Tesco plc Annual Report and Financial Statements 2012

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Corporate governance Tesco Bank The management of risk is an integral part of the Bank’s business. Tesco Bank has established an Enterprise Wide Risk Management Framework, designed to support the identification, assessment, management and control of the material risks that threaten the achievement of the Bank’s strategic business objectives. The Bank has developed a risk strategy which is designed to support the successful delivery of strategic business objectives through clearly defined strategic risk objectives which support risk appetite. The risk appetite reflects the level and type of risks that the Bank is willing to take to deliver its strategic business objectives. The Bank’s Board has overall responsibility for the Bank business. It agrees the strategy for the business, approves the risk appetite of Tesco Bank as well as specific high level policies and the delegated authorities. The Bank’s Board monitor’s the risk profile of the Bank. Executive management is responsible for establishing an effective control framework and ensuring all risks are identified and controlled within the risk appetite and policy limits. The independent Risk function is responsible for developing risk appetite and the policy framework and for independently monitoring the risk profile, providing assurance where required. Risk also provides frameworks, tools and techniques to assist management in meeting their responsibilities, as well as acting as a central coordinator to ensure that enterprise wide risks are being effectively addressed. Tesco Bank Internal Audit is responsible for the independent assessment of the effectiveness of the implementation of the risk and control measures across the business. They assess whether the internal control systems are effective both in design and practice. The Internal Capital Adequacy Assessment Process (‘ICAAP’) is the Bank’s internal assessment of capital adequacy designed to address the requirements under Pillar 2 of the Basel II framework. The ICAAP process considers all of the risks faced by the Bank, the likely impact of them if they were to occur, how these risks can be mitigated and the amount of capital that is prudent to hold against them both currently and in the future. The Bank performs a full ICAAP regularly which is reviewed and approved by its Board. The Bank holds a liquid asset portfolio that its Board deem to be sufficient to cover potential future stressed cash outflows. Through its Internal Liquidity Adequacy Assessment (‘ILAA’) process, stress events are simulated and the impact on cash flows, including any available contingency funding, is assessed and reviewed against the current and planned liquid asset portfolio. The ILAA is reviewed and approved by the Bank’s Board regularly. The Bank maintains a Key Risk Register, which is subject to regular review to enable management to identify all key risks, current and emerging. As the risk profile shifts over time the potential impact on the business is considered in terms of additional management action required and/or possible extra capital or liquidity requirements. The content of the Register is developed by the Risk function through ongoing discussion with senior management and is reviewed on a regular basis. Whistle-blowing The Group operates a whistle-blowing policy which is reviewed annually. In every business we operate a confidential telephone and email service which enables concerned employees to report, anonymously if they choose, any instances of inappropriate behaviour or malpractice within the business. Such issues include unethical or illegal behaviour such as bribery and corruption, fraud, dishonesty and any practices that endanger our staff, customers or the environment. During the year 2011/12 the majority of the calls related to personnel issues, which is common in most businesses, with a number of security issues also raised. 62 Tesco PLC Annual Report and Financial Statements 2012 All complaints made are treated as confidential and are investigated by the relevant department and where we know the individual, the callers are updated. Where there is a serious issue, this will be escalated to the country CEO. This policy is monitored by the Compliance Committees in country, by the Group Compliance Committee annually and by the Group Audit Committee annually. In addition the whistle-blowing line was previously internally audited in 2010 and will be audited again during the current year. Anti-corruption We maintain the highest standards of ethics and integrity in the way we do business around the world. Bribery and corruption in all forms is illegal and unacceptable. It damages competition and markets, increases costs, reduces quality for customers and damages trust. Wherever we operate we will always abide by the law. Any act of fraud, bribery or corruption would be treated with extreme seriousness by Tesco. We expect our business partners to adopt the same approach. Those breaking these laws are liable to be prosecuted. Alleged offenders who are UK citizens may also be prosecuted in the UK, no matter where the offence was committed. In accordance with our Anti-corruption Guidelines, the CEO of each business is responsible for ensuring compliance with all local legislation and Company policies and report adherence to this to the Tesco Group Executive Committee and the Group Compliance Committee. To ensure the implementation of our bribery and corruption policy, a message has been sent to staff from their CEO reminding them of both our Values and our zero tolerance approach to all forms of bribery and corruption. The policy is available on our Group Intranet and staff are made aware of it. In addition, key staff across the business have completed anti-bribery training, using an e-learning tool which includes training on the new Bribery Act, as well as our policy, and which also requires them to pass an assessment. The e-learning tool has been translated into all of the principal languages used in the countries in which we operate. There will be annual refresher training. Code of Business Conduct The Code of Business Conduct explains to staff their most important individual responsibilities and obligations while working for Tesco. All members of staff must comply with the Code of Business Conduct. Acting legally and following our Group and local policies and best practice are some of the ways in which we ensure that we always do our best for our customers and for each other. The Code provides guidance on key issues which may arise as staff work for Tesco and indicates who they should contact if they think that they, or another member of staff, may have breached those rules. Key members of staff are required to provide an annual statement of compliance with the terms of the Code. Disciplinary action may result for breaches of the Code.
OVERVIEW The areas covered by the Code include: The way we trade �� Competition �� Trade restrictions and sanctions �� Relationships with commercial suppliers Personal and business integrity �� Fraud, bribery and corruption �� Conflicts of interest �� Insider dealing and market abuse �� Gifts and improper payments �� Political activity The resources of the Company and our customer �� Intellectual Property �� Responsible use of Company IT �� Confidential Information and data protection �� Accurate accounting and money laundering Our people �� Equal opportunities �� Unacceptable behaviours Relations with stakeholders STRATEGIC REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS Board of Directors Principal risks and uncertainties General information Corporate governance Directors’ remuneration report We are committed to having a constructive dialogue with stakeholders to ensure that we understand what is important to them and allow ourselves the opportunity to present our position. Every year we carry out a survey of a cross section of shareholders in order to assess shareholder perceptions of the Company. The results of this survey are reviewed by the Board. Engagement helps us identify new risks and opportunities to ensure that our long-term strategy is sustainable. In some instances we find that working with stakeholders in partnership can help deliver shared goals. We might not be able to satisfy all stakeholder concerns all the time but through engagement we can do our best to balance competing demands. We know that customers need to be able to trust our business and they will only trust us if they believe that we are engaging on an appropriate basis with our stakeholders. We engage regularly with our employees to invite them to give us their thoughts on how the business is run and how they feel about working for Tesco. We also engage with unions in the UK and our other markets to discuss employee matters and business developments. Our programme of engaging with stakeholders including customers, staff, suppliers, investors, government, regulators, non-governmental organisations and others, is set out in more detail in our Corporate Responsibility Review 2012 and on our website. Shareholder engagement We maintain a dialogue with shareholders through organising meetings and presentations as well as responding to a wide range of enquiries. We seek shareholder views on a range of issues from strategy to corporate governance and SEE issues. We recognise the importance of communicating appropriately any significant Company developments. During the year, our CEO and Finance Director met with a number of our leading shareholders to discuss issues relating to the performance of the Group and its strategy, as well as new developments within the business. Our outgoing and incoming Chairmen also met with a number of our leading shareholders to discuss the Group’s strategy and a range of governance matters. In addition to this, our Investor Relations team engages with shareholders on a regular basis and on a wide range of issues. Our Corporate and Legal Affairs Director, Lucy Neville-Rolfe, leads the Company’s contact with socially responsible investors and has regular meetings, on both a one-to-one and group basis, to discuss the work the Group is doing on corporate responsibility and governance-related issues. An Investor Relations report is produced for the Board biannually. This report summarises feedback from shareholders, particularly in terms of our management and strategy, and ensures the Board has a balanced perspective on the views of our major shareholders. It is normal that institutional shareholders may be in more regular contact with the Group than other shareholders, but care is exercised to ensure that any price-sensitive information is released to all shareholders, institutions and private, at the same time in accordance with applicable legal and regulatory requirements. All major presentations to institutional shareholders are made available to private shareholders through the Tesco PLC website. Every shareholder may choose to receive a full Annual Report and Financial Statements or the Annual Review and Summary Financial Statements, either in paper or electronic form. These reports, together with publicly made trading statements, are available on the Group’s website, www.tescoplc.com. The Tesco PLC AGM The Annual General Meeting offers the opportunity for the Board, including the Chairmen of the Audit, Corporate Responsibility, Remuneration and Nominations Committees, to communicate the Company’s progress directly to shareholders. Our last Annual General Meeting in July 2011 was held in Nottingham. The 2012 AGM will be held in Cardiff at 11am on Friday 29 June. The choice of location is based on our policy of widening the opportunity for our shareholders to attend the AGM, by moving to different locations in the UK each year. The whole Board attends the AGM and is available to answer questions from shareholders present. To encourage shareholder participation, we offer electronic proxy voting and voting through the CREST electronic proxy appointment service. At our Annual General Meeting, all resolutions are proposed and voted upon individually by the shareholders or their proxies. All votes taken during the AGM are by way of electronic poll. This follows best practice guidelines and allows the Company to count all votes, not just those of shareholders attending the meeting. The Chairman announces the provisional voting results at the meeting, and the final results are announced the same day through the Regulatory News Services and the Tesco PLC website. By Order of the Board Jonathan Lloyd Company Secretary 4 May 2012 Tesco PLC Registered Number: 445790 Registered in England and Wales Registered Office: Tesco House, Delamare Road, Cheshunt, Hertfordshire EN8 9SL VAT Registration Number: GB 220 4302 31 Tesco PLC Annual Report and Financial Statements 2012 63
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Annual Report and Financial Stateme
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Trading profit £529m 14% of Group
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OVERVIEW Chairman’s statement Cha
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OVERVIEW Chief Executive’s review
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OVERVIEW STRATEGIC REVIEW PERFORMAN
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OVERVIEW Strategy in action IN THIS
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OVERVIEW Note 17 Loans and advances
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OVERVIEW Note 20 Borrowings Current
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OVERVIEW Note 21 Financial instrume
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OVERVIEW Note 9 Borrowings STRATEGI
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Financial calendar Financial year e
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