Annual Report and Financial Statements 2007 - Tesco PLC

More documents

Recommendations

Info

82 Tesco PLC Annual report and financial statements 2007 Find out more at www.tesco.com/corporate Notes to the financial statements continued Note 22 Share-based payments continued Share options were exercised on a regular basis throughout the year. The average share price during the year to 24 February 2007 was 369.70 pence (2006 – 317.79 pence). The fair value of share options is estimated at the date of grant using the Black-Scholes option pricing model. The following table gives the assumptions applied to the options granted in the respective periods shown. No assumption has been made to incorporate the effects of expected early exercise. 2007 2006 Savings- Savingsrelated Executive Nil cost related Executive Nil cost share option share option option share option share option option schemes schemes schemes schemes schemes schemes Expected dividend yield (%) 2.7% 3.0% 2.7% 3.0% 3.0% 3.0% Expected volatility (%) 28% 28% 28% 28% 28% 28% Risk-free interest rate (%) 4.8% 4.7% 4.6% 4.4% 4.2% 4.2% Expected life of option (years) 3 or 5 6 6 3 or 5 6 6 Weighted average fair value of options granted (pence) 122.02 81.63 282.97 93.55 77.24 256.75 Probability of forfeiture (%) 20-25% 10% 0% 20-25% 10% 0% Share price (pence) 383.80 318.60 332.74 310.0 312.80 307.38 Weighted average exercise price (pence) 307.00 318.60 0.0 248.00 312.75 0.0 Volatility is a measure of the amount by which a price is expected to fluctuate during a period. The measure of volatility used in Tesco PLC 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 consider 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. b) Share bonus schemes Eligible UK employees are able to participate in Shares in Success, an all-employee profit sharing scheme. Each year, shares are awarded as a percentage of earnings up to a statutory maximum of £3,000. Senior management also participate in performance-related bonus schemes. The amount paid to employees is based on a percentage of salary and is paid partly in cash and partly in shares. Bonuses are awarded to eligible employees that have completed a required service period and depend on the achievement of corporate targets. The accrued cash element of the bonus at the Balance Sheet date is £17m. The Executive Directors participate in short-term and long-term bonus 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 awarded during the period was: 2007 2006 Shares WAFV Shares WAFV Number Pence Number Pence Shares in Success 24,062,964 319.65 22,337,747 309.75 Executive incentive scheme 13,559,635 316.88 13,283,243 309.88
Note 23 Post-employment benefits Pensions The Group operates a variety of post-employment benefit arrangements, covering both funded defined contribution and funded and unfunded defined benefit schemes. The most significant of these are the funded defined benefit schemes for the Group’s employees in the UK and the Republic of Ireland. Defined contribution plans The contributions payable for defined contribution schemes of £7m (2006 – £7m) have been fully expensed against profits in the current year. Defined benefit plans United Kingdom The principal plan within the Group is the Tesco PLC Pension Scheme, which is a funded defined benefit pension scheme in the UK, the assets of which are held as a segregated fund and administered by trustees. Watson Wyatt Limited, an independent actuary, carried out the latest triennial actuarial assessment of the scheme as at 31 March 2005, using the projected unit method. At the date of the last actuarial valuation the actuarial deficit was £153m. The market value of the schemes’ assets was £2,632m and these assets represented 95% of the benefits that had accrued to members, after allowing for expected increases in earnings and pensions in payment. The One Stop Senior Executive Pension Scheme is a funded defined benefit scheme open to senior executives and certain other employees at the invitation of the company. An independent actuary, using the projected unit method, carried out the latest actuarial assessment of the scheme as at 5 April 2004. Overseas The most significant overseas scheme is the funded defined benefit scheme which operates in the Republic of Ireland. An independent actuary, using the projected unit method, carried out the latest actuarial assessment of the scheme as at 1 April 2004. The valuations used for IAS 19 have been based on the most recent actuarial valuations and updated by Watson Wyatt Limited to take account of the requirements of IAS 19 in order to assess the liabilities of the schemes as at 24 February 2007. The schemes’ assets are stated at their market values as at 24 February 2007. Buck Consultants (Ireland) Limited have updated the most recent Republic of Ireland valuation. The liabilities relating to retirement healthcare benefits have also been determined in accordance with IAS 19, and are incorporated in the following tables. Principal assumptions The valuations used have been based on the most recent actuarial valuations and updated by Watson Wyatt Limited to take account of the requirements of IAS 19 in order to assess the liabilities of the schemes as at 24 February 2007. The major assumptions, on a weighted average basis, used by the actuaries were as follows: 2007 2006 2005 % % % Rate of increase in salaries 4.5 4.0 3.9 Rate of increase in pensions in payment 3.0 2.7 2.6 Rate of increase in deferred pensions 3.0 2.7 2.6 Rate of increase in career average benefits 3.0 2.7 2.6 Discount rate 5.2 4.8 5.4 Price inflation 3.0 2.7 2.6 The main financial assumption is the real discount rate i.e. the excess of the discount rate over the rate of price inflation. If this assumption increased/decreased by 0.1%, the UK defined benefit obligation would decrease/increase by approximately £105m and the annual UK current service cost would decrease/increase by between £12m and £13m. UK mortality assumptions Following analysis of the mortality trends under the Tesco PLC Pension Scheme in the UK, which was carried out as part of the formal valuation of the Scheme as at 31 March 2005, it was decided to alter the mortality assumptions used in the formal valuation. The updated mortality tables as at 31 March 2005 were PMA92C00 for male members and PFA92C00 for female members. Similar to last year, this change has been carried through into the calculation of the pension liabilities in the Balance Sheet as at 24 February 2007 for the main UK fund. 83 NOTES TO THE GROUP FINANCIAL STATEMENTS
Page 1 and 2:
Annual Report and Financial Stateme
Page 3 and 4:
inside... 02 Financial highlights 0
Page 5 and 6:
Operating and financial review Grou
Page 7 and 8:
International On a comparable 52 we
Page 9 and 10:
Total Shareholder Return Total shar
Page 11 and 12:
2007 2006 Total shareholder return
Page 13 and 14:
• Tesco Malaysia has made excelle
Page 15 and 16:
New Space We opened a total of just
Page 17 and 18:
Community, environment and corporat
Page 19 and 20:
Failure to compete with competitors
Page 21 and 22:
Interest rate risk management The o
Page 23 and 24:
Employment policies The Group depen
Page 25 and 26:
attendance also facilitates the com
Page 27 and 28:
Corporate Responsibility Risk Regis
Page 29 and 30:
Directors’ remuneration report fo
Page 31 and 32:
Basic pay Basic pay is designed to
Page 33 and 34: Other elements • Shares In Succes
Page 35 and 36: Tables 1 to 8 are audited informati
Page 37 and 38: Table 4 Share options held by Direc
Page 39 and 40: Table 5 Share options held by Direc
Page 41 and 42: Table 8 Directors’ interests in t
Page 43 and 44: FINANCIAL STATEMENTS CONTENTS State
Page 45 and 46: Independent auditors’ report to t
Page 47 and 48: Group statement of recognised incom
Page 49 and 50: Group cash flow statement Year ende
Page 51 and 52: Note 1 Accounting policies continue
Page 59 and 60: Note 2 Segmental reporting continue
Page 61 and 62: Note 4 Employment costs, including
Page 63 and 64: Note 6 Taxation continued Deferred
Page 65 and 66: Note 7 Discontinued operation and a
Page 67 and 68: Note 10 Goodwill and other intangib
Page 69 and 70: Note 11 Property, plant and equipme
Page 71 and 72: Note 11 Property, plant and equipme
Page 73 and 74: Note 13 Group entities Significant
Page 75 and 76: Note 13 Group entities continued Th
Page 77 and 78: Note 17 Cash and cash equivalents 2
Page 79 and 80: Note 20 Financial instruments An ex
Page 81 and 82: Note 20 Financial instruments conti
Page 83: Note 22 Share-based payments contin
Page 87 and 88: Note 23 Post-employment benefits co
Page 89 and 90: Note 24 Called up share capital Aut
Page 91 and 92: Note 25 Statement of changes in equ
Page 93 and 94: Note 26 Business combinations conti
Page 95 and 96: Note 26 Business combinations conti
Page 97 and 98: Note 28 Reconciliation of profit be
Page 99 and 100: Note 31 Leasing commitments continu
Page 101 and 102: UK GAAP IFRS 2003 2004 2005 2005 20
Page 103 and 104: Notes to the Parent company financi
Page 107 and 108: Note 9 Borrowings continued Repayme
Page 109 and 110: Note 11 Share-based payments contin
Page 111 and 112: Independent auditors’ report to t
show all

Annual Report and Financial Statements 2007 - Tesco PLC

Create successful ePaper yourself

Delete template?

Save as template?