Tesco PLC Annual Report and Financial Statements 2019 Serving shoppers a little better every day. Annual Report and Financial Statements 2019. Our business was built with a simple mission – to be the champion for customers, helping them to enjoy a better quality of life and an easier way of living. Our mission hasn’t changed in the one hundred years since. Customers want great products at great value, and it’s our job to deliver this in the right way for them. That’s why ‘serving shoppers a little better every day’ is our core purpose - putting customers at the heart of everything we do and guiding every decision we make. As we celebrate our centenary year, we’re reiterating our commitment to great value, for every one of our key stakeholders and in every part of our business. Tesco PLC Annual Report and Financial Statements 2019 Strategic report 2019 highlights Headline measures. Group salesΔ Group operating profit before exceptional and other itemsΔ(a) £56.9bn £2,206m 11.5% 2018: £51.0bn* 34.0% 2018: £1,646m* Diluted EPS before exceptional and other itemsΔ(b) Dividend per share 15.40p 5.77p 29.4% 2018: 11.90p* 92.3% 2018: 3.00p Retail operating cash flowΔ(c) Net debtΔ(c) £2,502m £(2.9)bn (9.8)% 2018: £2,773m (9.1)% 2018: £(2.6)bn Statutory measures. Statutory revenue Operating profit £63.9bn £2,153m 11.2% 2018: £57.5bn* 17.1% 2018: £1,839m* Statutory profit before tax Statutory diluted EPS £1,674m 13.55p 28.8% 2018: £1,300m* 11.9% 2018: 12.11p* Δ Alternative performance measures (APM) Measures with this symbol Δ are defined in the Glossary section on pages 178 to 181. All measures reported on a continuing operations basis. (b) Diluted EPS before exceptional and other items refers to diluted earnings per share from Change shown at actual exchange rates. continuing operations before exceptional items and amortisation of acquired intangibles, (a) Excludes amortisation of acquired intangibles and excludes exceptional items net pension finance costs and fair value remeasurements on financial instruments. by virtue of their size and nature in order to reflect management’s view of the (c) Net debt and Retail operating cash flow exclude the impact of Tesco Bank. underlying performance of the Group. * Restated for the adoption of IFRS 15 as explained in Note 1 and Note 36. Contents. Strategic report. Financial statements. 2019 highlights ................................................................................................................................... 1 Independent auditor’s report to the members of Tesco PLC ...........84 Chairman’s statement ..............................................................................................................2 Group income statement ...................................................................................................92 Group Chief Executive’s review ........................................................................................3 Group statement of comprehensive income/(loss) ...................................93 Celebrating 100 years of great value ............................................................................8 Group balance sheet ..............................................................................................................94 About Tesco ......................................................................................................................................10 Group statement of changes in equity ...................................................................95 Our business model .................................................................................................................. 12 Group cash flow statement .............................................................................................. 97 Our six strategic drivers ........................................................................................................14 Notes to the Group financial statements .............................................................98 Our key performance indicators ...................................................................................16 Tesco PLC – Parent Company balance sheet .................................................162 Financial review ............................................................................................................................18 Tesco PLC – Parent Company statement of changes in equity ......163 Little Helps Plan ...........................................................................................................................24 Notes to the Parent Company financial statements ................................164 Non-financial reporting statement...............................................................................31 Related undertakings of the Tesco Group .........................................................169 Principal risks and uncertainties ...................................................................................32 Other information. Corporate governance. Supplementary information (unaudited) ............................................................. 174 Corporate governance report ........................................................................................38 Task Force on Climate-related Financial Disclosures ................................177 Chairman’s letter .............................................................................................................38 Glossary (including APM definitions) .........................................................................178 Board of Directors ......................................................................................................... 40 Five-year record .......................................................................................................................182 Executive committee ....................................................................................................44 Shareholder information ...................................................................................................183 Corporate governance framework ..................................................................46 Nominations and Governance Committee ...............................................54 The screen icon indicates where further Corporate Responsibility Committee ............................................................55 information is available online. We have also produced a number of short videos, available Audit Committee ..............................................................................................................56 at www.tescoplc.com/ar2019. Directors’ remuneration report ....................................................................................62 Directors’ report ........................................................................................................................ 80 Tesco PLC Annual Report and Financial Statements 2019 1 Chairman’s statement Continued progress. In support of that, members of the Board have spent time engaging with customers, colleagues and a wide range of stakeholders. There have been two changes to the composition of the Board in the year: – Due to illness, Charles Wilson stepped down from the Board in July, but we are very pleased that his recovery has been successful. Charles continues to lead Booker and, as a member of the Executive Committee, the wider Tesco business benefits from his continued involvement in matters of strategy. – In September, we were delighted to welcome Melissa Bethell to the Board, bringing a broad range of experience and skills from a background in strategy, finance and technology. Melissa is also a member of the Audit Committee. Throughout the year, the Board’s discussions have focused on longer-term strategic planning. With the progress that the business has made against our six strategic drivers – the medium-term ambitions that we outlined in October 2016, and which are detailed on pages 14 and 15 of this report – we have dedicated significant time and energy to developing our plans for sustainable “Our strong performance is a growth into the future. reflection of the hard work For every one of our stakeholders – our customers, colleagues, of our 450,000 colleagues” suppliers and shareholders – the direction of our future plans will build on the momentum of our last four years of turnaround, John Allan putting customers at the heart of everything we do. Non-executive Chairman From a shareholder perspective, the lens through which the Executive team manage the business will be four-fold, with a focus on customer satisfaction, cash profitability, free cash flow and earnings growth. Visit www.tescoplc.com/ar2019 to hear more from John Allan. Importantly, the Directors’ discussions on sustainable growth do not focus solely on financial metrics. The Board considers it critical that we monitor and respond to broader issues of sustainability, including climate change and responsible sourcing, so that our business is well placed to succeed in the years ahead. This has been another strong year for Tesco. We have made further We also believe in developing a sustainable pool of talent within progress with our plans to create value for customers, at the same Tesco, and we are committed to supporting people at every level time as delivering significant returns for shareholders – with and from every background, to develop their careers with us. operating profit for the Group exceeding £2bn for the first