Tesco 2004 Annual Report Download - page 7

TESCO PLC 5
CREDIT RISK The objective is to reduce the risk
of loss arising from default by parties to financial
transactions. The risk is managed by spreading
financial transactions across an approved list of
counterparties of high credit quality. The Groups
positions with these counterparties and their credit
ratings are routinely monitored.
TESCO PERSONAL FINANCE (TPF) TPF lending is
predominantly to individuals through its credit card
and unsecured personal loan products. TPF has
also developed a significant insurance business, with
motor insurance a major component part. TPF risk
is managed by observing and adopting industry
best practices and drawing upon the expertise and
systems of the Royal Bank of Scotland Group,
including its subsidiary, Direct Line. All policies
pertaining to risk within TPF are subject to the
governance procedures of The Royal Bank of
Scotland Group and ratified by the TPF Board,
which has representation from both Tesco and The
Royal Bank of Scotland Group. This has delivered
a portfolio of products with strong asset quality.
This asset quality is maintained through proactive
risk management both at the time of acquisition
and ongoing account maintenance.
The Tesco Group would support its 50% share of
any further funding TPF may require to sustain
liquidity ratios. However, we believe that provisions
for bad debts and insurance losses (supported
by the re-insurance of significant risks) are at
prudent levels.
INSURANCE We have taken the decision to purchase
Assets, Earnings and Combined Liability protection
from the open insurance market at a catastrophe
level only. The risk not transferred to the insurance
market is retained within the business up to various
limits, with the balance self insured on a
multinational basis by use of our captive insurance
companies, Tesco Insurance Limited in Guernsey
and Valiant Insurance Company Limited in the
Republic of Ireland. Tesco Insurance Limited covers
Assets, Earnings and historic Combined Liability.
From 2003, Valiant Insurance Company Limited
covered Combined Liability.
PENSIONS Tesco policy is to base UK pension
funding decisions on a three-yearly actuarial
valuation. The latest full actuarial valuation of the
Tesco PLC Pension Scheme was carried out as at
31 March 2002. This formed the basis of our
decision to increase funding levels. The results of
the valuation can be seen in note 27(a).
In line with accounting standards, a separate FRS
17 valuation has been performed as at the Group
year end date. The FRS 17 disclosures can be
found in note 27(b).
INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS) All European Union listed companies are
required to prepare their consolidated financial
statements in accordance with IFRS for accounting
periods beginning on or after 1 January 2005. The
Tesco Group will therefore adopt IFRS for the
financial year ending February 2006.
Tesco has set up a cross-functional team to achieve
a smooth transition to IFRS. We have performed
a high level review of the differences between
IFRS and our current accounting policies, and we
are now quantifying the financial impacts of
convergence with IFRS. We are also looking at the
wider implementation aspects, including how we
will communicate the changes resulting from IFRS
to the market.
Based on our work to date, the major areas of
impact on net proÞt and shareholders funds are
expected to be due to differences in accounting
for share-based payments, pensions, deferred tax,
Þnancial instruments and hedging, goodwill and Þxed
assets. The presentation of our Þnancial statements,
along with the disclosures, will also be affected.
OTHER INFORMATION Additional financial and non-
financial information, including press releases and
year end presentations can be accessed on our
website, www.tesco.com/corporateinfo