions that foster
talent and encourage all colleagues to achieve their full career
potential. During the year, the Board has placed greater emphasis
on talent management, diversity and inclusion. Through a simple,
consistent approach to talent management, the creation of
diverse talent communities to support accelerating diverse talent
and the introduction of Your Contribution, a new performance
management approach that helps colleagues and leaders to
deliver the new strategy, we are progressing with our talent
management and inclusion strategy and delivery of targets.
In addition, there has been a focus on succession at senior
management level to ensure we have robust plans in place,
with credible succession plans for all key roles. More details
on our succession planning is set out in the Nominations and
Governance Committee report on pages 66 to 68.
Throughout its discussions this year, the Board has spent a
significant amount of time considering the important role we
play for our stakeholders, recognising the pressures on
everyone with rising costs.
The Board values the insight gained from stakeholder engagement
and places significant importance on maintaining close
relationships with stakeholders, taking account of and responding
to their views. During the year, we engaged with shareholders and
had detailed discussions to understand their priorities with a
particular focus on the ESG agenda.
Following the significant vote against Bertrand Bodson at the 2022
AGM, the Board was naturally disappointed with the overall voting
outcome. Bertrand is a highly valued member of our Board and we
actively sought to engage with significant shareholders who voted
against his re-election to understand their voting decision and
concerns around the perceived ‘over-boarding’. The Nominations
and Governance Committee carefully monitors all Directors’
external time commitments and the effectiveness of Directors.
If the Committee identifies any issues of concern, it takes
appropriate action. As a result of our consultation, Bertrand has
taken the decision to step down as a member of the Supervisory
Board of Wolters Kluwer N.V. at the end of his current term on
10 May 2023.
More detail on Board leadership in action can be
found on pages 62 to 63.
Board changes
My role as Chair is to maintain high standards of corporate
governance and ensure the Board is equipped to carry out its
duties. With the support of the Nominations and Governance
Committee, succession planning is regularly reviewed to ensure
the Board has a diverse range of professional backgrounds, skills
and perspectives. Diversity remains a key consideration in our
succession planning at both board and senior management level.
Further detail on our Board diversity and inclusion policy can be
found in our Nominations and Governance Committee report on
page 67. A Board skills matrix provides valuable insights into our
collective and individual strengths on the Board and highlights
areas for further development, positioning us well to maintain
and further enhance our effectiveness.
Tesco PLC Annual Report and Financial Statements 2023
49
Corporate governance
Corporate governance report continued
Governance at a glance.
“The Board is committed to maintaining the highest standards of corporate governance.
This report demonstrates that having an effective corporate governance framework
ensures the Group is appropriately managed and supports the delivery of our strategy
within a culture which drives the right behaviours.”
John Allan CBE
Chair
Board composition (as at 25 February 2023)
Board balance
(Number of Directors)
Length of tenure
(Number of Directors)
International
experience
Gender and ethnic diversity
Board gender
diversity
Board ethnicity
1
2
9
Independent
Non-executive Directors
Executive Directors
Chair (independent upon
appointment)
2
2
2
0-3 yrs
3-5 yrs
5-7 yrs
7-9 yrs
6
6
9
UK
Europe
ROW
12
42%
58%
17%
83%
Male
Female
White
Ethnically diverse
Composition,
succession and
evaluation
Pages
Principles J-L
48-49
54
51-54
60
66-68
54
Appointments to
the Board and
succession
planning
Balanced Board
Annual
evaluation
Pages
60
61
66-68
50-54
60
61
66-68
Audit, risk and
internal control
Principles M-O
Internal and
external auditor
Pages
71-76
Remuneration
Principles P-R
Remuneration
policies and
practices
Assessment of
Company’s
position and
prospects
Risk management
and internal
control
38-47
71-76
106
Policy on
executive
remuneration
38-46
71-76
Remuneration
outcomes
Pages
80
83-91
101
79
85-87
89-96
77-78
81-84
97-100
UK Corporate Governance Code
Board leadership and
Company purpose
Division of
responsibilities
Principles F-I
Role of Chair
Board composition
Role of the
Non-executive
Director
Role of the
Company Secretary
54
Principles A-E
Promoting the
long-term
sustainable success
of the Company
Purpose, values
and strategy
Resources and
controls necessary
to meet objectives
and measure
performance
Effective
engagement with
stakeholders
Workforce policies
and practices
aligned to values and
support long-term
success
Pages
7-49
56
62-65
6
12-14
56-59
38-45
56-57
4-5
15-17
25-27
62-63
16-17
58-59
77-105
50
Tesco PLC Annual Report and Financial Statements 2023
Board of Directors.
The Board is currently
composed of the Chair,
who was independent
upon appointment, two
Executive Directors and
nine Non-executive
Directors.
N
R
C
John Allan CBE
Chair
Appointed March 2015
Skills and contribution
John has extensive leadership expertise
and has a wealth of knowledge gained
across a number of business sectors,
including retail and finance experience
gained from both the commercial and
financial sectors. As Chair, he has a deep
understanding of governance and what is
required to lead an effective Board.
Experience and past
appointments
John was CEO of Exel PLC and, when it
was acquired by Deutsche Post in 2005,
he joined the board of Deutsche Post,
becoming CFO in 2007 until his retirement
in 2009. He was chairman of Dixons Retail
plc during its turnaround period and,
following its merger with Carphone
Warehouse, was deputy chairman and
senior independent director of Dixons
Carphone until 2015. He was also
previously a non-executive director of
Worldpay Group PLC, National Grid plc,
the UK Home Office Supervisory Board,
3i plc, PHS Group plc, Connell plc,
Royal Mail plc, Wolseley plc and
Hamleys plc, chairman of London
First and president of the CBI.
Current appointments
– Chairman of Barratt Developments PLC
(retiring 6 September 2023)
– Chair of the Council of Imperial College
– Senior advisor to PJT Partners.
Experience and past
appointments
Prior to joining Tesco, Imran was CFO of
Tate & Lyle PLC and held a number of
senior financial roles across Europe, the
Middle East and Africa, with a career of
over 16 years at Mondelēz International
and Kraft Foods. He started his career
with Deloitte and Philip Morris in
corporate audit.
Current appointments
– None.
A
i
Melissa Bethell
Non-executive Director
Appointed September 2018
Skills and contribution
Melissa’s wealth of international
corporate, strategy and financial
experience across a range of industries,
with a focus on private equity, advisory
services, strategic consultancy and the
financial, media and technology sectors,
is invaluable in delivering our strategy.
Experience and past
appointments
Melissa is currently the managing partner
at Atairos Europe, an equity investment
fund backed by Comcast NBCUniversal,
and from 30 April 2023 will transition to
become a senior advisor to Atairos.
Melissa was previously a managing
director of Bain Capital, where she was
a member of the senior leadership
team responsible for strategy setting,
fundraising and portfolio management.
Prior to joining Bain Capital, Melissa
worked in the capital markets group at
Goldman Sachs & Co., with a particular
focus on media and technology. She was
also previously a director of Ship Midco
Limited and served as a non-executive
director of Samsonite International S.A.,
Worldpay Group PLC and Atento S.A.
Current appointments
– Non-executive director of Diageo PLC
– Partner at Atairos and managing
partner of Atairos Europe, becoming
a senior advisor to Atairos from
30 April 2023
– Non-executive director of Exor N.V.
– Chair of Ocean Outdoor Limited.
Ken Murphy
Group Chief Executive
Appointed October 2020
Skills and contribution
Ken is a growth-orientated business
leader with strong commercial, marketing
and brand experience within retail and
wholesale businesses. He has experience
in global product brand management,
product development, sales and marketing,
sourcing, manufacturing and distribution.
Experience and past
appointments
Prior to joining Tesco, Ken worked for
Walgreens Boots Alliance, Inc. for
over 20 years in a number of senior
management roles across the business.
Through his role as executive vice
president, chief commercial officer
and president of global brands at
Walgreens Boots Alliance, Ken had overall
responsibility for brand strategy and the
commercial offer in the retail businesses
of Walgreens and Boots. He previously
worked for Procter & Gamble and
Coopers & Lybrand (now PwC).
Current appointments
– None.
Imran Nawaz
Chief Financial Officer
Appointed May 2021
Skills and contribution
Imran has over 20 years’ experience
in the global food industry and broad
financial, strategic and international
experience gained across a number
of large multinational organisations.
His financial, strategic, leadership and
international strengths are a valuable
asset to Tesco as we deliver on our
strategic priorities.
Tesco PLC Annual Report and Financial Statements 2023
51
Corporate governance Corporate governance report continued
Board of Directors continued
C
i
R
i
Bertrand Bodson
Non-executive Director
Appointed June 2021
Thierry Garnier
Non-executive Director
Appointed April 2021
Skills and contribution
Bertrand is an accomplished business
executive, with significant experience of
digital transformation, technology and the
application of AI. He brings exceptional
leadership and business expertise to the
Board, as well as experience in delivering
corporate transformation programmes
while maintaining a focus on performance.
His significant knowledge of digital and
technology matters gained across a
number of sectors, including retail,
enhances the Board’s oversight of these
areas and the delivery of the strategy.
Experience and past
appointments
Bertrand is chief executive officer of
Keywords Studios PLC and was previously
chief digital officer at Novartis, chief
digital and marketing officer at Sainsbury’s
Argos, executive vice president for global
digital at EMI Music and co-founder and
CEO of Bragster.com. He has also held
senior roles at Amazon and started his
career at Boston Consulting Group.
Current appointments
– Chief executive officer of Keywords
Studios PLC
– Member of the Supervisory Board
of Wolters Kluwer N.V. (retiring
10 May 2023).
Skills and contribution
Thierry brings extensive experience
in the retail sector, both in the UK and
internationally, with a successful track
record of implementing business
transformation and driving leading-edge
digital innovation in competitive and
rapidly-changing retail environments.
Experience and past
appointments
Since 2019 Thierry has been chief
executive officer of Kingfisher plc and
previously spent over 20 years at
Carrefour, the French multi-national
retailer. At Carrefour he held a number
of senior roles, including CEO of
Carrefour Asia, CEO of Carrefour
International and managing director of
supermarkets for Carrefour France,
and was a member of the Carrefour
group executive committee.
Current appointments
– Chief executive officer of Kingfisher plc.
N
C
i
Stewart Gilliland
Non-executive Director
Appointed March 2018
Skills and contribution
Stewart brings over 20 years’ experience
and knowledge in international marketing,
logistics and business management,
having held a number of senior roles,
predominantly in customer-centric
businesses. The breadth and diversity
of Stewart’s experience is a benefit to
the Board.
Experience and past
appointments
Stewart has significant business and
management experience in international
markets, specifically those in Europe,
having previously held roles with leading
52
Tesco PLC Annual Report and Financial Statements 2023
consumer-facing companies, including
Whitbread, Mitchells & Butler and
Interbrew. He held the position of chief
executive of Müller Dairies UK and Ireland
until 2010, and chairman of C&C Group
plc until July 2022. Prior to joining Tesco,
he was chairman of Booker Group plc.
Current appointments
– Chair of IG Design Group PLC
– Non-executive director of Chapel
Down Group plc
– Non-executive director of
Nature’s Way Foods Ltd.
N
A
R
i
Byron Grote
Senior Independent Director
Appointed May 2015
Skills and contribution
Byron brings a wide range of experience
and skills including finance, strategy, risk,
and supply chain logistics through a
variety of executive and non-executive
roles. His strategic focus and financial
experience complement the balance of
skills on the Board and make him ideal for
the role of Chair of the Audit Committee,
where he is responsible for leading the
Committee to ensure effective internal
controls and risk management systems
are in place across Tesco.
Experience and past
appointments
Byron brings broad financial and
international experience to the Board,
having worked across BP PLC in a variety
of commercial, operational and executive
roles covering numerous geographies.
He served on the BP PLC board from
2000 until 2013 and was BP’s CFO during
much of that period. He was previously a
non-executive director of Unilever PLC,
senior independent director of Anglo
American PLC until April 2022 and
non-executive director of Standard
Chartered PLC until November 2022.
Current appointments
– Vice chairman of the Supervisory Board
of Akzo Nobel N.V.
– Non-executive director of
Intercontinental Hotels Group PLC
– Non-executive director of Inchcape plc.
N
R
i
Alison Platt CMG
Non-executive Director
Appointed April 2016
Skills and contribution
Alison has gained significant business-to-
business and international commercial
experience from working for high-profile
consumer-facing companies. Her former
membership of the steering group of the
Hampton-Alexander Review provides
strategic insights on diversity and
inclusion. Alison’s experience as a CEO
enables her to provide challenge and
advice to the Board across a range of
issues including in her role as
Remuneration Committee Chair.
Experience and past
appointments
Alison has extensive experience of
leadership in customer-driven
organisations across the healthcare,
insurance and property sectors. As CEO
of Countrywide, a position she held until
January 2018, she gained significant
business-to-business experience adding
this to the international experience she
gained while leading a number of Bupa’s
businesses across Asia, Southern and
Eastern Europe and the Middle East.
Alison was previously chair of Opportunity
Now, a non-executive director of the
Foreign and Commonwealth Office and
Cable and Wireless Communications PLC.
Current appointments
– Chair of Dechra Pharmaceuticals PLC
– Non-executive director of Spectrum
Wellness Holdings Limited
– Advisor to Huntswood CTC Limited
– Chair designate of Ageas (UK) Limited.
C
R
i
Lindsey Pownall OBE
Non-executive Director
Appointed April 2016
Skills and contribution
Lindsey’s in-depth understanding of the
food retail sector and stakeholder focus,
together with her wealth of experience
in supply leadership and strategic
development make her a valuable
member of the Board. As Chair of the
Corporate Responsibility Committee,
she is responsible for the Group’s
environmental and social objectives and
strategies. She is a passionate advocate
of supplier relationships, customers,
colleagues and sustainability, which
directly support Tesco’s strategy and
her role as Chair of the Corporate
Responsibility Committee.
Experience and past
appointments
Lindsey has substantial experience
in food, grocery and retail brand
development, having enjoyed a career
of more than 20 years at Samworth
Brothers, the leading UK supplier of
premium quality chilled and ambient
foods. She joined the Samworth board
in 2001 and served as chief executive
between 2011 and 2015. Lindsey was
previously a non-executive director of
Story Contracting Limited and Story
Contracting Holdings Limited until
September 2022.
Current appointments
– Director of The Ho-So Initiative Limited
– Independent advisor to GrowUp Urban
Farms Limited.
Lindsey will step down from the Board at
the conclusion of the 2023 AGM.
A
i
Caroline Silver
Non-executive Director
Appointed October 2022
Skills and contribution
Caroline brings to the Board a wealth of
knowledge and experience across a
number of commercial, financial and
governance roles, together with
extensive investment banking and
international experience.
Experience and past
appointments
Caroline has spent more than 30 years in
the investment banking sector and was
most recently a partner and managing
director at Moelis & Company. She has
held senior corporate finance and
M&A positions at Morgan Stanley and
Merrill Lynch, starting her career at
PricewaterhouseCoopers, where she
qualified as a Chartered Accountant.
Previously she was a trustee of the
Victoria and Albert Museum, a non-
executive director of Meggitt PLC and
M&G PLC, and on the Board of the
London Ambulance Service NHS Trust.
Current appointments
– Advisory partner to Moelis & Company
– Non-executive director of Bupa
– Non-executive director of
Intercontinental Exchange, Inc
and Chair of ICE Clear Europe
– Member of International Advisory
Board of Adobe Inc
– Non-executive director of Barratt
Developments PLC (with effect from
1 June 2023 and will succeed John Allan
as Chair of Barratt Developments PLC
with effect from 6 September 2023).
A
C
i
Karen Whitworth
Non-executive Director
Appointed June 2021
Skills and contribution
Karen brings a wealth of experience and
extensive knowledge of the retail sector,
in particular logistics and supply chain,
finance and risk, to the Board.
Experience and past
appointments
Karen has significant retail, strategic and
financial experience gained through a
number of commercial, operational and
governance roles. Karen was previously a
supervisory board member and member
of the audit committee at GS1 UK Limited.
She spent more than 10 years at
J Sainsbury plc, latterly as a member of
the commercial board and director of
non-food grocery and new business.
Prior to joining J Sainsbury in 2007,
she was finance director at online
entertainment business BGS Holdings
Limited and held a number of senior
roles at Intercontinental Hotels Group Plc.
Her early career was spent at Coopers &
Lybrand (now PwC), where she qualified
as a Chartered Accountant.
Current appointments
– Senior independent director of
The Rank Group plc
– Senior independent director of
Tritax Big Box REIT plc
– Independent advisor to GrowUp
Urban Farms Limited.
Tesco PLC Annual Report and Financial Statements 2023
53
Corporate governance Corporate governance report continued
Board of Directors continued
He has worked as a company secretary
for more than 25 years during which time
he has held the positions of company
secretary at FirstGroup plc and
Kazakhmys PLC.
C
R
i
New Non-executive
Director
Dame Carolyn Fairbairn DBE
To be appointed 1 September 2023
Dame Carolyn Fairbairn will be joining
the Board on 1 September 2023 as an
independent Non-executive Director.
Dame Carolyn brings a wealth of
experience to the Board with her deep
understanding of the macroeconomic,
regulatory and political environment and
significant experience across the media,
government and finance sectors. Dame
Carolyn will become a member of the
Remuneration Committee and Corporate
Responsibility Committee.
Other directors who have
served during the year:
Steve Golsby and Simon Patterson served
as independent Non-executive Directors
until 17 June 2022.
Key to Board
Committees
N
A
R
C
Nominations and Governance
Committee
Audit Committee
Remuneration Committee
Corporate Responsibility
Committee
Chair of Committee
i
Independent Board member
Committee membership as at 12 April 2023
He is a member of the executive
committee of the Association of General
Counsel and Company Secretaries of the
FTSE 100 (GC100) and the CGI Company
Secretaries Forum.
Robert Welch
Group Company Secretary
Appointed August 2016
Skills and contribution
Robert provides legal and corporate
governance advice and support to the
Board and the boards of all other legal
entities in the Group.
Role profiles
The Board has agreed a clear division of responsibilities between the running of the Board and
running the business of the Group. The responsibilities of the Chair, Group Chief Executive,
Senior Independent Director and other Directors are clearly defined so that no individual has
unrestricted powers of decision and no small group of Directors can dominate the Board’s
decision making.
Chair
The Chair is responsible for the effective
leadership of the Board, setting the agenda,
ensuring its effectiveness and maintaining a
culture of openness and transparency at
Board meetings. The Chair also promotes
effective communication between Executive
and Non-executive Directors and ensures all
Directors effectively contribute to
discussions and feel comfortable in
Group Chief Executive
The Group Chief Executive has day-to-day
responsibility for the effective management
of the Group and for ensuring that Board
decisions are implemented. He plays a key
role in devising and reviewing Group
strategies for discussion and approval by
the Board.
Senior Independent Director
The Senior Independent Director provides
a sounding board for the Chair and acts as
an intermediary for the Non-executive
Directors. The Senior Independent Director
is available to shareholders should they
have any concerns, where communication
through normal channels has not been
Non-executive Director
The Non-executive Directors bring
independent insight and experience to
the Board. They have a responsibility to
constructively challenge the strategies
proposed by the Executive Directors;
scrutinise the performance of management
Group Company Secretary
The Group Company Secretary is secretary
to the Board. He ensures Board procedures
are complied with and the Board has the
information, time and resources it needs in
order to function effectively and efficiently.
He advises the Board on all governance
matters and facilitates induction
programmes for new Directors and provides
briefings on governance, legal and
regulatory matters.
engaging in healthy debate and constructive
challenge. The Chair ensures all Directors
receive accurate, timely and clear
information to assist them to make their
decisions, identifies training and
development needs as required, and
ensures new Directors receive appropriately
tailored induction programmes.
The Group Chief Executive is also tasked
with providing regular operational updates
to the Board on all matters of significance
relating to the Group’s businesses or
reputation, and for ensuring effective
communication with shareholders and
other key stakeholders.
successful or where such channels are
inappropriate. The Senior Independent
Director meets with the Non-executive
Directors at least annually when leading
the Non-executive Directors’ appraisal
of the Chair’s performance.
in achieving agreed goals and objectives;
and play leading roles in the functioning
of the Board Committees, bringing an
independent view to the discussion.
All Directors have access to the advice of
the Group Company Secretary and the
Group provides access, at its expense, to
the services of independent professional
advisors in order to assist Directors in
their role.
54
Tesco PLC Annual Report and Financial Statements 2023
Executive Committee.
The Executive Committee
comprises Ken Murphy
and Imran Nawaz,
Executive Directors of
the Board, CEOs of our
regional businesses and
senior management in
key functional roles.
Ken Murphy
Group Chief Executive
Member since October 2020.
Ken’s full biography appears on page 51.
Imran Nawaz
Chief Financial Officer
Member since May 2021.
Imran’s full biography appears on page 51.
Natasha Adams
CEO, Tesco Ireland and Northern
Ireland
Member since June 2018.
Natasha is responsible for Tesco’s
businesses in the ROI and
Northern Ireland.
Natasha joined Tesco in 1998 as a
Personnel Manager and then served in
a range of store-focused roles. Prior
to being appointed to her current role,
she was Chief People Officer. Natasha
is also a non-executive director of
Berkeley Group Holdings plc.
Alessandra Bellini
Chief Customer Officer
Member since March 2017.
Alessandra is responsible for building
the Tesco brand globally and putting
the customer at the heart of everything
that we do. Customer insights, loyalty,
propositions and marketing
communications are within her
responsibilities.
Prior to joining Tesco in 2017, Alessandra
worked at Unilever for 21 years, in a
number of senior marketing positions
across different countries and categories.
Previously, she had a 12-year career in
advertising, working both in Italy and the
UK. Alessandra is president of the
Advertising Association.
Guus Dekkers
Chief Technology Officer
Member since May 2021.
Guus is responsible for all consumer-
facing enterprise technologies and related
services, spanning stores, online, supply
chain and digital across the Group.
Guus joined Tesco in 2018 having
previously worked at a number of major
international companies, including Airbus,
Volkswagen, Siemens, Continental and
Johnson Controls, gaining extensive
multicultural experience of driving
large-scale technology transformation
and change programmes. Guus is also a
non-executive director of SwissCom.
Christine Heffernan
Group Communications Director
Member since March 2019.
Christine is responsible for building
Tesco’s reputation, leading Tesco’s
external and internal communications,
public affairs, government relations,
community and campaigns agenda.
Christine joined Tesco Ireland in 2014 as
Corporate Affairs Director. Christine has
previously worked in the financial, energy
and telecoms sectors.
Gerry Mallon
Chief Executive, Tesco Bank
Member since August 2018.
Gerry is responsible for leading Tesco Bank.
Gerry has held a number of leadership
roles in financial services. Prior to joining
Tesco, Gerry served as chief executive
officer of Ulster Bank Ireland and was
chief executive officer of Danske Bank UK
(formerly Northern Bank). Earlier in his
career, Gerry held roles at Bank of
Ireland, McKinsey & Company and the
UK Civil Service. Gerry is also chair of
Foundation of Hearts and a non-executive
director of Heart of Midlothian PLC.
Adrian Morris
Group General Counsel
Member since September 2012.
Adrian is responsible for the legal,
company secretarial, group security,
resilience, regulatory and compliance
functions across Tesco PLC.
Prior to joining Tesco, Adrian worked at
BP PLC as associate general counsel and
prior to that at Centrica PLC, latterly as
general counsel for British Gas. He is also
a non-executive director of Tesco Bank
and Moorfields Eye Hospital NHS
Foundation Trust.
Ashwin Prasad
Chief Product Officer
Member since September 2020.
Ashwin is responsible for the planning,
ranging, sourcing and supply of the
products we sell across the Group.
In addition, he has direct responsibility
for managing this for the UK.
Ashwin joined Tesco in 2010 from Mars Inc.
He has worked across a number of
product divisions as a Category Director
and Commercial Director.
Matt Simister
CEO, Central Europe
Member since April 2017.
Matt is responsible for all of Tesco’s
businesses in the Czech Republic,
Hungary and Slovakia.
Matt joined Tesco in 1996 as a marketer.
He built on his UK experience with three
years as Commercial Director for our Czech
and Slovak businesses. Following this, he
returned to the UK to set up Tesco’s Group
Food capability. In April 2017, Matt was
appointed to his current role as CEO,
Central Europe.
Jason Tarry
CEO, UK & ROI
Member since January 2015.
Jason is responsible for all of Tesco’s
businesses in the UK & ROI.
Jason joined Tesco in October 1990 on
the graduate recruitment programme.
He has held a number of positions in the
UK and internationally across both food and
non-food divisions. Jason became CEO for
clothing across the Group in 2012, before
being appointed as Chief Product Officer
in January 2015. In July 2018, Jason was
appointed to his current role of CEO,
UK & ROI.
Emma Taylor
Chief People Officer
Member since March 2022.
Emma is responsible for setting the people
strategy and plans at Tesco, including
reward, colleague experience and capability.
Emma joined Tesco in 2001 as part of the
graduate recruitment programme, and
worked as part of store management teams
before following her passion for people and
moving into the People team. Emma has
worked in a variety of People roles at Tesco,
across large stores, convenience and in
head office, and became People Director,
UK & ROI in 2018.
Emma is a Tesco Pension Trustee.
Andrew Yaxley
CEO, Booker
Member since July 2018.
Andrew is responsible for the Booker
business.
Andrew joined Tesco in 2001 from Mars Inc.
He has worked across a number of product
divisions including as Commercial Director
for our Czech and Slovak businesses.
He became Managing Director of the
London business in 2013 and then CEO,
ROI in 2015. In 2018, Andrew returned to the
UK to take up the role of Chief Product
Officer and in 2020 was appointed CEO,
Booker. Andrew is a non-executive director
of Avidity Group Limited.
Tesco PLC Annual Report and Financial Statements 2023
55
Corporate governance Corporate governance report continued
Corporate governance,
purpose and culture.
Role of the Board
The Group is led by an effective and committed Board, which is
responsible for the long-term success of the Group. The Board
has collective responsibility for the management, direction and
performance of the Company, ensuring due regard is paid,
at all times, to the interests of its stakeholders. The detailed
governance framework ensures the Board has the right level
of oversight for matters that are material to the Group.
The Group’s delegation of authority provides a clear direction on
decision making, ensuring that decisions are taken at the right
level of the business by the colleagues best placed to take them.
Each decision taken aligns to our culture and values and considers
the benefits, the risks, the financial implications and the impact
on the relevant stakeholders. The Board, with the support of its
Committees, places great importance on ensuring we achieve a
high level of governance across the Group. This supports the
Board when delivering its strategic objectives and meeting its key
performance indicators (KPIs).
The Board has overall responsibility for establishing the Company’s
purpose, values and behaviours. The culture in which we operate,
supports the delivery of our strategy and our long-term sustainable
success, while generating value for shareholders. More detail on
how the Board monitors the culture in which we operate is
detailed on page 58.
The Board has ultimate responsibility for ensuring adequate
resource is available to meet agreed objectives and strategy.
It ensures such resources are responsibly and effectively
deployed. Having the right systems and controls across the
Group facilitates effective management and sound decision
making. This is essential to our governance framework.
Efficient internal reporting, effective internal controls, and
oversight of current and emerging risk themes are embedded
into our business processes, which align to our strategy,
purpose and culture.
Board biographies 51 to 53
Board leadership in action 62 to 63
Board activity 64 to 65
Summary of matters reserved for the Board
The Board has adopted a formal schedule of matters reserved for its attention, detailing matters that are considered of
significance to the Group owing to their strategic, financial or reputational importance or consequences.
The full schedule can be found at www.tescoplc.com
Setting and monitoring Group strategy, culture, operating plans, Long Term Plan and budget
Monitoring the Group’s net zero commitments for Scope 1 and 2 by 2035 and Scope 3 by 2050
Approval of major acquisitions, mergers, joint ventures and disposals
Governance framework including Board appointments, delegations of authority and Board diversity and inclusion policy
Changes to the pension scheme arrangements
Dividend policy, declaration and payment
Changes to corporate and capital structure
Significant capital expenditure and borrowing
Oversight of risk management and internal controls
Determining the nature and extent of emerging and principal risks
Financial reporting, controls and disclosures
Review of remuneration policies and share schemes
Entry into material contracts
56
Tesco PLC Annual Report and Financial Statements 2023
Corporate governance framework
Board Committees
The Board is supported by the activities of its Committees, which ensure specific matters receive the right level of attention and
consideration. Board Committee members are provided with the detailed information to enable them to discharge their duties and make
recommendations to the Board. Cross-Committee membership provides visibility and awareness of matters relevant across the Committees.
Details of Board Committee membership and activity during the year is set out in the
Committee reports.
Audit
Committee
Chair: Byron Grote
Provides independent assessment
and oversight of financial
reporting processes including
related internal controls, risk
management and compliance.
It also oversees the effectiveness
of the internal and external
audit functions.
Corporate
Responsibility
Committee
Chair: Lindsey Pownall
Provides oversight on the
Group’s sustainability initiatives
to support the delivery of the
Group’s purpose and strategic
priorities.
Note: with effect from April 2023 the
Corporate Responsibility Committee will
be renamed Sustainability Committee.
Nominations
and Governance
Committee
Chair: John Allan
Reviews the size, composition,
tenure and skills of the Board.
It also leads the process for new
appointments, monitors Board
and senior management
succession planning, considers
independence, diversity,
inclusion and Group governance
matters.
Matters considered by each of the Committees are set out in the Committee terms of
reference which can be found at www.tescoplc.com.
Remuneration
Committee
Chair: Alison Platt
Determines remuneration policy
and packages for Executive
Directors and senior managers,
having regard to pay across the
Group and the views of
stakeholders.
Executive management committees
The Board delegates responsibility for the day-to-day operational management of the Company to the Group Chief Executive.
The Group Chief Executive is supported by a team of executives who head each of the key operations of the Group and who form the
Executive Committee under the direction and leadership of the Group Chief Executive.
There are a number of executive management committees which provide updates to the Board, Audit Committee, Corporate Responsibility
Committee and Executive Committee on matters of significance.
Disclosure
committee
Responsible for
considering timely and
accurate disclosure of
sensitive information.
Executive
Committee
Responsible for:
developing and
implementing strategy,
operational plans,
policies, procedures and
budgets; monitoring
operational and financial
performance; assessing
and controlling risk; and
prioritising and allocating
resources.
Group risk
and compliance
committee
Responsible for: the
oversight of key risks on
behalf of the Executive
Committee; evaluating
and proposing policies;
monitoring processes to
control business,
operational and
compliance risks faced
by the Group; and
assessing emerging risks.
Group planet
committee
Responsible for reviewing
and monitoring the
climate strategy against
agreed performance
measures and
recommending the
actions needed to
achieve the Group’s net
zero objectives.
Cyber committee
Responsible for ensuring
a comprehensive
understanding of the
potential cyber exposure of
the Group and the effective
oversight and governance
of cyber risk management
plans. It highlights matters
of importance to the Board.
Board oversight of internal control and risk management
The Board has overall responsibility for the oversight of internal control systems and risk management processes. It has established a risk
management framework to manage and report the risks we face as a business. The Board reviews these on at least an annual basis and
undertakes a robust assessment of the Company’s principal risks and emerging risk themes.
The Audit Committee, on behalf of the Board, undertakes an annual effectiveness assessment of the risk management framework and the
effectiveness of internal control processes including a review of:
– the Group’s interaction with its external auditors including their role, audit scope, independence and audit and non-audit fees;
– the activity, role and effectiveness of our internal audit function, including an update covering a range of management issues and actions
to address their findings;
– formal assessment of the effectiveness of both external and internal audits on an annual basis; and
– supported by the disclosure committee, reviews the integrity of our financial and narrative statements, including interim and annual
financial statements and announcements relating to the performance of the Group.
More information on our principal risks, the oversight of Group disclosure and the work of the
Audit Committee can be found on pages 38 to 45 and 71 to 76.
Tesco PLC Annual Report and Financial Statements 2023
57
Corporate governance
Corporate governance report continued
Corporate governance, purpose and culture continued
How the Board monitors culture
The Board is committed to maintaining the highest standards
of corporate governance in the management of its affairs.
The Board recognises that it is accountable to all stakeholders
for ensuring that the Group is appropriately managed and
achieves its objectives in a way that is supported by the
right culture and behaviours.
These behaviours are also built into the performance framework,
therefore placing as much importance on ‘how’ individuals work
as ‘what’ they deliver. People updates to the Board and Executive
Committee provide oversight of the culture we operate in and
insights into our behaviours. The Board recognises that treating
colleagues with respect and compassion is essential to building a
culture of trust. The Nominations and Governance Committee
supports the Board in reviewing culture, diversity, inclusion and
talent management and the Remuneration Committee in assessing
executive performance in line with our strategic drivers, KPIs and
behaviours. For all colleagues, our purpose is why we are here and
do what we do and our values enable all of us to deliver against our
purpose in the right way. Our win together behaviours, for our
senior leaders and head office colleagues, guide us to behave in a
way that creates a culture where we work together as one team
to deliver against our strategic priorities.
The Board believes that understanding its stakeholders and what
matters to them is key to its success. With the skills, expertise and
dedication of colleagues worldwide, we have a culture which is
well placed to achieve this. The Board receives detailed reports on
a wide variety of topics to allow it to assess culture within the
Group, to ensure it is aligned with our purpose and will support the
delivery of the strategy. Through colleague, customer and supplier
engagement surveys, the Board and Executive Committee analyse
the results and develop action plans for improvements.
Our Code of Business Conduct also defines the standards and
behaviours expected and is supported by Group policies and
mandatory training. Colleagues are required to complete
mandatory training within five days of joining the Group, and on
an annual basis, to reinforce the importance of these standards.
The Board monitors culture in a number of ways: through
Board and committee management reporting; our workforce
engagement forums; capability plans; Every Voice Matters
employee survey results; and monitoring of progress made
on our diversity and inclusion strategy and targets.
Through the Board and executive leadership, Tesco culture
drives the right behaviours to ensure that our colleagues and
other stakeholders do the right things in the right way so that
our actions are aligned to the Group’s purpose, core values and
strategic priorities. Our purpose sets out why we do what we do,
our strategic priorities set out what we are going to do and our
values set out how we are going to get there.
We have four behaviours which provide further guidance to our
leaders, on how we work together:
– Believe in each other: building trust in teams and enabling
end-to-end collaboration across Tesco.
– Stay curious: seeking new and different ideas and listening to
every voice in the room.
– Be brave: doing the right thing and creating safe spaces where
colleagues can test, learn and speak up.
– Live 20/80: prioritising the few things that will make the biggest
difference.
Our purpose, why we are here
Serving our customers, communities and planet
a little better every day.
Our values, put our purpose into practice
No one tries harder
for our customers
We treat people how
they want to be treated
Every little help makes
a big difference
Understanding what matters to
our customers, colleagues and
communities, then trying to make
those things better, is at the heart
of Tesco.
Looking after our colleagues in a
culture of trust and respect means
we can all be at our best.
When we add up all the small things
we do, Tesco can make a difference
to the issues our customers,
colleagues and communities
care about.
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Tesco PLC Annual Report and Financial Statements 2023
‘Protector Line’ provides colleagues and suppliers with the ability
to raise concerns regarding possible misconduct and breaches of
the Code of Business Conduct. The Group risk and compliance
committee provides oversight of key regulatory and compliance
matters and reports biannually to the Audit Committee. In
addition, the Audit Committee has oversight of the whistleblowing
policy and Protector Line with matters subject to independent
investigation. Any material matters are raised to the Board.
In the event of an urgent, business critical matter requiring Board
approval in accordance with the schedule of reserved matters for
the Board or under the Group delegation of authority, which arise
between scheduled Board meetings, a sub-Committee of the
Board is formed, the quorum for which is any two of the Chair,
Group Chief Executive or Senior Independent Director. Any
approvals granted through the Board sub-Committee are noted
by the Board at its following meeting.
Every decision taken at all levels considers our culture, purpose,
values and leadership behaviours. Our values and leadership
behaviours are a vital part of our culture, helping us ensure that
through our conduct and decision making we do the right thing for
the business and our stakeholders.
Visit www.tescoplc.com to view Tesco’s Code of
Business Conduct.
Board and Committee meetings
The Board held six scheduled meetings during the year and an
additional strategy day. In addition to scheduled meetings,
Directors will meet to consider matters of a time-sensitive nature
as the business requires. The table below shows the attendance at
the scheduled Board and Committee meetings. In the rare event
of a Director being unable to attend a Board or Committee
meeting, the Chair of the respective meeting discusses the
matters proposed with the Director concerned wherever possible,
seeking their support and feedback accordingly. The Chair
subsequently represents those views at the meeting.
Through a regular review of the Board and Committee forward
planners, the Chair of the Board, or relevant Committee, ensures
that sufficient time is allowed for discussion and debate on the
topics scheduled and they encourage constructive discussion and
challenge during meetings.
The Board and its Committees have a standard paper template
which is regularly reviewed, providing a structure to ensure that
the right information is received by Directors to support their
oversight, challenge and decision making.
Board and Committee attendance(a)
John Allan
Ken Murphy
Imran Nawaz
Melissa Bethell
Bertrand Bodson (c)
Thierry Garnier
Stewart Gilliland
Byron Grote
Alison Platt
Lindsey Pownall (c)
Caroline Silver (b)
Karen Whitworth
If Directors have concerns about the Company or a proposed
action which cannot be resolved, it is recorded in the Board
minutes. In addition, upon resignation, Non-executive Directors
are encouraged to provide a written statement of any concerns
to the Chair, for circulation to the Board. No such concerns were
raised in 2022/23.
During the year, the Non-executive Directors met with the Chair
of the Board without the Executive Directors being present, on
several occasions.
The schedule on pages 64 to 65 sets out the key topics the Board
reviewed, discussed and debated during the year. These were in
addition to the annual cycle of matters the Board reviews and
support Directors’ oversight and understanding when considering
stakeholders while reaching decisions.
For more information on the Board leadership in
action see page 62 to 63.
Board
Audit
Committee
Corporate
Responsibility
Committee
Nominations and
Governance
Committee
Remuneration
Committee
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
3/3
6/6
–
–
–
5/5
–
–
–
5/5
–
–
2/2
5/5
4/4
–
–
–
3/4
–
4/4
–
–
4/4
–
4/4
4/4
5/5
–
–
–
–
–
4/4
4/4
4/4
–
–
–
–
–
–
–
5/5
–
5/5
5/5
4/5
–
–
(a) This table shows details of scheduled Board and Committee meetings. Steve Golsby and Simon Patterson stood down from the Board and relevant Committees on 17 June 2022.
(b) Caroline Silver joined the Board as an Independent Non-executive Director on 1 October 2022.
(c) Lindsey Pownall and Bertrand Bodson were unable to attend one committee meeting each during the year due to a prior commitment.
Tesco PLC Annual Report and Financial Statements 2023
59
Corporate governance Corporate governance report continued
Corporate governance, purpose and culture continued
Skills and experience of the Board
The Board believes that it is essential to have a balanced and
diverse Board with a mix of skills and expertise required to deliver
our strategy and create long-term value for shareholders. This
ensures that leadership and decision making are focused, allowing
debate and challenge when risks and opportunities for the future
are being considered. Our Board possesses a wide range of
knowledge and experience from a variety of sectors. The Board
and Nominations and Governance Committee consider the skills
required to deliver the strategy in the longer term and through the
succession planning process, identify any potential gaps as they
arise. The matrix below details the skills and experience that
collectively, the Non-executive Directors bring to the Board.
Induction and development
All new Directors receive a comprehensive induction programme
over a number of months which is designed to facilitate their
understanding of the business and is tailored to their individual
needs. The Chair and the Group Company Secretary are
responsible for delivering the programme covering the Company’s
core purpose and values, strategy, key areas of the business and
corporate governance. Thereafter, the Chair agrees with Directors
their individual training and development needs.
As part of the ongoing development of Directors, throughout
the year the Board receives regular briefings and visits key sites
in order to provide a deeper understanding of the Group.
The Board also receives the benefit of teach-ins and technical
updates provided at Board and Committee meetings, which aim
to ensure that Directors remain up to date with key developments
on the business environment in which Tesco operates. During the
year, Directors have received additional briefings on climate and
sustainability-related matters and digital and cyber security.
Directors are provided with the opportunity to, and are
encouraged to, attend training to ensure they are kept up to
date on relevant legal, regulatory and financial developments
or changes.
Induction programme
New Director induction programmes are delivered through:
– meetings with senior managers across the business;
– meetings with advisors;
– attendance at Committee meetings;
– site visits to stores, urban fulfilment and distribution
centres, providing an opportunity to meet colleagues and
see at first hand the business operations; and
– access to a library of reference materials.
Directors’ feedback is that the comprehensive induction
programme provides great insight into the business operations,
governance and controls, with an opportunity to meet
colleagues within the business.
10
10
6
8
The Non-executive Directors provide a strong independent
element to the Board and the oversight they provide is balanced
with individuals contributing a broad range of skills, diverse
experience and knowledge, demonstrating independence and
constructive challenge. Relationships between the Directors are
based on trust and mutual respect, enabling open and frank
conversations. This ensures that even the most challenging
decisions are taken for the benefit of the Company, with due
consideration for those stakeholders who may be affected.
Appointments
Non-executive Directors are initially appointed for a three-year
term with an expectation that they will continue for at least a
further three years. In accordance with their letter of
appointment, after three years’ service the performance of a
Non-executive Director is rigorously assessed by the Nominations
and Governance Committee, with any development needs
discussed by the Chair with the Non-executive Director.
Directors are nominated by the Nominations and Governance
Committee and are subsequently approved by the Board for
election or re-election annually by shareholders at the Company’s
AGM. The Nominations and Governance Committee have
undertaken an assessment of each of the Directors’ experience,
skills, independence, time commitments, conflicts and the Board
believes that all Directors continue to be effective and committed
to their roles. All Directors, with the exception of Lindsey Pownall
who will retire in June 2023, will submit themselves for election or
re-election at the forthcoming AGM in June 2023. The Board
recommends that shareholders be supportive of their election or
re-election to the Board.
Details of the Directors’ service contracts and terms
of appointment, together with their interests in the
Company’s shares, are shown in the Directors’
remuneration report on pages 77 to 101.
Board skills and experience
Financial
Strategy
Risk
Retail
Marketing
Supply chain/logistics
International
Technology and digital
Sustainability
4
4
4
3
3
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Tesco PLC Annual Report and Financial Statements 2023
Board effectiveness.
Board evaluation process
The Board sets annual objectives for the business in line with
Group strategy and monitors its performance through an
annual assessment to ensure the Board remains effective.
The performance review assesses the effectiveness of the
Board, its Committees and Directors. The evaluation is externally
facilitated every three years with the last external evaluation
undertaken by Boardroom Review during 2021/22. The next
external evaluation will be in respect of the 2024/25 financial
year. The Chair and the Board continually work to strengthen
and enhance the effectiveness, skills and experience of the Board
to align with the Group’s strategy. During the year, an internal
evaluation in respect of the full year 2022/23, was led by the
Chair, with the support of the Group Company Secretary, using
an online questionnaire to capture the views of each Director.
The evaluation was carefully structured to encourage debate on
issues that were relevant, which included the oversight of matters
by the Board and Committees, specific topical issues, a review
of progress against matters identified in the 2021/22 survey and
identifying potential for improvement. This year’s Board evaluation
focused on Board Committe composition and expertise,
stakeholders and culture, Board dynamics, the effectiveness and
focus of meetings, Board committee effectiveness, strategy and
risk oversight, succession planning, talent management and
priorities for change.
The Senior Independent Director sought feedback from each
Director on the performance of the Chair using an online
questionnaire. The results of the feedback were discussed at a
meeting of the Directors without the Chair present. The unanimous
view was that the Board was functioning very effectively. The Chair
had provided excellent leadership throughout a challenging year
and creates an inclusive and purposeful culture in the Boardroom,
focusing on the most important issues of strategy, people,
performance and governance.
The results of the evaluation were presented to the Board which
concluded that the Board and Committees work well together
providing the right level of oversight, with the appropriate
challenge, discussion and debate. There were no points expressed
during the evaluation process that had not previously been
discussed, demonstrating that all Directors exhibit an open and
collaborative style. Overall, the effectiveness of the Board was
rated high with some key areas of focus proposed. An action plan
has been developed and will be reviewed to track progress
throughout the year.
Focus of internal effectiveness survey
Individual
performance
and
contribution
Board and
Committee
composition
and expertise
Board
evaluation
focus
Meeting
management
Priorities
for change
Board
dynamics
Focus of
Board and each
Committee
Actions identified during 2022/23 evaluation
The internal effectiveness review identified the following priorities
and opportunities for the Board’s focus over the coming year:
– greater focus on the longer-term strategy and sustainability
objectives;
– continue to assess the Board composition, expertise and skills
required to deliver our strategic priorities, with a focus on the
Chair and Senior Independent Director succession process
and ongoing diverse talent management plans;
– additional focus be given to customer insight and supplier
engagement; and
– Directors to spend more time in the business, through
individual site visits and meetings with management.
Progress against actions identified through the external evaluation in 2021/22
Action identified
Continue to develop and test risk appetite to facilitate
the Board’s decisions
Progress against action
Additional risk deep dives have been undertaken to focus on
emerging themes, scenarios, horizon scanning and risk mitigation
Continue to develop the sustainability agenda to balance
the short, medium and long-term objectives
Deep dive on sustainability matters undertaken with greater visibility
and monitoring of the milestones to achieve our net zero targets
Reviewing the balance of activities at the Board and
its Committees
Focus on development and succession plans at Board and
Executive Committee level to strengthen the diverse
management pipeline
A review of Board and Committee responsibilities undertaken with
a focus on clarity and separation of roles. Matters reserved for the
Board and Committee terms of reference updated
More regular updates on the talent pipeline discussed at the
Board and Nominations and Governance Committee alongside
detailed diversity and inclusion strategy updates
Tesco PLC Annual Report and Financial Statements 2023
61
Corporate governance Corporate governance report continued
Board leadership in action.
Board activity
The Board is responsible for ensuring that management actions
are aligned to strategy and that stakeholder interests are taken
into consideration. During discussions at Board meetings, the
views of our stakeholders form an integral part of the Board’s
decision making.
The Board has a forward-looking programme of agenda items
scheduled for discussion throughout the year to ensure
operational and financial performance, risk, governance,
strategy, which includes our sustainability targets, culture and
stakeholder groups are discussed at the appropriate time.
The Board and Committee paper template ensures that the
Board has high-quality, clear and timely information to support
Directors in their decision making. A review of the template is
regularly undertaken to ensure that each of these matters is
considered when papers are drafted. Board oversight supports
the strategic direction and ensures the long-term viability in line
with stakeholder expectations.
Over the year, updates are scheduled from the Group Chief
Executive, the Chief Financial Officer and other members of
senior management in respect of all material matters to ensure
the delivery of strategic drivers and KPIs in line with our culture,
purpose and values. This enables the Non-executive Directors to
engage with colleagues from across the Group. A summary of the
Board’s key activities during the year is set out on the following
pages, detailing a breakdown of the proportion of time spent by
the Board on these matters.
Each of the Board Committees meet at least four times per year.
Following each Committee meeting, each Committee Chair
provides the Board with a written and verbal update on
Committee activities. These updates include the financial and
risk deep dives the Audit Committee undertakes, updates on
sustainability matters from the Corporate Responsibility
Committee, details of Executive Director remuneration from
the Remuneration Committee and succession planning and
governance-related matters from the Nominations and
Governance Committee. Committee papers and minutes are
shared with all Directors to allow them to raise questions on
specific Committee topics if required.
During the year, the Board reviewed and approved entry into
material contracts taking into consideration the associated
operational and financial benefits and risks. It also considered
the impact on all stakeholders including financial returns, security
of supply, improved pricing, quality of products, the impact on our
carbon footprint and sustainability initiatives and the impacts to
all stakeholders in light of the cost-of-living crisis.
The Board holds additional strategy and planning days during the
year, at which senior managers present on each of our business
areas. The aim is to better understand market trends, technology
developments, innovation and people strategies. It also explores
the culture, diversity and inclusion supporting the long-term
planning and strategic direction of the Group.
Board visit to food bank
In November 2022, members of the Corporate Responsibility
Committee visited a branch of Hackney Foodbank. The Foodbank
is part of a network of 1,200 food banks linked to The Trussell
Trust, with whom Tesco has a longstanding relationship. In 2022,
we celebrated 10 years of this partnership, with support
growing from a food collection in 290 stores in 2012 to 1,041
food collection points in stores today. Members met with the
CEO of the Foodbank, Pat Fitzsimons, and The Trussell Trust
CEO, Emma Revie. Emma highlighted the challenges faced by
food banks due to the cost-of-living crisis and Pat outlined the
challenging situation in Hackney. Key topics discussed included:
– the changing demographic of food bank users (they
were seeing many more working families for example),
and how the Foodbank had adapted to this change,
for example having different operating times to
accommodate this change;
– the significant demand The Trussell Trust is seeing,
which is now outstripping supply. It was discussed
what role Booker could play in providing support, as
well as utilising Jason Tarry’s forthcoming role as IGD
President to galvanise industry action;
– additional work undertaken by food banks, such as their links
with bodies like Citizens Advice, to ensure people can access
all benefits they are entitled to;
– the impact and importance of Tesco’s support for The
Trussell Trust, both during COVID-19 and the cost-of-living
crisis, on an ongoing basis. The in-store collection points
and food provision play a vital part in the work of The
Trussell Trust; and
– innovations that the Foodbank is exploring, such as a Phone
to Food app that allows people who are using their food
bank to spend vouchers/giftcards at local independent
stores instead of receiving food parcels.
Directors have spent time individually and collectively exploring
specific operational activities in detail through presentations,
meetings and site visits giving them the opportunity to meet with
local senior management to gain insight into the business
operations and the challenges they face.
During 2022, the Board visited the operations of Booker and had
the opportunity to spend time in a number of convenience stores.
Later in 2023 our Central European business will host a three-day
visit of the Board to its operations. These visits provide in-depth
knowledge for the Directors, enabling them to meet management,
share their own experiences and challenge and support the
business directly.
Further details of the Board’s activities during
the year are set out on pages 64 to 65.
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Tesco PLC Annual Report and Financial Statements 2023
Stakeholder engagement
A key objective of the Board is to create value for shareholders
and deliver long-term, sustainable growth.
The Board recognises the importance of listening to and
understanding the views of its key stakeholders. In support of
Directors’ section 172(1) duties, the Board receives insights through
customer, colleague, supplier and investor engagement into how
we are perceived, what our stakeholders want and how they want
to be treated. The Board acknowledges that every decision it
makes will not necessarily result in a positive outcome for all
stakeholders. A key consideration when making decisions is for
the Board to balance the sometimes conflicting needs of our
stakeholders while considering the Company’s purpose, values and
strategic priorities, which ensures the Board’s decision making is
consistent and in the best interests of the Company. It also takes
other relevant factors into account, which includes: the interests
and views of the communities where we operate; Tesco
pensioners; and its relationship with regulators and NGOs.
We actively engage with our institutional investors throughout the
year to understand their views on a variety of topics. The AGM
provides a valuable opportunity each year for private shareholders
to hear from the Board, and for the Board to hear from our
private shareholders. This year’s AGM will be held on Friday, 16
June 2023 at 11.30am. Shareholders will receive an update on the
Q1 trading performance with an update on the business since the
2022/23 year end. With an average of 74% of the issued share
capital voted at the 2022 AGM, the Board looks forward to meeting
with and hearing from shareholders at the 2023 AGM.
More information on stakeholder engagement can be found in the
Section 172 statement and Stakeholder engagement section on
pages 25 to 27.
Colleague engagement
The Board established three Colleague Contribution Panels (CCPs)
in 2019 which represent the workforce across all business areas of
the Group. These have been running successfully for three years
with each CCP being hosted by an independent Non-executive
Director. Alison Platt hosts the Central Europe CCP which is
attended by representatives from our businesses in the Czech
Republic, Hungary and Slovakia. Byron Grote hosts two CCPs: the
UK & ROI CCP attended by representatives from Tesco stores,
fulfilment, distribution, head office, customer engagement centre
and ROI and the UK subsidiaries CCP attended by representatives
from Booker, Tesco Café, One Stop, dunnhumby, Tesco
Maintenance, Oakwood Distribution, Tesco Bank and Tesco
Business Services Bengaluru.
2022/23 Colleague Contribution Panels
Representatives have each attended two CCPs during the year,
with six being held in total. The half-year CCPs focused on
feedback from the full-year session in November 2021, an
update on the activities of the Board, and the introduction
of the topics for discussion at the November 2022 CCPs with
the main focus being on our strategic priority, Magnetic value
for Customers.
During the period from June to November, representatives
gathered feedback from colleagues on the topics for
discussion at the November 2022 CCPs, as well as gathering
views on any topics colleagues wished to raise.
During the year, themes raised by representatives related to:
improved communications; cross-format working; price and
quality; cost-of-living challenges for customers and colleagues;
pay and benefits; supporting our communities; sustainability
initiatives; and business improvements.
The CCPs meet every six months to discuss matters of
importance, focus on topical issues and allows the host to share
the views and activities of the Board and its Committees.
During each CCP meeting, there is an open ‘what’s on your mind’
session allowing representatives to raise any matters of concern.
The representatives receive a progress update on identified
actions from their previous meeting and provide feedback to
colleagues within their business units.
Following each of the CCPs, the Board receives an update directly
from each of the hosting Non-executive Directors, together with a
more detailed paper capturing the feedback. The Board welcomes
the insights the CCPs offer on the views of the workforce and the
issues that matter most to our colleagues. These form part of the
Board’s decision-making process along with the feedback received
from the Every Voice Matters colleague engagement survey.
Our Executive Committee and senior leaders also regularly engage
with the workforce through functional meetings, conferences and
store visits. In addition, the Group Chief Executive and Chief
Financial Officer host webinars following our quarterly results
which allow colleagues to ask questions.
Board visit to Booker operations
During 2022, the Board visited the operations of our
Booker business to meet colleagues and customers and
gain a greater understanding of the Booker business
operations and retail market. The visit included a
presentation on the Tesco convenience strategy, which
included Booker convenience stores. During the visit, the
Board visited a Booker Cash and Carry, a Booker catering
customer and a number of Booker convenience stores.
The Board receives regular updates on the Booker
business to understand the market it operates in and
the financial and operational performance of the
business. The updates also enable the Board to explore
opportunities and challenges, and understand brand
perception within the market.
Tesco PLC Annual Report and Financial Statements 2023
63
Corporate governance Corporate governance report continued
Board activity.
Strategy
Operational performance
28% Time spent
25% Time spent
Information flow
– Group Chief Executive updates
– Progress against four strategic drivers
– Annual strategic review
– Planet strategy and progress against targets
set to deliver on our net zero commitments
– Technology and cyber security deep dive
– Innovation update
– Updates from our businesses in the
UK, ROI and Central Europe
– Deep dives into Tesco Bank, Booker, dunnhumby,
Tesco Mobile and F&F
– Health and safety updates focusing on people safety
and safety framework
– Customer insight and product innovation
Outcome, benefits
and considerations
The Group Chief Executive provides an overview of the
operational and financial performance of the business
at each meeting, giving oversight and the opportunity
to challenge and track progress against our strategic
priorities. Strategy days provide a deep dive into each
of the business areas. Having a clear strategic direction
for the short, medium and long term, as well as
understanding our stakeholder expectations, is vital
for the delivery of our strategic priorities. Deep dives
into our sustainability strategy brought our net zero
commitments to life with a review of progress against
our key milestones.
Improved technology will support the delivery of our
strategic priorities. Technology updates to the Board
covered our operational infrastructure, technical
capabilities, cyber security and data privacy. Our internal
IT platforms continue to develop together with other
technology initiatives, which span across all business
areas. The Board’s oversight of the data and technology
strategy ensures the business moves forward through
technology and innovation to meet the needs of
customers and colleagues. A dedicated cyber security
programme has been developed with clearly defined
governance, oversight and structured training processes.
Our innovative projects are linked to our purpose and
strategic drivers. Good progress is being made. These
updates help shape strategy and take the business
forward. It is essential that we keep innovating for the
future to meet the changing needs of our customers and
the environment we operate in. Our key innovation
priorities are to: strengthen our approach through
learnings; accelerate and scale ‘mature’ experiments
quickly to deliver value to the business; and focus on new
opportunities that align with our strategic drivers.
Business updates from each of the business areas
provide essential oversight of the opportunities and
challenges the different business areas face and provide
opportunities for sharing Group initiatives. Insight into
how our different markets operate and the impact on
stakeholder-related matters provides the Board with
the oversight required to support its strategic decision
making. It also allows the Board to identify opportunities
and risks, sharing their own experiences and facilitates
the necessary actions to be taken to align with our
strategic priorities.
The Board regularly receive updates on our Own Brand
product development and how we create competitive
advantage. Quality perceptions are set and reset
continuously to review price, promotions, product,
packaging and the shopping experience. Through the
use of multiple data sources including trends influencing
consumer spend and habits globally, we have an
understanding of our customers’ needs to develop
products and propositions for the future.
Health and safety updates are provided to the Board
which review our health and safety strategy, progress
against the priorities, ways for improvement, the volume
and severity of injuries and the cost of injury claims.
Ensuring that the appropriate health and safety
provisions are in place is essential for the operation
of our business. The Board places significant importance
on looking after the safety of colleagues, customers and
anyone else impacted by our business.
Additional
information
Purpose and values
Our strategic priorities and KPIs
Our business model
Climate and TCFD
Pages
6, 58
12-14
15
18-24
2023 highlights and Tesco at a glance
Chairman’s statement
Group Chief Executive’s review
Our market context
Pages
IFC, 2-3
7
8-10
11
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Tesco PLC Annual Report and Financial Statements 2023
Financial performance and risk
Governance and stakeholder engagement
22% Time spent
25% Time spent
Information flow
Outcome, benefits
and considerations
– Chief Financial Officer updates
– Review of financial position, balance sheet, going
concern and viability of the Group
– Progress against the Long Term Plan (LTP) and budget
– Review of risk management framework, principal
and emerging risks
– Updates on sales, profit, cash flow and capital
expenditure in all regions
– Review of funding, liquidity plans and property portfolio
The Chief Financial Officer presents a detailed overview
of the financial performance of the business at each
meeting to ensure the Board is provided with the
required financial oversight and has the opportunity to
challenge. This includes: details of the progress of the
Big 6 across the Group and the key performance
indicators; performance by business unit compared
with the LTP; cost inflation; and Save to invest. The Board
regularly reviews progress of the LTP. Our LTP sets out
our growth ambitions over the next three years, including
the continued delivery for all stakeholders and ongoing
cash returns to our shareholders.
The Board reviews the capital allocation framework,
dividend policy and shareholder returns and the
management of the Group debt capital markets
activities, including the new issuance of a bond under
the Euro medium term note (EMTN) programme.
Regional updates provide the Board with an overview
of the sales, profit, cash flow and capital expenditure
of each of the business areas.
The Board has overall responsibility for risk management
and is actively engaged in risk discussions. The Audit
Committee, on behalf of the Board, undertakes an
annual effectiveness assessment to manage the most
significant risks or principal risks facing the Group and
actions taken to mitigate them, validating the key risk
movements and approving any required outcomes arising
from the risk assessments. Strengthening the risk and
internal control environment is fundamental to Tesco’s
governance framework.
Review of the property portfolio and valuation of the
property portfolio provide the Board with visibility to
ensure the portfolio is properly managed and
accounted for.
Additional
information
Financial review
Principal risks and uncertainties
Viability statement
Audit Committee report
Pages
30-37
38-45
46-47
71-76
– Stakeholder engagement
– Culture, diversity and inclusion strategy
– Talent, succession and development
– Investor views and key market issues
– Product supplier and sourcing
– Governance matters
Our Group Chief Executive’s report provides updates
on stakeholder engagement as well as government and
regulatory developments. In addition, the Board receives
specific papers on customer insight and supplier
engagement, which details survey results, management
action plans and focus areas for improvement. Visibility
and understanding of our stakeholders’ views supports
the Directors’ decision making.
Building leadership capability, to develop and grow
diverse talent and strengthen future pipelines through
tailored development programmes, is a key focus for the
Board. The Board is committed to creating an inclusive
workplace and reflecting the diversity of the communities
we serve. Tesco has a clear diversity and inclusion
strategy in place to ensure that at Tesco, Everyone’s
Welcome. Colleague Contribution Panels provide
valuable feedback, see page 63. The Board discusses
the outcomes from the six-monthly panels, which
strengthens the colleague voice in the Boardroom.
In addition, the Board reviews an analysis of results
and action plans from the annual Every Voice Matters
colleague engagement surveys.
Updates from Investor Relations provide the Board with
feedback on investor views and expectations, visibility of
market conditions, share price performance and the
future outlook.
Governance matters are discussed at each meeting
which include topics such as directors’ and officers’
insurance, litigation, Modern Slavery Statement, approval
of significant contracts, review and approval of statutory
reporting and shareholder documentation and
governance-related matters.
In addition, each Committee Chair provides an update on
the activities of the Committee.
Our colleagues
Section 172 statement
Stakeholder engagement
Nominations and Governance Committee report
Corporate Responsibility Committee report
Pages
16-17
25
26-27
66-68
69-70
Tesco PLC Annual Report and Financial Statements 2023
65
Corporate governance Corporate governance report continued
Nominations and
Governance Committee.
Key responsibilities
Board and senior management succession planning
– Board and Board-level Committee composition
– Board and senior management succession plans
– Directors’ skills and experience matrix
– Recommendation of annual election and re-election of Directors
– In-depth three-year and six-year review of Non-executive
Directors’ performance
Talent management
– Talent management priorities and progress made
against the priorities
– Review and implementation of Board diversity and
inclusion policy
– Monitor the progress of the Group’s diversity and
inclusion strategy
Group governance
– Changes to the Group’s corporate governance framework,
including review of matters reserved for the Board and
Committee terms of reference
– Compliance with the UK Corporate Governance Code
– Board and Committee evaluation process and progress
against actions identified
– Effectiveness review of Non-executive Director time
commitments, independence, Directors’ conflicts of interest
– Governance-related legal and regulatory developments
The Committee’s terms of reference are reviewed
on an annual basis and are published on our
website at www.tescoplc.com
The Committee held four scheduled meetings during the year with
a focus on talent management, succession planning, diversity and
inclusion and Board effectiveness.
Board composition, expertise and
succession planning
As part of the ongoing succession planning activity, the Committee
regularly reviews the structure, size and composition of the Board
and its Committees to ensure that they continue to provide advice,
guidance and constructive challenge to the management team,
based on their collective knowledge and experience. Succession
planning is a key priority for the Committee to ensure a structured
and systematic process is in place to refresh the Board. A review
of Committee composition also forms part of the succession
planning process.
To support the succession planning process, a skills matrix is
regularly reviewed to ensure the Board and its Committees
have and maintain the skills required to deliver the strategy
and objectives in the longer term. This also identifies the skills
and experience that may potentially be lost with a retiring
Non-executive Director. The matrix shown on page 60
demonstrates the broad diversity and experience of the Board.
As mentioned in my governance introduction, there have been a
couple of changes to the Board composition during the year.
Committee membership and tenure
Director
John Allan, Tesco PLC Chair and Committee Chair
Stewart Gilliland
Byron Grote
Alison Platt
Member since
March 2015
April 2019
December 2015
April 2019
Details of attendance at Committee meetings is set
out on page 59.
Details of the time spent on key areas of responsibility during
2022/23 are set out below.
Committee activity
33% Board and senior
management succession
planning
37% Talent management
30% Group governance
2022/23 Evaluation of Nominations and
Governance Committee
An internal review of the Committee effectiveness was
conducted during the year. Its findings concluded that the
Committee remained effective with a good mix of perspectives
and backgrounds with the right balance.
Priorities identified
– Chair and Senior Independent Director succession
– Focus on governance and the governance framework
– Focus on talent management and succession planning
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Tesco PLC Annual Report and Financial Statements 2023
The Committee is responsible for identifying and reviewing
suitable candidates through a formal and transparent process,
with a recommendation to the Board. Following an in-depth
selection process, assisted by Lygon Group, the Committee
made a unanimous decision to recommend to the Board the
appointments of Caroline Silver and Dame Carolyn Fairbairn with
effect from October 2022 and September 2023, respectively.
Detailed role profiles were developed and a search initiated.
The Committee reviewed a shortlist of candidates with a
recommendation to the Board. As part of the Committee’s
consideration, it reviewed the current Board and Committee
composition, the existing diversity of skills, knowledge and
experience on the Board, the diversity of gender and ethnicity
together with the skills, experience and time commitments
required in the delivery of the role. Appointments are always
based on merit and relevant experience, while taking into account
the broadest definition of diversity. The Committee continues to
challenge the external search consultants where necessary, to
ensure that diversity is always considered when drawing up
candidate shortlists. Open advertising was not used. Lygon Group
has no connection to Tesco or any of its Directors.
Senior management talent planning
The Committee plays an important role in overseeing the
development of a diverse pipeline for succession to senior
management roles across immediate, short and longer-term
timescales. Succession planning at executive and senior management
level continues to be a priority and throughout the year the
Committee monitored the development of the future business
leaders and the available pool of talent within the Group to
strengthen our diverse management pipeline. This is essential to
mitigating people risk, ensuring a continuous level of quality in
management and that we have the required capability to deliver.
This review includes progress against the strengthening of role
profiles and development plans for high-potential colleagues.
There were no changes to our Executive Committee during the year.
Continued focus on diverse representation of our top global
leaders, specifically on gender, with a clear plan of action to
support further progress in order to achieve our aspirations.
This will include senior sponsorship, robust career and
development plans and a refreshed targeted development
intervention for all high-potential women. We will also seek to
understand cultural barriers through listening sessions and
insight to inform further action around our policies and
working environment.
Diversity and inclusion
The tone for diversity and inclusion across the Group is set from
the top. The Board believes that having a diverse leadership team
and an open and inclusive culture where everyone is welcome
supports one of our core values: We treat people how they want
to be treated. The Board’s diversity and inclusion policy sits
alongside the Company’s various diversity and inclusion policies.
These policies support the Company’s wider commitment to
building an increasingly diverse business where all colleagues
are given equal opportunities through recruitment, learning
and development.
The Board believes that it is vital to have a diverse Board, with
the right balance of skills, knowledge and experience across
professional backgrounds, gender, tenure, age, ethnicity and
diversity of thought. A diverse Board with different perspectives,
insights and viewpoints in decision making ultimately benefits the
Group’s stakeholders through better business performance and
decision making. The Board takes into account the recommendations
of the FTSE Women Leaders and Parker Review on gender and
ethnic diversity. As part of the annual Board effectiveness review,
the Board considers the diversity of the Board, its Committees and
the Executive Committee. The Committee reviews the Board’s
diversity and inclusion policy in detail each year and monitors the
progress against the policy. During the year, updates were proposed
and recommended to the Board for approval, including an
increase in the diversity target from 33% to 40% of women on the
Board in line with the Listing Rule requirements proposed by The
Financial Conduct Authority (FCA) in April 2022 applying to financial
periods beginning on or after 1 April 2022. The current Board
diversity and inclusion policy was approved by the Board in
October 2022. The policy objectives are detailed in the table
below. The Committee will consider the latest recommendations
from the Parker Review when conducting its annual review of the
Board diversity and inclusion policy.
Board diversity and inclusion policy
Policy objectives
Commitment to achieve a minimum
of 40% female representation on the
Board by the end of 2024.
Commitment to have at least one
woman in the role of a senior member
of the Board, being the Chair, CEO,
CFO or Senior Independent Director,
by the end of 2024.
The Board supports and monitors
Tesco’s diversity and inclusion strategy
and management’s efforts to ensure
that the diversity of Tesco’s top global
leaders is continuously enhanced.
Maintain at least one Director from
an ethnic minority background.
Implementation
Regular succession planning sessions are undertaken
throughout the year to ensure that the balance, skills
and experiences required to deliver on the strategic
objectives are in place over the short, medium and
long term.
The Board is supportive of the FCA proposals, noting
the comply or explain basis. Consideration is given to
this as part of the succession planning process in the
short term.
Scheduled updates to the Board, Nominations and
Governance Committee and Executive Committee
to discuss talent management, succession planning,
diversity and inclusion to assist the development of a
pipeline of high-potential and high-performing candidates
with diverse backgrounds in senior management roles.
KPIs established to measure progress.
Diversity and inclusion is considered as part of the
succession planning process.
Progress against objectives
Currently at 42% female representation
on the Board.
Consideration to be given to appointing a
female Chair and/or Senior Independent
Director as part of our succession
planning in 2024.
We are committed to promoting diversity
and have set a target of achieving 35%
female and 14% ethnically diverse
representation of our top global leaders by
2025. Diversity of this population is currently
29% female and 15% ethnically diverse.
Currently meet the recommendations of the
Parker Review with both Melissa Bethell and
Imran Nawaz, being from Asian backgrounds.
17% of the Board is ethnically diverse.
See page 17 for further details of the Group’s approach
to diversity and inclusion, and page 103 in the Directors’
report for detail on the Group’s employment policies.
The Board’s diversity and inclusion policy is available
at www.tescoplc.com
Tesco PLC Annual Report and Financial Statements 2023
67
Corporate governance Corporate governance report continued
Nominations and Governance Committee continued
Board effectiveness
The Board and senior management set the tone from the top
and lead by example through effective management and good
stewardship. Effectiveness of the Board encompasses many
aspects of Board governance including: composition; skills and
expertise; independence; time commitments; conflicts of interest;
and Director re-election. The Committee undertakes detailed
reviews of each of these aspects at least annually, but
additionally as part of the succession planning discussions
throughout the year.
Conflicts of interest
In accordance with the Companies Act 2006 and the Company’s
Articles of Association, Directors are required to report actual or
potential conflicts of interest to the Board for consideration and,
if appropriate, authorisation. If such conflicts exist, Directors
excuse themselves from consideration of the relevant matter.
On behalf of the Board, the Committee reviews the register of
authorised conflicts of interests at least annually to confirm its
ongoing authorisation of any potential or actual conflicts arising
from a Director’s interest. During the period, in reviewing the
cumulative conflicts of interests of each of the Directors, the
Committee concluded that no Director had a conflict that would
have a detrimental impact on their independence and judgement
or their time commitment to Tesco.
Annual election and re-election
Annually, the Committee considers and recommends to the Board
the re-election of Directors by shareholders at the AGM. This is
supported by each Director’s individual assessment undertaken
as part of the annual Board evaluation process. The Committee
concluded that there were no reasons identified to prevent any
Director from being recommended for election and re-election
at the 2023 AGM.
Additionally, in accordance with the Non-executive Directors’
letters of appointment, the Committee also carries out a rigorous
review of performance when a Non-executive Director reaches
three years’ and six years’ service taking into account the
Director’s commitment, contribution and effectiveness. No
Director reached their three or six-year review during the period.
Board evaluation
The Committee oversees the Board evaluation process. During
the year, the Committee reviewed the progress of the actions
identified through the 2021/22 Board evaluation and discussed
whether any further actions would be desirable. In addition, the
Committee reviewed the proposed approach to the 2022/23
evaluation of the Board, Committees and Directors, considering
the key themes and focus of the review.
An internal review of the Committee’s effectiveness was
conducted during the year, details of which are set out on
page 66.
Full details of the 2022/23 Board evaluation
are provided on page 61.
John Allan CBE
Nominations and Governance Committee Chair
Time commitments
The Board recognises the importance of all Non-executive
Directors having the necessary time to commit to the business.
Upon appointment, Non-executive Directors letters of
appointment stipulate the expected time commitment while
acknowledging that this may vary depending upon the demands
of the business and other events. All Directors make themselves
freely available as required, even at short notice, in order to meet
the needs of the business. The Committee regularly assesses the
other time commitments of Directors to ensure that each
Non-executive Director continues to have sufficient time to
devote to their role. This assessment takes into account the
number and nature of the external commitments each Director
has, and considers whether each Director has demonstrated
they have sufficient time to devote to their present role within
Tesco, including under potential periods of corporate stress.
As previously stated, the Board was disappointed by the voting
outcome during the 2022 AGM relating to the re-election of
Bertrand Bodson. The Committee discussed the matter at length
after the 2022 AGM and the shareholder consultation which
followed. Directors are required to seek approval before accepting
any additional external appointments. The Board continues to
firmly believe that Bertrand had sufficient time to devote to his
Tesco role, despite his other external roles. Bertrand has since
decided to step down as a member of the Supervisory Board of
Wolters Kluwer N.V. with effect from 10 May 2023.
The Board is currently satisfied that the number of appointments
held by each Director in addition to their position with Tesco is
appropriate to allow them to fulfil their obligations to Tesco.
During the year, approval was granted to Stewart Gilliland,
Byron Grote, Alison Platt and Caroline Silver to take on
additional directorships. It was determined that the additional
time commitment, taking into account their current overall
responsibilities, would not have an effect on their
commitment to Tesco as a Non-executive Director.
Independence
The Non-executive Directors provide a strong independent
element to the Board and a solid foundation for good corporate
governance, fulfilling the vital role of corporate accountability.
The Committee formally reviews the independence of each of
our Non-executive Directors at least annually. The Committee is
of the opinion that each of the current Non-executive Directors
continues to be independent in character and judgement in line
with the definition set out in the Code. In assessing each Director’s
independence, the Committee concluded that each provides
objective challenge, strategic guidance, hold management to
account and is willing to stand up and defend their own beliefs.
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Tesco PLC Annual Report and Financial Statements 2023
Corporate Responsibility
Committee.
Committee membership and tenure
Director
Lindsey Pownall, Committee Chair
John Allan
Bertrand Bodson
Stewart Gilliland*
Karen Whitworth
Member since
April 2016
March 2015
June 2021
April 2019
June 2021
* Stewart Gilliland will take over as Committee Chair with effect from June 2023
Details of attendance at Committee meetings is set
out on page 59.
Details of the time spent on key areas of responsibility during
2022/23 are set out below.
Committee activity
30% Sustainability strategy
39% Material sustainability
matters
31% Governance and
stakeholders
2022/23 Evaluation of Corporate
Responsibility Committee
An internal review of the Committee effectiveness was
conducted during the year. Its findings concluded that the
Committee remained effective. Enhanced clarity and a
refocusing of Committee responsibilities have been
well received.
Priorities identified
– Continue to enhance the monitoring of material
sustainability targets and issues
– Enhance communication plan to ensure stakeholders
are aware of our actions
“As a Committee, we are passionate in
overseeing the integration of sustainability
across the Group to ensure we achieve
our sustainability targets and put our
stakeholders, communities and planet
at the heart of everything we do.”
Lindsey Pownall OBE
Corporate Responsibility Committee Chair
Key responsibilities
Sustainability strategy
– Support and advise the Board on matters relating to planet
and communities
– Oversee sustainability initiatives to support delivery of the
Group’s purpose and strategic priorities
– Support the development of the sustainability agenda
to balance short, medium and long-term objectives
– Review and challenge initiatives supporting Group net
zero commitments
– Monitor KPIs relating to sustainability and climate
– Monitor external developments on sustainability
Deep dive into material sustainability matters
– Climate
– Food waste and packaging
– Health and diets
– Community
– Sourcing
– Human rights
Governance and stakeholder engagement
– Corporate reporting relating to sustainability matters
– Stakeholder engagement on sustainability matters
– Effectiveness of Committee and review of terms of reference
The Committee’s terms of reference are reviewed
on an annual basis and are published on our
website at www.tescoplc.com
I am pleased to present this year’s Corporate Responsibility
Committee report. During the year, we expanded our
responsibilities to assist the Board in its oversight of sustainability
governance and assurance on a range of environmental and
community topics. The purpose of this report is to explain the
work of the Committee during the year, alongside the progress
that has been made in relation to planet and communities.
A more in-depth review of these areas can be found in the
Strategic report on pages 1 to 47.
The Committee’s discussions are informed by the experience of
Tesco’s senior leadership team – as those accountable for driving
responsible and sustainable growth through Tesco’s operations.
These in-depth discussions ensure the Committee stays alert to
current and emerging trends and to any potential risks arising from
sustainability issues. The Committee captures these insights for the
Board through formal feedback and the ongoing sharing of knowledge.
Tesco PLC Annual Report and Financial Statements 2023
69
Corporate governance
Corporate governance report continued
Corporate Responsibility Committee continued
With the heightened focus on sustainability matters and the
evolving role of the Committee, the Committee increased the
frequency of meetings during the year from three to four, with
the core focus being the oversight of the Group’s sustainability
strategy and the integration of sustainability throughout the
business operations. In addition, the Committee decided to
change its name from the Corporate Responsibility Committee
to the Sustainability Committee, with effect from April 2023,
to better reflect the Committee’s responsibilities.
Complementing the Committee’s role, the Audit Committee is
responsible for overseeing the assurance programme of Tesco’s
sustainability commitments and the Remuneration Committee
for monitoring and approving sustainability-linked performance
metrics and the alignment of senior executives’ individual
objectives with sustainability goals. We collaborate closely with
these Committees and cross-Committee representation
provides a link between all the Board Committees.
Sustainability strategy
The effects of climate change and nature loss are becoming ever
more apparent and increasingly urgent. Sustainability is integrated
into the Group’s overall strategy, with reducing the environmental
impact of our own and our supplier partners’ operations a key
principle of one of the Group’s strategic drivers, Magnetic value
for customers. The Board is committed to becoming carbon
neutral across Group operations by 2035 and net zero across the
supply chain by 2050. The Committee’s role is to provide oversight
and challenge on any material sustainability matters identified,
advising and making recommendations to the Board where
appropriate. The Committee is satisfied that good progress
continues to be made in understanding and managing both risks
and opportunities across the business. Further information can
be found in the Climate and TCFD sections on pages 18 to 24.
The Committee has developed a sustainability framework to
monitor progress against sustainability plans, KPIs and key
milestones, measuring brand perception against our most
material issues. This is considered alongside our planet plan which
provides a framework for all areas of the business to align in terms
of environmental performance and managing our environmental
sustainability commitments. A sustainability dashboard provides a
view of the Group’s performance which helps to ensure we stay
ahead of expectations, drive change and show transparency in our
reporting. Deep dives into material issues support the Committee
in overseeing and challenging management in the delivery of our
sustainability targets. All activities play a part in helping us to
decarbonise our business and supply chains.
It is important for our stakeholders to be aware of and
understand the actions we are taking on sustainability initiatives.
The Committee reviews the annual customer and colleague
communications plan along with quarterly communication
updates, which provide an overview of the activity supporting
our key sustainability themes. For example, our Better Baskets
initiative through our partnership with WWF; campaigns relating
to packaging and food waste; innovation initiatives; and the roll
out of solar panels to power refrigeration units on HGVs reducing
our carbon footprint.
Material sustainability matters
During the year, the Committee received deep dive presentations
on a number of key issues, including:
– our healthy sustainable diets programme, detailing performance
against our health strategy and commitments, the challenges
faced and how these challenges were being addressed through
the Better Baskets initiative, reformulation of Own Brand lines
and new launches of healthy products. The Committee noted
the good progress being made towards the target of 65% of
UK & ROI sales coming from healthy food by 2025;
– responsible farming and sustainable agriculture, reviewing our
priorities to help to ensure Tesco has long-term sustainable
supply chains that meet our customer and shareholder
expectations, support British agriculture, animal health and
welfare, and protect and restore nature, in addition to meeting
our net zero ambitions;
– packaging and food waste, including a review of our strategy
and monitoring our commitment to halve food waste across
our own operations by 2025. An update on eliminating waste
demonstrated the progress against our ‘4Rs’ packaging plan
to reduce or remove packaging, together with an update on
progress against our food waste plan for 2022, and the work
undertaken to redistribute food through our charity
partnerships. We also oversaw, a number of innovative
projects to make use of food waste, including exploring the
use of insects as an alternative protein for animal feed; and
– sourcing and human rights, reviewing our human rights
strategy and managing human rights risks.
Governance and stakeholder engagement
Following the refresh of the Group’s purpose in October 2021 and
the renewed focus on the most material issues of our strategy,
the Committee has undertaken a review of matters scheduled
throughout the year for discussion at its meetings to ensure it
has a detailed understanding of the key issues and challenges
faced in delivering against our sustainability targets.
The Committee is a passionate advocate for transparency and
stakeholder engagement and continues to work on sustainability
issues alongside key stakeholders and investors. As part of our
stakeholder engagement, the Committee regularly receives
updates from the Investor Relations team to understand the views
of our major investors. In addition, during one of its meetings the
Committee had the opportunity to hear the views of a number of
our major shareholders first hand, in a dedicated feedback
session. Committee members also had the opportunity to
participate in ESG investor roundtables, bringing insight and
challenge back to the business.
Empowering our stores, our colleagues and our customers to
make a bigger difference locally, and finding new ways everyone
can play a part in supporting the local community, is a key part
of our purpose. Throughout the year the Committee received
updates on the Group’s community initiatives and their impact.
Given the impact of the economic crisis on many of Tesco’s
customers, the Committee explored Tesco’s long-standing
relationship with FareShare and The Trussell Trust who, through
donated food from Tesco and others, help feed people in
communities. In addition, Committee members visited a branch
of the Hackney Foodbank, see page 62. To support these charities,
Tesco held its annual winter and summer food collections, with
Tesco customers donating 3.8 million meals and Tesco topping up
every donation by 20%. The Committee also reviewed a number of
other community activities, the details of which are set out in the
Stakeholder engagement section.
During 2021/22, the Group undertook a share forfeiture
programme following a tracing and notification exercise which
completed in 2022/23. Following discussion, the Committee
approved an additional £1m donation in support of FareShare and
The Trussell Trust throughout the winter period; and £4.6m over
three years to be used in the UK, Central Europe and the Republic
of Ireland towards the Tesco Community Grants fund to celebrate
the blue token voting scheme and provide for additional
community activity across the Group.
Lindsey Pownall OBE
Corporate Responsibility Committee Chair
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Tesco PLC Annual Report and Financial Statements 2023
Audit Committee.
Committee membership
Director
Byron Grote, Committee Chair
Melissa Bethell
Caroline Silver
Karen Whitworth
Member since
June 2015
September 2018
October 2022
June 2021
All the Committee members are independent Non-executive
Directors and the Board is satisfied that Byron Grote, Melissa
Bethell, Caroline Silver and Karen Whitworth have significant,
recent and relevant financial experience. Additionally, Byron
Grote, having held a chief financial officer role for a significant
period, and Caroline Silver and Karen Whitworth, as chartered
accountants, are considered suitably qualified in accounting
and/or auditing. The Board considers that the Committee
members collectively have competence relevant to the
Company’s sector, in addition to their general management
and commercial experience. The Committee members’
expertise and experience is set out in each of their biographies
on pages 51 to 54.
The Committee Chair invites other regular attendees including:
the Non-executive Chair, CEO, CFO, Group General Counsel,
the Chief Audit and Risk Officer, the Chief Technology Officer
and representatives of the external auditor.
Committee membership, together with attendance
at meetings is detailed in the table on page 59.
2022/23 Evaluation of the Audit Committee
Following the external evaluation conducted last year, the
2022/23 Committee evaluation formed part of the Board
evaluation process and was rated highly overall, see page 61
for further details. The review found that the Committee was
operating effectively and its broad role and remit remained
appropriate for the current needs of the business. The
relationship with supporting functions and the external auditor
were rated very highly, having an excellent balance between
being challenging and supportive. The balanced agenda was
managed efficiently and allowed for adequate challenge and
discussion. Opportunities for improvements included regular
deep dives on emerging areas, a focus on longer-term capital
planning and investment analysis, and planning for compliance
with UK regulatory reform.
This year the Audit Committee continued to focus on issues
relevant to the Group’s financial reporting, considering key
accounting judgements and ensuring the ongoing quality of related
disclosures. The Committee supports the Board in fulfilling its
responsibilities regarding financial reporting, the effectiveness of
risk management and internal controls processes and compliance
matters. Further details on the division of Board responsibilities
and the Committee’s role in complying with the UK Corporate
Governance Code are set out on page 48. The Committee’s key
areas of responsibility are detailed below and further discussion
of key activities can be found later in this report.
Financial statements and reporting
– The Committee monitors the Group’s financial reporting
processes. We review and submit recommendations to
the Board, where necessary, challenging the integrity of
financial statements, including considering the impact of
macroeconomic factors on key accounting judgements and
narrative disclosures.
– The Committee reviews the Group’s assessments of going
concern, longer-term prospects and viability and the distributable
reserves position prior to any declaration of dividends.
– The Committee considered proposed changes to
accounting policy.
External auditor
– The Committee considers reports from the external auditor and
management’s response to recommendations. It assesses the
quality of the external auditor’s contribution and effectiveness,
considers their appointment, approves auditor remuneration
and monitors the provision of non-audit services and
associated fees.
Risk management and internal controls
– The Committee reviews and monitors the Group’s internal
controls framework and risk management processes, including
key financial, operational and compliance controls, and the
identification and assessment of emerging and principal risks.
– The Committee monitors risk exposures and future risk strategy,
including the adopted strategy for capital and liquidity
management, technology risks (including data privacy and
cyber risks) and climate-related risks.
Looking ahead, the Committee will continue to monitor
macroeconomic conditions affecting the Group. In connection
with ongoing governance reform proposals specific to audit
and financial reporting, the Committee will regularly review the
development of appropriate policies and documentation in
respect of reporting procedures and the implementation of an
audit and assurance policy, see page 75.
Byron Grote
Audit Committee Chair
The Committee’s full terms of reference are reviewed
on an annual basis and are published on our website
at www.tescoplc.com
Tesco PLC Annual Report and Financial Statements 2023
71
Corporate governance Corporate governance report continued
Audit Committee continued
Principal activities
In addition to its key areas of discussion, the Committee received
regular updates from management in relation to: key financial
controls; sustainability KPI assurance and reporting; IT general
controls; treasury; tax; pensions; insurance; capital structure; and
internal audit. The Committee also received regular updates in
relation to Tesco Bank, which operates its own audit committee
governed by specific banking regulations. The Committee Chair
and the Chief Financial Officer both attend Tesco Bank meetings
ensuring that knowledge is shared for mutual benefit.
Financial & regulatory reporting
In relation to the financial statements, the Committee ensures
that Tesco provides accurate and timely financial results,
implements accounting standards and applies judgements
effectively. During the year, the Committee considered and
recommended the approval of the interim financial results,
preliminary results and this Annual Report. As well as monitoring
the statutory audit, the Committee also reviewed climate
risk-related disclosures, capital allocation strategy, the Group’s
distributable reserves position in advance of the declaration of
dividends and corporate governance disclosures. Details of the
significant financial reporting matters reviewed by the Committee
and how they were addressed are set out on page 74.
The Committee considered the viability and going concern
statements, their underlying assumptions and the longer-term
prospects. The Committee also considered the appropriateness
of a three-year viability assessment period after modelling the
impact of certain scenarios arising from the Group’s principal
risks: recessionary impacts, global supply pressures, climate
change and data breach. The Committee received updates on
perceived challenges and viability impact that the business could
face resulting from climate change and broader macroeconomic
uncertainties. The Committee evaluated going concern over an
18-month period, which included a review of financial plans and
assumptions, access to financing and operational risk management,
contingent liabilities, and the adaptability of financial plans. In our
review of the financial statements, we considered, and challenged
as appropriate, the accounting policies and the significant
judgements and estimates underpinning the financial statements.
The Committee received updates from the triennial pension
scheme valuation and discussed measures to further de-risk the
Tesco UK Scheme and the impact of improving commutation
factors and the resulting increase in liabilities. The Committee
continues to monitor the impact of discount rates and volatile
bond markets on the accounting position of the Group’s pension
schemes, see Note 29.
The Committee monitored the Group’s compliance with the new
European Single Electronic Format (ESEF) tagging and additional
requirements to ‘block tag’ policies and notes, with additional
assurance provided by Deloitte. Our use of assurance and
referencing in the 2021/22 structured annual report was given
as an example by the FRC.
As impairment remains one of the most significant areas of
judgement, we considered steps to simplify and improve the
complex impairment-model process across the Group, including
tightening review controls and ensuring stronger audit trails. The
Committee received regular updates on the store impairment and
goodwill position considering WACC trends, cashflow forecasts
and discount rate assumptions. As a result of the market
movements in cost of equity, a full impairment assessment over
Tesco Bank Goodwill was undertaken at the half year and regularly
reviewed thereafter. The Committee was satisfied that, factoring
in macro upside and downside scenarios, sufficient headroom
existed. Our impairment methodology and details of the
impairment of non-current assets is presented in Note 14.
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Tesco PLC Annual Report and Financial Statements 2023
Corporate governance and compliance programme
The Committee reviewed the scope of compliance work and
approach to enhanced financial controls through a combined
Finance and Technology compliance programme. It oversaw
preparations for formal unaudited attestation on controls
effectiveness required as part of expected corporate governance
reforms, receiving updates on the latest position of audit reform
proposals, and monitored implementation readiness across the
business. The Group commissioned an independent report that
assessed the adequacy of structures in place to effectively
respond in each reform area and implementation readiness.
Ethics & compliance.
The Committee supports the Board in discharging its
responsibilities in relation to serious reportable incidents, privacy,
fraud, anti-bribery, people safety, whistleblowing, annual and
Group compliance statements and received and reviewed biannual
ethics and compliance data covering the aforementioned items.
The Committee discussed the controls and mitigating actions
deployed in support of the Group’s overall compliance strategy
and culture to reduce instances of fraud and compliance
breaches. We assessed the effectiveness of the Group’s
whistleblowing arrangements and reviewed compliance with
GSCOP. The Committee monitors the relationship with the
Groceries Code Adjudicator and receives reports on supplier
engagement and the internal auditing of ethical business
processes. See page 104 for more information.
Risk management
The Committee reviewed the Group’s principal and emerging risks
and mitigation strategies, with particular discussion of prioritised
risks and risk movements. We also discussed the complexity of the
Group’s supply chains and the threat of frequent disruption to
product availability due to increased volatility in external
conditions. It was considered appropriate to adopt security of
supply as a new principal risk, which was considered and approved
by the Board. The Committee received updates on various
emerging risk themes in areas such as technology, economics,
political impacts, talent, climate and sustainability, including
periodic deep dive sessions, see page 39. These are considered by
management in connection with the risk assessment process. An
assessment of the Group’s principal risks and detailed scenario
analysis work to stress test liquidity was performed as part of the
viability scenario modelling. For further information on the Group’s
risk management framework, see page 38.
External audit
At each meeting the Committee considers reports from the
external auditor, Deloitte. These concern interim and year-end
reports, audit plan, audit fees, auditor independence and
non-audit services, early warning reports, management letter
observations and updates on ongoing audit work.
Group risk & audit
In the year there were leadership changes within the Group Risk &
Audit function. In the absence of a Chief Audit & Risk Officer, for
segregation of duties and independence purposes, a PwC audit
partner oversaw audit responsibilities in collaboration with the
Internal Audit Director. The position was monitored by the
Committee to ensure independence was maintained. They
provided feedback on the team’s performance which confirmed
strong partnerships with management and the business. A new
Chief Audit & Risk Officer joined in April 2023. The Committee
monitors the activity, role and effectiveness of the Group Risk &
Audit function, detailed on page 74. At each meeting, we receive
updates covering a range of management issues, including periodic
reviews of the employment of former auditor employees and
non-audit services policies, the Group’s audit and risk charters
and the audit plan.
Key discussions in the year
Share buyback programme
Following the Group’s refresh of its capital allocation framework
last year, the Committee discussed options to optimise the
Group’s net debt position and continue the return of surplus cash
to shareholders through ongoing share buybacks. We considered
these proposals and recommended implementation to the Board.
We continued to receive regular updates on the ongoing share
buyback programme and having successfully completed £300m
under the initial programme, we announced an enlarged tranche
of £750m to be returned to shareholders, which completed in
February 2023. The Committee considered the accounting
treatment for the split of buybacks that straddle prior year ends.
Before recommending to the Board, the Committee discussed
appropriate alignment with current and ongoing Group strategy
and debated the structure of the ongoing programme against the
long term plan. The Committee considered the likely response
from stakeholders, including shareholders, rating agencies and
pension trustees, with whom we engaged with on future strategy.
We also discussed the evolving conflict in Ukraine and possible
perception of stakeholders.
Regulatory matters
In light of FRC publications and thematic reviews, the Committee
considered how the key observations would be factored into the
Annual Report. The Committee discussed particular areas of
focus by the FRC and considered the broader economic
environment in corporate disclosures. Areas of enhancement
were identified and have been considered in this Annual Report,
including discount rates, enhancements to s414 disclosures,
judgements and estimates, and improved explanation of the
assumptions used in scenario modelling for viability and going
concern. The Committee considered the Group’s energy
hedging strategy in light of the significant rise in wholesale gas
and power prices and the uncertain geopolitical landscape.
The Committee will continue to consider the impact of changes
in the macroeconomic environment on the underlying wholesale
energy cost assumptions.
IFRS 17 reporting
The Committee received updates on the outcome of an
impact assessment. The biggest Group impact arose in Tesco
Underwriting, who met regularly with management to consider
the position. The Committee reviewed the accounting judgements
applied and supported the application of the simple form premium
allocation approach disclosure. An explanation of how the
accounting has been applied is included in Note 1.
Environmental disclosures and the
revolving credit facility
The Committee reviewed the proposed disclosure plan and
enhancements to scenario modelling in connection with the
Task Force on Climate-related Financial Disclosures (TCFD) on
pages 20 to 24. One such improvement included the development
of a bespoke test environment mapped to Tesco, which allows for
the modelling of potential financial impacts of climate change.
Furthermore, we can monitor the evolution of these risks over
time. The Committee was satisfied that the Group had complied
with all recommendations having reviewed the outcome of
assessments in the prior and current year.
The Committee reviewed the sustainability KPI assurance
programme, including the mix of internal and external assurance
provided. Deloitte were engaged to perform independent assurance
over the non-financial metrics detailed in this Annual Report.
The Committee scrutinised the integrity of governance and
controls around the quality of internal data points. The Group
continue to work towards greater assurance over TCFD
disclosures and, with the support of Deloitte, will undertake
a gap analysis of the 2023 TCFD statement, in parallel to the
remeasurement of total carbon footprint, ahead of moving
to a statement with limited assurance.
The Committee reviewed the Group’s renewal of its revolving
credit facility (RCF). The RCF’s sustainability link was also
considered in the context of the Group’s viability position and
updated to better reflect the overall ESG strategy and alignment
with KPIs used in the Group’s performance share plan. The
Committee will continue to discuss the appropriate use of
ESG-related metrics within its current and future funding strategy
and the mechanism for ESG assessment. For further information
on the Group’s environmental commitments and details of the
sustainability-linked targets, visit www.tescoplc.com/investors/
debt-investors/sustainability-linked-financing.
Property related transactions
Following the revised accounting policy implemented in the prior
year for property buybacks, the Committee considered the
accounting treatment of bought back JV structures. We also
oversaw the complex buyback of property bonds in the form of
secured debt. The Committee considered the accounting
implications and impact to the Group’s net debt position.
A possible amendment to the APM definition was considered,
however, the Committee were comfortable that no change
was required.
Key financial controls
The ongoing financial controls compliance programme is well
progressed to support a formal attestation on controls
effectiveness required as part of pending regulatory reforms.
The Committee reviewed the scope of compliance work
undertaken and the approach. Updates on progress towards
enhanced corporate governance compliance and other control
improvements were provided from the CFOs of UK & ROI and
Central Europe operations. The effectiveness of key financial
controls is reviewed annually, and controls testing carried out.
Controls would remain subject to other assurance activities,
including by Group Audit who will test the primary key financial
controls on a regular basis and report their findings to the
Committee. No significant or material control issues have been
identified. Regulatory developments will continue to be monitored
and the project plan adapted accordingly as the landscape
develops.
Cyber security programme
The Committee was regularly updated on the Group’s cyber risk
management and the activities of the Group’s cyber risk
committee, set up to oversee effective governance protocols
over cyber security activities across the Group. More details on
the continued monitoring of cyber risk can be found on page 40.
IT general controls
The Committee continued to monitor the implementation of
recommendations to further enhance the Group’s financial
reporting systems and controls environment. The Committee
received regular updates in relation to several remediation
workstreams addressing IT general control weaknesses raised
by Deloitte as management letter points. Testing of the access
management environment in mainframe and non-mainframe
environments was ongoing. Several improvements were identified
to be implemented to remove reliance on manual steps.
The Committee will continue to explore the additional controls
required by compliance measures and understand the breadth
of the control environment.
Tesco PLC Annual Report and Financial Statements 2023
73
Corporate governance Corporate governance report continued
Audit Committee continued
Significant financial statement reporting issues
The Committee considered the following significant issues during the year. As part of these considerations, the Committee received updates
from management and sought assurance from the internal and external auditors. The Committee was satisfied with how each of the
significant issues discussed were addressed.
Issue
Going concern basis for
the financial statements
and viability statement
Acquisitions and
disposals
Impairment
Tesco Bank expected
credit losses (ECL)
Pensions
Pension surplus tax rate
Recognition and
disclosure of
commercial income
Adjusting items
Alternative performance
measures (APMs)
New accounting
standards issued but not
yet effective
How the issue was addressed by the Committee
The Committee reviewed and challenged management’s assessment of forecast cash flows including sensitivity to trading
and expenditure plans, and for the potential impact of certain scenarios, including: recessionary impacts, global supply
pressures, climate change and data breach. The Committee also considered the Group’s financing facilities and future
funding plans. Based on this, the Committee confirmed that the application of the going concern basis for the
preparation of the financial statements continued to be appropriate, with no material uncertainties noted, and
recommended the approval of the viability statement. For further information, see page 46 of this Annual Report.
The Committee considered the accounting and disclosures in relation to the acquisition of The Tesco Dorney Limited
Partnership (formerly a property joint venture). The Committee also considered the accounting and disclosures related
to the disposal of property assets in Poland and Central Europe, including the sale of 17 mall sites, one retail park and
partial leaseback of 17 stores. For further information, see Notes 7 and 33 to the financial statements.
The Committee reviewed and challenged management’s impairment testing of goodwill, in particular in relation to Tesco
Bank, and the Group’s portfolio of store cash-generating units. The Committee considered the key assumptions and
methodologies for both value in use models and fair value measurements in order to conclude on the appropriateness of
the impairment losses and reversals recognised. This included challenging projected cash flows, discount rates and the
use of independent third-party valuations as well as considering the uncertainties arising from a macroeconomic
downturn, higher levels of operating cost inflation and climate change. The Committee also reviewed the impairment
disclosures, including sensitivities. For further information, see Note 14 to the financial statements.
The Committee reviewed and challenged management’s allowance for expected credit losses on Tesco Bank financial
assets, considering the appropriateness of key assumptions, methodologies, macroeconomic scenarios and
management overlays. For further information, see Note 27 to the financial statements.
The Committee reviewed and challenged the estimates used by management in valuing pension liabilities, including
discount, inflation and mortality rates and related sensitivities. For further details, see Note 29 to the financial
statements.
In respect of the Interim results, the Committee considered management’s assessment of the manner in which the
Group expects to recover defined benefit pension plans in a surplus position and the resulting tax consequences.
At the year end, the Tesco UK Scheme was in an accounting deficit position. For further information, refer to Note 29.
The Committee continued to monitor commercial income controls across the Group and discussed the outcome of the
cyclical internal audits on commercial income and key financial controls. See Notes 1 and 20 to the financial statements
for further details on commercial income.
The Committee considered the presentation of the Group’s financial statements and the appropriateness of the
presentation of adjusting items. The Committee reviewed the nature of the adjusting items identified and concurred
with management that the treatment was clear, balanced and consistently applied across years. Consideration was also
given to the quality of earnings within adjusted results and related disclosures. See Note 1 to the financial statements for
a definition of adjusting items and Note 4 for an analysis of adjusting items.
The Committee reviewed the Group’s APMs presentation and disclosure, including their level of prominence, and
considered any changes in APMs and the clarity of APM reconciliations.
The Committee considered the implementation of IFRS 17 ‘Insurance contracts’, which becomes effective for the
financial year ending 24 February 2024. The Committee reviewed and challenged the key judgements made in
determining the impact of IFRS 17 on the Group’s financing reporting and considered management’s communication
and disclosure of the impacts. For further information, refer to Note 1 to the financial statements.
Audit Committee meetings
The Committee held five scheduled meetings during the year.
Each meeting followed a distinct agenda to reflect the financial
reporting cycle and particular matters for the Committee’s
consideration. The Committee has a periodic and structured
forward-looking planner. This is designed to ensure that
responsibilities are discharged in full during the year and that
regulatory developments continue to be brought to the
Committee’s attention. Meeting content is regularly reviewed
with management and Deloitte, evolving to support appropriate
discussion. Committee meetings are generally scheduled close
to Board meetings to facilitate effective and timely reporting.
An update is provided to the Board following each meeting.
Committee members regularly hold private sessions following each
meeting with both the external auditor and internal audit team to
provide an additional opportunity for open dialogue and feedback
without management present. The Committee Chair also meets
with the Chief Financial Officer, acting Chief Audit and Risk Officer
and external auditor on an ad hoc basis and prior to each
Committee meeting.
Group Audit
Group Audit is part of the Group Risk & Audit function. It reports
directly to the Committee and administratively to the Chief
Financial Officer, with a remit to provide independent and
objective assurance over our Group’s prioritised risks and
management structures. Its purpose, authority and responsibilities
are defined in the Group audit charter, which is reviewed and
approved annually by the Committee.
Group Audit’s activity is primarily driven by the annual Internal
audit plan which is reviewed and approved by the Committee.
The internal audit plan remains under review and subject to
change throughout the year to reflect any changes in risk profile,
business objectives and external environment. The Committee
reviews and approves all changes to the audit plan and receives
regular updates on the outcome of the work performed.
Management culture is considered through evaluation of
the control environment as part of every audit undertaken.
However, a structured methodology and approach for
dedicated culture audits is under consideration for inclusion
in the plan for future years.
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Tesco PLC Annual Report and Financial Statements 2023
External audit
As the Group’s external auditor for the 2022/23 financial year,
Deloitte shared a further independent perspective on certain
aspects of the Group’s financial control systems arising from its
work and reported both to the Board and the Committee.
The Committee regularly reviews the role of the external auditor
and the scope of its work. We will consider future audit needs as
part of the AAP. The Committee also considers the effectiveness
of the external auditor on an ongoing basis during the year.
Among other factors, the review covers Deloitte’s independence,
objectivity, appropriate mindset, and professional scepticism.
The Committee’s conclusions are based on its own observations
and interactions with the external auditor and having regard to the
FRC’s ‘Revised Ethical Standard 2019’.
Non-audit services
The FRC’s ‘Revised Ethical Standard 2019’ has reduced the areas
where the external auditor can provide non-audit services, such
that only certain types of non-audit services that are closely
related to an audit or required by law or regulation can be
provided. The Committee oversees the process for approving
all non-audit work provided by the external auditor to safeguard
the objectivity and independence of the auditor and comply with
regulatory and ethical guidance. Where Deloitte has been chosen,
they have demonstrated the relevant skills and experience making
them an appropriate supplier to undertake the work in a cost-
effective and time-efficient manner, with appropriate
safeguards in place.
Our policy for non-audit services is compliant with the FRC’s
‘Revised Ethical Standard 2019’. In line with regulation, the Group
is required to cap the level of non-audit fees paid to its external
auditor at 70% of the average audit fees paid in the previous
three consecutive financial years.
Fees paid to Deloitte are set out in Note 3 to the financial
statements. Details of the significant non-audit work undertaken
this year are set out in the table on page 76.
)
m
£
(
s
e
e
f
l
a
t
o
T
15
12
9
6
3
0
2019/20
2020/21
2021/22
2022/23
25
20
15
10
5
0
Audit fees
Average non-audit fees over three years
Non-audit fees
)
%
(
s
r
a
e
y
3
r
e
v
o
s
e
e
f
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a
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e
v
A
Beyond the audit plan, Group Audit also undertakes several other
assurance activities including continuous programme controls
reviews, pre-and/or post-implementation audits, advisory
reviews, and other management requested assurance. The
reporting of these reviews is often unrated and is less structured
to enable timely advice to the business. The results of these
reviews are also presented and reviewed by the Committee.
The 2022/23 audit plan and additional assurance activities
undertaken by Group Audit have been completed and reviewed
by the Committee, which has also reviewed and approved the
2023/24 audit plan.
Group Audit effectiveness reviews
In line with the Group audit charter, the Committee’s terms of
reference and the recommendations of the Internal Audit Code of
Practice, the Committee conducted an annual assessment of the
effectiveness of Group Audit. Conducted by an independent third
party, the overall assessment concluded that Group Audit was
effective. The assessment highlighted the strong independence
of the team and noted their capabilities. Having considered the
results of this assessment, as well as through ongoing review and
oversight of the assurance activities, the Committee were
satisfied with the effectiveness of Group Audit.
In the year, the Committee approved the Group risk charter,
which defines the accountabilities for conducting risk
management activities, ensuring transparency and a clear line
of separation to preserve the independence of Group Risk
and Group Audit from the business.
Internal controls
Management is responsible for identifying and managing risks, and
for maintaining a sound system of internal control. The internal
control framework is intended to effectively manage rather than
eliminate the risk of failure to achieve our business objectives. It
can only provide reasonable, but not absolute, assurance against
the risk of material misstatement or financial loss. The key
elements of the Group’s internal control framework are monitored
throughout the year, and the Committee has conducted a review
of the effectiveness of the Group’s risk management and internal
control systems on behalf of the Board. The Committee’s review
of the effectiveness of internal controls has encompassed a
review of various reports provided by management, Group Control
and Compliance, Group Risk, Group Audit and External Audit.
Annually, the Committee reviews the Group treasury policy which
contains a framework and approach to managing treasury risks.
The Committee also receives risk management updates from
various areas of the business including pensions and Tesco Bank.
Further information on the risk management process undertaken
is included on page 38. Specifically for internal controls over
financial reporting, a key financial controls framework is maintained
and used as the basis for focused second-line control activities.
The results from this have been reported to the Committee
through the year. This key financial controls framework is currently
being enhanced to meet the future needs of pending corporate
governance reforms.
Audit and assurance policy (AAP)
In line with the audit reform recommendations outlined in the
consultation paper issued by the Department for Business
Energy and Industrial Strategy, the Group is in the process of
documenting and implementing an audit and assurance policy.
Group Risk & Audit is tasked with the responsibility for facilitating
the development of the AAP, in coordination with other functions
across the three lines of defence: management controls (first line),
typically risk and compliance functions (second line) and Group
Audit (third line). The Committee will continue to monitor the
development of the AAP.
Tesco PLC Annual Report and Financial Statements 2023
75
Corporate governance
Corporate governance report continued
Audit Committee continued
External audit fees: non-audit and audit-related services
Nature of service
Forensic services: provision of data
repository services for information
needed for disclosure purposes as part
of ongoing claims(a)
Level of fees
in 2022/23
(£m)
Level of fees
in 2021/22
(£m)
–
0.6
Section 166 skilled person reasonable
assurance review for Tesco Bank
performed under International
Standards on Assurance Engagements
(ISAE) (UK) 3000
Other non-audit services: various audit,
assurance and compliance-related
services
0.4
–
0.5
0.4
Interim Review: performed under
International Standards of Review
Engagements (UK and Ireland) 2410
0.5
0.5
Total
1.4(b)
1.5(c)
Key
Increase
No change
Decrease
Change
Safeguards to preserve
independence and objectivity
Careful consideration of the scope of services and related
threats, in particular the objective, reasonable and informed
third-party test. Threats are mitigated by having a separate
engagement team not involved in the audit, the subject
matter being historical and factual in nature, working with
informed management and audit partner rotation.
Service is required to be delivered by an independent firm
and is therefore consistent with the role of independent
auditor. Threats are also mitigated by having a separate
team not involved in the audit.
Careful consideration of the scope of services to ensure
the self-review and management threats are mitigated,
together with working with informed management.
Clear separation of the engagement teams has also been
established where required.
The Interim Review is considered a non-audit service under
the FRC ‘Revised Ethical Standard 2019’, although the
objectives of the review are aligned with those of the audit.
(a) Engagement predates Deloitte’s appointment as external auditor. Deloitte’s engagement on this work has now ceased.
(b) £538,922 of the 2022/23 fees are not subject to the cap (all within other non-audit services). The remaining fees are all subject to the cap.
(c) £129,773 of the 2021/22 fees are not subject to the cap (all within other non-audit services). The remaining fees are all subject to the cap.
Effectiveness, quality and appointment of the auditor
The Committee monitors the ongoing effectiveness and quality of
the audit process and interactions with the audit partner and
senior members of the audit team, through regular review
meetings, with the Finance team and management, and private
meetings. The Committee discussed feedback from the previous
review and improvements incorporated into the audit approach,
which included enhanced testing and reliance on internal controls,
greater use of technology and data analytics, and continuous
insights and improvements. The Committee recognised
improvements in the provision of data driven insights and analysis
in connection with IFRS 16 lease liabilities and right of use assets
and revenue and cost of sales areas of the audit. In January 2023,
Deloitte’s effectiveness and quality was evaluated on the basis of
feedback provided through questionnaires completed by the
Board, management and business representatives. Facilitated by
an independent third party, the responses were collated and
Deloitte was rated effective. The Committee recommended to
the Board that Deloitte be reappointed at the 2023 AGM.
The effectiveness of Deloitte will be continually monitored in
2023/24 by the Committee.
During the year, Deloitte supported management in the continued
efforts to simplify the approach to impairment testing. These
improvements reduced complexity, provided better identification
of impairment triggers and drove efficiencies in meeting
accounting standards. Internal training on the impairment
modelling tool was provided to local finance teams, which led
to improved documentation and inputting. We also noted an
increased central oversight and will continue to work with
management to further simplify the process where possible.
Over the course of the year, the audit approach aligned with the
evolution of the Group’s control environment and business
strategy. Deloitte provided data driven insights and analytics to
management and the Committee, as part of their risk assessment
and testing of IT general controls, and in their review of IFRS 16
lease balances and calculation of discount rates.
Deloitte was appointed at the AGM in June 2015 following the
conclusion of a formal tender process for the statutory audit
contract and John Adam has been lead audit partner since 2020.
The Company is in compliance with the requirements of The
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Responsibilities) Order 2014, which relates to the frequency and
governance of external audit tenders and the setting of a policy on
the provision of non-audit services. The Committee reviews and
makes a recommendation to the Board with regard to the
reappointment of the current external auditor each year. In
making this recommendation, the Committee monitored and
assessed their effectiveness, objectivity, independence, lead
partner rotation and any other factors that may impact the
Committee’s judgement regarding the external auditor. The
Committee monitored compliance with the Group’s policy on
the employment of former Deloitte employees and concluded
the auditors remained independent. Based on the performance
of the auditor and its knowledge of the business, the Committee
believes that it is in the best interests of shareholders to continue
to recommend Deloitte as the external auditor. In line with
regulation, over the course of the next year, the Committee plans
to initiate a competitive tender of the external audit contract
beginning with the 2025/26 financial year.
Fair, balanced and understandable
The Group has a strong commitment to balanced reporting.
As part of the fair, balanced and understandable review, an
advanced draft of the whole Annual Report was reviewed by
management, as well as independent functions, who performed
verification and assessment under prescribed guidance. The
external auditor reported findings to the Committee who
considered the Annual Report and Financial Statements 2023
and concluded that the disclosures, as well as the processes
and controls underlying its production, were appropriate.
We recommended to the Board that the Annual Report 2023
is fair, balanced and understandable while providing the
necessary information to assess the Company’s position and
performance, business model and strategy.
76
Tesco PLC Annual Report and Financial Statements 2023
Directors’ remuneration report
Chair’s letter.
“Our focus this year has been on
implementing our new policy to
ensure remuneration is aligned to our
purpose and strategic priorities as
well as having regard to the wider
workforce and other stakeholders.”
Alison Platt
Dear Shareholder
I am pleased to present my first Directors’ remuneration report as
Chair of the Remuneration Committee (the Committee), having
taken over the role from Steve Golsby on 17 June 2022. I would like
to take this opportunity to thank Steve on behalf of the Committee
for his excellent work as Chair and his support to me personally
during the transition of roles.
This report provides an update on the first implementation year
of our remuneration policy, which was approved by shareholders
at the June 2022 AGM. The Committee appreciated the high level
of shareholder support for the remuneration policy and the
remuneration report, receiving 92.0% and 92.2% of votes in
favour, respectively. We also appreciated the continued dialogue
we have had with a number of shareholders, their representative
bodies and the wider stakeholder group on remuneration
throughout the year.
Delivering on our purpose and strategy
In 2021 we launched our refreshed purpose to reflect and
inform the way we operate in every part of our Group: Serving
our customers, communities and planet a little better every day.
Our purpose continues to underpin our priorities and the
decisions made by the Committee, including decisions
around remuneration. Ensuring incentives are aligned to our
strategic priorities is also an essential part of our approach
to remuneration. More details on how our strategic priorities
link to our incentive arrangements are disclosed in the
At a glance section.
This financial year has been one where we continued to bring our
purpose to life, in an ongoing challenging environment for all our
stakeholders, our communities and our environment. It has been
a year in which the economic uncertainties, made worse by the
war in Ukraine, heightened the importance of staying close to our
customers, colleagues and supplier partners, to do everything we
can to balance their needs. The relentless efforts to keep the cost
of the weekly shop as affordable as possible have been our highest
priority. We are proud of the efforts our colleagues have made, in
partnership with our supplier partners, to mitigate the impact of
inflation and protect our supply chains.
Throughout the year, we have invested significantly in our
colleagues to support them during a time of such cost-of-living
pressures. We set out overleaf some of the key remuneration
actions and decisions that the Committee has overseen this year
in light of the external environment, our purpose, our strategy and
our commitments to stakeholders.
Tesco PLC Annual Report and Financial Statements 2023
77
Committee members
Director
Alison Platt, Committee Chair
John Allan
Thierry Garnier
Byron Grote
Lindsey Pownall(a)
Member since
April 2016
March 2015
April 2021
July 2015
June 2021
(a) Lindsey Pownall will step down from the Committee at the conclusion of
the 2023 AGM.
Quick facts
The Committee determines the remuneration policy and
packages for Executive Directors and senior managers.
When setting and operating this policy, the Committee also
has regard to workforce remuneration, the experiences of
other stakeholders and alignment with strategy and culture.
This means we can recruit, retain and motivate our executives
as part of an integrated overall approach to remuneration.
Details of the key decisions taken by the Committee in
2022/23 are set out below:
– determining 2022/23 incentive outcomes for Executive
Directors and Executive Committee members,
particularly in light of the wider stakeholder experience;
– setting stretching targets for the annual bonus and
Performance Share Plan (PSP) in a continuing uncertain
and challenging environment;
– agreeing an adjustment to PSP targets to reflect an event
that was not anticipated at the time they were set; and
– determining Executive Director and Executive Committee
members’ base salary increases and the fee increase of
the Chair, all below those of the wider workforce.
The Committee’s full terms of reference can be found on
our corporate website at www.tescoplc.com.
You can see details of meeting attendance and the results of
the internal evaluation of the Committee’s performance on
pages 59 and 80, respectively.
Directors’ remuneration report index
Chair’s letter
At a glance
Summary of remuneration policy and implementation for
2023/24
Wider remuneration at Tesco
Context of executive pay
Remuneration report
77
81
85
89
92
97
Corporate governance Directors’ remuneration report continued
Chair’s letter continued
Supporting our colleagues through the cost-of-living crisis
– We recognise that our colleagues are fundamental in delivering
our strategic priorities and bringing them to life in a way that
makes a difference for all our customers and stakeholders.
– As part of the wider remit of the Committee, we have focused
a significant amount of time this year on overseeing the support
that we provided our colleagues throughout the cost-of-living
crisis. This follows the support we provided to colleagues during
the COVID-19 pandemic and continues to demonstrate the
laser focus we have on our colleagues and communities.
– We have introduced a number of market-leading reward-based
initiatives during the year to support our colleagues, including
the largest ever single-year investment in colleague pay. Wider
support has included extending discount allowances, increasing
access to hours, the ‘pay advance’ scheme to support
colleagues’ financial wellbeing and offering free food in
colleague rooms.
– The Committee has been equipped with knowledge and insights
through our wider workforce dashboard, which sets out how
colleague pay operates throughout the Group. This, and other
key colleague metrics, inform our decisions relating to the wider
workforce as well as executive pay.
– We set out further details on the support we have provided our
colleagues over recent years on page 90.
Colleague engagement
– Listening to the views of colleagues, on both executive pay and
in relation to their own pay, continues to be a fundamental
undertaking of the Committee.
– The Board continued to hold Colleague Contribution Panels
during the year, using the opportunity to hear directly from
colleagues across the Group. We used these forums to discuss
colleagues’ views on executive pay and other matters of
interest to them.
– The Committee considers the feedback we receive from
colleagues as part of our decision making on executive pay.
Further details of our colleague engagement are set out on
page 61.
– Committee members continued to spend time in the business
listening to colleagues and customers. These perspectives are
brought back to the Committee and reflected in its decisions.
Evolution of our sustainability strategy
– Following an extensive review of the most appropriate
measures for Tesco, we introduced carbon reduction, food
waste and diversity and inclusion performance measures into
the PSP last year. These measures reflect and support the
achievement of key sustainability priorities for Tesco and align
with our purpose.
– We reviewed the appropriateness of these measures, how
effective they have been and their evolution over the past year.
We determined that the measures remained material to the
business and should continue to be PSP measures in 2023.
– Further details of how our ESG measures link to strategy are
set out on page 88.
2022/23 business performance and
incentive outcomes
Tesco has delivered a strong trading performance against a
challenging backdrop of inflationary costs, customers under
cost-of-living pressures and changing shopping behaviours.
The chart below demonstrates the performance outcomes of our
2022/23 bonus and 2020 PSP. Full details of performance against
the 2022/23 individual objectives are set out on page 98.
2022/23 bonus achievement
Adjusted operating
profit (50%)
36.0%
Group sales
(30%)
Individual performance
(20%)
28.1%
28%
15.0%
19.0%
2020 PSP achievement
Adjusted diluted EPS
(50%)
30.7%
Cumulative free cash
flow (50%)
50.0%
Ken Murphy
Imran Nawaz
The overall formulaic vesting level for the annual bonus is 79.1%
of maximum for Ken Murphy and 83.1% for Imran Nawaz. Neither
Ken Murphy nor Imran Nawaz were in the role at the time of the
2020 PSP grant. The vesting level of the 2020 PSP award, which is
80.7% of maximum, is therefore reported here for transparency
and completeness only. Further details can be found in the At a
glance section commencing on page 81.
As set out in the 2020 Directors’ remuneration report, at the time
of the 2020 PSP grant the Committee noted that it would use the
discretion available to it under the remuneration policy when
determining the PSP outcomes and would make any necessary
adjustments to ensure that the Executive Directors do not benefit
unduly from windfall gains in the event of a market recovery.
The Committee reviewed the grant price of the 2020 PSP (227.2p)
compared to the grant price of the 2019 PSP (230.3p) and was
satisfied that no adjustments were required to the awards on
grant for windfall gains. The Committee has again reviewed the
position ahead of the vesting, taking into account the Tesco
share price as at 24 February 2023 (246.9p) and is satisfied that
no windfall gains have occurred and that no adjustment is
required on vesting.
2023/24 salary and incentives
When considering salary increases and incentives for our
executives, the Committee has been mindful of both the wider
colleague experience and our fairness principles. With this in mind,
the Committee has reviewed the salary levels of the Executive
Directors and agreed increases of 3.0% for Ken Murphy and 4.0%
for Imran Nawaz, noting that these increases are considerably
lower than the increase for UK hourly-paid colleagues of nearly
8% in 2022.
All incentive awards in relation to 2023/24 will be made in
accordance with the approved remuneration policy.
Further details can be found on pages 85 to 88.
78
Tesco PLC Annual Report and Financial Statements 2023
Appropriateness of remuneration
The Committee continued to review the appropriateness of
remuneration decisions, including incentive outcomes for
executives, salary increases for 2023/24 and implementation
of the policy in 2022/23. In doing so, it considered overall
business performance as well as the wider experience of our
key stakeholders, namely our customers, colleagues, supplier
partners and shareholders. Balancing the needs of all our
stakeholders continues to be at the heart of our purpose. In
particular, the Committee considered the following factors in
determining remuneration decisions:
Key stakeholder
Customers
Colleagues
Suppliers
Shareholders
Community
Factors considered by the Committee
– Solid UK market share performance and the
only full-line grocer to gain market share
over three years.
– Competitiveness of offer recognised by
customers in a tough market. Brand NPS
now highest of the full-line grocers and
outperformed market on customer satisfaction.
– Powerful combination of Aldi Price Match,
Low Everyday Prices and Clubcard Prices helping
ease cost-of-living pressures, leading to our
most competitive offer ever.
– Colleagues in every market received substantial
investments in their base pay, with the biggest
ever investment in the pay of hourly-paid UK
colleagues to £11.02 per hour.
– Great Place to Work score remained high
at 82%.
– Raised the cap on colleague discount allowance.
– Introduced pay advances to support financial
wellbeing.
– Increased access to vacant hours in stores.
– Improvement made to the free food offer in
colleague rooms.
– Supported British dairy farmers, increasing the
price we pay for milk by around 20%.
– Invested more than £30m into the British pig
supply chain, helping to support with increased
on-farm costs.
– Investment of £27.5m in the UK egg sector.
– Number 1 retailer in the Advantage supplier
survey for a seventh year.
– Delivered another year of strong growth.
– The Board is recommending a final dividend
of 7.05p taking the full-year dividend to 10.90p,
in line with last year’s full-year dividend.
– Ongoing commitment to buy back a further
£750m of shares by April 2024.
– Tesco and our customers provided more than
52 million meals through donations to food
banks and our communities.
– Introduced Kids Eat Free at Tesco cafes during
school holidays.
Based on an assessment of business and executive performance
and the wider stakeholder experience as set out above, the
Committee is satisfied that the outcomes of the annual bonus
and PSP reflect both the performance of the business and the
experience of stakeholders, including the wider workforce.
It therefore believes no discretion should be applied.
The chart below shows a breakdown of fixed and performance-
based remuneration (excluding any buyout awards) paid to Ken
Murphy and Imran Nawaz in respect of 2022/23 and 2021/22.
Ken Murphy
Imran Nawaz
£6m
£5m
£4m
£3m
£2m
£1m
0
£4.75m
£3.21m
£4.44m
£2.73m
£1.71m
£1.54m
£2.27m
£1.36m
£0.91m
£1.91m
£1.24m
£0.67m
2022/23
2021/22
2022/23
2021/22
Fixed pay
Performance pay
Ken Murphy and Imran Nawaz joined the Board on 1 October 2020 and 1 May 2021,
respectively. As such, neither of them was eligible to participate in the 2020 PSP.
Imran Nawaz’s 2021/22 remuneration reflects his appointment date.
Committee changes
As announced on 28 February 2023, Lindsey Pownall will be
stepping down from the Board and the Committee at the
conclusion of the 2023 AGM. On behalf of the Committee,
I would like to thank Lindsey for her insights and invaluable
contribution during her time on the Committee. Her
willingness to address challenging situations and provide
constructive solutions will be missed.
In September, Dame Carolyn Fairbairn will be joining the
Committee and I look forward to her contribution.
On behalf of the Committee, I would like to thank shareholders
for their input and engagement in the year and we welcome
any comments you may have on this report.
Alison Platt
Remuneration Committee Chair
Within this Directors’ remuneration report we have used
colour coding to define different elements of remuneration:
Salary
Benefits
Pension
Annual bonus
PSP
Shareholding
Details of the definitions of the financial performance
measures used throughout the Directors’ remuneration
report are set out on page 99.
Tesco PLC Annual Report and Financial Statements 2023
79
Corporate governance Directors’ remuneration report continued
Committee overview
How the Committee spent its time
The Committee met five times during the year, four of which were
scheduled meetings and one ad hoc. The chart below summarises
the key issues the Committee spent time discussing:
36%
26%
24%
14%
Senior management
remuneration
Policy implementation and
stakeholder experience
Governance and reporting
(including wider workforce
remuneration)
Performance monitoring
Evaluation
The performance of the Committee was assessed as part of the
internal Board evaluation process carried out during the year.
I am pleased to report that the Committee is regarded as
operating effectively and the Board is assured by the quality of
the work performed by the Committee. Details and results of
the wider Board evaluation process are set out in the
Corporate governance report on page 61.
Committee advisor
To ensure that the Committee continues to operate in line with
best practice, it has appointed PwC as an independent external
advisor. It is a member of the Remuneration Consultants Group
and, as such, voluntarily operates under the code of conduct in
relation to executive remuneration consulting in the UK. PwC was
initially appointed in 2015 and then reappointed in 2020 following
a competitive tendering exercise.
Total fees for advice provided to the Committee were £69,500
(2021/22: £127,950) on a time and materials basis. The wider PwC
firm also provided Tesco with several other services during the
year relating to corporate and other tax compliance, governance,
assurance and global mobility projects. However, the Committee
is satisfied that the PwC engagement partner and advisory team
that provide remuneration advice to the Committee, have no
connection with the Company or individual Directors that might
compromise their independence or objectivity.
The Group Chief Executive, Chief Financial Officer, Chief People
Officer and members of the Reward team attend meetings at the
invitation of the Committee to provide advice and respond to
questions. The Group Company Secretary is Secretary to the
Committee. No Directors or executives are present when their
own remuneration is discussed and they are not involved in
determining their own remuneration.
Voting at 2022 AGM
The table below sets out the voting outcome on the remuneration
policy and remuneration report at the 2022 AGM:
Remuneration policy
Remuneration report
Votes for
(millions)
5,148
(91.98%)
5,166
(92.22%)
Votes against
(millions)
449
(8.02%)
436
(7.78%)
Votes
withheld
(millions)
8
2
The Committee engages in regular dialogue with shareholders
and annually invites major investors to discuss its remuneration
practices and governance matters. The Committee finds such
meetings a valuable opportunity to receive feedback on its work
and the key issues it is considering. It also finds the feedback
received extremely helpful in informing its decisions. In addition,
the Committee also monitors the views of other stakeholders
and broader developments in executive remuneration generally.
Committee’s priorities in 2023/24
As well as considering its standard business, the Committee will
also focus during 2023/24 on areas including:
– overseeing wider workforce remuneration, policies and
practices. This will aim to ensure pay fairness across the
workforce, that there is a consistent cascade throughout the
Group and that the rewards, incentives and conditions available
to colleagues are taken into account when considering the
remuneration of Executive Directors and other executives;
– ensuring all aspects of remuneration are viewed through a
sustainability lens. This will include monitoring our current
sustainability measures and considering whether new measures
should be used for future PSP awards to reflect our evolving
sustainability strategy;
– ensuring colleagues’ views on pay, policies and practices are
attained through the Colleague Contribution Panels, Every Voice
Matters surveys and meetings and that these are reflected in
the decisions the Committee takes; and
– monitoring developments on our purpose and strategy to
ensure remuneration practices and policies are consistent with
the Group’s long-term goals and aligned to the interests of all
our stakeholders.
80
Tesco PLC Annual Report and Financial Statements 2023
At a glance.
Remuneration outcome for the year
The charts below show the 2022/23 potential remuneration opportunity and actual achievement compared with the 2021/22 actual
achievement (excluding any buyout awards). Imran Nawaz’s 2021/22 actual remuneration reflects his appointment date of 1 May 2021.
The relevant figures for each element of remuneration that make up the figures, as shown below for the Executive Directors, can be found in
the table on page 97. Neither Ken Murphy nor Imran Nawaz received a PSP payout in 2021/22 or 2022/23 due to their dates of joining the
Board preceding the grant dates.
Ken Murphy
Ken Murphy
Imran Nawaz
Imran Nawaz
Minimum
On target
Maximum
2022/23
Actual
2021/22
Actual
£1.71m
Minimum
£0.91m
£3.44m
£5.16m
£4.44m
£4.75m
On target
Maximum
2022/23
Actual
2021/22
Actual
£1.73m
£2.55m
£2.27m
£1.91m
0
£1m
£2m
£3m
£4m
£5m
£6m
0
£1m
£2m
£3m
£4m
£5m
£6m
Minimum – fixed pay (base salary,
benefits and pension)
Target – fixed pay and award for on
target annual bonus (50% of maximum)
Maximum – fixed pay and
maximum award for annual bonus
Fixed versus performance-linked remuneration
A significant proportion of Executive Directors’ remuneration is performance-linked, long-term and at risk due to withholding and
recovery provisions for a period during which the Committee can withhold vesting or recover sums paid. The charts below show the fixed
and performance-linked and short-term and long-term elements of pay for the Group Chief Executive and Chief Financial Officer based
on maximum payouts. As half of the annual bonus payout is deferred into Tesco shares for three years, it is deemed long-term for the
purpose of the chart.
Ken Murphy
Fixed
19%
Performance linked
81%
Fixed
21%
Performance linked
79%
Imran Nawaz
Short term
38%
Long term
62%
Short term
39%
Long term
61%
2022/23
2023/24
2024/25
2025/26
2026/27
Pay at risk
Annual bonus
PSP
Annual bonus
PSP
Performance period
Deferred period
(half of actual bonus
deferred into shares)
Performance period
Holding period
Tesco PLC Annual Report and Financial Statements 2023
81
Corporate governance Directors’ remuneration report continued
At a glance continued
Five-year total remuneration for the Group Chief Executive role
The Single total figure of remuneration (STFR) is disclosed each year in respect of each individual who has performed the role of Group Chief
Executive (CEO). However, under the UK reporting regulations, there is currently no requirement to show the STFR in aggregate for all
individuals who have performed the role of CEO during the year. The chart below shows how the STFR of the CEO role has evolved over
the past five years, including payments to the current CEO and the previous CEO in each year. This combines the CEO STFR with amounts
disclosed in the ‘Payments to former Directors’ section for the previous CEO in relation to the relevant financial year as per the single
total figure methodology.
£6.33m
£6.68m
£4.60m
£4.44m
£2.64m
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
100
80
60
40
20
0
)
x
a
m
f
o
%
(
s
e
m
o
c
t
u
o
P
S
P
/
s
u
n
o
b
l
a
u
n
n
A
)
0
0
0
’
£
(
O
E
C
–
e
r
u
g
fi
l
a
t
o
t
e
g
n
S
i
l
2018/19
2019/20
2020/21
2021/22(a)
2022/23
Previous CEO
Current CEO
PSP vest
Bonus outturn
(a) The 2021/22 figure includes £363,000 in compensation for income forfeited under a non-compete clause with the current CEO’s previous employer.
2022/23 annual bonus outturn (audited)
The chart below shows the outcome of the 2022/23 annual bonus. We set out a summary of overall business performance on
pages 2 to 37 within the Strategic report.
Annual bonus measure
Group sales
Threshold
25% payout
Target
Stretch
50% payout
100% payout
Actual £57,689m
£54,531m
£56,218m
£57,905m
Outcome achieved
Weighting
30%
Ken Murphy
28.1%
Imran Nawaz
28.1%
Adjusted operating profit
50%
36%
36%
Actual £2,624m
Individual objectives
Total
£2,350m
Details of performance are set out on page 98.
£2,540m
£2,731m
20%
100%
15%
79.1%
19%
83.1%
The performance outcome resulted in the following annual bonus payouts:
Ken Murphy
Imran Nawaz
2022/23 base
salary
(£’000)
1,380
730
Annual bonus
opportunity
(% salary)
250
225
Actual award
(% maximum)
79.1
83.1
Actual award
(% salary)
197.8
187.0
Actual award
(£’000)
2,730
1,365
Actual annual
bonus deferred
into shares
(50% of actual
annual bonus)
(£’000)
1,365
682
82
Tesco PLC Annual Report and Financial Statements 2023
2020 PSP outturn (audited)
The chart below shows the outcome of the 2020 PSP award. Neither Ken Murphy nor Imran Nawaz was granted awards as these
preceded their joining dates. We set out further details of the award on page 98.
PSP measure
Cumulative free cash flow
Threshold
(25% payout)
Adjusted diluted EPS
£2.9bn
17.2p
Actual 21.1p
Stretch
(100% payout)
Actual £5.5bn
£5.1bn
25.4p
Weighting
50%
Outcome achieved
50%
50%
30.7%
Total
100%
80.7%
Strategic alignment disclosure for 2023/24 implementation
The Committee believes it is vital that a significant proportion of the remuneration package for the Executive Directors and senior
management should be performance-related and that performance measures are aligned to our purpose and strategic priorities.
Strategic priorities
Purpose
Magnetic value
for customers
I love my Tesco
Clubcard
Easily the most
convenient
Save to invest
Customers
Communities
Planet
The below tables set out our incentive performance measures and how these align to our purpose and strategic priorities:
Alignment to strategic priorities
Alignment to purpose
2023 PSP
Cumulative Retail free cash flow (37.5%)
Adjusted diluted EPS (37.5%)
ESG measures (25%)
Carbon
reduction (8.3%)
Food waste
reduction (8.3%)
Profitable growth and free cash flow
are key elements of our multi-year
performance framework. They are
aligned to the delivery and success
of our strategic priorities over the
medium and long terms.
Aligned to the Group’s commitment to
be carbon neutral across our own
operations by 2035 and brings to life
our purpose to serve our planet a little
better every day.
Aligns to our goal of halving food waste
across our own operations by 2025
and brings to life our purpose to serve
our planet a little better every day.
Diversity and
inclusion (8.3%)
We aim to increase the diversity of
our leadership teams, so we better
represent the communities we serve.
We aim to continue to
be a champion for
customers, providing
great value, high-quality
products wherever,
whenever and however
customers want them.
This is a critical time for
our planet. As a
responsible company
we are therefore finding
new ways to reduce our
impact on the
environment and
collaborate with our
supplier partners and
customers to help them
do the same.
Embedding diversity and
building inclusion into
everything we do is key
to our business success
and helps us connect to
our communities.
Tesco PLC Annual Report and Financial Statements 2023
83
Corporate governance Directors’ remuneration report continued
At a glance continued
Alignment to strategic priorities
Alignment to purpose
2023/24 annual bonus
Group sales (30%)
Adjusted operating profit (50%)
Individual performance (20%)
Our ambition is to drive top-line growth by
increasing customer satisfaction relative
to the market and growing, or at least
maintaining, our core UK market share.
Our ambition is to grow absolute profits
while maintaining sector-leading margins
through leveraging our assets efficiently
across all channels, exploiting new revenue
streams across our digital platform and
targeting productivity initiatives.
Individual objectives are aligned to our
strategic priorities. Further details are set
out on page 98.
We aim to provide
customers with
brilliant, helpful
service in every corner
of our business, with
products and services
that are sustainable
and accessible to all.
Individual objectives
are aligned to each
part of our purpose:
customers,
communities and
planet.
Shareholding requirement (audited)
The Committee wants to incentivise Executive Directors to take a long-term, sustainable view of the Group’s performance. For this
reason, when the Committee looks at the remuneration paid in the year, it also looks at the total equity Executive Directors hold and
its value based on the Group’s performance.
The charts below set out the progress of Ken Murphy and Imran Nawaz toward the minimum shareholding requirement and how
Ken Murphy’s shares could build up over the medium term. Following the vesting of the majority of his buyout awards, Imran Nawaz
has achieved 284% of his shareholding requirement of 300% of salary. Both Ken Murphy and Imran Nawaz are required to retain all
shares that vest to them, net of any tax liability, until the shareholding guideline has been met.
Executive Director shareholdings % of base salary (audited)
Ken Murphy – 2022/23
Imran Nawaz – 2022/23
Actual 69%
400%
Actual 284%
300%
Ken Murphy – potential build-up of shareholding over time
69%
102% 208% 314% 420%
2022/23
2023/24
2024/25
2025/26
2026/27
(a) Build-up of shares is based on actual 2021/22 and 2022/23 annual bonus outcomes and future annual bonus and PSP outcomes being 50% of maximum (of which 47% is
deducted to cover statutory deductions), no change in base salary or quantum of awards, no dividend equivalents added and a constant share price of 238.7p.
(b) Between 25 February and 12 April 2023 Ken Murphy acquired 55 partnership shares under the Buy As You Earn (BAYE) plan. No other changes in Executive Director share
interests occurred in the period.
(c) The value of Executive Directors’ shareholdings is based on the three-month average share price of 238.7p to 25 February 2023.
The table below sets out the number and value of shares held by Executive Directors at the beginning and end of the financial year
and the total value of these shares using the opening price and closing price for the year. You can see full details of Executive
Directors’ interests in share awards on page 99.
Ken Murphy
Imran Nawaz
Number of
shares held outright
27/02/2022
46,924
525,033
25/02/23
74,593
742,930
Deferred
share awards(a)
Total value of
shares and awards
(£’000)
27/02/2022
–
–
25/02/23
613,160
237,402
27/02/2022
£136
£1,521
25/02/23
£1,642
£2,340
Difference
in value
(£’000)
£1,506
£819
(a) Net number of shares, after deemed statutory deductions of 47%, count towards the shareholding requirement.
84
Tesco PLC Annual Report and Financial Statements 2023
Summary of remuneration
policy and implementation
for 2023/24.
The purpose of the remuneration policy remains to attract, retain and motivate the talent capable of delivering our purpose and strategy
and provide clear leadership. In this way, it aims to create long-term sustainable performance and increased shareholder value.
The tables below set out a summary of the proposed remuneration policy for Executive Directors and the time period of each element
of pay. The full policy was approved by shareholders at the AGM on 17 June 2022 and can be found in the 2022 annual report, which is
available on the Company’s website at www.tescoplc.com/investors/reports-results-and-presentations.
Total pay over five years
Year 1
Year 2
Year 3
Year 4
Year 5
Fixed pay (base
salary, benefits
and pension)
Annual
bonus
PSP
Base salary
50% in cash
One-year
performance period
50% in shares
Three-year deferral period
No further performance conditions
Three-year
performance period
Two-year
holding period
Purpose and link to strategy
Supports the attraction and retention of the best talent with the capability to develop
and deliver Tesco’s strategy.
Operation
Salaries are normally reviewed annually by the Committee, with changes being effective
from 1 June. Salaries take account of:
– role, skills, experience and performance;
– pay and conditions elsewhere across the Group, including the wider workforce; and
– salary levels at leading FTSE companies and other large consumer businesses in the
UK and internationally.
Any increases proposed will normally be in line with or below the typical level of
increase awarded to other colleagues. Increases above those granted to the wider
workforce may be awarded in certain circumstances such as where there is a change
in responsibility, experience or a significant increase in the scale of the role.
Where a new Executive Director has been appointed on a below-market rate of
pay initially, a series of increases above those granted to the wider workforce may
be given over the following few years, subject to individual performance and
development in the role.
Implementation in 2023/24
Increases of 3.0% and 4.0% will be applied
to the salaries of Ken Murphy and Imran
Nawaz, respectively, so that the salaries
from 1 June 2023 are:
Ken Murphy: £1,421,786
Imran Nawaz: £759,200
These increases are below those awarded
to the wider workforce.
Tesco PLC Annual Report and Financial Statements 2023
85
Corporate governance Directors’ remuneration report continued
Summary of remuneration policy and implementation
for 2023/24 continued
Benefits
Purpose and link to strategy
Provides market-competitive and cost-effective benefits to support the attraction and
retention of talent.
Operation
Benefits take into account local market practice, typical benefits and the policy for other
colleagues. Core benefits include a car or cash allowance and a driver, incapacity benefits,
private medical insurance and life assurance. Other benefits (including relocation and
commuting support) may be offered as required. We periodically review the range and
value of benefits. There is no pre-determined maximum limit.
Pension
Implementation in 2023/24
Normal Company benefit provision.
Commuting support for Ken Murphy
to cease on 31 March 2023.
See page 97 for further details
of benefits provided in 2022/23.
Purpose and link to strategy
Provides a competitive level of retirement income to help the attraction and retention
of talent.
Implementation in 2023/24
Cash allowance of 7.5% of base salary.
Operation
A defined contribution scheme or a cash allowance in lieu of pension.
The maximum contribution for Executive Directors of 7.5% of base salary
is aligned to the wider workforce.
Annual bonus
Purpose and link to strategy
Incentivises and recognises delivery of the Group’s strategic, operational and financial
targets. Provides a focus on key financial and operational goals and on the individual’s
contribution to the Group’s performance. Aligns the interests of Executive Directors
with shareholders through the 50% deferral of bonus outturn into Tesco shares.
Operation
Maximum award of 250% of base salary. 50% of bonus earned is deferred into Tesco
shares for three years subject to continued employment, with the remainder paid out
in cash after the end of the financial year.
Dividend equivalents in the form of additional shares are payable on deferred annual
bonus awards that vest.
Up to 25% of bonus is paid for threshold performance.
Performance metrics, weightings and stretching targets are set by the Committee at the
beginning of the performance period. Performance is measured against financial and
non-financial targets. At least 70% of bonus is based on financial performance.
The Committee may apply judgement in making appropriate adjustments to annual bonus
outcomes to ensure that they reflect underlying business performance.
Malus and clawback provisions apply.
Implementation in 2023/24
The following maximum opportunities
will apply in 2023/24:
– CEO 250% of salary
– CFO 225% of salary
Performance measures
(as a percentage of maximum):
– 50% adjusted operating profit
– 30% Group sales
– 20% individual performance
The Board considers bonus targets to be
commercially sensitive as they could inform
Tesco’s competitors about our budgeting.
However, full and transparent disclosure of
targets and performance outcomes will be
set out in next year’s Annual Report.
See page 82 for further details
of annual bonus outturns for
2022/23 and page 93 for
details of malus and
clawback provisions.
86
Tesco PLC Annual Report and Financial Statements 2023
PSP
Purpose and link to strategy
Incentivises and rewards the achievement of Tesco’s strategic, financial and ESG targets.
Provides a focus on long-term value creation and alignment with the long-term interests
of shareholders and other stakeholders.
Operation
Maximum award of 350% of base salary. Up to 25% of an award may vest for
threshold performance.
Performance metrics, weightings and stretching targets are set by the Committee at the
beginning of the performance period. Awards are granted annually with vesting dependent
on the achievement of financial and non-financial performance conditions over three
years. They are also subject to an additional two-year holding period after the vesting date,
with shares held in a corporate sponsored nominee account. Dividend equivalents in the
form of additional shares are paid on PSP awards that vest.
The Committee may adjust the formulaic vesting outcome either up or down to ensure that
the overall outcome reflects the underlying business performance over the vesting period.
Implementation in 2023/24
The following maximum opportunities
will apply in 2023/24:
– CEO 275% of base salary
– CFO 250% of base salary
Performance measures
(as a percentage of maximum):
– 37.5% adjusted diluted EPS
– 37.5% cumulative Retail free cash flow
– 25% ESG measures
See page 98 for further
details of 2020 PSP outturns
and page 88 for PSP awards to
be granted in 2023. Details of
malus and clawback provisions
can be found on page 93.
Malus and clawback provisions apply.
All-colleague share plans
Purpose and link to strategy
To encourage eligible colleagues to build up a shareholding in Tesco.
Operation
Executive Directors are eligible to participate in applicable all-colleague share plans on
the same basis as other eligible colleagues in the UK. These currently comprise the
Company’s Save As You Earn (SAYE) and Buy As You Earn (BAYE) plans, on identical
terms to other UK colleagues.
Shareholding requirement
Implementation in 2023/24
SAYE and BAYE plans will continue
to be operated in 2023/24.
Purpose and link to strategy
Ensures alignment between the interests of the Executive Directors and shareholders.
Implementation in 2023/24
Shareholding requirement will continue to be
operated in 2023/24.
Operation
The Group Chief Executive is required to build and maintain a holding of shares to the value
of 400% of salary, and the Chief Financial Officer to 300% of salary. Executive Directors
are required to retain all shares that vest to them, net of any tax liability, whether from
the annual bonus, PSP or buyout awards, until the relevant shareholding guideline
is satisfied.
Following their departure from the Company, Executive Directors are required to hold
whichever is the lower of their shareholding guideline or their actual shareholding for two
years. They must hold their shares covered by the post-cessation shareholding
requirement in a corporate sponsored nominee account.
You can find details of the outstanding share awards held by Executive Directors on
page 99.
Tesco PLC Annual Report and Financial Statements 2023
87
Corporate governance Directors’ remuneration report continued
Summary of remuneration policy and implementation
for 2023/24 continued
PSP awards to be granted in 2023/24
The table below sets out the financial performance measures and targets for the 2023 PSP award grant:
Measure
Adjusted diluted EPS
Cumulative Retail free cash flow
Weighting
37.5%
37.5%
Threshold
(25% vesting)
Stretch
(100% vesting)
22.2p
£3,869m
33.3p
£5,803m
In line with our policy, any PSP outcome for Executive Directors will only become available following the end of a two-year holding period
such that the total vesting period is five years from the date of grant. Malus and clawback provisions apply to the awards.
ESG measures and targets for the 2023 PSP and the evolution of our ESG targets
Sustainability is central to our purpose and strategy and the implementation of our 2022 remuneration policy links executive pay directly
to three of our most material sustainability areas. Our sustainability strategy will evolve over time and, as such, we anticipate that our
ESG performance measures will simultaneously evolve to ensure they remain material to the business.
The table below sets out the ESG performance measures and targets for the 2023 PSP award and demonstrates how our PSP targets
continue to evolve towards achieving our long-term sustainability commitments. Further details of our sustainability commitments are set
out on page 18.
Carbon
reduction
Food waste
reduction
Diversity and
inclusion
Journey to 2022/23
Our commitments
2022 PSP stretch targets
(to achieve by 2024/25)
Carbon neutrality across our Group
operations by 2035 (brought
forward from 2050).
Net zero across our total emissions
footprint by 2050, including our
supply chain and products.
60% reduction in Scope 1 and 2
market-based GHG emissions
against a 2015/16 baseline.
Progress toward targets at
2022/23 year end
55% reduction.
Halve food waste in our own
operations by 2025.
35% of our top global leaders will be
female and 14% will be from an
ethnically diverse background by
2025.
55% reduction in tonnes of food
wasted as a percentage of food
handled compared with a baseline
year of 2016/17.
45% reduction.
40% female and 15% ethnically
diverse top global leaders compared
with a baseline year of 2021/22.
29% female and 15% ethnically
diverse.
2023 PSP ESG performance measures (to achieve by 2025/26)
Definition
Weighting
Reduction in Scope 1 and 2
market-based GHG emissions
against a 2015/16 baseline.
8.3%
Reduction in tonnes of food wasted as a
percentage of food handled compared
with a baseline year of 2016/17.
8.3%
Percentage of female and ethnically
diverse top global leaders compared
to a baseline year of 2021/22.
8.3%
Threshold (25% vesting)
Stretch (100% vesting)
58%
62%
51%
57%
Female – 35%/Ethnicity – 16%
Female – 42%/Ethnicity – 18%
We are applying a higher degree of rigour than ever before with regard to our material sustainability goals and progress. For our most
material issues, we publicly report progress with clear KPIs and provide full transparency on our historic performance. Our most material
KPIs are Group-wide and our reporting is assured by an independent third party. Wherever applicable, we align our reporting methodologies
to recognised disclosure standards. Our Sustainability Accounting Standards Board disclosure, along with all our KPI performance data can
be found in our sustainability databook. Further details of our approach to sustainability are detailed on pages 18 to 25.
Board Chair and Non-executive Director fees
The fees for the Chair of the Board and the Non-executive Directors are reviewed each year. The Board Chair’s fee is reviewed by the
Committee (without the Board Chair being present) and the Non-executive Director fees by a committee comprising the Board Chair, Group
Chief Executive and Chief Financial Officer. In July 2022, following a review of independently sourced data, increases awarded to the wider
workforce and the time commitments of the Board Chair and Non-executive Directors, it was agreed to increase the Board Chair’s fee and
the average total fees paid to Non-executive Directors from 21 August 2022 by 2.6% and 2.8%, respectively. Both increases were below the
increases for the wider workforce.
Non-executive Board Chair fee
Non-executive Director fee
Additional fees:
Senior Independent Director
Chairs of the Audit, Corporate Responsibility and Remuneration Committees
Membership of Audit, Corporate Responsibility, Nominations and Governance, and Remuneration
Committees
1 September 2021
to 20 August 2022
£687,000
£80,500
From
21 August 2022
£705,000
£82,750
£28,500
£32,500
£30,000
£33,000
£15,000
£15,500
Increase
2.6%
2.7%
5.3%
1.5%
3.3%
88
Tesco PLC Annual Report and Financial Statements 2023
Wider remuneration
at Tesco.
The principles of a fair workplace
To live up to our purpose, our colleagues need to reflect and represent the communities we serve. Tesco aims to be a place where
colleagues can get on, as they wish, irrespective of their background. We are proud of our long history of helping colleagues develop
their careers in Tesco.
The following principles guide our approach to reward:
Competitive
Setting pay with
reference to internal
relativity and external
market practices
Simple
Helping all colleagues
to understand how they
are rewarded
Fair
Achieving consistent
outcomes through flexible
and transparent policies
Sustainable
Aligning reward to
business strategy and
performance
How we bring our principles to life
Tesco provides colleagues across the Group with a competitive reward package. The Committee has responsibility for reviewing
remuneration and related policies for colleagues throughout the Group. This ensures we take into account the reward, incentives and
conditions available to colleagues when considering the remuneration of Executive Directors and senior management.
In Tesco’s UK business in 2022/23, colleagues received a reward and benefits package in line with the elements set out in the table below.
The purpose of each element is the same for all colleagues, creating a consistent cascade throughout the organisation.
Base salary
Benefits
Pension
All-colleague
share plans
Annual bonus
Executive Directors, Executive Committee and WL4-5
Other colleagues
Hourly-paid colleagues in stores
Base salary supports the recruitment and retention of colleagues of the calibre, capability and experience needed to perform their
roles. Base salary provides fixed remuneration and reflects the size, scope and complexity of individual role responsibilities.
A market-competitive level of benefits for colleagues, enhancing the reward package and providing other reasons to work at Tesco,
such as discount in store.
The opportunity to save for retirement, with the employing company matching employee contributions.
The opportunity to purchase shares in Tesco.
WL1-3
The opportunity for colleagues to receive an annual bonus for delivering against business and
individual goals. The opportunity gives colleagues a balance between fixed and variable pay
related to market practice based on role.
At senior levels, a proportion of any bonus is deferred into Tesco shares to provide additional
alignment with shareholders’ experience.
Our pay approach aims to provide
regular and predictable earnings
through competitive base pay for
our hourly-paid store colleagues.
We agreed with our unions in 2019
that hourly-paid colleagues in stores
would not receive an annual bonus,
replacing it with a higher base rate
of pay. In distribution, colleagues
who have transferred to the new
2022 contract no longer receive an
annual bonus, replaced with
enhanced rates of pay.
Performance
Share
Plan
Colleagues with responsibility for long-term Group
performance are incentivised to achieve Tesco’s
strategy and create sustainable shareholder value.
Measures and targets for long-term incentive plans
are consistent for all participants and measured over
a three-year period.
A two-year holding period after the vesting date also
applies at Executive Director level.
Tesco PLC Annual Report and Financial Statements 2023
89
Corporate governance Directors’ remuneration report continued
Wider remuneration at Tesco continued
The balance between the different elements of remuneration
depends largely on the role and seniority of colleagues. Junior
colleagues’ remuneration is principally fixed pay, reflecting our
principle of helping to support a decent standard of living, where
regular pay levels help with personal budgeting and planning.
For more senior colleagues, remuneration is weighted more
towards variable pay, which can increase or decrease based on
the performance they achieve against our goals. This approach
to pay design also reflects each individual’s ability to influence
Tesco’s performance.
While the balance of the elements of remuneration may differ,
our consistent overall principle is that all colleagues should be
paid competitively against the relevant pay benchmark.
We regularly ask colleagues across the Group how they feel
about pay and benefits at Tesco. In our 2023 Every Voice Matters
colleague survey, 63% of colleagues agreed that the total reward
package at Tesco is competitive, which is well ahead of relevant
external benchmarks. In addition, 83% of colleagues said they
are able to work flexibly and 85% feel they can be themselves at
Tesco, without fear of judgement. 66% of colleagues feel Tesco
supports them with their financial wellbeing. Our colleagues are
the heart of our business and Tesco remains committed to
building an inclusive workplace where everyone can get on.
Our ongoing initiatives include:
– championing health and wellbeing to support our colleagues
in and out of work through a defined offer of mental, physical
and financial wellbeing;
– ensuring inclusivity in everything we do by embedding inclusive
behaviours to build an inclusive workplace with a sense of
belonging, led by inclusive leaders;
– equipping our colleagues with the skills they need to succeed
now and in the future through various skills and career
programmes; and
– developing the next generation of talent through programmes
for interns, apprentices and graduates.
Colleague engagement
Engaging with colleagues and understanding their views is vital
to the Committee and its decision making. During the year, six
Colleague Contribution Panels (CCPs) were held. They provide an
opportunity to seek the views of colleagues from across the Group
on areas of specific interest to the Board, its Committees and our
colleagues. They also allow colleagues to gain an understanding of
the role and responsibilities of the Board and its Committees and
provide colleagues with the opportunity to ask any questions. We
set out further details of the CCPs on page 63.
During the year, the Committee reviewed the pay, policies,
incentives and demographics of the wider workforce across the
Group and the findings from the Every Voice Matters colleague
survey. During 2022 a Group-wide review of benefits was
undertaken to determine what colleagues value most in their
reward package and where improvement can be made.
In addition, Directors regularly visit stores, distribution centres,
customer engagement centres and offices to meet with colleagues
to gauge their overall opinions and assess our culture.
We use the information provided by colleagues to guide our
approach to Executive Director and senior management
remuneration.
Understanding workforce arrangements
The Committee believes it is important to understand how
colleague pay and other key colleague metrics operate throughout
the Group. The Committee therefore receives regular updates
throughout the year on these metrics via the wider workforce
dashboard, which sets out a broad range of information, including:
– a summary of colleague demographics;
– results from our Every Voice Matters survey, including
satisfaction with reward;
– colleague pay positioning split by location;
– a summary of UK store colleague hourly pay versus
comparators, the National Minimum Wage and National
Living Wage;
– salary budgets by business;
– incentive outcomes by business; and
– CEO pay ratio and gender pay gap over multiple years.
The Committee is therefore well positioned to take this context
into account when setting the pay of Executive Directors.
Caring for our colleagues – wider colleague reward
interventions
Our fantastic team of colleagues is at the heart of Tesco. Last year
we reached an agreement with USDAW for a substantial increase
in UK base pay – by 5.8% to £10.10 for hourly-paid colleagues in our
stores and customer fulfilment centres (CFCs) effective July 2022.
We also announced a one-off thank you payment of 1.25% of
annual earnings to hourly-paid store, CFC and customer-
engagement centre colleagues in the UK.
This year the cost-of-living challenges faced by our customers and
colleagues alike have been very much front of mind. Tesco is
proud to have worked relentlessly to keep the cost of the weekly
shop as affordable as possible for our customers, but we are also
mindful of the need to ensure our colleagues’ wellbeing and to
recognise their tremendous efforts.
Therefore, we made further increases in the hourly rate for UK
store colleagues to £10.30 in November 2022 and have recently
announced a further increase to £11.02 effective from April 2023
as set out in the illustration opposite. We have also provided
investments in colleague pay and benefits in our other UK
businesses, ROI and Central Europe.
Pay is just one way in which we can support our colleagues and
we have provided further cost-of-living support through our
enhanced benefits package, including offering greater in store
discounts to colleagues and wider financial wellbeing support.
90
Tesco PLC Annual Report and Financial Statements 2023
The illustration below sets out an overview of the recent reward-based interventions we have implemented to support our UK store
colleagues, focusing on our lowest-paid populations and the types of reward that can be most valuable to our colleagues. We believe that
the actions we have taken over the past three years recognise the contribution our colleagues make to our business and demonstrate our
commitment to making Tesco a great place to work.
December 2020
10% bonus paid to
hourly-paid
colleagues
September 2021
Increase in the hourly
rate for colleagues
from £9.30 to £9.55.
Increase in night
premium payments
from £2.21 to £2.30
April 2022
Increase of £500 in
annual colleague
discount allowance
to £1,500
April 2023
Increase in the
hourly rate for
colleagues from
£10.30 to £11.02
November 2022
Increase in the hourly rate
for colleagues from £10.10 to
£10.30
Improvement to the free
food offer made in
colleague rooms
Ability for UK colleagues
to get up to 25% of their
contractual pay early as
an advance
2020/21 and 2021/22
2022/23
2023/24
March 2020
10% bonus for
hourly-paid colleagues
paid in April, May and
June 2020
June 2021
2% end-of-year
recognition bonus
paid to hourly-paid
colleagues
May 2022
End-of-year
recognition bonus of
1.25% paid to
hourly-paid colleagues
July 2022
Increase in the
hourly rate for
colleagues from
£9.55 to £10.10
December 2022
20% colleague
discount offered
for seven days
Change in remuneration of colleagues and Directors
The table below shows the percentage change in the annual remuneration of Directors and the average UK colleague over the
past four years.
The reporting regulations require disclosure of the change in remuneration of employees of the parent company. As the only employees of
this company are the Executive Directors, the Committee decided to use the average UK colleague as the appropriate comparator group.
This is because they represent the majority of Tesco colleagues and the Executive Directors are predominantly based in the UK.
Salary/fees (% change)
Benefits (% change)
Bonus (% change)(a)
2022/23
2021/22
2020/21
2019/20
2022/23
2021/22
2020/21
2019/20
2022/23
2021/22
2020/21
2019/20
Executive Directors
Ken Murphy
Imran Nawaz(b)
Non-executive Directors
John Allan
Melissa Bethell
Bertrand Bodson(b)
Thierry Garnier(b)
Stewart Gilliland
Byron Grote(c)
Alison Platt(c)
Lindsey Pownall(c)
Caroline Silver(d)
Karen Whitworth(b)
Former Directors
Steve Golsby(b)
Simon Patterson(b)
Colleagues
Average UK colleague
–
–
–
–
170.5%
162.2%
18.9%
–
–
–
–
–
(14.8)%
(8.3)%
100%
–
1.7%
3.7%
1.3%
3.2%
2.5%
2.3%
2.8%
12.3%
13.8%
9.2%
–
3.0%
0%
–
0%
2.2%
–
–
2.8%
12.3%
2.8%
9.2%
–
–
1.5%
2.2%
–
–
5.0%
3.0%
5.0%
1.9%
–
–
3.4%
172.7%
–
–
42.3%
3.9%
17.4%
2.9%
–
–
112.5%
100%
(62.5)%
150%
100%
100%
100%
300%
–
(100)%
–
–
14.3% (46.2)%
100% (100)%
–
–
0% (50.0)%
100% (100)%
100% (100)%
100% (87.5)%
–
–
–
–
62.5%
100%
–
–
300%
100%
0%
(20.0)%
–
–
6.7%
1.6%
8.1%
2.2%
2.5%
2.2%
22.2%
4.7%
100%
(100)%
0% (100)%
100% (100)%
30.8%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.6%
3.3%
6.8%
3.0%
0%
0%
0%
0%
N/A
N/A
N/A
(100)%
(a) We agreed jointly with our unions in 2019 that hourly-paid colleagues in stores would no longer receive an annual bonus, replacing it with a higher rate of base pay.
(b) For those Directors appointed in 2021/22 (Bertrand Bodson, Thierry Garnier, Imran Nawaz and Karen Whitworth) and those who stood down in 2022/23 (Steve Golsby and Simon
Patterson), salary/fees, benefits and bonus (as appropriate) have been pro rated for the purposes of comparison.
(c) On 17 June 2022 Alison Platt was appointed as Chair of the Remuneration Committee. On 25 June 2021, Byron Grote was appointed Senior Independent Director and Lindsey Pownall
joined the Remuneration Committee.
(d) Caroline Silver joined the Board on 1 October 2022.
Tesco PLC Annual Report and Financial Statements 2023
91
Corporate governance Directors’ remuneration report continued
Context of executive pay.
Provision 40 disclosures
In developing our approach to remuneration, the Committee was mindful of Provision 40 of the UK Corporate Governance Code and
considers that the executive remuneration framework addresses the following factors:
Clarity
Remuneration
arrangements should be
transparent and promote
effective engagement with
shareholders and the wider
workforce
Simplicity
Remuneration structures
should avoid complexity and
their rationale and
operation should be easy to
understand
Predictability
The range of possible values
of rewards should be
identified and explained
when the policy is approved
Proportionality
The link between individual
awards, the delivery of
strategy and the long-term
performance of the
Company should be clear.
Outcomes should not
reward poor performance
Risk
Remuneration
arrangements should
ensure the identification
and mitigation of
reputational and other risks
from excessive rewards
and behavioural risks that
can arise from target-based
incentive plans
Alignment to culture
Incentive schemes should
drive behaviours that are
consistent with the
Company’s purpose, values
and strategy
– Our remuneration policy is designed to be sustainable, simple and support the delivery of Tesco’s strategy
and purpose of serving our customers, communities and planet a little better every day.
– Performance requirements are clearly disclosed and transparent and we provide detailed disclosures
of the relevant performance assessments and outcomes for our stakeholders to consider. These bring
clarity to all stakeholders on the relationship between the successful implementation of our purpose
and strategy and how our leadership is rewarded.
– The Board has designated Non-executive Directors to host Colleague Contribution Panels (CCPs)
comprising elected colleagues from across the Group to engage on various topics to ensure internal
clarity on remuneration. You can find further details on how the Board engages with stakeholders on
page 63.
– The Company operates an approach to remuneration that is simple to understand and familiar to
stakeholders:
– fixed element: base salary, benefits and pension;
– short-term element: an annual performance-related bonus with both financial and non-financial
measures. Half is paid in cash and the other half in Tesco shares deferred for three years; and
– long-term element: PSP awards vest after three years on achievement of stretching performance
criteria and are subject to a further two-year holding period.
– We explain our approach to remuneration clearly and simply, with no complex structures required to
operate the plans.
– Our remuneration policy contains details of maximum opportunity levels for each component of pay,
allowing possible reward outcomes to be easily quantified.
– Details are set out in the Directors’ remuneration report clearly showing potential performance and
reward outcomes.
– The Committee reviews potential performance outcomes regularly so there are no surprises when
performance is assessed at the end of the year.
– Our annual bonus and PSP plans provide clear alignment between incentive outcomes and the
achievement of Tesco’s strategy, with stretching performance conditions set to achieve commensurate
reward for commensurate performance.
– Performance is assessed on a broad basis, including a combination of financial, non-financial and ESG
measures. This ensures there is no undue focus on a single measure to the detriment of stakeholders.
– The use of annual bonus deferral, PSP post-vesting holding periods and our shareholding requirements
(including after leaving Tesco) ensures that Executive Directors have a strong drive to ensure that
performance is sustainable over the long term.
– Stretching performance conditions, along with the discretion available to the Committee to override
formulaic outcomes, ensures that outcomes do not reward poor performance.
– Variable pay outcomes align with Tesco’s purpose, values and strategy, including ESG goals and the
long-term interests of shareholders and other stakeholders.
– The Committee has appropriate discretions to override formulaic outturns if circumstances dictate.
– The Committee has also satisfied itself that the remuneration arrangements do not encourage risk-taking
or behaviours that are incompatible or inconsistent with these factors.
– Regular interactions with the Audit Committee and Corporate Responsibility Committee ensure relevant
risk factors are considered when setting or assessing performance targets.
– The Committee has the discretion to apply malus and clawback in certain circumstances, including in the
event of any behavioural risks.
– The Board reviews and adopts the Long Term Plan (LTP) annually, so providing a focus on the long-term
sustainability of the Group.
– The Committee reviews the measures and targets of the annual bonus and PSP each year to ensure
measures and targets are aligned to the LTP, are appropriately challenging, support the Group’s culture
and strategy and create value for stakeholders.
– To ensure our incentive schemes drive behaviours that are consistent with our purpose, values and
strategy, we aim to:
– understand the remuneration of the wider workforce;
– ensure pay decisions are aligned across the Group; and
– engage with our stakeholders, including our colleagues.
92
Tesco PLC Annual Report and Financial Statements 2023
Discretion in relation to incentive plans
The Committee operates the annual bonus and PSP in
accordance with their respective scheme rules and the relevant
Listing Rules consistent with market practice. The Committee
retains discretion, within the confines and opportunity detailed
above, regarding the operation and administration of these plans.
The discretion covers:
– the timing, size and type of awards, holding periods and the
annual setting of targets;
– when performance against our qualitative performance
measures is not in line with the Group’s overall financial or
strategic performance over the performance period;
– ensuring accordance with the rules, including in relation to
whether or not malus or clawback provisions should apply, in
connection with recruitment, or terminations of employment,
or corporate events affecting the Company;
– adjustments required in certain circumstances (e.g. rights
issues, corporate-restructuring events, special dividends
and other corporate actions); and
– adjustments to targets and/or measures if events occur that
cause the Committee to determine it is appropriate to do so.
The Committee also retains the right to change performance
measures and the weighting of measures in certain
circumstances including:
– following feedback from regulators, shareholders and/or other
stakeholders; and
– amending the scheme rules in accordance with their terms
and/or amending the basis of operation (including but not
limited to the approach in respect of dividend equivalents).
The Committee will disclose any exercise of discretion in
accordance with regulatory requirements.
Malus and clawback provisions
The Committee has the discretion to scale back deferred share
awards and PSP awards prior to the satisfaction of such awards if:
– results are materially misstated;
– the participant has contributed to serious reputational damage
to the Company or one of its business units;
– the participant’s conduct has amounted to serious misconduct,
fraud, dishonesty, a breach of the Code of Business Conduct or
material wrongdoing;
– the determination of the vesting or value of an award has been
affected by an underlying incorrect figure in the accounts; or
– an error or miscalculation in determining the vesting or value of
an award is identified.
Under malus, deferred share awards and unvested PSP awards
can be reduced (including down to zero) or be made subject to
additional conditions. Clawback allows for the repayment of
previously paid-up cash bonuses for a period of three years and
PSP awards for a period of two years after the vesting date.
Approach to target setting
In determining the range of targets for each measure for the
annual bonus and 2022 PSP grant, the Committee considered
the Board-approved budget and LTP, external consensus
where it exists, prior-year achievement and the wider
economic environment. As part of its work to ensure targets
are appropriately stretching, the Committee also considered
the Board’s assessment of how achievable the budget is. The
performance target range is set on a realistic basis but requires
true outperformance to achieve the maximum. The Committee
has a history of setting stretching targets as evidenced by an
average PSP payout of 53% over the past five years.
The annual bonus measures are selected to provide direct
alignment with the Group’s short-term operational targets.
The Committee takes care to ensure that the short-term
performance measures are supportive of the strategic drivers
and long-term objectives. The PSP performance measures are
selected to ensure that executives are encouraged in, and
appropriately rewarded for, delivering against the Group’s
strategic drivers. This ensures a clear line of sight and alignment
of interests between executives and shareholders and the
generation of long-term sustainable returns.
Annual bonus and PSP performance is monitored every six
months by the Committee. At the end of the performance period,
one year for the annual bonus and three years for the PSP, we
assess the formulaic outcome of each performance measure
on a standalone basis. The Committee considers whether the
formulaic outcomes are fair in the context of the Group’s
performance and the wider stakeholder experience. The
Committee may seek independent advice to assess the outcomes
of specific measures as well as the overall outcome. Where
appropriate, the Committee also has the ability to use its
discretion to adjust the formulaic outcomes.
2022/23
Early February 2022
The Committee considered the wider context and how
the annual bonus and PSP targets were tracking against
forecast performance
Late February 2022
The Board agreed the budget for the year
The Committee considered the proposed structures
of the annual bonus and PSP awards and the possible
targets and ranges. In doing so, it had regard to:
– wider workforce incentive structures
– the budget and LTP
– the strategic plan
– analysts’ consensus
– the wider economic environment
April 2022
The Committee determined the measures, weightings,
targets and ranges for the annual bonus and PSP for the
forthcoming year and the outcomes of the prior year’s
annual bonus and 2019 PSP
October 2022
The Committee considered how the annual bonus and
PSP targets were tracking against forecast performance
Tesco PLC Annual Report and Financial Statements 2023
93
Corporate governance Ken Murphy
Imran Nawaz
Directors’ remuneration report continued
Context of executive pay continued
Comparator groups for remuneration
When setting the remuneration of Executive Directors, one of the
factors the Committee considers is the relevant markets for the
Executive Directors; it believes this is the FTSE 50. When reviewing
the Group Chief Executive’s remuneration, the Committee also
references remuneration of a group of leading international
companies whose selection is based on their size and complexity.
0
0
0
'
£
(
)
8,000
6,000
10,000
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
The following chart sets out the market positioning of the Group
Chief Executive’s and Chief Financial Officer’s on-target and
maximum remuneration compared to the FTSE 50. This is similar
to the information the Committee uses as a reference when
setting executives’ remuneration, which enables it to ensure
remuneration levels are consistent with the approved
remuneration policy.
4,000
2,000
0
Target
Maximum
Target
Maximum
Lower quartile to median
Median to upper quartile
Tesco
Performance and change in Group Chief Executive remuneration
The graph below illustrates the Company’s total shareholder return (TSR) performance against the FTSE 100 index over the past 10 years. We
have chosen the FTSE 100 index because it is a broad-based index of which the Company has been a constituent member throughout the
period. The table below the TSR graph shows the Group Chief Executive’s annual remuneration over the same period:
Value of
hypothetical
£100 invested
FTSE 100
Tesco
Source: Thomson
Reuters Refinitive
200
150
100
50
0
100
100
112
94
118
71
133
138
143
137
139
107
54
55
60
66
70
72
182
166
95
86
Group Chief Executive
Single total figure of
remuneration (£’000)
Annual bonus outturn
(% of maximum
award)
PSP vest (% of
maximum award)
Ken Murphy
Sir Dave
Lewis(b)
Philip Clarke(a)
2013/14
–
2014/15
–
–
1,634
4,133
764
2015/16
–
4,632
–
2016/17
–
2017/18
–
2018/19
–
2019/20
–
2020/21
992
2021/22
4,745
2022/23
4,443
4,147
–
5,113
–
4,600
–
6,328
–
1,650
–
–
–
–
–
0%
0%
0%
0%
96%
76%
73%
52.5%
75.9%
0%
95%
79.1%
–
–
30%
28.8%
48.8%
23.1%
–
–
(a) Philip Clarke stepped down as Group Chief Executive on 1 September 2014 and was succeeded by Sir Dave Lewis on the same date.
(b) Sir Dave Lewis stepped down as Group Chief Executive on 30 September 2020 and was succeeded by Ken Murphy on 1 October 2020.
94
Tesco PLC Annual Report and Financial Statements 2023
Group Chief Executive remuneration compared to Tesco’s share price movement
The graph below sets out the Group Chief Executive’s Single total figure of remuneration (STFR) compared to Tesco’s share price, rebased to
£100 at 25 February 2013.
f
o
e
r
u
g
fi
l
l
a
t
o
t
e
g
n
S
O
E
C
i
)
0
0
0
’
£
(
n
o
i
t
a
r
e
n
u
m
e
r
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
120
105
90
75
60
45
30
15
0
o
n
2
5
F
e
b
r
u
a
r
y
2
0
1
3
l
V
a
u
e
o
f
£
1
0
0
i
n
v
e
s
t
e
d
02/2013
02/2014
02/2015
02/2016
02/2017
02/2018
02/2019
02/2020
02/2021
02/2022
02/2023
Tesco share price
CEO Single total figure of remuneration
(a) Where there has been a change in Group Chief Executive in the year, we have included the remuneration of both Group Chief Executives. This impacts the years ending February 2015
and February 2021.
Relationship between the pay of the Group Chief Executive and UK colleagues
Tesco is a retail business with one of the UK’s largest workforces. We employ around 254,000 UK-based colleagues in our major subsidiary,
Tesco Stores Limited. These are mostly in customer-facing roles in-store or in our distribution network. Given the workforce profile, all
three of the Group Chief Executive pay ratio reference points compare our Group Chief Executive’s remuneration with that of colleagues in
mainly customer-facing roles. There is relatively little difference in the outcomes, as we show below. Whatever the Group Chief Executive
pay ratio may be, Tesco will continue to invest in competitive pay for all colleagues.
The following table shows the ratio between the consolidated STFR of the Group Chief Executive for 2022/23 and the lower, median and
upper-quartile pay of our UK colleagues. We also show for comparison the pay ratios for the four preceding years.
The total full-time equivalent (FTE) pay and benefits for the relevant colleagues is based on the period from 6 February 2022 to 4 February
2023. The reporting regulations offer three calculation approaches for determining the pay ratio – Options A, B and C. We have chosen
Option C for all years, which we deem the most appropriate methodology for Tesco.
Total pay ratio
Ratio of CEO’s STFR
25th percentile
50th percentile
75th percentile
2018/19
2019/20
2020/21
2021/22
2022/23
247:1
226:1
209:1
355:1
305:1
279:1
136:1
118:1
116:1
251:1
224:1
216:1
231:1
197:1
182:1
The table below sets out the base salary, total pay and benefit details of the Group Chief Executive and UK colleagues who are at the 25th,
50th and 75th percentile.
Group Chief Executive’s base salary
Group Chief Executive’s total pay and benefits
UK colleagues’ salary
Colleague at 25th percentile
Colleague at 50th percentile
Colleague at 75th percentile
UK colleagues’ total pay and benefits
Colleague at 25th percentile
Colleague at 50th percentile
Colleague at 75th percentile
2022/23
£1,372,781
£4,442,692
£18,771
£20,163
£22,663
£19,196
£22,533
£24,374
As more than half of Tesco’s colleagues work part-time, the exercise required to determine FTE is extensive and complex. Tesco decided to
use Option C as we had completed comprehensive data collation and analysis of all relevant colleagues for the purpose of gender pay gap
(GPG) reporting. This enabled us to use additional pay data (including overtime, salary sacrifice values and employer pension contributions) to
ensure the STFR reflects total pay made throughout the financial year. This approach minimised the differing definitions of pay for STFR and
GPG to enable us to select the ‘best equivalents’ of P25, P50 and P75. The only adjustments made to determine the pay and benefits of the
colleagues identified as P25, P50 and P75 related to working hours, basing amounts on a 36.5-hour working week. We believe the ‘best
equivalent’ colleagues identified are reasonably representative of the 25th, 50th and 75th percentiles as Tesco has compiled pay on an
FTE basis. We reviewed pay across a sample of employees at each percentile before selecting the employee who was most representative.
Tesco PLC Annual Report and Financial Statements 2023
95
Corporate governance
Directors’ remuneration report continued
Context of executive pay continued
In the case of the Group Chief Executive, his total remuneration comprises a significant proportion of variable pay. The Single total figure
therefore varies considerably depending on the level of performance against the measures driving the annual bonus and PSP. In 2022/23,
the annual bonus paid out at 79.1% of maximum compared with 95% in 2021/22, which has resulted in a fall in the Group Chief Executive’s
pay ratio numbers this year. Since 2014, the median pay ratio has fluctuated, increasing and decreasing in alternate years in line with
variable pay outcomes.
As we set out on pages 89 and 91, we base our reward framework across the Group on a consistent set of principles for all: that
overall remuneration should be competitive when compared to similar roles in other organisations with which we compete for talent.
We therefore determine colleague pay using the same principles as the pay for our Executive Directors. On this basis, we believe the
median ratio is consistent with the Company’s wider policies on employee reward, pay and progression.
Gender pay
For our 2021/22 report both our median and mean GPGs have increased slightly as we adapted to the post COVID-19 environment.
Our median GPG has increased to 6.9%, less than half the UK national average of 14.9%. Our median bonus gap has increased to 30.5%.
Our GPG is attributable to two key factors. The first is having a higher number of male colleagues in our more senior roles. We are committed
to increasing the percentage of female colleagues in such roles to ensure our leadership team truly reflects our customer base and wider
colleague population. We will continue to drive female representation across all roles to close the gap. The other factor is that we have more
male colleagues than female colleagues who work shifts that pay premiums on Sundays, nights and bank holidays across our stores and
distribution centres. If we remove premium payments from the calculation, our median pay gap reduces significantly, to 2.7%.
We have included a stretching diversity and inclusion measure in the PSP for 2023 to ensure we continue to build a workplace where
everyone is welcome and our workforce represents the communities we serve.
See our Everyone’s Welcome Report for more information at
www.tescoplc.com/media/759669/tesco-everyones-welcome-report-2022
Relative importance of spend on pay
The chart below indicates how the pay of Executive Directors compares with other financial dispersals. You can find further information in
the Notes to the Group financial statements starting on page 125.
Executive Directors’ remuneration
Dividends
Total income taxes charge
Colleague costs
2021/22
£m
12.1
704
510
7,456
2022/23
£m
7.5
858
247
7,656
% change
(38.2)
21.9
(51.6)
2.7
For every £1 we spent on Executive Directors’ remuneration in 2022/23, £33 was payable in tax and £1,021 was spent on colleague costs. In
addition, £114 was made in dividend payments to shareholders for every £1 spent on Executive Directors’ remuneration.
96
Tesco PLC Annual Report and Financial Statements 2023
Remuneration report.
Single total figure of remuneration – Executive Directors (audited)
The following table provides a summary Single total figure of remuneration (STFR) for 2022/23 and 2021/22 for the Executive Directors.
Fixed pay
Salary
Benefits(b)
Pension
Total fixed pay
Variable pay
Annual bonus (cash and deferred shares)(c)
PSP(d)
Total variable pay
Total fixed and variable pay
Compensation for forfeited income(e)
Total remuneration
Ken Murphy
Imran Nawaz(a)
2022/23
£’000
2021/22
£’000
2022/23
£’000
2021/22
£’000
1,373
238
102
1,713
2,730
–
2,730
4,443
–
4,443
1,350
88
101
1,539
3,206
–
3,206
4,745
–
4,745
723
129
54
906
1,365
–
1,365
2,271
765
3,036
581
41
44
666
1,241
–
1,241
1,907
3,506
5,413
(a) Imran Nawaz joined the Board as Chief Financial Officer on 1 May 2021.
(b) Benefits include family level private medical insurance, life assurance, a car or cash allowance and a driver. The overall level of benefits will depend on the cost of providing individual
items and the individual’s circumstances. Benefits for Ken Murphy also include commuting support of £102,400, which includes the grossed-up cost of UK tax paid by the Company on
his behalf. Benefits for Imran Nawaz include the UK tax payable in respect of a car and driver, which he received in lieu of a car allowance. This benefit was £118,000 which includes the
grossed-up cost of a proportion of UK tax paid by the Company on his behalf, on a transitional basis.
(c) The annual bonus is paid 50% in cash and 50% in shares deferred for three years subject to continued employment. See page 82 for further details of the 2022/23 bonus outturn.
(d) Neither Ken Murphy nor Imran Nawaz was granted a 2020 PSP award as this preceded their joining dates.
(e) Compensation for forfeited income determined by the value of a buyout award granted to Imran Nawaz amounting to £765,000 (including £88,500 relating to share price appreciation).
The amount relates to compensation for the forfeiture of a 2019 PSP award granted to Imran Nawaz by his previous employer, Tate & Lyle PLC, details of which are set out on page 90 of
the 2022 annual report. This award vested on 1 June 2022 at a vesting level of 42% of maximum. Details of the performance conditions and outturns of the award are set out in the Tate
& Lyle PLC 2022 annual report.
(f) The total aggregate remuneration paid to Directors in 2022/23 was £9.3m (2021/22: £13.9m).
2022/23 benefits (audited)
Ken Murphy
Imran Nawaz
(a) Commuting support for Ken Murphy ceased on 31 March 2023.
Medical
insurance and
wellness
programme
(£’000)
3.7
4.4
Car and driver
(£’000)
121.0
118.4
Life assurance
(£’000)
9.1
4.8
Colleague
discount
(£’000)
1.5
1.5
Commuting
support
(£’000)
102.4(a)
–
Total
(£’000)
237.7
129.1
2022/23 annual bonus outcomes (audited)
The annual bonus is determined by financial measures and individual performance, including objectives, set at the start of the performance
period, which are designed to support the achievement of certain strategic outcomes. The 2022/23 annual bonus outcome is 79.1% of
maximum for Ken Murphy and 83.1% for Imran Nawaz. As set out in the Committee Chair’s letter, the Committee is satisfied that the
formulaic annual bonus outcomes are appropriate and reflect performance over the performance period. We provide a breakdown of
the overall outcome and details of the outturn of the financial measures on page 82. You can see the achievement against individual
objectives overleaf.
Tesco PLC Annual Report and Financial Statements 2023
97
Corporate governance Directors’ remuneration report continued
Remuneration report continued
2022/23 achievement of individual objectives
Ken Murphy
Objective
Execute Year 1 of
strategic milestones
across the Group
Develop proposal on longer-
term strategic opportunities
Key performance indicators
– Additional profit and sales generated by the
Summary of performance
– Overall, strategic drivers contributing positively
strategic drivers
to financial results
– Delivery of Group market share and NPS ambitions
– Develop proposal and milestone plan for
– NPS rank aspirations delivered in most markets
– Delivered successful Long Term Plan process,
implementation
which was approved by the Board
Lead the delivery of Group-wide
ESG commitments
– Climate: define roadmap for own operations net
zero by 2035, including investment analysis
– Developed and communicated Group planet
plan, including investment analysis to 2025
– Health: improve health measure to at least 59.5%
– Food waste: reduce food waste by 46% from
– Health measure increased to 60%
– Food waste reduced by 45%
baseline
Imran Nawaz
Objective
Deliver Save to invest Group-
wide
Key performance indicators
– Delivery of Year 1 £518m savings target
– Develop plans to deliver Year 2 targets aligned
to Long Term Plan
Summary of performance
– Accelerated plans to offset cost inflation, saved
in excess of £550m in 2022/23
– Plans in place to deliver next year’s target
aligned to the Long Term Plan ambition
Execute Year 1 of finance change
plan
– Delivery of Year 1 finance change roadmap and
– 90% of Year 1 projects delivered with roadmap
defined plans for Year 2
and plans in place to deliver Year 2
– Delivery of finance of the future 2022/23 Save
– Overdelivered finance head office Save to
Lead the delivery of Group-wide
ESG commitments, focusing in
Year 1 on climate (Scope 1 and 2)
to invest targets
invest plans
– Develop finance plan for own operations net
– Investment analysis for Group climate
zero by 2035
requirements prepared to 2025
– Secure power supply for electrification of the
estate to allow decarbonisation with forecast
to achieve over 82%
– Execute carbon reduction plan (at least 12.5%)
including reuse, recycle and refurbish plus
sustainable building materials and methodologies
– 92.7% of secure power supply achieved
(based on future electricity requirements)
– Embodied carbon reduction, associated with
new space, general maintenance and
engineering schemes, achieved through lower
carbon asphalt/concrete and shelving reuse
The percentage awarded for individual performance is based on an overall assessment of the achievement of objectives and demonstration
of leadership behaviours. On that basis, Ken Murphy achieved a rating of 15% and Imran Nawaz 19%, both out of a maximum of 20%.
2020 PSP vesting in 2023 (audited)
The outcomes of the 2020 PSP awards are shown on page 83. As set out in the Committee Chair’s letter, the Committee is satisfied that the
formulaic PSP outcomes are appropriate, that they reflect performance over the performance period and that there were no windfall gains.
The awards will vest in June 2023. Neither Ken Murphy nor Imran Nawaz was granted awards as these preceded their joining dates.
2022 PSP grant (audited)
The following table summarises the PSP awards made to Executive Directors on 24 June 2022:
Executive Director
Ken Murphy
Imran Nawaz
Type of award
Conditional award
Conditional award
% of base salary
awarded
275%
250%
Number of shares
granted
1,521,455
731,462
Value at
award date
£3,796,030
£1,824,998
End of
performance
period
22/02/2025
22/02/2025
Vesting date
24/06/2025
24/06/2025
Market price
on grant(a)
249.5p
249.5p
(a) Based on five-day average share price.
The performance measures and targets for the 2022 PSP are:
Adjusted diluted EPS
Cumulative free cash flow
ESG measures
– Carbon reduction
– Food waste reduction
– Diversity and inclusion (gender/ethnicity)
Weighting
37.5%
37.5%
8.3%
8.3%
8.3%
Threshold
(25% payout)
21.8p
£3.8bn
Stretch
(100% payout)
32.8p
£5.8bn
56%
48%
32%/13%
60%
55%
40%/15%
The award incorporates the right to receive the value of dividends between grant and vesting in respect of the number of shares that vest.
The calculation of dividend equivalents will assume the reinvestment of those dividends in Tesco shares on a cumulative basis.
98
Tesco PLC Annual Report and Financial Statements 2023
Definitions of financial performance measures
The Group reports various alternative performance measures (APMs), defined in the Glossary on page 207, some of which are used to
determine remuneration outcomes. There are differences in definitions between the reported APMs and the outcomes used for PSP targets,
as approved by the Committee. The table below summarises these differences, rationale, affected awards and the impact on the measure:
Performance measure
Difference
Rationale
Awards
Adjusted diluted EPS
Neutralise the EPS impact of share buybacks
since targets were set
Targets were set with no buybacks assumed
2021 PSP
Cumulative free cash
flow
Removing any impact from the 2022 change in
Retail free cash flow definition (refer to page
211 within the Glossary for a full reconciliation)
The Retail free cash flow definition was
changed after targets were set
2020 PSP
2021 PSP
2020 PSP
Adjustments to targets
The Committee considered adjustments to targets resulting from material events that were not anticipated at the time the targets were set.
Adjustments were made to ensure PSP targets and outcomes are assessed on a like-for-like basis and events do not make the targets any
easier or harder to achieve. The table below summarises the adjustments made, rationale, affected awards and the impact on the measure:
Performance measure
Adjustment
Rationale
Adjusted diluted EPS
Cumulative free cash
flow
Reflecting the sale of the Asia business and
treatment of Poland as a discontinued
operation
Neutralise the impact of the settlement of
claims for matters arising in connection with
the overstatement of profit announced in
2014 and from the sale of the Korea business
in 2015
Reflecting the sale of the Asia business and
treatment of Poland as a discontinued
operation
Reflecting the repurchase of bonds issued by
property joint ventures
Material events that were not anticipated at
the time targets were set
Awards
2020 PSP
Outflows relate to events that pre-date the
terms in office of the award holders
2021 PSP
2020 PSP
Material events that were not anticipated at
the time targets were set
2020 PSP
£(1,066)m
Outflows relate to an event that was not
anticipated at the time the targets were set
2021 PSP
2020 PSP
£(194)m
£(194)m
Impact
(0.7)p
(0.7)p
£(42)m
£(42)m
Impact
0.7p
£(193)m
£(305)m
2021 PSP
Cumulative free cash flow
Original targets
Adjustments
Revised targets
Adjusted diluted EPS
Original targets
Adjustments
Revised targets
Threshold
£4,253m
£(387)m
£3,866m
Threshold
17.3p
–
17.3p
Stretch
£6,379m
£(387)m
£5,992m
Stretch
26.0p
–
26.0p
2020 PSP
Cumulative free cash flow
Original targets
Adjustments
Revised targets
Adjusted diluted EPS
Original targets
Adjustments
Revised targets
Threshold
£4,435m
£(1,565)m
£2,870m
Threshold
16.5p
0.7p
17.2p
Stretch
£6,653m
£(1,565)m
£5,088m
Stretch
24.7p
0.7p
25.4p
Executive Directors’ interests in share awards (audited)
The table below sets out the Executive Directors’ interests in share awards. We set out details of Executive Director shareholding
requirements and achievement against these on page 84.
Ken Murphy
Imran Nawaz
At 27/02/22
Granted
Dividend equivalents
Vested/released
Lapsed
Exercised
At 25/02/23
At 27/02/22
Granted
Dividend equivalents
Vested/released
Lapsed
Exercised
At 25/02/23
Unvested PSP
Deferred annual
awards(a)
1,832,904
1,521,455
119,107
–
–
–
3,473,466
871,194
731,462
56,769
–
–
–
1,659,425
bonus awards(b)
–
584,357
28,803
–
–
–
613,160
–
226,251
11,151
–
–
–
237,402
Buyout awards
–
–
–
–
–
–
–
1,001,268
–
–
(347,091)
(422,939)
–
231,238
Vested but
unexercised
share options
–
–
–
–
–
–
–
–
–
–
–
–
–
–
SAYE options
–
9,890
–
–
–
–
9,890
–
–
–
–
–
–
–
Total
1,832,904
2,115,702
147,910
–
–
–
4,096,516
1,872,462
957,713
67,920
(347,091)
(422,939)
–
2,128,065
(a) Awards will only vest to the extent that relevant performance conditions are met.
(b) No performance conditions apply to these awards but are subject to service.
Tesco PLC Annual Report and Financial Statements 2023
99
Corporate governance Directors’ remuneration report continued
Remuneration report continued
2022 deferred bonus award grant (audited)
The following table summarises the deferred bonus awards made to Executive Directors on 12 May 2022 in respect of 50% of the 2021/22
bonus outcome. Awards were made in the form of conditional awards which will vest and be released on 12 May 2025, subject to
continuous employment.
Executive Director
Ken Murphy
Imran Nawaz
(a) Based on five-day average share price.
Payments for loss of office (audited)
There were no payments made for loss of office during the year.
Number of
shares granted
584,357
226,251
Value at
award date
£1,603,125
£620,697
Vesting date
12/05/25
12/05/25
Market price
on grant(a)
274.3p
274.3p
Payments to former Directors (audited)
Details of the nil-cost awards released to Sir Dave Lewis and Alan Stewart during 2022/23 following their stepping down from the Board on
30 September 2020 and 30 April 2021, respectively, are set out below. Shares released include dividend equivalent shares and the impact of
the share consolidation in February 2021 and time proration in respect of the PSP.
Sir Dave Lewis
Type of award
Deferred bonus
PSP
Alan Stewart
Type of award
Deferred bonus
PSP
Date of grant
13/05/2019
20/06/2019
Number of
shares awarded
336,028
1,492,747
Number of
shares released
376,478
770,221
Date of release
13/05/2022
20/06/2022
Market price
at grant
244p
230p
Market price
at release Gain on release
£1,058,656
£1,940,187
281p
252p
Date of grant
13/05/2019
20/06/2019
Number of
shares awarded
170,740
895,648
Number of
shares released
191,290
632,393
Date of release
13/05/2022
20/06/2022
Market price
at grant
244p
230p
Market price
at release
281p
252p
Gain on release
£537,907
£1,592,998
Gain due
to share price
appreciation
£139,598
£166,522
Gain due
to share price
appreciation
£70,930
£136,723
No other payments to former Directors or for loss of office were made in the year.
Executive Directors’ service agreements
The Committee carefully considers the Executive Directors’ service agreements, including arrangements for early termination, which are
designed to recruit, retain and motivate Executive Directors of the calibre required to lead the Company. The details of existing Executive
Directors’ service contracts are summarised in the table below:
Executive Director
Ken Murphy
Imran Nawaz
Date of service agreement
1 October 2019
6 October 2020
Notice period from Company
12 months
12 months
Notice period from Executive Director
12 months
12 months
Neither Ken Murphy nor Imran Nawaz held an external directorship during the year. Both Ken Murphy and Imran Nawaz will stand for
re-election at the 2023 AGM.
Funding of equity awards
Where shares are newly issued, the Company complies with the Investment Association dilution guidelines on their issue. These provide that
overall dilution under all plans should not exceed 10% of the Company’s issued share capital over a 10-year period, with a further limitation
of 5% in any 10-year period for executive plans. Shares purchased in the market may be held by Tesco Employees’ Share Scheme Trustees
Limited or Tesco International Employee Benefit Trust (together, the Trusts). In such a case, the voting rights relating to the shares are
exercisable by the Trustees in accordance with their fiduciary duties. At 25 February 2023, the Trusts held 56,778,323 shares. Current
practice is to use market-purchased shares to satisfy incentive awards.
Dilution from existing awards made over the past 10 years up to 25 February 2023 was as follows:
All-colleague share plans
Executive share plans
4.2%
Actual
Limit
10%
0.5%
5%
Actual
Limit
100
Tesco PLC Annual Report and Financial Statements 2023
Beneficial share ownership (audited)
The table below outlines interests in the Company’s securities of the Non-executive Directors. There were no changes to Non-executive
Director share interests between 26 February and 12 April 2023. Non-executive Directors are expected to build up and maintain a personal
holding in the securities of the Company equal to the value of their base fee over a period of five years following appointment.
Non-executive Director
John Allan(b)
Melissa Bethell
Bertrand Bodson
Thierry Garnier(c)
Stewart Gilliland
Byron Grote(d)
Alison Platt
Lindsey Pownall
Caroline Silver(c)
Karen Whitworth
Shares held at
27 February 2022
349,753
37,447
44,579
15,000
48,825
302,703
34,893
55,263
–
24,200
Shares held at
25 February 2023
394,753
37,447
58,833
15,000
51,090
368,703
36,516
55,263
15,000
52,300
Value of
shareholding
(% of base fee)(a)
Met
shareholding
guideline
134
108
170
43
147
>500
105
159
43
151
✓
✓
✓
✗
✓
✓
✓
✓
✗
✓
(a) The value of Non-executive Directors’ shareholdings is based on the three-month average share price to 25 February 2023 of 238.7p.
(b) John Allan also held 398,000 5.5% 2033 Tesco PLC Medium Term Notes.
(c) Thierry Garnier and Caroline Silver have until 30 April 2026 and 1 October 2027 respectively to meet the shareholding guideline.
(d) Byron Grote holds his shares in the form of American Depositary Receipts (ADRs).
(e) Steve Golsby and Simon Patterson held 41,999 shares and 134,545 shares respectively from 27 February 2022 until they stepped down from the Board on 17 June 2022.
(f) The range of the Company’s share price for the year was 290p to 199p. The year-end price was 247p (2021/22: 287p).
Single total figure of remuneration – Non-executive Directors (audited)
The following table sets out the fees paid to the Non-executive Directors for the year ended 25 February 2023. Non-executive Directors are
not paid a pension and do not participate in any of the Company’s variable incentive schemes. Steve Golsby and Simon Patterson stood
down from the Board on 17 June 2022, so all fees and taxable expenses for these Non-executive Directors ceased on that date.
Taxable expenses include expense reimbursements relating to travel, accommodation and subsistence in connection with attendance at
Board and Committee meetings during the year. Each Non-executive Director has the £1,500 colleague discount allowance. John Allan also
has the benefit of healthcare and a wellness programme for himself and his partner. The amounts in the table below include the grossed-up
cost of UK tax paid by the Company on behalf of the Non-executive Directors.
John Allan
Melissa Bethell
Bertrand Bodson
Thierry Garnier
Stewart Gilliland
Byron Grote
Alison Platt
Lindsey Pownall
Caroline Silver
Karen Whitworth
Former Directors
Steve Golsby
Simon Patterson
Committee
memberships
C
RN
A
C
R
NC
A
RN
RN
C R
A
CA
–
–
Date of appointment
1 March 2015
24 September 2018
1 June 2021
30 April 2021
5 March 2018
1 May 2015
1 April 2016
1 April 2016
1 October 2022
18 June 2021
–
–
2022/23
2021/22
Fees
(£’000)
696
97
97
97
112
174
124
130
40
112
44
29
Taxable
expenses
(£’000)
17
2
1
3
2
1
1
8
0.5
–
8
–
Total
(£’000)
713
99
98
100
114
175
125
138
40.5
112
52
29
Fees
(£’000)
687
94
71
79
109
155
109
119
–
77
134
94
Taxable
expenses
(£’000)
8
1
2
1
1
0.5
0.5
2
–
0.5
–
0.5
Total
(£’000)
695
95
73
80
110
155.5
109.5
121
–
77.5
134
94.5
Non-executive Directors do not have service contracts. Instead, they are engaged by letters of appointment that are terminable by either
party with no notice period. There is no compensation in the event of such termination, other than accrued fees and expenses. All Non-
executive Directors will stand for re-election at the 2023 AGM, except Lindsey Pownall who will step down from the Board at the conclusion
of the AGM.
Approved by the Board on 12 April 2023.
Alison Platt
Remuneration Committee Chair
Tesco PLC Annual Report and Financial Statements 2023
101
Corporate governance Shares held by the Company’s Share Incentive Plan (SIP) Trust,
International Employee Benefit Trust, Employees’ Share Scheme
Trust and Booker Group 2010 Employee Benefit Trust rank pari
passu with the shares in issue and have no special rights. Voting
rights and rights of acceptance of any offer relating to the shares
held in these trusts rests with the trustees, who may take account
of any recommendation from the Company. The trustees of the
SIP Trust may vote in respect of shares held in the SIP Trust, but
only as instructed by participants in the SIP in respect of their free
shares, partnership shares and dividend shares. The trustees
will not otherwise vote in respect of shares held in the SIP Trust.
The Company is not party to any significant agreements that
would take effect, alter or terminate following a change of control
of the Company. The Company does not have agreements with
any Director or officer that would provide compensation for loss
of office or employment resulting from a takeover, except that
provisions of the Company’s share plans may cause options and
awards granted under such plans to vest on a takeover.
Share forfeiture
As previously announced, the Group undertook a share forfeiture
programme in 2021/22. The proceeds of the share forfeiture
programme generated approximately £5.6m for the Company to
use towards good causes. Following a review of the funds by the
Corporate Responsibility Committee, a £1m donation was made to
FareShare and The Trussell Trust in support of their work
throughout the winter period. A further £1.2m is to be used in the
UK, Central Europe and the Republic of Ireland towards Tesco
Community Grants funding and to provide for additional
community activities across the Group. The remaining balance of
c.£3.4m will be utilised for community projects, as part of the
Golden Grants project, over the next three years.
Share buyback programme
On 13 April 2022, the Company committed to buying back an
additional £750m worth of shares by April 2023. The sole purpose
of the share buyback programme is to reduce the Company’s
share capital. During the year, the Company bought back through
market purchases on the London Stock Exchange 314,845,336
Ordinary shares with a nominal value of 61/3 pence each,
representing 4.3% of the issued share capital of the Company as
at 25 February 2023, for a total consideration of approximately
£781m. The Company also cancelled 4,800,000 shares purchased
in the previous year, for a total consideration of £14m. For further
details see Note 30. All of the Ordinary shares bought back have
been cancelled.
Articles of Association
The Company’s Articles of Association may only be amended by
special resolution at a general meeting of the shareholders.
Directors’ report
The Directors present their report, together with the audited
accounts for the 52 weeks ended 25 February 2023.
Dividends
The profit for the financial year, after taxation, amounts to £753m
(2021/22: £1,523m) from continuing operations. The Directors have
declared dividends as follows:
Ordinary shares
Paid interim dividend of 3.85 pence per share(a)
(2021/22: 3.20 pence per share)
Proposed final dividend of 7.05 pence per share(b)
(2021/22: 7.70 pence per share)
Total dividend of 10.90 pence per share for 2022/23(b)
(2021/22: 10.90 pence per share)
£m
284
516
800
(a) Excludes £2m dividends waived (2021/22: £1m).
(b) Subject to shareholder approval at the 2023 AGM, the final ordinary dividend will be
paid on 23 June 2023 to all shareholders on the Register of Members at the close of
business on 12 May 2023.
Certain nominee companies representing our employee benefit
trusts hold shares in the Company in connection with the
operation of the Company’s share plans. Evergreen dividend
waivers remain in place on shares held by these companies
that have not been allocated to employees.
Dividend policy
It is the Board’s intention to continue to pay a progressive dividend
by aiming to grow the dividend per share each year, broadly
targeting a payout of around 50% of earnings.
Share capital and control of the Company
and significant agreements
Details of the 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 30 on page 184.
No shareholder holds securities carrying special rights with
regards to control of the Company. There are no restrictions
on voting rights or the transfer of securities in the Company.
The Company is not aware of any agreements between holders
of securities that result in such restrictions.
The Company was authorised by shareholders at the 2022 AGM to
replace the existing authority (as granted by shareholders at the
AGM held on 25 June 2021) for Directors to allot new shares that
represent not more than one third of the issued share capital of
the Company. It was also given the authority to allot relevant
securities in connection with a rights issue up to a further one
third of the issued share capital as at 3 May 2022. No shares were
allotted under that authority during the financial year. The
Company is seeking to renew this authority at the forthcoming
AGM, within the limits set out in the notice of that meeting.
The Company was authorised by shareholders at the 2022 AGM to
replace the existing authority (as granted by shareholders at the
AGM held on 25 June 2021) to purchase its own shares in the
market up to a maximum of approximately 10% of its issued share
capital. The Company is seeking to renew the authority at the
forthcoming AGM, within the limits set out in the notice of that
meeting and in line with the recommendations of the Pre-Emption
Group’s Statement of Principles 2015.
102
Tesco PLC Annual Report and Financial Statements 2023
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the
Company’s Articles of Association, the UK Corporate Governance
Code 2018, the Companies Act 2006 and other related legislation.
In the interests of good governance, all Directors will retire, and
those wishing to serve again will submit themselves for re-election
at the forthcoming AGM.
Lindsey Pownall will be stepping down from the Board and will not
be seeking re-election at the 2023 AGM. All other Directors are
submitting themselves for re-election at the forthcoming AGM and
were subject to a formal and rigorous performance evaluation,
further details of which can be found on page 61.
Directors and their interests
The biographical details of the current serving Directors are set
out on pages 51 to 54. The Directors who served during the
year were: John Allan; Melissa Bethell; Bertrand Bodson; Thierry
Garnier; Stewart Gilliland; Byron Grote; Ken Murphy; Imran Nawaz;
Alison Platt; Lindsey Pownall; Karen Whitworth; Caroline Silver
(who joined the Board on 1 October 2022); Steve Golsby and Simon
Patterson (who both stood down from the Board on 17 June 2022).
The interests of Directors and their immediate families, who
served during the year, in the shares of Tesco PLC, along with
details of Executive Directors’ share options, are contained in the
Directors’ remuneration report set out on pages 77 to 101.
At no time during the year did any of the Directors have a
material interest in any significant contract with the Company or
any of its subsidiaries. A qualifying third-party indemnity provision,
as defined in section 234 of the Companies Act 2006, is in force
to the extent permitted by law for the benefit of each of the
Directors and the Group Company Secretary (who is also a
Director of certain subsidiaries of the Company) in respect of
liabilities incurred as a result of their office. In respect of those
liabilities for which Directors may not be indemnified, the
Company maintained a Directors’ and Officers’ liability insurance
policy throughout the financial year.
Employment policies
We have continued to focus on ensuring that our employment
policies are simple, helpful and trusted, so that our colleagues
and managers are able to source the information they need
quickly and easily.
We have continued to work with USDAW, our recognised trade
union in the UK, to improve our policies so that they address the
needs of all our colleagues. These include launching our new
performance improvement policy, helping managers and
colleagues understand what performance is, how we measure
it and the clear and simple process we follow to support
colleagues to reach their expected level of performance.
We also launched a new colleague contract in our stores and
customer fulfilment centres. Our colleagues will now have a set
number of contracted hours which will be scheduled within their
availability windows at least three weeks in advance of them
working. Colleagues will have a primary department where they
will be scheduled to work the majority of their shifts but may be
scheduled to work in other areas for some of their working hours.
This enables colleagues to be flexible with picking up extra hours
and being fully trained across all areas of the store, leading to
more interesting and varied jobs.
Our local and national colleague forums continue to give
colleagues a voice in how the business is run. Such feedback
helps us drive our business forward, as our colleagues are closest
to our customers. To supplement these forums, we have also
continued our Colleague Contribution Panels. These give our
colleagues the opportunity to share their views directly with a
Non-executive Director, who then relays them to the Board for
discussion and action.
Our equal opportunities, diversity and inclusion policies support
managers and colleagues in creating a diverse and inclusive
culture where everyone is welcome. Our policies demonstrate
our commitment to providing equal opportunities to all colleagues,
irrespective of age, disability (including colleagues who may have
become disabled during service), gender reassignment, marriage
and civil partnership, pregnancy or maternity, race, religion or
belief, sex or sexual orientation. This year we recognised
menopause-related absence, ensuring this type of absence
would not be included within absence review levels. This ensures
we are supporting our colleagues during this stage, through
friendly and supportive wellbeing conversations.
Our aim is to attract and retain a diverse range of applicants from
all different backgrounds. All of our applicants and colleagues are
treated fairly and we have a zero-tolerance approach, not only to
harassment, but also to discrimination and bullying of any kind.
This includes an expectation that our recruitment systems are
accessible and managers give full and fair consideration to
colleagues who have disabilities during recruitment and
subsequently throughout their career with Tesco, including
colleagues who may become disabled during their employment,
where every endeavour will be made to retain colleagues through
workplace adjustments.
We are also a proud Disability Confident Employer (Level 2) offering
various activities and programmes to attract, develop and retain
talented disabled colleagues. Our colleague network for people
with disabilities provides support by connecting them with people
who have similar interests and backgrounds and helps them reach
their full potential. Through action-oriented colleague learning, we
are focused on raising awareness of the importance of inclusion
and developing a greater understanding of individual and collective
responsibility. Supporting our commitment to change, targeted
learning has been created for all colleagues, as well as specific
modules for line managers, People and Resourcing teams, and our
leadership teams.
Our colleague networks (Armed Forces, Disability, LGBTQ+,
Parents & Carers, Race & Ethnicity and Women at Tesco)
provide support in creating a diverse and inclusive culture
where everyone is welcome.
We actively encourage colleagues to take an interest in the
financial performance of our business through bonus plans for
specific populations. We also operate two HMRC-approved
all-employee share plans to enable all UK colleagues to share in
the longer-term success of the business. Colleagues at WL3
and above across all markets and countries are awarded shares
through the annual bonus plan, which are deferred at WL4 and
above. Colleagues at WL4 and above across all markets and
countries are also awarded shares through the Performance
Share Plan.
Colleagues in the ROI can also participate in a scheme that is
aligned to the UK Save As You Earn scheme, so they too can share
in longer-term business success.
Political donations
The Group did not make any political donations (2021/22: £nil) or
incur any political expenditure during the year (2021/22: £nil).
Tesco PLC Annual Report and Financial Statements 2023
103
Corporate governance Directors’ report continued
Compliance with the Groceries (Supply
Chain Practices) Market Investigation Order
2009 and the Groceries Supply Code of
Practice (the Code)
The Code regulates aspects of the commercial relationship
between 14 designated grocery retailers in the UK and their
suppliers of grocery products. The aim of the Code is to establish
and embed the overarching principles of fairness and lawfulness
within retailer/supplier relationships. Specific supplier protections
under the Code include the obligation for agreements to be in
writing and copies retained; reasonable notice to be given of
changes to the supply chain or reduction in the volume of
purchases; and a number of provisions relating to payments to
suppliers, including obligations for retailers to pay suppliers in
full and without delay.
Retailer compliance with the Code is overseen by the Groceries
Code Adjudicator (GCA), Mark White. In 2022/23, we continued
to engage constructively with Mark White and were delighted for
the opportunity to have our Chief Product Officer speak at the
Annual GCA Conference in September 2022.
In the reporting year, we have continued to develop and expand
our Code compliance programme. This year, we launched our
refreshed new starter training module, which was assigned to all
our Food buying teams in July 2022 as an addition to the annual
micro-learning refresher training campaign that all Product teams
completed. We also organised two GSCOP training sessions for the
legal team and the relevant sales teams at dunnhumby to ensure
there is understanding and awareness of the GSCOP principles
which we expect the dunnhumby sales teams to apply. We
conducted a deep dive into forensic auditing, assessing our
internal process against the GCA’s best practice statement on
forensic auditing and implementing a small number of process
improvements. Due to high inflation caused in part by post-
pandemic recovery and the war in the Ukraine, requests for cost
price increases (RFCPI) were a sensitive topic throughout the
reporting year. We ensured that our RFCPI processes are robust,
clear and in line with the GCA’s 7 Golden Rules by going to great
lengths to embed the process with our buying teams as well as
introducing a new module in myProduct to record key data about
RFCPIs. Lastly, we were particularly pleased that in the GCA’s
annual supplier survey for 2022, 97% of our suppliers recognised
that we comply ‘consistently well’ or ‘mostly well’ with the Code,
an improvement of 1%pt over the 2021 survey, ranking us third out
of 13 retailers.
In our own Supplier Viewpoint survey, conducted in January 2023,
the results continue to reflect the progress we have made with
our supplier relationships. Our total Group and UK scores for
suppliers rating their satisfaction with Tesco as either ‘extremely
satisfied’ or ‘very satisfied’ exceeded our targets. Compared with
the same period last year, our Group satisfaction score was 86.6%
and our UK satisfaction score was 87%. Both of these scores are
not only an increase compared to last year, but our highest scores
to date and ahead of targets. Among topics relevant to the Code,
our strongest score in Viewpoint continues to be ‘Tesco pays
promptly (within policy terms)’ at 92.8%. 88% of suppliers agreed
that ‘Tesco treats me fairly’.
Also, in the 2022 independent, industry-wide Advantage survey
of retailers, we were pleased to be ranked first for overall
performance for the seventh year running.
During the preceding financial year, we provided mandatory
annual refresher training for all colleagues involved in buying
groceries, including not only the buying teams but also a wider set
of colleagues including those working in our Quality and Supply
Chain divisions. In total 804 colleagues completed GSCOP annual
refresher training, with the majority being trained via role-based,
microlearning scenarios. 89% of colleagues said that they found
microlearning a better way to learn and retain training than a single
longer training module. In addition to refresher training, 245 new
starters completed new starter GSCOP training and with the small
exception of a couple of colleagues, all of those required to
complete the training did so within the 30-day requirement set
down by the Code. In addition to computer-based training, we
have also provided numerous face-to-face training sessions on
GSCOP, whether on a standalone basis or combined with another
element of legal or regulatory education.
This year, six Code-related issues were raised by suppliers, down
from 13 during 2021/22. In addition, one issue was carried over
from 2021/22.
The majority of concerns raised by suppliers related to delisting
decisions, but in almost all of these cases the suppliers were not
alleging a breach of GSCOP but were instead seeking to have the
delisting decision reviewed (or elements of it, such as the number
of SKUs to be delisted or the duration of the notice period). One
formal dispute (as defined by Part 5, Article 11 of the GSCOP Order)
was received during the year.
At the end of the reporting period, we had resolved all but
one of the issues that were raised during the preceding year,
following further discussion between the buying team and the
relevant supplier, or between our Code Compliance Officer
and the supplier.
Going concern, longer-term prospects and
viability statement
The Directors consider that the Group and the Company have
adequate resources to remain in operation for the foreseeable
future and have therefore continued to adopt the going concern
basis in preparing the financial statements. The UK Corporate
Governance Code (which is publicly available at the website of
the FRC at www.frc.org.uk) requires the Directors to assess and
report on the prospects of the Group over a longer period. This
longer-term viability statement is set out on pages 46 and 47.
Events after the balance sheet date
On 27 February 2023, the Group issued a €500m and a £250m
bond, maturing in 2031 and 2035 respectively. There were no other
events after the reporting period requiring disclosure.
Directors’ statement of disclosure of
information to the auditor
Each of the persons who is a Director at the date of approval of
this Annual Report confirms that:
– so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
– the Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware of
any relevant audit information and to establish that the
Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
104
Tesco PLC Annual Report and Financial Statements 2023
Streamlined Energy and Carbon Reporting
(SECR) disclosures
A breakdown of our GHG emissions in accordance with our
regulatory obligation to report GHG emissions pursuant to
section 7 of the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013 and the Companies
(Directors’ Report), and Limited Liability Partnerships (Energy
and Carbon Report) Regulations 2018 can be found on page 19.
We continue to implement initiatives to drive energy efficiency
across our operations in support of our net zero ambitions.
Examples include:
– Completing LED lighting upgrades: following upgrades in
distribution centres and customer fulfilment centres, we have
continued to roll out LED lighting across the UK estate improving
lighting efficiencies in more than 560 stores, resulting in both
front and back of store having LED lighting.
– Continued investment in an enhanced energy monitoring
platform: insights from monitoring energy usage and key assets
provide opportunities to further optimise energy usage and
inform better decisions across our stores portfolio.
– Heating, ventilation and air-conditioning (HVAC): we continue to
progress trials for low carbon solutions and drive market
changes to support decarbonisation plans.
– Progressing use of Telematics and Hive route planning systems:
in our home delivery vans and distribution fleet we continue to
use telematics and improved planning systems, to gain best
operational efficiencies, improving route plans which reduce
mileage and energy requirements.
– Plans to introduce refrigeration units using CO2 as a refrigerant:
over the next 12 months, units will be rolled out into distribution
vehicles in the UK.
– Introduced electric LGVs into distribution centres: with plans to
roll out more in 2023/24, as well as introducing refrigeration
units into vehicles that harness solar power to power these units.
Modern Slavery Act
As per section 54(1) of the Modern Slavery Act 2015, our Modern
Slavery Statement is reviewed and approved by the Board on an
annual basis and published on our Group website. The statement
covers the activities of Tesco PLC and certain UK subsidiaries and
details policies, processes and actions we have taken to ensure
that slavery and human trafficking are not taking place in our
supply chains or any part of our business. Tesco is dedicated to
tackling modern slavery both within our own operations and supply
chains, as well as the issue of forced labour more broadly. Modern
slavery is one of our four key human rights strategic priority areas,
in which we work to bring about change through our Improve,
Transform and Advocate model.
In our supply chains and within our own business, our greatest
risks of modern slavery exist where there is a reliance on
temporary, seasonal, informal and lower-paid labour. Through
consultation with external experts and Tesco’s in-house team
expertise, our enhanced modern slavery strategy details our risk
areas based on regions, products, supply chains and known drivers
of risk. Based on the above criteria, and established knowledge,
we have identified four priority areas: primary sites and end-to-
end poultry in Thailand and Malaysia; priority fisheries; UK and
Central Europe own-operations; and UK seasonal produce.
Our approach to preventing, identifying and mitigating modern
slavery is based on the five factors that we believe are vital to
enabling an environment to eradicate modern slavery, which
include effective grievance mechanisms and remediation. We have
a robust programme for identifying potential or actual modern
slavery concerns including regular SEDEX Members Ethical Trade
Audits (SMETA), training requirements for all primary suppliers and
a network of 40 in-country specialists.
Detailed examples of how we have remediated issues identified
can be found within our Modern Slavery Statement and include the
reimbursement of identified recruitment fees. Recruitment fees
and debt bondage are recognised to have a causal factor in more
than 50% of modern slavery cases globally. As such, we are
focusing on responsible recruitment as a strategy to mitigate risk
at the source. We have implemented specific responsible
recruitment policies for suppliers in Thailand and Malaysia, and are
working with suppliers in the UK to embed best practice.
More information on our statement can be found on our website
at www.tescoplc.com.
Anti-bribery matters
We have a zero-tolerance approach to bribery. Our anti-bribery
programme operates across the Group. The programme is built
around a clear understanding of how and where bribery risks
affect our business and comprises key controls such as: policies
(anti-bribery, gifts and entertainment, conflicts of interest,
charitable donations); procedures such as conducting due
diligence on suppliers (in particular those who will engage public
officials on our behalf); training colleagues on bribery risks every
year; and ongoing assurance programmes to test that the controls
are functioning effectively. Bribery risk management is discussed
at senior leadership groups in each business unit, including at the
Group level, and also twice a year with the Audit Committee.
Cautionary statement regarding forward-
looking information
Where this Annual Report contains forward-looking statements,
these are based on current expectations and assumptions, and
speak only as of the date they are made. These statements should
be treated with caution due to the inherent risks, uncertainties
and assumptions underlying any such forward-looking information.
The Group cautions investors that a number of factors, including
matters referred to in this document, could cause actual results
to differ materially from those expressed or implied in any
forward-looking statement. Such factors include, but are not
limited to, those discussed under principal risks and uncertainties
on pages 38 to 45.
Forward-looking statements can be identified by the use of
relevant terminology including the words: ‘may’, ‘will’, ‘seek’,
‘aim’, ‘anticipate’, ‘target’, ‘projected’, ‘expect’, ‘estimate’,
‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar
meaning and include all matters that are not historical facts.
They appear in a number of places throughout this Annual Report
and include statements regarding the intentions, beliefs or
current expectations of our officers, Directors and employees
concerning, among other things, the Group’s results of
operations, financial condition, liquidity, prospects, growth,
strategies and the business.
Neither the Group, nor any of its officers, Directors or employees,
provides any representation, assurance or guarantee that the
occurrence of the events expressed or implied in any forward-
looking statements in this Annual Report will actually occur.
Undue reliance should not be placed on these forward-looking
statements. Other than in accordance with our legal and
regulatory obligations, the Group undertakes no obligation to
publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
Tesco PLC Annual Report and Financial Statements 2023
105
Corporate governance In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
– properly select and apply accounting policies;
– present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
– provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
– make an assessment of the Company’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company, and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions. Each of the serving
Directors, whose names and functions are set out on pages 51
to 54, confirms that, to the best of their knowledge:
– the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the consolidation
taken as a whole;
– the Strategic report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
– the Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the
Company’s position and performance, business model and
strategy.
By order of the Board
Robert Welch
Group Company Secretary
12 April 2023
Directors’ report continued
Additional disclosures
Other information that is relevant to the Directors’ report, and
which is incorporated by reference into this report, can be
located as follows:
Events after the reporting period
Future developments
Research and development
Financial instruments and financial risk management
GHG emissions
Corporate governance report
Colleague engagement
Stakeholder engagement
Section 172 statement
Pages
198
4 to 47
4 to 47
158 to 176
19
48 to 106
16 and 17
26 and 27
25
Disclosures required pursuant to the Listing Rules can be found
on the following pages:
Listing Rule 9.8.4R
Statement of capitalised interest
Allotment for cash of equity securities
Waiver of dividends
Listing Rule 9.8.6(8)
Climate-related financial disclosures consistent with
TCFD
Pages
139 to 141
184
102
20 to 24
The Company has chosen, in accordance with section 414C(11) of
the Companies Act 2006, and as noted in this Directors’ report, to
include certain matters in its Strategic report that would otherwise
be required to be disclosed in this Directors’ report. The Strategic
report can be found on pages 1 to 47 and includes an indication of
future likely developments in the Company, details of important
events and the Company’s business model and strategy.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the
Directors are required to prepare the Group financial
statements in accordance with UK-adopted international
accounting standards and applicable UK law. The Directors
have also chosen to prepare the Parent Company financial
statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law), including Financial Reporting
Standard (FRS) 101 Reduced Disclosure Framework. Under
company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing the Parent Company 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 applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
– prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
106
Tesco PLC Annual Report and Financial Statements 2023
Independent auditor’s report to the members of Tesco PLC
Report on the audit of the financial
statements
1. Opinion
In our opinion:
– the financial statements of Tesco PLC (the Parent Company)
and its subsidiaries (the Group) give a true and fair view of the
state of the Group’s and of the Parent Company’s affairs as at
25 February 2023 and of the Group’s profit for the 52 week
period then ended;
– the Group financial statements have been properly prepared
in accordance with United Kingdom adopted international
accounting standards;
– the Parent Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting
Standard 101 ‘Reduced Disclosure Framework’; and
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
– the Group income statement;
– the Group statement of comprehensive income/(loss);
– the Group and Parent Company balance sheets;
– the Group and Parent Company statements of changes
in equity;
– the Group cash flow statement; and
– the related Notes 1 to 35 of the Group financial statements
and Notes 1 to 16 of the Parent Company financial statements.
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law
and United Kingdom adopted international accounting standards.
The financial reporting framework that has been applied in the
preparation of the Parent Company financial statements is
applicable law and United Kingdom Accounting Standards,
including FRS 101 ‘Reduced Disclosure Framework’
(United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit of
the financial statements section of our report.
We are independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the Group and
Parent Company for the year are disclosed in Note 3 (Operating
expenses) to the financial statements. We confirm that we have
not provided any non-audit services prohibited by the FRC’s
Ethical Standard to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
– store impairment review;
– Tesco Bank loan impairment;
– recognition of commercial income;
– Tesco Bank goodwill impairment;
– pension valuation; and
– retail technology environment, including IT security.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the Group financial statements
was £100m (2021/22: £100m) which was determined on the
basis of 4.64% (2021/22: 4.60%) of adjusted profit before tax
from continuing operations (including net pension finance
income/(cost)) as described further on page 115.
Scoping
Our audit scoping provides full scope and specified scope audit
coverage of 97% (2021/22: 96%) of revenue from continuing
operations, 93% (2021/22: 98%) of operating profit from
continuing operations and 96% (2021/22: 95%) of total assets.
Significant changes in our approach
There are no significant changes in our approach in comparison
to prior year.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and
Parent Company’s ability to continue to adopt the going concern
basis of accounting included:
– obtaining confirmation for the financing facilities including
nature of facilities, repayment terms and covenants to ensure
that these facilities remain available at year end;
– assessing the reasonableness of the assumptions used in the
Group’s funding plan approved by the Board (which included
the impact of global supply chain pressures and recessionary
impact on customers’ disposal income);
– testing the clerical accuracy used to prepare the forecasts
including obtaining an understanding of relevant controls over
management’s model;
– reviewing the liquidity forecast and undertaking sensitivities
to assess whether there is sufficient headroom;
– challenging the assumptions used within the Group’s going
concern model by obtaining third-party and market data and
evaluating any differences between this data and the
judgement and assumptions used;
– evaluating the historical accuracy of forecasts prepared by
management;
– considering the mitigating factors identified by management
in relation to their going concern analysis; and
– assessing the appropriateness of the Group’s disclosure
concerning the going concern basis.
Tesco PLC Annual Report and Financial Statements 2023
107
Financial statements Independent auditor’s report to the members of Tesco PLC continued
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and Parent Company’s ability to continue as a going
concern for a period of at least 12 months from when the financial
statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK
Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections
of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements for the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which
had the greatest effect on the overall audit strategy, the
allocation of resources in the audit and directing the efforts
of the engagement team.
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Based on our audit procedures
we are satisfied that the
assumptions in the impairment
models are within an
acceptable range, and that the
estimate of the Group’s net
impairment charge is
reasonable.
We also consider the
disclosures, including the
sensitivity disclosure in Note 14,
to be appropriate.
5.1 Store impairment review
As described in Note 1 (Accounting policies,
judgements and estimates), Note 11 (Property,
plant and equipment) and Note 12 (Leases) of
the financial statements, the Group held
£16,862m (2021/22: £17,060m) of property, plant
and equipment and £5,500m of right of use
assets (2021/22: £5,720m) at 25 February 2023.
Under IAS 36 ‘Impairment of Assets’, the Group
is required to complete an impairment review of
its store portfolio where there are indicators of
impairment or impairment reversal. Judgement
is required in identifying indicators of
impairment charges or reversals and estimation
is required in determining the recoverable
amount of the Group’s store portfolio.
Where a review for impairment, or reversal of
impairment, is conducted, the recoverable
amount is determined based on the higher of
‘value in use’ or ‘fair value less costs of disposal’.
Value in use has been calculated using
probability-weighted cash flows reflecting
management’s best estimate of the impact of
the economic environment and climate change
on the future trading performance of the
Group. Further details of the probability-
weighted cash flows are set out in Note 14
(Impairment of non-current assets) of the
financial statements.
Management estimate the fair value less costs
to dispose of the stores with the assistance of
independent professional valuers. External
valuations are obtained for a sample of stores,
the results of which are then used by
management’s in-house experts to determine
the fair value of the other properties. Further
details of the basis for the valuation are set out
in Note 14.
In making their assessment of value in use and
fair value less costs to dispose, management
has considered the impact of the
macroeconomic trading environment
(including the impact of cost of living increases
and fluctuations in energy costs and inflation)
on forecast cash flows and property fair
values where conditions existed at the
balance sheet date.
Our audit procedures included obtaining an
understanding of relevant controls around the
impairment review process. Our procedures
in relation to the Group’s value in use
assessment included:
– challenging the key assumptions utilised in the cash
flow forecasts with reference to historical trading
performance, the wider economic environment
(including possible macroeconomic impacts of the
cost-of-living crisis and fluctuations in energy costs
and inflation), anticipated changes in consumer
behaviour, competitor actions, our understanding
of the Group’s strategic initiatives, climate change
considerations and leveraging our wider industry
knowledge;
– reviewing the accuracy of past forecasts of growth
rates and future cash flows to assess the level of
accuracy of the forecasting process;
– performing sensitivity analyses to assess the impact
on impairment of a change in the probability
percentages applied to the cash flow scenarios;
– with the involvement of our valuation specialists,
calculating an independent range and evaluating
management’s inputs to their discount rate and
long-term growth rate;
– assessing and challenging the adequacy of
management’s sensitivity analysis in relation to key
assumptions to consider the extent of change in
those assumptions that, either individually or
collectively, would be required to lead to a
significant further impairment charge or reversal, in
particular forecast cash flows, discount rates and
property fair values, in light of increased market
volatility due to the cost-of-living crisis and
fluctuations in energy prices and inflation;
– using analytical techniques to identify unusual
trends in data inputs and model outputs, to identify
inaccurate data and any modelling errors or
management bias;
– assessing the methodology applied in determining
the value in use compared with the requirements
of IAS 36, including challenging the appropriateness
of excluding certain cashflows contained within the
LTP which are not permissible under IAS 36; and
– checking the integrity of the value in use model
prepared by the Group, with the assistance of our
specialist modelling team.
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Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
5.1 Store impairment review continued
In relation to the Group’s stores where their value is
supported by fair value less costs to dispose, our
procedures included challenging the assumptions used by
the Group in determining the fair market value, including
those completed by external valuers and assessing whether
appropriate valuation methodologies have been applied.
Where stores are supported by their fair values less costs
to dispose (rather than value in use) but management plan
to continue to trade in the store, we have challenged
management as to why the fair value is appropriate in
these circumstances. Our property valuation specialists
have been involved in evaluating the fair value less cost to
sell and, as part of our work performed, we have evaluated
the competence, capability and objectivity of
management’s valuers.
We also evaluated whether there was appropriate
disclosure regarding sensitivities associated with
management’s impairment review.
The key audit matter relates specifically
to the UK trading store portfolio which
represents 80% of both the Group’s
property, plant and equipment and right
of use asset balances.
Management’s impairment review is
sensitive to changes in the key assumptions
as set out in Note 14. Judgement is
required to forecast store cash flows
which are derived from the Board
approved Long Term Plan (LTP). In
particular, the impairment model is
sensitive to changes to the year 3 cash
flow as this cash flow is discounted
into the long term in the value in use
calculation. Key areas of judgement in the
cash flow forecasts include the ability of
management to achieve their forecasts in
light of changing consumer behaviour, the
volatile retail environment and the Group’s
ability to realise forecast cost savings.
Other areas of key estimation in the store
impairment review are as follows:
– the probability applied to each cash flow
scenario in calculating the probability-
weighted cash flows;
– the adjustments made to the LTP
cashflows to ensure the impairment
model cashflows comply with IAS 36;
– the discount rate and long-term growth
rate used to determine value in use from
the probability-weighted cash flows; and
– the fair value of properties supporting
the carrying value of store assets, in
particular in response to the changing
retail and broader property landscape.
The LTP is prepared on a top-down basis
and not at an individual store level.
Management perform an exercise to
allocate forecast performance across
individual stores within the portfolio
ensuring cashflows derived from the LTP
are in accordance with IAS 36. This
increases the complexity and level of
judgement within the impairment model.
As a result of the Group’s store impairment
review completed during the year, a net
impairment charge of £982m (2021/22:
£115m) was recognised. The sensitivities
associated with management’s impairment
review are presented within Note 14 to the
financial statements.
The Audit Committee’s discussion of this
key audit matter is set out on page 74.
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Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Based on our audit procedures
we are satisfied that
management’s provision is
reasonably stated, and is
supported by a methodology
that is consistently applied and
compliant with IFRS 9. We
consider the sensitivity
disclosures provided in Note 27
(Financial risk management) to
the financial statements to be
appropriate.
5.2 Tesco Bank loan impairment
As disclosed in Note 23 (Loans and advances to
customers), the Group held an expected credit
loss (ECL) provision in respect of loans and
advances to customers of £461m at 25 February
2023 (2021/22: £489m). The ECL on loans and
advances to customers charged to the income
statement was £61m in the year to 25 February
2023 (2021/22: £30m credit). The increase in the
charge compared to the prior year is primarily
due to the impact of the worsening
macroeconomic outlook in the current year,
partially offset by a reduction in post-model
adjustments (PMAs), including the release of
COVID-19 related PMAs.
Loan impairment remains one of the most
significant judgements made by management.
We consider the most significant areas of
judgement within the Group’s collective
provisioning methodologies, and therefore the
key audit matters within loan impairment, to be:
– Macroeconomic scenarios: ECL provisions
are required to be calculated on a forward-
looking basis under IFRS 9 ‘Financial
Instruments. Management, with the assistance
of external economic specialists, apply
significant judgement in determining the
forecast macroeconomic scenarios and the
probability weighting of each scenario that
are incorporated into the ECL model.
– PMAs: Management has included a customer
uncertainty PMA of £22m (2021/22: £75m) and
model underestimation and uncertainty PMA
of £68m (2021/22: £nil) to capture the
potential downside risks and model limitations
arising as a result of the continued
macroeconomic uncertainty and cost-of-
living crisis on the Bank’s customers.
Other material judgements include the
determination of the expected lifetime, the
definition of a significant increase in credit
risk, the determination of probability of default
and exposure at default, the identification of
loss events and the determination of loss
given default.
Given the material impact of the significant
judgements taken by management in the
measurement of the ECL provision, we also
consider there is an inherent risk of fraud
through manipulation of this balance.
Management’s associated accounting policies
are detailed in Note 1, including detail about the
judgements made in applying accounting policies
and critical accounting estimates.
The Audit Committee’s discussion of this key
audit matter is set out on page 74.
We have obtained an understanding of and assessed
the relevant controls, including model governance
forums, model monitoring and calibration, the
determination of PMAs, the review and approval of
macroeconomic scenarios, the flow of data from
the Group’s information systems into the ECL model,
and the flow of the output of the ECL model to the
general ledger.
Our audit work to address the key audit matter
included the procedures noted below.
Macroeconomic scenarios and related model
refinements
With support from internal economic modelling
specialists, we challenged the macroeconomic
scenario forecasts that were incorporated into
the ECL model, including management’s selection
of the relevant macroeconomic variables.
We assessed management’s forecasts and their
probability against external sources to assess their
reasonableness, considering the forecasts in light
of any contradictory information.
We also assessed the competence, capabilities
and objectivity of management’s external
economic specialist, who supplies the
macroeconomic forecasts to management, and
considered whether the methodology adopted
by the expert was reasonable.
We also evaluated whether there was appropriate
disclosure regarding the macroeconomic scenarios
selected by management, their probability weighting,
and the related sensitivities.
PMAs
With support from our credit risk specialists, we
challenged the appropriateness of the customer
uncertainty and model underestimation risk
uncertainty PMAs recorded by management, as
well as the completeness of PMAs with reference
to our observations in the broader market and
understanding of the risk profile of the portfolio.
We evaluated the accuracy of the calculation of the
PMAs, which included an assessment of the
completeness and accuracy of the underlying data
used by management in their calculation.
We also evaluated whether there was appropriate
disclosure regarding the significant PMAs including
how they were determined and the range of
possible outcomes.
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Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Based on our audit procedures
we are satisfied that the
recognition of commercial
income is satisfactory. We
consider the disclosure given
in the financial statements
around commercial income
provides an appropriate
understanding of the types of
rebate income received and
the impact on the Group’s
balance sheet.
5.3 Recognition of commercial income
As described in Note 1 (Accounting policies,
judgements and estimates) and Note 20
(Commercial income) of the financial
statements, the Group has agreements with
suppliers whereby volume-related allowances,
promotional and marketing allowances and
various other fees and discounts are received in
connection with the purchase of goods for
resale from those suppliers. As such, the Group
recognises a reduction in cost of sales as a result
of amounts receivable from those suppliers.
Commercial income should only be recognised
as income within the income statement when
the performance conditions associated with it
have been met, for example where the
marketing campaign has been held.
The variety and number of the buying
arrangements with suppliers can make it
complex to determine the performance
conditions associated with the income, giving
rise to a requirement for management
judgement. As such we have identified this as
a key audit matter and considered that there
was a potential for fraud through possible
manipulation of this income for promotional
space and cost price reconciliation agreements.
With the exception of the UK retail business, we
consider the risk associated with commercial
income in all other components of the Group to
have reduced in comparison to the prior year,
reflecting the changing nature and quantum of
the associated commercial income
arrangements in these businesses.
The Audit Committee’s discussion of this key
audit matter is set out on page 74.
Our audit procedures included obtaining an
understanding of relevant controls that the
Group has established in relation to commercial
income recognition.
In addition, we performed the following:
– used data analytics to identify commercial income
deals which exhibited characteristics of audit
interest, such as those related to promotional
space or cost price reconciliations, upon which
we completed detailed audit testing;
– tested whether amounts recognised were
accurate and recorded in the correct period by
circularising a sample of suppliers to test whether
the arrangements recorded were in accordance
with the terms agreed in advance with the
suppliers with regard to the nature, timing and
amount of the promotions. Where responses from
suppliers were not received, we completed
alternative procedures such as agreement to
underlying contractual arrangements;
– tested the year-end accrual for promotional deals
to assess whether performance obligations have
been fulfilled where they have been invoiced
subsequent to year end;
– tested the mechanical accuracy of calculations
in respect of relevant arrangements;
– held discussions with certain suppliers to further
understand relevant arrangements;
– held discussions with members of the Group’s
buying personnel to further understand the
buying processes;
– tested the completeness of commercial income by
evaluating management’s review and conclusions
related to any commercial income deals that may
have been missed and performing analytical
procedures to identify deals where performance
obligations have been fulfilled but invoicing could
not occur due to pending final administrative
procedures;
– tested commercial income balances included
within inventories and trade and other receivables,
or netted against trade and other payables (as set
out in Note 20) via balance sheet reconciliation
procedures;
– assessed the Group’s ongoing compliance with the
Groceries Supplier Code of Practice (GSCOP), and
additionally, evaluated the reporting and
correspondence to the Group’s supplier hotline in
order to identify any areas where further
investigation was required; and
– assessed the appropriateness of the disclosures
made in relation to commercial income in the
Group’s financial statements.
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Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Based on our audit procedures
we are satisfied that the
assumptions in the Tesco Bank
goodwill impairment model are
reasonable and supportable
based on available evidence,
both internal and external, and
that no impairment was
required. We also consider the
disclosures, including the
sensitivity disclosure in Note 14,
to be appropriate.
Our audit procedures included obtaining an
understanding of relevant controls in relation to the
review and approval of the discount rate and Tesco
Bank’s cash flow forecasts used in the model.
We have also performed a series of specific audit
procedures to address the key audit matter which
included the following:
Discount rate
Use of specialists: We involved our valuation
specialists in testing the discount rate used in
calculating the recoverable amount. We calculated
an independent range of acceptable discount rates
and challenged management’s inputs to their own
calculation.
Cashflow forecasts
Forecasting accuracy: We assessed management’s
forecasting accuracy based on the historical
forecasts and actuals.
Key assumptions: We have agreed the underlying
cashflow forecasts to the latest Board approved
long-term plan LTP and challenged the achievability
of the revenue growth and cost reduction
assumptions in the outer years of the cash flow
forecasts. This included consideration of
management’s specific initiatives for delivering
growth and whether forecast margins are in line
with historical margins and what is observed in
the wider market.
Use of independent market expectations: We
performed a comparison of the Bank’s forecast
earnings multiple with those of other competitors
within the banking sector to assess the overall
reasonableness of the forecasts.
Disclosure
We also evaluated whether there was appropriate
disclosure regarding the discount rate and other key
assumptions, including the sensitivity disclosure.
5.4 Tesco Bank goodwill impairment
As described in Note 1 (Accounting policies,
judgements and estimates) and Note 10 (Goodwill
and other intangible assets) of the financial
statements, the Group held £4,327m (2021/22:
£4,291m) of goodwill, of which £500m relates to
Tesco Bank (2021/22: £500m).
Under IAS 36 ‘Impairment of assets’, the Group
is required to review goodwill for impairment at
least annually by assessing the recoverable
amount of each cash-generating unit, or
group of cash-generating units, to which the
goodwill relates.
Assessing the recoverable amount of the Tesco
Bank cash-generating unit requires a high level
of judgement in forecasting future cash flows,
determining future growth rates and estimating
the discount rate to be applied.
The key audit matter specifically relates to the
following:
– the post-tax discount rate that management
apply to the cashflows; and
– the cashflow forecasts reflected in the
long-term plan, in particular whether the
assumptions on revenue growth and the
future cost base are achievable and reflect
the long-term economic outlook and sector
trends.
Tesco Bank goodwill is sensitive to changes in the
key assumptions, in particular the discount rate
and long-term plan cash flows, with a 0.3%pt
increase in the discount rate, decrease in annual
equity cashflows of 4.3% or decrease in
long-term growth rate of 0.4%pt reducing the
year-end headroom of £51m to £nil, as noted in
Note 14.
As management have continued to execute and
deliver against Tesco Bank’s strategy, the
uncertainty associated with achieving the
planned cash flows associated with its value in
use is reduced. We have therefore reduced the
risk level associated with the Tesco Bank goodwill
impairment from the prior year.
The Audit Committee’s discussion of this key
audit matter is set out on page 72.
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Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Based on our audit procedures
we are satisfied that the overall
methodology is appropriate,
and the key assumptions
applied in relation to
determining the pension
valuation are within our
reasonable range.
5.5 Pension valuation
As described in Note 1 (Accounting policies,
judgements and estimates) and Note 29
(Post-employment benefits) of the financial
statements, the Group has a defined benefit
pension plan in the UK retail business. At 25
February 2023, the Group recorded a net
retirement benefit deficit before deferred tax of
£394m (2021/22: net retirement benefit surplus
before deferred tax of £2,847m), comprising plan
assets of £13,025m (2021/22: £22,390m) and plan
liabilities of £13,416m (2021/22: £19,543m). The
net retirement deficit of £394m (2021/22:
surplus of £2,847m) before deferred tax
comprises schemes in surplus of £6m (2021/22:
£3,150m) and schemes in deficit of £400m
(2021/22: £303m).
The valuation of the Group’s pension obligations
is sensitive to changes in key assumptions and is
dependent on market conditions. The key audit
matter specifically relates to the key financial
and demographic assumptions linked to the
valuation of the UK retail pension plan
obligations: discount rate, inflation expectations
and mortality assumptions. The setting of these
assumptions is complex and requires the
exercise of significant management judgement
with the support of management’s actuaries
and valuation experts.
The Audit Committee’s discussion of this key
audit matter is set out on page 74.
Our audit procedures included obtaining an
understanding of relevant controls in relation to
the pension obligation valuation process.
In addition, we involved our actuarial specialists
to assess the key actuarial assumptions used,
both financial and demographic, and considered
the methodology utilised to derive these
assumptions. In order to assess and challenge the
reasonableness of management’s discount rate,
we independently calculated an appropriate range
from available market data and compared this to
management’s rate.
Working with our actuarial experts, we benchmarked
and challenged other assumptions used by
management in determining the value of pension
liabilities, particularly focusing on inflation and
mortality. This included comparing the inputs and
assumptions used in determining the valuation of
the UK retail pension plan to those used in
comparable pension plans and our internal
benchmarks. In particular we considered the
adjustment made by management to the Continuous
Mortality Investigation (CMI) 2021 mortality tables
to apply a weighting factor to reflect its assessment
of the potential COVID-19 mortality impact, with
reference to advice the Group has received from its
actuaries.
Additionally, we have considered the competence,
capabilities and objectivity of the actuaries and
valuation experts engaged by management to
perform valuations of the relevant plans.
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Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
5.6 Retail technology environment, including IT security
Since 2015/16 we have reported deficiencies
in certain IT controls within the retail IT
systems, which could have an adverse impact
on the Group’s controls and financial
reporting systems.
We have continued to challenge and assess
changes to the IT environment through the testing
of remediated controls and concluding on the
sufficiency and appropriateness of
management’s changes.
Management has implemented a remediation
plan on control deficiencies related to
Application User Access Management and
Privileged Access Management, progress against
which is monitored. IT remediation is a complex,
multi-year project involving management
judgement and processes which are at risk of
being inappropriately designed or executed.
Areas of management’s remediation programme
to which the key audit matter has been
pinpointed include:
– appropriateness of remediated access
controls across in-scope applications and
their supporting infrastructure; and
– whether the remediated controls address
previously identified deficiencies.
During the year we have obtained an understanding
of relevant controls over the information systems
that are important to financial reporting, including
the changes made as part of the Group’s IT
remediation programme.
Consistent with previous years we did not plan to
take a control-reliant audit approach in the retail
business due to the weaknesses in the IT
environment.
We have obtained an understanding of relevant
manual controls which relate to identified
deficiencies and consistent with the prior year we
extended the scope of our substantive audit
procedures in response to the deficiencies which
affected the applications and databases within the
scope of our audit.
Although management’s
remediation plan is designed
to address the historic
deficiencies identified, given
the complexity of the underlying
systems the plan is a multi-year
programme and not yet
complete. Based on our audit
procedures we have continued
to see progress in
management’s remediation
plan, in particular regarding
user access management.
Further remediation work is
ongoing.
We consider the level of risk associated with this
key audit matter has reduced from the prior
year due to the continued progress made during
the current year in remediating the historical IT
control deficiencies identified.
The Audit Committee’s discussion of this key
audit matter is set out on page 73.
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6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Parent Company financial statements
£75m (2021/22: £75m)
Materiality represents less than 1%
(2021/22: less than 1%) of net assets.
As this is the Parent Company of the Group, it does not
generate significant revenues other than investment
returns, but incurs costs.
Net assets are of most relevance to users of the financial
statements.
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
Group financial statements
£100m (2021/22: £100m)
4.64% (2021/22: 4.60%) of adjusted profit before tax
(including net pension finance income/(cost)) of £2,156m
(2021/22: £2,175m).
We have determined materiality based on 4.64% of
adjusted profit before tax from continuing operations
(including net pension finance income/(cost)). Adjusting
items are defined in Note 1 and include net pension
finance income/(cost). For the purpose of our materiality
determination we have excluded them from adjusting
items and therefore increased/(reduced) adjusted profit
before tax accordingly. Our determined materiality
represents 0.15% (2021/22: 0.16%) of the Group’s revenue
from continuing operations and 0.8% (2021/22: 0.6%) of
net assets.
Refer to Note 4 (Adjusting items) for further details of
adjusting items and management’s reconciliation of this
alternative performance measure to the Group’s
statutory measure.
Component
materiality
The work performed on components identified in our Group audit scope (excluding the Parent Company) was
completed to a component materiality level between £10m and £49m (2021/22: £9m and £49m).
Adjusted profit
before tax from
continuing
operations
(including net
pension finance
income/cost)
£2,156m
Group materiality £100m
Component materiality range
£10m to £49m
Audit Committee reporting
threshold £5m
Adjusted profit before tax from
continuing operations (including
net pension finance income/cost)
Group materiality
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
65% (2021/22: 65%) of Group materiality
Parent Company financial statements
65% (2021/22: 65%) of Parent Company materiality
As we continue to be unable to rely on internal controls in the retail business, consistent with previous years, we
have used a lower percentage of materiality to determine our performance materiality for 2022/23. In determining
our performance materiality we have also considered the nature, quantum and volume of corrected and
uncorrected misstatements in prior periods, including prior period errors, and our expectation that misstatements
from prior periods would not likely recur in the current period.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £5m (2021/22: £5m), as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
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7. An overview of the scope of our audit
7.1 Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level.
The Group has subsidiary grocery retail operations in five
countries, together with interests in a number of other businesses
both in the UK and internationally.
The Group’s accounting process is structured around business
units managed by local finance functions and further supported by
shared service centres in Bengaluru, India and Budapest, Hungary
which provide accounting and administrative support for the
Group’s core retail operations. Each local finance function reports
through to the central Group finance function based at the
Group’s head office.
Based on our assessment of the Group, we focused our Group
audit scope primarily on the audit work on six significant retail
locations (UK, Booker, Republic of Ireland, Czech Republic,
Hungary and Slovakia) and Tesco Bank. The operations in
Czech Republic, Hungary and Slovakia are managed as one
combined business. All of these components performed a
detailed scoping exercise to determine which individual entities
and account balances would be subject to full scope or
specified scope audits, the latter being where only the key
financial statement account balances were included in scope.
For entities and account balances not subject to full or specified
audit procedures we performed analytical review procedures
to confirm our conclusion that there was no significant risk of
material misstatement in the residual population. The entities
which were either in full or specified audit scope in the current
year represent 97% (2021/22: 96%) of revenue from continuing
operations, 93% (2021/22: 98%) of operating profit from
continuing operations and 96% (2021/22: 95%) of total assets.
In addition, we have performed analytical review procedures for
three other businesses (dunnhumby, Tesco Mobile and OneStop),
where the extent of our testing was based on our assessment of
the risks of material misstatement and of the size of the Group’s
operations at these locations.
As each of the local finance functions maintains separate financial
records, we have engaged component auditors from the Deloitte
member firms in the UK, Republic of Ireland and Central Europe to
perform procedures at all the wholly-owned components under
our direction and supervision. This approach also allows us to
engage local auditors who have appropriate knowledge of local
regulations to perform the audit work, under a common Deloitte
audit approach.
The components within full scope contribute the proportions of
Group totals shown below.
Revenue from continuing operations
Full audit scope 97%
Specified audit procedures 0%
Residual scope 3%
Profit before tax from continuing operations
Total assets
Full audit scope 93%
Specified audit procedures 0%
Residual scope 7%
Full audit scope 85%
Specified audit procedures 11%
Residual scope 4%
At the Group level we also tested the consolidation process and
carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the
aggregated financial information of the remaining components
not subject to full scope or specified scope audits. At a Group
level we also performed audit procedures on centrally held
balances including treasury, post-employment benefit
obligations, head office costs and litigation and claims.
The most significant component of the Group is its retail business
in the UK. As such, there is extensive interaction between the
Group and the UK audit team to allow appropriate level of
direction and supervision in this audit work. During the course
of our audit, the UK audit team visited 26 retail stores in the
UK to jointly attend inventory counts and to complete store
control testing procedures, and 8 (2021/22: 6) distribution centre
inventory counts. In 2021/22 the UK audit team visited 48 retail
stores to seperately attend either inventory counts or in order to
complete store control visits.
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7.2 Our consideration of the control environment
In the current year our controls approach was principally designed
to inform our risk assessment, to allow us to test the operating
effectiveness of certain relevant controls, to test controls that
address risks of material misstatement for which substantive
procedures alone would not provide sufficient appropriate audit
evidence and to test the operating effectiveness of controls
within processes where a controls reliance approach was taken.
As noted on page 115 it is not possible to take a controls reliant
audit approach in the retail businesses due to the IT deficiencies.
In addition Tesco Bank has separate information systems where
the same IT deficiencies do not exist and therefore a controls
reliant audit approach was taken.
The Group’s operations utilise a range of information systems
which underpin the financial reporting process. These are largely
consistent across the retail business, however, Tesco Bank has
separate information systems due to the nature of the business.
For all of the components that were subject to full scope audits,
we obtained an understanding of the relevant IT systems for the
purpose of our audit work.
In previous years we reported deficiencies in certain IT controls.
As described in the Audit Committee Report on page 73,
management has implemented a remediation plan, progress
against which is monitored. Accordingly, consistent with the prior
year, we extended the scope of our substantive audit procedures
in response to the identified deficiencies.
Further details are set out in the ‘Retail technology environment,
including IT security’ key audit matter in section 5.6 above.
7.3 Our consideration of climate-related risks
The Group is exposed to the impacts of climate change on its
business and operations as highlighted in the Task Force on
Climate-Related Financial Disclosures (TCFD) report on page 20,
viability statement on page 46, the principal risks on page 38, and
in Note 14 of the financial statements.
We have engaged with both the central finance and sustainability
functions to gain an understanding of the assessment of, and the
process undertaken to both identify and quantify, the Group’s
climate-related risks. We have engaged our climate specialists
in our assessment to consider broader industry and
market-wide practice.
We completed an independent climate-based risk assessment in
order to consider the potential impact of climate change on the
Group’s financial statements, incorporating both business specific
knowledge and wider industry awareness, including the extent to
which they have been included in the Group’s forecast financial
information. We used this to assess the completeness of the
Group’s identified risks and to develop audit procedures to
respond to these risks, in particular as part of our work in relation
to store impairment and long-term viability, as well as considering
climate-related risks throughout our risk assessments on each
financial statement account balance. Further details of our work in
relation to store impairment are set out in the ‘Store impairment
review’ key audit matter in section 5.1 above.
In considering the disclosures presented as part of the Strategic
Report, we engaged our climate specialists to assess compliance
with the TCFD requirements and the recommendations made by
both the Task Force and FRC as set out in their thematic reviews.
We have also assessed whether these disclosures reflect our
understanding of the Group’s approach to climate.
7.4 Working with other auditors
The Group audit team issued detailed instructions to the
component auditors and visited the component auditors for
each of the six significant locations set out above, in addition to
Tesco Bank and the Group’s shared service centre in Bengaluru.
We had a dedicated audit partner focused on overseeing the role
of the component audit teams, ensuring we applied a consistent
audit approach to the operations in the Group’s UK and
international businesses.
The audit visits by the Group audit team were timed to enable us
to be involved during the planning and risk assessment process in
addition to the execution of detailed audit procedures. During our
visits we attended key meetings with component management and
auditors and reviewed and challenged detailed component auditor
working papers in the underlying audit files and component
reporting. In addition we attended component audit closing calls
and other key meetings with management throughout the 2022/23
audit process.
Additionally, the component audit teams attended an all-day
planning meeting in July 2022 and a two-day planning update
meeting in November 2022 led by the Group audit team and held
prior to commencement of our detailed audit work. The purpose
of this planning meeting was to ensure a good level of
understanding of the Group’s businesses, its core strategy and a
discussion of the significant risks and workshops on our planned
audit approach. Group management also attended part of the
meeting to support these planning activities.
The Parent Company is located in the United Kingdom and audited
directly by the Group audit team.
8. Other information
The other information comprises the information included in
the Annual Report, other than the financial statements and our
auditor’s report thereon. The Directors are responsible for the
other information contained within the Annual Report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Directors’ responsibilities
statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.
Tesco PLC Annual Report and Financial Statements 2023
117
Financial statements Independent auditor’s report to the members of Tesco PLC continued
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the Parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate
the Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
11. Extent to which the audit was
considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud,
is detailed below.
11.1 Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
– the nature of the industry and sector, control environment and
business performance including the design of the Group’s
remuneration policies, key drivers for Directors’ remuneration,
bonus levels and performance targets;
– the Group’s own assessment of the risks that irregularities may
occur either as a result of fraud or error;
– results of our enquiries of management, the Internal Audit
function, the Group’s Security function, the Group’s Compliance
Officer, the Group’s General Counsel and the Audit Committee
about their own identification and assessment of the risks of
irregularities;
– any matters we identified having obtained and reviewed the
Group’s documentation of their policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations including the
Group’s controls relating to the Group’s ongoing compliance
with the GSCOP requirements and the requirements of the
United Kingdom’s Prudential Regulation Authority (PRA) and
Financial Conduct Authority (FCA) in relation to Tesco Bank; and
– the matters discussed among the audit engagement team
including significant component audit teams and relevant
internal specialists, including IT, tax, valuations and pensions
actuarial specialists, and industry specialists regarding how and
where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas:
Tesco Bank loan impairment and recognition of commercial
income. In common with all audits under ISAs (UK), we are also
required to perform specific procedures to respond to the risk
of management override.
We also obtained an understanding of the legal and regulatory
frameworks that the Group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the
financial statements. The key laws and regulations we considered
in this context included the Group’s ongoing compliance with the
GSCOP, UK Companies Act, Listing Rules, pensions legislation and
tax legislation.
In addition, we considered provisions of other laws and regulations
that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability
to operate or to avoid a material penalty. These included the
requirements of the United Kingdom’s PRA, FCA and Solvency II in
relation to Tesco Bank, employment law, health and safety and
food safety laws and regulations.
11.2 Audit response to risks identified
As a result of performing the above, we identified Tesco Bank loan
impairment and recognition of commercial income as key audit
matters related to the potential risk of fraud. The key audit
matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in
response to those key audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
– reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct
effect on the financial statements;
– enquiring of management, the Audit Committee and in-house
external legal counsel concerning actual and potential litigation
and claims;
– performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
– reading minutes of meetings of those charged with governance,
reviewing internal audit reports and reviewing correspondence,
if any, with HMRC and other relevant regulatory bodies; and
– in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made
in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant
transactions that are unusual or outside the normal course
of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members
including internal specialists and significant component audit
teams, and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
118
Tesco PLC Annual Report and Financial Statements 2023
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if,
in our opinion, certain disclosures of Directors’ remuneration
have not been made or the part of the Directors’ remuneration
report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to
address
15.1. Auditor tenure
Following the recommendation of the Audit Committee, we were
appointed by the Group’s shareholders on 25 June 2015 to audit
the financial statements for the year ending 27 February 2016 and
subsequent financial periods. The period of total uninterrupted
engagement, including previous renewals and reappointments of
the firm, is eight years, covering the years ending 27 February 2016
to 25 February 2023.
15.2 Consistency of the audit report with the
additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the
Audit Committee we are required to provide in accordance with
ISAs (UK).
16. Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
As required by the FCA Disclosure Guidance and Transparency
Rule (DTR) 4.1.14R, these financial statements will form part of
the European Single Electronic Format (ESEF) prepared Annual
Financial Report filed on the National Storage Mechanism of the
UK FCA in accordance with the ESEF Regulatory Technical
Standard (ESEF RTS). This auditor’s report provides no assurance
over whether the annual financial report has been prepared using
the single electronic format specified in the ESEF RTS. We have
been engaged to provide assurance on whether the annual
financial report has been prepared using the single electronic
format specified in the ESEF RTS and will publicly report separately
to the members on this.
John Adam (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
12 April 2023
Report on other legal and regulatory
requirements
12. Opinions on other matters prescribed
by the Companies Act 2006
In our opinion the part of the Directors’ remuneration report
to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course
of the audit:
– the information given in the Strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
– the Strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and the
Parent Company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the
Strategic report or the Directors’ report.
13. Corporate governance statement
The Listing Rules require us to review the Directors’ statement in
relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
– the Directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 104;
– the Directors’ explanation as to its assessment of the Group’s
prospects, the period this assessment covers and why the
period is appropriate set out on page 46;
– the Directors’ statement on fair, balanced and understandable
set out on page 76;
– the Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 38;
– the section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems
set out on page 38; and
– the section describing the work of the Audit Committee set out
on page 71.
14. Matters on which we are required to
report by exception
14.1 Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
– we have not received all the information and explanations we
require for our audit; or
– adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Parent Company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Tesco PLC Annual Report and Financial Statements 2023
119
Financial statements 52 weeks ended
26 February 2022
Before
adjusting
items
£m
61,344
(56,574)
39
4,809
(1,984)
2,825
15
9
(652)
2,197
(502)
1,695
Adjusting
items
(Note 4)
£m
–
(176)
–
(176)
(89)
(265)
–
–
101
(164)
(8)
(172)
Total
£m
61,344
(56,750)
39
4,633
(2,073)
2,560
15
9
(551)
2,033
(510)
1,523
Total
£m
65,762
(62,034)
(67)
3,661
(2,136)
1,525
8
85
(618)
1,000
(247)
753
65,762
(61,005)
(67)
4,690
(2,060)
2,630
8
85
(647)
2,076
(442)
1,634
–
(1,029)
–
(1,029)
(76)
(1,105)
–
–
29
(1,076)
195
(881)
–
(9)
(9)
(2)
(38)
(40)
1,634
(890)
744
1,693
(210)
1,483
1,635
(1)
1,634
(890)
–
(890)
745
(1)
744
1,691
2
1,693
(210)
–
(210)
1,481
2
1,483
10.05p
9.96p
10.17p
10.08p
19.34p
19.12p
19.86p
19.64p
Group income statement
52 weeks ended
25 February 2023
Before
adjusting
items
£m
Adjusting
items
(Note 4)
£m
Notes
Continuing operations
Revenue
Cost of sales
Impairment (loss)/reversal on financial assets
Gross profit/(loss)
Administrative expenses
Operating profit/(loss)
Share of post-tax profits of joint ventures and
Finance income
Finance costs
Profit/(loss) before tax
associates
Taxation
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit/(loss) for the year from discontinued operations
Profit/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Earnings/(losses) per share from continuing and discontinued
operations
Basic
Diluted
Earnings/(losses) per share from continuing operations
Basic
Diluted
2
2
13
5
5
6
7
9
9
9
9
The notes on pages 125 to 190 form part of these financial statements.
120
Tesco PLC Annual Report and Financial Statements 2023
120
Tesco PLC Annual Report and Financial Statements 2023
Group statement of comprehensive income/(loss)
Items that will not be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other comprehensive income
Remeasurements of defined benefit pension schemes
Net fair value gains on inventory cash flow hedges
Tax on items that will not be reclassified
Items that may subsequently be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other comprehensive income
Currency translation differences:
Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and
reported in the Group income statement
Gains on cash flow hedges:
Net fair value gains
Reclassified and reported in the Group income statement
Tax on items that may be reclassified
Total other comprehensive income/(loss) for the year
Profit/(loss) for the year
Total comprehensive income/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income/(loss) for the year
Total comprehensive income/(loss) attributable to owners of the parent arising from:
Continuing operations
Discontinued operations
The notes on pages 125 to 190 form part of these financial statements.
Financial statements
52 weeks ended
25 February 2023
£m
52 weeks ended
26 February 2022
£m
Notes
29
6
6
2
(3,341)
54
853
(2,432)
(43)
120
–
17
(61)
21
54
(2,378)
744
(1,634)
(1,639)
5
(1,634)
(1,630)
(9)
(1,639)
4
4,075
33
(918)
3,194
(25)
(39)
66
44
(45)
(5)
(4)
3,190
1,483
4,673
4,671
2
4,673
4,645
26
4,671
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
121
121
Financial statements
Group balance sheet
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Right of use assets
Investment property
Investments in joint ventures and associates
Other investments
Trade and other receivables
Loans and advances to customers
Reinsurance assets
Derivative financial instruments
Post-employment benefit surplus
Deferred tax assets
Current assets
Other investments
Inventories
Trade and other receivables
Loans and advances to customers
Reinsurance assets
Derivative financial instruments
Current tax assets
Short-term investments
Cash and cash equivalents
Assets of the disposal group and non-current assets classified as held for sale
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Insurance contract provisions
Customer deposits and deposits from banks
Derivative financial instruments
Current tax liabilities
Provisions
Liabilities of the disposal group classified as held for sale
Net current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Lease liabilities
Insurance contract provisions
Customer deposits and deposits from banks
Derivative financial instruments
Post-employment benefit deficit
Deferred tax liabilities
Provisions
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Total equity
25 February
2023
£m
26 February
2022
£m
Notes
10
11
12
13
15
17
23
24
26
29
6
15
16
17
23
24
26
18
18
7
19
21
12
24
25
26
22
7
19
21
12
24
25
26
29
6
22
30
30
5,375
16,862
5,500
24
93
1,339
79
3,029
145
873
6
82
33,407
353
2,510
1,315
4,052
72
57
63
1,628
2,465
12,515
210
12,725
(9,818)
(1,770)
(595)
(570)
(4,485)
(99)
(18)
(366)
(17,721)
(14)
(5,010)
(153)
(5,581)
(7,132)
(35)
(2,265)
(288)
(400)
(119)
(194)
(16,167)
12,230
463
5,165
3,123
3,490
12,241
(11)
12,230
5,360
17,060
5,720
22
86
1,253
159
3,141
184
942
3,150
85
37,162
226
2,339
1,263
3,349
61
69
93
2,076
2,345
11,821
368
12,189
(9,181)
(725)
(547)
(623)
(4,729)
(26)
(11)
(283)
(16,125)
(14)
(3,950)
(53)
(6,674)
(7,411)
(27)
(1,650)
(357)
(303)
(910)
(183)
(17,568)
15,644
484
5,165
3,079
6,932
15,660
(16)
15,644
The notes on pages 125 to 190 form part of these financial statements.
Ken Murphy
Directors
Imran Nawaz
The financial statements on pages 120 to 190 were approved and authorised for issue by the Directors on 12 April 2023.
122
Tesco PLC Annual Report and Financial Statements 2023
122
Tesco PLC Annual Report and Financial Statements 2023
Share
capital
£m
484
–
Share
premium
£m
5,165
–
Other
reserves
(Note 30)
£m
3,079
–
Retained
earnings
£m
6,932
745
Group statement of changes in equity
At 26 February 2022
Profit/(loss) for the year
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures
and associates, net of hedging instruments
Change in fair value of financial assets at fair value through other
comprehensive income
Remeasurements of defined benefit pension schemes (Note 29)
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Group income
statement
Tax relating to components of other comprehensive income (Note 6)
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
Total inventory cash flow hedge movements
Transactions with owners
Own shares purchased for cancellation (Note 30)
Own shares cancelled (Note 30)
Own shares purchased for share schemes (Note 30)
Share–based payments (Note 28)
Dividends (Note 8)
Tax on items credited to equity (Note 6)
Total transactions with owners
At 25 February 2023
At 27 February 2021
Profit/(loss) for the year
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures
and associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging
on subsidiary disposed, reclassified and reported in the Group
income statement
Change in fair value of financial assets at fair value through other
comprehensive income
Remeasurements of defined benefit pension schemes (Note 29)
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Group income
statement
Tax relating to components of other comprehensive income (Note 6)
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
Total inventory cash flow hedge movements
Transactions with owners
Own shares purchased for cancellation (Note 30)
Own shares cancelled (Note 30)
Own shares purchased for share schemes (Note 30)
Share–based payments (Note 28)
Dividends (Note 8)
Tax on items credited to equity (Note 6)
Total transactions with owners
At 26 February 2022
The notes on pages 125 to 190 form part of these financial statements.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(21)
–
–
–
–
(21)
463
–
–
–
–
–
–
–
5,165
120
–
–
63
(61)
22
144
144
(127)
(127)
(758)
816
(188)
157
–
–
27
3,123
Share
capital
£m
490
–
Share
premium
£m
5,165
–
Other
reserves
(Note 30)
£m
3,183
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(39)
66
–
–
77
(45)
(22)
37
37
30
30
–
(6)
–
–
–
–
(6)
484
–
–
–
–
–
–
–
5,165
(301)
270
(279)
139
–
–
(171)
3,079
Financial statements
Total
£m
15,660
745
120
(41)
(3,341)
63
(61)
876
(2,384)
(1,639)
(127)
(127)
(758)
–
(188)
156
(858)
(5)
(1,653)
12,241
Total
£m
12,077
1,481
(39)
66
–
(41)
(3,341)
–
–
854
(2,528)
(1,783)
–
–
–
(795)
–
(1)
(858)
(5)
(1,659)
3,490
Retained
earnings
£m
3,239
1,481
–
–
(21)
(21)
4,075
–
–
(901)
3,153
4,634
–
–
–
(264)
–
12
(704)
15
(941)
6,932
4,075
77
(45)
(923)
3,190
4,671
30
30
(301)
–
(279)
151
(704)
15
(1,118)
15,660
Non-
controlling
interests
£m
(16)
(1)
–
–
–
8
–
(2)
6
5
–
–
–
–
–
–
–
–
–
(11)
Non-
controlling
interests
£m
(18)
2
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
(16)
Total
equity
£m
15,644
744
120
(41)
(3,341)
71
(61)
874
(2,378)
(1,634)
(127)
(127)
(758)
-
(188)
156
(858)
(5)
(1,653)
12,230
Total
equity
£m
12,059
1,483
(39)
66
(21)
4,075
77
(45)
(923)
3,190
4,673
30
30
(301)
–
(279)
151
(704)
15
(1,118)
15,644
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
123
123
Financial statements
Group cash flow statement
52 weeks ended
25 February 2023
£m
52 weeks ended
26 February 2022
£m
Notes
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations
Operating profit/(loss) of discontinued operations
Depreciation and amortisation
(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets
classified as held for sale and early termination of leases
(Profit)/loss arising from sale of other investments
(Profit)/loss arising on sale of joint ventures and associates
(Profit)/loss arising on sale of subsidiaries
Net impairment loss on property, plant and equipment, right of use assets, intangible assets and investment
property
Net remeasurement loss on non-current assets held for sale
Adjustment for non-cash element of pensions charge
Other defined benefit pension scheme payments
Share-based payments
Tesco Bank fair value movements included in operating profit/(loss)
Retail (increase)/decrease in inventories
Retail (increase)/decrease in trade and other receivables
Retail increase/(decrease) in trade and other payables
Retail increase/(decrease) in provisions
Retail (increase)/decrease in working capital
Tesco Bank (increase)/decrease in loans and advances to customers
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance and other payables
Tesco Bank increase/(decrease) in provisions
Tesco Bank (increase)/decrease in working capital
Cash generated from/(used in) operations
Interest paid
Corporation tax paid
Net cash generated from/(used in) operating activities
Cash flows generated from/(used in) investing activities
Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified
as held for sale
Purchase of property, plant and equipment, investment property and other long-term assets
Purchase of intangible assets
Disposal of subsidiaries, net of cash disposed
Acquisition of subsidiaries, net of cash acquired
Proceeds from sale of joint ventures and associates
Increase in loans to joint ventures and associates
Investments in joint ventures and associates
Net (investments in)/proceeds from sale of short-term investments
Proceeds from sale of other investments
Purchase of other investments
Dividends received from joint ventures and associates
Interest received
Cash inflows from derivative financial instruments
Cash outflows from derivative financial instruments
Net cash generated from/(used in) investing activities
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation
Own shares purchased for share schemes
Repayment of capital element of obligations under leases
Cash outflows exceeding the incremental increase in assets in a property buyback
Increase in borrowings
Repayment of borrowings
Cash inflows from derivative financial instruments
Cash outflows from derivative financial instruments
Dividends paid to equity owners
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
The notes on pages 125 to 190 form part of these financial statements.
7
14
29
28
30
28
8
18
1,525
(9)
1,700
(76)
3
–
–
982
23
–
(23)
59
70
(147)
(54)
643
75
517
(696)
60
369
(7)
(274)
4,497
(652)
(123)
3,722
342
(971)
(279)
–
(71)
–
(1)
(10)
451
230
(529)
14
70
54
(6)
(706)
(781)
(86)
(593)
(21)
–
(709)
232
(371)
(859)
(3,188)
(172)
1,771
(34)
1,565
2,560
(51)
1,718
(123)
–
(25)
23
115
3
7
(19)
66
(28)
(281)
27
743
(65)
424
(95)
8
47
(22)
(62)
4,608
(650)
(201)
3,757
309
(949)
(229)
161
(48)
15
(4)
(11)
(1,067)
274
(221)
32
3
–
–
(1,735)
(278)
(144)
(577)
–
394
(775)
798
(921)
(731)
(2,234)
(212)
1,971
12
1,771
124
Tesco PLC Annual Report and Financial Statements 2023
124
Tesco PLC Annual Report and Financial Statements 2023
Note 1 Accounting policies, judgements and
estimates
General information
Tesco PLC (the Company) is a public limited company incorporated
and domiciled in England and Wales under the Companies Act 2006
(Registration number 445790). The address of the registered
office
AL7
Tesco House, Shire Park, Kestrel Way, Welwyn Garden City,
1GA, UK.
is
The main activities of the Company and its subsidiaries
(together,
and
Group) are those of retailing and retail banking
services.
the
insurance
Basis of preparation
The consolidated Group financial statements have been prepared in
accordance with UK-adopted IFRS. The consolidated Group financial
statements are presented in Pounds Sterling, generally rounded to
the nearest million. They are prepared on the historical cost basis,
except for certain financial instruments, share-based payments and
pension assets that have been measured at fair value.
have concluded that there are no material uncertainties relating
months from the date of approval of the financial statements,
Group have adequate resources to continue in operational
for the foreseeable future, which reflects a period of
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and
the
existence
18
and
to going concern. Thus they continue to adopt the going concern
basis of accounting in
preparing the consolidated Group financial
statements. The scenarios considered as part of the going concern
assessment are consistent with those used in the Longer term
the Group’s strong
viability statement. Further information on
liquidity position is given in the Group review of
performance,
Summary of total indebtedness section, and information on
committed facilities is provided in Note 27.
Unless otherwise stated, the accounting policies set out below
have
consolidated Group financial statements.
been applied consistently to all periods presented in these
New standards, interpretations and amendments effective in the
current financial year have not had a material impact on the
consolidated Group financial statements.
The Group has not applied any standards, interpretations
or
amendments that have been issued but are not yet effective.
24 February 2024. IFRS 17 will principally impact the Group’s
IFRS 17 ‘Insurance contracts’ will become effective in the
consolidated Group financial statements for the financial year
ending
subsidiary, Tesco Underwriting Limited (TU), which provides the
insurance underwriting service for a number of the Group’s general
insurance products. The simplified premium allocation approach will
be applied to all material insurance groups issued and reinsurance
groups purchased subsequent to the acquisition of TU in May 2021.
For contract groups issued prior to the acquisition date, the general
model will be applied to the associated acquired claims liabilities.
The
income statement may also change as a result of IFRS 17 adoption.
The Group will adopt IFRS 17 retrospectively and comparatives will
be
restated from a transition date of 27 February 2022, with an
immaterial transition adjustment to the opening equity balance
at
presentation of some of the line items in the balance sheet and
that date.
The
impact of the following is still under assessment:
– IFRS 16 amendments ‘Lease liability in a sale and leaseback’,
will become effective in the consolidated Group financial
which
statements for the financial year ending 22 February 2025, subject
to UK endorsement.
Other standards, interpretations and amendments issued but not
yet effective are not expected to have a material impact on the
consolidated Group financial statements.
Financial statements
Basis of consolidation
The consolidated Group financial statements consist of the financial
statements of the ultimate Parent Company (Tesco PLC), all entities
controlled by the Company (its subsidiaries) and the Group’s share
of
its interests in joint ventures and associates.
The financial year represents the 52 weeks ended 25 February 2023
(prior financial year 52 weeks ended 26 February 2022). For the UK
and the Republic of Ireland (UK & ROI), the results are for the 52
weeks ended 25 February 2023 (prior financial year 52 weeks ended
26 February 2022). For all other operations, the results are for the
calendar year ended 28 February 2023 (prior calendar year ended
28
February 2022).
Subsidiaries
Subsidiaries are consolidated in the Group’s financial
statements
date
that control ceases.
from the date that control commences until the
Intragroup balances and any unrealised gains and losses or income
and expenses arising from intragroup transactions are eliminated in
preparing the consolidated financial statements.
Joint ventures and associates
The Group’s share of the results of joint ventures and associates
included in the Group income statement and Group statement
is
of
comprehensive income/(loss) using the equity method of
accounting. Investments in joint ventures and associates are carried
in the Group balance sheet at cost plus post-acquisition changes
in
the Group’s share of the net assets of the entity, less any
impairment in value. The carrying values of investments in joint
ventures and associates include acquired goodwill. If the Group’s
share of losses in a joint venture or associate equals or exceeds its
investment in the joint venture or associate, the Group does not
recognise further losses, unless it has incurred obligations to do
or made payments on behalf of the joint venture or associate.
so
Dividends received from joint ventures or associates with nil
carrying
part
ventures and associates.
of the Group’s share of post-tax profits/(losses) of joint
value are recognised in the Group income statement as
Unrealised gains arising from transactions with joint ventures and
associates are eliminated to the extent of the Group’s interest
in
entity.
the
Revenue
Revenue is income arising from the sale of goods and services in
the
ordinary course of the Group’s activities, net of value added
taxes. Revenue is recognised when performance obligations are
satisfied and control has transferred to the customer. For the
majority of revenue streams, there is a low level of judgement
applied in determining the transaction price or the timing of
transfer
of control.
Sale of goods
The sale of goods represents the vast majority of the Group’s
revenue. For goods sold in store, revenue is recognised at the point
of sale. For online or wholesale sales of goods, revenue is recognised
on collection by, or delivery to, the customer. Revenue is reduced by
a provision for expected returns (refund liability). An asset and
corresponding adjustment to cost of sales is recognised for the
Group’s right to recover goods from customers.
Clubcard (customer loyalty programme)
Clubcard points issued by Tesco when a customer purchases goods
are a separate performance obligation providing a material right to
future discount. The total transaction price (sales price of goods)
a
allocated to the Clubcard points and the goods sold based on
is
their
relative standalone selling prices, with the Clubcard points
standalone price based on the value of the points to the customer,
adjusted for expected redemption rates (breakage). The amount
allocated to Clubcard points is deferred as a contract liability
within
trade and other payables.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
125
125
Financial statements
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements and
estimates continued
Revenue is recognised as the points are redeemed by the customer.
Revenue related to breakage is recognised in line with redemptions,
subject to the variable consideration constraint (i.e. provided it is
highly probable not to result in a significant reversal of the
cumulative revenue recognised), with the remainder recognised on
expiry of the points.
Financial services
Revenue consists of interest, fees and income from the provision of
retail banking and insurance.
Interest income on financial assets that are measured at amortised
cost is determined using the effective interest rate method.
Calculation of the effective interest rate takes into account fees
receivable that are an integral part of the instrument’s yield,
premiums or discounts on acquisition or issue, early redemption
fees and transaction costs. Interest income is calculated on the
gross carrying amount of a financial asset unless the financial asset
is
impaired, in which case interest income is calculated on the
amortised cost, after allowance for expected credit losses (ECLs).
The majority of the fees in respect of services (credit card
interchange fees, late payment and ATM revenue) are recognised at
the point in time at which the transaction with the customer takes
place and the service is performed. For services performed over
time, payment is generally due monthly in line with the satisfaction
of
performance obligations.
Refer to the Insurance section below for insurance revenue.
Commercial income
Consistent with standard industry practice, the Group has
agreements with suppliers whereby volume-related allowances,
promotional and marketing allowances and various other fees and
discounts are received in connection with the purchase of goods for
resale from those suppliers. Most of the income received from
suppliers relates to adjustments to a core cost price of a product,
and as such is considered part of the purchase price for that
product. Sometimes receipt of the income is conditional on the
Group performing specified actions or satisfying certain
performance conditions associated with the purchase of the
product. These include achieving agreed purchases or sales volume
targets and providing promotional or marketing materials and
activities or promotional product positioning. While there is no
standard industry definition, these amounts receivable from
suppliers in connection with the purchase of goods for resale are
generally termed commercial income.
Commercial income is recognised when earned by the Group, which
occurs when all obligations conditional for earning income have been
discharged, and the income can be measured reliably based on the
terms of the contract. The income is recognised as a
cost of sales. Where the income earned relates to inventories which
are held by the Group at the reporting date, the income is included
within the cost of those inventories, and recognised in cost of sales
upon sale of those inventories.
credit within
Amounts due relating to commercial income are recognised within
trade and other receivables, except in cases where the Group
currently has a legally enforceable right of set-off and intends to
offset amounts due from suppliers against amounts owed to those
suppliers, in which case only the net amount receivable or payable is
recognised. Accrued commercial income is recognised within
accrued income when commercial income earned has not been
invoiced at the reporting date.
Finance income
Finance income, excluding income arising from financial services, is
recognised in the period to which it relates using the effective
interest rate method.
126
Tesco PLC Annual Report and Financial Statements 2023
126
Tesco PLC Annual Report and Financial Statements 2023
Finance costs
Borrowing costs are recognised in the Group income statement in
finance costs, excluding those arising from 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.
Business combinations and goodwill
The Group accounts for all business combinations by applying the
acquisition method. All acquisition-related costs are expensed.
On acquisition, the assets (including intangible assets), liabilities and
contingent liabilities of an acquired entity are measured at their fair
values. Non-controlling interests are stated at the non-controlling
interests’ proportion of the fair values of the assets and liabilities
recognised.
Goodwill arising on consolidation represents the excess of the
consideration transferred over the net fair value of the Group’s
share of the net assets, liabilities and contingent liabilities of the
acquired subsidiary, joint venture or associate and the fair value of
the non-controlling interest in the acquiree. If the consideration is
less than the fair value of the Group’s share of the net assets,
liabilities and contingent liabilities of the acquired entity (i.e. a bargain
purchase), the difference is credited to the Group income statement
in the period of acquisition.
At the acquisition date of a subsidiary, goodwill acquired is
recognised as an asset and is allocated to each of the cash-
generating units or groups of cash-generating units expected to
benefit from the business combination’s synergies and to the lowest
level at which management monitors the goodwill. Goodwill arising
on the acquisition of joint ventures and associates is included within
the carrying value of the investment. On disposal of a subsidiary, joint
venture or associate, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
Where the Group obtains control of a joint venture or associate, the
Group’s previously held interest in the acquired entity is remeasured
to its acquisition date fair value and the resulting gain or loss, if any,
is recognised in the Group income statement.
Cloud software licence agreements
Licence agreements to use cloud software are treated as service
contracts and expensed in the Group income statement, unless
the
Group has both a contractual right to take possession of the
software at any time without significant penalty, and the ability to run
the software independently of the host vendor. In such cases, the
licence agreement is capitalised as software within intangible assets.
Costs to configure or customise a cloud software licence are
expensed alongside the related service contract in the Group
income statement, unless they create a separately identifiable
resource controlled by the Group, in which case they are capitalised.
Intangible assets
Intangible assets, such as software, acquired customer relationships
and pharmacy licences, are measured initially at acquisition cost
or
a business combination are recognised at fair value at the
acquisition
costs incurred to develop the asset. Intangible assets acquired in
date.
Following initial recognition, intangible assets with finite useful lives
are carried at cost less accumulated amortisation and accumulated
impairment losses. They are amortised on a straight-line basis over
their estimated useful lives of three to 10 years for software and up
to 10 years for customer relationships. Intangible assets with
indefinite useful lives, such as pharmacy licences, are not amortised
and are carried at cost less accumulated impairment losses.
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is capitalised only if
criteria
are met.
specific
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and any recognised impairment in value. Property, plant
and equipment is depreciated on a straight-line basis to its residual
value over its anticipated useful economic life:
– freehold buildings – 10 to 40 years; and
– fixtures and fittings, office equipment and motor vehicles – three
to 20 years.
Impairment of non-financial assets
Goodwill is reviewed for impairment at least annually by assessing the
recoverable amount of each cash-generating unit, or group of
generating units, to which the goodwill relates. For all other
non-
financial assets (including other intangible assets, property, plant
and
equipment, right of use assets and investment property) the
Group performs impairment testing where there are indicators of
impairment. Where the asset does not generate cash flows that
are
independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the
asset
belongs.
cash-
The recoverable amount is the higher of fair value less costs of
disposal, and value in use. When the recoverable amount is less
the carrying amount, an impairment loss is recognised
than
immediately in the Group income statement.
Goodwill impairments are not subsequently reversed. Where an
impairment loss on other non-financial assets subsequently
reverses, the carrying amount of the asset (or cash-generating unit)
is increased to the revised estimate of the recoverable amount, but
the carrying
so that the increased carrying amount does not exceed
amount that would have been determined if no
impairment loss had
been recognised for the asset (or cash-generating unit) in prior
years. A reversal of an impairment loss is recognised immediately as
a credit to the Group income statement.
Inventories
Inventories comprise goods and development properties held for
resale. Inventories are valued at the lower of cost and net realisable
value using the weighted average cost basis. Directly attributable
costs and incomes (including applicable commercial income) are
included in the cost of inventories.
Cash and cash equivalents
Cash and cash equivalents in the Group balance sheet consist of
cash at bank and on hand, credit and debit card receivables, demand
deposits with banks and short-term highly liquid investments with an
original maturity of three months or less, for example short-term
deposits, loans and advances to banks, commercial paper and
certificates of deposit. Cash and cash equivalents in the Group cash
flow statement also include overdrafts repayable on demand as they
form an integral part of the Group’s cash management.
Non-current assets held for sale and discontinued
operations
Non-current assets (or disposal groups) are classified as assets held
for sale when their carrying amount is to be recovered principally
through a sale transaction and a sale is considered highly probable.
They are stated at the lower of carrying amount and fair value less
costs to sell.
The net results of discontinued operations are presented separately
in the Group income statement (and the comparatives restated).
Leases
The Group assesses whether a contract is, or contains, a lease at
inception of the contract. A lease conveys the right to direct the use
and obtain substantially all of the economic benefits of an identified
asset for a period of time in exchange for consideration.
The Group as a lessee
A right of use asset and corresponding lease liability are recognised
at commencement of the lease.
Financial statements
The lease liability is measured at the present value of the lease
payments, discounted at the rate implicit in the lease, or if that
cannot be readily determined, at the lessee’s incremental borrowing
rate specific to the term, country, currency and start date of the
lease. Lease payments include: fixed payments; variable lease
payments dependent on an index or rate, initially measured using
the
purchase option if the Group is reasonably certain to exercise;
penalties for early termination if the lease term reflects the Group
exercising a break option; and payments in an optional renewal
period if the Group is reasonably certain to exercise an extension
option or not exercise a break option.
index or rate at commencement; the exercise price under a
The lease liability is subsequently measured at amortised cost
the effective interest rate method. It is remeasured, with a
using
corresponding adjustment to the right of use asset, when there is
change in future lease payments resulting from a rent review, change
in an index or rate such as inflation, or change in the Group’s
assessment of whether it is reasonably certain to exercise
a
purchase, extension or break option.
a
The right of use asset is initially measured at cost, comprising: the
initial lease liability; any lease payments already made less any lease
incentives received; initial direct costs; and any dilapidation or
restoration costs. The right of use asset is subsequently depreciated
on a straight-line basis over the shorter of the lease term or the
useful life of the underlying asset. The right of use asset is tested
for
impairment if there are any indicators of impairment.
Leases of low value assets (value when new less than £5,000)
short-term leases of 12 months or less are expensed to the
and
Group income statement, as are variable payments dependent on
performance or usage, ‘out of contract’ payments and non-lease
service components.
The Group as a lessor
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. Where
the Group is an intermediate lessor, the sublease classification is
assessed with reference to the head lease right of use asset.
Amounts due from lessees under finance leases are recorded as
receivables at the amount of the Group’s net investment in the
lease. Finance lease income is allocated to accounting periods so
as
to reflect a constant periodic rate of return on the Group’s net
investment in the lease. Rental income from operating leases is
recognised on a straight-line basis over the term of the lease.
Sale and leaseback
A sale and leaseback transaction is where the Group sells an asset
and immediately reacquires the use of the asset by entering into a
lease with the buyer. A sale occurs when control of the underlying
asset passes to the buyer. A lease liability is recognised, the
associated property, plant and equipment asset is derecognised, and
a right of use asset is recognised at the proportion of the carrying
value relating to the right retained. Any gain or loss arising relates to
the rights transferred to the buyer.
In the Group cash flow statement, sale and leaseback proceeds
received are classified as investing cash flows, unless the proceeds
exceed the fair value of the asset sold, in which case the excess
proceeds are classified as financing cash flows.
Property buybacks
A property buyback is where a property that is currently leased is
bought back from the landlord. Property buybacks that are a direct
purchase of the underlying asset, outside of a corporate wrapper,
are viewed as the modification of the lease to include a purchase
option, followed by the immediate exercise of that purchase option.
The lease liability is settled and the right of use asset forms part of
the cost of the property, plant and equipment acquired, and no
gain
property
or loss is recognised in the Group income statement from the
buyback.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
127
127
Financial statements
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements and
estimates continued
Property buybacks inside a corporate wrapper (such as a special
purpose vehicle or joint venture structure) that do not meet the
definition of a business combination are asset acquisitions. The cost
of the asset acquisition includes the cash consideration paid and the
carrying values of pre-existing lease contracts and any previously
held interests. No gain or loss is recognised in the Group income
statement from the property buyback.
In the Group cash flow statement, property buyback net proceeds
paid are
classified as investing cash flows, unless the proceeds
exceed the incremental asset purchased (difference between
property, plant and equipment recognised and right of use asset
derecognised), in which case the excess proceeds are classified
as
financing cash flows.
Post-employment obligations
For defined benefit plans, obligations are measured at discounted
present value (using the projected unit credit method) and plan
assets are recorded at fair value.
The operating and financing costs of such plans are recognised
separately in the Group income statement; service costs are spread
systematically over the expected service lives of employees and
financing costs are recognised in the periods in which they arise.
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income/(loss).
Group
Payments to defined contribution schemes are recognised as an
expense as they fall due.
Share-based payments
The fair value of employee share option plans, which are equity-
settled, is calculated at the grant date using the Black-Scholes
model. The resulting cost is charged to the Group income statement
over the vesting period. The value of the charge is adjusted to reflect
expected and actual levels of vesting.
Taxation
The tax expense included in the Group income statement consists of
current and deferred tax.
Current tax is the expected tax payable on the taxable income for
the financial year, using tax rates enacted or substantively enacted
by the balance sheet date. Tax expense is recognised in the Group
income statement except to the extent that it relates to items
recognised in the Group statement of comprehensive income/(loss)
or directly in the Group statement of changes in equity, in
which
case it is recognised in the Group statement of comprehensive
income/(loss) or directly in the Group statement of
changes in
equity, respectively.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.
Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset realised based
on the tax rates that have been enacted or substantively enacted by
the balance sheet date. Deferred tax is charged or credited in the
items charged or
Group income statement, except when it relates to
credited directly to the Group statement of changes in equity or the
Group statement of comprehensive income/(loss), in which case the
deferred tax is also recognised in
income, respectively.
equity, or other comprehensive
Deferred tax assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the assets to be recovered.
Deferred tax assets and liabilities are offset against each other when
there is a legally enforceable right to set off current tax assets
against current tax liabilities and they relate to income taxes levied by
the same taxation authority on either the same taxable entity or
different taxable entities which intend to settle current tax assets
and liabilities on a net basis.
Tax provisions are recognised for uncertain tax positions where a
risk
of an additional tax liability has been identified and it is probable that
the Group will be required to settle that tax. Measurement is
dependent on management’s expectation of the
outcome of
decisions by tax authorities in the various tax jurisdictions in which
the Group operates. This is assessed on a case-by-case basis using
in-house tax experts, professional firms and previous experience.
Refer to Note 6.
Foreign currencies
The consolidated financial statements are presented in Pounds
Sterling, which is the ultimate Parent Company’s functional currency.
Transactions in foreign currencies are translated to the functional
currency at the exchange rate on the date of the transaction.
At each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated to the functional
currency at the rates prevailing at the balance sheet date. Exchange
differences are recognised in the Group income statement in the
period in which they arise, apart from exchange differences on
transactions entered into to hedge certain foreign currency risks,
and exchange differences on monetary items forming part of the net
investment in a foreign operation.
The assets and liabilities of the Group’s foreign operations are
translated into Pounds Sterling at exchange rates prevailing at the
balance sheet date. Profits and losses are translated at average
exchange rates for the relevant accounting periods. Exchange
differences arising are recognised in the Group statement of
comprehensive income/(loss) and are included in the Group’s
translation reserve. Such translation differences are recognised
as
income or expenses in the period in which the operation is
disposed of.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
Financial instruments
Financial assets and financial liabilities are recognised in the Group
balance sheet when the Group becomes a party to the contractual
provisions of the instrument. Financial assets are classified as either
fair value through profit or loss, fair value through other
comprehensive income, or amortised cost. Classification and
subsequent remeasurement depends on the Group’s business
model for managing the financial asset and its cash flow
characteristics. Financial assets that are held for collection of
contractual cash flows, where those cash flows represent solely
payments of principal and interest, are measured at amortised cost.
All other financial assets are measured at fair value.
Trade receivables
Trade receivables are non interest-bearing and are recognised
initially at fair value, or at transaction price if there is not a significant
financing component. They are subsequently held at amortised cost
using the effective interest rate method, less allowance for ECLs.
Investments
Investments in debt instruments at amortised cost are measured at
amortised cost, using the effective interest rate method less
allowance for ECLs.
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in other comprehensive income, except for impairment
and losses, interest income and foreign exchange gains and
Gains and losses on investments in debt instruments held at fair
value through other comprehensive income are recognised
directly
gains
losses, which are recognised in the Group income statement.
When
in
income
other comprehensive income are reclassified to the Group
the debt instrument is derecognised, cumulative amounts
statement.
Investments in equity instruments have been irrevocably designated
at fair value through other comprehensive income. Gains and losses
arising from changes in fair value are recognised directly in other
comprehensive income, and are not subsequently reclassified to
Group income statement, including on derecognition. Impairment
losses are not recognised separately from other changes in fair
value. Dividends are recognised in the Group income
statement
when the Group’s right to receive payment is
established.
the
Property fund and other investments held at fair value through profit
or loss are measured at fair value, with changes in fair value
recognised in the Group income statement.
Short-term investments
Short-term investments are liquid financial assets which have an
original maturity of 12 months or less. Short-term investments are
typically readily available for conversion to cash, but do not meet the
criteria for classification as cash equivalents because either their
maturity is greater than three months, for example short-term
deposits, reverse repurchase agreements, commercial paper and
certificates of deposit, or the risk of changes in value is more than
insignificant, for example money market funds.
Loans and advances to customers
Loans and advances are initially recognised at fair value plus directly
related transaction costs. Subsequent to initial recognition, these
assets are carried at amortised cost using the effective interest
method less any allowance for ECLs.
Impairment of financial assets
The Group assesses on a forward-looking basis the ECLs associated
with its financial assets carried at amortised cost and fair value
through other comprehensive income. The ECLs are updated at
each reporting date to reflect changes in credit risk.
The three-stage model for impairment has been applied to loans and
advances to customers, investments in debt instruments at
amortised cost, investments in debt instruments at fair value
through other comprehensive income, short-term investments and
loan receivables from joint ventures and associates. The credit risk is
determined through modelling a range of possible outcomes for
different loss scenarios, using reasonable and supportable
information about past events, current conditions and forecasts of
future events and economic conditions and taking into account the
time value of money. A 12-month ECL is recognised, unless the credit
risk on the financial asset increases significantly after initial
recognition, when the lifetime ECL is recognised. The expected
lifetime of a financial asset is generally the contractual term.
For trade receivables, contract assets and lease receivables, the
Group applies the simplified approach permitted by IFRS 9 ‘Financial
instruments’, with lifetime ECLs recognised from initial recognition of
the receivable. These assets are grouped, based on
risk characteristics and days past due, with ECLs
determined based on the Group’s historical
adjusted for factors specific to
conditions and expected changes in forecast conditions.
shared credit
for each grouping
credit loss experience,
each receivable, general economic
No ECL is recognised for loans and advances to banks due to the
short-term nature of these balances, the frequency of origination
and settlement of balances and taking account of collateral held.
Financial statements
Interest-bearing borrowings
Interest-bearing bank loans and overdrafts are initially recorded at
fair value, net of attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between proceeds and redemption value
being recognised in the Group income statement over the period of
the borrowings on an effective interest basis.
Trade payables
Trade payables are non interest-bearing and are recognised initially
at fair value and subsequently measured at amortised cost using the
effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to hedge its
exposure to foreign exchange, inflation, interest rate and commodity
risks arising from operating, financing and investing activities.
The
for
Group does not hold or issue derivative financial instruments
trading purposes.
Derivative financial instruments are recognised and stated at fair
value. Where derivatives do not qualify for hedge accounting, any
gains or losses on remeasurement are immediately recognised in
the
Group income statement. Where derivatives qualify for hedge
accounting, recognition of any resultant gain or loss depends on the
nature of the hedge relationship and the item being hedged.
At inception of designated hedging relationships, the Group
documents the risk management objective and strategy for
undertaking the hedge, the nature of the risks being hedged and
the
hedging instrument, including whether the change in cash flows
offset
the hedged item and hedging instrument are expected to
each
economic relationship between the item being hedged and the
of
other.
As permitted under IFRS 9, the Group has elected to continue
apply the existing hedge accounting requirements of IAS 39
to
instruments: Recognition and measurement’ for its
‘Financial
portfolio hedge accounting until a new macro hedge accounting
standard is implemented.
Derivative financial instruments with maturity dates of more than
one year from the reporting date are disclosed as non-current.
of a recognised asset or liability. Changes in the fair value of
Fair value hedging
Derivative financial instruments are classified as fair value hedges
when they hedge the Group’s exposure to changes in the fair
value
derivatives that are designated as fair value hedges are recognised
in
the Group income statement within finance income or costs,
together with any changes in the fair value of the hedged item that
is
attributable to the hedged risk.
If the hedge no longer meets the criteria for hedge accounting, the
adjustment to the carrying amount of a hedged item is amortised to
the Group income statement over the remaining period to maturity.
Cash flow hedging
Derivative financial instruments are classified as cash flow hedges
when they hedge the Group’s exposure to variability in cash flows
that is either attributable to a particular risk associated with a
recognised asset or liability, or a highly probable forecasted
transaction. The effective element of any gain or loss from
remeasuring the derivative designated as the hedging instrument
is
accumulated in the hedging reserve. Any cost of hedging, such as the
change in fair value related to forward points and currency basis
adjustment, is separately accumulated in the cost of hedging
reserve. The ineffective element is recognised immediately in the
Group income statement within finance income or costs.
recognised directly in other comprehensive income and
Tesco PLC Annual Report and Financial Statements 2023
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129
129
Financial statements
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements and
estimates continued
Where the hedged item subsequently results in the recognition of a
non-financial asset such as inventory, the amounts accumulated in
the hedging reserve and cost of hedging reserve are included in the
initial cost of the asset. For all other cash flow hedges, the amounts
accumulated in the hedging reserve and cost of hedging reserve are
recognised in the Group income statement when the hedged item or
transaction affects the Group income statement.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised or no longer meets the
Group’s risk management objective. The cumulative gain or loss in
the hedging reserve and cost of hedging reserve remains until the
forecast transaction occurs or the original hedged item affects the
Group income statement.
If a forecast hedged transaction is no longer expected to occur, the
cumulative gain or loss in the hedging reserve and cost of hedging
reserve is reclassified to the Group income statement.
effective element of any foreign exchange gain or loss from
Net investment hedging
Financial instruments are classified as net investment hedges when
they hedge the Group’s net investment in an overseas operation.
The
remeasuring the instrument is recognised directly in other
comprehensive income and accumulated in the translation reserve
in equity. Any ineffective element is recognised immediately in the
Group income statement. Gains and losses accumulated in the
translation reserve are reclassified to the Group income statement
when the foreign operation is disposed of.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Group balance sheet when there is a current legally
enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis or realise the asset and settle the
liability simultaneously.
Provisions
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the obligation. The increase
in the provision due to passage of time is recognised as interest
expense. Provisions for onerous contracts are recognised when the
Group believes that the unavoidable costs of meeting or exiting the
contract exceed the economic benefits expected to be received
under the contract.
different countries. Commercial requirements, including payment
Supplier financing arrangements
Suppliers can choose whether to access supplier financing
arrangements, which are provided by different third-party banks
in
terms or the price paid for goods, do not depend on whether a
supplier chooses to access such arrangements. The arrangements
support the Group’s suppliers by giving them the option to
access
a lower cost than they could
obtain
funding early, often
themselves.
at
cost to the supplier that is set by the provider banks but
Under the arrangements, suppliers may choose to access payment
early rather than on the Group’s normal payment terms, at a
funding
based on Tesco’s credit risk and the appropriate country risk
premium. If
provider banks pay the suppliers on the Group’s normal payment
terms. The Group pays the provider banks on the Group’s normal
payment terms, regardless of whether the supplier has chosen to
access funding early.
suppliers choose not to access early payment, the
Management reviews supplier financing arrangements to determine
the appropriate presentation of balances outstanding as
payables or borrowings, dependent on the nature of each
arrangement. Factors considered in determining the appropriate
trade
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130
Tesco PLC Annual Report and Financial Statements 2023
presentation include the commercial rationale for the
impact on the Group’s working capital positions, credit
enhancements or other benefits provided to the bank and
recourse
exposures.
arrangement,
Balances outstanding under current supplier financing arrangements
are classified as trade payables, and cash flows are included in
operating cash flows, since the financing arrangements are agreed
between the supplier and the banks, and the Group does not provide
additional credit enhancement nor obtain any working capital benefit
from the arrangements. Refer to Note 19.
Insurance
Prior to the acquisition of TU on 4 May 2021, the Group generated
commission from the sale and service of motor and home insurance
policies underwritten by TU. Following the acquisition, these
amounts represent intercompany transactions which are fully
eliminated in the Group income statement. The Group also
generated commission from the sale and service of motor and home
insurance policies underwritten by a third-party underwriter until
August 2021, when the Group brought in-house the writing of home
and motor insurance policies which were previously underwritten
through its broker panel. Commission was based on commission
rates which were independent of the profitability of underlying
insurance policies. Similar commission income is also generated from
the sale of white
label insurance products underwritten by other
third-party providers. This commission income is recognised on a
net basis as such policies are sold.
In the case of some commission income on insurance policies
managed and underwritten by a third party, the Group recognises
commission income from policy renewals as such policies are sold.
This is when the Group has satisfied all of its performance obligations
in relation to the policy sold and it is considered highly probable that
a significant reversal in the amount of revenue recognised will not
occur in future periods. This calculation takes into account both
estimates of future renewal volumes and renewal commission rates.
A contract asset is recognised in relation to this revenue. This is
unwound over the remainder of the contract with the customer,
in
this case being the third-party insurance provider.
The end policyholders have the right to cancel an insurance policy at
any time. Therefore, a contract liability is recognised for the amount
of any expected refunds due and the revenue recognised in relation
to these sales is reduced accordingly. This contract refund liability is
estimated using prior experience of customer refunds. The
appropriateness of the assumptions used in this calculation is
reassessed at each reporting date.
Classification of insurance contracts
Contracts under which the Group accepts significant insurance risk
from another party (the policyholder) by agreeing to compensate the
policyholder or other beneficiary if a specified uncertain future event
(the insured event) adversely affects the policyholder or other
beneficiary are classified as insurance contracts. These contracts
remain insurance contracts until all rights and obligations are
extinguished or expire. Insurance contracts may also transfer
some
financial risk.
Insurance income
Gross written premiums comprise premiums on contracts entered
into during the year, irrespective of whether they relate in whole or
in part to a later accounting period, and exclude tax and levies.
The
Premiums are earned from the date of attachment of risk, over the
indemnity period, based on the pattern of risks underwritten.
earned portion of premiums written is recognised as revenue.
Insurance claims
Claims and claims handling expenses are recognised as incurred,
based on the estimated cost of settling all liabilities arising on events
occurring up to the balance sheet date.
Reinsurance
The Group cedes reinsurance in the normal course of business for
the purpose of limiting its net loss potential through the
diversification of its risks. Reinsurance arrangements, including
quota share, excess of loss and adverse development cover
contracts, do not relieve the Group from its direct obligations to its
policyholders. Only contracts that give rise to a significant transfer of
insurance risk are accounted for as reinsurance contracts. Amounts
recoverable under such contracts are generally recognised in the
same year as the related claim. Contracts that do not transfer
significant insurance risk (i.e. financial reinsurance) are accounted
for as financial instruments.
Reinsurance assets include balances due from reinsurance
companies for reinsurance claims. Amounts recoverable from
reinsurers are estimated in a manner consistent with the
outstanding claims provision or settled claims associated with the
reinsured policy. The earned portion of reinsurance premiums
(insurance premium income ceded to reinsurers) is recognised as
reinsurance premium expense. The provision for unearned
reinsurance premiums comprises the element of reinsurance
premiums relating to services to be received in future years.
Amounts recoverable under reinsurance contracts are assessed for
impairment at each year-end date. Such assets are deemed
impaired if there is objective evidence, as a result of an event that
occurred after initial recognition, that the Group may not recover all
amounts due and that the event has a reliably measurable impact on
the amounts that the Group will receive from the reinsurer.
Provision for outstanding claims
The provision for outstanding claims represents the Group’s
estimate of the ultimate cost of settling all claims incurred but
unpaid at the reporting date whether reported or not, and related
internal and external claims handling expenses. Claims outstanding
are assessed by reviewing individual claims data and making an
allowance for claims incurred but not yet reported, adjusted for the
effect of both internal and external foreseeable events, such as
changes in claims handling procedures, inflation, judicial trends,
substantively enacted legislative changes and past experience and
trends. Reinsurance and other recoveries are assessed in a manner
similar to the claims outstanding and presented separately as assets.
Unearned premium and unexpired risk provision
The provision for unearned premiums comprises the proportion of
gross premiums written, which is estimated to be earned in the
following or subsequent accounting periods, calculated separately
for each insurance contract using the daily pro rata method,
adjusted if necessary to reflect any variation in the incidence of risk
during the period covered by the contract. Where the value of
expected claims and expenses attributable to unexpired periods of
policies in force exceeds the unearned premium provision, a further
provision is made, calculated by reference to classes of business
which are managed together.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have adopted
various APMs. Refer to the Glossary for a full list of the Group’s
APMs, including comprehensive definitions, their purpose,
reconciliations to IFRS measures and details of any changes to APMs.
Judgements and sources of estimation uncertainty
The preparation of the consolidated Group financial statements
requires management to make judgements, estimates and
assumptions in applying the Group’s accounting policies to
determine the reported amounts of assets, liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to
be reasonable under the circumstances. Actual results may differ
from these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis, with revisions to accounting estimates
applied prospectively.
Financial statements
Critical accounting judgements
Critical judgements, apart from those involving estimations, that are
applied in the preparation of the consolidated Group financial
statements are discussed below:
Leases
Management exercises judgement in determining the likelihood of
exercising break or extension options in determining the lease term.
Break and extension options are included to provide operational
flexibility should the economic outlook for an asset be different to
expectations, and hence at commencement of the lease, break or
extension options are not typically considered reasonably certain to
be exercised, unless there is a valid business reason otherwise.
The discount rate used to calculate the lease liability is the rate
implicit in the lease, if it can be readily determined, or the lessee’s
incremental borrowing rate if not. Management uses the rate implicit
in the lease where the lessor is a related party (such as leases from
joint ventures) and the lessee’s incremental borrowing rate for all
other leases. Incremental borrowing rates are determined monthly
and depend on the term, country, currency and start date of the
lease. The incremental borrowing rate is determined based on a
series of inputs including: the risk-free rate
bond rates; a country-specific risk adjustment; a credit risk
adjustment based on Tesco bond yields; and an entity-specific
adjustment where the entity risk profile is different to that of
the
based on government
Group.
Refer to Note 12 for additional disclosures relating to leases.
Joint ventures and associates
The Group has assessed the nature of its joint arrangements under
IFRS 11 ‘Joint arrangements’ and determined them to be joint
ventures. These assessments required the exercise of judgement
as
set out in Note 13.
APMs – Adjusting items
Adjusting items relate to certain costs or incomes that derive from
events or transactions that fall within the normal activities of the
Group but which, individually or, if of a similar type, in aggregate,
excluded from the Group’s APMs by virtue of their size and
are
nature in order to provide a helpful alternative perspective of the
year-on-year trends, performance and position of the Group’s
trading business that is more comparable over time. This alternative
view is consistent with how management views the
Committee
how it is reported internally to the Board and Executive
for performance analysis, planning, reporting, decision-making and
incentive-setting purposes.
business, and
Management exercises judgement in determining the adjustments to
apply to IFRS measurements, and this assessment covers the nature
of the item, cause of occurrence and the scale of impact of that
item on reported performance and individual financial statement
line
items, as well as consistency with prior periods. Reversals of
previous adjusting items are assessed based on the same criteria to
ensure an even-handed treatment of gains and losses. The amount
and timing of adjusting items can be unpredictable and subject to a
higher level of scrutiny by users of the accounts. Adjusting items can
include, but are not limited to: litigation costs; impairment charges
and reversals; property transactions such as disposals; amortisation
of acquired intangibles; changes in uncertain tax positions;
restructuring and redundancy costs; profits or losses on disposal
of
businesses; net pension finance income/(costs); and fair value
remeasurements of financial instruments. The tax effect of such
items is also classified as adjusting.
The Group income statement is presented in a columnar format
enable users of the accounts to see the Group’s performance
to
before adjusting items, the adjusting items, and the statutory total
on a line-by-line basis. An analysis of the adjusting items included in
the Group income statement, together with the impact of these
items on the Group cash flow statement, is disclosed in Note 4.
Refer to pages 207 to 212 for further details on the Group’s APMs.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
131
131
Financial statements
Clubcard points breakage
Clubcard points breakage is the proportion of points that are not
expected to be redeemed by customers. Management estimates
breakage based on historical experience of customer redemptions,
adjusted for any factors which may impact future redemption rates
such as scheme changes or expected future trends in customer
behaviour. Changes in breakage estimates would change the
Clubcard contract liability (deferred revenue) on balance sheet (see
Note 19) and the timing of revenue recognised in relation to Clubcard
points.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be
confirmed only on the occurrence or non-occurrence of uncertain
future events outside the Group’s control, or present obligations
that are not recognised because it is not probable that a settlement
will be required or the value of such a payment cannot be reliably
estimated. The Group does not recognise contingent liabilities but
discloses them. Refer to Note 34 for the disclosures.
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements and
estimates continued
Key sources of estimation uncertainty
The key assumptions about the future, and other key sources of
estimation uncertainty at the reporting period end, that may have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year are
discussed below:
Post-employment benefit obligations
The present value of post-employment benefit obligations is
determined on an actuarial basis using various assumptions,
including the
Any changes in these assumptions will impact the
as
and sensitivities for post-employment benefit obligations are
disclosed in
well as the net pension finance cost/(income). Key
Note 29.
carrying amount
assumptions
discount rate, inflation rate and mortality assumptions.
Impairment of non-financial assets
The Group evaluates goodwill and non-current assets for impairment
as set out in Note 14. The key assumptions and estimates to which
the recoverable amounts are most sensitive, the methodology for
calculating them and sensitivities are also disclosed in Note 14.
Tesco Bank ECL measurement
The measurement of ECLs for Tesco Bank financial assets requires
the use of complex models and significant assumptions about future
macroeconomic conditions and credit behaviour, such as the
likelihood of customers defaulting and the resulting losses.
assumptions and sensitivities for Tesco Bank ECLs are
Key
disclosed
in Note 27.
Other significant estimates
Other estimates for which management believes there is a limited
risk of a material change in the amounts recognised or disclosed in
the next financial year are discussed below:
Commercial income
Management is required to make estimates in determining the
amount and timing of recognition of commercial income for some
transactions with suppliers. In determining the amount of volume-
related allowances recognised in any period, management estimates
the probability that the Group will meet contractual target volumes,
based on historical and forecast performance. There is limited
estimation involved in recognising income for promotional and
other
allowances.
Management assesses its performance against the obligations
conditional on earning the income, with the income recognised
either over time as the obligations are met, or recognised at the
point when all obligations are met, dependent on the contractual
requirements. Commercial income is recognised as a credit within
cost of sales. Where the income earned relates to inventories which
are held by the Group at period ends, the income is included within
the cost of those inventories, and recognised in cost of sales upon
sale of those inventories. Management views that the cost of
inventories sold (which is inclusive of commercial income) provides a
consistent and complete measure of the Group income statement
impact of the overall supplier relationships.
Management considers the best indicator of the estimation
undertaken is by reference to commercial income balances not
settled at the balance sheet date, and has therefore provided
additional disclosures of commercial income amounts reflected in
the Group balance sheet. Refer to Note 20 for commercial income
disclosures.
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Financial statements
Note 2 Segmental reporting
The Group’s operating segments are determined based on the Group’s internal reporting to the Chief Operating Decision Maker (CODM).
The
CODM has been determined to be the Group Chief Executive, with support from the Executive Committee, as the function primarily
responsible for the allocation of resources to segments and assessment of performance of the segments.
The principal activities of the Group are presented in the
following segments:
– Retailing and associated activities (Retail) in:
– UK & ROI – the United Kingdom and Republic of Ireland; and
– Central Europe – Czech Republic, Hungary and Slovakia.
– Retail banking and insurance services through Tesco Bank in the UK (Tesco Bank).
This presentation reflects how the Group’s operating performance is reviewed internally by management.
The CODM uses adjusted operating profit, as reviewed at monthly Executive Committee meetings, as the key measure of the segments’ results
as
it reflects the segments’ trading performance that aids comparability over time for the financial year under evaluation. Adjusted operating
profit is a consistent measure within the Group as defined within the Glossary. Refer to Note 4 for adjusting items. Inter-segment revenue
between the segments is not material.
Income statement
The segment results and the reconciliation of the segment measures to the respective statutory items included in the Group income statement
are as follows:
52 weeks ended 25 February 2023
At constant exchange rates
Continuing operations
Revenue
Less: Fuel sales
APM: Sales
Adjusted operating profit
Adjusting items (Note 4)
Operating profit
Adjusted operating margin
52 weeks ended 25 February 2023
At actual exchange rates
Continuing operations
Revenue
Less: Fuel sales
APM: Sales
Adjusted operating profit
Adjusting items (Note 4)
Operating profit
Adjusted operating margin
Share of post-tax profits of joint ventures and associates
Finance income
Finance costs
Profit before tax
UK & ROI
£m
60,214
(7,877)
52,337
2,307
(1,058)
1,249
3.8%
Central
Europe
£m
Total Retail at
constant
exchange
£m
4,468
(222)
4,246
174
(33)
141
3.9%
64,682
(8,099)
56,583
2,481
(1,091)
1,390
3.8%
UK & ROI
£m
60,246
(7,877)
52,369
2,307
(1,058)
1,249
3.8%
Tesco
Bank
£m
1,106
–
1,106
143
(11)
132
12.9%
Central
Europe
£m
4,410
(229)
4,181
180
(36)
144
4.1%
Total at
constant
exchange
£m
65,788
(8,099)
57,689
2,624
(1,102)
1,522
4.0%
Total Retail
£m
64,656
(8,106)
56,550
2,487
(1,094)
1,393
3.8%
Foreign
exchange
£m
(26)
(7)
(33)
6
(3)
3
Tesco
Bank
£m
1,106
–
1,106
143
(11)
132
12.9%
Total
at actual
exchange
£m
65,762
(8,106)
57,656
2,630
(1,105)
1,525
4.0%
Total
at actual
exchange
£m
65,762
(8,106)
57,656
2,630
(1,105)
1,525
4.0%
8
85
(618)
1,000
Tesco Bank revenue of £1,106m (2022: £922m) comprises interest and similar revenues of £540m (2022: £473m), fees and commissions revenue of
£257m (2022: £210m) and insurance revenue of £309m (2022: £239m). For insurance, refer to Note 24.
52 weeks ended 26 February 2022
At actual exchange rates
Continuing operations
Revenue
Less: Fuel sales
APM: Sales
Adjusted operating profit
Adjusting items (Note 4)
Operating profit
Adjusted operating margin
Share of post-tax profits of joint ventures and associates
Finance income
Finance costs
Profit before tax
UK & ROI
£m
56,404
(6,420)
49,984
2,481
(290)
2,191
4.4%
Central
Europe
£m
4,018
(156)
3,862
168
25
193
4.2%
Total Retail
£m
60,422
(6,576)
53,846
2,649
(265)
2,384
4.4%
Tesco
Bank
£m
922
–
922
176
–
176
19.1%
Total
at actual
exchange
£m
61,344
(6,576)
54,768
2,825
(265)
2,560
4.6%
15
9
(551)
2,033
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
133
133
Financial statements
Notes to the Group financial statements continued
Note 2 Segmental reporting continued
Balance sheet
The following tables showing segment assets and liabilities exclude those balances that make up net debt (cash and cash equivalents, short-term
investments, joint venture loans, bank and other borrowings, lease liabilities, derivative financial instruments and net debt of the disposal group).
With the exception of lease liabilities which have been allocated to each segment, and Tesco Bank net debt, all other components of net debt
have been included within the unallocated segment to reflect how these balances are managed. Intercompany transactions have been eliminated
other than intercompany transactions with Tesco Bank in net debt.
At 25 February 2023
Goodwill and other intangible assets
Property, plant and equipment and investment property
Right of use assets
Investments in joint ventures and associates
Non-current other investments
Non-current trade and other receivables(a)
Non-current loans and advances to customers
Non-current reinsurance assets
Post-employment benefit surplus
Deferred tax assets
Non-current assets(b)
Inventories and current trade and other receivables(c)
Current loans and advances to customers
Current reinsurance assets
Current other investments
Total trade and other payables
Total customer deposits and deposits from banks
Total insurance contract provisions
Total provisions
Deferred tax liabilities
Net current tax
Post-employment benefit deficit
Assets of the disposal group and non-current assets
classified as held for sale
Net debt (including Tesco Bank)(d)
Net assets
UK & ROI
£m
4,715
15,346
5,057
93
218
44
-
-
6
3
25,482
3,118
-
-
6
(8,986)
-
-
(494)
(74)
52
(400)
25
(7,036)
11,693
Central
Europe
£m
37
1,468
433
-
-
2
-
-
-
22
1,962
358
-
-
-
(595)
-
-
(36)
(45)
(16)
-
169
Tesco
Bank
£m
623
72
10
-
1,121
25
3,029
145
-
57
5,082
243
4,052
72
347
(390)
(6,750)
(605)
(30)
-
9
-
-
Unallocated
£m
-
-
-
-
-
-
-
-
-
-
-
Total
continuing
operations
£m
5,375
16,886
5,500
93
1,339
71
3,029
145
6
82
32,526
Discontinued
operations
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,719
4,052
72
353
(9,971)
(6,750)
(605)
(560)
(119)
45
(400)
194
-
-
-
-
-
-
-
-
-
-
-
16
Total
£m
5,375
16,886
5,500
93
1,339
71
3,029
145
6
82
32,526
3,719
4,052
72
353
(9,971)
(6,750)
(605)
(560)
(119)
45
(400)
210
(553)
1,244
151
2,181
(2,890)
(2,890)
(10,328)
12,228
(14)
2
(10,342)
12,230
(a) Excludes non-current loans to joint ventures of £8m (2022: £9m), which form part of net debt.
(b) Excludes derivative financial instruments of £873m (2022: £942m), which form part of net debt.
(c) Excludes net interest and other receivables of £8m (2022: £1m), and current loans to joint ventures of £98m (2022: £96m), both forming part of net debt.
(d) Refer to Note 32. Net debt at 25 February 2023 includes net debt of the disposal group classified as held for sale of £(14)m (2022: £(14)m).
At 26 February 2022
Goodwill and other intangible assets
Property, plant and equipment and investment property
Right of use assets
Investments in joint ventures and associates
Non-current other investments
Non-current trade and other receivables(a)
Non-current loans and advances to customers
Non-current reinsurance assets
Post-employment benefit surplus
Deferred tax assets
Non-current assets(b)
Inventories and current trade and other receivables(c)
Current loans and advances to customers
Current reinsurance assets
Current other investments
Total trade and other payables
Total customer deposits and deposits from banks
Total insurance contract provisions
Total provisions
Deferred tax liabilities
Net current tax
Post-employment benefit deficit
Assets of the disposal group and non-current assets
classified as held for sale
Net debt (including Tesco Bank)(d)
Net assets
Refer to previous table for footnotes.
UK & ROI
£m
4,700
15,552
5,355
85
12
91
–
–
3,150
2
28,947
2,981
–
–
–
(8,343)
–
–
(401)
(869)
90
(303)
20
(7,350)
14,772
Central
Europe
£m
31
1,462
354
1
–
–
–
–
–
19
1,867
285
–
–
–
(535)
–
–
(28)
(41)
(11)
–
310
(474)
1,373
Tesco
Bank
£m
629
68
11
–
1,241
59
3,141
184
–
64
5,397
239
3,349
61
226
(356)
(6,379)
(650)
(37)
–
3
–
–
300
2,153
Unallocated
£m
–
–
–
–
–
–
–
–
–
–
–
Total
continuing
operations
£m
5,360
17,082
5,720
86
1,253
150
3,141
184
3,150
85
36,211
Discontinued
operations
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,505
3,349
61
226
(9,234)
(6,379)
(650)
(466)
(910)
82
(303)
330
–
–
–
–
–
–
–
–
–
–
–
38
Total
£m
5,360
17,082
5,720
86
1,253
150
3,141
184
3,150
85
36,211
3,505
3,349
61
226
(9,234)
(6,379)
(650)
(466)
(910)
82
(303)
368
(2,678)
(2,678)
(10,202)
15,620
(14)
24
(10,216)
15,644
134
Tesco PLC Annual Report and Financial Statements 2023
134
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Other segment information
52 weeks ended 25 February 2023
Capital expenditure (including acquisitions through business combinations):
Property, plant and equipment(a)(b)
Goodwill and other intangible assets(c)
Depreciation and amortisation:
Property, plant and equipment
Right of use assets
Investment property
Other intangible assets
Impairment(d):
(Loss) on financial assets
UK & ROI
£m
Central
Europe
£m
Tesco
Bank
£m
1,176
259
(788)
(500)
(1)
(226)
(5)
104
12
(84)
(37)
–
(10)
(1)
14
37
(10)
(2)
–
(42)
(61)
Total
£m
1,294
308
(882)
(539)
(1)
(278)
(67)
(a) Includes £248m related to obtaining control of The Tesco Dorney Limited Partnership (2022: £584m related to obtaining control of The Tesco Sarum Limited Partnership). Refer to Note 33 for
further details.
(b) Includes £42m (2022: £1m) of property, plant and equipment acquired through business combinations.
(c) Includes £31m (2022: £38m) of goodwill and other intangible assets acquired through business combinations.
(d) Excludes impairment of other non-current assets. Refer to Note 14.
52 weeks ended 26 February 2022
Capital expenditure (including acquisitions through business combinations):
Property, plant and equipment(a)(b)
Goodwill and other intangible assets(c)
Depreciation and amortisation:
Property, plant and equipment
Right of use assets
Investment property
Other intangible assets
Impairment(d):
(Loss)/reversal on financial assets
Refer to previous table for footnotes.
UK & ROI
£m
Central
Europe
£m
Tesco
Bank
£m
1,485
186
(792)
(500)
(1)
(224)
10
89
10
(90)
(35)
–
(11)
(1)
14
71
(11)
(2)
–
(52)
30
Total
£m
1,588
267
(893)
(537)
(1)
(287)
39
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
135
135
Financial statements
Notes to the Group financial statements continued
Note 2 Segmental reporting continued
Cash flow statement
The following tables provide a split of cash flows between Retail continuing operations, Tesco Bank and Group discontinued operations.
52 weeks ended 25 February 2023
Operating profit/(loss)
Depreciation and amortisation
ATM net income
(Profit)/loss arising on sale of property, plant and equipment, investment property,
intangible assets, assets held for sale and early termination of leases
(Profit)/loss arising from sale of other investments
Net impairment loss on property, plant and equipment, right of use assets, intangible
assets and investment property
Net remeasurement loss on non-current assets held for sale
Other defined benefit pension scheme payments
Share-based payments
Tesco Bank fair value movements included in operating profit/(loss)
Cash flows generated from operations excluding working capital
(Increase)/decrease in working capital
Cash generated from/(used in) operations
Interest paid
Corporation tax paid
Net cash generated from/(used in) operating activities*
Proceeds from sale of property, plant and equipment, investment property,
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other long-
term assets – property buybacks
Purchase of property, plant and equipment, investment property and other long-
term assets – other capital expenditure
Purchase of intangible assets
Acquisition of subsidiaries, net of cash acquired
Increase in loans to joint ventures and associates
Investments in joint ventures and associates
Net (investments in)/proceeds from sale of short-term investments
Proceeds from sale of other investments
Purchase of other investments
Dividends received from joint ventures and associates
Dividends received from Tesco Bank
Interest received
Cash inflows from derivative financial instruments
Cash outflows from derivative financial instruments
Net cash generated from/(used in) investing activities*
Own shares purchased for cancellation
Own shares purchased for share schemes
Repayment of capital element of obligations under leases
Cash outflows exceeding the incremental increase in assets in a property buyback
Repayment of borrowings
Cash inflows from derivative financial instruments
Cash outflows from derivative financial instruments
Dividends paid to equity holders
Net cash generated from/(used in) financing activities*
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
* Refer to page 211 for the reconciliation of the APM: Retail free cash flow.
Before
adjusting
items
£m
2,487
1,570
(16)
13
Retail
Adjusting
items
£m
(1,094)
76
-
(91)
–
–
–
(23)
64
–
4,095
468
4,563
(643)
(107)
3,813
6
–
982
14
–
–
–
(113)
52
(61)
–
–
(61)
335
Retail
Total
£m
1,393
1,646
(16)
(78)
–
982
14
(23)
64
–
3,982
520
4,502
(643)
(107)
3,752
341
(14)
(40)
(54)
(902)
–
(902)
(241)
(66)
(1)
(10)
451
1
(206)
14
54
70
54
(6)
(796)
(781)
(86)
(589)
(21)
(608)
232
(365)
(858)
(3,076)
–
–
–
–
–
–
–
–
–
–
–
–
295
–
–
–
–
–
–
–
(1)
(1)
(241)
(66)
(1)
(10)
451
1
(206)
14
54
70
54
(6)
(501)
(781)
(86)
(589)
(21)
(608)
232
(365)
(859)
(3,077)
Before
adjusting
items
£m
143
54
16
–
Bank
Adjusting
items
£m
(11)
–
–
–
3
–
–
–
(5)
70
281
(271)
10
(9)
(17)
(16)
1
–
(15)
(38)
(5)
–
–
–
229
(323)
–
(54)
–
–
–
(205)
–
–
(4)
–
(101)
–
(6)
–
(111)
–
–
–
–
–
–
(11)
(3)
(14)
–
–
(14)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Tesco
Bank
Total
£m
132
54
16
–
3
–
–
–
(5)
70
270
(274)
(4)
(9)
(17)
(30)
1
-
(15)
(38)
(5)
-
-
-
229
(323)
-
(54)
–
–
–
(205)
–
–
(4)
–
(101)
–
(6)
–
(111)
(59)
233
174
(332)
(14)
(346)
Discontinued
operations
Tesco
Group
Total
£m
(9)
–
–
2
–
–
9
–
–
–
2
(3)
(1)
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
1,516
1,700
–
(76)
3
982
23
(23)
59
70
4,254
243
4,497
(652)
(123)
3,722
342
(54)
(917)
(279)
(71)
(1)
(10)
451
230
(529)
14
–
70
54
(6)
(706)
(781)
(86)
(593)
(21)
(709)
232
(371)
(859)
(3,188)
(172)
1,771
(34)
1,565
136
Tesco PLC Annual Report and Financial Statements 2023
136
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
52 weeks ended 26 February 2022
Operating profit/(loss)
Depreciation and amortisation
ATM net income
(Profit)/loss arising on sale of property, plant and equipment, investment property,
intangible assets, assets held for sale and early termination of leases
(Profit)/loss arising on sale of joint ventures and associates
(Profit)/loss arising on sale of subsidiaries
Net impairment loss on property, plant and equipment, right of use assets, intangible
assets and investment property
Net remeasurement (gain)/loss on non-current assets held for sale
Adjustment for non-cash element of pensions charge
Other defined benefit pension scheme payments
Share-based payments
Tesco Bank fair value movements included in operating profit/(loss)
Cash flows generated from operations excluding working capital
(Increase)/decrease in working capital
Cash generated from/(used in) operations
Interest paid
Corporation tax paid
Net cash generated from/(used in) operating activities*
Proceeds from sale of property, plant and equipment, investment property,
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other long-
term assets – property buybacks
Purchase of property, plant and equipment, investment property and other long-
term assets – other capital expenditure
Purchase of intangible assets
Disposal of subsidiaries, net of cash disposed
Acquisition of subsidiaries, net of cash acquired
Proceeds from sale of joint ventures and associates
Increase in loans to joint ventures and associates
Investments in joint ventures and associates
Net (investments in)/proceeds from sale of short-term investments
Proceeds from sale of other investments
Purchase of other investments
Dividends received from joint ventures and associates
Dividends received from Tesco Bank
Interest received
Net cash generated from/(used in) investing activities*
Own shares purchased for cancellation
Own shares purchased for share schemes
Repayment of capital element of obligations under leases
Increase in borrowings
Repayment of borrowings
Cash inflows from derivative financial instruments
Cash outflows from derivative financial instruments
Dividends paid to equity holders
Net cash generated from/(used in) financing activities*
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
Refer to previous table for footnote.
Note 3 Operating expenses
Auditor’s remuneration
Before
adjusting
items
£m
2,649
1,577
(14)
5
Retail
Adjusting
items
£m
(265)
76
–
(128)
–
–
–
–
7
(19)
63
–
4,268
501
4,769
(644)
(195)
3,930
–
(15)
–
115
6
–
–
–
–
(211)
(105)
(316)
–
–
(316)
308
Retail
Total
£m
2,384
1,653
(14)
(123)
(15)
–
115
6
7
(19)
63
–
4,057
396
4,453
(644)
(195)
3,614
308
(37)
(43)
(80)
(854)
–
(854)
(196)
–
–
–
(4)
(11)
(1,067)
2
(1)
22
87
3
(2,056)
(278)
(144)
(571)
394
(754)
798
(921)
(704)
(2,180)
–
117
–
15
–
–
–
–
–
–
–
–
397
–
–
–
–
–
–
–
(27)
(27)
(196)
117
–
15
(4)
(11)
(1,067)
2
(1)
22
87
3
(1,659)
(278)
(144)
(571)
394
(754)
798
(921)
(731)
(2,207)
Before
adjusting
items
£m
176
65
14
–
Bank
Adjusting
items
£m
–
–
–
–
(10)
–
–
–
–
–
3
(28)
220
(54)
166
(5)
(4)
157
1
–
(14)
(33)
–
(48)
–
–
–
–
272
(220)
10
(87)
–
(119)
–
–
(4)
–
(21)
–
–
–
(25)
–
–
–
–
–
–
–
–
–
(8)
(8)
–
–
(8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Tesco
Bank
Total
£m
176
65
14
–
(10)
–
–
–
–
–
3
(28)
220
(62)
158
(5)
(4)
149
1
–
(14)
(33)
–
(48)
–
–
–
–
272
(220)
10
(87)
–
(119)
–
–
(4)
–
(21)
–
–
–
(25)
(306)
54
(252)
13
(8)
5
Discontinued
operations
Tesco
Group
Total
£m
(51)
–
–
–
–
23
–
(3)
–
–
–
–
(31)
28
(3)
(1)
(2)
(6)
–
–
(1)
–
44
–
–
–
–
–
–
–
–
–
–
43
–
–
(2)
–
–
–
–
–
(2)
35
Total
£m
2,509
1,718
–
(123)
(25)
23
115
3
7
(19)
66
(28)
4,246
362
4,608
(650)
(201)
3,757
309
(80)
(869)
(229)
161
(48)
15
(4)
(11)
(1,067)
274
(221)
32
–
3
(1,735)
(278)
(144)
(577)
394
(775)
798
(921)
(731)
(2,234)
(212)
1,971
12
1,771
Fees payable to the Company’s auditor and its associates for the audit of the Company and Group financial statements
The audit of the accounts of the Company’s subsidiaries
Total audit services
Audit-related assurance services
Non-audit services
Total non-audit services
Total auditor’s remuneration
52 weeks
2023
£m
3.6
9.7
13.3
1.2
0.2
1.4
14.7
52 weeks
2022
£m
2.8
8.9
11.7
0.9
0.6
1.5
13.2
Audit-related assurance services of £1.2m (2022: £0.9m) comprise: review of the Group’s interim report £0.5m (2022: £0.5m) and other services
£0.7m (2022: £0.4m). In addition to the amounts shown above, the auditor received fees of £0.3m (2022: £0.3m) for the audit of the main Group
pension schemes, and fees of £0.3m (2022: £0.2m) for the audit of joint ventures. Non-audit services are subject to approval by the Chief Audit
and Risk Officer and the Audit Committee. Additional information on the non-audit services provided by the auditor is provided in the Audit
Committee report on page 76, including how
objectivity and independence is safeguarded.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
137
137
Financial statements
Notes to the Group financial statements continued
Note 3 Operating expenses continued
Employment costs, including Directors’ remuneration
Continuing operations
Wages and salaries
Social security costs
Post-employment defined benefits
Post-employment defined contributions
Share-based payments expense
Termination benefits
Total
Notes
29
29
28
52 weeks
2023
£m
6,516
519
24
375
112
110
7,656
52 weeks
2022
£m
6,410
493
40
361
122
40
7,466
Post-employment defined contribution charges include £143m (2022: £136m) of salaries paid as pension contributions.
The table below shows the average number of employees by segment during the financial year.
Continuing operations
UK & ROI
Central Europe
Tesco Bank
Total
Note 4 Adjusting items
Group income statement
Refer to Note 1 for further details regarding the assessment of items as adjusting.
52 weeks ended 25 February 2023
Profit/(loss) for the year included the following adjusting items:
Average number
of employees
2023
309,366
23,971
3,589
336,926
2022
326,218
24,935
3,591
354,744
Average number of
full-time equivalents
2023
196,911
21,998
3,397
222,306
2022
204,974
22,895
3,354
231,223
Property transactions(a)
Net impairment (loss)/reversal of non-
current assets(b)
Fair value less cost of disposal
movements on assets held for sale
Restructuring(c)
Disposal of Asia operations(d)
ATM business rates refund(e)
Release of onerous contract
provision(f)
Amortisation of acquired intangible
assets(g)
Net pension finance income(h)
Fair value remeasurements of
financial instruments(h)
Total adjusting items from
continuing operations
Adjusting items relating to
discontinued operations(i)
Total adjusting items
Administrative
expenses
£m
55
(17)
Total adjusting
items included
within
operating profit
£m
91
(982)
Share of joint
venture and
associates
profits/(losses)
£m
–
–
Cost of sales
£m
36
(965)
Finance
income/
(costs)
£m
–
–
Adjusting items
included within
discontinued
operations
£m
–
–
Taxation
£m
29
129
Total adjusting
items
£m
120
(853)
–
(107)
-
7
–
–
–
–
(14)
(31)
2
-
5
(76)
–
–
(14)
(138)
2
7
5
(76)
–
–
(1,029)
(76)
(1,105)
–
–
–
(1,029)
(76)
(1,105)
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
80
(51)
29
–
29
1
26
–
(1)
–
14
(15)
12
195
–
195
–
–
–
–
–
–
–
–
–
(9)
(9)
(13)
(112)
2
6
5
(62)
65
(39)
(881)
(9)
(890)
(a) The Group disposed of surplus properties that generated a profit before tax of £91m (2022: £128m). £37m relates to the disposal of mall properties in Central Europe and associated store sale and
leasebacks (2022: £nil). Refer to Notes 7 and 12 for further details. Taxation includes £63m deferred tax credit on lease simplifications relating to property joint venture structures.
(b) Refer to Note 14 for further details on net impairment (loss)/reversal of non-current assets. Includes £(7)m of impairment relating to the acquisition of The Tesco Dorney Limited Partnership
(refer to Note 33).
(c) Provisions relating to operational restructuring changes announced as part of ‘Save to invest’, a multi-year programme. The total cost of the programme to date is £(182)m. Future cost savings will
not be reported within adjusting items.
(d) £4m relates to software licence fee income (2022: £26m) from services provided to CP Group as part of the Transitional Services Agreement relating to the sale of Asia. £(2)m relates to payment
of outstanding employer tax liabilities as part of the disposal of Asia. Costs and income in relation to the disposal of Asia have been recognised in adjusting items in previous years.
(e) Ruling that Tesco Group is due a refund of business rates relating to external facing ATMs in stores. Similar refunds have been recognised through adjusting items in previous years.
(f) Release of onerous contract provisions in ROI that had been charged through adjusting items in previous years.
(g) Amortisation of acquired intangibles relates to historical inorganic business combinations and does not reflect the Group’s ongoing trading performance.
(h) Net pension finance income and fair value remeasurements of financial instruments are included within adjusting items, as they can fluctuate significantly due to external market factors that are
outside management’s control. Refer to Note 5 for details of finance income and costs.
(i) Refer to Note 7 for explanation of adjusting items relating to discontinued operations.
138
Tesco PLC Annual Report and Financial Statements 2023
138
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
52 weeks ended 26 February 2022
Profit/(loss) for the year included the following adjusting items:
Property transactions
Net impairment (loss)/reversal of non-
current assets
Fair value less cost of disposal
movements on assets held for sale
Restructuring provisions
Asia licence fee
Litigation costs
Disposal of China associate
Amortisation of acquired intangible
assets
Net pension finance costs
Fair value remeasurements of
financial instruments
Release of tax provisions
Total adjusting items from
continuing operations
Adjusting items relating to
discontinued operations
Total adjusting items
Cost of sales
£m
1
(140)
Administrative
expenses
£m
127
25
Total adjusting
items included
within operating
profit
£m
128
(115)
Share of joint
venture and
associates
profits/(losses)
£m
–
–
Finance
income/
(costs)
£m
–
–
Adjusting items
included within
discontinued
operations
£m
–
–
Taxation
£m
(21)
(26)
Total adjusting
items
£m
107
(141)
–
(37)
–
–
–
–
–
–
–
(176)
–
(176)
(6)
(7)
26
(193)
15
(76)
–
–
–
(89)
–
(89)
(6)
(44)
26
(193)
15
(76)
–
–
–
(265)
–
(265)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(22)
123
–
101
–
101
–
8
(5)
–
–
(7)
6
(19)
56
(8)
–
(8)
–
–
–
–
–
–
–
–
–
–
(38)
(38)
(6)
(36)
21
(193)
15
(83)
(16)
104
56
(172)
(38)
(210)
Group cash flow statement
The table below shows the impact of adjusting items on the Group cash flow statement:
Property transactions(a)
Poland sale proceeds and costs
Litigation costs
Acquisition of property joint venture
Booker integration cash payments
Settlement of claims for customer redress in Tesco Bank
Disposal of China associate
ATM business rates refund(b)
Special dividend
Disposal of Asia operations
Restructuring(c)
Total continuing operations
Cash flows from discontinued operations
Total
Cash flows from
operating activities
Cash flows from
investing activities
Cash flows from
financing activities
52 weeks
2023
£m
–
–
–
–
–
(4)
–
5
–
(2)
(74)
(75)
–
(75)
52 weeks
2022
£m
–
–
(312)
–
(18)
(8)
–
14
–
–
–
(324)
(1)
(325)
52 weeks
2023
£m
335
–
–
(40)
–
–
–
–
–
–
–
295
–
295
52 weeks
2022
£m
308
122
–
(43)
–
–
15
–
–
(5)
–
397
44
441
52 weeks
2023
£m
–
–
–
–
–
–
–
–
(1)
–
–
(1)
–
(1)
52 weeks
2022
£m
–
–
–
–
–
–
–
–
(27)
–
–
(27)
–
(27)
(a) Property transactions include £43m proceeds (2022: £109m) relating to the sale of stores in Poland not included in the sale of the corporate business. £203m proceeds (2022: £nil) relate to the
disposal of mall properties in Central Europe and the associated store sale and leasebacks. Refer to Notes 7 and 12 for further details.
(b) Amounts received in the year with respect to the ruling that Tesco Group is due a refund of business rates relating to external facing ATMs in stores.
(c) Cash outflows relating to operational restructuring changes as part of the multi-year ‘Save to invest’ programme.
Note 5 Finance income and costs
Continuing operations
Finance income
Interest receivable and similar income
Interest receivable on other investments
Finance income receivable on net investment in leases
Total finance income
Finance costs
GBP MTNs and loans
EUR MTNs
USD bonds
Finance charges payable on lease liabilities
Other interest payable
Total finance costs before adjusting items
Fair value remeasurements of financial instruments*
Net pension finance income/(cost)
Total finance costs
Net finance costs
Notes
52 weeks
2023
£m
52 weeks
2022
£m
78
3
4
85
(160)
(53)
(18)
(373)
(43)
(647)
(51)
80
(618)
(533)
4
–
5
9
(161)
(42)
(5)
(405)
(39)
(652)
123
(22)
(551)
(542)
29
* Fair value remeasurements of financial instruments included £70m gain (2022: £nil) relating to the repurchase of long-dated bonds.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
139
139
Financial statements
Notes to the Group financial statements continued
Note 6 Taxation
Recognised in the Group income statement
Continuing operations
Current tax (credit)/charge
UK corporation tax
Overseas tax
Adjustments in respect of prior years
Deferred tax (credit)/charge
Origination and reversal of temporary differences
Adjustments in respect of prior years
Change in tax rate
Total income tax (credit)/charge
Reconciliation of effective tax charge
Continuing operations
Profit/(loss) before tax
Tax credit/(charge) at 19.0% (2022: 19.0%)
Effect of:
Non-qualifying depreciation*
Expenses not deductible
Property items taxed on a different basis to accounting entries
Impairment of non-current assets
Banking surcharge tax
Differences in overseas taxation rates
Adjustments in respect of prior years
Share of losses of joint ventures and associates
Change in tax rate
Total income tax credit/(charge)
Effective tax rate
* This figure has been reduced by the tax effect of the super-deduction of £30m (2022: £23m) in respect of tax relief for fixed assets.
Reconciliation of effective tax charge on adjusted profit before tax
Continuing operations
Profit/(loss) before tax
Add: Adjusting items
Adjusted profit before tax
Tax credit/(charge) at 19.0% (2022: 19.0%)
Effect of:
Non-qualifying depreciation(a)
Expenses not deductible
Property items taxed on a different basis to accounting entries
Banking surcharge tax
Differences in overseas taxation rates
Adjustments in respect of prior years
Share of profits of joint ventures and associates
Change in tax rate(b)
Total income tax credit/(charge) before adjusting items
Adjusted effective tax rate
(a) This figure has been reduced by the tax effect of the super-deduction of £30m (2022: £23m) in respect of tax relief for fixed assets.
(b) Change in tax rate includes £31m (2022: £19m) in relation to provision of deferred tax at 25% (2022: 25%) on assets qualifying for super-deductions.
Tax on items credited directly to the Group statement of changes in equity
Continuing operations
Current tax credit/(charge) on:
Share-based payments
Deferred tax credit/(charge) on:
Share-based payments
Total tax on items credited/(charged) to the Group statement of changes in equity
140
Tesco PLC Annual Report and Financial Statements 2023
140
Tesco PLC Annual Report and Financial Statements 2023
52 weeks
2023
£m
52 weeks
2022
£m
202
78
19
299
(18)
(35)
1
(52)
247
52 weeks
2023
£m
1,000
(190)
(5)
(21)
33
(87)
(5)
11
16
2
(1)
(247)
24.7%
52 weeks
2023
£m
1,000
1,076
2,076
(394)
(5)
(21)
–
(5)
10
(3)
2
(26)
(442)
21.3%
201
69
(55)
215
216
1
78
295
510
52 weeks
2022
£m
2,033
(386)
(7)
(57)
7
(43)
(13)
10
54
3
(78)
(510)
25.1%
52 weeks
2022
£m
2,033
164
2,197
(417)
(7)
(32)
(1)
(13)
10
(2)
3
(43)
(502)
22.8%
52 weeks
2023
£m
52 weeks
2022
£m
6
(11)
(5)
1
14
15
Financial statements
Tax relating to components of the Group statement of comprehensive income/(loss)
Continuing operations
Current tax credit/(charge) on:
Pensions
Deferred tax credit/(charge) on:
Pensions
Fair value movement on financial assets at fair value through other comprehensive income
Fair value movements on cash flow hedges
Total tax on items credited/(charged) to the Group statement of comprehensive income/(loss)
52 weeks
2023
£m
52 weeks
2022
£m
124
719
11
20
874
124
(1,030)
5
(22)
(923)
Deferred tax
The following are the major deferred tax (liabilities)/assets recognised by the Group and movements thereon during the current and prior
financial years, measured using the tax rates that are expected to apply when the liability is settled or the asset realised based on the tax rates
that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised when it is probable sufficient
taxable profits will be available to utilise deductible temporary differences or unused tax losses. This assessment is based on the Group’s three-
year long-term plan which is updated and approved annually by the Board and is consistent with the Group’s longer-term viability statement and
impairment assessments.
At 27 February 2021
(Charge)/credit to the Group income statement
(Charge)/credit to the Group statement of
changes in equity
(Charge)/credit to the Group statement of
comprehensive income/(loss)
Foreign exchange and other movements
At 26 February 2022
(Charge)/credit to the Group income statement
(Charge)/credit to the Group statement of
changes in equity
(Charge)/credit to the Group statement of
comprehensive income/(loss)
Foreign exchange and other movements
At 25 February 2023
Property-
related
items(a)
£m
(125)
(227)
–
Acquired
intangibles
£m
(98)
(10)
–
Post-
employment
benefits(b)
£m
582
(1)
–
Share-based
payments
£m
31
(6)
14
Short-term
timing
differences
£m
69
(24)
–
Tax losses
£m
3
2
–
Financial
instruments
£m
42
(29)
–
Total
£m
504
(295)
14
–
–
(1,030)
–
(352)
(80)
–
–
(2)
(434)
–
(108)
15
–
–
(2)
(95)
(2)
(451)
(13)
–
719
–
255
–
–
39
11
(11)
–
–
39
–
–
45
14
–
–
1
60
–
1
6
140
–
–
–
146
(17)
(1,047)
–
(4)
(35)
–
31
–
(8)
(1)
(825)
52
(11)
750
(3)
(37)
(a) Property-related items include a deferred tax liability on rolled-over gains of £421m (2022: £423m), deferred tax assets on capital losses of £242m (2022: £248m) and deferred tax assets on IFRS 16
balances of £235m (2022: £238m). The remaining balance relates to accelerated tax depreciation.
(b) The deferred tax asset on retirement benefits includes a deferred tax asset of £155m (2022: £275m) arising from a one-off contribution of £2.5bn paid in December 2020 on which tax deductions
are spread over 4 years, with the remaining balance related to the pension schemes in deficit. Refer to Note 29 for further details.
The following is the analysis of the deferred tax balances after offset:
Deferred tax assets
Deferred tax liabilities
2023
£m
82
(119)
(37)
2022
£m
85
(910)
(825)
Unrecognised deferred tax assets and liabilities
Deferred tax assets in relation to continuing operations have not been recognised in respect of the following items, because it is not probable
that future taxable profits will be available against which the Group can utilise the benefits:
Deductible temporary differences
Tax losses
2023
£m
45
186
231
2022
£m
47
178
225
As at 25 February 2023, the Group has unused trading tax losses from continuing operations of £1,177m (2022: £590m) available for offset against
future profits. A deferred tax asset has been recognised in respect of £584m (2022: £26m) of such losses, with £571m (2022: £12m) arising in the
UK and £13m (2022: £14m) in other jurisdictions. No deferred tax asset has been recognised in respect of the remaining overseas trading tax losses
of £593m (2022: £564m) due to the unpredictability of future profit streams, with £552m (2022: £527m) arising in the Netherlands, £34m (2022:
£33m) in Germany and £7m (2022: £4m) in other jurisdictions. Capital losses of £95m in ROI (2022: £91m) have not been recognised as it is not
expected they will be utilised. There are no losses that will expire included in unrecognised losses. A deferred tax asset has not been recognised in
respect of deductible temporary differences of £45m (2022: £47m) as it is not expected they will be utilised. There is no expiry date for these
temporary differences.
No deferred tax liability is recognised on temporary differences of £4.3bn (2022: £4bn) relating to the unremitted earnings of overseas
subsidiaries and joint ventures as the Group is able to control the timing of the reversal of these temporary differences and it is probable that
they will not reverse in the foreseeable future. The deferred tax on unremitted earnings at 25 February 2023 is estimated to be £6m (2022: £5m)
which relates to taxes payable on repatriation and dividend withholding taxes levied by overseas tax jurisdictions. UK tax legislation relating to
company distributions provides for exemption from tax for most repatriated profits, subject to certain exceptions.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
141
141
Financial statements
Notes to the Group financial statements continued
Note 6 Taxation continued
Changes in tax law or its interpretation
The Group operates in a number of territories and so the Group’s profits are subject to tax in many jurisdictions. The Group monitors income tax
developments in these territories which could affect the Group’s tax liabilities. The Group notes recent developments in relation to the OECD
Inclusive Framework on Base Erosion and Profit Shifting but does not expect it to have a material impact on the Group’s tax charge.
Note 7 Discontinued operations and assets classified as held for sale
Assets and liabilities of the disposal group and non-current assets classified as held for sale
Assets of the disposal group(a)
Non-current assets classified as held for sale(b)
Total assets of the disposal group and non-current assets classified as held for sale
Liabilities of the disposal group(a)
Total net assets of the disposal group and non-current assets classified as held for sale
2023
£m
11
199
210
(14)
196
2022
£m
11
357
368
(14)
354
(a) The disposal group as at 25 February 2023, including £(14)m of net debt (2022: £(14)m), relates to residual properties and leases with respect to the Group’s operation in Poland. Balances as at
26 February 2022 were also with respect to the Group’s operation in Poland.
(b) The assets classified as held for sale consist mainly of properties in the UK, Poland and Central Europe due to be sold within one year. Due to the individual nature of each property, fair values are
classified as Level 3 within the fair value hierarchy.
Assets classified as held for sale
During the year the Group sold 17 malls and one retail park in Central Europe, leasing back 17 stores within those sites. Net proceeds from the sale
and leaseback transaction were £203m. As the sale and leaseback proceeds did not exceed the fair value of the stores sold, the proceeds are
presented in the ‘investing’ category in the Group cash flow statement. The profit on disposal was £37m. Refer to Note 4. Refer to Note 12 for
details on the leaseback of the stores.
Discontinued operations
Income statement of discontinued operations
Revenue
Operating costs
Adjusted operating profit/(loss)
Adjusted profit/(loss) after tax
Loss on disposal of Poland
Homeplus (Korea) claims settlement(a)
Other adjusting items(b)(c)
Tax on adjusting items
Total adjusting items
Total profit/(loss) after tax of discontinued operations
2023
Total
£m
–
–
–
–
–
–
(9)
–
(9)
(9)
Poland
£m
32
(34)
(2)
(2)
(23)
–
3
–
(20)
(22)
2022
Other
£m
–
–
–
–
–
(33)
4
11
(18)
(18)
Total
£m
32
(34)
(2)
(2)
(23)
(33)
7
11
(38)
(40)
(a) £(33)m in the prior year relates to the claims settlement from Homeplus (Korea) purchasers.
(b) Other adjusting items of £(9)m in the current year includes £(9)m fair value remeasurement of non-current assets classified as held for sale, £(2)m loss on disposal of surplus properties, both
relating to Poland and £2m income relating to the disposal of Korea.
(c) Other adjusting items of £7m in the prior year includes £4m reversal of accruals relating to legal costs and £3m fair value remeasurement of non-current assets classified as held for sale.
Cash flow statement
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Net cash flows from discontinued operations
Note 8 Dividends
Paid prior financial year final dividend(a)
Paid interim dividend(b)
Amounts recognised through equity as distributions to owners
Paid 2021 special dividend
Dividends paid in the financial year
Proposed final dividend at financial year end
2023
£m
–
–
–
–
2023
2022
Pence/share
7.70
3.85
11.55
50.93
7.05
£m
574
284
858
1
859
516
Pence/share
5.95
3.20
9.15
50.93
7.70
2022
£m
(6)
43
(2)
35
£m
458
246
704
27
731
588
(a) Excludes £7m prior financial year final dividend waived (2022: £2m) and includes the write-back of unclaimed dividend of £5m (2022: £nil).
(b) Excludes £2m interim dividend waived (2022: £1m).
The proposed final dividend was approved by the Board of Directors on 12 April 2023 and is subject to the approval of shareholders at the AGM.
will be paid on 23 June 2023 to shareholders who are on the
The proposed dividend has not been included as a liability as at 25 February 2023. It
Register of members at close of business on 12 May 2023.
A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. For
those shareholders electing to receive the DRIP, the last date for receipt of a new election is 2 June 2023.
142
Tesco PLC Annual Report and Financial Statements 2023
142
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
The Group has a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who have not
had contact with Tesco PLC over the past 12 years, in accordance with the provisions set out in the Company’s Articles of Association. £nil (2022:
£nil) of unclaimed dividends in relation to these shares have been adjusted for in retained earnings. Refer to Note 30 for further details.
Note 9 Earnings/(losses) per share and diluted earnings/(losses) per share
For the 52 weeks ended 25 February 2023 there were 67 million (2022: 88 million) potentially dilutive share options and awards. As the Group has
recognised a
profit for the year from its continuing operations, dilutive effects have been considered in calculating diluted earnings per share.
52 weeks ended 25 February 2023
52 weeks ended 26 February 2022
Profit/(loss) (£m)
Continuing operations*
Discontinued operations
Total
Weighted average number of shares (millions)
Earnings/(losses) per share (pence)
Continuing operations
Discontinued operations
Total
Potentially
dilutive share
options and
awards
–
–
–
67
(0.09)
–
(0.09)
Basic
754
(9)
745
7,415
10.17
(0.12)
10.05
* Excludes profits/(losses) from non-controlling interests of £(1)m (2022: £2m).
APM: Adjusted diluted earnings/(losses) per share
Continuing operations
Profit/(loss) before tax (£m)
Less: Adjusting items (£m)
Adjusted profit before tax (£m)
Adjusted profit before tax attributable to the owners of the parent (£m)*
Taxation on adjusted profit before tax attributable to the owners of the parent (£m)
Adjusted profit after tax attributable to the owners of the parent (£m)
Basic weighted average number of shares (millions)
Adjusted basic earnings per share (pence)
Diluted weighted average number of shares (millions)
Adjusted diluted earnings per share (pence)
* Excludes profit/(losses) before tax attributable to non-controlling interests of £(1)m (2022: £2m).
Note 10 Goodwill and other intangible assets
Diluted
Basic
754
(9)
745
7,482
10.08
(0.12)
9.96
1,521
(40)
1,481
7,658
19.86
(0.52)
19.34
Notes
4
6
Cost
At 26 February 2022
Foreign currency translation
Additions
Acquired through business combinations
Reclassification
Disposals
At 25 February 2023
Accumulated amortisation and impairment losses
At 26 February 2022
Foreign currency translation
Amortisation charge for the year(c)
Impairment losses(d)
Reversal of impairment losses(d)
Disposals
At 25 February 2023
Net carrying value
At 25 February 2023
At 26 February 2022
Goodwill
£m
Software(a)
£m
Customer
relationships
£m
4,739
16
–
30
–
–
4,785
448
10
–
–
–
–
458
4,327
4,291
1,901
14
274
–
20
(175)
2,034
1,344
15
200
28
(5)
(172)
1,410
624
557
718
–
–
–
–
–
718
300
–
76
–
–
–
376
342
418
Potentially
dilutive share
options and
awards
–
–
–
88
(0.22)
–
(0.22)
52 weeks
2023
1,000
1,076
2,076
2,077
(442)
1,635
7,415
22.05
7,482
21.85
Other
intangible
assets(b)
£m
396
4
3
1
(20)
–
384
302
–
2
–
(2)
–
302
82
94
Diluted
1,521
(40)
1,481
7,746
19.64
(0.52)
19.12
52 weeks
2022
2,033
164
2,197
2,195
(502)
1,693
7,658
22.11
7,746
21.86
Total
£m
7,754
34
277
31
–
(175)
7,921
2,394
25
278
28
(7)
(172)
2,546
5,375
5,360
(a) Software includes £455m (2022: £396m) net carrying value of internally generated development costs.
(b) Other intangible assets include pharmacy licences with a net carrying value of £36m (2022: £33m) and various other individually immaterial balances.
(c) Of the £78m (2022: £78m) amortisation of customer relationships and other intangible assets, £76m (2022: £76m) has been included within adjusting items. £75m (2022: £75m) of this balance arises from
amortisation of intangible assets recognised upon the Booker acquisition and £1m (2022: £1m) relates to the amortisation of intangible assets recognised upon the acquisition of Best Food Logistics.
(d) Refer to Note 14.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
143
143
Financial statements
Notes to the Group financial statements continued
Note 10 Goodwill and other intangible assets continued
Cost
At 27 February 2021
Foreign currency translation
Additions
Acquired through business combinations
Disposals
At 26 February 2022
Accumulated amortisation and impairment losses
At 27 February 2021
Foreign currency translation
Amortisation charge for the year(c)
Impairment losses(d)
Reversal of impairment losses(d)
Reclassification
Disposals
At 26 February 2022
Refer to previous table for footnotes.
Note 11 Property, plant and equipment
Cost
Opening balance
Foreign currency translation
Additions(b)(c)
Acquired through business combinations
Reclassification
Transfers to assets classified as held for sale
Disposals
Closing balance
Accumulated depreciation and impairment losses
Opening balance
Foreign currency translation
Depreciation charge for the year
Impairment losses(d)
Reversal of impairment losses(d)
Reclassification
Transfers to assets classified as held for sale
Disposals
Closing balance
Land and
buildings
£m
21,977
204
591
42
3
(85)
(82)
22,650
6,814
75
434
686
(168)
1
(32)
(30)
7,780
Goodwill
£m
Software(a)
£m
Customer
relationships
£m
Other
intangible
assets(b)
£m
4,719
–
–
20
–
4,739
448
–
–
–
–
–
–
448
2023
Other(a)
£m
5,649
65
661
–
(4)
(5)
(522)
5,844
3,752
45
448
141
(19)
–
(2)
(513)
3,852
1,837
1
227
18
(182)
1,901
1,305
2
209
17
(7)
(2)
(180)
1,344
Total
£m
27,626
269
1,252
42
(1)
(90)
(604)
28,494
10,566
120
882
827
(187)
1
(34)
(543)
11,632
718
–
–
–
–
718
224
–
76
–
–
–
–
300
Land and
buildings
£m
21,653
(76)
992
–
(72)
(446)
(74)
21,977
6,554
(25)
426
417
(324)
–
(163)
(71)
6,814
395
1
2
–
(2)
396
299
–
2
1
(1)
2
(1)
302
2022
Other(a)
£m
5,743
(15)
595
1
–
(17)
(658)
5,649
3,897
(10)
467
89
(43)
–
(6)
(642)
3,752
Total
£m
7,669
2
229
38
(184)
7,754
2,276
2
287
18
(8)
–
(181)
2,394
Total
£m
27,396
(91)
1,587
1
(72)
(463)
(732)
27,626
10,451
(35)
893
506
(367)
–
(169)
(713)
10,566
Net carrying value(e)
14,870
1,992
16,862
15,163
1,897
17,060
Construction in progress included above(f)
109
278
387
97
212
309
(a) Other assets consist of fixtures and fittings with a net carrying value of £1,496m (2022: £1,387m), office equipment with a net carrying value of £201m (2022: £200m) and motor vehicles with a net
carrying value of £295m (2022: £310m). Depreciation charge for the year is £(292)m (2022: £(310)m), £(71)m (2022: £(78)m) and £(85)m (2022: £(79)m), respectively.
(b) Includes £248m of land and buildings related to obtaining control of The Tesco Dorney Limited Partnership, which was impaired by £(7)m on acquisition (2022: £584m of land and buildings related
to obtaining control of The Tesco Sarum Limited Partnership, which was impaired by £(62)m on acquisition). Refer to Note 33.
(c) Includes £29m (2022: £37m) relating to other property buyback transactions.
(d) Refer to Note 14.
(e) Includes £2,814m (2022: £2,231m) of assets pledged as security for secured bonds (refer to Note 21) and £783m (2022: £914m) of property held as security in favour of the Tesco PLC Pension
Scheme (refer to Note 29).
(f) Construction in progress does not include land.
Note 12 Leases
Group as lessee
Lease liabilities represent rentals payable by the Group for certain retail, distribution and office properties and other assets such as motor
vehicles. The leases have varying terms, purchase options, escalation clauses and renewal rights. Purchase options and renewal rights, where
they occur, are at market value. Escalation clauses are in line with market practices and include inflation-linked, fixed rates, resets to market
rents and hybrids of these.
On 6 October 2022, the Group obtained control of The Tesco Dorney Limited Partnership (2022: The Tesco Sarum Limited Partnership on 17
December 2021), previously accounted for as a joint venture, through the acquisition of the other partner’s 50% interest, at which point the
associated property leases from the joint venture became intercompany leases. Refer to Note 33 for further details.
144
Tesco PLC Annual Report and Financial Statements 2023
144
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Right of use assets
Net carrying value
Opening balance
Additions (including sale and leaseback transactions)(a)
Acquired through business combinations
Depreciation charge for the year
Impairment losses(b)
Reversal of impairment losses(b)
Derecognition on acquisition of property joint venture(c)
Other movements(d)
Closing balance
Land and
buildings
£m
2023
Other
£m
5,634
378
4
(501)
(394)
72
(198)
392
5,387
86
64
-
(38)
-
-
-
1
113
Total
£m
5,720
442
4
(539)
(394)
72
(198)
393
5,500
Land and
buildings
£m
2022
Other
£m
5,866
544
–
(497)
(195)
234
(243)
(75)
5,634
85
39
–
(40)
–
–
–
2
86
(a) Includes £70m of land under an external lease related to obtaining control of The Tesco Dorney Limited Partnership. Refer to Note 33.
(b) Refer to Note 14.
(c) Refer to Note 33.
(d) Other movements include lease terminations, modifications and reassessments, foreign exchange, reclassifications between asset classes and entering into finance subleases.
Lease liabilities
The following tables show the discounted lease liabilities included in the Group balance sheet and a maturity analysis of the contractual
undiscounted lease payments:
Current
Non-current
Total lease liabilities
Maturity analysis – contractual undiscounted lease payments
Within one year
Greater than one year but less than two years
Greater than two years but less than three years
Greater than three years but less than four years
Greater than four years but less than five years
Greater than five years but less than ten years
Greater than ten years but less than fifteen years
After fifteen years
Total undiscounted lease payments
2023
£m
595
7,132
7,727
2023
£m
944
901
878
856
824
3,383
2,035
1,076
10,897
Total
£m
5,951
583
–
(537)
(195)
234
(243)
(73)
5,720
2022
£m
547
7,411
7,958
2022
£m
934
911
863
840
820
3,407
2,223
1,517
11,515
A reconciliation of the Group’s opening to closing lease liabilities balance is presented in Note 32.
Amounts recognised in the Group income statement
Continuing operations
Interest on lease liabilities
Variable payment expenses not included in lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low value assets (excluding amounts already included in short-term leases above)
52 weeks
2023
£m
373
1
24
1
52 weeks
2022
£m
405
–
26
1
Sale and leaseback
During the year the Group sold 17 malls and one retail park in Central Europe, leasing back 17 stores within those sites. Refer to Note 7 for details
on the net proceeds and profit from the transaction. The stores are being leased back over a 15-year lease term at below-market rentals with
options to extend, and the store leases have resulted in lease liability additions of £36m. The sale and leaseback transaction allows the Group to
relinquish control over the malls while continuing to operate the stores within those sites.
Amounts recognised in the Group cash flow statement
Total cash outflow for leases*
*
Includes £6m (2022: £5m) related to Tesco Bank.
52 weeks
2023
£m
966
52 weeks
2022
£m
982
Future possible cash outflows not included in the lease liability
Some leases contain break clauses or extension options to provide operational flexibility. Potential future undiscounted lease payments not
included in the reasonably certain lease term, and hence not included in lease liabilities, total £9.1bn (2022: £9.5bn).
Future increases or decreases in rentals linked to an index or rate are not included in the lease liability until the change in cash flows takes effect.
Approximately 76% (2022: 75%) of the Group’s lease liabilities are subject to inflation-linked rentals, of which 86% (2022: 87%) have inflation caps,
with a weighted average cap of 3.4% (2022: 4.1%). A further 16% (2022: 16%) are
subject to rent reviews. Rental changes linked to inflation or rent
reviews typically occur on an annual or five-yearly basis. Of the inflation-linked leases with caps, 30% (2022: 29%) of the lease liability value was
hedged through index-linked swaps (refer to Note 27).
The Group is committed to payments totalling £110m (2022: £54m) in relation to leases that have been signed but have not yet commenced.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
145
145
Financial statements
Notes to the Group financial statements continued
Note 12 Leases continued
Group as lessor
The Group leases out owned properties and sublets leased properties under operating and finance leases. Such properties include malls, mall
units, stores, units within stores, distribution centres and residential properties.
Amounts recognised in the Group income statement
Continuing operations
Finance lease – interest income(a)
Operating lease – rental income(b)
(a) Includes £4m (2022: £4m) of sublease interest income.
(b) Includes £23m (2022: £20m) of sublease rental income.
52 weeks
2023
£m
4
90
52 weeks
2022
£m
5
90
Finance lease payments receivable
The finance lease receivable (net investment in the lease) included in the Group balance sheet is £36m (2022: £81m). The movement in the year is
primarily driven by the derecognition of finance lease receivables following the acquisition of The Tesco Dorney Limited Partnership. Refer to Note 33.
Operating lease payments receivable maturity analysis
Within one year
Greater than one year but less than two years
Greater than two years but less than three years
Greater than three years but less than four years
Greater than four years but less than five years
Greater than five years but less than ten years
Greater than ten years but less than fifteen years
After fifteen years
Total undiscounted operating lease payments receivable
2023
£m
61
77
56
40
27
49
20
42
372
2022
£m
68
87
67
49
33
58
23
49
434
Note 13 Group entities
The Group consists of the ultimate Parent Company, Tesco PLC, and a number of subsidiaries, joint ventures and associates held directly or
indirectly by Tesco PLC. See pages 199 to 203 for a complete list of Group entities.
Subsidiaries
The accounting year ends of the subsidiaries consolidated in these financial statements are on or around 25 February 2023.
Unconsolidated structured entities
In prior years, the Group sponsored a number of structured entities. The Group led the formation of the entities and its name appears in the
name of the entities and/or on the debt issued by the entities. The structured entities were set up to finance property purchases by some of the
UK property joint ventures in which the Group typically holds a 50% equity interest. The structured entities obtain debt financing from third-party
investors and lend the funds to these joint ventures, who use the funds to purchase the properties.
The liabilities of the UK property joint ventures include the loans due to these structured entities. The Group’s exposure to the structured entities
is limited to the extent of the Group’s interests in the joint ventures. The liabilities of the structured entities are non-recourse to the Group.
The Group concluded that it does not control, and therefore should not consolidate, these structured entities since it does not have power over
the relevant activities of the structured entities, or exposure to variable returns from these entities.
Consolidated structured entities
The Group has a number of securitisation structured entities established in connection with Tesco Bank’s credit card securitisation transactions
as well as financing structured entities controlled as a result of the acquisition of UK property joint ventures. Although none of the equity of these
entities is owned by the Group, the Group has rights to variable returns from its involvement with these entities and has the ability to affect those
returns through its power over them under contractual agreements. As
therefore accounted for as subsidiaries of the Group.
such, these entities are effectively controlled by the Group, and are
The securitisation structured entities have financial year ends of 31 December. The management accounts of these entities are used to
consolidate the results to 25
the Group financial year end.
February 2023 within these financial statements. The financial year ends of the financing structured entities align to
Interests in joint ventures and associates
Principal joint ventures and associates
The Group’s principal joint ventures and associates are:
Nature of
relationship
Business
activity
Share of issued share
capital, loan capital
and debt securities
Country of
incorporation
Principal area
of operation
Included in ‘UK property joint ventures’:
The Tesco Coral Limited Partnership
The Tesco Blue Limited Partnership
The Tesco Passaic Limited Partnership
The Tesco Navona Limited Partnership
The Arena Unit Trust
Included in ‘Other joint ventures and associates’:
Tesco Mobile Limited
Booker India Limited
Trent Hypermarket Private Limited
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Property investment
Property investment
Property investment
Property investment
Property investment
Joint venture
Joint venture
Joint venture
Telecommunications
Retail
Retail
50%
50%
50%
50%
50%
50%
49%
50%
England
England
England
England
Jersey
England
India
India
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
India
India
146
Tesco PLC Annual Report and Financial Statements 2023
146
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
The accounting period end dates of the joint ventures and associates consolidated in these financial statements range from 31 December 2022
25 February 2023. The accounting period end dates of joint ventures differ from those of the Group for commercial reasons and depend
to
upon
the requirements of the joint venture partner as well as those of the Group. The accounting period end dates of the associates are
different from those of the Group as they depend upon the requirements of the parent companies of those entities.
There are no significant restrictions on the ability of joint ventures and associates to transfer funds to the parents, other than those imposed by
the Companies Act 2006 or equivalent local regulations.
The UK property joint ventures involve the Group partnering with third parties in carrying out some property investments in order to enhance
returns from property and access funding, while reducing risks associated with sole ownership. These property investments generally cover
shopping centres and standalone stores. The Group enters into leases for some or all of the properties held in the joint ventures. These leases
provide the Group with some rights over alterations and adjacent land developments. In some cases the Group has the ability to substitute
properties in the
property management activities for third-party rentals of shopping centre units.
joint ventures with alternative properties of similar value, subject to strict eligibility criteria. In other cases, the Group carries out
The property investment activities are carried out in separate entities, usually partnerships or limited liability companies. The Group has assessed
its ability to direct the relevant activities of these entities and any impact on Group returns and concluded that the entities qualify as joint
ventures since decisions regarding them require the unanimous consent of both equity holders. This assessment included not only rights within
the joint venture agreements, but also any rights within other contractual arrangements between the Group and the entities.
The Group made a number of judgements in arriving at this determination, the key ones being:
– since the provisions of the joint venture agreements require the relevant decisions impacting investor returns to be either unanimously agreed
by both joint venturers at the same time, or in some cases to be agreed sequentially by each venturer at different stages, there is joint decision
making within the joint venture;
– since the Group’s leases are priced at fair value, and any rights embedded in the leases are consistent with market practice, they do not
provide the Group with additional control over the joint ventures nor do they infer an obligation by the Group to fund the settlement of
liabilities of the joint ventures;
– any options to purchase the other joint venturers’ equity stakes are priced at market value, and only exercisable at future dates, hence they
do
not provide control to the Group at the current time;
– where the Group has a right to substitute properties in the joint ventures, 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 agreements, and do not provide the Group with additional powers over the joint venture.
During the current financial year, the Group obtained control of The Tesco Dorney Limited Partnership, which was previously accounted for as a
joint venture, through the acquisition of the other partner’s 50% interest. Refer to Note 33 for further details.
Summarised financial information for joint ventures and associates
The summarised financial information below reflects the amounts presented in the financial statements of the relevant joint ventures and
associates, and not the Group’s share of those amounts. These amounts have been adjusted to conform to the Group’s accounting policies
where required. The summarised financial information for UK property joint ventures has been aggregated in order to provide useful information
to users without excessive detail, since these entities have similar characteristics and risk profiles largely based on their nature of
geographic market.
activities and
Summarised balance sheet
Non-current assets(a)
Current assets (excluding cash and cash equivalents)
Cash and cash equivalents
Current liabilities(b)
Non-current liabilities(b)
Net liabilities
Summarised income statement
Revenue
Profit/(loss) after tax(c)
UK property joint ventures
2023
£m
2,032
8
21
(287)
(2,277)
(503)
203
–
2022
£m
2,480
31
37
(316)
(2,907)
(675)
232
–
(a) The non-current asset balances of UK property joint ventures are reflected at historical depreciated cost to conform to the Group’s accounting policies. The aggregate fair values in the financial
statements of the UK property joint ventures are £2,988m (2022: £3,666m).
(b) The current and non-current liabilities of UK property joint ventures largely comprise loan balances of £(2,248)m (2022: £(2,733)m) and derivative swap balances of £(287)m (2022: £(435)m) entered
into to hedge the cash flow variability exposures of the joint ventures.
(c) Profit/(loss) after tax includes £65m (2022: £20m) of interest cost.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
147
147
Financial statements
Notes to the Group financial statements continued
Note 13 Group entities continued
Reconciliation to carrying amounts:
Opening balance
Share of profits/(losses)*
Dividends received from joint ventures and associates
Closing balance
Group’s share in ownership
Group’s share of net liabilities
Deferred property profits offset against carrying amounts
Cumulative unrecognised losses*
Cumulative unrecognised hedge reserves*
Carrying amount
UK property joint ventures
2023
£m
–
12
(12)
–
50%
(252)
(60)
168
144
–
2022
£m
–
20
(20)
–
50%
(338)
(60)
179
219
–
* The share of profit for the year for UK property joint ventures related to £12m (2022: £20m) dividends received from joint ventures with £nil carrying amounts (2022: £nil). £12m of profit (2022:
£11m) and £75m of increase (2022: £49m of decrease) in the fair values of derivatives arising from these entities have been included in cumulative unrecognised losses and cumulative
unrecognised hedge reserves, respectively.
As at 25 February 2023, the Group had £106m (2022: £105m) loans to UK property joint ventures.
Other joint ventures and associates
The Group also has interests in a number of individually immaterial joint ventures and associates excluding UK property joint ventures.
Aggregate carrying amount of individually immaterial joint ventures
Group’s share of profits/(losses) for the year
The aggregate carrying amount and Group’s share of profit/(losses) for the year of associates are immaterial.
Note 14 Impairment of non-current assets
Impairment losses and reversals
No impairment of goodwill was recognised in the current year (2022: £nil).
Joint ventures
2023
£m
93
(4)
2022
£m
86
(5)
The table below summarises the Group’s pre-tax impairment losses and reversals on other non-current assets, aggregated by segment due to
the large number of individually immaterial store cash-generating units. This
includes any losses recognised immediately prior to classifying an
asset or disposal group as held for sale but excludes all impairments post classification as held for sale. There were no impairment losses or
reversals in the year (2022: £nil) with respect to investments in joint ventures and associates and no impairments in other non-current assets in
Tesco Bank (2022: £nil). All
impairment losses and reversals are classified as adjusting items.
52 weeks ended 25 February 2023
Group balance sheet
Other intangible assets
Property, plant and equipment
Right of use assets
Investment property
Total impairment (loss)/reversal of other non-current assets
Group income statement
Cost of sales
Administrative expenses
Total impairment (loss)/reversal from continuing operations
52 weeks ended 26 February 2022
Group balance sheet
Other intangible assets
Property, plant and equipment
Right of use assets
Investment property
Total impairment (loss)/reversal of other non-current assets
Group income statement
Cost of sales
Administrative expenses
Total impairment (loss)/reversal from continuing operations
UK & ROI
Central Europe
Total
Impairment
loss
£m
(28)
(779)
(373)
(1)
(1,181)
(1,155)
(26)
(1,181)
Impairment
reversal
£m
6
181
65
2
254
245
9
254
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
–
(48)
(21)
–
(69)
(69)
–
(69)
1
6
7
–
14
14
-
14
(28)
(827)
(394)
(1)
(1,250)
(1,224)
(26)
(1,250)
Impairment
reversal
£m
7
187
72
2
268
259
9
268
Net
Impairment
(loss)/reversal
£m
(21)
(640)
(322)
1
(982)
(965)
(17)
(982)
UK & ROI
Central Europe
Total
Net
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
Impairment
reversal
£m
Impairment
(loss)/reversal
£m
(17)
(496)
(183)
(6)
(702)
(682)
(20)
(702)
8
319
228
1
556
536
20
556
(1)
(10)
(12)
–
(23)
(19)
(4)
(23)
–
48
6
–
54
25
29
54
(18)
(506)
(195)
(6)
(725)
(701)
(24)
(725)
8
367
234
1
610
561
49
610
(10)
(139)
39
(5)
(115)
(140)
25
(115)
The net impairment loss in UK & ROI includes an impairment loss of £7m in the UK in respect of the Group obtaining control of The Tesco Dorney
Limited Partnership (2022: £62m impairment loss in UK & ROI in respect of the Group obtaining control of The Tesco Sarum Limited Partnership).
Refer to Note 33 for further details.
148
Tesco PLC Annual Report and Financial Statements 2023
148
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
The majority of the net impairment charge relates to increased discount rates due to increases in government bond rates as a result of the prevailing
macroeconomic uncertainty. See the Key assumptions and sensitivity section of this note for applicable discount rates. Property fair values in the
UK have also decreased due to the weakening of the property investment market in the last six months, which has led to increased yields.
The remaining other non-current assets impairment losses and reversals for the Group largely reflect normal fluctuations expected from
store-level performance, as well as any specific store closures.
Net carrying value of non-current assets
The net carrying values of other non-current assets and the recoverable amounts of impaired other non-current assets for which an impairment
loss has been recognised or reversed have been aggregated by segment due to the large number of individually immaterial store cash-generating
units. The amounts below exclude assets or disposal groups classified as held for sale.
At 25 February 2023
Net carrying value
Other intangible assets
Property, plant and equipment
Right of use assets
Investment property
Other non-current assets
Goodwill(a)
Investments in joint ventures and associates(b)
Net carrying value of non-current assets
Recoverable amount of impaired other non-current assets for which an impairment
loss has been recognised or reversed, supported by:
Value in use
Fair value less costs of disposal(c)
UK & ROI
£m
Central Europe
£m
Tesco Bank
£m
888
15,331
5,057
15
21,291
3,827
93
25,211
3,657
1,984
5,641
37
1,459
433
9
1,938
–
–
1,938
140
169
309
123
72
10
–
205
500
–
705
–
–
–
(a) Goodwill of £4,327m (2022: £4,291m) consists of UK £3,793m (2022: £3,788m), ROI £34m (2022: £3m) and Tesco Bank £500m (2022:
(b) The carrying value of the Group’s investments includes Trent Hypermarket Private Limited £55m (2022: £55m).
(c) Due to the individual nature of each property, fair values are classified as Level 3 within the fair value hierarchy.
£500m).
At 26 February 2022
Net carrying value
Other intangible assets
Property, plant and equipment
Right of use assets
Investment property
Other non-current assets
Goodwill(a)
Investments in joint ventures and associates(b)
Net carrying value of non-current assets
Recoverable amount of impaired other non-current assets for which an impairment
loss has been recognised or reversed, supported by:
Value in use
Fair value less costs of disposal(c)
Refer to previous table for footnotes.
UK & ROI
£m
Central Europe
£m
Tesco Bank
£m
909
15,538
5,355
14
21,816
3,791
85
25,692
2,534
1,456
3,990
31
1,454
354
8
1,847
–
1
1,848
78
51
129
129
68
11
–
208
500
–
708
–
–
–
Total
£m
1,048
16,862
5,500
24
23,434
4,327
93
27,854
3,797
2,153
5,950
Total
£m
1,069
17,060
5,720
22
23,871
4,291
86
28,248
2,612
1,507
4,119
Impairment methodology
Cash-generating units
The Group treats each store as a separate cash-generating unit for impairment testing of other intangible assets, property, plant and equipment,
right of use assets and investment property. The Group allocates goodwill to groups of cash-generating units, where each country represents a
group of cash-generating units for the Group’s retail operations, as this represents the lowest level at which goodwill is monitored by
management. Tesco Bank and dunnhumby each represent separate cash-generating units.
The recoverable amount of each store cash-generating unit is the higher of its value in use and its fair value less costs of disposal. The
recoverable amount of a group of cash-generating units to which goodwill has been allocated is determined based on value in use calculations.
Central assets such as distribution centres and associated costs are allocated to store cash-generating units based on level of
use, estimated
with reference to sales. Urban fulfilment centres and associated costs that are part of a store are included in the store cash–generating unit.
Standalone customer fulfilment centres and associated costs are each treated as a separate cash-generating unit.
Value in use
Retail
Estimates for value in use calculations include discount rates, long-term growth rates, expected changes to future cash flows, including volumes
and prices, and the probabilities assigned to cash flow scenarios. Estimates are based on past experience and expectations of future changes in
the market, including the prevailing economic climate and global economy, competitor activity, market dynamics, changing customer behaviours,
structural challenges facing retail and the resilience afforded by the Group’s operational scale.
Cash flow projections are based on the Group’s three-year internal forecasts, the results of which are reviewed by the Board. The forecasts
include best estimate assumptions on inflation, which differ by both country and revenue and cost categories. The forecasts are extrapolated to
five years based on management’s expectations, and beyond five years based on estimated long-term average growth rates. Long-term growth
rates for the Retail business are based on inflation forecasts by recognised bodies. Cash flow forecasts are allocated to store-level cash-
generating units based on their relative current year actual sales performance, after adjusting for one-off cash flows affecting particular stores.
Tesco PLC Annual Report and Financial Statements 2023
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149
149
Financial statements
Notes to the Group financial statements continued
applied to the cash flows derived from the three-year internal forecasts. Additional scenarios take account of the risks
Note 14 Impairment of non-current assets continued
The Group applies an expected cash flow approach by probability-weighting different cash flow scenarios. The greatest probability weighting
is
presented by a
macroeconomic downturn, higher levels of operating costs and climate change, consistent with the viability statement scenarios (see the
Longer
term viability statement in the Strategic report) as well as an upside scenario. The viability statement scenarios reflect ‘severe but
plausible’ risks which are adjusted for impairment testing in order to reflect management’s best estimate of future economic conditions,
including any reasonably possible upside to the three-year internal forecasts.
In addition to the climate change scenario included within the probability-weighted cash flows, the Group incorporates other climate change
related assumptions into the impairment modelling, including, but not limited to, investments in technology to aid the Group’s net zero
commitments, the costs associated with replacing assets with more environmentally-friendly alternatives, and assumptions over the cash flow
profile of the Group’s fuel business.
Management estimates discount rates using pre-tax rates that reflect the market assessment as at the balance sheet date of the time value of
money and the risks specific to the cash-generating units. The pre-tax discount rates are derived from the Group’s post-tax weighted average
cost of capital, as adjusted for the specific risks relating to each geographical region and on a nominal basis. Risk-free rates are based on
government bond rates in each
geographical region and equity risk premia and equity beta are based on forecasts by recognised bodies.
The
Group uses the capital asset pricing model to calculate the cost of equity.
Tesco Bank goodwill
Tesco Bank value in use is calculated by discounting equity cash flows, defined as the excess above the regulatory requirement. Cash flow
projections are based on the Bank’s three-year internal forecasts, approved by the Board. The forecasts are extrapolated to five years based
on
on inflation and GDP growth forecasts by recognised bodies. The discount rate is the cost of equity of Tesco Bank. Risk-free rates, equity risk
premia and the equity beta are derived from recognised bodies.
management’s expectations and beyond five years based on estimated long-term average growth rates. The long-term growth rate is based
Fair value less costs of disposal
Fair values of owned properties are determined with regard to the market rent for the stores or for alternative uses with investment yields
appropriate to reflect the physical characteristics of the property, location, infrastructure, redevelopment potential and other factors. In
cases, fair values include residual valuations where stores may be viable for redevelopment. Fair values of leased properties are determined
with
property and the local rental market, adjusted for a suitable void period. Fair values of the Group’s properties were determined with the
assistance of independent professional valuers where appropriate. Costs of disposal are estimated based on past experience in each
geographical region.
regard to the discounted market rent for the property over the remaining period of the lease, reflecting the condition and location of the
some
Investments in joint ventures and associates
The recoverable values of investments in joint ventures and associates are estimated taking into account forecast cash flows, equity valuations of
comparable entities and/or recent transactions for comparable businesses.
Key assumptions and sensitivity
Key assumptions
For value in use calculations, the key assumptions to which the recoverable amounts are most sensitive are discount rates, long-term growth
rates and future cash flows (incorporating sales volumes, prices and costs). For fair value less costs of disposal calculations, the key assumption is
property
fair values.
The discount rates and long-term growth rates for each group of cash-generating units to which goodwill has been allocated are:
Pre-tax discount rates
Post-tax discount rates
Long-term growth rates
UK
2023
%
8.6 - 8.8
6.5 - 6.6
2.0
2022
%
6.4 – 7.8
4.8 – 5.8
1.9
ROI
2023
%
7.4
6.5
2.0
2022
%
5.4
4.7
1.9
Tesco Bank
2023
%
16.0
12.0
1.7
2022
%
13.7
10.8
1.6
The discount rates and long-term growth rates for the Group’s portfolio of store cash-generating units, aggregated by segment due to the large
number of individually immaterial store cash-generating units, are:
Pre-tax discount rates
Post-tax discount rates
Long-term growth rates
UK & ROI
Central Europe
2023
%
7.4 - 8.6
6.5
2.0
2022
%
5.4 – 7.8
4.7 – 5.8
1.9
2023
%
8.0 - 16.8
6.3 – 11.1
2.0 – 3.2
2022
%
5.7 – 11.3
4.5 – 8.8
2.0 – 3.0
Sensitivity
The Group has carried out sensitivity analyses on the reasonably possible changes in key assumptions in the impairment tests for (a) each group
of cash-generating units to which goodwill has been allocated and (b) for its portfolio of store cash-generating units. Management has extended
the reasonably possible movements in the future cash flows and property fair values sensitivities disclosed given the level of volatility seen in
these inputs since the previous year end, driven by the wider macroeconomic environment.
(a) Except for Tesco Bank goodwill, neither a reasonably possible increase of 1.0%pt in discount rates, a 10.0% decrease in future cash flows nor
a 1.0%pt decrease in long-term growth rates would indicate impairment in any group of cash-generating units to which goodwill has been
allocated.
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Financial statements
For Tesco Bank, the following table shows the assumptions adopted and the amount by which these assumption values would have to
change to make the recoverable amount equal to the carrying value, the headroom sensitivity, and the impact of reasonably possible
changes to these assumptions:
Key assumption
Post-tax discount rates*
Annual equity cash flows
Long-term growth rates
Assumption value
12.0%
Headroom sensitivity
Increase of 0.3%pt
Reasonably possible
change
Increase of 1.0%pt
Impact on impairment
£m
(114)
Variable
Decrease of 4.3%
Decrease of 10.0%
1.7%
Decrease of 0.4%pt
Decrease of 1.0%pt
(71)
(72)
(b) While there is not a significant risk of an adjustment to the carrying amount of any one store cash-generating unit that would be material
to the Group as a whole in the next financial year, the table below summarises the reasonably possible changes in key assumptions which
most impact the impairment of the Group’s entire portfolio of store cash-generating units, presented in aggregate due to the large
number of individually immaterial store cash-generating units. The impairment is not highly sensitive to the probability weightings
assigned to the cash flow scenarios.
Key assumption
Post-tax discount rates*
Future cash flows
Long-term growth rates
Property fair values
Reasonably possible change
Increase of 1.0%pt for each geographic region
Decrease of 1.0%pt for each geographic region
Increase of 10.0% for each geographic region
Decrease of 10.0% for each geographic region
Increase of 1.0%pt for each geographic region
Decrease of 1.0%pt for each geographic region
Increase of 10.0% for each geographic region
Decrease of 10.0% for each geographic region
* Sensitivities are applied to post-tax discount rates used to derive the pre-tax discount rates.
Note 15 Other investments
Impact on impairment
Increase
Decrease
Decrease
Increase
Decrease
Increase
Decrease
Increase
Investments in debt instruments – Retail(b)
Investments in debt instruments – Bank
Investments in equity instruments – Retail
Property fund and other investments – Bank(c)
Other investments
Of which:
Current
Non-current
2023
Fair value
through
profit/loss
£m
-
-
-
20
20
Fair value
through other
comprehensive
income
£m
-
565
14
-
579
At amortised
cost(a)
£m
210
883
–
–
1,093
303
790
1,093
1
19
20
49
530
579
2022
Fair value
through
profit/loss
£m
-
-
-
25
25
Fair value
through other
comprehensive
income
£m
-
585
12
-
597
At amortised
cost(a)
£m
-
857
-
-
857
75
782
857
-
25
25
151
446
597
Total
£m
210
1,448
14
20
1,692
353
1,339
1,692
(a) The allowances for expected credit losses in the year are immaterial (2022: immaterial). Refer to Note 27.
(b) Includes £210m (2022: £nil) of secured bond assets of which £199m relates to the purchase of debt held in UK property joint ventures.
(c) Includes £19m (2022: £23m) of property fund investments which were recognised following the acquisition of Tesco Underwriting Limited.
Note 16 Inventories
Goods held for resale
Development properties
2023
£m
2,507
3
2,510
2023
£m
(479)
434
279
(321)
273
(267)
205
(217)
Total
£m
-
1,442
12
25
1,479
226
1,253
1,479
2022
£m
2,336
3
2,339
Goods held for resale are net of commercial income. Refer to Note 20.
Cost of inventories from continuing operations recognised as an expense for the 52 weeks ended 25 February 2023 was £48,822m (52 weeks
ended 26 February 2022: £45,136m). Inventory losses and provisions from continuing operations recognised as an expense for the 52 weeks
ended 25 February 2023 were £1,220m (52 weeks ended 26 February 2022: £1,002m).
Note 17 Trade and other receivables
Trade receivables
Prepayments
Accrued income(a)
Other receivables
Amounts owed by joint ventures and associates (Note 31)(b)
Total trade and other receivables
Of which:
Current
Non-current
2023
£m
531
133
223
374
133
1,394
1,315
79
1,394
2022
£m
457
135
211
478
141
1,422
1,263
159
1,422
(a) Accrued income includes contract assets of £32m (2022: £51m) primarily relating to commission income on insurance policies managed and underwritten by a third party. The expected credit loss
was immaterial as at 25 February 2023 (2022:
immaterial).
(b) Expected credit losses on amounts owed by joint ventures and associates are not material.
Tesco PLC Annual Report and Financial Statements 2023
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151
151
Financial statements
Notes to the Group financial statements continued
Note 17 Trade and other receivables continued
Trade receivables include commercial income. Refer to Note 20. Trade receivables are generally non interest-bearing. Credit terms vary by
country and the nature of the debt, ranging from seven to 60 days.
The tables below present the ageing of receivables and related allowances for expected credit losses:
At 25 February 2023
Trade receivables
Other receivables
Trade and other receivables
Allowance for expected credit losses:
At the beginning of the year
Increase in allowance, including recoveries, charged to the Group income
statement
At the end of the year
At 26 February 2022
Trade receivables
Other receivables
Trade and other receivables
Allowance for expected credit losses:
At the beginning of the year
Decrease in allowance, including recoveries, released to the Group income
statement
Amounts written off
At the end of the year
Not
past due
£m
505
339
844
(22)
(2)
(24)
Not
past due
£m
430
442
872
(22)
–
–
(22)
Up to six
months
past due
£m
53
19
72
(4)
(2)
(6)
Up to six
months
due
past
£m
52
34
86
(11)
7
–
(4)
Note 18 Cash and cash equivalents and short-term investments
Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
Cash and cash equivalents in the Group balance sheet
Bank overdrafts
Cash and cash equivalents in the Group cash flow statement
Short-term investments
Money market funds, deposits and similar instruments
Six to
12 months
past due
£m
7
16
23
Greater than
12 months
past due
£m
9
19
28
(5)
(1)
(6)
(25)
(1)
(26)
Six to
12 months
past due
£m
4
4
8
past
Greater than
12 months
due
£m
6
19
25
(6)
1
–
(5)
(30)
1
4
(25)
2023
£m
2,426
39
2,465
(900)
1,565
2023
£m
1,628
Total
£m
574
393
967
(56)
(6)
(62)
Total
£m
492
499
991
(69)
9
4
(56)
2022
£m
2,322
23
2,345
(574)
1,771
2022
£m
2,076
Cash and cash equivalents includes £87m (2022: £84m) of restricted amounts mainly relating to the Group’s pension schemes and employee
benefit trusts.
Note 19 Trade and other payables
Trade payables
Other taxation and social security
Other payables
Amounts payable to joint ventures and associates (Note 31)
Accruals
Contract liabilities
Total trade and other payables
Of which:
Current
Non-current
2023
£m
6,359
399
1,886
7
877
443
9,971
9,818
153
9,971
2022
£m
5,641
411
1,905
9
827
441
9,234
9,181
53
9,234
Trade and other payables are net of commercial income. Refer to Note 20.
Contract liabilities represent consideration received for performance obligations not yet satisfied, predominantly in relation to Clubcard points.
The majority of the revenue deferred at the current financial year end will be recognised in the following financial year.
Trade payables include £687m (2022: £935m) that suppliers have chosen to early-fund under supplier financing arrangements. Refer to Note 1.
Amounts in trade payables that are overdue for payment to the provider are immaterial.
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Financial statements
Note 20 Commercial income
Below are the commercial income balances included within inventories and trade and other receivables, or netted against trade and other
payables. Amounts received in advance of income being earned are included in accruals.
Current assets
Inventories
Trade and other receivables
Trade/other receivables
Accrued income
Current liabilities
Trade and other payables
Trade payables
Accruals
2023
£m
(18)
67
127
112
(5)
2022
£m
(15)
68
124
112
–
Note 21 Borrowings
Borrowings are classified as current and non-current based on their scheduled repayment date, and not their maturity date. Repayments of
principal amounts are classified as current if the repayment is scheduled to be made within one year of the balance sheet date.
Bank loans and overdrafts(a)
Tesco Bank Senior MREL Notes(b)
Secured bonds(c)
5.5457% Secured Bond
6.067% Secured Bond
SONIA + 1.3193% Secured Bond
6.0517% Secured Bond
5.6611% Secured Bond
5.4111% Secured Bond
LPI and RPI-linked bonds(d)
3.322% LPI MTN
1.982% RPI MTN
Sustainability-linked bonds(e)
1.875% MTN
0.375% MTN
Fixed bonds
5% MTN
1.375% MTN
2.5% MTN
2.5% MTN
0.875% MTN
6% MTN
2.75% MTN
5.5% MTN
6.15% USD Bond
4.875% MTN
5.125% MTN
5.2% MTN
Of which:
Current
Non-current
Par value
–
£145m
£235m
£200m
£50m
£266m
£289m
£187m
£392m
£346m
£400m
€750m
£71m
€750m
€473m
£400m
€750m
£38m
£450m
£67m
$355m
£14m
€235m
£14m
Maturity
–
Jul 2025
Feb 2029
Feb 2029
Feb 2029
Oct 2039
Oct 2041
Jul 2044
Nov 2025
Mar 2036
Nov 2028
Jul 2029
Mar 2023
Oct 2023
Jul 2024
May 2025
May 2026
Dec 2029
Apr 2030
Jan 2033
Nov 2037
Mar 2042
Apr 2047
Mar 2057
2023
£m
928
137
225
195
49
337
378
158
396
349
398
523
75
651
424
378
663
43
359
78
366
14
213
14
7,351
1,770
5,581
7,351
2022
£m
605
244
251
194
48
568
579
–
377
312
398
576
77
634
403
397
630
44
414
79
338
14
203
14
7,399
725
6,674
7,399
(a) Bank loans and overdrafts includes £900m (2022: £574m) of bank overdrafts. £895m (2022: £567m) is held under a notional pooling arrangement which does not meet the criteria to be
presented
net of cash on the balance sheet. Refer to Note 18.
(b) These notes are 3.5% Tesco Bank MREL compliant senior debt and were issued on 25 July 2019. The scheduled redemption date is July 2024. During the year there was a partial redemption by
Tesco Bank of its issued MREL debt.
(c) The bonds are secured by a charge over the property, plant and equipment held within The Tesco Property Limited Partnership, The Tesco Atrato Limited Partnership, The Tesco Sarum Limited
Partnership and The Tesco Dorney Limited Partnership respectively, all of which are 100% owned subsidiaries of Tesco PLC. The carrying amount of assets pledged as security for secured bonds
is £802m, £1,065m, £708m and £239m (2022: £818m, £892m, £521m and £nil), respectively. £51m (2022: £50m) is the total principal repayment due within the next 12 months and the remainder is
payable in quarterly instalments until the maturity date.
(d) These bonds are redeemable at par, indexed for increases in the RPI over the life of the MTN. However, for the LPI-linked bond, the maximum indexation of the principal in any one year is 5%, with
a minimum of 0%. For the RPI-linked bond, refer to Note 27.
(e) These are sustainability-linked bonds referencing the Group’s KPI for Group Greenhouse Gas (GHG) Emissions reduction (Scope 1 and 2, in tCO2e). The Sustainability Performance Target they are
linked to is to reduce the Group GHG Emissions by 60% by 2025 with respect to a 2015/16 baseline.
Tesco PLC Annual Report and Financial Statements 2023
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153
153
Financial statements
Notes to the Group financial statements continued
Note 22 Provisions
At 26 February 2022
Foreign currency translation
Reclassifications
Amount released in the year
Amount provided in the year
Amount utilised in the year
Unwinding of discount
At 25 February 2023
The balances are analysed as follows:
Current
Non-current
Property
provisions
£m
213
1
–
(21)
37
(11)
3
222
Restructuring
provisions
£m
44
1
–
(8)
147
(78)
–
106
Legal and
regulatory
provisions
£m
44
–
10
(3)
7
(4)
–
54
Operational
insurance
provisions
£m
135
1
–
(23)
91
(46)
–
158
Other
provisions
£m
30
1
(10)
(5)
8
(4)
–
20
2023
£m
366
194
560
Total
£m
466
4
–
(60)
290
(143)
3
560
2022
£m
283
183
466
Provisions are discounted based on the relevant risk-free rate and are risk-adjusted through adjusting the cash flow estimates. Refer to Note 14
for details of how risk-free rates are derived. Where material, provisions are discounted based on country-specific nominal risk-free rates, with a
weighted average risk-free rate of 3.8% (2022: 1.6%).
Property provisions
Property provisions comprise onerous contracts related to unprofitable stores and vacant properties, decommissioning provisions and
remediation works and dilapidations provisions.
Dilapidations are recognised where there is a present obligation to repair and restore leased properties to their preoccupancy state at the end
of
the lease term. The provision is based on best estimates for individual properties, with reference to previous experience and size of leased
property, or specific agreements with the landlord where relevant. The term is measured in accordance with the outstanding length of leases or
the expected timing of specific obligations.
Onerous contract provisions are recognised where the unavoidable costs of meeting the obligations under the contract exceed the economic
benefits expected to be received under it. The timing of provisions is determined by reference to the contract giving rise to the obligations.
Decommissioning provisions reflect the Group’s long-term obligation for site-level environmental remediation works, arising from government
regulations and changing consumer habits. The extent and cost of future environmental remediation represents a best estimate applied across
the property portfolio based on past experience, the extent of remediation work required and the expected timing of activity, for which there is a
high level of uncertainty.
Amounts provided in the year primarily relate to decommissioning and amounts released in the year primarily relate to releases of dilapidation
and similar remediation provisions.
The expected undiscounted ageing of property provisions as at 25 February 2023:
Property provisions
Current
£m
38
1 to 5 years
£m
46
6 to 10 years
£m
23
11 to 15 years
£m
17
Over 15 years
£m
247
Total
£m
371
Restructuring provisions
Restructuring provisions of £106m, primarily relating to expected employee costs, are expected to be fully utilised in the following financial year to
24 February 2024. The provision is calculated in line with the expected settlement costs of impacted employees and excludes future operating costs.
Legal and regulatory provisions
Legal and regulatory provisions contain balances in relation to either ongoing or expected legal proceedings against the Group, or for costs
associated with regulatory matters and/or breaches. Due to the nature of legal and regulatory matters, including unpredictable timings of legal
cases or regulatory investigations, there is often uncertainty as to if or when provisions will be fully utilised.
This balance consists of various individually immaterial provisions.
Operational insurance provisions
Insurance provisions relate to outstanding liabilities from public and employer’s liability and third-party motor claims across the Group’s trading
operations, separate to the Tesco Underwriting insurance balances in Note 24. Provisions relate to claims arising from incidents reported prior
to
the reporting date, including an allowance for those currently incurred but not reported. Amounts are measured considering claims history,
including claims volume and average cost of claims, with assessment and projection by third-party actuaries. Releases in the year primarily relate
to improved estimates of future outflows from revised actuarial valuations. The balance as at the financial year end is expected to be materially
utilised within three years from the reporting date.
Other provisions
Other provisions amounts primarily relate to a Tesco Bank expected credit loss provision recognised under IFRS 9 which exceeds the gross
carrying amount of the related financial asset, primarily loans to customers. Further information on expected credit losses can be found within
Note 27. The remaining balance relates to individually immaterial provisions that do not fall into any of the other categories.
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Note 23 Loans and advances to customers
Tesco Bank has loans and advances to customers, split by maturity, as follows:
Repayable on demand or at short notice
Within three months
Greater than three months but less than one year
Greater than one year but less than five years
After five years
Expected credit loss allowance for loans and advances to customers
Loans and advances to customers
Of which:
Current
Non-current
Financial statements
2023
£m
–
4,151
178
2,667
546
7,542
(461)
7,081
4,052
3,029
7,081
2022
£m
2
3,561
161
2,718
537
6,979
(489)
6,490
3,349
3,141
6,490
At 25 February 2023, £2.9bn (2022: £3.0bn) of the credit card portfolio had its beneficial interest assigned to a securitisation special purpose
entity, Delamare Cards Receivables Trustee Limited, for use as collateral in securitisation transactions. The total encumbered portion of this
portfolio is £1.1bn (2022: £1.2bn).
At 25 February 2023, Delamare Cards MTN Issuer PLC had £1.8bn (2022: £1.8bn) notes in issue in relation to securitisation transactions.
At 25 February 2023, £1.6bn (2022: £1.4bn) of the class A retained credit card-backed notes are held within their single collateral pool.
Fair value hedge adjustments
Fair value hedge adjustments amounting to a liability of £75m (2022: liability of £30m) are in respect of fixed rate personal loans. These
adjustments are largely offset by derivatives, which are used to manage interest rate risk and are designated as fair value hedges of loans and
advances to customers.
Refer to Note 27 for allowance for expected credit losses disclosures.
Note 24 Insurance
Balances in this note relate to the Group’s subsidiary, Tesco Underwriting Limited (TU), part of the Tesco Bank operating segment.
Insurance profit/(loss)
Gross insurance premium income
Insurance premium income ceded to reinsurers
Current year claims paid
Change in prior year claims provision
Additional liabilities arising during the year
Insurance claims incurred
Reinsurers’ share of claims incurred*
Net insurance claims
Net insurance profit/(loss)
*
Includes £20m (2022: £3m) related to reinsurance quota share commission and profit commission.
Insurance contract provisions and reinsurance assets
The following tables show the breakdown of the Group’s insurance contract provisions and reinsurance assets:
Unearned premiums
Claims
Total insurance contract provisions
Of which:
Current
Non-current
Gross
£m
174
431
605
570
35
2023
Reinsurance
£m
(73)
(144)
(217)
(72)
(145)
Net
£m
101
287
388
498
(110)
Gross
£m
156
494
650
623
27
2022
Reinsurance
£m
(64)
(181)
(245)
(61)
(184)
52 weeks
2023
£m
309
52 weeks
2022
£m
239
(139)
(140)
100
(135)
(175)
90
(85)
85
(105)
(104)
52
(98)
(150)
62
(88)
46
Net
£m
92
313
405
562
(157)
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
155
155
Financial statements
Notes to the Group financial statements continued
Note 24 Insurance continued
Gross insurance provisions, unlike reinsurance assets, are classified as current or non-current based on contractual rights to defer settlement
for at least 12 months after the reporting period, rather than expected timing of settlement. See Note 27 for the expected cash outflows in
relation to these balances.
Analysis of movement in insurance contract provisions
Opening balance
Acquired through business combinations
Claims (paid)/recovered through insurers
Movement in claims outstanding
Changes in provisions for unearned premiums
Closing balance
Analysis of movement in provision for gross unearned premiums
Opening balance
Acquired through business combinations
Premiums written during the year
Less: premiums earned during the year
Closing balance
Analysis of movement in outstanding claims
Opening balance
Acquired through business combinations
Current period claims
Change in prior year claims
Current year claims paid
Prior year claims paid
Closing balance
Gross
£m
650
–
(259)
196
18
605
2023
Reinsurance
£m
(245)
–
108
(71)
(9)
(217)
2023
Salvage and
subrogation
recoveries
£m
(22)
–
(34)
13
–
–
(43)
Gross
£m
494
–
309
(113)
(140)
(119)
431
Net
£m
405
–
(151)
125
9
388
Net
£m
472
–
275
(100)
(140)
(119)
388
Gross
£m
–
650
(171)
156
15
650
2022
Reinsurance
£m
–
(247)
66
(59)
(5)
(245)
2023
£m
156
–
327
(309)
174
2022
Salvage and
subrogation
recoveries
£m
–
(16)
(20)
14
–
–
(22)
Gross
£m
–
509
213
(57)
(104)
(67)
494
Net
£m
–
403
(105)
97
10
405
2022
£m
–
141
254
(239)
156
Net
£m
–
493
193
(43)
(104)
(67)
472
Funds withheld
Funds withheld of £123m (2022: £115m), included within trade and other payables, represent the balance due to reinsurers arising from Quota
Share arrangements, by which a fixed proportion of both premiums and losses are ceded to third-party reinsurers as part of the overall
reinsurance protection strategy.
Process used to determine assumptions
The nature of insurance makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified
claims. Each notified claim is assessed on a separate, case‐by‐case basis with due regard to the claim circumstances and historical evidence of
the size of similar claims and provisions are based on information currently available. However, the ultimate liabilities may vary as a result of
subsequent developments.
Sources of data
The sources of data used as inputs for the assumptions are internal, using detailed studies that are carried out at least annually to ensure that
the assumptions are consistent with observable market prices or other published information. When there is insufficient information to make a
reliable best estimate of claims development, suitable benchmark assumptions are used.
Methods
The cost of outstanding claims and the incurred but not reported (IBNR) claims provisions are estimated using various statistical methods, which
extrapolate the development of paid and incurred claims, average cost per claim and ultimate claim numbers for each accident period based
upon observed development of earlier periods, with reference to suitable benchmarks. The key methods are:
– development factor methods, which use historical data to estimate the paid and incurred to date as proportions of the ultimate claim cost;
– individual claim assessment methods, which use claim‐specific details for large individual claims to estimate the ultimate claim cost; and
– benchmarking methods, which use the experience of comparable, more mature classes, or market data to estimate the cost of claims.
To the extent that these methods use historical claims development information, they also assume that the historical claims development
pattern will occur again in the future, after allowing (where possible) for instances where this might not be the case, such as changing economic
or legal trends.
156
Tesco PLC Annual Report and Financial Statements 2023
156
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Recoveries
The provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries.
The Group is covered by a variety of excess of loss reinsurance programmes. The methods used by the Group take into account historical data,
specific details for individual large claims and details of the reinsurance programme to assess the expected size of reinsurance recoveries.
Recoveries through salvage and subrogation are estimated and recorded separately based on a combination of suitable benchmark assumptions
and the observed development to date.
Ogden rate
The majority of claims are not discounted as they are expected to settle within four years or less. For long-term personal injury claims the
personal injury discount rate (Ogden rate) is used. For claims provisions in relation to periodic payments orders, a long-term expected investment
return is used as the discount rate. This is set by the Ministry of Justice and is used by the courts to calculate lump sum personal injury payments.
Reserves are assessed at the current rate of (0.25)%.
Analysis of claims development – gross of reinsurance and net of salvage and subrogation recoveries
Estimate of gross ultimate claim costs
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of cumulative claims
Cumulative payments to date
Claims outstanding prior to 2013 accident year
Current gross claims provision
Provision for claims handling costs
Fair value adjustment to claims outstanding
provisions as a result of TU acquisition
Total gross claims outstanding provisions
2013
£m
391
388
373
383
363
360
361
360
360
360
360
(349)
–
11
–
–
2014
£m
349
353
379
353
360
347
350
343
345
–
345
(328)
–
17
–
–
2015
£m
327
343
343
323
311
305
305
306
–
–
306
(299)
–
7
–
–
Accident year(a)(b)
2016
£m
371
372
335
325
323
309
304
–
–
–
304
(291)
–
13
–
–
2017
£m
304
299
269
258
253
251
–
–
–
–
251
(248)
–
3
–
–
2018
£m
317
297
268
271
259
–
–
–
–
–
259
(239)
–
20
–
–
2019
£m
282
288
271
235
–
–
–
–
–
–
235
(204)
–
31
–
–
2020
£m
220
209
184
–
–
–
–
–
–
–
184
(137)
–
47
–
–
2021
£m
224
204
–
–
–
–
–
–
–
–
204
(138)
–
66
–
–
2022
£m
48
278
–
–
–
–
–
–
–
–
278
(162)
–
116
–
–
Total
2023
£m
£m
–
41
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
2,767
(9) (2,404)
18
–
381
32
5
–
2
–
–
–
–
–
–
–
–
–
–
–
–
388
(a) The information in the above claims development table covers the period from which the earliest material claim arose in TU for which there is still uncertainty about the amount and timing of the
claims payments and therefore reflects claims development in respect of claims arising prior to the acquisition of TU in 2021.
(b) TU changed its reporting date from 31 December to 28 February during 2022. However, accident years remained consistent with a calendar year. Consequently, the first development year from
2022 onwards represents only two months of claims development.
Analysis of claims development – net of reinsurance and net of salvage and subrogation recoveries
Estimate of ultimate claim costs
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of cumulative claims
Cumulative payments to date
Claims outstanding prior to 2013 accident year
Current net claims provision
Provision for claims handling costs
Fair value adjustment to claims outstanding
provisions as a result of TU acquisition
Total net claims
Refer to previous table for footnotes.
Accident year(a)(b)
2013
£m
379
380
368
371
359
355
356
355
353
350
350
(347)
–
3
–
–
2014
£m
336
338
349
343
339
338
340
334
335
–
335
(323)
–
12
–
–
2015
£m
320
327
331
315
306
301
301
301
–
–
301
(295)
–
6
–
–
2016
£m
310
319
302
292
292
287
287
–
–
–
287
(280)
–
7
–
–
2017
£m
276
270
252
242
239
239
–
–
–
–
239
(236)
–
3
–
–
2018
£m
259
259
233
247
236
–
–
–
–
–
236
(220)
–
16
–
–
2019
£m
236
255
244
222
–
–
–
–
–
–
222
(197)
–
25
–
–
2020
£m
144
125
109
–
–
–
–
–
–
–
109
(96)
–
13
–
–
2021
£m
127
119
–
–
–
–
–
–
–
–
119
(84)
–
35
–
–
2022
£m
37
171
–
–
–
–
–
–
–
–
171
(94)
–
77
–
–
2023
£m
32
–
–
–
–
–
–
–
–
–
32
(4)
–
28
–
–
Total
£m
–
–
–
–
–
–
–
–
–
–
2,401
(2,176)
12
237
5
2
–
–
–
–
–
–
–
–
–
–
–
244
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
157
157
Financial statements
Notes to the Group financial statements continued
Note 25 Customer deposits and deposits from banks
Customer deposits
Deposits from banks
Of which:
Current
Non-current
2023
£m
5,770
980
6,750
4,485
2,265
6,750
2022
£m
5,327
1,052
6,379
4,729
1,650
6,379
Deposits from banks include balances of £906m (2022: £902m) drawn under the Bank of England’s Term Funding Scheme with incentives for
small
and medium-sized enterprises (TFSME). Also included are balances of £74m (2022: £150m) which have been sold under sale and
repurchase
agreements.
Note 26 Financial instruments
The Group recognises the following financial instruments on its balance sheet. The Group’s exposure to the risks associated with its financial
assets and liabilities is discussed in Note 27.
At 25 February 2023
Financial assets
Cash and cash equivalents
Short-term investments
Trade receivables
Other receivables
Joint ventures and associates loan receivables
Loans and advances to customers
Other investments
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Financial liabilities
Trade payables
Other payables
Accruals
Borrowings
Customer deposits
Deposits from banks
Lease liabilities
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Foreign currency forward contracts
Diesel forward contracts
At amortised
cost
£m
Notes
At fair value
through profit
or loss
£m
At fair value
through other
comprehensive
income
£m
18
18
17
17
31
23
15
19
19
19
21
25
25
12
2,433
968
531
374
106
7,081
1,093
–
–
–
–
–
12,586
(6,359)
(1,886)
(877)
(7,351)
(5,770)
(980)
(7,727)
–
–
–
–
(30,950)
32
660
–
–
–
–
20
123
211
551
41
4
1,642
–
–
–
–
–
–
–
(159)
(141)
(72)
(15)
(387)
–
–
–
–
–
–
579
–
–
–
–
–
579
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
2,465
1,628
531
374
106
7,081
1,692
123
211
551
41
4
14,807
(6,359)
(1,886)
(877)
(7,351)
(5,770)
(980)
(7,727)
(159)
(141)
(72)
(15)
(31,337)
158
Tesco PLC Annual Report and Financial Statements 2023
158
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
At amortised
cost
£m
Notes
At fair value
through profit
or loss
£m
At fair value
through other
comprehensive
income
£m
18
18
17
17
31
23
15
19
19
19
21
25
25
12
2,319
906
457
478
105
6,490
857
–
–
–
–
–
11,612
(5,641)
(1,905)
(827)
(7,399)
(5,327)
(1,052)
(7,958)
–
–
–
(30,109)
26
1,170
–
–
–
–
25
55
223
666
44
23
2,232
–
–
–
–
–
–
–
(273)
(85)
(25)
(383)
–
–
–
–
–
–
597
–
–
–
–
–
597
–
–
–
–
–
–
–
–
–
–
–
Total
£m
2,345
2,076
457
478
105
6,490
1,479
55
223
666
44
23
14,441
(5,641)
(1,905)
(827)
(7,399)
(5,327)
(1,052)
(7,958)
(273)
(85)
(25)
(30,492)
At 26 February 2022
Financial assets
Cash and cash equivalents
Short-term investments*
Trade receivables
Other receivables
Joint ventures and associates loan receivables
Loans and advances to customers
Other investments
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Financial liabilities
Trade payables
Other payables
Accruals
Borrowings
Customer deposits
Deposits from banks
Lease liabilities
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Foreign currency forward contracts
* Comparatives have been re-presented for reclassification of certain short-term investments from amortised cost to fair value through profit or loss.
The expected maturity of financial assets and liabilities is not considered to be materially different to their current and non-current classification.
The fair value of assets and liabilities measured at amortised cost and at fair value are shown below.
Fair value of financial assets and liabilities measured at amortised cost
The table excludes cash and cash equivalents, short-term investments, trade receivables/payables, other receivables/payables, accruals and
deposits from banks where the carrying values approximate fair value. The levels in the table refer to the fair value measurement.
Financial assets measured at amortised cost
Loans and advances to customers
Investments in debt instruments at amortised cost(a)
Joint ventures and associates loan receivables(b)
Financial liabilities measured at amortised cost
Borrowings
Amortised cost(a)
Bonds in fair value hedge relationships
Customer deposits
2023
Carrying
value
£m
7,081
1,093
106
(5,227)
(2,124)
(5,770)
Fair
value
£m
7,058
1,097
111
(5,496)
(2,167)
(5,640)
2022
Carrying
value
£m
6,490
857
105
(5,057)
(2,342)
(5,327)
Fair
value
£m
6,566
867
126
(5,942)
(2,401)
(5,296)
Level
3
1 and 2
2
1
1
3
(a) These are principally Level 1 instruments.
(b) Joint ventures and associates loan receivables carrying amounts of £106m (2022: £105m) are presented in the Group balance sheet net of deferred profits of £38m (2022: £38m) historically arising
from the sale of property assets to joint ventures.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
159
159
Financial statements
Notes to the Group financial statements continued
Note 26 Financial instruments continued
Fair value measurement by level of fair value hierarchy
The following table presents the Group’s financial assets and liabilities that are measured at fair value, by level of fair value hierarchy:
– quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
– inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (Level 2); and
– inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
exchange rates from highly liquid markets. For Level 3 assets and liabilities, uncollateralised derivatives are valued as per Level 2 but
Level 2 assets are valued by discounting future cash flows using externally sourced market yield curves, including interest rate curves and
foreign
include certain data sources which are significantly less liquid; unlisted investments are valued based on less observable inputs such as
recent
funding rounds.
At 25 February 2023
Assets
Investments at fair value through other comprehensive income
Short-term investments at fair value through profit or loss
Cash and cash equivalents at fair value through profit or loss
Investments at fair value through profit or loss
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Total assets
Liabilities
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Foreign currency forward contracts
Diesel forward contracts
Total liabilities
Net assets/(liabilities)
At 26 February 2022
Assets
Investments at fair value through other comprehensive income
Short-term investments at fair value through profit or loss*
Cash and cash equivalents at fair value through profit or loss
Investments at fair value through profit or loss
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Total assets
Liabilities
Derivative financial instruments:
Interest rate swaps
Cross-currency swaps
Foreign currency forward contracts
Total liabilities
Net assets/(liabilities)
Level 1
£m
565
660
–
–
–
–
–
–
–
1,225
–
–
–
–
–
1,225
Level 1
£m
585
1,170
–
–
–
–
–
–
–
1,755
–
–
–
–
1,755
Level 2
£m
Level 3
£m
–
–
32
–
123
41
119
41
4
360
(73)
(4)
(72)
(15)
(164)
196
14
–
–
20
–
170
432
–
–
636
(86)
(137)
–
–
(223)
413
Level 2
£m
Level 3
£m
–
–
26
23
55
25
115
44
23
311
(273)
(85)
(25)
(383)
(72)
12
–
–
2
–
198
551
–
–
763
–
–
–
–
763
Total
£m
579
660
32
20
123
211
551
41
4
2,221
(159)
(141)
(72)
(15)
(387)
1,834
Total
£m
597
1,170
26
25
55
223
666
44
23
2,829
(273)
(85)
(25)
(383)
2,446
* Comparatives have been re-presented for reclassification of certain short-term investments from amortised cost to fair value through profit or loss.
During the financial year, there were no transfers (2022: no transfers) between Level 1 and Level 2 fair value measurements.
160
Tesco PLC Annual Report and Financial Statements 2023
160
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Level 3 Instruments
During the financial year, there were £nil (2022: £nil) of transfers from Level 3 to Level 2 and £nil (2022: £nil) transfer from Level 3 to Level 1. There
were £18m of transfers of unlisted investments (2022: £nil) and £(223)m of derivative liabilities (2022: derivative assets of £749m) to Level 3 from
Level 2 and £nil (2022: £nil) to Level 3 from Level 1.
As part of financial risk management, the Group holds certain uncollateralised derivative financial instruments, including interest rate and
inflation swaps, cross-currency swaps and forward contracts. These are valued using relevant inputs which are considered observable (Level 2),
such as forward rates and foreign exchange rates from available market data. Unobservable inputs (Level 3) relate to the funding valuation
adjustment (FVA), which is the estimate of the adjustment to the fair value that a market participant would make to account for funding costs.
These are calculated on the future valuation of the derivative, based on the best estimate available to management of suitable relevant cost of
funds. A 10 basis points increase in the cost of funds would increase the FVA by £11m (2022: £18m).
The following table presents the changes in Level 3 instruments:
At the beginning of the year
Gains/(losses) recognised in finance costs*
Gains/(losses) recognised in other comprehensive income not reclassified to the
income statement
Gains/(losses) recognised in other comprehensive income that may subsequently
be reclassified to the income statement
Additions
Disposals
Transfers of assets/(liabilities) into Level 3
At the end of the year
* All gains or losses are unrealised.
2023
2022
Uncollateralised
derivatives
£m
749
(114)
–
6
–
(39)
(223)
379
Unlisted
investments
£m
14
–
2
–
–
–
18
34
Uncollateralised
derivatives
£m
–
–
–
Unlisted
investments
£m
11
–
4
–
–
–
749
749
–
1
(2)
–
14
Offsetting of financial assets and liabilities
The following tables show those financial assets and liabilities subject to offsetting, enforceable master netting arrangements and
similar
agreements:
At 25 February 2023
Financial assets
Derivative financial instruments
Trade receivables
Total assets
Financial liabilities
Derivative financial instruments
Trade payables
Repurchases, securities lending and similar agreements
Total liabilities
At 26 February 2022
Financial assets
Derivative financial instruments
Trade receivables
Total assets
Financial liabilities
Derivative financial instruments
Trade payables
Repurchases, securities lending and similar agreements
Total liabilities
Related amounts not offset in
the Group balance sheet
Gross amounts of
recognised
financial assets/
(liabilities)
£m
Gross amounts of
financial assets/
(liabilities) offset
in the Group
balance sheet
£m
Net amounts
included
in the Group
balance sheet
£m
Financial
instruments
£m
Collateral
(received)/
pledged
£m
Net amount
£m
930
601
1,531
(387)
(6,429)
(74)
(6,890)
–
(70)
(70)
–
70
–
70
930
531
1,461
(387)
(6,359)
(74)
(6,820)
(142)
–
(142)
142
–
–
142
(104)
–
(104)
–
–
74
74
684
531
1,215
(245)
(6,359)
–
(6,604)
Related amounts not offset in
the Group balance sheet
Gross amounts of
recognised
financial assets/
(liabilities)
£m
Gross amounts of
financial assets/
(liabilities) offset in
the Group
balance sheet
£m
Net amounts
included
in the Group
balance sheet
£m
Financial
instruments
£m
Collateral
(received)/
pledged
£m
Net amount
£m
1,011
526
1,537
(383)
(5,710)
(150)
(6,243)
–
(69)
(69)
–
69
–
69
1,011
457
1,468
(383)
(5,641)
(150)
(6,174)
(246)
–
(246)
246
–
–
246
(18)
–
(18)
–
–
150
150
747
457
1,204
(137)
(5,641)
–
(5,778)
For the financial assets and liabilities subject to enforceable master netting arrangements above, each agreement between the Group and the
counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis. In the absence of
such an election, financial assets and liabilities will be settled on a gross basis. However, each party to the master netting agreement or similar
agreement will have the option to settle all such amounts on a net basis in the event of default of the other party.
Tesco PLC Annual Report and Financial Statements 2023
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161
161
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management
The Group’s financial risk management is carried out under policies approved and authority delegated by the Board of Directors, including
parameters for risk management across the Group. The financial risk management in relation to Retail is carried out by a central treasury
department. Tesco Bank has a separate formal structure for reporting, monitoring and managing its financial risks appropriate to the nature of its
business as a regulated financial institution.
The main financial risks faced by the Group, including Retail and Tesco Bank, and the management of these risks are set out below and include
market risk (foreign exchange, interest rate, inflation and commodity prices), credit risk, liquidity risk, capital risk and insurance risk. Additional
information on the management of the financial risks specifically relating to Tesco Bank is also set out on page 170.
Tesco Group
(a) Market risk
Foreign exchange risk management
the cost of future purchases of
Description of risks
Transactional exposure that arises
from
goods, where those purchases are
denominated in a currency other than
the functional currency of the
purchasing company.
Translation exposure that arises from
exchange rate movements in
connection with translating the Group’s
foreign subsidiaries’ revenue and
expenses, assets and liabilities into
Pound Sterling.
Management policy
The Group’s policy is to hedge currency exposure that
could significantly impact the Group income statement
with a minimum (20%) and maximum (80%) hedge level
of forecast uncommitted exposure within at least the
next 12 months.
Translation risk related to foreign subsidiaries is not
actively hedged, however to reduce this exposure in
relation to the net assets of foreign subsidiaries, net
investment hedging is undertaken.
Loans to and from subsidiaries in
currencies other than in the entity’s
functional currency.
The Group’s policy is that 100% of the foreign exchange
risk is hedged.
Debt issued in a currency other than
Pound Sterling.
The Group’s policy is to swap 100% of the foreign
currency debt back to Pound Sterling, unless there are
appropriate matching foreign currency assets.
Hedging strategy
Foreign currency forward contracts or purchased
currency options, which are designated as cash flow
hedges. These are denominated in the same currency
as the highly probable future sales and purchases,
which are expected to occur within a maximum 24-
month period, and the hedge ratio is determined
to
1:1.
be
Euro-denominated borrowings are used to hedge the
exposure of a portion of the Group’s net investments in
overseas operations which have a
currency, against changes in value due to changes in
foreign exchange rates. The Group has established a
hedge ratio of 1:1, as the underlying risk of the hedging
instrument is identical to the hedged risk component.
Euro functional
Foreign currency derivatives and borrowings in
matching currencies, which are not formally designated
as accounting hedges as gains and losses will naturally
offset in the income statement.
Cross-currency swaps, which are designated as fair
value hedges.
Residual exposure is present arising largely from cash and cash equivalents balances that are not in the functional currency of the entity holding
these balances. The Group income statement impact of foreign currency exchange rate movements on these residual balances is disclosed in the
sensitivity table on page 164.
Interest rate risk management
Description of risks
Debt issued at variable interest rates as
well as cash deposits and short-term
investments, giving rise to cash flow risk,
and debt issued at fixed interest rates
giving rise to fair value risk.
Management policy
The Group’s policy is to manage interest rate risk in
total balance sheet debt (including senior unsecured
debt, lease liabilities, cash and cash equivalents and
investments) to a range of 55%-85% fixed.
Hedging strategy
Interest rate swap contracts are used to fix interest
rates on senior unsecured debt or investments issued
at floating rates, creating a fair value hedge; and for
senior unsecured debt or investments issued at fixed
rates to generate variable interest exposure, creating a
cashflow hedge. The terms of the swap contracts
match the terms of the borrowings or investments
including notional amounts and maturity, interest
settlement and interest rate reset dates, and the
Group has established a hedge ratio of 1:1 for the
hedging relationships as the underlying risk of the
derivative contract is identical to that of the
hedged
item.
Different repricing dates of the assets
and liabilities in Tesco Bank’s banking
activities and unexpected changes to
the yield curve, giving rise to volatility in
earnings and economic value of these
assets and liabilities.
Tesco Bank has established limits for risk appetite and
stress tests are performed using sensitivity to
fluctuations in underlying interest rates in order to
monitor this risk. Tesco Bank also use the capital at risk
approach, which assesses the sensitivity of a reduction
in the Bank’s capital to movements in interest rates.
Tesco Bank uses interest rate swap contracts as fair
value hedges, to swap fixed rate exposures of
investment securities, loans and advances to
customers and customer deposits, back to a
benchmark floating rate where no existing offset is
available.
The scenarios considered include both parallel and
non-parallel movements of the yield curve and have
been designed to assess impacts across a suitable
range of severe but plausible movements in
interest
rates.
162
Tesco PLC Annual Report and Financial Statements 2023
162
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
The table below shows the interest rate risk profile for the Group’s financial instruments:
2023
2022
Cash and cash equivalents
Short-term investments
Investments in debt instruments at amortised cost
Investments at fair value through other comprehensive income
Investments at fair value through profit or loss
Joint ventures and associates loan receivables
Lease liabilities
Bank and other borrowings
Loans and advances to customers
Customer deposits
Deposits from banks
Derivative effect:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Total
Percentage of interest-bearing debt at fixed rate
Weighted average rate of interest paid on senior unsecured
debt, excluding joint ventures and associates
Fixed
£m
–
–
617
570
20
106
(7,727)
(6,054)
3,314
(5,770)
–
190
959
(346)
(14,121)
Floating
£m
2,465
1,628
476
9
–
–
–
(1,297)
3,767
–
(980)
(190)
(959)
346
5,265
Fixed
£m
–
–
518
590
25
105
(7,958)
(6,465)
3,293
(5,327)
–
(729)
895
(310)
(15,363)
Floating
£m
2,345
2,076
339
7
–
–
–
(934)
3,197
–
(1,052)
729
(895)
310
6,122
Total
£m
2,465
1,628
1,093
579
20
106
(7,727)
(7,351)
7,081
(5,770)
(980)
–
–
–
(8,856)
75%
3.87%
Total
£m
2,345
2,076
857
597
25
105
(7,958)
(7,399)
6,490
(5,327)
(1,052)
–
–
–
(9,241)
66%
2.34%
Inflation risk management
Description of risks
Index-linked debt, where the principal is
indexed to increase/decrease in line
with RPI or LPI.
Management policy
The Group’s policy is to hedge inflation in total balance
sheet debt (including index-linked bonds and RPI-linked
lease liabilities) on a portfolio basis alongside its interest
rate risk management.
Interest and inflation risk in total
balance sheet debt are managed to a combined target
of 50% fixed, with a tolerance of 15%, where RPI-linked
rents are considered to be floating.
Hedging strategy
LPI-linked debt, where the principal is indexed to RPI,
with an annual maximum increase of 5% and a
minimum of 0% is hedged 100% using derivative
contracts swapping it to be fixed.
Refer to Note 12 for information on the Group’s exposure to inflation-linked leases.
Commodity risk management
Description of risks
Changes in commodity prices largely
relating to diesel for own use.
Management policy
The Group policy is to hedge a minimum of 50% of the
forecast uncommitted exposure within the next 12
months.
Hedging strategy
Forward derivative contracts which are designated as
cash flow hedges are used to hedge future purchases
of diesel for own use. These are denominated in the
same currency and volume as the forecast purchases
and the hedge ratio is determined to be 1:1.
Financial instruments not qualifying for hedge accounting
The Group’s policy does not permit use of derivatives for trading purposes. However, some derivatives do not qualify for hedge accounting, or
specifically not designated as a hedge where gains and losses on the hedging instrument and the hedged item naturally offset in the Group income
statement. These instruments include index-linked swaps, interest rate swaps, cross-currency swaps and foreign currency forward contracts.
are
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
163
163
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
Sensitivity analysis
The impact on the financial statements of the Group, including Retail and Tesco Bank, from foreign currency, inflation, interest rate and
commodity price volatility is discussed below.
The analysis excludes the impact of movements in market variables on the carrying value of pension and other post-employment benefit
obligations and on the retranslation of overseas net assets. However, it does include the foreign exchange sensitivity resulting from local entity
non-functional currency financial instruments.
The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and
derivatives portfolio, and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations
in place at 25 February 2023. It should be noted that the sensitivity analysis reflects the impact on income and equity due to financial instruments
held at the balance sheet date. It does not reflect any change in sales or costs that may result from changing interest or
exchange rates.
The following assumptions were made in calculating the sensitivity analysis:
– the sensitivity of interest payable to movements in interest rates is calculated on net floating rate exposures on debt, deposits and derivative
instruments with no sensitivity assumed for RPI-linked borrowings, which have been swapped to fixed rates;
– changes in the carrying value of derivative financial instruments designated as fair value hedges against movements in interest rates or foreign
exchange rates have an immaterial effect on the Group income statement and equity due to compensating adjustments in the carrying value
of
debt;
– changes in the carrying value of financial instruments designated as net investment hedges against movements in foreign exchange rates are
recorded directly in the Group statement of comprehensive income/(loss);
– all other changes in the carrying value of derivative financial instruments designated as hedging instruments are fully effective with no impact
on the Group income statement; and
– the floating leg of any swap or any floating rate debt is treated as not having any interest rate already set, therefore a change in interest rates
affects a full 12-month period for the interest payable portion of the sensitivity calculations.
Using the above assumptions, the following table shows the quantitative effect on the Group income statement and the Group statement of
changes in equity that would result, at the balance sheet date, from changes in interest rates, inflation rates, currency exchange rates and
commodity prices that
are reasonably possible for major currencies where there have recently been significant movements:
1% increase in interest rates (2022: 1%)
5% appreciation of the Euro (2022: 10%)
10% appreciation of the US Dollar (2022: 10%)
50 basis points parallel upward shift in the forward inflation curve (2022: 100 basis points)
10% increase in commodity prices (2022: 10%)*
* Relating to diesel prices only, where derivatives are used to hedge risk.
2023
2022
Income
gain/(loss)
£m
(48)
(11)
34
101
1
Equity
gain/(loss)
£m
3
(79)
118
–
13
Income
gain/(loss)
£m
12
(19)
(11)
337
1
Equity
gain/(loss)
£m
4
(123)
69
–
9
A decrease in interest rates and commodity prices, depreciation of foreign currencies and downward shift in the forward inflation curve would
have the opposite effect to the impact in the table above.
The impact on the Group income statement resulting from changes in foreign exchange rates against GBP in relation to financial instruments
(excluding those arising on consolidation) is minimal as Group policy dictates that all material income statement foreign exchange exposures
are
hedged.
In prior years, the Group entered into a number of derivative index-linked contracts with external counterparties, to economically hedge a
proportion of the Group’s exposure to index-linked lease liabilities with its joint ventures. These are specifically not designated as accounting
hedges, but are economic hedges. However, the gains and losses on the hedging instrument and hedged item do not
income statement. This mismatch arises due to different accounting outcomes of IFRS 9 and IFRS 16, which results in a timing difference.
naturally offset in the Group
The impact on the Group statement of comprehensive income/(loss) from changing exchange rates results from the revaluation of financial
liabilities used as net investment hedges. The impact on the Group statement of comprehensive income/(loss) will largely be offset by the
revaluation in equity of the hedged assets in the Group statement of changes in equity.
Derivatives and hedging exposures
Derivatives are used to hedge exposure to market risks, some of which are economic hedges and others are formally designated hedging
instruments with hedge accounting applied. The main sources of hedge ineffectiveness are the effects of the counterparties’ and the Group’s
own credit risk on the fair value of derivatives.
The fair value and notional amounts of derivatives analysed by hedge type are shown on page 165.
164
Tesco PLC Annual Report and Financial Statements 2023
164
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Fair value hedges
Interest rate swaps
Cross-currency swaps
Cash flow hedges
Interest rate swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Derivatives not in a formal hedge
relationship
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Total
Asset
Liability
Asset
Liability
2023
2022
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
122
–
–
240
30
4
1
211
311
11
–
930
2,692
–
–
738
1,091
14
38
822
2,074
821
2
8,292
(147)
(137)
(3)
–
(58)
(13)
(9)
(4)
–
(14)
(2)
(387)
2,552
662
50
–
1,352
119
696
100
–
539
13
6,083
53
–
–
230
33
23
2
223
436
11
–
1,011
2,994
–
–
683
1,264
65
86
845
2,574
750
–
9,261
(65)
(85)
(11)
–
(8)
–
(197)
–
–
(17)
–
(383)
1,386
630
50
–
435
–
58
15
–
844
–
3,418
The following table sets out the maturity profile and average interest rates and foreign currency exchange rates of the hedging instruments used
in the Group’s hedging strategies:
Maturity profile
Notional amount (£m)
Fair value hedges
Interest rate swaps – GBP
Interest rate swaps – EUR
Cross currency swaps (GBP: EUR)*
Cash flow hedges
Index-linked swaps
Interest rate swaps
Average net interest rate (pay)/receive
Fair value hedges
Interest rate swaps – GBP
Interest rate swaps – EUR
Cross currency swaps (GBP: EUR)*
Cash flow hedges
Index-linked swaps
Interest rate swaps
Up to
one year
2023
One to
five years
More than
five years
Up to
one year
2022
One to
five years
More than
five years
1,366
662
–
–
–
(1.78)%
(1.81)%
–
–
–
2,663
–
–
392
–
(1.43)%
–
–
(4.23)%
–
553
–
662
346
50
(3.40)%
–
(4.65)%
(4.21)%
(4.46)%
852
–
–
–
–
0.14%
–
–
–
–
2,296
630
–
373
–
0.49%
0.82%
–
(4.23)%
–
602
–
630
310
50
(0.01)%
–
(1.17)%
(4.21)%
(4.46)%
* Average exchange rate for cross-currency swaps (GBP:EUR) is 1.13 (2022: 1.13).
At 25 February 2023, foreign currency forward contracts, designated as cash flow hedges, equivalent to £2.4bn were outstanding (2022: £1.7bn).
These forward contracts are largely in relation to purchases of Euros (notional €0.4bn) (2022: notional €0.7bn) and US Dollars (notional $1.1bn)
(2022: notional $0.9bn) with varying maturities up to July 2024.
For the above currencies the rates ranged from Euro/GBP 1.107 to 1.181 (2022: 1.082 to 1.195) and USD/GBP from 1.102 to 1.264 (2022: 1.319 to 1.419).
Forward commodity contracts hedging diesel purchases for own use as at 25 February 2023 had a GBP notional of £148m (2022: £65m) at a rate
of £494 to £980 (2022: £267 to £571) per tonne.
The notional and fair values of these contracts is shown in the table above.
The following table sets out the details of the hedged exposures covered by the Group’s fair value hedges:
Balance sheet
classification
Carrying amount
assets/(liabilities)
£m
2023
Accumulated
amounts of fair
value adjustments
on hedged item
assets/(liabilities)
£m
Changes in fair
value for
calculating
hedge
ineffectiveness
£m
2022
Accumulated
amounts of fair
value adjustments
on hedged item
assets/(liabilities)
£m
Changes in fair
value for
calculating hedge
ineffectiveness
£m
Carrying amount
assets/(liabilities)
£m
Interest rate risk
Fixed-rate loans
Fixed-rate savings
Fixed-rate investment securities
Fixed-rate bonds*
Loans and
advances to
customers
Customer
deposits
Investments in
debt instruments
at amortised cost
Borrowings
2,393
(695)
406
(75)
2
(44)
(44)
3,384
(30)
1
(33)
(1,481)
504
–
(11)
(37)
–
(22)
(2,605)
198
(141)
(2,796)
40
(101)
* The accumulated amount of fair value adjustments remaining in the Group balance sheet for hedged items that have ceased to be adjusted for hedging gains and losses was £(82)m for fixed-rate
bonds (2022: £(101)m).
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
165
165
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
The following table sets out information regarding the change in value of the hedged item used in calculating hedge ineffectiveness as well as the
impacts on the hedging reserve for cash flow hedge designations:
2023
Change in
value of hedging
instrument for
calculating
hedge
ineffectiveness
£m
Change in value
of hedged item
for calculating
hedge
ineffectiveness
£m
2022
Cumulative
impact on
hedging reserve(a)
£m
Change in
value of hedging
instrument for
calculating hedge
ineffectiveness
£m
Change in value
of hedged item
for calculating
hedge
ineffectiveness
£m
Cumulative
impact on hedging
reserve(a)
£m
9
8
47
7
–
24
(8)
(47)
(7)
–
42
8
(25)
(10)
34
72
(17)
50
12
–
(72)
17
(50)
(12)
–
90
1
16
23
36
Interest rate/inflation risk
Index‑linked bonds
Borrowings
Foreign currency risk
Trade payables
Commodity risk
Trade payables
Hedging instrument
Index-linked swaps
Interest rate swaps
Foreign currency
forward contracts
Diesel forward
contracts
Interest rate/foreign currency risk
MTNs(b)
Cross-currency swaps
(a) Excludes deferred tax.
(b) This is a discontinued hedge.
The following table sets out information regarding the effectiveness of hedging relationships designated by the Group, as well as the impacts on
profit or loss and other comprehensive income:
Fair value hedges – interest rate risk
Borrowings
Line item in Group
income statement
that includes hedge
ineffectiveness
2023
Hedge
ineffectiveness
recognised
in profit or loss
£m
2022
Hedge
ineffectiveness
recognised
in profit or loss
£m
Finance income
4
1
The following table presents a reconciliation by risk category of the cash flow hedge and cost of hedging reserves and an analysis of other
comprehensive income in relation to hedge accounting:
Interest rate/inflation risk
At 27 February 2021
Net fair value gains/(losses)
Amount reclassified to finance income/(cost)
in Group income statement
Amount reclassified to inventories
Tax
At 26 February 2022
Net fair value gains/(losses)
Amount reclassified to finance income/(cost)
in Group income statement
Amount reclassified to inventories
Tax
At 25 February 2023
Index-linked swaps
£m
57
26
(6)
–
(9)
68
9
(54)
–
11
34
Interest rate swaps
£m
15
17
(33)
–
2
1
8
(2)
–
(2)
5
Interest rate/
foreign currency risk
Cross-currency swaps
£m
36
–
(6)
Foreign currency/commodity risk
Foreign currency
forward contracts(a)
£m
6
(5)
–
Diesel forward
contracts(a)
£m
(24)
39
–
Hedging reserve(b)
£m
90
77
(45)
–
(3)
27
–
(2)
–
–
25
18
(4)
15
47
(3)
(87)
4
(24)
12
(8)
19
7
–
(40)
7
(7)
30
(22)
130
71
(61)
(127)
20
33
(a) Net fair value gains/(losses) relates to inventory cash flow hedges of £54m (2022: £33m) and other cash flow hedges of £nil (2022: £1m).
(b) The Group’s cost of hedging reserve is £nil (2022: £nil).
166
Tesco PLC Annual Report and Financial Statements 2023
166
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Net investment hedges
The details of the hedging instruments and movements in cumulative impact on net investment hedges in other comprehensive income are set
out below:
At 27 February 2021
Change in value for calculating ineffectiveness
Reclassified to Group income statement(b)
At 26 February 2022
Change in value for calculating ineffectiveness
At 25 February 2023
Nominal amount of hedging
instrument
£m
Nominal amount of hedged
item
£m
1,300
(40)
–
1,260
65
1,325
(1,300)
40
–
(1,260)
(65)
(1,325)
Cumulative impact on net
investment hedges(a)
£m
(1,012)
40
243
(729)
(65)
(794)
(a) As at 25 February 2023 the discontinued hedge balance is £(765)m (2022: £(765)m).
(b) In the prior year there was a reclassification to the income statement from the translation reserve of £243m relating to the disposal of the Group’s operation in Poland.
Net investment hedge ineffectiveness was £nil (2022: £nil) during the year.
During the current financial year, currency movements increased the net value, after the effects of hedging, of the Group’s overseas assets
by
currency
£120m (2022: decrease by £39m). The Group also ensures that each subsidiary is appropriately hedged in respect of its non-functional
assets.
(b) Credit risk
Description of risk
A counterparty will not meet its
obligations leading to a financial loss for
the Group. This arises from cash and
cash equivalents, short-term
investments, trade receivables, other
receivables, joint venture and associate
loan receivables, loans and advances to
customers, reinsurance assets, other
investments, and derivative financial
instruments.
Management policy
For cash and cash equivalents, short-term
investments, other investments and derivative financial
instruments:
– The Group holds positions with an approved list of
investment-grade rated counterparties.
– Counterparty credit limits are set to minimise the
concentration of risk and are set taking into account
the type and value of the specific financial asset.
For trade receivables, other receivables, joint venture
and associate loan receivables, loans and advances to
customers and reinsurance assets:
– The Group’s credit risk is managed with various
mitigating controls including credit checks, credit
insurance and master netting agreements. Due to
the nature of the Retail and Tesco Bank businesses,
there is little concentration of risk due to the large
number of customers which are spread across wide
geographical areas.
Measurement
The Group monitors the exposure, credit rating,
outlook and credit default swap levels of these
counterparties on a regular basis.
Counterparty credit limits are reviewed every six
months (every two years at Tesco Bank), and may
be
updated throughout the financial year.
Refer to page 171 for information on the expected
credit losses of these assets.
Maximum exposure to credit risk
The maximum exposure to credit risk at the end of the reporting period reflects the carrying amount of each class of financial assets, including
loan commitments which are not recognised on the balance sheet. Joint ventures and associates loan receivables in the table below are gross of
deferred profits historically arising from the sale of property assets to joint ventures (refer to Note 31). The Group’s maximum exposure to credit
risk
is £27.1bn (2022: £26.8bn).
The net counterparty exposure under derivative contracts is £0.7bn (2022: £0.7bn).
The Group’s maximum gross exposure to credit risk is analysed below by class of financial instrument, including for financial instruments that are
not subject to ECL i.e. derivative financial instruments and cash balances with central banks:
Cash and cash equivalents(a)
Short-term investments
Trade receivables
Other receivables
Joint ventures and associates loan receivables
Loans and advances to customers
Other investments
Derivative financial assets:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
Off balance sheet:
Loan commitments(b)
Maximum exposure to credit risk
(a) Cash balances with central banks of £1.6bn (2022: £1.5bn) are included within cash and cash equivalents.
(b) Loan commitments represents the undrawn amount contractually committed by Tesco Bank.
2023
£m
2,465
1,628
531
374
144
7,081
1,692
123
211
551
41
4
2022
£m
2,345
2,076
457
478
143
6,490
1,479
55
223
666
44
23
12,212
27,057
12,363
26,842
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
167
167
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
Counterparty credit rating
The table below provides details of financial assets by long-term credit rating of investment-grade rated counterparties:
Rating
Money market funds, deposits and
similar instruments
Investments in debt instruments at
amortised cost(a)
Investments at fair value through other
comprehensive income(b)
Investments at fair value through profit
or loss(c)
Derivative financial assets:
Interest rate swaps
Cross-currency swaps
Index-linked swaps
Foreign currency forward contracts
Diesel forward contracts
2023
2022
AAA
660
486
94
–
–
–
–
–
–
AA
200
57
84
1
121
–
–
–
–
A
468
339
233
–
2
186
120
31
–
BBB
300
199
154
–
–
25
431
10
4
Total
1,628
1,081
565
1
123
211
551
41
4
AAA
1,170
529
133
–
–
–
–
–
–
AA
350
92
95
2
45
–
–
2
–
A
481
236
238
–
10
221
115
36
14
BBB
75
–
119
–
–
2
551
5
10
Total
2,076
857
585
2
55
223
666
43
24
(a) Excludes £12m (2022: nil) of investments in debt instruments that do not have a credit rating.
(b) Excludes £14m (2022: £12m) of investments in equity instruments that do not have a credit rating.
(c) Excludes £19m (2022: £23m) of property fund investments that do not have a credit rating.
The low credit risk exemption has been applied to cash and cash equivalents, money market funds, deposits and similar investments, investments
in debt instruments at fair value through other comprehensive income (FVOCI), investments at fair value through profit or loss (FVPL) and
investments in debt instruments at amortised cost, except those investments held in Tesco Bank, as these are held with counterparties with
investment-grade ratings (BBB or above) or are short-term in nature. The expected credit loss is immaterial.
Expected credit losses
The Group applies either the simplified approach or the three-stage model for expected credit losses, depending on the nature of the financial
asset. Refer to Note 1 for further detail.
The Group’s financial assets are written off when the balance is known not to be recoverable or the Group is time-barred from recovering a
balance under local legislation.
The expected credit losses for Retail are immaterial. Gross loans to related parties of £144m (2022: £143m) are presented net of loss allowances
of £nil (2022: £nil) and deferred profits of £38m
probability of default (PD), exposure at default (EAD) and the loss given default (LGD) for the relevant time period and for each specific loan and by
discounting back to the balance
£38m) on the Group balance sheet. The ECL is determined by multiplying together the
sheet date.
(2022:
For details of credit risk relating to reinsurance assets and the expected credit losses on loans and advances to customers and investments held
in Tesco Bank, refer to the separate section on Tesco Bank financial risk factors on page 173.
(c) Liquidity risk
Description of risk
Difficulty in meeting the obligations
associated with the Group’s financial
liabilities.
Management policy
The Group finances its liquidity position and its
operations by a combination of retained profits,
disposals of assets, debt capital market issuance,
commercial paper, bank borrowings and leases. The
policy is to maintain a prudent level of cash together
with sufficient committed bank facilities to meet
liquidity needs as they arise, to maintain a smooth debt
profile and ensure maturing senior unsecured debt will
not exceed £1.5bn in any 12-month period.
Measurement
Liquidity risk is continuously monitored by short-term
and long-term cash flow forecasts.
The Group is investment-grade rated with all three major credit rating agencies and retains access to capital markets so that maturing debt may
be refinanced as it falls due.
Rating agency
Fitch
Moody’s
Standard & Poor’s
Short-term
rating
F3
P–3
A–3
2023
Long-term
rating
BBB–
Baa3
BBB–
Outlook
Stable
Stable
Stable
Short-term
rating
F3
P–3
A–3
2022
Long-term
rating
BBB–
Baa3
BBB–
Outlook
Stable
Stable
Stable
The Group has a £15.0bn Euro Medium Term Note programme, of which £3.8bn was in issue at 25 February 2023 (2022: £3.9bn), plus £0.4bn
equivalent of USD-denominated notes issued under Rule 144A documentation (2022: £0.3bn).
168
Tesco PLC Annual Report and Financial Statements 2023
168
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Borrowing facilities
The Group has the following undrawn committed facilities available at 25 February 2023, in respect of which all conditions precedent had been
met as at that date:
Expiring in less than one year
Expiring between one and two years
Expiring in more than two years
Total
2023
£m
38
200
2,500
2,738
2022
£m
38
200
2,500
2,738
During the current financial year, the multicurrency £2.5bn revolving facility was renegotiated and extended for three years, maturing in 2025. The
cost of the facility is linked to three ESG targets and includes the use of risk-free rates rather than SONIA. All three targets were met during the
financial year ending 25 February 2023, leading to a reduction in the interest rate loan margin.
In addition, Tesco Bank has a separate £200m committed repurchase facility, maturing in 2024.
Both facilities incur commitment fees at market rates and would provide funding at floating rates. There were no withdrawals from the facilities
during the year.
Maturities of financial liabilities
The following is an analysis of the undiscounted contractual cash flows payable under financial liabilities and derivative liabilities, taking into
account contractual terms that provide the counterparty a choice of when (the earliest date) an amount is repaid by the Group. The potential
cash outflow is considered acceptable as it is offset by financial assets.
The undiscounted cash flows will differ from both the carrying values and fair values. Floating-rate interest and inflation is estimated using the
prevailing rate at the balance sheet date. Cash flows in foreign currencies are translated using spot rates at the balance sheet date.
At 25 February 2023
Non-derivative financial liabilities
Bank and other borrowings
Interest payments on borrowings
Customer deposits
Deposits from banks
Lease liabilities
Trade payables
Other payables
Accruals
Derivative financial liabilities
Net settled derivative contracts – receipts
Net settled derivative contracts – payments
Gross settled derivative contracts – receipts
Gross settled derivative contracts – payments
Total on balance sheet
Off balance sheet
Contractual lending commitments
Total
At 26 February 2022
Non-derivative financial liabilities
Bank and other borrowings
Interest payments on borrowings
Customer deposits
Deposits from banks
Lease liabilities
Trade payables
Other payables
Accruals
Derivative financial liabilities
Net settled derivative contracts – receipts
Net settled derivative contracts – payments
Gross settled derivative contracts – receipts*
Gross settled derivative contracts – payments*
Total on balance sheet
Off balance sheet
Contractual lending commitments
Total
Due within
1 year
£m
Due between
1 and 2
years
£m
Due between
2 and 3
years
£m
Due between
3 and 4
years
£m
Due between
4 and 5
years
£m
Due beyond
5 years
£m
(1,685)
(192)
(4,593)
(124)
(944)
(6,359)
(1,740)
(877)
51
(82)
1,788
(1,899)
(16,656)
(618)
(175)
(935)
(142)
(901)
–
(31)
–
34
(44)
80
(115)
(2,847)
(893)
(159)
(160)
(814)
(878)
–
(62)
–
31
(19)
9
(40)
(2,985)
(728)
(131)
(29)
–
(856)
–
(21)
–
8
(48)
116
(147)
(1,836)
(71)
(122)
(119)
–
(824)
–
(2)
–
17
(15)
2
(30)
(1,164)
(3,654)
(891)
–
–
(6,494)
–
(30)
–
30
(22)
667
(708)
(11,102)
(12,212)
(28,868)
–
(2,847)
–
(2,985)
–
(1,836)
–
(1,164)
–
(11,102)
Due within
1 year
£m
Due between
1 and 2
years
£m
Due between
2 and 3
years
£m
Due between
3 and 4
years
£m
Due between
4 and 5
years
£m
Due beyond
5 years
£m
(625)
(199)
(4,677)
(163)
(934)
(5,641)
(1,863)
(827)
4
(18)
1,282
(1,295)
(14,956)
(12,363)
(27,319)
(757)
(197)
(444)
(17)
(911)
–
(11)
–
9
(65)
3
(21)
(2,411)
–
(2,411)
(708)
(179)
(160)
(115)
(863)
–
–
–
4
(148)
3
(20)
(2,186)
(896)
(161)
(24)
(805)
(840)
–
(1)
–
3
(8)
3
(18)
(2,747)
(701)
(134)
(25)
–
(820)
–
(1)
–
–
(7)
3
(17)
(1,702)
(3,720)
(999)
–
–
(7,147)
–
(29)
–
–
(10)
662
(729)
(11,972)
–
(2,186)
–
(2,747)
–
(1,702)
–
(11,972)
* Comparatives have been re-presented on a gross basis and include derivatives of £1,955m which were previously presented net within receipts and payments.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
169
169
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
The Group is not subject to covenants in relation to its facilities and borrowings. There is an element of seasonality in the Group’s operations,
however the overall impact on liquidity is not considered significant.
(d) Other risks
Risk
Capital risk
Description of risk
Ability to continue as a going concern
in order to provide returns to
shareholders and benefits for other
stakeholders, while protecting and
strengthening the Group balance
sheet through the appropriate
balance of debt and equity funding.
Operational
insurance risk
The Group is inadequately protected
from liabilities arising from
unforeseen events in its operations.
Management policy
The Group manages its capital structure (net debt plus
equity) and makes adjustments to it:
– in light of changes to economic conditions and the
strategic objectives of the Group.
Measurement
Refer to Note 32 for the value of the
Net debt, and the Group statement of
changes in equity for the value of the
Group’s equity.
– through dividend payments to shareholders, buying
back shares and cancelling them or issuing new
shares. During the current financial year, the Group
completed the share buyback programme and
cancelled these shares (refer to Note 30).
– by raising finance in the public debt markets and
borrowing centrally and locally from financial
institutions, using a variety of capital market
instruments and borrowing facilities to meet the
requirements of each local business.
The Group purchased assets, earnings and combined
liability protection from the open insurance market for
higher value losses only.
The risk not transferred to the insurance market is
retained within the Group with some cover being
provided by the Group’s captive insurance
ELH Insurance Limited in Guernsey, which is
consolidated in the Group financial statements,
combined liability.
covering assets, earnings and
company,
Refer to Note 22 for details on
operational insurance provisions.
Tesco Bank
Information on the management of the financial risks specifically relating to Tesco Bank, which is additional to the information provided for the
Group overall, is set out below:
(a) Capital risk
Description of risk
Tesco Bank, including TU, has insufficient capital resources to
support its plan and meet minimum capital requirements.
Management policy
Tesco Bank
It is Tesco Bank’s policy to maintain a strong capital base, to expand it as appropriate and to
utilise it efficiently throughout its activities to optimise the return to shareholders while
maintaining a prudent relationship between the capital base and the underlying risks of the
business. In carrying out this policy, Tesco Bank has regard to the supervisory requirements
of the Prudential Regulation Authority (PRA).
Insurance capital
Solvency II (SII) came into force on 1 January 2016. It provides a framework for managing and
measuring the risks and the solvency position for all
Following the UK’s departure from the EU, the SII framework continues to be applied in the
UK and its requirements are applicable to TU. TU assesses its Solvency Capital Requirement
(SCR) using a Partial Internal Model for capital which was approved by the PRA in 2020. TU
models a range of stress and scenario tests that are published in its annual Solvency and
Financial Condition Report. These show that TU’s capital position is resilient to a range of
possible scenarios. TU also maintains a capital contingency plan supported by its direct
shareholder, Tesco Personal Finance plc.
insurance companies in the EU.
170
Tesco PLC Annual Report and Financial Statements 2023
170
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Tesco Bank capital resources
The following table analyses the regulatory capital resources of Tesco Personal Finance Group PLC (TPFG), being the regulated entity at the
balance sheet date:
Common equity tier 1 capital:
Shareholders’ funds and non-controlling interests, net of tier 1 regulatory adjustments
Tier 2 capital:
Qualifying subordinated debt
Other interests
Total tier 2 regulatory adjustments
Total regulatory capital
2023
£m
1,548
235
–
(42)
1,741
2022
£m
1,528
235
–
(42)
1,721
IFRS 9 became effective for annual periods beginning on or after 1 January 2018 and is reflected in the Tesco Bank disclosures. Tesco Bank has
elected to use the transitional arrangements available under Article 473a of the Capital Requirements Regulations (CRR). These arrangements
allow the IFRS 9 impact on capital to be phased in over a period of five years. On 27 June 2020, the CRR was further amended to accelerate
specific CRR2 measures and implement a new IFRS 9 transitional relief calculation which applies additional relief to increases in expected credit
losses (ECL) provisions arising as a result of the COVID-19 pandemic.
The resulting impact is the IFRS 9 transitional arrangements have been extended by two years and a new modified calculation has been introduced.
Insurance capital
Available capital has remained above the SCR requirement during the period to 25 February 2023 and capital coverage of TU’s SCR at the end of
February 2023 was 159.0% (2022: 151.0%) (unaudited).
During the year, the Group was compliant with the externally imposed capital requirements.
(b) Liquidity risk
Description of risk
The risk that Tesco Bank has insufficient liquidity resources to
meet its obligations as they fall due. Funding risk is the risk
that Tesco Bank does not have sufficiently stable and diverse
sources of funding.
Management policy
Tesco Bank, including TU, operates within a liquidity risk management policy framework
(LRMP) to ensure that sufficient funds are available at all times to meet demands from
depositors, to fund agreed advances, to meet other commitments as and when they fall
due, and to ensure risk appetite is met.
Liquidity and funding risks are assessed through the individual liquidity adequacy
assessment process on at least an annual basis. Formal limits are set within the LRMP to
maintain liquidity risk exposures within the liquidity risk appetite set by Tesco Bank’s Board
of Directors and key liquidity measures are monitored on a regular basis. Tesco Bank
maintains a conservative liquidity and funding profile to confirm that it is able to meet
its
financial obligations under normal and stressed market conditions.
The table below shows information about the timing of cash outflows in relation to insurance claims liabilities, net of salvage and subrogation
recoveries, based on current best estimates. The estimated phasing is based on current estimates and the actual timing of
future settlement
cash flows may differ from that disclosed below:
Due within one year
Due between two and five years
Due beyond five years
Total outstanding claims, net of salvage and subrogation recoveries
(c) Credit risk
2023
£m
101
162
125
388
%
26
42
32
100
2022
£m
83
194
195
472
%
18
41
41
100
Description of risk
Retail customer or counterparty to a wholesale transaction
will fail to meet its obligations in accordance with
contractually agreed terms and Tesco Bank will incur losses
as a result.
Credit risk principally arises from the Bank’s retail lending
activities but also from the placement of surplus funds with
other banks and money 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.
Management policy
To minimise the potential exposure to bad debts that are outside risk appetite, processes,
systems and limits have been established that cover the end-to-end retail credit risk
customer life cycle. These include credit scoring, affordability, credit
policies and guides,
and monitoring and reporting. The Bank is also exposed to wholesale credit risk primarily
through its treasury activities.
Controls and risk mitigants include daily monitoring of exposures, investing in
counterparties with investment-grade ratings, restricting the amount that can be invested
with one counterparty and credit-rating mitigation techniques. Assessment of the
expected credit loss (ECL) on loans and advances to customers has taken into account a
range of macroeconomic scenarios.
Reinsurance assets are subject to annual impairment assessment based on the credit
ratings of the existing reinsurers which are monitored by TU’s Reinsurance Committee.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
171
171
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
Maximum exposure to credit risk
The table below presents Tesco Bank’s maximum exposure to credit risk i.e. total gross exposure, by stages and by class of financial instruments.
For financial assets, the balances are based on gross carrying amounts. For loan commitments, the amounts represent the amounts for which
Tesco Bank is contractually committed:
Stage 1
Stage 2
Stage 3
Total
At 25 February 2023
Loans and advances to customers
Investments at FVOCI
Investments in debt instruments at
amortised cost
Loan commitments – loans and
advances to customers(a)
Total gross exposure
Loss allowance
Loans and advances to customers(a)
Investments at FVOCI(b)
Investments in debt instruments at
amortised cost
Total loss allowance
Net exposure
Loans and advances to customers
Investments at FVOCI
Investments in debt instruments at
amortised cost
Total net exposure
Coverage
Loans and advances to customers
£m
5,792
565
883
Not past
due
£m
1,559
–
–
<30 days
past due
£m
40
–
–
>30 days
past due
£m
24
–
–
11,508
690
18,748
2,249
57
1
–
58
5,735
564
883
7,182
258
–
–
258
1,301
–
–
1,301
6
46
19
–
–
19
21
–
–
21
–
24
14
–
–
14
10
–
–
10
Total
£m
1,623
–
–
696
2,319
291
–
–
291
1,332
–
–
1,332
£m
202
–
–
8
210
113
–
–
113
89
–
–
89
£m
7,617
565
883
12,212
21,277
461
1
–
462
7,156
564
883
8,603
1%
17%
48%
58%
18%
56%
6%
(a) The loss allowance in respect of loan commitments in relation to credit card products is included within the total loss allowance for loans and advances to customers above to the extent that it is
below the gross carrying amount of loans and advances to customers. Where the loss allowance exceeds the gross carrying amount, any excess is included within provisions.
(b) The loss allowance for investments at FVOCI is not recognised in the carrying amount of the investments as the carrying amount is their fair value.
Stage 1
Stage 2
Stage 3
Total
At 26 February 2022
Loans and advances to customers
Investments at FVOCI
Investments in debt instruments at
amortised cost
Loan commitments – loans and
advances to customers(a)
Total gross exposure
Loss allowance
Loans and advances to customers(a)
Investments at FVOCI(b)
Investments in debt instruments at
amortised cost
Total loss allowance
Net exposure
Loans and advances to customers
Investments at FVOCI
Investments in debt instruments at
amortised cost
Total net exposure
Coverage
Loans and advances to customers
Refer to previous table for footnotes.
£m
5,973
585
857
12,029
19,444
95
1
–
96
5,878
584
857
7,319
Not past
due
£m
797
–
–
325
1,122
247
–
–
247
550
–
–
550
<30 days
past due
£m
22
–
–
>30 days
past due
£m
16
–
–
2
24
9
–
–
9
13
–
–
13
1
17
10
–
–
10
6
–
–
6
Total
£m
835
–
–
328
£m
201
–
–
6
£m
7,009
585
857
12,363
1,163
207
20,814
266
–
–
266
569
–
–
569
128
–
–
128
73
–
–
73
489
1
–
490
6,520
584
857
7,961
2%
31%
41%
63%
32%
64%
7%
For reinsurance assets the maximum exposure to credit risk is their carrying amount. Refer to page 176 for the credit rating of the reinsurers.
Expected credit losses (ECL)
The ECL is determined by multiplying together the probability of default (PD), exposure at default (EAD) and loss given default (LGD) for the
relevant time period and for each asset category and by discounting back to the balance sheet date. The ECL calculation and the measurement
of significant deterioration in credit risk both incorporate forward-looking information using a range of macroeconomic scenarios, with key
variables being the Bank of England base rate, unemployment rate and gross domestic product. The
historical patterns observed over a range of economic cycles.
economic variables are based on
key
172
Tesco PLC Annual Report and Financial Statements 2023
172
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
The tables below present the reconciliations of ECL allowances on loans and advances to customers:
At 25 February 2023
Gross exposure
Loan commitments
Total exposure
Allowance for expected credit losses
At 26 February 2022
Transfers:
Transfers from stage 1 to stage 2
Transfers from stage 2 to stage 1
Transfers to stage 3
Transfers from stage 3
Movements recognised in the Group income statement:
Net remeasurement following transfer of stage
New financial assets originated
Financial assets derecognised during the current financial year
Changes in risk parameters and other movements
Other movements:
Write-offs and asset disposals
Transfers to provisions for liabilities and charges
At 25 February 2023
Reconciliation to Group balance sheet
Gross exposure
Allowance for expected credit losses
Fair value adjustment
Carrying value at 25 February 2023
At 26 February 2022
Gross exposure
Loan commitments
Total exposure
Allowance for expected credit losses
At 27 February 2021
Transfers:
Transfers from stage 1 to stage 2
Transfers from stage 2 to stage 1
Transfers to stage 3
Transfers from stage 3
Movements recognised in the Group income statement:
Net remeasurement following transfer of stage
New financial assets originated
Financial assets derecognised during the current financial year
Changes in risk parameters and other movements
Other movements:
Write-offs and asset disposals
Transfers to provisions for liabilities and charges
At 26 February 2022
Reconciliation to Group balance sheet
Gross exposure
Allowance for expected credit losses
Fair value adjustment
Carrying value at 26 February 2022
Stage 1
£m
5,792
11,508
17,300
2023
Stage 2
£m
1,623
696
2,319
Stage 3
£m
202
8
210
Total
£m
7,617
12,212
19,829
(266)
(128)
(489)
(95)
21
(20)
3
(1)
8
(25)
6
48
–
(2)
(57)
(21)
20
21
(2)
(27)
(63)
5
41
2
(1)
(291)
5,792
(57)
5,735
1,623
(291)
1,332
Stage 1
£m
5,973
12,029
18,002
2022
Stage 2
£m
835
328
1,163
Stage 3
£m
201
6
207
–
–
(24)
3
(54)
(7)
3
(11)
105
-
(113)
202
(113)
89
–
–
–
–
(73)
(95)
14
78
107
(3)
(461)
7,617
(461)
7,156
(75)
7,081
Total
£m
7,009
12,363
19,372
(131)
(341)
(153)
(625)
19
(45)
5
(2)
34
(21)
15
36
–
(5)
(95)
5,973
(95)
5,878
(19)
45
38
(3)
(12)
(9)
16
24
2
(7)
(266)
835
(266)
569
–
–
(43)
5
(58)
(4)
3
(10)
132
–
(128)
201
(128)
73
–
–
–
–
(36)
(34)
34
50
134
(12)
(489)
7,009
(489)
6,520
(30)
6,490
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
173
173
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
Tesco Bank defines four classifications of credit quality for all credit exposures: high, satisfactory, low and below standard. Credit exposures are
segmented according to the probability of default (PD), with credit impaired reflecting a PD of 100%.
At 25 February 2023
Loans and advances to customers:
High quality
Satisfactory quality
Low quality and below standard
Credit impaired
At 26 February 2022
Loans and advances to customers:
High quality
Satisfactory quality
Low quality and below standard
Credit impaired
12-month PD
%
≤3.02
>3.03 - 11.10
≥11.11
100
12-month PD
%
≤3.02
>3.03 – 11.10
≥11.11
100
Stage 1
£m
5,598
186
8
–
5,792
Stage 1
£m
5,666
288
19
–
5,973
Stage 2
£m
742
610
271
–
1,623
Stage 2
£m
300
390
145
–
835
Stage 3
£m
–
–
–
202
202
Stage 3
£m
–
–
–
201
201
Total
£m
6,340
796
279
202
7,617
Total
£m
5,966
678
164
201
7,009
Default
An account is deemed to have defaulted when Tesco Bank considers that a customer is in significant financial difficulty and that the customer
meets certain quantitative and qualitative criteria regarding their ability to make contractual payments when due. This includes instances where:
– the customer makes a declaration of significant financial difficulty;
– the customer or third-party agency communicates that it is probable that the customer will enter bankruptcy or another form of financial
restructure such as insolvency or repossession;
– the account has been transferred to recoveries and the relationship is terminated;
– an account’s contractual payments are more than 90 days past due; or
– where the customer is deceased.
A loan deemed uncollectable is written off against the related provision after all of the necessary procedures have been completed and the
amount of the loss has been determined. Tesco Bank may write off loans that are still subject to enforcement activity. The outstanding
contractual amount of such assets written off was £115m (2022: £110m).
that was expected at the reporting date at initial recognition (PD threshold). Tesco Bank has established PD thresholds for each type of
a backstop based on arrears status. For each financial asset, Tesco Bank compares the lifetime PD at the reporting date with the lifetime
Significant increase in credit risk
At each reporting date, the change in credit risk of the financial asset is observed using a set of quantitative and qualitative criteria, together
with
PD
product which
customers in financial difficulty; risk-based pricing post-origination; credit indebtedness; credit limit decrease; and pre-delinquency information.
As a backstop, Tesco Bank considers that if an account’s contractual payments are more than 30 days past due then a significant increase in
credit risk has taken place.
vary depending on initial term and term remaining. A number of qualitative criteria are in place such as: forbearance offered to
Tesco Bank has commissioned four scenarios from its third-party provider: a Base scenario; an Upside scenario; and two different Downside
scenarios. The Base scenario assumes the continuation of war in Ukraine affecting energy prices and inflation, with GDP not expected to return to
pre-pandemic levels until Q2 2025. The scenario projects cost-of-living pressures continuing, real disposable income declining and
unemployment peaking at 5.7% by Q4 2024. The Upside scenario sees a dissipation in global supply chain disruption and a peak unemployment
rate of 4.4% in 2024, while Downside scenario 1 assumes a 7.3% unemployment peak by 2025. Downside scenario 2 postulates spikes in energy
prices, higher inflation and further deprecation of Sterling against the US Dollar, with subsequent GDP declines and a 9.6% unemployment peak in
2025. These scenarios are also reviewed to ensure an unbiased estimate of ECL by ensuring the credit loss distribution under a larger number of
scenarios is adequately captured using these four scenarios and their respective weightings. The Base, Upside, Downside 1 and Downside 2
scenarios have been assigned weighting of 40%, 30%, 25% and 5% respectively.
The economic scenarios used include the following ranges of key indicators:
As at 25 February 2023 (five-year average)
Bank of England base rate(a)
Gross domestic product(b)
Unemployment rate
Unemployment rate peak in year
As at 26 February 2022 (five-year average)
Bank of England base rate(a)
Gross domestic product(b)
Unemployment rate
Unemployment rate peak in year
(a) Simple average.
(b) Annual growth rates.
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Tesco PLC Annual Report and Financial Statements 2023
Base
40%
3.8%
1.0%
5.2%
5.4%
Base
40%
1.0%
1.8%
4.1%
4.2%
Upside
30%
3.0%
1.5%
4.2%
4.2%
Upside
30%
1.2%
2.2%
3.9%
3.9%
Downside 1
25%
4.7%
0.4%
6.5%
6.8%
Downside 1
25%
0.7%
1.5%
4.9%
5.1%
Downside 2
5%
5.8%
(0.1)%
8.4%
8.9%
Downside 2
5%
0.4%
1.2%
6.3%
6.7%
Financial statements
Key assumptions and sensitivity
The key assumptions to which the Tesco Bank ECL is most sensitive are macroeconomic factors, probability of default (PD), loss given default
(LGD), PD threshold (staging) and expected lifetime (revolving credit facilities). The table below sets out the changes in the ECL allowance that
would arise from reasonably possible changes in these assumptions from those used in Tesco Bank’s calculations as at 25 February 2023 and
excludes specific management overlays which are discussed further below:
Key assumption
Closing ECL allowance
Macroeconomic factors (100% weighted)
Probability of default
Loss given default
Probability of default threshold (staging)
Expected lifetime (revolving credit facility)
Reasonably possible change
Upside scenario
Base scenario
Downside scenario 1
Downside scenario 2
Increase of 10% (2022: 2.5%)
Decrease of 10% (2022: 2.5%)
Increase of 2.5%
Decrease of 2.5%
Increase of 20%
Decrease of 20%
Increase of 1 year
Decrease of 1 year
Impact on the loss allowance
2023
£m
461
(59)
(11)
65
161
32
(31)
10
(10)
(9)
13
3
(5)
2022
£m
489
(27)
(13)
31
110
6
(6)
7
(7)
(9)
13
11
(10)
Despite stability in the performance of the underlying portfolio, the increased risk from a high inflationary environment and cost-of-living crisis
creates uncertainty on future loss projections and the current model outputs. As a result, Tesco Bank has recognised certain specific
management overlays, to address the prevailing downside risks and ensure the potential impacts of future stress are adequately provided for,
detailed below:
Overlay
Underestimation risk
Cost of living
Consumer spending
Emergence of customer defaults
War in Ukraine
Total overlays
Description of adjustment
Risk that the beneficial impact of recent credit loss trends incorporated
into credit risk models are transitive and may reverse due to the
uncertain economic climate
A portion of Tesco Bank’s customers may be more impacted by cost-of-
living pressures, with deterioration in their ability to repay unsecured
lending balances
In respect of the beneficial modelling impact of lower consumer
spending through the pandemic
The emergence of defaults will be more aligned with previous economic
downturns
Further potential inflationary pressures on cost of living
2023
£m
68
22
–
–
–
90
2022
£m
–
75
113
19
6
213
Forbearance
Tesco Bank could be exposed to unacceptable levels of bad debt and also suffer reputational damage if it did not provide adequate support to
customers who are experiencing financial difficulties. Forbearance is relief granted by a lender to assist customers in financial difficulty, through
arrangements which temporarily allow the customer to pay an amount other than the contractual amounts due. These temporary arrangements
may be initiated by the customer or Tesco Bank where financial distress would prevent repayment within the original terms and conditions of the
contract. The main aim of forbearance is to support customers in returning to a position where they are able to meet their contractual obligations.
Tesco Bank has adopted the definition of forbearance in the European Banking Authority’s (EBA) final draft Implementing Technical Standards (ITS)
of July 2014 and reports all accounts meeting this definition, providing for them appropriately.
Tesco Bank has well defined forbearance policies and processes. A number of forbearance options are made available to customers. These
routinely, but not exclusively, include the following:
– arrangements to repay arrears over a period of time, by making payments above the contractual amount, that ensure the loan is repaid within
the original repayment term; and
– short-term concessions, where the borrower is allowed to make reduced repayments (or in exceptional circumstances, no repayments) on a
temporary basis to assist with short-term financial hardship.
Credit cards
Loans
(d) Insurance risk
Description of risk
Risks accepted through the provision of insurance products
in return for a premium, exposed through the wholly-owned
subsidiary of Tesco Bank, TU. These risks may or may not
occur as expected and the amount and timing of these risks
are uncertain and determined by events outside of the
Group’s control (e.g. flood or vehicular accident).
Gross loans and
advances subject to
forbearance programmes
Forbearance programmes as a
proportion of total loans and
advances
by category
Proportion of forbearance
programmes covered by allowance
for
expected credit losses
2023
£m
102
30
2022
£m
106
39
2023
%
3
1
2022
%
3
1
2023
%
49
31
2022
%
51
47
Management policy
TU operates a separate risk framework with dedicated risk and compliance teams and a
suite of TU risk policies to ensure that the TU insurance portfolio is operating within agreed
risk appetite.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
175
175
Financial statements
Notes to the Group financial statements continued
Note 27 Financial risk management continued
Types of insurance risk
Risks
Underwriting
Description of risks
Policies not priced correctly due to underestimating
the frequency and/or severity of the claims and/or
that payments are required under conditions that
were not anticipated.
Claims reserving
Estimates of insurance liabilities prove to be
insufficient through inaccurate forecasting, adverse
random variation and additional expenses.
Mitigation
The Group has large numbers of policyholders with homogeneous
exposures such as car and home policies. Products are priced
based on the Group’s knowledge using past exposures, historical
losses (plus an appropriate allowance for IBNR losses) and external
data sources, with the appropriate adjustments to reflect
anticipated future market conditions and expenses.
The aim of the reserving policy is to provide estimates of
insurance liabilities that are accurate and reliable across each line
of business and are consistent over the time period required to
settle all the claims. Provisions are monitored on an ongoing basis
by a Reserving Committee and the TU Board, and an annual
independent review is undertaken.
Claims management Claims management risk may arise in the event of
The Group’s approach to claims management focuses upon
Reinsurance
inaccurate or incomplete case reserving or
settlement, poor customer service, claims fraud,
ineffective or inefficient claim processes or
costs of handling claims.
excessive
Reinsurance contracts, placed to reduce exposure
to
specific risks, event and accumulations, fail to
perform as planned and do not reduce the gross
cost
by
reinsurance
in
of claims in terms of the limits purchased,
risks not being appropriately covered, by
bad debts or by there not being gaps
the programme.
creating a successful balance between satisfying the needs of the
customer against control of the overall cost of the provision of
the
provider. Customers include both the insured as well as others
that believe the insured has breached a duty of care.
service that meets those needs in agreement with its service
The reinsurance programme is subject to considerable scenario
planning and approved by the Reinsurance Committee and the
TU
Board. All reinsurers in the reinsurance programme have a
minimum credit rating of A.
Concentration of insurance risk
Concentration of insurance risk may exist where a particular event or series of events could impact significantly upon the Group’s liabilities. Such
concentrations may arise from a single insurance contract or through a small number of related contracts. The following are key categories of
concentration risks that might result in significant impacts to the Group:
Category
High-severity,
low-frequency event
concentrations
Description
High-severity, low-frequency events (e.g. natural
disasters) represent a material risk as the occurrence
of such an event would have a significant adverse
impact on TU’s cash flows and profitability.
Mitigation
Making appropriate allowance within the price calculated by
underwriters and by purchasing a reinsurance programme that
limits the impact of these events, using non-proportional
reinsurance treaties to manage retention levels and the limits
of
protection.
Geographic and
demographic
concentrations
Material geographical concentrations of risk exist
property portfolios such that natural disasters
in
(e.g.
floods) may give rise to a large number of
material damage and business interruption claims.
Economic conditions The insurance portfolio exposes a potential
The Group only writes policies in the UK. TU
models its exposure to
this risk to estimate its probable maximum loss and purchases
reinsurance to significantly reduce its exposure to such events.
accumulation of different risks in the event of difficult
economic conditions or more challenging points in
the underwriting cycle.
The Group aims to ensure it charges the right premium for the
business underwritten and it focuses on maintaining prices in
such
to
difficult market conditions. It also monitors claims closely
identify any that may be exaggerated or fraudulent.
Total aggregate
exposure
The total aggregate exposure that the Group is
prepared to accept in relation to concentrations
of
risk.
The exposures are monitored on a regular basis by reviewing
reports which show the key aggregations to which the Group is
exposed and by using a number of modelling tools to monitor
aggregation and simulate catastrophe losses in order to measure
the effectiveness of the reinsurance programmes, and to quantify
the net exposure. Additional stress and scenario tests are run
using these models during the year.
TU has carried out sensitivity analyses on the reasonably possible changes in its key business drivers, including interest yields, expenses and gross
loss ratio, as well as executing the stress and scenario testing programme on the insurance risk as part of their contingency planning. These do
not indicate a material impact to the Group’s overall financial position and performance.
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176
Tesco PLC Annual Report and Financial Statements 2023
Note 28 Share-based payments
The table below shows amounts charged to the Group income statement in respect of share-based payments:
Income statement
Equity-settled share-based payment charge
Cash-settled National Insurance contributions
Financial statements
2023
£m
101
11
112
2022
£m
109
13
122
The table below shows amounts included in the Group cash flow statement in relation to share-based payments and own shares purchased for
share schemes:
Share-based payment charge included in operating profit/(loss)
Share-based payments non-cash movement
Increase/(decrease) in trade and other payables*
Included in Group operating cash flows
Cash paid to purchase own shares including related fees and taxes
Cash received from employees exercising SAYE options
Included in Group financing cash flows
* Shares withheld from employees in order to settle their tax liability and National Insurance.
2023
£m
(112)
59
53
–
(134)
48
(86)
The table below presents the components of share-based payments recognised in the Group statement of changes in equity:
(Increase)/decrease in own shares held*
Shares delivered to employees
Cash received from employees exercising SAYE options
Share-based payments charge to the income statement
Movements in shares withheld to settle employee tax
Other movements
Increase/(decrease) to retained earnings
Included in the Group statement of changes in equity
* Decrease in own shares held is the gross amount of shares that the employees are entitled to receive.
2023
£m
157
(157)
48
101
4
3
(1)
156
2022
£m
(122)
66
56
–
(191)
47
(144)
2022
£m
139
(139)
47
109
–
(5)
12
151
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
177
177
Financial statements
Notes to the Group financial statements continued
Note 28 Share-based payments continued
Share option, share bonus and incentive schemes
The Company had 10 share option schemes and four discretionary share award schemes in operation during the financial year, all of which are
equity-settled schemes:
UK colleagues
UK colleagues
ROI colleagues
Arrangement
Participants
Savings-related option schemes
The Savings-related
Share Option
Scheme (1981)
The Irish Savings-
related Share Option
Scheme (2000)
The Savings-related
Share Option
Scheme (2021)
The International
Savings-related
Share Option
Scheme (2021)
The Booker Group
PLC Savings-Related
Share Option Plan
(2008) (Booker
SAYE)(a)
Discretionary option schemes(b)
The Executive
Incentive Plan (2014)
Selected senior
executives
ROI colleagues
Booker colleagues
The Group Bonus
Plan
Selected senior
executives and
senior managers
The Performance
Share Plan (2011)
The Long Term
Incentive Plan (2015)
The Booker Group
PLC Performance
Share Plan (2008)
(Booker PSP and
CSOP)(a)
Selected senior
executives and
senior managers
Selected senior
executives and
senior managers
Selected Booker
senior colleagues
(Booker)
Discretionary share award schemes(c)
Selected senior
The Performance
executives and
Share Plan (2011) and
senior managers
the Long Term
Incentive Plan (2021)
The Group Bonus
Plan and the
Deferred Bonus Plan
(2019)
Selected senior
executives and
senior managers
Term
Vesting requirements
Three or five years.
Three or five years.
Three or five years.
Three or five years.
Three years.
Granted as a proportion of annual bonus following
the completion of a required service period,
normally exercisable between three and 10 years
from the date of grant for nil consideration.
Granted as a proportion of annual bonus following
the completion of a required service period and is
normally exercisable between three and 10 years
from the date of grant for nil consideration. No
further options will be granted under this scheme.
Normally exercisable between the vesting date(s)
set at grant and 10 years from the date of grant
for nil consideration. No further options will be
granted under this scheme.
Normally exercisable between the vesting date(s)
set at grant and 10 years from the date of grant
for nil consideration.
Normally exercisable between the third
anniversary of the original date of grant and 10
years from the date of grant for nil consideration.
No further options will be granted under this
scheme.
The options are capable of being exercised at the end of
the term at a subscription price of not less than 80% of
the average of the middle-market quotations of an
Ordinary share over the three dealing days immediately
preceding the offer date.
The options over Tesco Shares are capable of being
exercised at the end of the term at a subscription price
equivalent to not less than 80% of the average of the
middle-market quotations of a Booker Share over the
three dealing days immediately preceding the offer date.
Dependent on the achievement of corporate
performance, individual targets and continuous
employment.
Conditional upon the achievement of specified
performance targets over a three-year period and/or
continuous employment.
Conditional upon the achievement of specified
performance targets over a three-year period and
continuous employment. Company Share Option Plan
options (CSOP options) which are linked to the Booker
PSP options are exercisable at a subscription price
equivalent to the market value of the Booker Shares at
the time of grant.
Awards made under these plans will normally vest
on the vesting date(s) set on the date of the
award for nil consideration.
Conditional on the achievement of specified
performance targets over a three-year performance
period and/or continuous employment.
Granted based on a percentage of salary, which is
determined by the achievement of corporate and
individual performance targets. The fair value of
shares awarded under these schemes is their
market value on the date of award. Expected
dividends are not incorporated into the fair value.
Conditional on completion of continuous employment
and achievement of corporate and individual
performance targets.
(a) Following completion of the acquisition of Booker Group PLC by Tesco PLC, Booker colleagues elected to roll over their existing options over Booker Shares under the Booker SAYE into equivalent
options over Ordinary shares in Tesco PLC (Tesco Shares), and Booker senior colleagues elected to roll over their existing Booker PSP and Booker CSOP Options over Booker Shares into equivalent
options over Tesco Shares.
(b) The Executive Directors participate in short-term bonus and long-term incentive schemes designed to align their interests with those of shareholders. Full details of these schemes can be found
in the Directors’ remuneration report.
(c) Until 2017, nil-cost options were awarded to selected senior executives using the Group Bonus Plan and Performance Share Plan, and conditional share awards were granted to selected senior
executives and senior managers. Since 2018, conditional share awards have been granted to all eligible colleagues.
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178
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP):
For the 52 weeks ended 25 February 2023
Outstanding at 26 February 2022
Granted
Forfeited
Exercised
Outstanding at 25 February 2023
Exercise price range (pence)
Weighted average remaining
contractual life (years)*
Exercisable at 25 February 2023
Exercise price range (pence)
Weighted average remaining
contractual life (years)*
Savings-related
Share Option Schemes
Irish Savings and International
Savings-related
Share Option Schemes
Nil cost
Share Option Schemes
Booker Group PLC Savings
Related Share Option Plan
Booker Group PLC
Performance Share
Plan Scheme
Options
160,485,413
69,276,094
(28,999,777)
(24,725,935)
176,035,795
Options
WAEP
6,801,511
208.34
2,012,450
182.00
(1,278,338)
216.86
(811,416)
188.54
199.35 6,724,207
WAEP
Options
212.23 2,012,486
99,189
182.00
–
214.54
–
187.99
2,111,675
205.67
73,974
168.00 to
242.00
2.83
188.23
188.00 to
190.00
–
168.00 to
260.00
2.53
840
188.00
2,111,675
188.00 to
188.00
–
WAEP
–
–
–
–
–
–
3.22
–
–
3.22
Options
10,417
–
(10,417)
–
–
–
WAEP
152.01
–
152.01
–
–
–
Options
541,516
–
(43,288)
(131,589)
366,639
366,639
–
–
–
–
WAEP
–
–
–
–
–
–
–
–
–
–
* Contractual life represents the period from award to the scheme end date. Certain schemes may be exercised later than vesting date at the discretion of the individual.
Share options were exercised on a regular basis throughout the financial year. The average share price during the 52 weeks ended 25 February
2023 was 248.40p (2022: 254.05p).
For the 52 weeks ended 26 February 2022
Savings-related
Share Option Schemes
Irish Savings and International
Savings-related
Share Option Schemes
Nil cost
Share Option Schemes
Options
166,407,076
37,771,601
(17,812,002)
(25,881,262)
160,485,413
2,014,843
WAEP
193.86
242.00
200.19
169.98
208.34
151.00 to
242.00
2.68
189.58
151.00 to
190.00
0.42
Options
7,586,269
1,440,203
(1,212,568)
(1,012,393)
6,801,511
Options
WAEP
7,217,383
194.35
217,095
260.00
–
191.82
170.70
(5,421,992)
212.23 2,012,486
168.00 to
260.00
2.59
78,774
189.57 2,012,486
168.00 to
190.00
0.42
WAEP
–
–
–
–
–
–
4.22
–
–
4.22
Booker Group PLC Savings
Option Plan
Related Share
Options
686,755
–
(151,253)
(525,085)
10,417
WAEP
152.58
–
151.93
152.78
152.01
2,171
137.45 to
152.78
0.49
149.09
137.45 to
152.78
0.41
Booker Group PLC
Performance Share
Scheme
Plan
Options
860,757
–
(68,551)
(250,690)
541,516
541,516
WAEP
–
–
–
–
–
–
–
–
–
–
Outstanding at 27 February 2021
Granted
Forfeited
Exercised
Outstanding at 26 February 2022
Exercise price range (pence)
Weighted average remaining
contractual life (years)*
Exercisable at 26 February 2022
Exercise price range (pence)
Weighted average remaining
contractual life (years)*
Refer to previous table for footnote.
The fair value of savings-related share options schemes is estimated at the date of grant using the Black-Scholes option pricing model. The
following table gives the assumptions applied to the options granted in the respective periods shown. No assumption has been made to
incorporate the effects of expected early exercise.
Expected dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average fair value of options granted (pence)
Probability of forfeiture (%)
Share price (pence)
Weighted average exercise price (pence)
2023
SAYE
4.96-5.43
22.25-22.53
3.54-3.59
3 or 5
46.32
7-9
202.35
182.00
2022
SAYE
4.10–4.17
21.79-21.89
1.38-1.39
3 or 5
38.52
7-10
268.50
242.00
Volatility is a measure of the amount by which a price is expected to fluctuate during a period. The measure of volatility used in the Group’s
option pricing models is the annualised standard deviation of the continuously compounded rates of return on the share over a period of time.
In
estimating the future volatility of the Company’s share price, the Board considers the historical volatility of the share price over the most recent
period that is generally commensurate with the expected term of the option, taking into account the remaining contractual life of the option.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
179
179
Financial statements
Notes to the Group financial statements continued
Note 28 Share-based payments continued
The number and weighted average fair value (WAFV) of share bonuses granted during the financial year were:
Group Bonus Plan and Deferred Bonus Plan
Performance Share Plan and Long Term Incentive Plan
Joining award*
* Joining award granted during the financial year to Executive Directors under Listing Requirement 9.4.2.
2023
2022
Number
of shares
19,076,406
22,817,391
–
WAFV
pence
265.58
254.91
–
Number
of shares
10,713,313
41,639,089
2,336,887
WAFV
pence
232.25
240.31
223.35
Note 29 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering both funded and unfunded defined benefit schemes and
defined contribution schemes.
Defined contribution
Defined contribution schemes are open to all Tesco employees in the UK.
Under the Group’s defined contribution pension schemes, employees of the Group pay contributions to an independently administered fund,
into which the Group also pays contributions based upon a fixed percentage of the employee’s contributions. The Group has no further payment
obligations once its contributions have been paid. Contributions paid for defined contribution schemes in continuing operations of £375m (2022:
£361m) have been recognised in the Group income statement. This includes £143m (2022: £136m) of salaries paid as pension contributions.
Defined benefit schemes
The Group has a defined benefit pension deficit of £400m (2022: £303m deficit), and a defined benefit pension surplus of £6m (2022: £3,150m),
comprising a number of schemes. The most significant schemes are for the Group’s employees in the UK and ROI, which are closed to future
accrual. The defined benefit pension deficit in the UK represents 102% of the net Group deficit. In the prior year, the defined benefit pension
surplus in the UK represented 103% of the net Group surplus.
United Kingdom
The principal plan within the Group is the Tesco PLC Pension Scheme (the Scheme), the assets of which are held as a segregated fund and
administered by the Trustee.
The Scheme is established under trust law and has a corporate trustee (the Trustee) that is required to run the Scheme in accordance with
Scheme’s Trust Deed and Rules and to comply with all relevant legislation. Responsibility for governance of the Scheme lies with the
The
Trustee is a company whose directors comprise:
Trustee.
the
1. representatives of the Group;
2. independent trustees; and
3. representatives of the Scheme participants, in accordance with its articles of association and UK pension law.
Scheme funding
The Group considers two measures of the pension surplus/deficit. The accounting position is shown on the Group balance sheet. The funding
position, calculated at the triennial funding valuation, is used to agree contributions made to the schemes. The two measures will vary because
they
are for different purposes, and are calculated at different dates and in different ways. The key calculation difference is that the funding
position considers the expected returns of scheme assets when calculating the liability, whereas the accounting, position calculated under IAS
discounts liabilities based on corporate bond yields.
19
The most recent completed triennial funding valuation of the Scheme was performed as at 31 March 2022 using the projected unit credit method.
The funding position was
a surplus of £0.9bn. The Scheme remained in a funding surplus as at 25 February 2023.
Subsequent to this triennial funding valuation it was agreed that no further pension deficit contributions would be required, with contributions
next expected to be assessed at the 31 March 2025 triennial review. The Group was paying £25m per annum to meet expenses of the Scheme,
including the Pension Protection Fund levy. This expense payment fell to £17m per annum from October 2022. In addition the market value of
assets held as security in favour of the Scheme is at least £775m (2022: £775m).
The most recent Booker Pension Scheme triennial funding valuation showed a funding deficit of £139m at 31 March 2022, with agreed
contributions of £17m per annum until the end of 2028. The most recent Budgens Pension Scheme triennial funding valuation showed a funding
surplus of £0.4m at 31
March 2021. No contributions were required for the Budgens Scheme.
IFRIC 14
For schemes in an accounting surplus position, these surpluses are recognised on the balance sheet in line with IFRIC 14, as the Group has an
unconditional legal right to any future economic benefits by way of future refunds following a gradual settlement.
180
Tesco PLC Annual Report and Financial Statements 2023
180
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Maturity profile of the defined benefit obligation
The estimated duration of the Scheme defined benefit obligation is an indicator of the weighted average term of benefit payments after
discounting. For the Scheme this is 18 years.
Around 39% of the undiscounted benefits are due to be paid beyond 30 years’ time, with the last payments expected to be over 80 years from
now. The estimated undiscounted benefit payments expected to be paid out over the life of the Scheme are shown below.
£bn
5
4
3
2
1
0
1-5
6-10
11-15
16-20
21-25
26-30
31-35
36-40
41-45
46-50
51-55
56-60
61-65
66-70
70+
Deferred members
Current pensioners
The defined benefit obligation held by the Scheme is broken down as follows:
Years
Deferred members
Current pensioners
Risks
The Group bears a number of risks in relation to the Scheme, which are described below:
%
77
23
Risk
Investment
Inflation
Interest rate
Description of risk
The Scheme’s defined benefit
obligation is 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.
If the Scheme’s assets underperform
the expected return for the funding
may require additional
valuation, this
contributions to be
made by the
Group.
The Scheme’s defined benefit
obligation is linked to inflation. A higher
rate of expected long-term inflation
will therefore lead to higher liabilities,
19 and funding liability.
both for the IAS
If the Scheme’s funding liability
increases, this may
contributions to be made by
the
Group.
require additional
A decrease in corporate bond yields in
isolation is expected to increase the
accounting deficit. Similarly, a
decrease in gilt yields in isolation is
expected to have an adverse impact
on the funding position of the Scheme.
This may lead to additional
contributions being made by the
Group.
Mitigation
The Trustee and the Group regularly monitor the funding position and operate a
diversified investment strategy.
The Trustee and the Group take a balanced approach to investment risk and have a
long-term plan to significantly reduce the investment risk within the Scheme.
The Trustee considers climate risk as one of the key investment risks faced by the
Scheme and has set up a Responsible Investment Committee to consider climate-
related issues relating to the Scheme.
The Scheme has also made a commitment to aim for investments to be net zero by 2050.
Further details on the metrics, targets and actions taken in relation to climate risk can be
seen in the Scheme’s Climate Change Report.
As part of the investment strategy, the Trustee aims to mitigate this risk through
investment in a liability-driven investment (LDI)
portfolio.
The portfolio invests in assets which increase in value as inflation expectations increase.
This mitigates the impact of any adverse movement in long-term inflation expectations.
The Scheme’s holdings are designed to hedge against inflation risk
funded liabilities.
for most of the
Additionally, changes to future benefits were introduced in June 2012 to reduce the
Scheme’s exposure to inflation risk by changing the basis for calculating the rate of
increase in pensions to CPI (previously RPI).
As part of the investment strategy, the Trustee aims to mitigate this risk through
investment in an LDI portfolio.
The portfolio invests in assets which increase in value as interest rates decrease. The
Scheme’s holdings are designed to hedge against interest rate risk for most of the
funded liabilities.
Because the aim of the portfolio is to mitigate risk for the funding position,
ineffectiveness in hedging for the accounting deficit can arise where corporate bond
and gilt yields diverge. This is partially offset by the Scheme’s holdings in corporate
bonds.
Using an LDI portfolio means a rise in interest rates can lead to collateral calls. The
Trustee and the Group regularly monitor and manage the level of liquidity to ensure it
remains appropriate.
Life expectancy
The Scheme’s obligations are to
provide benefits for the life of the
member and so increases in life
expectancy will lead to a higher
defined benefit obligation.
To reduce this risk, changes to future benefits were introduced in June 2012 to increase
the age at which members can take their full pension by around two years.
The Trustee and the Group regularly monitor the impact of changes in longevity on the
Scheme defined benefit obligation.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
181
181
Financial statements
Notes to the Group financial statements continued
Note 29 Post-employment benefits continued
The operations and audit pensions committee was set up in 2015 to further strengthen the Scheme’s Trustee governance and provide greater
oversight and stronger internal control over the Group’s risks. The Group pensions committee was also set up in 2018 to provide an additional
layer of
funding position, fund performance and impacts of any regulatory changes.
governance and risk management. Further mitigation of the risks is provided by external advisors and the Trustee who considers the
Scheme principal assumptions
Financial assumptions
The principal assumptions, on a weighted average basis, used by external actuaries to value the defined benefit obligation of the Scheme were as
follows:
Discount rate
Price inflation
Rate of increase in deferred pensions*
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012
Benefits accrued after 1 June 2012
*
In excess of any guaranteed minimum pension (GMP) element.
2023
%
4.9
3.0
2.6
2.9
2.5
2022
%
2.8
3.3
2.9
3.1
2.8
Discount rate
The discount rate for the Scheme is determined by reference to market yields of high-quality corporate bonds of suitable currency and term
the Scheme cash flows and extrapolated based on the trend observable in corporate bond yields.
to
Inflation
The inflation assumption is used to determine increases in pensions linked to RPI and CPI inflation within sections of the Scheme, subject to
relevant maximum and minimum increases.
RPI inflation is derived by reference to the difference between fixed-interest and index-linked long-term government bonds. To account for the
premium that investors are willing to pay to mitigate the risk that inflation is higher than expected, the inflation assumption incorporates an
inflation risk premium. CPI inflation is set by reference to RPI.
The Group uses a bifurcated approach to pre- and post-2030 assumptions, reflecting the impact of the RPI reforms from 2030 onwards.
In
consultation with external actuaries, the inflation risk premium has been set at 0.3% p.a. pre-2030 and 0.5% p.a. post-2030, which is a
weighted average of 0.43% (2022: 0.42%). The CPI differential has been set as 1.0% p.a. pre-2030 and 0.1% p.a. post-2030, which is a weighted
average of 0.48% lower than RPI (2022: 0.39%).
Mortality assumptions
The Trustee’s actuary conducted a mortality analysis of the Scheme as part of the triennial funding valuation process. Subsequent to this analysis,
the Group adopted the best estimate assumptions for the calculation of the defined benefit obligation for the main UK scheme.
future mortality improvements from 2018 has been updated to be in line with CMI 2021, with a long-term improvement rate
The mortality assumptions used are based on tables that have been projected to 2018 with CMI 2020 improvements. In addition, the allowance
for
10% weighting applied to both 2020 and 2021 data, reflecting the expectation that the COVID-19 pandemic has had an impact on future life
expectancies.
of
1.25% p.a. and a
The base tables used in calculating the mortality assumptions are different for various categories of members, as shown below:
Male
Female
Staff
Senior Manager
Staff
Senior Manager
Pensioner
96% of SAPS S3 Normal Heavy
112% of SAPS S3 Normal Light
105% of SAPS S3 Normal Heavy
87% of SAPS S3 All Middle
Non-Pensioner
100% of SAPS S3 Normal Heavy
113% of SAPS S3 Normal Light
109% of SAPS S3 Normal Heavy
87% of SAPS S3 All Middle
The following table illustrates the expectation of life of an average member retiring at age 65 at the balance sheet date and a member reaching
65 at the balance sheet date +25 years. A comparison between the two retiree dates illustrates the expected improvements in mortality
age
the
over
next 25 years.
Retiring at the balance sheet date at age 65:
Retiring at the balance sheet date +25 years at age 65:
Male
Female
Male
Female
2023
Years
20.0
22.5
21.4
24.2
2022
Years
20.8
22.4
22.1
24.1
182
Tesco PLC Annual Report and Financial Statements 2023
182
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Sensitivity analysis of significant actuarial assumptions
The sensitivity of significant assumptions upon the Scheme defined benefit obligation are detailed below:
Financial assumptions – Increase/(decrease) in UK defined benefit obligation
Impact of 0.1% increase of the assumption
Impact of 0.1% decrease of the assumption
Impact of 1.0% increase of the assumption
Impact of 1.0% decrease of the assumption
Mortality assumptions – Increase/(decrease) in UK defined benefit obligation
Impact of 1 year increase in longevity
Impact of 1 year decrease in longevity
2023
2022
Discount rate
£m
(213)
226
(1,921)
2,498
Inflation rate
£m
201
(201)
2,147
(1,783)
Discount rate
£m
(404)
404
(3,467)
4,732
Inflation rate
£m
367
(349)
3,889
(3,173)
2023
£m
364
(402)
2022
£m
697
(715)
The sensitivities reflect the range of recent assumption movements and illustrate that the financial assumption sensitivities do not move in a
linear fashion. Movements in
in
movements
the defined benefit obligation from discount rate and inflation rate changes may be partially offset by
assets.
Overseas
The Group operates defined benefit schemes in ROI. An external actuary, using the projected unit credit method, carried out the latest
assessment of the ROI schemes as at 25 February 2023. At the financial year end, the accounting deficit relating to ROI was £nil
(2022: £97m).
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 for defined benefit pension schemes.
The accounting deficit as at 25 February 2023 of £4m (2022: £6m) was determined in accordance with the advice of external actuaries.
During the current financial year, £nil (2022: £nil) has been charged to the Group income statement and £nil (2022: £nil) of benefits were paid.
Plan assets
The Group’s pension schemes hold assets that both provide returns and mitigate risk, including the volatility of future pension payments.
The table below shows a breakdown of the combined investments held by the Group’s schemes:
Equities
UK
Europe
Rest of the world
Bonds
Government
Corporates – investment grade
Corporates – non-investment grade
Property
UK
Rest of the world
Alternative assets
Hedge funds
Private equity
Other
LDI portfolio
Cash
Total fair value of plan assets
2023
Quoted
£m
Unquoted
£m
32
76
516
624
363
570
211
1,144
2
2
4
–
–
162
162
8,173
859
10,966
–
–
–
–
–
–
–
–
1,094
567
1,661
64
1,032
1,793
2,889
(2,491)
–
2,059
Total
£m
32
76
516
624
363
570
211
1,144
1,096
569
1,665
64
1,032
1,955
3,051
5,682
859
13,025
2022
Quoted
£m
Unquoted
£m
136
691
3,492
4,319
1,394
3,376
1,123
5,893
94
7
101
–
–
218
218
5,163
1,037
16,731
–
–
–
–
–
–
–
–
1,514
550
2,064
311
1,509
1,779
3,599
(4)
–
5,659
Total
£m
136
691
3,492
4,319
1,394
3,376
1,123
5,893
1,608
557
2,165
311
1,509
1,997
3,817
5,159
1,037
22,390
%
–
1
4
5
3
4
2
9
8
4
12
–
8
15
23
44
7
100
%
1
3
16
20
6
15
5
26
7
2
9
1
7
9
17
23
5
100
Quoted assets are those with a quoted price in an active market. Unquoted assets are valued in accordance with IFRS 13, using the most
appropriate level within the fair value hierarchy based on the specifics of the asset class, and in line with industry standard guidelines, including
the RICS methodology for property and the IPEV guidelines for private equity.
The LDI portfolio consists of assets, including gilts and index-linked gilts, cash and money market funds of the value of £8,376m (2022: £8,986m)
and associated repurchase agreements and swaps of £(2,694)m (2022: £(3,827)m). Other alternative assets include infrastructure and private
credit investments. Other
derivative. The fall in fair value is attributable to the increase in gilt yields during the year.
derivatives are included in the asset category to which they relate, reflecting the underlying nature and exposure of the
The plan assets include £240m (2022: £244m) relating to property used by the Group. Group property with net carrying value of £783m
(2022:
£914m) (refer to Note 11) and a value to the Scheme of at least £775m (2022: £775m) is held as security in favour of the Scheme.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
183
183
Financial statements
Notes to the Group financial statements continued
Note 29 Post-employment benefits continued
Movement in the Group pension surplus/(deficit) during the financial year
Fair value of plan assets
Defined benefit obligation
Net defined benefit surplus/(deficit)
Opening balance
Current service cost
Settlement charge(a)
Finance income/(cost)
Included in the Group income statement
Remeasurement gain/(loss):
Financial assumptions gain/(loss)
Demographic assumptions gain/(loss)
Experience gain/(loss)
Return on plan assets excluding finance income
Foreign currency translation
Included in the Group statement of comprehensive
income/(loss)
Member contributions
Employer contributions
Additional employer contributions
Benefits paid
Scheme settlement
Other movements
Closing balance
Withholding tax on surplus(b)
Closing balance, net of withholding tax
Consisting of:
Schemes in deficit
Schemes in surplus(c)
Deferred tax asset/(liability)
Surplus/(deficit) in schemes at the end of the year,
net of deferred tax
2023
£m
22,390
–
–
607
607
–
–
–
(9,518)
15
(9,503)
–
24
20
(513)
–
(469)
13,025
2022
£m
20,082
–
–
391
391
–
–
–
2,385
(9)
2,376
2
33
16
(502)
(8)
(459)
22,390
2023
£m
(19,543)
(24)
–
(527)
(551)
7,652
(228)
(1,244)
–
(18)
6,162
–
–
–
516
–
516
(13,416)
2022
£m
(21,304)
(39)
(1)
(413)
(453)
1,881
21
(212)
–
13
1,703
(2)
–
–
505
8
511
(19,543)
2023
£m
2,847
(24)
–
80
56
7,652
(228)
(1,244)
(9,518)
(3)
(3,341)
–
24
20
3
–
47
(391)
(3)
(394)
(400)
6
100
(294)
2022
£m
(1,222)
(39)
(1)
(22)
(62)
1,881
21
(212)
2,385
4
4,079
–
33
16
3
–
52
2,847
–
2,847
(303)
3,150
(726)
2,121
(a) Settlement charge on Londis Scheme buy-out in 2022.
(b) Recognised through other comprehensive income in remeasurements of defined benefit pension schemes.
(c) In 2023, schemes in surplus in the UK are presented on the balance sheet net of a 35% withholding tax.
Note 30 Share capital and other reserves
Share capital
Allotted, called-up and fully paid:
At the beginning of the year
Shares cancelled
At the end of the year
2023
Ordinary shares of 6 ⅓p each
2022
Ordinary shares of 6 ⅓p each
Number
£m
Number
7,637,986,531
(319,645,336)
7,318,341,195
484 7,731,707,820
(93,721,289)
463 7,637,986,531
(21)
£m
490
(6)
484
No shares were issued during the current financial year in relation to share options.
The Group has a share forfeiture programme, following the completion of a tracing and notification exercise to any shareholders who have not
had contact with the Company over the past 12 years, in accordance with the provisions set out in the Company’s Articles of Association.
Under
the share forfeiture programme, the shares and dividends associated with shares of untraced members are forfeited, with the resulting
proceeds transferred to the Group to use for good causes in line with the Group’s corporate responsibility strategy. During the current financial
year, the Group received £nil (2022: £nil) proceeds from sale of untraced shares and £5m (2022: £nil) write-back of unclaimed dividends, which
are reflected in share premium and retained earnings, respectively.
As at 25 February 2023, the Directors were authorised, on behalf of the Company, to purchase up to a maximum in aggregate of 762.0 million
(2022: 773.2 million) Ordinary shares until the conclusion of the 2023 AGM.
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.
184
Tesco PLC Annual Report and Financial Statements 2023
184
Tesco PLC Annual Report and Financial Statements 2023
Capital
redemption
reserve
£m
22
Hedging
reserve*
£m
130
Translation
reserve
£m
202
Own
shares
held
£m
(365)
Merger
reserve
£m
3,090
Other reserves
The table below sets out the movements in other reserves:
At 26 February 2022
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and
associates, net of hedging instruments
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Group income statement
Tax relating to components of other comprehensive income (Note 6)
Total other comprehensive income/(loss)
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
Total inventory cash flow hedge movements
Transactions with owners
Own shares purchased for cancellation
Own shares cancelled
Own shares purchased for share schemes
Share–based payments (Note 28)
Total transactions with owners
At 25 February 2023
–
–
–
–
–
–
–
–
21
–
–
21
43
–
63
(61)
22
24
(127)
(127)
–
–
–
–
–
27
120
–
–
–
120
–
–
–
–
–
–
–
322
* Movements in cost of hedging reserve is £nil (2022: £nil) and balance at 25 February 2023 is £nil (2022: £nil).
At 27 February 2021
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on
subsidiary disposed, reclassified and reported in the Group income
statement
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Group income statement
Tax relating to components of other comprehensive income (Note 6)
Total other comprehensive income/(loss)
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
Total inventory cash flow hedge movements
Transactions with owners
Own shares purchased for cancellation
Own shares cancelled
Own shares purchased for share schemes
Share–based payments (Note 28)
Total transactions with owners
At 26 February 2022
Refer to previous table for footnote.
Capital
redemption
reserve
£m
16
Hedging
reserve*
£m
90
Translation
reserve
£m
175
–
–
–
–
–
–
–
–
–
6
–
–
6
22
–
–
77
(45)
(22)
10
30
30
–
–
–
–
–
130
(39)
66
–
–
–
27
–
–
–
–
–
–
–
202
Financial statements
Total
£m
3,079
120
63
(61)
22
144
(127)
(127)
(758)
816
(188)
157
27
3,123
Total
£m
3,183
(39)
66
77
(45)
(22)
37
30
30
(301)
270
(279)
139
(171)
3,079
–
–
–
–
–
–
–
(758)
795
(188)
157
6
(359)
Own
shares
held
£m
(188)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,090
Merger
reserve
£m
3,090
–
–
–
–
–
–
–
–
(301)
264
(279)
139
(177)
(365)
–
–
–
–
–
3,090
Own shares held
The own shares held represents shares in Tesco PLC purchased from the market and held by the Tesco International Employee Benefit Trust to
satisfy share awards under the Group’s share scheme plans (refer to Note 28), and shares purchased for cancellation as part of the share buyback
programme. Shares purchased for cancellation are included in own shares held until cancellation, at which point the consideration is transferred to
retained earnings, and the nominal value of the shares is transferred from share capital to the capital redemption reserve. Own shares held can
include equity elements of forward contracts where the Group has an obligation to purchase its own shares.
The table below presents the reconciliation of own shares purchased for cancellation between the Group statement of changes in equity and the
Group cash flow statement:
Own shares purchased for cancellation
Included in the Group statement of changes in equity(a)(b)
Payments in relation to prior year financial liabilities
Outstanding amount recognised as financial liabilities(c)
Included in the Group cash flow statement(d)
2023
£m
(758)
(23)
–
(781)
2022
£m
(301)
–
23
(278)
(a) 319.6 million (2022: 93.7 million) shares were cancelled, representing 4.4% of the called-up share capital as at 25 February 2023 (2022: 1.2%). This includes 4.8 million shares purchased not yet
cancelled as at 26 February 2022 with total consideration of £14m. The total consideration of £795m (2022: £264m), including expenses of £9m (2022: £1m), was charged to retained earnings.
(b) During the financial year, the aggregate nominal value of shares cancelled and transferred to the capital redemption reserve was £21m (2021: £6m).
(c) Shares to be delivered under a share repurchase agreement with an external bank, included in other payables.
(d) 314.8 million (2022: 98.5 million) shares purchased at an average price of £2.48 per share (2022: £2.82).
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
185
185
Financial statements
Notes to the Group financial statements continued
Note 30 Share capital and other reserves continued
The table below presents the reconciliation of own shares purchased for share schemes between the Group statement of changes in equity and
the Group cash flow statement:
Own shares purchased for share schemes
Included in the Group statement of changes in equity
Payments in relation to prior year financial liabilities
Outstanding amount recognised as financial liabilities*
Shares withheld to settle employee tax
Cash received from employees exercising SAYE options
Included in the Group cash flow statement
2023
£m
(188)
(50)
55
49
48
(86)
2022
£m
(279)
-
50
38
47
(144)
* A financial liability of £55m (2022: £50m) in respect of shares to be delivered under a share repurchase agreement with an external bank is included in other payables.
The number of Ordinary shares held by the Tesco International Employee Benefit Trust at 25 February 2023 was 55.6 million (2022: 49.9 million).
This represents 0.76% of called-up share capital at the end of the year (2022: 0.65%).
Capital redemption reserve
The capital redemption reserve relates to the repurchase and cancellation of shares of the Company. During the financial year, the aggregate
nominal value of shares cancelled and transferred to the capital redemption reserve was £21m (2022: £6m).
Merger reserve
The merger reserve represents the difference between the market value and nominal value of shares issued for the acquisition of Booker on
2
March 2018.
Note 31 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:
Transactions
Sales to related parties
Purchases from related parties
Dividends received
Injection of equity funding
Sales to related parties consist of service/management fees and loan interest.
Transactions between the Group and the Group’s pension plans are disclosed in Note 29.
Balances
Amounts owed to related parties
Amounts owed by related parties
Lease liabilities payable to related parties(a)
Loans to related parties (net of deferred profits)(b)
Joint ventures
2023
£m
599
122
14
10
2022
£m
501
111
32
11
Joint ventures
2023
£m
(7)
27
(1,950)
106
2022
£m
(9)
36
(2,335)
105
(a) Lease liabilities payable to related parties represent leases entered into by the Group for properties held by joint ventures. Refer to Note 13 for further details.
(b) Loans to related parties of £106m (2022: £105m) are presented net of deferred profits of £38m (2022: £38m), historically arising from the sale of property assets to joint ventures.
Refer to Note 13 for further details. For loans to related parties, a 12-month expected credit loss (ECL) allowance is recorded on initial recognition. In the current and prior financial years, the ECL
allowance was immaterial.
Amounts owed to and owed by related parties are measured at amortised cost and the carrying values approximate fair value. The undiscounted
cash flow amounts owed to related parties are due within one year and do not differ from the amounts included in the table above.
There were no transactions or balances held with associates in the current or prior financial year.
A number of the Group’s subsidiaries are members of one or more partnerships to whom the provisions of the Partnerships (Accounts)
Regulations 2008 apply. The financial statements for those partnerships have been consolidated into these financial statements pursuant to
Regulation 7 of the Regulations.
186
Tesco PLC Annual Report and Financial Statements 2023
186
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Transactions with key management personnel
Members of the Board of Directors and Executive Committee of Tesco PLC are deemed to be key management personnel.
Cost of key management personnel compensation for the financial year was as follows:
Salaries and short-term benefits
Pensions and cash in lieu of pensions
Share-based payments
Joining costs and loss of office costs
Attributable to:
The Board of Directors (including Non-executive Directors)
Executive Committee (members not on the Board of Directors)
2023
£m
23
1
21
–
45
13
32
45
2022
£m
21
2
24
2
49
11
38
49
During the year, 7,730,565 (2022: 8,946,423) performance shares and 2,807,091 (2022: 1,178,795) bonus shares were granted to key management
personnel under the Performance Share Plan and Deferred Bonus Plan 2019, respectively. Vesting will be conditional on the achievement of
specified performance targets over a three-year performance period and/or continuous employment. The cost of these awards will be spread
over the vesting period.
Of the key management personnel who had transactions with Tesco Bank during the financial year, the following balances were held at the
financial year end:
At 25 February 2023
At 26 February 2022
Credit card, mortgage and
personal loan balances
Current and saving
deposit accounts
Number of key
management
personnel
6
5
Number of key
management
personnel
6
4
£m
–
–
£m
1
–
Note 32 Analysis of changes in net debt
Net debt, as defined in the Glossary, excludes the net debt of Tesco Bank but includes that of discontinued operations. Balances and movements
in respect of the total Group and Tesco Bank are presented to allow reconciliation between the Group balance sheet and the Group cash flow
statement.
2023
2022
Bank and other borrowings, excluding overdrafts
Lease liabilities
Net financing derivatives
Share purchase obligations
Liabilities from financing activities
Cash and cash equivalents in the balance sheet
Overdrafts*
Cash and cash equivalents (including overdrafts) in the
cash flow statement
Short-term investments
Joint venture loans
Interest and other receivables
Net operating and investing derivatives
Net debt of disposal group
Less: Share purchase obligations
Net debt APM
Group
£m
(6,451)
(7,727)
472
(55)
(13,761)
2,465
(900)
1,565
1,628
106
8
71
(14)
55
Bank
£m
(375)
(23)
(9)
–
(407)
444
–
444
–
–
–
114
–
–
Retail
£m
(6,076)
(7,704)
481
(55)
(13,354)
2,021
(900)
1,121
1,628
106
8
(43)
(14)
55
(10,493)
Group
£m
(6,825)
(7,958)
553
(73)
(14,303)
2,345
(574)
1,771
2,076
105
1
75
(14)
73
Bank
£m
(481)
(26)
(6)
–
(513)
789
–
789
–
–
–
24
–
–
Retail
£m
(6,344)
(7,932)
559
(73)
(13,790)
1,556
(574)
982
2,076
105
1
51
(14)
73
(10,516)
* Overdraft balances are included within borrowings in the Group balance sheet, and within cash and cash equivalents in the Group cash flow statement. Refer to Note 18.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
187
187
Financial statements
Notes to the Group financial statements continued
Note 32 Analysis of changes in net debt continued
A reconciliation between movements in Net debt and the Group cash flow statement is presented below:
Opening Net debt
Change in liabilities from Group financing activities
Less: Change in cash flows arising from share purchase obligations
Less: Change in cash flows from Tesco Bank financing activities
Change in Net debt from financing activities
Net increase/(decrease) in Retail cash and cash equivalents including overdrafts*
Interest paid on components of Net debt
Interest received on components of Net debt
Net increase/(decrease) in short-term investments
Net increase/(decrease) in joint venture loans
Change in cash flows from operating and investing derivatives
Other changes in Net debt from cash flow activities
Retail net interest charge on components of Net debt
Retail fair value and foreign exchange movements of Net debt
Retail other non-cash movements
Acquisitions and disposals
Change in Net debt from non-cash movements
Closing Net debt
2023
£m
(10,516)
2,327
(886)
(111)
1,330
173
643
(70)
(451)
1
(48)
248
(558)
(254)
(697)
(46)
(1,555)
(10,493)
2022
£m
(11,955)
1,359
(278)
(25)
1,056
(221)
645
(3)
1,067
4
–
1,492
(632)
199
(492)
(184)
(1,109)
(10,516)
* Net increase/(decrease) in Retail cash and cash equivalents including overdrafts includes £nil (2022: £35m) movement in cash and cash equivalents of discontinued operations and £(1)m (2022:
£(4)m) intragroup funding and intercompany transactions.
The table below sets out the movements in liabilities arising from financing activities:
At 26 February 2022
Cash flows arising from financing activities
Cash flows arising from operating activities:
Interest paid
Non-cash movements:
Fair value gains/(losses)
Foreign exchange
Interest income/(charge)
Acquisitions and disposals(d)
Lease additions, terminations,
modifications and reassessments
Share purchase agreements
At 25 February 2023
Bank and other
borrowings, excluding
overdrafts
£m
(6,825)
709
Lease liabilities
£m
(7,958)
593
Net financing
derivatives(a)
£m
553
139
Share purchase
obligations(b)
£m
(73)
886
Liabilities from Group
financing activities(c)
£m
(14,303)
2,327
241
199
(160)
(227)
(388)
–
–
(6,451)
373
–
(45)
(373)
381
(698)
–
(7,727)
44
(170)
–
(55)
(39)
–
–
472
–
–
–
–
–
–
(868)
(55)
658
29
(205)
(655)
(46)
(698)
(868)
(13,761)
(a) Net financing derivatives comprise those derivatives which hedge the Group’s exposures in respect of lease liabilities and borrowings. Net operating and investing derivatives, which form part of
the Group’s Net debt APM, are not included.
(b) Share purchase obligations form part of the liabilities arising from the Group’s financing activities, but do not form part of Net debt. Cash flows arising from financing activities exclude £(29)m
(2022: £(191)m) cash outflows relating to other cancellable arrangements and £48m (2022: £47m) cash received from employees exercising SAYE options.
(c) Liabilities from Group financing activities are represented to include liabilities from share purchase obligations of £(55)m (2022: £(73)m) and exclude net operating and investing derivatives of £71m
(2022: £75m).
(d) Acquisitions and disposals include a derecognition of £385m of lease liabilities and an increase of £(384)m in borrowings and £(39)m in net financing derivatives from the acquisition of The Tesco
Dorney Limited Partnership. Refer to Note 33.
At 27 February 2021
Cash flows arising from financing activities
Cash flows arising from operating activities:
Interest paid
Non-cash movements:
Fair value gains/(losses)
Foreign exchange
Interest income/(charge)
Acquisitions and disposals
Lease additions, terminations,
modifications and reassessments
Share purchase agreements
Discontinued operations
At 26 February 2022
Refer to previous table for footnotes.
Bank and other
borrowings, excluding
overdrafts
£m
(6,736)
381
Lease liabilities
£m
(8,402)
577
Net financing derivatives(a)
£m
521
123
Share purchase
obligations(b)
£m
–
278
Liabilities from Group
financing activities(c)
£m
(14,617)
1,359
202
82
61
(209)
(606)
–
–
–
(6,825)
405
–
14
(405)
355
(492)
–
(10)
(7,958)
36
(30)
–
(33)
(64)
–
–
–
553
–
–
–
–
–
–
(351)
–
(73)
643
52
75
(647)
(315)
(492)
(351)
(10)
(14,303)
188
Tesco PLC Annual Report and Financial Statements 2023
188
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Note 33 Acquisitions
Acquisition of property joint venture – The Tesco Dorney Limited Partnership
On 6 October 2022, the Group obtained control of The Tesco Dorney Limited Partnership (the partnership), previously accounted for as a joint
venture, through the acquisition of the other partner’s 50% interest for £40m. The Group paid £12m stamp duty on the acquisition. The
partnership had bond and derivative liabilities, and long-leased four stores and three mixed-use sites anchored by stores which the partnership
previously leased to the Group. The Group in turn subleases certain commercial units and residential accommodation to third parties. The
acquisition, which has been treated as an asset acquisition, increased the Group’s owned and leased property portfolio and borrowings,
replacing the Group’s associated right of use assets and lease liabilities.
The table below sets out the values to the Group in respect of obtaining control of the partnership:
Property, plant and equipment
Right of use assets
Cash and cash equivalents
Other working capital
Borrowings
Derivative liabilities
Total assets and liabilities acquired
Consideration paid
Stamp duty paid
Derecognition of the Group’s lease liabilities with the partnership
Derecognition of the Group’s right of use assets with the partnership
Derecognition of the Group’s finance lease receivable
Total cost*
* The carrying value of the pre-existing joint venture interest was £nil.
Notes
11
12
32
32
32
12
The Group recognised the following gains and losses as an adjusting item within cost of sales in the Group income statement. The related tax
charge on acquisition of £29m has also been classified as an adjusting item. Refer to Note 4 for further details.
Impairment of property, plant and equipment acquired
Total adjusting gain/(loss) within cost of sales
Taxation – adjusting item
Total adjusting gain/(loss) after taxation
Notes
14
4
£m
248
70
12
(3)
(384)
(39)
(96)
40
12
(385)
198
39
(96)
£m
(7)
(7)
(29)
(36)
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
189
189
Financial statements
Notes to the Group financial statements continued
Note 34 Commitments and contingencies
Capital commitments
At 25 February 2023, there were commitments for capital expenditure contracted for, but not incurred, of £200m (2022: £193m), principally
relating to store development.
Subsidiary audit exemptions
The following UK subsidiary undertakings are exempt from the requirements of the Companies Act 2006 (the Act) relating to the audit of
individual accounts by virtue of section 479A of the Act.
Name
Booker Group Limited
Booker Wholesale Holdings Limited
Buttoncase Limited
Dillons Newsagents Limited
Giant Booker Limited
Launchgrain Limited
Makro Holding Limited
Company
number
5145685
5137980
5298861
140624
65519
5260856
4310463
Name
Tapesilver Limited
Tesco Aqua (GP) Limited
Tesco Atrato (1LP) Limited
Tesco Atrato (GP) Limited
Tesco Blue (3LP) Limited
Tesco Brislington Limited
Tesco Bury Limited
Makro Properties Limited
1273672
Oakwood Distribution Limited
Spen Hill Developments Limited
Spen Hill Management Limited
Spen Hill Properties (Holdings) PLC
Spen Hill Regeneration Limited
T & S Stores Limited
5721635
4827219
2460426
2412674
6418300
1228935
Tesco Distribution Holding
Limited
Tesco Dorney (1LP) Limited
Tesco Dorney (GP) Limited
Tesco Family Dining Limited
Tesco Food Sourcing Limited
Tesco Freetime Limited
Tesco Fuchsia (3LP) Limited
Company
number
5205362
5721654
6969529
6969536
10127682
10701640
3854371
3193655
8255488
8255493
8514605
7502096
4345023
10127851
Company
number
Name
8312532
Tesco Gateshead Property Limited
Tesco Maintenance Limited
6003554
Tesco Mobile Communications Limited 4780729
Tesco Mobile Services Limited
Tesco Navona (1LP) Limited
Tesco Passaic (1LP) Limited
Tesco Property Partner (GP No.2)
Limited
Tesco Property Partner (GP) Limited
4780734
7459436
7121667
5179150
4945955
Tesco Property Partner (No.1) Limited 4945945
5721630
Tesco Red (GP) Limited
7849948
Tesco Sarum (1LP) Limited
7849882
Tesco Sarum (GP) Limited
3159425
Tesco TLB Properties Limited
Tesco PLC will guarantee all outstanding liabilities that these subsidiaries are subject to as at the financial year ended 25 February 2023 in
accordance with section 479C of the Act, as amended by the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions
and
Change of Accounting Framework) Regulations 2012. In addition, Tesco PLC will guarantee any contingent and prospective liabilities that
these
subsidiaries are subject to.
Tesco Bank
At 25 February 2023, Tesco Bank had contractual lending commitments totalling £12.2bn (2022: £12.4bn). The contractual amounts represent
the
amounts that would be at risk should the available facilities be fully drawn upon and not the amounts at risk at the reporting date.
Contingent liabilities
As previously reported, Tesco Stores Limited (TSL) (along with all the major supermarkets) has received claims from current and former hourly-
paid store colleagues alleging that they do work of equal value to that of colleagues working in its distribution centres and that differences in
terms and conditions relating to pay are not objectively justifiable (the Equal Pay Claims). The claimants are seeking the differential between the
pay terms looking back, and equivalence of pay terms moving forward. As at the date of this disclosure, there are approximately 42,000 claims
against TSL, with the number of claims expected to continue to increase as the litigation progresses.
UK equal pay law provides that an employee is entitled to the same terms in relation to pay as those of a comparator of the opposite sex in the
same employment if they are employed to do work of equal value. The legislation achieves this by implying a clause into the contract of
employment, which has the effect of importing into the employee’s contract the more favourable term(s) of the comparator.
Equal pay claims are typically heard in three stages and the claimants have to win at every stage in order to succeed. The first stage is
comparability, which is effectively a technical gateway to the claims proceeding. The claimants have to show that there is a valid basis in law for
comparing their pay and the pay of any comparator. One of the legal bases here is that pay terms are set by the same body. Following a European
court ruling on this, TSL has made a concession on comparability.
The second and third stages are an equal value assessment and the consideration of TSL’s material factor defences (non-discriminatory reasons
for differentials in pay terms) to any claims which succeed at the equal value assessment stage. Completion of these two stages is a lengthy
process and likely to take many years with hearings and appeals a part of that process. A final date is impossible to predict with any certainty and
any final decision may be delayed further by any final appeals.
At present, the total number of Equal Pay Claims that may be received, the merits, and likely outcome of those claims and of TSL’s defences to
them, and the potential impact on the Group, are subject to various and substantial uncertainties. There are multiple factual and legal defences
to these claims and the Group intends to defend them vigorously, while at the same time taking appropriate steps to mitigate the risks. The
Group therefore cannot make an assessment of the likely outcome of the litigation, or the potential quantum of its liability or the potential impact
on the Group at this stage. Depending on the outcome at the various stages of the Equal Pay Claims, and dependent on the number of any
ultimately successful claims, the potential quantum of its liability could be material.
There are a number of other contingent liabilities that arise in the normal course of business, which if realised, are not expected to result in a
material liability to the Group.
Note 35 Events after the reporting period
On 27 February, the Group issued a €500m and a £250m bond, maturing 2031 and 2035 respectively. There
reporting period requiring disclosure.
were no other events after the
190
Tesco PLC Annual Report and Financial Statements 2023
190
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC – Parent Company balance sheet
Non–current assets
Investments
Receivables
Derivative financial instruments
Current assets
Receivables
Cash on hand
Derivative financial instruments
Current liabilities
Payables
Borrowings
Net current assets/(liabilities)
Non–current liabilities
Payables
Borrowings
Derivative financial instruments
Deferred tax liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings (including profit/(loss) for the financial year of £2,064m (2022: £31m))
Total equity
The notes on pages 193 to 198 form part of these financial statements.
Financial statements
25 February
2023
£m
26 February
2022
£m
Notes
6
7
11
7
11
8
10
8
10
11
9
14
14
16,970
234
935
18,139
860
103
2
965
(244)
(141)
(385)
580
(2,132)
(1,450)
(5)
(19)
(3,606)
15,113
463
5,165
2,793
6,692
15,113
17,013
261
1,069
18,343
518
29
–
547
(763)
(50)
(813)
(266)
(1,831)
(1,433)
(86)
(32)
(3,382)
14,695
484
5,165
2,804
6,242
14,695
Ken Murphy
Directors
Imran Nawaz
The Parent Company financial statements on pages 191 to 198 were approved and authorised for issue by the Directors on 12 April 2023.
Tesco PLC
Registered number 00445790
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
191
191
Financial statements
Tesco PLC – Parent Company statement of changes in equity
At 26 February 2022
Profit/(loss) for the year
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Company
income statement
Tax relating to components of other comprehensive income
(Note 9)
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners
Own shares purchased for cancellation
Own shares cancelled
Own shares purchased for share schemes
Share-based payments
Dividends
Total transactions with owners
At 25 February 2023
At 27 February 2021
Profit/(loss) for the year
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Company
income statement
Tax relating to components of other comprehensive income
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners
Own shares purchased for cancellation
Own shares cancelled
Own shares purchased for share schemes
Share-based payments
Dividends
Total transactions with owners
At 26 February 2022
Share capital
(Note 14)
£m
484
–
Share premium
£m
5,165
–
Other reserves
(Note 14)
£m
2,804
–
Retained earnings
£m
6,242
2,064
Total equity
£m
14,695
2,064
–
–
–
–
–
–
(21)
–
–
–
(21)
463
–
–
–
–
–
–
–
–
–
–
–
5,165
7
(58)
13
(38)
(38)
(758)
816
(188)
157
–
27
2,793
–
–
–
–
2,064
–
(795)
–
39
(858)
(1,614)
6,692
7
(58)
13
(38)
2,026
(758)
–
(188)
196
(858)
(1,608)
15,113
Share capital
(Note 14)
£m
490
–
Share premium
£m
5,165
–
Other reserves
(Note 14)
£m
2,972
–
Retained earnings
£m
7,130
31
Total equity
£m
15,757
31
–
–
–
–
–
–
(6)
–
–
–
(6)
484
–
–
–
–
–
–
–
–
–
–
–
5,165
31
(18)
(10)
3
3
(301)
270
(279)
139
–
(171)
2,804
–
–
–
–
31
–
(264)
–
49
(704)
(919)
6,242
31
(18)
(10)
3
34
(301)
–
(279)
188
(704)
(1,096)
14,695
The Company has considered the profits available for distribution to shareholders. At 25 February 2023, the Company had retained earnings of
£6.7bn (2022: £6.2bn), of which the unrealised profit elements are £1.7bn (2022: £1.7bn) of share-based payment reserves and £0.7bn (2022:
£0.7bn) of dividends received from subsidiary undertakings not yet settled by qualifying consideration. After deducting the cost of its own shares
held in trust of £0.4bn (2022: £0.4bn), the Company had profits available for distribution of £3.9bn (2022: £3.4bn).
The notes on pages 193 to 198 form part of these financial statements.
192
Tesco PLC Annual Report and Financial Statements 2023
192
Tesco PLC Annual Report and Financial Statements 2023
Notes to the Parent Company financial statements
Note 1 Authorisation of financial statements
and statement of compliance with FRS 101
The Parent Company financial statements for the 52 weeks ended
February 2023 were approved by the Board of Directors on
25
12
April 2023 and the Company balance sheet was signed on the
Board’s behalf by Ken Murphy and Imran Nawaz.
These financial statements were prepared in accordance with
Financial Reporting Standard 101, ‘Reduced Disclosure Framework’
(FRS 101). The Company meets the definition of a qualifying entity
under FRS 100, ‘Application of Financial Reporting Requirements’
as
issued by the Financial Reporting Council.
The Company’s financial statements are presented in Pounds Sterling,
its functional currency, generally rounded to the nearest
million.
The principal accounting policies adopted by the Company are
set
out in Note 2. The financial statements have been prepared
under the historical cost convention, except for certain financial
instruments and share-based payments that have been
measured
fair value.
at
Note 2 Accounting policies
Basis of preparation of financial statements
The Parent Company financial statements have been prepared in
accordance with FRS 101 and the Companies Act 2006 (the Act).
FRS 101 sets out a reduced disclosure framework for a ‘qualifying
entity’ as defined in the standard, which addresses the financial
reporting requirements and disclosure exemptions in the
individual
financial statements of qualifying entities that otherwise
apply the recognition, measurement and disclosure requirements
of
adopted
IFRS.
The financial year represents the 52 weeks to 25 February 2023
(prior financial year 52 weeks to 26 February 2022).
As permitted by FRS 101, the Company has taken advantage of the
disclosure exemptions available under that standard in relation to
business combinations, financial instruments, capital management,
presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, impairment of
assets,
share-based payments and related party transactions. The
Company has also taken advantage of the exemption in relation to
disclosure of the possible impact of the application of a new IFRS
that has been issued but is not yet effective. Where required,
equivalent disclosures are given in the consolidated
statements of Tesco PLC.
financial
The Parent Company financial statements are prepared on a going
concern basis as set out in Note 1 of the consolidated Group financial
statements of Tesco PLC.
The Directors have taken advantage of the exemption available under
section 408 of the Companies Act 2006 and not presented an
income statement or a statement of comprehensive income for
the
Company alone.
A summary of the Company’s significant accounting policies is set
out below.
Investments in subsidiaries and joint ventures
Investments in subsidiaries and joint ventures are stated at cost less,
where appropriate, provisions for impairment. The Company tests
the investment balances for impairment annually or when there are
indicators of impairment.
Foreign currencies
Transactions in foreign currencies are translated to the functional
currency at the exchange rate on the date of the transaction.
At
each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated to the functional
currency at the rates prevailing on the balance sheet date.
Financial statements
Share-based payments
The fair value of employee share option plans is calculated at
the
grant date using the Black-Scholes model. The
charged to the Company income statement over
The value of the charge is adjusted to reflect expected and actual
levels of vesting. Where the Company awards shares or options to
employees of subsidiary entities, this is treated as a capital
contribution.
resulting cost is
the
vesting period.
Own shares held
Own shares represent the shares of Tesco PLC that are held by the
Tesco International Employee Benefit Trust, or which are purchased
and held for cancellation as part of the share buyback programme.
The Company adopts a
accounts for the Trust as an extension of the Company. Shares
purchased for cancellation are included in own shares held until
cancellation, at which point they are transferred to retained earnings.
Own shares held can include equity elements of forward contracts
where the Group has an obligation to purchase its own shares.
‘look-through’ approach which, in substance,
Financial instruments
Financial assets and financial liabilities are recognised in the
Company balance sheet when the Company becomes party to
the
contractual provisions of the instrument.
Receivables
Receivables are recognised initially at fair value, and subsequently
at
expected credit losses.
amortised cost using the effective interest rate method, less any
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according
the substance of the contractual arrangements entered into.
to
An
equity instrument is any contract that gives a residual interest in
the assets of the Company after deducting all of its liabilities. Equity
instruments issued by the Company are recorded as the proceeds
received, net of direct issue costs.
Interest-bearing borrowings
Interest-bearing bank loans and overdrafts are initially recognised at
fair value and net of attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at amortised
cost with any differences between proceeds and redemption value
being recognised in the Company income statement over the period
of
the borrowings on an effective interest basis.
Payables
Payables are recognised initially at fair value and subsequently at
amortised cost using the effective interest rate method.
Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments to hedge its
exposure to foreign exchange and interest rate risks arising from
operating, financing and investing activities. The Company does not
hold or issue derivative financial instruments for trading purposes.
Derivative financial instruments are recognised and stated at fair
value. Where derivatives do not qualify for hedge accounting, any
gains or losses on remeasurement are immediately recognised in
the
Company income statement. Where derivatives qualify for hedge
accounting, recognition of any resultant gain or loss depends on the
nature of the hedge relationship and the item being hedged. In order
to qualify for hedge accounting, the Company is required to
document from inception, the relationship between the item
being
hedged and the hedging instrument.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
193
193
Financial statements
Notes to the Parent Company financial statements continued
Note 2 Accounting policies continued
The Company is also required to document and demonstrate an
assessment of the relationship between the hedged item and the
hedging instrument, which shows that the hedge will be highly effective
on an ongoing basis. This effectiveness testing is performed at each
reporting date to ensure that the hedge remains highly effective.
Derivative financial instruments with maturity dates of more than
one year from the reporting date are disclosed as non-current.
Fair value hedging
Derivative financial instruments are classified as fair value hedges
when they hedge the Company’s exposure to changes in the fair
value of a recognised asset or liability. Changes in the fair value of
derivatives that are designated and qualify as fair value hedges are
recorded in the Company income statement, together with any
changes in the fair value of the hedged item that are attributable
to
the hedged risk.
Taxation
The tax expense included in the Company income statement
consists of current and deferred tax.
Current tax is the expected tax payable on the taxable income for
the financial year, using tax rates enacted or substantively enacted
by the balance sheet date. Tax expense is recognised in the
Company income statement except to the extent that it relates
items recognised in the Company statement of comprehensive
to
income or directly in the Company statement of changes in equity,
in
which case it is recognised in the Company statement of
comprehensive income or directly in the Company statement
of
changes in equity, respectively.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.
Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset realised,
based
on the tax rates that have been enacted or substantively enacted by
the balance sheet date. Deferred tax is charged or credited in the
Company income statement, except when it relates
charged or credited directly to equity or other comprehensive
income/(loss), in which case the deferred tax
equity, or other comprehensive income/(loss), respectively.
is also recognised in
to items
Judgements and sources of estimation uncertainty
The preparation of the Company financial statements requires
management to make judgements, estimates and assumptions
in
applying the Company’s accounting policies to determine the
reported amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances. Actual results may differ
from
are
estimates applied prospectively.
these estimates. The estimates and underlying assumptions
reviewed on an ongoing basis, with revisions to accounting
The preparation of the Company financial statements for the
financial year did not require the exercise of any critical accounting
judgements or significant estimates.
New standards and amendments effective for the
current financial year
New standards, interpretations and amendments effective in the
current financial year have not had a material impact on the
Company.
Note 3 Auditor remuneration
Fees payable to the Company’s auditor for the audit of the Company
and Group financial statements are disclosed in Note 3 to
the Group
financial statements.
Note 4 Dividends
For details of dividends see Note 8 to the Group financial
statements.
If the hedge no longer meets the criteria for hedge accounting,
the
adjustment to the carrying amount of a hedged item is
amortised
period to
the Company income statement over the remaining
to
maturity.
Cash flow hedging
Derivative financial instruments are classified as cash flow hedges
when they hedge the Company’s exposure to variability in cash flows
that are either attributable to a particular risk associated with a
recognised asset or liability, or a highly probable forecasted
transaction. The effective element of any gain or loss from
remeasuring the derivative designated as the hedging instrument
is
income and accumulated in the hedging reserve. Any cost of
hedging, such as the change in fair value related to forward points
and currency basis adjustment is separately accumulated in the
cost
immediately in the Company income statement.
recognised directly in the Company statement of comprehensive
of hedging reserve. The ineffective element is recognised
The associated cumulative gain or loss is reclassified from other
comprehensive income and recognised in the Company income
statement in the same period or periods during which the
transaction affects the Company income statement. The
classification of the effective portion when recognised in the
Company income statement is the same as the classification of
the
of the derivative instrument that does not meet the criteria for an
effective hedge is recognised immediately in the Company income
statement within finance income or costs.
hedged transaction. Any element of the remeasurement criteria
hedged
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, or no longer qualifies
hedge accounting. At that point in time, any cumulative gain or
for
loss on the hedging instrument recognised in equity is retained in
the
Company statement of changes in equity until the forecasted
transaction occurs or the original hedged item affects the Company
income statement. If a forecast hedged transaction is
longer
expected to occur, the net cumulative gain or loss recognised in
the
Company income statement.
Company statement of changes in equity is reclassified to the
no
Pensions
The Company participates in a Group defined benefit pension
scheme which is closed to future accrual. The net defined benefit
cost and deficit/surplus for the scheme are borne and recognised by
another Group company, Tesco Stores Limited, as per the stated
policy of the Group. The Company also participates in a defined
contribution scheme open to all UK employees. Payments to this
scheme are recognised as an expense as they fall due.
194
Tesco PLC Annual Report and Financial Statements 2023
194
Tesco PLC Annual Report and Financial Statements 2023
Note 5 Employment costs, including Directors’ remuneration
Wages and salaries
Social security costs
Pension costs
Share-based payments expense
Total
Financial statements
Notes
13
12
2023
£m
12
2
1
9
24
2022
£m
13
2
1
3
19
The amounts above include recharges from other Group companies for Tesco PLC-related activities.
The average number of employees (all Directors of the Company) during the financial year was 12 (2022: 13).
The Schedule 5 requirements of SI 2008/410 for Directors’ remuneration are included within the Directors’ remuneration report on pages 77 to
101.
Note 6 Investments
Cost
At 26 February 2022
Capital contributions
Return of capital contributions
At 25 February 2023
Accumulated impairment losses
At 26 February 2022 and at 25 February 2023
Net carrying value
At 25 February 2023
At 26 February 2022
There were no impairments or disposals in the current financial year.
The list of the Company’s subsidiary undertakings and joint ventures is shown on pages 199 to 203.
Note 7 Receivables
Amounts owed by Group undertakings*
Other receivables
Total receivables
Of which:
Current
Non-current
* Amounts owed by Group undertakings are interest-bearing, with interest rates ranging from 4.4% to 6.0% and with maturities up to and including March 2025.
The expected credit loss on receivables is immaterial (2022: immaterial).
Note 8 Payables
Amounts owed to Group undertakings*
Other payables
Taxation and social security
Total payables
Of which:
Current
Non-current
* Amounts owed to Group undertakings are interest-bearing, with interest rates ranging from 2.7% to 5.2% and with maturities up to and including February 2051.
2023
£m
17,926
96
(139)
17,883
(913)
16,970
17,013
2022
£m
760
19
779
518
261
779
2022
£m
2,487
105
2
2,594
763
1,831
2,594
2023
£m
1,072
22
1,094
860
234
1,094
2023
£m
2,302
71
3
2,376
244
2,132
2,376
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
195
195
Financial statements
Notes to the Parent Company financial statements continued
Note 9 Taxation
The deferred tax liability recognised by the Company, and the movements thereon, during the current financial year are as follows:
At 26 February 2022
Movement in other comprehensive income for the year
At 25 February 2023
Note 10 Borrowings
Bank loans and overdrafts
LPI and RPI-linked bonds*
3.322% LPI MTN
1.982% RPI MTN
Other borrowings
5% MTN
6% MTN
5.5% MTN
6.15% USD Bond
4.875% MTN
5.125% MTN
5.2% MTN
Of which:
Current
Non-current
Par value
Maturity
£392m
£346m
Nov 2025
Mar 2036
£71m
£38m
£67m
$355m
£14m
€235m
£14m
Mar 2023
Dec 2029
Jan 2033
Nov 2037
Mar 2042
Apr 2047
Mar 2057
Financial
instruments
£m
(32)
13
(19)
2022
£m
25
377
312
77
44
79
338
14
203
14
1,483
50
1,433
1,483
2023
£m
43
396
349
75
43
78
366
14
213
14
1,591
141
1,450
1,591
* These bonds are redeemable at par, indexed for increases in the RPI over the life of the MTN. However, for the LPI-linked bond, the maximum indexation of the principal in any one year is 5%, with
a minimum of 0%. For the RPI-linked bond, refer to Note 27 of the Group financial statements.
Note 11 Derivative financial instruments
Fair value hedges
Interest rate swaps and similar
instruments
Cash flow hedges
Index-linked swaps
Derivatives not in a formal hedge
relationship
Cross-currency swaps
Index-linked swaps
Interest rate swaps and similar
instruments
Total
2023
2022
Asset
Liability
Asset
Liability
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
2
65
235
738
170
530
–
937
404
3,089
–
4,296
–
–
(5)
–
–
(5)
–
–
100
–
–
100
5
65
231
683
197
636
–
447
3,089
–
1,069
4,284
–
–
–
–
(86)
(86)
–
–
15
–
1
16
Note 12 Share-based payments
The Company’s equity-settled share-based payment schemes comprise various share schemes designed to reward Executive Directors.
For further information on these schemes, including the valuation models and assumptions used, refer to Note 28 of the Group financial statements.
Share option schemes
The number of options and weighted average exercise price (WAEP) of share option schemes relating to the Company employees are:
For the 52 weeks ended 25 February 2023
Outstanding at 26 February 2022
Granted
Forfeited
Exercised
Outstanding at 25 February 2023
Exercise price range (pence)
Weighted average remaining contractual life (years)
Exercisable at 25 February 2023
Exercise price range (pence)
Weighted average remaining contractual life (years)
Savings-related
Share Option Scheme
Nil cost
share options
Options
–
9,890
–
–
9,890
–
–
–
WAEP
–
182.00
–
–
182.00
–
3.52
–
–
–
Options
–
–
–
–
–
–
–
–
WAEP
–
–
–
–
–
–
–
–
–
–
196
Tesco PLC Annual Report and Financial Statements 2023
196
Tesco PLC Annual Report and Financial Statements 2023
For the 52 weeks ended 26 February 2023
Outstanding at 27 February 2021
Granted
Forfeited
Exercised
Outstanding at 26 February 2022
Exercise price range (pence)
Weighted average remaining contractual life (years)
Exercisable at 26 February 2022
Exercise price range (pence)
Weighted average remaining contractual life (years)
Financial statements
Savings-related
Share Option Scheme
Nil cost
share options
Options
9,574
–
(1,596)
(7,978)
–
–
–
–
Options
3,140,804
82,736
–
(3,223,540)
–
–
–
–
WAEP
188.00
–
188.00
188.00
–
–
–
–
–
–
WAEP
–
–
–
–
–
–
–
–
–
–
Share bonus and incentive schemes
Executive Directors participate in the Group Bonus Plan, a performance-related bonus scheme. The amount paid is based on a percentage of
salary and is paid partly in cash and partly in shares. Bonuses are awarded to Executive Directors who have completed a required service period
and depend on the achievement of the corporate and individual performance targets. For further information on these schemes, including the
valuation models and assumptions used, refer to Note 28 of the Group financial statements.
The number and weighted average fair value (WAFV) of share bonuses granted during the financial year were:
Group Bonus Plan
Performance Share Plan
Joining award*
2023
Number
of shares
810,608
2,252,917
–
WAFV
pence
274.10
255.40
–
2022
Number
of shares
–
2,672,421
2,336,887
WAFV
pence
–
222.47
223.35
* Joining award granted during the prior financial year to Executive Directors under Listing Requirement 9.4.2.
Note 13 Pensions
The total cost of participation in the Tesco Retirement Savings Plan (a defined contribution scheme) to the Company was £1m (2022: £1m). Further
disclosure relating to all schemes can be found in Note 29 to the Group financial statements.
Note 14 Called-up share capital and reserves
Refer to Note 30 of the Group financial statements.
Other reserves
The table below sets out the movements in other reserves:
At 26 February 2022
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Company income
statement
Tax relating to components of other comprehensive income (Note 9)
Total other comprehensive income/(loss)
Transactions with owners
Own shares purchased for cancellation
Own shares cancelled
Own shares purchased for share schemes
Share-based payments
Total transactions with owners
At 25 February 2023
Capital
redemption
reserve
£m
22
Hedging reserve
£m
97
Own shares held
£m
(365)
Merger reserve
£m
3,050
–
–
–
–
–
21
–
–
21
43
7
(58)
13
(38)
–
–
–
–
–
59
–
–
–
–
(758)
795
(188)
157
6
(359)
–
–
–
–
–
–
–
–
–
3,050
Total
£m
2,804
7
(58)
13
(38)
(758)
816
(188)
157
27
2,793
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
197
197
Financial statements
Notes to the Parent Company financial statements continued
Note 14 Called-up share capital and reserves continued
At 27 February 2021
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
Cash flow hedges reclassified and reported in the Company income
statement
Tax relating to components of other comprehensive income
Total other comprehensive income/(loss)
Transactions with owners
Own shares purchased for cancellation
Own shares cancelled
Own shares purchased for share schemes
Share-based payments
Total transactions with owners
At 26 February 2022
Note 15 Contingent liabilities and guarantees
Contingent liabilities
Refer to Note 34 of the Group financial statements.
Capital
redemption
reserve
£m
16
Hedging reserve
£m
94
Own shares held
£m
(188)
Merger reserve
£m
3,050
–
–
–
–
–
6
–
–
6
22
31
(18)
(10)
3
–
–
–
–
–
97
–
–
–
–
(301)
264
(279)
139
(177)
(365)
–
–
–
–
–
–
–
–
–
3,050
Total
£m
2,972
31
(18)
(10)
3
(301)
270
(279)
139
(171)
2,804
Guarantees
The Company has entered into financial guarantee contracts to guarantee indebtedness held on the balance sheets of Group undertakings
amounting to £3.4bn (2022:
liability position at the reporting date total £0.2bn (2022: £0.1bn).
£3.5bn). The Company has also guaranteed derivative agreements of Group undertakings, of which those in a net
In addition, the Company has guaranteed the rental payments of certain Group undertakings relating to a portfolio of retail stores, distribution
centres and mixed-use retail developments amounting to £5.1bn (2022: £5.6bn).
The Company has also guaranteed £0.9bn (2022: £0.9bn) drawn by Tesco Bank under the Bank of England’s Term Funding Scheme with incentives
for small and medium-sized enterprises (TFSME).
The likelihood of the above items being called upon is considered remote.
Note 16 Events after the reporting period
On 27 February 2023, a subsidiary of the Company issued a €500m and a £250m bond, maturing 2031 and 2035 respectively, which have been
were no other events after the reporting period requiring disclosure.
guaranteed by the Company. There
198
Tesco PLC Annual Report and Financial Statements 2023
198
Tesco PLC Annual Report and Financial Statements 2023
Related undertakings of the Tesco Group
Financial statements
In accordance with section 409 of the Companies Act 2006 and Schedule 4 of The Large and Medium-sized Companies and Groups
(Accounts
and Reports) Regulations 2008, a full list of related undertakings, registered office address and the percentage of share class owned as
at 26 February 2023 are disclosed below. Changes to the list of related undertakings since the year-end date are detailed in the footnotes below.
All undertakings are indirectly owned by Tesco PLC unless otherwise stated.
Subsidiary undertakings incorporated in the United
Kingdom
Name of undertaking
Acklam Management Company
Limited
Armitage Finance Unlimited
Bath Upper Bristol Road
Management Company Limited
Berry Lane Management
Company Limited
BF Limited
Bishop’s Group Limited
Booker Cash & Carry Limited
Booker Direct Limited
Booker Group Limited
Booker Limited
Booker Retail Partners (GB)
Limited
Booker Retail Limited
Booker Pension Trustees Limited
Booker Wholesale Holdings
Limited
Booker Unapproved Scheme
Trustees Ltd
Bourne End Residential
Management Company Limited
Broughton Retail Park Nominee 1
Limited
Broughton Retail Park Nominee 2
Limited
Broughton Retail Park Nominee 3
Limited
Broughton Retail Park Nominee 4
Limited
Budgen Holdings Limited
Budgens Pension Trustees No.2
Limited
Budgens Property Investments
Limited
Budgens Stores Limited
Buttoncase Limited†
Canterbury Road Management
Limited
Cardiff Cathays Terrace
Management Company Limited
Day And Nite Stores Limited
Dillons Newsagents Limited*
dunnhumby International Limited
dunnhumby Limited
dunnhumby Overseas Limited
dunnhumby Trustees Limited
Giant Bidco Limited
Giant Booker Limited
Giant Midco Limited
Highams Green Management
Company Limited
IRTH (15) Limited
IRTH (19) Limited
Launchgrain Limited†
Linnco Limited
Registered
address
1
1
1
1
8
8
8
8
8
8
8
8
8
8
8
1
1
1
1
1
8
8
8
8
1
1
1
Class of share held
Limited by Guarantee
GBP0.90 Ordinary
Limited by Guarantee
Limited by Guarantee
GBP0.000000011111111
Ordinary
GBP0.01 Ordinary
GBP1.00 Ordinary
GBP0.01 Ordinary
GBP0.00000000055625
Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.10 Ordinary
Limited by Guarantee
GBP0.01 Ordinary A1
Limited by Guarantee
Limited by Guarantee
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 2% Cumulative
Redeemable Preference
GBP1.00 Ordinary
Limited by Guarantee
Limited by Guarantee
2
GBP1.00 Cumulative
Convertible Participating
Preferred Ordinary
GBP1.00 Cumulative
Redeemable Preference
GBP1.00 Ordinary
2 GBP0.25 Non–Voting Ordinary
GBP1.00 Ordinary
4
GBP0.05 Ordinary
4
GBP0.10 A Ordinary
GBP0.10 Deferred
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.0025 Ordinary
GBP1.00 Ordinary
Limited by Guarantee
4
4
8
8
8
1
% held by
Group
–
100
–
–
100
100
100
100
100
100
100
100
–
100
–
–
100
100
100
100
100
100
100
100
100
100
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
8
8
1
8
GBP1.00 Ordinary
USD0.000000052383172
Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
100
100
Name of undertaking
Londis (Holdings) Limited
Londis Pension Trustees Limited
Makro Holding Limited
Makro Properties Limited
Makro Self Service Wholesalers
Limited
Maldon Finance Limited
Murdoch Norton Limited
Oakwood Distribution Limited
One Stop Community Stores
Limited
One Stop Convenience Stores
Limited
One Stop Stores Limited†(a)
One Stop Stores Trustee Services
Limited
Orpington (Station Road) Limited
Oxford Fox and Hounds
Management Company Limited
PTLL Limited
Reskammel Property Company
Limited
Ritter-Courivaud Limited
Seacroft Green Nominee 1 Ltd
Seacroft Green Nominee 2 Ltd
Spen Hill Developments Limited
Spen Hill Management Limited†(b)
Spen Hill Properties (Holdings)
plc†
Spen Hill Regeneration Limited
Spen Hill Residential No 1 Limited
Spen Hill Residential No 2 Limited
Station House Welling
Management Limited
Statusfloat Limited
T&S Stores Limited†
Tapesilver Limited†
Teesport (GP) Limited
Tesco (Overseas) Limited†
Tesco Aqua (FinCo2) Limited
Tesco Aqua (GP) Limited
Tesco Aqua (Nominee 1) Limited
Tesco Aqua (Nominee 2) Limited
Tesco Aqua (Nominee Holdco)
Limited
Tesco Atrato (1LP) Limited
Tesco Atrato (GP) Limited
Tesco Atrato (Nominee 1) Limited
Tesco Atrato (Nominee 2) Limited
Tesco Atrato (Nominee Holdco)
Limited
Tesco Atrato Depot Propco
Limited
Tesco Blue (3LP) Limited
Tesco Blue (GP) Limited
Tesco Blue (Nominee 1) Limited
Tesco Blue (Nominee 2) Limited
Registered
address
8
8
8
8
8
1
Class of share held
GBP50.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary A
GBP1.00 Ordinary B
GBP0.01 Ordinary
GBP0.000000000592 A
Preference
GBP0.000000000222 B
Preference
GBP0.000000000740 C
Preference
GBP0.05 Ordinary
8
1
GBP1.00 Ordinary
2 GBP0.00001200004 Ordinary
2
2
2
1
1
1
1
8
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
Limited by Guarantee
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.10 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
Limited by Guarantee
GBP1.00 Ordinary
GBP0.05 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.0001 A Ordinary
GBP0.0001 B Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
% held by
Group
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
199
199
Financial statements
Related undertakings of the Tesco Group continued
Subsidiary undertakings incorporated in the United Kingdom continued
Name of undertaking
Tesco Blue (Nominee Holdco)
Limited
Tesco Brislington Limited
Tesco Corporate Treasury
Services PLC†
Tesco Bury Limited
Tesco Depot Propco Limited
Tesco Distribution Holdings
Limited
Tesco Distribution Limited
Tesco Dorney (1LP) Limited
Tesco Dorney (GP) Limited
Tesco Dorney (Nominee 1)
Limited
Tesco Dorney (Nominee 2)
Limited
Tesco Dorney (Nominee Holdco)
Limited
Tesco Employees’ Share Scheme
Trustees Limited†(c)
Tesco Family Dining Limited
Tesco Food Sourcing Limited
Tesco Freetime Limited
Tesco Fuchsia (3LP) Limited
Tesco Gateshead Property
Limited
Tesco Holdings Limited†
Tesco International Services
Limited†
Tesco Lagoon GP Limited
Tesco Maintenance Limited
Tesco Mobile Communications
Limited†
Tesco Mobile Services Limited
Tesco Navona (1LP) Limited
Tesco Navona (GP) Limited
Tesco Navona (Nominee 1)
Limited
Tesco Navona (Nominee 2)
Limited
Tesco Navona (Nominee Holdco)
Limited
Tesco Navona PL Propco Limited
Tesco Overseas Investments
Limited†
Tesco Passaic (1LP) Limited
Tesco Passaic (GP) Limited
Tesco Passaic (Nominee 1)
Limited
Tesco Passaic (Nominee 2)
Limited
Tesco Passaic (Nominee Holdco)
Limited
Tesco Passaic PL Propco Limited
Tesco Pension Investment
Limited(d)
Tesco Pension Trustees Limited†
Tesco Personal Finance Group
PLC†
Tesco Personal Finance PLC
Tesco Property (Nominees)
Limited
Tesco Property (Nominees)
(No.1) Limited
Tesco Property (Nominees)
(No.2) Limited
Tesco Property Finance 1 Holdco
Limited
Tesco Property Finance 1 PLC
Tesco Property Holdings (No.2)
Limited
Registered
address
1
Class of share held
GBP1.00 Ordinary
% held by
Group
100
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
5
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
6
6
11
11
11
1
1
1
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.10 Ordinary
GBP1.00 Preference
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary A
GBP1.00 Ordinary B
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary A
GBP1.00 Ordinary B
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.10 A Ordinary
GBP0.10 B Ordinary
GBP0.10 C Ordinary
GBP0.10 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.25 Ordinary(e)
GBP1.00 Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Name of undertaking
Tesco Property Holdings Limited
Tesco Property (Nominees)
(No.3) Limited
Tesco Property (Nominees)
(No.4) Limited
Tesco Property Nominees (No.5)
Limited
Tesco Property Nominees (No.6)
Limited
Tesco Property Partner (GP)
Limited†
Tesco Property Partner (GP
No.2) Limited
Tesco Property Partner (No.1)
Limited†
Tesco Property (Sparta
Nominees) Limited
Tesco Red (GP) Limited
Tesco Red (Nominee 1) Limited
Tesco Red (Nominee 2) Limited
Tesco Red (Nominee Holdco)
Limited
Tesco Sarum (1LP) Limited
Tesco Sarum (GP) Limited
Tesco Sarum (Nominee 1)
Limited
Tesco Sarum (Nominee 2)
Limited
Tesco Sarum (Nominee Holdco)
Limited
Tesco Seacroft Ltd
Tesco Secretaries Limited
Tesco Services Limited
Tesco Stores Limited
Tesco TLB Properties Limited
Tesco Underwriting Limited
The Big Food Group Limited
The Teesport Limited
Partnership
The Tesco Aqua Limited
Partnership
The Tesco Atrato Limited
Partnership
The Tesco Blue Limited
Partnership
The Tesco Dorney Limited
Partnership
The Tesco Navona Limited
Partnership
The Tesco Passaic Limited
Partnership
The Tesco Property Limited
Partnership
The Tesco Property (No.2)
Limited Partnership
The Tesco Red Limited
Partnership
The Tesco Sarum Limited
Partnership
TPI Fund Managers Limited
TPT Holdco No.1 Limited
Transcend Retail Solutions
Limited(f)
WBD (Chesterfield Management)
Limited
Weymouth Avenue (Dorchester)
Limited
Waterside General Partner
Limited
200
Tesco PLC Annual Report and Financial Statements 2023
200
Tesco PLC Annual Report and Financial Statements 2023
Class of share held
GBP1.00 Ordinary
GBP1.00 Ordinary
% held by
Group
100
100
GBP1.00 Ordinary
100
GBP1.00 Ordinary
100
GBP1.00 Ordinary
100
Registered
address
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
31
8
1
1
1
1
1
1
1
1
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP0.00001 Ordinary A
GBP0.00001 Ordinary B
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary A
GBP1.00 Ordinary B
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 A Preference
GBP1.00 B Preference
GBP0.0000001 A Ordinary
GBP0.0000001 B Ordinary
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP0.10 Ordinary
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
33
Limited Partnership
1
1
1
1
1
78
1
13
Limited Partnership
Limited Partnership
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Financial statements
Name of undertaking
Tesco Sourcing Chile SpA
Tesco Corporate Treasury
Services Europe Designated
Activity Company
Tesco Franchise Stores ČR s.r.o.
Tesco Franchise Stores SR s.r.o.
Tesco-Global Stores Privately Held
Company Limited
Tesco Holdings B.V.
Tesco International Clothing Brand
s.r.o.
Tesco International Franchising
s.r.o.
Tesco International Sourcing
Limited
Tesco Ireland Holdings Limited
Tesco Ireland Limited
Tesco Ireland Pension Trustees
Limited
Tesco Joint Buying Service
(Shanghai) Co., Limited
Tesco Mobile Ireland Limited
Tesco Sourcing India Private
Limited
Tesco Stores ČR a.s.
Tesco Stores SR, a.s.
Tesco Technology and Services
Europe sp. z o.o.
Tesco Trustee Company of Ireland
Limited†
TESCO-BST Üzleti és Technológiai
Szolgáltatások Zârtköruen Múködó
Részvénytársaság
Registered
address
22
24
Class of share held
CLP482.69 Ordinary
EUR1.00 Ordinary
% held by
Group
100
100
7
68
32
40
58
58
20
24
24
24
76
24
41
7
58
3
24
25
CZK2,000,000 Ordinary
EUR1.00 Ordinary
HUF10 Common
EUR1.00 Ordinary
EUR1.00 Ordinary
100
100
100
100
100
EUR1.00 Ordinary
100
HKD10 Ordinary
100
EUR 0.00008 Ordinary
EUR1.25 Ordinary
EUR1.25 Ordinary
100
100
100
USD1.00 Ordinary
100
EUR1.00 Ordinary
INR10 Ordinary
CZK250 Ordinary
EUR33,193.918875 Ordinary
PLN50 Ordinary
100
100
100
100
100
EUR1.25 Ordinary
100
HUF100,000 Ordinary
100
International subsidiary undertakings
Name of undertaking
Arena (Jersey) Management
Limited†
Cheshunt Holdings Guernsey
Limited
dunnhumby Korea Limited
dunnhumby (Malaysia) Sdn Bhd
dunnhumby (Thailand) Limited
dunnhumby Australia Pty Ltd
dunnhumby Brasil Consultoria Ltda
dunnhumby Canada Limited
dunnhumby Chile SpA
dunnhumby Colombia S.A.S.
dunnhumby Consulting Services
India Private Limited
dunnhumby Czech s.r.o.
dunnhumby Denmark ApS
dunnhumby Finland Oy
dunnhumby France SAS
dunnhumby Germany GmbH
dunnhumby Hungary Kft
dunnhumby Inc.
dunnhumby Information
Technology Consulting (Shanghai)
Company Limited
dunnhumby Ireland Limited
dunnhumby IT Services India Private
Limited
dunnhumby Italia Srl.
dunnhumby Japan K.K.
dunnhumby México S. de R.L. de
C.V.
dunnhumby Netherlands B.V.
dunnhumby New Zealand
dunnhumby Norge A.S.
dunnhumby Poland sp. z o.o.
dunnhumby Singapore Pte Ltd
dunnhumby SARL
dunnhumby Serviços de Promoção
Digital Ltda
dunnhumby Slovakia s.r.o.
dunnhumby Spain S.L.
dunnhumby South Africa (Pty) Ltd
dunnhumby Ventures LLC
Edson Properties Limited
ELH Insurance Limited
Fiora Hypermarket Limited
Fiora Online Limited
Gresham Properties Limited
Joyce’s Supermarkets (Oranmore)
ULC
Monread Developments Limited
Nabola Development Limited
Opal Jewel sp. z o.o.
Shopping Mall Eden s.r.o.
Tesco Akadémia Képzési és
Fejlesztési Korátolt Felelősségű
Társaság
Tesco Bengaluru Private Limited
Tesco Capital No. 1 Limited†
Registered
address
33
27
Class of share held
% held by
Group
GBP1.00 Ordinary
100
GBP1.00 Ordinary
100
KRW5,000 Ordinary
66
MYR1.00 Ordinary
10
THB100 Ordinary
73
AUD1.00 Ordinary
65
BRL1.00 Ordinary
16
CAD1.00 Ordinary
59
48
CLP500,000 Ordinary
74 COP0.1582528881 Ordinary
INR1.00 Ordinary
60
7
CZK200,000 Basic Business
Share
DKK1.00 Ordinary
57
EUR25 Ordinary
30
EUR2.00 Ordinary
80
14
EUR1.00 Ordinary
32 Registered capital HUF1.00
35 No par value Common stock
USD1.00 Ordinary
62
67
36
37
38
69
70
64
56
42
19
61
16
58
50
43
44
24
71
26
26
77
79
24
24
75
7
32
EUR1.00 Ordinary
INR 10.00 Ordinary
EUR100,000 Quota
JPY10,000 Ordinary
MXN1,500 Common
EUR100 Ordinary
NZD1.00 Ordinary
NOK100 Ordinary
PLN50 Ordinary
SGD1.00 Ordinary
EUR100 Ordinary
BRL1.00 Ordinary
EUR5,000 Ordinary
EUR1.00 Ordinary
No par value Ordinary
–
EUR1.00 Ordinary
GBP1.00 Ordinary
INR10 Equity
INR10 10% Non-Convertible
Redeemable Preference
INR10 0.10% Non-
Convertible Redeemable
Preference
NR10 Equity
EUR1.00 Ordinary
EUR1.00 Ordinary
EUR0.001 Ordinary
EUR1.25 A Ordinary
EUR1.25 B Ordinary
PLN50 Ordinary
CZK100,000 Ordinary
HUF1.00 Business Share
41
28
INR10.00 Ordinary
GBP0.50 A Ordinary
GBP0.50 B Ordinary
GBP0.01 Preference
Guaranteed Cumulative
Fixed Rate Preference
GBP0.01 Preferred Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
–
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
201
201
Financial statements
Related undertakings of the Tesco Group continued
Subsidiary undertakings in liquidation
The following subsidiary undertakings were incorporated in the
United Kingdom
Associated undertakings
The following associated undertakings were incorporated in the
United Kingdom
Name of undertaking
Alfred Preedy & Sons Limited(g)
Buttoncable Limited(h)
Comar Limited†(i)
dunnhumby Holding Limited
Paper Chain (East Anglia) Limited
Reefknot Technology Limited
Stewarts Supermarkets Limited†
Tesco Aqua (3LP) Limited
Tesco International Internet
Retailing Limited†
Tesco PEG Limited
Tesco PENL Limited
Tesco Property Partner (No.2)
Limited
Tesco Red (3LP) Limited(i)
Tesco TLB Finance Limited(i)
Registered
address
Class of share held
% held by
Group
9
GBP1.00 Deferred
GBP1.00 Ordinary
GBP1.00 Ordinary
9
GBP1.00 Ordinary
9
GBP1.00 Ordinary
9
USD0.001 Ordinary
9
GBP1.00 Ordinary
9
GBP1.00 Ordinary
9
9
GBP1.00 Ordinary
9 GBP0.0000013543 Ordinary
9
9
1
9
9
GBP0.01 Ordinary
GBP1.00 Ordinary
GBP0.000000660039866
Ordinary
GBP1.00 Ordinary
GBP1.00 Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
The following subsidiary undertakings were incorporated outside of
the United Kingdom
Name of undertaking
Registered
address
dunnhumby Advertising
(Shanghai) Co., Ltd(j)
Dunnhumby Bilgisayar Bilişim
Teknolojileri ve Danşmanlk Hizmetleri
Limited Company(k)
(Tasfiye Halinde Dunnhumby Bilgisayar
Bilişim Teknolojileri ve Danşmanlk
Hizmetleri Limited Şirketi)
Patrick C. Joyce Supermarket
(headford) ULC
Sociomantic Labs Internet Services
Limited Company(k)
(Tasfiye Halinde Sociomantic Labs
İnternet Hizmetleri Limited Şirketi)
Sociomantic Labs Private Limited
Tesco Capital No.2 Limited
WSC Properties Limited
23
18
77
51
46
17
24
Class of share held
EUR130,000 Registered
Capital
TRY25,000 Ordinary
EUR1.25 Ordinary
TRY25.00 Ordinary
INR10 Ordinary
GBP0.01 Floating Rate
Redeemable Preference
GBP1.00 Ordinary
EUR0.0000005 Ordinary
% held by
Group
100
100
100
100
100
100
100
100
Name of undertaking
Broadfields Management
Limited
Shire Park Limited
Tesco Coral (GP) Limited*
Tesco Coral (Nominee) Limited
Tesco Jade (GP) Limited
Tesco Jade (Nominee) Limited
Tesco Mobile Limited*
The Tesco Coral Limited
Partnership
Registered
address
12
15
1
1
29
29
1
1
Class of share held
% held by
Group
GBP0.10 Ordinary
35.33
GBP1.00 Ordinary
GBP1.00 A Ordinary
GBP1.00 Ordinary
GBP1.00 A Ordinary
GBP1.00 B Ordinary
GBP1.00 Ordinary
GBP0.10 A Ordinary
GBP0.90 B Ordinary
Limited Partnership
48.57
100
100
30
30
30
100
100
50.05
The following associated undertakings were incorporated outside of
the United Kingdom
Name of undertaking
The Arena Unit Trust
The Blackpool Unit Trust
The Broadstairs Unit Trust
The Coventry Unit Trust
Booker India Limited
Booker Satnam Wholesale
Limited
China Wisdom dunnhumby
Limited
China Wisdom dunnhumby
(Shanghai) Limited
dunnhumby Mitsui Bussan
Customer Science Co., Ltd
Merrion Shopping Centre Ltd
Tesco Mobile ČR s.r.o.
Tesco Mobile Slovakia s.r.o.
THPL Support Services Limited
Trent Hypermarket Private
Limited
Registered
address
33
33
33
33
26
54
Class of share held
–
-
-
-
INR10 Ordinary
INR5.00 Compulsorily
Convertible Preference
INR1.00 Ordinary
53
CNY264,000.01 Ordinary
63
55
24
7
72
26
26
CNY1.00 Ordinary
JPY50,000 Ordinary
EUR0.012697 Ordinary
CZK100,000 Ordinary
EUR1.00 Ordinary
INR100 Equity
INR10.00 Equity
% held by
Group
50
50
50
50
49
49
49
50
50
50
51.87
50
50
50
50
Consolidated structured entities
Name of undertaking
Delamare Cards Holdco Limited
Delamare Cards MTN Issuer PLC
Delamare Cards Receivables Trustee
Limited
Delamare Cards Funding 1 Limited
Delamare Cards Funding 2 Limited
Delamare Finance PLC
Delamare Group Holdings Limited
Tesco Property Finance 2 PLC
Tesco Property Finance 5 PLC
Tesco Property Finance 6 PLC
Registered
address
47
47
47
47
47
11
11
11
11
11
Nature of business
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
Securitisation entity
* Undertaking where other share classes are held by a third party.
†
Interest held directly by Tesco PLC.
(a) 95% held by Tesco PLC.
(b) 66.6% held by Tesco PLC.
(c) 50% held by Tesco PLC.
(d) Shares held by Tesco Pension Trustees Limited (TPTL), the corporate trustee of the
Tesco
PLC Pension Scheme (the Scheme). On behalf of the Scheme, TPTL holds a 50%
shareholding in three property joint ventures with Tesco, and is the sole shareholder of
TPT Holdco No.1 Limited and Tesco Pension Investment Limited.
(e) One ordinary share of the same class partly paid.
(f) Company was incorporated on 31/03/2023.
(g) Company was dissolved on 08/03/2023.
(h) Company was dissolved on 05/04/2023.
(i) Company was dissolved on 09/03/2023.
(j) Company was dissolved on 17/03/2023.
(k) Company was put into liquidation on 24/02/2021.
202
Tesco PLC Annual Report and Financial Statements 2023
202
Tesco PLC Annual Report and Financial Statements 2023
Financial statements
Paseo de General Martinez Campos, nº 9 1º izquierda, 28010 Madrid, Spain
Istiklal Caddesi Beyoglu Is Merkezi No: 187/5 Galatasaray, Istanbul, Turkey
50
51
52 Centre de Commerces et de, Loisirs, Cite Europe, 62231 Coquelles, France
53
54 Unit 607, 6th floor, Trade Centre, Bandra Kurla Complex, Bandra East, Mumbai,
Suite 1106-8, 11/F Tai Yau Building, No 181 Johnston Road, Wanchai, Hong Kong
400051, Maharashtra, India
Kojimachiterrace 4F, Kojimachi 3-1, Chiyoda-ku, Tokyo, Japan
6th floor, Tordenskioldsgate 8-10, Oslo, Norway
c/o Coop Danmark, Roskildevej 65, 2620 Albertslund, Denmark
55
56
57
58 Cesta na Senec 2, Bratislava, 821 04, Slovakia
59
60
1400-340 Albert Street, Ottawa, Ontario K1R 0A5, Canada
4th Floor, Tower B, Paras Twin Towers, DLF Golf Course Road, Sector 54, Gurgaon,
Haryana-HR, 122002, India
48 rue Cambon, 75001, Paris, France
Room 1001, Enterprise Development Tower, Unit 01 - 10th Floor, No 398, Jiangsu
Road, Changning District, Shanghai 200050, People’s Republic of China
63 Room 2393, 2/F, No.3 Xuanhua Road, Changning District, Shangha, People’s
61
62
Republic of China
64 RSM New Zealand, Level 2, 60 Highbrook Drive, East Tamaki, Auckland, 2013, New
Zealand
65 C/O RSM Australia Pty Ltd, Level 21, 55 Collins Street, Melbourne, VIC 3000,
66
67
68
69
70
Australia
(Gran Seoul, Cheongjin-dong) 7F, 33, Jong-ro, Jongno-gu (07326), South Korea
Floor 3, 2 Harbour Square, Crofton Road, Dun Laoghaire, Dublin A96D6R0, Ireland
Veterná 7310/40, 917 01 Trnava, Slovakia
Artemio Del Valle Arizpe 16 Piso 2 COL. Del Valle C.P. 03100 Benito Juarez Ciudad De
Mexico, Mexico
Regus Amsterdam Sloterdijk Teleport Towers, Kingsfordweg 151, 1043
GR
Dorey Court, Admiral Park, St. Peter Port, GY1 4AT, Guernsey
Einsteinova 24, Bratislava 851 01, Slovakia
71
72
73 No 319 Chamchuri Square Building, 24th Floor, Office no. 24116, Phayathai road,
Amsterdam, The Netherlands
Pathumwan sub district, Pathumwan District, Bangkok 10330, Thailand
74 Calle CR 48 NO 32B SUR 139 OF 909 P 9, Envigado, Antioquia, Colombia
75
76
ul. Gorczewska 216, 01-460 Warsaw, Poland
Unit 01, 02, 06, 07, 08, 09, Floor 17, No. 610 Xujiahui Road, Huangpu District,
Shanghai, People’s Republic of China
Gresham House, Marine Road, Dun Laoghaire, Dublin A96 HX70
Barratt House Cartwright Way Forest Business Park, Bardon Hill, Coalville,
Leicestershire, LE67 1UF, United Kingdom
79 Church Road, Headford, 0000 Galway, Ireland
80
Spaces les Halles - Spaces 40 rue du Louvre 75001, Paris, France
77
78
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Kingdom
Lumpur, Malaysia
Tesco House, Shire Park, Kestrel Way, Welwyn Garden City, AL7 1GA,
United
Apex Road, Brownhills, Walsall, West Midlands, WS8 7HU, United Kingdom
ul. Przy Rondzie 4, 31-547 Kraków, Poland
184 Shepherds Bush Road, London, W6 7NL, United Kingdom
C/O Morton Fraser LLP, 5th Floor, Quartermile Two, 2 Lister Square, Edinburgh,
Scotland, EH3 9GL, United Kingdom
2 South Gyle Crescent, Edinburgh, EH12 9FQ, United Kingdom
Vršovická 1527/68b, Vršovice, 100 00 Prague 10, Czech Republic
Equity House, Irthlingborough Road, Wellingborough, Northamptonshire, NN8 1LT,
United Kingdom
Ernst & Young LLP, 1 More London Place, London, SE1 2AF, United Kingdom
Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50400
Kuala
1 Bartholomew Lane, London, EC2N 2AX, United Kingdom
2 Paris Parklands, Railton Road, Guildford, Surrey, GU2 9JX, United Kingdom
Suite 1, 3rd Floor 11-12 St. James’s Square, London, United Kingdom, SW1Y 4LB
Ritterstraße 6, 10969 Berlin, Germany
Riverside House, 3 Place Farm, Wheathampstead, St. Albans, AL4 8SB,
United
Avenida Brigadeiro Luis Antônio, no. 3530, 3rd Floor, CJ 31 and 32, Jardim Paulista,
01402-001 São Paulo, Brazil
c/o Ernst & Young LLP, Castle Street, St Helier, JE1 1EY, Jersey
Yeni Havaalan Caddesi, No. 40 Cigli, Izmir, 35610 Turkey
c/o GT Law LLC, 3 Church Street #15-02, Samsung Hub, Singapore 049483,
Singapore
31st Floor AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kowloon,
Hong
5 Esperidon Street, 4th floor, 2001 Strovolos, Nicosia, Cyprus
Avenida Santa María 5888, Piso 2 Zona A, Oficina 4, Vitacura, Santiago, 7660268,
Chile
Eco City Centro, 901-12 office, 9 / F 1788 West Nanjing Road, Jingan District,
Shanghai, People’s Republic of China
Kingdom
Kong
24 Gresham House, Marine Road, Dun Laoghaire, Co. Dublin, Ireland
25
26
27
28
29 C/O Tmf Group 8th Floor, 20 Farringdon Street, London, United Kingdom, EC4A
ll38, Budapest, Váci út, 187, Hungary
Taj Building, 2nd Floor, 210, Dr D.N. Road, Fort, Mumbai, 400001, India
PO Box 25, Regency Court, Glategny Esplanade, St. Peter Port, Guernsey, GY1 3AP
Level 1, IFC1 Esplanade, St Helier, Jersey, JE2 3BX
4AB
c/o Rantalainen Oy, Helsinki Rajatorpantie 8, 01600 Vantaa, Finland
The Omnibus Building, Lesbourne Road, Reigate, Surrey, RH2 7LD, United Kingdom
2040 Budaörs, Kinizsi, ÚT 1-3, Hungary
47 Esplanade, St Helier, Jersey, JE1 0BD
30
31
32
33
34 No. 725 Metropolis Building, Level, 20, Suite 161, Sukhumvit Road, Klongtan Nua Sub-
35
District, Wattana District, BANGKOK 10110, Thailand
c/o The Corporation Trust Company, 1209 Orange Street, Corporation Trust
Center, Wilmington, DE 19801, United States
36 Ground Floor and First Floor, Worldmark 1, Asset Area 11, Aerocity, Hospitality
37
38
District, Indira Ghandi Int. Airport, New Delhi, South West Delhi DL 110037, India
Foro Buonaparte 67, 20121 Milano, Italy
9th Floor, Shiroyama Trust Tower, 4-3-1, Toranomon 4-chome, Minato-ku, Tokyo
105-6009, Japan
38/39 Fitzwilliam Square, Dublin 2, Ireland
39
40 Willemsparkweg 150H, 1071 HS, Amsterdam, The Netherlands
81 & 82, EPIP Area, Whitefield, Bangalore, 560066, India
41
ul. Grzybowska 2/29, Warsaw, Poland
42
c/o Eversheds Sutherland, 3rd Floor, 54 Melrose Boulevard, Melrose Arch,
43
Gauteng, 2196, South Africa
3300 Great American Tower, 301 East Fourth Street, Cincinnati, OH, 45202, United
States
44
45 Windward 1, Regatta Office Park, PO Box 897, Grand Cayman KY1 – 1103,
Cayman
Islands
46 C/o Vaish Associates, 106, Peninsula Centre, Dr. S. S. Rao Road, Parel Mumbai -
400012, India
6th Floor, 125 London Wall, London, EC2Y 5AS, United Kingdom
Antonio Bellet 444 Oficina 504 Comuna de Providencia, Ciudad de Santiago, Chile
163 Tras Street, #03-01, Lian Huat Building, 079024, Singapore
47
48
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Tesco PLC Annual Report and Financial Statements 2023
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203
203
Financial statements
Supplementary information (unaudited)
One-year like-for-like sales performance (exc. VAT, exc. fuel)
UK & ROI
UK
ROI
Booker
Central Europe
Total Retail
Q1
2022/23
1.5%
(1.5)%
(2.4)%
19.4%
9.0%
2.0%
Q2
2022/23
3.9%
2.8%
2.4%
9.3%
11.8%
4.5%
Q3
2022/23
5.2%
4.3%
5.3%
9.3%
12.3%
5.7%
Like-for-like sales
Q4
2022/23
8.1%
7.6%
7.8%
11.1%
8.5%
8.2%
Three-year like-for-like sales performance (exc. VAT, exc. fuel)
H1
2022/23
2.7%
0.7%
(0.1)%
13.9%
10.4%
3.2%
H1
2022/23
11.5%
9.9%
12.1%
21.0%
11.0%
11.5%
H1
2022/23
2.6%
0.6%
1.0%
13.8%
9.5%
3.1%
24.6%
3.5%
H2
2022/23
6.7%
6.0%
6.6%
10.2%
10.3%
6.9%
H2
2022/23
15.5%
14.1%
17.3%
23.6%
15.5%
15.5%
Constant rates
H2
2022/23
6.8%
6.0%
9.7%
10.2%
10.4%
7.1%
16.0%
7.2%
FY
2022/23
4.7%
3.3%
3.3%
12.0%
10.4%
5.1%
FY
2022/23
13.5%
12.0%
14.7%
22.2%
13.2%
13.5%
FY
2022/23
4.7%
3.3%
5.4%
12.0%
10.0%
5.1%
20.1%
5.3%
Q2
2022/23
13.3%
11.6%
14.3%
22.3%
10.6%
13.1%
H1
2022/23
2.6%
0.6%
(0.6)%
13.8%
5.9%
2.8%
24.6%
3.1%
Q3
2022/23
13.7%
11.9%
14.3%
24.0%
16.9%
13.9%
Like-for-like sales
Q4
2022/23
17.3%
16.3%
20.1%
23.1%
14.2%
17.1%
Actual rates
H2
2022/23
7.0%
6.0%
13.2%
10.2%
10.7%
7.2%
16.0%
7.4%
FY
2022/23
4.8%
3.3%
6.3%
12.0%
8.3%
5.0%
20.1%
5.3%
Revenue (exc. VAT, inc. fuel)
Local currency
(m)
48,917
3,077
8,684
45,603
668,601
1,580
£m
48,917
2,645
8,684
1,601
1,451
1,358
Average exchange
rate
1.0
1.2
1.0
28.5
460.8
1.2
Closing exchange
rate
1.0
1.1
1.0
26.8
430.4
1.1
25 February 2023
26 February 2022
No. of stores
2,605
276
286
182
119
45
8
3,521
Million sq. ft.
5.6
2.9
8.2
8.8
8.4
3.7
1.0
38.6
% of total
sq. ft.
14.6%
7.6%
21.2%
22.8%
21.6%
9.6%
2.6%
100.0%
No. of stores
2,556
281
286
182
120
45
8
3,478
Million sq. ft.
5.5
3.0
8.3
8.8
8.4
3.7
1.0
38.7
% of total
sq. ft.
14.2%
7.8%
21.4%
22.7%
21.7%
9.6%
2.6%
100.0%
UK & ROI
UK
ROI
Booker
Central Europe
Total Retail
Q1
2022/23
9.7%
8.1%
10.1%
19.6%
11.3%
9.9%
Total sales performance (exc. VAT, exc. fuel)
UK & ROI
UK
ROI
Booker
Central Europe
Total Retail
Tesco Bank
Total Group
Country detail – Retail
UK
ROI
Booker
Czech Republic
Hungary
Slovakia
UK sales area by size of store
Store size (sq. ft.)
0-3,000
3,001-20,000
20,001-40,000
40,001-60,000
60,001-80,000
80,001-100,000
Over 100,000
Total*
* Excludes Booker and franchise stores.
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Other information
Other information
Group space summary
Actual Group space – store numbers(a)
Large(d)
Convenience
Dotcom only
Total Tesco
One Stop(e)
Booker
Jack’s
UK(e)
ROI(f)
UK & ROI(e)
Czech Republic(e)
Hungary
Slovakia(e)
Central Europe(e)
Group(e)
UK (One Stop)
Czech Republic
Slovakia
Franchise stores
Total Group
Actual Group space – ‘000 sq. ft.(a)
Large(d)
Convenience
Dotcom only
Total Tesco
One Stop(e)
Booker
Jack’s
UK(e)
ROI(f)
UK & ROI(e)
Czech Republic(e)
Hungary
Slovakia(e)
Central Europe(e)
Group(e)
UK (One Stop)
Czech Republic
Slovakia
Franchise stores
Total Group
2021/22
year end
798
1,966
6
2,770
695
192
13
3,670
152
3,822
185
198
154
537
4,359
252
126
15
393
4,752
2021/22
year end
31,402
5,287
716
37,405
1,134
8,210
128
46,877
3,344
50,221
4,248
5,927
3,143
13,318
63,539
367
115
13
495
64,034
Openings
2
50
–
52
18
–
–
70
14
84
4
–
3
7
91
53
4
12
69
160
Openings
26
129
–
155
37
–
–
192
126
318
46
–
31
77
395
71
3
11
85
480
Closures/
disposals
(1)
(18)
–
(19)
(1)
(1)
(7)
(28)
–
(28)
(2)
(1)
–
(3)
(31)
(14)
(6)
(2)
(22)
(53)
Closures/
disposals
(65)
(72)
–
(137)
(2)
(29)
(65)
(233)
–
(233)
(22)
(3)
–
(25)
(258)
(18)
(4)
(1)
(23)
(281)
Net gain/
(reduction)(b)
1
32
–
33
17
(1)
(7)
42
14
56
2
(1)
3
4
60
39
(2)
10
47
107
Repurposing/
extensions(c)
64
–
–
64
–
–
(63)
1
8
9
(126)
(254)
(27)
(407)
(398)
–
–
–
–
(398)
2022/23
year end
799
1,998
6
2,803
712
191
6
3,712
166
3,878
187
197
157
541
4,419
291
124
25
440
4,859
Net gain/
(reduction)
25
57
-
82
35
(29)
(128)
(40)
134
94
(102)
(257)
4
(355)
(261)
53
(1)
10
62
(199)
Repurposing/
extensions(c)
6
–
–
6
–
–
(6)
–
1
1
8
13
14
35
36
–
–
–
–
36
2022/23
year end
31,427
5,344
716
37,487
1,169
8,181
–
46,837
3,478
50,315
4,146
5,670
3,147
12,963
63,278
420
114
23
557
63,835
(a) Continuing operations.
(b) The net gain/(reduction) reflects the number of store openings less the number of store closures/disposals.
(c) Repurposing of retail selling space
(d) Six Jack’s stores converted to Large stores; reflected within repurposing/extensions.
(e) Excludes franchise stores.
(f) Openings include 10 stores as a result of the acquisition of Joyce’s stores, one of which we will sell as a condition of the clearance of the transaction.
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205
Other information
2022/23
year end
31,427
5,344
716
37,487
1,169
8,181
46,837
3,478
50,315
4,146
5,670
3,147
12,963
63,278
420
114
23
557
63,835
Openings
36
196
–
232
68
–
300
51
351
20
–
59
79
430
161
3
10
174
604
Closures/
disposals
(15)
(21)
–
(36)
(9)
–
(45)
(17)
(62)
(13)
–
–
(13)
(75)
(16)
(3)
–
(19)
(94)
Repurposing/
extensions
–
–
–
–
–
–
–
–
–
(80)
(305)
(27)
(412)
(412)
–
–
–
–
(412)
Net gain/
(reduction)
21
175
–
196
59
–
255
34
289
(73)
(305)
32
(346)
(57)
145
–
10
155
98
Supplementary information (unaudited) continued
Group space forecast to 24 February 2024 – ‘000 sq. ft.(a)
Large
Convenience
Dotcom only
Total Tesco
One Stop(b)
Booker
UK(b)
ROI
UK & ROI(b)
Czech Republic(b)
Hungary
Slovakia(b)
Central Europe(b)
Group(b)
UK (One Stop)
Czech Republic
Slovakia
Franchise stores
Total Group
(a) Continuing operations.
(b) Excludes franchise stores.
Tesco Bank income statement
Revenue
Interest receivable and similar income
Fees and commissions receivable
Gross insurance premium income
Direct costs
Interest payable
Fees and commissions payable
Insurance premium income ceded to reinsurers
Insurance claims incurred
Reinsurers’ share of claims incurred
Other income/(expenses)
Gross profit
Other expenses
Staff costs
Premises and equipment
Other administrative expenses
Depreciation and amortisation
Impairment (loss)/reversal on financial assets
Adjusted operating profit
Adjusting items(b)
Operating profit/(loss)
2023/24
year end
31,448
5,519
716
37,683
1,228
8,181
47,092
3,512
50,604
4,073
5,365
3,179
12,617
63,221
565
114
33
712
63,933
2022(a)
£m
473
210
239
922
(42)
(20)
(105)
(150)
62
(255)
15
682
(210)
(68)
(193)
(65)
30
176
–
176
2
(4)
(2)
3
175
2023(a)
£m
540
257
309
1,106
(99)
(10)
(139)
(175)
90
(333)
(5)
768
(218)
(70)
(222)
(54)
(61)
143
(11)
132
2
(8)
(2)
–
124
Finance income/(costs): movements on derivatives and hedge accounting
Finance income/(costs): interest
Finance income/(costs): leases
Share of profit/(loss) of joint venture
Profit/(loss) for the year
(a) These results are for the 12 months ended 28 February 2023 and the previous period represents the 12 months ended 28 February 2022.
(b) Adjusting items of £(11)m in 2023 (2022: £nil) relate to operational restructuring changes, as part of the multi-year ‘Save to invest’ programme. Refer to Note 4 for further details.
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Glossary – Alternative performance measures
Other information
Other information
Introduction
In the reporting of financial information, the Directors have adopted various Alternative performance measures (APMs).
These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other
companies’ APMs, including those in the Group’s industry. APMs should be considered in addition to, and are not intended to be a substitute for,
or superior to, IFRS measures.
Purpose
The Directors believe that these APMs assist in providing additional useful information on the trends, performance and position of the Group.
APMs aid comparability between geographical units or provide measures that are widely used across the industry. They also aid comparability
between reporting periods; adjusting for certain costs or incomes that derive from events or transactions that fall within the normal activities
of
the Group but which, by virtue of their size or nature, are adjusted, can provide a helpful alternative perspective on year-on-year trends,
performance and position that aids comparability over time.
The alternative view presented by these APMs is consistent with how management views the business, and how it is reported internally to the
Board and Executive Committee for performance analysis, planning, reporting, decision-making and incentive-setting purposes.
Further information on the Group’s adjusting items, which is a critical accounting judgement, can be found in Notes 1 and 4.
Some of the Group’s IFRS measures are translated at constant exchange rates. Constant exchange rates are the average actual periodic
exchange rates for the previous financial period and are used to eliminate the effects of exchange rate fluctuations in assessing performance.
Actual exchange rates are the average actual periodic exchange rates for that financial period.
Changes to APMs
The Adjusted diluted earnings per share (adjusted for share consolidation) APM was previously provided to aid year-on-year comparability in the
event of a share consolidation. The APM is no longer relevant for the 2022/23 financial year so has been removed.
Group APMs
APM
Income statement
Revenue measures
Sales
Closest equivalent
IFRS measure
Adjustments to reconcile
to IFRS measure
Definition and purpose
Revenue
– Fuel sales
Growth in sales
No direct equivalent
– Ratio N/A
Like-for-like (LFL)
No direct equivalent
– Ratio N/A
– Excludes the impact of fuel sales made at petrol filling stations to
demonstrate the Group’s performance in the retail and financial
services businesses. It removes volatilities outside of the control
of management, associated with the movement in fuel prices.
is a key management incentive metric.
– This
– This measure is also presented on a Retail and Tesco Bank basis.
– Growth in sales is a ratio that measures year-on-year movement
in Group sales for continuing operations for 52
the annual rate of increase in the Group’s sales and is
considered a good indicator of how rapidly the
business is growing.
Group’s core
weeks. It shows
– Like-for-like is a measure of growth in Group online sales and
sales from stores that have been
open for at least a year (but
excludes prior year sales of stores closed during the year) at
constant foreign exchange rates. It is a widely used indicator of a
retailer’s current trading performance and is important when
comparing growth between retailers that have different profiles
of expansion, disposals and closures.
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207
Other information
Glossary – Alternative performance measures continued
Closest equivalent
IFRS measure
Adjustments to reconcile to
IFRS measure
Definition and purpose
APM
Profit measures
Adjusted operating profit
Operating profit from
continuing operations(a)
– Adjusting items(b)
Adjusted total finance costs Finance costs
– Adjusting items(b)
– Adjusted operating profit is the headline measure of the
Group’s performance, based on operating profit from
continuing operations before the impact of adjusting items.
Refer to the APM Purpose section of the Glossary and Note 1 for
further information on adjusting items.
– Amortisation of acquired intangibles is included within adjusting
items because it relates to historical inorganic business
combinations and does not reflect the Group’s ongoing trading
performance (related revenue and other costs from
acquisitions are not adjusted).
– This is a key management incentive metric.
– This measure is also presented on a Retail and Tesco Bank basis.
– Adjusting items within finance costs include net pension finance
income/costs and fair value remeasurements. Net pension
finance income/costs are impacted by corporate bond yields,
which can fluctuate significantly and are reset each year based
on external market factors that are outside management’s
control. Fair value remeasurements are impacted by changes to
credit risk and various market indices, applying to financial
instruments resulting from liability management exercises,
which can fluctuate significantly outside of management’s
control. This measure helps to provide an alternative view of
year-on-year trends in the Group’s finance costs.
Adjusted profit before tax
Profit before tax
– Adjusting items(b)
– This measure is the summation of the impact of all adjusting
Adjusted operating margin
No direct equivalent
– Ratio N/A
Adjusted diluted earnings
per share
Diluted earnings per share
from continuing operations
– Adjusting items(b)
Retail EBITDA (earnings
before adjusting items,
interest, tax, depreciation
and amortisation)
Retail operating profit from
continuing operations(a)
– Adjusting items(b)
– Depreciation and
amortisation
Net interest margin
No direct equivalent
– Ratio N/A
Tax measures
Adjusted effective tax rate
Effective tax rate
– Adjusting items(b)
items on profit before tax. Refer to the APM Purpose section of
the Glossary and Note 1 for further information on adjusting
items.
– Operating margin is calculated as adjusted operating profit
divided by revenue. Progression in operating margin is an
important indicator of the Group’s operating efficiency.
– This metric shows the adjusted profit after tax from continuing
operations attributable to owners of the parent divided by the
weighted average number of ordinary shares in
issue during the
financial period, adjusted for the effects of potentially dilutive
share options.
– This measure is widely used by analysts, investors and other
users of the accounts to evaluate comparable profitability of
companies, as it excludes the impact of differing capital
structures and tax positions, variations in tangible asset
portfolios and differences in identification and recognition of
intangible assets. It is used to derive the Net debt/EBITDA and
Total indebtedness ratios, and Fixed charge cover APMs.
– Net interest margin is calculated by dividing Tesco Bank
annualised net interest income, less annualised lease interest
expense, by average interest-bearing assets.
– It is a measure of the gross profitability of Tesco Bank’s lending
operations.
– Adjusted effective tax rate is calculated as total income tax
credit/(charge) excluding the tax impact of adjusting items,
divided by adjusted profit before tax. This APM provides an
indication of the ongoing tax rate across the Group.
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APM
Balance sheet measures
Net debt
No direct equivalent
Closest equivalent
IFRS measure
Other information
Other information
Adjustments to reconcile
to IFRS measure
Definition and purpose
– N/A
– Net debt excludes the net debt of Tesco Bank but includes
of the discontinued operations to reflect the net debt
that
obligations of the Retail business.
– Net debt comprises bank and
other borrowings, lease liabilities,
net derivative financial instruments, joint venture loans, and net
interest receivables/payables, offset by cash and cash
equivalents and short-term investments.
– It is a useful measure of the progress in generating cash and
strengthening of the Group’s balance sheet position, and
is
measure widely used by
credit rating agencies.
a
Net debt/EBITDA ratio
No direct equivalent
– Ratio N/A
– Net debt/EBITDA ratio is calculated as Net debt divided by the
rolling 12-month Retail EBITDA. It is a measure of the Group’s
ability to meet its payment obligations, showing how long it
would take the Group to repay its current net debt if both net
debt and EBITDA remained constant. It is widely used by analysts
and credit rating agencies.
Total indebtedness
No direct equivalent
– N/A
– Total indebtedness is Net debt plus the IAS 19 deficit in any
pension schemes (net of associated deferred tax) to provide
an
overall view of the Group’s obligations, including the long-
term commitments to the Group’s pension schemes. Pension
surpluses are not included. It is an important measure of the
long-term obligations of the Group and is a measure widely
used by credit rating agencies.
Total indebtedness ratio
No direct equivalent
– Ratio N/A
– Total indebtedness ratio is calculated as Total indebtedness
Fixed charge cover
No direct equivalent
– Ratio N/A
Capex
Property, plant and
equipment, intangible
asset, and investment
property additions,
excluding those from
business combinations
– Additions relating to
property buybacks
– Additions relating to
decommissioning
provisions and similar
items
divided by the rolling 12-month Retail EBITDA. It is a measure of
the Group’s ability to meet its payment obligations and is widely
used by analysts and credit rating agencies.
– Fixed charge cover is calculated as the rolling 12-month Retail
EBITDA divided by the sum of net finance costs (excluding net
pension finance income/costs, finance charges payable on
lease liabilities, capitalised interest and fair value
remeasurements) and all lease liability payments from
continuing operations. It is a measure of the Group’s ability to
meet its payment obligations and is widely used by analysts
and
credit rating agencies.
– Capex excludes additions arising from business combinations
and buybacks of properties (typically stores), as well as additions
relating to decommissioning provisions and similar items.
– Property buybacks are variable in timing, with the number and
value of buybacks dependent on opportunities that arise within
any given financial year. Excluding property buybacks therefore
gives an alternative view of trends in capital expenditure in the
Group’s ongoing trading operations.
– Additions relating to decommissioning provisions and similar
items are adjusted because they do not result in near-term
cash outflows.
Cash flow measures
Retail free cash flow
No direct equivalent
– N/A
– Retail free cash flow includes continuing cash flows from
operating and investing activities for the Retail business, the
market purchase of shares net of proceeds from shares issued
in relation to share schemes and repayment of obligations
under leases, excluding the effects of Tesco Bank’s cash flows.
The following items are excluded: investing cash flows that
increase/decrease items within Net debt; proceeds from the
sale of property, plant and equipment, investment property,
intangible assets and assets classified as held for sale; cash
utilised to buy back property; proceeds from the sale of
subsidiaries; cash utilised in business acquisitions; cash used for
investment in joint ventures, associates and unlisted equity
investments; and adjusting cash items in operating cash
activities.
– By adjusting for these factors, which can have unpredictable
timings or amounts, or can be driven by external events or non-
operational business decisions (such as acquisitions and
disposals of properties as opportunities arise), the Directors
and management believe this provides a view of free cash flow
generated by the Group’s retail trading operations that is more
predictable and comparable over time, and reflects the cash
available to shareholders.
– This is a key management incentive metric.
(a) Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.
(b) Refer to Note 1 and Note 4.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
209
209
Other information
Glossary – Alternative performance measures continued
APMs: Reconciliation of income statement measures
Retail EBITDA
Operating profit
Less: Adjusting items
Adjusted operating profit
Less: Tesco Bank adjusted operating profit
Retail adjusted operating profit
Add: Retail depreciation and amortisation before adjusting items
Retail EBITDA
Net interest margin
Tesco Bank revenue
Less: Tesco Bank revenue from fees and commissions receivable
Less: Tesco Bank revenue from gross insurance premium income
Tesco Bank interest expense within operating profit
Tesco Bank interest expense within finance income/(costs)
Net interest income
Average interest earning assets
Net interest margin (%)
APMs: Reconciliation of balance sheet measures
Net debt
A reconciliation of Net debt is provided in Note 32.
Net debt/EBITDA and Total indebtedness ratio
Net debt
Retail EBITDA
Net debt/EBITDA ratio
Net debt
Add: Defined benefit pension deficit, net of deferred tax
Total indebtedness
Retail EBITDA
Total indebtedness ratio
Fixed charge cover
Net finance costs
Less: Net pension finance income/(costs)
Less: Fair value remeasurements of financial instruments
Adjusted total finance costs
Less: Finance charges payable on lease liabilities
Adjusted total finance costs, excluding capitalised interest and finance charges payable on lease liabilities
Add: Total lease liability payments
Less: Discontinued operations total lease liability payments
Retail EBITDA
Fixed charge cover (ratio)
Notes
2
2
2
2
2
2
Notes
2
2
2
Notes
32
32
29
Notes
5
5
5
5
12
APM
2023
£m
1,525
1,105
2,630
(143)
2,487
1,570
4,057
APM
2023
£m
1,106
(257)
(309)
(99)
(8)
433
8,835
4.9%
APM
2023
£m
10,493
4,057
2.6
10,493
300
10,793
4,057
2.7
APM
2023
£m
533
80
(51)
562
(373)
189
966
-
1,155
4,057
3.5
APM
2022
£m
2,560
265
2,825
(176)
2,649
1,577
4,226
APM
2022
£m
922
(210)
(239)
(42)
(4)
427
8,505
5.0%
APM
2022
£m
10,516
4,226
2.5
10,516
242
10,758
4,226
2.5
APM
2022
£m
542
(22)
123
643
(405)
238
977
(2)
1,213
4,226
3.5
210
Tesco PLC Annual Report and Financial Statements 2023
210
Tesco PLC Annual Report and Financial Statements 2023
Capex
Property, plant and equipment additions(a)
Other intangible asset additions(a)
Less: Additions from obtaining control of property joint venture(b)
Less: Additions from other property buybacks
Less: Additions relating to decommissioning provisions and similar items
Capex
(a) Excluding amounts acquired through business combinations.
(b) Acquisition of The Tesco Dorney Limited Partnership in 2023 and The Tesco Sarum Limited Partnership in 2022.
APMs: Reconciliation of cash flow measures
Cash generated from/(used in) operating activities
Cash generated from/(used in) investing activities
Less: Cash generated from/(used in) operating activities in Tesco Bank
Less: Cash generated from/(used in) operating activities in discontinued operations
Less: Cash generated from/(used in) investing activities in Tesco Bank
Less: Cash generated from/(used in) investing activities in discontinued operations
Own shares purchased in relation to share schemes
Retail repayments of capital element of obligations under leases
Exclude/add back:
Retail proceeds from sale of property, plant and equipment, investment property, intangible assets and
assets classified as held for sale
Retail purchase of property, plant and equipment, investment property and other long-term assets –
property buybacks
Retail disposal of subsidiaries, net of cash disposed
Retail acquisition of businesses, net of cash acquired
Retail investments in/(proceeds from sale of) joint ventures and associates
Retail adjusting net cash (generated from)/used in operating activities
Retail increase in loans to joint ventures and associates
Retail net investments in/(proceeds from sale of) other investments
Retail net investments in/(proceeds from sale of) short-term investments
Retail cash inflows from derivative financial instruments within investing activities
Retail cash outflows from derivative financial instruments within investing activities
Retail free cash flow
The following table reconciles the Retail free cash flow APM to that previously presented:
Retail free cash flow
Retail proceeds from sale of property, plant and equipment, investment property, intangible assets and
assets classified as held for sale
Retail purchase of property, plant and equipment and investment property – property buybacks
Retail cash outflows exceeding the incremental increase in assets in a property buyback
Retail disposal of subsidiaries, net of cash disposed
Retail acquisition of businesses, net of cash acquired
Retail (investments in)/proceeds from sale of joint ventures and associates
Retail (investments in)/proceeds from sale of other investments
Retail adjusting net cash (generated from)/used in operating activities
Memo: Retail free cash flow including cash flows from non-major corporate
acquisitions and disposals, cash flows from the sale or buyback of properties,
and Retail adjusting cash flows from operating activities
Other information
Other information
Notes
11
10
11
11
Notes
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
Notes
2
2
2
2
2
2
2
2
2
2
APM
2023
£m
1,252
277
(248)
(29)
(17)
1,235
APM
2023
£m
3,722
(706)
30
–
205
–
3,251
(86)
(589)
(341)
54
–
66
10
61
1
205
(451)
(54)
6
2,133
APM
2023
£m
2,133
341
(54)
(21)
–
(66)
(10)
(205)
(61)
2,057
APM
2022
£m
1,587
229
(584)
(37)
(94)
1,101
APM
2022
£m
3,757
(1,735)
(149)
6
119
(43)
1,955
(144)
(571)
(308)
80
(117)
–
(4)
316
4
(1)
1,067
–
–
2,277
APM
2022
£m
2,277
308
(80)
–
117
–
4
1
(316)
2,311
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
211
211
Other information
Glossary – Other
Other
CPI
Consumer price index.
Capital employed
This is calculated as net assets less net debt less net assets of the
disposal group and non-current assets classified as held for sale.
Dividend per share
This is calculated as interim dividend per share paid plus final
dividend per share declared in respect of that financial year.
Enterprise value
This is calculated as market capitalisation plus net debt.
Expected credit loss (ECL)
Credit loss represents the portion of the debt that a company is
unlikely to recover. The expected credit loss is the projected future
losses based on probability-weighted calculations.
ESG
Environmental, social and governance.
FTE
Full-time equivalents.
LPI
Limited price index.
Market capitalisation
The total value of all Tesco shares calculated as total number of
shares multiplied by the closing share price at the year end.
MTN
Medium-term note.
MREL
Minimum requirements for own funds and eligible liabilities
(European Banking Authority).
Net promoter score (NPS)
This is a loyalty measure based on a single question requiring a score
between 0 and 10. The NPS is calculated by subtracting the percentage
of
detractors (scoring 0-6) from the percentage of promoters (scoring
9-10). This generates a figure between -100 and
100 which is the NPS.
Return
Profit before adjusting items and interest, after tax (applied at
effective rate of tax).
Return on capital employed (ROCE)
Return divided by the average of opening and closing capital
employed.
RPI
Retail price index.
Total capital ratio
This is calculated by dividing total regulatory capital by total risk‐
weighted assets.
SONIA
Sterling Overnight Index Average.
Total shareholder return
The notional annualised return from a share, measured as the
percentage change in the share price, plus the dividends paid with
the gross dividends, reinvested in Tesco shares. This is measured
over both a one and five-year period.
212
Tesco PLC Annual Report and Financial Statements 2023
212
Tesco PLC Annual Report and Financial Statements 2023
Five-year record
Other information
The statistics below reflect the latest published information. For financial years prior to 2023, these statistics represent the comparatives from
the following years’ financial statements. During 2021, the Group disposed of its operations in Asia and agreed to dispose of its operations in
Poland, which were treated as discontinued. The 2020 statistics have been restated to be consistent with 2021 to present Asia and Poland
as
discontinued operations, with years prior to 2020 not restated.
Refer to the Glossary for a full list of APMs and their definitions.
2019
2020(a)(b)
2021
2022
2023
Financial statistics (£m)
Sales
UK & ROI
Central Europe
Asia
Tesco Bank
Group sales(c)
Revenue
UK & ROI
Central Europe
Asia
Tesco Bank
Group revenue
Adjusted operating profit/(loss)(c)
UK & ROI
Central Europe
Asia
Tesco Bank
Group adjusted operating profit/(loss)(c)
Adjusted operating margin
Operating profit/(loss)
UK & ROI
Central Europe
Asia
Tesco Bank
Group operating profit/(loss)
Share of post-tax profits/(losses) of joint ventures and associates
Net finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Adjusted profit before tax(c)
Other financial statistics
Diluted earnings/(losses) per share – continuing operations
Adjusted diluted earnings per share (adjusted for share consolidation)(e)
Dividend per share(d)
Cash generated from retail operating activities (£m)
Retail free cash flow (£m)∆
Return on capital employed (ROCE)(c)
Total shareholder return(c)
Net debt (£m)(c)
Pension deficit, net of deferred tax – Group (£m)
Total indebtedness (£m)(c)
Enterprise value (£m)(c)
Group retail statistics
Number of stores(f)
Total sales area (‘000 sq. ft.)(f)
Average employees
Average FTE employees
UK & ROI retail statistics
Number of stores(f)
Total sales area (‘000 sq. ft.)(f)
Average FTE employees
Revenue (exc. fuel) (per FTE – £)
Weekly revenue (exc. fuel) (per sq. ft. – £)
44,883
6,030
4,873
1,097
56,883
51,643
6,298
4,873
1,097
63,911
1,868
221
319
199
2,607
4.1%
1,949
279
252
169
2,649
32
(1,064)
1,617
(347)
1,270
–
1,270
1,272
(2)
1,806
13.04p
14.01p
5.77p
3,637
889
7.9%
10.2%
13,204
2,338
15,542
35,024
6,993
91,298
464,505
321,490
3,961
50,521
223,542
200,781
18.65
45,752
3,968
–
1,068
50,788
52,898
4,125
–
1,068
58,091
2,202
176
–
193
2,571
4.4%
1,923
209
–
74
2,206
(8)
(1,170)
1,028
(290)
738
235
973
971
2
1,869
7.54p
18.98p
9.15p
3,580
1,493
6.1%
5.2%
12,298
2,573
14,871
34,676
4,613
63,971
354,451
243,031
3,968
50,401
210,771
217,070
17.11
48,848
3,862
–
735
53,445
53,170
3,982
–
735
57,887
1,839
124
–
(175)
1,788
3.1%
1,890
127
–
(470)
1,547
26
(937)
636
(104)
532
5,426
5,958
5,954
4
1,134
5.58p
11.58p
9.15p
321
1,340
5.4%
2.6%
11,955
1,004
12,959
29,336
4,673
63,980
367,321
242,911
4,008
50,443
214,470
227,761
18.63
49,984
3,862
–
922
54,768
56,404
4,018
–
922
61,344
2,481
168
–
176
2,825
4.6%
2,191
193
–
176
2,560
15
(542)
2,033
(510)
1,523
(40)
1,483
1,481
2
2,197
19.64p
21.86p
10.90p
3,614
2,277
7.8%
32.4%
10,516
242
10,758
32,403
4,752
64,034
354,744
231,223
4,074
50,588
204,974
243,855
19.03
52,369
4,181
–
1,106
57,656
60,246
4,410
–
1,106
65,,762
2,307
180
–
143
2,630
4.0%
1,249
144
–
132
1,525
8
(533)
1,000
(247)
753
(9)
744
745
(1)
2,076
10.08p
21.85p
10.90p
3,752
2,133
8.6%
(10.5)%
10,493
300
10,793
28,562
4,859
63,835
336,926
222,306
4,169
50,735
196,911
265,953
19.88
∆ See APM reconciliations in Glossary section on pages 210 to 211.
(a) 53 weeks.
(b) Following the disposal of Asia during 2021, the 2020 statistics have been restated to be consistent with 2021 to present Asia as discontinued operations and therefore no longer as a separate
reportable segment. Years prior to 2020 have not been restated.
(c) See Glossary for definitions.
(d) Dividend per share relating to the interim and proposed final dividend.
(e) The share base used in Adjusted diluted earnings per share in 2020 and 2021 is adjusted to capture the full impact of the share consolidation which followed the sale of the Group’s businesses in
if it took place at the start of the 2020/21 financial year. As such, Adjusted diluted earning per share (adjusted for share consolidation) is presented on a basis other than
Thailand and Malaysia, as
in accordance with IAS 33.
(f) Including franchise stores.
Tesco PLC Annual Report and Financial Statements 2023
Tesco PLC Annual Report and Financial Statements 2023
213
213
Other information
Shareholder information
Managing your shares and shareholder
communication
The Company’s share register is maintained by our
Registrar, Equiniti.
Shareholders can manage their holdings online or elect to receive
shareholder documentation in electronic form by setting up a
Shareview portfolio at www.shareview.co.uk. Some benefits of
having a Shareview portfolio include:
– receiving the latest shareholder communications electronically;
– voting online for the resolutions at the AGM and any other
shareholder meetings;
– managing all your shareholdings in one place;
– buying and selling shares instantly online with the share dealing
service; and
– easily updating your contact details.
For more information and to register for this service, please visit
www.shareview.co.uk. Registration can be completed in just four
easy steps and you will need your Shareholder Reference Number.
E-comms
We encourage our shareholders to accept all shareholder
communications and documents electronically, in place of receiving
traditional paper copies by post. This helps us to reduce our
environmental impact and costs, which aligns with our strategic
priorities. If you would like to sign up to receive all future shareholder
communications electronically, please register with Shareview by
visiting www.shareview.co.uk. Once you have signed up, you will
receive an email to let you know when shareholder documents become
available on our website, including our annual financial results, notices
of shareholder meetings and other shareholder documents.
Tesco Share Account
The Tesco Share Account (TSA) is a free service available to
Tesco shareholders that allows you to hold your Tesco shares
electronically. Your shares are held in the name of Equiniti Corporate
Nominees Limited and held on your behalf on a private register.
Holding your shares electronically removes the need to hold paper
share certificates, making dealing quicker and more secure. You will
also receive preferential dealing rates through the TSA.
The TSA is a sponsored nominee service operated for Tesco by
Equiniti Financial Services Limited, authorised and regulated by the
FCA. When you join the TSA, you remain the beneficial owner of
your shares and continue to have the right to receive shareholder
communications, vote at general meetings and to receive any
dividends paid on your shares.
For further information or to join the TSA, please contact Equiniti.
Annual General Meeting (AGM)
The 2023 AGM is scheduled to be held on Friday, 16 June 2023 at
11.30am in the Heart building on our Welwyn Garden City campus.
A copy of the Notice of Meeting can be found on our website at
www.tescoplc.com/AGM2023.
Dividend
An interim dividend of 3.85 pence per Ordinary share was paid on
25 November 2022. Shareholders will be asked to approve a final
dividend of 7.05 pence per Ordinary share for the year ended
25 February 2023 at this year’s AGM. If approved, this will be paid
on 23 June 2023 to all shareholders on the Register of Members at
the close of business on 12 May 2023.
As a responsible business, Tesco is committed to reducing its
carbon footprint across all business activities. As previously
announced, we will no longer be paying dividends by cheque.
To continue to receive dividends, you will need to provide your
bank or building society account details to Equiniti, so that
dividend payments and any other money payable to you in
connection with your shares can be made by direct payment.
You may also choose to have your dividends reinvested in further
Tesco shares through our DRIP (terms and conditions apply).
For more information or to change your dividend payment instructions
contact Equiniti or register online at www.shareview.co.uk.
Share buyback programme
On 13 April 2022, Tesco PLC announced the continuation of
the ongoing share buyback programme, committing to a further
£750m in shares to be repurchased by no later than April 2023.
This tranche completed in February 2023.
The Company intends to buy back a further £750m worth of
shares by no later than April 2024. This will be carried out by
the Company using the authority to purchase its own shares as
approved by shareholders.
The sole purpose of these share purchases is to reduce the
Company’s share capital and therefore ordinary shares purchased
under the buyback will be cancelled.
Share dealing service
Equiniti offers telephone, postal and internet services for dealing
in Tesco PLC shares. Dealing fees vary between brokers and you
are recommended to check that you are being charged the most
competitive rate. You will need your Shareholder Reference
Number as shown on your share certificate.
For further information please visit www.shareview.co.uk/dealing
or call 0345 603 7037, lines open between 8.00am and 4.30pm,
Monday to Friday (excluding UK public holidays).
Shareholder security
In recent years, Tesco PLC has become aware that its
shareholders (and holders of other Tesco securities) have received
unsolicited phone calls or correspondence concerning investment
matters. These callers can be very persistent and extremely
persuasive and often have professional websites and telephone
numbers to support their activities. These callers will sometimes
imply connection to Tesco and provide incorrect or misleading
information. Shareholders are advised to be very wary of any
unsolicited advice, offers to buy shares at a discount or offers of
free company reports.
Always check that any firm contacting you about potential
investment opportunities is authorised by the FCA. You can
find out more about protecting yourself from investment scams
by visiting the FCA’s website at www.fca.org.uk/consumers, or
by calling the FCA’s consumer helpline on 0800 111 6768.
214
Tesco PLC Annual Report and Financial Statements 2023
Financial calendar 2023/24
25 February 2023
Financial year end 2022/23
4 October 2023
Interim results announcement
24 February 2024
Financial year end
2023/24
February
2023
June
2023
October
2023
January
2024
February
2024
16 June 2023
AGM and Q1 trading statement
23 June 2023
Proposed payment date
for final dividend
11 January 2024
Q3 and Christmas trading
statement
Please note that these dates are provisional and subject to change.
American Depositary Receipts (ADRs)
The Company has a sponsored Level 1 ADR programme for
which J.P. Morgan Chase Bank N.A. acts as depositary. The ADRs
are traded in the US, where one ADR represents three Ordinary
shares. The ADR programme confers the right to receive
dividends in US Dollars.
Share register analysis
As at 25 February 2023, the Company had 7,318,341,195 shares
in issue (26 February 2022: 7,637,986,531) and 218,685 registered
holders of Ordinary shares (27 February 2021: 227,285).
Shareholdings are analysed below:
ADR details
Symbol
CUSIP
Exchange
Ratio
Effective date
TSCDY
881575401
OTC
1:3
1 April 1992
Range of shareholding
1 – 500
501 – 1,000
1,001 – 5,000
Over 5,001
Total
Number of holdings
144,880
19,701
37,773
16,331
218,685
All enquiries relating to the ADR programme should be directed to:
Breakdown of holders with over 5,000 shares
Shareowner Services
P.O. Box 64504
St. Paul, MN 55164-0504
Email: StockTransfer@equiniti.com
Telephone (US): +1 800 990 1135
Telephone (outside US): +1 651 453 2128
Website: www.adr.com
Major shareholders
Information provided to the Company by major shareholders
pursuant to the FCA’s Disclosure Guidance and Transparency
Rules (DTR) are published via a Regulatory Information Service
and are available on the Company’s website. As at 25 February
2023 and the date of this report, the Company had received
notification of the following interests in voting rights pursuant
to Chapter 5 of the DTR:
BlackRock, Inc.
Schroders plc
Silchester International Investors LLP
Fidelity International (FIL Limited)
% of voting rights(a)
6.64
4.99
4.98
3.04
(a) Percentages are shown as a percentage of the Company’s total voting rights as at the
date the Company was notified of the change in holding.
Range of shareholding
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
1,000,001 – 5,000,000
5,000,001+
Total
Number of holdings
8,734
6,210
351
444
163
243
186
16,331
Category of shareholders
Number of
holdings
% of total
registered
holders
Number of
Ordinary
shares
% of issued
share capital
216,641
99.07%
395,587,963
5.41%
2,044
0.93%
6,922,753,232
94.59%
Private
Institutional
and corporate
Tesco PLC Annual Report and Financial Statements 2023
215
% of issued
share capital
0.23%
0.20%
1.21%
98.36%
100%
% of issued
share capital
0.84%
1.57%
0.33%
1.40%
1.55%
7.62%
85.05%
98.36%
Other information Shareholder information continued
Useful contacts
Tesco PLC registered office:
Tesco House
Shire Park
Kestrel Way
Welwyn Garden City
AL7 1GA
Investor Relations
Investor Relations Department
Tesco House
Shire Park
Kestrel Way
Welwyn Garden City
AL7 1GA
Telephone: +44 (0) 330 123 9928
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Email: customer@equiniti.com
Telephone:
(UK) 0371 384 2977
(Outside UK) +44 (0) 121 415 7053
Calls are charged at national rates.
Calls from a mobile device may incur network extras.
Website: www.equiniti.co.uk
Group Company Secretary
Robert Welch
Corporate brokers
Barclays Bank PLC
Citigroup Global Markets Limited
Independent auditors
Deloitte LLP
General queries
Switchboard: +44 (0) 1992 632 222
Website: www.tescoplc.com
216
Tesco PLC Annual Report and Financial Statements 2023
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This is now recognised as one of the most cost-effective and
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