ChairmanStatement and Independent Auditors Report

Chairman’s Statement
Chairman’s Statement is the statement that the chairman of a company makes

to shareholders once a year, telling them about the company’s performance over the past year.
From the given annual report of Tesco following information can be observed from the
Chairman’s Statement
 Operating profit for the Group exceeding £2bn for the first time in our four years of
turnaround
 The Board’s increasing focus on growth in earnings and free Cash Flow generation has
allowed company to pay a dividend for a second successive year.
 2019 year was a significant year for TESCO as it celebrated 100 years of service.
Chairman discussed the progress that the company made against their six strategic drivers which
were their mid-term ambitions that was outlined in October 2016
The progress achieved by the company were-
1. Differentiated Brand-
 In current year company relaunched more than 10,000 own brand Products- the largest
launch in 100 year history.
 Celebrating their centenary year company provided exceptional deals through their ‘One
hundred Years of Great Value Campaign.
 Company achieved YouGov Brand Index score reached its highest rating since October
2011
2. Reduce Operating Cost by £1.5bn
 Company delivered in-year cost saving of £532m with £1.4bn of savings to date.
 Company took a difficult decision to close around 90 of fresh food counters in UK
3. Generate 9bn cash from operations
 Company generated £2.5bn of retail operating cash
 Company has generated £8.6bn of retail operating cash
4. Maximise the mix to achieve a 3.5%-4% margin
 Group operating margin for the year was 3.45% up by 59 basis points
 Company took significant decision to strengthen their mix by closing loss-making
general merchandise website, Tesco Direct.
 In Poland, it closed 62 unprofitable stores in the year.
 Company plans to focus on profitable sales to become more competitive and to deliver
strong, sustainable returns for shareholders.
5. Maximise value from property
 Company released £285m of value from property portfolio
 Company continues to repurpose space in some larger stores introducing third party
concessions from popular brands as well as services like barbers.
 It completed 3 property buybacks in the year in UK
 Free hold property across Group has remained stable at 58%
6. Innovation
 Company is innovating to make its product healthier and more sustainable
 It has added extra fibre to chillied breads and savories and reduced sugar in its own brand
of baked beans by 20%
 It has launched new packaging to reduce impact on environment and prevent waste
For sustainable Growth company has focused on the following mentioned pillars
1. People- To help colleagues succeed by providing them with flexibility, skills and reward
to get on
2. Products- To provide affordable, healthy, sustainable products for all
3. Places- To help communities thrive by positively contributing both socially and
economically
4. Other important issues addressed were cyber security, anti-bribery.
Independent Auditors Audit Report
The critical findings that can be analyzed from the Independent Auditors Report are
 Company has made Loan Impairment provision of £485m against loan and
advances to customers within Tesco Bank. The impairment provision has doubled
compared to Provision made at 2017/18 £238m.
 Management made change in accounting policies, estimates and judgment for
2018/19 from incurred loss model to expected loss model which resulted in
transitional increase in Group’s Loan impairment provision.
 The Group has number of contingent liabilities which could result in possible
outflows. The contingent liabilities identified were
1. UK shareholders initiated actions against the group in 16/17 for
overstatement of expected profits in 2014 which may result in legal
exposure
2. Tesco Stores Limited has received claims from current and former store
colleagues alleging that their work is of equal value to that of colleagues
working in the Group’s distribution centers and that differences in terms
and conditions relating to pay are not objectively justifiable.
3. Auditors reported deficiencies in certain IT controls in past years which
could have an impact on Group’s control and financial reporting system.
Although the management tried to address the issue weakness remained in
the control environment.

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Chairman’s Statement

Chairman’s Statement is the statement that the chairman of a company makes

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