Tesco PLC Annual Report and Financial Statements 2020 Serving shoppers a little better every day. Annual Report and Financial Statements 2020 Contents Strategic report. 2020 highlights ...................................................................................................................................................................................................................1 Chairman’s statement ..............................................................................................................................................................................2 Group Chief Executive’s review ....................................................................................................................................3 Strategic review ...........................................................................................................................................................................................................4 Our business model ......................................................................................................................................................................................... 6 Financial review .............................................................................................................................................................................................................7 Key performance indicators ................................................................................................................................................12 Principal risks and uncertainties .............................................................................................................................13 Longer-term viability statement .............................................................................................................................19 Task Force on Climate-related Financial Disclosures ...........................20 Little Helps Plan (LHP)..............................................................................................................................................................................21 Non-financial reporting statement and section 172 statement...........................................................................................................................................................................23 Corporate governance. Chairman’s letter ...............................................................................................................................................................................................24 Board leadership and company purpose ....................................................................................25 Board of Directors ................................................................................................................................................................................27 Executive Committee ...................................................................................................................................................................31 Division of responsibilities ....................................................................................................................................................... 33 Composition, succession and evaluation .................................................................................. 35 Nominations and Governance Committee............................................................................ 38 Stakeholders ...................................................................................................................................................................................................................40 Corporate Responsibility Committee ...................................................................................................44 Audit Committee ................................................................................................................................................................................................ 46 Directors’ remuneration report .............................................................................................................................52 Directors’ report................................................................................................................................................................................................. 65 Financial statements. Independent auditor’s report ...................................................................................................................................... 69 Group income statement .......................................................................................................................................................... 78 Group statement of comprehensive income/(loss) ................................... 79 Group balance sheet ..............................................................................................................................................................................80 Group statement of changes in equity.................................................................................................81 Group cash flow statement ............................................................................................................................................... 83 Notes to the Group financial statements ................................................................................. 84 Tesco PLC – Parent Company balance sheet .............................................................148 Tesco PLC – Parent Company statement of changes in equity ................................................................................................................................................................................149 Notes to the Parent Company financial statements ............................150 Related undertakings of the Tesco Group ...........................................................................155 Other information. Supplementary information (unaudited) ..................................................................................... 161 Glossary – Alternative performance measures ....................................................164 Five-year record...............................................................................................................................................................................................170 Shareholder information ............................................................................................................................................................ 171 Strategic report Our business was built with a simple mission – to be the champion for customers. That’s as true today as it was when Jack Cohen first set out his East London market stall in 1919. Our core purpose is ‘serving shoppers a little better every day’ – putting customers at the heart of everything we do and guiding every decision we make. 2020 highlights. Headline measures. Group operating profit before exceptional Group salesΔ and other itemsΔ(a) £56.5bn £2,959m (0.7)% (2019: £56.9bn) 13.5% (2019: £2,607m) Diluted EPS before exceptional and other itemsΔ(b) Dividend per share 17.92p 9.15p 27.9% (2019: 14.01p) 58.6% (2019: 5.77p) Retail free cash flowΔ(c) Net debtΔ(c) £2,063m £(12.1)bn 132.1% (2019: £889m) (8.4 )% (2019: £(13.2)bn) Statutory measures. Statutory revenue Operating profit £64.8bn £2,518m 1.3% (2019: £63.9bn) (4.9)% (2019: £2,649m) Statutory profit before tax Statutory diluted EPS £1,315m 9.54p (18.7)% (2019: £1,617m) (26.8)% (2019: 13.04p) Visit www.tescoplc.com/ar2020 for more information. Δ Alternative performance measures (APMs) Measures with this symbol Δ are defined in the Glossary section on pages 164 to 169. All measures reported on a continuing operations and 52-week comparable basis. Change shown at actual exchange rates. 2019 figures restated for adoption of IFRS 16 as explained in Note 1 and Note 37. (a) Excludes amortisation of acquired intangibles and excludes exceptional items by virtue of their size and nature in order to reflect management’s view of underlying Group performance. (b) Diluted EPS before exceptional and other items refers to diluted earnings per share from continuing operations before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments. (c) Net debt and Retail free cash flow exclude the impact of Tesco Bank. Tesco PLC Annual Report and Financial Statements 2020 1 Chairman’s statement A year of significant progress. Highlights. – Significant progress in the financial year ended 29 February 2020, as we marked the completion of our turnaround. – Announced the proposed sale of our businesses in Thailand and Malaysia will release material value, and allow us to simplify and focus our business. – Appointed a new Group Chief Executive, Ken Murphy, to succeed Dave Lewis in October 2020. This report covers our 2019/20 financial year, which ended After the year end, we also announced the proposed sale of our on 29 February 2020. businesses in Thailand and Malaysia. This transaction, supported unanimously by the Board, will unlock significant value from an That year was one of significant progress, as we achieved our exceptionally high-quality business, and allows us to further simplify turnaround goals, further