BACK COVER FRONT COVER OUTSIDE FLAP Contents Tesco PLC AnnualTesco Report and Financial Statements 2014 Strategic report IFC Tesco at a glance IFC Highlights 01 Chairman’s statement 03 Report from the Chief Executive 08 Market overview 10 Business model 12 Financial review 16 Key performance indicators 19 Other statutory disclosures 20 Principal risks and uncertainties Corporate governance 26 Board of Directors 28 Executive Committee 30 Corporate governance report 41 Directors’ remuneration report 62 Directors’ report Tesco PLC Financial statements 64 Statement of Directors’ responsibilities Annual Report and 65 Independent auditors’ report to the members of Tesco PLC 69 Group income statement Financial Statements 2014 70 Group statement of comprehensive income 71 Group balance sheet 72 Group statement of changes in equity 73 Group cash flow statement 73 Reconciliation of net cash flow to movement in net debt note 74 Notes to the Group financial statements 122 Tesco PLC – Parent Company balance sheet 123 Notes to the Parent Company financial statements 131 Independent auditors’ report to the members of Tesco PLC (Parent Company financial statements) Other information 132 Supplementary information (unaudited) 143 Financial calendar 143 Glossary 144 Five-year record There’s a lot more content online Go online to find out more about our performance, hear from our leadership team and explore our business in more detail. You’ll find PDF and Excel downloads of our financial statements too. Visit www.tescoplc.com/ar2014 Tesco PLC Tesco House Delamare Road Cheshunt Hertfordshire EN8 9SL www.tescoplc.com/ar2014 Contents Strategic report IFC Tesco at a glance IFC Highlights 01 Chairman’s statement 03 Report from the Chief Executive 08 Market overview 10 Business model 12 Financial review 16 Key performance indicators 19 Other statutory disclosures 20 Principal risks and uncertainties Corporate governance 26 Board of Directors 28 Executive Committee 30 Corporate governance report 41 Directors’ remuneration report 62 Directors’ report Financial statements 64 Statement of Directors’ responsibilities 65 Independent auditors’ report to the members of Tesco PLC 69 Group income statement 70 Group statement of comprehensive income 71 Group balance sheet 72 Group statement of changes in equity 73 Group cash flow statement 73 Reconciliation of net cash flow to movement in net debt note 74 Notes to the Group financial statements 122 Tesco PLC – Parent Company balance sheet 123 Notes to the Parent Company financial statements 131 Independent auditors’ report to the members of Tesco PLC (Parent Company financial statements) Other information 132 Supplementary information (unaudited) 143 Financial calendar 143 Glossary 144 Five-year record There’s a lot more content online Go online to find out more about our performance, hear from our leadership team and explore our business in more detail. You’ll find PDF and Excel downloads of our financial statements too. Visit www.tescoplc.com/ar2014 INSIDE FLAP INSIDE FRONT COVER Tesco at a glance* Chairman’s statement The future: strategic UK Asia Europe Tesco Bank Highlights developments in retail report Strategic The backdrop of technology-driven change in the retail sector becomes a more insistent £43.6bn £2,191m £10.3bn £692m £9.3bn £238m £1.0bn £194m We are a team of over drumbeat every day. Boundaries between Revenue± Trading profit Revenue± Trading profit Revenue± Trading profit Revenue± Trading profit 500,000 people in 12 markets the online and offline world are becoming dedicated to providing the blurred. The challenge, and opportunity, most compelling offer to for retailers is not just to have (and be able 0.0% (3.6)% +2.6% (5.6)% (0.6)% (27.7)% (1.8)% +1.6% our customers. With retail to operate across) multiple channels. It is Revenue growth± Trading profit growth Revenue growth± Trading profit growth Revenue growth± Trading profit growth Revenue growth± Trading profit growth operations in the UK, Asia and to meet the rapid changes in consumer Europe, we strive to bring the behaviour that we are seeing as technology best value, choice and service to opens up new horizons for them. The capacity millions of customers each week. for consumers to communicate instantly with each other, with us and with other retailers 68% 66% 16% 21% 14% 7% 2% 6% is driving completely different expectations Group sales for service levels, choice, convenience, indeed the whole shopping experience. £70.9bn A level of customisation and personalisation, unthinkable a decade ago is becoming Governance Group sales growth the norm. 313,923 1st 96,085 1st or 2nd 91,788 1st or 2nd 3,748 £6bn + % Consequently, being a leading retailer colleagues◊ market position colleagues◊ in three markets colleagues◊ in five markets colleagues◊ savings deposits 0.3 today is not a guarantee of value creation tomorrow. We need to ensure that we are Group profit before tax Sir Richard Broadbent Continuity and change tomorrow’s leading retailer. We had already 3,378 16m 2,417 14m 1,510 8m 7m 86% Chairman This has been an important year for Tesco. set ourselves on the path to becoming a stores loyalty scheme stores loyalty scheme stores loyalty scheme customer accounts of product sales £2.3bn There has been a great deal to occupy us in leading multichannel retailer to meet this members members members are online relation to current trading as weak markets challenge. The accelerating evolution of Underlying profit before tax** and intense competition persist. At the customer behaviours reinforces us in this same time, we continue to reshape the choice of direction and has led us in the • Strengthened the foundations of the • Regulatory restrictions on opening • Trading profit reflects challenging • Trading profit grew by 19% excluding % business to address the fundamental past year progressively to intensify our actions business, in a weakening grocery market hours in South Korea, combined with conditions, particularly for large income from the legacy insurance (6.9) changes taking place in the retail market. to deliver this end. This includes not only ensuring a more seamless service for • Launched Price Promise, relaunched political disruption in Thailand, held stores, and decision to invest in a more distribution agreement and fair Underlying diluted earnings per share**† finest* range and completed around back overall performance in Asia compelling offer for customers across value release The challenging trading conditions of customers but also a business which matches 300 store refreshes • Continued with refresh programme and the region • Good growth in core banking products the past year have impacted profits and more closely what they want, for example by • Tailored the ranges in our Express stores store opening programme focused on • Significantly reduced new store with customer accounts for credit cards, (7.3)% necessarily remain a focus of management making our larger stores more compelling Financial statements to local catchments and trialled the Thailand and South Korea. Plan to open openings and any future investment will loans, mortgages and savings up 14% “ Being a leading retailer attention. We continue to devote a lot of destinations in their own right as well as ingredients to make our destination 1.2 million square feet in Asia in be focused on convenience and grocery • Despite challenging market conditions Full-year dividend today is not a guarantee of energy and creativity to creating products ensuring we offer more convenience stores. stores worth the trip 2014/15, whilst continuing to grow our home shopping for our insurance business, strong and services which customers want to • Large stores and general merchandise convenience and grocery home • Completed roll-out of grocery home growth in Home Insurance following value creation tomorrow. buy at prices they find attractive, through Strategic change requires investment. transformation weighed on top-line shopping operations shopping to all international operations, its relaunch 14.76p whichever channel they choose and Our task is to allocate resources to compete We need to ensure that which leave them wanting to visit us again. effectively in today’s market while giving performance • Forming a partnership with China with the exception of India • In its first full year, our mortgage * All figures reported on a continuing operations • Extended Click & Collect to 1,750 general Resources Enterprise Ltd. giving Tesco • Invested in the customer offer across product has made good progress with basis, excluding China and the United States we are tomorrow’s We have continued to focus on improving priority to ensuring that we emerge as merchandise and 260 grocery locations, a 20% ownership stake in the largest the region, with improved trading balances reaching £0.7 billion which have been treated as discontinued. the experience for customers with winners in the coming multichannel, ± Excludes the accounting impact of IFRIC 13. leading retailer.” continued investment in colleagues, customer-centric market. Your Board is helping to build our multichannel offer food retail business in China through the second half of the year • On track to launch current accounts in ◊ Based on the number of colleagues at year end. • Now accelerating plans to deliver the • Entered into an agreement with Trent • In Ireland launched Price Promise, helping the first half of 2014/15, designed to ** These figures reflect a year-on-year movement. a big programme of store refurbishment, extremely focused