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Tesco Annual Report

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    Tesco PLC Annual Report and Financial Statements 2008 More than the weekly shop Annual Report and Financial Statements 2008 Contents Financial highlights Chief Executive’s statement Report of the Directors > Business Review > General information > Corporate governance Directors’ remuneration report 1 2 3 3 18 20 25 More than the weekly shop Most people know something about Tesco. After all, we are the UK’s largest grocer and we’ve been serving customers for the best part of a century.

    What you might not know, is that Tesco is also the world’s third largest grocery retailer with operations in 12 international markets, employing over 440,000 people and serving millions of customers every week. We’re not simply about providing great quality food at affordable prices. We provide more choice than ever to more customers, whether it’s through our expanding international operations, innovative retailing services or our growing non-food offer.

    It doesn’t matter how people choose to shop with us or what they choose to buy, our core purpose remains the same – to create value for customers to earn their lifetime loyalty. We are also playing our part in tackling some of the social and environmental challenges we all face by putting community at the heart of what we do. From carrots to computers, from banking to broadband, from Shanghai to San Diego. We are… …more than the weekly shop.

    Financial statements 39 > Statement of Directors’ responsibilities 40 > Independent auditors’ report to the members of Tesco PLC 41 > Group income statement 42 > Group statement of recognised income and expense 43 > Group balance sheet 44 > Group cash flow statement 45 > Reconciliation of net cash flow to movement in net debt note 45 > Notes to the Group financial statements 46 > Five year record 96 > Tesco PLC – Parent Company financial statements 98 > Independent auditors’ report to the members of Tesco PLC 108

    Go online! Every year, more and more information is available for our shareholders, staff and customers. www. tesco. com/annualreport08 Financial highlights Growth on 2007 11. 1% Group sales (including VAT) 11. 8% Underlying Group profit before tax 5. 7% Group profit before tax (15. 3% growth excluding last year’s exceptional items; principally the Pensions A-Day credit) 20. 8% Underlying diluted earnings per share* 14. 2% Diluted earnings per share 13. 1% Dividend per share 2008 2007 46,611 42,641 2,545 2,653 22. 6 23. 31 9. 64 40,469 12. 6%‡ 51,773 47,298 2,846 2,803 27. 02 26. 61 10. 90 37,656 12. 9%§ Group sales (? m) (including value added tax) Group revenue (? m) (excluding value added tax) Underlying Group profit before tax (? m)† Group profit before tax (? m) Underlying diluted earnings per share (p) Diluted earnings per share (p) Dividend per share (p) Group enterprise value (? m) (market capitalisation plus net debt) Return on capital employed * 13. 1% growth on a normalised 28. 9% tax rate. Adjusted for IAS 32, IAS 39, the net difference between the IAS 19 Income Statement charge and ‘normal’ cash contributions for pensions and IAS 17 ‘Leases’ – impact of annual uplifts in rent and rent-free periods. In 2007 adjustment was also made for pensions adjustment – Finance Act 2006 and impairment of the Gerrards Cross site. § Using a ‘normalised’ tax rate before start-up costs in the US and Tesco Direct, and excludes the impact of foreign exchange in equity and our acquisition of a majority share of Dobbies ‡ Including the one-off gain from Pensions A-Day, ROCE in 2007 was 13. %. Tesco PLC Annual Report and Financial Statements 2008 1 Chief Executive’s statement Strong growth across the Group The breadth of the Group and the strength of our business model have enabled Tesco to deliver another year of double-digit sales, profit and earnings per share growth. These results demonstrate that Tesco has again made strong progress. Sales, profits and returns have grown well, the growth has been broadly based and we are delivering on our commitments to shareholders.

    I believe these numbers also clearly show that our new businesses are coming of age, after years of patient investment. I am pleased about that because the breadth this gives the Group, combined with the strength of our business model, means that we are able to cope well with changing market conditions and at the same time make the necessary investment in our future growth – in the United States, China and Tesco Direct. International is an important part of this. It now makes more than ? 00m of trading profit, which is about the same as the whole of Tesco did a decade ago, and it contributed over half of the growth in Group trading profit in the year. We have built a new Tesco in the last ten years, serving markets with hundreds of millions of customers – and I believe its growth prospects are even better than the original’s were back then. We saw excellent progress across the international business. Sales and profits grew well, returns rose again but the most striking improvements came in the strengthening positions we have in our chosen markets.

    We added over six and a half million square feet of new selling space overseas in the year – over three times as much as in the UK. Our focus on combining this organic growth with selective acquisitions is also delivering – in Poland, the Czech Republic and Malaysia – with more to come. Our international business now has the scale, the competitiveness and the momentum it needs to be a key driver of our growth for the long-term – because our operations in most of these markets can be two, three or more times larger than they are today. We have made solid progress in the UK.

    It hasn’t been an easy year for our core business – recovering competitors and cautious consumers made sales growth harder to come by. But with strong productivity, mix and margin control, we delivered good results and after a slower end to the year, we have come into the new financial year on better form, trading ahead of the industry and a little ahead of our planned performance range. I believe we are entering the kind of market conditions where Tesco’s strengths stand out; where customers will be looking to us to help them cope with higher bills for mortgages and fuel as well as higher taxes.

    As always, our focus will therefore be on improving their shopping trip – whether it’s in lower prices, shorter queues at checkouts or healthier products to feed the family. Customers recognise the improvements we are making. Whilst we have seen pleasing progress in Non-Food, this has been against a background of more subdued consumer spending in some product categories. Nevertheless, sales grew faster than the core business, profitability was strong and we saw good market share gains.

    Our core general merchandise categories, which are less sensitive to the economic cycle, grew well and we saw robust growth in newer areas such as electricals, furniture and DIY, helped in part by an excellent first full year of trading in Tesco Direct, our online and catalogue non-food business. Our Services businesses had another good year – again demonstrating the growing breadth of the Group – supported by our increasing strength as a leading internet retailer. Dotcom was on excellent form, with sales in our online business again up by over 30%.

    Tesco Telecoms performed well, driven by a very good performance in Tesco Mobile, our joint venture with O2, which moved into profit for the first time in the year. Elsewhere in Services, Tesco Personal Finance (TPF), which celebrates its tenth anniversary this year, has got back to a faster rate of growth, driven by a strong sequence of new product launches and a 20% rise in online sales. TPF has also weathered a difficult financial services market well – with falling bad debts and credit card arrears. But for the impact of last year’s floods on household insurance claims, we would have seen strong profit growth from TPF.

    Our work with communities and the environment has also seen Tesco make encouraging progress. To make sure this work gets the right focus and priority in the business, we made an important change in 2007 by adding it to our four-part strategy for growth – so making Community the fifth element. As the first change of any kind to Tesco’s strategy in more than a decade, this represents a very significant commitment. More detail about our initiatives in this area can be found elsewhere in this report, in our separate Corporate Responsibility Review and on our website (www. tesco. om/crreview08). We are making strides towards a revolution in green consumption by incentivising the environmental option and making it affordable. We do not start from the position that it is a choice between growing or being green; that somehow we will give up a bit of potency in the focus of the business in pursuing these things. My strong belief is that this is not the case, and that being green will be a good way to grow and add value for shareholders whilst discharging our responsibilities to other stakeholders. That is why Tesco has taken a lead on these matters.

    Some key milestones passed this year included the early achievement of our target to reduce the number of free carrier bags issued to UK customers by 25% in a little over 12 months – saving well over one billion bags, far more than any other retailer. We are on track to save two billion this year. We have also halved our energy use per square foot of selling space since 2000, two years ahead of target. We have invested ? 25m in creating a Sustainable Consumption Institute at the University of Manchester, bringing together world-leading experts from various disciplines.

    The Institute will help lead the way to a low-carbon economy and society. We plan to begin a programme of carbon labelling of our products in the early weeks of the current year, using our experience of putting clear, useful information in front of customers to help them make informed decisions about the CO2 implications of their product choices. In summary: > Tesco is about growth and we are confident of sustaining strong growth in the future; > we do this by following the customer; as they change, we change > and this means our growth is broadly based, as our new businesses come through to scale and rofitability; > it also means we can carry the costs of investing now in the new products and businesses which will drive our long-term growth; > at the same time we can deliver improving returns and tangible benefits for shareholders; > we are meeting our responsibilities to other stakeholders by playing an innovative part in tackling some of the social and environmental challenges we all face; > we have delivered strong results by making shopping better for customers; and > Tesco is equipped to cope with changing market conditions and, whilst the current global economic background is a concern, we begin the new financial year with confidence. Terry Leahy Chief Executive To view the full announcement visit: 2 Tesco PLC Annual Report and Financial Statements 2008 www. tesco. com/annualreport08/presentations Report of the Directors The Directors present their Annual Report to shareholders on the affairs of the Group and Company, together with the audited financial statements of the Company for the year ended 23 February 2008.

    Markets served and business model Tesco’s growth, driven by this strategy, has been predominantly organic and we have used our skills and knowledge in understanding customers, property development, supply chain management, new product development, store formatting and how to localise our offer – to create strong business models in our chosen markets. Where we do not have all the required skills ourselves to be successful, we regularly partner with existing businesses – and these relationships have formed the basis of some of our most successful operations – for example with Samsung in South Korea and with the Royal Bank of Scotland in Tesco Personal Finance.

    The UK grocery retail market remains our largest source of revenue, representing some 46% of last year’s ? 51. 8bn of sales. International retail sales – from our 12 markets in Europe, Asia and the United States, comprise a further 19% of Group revenues and non-food (in a variety of categories from health and beauty to electronics) accounts for most of the remainder. Our services businesses – not least in financial services and telecoms – have comparatively small revenue streams because some of the most important of them are joint-ventures but they are increasingly material to our earnings base. At the core of Tesco’s business model is a focus on trying to improve what we do for customers.

    We aim to make their shopping experience as easy as possible, lower prices where we can to help them spend less, give them more choice about how they shop – in small stores, large stores or online, and seek to bring simplicity and value to sometimes complicated markets. And we aim to be a good neighbour in the communities we serve, be responsible, fair and honest in our dealings and give customers the information and products they need to make greener choices. We are also an inclusive business – everyone is welcome at Tesco. Because we are a discounter, underpinning this approach is a relentless attitude to being the lowest cost provider of goods and services in our chosen sectors – and this combination of qualities is the reason we have been successful in some of the world’s most competitive markets.

    We have recognised skills and proprietory systems in key areas which help us deliver a low cost model – particularly in customer relationship management, justin-time supply chain and distribution, property development and store formatting. In some of our newer markets – such as telecoms or financial services, our willingness to partner with established businesses has given us access to their existing investment in systems and infrastructure and enabled Tesco to develop competitive, profitable business models quickly and, at the same time, limit our own investment and risk in the early years. Business Review This Business Review analyses the performance of the Tesco Group in the financial year ended 23 February 2008.

    It also explains other aspects of the Group’s markets, results and operations, including strategy and risk management. Long-term strategy Tesco has a well-established and consistent strategy for growth, which has allowed us to strengthen our core UK business and drive expansion into new markets. The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong sustainable long-term growth by following the customer into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia, and now also in the United States. The strategy to diversify the business was laid down in 1997 and has been the foundation of Tesco’s success in recent years.

    The new businesses which have been created and developed over the last decade as part of this strategy now have scale, they are competitive and profitable – in fact, the International business alone makes about the same profit as the entire Group did a decade ago. The Group has continued to make progress with this strategy, which now has five elements, reflecting our four established areas of focus, and also Tesco’s long-term commitments on community and environment. The objectives of the strategy are: > to grow the core UK business; > to become a successful international retailer; > to be as strong in non-food as in food; > to develop retailing services – such as Tesco Personal Finance, Telecoms and tesco. com; and > to put community at the heart of what we do. In 2007/8, Tesco has again delivered a strong performance, with all parts of the strategy contributing.

    We have sustained good growth in the UK and coped well with the challenges of poor weather, recovering competitors, and a deteriorating consumer background. In our international operations we have also made excellent progress, completing a large programme of new store openings and overcome difficult conditions in some of our largest markets. We have also begun operations on the west coast of the United States with our Fresh & Easy stores. In non-food, more customers are choosing to shop with us even in a period of more cautious consumer spending and we have seen good growth from Tesco Direct, which extends our reach in selling a broad range of products on the internet and via a catalogue. Our retailing services have delivered another good year, with tesco. om sustaining its rapid growth, Tesco Personal Finance making progress in challenging markets and Telecoms continuing to build its customer base strongly and moving into profitability. Finally, we are making strides towards a revolution in green consumption, having reduced carrier bag use by over one billion – more than any other retailer and are on target to sell ten million energy efficient lightbulbs in a year as part of the Climate Group’s ‘Together’ campaign. 1 46% Sales growth contribution by region 1 UK 2 Asia 3 Europe 3 29% 2 25% 1 50% Profit growth contribution by region 1 UK 2 Asia 3 Europe 3 29% 2 21% Tesco PLC Annual Report and Financial Statements 2008 3 Business Review continued

    Group performance This year’s results represent very good progress across the Group and have been achieved by investing to improve the shopping experience for customers in our businesses in the UK and around the world. We have been able to deliver another solid sales performance, and through good cost control and productivity improvements, we have grown profits slightly faster than revenue – and thereby improved returns for shareholders. These improvements have been achieved whilst continuing to invest in the long term – in the people, assets, processes and systems, which will enable Tesco to sustain its success in the future. Results These results are for the 52 weeks ended 23 February 2008, compared with the same period ending in February 2007. Results from our business in China are consolidated in the full-year results for the first time.

    Group sales, including VAT, increased by 11. 1% to ? 51. 8bn (last year ? 46. 6bn). At constant exchange rates, sales increased by 10. 4%. In April 2006, with our Preliminary Results for 2005/6, and following our transition to IFRS, we introduced an underlying profit measure, which excludes the impact of the non-cash elements of IAS 19, IAS 32 and IAS 39 (principally pension costs and the marking to market of financial instruments). With these Results, the underlying profit measure also excludes the impact of the non-cash element of IAS 17 ‘Leases’, relating to the impact of annual uplifts in rent and rent free periods. Underlying profit before tax rose to ? ,846m in the year (last year ? 2,545m), an increase of 11. 8%. With our Interim Results for 2006/7, we began reporting segmental trading profit, which excludes property profits and, as our underlying profit measure does, excludes the non-cash element of the IAS 19 pension charge and now also excludes the non-cash element of the IAS 17 lease charge. Group trading profits were ? 2,751m (last year ? 2,478m), up 11. 0% on last year and Group trading margin, at 5. 8%, was unchanged on last year. Group operating profit rose by 5. 4% to ? 2,791m (last year ? 2,648m). Within this, total net Group property profits were ? 188m in the year (last year ? 39m, including asset disposals within joint ventures), comprising ? 186m in the UK and ? 2m in International. Group profit before tax increased 5. 7% to ? 2,803m (last year ? 2,653m). Excluding last year’s exceptional items; principally the Pensions A-Day credit, Group profit before tax rose 15. 3% and Group operating profit rose 15. 1%. Group results Group sales (inc. VAT) Group profit before tax Group operating profit Group underlying profit before tax Group trading profit Trading margin Actual rates Actual rates Constant ?51,773m ? 2,803m ? 2,791m ? 2,846m ? 2,751m 5. 8% 11. 1% 5. 7% 5. 4% 11. 8% 11. 0% – 10. 4% 5. 1% 4. 8% 11. 2% 10. 4% –

    International Our International business delivered a very strong performance, contributing 54% of the growth in Group sales and 50% of the growth in Group trading profit. Underlying margins improved whilst reported margins were diluted slightly by the consolidation of our business in China for the first time, following the increase in our shareholding to 90% in December 2006. Total International sales grew strongly – by 25. 3% at actual exchange rates to ? 13. 8bn (last year ? 11. 0bn) and by 22. 5% at constant exchange rates. China contributed ? 702m to sales, representing 6. 4 percentage points of the year’s total International growth at actual rates. Excluding China, total international sales grew by 19. 0% at actual rates and by 15. 7% at constant rates.

    Like-for-like sales in International grew by 2. 0%, with net new space contributing the remaining 20. 5%. 13,824 51,773 11,031 46,611 10,480 43,137 29,511 7,559 37,070 26,876 6,681 33,557 1,877 1,779 1,897 1,988 22,111 45,403 32,657 35,580 2,115 27,580 51,771 441 2,318 586 2,365 37,949 32,817 58,720 814 2,711 40,404 68,189 27,785 1,275 3,263 04 05 06* 07 08 04 05 06 07 08 23,292 24,191 25,903 04 05 06 07 08 Sales performance ? m International UK * Including 60 weeks International. Number of stores International UK Group space 000 sq ft International UK 4 Tesco PLC Annual Report and Financial Statements 2008 www. tesco. com/annualreport08 29,549 46,410 75,959 ,614 3,729 International contributed ? 701m to trading profit in the year (last year ? 564m), up 24. 3% after charging ? 5m of integration costs and initial operating losses, principally related to the Leader Price stores which were acquired in late 2006. International margins rose by 15 basis points excluding the impact of consolidating the China business. At constant exchange rates, International trading profit grew by 22. 2%. International EBITDA* rose to ? 1,051m. International results International sales (inc. VAT) International trading profit Trading margin Actual rates Actual rates Constant ?13,824m ? 701m 5. 6% 25. 3% 24. 3% – 22. 5% 22. 2% –

    US segmental reporting of sales and trading results within International will begin with our Interim Results in September. For these preliminary results, sales and start-up losses in the United States are reported in our UK segment. In Asia, sales grew by 27. 2% at actual exchange rates and by 30. 9% at constant rates to ? 6. 0bn (last year ? 4. 7bn). Excluding China, Asia sales grew by 12. 3% and 15. 1% at constant exchange rates. Trading profit increased by 23. 6% at actual rates and by 26. 8% at constant rates to ? 304m (last year ? 246m). Excluding China, trading margins rose in Asia, to 5. 8% driven by strong performances in South Korea, Thailand and Malaysia.

    China made a small trading profit in the year. Asia results Asia sales (inc. VAT) Asia trading profit Trading margin Actual rates Actual rates Constant ?5,988m ? 304m 5. 5% 27. 2% 23. 6% – 30. 9% 26. 8% – In Europe, sales rose by 23. 9% at actual rates and by 16. 1% at constant rates to ? 7. 8bn (last year ? 6. 3bn). Trading profit increased by 24. 8% at actual rates to ? 397m (last year ? 318m) and by 18. 6% at constant rates. Trading margins increased by six basis points. Central Europe overall delivered strong growth. Despite the subdued economy in Hungary, our business delivered a pleasing increase in profit and resumed positive growth in like-for-like sales last summer.

    Excellent performances in Turkey and Ireland were held back by planned commissioning costs for new large central distribution centres, both of which opened in the first half. Europe results Europe sales (inc. VAT) Europe trading profit Trading margin Actual rates Actual rates Constant ?7,836m ? 397m 5. 8% 23. 9% 24. 8% – 16. 1% 18. 6% – UK Our core business performed well in challenging market conditions. UK sales increased by 6. 7% to ? 37. 9bn (last year ? 35. 6bn) with like-for-like growth of 3. 9% (including volume of 2. 0%) and 2. 8% from net new stores. Excluding petrol, like-for-like sales grew by 3. 5%. In our stores, we saw modest inflation of 1. % for the year as a whole, with our continued investment in lowering prices for customers being offset by the strength of market prices for commodities and some seasonal fresh foods. Further rises in commodity food prices in the second half saw inflation rise to just over 2% in our fourth quarter with food price inflation being offset by continuing deflation in non-food categories. The pattern of our trading during the year was unusual. Unseasonal summer weather impacted growth in the first half, and a combination of recovering competitors and more subdued customer demand in some non-food product categories, held back sales progress in the second half.

    Increased productivity and good expense control enabled us to maintain solid margins and deliver good profit growth despite these challenges, whilst also absorbing initial operating losses totalling around ? 90m on Tesco Direct and on establishing our operations in the US. Even after these additional costs, UK trading profit rose 7. 1% to ? 2,050m, with trading margins at 5. 9%, slightly up on last year. UK results UK sales (inc. VAT) UK trading profit Trading margin * EBITDA is calculated by adding back depreciation and amortisation charges of ? 357m to International operating profit of ? 694m. 2007/8 Growth ?37,949m ? 2,050m 5. 9% 6. 7% 7. 1% – Tesco PLC Annual Report and Financial Statements 2008 5 Business Review continued

    Joint ventures and associates Our share of profit (net of tax and interest) for the year was ? 75m, a decrease of ? 31m compared with last year. Driving this decrease was a ? 47m property profit last year, principally reflecting profit realised on the sale of the Weston Favell store to a third party. Excluding these property-related items, profits from joint ventures rose by ? 16m. Tesco Personal Finance (TPF) profit was ? 128m, of which our share was ? 64m. This was after absorbing ? 31m of higher household insurance claims linked to last summer’s flooding in Yorkshire and the Midlands. Tesco’s share of the cost of higher claims linked to these events was ? 11m (after interest and tax) in the year as a whole.

    Underlying growth in the business was therefore encouraging, with the new management team demonstrating that there remains significant growth potential for TPF within the financial services sector, particularly amongst loyal Tesco customers, as we build our portfolio of products. TPF is well-provisioned for bad and doubtful debts – which are down yearon-year and we also continue to see improving trends in credit card arrears. Finance costs and tax Net finance costs were ? 63m (last year ? 126m), reflecting favourable movements in the non-cash IFRS elements of the interest charge. The interest charge, excluding IFRS adjustments and finance income, rose 18%. Total Group tax has been charged at an effective rate of 24. 0% (last year 29. 1%). This reduction in tax rate is primarily due to a one-off tax reimbursement, reflecting settlement of prior year tax items with HMRC.

    We have also benefited from an adjustment of deferred tax balances as a result of the lowering of the rate of UK corporation tax from 30% to 28% with effect from 1 April 2008. We expect the effective tax rate for the current year to be around 27. 5%. Underlying diluted earnings per share increased by 20. 8% to 27. 02p (last year 22. 36p), benefiting from the significantly lower than normal effective tax rate for the year and from the elimination of earnings dilution linked to new share issuance, resulting from our share buy-back programme. On a normalised 28. 9% tax rate basis, underlying diluted earnings per share rose by 13. 1%. Dividend The Board has proposed a final dividend of 7. 70p per share (last year 6. 83p). This represents an increase of 12. %, and takes the fullyear increase in dividend to 13. 1%. This increase in dividend is in line with the growth in underlying diluted earnings per share, which are inclusive of net property profits, using our normalised tax rate of 28. 9%. Going forward, we intend to continue to grow annual dividends broadly in line with underlying diluted earnings per share growth. The final dividend will be paid on 4 July 2008 to shareholders on the Register of Members at the close of business on 25 April 2008. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing Tesco shares in the Company through a Dividend Reinvestment Plan.

    This scheme replaced the scrip dividend at the time of the Interim Results in 2006 and was introduced to reduce dilution from new share issuance and improve earnings per share. Cash flow and Balance Sheet Group capital expenditure (excluding acquisitions) rose to ? 3. 9bn (last year ? 3. 0bn); higher than the ? 3. 5bn forecast at our Interim Results. This increase was attributable to the purchase of a small number of UK trading stores from a competitor, investment in new mixed-use development schemes during the second half and higher International capital expenditure. UK capital expenditure was ? 2. 5bn (last year ? 1. 9bn), including ? 987m on new stores, ? 457m on extensions and refits and approximately ? 00m relating to our US operations, slightly below the guidance we gave last November. Total International capital expenditure rose to ? 1. 4bn (last year ? 1. 1bn) comprising ? 0. 7bn in Asia and ? 0. 7bn in Europe. We expect Group capital expenditure to rise this year, driven largely by the expansion of our International business, to around ? 4. 2bn. This growth will primarily arise from the increased scale of our investment in freehold shopping centre developments in China. The change in the status of our investment in China to a subsidiary, means that such developments will now be fully funded directly from Tesco’s balance sheet. Cash flow from operating activities, including an improvement of ? 94m within working capital, totalled ? 4. 1bn (last year ? 3. 5bn). Net borrowings rose to ? 6. 2bn at the year end (last year ? 4. 9bn). ?0. 6bn of this increase is attributable to the effect of unfavourable currency movements on our International balance sheet hedging (Sterling has depreciated by 11. 5% against the currencies of the countries in which we operate). A further ? 0. 3bn relates to acquisitions, including our share of Dobbies Garden Centres PLC. Gearing was 52%. Pensions Our award-winning defined-benefit pension scheme is an important part of our competitive package of pay and benefits, which helps Tesco recruit and retain the best people.

    We manage and fund our scheme on an actuarial valuation basis and, as at December 2007, the scheme was estimated to be broadly fully funded. As at February 2008, under the IAS 19 methodology of pension liability valuation, the Group pension deficit on a post-tax basis was ? 603m. Return on capital employed In January 2004, we said that we had an aspiration to increase our post-tax return on capital employed (ROCE) of 10. 2% in the 2002/3 financial year by 200 basis points over five years on then current plans. In April 2006, we renewed our commitment to increasing our post-tax return on capital employed (ROCE) by a further 200 basis points, having exceeded our 2004 aspiration early. ROCE rose to 12. % in the year, using a normalised tax rate, before start-up costs on the US and Tesco Direct and the impact of foreign exchange equity and our acquisition of a majority share in Dobbies (last year ROCE was 12. 6%, excluding the Pensions A-Day credit). This represents a good performance and we remain on track to deliver our targeted ROCE improvement in the years ahead as these investments mature. 6 Tesco PLC Annual Report and Financial Statements 2008 www. tesco. com/annualreport08 Current trading We have seen a strong start to the new financial year across the Group. In the UK, our planned investments in strengthening further our offer for customers, involving our latest round of price cuts and the introduction of stronger promotions – and at the same time continuing to improve availability and service standards – have gone well.

    UK like-for-like sales growth, excluding petrol, was over 4% in the first five weeks of the new year. This figure is adjusted for the different timing of Easter this year and is a little ahead of our planned performance range (of between 3% and 4%) for the year as a whole. Within this, inflation was under 1. 5%. International sales progress has also been pleasing. Sales growth was strong – 19% at actual rates in the first five weeks. Overall, growth moderated only slightly compared with last year despite passing the anniversary of the acquisition of both Leader Price in Poland and the majority holding in our business in China. Total Group sales increased by 13% in the same period. Releasing value from property Our ? bn-plus programme of releasing value from property through a sequence of joint ventures and other transactions and return significant cash to shareholders over five years, both through enhanced dividends and share buy-backs, is on track. The two transactions completed in 2007 delivered aggregate proceeds of ? 1. 2bn. The first of these deals, with the British Airways Pension Fund, was completed at the end of the 2006/7 financial year. A second, larger joint venture transaction was completed with The British Land Company PLC in March 2007 and our reported first half property profits largely reflected the significant book profit on this transaction. We completed a third such deal in February 2008 – with Prudential plc – on a 4. 8% yield, realising proceeds of ? 207m. The premium to book value on this transaction was 66%.

    Whilst yields have increased modestly in recent months, appetite for Tesco’s property and covenant remains strong, and if market conditions remain conducive, we expect to be able to complete further transactions on attractive terms in the months ahead. We are currently in discussion with potential counterparties. Proceeds will continue to be used to fund expansion and our share buy-back programme – which has already re-purchased Tesco shares worth over ? 1. 1bn. The net book value of our fixed assets is ? 19. 8bn, most of it in our freehold store portfolio – even after recent property divestments linked to our ? 5bn programme. We estimate the current market value of these assets to be ? 31bn, representing a 57% premium to book value.

    Key performance indicators (KPIs) We operate a balanced scorecard approach to managing the business that is known internally within the Group as our ‘Steering Wheel’. This unites the Group’s resources and in particular focuses the efforts of our staff around our customers, people, operations, finance and the community. Its prime focus is as a management tool for the company so that there is appropriate balance in the trade-offs that need to be made all the time between the main levers of management – such as operations measures, financial measures or delivery of customer metrics. It therefore enables the business to be operated and monitored on a balanced basis with due regard to the needs of all stakeholders.

    For the owners of the business, it is simply based around the philosophy that if we look after customers well and operate efficiently and effectively then shareholders’ interests will always be best served by the inevitable outputs of those – growth in sales, profits and returns. Tesco PLC Annual Report and Financial Statements 2008 7 Business Review continued 2008* 2007 Sales growth Change in Group sales over the year (including value added tax) UK sales growth International sales growth International sales growth (at constant exchange rates) Profit before tax Underlying profit before tax Trading margin UK trading margin International trading margin Trading margin is calculated from the trading profit expressed as a percentage of Group revenue (sales excluding value added tax).

    It is a measure of profit generation from sales and is a comparable performance measure with other companies. This is how much we made from trade in our stores, taking account of the cost of the products sold, wages and salaries, expenses associated with running the stores, depots and head office, and the cost of depreciation of the assets used to generate the profits. Trading profit is stated after adjusting operating profit for the impact of IAS 19, IAS 32 and IAS 39 (principally pension costs and the marking to market of financial instruments). It also excludes the non-cash elements of IAS 17 ‘Leases’, relating to the impact of annual uplifts in rents and rent-free periods.

    Net cash inflow/(outflow) Net cash inflow is the cash received less cash spent during the financial period, after financing activities. Capital expenditure This is the amount invested in purchasing fixed assets. UK International Net borrowings and gearing Net borrowings Gearing Return on capital employed (ROCE) ROCE is calculated as profit before interest less tax divided by the average of net assets plus net debt plus dividend creditor less net assets held for sale. ROCE is a relative profit measurement that not only incorporates the funds shareholders have invested, but also funds invested by banks and other lenders, and therefore shows the productivity of the assets of the Group.

    Underlying diluted earnings per share Underlying diluted earnings per share is the calculation of profit after tax and minority interest divided by the diluted weighted average number of shares in issue during the year. It is the amount which could be paid out on each share if the Company decided to distribute all its profits as dividends instead of retaining some for future expansion. * § ‡ † 11. 1% 6. 7% 25. 3% 22. 5% ? 2,803 ? 2,846 5. 9% 5. 6%§ 10. 9% 9. 0% 17. 9% 17. 4% ? 2,653m ? 2,545m 5. 9% 5. 7% ?801m ? 3. 9bn ? 2. 5bn ? 1. 4bn ? 6. 2bn 52% 12. 9%‡ ?(265)m ? 3. 0bn ? 1. 9bn ? 1. 1bn ? 4. 9bn* 46% 12. 6%† 27. 02p 22. 36p The measurement of net debt has been revised to include loans receivable from joint ventures. Going forward net debt will be stated inclusive of the loan receivables from joint ventures.

    International margins rose by 15 basis points excluding the impact of consolidating the China business. Using a ‘normalised’ tax rate before start-up costs in the US and Tesco Direct, and excludes the impact of foreign exchange in equity and our acquisition of a majority share of Dobbies. Including the one-off gain from Pensions A-Day, ROCE was 13. 6%. 8 Tesco PLC Annual Report and Financial Statements 2008 www. tesco. com/annualreport08 2008 2007 Total shareholder return Total shareholder return is the notional return from a share and is measured as the percentage change in the share price, plus the dividend paid. This is measured over the last five years.

    Full year dividend per share The growth of the dividend per share from one period to the next is important to shareholders since this represents their actual cash return, and is usually paid twice a year. 22. 8% 36. 0% 10. 90p 9. 64p We monitor a wide range of KPIs, both financial and non-financial. Individual business units have their own versions of the Steering Wheel which incorporate their own priorities and KPIs. Some of the Group KPIs below are tracked through the Steering Wheel and those above are tracked as a monitor of investor return. Across the Group, KPIs are set for local markets, with oversight from the Executive Directors, to ensure they are tailored to drive the priorities of each business.

    During the last year we have made good progress with rolling out our Corporate Responsibility management system to our International operations. We report quarterly on Community, which includes social, ethical and environmental matters alongside Customer, Operations, Finance and People KPIs. More detail on each country follows in the ‘Operations, resources and relationships’ section. The following are some KPIs for the UK and Group operations: 2008 2007 UK market share Grocery market share* Non-food market share * This is measured as the share of all spend by all shoppers through Taylor Nelson Sofres Superpanel (Total Till Roll) data. Supplier viewpoint measure UK The Group We aim to monitor supplier relations through the Supplier Viewpoint Survey.

    The target is for over 90% of UK suppliers to view Tesco as being trustworthy, reliable, consistent, clear, helpful and fair. This is the first year our international suppliers have taken part in our Supplier Viewpoint Survey. Employee retention This measure shows the percentage of employees who have stayed with the business for longer than one year. It is one measure that we use to monitor employee loyalty and satisfaction and we aim to exceed 80% retention of experienced staff. CO2 emissions For 2007/8 our target was to reduce CO2 emissions from our existing buildings in the UK by 5. 5%. † This is a new KPI. Our previous KPI was energy consumption, with our target in 2006/7 being to reduce energy consumption by 12%.

    Our actual reduction was 12. 5%. 21. 8% 8. 5% 21. 0% 8. 0% 92% 88% 94% N/A 84% 84% 5. 8% n/a† Tesco PLC Annual Report and Financial Statements 2008 9 Business Review continued Operations, resources and relationships > Homeplus in South Korea delivered another excellent performance in International operations the year; overcoming the challenges of stronger competitors and subdued consumer spending and achieving solid sales and strong profit growth. The performance of our international businesses has been outstanding – Over 1 million square feet of space was opened during the year and we with excellent progress in sales, profits and returns.

    The growing strength of have a strong programme of 76 new stores and 1. 4m square feet this our operations and market positions internationally gives us confidence that year. We will almost double the size of our Express business in 2008/9 we can deliver further strong progress in the years ahead. Our International to around 130 stores. Our grocery dotcom operation in South Korea is diversification has come of age and, in delivering half of the year’s Group now well-established and growing rapidly – with sales up by more than trading profit growth, it has demonstrated its increased strength and 125% in the year. maturity – with much more to come.

    We are seeing the benefits of last year’s acquisitions, and organic growth in selling space also continues to be rapid as we build out our networks. We opened a total of 6. 2m square feet in Europe and Asia during the year, an increase of 15%, plus a further 0. 5m square feet in the US. Over 60% of Group sales area is now in International. At the end of February, our operations in Asia and Europe were trading from 1,561 stores, including 493 hypermarkets, with a total of 45. 9m square feet of selling space. This year, we plan to open 505 new stores with a total of 8. 4m square feet of sales area in these markets. A further 1. 5m square feet is planned to open in the US.

    Returns – CROI All our established markets are now profitable and with growing local scale, increasing store maturity and the benefits of new investment in supply chain infrastructure, returns from our international operations are continuing to rise. On a constant currency basis and excluding China, cash return on investment (CROI*) for International was the same as last year at 11. 5%. This reflects the rise in invested capital linked to our acquisitions in Poland and the Czech Republic in 2006 and higher capital expenditure. Like-for-like CROI shows a strong improvement, rising to 13. 1% (last year 12. 7%), with our lead markets maintaining significantly higher levels overall. Returns in Turkey and Malaysia have shown pleasing improvement.

    In Central Europe, Hungary and Slovakia delivered increases in returns, while the performance in Poland and the Czech Republic was held back temporarily by the additional capital linked to our acquisitions in 2006. Asia We have delivered a very strong performance in Asia, despite retail markets in our two largest countries – South Korea and Thailand – remaining subdued. We are now market leader in Malaysia, just seven years after we entered the country and we are accelerating growth and investment in China now that we have full control of our business there. > In China, with majority ownership and full management control of the business, we have begun to accelerate store and infrastructure development as part of our long-term strategy to become a leader in the market.

    We plan to construct large multi-level freehold shopping centres, built around Tesco hypermarkets, in the major cities of the three main economic regions – around Shanghai, Beijing and Shenzhen/Guangzhou. These regions will each have modern distribution and supply chain facilities. We now have 56 hypermarkets, mostly around Shanghai and our first stores in the other regions are trading well. The first four of our new large developments will be constructed in the current year. We saw strong sales, including good like-for-like growth in the year and China made a modest profit. > The retailing environment in Japan remains difficult. Our small but profitable business there has continued to focus on refining and developing the trial Express-type stores, which we began to open last year – with seven now trading – into an expandable format.

    We have strengthened the management team in Japan, invested in infrastructure and plan a modest new store development programme this year. > Tesco Malaysia has made rapid progress, successfully integrating and converting the Makro stores and at the same time sustaining very strong like-for-like growth and moving into profitability for the first time. Six major refits to the Makro stores to introduce the new Extra format, which was developed specifically for these sites, are complete and the stores are trading very well. We have recently become market leader, and with two more converted stores to be relaunched soon, plus a strong pipeline of eight planned new hypermarkets, we hope to extend our lead this year. gt; Tesco Lotus in Thailand has performed very well. Although consumer confidence levels remain subdued, our investment in improving our offer for customers through the political and economic instability of the last 18 months has served us well. Our business has achieved good sales and profit growth and strengthened its already robust market position. The successful development and rollout of our formats has picked up pace again with 106 stores opening with 1. 4m square feet of selling area. This included the opening of ten hypermarkets in the final quarter of the year. Europe Our European growth has been stronger than for many years, helped in part by favourable exchange rate movements.

    In Central Europe we are emerging from a long period of economic instability and intense competition as one of the clear winners across the region – and the prospects for improving returns as we continue to build our market positions, and benefit from increased scale, regional economies and improved infrastructure, have never been better. The work we have done on pan-European sourcing of Tesco own brand and general merchandise has further strengthened our competitive position in the region. Our business in Ireland has also made excellent progress and we are increasingly confident about the scale of opportunity for Tesco in Turkey as we build on the excellent Kipa brand, which has already proven itself capable of trading well across much of the country. gt; In the Czech Republic, the benefits of our improved market position – we are now among the leaders – and stability following the very successful acquisition and integration of the Carrefour stores last year are starting to come through well. The performance of the acquired stores has been excellent – with second year like-for-like sales growth of 11%. Our first Express stores have also been well-received by customers in central Prague and we are continuing a programme of refits – and in some cases major redevelopments – of our department stores. > The economic background in Hungary is showing early signs of improvement although the consumer environment remains challenging.

    However, our strategy of investing hard to build on our already strong market position by lowering prices and expanding our store network is yielding good results. We have seen improving performance from our stores, including a resumption of like-for-like sales growth last summer, renewed profit growth and a significant improvement in returns. Our new store opening programme delivered a 12% increase in our space – through four large hypermarkets, five of our 3k compact format, 12 1k stores and one Express. * Cash return on investment (CROI) is measured as earnings before interest, tax, depreciation and amortisation, expressed as a percentage of net invested capital. 10 Tesco PLC Annual Report and Financial Statements 2008 ww. tesco. com/annualreport08 > Our business in Poland had a good year with strong growth in market share, driven by the successful integration and conversion of the former Leader Price stores, combined with organic expansion across our range of 1k, 2k and 3k formats. In a difficult consumer and business environment, sales grew well – with like-for-like growth of 43% in the converted stores. Returns are expected to move forward in the current year as the business absorbs the additional capital involved in last year’s acquisition and delivers the full benefits of the enlarged business and the increasing profitability of the converted stores. gt; An excellent performance from Tesco Ireland produced another year of strong growth, with good progress in all areas of the business. The planned operational benefits from our new 740,000 square feet distribution centre (DC) at Donabate, in north Dublin, which opened in the first half, are now coming through well. Our pipeline of new space is strong – through store extensions, new and replacement stores. We now have six Extra hypermarkets trading in Ireland, which are proving very popular with customers and 12 Express stores – with more to come this year. Our new non-food ranges – including Florence & Fred and Cherokee clothing – are performing particularly well. gt; In Slovakia our new clothing and hardlines distribution centres, located close to Bratislava, which handle general merchandise for the whole of Central Europe, are now fully operational and delivering significant benefits. These substantial investments are enabling our Central European businesses to harmonise and improve our non-food ranges and deliver lower prices for customers. Our market-leading retail business there has made very good progress against the background of a strong economy. Our new store opening programme, which is now focused on our compact hypermarket and smaller 1k formats, delivered 9% growth in selling area in the year. gt; In Turkey, our Kipa business continues to grow rapidly and profitably and we are making progress towards creating a national chain of hypermarkets in a market which offers great potential. We are investing in creating the necessary infrastructure for long-term expansion with our first major distribution centre at Yasibasi covering 400,000 square feet, now in operation and with similar infrastructure projects planned over the next two years as we begin to secure sites in Istanbul, Ankara and the other cities in central and western Turkey. We aim to grow our space in Turkey by around 60% this year, from our base of 26 hypermarkets. Customer response to the Express format has been very encouraging and we plan to add more than 40 further stores this year, bringing the total to over 80.

    United States We are very encouraged by the start Fresh & Easy has made. The first stores opened only in November and we now have over 60 trading. Whilst it is still early days, the response of customers to our offer has surpassed our expectations – with our research regularly confirming that they like the quality and freshness of our ranges, as well as the prices and the convenient locations of the stores. Sales are ahead of budget and sales densities are already higher than the US supermarket industry average, with our best stores exceeding $20 per square foot per week. We are seeing strong growth in the early stores as we step up, as planned, our marketing programmes and as we build awareness of the brand.

    This is also reflected in the strong sales performance of recent openings in all of our markets in Southern California, Nevada and Arizona. Fresh foods and own brand products have sold particularly well, confirming that the core of our offer has already gained acceptance with customers. Progress with real estate has been good and we have secured enough sites for our immediate needs – although the deteriorating property market, particularly in Arizona and Nevada, will mean that some of the third-party developments in which we had planned to open prototype stores later this year, will now be deferred. Nevertheless, we still expect to open around 150 new stores this year. Our Riverside distribution centre (DC) and kitchen operation is gearing up well as volumes rise.

    As we announced last November, we have taken the necessary steps to secure the site and begin the process of obtaining the necessary permits to launch operations of our second DC in Northern California in due course. We expect a proportion of these costs will be incurred in the current year. Last April, with our Preliminary Results, we said that costs of recruitment and training of staff for the stores, combined with the other pre-launch costs and initial trading losses, would involve estimated US start-up costs of around ? 65m in the financial year. We have delivered on this guidance – trading losses were ? 62m. We expect losses to rise this year to around ? 100m. US segmental reporting of sales and trading results within International will begin with our Interim Results in September.

    Core UK operations In the UK, Tesco coped well with unseasonal summer weather, recovering competitors and a deteriorating non-food market, particularly in the second half, to deliver solid progress in the year by investing in improving the shopping trip for customers. UK sales grew by 6. 7%, with a like-forlike increase, including petrol, of 3. 9%. Both customer numbers and spend per visit increased. In the current year we expect to trade the business harder and give what help we can to families whose budgets have become increasingly stretched by higher interest rates, fuel costs and taxes. As always, we are investing to improve all aspects of the shopping trip. We have already announced a significant – and budgeted – round of price cuts, involving an investment of ? 170m and this is in addition to the strengthened programme of half-price and other promotions we have been running since January.

    Every Little Helps > Our Price Check survey, which compares 10,000 prices against our leading competitors weekly, shows that our price position has improved again (for more information see www. tesco. com). We have already cut the price of 7,500 products this year and in the last decade, Tesco has saved a typical household ? 5,000 by investing in even lower prices for customers. > We are able to monitor and improve our checkout service using our new thermal imaging technology. A renewed focus on reducing queues for customers has delivered significant improvements – with a remarkable 22. 5 million more customers benefiting from our ‘one-in-front’ promise. Customers recognise Tesco as offering the best checkout service in the market. gt; The broad appeal of the Tesco brand drives our work on ranges. We have seen solid growth across our food categories. We launched a comprehensive update of our Healthy Living range in January – and customer feedback has been very good. Our Organics range is still growing well and Finest is now the UK’s biggest brand – with sales of ? 1. 2 billion. Last week, we did our first big event of the year on Value, delivering great prices for customers right across the store. > On-shelf availability, which we measure using our in-store picking of tesco. com orders, has improved again and more customers are able to buy everything they want when they shop at Tesco.

    We have made particularly strong progress on fresh availability with projects including better weather forecasting and working with our suppliers to reduce lead times. > All 7,000 of our eligible own-brand products now carry our GDA nutritional signpost labels. We have created a system that is easy to understand and practical to use and sales data confirms we have made a genuine impact on customer behaviour. Tesco PLC Annual Report and Financial Statements 2008 11 Business Review continued Step-Change We delivered efficiency savings of well over ? 350m in the year, significantly ahead of plan, through our Step-Change programme, which brings together many initiatives to make what we do better for customers, simpler for staff and cheaper for Tesco.

    We have picked up the pace of a number of these often long-term cross-functional projects and plan to deliver even higher savings in the current year of around ? 450m. Most of these savings are reinvested to improve our offer for customers. Some examples of these projects are: > We have stepped up our investment in energy saving across the business, delivering significant reductions in consumption and helping us to absorb rising utility costs. > Savings in supply chain from further improvements in shelf-ready merchandising, increased vehicle utilisation and more productive work methods in depots and stores have risen, with more to come. gt; The introduction of new checkout technology for stores, which is faster, more accurate and easier for staff, has continued to reduce costs and improve customer service. > We now have nearly 3,000 employees at our Hindustan Support Centre in Bangalore, India, which provides IT and administrative support to our UK and International operations – from software development to management accounting and payroll. New space We opened a total of 2. 0m square feet of new sales area, of which 489,000 square feet was in-store extensions, principally for Extra. We opened another 19 Extra hypermarkets – nine from extensions to existing stores, ten from new stores, bringing the total to 166, with a further 11 planned this year.

    Extra now represents 41% of our total sales area. We also opened 17 new superstores and 103 new Express stores, bringing the overall total number of Tesco stores to 1,608. Competition Commission We are continuing to work with the Competition Commission on the final stages of their inquiry into the grocery industry. We look forward to the publication shortly of their final report. This is a very competitive industry from which consumers benefit hugely. We hope that the regulatory authorities will give due weight to this and to the need to avoid costly and burdensome new regulation, which discourages the pace of innovation that has served the industry and consumers so well.

    Non-food operations Tesco’s general merchandise business has been resilient despite the challenges posed by weakening demand in a number of categories – and it remains an important contributor to our growth as we improve our offer for customers to drive market share. Because our customers increasingly recognise the quality, breadth and value of our offer, Tesco non-food sales, whilst growing less rapidly than in previous years, remained robust and again grew faster than our core business, helped by a successful first full season for Tesco Direct. Sales growth in the UK was 9% in the year, with total non-food sales increasing to ? 8. 3bn (included in reported UK sales).

    Sales growth moderated in the second half, but in reducing to 8% growth after a 10% increase in the first half, we were able to outperform strongly the market for general merchandise as a whole. We saw particularly pleasing growth in hardlines, whilst clothing sales, though well ahead of the market, grew more slowly – by 6% in the year as a whole. Including ? 3. 5bn in International, where sales grew by 20% at constant prices, Group non-food sales rose 12% to ? 11. 8bn. Entertainment sales strengthened during the second half, helped by a stronger programme of new DVD and games releases. The transition to in-house sourcing of our entertainment offer has gone well. Health & beauty also saw an improving trend.

    Consumer electronics saw very strong growth (31%), with particularly large increases in the sales of flat-screen televisions, laptop computers and digital cameras. Other strong categories include DIY, furniture and books. Tesco Direct Our new general merchandise business, which is designed to extend the reach of our non-food offer by making it more available to customers who cannot access one of our Extra stores, is now established and thriving. We started Tesco Direct in a low-key way – with initially 8,000 products offered online and 1,500 by catalogue, including new categories such as furniture and last March, we successfully launched a more comprehensive offer.

    Our latest catalogue, the third of our big books, which was launched last month, demonstrates the growing strength of our offer. We have 11,000 products online and 7,000 in the catalogue. The breadth of range is similar but we have refined the mix of products, increasing the proportion of higher ticket items. Service levels and availability for customers have also seen steady improvement. Customer response has been very positive with order volumes rising season by season. As well as wider ranges, Tesco Direct provides customers with the choice of ordering online, by phone or in selected stores and the option to pick up items from some stores is proving very popular.

    We have desks in 200 stores with plans to add a further 80 by the end of the year, which will mean that most areas of the country will be served. Sales are growing well, and last year, we comfortably exceeded our plan to generate turnover in excess of ? 150m – delivering sales of almost ? 180m. Start-up costs and initial operating losses on Direct were ? 25m, up on last year and we expect these to reduce this year to around ? 20m. Homeplus We are extending the trial of our general merchandise-only stores to a further ten large sites, including our new store at Cribbs Causeway, Bristol, which will open this summer, selling some Tesco Direct products from stock.

    Dobbies The acquisition of a majority share in Dobbies Garden Centres PLC was completed at the end of the first half and with our 65. 5% ownership of the business we are now implementing the strategy we outlined for the business at the time the offer was announced. Dobbies is a strong business, already a leading innovator in its market and with Tesco’s resources, it will be able to expand more rapidly towards national coverage. It will also become a platform for the group to encourage green consumption – by developing an offer for customers who are looking for sustainable solutions – from water recycling, to wind and solar power. In April 2008, Dobbies announced an open offer of new shares to raise ? 150m of additional capital to fund expansion.

    Retailing services operations Our efforts to bring simplicity and value to sometimes complicated markets are behind the success of our retailing services businesses. Underpinning our services strategy is a strong economic model, based around leveraging existing assets – either our own or a partner’s – so that we can simultaneously price our services competitively for customers and also achieve high returns for shareholders. 12 Tesco PLC Annual Report and Financial Statements 2008 www. tesco. com/annualreport08 Tesco Personal Finance (TPF) TPF is ten years old this year and 2007/8 was a successful one for our joint venture with Royal Bank of Scotland – with 1. m new customers being attracted by a substantial increase in its range to 26 products, spanning credit cards to pet insurance and bureaux de change. New products were launched in health insurance, dental insurance and internet savings accounts. Most products are available online, where over 50% of new sales are now made, after a 20% rise in internet business in the year. The Tesco

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