TIDMTSCO

RNS Number : 3720V

Tesco PLC

14 April 2021

Notes to the Group financial statements

Note 10 Goodwill and other intangible assets continued

 
                                                          Customer           Intangible 
                                   Goodwill  Software(a)   relationships(c)   assets     Total 
                                    GBPm      GBPm         GBPm               GBPm        GBPm 
Cost 
At 23 February 2019 (restated(b) 
 )                                 5,509     1,840        715                447         8,511 
Foreign currency translation       (5)       (2)          -                  (1)         (8) 
Additions                          -         188          -                  19          207 
Reclassification                   -         40           -                  (5)         35 
Disposals                          (27)      (198)        -                  (2)         (227) 
At 29 February 2020 (restated(b) 
 )                                 5,477     1,868        715                458         8,518 
Accumulated amortisation and 
 impairment losses 
At 23 February 2019                 641      1,254        72                 321         2,288 
Foreign currency translation       (4)       (1)          -                  -           (5) 
Charge for the year(e)             -         281          76                 10           367 
Impairment losses(f)               -         15           -                  12          27 
Reversal of impairment losses(f)   -         (31)         -                  (7)         (38) 
Reclassification                   -         2            -                  (3)         (1) 
Disposals                          -         (196)        -                  (2)         (198) 
At 29 February 2020                637       1,324        148                331         2,440 
(a)-(e) Refer to previous table 
 for footnotes. 
 
 
                                                             Customer        Intangible 
                                         Goodwill  Software   relationships   assets     Total 
                                          GBPm      GBPm      GBPm            GBPm        GBPm 
Cost 
At 24 February 2018 (restated(b) 
 )                                       2,417     3,166     -               392         5,975 
Foreign currency translation             (6)       1         -               (1)         (6) 
Additions                                -         167       -               24          191 
Acquired through business combinations   3,098     -         715             48          3,861 
Reclassification                         -         (140)     -               2           (138) 
Disposals                                -         (308)     -               (15)        (323) 
Fully-amortised assets                   -         (1,046)   -               (3)         (1,049) 
At 23 February 2019 (restated(b) 
 )                                       5,509     1,840     715             447         8,511 
Accumulated amortisation and 
 impairment losses 
At 24 February 2018                      662       2,378     -               315         3,355 
Foreign currency translation             (21)      -         -               (2)         (23) 
Charge for the year                      -         210       72              13          295 
Impairment losses                        -         15        -               27          42 
Reversal of impairment losses            -         (2)       -               (24)        (26) 
Disposals                                -         (301)     -               (5)         (306) 
Fully-amortised assets                   -         (1,046)   -               (3)         (1,049) 
23 February 2019                         641       1,254     72              321         2,288 
 

(b) Refer to Note 1 for further details regarding prior year restatement.

Notes to the Group financial statements

Note 11 Property, plant and equipment

 
                                                 Land and 
                                                  buildings  Other(a)  Total 
                                                  GBPm        GBPm      GBPm 
Cost 
At 29 February 2020                              24,868      6,925     31,793 
Foreign currency translation                     (38)        (15)      (53) 
Additions (b)                                    927         623       1,550 
Acquired through business combinations           8           4         12 
Transfers (to)/from assets classified as held 
 for sale                                        29          -         29 
Transfer to disposal group classified as held 
 for sale                                        (3,642)     (1,415)   (5,057) 
Disposals                                        (128)       (379)     (507) 
At 27 February 2021                              22,024      5,743     27,767 
Accumulated depreciation and impairment losses 
At 29 February 2020                              7,841       4,718     12,559 
Foreign currency translation                     (15)        (10)      (25) 
Charge for the year                              432         489       921 
Impairment losses (c)                            353         107       460 
Reversal of impairment losses (c)                (515)       (43)      (558) 
Transfers (to)/from assets classified as held 
 for sale                                        15          -         15 
Transfer to disposal group classified as held 
 for sale                                        (1,386)     (987)     (2,373) 
Disposals                                        (72)        (371)     (443) 
At 27 February 2021                              6,653       3,903     10,556 
 
Net carrying value 
At 27 February 2021 (d)                          15,371      1,840     17,211 
At 29 February 2020                              17,027      2,207     19,234 
 
Construction in progress included above (e) 
At 27 February 2021                              77          210       287 
At 29 February 2020                              88          114       202 
 

(a) Other assets consist of fixtures and fittings with a net carrying value of GBP1,345m (2020: GBP1,712m), office equipment with a net carrying value of GBP213m (2020: GBP245m) and motor vehicles

with a net carrying value of GBP282m (2020:   GBP250m) 

(b) Includes GBP476m of land and buildings related to obtaining control of The Tesco Property (No. 2) Limited Partnership, which was impaired by GBP(32)m on acquisition (2020: GBP914m of land and buildings related to obtaining control of The Tesco Atrato Limited Partnership, which was impaired by GBP(287)m on acquisition). The GBP476m additions comprised GBP492m cost of acquisition offset by GBP16m of historical deferred profit. Refer to the breakdown of assets and liabilities acquired within Note 33.

   (c)         Refer to Note 15. 

(d) Includes GBP2,099m (2020: GBP1,406m) of assets pledged as security for secured bonds (refer to Note 23 and GBP826m (2020: GBP478m) of property held as security in favour of the Tesco PLC Pension Scheme (refer to Note 29.

   (e)        Construction in progress does not include land. 
 
                                                 Land and 
                                                  buildings  Other(a)  Total 
                                                  GBPm        GBPm      GBPm 
Cost 
At 23 February 2019                              24,484      6,993     31,477 
Foreign currency translation                     (69)        (15)      (84) 
Additions(b)                                     1,285       621       1,906 
Reclassification                                 (24)        (28)      (52) 
Classified as held for sale                      (589)       (36)      (625) 
Disposals                                        (219)       (610)     (829) 
At 29 February 2020                              24,868      6,925     31,793 
Accumulated depreciation and impairment losses 
 (restated) 
At 23 February 2019                              7,523       4,768     12,291 
Foreign currency translation                     (23)        (11)      (34) 
Charge for the year                              525         613       1,138 
Impairment losses(c)                             611         111       722 
Reversal of impairment losses(c)                 (391)       (104)     (495) 
Reclassification                                 41          (23)      18 
Classified as held for sale                      (298)       (34)      (332) 
Disposals                                        (147)       (602)     (749) 
At 29 February 2020                              7,841       4,718     12,559 
Net carrying value (d)                           17,027      2,207     19,234 
 

(a)-(d) Refer to previous table for footnotes

Notes to the Group financial statements

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.

In prior years, the Group entered into several joint ventures, and sold and leased back properties to and from these joint ventures over 20 to 30-year terms. On certain transactions, the Group has an option to buy back either the leased asset or the equity of the other party, at market value and at a specified date, typically at year 10. On some of these transactions the Group also has a lease-break option, which is exercisable if the buyback option is exercised and the associated debt in the joint venture is repaid. The lease liability in respect of these leases assumes that the lease-break option is not exercised.

On 18 September 2020, the Group obtained control of The Tesco Property (No. 2) Limited Partnership, previously accounted for as a joint venture, through the acquisition of the other partner's 50% interest, at which point the associated property leases from the joint venture became intercompany leases and are eliminated on consolidation. Refer to Note 33 for further details.

Right of use assets

 
                                                      Land and 
                                                       buildings  Other  Total 
                                                       GBPm        GBPm   GBPm 
Net carrying value at 29 February 2020                6,734       140    6,874 
Additions (including through business combinations)   308         42     350 
Depreciation charge for the year                      (517)       (49)   (566) 
Impairment losses (a)                                 (225)       -      (225) 
Reversal of impairment losses (a)                     230         -      230 
Derecognition on acquisition of property joint 
 venture (Note 33)                                    (130)       -      (130) 
Transfer to disposal group classified as held 
 for sale                                             (724)       (20)   (744) 
Other movements (b)                                   190         (28)   162 
Net carrying value at 27 February 2021                5,866       85     5,951 
 
   (a)        Refer to Note 15. 

(b) Other movements include lease terminations, modifications and reassessments, foreign exchange, reclassifications between asset classes and entering into finance subleases.

 
                                           Land and 
                                            buildings  Other  Total 
                                            GBPm        GBPm   GBPm 
Net carrying value at 23 February 2019     7,561       152    7,713 
Additions (including through business 
 combinations)                             146         58     204 
Depreciation charge for the year           (584)       (67)   (651) 
Impairment losses (a)                      (267)       -      (267) 
Reversal of impairment losses (a)          182         -      182 
Derecognition on acquisition of property 
 joint venture                             (335)       -      (335) 
Other movements (b)                        31          (3)    28 
Net carrying value at 29 February 2020     6,734       140    6,874 
 

(a)-(b) Refer to footnotes in table above.

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:

 
                          2021   2020 
                           GBPm   GBPm 
Current                   575    598 
Non-current               7,827  8,968 
Total lease liabilities   8,402  9,566 
 
 
Maturity analysis - contractual undiscounted lease   2021    2020 
 payments                                             GBPm    GBPm 
Within one year                                      969     1,081 
Greater than one year but less than two years        939     1,018 
Greater than two years but less than three years     912     996 
Greater than three years but less than four years    867     993 
Greater than four years but less than five years     841     951 
Greater than five years but less than ten years      3,597   4,178 
Greater than ten years but less than fifteen years   2,443   2,810 
After fifteen years                                  1,959   2,596 
Total undiscounted lease payments                    12,527  14,623 
 

A reconciliation of the Group's opening to closing lease liabilities balance is presented in Note 32.

Notes to the Group financial statements

Note 12 Leases continued

Amounts recognised in the Group income statement

 
                                                              52 weeks  53 weeks 
                                                               2021      2020* 
Continuing operations                                          GBPm      GBPm 
Interest on lease liabilities                                 446       486 
Variable payment expenses not included in lease liabilities   1         1 
Expenses relating to short-term leases                        17        14 
Expenses relating to leases of low value assets (excluding 
 amounts already included in short-term leases above)         1         - 
 

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 7 for further details.

Amounts recognised in the Group cash flow statement

 
                                 52 weeks  53 weeks 
                                  2021      2020 
                                  GBPm      GBPm 
Total cash outflow for leases*   1,109     1,175 
 

* Includes GBP5m (2020: GBP5m) related to Tesco Bank.

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 GBP10.8bn (2020: GBP11.8bn).

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 75% (2020: 72%) of the Group's lease liabilities are subject to inflation-linked rentals and a further 15% (2020: 12%) are subject to rent reviews. Rental changes linked to inflation or rent reviews typically occur on an annual or five-yearly basis.

The Group is committed to payments totalling GBP36m (2020: GBP93m) 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

 
                                      52 weeks  53 weeks 
                                       2021      2020 (a) 
Continuing operations                  GBPm      GBPm 
Finance lease - interest income (b)   5         4 
Operating lease - rental income (c)   85        98 
 

(a) Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 7 for further details.

   (b)        Includes GBP5m (2020: GBP4m) of sublease interest income. 
   (c)         Includes GBP22m (2020: GBP26m) of sublease rental income. 

Finance lease payments receivable

The finance lease receivable (net investment in the lease) included in the Group balance sheet is GBP86m (2020: GBP48m).

Operating lease payments receivable maturity analysis

 
                                                         2021   2020 
                                                          GBPm   GBPm 
Within one year                                          74     220 
Greater than one year but less than two years            52     128 
Greater than two years but less than three years         41     71 
Greater than three years but less than four years        32     38 
Greater than four years but less than five years         24     27 
Greater than five years but less than ten years          70     83 
Greater than ten years but less than fifteen years       38     44 
After fifteen years                                      65     82 
Total undiscounted operating lease payments receivable   396    693 
 

Notes to the Group financial statements

Note 13 Investment property

 
                                                        2021   2020 
                                                         GBPm   GBPm 
Cost 
At the beginning of the year                            100    118 
Foreign currency translation                            1      (1) 
Reclassification                                        (4)    (11) 
Classified as held for sale                             1      - 
Disposals                                               (5)    (6) 
At the end of the year                                  93     100 
Accumulated depreciation and impairment losses 
At the beginning of the year                            74     82 
Foreign currency translation                            1      (1) 
Charge for the year                                     1      1 
Impairment losses for the year*                         2      5 
Reversal of impairment losses for the year*             (2)    (4) 
Reclassification                                        (2)    (4) 
Classified as held for sale                             1      - 
Disposals                                               (1)    (5) 
At the end of the year                                  74     74 
Net carrying value at the end of the year               19     26 
 
Rental income earned from investment properties under 
 operating leases                                       7      11 
Direct operating expenses incurred on rental-earning 
 investment properties                                  -      (3) 
 

* Refer to Note 15.

The estimated fair value of the Group's investment property is GBP0.1bn (2020: GBP0.2bn). This fair value has been determined by applying an appropriate rental yield to the rentals earned by the investment property. A valuation has not been performed by an independent valuer.

Note 14 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 117 to 121 for a complete list of Group entities.

Subsidiaries

The accounting year ends of the subsidiaries consolidated in these financial statements are on or around 27 February 2021.

Consolidated structured entities

The Group has a number of securitisation structured entities established in connection with Tesco Bank's credit card securitisation transactions. 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.

These entities have financial year ends of 31 December. The management accounts of these entities are used to consolidate the results to 27 February 2021 within these financial statements.

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.

Notes to the Group financial statements

Note 14 Group entities continued

Interests in joint ventures and associates

Principal joint ventures and associates

The Group's principal joint ventures and associates are:

 
                                                                  Share of 
                                                                   issued 
                                                                   share capital, 
                              Nature                               loan capital                       Principal 
                               of                                  and debt        Country             area 
                               relationship  Business activity     securities       of incorporation   of operation 
Included in 'UK property 
 joint ventures': 
The Tesco Coral Limited 
 Partnership                  Joint venture  Property investment  50%              England            United Kingdom 
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 Tesco Sarum Limited 
 Partnership                  Joint venture  Property investment  50%              England            United Kingdom 
The Tesco Dorney Limited 
 Partnership                  Joint venture  Property investment  50%              England            United Kingdom 
The Tesco 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 
Tesco Underwriting Limited    Joint venture  Insurance            49.9%            England            United Kingdom 
Booker India Private 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 2020 to 27 February 2021. 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. The accounting period end dates of the associates are different from those of the Group as they depend upon the requirements of the parent companies of those entities.

There are no significant restrictions on the ability of joint ventures and associates to transfer funds to the parents, other than those imposed by the Companies Act 2006 or equivalent local regulations, and for Tesco Underwriting Limited, regulatory capital requirements.

Prior to the Group's sale of its 20% share in Gain Land Limited (Gain Land) on 28 February 2020, management applied judgement in determining that Gain Land was an associate of the Group. The Group had significant influence by virtue of holding 20% equity interest which presumed significant influence per IAS 28, together with having a contractual right to appoint two out of 10 directors, while taking into account that the remaining 80% interest was held by one other party.

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. Some leases also provide the Group with options to purchase the other joint venturers' equity stakes at a future point in time. 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.

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.

Notes to the Group financial statements

Note 14 Group entities continued

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    Gain Land Limited 
                                             ventures             (d) 
                                            2021       2020      2021       2020 
                                             GBPm       GBPm      GBPm       GBPm 
Summarised balance sheet 
Non-current assets (a)                      2,916      3,242     -          - 
Current assets (excluding cash and cash 
 equivalents)                               50         101       -          - 
Cash and cash equivalents                   27         28        -          - 
Current liabilities (b)                     (420)      (487)     -          - 
Non-current liabilities (b)                 (3,229)    (3,621)   -          - 
Net assets/(liabilities)                    (656)      (737)     -          - 
 
  Summarised income statement 
Revenue                                     250        258       -          8,551 
Profit/(loss) after tax                     -          -         -          (95) 
 
  Reconciliation to carrying amounts: 
Opening balance                             -          -         -          263 
Foreign currency translation                -          -         -          (4) 
Share of profits/(losses) (c)               14         12        -          (19) 
Dividends received from joint ventures 
 and associates                             (14)       (12)      -          - 
Disposals(d)                                -          -         -          (240) 
Closing balance                             -          -         -          - 
 
Group's share in ownership                  50%        50%       -          - 
Group's share of net assets/(liabilities)   (328)      (369)     -          - 
Goodwill                                    -          -         -          - 
Deferred property profits offset against 
 carrying amounts                           (60)       (61)      -          - 
Cumulative unrecognised losses (c)          205        205       -          - 
Cumulative unrecognised hedge reserves 
 (c)                                        183        225       -          - 
Carrying amount                             -          -         -          - 
 

(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 GBP3,939m (2020: GBP4,338m).

(b) The current and non-current liabilities of UK property joint ventures largely comprise loan balances of GBP3,235m (2020: GBP3,616m) and derivative swap balances of GBP363m (2020: GBP452m) entered into to hedge the cash flow variability exposures of the joint ventures.

(c) The share of profit for the year for UK property joint ventures related to GBP14m dividends received from joint ventures with GBPnil carrying amounts. GBP 2m of profit and GBP12m of decrease i n the fair values of derivatives arising from these entities have been included in cumulative unrecognised losses and cumulative unrecognised hedge reserves respectively.

(d) The Group completed the sale of its 20% investment in Gain Land Limited on 28 February 2020 for a consideration of GBP277m.

As at 27 February 2021, the Group has GBP101m (2020: GBP106m) 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    Associates 
                                            2021     2020     2021   2020 
                                             GBPm     GBPm     GBPm   GBPm 
Aggregate carrying amount of individually 
 immaterial joint ventures and associates   168      230      10     77 
Group's share of profits/(losses) for 
 the year*                                  1        2        11     (3) 
 

* Comparatives have been restated to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 7 for further details.

Note 15 Impairment of non-current assets

Impairment losses and reversals

An impairment of GBP295m was recognised on the goodwill associated with Tesco Bank (2020: GBPnil). This impairment arises due to an increase in the cost of equity used to discount cash flows and a reduction in cash flows arising from the economic impact of the pandemic. No other goodwill impairment losses were recognised by the Group (2020: GBPnil).

The table below summarises the Group's pre-tax impairment losses and reversals on other non-current assets and investments in joint ventures and associates, with the former aggregated by segment due to the large number of individually immaterial store cash-generating units. This includes any losses recognised immediately prior to classifying an asset or disposal group as held for sale but excludes all impairments post classification as held for sale. Impairment losses and reversals comparatives have been re-presented in order to show the Group's Poland, Thailand and Malaysia businesses as discontinued operations. There were no impairment losses or reversals in the year (2020: GBPnil) with respect to other non-current assets and investments in joint ventures and associates in Tesco Bank.

Notes to the Group financial statements

Note 15 Impairment of non-current assets continued

 
                                                                  Total continuing        Discontinued 
                  UK & ROI                Central Europe           operations              operations             Total(a) 
                  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment 
52 weeks ended     loss        reversal    loss        reversal    loss        reversal    loss        reversal    loss        reversal 
27 February 2021   GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm 
Group balance 
sheet 
Other intangible 
 assets           (32)        9           (2)         7           (34)        16          -           -           (34)        16 
Property, plant 
 and equipment    (371)       497         (23)        38          (394)       535         (66)        23          (460)       558 
Right of use 
 assets           (209)       229         (16)        1           (225)       230         -           -           (225)       230 
Investment 
 property         (2)         2           -           -           (2)         2           -           -           (2)         2 
Other 
 non-current 
 assets           (614)       737         (41)        46          (655)       783         (66)        23          (721)       806 
Investments in 
 joint ventures 
 and associates   -           -           -           -           -           -           -           -           -           - 
Total impairment 
 (loss)/reversal  (614)       737         (41)        46          (655)       783         (66)        23          (721)       806 
Group income 
statement 
Cost of sales - 
 underlying       (2)         -           -           -           (2)         -           -           -           (2)         - 
Cost of sales - 
 exceptional      (564)       683         (41)        46          (605)       729         -           -           (605)       729 
Administrative 
 expenses - 
 underlying       (48)        54          -           -           (48)        54          -           -           (48)        54 
Administrative 
expenses - 
exceptional       -           -           -           -           -           -           -           -           -           - 
Total impairment 
 (loss)/ 
 reversal 
 from continuing 
 operations       (614)       737         (41)        46          (655)       783         -           -           (655)       783 
Discontinued 
operations 
- underlying      -           -           -           -           -           -           -           -           -           - 
Discontinued 
 operations 
 - exceptional    -           -           -           -           -           -           (66)        23          (66)        23 
Total impairment 
 (loss)/reversal  (614)       737         (41)        46          (655)       783         (66)        23          (721)       806 
 

(a) Of the GBP85m other non-current assets net impairment reversal for the Group (2020: GBP302m loss), a net reversal of GBP81m (2020: GBP302m loss) has been classified within exceptional items, of which a net reversal of GBP119m (2020: GBP251m loss) related to the UK & ROI, a net reversal of GBP5m (2020: GBP28m reversal) related to Central Europe and a net loss of GBP43m (2020: GBP79m loss) related to discontinued operations.

 
                                                                  Total continuing        Discontinued 
                  UK & ROI                Central Europe           operations              operations             Total(a)(b) 
                  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment  Impairment 
53 weeks ended     loss        reversal    loss        reversal    loss        reversal    loss        reversal    loss        reversal 
29 February 2020   GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm        GBPm 
Group balance 
sheet 
Other intangible 
 assets           (27)        36          -           -           (27)        36          -           2           (27)        38 
Property, plant 
 and equipment    (428)       272         (54)        67          (482)       339         (240)       156         (722)       495 
Right of use 
 assets           (242)       142         (2)         18          (244)       160         (23)        22          (267)       182 
Investment 
 property         (5)         -           -           2           (5)         2           -           2           (5)         4 
Other 
 non-current 
 assets           (702)       450         (56)        87          (758)       537         (263)       182         (1,021)     719 
Investments in 
 joint ventures 
 and associates   (47)        -           -           -           (47)        -           -           -           (47)        - 
Total impairment 
 (loss)/reversal  (749)       450         (56)        87          (805)       537         (263)       182         (1,068)     719 
Group income 
statement 
Cost of sales - 
 underlying       -           -           (5)         8           (5)         8           -           -           (5)         8 
Cost of sales - 
 exceptional      (658)       407         (51)        75          (709)       482         -           -           (709)       482 
Administrative 
 expenses - 
 underlying       (44)        43          -           -           (44)        43          -           -           (44)        43 
Administrative 
 expenses - 
 exceptional      (47)        -           -           4           (47)        4           -           -           (47)        4 
Total impairment 
 (loss)/ 
 reversal 
 from continuing 
 operations       (749)       450         (56)        87          (805)       537         -           -           (805)       537 
Discontinued 
 operations 
 - underlying     -           -           -           -           -           -           (2)         -           (2)         - 
Discontinued 
 operations 
 - exceptional    -           -           -           -           -           -           (261)       182         (261)       182 
Total impairment 
 (loss)/reversal  (749)       450         (56)        87          (805)       537         (263)       182         (1,068)     719 
 
   (a)        Refer to previous table for footnote. 

(b) Comparatives have been re-presented to present Thailand, Malaysia and Poland as discontinued operations. Refer to Note 7 for further details.

Notes to the Group financial statements

Note 15 Impairment of non-current assets continued

The net impairment reversal in UK & ROI includes an impairment loss of GBP32m in the UK in respect of the Group obtaining control of The Tesco Property (No. 2) Limited Partnership (2020: GBP287m impairment loss in the UK & ROI in respect of the Group obtaining control of The Tesco Atrato Limited Partnership). Refer to Note 33 for further details.

Immediately preceding their recognition as held for sale in H1 2020/21, an impairment review was carried out on the Group's Poland, Malaysia and Thailand operations. There were no significant changes in relation to the Malaysia and Thailand operations between the 2020 year end and reclassification as held for sale, and expected proceeds exceeded the carrying value so no impairment was required. The Poland disposal involves both a corporate sale and the separate sale of the remaining property assets. Expected proceeds for the corporate sale exceeded the carrying value so no impairment was required. The recoverable amount of the remaining property assets is based on fair value less costs of disposal on an asset by asset basis, such that some assets are impaired while others have an impairment reversal. This results in a net impairment charge of GBP43m, recognised in discontinued operations - exceptional. See Note 7 for further details.

The remaining Other non-current assets impairment losses and reversals for the Group largely reflect normal fluctuations expected from store-level performance, property fair values and changes in discount rates, as well as any specific store closures.

Net carrying value of non-current assets

The net carrying values of Other non-current assets and recoverable amounts of impaired Other non-current assets for which an impairment loss has been recognised or reversed have been aggregated by segment due to the large number of individually immaterial store cash-generating units. The amounts below exclude assets or disposal groups classified as held for sale.

 
                                                    UK &    Central  Tesco 
                                                     ROI     Europe   Bank  Total 
  At 27 February 2021                                GBPm    GBPm     GBPm   GBPm 
Net carrying value 
Other intangible assets                             959     32       131    1,122 
Property, plant and equipment                       15,379  1,767    65     17,211 
Right of use assets                                 5,571   368      12     5,951 
Investment property                                 18      1        -      19 
Other non-current assets                            21,927  2,168    208    24,303 
Goodwill (a)                                        3,791   -        480    4,271 
Investments in joint ventures and associates 
 (b)                                                84      1        93     178 
Net carrying value of non-current assets            25,802  2,169    781    28,752 
Recoverable amount of impaired Other non-current 
 assets 
 for which an impairment loss has been recognised 
 or reversed, 
 supported by: 
Value in use                                        2,555   152      -      2,707 
Fair value less costs of disposal (c)               1,400   122      -      1,522 
                                                    3,955   274      -      4,229 
 

(a) Goodwill of GBP4,271m (2020: GBP4,840m) consists of UK GBP3,789m (2020: GBP3,793m), ROI GBP2m (2020: GBP3m) and Tesco Bank GBP480m (2020: GBP775m) included within continuing operations and GBPnil (2020: Thailand GBP193m and Malaysia GBP76m) in discontinued operations.

(b) The carrying value of the Group's investments include: Trent Hypermarket Private Limited GBP53m (2020: GBP59m) and Tesco Underwriting Limited GBP93m (2020: GBP87m).

(c) Due to the individual nature of each property, fair values are classified as Level 3 within the fair value hierarchy.

 
                                                              Total 
                                              Central  Tesco   continuing  Discontinued 
At 29 February 2020 (restated       UK & ROI   Europe   Bank   operations   operations   Total 
 (d) )                               GBPm      GBPm     GBPm   GBPm         GBPm          GBPm 
Net carrying value 
Other intangible assets             1,055     25       139    1,219        19            1,238 
Property, plant and equipment       14,612    1,824    61     16,497       2,737         19,234 
Right of use assets                 5,719     392      14     6,125        749           6,874 
Investment property                 23        2        -      25           1             26 
Other non-current assets            21,409    2,243    214    23,866       3,506         27,372 
Goodwill (a)                        3,796     -        775    4,571        269           4,840 
Investments in joint ventures 
 and associates (b)                 70        1        87     158          149           307 
Net carrying value of non-current 
 assets                             25,275    2,244    1,076  28,595       3,924         32,519 
Recoverable amount of impaired 
 Other non-current assets for 
 which an impairment loss has 
 been recognised or reversed, 
 supported by: 
Value in use                        3,448     178      -      3,626        239           3,865 
Fair value less costs of disposal 
 (c)                                2,105     126      -      2,231        352           2,583 
                                    5,553     304      -      5,857        591           6,448 
 

(a)-(c) Refer to previous table for footnotes.

(d) Refer to Note 1 for further details regarding the prior year restatement.

Notes to the Group financial statements

Note 15 Impairment of non-current assets continued

Impairment methodology

Cash-generating units

The Group treats each store as a separate cash-generating unit for impairment testing of other intangible assets, property, plant and equipment, right of use assets and investment property. Refer to Note 1 for further details. The Group allocates goodwill to groups of cash-generating units, where each country represents a group of cash-generating units for the Group's retail operations, as this represents the lowest level at which goodwill is monitored by management. Tesco Bank represents a separate cash-generating unit.

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.

Head office and 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 from the current financial year due to the evolution of the online channel that these centres support, rather than being allocated to the stores in their vicinity.

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 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.

In the current year, 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. Additional scenarios take account of the risks presented by Brexit, COVID-19, a macro-economic downturn and climate change consistent with the viability statement scenarios (see 'Longer-term viability statement' in the Strategic Report) as well as an upside scenario.

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. Risk-free rates are based on government bond rates in each geographical region and equity risk premia are based on forecasts by recognised bodies. In the current year the risks associated with Brexit and COVID-19 are reflected in the probability-weighted cash flow scenarios, and hence the discount rate is no longer adjusted for these risks.

Tesco Bank goodwill

Tesco Bank value in use is calculated by discounting equity cash flows, defined as the excess above the regulatory requirement. Tesco Bank applies an expected cash flow approach, using the internal three-year forecasts, approved by the Board, as well as stressed scenarios in line with those used to measure expected credit losses (refer to Note 25) to form a probability-weighted cash flow. The long-term growth rate is based on inflation and GDP growth forecasts by recognised bodies. The discount rate is the cost of equity of Tesco Bank. Risk-free rates and equity risk premia 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, infrastructure, 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.

Notes to the Group financial statements

Note 15 Impairment of non-current assets continued

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, the impact on cash generated from operations from year one sales growth (incorporating sales and costs, as well as volumes and prices) and probabilities assigned to cash flow scenarios. 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         Tesco Bank 
                          2021  2020  2021  2020  2021   2020 
                           %     %     %     %     %      % 
Pre-tax discount rates    5.9   8.0   5.4   8.1   12.8   9.7 
Post-tax discount rates   4.8   6.6   4.7   7.1   10.4   7.2 
Long-term growth rates    1.9   2.0   1.9   1.9   1.6    1.8 
 

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 
                                 2021   2020   2021     2020 
                                  %      %      %        % 
                                 5.4 -  8.0 -  5.5 -    7.0 - 
Pre-tax discount rates            5.9    8.1    8.3      9.3 
                                 4.7 -  6.6 -  4.4 -    5.5 - 
Post-tax discount rates           4.8    7.1    7.6      8.3 
                                        1.9 -  2.0 -    2.0 - 
Long-term growth rates           1.9     2.0    3.0      3.0 
 

Sensitivity

The Group has carried out sensitivity analyses on the reasonably possible changes in key assumptions in the impairment tests for (a) each group of cash-generating units to which goodwill has been allocated and (b) for its portfolio of store cash-generating units.

(a) With the exception of Tesco Bank, which has been impaired in the current year, neither a reasonably possible one percentage point increase in discount rates, a one percentage point decrease in year one sales growth nor a one percentage point decrease in long-term growth rates would indicate impairment (or further impairment), in any group of cash-generating units to which goodwill has been allocated.

The table below summarises the reasonably possible changes in key assumptions to which Tesco Bank goodwill is most sensitive and their impact on impairment in the current year:

 
                           Reasonably possible   Impact on     2021 
Key assumption              change                impairment    GBPm 
Cost of equity             Increase of 1.0%pt    Increase      (203) 
Annual equity cash flows   Decrease of 5.0%      Increase      (107) 
Long-term growth rates     Decrease of 0.5%pt    Increase      (27) 
 

(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 each key assumption and its impact on 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:

 
                                                      Impact on     2021   2020 
Key assumption          Reasonably possible change     impairment    GBPm   GBPm 
Post-tax discount       Increase of 1.0%pt for each 
 rates                   geographic region            Increase      (438)  (482) 
 Decrease of 1.0%pt for each 
  geographic region            Decrease                             397    485 
                        Increase of 1.0%pt for each 
Year one sales growth    geographic region            Decrease      55     61 
 Decrease of 1.0%pt for each 
  geographic region            Increase                             (56)   (61) 
Long-term growth        Increase of 1.0%pt for each 
 rates                   geographic region            Decrease      304    445 
 Decrease of 1.0%pt for each 
  geographic region            Increase                             (308)  (410) 
                        Increase of 5.0% for each 
Property fair values     geographic region            Decrease      81     105 
 Decrease of 5.0% for each 
  geographic region            Increase                             (80)   (105) 
 

The probability applied to each cash flow scenario in the current year differs by country, depending on the expected likelihood of each scenario occurring in each country. The base case represents the cash flows derived from the three-year internal forecasts and is assigned a weighted average probability of 60%. The impairment is not highly sensitive to the upside and climate change scenarios, assigned 5% and 4% weighted average probabilities respectively. The table below sets out the weighted average probability assigned to each of the remaining scenarios, to which the impairment is most sensitive, and shows the impact on impairment of a reasonably possible change in probability for each scenario, where the corresponding opposite change in probability is applied to the base case.

 
                 Weighted average                              Impact on    2021 
Scenario          probability      Reasonably possible change   impairment   GBPm 
                                   Increase of 5.0%pt for 
Brexit           11%                each geographic region     Increase     (59) 
                                   Decrease of 5.0%pt for 
                                    each geographic region     Decrease     60 
                                   Increase of 5.0%pt for 
COVID-19         10%                each geographic region     Increase     (28) 
                                   Decrease of 5.0%pt for 
                                    each geographic region     Decrease     29 
Macro-economic                     Increase of 5.0%pt for 
 downturn        10%                each geographic region     Increase     (80) 
                                   Decrease of 5.0%pt for 
                                    each geographic region     Decrease     81 
 

Notes to the Group financial statements

Note 16 Investments in debt and equity instruments

Financial assets at fair value through other comprehensive income

 
                                                                   2021   2020 
                                                                    GBPm   GBPm 
Investments in debt instruments (a)                                -      1,058 
Investments in equity instruments                                  14     10 
Total financial assets at fair value through other comprehensive 
 income                                                            14     1,068 
Of which: 
Current                                                            3      202 
Non-current                                                        11     866 
                                                                   14     1,068 
 

Investment securities at amortised cost

 
                                              2021   2020 
                                               GBPm   GBPm 
Investment securities at amortised cost (a)   928    - 
Expected credit loss allowance (b)            (1)    - 
                                              927    - 
 

Of which:

 
Current        175   - 
 Non-current    752   - 
               927   - 
 
   (a)        Refer to Note 1 for more information regarding the change in business model. 
   (b)        Refer to Note 25 for allowance for expected credit losses disclosures. 

On 1 March 2020, following a change in business model, the Group's GBP1,058m portfolio of debt investments measured at fair value through other comprehensive income was reclassified to investment securities at amortised cost (see Note 1) and the GBP3m cumulative loss relating to these assets, previously recognised in other comprehensive income, was adjusted against the carrying value of the assets. See Note 24 for the fair value of these assets as at 27 February 2021. A fair value gain of GBP8m would have been recognised in other comprehensive income in the current year had the financial assets not been reclassified.

Note 17 Inventories

 
                         2021   2020 
                          GBPm   GBPm 
Goods held for resale    2,066  2,429 
Development properties   3      4 
                         2,069  2,433 
 

Goods held for resale are net of commercial income. Refer to Note 22.

Cost of inventories from continuing operations recognised as an expense for the 52 weeks ended 27 February 2021 was GBP42,482m (53 weeks ended 29 February 2020: GBP42,782m). Inventory losses and provisions recognised as an expense for the 52 weeks ended 27 February 2021 were GBP1,052m

(53 weeks ended 29 February 2020: GBP1,121m).

Note 18 Trade and other receivables

 
                                                      2021   2020 
                                                       GBPm   GBPm 
Trade receivables                                     424    495 
Prepayments                                           207    192 
Accrued income (a)                                    210    262 
Other receivables                                     430    439 
Amounts owed by joint ventures and associates (Note 
 31) (b)                                              162    174 
Total trade and other receivables                     1,433  1,562 
Of which: 
Current                                               1,263  1,396 
Non-current                                           170    166 
                                                      1,433  1,562 
 

(a) Accrued income includes contract assets of GBP52m (2020: GBP60m) primarily related to insurance renewal income. The expected credit loss was immaterial as at 27 February 2021 (2020: immaterial).

(b) Expected credit losses on amounts owed by joint ventures and associates are not material.

Trade receivables include commercial income. Refer to Note 22. Trade receivables are generally non-interest-bearing. Credit terms vary by country and the nature of the debt, ranging from seven to 60 days.

Notes to the Group financial statements

Note 18 Trade and other receivables continued

The tables below present the ageing of receivables and related allowances for expected credit losses:

 
                                                                                 Greater 
                                                        Up to        Six to       than 
                                              Not past   six months   12 months   12 months 
                                              due        past due     past due    past due     Total 
At 27 February 2021                           GBPm       GBPm         GBPm        GBPm         GBPm 
Trade receivables                           403         54           3           11          471 
Other receivables                           413         15           5           19          452 
Trade and other receivables                 816         69           8           30          923 
 
  Allowance for expected credit losses: 
At the beginning of the year                (7)         (9)          (8)         (30)        (54) 
Transfer to disposal group held 
 for sale                                   -           1            1           4           6 
Foreign currency translation                (1)         -            -           -           (1) 
Increase in allowance, net of recoveries, 
 charged to the Group income statement      (14)        (4)          -           (6)         (24) 
Amounts written off                         -           1            1           2           4 
At the end of the year                      (22)        (11)         (6)         (30)        (69) 
 
 
                                                                                 Greater 
                                                        Up to        Six to       than 
                                              Not past   six months   12 months   12 months 
                                              due        past due     past due    past due     Total 
At 29 February 2020                           GBPm       GBPm         GBPm        GBPm         GBPm 
Trade receivables                           438         70           6           15          529 
Other receivables                           431         7            4           17          459 
Trade and other receivables                 869         77           10          32          988 
 
  Allowance for expected credit losses: 
At the beginning of the year                (5)         (11)         (14)        (29)        (59) 
Foreign currency translation                -           1            -           -           1 
Increase in allowance, net of recoveries, 
 charged to the Group income statement      (2)         -            4           (3)         (1) 
Amounts written off                         -           1            2           2           5 
At the end of the year                      (7)         (9)          (8)         (30)        (54) 
 

Note 19 Loans and advances to customers and banks

Tesco Bank has loans and advances to customers and banks, as follows:

 
                                  2021   2020 
                                   GBPm   GBPm 
Loans and advances to customers   6,402  8,451 
Loans and advances to banks       -      - 
                                  6,402  8,451 
Of which: 
Current                           3,093  4,280 
Non-current                       3,309  4,171 
                                  6,402  8,451 
 

The maturity of these loans and advances is as follows:

 
                                                        2021   2020 
                                                         GBPm   GBPm 
Repayable on demand or at short notice                  3      4 
Within three months                                     3,354  4,543 
Greater than three months but less than one year        94     86 
Greater than one year but less than five years          2,922  3,322 
After five years                                        654    984 
                                                        7,027  8,939 
Expected credit loss allowance for loans and advances 
 to customers and banks                                 (625)  (488) 
                                                        6,402  8,451 
 

At 27 February 2021, GBP3.0bn (2020: GBP3.5bn) of the credit card portfolio had its beneficial interest assigned to a securitisation structured entity, Delamare Cards Receivables Trustee Limited, for use as collateral in securitisation transactions. The total encumbered portion of this portfolio is GBPnil (2020: GBP0.8bn).

At 27 February 2021, Delamare Cards MTN Issuer PLC had GBP1.8bn (2020: GBP2.0bn) notes in issue in relation to securitisation transactions, of which GBPnil (2020: GBP0.6bn) was externally issued. The Group owned GBP1.5bn (2020: GBP1.4bn) class A credit card-backed notes and GBP0.3bn (2020: GBP0.2bn) class D credit card-backed notes.

All of the GBP1.5bn (2020: GBP1.2bn) class A retained Credit Card backed notes are held within a single collateral pool.

Fair value hedge adjustments

Fair value hedge adjustments amounting to GBP6.7m (2020: GBP9.7m) are in respect of fixed rate loans. These adjustments are largely offset by derivatives, which are used to manage interest rate risk and are designated as fair value hedges within loans and advances to customers.

Refer to Note 25 for allowance for expected credit losses disclosures.

Notes to the Group financial statements

Note 20 Cash and cash equivalents and short-term investments

Cash and cash equivalents

 
                                                             2021   2020* 
                                                              GBPm   GBPm 
Cash at bank and in hand                                     2,495  3,980 
Short-term deposits                                          15     157 
Cash and cash equivalents in the Group balance sheet         2,510  4,137 
Bank overdrafts                                              (532)  (1,106) 
Cash and cash equivalents in the Group cash flow statement   1,978  3,031 
 

* Refer to Note 1 for further details regarding the prior year restatement in relation to notional cash pooling arrangements.

Short-term investments

 
                     2021   2020 
                      GBPm   GBPm 
Money market funds   1,011  1,076 
 

Cash and cash equivalents includes GBP101m (2020: GBP35m) of restricted amounts mainly relating to the Group's pension schemes and employee

benefit trusts.

Note 21 Trade and other payables

 
                                                         2021   2020 
                                                          GBPm   GBPm 
Trade payables                                           5,131  5,579 
Other taxation and social security                       369    477 
Other payables                                           1,653  1,793 
Amounts payable to joint ventures and associates (Note 
 31)                                                     23     26 
Accruals                                                 956    841 
Contract liabilities                                     376    376 
Total trade and other payables                           8,508  9,092 
Of which: 
Current                                                  8,399  8,922 
Non-current                                              109    170 
                                                         8,508  9,092 
 

Trade and other payables are net of commercial income. Refer to Note 22.

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 GBP572m (2020: GBP393m) 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 22 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.

 
                              2021   2020 
                               GBPm   GBPm 
Current assets 
Inventories                   (24)   (55) 
Trade and other receivables 
Trade/other receivables       90     138 
Accrued income                125    157 
Current liabilities 
Trade and other payables 
Trade payables                170    292 
Accruals                      (2)    (3) 
 

Notes to the Group financial statements

Note 23 Borrowings

Borrowings are classified as current and non-current based on their scheduled redemption 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.

 
                                                         2021   2020 (k) 
                                    Par value  Maturity   GBPm   GBPm 
Bank loans and overdrafts (a)       -          -         559    1,142 
2.125% MTN                          EUR296m    Nov 2020  -      255 
1m USD LIBOR + 0.70% Tesco Bank 
 Bond                               $350m      Nov 2020  -      273 
5% Tesco Bank Retail Bond           GBP200m    Nov 2020  -      202 
6.125% MTN                          GBP417m    Feb 2022  417    416 
LIBOR + 0.53% Tesco Bank Bond       GBP300m    Oct 2022  -      299 
5% MTN (b)                          GBP71m     Mar 2023  79     103 
1.375% MTN                          EUR750m    Oct 2023  662    660 
2.5% MTN (b)                        EUR473m    Jul 2024  415    653 
2.5% MTN                            GBP400m    May 2025  417    418 
3.5% Tesco Bank Senior MREL Notes 
 (h)                                GBP250m    Jul 2025  251    250 
3.322% LPI MTN (i)                  GBP354m    Nov 2025  364    358 
0.875% MTN                          EUR750m    May 2026  649    640 
5.5457% Secured Bond (c)(d)         GBP289m    Feb 2029  275    303 
6.067% Secured Bond (c)             GBP200m    Feb 2029  193    192 
LIBOR + 1.2% Secured Bond (c)       GBP50m     Feb 2029  48     36 
0.375% MTN                          EUR750m    Jul 2029  625    - 
6% MTN (b)                          GBP38m     Dec 2029  45     58 
2.75% MTN                           GBP450m    Apr 2030  441    - 
LIBOR + 1.17% Secured Bond (f)(l)   GBP187m    Jan 2032  184    - 
LIBOR + 1.17% Secured Bond (f)      GBP108m    Jan 2032  100    - 
5.5% MTN (b)                        GBP67m     Jan 2033  80     133 
1.982% RPI MTN (j)                  GBP294m    Mar 2036  302    297 
6.15% USD Bond (b)                  $355m      Nov 2037  333    555 
6.0517% Secured Bond (e)(g)         GBP458m    Oct 2039  592    616 
4.875% MTN (b)                      GBP14m     Mar 2042  14     20 
5.125% MTN (b)                      EUR235m    Apr 2047  209    316 
5.2% MTN (b)                        GBP14m     Mar 2057  14     29 
                                                         7,268  8,224 
 
  Of which: 
Current                                                  1,080  2,219 
Non-current                                              6,188  6,005 
                                                         7,268  8,224 
 

(a) Bank loans and overdrafts includes GBP532m (2020: GBP1,106m) of bank overdrafts. GBP525m (2020: GBP979m) 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 20.

(b) During the year, the Group undertook a tender for outstanding bonds and as a result the following notional amounts were repaid early, 5% MTN Mar 2023 GBP22m, 2.5% MTN Jul 2024 EUR277m, 6% MTN Dec 2029 GBP10m, 5.5% MTN Jan 2033 GBP42m, 6.15% USD Bond Nov 2037 $170m, 4.875% MTN Mar 2042 GBP6m, 5.125% MTN Apr 2047 EUR121m and 5.2% MTN Mar 2057 GBP16m.

(c) The bonds are secured by a charge over the property, plant and equipment held within The Tesco Property Limited Partnership, a 100% owned subsidiary of Tesco PLC. The carrying amounts of assets pledged as security for secured bonds is GBP817m (29 February 2020: GBP794m).

(d) This is an amortising bond which matures in Feb 2029. GBP26m (29 February 2020: GBP22m) is the principal repayment due within the next 12 months. The remainder is payable in quarterly instalments until maturity in Feb 2029.

(e) These bonds is secured by a charge over the property, plant and equipment held within The Tesco Atrato Limited Partnership, a 100% owned subsidiary of Tesco PLC. The carrying amounts of assets pledged as security for secured bonds is GBP837m (29 February 2020 GBP612m).

(f) These bonds are secured by a charge over the property, plant and equipment held within The Tesco Property No. 2 Limited Partnership, a 100% owned subsidiary of Tesco PLC. The carrying amounts of assets pledged as security for secured bonds is GBP445m.

(g) This is an amortising bond which matures in October 2039. GBP14m is the principal repayment due within the next 12 months. The remainder is payable in quarterly instalments until maturity in Oct 2039.

(h) These notes are Tesco Bank MREL compliant senior debt and were issued on 25 July 2019. The scheduled redemption date is July 2024.

(i) The 3.322% Limited Price Inflation (LPI) MTN is redeemable at par, indexed for increases in the RPI over the life of the MTN. The maximum indexation of the principal in any one year is 5%, with a minimum of 0%.

(j) The 1.982% RPI MTN is redeemable at par, indexed for increases in the RPI over the life of the MTN.

   (k)         Refer to Note 1 for further details regarding the prior year  restatement. 

(l) This is an amortising bond which matures in January 2032 GBP9m is the principal repayment due within the next 12 months. The remainder is payable in quarterly instalments until maturity in Jan 2032.

Notes to the Group financial statements

Note 24 Financial instruments

The Group recognises the following financial instruments on its balance sheet. The Group's exposure to the risks associated with its financial assets and liabilities is discussed in Note 25.

 
                                                           At fair 
                                                            value    At fair 
                                                            through   value through 
                                             At amortised   profit    other comprehensive 
                                              cost          or loss   income               Total 
At 27 February 2021                   Notes   GBPm          GBPm      GBPm                  GBPm 
Financial assets 
Cash and cash equivalents             20     2,496         14        -                     2,510 
Short-term investments                20     1,011         -         -                     1,011 
Trade receivables                     18     424           -         -                     424 
Other receivables                     18     430           -         -                     430 
Joint ventures and associates loan 
 receivables                          31     122           -         -                     122 
Loans and advances to customers 
 - Tesco Bank                         19     6,402         -         -                     6,402 
Investment securities at amortised 
 cost                                 16     927           -         -                     927 
Financial assets at fair value 
 through other comprehensive income   16     -             -         14                    14 
Derivative financial instruments: 
Interest rate swaps                          -             42        -                     42 
Cross-currency swaps                         -             298       -                     298 
Index-linked swaps                           -             1,080     -                     1,080 
Forward contracts                            -             42        -                     42 
                                             11,812        1,476     14                    13,302 
Financial liabilities 
Trade payables                        21     (5,131)       -         -                     (5,131) 
Other payables                        21     (1,653)       -         -                     (1,653) 
Borrowings                            23     (7,268)       -         -                     (7,268) 
Customer deposits - Tesco Bank        26     (5,738)       -         -                     (5,738) 
Deposits from banks - Tesco Bank      26     (600)         -         -                     (600) 
Lease liabilities                     12     (8,402)       -         -                     (8,402) 
Derivative financial instruments: 
Interest rate swaps                          -             (162)     -                     (162) 
Cross-currency swaps                         -             (38)      -                     (38) 
Index-linked swaps                           -             (729)     -                     (729) 
Forward contracts                            -             (78)      -                     (78) 
                                             (28,792)      (1,007)   -                     (29,799) 
 
 
                                                           At fair 
                                                            value    At fair 
                                                            through   value through 
                                             At amortised   profit    other comprehensive 
                                              costs         or loss   income               Total 
At 29 February 2020 (restated)*       Notes   GBPm          GBPm      GBPm                  GBPm 
Financial assets 
Cash and cash equivalents             20     4,111         26        -                     4,137 
Short-term investments                20     1,076         -         -                     1,076 
Trade receivables                     18     495           -         -                     495 
Other receivables                     18     439           -         -                     439 
Joint ventures and associates loan 
 receivables                          31     127           -         -                     127 
Loans and advances to customers 
 - Tesco Bank                         19     8,451         -         -                     8,451 
Investment securities at amortised 
 cost                                 16     -             -         -                     - 
Financial assets at fair value 
 through other comprehensive income   16     -             -         1,068                 1,068 
Derivative financial instruments: 
Interest rate swaps                          -             47        -                     47 
Cross-currency swaps                         -             497       -                     497 
Index-linked swaps                           -             541       -                     541 
Forward contracts                            -             61        -                     61 
                                             14,699        1,172     1,068                 16,939 
Financial liabilities 
Trade payables                        21     (5,579)       -         -                     (5,579) 
Other payables                        21     (1,793)       -         -                     (1,793) 
Borrowings                            23     (8,224)       -         -                     (8,224) 
Customer deposits - Tesco Bank        26     (7,707)       -         -                     (7,707) 
Deposits from banks - Tesco Bank      26     (500)         -         -                     (500) 
Lease liabilities                     12     (9,566)       -         -                     (9,566) 
Derivative financial instruments: 
Interest rate swaps                          -             (70)      -                     (70) 
Cross-currency swaps                         -             -         -                     - 
Index-linked swaps                           -             (816)     -                     (816) 
Forward contracts                            -             (62)      -                     (62) 
                                             (33,369)      (948)     -                     (34,317) 
 

* Refer to Note 1 for further details regarding the prior year restatement.

Notes to the Group financial statements

Note 24 Financial instruments continued

The fair values are determined by reference to prices available from the markets on which the instruments are traded, where they are available. Where market prices are not available, the fair value is calculated by discounting expected future cash flows at prevailing interest rates. The fair value of assets measured at amortised cost is shown below.

The expected maturity of financial assets and liabilities is not considered to be materially different to their current and non-current classification.

Fair value of financial assets and liabilities measured at amortised cost

The fair value of financial assets and liabilities measured at amortised cost is shown below. The table excludes cash and cash equivalents, short-term investments, trade receivables/payables, and other receivables/payables where the carrying values approximate fair value.

 
                                                                       2020 (restated(a) 
                                                    2021                ) 
                                                    Carrying  Fair     Carrying    Fair 
                                                     value     value    value       value 
                                                     GBPm      GBPm     GBPm        GBPm 
Financial assets measured at amortised 
 cost 
Loans and advances to customers - Tesco 
 Bank (Level 3)                                     6,402     6,618    8,451       8,672 
Investment securities at amortised cost 
 (Level 1 and 2)                                    927       932      -           - 
Joint ventures and associates loan receivables(b) 
 (Level 2)                                          122       153      127         193 
Financial liabilities measured at amortised 
 cost 
Borrowings 
Amortised cost (Level 1 and 2)                      (4,711)   (5,761)  (5,793)     (6,371) 
Bonds in fair value hedge relationships 
 (Level 1)                                          (2,557)   (2,658)  (2,431)     (2,432) 
Customer deposits - Tesco Bank (Level 
 3)                                                 (5,738)   (5,744)  (7,707)     (7,711) 
Deposits from banks - Tesco Bank (Level 
 2)                                                 (600)     (600)    (500)       (500) 
 
   (a)        Refer to Note 1 for further details regarding the prior year restatement. 

(b) Joint ventures and associates loan receivables carrying amounts of GBP122m (2020: GBP127m) are presented in the Group balance sheet net of deferred profits of GBP38m (2020: GBP54m) historically arising from the sale of property assets to joint ventures.

Fair value measurement by level of fair value hierarchy

The following table presents the Group's financial assets and liabilities that are measured at fair value, by level of fair value hierarchy:

- quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

- inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and

- inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 
                                                            Level 
                                          Level 1  Level 2   3     Total 
At 27 February 2021                        GBPm     GBPm     GBPm   GBPm 
Assets 
Financial assets at fair value through 
 other comprehensive income               -        3        11     14 
Cash and cash equivalents at fair value 
 through profit or loss                   -        14       -      14 
Derivative financial instruments: 
Interest rate swaps                       -        42       -      42 
Cross-currency swaps                      -        298      -      298 
Index-linked swaps                        -        1,080    -      1,080 
Forward contracts                         -        42       -      42 
Total assets                              -        1,479    11     1,490 
Liabilities 
Derivative financial instruments: 
Interest rate swaps                       -        (162)    -      (162) 
Cross-currency swaps                      -        (38)     -      (38) 
Index-linked swaps                        -        (729)    -      (729) 
Forward contracts                         -        (78)     -      (78) 
Total liabilities                         -        (1,007)  -      (1,007) 
Net assets/(liabilities)                  -        472      11     483 
 

Notes to the Group financial statements

Note 24 Financial instruments continued

 
                                                            Level 
                                          Level 1  Level 2   3     Total 
At 29 February 2020                        GBPm     GBPm     GBPm   GBPm 
Assets 
Financial assets at fair value through 
 other comprehensive income               1,058    -        10     1,068 
Cash and cash equivalents at fair value 
 through profit or loss                   -        26       -      26 
Derivative financial instruments: 
 Interest rate swaps                      -        47       -      47 
Cross-currency swaps                      -        497      -      497 
Index-linked swaps                        -        541      -      541 
Forward contracts                         -        61       -      61 
Total assets                              1,058    1,172    10     2,240 
Liabilities 
Derivative financial instruments: 
Interest rate swaps                       -        (70)     -      (70) 
Index-linked swaps                        -        (816)    -      (816) 
Forward contracts                         -        (62)     -      (62) 
Total liabilities                         -        (948)    -      (948) 
Net assets/(liabilities)                  1,058    224      10     1,292 
 

The following table presents the changes in Level 3 instruments:

 
                                                          2021   2020 
                                                           GBPm   GBPm 
At the beginning of the year                              10     (1) 
Gains/(losses) recognised in the Group statement of 
 comprehensive income/(loss)                              3      1 
Disposal of financial instrument at fair value through 
 profit or loss                                           (4)    6 
Addition of financial asset at fair value through other 
 comprehensive income                                     2      4 
At the end of the year                                    11     10 
 

During the financial year, there were no transfers (2020: no transfers) between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements (2020: no transfers).

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 
                                         Gross 
                                         amounts 
                                         of 
                                         financial 
                         Gross           assets/ 
                          amounts        (liabilities)   Net amounts 
                          of             offset          presented 
                          recognised     in the          in the 
                          financial      Group           Group 
                          assets/        balance         balance      Financial 
                          (liabilities)  sheet           sheet        instruments     Collateral  Net amount 
At 27 February 2021       GBPm           GBPm            GBPm         GBPm            GBPm         GBPm 
Financial assets 
Derivative financial 
 instruments             1,462           -               1,462        (234)           -           1,228 
Trade receivables        520             (96)            424          -               -           424 
Total assets             1,982           (96)            1,886        (234)           -           1,652 
Financial liabilities 
Derivative financial 
 instruments             (1,007)         -               (1,007)      234             42          (731) 
Trade payables           (5,227)         96              (5,131)      -               -           (5,131) 
Total liabilities        (6,234)         96              (6,138)      234             42          (5,862) 
 
 

Notes to the Group financial statements

Note 24 Financial instruments continued

 
                                                                      Related 
                                                                       amounts 
                                                                       not offset 
                                                                       in the 
                                                                       Group balance 
                                                                       sheet 
                                         Gross 
                                         amounts 
                                         of 
                                         financial 
                         Gross           assets/ 
                          amounts        (liabilities)   Net amounts 
                          of             offset          presented 
                          recognised     in the          in the 
                          financial      Group           Group 
At 29 February 2020       assets/        balance         balance      Financial 
(restated(a)              (liabilities)  sheet           sheet        instruments     Collateral  Net amount 
)                         GBPm           GBPm            GBPm         GBPm            GBPm         GBPm 
Financial assets 
Derivative financial 
 instruments             1,146           -               1,146        (168)           -           978 
Trade receivables        735             (240)           495          -               -           495 
Total assets             1,881           (240)           1,641        (168)           -           1,473 
Financial liabilities 
Derivative financial 
 instruments             (948)           -               (948)        168             45          (735) 
Trade payables           (5,819)         240             (5,579)      -               -           (5,579) 
Total liabilities        (6,767)         240             (6,527)      168             45          (6,314) 
 
 

(a) Refer to Note 1 for further details regarding the prior year restatement.

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.

Note 25 Financial risk management

The Group's financial risk management is carried out under policies approved and authority delegated by the Board of Directors, including parameters for risk management across the Group. The financial risk management in relation to Retail is carried out by a central treasury department. Tesco Bank has a separate formal structure for reporting, monitoring and managing its financial risks appropriate to the nature of its business as a regulated financial institution.

The main financial risks faced by the Group, including Retail and Tesco Bank, and the management of these risks are set out below and include market risk (foreign exchange, interest rate, inflation and commodity prices), credit risk, liquidity risk, capital risk and insurance risk. Additional information on the management of the financial risks relating to Tesco Bank is also set out below.

(a) Market risk

The Group is exposed to various elements of market risk, which include foreign exchange risk, interest rate risk, commodity price risk and inflation risk.

Foreign exchange risk

The Group is exposed to foreign exchange risk principally via:

- 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;

- net investment exposure that arises from changes in the value of net investments denominated in currencies other than Pounds Sterling;

- loans to and from subsidiaries in currencies other than in the entity's functional currency; and

- debt issued in a currency other than Pound Sterling.

The foreign exchange risk for each of the above is managed via:

Transactional exposure

- forward foreign currency contracts or purchased currency options, which are designated as cash flow hedges. The Group's policy is to hedge currency exposure that could significantly impact the Group income statement with a minimum (20%) and maximum (80%) hedge level of forecast uncommitted exposure within at least the next 12 months.

Net Investment exposure

- foreign currency derivatives and borrowings in matching currencies, which are formally designated as net investment hedges. The Group's policy is to hedge a part of its investments in international subsidiaries.

Intercompany loan hedging

- the use of foreign currency derivatives and borrowings in matching currencies. The Group's policy is that 100% of the foreign exchange risk is hedged. These are not formally designated as accounting hedges as gains and losses will naturally offset in the income statement.

Foreign currency debt

- cross-currency swaps which swap the non-sterling debt back into a net sterling exposure. The Group's policy is to swap foreign currency debt back to Pound Sterling, unless there are appropriate matching foreign currency assets.

Notes to the Group financial statements

Note 25 Financial risk management continued

Interest rate risk

The Group is exposed to interest rate risk principally via:

- 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 interest rate risk for each of the above is managed via:

- The issuance of debt at variable and floating interest rates as well as forward rate agreements, interest rate swaps, and caps and floors, which may be used to achieve the desired mix of fixed and floating rate debt. Hedging relationships are formally designated as either fair value or cash flow hedges. The Group's policy is to target fixing a minimum of 50% of interest costs for senior unsecured debt excluding Tesco Bank. At 27 February 2021, the percentage of interest-bearing debt at fixed rates was 67% (2020: 68%). The weighted average rate of interest paid on senior unsecured debt this financial year, excluding joint ventures and associates, was 3.07% (2020: 3.30%).

The Group has RPI-linked debt where the principal is indexed to increases in the RPI. RPI debt is treated as floating rate debt. The Group also has LPI-linked debt, where the principal is indexed to RPI, with an annual maximum increase of 5% and a minimum of 0%. LPI debt is treated as fixed-rate debt. RPI-linked debt and LPI-linked debt are hedged for the effects of inflation until maturity.

During 2021 and 2020, Group net debt was managed using derivative instruments to hedge interest rate risk.

 
                                     2021                          2020 (restated*) 
                                     Fixed     Floating  Total     Fixed     Floating  Total 
                                      GBPm      GBPm      GBPm      GBPm      GBPm      GBPm 
Cash and cash equivalents            -         2,510     2,510     -         4,137     4,137 
Loans and advances to customers 
 - Tesco Bank                        6,402     -         6,402     4,370     4,081     8,451 
Investment securities at 
 amortised cost                      502       425       927       -         -         - 
Short-term investments               -         1,011     1,011     -         1,076     1,076 
Financial assets at fair 
 value through other comprehensive 
 income                              14        -         14        659       409       1,068 
Joint ventures and associates 
 loan receivables                    101       21        122       106       21        127 
Lease liabilities                    (8,402)   -         (8,402)   (9,566)   -         (9,566) 
Bank and other borrowings            (6,102)   (1,166)   (7,268)   (6,260)   (1,964)   (8,224) 
Customer deposits - Tesco 
 Bank                                (5,738)   -         (5,738)   (3,164)   (4,543)   (7,707) 
Deposits from banks - Tesco 
 Bank                                -         (600)     (600)     (500)     -         (500) 
Derivative effect: 
Interest rate swaps                  (1,206)   1,206     -         (1,092)   1,092     - 
Cross-currency swaps                 (905)     905       -         410       (410)     - 
Index-linked swaps                   (299)     299       -         (294)     294       - 
Total                                (15,633)  4,611     (11,022)  (15,331)  4,193     (11,138) 
 

* Refer to Note 1 for further details regarding the prior year restatement.

Commodity price risk

The Group is exposed to commodity price risk via:

- changes in commodity prices largely relating to diesel for own use.

The commodity price risk is managed via:

- forward derivative contracts which are designated as cash flow hedges. These are used to hedge future purchases of diesel for own use which are forecast to occur within a 12-month period. The Group Policy is to hedge a minimum of 50% of the forecast uncommitted exposure within the next 12 months.

Inflation risk

The Group is exposed to inflation risk in relation to its financial assets and liabilities via:

- Indexed linked debt, were the principal is indexed to increase / decrease in line with the RPI or LPI.

- Lease liabilities where rent payments are indexed to increases / decreases in inflation indexes such as RPI.

The inflation risk is managed via:

- Indexed-linked debt

- Indexed-linked swaps, which are used to hedge RPI-linked and LPI-linked debt for the effect of inflation until maturity.

- Indexed linked lease liabilities

- Indexed linked swaps, which are used to hedge inflation linked rent payments for the effect of inflation until maturity of the lease.

Hedge accounting of market risks

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 effect of the counterparties' and the Group's own credit risk on the fair value of derivatives.

Notes to the Group financial statements

Note 25 Financial risk management continued

Fair value hedges

The Group maintains interest rate and cross-currency swap contracts as fair value hedges of the interest rate and currency risk on fixed-rate debt issued by the Group and investment securities held by the Group.

Derivative contracts hedging fixed rate debt issued by the Group receive a fixed-rate of interest and pay a variable interest rate.

Derivative contracts held by the Group receive a floating rate of interest and pay a fixed interest rate to hedge investment securities where the Group receives a fixed rate of interest.

There is an economic relationship between the hedged item and the hedging instrument as the terms of the swap contracts match the terms of the fixed-rate borrowings, including notional amount, maturity, payment and rate set dates. The Group has established a hedge ratio of 1:1 for the hedging relationship as the underlying risk of the swap contract is identical to the hedged item.

Cash flow hedges

The Group is exposed to foreign currency risk arising from purchases of goods for resale in currencies other than the functional currency of the purchasing entity. Foreign currency forwards are utilised to hedge this risk and are formally designated as cash flow hedges.

Under the Group's hedging policy, the critical terms of the forward contracts must align with the hedged items. The foreign currency forwards 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 hedging relationship is determined to be 1:1.

The Group also uses forward contracts to hedge the price of certain commodities, these mainly relate to forward contracts to hedge future purchases of diesel for own use, which are forecast to occur within a 12-month period. These are denominated in the same currency and volume as the forecast purchases and the hedging relationship is determined to be 1:1.

The Group also uses index-linked swaps to hedge cash flows on index-linked debt and interest rate swaps to hedge interest cash flows on debt.

Net investment hedging

The Group uses Euro-denominated borrowings to hedge the exposure of a portion of its net investments in overseas operations which have a Euro functional currency, against changes in value due to changes in foreign exchange rates. The hedged risk in the net investment hedge is the risk of a weakening Euro against Pound Sterling that will result in a reduction in the carrying amount of the Group's Euro net investments.

To assess hedge effectiveness, the Group determines the economic relationship between the hedging instrument and the hedged item by comparing changes in the carrying amount of the debt that is attributable to a change in the spot rate with changes in the investment in foreign operations due to movements in the spot rate. 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.

The details of the hedging instruments and movements in cumulative losses on net investment hedges in other comprehensive income are set out below:

 
                                                      Nominal 
                                                       amount      Movement     Movement 
                                      Nominal amount   of the       on           on 
                                       of the hedged   hedging      continuing   discontinued 
Gains/(losses) on net investment       item            instrument   hedges       hedges 
 hedges                                GBPm            GBPm         GBPm         GBPm 
At 23 February 2019                   1,281           1,281        (42)         (976) 
Change in value for calculating 
 ineffectiveness                      9               9            48           (89) 
At 29 February 2020                   1,290           1,290        6            (1,065) 
Change in value for calculating 
 ineffectiveness                      10              10           (10)         - 
Recycled to Group income statement    -               -            -            57 
At 27 February 2021                   1,300           1,300        (4)          (1,008) 
 

Net investment hedge ineffectiveness was GBPnil (2020: GBPnil) during the year.

During the current financial year, the Group disposed of its Asian business resulting in a recycle to the income statement from the translation reserve of GBP57m (2020: GBPnil) relating to net investment hedging.

During the current financial year, currency movements decreased the net value, after the effects of hedging, of the Group's overseas assets by GBP68m (2020: decrease by GBP68m). The Group also ensures that each subsidiary is appropriately hedged in respect of its non-functional currency assets.

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 forward foreign currency contracts.

Notes to the Group financial statements

Note 25 Financial risk management continued

IBOR reform

In the prior year, the Group early adopted the 'Interest Rate Benchmark Reform Phase 1' amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. This allowed the Group to continue hedge accounting for its benchmark interest rate exposures during the period of uncertainty from interest rate benchmark reforms.

In the current year, the Group has early adopted the 'Interest Rate Benchmark Reform Phase 2' amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 and has applied this to hedging relationships where no uncertainty remains as IBOR based benchmarks have been replaced by risk-free benchmarks for a number of hedging relationships.

Both Phase 1 and Phase 2 are relevant to the Group because it applies hedge accounting to its interest rate benchmark exposures and modifications in response to the reform have been made to some but not all of the Group's derivative and non-derivative financial instruments.

Where new hedging arrangements have been entered into during the year these have been set up utilising risk-free rates.

During the year the Group transitioned some of its exposures from IBOR based to risk free rate indices. These included interest rate swaps and floating Inter-Company lending which were transitioned to Sterling Overnight Index Average (SONIA) based indices.

None of the Group's current IBOR linked contracts include adequate and robust fall-back provisions for cessation of the referenced

benchmark interest rate.

The Group continues to monitor the market and the output from various industry groups managing the transition to new benchmark interest rates, and will look to implement fall-back language for different instruments and IBORs when appropriate.

For the Group's derivatives, the International Swaps and Derivatives Association (ISDA) fall-back clauses were made available at the end of

2019 and the Group has entered discussions with its banks and other counterparties with the aim to implement this language into its ISDAs and other relevant agreements.

The Group's transition to alternative benchmark rates is managed by cross functional teams, led by the Treasury teams in the Retail business and Tesco Bank, with the aim to complete this transition during the financial year ending 26 February 2022. There are a number of potential risks arising from the transition, however the Group does not envisage that these will materialise, as significant progress on the transition has been made with its banks and other counterparties.

The following table sets out the hedging relationships as at 27 February 2021, which include IBOR benchmarks and are yet to be transitioned to

Risk-free rate benchmarks.

 
                     Carrying value 
                      Notional  Asset  Liability  Interest 
Hedging instrument     GBPm      GBPm   GBPm      rate benchmark   Hedged item  Hedge relationship 
Interest                                                                        Fair value 
 rate swaps          650        14     -          EURIBOR          MTN           hedge 
Interest                                                                        Fair value 
 rate swaps          465        22     -          LIBOR            MTN           hedge 
Interest                                                                        Cash flow 
 rate swaps          346        -      (108)      LIBOR            Borrowing     hedge 
Cross-currency 
 interest                                                                       Not in formal 
 rate swaps          256        137    (3)        LIBOR            MTN          hedge relationship 
Investment 
 in subordinated                                                                Not in formal 
 loans               21         21     -          LIBOR            -            hedge relationship 
 
 

Derivatives and hedging exposures

The fair value and notional amounts of derivatives analysed by hedge type are as follows:

 
                       2021                                        2020 
                       Asset                 Liability             Asset                 Liability 
                                                                                         Fair 
                       Fair value  Notional  Fair value  Notional  Fair value  Notional   value  Notional 
                        GBPm        GBPm      GBPm        GBPm      GBPm        GBPm      GBPm    GBPm 
Fair value hedges 
Interest rate swaps    42          2,018     (54)        2,774     47          1,710     (51)    2,404 
Cross-currency swaps   -           -         (35)        650       232         409       -       - 
Cash flow hedges 
Interest rate swaps    -           -         (108)       346       -           -         (19)    50 
Cross-currency swaps   -           -         -           -         265         1,477     -       - 
Index-linked swaps     203         660       -           -         186         649       -       - 
Forward contracts      37          1,118     (59)        1,468     38          1,133     (29)    954 
Derivatives not 
 in a formal hedge 
relationship 
Interest rate swaps    -           13        -           101       -           35        -       13 
Cross-currency swaps   298         782       (3)         86        -           -         -       - 
Index-linked swaps     877         3,209     (729)       4,982     355         3,025     (816)   5,130 
Forward contracts      5           479       (19)        1,043     23          1,139     (33)    1,416 
Total                  1,462       8,279     (1,007)     11,450    1,146       9,577     (948)   9,967 
 

Notes to the Group financial statements

Note 25 Financial risk management continued

The following tables set out the maturity profile and average interest rates and foreign currency exchange rates of the hedging instruments used in the Group's non-dynamic hedging strategies.

 
                                 2021                             2020 
                                            One to                           One to   More than 
                                 Up to       five    More than    Up to       five     five 
Maturity profile                  one year   years    five years   one year   years    years 
Fair value hedges 
Interest rate risk 
Interest rate swaps - GBP 
- Notional amount (GBPm)         1,384      2,156    602          953        1,910    607 
- Average net interest rate 
 (pay)/receive                   0.32%      1.29%    0.59%        1.08%      0.84%    1.39% 
 
Interest rate swaps - EUR 
- Notional amount (GBPm)         -          650      -            -          645      - 
- Average net interest rate 
 (pay)/receive                   -          0.66%    -            -          0.63%    - 
 
Interest rate/Foreign currency 
 risk 
Cross-currency swaps (GBP:EUR) 
- Notional amount (GBPm)         -          -        650          -          -        - 
- Average exchange rate          -          -        1.13         -          -        - 
- Average net interest rate 
 (pay)/receive                   -          -        (0.77%)      -          -        - 
Cross-currency swaps (GBP:USD) 
- Notional amount (GBPm)         -          -        -            -          -        409 
- Average exchange rate          -          -        -            -          -        1.50 
- Average net interest rate 
 (pay)/receive                   -          -        -            -          -        3.15% 
 
Cash flow hedges 
Interest rate risk 
Index-linked swaps 
- Notional amount (GBPm)         -          360      300          -          -        649 
Average net interest rate 
 (pay)/receive                   -          (4.23%)  (4.21%)      -          -        (4.22%) 
 
Interest rate swaps 
- Notional amount (GBPm)         -          -        346          -          -        50 
- Average net interest rate 
 (pay)/receive                   -          -        (4.97%)      -          -        (4.23%) 
 
Interest rate/Foreign currency 
 risk 
Cross-currency swaps (GBP:USD) 
 floating 
- Notional amount (GBPm)         -          -        -            272        -        - 
- Average exchange rate          -          -        -            1.29       -        - 
- Average net interest rate 
 (pay)/receive                   -          -        -            0.84%      -        - 
Cross-currency swaps (GBP:EUR) 
 fixed 
- Notional amount (GBPm)         -          -        -            254        645      306 
- Average exchange rate          -          -        -            1.19       1.25     1.47 
- Average net interest rate 
 (pay)/receive                   -          -        -            (0.87%)    (1.46%)  (0.32%) 
 

At 27 February 2021, forward foreign currency contracts, designated as cash flow hedges, equivalent to GBP2.5bn were outstanding (2020: GBP2.1bn). These forward contracts are largely in relation to purchases of Euros (notional EUR1.0bn) (2020: notional GBP0.8bn) and US Dollars (notional $1.3bn) (2020: notional $0.9bn) with varying maturities up to August 2022.

For the above currencies the rates ranged from Euro/GBP 1.08 to 1.156 and US$/GBP from 1.222 to 1.416.

Forward commodity contracts hedging diesel purchases for own use as at 27 February 2021 had a GBP notional of GBP54m (2020: GBP69m) at a rate of GBP277 to GBP457 per tonne.

The notional and fair values of these contracts is shown on page 82.

The following table sets out the details of the hedged exposures covered by the Group's fair value hedges.

 
                                                        Accumulated amounts 
                                                         of fair value 
                                                         adjustments on 
                                   Carrying amount       hedged item 
                                                                               Changes 
                                                                                in fair 
                                                                                value for 
                                                                                calculating      Residual 
                                                                                hedge             hedge 
                                   Assets  Liabilities  Assets   Liabilities    ineffectiveness   adjustments(a) 
At 27 February 2021                 GBPm    GBPm         GBPm     GBPm          GBPm              GBPm 
Fair value hedges 
Interest rate risk 
Fixed-rate loans (b)               3,653   -            7        -             (3)               (3) 
Fixed-rate savings (c)             -       (1,866)      -        -             -                 - 
Fixed-rate investment securities 
 (b)                               500     -            10       -             8                 - 
Fixed-rate bonds (d)               -       (2,926)      -        (95)          (59)              (97) 
 

(a) Accumulated amount of fair value hedge adjustments remaining in the Group balance sheet for

any   hedged  items that have  ceased  to be adjusted  for  hedging gains  and  losses. 
   (b)        Classified as Loans and advances to customers and banks. 
   (c)         Classified as Customer deposits and Deposits from Banks. 
   (d)        Classified as Borrowings. 

Notes to the Group financial statements

Note 25 Financial risk management continued

 
                                                  Accumulated amounts 
                                                   of fair value 
                                                   adjustments on 
                             Carrying amount       hedged item 
                                                                         Changes in 
                                                                         fair 
                                                                         value for         Residual 
                                                                         calculating        hedge 
                                                                         hedge              adjustments 
                             Assets  Liabilities  Assets   Liabilities   ineffectiveness    (a) 
At 29 February 2020          GBPm     GBPm        GBPm      GBPm         GBPm               GBPm 
Fair value hedges 
Interest rate risk 
Fixed-rate loans and 
 mortgages (b)               4,416   -            10       -             12                6 
Fixed-rate savings 
 (c)                         -       (3,003)      -        (1)           (1)               (1) 
Fixed-rate investment 
 securities (b)              650     -            2        -             7                 - 
Fixed-rate bonds (d)         -       (2,348)      -        (216)         140               (34) 
(a)-(d) Refer to previous 
table for footnotes. 
 
 

The following tables set out information regarding the change in value of the hedged item used in calculating hedge ineffectiveness as well as the impacts on the cash flow hedge reserve and cost of hedging reserve.

 
                                                                                          Cumulative impact 
                                                                                           on hedging reserve 
                                                                                           and cost of hedging 
                                                                                           reserve* 
                                                      Change in 
                                                       value of         Change in 
                                                       hedging           value of 
                                                       instrument        hedged item 
                                                       for               for 
                                                       calculating       calculating 
                                                       hedge             hedge            Continuing  Discontinued 
                                                       ineffectiveness   ineffectiveness   hedges      hedges 
At 27 February 2021              Hedging instrument    GBPm              GBPm              GBPm        GBPm 
Interest rate risk 
                                 Index-linked 
Index-linked bonds                bonds               1                 (1)               71          - 
                                 Interest rate 
Borrowings                        swaps               30                (30)              18          - 
Foreign currency risk 
Trade payables                   Forward contracts    (44)              44                (24)        - 
Interest rate/Foreign currency 
 risk 
                                 Cross -- currency 
MTNs                              swaps               6                 (6)               -           43 
 

* Excludes deferred tax.

 
                                                                                          Cumulative impact 
                                                                                           on hedging reserve 
                                                                                           and cost of hedging 
                                                                                           reserve* 
                                                      Change in 
                                                       value of         Change in 
                                                       hedging           value of 
                                                       instrument        hedged item 
                                                       for               for 
                                                       calculating       calculating 
                                                       hedge             hedge            Continuing  Discontinued 
                                                       ineffectiveness   ineffectiveness   hedges      hedges 
At 29 February 2020              Hedging instrument    GBPm              GBPm              GBPm        GBPm 
Interest rate risk 
                                 Index-linked 
Index-linked bonds                bonds               22                (22)              69          - 
                                 Interest rate 
Borrowings                        swaps               (2)               2                 (4)         - 
Foreign currency risk 
Trade payables                   Forward contracts    55                (55)              8           - 
Interest rate/Foreign currency 
 risk 
                                 Cross -- currency 
MTNs                              swaps               28                (28)              137         (44) 
 

* Excludes deferred tax.

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:

 
                                                                2021                   2020 
                                         Line item in           Hedge ineffectiveness  Hedge ineffectiveness 
                                          Group income           recognised             recognised 
                                          statement that         in profit              in profit 
                                          includes hedge         or loss                or loss 
                                          ineffectiveness        GBPm                   GBPm 
Cash flow hedges                         Finance income/costs   -                      - 
Net investment hedges                    Finance income/costs   -                      - 
Fair value hedges - interest rate risk 
- Borrowings                             Finance income/costs   (18)                   (6) 
- Derivatives                            Finance income/costs   -                      - 
 

Notes to the Group financial statements

Note 25 Financial risk management continued

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:

 
                                  2021                               2020 
                                            Cost of                            Cost of 
                                  Hedging    hedging                 Hedging    hedging 
                                   reserve   reserve                  reserve   reserve 
                                   GBPm      GBPm     Line item       GBPm      GBPm     Line item 
Opening balance                   154       (15)                     118       (5) 
Interest rate risk 
Index-linked swaps 
- Net fair value gains/(losses)   16        -                        1         - 
- Amount reclassified                                 Finance                            Finance 
 to Group income statement        (15)      -          income/costs  (2)       -          income/costs 
Interest rate swaps 
- Net fair value gains/(losses)   30        -                        (2)       - 
- Amount reclassified                                 Finance                            Finance 
 to Group income statement        (6)       -          income/costs  (1)       -          income/costs 
Interest rate/Foreign 
 currency risk 
Cross-currency swaps 
- Net fair value gains/(losses)   (4)       17                       70        (12) 
- Amount reclassified                                 Finance                            Finance 
 to Group income statement        (65)      -          income/costs  (4)       -          income/costs 
Foreign currency risk 
Forward contracts 
- Net fair value gains/(losses)   (3)       -                        49        - 
- Amount reclassified 
 to Inventories                   (28)      -         Inventories    (64)      -         Inventories 
Tax                               11        (2)                      (11)      2 
Closing balance                   90        -                        154       (15) 
 

Sensitivity analysis

The impact on the financial statements of the Group, including Retail and Tesco Bank, from foreign currency, inflation and interest rate 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 27 February 2021. 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 from 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 from 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 Group statement of changes in equity that would result, at the balance sheet date, from changes in interest rates, inflation rates and currency exchange rates that are reasonably possible for major currencies where there have recently been significant movements:

 
                                           2021                        2020 
                                           Income        Equity        Income        Equity 
                                            gain/(loss)   gain/(loss)   gain/(loss)   gain/(loss) 
                                            GBPm          GBPm          GBPm          GBPm 
1% increase in interest rates (2020: 
 1%)                                       (31)          31            39            (42) 
10% appreciation of the Euro (2020: 10%)   (5)           (96)          1             (117) 
10% appreciation of the US Dollar (2020: 
 10%)                                      3             97            5             78 
25 basis points parallel upward shift 
 in the forward inflation curve (2020: 
 25 basis points)                          116           -             86            - 
 

Notes to the Group financial statements

Note 25 Financial risk management continued

A decrease in interest rates, 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) are minimal as Group policy dictates that all material income statement foreign exchange exposures are hedged.

During the current and prior financial year, 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.

   (b)    Credit risk 

Credit risk represents the risk that a counterparty will not meet its obligations leading to a financial loss for the Group. Credit risk arises from Cash and cash equivalents, Short-term investments, Trade receivables, Other receivables, Joint ventures and associates loan receivables, Loans and advances to customers - Tesco Bank, Loans and advances to banks - Tesco Bank, Investment securities at amortised cost, Financial assets at fair value through other comprehensive income, and Derivative financial instruments.

For financial assets other than Trade receivables, Other receivables, Joint ventures and associates loan receivables, and Loans and advances to customers - Tesco Bank, the Group holds positions with an approved list of investment-grade rated counterparties and monitors the exposure, credit rating, outlook and credit default swap levels of these counterparties on a regular basis. Counterparty credit limits are reviewed on an annual basis and may be updated throughout the financial year. The 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 ventures and associates loan receivables, and Loans and advances to customers - Tesco Bank, 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.

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 (see Note 31). The Group's maximum exposure to credit risk is GBP26.0bn (2020: GBP28.9bn).

The net counterparty exposure under derivative contracts is GBP1.2bn (2020: GBP1.0bn).

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:

 
                                                             2021     2020(a) 
                                                              GBPm     GBPm 
 
  Cash and cash equivalents (b)                                2,510    4,137 
Short-term investments                                       1,011    1,076 
Trade receivables                                            424      495 
Other receivables                                            430      439 
Joint venture and associate loan receivables                 160      181 
Loans and advances to customers - Tesco Bank                 6,402    8,451 
Investment securities at amortised cost                      927      - 
Financial assets at fair value through other comprehensive 
 income                                                      14       1,068 
Derivative financial instruments: 
Interest rate swaps                                          42       47 
Cross-currency swaps                                         298      497 
Index-linked swaps                                           1,080    541 
Forward contracts                                            42       61 
Off balance sheet: 
Loan commitments                                             12,668   11,872 
Maximum exposure to credit risk                              26,008   28,865 
 
   (a)        Refer to Note 1 for further details regarding the prior year restatement. 

(b) Cash balances with central banks of GBP1.6bn (2020: GBP2.6bn) are included within Cash and cash equivalents.

Notes to the Group financial statements

Note 25 Financial risk management continued

Counterparty credit rating

The table below provides detail of financial assets by long term credit rating of investment-grade rated counterparties:

 
                         2021                      2020 
Rating                   AAA  AA  A    BBB  Total  AAA    AA   A    BBB   Total 
Money market funds       955  -   56   -    1,011  1,076  -    -    -     1,076 
Investment securities 
 at amortised cost       560  65  302  -    927    -      -    -    -     - 
Investment securities 
 at fair value through 
 other comprehensive 
 income                  -    5   -    -    5      525    248  274  14    1,061 
Derivatives financial 
 assets 
Interest rate swaps      -    9   27   6    42     -      8    39   -     47 
Cross currency swaps     -    -   211  87   298    -      -    287   210  497 
Index Linked swaps       -    -   613  467  1,080  -      -    95   446   541 
Forward contracts        -    1   27   14   42     -      9    35   17    61 
 

The low credit risk exemption has been applied to cash and cash equivalents, short-term investments, financial assets at fair value through OCI, financial assets at amortised cost and investment securities as these are held with counterparties with investment-grade ratings (BBB or above) or are short term in nature. The expected credit loss is immaterial.

Expected credit losses

For trade receivables, contract assets and lease receivables the Group applies the simplified approach with lifetime ECLs recognised from initial recognition of the receivables. For loans and advances to customers, short-term investments, investment securities at amortised cost, debt instruments at fair value through other comprehensive income and loan receivables from joint venture and associates, the three-stage model for impairment has been applied. The expected lifetime of a financial asset is generally the contractual term.

The Group's financial assets are written off when the balance is known not to be recoverable or the Group is time barred from recovering a balance under local legislation.

The expected credit losses for Retail are immaterial. For details on the expected credit losses relating to Tesco Bank see below.

Gross loans to related parties of GBP160m (2020: GBP181m) are presented net of loss allowances of GBPnil (2020: GBP2m) and deferred profits of GBP38m (2020: GBP54m) on the Group balance sheet. 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.

   (c)    Liquidity risk 

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities.

The Group finances its liquidity position and its operations by a combination of retained profits, disposals of assets, debt capital market issuance, commercial paper, bank borrowings and leases. The policy is to maintain a prudent level of cash together with sufficient committed bank facilities to meet liquidity needs as they arise, to maintain a smooth debt profile and maturing senior unsecured debt will not exceed GBP1.5bn in any 12-month period.

The Group retains access to capital markets so that maturing debt may be refinanced as it falls due and the Group is investment grade rating with all three major credit rating agencies.

 
                   2021                       2020 
                   Short    Long              Short    Long 
                    term     term              term     term 
                    rating   rating  Outlook   rating   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 GBP15.0bn Euro Medium Term Note programme, of which GBP4bn was in issue at 27 February 2021 (2020: GBP4.0bn), plus GBP0.3bn equivalent of USD-denominated notes issued under 144A documentation (2020: GBP0.4bn).

Liquidity risk is continuously monitored by short-term and long-term cash flow forecasts.

During the year, the Group accessed the capital markets twice issuing GBP450m (maturing in 2030) and EUR750m (maturing in 2029). The EUR750m issuance was the Group's first sustainability linked bond. The bond includes a coupon step up of 25 bps for the final three coupon payments, if science-based carbon reduction targets of 60% are not achieved compared to a 2015/16 baseline.

Borrowing facilities

The Group has the following undrawn committed facilities available at 27 February 2021, in respect of which all conditions precedent had been met as at that date:

 
                                     2021   2020 
                                      GBPm   GBPm 
Expiring in less than one year       38     38 
Expiring between one and two years   -      3,000 
Expiring in more than two years      2,500  - 
                                     2,538  3,038 
 

During the year, a new three-year multicurrency GBP2.5bn revolving facility was established, replacing the existing GBP3bn committed facilities. The new facility is linked to three ESG targets and includes the use of risk-free rates rather than LIBOR.

The undrawn committed facilities include GBPnil (2020: GBP0.4bn) of bilateral facilities and a GBP2.5bn (2020: GBP2.6bn) syndicated revolving credit facility. All facilities incur commitment fees at market rates and would provide funding at floating rates. There were no withdraws from the facilities during the year.

Notes to the Group financial statements

Note 25 Financial risk management continued

For liquidity risk relating to Tesco Bank, refer to the separate section on Tesco Bank financial risk factors on page 89.

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.

 
                                                   Due between  Due between  Due between  Due between 
                                       Due within   1 and        2 and        3 and        4 and       Due beyond 
                                        1 year      2 years      3 years      4 years      5 years      5 years 
  At 27 February 2021                   GBPm        GBPm         GBPm         GBPm         GBPm         GBPm 
Non-derivative financial liabilities 
Bank and other borrowings              (1,002)     (53)         (779)        (724)        (888)        (3,844) 
Interest payments on borrowings        (199)       (172)        (170)        (151)        (134)        (905) 
Customer deposits - Tesco Bank         (4,924)     (488)        (253)        (114)        (24)         - 
Deposits from banks - Tesco Bank       (500)       -            (100)        -            -            - 
Lease liabilities                      (969)       (939)        (912)        (867)        (841)        (7,999) 
Trade payables                         (5,131)     -            -            -            -            - 
Other payables                         (1,543)     (23)         (3)          (1)          -            (83) 
Derivative financial liabilities 
Net settled derivative contracts 
 - receipts                            69          51           32           26           4            19 
Net settled derivative contracts 
 - payments                            (88)        (533)        (217)        (186)        (23)         (78) 
Gross settled derivative contracts 
 - receipts                            2           2            2            1            1            2 
Gross settled derivative contracts 
 - payments                            (7)         (8)          (10)         (11)         (12)         (61) 
Total on balance sheet                 (14,292)    (2,163)      (2,410)      (2,027)      (1,917)      (12,949) 
 
Off balance sheet 
 Contractual lending commitments       (12,668)    -            -            -            -            - 
Total                                  (26,960)    (2,163)      (2,410)      (2,027)      (1,917)      (12,949) 
 
 
                                               Due between  Due between  Due between  Due between  Due 
                                   Due within   1 and        2 and        3 and        4 and        beyond 
                                    1 year      2 years      3 years      4 years      5 years      5 years 
At 29 February 2020 (restated)*     GBPm        GBPm         GBPm         GBPm         GBPm         GBPm 
Non-derivative financial 
 liabilities 
Bank and other borrowings          (2,120)     (467)        (53)         (795)        (956)        (3,776) 
Interest payments on borrowings    (227)       (208)        (181)        (179)        (159)        (1,237) 
Customer deposits - Tesco 
 Bank                              (6,426)     (797)        (233)        (187)        (115)        - 
Deposits from banks - Tesco 
 Bank                              (3)         (1)          (501)        -            -            - 
Lease liabilities                  (1,081)     (1,018)      (996)        (993)        (951)        (9,584) 
Trade payables                     (5,409)     -            -            -            -            - 
Other payables                     (1,623)     (22)         (18)         (2)          (1)          (127) 
Derivative financial liabilities 
Net settled derivative contracts 
 - receipts                        10          11           467          116          -            25 
Net settled derivative contracts 
 - payments                        (717)       (42)         (470)        (148)        (160)        (18) 
Gross settled derivative 
 contracts - receipts              2,534       -            -            -            -            - 
Gross settled derivative 
 contracts - payments              (2,585)     -            -            -            -            - 
Total on balance sheet             (17,647)    (2,544)      (1,985)      (2,188)      (2,342)      (14,717) 
 
  Off balance sheet 
Contractual lending commitments    (11,872)    -            -            -            -            - 
Total                              (29,519)    (2,544)      (1,985)      (2,188)      (2,342)      (14,717) 
 

* Refer to Note 1 for further details regarding the prior year restatement.

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 Group cash flow statement includes net (investment in) / proceeds from sale of financial assets at fair value through other comprehensive income and amortised cost of GBP116m inflow (2020: GBP6m outflow) within cash flows generated from/(used in) investing activities. The gross cash flows are GBP201m inflow (2020: GBP774m inflow) and GBP85m outflow (2020: GBP780m outflow).

The Group cash flow statement includes net cash flows from derivative financial instruments of GBP580m outflow (2020: GBP17m outflow) within cash flows generated from/(used in) financing activities. The gross cash flows are GBP2,276m outflow (2020: GBP346m outflow) and GBP1,696m inflow (2020: GBP329m inflow).

Notes to the Group financial statements

Note 25 Financial risk management continued

   (d)    Capital risk 

The Group's objectives when managing capital (defined as net debt plus equity) are to safeguard the Group's 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. The Group manages its capital structure and makes adjustments to it, in light of changes to economic conditions and the strategic objectives of the Group.

To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, buy back shares and cancel them, or issue new shares.

The Group raises finance in the public debt markets and borrows centrally and locally from financial institutions, using a variety of capital market instruments and borrowing facilities to meet the requirements of each local business.

In line with the Group's objectives, during the current financial year, the Group issued a GBP450m bond maturing in 2030 and undertook a liability management exercise by combining an issuance of EUR750m bond maturing in 2029 with a debt buyback, the latter resulting in notionals of GBP0.6bn

bought back across eight bonds.

Refer to Note 32 for the value of the Group's net debt (GBP12.0bn; 2020: GBP12.3bn), and the Group statement of changes in equity for the value of the Group's equity (GBP12.3bn; 2020: GBP13.4bn).

   (e)    Insurance risk 

The Group is exposed to the risk of being inadequately protected from liabilities arising from unforeseen events. 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 covers assets, earnings and combined liability.

Tesco Bank

Information on the management of the financial risks relating to Tesco Bank, which is additional to the information provided for the Group overall, is set out below.

Interest rate risk

Interest rate risk arises mainly where assets and liabilities in Tesco Bank's banking activities have different repricing dates and from unexpected changes to the yield curve. Tesco Bank is exposed to interest rate risk through dealings with retail customers as well as through lending to and borrowing from the wholesale market. 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 (CaR) approach which assesses the sensitivity (value change) 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. Interest rate risk is primarily managed using interest rate swaps as the main hedging instrument.

Liquidity risk

Liquidity risk is 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 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 (ILAAP) 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.

Credit risk

Credit risk is the risk 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. Credit risk principally arises from the Bank's retail lending activities but also from the placement of surplus funds with other banks and money market funds, investments in transferable securities and interest rate and foreign exchange derivatives. In addition, credit risk arises from contractual arrangements with third parties where payments and commissions are due to the Bank for short periods of time. To minimise the potential exposure to bad debts that are outside risk appetite, processes, systems and limits have been established that cover the end-to-end retail credit risk customer life cycle. These include credit scoring, affordability, credit policies and guides, and monitoring and reporting. The Bank is also exposed to wholesale credit risk primarily through its treasury activities. Controls and risk mitigants include daily monitoring of exposures, investing in counterparties with investment grade ratings, restricting the amount that can be invested with one counterparty and credit-rating mitigation techniques. Assessment of the expected credit loss (ECL) on loans and advances to customers has taken into account a range of macroeconomic scenarios.

Notes to the Group financial statements

Note 25 Financial risk management continued

Maximum exposure to credit risk

The table below presents Tesco Bank's maximum exposure to credit risk i.e. total gross exposure, by stages and by class of financial instruments. For financial assets, the balances are based on gross carrying amounts. For loan commitments, the amounts represent the amounts for which Tesco Bank is contractually committed:

 
                        Stage 
                         1      Stage 2                                Stage 3  Total 
                                           <30 days  >30 days 
                                 Not past   past      past 
                                  due       due       due       Total 
27 February 2021        GBPm      GBPm      GBPm      GBPm       GBPm    GBPm     GBPm 
Loans and advances 
 to customers           5,749   981        25        25        1,031   242      7,022 
Investment securities 
 at FVOCI(a)            5       -          -         -         -       -        5 
Investment securities 
 at amortised cost      928     -          -         -         -       -        928 
Loan commitments 
 - Loans and advances 
 to customers (b)       12,379  283        2         -         285     4        12,668 
Total gross exposure    19,061  1,264      27        25        1,316   246      20,623 
 
  Loss allowance 
Loans and advances 
 to customers (b)       131     314        11        16        341     153      625 
Investment securities 
 at FVOCI               -       -          -         -         -       -        - 
Investment securities 
 at amortised cost      1       -          -         -         -       -        1 
Total loss allowance    132     314        11        16        341     153      626 
 
  Net Exposure 
Loans and advances 
 to customers           5,618   667        14        9         690     89       6,397 
Investment securities 
 at FVOCI               5       -          -         -         -       -        5 
Investment securities 
 at amortised cost      927     -          -         -         -       -        927 
Total net exposure      6,550   667        14        9         690     89       7,329 
 
Coverage 
 Loans and advances 
 to customers           2%      32%        44%       64%       33%     63%      9% 
 

(a) On 1 March 2020 the Group's portfolio of debt investment securities measured at FVOCI was reclassified to amortised cost following a change in business model.

(b) The loss allowance in respect of loan commitments is included within the total loss allowance for loans and advance to customers as 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 provisions.

 
                        Stage 
                         1      Stage 2                                Stage 3  Total 
                                           <30 days  >30 days 
                                 Not past   past      past 
                                  due       due       due       Total 
29 February 2020        GBPm      GBPm      GBPm      GBPm       GBPm    GBPm     GBPm 
Loans and advances 
 to customers           7,688   869        52        32        953     289      8,930 
Investment securities 
 at FVOCI(a)            1,061   -          -         -         -       -        1,061 
Investment securities 
 at amortised cost      -       -          -         -         -       -        - 
Loan commitments 
 - Loans and advances 
 to customers (b)       11,755  116        -         -         116     1        11,872 
Total gross exposure    20,504  985        52        32        1,069   290      21,863 
 
  Loss allowance 
Loans and advances 
 to customers (b)       83      178        21        20        219     186      488 
Investment securities 
 at FVOCI               -       -          -         -         -       -        - 
Investment securities 
 at amortised cost      -       -          -         -         -       -        - 
Total loss allowance    83      178        21        20        219     186      488 
 
  Net Exposure 
Loans and advances 
 to customers           7,605   691        31        12        734     103      8,442 
Investment securities 
 at FVOCI               1,061   -          -         -         -       -        1,061 
Investment securities 
 at amortised cost      -       -          -         -         -       -        - 
Total net exposure      8,666   691        31        12        734     103      9,503 
 
Coverage 
 Loans and advances 
 to customers           1%      20%        40%       63%       23%     64%      5% 
 

(a)-(b) Refer to previous table for footnotes.

Expected credit losses (ECL)

The ECL is determined by multiplying together the probability of default (PD), exposure at default (EAD) and loss given default (LGD) for the relevant time period and for each asset category and by discounting back to the balance sheet date. The ECL calculation and the measurement of significant deterioration in credit risk both incorporate forward-looking information using a range of macroeconomic scenarios, with key variables being the Bank of England base rate, unemployment rate, house price index and gross domestic product. The key economic variables are based on historical patterns observed over a range of economic cycles.

Notes to the Group financial statements

Note 25 Financial risk management continued

The tables below present the reconciliations of ECL allowances on loans and advances to customers.

 
                                             2021 
                                             Stage 
                                              1      Stage 2  Stage 3  Total 
27 February 2021                              GBPm    GBPm     GBPm     GBPm 
Gross exposure                               5,749   1,031    242      7,022 
Loan commitments                             12,379  285      4        12,668 
Total exposure                               18,128  1,316    246      19,690 
 
  Allowance for expected credit losses 
At 29 February 2020                          (83)    (219)    (186)    (488) 
Transfers: 
Transfers from stage 1 to stage 2            20      (20)     -        - 
Transfers from stage 2 to stage 1            (9)     9        -        - 
Transfers to stage 3                         2       42       (44)     - 
Transfers from stage 3                       (2)     (2)      4        - 
Movements recognised in the Group income 
 statement: 
Net remeasurement following transfer 
 of stage                                    6       (36)     (72)     (102) 
New financial assets originated              (25)    (5)      (2)      (32) 
Financial assets derecognised during 
 the current financial year                  8       9        3        20 
Changes in risk parameters and other 
 movements                                   (56)    (134)    (83)     (273) 
Other movements: 
Write-offs and asset disposals               -       3        227      230 
Transfers to provisions for liabilities 
 and charges                                 8       12       -        20 
Reclassification of mortgage book balances 
 to fair value through profit or loss        -       -        -        - 
At 27 February 2021                          (131)   (341)    (153)    (625) 
 
  Reconciliation to Group balance sheet 
Gross exposure                               5,749   1,031    242      7,022 
Allowance for expected credit losses         (131)   (341)    (153)    (625) 
                                             5,618   690      89       6,397 
Fair value adjustment                                                  5 
Carrying value at 27 February 2021                                     6,402 
 
 
                                             2020 
                                             Stage 
                                              1      Stage 2  Stage 3  Total 
29 February 2020                              GBPm    GBPm     GBPm     GBPm 
Gross exposure                               7,688   953      289      8,930 
Loan commitments                             11,755  116      1        11,872 
Total exposure                               19,443  1,069    290      20,802 
 
  Allowance for expected credit losses 
At 23 February 2019                          (84)    (229)    (172)    (485) 
Transfers: 
Transfers from stage 1 to stage 2            11      (11)     -        - 
Transfers from stage 2 to stage 1            (64)    64       -        - 
Transfers to stage 3                         3       50       (53)     - 
Transfers from stage 3                       (2)     (2)      4        - 
Movements recognised in the Group income 
 statement: 
Net remeasurement following transfer 
 of stage                                    38      (23)     (93)     (78) 
New financial assets originated              (27)    (21)     (10)     (58) 
Financial assets derecognised during 
 the current financial year                  9       12       3        24 
Changes in risk parameters and other 
 movements                                   32      (63)     (60)     (91) 
Other movements: 
Write-offs and asset disposals               -       3        195      198 
Transfers to provisions for liabilities 
 and charges                                 -       -        -        - 
Reclassification of mortgage book balances 
 to fair value through profit or loss        1       1        -        2 
At 29 February 2020                          (83)    (219)    (186)    (488) 
 
  Reconciliation to Group balance sheet 
Gross exposure                               7,688   953      289      8,930 
Allowance for expected credit losses         (83)    (219)    (186)    (488) 
                                             7,605   734      103      8,442 
Fair value adjustment                                                  9 
Carrying value at 29 February 2020                                     8,451 
 

The Bank defines four classifications of credit quality for all credit exposures: high, satisfactory, low and below standard. Credit exposures are segmented according to the probability of default (PD), with credit impaired reflecting a PD of 100%.

Notes to the Group financial statements

Note 25 Financial risk management continued

 
                                                   Stage   Stage 
                                   12-month PD      1       2      Stage 3   Total 
At 27 February 2021                 %               GBPm    GBPm    GBPm      GBPm 
Loans and advances to customers: 
High quality                       <=3.02         5,314   445     -         5,759 
Satisfactory quality               >3.03 - 11.10  392     389     -         781 
Low quality and below standard     >=11.11        43      197     -         240 
Credit impaired                    100            -       -       242       242 
                                                  5,749   1,031   242       7,022 
 
 
                        12-month PD    Stage 1  Stage 2  Stage 3  Total 
At 29 February 2020     %              GBPm     GBPm     GBPm     GBPm 
Loans and advances to 
 customers: 
High quality            <=3.02         6,609    37       -        6,646 
Satisfactory quality    >3.03 - 11.10  1,037    485      -        1,522 
Low quality and below 
 standard               >=11.11        42       431      -        473 
Credit impaired         100             -        -       289       289 
                                       7,688    953      289      8,930 
 

Default

An account is deemed to have defaulted when the Tesco Bank considers that a customer is in significant financial difficulty and that the customer meets certain quantitative and qualitative criteria regarding their ability to make contractual payments when due. This includes instances where:

- the customer makes a declaration of significant financial difficulty;

- the customer or third-party agency communicates that it is probable that the customer will enter bankruptcy or another form of financial restructure such as insolvency or repossession;

- the account has been transferred to recoveries and the relationship is terminated;

- an account's contractual payments are more than 90 days past due; or

- where the customer is deceased.

A loan deemed uncollectable is written off against the related provision after all of the necessary procedures have been completed and the amount of the loss has been determined. Tesco Bank may write off loans that are still subject to enforcement activity. The outstanding contractual amount of such assets written off were GBP154m (2020: GBP140m).

Significant increase in credit risk

At each reporting date, the change in credit risk of the financial asset is observed using a set of quantitative and qualitative criteria, together with 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 payment are more than 30 days past due then a significant increase in credit risk has taken place. Tesco Bank has used the low credit risk exemption in respect of its portfolio of investment securities in both the current and prior year.

Tesco Bank has commissioned four scenarios from its third -- party provider, all of which were based on an economic outlook that sought to take account of the potential ramifications of the current COVID -- 19 pandemic. These scenarios include a Base scenario, an Upside scenario and two different Downside scenarios. As the economic outlook remains uncertain, the scenarios are based on the success of the COVID -- 19 vaccine roll out against emerging strains of the virus and, as the restrictions are lifted, the speed at which consumer and business confidence will support the recovery in GDP and the labour market. The Base scenario anticipates a delayed economic recovery, with consumer confidence remaining weak in the near term and unemployment peaking in Q3 2021. The Upside scenario involves a sharper economic recovery while Downside 1 scenario assumes a longer delay until the economy recovers. Downside 2 is a prolonged and sustained recession with a slow economic recovery thereafter. These scenarios are also reviewed to ensure an unbiased estimate of ECL by ensuring the credit loss distribution under a larger number of scenarios is adequately captured using these four scenarios and their respective weightings. The Base, Upside, Downside 1 and Downside 2 scenarios have been assigned weighting of 40%, 30%, 25% and 5% respectively.

The economic scenarios used include the following ranges of key indicators:

 
                                 Base           Downside  Downside 
                                        Upside   1         2        COVID-19 
As at 27 February 2021 (5 year     40% 
 average)                                 30%     25%       5%        n/a 
Bank of England base rate (a)    0.1%   0.2%    0.1 %     0.1%      n/a 
Gross domestic product (b)       2.6%   3.5%    2.2 %     1.8%      n/a 
Unemployment rate                5.5%   4.7%    6.7 %     8.6%      n/a 
Unemployment rate peak in year   5.8%   4.9%    7.4 %     9.3%      n/a 
 
 
                                 Base           Downside  Downside 
                                        Upside   1         2        Covid-19 
As at 29 February 2020 (5 year     40% 
 average)                                 20%     30%       5%        5% 
Bank of England base rate (a)    0.6%   0.2%    1.4 %     2.3%      2.3% 
Gross domestic product (b)       1.6%   2.0%    1.0 %     0.7%      0.7% 
Unemployment rate                3.9%   3.9%    5.3 %     6.1%      6.1% 
Unemployment rate peak in year   3.9%   3.9%    5.5 %     6.3%      6.3% 
 
   (a)        Simple average 
   (b)        Annual growth rates 

Notes to the Group financial statements

Note 25 Financial risk management continued

Key assumptions and sensitivity

The key assumptions to which the Tesco Bank ECL is most sensitive are macroeconomic factors, probability of default (PD), loss given default (LGD), PD threshold (staging), and expected lifetime (revolving credit facilities). The table below sets out the changes in the ECL allowance that would arise from reasonably possible changes in these assumptions from those used in Tesco Bank's calculations as at 27 February 2021.

 
                                                            Impact on the loss 
                                                             allowance 
                                                            2021       2020 
Key assumption                 Reasonably possible change    GBPm       GBPm 
Closing ECL allowance                                       625        488 
Macroeconomic factors (100% 
 weighted)                     Upside scenario              (66)       (41) 
 Base scenario                                              (1)        (28) 
 Downside scenario 1                                        57         40 
 Downside scenario 2                                        117        103 
Probability of default         Increase of 2.5%             8          11 
 Decrease of 2.5%                                           (8)        (11) 
Loss given default             Increase of 2.5%             10         12 
 Decrease of 2.5%                                           (10)       (12) 
Probability of threshold 
 (staging)                     Increase of 20%              (7)        (17) 
 Decrease of 20%                                            11         21 
Expected lifetime (revolving 
 credit facility)              Increase of 1 year           9          2 
 Decrease of 1 year                                         (9)        (2) 
 

COVID -- 19 has had a significant impact on the global economy and there remains a large degree of uncertainty around the scale and stress of the peak of the economic downturn and the speed and shape of any subsequent recovery. The extension of government support measures such as furlough has been unprecedented and this, coupled with the granting of payment holidays by Tesco Bank, have broken traditional modelled relationships between unemployment and default. Although projected levels of unemployment remain high, Tesco Bank is yet to see significant defaults emerge in its lending portfolio and, as such, COVID -- 19 specific adjustments to the modelled ECL provision to capture the estimated impact of the stress within the ECL provision have been recognised for an overall post-model adjustment of GBP214m which includes three management overlays. A first GBP129m adjustment is in respect of the beneficial modelling impact of lower consumer spending through the pandemic. An increase or decrease of 10% on the adjustment for lower drawn balances would not result in a material increase or decrease of this management overlay. A second GBP64m adjustment is to recognise the expected emergence of defaults once support measures such as furlough and the various temporary customer support measures Tesco Bank has put in place are removed and a third GBP21m adjustment is to recognise an increase in credit risk in respect of customers who sought an extension to their initial payment holiday.

Forbearance

Tesco Bank could be exposed to unacceptable levels of bad debt and also suffer reputational damage if it did not provide adequate support to customers who are experiencing financial difficulties. Forbearance is relief granted by a lender to assist customers in financial difficulty, through arrangements which temporarily allow the customer to pay an amount other than the contractual amounts due. These temporary arrangements may be initiated by the customer or Tesco Bank where financial distress would prevent repayment within the original terms and conditions of the contract. The main aim of forbearance is to support customers in returning to a position where they are able to meet their contractual obligations.

Tesco Bank has adopted the definition of forbearance in the European Banking Authority's (EBA) final draft Implementing Technical Standards (ITS) of July 2014 and reports all accounts meeting this definition, providing for them appropriately.

Tesco Bank has well defined forbearance policies and processes. A number of forbearance options are made available to customers. These routinely, but not exclusively, include the following:

- arrangements to repay arrears over a period of time, by making payments above the contractual amount, that ensure the loan is repaid within the original repayment term;

- short-term concessions, where the borrower is allowed to make reduced repayments (or in exceptional circumstances, no repayments) on a temporary basis to assist with short-term financial hardship; and

- for secured products, it may also be acceptable to allow the customer to clear the arrears over an extended period of time, provided the payments remain affordable.

 
                                                 Forbearance programmes    Proportion of 
                            Gross loans and       as a proportion           forbearance programmes 
                             advances subject     of total loans            covered by allowance 
                             to forbearance       and advances              for expected 
                             programmes           by category               credit losses 
                            2021       2020      2021         2020         2021          2020 
                             GBPm       GBPm      %            %            %             % 
Credit cards - UK           119        108       4            3            50            50 
Credit cards - Commercial   -          -         5            5            96            94 
Loans                       48         49        1            1            56            41 
 

Insurance risk

Tesco Bank is indirectly exposed to insurance risks through its ownership of 49.9% of Tesco Underwriting Limited (TU), an authorised insurance company. Insurance risk is defined as the risk accepted through the provision of insurance products in return for a premium. The timing and quantum of the risks are uncertain and determined by events outside the control of Tesco Bank. The key insurance risks within TU relate to underwriting risk and reserving risk. TU operates a separate framework to ensure that the TU insurance portfolio operates within agreed risk appetite. Tesco Bank closely monitors performance of the portfolio against specific thresholds and limits.

Notes to the Group financial statements

Note 26 Customer deposits and deposits from banks

 
                      2021   2020 
                       GBPm   GBPm 
Customer deposits     5,738  7,707 
Deposits from banks   600    500 
                      6,338  8,207 
Of which: 
Current               5,321  6,377 
Non-current           1,017  1,830 
                      6,338  8,207 
 

Deposits from banks include balances of GBP500m (2020: GBP500m) drawn under the Bank of England's Term Funding Scheme (TFS) and GBP100m

(2020: GBPnil) drawn under the Bank of England's term Funding Scheme with additional incentives for Small and Medium Sized Entities (TFSME).

Note 27 Provisions

 
Property                                         Restructuring  Other 
 provisions                                       provisions     provisions  Total 
 GBPm                                             GBPm           GBPm         GBPm 
At 29 February 2020                        156   64             72           292 
Foreign currency translation               -     3              (6)          (3) 
Acquired through business combinations     5     -              -            5 
Reclassifications                          -     (3)            38           35 
Amount released in the year                (24)  (29)           -            (53) 
Amount provided in the year                49    31             105          185 
Amount utilised in the year                (4)   (60)           (25)         (89) 
Transfer to disposal group classified as 
 held for sale                             (51)  (6)            (11)         (68) 
Unwinding of discount                      1     -              -            1 
At 27 February 2021                        132   -              173          305 
 
  The balances are analysed as follows: 
                                                                2021         2020 
                                                                 GBPm         GBPm 
Current                                                         186          155 
Non-current                                                     119          137 
                                                                305          292 
 

Property provisions

Property provisions comprise onerous property provisions, including non-lease contracts related to unprofitable stores and vacant properties, remediation works, dilapidations provisions and asset retirement obligation provisions. Property provisions related to leased properties are expected to be utilised prior to the end of the leases. Refer to Note 12 for a maturity analysis of the Group's contractual undiscounted lease payments.

Restructuring provisions

Of the GBP2m net charge (GBP31m charge, GBP(29)m release) recognised in the year, GBP2m (2020: GBP43m) has been classified as an exceptional item within discontinued operations, and GBPnil (2020: GBP108m charge) has been classified within exceptional items as 'Net restructuring and redundancy costs' within continuing operations, of which GBPnil (2020: GBP95m) related to UK & ROI and GBPnil (2020: GBP13m) related to Tesco Bank. Refer to Notes 4 and 7 for further details. The restructuring provisions were fully utilised in the financial year to 27 February 2021.

Other provisions

Other provisions include a GBP88m (2020: GBPnil) provision relating to claims from Homeplus (Korea) purchasers. Refer to Note 7 for further details. Additional provisions included in other provisions are individually immaterial. The majority of provisions are expected to be utilised in the next financial year.

Notes to the Group financial statements

Note 28 Share-based payments

The Group income statement charge for the financial year recognised in respect of share-based payments is GBP69m (2020: GBP129m), which is made up of share option schemes and share bonus payments. Of this amount, GBP60m (2020: GBP113m) will be settled in equity and GBP9m (2020:

GBP16m) in cash representing National Insurance contributions.

Share option schemes

The Company had nine share option schemes in operation during the financial year, all of which are equity-settled schemes:

i. The Savings-related Share Option Scheme (1981) permits the grant to colleagues of options in respect of ordinary shares linked to a building society/bank save-as-you-earn contract for a term of three or five years with contributions from colleagues of an amount between GBP5 and GBP500 per four-weekly period. Options are capable of being exercised at the end of the three or five-year period 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.

ii. The Irish Savings-related Share Option Scheme (2000) permits the grant to ROI colleagues of options in respect of ordinary shares linked to a building society/bank save-as-you-earn contract for a term of three or five years with contributions from colleagues of an amount between EUR12 and EUR500 per four-weekly period. Options are capable of being exercised at the end of the three or five-year period 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.

iii. The Executive Incentive Plan (2004) permitted the grant of options in respect of Ordinary shares to selected senior executives. Options are normally exercisable between three and 10 years from the date of grant for nil consideration. No further options will be granted under this scheme.

iv. The Executive Incentive Plan (2014) permits the grant of options in respect of Ordinary shares to selected senior executives as a proportion of annual bonus following the completion of a required service period and is dependent on the achievement of corporate performance and individual targets. Options are normally exercisable between three and 10 years from the date of grant for nil consideration. Full details of this plan can be found in the Directors' remuneration report.

v. The Performance Share Plan (2011) permits the grant of options in respect of Ordinary shares to selected executives. Options are normally exercisable between the vesting date(s) set at grant and 10 years from the date of grant for nil consideration. The vesting of options will normally be conditional upon the achievement of specified performance targets over a three-year period and/or continuous employment.

vi. The Group Bonus Plan permits the grant of options in respect of Ordinary shares to selected senior executives as a proportion of annual bonus following the completion of a required service period and is dependent on the achievement of corporate performance and individual targets. Options are normally exercisable between three and 10 years from the date of grant for nil consideration. No further options will be granted under this scheme.

vii. The Long Term Incentive Plan (2015) permits the grant of options in respect of Ordinary shares to selected executives. Options are normally exercisable between the vesting date(s) set at grant and 10 years from the date of grant for nil consideration. The vesting of options will normally be conditional upon the achievement of specified performance targets over a three-year period and/or continuous employment.

viii. The Booker Group PLC Savings Related Share Option Plan (2008) (Booker SAYE) permitted the grant to Booker colleagues of options in respect of ordinary shares in Booker Group PLC (Booker Shares) linked to a building society/bank save-as-you-earn contract for a term of three years with contributions from Booker colleagues of an amount between GBP5 and GBP500 per four-weekly period. Following completion of the acquisition of Booker Group PLC by Tesco PLC, Booker colleagues elected to roll over their existing options over Booker Shares under the Booker SAYE into equivalent options over ordinary shares in Tesco PLC (Tesco Shares). The options over Tesco Shares are capable of being exercised at the end of the three-year period 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. 

ix. The Booker Group PLC Performance Share Plan (2008) (Booker PSP) permitted the grant of options in respect of Booker Shares to selected Booker senior colleagues (Booker PSP Options). Under the Booker PSP, tax approved Company Share Option Plan options (Booker CSOP Options) were also granted to selected Booker senior colleagues. Following completion of the acquisition of Booker Group PLC by Tesco PLC, Booker senior colleagues elected to roll over their existing Booker PSP and Booker CSOP Options over Booker Shares into equivalent options over Tesco Shares. Booker PSP Options are normally exercisable between the third anniversary of the original date of grant and 10 years from the date of grant for nil consideration. The vesting of options is normally conditional upon the achievement of specified performance targets over a three year period and continuous employment. Conditional on the vesting of the relevant Booker PSP Options, Booker CSOP Options are normally exercisable between the third anniversary of the original date of grant and 10 years from the date of grant at a

subscription price equivalent to the market value of the Booker Shares at the time of   grant. 

Notes to the Group financial statements

Note 28 Share-based payments

The following tables reconcile the number of share options outstanding and the weighted average exercise price (WAEP):

For the 52 weeks ended 27 February 2021

 
                                                                               Booker Group 
                                                                                PLC                  Booker Group 
              Savings-related        Irish Savings-related    Nil cost          Savings Related       PLC Performance 
               Share Option           Share Option            Share Option      Share Option          Share 
               Scheme                 Scheme                  Scheme(a)         Plan                  Plan Scheme       Other Schemes 
              Options       WAEP     Options      WAEP      Options      WAEP  Options      WAEP     Options      WAEP  Options  WAEP 
Outstanding 
 at 29 
 February 
 2020         215,812,094   175.06   6,855,613    185.35    18,455,841   -     5,100,149    151.21   4,976,236    -     -        - 
Granted       60,005,859    198.00   2,800,186    198.00    516,622      -     -            -        -            -     -        - 
Forfeited     (18,268,028)  197.73   (808,107)    194.80    (3,675,500)  -     (271,569)    149.39   (2,257,156)  -     -        - 
Exercised     (91,142,849)  151.29   (1,261,423)  153.20    (8,079,580)  -     (4,141,825)  151.10   (1,858,323)  -     -        - 
Outstanding 
 at 27 
 February 
 2021         166,407,076   193.86   7,586,269    194.35    7,217,383    -     686,755      152.58   860,757      -     -        - 
Exercise                    150.00                150.00                                    137.45 
 price range                 to                    to                                        to 
 (pence)                     219.00                219.00                -                   152.78               -              - 
Weighted 
 average 
 remaining 
 contractual 
 life 
 (years)(b)                 2.86                  2.78                   5.18               0.42                  -              - 
Exercisable 
 at 27 
 February 
 2021         4,780,919     151.11   108,223      151.00    7,217,383          686,755      152.58   860,757      -     -        - 
Exercise                    150.00                150.00                                    137.45                -              - 
 price range                 to                    to                                        to 
 (pence)                     219.00                219.00                                    152.78 
Weighted 
 average 
 remaining 
 contractual 
 life 
 (years)(b)                 0.42                  0.42                   5.18               0.42                  -              - 
 

(a) The special dividend and associated share consolidation had a neutral impact to the number of options.

(b) 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 27 February 2021 was 227.07p (2020: 237.69p).

For the 53 weeks ended 29 February 2020

 
                                                                                                          Booker 
                                      Irish                                      Booker Group              Group PLC 
                                      Savings-related         Nil cost           PLC Savings               Performance 
  Savings-related                     Share Option            Share Option       Related Share             Share Plan      Other Schemes 
  Share Option Scheme                 Scheme                  Scheme             Option Plan               Scheme          * 
               Options      WAEP      Options     WAEP       Options     WAEP   Options     WAEP      Options      WAEP   Options      WAEP 
Outstanding 
 at 23 
 February 
 2019         215,591,248   168.04   6,470,978    175.06    25,377,129   -     9,827,705    145.36   11,222,347    -     12,379,637    - 
Granted       44,387,158    219,00   1,977,339    219.00    537,271      -     -            -                      -     -             - 
Forfeited     (23,512,462)  200.62   (1,062,090)  187.69    (5,502,793)  -     (766,057)    147.40   (2,870,980)   -     (12,379,637)  - 
Exercised     (20,653,850)  167.18   (530,614)    180.60    (1,955,766)  -     (3,961,499)  137.46    (3,375,131)  -     -             - 
Outstanding 
 at 29 
 February 
 2020         215,812,094   175.06   6,855,613    185.35    18,455,841   -     5,100,149    151.21   4,976,236     -     -             - 
Exercise                    150.00                150.00                 -                  137.13                 -                   - 
 price range                 to                    to                                        to 
 (pence)                     322.00                219.00                                    152.78 
Weighted 
 average 
 remaining 
 contractual 
 life 
 (years)                    2.09                  2.55                   6.39               1.32                   0.51                - 
Exercisable 
 at 29 
 February 
 2020         2,948,571     189.92   243,886      190.00     9,359,089   -     523,817      137.45   977,437       -     -             - 
Exercise                    150.00 
 price range                 to 
 (pence)                     322.00               190.00                 -                  137.45                 -                   - 
Weighted 
 average 
 remaining 
 contractual 
 life 
 (years)                    0.41                  0.42                   5.60               0.42                   -                   - 
 

* Other Schemes includes Approved Share Option Scheme (Approved), Unapproved Share Option Scheme (Unapproved), and International Executive Share Option Scheme (International). The WAEP for all other

 schemes at 29 February 2020  was  338.40p  and   all  options were forfeited  during   the  year. 

Notes to the Group financial statements

Note 28 Share-based payments continued

The fair value of savings related share options schemes are 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.

 
                                                   2021          2020 
                                                    SAYE          SAYE 
Expected dividend yield (%)                        4.90-5.05%    3.70-4.28% 
Expected volatility (%)                            23.00-25.60%  22.60-28.09% 
Risk-free interest rate (%)                        0.15-0.26%    0.81-0.84% 
Expected life of option (years)                    3 or 5        3 or 5 
Weighted average fair value of options granted 
 (pence)                                           27.13         38.56 
Probability of forfeiture (%)                      6-10%         7-10% 
Share price (pence)                                219.60        243.00 
Weighted average exercise price (pence)            198.00        219.00 
 

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.

Share bonus and incentive schemes

Selected executives participate in the Group Bonus Plan, a performance-related bonus scheme. The amount paid to colleagues is based on a percentage of salary and is paid partly in cash and partly in shares. Bonuses are awarded to selected executives who have completed a required service period and depend on the achievement of corporate and individual performance targets.

Selected executives participate in the Performance Share Plan (2011) and the Long Term Incentive Plan (2015). Awards made under these plans will normally vest on the vesting date(s) set on the date of the award for nil consideration. Vesting will normally be conditional on the achievement of specified performance targets over a three-year performance period and/or continuous employment.

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.

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.

The number and weighted average fair value (WAFV) of share bonuses and share incentives awarded were:

 
                                                      2021 Number       2020 
                                                       WAFV              Number WAFV 
                                                       of shares pence   of shares pence 
 
                                                                         11,496,310 237.80 
                                                                         39,136,637 233.77 
Group Bonus Plan         15,502,105 246.70 
 Performance Share Plan   25,024,909 221.72 
 

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 GBP347m (2020: GBP329m) have been recognised in the Group income statement. This includes GBP132m (2020: GBP116m) of salaries paid as pension contributions.

Defined benefit schemes

The Group has a defined benefit pension deficit of GBP1,222m (2020: GBP3,085m), comprising a number of schemes. The most significant of these are for the Group's employees in the UK, which are closed to future accrual, and ROI. The defined benefit pension deficit in the UK represents 86% of the Group deficit (2020: 92%).

Guaranteed minimum pension

During the year, a further high court judgement was handed down regarding the Lloyd's Banking Group's defined benefit pension schemes, which affects many schemes in the UK, including the Group's UK schemes. This ruling requires pension schemes to also consider the impact of guaranteed minimum pensions (GMPs) equalisation on individual transfer payments made since May 1990. In consultation with independent actuaries, the Group recognised the financial effect of this as a one-off GBP7m exceptional past service cost in the current year. This is presented as an exceptional item in the income statement (Note 4).

Notes to the Group financial statements

Note 29 Post-employment benefits continued

United Kingdom

The principal plan within the Group is the Tesco PLC Pension Scheme (the Scheme), the assets of which are held as a segregated fund and administered by the Trustee.

The Scheme is established under trust law and has a corporate trustee (the Trustee) that is required to run the Scheme in accordance with the Scheme's Trust Deed and Rules and to comply with all relevant legislation. Responsibility for governance of the Scheme lies with the Trustee. The Trustee is a company whose directors comprise:

1. representatives of the Group; and

2. representatives of the Scheme participants, in accordance with its articles of association and UK pension law.

Scheme funding

The Group considers two measures of the pension deficit. The accounting position is shown on the Group balance sheet. The funding position, calculated at the triennial actuarial assessment, 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 actuarial assessment of the Scheme was performed as at 31 December 2019 using the projected unit credit method. After the GBP2.5bn contribution in relation to the Group's sale of its operations in Thailand and Malaysia, the funding position was a surplus of GBP570m. The market value of the Scheme's assets was GBP18,492m and these assets represented 103% of the benefits that had accrued to members, after allowing for expected increases in pensions in payment.

Subsequent to this triennial actuarial assessment it was agreed that no further pension deficit contributions would be required, with contributions being assessed at the next triennial review. The GBP2.5bn contribution has significantly reduced the prospect of having to make further pension deficit contributions in the future. The Group will continue to pay GBP25m per annum to meet expenses of the Scheme, including the Pension Protection Fund levy. Additionally, as part of the triennial review it was agreed that the market value of assets held as security in favour of the Scheme would increase to at least GBP775m (2020: GBP575m).

The most recent Booker Pension Scheme triennial valuation showed a funding deficit of GBP103m at 31 March 2019, with agreed contributions of

GBP15m per annum until the end of 2028. No contributions were required for the Budgens or Londis schemes.

IFRIC 14

The Group is not required to recognise any additional liabilities in relation to funding plans, or limit the recognition of any surpluses, as any future economic benefits will be available to the Group by way of future refunds or reductions to future contributions.

Maturity profile of obligations

The estimated duration of the Scheme obligations is an indicator of the weighted average term of benefit payments after discounting. For the Scheme this is 23 years.

Around 40% 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 liabilities held by the Scheme are broken down as follows:

 
                     % 
Deferred members     78 
Current pensioners   22 
 

Notes to the Group financial statements

Note 29 Post-employment benefits continued

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 accounting liabilities   The Trustee and the Group 
                  are calculated using a discount       regularly monitor the funding 
                  rate set with reference to            position and operate a diversified 
                  corporate bond yields. If             investment strategy. 
                  the return on the Scheme's 
                  assets underperform this rate,        The Trustee and Group take 
                  the accounting deficit will           a balanced approach to investment 
                  increase.                             risk and have a long-term 
                                                        plan to significantly reduce 
                  If the Scheme's assets underperform   the investment risk within 
                  the expected return for the           the Scheme. 
                  funding valuation, this may 
                  require additional contributions 
                  to be made by the Group. 
Inflation        The Scheme's benefit obligations      As part of the investment 
                  are linked to inflation. A            strategy, the Trustee aims 
                  higher rate of expected long-term     to mitigate this risk through 
                  inflation will therefore lead         investment in a liability-driven 
                  to higher liabilities, both           investment (LDI) portfolio. 
                  for the IAS 19 and funding 
                  liability.                            The portfolio invests in 
                                                        assets which increase in 
                  If the Scheme's funding liability     value as inflation expectations 
                  increases, this may require           increase. This mitigates 
                  additional contributions to           the impact of any adverse 
                  be made by the Group.                 movement in long-term inflation 
                                                        expectations. 
 
                                                        The Scheme's holdings are 
                                                        designed to hedge against 
                                                        inflation risk up to the 
                                                        value of the funded liabilities. 
 
                                                        Additionally, changes to 
                                                        future benefits were introduced 
                                                        in June 2012 to reduce the 
                                                        Scheme's exposure to inflation 
                                                        risk by changing the basis 
                                                        for calculating the rate 
                                                        of increase in pensions to 
                                                        CPI (previously RPI). 
Interest rate    A decrease in corporate bond          As part of the investment 
                  yields will increase the accounting   strategy, the Trustee aims 
                  deficit under IAS 19. Similarly,      to mitigate this risk through 
                  a decrease in gilt yields             investment in a LDI portfolio. 
                  will have an adverse impact 
                  on the funding position of            The portfolio invests in 
                  the Scheme. This may lead             assets which increase in 
                  to additional contributions           value as interest rates decrease. 
                  to be made by the Group.              The Scheme's holdings are 
                                                        designed to hedge against 
                                                        interest rate risk up to 
                                                        the value 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 under IAS 19 can 
                                                        arise where corporate bond 
                                                        and gilt yields diverge. 
                                                        This is partially offset 
                                                        by Scheme holdings in corporate 
                                                        bonds. 
Life expectancy  The Scheme's obligations are          To reduce this risk, changes 
                  to provide benefits for the           to future benefits were introduced 
                  life of the member and so             in June 2012 to increase 
                  increases in life expectancy          the age at which members 
                  will lead to higher liabilities.      can take their full pension 
                                                        by two years. 
 
                                                        The Trustee and Group regularly 
                                                        monitor the impact of changes 
                                                        in longevity on scheme obligations. 
 

The operations and audit pensions committee was established to further strengthen the Group's Trustee governance and provide greater oversight and stronger internal control over the Group's risks. The Group pensions committee was also set up to provide an additional layer of governance and risk management. Further mitigation of the risks is provided by external advisors and the Trustee who consider the funding position, fund performance and impacts of any regulatory changes.

Notes to the Group financial statements

Note 29 Post-employment benefits continued

Scheme principal assumptions

Financial assumptions

The principal assumptions, on a weighted average basis, used by the actuaries to value the defined benefit obligation of the Scheme were as follows:

 
                                           2021  2020 
                                            %     % 
Discount rate                              2.0   1.9 
Price inflation                            2.9   2.8 
Rate of increase in deferred pensions*     2.5   2.0 
Rate of increase in pensions in payment* 
Benefits accrued before 1 June 2012        2.8   2.7 
Benefits accrued after 1 June 2012         2.5   2.1 
 

* 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 to produce a single equivalent discount rate.

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 government announced RPI reforms in 2019 and subsequently responded to a consultation in November 2020, with changes to align RPI with CPIH expected from 2030 onwards. 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 0.42% (2020: 0.25%), representing the weighted average of 0.3% p.a. pre-2030 and 0.5% p.a. post-2030. The CPI differential has been set as 0.43% lower than RPI (2020: 0.80%), representing the weighted average of 1.0% p.a. pre-2030 and 0.1% p.a. post-2030.

Mortality assumptions

The Group, in consultation with an independent actuary, conducted a mortality analysis of the Scheme as part of the triennial actuarial valuation process. Subsequent to this analysis, the Group adopted the best estimate assumptions for the calculation of the IAS 19 pension liability for the main UK scheme.

The mortality assumptions used are based on tables that have been projected to 2017 with CMI 2018 improvements. In addition, the allowance for future mortality improvements from 2017 have been updated to be in line with CMI 2019, with a long-term improvement rate of 1.25% per annum.

The base tables used in calculating the mortality assumptions are different for various categories of members, as shown below:

 
                        Pensioner               Non-Pensioner 
                        90% of SAPS S3 Normal   97% of SAPS S3 Normal 
Male    Staff            Heavy                   Heavy 
                        95% of SAPS S3 Normal   104% of SAPS S3 Normal 
        Senior Manager   Light                   Light 
                        110% of SAPS S3 Normal  114% of SAPS S3 Normal 
Female  Staff            Heavy                   Heavy 
                        95% of SAPS S3 All      100% of SAPS S3 All 
        Senior Manager   Middle                  Middle 
 

The following table illustrates the expectation of life of an average member retiring at age 65 at the balance sheet date and a member reaching 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.

 
                                         2021    2020 
                                          Years   Years 
Retiring at the balance sheet 
 date at age 65:                Male     20.7    22.0 
 Female                                  22.2    23.8 
Retiring at the balance sheet 
 date +25 years at age 65:      Male     22.0    23.4 
 Female                                  23.9    25.8 
 

Sensitivity analysis of significant actuarial assumptions

The sensitivity of significant assumptions upon the Scheme defined benefit obligation are detailed below:

 
                                                    2021                                                2020 
 Financial                                          Discount   Inflation                                Discount   Inflation 
 assumptions -                                      rate '     rate                                     rate       rate 
 Increase/(decrease)                                GBPm       GBPm                                     GBPm       GBPm 
 in UK Defined 
 Benefit Obligation 
Impact of 0.1% 
 increase of the 
 assumption            (460) 400                                          (460)                                   383 
Impact of 0.1% 
 decrease of the 
 assumption            480                                    (380)       479                                     (383) 
Impact of 1.0% 
 increase of the 
 assumption            (4,038)                                4,318       (4,002)                                 4,289 
Impact of 1.0% 
 decrease of the 
 assumption            5,577                                  (3,418)     5,572                                   (3,313) 
 
 
Mortality assumptions - Increase/(decrease) in UK Defined   2021   2020 
 Benefit Obligation                                          GBPm   GBPm 
Impact of 1 year increase in longevity                      900    881 
Impact of 1 year decrease in longevity                      (920)   (881) 
 

Notes to the Group financial statements

Note 29 Post-employment benefits continued

Sensitivities are calculated by changing the relevant assumption while holding all other assumptions constant. 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 independent actuary, using the projected unit credit method, carried out the latest actuarial assessment of the ROI schemes as at 27 February 2021. At the financial year end, the IAS 19 deficit relating to ROI was GBP169m (2020:

GBP206m).

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 liability as at 27 February 2021 of GBP7m (2020: GBP8m) was determined in accordance with the advice of independent actuaries. During the current financial year, GBPnil (2020: GBPnil) has been charged to the Group income statement and GBPnil (2020: GBPnil) 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:

 
                                                                    2021                                                                       2020 
                                                                    Quoted        Total                                                        Quoted        Total 
                                                                    Unquoted      GBPm %                                                       Unquoted      GBPm % 
                                                                    GBPm GBPm                                                                  GBPm GBPm 
Equities 
UK               89                 -                                           89      1    255                -                                          255     2 
Europe           889                -                                           889     4    746                -                                          746     4 
Rest of the 
 world           4,502              -                                           4,502   22   4,347              -                                          4,347   25 
                 5,480              -                                           5,480   27   5,348              -                                          5,348   31 
Bonds 
Government       1,377              -                                           1,377   6    750                -                                          750     4 
Corporates - 
 investment 
 grade           3,334              -                                           3,334   17   1,362              -                                          1,362   8 
Corporates - 
 non-investment 
 grade           197                -                                           197     1    2                  -                                          2       - 
                 4,908              -                                           4,908   24   2,114              -                                          2,114   12 
Property 
UK               78                 1,041                                       1,119   6    44                 1,036                                      1,080   6 
Rest of the 
 world           6                  440                                         446     2    7                  475                                        482     3 
                 84                 1,481                                       1,565   8    51                 1,511                                      1,562   9 
Alternative 
assets 
Hedge funds      1                  312                                         313     2    2                  304                                        306     2 
Private equity   -                  1,020                                       1,020   5    -                  881                                        881     5 
Other            210                1,288                                       1,498   7    225                1,043                                      1,268   7 
                 211                2,620                                       2,831   14   227                2,228                                      2,455   14 
LDI portfolio    3,241              (493)                                       2,748   14   4,580              444                                        5,024   29 
Cash             2,550              -                                           2,550   13   922                -                                          922     5 
Total fair 
 value of 
 plan assets     16,474             3,608                                       20,082  100  13,242             4,183                                      17,425  100 
 

Quoted assets are those with a quoted price in an active market. Unquoted assets are valued in accordance with IFRS13, 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, of the value of GBP8,425m (2020: GBP8,115m) and associated repurchase agreements and swaps of GBP(5,677)m (2020: GBP(3,091)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 plan assets include GBP222m (2020: GBP209m) relating to property used by the Group. Group property with net carrying value of GBP826m

(2020:GBP478m) (Note 11) and a value to the Scheme of at least GBP775m (2020: GBP575m) is held as security in favour of the Scheme.

Notes to the Group financial statements

Note 29 Post-employment benefits continued

Movement in the Group pension deficit during the financial year

Including all movements of discontinued operations up to classification as held for sale(a)

 
                                      Fair value of    Defined benefit     Net defined 
                                       plan assets      obligation          benefit surplus/(deficit) 
                                      2021     2020    2021      2020      2021           2020 (b) 
                                       GBPm     GBPm    GBPm      GBPm      GBPm           GBPm 
Opening balance                       17,425   15,054  (20,510)  (17,862)  (3,085)        (2,808)) 
Current service cost                  -        -       (41)      (40)      (41)           (40)) 
Past service cost                     -        -       (7)       (5)       (7)            (5)) 
Finance income/(cost)                 341      409     (384)     (480)     (43)           (71)) 
Included in the Group income 
 statement                            341      409     (432)     (525)     (91)           (116)) 
 
Remeasurement gain/(loss): 
Financial assumptions gain/(loss)     -        -       (1,193)   (2,867)   (1,193)        (2,867)) 
Demographic assumptions gain/(loss)   -        -       18        182       18             182 
Experience gain/(loss)                -        -       354       61        354            61 
Return on plan assets excluding 
 finance income                       (136)    2,158   -         -         (136)          2,158 
Foreign currency translation          1        (3)     (4)       5         (3)            2 
Included in the Group statement 
 of comprehensive income/(loss)       (135)    2,155   (825)     (2,619)   (960)          (464)) 
 
Member contributions                  2        2       (2)       (2)       -              - 
Employer contributions                34       36      -         -         34             36 
Additional employer contributions     2,836    262     -         -         2,836          262 
Benefits paid                         (421)    (493)   436       498       15             5 
Classified as held for sale           -        -       29        -         29             - 
Other movements                       2,451    (193)   463       496       2,914          303 
 
Closing balance                       20,082   17,425  (21,304)  (20,510)  (1,222)        (3,085) 
Deferred tax asset                                                         218            512 
Deficit in schemes at the 
 end of the year, net of deferred 
 tax                                                                       (1,004)        (2,573) 
 

(a) Movements in the year include GBPnil relating to discontinued operations up to classification as held for sale. After classification as held for sale post-employment benefit obligations movements within discontinued operations included GBP(1)m within the Group income statement, GBP(6)m remeasurement loss in the Group statement of comprehensive income/(loss) and GBP2m in other movements.

(b) Movements in the prior year in relation to discontinued operations included GBP(8)m within the Group income statement, GBP(3)m in the Group statement of comprehensive income/(loss) and

GBP1m in other movements

Note 30 Called-up share capital

 
                                        2021                    2020 
                                                                Number 
                                        Number of                of 
                                         Ordinary                Ordinary 
                                         shares           GBPm   shares        GBPm 
Allotted, called-up and fully paid: 
At the beginning of the year            9,793,496,561    490    9,793,496,561  490 
Share consolidation (including shares 
 issued (a) )                           (2,061,788,741)  -                     - 
At the end of the year                  7,731,707,820    490    9,793,496,561  490 
 

(a) To affect the share consolidation, 11 additional Ordinary shares were issued so that the total Ordinary shares is exactly divisible by 19.

On 26 February 2021, the Group paid a special dividend of GBP4.9bn to shareholders in relation to the sale of its businesses in Thailand and Malaysia. In order to maintain the comparability of the Company's share price before and after the special dividend, a share consolidation was approved at the General Meeting held on 11 February 2021. Shareholders received 15 new Ordinary shares of 6 1/3 pence each for every existing 19 Ordinary shares of 5 pence each.

No shares were issued during the current financial year in relation to share options.

The Group has a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who have not had contact with the Company over the past 12 years, in accordance with the provisions set out in the Company's Articles of Association. Under the share forfeiture programme the shares and dividends associated with shares of untraced members are forfeited, with the resulting proceeds transferred to the Group to use for good causes in line with the Group's corporate responsibility strategy. For more information on how these proceeds have been spent, please see our Little Helps Plan Report (available at www.tescoplc.com/littlehelpsplan). Du ring the current financial year, the Group received GBPnil (2020: GBPnil) proceeds from sale of untraced shares and GBPnil (2020: GBPnil) write-back of unclaimed dividends, which are reflected in share premium and retained earnings respectively.

As at 27 February 2021, the Directors were authorised to purchase up to a maximum in aggregate of 773.2 million (2020: 979.3 million) Ordinary shares before the AGM 2021 on 25 June 2021.

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.

Own shares purchased

Own shares represent the shares of Tesco PLC that are held in Treasury or by the Employee Benefit Trust. Own shares are recorded at cost and are deducted from equity.

The own shares held represents the cost of 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). The number of Ordinary shares held by the Tesco International Employee Benefit Trust at 27 February 2021 was 58.4 million (2020: 87.6 million). This represents 0.76% of called-up share capital at the end of the year (2020: 0.89%).

No own shares held of Tesco PLC were cancelled during the financial years presented.

Notes to the Group financial statements

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 venture    Associate 
                                 2021     2020    2021   2020 
                                  GBPm     GBPm    GBPm   GBPm 
Sales to related parties         479      491     -      - 
Purchases from related parties   87       100     10     12 
Dividends received               18       29      8      13 
Injection of equity funding      14       -       -      12 
 

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    Associates 
                                               2021     2020     2021   2020 
                                                GBPm     GBPm     GBPm   GBPm 
Amounts owed to related parties                23       26       -      - 
Amounts owed by related parties                40       47       -      - 
Lease liabilities payable to related parties   2,718    3,206    144    146 
Loans to related parties (net of deferred 
 profits)*                                     122      127      -      - 
 

* Loans to related parties of GBP122m (2020: GBP127m) are presented net of deferred profits of GBP38m (2020: GBP54m), historically arising from the sale of property assets to joint ventures. Refer to Note 14 for further details. For loans to related parties, a 12-month expected credit loss (ECL) allowance is recorded on initial recognition. In the current and prior financial years, the ECL allowance was immaterial.

A number of the Group's subsidiaries are members of one or more partnerships to whom the provisions of the Partnerships (Accounts) Regulations 2008 (Regulations) apply. The financial statements for those partnerships have been consolidated into these financial statements pursuant to Regulation 7 of the Regulations.

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:

 
                                                              2021   2020 
                                                               GBPm   GBPm 
Salaries and short-term benefits                              20     20 
Pensions and cash in lieu of pensions                         2      2 
Share-based payments                                          20     16 
Joining costs and loss of office costs                        -      1 
                                                              42     39 
Attributable to: 
The Board of Directors (including Non-executive Directors)    14     10 
Executive Committee (members not on the Board of Directors)   28     29 
                                                              42     39 
 

During the year 6,403,309 (2020: 8,470,986) Performance Shares and 2,615,921 (2020: 1,539,924) 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 are the balances at the financial year end:

 
                      Credit card, 
                       mortgage and 
                       personal loan     Current and saving 
                       balances           deposit accounts 
                      Number             Number 
                       of key             of key 
                       management         management 
                       personnel   GBPm   personnel      GBPm 
At 27 February 2021   4            -     7               - 
At 29 February 2020   6            -     13              1 
 

Notes to the Group financial statements

Note 32 Analysis of changes in net debt

 
                                      Non-cash movements 
                          Cash 
                          flows 
                          arising              Fair 
                At 29     from        Other    value               Interest  Acquisitions                       At 27 
                February  financing    cash    gains/    Foreign   income/   and                  Discontinued   February 
                2020      activities   flows   (losses)  exchange  (charge)  disposals     Other   operations    2021 
                GBPm      GBPm         GBPm    GBPm      GBPm      GBPm      (a) GBPm       GBPm   GBPm          GBPm 
Total Group 
Bank and other 
 borrowings, 
 excluding 
 overdrafts     (7,118)   716         223      (41)      (2)       (226)     (288)         -      -             (6,736) 
Lease 
 liabilities    (9,566)   621         488      -         -         (488)     977           (568)  134           (8,402) 
Net derivative 
 financial 
 instruments    198       580         18       (203)     -         (20)      (118)         -      -             455 
Arising from 
 financing 
 activities     (16,486)  1,917       729      (244)     (2)       (734)     571           (568)  134           (14,683) 
Cash and cash 
 equivalents 
 in the Group 
 balance sheet  4,137     -           (1,607)  -         8         -         -             -      (28)          2,510 
Overdrafts(b)   (1,106)   -           539      -         -         -         -             -      35            (532) 
Cash and cash 
 equivalents 
 (including 
 overdrafts) 
 in the Group 
 cash flow 
 statement      3,031     -           (1,068)  -         8         -         -             -      7             1,978 
Short-term 
 investments    1,076     -           (62)     -         (3)       -         -             -      -             1,011 
Joint venture 
 loans          127       -           2        -         -         2         (9)           -      -             122 
Interest and 
 other 
 receivables    1         -           (12)     -         -         11        -             -      -             - 
Net debt of 
 the disposal 
 group          -         -           -        -         -         -         -             -      (141)         (141) 
Total Group     (12,251)  1,917       (411)    (244)     3         (721)     562           (568)  -             (11,713) 
Tesco Bank 
Bank and other 
 borrowings, 
 excluding 
 overdrafts     (1,260)   774         4        (1)       -         (4)       -             -      -             (487) 
Lease 
 liabilities    (33)      3           2        -         -         (2)       -             -      -             (30) 
Net derivative 
 financial 
 instruments    (45)      -           -        3         -         -         -             -      -             (42) 
Arising from 
 financing      (1,338)   777         6        2         -         (6)       -             -      -             (559) 
activities 
Cash and cash 
 equivalents 
 in the Group 
 balance sheet  1,364     -           (584)    -         -         -         -             -      -             780 
Overdrafts(b)   -         -           -        -         -         -         -             -      -             - 
Cash and cash 
 equivalents 
 (including 
 overdrafts) 
 in the Group 
 cash flow 
 statement      1,364     -           (584)    -         -         -         -             -      -             780 
Joint ventures 
 loans          21        -           -        -         -         -         -             -      -             21 
Tesco Bank      47        777         (578)    2         -         (6)       -             -      -             242 
Retail 
Bank and other 
 borrowings, 
 excluding 
 overdrafts     (5,858)   (58)        219      (40)      (2)       (222)     (288)         -      -             (6,249) 
Lease 
 liabilities    (9,533)   618         486      -         -         (486)     977           (568)  134           (8,372) 
Net derivative 
 financial 
 instruments    243       580         18       (206)     -         (20)      (118)         -      -             497 
Arising from 
 financing      (15,148)  1,140       723      (246)     (2)       (728)     571           (568)  134           (14,124) 
activities 
Cash and cash 
 equivalents 
 in the Group 
 balance sheet  2,773     -           (1,023)  -         8         -         -             -      (28)          1,730 
Overdrafts(b)   (1,106)   -           539      -         -         -         -             -      35            (532) 
Cash and cash 
 equivalents 
 (including 
 overdrafts) 
 in the Group 
 cash flow 
 statement      1,667     -           (484)    -         8         -         -             -      7             1,198 
Short-term 
 investments    1,076     -           (62)     -         (3)       -         -             -      -             1,011 
Joint ventures 
 loans          106       -           2        -         -         2         (9)           -      -             101 
Interest and 
 other 
 receivables    1         -           (12)     -         -         11        -             -      -             - 
Net debt of 
 the disposal 
 group          -         -           -        -         -         -         -             -      (141)         (141) 
Net debt        (12,298)  1,140       167      (246)     3         (715)     562           (568)  -             (11,955) 
 
 

(a) Movements in Group net debt arising from the disposal of the Group's Thailand and Malaysia operations, the acquisition of The Tesco Property (No. 2) Limited Partnership and the acquisition of the trade and assets of Best Food Logistics. Refer to Notes 7 and 33 for further details.

(b) Overdraft balances are included within Bank and other borrowings in the Group balance sheet, and within Cash and cash equivalents in the Group cash flow statement. Refer to Note 20.

Net debt excludes the net debt of Tesco Bank but includes that of discontinued operations. Balances and movements in respect of the total Group and Tesco Bank are presented to allow reconciliation between the Group balance sheet and the Group cash flow statement.

Notes to the Group financial statements

Note 32 Analysis of changes in net debt continued

 
                                                        Non-cash movements 
                                    Cash 
                                    flows 
                         At         arising             Fair                                                 At 
                         23         from        Other    value                Interest   Acquisition         29 
                         February   financing    cash    gains/    Foreign     income/    of joint           February 
                         2019       activities   flows   (losses)   exchange   (charge)   venture(a)  Other  2020 
                         GBPm       GBPm         GBPm    GBPm       GBPm       GBPm       GBPm         GBPm  GBPm 
Total Group 
Bank and other 
 borrowings, 
 excluding overdrafts    (6,794)    484         255     (192)      2          (251)      (622)        -      (7,118) 
Lease liabilities        (10,505)   634         541     -          1          (541)      455          (151)  (9,566) 
Net derivative 
 financial instruments   591        17          7       (208)      -          14         (223)        -      198 
Arising from 
 financing               (16,708)   1,135       803     (400)      3          (778)      (390)        (151)  (16,486) 
activities 
Cash and cash 
 equivalents 
 in the Group 
 balance sheet           4,227      -           (48)    -          (42)       -          -            -      4,137 
Overdrafts(b)            (1,660)    -           554     -          -          -          -            -      (1,106) 
Cash and cash 
 equivalents 
 (including overdrafts) 
 in the Group 
 cash flow statement     2,567      -           506     -          (42)       -          -            -      3,031 
Short-term investments   390        -           687     -          (1)        -          -            -      1,076 
Joint venture 
 loans                   133        -           (8)     -          -          2          -            -      127 
Interest and 
 other receivables       1          -           (18)    -          (1)        19         -            -      1 
Total Group              (13,617)   1,135       1,970   (400)      (41)       (757)      (390)        (151)  (12,251) 
Tesco Bank 
Bank and other 
 borrowings, 
 excluding overdrafts    (1,421)    160         5       1          -          (5)        -            -      (1,260) 
Lease liabilities        (35)       2           3       -          -          (3)        -            -      (33) 
Net derivative 
 financial instruments   (29)       -           -       (16)       -          -          -            -      (45) 
Arising from 
 financing               (1,485)    162         8       (15)       -          (8)        -            -      (1,338) 
activities 
Cash and cash 
 equivalents 
 in the Group 
 balance sheet           1,043      -           321     -          -          -          -            -      1,364 
Overdrafts(b)            -          -           -       -          -          -          -            -      - 
Cash and cash 
 equivalents 
 (including overdrafts) 
 in the Group 
 cash flow statement     1,043      -           321     -          -          -          -            -      1,364 
Joint ventures 
 loans                   29         -           (8)     -          -          -          -            -      21 
Tesco Bank               (413)      162         321     (15)       -          (8)        -            -      47 
Retail 
Bank and other 
 borrowings, 
 excluding overdrafts    (5,373)    324         250     (193)      2          (246)      (622)        -      (5,858) 
Lease liabilities        (10,470)   632         538     -          1          (538)      455          (151)  (9,533) 
Net derivative 
 financial instruments   620        17          7       (192)      -          14         (223)        -      243 
Arising from 
 financing               (15,223)   973         795     (385)      3          (770)      (390)        (151)  (15,148) 
activities 
Cash and cash 
 equivalents 
 in the Group 
 balance sheet           3,184      -           (369)   -          (42)       -          -            -      2,773 
Overdrafts(b)            (1,660)    -           554     -          -          -          -            -      (1,106) 
Cash and cash 
 equivalents 
 (including overdrafts) 
 in the Group 
 cash flow statement     1,524      -           185     -          (42)       -          -            -      1,667 
Short-term investments   390        -           687     -          (1)        -          -            -      1,076 
Joint ventures 
 loans                   104        -           -       -          -          2          -            -      106 
Interest and 
 other receivables       1          -           (18)    -          (1)        19         -            -      1 
Net debt                 (13,204)   973         1,649   (385)      (41)       (749)      (390)        (151)  (12,298) 
 

(a) Movements in Group net debt arising from the acquisition of The Tesco Atrato Limited Partnership.

(b) Overdraft balances are included within Bank and other borrowings in the Group balance sheet, and within Cash and cash equivalents in the Group cash flow statement. Refer to Note 20.

Notes to the Group financial statements

Note 32 Analysis of changes in net debt continued

Reconciliation of net cash flow to movement in Net debt

 
                                                              2021      2020 
                                                               GBPm      GBPm 
Net increase/(decrease) in cash and cash equivalents 
 including overdrafts                                         (1,068)   506 
Elimination of Tesco Bank movement in cash and cash 
 equivalents including overdrafts                             584       (321)) 
Retail cash movement in other Net debt items: 
Net increase/(decrease) in short-term investments             (62)      687 
Net increase/(decrease) in joint venture loans                2         - 
Net (increase)/decrease in borrowings and lease liabilities   560       956 
Net cash flows from derivative financial instruments          580       17 
Net interest paid on components of Net debt                   711       777 
Change in Net debt resulting from cash flow                   1,307     2,622 
Retail net interest charge on components of Net debt          (715)     (749) 
Retail fair value and foreign exchange movements              (243)     (426) 
Retail other non-cash movements                               (568)     (151) 
Acquisition of property joint venture (Note 33)               (161)     (390) 
Acquisition of Best Food Logistics (Note 33)                  (42)      - 
Disposal of the Asia business (Note 7)                        765       - 
Increase)/ decrease in Net debt                               343       906 
Opening Net debt                                              (12,298)  (13,204) 
Closing Net debt*                                             (11,955)  (12,298) 
 

* Refer to page 130 for a reconciliation from Net debt (Retail net debt) shown above to the Group's 52-week alternative performance measure.

Note 33 Acquisitions

Acquisition of Best Food Logistics

On 7 March 2020, the Group acquired the trade and assets of Best Food Logistics (trading name of BFS Group Ltd), which has been accounted for as an acquisition of a business in accordance with IFRS 3 'Business Combinations'. Best Food Logistics provides a food supply chain and logistics services to national fast food and casual dining clients. The acquisition builds on the Group's expertise in wholesale operations in the UK market and will further enhance its foodservice offer to customers within procurement, warehousing and distribution solutions. The purchase consideration received by the Group of GBP15m was fully satisfied by cash. There is no deferred or

contingent   consideration. 

The fair value of the assets and liabilities recognised as a result of the acquisition of Best Food Logistics are as follows:

 
                                        GBPm 
Acquired intangible assets              4 
Property, plant and equipment           12 
Right of use assets                     41 
Inventories                             27 
Trade and other receivables             77 
Trade and other payables                (128) 
Lease liabilities                       (42) 
Deferred tax liabilities                (2) 
Provisions                              (5) 
Total assets and liabilities acquired   (16) 
Goodwill                                1 
Purchase consideration received         (15) 
 

The goodwill is primarily attributable to synergies. None of the goodwill is expected to be deductible for tax purposes.

Acquired intangible assets comprise software of GBP1m and customer relationships of GBP3m, which are amortised over 3 years. The amortisation charge on the acquired intangibles is excluded from the Group's operating profit before exceptional items and amortisation of acquired intangibles.

The fair value of acquired trade and other receivables is GBP77m. The gross contractual amount for trade receivables due was GBP78m, of which GBP1m is expected to be uncollectable.

Best Food Logistics contributed revenues of GBP715m and net loss after tax of GBP14m to the Group from 7 March 2020 to 27 February 2021. The GBP14m loss includes GBP1m of amortisation expense on acquired intangible assets. If the acquisition had occurred on 1 March 2020, Group revenue and net loss after tax for the 52 weeks ended 27 February 2021 would not be materially different. Transaction costs of GBPnil have been included in Administrative expenses for the 52 weeks ended 27 February 2021 (53 weeks ended 29 February 2020: GBP2m).

Acquisition of property joint venture - The Tesco Property (No. 2) Limited Partnership

On 18 September 2020, the Group obtained control of The Tesco Property (No. 2) Limited Partnership (the partnership), previously accounted for as a joint venture, through the acquisition of the other partner's 50% interest for GBP54m. The partnership had bond and derivative liabilities, and owns 12 stores and two distribution centres, which the partnership previously leased to the Group. The acquisition, which has been treated as an asset acquisition, increased the Group's owned property portfolio and borrowings, replacing the Group's associated right of use assets and lease liabilities, which are eliminated on consolidation.

Notes to the Group financial statements

The table below sets out the values to the Group in respect of obtaining control of the partnership:

 
Notes                                                         GBPm 
Property, plant and equipment                             11  492 
Cash and cash equivalents                                     2 
Borrowings                                                32  (288) 
Derivative liabilities                                    32  (118) 
Joint venture partnership loans payable 
 to the parent                                                (49) 
Deferred tax asset                                            19 
Total assets and liabilities acquired                          58 
Consideration paid in cash and cash equivalents               54 
Joint venture loan receivable from the other former joint 
 venture partner                                              (25) 
Net consideration paid                                        29 
Revaluation of the Group's original 50% investment            29 
Total cost                                                    58 
 

The Group recognised the following gains and losses as an exceptional item within cost of sales on the Group income statement. The related tax charge of GBP23m has also been classified as an exceptional item. Refer to Note 4 for further details.

 
 Notes                                                     GBPm 
Revaluation of the Group's original 50% investment         29 
Impairment of property, plant and equipment acquired   15  (32) 
Derecognition of the Group's lease liabilities with 
 the partnership                                       32  254 
Derecognition of the Group's right of use assets 
 with the partnership                                  12   (130) 
Derecognition of dilapidation provisions and other 
 consolidation adjustments on acquisition                  13 
Total exceptional gain within cost of sales                134 
Taxation - exceptional                                 4   (23) 
Total exceptional gain after taxation                      111 
 

Note 34 Commitments and contingencies

Capital commitments

At 27 February 2021, there were commitments for capital expenditure contracted for, but not incurred, of GBP203m (2020: GBP140m), principally relating to store development.

Contingent liabilities

There are a number of 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. The Group recognises provisions for liabilities when it is more likely than not that a settlement will be required and the value of such a payment can be reliably estimated.

In July and August 2020, the Group settled claims brought by two claimant groups against Tesco PLC for matters arising out of or in connection with the overstatement of profit announced in 2014. As a result of the settlement and associated legal costs, Tesco has taken a one-off charge in the amount of GBP93 million. Two claimant law firms issued proceedings against the Group in September 2020 in respect of the same matters. The Group will vigorously defend any further proceedings. The merit, likely outcome and potential impact on the Group of any further litigation that might potentially be brought against the Group is subject to a number of significant uncertainties and, therefore, the Group cannot make any assessment of the likely outcome or quantum of any such litigation as at 27 February 2021. There are substantial legal and factual defences to these claims and the Group will vigorously defend any further proceedings.

Prior to the disposal of its Korean operations (Homeplus), Tesco PLC provided guarantees in respect of 13 Homeplus lease agreements in Korea in the event of termination of the relevant lease agreement by the landlord due to Homeplus' default. Entities controlled by MBK Partners and Canada Pension Plan Investment Board as the purchasers of Homeplus, undertook to procure Tesco PLC's release from these guarantees following the disposal of Homeplus. At 27 February 2021, four guarantees remained outstanding. This liability decreases over time with all relevant leases expiring in the period between 2027 and 2031. The maximum potential liability under these outstanding guarantees is between KRW 110bn (GBP70m) and KRW 189bn (GBP121m). In the event that the guarantees are called, the potential economic outflow is estimated at KRW 73bn (GBP46m), with funds of KRW 32bn (GBP20m) placed in escrow to provide the payment mechanism for these guarantees. The net potential outflow to Tesco is therefore estimated at KRW 41bn (GBP26m). Additionally, Tesco PLC has the benefit of an indemnity from the purchasers of Homeplus for any claims made over and above the amounts in escrow.

Following the sale of Homeplus for GBP4.2bn in 2015, Tesco PLC has received claims from the purchasers relating to the sale of the business. In July 2015, an arbitral tribunal tribunal dismissed the majority of the claims. It made findings of liability in relation to the remaining claims but reserved its position in relation to quantum. The parties are in the process of making submissions on the damages that should be awarded in relation to the remaining claims. A provision in the amount of GBP88m has been recognised in the accounts.

Notes to the Group financial statements

As previously reported, Tesco Stores Limited has received claims from current and former Tesco store colleagues alleging that their work is of equal value to that of colleagues working in Tesco's distribution centres and that differences in terms and conditions relating to pay are not objectively justifiable. The claimants are seeking the differential between the pay terms looking back, and equivalence of pay terms moving forward. At present, the likely number of claims that may be received and the merit, likely outcome and potential impact on the Group of any such litigation is subject to a number of significant uncertainties and therefore, the Group cannot make any assessment of the likely outcome or quantum of any such litigation as at the date of this disclosure. There are substantial factual and legal defences to these claims and the Group intends to vigorously defend them.

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.

 
                         Company                               Company                           Company 
Name                      number  Name                          Number   Name                     Number 
Buttoncable Limited      5294246  T & S Stores Limited         1228935    Tesco PENL Limited     6479938 
                                                                         Tesco Red (3LP) 
Buttoncase Limited       5298861   Tapesilver Limited          5205362    Limited                10127765 
Day and Nite Stores               Tesco Aqua (GP) 
 Limited                 1746058   Limited                     5721654   Tesco Red (GP) Limited  5721630 
Dillons Newsagents                Tesco Brislington                      Tesco TLB Properties 
 Limited                 140624    Limited                     10701640   Limited                3159425 
Dunnhumby Holding                 Tesco Family Dining                    The Tesco Aqua Limited 
 Limited                 8071909   Limited                     8514605    Partnership            LP011520 
                                  Tesco Food Sourcing                    The Tesco Red Limited 
Launchgrain Limited      5260856   Limited                     7502096    Partnership            LP011522 
Oakwood Distribution              Tesco Freetime 
 Limited                 5721635   Limited                     4345023 
Spen Hill Development             Tesco Gateshead 
 Limited                 4827219   Property Limited            8312532 
Spen Hill Management 
 Limited                 2460426  Tesco Mobile Communications  4780729 
Spen Hill Properties               Tesco Mobile Services 
 (Holdings) PLC          2412674    Limited                    04780734 
Spen Hill Regeneration 
 Limited                 6418300   Tesco PEG Limited           6480309 
 

Tesco PLC will guarantee all outstanding liabilities that these subsidiaries are subject to as at the financial year ended 27 February 2021 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.

Subject to and with effect from an amendment to the Companies Act of Ireland 2014 coming into force which permits Irish incorporated subsidiaries of an English incorporated company to avail of section 537, Tesco PLC has irrevocably guaranteed the liabilities and commitments of the following Irish subsidiary undertakings: Chirac Limited; Cirrus Finance (2009) Limited; Clondalkin Properties Limited; Commercial Investments Limited; Edson Investments Limited; Edson Properties Limited; Monread Developments Limited; Nabola Development Limited; Orpingford; Pharaway Properties Limited; R.J.D. Holdings; Tesco Ireland Holdings Limited; Tesco Ireland Limited; Tesco Ireland Pension Trustees Limited; Tesco Mobile Ireland Limited; Tesco Trustee Company of Ireland Limited; Thundridge; Wanze Properties (Dundalk) Limited; WSC Properties Limited.

Tesco Bank

At 27 February 2021, Tesco Bank had contractual lending commitments totalling GBP12.7bn (2020: GBP11.9bn). 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.

Note 35 Tesco Bank capital resources

The following tables analyse the regulatory capital resources of Tesco Personal Finance PLC (TPF), being the regulated entity at the balance sheet date:

 
                                                         2021   2020 
                                                          GBPm   GBPm 
Common equity tier 1 capital: 
Shareholders' funds and non-controlling interests, net 
 of tier 1 regulatory adjustments                        1,443  1,567 
Tier 2 capital: 
Qualifying subordinated debt                             235    235 
Other interests                                          -      - 
Total tier 2 regulatory adjustments                      (21)   (21) 
Total regulatory capital                                 1,657  1,781 
 

On 27 June 2013, the final Capital Requirements Directive IV (CRD IV) rules were published in the Official Journal of the European Union. Following the publication of the CRD IV rules, the Prudential Regulation Authority (PRA) issued a policy statement on 19 December 2013 detailing how the rules will be enacted within the UK with corresponding timeframes for implementation. The CRD IV rules are currently being phased in.

It is the Group's policy to maintain a strong capital base, to expand it as appropriate and to utilise it efficiently throughout its activities to optimise the return to shareholders while maintaining a prudent relationship between the capital base and the underlying risks of the business. In carrying out this policy, the Group has regard to the supervisory requirements of the PRA.

Note 36 Events after the reporting period

During the year, the Board approved plans to dispose of the Group's operations in Poland. The disposal of the Group's corporate business in Poland completed after the balance sheet date on 16 March 2021. Refer to Notes 1 and 7 for details of the Group's operations in Poland classified as held for sale at the balance sheet date.

Tesco PLC - Parent Company balance sheet

 
                                                       27 February  29 February 
                                                        2021         2020 
                                                Notes   GBPm         GBPm 
Non-current assets 
Investments                                   6        16,963       17,829 
Receivables                                   7        259          1,043 
Derivative financial instruments              10       1,536        1,167 
                                                       18,758       20,039 
Current assets 
Receivables                                   7        1,514        547 
Cash in hand                                           96           249 
                                                       1,610        796 
Current liabilities 
Borrowings                                    9        (463)        (43) 
Payables                                      8        (810)        (238) 
                                                       (1,273)      (281) 
Net current assets/(liabilities)                       337          515 
 
Non-current liabilities 
Borrowings                                    9        (1,415)      (2,285) 
Payables                                      8        (1,293)      (82) 
Derivative financial instruments              10       (630)        (735) 
                                                       (3,338)      (3,102) 
Net assets                                             15,757       17,452 
Equity 
Share capital                                 13       490          490 
Share premium                                          5,165        5,165 
All other reserves                                     2,972        2,950 
Retained earnings (including profit/(loss) 
 for the financial year of GBP4,250m (2020: 
 GBP(21)m)                                             7,130        8,847 
Total equity                                           15,757       17,452 
 

The notes on pages 111 to 116 form part of these financial statements.

Ken Murphy Alan Stewart Directors

The Parent Company financial statements on pages 109 to 116 were approved and authorised for issue by the Directors on 13 April 2021.

Tesco PLC

Registered number 00445790

Tesco PLC - Parent Company statement of changes in equity

 
                            All other reserves 
                                       Capital      Cost of             Own 
                  Share     Share       Redemption   hedging  Hedging    shares  Merger    Retained    Total 
                  capital   premium     reserve      reserve   reserve   held    reserve   earnings     equity 
                  GBPm      GBPm        GBPm         GBPm      GBPm      GBPm    GBPm      GBPm         GBPm 
At 29 February 
 2020             490       5,165     16            (19)      153       (250)    3,050     8,847      17,452 
Profit/(loss) 
 for 
 the year         -         -         -             -         -         -        -         4,250      4,250 
Other 
comprehensive 
income/(loss) 
Gains/(losses) 
 on cash flow 
 hedges           -         -         -             20        (18)      -        -         -          2 
Reclassified and 
 reported in the 
 Company income 
 statement        -         -         -             -         (47)      -        -         -          (47) 
Tax relating to 
 components of 
 other 
 comprehensive 
 income           -         -         -             (1)       6         -        -         -          5 
Total other 
 comprehensive 
 income/(loss)    -         -         -             19        (59)      -        -         -          (40) 
Total 
 comprehensive 
 income/(loss)    -         -         -             19        (59)      -        -         4,250      4,210 
Transactions 
with 
owners 
Purchase of own 
 shares           -         -         -             -         -         (246)    -         -          (246) 
Share-based 
 payments         -         -         -             -         -         308      -         (75)       233 
Dividends         -         -         -             -         -         -        -         (5,892)    (5,892) 
Total 
 transactions 
 with owners      -         -         -             -         -         62       -         (5,967)    (5,905) 
At 27 February 
 2021             490       5,165     16            -         94        (188)    3,050     7,130      15,757 
 
 
 
                            All other reserves 
                                       Capital      Cost of             Own 
                  Share     Share       Redemption   hedging  Hedging    shares  Merger    Retained    Total 
                  capital   premium     reserve      reserve   reserve   held    reserve   earnings     equity 
                  GBPm      GBPm        GBPm         GBPm      GBPm      GBPm    GBPm      GBPm         GBPm 
At 23 February 
 2019             490       5,165     16            (13)      95        (179)    3,050     9,468      18,092 
Profit/(loss) 
 for 
 the year         -         -         -             -         -         -        -         (21)       (21) 
Other 
comprehensive 
income/(loss) 
Gains/(losses) 
 on cash flow 
 hedges           -         -         -             (7)       92        -        -         -          85 
Reclassified and 
 reported in the 
 Company income 
 statement        -         -         -             -         (23)      -        -         -          (23) 
Tax relating to 
 components of 
 other 
 comprehensive 
 income           -         -         -             1         (11)      -        -         -          (10) 
Total other 
 comprehensive 
 income/(loss)    -         -         -             (6)       58        -        -         -          52 
Total 
 comprehensive 
 income/(loss)    -         -         -             (6)       58        -        -         (21)       31 
Transactions 
with 
owners 
Purchase of own 
 shares           -         -         -             -         -         (221)    -         -          (221) 
Share-based 
 payments         -         -         -             -         -         150      -         56         206 
Dividends         -         -         -             -         -         -        -         (656)      (656) 
Total 
 transactions 
 with owners      -         -         -             -         -         (71)     -         (600)      (671) 
At 29 February 
 2020             490       5,165     16            (19)      153       (250)    3,050     8,847      17,452 
 
 

The Company has considered the profits available for distribution to shareholders. At 27 February 2021, the Company had retained earnings of GBP7.1bn, of which the unrealised profit elements are GBP1.6bn of share-based payment reserves and GBP0.7bn of dividends received from subsidiary undertakings not yet settled by qualifying consideration. After deducting the cost of its own shares held in trust of GBP0.2bn, the Company had profits available for distribution of GBP4.6bn.

The notes on pages 111 to 116 form part of these financial statements.

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 27 February 2021 were approved by the Board of Directors on 13 April 2021 and the Company balance sheet was signed on the Board's behalf by Ken Murphy and Alan Stewart.

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 27 February 2021 (prior financial year 53 weeks to 29 February 2020).

As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to business combinations, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement, impairment of assets, share-based payments and related party transactions. 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 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 or Monte Carlo 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 in Treasury or by the Employee Benefit Trust. The Company adopts a 'look-through' approach which, in substance, accounts for the trust as an extension of the Company. Own shares are recorded at cost and are deducted from equity.

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 gives a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.

Interest-bearing borrowings

Interest-bearing bank loans and overdrafts are initially recognised at fair value and net of attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any differences between proceeds and redemption value being recognised in the Company income statement over the period of the borrowings on an effective interest basis.

Payables

Payables are recognised initially at fair value, and subsequently at amortised cost using the effective interest rate method.

   Notes to the Parent Company financial statements   continued 

Note 2 Accounting policies continued

Derivative financial instruments and hedge accounting

The Company uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. The Company does not hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are recognised and stated at fair value. Where derivatives do not qualify for hedge accounting, any gains or losses on remeasurement are immediately recognised in the Company income statement. Where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the hedge relationship and the item being hedged. In order to qualify for hedge accounting, the Company is required to document from inception, the relationship between the item being hedged and the hedging instrument.

The Company is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an ongoing basis. This effectiveness testing is performed at each reporting date to ensure that the hedge remains highly effective.

Derivative financial instruments with maturity dates of more than one year from the reporting date are disclosed as non-current.

Fair value hedging

Derivative financial instruments are classified as fair value hedges when they hedge the Company's exposure to changes in the fair value of a recognised asset or liability. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Company income statement, together with any changes in the fair value of the hedged item that 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 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 forecasted 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 and accumulated in the hedging reserve. Any cost of hedging, such as the change in fair value related to forward points and currency basis adjustment is separately accumulated in the cost of 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. Any element of the remeasurement criteria of the derivative instrument which does not meet the criteria for an effective hedge is recognised immediately in the Company income statement within finance income or costs.

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 forecasted 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 defined benefit pension schemes. The Company cannot identify its share of the underlying assets and liabilities of the schemes. Accordingly, as permitted by IAS 19 'Employee benefits', the Company has accounted for the schemes as defined contribution schemes, with the schemes recognised in another Group company, Tesco Stores Limited, as per Group policy.

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

The tax expense included in the Company income statement consists of current and deferred tax.

Current tax is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantively enacted by the balance sheet date. Tax expense is recognised in the Company income statement except to the extent that it relates to items recognised in the Company statement of comprehensive income or directly in the Company statement of changes in equity, in which case it is recognised in the Company statement of comprehensive income or directly in the Company statement of changes in equity, respectively.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset realised based on the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the Company income statement, except when it relates to items charged or credited directly to equity or other comprehensive income/(loss), in which case the deferred tax is also recognised in equity, or other comprehensive income/(loss), respectively.

   Notes to the Parent Company financial statements   continued 

Note 2 Accounting policies continued

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 apart from those involving estimates discussed below.

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:

Impairment of investment in Tesco Bank

The key source of estimation uncertainty is in relation to the Company's investment in Tesco Personal Finance Group PLC (Tesco Bank). The Company considers impairment of its investments in subsidiaries based on the value in use of the subsidiary. Value in use is calculated from cash flow projections based on the Group's three-year internal forecasts. The forecasts are extrapolated to five years based on management's expectations, and beyond five years based on estimated long-term growth rates. See Note 6.

New standards and amendments effective for the current financial year

- 'Definition of a business' amendment to IFRS 3, 'Business combinations' guidance has been applied when evaluating whether acquisitions in the period are asset acquisitions or business combinations.

- 'Interest rate benchmark reform' phase 2 amendments, which have been adopted early. Refer to Note 25 to the Group financial statements for the impact of IBOR Reform amendments on the Company.

   -   FRS 101 amendments 'UK exit from the European Union' have been early adopted. 

Other standards and amendments

Refer to Note 1 to the Group financial statements.

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.

Note 5 Employment costs, including Directors' remuneration

 
                                     2021   2020 
                              Notes   GBPm   GBPm 
Wages and salaries                   17     16 
Social security costs                2      2 
Pension costs                 12     1      2 
Share-based payment expense   11     4      7 
Total                                24     27 
 

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 13 (2020: 13).

Note 6 Investments

 
                                  2021 
                                   GBPm 
Cost 
At 29 February 2020               20,686 
Capital contributions             61 
Return of capital contributions   (684) 
At 27 February 2021               20,063 
Accumulated impairment losses 
At 29 February 2020               (2,857) 
Impairment                        (243) 
At 27 February 2021               (3,100) 
 
Net carrying value 
At 27 February 2021               16,963 
At 29 February 2020               17,829 
 

The impairment losses of GBP243m includes the GBP234m impairment of its subsidiary holding company Cheshunt Holdings Guernsey Limited to a recoverable amount of GBP7m based on remaining net assets subsequent to a dividend payment, and GBP9m relating to immaterial impairments in various small holding companies.

   Notes to the Parent Company financial statements   continued 

Note 6 Investments continued

The key source of estimation uncertainty is in relation to the Company's investment in Tesco Personal Finance PLC (Tesco Bank), for which no impairment was required. The impairment review for the Company's investments was performed using the same projections used in the impairment review performed in relation to the Group's goodwill. Details, including sensitivity analyses showing the impact of the reasonably possible changes in key assumptions upon the value in use of Tesco Bank, are disclosed in Note 15 in the Group financial statements.

The list of the Company's subsidiary undertakings and joint ventures is shown on pages 117 to 121.

Note 7 Receivables

 
                                                2021   2020 
                                                 GBPm   GBPm 
Amounts owed by Group undertakings*             1,737  1,530 
Amounts owed by joint ventures and associates   -      24 
Other receivables                               36     36 
Total receivables                               1,773  1,590 
Of which: 
Current                                         1,514  547 
Non-current                                     259    1,043 
                                                1,773  1,590 
 

* 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 0.7% to 8.3%, with maturities up to and including January 2032.

The expected credit loss on receivables is immaterial (2020: immaterial).

Note 8 Payables

 
                                      2021   2020 
                                       GBPm   GBPm 
Amounts owed to Group undertakings*   2,017  278 
Other payables                        60     11 
Taxation and social security          4      4 
Deferred tax liability                22     27 
Total payables                        2,103  320 
Of which: 
Current                               810    238 
Non-current                           1,293  82 
                                      2,103  320 
 

* 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 0.6% to 1.1%, with maturities up to and including February 2051.

The deferred tax liability recognised by the Company, and the movements thereon, during the current financial year are as follows:

 
                                                               Other 
                                                 Financial      timing 
                                                  instruments   differences  Total 
                                                  GBPm          GBPm          GBPm 
At 29 February 2020                              (27)          -             (27) 
Movement in other comprehensive income for the 
 year                                            5             -             5 
At 27 February 2021                              (22)          -             (22) 
 
 

Note 9 Borrowings

 
                                                 2021   2020 
                            Par value  Maturity   GBPm   GBPm 
Bank loans and overdrafts                        21     43 
6.125% MTN                  GBP417m    Feb 2022  417    416 
5% MTN (a)                  GBP93m     Mar 2023  79     103 
3.322% LPI MTN (b)          GBP354m    Nov 2025  364    358 
6% MTN (a)                  GBP48m     Dec 2029  45     58 
5.5% MTN (a)                GBP109m    Jan 2033  80     133 
1.982% RPI MTN (c)          GBP294m    Mar 2036  302    297 
6.15% USD Bond (a)          $525m      Nov 2037  333    555 
4.875% MTN (a)              GBP20m     Mar 2042  14     20 
5.125% MTN (a)              EUR356m    Apr 2047  209    316 
5.2% MTN (a)                GBP30m     Mar 2057  14     29 
                                                 1,878  2,328 
 
  Of which: 
Current                                          463    43 
Non-Current                                      1,415  2,285 
                                                 1,878  2,328 
 

(a) During the year, the Group undertook a tender for outstanding bonds and as a result the following notional amounts were repaid early, 5% MTN Mar 2023 GBP22m, 6% MTN Dec 2029 GBP10m, 5.5% MTN Jan 2033 GBP42m, 6.15% USD Bond Nov 2037 $170m, 4.875% MTN Mar 2042 GBP6m, 5.125% MTN Apr

 2047 EUR121m  and  5.2%  MTN   Mar  2057 GBP16m. 

(b) The 3.322% LPI MTN is redeemable at par, indexed for increases in the RPI over the life of the MTN. The maximum indexation of the principal in any one year is 5%, with a minimum of 0%.

(c) The 1.982% RPI MTN is redeemable at par, indexed for increases in the RPI over the life of the MTN.

   Notes to the Parent Company financial statements   continued 

Note 10 Derivative financial instruments

 
                           2021                                        2020 
                           Asset                 Liability             Asset                 Liability 
                           Fair value  Notional  Fair value  Notional  Fair value  Notional  Fair value  Notional 
                            GBPm        GBPm      GBPm        GBPm      GBPm        GBPm      GBPm        GBPm 
Fair value hedges 
Interest rate swaps 
 and similar instruments   9           65        -           -         10          65        -           - 
Cross-currency swaps       -           -         -           -         228         409       -           - 
Cash flow hedges 
Cross-currency swaps       -           -         -           -         208         306       -           - 
Index-linked swaps         199         660       -           -         185         649       -           - 
Derivatives not 
 in a formal hedge 
relationship 
Cross-Currency Swaps       266         372       (3)         86        -           -         -           - 
Index-linked swaps         1,062       4,006     (627)       3,964     536         3,339     (735)       4,461 
Total                      1,536       5,103     (630)       4,050     1,167       4,768     (735)       4,461 
 

Note 11 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

The number of options and weighted average exercise price (WAEP) of share option schemes relating to the Company employees are:

For the 52 weeks ended 27 February 2021

 
                                              Savings-related 
                                               Share Option       Nil cost 
                                               Scheme              share options 
                                              Options     WAEP    Options      WAEP 
Outstanding at 29 February 2020               19,148      188.00  10,633,867   - 
Granted(a)                                    -           -       318,623      - 
Forfeited                                     (9,574)     -       (1,587,596)  - 
Exercised                                     -           -       (6,224,090)  - 
Outstanding at 27 February 2021               9,574       188.00  3,140,804    - 
Exercise price range (pence)                  -           188.00  -            - 
Weighted average remaining contractual life 
 (years)                                      -           1.01    -            5.05 
Exercisable at 27 February 2021               -           -       3,140,804    - 
Exercise price range (pence)                  -           -       -            - 
Weighted average remaining contractual life 
 (years)                                      -           -       -            5.05 
 
 

(a) The special dividend and associated share consolidation had a neutral impact to the number of options.

For the 53 weeks ended 29 February 2020

 
                                               Savings-related 
                                                Share Option      Nil cost 
                                                Scheme             share options 
                                               Options    WAEP    Options      WAEP 
Outstanding at 23 February 2019                19,148     188.00  12,743,733   - 
Granted                                        -          -       295,554      - 
Forfeited                                      -          -       (2,405,420)  - 
Exercised                                      -          -       -            - 
Outstanding at 29 February 2020                19,148     188.00  10,633,867   - 
                                                          188.00  -            - 
Exercise price range (pence) 
 Weighted average remaining contractual life   - 
 (years)                                        -         2.01    -            6.15 
Exercisable at 29 February 2020                -          -       6,454,736    - 
                                                                               - 
Exercise price range (pence) 
 Weighted average remaining contractual life              - 
 (years)                                                   -                   5.46 
 

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 awarded during the financial year were:

 
                         2021                2020 
                         Number      WAFV    Number      WAFV 
                          of shares   pence   of shares   pence 
Group Bonus Plan         777,044     246.7   506,768     244.1 
Performance Share Plan   990,404     221.6   2,388,395   230.3 
 
   Notes to the Parent Company financial statements   continued 

Note 12 Pensions

The total cost of participation in the Tesco Retirement Savings Plan (a defined contribution scheme) to the Company was GBP1m (2020: GBP2m). Further disclosure relating to all schemes can be found in Note 29 to the Group financial statements.

Note 13 Called up share capital

Refer to Note 30 to the Group financial statements.

Note 14 Contingent liabilities

In addition to the contingent liabilities shown in Note 34 to the Group financial statements, the Company has entered into financial guarantee contracts to guarantee the indebtedness of Group undertakings amounting to GBP3,200m (2020: GBP2,589m). It has also guaranteed derivative agreements of Group undertakings with a gross liability of GBP790m (2020: GBP168m) at the reporting date. These guarantees are treated as contingent liabilities until it becomes probable they will be called upon.

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.

The likelihood of the above items being called upon is considered remote.

Note 15 Events after the reporting period

During the year, the Board approved plans to dispose of the Group's operations in Poland. The disposal of the Group's corporate business in Poland completed after the balance sheet date on 16 March 2021. Refer to note 36 of the Group financial statements for further details.

Related undertakings of the Tesco 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, registered office address and the percentage of share class owned as at 27 February 2021 are disclosed below. Changes to the list of related undertakings since the year-end date are detailed in the footnotes below. All undertakings are indirectly owned by Tesco PLC unless otherwise stated.

Subsidiary undertakings incorporated in the United Kingdom

 
                                                     % held                                                   % held 
Name of            Registered  Class of               by     Name of            Registered  Class of           by 
undertaking         address     share held            Group  undertaking         address     share held        Group 
Acklam Management              Limited                                                      GBP1.00 
 Company Limited   1            by Guarantee         -       Linnco Limited     8            Ordinary         100 
Alfred Preedy &                GBP1.00                       Londis (Holdings)              GBP50.00 
 Sons Limited      2            Deferred             100      Limited           8            Ordinary         100 
                                                             Londis Pension 
                               GBP1.00                       Trustees                       GBP1.00 
                                Ordinary             100     Limited            8            Ordinary         100 
Armitage Finance               GBP0.90                       Makro Holding                  GBP1.00 
 Unlimited         1            Ordinary             100     Limited            8            Ordinary         100 
Bath Upper 
 Bristol 
 Road Management               Limited                       Makro Properties               GBP1.00 
 Company Limited   1            by Guarantee         -        Limited           8            Ordinary         100 
                                                             Makro Self 
Berry Lane                                                   Service                        GBP1.00 
 Management                    Limited                       Wholesalers                     Ordinary 
 Company Limited   1            by Guarantee         -       Limited            8            A                100 
                                                                                            GBP1.00 
                               GBP1.00                                                       Ordinary 
BF Limited         8            Ordinary             100                                     B                100 
Bishop's Group                 GBP0.01                       Maldon Finance                 GBP1.00 
 Limited           8            Ordinary             100     Limited            1            Ordinary         100 
Booker Cash & 
 Carry                         GBP1.00                                                      US$1.00 
 Limited           8            Ordinary             100                                     A Preference     100 
Booker Direct                  GBP0.01                                                      US$0.50 
 Limited           8            Ordinary             100                                     B Preference     100 
Booker Group                   GBP0.00000000055625                                          US$0.25 
 Limited           8            Ordinary             100                                     C Preference     100 
                                                             Munster Road 
                               GBP1.00                       Management                     Limited 
Booker Limited     8            Ordinary             100     Company Limited    1            by Guarantee     - 
Booker Retail 
 Partners                      GBP1.00                       Murdoch Norton                 GBP0.05 
 (GB) Limited      8            Ordinary             100     Limited            8            Ordinary         100 
                                                             Oakwood 
Booker Retail                  GBP0.10                       Distribution                   GBP1.00 
 Limited           8            Ordinary             100     Limited            1            Ordinary         100 
Booker Pension                                               One Stop 
 Trustees                      Limited                       Community                      GBP0.00001200004 
 Limited           8            by Guarantee         100     Stores Limited     2            Ordinary         100 
                               GBP0.01                       One Stop 
Booker Wholesale                Ordinary                     Convenience                    GBP1.00 
 Holdings Limited  8            A1                   100     Stores Limited     2            Ordinary         100 
Booker Unapproved 
 Scheme Trustees               Limited                       One Stop Stores                GBP1.00 
 Ltd               8            by Guarantee          -       Limited (a)       2            Ordinary         100 
Bourne End 
 Residential 
 Management                                                  One Stop Stores 
 Company                       Limited                        Trustee Services              GBP1.00 
 Limited           1            by Guarantee          -       Limited           2            Ordinary         100 
Broughton Retail                                             Orpington 
 Park Nominee 1                GBP1.00                       (Station                       GBP1.00 
 Limited           1            Ordinary             100     Road) Limited      1            Ordinary         100 
                                                             Oxford Fox and 
                                                             Hounds 
Broughton Retail                                             Management 
 Park Nominee 2                GBP1.00                       Company                        Limited 
 Limited           1            Ordinary             100     Limited            1            by Guarantee     - 
Broughton Retail 
 Park Nominee 3                GBP1.00                       Paper Chain (East              GBP1.00 
 Limited           1            Ordinary             100      Anglia) Limited   2            Deferred         100 
Broughton Retail 
 Park Nominee 4                GBP1.00                                                      US$0.001 
 Limited           1            Ordinary             100                                     Ordinary         100 
Budgen Holdings                GBP1.00                                                      GBP1.00 
 Limited           8            Ordinary             100     PTLL Limited       1            Ordinary         100 
Budgens Pension 
 Trustees No.2                 GBP1.00                       Ritter-Courivaud               GBP0.10 
 Limited           8            Ordinary             100      Limited           8            Ordinary         100 
Budgens Property                                             Seacroft Green 
 Investments                   GBP1.00                       Nominee                        GBP1.00 
 Limited           8            Ordinary             100     1 Limited          1            Ordinary         100 
                                                             Seacroft Green 
Budgens Stores                 GBP1.00                       Nominee                        GBP1.00 
 Limited           8            Ordinary             100     2 Limited          1            Ordinary         100 
                                                             Spen Hill 
Buttoncable                    GBP1.00                       Developments                   GBP1.00 
 Limited           1            Ordinary             100     Limited            1            Ordinary         100 
                               GBP1.00 
                                Cumulative                   Spen Hill 
Buttoncase                      Redeemable                   Management                     GBP1.00 
 Limited           1            Preference           100     Limited (b)        1            Ordinary         100 
                                                             Spen Hill 
                               GBP1.00                       Properties                     GBP1.00 
                                Ordinary             100     (Holdings) plc     1            Ordinary         100 
Canterbury Road                                              Spen Hill 
 Management                    Limited                       Regeneration                   GBP1.00 
 Limited           1            by Guarantee         -       Limited            1            Ordinary         100 
Cardiff Cathays 
 Terrace                                                     Spen Hill 
 Management                    Limited                       Residential                    GBP1.00 
 Company Limited   1            by Guarantee          -      No 1 Limited       1            Ordinary         100 
                                                             Spen Hill 
                               GBP1.00                       Residential                    GBP1.00 
Comar Limited      1            Ordinary             100     No 2 Limited       1            Ordinary         100 
                               GBP1.00 
                                Cumulative 
                                Convertible                  Station House 
Day And Nite                    Participating                Welling 
 Stores                         Preferred                    Management                     Limited 
 Limited           2            Ordinary             100     Limited            1            by Guarantee     - 
                               GBP1.00 
                                Cumulative 
                                Redeemable                   Statusfloat                    GBP1.00 
                                Preference           100     Limited            1            Ordinary         100 
                               GBP1.00                       T & S Stores                   GBP0.05 
                                Ordinary             100     Limited            2            Ordinary         100 
Dillons                        GBP0.25 
 Newsagents                     Non-Voting                   Tapesilver                     GBP1.00 
 Limited*          2            Ordinary             100     Limited            1            Ordinary         100 
dunnhumby 
 International                 GBP1.00                       Teesport (GP)                  GBP1.00 
 Limited           4            Ordinary             100     Limited            1            Ordinary         100 
                               GBP3.59                       Tesco (Overseas)               GBP1.00 
dunnhumby Limited  4            Ordinary             100      Limited           1            Ordinary         100 
dunnhumby 
 Overseas                      GBP1.00                       Tesco Aqua (3LP)               GBP1.00 
 Limited           4            Ordinary             100      Limited           1            Ordinary         100 
dunnhumby                                                    Tesco Aqua 
 Trustees                      GBP1.00                       (FinCo2)                       GBP1.00 
 Limited           4            Ordinary             100     Limited            1            Ordinary         100 
Giant Bidco                    GBP1.00                       Tesco Aqua (GP)                GBP1.00 
 Limited           8            Ordinary             100      Limited           1            A Ordinary       100 
Giant Booker                   GBP0.25                                                      GBP1.00 
 Limited           8            Ordinary             100                                     B Ordinary       100 
                                                             Tesco Aqua 
Giant Midco                    GBP1.00                       (Nominee                       GBP1.00 
 Limited           8            Ordinary             100     1) Limited         1            Ordinary         100 
Highams Green                                                Tesco Aqua 
 Management                    Limited                       (Nominee                       GBP1.00 
 Company Limited   1            by Guarantee         -       2) Limited         1            Ordinary         100 
                                                             Tesco Aqua 
                               GBP1.00                       (Nominee                       GBP1.00 
IRTH (15) Limited  8            Ordinary             100     Holdco) Limited    1            Ordinary         100 
                                                             Tesco Atrato 
                               US$0.000000052383172          (1LP)                          GBP1.00 
IRTH (19) Limited  8            Ordinary             100     Limited            1            Ordinary         100 
                                                                                            GBP1.00 
                                                                                             A Ordinary 
Launchgrain                    GBP1.00                       Tesco Atrato (GP)               GBP1.00 
 Limited           1            Ordinary             100      Limited           1            B Ordinary       100 
                                                             Tesco Atrato 
                                                             (Nominee                       GBP1.00 
                                                             1) Limited         1            Ordinary         100 
                                                             Tesco Atrato 
                                                             (Nominee                       GBP1.00 
                                                             2) Limited         1            Ordinary         100 
                                                             Tesco Atrato 
                                                             (Nominee                       GBP1.00 
                                                             Holdco) Limited    1            Ordinary         100 
 

Related undertakings of the Tesco Group continued

Subsidiary undertakings incorporated in the United Kingdom continued

 
                                                  % held                                                      % held 
                         Registered  Class of      by                              Registered  Class of        by 
Name of undertaking       address     share held   Group  Name of undertaking       address     share held     Group 
Tesco Atrato Depot                   GBP1.00              Tesco Property Finance               GBP1.00 
 Propco Limited          1            Ordinary    100      1 PLC                   1            Ordinary      100 
Tesco Blue (3LP)                     GBP1.00                                                   GBP0.25 
 Limited                 1            Ordinary    100                                           Ordinary      100 
Tesco Blue (GP)                      GBP1.00              Tesco Property Holdings              GBP1.00 
 Limited                 1            A Ordinary  100      (No.2) Limited          1            Ordinary      100 
                                     GBP1.00              Tesco Property Holdings              GBP1.00 
                                      B Ordinary  100      Limited                 1            Ordinary      100 
Tesco Blue (Nominee                  GBP1.00              Tesco Property Nominees              GBP1.00 
 1) Limited              1            Ordinary    100      (No.5) Limited          1            Ordinary      100 
Tesco Blue (Nominee                  GBP1.00              Tesco Property Nominees              GBP1.00 
 2) Limited              1            Ordinary    100      (No.6) Limited          1            Ordinary      100 
Tesco Blue (Nominee                  GBP1.00              Tesco Property Partner               GBP1.00 
 Holdco) Limited         1            Ordinary    100      (GP) Limited            1            A Ordinary    100 
Tesco Brislington                    GBP1.00                                                   GBP1.00 
 Limited                 1            Ordinary    100                              1            B Ordinary    100 
Tesco Corporate 
 Treasury Services                   GBP1.00              Tesco Property Partner               GBP1.00 
 PLC                     1            Ordinary    100      (GP No.2) Limited                    A Ordinary    100 
Tesco Depot Propco                   GBP1.00                                                   GBP1.00 
 Limited                 1            Ordinary    100                                           B Ordinary    100 
Tesco Distribution                   GBP1.00              Tesco Property Partner               GBP1.00 
 Holdings Limited        1            Ordinary    100      (No.1) Limited          1            Ordinary      100 
Tesco Distribution                   GBP1.00              Tesco Property Partner               GBP1.00 
 Limited                 1            Ordinary    100      (No.2) Limited          1            Ordinary      100 
Tesco Dorney (1LP)                   GBP1.00              Tesco Red (3LP)                      GBP1.00 
 Limited                 1            Ordinary    100      Limited                 1            Ordinary      100 
Tesco Employees'                                                                               GBP1.00 
 Share Scheme Trustees               GBP1.00                                                    Ordinary 
 Limited (c)             1            Ordinary    100     Tesco Red (GP) Limited   1            A             100 
                                                                                               GBP1.00 
Tesco Family Dining                  GBP1.00                                                    Ordinary 
 Limited                 1            Ordinary    100                                           B             100 
Tesco Food Sourcing                  GBP1.00              Tesco Red (Nominee                   GBP1.00 
 Limited                 1            Ordinary    100      1) Limited              1            Ordinary      100 
                                     GBP1.00              Tesco Red (Nominee                   GBP1.00 
Tesco Freetime Limited   1            Ordinary    100      2) Limited              1            Ordinary      100 
Tesco Fuchsia (3LP)                  GBP1.00              Tesco Red (Nominee                   GBP1.00 
 Limited                 1            Ordinary    100      Holdco) Limited         1            Ordinary      100 
Tesco Gateshead                      GBP1.00              Tesco Sarum (1LP)                    GBP1.00 
 Property Limited        1            Ordinary    100      Limited                 1            Ordinary      100 
                                     GBP0.10                                                   GBP1.00 
Tesco Holdings Limited   1            Ordinary    100     Tesco Seacroft Limited   1            Ordinary      100 
                                     GBP1.00              Tesco Secretaries                    GBP1.00 
                                      Preference  100      Limited                 1            Ordinary      100 
Tesco International                  GBP1.00                                                   GBP1.00 
 Services Limited        1            Ordinary    100     Tesco Services Limited   1            Ordinary      100 
Tesco Lagoon GP                      GBP1.00                                                   GBP1.00 
 Limited                 5            Ordinary    100     Tesco Stores Limited     1            A Preference  100 
Tesco Maintenance                    GBP1.00                                                   GBP1.00 
 Limited                 1            Ordinary    100                                           B Preference  100 
Tesco Mobile 
 Communications                      GBP1.00                                                   GBP1.00 
 Limited                 1            Ordinary    100                                           Ordinary      100 
Tesco Mobile Services                GBP1.00              Tesco TLB Finance                    GBP1.00 
 Limited                 1            Ordinary    100      Limited                 1            Ordinary      100 
Tesco Navona (1LP)                   GBP1.00              Tesco TLB Properties                 GBP1.00 
 Limited                 1            Ordinary    100      Limited                 1            A Ordinary    100 
                                     GBP1.00 
Tesco Navona (GP)                     Ordinary                                                 GBP1.00 
 Limited                 1            A           100                                           B Ordinary    100 
                                     GBP1.00 
                                      Ordinary            The Big Food Group                   GBP0.10 
                                      B           100      Limited                 8            Ordinary      100 
Tesco Navona (Nominee                GBP1.00              The Teesport Limited                 Limited 
 1) Limited              1            Ordinary    100      Partnership             1            Partnership   100 
Tesco Navona (Nominee                GBP1.00              The Tesco Aqua Limited               Limited 
 2) Limited              1            Ordinary    100      Partnership             1            Partnership   100 
Tesco Navona (Nominee                GBP1.00              The Tesco Atrato                     Limited 
 Holdco) Limited         1            Ordinary    100      Limited Partnership     1            Partnership   100 
Tesco Navona PL                      GBP1.00              The Tesco Blue Limited               Limited 
 Propco Limited          1            Ordinary    100      Partnership             1            Partnership   100 
Tesco Overseas 
 Investments                         GBP1.00              The Tesco Navona                     Limited 
 Limited                 1            Ordinary    100      Limited Partnership     1            Partnership   100 
Tesco Passaic (1LP)                  GBP1.00              The Tesco Passaic                    Limited 
 Limited                 1            Ordinary    100      Limited Partnership     1            Partnership   100 
                                     GBP1.00 
Tesco Passaic (GP)                    Ordinary            The Tesco Property                   Limited 
 Limited                 1            A           100      Limited Partnership     1            Partnership   100 
                                     GBP1.00              The Tesco Property 
                                      Ordinary            (No.2) Limited                       Limited 
                                      B           100     Partnership              17           Partnership   100 
Tesco Passaic (Nominee               GBP1.00              The Tesco Red Limited                Limited 
 1) Limited              1            Ordinary    100      Partnership             1            Partnership   100 
Tesco Passaic (Nominee               GBP1.00              TPI Fund Managers                    GBP1.00 
 2) Limited              1            Ordinary    100      Limited                 1            Ordinary      100 
Tesco Passaic (Nominee               GBP1.00              TPT Holdco No.1                      GBP1.00 
 Holdco) Limited         1            Ordinary    100      Limited                 1            Ordinary      100 
Tesco Passaic PL                     GBP1.00              Weymouth Avenue                      GBP1.00 
 Propco Limited          1            Ordinary    100      (Dorchester) Limited    1            Ordinary      100 
                                     GBP0.01 
Tesco PEG Limited        1            Ordinary    100 
                                     GBP1.00 
Tesco PENL Limited       1            Ordinary    100 
Tesco Pension 
 Investment                          GBP1.00 
 Limited(d)              1            Ordinary    100 
Tesco Pension Trustees               GBP1.00 
 Limited                 1            Ordinary    100 
Tesco Personal Finance               GBP0.10 
 Group PLC               6            A Ordinary  100 
                                     GBP0.10 
                                      B Ordinary  100 
                                     GBP0.10 
                                      C Ordinary  100 
Tesco Personal Finance               GBP0.10 
 PLC                     6            Ordinary    100 
Tesco Property 
 (Nominees)                          GBP1.00 
 (No.1) Limited          11           Ordinary    100 
Tesco Property 
 (Nominees)                          GBP1.00 
 (No.2) Limited          11           Ordinary    100 
Tesco Property 
 (Nominees)                          GBP1.00 
 Limited                 11           Ordinary    100 
Tesco Property Finance               GBP1.00 
 1 Holdco Limited        1            Ordinary    100 
 

Related undertakings of the Tesco Group continued

International subsidiary undertakings

 
                                             % held                                                                  % held 
                     Registered  Class of     by                                           Registered  Class of       by 
Name of undertaking   address    share held   Group  Name of undertaking                    address     share held    Group 
Agate Jewel sp.                  PLN 50              Let any Development                               CZK 100,000 
 z.o.o.(e)           75           Ordinary   100      land 2 s.r.o.                        16           Ordinary     100 
Arena (Jersey) 
 Management                      GBP1.00             Monread Developments                              EUR0.001 
 Limited             33           Ordinary   100      Limited                              24           Ordinary     100 
Amethyst Jewel sp.               PLN 50              Nabola Development                                EUR1.25 
 z o.o.              75           Ordinary   100      Limited                              24           A Ordinary   100 
Cheshunt Holdings                GBP1.00                                                               GBP1.25 
 Guernsey Limited    27           Ordinary   100                                                        B Ordinary   100 
                                 EUR1.25                                                               PLN 50 
Chirac Limited       24           Ordinary   100     Onyx Jewel sp. Z.o.o.(e)              75           Ordinary     100 
Cirrus Finance 
 (2009)                          GBP1,000                                                              PLN 50 
 Limited             24          A Ordinary  100     Opal Jewel sp. Z.o.o.                 75           Ordinary     100 
                                 EUR1.00             Orpingford Unlimited                              EUR1.00 
                                  Ordinary   100      Company                              24           Ordinary     100 
Clondalkin 
 Properties                      EUR1.25                                                               GBP1.00 
 Limited             24           Ordinary   100     Parijude Limited                      45           Ordinary     100 
Commercial 
 Investments                     EUR1.25             Pharaway Properties                               EUR1.00 
 Limited             24           Ordinary   100      Limited                              24           Ordinary     100 
Coral Jewel sp.                  PLN 50              Pearl Jewel sp.                                   PLN 50 
 z.o.o.(e)           75           Ordinary   100      z o.o.                               75           Ordinary     100 
                                 CZK 
                                 100,000             R.J.D. Holdings                                   EUR1.269738 
Crest Ostrava a.s    16          Ordinary    100      Unlimited Company                    24           Ordinary     100 
Diamond Jewel sp.                PLN 50                                                                PLN 50 
 z o.o.              75           Ordinary   100     Ruby Jewel sp. z.o.o.(e)              24           Ordinary     100 
dunnhumby (Korea)                KRW 5,000           Sapphire Jewel sp.                                PLN 50 
 Limited             66           Ordinary   100      z.o.o.(e)                            75           Ordinary     100 
dunnhumby 
 (Malaysia)                      RM 1.00             Shopping Mall Chrudim                             CZK 100,000 
 Sdn Bhd             84           Ordinary   100      s.r.o.(i)                            7            Ordinary     100 
dunnhumby                        THB 
 (Thailand)                      1,000,000           Shopping Mall Eden                                CZK 100,000 
 Limited             73          Ordinary    100      s.r.o.(i)                            7            Ordinary     100 
dunnhumby 
 Advertising                     EUR130,000 
 (Shanghai) Co.,                 Registered          Shopping Mall Karlovy                             CZK 100,000 
 Ltd                 23          Capital     100      Vary s.r.o(i)                        7            Ordinary     100 
dunnhumby Australia              AUD 100             Shopping Mall Opava                               CZK 100,000 
 PTY Limited         65           Ordinary   100      s.r.o.(i)                            7            Ordinary     100 
dunnhumby Brasil                 BRL$1.00            Shopping Mall Ostrava                             CZK 100,000 
 Consultora Ltda     77           Ordinary   100      s.r.o. (i)                           7            Ordinary     100 
                                                     Sociomantic Labs 
dunnhumby Canada                 CA$1.00              Internet Hizmetleri                              TRY 25.00 
 Limited             59           Ordinary   100      Limited ireketi                      51           Ordinary     100 
                                 CLP 
dunnhumby Chile                  500,000             Tesco (Polska) Sp.                                PLN 500.00 
 SpA                 48          Ordinary    100      z o.o.(g)                            42           Ordinary     100 
                                                     Tesco Akadémia 
                                                      Képzési 
                                                      és Fejlesztési 
                                                      Korátolt Felel                              HUF 1.00 
dunnhumby Colombia               COP 2,000            sségű                                   Business 
 S.A.S.              74           Type A     100      Társaság                   32           Share        100 
                                 COP 41.00           Tesco Bengaluru                                   INR 10.00 
                                  Type B     100      Private Limited                      41           Ordinary     100 
                                 COP 1.00            Tesco Capital No.                                 GBP0.50 
                                  Type C     100      1 Limited                            28           A Ordinary   100 
dunnhumby Computer 
 Information 
 Technology 
 and Consultancy                 TL 25.00                                                              GBP0.50 
 Services LLC        18           Ordinary   100                                                        B Ordinary   100 
dunnhumby 
 Consulting 
 Services India 
 Private                         INR 10.00                                                             GBP0.01 
 Limited             60           Ordinary   100                                                        Preference   - 
                                                                                                       Guaranteed 
                                 CZK                                                                    Cumulative 
dunnhumby Czech                  200,000                                                                Fixed Rate 
 s.r.o.              16          Ordinary    100                                                        Preference   100 
                                                                                                       GBP0.01 
dunnhumby Denmark                DKK 1.00                                                               Preferred 
 lvS                 57           Ordinary   100                                                        Ordinary     100 
                                 100 
dunnhumby Finland                Kovellinum                                                            GBP1.00 
 Oy                  30          Oy          100                                                        Ordinary     100 
dunnhumby France                 EUR2.00             Tesco Chile Sourcing                              CLP 1.00 
 SAS                 61           Ordinary   100      Limitada                             22           Ordinary     100 
dunnhumby Germany                EUR1.00                                                               US$1.00 
 GmbH                14           Ordinary   100                                                        Ordinary     100 
                                 Registered 
                                 capital 
dunnhumby Hungary                HUF                 Tesco Digital Ventures                            SGD 1.00 
 Kft                 32          3,000,000   100      Pte Ltd                              49           Ordinary     100 
                                 No par              Tesco Dystrybucja                                 PLN 50.00 
dunnhumby Inc.       35           value      -        Sp. z o.o.(g)                        42           Ordinary     100 
dunnhumby 
 Information 
 Technology 
 Consulting                      Registered                                                            CZK 
 (Shanghai) Company              capital             Tesco Franchise                                   2,000,000 
 Limited             62          US$140,000  100      Stores ČR s.r.o.                16          Ordinary      100 
dunnhumby Ireland                EUR1.00             Tesco Franchise                                   EUR1.00 
 Limited             67           Ordinary   100      Stores SR s.r.o.                     68           Ordinary     100 
dunnhumby IT 
 Services                                            Tesco-Global Stores 
 India Private                   INR 10.00            Privately Held Company                           HUF 10.00 
 Limited             36           Ordinary   100      Limited                              32           Common       100 
dunnhumby Italia                 EUR1.00                                                               EUR1.00 
 Srl.                37           Ordinary   100     Tesco Holdings B.V.                   40           Ordinary     100 
dunnhumby Japan                  JPY 10,000          Tesco International                               EUR1.00 
 K.K                 38           Ordinary   100      Clothing Brand s.r.o.                58           Ordinary     100 
                                 MXN 2,970 
dunnhumby Mexico                  Ordinary           Tesco International                               EUR1.00 
 S. de R.L. de C.V.  69           A          100      Franchising s.r.o.                   58           Ordinary     100 
                                 MXN 30.00 
                                  Ordinary           Tesco International                               HKD 10.00 
.                                 B          100      Sourcing Limited                     20           Ordinary     100 
dunnhumby 
 Netherlands                     EUR1.00             Tesco Ireland Holdings                            EUR1.25 
 B.V.                70           Ordinary   100      Limited                              24           Ordinary     100 
dunnhumby New                    NZD 100.00                                                            EUR1.25 
 Zealand             64           Ordinary   100     Tesco Ireland Limited                 24           Ordinary     100 
dunnhumby Poland                 PLN 50,000          Tesco Ireland Pension                             EUR1.25 
 Sp. z o.o.          42           Ordinary   100      Trustees Limited                     24           Ordinary     100 
                                                     Tesco Joint Buying 
dunnhumby Russia                 RUB 1.00             Service (Shanghai)                               US$1.00 
 LLC                 79           Ordinary   100      Co., Limited                         76           Ordinary     100 
dunnhumby Singapore              SGD 1.00            Tesco Mobile Ireland                              EUR1.00 
 Pte Ltd             19           Ordinary   100      Limited                              24           Ordinary     100 
                                 EUR100.00           Tesco Property (No.                               GBP1.00 
dunnhumby SARL       61           Ordinary   100      1) Limited                           28           Ordinary     100 
dunnhumby 
 Serviços 
 de 
 Promoção              R$1.00              Tesco Sourcing India                              INR 10.00 
 Digital Ltda        77           Ordinary   100      Private Limited                      80           Ordinary     100 
dunnhumby Slovakia               No shares           Tesco Stores ČR                              CZK 250 
 s.r.o.              58           in issue   -        a.s.                                 16           Ordinary     100 
dunnhumby Sp. z                  PLN 50.00           Tesco Stores SR,                                  EUR33,193.92 
 o.o.                47           Ordinary   100      a.s.                                 58           Ordinary     100 
                                                     Tesco Technology 
dunnhumby Spain                  EUR1.00              and Services Europe                              PLN 50 
 S.L                 50           Ordinary   100      SP . Z.O.O.                          75           Ordinary     100 
                                 No par 
dunnhumby South                  value               Tesco Trustee Company                             EUR1.25 
 Africa (Pty) Ltd    43          Ordinary    100      of Ireland Limited                   24           Ordinary     100 
                                                     TESCO Üzleti 
                                                     és Technológiai 
                                                     Szolgáltatások 
                                                     Zârtköruen 
dunnhumby Ventures                                   Múködó 
 LLC                 44          -           -       Részvénytársaság  25          HUF 1,000.00  100 
Edson Investments                EUR2.00                                                               EUR1.00 
 Limited             24           Ordinary   100     Thundridge Unlimited                  24           Ordinary     100 
Edson Properties                 EUR1.00             Topaz Jewel sp.                                   PLN 50 
 Limited             24           Ordinary   100      z o.o.                               75           Ordinary     100 
ELH Insurance                    GBP1.00             Victoria BB Sp.                                   PLN 800.00 
 Limited             71           Ordinary   100      z o.o.                               42           Ordinary     100 
Emerald Jewel sp.                PLN 50              Wanze Properties                                   EUR1.00 
 z o.o.              75           Ordinary   100      (Dundalk) Limited                    24            Ordinary    100 
                                 GBP1.00                                                               EUR0.0000005 
Epicier Limited      46           Ordinary   100     WSC Properties Limited                24           Ordinary     100 
Genesis sp. z                    PLN 500.00 
 o.o.(g)             42           Ordinary   100 
Jasper Sp. z                     PLN 100.00 
 o.o.(g)             42           Ordinary   100 
 

Related undertakings of the Tesco Group continued

Subsidiary undertakings in liquidation

The following subsidiary undertakings were incorporated in the

United Kingdom

 
                                                    % held 
Name of             Registered  Class of             by     Name of           Registered  Class of         % held 
undertaking          address     share held          Group  undertaking        address     share held       by Group 
                                                            Tesco Dorney 
Adminstore                      GBP0.01                     (Nominee                      GBP1.00 
 Limited            9            A Ordinary         100     Holdco) Limited   1            Ordinary        100 
                                GBP0.01                     Tesco Jade (GP)               GBP1.00 
                                 B Ordinary         100     Limited           29           A Ordinary      30 
                                GBP0.01                                                   GBP1.00 
                                 C Ordinary         100                                    B Ordinary      30 
Cheshunt Finance                GBP0.000000001              Tesco Mobile                  GBP0.10 
 Unlimited          9            Ordinary           100     Limited*          1            A Ordinary      100 
                                Limited 
Cheshunt Overseas                Liability                                                GBP0.90 
 LLP                3            Partnership        100                                    B Ordinary      100 
                                                            Tesco Property 
dunnhumby                                                   (Sparta 
 Advertising                    GBP0.001                    Nominees)                     GBP1.00 
 Limited            9            Ordinary           100     Limited           1            Ordinary        100 
                                                            Tesco Property 
dunnhumby Holding               GBP1.00                     (Nominees)                    GBP1.00 
 Limited            4            Ordinary           100     (No.3) Limited    1            Ordinary        100 
                                                            Tesco Property 
Europa Foods                    GBP0.000000176              (Nominees)                    GBP1.00 
 Limited            9            Ordinary           100     (No.4) Limited    1            Ordinary        100 
                                                            Tesco Property 
                                                            Partner 
Fresh Food                      GBP1.00                     (GP No.2)                     GBP1.00 
 Trader Limited     9            Ordinary           50      Limited           1            A Ordinary      100 
                                GBP1.00                     Tesco Sarum (GP)              GBP1.00 
                                 Preference         100     Limited*          1            A Ordinary      10 
J.Smylie &                                                  Tesco Sarum 
 Sons (IOM)                     GBP1.00                     (Nominee                      GBP1.00 
 Limited            72           Ordinary           100     1) Limited        1            Ordinary        100 
                                                            Tesco Sarum 
KSS Retail                                                  (Nominee                      GBP1.00 
 Limited            9           GBP0.000000851      100     2) Limited        1            Ordinary        100 
                                                            Tesco Sarum 
                                                            (Nominee                      GBP1.00 
M & W Limited       9           GBP0.0000000582261  100     Holdco) Limited   1            Ordinary        100 
                                                            Tesco 
Motorcause                      GBP1.00                     Underwriting                  GBP1.00 
 Limited            9            Ordinary           100     Limited           31           Ordinary        49.9 
Reefknot                                                    The Tesco Coral 
 Technology                     GBP1.00                     Limited                       Limited 
 Limited            9            Ordinary           100     Partnership       1            Partnership     50 
Stewarts                                                    The Tesco Dorney 
 Supermarkets                   GBP1.00                     Limited                       Limited 
 Limited            9            Ordinary           100     Partnership       1            Partnership     50 
                                                            The Tesco 
                                                            Property 
Tesco Aqua                      GBP1.00                     (No.2) Limited                Limited 
 (FinCo1) Limited   9            Ordinary           100     Partnership       17           Partnership     50 
                                                            The Tesco Sarum 
Tesco Blue                      GBP1.00                     Limited                       Limited 
 (FinCo2) Limited   9            Ordinary           100     Partnership       1            Partnership     50 
                                GBP0.01 
Tesco FFC Limited   9            Ordinary           100 
Tesco 
 International 
 Internet 
 Retailing 
 Limited            9           GBP0.0000013543     100 
                                                            The following associated undertakings 
Tesco Overseas                  GBP0.00000025                were incorporated outside of 
 ULC                9            A Ordinary         100      the United Kingdom 
                                GBP0.00000025 
                                 B Ordinary         100 
                                GBP0.00000025 
                                 C Ordinary         100 
                                GBP0.00000025       100     Name of           Registered  Class of         % held 
                                 D Ordinary                 undertaking        address     share held       by Group 
                                GBP0.00000025 
                                 E Ordinary         100     Arena Unit Trust  33          -                50 
                                GBP0.00000025               Booker India                  INR 1.00 
                                 F Ordinary         100     Limited           54           Ordinary        49 
                                                            Booker Satnam 
                                GBP0.00000025               Wholesale                     INR 1.00 
                                 G Ordinary         100     Limited           54           Ordinary        49 
                                                            China Wisdom 
                                GBP0.00000025               dunnhumby                     RMB 264,000 
                                 H Ordinary         100     Limited           53           Ordinary        50 
                                                            China Wisdom 
                                                            dunnhumby                     RMB 264,000,000 
                                GBP0.00000025               (Shanghai)                     Registered 
                                 J Ordinary         100     Limited           63           Capital         50 
                                                            dunnhumby Mitsui 
                                                            Bussan 
                                                            Customer Science 
                                GBP0.00000025               Co.,                          JPY 1,000 
                                 K Ordinary         100     Ltd               55           Ordinary        50 
                                GBP0.00000025               dunnhumby Norge               NOK 1,000 
                                 L Ordinary         100     A.S.              56           Ordinary        50 
                                                            Merrion Shopping 
                                GBP0.00000025               Centre                        EUR0.012697 
                                 M Ordinary         100     Limited           24           Ordinary        51.9 
                                                            Tesco Mobile 
                                GBP0.00000025               ČR                       CZK 100,000 
                                 N Ordinary         100     s.r.o.            16           Ordinary        50 
                                                            Tesco Mobile 
                                GBP0.00000025               Slovakia                      EUR1.00 
                                 O Ordinary         100     s.r.o.            81           Ordinary        50 
                                                            Trent 
                                GBP0.00000025               Hypermarket                   INR 10.00 
                                 P Ordinary         100     Private Limited   26           Equity          50 
 
 
The following subsidiary undertakings 
 were incorporated outside of 
 the United Kingdom 
                                                            Consolidated structured entities 
                                                    % held  Name of           Registered  Nature of business 
Name of             Registered  Class of             by     undertaking        address 
undertaking          address     share held          Group 
                                                            Delamare Cards 
Avantil Services                GBP1.00                     Holdco                        Securitisation 
 Company Limited    39           Ordinary           100     Limited           47           entity 
                                                            Delamare Cards 
Booker Cyprus                   EUR1.00                     MTN                           Securitisation 
 Limited            21           Ordinary           100     Issuer plc        47           entity 
China Property                                              Delamare Cards 
 Holdings (HK)                  HKD 1.00                    Receivables                   Securitisation 
 Limited            20           Ordinary           100     Trustee Limited   47           entity 
                                                            Delamare Cards 
                                EUR1.00                     Funding                       Securitisation 
Saneyia Limited     21           Ordinary           100     1 Limited         47           entity 
Sociomantic                                                 Delamare Cards 
 Labs Private                   INR 10.00                   Funding                       Securitisation 
 Limited            78           Ordinary           100     2 Limited         47           entity 
Tesco Global 
 Employment                     THB 100.00                  Delamare Finance              Securitisation 
 Company Limited    34           Ordinary           100     PLC               11           entity 
                                GBP0.01 
                                 Floating 
                                 Rate Redeemable 
                                 Preference         100     Delamare Group 
Tesco Capital                    GBP1.00                    Holdings                      Securitisation 
 No.2 Limited       9            Ordinary            100    Limited           11           entity 
Tesco Vin Plus                  EUR1.60 
 S.A.               52           Ordinary           100 
 
Associated undertakings                                     * Undertaking where other share classes 
 The following associated undertakings                       are held by a third party 
 were incorporated in the United                             Interest held directly by Tesco PLC 
 Kingdom                                                     (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 Tesco Pension (Jade) Limited and 
                                                             Tesco Pension Investment Limited 
                                                             (e) Placed into liquidation on 01/03/2021 
                                                             (f) Interest sold on 02/03/2021 
                                                             (g) Sold on 16/03/2021 
                                                             (h) Dissolved on 21/03/2021 
                                                             (i) Incorporated on 06/04/2021 
                                                    % held 
Name of             Registered  Class of             by 
undertaking          address     share held          Group 
Broadfields 
 Management                     GBP0.10 
 Limited            12           Ordinary           35.3 
Clarepharm                      GBP0.10 
 Limited(f)         13           Ordinary           26.5 
Shire Park                      GBP1.00 
 Limited            15           Ordinary           48.57 
Tesco Coral                     GBP1.00 
 (GP) Limited*      1            A Ordinary         100 
Tesco Coral                     GBP1.00 
 (Nominee) Limited  1            Ordinary           100 
Tesco Dorney                    GBP1.00 
 (GP) Limited*      1            A Ordinary         100 
Tesco Dorney 
 (Nominee 1)                    GBP1.00 
 Limited            1            Ordinary           100 
Tesco Dorney 
 (Nominee 2)                    GBP1.00 
 Limited            1            Ordinary           100 
 

Registered office addresses

   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.         KPMG LLP, 15 Canada Square, London, E14 5GL, United Kingdom 
   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, England, EC2N 2AX 
   12.       2 Paris Parklands, Railton Road, Guildford, Surrey, GU2 9JX 
   13.       Thompson Jenner, 28 Alexandra Terrace, Exmouth, Devon, EX8 1BD 
   14.       Ritterstraße 6, 10969 Berlin, Germany 
   15.       Riverside House, 3 Place Farm, Wheathampstead, St. Albans, England, AL4 8SB 
   16.       1527/68b, Vrsovicka, Praha 10, City of Prague, 100 00, Czech Republic 
   17.       PO Box 87 22 Grenville Street, St Helier, Jersey 
   18.       Yeni Havaalani Caddesi, No. 40 Cigli, Izmir, 35610 Turkey 
   19.       50 Raffles Place, #19-00 Singapore Land Tower, Singapore 048623 
   20.       31st Floor AIA Kowloon Tower Landmark East, 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. Eco City Centro, 901-12 office, 9 / F 1788 West Nanjing Road, Jingan District, Shanghai, China

   24.       Gresham House, Marine Road, Dun Laoghaire, Co. Dublin, Ireland 
   25.       ll38, Budapest, Váci út, 187, Hungary 
   26.       Taj Building, 2nd Floor, 210, Dr D.N. Road, Fort, Mumbai, 400001, 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.       20 Churchill Place, Canary Wharf, London, E14 5HJ 
   30.       c/o RSM Finland Oy, Ratamestarinkatu 7 B, 00520, Helsinki, Finland 
   31.       Ageas House Hampshire Corporate Park, Templars Way, Eastleigh, Hampshire, SO53 3YA 
   32.       H-2040 Budaörs, Kinizsi, ÚT 1-3, Hungary 
   33.       47 Esplanade, St Helier, Jersey, JE1 0BD 
   34.       629/1 Nawamintr Road, Nuanchan, Buengkoom, Bangkok, 10230, Thailand 

35. c/o The Corporation Trust Company, 1209 Orange Street, Corporation Trust Center, Wilmington, DE 19801, USA

   36.       S-22 Greater Kailash, Part 1, Lower Ground Floor, New Delhi 110048, India 
   37.       Carrera 48 no. 32B sur - 139, Envigado, Italy 
   38.       9th Floor, Shiroyama Trust Tower, 3-1, Toranomon 4-chome, Minato-ku, Tokyo, Japan 
   39.       38/39 Fitzwilliam Square, Dublin 2, Ireland 
   40.       Willemsparkweg 150 hs, 1071 HS, Amsterdam, The Netherlands, Netherlands 
   41.       81 & 82, EPIP Area, Whitefield, Bangalore, 560066, India 
   42.       56 Kapelenka St, 30-347, Krakow, Poland 
   43.       3rd Floor, 54 Melrose Boulevard, Melrose Arch, Gauteng, 2196, South Africa 

44. c/o FBT Ohio, Inc.,3300 Great American Tower, 301 East Fourth Street, Cincinnati, OH 45202, USA

   45.       Windward 1, Regatta Office Park, PO Box 897, Grand Cayman KY1 - 1103, Cayman Islands 
   46.       Beauport House, L'Avenue de la Commune, Jersey, JE3 7BY 
   47.       6th Floor, 125 London Wall, London, England EC2Y 5A 
   48.       Av. El Golf 40, 7th floor, Las Condes, Santiago de Chile, Chile 
   49.       163 Tras Street, #03-01, Lian Huat Building, Singapore, 079024, Singapore 
   50.       Paseo de General Martinez Campos, Campos n 9 1 izquierda, 28010 Madrid, Spain 
   51.       Istiklal Caddesi Beyoglu Is Merkezi No: 187/5 Galatasaray, Istanbul, Turkey 
   52.       Centre de Commerces et de, Loisirs, Cite Europe, 62231 Coquelles, France 
   53.       Suite 1106-8, 11/F., Tai Yau Building, No 181 Johnston Road, Wanchai, Hong Kong 

54. Unit 607, 6th floor, Trade Centre, Bandra Kurla Complex, Bandra East, Mumbai, 400051, Maharashtra, India

   55.       1-2-3 Marunouchi, Chiyoda-ku, Tokyo, Japan 
   56.       Rosenkrantzgate 16, Oslo, O160, Norway 
   57.       c/o TMF Denmark A/S, Købmagergade 60, 1. tv., 1150 København K, Denmark 
   58.       Cesta na Senec 2, Bratislava, 821 04, Slovakia 
   59.       1400-340 Albert St, Ottawa ON K1R 0A5, Canada 

60. 4th Fl, Tower B, Paras Twin Towers, DLF Golf Course Road, Sector 54, Gurgaon, Haryana-HR, 122002, India

   61.       48 rue Cambon, 75001, Paris, France 

62. Room 1001, Enterprise Development Tower, No. 398, Jiangsu Road Changning District, Shanghai 200050, People's Republic of China

   63.       Room 501-4, No.398 Jiangsu Road, Shanghai, People's Republic of China 
   64.       RSM New Zealand, Level 2, 60 Highbrook Drive, Auckland, 2013, New Zealand 
   65.       Level 21, 55 Collins Street, Melbourne, VIC 3000, Australia 
   66.       10 Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea (07326) 
   67.       Floor 3, 2 Harbour Square, Crofton Road, Dun Laoghaire, Dublin, Ireland 
   68.       Veterná 7310/40, 917 01 Trnava, The Slovak Republic, Slovakia 

69. Av President Masarik No. 111, Piso 1, Colina Polance V Seccion Delegacion Miguel Hidalgo, C.P. 11560, Mexico

   70.       Regus Amsterdam Sloterdijk Teleport Towers, Kingsfordweg 151, 1043 GR Amsterdam 
   71.       Dorey Court, Admiral Park, St. Peter Port, GY1 4AT, Guernsey 
   72.       PO Box 237, Peregrine House, Peel Road, Douglas, Isle of Man, IM99 1SU 

73. No. 319 Chamchuri Square Building, 16th Fl, Unit 01, Phayathi Road Pathumwan sub District, Bangkok 10330, Thailand

   74.       Calle 32 b sur #48-100, Envigado, Antioquia, Colombia 
   75.       ul. Po czyńska 121/125, 01-377 Warsaw, Poland 

76. Unit 01, 02, 06, 07, 08, 09, Floor 17, No. 610 Xujiahui Road, Huangpu District, Shanghai, People's Republic of China

   77.       Av.Brigadeiro Luis Antônio, 3530, 5deg Andar, 01402-001 São Paulo, Brazil 

78. c/o Vaish Associates, 106, Peninsula Centre, Dr. S. S. Rao Road, Parel Mumbai - 400012, Maharashtra, India

   79.       125047, Moscow, 1st Tverskaya-Yamskaya Street, 23, building 1, floor 5, premise V, room 5 

80. 5th Floor, Unit 401, Tower B, The Millenia, No. 1&2 Murphy Road Ulsoor, Bangalore, 560 008, India

   81.       Einsteinova 24, Bratislava 851 01, Slovakia 

Supplementary information (unaudited)

Total sales performance at actual rates (exc. VAT, exc. fuel) for continuing operations(a)

 
                 1Q       2Q       3Q       4Q       1H       2H       FY 
                 2020/21  2020/21  2020/21  2020/21  2020/21  2020/21  2020/21 
UK & ROI         9.4%     7.8%     8.7%     9.4%     8.6%     9.1%     8.8% 
UK               9.1%     6.3%     7.2%     9.3%     7.7%     8.3%     8.0% 
ROI              23.0%    9.6%     15.3%    19.8%    16.3%    17.5%    16.9% 
Booker           6.1%     15.7%    15.1%    5.9%     11.0%    10.6%    10.5% 
Central Europe   0.8%     (8.9)%   (0.7)%   0.8%     (4.3)%   0.1%     (2.1)% 
Tesco Bank       (26.5)%  (35.9)%  (28.5)%  (33.6)%  (31.4)%  (31.0)%  (31.2)% 
Group            7.9%     5.4%     7.2%     7.9%     6.6%     7.5%     7.1% 
 

Total sales performance at constant rates (exc. VAT, exc. fuel) for continuing operations(a)

 
                 1Q       2Q       3Q       4Q       1H       2H       FY 
                 2020/21  2020/21  2020/21  2020/21  2020/21  2020/21  2020/21 
UK & ROI         9.2%     7.8%     8.5%     9.1%     8.5%     8.8%     8.6% 
UK               9.1%     6.3%     7.2%     9.3%     7.7%     8.3%     8.0% 
ROI              19.7%    9.4%     11.7%    14.0%    14.5%    12.9%    13.7% 
Booker           6.1%     15.7%    15.1%    5.9%     11.0%    10.6%    10.5% 
Central Europe   3.3%     (5.7)%   0.7%     (0.5)%   (1.5)%   0.1%     (0.6)% 
Tesco Bank       (26.5)%  (35.9)%  (28.5)%  (33.6)%  (31.4)%  (31.0)%  (31.2)% 
Group            8.0%     5.6%     7.1%     7.5%     6.8%     7.3%     7.0% 
 

(a) In order to ensure the best comparability year-on-year, sales growth in 2H is reported as sales for 26 weeks ending 27 February 2021 against sales for 26 weeks ending 29 February 2020.

Like-for-like sales performance (exc. VAT, exc. fuel) for continuing operations

 
                 1Q       2Q       3Q       4Q       1H       2H       FY 
                 2020/21  2020/21  2020/21  2020/21  2020/21  2020/21  2020/21 
UK & ROI         8.2%     6.2%     6.1%     6.9%     7.2%     6.5%     6.8% 
UK               8.7%     6.4%     6.7%     8.8%     7.6%     7.8%     7.7% 
ROI              20.5%    10.6%    11.8%    13.3%    15.5%    12.6%    14.0% 
Booker           0.6%     3.7%     0.1%     (8.3)%   2.2%     (4.0)%   (0.8)% 
Central Europe   3.9%     (5.3)%   0.9%     (0.6)%   (0.9)%   0.1%     (0.4)% 
Tesco Bank       n/a      n/a      n/a      n/a      n/a      n/a      n/a 
Group            7.9%     5.2%     5.7%     6.3%     6.5%     6.0%     6.3% 
 

Country detail - Retail

 
                                                         Revenue (exc. VAT, 
                                                          inc. fuel) 
                                                                                           Average      Closing 
                                                         Local currency                     exchange     exchange 
                                                         (m)                   GBPm        rate         rate 
UK                                                       43,750                43,750      1.0          1.0 
ROI                                                      2,998                 2,684       1.1          1.2 
Booker                                                   6,736                 6,736       1.0          1.0 
Czech Republic                                           41,339                1,391       29.7         30.2 
Hungary                                                  545,409               1,376       396.4        417.9 
Slovakia                                                 1,357                 1,215       1.1          1.2 
 
  UK sales area by size of store 
                                  27 February 2021                           29 February 2020 
 
                                   No. of       Million  % of total           No. of      Million     % of total 
  Store size (sq. ft.)             stores       sq. ft.   sq. ft.             stores      sq. ft.      sq. ft. 
0-3,000                           2,534       5.5        14.2%               2,508       5.4          14.0% 
3,001-20,000                      282         3.0        7.8%                284         3.0          7.8% 
20,001-40,000                     285         8.2        21.2%               284         8.2          21.3% 
40,001-60,000                     182         8.8        22.8%               182         8.8          22.9% 
60,001-80,000                     120         8.4        21.8%               120         8.4          21.8% 
80,001-100,000                    45          3.7        9.6%                45          3.7          9.6% 
Over 100,000                      8           1.0        2.6%                8           1.0          2.6% 
Total*                            3,456       38.6       100.0%              3,431       38.5         100.0% 
 
 

* Excludes Booker and franchise stores.

Supplementary information (unaudited) continued

Group space summary

Actual Group space - store numbers(a)

 
                                                        Net gain/                Repurposing/ 
                     2019/20                Closures/    (reduction)  2020/21     extensions 
                      year end    Openings   disposals   (b)           year end   (c) 
Large                796        1           (2)         (1)           795        - 
Convenience          1,920      20          (2)         18            1,938      - 
Dotcom only          6          -           -           -             6          - 
Total Tesco          2,722      21          (4)         17            2,739      - 
One Stop (d)         697                    -           8             705        - 
Booker               196                    (2)         (2)           194        - 
                                8 
                                 - 
Jack's               12          -          -           -             12         - 
UK (d)               3,627      29          (6)         23            3,650 
                                                                                 - 
ROI                  150        1           -           1             151         1 
UK & ROI (d)         3,777      30          (6)         24            3,801      1 
Czech Republic (d)   186        1           (4)         (3)           183        (1) 
Hungary              202        -           (1)         (1)           201        - 
Slovakia d)          150        3           -           3             153        (3) 
Central Europe (d)   538        4           (5)         (1)           537        (4) 
Group (d)            4,315      34          (11)        23            4,338      (3) 
UK (One Stop)        191        35          (19)        16            207        - 
Czech Republic       107        20          (4)         16            123        - 
Slovakia             -          5           -           5             5          - 
Franchise stores     298        60          (23)        37            335        - 
 

Actual Group space - '000 sq. ft.(a)

 
                                                        Repurposing/  Net gain/     2020/21 
                     2019/20                Closures/    extensions    (reduction)   year 
                      year end    Openings   disposals   (c)           (b)           end 
Large                31,336     20          (17)        -             3             31,339 
Convenience          5,204      44          (4)         -             40            5,244 
Dotcom only          716        -           -           -             -             716 
Total Tesco          37,256     64          (21)        -             43            37,299 
One Stop (d)(e)      1,139      15          -           (4)           11            1,150 
Booker               8,376      -           (92)        -             (92)          8,284 
Jack's               119        -           -           -             -             119 
UK (d)               46,890     79          (113)       (4)           (38)          46,852 
ROI                  3,274      56          -           5             61            3,335 
UK & ROI (d)         50,164     135         (113)       1             23            50,187 
Czech Republic (d)   4,289      14          (19)        (18)          (23)          4,266 
Hungary              6,000      -           (3)         -             (3)           5,997 
Slovakia (d)         3,180      16          -           (45)          (29)          3,151 
Central Europe (d)   13,469     30          (22)        (63)          (55)          13,414 
Group (d)            63,633     165         (135)       (62)          (32)          63,601 
UK (One Stop)        237        44          (25)        -             19            256 
Czech Republic       101        19          (2)         -             17            118 
Slovakia             -          5           -           -             5             5 
Franchise stores     338        68          (27)        -             41            379 
 
   (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)        Excludes franchise stores. 
   (e)        Prior year restatement included within repurposing/extensions 

Supplementary information (unaudited) continued

Group space forecast to 26 February 2022 - '000 sq. ft.(a)

 
                                                                                  2021/22 
                     2020/21              Closures/   Repurposing/  Net gain/      year 
                      year end  Openings   disposals   extensions    (reduction)   end 
Large                31,339     56        -           -             56            31,395 
Convenience          5,244      92        (7)         -             85            5,329 
Dotcom only          716        -         -           -             -             716 
Total Tesco          37,299     148       (7)         -             141           37,440 
One Stop (b)         1,150      -         -           -             -             1,150 
Booker               8,284      -         -           -             -             8,284 
Jack's               119        12        -           -             12            131 
UK (b)               46,852     160       (7)         -             153           47,005 
ROI                  3,335      -         -           29            29            3,364 
UK & ROI (b)         50,187     160       (7)         29            182           50,369 
Czech Republic (b)   4,266      86        -           (41)          45            4,311 
Hungary              5,997      -         (15)        (151)         (166)         5,831 
Slovakia             3,151      57        -           (6)           51            3,202 
Central Europe (b)   13,414     143       (15)        (198)         (70)          13,344 
Group (b)            63,601     303       (22)        (169)         112           63,713 
UK (One Stop)        256        -         -           -             -             256 
Czech Republic       118        29        -           -             29            147 
Slovakia             5          16        -           -             16            21 
Franchise stores     379        45        -           -             45            424 
 
   (a)        Continuing operations. 
   (b)        Excludes franchise stores. 

Tesco Bank income statement

 
                                                               2021 (a)  2020 (a) 
                                                                GBPm      GBPm 
Revenue                                                          542       733 
 Interest receivable and similar income Fees and commissions 
  receivable                                                     193       335 
                                                               735       1,068 
Direct costs 
Interest payable                                               (83)      (166) 
Fees and commissions payable                                   (17)      (25) 
                                                               (100)     (191) 
Gross profit                                                   635       877 
 
Other expenses 
Staff costs                                                    (176)     (164) 
Premises and equipment                                         (75)      (72) 
Other administrative expenses                                  (142)     (191) 
Depreciation and amortisation                                  (57)      (78) 
Impairment loss on financial assets                            (360)     (179) 
Operating profit before exceptional items                      (175)     193 
 
Exceptional items (b)                                          (295)     (119) 
Operating profit                                               (470)     74 
 
Net finance costs: movements on derivatives and hedge 
 accounting                                                    (2)       (11) 
Net finance costs: interest                                    (7)       23 
Share of profit/(loss) of joint venture                        16        10 
Profit for the year                                            (463)     96 
 

(a) These results are for the 12 months ended 27 February 2021 and the previous period represents the 12 months ended 29 February 2020.

(b) Exceptional items in 2021 comprise of a goodwill impairment charge of GBP(295)m (2020: PPI provision charge GBP(45)m, restructuring costs GBP(13)m, accelerated amortisation and costs related to the sale of the mortgage book and PCA GBP(61)m).

Glossary - Alternative performance measures

Introduction

In the reporting of financial information, the Directors have adopted various 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 measurements.

Purpose

The Directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.

APMs are also used to enhance the comparability of information between reporting periods and geographical units (such as like-for-like sales), by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Group's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive-setting purposes.

Some of the Group's IFRS measures are translated at constant exchange rates. Constant exchange rates are the average actual periodic exchange rates for the previous financial period and are used to eliminate the effects of exchange rate fluctuations in assessing performance. Actual exchange rates are the average actual periodic exchange rates for that financial period.

Changes to APMs

The Directors and management have redefined Free cash flow and Retail free cash flow to be from continuing operations. Redefining Free cash flow and Retail free cash flow to exclude the cash flows of the Group's discontinued operations ensures consistency with the Group's Retail operating cash flow APM, and is a more appropriate measure of the ongoing cash generation of the Group.

The Directors and management have added Retail sales as a new APM, which is defined as Group sales excluding Tesco Bank sales and sales made at petrol filling stations. This metric is used to demonstrate the underlying performance in the Group's core Retail businesses and removes the volatilities associated with the movement in fuel prices.

The Directors and management have added 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 (adjusted for share consolidation) as a new APM. This is defined as profit after tax before exceptional items and amortisation of acquired intangibles from continuing operations, net pension finance costs and fair value remeasurements attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive share options and to reflect the full impact of the share consolidation as if it had taken place at the start of the previous financial year. This metric is used to demonstrate the underlying earnings per share of the Group's continuing operations, and removes any distortion from the sale of our businesses in Thailand and Malaysia as the earnings from discontinued operations are excluded, but the weighted average share base used in the statutory IAS 33 denominator does not yet reflect the full impact of the share consolidation and special dividend. To aid comparability, this new APM, which is presented on a basis other than in accordance with IAS 33 includes the full impact of the share consolidation as if it had taken place at the start of the previous financial year.

 
                          Closest equivalent  Adjustments        Definition 
                           IFRS measure        to reconcile       and purpose 
APM                                            to IFRS measure 
Income Statement 
Revenue measures 
Group sales               Revenue             - Exclude sales    - Excludes the impact of sales made 
                                               made at petrol     at petrol filling stations to demonstrate 
                                               filling stations   the Group's underlying performance 
                                                                  in the core retail and financial services 
                                                                  businesses by removing the volatilities 
                                                                  associated with the movement in fuel 
                                                                  prices. This is a key management incentive 
                                                                  metric. 
Growth in sales           No direct           - Consistent       - Growth in sales is a ratio that measures 
                           equivalent          with accounting    year-on-year movement in Group sales 
                                               policy             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             No direct           - Consistent       - Like-for-like is a measure of growth 
                           equivalent          with accounting    in Group online sales and sales from 
                                               policy             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. 
Retail sales              Revenue             - Exclude Tesco    - Group sales excluding Tesco Bank 
                                               Bank sales         sales to demonstrate the Group's underlying 
                                               - Exclude sales    performance in the core Retail businesses. 
                                               made at 
                                               petrol filling 
                                               stations 
Profit measures 
Operating profit          Operating           - Exceptional      - Operating profit before exceptional 
 before exceptional        profit*             items              items and amortisation of acquired 
 items and amortisation                        - Amortisation     intangibles is the headline measure 
 of acquired intangibles                       of acquired        of the Group's performance, and is 
                                               intangibles        based on operating profit from continuing 
                                                                  operations before the impact of exceptional 
                                                                  items and amortisation of intangible 
                                                                  assets acquired in business combinations. 
                                                                  Exceptional items relate to certain 
                                                                  cost or incomes that derive from events 
                                                                  or transactions that fall within the 
                                                                  normal activities of the Group but 
                                                                  which, individually or, if of similar 
                                                                  type, in aggregate, are excluded by 
                                                                  virtue of their size and nature in 
                                                                  order to reflect management's view 
                                                                  of the underlying performance of the 
                                                                  Group. This is a key management incentive 
                                                                  metric. 
 

* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.

Glossary - Alternative performance measures continued

 
                         Closest        Adjustments 
                          equivalent     to reconcile           Definition 
APM                       IFRS measure   to IFRS measure         and purpose 
Profit measures 
 continued 
Retail operating         Operating      - Tesco Bank            - Retail operating profit is a 
 profit                   profit*        operating               measure of the Group's operating 
                                         profit                  profit from continuing operations 
                                         - Retail exceptional    from the Retail business excluding 
                                         items                   Tesco Bank. It is based on Retail 
                                         - Retail amortisation   operating profit before exceptional 
                                         of acquired             items and amortisation of acquired 
                                         intangibles             intangibles. 
Operating margin         No direct      - Consistent            - Operating margin is calculated 
                          equivalent     with accounting         as operating profit before exceptional 
                                         policy                  items and amortisation of acquired 
                                                                 intangibles divided by revenue. 
                                                                 Progression in operating margin 
                                                                 is an important indicator of the 
                                                                 Group's operating efficiency. 
Retail earnings          Operating      - Exceptional           - This measure is based on Retail 
 before exceptional       profit*        items                   operating profit from continuing 
 items, interest,                        - Depreciation          operations. It excludes Retail 
 tax, depreciation                       and amortisation        exceptional items, depreciation 
 and amortisation                        - Tesco Bank            and amortisation and is used to 
 (Retail EBITDA)                         earnings before         derive the Total indebtedness 
                                         exceptional             ratio and Fixed charge cover APMs. 
                                         items, interest, 
                                         tax, depreciation 
                                         and amortisation 
                                         - Discontinued 
                                         operations 
Profit before            Profit         - Exceptional           - This measure excludes exceptional 
 tax before               before         items                   items and amortisation of acquired 
 exceptional              tax            - Amortisation          intangibles, net finance costs 
 items and amortisation                  of acquired             of the defined benefit pension 
 of acquired                             intangibles             deficit and fair value remeasurements 
 intangibles,                            - Net pension           of financial instruments. Net 
 net pension                             finance costs           pension finance costs are impacted 
 finance costs                           - Fair value            by corporate bond yields, which 
 and fair value                          remeasurements          can fluctuate significantly and 
 remeasurements                          of financial            are reset each year based on often 
 of financial                            instruments             volatile external market factors. 
 instruments                                                     Fair value remeasurements are 
                                                                 impacted by changes to credit 
                                                                 risk and various market indices, 
                                                                 which can fluctuate significantly. 
                                                                 Also included in these items are 
                                                                 fair value remeasurements of financial 
                                                                 instruments resulting from liability 
                                                                 management exercises. 
Total finance            Finance        - Exceptional           - Total finance costs before exceptional 
 costs before             costs          items                   items, net pension finance costs 
 exceptional                             - Net pension           and fair value remeasurements 
 items, net                              finance costs           of financial instruments is the 
 pension finance                         - Fair value            net finance costs adjusted for 
 costs and fair                          remeasurements          non-recurring one-off items, net 
 value remeasurements                    of financial            pension finance costs and fair 
 of financial                            instruments             value remeasurements of financial 
 instruments                                                     instruments. Net pension finance 
                                                                 costs are impacted by corporate 
                                                                 bond yields, which can fluctuate 
                                                                 significantly and are reset each 
                                                                 year based on often volatile external 
                                                                 market factors. Fair value remeasurements 
                                                                 are impacted by changes to credit 
                                                                 risk and various market indices, 
                                                                 which can fluctuate significantly. 
                                                                 Also included in these items are 
                                                                 fair value remeasurements of financial 
                                                                 instruments resulting from liability 
                                                                 management exercises. 
Diluted earnings         Diluted        - Exceptional           - This relates to profit after 
 per share from           earnings       items                   tax before exceptional items and 
 continuing               per share      - Amortisation          amortisation of acquired intangibles 
 operations                              of acquired             from continuing operations, net 
 before exceptional                      intangibles             pension finance costs and fair 
 items and amortisation                  - Discontinued          value remeasurements attributable 
 of acquired                             operations              to owners of the parent divided 
 intangibles,                            - Net pension           by the weighted average number 
 net pension                             finance costs           of ordinary shares in issue during 
 finance costs                           - Fair value            the financial period adjusted 
 and fair value                          remeasurements          for the effects of potentially 
 remeasurements                          of financial            dilutive share options. 
 of financial                            instruments             - It excludes net pension finance 
 instruments                                                     costs and fair value remeasurements 
                                                                 of financial instruments. Net 
                                                                 pension finance costs are impacted 
                                                                 by corporate bond yields, which 
                                                                 can fluctuate significantly and 
                                                                 are reset each year based on often 
                                                                 volatile external market factors. 
                                                                 Fair value remeasurements are 
                                                                 impacted by changes to credit 
                                                                 risk and various market indices, 
                                                                 which can fluctuate significantly. 
                                                                 Also included in these items are 
                                                                 fair value remeasurements of financial 
                                                                 instruments resulting from liability 
                                                                 management exercises. 
Diluted earnings         Diluted        - Exceptional           - This relates to profit after 
 per share from           earnings       items                   tax before exceptional items and 
 continuing               per share      - Amortisation          amortisation of acquired intangibles 
 operations                              of acquired             from continuing operations, net 
 before exceptional                      intangibles             pension finance costs and fair 
 items and amortisation                  - Discontinued          value remeasurements attributable 
 of acquired                             operations              to owners of the parent divided 
 intangibles,                            - Net pension           by the weighted average number 
 net pension                             finance costs           of ordinary shares in issue during 
 finance costs                           - Fair value            the financial period adjusted 
 and fair value                          remeasurements          for the effects of potentially 
 remeasurements                          of financial            dilutive share options and to 
 of financial                            instruments             reflect the full impact of the 
 instruments                             - Weighted              share consolidation as if it had 
 (adjusted for                           average number          taken place at the start of the 
 share consolidation)                    of diluted              previous financial year. This 
                                         shares                  metric is used to demonstrate 
                                                                 the underlying earnings per share 
                                                                 of the Group's continuing operations, 
                                                                 and removes any distortion from 
                                                                 the sale of our businesses in 
                                                                 Thailand and Malaysia as the earnings 
                                                                 from discontinued operations are 
                                                                 excluded, but the weighted average 
                                                                 share base used in the statutory 
                                                                 IAS 33 denominator does not yet 
                                                                 reflect the full impact of the 
                                                                 share consolidation and special 
                                                                 dividend. To aid comparability, 
                                                                 this new APM, which is presented 
                                                                 on a basis other than in accordance 
                                                                 with IAS 33, includes the full 
                                                                 impact of the share consolidation 
                                                                 as if it had taken place at the 
                                                                 start of the previous financial 
                                                                 year. 
                                                                 - It excludes net pension finance 
                                                                 costs and fair value remeasurements 
                                                                 of financial instruments. Net 
                                                                 pension finance costs are impacted 
                                                                 by corporate bond yields, which 
                                                                 can fluctuate significantly and 
                                                                 are reset each year based on often 
                                                                 volatile external market factors. 
                                                                 Fair value remeasurements are 
                                                                 impacted by changes to credit 
                                                                 risk and various market indices, 
                                                                 which can fluctuate significantly. 
                                                                 Also included in these items are 
                                                                 fair value remeasurements of financial 
                                                                 instruments resulting from liability 
                                                                 management exercises. This is 
                                                                 a key management incentive metric. 
 

* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.

Glossary - Alternative performance measures continued

 
                         Closest        Adjustments 
                          equivalent     to reconcile     Definition 
APM                       IFRS measure   to IFRS measure   and purpose 
Tax measures 
Effective tax            Effective      - Exceptional     - Effective tax rate before exceptional 
 rate before              tax rate       items and         items and amortisation of acquired 
 exceptional                             their tax         intangibles is calculated as total 
 items and amortisation                  impact            income tax credit/(charge) excluding 
 of acquired                             - Amortisation    the tax impact of exceptional 
 intangibles                             of acquired       items and amortisation of acquired 
                                         intangibles       intangibles from continuing operations 
                                         and their         divided by profit before tax before 
                                         tax impact        exceptional items and amortisation 
                                                           of acquired intangibles from continuing 
                                                           operations. This provides an indication 
                                                           of the ongoing tax rate across 
                                                           the Group. 
Effective tax            Effective      - Exceptional     - Effective tax rate before exceptional 
 rate before              tax rate       items and         items and amortisation of acquired 
 exceptional                             their tax         intangibles, net pension finance 
 items and amortisation                  impact            costs and fair value remeasurements 
 of acquired                             - Amortisation    of financial instruments is calculated 
 intangibles,                            of acquired       as total income tax credit/(charge) 
 net pension                             intangibles       excluding the tax impact of exceptional 
 finance costs                           and their         items and amortisation of acquired 
 and fair value                          tax impact        intangibles items, net pension 
 remeasurements                          - Net pension     finance costs and fair value remeasurements 
 of financial                            finance costs     from continuing operations divided 
 instruments                             and their         by the profit before tax before 
                                         tax impact        exceptional items and amortisation 
                                         - Fair value      of acquired intangibles, net pension 
                                         remeasurements    finance costs and fair value remeasurements 
                                         of financial      from continuing operations. 
                                         instruments 
                                         and their 
                                         tax impact 
Balance sheet 
 measures 
Net debt                 Borrowings     - Net debt        - Net debt excludes the net debt 
                          less cash      from Tesco        of Tesco Bank but includes that 
                          and related    Bank              of the discontinued operations 
                          hedges                           to reflect the net debt obligations 
                                                           of the Retail business. Net debt 
                                                           comprises bank and other borrowings, 
                                                           lease liabilities, net derivative 
                                                           financial instruments, joint venture 
                                                           loans and other receivables and 
                                                           net interest receivables/payables, 
                                                           offset by cash and cash equivalents 
                                                           and short-term investments. It 
                                                           is a useful measure of the progress 
                                                           in generating cash and strengthening 
                                                           of the Group's balance sheet position 
                                                           and is a measure widely used by 
                                                           credit rating agencies. 
Total indebtedness       Borrowings     - Consistent      - Total indebtedness is the net 
                          less cash      with accounting   debt plus the IAS 19 deficit in 
                          and related    policy            the pension schemes (net of associated 
                          hedges                           deferred tax) to provide an overall 
                                                           view of the Group's obligations. 
                                                           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       No direct      - Consistent      - Total indebtedness ratio is 
 Ratio                    equivalent     with accounting   calculated as Total indebtedness 
                                         policy            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             No direct      - Consistent      - Fixed charge cover is calculated 
 cover                    equivalent     with accounting   as the rolling 12-month Retail 
                                         policy            EBITDA divided by the sum of net 
                                                           finance costs (excluding net pension 
                                                           finance costs, finance charges 
                                                           payable on lease liabilities, 
                                                           exceptional items, capitalised 
                                                           interest and fair value remeasurements) 
                                                           and all lease liability payments 
                                                           from continuing operations. It 
                                                           is a measure of the Group's ability 
                                                           to meet its payment obligations 
                                                           and is widely used by analysts 
                                                           and credit rating agencies. 
 

Glossary - Alternative performance measures continued

 
                                        Adjustments 
                    Closest equivalent   to reconcile            Definition 
APM                  IFRS measure        to IFRS measure          and purpose 
Cash flow measures 
Retail operating    Cash generated      - Tesco Bank             - Retail operating cash flow is the 
 cash flow           from operating      operating cash           cash generated from continuing operations, 
                     activities          flow                     excluding the effects of Tesco Bank's 
                                         - Discontinued           cash flows. It is a measure of the 
                                         operations               cash generation and working capital 
                                                                  efficiency of the Retail business, 
                                                                  recognising that Tesco Bank is run 
                                                                  and regulated independently from 
                                                                  the Retail operations. This is a 
                                                                  key management incentive metric. 
Free cash flow      Cash generated      - Net cash               - Free cash flow includes all cash 
                     from operating      generated from/          flows from continuing operations 
                     activities          (used in) investing      from operating and investing activities, 
                                         activities,              the market purchase of shares net 
                                         and the market           of proceeds from shares issued in 
                                         purchase of              relation to share schemes, and repayment 
                                         shares issued            of obligations under leases. The 
                                         in relation              following items are excluded: investing 
                                         to share schemes         cash flows that increase/decrease 
                                         - Repayment              items within Group net debt, and 
                                         of obligations           cash flows from major corporate acquisitions 
                                         under leases             and disposals. This measure reflects 
                                         - Investing              the cash available to shareholders. 
                                         cash flows 
                                         that increase/decrease 
                                         items within 
                                         Group net debt 
                                         - Cash flows 
                                         from major 
                                         corporate acquisitions 
                                         and disposals 
Retail free         Cash generated      - Tesco Bank             - Retail free cash flow includes 
 cash flow           from operating      operating cash           all cash flows from continuing operations 
                     activities          flow                     from operating and investing activities 
                                         - Retail cash            for the Retail business, the market 
                                         generated from/          purchase of shares net of proceeds 
                                         (used in) investing      from shares issued in relation to 
                                         activities,              share schemes, and the repayment 
                                         and the market           of obligations under leases. The 
                                         purchase of              following items are excluded: investing 
                                         shares issued            cash flows that increase/decrease 
                                         in relation              items within Net debt, and cash flows 
                                         to share schemes         from major corporate acquisitions 
                                         - Repayment              and disposals. This measure reflects 
                                         of obligations           the cash available to shareholders. 
                                         under leases             This is a key management incentive 
                                         - Investing              metric. 
                                         cash flows 
                                         that increase/decrease 
                                         items within 
                                         Net debt 
                                         - Cash flows 
                                         from major 
                                         corporate acquisitions 
                                         and disposals 
 

As detailed in the basis of consolidation, refer to Note 1, for the UK & ROI, the prior year results are for the 53 weeks ended 29 February 2020. For all other operations, the prior year results are for the calendar year ended 29 February 2020.

In order to provide comparability with the current year results for the 52 weeks ended 27 February 2021, the tables below present the Group's prior year statutory results on a 53-week basis to 29 February 2020, adjusted to remove the results of week 53 for the UK & ROI to also separately present the APMs on a 52-week basis to 22 February 2020. In determining the week 53 adjustment for the UK & ROI, revenue, sales and cost of goods sold represent the actual trading performance in that week, with overhead expenses allocated proportionally to week 53 based on the reported results for the 53 weeks to 29 February 2020. No week 53 adjustments are required with respect to the Group's operations in Central Europe, Asia or Tesco Bank, which report on a calendar year basis.

The prior year results on a 53-week basis to 29 February 2020 and APMs on a 52-week basis to 22 February 2020 have been restated to present Thailand, Malaysia and Poland as discontinued operations. See Note 7 for further details.

Glossary - Alternative performance measures continued

APMs: Reconciliation of income statement measures

 
                                                                              APM 
                                                     2020                       2020 
                                                      As reported 
                                             APM       on a 53-week  Exclude   52-week 
                                                                       week 
                                              2021     basis           53       basis 
UK &ROI                               Notes   GBPm    GBPm            GBPm     GBPm 
 
Continuing operations 
 Group sales                          2      48,848  45,752          (843)    44,909 
Revenue                               2      53,170  52,898          (983)    51,915 
Operating profit before exceptional 
 items and amortisation of 
 acquired intangibles                 2      1,866   2,202           (46)     2,156 
Operating margin                      2      3.5%    4.2%            -        4.2% 
Growth in sales at actual rates              8.8%    2.0%            (1.9)%   0.1% 
Growth in sales at constant rates            8.6%    2.1%            (1.9)%   0.2% 
 
 
                                                                              APM 
                                                     2020                       2020 
                                                      As reported 
                                             APM       on a 53-week  Exclude   52-week 
                                                                       week 
                                              2021     basis           53       basis 
Total Group                           Notes   GBPm    GBPm            GBPm     GBPm 
 
Continuing operations 
 Group sales                          2      53,445  50,788          (843)    49,945 
Revenue                               2      57,887  58,091          (983)    57,108 
Operating profit before exceptional 
 items and amortisation of 
 acquired intangibles                 2      1,815   2,571           (46)     2,525 
Operating margin                      2      3.1%    4.4%            -        4.4% 
Growth in sales at actual rates              7.1%    1.4%            (1.8)%   (0.4)% 
Growth in sales at constant rates            7.0%    1.7%            (1.8)%   (0.1)% 
 
 
                                                                2020                     APM 
                                                                 As reported 
                                                         APM      on a 53-week  Exclude    2020 
                                                                                 week     52-week 
                                                  Notes   2021    basis           53       basis 
Operating profit before exceptional items 
 and amortisation of 
 acquired intangibles ( GBP m)                    2      1,815  2,571           (46)     2,525 
Share of post-tax profits/(losses) of 
 joint ventures and associates before 
 exceptional items and amortisation of 
 acquired intangibles (GBPm)                             26     -               -        - 
Net finance costs before exceptional 
 items and amortisation of acquired intangibles 
 (GBPm)                                           5      (937)  (1,019)         27       (992) 
Profit before tax from continuing operations 
 before exceptional items and amortisation 
 of acquired intangibles (GBPm)                          904    1,552           (19)     1,553 
Add: Net pension finance costs (GBPm)             5      43     71              -        71 
Add: Fair value remeasurements of financial 
 instruments (GBPm)                               5      214    246             (18)     228 
Profit before tax from continuing operations 
 before exceptional items and amortisation 
 of acquired intangibles, net pension 
 finance costs and fair value remeasurements 
 of financial instruments ( GBP m)                       1,161  1,869           (37)     1,832 
Total income tax credit/(charge) before 
 exceptional items, net pension finance 
 costs and fair value remeasurements of 
 financial instruments (GBPm)                     9      (249)  (400)           7        (393) 
Effective tax rate before exceptional 
 items, net pension finance costs and 
 fair value remeasurements of financial 
 instruments (%)                                         21.4%  21.4%           0.1%     21.5% 
Profit before tax from continuing operations 
 before exceptional items and amortisation 
 of acquired intangibles, net pension 
 finance costs and fair value remeasurements 
 of financial instruments attributable 
 to the owners of the parent (GBPm)               9      1,168  1,869           (37)     1,832 
Taxation on profit from continuing operations 
 before exceptional items and amortisation 
 of acquired intangibles, net pension 
 finance costs and fair value remeasurements 
 of financial instruments attributable 
 to the owners of the parent (GBPm)               9      (249)  (400)           7        (393) 
Profit after tax from continuing operations 
 before exceptional items and amortisation 
 of acquired intangibles, net pension 
 finance costs and fair value remeasurements 
 of financial instruments attributable 
 to the owners of the parent (GBPm)                      919    1,469           (30)     1,439 
 
Basic weighted average number of shares 
 (millions)                                       9      9,629  9,716           -        9,716 
Basic 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 
 (pence)                                                 9.54   15.12           (0.31)   14.81 
 
Diluted weighted average number of shares 
 (millions)                                       9      9,656  9,783           -        9,783 
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 
 (pence)                                                 9.52   15.02           (0.31)   14.71 
 

Glossary - Alternative performance measures continued

Diluted earnings per share from continuing operations before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements (adjusted for share consolidation)

 
                                                                                          APM 
                                                                 2020                       2020 
                                                                  As reported 
                                                        APM        on a 53-week  Exclude   52-week 
                                                                                  week 
                                                Notes    2021      basis           53       basis 
Weighted average number of diluted 
 shares 
Diluted weighted average number of 
 shares (millions)                                      9,656    9,783           -        9,783 
Adjustment to reflect the post-consolidation 
 share base as if it had been in place 
 from the start of the previous financial 
 year (millions)                                        (1,956)  (2,045)         -        (2,045) 
Adjusted diluted weighted average number 
 of shares (adjusted for share consolidation) 
 (millions)                                             7,700    7,738           -        7,738 
Diluted earnings per share from continuing 
 operations before exceptional items 
 and amortisation of acquired intangibles, 
 net pension finance costs and fair 
 value remeasurements (pence)                           9.52     15.02           (0.31)   14.71 
Adjustment to reflect the post-consolidation 
 share base as if it had been in place 
 from the start of the previous financial 
 year (pence)                                           2.42     3.96            (0.07)   3.89 
Diluted earnings per share from continuing 
 operations before exceptional items 
 and amortisation of acquired intangibles, 
 net pension finance costs and fair 
 value remeasurements (adjusted for 
 share consolidation) (pence)                           11.94    18.98           (0.38)   18.60 
 

Retail EBITDA

 
                                                                                        APM 
                                                               2020                       2020 
                                                                As reported 
                                                        APM      on a 53-week            52-week 
                                                                               Exclude 
                                                                                week 
                                                         2021    basis          53        basis 
                                                 Notes   GBPm   GBPm            GBPm     GBPm 
Operating profit/(loss) from continuing 
 operations before exceptional items 
 and amortisation of acquired intangibles        2      1,815  2,571           (46)     2,525 
Add/(less): Tesco Bank operating loss/(profit) 
 before exceptional items                        2      175    (193)           -        (193) 
Retail operating profit/(loss) from 
 continuing operations before exceptional 
 items and amortisation of acquired 
 intangibles                                     2      1,990  2,378           (46)     2,332 
Add: Depreciation and amortisation 
 (excluding amortisation of acquired 
 intangibles)                                    2      1,671  1,730           (29)     1,701 
Less: Tesco Bank depreciation and amortisation   2      (57)   (141)           -        (141) 
Retail EBITDA                                           3,604  3,967           (75)     3,892 
 

APMs: Reconciliation of balance sheet measures

Total indebtedness ratio

 
                                                                                APM 
                                                       2020                       2020 
                                                        As reported 
                                               APM       on a 53-week  Exclude   52-week 
                                                                         week 
                                        Notes   2021     basis           53       basis 
Net debt ( GBP m) (a)(b)                32     11,955  12,298          (197)    12,101 
Add: Defined benefit pension deficit, 
 net of deferred tax (GBPm)(a)          29     1,004   2,573           -        2,573 
Total indebtedness ( GBP m)(a)                 12,959  14,871          (197)    14,674 
Retail EBITDA ( GBP m)                         3,604   3,967           (75)     3,892 
Total indebtedness ratio                       3.6     3.7             0.1      3.8 
 

(a) Net debt, Total indebtedness and the defined benefit pension deficit, net of deferred tax on a 52-week basis are as at 22 February 2020.

(b) Free cash outflow in week 53 of GBP197m has been deducted from Net debt as at 29 February 2020 to determine the Group's 52-week Total indebtedness ratio.

Glossary - Alternative performance measures continued

Fixed charge cover

 
                                                                                        APM 
                                                        APM    2020            Exclude    2020 
                                                                As reported 
                                                                 on a 53-week   week     52-week 
                                                 Notes   2021    basis           53       basis 
Net finance cost (GBPm)                          5      937    1,170           (27)     1,143 
Less: Net pension finance cost (GBPm)            5      (43)   (71)                     (71) 
Less: Exceptional fair value remeasurement 
 on restructuring derivative financial 
 instruments (GBPm)                              5      -      (180)           -        (180) 
Add: Exceptional gain on Tesco Bank 
 mortgage book disposal (GBPm)                   5      -      29              -        29 
Add: Fair value remeasurements on financial 
 instruments (GBPm)                              5      (214)  (246)           18       (228) 
Total finance costs before exceptional 
 items, net pension finance costs and 
 fair value remeasurements on financial 
 instruments (GBPm)                                     680    702             (9)      693 
Add: Capitalised interest (GBPm)                 5      -      -               -        - 
Less: Finance charges payable on lease 
 liabilities (GBPm)                              5      (446)  (486)           6        (480) 
Net finance cost, excluding net pension 
 finance costs, exceptional items, capitalised 
 interest, fair value remeasurements 
 of financial instruments and finance 
 charges payable on lease liabilities 
 (GBPm)                                                 234    216             (3)      213 
Add: Retail total lease liability payments 
 (GBPm)                                          12     1,104  1,170           -        1,170 
Less: Retail discontinued operations 
 total lease liability payments (GBPm)                  (99)   (122)           -        (122) 
                                                        1,239  1,264           (3)      1,261 
Retail EBITDA ( GBP m)                                  3,604  3,967           (75)     3,892 
Fixed charge cover                                      2.9    3.1             -        3.1 
 

APMs: Reconciliation of cash flow measures

 
                                                                                       APM 
                                                     APM      2020            Exclude    2020 
                                                               As reported 
                                                                on a 53-week   week     52-week 
                                                      2021      basis           53       basis 
                                              Notes   GBPm     GBPm            GBPm     GBPm 
Retail cash flows generated from operations 
 excluding working capital                    2      723      3,633           (63)     3,570 
Retail (increase)/decrease in working 
 capital                                      2      439      (53)            240      187 
Retail operating cash flow                    2      1,162    3,580           177      3,757 
Retail interest and corporation tax 
 paid(a)                                      2      (841)    (958)           27       (931) 
Retail cash generated from/(used in) 
 operating activities                         2      321      2,622           204      2,826 
Retail cash generated from/(used in) 
 investing activities                         2      6,890    (1,102)         (7)      (1,109) 
Retail own shares purchased                   2      (66)     (149)           -        (149) 
Retail repayments of obligations under 
 leases                                       2      (561)    (565)           -        (565) 
Less: Retail cash inflow from major 
 disposal(b)                                  2      (5,337)  -               -        - 
Less: Retail increase/(decrease) in 
 loans to joint ventures and associates       2      2        -               -        - 
Less: Retail net investments in/(proceeds 
 from sale of) short-term investments         2      (62)     687             -        687 
Retail free cash flow                         2      1,187    1,493           197      1,690 
Tesco Bank free cash flow                     2      192      476             -        476 
Free cash flow                                       1,379    1,969           197      2,166 
 
   (a)      Retail interest paid in week 53 amounted to GBP27m. 

(b) Retail cash flow from major disposal of GBP5,337m principally comprises the GBP7.8bn proceeds on disposal of the Group's Asia operations, excluding cash disposed and intercompany loan repayments, less the GBP2.5bn additional pension contribution. Refer to Notes 4 and 7 for further details.

Other

 
Capital expenditure (Capex)      FTE                             percentage of promoters 
 The additions to property,       FTE refers to full-time         (scoring 9-10). This 
 plant and equipment,             equivalents.                    generates a figure between 
 investment property and          LIBOR                           -100 and 100 which is 
 intangible assets (excluding     London Inter-Bank Offered       the NPS. 
 assets acquired under            Rate.                           Return on capital employed 
 business combinations).          LPI                             (ROCE) 
 Capital employed                 LPI refers to limited           Return divided by the 
 Net assets plus net debt         price inflation.                average of opening and 
 plus dividend creditor           Market capitalisation           closing capital employed. 
 less net assets of the           The total value of all          Return 
 disposal group and non-current   Tesco shares calculated         Profit before exceptional 
 assets classified as             as total number of shares       items and interest, after 
 held for sale.                   multiplied by the closing       tax (applied at effective 
 CPI                              share price at year end.        rate of tax). 
 CPI refers to consumer           MTN                             RPI 
 price index.                     MTN refers to medium            RPI refers to the retail 
 Enterprise Value                 term note.                      price index. 
 This is calculated as            MREL                            SONIA 
 market capitalisation            Minimum requirements            Sterling Overnight Index 
 plus net debt.                   for own funds and eligible      Average. 
 EURIBOR                          liabilities (European           Total shareholder return 
 Euro Interbank Offered           Banking Authority).             The notional annualised 
 Rate.                            Net promoter score (NPS)        return from a share, 
 ESG                              This is a loyalty measure       measured as the percentage 
 Environmental, social            based on a single question      change in the share price, 
 and governance.                  requiring a score between       plus the dividends paid 
                                  0-10. The NPS is calculated     with the gross dividends, 
                                  by subtracting the percentage   reinvested in Tesco shares. 
                                  of detractors (scoring          This is measured over 
                                  0-6) from the                   both a one and five-year 
                                                                  period. 
 

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April 14, 2021 02:00 ET (06:00 GMT)

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