Tesco PLC — Annual Report 2021

Apr 14, 2021

National Storage Mechanism | Additional information RNS Number : 3720V Tesco PLC 14 April 2021 Notes to the Group financial statements Note 10 Goodwill and other intangible assets continued Goodwill ��m Software(a) ��m Customer relationships(c) ��m Intangible assets ��m Total ��m 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. Goodwill ��m Software ��m Customer relationships ��m Intangible assets ��m Total ��m 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 ��m Other(a) ��m Total ��m 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 ��1,345m (2020: ��1,712m), office equipment with a net carrying value of ��213m (2020: ��245m) and motor vehicles with a net carrying value of ��282m (2020: ��250m) (b) Includes ��476m of land and buildings related to obtaining control of The Tesco Property (No. 2) Limited Partnership, which was impaired by ��(32)m on acquisition (2020: ��914m of land and buildings related to obtaining control of The Tesco Atrato Limited Partnership, which was impaired by ��(287)m on acquisition). The ��476m additions comprised ��492m cost of acquisition offset by ��16m of historical deferred profit. Refer to the breakdown of assets and liabilities acquired within Note 33. (c) Refer to Note 15. (d) Includes ��2,099m (2020: ��1,406m) of assets pledged as security for secured bonds (refer to Note 23 and ��826m (2020: ��478m) 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 ��m Other(a) ��m Total ��m 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 ��m Other ��m Total ��m 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 ��m Other ��m Total ��m 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 ��m 2020 ��m Current 575 598 Non-current 7,827 8,968 Total lease liabilities 8,402 9,566 Maturity analysis - contractual undiscounted lease payments 2021 ��m 2020 ��m 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 Continuing operations 52 weeks 2021 ��m 53 weeks 2020 ��m 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 2021 ��m 53 weeks 2020 ��m Total cash outflow for leases 1,109 1,175 * Includes ��5m (2020: ��5m) 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 ��10.8bn (2020: ��11.8bn). 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 ��36m (2020: ��93m) 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 Continuing operations 52 weeks 2021 ��m 53 weeks 2020(a) ��m 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 ��5m (2020: ��4m) of sublease interest income. (c) Includes ��22m (2020: ��26m) of sublease rental income. Finance lease payments receivable The finance lease receivable (net investment in the lease) included in the Group balance sheet is ��86m (2020: ��48m). Operating lease payments receivable maturity analysis 2021 ��m 2020 ��m 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 ��m 2020 ��m 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 ��0.1bn (2020: ��0.2bn). 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: Nature of relationship Business activity Share of issued share capital, loan capital and debt securities Country of incorporation Principal area 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 ventures Gain Land Limited(d) 2021 ��m 2020 ��m 2021 ��m 2020 ��m 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 ��3,939m (2020: ��4,338m). (b) The current and non-current liabilities of UK property joint ventures largely comprise loan balances of ��3,235m (2020: ��3,616m) and derivative swap balances of ��363m (2020: ��452m) 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 ��14m dividends received from joint ventures with ��nil carrying amounts. ��2m of profit and ��12m of decrease in 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 ��277m. As at 27 February 2021, the Group has ��101m (2020: ��106m) 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 ��m 2020 ��m 2021 ��m 2020 ��m 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 ��295m was recognised on the goodwill associated with Tesco Bank (2020: ��nil). 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: ��nil). 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: ��nil) 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 UK & ROI Central Europe Total continuing operations Discontinued operations Total(a) 52 weeks ended 27 February 2021 Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m 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 ��85m other non-current assets net impairment reversal for the Group (2020: ��302m loss), a net reversal of ��81m (2020: ��302m loss) has been classified within exceptional items, of which a net reversal of ��119m (2020: ��251m loss) related to the UK & ROI, a net reversal of ��5m (2020: ��28m reversal) related to Central Europe and a net loss of ��43m (2020: ��79m loss) related to discontinued operations. UK & ROI Central Europe Total continuing operations Discontinued operations Total(a)(b) 53 weeks ended 29 February 2020 Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m Impairment loss ��m Impairment reversal ��m 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 ��32m in the UK in respect of the Group obtaining control of The Tesco Property (No. 2) Limited Partnership (2020: ��287m 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 ��43m, 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. At 27 February 2021 UK & ROI ��m Central Europe ��m Tesco Bank ��m Total ��m 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 ��4,271m (2020: ��4,840m) consists of UK ��3,789m (2020: ��3,793m), ROI ��2m (2020: ��3m) and Tesco Bank ��480m (2020: ��775m) included within continuing operations and ��nil (2020: Thailand ��193m and Malaysia ��76m) in discontinued operations. (b) The carrying value of the Group's investments include: Trent Hypermarket Private Limited ��53m (2020: ��59m) and Tesco Underwriting Limited ��93m (2020: ��87m). (c) Due to the individual nature of each property, fair values are classified as Level 3 within the fair value hierarchy. At 29 February 2020 (restated(d)) UK & ROI ��m Central Europe ��m Tesco Bank ��m Total continuing operations ��m Discontinued operations ��m Total ��m 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 % Pre-tax discount rates 5.4 - 5.9 8.0 - 8.1 5.5 - 8.3 7.0 - 9.3 Post-tax discount rates 4.7 - 4.8 6.6 - 7.1 4.4 - 7.6 5.5 - 8.3 Long-term growth rates 1.9 1.9 - 2.0 2.0 - 3.0 2.0 - 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: Key assumption Reasonably possible change Impact on impairment 2021 ��m 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: Key assumption Reasonably possible change Impact on impairment 2021 ��m 2020 ��m Post-tax discount rates Increase of 1.0%pt for each geographic region Increase (438) (482) Decrease of 1.0%pt for each geographic region Decrease 397 485 Year one sales growth Increase of 1.0%pt for each geographic region Decrease 55 61 Decrease of 1.0%pt for each geographic region Increase (56) (61) Long-term growth rates Increase of 1.0%pt for each geographic region Decrease 304 445 Decrease of 1.0%pt for each geographic region Increase (308) (410) Property fair values Increase of 5.0% for each 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. Scenario Weighted average probability Reasonably possible change Impact on impairment 2021 ��m Brexit 11% Increase of 5.0%pt for each geographic region Increase (59) Decrease of 5.0%pt for each geographic region Decrease 60 COVID-19 10% Increase of 5.0%pt for each geographic region Increase (28) Decrease of 5.0%pt for each geographic region Decrease 29 Macro-economic downturn 10% Increase of 5.0%pt for 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 ��m 2020 ��m 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 ��m 2020 ��m Investment securities at amortised cost(a) 928 - Expected credit loss allowance(b) (1) - 927 - Of which: Current Non-current 175 752 - - 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 ��1,058m 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 ��3m 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 ��8m would have been recognised in other comprehensive income in the current year had the financial assets not been reclassified. Note 17 Inventories 2021 ��m 2020 ��m 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 ��42,482m (53 weeks ended 29 February 2020: ��42,782m). Inventory losses and provisions recognised as an expense for the 52 weeks ended 27 February 2021 were ��1,052m (53 weeks ended 29 February 2020: ��1,121m). Note 18 Trade and other receivables 2021 ��m 2020 ��m 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 ��52m (2020: ��60m) 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: At 27 February 2021 Not past due ��m Up to six months past due ��m Six to 12 months past due ��m Greater than 12 months past due ��m Total ��m 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) At 29 February 2020 Not past due ��m Up to six months past due ��m Six to 12 months past due ��m Greater than 12 months past due ��m Total ��m 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 ��m 2020 ��m 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 ��m 2020 ��m 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, ��3.0bn (2020: ��3.5bn) 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 ��nil (2020: ��0.8bn). At 27 February 2021, Delamare Cards MTN Issuer PLC had ��1.8bn (2020: ��2.0bn) notes in issue in relation to securitisation transactions, of which ��nil (2020: ��0.6bn) was externally issued. The Group owned ��1.5bn (2020: ��1.4bn) class A credit card-backed notes and ��0.3bn (2020: ��0.2bn) class D credit card-backed notes. All of the ��1.5bn (2020: ��1.2bn) class A retained Credit Card backed notes are held within a single collateral pool. Fair value hedge adjustments Fair value hedge adjustments amounting to ��6.7m (2020: ��9.7m) 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 ��m 2020 ��m 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 ��m 2020 ��m Money market funds 1,011 1,076 Cash and cash equivalents includes ��101m (2020: ��35m) of restricted amounts mainly relating to the Group's pension schemes and employee benefit trusts. Note 21 Trade and other payables 2021 ��m 2020 ��m 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 ��572m (2020: ��393m) 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 ��m 2020 ��m 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. Par value Maturity 2021 ��m 2020(k) ��m Bank loans and overdrafts(a) - - 559 1,142 2.125% MTN ���296m Nov 2020 - 255 1m USD LIBOR + 0.70% Tesco Bank Bond $350m Nov 2020 - 273 5% Tesco Bank Retail Bond ��200m Nov 2020 - 202 6.125% MTN ��417m Feb 2022 417 416 LIBOR + 0.53% Tesco Bank Bond ��300m Oct 2022 - 299 5% MTN(b) ��71m Mar 2023 79 103 1.375% MTN ���750m Oct 2023 662 660 2.5% MTN(b) ���473m Jul 2024 415 653 2.5% MTN ��400m May 2025 417 418 3.5% Tesco Bank Senior MREL Notes(h) ��250m Jul 2025 251 250 3.322% LPI MTN(i) ��354m Nov 2025 364 358 0.875% MTN ���750m May 2026 649 640 5.5457% Secured Bond(c)(d) ��289m Feb 2029 275 303 6.067% Secured Bond(c) ��200m Feb 2029 193 192 LIBOR + 1.2% Secured Bond(c) ��50m Feb 2029 48 36 0.375% MTN ���750m Jul 2029 625 - 6% MTN(b) ��38m Dec 2029 45 58 2.75% MTN ��450m Apr 2030 441 - LIBOR + 1.17% Secured Bond (f)(l) ��187m Jan 2032 184 - LIBOR + 1.17% Secured Bond (f) ��108m Jan 2032 100 - 5.5% MTN(b) ��67m Jan 2033 80 133 1.982% RPI MTN(j) ��294m Mar 2036 302 297 6.15% USD Bond(b) $355m Nov 2037 333 555 6.0517% Secured Bond(e)(g) ��458m Oct 2039 592 616 4.875% MTN(b) ��14m Mar 2042 14 20 5.125% MTN(b) ���235m Apr 2047 209 316 5.2% MTN(b) ��14m 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 ��532m (2020: ��1,106m) of bank overdrafts. ��525m (2020: ��979m) 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 ��22m, 2.5% MTN Jul 2024 ���277m, 6% MTN Dec 2029 ��10m, 5.5% MTN Jan 2033 ��42m, 6.15% USD Bond Nov 2037 $170m, 4.875% MTN Mar 2042 ��6m, 5.125% MTN Apr 2047 ���121m and 5.2% MTN Mar 2057 ��16m. (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 ��817m (29 February 2020: ��794m). (d) This is an amortising bond which matures in Feb 2029. ��26m (29 February 2020: ��22m) 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 ��837m (29 February 2020 ��612m). (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 ��445m. (g) This is an amortising bond which matures in October 2039. ��14m 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 ��9m 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 27 February 2021 Notes At amortised cost ��m At fair value through profit or loss ��m At fair value through other comprehensive income ��m Total ��m 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 29 February 2020 (restated) Notes At amortised costs ��m At fair value through profit or loss ��m At fair value through other comprehensive income ��m Total ��m 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. 2021 2020 (restated(a)) Carrying value ��m Fair value ��m Carrying value ��m Fair value ��m 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 ��122m (2020: ��127m) are presented in the Group balance sheet net of deferred profits of ��38m (2020: ��54m) 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). At 27 February 2021 Level 1 ��m Level 2 ��m Level 3 ��m Total ��m 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 At 29 February 2020 Level 1 ��m Level 2 ��m Level 3 ��m Total ��m 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 ��m 2020 ��m 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 At 27 February 2021 Gross amounts of recognised financial assets/ (liabilities) ��m Gross amounts of financial assets/ (liabilities) offset in the Group balance sheet ��m Net amounts presented in the Group balance sheet ��m Financial instruments ��m Collateral ��m Net amount ��m 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 At 29 February 2020 (restated(a)) Gross amounts of recognised financial assets/ (liabilities) ��m Gross amounts of financial assets/ (liabilities) offset in the Group balance sheet ��m Net amounts presented in the Group balance sheet ��m Financial instruments ��m Collateral ��m Net amount ��m 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 ��m Floating ��m Total ��m Fixed ��m Floating ��m Total ��m 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: Gains/(losses) on net investment hedges Nominal amount of the hedged item ��m Nominal amount of the hedging instrument ��m Movement on continuing hedges ��m Movement on discontinued hedges ��m 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 ��nil (2020: ��nil) 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 ��57m (2020: ��nil) 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 ��68m (2020: decrease by ��68m). 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 Hedging instrument Notional ��m Asset ��m Liability ��m Interest rate benchmark Hedged item Hedge relationship Interest rate swaps 650 14 - EURIBOR MTN Fair value hedge Interest rate swaps 465 22 - LIBOR MTN Fair value hedge Interest rate swaps 346 - (108) LIBOR Borrowing Cash flow hedge Cross-currency interest rate swaps 256 137 (3) LIBOR MTN Not in formal hedge relationship Investment in subordinated loans 21 21 - LIBOR - Not in formal 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 value ��m Notional ��m Fair value ��m Notional ��m Fair value ��m Notional ��m Fair value ��m Notional ��m 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 Maturity profile Up to one year One to five years More than five years Up to one year One to five years More than five years Fair value hedges Interest rate risk Interest rate swaps - GBP - Notional amount (��m) 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 (��m) - 650 - - 645 - - Average net interest rate (pay)/receive - 0.66% - - 0.63% - Interest rate/Foreign currency risk Cross-currency swaps (GBP:EUR) - Notional amount (��m) - - 650 - - - - Average exchange rate - - 1.13 - - - - Average net interest rate (pay)/receive - - (0.77%) - - - Cross-currency swaps (GBP:USD) - Notional amount (��m) - - - - - 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 (��m) - 360 300 - - 649 Average net interest rate (pay)/receive - (4.23%) (4.21%) - - (4.22%) Interest rate swaps - Notional amount (��m) - - 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 (��m) - - - 272 - - - Average exchange rate - - - 1.29 - - - Average net interest rate (pay)/receive - - - 0.84% - - Cross-currency swaps (GBP:EUR) fixed - Notional amount (��m) - - - 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 ��2.5bn were outstanding (2020: ��2.1bn). These forward contracts are largely in relation to purchases of Euros (notional ���1.0bn) (2020: notional ��0.8bn) 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 ��54m (2020: ��69m) at a rate of ��277 to ��457 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. Carrying amount Accumulated amounts of fair value adjustments on hedged item At 27 February 2021 Assets ��m Liabilities ��m Assets ��m Liabilities ��m Changes in fair value for calculating hedge ineffectiveness ��m Residual hedge adjustments(a) ��m 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 Carrying amount Accumulated amounts of fair value adjustments on hedged item At 29 February 2020 Assets ��m Liabilities ��m Assets ��m Liabilities ��m Changes in fair value for calculating hedge ineffectiveness ��m Residual hedge adjustments(a) ��m 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 At 27 February 2021 Hedging instrument Change in value of hedging instrument for calculating hedge ineffectiveness ��m Change in value of hedged item for calculating hedge ineffectiveness ��m Continuing hedges ��m Discontinued hedges ��m Interest rate risk Index-linked bonds Index-linked bonds 1 (1) 71 - Borrowings Interest rate swaps 30 (30) 18 - Foreign currency risk Trade payables Forward contracts (44) 44 (24) - Interest rate/Foreign currency risk MTNs Cross���currency swaps 6 (6) - 43 * Excludes deferred tax. Cumulative impact on hedging reserve and cost of hedging reserve At 29 February 2020 Hedging instrument Change in value of hedging instrument for calculating hedge ineffectiveness ��m Change in value of hedged item for calculating hedge ineffectiveness ��m Continuing hedges ��m Discontinued hedges ��m Interest rate risk Index-linked bonds Index-linked bonds 22 (22) 69 - Borrowings Interest rate swaps (2) 2 (4) - Foreign currency risk Trade payables Forward contracts 55 (55) 8 - Interest rate/Foreign currency risk MTNs Cross���currency 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: Line item in Group income statement that includes hedge ineffectiveness 2021 2020 Hedge ineffectiveness recognised in profit or loss ��m Hedge ineffectiveness recognised in profit or loss ��m 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 Hedging reserve ��m Cost of hedging reserve ��m Line item Hedging reserve ��m Cost of hedging reserve ��m Line item Opening balance 154 (15) 118 (5) Interest rate risk Index-linked swaps - Net fair value gains/(losses) 16 - 1 - - Amount reclassified to Group income statement (15) - Finance income/costs (2) - Finance income/costs Interest rate swaps - Net fair value gains/(losses) 30 - (2) - - Amount reclassified to Group income statement (6) - Finance income/costs (1) - Finance income/costs Interest rate/Foreign currency risk Cross-currency swaps - Net fair value gains/(losses) (4) 17 70 (12) - Amount reclassified to Group income statement (65) - Finance income/costs (4) - Finance 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 gain/(loss) ��m Equity gain/(loss) ��m Income gain/(loss) ��m Equity gain/(loss) ��m 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 ��26.0bn (2020: ��28.9bn). The net counterparty exposure under derivative contracts is ��1.2bn (2020: ��1.0bn). 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 ��m 2020(a) ��m 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 ��1.6bn (2020: ��2.6bn) 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 ��160m (2020: ��181m) are presented net of loss allowances of ��nil (2020: ��2m) and deferred profits of ��38m (2020: ��54m) 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 ��1.5bn 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 term rating Long term rating Outlook Short term rating Long term 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 ��15.0bn Euro Medium Term Note programme, of which ��4bn was in issue at 27 February 2021 (2020: ��4.0bn), plus ��0.3bn equivalent of USD-denominated notes issued under 144A documentation (2020: ��0.4bn). 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 ��450m (maturing in 2030) and ���750m (maturing in 2029). The ���750m 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 ��m 2020 ��m 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 ��2.5bn revolving facility was established, replacing the existing ��3bn 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 ��nil (2020: ��0.4bn) of bilateral facilities and a ��2.5bn (2020: ��2.6bn) 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. At 27 February 2021 Due within 1 year ��m Due between 1 and 2 years ��m Due between 2 and 3 years ��m Due between 3 and 4 years ��m Due between 4 and 5 years ��m Due beyond 5 years ��m 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) At 29 February 2020 (restated) Due within 1 year ��m Due between 1 and 2 years ��m Due between 2 and 3 years ��m Due between 3 and 4 years ��m Due between 4 and 5 years ��m Due beyond 5 years ��m 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 ��116m inflow (2020: ��6m outflow) within cash flows generated from/(used in) investing activities. The gross cash flows are ��201m inflow (2020: ��774m inflow) and ��85m outflow (2020: ��780m outflow). The Group cash flow statement includes net cash flows from derivative financial instruments of ��580m outflow (2020: ��17m outflow) within cash flows generated from/(used in) financing activities. The gross cash flows are ��2,276m outflow (2020: ��346m outflow) and ��1,696m inflow (2020: ��329m 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 ��450m bond maturing in 2030 and undertook a liability management exercise by combining an issuance of ���750m bond maturing in 2029 with a debt buyback, the latter resulting in notionals of ��0.6bn bought back across eight bonds. Refer to Note 32 for the value of the Group's net debt (��12.0bn; 2020: ��12.3bn), and the Group statement of changes in equity for the value of the Group's equity (��12.3bn; 2020: ��13.4bn). (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 27 February 2021 ��m Not past due ��m <30 days past due ��m >30 days past due ��m Total ��m ��m ��m 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 29 February 2020 ��m Not past due ��m <30 days past due ��m >30 days past due ��m Total ��m ��m ��m 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 27 February 2021 Stage 1 ��m Stage 2 ��m Stage 3 ��m Total ��m 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 29 February 2020 Stage 1 ��m Stage 2 ��m Stage 3 ��m Total ��m 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 At 27 February 2021 12-month PD % Stage 1 ��m Stage 2 ��m Stage 3 ��m Total ��m 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 % ��m ��m ��m ��m 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 ��154m (2020: ��140m). 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: As at 27 February 2021 (5 year average) Base 40% Upside 30% Downside 1 25% Downside 2 5% COVID-19 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 As at 29 February 2020 (5 year average) Base 40% Upside 20% Downside 1 30% Downside 2 5% Covid-19 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 Key assumption Reasonably possible change 2021 ��m 2020 ��m 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 ��214m which includes three management overlays. A first ��129m 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 ��64m 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 ��21m 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. Gross loans and advances subject to forbearance programmes Forbearance programmes as a proportion of total loans and advances by category Proportion of forbearance programmes covered by allowance for expected credit losses 2021 ��m 2020 ��m 2021 % 2020 % 2021 % 2020 % 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 ��m 2020 ��m 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 ��500m (2020: ��500m) drawn under the Bank of England's Term Funding Scheme (TFS) and ��100m (2020: ��nil) drawn under the Bank of England's term Funding Scheme with additional incentives for Small and Medium Sized Entities (TFSME). Note 27 Provisions Property provisions ��m Restructuring provisions ��m Other provisions ��m Total ��m 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 ��m 2020 ��m 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 ��2m net charge (��31m charge, ��(29)m release) recognised in the year, ��2m (2020: ��43m) has been classified as an exceptional item within discontinued operations, and ��nil (2020: ��108m charge) has been classified within exceptional items as 'Net restructuring and redundancy costs' within continuing operations, of which ��nil (2020: ��95m) related to UK & ROI and ��nil (2020: ��13m) 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 ��88m (2020: ��nil) 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 ��69m (2020: ��129m), which is made up of share option schemes and share bonus payments. Of this amount, ��60m (2020: ��113m) will be settled in equity and ��9m (2020: ��16m) 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 ��5 and ��500 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 ���12 and ���500 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 ��5 and ��500 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 Savings-related Share Option Scheme Irish Savings-related Share Option Scheme Nil cost Share Option Scheme(a) Booker Group PLC Savings Related Share Option Plan Booker Group PLC Performance Share 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 price range (pence) 150.00 to 219.00 150.00 to 219.00 - 137.45 to 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 price range (pence) 150.00 to 219.00 150.00 to 219.00 137.45 to 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 Savings-related Share Option Scheme Irish Savings-related Share Option Scheme Nil cost Share Option Scheme Booker Group PLC Savings Related Share Option Plan Booker Group PLC Performance Share Plan Scheme Other Schemes 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 price range (pence) 150.00 to 322.00 150.00 to 219.00 - 137.13 to 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 price range (pence) 150.00 to 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 SAYE 2020 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 WAFV of shares pence 2020 Number WAFV of shares pence 11,496,310 237.80 39,136,637 233.77 Group Bonus Plan Performance Share Plan 15,502,105 246.70 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 ��347m (2020: ��329m) have been recognised in the Group income statement. This includes ��132m (2020: ��116m) of salaries paid as pension contributions. Defined benefit schemes The Group has a defined benefit pension deficit of ��1,222m (2020: ��3,085m), 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 ��7m 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 ��2.5bn contribution in relation to the Group's sale of its operations in Thailand and Malaysia, the funding position was a surplus of ��570m. The market value of the Scheme's assets was ��18,492m 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 ��2.5bn contribution has significantly reduced the prospect of having to make further pension deficit contributions in the future. The Group will continue to pay ��25m 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 ��775m (2020: ��575m). The most recent Booker Pension Scheme triennial valuation showed a funding deficit of ��103m at 31 March 2019, with agreed contributions of ��15m 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 are calculated using a discount rate set with reference to corporate bond yields. If the return on the Scheme's assets underperform this rate, the accounting deficit will increase. If the Scheme's assets underperform the expected return for the funding valuation, this may require additional contributions to be made by the Group. The Trustee and the Group regularly monitor the funding position and operate a diversified investment strategy. The Trustee and Group take a balanced approach to investment risk and have a long-term plan to significantly reduce the investment risk within the Scheme. Inflation The Scheme's benefit obligations are linked to inflation. A higher rate of expected long-term inflation will therefore lead to higher liabilities, both for the IAS 19 and funding liability. If the Scheme's funding liability increases, this may require additional contributions to be made by the Group. As part of the investment strategy, the Trustee aims to mitigate this risk through investment in a liability-driven investment (LDI) portfolio. The portfolio invests in assets which increase in value as inflation expectations increase. This mitigates the impact of any adverse 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 yields will increase the accounting deficit under IAS 19. Similarly, a decrease in gilt yields will have an adverse impact on the funding position of the Scheme. This may lead to additional contributions to be made by the Group. As part of the investment strategy, the Trustee aims to mitigate this risk through investment in a LDI portfolio. The portfolio invests in assets which increase in value as interest rates decrease. 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 provide benefits for the life of the member and so increases in life expectancy will lead to higher liabilities. To reduce this risk, changes to future benefits were introduced in June 2012 to increase the age at which members 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 Male Staff 90% of SAPS S3 Normal Heavy 97% of SAPS S3 Normal Heavy Senior Manager 95% of SAPS S3 Normal Light 104% of SAPS S3 Normal Light Female Staff 110% of SAPS S3 Normal Heavy 114% of SAPS S3 Normal Heavy Senior Manager 95% of SAPS S3 All Middle 100% of SAPS S3 All 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 Years 2020 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: Financial assumptions - Increase/(decrease) in UK Defined Benefit Obligation 2021 Discount rate ' ��m Inflation rate ��m 2020 Discount rate ��m Inflation rate ��m 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 Benefit Obligation 2021 ��m 2020 ��m 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 ��169m (2020: ��206m). 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 ��7m (2020: ��8m) was determined in accordance with the advice of independent actuaries. During the current financial year, ��nil (2020: ��nil) has been charged to the Group income statement and ��nil (2020: ��nil) 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 Quoted Unquoted ��m ��m Total ��m % 2020 Quoted Unquoted ��m ��m Total ��m % 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 ��8,425m (2020: ��8,115m) and associated repurchase agreements and swaps of ��(5,677)m (2020: ��(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 ��222m (2020: ��209m) relating to property used by the Group. Group property with net carrying value of ��826m (2020:��478m) (Note 11) and a value to the Scheme of at least ��775m (2020: ��575m) 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 plan assets Defined benefit obligation Net defined benefit surplus/(deficit) 2021 ��m 2020 ��m 2021 ��m 2020 ��m 2021 ��m 2020(b) ��m 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 ��nil 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 ��(1)m within the Group income statement, ��(6)m remeasurement loss in the Group statement of comprehensive income/(loss) and ��2m in other movements. (b) Movements in the prior year in relation to discontinued operations included ��(8)m within the Group income statement, ��(3)m in the Group statement of comprehensive income/(loss) and ��1m in other movements Note 30 Called-up share capital 2021 2020 Number of Ordinary shares ��m Number of Ordinary shares ��m 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 ��4.9bn 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). During the current financial year, the Group received ��nil (2020: ��nil) proceeds from sale of untraced shares and ��nil (2020: ��nil) 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 ��m 2020 ��m 2021 ��m 2020 ��m 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 ��m 2020 ��m 2021 ��m 2020 ��m 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 ��122m (2020: ��127m) are presented net of deferred profits of ��38m (2020: ��54m), 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 ��m 2020 ��m 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 balances Current and saving deposit accounts Number of key management personnel ��m Number of key management personnel ��m 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 At 29 February 2020 ��m Cash flows arising from financing activities ��m Other cash flows ��m Fair value gains/ (losses) ��m Foreign exchange ��m Interest income/ (charge) ��m Acquisitions and disposals (a) ��m Other ��m Discontinued operations ��m At 27 February 2021 ��m 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 At 23 February 2019 ��m Cash flows arising from financing activities ��m Other cash flows ��m Fair value gains/ (losses) ��m Foreign exchange ��m Interest income/ (charge) ��m Acquisition of joint venture(a) ��m Other ��m At 29 February 2020 ��m 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 ��m 2020 ��m 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 ��15m 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: ��m 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 ��1m and customer relationships of ��3m, 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 ��77m. The gross contractual amount for trade receivables due was ��78m, of which ��1m is expected to be uncollectable. Best Food Logistics contributed revenues of ��715m and net loss after tax of ��14m to the Group from 7 March 2020 to 27 February 2021. The ��14m loss includes ��1m 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 ��nil have been included in Administrative expenses for the 52 weeks ended 27 February 2021 (53 weeks ended 29 February 2020: ��2m). 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 ��54m. 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 ��m 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 ��23m has also been classified as an exceptional item. Refer to Note 4 for further details. Notes ��m 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 ��203m (2020: ��140m), 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 ��93 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 (��70m) and KRW 189bn (��121m). In the event that the guarantees are called, the potential economic outflow is estimated at KRW 73bn (��46m), with funds of KRW 32bn (��20m) placed in escrow to provide the payment mechanism for these guarantees. The net potential outflow to Tesco is therefore estimated at KRW 41bn (��26m). 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 ��4.2bn 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 ��88m 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. Name Company number Name Company Number Name Company Number Buttoncable Limited 5294246 T & S Stores Limited 1228935 Tesco PENL Limited 6479938 Buttoncase Limited 5298861 Tapesilver Limited 5205362 Tesco Red (3LP) Limited 10127765 Day and Nite Stores Limited 1746058 Tesco Aqua (GP) Limited 5721654 Tesco Red (GP) Limited 5721630 Dillons Newsagents Limited 140624 Tesco Brislington Limited 10701640 Tesco TLB Properties Limited 3159425 Dunnhumby Holding Limited 8071909 Tesco Family Dining Limited 8514605 The Tesco Aqua Limited Partnership LP011520 Launchgrain Limited 5260856 Tesco Food Sourcing Limited 7502096 The Tesco Red Limited Partnership LP011522 Oakwood Distribution Limited 5721635 Tesco Freetime Limited 4345023 Spen Hill Development Limited 4827219 Tesco Gateshead Property Limited 8312532 Spen Hill Management Limited 2460426 Tesco Mobile Communications 4780729 Spen Hill Properties (Holdings) PLC 2412674 Tesco Mobile Services 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 ��12.7bn (2020: ��11.9bn). 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 ��m 2020 ��m 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 Notes 27 February 2021 ��m 29 February 2020 ��m 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 ��4,250m (2020: ��(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 Share capital ��m Share premium ��m Capital Redemption reserve ��m Cost of hedging reserve ��m Hedging reserve ��m Own shares held ��m Merger reserve ��m Retained earnings ��m Total equity ��m 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 Share capital ��m Share premium ��m Capital Redemption reserve ��m Cost of hedging reserve ��m Hedging reserve ��m Own shares held ��m Merger reserve ��m Retained earnings ��m Total equity ��m 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 ��7.1bn, of which the unrealised profit elements are ��1.6bn of share-based payment reserves and ��0.7bn of dividends received from subsidiary undertakings not yet settled by qualifying consideration. After deducting the cost of its own shares held in trust of ��0.2bn, the Company had profits available for distribution of ��4.6bn. 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 Notes 2021 ��m 2020 ��m 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 ��m 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 ��243m includes the ��234m impairment of its subsidiary holding company Cheshunt Holdings Guernsey Limited to a recoverable amount of ��7m based on remaining net assets subsequent to a dividend payment, and ��9m 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 ��m 2020 ��m 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 ��m 2020 ��m 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: Financial instruments ��m Other timing differences ��m Total ��m 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 Par value Maturity 2021 ��m 2020 ��m Bank loans and overdrafts 21 43 6.125% MTN ��417m Feb 2022 417 416 5% MTN(a) ��93m Mar 2023 79 103 3.322% LPI MTN(b) ��354m Nov 2025 364 358 6% MTN(a) ��48m Dec 2029 45 58 5.5% MTN(a) ��109m Jan 2033 80 133 1.982% RPI MTN(c) ��294m Mar 2036 302 297 6.15% USD Bond(a) $525m Nov 2037 333 555 4.875% MTN(a) ��20m Mar 2042 14 20 5.125% MTN(a) ���356m Apr 2047 209 316 5.2% MTN(a) ��30m 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 ��22m, 6% MTN Dec 2029 ��10m, 5.5% MTN Jan 2033 ��42m, 6.15% USD Bond Nov 2037 $170m, 4.875% MTN Mar 2042 ��6m, 5.125% MTN Apr 2047 ���121m and 5.2% MTN Mar 2057 ��16m. (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 ��m Notional ��m Fair value ��m Notional ��m Fair value ��m Notional ��m Fair value ��m Notional ��m 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 Scheme Nil cost 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 Scheme Nil cost 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 - Exercise price range (pence) Weighted average remaining contractual life (years) - - 188.00 - - 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 of shares WAFV pence Number of shares WAFV 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 ��1m (2020: ��2m). 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 ��3,200m (2020: ��2,589m). It has also guaranteed derivative agreements of Group undertakings with a gross liability of ��790m (2020: ��168m) 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 Name of undertaking Registered address Class of share held % held by Group Name of undertaking Registered address Class of share held % held by Group Acklam Management Company Limited 1 Limited by Guarantee - Linnco Limited 8 ��1.00 Ordinary 100 Alfred Preedy & Sons Limited 2 ��1.00 Deferred 100 Londis (Holdings) Limited 8 ��50.00 Ordinary 100 ��1.00 Ordinary 100 Londis Pension Trustees Limited 8 ��1.00 Ordinary 100 Armitage Finance Unlimited 1 ��0.90 Ordinary 100 Makro Holding Limited 8 ��1.00 Ordinary 100 Bath Upper Bristol Road Management Company Limited 1 Limited by Guarantee - Makro Properties Limited 8 ��1.00 Ordinary 100 Berry Lane Management Company Limited 1 Limited by Guarantee - Makro Self Service Wholesalers Limited 8 ��1.00 Ordinary A 100 BF Limited 8 ��1.00 Ordinary 100 ��1.00 Ordinary B 100 Bishop's Group Limited 8 ��0.01 Ordinary 100 Maldon Finance Limited 1 ��1.00 Ordinary 100 Booker Cash & Carry Limited 8 ��1.00 Ordinary 100 US$1.00 A Preference 100 Booker Direct Limited 8 ��0.01 Ordinary 100 US$0.50 B Preference 100 Booker Group Limited 8 ��0.00000000055625 Ordinary 100 US$0.25 C Preference 100 Booker Limited 8 ��1.00 Ordinary 100 Munster Road Management Company Limited 1 Limited by Guarantee - Booker Retail Partners (GB) Limited 8 ��1.00 Ordinary 100 Murdoch Norton Limited 8 ��0.05 Ordinary 100 Booker Retail Limited 8 ��0.10 Ordinary 100 Oakwood Distribution Limited 1 ��1.00 Ordinary 100 Booker Pension Trustees Limited 8 Limited by Guarantee 100 One Stop Community Stores Limited 2 ��0.00001200004 Ordinary 100 Booker Wholesale Holdings Limited 8 ��0.01 Ordinary A1 100 One Stop Convenience Stores Limited 2 ��1.00 Ordinary 100 Booker Unapproved Scheme Trustees Ltd 8 Limited by Guarantee - One Stop Stores Limited���(a) 2 ��1.00 Ordinary 100 Bourne End Residential Management Company Limited 1 Limited by Guarantee - One Stop Stores Trustee Services Limited 2 ��1.00 Ordinary 100 Broughton Retail Park Nominee 1 Limited 1 ��1.00 Ordinary 100 Orpington (Station Road) Limited 1 ��1.00 Ordinary 100 Broughton Retail Park Nominee 2 Limited 1 ��1.00 Ordinary 100 Oxford Fox and Hounds Management Company Limited 1 Limited by Guarantee - Broughton Retail Park Nominee 3 Limited 1 ��1.00 Ordinary 100 Paper Chain (East Anglia) Limited 2 ��1.00 Deferred 100 Broughton Retail Park Nominee 4 Limited 1 ��1.00 Ordinary 100 US$0.001 Ordinary 100 Budgen Holdings Limited 8 ��1.00 Ordinary 100 PTLL Limited 1 ��1.00 Ordinary 100 Budgens Pension Trustees No.2 Limited 8 ��1.00 Ordinary 100 Ritter-Courivaud Limited 8 ��0.10 Ordinary 100 Budgens Property Investments Limited 8 ��1.00 Ordinary 100 Seacroft Green Nominee 1 Limited 1 ��1.00 Ordinary 100 Budgens Stores Limited 8 ��1.00 Ordinary 100 Seacroft Green Nominee 2 Limited 1 ��1.00 Ordinary 100 Buttoncable Limited 1 ��1.00 Ordinary 100 Spen Hill Developments Limited 1 ��1.00 Ordinary 100 Buttoncase Limited��� 1 ��1.00 Cumulative Redeemable Preference 100 Spen Hill Management Limited���(b) 1 ��1.00 Ordinary 100 ��1.00 Ordinary 100 Spen Hill Properties (Holdings) plc��� 1 ��1.00 Ordinary 100 Canterbury Road Management Limited 1 Limited by Guarantee - Spen Hill Regeneration Limited 1 ��1.00 Ordinary 100 Cardiff Cathays Terrace Management Company Limited 1 Limited by Guarantee - Spen Hill Residential No 1 Limited 1 ��1.00 Ordinary 100 Comar Limited��� 1 ��1.00 Ordinary 100 Spen Hill Residential No 2 Limited 1 ��1.00 Ordinary 100 Day And Nite Stores Limited 2 ��1.00 Cumulative Convertible Participating Preferred Ordinary 100 Station House Welling Management Limited 1 Limited by Guarantee - ��1.00 Cumulative Redeemable Preference 100 Statusfloat Limited 1 ��1.00 Ordinary 100 ��1.00 Ordinary 100 T & S Stores Limited��� 2 ��0.05 Ordinary 100 Dillons Newsagents Limited 2 ��0.25 Non-Voting Ordinary 100 Tapesilver Limited��� 1 ��1.00 Ordinary 100 dunnhumby International Limited 4 ��1.00 Ordinary 100 Teesport (GP) Limited 1 ��1.00 Ordinary 100 dunnhumby Limited 4 ��3.59 Ordinary 100 Tesco (Overseas) Limited��� 1 ��1.00 Ordinary 100 dunnhumby Overseas Limited 4 ��1.00 Ordinary 100 Tesco Aqua (3LP) Limited 1 ��1.00 Ordinary 100 dunnhumby Trustees Limited 4 ��1.00 Ordinary 100 Tesco Aqua (FinCo2) Limited 1 ��1.00 Ordinary 100 Giant Bidco Limited 8 ��1.00 Ordinary 100 Tesco Aqua (GP) Limited 1 ��1.00 A Ordinary 100 Giant Booker Limited 8 ��0.25 Ordinary 100 ��1.00 B Ordinary 100 Giant Midco Limited 8 ��1.00 Ordinary 100 Tesco Aqua (Nominee 1) Limited 1 ��1.00 Ordinary 100 Highams Green Management Company Limited 1 Limited by Guarantee - Tesco Aqua (Nominee 2) Limited 1 ��1.00 Ordinary 100 IRTH (15) Limited 8 ��1.00 Ordinary 100 Tesco Aqua (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 IRTH (19) Limited 8 US$0.000000052383172 Ordinary 100 Tesco Atrato (1LP) Limited 1 ��1.00 Ordinary 100 Launchgrain Limited��� 1 ��1.00 Ordinary 100 Tesco Atrato (GP) Limited 1 ��1.00 A Ordinary ��1.00 B Ordinary 100 Tesco Atrato (Nominee 1) Limited 1 ��1.00 Ordinary 100 Tesco Atrato (Nominee 2) Limited 1 ��1.00 Ordinary 100 Tesco Atrato (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 Related undertakings of the Tesco Group continued Subsidiary undertakings incorporated in the United Kingdom continued Name of undertaking Registered address Class of share held % held by Group Name of undertaking Registered address Class of share held % held by Group Tesco Atrato Depot Propco Limited 1 ��1.00 Ordinary 100 Tesco Property Finance 1 PLC 1 ��1.00 Ordinary 100 Tesco Blue (3LP) Limited 1 ��1.00 Ordinary 100 ��0.25 Ordinary 100 Tesco Blue (GP) Limited 1 ��1.00 A Ordinary 100 Tesco Property Holdings (No.2) Limited 1 ��1.00 Ordinary 100 ��1.00 B Ordinary 100 Tesco Property Holdings Limited 1 ��1.00 Ordinary 100 Tesco Blue (Nominee 1) Limited 1 ��1.00 Ordinary 100 Tesco Property Nominees (No.5) Limited 1 ��1.00 Ordinary 100 Tesco Blue (Nominee 2) Limited 1 ��1.00 Ordinary 100 Tesco Property Nominees (No.6) Limited 1 ��1.00 Ordinary 100 Tesco Blue (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 Tesco Property Partner (GP) Limited��� 1 ��1.00 A Ordinary 100 Tesco Brislington Limited 1 ��1.00 Ordinary 100 1 ��1.00 B Ordinary 100 Tesco Corporate Treasury Services PLC��� 1 ��1.00 Ordinary 100 Tesco Property Partner (GP No.2) Limited ��1.00 A Ordinary 100 Tesco Depot Propco Limited 1 ��1.00 Ordinary 100 ��1.00 B Ordinary 100 Tesco Distribution Holdings Limited 1 ��1.00 Ordinary 100 Tesco Property Partner (No.1) Limited��� 1 ��1.00 Ordinary 100 Tesco Distribution Limited 1 ��1.00 Ordinary 100 Tesco Property Partner (No.2) Limited��� 1 ��1.00 Ordinary 100 Tesco Dorney (1LP) Limited 1 ��1.00 Ordinary 100 Tesco Red (3LP) Limited 1 ��1.00 Ordinary 100 Tesco Employees' Share Scheme Trustees Limited���(c) 1 ��1.00 Ordinary 100 Tesco Red (GP) Limited 1 ��1.00 Ordinary A 100 Tesco Family Dining Limited 1 ��1.00 Ordinary 100 ��1.00 Ordinary B 100 Tesco Food Sourcing Limited 1 ��1.00 Ordinary 100 Tesco Red (Nominee 1) Limited 1 ��1.00 Ordinary 100 Tesco Freetime Limited 1 ��1.00 Ordinary 100 Tesco Red (Nominee 2) Limited 1 ��1.00 Ordinary 100 Tesco Fuchsia (3LP) Limited 1 ��1.00 Ordinary 100 Tesco Red (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 Tesco Gateshead Property Limited 1 ��1.00 Ordinary 100 Tesco Sarum (1LP) Limited 1 ��1.00 Ordinary 100 Tesco Holdings Limited��� 1 ��0.10 Ordinary 100 Tesco Seacroft Limited 1 ��1.00 Ordinary 100 ��1.00 Preference 100 Tesco Secretaries Limited 1 ��1.00 Ordinary 100 Tesco International Services Limited��� 1 ��1.00 Ordinary 100 Tesco Services Limited 1 ��1.00 Ordinary 100 Tesco Lagoon GP Limited 5 ��1.00 Ordinary 100 Tesco Stores Limited 1 ��1.00 A Preference 100 Tesco Maintenance Limited 1 ��1.00 Ordinary 100 ��1.00 B Preference 100 Tesco Mobile Communications Limited��� 1 ��1.00 Ordinary 100 ��1.00 Ordinary 100 Tesco Mobile Services Limited 1 ��1.00 Ordinary 100 Tesco TLB Finance Limited 1 ��1.00 Ordinary 100 Tesco Navona (1LP) Limited 1 ��1.00 Ordinary 100 Tesco TLB Properties Limited 1 ��1.00 A Ordinary 100 Tesco Navona (GP) Limited 1 ��1.00 Ordinary A 100 ��1.00 B Ordinary 100 ��1.00 Ordinary B 100 The Big Food Group Limited 8 ��0.10 Ordinary 100 Tesco Navona (Nominee 1) Limited 1 ��1.00 Ordinary 100 The Teesport Limited Partnership 1 Limited Partnership 100 Tesco Navona (Nominee 2) Limited 1 ��1.00 Ordinary 100 The Tesco Aqua Limited Partnership 1 Limited Partnership 100 Tesco Navona (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 The Tesco Atrato Limited Partnership 1 Limited Partnership 100 Tesco Navona PL Propco Limited 1 ��1.00 Ordinary 100 The Tesco Blue Limited Partnership 1 Limited Partnership 100 Tesco Overseas Investments Limited��� 1 ��1.00 Ordinary 100 The Tesco Navona Limited Partnership 1 Limited Partnership 100 Tesco Passaic (1LP) Limited 1 ��1.00 Ordinary 100 The Tesco Passaic Limited Partnership 1 Limited Partnership 100 Tesco Passaic (GP) Limited 1 ��1.00 Ordinary A 100 The Tesco Property Limited Partnership 1 Limited Partnership 100 ��1.00 Ordinary B 100 The Tesco Property (No.2) Limited Partnership 17 Limited Partnership 100 Tesco Passaic (Nominee 1) Limited 1 ��1.00 Ordinary 100 The Tesco Red Limited Partnership 1 Limited Partnership 100 Tesco Passaic (Nominee 2) Limited 1 ��1.00 Ordinary 100 TPI Fund Managers Limited 1 ��1.00 Ordinary 100 Tesco Passaic (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 TPT Holdco No.1 Limited 1 ��1.00 Ordinary 100 Tesco Passaic PL Propco Limited 1 ��1.00 Ordinary 100 Weymouth Avenue (Dorchester) Limited 1 ��1.00 Ordinary 100 Tesco PEG Limited 1 ��0.01 Ordinary 100 Tesco PENL Limited 1 ��1.00 Ordinary 100 Tesco Pension Investment Limited(d) 1 ��1.00 Ordinary 100 Tesco Pension Trustees Limited��� 1 ��1.00 Ordinary 100 Tesco Personal Finance Group PLC��� 6 ��0.10 A Ordinary 100 ��0.10 B Ordinary 100 ��0.10 C Ordinary 100 Tesco Personal Finance PLC 6 ��0.10 Ordinary 100 Tesco Property (Nominees) (No.1) Limited 11 ��1.00 Ordinary 100 Tesco Property (Nominees) (No.2) Limited 11 ��1.00 Ordinary 100 Tesco Property (Nominees) Limited 11 ��1.00 Ordinary 100 Tesco Property Finance 1 Holdco Limited 1 ��1.00 Ordinary 100 Related undertakings of the Tesco Group continued International subsidiary undertakings Name of undertaking Registered address Class of share held % held by Group Name of undertaking Registered address Class of share held % held by Group Agate Jewel sp. z.o.o.(e) 75 PLN 50 Ordinary 100 Let��any Development land 2 s.r.o. 16 CZK 100,000 Ordinary 100 Arena (Jersey) Management Limited��� 33 ��1.00 Ordinary 100 Monread Developments Limited 24 ���0.001 Ordinary 100 Amethyst Jewel sp. z o.o. 75 PLN 50 Ordinary 100 Nabola Development Limited 24 ���1.25 A Ordinary 100 Cheshunt Holdings Guernsey Limited��� 27 ��1.00 Ordinary 100 ��1.25 B Ordinary 100 Chirac Limited 24 ���1.25 Ordinary 100 Onyx Jewel sp. Z.o.o.(e) 75 PLN 50 Ordinary 100 Cirrus Finance (2009) Limited 24 ��1,000 A Ordinary 100 Opal Jewel sp. Z.o.o. 75 PLN 50 Ordinary 100 ���1.00 Ordinary 100 Orpingford Unlimited Company 24 ���1.00 Ordinary 100 Clondalkin Properties Limited 24 ���1.25 Ordinary 100 Parijude Limited 45 ��1.00 Ordinary 100 Commercial Investments Limited 24 ���1.25 Ordinary 100 Pharaway Properties Limited 24 ���1.00 Ordinary 100 Coral Jewel sp. z.o.o.(e) 75 PLN 50 Ordinary 100 Pearl Jewel sp. z o.o. 75 PLN 50 Ordinary 100 Crest Ostrava a.s 16 CZK 100,000 Ordinary 100 R.J.D. Holdings Unlimited Company 24 ���1.269738 Ordinary 100 Diamond Jewel sp. z o.o. 75 PLN 50 Ordinary 100 Ruby Jewel sp. z.o.o.(e) 24 PLN 50 Ordinary 100 dunnhumby (Korea) Limited 66 KRW 5,000 Ordinary 100 Sapphire Jewel sp. z.o.o.(e) 75 PLN 50 Ordinary 100 dunnhumby (Malaysia) Sdn Bhd 84 RM 1.00 Ordinary 100 Shopping Mall Chrudim s.r.o.(i) 7 CZK 100,000 Ordinary 100 dunnhumby (Thailand) Limited 73 THB 1,000,000 Ordinary 100 Shopping Mall Eden s.r.o.(i) 7 CZK 100,000 Ordinary 100 dunnhumby Advertising (Shanghai) Co., Ltd 23 ���130,000 Registered Capital 100 Shopping Mall Karlovy Vary s.r.o(i) 7 CZK 100,000 Ordinary 100 dunnhumby Australia PTY Limited 65 AUD 100 Ordinary 100 Shopping Mall Opava s.r.o.(i) 7 CZK 100,000 Ordinary 100 dunnhumby Brasil Consultora Ltda 77 BRL$1.00 Ordinary 100 Shopping Mall Ostrava s.r.o. (i) 7 CZK 100,000 Ordinary 100 dunnhumby Canada Limited 59 CA$1.00 Ordinary 100 Sociomantic Labs Internet Hizmetleri Limited ��ireketi 51 TRY 25.00 Ordinary 100 dunnhumby Chile SpA 48 CLP 500,000 Ordinary 100 Tesco (Polska) Sp. z o.o.(g) 42 PLN 500.00 Ordinary 100 dunnhumby Colombia S.A.S. 74 COP 2,000 Type A 100 Tesco Akad��mia K��pz��si ��s Fejleszt��si Kor��tolt Felel��ss��g�� T��rsas��g 32 HUF 1.00 Business Share 100 COP 41.00 Type B 100 Tesco Bengaluru Private Limited 41 INR 10.00 Ordinary 100 COP 1.00 Type C 100 Tesco Capital No. 1 Limited��� 28 ��0.50 A Ordinary 100 dunnhumby Computer Information Technology and Consultancy Services LLC 18 TL 25.00 Ordinary 100 ��0.50 B Ordinary 100 dunnhumby Consulting Services India Private Limited 60 INR 10.00 Ordinary 100 ��0.01 Preference - dunnhumby Czech s.r.o. 16 CZK 200,000 Ordinary 100 Guaranteed Cumulative Fixed Rate Preference 100 dunnhumby Denmark lvS 57 DKK 1.00 Ordinary 100 ��0.01 Preferred Ordinary 100 dunnhumby Finland Oy 30 100 Kovellinum Oy 100 ��1.00 Ordinary 100 dunnhumby France SAS 61 ���2.00 Ordinary 100 Tesco Chile Sourcing Limitada 22 CLP 1.00 Ordinary 100 dunnhumby Germany GmbH 14 ���1.00 Ordinary 100 US$1.00 Ordinary 100 dunnhumby Hungary Kft 32 Registered capital HUF 3,000,000 100 Tesco Digital Ventures Pte Ltd 49 SGD 1.00 Ordinary 100 dunnhumby Inc. 35 No par value - Tesco Dystrybucja Sp. z o.o.(g) 42 PLN 50.00 Ordinary 100 dunnhumby Information Technology Consulting (Shanghai) Company Limited 62 Registered capital US$140,000 100 Tesco Franchise Stores ��R s.r.o. 16 CZK 2,000,000 Ordinary 100 dunnhumby Ireland Limited 67 ���1.00 Ordinary 100 Tesco Franchise Stores SR s.r.o. 68 ���1.00 Ordinary 100 dunnhumby IT Services India Private Limited 36 INR 10.00 Ordinary 100 Tesco-Global Stores Privately Held Company Limited 32 HUF 10.00 Common 100 dunnhumby Italia Srl. 37 ���1.00 Ordinary 100 Tesco Holdings B.V. 40 ���1.00 Ordinary 100 dunnhumby Japan K.K 38 JPY 10,000 Ordinary 100 Tesco International Clothing Brand s.r.o. 58 ���1.00 Ordinary 100 dunnhumby Mexico S. de R.L. de C.V. 69 MXN 2,970 Ordinary A 100 Tesco International Franchising s.r.o. 58 ���1.00 Ordinary 100 . MXN 30.00 Ordinary B 100 Tesco International Sourcing Limited 20 HKD 10.00 Ordinary 100 dunnhumby Netherlands B.V. 70 ���1.00 Ordinary 100 Tesco Ireland Holdings Limited 24 ���1.25 Ordinary 100 dunnhumby New Zealand 64 NZD 100.00 Ordinary 100 Tesco Ireland Limited 24 ���1.25 Ordinary 100 dunnhumby Poland Sp. z o.o. 42 PLN 50,000 Ordinary 100 Tesco Ireland Pension Trustees Limited 24 ���1.25 Ordinary 100 dunnhumby Russia LLC 79 RUB 1.00 Ordinary 100 Tesco Joint Buying Service (Shanghai) Co., Limited 76 US$1.00 Ordinary 100 dunnhumby Singapore Pte Ltd 19 SGD 1.00 Ordinary 100 Tesco Mobile Ireland Limited 24 ���1.00 Ordinary 100 dunnhumby SARL 61 ���100.00 Ordinary 100 Tesco Property (No. 1) Limited 28 ��1.00 Ordinary 100 dunnhumby Servi��os de Promo����o Digital Ltda 77 R$1.00 Ordinary 100 Tesco Sourcing India Private Limited 80 INR 10.00 Ordinary 100 dunnhumby Slovakia s.r.o. 58 No shares in issue - Tesco Stores ��R a.s. 16 CZK 250 Ordinary 100 dunnhumby Sp. z o.o. 47 PLN 50.00 Ordinary 100 Tesco Stores SR, a.s. 58 ���33,193.92 Ordinary 100 dunnhumby Spain S.L 50 ���1.00 Ordinary 100 Tesco Technology and Services Europe SP . Z.O.O. 75 PLN 50 Ordinary 100 dunnhumby South Africa (Pty) Ltd 43 No par value Ordinary 100 Tesco Trustee Company of Ireland Limited��� 24 ���1.25 Ordinary 100 dunnhumby Ventures LLC 44 - - TESCO ��zleti ��s Technol��giai Szolg��ltat��sok Z��rtk��ruen M��k��d�� R��szv��nyt��rsas��g 25 HUF 1,000.00 100 Edson Investments Limited 24 ���2.00 Ordinary 100 Thundridge Unlimited 24 ���1.00 Ordinary 100 Edson Properties Limited 24 ���1.00 Ordinary 100 Topaz Jewel sp. z o.o. 75 PLN 50 Ordinary 100 ELH Insurance Limited 71 ��1.00 Ordinary 100 Victoria BB Sp. z o.o. 42 PLN 800.00 Ordinary 100 Emerald Jewel sp. z o.o. 75 PLN 50 Ordinary 100 Wanze Properties (Dundalk) Limited 24 ���1.00 Ordinary 100 Epicier Limited 46 ��1.00 Ordinary 100 WSC Properties Limited 24 ���0.0000005 Ordinary 100 Genesis sp. z o.o.(g) 42 PLN 500.00 Ordinary 100 Jasper Sp. z o.o.(g) 42 PLN 100.00 Ordinary 100 Related undertakings of the Tesco Group continued Subsidiary undertakings in liquidation The following subsidiary undertakings were incorporated in the United Kingdom Name of undertaking Registered address Class of share held % held by Group Name of undertaking Registered address Class of share held % held by Group Adminstore Limited 9 ��0.01 A Ordinary 100 Tesco Dorney (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 ��0.01 B Ordinary 100 Tesco Jade (GP) Limited 29 ��1.00 A Ordinary 30 ��0.01 C Ordinary 100 ��1.00 B Ordinary 30 Cheshunt Finance Unlimited 9 ��0.000000001 Ordinary 100 Tesco Mobile Limited 1 ��0.10 A Ordinary 100 Cheshunt Overseas LLP 3 Limited Liability Partnership 100 ��0.90 B Ordinary 100 dunnhumby Advertising Limited 9 ��0.001 Ordinary 100 Tesco Property (Sparta Nominees) Limited 1 ��1.00 Ordinary 100 dunnhumby Holding Limited 4 ��1.00 Ordinary 100 Tesco Property (Nominees) (No.3) Limited 1 ��1.00 Ordinary 100 Europa Foods Limited 9 ��0.000000176 Ordinary 100 Tesco Property (Nominees) (No.4) Limited 1 ��1.00 Ordinary 100 Fresh Food Trader Limited 9 ��1.00 Ordinary 50 Tesco Property Partner (GP No.2) Limited 1 ��1.00 A Ordinary 100 ��1.00 Preference 100 Tesco Sarum (GP) Limited 1 ��1.00 A Ordinary 10 J.Smylie & Sons (IOM) Limited 72 ��1.00 Ordinary 100 Tesco Sarum (Nominee 1) Limited 1 ��1.00 Ordinary 100 KSS Retail Limited 9 ��0.000000851 100 Tesco Sarum (Nominee 2) Limited 1 ��1.00 Ordinary 100 M & W Limited 9 ��0.0000000582261 100 Tesco Sarum (Nominee Holdco) Limited 1 ��1.00 Ordinary 100 Motorcause Limited 9 ��1.00 Ordinary 100 Tesco Underwriting Limited 31 ��1.00 Ordinary 49.9 Reefknot Technology Limited 9 ��1.00 Ordinary 100 The Tesco Coral Limited Partnership 1 Limited Partnership 50 Stewarts Supermarkets Limited��� 9 ��1.00 Ordinary 100 The Tesco Dorney Limited Partnership 1 Limited Partnership 50 Tesco Aqua (FinCo1) Limited 9 ��1.00 Ordinary 100 The Tesco Property (No.2) Limited Partnership 17 Limited Partnership 50 Tesco Blue (FinCo2) Limited 9 ��1.00 Ordinary 100 The Tesco Sarum Limited Partnership 1 Limited Partnership 50 Tesco FFC Limited 9 ��0.01 Ordinary 100 Tesco International Internet Retailing Limited 9 ��0.0000013543 100 Tesco Overseas ULC 9 ��0.00000025 A Ordinary 100 The following associated undertakings were incorporated outside of the United Kingdom ��0.00000025 B Ordinary 100 ��0.00000025 C Ordinary 100 ��0.00000025 D Ordinary 100 Name of undertaking Registered address Class of share held % held by Group ��0.00000025 E Ordinary 100 Arena Unit Trust 33 - 50 ��0.00000025 F Ordinary 100 Booker India Limited 54 INR 1.00 Ordinary 49 ��0.00000025 G Ordinary 100 Booker Satnam Wholesale Limited 54 INR 1.00 Ordinary 49 ��0.00000025 H Ordinary 100 China Wisdom dunnhumby Limited 53 RMB 264,000 Ordinary 50 ��0.00000025 J Ordinary 100 China Wisdom dunnhumby (Shanghai) Limited 63 RMB 264,000,000 Registered Capital 50 ��0.00000025 K Ordinary 100 dunnhumby Mitsui Bussan Customer Science Co., Ltd 55 JPY 1,000 Ordinary 50 ��0.00000025 L Ordinary 100 dunnhumby Norge A.S. 56 NOK 1,000 Ordinary 50 ��0.00000025 M Ordinary 100 Merrion Shopping Centre Limited 24 ���0.012697 Ordinary 51.9 ��0.00000025 N Ordinary 100 Tesco Mobile ��R s.r.o. 16 CZK 100,000 Ordinary 50 ��0.00000025 O Ordinary 100 Tesco Mobile Slovakia s.r.o. 81 ���1.00 Ordinary 50 ��0.00000025 P Ordinary 100 Trent Hypermarket Private Limited 26 INR 10.00 Equity 50 The following subsidiary undertakings were incorporated outside of the United Kingdom Consolidated structured entities Name of undertaking Registered address Class of share held % held by Group Name of undertaking Registered address Nature of business Avantil Services Company Limited 39 ��1.00 Ordinary 100 Delamare Cards Holdco Limited 47 Securitisation entity Booker Cyprus Limited 21 ���1.00 Ordinary 100 Delamare Cards MTN Issuer plc 47 Securitisation entity China Property Holdings (HK) Limited 20 HKD 1.00 Ordinary 100 Delamare Cards Receivables Trustee Limited 47 Securitisation entity Saneyia Limited 21 ���1.00 Ordinary 100 Delamare Cards Funding 1 Limited 47 Securitisation entity Sociomantic Labs Private Limited 78 INR 10.00 Ordinary 100 Delamare Cards Funding 2 Limited 47 Securitisation entity Tesco Global Employment Company Limited 34 THB 100.00 Ordinary 100 Delamare Finance PLC 11 Securitisation entity Tesco Capital No.2 Limited 9 ��0.01 Floating Rate Redeemable Preference ��1.00 Ordinary 100 100 Delamare Group Holdings Limited 11 Securitisation entity Tesco Vin Plus S.A. 52 ���1.60 Ordinary 100 * Undertaking where other share classes are held by a third party ��� Interest held directly by Tesco PLC (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 Associated undertakings The following associated undertakings were incorporated in the United Kingdom Name of undertaking Registered address Class of share held % held by Group Broadfields Management Limited 12 ��0.10 Ordinary 35.3 Clarepharm Limited(f) 13 ��0.10 Ordinary 26.5 Shire Park Limited 15 ��1.00 Ordinary 48.57 Tesco Coral (GP) Limited 1 ��1.00 A Ordinary 100 Tesco Coral (Nominee) Limited 1 ��1.00 Ordinary 100 Tesco Dorney (GP) Limited 1 ��1.00 A Ordinary 100 Tesco Dorney (Nominee 1) Limited 1 ��1.00 Ordinary 100 Tesco Dorney (Nominee 2) Limited 1 ��1.00 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. Vr��ovick�� 1527/68b, Vr��ovice, 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. Ritterstra��e 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 Mar��a 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, V��ci ��t, 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 Buda��rs, Kinizsi, ��T 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, K��bmagergade 60, 1. tv., 1150 K��benhavn 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. Vetern�� 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��czy��ska 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 Ant��nio, 3530, 5�� Andar, 01402-001 S��o 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) Local currency Average exchange Closing exchange (m) ��m 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 Store size (sq. ft.) No. of stores Million sq. ft. % of total sq. ft. No. of stores Million sq. ft. % of total 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) 2019/20 year end Openings Closures/ disposals Net gain/ (reduction)(b) 2020/21 year end Repurposing/ extensions(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 - - - 8 705 - Booker 196 (2) (2) 194 - Jack's 12 - - 12 - UK(d) 3,627 29 (6) 23 3,650 - 1 ROI 150 1 - 1 151 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 - Slovakiad) 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) 2019/20 year end Openings Closures/ disposals Repurposing/ extensions(c) Net gain/ (reduction)(b) 2020/21 year 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) 2020/21 year end Openings Closures/ disposals Repurposing/ extensions Net gain/ (reduction) 2021/22 year 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) ��m 2020(a) ��m Revenue Interest receivable and similar income Fees and commissions receivable 542 193 733 335 735 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 ��(295)m (2020: PPI provision charge ��(45)m, restructuring costs ��(13)m, accelerated amortisation and costs related to the sale of the mortgage book and PCA ��(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. APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Income Statement Revenue measures Group sales Revenue - Exclude sales made at petrol filling stations - Excludes the impact of sales made at petrol filling stations to demonstrate 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 equivalent - Consistent with accounting policy - Growth in sales is a ratio that measures year-on-year movement in Group sales 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 equivalent - Consistent with accounting policy - Like-for-like is a measure of growth in Group online sales and sales from 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 Bank sales - Exclude sales made at petrol filling stations - Group sales excluding Tesco Bank sales to demonstrate the Group's underlying performance in the core Retail businesses. Profit measures Operating profit before exceptional items and amortisation of acquired intangibles Operating profit - Exceptional items - Amortisation of acquired intangibles - Operating profit before exceptional items and amortisation of acquired intangibles is the headline measure of the Group's performance, and is 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 APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Profit measures continued Retail operating profit Operating profit - Tesco Bank operating profit - Retail exceptional items - Retail amortisation of acquired intangibles - Retail operating profit is a measure of the Group's operating profit from continuing operations from the Retail business excluding Tesco Bank. It is based on Retail operating profit before exceptional items and amortisation of acquired intangibles. Operating margin No direct equivalent - Consistent with accounting policy - Operating margin is calculated as operating profit before exceptional 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 before exceptional items, interest, tax, depreciation and amortisation (Retail EBITDA) Operating profit* - Exceptional items - Depreciation and amortisation - Tesco Bank earnings before exceptional items, interest, tax, depreciation and amortisation - Discontinued operations - This measure is based on Retail operating profit from continuing operations. It excludes Retail exceptional items, depreciation and amortisation and is used to derive the Total indebtedness ratio and Fixed charge cover APMs. Profit before tax before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments Profit before tax - Exceptional items - Amortisation of acquired intangibles - Net pension finance costs - Fair value remeasurements of financial instruments - This measure excludes exceptional items and amortisation of acquired intangibles, net finance costs of the defined benefit pension deficit 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. Total finance costs before exceptional items, net pension finance costs and fair value remeasurements of financial instruments Finance costs - Exceptional items - Net pension finance costs - Fair value remeasurements of financial instruments - Total finance costs before exceptional items, net pension finance costs and fair value remeasurements of financial instruments is the net finance costs adjusted for non-recurring one-off items, 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. 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 Diluted earnings per share - Exceptional items - Amortisation of acquired intangibles - Discontinued operations - Net pension finance costs - Fair value remeasurements of financial instruments - This relates to 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. - 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. 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) Diluted earnings per share - Exceptional items - Amortisation of acquired intangibles - Discontinued operations - Net pension finance costs - Fair value remeasurements of financial instruments - Weighted average number of diluted shares - This relates to 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. - 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 APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Tax measures Effective tax rate before exceptional items and amortisation of acquired intangibles Effective tax rate - Exceptional items and their tax impact - Amortisation of acquired intangibles and their tax impact - Effective tax rate before exceptional items and amortisation of acquired intangibles is calculated as total income tax credit/(charge) excluding the tax impact of exceptional items and amortisation of acquired intangibles from continuing operations divided by profit before tax before exceptional items and amortisation of acquired intangibles from continuing operations. This provides an indication of the ongoing tax rate across the Group. Effective tax rate before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments Effective tax rate - Exceptional items and their tax impact - Amortisation of acquired intangibles and their tax impact - Net pension finance costs and their tax impact - Fair value remeasurements of financial instruments and their tax impact - Effective tax rate before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements of financial instruments is calculated as total income tax credit/(charge) excluding the tax impact of exceptional items and amortisation of acquired intangibles items, net pension finance costs and fair value remeasurements from continuing operations divided by the profit before tax before exceptional items and amortisation of acquired intangibles, net pension finance costs and fair value remeasurements from continuing operations. Balance sheet measures Net debt Borrowings less cash and related hedges - Net debt from Tesco Bank - Net debt excludes the net debt of Tesco Bank but includes that of the discontinued operations 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 less cash and related hedges - Consistent with accounting policy - Total indebtedness is the net debt plus the IAS 19 deficit in the pension schemes (net of associated 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 Ratio No direct equivalent - Consistent with accounting policy - Total indebtedness ratio is calculated as Total indebtedness 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 cover No direct equivalent - Consistent with accounting policy - Fixed charge cover is calculated as the rolling 12-month Retail 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 APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose Cash flow measures Retail operating cash flow Cash generated from operating activities - Tesco Bank operating cash flow - Discontinued operations - Retail operating cash flow is the cash generated from continuing operations, excluding the effects of Tesco Bank's cash flows. It is a measure of the 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 from operating activities - Net cash generated from/ (used in) investing activities, and the market purchase of shares issued in relation to share schemes - Repayment of obligations under leases - Investing cash flows that increase/decrease items within Group net debt - Cash flows from major corporate acquisitions and disposals - Free cash flow includes all cash flows from continuing operations from operating and investing activities, the market purchase of shares net of proceeds from shares issued in relation to share schemes, and repayment of obligations under leases. The following items are excluded: investing cash flows that increase/decrease items within Group net debt, and cash flows from major corporate acquisitions and disposals. This measure reflects the cash available to shareholders. Retail free cash flow Cash generated from operating activities - Tesco Bank operating cash flow - Retail cash generated from/ (used in) investing activities, and the market purchase of shares issued in relation to share schemes - Repayment of obligations under leases - Investing cash flows that increase/decrease items within Net debt - Cash flows from major corporate acquisitions and disposals - Retail free cash flow includes all cash flows from continuing operations from operating and investing activities for the Retail business, the market purchase of shares net of proceeds from shares issued in relation to share schemes, and the repayment of obligations under leases. The following items are excluded: investing cash flows that increase/decrease items within Net debt, and cash flows from major corporate acquisitions and disposals. This measure reflects the cash available to shareholders. This is a key management incentive metric. 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 UK &ROI Notes APM 2021 ��m 2020 As reported on a 53-week basis ��m Exclude week 53 ��m APM 2020 52-week basis ��m 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% Total Group Notes APM 2021 ��m 2020 As reported on a 53-week basis ��m Exclude week 53 ��m APM 2020 52-week basis ��m 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)% Notes APM 2021 2020 As reported on a 53-week basis Exclude week 53 APM 2020 52-week basis Operating profit before exceptional items and amortisation of acquired intangibles (��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 (��m) 26 - - - Net finance costs before exceptional items and amortisation of acquired intangibles (��m) 5 (937) (1,019) 27 (992) Profit before tax from continuing operations before exceptional items and amortisation of acquired intangibles (��m) 904 1,552 (19) 1,553 Add: Net pension finance costs (��m) 5 43 71 - 71 Add: Fair value remeasurements of financial instruments (��m) 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 (��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 (��m) 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 (��m) 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 (��m) 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 (��m) 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) Notes APM 2021 2020 As reported on a 53-week basis Exclude week 53 APM 2020 52-week 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 Notes APM 2021 ��m 2020 As reported on a 53-week basis ��m Exclude week 53 ��m APM 2020 52-week basis ��m 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 Notes APM 2021 2020 As reported on a 53-week basis Exclude week 53 APM 2020 52-week basis Net debt (��m) (a)(b) 32 11,955 12,298 (197) 12,101 Add: Defined benefit pension deficit, net of deferred tax (��m)(a) 29 1,004 2,573 - 2,573 Total indebtedness (��m)(a) 12,959 14,871 (197) 14,674 Retail EBITDA (��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 ��197m 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 Notes APM 2021 2020 As reported on a 53-week basis Exclude week 53 APM 2020 52-week basis Net finance cost (��m) 5 937 1,170 (27) 1,143 Less: Net pension finance cost (��m) 5 (43) (71) (71) Less: Exceptional fair value remeasurement on restructuring derivative financial instruments (��m) 5 - (180) - (180) Add: Exceptional gain on Tesco Bank mortgage book disposal (��m) 5 - 29 - 29 Add: Fair value remeasurements on financial instruments (��m) 5 (214) (246) 18 (228) Total finance costs before exceptional items, net pension finance costs and fair value remeasurements on financial instruments (��m) 680 702 (9) 693 Add: Capitalised interest (��m) 5 - - - - Less: Finance charges payable on lease liabilities (��m) 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 (��m) 234 216 (3) 213 Add: Retail total lease liability payments (��m) 12 1,104 1,170 - 1,170 Less: Retail discontinued operations total lease liability payments (��m) (99) (122) - (122) 1,239 1,264 (3) 1,261 Retail EBITDA (��m) 3,604 3,967 (75) 3,892 Fixed charge cover 2.9 3.1 - 3.1 APMs: Reconciliation of cash flow measures Notes APM 2021 ��m 2020 As reported on a 53-week basis ��m Exclude week 53 ��m APM 2020 52-week basis ��m 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 ��27m. (b) Retail cash flow from major disposal of ��5,337m principally comprises the ��7.8bn proceeds on disposal of the Group's Asia operations, excluding cash disposed and intercompany loan repayments, less the ��2.5bn additional pension contribution. Refer to Notes 4 and 7 for further details. Other Capital expenditure (Capex) The additions to property, plant and equipment, investment property and intangible assets (excluding assets acquired under business combinations). Capital employed Net assets plus net debt plus dividend creditor less net assets of the disposal group and non-current assets classified as held for sale. CPI CPI refers to consumer price index. Enterprise Value This is calculated as market capitalisation plus net debt. EURIBOR Euro Interbank Offered Rate. ESG Environmental, social and governance. FTE FTE refers to full-time equivalents. LIBOR London Inter-Bank Offered Rate. LPI LPI refers to limited price inflation. Market capitalisation The total value of all Tesco shares calculated as total number of shares multiplied by the closing share price at year end. MTN MTN refers to medium term note. MREL Minimum requirements for own funds and eligible liabilities (European Banking Authority). Net promoter score (NPS) This is a loyalty measure based on a single question requiring a score between 0-10. The NPS is calculated by subtracting the percentage of detractors (scoring 0-6) from the percentage of promoters (scoring 9-10). This generates a figure between -100 and 100 which is the NPS. Return on capital employed (ROCE) Return divided by the average of opening and closing capital employed. Return Profit before exceptional items and interest, after tax (applied at effective rate of tax). RPI RPI refers to the retail price index. SONIA Sterling Overnight Index Average. 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