Serving our customers, communities
and planet a little better every day.
Tesco PLC Annual Report and Financial Statements 2024
Hello.
Welcome to our Annual Report 2024
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 community we serve
– in the UK, Republic of Ireland (ROI), Slovakia, the Czech Republic and
Hungary. We invest in communities to help them thrive, through supporting
schools and children’s groups, food banks and other good causes.
In challenging times, our purpose has guided every part of the Group.
Serving our customers, communities and planet a little
better every day is what we do.
Navigating our interactive document
This report is interactive so simply click on the section
you would like to go to. The same applies to the smaller
contents tables within the report.
The tools described below can be used to move
through our report and return to the contents page.
Return to contents
Return to previous page
Page back
Page forward
Visit our investor
site for further reading
tescoplc.com/investors
Strategic report
Performance highlights
01
Tesco at a glance
02
Supporting our customers
with value they can rely on
04
Chair’s statement
06
Our purpose framework
08
Group Chief Executive’s review
09
Our market context
12
Our strategic priorities
14
Key performance indicators
16
Our business model
17
Planet
18
Planet plan in action
20
Financial review
22
Principal risks and uncertainties
30
Nature
38
Task Force on Climate-related
Financial disclosures
39
Longer term viability statement
46
Corporate governance
Governance at a glance
48
Governance introduction
50
Board of Directors
52
Executive Committee
57
Nominations and Governance Committee
74
Sustainability Committee
78
Audit Committee
82
Directors’ remuneration report
90
Directors’ report
115
Financial statements
Independent auditor’s report
117
Group income statement
129
Group statement of comprehensive
income/(loss)
130
Group balance sheet
131
Group statement of changes in equity
132
Group cash flow statement
133
Notes to the Group financial statements
134
Tesco PLC – Parent Company balance sheet 204
Tesco PLC – Parent Company statement
of changes in equity
205
Notes to the Parent Company
financial statements
206
Related undertakings of the Tesco Group
212
Additional information
Supplementary information
217
Glossary – Alternative
performance measures
220
Five-year record
227
Additional Directors’ report disclosures
228
NFSIS
232
Additional information for shareholders
233
Comparatives have been restated for the adoption of IFRS 17 ‘Insurance contracts’.
In February 2024 we announced the sale of our banking operation, which has been
consequently classified as discontinued. Discontinued operations are excluded from
our headline performance metrics.
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 220.
(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 18
February 2024.
(e) Basis – Tesco Global Brand tracker on a three-month rolling basis.
Performance highlights
Group salesΔ(a)
£61.5bn
7.4%
(2023: £57.2bn)
Adjusted operating profitΔ(b)
£2,829m
12.8%
(2023: £2,509m)
Dividend per share
12.10p
11.0%
(2023: 10.90p)
UK market share (sales value)(d)
27.6%
28bps
(2023: 27.3%)
Adjusted diluted EPSΔ(b)
23.41p
14.0%
(2023: 20.53p)
Retail free cash flowΔ(c)
£2,063m
(3.3)%
(2023: £2,133m)
Net debtΔ(c)
£(9,764)m
6.9%
(2023: £(10,493)m)
Group net promoter score(e)
19pts
+4pts
(2023: 15pts)
Statutory measuresΔ
Statutory revenue
£68.2bn
4.4%
(2023: £65.3bn)
Statutory profit before tax
£2,289m
159.5%
(2023: £882m)
Operating profit
£2,821m
100.1%
(2023: £1,410m)
Statutory diluted EPS
24.53p
178.4%
(2023: 8.81p)
Tesco PLC Annual Report and Financial Statements 2024
01.
Strategic report
Governance
Financial statements
Additional information
Our
pu
rpo
se
Our
p
urp
os
e
Our customers
are always at the core
Who
we are.
We are Tesco.
Serving our customers, communities and planet a little better every day.
We are Tesco, a major grocery retailer
operating across multiple markets.
We serve millions of customers every week,
in stores and online and provide additional
services across the Tesco family.
Tesco at a glance
Tesco is a leading
multinational
grocery retailer,
available in five
markets
Tesco Mobile has
grown into an
award-winning
network
dunnhumby is
a global leader
in customer
data science
Booker is the UK’s
leading food and
drink wholesaler,
serving thousands of
retail and catering
customers
One Stop is a
retail convenience
business with more
than 1,000 shops
The Bank helps
more than
five million
customers
manage their
money every day
Our
businesses
Tesco PLC Annual Report and Financial Statements 2024
02.
Strategic report
Governance
Financial statements
Additional information
The value our businesses bring to customers and the Group
Tesco is a leading multinational grocery retailer, which aims to serve customers affordable,
healthy and sustainable food. This year, we have again focused on delivering great value
and quality for our customers across large stores, convenience and online.
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. This year, Booker has ensured it once again delivered the best choice, price and
service to all customers.
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. Its insights help retailers and brands to truly put the customer first, through
engaging experiences which enhance loyalty and growth.
www.dunnhumby.com
One Stop is a retail convenience business with more than 1,000 shops across the country,
including more than 300 franchise stores. Our focus this year has been to continue to
provide customers in local communities with quality products and services at great prices.
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. It helps more than five
million customers manage their money every day. We have been better connected to our
customers than ever before by listening to their needs, combined with using data and
technology to drive better insight. This year, that helped us to keep delivering what our
customers tell us matters most, with Clubcard Prices on everyday banking products and
differentiated motor insurance.
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. This year, as the helpful network,
our focus has been on unlocking the power of Clubcard to deliver unique value and service
for our customers.
www.tescomobile.com
Where we operate
4,506
Stores globally
3,786
Stores in the United Kingdom
170
Stores in the Republic of
Ireland
184
Stores in the Czech Republic
169
Stores in Slovakia
197
Stores in Hungary
Tesco PLC Annual Report and Financial Statements 2024
03.
Strategic report
Governance
Financial statements
Additional information
Value our customers
can rely on.
Supporting our customers with value they can rely on
Our value proposition
UK & ROI:
Clubcard
Prices
The power to
lower prices
*
* Logo used in UK only from May 2024
Central Europe:
And customers are really responding to our Value offer…
We know things have been tough for many
over the past year and we have worked
tirelessly to make sure the weekly shop
is one less thing to worry about.
Using the powerful combination of Aldi Price Match, Clubcard Prices
and Low Everyday Prices, we have given our customers the power to
bring down the cost of their weekly shop – and we are proud to have
cemented our place as the UK’s cheapest full-line grocer.
Across our Group – from banking and mobile to groceries and
wholesale – we have been working around the clock to give our
customers the best possible value.
And we have done that while continuing to support our colleagues,
suppliers and shareholders – as well as our communities and planet.
Clubcard Prices saves
customers up to
£360
off the annual cost
of their groceries
Tesco app users
across the Group
16.2m
CE Clubcard sales
penetration
87%
ROI Clubcard sales
penetration
85%
UK Clubcard sales
penetration
82%
Tesco PLC Annual Report and Financial Statements 2024
04.
Strategic report
Governance
Financial statements
Additional information
Supporting customers right across the Group
However customers choose to shop with Tesco, we are giving them great value – from thousands of price cuts across our stores to free
roaming with Tesco Mobile.
UK
More than 4,000
prices cut
across the year by an
average of 12%
Central
Europe
Low Price Guarantee
relaunched on more than
500 Own
Brand lines
ROI
More than 800
prices cut
on essential products,
by an average of 12%
Largest ever Booker catering price lock over
Christmas, with a second price lock through to
May 2024. Together, prices have been locked on
more than 1,500 products
Clubcard Prices
expanded to personal loans
Free roaming in EU
and other popular holiday destinations
extended until 2025
Price Drop campaign
cut the price of everyday essentials
Communities –
more than
450,000
free children’s meals
through Kids Eat Free
Months of consecutive
switching gains in UK
12
Value perception up
88bps
Relentless focus on value throughout the year
April 2023
Price lock on
1,000 everyday
products
June 2023
VAT covered
on our
suncare range
July 2023
Kids Eat Free
in our cafés
during summer
holiday
August 2023
Reduced in
Price areas
now in 300
stores
August 2023
Swapped >50
Express
products with
a cheaper
alternative
September 2023
Half price
pre-Christmas
toy sale
October 2023
Kids dental
care prices
cut by 20%
January 2024
Double
Clubcard
points offer
February 2024
Kids Eat Free
February half
term
April 2023
Price cuts
on milk
June 2023
Price cuts on
pasta, oil, bread
and butter
June 2023
500 price cuts
on key products
August 2023
Covered
20% VAT on
period pants
August 2023
Prices cut on
baby
products
September 2023
Another price
lock on 1,000
products
October 2023
Kids Eat Free
in October
half term
January 2024
Price cuts for
150 popular
products
This is an illustrative list and does not reflect all activity on value in the year.
05.
Strategic report
Governance
Financial statements
Additional information
Chair’s statement
Working hard
for customers.
Gerry Murphy,
Chair
I am delighted to be making my first annual
statement to you following my appointment
as Chair of Tesco in September 2023.
I am excited to join a company that I have long
admired for its leadership in the grocery sector
and its commitment to serving its customers and
communities. Having been closely involved in the
food sector throughout my career, it’s a privilege
to be able to contribute to the next phase of
development of the leading grocer in the UK.
I would like to thank John Allan for the significant
contribution he made to the business during his
eight-year tenure as Chair. As I said when I was
appointed, John has left Tesco with its business,
management and Board in great shape and fit for
the future.
I am already enjoying working with the Board
and our exceptional executive team to deliver
on Tesco’s purpose and am very excited about
the strategic opportunities for growth across
the Group.
Doing the right thing by our
stakeholders
I joined Tesco in a year that has again been
shaped by cost-of-living pressures, when
supporting our customers, colleagues,
communities and suppliers has never been
more important. You will see on pages 4 and 5
a snapshot of the steps we have taken to look
after our customers this year and support them
through these challenges.
As the external environment has continued to
evolve, we’ve been committed to doing the right
thing by our stakeholders. Our customers are at
the heart of what we do, and we’ve continued to
invest in delivering great value. This relentless
commitment to value has helped to make Tesco
consistently the cheapest full-line grocer for well
over a year in the UK. And I am pleased that
customers are recognising this, with our
customer recommend scores gaining in all
markets and market share growth on a volume
and value basis in both the UK and ROI.
We have continued to invest in our colleagues,
building on the largest single investment made by
Tesco in hourly pay in 2023, with a new UK hourly
pay deal of £12.02, a 9.1% increase in base pay.
This recognises the essential role that our
colleagues play in supporting our customers and
communities, and helping the business succeed.
Supporting our communities remains central to
our business, and to our purpose. This year we
launched Stronger Starts in the UK and ROI – a
new grant programme to support young people
to access healthy food and exercise.
Since joining Tesco, the dedication and hard work
of our colleagues in supporting customers and
their local communities has really stood out to
me and I’d like to thank the whole Tesco team for
their commitment in this regard.
Strong financial performance
Our focus on doing the right thing by our
customers has delivered a strong financial
performance for us across the year.
Group adjusted operating profit rose 12.8% on
a continuing operations basis, which reflects
strong trading across the Group combined with
continued cost savings.
Tesco Bank update
We took the decision this year to review our
banking services and announced a long-term
strategic partnership with Barclays under which
our existing banking operations in credit cards,
Did you know:
We are growing
market share,
winning customers
and our customer
recommend score
has increased to 19
points for the Group.
Tesco PLC Annual Report and Financial Statements 2024
06.
Strategic report
Governance
Financial statements
Additional information
loans and savings will be sold. Tesco will keep all
the other existing activities of Tesco Bank,
including insurance, ATMs, travel money and gift
cards. These are capital-light businesses, with a
strong connection to our core retail offer.
As well as removing significant capital from the
Tesco balance sheet, this will reduce our
exposure to the regulatory complexity and capital
requirements associated with offering credit
cards and loans. It will help us to unlock more
cash, which we can use to keep investing in our
business and our customers and colleagues.
Taking into account the £250m special dividend
paid by Tesco Bank in August 2023, in total we
expect to receive around £1bn, in addition to
regular payments for our ongoing strategic
partnership. The majority of this cash will be
returned to shareholders in the form of an
incremental share buyback.
I would like to thank our Tesco Bank colleagues for
their hard work over the years and I look forward
to the next chapter for Tesco Bank and our
financial services offering in partnership with
Barclays.
Board changes
In June, we said goodbye to Lindsey Pownall who
stepped down from the Board after seven years.
Lindsey made extremely valuable and insightful
contributions to the Board and, in particular,
I would like to thank her for her careful
stewardship of the Sustainability Committee. She
has been succeeded by Stewart Gilliland as Chair
of that committee.
In September, we welcomed Carolyn Fairbairn
to the Board as an independent Non-executive
Director. 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. She
has also taken up positions on the Remuneration
Committee and Sustainability Committee.
I would like to thank Byron Grote for his careful
stewardship of the Board earlier this year as
interim Chair. Byron will retire from the Board at
the forthcoming Annual General Meeting (AGM).
Carolyn Fairbairn will succeed Byron as Senior
Independent Director and Karen Whitworth will
take on the role of Audit Committee Chair. I would
like to thank Byron for his hard work and
dedication to the Board.
Looking ahead
Tesco is well positioned to continue building on
the successes of the past year as we head into
2024/25. While we expect cost-of-living pressures
to remain a significant factor throughout the year,
Since joining Tesco, the dedication and hard work of
our colleagues in supporting customers and their local
communities has really stood out to me and I’d like
to thank the whole Tesco team for their commitment.
we will continue to focus our efforts on how we
can best support all our stakeholders. Even as a
relative newcomer to Tesco, I know that I have
joined a business that has the agility and flexibility
to respond to any potential challenges, while
continuing to listen to our customers and support
our colleagues. Tesco is fortunate to have
outstanding colleagues helping it deliver and I
know that our teams everywhere will continue to
go above and beyond to support our customers
and deliver on our strategy.
Gerry Murphy
Chair
9 April 2024
Tesco PLC Annual Report and Financial Statements 2024
07.
Strategic report
Governance
Financial statements
Additional information
What we
stand for.
Our purpose framework
1.
No one tries
harder for
customers
Understanding people – customers,
colleagues, communities – and what
matters to them, and then trying to
make those things better, is at the
heart of Tesco. It’s about listening to
people and talking to them and then
acting using all the tools at our disposal
by changing and innovating to meet
their needs.
2.
We treat people
how they want
to be treated
We know that looking after our
colleagues in a culture of trust and
respect is essential to the success of
Tesco. Where colleagues feel recognised
and rewarded for the work they do
together, where they have the
opportunity to get on and where they
are supported in their development as
they move through their careers in the
business – they in turn try their hardest
for customers.
3.
Every little
help makes a
big difference
Every little help makes a big difference
– it is the value we live by to ensure we
serve our customers, colleagues and
their communities a little better every
day. It really captures how, when we add
up all the small things we do, Tesco can
make a big difference to the issues
customers, colleagues, communities
and wider society care about.
Our core
purpose is:
Serving our customers, communities and planet a little better every day.
This means we always keep customers at the heart of what we do, while also reflecting
our responsibilities to the communities we serve and to society more broadly.
Customers
Everything we do begins and ends with our customers. By understanding our customers, we can
anticipate and respond to their needs and expectations. As a Group we serve a wide range of different
customers, in different settings, from retail customers through to banking, mobile, Booker’s wholesale
customers, and dunnhumby’s retail and supplier customers.
Communities
The role we play in the thousands of communities we serve is vital – whether it’s creating good jobs,
supporting local suppliers and producers, or helping local causes through our community programmes.
Planet
Our commitment to sustainability is core to our business. It drives our work across our own operations
and our supply chain to reduce our environmental impact and support a healthier way of living.
Our values put our
purpose into practice:
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.
Since we first introduced our Tesco Values more than a decade
ago, they have become a vital part of our culture – and an
essential underpinning of our growth and success. They ensure
that every person at Tesco understands what is important – about
how we work together as a team and how customers are at the
centre of what we do. They are universal values, which have
helped guide our people as Tesco has grown.
It covers the little things we do every day as well as linking these
things together to contribute to the bigger global initiatives in
which we are involved. It helps us take the right actions to restore
trust and transparency in our business.
Tesco PLC Annual Report and Financial Statements 2024
08.
Strategic report
Governance
Financial statements
Additional information
By investing
where it matters
most, we are
winning with
customers.
Group Chief Executive’s review
This year, Tesco has invested in keeping prices low,
improving the quality of our products and
delivering market-leading availability. Our relentless
focus on customers means that we are winning
market share and building a stronger business.
I would like to thank every Tesco colleague for
helping to deliver another strong performance.
As a team, we are guided by our purpose to serve
our customers, communities and planet a little
better every day and as we review the year just
gone, I am proud of both what we have achieved
and how we have achieved it together.
Supporting our customers with a
relentless focus on value
The financial pressure on households across the
UK, ROI and Central Europe has been at the
forefront of our minds this year. The work we have
done this year on value can be seen on pages 4
and 5. We continue to build on the strength of
Aldi Price Match, Clubcard Prices and Low
Everyday Prices to provide real savings on
thousands of products in stores and online.
Across Central Europe we have also invested
further in our Low Price Guarantee, now on over
500 Own Brand lines.
This relentless focus on value extends right across
the Group, with Booker’s largest-ever price lock
over Christmas, and Clubcard Prices at Tesco
Bank and Tesco Mobile. We also brought back our
popular Kids Eat Free initiative at Tesco Cafés at
key moments throughout the year.
Investing in colleagues
The strength of our performance would not be
possible without our brilliant colleagues and the
work they do day-in and day-out for customers.
We’ve made some significant improvements to our
colleague benefits this year, offering enhanced
parental leave, giving UK colleagues access to
virtual GP appointments seven days a week, and
access to flexible working from day one at Tesco.
As the Chair said, our new pay deal offering Tesco
store colleagues £12.02 per hour makes Tesco one
of the top UK retailers for base pay, in addition to
the breadth of our colleague benefits, and reflects
the vital contribution our colleagues make.
Supporting our local communities
Our scale also gives us a fantastic opportunity to
make a difference to the communities we serve.
This year, we launched a £5.3m Stronger Starts
grant scheme, supporting around 4,000 projects
across the UK to boost funds for extra food and
new sports and play equipment to keep children
active. We have given away more than 450,000
free meals to children during holidays as part of
our Kids Eat Free at Cafés initiative. In May 2023,
Tesco Ireland marked the moment that our
Stronger Starts programme provided the
equivalent of its one millionth free, healthier
and nutritious meal, with plans to double our
reach by the end of 2024.
Looking after the planet
We’ve taken extra steps to support British
agriculture this year, with further investment in
developing our Future Farmers programme.
Overall, we’ve put an extra £75m into key
agricultural suppliers this year, including £39m for
British beef and lamb farmers. Supporting British
farmers, growers and suppliers is absolutely vital
in safeguarding the future of the food industry in
the UK. Tesco has been recognised as the leading
retailer in the Advantage supplier survey for the
eighth consecutive year, which is a testament to
the strength of relationships we have built.
This year, we launched our 571st electric delivery
van, announced the expansion of our low-carbon
fertiliser trials and announced our plans to move
to biofuel transport in Ireland from next year. All
of these projects are helping us to make progress
towards our commitment to be carbon-neutral in
our own operations by 2035, and our ambitious
Ken Murphy,
Group Chief
Executive
For more information
about our results use the
QR code above
Tesco PLC Annual Report and Financial Statements 2024
09.
Strategic report
Governance
Financial statements
Additional information
Group Chief Executive’s review continued
target of net-zero emissions across our entire
value chain by 2050. We have become one of the
first companies globally to have validated
science-based targets on all greenhouse gas
emissions, including those originating from
forests, land and agriculture (FLAG) emissions.
Tesco Bank
As the Chair has outlined, we have announced a
long-term strategic partnership with Barclays,
which includes the sale of our banking operations
in credit cards, loans and savings. Tesco Bank is a
brilliant business and for the last 25 years has
served Tesco customers with market-leading
customer service. As we look to the future, our
aim is to be the best provider of financial services
in the UK, with this strategic transaction and
partnership with Barclays unlocking greater value
for customers and for our business. By working
with one of the UK’s leading banks, we can bring
customers new and innovative propositions, which
will continue to benefit from Tesco Clubcard’s
unique insight and digital capabilities.
Around 2,800 Tesco Bank colleagues working
on banking products, including the senior
management team, will transfer to Barclays and will
continue to offer customers the same outstanding
service. We are working very closely with Barclays
to support the team through this transition.
Tesco will retain all other existing activities
including insurance, ATMs, travel money and gift
cards. The partnership and sale remain conditional
on regulatory approval, and we expect completion
to take place in the second half of 2024.
Progress on our strategic priorities
Customer satisfaction is critical. It allows us to
see how well customers are responding to our
proposition and how they perceive us relative to
our peers. Our Brand net promoter score has
increased once again, driven by improvements in
our range and overall shopping experience. Tesco
Mobile is the highest-ranking mobile brand in the
UK Customer Satisfaction Index. Alongside
customer satisfaction, one of our key goals is to
grow, or at least maintain our core UK market
share, and I’m delighted that at the end of this
year, we have grown market share on a volume
and value basis. For more information on our
strategic priorities, see pages 14 and 15.
Magnetic value
We will continue to do everything we can to pass
savings on to customers wherever we can and we
have also made strides on the quality of our offer.
Our Finest range has seen strong volume growth
of 9% with more than 23 million customers buying
into the Finest brand. Our overall quality
perception has increased by 96bps. Health is also
an important driver of quality and therefore of
Magnetic value. We have launched some great
products in this area, including our Finest
signature vegetable dishes, which help customers
replace or reduce meat consumption with
vegetable alternatives.
I love my Tesco Clubcard
We are building a unique digital platform powered
by the scale and reach of Clubcard. Clubcard
penetration has grown in every part of the Group
and the number of customers interacting with us
over app has reached 16.3 million across the
Group. Personalising our offering is increasingly
important to our proposition. This year we have
issued 289 million personalised coupons to more
than 7.6 million customers and have seen a
greater return on these compared to their
non-personalised equivalents.
Personalisation and digitisation is not only about
the app, but also in store and online. We have
quadrupled the number of connected screens in
our stores to around 2,000. We now have more
than 400 suppliers using our online sponsored
search, all made possible through dunnhumby’s
data science capabilities.
Easily the most convenient
Tesco is available wherever, whenever and
however our customers want to shop with us.
Our online market share remains very strong at
around 34%. Our rapid-delivery Whoosh
proposition has grown from scratch to a business
serving 66% of the UK and operating from 1,424
Express stores.
We have opened 113 new stores across the Group
this year. Our store convenience network in the UK
is further enhanced by our independent Booker
retailers, with 354 net new Booker retail partners.
We also converted our Booker Fareham site into a
new retail hub that will help unlock more choice for
retail customers and free up catering capacity.
Save to invest
We are constantly looking for opportunities to
drive a simpler and more efficient operating
model so that we can reinvest into the business
and best support our customers. We have made
strong progress across all areas, such as goods
and services not for resale, property, operations
and central overheads. Overall, we have
exceeded our original savings target, with c.£1.2bn
cumulative savings between February 2022 and
February 2024.
Management team
In March, our UK CEO Jason Tarry left the
business after 33 years. Jason has made an
immense contribution – his values and
commitment to creating a high-performing,
supportive and diverse culture have shaped the
organisation we know today.
I am delighted that Matthew Barnes has joined us
as our new UK CEO. Matthew is a highly
accomplished retailer and joins us from Aldi Sud’s
Executive Board. In his few months so far, he has
Customer:
>4,000
price cuts in the UK
Community:
>200m
total number of meals
donated to charities and
local communities in the
UK since 2016/17.
Planet:
Our net zero commitment
has helped us achieve a
61%
emissions reduction in Scope
1 and 2 versus 2015 baseline.
We have removed
>2.3bn
pieces of plastic from the
UK business to date.
10.
Strategic report
Governance
Financial statements
Additional information
been busy getting to know the team, and his
energy and passion are abundant.
After nearly seven years as Chief Customer
Officer, Alessandra Bellini left Tesco at the end
of September. Alessandra was instrumental in
revitalising the Tesco brand, creating distinctive
propositions including Food Love Stories and Aldi
Price Match.
As we evolve our customer capabilities, we have
merged our Product and Customer functions and
Ashwin Prasad has been appointed our new Chief
Commercial Officer. Our aim is to ensure that
the combined power of these functions, and
the skills and experience within each, are more
closely aligned to maximise the quality of our
overall proposition.
Delivering for shareholders
For shareholders, we have delivered another year
of strong growth. We have remained focused on
our strategic priorities and have been guided by
our purpose at all times.
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
9 April 2024
What is your highlight
from this year?
The business has achieved a lot this year, against the backdrop
of some challenging moments as a result of cost-of-living
pressures. I’m really proud of how everyone in the business has
pulled together to keep delivering for our customers and helping
the business succeed. It has been a real team effort, and that
was particularly evident at Christmas when everyone from
product development, technology and online, to our colleagues
in store and in distribution, came together to make
it our best Christmas yet.
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.
In my time at Tesco, I have learnt to expect the unexpected. Our
supply chain has tried and tested contingency plans in place
when there is disruption and we’re always quick to act and find
solutions, so that our customers can keep getting the products
they love.
You launched Stronger Starts in the UK this
year. What is the significance to you?
We have an ambition to reach 1 million children through our
Stronger Starts programme – and I’m really proud of the scale of
that ambition and the potential we have to help those children
lead healthier lives, and grow and thrive. And we’re also looking at
other ways we can help young people through the programme,
which is why we launched our Stronger Starts apprenticeship
programme this year, aimed at giving young people from deprived
areas a better start in life. There’s lots more to come from
Stronger Starts so watch this space...
What are our priorities for sustainability
in the coming year?
With the climate and nature crises growing in significance, it’s critical
we maintain our focus on what we can do to mitigate our impact on
the planet. Alongside our validated science-based targets, we’ll
be driving activity through our planet plan, including action towards
our commitment of achieving zero deforestation in the sourcing of
forest-risk commodities like soy, by the end of 2025. We’ll also
be preparing the business for significant new regulations, like the
Corporate Sustainability Reporting Directive (CSRD) which will
require us to report on the impact our activities have on the
environment and society.
How have you approached new
food products this year?
We have made a concerted effort to put innovation back at the
heart of our offer, and this is making a real difference to the
products our customers experience. In the year, we invested in
quality and innovation, launching more than 1,000 new products.
A key highlight for me was the Finest Chef’s Collection we launched
at Christmas – restaurant quality food at truly great value.
What are you doing to make Tesco
a healthier place to shop?
This is really important. There is a pressing need to improve diets,
and an onus on the whole food industry to make it easier. This year
we launched our healthy diets report, which lifts the lid on how we’re
working to support our customers’ health. We have offered more
than 500,000 blood pressure tests in our communities this year,
donated baby clothing to 157 neonatal units across the NHS and also
added Pick of the Crop Clubcard Prices promotions on fruit and
vegetables in more than 1,300 Express stores.
Can you say more about the improved benefits
package for colleagues?
Absolutely. It’s hard to do it justice in a short paragraph, but there
have been two key callouts for me. Our virtual GP service has been a
resounding success, facilitating thousands of appointments for
colleagues and their families since its launch in July 2023 and giving
colleagues the ability to access healthcare advice easily and flexibly
when they need it. We were also very proud to one of the first to
offer 26 weeks of paid kinship leave to colleagues in the UK who gain
permanent custody of a child via a Special Guardianship Order.
What are the key priorities for the year ahead?
I’m excited about the momentum we are building. We have a
plan that’s working and that we can build on and accelerate. For me,
it’s about really making progress against our strategic priorities and
continuing to listen to our customers so that we can deliver for them.
Q&A.
Q&A with Ken
Tesco PLC Annual Report and Financial Statements 2024
11.
Strategic report
Governance
Financial statements
Additional information
Market
context.
Our market context
We make it our mission to understand how our customers are
feeling and what is influencing their shopping behaviours. Through
the insight we gather, we can then take action to serve our
customers, communities and the planet a little better every day.
Market drivers
How we are responding
After a long period of budget hyper-care,
consumer confidence is growing, and they find
themselves being cautiously optimistic about their
personal finances with net concern about inflation
now down to 50% (from 70% at the start of the
year). As real wages start to recover, consumers
are more discerning than ever with what they have
to spend and are looking for value in every mission.
Value has never been more important, but they
also want those joyful moments and are
ring-fencing spend to enjoy time with friends and
family at key seasonal moments like Easter,
Christmas and Halloween.
50%
of the public concerned about the cost of
living, down from 70% at the start of the year
(Sources: IGD, Global Data, Kokoro)
— Our unique customer offer combines
Aldi Price Match on more than 600
lines, Low Everyday Prices on more
than 1,000 lines and around 8,000
exclusive Clubcard Prices deals
each week.
— This means we have been the
cheapest full-line grocer for 16
consecutive months.
For more information
see pages 4 and 5
Market context
How we are responding
Sustainability and the issues that surround it such
as climate change are regaining focus. Customers
want to take personal action citing food waste and
recycling as priorities, but with 65% indicating that
they are concerned about the impact that climate
change will have on food supply, many are now
demanding further, faster actions from food
manufacturers and grocery retailers.
65%
of people concerned about the impact
of climate change on food supply
(Sources: IGD, Mintel)
— 61% reduction in Scope 1 and 2
emissions versus 2015 baseline.
— One of the first companies globally to
set validated science-based targets on
all greenhouse gas emissions, including
those originating from forests, land and
agriculture (FLAG) emissions.
— Introducing in-store zones that
signpost foods high in fibre, plant-
based options and food under 100
calories.
— Removed excess plastic from pocket-
tissue multipacks.
— Added clear caps to milk bottles to
make them easier to recycle at home.
For more information on our
sustainability progress see page 18
Spotlight on:
Sustainability.
Spotlight on:
Consumer
sentiment.
Tesco PLC Annual Report and Financial Statements 2024
12.
Strategic report
Governance
Financial statements
Additional information
Market context
How we are responding
Businesses are focusing on online, quick and
checkout-free commerce. This proliferation has
created a need among consumers that didn’t exist
to the same extent before: for what they want,
when and where they want it. 41% of consumers
are willing to pay more for a product if they can
purchase it more quickly and conveniently. Now
that it is an option, consumers continue to expect
better, faster, integrated digital retail to make
shopping easier.
41%
of consumers willing to pay more for a
product if it’s quick and convenient
(Sources: PwC, Mintel)
— Our rapid delivery service, Whoosh,
has been rolled out to 1,424 stores,
with 74% of deliveries arriving within
30 minutes.
— We further strengthened online
availability to 98.1% with the number
of ‘perfect orders’ up 20ppts
year-on-year.
— We launched new tills at our store in
Fulham Reach, giving customers the
option to checkout their products
without scanning them.
For more information on how Tesco
aims to be Easily the most convenient
place to shop see page 15
Spotlight on:
Accelerating
tech.
Market context
How we are responding
As society is projected to become more diverse,
the need for representation and recognition is
growing. 57% consider diversity and inclusion (D&I)
to be of personal importance and agree that
inclusion benefits everyone when fairness and
equality are at the heart.
Customers believe that major bodies hold the key
to unlocking change, with broad influence and the
ability to change policy being instrumental. Who
you recruit and who you show in advertising are
the top indicators that a company is advocating
for D&I – actions speak louder than words.
57%
of people consider D&I to be of
personal importance
(Source: Kokoro)
— We continue to see the positive impact
on both our senior hires and internal
appointments: 47% of our new joiners
at director level have been women this
year, and of the internal promotions we
have made to director level roles this
year, 63% of them have been women.
— 14% of our new joiners at director level
and above have been ethnically diverse.
— This year, for the first time ever, we
reported our ethnicity pay gap to
allow us to identify opportunities for
improvement and increase
transparency on this issue.
For more information, read our
Everyone’s Welcome report:
https://www.tescoplc.com/media/
btxmk3vi/tesco-everyones-welcome-
report-2023_final_060324_130pm.pdf
Spotlight on:
Diversity.
Market context
How we are responding
The pandemic and cost-of-living crisis have meant
that many customers have been spending more
time in their local community and noticing how
things have changed. The cost-of-living crisis has
led to an increase in the number of children
requiring help, with 23.8% of all pupils (>2.0 million)
now receiving free school meals, representing
a 1.3% year-on-year increase.
>2.0 million
school pupils are receiving free school meals
(Source: gov.uk)
— Launched £5.3m Stronger Starts
initiative, which has supported c.4,000
projects for children, around health,
nutrition and physical activity.
— Donated more than two million meals
to support communities as part of our
Winter Food Collection.
— Launched Stronger Starts
apprenticeships aimed at providing 150
young people from deprived areas with
a retail apprenticeship.
— Supported The Sun’s Footie For All
campaign, providing £150,000 in grants
to grassroots football clubs across
the UK.
For more information see our
Stronger Starts page: https://www.
tescoplc.com/sustainability/
communities/strongerstarts
Spotlight on:
Local
community.
Tesco PLC Annual Report and Financial Statements 2024
13.
Strategic report
Governance
Financial statements
Additional information
How we
do it.
Our strategic priorities
Our strategic priorities enable us to continue to deliver
great value, reward customers for their loyalty and stay
competitive while ensuring we remain an agile and
efficient business. Our focus on doing the basics
brilliantly helps us to drive top-line growth, grow
profit and generate cash, and in doing so, deliver
for all of our stakeholders.
Magnetic value for customers
Redefining value to become the customer’s favourite
Why is it important?
— Demonstrating the importance of value underpinned
by price, quality and sustainability and 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
Progress during the year
— Led the way in passing savings on to customers; prices
cut on more than 4,000 products by an average of
c.12% since the start of the year
— Clubcard Prices on around 8,000 products each week,
saving customers up to £360 off the annual cost of
their groceries
— Continual process of quality innovation and
improvement, with 1,047 new lines introduced
during the year
— Booker awarded 2023 Quality Awards Foodservice
Operator of the year
— Finest sales now >£2bn, up 15.7% during the year, with
volumes up 9.0% and more than 23 million customers
buying into our Finest brand
— Further strengthening our non-food offering with the
introduction of Paperchase and The Entertainer brands
— Healthy products now 63% of sales volume in the UK
and ROI and on track to achieve 2025 target of 65%
I love my Tesco Clubcard
Creating a competitive advantage through our
powerful digital capability
Why is it important?
— Continuing to develop a personalised shopping
experience for customers by using unique
insights offered by one of the UK’s leading
digital retail platforms
— Growing incremental revenue opportunities with
suppliers to help them offer customers tailored
and relevant products
Progress during the year
— Customers benefiting from Clubcard across
the Group, with Clubcard sales penetration
up in all markets
— World-class Tesco app with 16.3 million users
across the Group – 12.7 million in the UK, 1.0 million
in ROI and 2.6 million in CE
— Growing reach of digital media with c.2,000
connected screens now installed
— 289 million personalised coupons issued to nearly
7.6 million customers during the year
— Expanding digital offer for customers; more than
17,000 campaigns delivered across all channels
Tesco PLC Annual Report and Financial Statements 2024
14.
Strategic report
Governance
Financial statements
Additional information
Easily the most convenient
Incremental capital-light growth
Why is it important?
— Serving customers wherever, whenever and however
they want to be served
— Supporting growth of our core business
— Continuing strong growth of convenience through
capital-light opportunities to maximise return
— Continuing evolution of large stores as the backbone
of online grocery business as we maximise our existing
assets and developing on-demand services focused
on convenience stores that complement the existing
online business
Progress during the year
— Online market share remains strong at c.34%. Further
strengthened online availability to 98.1%; number of
‘perfect orders’ up +20ppts year on year
— Opened a further three urban fulfilment centres (UFCs),
now at nine UFCs in total
— Tesco Whoosh now in 1,424 stores, making rapid delivery
available to 66% of population; with c.74% of deliveries
within 30 minutes and larger baskets now available in
more than 1,000 stores
— Converted our existing Booker Fareham site into c.120k
sq.ft retail hub, unlocking more choice for retail
customers and freeing up catering capacity
— Opened 113 stores across the Group (seven superstores,
60 Express and 27 One Stop stores in UK, one superstore
and four Express in ROI and 14 new stores in CE); working
with 354 net new Booker retail partners
— Nearly doubled our electric customer home delivery
vans, now at 571; fleet to be fully electric in the UK
by 2030
Save to invest
A cost-efficient retailer
Why is it important?
— 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 for customers and makes a real difference
Progress during the year
— Exceeded original savings target with £640m of savings
in 2023/24 and a total of £1.2bn over the past two years
— Plan to deliver a further £500m of efficiency savings in
2024/25
— Strong delivery across all areas: goods & services not
for resale, property, operations and central overheads
— Completed space realignment and optimisation of
management structures in over 800 large stores
— End-to-end review of promotional replenishment to
strengthen availability and deliver efficiency gains
— Further energy consumption initiatives delivered,
including upgraded LED lighting
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 margins
— Use 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
Generate between £1.4bn and £1.8bn Retail
free cash flow each year
Tesco PLC Annual Report and Financial Statements 2024
15.
Strategic report
Governance
Financial statements
Additional information
Our Big 6 KPIs.
Key performance indicators
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 7.2% at constant
rates, driven by strong growth across
all segments.
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 rose 12.7% at
constant rates to £2.8bn, reflecting our
strong trading performance across the
UK & ROI and continued cost savings.
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.
How we performed
We saw strong operating cash generation,
including a positive working capital,
reflecting the strong sales performance
in the year and the impact of input cost
inflation, leading to higher trade balances.
Group salesΔ
Adjusted operating profitΔ
Retail operating cash flow(c)
£61.5bn
(2023: £57.2bn)
7.2%(a)
£2.8bn
(2023: £2.5bn)
12.7%(b)
£4.7bn
(2023: £4.5bn)
5.2%
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
Our Group NPS score has increased as
customers have recognised our
commitment to delivering great value.
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
More colleagues are recommending Tesco
as a Great Place to Shop and our Great
Place to Work score has increased to 84%.
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. Carbon emissions
have reduced by 13% vs last year.
Group NPS(d)
Recommend as a place to shop
Carbon emissions (tCO2e)(f)
19pts
(2023: 15pts)
4pts
46pts
(2023: 40pts)
6pts
0.9m
(2023: 1.0m)
13%(e)
vs last year
Great Place to Work(e)
61%
cumulative reduction
vs baseline
84%
(2023: 82%)
3%
In February 2024 we announced the sale of our banking operation, which has been consequently classified as discontinued. Discontinued operations are excluded from
our headline performance metrics.
Comparatives have been restated for the adoption of IFRS 17 ‘Insurance contracts’.
Δ Alternative performance measures (APMs). Measures with the Δ symbol are defined in the Glossary section on pages 220 to 225.
(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.
(e) The underlying change in Great Place to Work is calculated using figures to one decimal place hence the difference between it and the headline figures variation.
(f) Carbon emissions are based on total Scope 1 and 2 (market-based) footprint and stated as tonnes of CO2 equivalent (tCO2e), see pages 45 and 230.
Tesco PLC Annual Report and Financial Statements 2024
16.
Strategic report
Governance
Financial statements
Additional information
Customer
Product
Channel
Serving our
customers,
communities and
planet a little
better every day
In
si
gh
ts
In
si
gh
ts
Our business model.
Our business model
Our unique
strengths
Our reach
With 4,506 stores and a thriving
online business covering 99.8%
of UK postcodes, we have
unparalleled scale to reach
customers, wherever they are
Knowing our customers
Through our retail expertise and
insight, we have a unique
understanding of what our
customers want
A best-in-class
supply chain
Flexibility and resilience in our
supply chain helps us respond
better to external events
Strong supplier
relationships
Excellent links with suppliers
help drive greater quality, value
and availability
Breadth of offer
Leading range development
driven by insight and sourcing
expertise helps us react to
evolving customer demand
Investing in
our business
Strong retail free cash flow
enables investment in growth
and innovation
Helping to
execute our
strategy
Magnetic value
for customers
I love my Tesco
Clubcard
Easily the most
convenient
Save to invest
Creating
value for all
Customers
Colleagues
Communities
Planet
Suppliers
Shareholders
With our winning combination of reach, innovation, insight and expertise,
we can provide customers with the products they want – whenever, wherever
and however they want to be served.
Customers
Listening to our customers
and acting on what is most
important to them when they
shop with us.
Products
Working closely with our
suppliers to source the right
products at the right price
for our customers.
Channels
Serving customers whenever,
wherever and however they
want to be served – from large
and convenience stores to
grocery home shopping
and Whoosh.
Tesco PLC Annual Report and Financial Statements 2024
17.
Strategic report
Governance
Financial statements
Additional information
Planet.
We recognise we have a responsibility to play
our part to address the impact the food system has
on climate and nature, as part of our core purpose
to serve our customers, communities and planet
a little better every day.
The six pillars of our planet plan
Improve our
products
Reduce the
environmental impact
of the things we sell
Decarbonise
transport
Reduce emissions
created when we
move our products
Reduce store
emissions
Minimise emissions
from our stores
and centres
Support
sustainable
consumption
Help customers
switch to healthier,
more sustainable food
Eliminate waste
Reduce food waste
and packaging from
production through to
our customers’ homes
Protect nature
Work with nature to
restore habitats and
increase biodiversity
Tesco PLC Annual Report and Financial Statements 2024
18.
Governance
Financial statements
Additional information
Strategic report
Central to this plan is our commitment to
reaching net zero across our full value chain by
2050, validated in line with the Science-Based
Targets initiative’s (SBTi) pathway for limiting global
warming to no more than 1.5°C average above
pre-industrial levels. We have a responsibility
to minimise our impact on the planet, and the
economic longevity of our business relies
increasingly on the physical health, resilience
and adaptation of our supply chains.
All our stakeholders have growing expectations
of the business to demonstrate urgent, credible
leadership and industry collaboration in the
transition towards net zero.
The pillar strategic overviews below outline the
action we are taking across our own operations
and supply chain. However, we cannot achieve
many of our goals without collaboration with
industry and civil society, and support the right
regulatory frameworks from governments across
our markets – these considerations underpin
every pillar of our planet pan.
Improve our products
Covering the production of all our products,
from raw material extraction and agriculture to
logistics and manufacturing, this pillar comprises
the largest emissions hotspots across our value
chain, at around 50%. The transformation
needed across the agriculture sector to address
not only emissions but rebalance wider aspects
of the natural ecosystem requires a whole system
approach. We are encouraging the shift to more
sustainable agriculture by requiring all our global
produce suppliers that supply into the UK to be
LEAF Marque Certified by 2025.
Deforestation in animal feed supply chains is a key
area of work under this pillar, including preparing
for timely compliance with the upcoming EU
Regulation on Deforestation-free Products
legislation (EUDR) and UK due diligence legislation,
and our voluntary target as a signatory to the UK
Soy Manifesto which excludes conversion from
our supply chains by 2025.
Decarbonise transport
Transport comprises around 40% of our
operational (Scope 1 and 2) emissions. That is why
we are working to switch all our fleets to
low-carbon alternatives by 2035 where possible
based on available market solutions. As part of
our EV100 pledge, with progress well underway,
we are committed to a fully electric home
delivery fleet by 2030.
Reduce store emissions
To reach our goal of carbon neutral operations
by 2035, we will replace our store gas boilers with
heat pumps and install heat reclaim systems
across the Group. Our work to continually
improve the energy efficiency of our estate also
helps reduce emissions while we roll out lower
impact asset replacements.
We also want to manage our increasing power
demand and ensure energy security as we shift
from fossil fuels to renewable electricity. We have
established power purchase agreements (PPA),
wind generation and on-site solar, and are going
to trial innovations such as on-site battery
storage.
Support sustainable
consumption
Our diets need to change to sustain a net zero
future. It is also critical we incorporate health and
sustainability together in that journey. Our
ambition is to make Tesco the easiest place for
our customers to shop for healthy, affordable
and sustainable food.
This means supporting customers to eat more
seasonal fruit, vegetables and alternative
plant-based protein sources such as legumes,
cereals and meat alternatives. We are committed
to leading the plant-based market with a
competitive and compelling range of plant and
dairy alternatives. We are also working to help
and inspire customers to eat more sustainably,
through our ongoing Better Baskets campaign
which offers exciting sustainable recipes and tips
to reduce waste and improve nutrition.
Eliminate waste
This pillar covers both food waste and packaging,
with a recognition that we must work to minimise
both for a sustainable future.
We are targeting a 50% reduction in food loss
across the whole supply chain by 2030, aligned
with the Courtauld Commitment of which Tesco
is a signatory. We are also working hard to achieve
our target of halving food waste from our own
operations by 2025.
Our approach to packaging is informed by our
4Rs strategy: remove what we can; reduce what
we can’t; reuse more; and recycle what’s left.
We have an ambition to have fully recyclable
packaging by 2025.
Protect nature
The food system is dependent on healthy soils,
clean freshwater and thriving pollinator
populations. We are working with our suppliers
to take a landscape-based approach to
transforming our supply chains holistically,
achieving lasting environmental benefits for both
climate and nature. In the UK, we have co-funded
on-farm practices that improve soil health and
biodiversity while reducing emissions, including
supporting farmers to plant cover crops and
herbal leys.
Outside the UK, in our commodity supply
chains, we are supporting innovative financial
mechanisms and new research to encourage
large-scale habitat protection and sustainable
farming practices.
Our recently launched nature programme will
look to expand our work right across the nature
agenda, covering even more regions and supply
chains.
We produce a wide
range of sustainability
factsheets,
covering topics
such as climate,
communities,
diversity, equity and
inclusion, farming
and sustainable
agriculture,
and healthy,
sustainable diets.
For more information
on our factsheets,
see www.tescoplc.com/
sustainability-reports.
In recognition of this critical work, we have brought
together our key areas of activity on sustainability in
our planet plan. The plan comprises six corresponding
pillars of activity, including agendas that sit adjacent
to our climate work, reflecting the wide-reaching
interdependencies of the food system and the
natural environment.
Tesco PLC Annual Report and Financial Statements 2024
Strategic report
19.
Governance
Financial statements
Additional information
Planet plan in action
Spotlight on:
Low-carbon fertiliser trial.
— In September 2023, we announced the expansion of our
award-winning, low-carbon fertiliser trial, the largest of
its kind in the UK.
— During the first year of the trial, five of our key field
vegetable suppliers cultivated 1,300 hectares of land using
eight different low-carbon fertilisers, six of which are
manufactured in the UK from materials including: food
waste; chicken litter; fire extinguisher waste; and algae.
This produced0 70,000 tonnes of produce such as
lettuces, carrots and potatoes for Tesco customers. Initial
results found they were just as effective as conventional
fertilisers and cut emissions by up to 50%.
— We plan to increase the trial to 13,000 hectares this year,
paving the way for widespread take up of low-carbon
alternatives. As well as our main vegetable suppliers, we
plan to roll out the initiative to more of our sustainable
farming groups, many of whom manage pasture and
forage-based systems for rearing livestock.
Projects in support
of our planet plan.
An update on three of the initiatives we have
launched in support of our planet plan.
1,300ha
During the first year of the trial, five of
our key field vegetable suppliers
cultivated 1,300 hectares of land using
eight different low-carbon fertilisers.
Tesco PLC Annual Report and Financial Statements 2024
20.
Governance
Financial statements
Additional information
Strategic report
Spotlight on:
Future farmer programme.
In July 2023, we partnered with Harper Adams University’s School of
Sustainable Food and Farming (SSFF) to launch our future farmer
programme, a major new multi-year initiative which will help up-and-
coming British farmers develop their skills in sustainable agriculture.
With recent surveys suggesting younger farmers have identified skills gaps
in areas including sustainability and the environment, the programme will
provide 75 young farmers with face-to-face and live online training on how
to implement sustainable agriculture practices and protect biodiversity.
The nine-month course, which will run each year for the next three years,
will also include events and mentoring sessions on business operations
and personal development.
As part of the partnership with SSFF, Tesco will also fund research
projects aimed at addressing some of the key sustainability challenges
affecting agriculture.
Spotlight on:
Solar energy roll out.
— To support our efforts to reduce our emissions, in November 2023
we announced plans to install solar panels on 100 of our large
stores across the UK over the next three years – with the potential
to generate as much as 20GWh of clean electricity per year.
— The first store to benefit from the solar panels, in Thetford, has
been fitted with more than 1,000 solar panels as part of a PPA
with renewables investor, Atrato Onsite Energy. More stores will
be fitted with solar panels this year.
— The new project builds on the 40 Tesco stores that already have
solar panels fitted and generated more than 10.5GWh of solar
electricity in the last year, equivalent to the amount of electricity
needed for 3,800 homes.
— With initiatives such as air source heat pumps used to replace gas
heating boilers, customer EV charge points, and electric home
delivery vans, the need for renewable electricity has never been
more important.
— Onsite renewables like solar panels take pressure off the wider
national grid infrastructure, and the much-needed renewable
energy that will be generated by this programme will drive
progress towards Tesco’s commitment to become carbon neutral
across its own operations by 2035.
10.5GWh
40 Tesco stores that already have
solar panels fitted generated more
than 10.5GWh of solar electricity in
the last year, equivalent to the
amount of electricity needed for
3,800 homes.
Tesco PLC Annual Report and Financial Statements 2024
Strategic report
21.
Governance
Financial statements
Additional information
Financial review
52 weeks ended 24 February 20242,7
FY 23/24
FY 22/233
Change at
actual rates
Change at
constant rates
Sales (exc. VAT, exc. fuel)4
£61,477m
£57,216m
7.4%
7.2%
Fuel
£6,710m
£8,106m
(17.2)%
(17.2)%
Revenue (exc. VAT, inc. fuel)
£68,187m
£65,322m
4.4%
4.2%
Adjusted operating profit5
£2,829m
£2,509m
12.8%
12.7%
Adjusting items
£(8)m
£(1,099)m
Statutory operating profit
£2,821m
£1,410m
100.1%
Net finance costs
£(538)m
£(536)m
Joint ventures and associates
£6m
£8m
Statutory profit before tax
£2,289m
£882m
159.5%
Group tax
£(525)m
£(224)m
Statutory profit after tax
£1,764m
£658m
168.1%
Adjusted diluted EPS5
23.41p
20.53p
14.0%
Statutory diluted EPS
24.53p
8.81p
178.4%
Dividend per share
12.10p
10.90p
11.0%
Net debt6,7
£(9,764)m
£(10,493)m
6.9%
Retail free cash flow6
£2,063m
£2,133m
(3.3)%
Capex9
£1,314m
£1,235m
6.4%
1. Following the announcement in February 2024 that we have reached an agreement to sell our banking operations, the performance of these banking operations
has been presented as a discontinued operation with comparatives also restated. Discontinued operations are excluded from our headline performance metrics.
The assets and liabilities related to the discontinued operations have been classified as held for sale. Retained business (money services and insurance) has been
presented on a continuing operations basis and therefore within headline performance measures. Further details on discontinued operations can be found in
Note 7, starting on page 150 and please refer to Note 2 starting on page 141, for the segmental results of the Bank.
2. The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 220.
3. Comparatives have been restated for the adoption of IFRS 17 ‘Insurance contracts’ and to present Banking operations as a discontinued operation. Refer to Notes 1,
7 and 33 for further details.
4. Group sales exclude VAT and fuel. Sales change is shown on a comparable days basis for Central Europe.
5. Adjusted operating profit and adjusted diluted EPS exclude adjusting items.
6. Net debt and Retail free cash flow exclude Tesco Bank.
7. All measures apart from Net debt and Dividend per share are shown on a continuing operations basis unless otherwise stated. Further information on Net debt can
be found in Note 32, starting on page 199.
8. Like-for-like (LFL) is a measure of growth in Group sales from stores that have been open for at least a year and online sales (at constant exchange rates, excluding
VAT and fuel).
9. Capex excludes additions arising from business combinations, property buybacks (typically stores) and other store purchases. Refer to page 224 for further details.
The results of our existing banking operations have been treated as discontinued following the announcement of our proposed sale
to Barclays. As such, Tesco Bank results included in the table above, and within the segmental review of performance, refer only to
the retained Tesco Bank business, i.e. insurance and money services, unless otherwise stated.
Group
review of
performance.
Imran Nawaz,
Chief Financial
Officer
Tesco PLC Annual Report and Financial Statements 2024
22.
Strategic report
Governance
Financial statements
Additional information
Group sales4 increased by 7.2% at constant rates, with growth
across all segments. The impact of inflation was evident across all
markets, although reduced gradually across the year as many global
commodity prices fell and we passed savings on to customers by
cutting prices across everyday grocery lines. Customer demand
was resilient and volume performance improved across the year,
supported by our ongoing investments in value, quality and service.
Revenue increased by 4.2% at constant rates, including a (17.2)%
decline in fuel sales, primarily driven by lower retail prices
year-on-year.
Group adjusted operating profit5 increased by 12.7% at constant
rates, including a further c.£640m contribution from Save to Invest
in the year. We effectively managed significant cost headwinds,
while our ongoing investments in the customer offer drove stronger
than expected volumes.
Group statutory operating profit improved by 100.1% year-on-year,
primarily due to a £(982)m non-cash net impairment charge in the
prior year. The non-cash net impairment release of £28m in the
current year reflects an improvement in UK & ROI performance,
partially offset by lower property market values.
Net finance costs were broadly flat year-on-year, with stable net
interest costs and a £(98)m increase in net pensions finance costs,
being largely offset by a £91m movement in fair value
remeasurements of financial instruments.
The higher tax charge this year was driven mainly by an increase
in UK corporation tax rates effective from April 2023, the impact
of higher retail operating profits and a lower tax credit on adjusting
items, driven by last year’s net impairment charge.
Adjusted diluted EPS5 increased by 14.0%, due to higher retail
adjusted operating profits and the ongoing benefit from our share
buyback programme. We have announced a full year dividend of
12.10 pence per ordinary share, up 11.0% year-on-year.
We generated £2,063m of Retail free cash flow6, including a net
£418m working capital inflow. Net debt6,7 reduced by £729m to
£9.8bn, driven by this strong Retail free cash flow and the £250m
special dividend from Tesco Bank. This was partially offset by cash
returned to shareholders via our ongoing share buyback
programme and dividend payments made in the year. The Net
debt/EBITDA ratio was 2.2 times, compared to 2.6 times last year,
driven by strong cash generation and higher Retail EBITDA.
Further commentary on these metrics can be found below
and the Group income statement can be found on page 129.
Segmental review of performance:
Sales performance:
(exc. VAT, exc. fuel)3,4,7
Total sales change
On a continuing operations basis1
Sales
£m
LFL sales
change8
Change at
actual rates3
Change at
constant rates3
- UK
44,371
7.7%
8.1%
8.1%
- ROI
2,891
6.8%
9.3%
8.5%
- Booker
9,082
5.4%
4.6%
4.6%
UK & ROI
56,344
7.3%
7.6%
7.6%
Central Europe
4,322
0.2%
3.1%
0.6%
Retail
60,666
6.8%
7.3%
7.0%
Tesco Bank
811
21.7%
21.7%
Group sales
61,477
7.4%
7.2%
Fuel
6,710
(17.3)%
(17.2)%
(17.2)%
Group revenue
68,187
4.4%
4.2%
Further information on sales performance is included in the supplementary information starting on page 217.
Adjusted operating profit3,5,7 performance:
On a continuing operations basis1
Profit
£m
Change at
actual rates
Change at
constant rates
Margin % at
actual rates
Margin % change
at actual rates
UK & ROI
2,670
15.7%
15.7%
4.2%
42bps
Central Europe
90
(50.0)%
(50.0)%
2.0%
(208)bps
Retail
2,760
11.0%
10.9%
4.1%
25bps
Tesco Bank
69
213.6%
213.6%
8.5%
520bps
Group
2,829
12.8%
12.7%
4.1%
31bps
Further information on operating profit performance is included in Note 2 starting on page 141.
Tesco PLC Annual Report and Financial Statements 2024
23.
Strategic report
Governance
Financial statements
Additional information
Financial review continued
UK & ROI overview:
In the UK, ROI and Booker, like-for-like sales increased by 7.3%.
Inflation fell gradually across the year as we worked hard to cut
prices across everyday grocery lines in response to falling global
commodity prices. Volumes were stronger than anticipated across
the year and returned to growth in the second half.
UK & ROI adjusted operating profit was £2,670m, up 15.7% at
constant rates, reflecting the accelerated delivery of our
Save to invest programme, effective management of inflationary
cost pressures, resilient volumes and a strong contribution
from Booker.
Adjusted operating margin was 4.2%, 42bps higher year-on-year,
reflecting the cumulative effect of our Save to invest programme.
Our current year operating margin is now similar to pre-pandemic
levels.
Further information on each of the UK & ROI businesses
follows below.
UK – Executing strongly across all areas of the shopping trip,
leading to market share gains:
Like-for-like sales grew by 7.7%, driven by a strong performance
across all formats and channels. Sales inflation fell across the year,
whilst volumes improved as customers responded well to our
efforts to cut prices ahead of the market, our investments in
service and market-leading availability.
Overall market share grew by +28bps year-on-year to 27.6%, with a
particularly strong performance in our large stores. We delivered
eight consecutive four-week periods of market share gains and in
the latest period (to 17 March 2024), we grew volumes ahead of the
market. We have now delivered 12 consecutive four-week periods
of switching gains, including continued gains from the premium
retailers, supported by ongoing investments in quality. Our Finest
range performed well, with volumes up 9.0% and record sales over
Christmas.
Food sales grew by 9.3%, with volume growth in the second half
supported by market-leading availability, our continued investment
in price and our focus on great quality across the range. We
launched 1,047 new products and reformulated and improved a
further c.2,700, including re-launches across our ‘food for tonight’
customer mission, such as our new Tex Mex Feast range, meat-free
Plant Chef ready meals and Finest ‘Dinner for Two’ offer, in addition
to category relaunches across chocolate, fish and pasta. Overall
brand perception increased by 133bps at the end of the year,
driven by a significant step up across all drivers, including
satisfaction (+101bps), quality (+96bps) and value (+88bps).
We have been the cheapest of the full-line grocers since November
2022 and our price position strengthened again this year, including
a further improvement against the limited-range discounters. Over
4,000 products were cheaper at the end of the year than at the
start, with an average reduction of around 12%.
Clubcard Prices continue to offer customers exclusive access to
around 8,000 great value promotions each week. We also ran the first
double Clubcard points event in over a decade, with more than 10
billion Clubcard points issued across January and February. Clubcard
sales penetration grew by a further 3ppts in the year to 82%. The
number of customers engaging with the Tesco app reached 12.7
million by the end of the year and has increased by over 40% since we
completed the roll-out of Clubcard Prices in March 2022.
Home and Clothing sales, which now account for around 7% of total
UK sales, declined by (3.4)% for the full year, reflecting the impact
of strategic ranging decisions, including exiting low returning
categories such as large electricals. Excluding these impacts, sales
were broadly flat. Our clothing sales grew faster than the broader
store-based clothing market, with Womenswear a particular
highlight, growing 3.7%. We launched the Paperchase brand in 120
stores in time for Christmas, offering more customers access to a
range of premium stationery and cards which reflects the heritage
of the brand. In January, we announced a new partnership with The
Entertainer and we will roll-out a leading range of toy brands to
around 750 UK stores across the coming year.
Sales grew across both large and convenience store formats, by
8.2% and 4.5% respectively. In our large stores, we invested across
key seasonal events, including increasing the number of colleagues
on the shop floor, delivering market-leading availability, leading to
an improvement across our customer metrics, including price
satisfaction and service. Convenience sales were impacted by
trading over exceptionally hot weather in the first half and by some
customers switching a greater level of spend to our large stores.
Our city-centre stores continue to perform well, growing by 6.0%.
Online sales grew by 10.4%, including a c.2ppts contribution from
the roll-out of Tesco Whoosh. Overall online average orders per
week were up 5.3% year-on-year to 1.2 million and we further
improved the proportion of ‘perfect orders’, meaning more
customers received their order on time and at full availability.
Customer satisfaction scores improved as a result, with availability
up 21ppts and price satisfaction up 9ppts year-on-year. Online
sales participation remains stable at c.13% of total UK sales.
Tesco Whoosh, our rapid delivery service, is now available in 1,424
stores, adding a further 424 in the year. The number of active Tesco
Whoosh customers more than doubled year-on-year as we
expanded the offer to 66% of the population. Customers can
access a range of 2,900 products on average, with some of our
larger stores offering an even broader range. Customer satisfaction
scores continue to improve, including a particularly strong step
forward in availability, with 74% of orders delivered within 30
minutes.
We opened three further urban fulfilment centres (UFCs) in the
year, in Gallions Reach and King’s Lynn in the first half, followed
by Coventry in September, adding a total of one million order
capacity per year.
Online performance
FY 23/24
YoY
change
Sales inc. VAT
£6.2bn
10.4%
Orders per week
1.20m
5.3%
Basket size
£99
4.2%
Online % of UK total sales
13.1%
0.3ppts
Tesco PLC Annual Report and Financial Statements 2024
24.
Strategic report
Governance
Financial statements
Additional information
ROI – Volume growth driving strong market share gains:
We have now gained market share in ROI for 24 consecutive
four-week periods, taking our share to 23.6% at the end of the year,
up 73bps year-on-year.
Like-for-like sales grew by 6.8% for the full year, including three
consecutive quarters of volume growth. Total sales grew by 8.5%
at constant rates, including a 1.7ppts contribution from new stores,
driven by the full-year impact of the nine Joyce’s stores we
acquired in 2022, the opening of a new superstore in Adamstown
and four new Tesco Express stores.
Food sales grew by 9.1%, including volume growth in fresh food
supported by an extensive refresh in 22 stores, with new and
improved produce and bakery areas and innovations in coffee, hot
food and food-on-the-go offers. The investments we are making in
the overall quality of our products was recognised when we won 45
awards at the ‘Blas na hÉireann’ (‘Taste of Ireland’) awards in
October, with strong coverage across our range.
We lowered the price of over 800 essential products by an average
of c.12%, through our ‘Price Cuts’ campaign, leading to a gradual
decline in inflation across the year. Clubcard sales penetration
stepped up by a further 8ppts year-on-year to 85%, supported by
exclusive Clubcard Prices deals, including market-leading offers
over Christmas.
The reallocation of space towards food through our store refresh
programme impacted Home and Clothing sales, which declined
by (3.9)%.
BOOKER – Strong growth across core catering and
retail; building profitable growth capacity:
Sales
£m
LFL
Retail (excluding tobacco)
3,205
11.0%
Tobacco
1,858
(4.3)%
Catering*
2,501
10.2%
Best Food Logistics
1,518
(0.1)%
Total Booker
9,082
5.4%
* Includes small businesses sales
Booker delivered overall like-for-like sales growth of 5.4%, with
further growth across the two key business streams of catering
and retail.
Retail sales (excluding tobacco) grew by 11.0%, supported by a
further 211 net new retail partners in the second half and record
levels of availability. Our entry level ranges, Euroshopper and
Jack’s, performed particularly strongly, with sales up 16% year-on-
year as we expanded the number of lines within these ranges in
response to customer demand. Customer satisfaction improved
across the year due to our focus on availability and value. Tobacco
sales declined by (4.3)% overall, reflecting an ongoing market
volume contraction.
Catering sales increased by 10.2%, with particularly strong growth
in our own label ‘Chef’s Essential’ and ‘Chef’s Larder’ ranges. We
launched our largest ever Price Lock on over 700 products
throughout the festive period, and our ‘On-Trade’ club now offers
almost 9,000 licensed customers access to discounted prices on
some of our most popular products, including snacks, drinks and
food. We also have 45,000 customers signed up to our ‘Fast Food’
club, which provides them with access to exclusive deals and
discounts. Our investments in quality were recognised when we
were awarded 2023 Quality Awards Foodservice Operator of the
year.
Best Food Logistics sales declined by (0.1)%, which includes a sales
decline of (5.4)% in the second half, driven by our actions to exit
unprofitable contracts.
In November, we repurposed a former Makro freehold store in
Fareham, converting the site to a c.120k sq.ft. distribution centre
which further centralises fulfilment to our retail customers,
offering them a broader range, while creating capacity in our
branches to grow our catering business. We have plans in place
to further enhance our capacity in the current year.
CENTRAL EUROPE – Challenging backdrop across
markets; encouraging volume response to value
investments:
Like-for-like sales grew by 0.2%, reflecting a challenging trading
environment due to ongoing inflationary pressures. Inflation fell
sharply across the second half, whilst the volume trajectory
improved and we delivered volume growth over the key Christmas
trading period, driven by a strong customer response to our value
investments, which included a ‘Low Price Guarantee’ on over 500
lines.
Food sales grew by 1.1%, with growth across both fresh and
packaged categories, including volume growth across the fourth
quarter. Non-food sales declined by (4.8)%, mainly driven by a
reduction in discretionary spending across the markets. We
launched a new ‘Basics’ range in Home and Clothing, offering
customers great value and quality at a competitive, entry price
point. We recently expanded this range to all of our largest stores
in the region. Clubcard penetration is now at 87%, which is 2ppts
higher than last year.
Central Europe adjusted operating profit was £90m, a decrease of
(50.0)% year-on-year at constant rates, primarily driven by external
factors facing our business in Hungary and a challenging trading
environment across the region, which was partially offset by a
strong Save to invest delivery. In Hungary, local regulatory actions,
such as incremental retail taxes, price caps and mandatory
promotions on everyday grocery products remained in place and
limited our ability to recover the impact of higher operating costs.
Tesco PLC Annual Report and Financial Statements 2024
25.
Strategic report
Governance
Financial statements
Additional information
Financial review continued
TESCO BANK:
Our existing banking operations (credit cards, loans and savings),
which are due to be sold to Barclays Bank UK plc, have been
treated as discontinued operations within these results. Our
headline performance measures therefore only include those
business lines which are treated as continuing operations, i.e.
insurance, ATMs, travel money and gift cards.
Full detail on the accounting impacts of the announced sale can be
found within Note 7, starting on page 150. The key impacts are to
present banking operations (credit cards, loans and savings) as
discontinued, remeasuring assets and liabilities as held for sale on
the balance sheet to £7.7bn and £7.1bn, respectively. In doing so, we
have recognised a post-tax loss of £(628)m, which includes a £(211)m
write-down of goodwill allocated to the banking operations and
contributes to an overall loss for the year from discontinued
operations of £(572)m after tax.
Subject to usual regulatory approvals, the sale will generate
c.£600m of proceeds on completion, and a further c.£100m of
cash after the settlement of certain regulatory capital amounts
and transaction costs. When combined with this year’s £250m
special dividend paid by Tesco Bank, the Group will have generated
a total of c.£1bn of cash, the majority of which will be returned to
shareholders by means of incremental share buybacks.
The breakdown of our overall performance between continuing
and discontinued operations is shown in the table below.
FY 23/24
FY 22/233
YoY
change
Revenue
£1,521m £1,234m
23.1%
Continuing operations
£811m
£666m
21.7%
Discontinued operations
£710m
£568m
24.9%
Adjusted operating profit
£148m
£135m
9.6%
Continuing operations*
£69m
£22m
213.6%
Discontinued operations
£79m
£113m
(30.1)%
* Includes net investment income associated with banking operations which
will cease on completion of the proposed sale to Barclays (FY 23/24: £12m,
FY 22/23: £(6)m).
Continuing operations revenue grew by 21.7%, primarily driven by
strong growth in insurance due to high levels of renewals and new
business volumes.
The growth in adjusted operating profit on a continuing operations
basis was driven by a strong performance in insurance, gift cards
and travel money, in addition to £15m benefit resulting from the
up-front recognition of a one-year extension of our pet insurance
agreement and £12m of net investment income which will cease
following completion of the proposed sale to Barclays. Adjusted
operating profit from discontinued operations includes a £(28)m
charge relating to customer redress provisions.
We expect the transaction to complete in the second half of this
calendar year. Post-completion, the revenue and adjusted
operating profit contribution from the retained business will be
included within Retail adjusted operating profit. For the 24/25
financial year, we expect a contribution from the retained business
of around £80m, which includes a part-year amount of strategic
partnership income, based on the expected completion timeline.
On an on-going basis, we expect an adjusted operating profit
contribution of between £80m to £100m per year.
Adjusting items:
FY 23/24
£m
FY 22/23
£m
Net impairment release / (charge) on non-current
assets
28
(982)
Save to invest restructuring provisions
(50)
(132)
Property transactions
75
91
Amortisation of acquired intangible assets
(74)
(76)
Other*
13
–
Total adjusting items in statutory operating
profit (continuing operations)
(8)
(1,099)
Net finance income
20
27
Tax
68
195
Total adjusting items (continuing operations)
80
(877)
Adjusting items (discontinued operations)
(628)
(13)
Total adjusting items
(548)
(890)
* Other includes the disposal of Booker’s Ritter-Courivaud Limited subsidiary.
See page 146 for further detail.
Adjusting items are excluded from our adjusted operating profit
performance by virtue of their size and nature to provide a helpful
perspective of the year-on-year performance of the Group’s
ongoing business. Total adjusting items in statutory operating profit
from continuing operations resulted in a net charge of £(8)m,
compared to a £(1,099)m net charge in the prior year.
In the current year, there was a non-cash net impairment
release on non-current assets of £28m, primarily reflecting
an improvement in UK & ROI performance, partially offset by
a reduction in property fair values due to market factors, and
a challenging performance in Central Europe. This compares to
a £(982)m non-cash net impairment charge in the prior year as
a consequence of higher discount rates, which have remained
broadly stable in the current year.
We recognised an adjusting credit of £75m related to property
transactions, including £30m generated on exiting a leasehold site
in Gateshead and a further £12m from the remeasurement of
assets held for sale. In the prior year, we recognised an adjusting
credit of £91m related to the disposal of the Middlewich distribution
centre in the UK, and 17 mall properties and one retail park in
Central Europe.
Amortisation of acquired intangible assets is excluded from our
headline performance measures. We incurred a charge of £(74)m in
the year, which primarily relates to the intangible assets that were
recognised as a result of our merger with Booker in March 2018.
In the current year, we recognised a £(50)m restructuring provision
related to our ongoing Save to invest programme. In the prior year,
we recognised a provision of £(132)m which included changes made
to our store management structures and the closure of our
remaining UK counters.
Further detail on adjusting items can be found in Note 4,
starting on page 146 and on discontinued operations in
Note 7, starting on page 150.
Tesco PLC Annual Report and Financial Statements 2024
26.
Strategic report
Governance
Financial statements
Additional information
Net finance costs:
On a continuing operations basis
FY 23/24
£m
FY 22/233
£m
Net interest costs
(179)
(189)
Net finance expenses from insurance contracts
(6)
(3)
Finance charges payable on lease liabilities
(373)
(371)
Net finance costs before adjusting items
(558)
(563)
Fair value remeasurements of financial
instruments
38
(53)
Net pension finance income / (costs)
(18)
80
Net finance costs
(538)
(536)
Net finance costs of £(538)m were broadly flat year-on-year. Within
adjusting items, fair value remeasurements of financial instruments
led to a credit of £38m compared to a £(53)m charge in the prior
year, largely driven by non-cash mark-to-market gains on index-
linked swaps and other derivatives. This was partially offset by net
pension finance costs this year of £(18)m, compared to an income
of £80m in the prior year, which reflects the IAS 19 pension deficit
at the start of 2023/24, compared to an opening surplus in
2022/23.
Further detail on finance income and costs can be found in
Note 5 on page 147, as well as further detail on the adjusting
items in Note 4, starting on page 146.
Group tax:
On a continuing operations basis
FY 23/24
£m
FY 22/233
£m
Tax on adjusted profit
(593)
(419)
Tax on adjusting items
68
195
Tax on profit
(525)
(224)
Tax on adjusted Group profit was £(593)m, £(174)m higher than last
year, primarily reflecting an increase in the UK corporation tax rate
from 19% to 25%, effective from 1 April 2023, as well as stronger
retail adjusted operating profit year-on-year.
The £68m credit in tax on adjusting items primarily relates to tax
relief on impairment charges on qualifying assets, as well as a
settlement related to our exit from the Gain Land associate in
China in 2020. In the prior year, the £195m adjusting credit was
driven by tax relief relating to the non-cash impairment charge of
£(982)m.
The effective tax rate on adjusted Group profit was 26.0%, higher
than the current UK statutory rate, primarily due to the depreciation
of assets which do not qualify for tax relief. We expect our 2024/25
effective tax rate to be around 27%, reflecting the full-year impact
of the increase in the UK statutory rate mentioned above.
Earnings per share:
On a continuing operations basis
FY 23/24
FY 22/233
YoY
change
Adjusted diluted EPS
23.41p
20.53p
14.0%
Statutory diluted EPS
24.53p
8.81p
178.4%
Statutory basic EPS
24.80p
8.89p
179.0%
On a total basis, including discontinued operations
Statutory diluted EPS
16.56p
9.85p
68.1%
Statutory basic EPS
16.74p
9.94p
68.4%
Adjusted diluted EPS was 23.41p, 14.0% higher year-on-year, due
to an increase in retail operating profit and the benefit from our
ongoing share buyback programme, partially offset by a higher
tax charge.
Statutory diluted EPS was 24.53p, 178.4% higher year-on-year, due
to a significant reduction in adjusting items driven by the £(982)m
non-cash net impairment charge in the prior year.
On a total basis, including discontinued operations, statutory
diluted EPS was 16.56p, 68.1% higher year-on-year. The adjusted
diluted EPS growth described above and the effect of last year’s
net impairment charge were partially offset by the remeasurement
loss related to the planned sale of our banking operations, which
was recognised in the year.
Dividend:
We propose to pay a final dividend of 8.25 pence per ordinary
share, taking the full year dividend to 12.10 pence per ordinary
share. The full year dividend is based on our 50% pay-out policy,
applied to total Group earnings per share in the year, including the
discontinued operations of Tesco Bank as they were under Group
ownership for the entire financial year. This includes the payment
of an interim dividend of 3.85 pence per ordinary share in
November 2023.
The proposed final dividend was approved by the Board of
Directors on 9 April 2024 and is subject to the approval of
shareholders at this year’s Annual General Meeting. The final
dividend will be paid on 28 June 2024 to shareholders who are
on the register of members at close of business on 17 May 2024
(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 7 June 2024.
Tesco PLC Annual Report and Financial Statements 2024
27.
Strategic report
Governance
Financial statements
Additional information
Financial review continued
Summary of Total indebtedness (excludes Tesco Bank):
Feb-24
£m
Feb-23
£m
Movement
£m
Net debt before lease liabilities
(2,144)
(2,775)
631
Lease liabilities
(7,620)
(7,718)
98
Net debt
(9,764)
(10,493)
729
Pension deficit, IAS 19 basis (post-tax)
(493)
(300)
(193)
Total indebtedness
(10,257)
(10,793)
536
Net debt/EBITDA
2.2x
2.6x
Total indebtedness ratio
2.4x
2.7x
Net debt was £(9,764)m, a reduction of £729m year-on-year,
predominantly driven by strong Retail free cash flow generation of
£2,063m and the receipt of a £250m special dividend from Tesco
Bank, which more than offset a total of £(1.5)bn of shareholder
returns, including the £(750)m share buyback and dividend
payments of £(778)m. Lease liabilities reduced by £98m year-on-
year, driven by the overall reducing nature of our lease liability,
partially offset by the impact of rent reviews and new stores.
Total indebtedness was £(10,257)m, a reduction of £536m year-on-
year, which was primarily driven by the £729m reduction in Net debt
explained above, partially offset by a £(193)m increase in the IAS 19
pension deficit. The IAS 19 pension deficit does not determine the
extent of pension contributions and reflects movements in discount
rate assumptions mandated by the accounting standard, which can
be volatile. The trustees of each pension scheme, including the main
Tesco Pension Scheme are required to calculate the net surplus /
deficit on the basis of Technical Provisions issued by the Pensions
Regulator. On this basis, the main UK scheme continues to be in
surplus. The next triennial valuation for this scheme, on a Technical
Provisions basis, is scheduled in March 2025.
We had strong levels of liquidity at the year end, including £3.2bn of
cash and highly liquid short-term deposits and money market
investments. In addition, our £2.5bn committed revolving credit
facility remained undrawn throughout the year.
Our Net debt/EBITDA ratio was 2.2 times at the end of the year,
down from 2.6 times in the prior year. The year-on-year reduction
was driven by an increase in Retail EBITDA and a decrease in
Net debt, which includes a £250m benefit from the special dividend
paid by Tesco Bank in the first half. The Total indebtedness ratio
was 2.4 times compared to 2.7 times last year end.
Fixed charge cover was 3.7 times at the end of the year, an
improvement year-on-year, primarily driven by an increase in
Retail EBITDA.
Summary of 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 141.
On a continuing operations basis
FY 23/24
£m
FY 22/233
£m
Adjusted operating profit
2,829
2,509
Less: Tesco Bank adjusted operating (profit)
(69)
(22)
Retail adjusted operating profit
2,760
2,487
Add back: Depreciation and amortisation
1,602
1,570
Other reconciling items
82
61
Pensions
(29)
(23)
Decrease in working capital
418
468
Retail cash generated from operations
before adjusting items
4,833
4,563
Cash capex
(1,289)
(1,143)
Net interest
(560)
(573)
- Interest related to Net debt before lease
liabilities
(188)
(202)
- Interest related to lease liabilities
(372)
(371)
Tax paid
(214)
(107)
Dividends received
9
68
Repayments of obligations under leases
(623)
(589)
Own shares purchased for share schemes
(93)
(86)
Retail free cash flow
2,063
2,133
Memo (not included in Retail free
cash flow definition):
- Special dividend received from Tesco Bank
250
–
- Net acquisitions and disposals
(2)
(281)
- Property buybacks, store purchases and
disposal proceeds
(66)
266
- Cash impact of adjusting items
(98)
(61)
We delivered strong Retail free cash flow of £2,063m, significantly
ahead of our medium-term target range of between £1.4bn to
£1.8bn, driven by higher retail adjusted operating profit and another
strong working capital performance. The year-on-year reduction
of £(70)m primarily reflects the higher cash capital expenditure
(Capex) and tax paid.
Our total working capital inflow was £418m, reflecting the strong
sales performance in the year and the impact of input cost
inflation, leading to higher trade balances.
Net interest paid was broadly flat year-on-year.
Tax paid was £(107)m higher year-on-year, driven by an increase
in the UK statutory tax rate in addition to higher retail profits. We
continued to benefit from in-year tax relief of £155m related to
the £2.5bn one-off pension contribution made in 2021, which was
required to be spread over four years. Moving forward, we will
no longer benefit from this relief.
Dividends received of £9m were £(59)m lower year-on-year due
to the removal of the annual dividend received from Tesco Bank,
following the announcement of the planned sale of our existing
banking operations. In the first half of the year, Tesco Bank paid
a one-off special dividend of £250m to the Group, reflecting the
strength of the Bank’s balance sheet and capital ratios. This special
dividend is not included within Retail free cash flow.
Within the memo lines shown, the net £(66)m outflow relating to
property transactions results from the buyback of three stores and
two freehold sites in the UK, partially offset by proceeds generated
from held for sale sites in Central Europe, and the exit of a
leasehold site in Gateshead. The £266m inflow in the prior year
primarily related to the sale of 17 malls and one retail park in
Central Europe and our distribution centre in Middlewich
in the UK.
The cash impact of adjusting items of £(98)m relates to operational
restructuring changes as part of our Save to invest programme
which were announced at the end of the prior financial year.
Tesco PLC Annual Report and Financial Statements 2024
28.
Strategic report
Governance
Financial statements
Additional information
Capital expenditure and space:
UK & ROI
Central Europe
Tesco Bank
Group
On a continuing operations basis
FY 23/24
FY 22/23
FY 23/24
FY 22/23
FY 23/24
FY 22/23
FY 23/24
FY 22/23
Capex
£1,171m
£1,069m
£113m
£115m
£30m
£51m
£1,314m
£1,235m
Openings (k sq.ft)
366
318
87
77
–
–
453
395
Closures (k sq.ft)
(204)
(233)
(22)
(25)
–
–
(226)
(258)
Repurposed (k sq.ft)
–
9
(342)
(407)
–
–
(342)
(398)
Net space change (k sq.ft)
162
94
(277)
(355)
–
–
(115)
(261)
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 starting on page 217.
Capital expenditure shown in the table above reflects expenditure on ongoing business activities across the Group, excluding property
buybacks and store purchases.
We have been pleased with the results of our continued investment in our store estate, including refreshing a total of 389 stores and
opening seven superstores, 60 Tesco Express stores and 27 One Stop stores in the UK. We also opened an additional UFC in the second
half taking our full year openings to three and our total number of UFCs to nine. In ROI, we opened one superstore in Adamstown in the
first half, followed by four Tesco Express stores in the second half. In Central Europe, we opened 14 new convenience stores.
Our total capital expenditure for the year was £1,314m, £79m higher year-on-year. This reflects increased investment in high-returning
areas such as Save to invest and our digital platforms, in addition to the impact of inflation. We continue to see attractive opportunities to
commit capital to these types of high-returning investments going forward, with next year’s overall capital investment expected to total
around £1.4bn.
Statutory capital expenditure for the year was £1.5bn.
Further details of current space can be found in the Supplementary information starting on page 217.
Property:
UK & ROI
Central Europe
Group
Feb-24
Feb-23
Feb-24
Feb-23
Feb-24
Feb-23
Property1 – fully owned
- Estimated market value
£15.1bn
£15.4bn
£1.8bn
£1.8bn
£16.9bn
£17.2bn
- NBV
£15.2bn
£15.0bn
£1.5bn
£1.4bn
£16.7bn
£16.4bn
% store selling space owned
58%
58%
68%
68%
60%
60%
% property owned by value2
59%
59%
65%
65%
60%
60%
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 £(0.3)bn to £16.9bn due to a small decline in the UK
property investment market year-on-year. The market value represents a surplus of £0.2bn over the net book value (NBV).
Our Group freehold property ownership percentage was 60%, flat year-on-year. In January 2024, we obtained control of The Tesco Coral
Limited Partnership property joint venture, bringing back two large stores into full ownership with the remaining two stores operating on
a leased basis, under full ownership of the previous joint venture partner. We also repurchased two large stores as part of our ongoing
buyback strategy, Milton Cambridge and New Oscott Extra, and purchased the freehold to two new large stores in the UK.
In Central Europe, the market value of fully owned property remains flat year-on-year, with small increases in value offset by foreign
exchange movements.
Tesco PLC Annual Report and Financial Statements 2024
29.
Strategic report
Governance
Financial statements
Additional information
Top down
Bottom up
1
2
3
4
6
5
Id
e
n
t
if
i
c
a
ti
o
n
P
r
io
ri
t
is
a
ti
o
n
A
u
d
it
&
a
s
s
u
r
a
n
c
e
M
o
n
it
o
ri
n
g
re
p
o
rt
in
g
G
o
v
e
r
n
a
n
c
e
&
r
e
s
p
o
n
s
e
s
C
o
n
t
r
o
ls
&
Culture and
leadership
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 and we
manage our risks in line with the risk appetite
set by the Board.
Risk management framework (RMF)
The diagram below provides an overview of our
framework defining Tesco’s risk management
process and governance. Our RMF 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 RMF 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. Our colleagues play a vital role
in carrying our culture forward through their
commitment to our shared values on risk
management. We provide regular learning
opportunities to strengthen our colleague
awareness on various risks and controls, for
example providing appropriate training to help
prevent cyber security incidents, as well as
communicating the opportunities and safeguards
while using artificial intelligence tools.
Risk management framework
Principal risks and uncertainties
* In addition to the Group risk and compliance committee, there are other internal stakeholder risk committees (e.g. the cyber and privacy risk committee and the
Group planet committee).
Principal risks are significant risks that could affect our strategic ambitions, future performance, viability, and/or reputation.
Full disclosures of these risks is included on pages 32 to 37.
Governance
Risk process
Board
Audit Committee
Group Chief Executive and
Executive Committee
Group risk and compliance
committee*
Business and functional
leadership team
Tesco PLC Annual Report and Financial Statements 2024
30.
Governance
Financial statements
Additional information
Strategic report
We are cognisant of the revised UK Corporate
Governance Code requirements set by the FRC
and have appropriate plans in place.
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, business unit and
functional 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 and privacy risk committee
oversees the various elements of cyber security
and data privacy risks.
Risk controls and responses
For risks where our risk appetite is low, we take a
robust approach to determine appropriate risk
controls and responses. 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, as well as by the Audit
Committee. For other risks, 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. Our approach to risk appetite
provides the framework to consistently respond
to risk and establish boundaries for coherent risk
decision making. This element of the risk
management framework has been enhanced
during the current year to align the approach and
adopt consistently. We will continue to improve
and strengthen our risk appetite approach on a
continuous improvement basis.
Governance, reporting and
monitoring
A strong risk culture is at the heart of our RMF
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 RMF, with regular
focus on specific emerging risks and a review
across all principal risks, twice a year, which also
supports the external reporting process, see
page 87. The Group risk and compliance
committee is responsible for the oversight of key
risks on behalf of the Executive Committee.
A new Chief Audit and Risk Officer (CARO) was
appointed in April 2023.
Audit and assurance
Group Audit undertakes assurance activities
including regular risk-based internal audits driven
by the annual internal audit plan which is
reviewed and approved by the Audit Committee.
The internal audit plan is aligned to principal risks
and remains under review and subject to change
to reflect any updates to the risk profile through
the year. The Audit Committee reviews and
approves all changes to the audit plan and
receives regular updates on the outcome of
the work performed. Furthermore, second-line
functions, such as: finance controls; ethics
and compliance; and safety, systematically
test key processes and controls established
by management to mitigate risks. The work
of second-line functions is subject to review
by internal audit on a cyclical basis.
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.
Our principal risks are detailed in the following
pages. 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 pages 46 and 47.
At present, there continues to be a heightened
level of geopolitical uncertainty due to wars and
civic unrest, terrorism, elections and government
restrictions. We have accordingly expanded the
principal risk of pandemics into a wider risk
definition of geopolitics and other global events,
which includes the risk of future pandemics. Our
approach to these events is to continue to scan
the external environment for threats, assess the
risk to our business and build resilience to
minimise business disruption and prioritise the
safety of our colleagues and customers in the
event of such incidents. 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 geopolitical landscape
closely and respond accordingly.
Our principal risks are interdependent and
interconnected with each other, with
comprehensive and cogent strategies designed
to mitigate the cascading effects on our overall
risk exposure.
Did you know:
We use a consistent
assessment criterion
to identify and
prioritise risks at
the Group, business
unit and functional
level, along with
horizon scanning for
emerging risk themes.
Tesco PLC Annual Report and Financial Statements 2024
Strategic report
31.
Governance
Financial statements
Additional information
Principal risks and uncertainties
Managing our risks continued
Strategic drivers
Magnetic value for customers
I love my Tesco Clubcard
Easily the most convenient
Save to invest
Risk type
Strategic
Change
Operational
Finance
Compliance
Residual risk movement (after taking current responses and controls into consideration)
Risk increasing
No risk movement
Risk decreasing
New risk
† Indicates that the principal risk has been included as part of the longer term viability scenarios detailed on pages 46 and 47.
Principal risk
Risk movement
Key responses and controls
Cyber security†
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 and privacy
risk committee, Group risk and
compliance committee,
Executive Committee, Audit
Committee, Board.
There continues to be a
growing level of sophistication
and scale of targeted cyber
incidents. However, the risk
has remained stable 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.
— As part of our cyber strategy, 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.
— 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 continue to implement industry best practice for our vigilance and
monitoring related to potential cyber threat. This includes working closely
with the National Cyber Security Centre, and our security partners.
— 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 fit for the future.
— 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.
Data privacy†
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 ability to
do business.
Oversight: Cyber and privacy
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 privacy compliance
programme, robust
governance, and
oversight mechanisms.
— 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 privacy
compliance programme to governance and oversight committees. Our
multi-year technology security programme is driving enhanced data
security capabilities.
— Our Group privacy compliance programme includes ongoing assessment and
monitoring of privacy risks and controls across our businesses. A privacy
assurance programme has been developed alongside the implementation
of controls.
— 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.
Tesco PLC Annual Report and Financial Statements 2024
32.
Governance
Financial statements
Additional information
Strategic report
Principal risk
Risk movement
Key responses and controls
Climate change†
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 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, Sustainability
Committee, Audit
Committee, Board.
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.
— The Group planet committee oversees and governs the delivery of Tesco’s
sustainability commitments, including those related to climate change. The
committee is chaired by the Chief Commercial 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 road maps 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. Our targets are validated by
the Science-Based Targets initiative (SBTi).
— We have 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
have second sustainability-linked bonds. We also continue to report our
climate-related financial disclosures, see TCFD section on pages 39 to 45.
Technology
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.
Our dependence on
technology is growing across
the Group given the innovative
propositions and initiatives
that we are introducing. The
hiring of talent within
technology continues to
remain competitive but we are
seeing progress in this space.
We consider this risk stable
compared to 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 resilience. This involves significant investment in our software, as well
as our hosting strategy. We are consolidating and leveraging our 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 and
connectivity 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 lifecycle procedures in
place and skilled colleagues to build, operate and maintain our systems.
— We have further tested and enhanced our 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.
Responsible sourcing†
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,
Sustainability 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.
Opportunities to enhance
the governance, scope and
standards alignment have been
identified and will be
implemented. This risk has
therefore not shown any
significant movement
compared to previous year.
— 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 sub-
contracting.
— 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.
Tesco PLC Annual Report and Financial Statements 2024
Strategic report
33.
Governance
Financial statements
Additional information
Principal risk
Risk movement
Key responses and controls
Health and safety
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 continued rise in theft and
violence has led to a greater
threat to the safety of our
colleagues. However, the risk
remains stable, as we monitor
and progress on implementing
specific response strategies, to
ensure we continue to provide
safe workspaces for all our
colleagues.
— 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.
— Our information exchange platform provides leading indicators of safety,
enabling early identification of threats and design of action plans which
support injury prevention.
Product safety and
food integrity
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.
Given changes in the regulatory
landscape, continued
economic pressures being
faced by our suppliers and
evolution in consumer
preferences, the external risk
has remained challenging. 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.
— 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 hygiene
controls, and 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 supplier’s 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.
People
Failure to attract, retain and
develop the required talent
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 within the retail
sector and wider UK economy.
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 specialised 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.
— 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, identification of any new skillsets and plans to secure
these via internal development or external 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 Nominations 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 remain
central to our decision making related to hiring.
— Our ‘how to’ and ‘when to’ speak up programmes across all areas include our
continuous engagement with colleagues on 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.
Principal risks and uncertainties continued
Tesco PLC Annual Report and Financial Statements 2024
34.
Governance
Financial statements
Additional information
Strategic report
Principal risk
Risk movement
Key responses and controls
Financial performance†
Our financial performance may
be adversely impacted by
uncertain and volatile
macroeconomic conditions
that may drive inflationary
pressures, unstable 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.
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.
— 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 leads a team of in-house professionals, who
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, 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.
Customer†
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.
Customers are facing multiple
challenges from the continued
cost of living which has
reduced their disposable
income leading to changes in
shopping behaviours. However,
we have focused response
strategies in place, therefore,
there have been no
significant changes since
the previous year.
— 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.
Regulatory and
compliance†
Failure to comply with legal and
other requirements (such as
anti-bribery, competition law,
grocery regulations and
supplier code) in an increasingly
litigious environment, may
result in fines, criminal
penalties for Tesco or
colleagues and 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.
We continue to monitor
controls implemented across
the Group, which support the
business to demonstrate
compliance with regulations.
We have assessed the risk to
be in line with the previous
year given our current
response strategies,
monitoring and control
environment. The political
component of this risk is now
embedded in the wider risk
definition of ‘geopolitics and
other global events’.
— Wherever we operate, we aim to ensure that we incorporate the impacts
of 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 landscape.
— 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.
Tesco PLC Annual Report and Financial Statements 2024
Strategic report
35.
Governance
Financial statements
Additional information
Principal risk
Risk movement
Key responses and controls
Tesco Bank
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.
Over the past year, the
macroeconomic environment
has been challenging for the
financial sector due to factors
such as inflationary pressures,
rising interest rates and cost of
living, which has resulted in a
difficult year 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. Following the
announcement of our
long-term strategic
partnership with Barclays (to
provide customers with
Tesco-branded banking
products and services), we will
continue to review this risk in
the normal course of business
until regulatory approvals are
secured and the transaction
is completed.
— 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.
Geopolitics and other
global events†
Failure to respond to
geopolitical uncertainty due
to wars and civil unrest,
terrorism, elections,
government restrictions and
risk of potential future
pandemics, may cause major
disruption to our business
through restricted access
to our products, threat
to our employees and
operational challenges.
Oversight: Group risk and
compliance committee,
Executive Committee,
Audit Committee, Board.
Uncertain global events and
disruptions are leading to
greater volatility in the business
environment, which requires
us to be responsive and
resilient. We have accordingly
expanded the pandemic’s
principal risk into a wider risk
definition of ‘geopolitics and
other global events’; the
approach to which is to
foresee events where possible,
assess the risk to our business,
and build resilience to minimise
business disruption and
prioritise the safety of our
colleagues and customers in
the event of such incidents.
— Our teams actively scan the external environment for emerging risks that may
lead to business disruptions, developing detailed plans with specific
milestones and dedicated oversight to ensure we can demonstrate resilience.
Long-term plans are flexed to consider sensitivities and scenario planning that
relate to the wider macroeconomic environment.
— We closely monitor global developments and government guidelines. This
includes engagement with trade, government, industry and labour bodies and
ongoing monitoring of potential changes to the future political landscape.
— We continue to test and enhance our disaster recovery, crisis management
and business continuity plans to minimise disruption due to geopolitical and
other global events.
— The safety and wellbeing of our colleagues and customers has been and
continues to be our overriding priority. Our management continues to monitor
events closely with regular Board oversight, evaluating the impact of events on
colleagues and customers, including the spread of highly infectious diseases,
and designing appropriate response strategies.
— The learnings from these events are embedded into ongoing business
operations where appropriate, for example, learnings from our previous
pandemic response have helped us design processes and develop specific
action plans, 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.
— 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.
Principal risks and uncertainties continued
Tesco PLC Annual Report and Financial Statements 2024
36.
Governance
Financial statements
Additional information
Strategic report
Principal risk
Risk movement
Key responses and controls
Security of supply†
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.
Uncertain macro events and
disruptions, such as inclement
weather patterns, crop
failures, logistical disruptions
and conflict between
countries, continue to affect
the availability of raw material
and food supply. However,
we have seen no significant
disruptions in our product
availability across our stores,
therefore, this risk has
remained unchanged.
— 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 introduced a proactive and reactive approach to managing security
of supply risks. This also includes developing a technology solution for
identifying high risk raw materials and regions, with associated governance
to support.
— We have an established mechanism to identify products which 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 which 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 which may be facing financial duress.
— We have business continuity plans in place, which can be executed in case of
any logistical disruptions or inclement weather events which may affect our
ability to transport goods.
Competition and markets†
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.
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 with 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.
— 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 an 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.
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 reviewing leading external publications, attending industry seminars and forums,
gathering insights via top-down and bottom-up risk discussions with internal stakeholders and seeking professional consultation where
required. We are currently tracking several emerging risk themes such as political, economic, technological, environmental 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 30 and 31.
Tesco PLC Annual Report and Financial Statements 2024
Strategic report
37.
Governance
Financial statements
Additional information
Nature
Nature.
Like all food businesses, Tesco relies on healthy soils,
clean fresh water and thriving pollinator populations
to help produce our food. However, the global food
system is one of the leading contributors to nature
and biodiversity loss.
With the food sector also responsible for more
than one third of global greenhouse gas (GHG)
emissions, it is vital we play our part in protecting
nature in at-risk landscapes including forests,
fresh-water catchments and marine environments.
At Tesco, protecting nature encompasses action
in our supply chains to reduce the impact that key
products and commodities have on our natural
world, as well as landscape-level efforts to
increase biodiversity, manage water resources
responsibly and avoid polluting waterways, protect
natural habitats including peatland and improve
soil health. Given the interconnectedness between
the climate and nature crises and the central role
that food production plays in both, we must strive
for a nature-led transition to net zero. Nature
plays a prominent role across our planet plan,
particularly under the protect nature pillar, where
we will deliver much of our nature-related work.
To achieve this, we have cross-identified key
actions that achieve significant outcomes for
both emissions reduction and nature protection.
In managing the risk and resilience of our supply
chains it is also important to simultaneously
consider the risks that climate change and nature
loss pose to our supply chain resilience. The work
we have carried out through our partnership with
WWF and our involvement in initiatives including
Science-Based Targets for Nature and the
Taskforce on Nature-related Financial Disclosures
(TNFD) has helped us assess our dependencies
on nature.
A proportion of our work on nature will be
delivered through our nature programme which
we launched in November 2023. The programme
will look at five key areas: protecting nature in key
sourcing landscapes; scaling industry leading
innovations to support biodiversity; implementing
a nature plan across our own estate and
operations; leading the industry on research
into key challenges facing nature and the food
system; and playing a leading role in cross
sector engagement.
Nature highlights
— We are working with WWF and other retailers
to restore nature in food production as part of
the WWF’s Retailers’ Commitment for Nature,
building on the work we initiated with WWF to
halve the environmental impact of the average
UK shopping basket.
— For our key forest risk commodities such as
soy and palm, we are committed to sourcing
only from verified zero deforestation and
conversion free areas by the end of 2025 at
the latest. For soy, we are working towards
sourcing only from verified zero deforestation
and conversion free areas by December 2025
at the latest and through sourcing Roundtable
on Sustainable Palm Oil (RSPO) segregated
volumes for palm oil to the same target date.
As part of this approach, we are preparing to
comply with the upcoming EU Regulation on
Deforestation-free Products legislation and UK
due diligence legislation.
— In November 2023 we announced further,
significant multi-year funding for vital water
stewardship work alongside organisations like
the Wye and Usk Foundation and Norfolk
Rivers Trust. We have encouraged key
suppliers to match our ambition on achieving
Waste and Resources Action Programme’s
(WRAP) Courtauld 2030 Water Roadmap,
which aims to source 50% of the UK’s fresh
food and drink from areas of sustainable water
management by 2030. This funding will ensure
we can continue to deliver nature-related
outcomes in catchments across Spain, Kenya,
South Africa, Peru and the UK.
— In partnership with Natcap Research, Tesco
has comprehensively mapped the metrics and
data needs to measure and assess nature risk
in our supply chains.
— In partnership with Ground Control, Tesco is
undertaking a programme of work across our
estate to create nature-friendly stores and
spaces, which has included planting 100,000
native trees.
Taskforce for Nature related
Financial Disclosures
The TNFD framework aims to provide a framework
for organisations to report on risks from
biodiversity loss and ecosystem degradation. Our
work in relation to TNFD has so far included
carrying out a supply chain mapping exercise to
understand our nature-related risks, impacts and
interdependencies within our fresh supply chains
using the WWF Biodiversity and Water Risk Filter.
This work included two pilot projects in
partnership with Global Canopy and Nature-
Based Insights focused on mapping Tesco’s soy
and palm oil supply chain and identifying priority
locations in Indonesia for further analysis on
palm.
We intend to make a full TNFD-aligned disclosure
once we have completed the process of mapping
all our most at risk supply chains. This disclosure
will pull together the work that is already
underway on our nature-related governance,
strategy, risk and impact management and
metrics and targets. It will also outline the steps
we have taken this year to complete the ‘LEAP’
process, pioneered by TNFD.
Did you know:
We are working
with WWF and other
retailers to restore
nature in food
production as
part of the
WWF’s Retailers’
Commitment for
Nature, building on
the work we initiated
with WWF to halve
the environmental
impact of the average
UK shopping basket.
Tesco PLC Annual Report and Financial Statements 2024
38.
Governance
Financial statements
Additional information
Strategic report
Governance
TCFD.
We have been disclosing a TCFD statement since
2019 and have now met the full disclosure
requirement for three years consecutively. This
year, we provide further detail around the actions
underpinning our planet plan, discuss our SBTi
approved net zero targets and have continued to
develop our climate risk scenario modelling. Our
sustainability efforts continue to focus on our
ability to create and preserve long-term value for
our customers, colleagues, shareholders, the
planet and the communities we serve.
Governance
We have a comprehensive climate governance
framework encompassing the Board, its
associated Committees and the Executive
Committee. This governance framework includes
all pillars of our planet plan, reflecting our holistic
approach to becoming a truly net zero business.
In addition to climate, the governance framework
also encompasses food waste, sustainable
agriculture, nature, healthy sustainable diets
and packaging.
The Board is responsible for the long-term
success of the Group and has ultimate
responsibility for climate-related risks and
opportunities, as well as investment required to
reach net zero. The Sustainability Committee
oversees the Group’s social and environmental
obligations, including climate-related matters,
and is responsible for monitoring progress
towards our commitments. 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. Our planet plan is based on
materiality assessments completed with the help
of third parties conducting footprinting or
assessment work. The Committee uses our
planet plan as a framework to monitor progress
against sustainability plans through KPIs and key
milestones. The planet plan 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 provide
strong oversight of progress and drive change.
The Sustainability Committee has regular,
scheduled deep dives into material issues
to oversee and challenge management in the
delivery of our sustainability targets. The
Sustainability Committee meets four times each
year and discusses climate in each session.
Further details on the Sustainability Committee
can be found on page 78.
Furthermore, the Audit Committee monitors
climate-related risk management, internal
controls and reporting. Climate change is listed as
one of the Group’s principal risks which is
governed through this process on an annual
basis, measuring likelihood and level of climate-
related impacts on our operations and supply
chain. Further details on the Audit Committee
can be found on page 82.
Climate-related
financial disclosures
In addition to this TCFD
report, we provide further
information on climate
change in the principal risks
and uncertainties section.
Principal risks and
uncertainties section
on page 33.
Greenhouse gas emissions
on page 45.
We continue to consider the
potential financial impacts of
climate change in the cash
flow scenario modelling
within our viability statement.
Cash flow scenario
modelling within our
viability statement
on page 46.
Impairment note
on pages 160 to 163.
Board-level
strategic oversight
Executive Committee
Audit
Committee
Sustainability
Committee
Group planet committee
Group operational
decarbonisation
steering group
(Scope 1&2)
Planet steering
group (Scope 3)
ESG reporting and
disclosure group
Task Force on Climate-related Financial Disclosures
Management-level
implementation
and compliance
Tesco PLC Annual Report and Financial Statements 2024
39.
Strategic report
Governance
Financial statements
Additional information
TCFD continued
The Executive Committee reviews progress
against our climate targets twice a year, typically
in June and December. The Executive Committee
also reviews 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 approved by the Board with
reference to the capital and associated operating
cost investments required to deliver our carbon
reduction commitments.
The Group planet committee, chaired by our Chief
Commercial Officer who is the executive sponsor
for climate, provides strategic oversight and is
responsible for ensuring the delivery of all our
environmental sustainability targets. These include
interim decarbonisation, climate risk management
and our climate-related disclosures. The Group
planet committee meets quarterly and, alongside
the Chair, comprises representatives from
significant business functions, which materially
influence our ability to achieve our planet-related
commitments and regulatory obligations. The
meeting minutes are shared with our Corporate
Secretariat, who then table further discussions at
the Board as required.
Three steering groups underpin the
implementation and compliance component of
our planet governance structure and feed into
the planet committee. The group operational
decarbonisation steering group is responsible for
delivering initiatives to meet our Scope 1 and 2
targets. The planet steering group is responsible
for delivering initiatives in our supply chain to
meet our Scope 3 targets. The ESG reporting &
disclosure group operates under delegated
authority from the Disclosure Committee and
supports a shared objective with the planet
committee of robust and transparent external
reporting. The steering committees are more
broadly supported by several cooperative
workstreams that each focus on carbon
reduction within material emissions hotspots
across the business.
Strategy
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 2023 Tesco became one of the
first companies globally to gain SBTi validation for
our net zero targets on all greenhouse gas
emissions, including those originating from forests,
land and agriculture (FLAG) emissions, aligned with
a 1.5°C pathway. Our targets include stretching
interim commitments to reduce absolute Scope 1
and 2 emissions from our own operations by 85%
by 2030 from a 2015 baseline year, and a voluntary
target to achieve net zero on Scopes 1 and 2 by
2035, 15 years ahead of our SBTi validated target.
To date, we have reduced our Scope 1 and 2
emissions by 61% vs our 2015 baseline. On Scope 3,
our target includes a 55% reduction by 2032 from
a 2019 baseline on emissions from energy and
industrial sources, and absolute Scope 3 emissions
from FLAG emissions by 39% by 2032 from a 2019
baseline year. Ultimately, we will reach net zero
across all scopes by 2050 via a reduction of 72% of
FLAG emissions, and 90% on Scope 3 non-FLAG
emissions. Residual emissions will be neutralised in
line with the SBTi guidance.
According to the strategic and rounded approach
proposed in the Transition Plan Taskforce
framework, businesses should not only focus on
their own net zero targets, they should also work
on building adaptation and resilience to the
effects of climate change, and finally drive
industry system change. This transpires in the key
initiatives described in our strategy below.
Tesco’s planet agenda categorises work across six
different areas and includes a number of
initiatives as it works towards the targets
validated by the SBTi. Pages 18 and 19 describe
the planet plan in detail. Below is an overview of
the main decarbonisation initiatives within the six
pillars of our planet plan, and progress to date.
While our Scope 1 and 2 emissions may represent
a small proportion of our footprint, it is the area
over which we have full control and are therefore,
with the right planning and capital allocation, able
to deliver at pace.
Decarbonise transport
Transport comprises around 40% of our
operational (Scope 1 and 2) emissions. That is why
we are working to switch all our fleets to
low-carbon alternatives by 2035 where possible
based on available market solutions. As part of
our EV100 pledge, we have deployed 571 electric
home delivery vans and are on track to be 100%
electric by 2030. We continue to trial various
models across the UK and Central Europe as well
as electrical refrigeration units in our chilled
network and bio-CNG trucks.
Reduce store emissions
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 (PPAs), going beyond
renewable energy certificates to help boost
domestic renewable capacity in the markets we
serve. We are committed to onsite and offsite
direct power deals supplying 60% of our
electricity demand by 2030, and with the
partnerships already in place expect to generate
around a third of our UK electricity demand within
the next 18 months. Addressing remaining store
emissions, 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.
Scope 3 represents over 98% of our group
emissions and we are therefore focused on how
we can drive and advocate for change to deliver
net zero and build resilience along our value chain.
Decarbonise agriculture
Agriculture makes up around 39% (FLAG
emissions as defined by the SBTi) of our whole
footprint, making it the single biggest contributor
to our end-to-end value chain emissions. We are
taking a whole landscape, systems-based
approach to supporting the sector’s transition,
using common standards to drive better land
management practices and improve the overall
resilience and productivity of our agri-food
systems. For example, we are encouraging the
shift to more sustainable agriculture by requiring
all produce supplied to our UK stores to be LEAF
Marque Certified by 2025, and supporting the
adoption of similar standards for our meat
suppliers. To help farmers adopt these new
standards and commitments, we continue to
Our performance
against our targets
this year are:
61%
emissions reduction in Scope
1 and 2 versus 2015 baseline
100%
of electricity comes from
renewable sources
11%
of dotcom delivery van fleet
is now electric
Tesco PLC Annual Report and Financial Statements 2024
40.
Governance
Financial statements
Additional information
Strategic report
collaborate and facilitate shared learnings
through our Tesco Sustainable Farming Groups
and are trialling and scaling innovations on farm
to reduce emissions, such as low-carbon
fertiliser. Financial incentives and long-term
contract options are an important element of our
sustainable farming groups, giving our farmers the
confidence to plan and invest in their businesses
to become low carbon.
Halting deforestation
Deforestation and conversion in animal feed
supply chains is a significant source of emissions
associated with sourcing our products. We will
apply the upcoming EU and UK due diligence
legislation across the Group to obtain the
transparency we need to verify our supply chains
as deforestation-free. Simultaneously, we are
working towards our voluntary target as a
signatory to the UK Soy Manifesto which goes
beyond legislation to exclude conversion from our
own brand supply chains by December 2025.
Suppliers setting science based targets
Reaching net zero will require industry-wide
efforts and shared accountability right through
the supply chain, so we are working with our
suppliers to help and encourage them set their
own climate targets. To support our strategic
ambition, we have asked all UK suppliers to set an
SBTi-aligned net zero target and to begin
measuring and reporting their carbon footprint.
Working with our suppliers to reduce waste
On-farm food loss represents over 25% of the
UK’s total food loss and waste. Tackling food
waste can deliver benefits across the supply
chain, through more efficient operations. We
have launched Tesco Exchange, an online
marketplace that matches suppliers who have
too much of a product, for example crops,
by-products, ingredients or packaging, with other
Tesco suppliers that need it. All Tesco suppliers
have access to the Tesco Exchange. We also
manage bumper crops at certain times of the
year through great value offers for our
customers. For example, in recent heatwaves
that generated surplus of warmer climate
produce, we sold kilo boxes of strawberries and
cherries at a discounted price to customers.
Healthy, sustainable diets
One of the most impactful ways to reach a net
zero food system is to shift demand towards
more sustainable choices, including diverse
proteins, fruit and vegetables. Our approach to
healthy sustainable diets is well established,
seeking to make a better-balanced diet easy,
affordable, and enjoyable through actions
including product reformulation, promotions,
pricing and strengthening of our plant-based and
healthier ranges. We are committed to leading
the plant-based market with a competitive and
compelling range of meat and dairy alternatives.
We have an innovation programme across the
group which looks to identify and scale future
healthy and sustainable ingredients and
processes. This work includes global innovation
and technology scanning, working with our
established supplier partners, business to
business ingredient suppliers and new suppliers.
We offer great value fruit and veg across all our
core value propositions, including Aldi Price
Match, Fresh 5 and Clubcard Prices. Our ‘Better
Baskets’ campaign is designed to help and inspire
customers to make healthier and more
sustainable choices. We have learnt that
customers respond to helpful nudges at point of
purchase, so we have created Better Basket
zones in stores and online which signpost better
choices.
Protect nature
It is important to consider the risks that climate
change and nature loss simultaneously pose to
our supply chain resilience, as we recognise the
interconnectedness between nature and climate.
At Tesco, protecting nature encompasses
landscape-level efforts to increase biodiversity,
manage water resources responsibly and avoid
polluting waterways, protect natural habitats,
including peatland, and improve soil health. Find
out more about the work we are doing on nature
on page 38.
While we are confident the above plan will help us
transition to net zero, we remain exposed to
physical and transition risks driven by the
escalating climate crisis. We continue to work
with the climate analytics company Risilience to
model our climate-related risks and
opportunities. Built using the latest scientific
research and geopolitical evolutions in five
warming scenarios, the Risilience modelling has
enabled us to develop a complete picture using a
representative sample of Tesco’s products and
origin countries, as well as locations of Tesco-
owned facilities and financial information.
The tables overleaf summarise the financial value
at risk associated with three material transition
risk categories (policy, consumer and technology)
and one physical risk (raw materials supply) over
the short term (five years) and medium term (10
years) and a qualitative assessment of how these
risks could evolve over the longer term (20 years).
These time periods have been selected so that
the five-year, short-term view can inform our
internal financial planning process, 10-year
enables a view of how transitional risks and
opportunities develop and 20 years captures the
evolution of physical risk.
The five warming scenarios modelled were for
>4°C, 3°C, 2.5°C, 2°C and 1.5°C pathways. These
pathways are based on the IPCC’s Shared
Socioeconomic Pathways and allow Tesco to
assess a wide range of climate possibilities. The
disclosed impacts are quoted based on a 1.5°C
pathway, aligned to the Paris Agreement and
Tesco’s stated targets, and a 3°C pathway aligned
to the current warming pathway as reported by
the IPCC, to ensure we cover the range of
possible evolutions. We have quoted the costs or
financial value at risk below as a range, reflecting
the uncertainties of climate-related modelling
and our resulting reliance on assumptions. Unless
stated, our modelling assumes just the downside
risk, using our current product range, sourcing
and asset base with no mitigation or strategic
response to minimise the risk. We continue to
review and refine our modelling in line with
emerging trends. More details of key assumptions
are included for each risk below.
Did you know:
In 2023, Tesco
became one of the
first companies
globally to gain SBTi
validation for our net
zero targets on all
greenhouse gas
emissions, including
our Forest, Land and
Agriculture emissions
(FLAG), aligned with
a 1.5°C pathway.
Tesco PLC Annual Report and Financial Statements 2024
41.
Strategic report
Governance
Financial statements
Additional information
TCFD continued
Policy risk
Pathway
Mitigated annual impact
five-year outlook
Mitigated annual impact
ten-year outlook
20-year outlook
3°C
Not material
Not material
Carbon prices remain at current levels or rise marginally,
with an inconsistent global approach, which leads to
minimal financial impact to our business
1.5°C
£50–100m
£100–150m
Carbon prices begin to plateau 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 which would largely impact the prices we pay our suppliers for the products we
sell to customers. Under a 3°C pathway, we assume no change to the current carbon taxation system which has generated a non-material
output, while the 1.5°C pathway models wide-spread adoption of increasing rates of carbon taxation. The model assumes a reduction in
our emissions footprint, aligned to our net zero plan, and we have assumed that the majority of the financial risk would be mitigated by
means of shifts in consumer behaviour and general market pricing.
Our assumption for the 1.5°C pathway over the longer term would be for carbon pricing to eventually plateau, while for the 3°C pathway
we would expect the currently low levels of global carbon prices to remain stable, with inconsistent global adoption and therefore
immaterial financial impact.
Consumer market risk
Pathway
Unmitigated annual impact
five-year outlook
Unmitigated annual impact
ten-year outlook
20-year outlook
3°C
Not material
Not material
Conventional shopping preferences continue, with existing
levels of uptake for sustainable options continuing, resulting
in only a minor impact to our current business
1.5°C
£50–100m
£50–100m
Demand for sustainable products and service becomes
mainstream in the market, the purchasing behaviours and
associated financial risk seen in the five and ten-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 placing a greater importance on the
environmental impact when purchasing new clothes. The modelling assumes no benefit from switching to more sustainable products and
is based on our current product category sales participation.
The modelling found the levels of financial risk in our core food business to be negligible, due to our proven ability to adapt our product
offer to meet changing consumer demands and the existing high levels of substitutability available to customers by means of our broad
plant-based and dairy-alternative product ranges. 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.
We have seen a significant increase in the risk value for the 1.5°C pathway year-on-year. The updated modelling now asserts that a faster,
greater increase in sustainable consumer purchasing decisions is required to align to the 1.5°C pathway. We are not currently seeing the
change in customer preferences required to meet this pathway, with current consumption patterns much more aligned to the 3°C pathway.
Technology risk
Pathway
Unmitigated annual impact
five-year outlook
Unmitigated annual impact
ten-year outlook
20-year outlook
3°C
£0–50m
£0–50m
The pace of green technology uptake is steady and we
continue to see impairment of fossil fuel assets, but this
remains at a low level
1.5°C
£25–75m
£25–75m
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 internal assets due to increasing levels of investment in low carbon-based assets. The 1.5°C
pathway assumes a faster-paced transition to green technology whereas as our 3°C pathway assumes a much slower transition. The
modelling uses the current net book value of our asset base, with no mitigation or planned transition of our current asset base.
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 most
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.
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 terms of direct capital requirement. 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.
Tesco PLC Annual Report and Financial Statements 2024
42.
Governance
Financial statements
Additional information
Strategic report
Raw materials risk
Pathway
Unmitigated annual impact
five-year outlook
Unmitigated annual impact
ten-year outlook
20-year outlook
3°C
£0–50m
£0–50m
Chronic risks challenge the viability of suppliers in certain
regions, leading to a high likelihood of material disruption
1.5°C
£0–50m
£0–50m
Physical risks remain, impacting security of supply, but
more significant impacts are avoided
This physical risk models the impact of chronic changes in temperature and precipitation on yields of our key commodities. The model
output assesses only the downside risk and assumes no mitigation such as identifying alternative sourcing locations. This risk was assessed
to be immaterial in our prior year disclosure, broadening the commodities modelled during this year has generated a more material
output of this risk.
Risk levels remain relatively low for both pathways, with or without mitigation activity considered. This reflects that our grower base is
already geographically diverse, offering a natural hedge to changing climate conditions in specific locations.
We are building climate change risk into our resilience planning, informed by our modelling with Risilience and led by our commodities
team. We recognise that the impacts of climate change that we are already experiencing, and to an extent are locked into from the
delayed effect of historic emissions, compels us to develop adaptive plans in our sourcing strategy to protect availability and quality.
This includes ensuring a diverse supplier base both locally and internationally. The next phase of our sustainable agriculture plans is to
start embedding sustainability into our product offering for customers, bringing our work to life in stores.
Did you know:
In February 2024, our
latest windfarm, in
partnership with EDF
Renewables, West
Benhar, located in the
Scottish Highlands,
started generating
renewable electricity.
It will generate a
substantial 30.1MW,
producing enough
clean energy to
power the equivalent
of 18,000 homes
per year.
In addition to the risks above, a further three
transition risks and two physical risks were
modelled which we have not disclosed.
The transition risks assessed but not disclosed
include: 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 have chosen not to provide further
detailed disclosure of these risks because we
believe that our sustainability commitments and
progress made to date are both well understood,
and our ongoing engagement across our different
stakeholder groups enables us to stay aligned
with changing expectations in this fast-developing
space. 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.
The two physical risks we have modelled but
chosen not to disclose are the resilience of our
business facilities to climate impacts and market
demand disruption driven by changing weather.
The geographically diverse nature of our store
and distribution network provides a degree of
structural resilience. Furthermore, our enhanced
modelling capabilities allow us to anticipate and
manage the potential physical climate risks at a
site level, for example devising flood plans at sites
with high risk of flooding. As a result, while some
individual locations will be more exposed to
adverse climate impacts than others, the
financial value at risk is not material either
individually or aggregated and has therefore not
been disclosed.
Opportunities
As the impacts of climate change escalate, we
witness increasing negative impacts on
communities. Therefore, our efforts focus on
understanding and mitigating the risks to our
business and stakeholders. However, we
recognise risk mitigation can unlock some positive
outcomes, for example:
— Lower impact ranges: shifting consumers diets
is unlocking growth in new product ranges,
including alternative proteins, legumes, pulses,
fruits and vegetables. As a retailer, Tesco can
expand its plant-based ranges to cater to
consumer demand, and thus mitigate some of
the risks due to consumption habits changing.
— Resource efficiency: lowering emissions
intensity within our operations and supply
chain via efficient energy solutions such as
refrigeration and heating systems in our
stores, can unlock energy savings and thus
financial savings.
— Electric vehicle charging offering for
customers: Tesco is uniquely placed to be
the most convenient place for customers
to charge at while they shop.
— Access to less volatile energy prices by
increasingly procuring energy for stores via
our onsite and offsite long-term PPAs.
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 2024. Climate is assessed to be one
of our most material risks determined by a
combination of likelihood and potential financial
impact. Further information about our principal
risks and uncertainties can be found on
pages 30 to 37.
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.
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
risk themes. We continue to track emerging
climate regulations including any requirements for
the reporting and disclosure of climate risks.
Tesco PLC Annual Report and Financial Statements 2024
43.
Strategic report
Governance
Financial statements
Additional information
TCFD continued
Metrics and targets
Metrics are used to identify opportunities for decarbonisation initiatives, including assessing progress in decarbonising owned assets to
understand where and when plans could be accelerated.
In recognition of how critical sustainability is to our business success, our 2024 Performance Share Plan (PSP) continues to incorporate
sustainability metrics. 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 95.
Metrics supporting our Scope 1 and 2 targets include:
Metric
2023/24
2022/23
Target
Emissions reduction in Scope 1 and 2 vs 2015 baseline
(61)%
(55)% (85)% FY 2030, (90)% FY 2035
EV100 – % of delivery van fleet that is electric
11%
5% 100% by 2030
% of electricity from renewable sources
100%
100% 100%
Proportion of generated volume from onsite and offsite PPAs, as a
percentage of energy consumption at a Group level
11%
13% 45% by 2025 and 60% by 2030
During the year, we invested over £60m into decarbonising our refrigeration systems, £20m into decarbonising our heating via the
installation of heat pumps and introduced a further 278 electric customer home delivery vans.
To support the delivery of our decarbonisation plans, we have introduced an internal carbon pricing (ICP) policy. This policy will ensure
that any strategic decisions such as potential new stores, business acquisitions and divestments, or other decisions which would give rise
to changes in the level or classification of our emissions are identified at the earliest opportunity and mitigated accordingly. The price will
be reviewed annually and governed by the Group operational decarbonisation steering group.
Metrics supporting our Scope 3 target include:
Metric
2023/24
2022/23
Target
Percentage volume of palm oil physically certified to RSPO standard
100%
100% 100% RSPO segregated by December 2025
Percentage of soy used in animal feed that meets our UK Zero
Deforestation Soy Transition Plan requirements
100%
100% 100% verified deforestation and conversion-free by
December 2025
Percentage of paper/wood products certified to FSC, PEFC or from a
recycled scheme
100%
100% 100%
Percentage weight of all own brand packaging that is recyclable
86%
86% Our packaging will be fully recyclable by 2025
Details of the methodologies for the above Scope 3 metrics can be found here: www.tescoplc.com/sustainability-reports.
In our strategy on pages 40 and 41, we outline the initiatives supporting progress of these metrics and ultimately the delivery of our net
zero targets by 2035 on Scopes 1 and 2 and by 2050 on Scope 3.
You can find detailed GHG emissions data, including disclosure across Scopes 1, 2 and selected Scope 3 disclosure on page 45, we have
reviewed the Group’s physical and transition risks and opportunities. The financial values at risk are quantified in the strategy section
above and in the principal risks and uncertainties 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.
Next steps
Our priorities in 2024/25 will include continued efforts to decarbonise Scope 1 and 2 at pace, delivering against our strategic plan as we
progress towards our 2025 targets. On Scope 3, we will continue building out supply chain decarbonisation roadmaps for each material
product group and improve accurate data measurement throughout our supply chain, while ensuring we minimise and mitigate our impact
on nature. We are also contributing closely to the Transition Plan Taskforce as Co-Chair of the Food & Beverage Sector Taskforce as we
continue our work internally on our transition planning and stay close to emerging developments in this area.
Tesco PLC Annual Report and Financial Statements 2024
44.
Governance
Financial statements
Additional information
Strategic report
Our total emissions footprint
73.2m
tCO2e/year
Scope 1
Refrigerants, HVAC, transport (logistics)
1.2%
Scope 2
Purchased electricity
0.01%
Scope 3
Purchased goods and services (including deforestation) (Cat 1)
48.3%
Fuel and energy-related activities (Cat 3)
5.2%
Upstream transportation and distribution (Cat 4)
2.3%
Downstream transportation and distribution (Cat 9)
6.4%
Use of sold products (Cat 11)
34.7%
End-of-life treatment of sold products (Cat 12)
0.71%
Investments (Cat 15)
0.39%
Capital goods, waste generated in operations, business travel and
0.72%
employee commuting, and processing use of sold products (Cat 2, 5, 6, 7, 10)
Our net zero validated targets are based on the SBTi scope which excludes certain emissions like emissions from cooking the food purchased in our stores or
consumers driving to our stores. Our total 2022/23 emissions within SBTi scope were estimated at 58.9 million tCO2e per year. We report on the categories that are
material to Tesco based on their contribution to our end-to-end footprint. 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: downstream leased
assets (category 13); and franchises (category 14), are irrelevant for our sector and the scope of our business.
Greenhouse gas emissions and energy consumption*
2023/24
2022/23
2021/22
Base year
2015/16
Scope 1 (tonnes of CO2e)
902,830◊
1,039,346
1,110,098
1,240,871
Scope 2(a) Market-based method (tonnes of CO2e)
6,259◊
7,796
16,107
1,095,671
Location-based method (tonnes of CO2e)
587,899◊
575,462
642,337
1,657,316
Total Scope 1 and 2 market-based (tonnes of CO2e)
909,089◊
1,047,142
1,126,205
2,336,542
Scope 1 and 2 carbon intensity (kg CO2e/sq.ft. of stores and DCs)
10.33◊
11.91
12.16
26.29
Selected Scope 3(b) (tonnes of CO2e)
529,470◊
567,191
593,405
684,079
Total gross emissions (tonnes of CO2e)
1,438,559◊
1,614,333
1,719,610
3,020,621
CO2e from renewable energy exported to the National Grid (tonnes of CO2e)
194
281
279
–
Total net emissions (tonnes of CO2e)
1,438,365
1,614,053
1,719,331
3,020,621
Overall net carbon intensity (total net emissions kg CO2e/sq.ft. of stores and DCs)
16.34
18.43
18.56
33.88
Total annual energy consumption (GWh)
5,511
6,000
6,263
6,823
UK only total Scope 1 and 2 market-based (tonnes of CO2e)
772,944
888,676
936,257
1,751,572
UK only Scope 1 and 2 carbon intensity (kg CO2e/per sq.ft. of stores and DCs)
11.47
13.88
13.67
26.29
UK only annual energy consumption (GWh)
4,638
5,037
5,203
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-reports
(a) Our method statement can be accessed at www.tescoplc.com/sustainability-reports. 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-reports.
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. Tesco PLC has also complied with all
reporting requirements under sections 414CA and 414CB
of the Companies Act 2006 consistent with the TCFD
recommendations.
Deloitte’s assurance
Deloitte has provided independent third-party limited
assurance in accordance with the International Standard
for Assurance Engagements 3000 (ISAE 3000) and
Assurance Engagements on Greenhouse Gas Statements
(ISAE 3410) issued by the International Auditing and
Assurance Standards Board (IAASB) over the TCFD on pages
39 to 45 and the selected metrics highlighted in this report
with a ◊. Deloitte’s full unqualified assurance opinion,
which includes details of the selected metrics assured, can
be found at www.tescoplc.com/sustainability-reports.
Tesco PLC Annual Report and Financial Statements 2024
45.
Strategic report
Governance
Financial statements
Additional information
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 introduced 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.
Over the past two years, many of our customers
have faced significant disposable income
pressures due to the rising cost of living, as
overall market inflation rose sharply. Management
have focused on supporting customers through
this time by continuing to offer great value, quality
and customer service, 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, insurance, money services and
data science.
Refer to the Group Chief Executive’s review from
page 9 and the Financial review on pages 22 to
29 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 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 30 to 37.
Three ‘severe but plausible’ 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. In this
year’s assessment, we have combined scenarios
considering supply chain and customer impacts
to create a more comprehensive scenario which
includes the impact these areas have on each
other. None of the modelled 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.
Longer term viability statement
Did you know:
In assessing the
Group’s viability, the
Directors have
conducted a robust
assessment of the
principal risks and
uncertainties facing
the Company,
including those that
would threaten its
business model,
future performance,
solvency or liquidity.
Tesco PLC Annual Report and Financial Statements 2024
46.
Governance
Financial statements
Additional information
Strategic report
Scenario
Associated principal risk
Description
Ongoing geopolitical and
global supply issues trigger
further inflation, leading to
weak consumer confidence
and intensified competition
— Geopolitics and other global
events
— Security of supply
— Responsible sourcing
— Financial performance
— Competition and markets
— Customer
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 is constrained. Management
have applied a downside scenario which assumes the Group absorbs further
cost inflation in colleague pay and cost of goods sold. UK interest rates remain
higher than currently forecasted as central banks seek to reduce the headline
rate of inflation. Consumer confidence worsens, limiting volume growth
opportunity as consumers continue to be mindful of discretionary spending.
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 c.(2)%. Options to offset cost increases through retail prices are
constrained and competition within the grocery sector intensifies in a bid for
price leadership, requiring incremental price investment.
Data breach
— Cyber security
— Political, regulatory and
compliance
— Customer
— Data privacy
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 significantly higher than any
decline the Group has faced in recent history.
Climate change
— Climate change
— Geopolitics and other global
events
— Security of supply
— Responsible sourcing
— Regulatory and compliance
— Customer
Rising global temperatures result in an increasing incidence and severity of
extreme weather events, leading to a higher incidence of store closures due
to flooding and disruption to our global supply chain. The quantification of the
potential financial impacts of physical and transitional risks and opportunities
linked to climate change on the Group have been taken from our ongoing
climate-related risk modelling work based on 1.5°C warming pathway.
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 32 on
page 199 and 200 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. Certain mitigations have been applied within the
scenarios to offset the modelled liquidity impacts, including lower tax and bonus payments and a reduction in planned shareholder
returns. In the case of the modelled scenarios arising, additional mitigations are available to the Group 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 (on pages 01 to 47 and incorporating by reference pages 64 and 65 and pages 70 to 72) 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
9 April 2024
Tesco PLC Annual Report and Financial Statements 2024
47.
Strategic report
Governance
Financial statements
Additional information
Corporate governance report
Governance
at a glance.
Contents
Governance at a glance
48
Governance introduction
50
Board of Directors
52
Executive Committee
57
Governance framework
58
Purpose, values and culture
62
Board insights: s172 statement, Board activity,
Board leadership in action
64
Understanding our stakeholders
70
Board performance
73
Nominations and Governance Committee
74
Sustainability Committee
78
Audit Committee
82
Directors’ remuneration report
90
Directors’ report
115
Additional Directors’ report disclosures
228
This corporate governance report
demonstrates some key themes
that are important to the Board:
— Living our purpose through our values
and behaviours creating a healthy culture.
— Having an effective corporate governance
framework supporting the Board in the
delivery of the Group’s objectives.
— Delivering on our strategy while balancing
the interests of our stakeholders.
Board highlights – key activities in 2023/24
Board succession planning
Appointment of a new Chair, planning for Senior Independent
Director succession and Committee succession.
Key focus during 2023/24
22% Purpose and strategy
20% Operational performance
19% Financial performance, risk
management and internal control
21% Stakeholders
18% Governance and culture
Scrutiny of operational
and financial performance
Management reporting scrutinised at each Board meeting with deep
dives into financial and risk matters by the Audit Committee.
Further development
of sustainability strategy
Review of key milestones and operational capital expenditure
required to achieve our net zero targets.
Return of capital
Ongoing share buyback programme, building on the ongoing capital
return programme launched in October 2021. This is a critical driver
of shareholder returns.
2024 priorities
Inflation and the cost
of living
Further understand the impact on our customers and other stakeholders, and find ways to support them
throughout the year.
Sustainability agenda
Further embed our sustainability objectives to meet our sustainability KPIs and the key milestones of our
planet plan.
Delivery of the strategic
drivers
Continue progress against the four strategic priorities enabling us to deliver great value, increase customer
loyalty and stay competitive while ensuring we remain agile and efficient as a business.
Tesco PLC Annual Report and Financial Statements 2024
48.
Financial statements
Additional information
Strategic report
Governance
Board at a glance (as at 24 February 2024)
Board composition
and independence
(number of directors)
Tenure
(number of directors)
Board gender
diversity
(%)
Board ethnicity
(%)
1
9
2
2
1
7
2
58
42
83
17
Independent
Non-executive Directors
Executive Directors
Chair (independent
upon appointment)
0–3 years
3–5 years
5–7 years
7–9 years
Male
Female
White
Ethnically diverse
Skills matrix (number of Non-executive Directors)
Having a diverse Board with different perspectives, insights and viewpoints benefits the Group’s
stakeholders through better business performance. The below graph shows the collective expertise the
Non-executive Directors bring to the Board.
Geographical experience
(number of directors)
12
9
7
UK
Europe
Rest of World
3
5
10
10
9
4
6
4
4
4
4
Supply Chain/Logistics
Technology and Digital
Strategy
Risk
Retail
Remuneration
Property
Marketing
International
Financial
Sustainability
Tesco PLC Annual Report and Financial Statements 2024
49.
Financial statements
Additional information
Strategic report
Governance
Gerry Murphy,
Chair
Chair’s
review.
Governance
introduction.
Further details on Gerry
Murphy’s appointment can
be found on page 75.
Tesco’s governance
framework and how the
Board monitor culture can
be found on pages 58
to 63.
Full details of the Board
performance review
during 2023/24 can be
found on page 73.
Further details on the
Board’s activities can be
found on pages 64 to 69.
Introduction
Throughout 2023/24, the Board has continued to
focus on improving our ability to support the
delivery of Tesco’s operational, strategic and
societal priorities. The Board recognises the
importance of positive relationships and strong
engagement with all our stakeholders.
Board changes
There have been a number of changes to the
composition of the Board during the year. In June
2023, John Allan stepped down having served
more than eight years on the Board, all of that
time as Chair. Lindsey Pownall also stepped down
from the Board at the AGM having served more
than seven years. Byron Grote will step down as a
Director at the conclusion of the 2024 AGM
following nine years’ service. Carolyn Fairbairn will
take the position of Senior Independent Director
and Karen Whitworth as Audit Committee Chair
to replace Byron.
We are grateful to each of them for their
outstanding contributions and commitment to
the Board and its Committees.
I am delighted that Carolyn Fairbairn joined the
Board as an Independent Non-executive Director
and member of the Remuneration and
Sustainability Committees in September 2023,
at the same time as my own appointment. She
is an experienced non-executive director
and a highly regarded business leader with
a deep understanding of the macroeconomic
and political environment and is a real asset
to the Board.
I would like to thank the Board, management
and all the colleagues I have had the privilege
to meet for welcoming me into the Group and
for their hard work and dedication in these
challenging times.
I feel honoured to have taken on the role
of Chair of a well governed and robust
organisation supported by exceptional Board
and executive colleagues with a wealth of
expertise and experience.
Gerry Murphy
Non-executive Chair
9 April 2024
Corporate governance report continued
Tesco PLC Annual Report and Financial Statements 2024
50.
Financial statements
Additional information
Strategic report
Governance
What attracted you to join Tesco and
what were your first impressions?
As we saw during the pandemic, Tesco is a really important
company because of its scale and because of its central role in the
lives of the millions of customers who depend on us for their food
shopping and other essentials. It is critical that Tesco is well
managed and well governed, and the role of the Board and the
Chair is to do just that. As Chair, I am fully committed to deliver on
Tesco’s simple and compelling purpose of serving our stakeholders
and our planet a little better every day, and I am really excited
about realising opportunities for growth across the Tesco Group. I
have been extremely impressed by the professionalism, energy and
excitement I have seen at every level as I have travelled around the
Group during my comprehensive induction programme.
How important is good governance and
a healthy culture to you?
Like any big business, Tesco’s success depends on our relentless
commitment to high corporate governance standards, as well as
a strong and healthy culture in the boardroom and across the
business. Embedding the right behaviours guides our conduct and
decision-making so that we always do the right thing for our
stakeholders. Rewards and incentives must be linked to delivery
and performance as well as fostering a culture of inclusivity, where
everyone feels welcome, where talent is nurtured and colleagues
can achieve their full career potential. The Board and I are fully
committed to transparency and we welcome improvements in
the corporate governance reporting landscape.
Spotlight on:
Induction programme.
Understanding the business
Gerry’s induction programme provided a deep insight into the
governance and business operations of the Group. The
Directors’ induction programme is comprehensive and has
been developed with the flexibility to be tailored to meet the
needs of the role. The programme is run over a six-month
period. Gerry was provided with a general overview of the
Group, its purpose, values, behaviours and culture,
governance, strategy, organisational structure, overview of
the financial performance, recent developments and
an overview of key challenges and opportunities.
Gerry met with each of the Non-executive Directors both
collectively and individually to discuss the Group, their
Committee roles and topical matters.
Upon appointment, Gerry had access to a library of reference
materials which provided a broad range of information
including constitutional documents, key policies and Board
papers.
Meeting the management team
Meetings with each of the Executive Committee members
provided an overview of their role and responsibilities, the
structure of their teams, current challenges and opportunities.
This was followed by more in-depth meetings with senior
management covering each of the business functions, internal
control and risk management, Tesco Mobile, Tesco Bank,
dunnhumby, One Stop and Booker.
Director and Committee responsibilities
The Group Company Secretary provided a briefing on Directors’
responsibilities and corporate governance.
Gerry was also introduced to the external advisors and met
with the corporate brokers, external auditors, lawyers and
remuneration consultants.
Site visits
Gerry has undertaken a number of country visits including ROI,
Central Europe and India. In addition, Gerry has spent time in
the business with management from Tesco Bank, Tesco Mobile,
Booker, One Stop and dunnhumby.
To strengthen understanding of colleagues and customers,
Gerry completed a shift working in store, which provided
an opportunity to meet colleagues and see at first hand the
operations of a store. In addition, Gerry met with and visited
a number of Tesco suppliers.
Having undertaken your first Board
performance review, what were
your observations?
As Chair it is my role to provide leadership of the Board, ensure
that Directors have sufficient information to carry out their duties
and that the Board operates effectively. Since taking on the role of
Chair, I regularly review the Board programme to ensure that key
topics are brought to the Board in a timely manner, with sufficient
time allowed for discussion, debate and challenge.
The Board performance review has demonstrated that throughout
the year, the Board, supported by its Committees, has covered
a broad range of topics to ensure that we continually review and
challenge matters of importance to our stakeholders. The review
confirmed there is an effective leadership in place with all
Directors adding value through the diversity of their experience,
with the Board being collectively engaged and aligned with Tesco’s
strategic priorities. Having assessed the findings, and based on my
own early impressions since joining, I am pleased to confirm that
the Board, and each of its Committees, and Directors continues
to operate effectively.
What do you see as the Board’s priorities
in 2024 and beyond?
My induction programme has provided the opportunity to have
deep dives into many different areas of Tesco, providing a greater
understanding of business and governance imperatives for 2024/25
and beyond. I hosted the Board’s annual strategy event, supported
by the Executive Committee and senior management, with
presentations on each of the business areas within the Group.
As a Board we are all aligned on Tesco’s purpose and the longer-
term direction of the Company, the delivery of our strategic
imperatives and the key sustainability milestones that we need
to reach to achieve our net zero targets.
One of my immediate priorities was to lead the process to find
successors to Byron Grote as Senior Independent Director and
Audit Committee Chair. I am delighted we have appointed Carolyn
Fairbairn as Senior Independent Director, and Karen Whitworth as
Chair of the Audit Committee.
Q&A.
Q&A
with Gerry
Tesco PLC Annual Report and Financial Statements 2024
51.
Financial statements
Additional information
Strategic report
Governance
Board of
Directors.
The Board is currently composed
of the Chair, who was independent
upon appointment, two Executive
Directors and nine Independent
Non-executive Directors.
Corporate governance report continued
Chair
Dr Gerry
Murphy.
Appointed
September 2023
Skills, experience and competences
Gerry has extensive global leadership
experience through both executive and
non-executive roles. His executive career was
spent in retail and other customer-focused
businesses in senior leadership and
commercial roles. His significant business and
board level experience and deep
understanding of corporate governance,
enable him to provide the Board with valuable
leadership in the delivery of the Group’s
strategic objectives.
External appointments
Current:
— Chair: Burberry Group plc
— Senior advisor: Perella Weinberg Partners
Past:
— Chair: The Blackstone Group International
Partners LLP and Tate & Lyle PLC
— Non-executive director: Intertrust N.V.,
British American Tobacco plc, Merlin
Entertainment plc, Reckitt Benckiser plc,
Abbey National plc and Novar plc
— CEO: Greencore Group plc, Exel plc,
Carlton Communications plc (now ITV plc)
and Kingfisher plc
Committee membership
— Nominations and Governance Committee
(Chair)
Group Chief Executive
Ken
Murphy.
Appointed
October 2020
Skills, experience and competences
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.
External appointments
Current:
— None
Past:
— Executive vice president, chief commercial
officer and president of global brands:
Walgreens Boots Alliance
— Various roles: Proctor & Gamble and
Coopers & Lybrand (now PwC)
Chief Financial Officer
Imran
Nawaz.
Appointed
May 2021
Skills, experience and competences
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.
External appointments
Current:
— None
Past:
— Chief financial officer: Tate & Lyle PLC
— Various roles: Mondelez International, Inc,
Kraft Foods and Deloitte
Senior Independent
Director
Byron
Grote.
Appointed
May 2015
Skills, experience and competences
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.
Byron will step down from the Board at the
conclusion of the 2024 AGM.
External appointments
Current:
— Vice chairman of the supervisory board:
Akzo Nobel N.V.
— Non-executive director: InterContinental
Hotels Group PLC and Inchcape plc
Past:
— Chief financial officer: BP PLC
— Senior independent director: Anglo
American PLC
— Non-executive director: Unilever PLC and
Standard Chartered PLC
Committee membership
— Audit Committee (Chair)
— Nominations and Governance Committee
— Remuneration Committee
Tesco PLC Annual Report and Financial Statements 2024
52.
Governance
Strategic report
Financial statements
Additional information
Independent
Non‑executive Director
Melissa
Bethell.
Appointed
September 2018
Skills, experience and competences
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.
External appointments
Current:
— Chair: Ocean Outdoor Limited
— Non-executive director: Diageo PLC and
Exor N.V.
— Senior advisor: Atairos
Past:
— Non-executive director: Samsonite
International S.A., Worldpay Group PLC and
Atento S.A.
— Senior positions: Atairos Europe, Bain
Capital and Goldman Sachs & Co
Committee membership
— Audit Committee
Independent
Non-executive Director
Bertrand
Bodson.
Appointed
June 2021
Skills, experience and competences
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.
External appointments
Current:
— Chief executive officer: Keywords
Studios PLC
Past:
— Supervisory board: Wolters Kluwer N.V.
— Senior positions: Novartis AG, Sainsbury’s
Argos and EMI Music
— Co-founder and CEO: Bragster.com
Committee membership
— Sustainability Committee
Independent
Non-executive Director
Thierry
Garnier.
Appointed
April 2021
Skills, experience and competences
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.
External appointments
Current:
— Chief executive officer: Kingfisher PLC
Past:
— Executive committee member:
Carrefour SA
— Senior positions: CEO, Carrefour Asia and
Carrefour International and managing
director of Carrefour in France
Committee membership
— Remuneration Committee
Independent
Non-executive Director
Stewart
Gilliland.
Appointed
March 2018
Skills, experience and competences
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. His experiences
as an executive and non-executive director,
and understanding and advocacy of supplier
relationships, customers, colleagues and
sustainability, which directly support Tesco’s
strategy, provide him with the skills and
capabilities as Chair of the Sustainability
Committee. The breadth and diversity of
Stewart’s experience is a benefit to the Board.
External appointments
Current:
— Chair: IG Design Group PLC
— Non-executive director: Chapel Down
Group plc and Nature’s Way Foods Ltd.
Past:
— Chair: Booker Group plc and C&C Group plc
— Chief executive: Müller Dairies UK and
Ireland
— Senior positions: Whitbread plc, Mitchells &
Butlers plc and Interbrew
Committee membership
— Sustainability Committee (Chair)
— Nominations and Governance Committee
— Remuneration Committee
Tesco PLC Annual Report and Financial Statements 2024
53.
Governance
Strategic report
Financial statements
Additional information
Corporate governance report continued
Board of Directors continued
Independent
Non-executive Director
Dame Carolyn
Fairbairn DBE.
Appointed
September 2023
Skills, experience and competences
Carolyn brings a wealth of experience to the
Board with her deep understanding of the
macroeconomic, regulatory and political
environment and significant experience across
media, government and finance sectors.
Carolyn will be appointed Senior Independent
Director at the conclusion of the 2024 AGM.
External appointments
Current:
— Non-executive director: HSBC Holdings plc
— Chair of the board of trustees: Royal
Mencap Society
Past:
— Director-general: Confederation of British
Industry
— Non-executive director: Lloyds Banking
Group plc, The Vitec Group plc, Capita plc,
BAE Systems plc, the UK Competition and
Markets Authority and the Financial
Services Authority
— Senior positions: McKinsey & Company,
BBC and ITV plc
— Member: Number 10 Policy Unit
Committee membership
— Remuneration Committee
— Sustainability Committee
Independent
Non-executive Director
Alison Platt
CMG.
Appointed
April 2016
Skills, experience and competences
Alison has extensive experience of leadership
in customer-driven organisations across the
healthcare, insurance and property sectors.
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.
External appointments
Current:
— Chair: Hargreaves Lansdown plc and Ageas
(UK) Limited
— Non-executive director: Spectrum Wellness
Holdings Limited and Inchcape plc
Past:
— Chair: Dechra Pharmaceuticals PLC and
Opportunity Now
— Non-executive director: Foreign and
Commonwealth Office and Cable &
Wireless Communications PLC
— Senior positions: Countrywide Limited and
Bupa Limited
Committee membership
— Nominations and Governance Committee
— Remuneration Committee (Chair)
Independent
Non-executive Director
Caroline
Silver.
Appointed
October 2022
Skills, experience and competences
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.
External appointments
Current:
— Chair: Barratt Developments PLC
— Non-executive director: Intercontinental
Exchange, Inc and chair of ICE Clear Europe
— Member: International advisory board of
Adobe Inc and V&A Foundation
— Senior advisor: Moelis & Company
— Governor: National Film and Television
School
Past:
— Chair: PZ Cussons PLC
— Non-executive director: Meggitt PLC, M&G
PLC and Bupa Limited
— Senior positions: Moelis & Company,
Morgan Stanley and Merrill Lynch
— Trustee: Victoria and Albert Museum
— Board member: London Ambulance Service
NHS Trust
Committee membership
— Audit Committee
Independent
Non-executive Director
Karen
Whitworth.
Appointed
June 2021
Skills, experience and competences
Karen has significant strategic, financial and
risk experience gained through a number of
commercial, operational and governance
roles. In addition, she brings to the Board
extensive knowledge of the retail sector,
logistics and supply chain gained across a
number of senior retail roles.
Karen will be appointed Chair of the Audit
Committee from the conclusion of the
2024 AGM.
External appointments
Current:
— Senior independent director: The Rank
Group plc and Tritax Big Box REIT plc
Past:
— Supervisory board member: GS1 UK Limited
— Member: Commercial board and director
of non-food grocery and new business at
J Sainsbury plc
— Senior positions: BGS Holdings Limited,
InterContinental Hotels Group PLC and
Coopers & Lybrand (now PwC)
Committee membership
— Audit Committee
— Sustainability Committee
Tesco PLC Annual Report and Financial Statements 2024
54.
Governance
Strategic report
Financial statements
Additional information
Director changes during the year
John Allan
Tenure:
March 2015 – June 2023
Stepped down after more than eight years’ service as Chair of the Board.
Lindsey Pownall OBE
Tenure:
April 2016 – June 2023
Stepped down from the Board after more than seven years’ service
as a Director on the Board.
Gerry Murphy
Appointed:
1 September 2023
Appointed as Chair, independent upon appointment.
Carolyn Fairbairn
Appointed:
1 September 2023
Appointed as independent Non-executive Director and member of the
Remuneration and Sustainability Committee.
External commitments
During the year, the Board approved the additional external commitments taken on by Alison Platt, Byron Grote and Caroline Silver.
An assessment of time-commitment, effectiveness, independence and the impact of any cross-directorships was considered.
It was agreed that these additional external commitments would not impact their role and commitment to Tesco PLC.
Board and committee attendance table(a)
Board
Audit
Nominations and
Governance
Remuneration
Sustainability(e)
Gerry Murphy(b)
3/3
–
2/2
–
–
Ken Murphy
6/6
–
–
–
–
Imran Nawaz
6/6
–
–
–
–
Byron Grote
6/6
5/5
4/4
5/5
–
Melissa Bethell
6/6
5/5
–
–
–
Bertrand Bodson
6/6
–
–
–
4/4
Carolyn Fairbairn(c)
3/3
–
–
3/3
2/2
Thierry Garnier
6/6
–
–
5/5
–
Stewart Gilliland(d)
6/6
–
4/4
4/4
4/4
Alison Platt
6/6
–
4/4
5/5
–
Caroline Silver
6/6
5/5
–
–
–
Karen Whitworth
6/6
5/5
–
–
4/4
(a) This table shows details of scheduled Board and Committee meetings. John Allan and Lindsey Pownall stood down from the Board and relevant Committees
on 16 June 2023.
(b) Gerry Murphy joined the Board as Non-executive Chair and became Chair of the Nominations and Governance Committee on 1 September 2023.
(c) Carolyn Fairbairn joined the Board as an Independent Non-executive Director and a member of the Sustainability and Remuneration Committees on
1 September 2023.
(d) Steward Gilliland joined the Remuneration Committee on 16 June 2023.
(e) The Sustainability Committee changed its name from the Corporate Responsibiity Committee in April 2023.
Group Company
Secretary
Robert
Welch.
Appointed
August 2016
Skills, experience and competences
Robert has over 25 years’ experience as a
Company Secretary providing legal and
corporate governance advice and support to
the Board and the boards of all other legal
entities in the Group.
External appointments
Current:
— Executive committee member: Association
of General Counsel and Company
Secretaries of the FTSE 100 (GC100)
— Member: CGI Company Secretaries Forum
and Primary Markets Group of the London
Stock Exchange
Past:
— Company secretary: FirstGroup plc and
Kazakhmys PLC
Detailed biographies for each member of the Board can be found at www.tescoplc.com.
Tesco PLC Annual Report and Financial Statements 2024
55.
Governance
Strategic report
Financial statements
Additional information
Division of responsibilities
The Board has agreed a clear division of responsibilities with the responsibilities of the Chair, Group Chief Executive, Senior Independent
Director and other Directors clearly defined so that no individual has unrestricted powers of decision and no small group of Directors
can dominate the Board’s decision making. During the year, the Non-executive Directors met with the Chair of the Board without the
Executive Directors being present, on several occasions. Since October 2023, Board meetings have commenced with a meeting of the
Chair and Non-executive Directors.
In addition, Non-executive Directors take on the role of the workforce engagement Board hosts of the twice-yearly Colleague
Contribution Panels (CCP). These additional responsibilities are set out in the table below. More details on the CCP can be found on
page 69.
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. A Directors’ and Officers’ Liability Insurance policy is
maintained for all Directors and each Director has the benefit of a Deed of Indemnity.
Chair
— Provide effective leadership of the Board, set the agenda, ensure effectiveness of the Board and
maintain a culture of openness and transparency at Board meetings.
— Promote effective communication between Executive and Non-executive Directors.
— Ensure all Directors effectively contribute to discussions and feel comfortable to engage in healthy
debate and constructive challenge.
— Ensure all Directors receive accurate, timely and clear information to assist them to make
their decisions.
— Available to meet with shareholders.
— Identify training and development needs of Directors as required.
— Ensure new Directors receive appropriately tailored induction programmes.
Group Chief Executive
— Day-to-day responsibility for the effective management of the Group.
— Ensure that Board decisions are implemented.
— Devise and review Group strategies for discussion and approval by the Board.
— Provide regular operational updates to the Board on all matters of significance relating to the Group’s
businesses or reputation.
— Ensure effective communication with shareholders and other key stakeholders.
Senior Independent Director
— Provide a sounding board for the Chair.
— Act as an intermediary for the Non-executive Directors.
— Available to shareholders should they have any concerns, where communication through normal
channels has not been successful or where such channels are inappropriate.
— Meet with the Non-executive Directors at least annually when leading the Non-executive Directors’
appraisal of the Chair’s performance.
Non-executive Director
— Bring independent insight and experience to the Board.
— Constructive challenge of the strategies proposed by the Executive Directors.
— Scrutinise the performance of management in achieving agreed goals and objectives.
— Play leading roles in the function of the Board Committees and bring an independent view to
the discussion.
Workforce engagement
Board host
— Engage and listen to the CCP representatives and develop a greater understanding of colleagues’ views
on the operations of the business.
— Monitor actions to address issues raised by CCP representative.
— Report back to the Board to ensure all Directors have an awareness of colleague views and these are
reflected in decisions.
— Provide CCP representatives with an awareness of Board and business priorities and the impact on
business practices.
Group Company Secretary
— Ensure Board procedures are complied with and the Board has the information, time and resources
it needs in order to function effectively and efficiently.
— Advise the Board on all governance matters.
— Facilitate induction programmes for new Directors.
— Provide briefings on governance, legal and regulatory matters.
Corporate governance report continued
Board of Directors continued
Tesco PLC Annual Report and Financial Statements 2024
56.
Governance
Strategic report
Financial statements
Additional information
Executive
Committee.
The Board delegates responsibility to the Group Chief Executive for overseeing the day-
to-day operations of the Group, formulating, implementing and overseeing the Group’s
strategic objectives as approved by the Board.
The Group Chief Executive is supported by the Executive Committee in carrying out this role. The Executive Committee’s key
responsibilities include:
— Making recommendations to the Board and implementing the objectives and strategy set by the Board.
— Developing the Group’s budget and long term plan for consideration by the Board.
— Supporting the delivery of the Group’s strategic priorities.
— Developing the sustainability agenda to balance short, medium and long term objectives.
— Ensuring identification, management and monitoring of risk and effective internal controls.
— Approving material contracts and transactions in accordance with the delegation of authority framework.
— Monitoring the people agenda across the Group including; culture, succession planning, talent management
and diversity, equity and inclusion.
The Executive Committee terms of reference are reviewed on an annual basis. These can be found at www.tescoplc.com.
The Executive Committee has 11 scheduled meetings per year which are minuted, together with more informal weekly check-in meetings.
During the year, the Executive Committee played a key role in driving the Group’s strategy and objectives forward.
There are a number of other executive level committees which are established to support the Executive Committee in the delivery of
their role. Some of the key executive level committees are detailed, together with their responsibilities, on page 58.
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 detailed below. During the year, Alessandra Bellini left the business and the role of Chief
Customer Officer was amalgamated with the role of Chief Product Officer, creating the newly established role of Chief Commercial
Officer. Jason Tarry, UK CEO, left the business in March 2024 and was succeeded by Matthew Barnes, who brings extensive retail
experience, a competitive spirit and a challenger mindset to the business.
Ken Murphy
Group Chief Executive
Guus Dekkers
Chief Technology Officer
Adrian Morris
Group General Counsel
Matthew Simister
CEO, Central Europe
Member since October 2020
Member since May 2021
Member since September 2012
Member since April 2017
Imran Nawaz
Chief Financial
Officer
Christine Heffernan
Group Communications
Director
Ashwin Prasad
Chief Commercial
Officer
Emma Taylor
Chief People
Officer
Member since May 2021
Member since March 2019
Member since September 2020
Member since March 2022
Natasha Adams
CEO, Ireland and
Northern Ireland
Gerry Mallon
Chief Executive,
Tesco Bank
Matthew Barnes
CEO, UK
Andrew Yaxley
CEO, Booker
Member since June 2018
Member since August 2018
Member since March 2024
Member since July 2018
Biographies for each of the Executive Committee members can be found on our
website at www.tescoplc.com which sets out their roles, responsibilities and experience.
Tesco PLC Annual Report and Financial Statements 2024
57.
Governance
Strategic report
Financial statements
Additional information
Governance
framework.
The Board is committed to maintaining the highest standards of corporate governance.
A detailed governance framework ensures that the Board has the right level of oversight
for matters that are material to the Group.
Group risk and compliance
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. It reports twice-yearly to the
Audit Committee.
Group planet
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
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. A dedicated
cyber security programme has been developed with clearly
defined governance, oversight and structured training processes.
Audit
Chair: Byron Grote
Provides independent
assessment and
oversight of financial
reporting processes
including internal
controls, risk
management and
compliance. It also
oversees the
effectiveness of the
internal and external
audit functions.
Nominations
and Governance
Chair: Gerry Murphy
Reviews the size,
composition, tenure and
skills of the Board. Leads
the process for new
appointments, monitors
Board and senior
management succession
planning. Considers
independence, diversity,
equity and inclusion and
governance-related
matters.
Remuneration
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.
Sustainability
Chair: Stewart Gilliland
Provides oversight
on the Group’s planet
plan pillars, community
and human rights
initiatives to support
the delivery of the
Group’s purpose,
strategic priorities
and sustainability
objectives.
Board Committees
Other key executive level committees
Disclosure Committee
Responsible for considering timely and accurate disclosure of sensitive information.
Matters considered by each of the Committees are set out in the Committee terms of reference which
can be found on our website at www.tescoplc.com.
Details of Board Committee membership and activity during the year is set out in the Committee
reports on pages 74 to 114.
Board of Directors
The Board has collective
responsibility to promote the
long-term sustainable success
of the Group, ensuring due
regard is paid to the interests
of its stakeholders.
Board biographies
can be found on
pages 52 to 54.
Board insight can be
found on pages 64
to 69.
A summary of
matters reserved for
the board can be
found on page 60.
Group Chief Executive
Manages the day-to-day
operations of the Group,
prioritising and allocating
resources. He is supported by
the Executive Committee. A
number of other executive
level committees support
the Group Chief Executive.
Group Chief Executive
role profile can be found
on page 56.
Details of the role of the
Executive Committee together
with members can be found on
page 57.
These executive level committees provide updates to the Board, Audit,
Sustainability and Executive Committees on matters of significance.
Corporate governance report continued
Tesco PLC Annual Report and Financial Statements 2024
58.
Financial statements
Additional information
Governance
Strategic report
Spotlight on:
Governance of sustainability-related matters.
The Board has approved a planet strategy which focuses on the key areas of the
Group’s footprint and commitments to be carbon neutral across Group operations by 2035
and hitting net zero by 2050 aligned to 1.5°C. In support of this planet strategy, a planet plan
has been developed to bring together all the work being undertaken to deliver on the key
commitments of Scope 1 and 2 across our direct operations, and Scope 3, upstream and
downstream emissions outside of our direct operations, tracking progress against key
milestones. While the Board has overall responsibility for ensuring the Group meets its
targets, a thorough review of responsibilities under the governance framework was
undertaken to ensure the right level of oversight and challenge is achieved within the correct
forum with the necessary expertise. Highlights of each of the Committees’ responsibilities in
relation to sustainability-related matters are set out below.
Sustainability is built
into our purpose,
strategy and
business plans.
The Group is
committed to
operating in a
responsible and
sustainable way
which reflects
our values.
Board
Overall responsibility for
the delivery of the Group’s
net zero commitments
and sustainability strategy
with regular monitoring
of progress.
Audit Committee
Review of external
sustainability-related
disclosures and
sustainability KPIs.
Review management’s
process for identifying
sustainability risks and
internal controls.
Remuneration Committee
Ensure performance-related
elements of remuneration
have appropriate metrics
and targets linked to our
sustainability targets.
Planet committee
Review and recommend
to the Executive Committee,
the Group’s planet strategy,
changes to existing
climate initiatives and
expenditure required.
Sustainability
Committee
Review and challenge
initiatives supporting the
Group’s net zero commitments
with regular deep dives into
each of the planet plan pillars.
Monitor external
developments on
sustainability-related
issues.
Executive
Committee
Support the Board in
continuing to develop
the sustainability agenda to
balance the short, medium
and long-term objectives.
Review of expenditure
required to support the
Group’s net zero
commitments and
objectives.
More details on the planet
plan pillars can be found
on pages 18 to 21
Tesco PLC Annual Report and Financial Statements 2024
59.
Financial statements
Additional information
Governance
Strategic report
Corporate governance report continued
Governance framework continued
Role of the Board
The Board is committed to maintaining the highest standards of
corporate governance in the management of its affairs. The Board
is supported by the activities of its Committees, which ensure
specific matters receive the right level of attention and
consideration, as demonstrated in the governance framework on
page 58. Each of the Board Committees meet at least four times
per year. Following each Committee meeting, the Committee Chair
provides the Board with a written and verbal update on Committee
activities. Cross-Committee membership provides visibility and
awareness of matters relevant across the Committees. 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.
The Board is collectively responsible for setting the overall strategy
of the Group ensuring that value is created over the long term and
ensuring that it operates within a framework of effective controls.
The Board remains focused on delivering on our four strategic
priorities: Magnetic value for customers, Easily the most
convenient, I love my Tesco Clubcard and Save to invest.
The Board has overall responsibility for internal controls and risk
management processes. It has established a risk management
framework to manage and report the risks faced by the 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 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. Maintaining a strong risk and internal control
environment is fundamental to Tesco’s governance framework.
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 in place across the Group
facilitates effective management and sound decision making.
Efficient internal reporting, effective internal controls, and
oversight of current and emerging risk themes are embedded into
our business processes. The Group’s delegation of authority,
matters reserved for the Board and Committee terms of reference
provide a clear direction on oversight and decision making.
Board and Committee meetings
The Board held six scheduled meetings during the year and an
additional strategy day at which senior managers present on each
of our business areas. In addition to scheduled meetings, Directors
met to consider matters of a time-sensitive nature including the
Chair’s succession and the approval of the sale of our banking
operations and the long-term strategic partnership with Barclays.
The table on page 55 shows the attendance at the scheduled
Board and Committee meetings. In the rare event of a Director
being unable to attend all or part of 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.
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 arises
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.
Information flow
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 Board and its Committees have
a forward-looking programme of agenda items scheduled for
discussion throughout the year to ensure operational and financial
performance, strategy which includes our sustainability targets,
risk, culture and stakeholders are discussed at the appropriate
time. Through a regular review of the 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. Standard paper templates, which are reviewed on a
regular basis, are used to ensure Directors receive high-quality,
clear and timely information to support their oversight, challenge
and decision making.
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
for circulation to the Board. No such concerns were raised
in 2023/24.
Summary of schedule of matters reserved for the Board
The Board:
— Sets and monitors the Group’s purpose, strategy, values and culture.
— Sets the long term plan and budget.
— Monitors net zero commitments for Scope 1, 2 and 3.
— Oversees risk management and internal controls.
— Determines the nature and extent of emerging and principal risks.
— Oversees implementation of the governance framework.
— Monitors financial reporting, controls and disclosures.
— Approves changes to corporate and capital structure.
— Sets the dividend policy and approves any declarations.
— Approves significant capital expenditure, borrowing and material contracts.
— Approves major acquisitions, mergers, joint ventures and disposals.
— Approves changes to the pension scheme arrangements.
— Reviews and approves remuneration policies and share schemes.
The full schedule of matters reserved for the Board can be found on our website at www.tescoplc.com.
Tesco PLC Annual Report and Financial Statements 2024
60.
Financial statements
Additional information
Governance
Strategic report
Compliance with the UK Corporate Governance Code
During the year the Company was in full compliance with all applicable principles and provisions set out in the UK Corporate Governance
Code 2018 (the Code). Pages 48 to 116 and 228 to 231 of this report form our corporate governance statement.
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 below. 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 Board is familiar with the changes following the publication of the UK Corporate Governance Code 2024 (2024 Code) and intends to
be compliant with all new relevant provisions in the timeframes dictated in the 2024 Code. The Board has carried out an assessment of
any changes required in reporting requirements.
Principles
Pages
Board leadership and Company purpose
Promoting the long-term, sustainable success of the Company
2 to 47 and
64 to 73
Purpose, values and culture
62 to 63
Resources and controls
30 to 37 and
82 to 89
Stakeholder engagement
4 to 5 and
70 to 72
Workforce engagement
69
Division of responsibilities
Role of Chair, Non-executive Directors and Group Company Secretary
56
Board composition
49, 52 to 55
and 74 to 77
Composition, succession and evaluation
Appointments to the Board and succession planning
52 to 55 and
74 to 77
Balanced Board
49, 52 to 55
and 74 to 77
Board performance
73
Audit, risk and internal control
Audit Committee report
82 to 89
Principal risks and uncertainties
30 to 37
Remuneration
Directors’ remuneration report
90 to 114
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 at www.frc.org.uk.
Fair, balanced and understandable
The Group has a strong commitment to balanced reporting. As part of the fair, balanced and understandable review, the Annual Report and
Financial Statements 2024 has been reviewed by management, as well as independent functions, who performed verification and assessment
under prescribed guidance. On behalf of the Board, the Audit Committee undertook a review of the Annual Report and Financial Statements 2024,
as well as the effectiveness of processes and controls which underpin its production, and recommended to the Board that the Annual Report and
Financial Statements 2024 provided the necessary information to assess the Company’s position and performance, business model and strategy.
In accordance with the Code, confirmation by the Board is set out in the Statement of Directors’ responsibilities on page 116 and is supported
by the Independent Auditor’s report on pages 117 to 128 outlining their reporting responsibilities.
Tesco PLC Annual Report and Financial Statements 2024
61.
Financial statements
Additional information
Governance
Strategic report
Purpose, values
and culture.
The Board has overall responsibility for establishing and monitoring 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 below.
Our purpose and values are embedded in the Group’s culture and are integral to the way we behave and do business. Our values and
leadership behaviours ensure that the Tesco culture is embedded throughout the organisation. They ensure that all colleagues
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. With the skills, expertise and dedication of colleagues worldwide, we have
a culture which is well placed to support the needs of our stakeholders.
Our purpose:
Serving our customers, communities and planet a little better every day
Customers:
By understanding our customers,
we can anticipate and respond to
their needs and expectations.
Communities:
We play a vital role in our
communities, including: creation
of jobs, supporting local suppliers
and producers, and helping local
causes through our community
programmes.
Planet:
Our commitment to sustainability
is core to our business.
Values put
our purpose
into practice:
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.
1.
No one tries
harder for
our customers
2.
We treat people
how they want
to be treated
3.
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.
Our leadership
behaviours
underpin
our values:
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.
Corporate governance report continued
Tesco PLC Annual Report and Financial Statements 2024
62.
Financial statements
Additional information
Governance
Strategic report
How the Board monitors culture
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 supports the delivery of the strategy. The Board recognises that treating colleagues with respect and compassion is
essential to building a culture of trust. Culture is evidenced by the feedback received through the various channels detailed below:
Board and Committee management reporting and site visits
Delivery of diversity, equity and inclusion strategy
People updates provide oversight of the culture we operate
in, and metrics and KPIs to assess our progress so we can
respond accordingly.
Nominations and Governance Committee: reviews culture,
succession, talent management and diversity, equity and inclusion.
Remuneration Committee: assesses executive performance to
ensure it is aligned to the strategic drivers, KPIs and leadership
behaviours.
Site visits: Directors, individually and collectively, undertake visits to
offices, stores, distribution centres and customer fulfilment centres
to meet with colleagues in the business for a true understanding of
the operations.
Monitoring progress on the key themes of:
— Lead and role model inclusion.
— Embed inclusion in everything we do.
— Listen, learn and act.
The Board, Nominations and Governance Committee, Remuneration
Committee and Executive Committee receive regular updates on
the progress of the Group’s diversity, equity and inclusion strategy.
More details on the Board’s and its Committee’s activities can
be found on pages 64 to 69 and 73 to 114.
More details on diversity, equity and inclusion can be found
on pages 76 and 77.
Your Contribution
Every Voice Matters
Your Contribution is the way we measure the performance of our
colleagues and drive the culture we want to see. Your Contribution
incorporates the ‘what’ and the ‘how’ of someone’s performance.
Within the ‘how’ we encourage a conversation on the impact each
colleague has on others, specifically calling out how they play their
part in ensuring Everyone’s Welcome and living our Values and Win
Together Behaviours.
For line managers there is an additional layer to the conversation to
review how they lead and manage their team in an inclusive way.
The ‘how’ makes up 50% of a colleague’s performance rating
signalling the importance we place on it.
The Board and Remuneration Committee monitors the outturns of
Your Contribution for Executive Committee members and senior
management.
Supported by the Executive Committee, the results of the colleague
survey are analysed and an action plan is developed to address any
issues. Themes include:
— Colleague engagement – diversity, equity and inclusion.
— Purpose – link between colleagues’ work and purpose.
— Culture – monitored through behaviour experienced,
both positively and negatively.
— Wellbeing – mental, physical and financial.
— Safety.
— Manager relationships – link to behaviours.
— Career development and retention – reward and recognition.
Code of Business Conduct
Workforce engagement forums
Our Code of Business Conduct defines the standards and
behaviours expected of colleagues and is supported by Group
policies and mandatory training which is completed by all colleagues
in the first five business days after joining, and on an annual basis, to
reinforce the importance of these standards. Results are reported
to the Audit Committee.
The Board established Colleague Contribution Panels in 2019, which
represent the workforce across all business areas of the Group.
Each forum meets twice during the year, hosted by an Independent
Non-executive Director. The Board receives feedback following
each meeting.
Visit www.tescoplc.com to view Tesco’s Code
of Business Conduct.
More details on our Colleague Contribution Panels held in
2023/24 can be found on page 69.
Supplier engagement survey
Whistleblowing policy and Protector Line
The results of supplier engagement surveys are analysed and
reviewed by the Board and Executive Committee. An action plan
is developed for improvements required.
Protector Line provides colleagues and suppliers with a completely
independent support service where they have the ability to raise
concerns regarding possible misconduct and breaches of the Tesco’s
Code of Business Conduct. The whistleblowing policy sets out how
matters of concern can be reported and explains the protection and
support that will be given. The Audit Committee provides oversight
of the effectiveness of the Group’s internal whistleblowing policy
and the independent Protector Line arrangements.
Tesco PLC Annual Report and Financial Statements 2024
63.
Financial statements
Additional information
Governance
Strategic report
Section 172
statement.
The Board recognises that stakeholder engagement and understanding the consequences
of any decision in the long term are vital to the sustainable success of the Company, and
these 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. Details of
our key stakeholders are set out on pages 70 to 72.
The differing interests of stakeholders are considered in the business decisions we make across Tesco at all levels and are reinforced by the
Board. However, it is not always possible to provide positive outcomes for all stakeholders and sometimes the Board has to make
decisions based on balancing the competing stakeholder priorities, while ensuring it is in the best interests of the Group. Through
engagement with our key stakeholders, the Board understands these competing priorities.
In performing their duties during the year, the Directors have had regard for the matters set out in Section 172 of the Companies Act 2006.
Examples of how the Directors have oversight of stakeholder matters and had regard for these matters when making decisions is included
throughout this Annual Report.
Corporate governance report continued
How the Board had regard for the matters set out in Section 172(1) (a)–(f) of the Companies Act 2006
Directors have acted in a way they consider, in good faith and to be most likely to promote the long-term success of the Company. The
table below provides references to demonstrate how the Board have considered these factors.
Section 172 (a)-(f) additional information
Pages
A.
Consequences of any decisions
in the long term
Chair’s statement and Group Chief Executive’s review
6 and 7, and 9 to 11
Market context and Strategic priorities
12 to 15
Key performance indicators and Our business model
16 and 17
Section 172 statement and Board activity
64 to 69
B.
Interests of the employees
Key performance indicators
17
Understanding our stakeholders
70 to 72
Nominations and Governance Committee
74 to 77
Directors’ remuneration report
90 to 114
Directors’ report
115 and 116, 228 to 231
C.
Foster business relationships with
suppliers, customers and others
Chair’s statement and Group Chief Executive’s review
6 and 7, and 9 to 11
Market context and Strategic priorities
12 to 15
Key performance indicators and Our business model
16 to 17
Principal risks and uncertainties
30 to 37
Understanding our stakeholders
70 to 72
D.
Impact of our operations
on the community and environment
Market context
12 and 13
Planet plan, Nature and TCFD
18 to 21, and 38 to 45
Understanding our stakeholders
70 to 72
Section 172 statement and Board activity
64 to 69
Sustainability Committee report
78 to 81
E.
Maintain a reputation for high
standards of business conduct
Purpose framework and Our business model
8 and 17
Governance framework
58 to 60
Purpose, values and culture and How the Board monitors culture
62 and 63
Section 172 statement and Board activity
64 to 69
F.
Acting fairly between members
of the Company
Strategic priorities and Key performance indicators
14 to 16
Section 172 statement and Board activity
64 to 67
Understanding our stakeholders
70 to 72
Further details on how we engage with our stakeholders can be found on pages 70 to 72.
Tesco PLC Annual Report and Financial Statements 2024
64.
Financial statements
Additional information
Governance
Strategic report
Key strategic decisions
Chair’s succession
Planet strategy to achieve net zero by 2050
On 3 July 2023, the Board announced the appointment of Gerry
Murphy as Chair of the Board. This followed an extensive search for
a new Chair which was led by Byron Grote, Senior Independent
Director. The selection process took approximately six months
with the support of Lygon Group.
The Board unanimously agreed that Gerry was the best candidate
to help deliver on the Group’s strategic priorities and objectives.
Gerry was appointed with effect from 1 September 2023.
The rigorous selection process involved consideration of the
long and short-term objectives, with all Directors interviewing
the final candidates.
The Board recognises that having a diverse Board with different
perspectives, insights and viewpoints benefits the Group’s
stakeholders through better decision making and business
performance and is essential for the delivery of the Group’s
strategy. Consideration was given to the gender and ethnic diversity
of the Board. Following the 2024 AGM, the Board will comprise 45%
women, one senior position being female and two persons of colour.
Gerry has undertaken a detailed induction programme. More details
can be found on page 51.
As a Board, we are committed to achieving our target of net zero by
2050. This will require us to transform the way we run our business,
how we work with our suppliers and how we encourage our
customers to make healthy and sustainable choices.
In August 2023, we outlined our ambitious plan for emission
reductions across our own operations and value chain, as Tesco
became one of the first companies globally to set validated
science-based targets on all greenhouse gas emissions, including
those originating from forests, land and agriculture (FLAG)
emissions. Our net zero science-based targets have been validated
by the Science Based Targets Initiative (SBTi), the body that validates
our climate targets.
Through the development of a glidepath, the Board has agreed
certain targets to deliver on our key net zero commitments. With
the support of the Sustainability Committee, Executive Committee
and planet committee there is a defined governance path to track
the progress of the activities required to achieve our targets.
Market conditions, trends and stakeholder views are regularly
discussed by the Board and its Committees, with them receiving
regular updates on progress, enabling them to monitor the
risks associated.
More details on the Chair’s succession
and process for recruitment can be
found on page 75.
More detail on our planet plan and
climate disclosures can be found on
pages 18 to 21 and 38 to 45.
Strategic partnership with Barclays and sale of banking operations
On 9 February 2024, the Board announced a long-term strategic partnership with Barclays and agreed to sell our banking operations in credit
cards, loans and savings (the Sale), to Barclays, retaining all other existing activities of Tesco Bank including insurance, ATMs, travel money and
gift cards. Tesco will receive annual income for the use of the Tesco brand, for growing the customer-base through Tesco channels and as
a result of Barclay’s participation in the Tesco Clubcard programme.
When considering the strategic partnership and Sale, the Board discussed a number of factors including those affecting our stakeholders:
Customers – the exclusive partnership will, for the initial 10-year period, combine Tesco’s market-leading brand, physical and digital reach and
relentless customer focus with Barclays’ deep financial services capability and expertise in commercial partnerships. It allows us to offer
customers Tesco-branded banking products and services, while benefiting from the Tesco Clubcard, and exploring other opportunities that
offer value to Tesco and Barclays customers.
Colleagues – the Sale will impact around 2,800 Tesco Bank colleagues whose roles will transfer to Barclays, one of the UK’s leading banks,
to continue to offer the same outstanding service. Tesco will work closely with Barclays to support colleagues through the transition.
Shareholders – the Sale for c.£600m removes £7.7bn of capital-intensive assets and £6.7bn of financial liabilities from the Tesco balance sheet.
This, together with the previously announced special dividend of £250m by Tesco Bank, will result in a total cash amount of around £1bn. The
majority of this will be returned to shareholders in the form of an incremental share buyback.
Details of the Board’s activities during the
year can be found on pages 66 to 69.
Tesco PLC Annual Report and Financial Statements 2024
65.
Financial statements
Additional information
Governance
Strategic report
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 table below sets out the key topics the Board reviewed, discussed and debated during the year, to support Directors in their oversight
and provide the opportunity to challenge executive management.
Key
1 Grow sales
KPIs:
2 Deliver profit
3 Improve operating cash flow
4 Customers recommend
5 Colleagues recommend
6 Reduction of climate emissions
Information flow
Outcomes, benefits and
considerations
Link to
KPIs
Cross-
reference
Purpose and strategy
Review and monitoring of
strategy and the progress
against each of the
strategic priorities
throughout the year.
The Board has spent time reviewing the longer-term strategy. Strategy Board days
focused on each of our business areas, providing oversight and challenge of growth
opportunities, customer behaviours, stakeholder engagement and market trends.
Having a clear strategic direction for the short, medium and longer term, and
understanding our stakeholder expectations is vital for the delivery of our
strategic priorities.
1, 2, 3,
4, 5, 6
12 to 21
Review of planet strategy
and monitoring progress
against key sustainability
milestones to meet our net
zero commitments.
The development of our planet plan brought together all of the work we are doing to
deliver our key commitments of reducing Scope 1, 2 and 3 emissions. The updates
received on the progress against each of the pillars of the plan, supports the Board in
reviewing progress against our key milestones and enhances its understanding of
how activities at an operational level ladder up to meet our net zero commitments.
Deep dives into these initiatives brought these commitments to life.
6
18 to 21
38 to 45
Technology updates
providing an overview of
operational stability,
technical capability,
transformation, cyber
security and the use of AI
in our business.
Participation in a cyber
crisis management event.
We continue to operate our environments with high operational stability. Updates
provide the Board with oversight of the risks and opportunities available. Improved
technology will support the delivery of our strategic priorities.
We continue to embed AI into our business. AI is an innovative area of technological
change that Tesco uses to optimise its operations and better serve its customers,
community and planet. As new techniques and uses emerge, we are exploring how
they could be adopted to deliver on our purpose. We have developed an AI
governance framework to ensure that any AI technologies utilised by the business are
fair, safe, transparent, explainable, accountable and sustainable, and that they
comply with existing legislation and any emerging legislation in this space.
Our dedicated cyber security programme has clearly defined governance, oversight
and structured training processes.
1, 2, 3,
4, 5, 6
32 and 37
68 to 69
82 to 89
Review of product
innovation.
The Board regularly receives updates on customer behaviours. Innovation in
customer research is a pivotal part of understanding customer behaviour,
development of our Own Brand products and creating competitive advantage.
It is essential that we keep innovating for the future. Innovative projects help deliver
the strategy to drive business forward to meet the changing needs of our customers,
the environment we operate in and the delivery of our net zero commitments.
1, 2, 3,
4, 5, 6
18 and 19
71 and 72
78 to 80
Operational performance
Regular updates from the
Group Chief Executive, our
businesses in the UK, ROI
and Central Europe, and
deep dives into each of our
business areas.
Business updates from UK, ROI, Central Europe, Tesco Bank, Booker, dunnhumby
and Tesco Mobile provide essential oversight of the operational performance
of the Group, highlighting opportunities, challenges and risks faced by the
different business areas, insight into how our different markets operate and
the differing needs of our stakeholders.
1, 2, 3,
4, 5, 6
2 to 46
70 to 72
Health and safety updates
focusing on people safety
and safety framework.
The Board receives regular updates on health and safety matters looking at our
health and safety strategy, progress against the priorities, ways for improvement,
the volume and severity of injuries and cost of injury claims compared to previous
years, across all businesses.
4, 5
34
Trading updates focus
on managing capacity
through peak trading,
stock management
and resourcing.
Understanding our trading performance through the various channels supports in
the identification of growth opportunities and the delivery of our strategic drivers, in
particular Easily the most convenient. As an example, the Board reviewed the UK
Christmas plan which covered our robust operational plans to cover product
innovation for Christmas, safety, security, space planning, recruitment, crisis
management and our customer and colleague communications plan.
1, 2, 3,
4, 5
2 to 17
32 to 37
Corporate governance report continued
Tesco PLC Annual Report and Financial Statements 2024
66.
Financial statements
Additional information
Governance
Strategic report
Information flow
Outcomes, benefits and
considerations
Link to
KPIs
Cross-
reference
Financial performance, risk management and internal controls
Regular updates through
the Chief Financial
Officer’s report provide an
overview of the financial
position, balance sheet,
going concern and viability
of the Group.
The Board regularly reviews progress against the budget and the long term plan,
which represents a strong three-year plan delivering growth and strong value for
stakeholders. Through these financial updates, the Board receives a detailed
overview of each of the business areas including performance against budget, sales,
profit, cash flow, capital expenditure, cost inflation and Save to invest. Updates
provide the Board with oversight of the progress of the Big 6 and the key
performance indicators across the Group.
1, 2, 3,
4, 5, 6
22 to 29
Review of risk management
framework, principal and
emerging risks and
oversight of the internal
control framework.
The Board reviews the most significant or principal risks facing the Group.
Strengthening the risk and internal control environment is fundamental to Tesco’s
governance framework. The Board has visibility of the strategic, financial, operational,
change and compliance risks facing the business. The Board is kept abreast of
developments through the work of the Audit Committee, to ensure it has dedicated
oversight and the relevant mitigations are put in place.
2, 4, 5,
6
30 to 37
82 to 89
Review of property
portfolio, property
strategy and capital
expenditure.
The Board, supported by the Executive Committee, has visibility of the property
strategy and approves any significant capital expenditure under that strategy. The
annual fair value property valuations provides oversight of the property portfolio
ensuring the portfolio is properly managed and accounted for.
2, 3
22 to 29
Review and approval of
capital allocation
framework, funding and
liquidity plans.
The Board reviews and approves the capital allocation framework, dividend policy
and shareholder returns and the management of the Group’s debt capital markets
activities, including any new issuance of bonds under the euro medium term note
programme. Oversight of these activities ensures that future liabilities can be met.
1, 2. 3
22 to 29
30 to 37
Stakeholder engagement
Understanding stakeholder
expectation, review of:
— Customer insight
— Colleague updates:
Talent, succession and
development, colleague
communication and
feedback
— Supplier engagement
and sourcing
— Investor views and key
market issues
— Planet plan
— Government and
regulatory
developments.
With continued pressures and uncertainty across the economy, we strive to manage
the impact of cost-of-living pressures and focus on delivering value for our
customers. Through the use of multiple data sources, including trends influencing
consumer spending and habits globally, we have an understanding of our customers’
needs to develop products and propositions for now and the future.
Colleague engagement is key to the success of our business. The Board receives
frequent updates on colleague matters at Board and committee meetings to
understand the views of our workforce. These are typically through: our CCPs; Every
Voice Matters surveys; talent, succession and development updates; as well as the
news and views communications platform.
Our Product teams are working hard with suppliers and other stakeholders and
industry bodies to address issues we cannot solve alone in an efficient and targeted
way, keeping things simple. Providing the Board with this oversight, ensures an
understanding of the challenges we face and the support we can provide.
The Board reviews the results, management action plans and areas for improvement
based on customer, colleague and supplier 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. Feedback on specific investor meetings is provided.
1, 2, 4,
5, 6
2 to 47
68 to 72
Review of our community
strategy and supporting
initiatives.
The importance of having a strong community programme has never been greater to
ensure we deliver on our purpose for all of our stakeholders. Understanding the
initiatives and positive impact we have on local communities is a key part of the
Board’s oversight. Our community programmes include Stronger Starts, a community
investment in UK schools supporting food and health-related activities, food
collections and continued support to our charity partners.
4, 5
13
70 to 72
78 to 81
Governance and culture
Updates on colleague
matters which cover a
range of topics
demonstrating the culture
we operate in.
The Board’s oversight of diversity, equity and inclusion, management succession plans
and talent management, ensures a continuous level of quality in management. We are
committed to promoting diversity within the Group and ensuring any barriers
identified are removed. This remains a key consideration in our succession planning
at both Board and senior management level.
5
74 to 77
Regular reports from the
Group Company Secretary
update the Board on
governance-related
matters.
Governance-related matters are discussed at each meeting, over the year this has
included topics such as: regulatory changes; share buyback programme; non-
executive director fees; share forfeiture programme; modern slavery; litigation;
delegation of authority framework; review and approval of statutory reporting and
shareholder documentation; and the annual renewal of directors’ and officers’
insurance. Additionally, the Board reviewed and approved entry into material
contracts taking into consideration the associated operational and financial benefits,
risks and opportunities, and consideration of the impact on all stakeholders.
1, 5
58 to 60
Tesco PLC Annual Report and Financial Statements 2024
67.
Financial statements
Additional information
Governance
Strategic report
Board leadership
in action.
Strategy meeting
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. To support the development and oversight of the
strategy, each year the Board hosts a two-day strategy meeting, with the aim of gaining a better understanding
of 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.
The Board regularly reviews the progress of our strategic drivers and our long term plan (LTP), which
represents a strong three-year plan delivering growth and sustainable value for stakeholders. This is reviewed
in detail during the strategy meeting. We set out our strategy two years ago and our strategic drivers are
serving us well. However, since we set out our strategy, we have experienced a volatile and uncertain
environment which has presented both challenges and opportunities. In July, the Board had an additional
session with the Executive Committee to discuss the ambitions and initial thinking on incremental growth
opportunities. The session focused on two areas:
— how to accelerate our current plans; and
— new sources of growth.
Initiatives explored included: media monetisation; building on our core product strategy; and growing our market
shares. These initiatives were discussed further at the November strategy session alongside the LTP.
Strategic drivers
Magnetic value for customers
Easily the most convenient
I love my Tesco Clubcard
Save to invest
Board visits
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
senior management to gain insight into the business operations and
the challenges they face. This enables the Non-executive Directors
to engage with colleagues from across the Group, giving them a
greater understanding of colleague views.
A series of visits to distribution and fulfilment centres were
undertaken during the year, including visits to:
— Daventry Grocery, which included a tour of the: rail head, where
Tesco operate trains to Scotland, the North East, Wales and the
South East, a tour around the distribution centre which
included examples of automation; and the security hub which
monitors our stores and distribution centres making sure they
are safe and secure;
— Bar Hill, Reading and Lakeside urban fulfilment centres with a
tour to see how UFCs operate, and held discussions about the
network and distribution strategy; and
— Peterborough Fresh distribution centre which included: a
demonstration of the autonomous robot trial proof of concept
which enables the picking of fresh products more efficiently; an
overview of Tesco’s simpler transport operations; and
sustainability trials, which included electric hook up, solar
powered refrigeration trailers and electric trucks.
Central Europe visit
During 2023, the Board undertook a three-day visit to Bratislava to
have a deep dive into the operations of the Central Europe
business. Directors met with the Central Europe leadership team,
senior management and store colleagues which provided an
overview of the Central Europe market. Presentations provided
insight into the financial and operational performance of the
business, explored opportunities and challenges, and helped the
Board understand brand perception within the market. The Board
visited a number of Tesco stores in Slovakia and Hungary, as well as
some competitor stores. These visits provided detailed insight into
the business, enabling the Directors to share their own experiences
as well as challenge and support the business directly.
Spotlight on:
Board development:
cyber training.
In July 2023, members of the Board and Executive
Committee were part of a cyber crisis management
exercise, facilitated by PwC. The exercise was a
simulated ransomware attack, targeting the operation
of business-critical systems, including our tills not
being operational. The objectives of the crisis
management exercise were to:
— see how the executive team and Board responded
to a cyber crisis. Were the right questions asked and
were the right decisions made at the appropriate time
— raise awareness of the scale of impacts following a
complex cyber incident at Group level
— explore the strategic challenges and decisions posed
by a catastrophic cyber incident
The PwC Crisis Management consultancy team concluded
that the executive team and the Board were highly
effective in managing the simulated ransomware event,
maintaining a strategic focus throughout and proactively
planning for worst case scenarios with participants
understanding their roles effectively and listening
to the expertise within the room. PwC also highlighted
opportunities for improvement in future crisis response
scenarios which included the development of crisis
communication plans specific to cyber incidents, and
future test and learn exercises, testing multiple layers of
our crisis management framework concurrently.
Corporate governance report continued
Tesco PLC Annual Report and Financial Statements 2024
68.
Financial statements
Additional information
Governance
Strategic report
2023/24 Colleague Contribution Panels (CCP)
UK & ROI CCP
Host: Byron Grote
UK subsidiaries CCP
Host: Byron Grote
Central Europe CCP
Host: Alison Platt
Attended by representatives from Tesco
stores, Fulfilment, Distribution, Head office,
Customer engagement centre and Republic
of Ireland
Attended by representatives from Booker,
Tesco Café, One Stop, dunnhumby, Tesco
Maintenance, Oakwood Distribution, Tesco
Bank and Tesco Business Services Bengaluru
Attended by representatives from the Czech
Republic, Hungary and Slovakia
CCP benefits:
— Having a designated Non-executive Director for each region allows a deeper understanding of specific workforce-related matters.
— Supports colleagues to develop a better awareness of Board matters and business priorities.
— Provides a platform for colleagues to bring new ideas to the table, including improvements for communications and colleague benefits.
— The forum facilitates open discussions and ensures that the Board is aware of the views of the workforce.
— The Board receives updates directly from each Non-executive Director, allowing for more informed decisions to be made in the long-term
interests of the Company and its stakeholders.
Spotlight on:
Directors’ visit to India.
As part of Gerry Murphy’s induction, he visited our
business operations in India with Caroline Silver. They
spent a day with senior management within each of the
functions including Finance, Technology, Property, People,
Product and the customer engagement centre. They
hosted a town hall meeting with colleagues, which
included a question and answer session.
The next couple of days were spent visiting Star Bazaar
stores in Bengaluru and Mumbai with Booker CEO, Andrew
Yaxley, and they also met with our Indian joint venture
partner, Trent and Tata Investment Corporation.
More detail on Gerry Murphy’s induction programme
can be found on page 51.
The aim of the CCPs is to enable elected colleague representatives
to meet a member of the Board to strengthen the colleague voice
in the boardroom. 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.
During 2023/24, six CCPs were held to discuss topical issues and
matters of importance, with a focus on our strategic priority, I love
my Tesco Clubcard. Alison Platt and Byron Grote provided highlights
of the Board’s activities, which included Board composition
changes, an overview of the growth strategy, delivery against our
planet plan, community initiatives, Board visits undertaken and a
focus on the future. In addition, management went through some
of the key elements of the Every Voice Matters colleague
engagement survey.
Themes raised by representatives included: pay and benefits;
support for part-time colleagues and shift leaders in rural areas;
diversity, equity and inclusion targets; packaging waste; and
Whoosh and community initiatives. As a result of feedback from
these panels, we have taken decisions such as extending the
provision of free food in colleague rooms, increasing the cap on
the Colleague Clubcard to encourage colleagues to share their
second card with family members and the provision of better
online tools for colleagues in Booker.
In addition to the CCPs, we have engaged with contractors
through the Contingent Workers Survey to obtain their views as
part of capturing wider workforce engagement, including
contractors from Tesco Stores and subsidiary businesses.
80% of contractors answering the survey agreed that Tesco is
committed to supporting the wellbeing of colleagues and 94%
agreed with the statement ‘At Tesco people are listened to’.
Where there are specific points of feedback, these are raised
for further consideration by senior management, the Executive
Committee and Board as appropriate.
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.
Sustainability store visit
In September 2023, Sustainability Committee members
undertook a store visit which focused on key activities that
support the planet plan across the food and wider store
operations, including:
— store trials incentivising customer behaviour, with a focus
on packaging removal and food waste;
— LEAF (Linking Environment and Farming) Marque roll out
on products;
— Room to Roam chicken;
— Tesco Sustainable Dairy Group (TSDG) fair price for farmers and
carbon reduction;
— a case study on non-food category approach to reducing waste;
— store operations, with a review of LED lighting, fridges and heat
systems; and
— community initiatives, including meeting with the local instore
Community Champion.
Sustainability Committee members were impressed with the
progress being made and suggested ways to bring this to life and
leverage initiatives across the whole estate.
Tesco PLC Annual Report and Financial Statements 2024
69.
Financial statements
Additional information
Governance
Strategic report
Understanding
our stakeholders.
Each decision taken by the Board aligns to our culture and values, and considers the benefits, risks, financial implications and impact on
relevant stakeholders. The Board believes that understanding its stakeholders and what matters to them is key to its success. The
Directors place significant importance on looking after the safety of colleagues, customers and anyone else impacted by our business.
The following table identifies our key stakeholders and summarises the engagement undertaken during the year. It includes some of the
actions taken as a result of this engagement.
Colleagues
84%
of colleagues recommend Tesco as a
great place to work (up 3% on 2022/23)
46pts
recommend Tesco as a great place to
shop (up 6pts on 2022/23)
86%
of colleagues agree that there is an
inclusive culture at Tesco (up 2% on
2022/23)
More detail on our colleague policies,
reward and benefits can be found on
pages 101 to 105 and 229.
More detail on diversity, equity and
inclusion can be found on pages 76
and 77.
More detail on our Colleague
Contribution Panels can be found on
page 69.
Why they are important
We cannot deliver our purpose without our dedicated workforce. They
are at the heart of everything we do. As our business evolves, we want
to make sure colleagues have the skills they need to succeed now and
in the future.
Our colleagues want to be treated fairly and feel supported with their
health, safety and wellbeing, while being recognised and rewarded for
their contribution. Safety is central to how we do business, with a heavy
focus on protecting our colleagues.
Priorities and engagement
We aim to create a positive culture at Tesco which aligns our purpose,
values and behaviours. Our clear diversity, equity and inclusion strategy
strives to create an inclusive workplace, where colleagues feel welcome
and able to be themselves. We are upskilling and reskilling our workforce
to meet both current job demands and emerging jobs in the future.
The launch of an internal news and views communications platform is
enhancing colleague engagement. Through our Colleague Contribution
Panels and the results of the Every Voice Matters engagement survey
we receive valuable feedback and insight on colleague views.
We have continued to collaborate with the USDAW trade union on
safety measures. Our support of their campaign to protect retail
workers from physical and verbal abuse has brought about increased
protection for our colleagues, to bring it in line with the protection of
emergency service workers.
Outcomes and highlights in 2023/24
Tesco announced the biggest ever single investment in store colleague
pay, bringing the hourly rate up to £12.02 per hour. The new rate will
come into effect from April 2024 representing a 9.1% rise in base pay
and a record investment of more than £300m in hourly colleague pay.
We have launched a number of family friendly policies for colleagues
which include enhancements to paid maternity, neonatal, fertility,
adoption and kinship leave. We have also introduced flexible and
guaranteed working arrangements, health and financial wellbeing
benefits including advice and guidance, unlimited appointments with a
virtual GP and Pay Advance enabling colleagues to receive up to 25% of
their contractual pay early.
The safety of our colleagues is our number one priority. We have rolled
out a number of measures to protect colleagues, including body
cameras across our stores and new protective screens at hundreds of
Express stores and petrol station kiosks.
We are investing in our colleagues’ skills to equip them for the present
and future. Our store colleagues have become more skilled and flexible,
and our managers have improved their abilities. In the UK, more than
50,000 store colleagues completed Serve, Pick and Fill training,
enabling them to work across departments which has enabled
colleagues to book 2.9 million extra shifts.
Corporate governance report continued
Spotlight on:
Kinship leave.
Tesco became the first UK supermarket to give kinship carers the same support as
adoptive parents. We granted colleagues who have a Special Guardianship Order to
care for relatives’ children equal rights with colleagues who adopt – giving them both
26 weeks’ leave on full pay. The kinship leave, which applies to grandparents or other
relatives who take on a child of a family member, is intended to help kinship
carers to be able to stay in the workforce, while managing their extra responsibilities.
The policy is among a raft of family-friendly policies Tesco introduced this year.
Tesco PLC Annual Report and Financial Statements 2024
70.
Financial statements
Additional information
Governance
Strategic report
Customers
19
NPS
No.1
voted Britain’s favourite supermarket
by customers
More detail on how we support our
customers can be found on pages 2
to 5.
Why they are important
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 community
we serve.
Our customer net promoter score (NPS) is measured based on
customers recommending us as a place to shop and is a key metric in
measuring our progress.
We make it a priority to listen to our customers, so that we can keep
serving them better every day, either in stores or online.
Priorities and engagement
We serve millions of customers in store and online every day. We
actively seek customer feedback on a regular basis which, combined
with the information we gather from Tesco Clubcard as well as
independent consumer research, helps us to really get to know our
customers.
Our customers have continued to feel the pressure of the cost of living
this year and value has been extremely important to them. Whether
that is the value they get from our Aldi Price Match, Low Everyday Prices
and Clubcard Prices proposition or the value they get from treating
themselves to a Tesco Finest night in, rather than a meal out.
In addition to value, it is important to our customers that we are helping
them to eat more healthily and to get whatever they need in the most
convenient way.
Outcomes and highlights in 2023/24
The work we have done on value can be seen in detail on pages 4 and 5.
In the UK, our unique customer offer combines Aldi Price Match on
more than 600 lines, Low Everyday Prices on more than 1,000 lines and
around 8,000 exclusive Clubcard Prices deals each week. We have also
reduced the prices of more than 4,000 products by an average of 12%.
All of this has helped our position as the UK’s cheapest full line grocer
for 16 consecutive months.
During the year, we also ran: double Clubcard points event for seven
weeks; covered the cost of VAT on period pants and sun care; and
made the range we stock in Express stores even more affordable.
Through our Kids Eat Free at Cafés initiative, we have given away more
than 450,000 children’s meals; we have also introduced in-store zones
that signpost foods high in fibre, plant-based options and food under
100 calories.
Overall, we have improved our Customer NPS score by four points and
once again been named Britain’s Favourite Supermarket by customers
(The Grocer Gold Awards).
Suppliers
87.2%
Supplier satisfaction
88.3%
agree that Tesco treats me fairly
(based on Viewpoint Survey)
Why they are important
Our partnerships with suppliers are vitally important in delivering great
value and great quality products for our customers. When we get it
right together, our customers benefit and the business grows.
Tesco and its suppliers are committed to responsibly sourced
products, helping to deliver our net zero commitments under Scope 3
by 2050.
Priorities and engagement
We continue to build trusted relationships with our suppliers and work
with them to deliver healthier and more sustainable products for our
customers, which are affordable.
Our work on human rights is fully integrated within our operations,
forming a key part of our broader commitment to being a responsible
and sustainable business. We will always look to work with suppliers to
meet our responsible sourcing and ethical requirements.
We engage our suppliers through regular contact with our Product
teams, as well as through supplier surveys. Suppliers are also supported
by our Business Code of Conduct, and any material matters raised by
suppliers are reported to the Audit Committee. We ensure delivery
against our commitments under the Groceries Supply Code of Practice
(GSCOP) through a number of mechanisms, including reporting to the
Audit Committee.
Outcomes and highlights in 2023/24
We are delighted to have achieved the number one position in the
Advantage supplier survey for the eighth year in a row. We are
encouraged by the progress we have made so far to deliver healthy,
affordable and more sustainable products and will continue greater
collaboration with our suppliers and partners as we work towards our
objectives and support them to achieve their net zero commitments.
We are also supporting suppliers to improve diversity within their
businesses.
Through our sustainable farming groups we continue to: bring together
industry representatives; share knowledge between farmers, suppliers
and Tesco colleagues; and trial innovations that can help reduce on-farm
emissions and protect biodiversity.
We continue to invest in sustainable feed cost models, ensuring fair and
transparent pricing for our Own Brand egg and poultry suppliers, in
recognition that feed represents more than 70% of their cost of
production. We provided the UK egg sector with £10m of additional
support in 2023/24, following our investment of £27.5m over the course
of 2022/23.
We recognised that many UK vegetable growers were hit by storms and
flooding over the winter. As a temporary measure, we accepted smaller
brussels sprouts, cauliflowers, cabbages and leeks to help UK farmers
struggling with the devastating weather conditions that had affected
their livelihoods. This also helped us to keep British produce on shelves
for customers and reduce the risk of shortages.
Tesco partnered with Harper Adams University’s School of Sustainable
Food and Farming to launch a new multi-year programme which helps
up-and-coming British farmers develop their skills in sustainable
agriculture. The nine-month course will also include events and
mentoring sessions on business operations and personal development.
We completed the roll out of LEAF Marque certification with our British
fruit and vegetable growers at the start of 2023. We are now working
with our international grower supply base to complete the global roll
out of LEAF by 2025.
The winners of the 2022 WWF Tesco Innovation Connections
Programme shared how working with major Tesco suppliers had helped
to accelerate research, develop, test and scale their innovations.
Tesco PLC Annual Report and Financial Statements 2024
71.
Financial statements
Additional information
Governance
Strategic report
Shareholders
£1.4-1.8bn
Retail free cash flow
12.10p
Full year dividend
More detail can be found in the
Financial review on pages 22 to 29.
Why they are important
Our shareholders want us to create value and deliver long-term,
sustainable growth and returns. Understanding the views of our
shareholders supports the decisions we take and the opportunities
we create.
Priorities and engagement
Regular dialogue with our institutional investors, potential investors and
analysts provides insight to their views and policies, which is reflected
in our decision making.
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. Our LTP sets out our growth
ambitions over the next three years, including continued delivery for
all stakeholders and ongoing cash returns to our shareholders.
Outcomes and highlights in 2023/24
The investments we have made to date have strengthened our offer
to customers, made us more efficient, and more digitally capable,
establishing a strong foundation for future growth.
We continue to see the buyback programme as an ongoing and critical
driver of shareholder returns. Over the next 12 months we plan to buy
back £1.0bn worth of shares, including £250m funded by the special
dividend paid by Tesco Bank in August 2023.
We have had regular dialogue with shareholders during the year,
including through calls, individual and group meetings, with a particular
focus on themes such as ongoing performance, competitive
advantages in our core UK market and sustainability. This engagement
helps us to understand shareholder priorities and their views on how
we are progressing.
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. We welcome
engagement with private shareholders at our Annual General Meeting.
Communities
80m
equivalent meals donated
across the Group
£5.3m
available through Stronger
Starts programme
More information on the Sustainability
Committee’s visit to Groundwork can
be found on page 80.
Why they are important
We place great importance on helping the communities we serve.
We play a vital role to local communities, through the people we
employ, businesses we work with, and the causes we support.
Cost-of-living pressures have put significant strain on many of our
communities. Food banks and frontline charities are facing record
levels of needs as the rising cost of living pushes more and more
families into food uncertainty.
Priorities and engagement
Tesco redistributes surplus food from its distribution network and
stores through its charity and community partners, FareShare and Olio.
Colleagues and customers join our regular food collections to support
FareShare and the Trussell Trust. Tesco also provides financial support
to further help the charities in their work.
Our Community Champions in stores across the UK help us build
relationships with communities and support local events and initiatives.
Outcomes and highlights in 2023/24
Our Community Food Connection scheme has grown into the biggest
food redistribution initiative of its kind in the UK. To date it has provided
more than 200 million meals to charities and local communities who
depend on the food they receive to be able to support people facing
hunger. We launched Stronger Starts, a £5.3m programme to help give
children a healthier, stronger start in life and help them thrive. The
scheme, supported by UK community charity Groundwork, replaced the
Tesco Community Grants programme and is boosted with an additional
£1m funding each year, through our share forfeiture fund
until 2026/27.
We joined forces with the British Red Cross to provide vital assistance
to people affected by the devastating earthquake in Morocco and
sudden flooding in Libya. The £250,000 donation from the Tesco Group
was critical to the charity’s Disaster Fund Appeal. We also provided the
opportunity for UK customers to support the British Red Cross by giving
donations via text.
Planet
61%
reduction in emissions of
own operations since 2015
96.9 billion
calories removed from our Own
Brand ranges through reformulation
More information on the planet
initiatives can be found on
pages 18 to 21 and 38 to 45.
Why is it important
We have built sustainability into our purpose, strategy and business
plans. We know that our business depends on the world around us. As
the UK’s largest retailer, we know we can make a big difference.
We aim to be carbon neutral across our own operations by 2035. We
are working with suppliers and partners to deliver our goal to be net
zero from farm to fork by 2050.
Priorities and engagement
Tesco has a longstanding commitment to tackling climate change. Our
commitment to operating in a responsible and sustainable way reflects
our values.
We will continue to deliver action on climate through our planet plan,
which has been successfully rolled out across our business. Priorities
include reducing emissions across our own operations and supply chain
and building on our work to provide customers with affordable, healthy,
sustainable food, through initiatives such as our Better Baskets scheme,
which helps customers make better choices in the food they buy.
Outcomes and highlights in 2023/24
In November 2023, we launched Tesco’s nature programme, which
focuses on five key areas of action: protecting nature in key sourcing
landscapes; scaling industry-leading innovations to support
biodiversity; implementing a nature plan across our own estate and
operations; continuing to lead the industry on research into key
challenges facing nature and the food system; and playing a leading role
in cross-sector engagement. The programme will build on the
ground-breaking work of the Tesco WWF Partnership.
We also announced in November 2023, our ambition to install solar
panels on 100 stores over the next three years. This initiative could
generate as much as 20GWh of electricity, enough to charge the
equivalent of 300,000 Tesco electric home delivery vans.
Tesco became one of the first companies globally to set validated
science-based targets on all greenhouse gas emissions, including those
originating from forest, land and agriculture (FLAG). Our net zero
science-based targets have been validated by the Science Based Targets
initiative (SBTi), the body that validates our climate targets.
Corporate governance report continued
Understanding our stakeholders continued
Tesco PLC Annual Report and Financial Statements 2024
72.
Financial statements
Additional information
Governance
Strategic report
Board performance.
Progress against actions identified through the 2022/23 internal performance review
Action identified
Progress against action
Greater focus on the longer-term strategy and sustainability
objectives.
Development of strategy over the longer term was discussed
throughout the year. Development of the planet plan has been
embedded in the governance framework to support the delivery
of our sustainability objectives. More details can be found on page 59.
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 (SID) succession process and
ongoing diverse talent management plans.
The Board and Nominations and Governance Committee reviewed
succession plans for the Board and senior management throughout
the year to strengthen our diverse talent pipeline. Gerry Murphy was
appointed as Chair in July 2023 following a thorough search process led
by the SID. The Chair has led the succession process for the SID. The
Board approved that Carolyn Fairbairn would become SID at the
conclusion of the AGM. More detail on the Chair’s succession process
can be found on page 75.
Additional focus be given to customer insight and supplier engagement.
Business updates through the year have had a focus on
customer insight and supplier engagement. Dedicated sessions
on customers, innovation and communities are included on the Board
forward planners.
Directors to spend more time in the business, through individual site
visits and meetings with management.
Throughout the year the Board have taken part collectively and
individually in site visits and deep dives with management. Highlights are
included in our Board leadership in action on page 68 and 69.
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 review assesses the performance of the Board, its Committees and Directors.
The review is externally facilitated every three years with the last external review undertaken by Boardroom Review during 2021/22. The
next external review will be in respect of the 2024/25 financial year. The Chair and the Board continually work to strengthen and enhance
the performance, skills and experience of the Board to align with Group strategy.
Internal Board performance review process for 2023/24
Board and Committee
questionnaires
Developed with the Chair
and Group Company
Secretary. Questionnaires
included scored and free
text questions. Completed
by each Director in
December 2023.
Analysis
Results were collated for
discussion at Board and
Committee meetings.
Discussion
The Board and each
Committee discussed
results of the review
at meetings held in
February 2024.
The Chair discussed
individual feedback with
each of the Directors
separately.
Action plan
Conclusions of the
performance review were
reached and an action plan
developed based on
discussions. This will be
reviewed by
the Nominations and
Governance Committee
throughout the year to
track progress.
The performance review 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 previously identified in the 2022/23
survey and identifying potential for improvement. Given Gerry Murphy became Chair on 1 September 2023, it was agreed that the review
of his performance would be postponed and conducted in March 2024, allowing him to be in his role for six months. The Chair’s review
was led by the Senior Independent Director. Views from each Director on the performance of the Chair were obtained using a
questionnaire. The Board, excluding the Chair, discussed the findings at its meeting in April 2024 which concluded that he had made a
strong start, with a good focus on the longer-term strategy of the Group.
Actions identified during 2023/24 internal performance review
The results of the internal performance review were presented to the Board in February 2024 and concluded that the Board was
operating effectively. Many areas were rated highly with a few key focus areas identified for the forthcoming year:
— continue to review Board composition, with a focus on strengthening the expertise and skills required to deliver the Group’s long-term
objectives and opportunities to further enhance diversity;
— continue to shape the Board agenda to concentrate on the longer-term strategy with a focus on growth, net zero commitments, the
customer experience and technology;
— continue to review Group performance in a changing market and the changing needs of our customers; and
— continue to develop and test risk appetite.
An action plan has been developed and will be reviewed to track progress throughout the 2024/25 year.
Tesco PLC Annual Report and Financial Statements 2024
73.
Financial statements
Additional information
Governance
Strategic report
Nominations
and Governance
Committee.
Tesco PLC Chair
and Committee Chair
Gerry
Murphy.
Committee membership and tenure
Director
Member since
Gerry Murphy, Committee Chair
September 2023
Stewart Gilliland
April 2019
Byron Grote
December 2015
Alison Platt
April 2019
Details of attendance at Committee meetings is set out
on page 55.
Committee activity
32% Board and senior management
succession planning
35% Talent management
33% Group governance
Key activities in 2023/24
— Board and senior management succession planning
and recommendation of Board appointments.
— Diversity, equity and inclusion strategy and progress.
— Board and Committee composition: skills and
experience matrix.
— Board governance: Board effectiveness review,
time commitments and independence.
Priorities identified
— Senior Independent Director and Audit Chair succession.
— Continued focus on succession plans for the Board, Executive
Committee and senior management to ensure the Group has
the right skills and experience to deliver its strategy.
— Continued focus on diversity, equity and inclusion reporting and
objectives to ensure we continue to build an inclusive culture,
where everyone feels welcome.
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, equity and
inclusion policy.
— Monitor the progress of the Group’s diversity, equity and
inclusion strategy.
Group governance
— Review of corporate governance framework, including matters
reserved for the Board and Committee terms of reference.
— Monitoring compliance with the UK Corporate Governance Code.
— Board and Committee effectiveness review process and
progress against actions identified.
— Effectiveness review of Non-executive Directors including review
of time commitments, independence and conflicts of interest.
— Governance-related legal and regulatory developments
including impact of revised UK Corporate Governance Code.
The terms of reference for the Committee 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,
equity and inclusion, Board composition and Board effectiveness.
Board effectiveness and performance
Effectiveness of the Board encompasses many aspects of Board
governance including: matters reserved for the Board and delegation
of authority; review of the Board and Committee performance; Board
and Committee composition and succession planning; review of skills
and expertise; independence; time commitments; conflicts of
interest; and Director election and re-election. The Committee
undertakes detailed reviews of each of these aspects at least annually.
The Committee oversees the Board performance evaluation
process. The Committee reviewed the progress of the actions
identified through the 2022/23 evaluation and discussed whether
any further actions were needed. In addition, the Committee
reviewed the proposed approach to the internal 2023/24
evaluation of the Board, Committees and Directors, considering
the key themes and focus of the review.
Details of the 2023/24 Board performance
can be found on page 73.
Board composition, expertise and
succession planning
The Committee keeps under review the size and composition of
the Board and its Committees, and the need to refresh membership
so that there is an appropriate balance of skills, knowledge,
experience and diversity in its widest sense. The Committee
recognises the need to attract Board members with a diverse
range of backgrounds who can contribute a wealth of knowledge,
understanding and experience of the communities where
Tesco operates.
Corporate governance report continued
2023/24 evaluation of Nominations
and Governance Committee
An internal review of the Committee effectiveness was conducted
during the year. The questionnaire covered five key areas:
composition, management and information; training and support;
review and assessment of key areas; causes for concern; and
overall performance and suggestions for improvement. Its findings
concluded that the Committee’s activities were rated highly and
remained effective. A number of priorities were identified.
Tesco PLC Annual Report and Financial Statements 2024
74.
Financial statements
Additional information
Governance
Strategic report
To support the succession planning process, a skills matrix is
regularly reviewed to ensure the Board has and maintains 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. Our Non-executive
Directors are drawn from a wide range of industries and
backgrounds and have a wealth of experience in complex
organisations with global reach. The matrix shown on page 49
demonstrates the broad diversity and experience of the Board.
As part of the succession planning process, the Board reviews
Committee composition to ensure the size of each Committee is
appropriate with the relevant skills and expertise required, ensuring
governance requirements are met when replacing certain roles, for
example Chair of Audit and Remuneration Committees.
The Committee is responsible for identifying and reviewing suitable
candidates through a formal and transparent process, ensuring that
plans are in place for orderly succession to the Board. There have
been a number of changes to the Board during the year. At the 2023
AGM, John Allan stepped down from his role as Chair and Director of
the Company. John made a significant contribution during his eight
years in the business and the Committee would like to thank him for
his strong stewardship. John Allan was appointed in 2015 and his
tenure as Chair was due to end in early 2024. A succession process
had started in early 2023 to identify his successor and the
appointment of Gerry Murphy as Chair was announced on 3 July
2023. John Allan had no involvement in the appointment of his
successor. Lindsey Pownall also stood down from the Board at the
2023 AGM. Lindsey had served more than seven years on the Board
and had advised of her intention to retire in February 2023.
In September 2023, the Board welcomed Gerry Murphy as Chair of
the Board. This followed an in-depth selection process, assisted by
Lygon Group, who has no connection to Tesco or any of its
directors. A succession committee was established by the Board in
February 2023, led by the Senior Independent Director and
members of the Committee, supported by the Group Company
Secretary and Chief People Officer. Open advertising was not used.
Monthly progress updates to the Board, led by Byron Grote, were
provided throughout the process without the Chair being present.
The Committee made a unanimous decision in July 2023 to
recommend to the Board the appointment of Gerry Murphy. The
Board and Committee believed that his significant business and
board level experience and deep understanding of corporate
governance, enabled him to provide the Board with valuable
leadership in the delivery of the Group’s strategic objectives. A
timeline of the selection process undertaken is set out as follows.
Spotlight on:
Directors’ induction programme.
The induction programme constantly evolves, changing
as appropriate to reflect the business priorities, the
experience and expertise of the inductee and the role
they will perform. For example, an individual to be appointed
to the Remuneration Committee would have additional
meetings with senior members of the Reward team and
the remuneration advisors; those joining the Audit
Committee, would have a more detailed finance and
audit programme and a non-executive director joining
Sustainability Committee, would have additional meetings
with the Product, Environment and Group Communications
teams. The programme has evolved over time, culminating
in a combination of senior management and advisor
meetings, site visits and a library of documents, over
a six-month period.
Since joining the Board of Tesco PLC, I have had the
opportunity, through a comprehensive and tailored
induction programme, to meet members of the
Executive Committee and senior management across
the business and have undertaken a number of site
visits across the different store formats, urban
fulfilment centres and distribution centres. This has
provided me with insight to understand Tesco’s
operations and the strengths, risks, opportunities and
challenges we face as a Group, and enabling me to
engage quickly with the business and provide challenge
in my role as an Independent Non-executive Director.”
Carolyn Fairbairn
Independent Non-executive Director
Succession planning timeline for new Chair
Briefing of Lygon Group by the Senior Independent
Director and Group Company Secretary.
Establishment of succession committee by the Board,
with the Senior Independent Director as Chair.
Lygon Group met with key stakeholders within the
business to develop a detailed role profile.
Comprehensive evaluation of candidate pool, in
conjunction with Lygon Group.
Review of long list with succession committee
and Group Chief Executive.
Short list of four candidates interviewed by Lygon
Group, succession committee and Group Chief
Executive.
Interview of two final candidates by remainder
of the Board.
Board meeting to discuss candidates.
Approve appointment of Chair and announcement
of Gerry Murphy as the new Chair.
As reported last year, with the support of Lygon Group, the
Committee recommended the appointment of Carolyn Fairbairn,
who joined the Board on 1 September 2023 bringing significant
experience across the media, government and finance sectors.
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.
The Committee reviewed the tailored induction plans proposed for
Gerry Murphy and Carolyn Fairbairn. Directors’ feedback was that
the comprehensive programme provided great insight into the
business operations, governance and controls, with an opportunity
to meet colleagues across the business.
Byron Grote will retire from the Board at the forthcoming AGM.
Carolyn Fairbairn will succeed him as Senior Independent Director
and Karen Whitworth will take on the role of Audit Committee
Chair. I would like to thank Byron for his contribution and dedication
during his time as a Director.
Jan
Feb
Mar
Apr-
May
May-
Jun
Jun
Jul
Tesco PLC Annual Report and Financial Statements 2024
75.
Financial statements
Additional information
Governance
Strategic report
Review of Non-executive Directors’ time
commitments independence and conflicts
The Board recognises that it is important for all Non-executive
Directors to commit sufficient time to understand, oversee and
challenge the business. Upon appointment, Non-executive Director
letters of appointment stipulate the expected time commitment
while acknowledging that this may vary depending upon the
demands of the business and other events. 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. It 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.
Where cross-directorships exist, this does not affect the
assessment on independence. Each Director completes a
self-assessment of the time spent on their external commitments
which supports the Committee in their assessment. All Directors
make themselves freely available as required, even at short notice,
in order to meet the needs of the business. 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.
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 the
Non-executive Directors at least annually. In assessing each
Director’s independence, the Committee concluded that each
provides objective challenge, strategic guidance, holds
management to account and is willing to stand up and defend their
own beliefs and that each Non-executive Director continues to be
independent in character and judgement in line with the definition
set out in the UK Corporate Governance Code 2018.
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.
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. During the year, a review of Stewart
Gilliland, who reached his six-years’ service in March 2024, was
undertaken. Following a robust assessment, the Committee
determined that Stewart should continue as a Director.
Following a review of each of the Independent Non-executive
Directors’ time commitment, contribution and effectiveness, the
Committee considered and recommended to the Board that each of
the Directors be proposed for election or re-election by
shareholders at the 2024 AGM, with the exception of Byron Grote
who will retire at the conclusion of the 2024 AGM.
Non-executive Director external appointments are detailed
on pages 52 to 54.
Senior management talent planning
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, equity and inclusion. The
Committee strongly believes that diversity and providing an
inclusive culture is a key driver of business success and the
Committee is committed to having a diverse and inclusive
leadership team which provides a range of perspectives, insights
and critical challenge needed to support good decision-making,
helping with risk management, strategic planning and delivery.
Succession planning at executive and senior management level
continues to be a priority for the Committee and throughout the
year, the Committee monitored the future leadership pipeline and
the available pool of talent in the Group. This is essential to
ensuring a continuous level of quality in management, avoiding
instability by helping mitigate the risks which may be associated
with unforeseen events, such as the departure of a key individual.
The Committee’s review included a review of talent management,
key role profiles and succession planning all through a lens of
diversity, equity and inclusion.
Diversity, equity and inclusion
The Board has a duty to ensure that any barriers are removed
which might prevent a fair and equal workplace. Equity ensures that
everyone is treated fairly. All colleagues should feel comfortable to
attend work as their authentic self. We have a clear diversity, equity
and inclusion strategy in place to ensure that at Tesco, everyone’s
welcome. Our diversity, equity and inclusion strategy is built on
three core pillars:
We lead and
role-model
inclusion
We embed
inclusion in
everything we do
We listen,
learn and act
The Committee reviews progress against the diversity, equity and
inclusion strategy twice a year. Key priorities include continued
focus on diverse representation of our top global leaders,
Groupwide disability confident roadmap and continued focus on
This is Me as our primary strategic data source for diversity, equity
and inclusion matters. Our colleague networks continue to
underpin our strategy, supporting colleagues to connect and
amplify their voices, while proactively consulting with the business
on key priorities. Our UK colleague networks are Armed Forces,
Disability, LGBTQ+, Parents and Carers, Race and Ethnicity and
Gender Equality. Other markets have variations of these networks.
The Board’s diversity, equity and inclusion policy sits alongside
various other policies that support the Group’s wider commitment
to building an increasingly diverse business where all colleagues are
given equal opportunities through recruitment, learning and
development. The Committee reviews the policy in detail each year
and monitors progress against it. During the year, the policy was
updated to reflect the new recommendations set out in the Parker
Review to set ethnicity targets at senior management level. In
addition, the policy now reflects the current practice of the
Committee reviewing the diversity, equity and inclusion strategy to
ensure the ambitions set are being realised and that the Group is
promoting an inclusive workplace through inclusive people policies.
Corporate governance report continued
Nominations and Governance Committee continued
Tesco PLC Annual Report and Financial Statements 2024
76.
Financial statements
Additional information
Governance
Strategic report
Board diversity, equity and inclusion policy
Policy objectives
Implementation
Progress against objectives
Commitment to achieve a
minimum of 40% female
representation on the Board
and senior management on
the Executive Committee and
direct reports.
Regular succession planning sessions are
undertaken to review Board and Committee
composition throughout the year to ensure that
the appropriate balance of diversity, skills and
experiences required to deliver on the strategic
objectives are in place over the short, medium
and long term.
Scheduled updates to the Board, Nominations and
Governance Committee and Executive Committee
are provided. These cover talent management,
succession planning and diversity, equity and
inclusion to support the development of a diverse
pipeline of high-potential and high-performing
candidates in senior management roles.
We currently have 42% female representation on the
Board and 34.7%* female representation of the
combined Executive Committee and their direct
reports. The Executive Committee was reduced from 13
to 12 during the year. Our Chief Customer Officer left
the business in October 2023. This role was occupied by
a female colleague. A new role has been created, Chief
Commercial Officer, amalgamating the Chief Customer
Officer role with the Chief Product Officer role. This role
is currently occupied by a male colleague.
Through our Groupwide gender equity plan that we
introduced this year, we are prioritising improving our
senior management representation through
developing strong talent pipelines and ensuring we are
building a culture where everyone can thrive.
*
Data as submitted to the FTSE 350 women leaders report
on 31 October 2023.
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.
Consideration is given to this as part of the
succession planning process. The Committee
continues to challenge the external search
consultants where necessary, to ensure that
diversity is always considered when drawing
up candidate shortlists.
The Board approved the appointment of Carolyn
Fairbairn as the Senior Independent Director
to succeed Byron Grote at the conclusion of the
2024 AGM.
The Board supports and
monitors Tesco’s diversity, equity
and inclusion strategy and
management’s efforts to ensure
that the diversity of Tesco’s
top global leaders is
continuously enhanced.
Scheduled updates to the Board, Nominations and
Governance Committee and Executive Committee
to discuss talent management, succession
planning and diversity, equity and inclusion to
assist the development of a pipeline of high-
potential and high-performing candidates with
diverse backgrounds in senior management roles.
KPIs have been established to measure progress.
During the year, members of the Committee have
taken on mentoring roles to some of our senior
leaders within the business.
We are committed to promoting diversity and have set
a target of achieving 37% female and 17% ethnically
diverse representation of our top global leaders by
2026. Diversity of this population is currently 30%
female and 14% ethnically diverse.
Through our gender equity plan, we are prioritising
improving our senior management representation
through building strong talent pipelines.
Maintain at least one Director
from an ethnic minority
background and support the
Parker Review recommendations
to set ethnicity senior
management targets.
Diversity, equity and inclusion at Board and senior
management level is considered as part of the
talent management and succession planning
processes.
We currently meet the Parker Review recommendations
with both Melissa Bethell and Imran Nawaz being from
Asian backgrounds. 17% of the Board is ethnically
diverse. In line with the new Parker Review
recommendations, we have already set an ethnicity
target of 17% for our top global leaders by 2026 and
will be setting a target for 2027.
Below is the diversity, equity and inclusion schedule in accordance with Listing Rule 9.8.6(10). Gender data is collected through the Group’s
payroll system using the legally registered gender for each colleague. Ethnicity data for the Board and Executive Committee is obtained
through the Group’s Directors’ disclosures questionnaire which aligns to the voluntary diversity questionnaire – This is Me.
Data as at
24 February 2024
Number
of Board
members
Percentage
of the
Board
Number of
senior
members on
the Board1
Number of
Executive
Committee
Percentage
of Executive
Committee
Number of
top global
leaders2
Percentage
of top
global
leaders2
Number of
employees
Percentage
of
employees
Men
7
58%
4
9
75%
197
70%
162,549
48%
Women
5
42%
0
3
25%
84
30%
174,163
52%
Data as at 24 February 2024
Number
of Board
members
Percentage
of the Board
Number of senior
members on
the Board
Number of
Executive
Committee
Percentage
of Executive
Committee
White British or other White (including minority-white groups)
10
83%
3
9
75%
Mixed/multiple ethnic groups
0
0%
0
0
0%
Asian/Asian British
2
17%
1
2
17%
Black/African/Caribbean/Black British
0
0%
0
0
0%
Other ethnic group, including Arab
0
0%
0
0
0%
Not specified/prefer not to say
0
0%
0
1
8%
1. The Board has approved the appointment of Carolyn Fairbairn as Senior Independent Director to succeed Byron Grote at the conclusion of the 2024 AGM. There will
then be one female fulfilling the role of a senior member of the Board.
2. Definition of top global leaders: work levels 4 to 6.
Tesco PLC Annual Report and Financial Statements 2024
77.
Financial statements
Additional information
Governance
Strategic report
Sustainability
Committee.
Committee Chair
Stewart
Gilliland.
Committee membership and tenure
Director
Member since
Stewart Gilliland,
Committee Chair
June 2021
Bertrand Bodson
June 2021
Carolyn Fairbairn
September 2023
Karen Whitworth
June 2021
Details of attendance at Committee
meetings is set out on page 55.
Details of the time spent on key areas of responsibility during
2023/24 are set out below.
Committee activity
24% Sustainability strategy
27% Planet plan pillars
23% Current issues
26% Stakeholders and governance
Key activities in 2023/24
— Review of initiatives required to support the delivery of
our Scope 1, 2 and 3 net zero commitments.
— Deep dive into the pillars of the planet plan with a focus
during 2023/24 on decarbonisation, healthy sustainable
diets, sustainable agriculture, nature and waste.
— Oversight of human rights and community initiatives
— Sustainability-related site visits and events.
2023/24 evaluation of Sustainability Committee
An internal review of Committee effectiveness was conducted
during the year. Its findings concluded that the Committee
remained effective in the assessment of key areas of the Group’s
sustainability programme with an appropriate level of challenge,
identifying additional areas for deep dives and further clarification
where required.
Priorities identified
— Transition plan.
— Monitoring path to net zero.
— Nature.
— Modern Slavery.
Key responsibilities
Sustainability strategy
— Support and advise the Board on matters relating to the planet
plan, human rights and our communities.
— Review and challenge initiatives supporting the Group’s net
zero commitments.
— 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.
— Monitor KPIs relating to sustainability and climate.
— Monitor external developments on sustainability.
Planet plan
— Progress updates and deep dives on initiatives supporting each
of the six planet plan pillars.
Community
— Receive updates on our community programmes.
— Approve the use of share forfeiture funds for good causes.
Governance and stakeholder engagement
— Annual review of sustainability communication and customer
plan.
— Review of human rights strategy; oversight of human rights
risk and assurance; review of the governance and monitoring
of human rights matters.
— Review and approval of sustainability-related corporate
reporting.
— Regular updates on stakeholder engagement on
sustainability matters.
— Review of the effectiveness of the Committee and annual
review of Committee 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.
Corporate governance report continued
Tesco PLC Annual Report and Financial Statements 2024
78.
Financial statements
Additional information
Governance
Strategic report
I am pleased to present my first Sustainability Committee report as
Chair of the Sustainability Committee, having taken over the role
from Lindsey Pownall in June 2023. I would like to take this
opportunity to thank Lindsey on behalf of the Committee for her
excellent work as Chair and her support to me personally during
the transition of roles.
As Chair of the Sustainability Committee, I have been impressed
with the innovative thinking and perseverance of Tesco’s leadership
in striving to achieve its sustainability goals and objectives and
ensuring Tesco’s ongoing leadership across so many areas of the
sustainability agenda. I have also been impressed by the relentless
efforts and generosity of our colleagues – from organising food
donation events in stores across the Group, to providing meals to
our charity partners, to the passion of our Community Champions
in ensuring the success of our new Stronger Starts grants
programme and supporting our communities.
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 the planet and our communities. The Committee’s key
responsibility is to assist the Board in its oversight of sustainability
governance, through a range of environmental and community
initiatives, ensuring that sustainability is integrated throughout the
Group and that our stakeholders, communities and planet are at
the heart of everything we do.
As a Board and a Committee we have built sustainability into our
purpose, strategy and business plans. Our commitment to operating
in a responsible and sustainable way reflects our beliefs and values.
We know that our business depends on the world around us and as a
major retailer, we know we can make a big difference, transforming
our own operations and working with suppliers, partners and
stakeholders to decarbonise our supply chain.
Committee site visits were conducted during the year to support
the oversight of Tesco’s sustainability activities. These allowed us
to see the impact that our sustainability initiatives have on our
colleagues, customers and communities, alongside opportunities
to further drive change.
Details of the Committee’s store visit, which focused on the key
activities that support the planet plan pillars across food and
wider store operations, can be found on page 69.
The Committee’s Groundwork visit to a community project
is detailed on page 80.
In August 2023, Tesco became one of the first companies globally
to set validated science-based targets on all greenhouse gas
emissions, including those originating from forests, land and
agriculture (FLAG) emissions. Our net zero science-based targets
have been validated by the Science-Based Targets initiative (SBTi),
the body that validates our climate targets. The validated targets
will see us work towards our commitment to become carbon
neutral across our own operations by 2035, and through the value
chain by 2050, in line with the Paris Agreement’s aim of limiting
global temperature rise to 1.5°C.
How the Committee has discharged its
responsibilities
During the year, the Committee’s principal activities were as follows:
Sustainability strategy
During the year, our planet plan has provided a clear path on the
oversight of the important initiatives to deliver our climate goals, with
activities grouped into six pillars as set out on pages 18 and 19.
The Committee takes regular deep dives into each pillar to better
understand the opportunities and challenges to achieve our
targets. These provide an opportunity to monitor the progress
made against targets, consider key areas of focus and address
risks. The Committee’s discussions are informed by the knowledge
and experience of senior leaders and experts within the business
who are accountable for the delivery of the initiatives.
The Committee feeds back to the wider Board on matters
discussed at meetings and helps to ensure that delivery of the
sustainability strategy is embedded into the overall Group strategy.
With cross-committee membership and defined and focused
responsibilities across each Board Committee, it enables
collaboration and consistency across our governance framework.
Spotlight on the governance of sustainability-related matters is
detailed on page 59.
Planet plan
To achieve our purpose of serving our customers, communities and
planet a little better every day, the Group’s strategic drivers seek to
simultaneously create value for both shareholders and society as a
whole. The framework we use to achieve our planet commitments
is through our planet plan which is designed to provide a clear and
easy-to-use framework to align environmental performance
across the Group. The planet plan follows the steps along the Tesco
value chain – from improving the products we sell to eliminating
packaging and food waste. The actions we take play a role in helping
us to decarbonise our business and supply chains. The planet plan’s
goals and objectives will support the delivery of our net zero
commitments.
At each meeting a planet plan dashboard and glidepath are
reviewed, which set out the key initiatives to deliver our net zero
commitments, providing the Committee with timely updates to
monitor progress, KPIs and key milestones, alongside the
opportunity to challenge and request deep dives into specific
topics and issues.
Further information can be found in the Task Force on Climate-
related Financial Disclosures on pages 39 to 45.
The Committee has undertaken deep dives into a number of areas
which are aligned to our Scope 1, 2 and 3 glidepath. These provided
the Committee with the opportunity to develop a detailed
understanding of the key deliverables required for our net zero
commitments and the opportunities and challenges they create
for the Group. Specific deep dives included:
— Decarbonisation: to support the delivery of Scope 1 and 2
across the Group with a focus on innovation within our own
operations to support pillars 2 and 3 of our planet plan, looking
at operational change and transport innovation. These activities
will all play a significant part in helping us to decarbonise our
business. Understanding the progress across UK, ROI, Booker
and CE, with learnings across all markets.
— Healthier and sustainable diets: to review progress against our
healthy sales commitment in the UK, ROI and CE, tracking our
2023/24 targets and beyond, to understand the key challenges
and opportunities and how we plan to achieve these targets.
— Improve our products: the Group is on track to meet its
shorter-term commitments and good progress is being made in
a number of areas on the Group’s longer-term commitments.
We have completed the roll out of the LEAF Marque to all UK
growers; on track to achieve 100% cage-free shell eggs across
the Group by 2025; and ran a successful trial on low-carbon
fertiliser.
— Nature: the content of the Group’s nature pillar has been
shaped setting out key objectives to invest in priority landscapes
across the UK and internationally, and contributing to the
development of the global biodiversity initiatives designed to
support corporate actions. Actions are being built into the
Group’s workstreams for 2024/25 and beyond.
— Waste: the Committee received an update following an internal
investigation on the UK’s food waste processing supplier (more
details can be found on page 93). A deep dive into eliminating
waste is scheduled for discussion by the Committee during
2024. Further details on food waste can be found in our food
waste report at www.tescoplc.com.
I am pleased to report that good progress was made across
the most material areas of sustainability in 2023/24, with the
Committee reviewing the Group’s performance across each pillar
of the planet plan and approving areas for development and
improvement in the next financial year.
Tesco PLC Annual Report and Financial Statements 2024
79.
Financial statements
Additional information
Governance
Strategic report
Sustainability communication plan
In terms of Tesco’s approach to the disclosure of its sustainability
impacts, our aim is to bring about continuous improvement in both
the quality of information disclosed and across stakeholder
engagement. Tesco’s sustainability reporting aims to demonstrate
the way it creates value for shareholders and society in a
sustainable way and provides detailed information on the policies,
practices, performance and governance of a range of economic,
social and environmental matters. Further information can be
found at www.tescoplc.com and on pages 38 to 45.
The Committee reviewed the sustainability communication plan
which is designed to be delivered by the Group Communications
team, the Group Quality, Technical and Sustainability team and
Group Finance team, who have the responsibility for reporting on
sustainability and governance matters across the Group. The
sustainability communication plan has a focus on delivering on
our purpose and raising awareness of the planet plan with our
internal and external stakeholders, showcasing initiatives
and demonstrating the actions we are taking to deliver on
our commitments.
There is a focus on our Better Baskets initiative which helps our
customers make better choices through highlighting healthier,
more sustainable products and recipes that are affordable and
easily accessible, alongside ways to reduce food waste and save
money. The Committee regularly reviews progress against the
communication plan and receives feedback from stakeholders.
This ensures we strive to stay ahead of expectations, drive change
and show transparency in our reporting.
The Group has been in partnership with the WWF since 2018 with
the aim of delivering industry-leading collaborative initiatives to
halve the environmental impact of the average UK shopping basket.
We set this goal because we know that putting the food system on a
sustainable footing is vital if we are to meet the challenges of
feeding a growing global population while tackling the climate crisis
and nature loss. With the work of the partnership now successfully
embedded in our supply chains, and with Tesco and WWF convening
five other UK supermarkets around the agenda we set out as part of
the WWF Retailers’ Commitment for Nature Group, our direct
partnership with WWF came to its planned end in November 2023.
We will continue to separately address these critical issues across
both our organisations and play our part in driving action at an
industry level through the WWF retailers’ group.
Community
The Committee regularly reviews community initiatives. During the
year, we received updates on the following matters:
— Community programme: including progress on the launch of
Stronger Starts, our new £5.3m funding programme to support
thousands of schools, youth groups and good causes across the
UK to boost funds for healthy food and activities.
— Global community programmes: aligned approach across the
Group to help children have a stronger start in life by helping
fund healthy food and fitness activities to improve their physical
and mental wellbeing.
— Share forfeiture funds: during 2023/24, the Group undertook a
share forfeiture programme following a tracing and notification
exercise which resulted in £3.7m of forfeiture funds being
available to spend on good causes. The Committee has approved
that these funds be used for the purposes of supporting our
community programmes with a focus on food and nutrition.
Our community programmes are central to delivering an important
part of our purpose for our customers, colleagues and
communities. Through our blue token voting mechanism in store,
customers have already voted to support more than 4,000
projects and £4.3m of funding. A further £2.7m is also available for
local community organisations which can apply or be nominated by
a colleague. In Ireland, Stronger Starts launched in 2021 with the aim
of giving children who need it most, a better start in life by accessing
healthier, nutritious foods at an early age. This programme is
bolstered by wider support for children’s initiatives through the blue
token community fund, in-store and online food collections, and our
strategic charity partnership with the Children’s Health Foundation.
In Central Europe, the You Choose We Help programme, has
supported more than 7,200 projects for groups and charities in the
Czech Republic, Hungary and Slovakia since 2016.
Spotlight on:
Committee visit to Groundwork
project.
Following the launch of our Stronger Starts grant
programme, members of the Sustainability Committee
took the opportunity to visit Hillborough Junior School in
Luton, a recipient of one of the first Stronger Starts
grants, to see first hand the positive impact of the
funding. Greeted by members of Tesco’s Stronger Starts
Squad from the launch event in Summer 2023, members
were guided to the new Slow Cooker Club that is currently
supporting a number of local families. Each week, the
selected pupils and their parents, carers or guardians, are
invited to prepare a nutritious meal, learning together
about a healthy, sustainable diet as well as the basics of
food preparation. After bubbling away throughout the
school day, the children then take home the meal, feeding
their family and loved ones that evening. This Slow Cooker
Club is just one example of the many types of projects
that Stronger Starts supports, providing healthy food and
activity for children.
Members then met with Graham Duxbury, Groundwork
Chief Executive, to discuss the trusted partnership
between Tesco and Groundwork, which began in 2016.
Attendees discussed the evolution of the programme and
how we can leverage the scale and impact to provide
support to even more children, schools and community
organisations across the UK.
The visit finished by meeting the Community Champion of
our Dunstable Extra store, Karen Linley. Karen showcased
the benefit our Champions across Tesco bring to local
areas, from leading our core community initiatives to
providing the hyperlocal support on a daily basis on issues
that matter most to their local community.
Corporate governance report continued
Sustainability Committee continued
Tesco PLC Annual Report and Financial Statements 2024
80.
Financial statements
Additional information
Governance
Strategic report
Our food programmes involve redistribution of unsold food from
our stores and distribution centres. At the end of every day, our
stores make surplus food available to charities and community
groups. Our distribution centres also make surplus food available
through regularly scheduled collections. In 2023/24, we donated
the equivalent of 80 million meals to local communities in the UK
and Ireland and the national food banks in the Czech Republic,
Hungary and Slovakia and via our partner FoodCloud. In addition,
we organise food collections in our stores in the UK, Ireland and
Central Europe to help customers to donate food to people who
need it most in their community. In 2023/24 customers donated
an incredible 13.9 million meals. Booker has joined Tesco in being
awarded the FareShare Food Partner Logo in recognition of its
consistent food donation work.
We also continue to support our health charity partners in the UK,
the British Red Cross in the UK and internationally and support
our Community Champions at a hyperlocal level to fulfil requests
for support.
Factsheets providing additional information can be found
on our website at www.tescoplc.com.
Governance and stakeholder engagement
The Committee places a lot of emphasis on the governance
surrounding sustainability and social responsibility matters. Human
rights is embedded within our core purpose and the Board is
committed to respecting human rights throughout our global
supply chain. Our human rights strategy seeks to raise standards
and protect our third-party workforce. The Committee regularly
reviews our human rights strategy, progress against the Group’s
compliance programme and the areas of risks to ensure high
standards are implemented consistently throughout the Group.
Understanding our stakeholder views is a vital part of the delivery of
our sustainability strategy. As part of our stakeholder engagement,
the Committee regularly receives updates from the Investor
Relations team to understand the views and sentiment of our major
investors, including the insight and challenge shared by investors at
ESG roundtables.
In January 2024, I attended an ESG open agenda roundtable
event organised by the Tesco Investor Relations team. It was well
attended with investors representing more than 20% of our issued
share capital. The event provided an opportunity for investors
to meet with myself and senior management with day-to-day
responsibility of some of our sustainability-related matters. We
had the opportunity to introduce our planet plan in more detail
with questions focusing primarily on nature and healthy diets.
The launch of the Group’s news and views, an internal
communications platform, has seen increased levels of colleague
engagement, and colleague feedback has been provided to the
Committee to further help shape our decisions.
Regular updates on sustainability trends and developments and
media coverage on key sustainability matters impacting Tesco are
reviewed by the Committee at each meeting to ensure we can
adapt to, and drive, change. During the year, the Committee
has also reviewed a variety of sustainability-related disclosures
including the content included in this Annual Report and
sustainability-related documents and factsheets which can be
found on our website at www.tescoplc.com.
Further details on our community initiatives and stakeholder
engagement can be found on pages 70 to 72.
Looking ahead, the sustainability agenda and supporting regulation
continue to grow at speed and it is vital that we continue to be clear
on how we can make an impact as a Company and continue to
deliver strong performance for all our stakeholders. The Committee
will continue to focus on overseeing the delivery of key milestones
that support our sustainability initiatives across the Group, ensure
the Group’s conduct as a responsible business, and hold the
business to account on delivering on its commitments.
Stewart Gilliland
Sustainability Committee Chair
Spotlight on:
Community.
In May 2023, Tesco Ireland proudly marked the moment that our Stronger
Starts programme provided the equivalent of its one millionth free,
healthier and nutritious meal to primary school children and their
families across Ireland.
Children in 117 DEIS schools (Delivering Equality of Opportunity in
Schools) across Ireland received a pack containing fresh apples,
onions, potatoes and carrots every week. Within the one million
meals, more than 4.5 million pieces of fruit and vegetables have
been provided to date.
4.5 million +
pieces of fruit and vegetables provided to date
Tesco PLC Annual Report and Financial Statements 2024
81.
Financial statements
Additional information
Governance
Strategic report
Audit
Committee.
2023/24 Evaluation of the Audit Committee
The 2023/24 Committee evaluation formed part of the internal
Board evaluation process and was rated very highly overall, see
page 73 for further details. The review found that the Committee
works effectively with management and the assurance providers,
with no concerns identified with respect to the way the Committee
considers the Company’s financial health, accounting treatments,
future outlook or exposure to risk. The Committee received high
ratings for its oversight of internal controls and risk management
systems, the effectiveness of the group audit function, the
independence and work of external auditors, narrative reporting
and sustainability assurance.
Priorities identified
— Greater oversight of risk appetite as the Group continues
to enhance its risk appetite framework.
— Continued focus on technology and cyber security risks,
see page 85.
— Sustainability reporting and assurance requirements and better
use of insight tools to simplify the audit process.
Key responsibilities
Financial statements and reporting
— Monitoring the Group’s financial reporting processes, reviewing
and submitting 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.
— Reviewing the Group’s assessments of going concern, longer-
term prospects and viability and the distributable reserves
position prior to any declaration of dividends.
— Reviewing externally reported sustainability-related disclosures
and sustainability KPIs, including any definitions, data sources
and levels of assurance for each.
External auditor
— In line with requirements, the Committee undertook a thorough
audit tender process, further details of which are set out on
page 84.
— 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 in line with policy on non-audit services.
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.
The terms of reference for the Committee are reviewed
on an annual basis and are published on our website at
www.tescoplc.com
Corporate governance report continued
Audit Committee Chair
Byron
Grote.
Committee membership and tenure
Director
Member since
Byron Grote,
Committee Chair
June 2015
Melissa Bethell
September 2018
Caroline Silver
October 2022
Karen Whitworth
June 2021
Details of attendance at Committee meetings is set out
on page 55.
Key decisions in 2023/24
— Competitive audit tender process.
— Internal controls.
— Audit and assurance.
— Banking operations disposal and strategic partnership.
— Risk management and risk appetite.
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 systems. Further details on the division of
Board responsibilities can be found on page 56 and the
Committee’s role in complying with the UK Corporate
Governance Code are set out on page 61.
The Committee considered the Annual Report and Financial
Statements 2024 and concluded that the disclosures, as well
as the processes and controls underlying its production,
were appropriate. For more details on our fair, balanced and
understandable consideration, see page 61.
Tesco PLC Annual Report and Financial Statements 2024
82.
Governance
Strategic report
Financial statements
Additional information
Financial statements and 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 86.
The Committee considered the viability and going concern
statements, their underlying assumptions and the longer-term
prospects of the Group. We challenged the viability modelling applied,
resulting in a change to scenarios. The Committee also considered
the base case liquidity headroom and the net impact of the following
agreed stress-test scenarios applied and the mitigating actions
available: ongoing geopolitical and global supply issues triggering
further inflation, leading to weak consumer confidence and
intensified competition, climate change and data breach. The
Committee evaluated going concern over an 18-month period, which
included a review of available cash in the base case and in the severe
but plausible case. The impact of the Banking operations disposal was
considered as part of the assessment, but concluded it would have
minimal impact. The Committee considered it appropriate to prepare
the Group's Financial Statements on a going concern basis. In its
review of the financial statements, the Committee considered, and
challenged as appropriate, the accounting policies and the significant
judgements and estimates underpinning the financial statements.
Against a backdrop of significant inflationary pressures, the Group
has adapted to the challenging external environment and put
in place robust measures to manage future cost pressures and
short-term risks.
The Committee received periodic updates on the impact of market
movements on the accounting position of the Group's pension
schemes, in accordance with IAS 19. The Committee discussed the
pension scheme valuations and the evolution of the long-term
funding plan, in light of significant turbulence in investment markets
and the 2022 UK gilts crisis. The funding position remained in surplus.
The Committee reviewed the investment strategy and proposals to
restructure Tesco Pension Investment and appoint an outsourced
chief investment office to manage the scheme investments and
deliver an optimal investment model. The impact of discount rates
and volatile bond markets on the accounting position of Group
pension schemes continues to be monitored, see Note 29.
As impairment remains one of the most significant areas of
judgement, the Committee considered steps to simplify and improve
the complex impairment model process across the Group, including
tightening review controls and ensuring stronger audit trails, with a
view to preparing for reliance on impairment controls in the future.
The Committee received regular updates on the store impairment
and goodwill position considering weighted average cost of capital
rates, terminal cash flows and property fair values. The impairment
methodology and details of the impairment of non-current assets is
presented in Note 14.
The Committee 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. The Committee discussed the accounting
implications of the Banking operations disposal and associated
judgements, including considerations for financial results regarding
the classification of held for sale (Note 7) and the impact on Tesco
Bank goodwill carrying value (Note 10). The ongoing future partnership
income and allocation of Tesco Bank goodwill between the disposal
group and retained business were also reviewed.
The goodwill allocated to the retained business was assessed for
impairment indicators, concluding that no impairment was required.
Corporate governance reforms
The Committee considered proposed changes to the UK Corporate
Governance Code (the Code), particularly the impact to internal
controls attestations in 2026, sustainability assurance and an audit
and assurance policy. Work continued on the embedding of the
Internal Controls over Financial Reporting (ICFR) programme, see
page 87. More rigorous testing on internal controls had been built
into the process in anticipation of corporate governance reforms.
The Committee discussed the key priorities for, and process to
determine, operational and compliance risk and controls, including
a definition of materiality. A steering group was set up with
accountability assigned to monitor and plan for each of the key
changes. The Committee received updates at each meeting on
developments. The steering group composed a response to the
Code consultation, which was reviewed and endorsed for
submission. Despite the Government’s decision to withdraw
secondary legislation proposals, the Group plans to continue with
its approach to assurance mapping and risk appetite. It will also
continue to develop governance frameworks, including an audit
and assurance policy, and fraud policy and blueprint.
Key financial controls
The Committee oversees the processes undertaken to monitor the
underlying key financial control environment and to provide
assurance over the preparation of the financial statements. The
Committee reviewed the scope of compliance work undertaken and
the approach. The effectiveness of key financial controls is reviewed
April
2023
July
2023
September
2023
November
2023
February
2024
— Financial statements
and regulatory
reporting
— IT general controls
— Key financial controls
— Pensions review
— Dividend proposal
— Share buyback
programme
— Estate valuation
— Tesco Bank update
— External audit and
internal audit
effectiveness reviews
— Corporate
governance update
— Key financial controls
— Internal control over
financial reporting
— IT general controls
and cyber security
— Energy hedging
strategy
— Business
transformation update
— External audit plan
— Financial statements
and regulatory
reporting
— Dividend proposal
— Risk management
and risk appetite
— Sustainability
reporting and
assurance
— Proposed Banking
operations disposal
— Corporate
governance update
— Deep dive (data
privacy risk)
— IT general controls and
security programme
— Energy hedging and
strategy update
— Sustainability
and assurance update
(food waste)
— Corporate governance
update
— Business risk update
— Audit policy approvals
— Financial statements
and regulatory reporting
— TCFD and nature
disclosure proposals
— Sustainability disclosures
and assurance (food
waste)
— Capital allocation and
liquidity funding
— Pensions update
— Tax update
— Corporate governance
update
— Principal risks update
Tesco PLC Annual Report and Financial Statements 2024
83.
Governance
Strategic report
Financial statements
Additional information
Spotlight on:
Audit tender.
As intimated in the last annual report, the Committee
conducted a competitive and rigorous external audit tender
process in accordance with statutory requirements and the
minimum standard for audit committees, for the 2025/26
reporting period.
The audit tender process comprised three levels of governance:
Audit Committee – the Committee’s role was to lead the
audit tender process, agree the scope and consider the
tender proposals. The Committee oversaw that the tender
process was run in an efficient, transparent, fair and effective
manner, before selecting and recommending the appointment
of an external auditor to the Board.
Audit tender sub-committee – made up of the Audit
Committee Chair, Audit Committee members, Group Chair,
Group CFO, Group General Counsel, Chief Audit and Risk
Officer, Group Finance Director, Group Finance Director
(Control) and Group Company Secretary, who separately met
with each firm and collectively attended the audit tender
presentations and provided fair and objective feedback.
Audit tender working team – made up of management and
led by the Group CFO, the team was set-up to coordinate
and manage the audit tender process. The team drafted the
request for proposal issued in September 2023, collated
tender information packs, performed a detailed assessment
of each audit firm and reviewed the final proposal
presentations submitted.
Scope
The criteria used to make the selection included:
understanding of Tesco, audit quality, approach and
methodology, innovation, credibility and experience, and the
value proposition. These criteria were focused on quality,
including independence, challenge and technical competence
across all jurisdictions in which the Group operates, as well as
the wider behaviours required to support delivery of a
complex audit. In line with FRC recommendations, other
indicators of audit quality were considered, including through
reviewing the findings of FRC Audit Quality Review reports.
The Committee discussed the timetable and the process
to ensure a fair tendering process.
Participants
The Group considered eight audit firms in the tender process,
including each of the ‘Big 4’ audit firms and four challenger
firms. Management engaged with each of the firms to support
preparations for their formal tender proposals. Corporate
information – detailing structure, principal activities and
policies, were shared through a data room which all
participating firms could access. A structured Q&A process
was implemented to provide clarification and additional
information, which was shared with all firms.
The initial group reduced to two firms who took part in the full
tender process. The remaining firms withdrew autonomously
from the audit tender process by reason of lack of capability
and capacity to undertake an audit of the size and complexity
of Tesco, and potential conflict. Management held discussions
with audit firms to understand why they felt unable to tender
and whether any changes to the audit parameters were
required. The Committee was satisfied that the audit tender
exercise had been undertaken in a genuine manner, with
recognition that where possible audit work should be divided
among challenger firms. The Committee reviewed the
non-audit work undertaken by each of the firms across the
Group and their independence, and none were discounted on
this basis. Deloitte were permitted to participate in the tender
as their tenure did not exceed the 20-year mandatory
rotation period.
Process
The Committee members and the Group CFO had an
opportunity to meet with the lead audit partners of each of
the final participant firms. The audit firm teams also met with
key business and function leaders during October 2023 to
help cultivate a greater understanding of the Tesco business
and discuss particular elements in greater depth, such as the
role of Tesco Business Solutions (TBS). The two final tender
participants both travelled to Bengaluru to meet with TBS
business leaders and operational teams.
The Committee received regular updates throughout the
process, both outside of, and as part of regular scheduled
meetings. Management spoke with an existing client of each
firm's lead partner and provided feedback to the Committee.
The audit tender sub-committee evaluated the audit tender
presentations and provided objective feedback to the
Committee. The evaluation was conducted using standardised
scorecards and considered the request for proposals,
presentations and the interactions with management. Scores
against each selection criteria were weighted. Management
held feedback meetings with each of the firms.
The Committee considered the results of the tender at its
November meeting and agreed to recommend to the Board
that Deloitte be reappointed as the Group’s external auditors
for the 2025/26 financial period, which was accepted and
approved. The appointment of Deloitte as external auditor is
subject to approval at the Annual General Meeting each year.
Corporate governance report continued
Audit Committee continued
annually, and controls testing carried out. The results of effectiveness
testing have been reported to the Committee through the year.
No material gaps were identified and necessary remediations were
taken. Updates on progress towards enhanced corporate
governance compliance and other control improvements were
provided from the CFOs of UK & ROI, Central Europe and TBS
operations. Controls remain subject to other assurance activities,
including by Group Audit who test the primary key financial controls
on a regular basis and report their findings to the Committee.
In preparation for future controls reliance, Deloitte have tested
key relevant financial controls through the performance of design,
implementation and operating effectiveness testing in a number
of areas including impairment, revenue, commercial income,
UK inventory, UK pensions and financial close processes. The
Committee were comfortable that no significant or material
control issues have been identified.
Environmental disclosures and assurance
Our work continued to support the Group’s risk, controls and
assurance framework and the development of an audit and
assurance policy to govern assurance over key published non-
financial information (see page 87). The Committee reviewed the
proposed disclosure plan and enhancements to scenario modelling in
connection with the Task Force on Climate-related Financial
Disclosures (TCFD), the risk modelling of which was aligned to the Paris
Agreement and Tesco’s stated targets as detailed on pages 39 to 45
and our first nature-related disclosures in preparation for alignment
to the Task Force for Nature-related Financial Disclosures (TNFD)
recommendations. Deloitte have provided limited assurance over six
key KPIs including sustainability metrics in the Performance Share
Plan targets and sustainability-linked financing. Further to the
readiness review performed last year, Deloitte has provided limited
assurance over our TCFD statement for the first time. KPIs which are
not assured by Deloitte are internally validated and the Committee
reviewed the assurance status prior to external disclosure.
Tesco PLC Annual Report and Financial Statements 2024
84.
Governance
Strategic report
Financial statements
Additional information
Spotlight on:
Committee visit to TBS.
During the year, Byron, Karen and Caroline visited our
Tesco Business Solutions (TBS) site in Bengaluru to review
the finance and business support activities being managed
there. The Bengaluru Finance teams support the UK, ROI
and Central European businesses and are responsible for
managing supplier payments, accounting, controls,
managing budgets and providing performance insights.
While there, the Directors developed a deeper
understanding of how TBS partners with the Group to
support the delivery of strategic outcomes, including
improved cash flow performance by driving working capital
improvement opportunities and ensuring Internal Control
for Financial Reporting readiness.
The Directors also reviewed the Group-wide analytics
capabilities which assist better business decision making.
Using digital transformation initiatives and decision
science, TBS study customer trends, behaviours and
preferences, utilising this intelligence to create
personalised offers for customers. The Directors explored
how TBS build and engineer data platforms to provide
analytical capabilities and tools to support the business,
including the development of data and AI products at
scale. The Directors heard more about how TBS have
initiated innovations leading to making processes simpler
and cost effective. Examples include the Financial
Reporting and Insights Programmes, which have
implemented improvements to the trade payable
forecasts, providing greater visibility of period end
variances, and the stock to cash cockpit, designed to help
the business understand the implication of business
decisions on working capital.
In light of the reporting issue that we had with our food waste
processor, the Committee reviewed the planned approach to food
waste reporting published in January 2024 and considered the
engagement with counterparty banks in connection to food waste
performance linked to the revolving credit facility (RCF). As a result
of restated food waste reduction, the Group refunded a small
interest benefit claimed in 2022. The Committee reviewed a
three-lines defence model which defines responsibilities in relation
to food waste management, reporting and assurance, including
assessment of whether controls are adequately designed and are
operating effectively. For further information, see the Tesco Food
Waste Report, published on our website at www.tescoplc.com.
The Committee received updates on the Group's preparations for
CSRD reporting in 2026, including the process to identify in scope
entities, to define the reporting strategy and complete the
double-materiality assessment to determine the disclosure topics
most material to the Group and identify the disclosure metrics. In
the coming year, we will review a gap analysis undertaken to
compare future disclosure requirements with that of our current
disclosures and Deloitte will assess the double-materiality process
with a view to providing assurance. 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.
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. Good progress to close
these points has been made and the Committee will continue to
explore the additional controls required by compliance measures
and review the breadth of the control environment.
Cyber security programme
The Committee reviewed the potential adverse outcomes from
cyber-related issues and was regularly updated on the Group’s
cyber risk management activities. The Chief Technology Officer
reported on the work of the Group’s cyber risk committee, which
was set up to oversee effective governance protocols over cyber
security activities across the Group. The Committee assessed the
effectiveness of the cyber security programme at protecting
customer and colleague data, evidenced in testing undertaken. In
November 2023, the Committee received a detailed update on the
data privacy compliance programme, built around the Group’s risk,
controls and assurance framework. We reviewed data privacy
controls processes, which are implemented consistently across
the Group on a comply or explain basis, and the outcome of data
privacy audits, including the remediations in place to improve
privacy controls. We will continue to oversee the privacy controls
assurance progress as the Group completes effectiveness testing
on privacy controls and processes, including customer and
personal databases and will monitor the programme extension to
incorporate the development and deployment of assurance
technology tools. In the year, members of the Board and Executive
Committee participated in an externally facilitated cyber crisis
management exercise, which simulated a ransomware attack on
the business. More details on this can be found on page 68 and
further information on the continued monitoring of cyber risk can
be found on page 32.
Capital allocation and liquidity funding
The Committee reviewed the Group’s capital allocation framework
and discussed options to optimise the Group’s net debt position and
continue the return of surplus cash to shareholders through ongoing
share buybacks, which would include the return of the majority of
Banking operations disposal proceeds by way of an incremental share
buyback over the next couple of years. The Committee discussed the
appropriate level of dividend pay-out ratio and potential liability
management options to maintain its target leverage ratio. The
Committee considered these proposals and made an implementation
recommendation which was discussed by the Board. Regular updates
on the ongoing share buyback programme were provided during the
year. Before recommending to the Board, the Committee discussed
appropriate alignment with the 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 the impact of future strategy.
Ethics and 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
received updates on the effectiveness of the Group’s internal and
independent external 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 230 for more information.
Business updates
The Committee considered the Group’s 2025 energy hedging strategy
in light of continued volatility in the market. The Committee will
continue to consider the impact of changes in the macroeconomic
environment on the underlying wholesale energy cost assumptions.
At each meeting, the Committee receives updates from different
areas of the business reflecting areas aligned to principal risks or
other relevant issues, further detail can be found on page 83.
Tesco PLC Annual Report and Financial Statements 2024
85.
Governance
Strategic report
Financial statements
Additional information
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
How the issue was addressed by the Committee
Sources of further
information
Going concern
basis for the
financial
statements and
viability statement
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: the impact of persistent inflation on the business, consumers and
competitive environment, global supply pressures, climate change and data breach. The
Committee also considered the Group’s financing facilities and future funding plans, and the
impact of the Group’s expected Banking operations disposal. 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
pages 46 and 47.
Disposals and
discontinued
operations
The Committee considered the requirements of IFRS 5 ‘Non-current assets held for sale
and discontinued operations’ regarding the status of the Group’s banking operations, and
concurred with management’s conclusion that the related assets and liabilities be classified
as held for sale and the banking operations results be presented as a discontinued
operation. The Committee also reviewed related accounting considerations, including the
apportionment of goodwill to the disposal group based on relative values, the fair value less
costs to sell of the disposal group and treatment of the resulting remeasurement loss, and
the structure of the Group’s segmental reporting.
For further
information, see
Notes 1 and 7 to
the financial
statements.
Impairment
The Committee reviewed and challenged management’s impairment testing of the Group’s
portfolio of store cash-generating units and of goodwill, in particular in relation to Tesco
Bank following the allocation of the goodwill to the disposal group and remaining business.
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.
Tesco Bank
expected credit
losses (ECL)
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 7 to the
financial statements.
Pensions
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
information, see
Notes 1 and 29 to
the financial
statements.
Recognition and
disclosure of
commercial
income
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. The Committee reviewed a detailed summary of the different types of
promotional constructs and their respective value for the year and the key drivers for
movements in the balance sheet positions for commercial income.
See Notes 1 and 20
to the financial
statements for
further details on
commercial
income.
Adjusting items
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.
Alternative
performance
measures (APMs)
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.
For further
information on the
Group’s APMs refer
to pages 220 to
225.
New accounting
standards
The Committee considered the impact of IFRS 17 ‘Insurance contracts’, which became
effective in the current financial year. The Committee reviewed and challenged the
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 Notes 1 and 33
to the financial
statements.
Tesco PLC Annual Report and Financial Statements 2024
86.
Governance
Strategic report
Financial statements
Additional 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. It also discussed the heightened level of
geopolitical uncertainty due to wars and civil unrest, terrorism,
elections and government restrictions. It was considered appropriate
to expand the principal risk of pandemics into a wider risk definition
of geopolitics and other global events, 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 pages 83 to 85. 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 30.
The Committee oversaw the enhancement of the risk appetite
framework and the assessment of critical risk events modelled
across the Group's principal risks. The framework will enhance the
Group's risk culture and enable risk-informed decision-making for
all business operations within the acceptable appetite position.
Group Risk and Audit
A new Chief Audit and Risk Officer was appointed in April 2023.
The Committee monitors the activity, role and effectiveness of the
Group Risk and Audit function, as detailed across the page. At each
meeting, the Committee received 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 charter and the audit plan.
Group Audit
Group Audit is part of the Group Risk and 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 the 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 plan is
aligned to the Group’s principal risks and focuses on the biggest risk
areas and strategic drivers. The internal audit plan remains under
review and subject to change throughout the year to reflect any
changes in risk profile, business objectives and the external
environment. The Committee reviews and approves all changes
to the audit plan and receives regular updates on the outcome
of the work performed. In the coming year, the plan will cover
technology and cyber, including audits of second line assurance
teams and sustainability assurance.
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 results of these
reviews are also presented and reviewed by the Committee. The
2023/24 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 2024/25 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 team’s level of
independence, objectivity, and professional judgement. The
Committee discussed areas for improvement including the provision
of greater assurance and coordination across second line functions,
further development of specialist capabilities and business
knowledge, and leveraging technology and data to drive further
improvement. Periodic spotlights on levels of assurance and
sustainability matters would be built into the audit plan. 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.
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 the Group's 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 30. The ICFR
framework is currently being enhanced to meet the future needs of
pending corporate governance reforms. The framework
is underpinned by three pillars which will form our annual Code
declaration from 2026/27, the pillars being: entity level controls,
business process controls and IT general controls. A key financial
controls framework is maintained and used as the basis for focused
second-line control activities, as well as forming the foundation of
the enhanced ICFR requirements. Greater rigour around controls
testing performed in the year was implemented in anticipation of
proposed corporate governance reforms. No material gaps were
identified and necessary remediations were taken. There remains
IT general controls operating effectiveness testing to complete.
To date, a significant proportion of controls are effective, with
remediations in place to address deficiencies identified. In 2024,
we will monitor progress against the remaining testing deficiencies
and review the scope post completion of the Banking operations
disposal and further embed the ICFR framework through a
continuous testing programme, training and building on our
control community.
Audit and Assurance Policy
The Government had announced the corporate reform proposals
that were expected to be enacted through secondary legislation
which, among other matters, included the need for companies to
create a formal audit and assurance policy (AAP) outlining their
strategy for obtaining assurance on externally reported information.
The proposals were withdrawn on 16 October 2023, however, Tesco
has adopted a position to continue the development of an internal
AAP and the Committee will continue to monitor this.
Tesco PLC Annual Report and Financial Statements 2024
87.
Governance
Strategic report
Financial statements
Additional information
Corporate governance report continued
Audit Committee continued
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.
As the Group’s external auditor for the 2023/24 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. The Committee will consider future audit
needs as part of the AAP.
Non-audit services
The FRC’s Revised Ethical Standard 2019 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 above.
Total auditor fees
Audit fees
Non-audit fees
Average non-audit fees
2021/22
£11.7m
£1.5m
13%
£13.2m
Total fee
2022/23
£13.3m
£1.4m
12%
£14.7m
Total fee
2023/24
£14.7m
£1.2m
9%
£15.9m
Total fee
External audit fees: non-audit and audit-related services
Nature of service
Level of fees
in 2023/24
(£m)
Level of fees
in 2022/23
(£m)
Change
Safeguards to preserve independence and objectivity
Section 166 skilled
person reasonable
assurance review for
Tesco Bank performed
under International
Standards on
Assurance
Engagements (ISAE) (UK)
3000
–
0.4
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. This service was not performed in 2023/24.
Other non-audit
services: various audit,
assurance and
compliance-related
services
0.6
0.5
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.
Interim Review:
performed under
International Standards
of Review Engagements
(UK and Ireland) 2410
0.6
0.5
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.
Total
1.2(a)
1.4(b)
(a) £212,000 of the 2023/24 fees are not subject to the cap (all within other non-audit services). The remaining fees are all subject to the cap.
(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.
Increase
No change
Decrease
Tesco PLC Annual Report and Financial Statements 2024
88.
Governance
Strategic report
Financial statements
Additional information
Effectiveness, quality and appointment
of the auditor
The Committee regularly 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 of the Committee. 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 Deloitte and having regard
to the Minimum Standard for Audit Committees.
The Committee discussed feedback from the 2022/23 effectiveness
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 2024, 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 discussed areas for
improvement to best meet the future needs of the Group, which
included greater insight of sustainability assurance, focusing on
controls, looking forward to emerging issues, revised approach to the
phasing of audit work i.e. bringing work forward to ease pressures in
the audit cycle and encouraging a more continuous audit process,
addressing IT and cyber security controls, highlighting trends and
themes, and exploiting technology/digital tools. Deloitte had reviewed
the feedback and incorporated this into their audit approach to
ensure the audit would continue to evolve and enhance the audit
effectiveness. The Committee recommended to the Board that
Deloitte be reappointed at the 2024 AGM. The effectiveness of
Deloitte will be continually monitored in 2024/25 by the Committee.
During the year, management further refined their consideration of
the key judgements involved in the impairment modelling, which
enabled Deloitte to focus on those areas most at risk of material
misstatement. These areas were subject to audit testing earlier in the
audit cycle, thereby both simplifying and improving the efficiency of
the impairment audit testing. Management also focused heavily on
the effectiveness of key financial controls over the impairment
process, which was tested by Deloitte as part of their audit. Finally,
we note that management has further simplified the impairment
process on lower risk areas, enabling a more efficient identification of
impairment indicators and the focus of both management and
Deloitte to be on those areas where more judgements and significant
accounting estimates are required.
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 continued 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. John Adam has been lead audit partner since 2020 and will
rotate as the lead partner following the 2024/25 financial year audit.
The Committee worked closely with management to ensure that a
suitable auditor onboarding process was in place. Richard Muschamp
was identified as a proposed successor audit partner and led the
Deloitte tender bid. Richard was interviewed by members of the Audit
Committee and senior management. Richard will assume the audit
lead from April 2025 and will shadow John over the course of the
coming year in support of the transition.
The Committee reviews and makes a recommendation to the Board
with regard to the reappointment of the external auditor each year.
In making this recommendation, the Committee monitored and
assessed their effectiveness, overall audit quality, objectivity,
independence, and lead partner rotation. 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.
Committee membership
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 52 to 55.
In June 2023, Byron Grote took up the position of interim Group Chair
until Gerry Murphy joined in September 2023. During this time Karen
Whitworth was appointed as interim Committee Chair, although
Byron remained engaged on all Audit Committee matters throughout
this time. In June 2024, Byron Grote will retire from the Board having
served nine years. Karen Whitworth will succeed Byron as Committee
Chair from the conclusion of the 2024 AGM.
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. The Committee Chair invites 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 to attend each meeting.
Committee meetings are generally scheduled close to Board
meetings to facilitate effective and timely reporting. The Committee
reports to the Board following each meeting. Committee members
meet with management regularly to understand more about business
operations, this enables better scrutiny of processes and controls.
The members hold private sessions with both the external auditor
and Internal Audit team following each meeting to provide an
additional opportunity for open dialogue and feedback without
management present. The Committee Chair also meets with the
Chief Audit and Risk Officer and external auditor on an ad hoc basis
and prior to each Committee meeting, to discuss matters relating
to its remit and any issues arising from the audits.
Looking ahead
Throughout the year, the delivery of analytics to support the
understanding of inflationary dynamics and extraordinary cost
pressures has been critical in the business decisions taken. The
Committee will devote time to focus on how AI tools can be
implemented to enhance reporting, risk management and audit work.
Early uses include the use of AI to identify emerging risks and
transitioning to model future forecasts. Our Business Solutions team
are in the early stages of understanding the tangible opportunities
of evolving AI technology and the Committee will receive further
updates on the practical steps required and potential cost savings
in 2025. The Committee will continue to develop the Group's risk
appetite strategy and the ICFR framework (see page 87).
The Committee will oversee the progress of the Group’s risk,
controls and assurance framework, including sustainability assurance
activities, and the development of an AAP to govern assurance
over key published non-financial information.
Tesco PLC Annual Report and Financial Statements 2024
89.
Governance
Strategic report
Financial statements
Additional information
Chair’s letter.
Committee Chair
Alison
Platt.
Committee membership and tenure
Director
Member since
Alison Platt, Committee Chair
April 2016
Carolyn Fairbairn
September 2023
Thierry Garnier
April 2021
Stewart Gilliland
June 2023
Byron Grote
July 2015
Details of attendance at Committee meetings is set out
on page 55.
Committee activity
33% Senior management remuneration
27% Policy implementation and
stakeholder experience
23% Governance and reporting
(including wider-workforce
remuneration)
17% Performance monitoring
Key decisions in 2023/24
— wrote to major shareholders following the publication of
the annual report and discussed feedback received;
— monitored progress of in-flight Performance Share Plan
(PSP) and annual bonus awards, considering adjustments
where appropriate;
— reviewed executive pay arrangements and consulted with
major shareholders on proposed changes to Imran
Nawaz’s incentives opportunity;
— determined 2022/23 incentive outcomes for Executive
Directors and Executive Committee members, taking
account of the wider stakeholder experience, and set
stretching targets for 2023/24 awards in a continuing
uncertain and challenging environment;
— considered governance developments and wider market
trends in executive remuneration; and
— approved the 2022/23 Directors’ remuneration report
and reviewed UK gender and ethnicity pay gap reports.
2023/24 evaluation of the Committee
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.
Priorities identified
— Continue to ensure measures evolve with the strategy and
targets are stretching.
— Continue to ensure Executive Directors’ remuneration is aligned
with the wider experience of our stakeholders, particularly the
workforce.
— Continue to ensure our sustainability measures support the
achievement of the Group’s key sustainability objectives and
targets are stretching and appropriately assured.
Key responsibilities
— determine and recommend to the Board the remuneration
principles and policies for Executive Directors and senior
executives, having reviewed and taken into account wider-
workforce remuneration and related policies and the alignment
of incentives and reward with our purpose, values, strategy
and culture;
— set individual employment and remuneration terms for
Executive Directors and other senior executives, including
severance terms, incentive terms and targets and the
achievement of performance against targets, including the use
of discretion as appropriate;
— prepare the annual Directors’ remuneration report for
shareholders to outline policy implementation;
— set the remuneration of the Chair;
— propose all new long-term incentive plans for the
recommendation of the Board to shareholders;
— receive and consider regular updates of workforce views and
engagement related to remuneration, insights and reports
on pay ratios and any gaps; and
— undertake discussions with shareholders on executive
remuneration matters.
The terms of reference of the Committee are reviewed
on an annual basis and are published on our website at
www.tescoplc.com
The Committee held five scheduled meetings and one ad hoc
meeting during the year, with a focus on workforce pay and
engagement, remuneration outcomes and target setting
and reporting.
Directors’ remuneration report index
Chair’s letter
90
Strategic alignment of remuneration
94
Remuneration for the year
96
Summary of remuneration policy and implementation
for 2024/25
98
Wider remuneration at Tesco
101
Remuneration report
106
Committee governance
112
Corporate governance report continued
Directors’ remuneration report
Tesco PLC Annual Report and Financial Statements 2024
90.
Governance
Strategic report
Financial statements
Additional information
Dear Shareholder
On behalf of the Remuneration Committee (the
Committee), I am pleased to present the Directors’
remuneration report for the financial year ended
24 February 2024.
This report sets out the key decisions of the Committee and how
we have implemented and propose to implement our remuneration
policy in line with our purpose, values and strategic priorities. It
also provides an overview of both Executive Director and wider-
workforce remuneration for the year.
The Committee once again acknowledged the high level of
shareholder support for the remuneration report, which was
supported at the 2023 AGM by 92.4% of shareholders. We continue
to value the ongoing discussions with key stakeholders on
remuneration throughout the year.
Delivering our strategic priorities
This year, Ken and his team have continued to lead the successful
implementation of our strategy, building on the strong foundations
of the prior year. As outlined earlier in this Annual Report, this has
been a strong year of trading performance for Tesco, despite the
ongoing challenges and uncertainties in the external environment
which continue to adversely impact many of our stakeholders.
Our strong performance has been underpinned by delivering value
for our customers, evidenced both by growing our UK and ROI
market shares and being consistently the cheapest of the full-line
grocers in the UK. We have committed to doing everything we can
to invest in value and to lower prices for our customers.
We are extremely grateful to our colleagues who play a pivotal role
in realising our strategic priorities and translating them into
impactful outcomes that benefit both our customers and other
stakeholders. This year we have continued to invest significantly
in our colleagues, both in terms of the competitiveness of pay
and benefits, but also through increasing our focus on financial,
physical and mental wellbeing.
Living our purpose
Our core purpose – serving our customers, communities and
planet a little better every day – informs all of the decisions we
make as a Committee.
While our financial performance has been strong, prioritising the
interests of all our stakeholders remains at the heart of our purpose.
In a challenging economic environment, it has been more important
than ever for us to live our purpose and to demonstrate our values
for the benefit of all of our stakeholders: customers, colleagues,
suppliers, communities and shareholders. Alongside consideration of
our overall business performance, the table below sets out some of
the key factors that have been considered throughout the year to
ensure that our remuneration decisions and implementation of the
policy encompass our purpose, and therefore take into account the
broader perspective of our key stakeholders.
Area
Factors considered by the Committee
Key stakeholders
Customers
— Cheapest of the full-line grocers for 16 consecutive months, with a unique customer offer of Aldi Price Match, Low
Everyday Prices and Clubcard Prices.
— Largest ever Booker Catering price lock on hundreds of Booker products and Central Europe relaunch of Low Price
Guarantee on more than 500 own brand lines.
— 12 consecutive four-weekly periods of positive switching gains in the UK and 15 consecutive periods in ROI.
— Market share up 28bps to 27.6% in the UK and up 73bps to 23.6% in ROI.
Colleagues
— Largest ever increase in UK hourly-paid colleagues’ pay, with UK store colleague pay increasing from £11.02 to £12.02 per
hour in April 2024. Award of Thank You payments to hourly-paid colleagues across the Group.
— Launch of an enhanced Employee Assistance Programme, including anytime access to virtual GP appointments.
— Improved maternity, adoption and kinship leave policies.
— First major supermarket to offer right to request flexible working for all colleagues from day one.
— Further details on the support we have provided to our colleagues over recent years are set out on page 103.
Suppliers
— Collaborating with suppliers to help customers spend less.
— Supporting development of sustainable agriculture skills.
— Invested an extra £75m in key agricultural suppliers, including £39m for British beef and lamb farmers.
— Eighth consecutive year that Tesco has placed first in the Advantage supplier survey.
Communities
— Launched £5.3m Stronger Starts grant scheme supporting projects across the UK to boost funds for extra food and new
sports and play equipment to keep children active.
— More than 6.7 million meals donated every month to food banks and charities across the Group.
— Tesco joined forces with the British Red Cross to provide vital support to emergencies in the UK and abroad, including
the earthquake in Morocco and sudden flooding in Libya.
— Kids Eat Free initiative in Tesco cafés during school holidays.
Shareholders
— Strong sales, operating profit and cash flow performance.
— Commitment to buy back a further £1bn of shares by April 2025, £250m of which is funded by a special dividend from
Tesco Bank.
— Final recommended dividend of 8.25p in line with our progressive dividend policy. Interim dividend of 3.85p already paid.
— Tesco’s total shareholder return of 17.8% over the year outperformed the FTSE 100 index by 16.1%.
Wider factors considered
Macroeconomic
environment
— Despite the challenging macroeconomic environment and inflationary pressures, relentless focus on value for customers,
combined with significant cost reductions from our Save to invest programme, has driven a strong financial performance.
— Led the way on passing savings on to customers, with more than 4,000 price cuts in the UK during the year and more
than 800 price reductions in ROI.
— More than 8,000 exclusive Clubcard Prices deals each week, saving customers up to £360 off the annual cost of their
groceries.
Sustainability
commitments
— One of the first companies globally to set validated net zero science-based targets on all greenhouse gas emissions,
including those originating from forests, land and agriculture emissions.
— Almost doubled the number of electric delivery vans to 571 during the year, now representing 11% of the UK fleet, and
announced plans to move to biofuel transport in Ireland from next year.
— Plans to install solar panels on 100 large stores across the UK over the next three years, generating as much as 20GWh of
clean electricity per year, building on the 40 stores that already have solar panels fitted.
— Healthy products now 63% of sales volume in UK and ROI and on track to achieve 2025 target of 65%.
Full details of how our incentive arrangements are linked to our purpose and strategic priorities are outlined on pages 94 and 95.
Tesco PLC Annual Report and Financial Statements 2024
91.
Governance
Strategic report
Financial statements
Additional information
2023/24 business performance
and incentive outcomes
The reward for our Executive Directors is driven by the strong
performance of the business. Our remuneration policy reflects the
complexities of managing a business of the size and scale of Tesco,
and is comparable to policies offered by other FTSE 50 companies.
A large proportion of the total package has been achieved thanks
to both Ken Murphy and Imran Nawaz achieving stretching targets
in a highly competitive sector and working to create value for
customers, colleagues, suppliers, communities and shareholders.
Tesco remains committed to a competitive and fair reward package
for all colleagues and this year we have invested a record £300m in
a pay rise for our UK hourly-paid colleagues, as well as significantly
enhancing the range of wellbeing benefits we offer.
Tesco’s strong performance is reflected in the formulaic outcomes
of both the 2023/24 bonus and 2021 PSP which are summarised in
the table below. Full details of performance against the 2023/24
individual objectives in relation to the annual bonus plan are set out
on page 107.
2023/24 bonus achievement(a)
Group sales
(30%)
Individual
performance
(20%)
Adjusted operating
profit (50%)
50%
30%
15%
20%
Ken Murphy
Imran Nawaz
(a) 2023/24 bonus measures include discontinued operations. Refer to page 141
for full reconciliation.
2021 PSP achievement
Cumulative free
cash flow (50%)
Adjusted diluted
EPS (50%)
35%
50%
The overall formulaic vesting level for the annual bonus is 95% of
maximum for Ken Murphy and 100% for Imran Nawaz.
Ken Murphy and Imran Nawaz were first granted awards under the
PSP in 2021, after joining Tesco in October 2020 and May 2021
respectively. As shown above, based on the strong performance
outcomes over the three-year performance period, the formulaic
level of vesting for these awards is 85% of maximum. The PSP
awards are delivered entirely in Tesco PLC shares, and in the case
of the Executive Directors, are subject to a further two-year
holding period.
Further details of the performance outcomes versus targets and
the vesting of these awards can be found in the Remuneration
for the year section on page 96. In addition, adjustments made to
PSP targets arising from the sale of the banking operations of Tesco
Bank in credit cards, loans and savings to Barclays are set out on
page 109.
Based on our overall assessment of business and executive
performance and considering the wider stakeholder experience
and decision-making process as set out on the previous page, the
Committee is satisfied that the measures and targets set were
robust and challenging and that the overall payouts of the annual
bonus and PSP reflect the performance of the business, the
experience of stakeholders, including the wider workforce, and the
successful delivery of our purpose. In light of these factors, the
Committee determined that no discretion should be applied to
adjust the formulaic outturns and is satisfied that the remuneration
policy has operated as intended.
The Committee reviewed the grant price of the 2021 PSP (223.6p)
compared to the grant price of the 2019 PSP (230.3p) and 2020 PSP
(227.2p) 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 23 February 2024 of 279.7p and is satisfied
that the increase in share price since grant is within the normal
bounds and no windfall gains have occurred and that no
adjustment is required on vesting.
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 2023/24 and 2022/23. As
set out earlier, both individuals first participated in the PSP in 2021
upon joining Tesco, with the payouts from these awards reflected
in the 2023/24 remuneration. As such, the significant year-on-year
increase in remuneration primarily reflects the first vesting from
these awards, which themselves reflect strong performance
against stretching targets over a challenging period. The increase
also reflects share price growth of £0.9m for Ken Murphy and
£0.4m for Imran Nawaz over the three-year performance period.
Breakdown of remuneration (excluding buyout awards)
Fixed pay
Annual bonus payout
PSP payout
2023/24
2022/23
£4.91m
£1.64m
£3.38m
£9.93m
£4.44m
£1.71m
£2.73m
£2.27m
Ken Murphy
2023/24
2022/23
£2.33m
£0.91m
£1.71m
£4.95m
£0.91m
£1.36m
Imran Nawaz
Looking ahead
2024/25 salary and incentives
When considering base salary increases for our senior executives,
the Committee continues to be mindful of both the wider colleague
experience and our fairness principles. Ken Murphy and Imran
Nawaz will receive base salary increases of 3.0% and 5.4% from
26 May 2024, respectively. These are below the 9.1% increase
provided to UK hourly-paid colleagues, who represent the vast
majority of the UK workforce. There will be no changes to the
annual bonus and PSP performance measures or their weightings in
2024/25 as the Committee continues to believe these are
appropriate to incentivise the Executive Directors towards delivery
of the strategy.
The Committee regularly reviews the overall remuneration
packages of the individual Executive Directors, as well as other
senior executives, to ensure that they are reflective of their
respective roles and individual performance within Tesco. With
these references in mind, when considering Imran Nawaz’s pay
opportunity, taking into account his impressive performance since
his appointment and alongside his additional responsibilities, the
Committee determined that he will receive an increase in annual
bonus from 225% to 250% of base salary and in the PSP from 250%
to 275% of base salary from 2024/25. These increases are within
the existing remuneration policy, which was approved by our
shareholders in 2022, and are set at the same levels we operate
for Ken Murphy.
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
92.
Governance
Strategic report
Financial statements
Additional information
The Committee shared these proposals with 20 of our largest
shareholders, representing circa 50% of the issued share capital,
and proxy advisors who were overwhelmingly supportive of the
proposed increases.
Further details of the operation of these pay elements can
be found on page 99.
Continuation of progress in our sustainability journey
The Committee recognises and supports the importance of aligning
incentives with delivering our sustainability strategy. The current
in-flight PSP awards include carbon reduction, food waste
reduction and ethnic and gender diversity measures, with targets
directly aligned to our sustainability commitments. The Committee
is particularly pleased to note the successful ethnic representation
performance to date, with the PSP target set for 2025 having
already been achieved.
In light of this, the Committee has carefully considered how to
ensure that our most material sustainability areas are aligned with
remuneration going forward, while still being supported by robust
and stretching targets. Following a review of the appropriateness of
the existing sustainability measures, we continue to believe that the
measures used in 2022 and 2023 remain material to the Group and
should continue to be the measures in 2024, except that the
gender target be extended to include senior managers. This
reflects our long-term aim of achieving a gender equal workforce.
Earlier in the year, we terminated our relationship with our food
waste processor in the UK, following an internal review which
showed that food, which we believed was being processed for
animal feed, was in fact going to anaerobic digestion. While
anaerobic digestion can have a role in recovery of energy and
avoids food going to landfill, we count food going to anaerobic
digestion as waste. Removing animal feed from our reported
numbers for 2022/23 resulted in a food waste reduction of 18%
against our 2016/17 baseline, significantly lower than the 45%
reduction reported in last year’s Directors’ remuneration report.
The donation of unsold food to community groups and shared
with colleagues through the colleague shop in the UK are both
unaffected, as is the progress we are making to halve food waste
everywhere in the Group. Following the termination of the
relationship, the food waste reduction against our 2016/17
baseline for the last two months of 2023/24 is 14%. After careful
consideration, we have decided to retain our ambitious target
of achieving a 50% reduction and setting threshold and stretch
targets of 45% and 52% in respect of the 2024 PSP. Given the
updated view, it is unlikely either the 2022 or 2023 PSP waste
reduction threshold targets will be met.
Further details of our sustainability measures and how they link
to purpose and strategy are set out on page 95.
Board and Committee changes
As announced in May 2023, John Allan stepped down from his role
as Chair of the Board and a Committee member at the AGM on
16 June 2023. Lindsey Pownall also stepped down from the Board
and the Committee at that AGM. I would like to thank both
John and Lindsey for their valuable contributions and willingness to
provide constructive solutions. Both received pro-rated fees up to
and including 16 June 2023. No other remuneration payment was
made by the Company to either John or Lindsey after ceasing to
be Non-executive Directors nor any payment for loss of office.
Byron Grote served as interim Chair, Stewart Gilliland as interim
Senior Independent Director and Karen Whitworth as interim Audit
Committee Chair from 16 June 2023 until 31 August 2023. They
received no additional remuneration for these roles. Following a
rigorous search process, Gerry Murphy was appointed as our Chair
from 1 September 2023. Gerry receives a Chair fee of £705,000,
which is consistent with the fee received by the former Chair and
fully aligned with the remuneration policy. Gerry is a chair of
exceptional calibre, with extensive global leadership experience in
both executive and non-executive roles, and I am thrilled he was
appointed to succeed John.
We were delighted to welcome Carolyn Fairbairn to the Board and
as a Committee member in September 2023. Carolyn brings a
wealth of experience and insights to the Committee. Recognising
the importance of having the Audit Committee Chair as a member
of the Committee, following Byron Grote stepping down from the
Board and the Committee at the 2024 AGM, Karen Whitworth will
join the Committee at this time.
Further details on the Board Chair and Non-executive Director fees
can be found on pages 110 and 111.
Remuneration policy review
The current remuneration policy will expire at the 2025 AGM. The
Committee will therefore undertake a full review of the policy
arrangements in the coming year. While the primary driver for our
remuneration policy will continue to be the Group’s purpose and
strategy, the review will incorporate consideration of changes in
corporate governance and regulation, wider workforce
developments and the latest investor guidance. We look forward to
engaging with our shareholders and plan to hold meetings with our
largest investors on matters relating to the proposed policy in
2024. This policy will then be put before shareholders for a binding
vote at the 2025 AGM.
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
9 April 2024
Within this Directors’ remuneration report we have used
colour coding to define different elements of remuneration:
Salary
Annual bonus
Benefits
PSP
Pension
Shareholding
Details of the definitions of the financial performance
measures used throughout the Directors’ remuneration
report are set out on page 109.
Tesco PLC Annual Report and Financial Statements 2024
93.
Governance
Strategic report
Financial statements
Additional information
The Committee believes it is vital that a significant proportion of the remuneration
package for the Executive Directors and senior management is performance related
and that performance measures are aligned to our purpose and strategic priorities.
Delivering against our purpose and strategic priorities is critical to the creation of
long‑term, sustainable value for our key stakeholders: customers, colleagues,
suppliers, communities and shareholders.
Our purpose
Serving our customers
communities
and planet
a little better every day.
Multi-year
performance
framework
Drive top-line growth, underpinned by:
— Increasing customer satisfaction relative to the market
— Growing or at least maintaining our core UK market share
Grow our absolute profits while maintaining sector-leading margins through:
— Using our assets efficiently across all channels
— Accessing new revenue streams across our digital platform
— Targeting productivity initiatives to at least offset inflation in the medium term
Generate between £1.4bn and £1.8bn retail free cash flow each year
Strategic
priorities
Magnetic value for
customers
Easily the most
convenient
I love my Tesco
Clubcard
Save to invest
Our remuneration approach supports our purpose and strategic priorities and reflects
the views of our stakeholders. There are four key principles which guide our approach
to reward for all our colleagues, including Executive Directors:
1.
Competitive
Setting pay with reference
to internal relativity and
external market practices
2.
Simple
Helping all colleagues to
understand how they
are rewarded
3.
Fair
Achieving consistent
outcomes through flexible
and transparent policies
4.
Sustainable
Aligning reward to business
strategy and performance
Strategic alignment
of remuneration.
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
94.
Governance
Strategic report
Financial statements
Additional information
The tables below set out the performance measures we use within our incentive plans
and how these align to our purpose and strategic priorities to deliver the Group’s financial,
operational and sustainability plans.
2024/25 bonus
Measures
Alignment to strategic priorities
Alignment to purpose
Group sales
(30%)
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.
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.
Adjusted operating
profit (50%)
Our ambition is to grow absolute profits
while maintaining sector-leading margins
through leveraging our assets efficiently
across all channels, accessing
new revenue streams across our digital
platform and targeting productivity
initiatives.
Individual
performance (20%)
Individual objectives are aligned to our
strategic priorities. Further details are
set out on page 107.
Individual objectives are aligned
to each part of our purpose:
customers, communities and planet.
2024 PSP
Measures
Alignment to strategic priorities
Alignment to purpose
Cumulative Retail
free cash flow
(37.5%)
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.
We aim to continue to be a champion
for customers, providing great value,
high-quality products wherever,
whenever and however customers
want them.
Adjusted diluted
EPS (37.5%)
Sustainability measures (25%)
Carbon reduction
(8.3%)
Aligns to our commitment to be carbon
neutral across our own operations by
2035 against a 2015/16 baseline.
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.
These measures bring to life our
purpose to serve our planet a little
better every day.
Food waste
reduction (8.3%)
Aligns to our goal of halving food waste
across our own operations compared with
a baseline year of 2016/17.
Diversity and
inclusion (8.3%)
Aligns to our commitment to be an
inclusive and equitable business, with
diverse representation at all levels and a
gender equal workforce.
Embedding diversity and building
inclusion into everything we do is key
to our business success and helps us
connect to our colleagues,
customers and communities. In doing
so, the measure brings to life our
purpose to serve our customers and
communities a little better every day.
We continue to apply a high degree of rigour with regard to our
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 reporting on these issues 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, which is available on the Company’s website at
www.tescoplc.com/sustainability-reports.
Our sustainability strategy will evolve over time and, as such,
we anticipate that our sustainability performance measures
will simultaneously evolve to ensure they remain material to
the business.
Further details of our approach to sustainability are detailed
on pages 18 to 21.
Tesco PLC Annual Report and Financial Statements 2024
95.
Governance
Strategic report
Financial statements
Additional information
Corporate governance report continued
Directors’ remuneration report continued
Remuneration
for the year.
Single figure remuneration (excluding buyout awards)
Salary
Benefits
Pension
Annual bonus
PSP
2022/23
2023/24
Imran Nawaz
0
£1m
£2m
£3m
£4m
£5m
£6m
£7m
£8m
£9m
£10m
2022/23
2023/24
Ken Murphy
£2.27m
£4.95m
£4.44m
£9.93m
Fixed pay
Salary
Benefits
Pension
Ken Murphy
£1.41m
Imran Nawaz
£0.75m
Salary increase of 3.0%
for Ken Murphy and 4.0%
for Imran Nawaz versus
2022/23
Benefits packages
remained unchanged,
except for Ken Murphy’s
commuting support which
ceased on 31 March 2023
Pension allowance of 7.5%
of salary remained
unchanged
Annual bonus outcomes (audited)
Outcome
Weighting
Threshold
(25% payout)
Target
(50% payout)
Stretch
(100% payout)
Actual
Ken Murphy
Imran Nawaz
Group sales(a)
30%
£58.3bn
£60.1bn
£61.9bn
£62.1bn
30%
30%
Adjusted operating profit(a)
50%
£2.4bn
£2.6bn
£2.8bn
£2.9bn
50%
50%
Individual objectives
20%
Details of performance are set out on page 107.
15%
20%
Total (% of maximum)
95%
100%
(a) 2023/24 bonus measures include discontinued operations. Refer to page 141 for full reconciliation.
Value of annual bonus
Ken Murphy
Imran Nawaz
£3.38m
£1.71m
2021 PSP vesting (audited)
Weighting
Threshold
(25% payout)
Stretch
(100% payout)
Actual
Outcome
Cumulative free cash flow
50%
£4.1bn
£6.2bn
£6.5bn
50%
Adjusted diluted EPS
50%
17.3p
26.0p
22.5p
35%
Total (% of maximum)
85%
Value of PSP
Ken Murphy
Imran Nawaz
£4.91m
£2.33m
Tesco PLC Annual Report and Financial Statements 2024
96.
Governance
Strategic report
Financial statements
Additional information
Shareholding requirement (audited)
Share ownership is a key means by which the interests of Executive Directors are aligned with those of shareholders. Imran Nawaz
reached his target shareholding requirement of 300% of base salary during the year and Ken Murphy is expected to reach his target
requirement of 400% of base salary by the end of 2025/26 and is required to retain all shares that vest to him, net of any tax liability,
until the shareholding requirement has been met.
Executive Director shareholdings (% of base salary) (audited)
Shares owned outright
Deferred share awards
400%
139%
123%
16%
Ken Murphy
Target
300%
101%
Imran Nawaz
Target
320%
421%
Executive Director shareholdings counting towards shareholding requirement (audited)
Further details of Executive Directors’ shareholdings and share interests are given in the table below and on page 109.
Shareholder
requirement
(% of salary)
Number of shares
required to meet
shareholding
requirement(a)
Number of shares
owned outright
Deferred share awards(b)
Vested PSP shares
subject to holding period
Total shares counting
towards shareholding
requirement
25/02/23
24/02/24
25/02/23
24/02/24
25/02/23
24/02/24
25/02/23
24/02/24
Ken Murphy
400%
1,968,941
74,593
78,376
324,973
605,607
–
–
399,566
683,983
Imran Nawaz
300%
788,526
742,930
841,811
125,823
264,672
–
–
868,753
1,106,483
(a) Share price used is the average share price over the three months to 24 February 2024 of 288.9p.
(b) Net number of shares after deemed statutory deductions of 47% count towards the shareholding requirement.
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 in 2023/24. 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.
Salary
Benefits
Pension
Annual bonus cash
Annual bonus shares
PSP
Pay at risk
2023/24
2024/25
2025/26
2026/27
2027/28
Annual bonus
PSP
Fixed 18%
Performance linked 82%
Short term 38%
Long term 62%
Ken Murphy
Fixed 20%
Performance linked 80%
Short term 39%
Long term 61%
Imran Nawaz
Annual bonus:
Performance period
Deferred period - half of actual bonus deferred into shares
PSP:
Performance period
Holding period
Tesco PLC Annual Report and Financial Statements 2024
97.
Governance
Strategic report
Financial statements
Additional information
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 table and details below set out a summary of the proposed remuneration 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/results-and-
presentations.
Total pay over five years
Fixed pay (base
salary, benefits
and pension)
Annual bonus
PSP
50% in cash
One-year
performance period
Three-year performance period
Two-year holding period
50% in shares
Three-year deferral period
No further performance conditions
Year 1
Year 2
Year 3
Year 4
Year 5
Summary of remuneration
policy and implementation
for 2024/25.
Corporate governance report continued
Directors’ remuneration report continued
Base salary
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
on or around 1 June. Salaries take account of:
— individual performance;
— role, skills and experience;
— 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 will normally be no higher than the typical level of increase awarded to other
colleagues. Higher increases 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.
Implementation in 2024/25
Increases of 3.0% and 5.4% will be
applied to the salaries of Ken Murphy
and Imran Nawaz, respectively, so that
the salaries from 26 May 2024 are:
Ken Murphy: £1,464,440
Imran Nawaz: £800,000
These increases are below those
awarded to UK hourly-paid
colleagues of 9.1%.
Benefits
Purpose and link to strategy
Provides market-competitive and cost-effective benefits to support the attraction and
retention of Executive Directors.
Operation
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. There is no pre-determined maximum limit.
Implementation in 2024/25
Normal Company benefit provision.
See page 106 for further details
of benefits provided in 2023/24.
Tesco PLC Annual Report and Financial Statements 2024
98.
Governance
Strategic report
Financial statements
Additional information
Pension
Purpose and link to strategy
Provides a competitive level of retirement income to support the attraction and retention
of Directors.
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.
Implementation in 2024/25
Cash allowance of 7.5% of base salary.
Annual bonus
Purpose and link to strategy
Encourages improved operational and financial performance and aligns the interests of
Executive Directors with shareholders through the partial deferral of bonus outturn into
Tesco shares.
Operation
Bonuses are based on financial, operational and individual performance. Performance
metrics and targets are set by the Committee at the beginning of the performance period
and at least 70% of bonus is based on financial performance.
The maximum award is 250% of base salary. Up to 25% of bonus is paid for threshold
performance and 100% paid for achieving stretch targets, with straight-line vesting between
threshold and target, and target and stretch.
Compulsory deferral of bonus
Half of the bonus payout is deferred into Tesco shares for three years subject to continued
employment. This provides assurance that the Group is being run in the long-term interests
of shareholders and other stakeholders beyond the annual bonus performance period. It
also provides assurance to stakeholders that some or all of the deferred bonus could be
withheld, if during the deferred period this is deemed necessary. Dividend equivalents in the
form of additional shares are payable on deferred annual bonus awards that vest. Malus and
clawback provisions apply.
Implementation in 2024/25
The maximum bonus opportunity for
Ken Murphy and Imran Nawaz is 250%
of base salary.
Performance measures (as a
percentage of maximum) are in line
with previous years being:
— 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 96 for further
details of annual bonus outturns
for 2023/24 and page 113 for
details of malus and clawback
provisions.
PSP
Purpose and link to strategy
Encourages the achievement of Tesco’s strategic, financial and sustainability targets and
provides a focus on long-term value creation and alignment with the interests of
shareholders and other stakeholders.
Operation
Awards are subject to the achievement of financial and non-financial performance
conditions over three years. Performance metrics and targets are set by the Committee at
the beginning of the performance period.
The maximum award is 350% of base salary. Up to 25% of an award vests for threshold
performance and 100% vests for achieving stretch targets, with straight-line vesting
between them. Dividend equivalents in the form of additional Tesco shares are paid on PSP
awards that vest. Malus and clawback provisions apply.
Additional holding period
Following the vesting of the PSP award, Executive Directors are required to wait for an
additional two-year period, so the overall vesting and holding period is at least five years. The
holding period continues to operate post-cessation of employment, with shares held in a
corporate sponsored nominee account. This ensures continued longer-term alignment with
the interests of shareholders and other stakeholders. It also provides assurance to
stakeholders that some or all of the PSP payout could be withheld, if during the holding
period this is deemed necessary.
Implementation in 2024/25
The maximum award opportunity for
Ken Murphy and Imran Nawaz is 275%
of base salary.
Performance measures (as a
percentage of maximum):
— 37.5% adjusted diluted EPS
— 37.5% cumulative Retail free
cash flow
— 25% sustainability measures
See pages 96 and 108 for
further details of 2021 PSP
outturn and the PSP awards to
be granted in 2024. Details of
malus and clawback provisions
can be found on page 113.
Tesco PLC Annual Report and Financial Statements 2024
99.
Governance
Strategic report
Financial statements
Additional information
Corporate governance report continued
Directors’ remuneration report continued
All-colleague share plans
Purpose and link to strategy
Encourages widespread colleague share ownership to enable colleagues to share in the
success of 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.
Implementation in 2024/25
SAYE and BAYE plans will continue to
be operated in 2024/25.
Shareholding requirement
Purpose and link to strategy
Ensures alignment between the interests of the Executive Directors and shareholders both
during and after employment.
Operation
The Group Chief Executive is required to build and maintain a holding of shares to the value
of 400% of base salary, and the Chief Financial Officer to 300% of base 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 the
lower of their shareholding requirement 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.
Implementation in 2024/25
Shareholding requirement will continue
to be operated in 2024/25.
See pages 97 and 109 for
further details of Executive
Directors shareholdings and
interests in share awards.
Approach to remuneration
In developing its 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
— 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.
— The Directors’ remuneration report sets out the remuneration arrangements for the Executive Directors in a
clear and transparent manner.
— The Board has designated Non-executive Directors to host Colleague Contribution Panels to engage on various
topics to ensure internal clarity on remuneration. You can find further details on how the Board engages with
stakeholders on pages 70 to 72.
Simplicity
— The Company operates an approach to remuneration that is simple to understand and familiar to stakeholders.
Executive Directors receive a fixed element (base salary, benefits and pension) and participation in a short-term
incentive (an annual performance-related bonus) and single long-term incentive (the PSP).
Predictability
— Payouts under the annual bonus and PSP schemes are dependent on the performance of the Company over the
short and long term, and a significant proportion of Executive Director remuneration is performance related.
— These schemes have maximum opportunity, with details set out in the Directors’ remuneration report clearly
showing potential performance and reward outcomes.
Proportionality
— Our annual bonus and PSP plans provide clear alignment between incentive outcomes and the achievement of
Tesco’s purpose and strategy, with stretching performance conditions set to achieve commensurate reward for
commensurate performance.
— Performance measures have been selected to support the Group’s purpose and strategic priorities and consist of
both financial and non-financial measures.
— Use of annual bonus deferral, PSP post-vesting holding periods and 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.
Risk
— The Committee has designed incentive arrangements that do not encourage inappropriate risk taking.
— The Committee retains overall discretion in both the annual bonus and PSP schemes to adjust payouts where
formulaic outturns are not considered reflective of underlying performance and individual contributions.
— Malus and clawback provisions apply to variable incentives, including in the event of any behavioural risks.
You can find further details on malus and clawback provisions on page 113.
Alignment to culture
— Performance measures used for the annual bonus and PSP schemes are selected to align with Tesco’s purpose,
values and strategic priorities, with a strong focus on delivering for our customers and other stakeholders.
— The use of annual bonus deferral, PSP holding periods and shareholding requirements promotes integrity and
provide a clear link to the ongoing performance of the Group to ensure alignment with shareholders, which
continues after employment.
Tesco PLC Annual Report and Financial Statements 2024
100.
Governance
Strategic report
Financial statements
Additional information
Our pay and reward framework
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 2024 Every Voice Matters
colleague survey, 65% 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 86% feel they can be themselves at Tesco,
without fear of judgement. 73% of colleagues feel Tesco supports
them with their 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.
Cascade of remuneration
Consistent with best practice, the Committee spends considerable
time on matters relating to remuneration arrangements across the
Group. Details of pay trends for the wider workforce provide
context when making decisions regarding remuneration for the
Executive Directors as well as ensuring consistent approaches and
competitive reward packages are being adopted throughout Tesco.
Wider remuneration
at Tesco.
The below table summarises the reward and benefits package of UK colleagues and how it compares to Executive Directors’ remuneration.
Element
of pay
Policy
Comparison with Executive Directors’
remuneration
Colleagues
at all levels
Base salary
We want to attract and retain colleagues of the calibre,
capability and experience needed to deliver the strategy.
Salaries are reviewed annually.
The approach is the same for Executive
Directors, with any increase normally no higher
than the level awarded to other colleagues.
Wellbeing
benefits
We want to help colleagues live a healthier and more
sustainable lifestyle and ensure they have access to early
and effective treatment, advice and information so they
can be their best at work and home.
Colleagues at all levels have access to an Employee
Assistance Programme which provides access to a wide
range of experts and resources to support colleagues
mental and physical wellbeing. In addition, a 24/7 virtual GP
service is available as well as a hub providing access to
mental, physical and financial resources.
Executive Directors have access to
the same level of wellbeing support
and resources.
Benefits
A market-competitive level of benefits is available for all
colleagues, enhancing the reward package and providing
other reasons to work at Tesco, such as discount in store.
Executive Directors also receive market-
competitive benefits, including the same
discount in store as other colleagues.
Further details are set out on page 106.
Pension
A defined contribution pension scheme is available to all
colleagues, with colleague contributions being matched
by Tesco.
When colleagues get closer to retirement, Tesco provides
education and support to plan for the next stage in
their lives.
The maximum contribution into the
defined contribution scheme of 7.5%
for Executive Directors is aligned to the
UK wider workforce.
Executive Directors can elect to receive
a cash allowance of 7.5% of base salary
in lieu of pension contribution.
Share plans
BAYE and SAYE plans are available to all colleagues and
provide an opportunity to become a shareholder in Tesco
and share in its success.
Executive Directors participate on the
same terms as other UK colleagues in
the BAYE and SAYE plans.
Tesco PLC Annual Report and Financial Statements 2024
101.
Governance
Strategic report
Financial statements
Additional information
Element
of pay
Policy
Comparison with Executive Directors’
remuneration
All salaried
colleagues
Annual bonus
Annual bonus provides an opportunity for colleagues to
share in our success. A consistent design is operated
throughout Tesco for delivering against business and
individual goals.
Specific weightings and award levels vary by work level. For
senior leaders, a proportion of any bonus is deferred into
shares. Bonuses are normally paid to eligible colleagues
in May or June.
As agreed with our unions, hourly-paid colleagues receive
enhanced pay rates instead of an annual bonus. However,
as a result of the Group’s strong performance in 2023/24,
a one-off Thank You payment will be made to hourly-paid
colleagues in May 2024.
The annual bonus plan for Executive
Directors is directly linked to the same
financial performance measures as
all colleagues.
Half of the bonus payout for Executive
Directors is deferred into Tesco shares
for three years.
Executive
Directors,
Executive
Committee
and senior
leaders
Performance
Share Plan
The PSP incentivises the delivery of long-term value creation
and aligns with our purpose and strategic objectives. Award
levels vary by work level.
Measures and targets for long-term incentive plans
are consistent for all participants and measured over
a three‑year period.
The same measures and targets are
applied to Executive Directors awards
as other participants.
Executive Directors’ PSP awards are
subject to an additional two-year
holding period post vesting.
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.
The chart to the right 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 information
is one of the inputs used by the Committee when setting
executives’ remuneration, which enables it to ensure remuneration
levels are consistent with the approved remuneration policy.
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.
Positioning of remuneration versus the FTSE 50
Lower quartile to median
Median to upper quartile
Tesco
12,000
10,000
8,000
6,000
4,000
2,000
0
Total remuneration (£’000)
Target
Maximum
Ken Murphy
Imran Nawaz
Target
Maximum
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
2023/24
Group Chief Executive
single total figure of
remuneration (£’000)
Ken Murphy
–
–
–
–
–
–
992
4,745
4,443
9,925
Sir Dave Lewis(a)
4,133
4,632
4,147
5,113
4,600
6,328
1,650
–
–
–
Philip Clarke(b)
764
–
–
–
–
–
–
–
–
–
Annual bonus outturn
(% of maximum award)
0%
96.0%
76.0%
73.0%
52.5%
75.9%
0%
95.0%
79.1%
95.0%
PSP vest
(% of maximum award)
0%
–
–
30.0%
28.8%
48.8%
23.1%
–
–
85.0%
(a) Sir Dave Lewis stepped down as Group Chief Executive on 30 September 2020 and was succeeded by Ken Murphy on 1 October 2020.
(b) Philip Clarke stepped down as Group Chief Executive on 1 September 2014 and was succeeded by Sir Dave Lewis on the same date.
Corporate governance report continued
Directors’ remuneration report continued
Historical total shareholder return performance
Value of
hypothetical
£100 invested
FTSE 100
Tesco
Source: Thomson
Reuters Refinitiv
0
50
100
150
200
100
96
105
119
124
128
123
124
149
162
165
76
57
59
64
71
75
77
102
92
108
100
Tesco PLC Annual Report and Financial Statements 2024
102.
Governance
Strategic report
Financial statements
Additional information
end of the savings period. Given its success, we have introduced a
similar scheme for One Stop and Tesco Business Services in India,
and will be looking to extend it further in 2024.
Physical and emotional wellbeing
We have enhanced our health offer through the introduction of a
virtual GP service. Since its launch in June 2023, colleagues have
benefited from more than 5,000 appointments from a qualified
GP without placing an added burden on the NHS. We have also
improved our Employee Assistance Programme, giving colleagues
access to an expanded range of wellbeing services, including sleep
therapists, nutritionists, counsellors, exercise coaches and
physiotherapists.
Flexible working
We continue to build our offer to support a flexible working
pattern. This includes part-time working, job shares, phased
retirement, lifestyle breaks and shift patterns to suit colleague
needs. From July 2023, we introduced the right to request flexible
working from day one of employment in all markets across our
Group, waiving the 26 weeks qualifying criteria under UK law. We
have also introduced Holiday Buy, enabling colleagues to increase
their annual holiday.
Supporting families
We continue to improve our offer across all markets and
geographies. Initiatives include enhanced guidance on coping with
menopause, pregnancy loss, IVF and fertility treatment and
domestic violence.
We also enhanced our family policies to support colleagues with
time away from work when they need it most. These included an
increase to 26 weeks paid maternity and adoption leave in the UK,
where we also became the first major employer to offer 26 weeks
paid kinship leave for those given permanent custody of a child.
In addition, we introduced one week of paid fertility leave for each
treatment cycle, two weeks paid leave for women who lose their
baby during pregnancy and 12 weeks paid neonatal care for
mothers whose babies are born prematurely.
Thank you payment
It is important to us that colleagues feel recognised for their
contribution to Tesco’s success. As a result of the strong Tesco
performance in 2023/24, the Company will be making Thank You
payments to hourly-paid colleagues. For example, our Customer
Assistants in the UK will receive 1.5% of salary which means a
one-off payment of more than £300 for a full-time colleague.
Spotlight on:
Rewarding our wider workforce.
Tesco is a people business and our people will always be what
makes us different. We aim to be a place where colleagues
can get on, as they wish, irrespective of their background.
As part of this, we are committed to providing a reward
package that is competitive, simple, fair and sustainable, while
ensuring we are responsible with our reward spend. We want
to make sure our colleagues feel secure, are rewarded
competitively, and treated fairly and inclusively.
The cost-of-living crisis has had a significant impact on people
across the world and we have spent considerable time
thinking about how we can support our multiple stakeholders.
For colleagues, this has resulted in a number of improvements
to the reward package and initiatives to support colleague
wellbeing.
Investing in colleague pay
In April 2023, we made our biggest ever investment in the pay
of hourly-paid UK Customer Assistants to £11.02. At the same
time, our Customer Assistants in ROI received a 4% increase,
which was phase three of a three-year pay award
communicated to colleagues in 2022. We supported our ROI
colleagues further by bringing forward the pay award for 2024
from April to January. In Booker, we increased our Branch
Assistants’ hourly rate by more than 10%.
Living wage
With the UK Government increasing the National Living Wage
to £11.42, we have responded by raising the hourly rate for UK
Customer Assistants to £12.02 from 28 April 2024. This is
ahead of the voluntary Real Living Wage. The rate for London
has also been increased to £13.15 to match the Real Living
Wage for London.
Pay transparency
We are now into our third year of providing a free online total
reward statement for all colleagues. This allows them to see
their pay, bonus, retirement savings, details of shares they hold
and share saving schemes they are part of. For salaried
colleagues, we also provide an annual pay and bonus statement
which shows where they are positioned in their pay range.
Colleague meals
As a result of the cost-of-living challenges, a colleague room
budget was assigned so kitchens in all our stores could be
stocked with free food for colleagues. Having received
positive feedback from colleagues, a colleague room budget
is now part of our ongoing reward offer. At Booker, we
introduced free food in all our branches.
Financial resilience
We continue to support through our Learn Borrow Save
initiative, including Pay Advance for UK colleagues which
provides a sustainable alternative to high interest lenders.
To improve financial literacy, we have launched financial
coaching by qualified professionals.
For colleagues in the UK, ROI and Central Europe, the
colleague discount has been increased from 10% to 15% on
the four days after each pay day and 20% at Christmas. We’ve
also made it easier for colleagues to share their discount with
family members, including those living at a different address.
Our UK SAYE scheme continues to be popular, with more than
50,000 colleagues participating. This allows colleagues to buy
shares at a 20% discount and enjoy a tax-free bonus at the
Tesco PLC Annual Report and Financial Statements 2024
103.
Governance
Strategic report
Financial statements
Additional information
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 260,000 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 single
total figure of remuneration (STFR) of the Group Chief Executive for
2023/24 and the lower, median and upper quartile pay of our UK
colleagues. We also show for comparison the pay ratios for the five
preceding years.
Total pay ratio
2018/19
2019/20
2020/21
2021/22
2022/23 2023/24
Ratio of CEO’s STFR
25th percentile
247:1
355:1
136:1
251:1
231:1
447:1
50th percentile
226:1
305:1
118:1
224:1
197:1
431:1
75th percentile
209:1
279:1
116:1
216:1
182:1
388:1
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.
2023/24
Group Chief Executive’s base salary
£1,411,433
Group Chief Executive’s total pay and benefits
£9,925,331
UK colleagues’ salary
Colleague at 25th percentile
£20,916
Colleague at 50th percentile
£21,326
Colleague at 75th percentile
£24,171
UK colleagues’ total pay and benefits
Colleague at 25th percentile
£22,180
Colleague at 50th percentile
£23,010
Colleague at 75th percentile
£25,583
The total full-time equivalent (FTE) pay and benefits for the relevant
colleagues are based on the period from Sunday, 5 February 2023
to Saturday, 3 February 2024. 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.
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 colleagues
at each percentile before selecting the colleague who was
most representative.
In the case of the Group Chief Executive, his total remuneration
includes a significant proportion of variable pay. The STFR
therefore varies considerably depending on the level of
performance against the measures driving the annual bonus and
PSP. The Group Chief Executive’s first PSP award will vest at 85.0%
of maximum in 2024 and the annual bonus paid out at 95.0% of
maximum compared with 79.1% in 2022/23, which have resulted in
a rise in the Group Chief Executive’s pay ratio numbers this year.
Since 2014, the median pay ratio has varied, increasing and
decreasing in alternate years in line with variable pay outcomes.
As we set out on page 94, 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 and ethnicity pay
Our business model is underpinned by understanding customers
and creating a great place to work for our colleagues. It therefore
follows that we need a diverse and inclusive workplace that
represents the communities we serve.
Our 2023 Gender Pay report suggests progress, with the median
gender pay gap for UK Retail reducing from 6.9% to 5.0%,
significantly below the UK national average of 14.3%. The key factor
behind the gap is that a greater proportion of male colleagues
work in roles which carry a premium and increase pay. If we remove
premium payments from our calculation, our median pay gap is
2.9% and the mean pay gap reduces to 7.8%. Adjusting for these
factors would reduce the pay gap to nil.
The mean gender bonus gap for Tesco Stores Limited has also
reduced, from 30.5% to 30.2%. The main factor behind the gap is a
greater proportion of male colleagues in senior roles which attract
higher bonus levels.
We have introduced a number of initiatives to improve the
proportion of women at leadership levels. These include support
for flexible working, making it easier for women to work at Tesco.
We are also making progress in ethnic representation. Although not
a requirement, we have chosen to publish our ethnicity pay gap
which shows that the median gap for UK Retail is (4.6)% (i.e. the
median pay for ethnically diverse colleagues is higher than for white
colleagues). The primary factor is a greater tendency for ethnically
diverse colleagues to work unsociable hours which carry a
premium, plus a lower likelihood of selecting salary sacrifice
benefits. The ethnicity bonus gap mean is 31.8%, reflecting a lower
proportion of ethnically diverse colleagues in senior roles. As with
gender, we have introduced initiatives to improve representation at
senior levels, including the inclusion of diversity measures in our
Performance Share Plan.
See our Everyone’s Welcome Report for more information at:
www.tescoplc.com/media/btxmk3vi/tesco-everyones-
welcome-report-2023
Change in remuneration of colleagues and Directors
The table opposite shows the percentage change in the annual
remuneration of Directors and the average UK colleague over
the past five 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.
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
104.
Governance
Strategic report
Financial statements
Additional information
Salary/fees (% change)
Benefits(e) (% change)
Bonus (% change)(e)
2023/24
2022/23
2021/22
2020/21
2019/20 2023/24
2022/23
2021/22
2020/21
2019/20 2023/24
2022/23
2021/22
2020/21
2019/20
Executive
Directors
Ken
Murphy
2.8%
1.7%
0%
–
– (50.0)% 170.5%
18.9%
–
–
23.7%
(14.8)% 100%
–
–
Imran
Nawaz
4.0%
3.7%
–
–
– (24.8)% 162.2%
–
–
–
25.1%
(8.3)%
–
–
–
Non-
executive
Directors
Melissa
Bethell
3.1%
3.2%
2.2%
2.2%
172.7%
–
–
–
–
–
–
–
–
–
–
Bertrand
Bodson
3.1%
2.5%
–
–
–
–
–
–
–
–
–
–
–
–
–
Carolyn
Fairbairn(a)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Thierry
Garnier
3.1%
2.3%
–
–
–
–
–
–
–
–
–
–
–
–
–
Stewart
Gilliland(b)
25.0%
2.8%
2.8%
5.0%
42.3%
–
–
–
–
–
–
–
–
–
–
Byron
Grote
5.2%
12.3%
12.3%
3.0%
3.9%
–
–
–
–
–
–
–
–
–
–
Gerry
Murphy(a)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Alison
Platt
8.1%
13.8%
2.8%
5.0%
17.4%
–
–
–
–
–
–
–
–
–
–
Caroline
Silver
4.2%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Karen
Whitworth
3.6%
3.0%
–
–
–
–
–
–
–
–
–
–
–
–
–
Former
Directors
John
Allan(c)
1.3%
1.3%
0%
1.5%
3.4%
(47.1)% 112.5%
14.3%
(46.2)% 62.5%
–
–
–
–
–
Lindsey
Pownall(c)
0.8%
9.2%
9.2%
1.9%
2.9%
–
–
–
–
–
–
–
–
–
–
Colleagues
Average UK
colleague(d)
9.1%
8.6%
3.3%
6.8%
3.0%
0%
0%
0%
0%
0%
N/A
N/A
N/A
N/A
(100)%
(a) Carolyn Fairbairn and Gerry Murphy both joined the Board on 1 September 2023, so no year-on-year comparison is possible.
(b) The fee increase for Stewart Gilliland reflects his appointments as Chair of the Sustainability Committee and a member of the Nominations and Governance
Committee and Remuneration Committee on 16 June 2023.
(c) John Allan and Lindsey Pownall both stepped down from the Board on 16 June 2023. To enable a meaningful year-on-year comparison their fees have been
pro-rated for the purposes of comparison.
(d) 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.
(e) Other than the Chair, Non-executive Directors receive fees only and do not receive any additional benefits or annual bonus payments. Gerry Murphy has the benefit
of healthcare and a wellness programme for himself and his partner.
Please see page 91 of last year’s Directors’ remuneration report for historic details of events that impact the changes in remuneration,
such as role changes, joiners and leavers.
Relative importance of spend on pay
The table 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 134.
2023/24
£m
2022/23
£m
%
change
Executive Directors’ remuneration
15.3
7.5
103.7%(b)
Dividends
777
858
(9.4)%
Total income taxes charge(a)
432
244
77.0%
Colleague costs
8,161
7,656
6.6%
(a) Prior year comparatives have been restated following the adoption of IFRS 17.
(b) As set out in the Chair’s letter, the change in Executive Directors’ remuneration primarily reflects the payout of their first PSP award in 2024.
For every £1 we spent on Executive Directors’ remuneration in 2023/24, £28 was payable in tax and £534 was spent on colleague costs. In
addition, £51 was made in dividend payments to shareholders for every £1 spent on Executive Directors’ remuneration.
Tesco PLC Annual Report and Financial Statements 2024
105.
Governance
Strategic report
Financial statements
Additional information
Single total figure of remuneration – Executive Directors (audited)
The following table provides a summary Single total figure of remuneration (STFR) for 2023/24 and 2022/23 for the Executive Directors.
Ken Murphy
Imran Nawaz
2023/24
(£’000)
2022/23
(£’000)
2023/24
(£’000)
2022/23
(£’000)
Fixed pay
Salary
1,411
1,373
752
723
Benefits
119
238
98
129
Pension
106
102
56
54
Total fixed pay
1,636
1,713
906
906
Variable pay
Annual bonus (cash and deferred shares)
3,377
2,730
1,708
1,365
PSP(a)
4,912
–
2,335
–
Total variable pay
8,289
2,730
4,043
1,365
Total fixed and variable pay
9,925
4,443
4,949
2,271
Compensation for forfeited income(b)
–
–
405
765
Total remuneration
9,925
4,443
5,354
3,036
(a) The PSP figures for 2023/24 relating to the 2021 PSP award are an estimated value based on the average share price over the three months to 24 February 2024 of
288.9p. These will be readjusted in next year’s Directors’ remuneration report to show the actual value upon vesting.
(b) Compensation for forfeited income in 2023/24 was determined by the value of a buyout award granted to Imran Nawaz amounting to £405,000 (including £50,000
relating to share price appreciation). The amount relates to compensation for the forfeiture of a 2020 PSP award granted to Imran Nawaz by his previous employer,
Tate & Lyle PLC. This award vested on 6 June 2023 at a vesting level of 69.5% of maximum. Details of the performance conditions and outturns of the award are set
out on page 119 of the Tate & Lyle PLC 2023 annual report. Details of the 2022/23 figure are set out in last year’s annual report.
The total aggregate remuneration paid to Directors in 2023/24 was £16.9m (2022/23: £9.3m).
The change in total remuneration primarily reflects the first PSP vestings for Ken Murphy and Imran Nawaz in 2024. PSP awards were first
granted to Ken Murphy and Imran Nawaz in 2021 following them joining Tesco in October 2020 and May 2021 respectively. Based on the
strong performance outcomes of the Group over the three-year performance period, the formulaic level of vesting for these awards is
85% of maximum. The PSP awards will be delivered entirely in Tesco shares and are subject to a further two-year holding period. Other
changes in elements of pay included base salary increases lower than the wider workforce on 28 May 2023 and increases in annual bonus
payouts following a strong year of financial, operational and strategic performance.
The Committee is satisfied that the STFR for each Executive Director is appropriate.
Base Salary (audited)
Executive Directors’ salaries were increased on 28 May 2023 by 3.0% from £1,380,375 to £1,421,786 for Ken Murphy and by 4.0% from
£730,000 to £759,200 for Imran Nawaz. Details of increases to be applied in 2024 are set out on page 98.
Benefits (audited)
Car and driver
(£’000)
Medical
insurance
and wellness
programme
(£’000)
Life assurance
(£’000)
Other benefits
(£’000)
Commuting
support(a)
(£’000)
Total
(£’000)
Ken Murphy
93
1
10
2.5
12
118.5
Imran Nawaz
89.5
1.5
5
1.5
–
97.5
(a) Commuting support for Ken Murphy ceased on 31 March 2023.
Remuneration
report.
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
106.
Governance
Strategic report
Financial statements
Additional information
Annual bonus outcomes (audited)
The annual bonus is determined by financial measures and individual performance, including objectives which are designed to support the
achievement of certain strategic outcomes. The 2023/24 annual bonus outcome is 95% of maximum for Ken Murphy and 100% for Imran
Nawaz. The annual bonus is paid 50% in cash and 50% in shares deferred for three years subject to continued employment. As set out in
the Chair’s letter on page 92, the Committee is satisfied that the formulaic annual bonus outcomes are appropriate and reflect Tesco’s
performance over the performance period. We provide a breakdown of the outturn of the financial measures on page 96. You can see
details of the payouts and the achievement against individual objectives below.
2023/24
base salary
(£’000)
Bonus
opportunity
(% base salary)
Bonus
outcome
(% maximum)
Actual bonus
(% base salary)
Actual total
bonus (cash and
deferred shares)
(£’000)
Actual bonus
deferred into
shares
(£’000)
Ken Murphy
1,422
250
95
238
3,377
1,688
Imran Nawaz
759
225
100
225
1,708
854
Achievement of individual objectives (20% of annual bonus)
Ken Murphy
Objective
Key performance indicators
Summary of performance
Assessment
Develop next iteration of the
strategy, including a future
growth plan
— Develop future growth
plan for Board discussion
— Future growth plan reflected in
Long Term Plan (LTP) for 2024/25
onwards
— Delivered successful long-term
planning process, approved by the
Board
— Future growth plans incorporated
into LTP
Overachieved
Accelerate the delivery of
personalisation and media
monetisation
— Generate incremental profit
across personalisation and
media monetisation
— Delivered incremental profit
increase, in line with expectations
Achieved
Lead the delivery of Groupwide
sustainability commitments
Climate: carbon neutral across
own operations by 2035
Health: increase in sales of
healthy products, as a
proportion of total sales, to
65% by 2025
Food waste: reduce food waste
across own operations
— Climate: develop investment
analysis for Group estate to 2035
— Health: improve measure to 62%
— Food waste: reduce food waste
by 47%
— Climate: investment analysis
operationalised and overseen by
Executive Committee at biannual
climate review
— Health: 63%
— Food waste: below target
Achieved
Imran Nawaz
Objective
Key performance indicators
Summary of performance
Assessment
Develop next iteration of the
strategy, including a future
growth plan
— Develop future growth
plan for Board discussion
— Future growth plan reflected in
LTP for 2024/25 onwards
— Delivered successful long-term
planning process, approved by
the Board
— Future growth plans incorporated
into LTP
Overachieved
Deliver Save to invest target
and Finance change
programme
— Deliver £592m savings target
— Develop plans to deliver Year 3
savings targets, in line with LTP
— Deliver Year 2 of the Finance
change plan and develop plans
for Year 3
— Deliver cash budget
— Delivered savings of more than
£600m and Year 3 savings targets
agreed and ready to be deployed
— Finance change plans deployed, in
line with expectations, and plans
developed for Year 3
— Over-delivered cash budget
Overachieved
Lead the delivery of Groupwide
sustainability commitments
— Climate: develop investment
analysis for Group estate to 2035
— Climate: roll-out shadow carbon
pricing policy across the Group
— Climate: Scope 1 and 2 capital
investment plan approved by the
Executive Committee and reflected
in budget
— Climate: carbon pricing policy
approved
Achieved
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 20%, both out of a maximum of 20%.
Tesco PLC Annual Report and Financial Statements 2024
107.
Governance
Strategic report
Financial statements
Additional information
2021 PSP vesting in 2024 (audited)
The outcomes of the 2021 PSP award are shown on page 96. As set out in the 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.
You can see details of the payouts to the Executive Directors below.
Shares
granted
Outcome
achieved
Value of shares due to vest
PSP total
(£’000)
Vesting
date
Holding
period
Face value
at time of
grant(a)
(£’000)
Value due to
share price
appreciation(b)
(£’000)
Dividend
equivalents
accrued over
performance
period
(£’000)
Ken Murphy
1,811,432
85%
3,442
924
546
4,912
25/06/2024
25/06/2026
Imran Nawaz
860,989
85%
1,636
439
260
2,335
25/06/2024
25/06/2026
(a) Calculated using the grant price of 223.6p
(b) Calculated using the difference between the grant price of 223.6p and the average closing share price over the three months to 24 February 2024 of 288.9p.
2023 deferred bonus award grant (audited)
The following table summarises the deferred bonus awards made to Executive Directors on 11 May 2023 in respect of 50% of the 2022/23
bonus outcome. Awards were made in the form of conditional awards which will vest and be released on 11 May 2026, subject to
continuous employment.
Executive Director
Number of
shares granted
Value at
award date
Vesting
date
Market price
on grant(a)
Ken Murphy
485,364
£1,364,844
11/05/2026
281.2p
Imran Nawaz
242,695
£682,458
11/05/2026
281.2p
(a) Based on five-day average share price.
2023 PSP grant (audited)
The following table summarises the PSP awards made to Executive Directors on 3 July 2023.
Executive Director
Type of award
% of base salary
awarded
Number of
shares granted
Value of award
at grant
End of
performance
period
Vesting
date
Market price
on grant(a)
Ken Murphy
Conditional award
275%
1,557,113
£3,909,911
28/02/2026
03/07/2026
251.1p
Imran Nawaz
Conditional award
250%
755,874
£1,898,000
28/02/2026
03/07/2026
251.1p
The performance measures and targets for the 2023 PSP are:
Weighting
Threshold
Stretch
Adjusted diluted EPS(b)
37.5%
21.7p
32.8p
Cumulative Retail free cash flow
37.5%
£3,869m
£5,803m
Sustainability measures:
– Carbon reduction
8.3%
58%
62%
– Food waste reduction
8.3%
51%
57%
– Diversity and inclusion (gender/ethnicity)
8.3%
35%/16%
42%/18%
(a) Based on five-day average share price.
(b) Threshold and stretch targets have been amended to neutralise the impact of the sale of banking operations as set out on page 109.
2024 PSP grant (audited)
The table below sets out the financial performance measures and targets for the PSP award grant to be made in June 2024:
Weighting
Threshold
Stretch
Adjusted diluted EPS
37.5%
25.5p
38.2p
Cumulative Retail free cash flow
37.5%
£4,000m
£6,000m
Sustainability measures:
– Carbon reduction
8.3%
64%
70%
– Food waste reduction(a)
8.3%
45%
52%
– Diversity and inclusion (gender/ethnicity)
8.3%
37%/17%
43%/19%
(a) All measures have linear vesting between threshold and stretch, except food waste reduction whose target is 50% with linear vesting between threshold and target
and target and stretch.
The award will incorporate 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.
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
108.
Governance
Strategic report
Financial statements
Additional information
Definitions of financial performance measures
The Group reports various alternative performance measures (APMs), defined in the Glossary on pages 220 to 226, 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
Impact
Adjusted diluted EPS
Neutralise the impact of the sale of
banking operations
Targets were set including discontinued
banking operations
2021 PSP
0.8p
Neutralise the EPS impact of share
buybacks since targets were set
Targets were set with no buybacks
assumed
2021 PSP
(1.7)p
Cumulative free
cash flow
Removing any impact from the 2022
change in Retail free cash flow
definition (refer to page 225 within the
Glossary for a full reconciliation)
The Retail free cash flow definition was
changed after targets were set
2021 PSP
£42m
Adjustments to targets
As disclosed last year, 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
Difference
Rationale
Awards
Impact
Adjusted diluted EPS
Neutralise the impact of the sale
of banking operations
Impact relates to an event that was not
anticipated at the time the targets were
set, including removing earnings related to
the discontinued operations of Tesco Bank
2022 PSP
2023 PSP
(1.0)p
(0.5)p
Cumulative free
cash flow
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
Outflows relate to events that pre-date
the terms in office of the award holders
2021 PSP
£(193)m
Reflecting the repurchase of bonds
issued by property joint ventures
Outflows relate to an event that was not
anticipated at the time the targets were set
2021 PSP
£(194)m
Reflecting the special dividend issued
by Tesco Bank, forming part of the
Tesco Bank sale consideration
Inflows relate to an event that was not
anticipated at the time the targets were set
2021 PSP
£250m
Executive Directors’ interests in share awards (audited)
The table below sets out the Executive Directors’ interests in share awards. Details of Executive Director shareholding requirements and
achievement against these are set out on page 97.
Unvested
PSP awards(a)
Deferred annual
bonus awards(b)
Buyout
awards
Vested but
unexercised
share options
SAYE
options
Total
Ken Murphy
At 26/02/2023
3,473,466
613,160
–
–
9,890
4,096,516
Granted
1,557,113
485,364
–
–
-
2,042,477
Dividend equivalents
161,248
44,130
–
–
–
205,378
Vested/released
–
–
–
–
–
–
Lapsed
–
–
–
–
–
–
Exercised
–
–
–
–
–
–
At 24/02/2024
5,191,827
1,142,654
–
–
9,890
6,344,371
Imran Nawaz
At 26/02/2023
1,659,425
237,402
231,238
–
–
2,128,065
Granted
755,874
242,695
–
–
–
998,569
Dividend equivalents
77,201
19,285
–
–
–
96,486
Vested/released
–
–
160,710
–
–
160,710
Lapsed
–
–
70,528
–
–
70,528
Exercised
–
–
–
–
–
–
At 24/02/2024
2,492,500
499,382
462,476
–
–
3,454,358
(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.
Between 24 February and 9 April 2024 Ken Murphy acquired 48 partnership shares under the BAYE plan. No other changes in Executive
Director share interests occurred in the period.
Tesco PLC Annual Report and Financial Statements 2024
109.
Governance
Strategic report
Financial statements
Additional information
Payments for loss of office (audited)
There were no payments made for loss of office during the year.
Payments to former Directors (audited)
Since leaving employment, Sir Dave Lewis and Alan Stewart have received shares upon vesting of awards. These relate to the deferred
share element of annual bonuses and PSP awards. Shares released/vested include dividend equivalent shares, the impact of the share
consolidation in February 2021 and time proration in respect of the PSP. Up to the expiry of his post-cessation shareholding requirement
on 30 April 2023, Alan Stewart held sufficient shares to meet the requirement.
Sir Dave Lewis
Type of award
Date
of grant
Number
of shares
awarded
Number
of shares
released
Date of
release
Market
price at
grant
Market
price at
release
Gain on
release
Gain due to
share price
appreciation
Deferred bonus
12/05/2020
503,411
575,363
12/05/2023
236p
276p
£1,586,276
£230,836
Alan Stewart
Type of award
Date
of grant
Number
of shares
awarded
Number
of shares
released/vested
Date of
release/vesting
Market
price at
grant
Market
price at
release/vesting
Gain on
release/vesting
Gain due to
share price
appreciation
Deferred bonus
12/05/2020
273,633
312,742
12/05/2023
236p
276p
£862,230
£125,472
PSP
03/07/2020
907,790
324,786
03/07/2023
227p
252p
£818,461
£80,547
No other payments to former Directors were made in the year.
Executive Directors’ service agreements
The Committee carefully considers 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
Date of service agreement
Date joined the Board
Notice period from Company
Notice period from
Executive Director
Ken Murphy
1 October 2019
1 October 2020
12 months
12 months
Imran Nawaz
6 October 2020
1 May 2021
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 2024 AGM.
Funding of equity awards
While current practice is to use market-purchased shares to satisfy incentive awards, the Company has in the past ten years used newly
issued shares. As such, the Company complies with the Investment Association dilution guidelines on newly issued shares. 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. Where shares purchased in the market are held by Tesco Employees’ Share
Scheme Trustees Limited or Tesco International Employee Benefit Trust (together, the Trusts), the voting rights relating to the shares are
exercisable by the Trustees in accordance with their fiduciary duties. At 24 February 2024, the Trusts held 70,028,062 shares.
Dilution from existing awards made over the past 10 years up to 24 February 2024 was as follows:
All colleague share plans
Actual
Limit
5.4%
10%
Executive share plans
Actual
Limit
1.3%
5%
Board Chair and Non-executive Director fees
The fees for the Board Chair 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 2023, 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 maintain the Board
Chair’s fee at £705,000 and increase the average total fees paid to Non-executive Directors from 20 August 2023 by 4%, lower than for
the wider workforce. Details of the remuneration arrangements for the Board Chair and Non-executive Directors are set out below:
21/08/2022 to
19/08/2023
From
20/08/2023
Increase
Board Chair fee
£705,000
£705,000
–
Non-executive Director fee
£82,750
£85,000
2.7%
Additional fees:
Senior Independent Director
£30,000
£35,000
16.7%
Chairs of the Audit, Remuneration and Sustainability Committees
£33,000
£35,000
6.1%
Membership of Audit, Nominations and Governance, Remuneration
and Sustainability Committees
£15,500
£16,500
6.5%
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
110.
Governance
Strategic report
Financial statements
Additional information
Single total figure of remuneration – Non-executive Directors (audited)
The following table sets out the fees paid to the Non-executive Directors during the year. Non-executive Directors are not paid a pension
and do not participate in any of the Company’s variable incentive schemes. Under the Company’s articles of association, the total
fees paid to Non-executive Directors are capped at £3m per annum. John Allan and Lindsey Pownall stood down from the Board on
16 June 2023.
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 had the £1,500 colleague discount allowance. Gerry Murphy
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.
2023/24
2022/23
Committee
memberships
Date of
appointment
Fees
(£’000)
Taxable
expenses and
benefits
(£’000)
Total
(£’000)
Fees
(£’000)
Taxable
expenses and
benefits
(£’000)
Total
(£’000)
Melissa Bethell
A 24 September 2018
100
1
101
97
2
99
Bertrand Bodson
S
1 June 2021
100
1
101
97
1
98
Carolyn Fairbairn
R S
1 September 2023
57
0.5
57.5
–
–
–
Thierry Garnier
R
30 April 2021
100
3
103
97
3
100
Stewart Gilliland
N R S
5 March 2018
140
1
141
112
2
114
Byron Grote
A N R
1 May 2015
183
0.5
183.5
174
1
175
Gerry Murphy
N
1 September 2023
343
3
346
–
–
–
Alison Platt
N R
1 April 2016
134
1
135
124
1
125
Caroline Silver
A
1 October 2022
100
1
101
40
0.5
40.5
Karen Whitworth
A S
18 June 2021
116
–
116
112
–
112
Former Directors
John Allan
–
–
215
3
218
696
17
713
Lindsey Pownall
–
–
40
2
42
130
8
138
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 2024 AGM, except Byron Grote who will step down from the Board at the
conclusion of the 2024 AGM.
Beneficial share ownership – Non-executive Directors (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 24 February and 9 April 2024. 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
Shares held at
26/02/2023
Shares held at
24/02/2024
Value of shareholding
(% of base fee)(a)
Melissa Bethell
37,447
37,447
127%
Bertrand Bodson
58,833
61,238
208%
Carolyn Fairbairn
–
35,000
119%
Thierry Garnier
15,000
15,000
51%
Stewart Gilliland
51,090
53,212
181%
Byron Grote
368,703
377,703
>500%
Gerry Murphy
–
50,000
20%
Alison Platt
36,516
38,046
129%
Caroline Silver
15,000
15,000
51%
Karen Whitworth
52,300
52,300
178%
(a) The value of Non-executive Directors’ shareholdings is based on the average share price over the three months to 24 February 2024 of 288.9p.
(b) John Allan and Lindsey Pownall respectively held 349,753 shares and 55,263 shares and John Allan also held 398,000 5.5% 2033 Tesco PLC Medium Term Notes from
26 February 2023 until they stepped down from the Board on 16 June 2023.
(c) The range of the Company’s share price for the year was 245p to 303p. The year-end share price was 280p (2022/23: 247p).
Tesco PLC Annual Report and Financial Statements 2024
111.
Governance
Strategic report
Financial statements
Additional information
Role of the Remuneration Committee
The role of the Committee is to determine the remuneration policy
and packages for Executive Directors and senior executives. When
setting and operating the policy, the Committee aligns reward to
performance to promote the long-term success of the Group and
has regard to policies and practices relating to workforce
remuneration, the experiences of other stakeholders and
alignment with purpose, strategy and culture. This means we can
recruit, retain and motivate our executives as part of an integrated
overall approach to remuneration.
Committee’s priorities in 2024/25
As well as considering its standard business, the Committee will
also focus during 2024/25 on areas including:
— commencing work on the remuneration policy review. We will
maintain an ongoing dialogue with our major shareholders and
other stakeholders and engage with them individually and
collectively on proposed changes. The remuneration policy will
be put to shareholders at the 2025 AGM;
— monitoring developments on our purpose and strategy to
ensure remuneration practices and policies continue to be
consistent with the Group’s long-term goals and aligned to the
interests of all our stakeholders;
— 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
— continuing to monitor and oversee wider workforce
remuneration, policies and practices. This aims to ensure pay
fairness and transparency 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 senior executives.
Colleague engagement and understanding
colleague pay
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 executive pay and other 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 this year’s CCPs on
page 69.
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 executive remuneration.
The Committee believes it is important to understand how
colleague pay and other key colleague metrics operate throughout
the Group. The Committee therefore reviews the findings from the
Every Voice Matters colleague survey and receives regular updates
throughout the year on colleague metrics and outcomes via the
wider workforce dashboard, which sets out a broad range of
information, including:
— a summary of colleague demographics;
— colleague pay positioning split by location;
— a summary of colleague pay versus comparators;
— salary budgets by business;
— incentive outcomes by business;
— CEO pay ratio; and
— gender and ethnicity pay gaps.
The Committee is therefore well positioned to take into account
colleagues views and pay when setting the pay of Executive
Directors and senior executives.
Committee
governance.
We strive to ensure incentives encourage the
achievement of our purpose and strategic priorities,
and management is rewarded in line with overall
business performance and the wider experience
of our key stakeholders.
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
112.
Governance
Strategic report
Financial statements
Additional information
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 compliance 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, including 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. The
clawback periods align with the bonus deferral period and PSP
holding period. No such provisions were used during 2023/24.
Approach to target setting
In determining the range of targets for each measure for the annual
bonus and 2024 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 64.8% 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 priorities 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 purpose and strategic priorities.
This ensures a clear line of sight and alignment of interests between
executives and stakeholders 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.
2023/24
Early Feb
2023
The Committee considered the wider context
and how the annual bonus and PSP targets
were tracking against forecast performance.
Late Feb
2023
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 remuneration;
— the budget and LTP;
— the strategic plan;
— analysts’ consensus forecasts; and
— the wider economic environment.
April
2023
The Board approved the budget for the year.
The Committee determined the measures,
weightings and targets for the annual bonus
and PSP for the forthcoming year and the
outcomes of the prior year’s annual bonus
and 2020 PSP.
October
2023
The Committee considered how the annual
bonus and PSP targets were tracking against
forecast performance.
Tesco PLC Annual Report and Financial Statements 2024
113.
Governance
Strategic report
Financial statements
Additional information
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 £65,000
(2022/23: £69,500) 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, risk management and consulting projects. However,
the Committee is satisfied that the PwC engagement partner
and advisory team which 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 AGM
The table below sets out the voting outcome on the remuneration
report at the 2023 AGM:
Votes for
(millions)
Votes against
(millions)
Votes withheld
(millions)
Remuneration report
4,837
396
1
(92.43%)
(7.57%)
The current remuneration policy received strong shareholder
support at the 2022 AGM:
Votes for
(millions)
Votes against
(millions)
Votes withheld
(millions)
Remuneration policy
5,148
449
8
(91.98%)
(8.02%)
The Committee engages in regular dialogue with shareholders and
annually invites major investors to discuss its remuneration
practices and governance matters. During the year, the Committee
also engaged with our major shareholders on changes to the
incentives opportunity of Imran Nawaz.
The Committee finds such meetings with major investors 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.
Statutory requirements
The Committee’s composition, responsibilities and operation
comply with the principles of good governance, as set out in the UK
Corporate Governance Code, the Listing Rules of the Financial
Conduct Authority and the Companies Act 2006. The Directors’
remuneration report has been prepared on the basis prescribed in
the Large- and Medium-sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013.
Approved by the Board on 9 April 2024.
Alison Platt
Remuneration Committee Chair
Corporate governance report continued
Directors’ remuneration report continued
Tesco PLC Annual Report and Financial Statements 2024
114.
Governance
Strategic report
Financial statements
Additional information
Information
Location in this Annual Report
Pages
Anti-bribery
Additional Directors’ report disclosures
231
Articles of Association
Additional Directors’ report disclosures
229
Business model and strategy
Strategic report
17
Cautionary statement regarding forward-looking
information
Additional information
236
Appointment and retirement of Directors
Nominations and Governance Committee report, Additional
Directors’ report disclosures
75, 76 and 228
Directors’ and their interests
Corporate governance report, Directors’ remuneration report,
Additional Directors’ report disclosures
52 to 54, 90
to 114 and 228
Directors’ indemnities and insurance
Corporate governance report, Additional Directors’ report disclosures
56 and 228
Directors’ statement of disclosure to the auditor
Additional Directors’ report disclosures
231
Dividends/Dividend policy
Corporate governance report, Financial statements – Note 8,
Additional Directors’ report disclosures
72, 154
and 234
Employment policies
Additional Directors’ report disclosures
229
Groceries Supply Code of Practice
Additional Directors’ report disclosures
230
Events after the reporting period
Financial statements – Note 35
203
Future developments
Strategic report
1 to 47
Modern Slavery Act
Additional Directors’ report disclosures
230
Going concern and viability statement
Strategic report, Additional Directors’ report disclosures
46, 47 and 231
Research and development
Strategic report
1 to 47
Financial instruments and financial risk management
Financial statements - Notes 26 and 27
174 to 189
GHG emissions/SECR disclosures
Strategic report, Additional Directors’ report disclosures
39 to 45
and 230
Corporate governance report
Corporate governance report
48 to 116
Colleague engagement
Corporate governance report, Additional Directors’ report
disclosures
69, 70 and 229
Political donations
Additional Directors’ report disclosures
228
Share capital and control of the Company and
significant agreements
Financial statements – Note 30, Additional Directors’ report
disclosures
196 and 229
Share buybacks
Audit Committee report, Financial statements – Note 30
Additional Directors’ report disclosures, Additional information
85, 194, 229
and 234
Share forfeiture
Corporate governance report, Sustainability Committee report,
Additional Directors’ report disclosures
72, 80
and 229
Stakeholder engagement
Corporate governance report
70 to 72
Section 172 statement
Corporate governance report
64
The Directors present their report, together with the audited
accounts for the 52 weeks ended 24 February 2024.
In addition to the information set out herein, and in accordance
with section 414C(11) of the Companies Act 2006, this Directors’
report incorporates by reference the following sections of the
Annual Report:
— Strategic report
— Corporate governance report
— Additional Directors’ report disclosures
— Group information, including Articles of Association
and material contracts
— Financial statements
— Additional information
The Strategic report and the Directors’ report together constitute
the management report as required under Rule 4.1.8R of the
Disclosure Guidance and Transparency Rules.
Other information relevant to the Directors’ report, and which is
incorporated by reference into this report, can be found in the
following sections of this Annual Report.
Directors’
report.
Directors’ report
Tesco PLC Annual Report and Financial Statements 2024
115.
Governance
Strategic report
Financial statements
Additional information
Dividends
The profit for the financial year, after taxation, amounts to £1,764m
(2022/23: £658m restated) from continuing operations. The
Directors have declared dividends as follows:
Ordinary shares
£m
Paid interim dividend of 3.85 pence per share(a)
(2022/23: 3.85 pence per share)
271
Proposed final dividend of 8.25 pence per share(b)
(2022/23: 7.05 pence per share)
581
Total dividend of 12.10 pence per share for 2023/24 (2022/23:
10.90 pence per share)
852
(a) Excludes £2m dividends waived (2022/23: £2m).
(b) Subject to shareholder approval at the 2024 AGM, the final ordinary dividend
will be paid on 28 June 2024 to all shareholders on the register of members at
the close of business on 17 May 2024.
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.
For more information on dividends, see page 234 and
Note 8 to the financial statements.
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 50% payout of adjusted earnings per share.
Directors’ report continued
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.
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 52 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 2024, 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
9 April 2024
Information required to be disclosed under the Listing Rules can be found on the following pages.
Listing Rule 9.8.4R
Pages
Statement of capitalised interest
147 to 149
Allotment for cash of equity securities
145 to 147
Waiver of dividends
116 and 154
Listing Rule 9.8.6(8)
Pages
Climate-related financial disclosures consistent with TCFD
39 to 45
Listing Rule 9.8.6(9) and (10)
Pages
Diversity disclosures
76 to 77
Tesco PLC Annual Report and Financial Statements 2024
116.
Governance
Strategic report
Financial statements
Additional information
Report on the audit of
the financial statements.
Financial statements
Independent auditor’s report to the members of Tesco PLC
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 24 February 2024 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;
— recognition of commercial income;
— Tesco Bank loan impairment;
— disposal of Banking operations;
— 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 £115m (2022/23: £100m) which was determined on the basis of
4.92% (2022/23: 4.64%) of total adjusted profit before tax, from
both continuing and discontinued operations, (including net
pension finance income/(cost)) as described further on page 123.
Scoping
Our audit scoping provides full scope and specified scope audit
coverage of 97% (2022/23: 97%) of revenue from continuing
operations, 92% (2022/23: 93%) of operating profit from continuing
operations and 92% (2022/23: 96%) of total assets.
In relation to discontinued operations we performed full scope
audit procedures covering 100% of revenue and operating profit as
well as 100% of total assets of the disposal group and non-current
assets held for sale.
Significant changes in our approach
Our 2023/24 report includes a new key audit matter relating to the
disposal of the Banking operations of Tesco Bank.
We no longer report Tesco Bank goodwill impairment as a key audit
matter due to:
— the reduction in the residual goodwill balance following the
allocation of goodwill between Banking operations and the
remaining insurance and money services businesses, and the
subsequent impairment of the Banking operations goodwill; and
— the increased headroom and reduced sensitivity of the
insurance and money services businesses, arising from
increases in the forecast future cash flows and the decreased
discount rate applied in 2023/24.
There are no other significant changes in our approach in
comparison to the 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
Tesco PLC Annual Report and Financial Statements 2024
117.
Financial statements
Strategic report
Governance
Additional information
Financial statements continued
Independent auditor’s report to the members of Tesco PLC continued
nature of facilities, repayment terms and any covenants to
assess 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;
— 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;
— assessing whether the remaining money services and insurance
services business is self-funding and no further investment is
required from the Group; and
— assessing the appropriateness of the Group’s disclosure
concerning the going concern basis.
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 of 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.
5.1. Store impairment review
Key audit matter description
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 £17,221m (2022/23: £16,862m) of property, plant and equipment and £5,478m of right of use assets
(2022/23: £5,500m) at 24 February 2024.
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.
The key audit matter relates specifically to the UK trading store portfolio which represents 79% of both the Group’s property, plant and
equipment and right of use asset balances.
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 continued impact of cost of living increases and ongoing fluctuations in energy costs and inflation) on
forecast cash flows and property fair values where conditions existed at the balance sheet date.
Management’s impairment review is sensitive to changes in the key assumptions as set out in Note 14. Significant judgement is required to
forecast store cash flows which are derived from the Board-approved Long Term Plan (LTP) and also in relation to capital and restructuring
adjustments made to the LTP cash flows so that the impairment model cash flows comply with IAS 36. 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 ongoing 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 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 cash flows derived from the LTP are in accordance with IAS 36. This
increases the complexity and level of judgement within the impairment model.
Tesco PLC Annual Report and Financial Statements 2024
118.
Financial statements
Strategic report
Governance
Additional information
5.1. Store impairment review continued
As a result of the Group’s store impairment review completed during the year, a net impairment reversal of £28m (2022/23: impairment loss
£982m) was recognised. This includes an impairment charge of £572m (2022/23: £1,250m) and an impairment reversal of £600m (2022/23:
£268m). 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 86.
How the scope of our audit responded to the key audit matter
Our audit procedures included obtaining an understanding of the relevant controls around the impairment review process, including the budget
and forecast setting processes which support the cash flows used in the impairment model.
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 continued cost-of-living crisis and ongoing 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 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;
— involving valuation specialists to evaluate management’s inputs to, and the appropriateness of, their discount rate and the validity of their
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 continued
cost-of-living crisis and ongoing fluctuations in energy prices and inflation;
— performed testing on all the data inputs and model outputs, along with stand-back assessments to identify unusual trends and understand
the factors driving the movement or any indicators of 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 cash flows contained within the LTP which were determined as not permissible under IAS 36; and
— assessing the mechanical accuracy and integrity of the value in use model prepared by the Group, with the assistance of our specialist
modelling team.
In relation to the Group’s stores where their value is supported by fair value less costs to dispose (rather than value in use), 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 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. We have involved property valuation specialists to assist 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.
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 reversal is reasonable.
We also consider the disclosures, including the sensitivity disclosure, in Note 14 to be appropriate.
5.2. Recognition of commercial income
Key audit matter description
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 received 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 underlying product promotions have gone live in stores.
The variety and number of the buying arrangements with suppliers means there is complexity in determining if the performance conditions
associated with the income have been satisfied, 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 pinpointed to the possible manipulation of the income for promotional
space deal types within the UK retail business. In comparison to prior years, we consider the risks related to commercial income from cost
price reconciliation deal types in the UK retail business to have reduced as the quantum of the commercial income from these arrangements
has reduced.
The Audit Committee’s discussion of this key audit matter is set out on page 86.
Tesco PLC Annual Report and Financial Statements 2024
119.
Financial statements
Strategic report
Governance
Additional information
Financial statements continued
Independent auditor’s report to the members of Tesco PLC continued
5.2. Recognition of commercial income continued
How the scope of our audit responded to the key audit matter
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 with particular characteristics, such as those related to promotional space, and
carried out further procedures on these, including arranging one on one meetings with individual Tesco buyers and third party supplier
representatives;
— considered whether amounts recognised were accurate and recorded in the correct period by circularising a sample of suppliers to
determine 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 and deals. We evaluated all supplier confirmation responses and investigated all exceptions
reported to us, if any, to determine the effect on reported commercial income or on our confirmation sampling plan. We obtained a 100%
response rate from the suppliers in our sample, and therefore we did not need to consider alternative procedures;
— evaluated the year-end accrual for promotional deals to assess whether performance obligations have been fulfilled where they have been
invoiced subsequent to year end;
— held discussions with certain suppliers and members of the Group’s buying personnel in order to: further understand relevant
arrangements; gain further insights on the impact of economic trends on specifics and associated cost prices; discuss the IT applications
used to administer and process commercial income deals; and identify if there are any disputes or other issues that we should be aware of
for further investigation;
— tested the completeness of commercial income by evaluating management’s review and conclusions related to any commercial income deals
that were unrecorded 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; and
— assessed the appropriateness of the disclosures made in relation to commercial income in the Group’s financial statements.
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. Tesco Bank loan impairment
Key audit matter description
As disclosed in Note 7 (Discontinued operations), the Group held an expected credit loss (ECL) provision in respect of loans and advances to
customers of £433m at 24 February 2024 (2022/23: £460m) classified under assets of the disposal group held for sale in the Group balance
sheet. The ECL on loans and advances to customers charged to the income statement and classified under discontinued operations was £65m
in the year to 24 February 2024 (2022/23: £60m). The decrease in the ECL provision during the year is primarily due to an improved
macroeconomic economic outlook and reduction in post-model adjustments (PMAs), partially offset by the growth in the lending portfolio in
the current year.
Loan impairment remains one of the most significant judgements made by management. We consider the most significant area of judgement to
be within the Group’s collective provisioning methodologies; we therefore identified the key audit matter within loan impairment as relating to
the macroeconomic scenarios applied in the calculation of the provision.
ECL provisions are 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
of the scenarios that are incorporated into the ECL model.
Other judgements include the determination of the expected lifetime, the definition of a significant increase in credit risk, the determination of
probability of default, the assessment of the effect of cost of living and cost of borrowing on the borrower’s affordability, the identification of
loss events and the determination of loss given default.
Given the 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 as these judgements are subject to the risk of management bias.
Management’s associated accounting policies are detailed in Note 1, including detail about the judgements made in applying accounting policies
and key accounting estimates.
The Audit Committee’s discussion of this key audit matter is set out on page 86.
How the scope of our audit responded to the key audit matter
We have obtained an understanding of relevant controls, including those linked to the review and approval of macroeconomic scenarios, model
governance forums, model monitoring, validation and calibration (including the determination of PMAs), 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.
— 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 independent economic outlooks, external analysts and market data, to assess their reasonableness, considering the
forecasts in light of any contradictory information.
— We also assessed the competence, capability, 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.
Tesco PLC Annual Report and Financial Statements 2024
120.
Financial statements
Strategic report
Governance
Additional information
5.3. Tesco Bank loan impairment continued
— We evaluated whether there was appropriate disclosure on loan impairment, including the macroeconomic scenarios selected by
management, their probability weighting, and the related sensitivities.
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
compliant with IFRS 9. We consider the sensitivity disclosures provided in Note 7 (Discontinued operations) to the financial statements to be
appropriate.
5.4. Disposal of Banking operations
Key audit matter description
As set out in Note 7 (Discontinued operations), in February 2024 the Group reached agreement on the terms of a proposed sale of its banking
operations, comprising personal loans, credit cards, customer deposits, and associated operational capabilities (‘Banking operations’) for
consideration of £600m. The sale is conditional on court sanction and regulatory approval or non-objection, as is typical of the transfer of
banking operations, and is expected to complete in the second half of 2024/25. Subsequent to the completion of the sale, the Group will enter
into a new partnership agreement with the acquirer to continue to offer a broad range of banking products to new and existing customers.
At the date Banking operations were re-classified as held for sale, the Group determined that the £500m goodwill previously allocated to Tesco
Bank should be allocated between the Banking operations disposal group (£211m), with the remainder (£289m) relating to the continuing
insurance and money services operations retained on the Group balance sheet.
The Banking operations assets of £7,698m and liabilities of £7,122m have been classified as held for sale in the Group balance sheet with the
Group income statement presented to show the results as a discontinued operation, for which the comparatives have been restated on a
consistent basis.
Upon classification as held for sale the Group recognised a £732m loss on remeasuring the disposal group to fair value less cost to sell. £211m of
the loss was allocated to goodwill and £96m to other assets of the disposal group within the scope of the measurement requirements of IFRS 5
‘Non-current Assets Held for Sale and Discontinued Operations’ and which were therefore fully written off. The excess loss remaining was then
recognised as a reduction in the total assets of the disposal group, which primarily comprise loans and advances to customers measured under
IFRS 9.
We have identified the disposal of the Banking operations business as a key audit matter because of the significant estimates and accounting
conclusions related to:
— the timing of the held for sale criteria being met;
— the perimeter of the assets and liabilities included within discontinued operations;
— the calculation of the loss on disposal, predominantly related to the allocation of goodwill;
— the remeasurement of the Banking operations net assets to the lower of carrying value or fair value less costs to sell;
— the allocation of the loss to assets within the disposal group and the treatment of the excess loss;
— the split of indirect costs between the Banking operations and remaining insurance and money services business; and
— whether any of the future income to be generated from the partnership agreement is considered deferred consideration.
The Audit Committee’s discussion of this key audit matter is set out on page 86.
How the scope of our audit responded to the key audit matter
Our audit procedures included obtaining an understanding of relevant controls that the Group has established in relation to the sale of the
Banking operations business.
We have also performed specific audit procedures to address the key audit matter which included the following:
— Evaluating the entity’s accounting conclusions in respect of the relevant accounting standards for the disposal including:
— Timing of held for sale criteria being met;
— The presentation of Banking operations as part of discontinued operations;
— Allocation of the loss to assets within the disposal group and the treatment of the excess loss; and
— Treatment of the future income to be earned under the partnership agreement and the judgement that no elements of this should be
recognised as deferred consideration.
— Involving valuation specialists to assess the appropriateness of the relative fair values of the Banking operations and the remaining insurance
and ancillary money services business used to determine the allocation of goodwill;
— Challenging management’s forecasts used to calculate the relative fair values of the Banking business and the remaining insurance and
money services business used to determine the allocation of goodwill from a consistent market participant point of view;
— Recalculating the loss on remeasuring the disposal group to fair value less cost to sell and the excess loss allocated to the disposal group;
— Testing the accuracy and completeness of the perimeter of the disposal of the Banking operations business and the split of indirect costs
between the Banking operations and the remaining insurance and money services business; and
— Evaluating the appropriateness of disclosures made in the financial statements, including the current year presentation of the assets and
liabilities of the Banking operations being sold as held for sale and the presentation as a discontinued operation within the income
statement; and
— Testing the related restatement of the prior year income statement comparatives.
Key observations
Based on our audit procedures we are satisfied that the Group’s accounting conclusions and the calculation and allocation of the loss on
remeasuring the disposal group to fair value less cost to sell are appropriate. We also consider the disclosures, including the classification of
the assets and liabilities and presentation of the results as a discontinued operation in respect of the disposal of the Banking operations, in
Note 7 to be appropriate.
Tesco PLC Annual Report and Financial Statements 2024
121.
Financial statements
Strategic report
Governance
Additional information
Financial statements continued
Independent auditor’s report to the members of Tesco PLC continued
5.5 Pension valuation
Key audit matter description
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 24 February 2024, the Group recorded a net retirement benefit
deficit before deferred tax of £635m (2022/23: £394m), comprising plan assets of £12,156m (2022/23: £13,025m) and plan liabilities of £12,787m
(2022/23: £13,416m). The net retirement deficit of £635m (2022/23: £394m) before deferred tax comprises schemes in surplus of £22m
(2022/23: £6m) and schemes in deficit of £657m (2022/23: £400m).
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.
The Audit Committee’s discussion of this key audit matter is set out on page 86.
How the scope of our audit responded to the key audit matter
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 assumptions used by management in determining the value of pension
liabilities, particularly focusing on the discount rate, inflation and mortality assumptions. 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 incorporation of, and weighting factors applied to, the Continuous Mortality Investigation (CMI) 2022 mortality
tables which include the updated 2022 actual mortality experience, with reference to advice the Group has received from its actuaries.
Additionally, we have considered the competence, capability and objectivity of the actuaries engaged by management to perform valuations of
the relevant plans.
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 reasonable.
5.6. Retail technology environment
Key audit matter description
The Group’s retail technology environment is complex and a significant element of its financial processes and business operations are
dependent on automated processes and controls.
In the current and previous years, we have reported certain IT control deficiencies within the retail IT systems which could have an adverse
impact on the Group’s controls and financial reporting systems.
Management has continued to implement its multi-year remediation plan on control deficiencies related to Application User Access
Management and Privileged Access Management. IT remediation is a complex project which includes the remediation of IT deficiencies applying
management judgement across a range of internally and externally hosted systems 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.
The Audit Committee’s discussion of this key audit matter is set out on page 85.
How the scope of our audit responded to the key audit matter
Consistent with previous years, we did not plan to take a control-reliant audit approach in the retail business due to the deficiencies in the IT
environment and the level of integration and inter-dependencies across the systems.
During the year we 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. We evaluated the design and implementation of controls which
management has remediated and tested their operating effectiveness. We also performed testing of certain automated controls, particularly
those which are underpinned by remediated IT systems and others that were determined to be key.
We obtained an understanding of relevant manual controls, evaluating their design and implementation and, in certain cases, testing the
operating effectiveness of those controls which relate to identified deficiencies. Consistent with the prior year we also 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.
Key observations
Based on the current work programme, management anticipates that much of its remediation plan will be completed in 2024/25 with the
remainder completed by 2025/26. Our audit plan includes an ongoing programme to test the Group’s remediated IT controls relevant to the
audit once this has been completed by management. We consider the level of risk associated with this key audit matter has reduced from the
prior year due to the continued progress made by management during the current year.
Tesco PLC Annual Report and Financial Statements 2024
122.
Financial statements
Strategic report
Governance
Additional information
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:
Group financial statements
Parent Company financial statements
Materiality
£115m (2022/23: £100m)
£86.25m (2022/23: £75m)
Basis for
determining
materiality
4.92% (2022/23: 4.64%) of total adjusted profit before tax, from both
continuing and discontinued operations, (including net pension finance
income/(cost)) of £2,337m (2022/23: £2,156m).
Materiality represents less than 1% of net assets
(2022/23: less than 1%) of net assets.
Rationale
for the
benchmark
applied
We have determined materiality based on 4.92% of total adjusted profit
before tax, from both continuing and discontinued 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
0.17% (2022/23: 0.15%) of the Group’s revenue from continuing
operations and 1.0% (2022/23: 0.8%) 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.
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.
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 £11m and £56m (2022/23: £10m and £49m).
Group materiality £115m
Component materiality
range £11m to £56m
Audit Committee reporting
threshold £5.75m
Adjusted profit before
tax from continuing and
discontinued operations
(including net pension finance
income/cost) £2,337m
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.
Group financial statements
Parent Company financial statements
Performance
materiality
65% (2022/23: 65%) of Group materiality
65% (2022/23: 65%) of Parent Company
materiality
Basis and
rationale for
determining
performance
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 2023/24. 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 £5.75m (2022/23: £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.
Tesco PLC Annual Report and Financial Statements 2024
123.
Financial statements
Strategic report
Governance
Additional information
Financial statements continued
Independent auditor’s report to the members of Tesco PLC continued
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
business 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. We
performed a detailed scoping exercise over all these components
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% (2022/23: 97%) of revenue from
continuing operations, 92% (2022/23: 93%) of operating profit from
continuing operations and 92% (2022/23: 96%) of total assets. In
relation to discontinued operations we performed full scope audit
procedures covering 100% of revenue and operating profit as well
as 100% of total assets of the disposal group and non-current
assets held for sale.
In addition, we performed analytical review procedures for two
other businesses (dunnhumby 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 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 allowed 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 or specified scope contribute the
proportions of Group totals shown below.
Revenue from continuing operations
3%
97%
Full or specified audit scope
Review at Group level
Profit before tax from continuing operations
8%
92%
Full or specified audit scope
Review at Group level
Total assets
8%
92%
Full or specified audit scope
Review at Group level
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 27 (2022/23: 26) retail stores in the UK to
attend inventory counts and to complete store control testing
procedures, and 7 (2022/23: 8) distribution centre inventory
counts.
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 122 it is not possible to take a control 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 as planned.
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 85,
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’ key audit matter in section 5.6 above.
Tesco PLC Annual Report and Financial Statements 2024
124.
Financial statements
Strategic report
Governance
Additional information
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 39,
the viability statement on page 46, the principal risks on page 30,
and in Note 14 of the financial statements. The Group has set out
their key commitments to reduce Scope 1 and 2 market based
emissions by 2025, be carbon neutral across their own operations
by 2035 and achieve net zero across their value chain (Scope 3) by
2050.
We 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 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 the impact has 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 consultation with our climate change specialists we considered
the impact of management’s review of the food waste process. This
review had highlighted that food which management believed was
being processed for animal feed was in fact going to anaerobic
digestion and the Group subsequently terminated the relationship
with the food waste processor in the UK. Although not subject to
audit, we have considered whether management’s disclosures
reflect our understanding of the impact on the food waste metric
and did not identify any material inconsistencies as a result of these
procedures. Management’s discussion of this is set out in the
Directors Remuneration Report on page 90.
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 also assessed whether these disclosures reflect our
understanding of the Group’s approach to climate and did not
identify any material inconsistencies as a result of these
procedures.
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 business service centre in Bengaluru. We had
a dedicated audit partner focused on overseeing the role of the
component audit teams, so that 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 held regular remote communication to interact on any related
audit and accounting matters which arose.
Additionally, the component audit teams attended two all-day
planning meetings in July 2023 led by the Group audit team and
held prior to commencement of our detailed audit work. The
purpose of these planning meetings was to establish a good level of
understanding of the Group’s businesses, its core strategy and hold
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.
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.
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.
Tesco PLC Annual Report and Financial Statements 2024
125.
Financial statements
Strategic report
Governance
Additional information
Financial statements continued
Independent auditor’s report to the members of Tesco PLC continued
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, internal audit function,
the Group’s Security function and 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, including those that are specific to the sector;
— 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 Groceries Supply Code of Practice (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, 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
Group’s requirements of the United Kingdom’s PRA, FCA and
Solvency II regulations 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
and 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;
— considering the impact of fraud in the food waste metric
highlighted on page 85 of the Annual Report on the financial
statements and whether there is any indication for further
fraud or potential for inappropriate disclosure in the financial
statements; 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.
Tesco PLC Annual Report and Financial Statements 2024
126.
Financial statements
Strategic report
Governance
Additional information
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 the 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 116;
— 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 61;
— the Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 30;
— the section of the Annual Report that describes the
review of effectiveness of risk management and internal
control systems set out on page 30; and
— the section describing the work of the Audit Committee
set out on page 82.
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 this regard.
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 this regard.
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 nine years, covering the
years ending 27 February 2016 to 24 February 2024.
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).
Report on other legal and
regulatory requirements.
Tesco PLC Annual Report and Financial Statements 2024
127.
Financial statements
Strategic report
Governance
Additional information
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) 4.1.15R – DTR 4.1.18R, these financial statements will form part
of the Electronic Format Annual Financial Report filed on the
National Storage Mechanism of the FCA in accordance with DTR
4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance
over whether the Electronic Format Annual Financial Report has
been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R. We
have been engaged to provide assurance on whether the
Electronic Format Annual Financial Report has been prepared in
compliance with DTR 4.1.15R – DTR 4.1.18R 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
9 April 2024
Financial statements continued
Report on other legal and regulatory requirements continued
Tesco PLC Annual Report and Financial Statements 2024
128.
Financial statements
Strategic report
Governance
Additional information
Group income statement
52 weeks ended
24 February 2024
52 weeks ended
25 February 2023 (restated(a))
Notes
Before
adjusting
items
£m
Adjusting
items
(Note 4)
£m
Total
£m
Before
adjusting
items
£m
Adjusting
items
(Note 4)
£m
Total
£m
Continuing operations
Revenue from sale of goods and services
67,673
–
67,673
64,864
–
64,864
Insurance revenue(b)
24
514
–
514
458
–
458
Revenue
2
68,187
–
68,187
65,322
–
65,322
Cost of sales
(62,832)
(4)
(62,836)
(60,487)
(1,029)
(61,516)
Insurance service expenses(b)
24
(454)
–
(454)
(408)
–
(408)
Net expenses from reinsurance contracts held(b)
24
(48)
–
(48)
(37)
–
(37)
Gross profit/(loss)
4,853
(4)
4,849
4,390
(1,029)
3,361
Administrative expenses
(2,024)
(4)
(2,028)
(1,881)
(70)
(1,951)
Operating profit/(loss)
2
2,829
(8)
2,821
2,509
(1,099)
1,410
Share of post-tax profits of joint ventures and associates
13
6
–
6
8
–
8
Finance income
5
267
–
267
87
–
87
Finance costs
5
(825)
20
(805)
(650)
27
(623)
Profit/(loss) before tax from continuing operations
2,277
12
2,289
1,954
(1,072)
882
Taxation
6
(593)
68
(525)
(419)
195
(224)
Profit/(loss) for the year from continuing operations
1,684
80
1,764
1,535
(877)
658
Discontinued operations
Profit/(loss) for the year from discontinued operations
7
56
(628)
(572)
91
(13)
78
Profit/(loss) for the year
1,740
(548)
1,192
1,626
(890)
736
Attributable to:
Owners of the parent
1,736
(548)
1,188
1,627
(890)
737
Non-controlling interests
4
–
4
(1)
–
(1)
1,740
(548)
1,192
1,626
(890)
736
Earnings per share from continuing and discontinued operations
Basic
9
16.74p
9.94p
Diluted
9
16.56p
9.85p
Earnings per share from continuing operations
Basic
9
24.80p
8.89p
Diluted
9
24.53p
8.81p
(a) Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33 for further details.
(b) Following the adoption of IFRS 17, the income statement has been re-presented to separately present insurance revenue, insurance service expenses and net expenses from
reinsurance contracts held. Refer to Note 1 for further details.
The notes on pages 134 to 203 form part of these financial statements.
Tesco PLC Annual Report and Financial Statements 2024
129.
Financial statements
Strategic report
Governance
Additional information
Group statement of comprehensive income/(loss)
Notes
52 weeks ended
24 February 2024
£m
52 weeks ended
25 February 2023
(restated*)
£m
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
–
2
Remeasurements of defined benefit pension schemes
29
(251)
(3,341)
Net fair value gains/(losses) on inventory cash flow hedges
(38)
54
Tax on items that will not be reclassified
6
62
853
(227)
(2,432)
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
16
(43)
Currency translation differences:
Retranslation of net assets of overseas subsidiaries, joint ventures and associates,
net of hedging instruments
(116)
120
Gains on cash flow hedges:
Net fair value gains
25
17
Reclassified and reported in the Group income statement
(56)
(61)
Finance income/(expenses) from insurance contracts issued
24
(4)
39
Finance income/(expenses) from reinsurance contracts held
24
1
(20)
Tax on items that may be reclassified
6
(6)
17
(140)
69
Total other comprehensive income/(loss) for the year
(367)
(2,363)
Profit/(loss) for the year
1,192
736
Total comprehensive income/(loss) for the year
825
(1,627)
Attributable to:
Owners of the parent
820
(1,632)
Non-controlling interests
5
5
Total comprehensive income/(loss) for the year
825
(1,627)
Total comprehensive income/(loss) attributable to owners of the parent arising from:
Continuing operations
1,392
(1,710)
Discontinued operations
7
(572)
78
820
(1,632)
* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33 for further details.
The notes on pages 134 to 203 form part of these financial statements.
Tesco PLC Annual Report and Financial Statements 2024
130.
Financial statements
Strategic report
Governance
Additional information
Group balance sheet
Notes
24 February 2024
£m
25 February 2023
(restated*)
£m
26 February 2022
(restated*)
£m
Non-current assets
Goodwill and other intangible assets
10
5,066
5,375
5,360
Property, plant and equipment
11
17,221
16,862
17,060
Right of use assets
12
5,478
5,500
5,720
Investment property
24
24
22
Investments in joint ventures and associates
13
102
93
86
Other investments
15
1,546
1,339
1,253
Trade and other receivables
17
36
79
159
Loans and advances to customers
23
–
3,029
3,141
Reinsurance contract assets
24
125
135
171
Derivative financial instruments
26
781
873
942
Post-employment benefit surplus
29
22
6
3,150
Deferred tax assets
6
32
84
88
30,433
33,399
37,152
Current assets
Other investments
15
206
353
226
Inventories
16
2,635
2,510
2,339
Trade and other receivables
17
1,349
1,235
1,218
Loans and advances to customers
23
–
3,948
3,251
Derivative financial instruments
26
55
57
69
Current tax assets
110
63
93
Short-term investments
18
2,128
1,628
2,076
Cash and cash equivalents
18
2,340
2,465
2,345
8,823
12,259
11,617
Assets of the disposal group and non-current assets classified as held for sale
7
7,783
210
368
16,606
12,469
11,985
Current liabilities
Trade and other payables
19
(10,264)
(9,762)
(9,040)
Borrowings
21
(1,536)
(1,770)
(725)
Lease liabilities
12
(584)
(595)
(547)
Provisions
22
(306)
(366)
(283)
Insurance contract liabilities
24
(526)
(501)
(588)
Customer deposits and deposits from banks
25
(108)
(4,485)
(4,729)
Derivative financial instruments
26
(25)
(99)
(26)
Current tax liabilities
(1)
(18)
(11)
(13,350)
(17,596)
(15,949)
Liabilities of the disposal group classified as held for sale
7
(7,122)
(14)
(14)
Net current liabilities
(3,866)
(5,141)
(3,978)
Non-current liabilities
Trade and other payables
19
(39)
(54)
(54)
Borrowings
21
(5,683)
(5,581)
(6,674)
Lease liabilities
12
(7,038)
(7,132)
(7,411)
Provisions
22
(175)
(194)
(183)
Customer deposits and deposits from banks
25
(800)
(2,265)
(1,650)
Derivative financial instruments
26
(241)
(288)
(357)
Post-employment benefit deficit
29
(657)
(400)
(303)
Deferred tax liabilities
6
(269)
(119)
(910)
(14,902)
(16,033)
(17,542)
Net assets
11,665
12,225
15,632
Equity
Share capital
30
445
463
484
Share premium
5,165
5,165
5,165
Other reserves
30
3,131
3,139
3,080
Retained earnings
2,930
3,469
6,919
Equity attributable to owners of the parent
11,671
12,236
15,648
Non-controlling interests
(6)
(11)
(16)
Total equity
11,665
12,225
15,632
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
The notes on pages 134 to 203 form part of these financial statements.
Ken Murphy
Imran Nawaz
Directors
The financial statements on pages 129 to 203 were approved and authorised for issue by the Directors on 9 April 2024.
Tesco PLC Annual Report and Financial Statements 2024
131.
Financial statements
Strategic report
Governance
Additional information
Group statement of changes in equity
Notes
Share
capital
£m
Share
premium
£m
Other
reserves
(Note 30)
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
At 25 February 2023 (as previously reported)
463
5,165
3,123
3,490
12,241
(11)
12,230
Cumulative adjustment on initial application of IFRS 17
(net of tax)
–
–
16
(21)
(5)
–
(5)
At 25 February 2023 (restated*)
463
5,165
3,139
3,469
12,236
(11)
12,225
Profit/(loss) for the year
–
–
–
1,188
1,188
4
1,192
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint
ventures and associates, net of hedging instruments
–
–
(116)
–
(116) –
(116)
Change in fair value of financial assets at fair value through
other comprehensive income
–
–
–
16
16
–
16
Remeasurements of defined benefit pension schemes
29
–
–
–
(251)
(251) –
(251)
Gains/(losses) on cash flow hedges
–
–
(14)
–
(14)
1
(13)
Cash flow hedges reclassified and reported in the Group
income statement
–
–
(56)
–
(56)
–
(56)
Finance income/(expenses) from insurance contracts issued
–
–
(4)
–
(4)
–
(4)
Finance income/(expenses) from reinsurance contracts held
–
–
1
–
1
–
1
Tax relating to components of other comprehensive income
6
–
–
(4)
60
56
–
56
Total other comprehensive income/(loss)
–
–
(193)
(175)
(368)
1
(367)
Total comprehensive income/(loss)
–
–
(193)
1,013
820
5
825
Transfer from hedging reserve to retained earnings
–
–
44
(44)
-
-
-
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
–
–
79
–
79
–
79
Total inventory cash flow hedge movements
–
–
79
–
79
–
79
Transactions with owners
Own shares purchased for cancellation
30
–
–
(752)
–
(752)
–
(752)
Own shares cancelled
30
(18)
–
770
(752)
-
–
–
Own shares purchased for share schemes
30
–
–
(140)
–
(140)
–
(140)
Share–based payments
28
–
–
184
11
195
–
195
Dividends
8
–
–
–
(777)
(777)
–
(777)
Tax on items charged/(credited) to equity
6
–
–
–
10
10
–
10
Total transactions with owners
(18)
–
62
(1,508)
(1,464)
–
(1,464)
At 24 February 2024
445
5,165
3,131
2,930
11,671
(6)
11,665
Notes
Share
capital
£m
Share
premium
£m
Other
reserves
(Note 30)
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
At 26 February 2022 (as previously reported)
484
5,165
3,079
6,932
15,660
(16)
15,644
Cumulative adjustment on initial application of IFRS 17 (net of tax)
–
–
1
(13)
(12)
–
(12)
At 26 February 2022 (restated*)
484
5,165
3,080
6,919
15,648
(16)
15,632
Profit/(loss) for the year*
–
–
–
737
737
(1)
736
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint
ventures and associates, net of hedging instruments
–
–
120
–
120
–
120
Change in fair value of financial assets at fair value through
other comprehensive income
–
–
–
(41)
(41)
–
(41)
Remeasurements of defined benefit pension schemes
29
–
–
–
(3,341)
(3,341)
–
(3,341)
Gains/(losses) on cash flow hedges
–
–
63
–
63
8
71
Cash flow hedges reclassified and reported in the Group
income statement
–
–
(61)
–
(61)
–
(61)
Finance income/(expenses) from insurance contracts issued*
–
–
39
–
39
–
39
Finance income/(expenses) from reinsurance contracts held*
–
–
(20)
–
(20)
–
(20)
Tax relating to components of other comprehensive income*
–
–
18
854
872
(2)
870
Total other comprehensive income/(loss)*
–
–
159
(2,528)
(2,369)
6
(2,363)
Total comprehensive income/(loss)*
–
–
159
(1,791)
(1,632)
5
(1,627)
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
–
–
(127)
–
(127)
–
(127)
Total inventory cash flow hedge movements
–
–
(127)
–
(127)
–
(127)
Transactions with owners
Own shares purchased for cancellation
30
–
–
(758)
–
(758)
–
(758)
Own shares cancelled
30
(21)
–
816
(795)
–
–
–
Own shares purchased for share schemes
30
–
–
(188)
–
(188)
–
(188)
Share–based payments
28
–
–
157
(1)
156
–
156
Dividends
8
–
–
–
(858)
(858)
–
(858)
Tax on items charged/(credited) to equity
6
–
–
–
(5)
(5)
–
(5)
Total transactions with owners
(21)
–
27
(1,659)
(1,653)
–
(1,653)
At 25 February 2023 (restated*)
463
5,165
3,139
3,469
12,236
(11)
12,225
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
The notes on pages 134 to 203 form part of these financial statements.
Tesco PLC Annual Report and Financial Statements 2024
132.
Financial statements
Strategic report
Governance
Additional information
Group cash flow statement
Notes
52 weeks ended
24 February 2024
£m
52 weeks ended
25 February 2023
(restated*)
£m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations
2,821
1,410
Operating profit/(loss) of discontinued operations
7
(659)
98
Depreciation and amortisation
1,723
1,700
(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
(53)
(76)
(Profit)/loss arising from sale of other investments
–
3
(Profit)/loss arising on sale of joint ventures and associates
(9)
–
(Profit)/loss arising on sale of subsidiaries
(12)
–
Net impairment (reversal)/loss on property, plant and equipment, right of use assets, intangible assets and
investment property
14
(28)
982
Net remeasurement loss on non-current assets held for sale
7
720
23
Defined benefit pension scheme payments
29
(29)
(23)
Share-based payments
28
78
59
Fair value movements included in operating profit/(loss)
71
70
Retail (increase)/decrease in inventories
(150)
(147)
Retail (increase)/decrease in trade and other receivables
(118)
(54)
Retail increase/(decrease) in trade and other payables
714
643
Retail increase/(decrease) in provisions
(72)
75
Retail (increase)/decrease in working capital
374
517
Tesco Bank (increase)/decrease in loans and advances to customers
(714)
(690)
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables
(9)
83
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance liabilities and other payables
584
348
Tesco Bank increase/(decrease) in provisions
28
(7)
Tesco Bank (increase)/decrease in working capital
(111)
(266)
Cash generated from/(used in) operations
4,886
4,497
Interest paid
(824)
(652)
Corporation tax paid
(223)
(123)
Net cash generated from/(used in) operating activities
3,839
3,722
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
55
342
Purchase of property, plant and equipment, investment property and other long-term assets
(1,108)
(971)
Purchase of intangible assets
(278)
(279)
Disposal of subsidiaries, net of cash disposed
15
–
Acquisition of subsidiaries, net of cash acquired
(17)
(71)
Proceeds from sale of joint ventures and associates
9
–
Increase in loans to joint ventures and associates
(61)
(1)
Investments in joint ventures and associates
(9)
(10)
Net (investments in)/proceeds from sale of short-term investments
(507)
451
Proceeds from sale of other investments
352
230
Purchase of other investments
(390)
(529)
Dividends received from joint ventures and associates
9
14
Interest received
249
70
Cash inflows from derivative financial instruments
5
54
Cash outflows from derivative financial instruments
(24)
(6)
Net cash generated from/(used in) investing activities
(1,700)
(706)
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation
30
(752)
(781)
Own shares purchased for share schemes
28
(93)
(86)
Repayment of capital element of obligations under leases
(627)
(593)
Cash outflows exceeding the incremental increase in assets in a property buyback
(62)
(21)
Increase in borrowings
1,232
–
Repayment of borrowings
(775)
(709)
Cash inflows from derivative financial instruments
98
232
Cash outflows from derivative financial instruments
(102)
(371)
Dividends paid to equity owners
8
(778)
(859)
Net cash generated from/(used in) financing activities
(1,859)
(3,188)
Net increase/(decrease) in cash and cash equivalents
280
(172)
Cash and cash equivalents at the beginning of the year
1,565
1,771
Effect of foreign exchange rate changes
29
(34)
Cash and cash equivalents, including cash held in the disposal group, at the end of the year
1,874
1,565
Less: Cash held in the disposal group
(346)
–
Cash and cash equivalents at the end of the year
18
1,528
1,565
* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33 for further details.
The notes on pages 134 to 203 form part of these financial statements.
Tesco PLC Annual Report and Financial Statements 2024
133.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements
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 00445790). The address of the registered
office is Tesco House, Shire Park, Kestrel Way, Welwyn Garden City,
AL7 1GA, UK.
The main activities of the Company and its subsidiaries (together, the
Group) are those of retailing, retail banking and insurance services.
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.
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for the foreseeable future, which reflects a period of 18 months
from the date of approval of the financial statements and have
concluded that there are no material uncertainties relating 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
viability statement. Further information on the Group’s strong
liquidity position is given in the Financial review, 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 been applied consistently to all periods presented in these
consolidated Group financial statements.
IFRS 17 ‘Insurance contracts’ is effective for the accounting period
commencing 26 February 2023. IFRS 17 has been applied fully
retrospectively and comparatives for prior periods have been
restated from a transition date of 27 February 2022. Refer to
Note 33 for further details.
Other 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.
The impact of the following is under assessment:
- IFRS 18 ‘Primary financial statements’, which will become effective
in the consolidated Group financial statements for the financial
year ending 26 February 2028, 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.
Discontinued operations
During the year, the Board approved a plan to dispose of the Group’s
regulated Banking operations, which form a major part of the
Tesco Bank segment. The net results of the Banking operations are
presented as a discontinued operation in the Group income
statement, for which the comparatives have been restated. The
assets and liabilities of the Banking operations disposal group are
presented separately in the Group balance sheet as held for sale.
For further details, refer to Note 7.
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, accounted for using
the equity method.
The financial year represents the 52 weeks ended 24 February 2024
(prior financial year 52 weeks ended 25 February 2023). For the
UK and the Republic of Ireland (UK & ROI), the results are for the
52 weeks ended 24 February 2024 (prior financial year 52 weeks
ended 25 February 2023). For all other operations, the results are
for the calendar year ended 29 February 2024 (prior calendar year
ended 28 February 2023).
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.
Revenue from sale of goods and services
Sale of goods
The sale of goods represents the vast majority of the Group’s
revenue. For goods sold in store and fuel, 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
a future discount. The total transaction price (sales price of goods)
is allocated to the Clubcard points and the goods sold based on
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.
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.
Data science services
The Group generates revenue from the provision of consultancy
services (customer data science and analytics), software access
and media services through its data science business dunnhumby.
Revenue is recognised either over time or at a point in time, with
a low level of judgement typically required to determine the
transaction price or timing of transfer of benefit to the customer.
The Group recognises revenue over time if the customer
simultaneously receives and consumes the benefits provided as the
service is performed; or performance of the service does not create
an asset with an alternative use and the Group has an enforceable
right to payment for work to date. For services performed over time,
revenue is recognised based on progress in fulfilling the service
unless it is provided on a ‘stand-ready’ basis, in which case revenue
is recognised over the period the service is expected to be utilised.
Revenue recognised at a point in time is recognised when the
relevant performance obligation is satisfied.
Money services and similar income
The majority of the fees in respect of money services (including
ATMs, travel money and gift cards) 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.
Tesco Bank interest income on retained financial assets that
are measured at amortised cost and fair value through other
comprehensive income 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 and premiums or discounts on acquisition or issue.
Tesco PLC Annual Report and Financial Statements 2024
134.
Financial statements
Strategic report
Governance
Additional information
The Group generates commission income from the sale of white
label pet and travel insurance products underwritten by third-party
providers, which is recognised on a net basis as such policies are
sold. This is based on commission rates which are independent of
the profitability of underlying insurance policies. The Group also
recognises commission income from certain policy renewals at the
point these 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.
Insurance revenue
Insurance revenue relates to motor and home insurance policies
underwritten by the Group’s subsidiary, Tesco Underwriting Limited.
Refer to the Insurance section below.
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 credit within
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.
Finance income
Finance income is recognised in the period to which it relates using
the effective interest rate method.
Finance costs
Borrowing costs are recognised in the Group income statement
in the period in which they occur using the effective interest
rate method.
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 business 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 an
acquired business, 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
business (i.e. a bargain purchase), the difference is credited to the
Group income statement in the period of acquisition.
At the acquisition date, goodwill 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. When disposing of or reorganising
part of a cash-generating unit or group of cash-generating units
to which goodwill has been allocated, the goodwill is reallocated
between the affected operations on the basis of their relative
values. 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.
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 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.
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is capitalised only if specific criteria
are met.
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
cash-generating units, to which the goodwill relates. For all other
non-financial assets, 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. When the recoverable amount is
less than the carrying amount, an impairment loss is recognised
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
so that the increased carrying amount does not exceed the carrying
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.
Tesco PLC Annual Report and Financial Statements 2024
135.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements
and estimates continued
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.
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 measured at the lower of carrying amount and fair value
less costs to sell, with the exception of assets which are scoped out
of the measurement requirements of IFRS 5 ‘Non-current assets
held for sale and discontinued operations’, for example financial
assets, which continue to be measured in accordance with IFRS 9
‘Financial instruments’.
Where the carrying amount of a non-current asset or disposal
group held for sale exceeds its fair value less costs to sell, a loss is
recognised. This is allocated firstly against any goodwill attributable
to the disposal group, and then to other non-current assets in
the disposal group that are in scope of IFRS 5’s measurement
requirements. Any excess loss remaining is recognised against the
remaining assets of the disposal group as a whole.
A component of the Group that is held for sale or disposed of is
presented as a discontinued operation either when it is a subsidiary
acquired exclusively with a view to resale; or it represents, or is part
of a coordinated plan to dispose of, a separate major line of business
or geographical area of operations. 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.
The Group as a lessee
A right of use asset and corresponding lease liability are recognised
at commencement of the lease.
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.
The lease liability is subsequently measured at amortised cost using
the effective interest rate method. It is remeasured, with a
corresponding adjustment to the right of use asset, when there
is a 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.
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, and tested for impairment.
Leases of low value assets (value when new less than £5,000) and
short-term leases of 12 months or less are expensed to the 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, for
which rental income is recognised on a straight-line basis over the
term of the lease.
Sale and leaseback
Where the Group sells an asset and immediately reacquires use of it
by entering into a lease with 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 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 or loss is recognised in the income statement from the
property buyback.
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 income statement
from the property buyback.
In the 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 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 Group
statement of comprehensive income/(loss).
Payments to defined contribution schemes are recognised as an
expense as they fall due.
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.
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.
Tesco PLC Annual Report and Financial Statements 2024
136.
Financial statements
Strategic report
Governance
Additional information
The tax expense is recognised in the Group income statement, except
when it relates to items recognised directly in the Group statement
of changes in equity or the Group statement of comprehensive
income/(loss), in which case the tax follows the same treatment.
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.
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
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.
Financial instruments
Financial assets and financial liabilities are recognised in the Group
balance sheet when the Group becomes party to the contractual
provisions of the instrument. 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, and all other financial
assets are measured either at fair value through profit or loss or fair
value through other comprehensive income.
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.
Gains and losses on investments in debt instruments held at fair
value through other comprehensive income are recognised
directly in other comprehensive income, except for impairment
gains and losses, interest income, and foreign exchange gains and
losses, which are recognised in the Group income statement.
When the debt instrument is derecognised, cumulative amounts
in other comprehensive income are reclassified to the Group
income statement.
Investments in equity instruments have been irrevocably designated
at fair value through other comprehensive income.
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. Subsequently, they 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 debt
instruments carried at 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, with
lifetime ECLs recognised from initial recognition of the receivable.
These assets are grouped, based on shared credit risk
characteristics and days past due, with ECLs for each grouping
determined based on the Group’s historical credit loss experience,
adjusted for factors specific to each receivable, general economic
conditions, and expected changes in forecast conditions.
Interest-bearing borrowings
Interest-bearing borrowings and overdrafts are initially recorded at
fair value, net of attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are held 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.
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.
Tesco PLC Annual Report and Financial Statements 2024
137.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements
and estimates continued
As permitted under IFRS 9, the Group has elected to continue
to apply the existing hedge accounting requirements of IAS 39
‘Financial instruments: Recognition and measurement’ for its
portfolio fair value hedging of interest rate risk.
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
of a recognised asset or liability. Changes in the fair value of
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 forecast
transaction. The effective element of any gain or loss from
remeasuring the derivative designated as the hedging instrument
is recognised directly in other comprehensive income and
accumulated in the hedging reserve. The ineffective element is
recognised immediately in the Group income statement.
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 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.
Net investment hedging
Financial instruments are classified as net investment hedges when
they hedge the Group’s net investment in an overseas operation.
The effective element of any foreign exchange gain or loss from
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.
Supplier financing arrangements
Suppliers can choose whether to access supplier financing
arrangements, which are provided by different third-party banks in
different countries. Commercial requirements, including payment
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
payment earlier than the Group’s normal payment terms, often at
a lower cost than they could obtain themselves.
The funding cost is set by the provider banks but based on Tesco’s
credit risk and the appropriate country risk premium. If suppliers
choose not to access early payment, the 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.
Management reviews supplier financing arrangements to determine
the appropriate presentation of balances outstanding as trade
payables or borrowings, dependent on the nature of each
arrangement. Factors considered in determining the appropriate
presentation include the commercial rationale for the arrangement,
impact on the Group’s working capital positions, credit
enhancements or other benefits provided to the bank and
recourse exposures.
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
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.
Level of aggregation
The level of aggregation for the Group is determined firstly by
dividing the business written into motor and home portfolios.
Portfolios comprise groups of contracts with similar risks which are
managed together. At initial recognition the Group assesses whether
the motor and home portfolios are divided further into groups of
contracts that are onerous, have no significant possibility of
becoming onerous, or are neither.
In determining the level of aggregation, the Group identifies a
contract as the smallest ‘unit’, i.e. the lowest common denominator.
No group for level of aggregation purposes shall contain contracts
issued more than one year apart.
The Group divides portfolios of reinsurance contracts held applying
the same principles.
Insurance contracts issued
Insurance contract liabilities include both a liability for incurred
claims (LIC), which represents outstanding claims and incurred but
not reported claims and other incurred insurance expenses; and a
liability for remaining coverage (LRC), which represents the Group’s
obligation for insured events related to the unexpired portion of
the coverage period. The LRC is measured either using the general
measurement model (GMM) or a simplified premium allocation
approach (PAA).
The Group applies the PAA to all insurance contracts issued since
the acquisition of Tesco Underwriting (TU) in May 2021. The Group
qualifies to use this approach as the coverage period of each
contract in the group is one year or less. There is no allowance for
the time value of money as the premiums are due within one year
of the coverage period.
Tesco PLC Annual Report and Financial Statements 2024
138.
Financial statements
Strategic report
Governance
Additional information
The Group applies the GMM to all issued insurance contracts
acquired on the acquisition of TU, as the settlement of these claims
and their associated insurance risk will spread over multiple years.
The Group has recognised an acquired claims liability as part of the
LRC, which is measured at the probability-weighted average of
discounted cash flows plus a risk adjustment for non-financial risk,
plus any contractual service margin (CSM) if the fulfilment cash flows
result in a net inflow. If the fulfilment cash flows result in a net
outflow, an onerous loss is recognised in the Group income
statement. The risk adjustment reflects the compensation that the
Group requires for bearing uncertainty in respect of the amount and
timing of the cash flows from non-financial risk, whilst the CSM
represents the unearned profit in the contracts relating to services
that will be provided under the contracts in the future.
Commission payable to agents and other acquisition costs, which
are incurred for acquiring new and renewal insurance business that
is primarily related to the production of that business, are deferred
and presented as part of the LRC. Such deferred acquisition costs
are amortised over the period of insurance contract services on the
basis of the passage of time.
The carrying amount of the LRC measured under the GMM is
updated at the end of each reporting period to reflect current
estimates of the amounts, timing and uncertainty of future cash
flows, as well as discount rates and other financial variables.
The Group estimates the LIC as the discounted value of expected
fulfilment cash flows related to incurred claims and other incurred
insurance expenses, plus an explicit adjustment for non-financial
risk. The fulfilment cash flows incorporate, in an unbiased way, all
reasonable and supportable information available about the amount,
timing and uncertainty of those future cash flows. Estimates of the
present value of future cash flows reflect current expectations as at
the end of the reporting period and are adjusted for events which
have occurred since actuarial valuation.
Future cash flows are assessed by reviewing individual claims data
and making an allowance for claims incurred but not yet reported,
adjusted for the effect on the claims incurred 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
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 ceded includes quota
share, excess of loss and adverse development cover contracts.
Reinsurance arrangements 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.
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 Group applies the PAA to all reinsurance contracts that it holds,
except for contracts held prior to the acquisition of TU. The PAA
is applicable for all reinsurance contracts purchased since the
acquisition of TU as the contracts either qualify automatically in
having a coverage period of one year or less, or because there is
no material difference in their measurement between the PAA
and the GMM.
Modification and derecognition of insurance and reinsurance
contracts
The Group derecognises insurance and reinsurance contracts when
the rights and obligations relating to the contract are extinguished
(i.e. discharged, cancelled or expired). When a modification is not
treated as a derecognition, the Group recognises amounts paid or
received for the modification with the contract as an adjustment to
the relevant LRC or asset for remaining coverage.
Presentation of insurance contracts issued, and reinsurance
contracts held
The Group classifies all insurance contract liabilities as current as
it does not have the right to defer settlement beyond 12 months
after the reporting date. The Group classifies its reinsurance
portfolio as non-current as it does not reasonably expect to realise
its reinsurance assets within 12 months of the reporting date.
Insurance revenue
The insurance revenue recognised is the amount of expected
premium receipts allocated to the period. For insurance contracts
issued after the acquisition of TU in May 2021, the Group allocates
the expected premium receipts to each period of insurance
contract services based on the passage of time.
The insurance revenue recognised for insurance contracts acquired
as part of the acquisition of TU comprises:
– Claims costs incurred in the period measured at the amounts
expected at the beginning of the period;
– Changes in the risk adjustment for non-financial risk; and
– The amount of the CSM recognised for services provided in
the period.
Insurance service expenses
Insurance service expenses include total claims cost for the period,
as well as all directly attributable insurance expenses. There are no
acquisition costs for acquired claims. Insurance acquisition cash
flows arising from the costs of selling, underwriting and starting a
group of insurance contracts are allocated to insurance service
expenses based on the passage of time.
Net income or expenses from reinsurance contracts held
The Group separately presents income or expenses from reinsurance
contracts held from the expenses or income from insurance
contracts issued. The Group presents the income or expenses
from a group of reinsurance contracts held as a single amount.
Insurance finance income and expenses
Insurance finance income and expenses comprise the change in the
carrying amount of the group of insurance contracts arising from
the effect of the time value of money, financial risk and changes in
financial risk.
The impact of changes in market interest rates on the carrying value
of insurance assets and liabilities is reflected in the Group statement
of other comprehensive income in order to minimise accounting
mismatches between the accounting for financial assets and
insurance assets and liabilities. The Group’s financial assets backing
both the motor and home insurance portfolios are predominantly
measured at fair value through other comprehensive income.
The amount of insurance finance income and expenses recognised in
the Group income statement is calculated using the discount rate
curve determined at the date of the incurred claim.
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.
Critical accounting judgements
Critical judgements, apart from those involving estimations, which
are applied in the preparation of the consolidated Group financial
statements are discussed below:
Tesco PLC Annual Report and Financial Statements 2024
139.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 1 Accounting policies, judgements
and estimates continued
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 based on government
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 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,
are excluded from the Group’s APMs by virtue of their size and
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 business, and
how it is reported internally to the Board and Executive Committee
for performance analysis, planning, reporting, decision-making,
and incentive-setting purposes.
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 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
to enable users of the accounts to see the Group’s performance
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 220 to 225 for further details on the Group’s APMs.
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 discount rate, inflation rate and mortality assumptions.
Any changes in these assumptions will impact the carrying amount
as well as the net pension cost/(income). Key assumptions and
sensitivities for post-employment benefit obligations are disclosed
in Note 29.
Impairment of non-financial assets
The Group evaluates 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.
Key assumptions and sensitivities for Tesco Bank ECLs are disclosed
in Note 7.
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. 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.
Tesco PLC Annual Report and Financial Statements 2024
140.
Financial statements
Strategic report
Governance
Additional information
Note 2 Segmental reporting
The Group’s operating segments are determined based on the Group’s organisational structure and 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 reportable 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, insurance and money services through Tesco Bank in the UK (Tesco Bank).
In February 2024, the Board announced the sale of the Group’s banking operation (Banking operations), which has been consequently
classified as a discontinued operation. Refer to Note 7 for further details. The remaining insurance business and money services are included
within continuing operations. Both continuing and discontinued elements remain within the Tesco Bank segment, reflecting the Group's
organisational structure and internal reporting to the CODM at the year end.
The CODM uses adjusted operating profit, as reviewed at periodic 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 24 February 2024
At constant exchange rates
UK & ROI
£m
Central
Europe
£m
Total
Retail
£m
Tesco
Bank
£m
Total
segments at
constant
exchange
£m
Foreign
exchange
£m
Exclude:
Banking
operations
£m
Continuing
operations at
actual
exchange
£m
Revenue
62,864
4,388
67,252
1,521
68,773
124
(710)
68,187
Less: Fuel sales
(6,537)
(171)
(6,708)
–
(6,708)
(2)
–
(6,710)
Sales
56,327
4,217
60,544
1,521
62,065
122
(710)
61,477
Adjusted operating profit
2,669
90
2,759
148
2,907
1
(79)
2,829
Adjusting items (Note 4)
19
(23)
(4)
(741)
(745)
(1)
738
(8)
Operating profit
2,688
67
2,755
(593)
2,162
–
659
2,821
Adjusted operating margin
4.2%
2.1%
4.1%
9.7%
4.2%
11.1%
4.1%
Tesco Bank segmental revenue of £1,521m (2023: £1,234m) comprises continuing interest income of £94m (2023: £38m), fees and
commissions income of £203m (2023: £170m), insurance revenue of £514m (2023: £458m) and revenue within the discontinued Banking
operations of £710m (2023: £568m). For insurance, refer to Note 24.
52 weeks ended 24 February 2024
At actual exchange rates
UK & ROI
£m
Central
Europe
£m
Total
Retail
£m
Tesco
Bank
£m
Total
segments
£m
Exclude:
Banking
operations
£m
Continuing
operations at
actual
exchange
£m
Revenue
62,880
4,496
67,376
1,521
68,897
(710)
68,187
Less: Fuel sales
(6,536)
(174)
(6,710)
–
(6,710)
–
(6,710)
Sales
56,344
4,322
60,666
1,521
62,187
(710)
61,477
Adjusted operating profit
2,670
90
2,760
148
2,908
(79)
2,829
Adjusting items (Note 4)
19
(24)
(5)
(741)
(746)
738
(8)
Operating profit
2,689
66
2,755
(593)
2,162
659
2,821
Adjusted operating margin
4.2%
2.0%
4.1%
9.7%
4.2%
11.1%
4.1%
Share of post-tax profits of joint ventures and associates
6
Finance income
267
Finance costs
(805)
Profit before tax
2,289
52 weeks ended 25 February 2023
At actual exchange rates
UK & ROI
£m
Central
Europe
£m
Total
Retail
£m
Tesco
Bank
(restated*)
£m
Total
segments
(restated*)
£m
Exclude:
Banking
operations
(restated*)
£m
Continuing
operations at
actual
exchange
(restated*)
£m
Revenue
60,246
4,410
64,656
1,234
65,890
(568)
65,322
Less: Fuel sales
(7,877)
(229)
(8,106)
–
(8,106)
–
(8,106)
Sales
52,369
4,181
56,550
1,234
57,784
(568)
57,216
Adjusted operating profit
2,307
180
2,487
135
2,622
(113)
2,509
Adjusting items (Note 4)
(1,058)
(36)
(1,094)
(11)
(1,105)
6
(1,099)
Operating profit
1,249
144
1,393
124
1,517
(107)
1,410
Adjusted operating margin
3.8%
4.1%
3.8%
10.9%
4.0%
19.9%
3.8%
Share of post-tax profits of joint ventures and associates
8
Finance income
87
Finance costs
(623)
Profit before tax
882
* Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
Tesco PLC Annual Report and Financial Statements 2024
141.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 2 Segmental reporting continued
Balance sheet
The following tables show segment net assets and 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). Lease liabilities, joint venture loans
and interest receivables have been allocated to each segment. 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. Balances in relation to the discontinued Banking operations have been included in the Tesco Bank
segment in both current and prior year.
At 24 February 2024
UK & ROI
£m
Central
Europe
£m
Tesco Bank
£m
Unallocated
£m
Total
£m
Goodwill and other intangible assets(a)
4,713
33
320
–
5,066
Property, plant and equipment and investment property
15,707
1,475
63
–
17,245
Right of use assets
5,038
439
1
–
5,478
Non-current assets held for sale
23
62
–
–
85
Net assets of the disposal group excluding net debt(b)
–
–
758
–
758
Net debt (including Tesco Bank)(c)
(6,926)
(575)
(102)
(2,263)
(9,866)
Other net assets/(liabilities)
(7,101)
(300)
300
–
(7,101)
Total net assets
11,454
1,134
1,340
(2,263)
11,665
(a) Refer to Note 14 for the allocation of goodwill between remaining operations and the Banking operations disposal group classified as held for sale.
(b) Excludes £(182)m of net debt items within the Tesco Bank segment relating to the Banking operations disposal group.
(c) Refer to Note 32.
At 25 February 2023
UK & ROI
£m
Central
Europe
£m
Tesco Bank
(restated(a))
£m
Unallocated(b)
£m
Total
(restated(a))
£m
Goodwill and other intangible assets
4,715
37
623
–
5,375
Property, plant and equipment and investment property
15,346
1,468
72
–
16,886
Right of use assets
5,057
433
10
–
5,500
Assets of the disposal group and non-current assets held for sale
25
169
–
16
210
Net debt (including Tesco Bank)(c)
(7,036)
(553)
151
(2,904)
(10,342)
Other net assets/(liabilities)
(6,414)
(310)
1,320
–
(5,404)
Total net assets
11,693
1,244
2,176
(2,888)
12,225
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Includes £16m of assets and £(14)m of items within net debt relating to residual properties and leases with respect to the Group’s operation in Poland.
(c) Refer to previous table for footnote.
Other segment information
The table below shows the Group’s total capital expenditure, depreciation and amortisation, and impairment loss on financial assets,
reconciling to continuing operations:
52 weeks ended 24 February 2024
UK & ROI
£m
Central
Europe
£m
Tesco
Bank
£m
Total
segments
£m
Exclude: Banking
operations
£m
Continuing
operations
£m
Capital expenditure (including acquisitions through business
combinations):
Property, plant and equipment(a)(b)
1,091
99
8
1,198
–
1,198
Goodwill and other intangible assets(c)
255
12
25
292
(22)
270
Depreciation and amortisation:
Property, plant and equipment
(802)
(86)
(11)
(899)
3
(896)
Right of use assets
(496)
(46)
(2)
(544)
1
(543)
Other intangible assets
(235)
(12)
(33)
(280)
25
(255)
Impairment:
(Loss)/reversal on financial assets
1
1
(65)
(63)
65
2
(a) Includes £65m of land and buildings related to obtaining control of The Tesco Coral Limited Partnership (2023: £248m of land and buildings related to obtaining control of The
Tesco Dorney Limited Partnership). Refer to Note 11.
(b) Includes £nil (2023: £42m) of property, plant and equipment acquired through business combinations.
(c) Includes £17m (2023: £31m) of goodwill and other intangible assets acquired through business combinations.
52 weeks ended 25 February 2023
UK & ROI
£m
Central
Europe
£m
Tesco
Bank(d)
£m
Total
segments(d)
£m
Exclude: Banking
operations(d)
£m
Continuing
operations(d)
£m
Capital expenditure (including acquisitions through business
combinations):
Property, plant and equipment(a)(b)
1,176
104
14
1,294
(2)
1,292
Goodwill and other intangible assets(c)
259
12
37
308
(26)
282
Depreciation and amortisation:
Property, plant and equipment
(788)
(84)
(10)
(882)
2
(880)
Right of use assets
(500)
(37)
(2)
(539)
1
(538)
Investment property
(1)
–
–
(1)
–
(1)
Other intangible assets
(226)
(10)
(42)
(278)
31
(247)
Impairment:
(Loss)/reversal on financial assets
(5)
(1)
(60)
(66)
60
(6)
(a)-(c) Refer to previous table for footnotes.
(d) Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
Tesco PLC Annual Report and Financial Statements 2024
142.
Financial statements
Strategic report
Governance
Additional information
Cash flow statement
The following tables provide further analysis of the Group cash flow statement, including a split of cash flows between Retail continuing
operations, and Tesco Bank continuing and discontinued operations.
Tesco Bank
Retail
Continuing operations
Discontinued
operations
Tesco
Group
52 weeks ended 24 February 2024
Before
adjusting
items
£m
Adjusting
items
£m
Total
£m
Before
adjusting
items
£m
Adjusting
items
£m
Total
£m
Total
£m
Total
£m
Operating profit/(loss)
2,760
(5)
2,755
69
(3)
66
(659)
2,162
Depreciation and amortisation
1,602
75
1,677
17
–
17
29
1,723
ATM net income
(9)
–
(9)
9
–
9
–
–
(Profit)/loss arising on sale of property, plant and equipment, investment
property, intangible assets, assets held for sale and early termination of leases
10
(63)
(53)
–
–
–
–
(53)
(Profit)/loss arising on sale of joint ventures and associates
–
(9)
(9)
–
–
–
–
(9)
(Profit)/loss arising on sale of subsidiaries
–
(12)
(12)
–
–
–
–
(12)
Net impairment (reversal)/loss on property, plant and equipment, right of use
assets, intangible assets and investment property
–
(28)
(28)
–
–
–
–
(28)
Net remeasurement (gain)/loss on non-current assets held for sale
–
(12)
(12)
–
–
–
732
720
Defined benefit pension scheme payments
(29)
–
(29)
–
–
–
–
(29)
Share-based payments
75
–
75
(3)
–
(3)
6
78
Fair value movements included in operating profit/(loss)
6
–
6
3
–
3
62
71
Cash generated from/(used in) operations excluding working capital
4,415
(54)
4,361
95
(3)
92
170
4,623
(Increase)/decrease in working capital
418
(44)
374
(105)
1
(104)
(7)
263
Cash generated from/(used in) operations
4,833
(98)
4,735
(10)
(2)
(12)
163
4,886
Interest paid
(809)
–
(809)
(14)
–
(14)
(1)
(824)
Corporation tax paid
(214)
–
(214)
(9)
–
(9)
–
(223)
Net cash generated from/(used in) operating activities*
3,810
(98)
3,712
(33)
(2)
(35)
162
3,839
Proceeds from sale of property, plant and equipment, investment property,
intangible assets and assets classified as held for sale
2
53
55
–
–
–
–
55
Purchase of property, plant and equipment, investment property and other
long-term assets – property buybacks and store purchases
(66)
7
(59)
–
–
–
–
(59)
Purchase of property, plant and equipment, investment property and other
long-term assets – other capital expenditure
(1,039)
–
(1,039)
(10)
–
(10)
–
(1,049)
Purchase of intangible assets
(250)
–
(250)
(6)
–
(6)
(22)
(278)
Disposal of subsidiaries, net of cash disposed
–
15
15
–
–
–
–
15
Acquisition of subsidiaries, net of cash acquired
(17)
–
(17)
–
–
–
–
(17)
Proceeds from the sale of joint ventures and associates
–
9
9
–
–
–
–
9
Increase in loans to joint ventures and associates
(61)
–
(61)
–
–
–
–
(61)
Investments in joint ventures and associates
(9)
–
(9)
–
–
–
–
(9)
Net (investments in)/proceeds from sale of short-term investments
(507)
–
(507)
–
–
–
–
(507)
Proceeds from sale of other investments
5
–
5
347
–
347
–
352
Purchase of other investments
(5)
–
(5)
(385)
–
(385)
–
(390)
Dividends received from joint ventures and associates
9
–
9
–
–
–
–
9
Special dividend received from Tesco Bank
250
–
250
(250)
–
(250)
–
–
Interest received
249
–
249
–
–
–
–
249
Cash inflows from derivative financial instruments
5
–
5
–
–
–
–
5
Cash outflows from derivative financial instruments
(24)
–
(24)
–
–
–
–
(24)
Net cash generated from/(used in) investing activities*
(1,458)
84
(1,374)
(304)
–
(304)
(22)
(1,700)
Own shares purchased for cancellation
(752)
–
(752)
–
–
–
–
(752)
Own shares purchased for share schemes
(93)
–
(93)
–
–
–
–
(93)
Repayment of capital element of obligations under leases
(623)
–
(623)
(2)
–
(2)
(2)
(627)
Cash outflows exceeding the incremental increase in assets in a property buyback
(62)
–
(62)
–
–
–
–
(62)
Increase in borrowings
682
–
682
–
–
–
550
1,232
Repayment of borrowings
(775)
–
(775)
–
–
–
–
(775)
Cash inflows from derivative financial instruments
98
–
98
–
–
–
–
98
Cash outflows from derivative financial instruments
(102)
–
(102)
–
–
–
–
(102)
Dividends paid to equity holders
(777)
(1)
(778)
–
–
–
–
(778)
Net cash generated from/(used in) financing activities*
(2,404)
(1)
(2,405)
(2)
–
(2)
548
(1,859)
Net increase/(decrease) in cash and cash equivalents
(52)
(15)
(67)
(339)
(2)
(341)
688
280
Cash and cash equivalents at the beginning of the year
1,565
Effect of foreign exchange rate changes
29
Cash and cash equivalents, including cash held in the disposal group, at the
end of the year
1,874
Less: Cash held in the disposal group
(346)
Cash and cash equivalents at the end of the year
1,528
* Refer to page 225 for the reconciliation of the APM: Retail free cash flow.
Tesco PLC Annual Report and Financial Statements 2024
143.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 2 Segmental reporting continued
Retail
Tesco Bank continuing
operations (restated(a))
Discontinued
operations(b)
Tesco
Group
(restated(a))
52 weeks ended 25 February 2023
Before
adjusting
items
£m
Adjusting
items
£m
Total
£m
Before
adjusting
items
£m
Adjusting
items
£m
Total
£m
Total
£m
Total
£m
Operating profit/(loss)
2,487
(1,094)
1,393
22
(5)
17
98
1,508
Depreciation and amortisation
1,570
76
1,646
19
–
19
35
1,700
ATM net income
(16)
–
(16)
16
–
16
–
–
(Profit)/loss arising on sale of property, plant and equipment, investment
property, intangible assets, assets held for sale and early termination of leases
13
(91)
(78)
–
–
–
2
(76)
(Profit)/loss arising from sale of other investments
–
–
–
3
–
3
–
3
Net impairment loss on property, plant and equipment, right of use assets,
intangible assets and investment property
–
982
982
–
–
–
–
982
Net remeasurement loss on non-current assets held for sale
–
14
14
–
–
–
9
23
Defined benefit pension scheme payments
(23)
–
(23)
–
–
–
–
(23)
Share-based payments
64
–
64
(2)
–
(2)
(3)
59
Fair value movements included in operating profit/(loss)
–
–
–
15
–
15
55
70
Cash generated from/(used in) operations excluding working capital
4,095
(113)
3,982
73
(5)
68
196
4,246
(Increase)/decrease in working capital
468
52
520
(39)
(3)
(42)
(227)
251
Cash generated from/(used in) operations
4,563
(61)
4,502
34
(8)
26
(31)
4,497
Interest paid
(643)
–
(643)
(9)
–
(9)
–
(652)
Corporation tax paid
(107)
–
(107)
(17)
–
(17)
1
(123)
Net cash generated from/(used in) operating activities(c)
3,813
(61)
3,752
8
(8)
–
(30)
3,722
Proceeds from sale of property, plant and equipment, investment property,
intangible assets and assets classified as held for sale
6
335
341
1
–
1
–
342
Purchase of property, plant and equipment, investment property
and other long-term assets – property buybacks
(14)
(40)
(54)
–
–
–
–
(54)
Purchase of property, plant and equipment, investment property
and other long-term assets – other capital expenditure
(902)
–
(902)
(13)
–
(13)
(2)
(917)
Purchase of intangible assets
(241)
–
(241)
(12)
–
(12)
(26)
(279)
Acquisition of subsidiaries, net of cash acquired
(66)
–
(66)
(5)
–
(5)
–
(71)
Increase in loans to joint ventures and associates
(1)
–
(1)
–
–
–
–
(1)
Investments in joint ventures and associates
(10)
–
(10)
–
–
–
–
(10)
Net (investments in)/proceeds from sale of short-term investments
451
–
451
–
–
–
–
451
Proceeds from sale of other investments
1
–
1
229
–
229
–
230
Purchase of other investments
(206)
–
(206)
(323)
–
(323)
–
(529)
Dividends received from joint ventures and associates
14
–
14
–
–
–
–
14
Dividends received from Tesco Bank
54
–
54
(54)
–
(54)
–
–
Interest received
70
–
70
–
–
–
–
70
Cash inflows from derivative financial instruments
54
–
54
–
–
–
–
54
Cash outflows from derivative financial instruments
(6)
–
(6)
–
–
–
–
(6)
Net cash generated from/(used in) investing activities(c)
(796)
295
(501)
(177)
–
(177)
(28)
(706)
Own shares purchased for cancellation
(781)
–
(781)
–
–
–
–
(781)
Own shares purchased for share schemes
(86)
–
(86)
–
–
–
–
(86)
Repayment of capital element of obligations under leases
(589)
–
(589)
(2)
–
(2)
(2)
(593)
Cash outflows exceeding the incremental increase in assets in a property buyback
(21)
–
(21)
–
–
–
–
(21)
Repayment of borrowings
(608)
–
(608)
(101)
–
(101)
–
(709)
Cash inflows from derivative financial instruments
232
–
232
–
–
–
–
232
Cash outflows from derivative financial instruments
(365)
–
(365)
(6)
–
(6)
–
(371)
Dividends paid to equity holders
(858)
(1)
(859)
–
–
–
–
(859)
Net cash generated from/(used in) financing activities(c)
(3,076)
(1)
(3,077)
(109)
–
(109)
(2)
(3,188)
Net increase/(decrease) in cash and cash equivalents
(59)
233
174
(278)
(8)
(286)
(60)
(172)
Cash and cash equivalents at the beginning of the year
1,771
Effect of foreign exchange rate changes
(34)
Cash and cash equivalents at the end of the year
1,565
(a) Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation within the Tesco Bank
segment. Refer to Notes 1 , 7 and 33 for further details.
(b) Comprising Banking operations and immaterial balances in relation to the Group’s residual properties in Poland. Refer to Note 7.
(c) Refer to page 225 for the reconciliation of the APM: Retail free cash flow.
Tesco PLC Annual Report and Financial Statements 2024
144.
Financial statements
Strategic report
Governance
Additional information
Note 3 Operating expenses
Auditor’s remuneration
52 weeks
2024
£m
52 weeks
2023
£m
Fees payable to the Company’s auditor and its associates for the audit of the Company and Group financial statements
4.3
3.6
The audit of the accounts of the Company’s subsidiaries
10.4
9.7
Total audit services
14.7
13.3
Audit-related assurance services
0.9
1.2
Non-audit services
0.3
0.2
Total non-audit services
1.2
1.4
Total auditor’s remuneration
15.9
14.7
Audit-related assurance services of £0.9m (2023: £1.2m) comprise: review of the Group’s interim report £0.6m (2023: £0.5m) and other
services £0.3m (2023: £0.7m). In addition to the amounts shown above, the auditor received fees of £0.3m (2023: £0.3m) for the audit of the
main Group pension schemes, and fees of £0.4m (2023: £0.3m) 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 88, including how objectivity and independence is safeguarded.
Employment costs, including Directors’ remuneration
Notes
52 weeks
2024
£m
52 weeks
2023
£m
Wages and salaries
6,999
6,516
Social security costs
548
519
Post-employment defined benefits
29
15
24
Post-employment defined contributions
29
415
375
Share-based payments expense
28
128
112
Termination benefits
56
110
Total
8,161
7,656
Less: Discontinued operations
(157)
(139)
Total continuing operations
8,004
7,517
Post-employment defined contribution charges include £166m (2023: £143m) of salaries paid as pension contributions.
The table below shows the average number of employees by segment (including discontinued operations) during the financial year.
Average number
of employees
Average number of
full-time equivalents
2024
2023
2024
2023
UK & ROI
311,531
309,366
201,694
196,911
Central Europe
22,359
23,971
20,529
21,998
Tesco Bank
3,628
3,589
3,436
3,397
Total
337,518
336,926
225,659
222,306
Tesco PLC Annual Report and Financial Statements 2024
145.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 4 Adjusting items
Group income statement
Refer to Note 1 for further details regarding the assessment of items as adjusting.
52 weeks ended 24 February 2024
Profit/(loss) for the year included the following adjusting items:
Cost of
sales
£m
Administrative
expenses
£m
Total adjusting
items included
within operating
profit
£m
Finance
income/
(costs)
£m
Taxation
£m
Adjusting items
included within
discontinued
operations
£m
Total
adjusting
items
£m
Property transactions(a)
6
69
75
–
(18)
–
57
Disposal of China associate in a prior
year(b)
–
9
9
–
23
–
32
Net impairment (loss)/reversal of non-
current assets(c)
35
(7)
28
–
38
–
66
Restructuring(d)
(45)
(5)
(50)
–
12
–
(38)
Amortisation of acquired intangible
assets(e)
–
(74)
(74)
–
18
–
(56)
Disposal of subsidiary(f)
–
12
12
–
–
–
12
Banking operations disposal costs(g)
–
(8)
(8)
–
–
–
(8)
Net pension finance income/(costs)(h)
–
–
–
(18)
5
–
(13)
Fair value remeasurements of financial
instruments(h)
–
–
–
38
(10)
–
28
Total adjusting items from continuing
operations
(4)
(4)
(8)
20
68
–
80
Adjusting items relating to discontinued
operations(i)
–
–
–
–
–
(628)
(628)
Total adjusting items
(4)
(4)
(8)
20
68
(628)
(548)
(a) The Group disposed of surplus properties that generated a profit before tax of £63m (2023: £91m). In addition, there was a £12m gain (2023: £nil) arising from the
remeasurement of assets held for sale, subsequently reclassified to property, plant and equipment.
(b) During the current financial year, the Group reached a settlement with the Chinese tax authorities in respect of the sale of the Group’s 20% share of Gain Land Limited to
China Resources Holdings on 28 February 2020. As a result of the settlement the Group released a tax provision of £23m (2023: £nil). Additionally, final proceeds of £9m were
recognised upon settlement.
(c) Refer to Note 14 for further details on net impairment (loss)/reversal of non-current assets.
(d) Provisions relating to operational restructuring changes announced as part of 'Save to Invest', a multi-year programme which commenced in June 2022. The total pre-tax
cost of the programme to date is £(232)m (2023: £(182)m). Future cost savings will not be reported within adjusting items.
(e) Amortisation of acquired intangibles relates to historical inorganic business combinations and does not reflect the Group’s ongoing trading performance.
(f) On 30 June 2023 the Group disposed of its Booker subsidiary Ritter-Courivaud Limited, part of the UK & ROI segment.
(g) Costs incurred within the continuing Group in relation to the sale of Banking operations.
(h) Net pension finance costs 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. Refer to Note 29 for details of pension schemes.
(i) Refer to Note 7.
52 weeks ended 25 February 2023
Profit/(loss) for the year included the following adjusting items:
Cost of
sales
£m
Administrative
expenses
£m
Total adjusting
items included
within operating
profit
£m
Finance
income/
(costs)
£m
Taxation
£m
Adjusting items
included within
discontinued
operations
£m
Total
adjusting
items
(restated*)
£m
Property transactions
36
55
91
–
29
–
120
Net impairment (loss)/reversal of
non-current assets
(965)
(17)
(982)
–
129
–
(853)
Fair value less cost of disposal
movements on assets held for sale
–
(14)
(14)
–
1
–
(13)
Restructuring
(107)
(25)
(132)
–
26
–
(106)
Disposal of Asia operations
–
2
2
–
–
–
2
ATM business rates refund
7
–
7
–
(1)
–
6
Release of onerous contract provision
–
5
5
–
–
–
5
Amortisation of acquired intangible
assets
–
(76)
(76)
–
14
–
(62)
Net pension finance income
–
–
–
80
(15)
–
65
Fair value remeasurements of
financial instruments
–
–
–
(53)
12
–
(41)
Total adjusting items from
continuing operations
(1,029)
(70)
(1,099)
27
195
–
(877)
Adjusting items relating to
discontinued operations*
–
–
–
–
–
(13)
(13)
Total adjusting items
(1,029)
(70)
(1,099)
27
195
(13)
(890)
* Comparatives have been restated to present Banking operations as a discontinued operation. Refer to Notes 1 and 7.
Tesco PLC Annual Report and Financial Statements 2024
146.
Financial statements
Strategic report
Governance
Additional information
Group cash flow statement
The table below shows the impact of adjusting items on the Group cash flow statement:
Cash flows from
operating activities
Cash flows from
investing activities
Cash flows from
financing activities
52 weeks
2024
£m
52 weeks
2023
(restated(a))
£m
52 weeks
2024
£m
52 weeks
2023
£m
52 weeks
2024
£m
52 weeks
2023
£m
Property transactions(b)
–
–
53
335
–
–
Disposal of subsidiaries(c)
–
–
15
–
–
–
Restructuring(d)
(100)
(68)
–
–
–
–
Disposal of China associate
–
–
9
–
–
–
Customer redress claims settlement in Tesco Bank
–
(4)
–
–
–
–
ATM business rates refund
–
5
–
–
–
–
Disposal of Asia operations
–
(2)
–
–
–
–
Acquisition of property joint venture
–
–
7
(40)
–
–
Special dividend
–
–
–
–
(1)
(1)
Total adjusting items from continuing operations
(100)
(69)
84
295
(1)
(1)
Adjusting items relating to discontinued operations
(1)
(8)
–
–
–
–
Total
(101)
(77)
84
295
(1)
(1)
(a) Comparatives have been restated to present Banking operations as a discontinued operation. Refer to Notes 1 and 7.
(b) Property transactions include £14m proceeds (2023: £43m) relating to the sale of stores in Poland not included in the sale of the corporate business.
(c) On 30 June 2023, the Group disposed of its Booker subsidiary Ritter-Courivaud Limited, part of the UK & ROI segment.
(d) Cash outflows relating to operational restructuring changes as part of the multi-year ‘Save to Invest’ programme, which commenced in June 2022.
Note 5 Finance income and costs
Continuing operations
Notes
52 weeks
2024
£m
52 weeks
2023
(restated(a))
£m
Finance income
Interest and similar income
252
78
Interest income from other investments
12
3
Finance income on net investment in leases
2
4
Finance income from reinsurance contracts held
1
2
Total finance income
267
87
Finance costs
GBP MTNs and loans
(190)
(160)
EUR MTNs
(113)
(53)
USD bonds
(15)
(18)
Interest expense on lease liabilities
(373)
(371)
Finance expense from insurance contracts issued
(7)
(5)
Other interest costs
(127)
(43)
Total finance costs before adjusting items
(825)
(650)
Fair value remeasurements of financial instruments(b)
38
(53)
Net pension finance income/(cost)
29
(18)
80
Total finance costs
(805)
(623)
Net finance costs
(538)
(536)
(a) Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33 for
further details.
(b) Fair value remeasurements of financial instruments included £nil (2023: £70m gain) relating to the repurchase of long-dated bonds.
Note 6 Taxation
Recognised in the Group income statement
Continuing operations
52 weeks
2024
£m
52 weeks
2023
(restated*)
£m
Current tax (credit)/charge
UK corporation tax
351
174
Overseas tax
71
78
Adjustments in respect of prior years
(29)
19
393
271
Deferred tax (credit)/charge
Origination and reversal of temporary differences
133
(15)
Adjustments in respect of prior years
(4)
(35)
Change in tax rate
3
3
132
(47)
Total income tax (credit)/charge
525
224
* Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33 for
further details.
Tesco PLC Annual Report and Financial Statements 2024
147.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 6 Taxation continued
Reconciliation of effective tax charge
Continuing operations
52 weeks
2024
£m
52 weeks
2023
(restated(a))
£m
Profit/(loss) before tax
2,289
882
Tax credit/(charge) at 24.45% (2023: 19%)
(560)
(168)
Effect of:
Non-qualifying depreciation(b)
(39)
(5)
Expenses not deductible
(24)
(23)
Property items taxed on a different basis to accounting entries
6
33
Net impairment (loss)/reversal of non-current assets
46
(87)
Differences in overseas taxation rates
15
11
Adjustments in respect of prior years
33
16
Share of profits of joint ventures and associates
2
2
Change in tax rate
(3)
(3)
Irrecoverable withholding tax
(1)
–
Total income tax credit/(charge)
(525)
(224)
Effective tax rate
22.9%
25.4%
(a) Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33 for
further details.
(b) This figure has been reduced by the tax effect of the super-deduction of £3m (2023: £30m) in respect of tax relief for fixed assets.
Reconciliation of effective tax charge on adjusted profit before tax
Continuing operations
52 weeks
2024
£m
52 weeks
2023
(restated(a))
£m
Profit/(loss) before tax
2,289
882
Exclude: Adjusting items
(12)
1,072
Adjusted profit before tax
2,277
1,954
Tax credit/(charge) at 24.45% (2023: 19%)
(557)
(371)
Effect of:
Non-qualifying depreciation(b)
(39)
(5)
Expenses not deductible
(23)
(24)
Differences in overseas taxation rates
19
10
Adjustments in respect of prior years
10
(3)
Share of profits of joint ventures and associates
2
2
Change in tax rate(c)
(4)
(28)
Irrecoverable withholding tax
(1)
–
Total income tax credit/(charge) before adjusting items
(593)
(419)
Adjusted effective tax rate
26.0%
21.4%
(a)-(b) Refer to previous table for footnotes.
(c) Change in tax rate includes £nil (2023: £31m) in relation to provision of deferred tax at 25% (2023: 25%) on assets qualifying for super-deductions.
Tax on items credited directly to the Group statement of changes in equity
Continuing operations
52 weeks
2024
£m
52 weeks
2023
£m
Current tax credit/(charge) on:
Share-based payments
–
6
Deferred tax credit/(charge) on:
Share-based payments
10
(11)
Total tax on items credited/(charged) to the Group statement of changes in equity
10
(5)
Tax relating to components of the Group statement of comprehensive income/(loss)
Continuing operations
52 weeks
2024
£m
52 weeks
2023
(restated*)
£m
Current tax credit/(charge) on:
Pensions
159
124
Deferred tax credit/(charge) on:
Pensions
(95)
719
Fair value movement on financial assets at fair value through other comprehensive income
(4)
11
Finance income/expenses on insurance contracts issued and reinsurance contracts held
1
(4)
Fair value movements on cash flow hedges
(5)
20
Total tax on items credited/(charged) to the Group statement of comprehensive income/(loss)
56
870
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Tesco PLC Annual Report and Financial Statements 2024
148.
Financial statements
Strategic report
Governance
Additional information
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.
Property-
related
items(a)
£m
Acquired
intangibles
£m
Post-
employment
benefits(b)
£m
Share-based
payments
£m
Other
short-term
timing
differences
£m
Tax losses
£m
Financial
instruments
£m
Total
£m
At 26 February 2022 (as previously reported)
(352)
(108)
(451)
39
45
6
(4)
(825)
Cumulative adjustment on initial application of
IFRS 17
–
–
–
–
3
–
–
3
At 26 February 2022 (restated(c))
(352)
(108)
(451)
39
48
6
(4)
(822)
(Charge)/credit to the Group
income statement
(89)
15
(13)
12
14
140
(32)
47
(Charge)/credit to the Group statement
of changes in equity
–
–
–
(11)
–
–
–
(11)
(Charge)/credit to the Group statement
of comprehensive income/(loss)
–
–
719
–
–
–
27
746
Discontinued operations
9
–
–
(1)
–
–
–
8
Foreign exchange and other movements
(2)
(2)
–
–
1
–
–
(3)
At 25 February 2023 (restated(c))
(434)
(95)
255
39
63
146
(9)
(35)
(Charge)/credit to the Group
income statement
(85)
18
2
–
11
(73)
(5)
(132)
(Charge)/credit to the Group statement
of changes in equity
–
–
–
10
–
–
–
10
(Charge)/credit to the Group statement
of comprehensive income/(loss)
–
–
(95)
–
–
–
(8)
(103)
Discontinued operations
27
–
–
–
–
–
(3)
24
Foreign exchange and other movements
(1)
–
–
–
–
–
–
(1)
At 24 February 2024
(493)
(77)
162
49
74
73
(25)
(237)
(a) Property-related items include a deferred tax liability on rolled-over gains of £424m (2023: £421m), deferred tax assets on capital losses of £242m (2023: £242m) and
deferred tax assets on IFRS 16 balances of £199m (2023: £235m). The remaining balance relates to accelerated tax depreciation.
(b) The deferred tax asset on post-employment retirement benefits includes a deferred tax asset of £nil (2023: £155m) arising from a one-off contribution of £2.5bn paid in
December 2020 on which tax deductions are spread over four years, resulting in the closing balance entirely relating to pension schemes in deficit. Refer to Note 29 for
further details.
(c) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
The following is the analysis of the deferred tax balances after offset:
2024
£m
2023
(restated*)
£m
Deferred tax assets
32
84
Deferred tax liabilities
(269)
(119)
(237)
(35)
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
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:
2024
£m
2023
£m
Deductible temporary differences
38
45
Tax losses
180
186
218
231
As at 24 February 2024, the Group has unused trading tax losses from continuing operations of £881m (2023: £1,177m) available for offset
against future profits. A deferred tax asset has been recognised in respect of £310m (2023: £584m) of such losses, with £258m (2023: £571m)
arising in the UK, £29m (2023: £nil) in Hungary, £11m (2023: £4m) in USA and £12m (2023: £9m) in other jurisdictions. No deferred tax asset has
been recognised in respect of the remaining overseas trading tax losses of £571m (2023: £593m) due to the unpredictability of future profit
streams, with £532m (2023: £552m) arising in the Netherlands, £33m (2023: £34m) in Germany and £6m (2023: £7m) in other jurisdictions.
Capital losses of £92m (2023: £95m) in ROI 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 of £38m (2023: £45m) has not been recognised in respect of deductible
temporary differences 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 £4.1bn (2023: £4.3bn) 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 24 February 2024 is estimated to be £7m
(2023: £6m) 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 2024
149.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 6 Taxation continued
Changes in tax law or its interpretation
The Group is within the scope of the Organisation for Economic Co-operation and Development (OECD) Pillar Two model rules. Pillar Two
legislation has been enacted in the UK introducing a global minimum effective tax rate of 15%. The legislation implements a domestic top-up
tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023. The Group has applied the
exception under IAS 12 to recognising and disclosing information about deferred tax assets and liabilities related to top-up income taxes.
Under the legislation, the Group is liable to pay a top-up tax for the difference between its effective tax rate per jurisdiction and the 15%
minimum rate. The Group has performed an assessment of the potential exposure to Pillar Two income taxes and there is not expected to be
a material impact on the Group’s tax charge.
Note 7 Discontinued operations
The following table presents a breakdown of the assets and liabilities of disposal groups and non-current assets classified as held for sale:
2024
2023(b)
Banking
operations
£m
Other(a)
£m
Total
£m
Total
£m
Assets of the disposal group
7,698
–
7,698
11
Non-current assets classified as held for sale(c)
–
85
85
199
Total assets of the disposal group and non-current assets classified as held for sale
7,698
85
7,783
210
Liabilities of the disposal group
(7,122)
–
(7,122)
(14)
Total net assets of the disposal group and non-current assets classified
as held for sale
576
85
661
196
(a) Other non-current assets classified as held for sale consist mainly of properties in the UK 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.
(b) The assets and liabilities of the disposal group in the comparative period included £(14)m of net debt relating to residual properties and leases with respect to the Group’s
operation in Poland. During the year, the net debt and £11m of assets were reclassified from the disposal group to continuing operations, as the residual balances no longer
met the held for sale classification criteria.
(c) The movement in other non-current assets classified as held for sale in the current year includes a £12m gain arising from fair value remeasurement and £(126)m of assets
reclassified to property, plant and equipment as these balances no longer met the held for sale criteria.
Disposal of Banking operations
In February 2024, the Group reached agreement on the terms of a proposed sale of its banking operations, comprising personal loans, credit
cards, customer deposits, and associated operational capabilities (Banking operations) for consideration of £600m. The sale is subject to
regulatory approval and is expected to complete within 12 months of the reporting date.
The related assets and liabilities have been classified as held for sale in the Banking operations disposal group within the Tesco Bank segment,
with Group results re-presented to present Banking operations as a discontinued operation. Refer to Note 1 for further details.
Balance sheet of the disposal group
The following table presents a breakdown of the assets and liabilities of the Banking operations disposal group:
2024
£m
Loans and advances to customers
7,669
Derivative financial instruments
54
Trade and other receivables
47
Cash and cash equivalents
346
Excess loss on remeasurement of the disposal group
(418)
Assets of the disposal group classified as held for sale
7,698
Trade and other payables
(81)
Borrowings
(549)
Provisions
(19)
Lease liabilities
(17)
Deposits from customers
(6,440)
Derivative financial instruments
(16)
Liabilities of the disposal group classified as held for sale
(7,122)
Upon classification as held for sale, the Group recognised a £(732)m loss on remeasuring the disposal group to fair value less costs to sell.
The loss was allocated to goodwill and other assets of the disposal group within the scope of the measurement requirements of IFRS 5, which
were fully written off. The excess loss remaining was then recognised as a reduction in the total assets of the disposal group, which primarily
comprise loans and advances to customers measured under IFRS 9.
The Group has continued to measure financial assets within the disposal group under IFRS 9, as they are out of scope of the measurement
requirements of IFRS 5. Loans and advances to customers and customer deposits are measured at amortised cost. Derivative financial
instruments are measured at fair value as Level 2 instruments. In the year Tesco Bank issued £550m of notes, in relation to securitisation
transactions, which form part of the Banking operations disposal group. Interest payable on these notes is based on sterling overnight index
average (SONIA) plus a margin of 80 to 92 basis points (2023: no notes in issue).
Tesco PLC Annual Report and Financial Statements 2024
150.
Financial statements
Strategic report
Governance
Additional information
Income statement of discontinued operations
(a) Comparatives have been re-presented to disclose Banking operations as a discontinued operation.
(b) Fair value remeasurement of assets of the disposal group includes £(211)m of goodwill impairment, £(96)m remeasurements on non-current assets, £(418)m loss in excess of
the carrying amount of the non-current assets and £(7)m costs already incurred in relation to the sale. Refer to Note 14 for further details on goodwill.
(c) Fair value remeasurement of non-current assets held for sale in the prior year of £(9)m primarily relates to surplus properties in Poland.
(d) Other adjusting items of £(11)m in the current year comprises £(6)m indirect costs incurred in relation to the sale of Banking operations and £(5)m of costs relating to fair value
remeasurement of financial assets. Other adjusting items of £(4)m in the prior year primarily relate to operational restructuring changes as part of the Save to Invest programme.
Cash flow statement of discontinued operations
2024
2023
Banking operations
£m
Banking operations
£m
Net cash flows from operating activities
162
(30)
Net cash flows from investing activities
(22)
(28)
Net cash flows from financing activities
548
(2)
Net cash flows from discontinued operations
688
(60)
Expected credit losses (ECLs) of the Banking operations disposal group
The Banking operations disposal group has specific risks in relation to ECLs on loans and advances to customers. The financial risk for ECLs is
that a 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.
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. 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
ECLs on loans and advances to customers has taken into account a range of macroeconomic scenarios.
The table below presents the maximum exposure of the disposal group to credit risk i.e. total gross exposure, by stages.
2024
2023 (restated(a))
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
£m
Not past
due
£m
<30 days
past due
£m
>30 days
past due
£m
Total
£m
£m
£m
£m
Not past
due
£m
<30 days
past due
£m
>30 days
past due
£m
Total
£m
£m
£m
Loans and advances to
customers
6,687
1,141
44
30
1,215
233
8,135
5,687
1,559
40
24
1,623
202
7,512
Loan commitments –
loans and advances to
customers
12,257
574
8
1
583
10 12,850
11,508
690
6
–
696
8
12,212
Total gross exposure(b)
18,944
1,715
52
31
1,798
243 20,985 17,195
2,249
46
24
2,319
210 19,724
Total loss allowance(c)
70
189
18
17
224
139
433
56
258
19
14
291
113
460
Total net exposure –
loans and advances
to customers
6,617
952
26
13
991
94
7,702
5,631
1,301
21
10
1,332
89
7,052
Coverage – loans
andadvances to
customers
1%
17%
41%
57%
18%
60%
5%
1%
17%
48%
58%
18%
56%
6%
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) For loans and advances to customers, the balances are based on gross carrying amounts. For loan commitments, the amounts represent the amount for which the Banking
operations disposal group is contractually committed.
(c) 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 the liabilities of the disposal group as a provision.
2024
2023(a)
Banking
operations
£m
Banking
operations
£m
Other
£m
Total
£m
Revenue
710
568
–
568
Operating costs
(631)
(455)
–
(455)
Adjusted operating profit/(loss)
79
113
–
113
Adjusted finance (costs)/income
(1)
(2)
–
(2)
Adjusted profit/(loss) before tax
78
111
–
111
Taxation
(22)
(20)
–
(20)
Adjusted profit/(loss) after tax
56
91
–
91
Fair value remeasurement of assets of the disposal group(b)
(732)
–
–
–
Fair value remeasurement of non-current assets held for sale(c)
–
–
(9)
(9)
Other adjusting items(d)
(11)
(4)
–
(4)
Tax on adjusting items
115
–
–
–
Total adjusting items
(628)
(4)
(9)
(13)
Total profit/(loss) after tax of discontinued operations
(572)
87
(9)
78
Tesco PLC Annual Report and Financial Statements 2024
151.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 7 Discontinued operations continued
There are 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%.
2024
2023 (restated*)
12-month PD
%
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Loans and advances to customers:
High quality
<=3.02
6,212
389
–
6,601
5,493
742
–
6,235
Satisfactory quality
>3.03 - 11.10
464
570
–
1,034
186
610
–
796
Low quality and below standard
=> 11.11
11
256
–
267
8
271
–
279
Credit impaired
100
–
–
233
233
–
–
202
202
6,687
1,215
233
8,135
5,687
1,623
202
7,512
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
The ECLs on loans and advances to customers was updated at the reporting date to reflect changes in credit risk. A three-stage model for
impairment has been applied and further details on ECLs are presented below.
The table below presents the reconciliation of ECL allowances on loans and advances to customers.
2024
2023 (restated*)
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Gross exposure
6,687
1,215
233
8,135
5,687
1,623
202
7,512
Loan commitments
12,257
583
10
12,850
11,508
696
8
12,212
Total exposure
18,944
1,798
243 20,985
17,195
2,319
210
19,724
Allowance for expected credit losses
At the beginning of the year
(56)
(291)
(113)
(460)
(93)
(266)
(128)
(487)
Transfers:
Transfers from stage 1 to stage 2
7
(7)
–
–
19
(19)
–
–
Transfers from stage 2 to stage 1
(104)
104
–
–
(20)
20
–
–
Transfers to stage 3
1
42
(43)
–
3
21
(24)
–
Transfers from stage 3
(1)
(1)
2
–
(1)
(2)
3
–
Movements recognised in the Group income statement:
Net remeasurement following transfer of stage
75
(22)
(57)
(4)
8
(27)
(54)
(73)
New financial assets originated
(35)
(37)
(11)
(83)
(24)
(63)
(7)
(94)
Financial assets derecognised during the current financial year
6
14
3
23
6
5
3
14
Changes in risk parameters and other movements
36
(27)
(25)
(16)
48
41
(11)
78
Other movements:
Write-offs and asset disposals
–
–
105
105
–
–
105
105
Transfers to provisions for liabilities and charges
1
1
–
2
(2)
(1)
–
(3)
At the end of the year
(70)
(224)
(139)
(433)
(56)
(291)
(113)
(460)
Net exposure
6,617
991
94
7,702
5,631
1,332
89
7,052
Fair value adjustment
(33)
(75)
Carrying value at the end of the year
7,669
6,977
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Assessment of significant increases 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 a backstop based on arrears status. For each financial asset, Tesco Bank compares the lifetime PD at the reporting date with the lifetime
PD that was expected at the reporting date at initial recognition (PD threshold). Tesco Bank has established PD thresholds for each type of
product which vary depending on initial term and term remaining. A number of qualitative criteria are in place such as: forbearance offered
to 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.
The ECLs 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.
There are four scenarios commissioned from a third-party provider:
Scenario
Scenario assumptions
Weighting (%)
Base
No further increase in base rate, inflation trends downwards toward 2% target by mid-2024. Unemployment
expected to peak at 4.6%. Prospect of robust return to growth forecasted for 2025.
40
Upside
Improvements in energy supply and global supply chains leads to inflation of 2% by Q2 2024, base rates falling in Q2
2024 and commensurate increases in business and consumer confidence.
30
Downside 1
Disruption to energy supplies and commodities from geopolitical tensions drive wholesale price rises that are
passed on to consumers leading to higher inflation, 7% base rates in Q4 2024 and economic contraction until 2026.
25
Downside 2
Similar to Downside 1, but inflation remains higher for longer and Sterling depreciates more markedly against the
Dollar, base rates reach 8.7% in early 2025 and unemployment peaks to 7.9%.
5
Tesco PLC Annual Report and Financial Statements 2024
152.
Financial statements
Strategic report
Governance
Additional information
The economic scenarios used include the following ranges of key indicators:
2024
2023
Five-year average
Base
40%
Upside
30%
Downside 1
25%
Downside 2
5%
Base
40%
Upside
30%
Downside 1
25%
Downside 2
5%
Bank of England base rate(a)
4.1%
3.5%
5.4%
7.2%
3.8%
3.0%
4.7%
5.8%
Gross domestic product(b)
1.5%
2.0%
0.8%
0.1%
1.0%
1.5%
0.4%
(0.1)%
Unemployment rate
4.4%
4.0%
5.5%
7.2%
5.2%
4.2%
6.5%
8.4%
Unemployment rate peak in year
4.4%
4.0%
5.7%
7.5%
5.4%
4.2%
6.8%
8.9%
(a) Simple average.
(b) Annual growth rates.
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 the ECL allowance calculations as at 24 February 2024 and excludes specific management overlays which are discussed further below:
Impact on the loss allowance
Key assumption
Reasonably possible change
2024
£m
2023
(restated*)
£m
Closing ECL allowance
433
460
Macroeconomic factors (100% weighted)
Upside scenario
(42)
(59)
Base scenario
(20)
(11)
Downside scenario 1
55
65
Downside scenario 2
170
161
Probability of default
Increase of 2.5% (2023: 10%)
30
32
Decrease of 2.5% (2023: 10%)
(29)
(31)
Loss given default
Increase of 2.5%
10
10
Decrease of 2.5%
(10)
(10)
Probability of default threshold (staging)
Increase of 20%
(8)
(9)
Decrease of 20%
13
13
Expected lifetime (revolving credit facility)
Increase of 1 year
4
3
Decrease of 1 year
(5)
(5)
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
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, certain specific management overlays have
been recognised to address the prevailing downside risks and ensure the potential impacts of future stress are adequately provided for as
detailed below:
Overlay
Description of adjustment
2024
£m
2023
£m
Underestimation risk
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
8
68
Cost of living
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
20
22
Total overlays
28
90
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
such as when the customer makes a declaration of significant financial difficulty; 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. The outstanding contractual amount of such assets written off was £99m (2023: £115m).
Forbearance
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. The main aim of forbearance is to support customers in returning to a
position where they are able to meet their contractual obligations. This routinely, but not exclusively, includes arrangements to repay arrears
over a period of time, or short-term concessions, where the borrower is allowed to make reduced repayments (or in exceptional
circumstances, no repayments) on a temporary basis.
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
2024
£m
2023
£m
2024
%
2023
%
2024
%
2023
%
Credit cards
123
102
3
3
53
49
Loans
40
30
1
1
44
31
Tesco PLC Annual Report and Financial Statements 2024
153.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 8 Dividends
2024
2023
Pence/share
£m
Pence/share
£m
Paid prior financial year final dividend(a)
7.05
506
7.70
574
Paid interim dividend(b)
3.85
271
3.85
284
Amounts recognised through equity as distributions to owners
10.90
777
11.55
858
Paid 2021 special dividend
50.93
1
50.93
1
Dividends paid in the financial year
778
859
Proposed final dividend at financial year end
8.25
581
7.05
516
(a) Excludes £6m prior financial year final dividend waived (2023: £7m) and includes the write-back of unclaimed dividends and forfeited shares of £4m (2023: £5m).
(b) Excludes £2m interim dividend waived (2023: £2m).
The proposed final dividend was approved by the Board of Directors on 9 April 2024 and is subject to the approval of shareholders at the
AGM. The proposed dividend has not been included as a liability as at 24 February 2024. It will be paid on 28 June 2024 to shareholders who
are on the register of members at close of business on 17 May 2024.
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 7 June 2024.
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.
£2m (2023: £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 24 February 2024 there were 79 million (2023: 67 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 24 February 2024
52 weeks ended 25 February 2023 (restated(a))
Basic
Dilutive share
options and
awards
Diluted
Basic
Dilutive share
options and
awards
Diluted
Profit/(loss) (£m)
Continuing operations(b)
1,760
–
1,760
659
–
659
Discontinued operations
(572)
–
(572)
78
–
78
Total
1,188
–
1,188
737
–
737
Weighted average number of shares (millions)
7,097
79
7,176
7,415
67
7,482
Earnings/(losses) per share (pence)
Continuing operations
24.80
(0.27)
24.53
8.89
(0.08)
8.81
Discontinued operations
(8.06)
0.09
(7.97)
1.05
(0.01)
1.04
Total
16.74
(0.18)
16.56
9.94
(0.09)
9.85
(a) Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
(b) Excludes profits/(losses) attributable to non-controlling interests of £4m (2023: £(1)m).
APM: Adjusted diluted earnings/(losses) per share
Continuing operations
Notes
52 weeks
2024
52 weeks
2023
(restated(a))
Profit before tax (£m)
2,289
882
Exclude: Adjusting items (£m)
4
(12)
1,072
Adjusted profit before tax (£m)
2,277
1,954
Adjusted profit before tax attributable to the owners of the parent (£m)(b)
2,273
1,955
Taxation on adjusted profit before tax attributable to the owners of the parent (£m)
6
(593)
(419)
Adjusted profit after tax attributable to the owners of the parent (£m)
1,680
1,536
Basic weighted average number of shares (millions)
7,097
7,415
Adjusted basic earnings per share (pence)
23.67
20.71
Diluted weighted average number of shares (millions)
7,176
7,482
Adjusted diluted earnings per share (pence)
23.41
20.53
(a) Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
(b) Excludes profits/(losses) before tax from non-controlling interests of £4m (2023: £(1)m).
Tesco PLC Annual Report and Financial Statements 2024
154.
Financial statements
Strategic report
Governance
Additional information
Note 10 Goodwill and other intangible assets
Goodwill
£m
Software(a)
£m
Customer
relationships
£m
Other
intangible
assets(b)
£m
Total
£m
Cost
At 25 February 2023
4,785
2,034
718
384
7,921
Foreign currency translation
(8)
(19)
–
(1)
(28)
Additions
–
275
–
–
275
Acquired through business combinations
17
–
–
–
17
Reclassification
–
(10)
–
–
(10)
Transfer to disposal group classified as held for sale
(211)
(266)
–
–
(477)
Disposals
(68)
(177)
–
–
(245)
At 24 February 2024
4,515
1,837
718
383
7,453
Accumulated amortisation and impairment losses
At 25 February 2023
458
1,410
376
302
2,546
Foreign currency translation
(3)
(17)
–
–
(20)
Amortisation charge for the year(c)
–
205
74
1
280
Impairment losses(d)
–
24
–
2
26
Reversal of impairment losses(d)
–
(13)
–
–
(13)
Reclassification
–
(16)
–
7
(9)
Transfer to disposal group classified as held for sale
–
(183)
–
–
(183)
Disposals
(68)
(172)
–
–
(240)
At 24 February 2024
387
1,238
450
312
2,387
Net carrying value
At 24 February 2024
4,128
599
268
71
5,066
At 25 February 2023
4,327
624
342
82
5,375
(a) Software includes £522m (2023: £455m) net carrying value of internally generated development costs.
(b) Other intangible assets include pharmacy licences with a net carrying value of £27m (2023: £36m) and various other individually immaterial balances.
(c) Of the £75m (2023: £78m) amortisation of customer relationships and other intangible assets, £74m (2023: £76m) has been included within adjusting items. £74m (2023: £75m) of
this balance arises from amortisation of intangible assets recognised upon the Booker acquisition and £nil (2023: £1m) relates to the amortisation of intangible assets recognised
upon the acquisition of Best Food Logistics.
(d) Refer to Note 14.
Goodwill
£m
Software(a)
£m
Customer
relationships
£m
Other
intangible
assets(b)
£m
Total
£m
Cost
At 26 February 2022
4,739
1,901
718
396
7,754
Foreign currency translation
16
14
–
4
34
Additions
–
274
–
3
277
Acquired through business combinations
30
–
–
1
31
Reclassification
–
20
–
(20)
–
Disposals
–
(175)
–
–
(175)
At 25 February 2023
4,785
2,034
718
384
7,921
Accumulated amortisation and impairment losses
At 26 February 2022
448
1,344
300
302
2,394
Foreign currency translation
10
15
–
–
25
Amortisation charge for the year(c)
–
200
76
2
278
Impairment losses(d)
–
28
–
–
28
Reversal of impairment losses(d)
–
(5)
–
(2)
(7)
Disposals
–
(172)
–
–
(172)
At 25 February 2023
458
1,410
376
302
2,546
Net carrying value
At 25 February 2023
4,327
624
342
82
5,375
At 26 February 2022
4,291
557
418
94
5,360
Refer to previous table for footnotes.
Tesco PLC Annual Report and Financial Statements 2024
155.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 11 Property, plant and equipment
2024
2023
Land and
buildings(a)
£m
Other(b)
£m
Total
£m
Land and
buildings(a)
£m
Other(b)
£m
Total
£m
Cost
Opening balance
22,650
5,844
28,494
21,977
5,649
27,626
Foreign currency translation
(200)
(69)
(269)
204
65
269
Additions(c)(d)
445
753
1,198
591
661
1,252
Acquired through business combinations
–
–
–
42
–
42
Reclassification
10
32
42
3
(4)
(1)
Transfers (to)/from assets classified as held for sale
161
8
169
(85)
(5)
(90)
Transfer to disposal group classified as held for sale
(10)
(10)
(20)
–
–
–
Disposals
(90)
(428)
(518)
(82)
(522)
(604)
Closing balance
22,966
6,130
29,096
22,650
5,844
28,494
Accumulated depreciation and impairment losses
Opening balance
7,780
3,852
11,632
6,814
3,752
10,566
Foreign currency translation
(76)
(48)
(124)
75
45
120
Depreciation charge for the year
449
450
899
434
448
882
Impairment losses(e)
236
95
331
686
141
827
Reversal of impairment losses(e)
(395)
(61)
(456)
(168)
(19)
(187)
Reclassification
(1)
39
38
1
–
1
Transfers (to)/from assets classified as held for sale
58
3
61
(32)
(2)
(34)
Transfer to disposal group classified as held for sale
(9)
(7)
(16)
–
–
–
Disposals
(73)
(417)
(490)
(30)
(513)
(543)
Closing balance
7,969
3,906
11,875
7,780
3,852
11,632
Net carrying value(f)
14,997
2,224
17,221
14,870
1,992
16,862
Construction in progress included above(g)
109
280
389
109
278
387
(a) The estimated fair value of land and buildings is £15.0bn (2023: £15.6bn). Refer to Note 14 for details of the methodology applied to determine fair value.
(b) Other assets consist of fixtures and fittings with a net carrying value of £1,679m (2023: £1,496m), office equipment with a net carrying value of £234m (2023: £201m) and motor
vehicles with a net carrying value of £311m (2023: £295m). Depreciation charge for the year is £(291)m (2023: £(292)m), £(69)m (2023: £(71)m) and £(90)m (2023: £(85)m),
respectively.
(c) Includes £65m of land and buildings related to obtaining control of The Tesco Coral Limited Partnership, which was not impaired on acquisition (2023: £248m of land and
buildings related to obtaining control of The Tesco Dorney Limited Partnership, which was impaired by £(7)m on acquisition).
(d) Includes £107m (2023: £29m) relating to other property buyback and store purchase transactions.
(e) Refer to Note 14.
(f) Includes £3,129m (2023: £2,814m) of assets pledged as security for secured bonds (refer to Note 21) and £829m (2023: £783m) of property held as security in favour of the
Tesco PLC Pension Scheme (refer to Note 29).
(g) 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 17 January 2024, the Group obtained control of The Tesco Coral Limited Partnership, previously accounted for as a joint venture,
following the withdrawal of the joint venture partner, at which point the associated property leases remaining in the joint venture became
intercompany leases. Refer to Note 13 for further details.
Right of use assets
2024
2023
Land and
buildings
£m
Other
£m
Total
£m
Land and
buildings
£m
Other
£m
Total
£m
Net carrying value
Opening balance
5,387
113
5,500
5,634
86
5,720
Additions (including sale and leaseback transactions)(a)
305
39
344
378
64
442
Acquired through business combinations
–
–
–
4
–
4
Depreciation charge for the year
(508)
(36)
(544)
(501)
(38)
(539)
Impairment losses(b)
(213)
(1)
(214)
(394)
–
(394)
Reversal of impairment losses(b)
131
–
131
72
–
72
Derecognition on acquisition of property joint venture
(17)
–
(17)
(198)
–
(198)
Transfer to disposal group classified as held for sale
(9)
–
(9)
–
–
–
Other movements(c)
289
(2)
287
392
1
393
Closing balance
5,365
113
5,478
5,387
113
5,500
(a) Prior year includes £70m right of use assets related to obtaining control of The Tesco Dorney Limited Partnership.
(b) Refer to Note 14.
(c) Other movements include lease terminations, modifications and reassessments, foreign exchange, reclassifications between asset classes and entering into finance subleases.
Tesco PLC Annual Report and Financial Statements 2024
156.
Financial statements
Strategic report
Governance
Additional information
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:
2024
£m
2023
£m
Current
584
595
Non-current
7,038
7,132
Total lease liabilities
7,622
7,727
Maturity analysis – contractual undiscounted lease payments
2024
£m
2023
£m
Within one year
944
944
Greater than one year but less than two years
928
901
Greater than two years but less than three years
903
878
Greater than three years but less than four years
872
856
Greater than four years but less than five years
831
824
Greater than five years but less than ten years
3,444
3,383
Greater than ten years but less than fifteen years
1,954
2,035
After fifteen years
881
1,076
Total undiscounted lease payments
10,757
10,897
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
52 weeks
2024
£m
52 weeks
2023
(restated*)
£m
Interest on lease liabilities
373
371
Variable payment expenses not included in lease liabilities
1
1
Expenses relating to short-term leases
26
24
Expenses relating to leases of low value assets (excluding amounts already included in short-term leases above)
1
1
* Comparatives have been re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1 and 7 for further details.
Amounts recognised in the Group cash flow statement
52 weeks
2024
£m
52 weeks
2023
£m
Total cash outflow for leases*
1,000
966
* Includes £2m (2023: £6m) related to Tesco Bank within continuing operations.
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 £9.7bn (2023: £9.1bn).
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% (2023: 76%) of the Group’s lease liabilities are subject to inflation-linked rentals, of which 85% (2023: 86%) have
inflation caps, with a weighted average cap of 4.3% (2023: 3.4%). A further 17% (2023: 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, 31% (2023: 30%) of the
lease liability value was hedged through index-linked swaps. Refer to Note 27.
The Group is committed to payments totalling £181m (2023: £110m) in relation to leases that have been signed but have not yet commenced.
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
52 weeks
2024
£m
52 weeks
2023
£m
Finance lease – interest income(a)
2
4
Operating lease – rental income(b)
96
90
(a) Includes £2m (2023: £4m) of sublease interest income.
(b) Includes £26m (2023: £23m) of sublease rental income.
Tesco PLC Annual Report and Financial Statements 2024
157.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 12 Leases continued
Finance lease payments receivable
The finance lease receivable (net investment in the lease) included in the Group balance sheet is £27m (2023: £36m).
Operating lease payments receivable maturity analysis
2024
£m
2023
£m
Within one year
63
61
Greater than one year but less than two years
33
77
Greater than two years but less than three years
30
56
Greater than three years but less than four years
23
40
Greater than four years but less than five years
23
27
Greater than five years but less than 10 years
33
49
Greater than 10 years but less than 15 years
11
20
After 15 years
28
42
Total undiscounted operating lease payments receivable
244
372
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 212 to 216 for a complete list of Group entities.
Subsidiaries
The accounting year ends of the subsidiaries consolidated in these financial statements are on or around 24 February 2024.
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 such, these entities are effectively
controlled by the Group, and are therefore accounted for as subsidiaries of the Group. The securitisation structured entities are included
in the Banking operations disposal group.
The securitisation structured entities have financial year ends of 31 December. The management accounts of these entities are used to
consolidate the results to 24 February 2024 within these financial statements. The financial year ends of the financing structured entities
align to the Group financial year end.
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 Blue Limited Partnership
Joint venture
Property investment
50%
England
United Kingdom
The Tesco Passaic Limited Partnership
Joint venture
Property investment
50%
England
United Kingdom
The Tesco Navona Limited Partnership
Joint venture
Property investment
50%
England
United Kingdom
The Arena Unit Trust
Joint venture
Property investment
50%
Jersey
United Kingdom
Included in ‘Other joint ventures and associates’:
Tesco Mobile Limited
Joint venture
Telecommunications
50%
England
United Kingdom
Booker India Limited
Joint venture
Retail
49%
India
India
Trent Hypermarket Private Limited
Joint venture
Retail
50%
India
India
The accounting period end dates of the joint ventures and associates consolidated in these financial statements range from 31 December 2023
to 24 February 2024. The accounting period end dates of joint ventures differ from those of the Group for commercial reasons and depend
upon the requirements of the joint venture partner as well as those of the Group.
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 joint ventures with alternative properties of similar value, subject to strict eligibility criteria. In other cases the
Group carries out property management activities for third-party rentals of shopping centre units.
Tesco PLC Annual Report and Financial Statements 2024
158.
Financial statements
Strategic report
Governance
Additional information
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.
Tesco Coral acquisition
In January 2024, the Group obtained control of The Tesco Coral Limited Partnership, which held four stores and was previously accounted
for as a joint venture, following the withdrawal of the joint venture partner. The joint venture partner took ownership of two stores, which it
continues to lease to the Group.
The transaction was treated as an asset acquisition. The non-cash consideration, principally comprising the elimination of the loan to the
joint venture and derecognition of pre-existing right of use assets and lease liabilities, was £54m. On acquisition, the Group recognised
property, plant and equipment of £65m, cash of £7m, and £1m relating to other immaterial balances. The Group also realised £19m deferred
profit, arising from the original sale to the JV, on the two properties retained by the joint venture partner. This profit was treated as an
adjusting item included as part of property transactions. Refer to Note 4.
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 activities and geographic market.
UK property joint ventures
2024
£m
2023
£m
Summarised balance sheet
Non-current assets(a)
1,829
2,032
Current assets (excluding cash and cash equivalents)
8
8
Cash and cash equivalents
12
21
Current liabilities(b)
(65)
(287)
Non-current liabilities(b)
(2,265)
(2,277)
Net liabilities
(481)
(503)
Summarised income statement
Revenue
188
203
Profit/(loss) after tax(c)
–
–
(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 £2,717m (2023: £2,988m).
(b) The current and non-current liabilities of UK property joint ventures largely comprise loan balances of £(1,985)m (2023: £(2,248)m) and derivative swap balances of £(317)m
(2023: £(287)m) entered into to hedge the cash flow variability exposures of the joint ventures.
(c) Profit/(loss) after tax includes £59m (2023: £65m) of interest cost.
UK property joint ventures
2024
£m
2023
£m
Reconciliation to carrying amounts:
Opening balance
–
–
Share of profits/(losses)*
7
12
Dividends received from joint ventures and associates
(7)
(12)
Closing balance
–
–
Group’s share in ownership
50%
50%
Group’s share of net liabilities
(241)
(252)
Deferred property profits offset against carrying amounts
(56)
(60)
Cumulative unrecognised losses*
138
168
Cumulative unrecognised hedge reserves*
159
144
Carrying amount
–
–
* The share of profit for the year for UK property joint ventures related to £7m (2023: £12m) dividends received from joint ventures with £nil carrying amounts (2023: £nil).
£11m of profit (2023: £12m) and £15m of increase (2023: £75m of increase) in the fair values of derivatives arising from these entities have been included in cumulative
unrecognised losses and cumulative unrecognised hedge reserves respectively.
Tesco PLC Annual Report and Financial Statements 2024
159.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 13 Group entities continued
As at 24 February 2024, the Group had £96m (2023: £106m) 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.
Joint ventures
2024
£m
2023
£m
Aggregate carrying amount of individually immaterial joint ventures
102
93
Group’s share of losses for the year
(1)
(4)
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
Goodwill
The Group previously held £500m of goodwill associated with the Tesco Bank segment. On classification of the Group’s Banking operations
as held for sale, £211m of goodwill was allocated to the disposal group, £171m to the money services business and £118m to the insurance
business. Subsequent to this allocation, an assessment of the Banking operations disposal group’s fair value less costs to sell resulted in a
write down of that goodwill to £nil. See Note 7 for further detail. There was no impairment of the goodwill associated with money services
and insurance.
There was no impairment of other goodwill balances in the current year (2023: £nil).
Other non-current assets
The tables below summarise 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)/reversals recognised immediately prior
to classifying an asset or disposal group as held for sale but excludes any changes in fair value less costs to sell post classification as held for
sale. There were no impairment losses or reversals in the year (2023: £nil) with respect to investments in joint ventures and associates and no
impairments in other non-current assets in either money services or insurance (2023: Tesco Bank segment £nil). All impairment losses and
reversals are classified as adjusting items.
UK & ROI
Central Europe
Total
Net
52 weeks ended 24 February 2024
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
Impairment
reversal
£m
Impairment
(loss)/reversal
£m
Group balance sheet
Other intangible assets
(26)
13
–
–
(26)
13
(13)
Property, plant and equipment
(306)
449
(25)
7
(331)
456
125
Right of use assets
(187)
122
(27)
9
(214)
131
(83)
Investment property
–
–
(1)
–
(1)
–
(1)
Total impairment (loss)/reversal of other non-current assets
(519)
584
(53)
16
(572)
600
28
Group income statement
Cost of sales
(518)
584
(46)
15
(564)
599
35
Administrative expenses
(1)
–
(7)
1
(8)
1
(7)
Total impairment (loss)/reversal from continuing operations
(519)
584
(53)
16
(572)
600
28
UK & ROI
Central Europe
Total
Net
52 weeks ended 25 February 2023
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
Impairment
reversal
£m
Impairment
loss
£m
Impairment
reversal
£m
Impairment
(loss)/reversal
£m
Group balance sheet
Other intangible assets
(28)
6
–
1
(28)
7
(21)
Property, plant and equipment
(779)
181
(48)
6
(827)
187
(640)
Right of use assets
(373)
65
(21)
7
(394)
72
(322)
Investment property
(1)
2
–
–
(1)
2
1
Total impairment (loss)/reversal of other non-current assets
(1,181)
254
(69)
14
(1,250)
268
(982)
Group income statement
Cost of sales
(1,155)
245
(69)
14
(1,224)
259
(965)
Administrative expenses
(26)
9
–
–
(26)
9
(17)
Total impairment (loss)/reversal from continuing operations
(1,181)
254
(69)
14
(1,250)
268
(982)
The gross impairment losses and reversals for the Group largely reflect normal fluctuations expected from store-level performance, as well
as any specific store closures. The net impairment reversal in the UK & ROI is primarily due to a net improvement in performance across the
portfolio, partially offset by decreases in UK property fair values and fluctuations in discount rates. The net impairment loss in Central Europe
is primarily due to a net deterioration of performance, partially offset by a reduction in discount rates.
Tesco PLC Annual Report and Financial Statements 2024
160.
Financial statements
Strategic report
Governance
Additional information
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. Money services and insurance are also presented on an aggregated basis on materiality grounds.
At 24 February 2024
UK & ROI
£m
Central Europe
£m
Money services
& insurance
£m
Total continuing
operations
£m
Net carrying value
Other intangible assets
874
33
31
938
Property, plant and equipment
15,692
1,466
63
17,221
Right of use assets
5,038
439
1
5,478
Investment property
15
9
–
24
Other non-current assets
21,619
1,947
95
23,661
Goodwill(a)
3,839
–
289
4,128
Investments in joint ventures and associates(b)
102
–
–
102
Net carrying value of non-current assets
25,560
1,947
384
27,891
Recoverable amount of impaired other non-current assets for which an impairment
loss has been recognised or reversed, supported by:
Value in use
3,284
143
–
3,427
Fair value less costs of disposal(c)
1,531
216
–
1,747
4,815
359
–
5,174
(a) Goodwill of £4,128m (2023: £4,327m) consists of UK £3,806m (2023: £3,793m), ROI £33m (2023: £34m), money services £171m and insurance £118m (2023: Tesco Bank £500m).
(b) The carrying value of the Group’s investments includes Trent Hypermarket Private Limited £63m (2023: £55m).
(c) Due to the individual nature of each property, fair values are classified as Level 3 within the fair value hierarchy. Certain store cash-generating units are supported by fair
value less costs of disposal where their current use is for trading. This use is consistent with the Group’s property strategy and expected future investment in these store
cash-generating units.
At 25 February 2023
UK & ROI
£m
Central Europe
£m
Tesco Bank
£m
Total
£m
Net carrying value
Other intangible assets
888
37
123
1,048
Property, plant and equipment
15,331
1,459
72
16,862
Right of use assets
5,057
433
10
5,500
Investment property
15
9
–
24
Other non-current assets
21,291
1,938
205
23,434
Goodwill(a)
3,827
–
500
4,327
Investments in joint ventures and associates(b)
93
–
–
93
Net carrying value of non-current assets
25,211
1,938
705
27,854
Recoverable amount of impaired other non-current assets for which an impairment
loss has been recognised or reversed, supported by:
Value in use
3,657
140
–
3,797
Fair value less costs of disposal(c)
1,984
169
–
2,153
5,641
309
–
5,950
Refer to previous table for footnotes.
Impairment methodology
Cash-generating units
For impairment testing of other intangible assets, property, plant and equipment, right of use assets and investment property, the Group
treats each store as a separate cash-generating unit. dunnhumby, money services and insurance represent separate cash-generating units
(2023: dunnhumby and Tesco Bank).
The Group allocates goodwill to groups of cash-generating units based on the lowest level at which goodwill is monitored by management.
Each country represents a group of cash-generating units for the Group’s retail operations. dunnhumby represents a separate group.
Tesco Bank previously represented one group, however subsequent to the classification of Banking operations as held for sale, the Group
has determined that money services and insurance represent two separate groups.
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.
Tesco PLC Annual Report and Financial Statements 2024
161.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 14 Impairment of non-current assets continued
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.
The Group applies an expected cash flow approach by probability-weighting different cash flow scenarios. The greatest probability weighting
is applied to the cash flows derived from the three-year internal forecasts. One downside scenario takes account of the risks presented by
ongoing geopolitical and global supply issues triggering further inflation, leading to weak consumer confidence and intensified competition.
A second downside scenario takes account of climate change impacts. These are consistent with the viability statement scenarios (see the
Longer term viability statement in the Strategic report). The viability statement scenarios reflect ‘severe but plausible’ risks, to which
management applies probability weightings in order to reflect management’s best estimate of future economic conditions. There is also an
upside scenario which assumes a moderate outperformance of 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 end-of-life 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. The Group engages
independent valuation specialists to determine appropriate discount rates. Risk-free rates are based on government bond rates, adjusted
for each geographical region and equity risk premia and equity beta are based on data from recognised bodies. The capital asset pricing
model is used to calculate the cost of equity.
Money services and insurance
Value in use is calculated by discounting free cash flows. Cash flow projections are based on the three-year internal forecasts, approved by
the Board. The forecasts are extrapolated to five years based on management’s expectations and beyond five years based on estimated
long-term average growth rates. The long-term growth rates are based on inflation and GDP growth forecasts by recognised bodies. The
discount rate is the cost of equity. The capital asset pricing model is used to calculate the cost of equity. The Group engages independent
valuation specialists to determine appropriate risk-free rates and equity risk premia. The equity beta are derived from recognised bodies.
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, performance, infrastructure, energy efficiency rating,
redevelopment potential and other factors. In some cases, fair values include residual valuations where stores may be viable for
redevelopment. Fair values of leased properties are determined with regard to the discounted market rent for the property over the
remaining period of the lease, reflecting the condition and location of the 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.
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:
UK*
ROI
Money services
Insurance
Tesco Bank
2024
%
2023
%
2024
%
2023
%
2024
%
2024
%
2023
%
Pre-tax discount rates
8.6 – 13.9
8.6 – 8.8
7.8
7.4
14.0
9.8
16.0
Post-tax discount rates
6.4 – 10.4
6.5 – 6.6
6.8
6.5
10.5
7.4
12.0
Long-term growth rates
2.0
2.0
2.0
2.0
1.7
1.7
1.7
* dunnhumby aggregated with the UK due to materiality.
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:
UK & ROI
Central Europe
2024
%
2023
%
2024
%
2023
%
Pre-tax discount rates
7.8 – 8.5
7.4 – 8.6
8.2 – 12.6
8.0 – 16.8
Post-tax discount rates
6.4 – 6.8
6.5
6.5 – 8.3
6.3 – 11.1
Long-term growth rates
2.0
2.0
1.8 – 3.1
2.0 – 3.2
Tesco PLC Annual Report and Financial Statements 2024
162.
Financial statements
Strategic report
Governance
Additional information
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
reduced the reasonably possible movements in the future cash flows and long-term growth rate sensitivities disclosed given the level of
volatility seen in these inputs has reduced compared to the prior year.
(a)
Neither a reasonably possible increase of 1.0%pt in discount rates, a 5.0% decrease in future cash flows nor a 0.5%pt decrease in
long-term growth rates would indicate impairment in any group of cash-generating units to which goodwill has been allocated.
(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
Reasonably possible change
Impact on impairment
2024
£m
Post-tax discount rates*
Increase of 1.0%pt for each geographic region
Increase
(429)
Decrease of 1.0%pt for each geographic region
Decrease
389
Future cash flows
Increase of 5.0% for each geographic region
Decrease
154
Decrease of 5.0% for each geographic region
Increase
(164)
Long-term growth rates
Increase of 0.5%pt for each geographic region
Decrease
149
Decrease of 0.5%pt for each geographic region
Increase
(135)
Property fair values
Increase of 10.0% for each geographic region
Decrease
174
Decrease of 10.0% for each geographic region
Increase
(179)
* Sensitivities are applied to post-tax discount rates used to derive the pre-tax discount rates.
Note 15 Other investments
2024
2023
At amortised
cost(a)
£m
Fair value
through
profit/loss
£m
Fair value
through other
comprehensive
income
£m
Total
£m
At amortised
cost(a)
£m
Fair value
through
profit/loss
£m
Fair value
through other
comprehensive
income
£m
Total
£m
Investments in debt instruments – Retail(b)
201
–
–
201
210
–
–
210
Investments in debt instruments – Bank
832
–
682
1,514
883
–
565
1,448
Investments in equity instruments – Retail
–
–
19
19
–
–
14
14
Property fund and other investments – Bank(c)
–
18
–
18
–
20
–
20
Other investments
1,033
18
701
1,752
1,093
20
579
1,692
Of which:
Current
81
17
108
206
303
1
49
353
Non-current
952
1
593
1,546
790
19
530
1,339
1,033
18
701
1,752
1,093
20
579
1,692
(a) The allowances for expected credit losses in the year are immaterial (2023: immaterial).
(b) Comprises secured bond assets, of which £196m (2023: £199m) relates to the purchase of debt held in UK property joint ventures.
(c) Includes £17m (2023: £19m) of property fund investments which were recognised following the acquisition of Tesco Underwriting Limited.
Note 16 Inventories
2024
£m
2023
£m
Goods held for resale
2,632
2,507
Development properties
3
3
2,635
2,510
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 24 February 2024 was £50,191m
(52 weeks ended 25 February 2023: £48,822m). Inventory losses and provisions from continuing operations recognised as an expense for
the 52 weeks ended 24 February 2024 were £1,355m (52 weeks ended 25 February 2023: £1,220m).
Tesco PLC Annual Report and Financial Statements 2024
163.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 17 Trade and other receivables
2024
£m
2023
(restated(a))
£m
Trade receivables
576
531
Prepayments
129
133
Accrued income(b)
230
223
Other receivables
274
294
Amounts owed by joint ventures and associates (Note 31)(c)
176
133
Total trade and other receivables
1,385
1,314
Of which:
Current
1,349
1,235
Non-current
36
79
1,385
1,314
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Accrued income includes contract assets of £25m (2023: £32m) primarily relating to commission income on insurance policies managed and underwritten by a third party.
The expected credit loss was immaterial as at 24 February 2024 (2023: immaterial).
(c) Expected credit losses on amounts owed by joint ventures and associates are immaterial (2023: immaterial).
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 24 February 2024
Not
past due
£m
Up to six
months
past due
£m
Six to
12 months
past due
£m
Greater than
12 months
past due
£m
Total
£m
Trade receivables
540
62
6
9
617
Other receivables
242
17
6
27
292
Trade and other receivables
782
79
12
36
909
Allowance for expected credit losses:
At the beginning of the year
(24)
(6)
(6)
(26)
(62)
(Increase)/decrease in allowance, including recoveries,
released/(charged) to the Group income statement
1
1
1
(1)
2
Amounts written off
1
–
–
–
1
At the end of the year
(22)
(5)
(5)
(27)
(59)
At 25 February 2023 (restated*)
Not
past due
£m
Up to six
months
past due
£m
Six to
12 months
past due
£m
Greater than
12 months
past due
£m
Total
£m
Trade receivables
505
53
7
9
574
Other receivables
259
19
16
19
313
Trade and other receivables
764
72
23
28
887
Allowance for expected credit losses:
At the beginning of the year
(22)
(4)
(5)
(25)
(56)
Increase in allowance, including recoveries, charged to the Group
income statement
(2)
(2)
(1)
(1)
(6)
At the end of the year
(24)
(6)
(6)
(26)
(62)
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Note 18 Cash and cash equivalents and short-term investments
Cash and cash equivalents
2024
£m
2023
£m
Cash at bank and on hand
2,300
2,426
Short-term deposits
40
39
Cash and cash equivalents in the Group balance sheet
2,340
2,465
Bank overdrafts
(812)
(900)
Cash and cash equivalents in the Group cash flow statement
1,528
1,565
Short-term investments
2024
£m
2023
£m
Money market funds, deposits and similar instruments
2,128
1,628
Cash and cash equivalents include £30m (2023: £87m) of restricted amounts mainly relating to the Group’s pension schemes and employee
benefit trusts.
Tesco PLC Annual Report and Financial Statements 2024
164.
Financial statements
Strategic report
Governance
Additional information
Note 19 Trade and other payables
2024
£m
2023
(restated*)
£m
Trade payables
6,644
6,359
Other taxation and social security
434
399
Other payables
1,864
1,741
Amounts payable to joint ventures and associates (Note 31)
7
7
Accruals
931
867
Contract liabilities
423
443
Total trade and other payables
10,303
9,816
Of which:
Current
10,264
9,762
Non-current
39
54
10,303
9,816
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
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 £853m (2023: £687m) 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.
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.
2024
£m
2023
£m
Current assets
Inventories
(12)
(18)
Trade and other receivables
Trade/other receivables
86
67
Accrued income
136
127
Current liabilities
Trade and other payables
Trade payables
138
112
Accruals
–
(5)
Tesco PLC Annual Report and Financial Statements 2024
165.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
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.
Par value
Maturity
2024
£m
2023
£m
Bank loans and overdrafts(a)
–
–
838
928
Tesco Bank Senior MREL Notes(b)
£145m
Jul 2025
143
137
Secured bonds(c)
5.5457% Secured Bond
£203m
Feb 2029
195
225
6.067% Secured Bond
£200m
Feb 2029
196
195
SONIA + 1.3193% Secured Bond
£50m
Feb 2029
49
49
6.0517% Secured Bond
£257m
Oct 2039
321
337
5.6611% Secured Bond
£283m
Oct 2041
366
378
5.4111% Secured Bond
£183m
Jul 2044
155
158
Unsecured bonds
Fixed rate bonds
5% MTN
£71m
Mar 2023
–
75
1.375% MTN
€750m
Oct 2023
–
651
2.5% MTN
€473m
Jul 2024
410
424
2.5% MTN
£400m
May 2025
390
378
0.875% MTN
€750m
May 2026
643
663
6% MTN
£38m
Dec 2029
42
43
2.75% MTN
£450m
Apr 2030
369
359
4.25% MTN
€500m
Feb 2031
454
–
5.5% MTN
£67m
Jan 2033
76
78
5.5% MTN
£250m
Feb 2035
258
–
6.15% USD Bond
$355m
Nov 2037
346
366
4.875% MTN
£14m
Mar 2042
14
14
5.125% MTN
€235m
Apr 2047
206
213
5.2% MTN
£14m
Mar 2057
14
14
LPI and RPI-linked bonds(d)
3.322% LPI MTN
£210m
Nov 2025
415
396
1.982% RPI MTN
£196m
Mar 2036
382
349
Sustainability-linked bonds(e)
1.875% MTN
£400m
Nov 2028
399
398
0.375% MTN
€750m
Jul 2029
538
523
7,219
7,351
Of which:
Current
1,536
1,770
Non-current
5,683
5,581
7,219
7,351
(a) Bank loans and overdrafts includes £812m (2023: £900m) of bank overdrafts. £806m (2023: £895m) 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 subordinated loans mature in 2025 which the Group expects to redeem
on their call date in July 2024.
(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
amounts of assets pledged as security for secured bonds is £810m, £1,197m, £854m and £268m (2023: £802m, £1,065m, £708m and £239m) respectively. £55m (2023: £51m) 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%.
(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 2024
166.
Financial statements
Strategic report
Governance
Additional information
Note 22 Provisions
Property
provisions
£m
Restructuring
provisions
£m
Legal and
regulatory
provisions
£m
Operational
insurance
provisions
£m
Other
provisions
£m
Total
£m
At 25 February 2023
222
106
54
158
20
560
Foreign currency translation
(1)
–
–
(1)
(1)
(3)
Amount released in the year
(18)
(9)
(27)
(24)
(1)
(79)
Amount provided in the year
12
59
45
71
2
189
Amount utilised in the year
(15)
(103)
(5)
(52)
2
(173)
Transfer to disposal group classified as held for sale
(2)
–
–
–
(17)
(19)
Unwinding of discount
6
–
–
–
–
6
At 24 February 2024
204
53
67
152
5
481
The balances are analysed as follows:
2024
£m
2023
£m
Current
306
366
Non-current
175
194
481
560
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 4.3% (2023: 3.8%).
Property provisions
Property provisions comprise onerous contracts related to vacant properties, and decommissioning, dilapidations and remediation
works 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 charges for dilapidation and similar remediation provisions. Amounts released in the year
primarily relate to releases of dilapidations provisions and improvements to the estimates for decommissioning provisions.
The expected undiscounted ageing of property provisions as at 24 February 2024:
Current
£m
1 to 5 years
£m
6 to 10 years
£m
11 to 15 years
£m
Over 15 years
£m
Total
£m
Property provisions
37
38
27
18
231
351
Restructuring provisions
Restructuring provisions of £53m (2023: £106m) primarily relating to expected employee costs, are expected to be fully utilised in the
following financial year to 22 February 2025. 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.
Amounts provided in the year include a provision for customer redress in relation to invalid notices of sums in arrears in Tesco Bank.
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 provision amounts in the prior year principally related to expected credit loss provisions on loans to customers, where the IFRS 9
provision recognised exceeds the gross carrying amount of the related financial asset. In the current year these have been transferred to the
Banking operations disposal group classified as held for sale. Refer to Note 7 for further details. The remaining balance relates to individually
immaterial provisions that do not fall into any of the other categories.
Tesco PLC Annual Report and Financial Statements 2024
167.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 23 Loans and advances to customers
Loans and advances to customers were classified as held for sale in the year, as part of the Banking operations disposal group. Refer to Note 7
for further details. The maturity of loans and advances to customers held in the prior year is shown below:
2023
(restated*)
£m
Repayable on demand or at short notice
–
Within three months
4,108
Greater than three months but less than one year
116
Greater than one year but less than five years
2,667
After five years
546
7,437
Expected credit loss allowance for loans and advances to customers
(460)
Loans and advances to customers
6,977
Of which:
Current
3,948
Non-current
3,029
6,977
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Note 24 Insurance
Balances disclosed in this note relate to the Group’s subsidiary, Tesco Underwriting Limited (TU), part of the Tesco Bank segment.
Insurance revenue
52 weeks
2024
£m
52 weeks
2023
(restated(a))
£m
Contracts measured under premium allocation approach (PAA)
449
329
Expected incurred claims and other insurance service expenses
44
92
Change in non-financial risk adjustment for risk expired
2
5
Contractual service margin (CSM) recognised for services provided
19
32
Contracts not measured under PAA(b)
65
129
Insurance revenue
514
458
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) For contracts not measured under PAA, the liability for remaining coverage is measured using the general measurement model (GMM).
Insurance service expenses
52 weeks
2024
£m
52 weeks
2023
(restated*)
£m
Incurred claims and other directly attributable expenses
506
491
Amortisation of insurance acquisition cash flows
(4)
–
Losses/(reversals) on onerous acquired claims
1
2
Changes to fulfilment cash flows relating to incurred claims
(49)
(85)
Insurance service expenses
454
408
* Following the Group’s adoption of IFRS 17, comparatives have been restated. Refer to Notes 1 and 33 for further details.
Insurance contract liabilities and reinsurance contract assets
The breakdown of portfolios and groups of insurance contracts issued and reinsurance contracts held is set out in the table below:
2024
2023 (restated(a))
Insurance
contract
liabilities
£m
Reinsurance
contracts held
£m
Net (liabilities)/
assets
£m
Insurance
contract
liabilities
£m
Reinsurance
contracts held
£m
Net (liabilities)/
assets
£m
(Liabilities)/assets for remaining coverage
(260)
(178)
(438)
(274)
(107)
(381)
(Liabilities)/assets for incurred claims
(266)
303
37
(227)
242
15
(526)
125
(401)
(501)
135
(366)
Contracts measured under PAA
(364)
62
(302)
(290)
63
(227)
Contracts not measured under PAA(b)
(162)
63
(99)
(211)
72
(139)
(526)
125
(401)
(501)
135
(366)
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Contracts not measured under PAA are measured using the GMM.
Tesco PLC Annual Report and Financial Statements 2024
168.
Financial statements
Strategic report
Governance
Additional information
Insurance contract liabilities
The following tables provide a reconciliation of the movements in the total insurance contract liabilities in the current and prior year. This is
split between liabilities for remaining coverage (LRC), representing the Group’s obligation for insured events related to the unexpired portion
of the coverage period, and liabilities for incurred claims (LIC), representing outstanding claims and incurred but not reported claims and
other incurred insurance expenses.
Liability for remaining coverage
Liability for incurred claims
Total
£m
Excluding loss
component
£m
Loss component
£m
Estimates of present
value of future cash
flows
£m
Risk adjustment for
non-financial risk
£m
As at 25 February 2023 (restated (a))
272
2
209
18
501
Insurance revenue
(514)
–
–
–
(514)
Insurance service expenses
Incurred claims and other directly attributable
expenses(b)
36
(1)
473
(2)
506
Amortisation of insurance acquisition cash flows
(4)
–
–
–
(4)
Losses on onerous acquired claims and reversals
of those losses
–
1
–
–
1
Changes to fulfilment cash flows relating to
incurred claims
–
–
(49)
–
(49)
Total insurance service expenses
32
–
424
(2)
454
Total insurance service result
(482)
–
424
(2)
(60)
Insurance finance (income)/expenses
Insurance finance (income)/expenses recognised
in the income statement
1
–
6
–
7
Insurance finance (income)/expenses recognised
in other comprehensive income
8
–
(4)
–
4
Total insurance finance (income)/expenses
9
–
2
–
11
Insurance cash flows
Premiums received for insurance contracts issued
555
–
–
–
555
Incurred claims and other expenses paid(b)
(21)
–
(385)
–
(406)
Insurance acquisition cash flows
(75)
–
–
–
(75)
Total insurance cash flows
459
–
(385)
–
74
As at 24 February 2024
258
2
250
16
526
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Incurred claims and related cash flows presented within LRC relate to the settlement of the acquired claims. The time difference between settlement of the development of
the claim and payment is not significant to present within LIC.
Liability for remaining coverage
Liability for incurred claims
Total
£m
Excluding loss
component
£m
Loss component
£m
Estimates of present
value of future cash
flows
£m
Risk adjustment for
non-financial risk
£m
As at 26 February 2022 (restated(a))
414
–
149
25
588
Insurance revenue
(458)
–
–
–
(458)
Insurance service expenses
Incurred claims and other directly attributable
expenses(b)
83
–
415
(7)
491
Losses on onerous acquired claims and reversals
of those losses
–
2
–
–
2
Changes to fulfilment cash flows relating to
incurred claims
–
–
(85)
–
(85)
Total insurance service expenses
83
2
330
(7)
408
Total insurance service result
(375)
2
330
(7)
(50)
Insurance finance (income)/expenses
Insurance finance (income)/expenses recognised
in the income statement
2
–
3
–
5
Insurance finance (income)/expenses recognised
in other comprehensive income
(14)
–
(25)
–
(39)
Total insurance finance (income)/expenses
(12)
–
(22)
–
(34)
Insurance cash flows
Premiums received for insurance contracts issued
336
–
–
–
336
Incurred claims and other expenses paid(b)
(77)
–
(248)
–
(325)
Insurance acquisition cash flows
(14)
–
–
–
(14)
Total insurance cash flows
245
–
(248)
–
(3)
As at 25 February 2023 (restated (a))
272
2
209
18
501
Refer to previous table for footnotes.
Tesco PLC Annual Report and Financial Statements 2024
169.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 24 Insurance continued
Insurance contract liabilities not measured under the PAA
The following table provides a reconciliation of the movements in the insurance contract liabilities for contracts not measured under the PAA:
2024
2023
Estimates of
present
value of
future cash
flows
£m
Risk
adjustment
for non-
financial
risk
£m
CSM
£m
Total
£m
Estimates of
present
value of
future cash
flows
£m
Risk
adjustment
for non-
financial
risk
£m
CSM
£m
Total
£m
Opening balance(a)(b)
138
7
66
211
309
16
25
350
Changes that relate to current service
CSM recognised for the year
–
–
(19)
(19)
–
–
(32)
(32)
Change in risk adjustment for non-financial risk for risk
expired
–
(2)
–
(2)
–
(5)
–
(5)
Changes to fulfilment cash flows relating to incurred
claims
(13)
–
–
(13)
(15)
–
–
(15)
Changes that relate to future service
Changes in estimates that adjust the CSM
(24)
–
24
–
(66)
(4)
70
–
Changes in estimates that result in losses and reversals
of losses on onerous acquired claims
–
–
2
2
–
–
3
3
Total insurance service result
(37)
(2)
7
(32)
(81)
(9)
41
(49)
Insurance finance (income)/expenses
Insurance finance (income)/expenses recognised in the
income statement
1
–
–
1
1
–
–
1
Insurance finance (income)/expenses recognised
in other comprehensive income
8
–
–
8
(14)
–
–
(14)
Total insurance finance (income)/expenses
9
–
–
9
(13)
–
–
(13)
Insurance cash flows
Incurred claims and other expenses paid
(26)
–
–
(26)
(77)
–
–
(77)
Total insurance cash flows
(26)
–
–
(26)
(77)
–
–
(77)
Closing balance(a)(b)
84
5
73
162
138
7
66
211
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Contracts not measured under the PAA relate to claims liabilities acquired on the acquisition of TU. The acquired claims liabilities are included in the LRC from the acquisition
date and measured under the GMM as their coverage relates to the discovery of the ultimate cost of acquired claims, which will spread over multiple years. Refer to Note 1
for further details.
Reinsurance contract assets
The following tables provide a reconciliation of the movements in the total reinsurance contract assets in the current and prior year. This is
split between movements in assets for remaining coverage (ARC) and assets for incurred claims (AIC) recoverable from reinsurance:
Assets for remaining coverage
Assets for incurred claims
Total
£m
Excluding loss-
recovery component
£m
Loss-recovery
component
£m
Estimates of present
value of future cash
flows
£m
Risk adjustment for
non-financial risk
£m
As at 25 February 2023 (restated*)
(107)
–
235
7
135
Allocation of reinsurance premiums
(194)
–
–
–
(194)
Amounts recoverable from reinsurers
Amounts recoverable for incurred claims
and other incurred insurance service expenses
22
–
130
(1)
151
Changes to amounts recoverable for
incurred claims
–
–
(5)
–
(5)
Net expenses from reinsurance contracts held
(172)
–
125
(1)
(48)
Reinsurance finance income/(expenses)
Reinsurance finance income/(expenses) recognised
in the income statement
–
–
1
–
1
Reinsurance finance income/(expenses) recognised
in other comprehensive income
1
–
–
–
1
Total reinsurance finance income/(expenses)
1
–
1
–
2
Reinsurance cash flows
Premiums paid for reinsurance contracts held
42
–
–
–
42
Amounts received from reinsurers relating to
incurred claims
(2)
–
(4)
–
(6)
Total reinsurance cash flows
40
–
(4)
–
36
Other movements
60
–
(60)
–
–
As at 24 February 2024
(178)
–
297
6
125
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Tesco PLC Annual Report and Financial Statements 2024
170.
Financial statements
Strategic report
Governance
Additional information
Assets for remaining coverage
Assets for incurred claims
Total
£m
Excluding loss-
recovery component
£m
Loss-recovery
component
£m
Estimates of present
value of future cash
flows
£m
Risk adjustment for
non-financial risk
£m
As at 26 February 2022 (restated*)
(23)
–
183
11
171
Allocation of reinsurance premiums
(175)
–
–
–
(175)
Amounts recoverable from reinsurers
Amounts recoverable for incurred claims
and other incurred insurance service expenses
50
–
73
(4)
119
Changes to amounts recoverable for
incurred claims
–
–
19
–
19
Net expenses from reinsurance contracts held
(125)
–
92
(4)
(37)
Reinsurance finance income/(expenses)
Reinsurance finance income/(expenses) recognised
in the income statement
–
–
2
–
2
Reinsurance finance income/(expenses) recognised
in other comprehensive income
(2)
–
(18)
–
(20)
Total reinsurance finance income/(expenses)
(2)
–
(16)
–
(18)
Reinsurance cash flows
Premiums paid for reinsurance contracts held
45
–
–
–
45
Amounts received from reinsurers relating to
incurred claims
(26)
–
–
–
(26)
Total reinsurance cash flows
19
–
–
–
19
Other movements
24
–
(24)
–
–
As at 25 February 2023 (restated*)
(107)
–
235
7
135
* Refer to previous table for footnote.
Reinsurance contract assets not measured under the PAA
The following table provides a reconciliation of the movements in the reinsurance contract assets not measured under the PAA:
2024
2023
Estimates of
present value
of future cash
flows
£m
Risk
adjustment
for non-
financial risk
£m
CSM
£m
Total
£m
Estimates of
present value
of future cash
flows
£m
Risk
adjustment
for non-
financial risk
£m
CSM
£m
Total
£m
Opening balance(a)(b)
38
2
32
72
89
4
18
111
Changes that relate to current service
CSM recognised for the year
–
–
(1)
(1)
–
–
(19)
(19)
Change in risk adjustment for non-financial risk for
risk expired
–
–
–
–
–
(1)
–
(1)
Changes to incurred claims component
(7)
–
–
(7)
8
–
–
8
Changes that relate to future service
Changes in estimates that adjust the CSM
6
1
(7)
–
(31)
(1)
32
–
Changes in estimates that result in losses and reversals
of losses on onerous acquired claims
–
–
–
–
–
–
1
1
Total net expenses from reinsurance contracts held
(1)
1
(8)
(8)
(23)
(2)
14
(11)
Reinsurance finance income/(expenses)
Reinsurance finance income/(expenses) recognised
in other comprehensive income
1
–
–
1
(3)
–
–
(3)
Total reinsurance finance income/(expenses)
1
–
–
1
(3)
–
–
(3)
Reinsurance cash flows
Amounts received from reinsurers relating to
incurred claims
(2)
–
–
(2)
(25)
–
–
(25)
Total reinsurance cash flows
(2)
–
–
(2)
(25)
–
–
(25)
Closing balance(a)(b)
36
3
24
63
38
2
32
72
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Contract assets not measured under the PAA relate to reinsurance claims acquired on the acquisition of TU.
Analysis of CSM
The following table shows an analysis of the expected recognition of the CSM remaining at the end of the reporting period in relation to
acquired claims in the income statement:
24 February 2024
25 February 2023
Insurance
contract liabilities
Reinsurance
contract assets
Insurance
contract liabilities
Reinsurance
contract assets
Less than one year
(20)
4
(17)
7
One to five years
(33)
13
(33)
15
More than five years
(20)
7
(16)
10
Total
(73)
24
(66)
32
Tesco PLC Annual Report and Financial Statements 2024
171.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 24 Insurance continued
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.
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 as part of the liability for incurred claims based on a
combination of suitable benchmark assumptions and the observed development to date.
Risk adjustment for non-financial risk
The risk adjustment for non-financial risk is the compensation that the Group requires for bearing uncertainty around the amount and timing
of the cash flows of groups of insurance contracts. The Group has used a confidence level (probability of sufficiency) approach at the
77.5th percentile.
Discount rate
Insurance contract liabilities are calculated by discounting expected future cash flows using a yield curve based on a replicating portfolio and
utilising a top-down approach. The replicating portfolio is adjusted for credit risk and allows for the duration of the Group's liabilities. The
GBP curve used is aligned with the currency of the Group's liabilities.
The yield curves applied for discounting future cash flows of liabilities for incurred claims are listed below:
One year
%
Three years
%
Five years
%
10 years
%
Mean 11-100 years
%
As at 24 February 2024
4.9%
4.7%
4.6%
4.4%
4.3%
As at 25 February 2023
4.4%
4.6%
4.5%
4.2%
4.1%
Tesco PLC Annual Report and Financial Statements 2024
172.
Financial statements
Strategic report
Governance
Additional information
Actual claims payments are compared with previous estimates of the undiscounted amounts of the claims in the tables below on a gross and
net of reinsurance basis.
Claims development (gross)
Estimate of gross undiscounted ultimate claims costs
2022
£m
2023
£m
2024
£m
Total
£m
At end of financial year
212
280
370
One year later
201
287
–
Two years later
182
–
–
Current estimate of cumulative claims
182
287
370
839
Cumulative payments to date
(147)
(213)
(197)
(557)
Gross undiscounted liabilities for incurred claims
35
74
173
282
Value of risk adjustment
11
Effect of discounting
(34)
Gross claims liabilities
259
Ancillary claims and expense liabilities
7
Total gross liabilities for incurred claims
266
Claims development (net)
Estimate of net undiscounted ultimate claims costs
2022
£m
2023
£m
2024
£m
Total
£m
At end of financial year
141
180
221
One year later
126
163
–
Two years later
115
–
–
Current estimate of cumulative claims
115
163
221
499
Cumulative net payments to date assuming recoveries received
(92)
(132)
(109)
(333)
Net undiscounted liabilities for incurred claims
23
31
112
166
Value of risk adjustment
9
Effect of discounting
(13)
Net claims liabilities
162
Quota share funds withheld (receivable recoveries)
(203)
Ancillary claims and expense liabilities
4
Total net assets for incurred claims
(37)
The Group provides information on the gross and net claims development from the date of acquisition of TU in May 2021 to the current
reporting period, as it was not party to claims made prior to the acquisition date.
Tesco PLC Annual Report and Financial Statements 2024
173.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 25 Customer deposits and deposits from banks
2024
£m
2023
£m
Customer deposits*
–
5,770
Deposits from banks
908
980
908
6,750
Of which:
Current
108
4,485
Non-current
800
2,265
908
6,750
* Customer deposits were classified as held for sale in the year, as part of the Banking operations disposal group. Refer to Note 7 for further details.
Deposits from banks include balances of £908m (2023: £906m) drawn under the Bank of England’s Term Funding Scheme with incentives for
small and medium-sized enterprises (TFSME). These balances are not in the perimeter of the Banking operations disposal group. Balances of
£nil (2023: £74m) were sold under sale and repurchase agreements.
Note 26 Financial instruments
In the current year, the tables below exclude the assets and liabilities of the Banking operations disposal group classified as held for sale.
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 24 February 2024
Notes
At amortised
cost
£m
At fair value
through profit
or loss
£m
At fair value
through other
comprehensive
income
£m
Total
£m
Financial assets
Cash and cash equivalents
18
2,305
35
–
2,340
Short-term investments
18
1,239
889
–
2,128
Trade receivables
17
576
–
–
576
Other receivables
17
274
–
–
274
Joint ventures and associates loan receivables
31
96
–
–
96
Other investments
15
1,033
18
701
1,752
Derivative financial instruments:
Interest rate swaps
–
44
–
44
Cross-currency swaps
–
182
–
182
Index-linked swaps
–
583
–
583
Foreign currency forward contracts
–
25
–
25
Diesel forward contracts
–
2
–
2
5,523
1,778
701
8,002
Financial liabilities
Trade payables
19
(6,644)
–
–
(6,644)
Other payables
19
(1,864)
–
–
(1,864)
Accruals
19
(931)
–
–
(931)
Borrowings
21
(7,219)
–
–
(7,219)
Deposits from banks
25
(908)
–
–
(908)
Lease liabilities
12
(7,622)
–
–
(7,622)
Derivative financial instruments:
Interest rate swaps
–
(105)
–
(105)
Cross-currency swaps
–
(139)
–
(139)
Foreign currency forward contracts
–
(20)
–
(20)
Diesel forward contracts
–
(2)
–
(2)
(25,188)
(266)
–
(25,454)
Tesco PLC Annual Report and Financial Statements 2024
174.
Financial statements
Strategic report
Governance
Additional information
At 25 February 2023 (restated*)
Notes
At amortised
cost
£m
At fair value
through profit
or loss
£m
At fair value
through other
comprehensive
income
£m
Total
£m
Financial assets
Cash and cash equivalents
18
2,433
32
–
2,465
Short-term investments
18
968
660
–
1,628
Trade receivables
17
531
–
–
531
Other receivables
17
294
–
–
294
Joint ventures and associates loan receivables
31
106
–
–
106
Loans and advances to customers
23
6,977
–
–
6,977
Other investments
15
1,093
20
579
1,692
Derivative financial instruments:
Interest rate swaps
–
123
–
123
Cross-currency swaps
–
211
–
211
Index-linked swaps
–
551
–
551
Foreign currency forward contracts
–
41
–
41
Diesel forward contracts
–
4
–
4
12,402
1,642
579
14,623
Financial liabilities
Trade payables
19
(6,359)
–
–
(6,359)
Other payables
19
(1,741)
–
–
(1,741)
Accruals
19
(867)
–
–
(867)
Borrowings
21
(7,351)
–
–
(7,351)
Customer deposits
25
(5,770)
–
–
(5,770)
Deposits from banks
25
(980)
–
–
(980)
Lease liabilities
12
(7,727)
–
–
(7,727)
Derivative financial instruments:
Interest rate swaps
–
(159)
–
(159)
Cross-currency swaps
–
(141)
–
(141)
Foreign currency forward contracts
–
(72)
–
(72)
Diesel forward contracts
–
(15)
–
(15)
(30,795)
(387)
–
(31,182)
* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
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 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.
2024
2023 (restated(a))
Level
Carrying
value
£m
Fair
value(b)
£m
Carrying
value
£m
Fair
value(b)
£m
Financial assets measured at amortised cost
Loans and advances to customers(c)
3
–
–
6,977
6,954
Investments in debt instruments at amortised cost(d)
1 and 2
1,033
838
1,093
1,097
Joint ventures and associates loan receivables(e)
2
96
97
106
111
Financial liabilities measured at amortised cost
Borrowings
Amortised cost(f)
1
(5,067)
(4,794)
(5,227)
(4,882)
Bonds in fair value hedge relationships
1
(2,152)
(2,211)
(2,124)
(2,167)
Customer deposits(c)
3
–
–
(5,770)
(5,640)
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Refer to the fair value measurement section below for details on Level 2 and 3 methodology.
(c) Loans and advances to customers and customer deposits have been transferred to the Banking operations disposal group classified as held for sale. Refer to Note 7 for
further details.
(d) These are principally Level 1 instruments.
(e) Joint ventures and associates loan receivables carrying amounts of £96m (2023: £106m) are presented in the Group balance sheet net of deferred profits of £nil (2023: £38m)
historically arising from the sale of property assets to joint ventures.
(f) Comparative fair values have been restated from £(5,496)m to £(4,882)m for a revision in the fair value methodology applied to certain index-linked bonds, with no impact on
their carrying values.
Tesco PLC Annual Report and Financial Statements 2024
175.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 26 Financial instruments continued
Fair value measurement by level of fair value hierarchy
The following tables present 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).
Level 2 assets and liabilities are valued by discounting future cash flows using externally sourced market yield curves, including interest
rate curves and foreign exchange rates from highly liquid markets. Refer to the Level 3 Instruments section below for details on Level 3
valuation methodology.
At 24 February 2024
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Assets
Investments at fair value through other comprehensive income
682
–
19
701
Short-term investments at fair value through profit or loss
889
–
–
889
Cash and cash equivalents at fair value through profit or loss
–
35
–
35
Investments at fair value through profit or loss
–
–
18
18
Derivative financial instruments:
Interest rate swaps
–
29
15
44
Cross-currency swaps
–
–
182
182
Index-linked swaps
–
–
583
583
Foreign currency forward contracts
–
25
–
25
Diesel forward contracts
–
2
–
2
Total assets
1,571
91
817
2,479
Liabilities
Derivative financial instruments:
Interest rate swaps
–
(9)
(96)
(105)
Cross-currency swaps
–
–
(139)
(139)
Foreign currency forward contracts
–
(20)
–
(20)
Diesel forward contracts
–
(2)
–
(2)
Total liabilities
–
(31)
(235)
(266)
Net assets/(liabilities)
1,571
60
582
2,213
At 25 February 2023
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Assets
Investments at fair value through other comprehensive income
565
–
14
579
Short-term investments at fair value through profit or loss
660
–
–
660
Cash and cash equivalents at fair value through profit or loss
–
32
–
32
Investments at fair value through profit or loss
–
–
20
20
Derivative financial instruments:
Interest rate swaps
–
123
–
123
Cross-currency swaps
–
41
170
211
Index-linked swaps
–
119
432
551
Foreign currency forward contracts
–
41
–
41
Diesel forward contracts
–
4
–
4
Total assets
1,225
360
636
2,221
Liabilities
Derivative financial instruments:
Interest rate swaps
–
(73)
(86)
(159)
Cross-currency swaps
–
(4)
(137)
(141)
Foreign currency forward contracts
–
(72)
–
(72)
Diesel forward contracts
–
(15)
–
(15)
Total liabilities
–
(164)
(223)
(387)
Net assets/(liabilities)
1,225
196
413
1,834
During the financial year, there were no transfers (2023: no transfers) between Level 1 and Level 2 fair value measurements.
Tesco PLC Annual Report and Financial Statements 2024
176.
Financial statements
Strategic report
Governance
Additional information
Level 3 instruments
For Level 3 assets and liabilities, uncollateralised derivatives are valued as per Level 2 but include certain data sources which are significantly
less liquid; whilst unlisted investments are valued based on less observable inputs such as recent funding rounds. Uncollateralised derivative
financial instruments are held by the Group as part of financial risk management, and include interest rate and inflation swaps, cross-
currency swaps and foreign exchange and diesel 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, with credit risk adjustments being incorporated in the
derivative valuations, taking into account the default risk of either party using market data such as credit default swaps. 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 £12m (2023: £11m).
The following table presents the changes in Level 3 instruments:
2024
2023
Uncollateralised
derivatives
£m
Unlisted
investments
£m
Uncollateralised
derivatives
£m
Unlisted
investments
£m
At the beginning of the year
379
34
749
14
Gains/(losses) recognised in finance costs(a)
9
(2)
(114)
–
Gains/(losses) recognised in other comprehensive income not reclassified to the
income statement
–
–
–
2
Gains/(losses) recognised in other comprehensive income that may subsequently be
reclassified to the income statement
15
–
6
–
Additions
–
5
–
–
Disposals
–
–
(39)
–
Transfers of assets/(liabilities) to Level 3(b)(c)
142
–
(223)
18
At the end of the year
545
37
379
34
(a) All gains or losses are unrealised.
(b) There were £nil transfers of unlisted investments (2023: £18m) and £142m of derivative assets (2023: £(223)m derivative liabilities) to Level 3 from Level 2 and £nil (2023: £nil) to
Level 3 from Level 1. Transfers to Level 3 relate to the FVA applied to all uncollateralised cross-currency, interest rate and Inflation rate swaps fair value previously classified
as Level 2 due to FVA being considered unobservable inputs (Level 3).
(c) There were £nil transfers from Level 3 to Level 2 (2023: £nil) and £nil transfers from Level 3 to Level 1 (2023: £nil).
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.
Related amounts not offset in
the Group balance sheet
At 24 February 2024
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
Financial assets
Derivative financial instruments
836
–
836
(118)
(20)
698
Trade receivables
667
(91)
576
–
–
576
Total assets
1,503
(91)
1,412
(118)
(20)
1,274
Financial liabilities
Derivative financial instruments
(266)
–
(266)
118
–
(148)
Trade payables
(6,735)
91
(6,644)
–
–
(6,644)
Total liabilities
(7,001)
91
(6,910)
118
-
(6,792)
Related amounts not offset in
the Group balance sheet
At 25 February 2023
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
Financial assets
Derivative financial instruments
930
–
930
(142)
(104)
684
Trade receivables
601
(70)
531
–
–
531
Total assets
1,531
(70)
1,461
(142)
(104)
1,215
Financial liabilities
Derivative financial instruments
(387)
–
(387)
142
–
(245)
Trade payables
(6,429)
70
(6,359)
–
–
(6,359)
Repurchases, securities lending and similar agreements*
(74)
–
(74)
–
74
–
Total liabilities
(6,890)
70
(6,820)
142
74
(6,604)
* Repurchases, securities lending and similar agreements have been transferred to the Banking operations disposal group classified as held for sale in the current year. Refer
to Note 7 for further details.
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 2024
177.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 26 Financial instruments continued
Derivative financial instruments classified as held for sale and transferred to the Banking operations disposal group include gross asset
amounts of £54m and gross liability amounts of £(16)m that are subject to enforceable master netting arrangements.
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 and 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. This excludes risks relating to the
expected credit losses (ECLs) on loans and advances to customers that were transferred to the Banking operations disposal group in the
current year. Refer to Note 7.
(a) Market risk
Foreign exchange risk management
Description of risks
Management policy
Hedging strategy
Transactional exposure that arises
from the cost of future purchases of
goods, where those purchases are
denominated in a currency other than
the functional currency of the
purchasing company.
The Group’s policy is to hedge currency exposure
that could significantly impact the Group income
statement. Minimum and maximum hedge limits are
in place depending on whether forecast spend is
committed or uncommitted but highly probable.
Foreign currency forward contracts 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 be 1:1.
Translation exposure that arises from
exchange rate movements in
connection with translating the
Group’s foreign subsidiaries’ revenue,
expenses, assets and liabilities into
Pounds Sterling.
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.
Euro-denominated borrowings are used to hedge the
exposure of a portion of the Group’s net investments
in overseas operations which have a Euro functional
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.
Loans to and from subsidiaries in
currencies other than in the entity’s
functional currency.
The Group's policy is to swap 100% of the foreign
currency debt back to Pounds Sterling or designate
as a net investment hedge.
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.
Debt issued in a currency other than
Pounds Sterling.
The Group’s policy is to swap 100% of the foreign
currency debt back to Pounds Sterling, unless there
are appropriate matching foreign currency assets.
Cross-currency swaps, which are designated as fair
value hedges or economic 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 180.
Interest rate risk management
Description of risks
Management policy
Hedging strategy
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.
The Group's policy is to manage its cash flow and fair
value risk on a net debt basis (senior unsecured debt,
lease liabilities, cash and cash equivalents and short-
term investments).
Interest rate swap contracts are used to fix interest
rates on senior unsecured debt or investments
issued at floating rates, creating a cash flow hedge;
and for senior unsecured debt or investments issued
at fixed rates to generate variable interest exposure,
creating a fair value 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.
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.
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.
Tesco PLC Annual Report and Financial Statements 2024
178.
Financial statements
Strategic report
Governance
Additional information
The table below shows the interest rate risk profile for the Group’s financial instruments:
2024
2023 (restated(a))
Fixed
£m
Floating
£m
Total
£m
Fixed
£m
Floating
£m
Total
£m
Cash and cash equivalents
28
2,312
2,340
–
2,465
2,465
Short-term investments
–
2,128
2,128
–
1,628
1,628
Investments in debt instruments at amortised cost
577
456
1,033
617
476
1,093
Investments at fair value through other comprehensive
income
687
14
701
570
9
579
Investments at fair value through profit or loss
18
–
18
20
–
20
Joint ventures and associates loan receivables
96
–
96
106
–
106
Lease liabilities
(7,622)
–
(7,622)
(7,727)
–
(7,727)
Bank and other borrowings
(5,974)
(1,245)
(7,219)
(6,054)
(1,297)
(7,351)
Loans and advances to customers
–
–
–
3,210
3,767
6,977
Assets of the Banking operations disposal group(b)
4,090
3,925
8,015
–
–
–
Customer deposits
–
–
–
(5,770)
–
(5,770)
Liabilities of the Banking operations disposal group(c)
(4,806)
(2,183)
(6,989)
–
–
–
Deposits from banks
–
(908)
(908)
–
(980)
(980)
Derivative effect:
Interest rate swaps(d)
(720)
720
–
190
(190)
–
Cross-currency swaps
920
(920)
–
959
(959)
–
Index-linked swaps
(379)
379
–
(346)
346
–
Total
(13,085)
4,678
(8,407)
(14,225)
5,265
(8,960)
Percentage of interest-bearing debt at fixed rate(e)
83%
75%
Weighted average rate of interest paid on senior
unsecured debt, excluding joint ventures and associates(e)
4.80%
3.87%
(a) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
(b) Comprises loans and advances to customers of £7,669m and cash and cash equivalents of £346m. Refer to Note 7.
(c) Comprises borrowings of £(549)m and customer deposits of £(6,440)m. Refer to Note 7.
(d) Includes interest rate swap effects of £(1,945)m fixed and £1,945m floating in relation to the Banking operations disposal group.
(e) Relates to Retail business only.
Inflation risk management
Description of risks
Management policy
Hedging strategy
Index-linked debt, where the principal
is indexed to increase/decrease in line
with RPI or LPI.
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.
LPI debt (where principal is indexed to RPI, with an
annual maximum increase of 5% and a minimum of
0%) and RPI debt are hedged back to fixed rate using
derivatives contracts designated as cash flow hedges.
Index-linked lease liabilities, where the
liability is indexed to
increase/decrease in line with either
RPI or LPI.
Indexed liabilities arising from property joint ventures
are fully hedged using derivatives contracts which
economically hedge the lease liability inflation uplift.
Refer to Note 12 for information on the Group’s exposure to inflation-linked leases.
Commodity risk management
Description of risks
Management policy
Hedging strategy
Changes in commodity prices largely
relating to diesel for own use.
The Group policy is to hedge a minimum of 50% of
the forecast uncommitted exposure within the next
12 months.
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 are 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.
Tesco PLC Annual Report and Financial Statements 2024
179.
Financial statements
Strategic report
Governance
Additional information
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 the Banking operations disposal group in the current year) 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 24 February 2024. 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:
2024
Income
gain/(loss)
£m
Equity
gain/(loss)
£m
1% increase in interest rates
3
2
5% appreciation of the Euro
(5)
(49)
5% appreciation of the US Dollar
2
38
50 basis points parallel upward shift in the forward inflation curve
93
23
10% increase in commodity prices*
1
10
* Relating to diesel prices only, where derivatives are used to hedge risk.
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 naturally offset in the
Group income statement. This mismatch arises due to different accounting outcomes of IFRS 9 and IFRS 16, which results in a timing difference.
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 181.
Tesco PLC Annual Report and Financial Statements 2024
180.
Financial statements
Strategic report
Governance
Additional information
2024
2023
Asset
Liability
Asset
Liability
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value hedges
Interest rate swaps
44
916
(103)
1,152
122
2,692
(147)
2,552
Cross-currency swaps
–
–
(126)
640
–
–
(137)
662
Banking operations disposal group(a)
50
3,355
(16)
1,543
–
–
–
–
Cash flow hedges
Interest rate swaps
–
–
(2)
50
–
–
(3)
50
Index-linked swaps(b)
265
790
–
–
240
738
–
–
Foreign currency forward contracts
20
818
(17)
862
30
1,091
(58)
1,352
Diesel forward contracts
2
31
(2)
57
4
14
(13)
119
Derivatives not in a formal hedge
relationship
Interest rate swaps
–
–
–
–
1
38
(9)
696
Cross-currency swaps
182
790
(13)
94
211
822
(4)
100
Index-linked swaps
318
2,074
–
–
311
2,074
–
–
Foreign currency forward contracts
5
379
(3)
433
11
821
(14)
539
Diesel forward contracts
–
1
–
4
–
2
(2)
13
Banking operations disposal group(a)
4
315
(1)
–
–
–
–
–
Total
890
9,469
(283)
4,835
930
8,292
(387)
6,083
(a) Interest rate swaps within the Banking operations disposal group.
(b) The notional values included in the table have been adjusted to reflect the impact of inflation indexation on the principal. The notional values before indexation for derivatives
designated in a cash flow hedge was £406m (2023: £406m).
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.
2024
2023
Maturity profile
Up to
one year
One to
five years
More than
five years
Up to
one year
One to
five years
More than
five years
Notional amount (£m)
Fair value hedges
Interest rate swaps – GBP
150
726
766
1,366
2,663
553
Interest rate swaps – EUR
–
–
426
662
–
–
Cross currency swaps (GBP: EUR)(a)
–
–
640
–
–
662
Banking operations disposal group(b)
2,695
2,157
46
–
–
–
Cash flow hedges
Index-linked swaps
–
411
379
–
392
346
Interest rate swaps
–
50
–
–
–
50
Average net interest rate (pay)/receive
Fair value hedges
Interest rate swaps – GBP
4.39%
(3.58)%
(3.67)%
(1.78)%
(1.43)%
(3.40)%
Interest rate swaps – EUR
–
–
(0.88)%
(1.81)%
–
–
Cross currency swaps (GBP: EUR)(a)
–
–
(5.91)%
–
–
(4.65)%
Banking operations disposal group(b)
(0.50)%
(1.18)%
(1.05)%
–
–
–
Cash flow hedges
Index-linked swaps
–
(4.23)%
(4.21)%
–
(4.23)%
(4.21)%
Interest rate swaps
–
0.29%
–
–
–
(4.46)%
(a) Average exchange rate for cross-currency swaps (GBP:EUR) is 1.128 (2023: 1.128).
(b) Interest rate swaps within the Banking operations disposal group.
At 24 February 2024, foreign currency forward contracts, designated as cash flow hedges, equivalent to £1.7bn were outstanding (2023:
£2.4bn). These forward contracts are largely in relation to purchases of Euros (notional €0.4bn) (2023: notional €0.4bn) and US Dollars
(notional $0.8bn) (2023: notional $1.1bn) with varying maturities up to February 2025.
For the above currencies the rates ranged from EUR/GBP 1.134 to 1.171 (2023: 1.107 to 1.181) and USD/GBP from 1.181 to 1.306 (2023: 1.102 to 1.264).
Forward commodity contracts hedging diesel purchases for own use as at 24 February 2024 had a GBP notional of £93m (2023: £148m) at a
rate of £493 to £828 (2023: £494 to £980) per tonne.
The notional and fair values of these contracts is shown in the table above.
Tesco PLC Annual Report and Financial Statements 2024
181.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 27 Financial risk management continued
The following table sets out the details of the hedged exposures covered by the Group’s fair value hedges:
2024
2023
Balance sheet
classification
Carrying amount
assets/(liabilities)
£m
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
Accumulated
amounts of
fair value
adjustments on
hedged item
assets/(liabilities)
£m
Changes in fair
value for
calculating
hedge
ineffectiveness
£m
Interest rate risk
Fixed-rate loans
Loans and
advances to
customers
–
–
–
2,393
(75)
(44)
Fixed-rate loans(a)
Assets of the
disposal group
3,355
33
41
–
–
–
Fixed-rate savings
Customer
deposits
–
–
–
(695)
2
1
Fixed-rate savings(a)
Liabilities of the
disposal group
(1,543)
(1)
1
–
–
–
Fixed-rate investment securities
Investments in
debt instruments
at amortised cost
377
32
12
406
(44)
(33)
Fixed-rate bonds(b)
Borrowings
(2,615)
142
50
(2,605)
198
(141)
(a) Loans and advances to customers and customer deposits within the Banking operations disposal group.
(b) 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 were
£(77)m for fixed-rate bonds (2023: £(82)m).
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:
2024
2023
Hedging instrument
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
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
Interest rate/inflation risk
Index‑linked bonds
Index-linked swaps
25
(17)
16
9
24
42
Borrowings
Interest rate swaps
1
(1)
7
8
(8)
8
Foreign currency risk
Trade payables
Foreign currency
forward contracts
31
(31)
6
47
(47)
(25)
Commodity risk
Trade payables
Diesel forward
contracts
9
(9)
(1)
7
(7)
(10)
Interest rate/foreign currency risk
MTNs(b)
Cross-currency
swaps
–
–
75
–
–
34
(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:
2024
2023
Line item in Group
income statement
that includes hedge
ineffectiveness
Hedge
ineffectiveness
recognised
in profit or loss
£m
Hedge
ineffectiveness
recognised
in profit or loss
£m
Fair value hedges – interest rate risk
Borrowings
Finance income/(cost)
(9)
4
Tesco PLC Annual Report and Financial Statements 2024
182.
Financial statements
Strategic report
Governance
Additional information
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
Interest rate/
foreign currency risk
Foreign currency/commodity risk
Hedging reserve(b)(c)
£m
Index-linked
swaps
£m
Interest rate swaps
£m
Cross-currency
swaps
£m
Foreign currency
forward contracts(a)
£m
Diesel forward
contracts(a)
£m
At 26 February 2022
68
1
27
15
19
130
Net fair value gains/(losses)
9
8
–
47
7
71
Amount reclassified to finance
income/(cost) in Group
income statement
(54)
(2)
(2)
(3)
–
(61)
Amount reclassified to inventories
–
–
–
(87)
(40)
(127)
Tax
11
(2)
–
4
7
20
At 25 February 2023
34
5
25
(24)
(7)
33
Net fair value gains/(losses)
24
-
-
(39)
1
(14)
Amount reclassified to finance
income/(cost) in Group
income statement
(52)
(2)
(2)
–
–
(56)
Transfer from hedging reserve to
retained earnings
–
–
44
–
–
44
Amount reclassified to inventories
–
–
–
71
8
79
Tax
7
–
(10)
–
(2)
(5)
At 24 February 2024
13
3
57
8
-
81
(a) Net fair value gains/(losses) relates to inventory cash flow hedges of £(38)m (2023: £54m) and other cash flow hedges of £nil (2023: £nil).
(b) Includes £6m (2023: £6m) relating to non-controlling interests.
(c) The Group’s cost of hedging reserve is £nil (2023: £nil).
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:
Nominal amount
of hedging instrument
£m
Nominal amount
of hedged item
£m
Cumulative impact on net
investment hedges
£m
At 26 February 2022
(1,260)
1,260
(729)
Change in value for calculating ineffectiveness
(65)
65
(65)
At 25 February 2023
(1,325)
1,325
(794)
De-designated hedges in the year(a)
653
(653)
9
New hedges designated in the year(b)
(436)
436
9
Change in value for calculating ineffectiveness
40
(40)
22
At 24 February 2024
(1,068)
1,068
(754)
(a) As at 24 February 2024, the discontinued hedge balance is £(760)m (2023: £(765)m).
(b) During the year, €750m 1.375% MTN Oct 2023 was repaid and another €500m 4.25% MTN Feb 2031 was subsequently designated in a net investment hedge.
Net investment hedge ineffectiveness was £nil (2023: £nil) during the year.
During the current financial year, currency movements decreased the net value, after the effects of hedging, of the Group’s overseas assets
by £(116)m (2023: increase by £120m). The Group also ensures that each subsidiary is appropriately hedged in respect of its non-functional
currency assets.
(b) Credit risk
Description of risk
Management policy
Measurement
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,
reinsurance contract assets, other
investments, and derivative financial
instruments.
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, and reinsurance
contract 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.
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.
During the year, loans and advances previously held
in the Tesco Bank segment were transferred to the
Banking operations disposal group classified as held
for sale. Refer to Note 7 for details on the ECL of
these assets.
Refer to page 184 for information on the ECLs for the
remaining assets of the Group.
Tesco PLC Annual Report and Financial Statements 2024
183.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 27 Financial risk management continued
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 £28.6bn (2023: £26.9bn restated).
The net counterparty exposure under derivative contracts is £0.7bn (2023: £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:
2024
£m
2023
(restated(a))
£m
Cash and cash equivalents(b)
2,340
2,465
Short-term investments
2,128
1,628
Trade receivables
576
531
Other receivables
274
294
Joint ventures and associates loan receivables
96
144
Loans and advances to customers
–
6,977
Assets of the Banking operations disposal group(c)
7,698
–
Other investments
1,752
1,692
Derivative financial assets:
Interest rate swaps
44
123
Cross-currency swaps
182
211
Index-linked swaps
583
551
Foreign currency forward contracts
25
41
Diesel forward contracts
2
4
Off balance sheet:
Loan commitments(d)
12,850
12,212
Maximum exposure to credit risk
28,550
26,873
(a) Following the Group’s adoption of IFRS 17, comparatives have been restated. Refer to Notes 1 and 33 for further details.
(b) Cash balances with central banks of £0.4bn (2023: £1.6bn) are included within cash and cash equivalents.
(c) Refer to Note 7 for a breakdown of the assets of the Banking operations disposal group.
(d) Loan commitments in the current year represents the undrawn amount contractually committed by the Banking operations disposal group.
Counterparty credit rating
The table below provides detail of financial assets by long-term credit rating of investment-grade rated counterparties:
2024
2023
Rating
AAA
AA
A
BBB
Total
AAA
AA
A
BBB
Total
Money market funds, deposits and
similar instruments
889
203
986
50
2,128
660
200
468
300
1,628
Investments in debt instruments at
amortised cost(a)
391
48
393
196
1,028
486
57
339
199
1,081
Investments at fair value through other
comprehensive income(b)
117
100
287
178
682
94
84
233
154
565
Investments at fair value through profit
or loss(c)
–
1
–
–
1
–
1
–
–
1
Assets of the Banking operations
disposal group(d)
–
54
–
–
54
–
–
–
–
–
Derivative financial assets:
Interest rate swaps
–
36
8
–
44
–
121
2
–
123
Cross-currency swaps
–
–
181
1
182
–
–
186
25
211
Index-linked swaps
–
–
134
449
583
–
–
120
431
551
Foreign currency forward contracts
–
2
18
5
25
–
–
31
10
41
Diesel forward contracts
–
–
1
1
2
–
–
–
4
4
(a) Excludes £5m (2023: £12m) of investments in debt instruments which do not have a credit rating.
(b) Excludes £19m (2023: £14m) of investments in equity instruments which do not have a credit rating.
(c) Excludes £17m (2023: £19m) of property fund investments that do not have a credit rating.
(d) Comprises interest rate swaps of the disposal group.
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 ECL is immaterial.
Expected credit losses (ECLs)
For details of credit risk, including comparative information, relating to the ECLs on loans and advances to customers that were transferred
to the Banking operations disposal group and classified as held for sale in the year, refer to Note 7. The narrative below discloses information
on the ECLs for the continuing operations of the Group.
The Group applies either the simplified approach or the three-stage model for ECLs, depending on the nature of the financial asset. The ECL
is determined by multiplying together the 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 sheet date.
Tesco PLC Annual Report and Financial Statements 2024
184.
Financial statements
Strategic report
Governance
Additional information
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 ECLs are immaterial. Gross loans to related parties of £96m (2023: £144m) are presented net of loss
allowances of £nil (2023: £nil) and deferred profits of £nil (2023: £38m) on the Group balance sheet.
For reinsurance contract assets the maximum exposure to credit risk is their carrying amount, refer to Note 24. Refer to page 187 for the
credit rating of the reinsurers.
(c) Liquidity risk
Description of risk
Management policy
Measurement
Difficulty in meeting the obligations
associated with the Group’s financial
liabilities.
The Group finances its liquidity position and its
operations by a combination of retained profits,
disposals of assets, debt capital market issuance,
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.
Liquidity risk is continuously monitored by short-
term and long-term cash flow forecasts.
The Group is exposed to liquidity risk
from daily calls on its cash resources,
including from claims arising on its
insurance contracts. There is a risk
that cash will not be available to settle
liabilities when they fall due.
The Group manages its liquidity risk by having an
investment guideline that it maintains sufficient
liquidity, or its financial assets can be realised at short
notice in the event of a major adverse event. The
Group may also make use of borrowing facilities
if required.
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.
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 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.
2024
2023
Short-term
rating
Long-term
rating
Outlook
Short-term
rating
Long-term
rating
Outlook
Rating agency
Fitch
F3
BBB-
Stable
F3
BBB–
Stable
Moody’s
P-3
Baa3
Stable
P–3
Baa3
Stable
Standard & Poor’s
A-3
BBB-
Stable
A–3
BBB–
Stable
The Group has a £15.0bn Euro Medium Term Note programme, of which £3.9bn was in issue at 24 February 2024 (2023: £3.8bn), plus £0.4bn
equivalent of USD-denominated notes issued under 144A documentation (2023: £0.4bn).
Borrowing facilities
The Group has the following undrawn committed facilities available at 24 February 2024, in respect of which all conditions precedent had
been met as at that date:
2024
£m
2023
£m
Expiring in less than one year
238
38
Expiring between one and two years
–
200
Expiring in more than two years
2,500
2,500
Total
2,738
2,738
The Group has a £2.5bn undrawn committed facility available as at 24 February 2024 (25 February 2023: £2.5bn), in respect of which all
conditions precedent had been met as at that date, consisting of a syndicated revolving credit facility expiring in more than two years. The
cost of the facility is linked to three ESG targets and incurs commitment fees at market rates which would provide funding at floating rates.
In addition, Tesco Bank has a separate £200m committed repurchase facility, maturing in 2024.
There were no withdrawals from either facility during the year (2023: £nil).
Tesco PLC Annual Report and Financial Statements 2024
185.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 27 Financial risk management continued
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 24 February 2024
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
Non-derivative financial liabilities
Bank and other borrowings
(1,416)
(891)
(706)
(71)
(718)
(4,148)
Interest payments on borrowings
(205)
(221)
(130)
(153)
(149)
(906)
Customer deposits – Tesco Bank
–
–
–
–
–
–
Deposits from banks – Tesco Bank
(151)
(820)
–
–
–
–
Lease liabilities
(903)
(931)
(913)
(889)
(842)
(6,279)
Trade payables
(6,644)
–
–
–
–
–
Other payables
(1,831)
(13)
(5)
(1)
(1)
(13)
Accruals
(931)
–
–
–
–
–
Liabilities of the Banking operations disposal group(a)
(5,789)
(481)
(681)
(128)
(130)
(2)
Derivative financial liabilities
Net settled derivative contracts – receipts
8
5
4
2
1
3
Net settled derivative contracts – payments
(38)
(19)
(16)
(15)
(15)
(8)
Gross settled derivative contracts – receipts
1,282
8
8
7
7
735
Gross settled derivative contracts – payments
(1,343)
(41)
(38)
(36)
(36)
(780)
Total on balance sheet
(17,961)
(3,404)
(2,477)
(1,284)
(1,883)
(11,398)
Off balance sheet
Contractual lending commitments(b)
(12,850)
–
–
–
–
–
Total
(30,811)
(3,404)
(2,477)
(1,284)
(1,883)
(11,398)
(a) Comprises customer deposits, lease liabilities, trade and other payables, borrowings, and derivatives. Refer to Note 7.
(b) Contractual lending commitments are included in the Banking operations disposal group.
At 25 February 2023 (restated*)
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
Non-derivative financial liabilities
Bank and other borrowings
(1,685)
(618)
(893)
(728)
(71)
(3,654)
Interest payments on borrowings
(192)
(175)
(159)
(131)
(122)
(891)
Customer deposits – Tesco Bank
(4,593)
(935)
(160)
(29)
(119)
–
Deposits from banks – Tesco Bank
(124)
(142)
(814)
–
–
–
Lease liabilities
(944)
(901)
(878)
(856)
(824)
(6,494)
Trade payables
(6,359)
–
–
–
–
–
Other payables
(1,694)
(10)
(4)
(1)
(2)
(30)
Accruals
(867)
–
–
–
–
–
Derivative financial liabilities
Net settled derivative contracts – receipts
51
34
31
8
17
30
Net settled derivative contracts – payments
(82)
(44)
(19)
(48)
(15)
(22)
Gross settled derivative contracts – receipts
1,788
80
9
116
2
667
Gross settled derivative contracts – payments
(1,899)
(115)
(40)
(147)
(30)
(708)
Total on balance sheet
(16,600)
(2,826)
(2,927)
(1,816)
(1,164)
(11,102)
Off balance sheet
Contractual lending commitments
(12,212)
–
–
–
–
–
Total
(28,812)
(2,826)
(2,927)
(1,816)
(1,164)
(11,102)
* Comparatives have been restated following the Group’s adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
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. The table below shows information about the timing of total expected
undiscounted cash outflows in relation to insurance contract liabilities, irrespective of the measurement basis, based on current best estimates.
The phasing is based on current estimates and the actual timing of future settlement cash flows may differ from that disclosed below.
2024
2023 (restated*)
£m
%
£m
%
Due within one year
121
34
125
34
Due within one and two years
67
19
71
19
Due within two and three years
54
15
56
15
Due within three and four years
34
10
37
10
Due within four and five years
22
6
22
6
Due beyond five years
56
16
60
16
Total
354
100
371
100
* Comparatives have been restated following the Group’s adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Insurance contract liabilities issued, and reinsurance contracts held have zero amounts that are payable on demand.
Tesco PLC Annual Report and Financial Statements 2024
186.
Financial statements
Strategic report
Governance
Additional information
d) Insurance risk
Description of risk
Management policy
Risks accepted through the provision of insurance
products in return for a premium, exposed through the
wholly-owned subsidiary, 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).
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 the
agreed risk appetite.
Types of insurance risk
Risks
Description of risks
Mitigation
Underwriting
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.
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 incurred but not reported
(IBNR) losses) and external data sources, with the appropriate
adjustments to reflect anticipated future market conditions
and expenses.
Claims reserving
Estimates of insurance liabilities prove to be
insufficient through inaccurate forecasting, adverse
random variation and additional 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
inaccurate or incomplete case reserving or settlement,
poor customer service, claims fraud, ineffective or
inefficient claim processes or excessive costs of
handling claims.
The Group’s approach to claims management focuses upon
creating a successful balance between satisfying the needs of the
customer against control of the overall cost of the provision of
the service that meets those needs in agreement with its service
provider. Customers include both the insured as well as others that
believe the insured has breached a duty of care.
Reinsurance
Reinsurance contracts, placed to reduce exposure
to specific risks, events, and accumulations, fail to
perform as planned and do not reduce the gross
cost of claims in terms of the limits purchased, by risks
not being appropriately covered, by reinsurance bad
debts or by there being gaps in the programme.
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
Description
Mitigation
High-severity, low
frequency event
concentrations
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.
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
in property portfolios such that natural disasters
(e.g. floods) may give rise to a large number of material
damage and business interruption claims.
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.
Economic conditions
The insurance portfolio exposes a potential
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 difficult market conditions. It also monitors claims closely
to 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 contingency planning. These
do not indicate a material impact to the Group’s overall financial position and performance.
Tesco PLC Annual Report and Financial Statements 2024
187.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 27 Financial risk management continued
e) Other risks
Risk
Description of risk
Management policy
Measurement
Capital 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, and ability to meet
minimum capital requirements for
regulated businesses.
Group capital
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.
– through dividend payment to shareholders, buying
back shares and cancelling them or issuing new
shares. During the current financial year, the Group
continued 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.
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 insurance
companies in the EU. 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 Prudential Regulation Authority
(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.
Tesco Bank capital
Although Banking operations have been classified as
a discontinued operation in the year, Tesco Bank
remained a regulated entity at the balance sheet date
and has complied with the supervisory requirements
of the PRA.
Refer to Note 32 for the value of Net
debt, and the Group statement of
changes in equity for the value of the
Group’s equity.
Operational
insurance risk
The Group is inadequately
protected from liabilities arising
from unforeseen events in its
operations.
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 company,
ELH Insurance Limited in Guernsey, which is
consolidated in the Group financial statements,
covering assets, earnings and combined liability.
Refer to Note 22 for details on
operational insurance provisions.
Insurance capital
Available capital has remained above the SCR requirement during the period to 24 February 2024 and capital coverage of TU’s SCR at the end
of February 2024 was 170% (2023: 159%) (unaudited).
During the year, the Group was compliant with the externally imposed capital requirements.
Tesco PLC Annual Report and Financial Statements 2024
188.
Financial statements
Strategic report
Governance
Additional information
Banking capital resources
The following table analyses the regulatory capital resources of Tesco Personal Finance Group PLC (Tesco Bank), being the regulated entity at
the balance sheet date:
2024
£m
2023
£m
Common equity tier 1 capital:
Shareholders’ funds and non-controlling interests, net of tier 1 regulatory adjustments
949
1,548
Tier 2 capital:
Qualifying subordinated debt
235
235
Other interests
–
–
Total tier 2 regulatory adjustments
(42)
(42)
Total regulatory capital
1,142
1,741
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
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.
Note 28 Share-based payments
The table below shows amounts charged to the Group income statement in respect of share-based payments:
2024
£m
2023
£m
Income statement
Equity-settled share-based payment charge*
123
101
Cash-settled National Insurance contributions*
5
11
128
112
* Includes £8m (2023: £2m) in relation to discontinued operations.
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:
2024
£m
2023
£m
Share-based payment charge included in income statement
(128)
(112)
Share-based payments non-cash movement
78
59
Increase/(decrease) in trade and other payables*
50
53
Included in Group operating cash flows
–
–
Cash paid to purchase own shares including related fees and taxes
(146)
(134)
Cash received from employees exercising SAYE options
53
48
Included in Group financing cash flows
(93)
(86)
* Shares withheld from employees in order to settle their tax liability and National Insurance.
The table below presents the components of share-based payments recognised in the Group statement of changes in equity:
2024
2023
£m
£m
(Increase)/decrease in own shares held*
184
157
Shares delivered to employees
(184)
(157)
Cash received from employees exercising SAYE options
53
48
Share-based payments charge to the income statement
123
101
Movements in shares withheld to settle employee tax
4
4
Reclassification
15
–
Other movements
–
3
Increase/(decrease) to retained earnings
11
(1)
Included in the Group statement of changes in equity
195
156
* Decrease in own shares held is the gross amount of shares that the employees are entitled to receive.
Tesco PLC Annual Report and Financial Statements 2024
189.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 28 Share-based payments continued
Share option, share bonus and incentive schemes
The Company had ten share option schemes and four discretionary share award schemes in operation during the financial year, all of which
are equity-settled schemes:
Arrangement
Participants
Term
Vesting requirements
Savings-related option schemes
The Savings-related
Share Option
Scheme (1981)
UK colleagues
Three or five years.
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 Irish Savings-
related Share
Option Scheme
(2000)
ROI colleagues
Three or five years.
The Savings-related
Share Option
Scheme (2021)
UK colleagues
Three or five years.
The International
Savings-related
Share Option
Scheme (2021)
ROI colleagues
Three or five years.
The Booker Group
PLC Savings Related
Share Option Plan
(2008) (Booker
SAYE)(a)
Booker colleagues
Three years.
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.
The Global Save As
You Earn Plan (2023)
India colleagues
Three years.
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.
Discretionary option schemes(b)
The Group Bonus
Plan
Selected senior
executives and
senior managers
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.
Dependent on the achievement of corporate
performance, individual targets and continuous
employment.
The Performance
Share Plan (2011)
Selected senior
executives and
senior managers
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.
Conditional upon the achievement of specified
performance targets over a three-year period and/or
continuous employment.
The Long-Term
Incentive Plan (2015)
Selected senior
executives and
senior managers
Normally exercisable between the vesting date(s)
set at grant and 10 years from the date of grant
for nil consideration.
The Booker Group
PLC Performance
Share Plan (2008)
(Booker PSP and
CSOP)(a)
Selected Booker
senior colleagues
(Booker)
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.
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.
Discretionary share award schemes(c)
The Performance
Share Plan (2011) and
the Long Term
Incentive Plan (2021)
Selected senior
executives and
senior managers
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.
The Group Bonus
Plan and the
Deferred Bonus Plan
(2019)
Selected senior
executives and
senior managers
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 in March 2018, 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. There were no outstanding options at the end of the year and no options will be
granted in future under the Booker SAYE scheme.
(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.
Tesco PLC Annual Report and Financial Statements 2024
190.
Financial statements
Strategic report
Governance
Additional information
The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP):
For the 52 weeks ended 24 February 2024
Savings-related
Share Option Schemes
Irish Savings and International
Savings-related
Share Option Schemes
Nil cost
Share Option Schemes
Global Savings-related
Share Option Scheme
Booker Group PLC
Performance
Share Plan Scheme
Options
WAEP
Options
WAEP
Options
WAEP
Options
WAEP
Options
WAEP
Outstanding at 25 February 2023 176,035,795
199.35
6,724,207
205.67
2,111,675
–
–
–
366,639
–
Granted
61,056,367
220.00
1,931,876
220.00
69,131
–
1,292,671
220.00
–
–
Forfeited
(19,939,606)
200.81
(893,588)
206.55
–
–
(317)
220.00
(22,659)
–
Exercised
(24,990,111)
203.36
(925,349)
206.00
(1,377,775)
–
–
–
(85,152)
–
Outstanding at 24 February 2024 192,162,445
205.24
6,837,146
209.55
803,031
–
1,292,354
220.00
258,828
–
Exercise price range (pence)
168.00 to
242.00
182.00 to
260.00
–
220.00 to
220.00
–
Weighted average remaining
contractual life (years)*
2.79
2.50
2.08
3.60
–
Exercisable at 24 February 2024
49,950
206.24
1,712
219.00
803,031
–
–
–
258,828
–
Exercise price range (pence)
168.00 to
219.00
219.00 to
219.00
–
–
–
Weighted average remaining
contractual life (years)*
–
–
2.08
–
–
* 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
24 February 2024 was 270.31p (25 February 2023: 248.40p).
For the 52 weeks ended 25 February 2023
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
WAEP
Options
WAEP
Options
WAEP
Options
WAEP
Options
WAEP
Outstanding at 26 February 2022 160,485,413
208.34
6,801,511
212.23
2,012,486
–
10,417
152.01
541,516
–
Granted
69,276,094
182.00
2,012,450
182.00
99,189
–
–
–
–
–
Forfeited
(28,999,777)
216.86
(1,278,338)
214.54
–
–
(10,417)
152.01
(43,288)
–
Exercised
(24,725,935)
188.54
(811,416)
187.99
–
–
–
–
(131,589)
–
Outstanding at 25 February 2023 176,035,795
199.35
6,724,207
205.67
2,111,675
–
–
–
366,639
–
Exercise price range (pence)
168.00 to
242.00
168.00 to
260.00
–
–
–
Weighted average remaining
contractual life (years)*
2.83
2.53
3.22
–
–
Exercisable at 25 February 2023
73,974
188.23
840
188.00
2,111,675
–
–
–
366,639
–
Exercise price range (pence)
188.00 to
190.00
188.00 to
188.00
–
–
–
Weighted average remaining
contractual life (years)*
–
–
3.22
–
–
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.
2024
SAYE
2023
SAYE
Expected dividend yield (%)
4.48–4.61
4.96–5.43
Expected volatility (%)
19.35–21.42
22.25–22.53
Risk-free interest rate (%)
3.59–3.74
3.54–3.59
Expected life of option (years)
3 or 5
3 or 5
Weighted average fair value of options granted (pence)
66.76
46.32
Probability of forfeiture (%)
6–12
7–9
Share price (pence)
290.50
202.35
Weighted average exercise price (pence)
220.00
182.00
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.
The number and weighted average fair value (WAFV) of share bonuses granted during the financial year were:
2024
2023
Number
of shares
WAFV
pence
Number
of shares
WAFV
pence
Group Bonus Plan and Deferred Bonus Plan
15,144,646
270.27
19,076,406
265.58
Performance Share Plan and Long-Term Incentive Plan
25,497,401
253.25
22,817,391
254.91
Tesco PLC Annual Report and Financial Statements 2024
191.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
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 £415m (2023: £375m) have been recognised in the Group income statement. This includes £166m (2023: £143m) of salaries paid as
pension contributions.
Defined benefit schemes
The Group has a defined benefit pension deficit of £657m (2023: £400m), and a defined benefit pension surplus of £22m (2023: £6m),
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 104% (2023: 102%) of the net Group deficit.
United Kingdom
The principal scheme 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
the Scheme’s Trust Deed and Rules and to comply with all relevant legislation. Responsibility for the governance of the Scheme lies with the
Trustee. The Trustee is a company whose directors comprise:
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.
In June 2023, the UK High Court (Virgin Media Limited v NTL Pension Trustees II Limited) ruled that certain historical amendments for
contracted-out defined benefit schemes were invalid if they were not accompanied by the correct actuarial confirmation notice, the
judgement of which is being appealed. The Trustee and Group are monitoring the development of this case and will consider if there are any
implications for the schemes, if the ruling is upheld.
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 19 discounts liabilities based on corporate bond yields.
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 24 February 2024.
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 (2023: £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.
Tesco PLC Annual Report and Financial Statements 2024
192.
Financial statements
Strategic report
Governance
Additional information
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 17 years.
Around 35% 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.
The defined benefit obligation held by the Scheme is broken down as follows:
%
Deferred members
78
Current pensioners
22
Risks
The Group bears a number of risks in relation to the Scheme, which are described below:
Risk
Description of risk
Mitigation
Investment
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
underperforms this rate, the
accounting deficit will increase.
If the Scheme’s assets underperform
the expected return for the funding
valuation, this may require additional
contributions to be made by the
Group.
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.
Inflation
The Scheme’s defined benefit
obligation is linked to inflation. A
higher rate of expected long-term
inflation will therefore lead to higher
liabilities, both for the IAS 19 and
funding liability.
If the Scheme’s funding liability
increases, this may require additional
contributions to be made by
the Group.
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 for most of the
funded liabilities.
Interest rate
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.
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.
£bn
Deferred members
Current pensioners
Years
0
1
2
3
4
5
70+
66-70
61-65
56-60
51-55
46-50
41-45
36-40
31-35
26-30
21-25
16-20
11-15
6-10
1-5
Tesco PLC Annual Report and Financial Statements 2024
193.
Financial statements
Strategic report
Governance
Additional information
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 governance and risk management. Further mitigation of the risks is provided by external advisors and the Trustee who
considers the funding position, fund performance and impacts of any regulatory changes.
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:
2024
%
2023
%
Discount rate
5.1
4.9
Price inflation
2.9
3.0
Rate of increase in deferred pensions*
2.5
2.6
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012
2.8
2.9
Benefits accrued after 1 June 2012
2.5
2.5
* In excess of any guaranteed minimum pension (GMP) element.
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
to the Scheme cash flows and extrapolated based on the trend observable in corporate bond yields.
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 0.44% (2023: 0.43%). 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 0.46% lower than RPI (2023: 0.48%).
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.
The mortality assumptions used are based on tables that have been projected to 2018 with CMI 2020 improvements. In addition, the
allowance for future mortality improvements from 2018 has been updated to be in line with CMI 2022, with a long-term improvement rate
of 1.00% p.a., a 0% weighting applied to both 2020 and 2021 data and a 50% weighting applied to 2022, reflecting the expectation that the
COVID-19 pandemic has had an impact on future life expectancies.
The base tables used in calculating the mortality assumptions are different for various categories of members, as shown below:
Pensioner
Non-Pensioner
Male
Staff
96% of SAPS S3 Normal Heavy
100% of SAPS S3 Normal Heavy
Senior Manager
112% of SAPS S3 Normal Light
113% of SAPS S3 Normal Light
Female
Staff
105% of SAPS S3 Normal Heavy
109% of SAPS S3 Normal Heavy
Senior Manager
87% of SAPS S3 All Middle
87% of SAPS S3 All Middle
The following table illustrates the life expectancy of an average member retiring at age 65 at the balance sheet date and a member reaching
age 65 at the balance sheet date +25 years. A comparison between the two retiree dates illustrates the expected improvements in mortality
over the next 25 years.
2024
Years
2023
Years
Retiring at the balance sheet date at age 65:
Male
19.5
20.0
Female
22.1
22.5
Retiring at the balance sheet date +25 years at age 65:
Male
20.6
21.4
Female
23.3
24.2
Tesco PLC Annual Report and Financial Statements 2024
194.
Financial statements
Strategic report
Governance
Additional information
Sensitivity analysis of significant actuarial assumptions
The sensitivity of significant assumptions upon the Scheme defined benefit obligation are detailed below:
2024
2023
Financial assumptions – Increase/(decrease) in UK defined benefit obligation
Discount rate
£m
Inflation rate
£m
Discount rate
£m
Inflation rate
£m
Impact of 0.1% increase of the assumption
(191)
167
(213)
201
Impact of 0.1% decrease of the assumption
191
(167)
226
(201)
Impact of 1.0% increase of the assumption
(1,686)
1,770
(1,921)
2,147
Impact of 1.0% decrease of the assumption
2,153
(1,483)
2,498
(1,783)
Mortality assumptions – Increase/(decrease) in UK defined benefit obligation
2024
£m
2023
£m
Impact of 1 year increase in longevity
335
364
Impact of 1 year decrease in longevity
(371)
(402)
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 the defined benefit obligation from discount rate and inflation rate changes may be partially offset by
movements in 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 24 February 2024. At the financial year end, the accounting surplus relating to ROI was £16m (2023: £nil).
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 24 February 2024 of £4m (25 February 2023: £4m) was determined in accordance with the advice of external
actuaries. During the current financial year, £nil (2023: £nil) has been charged to the Group income statement and £nil (2023: £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:
2024
2023
Quoted
£m
Unquoted
£m
Total
£m
%
Quoted
£m
Unquoted
£m
Total
£m
%
Equities
UK
58
–
58
–
32
–
32
–
Europe
55
–
55
–
76
–
76
1
Rest of the world
1,303
–
1,303
12
516
–
516
4
1,416
–
1,416
12
624
–
624
5
Bonds
Government
570
–
570
5
363
–
363
3
Corporates – investment grade
875
–
875
7
570
–
570
4
Corporates – non-investment grade
155
–
155
1
211
–
211
2
1,600
–
1,600
13
1,144
–
1,144
9
Property
UK
–
854
854
7
2
1,094
1,096
8
Rest of the world
–
521
521
4
2
567
569
4
–
1,375
1,375
11
4
1,661
1,665
12
Alternative assets
Hedge funds
–
30
30
–
–
64
64
–
Private equity
–
982
982
8
–
1,032
1,032
8
Other
93
1,701
1,794
15
162
1,793
1,955
15
93
2,713
2,806
23
162
2,889
3,051
23
LDI portfolio
5,723
(1,527)
4,196
35
8,173
(2,491)
5,682
44
Cash
763
–
763
6
859
–
859
7
Total fair value of plan assets
9,595
2,561
12,156
100
10,966
2,059
13,025
100
Quoted assets are those with a quoted price in an active market. Unquoted assets are valued in accordance with IFRS 13 ‘Fair value
measurement’, 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 and money market funds, of the value of £6,556m (2023: £8,376m)
and associated repurchase agreements and swaps of £(2,360)m (2023: £(2,694)m). Other alternative assets include infrastructure and private
credit investments. Other derivatives are included in the asset category to which they relate, reflecting the underlying nature and exposure
of the derivative. The fall in fair value is attributable to the increase in gilt yields during the year.
The plan assets include £239m (2023: £240m) relating to property used by the Group. Group property with net carrying value of £829m
(2023: £783m) (refer to Note 11) and a value to the Scheme of at least £775m (2023: £775m) is held as security in favour of the Scheme.
Tesco PLC Annual Report and Financial Statements 2024
195.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 29 Post-employment benefits continued
Movement in the Group pension surplus/(deficit) during the financial period
Fair value of plan assets
Defined benefit obligation
Net defined benefit surplus/(deficit)
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Opening balance
13,025
22,390
(13,416)
(19,543)
(391)
2,847
Current service cost
–
–
(15)
(24)
(15)
(24)
Finance income/(cost)
619
607
(637)
(527)
(18)
80
Included in the Group income statement
619
607
(652)
(551)
(33)
56
Remeasurement gain/(loss):
Financial assumptions gain/(loss)
–
–
720
7,652
720
7,652
Demographic assumptions gain/(loss)
–
–
261
(228)
261
(228)
Experience gain/(loss)
–
–
(182)
(1,244)
(182)
(1,244)
Return on plan assets excluding finance income
(1,050)
(9,518)
–
–
(1,050)
(9,518)
Foreign currency translation
(10)
15
10
(18)
–
(3)
Included in the Group statement of comprehensive
income/(loss)
(1,060)
(9,503)
809
6,162
(251)
(3,341)
Employer contributions
15
24
–
–
15
24
Additional employer contributions
24
20
–
–
24
20
Benefits paid
(467)
(513)
472
516
5
3
Other movements
(428)
(469)
472
516
44
47
Closing balance
12,156
13,025
(12,787)
(13,416)
(631)
(391)
Withholding tax on surplus(a)
(4)
(3)
Closing balance, net of withholding tax
(635)
(394)
Consisting of:
Schemes in deficit
(657)
(400)
Schemes in surplus(b)
22
6
Deferred tax asset/(liability)(c)
162
100
Surplus/(deficit) in schemes at the end of the year,
net of deferred tax
(473)
(294)
(a) Recognised through other comprehensive income in remeasurements of defined benefit pension schemes.
(b) Schemes in surplus in the UK are presented on the balance sheet net of a 35% withholding tax.
(c) Including £(2)m deferred tax liability relating to the ROI scheme in surplus where no withholding tax is applicable (2023: £nil).
Note 30 Share capital and other reserves
Share capital
2024
2023
Ordinary shares of 6 ⅓p each
Ordinary shares of 6 ⅓p each
Number
£m
Number
£m
Allotted, called-up and fully paid:
At the beginning of the year
7,318,341,195
463 7,637,986,531
484
Shares cancelled
(279,410,755)
(18)
(319,645,336)
(21)
At the end of the year
7,038,930,440
445 7,318,341,195
463
No shares were issued during the current or prior financial year in relation to share options or bonus awards. 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.
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 £2m (2023: £nil) proceeds from sale of untraced shares and £2m (2023: £5m) write-back of
unclaimed dividends, which are reflected in retained earnings.
As at 24 February 2024, the Directors were authorised, on behalf of the Company, to purchase up to a maximum in aggregate of 732 million
(2023: 762 million) Ordinary shares until the conclusion of the 2024 AGM.
Tesco PLC Annual Report and Financial Statements 2024
196.
Financial statements
Strategic report
Governance
Additional information
Other reserves
The tables below set out the movements in other reserves:
Notes
Capital
redemption
reserve
£m
Hedging
reserve(a)
£m
Translation
reserve
£m
Own
shares
held(b)
£m
Merger
reserve
£m
Insurance
finance
reserve(c)
£m
Total
£m
At 25 February 2023 (as previously reported)
43
27
322
(359)
3,090
–
3,123
Cumulative adjustment on initial application of IFRS 17 (net of tax)
–
–
–
–
–
16
16
At 25 February 2023 (restated (c))
43
27
322
(359)
3,090
16
3,139
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint
ventures and associates, net of hedging instruments
–
–
(116)
–
–
–
(116)
Gains/(losses) on cash flow hedges
–
(14)
–
–
–
–
(14)
Cash flow hedges reclassified and reported in the Group
income statement
–
(56)
–
–
–
–
(56)
Finance income/(expenses) from insurance contracts issued(c)
–
–
–
–
–
(4)
(4)
Finance income/(expenses) from reinsurance contracts held(c)
–
–
–
–
–
1
1
Tax relating to components of other comprehensive income
6
–
(5)
–
–
–
1
(4)
Total other comprehensive income/(loss)
-
(75)
(116)
-
-
(2)
(193)
Transfer from hedging reserve to retained earnings
-
44
-
-
-
-
44
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
-
79
–
–
–
–
79
Total inventory cash flow hedge movements
-
79
-
-
-
-
79
Transactions with owners
Own shares purchased for cancellation
–
–
–
(752)
–
–
(752)
Own shares cancelled
18
–
–
752
–
–
770
Own shares purchased for share schemes
–
–
–
(140)
–
–
(140)
Share–based payments
28
–
–
–
184
–
–
184
Total transactions with owners
18
-
-
44
-
-
62
At 24 February 2024
61
75
206
(315)
3,090
14
3,131
(a) Movements in cost of hedging reserve in the 52 weeks ended and balances as at 24 February 2024 were £nil (25 February 2023: £nil).
(b) Includes 70.0 million shares held by the Tesco International Employee Benefit Trust (2023: 55.6 million). The number of shares held by the Tesco International Employee
Benefit Trust represents 0.99% of called-up share capital at the end of the year (2023: 0.76%).
(c) Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 33 for further details.
Notes
Capital
redemption
reserve
£m
Hedging
reserve(a)
£m
Translation
reserve
£m
Own
shares
held(b)
£m
Merger
reserve
£m
Insurance
finance
reserve(c)
£m
Total
£m
At 26 February 2022 (as previously reported)
22
130
202
(365)
3,090
–
3,079
Cumulative adjustment on initial application of IFRS 17 (net of tax)
–
–
–
–
–
1
1
At 26 February 2022 (restated(c))
22
130
202
(365)
3,090
1
3,080
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint
ventures and associates, net of hedging instruments
–
–
120
–
–
–
120
Gains/(losses) on cash flow hedges
–
63
–
–
–
–
63
Cash flow hedges reclassified and reported in the Group income
statement
–
(61)
–
–
–
–
(61)
Finance income/(expenses) from insurance contracts issued(c)
–
–
–
–
–
39
39
Finance income/(expenses) from reinsurance contracts held(c)
–
–
–
–
–
(20)
(20)
Tax relating to components of other comprehensive income
6
–
22
–
–
–
(4)
18
Total other comprehensive income/(loss)
–
24
120
–
–
15
159
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory
–
(127)
–
–
–
–
(127)
Total inventory cash flow hedge movements
–
(127)
–
–
–
–
(127)
Transactions with owners
Own shares purchased for cancellation
–
–
–
(758)
–
–
(758)
Own shares cancelled
21
–
–
795
–
–
816
Own shares purchased for share schemes
–
–
–
(188)
–
–
(188)
Share–based payments
28
–
–
–
157
–
–
157
Total transactions with owners
21
–
–
6
–
–
27
At 25 February 2023
43
27
322
(359)
3,090
16
3,139
Refer to previous table for footnotes.
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.
Tesco PLC Annual Report and Financial Statements 2024
197.
Financial statements
Strategic report
Governance
Additional information
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 cancellation between the Group statement of changes in equity
and the Group cash flow statement:
2024
2023
Own shares purchased for cancellation
£m
£m
Included in the Group statement of changes in equity(a)
(752)
(758)
Payments in relation to prior year financial liabilities
–
(23)
Included in the Group cash flow statement(b)
(752)
(781)
(a) 279.4 million (2023: 319.6 million) shares, representing 4.0% of the called-up share capital as at 24 February 2024 (25 February 2023: 4.4%), with total consideration of £752m
(2023: £795m) including expenses of £2m (2023: £9m), were cancelled and charged to retained earnings.
(b) 279.4 million (2023: 314.8 million) shares purchased at an average price of £2.69 per share (2023: £2.48).
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:
2024
2023
Own shares purchased for share schemes
£m
£m
Included in the Group statement of changes in equity
(140)
(188)
Payments in relation to prior year financial liabilities
(55)
(50)
Outstanding amount recognised as financial liabilities*
–
55
Shares withheld to settle employee tax
49
49
Cash received from employees exercising SAYE options
53
48
Included in the Group cash flow statement
(93)
(86)
* Shares to be delivered under an uncancellable share repurchase agreement with an external bank, included in other payables.
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 £18m (2023: £21m).
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.
Insurance finance reserve
Insurance finance reserve includes the impact of changes in market discount rates on insurance and reinsurance contract assets and liabilities.
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
Joint ventures
2024
£m
2023
£m
Sales to related parties
606
599
Purchases from related parties
126
122
Dividends received
9
14
Injection of equity funding
9
10
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
Joint ventures
2024
£m
2023
£m
Amounts owed to related parties
(7)
(7)
Amounts owed by related parties
80
27
Lease liabilities payable to related parties(a)
(1,844)
(1,950)
Loans to related parties (net of deferred profits)(b)
96
106
(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 £96m (2023: £106m) are presented net of deferred profits of £nil (2023: £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 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.
Tesco PLC Annual Report and Financial Statements 2024
198.
Financial statements
Strategic report
Governance
Additional information
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:
2024
£m
2023
£m
Salaries and short-term benefits
28
23
Pensions and cash in lieu of pensions
1
1
Share-based payments
22
21
51
45
Attributable to:
The Board of Directors (including Non-executive Directors)
13
13
Executive Committee (members not on the Board of Directors)
38
32
51
45
During the year, 7,586,273 (2023: 7,730,565) performance shares and 2,302,633 (2023: 2,807,091) 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:
Credit card and
personal loan balances
Current and saving
deposit accounts
Number of key
management
personnel
£m
Number of key
management
personnel
£m
At 24 February 2024
5
–
4
1
At 25 February 2023
6
–
6
1
Note 32 Analysis of changes in net debt
The Net debt APM, as defined in the Glossary, excludes the net debt of Tesco Bank but includes the net debt of Retail 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.
2024
2023
Group
Tesco Bank
Retail
Group
Tesco Bank
Retail
£m
£m
£m
£m
£m
£m
Bank and other borrowings, excluding overdrafts(a)
(6,407)
(380)
(6,027)
(6,451)
(375)
(6,076)
Lease liabilities
(7,622)
(2)
(7,620)
(7,727)
(23)
(7,704)
Net financing derivatives
544
(3)
547
472
(9)
481
Share purchase obligations
–
–
–
(55)
–
(55)
Liabilities from financing activities
(13,485)
(385)
(13,100)
(13,761)
(407)
(13,354)
Cash and cash equivalents in the balance sheet
2,340
442
1,898
2,465
444
2,021
Overdrafts(b)
(812)
–
(812)
(900)
–
(900)
Cash and cash equivalents (including overdrafts) in the
cash flow statement
1,528
442
1,086
1,565
444
1,121
Short-term investments
2,128
–
2,128
1,628
–
1,628
Joint venture loans
96
–
96
106
–
106
Interest and other receivables
23
–
23
8
–
8
Net operating and investing derivatives
26
23
3
71
114
(43)
Net debt of disposal group(c)
(182)
(182)
–
(14)
–
(14)
Exclude: Share purchase obligations
–
–
–
55
–
55
Net debt APM
(9,764)
(10,493)
(a) Retail bank and other borrowings is presented net of a £235m long-term intercompany loan with Tesco Bank (2023: £235m).
(b) 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.
(c) £(14)m of items within net debt in the prior year relate to residual properties and leases with respect to the Group’s operation in Poland.
Tesco PLC Annual Report and Financial Statements 2024
199.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 32 Analysis of changes in net debt continued
The table below sets out the movements in liabilities arising from financing activities:
Bank and other
borrowings,
excluding
overdrafts
£m
Lease liabilities
£m
Net financing
derivatives(a)
£m
Share purchase
obligations(b)
£m
Liabilities from Group
financing activities(c)
£m
At 25 February 2023
(6,451)
(7,727)
472
(55)
(13,761)
Cash flows arising from financing activities
(457)
627
4
807
981
Cash flows arising from operating activities:
Interest paid
308
373
125
–
806
Non-cash movements:
Fair value gains/(losses)
(124)
–
50
–
(74)
Foreign exchange
101
46
-
–
147
Interest income/(charge)
(333)
(373)
(108)
–
(814)
Acquisitions and disposals
–
3
–
–
3
Lease additions, terminations, modifications and
reassessments
–
(588)
–
–
(588)
Share purchase agreements
–
–
–
(752)
(752)
Transfer to disposal group
549
17
1
–
567
At 24 February 2024
(6,407)
(7,622)
544
–
(13,485)
(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 £(91)m (2023: £(29)m) cash outflows relating to other cancellable arrangements and prepayments, and £53m (2023: £48m) cash received from employees
exercising SAYE options.
(c) Liabilities from Group financing activities include liabilities from share purchase obligations of £nil (2023: £(55)m) and exclude net operating and investing derivatives of £26m
(2023: £71m).
Bank and other
borrowings,
excluding
overdrafts
£m
Lease liabilities
£m
Net financing
derivatives(a)
£m
Share purchase
obligations(b)
£m
Liabilities from Group
financing activities(c)
£m
At 26 February 2022
(6,825)
(7,958)
553
(73)
(14,303)
Cash flows arising from financing activities
709
593
139
886
2,327
Cash flows arising from operating activities:
Interest paid
241
373
44
–
658
Non-cash movements:
Fair value gains/(losses)
199
–
(170)
–
29
Foreign exchange
(160)
(45)
–
–
(205)
Interest income/(charge)
(227)
(373)
(55)
–
(655)
Acquisitions and disposals(d)
(388)
381
(39)
–
(46)
Lease additions, terminations, modifications and
reassessments
–
(698)
–
–
(698)
Share purchase agreements
–
–
–
(868)
(868)
At 25 February 2023
(6,451)
(7,727)
472
(55)
(13,761)
(a)-(c) Refer to previous table for footnotes.
(d) Acquisitions and disposals in the prior year 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.
Tesco PLC Annual Report and Financial Statements 2024
200.
Financial statements
Strategic report
Governance
Additional information
Note 33 Changes in accounting policies – IFRS 17 ‘Insurance contracts’
This note explains the impact of the adoption of IFRS 17 ‘Insurance contracts’ on the Group’s financial position, financial performance, and
cash flows. IFRS 17 primarily impacts Tesco Bank and there is no material impact on the Retail segment.
IFRS 17 is effective for the accounting period commencing 26 February 2023. IFRS 17 has been applied fully retrospectively and comparatives
for prior periods have been restated from a transition date of 27 February 2022. Refer to Note 1 for the Group's insurance accounting policies.
The Group applies the premium allocation approach to measure its portfolio of insurance contracts issued and reinsurance contracts
purchased, except for claims liabilities acquired as part of the acquisition of Tesco Underwriting Limited on 4 May 2021. Unlike post-acquisition
contracts issued with a term of one year, the Group has applied the general measurement model (GMM) to the acquired claims liabilities
because the settlement of these claims and their associated insurance risk will spread over multiple years. This measurement leads to the
recognition of revenue and expenses in relation to these acquired claims over a longer period of time. It includes a contractual service margin
(CSM), which represents the difference between the consideration paid for the acquired claims at acquisition and the risk-adjusted discounted
fulfilment cash flows and will be allocated to the Group income statement over time to reflect the pattern of actual claims settlement.
To aid comparability, the tables below also include the impact of the restatements resulting from the classification of the Group’s Banking
operations as a discontinued operation, as described in Note 7.
Group income statement restatement
The table below sets out the impact of IFRS 17 and restatements to present Banking operations as a discontinued operation on the
comparative period Group income statement for the 52 weeks ended 25 February 2023.
Reported
Total(a)
IFRS 17 restatements
Discontinued
operation(b)
Restated
Total
£m
Reclassification
£m
Remeasurements
£m
Re-presentation
£m
£m
Continuing operations
Revenue from sale of goods and services
65,453
(21)
–
(568)
64,864
Insurance revenue
309
21
128
–
458
Revenue
65,762
–
128
(568)
65,322
Cost of sales
(61,877)
5
1
355
(61,516)
Insurance service expenses
(175)
(84)
(149)
–
(408)
Net expenses from reinsurance contracts held
(49)
–
12
–
(37)
Gross profit/(loss)
3,661
(79)
(8)
(213)
3,361
Administrative expenses
(2,136)
79
–
106
(1,951)
Operating profit/(loss)
1,525
–
(8)
(107)
1,410
Share of post-tax profits of joint ventures and associates
8
–
–
–
8
Finance income
85
–
2
–
87
Finance costs
(618)
–
(5)
–
(623)
Profit/(loss) before tax
1,000
–
(11)
(107)
882
Taxation
(247)
–
3
20
(224)
Profit/(loss) for the year from continuing operations
753
–
(8)
(87)
658
Discontinued operations
Profit/(loss) for the year from discontinued operations
(9)
–
–
87
78
Profit/(loss) for the year
744
–
(8)
–
736
Attributable to:
Owners of the parent
745
–
(8)
–
737
Non-controlling interests
(1)
–
–
–
(1)
744
–
(8)
–
736
Earnings per share from continuing and discontinued
operations
Basic
10.05p
–
(0.11)p
–
9.94p
Diluted
9.96p
–
(0.11)p
–
9.85p
Earnings per share from continuing operations
Basic
10.17p
–
(0.11)p
(1.17)p
8.89p
Diluted
10.08p
–
(0.11)p
(1.16)p
8.81p
(a) The income statement has been re-presented to separately present insurance revenue, insurance service expenses, and net expenses from reinsurance contracts held.
(b) In addition to the adoption of IFRS 17, comparatives have also been re-presented to present Banking operations as a discontinued operation. Refer to Notes 1 and 7 for
further details.
Tesco PLC Annual Report and Financial Statements 2024
201.
Financial statements
Strategic report
Governance
Additional information
Notes to the Group financial statements continued
Note 33 Changes in accounting policies – IFRS 17 ‘Insurance contracts’ continued
IFRS 17 impact
Description
Reclassification
Primarily relates to directly attributable insurance expenses, previously included in administrative expenses and cost of sales,
which were reclassified to insurance service expenses.
Remeasurements Primarily relates to the impact of acquired claims and other remeasurements under IFRS 17. Under the GMM, the profit in relation
to acquired claims is deferred on the balance sheet at the transition date and recognised in the income statement in subsequent
periods. The unwinding of the related CSM balance accordingly increased revenue and profit in the comparative period. However,
this increase was offset by the deferral of net gains on the release of claims reserves in relation to acquired claims.
Group balance sheet restatement
The table below sets out the impact of IFRS 17 on the transition balance sheet at 26 February 2022 and on the comparative period balance
sheet as at 25 February 2023.
25 February 2023
26 February 2022
Reported
£m
Reclassification
£m
Remeasurements
£m
Restated
£m
Reported
£m
Reclassification
£m
Remeasurements
£m
Restated
£m
Non-current assets
Reinsurance contract assets
145
(36)
26
135
184
(46)
33
171
Deferred tax assets
82
–
2
84
85
–
3
88
Current assets
Trade and other receivables
1,315
(80)
–
1,235
1,263
(45)
–
1,218
Loans and advances to customers
4,052
(105)
1
3,948
3,349
(100)
2
3,251
Reinsurance contract assets
72
(72)
–
–
61
(61)
–
–
Current liabilities
Trade and other payables
(9,818)
53
3 (9,762)
(9,181)
138
3 (9,040)
Insurance contract liabilities
(570)
106
(37)
(501)
(623)
87
(52)
(588)
Non-current liabilities
Trade and other payables
(153)
99
–
(54)
(53)
–
(1)
(54)
Insurance contract liabilities
(35)
35
–
–
(27)
27
–
–
Net assets impact
–
(5)
–
(12)
Equity
Other reserves
3,123
–
16
3,139
3,079
–
1
3,080
Retained earnings
3,490
–
(21) 3,469
6,932
–
(13)
6,919
Equity impact
–
(5)
–
(12)
IFRS 17 impact
Description
Reclassification
Before the transition, the rights and obligations arising from a portfolio of insurance contracts and reinsurance contracts were
presented in various line items in the Group balance sheet depending on their nature. IFRS 17 requires all insurance and
reinsurance related balances to be classified within either insurance contract liabilities or reinsurance contract assets.
Premiums receivable, previously included in loans and advances to customers, were reclassified to insurance contract liabilities
(2023: £105m and 2022: £100m); and funds withheld arising from quota share arrangements, previously included in trade and
other payables, were reclassified to reinsurance contract assets (2023: £124m and 2022: £115m). All other relevant balances
have also been reclassified accordingly.
All insurance contract liabilities have been classified as current and all reinsurance contract assets as non-current, as contracts
are now considered on a portfolio basis rather than on an individual contract basis and are not permitted to be split between
current and non-current.
Remeasurements
Primarily relates to the recognition and allocation of CSM in relation to acquired claims, deferred acquisition cost balances and
the impact of the risk adjustment and discounting.
Group cash flow statement restatement
The table below sets out the impact of IFRS 17 and restatements to present Banking operations as a discontinued operation on the
comparative period Group cash flow statement for the 52 weeks ended 25 February 2023.
52 weeks ended 25 February 2023
Reported
£m
IFRS 17 impact
£m
Discontinued
operations
re-presentation*
Restated
£m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations
1,525
(8)
(107)
1,410
Operating profit/(loss) of discontinued operations
(9)
–
107
98
Tesco Bank (increase)/decrease in loans and advances to customers
(696)
6
–
(690)
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables
60
23
–
83
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance liabilities
and other payables
369
(21)
–
348
Tesco Bank increase/(decrease) in provisions
(7)
–
–
(7)
Tesco Bank (increase)/decrease in working capital
(274)
8
–
(266)
Cash generated from/(used in) operations impact
–
–
* In addition to the adoption of IFRS 17, comparatives have been re-presented to present Banking operations as a discontinued operation. Refer to Notes 1 and 7 for
further details.
IFRS 17 has no impact on net cash generated from operating, investing and financing activities for the year, or cash and cash equivalents
at the end of the year.
Tesco PLC Annual Report and Financial Statements 2024
202.
Financial statements
Strategic report
Governance
Additional information
Note 34 Commitments and contingencies
Capital commitments
At 24 February 2024, there were commitments for capital expenditure contracted for, but not incurred, of £160m (2023: £200m), 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
Company
number
Name
Company
number
Name
Company
number
Booker Group Limited
5145685
Spen Hill Management Limited
2460426
Tesco Food Sourcing Limited
7502096
Booker Wholesale Holdings Limited
5137980
Spen Hill Properties (Holdings)
PLC
2412674
Tesco Freetime Limited
4345023
Buttoncase Limited
5298861
Spen Hill Regeneration Limited
6418300
Tesco Fuchsia (3LP) Limited
10127851
Dillons Newsagents Limited
140624
T & S Stores Limited
1228935
Tesco Gateshead Property Limited
8312532
dunnhumby Overseas Limited
6601821
Tapesilver Limited
5205362
Tesco Maintenance Limited
6003554
dunnhumby Trustees Limited
3565371
Tesco Atrato (1LP) Limited
6969529
Tesco Mobile Communications
Limited
4780729
Giant Booker Limited
65519
Tesco Atrato (GP) Limited
6969536
Tesco Mobile Services Limited
4780734
Launchgrain Limited
5260856
Tesco Blue (3LP) Limited
10127682
Tesco Navona (1LP) Limited
7459436
Makro Holding Limited
4310463
Tesco Brislington Limited
10701640
Tesco Passaic (1LP) Limited
7121667
Makro Properties Limited
1273672
Tesco Bury Limited
3854371
Tesco Property Partner (GP) Limited
4945955
Oakwood Distribution Limited
5721635
Tesco Distribution Holding
Limited
3193655
Tesco Property Partner (No.1) Limited 4945945
Reskammel Property Company
Limited
13264276
Tesco Dorney (1LP) Limited
8255488
Tesco Sarum (1LP) Limited
7849948
TSFM Limited
14263834
Tesco Dorney (GP) Limited
8255493
Tesco Sarum (GP) Limited
7849882
Spen Hill Developments Limited
4827219
Tesco Family Dining Limited
8514605
Transcend Retail Solutions Limited
14772291
Tesco PLC will guarantee all outstanding liabilities that these subsidiaries are subject to as at the financial year ended 24 February 2024 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 24 February 2024, Tesco Bank had contractual lending commitments totalling £12.8bn (2023: £12.2bn). 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 equal work 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 49,000
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 equal work. 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 subsequent stages comprise an equal work assessment and the consideration of TSL’s material factor defences (non-discriminatory
reasons for differentials in pay terms). The Equal Pay Claims have been split into three tranches (with tranche 1 being heard first) and the
stages apply to each tranche. Although the claims that have been heard to date involve female claimants, male store workers (being close to
50% of the current store worker population) may also bring claims by comparing themselves against any successful female claimants. Male
claimants who have pre-emptively brought such claims currently make up approximately 45% of the Equal Pay Claims against TSL in the
employment tribunal. The ultimate determination of all claims is likely to take many years, including as a result of 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
There were no material events after the reporting period requiring disclosure.
Tesco PLC Annual Report and Financial Statements 2024
203.
Financial statements
Strategic report
Governance
Additional information
Tesco PLC – Parent Company balance sheet
Notes
24 February
2024
£m
25 February
2023
£m
Non–current assets
Investments
6
16,990
16,970
Receivables
7
234
234
Derivative financial instruments
8
949
935
18,173
18,139
Current assets
Receivables
7
537
860
Cash on hand
231
103
Derivative financial instruments
8
–
2
768
965
Current liabilities
Payables
9
(756)
(244)
Borrowings
10
(55)
(141)
(811)
(385)
Net current assets/(liabilities)
(43)
580
Non–current liabilities
Payables
9
(1,131)
(2,132)
Borrowings
10
(1,473)
(1,450)
Derivative financial instruments
8
(13)
(5)
Deferred tax liabilities
11
(23)
(19)
(2,640)
(3,606)
Net assets
15,490
15,113
Equity
Share capital
14
445
463
Share premium
5,165
5,165
Other reserves
14
2,865
2,793
Retained earnings (including profit/(loss) for the financial year of £1,866m (2023: £2,064m))
7,015
6,692
Total equity
15,490
15,113
The notes on pages 206 to 211 form part of these financial statements.
Ken Murphy
Imran Nawaz
Directors
The Parent Company financial statements on pages 204 to 211 were approved and authorised for issue by the Directors on 9 April 2024.
Tesco PLC
Registered number 00445790
Tesco PLC Annual Report and Financial Statements 2024
204.
Financial statements
Strategic report
Governance
Additional information
Tesco PLC – Parent Company statement of changes in equity
Share capital
(Note 14)
£m
Share premium
£m
Other reserves
(Note 14)
£m
Retained earnings
£m
Total equity
£m
At 25 February 2023
463
5,165
2,793
6,692
15,113
Profit/(loss) for the year
–
–
–
1,866
1,866
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
–
–
25
–
25
Cash flow hedges reclassified and reported in the Company
income statement
–
–
(55)
–
(55)
Tax relating to components of other comprehensive income
(Note 11)
–
–
(4)
–
(4)
Total other comprehensive income/(loss)
–
–
(34)
–
(34)
Total comprehensive income/(loss)
–
–
(34)
1,866
1,832
Transfer from hedging reserve to retained earnings
–
–
44
(44)
–
Transactions with owners
Own shares purchased for cancellation
–
–
(752)
–
(752)
Own shares cancelled
(18)
–
770
(752)
–
Own shares purchased for share schemes
–
–
(140)
–
(140)
Share-based payments
–
–
184
30
214
Dividends
–
–
–
(777)
(777)
Total transactions with owners
(18)
-
62
(1,499)
(1,455)
At 24 February 2024
445
5,165
2,865
7,015
15,490
Share capital
(Note 14)
£m
Share premium
£m
Other reserves
(Note 14)
£m
Retained earnings
£m
Total equity
£m
At 26 February 2022
484
5,165
2,804
6,242
14,695
Profit/(loss) for the year
–
–
–
2,064
2,064
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
–
–
7
–
7
Cash flow hedges reclassified and reported in the Company
income statement
–
–
(58)
–
(58)
Tax relating to components of other comprehensive income
–
–
13
–
13
Total other comprehensive income/(loss)
–
–
(38)
–
(38)
Total comprehensive income/(loss)
–
–
(38)
2,064
2,026
Transactions with owners
Own shares purchased for cancellation
–
–
(758)
–
(758)
Own shares cancelled
(21)
–
816
(795)
–
Own shares purchased for share schemes
–
–
(188)
–
(188)
Share-based payments
–
–
157
39
196
Dividends
–
–
–
(858)
(858)
Total transactions with owners
(21)
–
27
(1,614)
(1,608)
At 25 February 2023
463
5,165
2,793
6,692
15,113
The Company has considered the profits available for distribution to shareholders. At 24 February 2024, the Company had retained earnings
of £7.0bn (2023: £6.7bn), of which £4.2bn is available for distribution (2023: £3.9bn).
The notes on pages 206 to 211 form part of these financial statements.
Tesco PLC Annual Report and Financial Statements 2024
205.
Financial statements
Strategic report
Governance
Additional information
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
24 February 2024 were approved by the Board of Directors on 9 April
2024 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 at fair value.
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 24 February 2024
(prior financial year 52 weeks to 25 February 2023).
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, related party transactions and
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 financial
statements of Tesco PLC.
The Parent Company financial statements are prepared on a going
concern basis as set out in Note 1 of the consolidated 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/(loss) 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.
Share-based payments
The fair value of employee share option plans is calculated at
the grant date using the Black-Scholes model. The resulting cost is
charged to the Company income statement over the vesting period.
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.
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 ‘look-through’ approach which, in substance,
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.
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 amortised cost using the effective interest rate method, less any
expected credit losses.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences 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.
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.
Tesco PLC Annual Report and Financial Statements 2024
206.
Financial statements
Strategic report
Governance
Additional information
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 Company income statement over the remaining period
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 forecast
transaction. The effective element of any gain or loss from
remeasuring the derivative designated as the hedging instrument
is recognised directly in the Company statement of comprehensive
income/(loss) and accumulated in the hedging reserve. The
ineffective element is recognised immediately in the Company
income statement.
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 hedged
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 hedged transaction.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, or no longer qualifies
for hedge accounting. At that point in time, any cumulative gain or
loss on the hedging instrument recognised in equity is retained in
the Company statement of changes in equity until the forecast
transaction occurs or the original hedged item affects the Company
income statement. If a forecast hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognised in
the Company statement of changes in equity is reclassified to the
Company income statement.
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.
Taxation
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.
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.
The tax expense is recognised in the Company income statement,
except when it relates to items recognised directly in the Company
statement of changes in equity or the Company statement of
comprehensive income/(loss), in which case the tax follows the
same treatment.
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.
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.
Pillar Two legislation has been enacted in the UK introducing a global
minimum effective tax rate of 15%. The legislation implements a
domestic top-up tax, effective for accounting periods starting on or
after 31 December 2023. The Company has applied the exception
under IAS 12 to recognising and disclosing information about
deferred tax assets and liabilities related to top-up income taxes.
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 these estimates. The estimates and underlying assumptions
are reviewed on an ongoing basis, with revisions to accounting
estimates applied prospectively.
The preparation of the Company financial statements for the
financial year did not require the exercise of any critical accounting
judgements. The Company’s evaluation of the recoverable amount
of investments in subsidiaries involves significant estimation
uncertainty. The key assumption to which the recoverable amounts
are most sensitive is disclosed in Note 6.
New standards and amendments effective for the current
financial year
New standards, interpretations and amendments effective in the
current financial year, including IFRS 17 ‘Insurance contracts’, 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.
Tesco PLC Annual Report and Financial Statements 2024
207.
Financial statements
Strategic report
Governance
Additional information
Notes to the Parent Company financial statements continued
Note 5 Employment costs, including Directors’ remuneration
Notes
2024
£m
2023
£m
Wages and salaries
10
12
Social security costs
2
2
Pension costs
13
1
1
Share-based payments expense
12
5
9
Total
18
24
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 (2023: 12).
The Schedule 5 requirements of SI 2008/410 for Directors’ remuneration are included within the Directors’ remuneration report on pages 90
to 114.
Note 6 Investments
2024
£m
Cost
At 25 February 2023
17,883
Capital contributions
121
Return of capital contributions
(101)
Disposals
(392)
At 24 February 2024
17,511
Accumulated impairment losses
At 25 February 2023
(913)
Disposals
392
At 24 February 2024
(521)
Net carrying value
At 24 February 2024
16,990
At 25 February 2023
16,970
There were no impairments in the current year.
As set out in Note 7 of the Group financial statements, the Group reached agreement on the terms of a proposed sale of its Banking
operations, comprising personal loans, credit cards, customer deposits, and associated operational capabilities (Banking operations) for
consideration of £600m. The Group recognised a loss on remeasuring the disposal group to fair value less costs to sell on classification as
held for sale, which triggered an impairment review of the Company's investment in Tesco Personal Finance Group PLC.
The recoverable amount was estimated as the equity value of the subsidiary, comprising the value in use of the money services and insurance
businesses and fair value less costs to sell of the Banking operations, net of any net debt on the subsidiary balance sheet. The methodology
for calculating the value in use of money services and insurance is set out in Note 14 of the Group financial statements. The recoverable
amount of the investment is significantly higher than the carrying amount and no impairment was recognised.
For the other investments in subsidiaries, the key source of estimation uncertainty in determining the recoverable amount of trading
subsidiaries is the discount rate. Discount rates are calculated as set out in Note 14 of the Group financial statements. If the discount rates
were to increase by 1.0%pt, the carrying amount of investments would decrease by £520m.
The list of the Company’s subsidiary undertakings and joint ventures is shown on pages 212 to 216.
Note 7 Receivables
2024
£m
2023
£m
Amounts owed by Group undertakings*
747
1,072
Other receivables
24
22
Total receivables
771
1,094
Of which:
Current
537
860
Non-current
234
234
771
1,094
* Amounts owed by Group undertakings are either interest-bearing or non interest-bearing depending on the type and duration of the receivable relationship, with interest
rates ranging from 5.9% to 7.5% (2023: 4.4% to 6.0%) and with maturities up to and including March 2025.
The expected credit loss on receivables is immaterial (2023: immaterial).
Tesco PLC Annual Report and Financial Statements 2024
208.
Financial statements
Strategic report
Governance
Additional information
Note 8 Derivative financial instruments
2024
2023
Asset
Liability
Asset
Liability
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value
£m
Notional
£m
Fair value hedges
Interest rate swaps and
similar instruments
–
–
–
–
2
65
–
–
Cash flow hedges
Index-linked swaps*
263
790
–
–
235
738
–
–
Derivatives not in a formal
hedge relationship
Cross-currency swaps
152
386
(13)
94
170
404
(5)
100
Index-linked swaps
534
3,089
–
–
530
3,089
–
–
Total
949
4,265
(13)
94
937
4,296
(5)
100
* The notional values included in the table have been adjusted to reflect the impact of inflation indexation on the principal. The notional values before indexation for derivatives
designated in a cash flow hedge was £406m (2023: £406m).
Note 9 Payables
2024
£m
2023
£m
Amounts owed to Group undertakings*
1,861
2,302
Other payables
23
71
Taxation and social security
3
3
Total payables
1,887
2,376
Of which:
Current
756
244
Non-current
1,131
2,132
1,887
2,376
* Amounts owed to Group undertakings are either interest-bearing or non interest-bearing depending on the type and duration of the creditor relationship, with interest rates
ranging from 5.8% to 6.2% (2023: 2.7% to 5.2%) and with maturities up to and including February 2051.
IFRS 17 is effective for the accounting period commencing 26 February 2023. The impact on the Company of the adoption of IFRS 17 is limited
to financial guarantee contracts, which are recognised as a liability on the Company balance sheet, included in other payables. Under the
policy choice permitted by IFRS 17, the Company has elected to recognise and measure financial guarantee contracts in accordance with
IFRS 9 ‘Financial instruments’. The resulting impact is not material and as such prior period information has not been restated. The principal
guarantees provided by the Company and the maximum exposure are set out below:
The Company has entered into financial guarantee contracts to guarantee indebtedness held on the balance sheets of Group undertakings
amounting to £3.5bn (2023: £3.4bn). The Company has also guaranteed derivative agreements of Group undertakings, of which those in a net
liability position at the reporting date total £0.1bn (2023: £0.2bn).
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 (2023: £5.1bn).
The Company has also guaranteed £0.9bn (2023: £0.9bn) drawn by Tesco Bank under the Bank of England’s Term Funding Scheme with
incentives for small and medium-sized enterprises (TFSME).
Note 10 Borrowings
Par value
Maturity
2024
£m
2023
£m
Bank loans and overdrafts
32
43
LPI and RPI-linked bonds*
3.322% LPI MTN
£210m
Nov 2025
416
396
1.982% RPI MTN
£196m
Mar 2036
382
349
Other borrowings
5% MTN
£71m
Mar 2023
–
75
6% MTN
£38m
Dec 2029
42
43
5.5% MTN
£67m
Jan 2033
76
78
6.15% USD Bond
$355m
Nov 2037
346
366
4.875% MTN
£14m
Mar 2042
14
14
5.125% MTN
€235m
Apr 2047
206
213
5.2% MTN
£14m
Mar 2057
14
14
1,528
1,591
Of which:
Current
55
141
Non-current
1,473
1,450
1,528
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 to the Group financial statements.
Tesco PLC Annual Report and Financial Statements 2024
209.
Financial statements
Strategic report
Governance
Additional information
Notes to the Parent Company financial statements continued
Note 11 Taxation
The deferred tax liability recognised by the Company, and the movements thereon, during the current financial year are as follows:
2024
£m
At 25 February 2023
(19)
Movement in other comprehensive income for the year
(4)
At 24 February 2024
(23)
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 to the Group
financial statements.
Share option schemes
At 24 February 2024, there were 9,890 options outstanding (2023: 9,890) with a weighted average exercise price (WAEP) of 182.00p (2023:
182.00p) and a weighted average remaining contractual life of 2.52 years (2023: 3.52 years). There were no options granted, exercised or
forfeited in the 52 weeks ended 24 February 2024 (52 weeks ended 25 February 2023: 9,890 options granted at a WAEP of 182.00p, nil
exercised, nil forfeited). There were nil options exercisable at 24 February 2024 (2023: nil).
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 to the Group financial statements.
The number and weighted average fair value (WAFV) of share bonuses granted during the financial year were:
2024
2023
Number
of shares
WAFV
pence
Number
of shares
WAFV
pence
Group Bonus Plan
728,059
273.60
810,608
274.10
Performance Share Plan
2,312,987
252.00
2,252,917
255.40
Note 13 Pensions
The total cost of participation in the Tesco Retirement Savings Plan (a defined contribution scheme) to the Company was £1m (2023: £1m).
Further disclosure relating to all schemes can be found in Note 29 to the Group financial statements.
Tesco PLC Annual Report and Financial Statements 2024
210.
Financial statements
Strategic report
Governance
Additional information
Note 14 Called-up share capital and reserves
Refer to Note 30 to the Group financial statements.
Other reserves
The tables below set out the movements in other reserves:
Capital
redemption
reserve
£m
Hedging reserve
£m
Own shares held
£m
Merger reserve
£m
Total
£m
At 25 February 2023
43
59
(359)
3,050
2,793
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
–
25
–
–
25
Cash flow hedges reclassified and reported in the Company income
statement
–
(55)
–
–
(55)
Tax relating to components of other comprehensive income (Note 11)
–
(4)
–
–
(4)
Total other comprehensive income/(loss)
–
(34)
–
–
(34)
Transfer from hedging reserve to retained earnings
–
44
–
–
44
Transactions with owners
Own shares purchased for cancellation
–
–
(752)
–
(752)
Own shares cancelled
18
–
752
–
770
Own shares purchased for share schemes
–
–
(140)
–
(140)
Share-based payments
–
–
184
–
184
Total transactions with owners
18
–
44
–
62
At 24 February 2024
61
69
(315)
3,050
2,865
Capital
redemption
reserve
£m
Hedging reserve
£m
Own shares held
£m
Merger reserve
£m
Total
£m
At 26 February 2022
22
97
(365)
3,050
2,804
Other comprehensive income/(loss)
Gains/(losses) on cash flow hedges
–
7
–
–
7
Cash flow hedges reclassified and reported in the
Company income statement
–
(58)
–
–
(58)
Tax relating to components of other comprehensive income
–
13
–
–
13
Total other comprehensive income/(loss)
–
(38)
–
–
(38)
Transactions with owners
Own shares purchased for cancellation
–
–
(758)
–
(758)
Own shares cancelled
21
–
795
–
816
Own shares purchased for share schemes
–
–
(188)
–
(188)
Share-based payments
–
–
157
–
157
Total transactions with owners
21
–
6
–
27
At 25 February 2023
43
59
(359)
3,050
2,793
Note 15 Contingent liabilities
Contingent liabilities
Refer to Note 34 to the Group financial statements.
Note 16 Events after the reporting period
There were no material events after the reporting period requiring disclosure.
Tesco PLC Annual Report and Financial Statements 2024
211.
Financial statements
Strategic report
Governance
Additional information
Related undertakings of the Group
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, together with the registered office address, class of share
held and the percentage of share class owned, as at 24 February 2024 is 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
Registered
address
Class of share held
% held by
Group
Acklam Management Company
Limited
1
Limited by Guarantee
–
Armitage Finance Unlimited
1
GBP0.90 Ordinary
100
Bath Upper Bristol Road
Management Company Limited
1
Limited by Guarantee
–
Berry Lane Management
Company Limited
1
Limited by Guarantee
–
BF Limited
8
GBP0.000000011111111
Ordinary
100
Bishop’s Group Limited
8
GBP0.01 Ordinary
100
Booker Cash & Carry Limited
8
GBP1.00 Ordinary
100
Booker Direct Limited
8
GBP0.01 Ordinary
100
Booker Group Limited
8
GBP0.00000000055625
Ordinary
100
Booker Limited
8
GBP1.00 Ordinary
100
Booker Retail Partners (GB)
Limited
8
GBP1.00 Ordinary
100
Booker Retail Limited
8
GBP0.10 Ordinary
100
Booker Pension Trustees Limited
8
Limited by Guarantee
–
Booker Wholesale Holdings
Limited
8
GBP0.01 Ordinary A1
100
Booker Unapproved Scheme
Trustees Ltd
8
Limited by Guarantee
–
Bourne End Residential
Management Company Limited
1
Limited by Guarantee
–
Broughton Retail Park Nominee 1
Limited
1
GBP1.00 Ordinary
100
Broughton Retail Park Nominee 2
Limited
1
GBP1.00 Ordinary
100
Broughton Retail Park Nominee 3
Limited
1
GBP1.00 Ordinary
100
Broughton Retail Park Nominee 4
Limited
1
GBP1.00 Ordinary
100
Budgen Holdings Limited
8
GBP1.00 Ordinary
100
Budgens Pension Trustees No.2
Limited
8
GBP1.00 Ordinary
100
Budgens Property Investments
Limited
8
GBP1.00 Ordinary
100
Budgens Stores Limited
8
GBP1.00 Ordinary
100
Buttoncase Limited†
1
GBP1.00 2% Cumulative
Redeemable Preference
100
GBP1.00 Ordinary
100
Canterbury Road Management
Limited
1
Limited by Guarantee
–
Cardiff Cathays Terrace
Management Company Limited
1
Limited by Guarantee
–
Day And Nite Stores Limited
2
GBP1.00 Cumulative
Convertible Participating
Preferred Ordinary
100
GBP1.00 Cumulative
Redeemable Preference
100
GBP1.00 Ordinary
100
Dillons Newsagents Limited*
2 GBP0.25 Non–Voting Ordinary
100
dunnhumby International Limited
4
GBP1.00 Ordinary
100
dunnhumby Limited
4
GBP0.05 Ordinary
GBP0.10 A Ordinary
GBP0.10 Deferred
100
100
100
dunnhumby Overseas Limited
4
GBP1.00 Ordinary
100
dunnhumby Trustees Limited
4
GBP1.00 Ordinary
100
Giant Bidco Limited
8
GBP1.00 Ordinary
100
Giant Booker Limited
8
GBP0.0025 Ordinary
100
Giant Midco Limited
8
GBP1.00 Ordinary
100
Highams Green Management
Company Limited
1
Limited by Guarantee
–
IRTH (15) Limited
8
GBP1.00 Ordinary
100
IRTH (19) Limited
8
USD0.000000052383172
Ordinary
100
Launchgrain Limited†
1
GBP1.00 Ordinary
100
Name of undertaking
Registered
address
Class of share held
% held by
Group
Linnco Limited
8
GBP1.00 Ordinary
100
Londis (Holdings) Limited
8
GBP50.00 Ordinary
100
Londis Pension Trustees Limited
8
GBP1.00 Ordinary
100
Makro Holding Limited
8
GBP1.00 Ordinary
100
Makro Properties Limited
8
GBP1.00 Ordinary
100
Makro Self Service Wholesalers
Limited
8
GBP1.00 Ordinary A
GBP1.00 Ordinary B
100
100
Maldon Finance Limited
1
GBP0.01 Ordinary
100
GBP0.000000000592 A
Preference
100
GBP0.000000000222 B
Preference
100
GBP0.000000000740 C
Preference
100
Murdoch Norton Limited
8
GBP0.05 Ordinary
100
Oakwood Distribution Limited
1
GBP1.00 Ordinary
100
One Stop Community Stores
Limited
2 GBP0.00001200004 Ordinary
100
One Stop Convenience Stores
Limited
2
GBP1.00 Ordinary
100
One Stop Stores Limited†(a)
2
GBP1.00 Ordinary
100
One Stop Stores Trustee Services
Limited
2
GBP1.00 Ordinary
100
Orpington (Station Road) Limited
1
GBP1.00 Ordinary
100
Oxford Fox and Hounds
Management Company Limited
1
Limited by Guarantee
–
PTLL Limited
1
GBP1.00 Ordinary
100
Reskammel Property Company
Limited
1
GBP1.00 Ordinary
100
Seacroft Green Nominee 1 Ltd
1
GBP1.00 Ordinary
100
Seacroft Green Nominee 2 Ltd
1
GBP1.00 Ordinary
100
Spen Hill Developments Limited
1
GBP1.00 Ordinary
100
Spen Hill Management Limited†(b)
1
GBP1.00 Ordinary
100
Spen Hill Properties (Holdings)
plc†
1
GBP1.00 Ordinary
100
Spen Hill Regeneration Limited
1
GBP1.00 Ordinary
100
Spen Hill Residential No 1 Limited
1
GBP1.00 Ordinary
100
Spen Hill Residential No 2 Limited
1
GBP1.00 Ordinary
100
Station House Welling
Management Limited
1
Limited by Guarantee
–
Statusfloat Limited
1
GBP1.00 Ordinary
100
T&S Stores Limited†
2
GBP0.05 Ordinary
100
Tapesilver Limited†
1
GBP1.00 Ordinary
100
Teesport (GP) Limited
1
GBP1.00 Ordinary
100
The Teesport Unit Trust
33
-
100
Tesco (Overseas) Limited†
1
GBP1.00 Ordinary
100
Tesco Aqua (FinCo2) Limited
1
GBP1.00 Ordinary
100
Tesco Atrato (1LP) Limited
1
GBP1.00 Ordinary
100
Tesco Atrato (GP) Limited
1
GBP1.00 A Ordinary
100
GBP1.00 B Ordinary
100
Tesco Atrato (Nominee 1) Limited
1
GBP1.00 Ordinary
100
Tesco Atrato (Nominee 2) Limited
1
GBP1.00 Ordinary
100
Tesco Atrato (Nominee Holdco)
Limited
1
GBP1.00 Ordinary
100
Tesco Atrato Depot Propco
Limited
1
GBP1.00 Ordinary
100
Tesco Atrato Unit Trust
33
–
100
Tesco Blue (3LP) Limited
1
GBP1.00 Ordinary
100
Tesco Blue (GP) Limited
1
GBP1.00 A Ordinary
100
GBP1.00 B Ordinary
100
Tesco Blue (Nominee 1) Limited
1
GBP1.00 Ordinary
100
Tesco Blue (Nominee 2) Limited
1
GBP1.00 Ordinary
100
Tesco PLC Annual Report and Financial Statements 2024
212.
Financial statements
Strategic report
Governance
Additional information
Name of undertaking
Registered
address
Class of share held
% held by
Group
Tesco Blue (Nominee Holdco)
Limited
1
GBP1.00 Ordinary
100
Tesco Blue Unit Trust
33
-
100
Tesco Breakfast Unit Trust
33
-
100
Tesco Brislington Limited
1
GBP1.00 Ordinary
100
Tesco Bury Limited
1
GBP1.00 Ordinary
100
Tesco Corporate Treasury
Services PLC†
1
GBP1.00 Ordinary
100
Tesco Coral (GP) Limited
1
GBP1.00 A Ordinary
GBP1.00 B Ordinary
100
100
Tesco Coral (Nominee) Limited
1
GBP1.00 Ordinary
100
Tesco Depot Propco Limited
1
GBP1.00 Ordinary
100
Tesco Distribution Holdings
Limited
1
GBP1.00 Ordinary
100
Tesco Distribution Limited
1
GBP1.00 Ordinary
100
Tesco Dorney (1LP) Limited
1
GBP1.00 Ordinary
100
Tesco Dorney (GP) Limited
1
GBP1.00 A Ordinary
GBP1.00 B Ordinary
100
100
Tesco Dorney (Nominee 1)
Limited
1
GBP1.00 Ordinary
100
Tesco Dorney (Nominee 2)
Limited
1
GBP1.00 Ordinary
100
Tesco Dorney (Nominee Holdco)
Limited
1
GBP1.00 Ordinary
100
Tesco Employees’ Share
Scheme Trustees Limited†(c)
1
GBP1.00 Ordinary
100
Tesco Family Dining Limited
1
GBP1.00 Ordinary
100
Tesco Food Sourcing Limited
1
GBP1.00 Ordinary
100
Tesco Freetime Limited
1
GBP1.00 Ordinary
100
Tesco Fuchsia (3LP) Limited
1
GBP1.00 Ordinary
100
Tesco Gateshead Property
Limited
1
GBP1.00 Ordinary
100
Tesco Holdings Limited†
1
GBP0.10 Ordinary
100
Tesco International Services
Limited†
1
GBP1.00 Preference
GBP1.00 Ordinary
100
100
Tesco Lagoon GP Limited
5
GBP1.00 Ordinary
100
Tesco Maintenance Limited
1
GBP1.00 Ordinary
100
Tesco Mobile Communications
Limited†
1
GBP1.00 Ordinary
100
Tesco Mobile Services Limited
1
GBP1.00 Ordinary
100
Tesco Navona (1LP) Limited
1
GBP1.00 Ordinary
100
Tesco Navona (GP) Limited
1
GBP1.00 Ordinary A
100
GBP1.00 Ordinary B
100
Tesco Navona (Nominee 1)
Limited
1
GBP1.00 Ordinary
100
Tesco Navona (Nominee 2)
Limited
1
GBP1.00 Ordinary
100
Tesco Navona (Nominee Holdco)
Limited
1
GBP1.00 Ordinary
100
Tesco Navona PL Propco
Limited
1
GBP1.00 Ordinary
100
Tesco Overseas Investments
Limited†
1
GBP1.00 Ordinary
100
Tesco Passaic (1LP) Limited
1
GBP1.00 Ordinary
100
Tesco Passaic (GP) Limited
1
GBP1.00 Ordinary A
100
GBP1.00 Ordinary B
100
Tesco Passaic (Nominee 1)
Limited
1
GBP1.00 Ordinary
100
Tesco Passaic (Nominee 2)
Limited
1
GBP1.00 Ordinary
100
Tesco Passaic (Nominee Holdco)
Limited
1
GBP1.00 Ordinary
100
Tesco Passaic PL Propco Limited
1
GBP1.00 Ordinary
100
Tesco Pension Investment
Limited(d)
1
GBP1.00 Ordinary
100
Tesco Pension Trustees Limited†
1
GBP1.00 Ordinary
100
Tesco Personal Finance Group
PLC†
6
GBP0.10 A Ordinary
GBP0.10 B Ordinary
100
100
GBP0.10 C Ordinary
100
Tesco Personal Finance PLC
6
GBP0.10 Ordinary
100
Tesco Property (Nominees)
Limited
11
GBP1.00 Ordinary
100
Name of undertaking
Registered
address
Class of share held
% held by
Group
Tesco Property (Nominees)
(No.1) Limited
11
GBP1.00 Ordinary
100
Tesco Property (Nominees)
(No.2) Limited
11
GBP1.00 Ordinary
100
Tesco Property Finance 1
Holdco Limited
1
GBP1.00 Ordinary
100
Tesco Property Finance 1 PLC
1
GBP1.00 Ordinary
GBP0.25 Ordinary(e)
100
100
Tesco Property Holdings (No.2)
Limited
1
GBP1.00 Ordinary
100
Tesco Property Holdings Limited
1
GBP1.00 Ordinary
100
Tesco Property Nominees (No.5)
Limited
1
GBP1.00 Ordinary
100
Tesco Property Nominees (No.6)
Limited
1
GBP1.00 Ordinary
100
Tesco Property Partner (GP)
Limited†
1
GBP1.00 A Ordinary
GBP1.00 B Ordinary
100
100
Tesco Property Partner (No.1)
Limited†
1
GBP1.00 Ordinary
100
Tesco Sarum (1LP) Limited
1
GBP1.00 Ordinary
100
Tesco Sarum (GP) Limited
1
GBP1.00 Ordinary A
100
GBP1.00 Ordinary B
100
Tesco Sarum (Nominee 1)
Limited
1
GBP1.00 Ordinary
100
Tesco Sarum (Nominee 2)
Limited
1
GBP1.00 Ordinary
100
Tesco Sarum (Nominee Holdco)
Limited
1
GBP1.00 Ordinary
100
Tesco Seacroft Ltd
1
GBP1.00 Ordinary
100
Tesco Secretaries Limited
1
GBP1.00 Ordinary
100
Tesco Services Limited
1
GBP1.00 Ordinary
100
Tesco Stores Limited
1
GBP1.00 Ordinary
100
GBP1.00 A Preference
100
GBP1.00 B Preference
100
Tesco Underwriting Limited
31
GBP1.00 A Ordinary
GBP1.00 B Ordinary
100
100
The Big Food Group Limited
8
GBP0.10 Ordinary
100
The Teesport Limited
Partnership
1
Limited Partnership
100
The Tesco Atrato Limited
Partnership
1
Limited Partnership
100
The Tesco Blue Limited
Partnership
1
Limited Partnership
100
The Tesco Coral Limited
Partnership
1
Limited Partnership
100
The Tesco Dorney Limited
Partnership
1
Limited Partnership
100
The Tesco Navona Limited
Partnership
1
Limited Partnership
100
The Tesco Passaic Limited
Partnership
1
Limited Partnership
100
The Tesco Property Limited
Partnership
1
Limited Partnership
100
The Tesco Sarum Limited
Partnership
1
Limited Partnership
100
TPI Fund Managers Limited
1
GBP1.00 Ordinary
100
TPT Holdco No.1 Limited
1
GBP1.00 Ordinary
100
Transcend Retail Solutions
Limited
1
GBP1.00 Ordinary
100
TSFM Limited
1
GBP1.00 Ordinary
100
Weymouth Avenue (Dorchester)
Limited
1
GBP1.00 Ordinary
100
Waterside General Partner
Limited
13
GBP1.00 Ordinary
100
Tesco PLC Annual Report and Financial Statements 2024
213.
Financial statements
Strategic report
Governance
Additional information
Related undertakings of the Group continued
International subsidiary undertakings
Name of undertaking
Registered
address
Class of share held
% held by
Group
Arena (Jersey) Management
Limited†
33
GBP1.00 Ordinary
100
Cheshunt Holdings Guernsey
Limited
27
GBP1.00 Ordinary
100
dunnhumby Korea Limited
65
KRW5,000 Ordinary
100
dunnhumby (Malaysia) Sdn Bhd
10
MYR1.00 Ordinary
100
dunnhumby (Thailand) Limited
72
THB100 Ordinary
100
dunnhumby Australia Pty Ltd
64
AUD1.00 Ordinary
100
dunnhumby Brasil Consultoria Ltda
76
BRL1.00 Ordinary
100
dunnhumby Canada Limited
58
CAD1.00 Ordinary
100
dunnhumby Chile SpA
48
CLP500,000 Ordinary
100
dunnhumby Colombia S.A.S.
73
COP1,000 Ordinary
100
dunnhumby Consulting Services
India Private Limited
59
INR10.00 Ordinary
100
dunnhumby Czech s.r.o.
7
CZK1.00 Ordinary
100
dunnhumby Denmark ApS
56
DKK1.00 Ordinary
100
dunnhumby Finland Oy
30
EUR25 Ordinary
100
dunnhumby France SAS
18
EUR2.00 Ordinary
100
dunnhumby Germany GmbH
14
EUR1.00 Ordinary
100
dunnhumby Hungary Kft
32
Ordinary HUF1.00
100
dunnhumby Inc.
35 No par value Common Stock
100
dunnhumby Information
Technology Consulting (Shanghai)
Company Limited
61
USD1.00 Common Stock
100
dunnhumby Ireland Limited
66
EUR1.00 Ordinary
100
dunnhumby IT Services India Private
Limited
36
INR10.00 Ordinary
100
dunnhumby Italia Srl.
37
EUR1.00 Ordinary
100
dunnhumby Japan K.K.
38
JPY10,000 Ordinary
100
dunnhumby México S. de R.L. de
C.V.
68
MXN30.00 Partner Quota
MXN2,970 Partner Quota
100
100
dunnhumby Netherlands B.V.
69
EUR100 Ordinary
100
dunnhumby New Zealand
63
NZD1.00 Ordinary
100
dunnhumby Poland sp. z.o.o.
42
PLN50,000 Ordinary
100
dunnhumby Singapore Pte. Ltd
19
SGD1.00 Ordinary
100
dunnhumby SARL
60
EUR100 Ordinary
100
dunnhumby Serviços de Promoção
Digital Ltda
16
BRL1.00 Ordinary
100
dunnhumby Slovakia s.r.o.
57
EUR5,000 Issued Capital
100
dunnhumby Spain S.L.
50
EUR1.00 Ordinary
100
dunnhumby South Africa (Pty) Ltd
43
ZAR1.00 Ordinary
100
dunnhumby Ventures LLC
44
USD1.00 Capital
100
Edson Properties Limited
24
EUR1.00 Ordinary
100
ELH Insurance Limited
70
GBP1.00 Ordinary
100
Name of undertaking
Registered
address
Class of share held
% held by
Group
Gresham Properties Limited
24
EUR1.00 Ordinary
100
Joyce’s Supermarkets (Oranmore)
ULC
23
EUR1.00 Ordinary
100
Monread Developments Limited
24
EUR0.001 Ordinary
100
Nabola Development Limited
24
EUR1.25 A Ordinary
EUR1.25 B Ordinary
100
100
Opal Jewel sp. z.o.o.
74
PLN50 Ordinary
100
Shopping Mall Eden s.r.o.
7
CZK1.00 Ordinary
100
Sociomantic Labs Private Limited
46
INR10 Ordinary
100
Tesco Akadémia Képzési és
Fejlesztési Korátolt Felelősségű
Társaság
32
HUF1.00 Business Share
100
Tesco Bengaluru Private Limited
41
INR10 Ordinary
100
Tesco Capital No. 1 Limited†
28
GBP0.50 A Ordinary
GBP0.50 B Ordinary
GBP0.01 Guaranteed
Cumulative Fixed Rate
Preference
GBP0.01 Preferred Ordinary
100
100
100
100
Tesco Sourcing Chile SpA
22
CLP564,92 Nominal
100
Tesco Corporate Treasury
Services Europe Designated
Activity Company
24
EUR1.00 Ordinary
100
Tesco Franchise Stores ČR s.r.o.
7
CZK2,000,000 Ordinary
100
Tesco Franchise Stores SR s.r.o.
67
EUR2,249,500 registered
capital
100
Tesco-Global Stores Privately Held
Company Limited
32
HUF10 Common
100
Tesco Holdings B.V.
40
EUR1.00 Ordinary
100
Tesco International Clothing Brand
s.r.o.
57
EUR1.00 Ordinary
100
Tesco International Franchising
s.r.o.
57
EUR1.00 Ordinary
100
Tesco International Sourcing
Limited
20
HKD10 Ordinary
100
Tesco Ireland Holdings Limited
24
EUR0.00008 Ordinary
100
Tesco Ireland Limited
24
EUR1.25 Ordinary
100
Tesco Ireland Pension Trustees
Designated Activity Company
24
EUR1.25 Ordinary
100
Tesco Joint Buying Service
(Shanghai) Co. Limited
75
USD1.00 Ordinary
100
Tesco Mobile Ireland Limited
24
EUR1.00 Ordinary
100
Tesco Sourcing India Private
Limited
41
INR10 Ordinary
100
Tesco Stores ČR a.s.
7
CZK250 Ordinary
100
Tesco Stores SR, a.s.
57
EUR33,193.92 Ordinary
100
Tesco Technology and Services
Europe sp. z.o.o.
3
PLN50 Ordinary
100
Tesco Trustee Company of Ireland
Limited†
24
EUR1.25 Ordinary
100
TESCO-BST Üzleti és Technológiai
Szolgáltatások Zârtköruen Múködó
Részvénytársaság
25
HUF100,000 Ordinary
100
Tesco PLC Annual Report and Financial Statements 2024
214.
Financial statements
Strategic report
Governance
Additional information
Subsidiary undertakings in liquidation
The following subsidiary undertakings were incorporated in the
United Kingdom
Name of undertaking
Registered
address
Class of share held
% held by
Group
dunnhumby Holding Limited
9
GBP1.00 Ordinary
100
Paper Chain (East Anglia) Limited
9 GBP0.000737844019 Ordinary
100
Reefknot Technology Limited(f)
9
GBP1.00 Ordinary
100
Stewarts Supermarkets Limited†
9
GBP1.00 Ordinary
100
Tesco Aqua (GP) Limited
1
GBP0.0001 A Ordinary
100
Tesco International Internet
Retailing Limited†
9
GBP0.0001 B Ordinary
GBP0.0000013543 Ordinary
100
100
Tesco PEG Limited
9
GBP0.01 Ordinary
100
Tesco PENL Limited
9
GBP1.00 Ordinary
100
Tesco Property Partner (GP
No.2) Limited
1
GBP1.00 A Ordinary
GBP1.00 B Ordinary
100
100
Tesco Red (GP) Limited
1
GBP0.00001 Ordinary A
100
GBP0.00001 Ordinary B
100
Tesco TLB Properties Limited
1
GBP0.0000001 A Ordinary
GBP0.0000001 B Ordinary
100
100
The following subsidiary undertakings were incorporated outside of
the United Kingdom
Name of undertaking
Registered
address
Class of share held
% held by
Group
Patrick C. Joyce Supermarket
(Headford) ULC
24
EUR1.25 Ordinary
100
Tesco Capital No.2 Limited
17
GBP0.01 Floating Rate
Redeemable Preference
GBP1.00 Ordinary
100
100
Associated undertakings
The following associated undertakings were incorporated in the
United Kingdom
Name of undertaking
Registered
address
Class of share held
% held by
Group
Broadfields Management
Limited
12
GBP0.10 Ordinary
35.33
Holmscroft H.C. Limited
23
GBP0.10 Ordinary
14.29
Shire Park Limited
15
GBP1.00 Ordinary
48.57
Tesco Jade (GP) Limited
29
GBP1.00 A Ordinary
30
GBP1.00 B Ordinary
30
Tesco Jade (Nominee) Limited
29
GBP1.00 Ordinary
30
Tesco Mobile Limited*
1
GBP0.10 A Ordinary
100
GBP0.90 B Ordinary
100
WBD (Chesterfield Management)
Limited
53
GBP1.00 Ordinary
16.67
The following associated undertakings were incorporated outside of
the United Kingdom
Name of undertaking
Registered
address
Class of share held
% held by
Group
The Arena Unit Trust
33
–
50
The Blackpool Unit Trust
33
–
50
The Broadstairs Unit Trust
33
–
50
The Coventry Unit Trust
33
–
50
Booker India Limited
76
INR5 Equity
49
China Wisdom dunnhumby
Limited
52
No Par Value Ordinary
50
China Wisdom dunnhumby
(Shanghai) Limited
62
CNY1.00 Ordinary
50
dunnhumby Mitsui Bussan
Customer Science Co., Ltd
54
JPY50,000 Ordinary
50
dunnhumby Norge A.S.
55
NOK1,000 Ordinary
50
Fiora Hypermarket Limited
26
INR10 Equity
49
Fiora Online Limited
26
INR10 10% Non-Convertible
Redeemable Preference
INR10 0.01% Non-Cumulative
Redeemable Preference
INR10 Equity
49
49
49
Merrion Shopping Centre Ltd
24
EUR0.012697 Ordinary
51.88
Tesco Mobile ČR s.r.o.
7
CZK100,000 Ordinary
50
Tesco Mobile Slovakia s.r.o.
71
EUR1.00 Ordinary
50
THPL Support Services Limited
76
INR100 Equity
50
Trent Hypermarket Private
Limited
76
INR10 Equity
50
Consolidated structured entities
Name of undertaking
Registered
address
Nature of business
Delamare Cards Holdco Limited
47
Securitisation entity
Delamare Cards MTN Issuer PLC
47
Securitisation entity
Delamare Cards Receivables Trustee Limited
47
Securitisation entity
Delamare Cards Funding 1 Limited
47
Securitisation entity
Delamare Cards Funding 2 Limited
47
Securitisation entity
Delamare Finance PLC
11
Securitisation entity
Delamare Group Holdings Limited
11
Securitisation entity
Tesco Property Finance 2 PLC
11
Securitisation entity
Tesco Property Finance 5 PLC
11
Securitisation entity
Tesco Property Finance 6 PLC
11
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 dissolved on 13 March 2024.
Tesco PLC Annual Report and Financial Statements 2024
215.
Financial statements
Strategic report
Governance
Additional information
Related undertakings of the Group continued
1
Tesco House, Shire Park, Kestrel Way, Welwyn Garden City, AL7 1GA,
United Kingdom
2
Apex Road, Brownhills, Walsall, West Midlands, WS8 7HU, United Kingdom
3
ul. Przy Rondzie 4, 31-547 Kraków, Poland
4
184 Shepherds Bush Road, London, W6 7NL, United Kingdom
5
C/O Morton Fraser LLP, 5th Floor, Quartermile Two, 2 Lister Square, Edinburgh,
Scotland, EH3 9GL, United Kingdom
6
2 South Gyle Crescent, Edinburgh, EH12 9FQ, United Kingdom
7
Vršovická 1527/68b, Vršovice, 100 00 Prague 10, Czech Republic
8
Equity House, Irthlingborough Road, Wellingborough, Northamptonshire, NN8 1LT,
United Kingdom
9
Ernst & Young LLP, 1 More London Place, London, SE1 2AF, United Kingdom
10
Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50400
Kuala Lumpur, Malaysia
11
1 Bartholomew Lane, London, EC2N 2AX, United Kingdom
12
2 Paris Parklands, Railton Road, Guildford, Surrey, GU2 9JX, United Kingdom
13
Suite 3, 7th Floor, 50 Broadway, London, SW1H 0DB, United Kingdom
14
Ritterstraße 6, 10969 Berlin, Germany
15
Riverside House, 3 Place Farm, Wheathampstead, St. Albans, AL4 8SB,
United Kingdom
16
Avenida Brigadeiro Luís Antônio, No. 3530, cj 51 and 52, Jardim Paulista São Paulo
01402-001, Brazil
17
c/o Ernst & Young LLP, Castle Street, St Helier, JE1 1EY, Jersey
18
Spaces les Halles - Spaces 40 rue du Louvre 75001, Paris, France
19
50 Raffles Place #19-00, Singapore Land Tower, Singapore 04862
20
2604-2605 AXA Tower, Landmark East, No. 100 How Ming Street, Kowloon,
Hong Kong
21
5 Esperidon Street, 4th floor, 2001 Strovolos, Nicosia, Cyprus
22
Avenida Santa María 5888, Piso 2 Zona A, Oficina 4, Vitacura, Santiago, 7660268,
Chile
23
Church Road, Headford, 0000 Galway, Ireland
24
Gresham House, Marine Road, Dun Laoghaire, Co. Dublin A96 HX70, Ireland
25
1138, Budapest, Váci út, 187, Hungary
26
Trent House, Plot No C-60, G-Block, Besides Citi Bank, Bandra Kurla Complex,
Bandra (East), Mumbai 400051, India
27
PO Box 25, Regency Court, Glategny Esplanade, St. Peter Port, Guernsey, GY1 3AP
28
Level 1, IFC1 Esplanade, St Helier, Jersey, JE2 3BX
29
C/O TMF Group, 13th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom
30
c/o Rantalainen Oy, Helsinki Rajatorpantie 8, 01600 Vantaa, Finland
31
The Omnibus Building, Lesbourne Road, Reigate, Surrey, RH2 7LD, United Kingdom
32
2040 Budaörs, Kinizsi út 1-3, Budapest, Hungary
33
47 Esplanade, St Helier, Jersey, JE1 0BD
34
No. 725 Metropolis Building, Level 20, Suite 161, Sukhumvit Road, Klongtan Nua
Sub-District, Wattana District, BANGKOK 10110, Thailand
35
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
District, Indira Ghandi Int. Airport, New Delhi, South West Delhi DL 110037, India
37
Foro Buonaparte 67, 20121 Milano, Italy
38
9th Floor, Shiroyama Trust Tower, 4-3-1, Toranomon 4-chome, Minato-ku, Tokyo
105-6009, Japan
39
38/39 Fitzwilliam Square, Dublin 2, Ireland
40
Willemsparkweg 150H, 1071 HS, Amsterdam, The Netherlands
41
81 & 82, EPIP Area, Whitefield, Bangalore, 560066, India
42
ul. Grzybowska 2/29, 00-131 Warsaw, Poland
43
c/o Eversheds Sutherland, 3rd Floor, 54 Melrose Boulevard, Melrose Arch, Gauteng,
2196, South Africa
44
3300 Great American Tower, 301 East Fourth Street, Cincinnati, OH, 45202,
United States
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
47
6th Floor, 125 London Wall, London, EC2Y 5AS, United Kingdom
48
Antonio Bellet 444 Oficina 504 Comuna de Las Condes, Ciudad de Santiago,
7500025, Chile
49
163 Tras Street, #03-01, Lian Huat Building, 079024, Singapore
50
Paseo de General Martinez Campos, nº 9 1º izquierda, 28010 Madrid, Spain
51
Centre de Commerces et de, Loisirs, Cite Europe, 62231 Coquelles, France
52
Suite 1106-8, 11/F Tai Yau Building, No 181 Johnston Road, Wanchai, Hong Kong
53
Barratt House Cartwright Way Forest Business Park, Bardon Hill, Coalville,
Leicestershire, LE67 1UF, United Kingdom
54
Kojimachiterrace 4F, Kojimachi 3-1, Chiyoda-ku, Tokyo, Japan
55
Rosenkrantzgate 16, Oslo O160, Norway
56
c/o Coop Danmark, Roskildevej 65, 2620 Albertslund, Denmark
57
Cesta na Senec 2, Bratislava, 821 04, Slovakia
58
1400-340 Albert Street, Ottawa, Ontario K1R 0A5, Canada
59
4th Floor, Tower B, Paras Twin Towers, DLF Golf Course Road, Sector 54, Gurgaon,
Haryana-HR, 122002, India
60
48 rue Cambon, 75001, Paris, France
61
Room 1001, Enterprise Development Tower, Unit 01 - 10th Floor, No 398, Jiangsu Road,
Changning District, Shanghai 200050, People’s Republic of China
62
Room 2393, 2/F, No.3 Xuanhua Road, Changning District, Shanghai, People’s Republic of
China
63
RSM New Zealand, Level 2, 60 Highbrook Drive, East Tamaki, Auckland, 2013,
New Zealand
64
C/O RSM Australia Pty Ltd, Level 21, 55 Collins Street, Melbourne, VIC 3000, Australia
65
3F-5F, 23 Jongno 12-gil, Jongno-gu, 03190 Seoul, South Korea
66
Floor 3, 2 Harbour Square, Crofton Road, Dun Laoghaire, Dublin A96D6R0, Ireland
67
Veterná 7310/40, 917 01 Trnava, Slovakia
68
Av President Masarik No. 111, Piso 1, Colina Polance V Seccion Delegacion Miguel Hidalgo,
Mexico 11560, Mexico
69
Regus Amsterdam Sloterdijk Teleport Towers, Kingsfordweg 151, 1043 GR Amsterdam,
The Netherlands
70
Dorey Court, Admiral Park, St. Peter Port, GY1 4AT, Guernsey
71
Einsteinova 24, Bratislava 851 01, Slovakia
72
No 319 Chamchuri Square Building, 24th Floor, Office no. 24116, Phayathai road,
Pathumwan sub district, Pathumwan District, Bangkok 10330, Thailand
73
Calle CR 48 NO 32B SUR 139 OF 909 P 9, Envigado, Antioquia, Colombia
74
ul. Gorczewska 216, 01-460 Warsaw, Poland
75
Unit 01, 02, 06, 07, 08, 09, Floor 17, No. 610 Xujiahui Road, Huangpu District, Shanghai,
People’s Republic of China
76
Taj Building, 2nd Floor, 210, Dr D.N. Road, Fort, Mumbai 400001, India
Tesco PLC Annual Report and Financial Statements 2024
216.
Financial statements
Strategic report
Governance
Additional information
Supplementary information (unaudited)
One-year like-for-like sales performance (exc. VAT, exc. fuel)
Like-for-like sales
Q1
2023/24
Q2
2023/24
Q3
2023/24
Q4
2023/24
H1
2023/24
H2
2023/24
FY
2023/24
UK & ROI
8.8%
8.0%
7.3%
5.2%
8.4%
6.2%
7.3%
UK
9.0%
8.4%
7.9%
5.8%
8.7%
6.8%
7.7%
ROI
7.3%
6.5%
8.3%
5.4%
6.9%
6.7%
6.8%
Booker
8.4%
6.6%
3.9%
2.5%
7.5%
3.2%
5.4%
Central Europe
1.1%
0.7%
(1.4)%
0.2%
0.9%
(0.5)%
0.2%
Total Retail
8.2%
7.5%
6.6%
4.8%
7.8%
5.7%
6.8%
Total sales performance (exc. VAT, exc. fuel)
Actual rates
Constant rates
H1
2023/24
H2
2023/24
FY
2023/24
H1
2023/24
H2
2023/24
FY
2023/24
UK & ROI
8.9%
6.3%
7.6%
8.8%
6.4%
7.6%
UK
9.1%
7.2%
8.1%
9.1%
7.2%
8.1%
ROI
13.0%
6.1%
9.3%
10.0%
7.3%
8.5%
Booker
6.9%
2.2%
4.6%
6.9%
2.2%
4.6%
Central Europe
6.7%
(0.2)%
3.1%
1.4%
(0.1)%
0.6%
Total Retail
8.7%
5.8%
7.3%
8.2%
5.9%
7.0%
Country detail – Retail
Revenue (exc. VAT, inc. fuel)
Local
currency
(m)
£m
Average
exchange
rate
Closing
exchange
rate
UK
50,907
50,907
1.0
1.0
ROI
3,340
2,891
1.2
1.2
Booker
9,082
9,082
1.0
1.0
Czech Republic
43,384
1,554
27.9
29.7
Hungary
665,208
1,512
440.0
455.5
Slovakia
1,652
1,430
1.2
1.2
UK sales area by size of store
24 February 2024
25 February 2023
Store size (sq. ft.)
No. of stores
Million sq. ft.
% of total
sq. ft.
No. of stores
Million sq. ft.
% of total
sq. ft.
0-3,000
2,675
5.8
14.9%
2,605
5.6
14.6%
3,001-20,000
279
2.9
7.5%
276
2.9
7.6%
20,001-40,000
288
8.3
21.3%
286
8.2
21.2%
40,001-60,000
182
8.8
22.6%
182
8.8
22.8%
60,001-80,000
119
8.4
21.6%
119
8.4
21.6%
80,001-100,000
45
3.7
9.5%
45
3.7
9.6%
Over 100,000
8
1.0
2.6%
8
1.0
2.6%
Total*
3,596
38.9
100.0%
3,521
38.6
100.0%
* Excludes Booker and franchise stores.
Tesco PLC Annual Report and Financial Statements 2024
217.
Strategic report
Governance
Additional information
Additional information
Financial statements
Supplementary information (unaudited) continued
Group space summary
Actual Group space – store numbers(a)
2022/23
year end
Openings
Closures/
disposals
Net gain/
(reduction)(b)
2023/24
year end
Repurposing/
extensions(c)
Large(d)
806
7
(4)
3
809
–
Convenience(d)
1,997
60
(9)
51
2,048
–
Dotcom only
6
–
–
–
6
–
Total Tesco
2,809
67
(13)
54
2,863
–
One Stop(e)
712
27
(6)
21
733
–
Booker
191
–
(1)
(1)
190
–
UK(e)
3,712
94
(20)
74
3,786
–
ROI
166
5
(1)
4
170
–
UK & ROI(e)
3,878
99
(21)
78
3,956
–
Czech Republic(e)
187
2
(5)
(3)
184
6
Hungary
197
–
–
–
197
21
Slovakia(e)
157
12
–
12
169
9
Central Europe(e)
541
14
(5)
9
550
36
Group(e)
4,419
113
(26)
87
4,506
36
UK (One Stop)
291
43
(17)
26
317
–
Czech Republic
124
3
(8)
(5)
119
–
Slovakia
25
6
(31)
(25)
–
–
Franchise stores
440
52
(56)
(4)
436
–
Total Group
4,859
165
(82)
83
4,942
36
Actual Group space – ’000 sq. ft.(a)
2022/23
year end
Openings
Closures/
disposals
Repurposing/
extensions(c)
Net gain/
(reduction)
2023/24
year end
Large(d)
31,427
128
(50)
–
78
31,505
Convenience(d)
5,344
151
(40)
–
111
5,455
Dotcom only
716
–
–
–
–
716
Total Tesco
37,487
279
(90)
–
189
37,676
One Stop(e)
1,169
49
(10)
–
39
1,208
Booker
8,181
–
(87)
–
(87)
8,094
UK(e)
46,837
328
(187)
–
141
46,978
ROI
3,478
38
(17)
–
21
3,499
UK & ROI(e)
50,315
366
(204)
–
162
50,477
Czech Republic(e)
4,146
20
(22)
(43)
(45)
4,101
Hungary
5,670
–
–
(298)
(298)
5,372
Slovakia(e)
3,147
67
–
(1)
66
3,213
Central Europe(e)
12,963
87
(22)
(342)
(277)
12,686
Group(e)
63,278
453
(226)
(342)
(115)
63,163
UK (One Stop)
420
61
(22)
–
39
459
Czech Republic
114
3
(9)
–
(6)
108
Slovakia
23
6
(29)
–
(23)
–
Franchise stores
557
70
(60)
–
10
567
Total Group
63,835
523
(286)
(342)
(105)
63,730
(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) 2022/23 UK store numbers have been updated to reflect an extension of a Convenience store to a Large store and to reflect the conversion of Jack’s stores last year.
(e) Excludes franchise stores.
Tesco PLC Annual Report and Financial Statements 2024
218.
Strategic report
Governance
Additional information
Financial statements
Group space forecast to 22 February 2025 – ’000 sq. ft(a)
2023/24
year end
Openings
Closures/
disposals
Repurposing/
extensions(b)
Net gain/
(reduction)(c)
2024/25
year end
Large
31,505
61
–
5
66
31,571
Convenience
5,455
201
(29)
–
172
5,627
Dotcom only
716
–
–
–
–
716
Total Tesco
37,676
262
(29)
5
238
37,914
One Stop(d)
1,208
57
(13)
–
44
1,252
Booker
8,094
–
–
–
–
8,094
UK(d)
46,978
319
(42)
5
282
47,260
ROI
3,499
100
–
–
100
3,599
UK & ROI(d)
50,477
419
(42)
5
382
50,859
Czech Republic(d)
4,101
61
–
(38)
23
4,124
Hungary
5,372
2
–
(108)
(106)
5,266
Slovakia(d)
3,213
51
–
(31)
20
3,233
Central Europe(d)
12,686
114
-
(177)
(63)
12,623
Group(d)
63,163
533
(42)
(172)
319
63,482
UK (One Stop)
459
129
(14)
–
115
574
Czech Republic
108
1
(4)
–
(3)
105
Slovakia
–
–
–
–
–
–
Franchise stores
567
130
(18)
–
112
679
Total Group
63,730
663
(60)
(172)
431
64,161
(a) Continuing operations.
(b) Repurposing of retail selling space.
(c) The net gain/(reduction) reflects the number of store openings less the number of store closures/disposals and repurposing/extensions.
(d) Excludes franchise stores.
Tesco Bank income statement
2024(a)
£m
2023(a)
(restated(b))
£m
Revenue
Interest income
94
38
Fees and commissions income
203
170
Insurance revenue
514
458
811
666
Direct costs
Interest payable
(67)
(34)
Fees and commissions expense
(1)
–
Insurance service expenses(c)
(454)
(408)
Net expenses from reinsurance contracts held
(48)
(37)
(570)
(479)
Other income/(expenses)
(1)
(5)
Gross profit
240
182
Other expenses
Staff costs
(50)
(46)
Premises and equipment
(37)
(36)
Other administrative expenses
(72)
(64)
Depreciation and amortisation(c)
(12)
(14)
Adjusted operating profit
69
22
Adjusting items(d)
(3)
(5)
Operating profit/(loss)
66
17
Finance income/(costs): movements on derivatives and hedge accounting
5
–
Finance income/(costs): interest
(15)
(8)
Finance income/(costs): insurance
(6)
(3)
Profit/(loss) before tax from continuing operations
50
6
Discontinued operations
Profit/(loss) before tax from discontinued operations
(665)
107
Profit/(loss) before tax
(615)
113
(a) These results are for the 12 months ended 29 February 2024 and the previous period represents the 12 months ended 28 February 2023.
(b) Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
(c) Depreciation and amortisation of £(5)m (2023: £(5)m) form part of insurance service expenses.
(d) Adjusting items of £nil in 2024 (2023: £(5)m) relate to operational restructuring changes, as part of the multi-year Save to Invest programme. Refer to Note 4 for
further details.
Tesco PLC Annual Report and Financial Statements 2024
219.
Strategic report
Governance
Additional information
Additional information
Financial statements
Glossary – Alternative performance measures
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.
All income statement measures are presented on a continuing operations basis.
Changes to APMs
To align with how management consider property disposals, store buybacks, and properties acquired through business combinations, the
Directors have amended the Retail free cash flow and Capex definitions to exclude store property purchases. These transactions are
excluded because of their unpredictable or irregular timing.
During the financial year, Tesco Bank paid a £250m special dividend that represented a one-off return of excess capital from the Bank to the
Retail segment. As this is not expected to recur, management have excluded it from the Retail free cash flow measure, as this best helps
comparability of the Retail segment over time.
In addition to the change described above, the Retail free cash flow description and reconciliation has been simplified to list the investing
cash flows that are included in the APM rather than those that are excluded.
The Directors have clarified the definition of Net debt in light of Banking operations (within the Tesco Bank segment) being classified as
discontinued. Net debt continues to exclude Tesco Bank. Only Retail continuing and discontinued operations are included in Net debt.
The Directors have also removed Net interest margin from the APMs, as it no longer forms part of how management considers the long-term
performance of the business.
Group APMs
APM
Closest equivalent
IFRS measure
Adjustments to reconcile
to IFRS measure
Definition and purpose
Income statement
Revenue measures
Sales
Revenue
– Fuel sales
– 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.
– This is a key management incentive metric.
– This measure is also presented on a Retail and Tesco Bank basis.
Growth in sales
No direct equivalent
– Ratio N/A
– Growth in sales is a ratio that measures year-on-year
movement in Group sales for continuing operations for
52 weeks. It shows the annual rate of increase in the Group’s
sales and is considered a good indicator of how rapidly
the Group’s core business is growing.
Like-for-like (LFL)
No direct equivalent
– Ratio N/A
– LFL 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.
Tesco PLC Annual Report and Financial Statements 2024
220.
Strategic report
Governance
Additional information
Financial statements
APM
Closest equivalent
IFRS measure
Adjustments to reconcile
to IFRS measure
Definition and purpose
Profit measures
Adjusted operating profit
Operating profit from
continuing operations(a)
– 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 basis.
Adjusted total finance costs Finance costs
– Adjusting items(b)
– Adjusting items within finance costs include net pension finance
income/(costs) and fair value remeasurements on financial
instruments. 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
items on profit before tax. Refer to the APM Purpose section
of the Glossary and Note 1 for further information on
adjusting items.
Adjusted operating margin
No direct equivalent
– Ratio N/A
– 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.
Adjusted diluted earnings
per share
Diluted earnings per share
from continuing operations
– Adjusting items(b)
– 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 dilutive
share options.
Retail EBITDA (earnings
before adjusting items,
interest, tax, depreciation
and amortisation)
Retail operating profit from
continuing operations(a)
– Adjusting items(b)
– Depreciation and
amortisation
– 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.
Tax measures
Adjusted effective tax rate
Effective tax rate
– Adjusting items(b)
– 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.
(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 2024
221.
Strategic report
Governance
Additional information
Additional information
Financial statements
Glossary – Alternative performance measures continued
APM
Closest equivalent
IFRS measure
Adjustments to reconcile
to IFRS measure
Definition and purpose
Balance sheet measures
Net debt
No direct equivalent
– N/A
– Net debt excludes the net debt of Tesco Bank and includes the
net debt of Retail discontinued operations to reflect the net
debt obligations of the Retail business.
– Net debt comprises bank and other borrowings, lease liabilities
and net derivative financial instruments, offset by cash and cash
equivalents, short-term investments, joint venture loans, and
interest and other receivables.
– It is a useful measure of the progress in generating cash and
strengthening of the Group’s balance sheet position, and
is a measure widely used by credit rating agencies.
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
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
No direct equivalent
– Ratio N/A
– Fixed charge cover is calculated as the rolling 12-month Retail
EBITDA divided by the sum of net finance costs (excluding net
pension finance costs, finance charges payable on lease
liabilities, capitalised interest and fair value remeasurements
on financial instruments) 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
Property, plant and
equipment, intangible
asset, and investment
property additions,
excluding those from
business combinations
– Additions relating to
property buybacks
and store purchases
– Additions relating to
decommissioning
provisions and
similar items
– Capex excludes additions arising from business combinations,
buybacks of properties (typically stores), purchases of store
properties, as well as additions relating to decommissioning
provisions and similar items.
– Property buybacks and purchases of store properties are
variable in timing, with the number and value of transactions
dependent on opportunities that arise within any given financial
year. Excluding property buybacks and store property purchases
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 activities of the Retail
business less adjusting Retail operating cash flows.
– Retail investing cash flows relating to: the purchase of property,
plant and equipment, investment property and other long-term
assets (excluding property buybacks and store purchases);
purchase of intangible assets and investment property;
dividends received from Tesco Bank (excluding special
dividends); dividends received from joint ventures and
associates; and interest received.
– Financing cash flows relating to: market purchase of shares net
of proceeds from shares issued in relation to share schemes;
and Retail repayment of obligations under leases.
– 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 2024
222.
Strategic report
Governance
Additional information
Financial statements
APMs: Reconciliation of income statement measures
Retail EBITDA
Continuing operations
Notes
APM
2024
£m
APM
2023
(restated*)
£m
Operating profit
2
2,821
1,410
Exclude: Adjusting items
2
8
1,099
Adjusted operating profit
2
2,829
2,509
Exclude: Tesco Bank adjusted segmental profit
2
(148)
(22)
Exclude: Tesco Bank adjusted operating profit from discontinued operations
2
79
–
Retail adjusted operating profit
2
2,760
2,487
Include: Retail depreciation and amortisation before adjusting items
2
1,602
1,570
Retail EBITDA
4,362
4,057
* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
APMs: Reconciliation of balance sheet measures
Net debt
A reconciliation of Net debt is provided in Note 32.
Reconciliation from Retail free cash flow to Net debt
Notes
APM
2024
£m
APM
2023
£m
Opening Net debt
32
(10,493)
(10,516)
Retail free cash flow
2,063
2,133
Other cash movements:
Own shares purchased for cancellation
2
(752)
(781)
Dividends paid to equity owners
2
(778)
(859)
Special dividends received from Tesco Bank
2
250
–
Adjusting items included in operating cash flow activities
2
(98)
(61)
Retail repayments of capital element of obligations under leases
2
623
589
Retail interest paid on lease liabilities
372
371
Retail net other interest paid/(received)
2
188
202
Retail proceeds from sale of property, plant and equipment, investment property, intangible assets and
assets held for sale
2
55
341
Cash outflows attributable to property buybacks and store purchases
2
(121)
(75)
Other investing cash movements
2
(2)
(281)
Non-cash movements in Net debt:
Retail fair value movements
(71)
(18)
Retail foreign exchange movements
126
(191)
Retail net interest charge
(161)
(187)
Retail non-cash movements in lease liabilities
(914)
(1,113)
Retail movement in net debt of disposal group
14
–
Retail non-cash movement arising from acquisitions and disposals
(68)
(46)
Other non-cash movements
3
(1)
Closing Net debt
32
(9,764)
(10,493)
Net debt/EBITDA and Total indebtedness ratio
Notes
APM
2024
£m
APM
2023
(restated*)
£m
Net debt
32
9,764
10,493
Retail EBITDA
4,362
4,057
Net debt/EBITDA ratio
2.2
2.6
Net debt
32
9,764
10,493
Include: Defined benefit pension deficit, net of deferred tax
29
493
300
Total indebtedness
10,257
10,793
Retail EBITDA
4,362
4,057
Total indebtedness ratio
2.4
2.7
* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
Tesco PLC Annual Report and Financial Statements 2024
223.
Strategic report
Governance
Additional information
Additional information
Financial statements
Glossary – Alternative performance measures continued
Fixed charge cover
Notes
APM
2024
£m
APM
2023
(restated*)
£m
Net finance costs
5
538
536
Exclude: Net pension finance income/(costs)
5
(18)
80
Exclude: Fair value remeasurements of financial instruments
5
38
(53)
Adjusted total finance costs
558
563
Exclude: Finance charges payable on lease liabilities
5
(373)
(371)
Adjusted total finance cost, excluding capitalised interest and finance charges payable on lease
liabilities
185
192
Include: Total lease liability payments
12
1,000
966
Exclude: Discontinued operations total lease liability payments
(3)
(2)
1,182
1,156
Retail EBITDA
4,362
4,057
Fixed charge cover (ratio)
3.7
3.5
* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 7 and 33
for further details.
Capex
Notes
APM
2024
£m
APM
2023
£m
Property, plant and equipment additions(a)
11
1,198
1,252
Other intangible asset additions(a)
10
275
277
Exclude: Additions from obtaining control of property joint venture(b)
11
(65)
(248)
Exclude: Additions from property buybacks
11
(78)
(29)
Exclude: Additions from store purchases
11
(29)
–
Exclude: Additions relating to decommissioning provisions and similar items
13
(17)
Capex
1,314
1,235
(a) Excluding amounts acquired through business combinations.
(b) Acquisition of The Tesco Coral Limited Partnership in 2024 and The Tesco Dorney Limited Partnership in 2023.
Tesco PLC Annual Report and Financial Statements 2024
224.
Strategic report
Governance
Additional information
Financial statements
APMs: Reconciliation of cash flow measures
Notes
APM
2024
£m
APM
2023
£m
Cash generated from/(used in) operating activities
2
3,839
3,722
Exclude: Cash (generated from)/used in operating activities in Tesco Bank
2
35
–
Exclude: Cash (generated from)/used in operating activities in discontinued operations
2
(162)
30
Retail cash generated from/(used in) operating activities
2
3,712
3,752
Exclude: Retail adjusting net cash (generated from)/used in operating activities
2
98
61
Retail adjusted cash generated from/(used in) operating activities
3,810
3,813
Include the following cash flows generated from/(used in) investing activities:
Retail purchase of property, plant and equipment, investment property and other long-term assets –
other capital expenditure(a)
2
(1,039)
(902)
Retail purchase of intangible assets
2
(250)
(241)
Dividends received from joint ventures and associates
2
9
14
Dividends received from Tesco Bank(b)
2
–
54
Retail interest received
2
249
70
Include the following cash flows generated from/(used in) financing activities:
Own shares purchased for share schemes
2
(93)
(86)
Retail repayment of capital element of obligations under leases
2
(623)
(589)
Retail free cash flow
2,063
2,133
(a) Excludes property buybacks and store purchases.
(b) Excludes Tesco Bank special dividend.
The following table reconciles the Retail free cash flow APM to that previously presented for remuneration purposes. Refer to page 95:
Notes
APM
2024
£m
APM
2023
£m
Retail free cash flow
2
2,063
2,133
Retail proceeds from sale of property, plant and equipment, investment property, intangible assets
and assets classified as held for sale
2
55
341
Retail purchase of property, plant and equipment and investment property and other long-term assets –
property buybacks and store purchases
2
(59)
(54)
Retail cash outflows exceeding the incremental increase in assets in a property buyback
2
(62)
(21)
Retail disposal of subsidiaries, net of cash disposed
2
15
–
Retail acquisition of businesses, net of cash acquired
2
(17)
(66)
Special dividend received from Tesco Bank
2
250
–
Retail (investments in)/proceeds from sale of joint ventures and associates
2
–
(10)
Retail (investments in)/proceeds from sale of other investments
2
–
(205)
Retail adjusting net cash generated from/(used in) operating activities
2
(98)
(61)
Memo: Retail free cash flow including cash flows from acquisitions and disposals, cash flows from
the sale or buyback of properties and Retail adjusting cash flows from operating activities
2,147
2,057
Tesco PLC Annual Report and Financial Statements 2024
225.
Strategic report
Governance
Additional information
Additional information
Financial statements
Glossary – Other
Other
CPI
Consumer price index.
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 0-10. 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.
Retail capital employed
This is calculated as Retail net assets excluding the pension deficit/surplus net of deferred tax, net assets of the disposal group and non-
current assets classified as held for sale less Net debt.
Retail return on capital employed (ROCE)
Retail adjusted operating profit divided by the average of opening and closing Retail 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.
Tesco PLC Annual Report and Financial Statements 2024
226.
Strategic report
Governance
Additional information
Financial statements
Five-year record
The statistics below reflect the latest published information. Following the adoption of IFRS 17 and the re-presentation of Banking operations
as a discontinued operation, 2023 comparatives have been restated. For financial years prior to 2023, these statistics are not restated and
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.
Refer to the Glossary for a full list of APMs and their definitions.
2020(a)(b)
2021
2022
2023(c)
2024
Financial statistics (£m)
Sales
UK & ROI
45,752
48,848
49,984
52,369 56,344
Central Europe
3,968
3,862
3,862
4,181 4,322
Tesco Bank(c)
1,068
735
922
666
811
Group sales(d)
50,788
53,445
54,768
57,216
61,477
Revenue
UK & ROI
52,898
53,170
56,404
60,246 62,880
Central Europe
4,125
3,982
4,018
4,410 4,496
Tesco Bank(c)
1,068
735
922
666
811
Group revenue
58,091
57,887
61,344
65,322 68,187
Adjusted operating profit/(loss)(d)
UK & ROI
2,202
1,839
2,481
2,307 2,670
Central Europe
176
124
168
180
90
Tesco Bank(c)
193
(175)
176
22
69
Group adjusted operating profit/(loss)(d)
2,571
1,788
2,825
2,509 2,829
Adjusted operating margin
4.4%
3.1%
4.6%
3.8%
4.1%
Operating profit/(loss)
UK & ROI
1,923
1,890
2,191
1,249 2,689
Central Europe
209
127
193
144
66
Tesco Bank(c)
74
(470)
176
17
66
Group operating profit/(loss)
2,206
1,547
2,560
1,410 2,821
Share of post-tax profits/(losses) of joint ventures and associates
(8)
26
15
8
6
Net finance costs
(1,170)
(937)
(542)
(536)
(538)
Profit/(loss) before tax
1,028
636
2,033
882 2,289
Taxation
(290)
(104)
(510)
(224)
(525)
Profit/(loss) for the year from continuing operations
738
532
1,523
658 1,764
Discontinued operations(c)
235
5,426
(40)
78
(572)
Profit/(loss) for the year
973
5,958
1,483
736 1,192
Attributable to:
Owners of the parent
971
5,954
1,481
737 1,188
Non-controlling interests
2
4
2
(1)
4
Adjusted profit before tax(d)
1,869
1,134
2,197
1,954 2,277
Other financial statistics
Diluted earnings/(losses) per share – continuing operations
7.54p
5.58p
19.64p
8.81p
24.53p
Adjusted diluted earnings per share (adjusted for share consolidation)(e)
18.98p
11.58p
21.86p
20.53p
23.41p
Dividend per share(f)
9.15p
9.15p
10.90p
10.90p
11.70p
Cash generated from retail operating activities (£m)
3,580
321
3,614
3,752
3,712
Retail free cash flow (£m)∆
1,493
1,340
2,277
2,133
2,063
Retail return on capital employed (ROCE)(d)
9.7%
8.7%
12.1%
11.8%
13.4%
Total shareholder return(d)
5.2%
2.6%
32.4%
(10.5)%
17.8%
Net debt (£m)(d)
12,298
11,955
10,516
10,493
9,764
Pension deficit, net of deferred tax – Group (£m)
2,573
1,004
242
300
493
Total indebtedness (£m)(d)
14,871
12,959
10,758
10,793
10,257
Enterprise value (£m)(d)
34,676
29,336
32,403
28,562
29,452
Group retail statistics
Number of stores(g)
4,613
4,673
4,752
4,859
4,942
Total sales area (’000 sq.ft.)(g)
63,971
63,980
64,034
63,835
63,730
Average employees
354,451
367,321
354,744
336,926
337,518
Average full-time equivalent employees (FTE)
243,031
242,911
231,223
222,306
225,659
UK & ROI retail statistics
Number of stores(g)
3,968
4,008
4,074
4,169
4,273
Total sales area (’000 sq.ft.)(g)
50,401
50,443
50,588
50,735
50,936
Average full-time equivalent employees (FTE)
210,771
214,470
204,974
196,911
201,694
Revenue (exc. fuel) (per FTE – £)
217,070
227,761
243,855
267,765
279,354
Weekly revenue (exc. fuel) (per sq.ft. – £)
17.11
18.63
19.03
19.88
21.31
∆ See APM reconciliations in Glossary section on pages 223 to 225.
(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.
(c) The 2023 statistics have been restated following the adoption of IFRS 17 and to present Banking operations as discontinued operations. Years prior to 2023 have not
been restated.
(d) See Glossary for definitions. Return on capital employed is presented on a Retail basis. Prior years have been re-presented.
(e) The share base used in Adjusted diluted EPS 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 Thailand and Malaysia, as if it took place at the start of the 2020/21 financial year. As such, Adjusted diluted EPS (adjusted for share consolidation) is presented
on a basis other than in accordance with IAS 33.
(f) Dividend per share relating to the interim and proposed final dividend.
(g) Including franchise stores.
Tesco PLC Annual Report and Financial Statements 2024
227.
Strategic report
Governance
Additional information
Additional information
Financial statements
Additional Directors’
report disclosures
This section of the Tesco PLC Annual Report and Financial
Statements 2024 forms part of the Directors’ report.
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.
For additional information concerning the Directors who served
during the year and changes to the composition of the Board,
see pages 52 to 55.
Political donations
The Group did not make any political donations or incur any
political expenditure during the year 2023/24 (2022/23: £nil).
Directors’ and their interests
The biographical details of the current serving Directors are set out
on pages 52 to 54. 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 90 to 114. 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.
Directors’ indemnities and insurance
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.
For further information, see page 56.
Additional Directors’ report disclosures
228.
Additional information
Strategic report
Governance
Financial statements
Articles of Association
The Company’s Articles of Association may only be amended by
special resolution at a general meeting of the shareholders. The
Directors may exercise all the powers of the Company subject
to the Articles of Association, relevant law and any directions
that may be given by the Company at general meetings by
shareholder resolution.
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 194. 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 2023 AGM to
replace the existing authority (as granted by shareholders at the
AGM held on 17 June 2022) 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 1 May 2023. 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 2023 AGM to
replace the existing authority (as granted by shareholders at the
AGM held on 17 June 2022) 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 this authority at
the forthcoming AGM, within the limits set out in the notice
of that meeting.
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
During the year 2023/24, the Group undertook a share forfeiture
programme following a tracing and notification exercise.
For further details, see page 72 and 80.
Share buyback programme
On 10 April 2024, the Company announced the continuation of the
share buyback programme and the intention to buy back £1bn
worth of shares, by no later than April 2025. This includes £250m of
share buybacks funded by the special dividend received from Tesco
Bank in August 2023. A further update on plans for the return of
the proceeds generated from the sale of our banking operations
will be provided following completion of the transaction. The share
buyback programme will be carried out by the Company using the
authority to purchase its own shares as approved by shareholders.
For further details, see pages 85 and 234
and Note 30 on page 195.
Employment policies
We have made significant improvements to many of our
employment policies this year in response to feedback from our UK
colleague networks (Armed Forces, Disability, LGBTQ+, Parents and
Carers, Race and Ethnicity and Gender Equality - other markets
have variations of these networks), our recognised trade union
USDAW, as well as pending legislative changes that we have decided
to implement sooner than legally required.
This included the right to request flexible working from day one, an
enhancement to our maternity and adoption leave policy, fertility
leave, the introduction of neonatal care leave, unpaid carers leave
and a new kinship leave policy to support colleagues who are
assuming parental responsibility for a child via a Special
Guardianship Order.
In response to the nationwide increase in shoplifting and violence
against shopworkers, we have amended our colleague safety policy
to provide clear guidance for colleagues on what process to follow
when identifying a potential shoplifter and the importance of not
putting themselves in harm’s way. We have also launched a new
guide for lone working, so that colleagues who work alone are
aware of the precautions they should take to ensure they
remain safe.
Our equal opportunities and diversity, equity and inclusion policy
supports 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.
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
from start to finish of employment. This year, every colleague will
receive training on our zero-tolerance approach to bullying and
harassment in any form. This will be rolled out yearly with timely
examples and trends seen within the retail space.
We also support existing colleagues and young people through
a breadth of apprenticeship programmes from Level 2 Retail to
Level 6 Business Management. A total of 1,130 apprentices are
currently on the programme across the Group. In the UK, two
new apprenticeships will be launching in 2024, including the Senior
Leader Apprenticeship Level 7 and the Level 2 Stronger Starts
Retail Apprenticeship in September. Our graduate programme also
continues to provide both specialist and generalist programmes,
with 57 new starters in the UK in 2023.
229.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
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). In the last year, we have actively engaged
with the GCA and were pleased to hold a productive meeting with
Jason Tarry and the GCA earlier in the year.
During the reporting year, we have continued to enhance our Code
compliance programme. We have provided clear and regular
guidance, communications and training sessions that incorporated
feedback from suppliers and the GCA. This year, we held
mandatory training sessions with our buyers on our request for
cost price changes (RFCPC) process and included various scenarios
in our annual microlearning programme, ensuring that the GCA’s 7
Golden Rules are upheld.
Furthermore, we have streamlined our Supplier Toolkit
functionalities. Suppliers are now able to download the invoices
directly instead of raising a query, making this process quicker and
more efficient. In the GCA’s annual supplier survey for 2023, 95% of
our suppliers recognised that we comply ‘consistently well’ or
‘mostly well’ with the Code.
In our own Supplier Viewpoint survey, conducted in January 2024,
the results continue to reflect the progress we have made with our
supplier relationships. The total Group score for suppliers rating
their satisfaction with Tesco as either ‘extremely satisfied’ or ‘very
satisfied’ exceeded our targets and was the highest score to date
at 87.2%. Our UK satisfaction score was 86.9% and broadly level
versus last year’s score of 87%. Among topics relevant to the Code,
our strongest UK score in Viewpoint continues to be ‘Tesco pays
promptly (within policy terms)’ at 95.5%. 85.7% of suppliers agreed
that ‘Tesco treats me fairly’, which was an increase on the year.
Also, in the 2023 independent, industry-wide Advantage survey
of retailers, we were pleased to be ranked first for overall
performance for the eighth year running.
During the preceding financial year, we provided mandatory annual
refresher training for all colleagues involved in buying groceries
across our business. This included not only the buying teams but
also a wider set of colleagues, including those working in our Quality
and Supply Chain divisions. In total, 1,091 colleagues completed the
GSCOP annual refresher training, with the majority being trained via
role-based microlearning scenarios. 86% 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, 146 new starters across our business completed new
starter GSCOP training. 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, 12 Code-related issues were raised by suppliers and two
issues were carried over from 2022/23. In six of the 12 cases raised
during the reporting period, the supplier was seeking guidance
regarding our invoice processes. One matter from the previous
reporting period had escalated to a formal Dispute (as defined by
Part 5, Article 11 of the GSCOP Order) and was resolved this year.
This year, one matter was escalated to a formal Dispute and was
not resolved by the end of the reporting period.
At the end of the reporting period, we had resolved all but three
of the issues that were raised during the year. We are working
to resolve these issues following further discussion between the
buying team and the relevant supplier, or between our Code
Compliance Officer and the supplier.
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 45. We continue to
implement initiatives to drive energy efficiency across our
operations in support of our net zero ambitions. Examples include:
— Addressing emissions from heating, ventilation and air
conditioning (HVAC) by trialling low carbon alternatives to
gas boilers.
— Improving refrigeration efficiency and reducing refrigerant
emissions in our stores and distribution centres.
— Switching to decarbonised transport.
— Addressing transport emissions associated with our distribution
fleet, trialling fuel alternatives while working directly with
manufacturers on even more sustainable long-term solutions.
— Installing electric hook up points for our refrigerated trucks and
low emission refrigeration units powered by electricity.
For further information, see pages 39 to 45.
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.
This modern slavery statement can be viewed at
www.tescoplc.com.
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.
Additional Directors’ report disclosures continued
230.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
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 of key controls such as: policies
(anti-bribery, gifts and entertainment, conflicts of interest and
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 with the Audit Committee.
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 (available at the FRC website 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 to 47.
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.
231.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
NFSIS.
The table below constitutes the Company’s non-financial and sustainability 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. Policies are available on our website.
Reporting requirement
Relevant policies and documents that govern our approach
Where to find more information and outcomes
Page
Environmental
matters
Group environment policy
Sustainability policies on key risk commodities
including soy, palm oil and seafood
What we stand for
CEO review
Market context
KPIs
Planet
Principal risks and uncertainties
Nature and TCFD
Sustainability Committee report
Audit Committee report: environmental disclosures
Directors’ report (SECR)
Details of our sustainability strategy together with our ESG
factsheets can be found on our website at www.tescoplc.com
08
09
12
16
18
30
38
78
82
230
Colleagues
Code of Business Conduct
Health and safety policy
Bullying and harassment policy
Diversity, equity and inclusion strategy
Group whistleblowing policy
Colleague engagement
What we stand for
KPIs
Principal risks and uncertainties
Corporate governance report: Purpose, values and culture
Board leadership in action
Our colleagues
Stakeholder engagement
Nominations and Governance Committee report: diversity, equity
and inclusion
Directors’ remuneration report
Additional Directors’ report disclosures: employment policies
08
16
30
62
68
69
70
76
90
229
Social matters
Customer
Product safety and food integrity
Responsible sourcing
People
Our tax principles
Responsible retailing of alcohol, tobacco and other
age-restricted products
Group whistleblowing policy
Sustainability Committee report
Group charitable donations policy
Groceries Supply Code of Practice (GSCOP)
Details of our sustainability strategy together with our ESG
factsheets can be found on our website at www.tescoplc.com
63
78
228
230
Respect for
human rights
Responsible sourcing
Health and safety policy
Group whistleblowing policy
Sustainability Committee report
Human rights policy
Details of our modern slavery statement can be found on our
website at www.tescoplc.com
34
63
78
230
Anti-corruption
and anti-bribery
Code of Business Conduct
GSCOP
Group anti-bribery policy
Group gift and entertainment policy
Tesco’s political donations policy
Cyber security
Data privacy
Principal risks and uncertainties
Corporate governance report: Purpose, values and culture
Directors’ report: political donations, anti-bribery matters,
modern slavery statement
30
62
228
How we manage risk
Schedule of matters reserved for the Board
Audit Committee terms of reference
Principal risks and uncertainties
TCFD: climate-related risks
Governance framework
Audit Committee report
30
42
58
82
Business model
Strategic drivers
Performance framework
Schedule of matters reserved for the Board
Our business model
17
Non-financial key
performance
indicators
KPIs
TCFD
16
39
Non-financial and sustainability information statement
232.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
Additional information
for shareholders.
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. Please see below for more details.
E-comms
We encourage our shareholders to take advantage of electronic
communications. By signing up to receive electronic
communications, you will be helping to reduce print, paper and
postage costs and the associated environmental impact.
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. The TSA is a sponsored nominee service operated
for Tesco by Equiniti Financial Services Limited, authorised and
regulated by the FCA. Holding your shares electronically removes
the need to hold paper share certificates, making dealing quicker
and more secure. 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.
Share dealing service
Equiniti offers shareholder 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. For
further information please visit www.shareview.co.uk/dealing.
Your dividend options
You have the option to reinvest your dividend to purchase shares
by joining the Tesco PLC dividend reinvestment plan (the DRIP). For
further information, please visit www.shareview.co.uk/info/drip
(terms and conditions apply).
Go Online. Go Paperless. It’s Simple.
Additional information for shareholders
It only takes a few minutes to register for a Shareview portfolio using your 11 digit Shareholder
Reference Number. You can either:
Register at
www.shareview.co.uk/info/register
Scan the QR code below:
Scan me
Elect to receive shareholder
communications electronically and
transfer your shares into the TSA
Update your details online
including change of address
and your dividend elections
Submit your proxy
voting instructions
Buy and sell shares easily
through your Shareview portfolio
Shareview
A free, easy and secure
service that enables you
to manage your
shareholding online
www.shareview.co.uk
233.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
Annual General Meeting (AGM)
The 2024 AGM will be held on Friday, 14 June 2024 at 11.30am in the
Heart building on our Welwyn Garden City campus. The Notice of
Meeting and the Annual Report and Financial Statements 2024 are
available to view and download at www.tescoplc.com.
If you wish to view the AGM proceedings online, you can watch via
the live webcast which will be broadcast at 11.30am on the day of
the AGM at www.tescoplc.com/AGM2024. The webcast is not
interactive, and it is not possible to vote or ask questions remotely.
Dividend
An interim dividend of 3.85 pence per Ordinary share was paid on
24 November 2023. Shareholders will be asked to approve a final
dividend of 8.25 pence per Ordinary share for the year ended
24 February 2024 at this year’s AGM. If approved, this will be paid
on 28 June 2024 to all shareholders who are on the register of
members at the close of business on 17 May 2024.
For more information on dividends, please see pages 27, 116
and Note 8 on page 154.
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.
ADR details
Symbol
TSCDY
CUSIP
881575401
Exchange
OTC
Ratio
1:3
Effective date
1 April 1992
All enquiries relating to the ADR programme should be directed to:
Shareowner Services
P.O. Box 64504
St. Paul, MN 55164-0504
Email: StockTransfer@equiniti.com
Website: www.adr.com
Share buyback programme
On 10 April 2024, the Company announced the continuation of the
share buyback programme and the intention to buy back £1bn
worth of shares, by no later than April 2025. This includes £250m of
share buybacks funded by the special dividend received from Tesco
Bank in August 2023. A further update on plans for the return of
the proceeds generated from the sale of our banking operations
will be provided following completion of the transaction. The share
buyback programme will be carried out by the Company using the
authority to purchase its own shares as approved by shareholders.
For more information on the share buyback programme,
see Note 30 on page 198.
Financial calendar 2024/25
24 February 2024
Financial year end
2023/24
3 October 2024
Interim results
announcement
22 February
2025
Financial year end
2024/25
14 June 2024
Annual General Meeting
and Q1 trading statement
28 June 2024
Proposed payment date
for final dividend
9 January 2025
Q3 and Christmas
trading statement
February
2024
June
2024
October
2024
January
2025
February
2025
Please note that these dates are provisional and subject to change.
Additional information for shareholders continued
234.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
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 24 February 2024 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:
% of voting
rights(a)
BlackRock, Inc.
6.64
(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.
Share register analysis
As at 24 February 2024, the Company had 7,038,930,440 shares in
issue (25 February 2023: 7,318,341,195) and 204,911 registered
holders of Ordinary shares (25 February 2023: 218,685).
Shareholdings are analysed below:
Range of shareholding
Number of
holdings
% of issued
share capital
1 – 500
135,144
0.22%
501 – 1,000
18,526
0.19%
1,001 – 5,000
35,482
1.18%
Over 5,001
15,759
98.41%
Total
204,911
100%
Breakdown of holders with over 5,000 shares
Range of shareholding
Number of
holdings
% of issued
share capital
5,001 – 10,000
8,363
0.83%
10,001 – 50,000
5,951
1.56%
50,001 – 100,000
389
0.38%
100,001 – 500,000
453
1.55%
500,001 – 1,000,000
173
1.74%
1,000,001 – 5,000,000
247
7.73%
Over 5,000,001
183
84.62%
Total
15,579
98.41%
Category of shareholders
Number of
holdings
% of total
registered
holders
Number of
Ordinary shares
% of issued
share capital
Private
202,873
99%
381,294,339
5.42%
Institutional
and corporate
2,038
1%
6,657,636,101
94.58%
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 exercise caution over
any unsolicited advice, offers to buy shares at a discount or offers
of free company reports.
Beware of share fraud
Spot the warning signs
Fraudsters will often:
— contact you out of the blue;
— apply pressure to invest quickly;
— downplay the risks to your money;
— promise returns that sound too good to be true; and
— state that the offer is only available to you; or that you
cannot inform anyone else.
If you are suspicious, report it
You can report the firm or scam to the FCA by contacting
their Consumer Helpline on 0800 111 6768 or by visiting the
FCA’s website at www.fca.org.uk/scamsmart.
How to avoid investment scams
1. Reject unexpected offers.
Scammers usually make unsolicited phone calls, but they can
also contact you by email, post, word of mouth or at a
seminar. If you have been offered an investment opportunity
out of the blue, it is likely to be a high-risk investment or a
scam.
2. Check the FCA Warning List.
Use the FCA Warning List to check the risks of a potential
investment opportunity – you can also search to see if the
firm is known to be operating without FCA authorisation.
3. Get impartial advice.
Get impartial advice before investing – do not use an advisor
from the firm that contacted you.
If you have lost money in a scam, contact Action Fraud on
0300 123 2040 or www.actionfraud.police.uk.
235.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
Useful contacts
Registered office
Tesco House
Shire Park
Kestrel Way
Welwyn Garden City
AL7 1GA
Website: www.tescoplc.com
Investor Relations
Investor Relations Department
Tesco House
Shire Park
Kestrel Way
Welwyn Garden City
AL7 1GA
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Website: www.equiniti.co.uk
Online: help.shareview.co.uk
From here, you can securely email Equiniti with your enquiry.
Group Company Secretary
Robert Welch
Corporate brokers
Barclays Bank PLC
Citigroup Global Markets Limited
Independent auditors
Deloitte LLP
Additional information for shareholders continued
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 30 to 37.
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
colleagues 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
colleagues, 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.
236.
Additional information
Strategic report
Governance
Financial statements
Tesco PLC Annual Report and Financial Statements 2024
This report is printed on Arctic Volume paper and board.
The paper is Forest Stewardship Council® (FSC®) certified from well
managed forests and other controlled sources.
The paper is Carbon Balanced with World Land Trust, an
international conservation charity, which offset carbon emissions
through the purchase and preservation of high conservation value
land. Through protecting standing forests, under threat of
clearance, carbon is locked in that would otherwise be released.
These protected forests are then able to continue absorbing
carbon from the atmosphere, referred to as REDD (Reduced
Emissions from Deforestation and forest Degradation).
This is now recognised as one of the most cost-effective and
swiftest ways to arrest the rise in atmospheric CO2 and global
warming effects. Additional to the carbon benefits is the flora and
fauna this land preserves, including a number of species identified
at risk of extinction on the IUCN Red List of Threatened Species.
Printed in the UK by Pureprint Group, a CarbonNeutral® Company
with FSC® certification.
Photographers:
Mike Abrahams
Janie Airey
Designed and produced by Conran Design Group
If you have finished with this Annual Report and no longer wish
to retain it, please pass it on to other interested readers or
dispose of it in your recycled paper waste.
Tesco PLC
Tesco House
Shire Park
Kestrel Way
Welwyn Garden City
AL7 1GA
www.tescoplc.com