REG - Tesco Personal FinTesco PLC - Final Results <Origin Href="QuoteRef">TSCO.L</Origin> - Part 2
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Senior Management in the business lines. Customer outcomes are also assessed as part of the development and design of new products and through annual product reviews of existing products. The ERC and the Board review and challenge delivery of fair outcomes
for customers and are provided with oversight of the management information.
Capital riskThe risk that the Group holds regulatory capital which is of insufficient quality and quantity to enable it to absorb losses. TESCO PERSONAL FINANCE PLCSTRATEGIC REPORT (continued) Capital risk (continued)The prudential regulation of banks continues to develop, with a number of topics currently under consultation in both the EU and the UK. The impact of future changes to capital and funding regulation are unclear and may have an impact on the Group's activities. The Group undertakes close monitoring of capital ratios to ensure it complies with current regulatory capital requirements and is well positioned to meet any anticipated future requirement. Management of capital is governed through the ALCo, the BRC and
the Board. The Group undertakes an Internal Capital Adequacy Assessment Process (ICAAP). Material risks to the Group are reviewed through stress testing to support an internal assessment of the level of capital that the Group should maintain. Where capital
is not considered to be an appropriate mitigant for a particular risk, alternative management actions are identified. The stress testing scenarios and final ICAAP results are presented to the BRC for challenge and approval. The ICAAP is submitted to the
regulator on a regular basis and forms the basis of the Individual Capital Guidance given to the Group. 9 The Group actively engages in relevant industry consultation and closely monitors potential changes to regulatory requirements.
European Union ReferendumThe European Union Referendum Act 2015 required the UK to hold a referendum on the UK's membership of the European Union (EU) by the end of 2017. The referendum was held on 23 June 2016 and resulted in a vote for the UK to leave the EU. The process of exiting the EU continues to contribute to political and economic uncertainty in the UK and Europe. Following the EU referendum result, the political and economic outlook for the UK is uncertain. The Group has actively considered the potential risks associated with the UK's exit from the EU and their impact on both the UK financial services market and
the Group itself. While the timing and terms of any agreement with the EU remain uncertain, the Group continues to have sufficient capital resources to allow it to cope with a severe economic stress. The Group will continue to monitor the wider economic
environment, particularly to assess the impact on credit risk to the Group. The Group also continues to monitor related developments to the UK's exit from the EU, including the possibility of a second Scottish independence vote.
The following pages provide a more granular overview of the operational control processes and risk mitigants adopted by the
Group.
A fuller description of these risks and controls can also be found in the Pillar 3 Disclosure Statements of Tesco Personal
Finance Group Limited for the year ended 28 February 2017. These disclosures will be published in the Financial Information
section of the Tesco Bank corporate website in due course.
http://www.corporate.tescobank.com/48/accounts-and-disclosures.
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TESCO PERSONAL FINANCE PLC
STRATEGIC REPORT (continued)
Risk Management Framework (RMF)
The scope of the RMF extends to all major risk categories faced by the Group and is underpinned by governance, controls,
processes, systems and policies within the second line risk function and those of the first line business areas. The key
components of the RMF are as follows:
Risk Governance Structure
The Group has established a governance structure which is appropriate for the business in terms of its level of complexity
and risk profile. This structure is continually reviewed so that it remains suitable to support the business. During the
year, the Group chose to revise its governance structure to more appropriately reflect the needs of the business.
The Board
Chairperson Executive Directors Non-Executive Directors
Graham Pimlott Karl Bedlow John Castagno
Iain Clink Robert Endersby
Richard Henderson Simon Machell
Bernard Higgins James McConville
Declan Hourican Raymond Pierce
David McCreadie Amanda Rendle
Alan Stewart
The Board is the key governance body and is responsible for overall strategy, performance of the business and ensuring
appropriate and effective risk management. It has delegated responsibility for the day to day running of the business to
the Chief Executive. The Chief Executive has established the Executive Committee (ExCo) to assist in the management of the
business and to deliver against the strategy in an effective and controlled way.
The Board has established Board committees and senior management committees to:
§ Oversee the RMF;
§ Identify the key risks facing the Group; and
§ Assess the effectiveness of the risk management actions.
Tesco Personal Finance Board
Audit Committee Board Risk Committee Remuneration Committee Disclosure Committee Nomination Committee
The Board has overall responsibility for the business. It sets the Risk Appetite and strategic aims for the business, in
some circumstances subject to shareholder approval, within a control framework which is designed to enable risk to be
assessed and managed. The Board satisfies itself that financial controls and systems of risk management are robust.
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TESCO PERSONAL FINANCE PLC
STRATEGIC REPORT (continued)
In order to support effective governance and management of the wide range of responsibilities, the Board has established
the following five sub-committees:
· Audit Committee
The Audit Committee comprises James McConville (chairperson), Robert Endersby and Simon Machell.
The role of the Audit Committee includes: reviewing and recommending to the Board for approval the Financial Statements;
monitoring accounting policies and practices for compliance with relevant standards; reviewing the scope and results of the
annual external audit; oversight of the process for selecting the external auditor and making recommendations to the Board
in relation to the appointment, re-appointment and removal of the external auditor; considering the effectiveness of the
external auditors and their independence, including in the context of any non-audit services carried out; reviewing reports
covering anti-money laundering and compliance, in particular the Money Laundering Reporting Officer annual report and Risk
Assurance Report; maintaining a professional relationship with the external auditor; examining arrangements in place to
enable Management to comply with requirements and standards under the regulatory system; overseeing the internal audit
function and the internal audit programme; and reviewing the findings of external assurance reports provided by outsourced
providers.
Further detail on the Audit Committee is included within the Audit Committee section of the Directors' Report.
· Board Risk Committee (BRC)
The BRC comprises Robert Endersby (chairperson), John Castagno, James McConville, Raymond Pierce, Graham Pimlott, Amanda
Rendle and Alan Stewart.
The role of the BRC includes the oversight and challenge of the Group's Risk Appetite and the recommendation to the Board
of any changes to Risk Appetite; provision of oversight and advice to the Board on the current key risk exposures of the
Company and future risk strategy; the review and challenge, where appropriate, of the outputs from the ALCo and the ERC;
overseeing that a risk culture is appropriately embedded in the business which recognises risk and encourages all employees
to be alert to the wider impact on the whole organisation of their actions and decisions; reviewing the design and
operation of the RMF; and reviewing the monitoring of conduct and complaints in the business and alerting the Board to any
systemic conduct or cultural risks.
· Remuneration Committee
The Remuneration Committee comprises Raymond Pierce (chairperson), Robert Endersby, Graham Pimlott and Amanda Rendle.
The role of the Remuneration Committee is: to determine and approve remuneration arrangements for all identified Material
Risk Takers within the Group as defined by the Prudential Regulation Authority (PRA) and the FCA's Remuneration Code; to
approve a remuneration framework for employees of the Group below the leadership level; to align, where appropriate,
remuneration in the Group with Tesco PLC Group Reward Policy; to design the levels and structure of remuneration necessary
to attract, retain, and motivate the management talent needed to run the Group's business in a way which is consistent with
the Risk Appetite and ongoing sustainability of the business; and to confirm that the remuneration policy in the Group is
compliant with all applicable legislation, regulation and guidelines.
· Disclosure Committee
The Disclosure Committee comprises Graham Pimlott (chairperson), Robert Endersby, Richard Henderson, Declan Hourican and
James McConville.
The Disclosure Committee is responsible for ensuring the Group's compliance with relevant legal and regulatory obligations
in relation to the timing, accurate disclosure and announcement of information. The Committee also reviews, on behalf of
the Board, certain legal or regulatory disclosures ahead of publication and makes recommendations to the Board as
appropriate.
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TESCO PERSONAL FINANCE PLC
STRATEGIC REPORT (continued)
· Nomination Committee
The Nomination Committee comprises Graham Pimlott (chairperson), Simon Machell, Raymond Pierce and Amanda Rendle.
The role of the Nomination Committee includes reviewing the structure, size and composition (including the skills,
knowledge, experience and diversity) of the Board and making recommendations to the Board with regard to any changes;
reviewing the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued
ability of the organisation to compete effectively in the marketplace; formulating plans for succession for both executive
and non-executive directors and in particular for the key roles of Chairman and Chief Executive; and identifying and
nominating for the approval of the Board, candidates to fill board vacancies as and when they arise.
Executive Committee (ExCo)
The Group's Board has delegated day to day running of the business to the Chief Executive. The Chief Executive has
established the ExCo to assist in the management of the business and to deliver against the strategy in an effective and
controlled way. The ExCo provides general executive management of the business. Each ExCo member is accountable to the
Chief Executive and to the Board for managing performance in line with the Group's long-term plan, strategy, annual budget
and Risk Appetite. In order to support the ExCo, the following six sub-committees have been established:
· Commercial Executive Committee (CEC)
The principal role of the CEC is to oversee performance and matters arising across the Commercial business through: review
of credit risk approvals; receipt of risk, risk event and internal audit reporting; management of top risks - ensuring that
existing and emerging risks and issues are controlled appropriately and referred to the relevant Board or Committee when
needed; approval of proposals and business cases for development and appointing third party suppliers, in line with
delegated authorities from the Board; oversight of the use of budget allocated; review of business financial and trading
performance, and monitoring of pricing plans; review of conduct risks and issues; annual product reviews; identification of
risks to good customer outcomes, providing challenge and recommending further action to resolve and track those actions to
completion; and escalation of material conduct or Treating Customers Fairly risks to the ExCo.
The CEC has five sub-committees: Commercial Credit Risk Committee; Transactional Banking Management Committee; Savings,
Loans and Mortgages Management Committee; Insurance Management Committee; and the PayQwiq Governance Committee.
· Asset and Liability Management Committee (ALCo)
The principal role of the ALCo is to optimise the Group's balance sheet structure, within boundaries and Risk Appetite set
by the Board and regulation, and to identify, manage and control the Group's balance sheet risks in the execution of its
chosen business strategy. The ALCo has three sub-committees: the Liquidity Management Forum; Market Risk Forum; and the
Capital Management Forum.
· Executive Risk Committee (ERC)
The principal role of the ERC is to oversee all aspects of the Risk Framework, and to ensure that the three lines of
defence model is operating effectively; monitor the appropriateness of and adherence to Risk Appetite and to make
recommendations on any changes to Risk Appetite; debate and challenge the risks inherent within strategic plans; consider
and challenge policy exceptions and waivers that are in place; consider action to deliver risk management solutions, and to
direct resource appropriately; consider the impact of regulatory initiatives on the current and future state of compliance
by Tesco Bank; review and approve key policies of Tesco Bank; oversee Procurement and Supplier Management, with particular
focus on ensuring that the key risks associated with outsourcing and third party supplier management are assessed; oversee
operational resilience; and provide review and challenge relating to the culture in managing conduct risks and customer
fairness within the business.
The ERC has five sub-committees: Operational Risk Committee; Operational Resilience Steering Committee; Supplier Management
Group; Wholesale Credit Risk Forum; and the Provisions Forum.
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TESCO PERSONAL FINANCE PLC
STRATEGIC REPORT (continued)
· Customer Division Executive Committee (CDEC)
The role of the CDEC is to approve key decisions and provide oversight and challenge of performance and matters arising
across the Customer Division of the business.
The CDEC has three sub-committees: Customer Security Committee; Service Risk Committee; and Marketing Risk Committee.
· Customer 2020 Executive Steering Committee (C2020 ESC)
The role of the C2020 ESC is to oversee C2020 and steer the delivery of the C2020 strategic plan.
The C2020 ESC has one sub-committee: C2020 Programme Board.
· Information Security Committee (ISC)
The role of the ISC is to support the Deputy Chief Executive in delivering information security and cybercrime control
improvements through executive direction, support and oversight of the programme of work.
The ISC has one sub-committee: Information Security Forum.
Three Lines of Defence
The Group has adopted the 'three lines of defence' model of governance with clearly defined roles and responsibilities to
help drive effective risk management.
· First line of defence
Senior Management are responsible for establishing an effective control framework within their area of operation; for
identifying and controlling all risks so that they are operating within the organisational Risk Appetite; for ensuring that
they are fully compliant with Group policies; and, where appropriate, for operating within defined thresholds. They also
devise, manage and report against appropriate 'key risk indicators', ensuring that management information and assurance
processes allow assessment of their control framework to manage key risks as they arise in their area of operation.
· Second line of defence
The Risk Management function (RMFu) is responsible for proposing to the Board appropriate objectives and measures to define
the Group's Risk Appetite and for devising the suite of policies necessary to control the business, including the
overarching framework, and for independent monitoring of the risk profile, providing oversight, challenge and additional
assurance where required. The RMFu uses expertise and provides frameworks, tools and techniques to assist Management in
meeting their responsibilities, as well as acting as a central coordinator to identify bank wide risks and make
recommendations to address them.
· Third line of defence
This comprises the Internal Audit function, which is responsible for providing independent assurance to the Board and
Senior Management on the adequacy of design and operational effectiveness of internal control systems.
Group Policies
The Group has a formal structure for reporting, monitoring and managing risks. This comprises, at its highest level, the
Group's Risk Appetite approved by the Board, which is supported by detailed risk management frameworks (including policies
and supporting documentation), independent governance and oversight of risk. Each policy is owned by a specific individual
who is responsible for maintenance and assurance of the policy. Each policy must be reviewed on at least a bi-annual
basis, or earlier if there is a trigger for policy review such as a regulatory change, to ensure its continued
effectiveness and applicability in line with changing risks.
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TESCO PERSONAL FINANCE PLC
STRATEGIC REPORT (continued)
· Risk Management Function (RMFu)
The independent RMFu operates under the leadership of the Chief Risk Officer (CRO). Risk teams reporting to the CRO are the
second line of defence, and are resourced by people with risk expertise in each of the principal risks faced by the Group.
This allows them to provide appropriate analysis, challenge, understanding and oversight of each of the principal risks.
· Stress Testing
Stress testing is the process by which the Group's business plans are regularly subjected to severe but plausible impact
scenarios to assess the potential impact on the business, including projected capital and liquidity positions. The results
of stress testing, along with proposed actions, are reported to the ALCo and BRC. These are captured in both the Individual
Liquidity Adequacy Assessment Process (ILAAP) and the ICAAP.
· Monitoring and Reporting
The RMFu has responsibility for integrated risk reporting across the Group. The RMFu monitors and aggregates risk
exposures to ensure that risk coverage is considered holistically so that risks and issues have clear ownership and do not
fall between functions.
The Group monitors and tracks current exposures against limits defined in the agreed Risk Appetite and by the regulators.
Exceptions are reported on a monthly basis to the ALCo and ERC and to each meeting of the BRC. Adherence to these limits
is independently monitored, measured and reported using a suite of key indicators defined by each risk team responsible for
managing the major specific risk categories faced by the Group. Decisions made at subordinate risk committees and forums
are reported to senior committees as appropriate.
· Risk Appetite Framework
The Group has established a robust Risk Appetite framework. The Group maintains a Risk Appetite which defines the type and
amount of risk that the Group is prepared to accept to achieve its objectives and forms a key link between the day to day
risk management of the business, its strategic objectives, long term plan, capital planning and stress testing. The Risk
Appetite is formally reviewed and approved by the Board on an annual basis.
The Strategic Report was approved by the Board of Directors and signed by order of the Board.
Michael Mustard
Company Secretary
10 April 2017
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TESCO PERSONAL FINANCE PLC
DIRECTORS' REPORT
The Directors present their Annual Report, together with the Company and Consolidated Financial Statements and Independent
Auditor's Report, for the year ended 28 February 2017.
Business review and future developments
The Group's business review and future developments are set out in the Strategic Report on pages 2 to 6.
Risk management
The Group's risk management disclosures are set out in the Strategic Report on pages 7 to 15.
Financial instruments
The Group's policies for hedging each major type of transaction are discussed in notes 1 and 15 to the Financial
Statements.
Capital structure
The Group's capital structure is discussed in notes 31 and 38 to the Financial Statements.
Events after the reporting date
Details of events occurring after the reporting date are discussed in note 43 to the Financial Statements.
Going concern
The Directors have made an assessment of going concern, taking into account both current performance and the Group's
outlook, including consideration of projections for the Group's capital and funding position. As a result of this
assessment, the Directors consider that it is appropriate to adopt the going concern basis of accounting in preparing the
Company and Consolidated Financial Statements.
Dividends
An interim dividend of £50.0m (2016: £50.0m) in respect of ordinary share capital was paid to Tesco Personal Finance Group
Limited on 22 February 2017.
Treating Customers Fairly
Treating Customers Fairly is central to the Financial Conduct Authority's principles for businesses and remains central to
the Tesco Values which sit at the heart of the business. These Values are designed to ensure that customer outcomes match
their understanding and expectations.
Directors
The present Directors and Company Secretary, who have served throughout the year and up to the date of signing the
Financial Statements, except where noted below, are listed on page 1.
Since 1 March 2016 to date the following changes have taken place:
Appointed Resigned
John Castagno 1 October 2016
Declan Hourican 14 November 2016
Amanda Rendle 13 December 2016
Alan Stewart 16 January 2017
Richard Henderson 29 March 2017
Peter Bole 3 October 2016
Deanna Oppenheimer 31 December 2016
Feike Brouwers 23 January 2017
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TESCO PERSONAL FINANCE PLC
DIRECTORS' REPORT (continued)
Audit Committee
Introduction from the Committee Chairperson
The Group operates in a demanding environment, particularly with regard to economic, reputational, political and regulatory
factors. The role of the Audit Committee is critical in reviewing the effectiveness of the Group's internal control
framework and assurance processes and in assessing and acting upon findings from both external and internal audit. The
Committee keeps the current internal control framework and assurance processes under review to ensure that they adapt to
the changing environment and remain appropriate for the Group.
Audit Committee composition, skills and experience
The Audit Committee acts independently of Management. This ensures that the interests of shareholders are properly
protected in relation to financial reporting and internal control.
As detailed in the section of the Strategic Report on the Board, the Audit Committee comprises three Independent
Non-Executive Directors. All Committee members have recent and relevant experience in finance and/or the banking or
insurance industry.
James McConville is a Chartered Accountant and has significant financial and banking experience gained from 30 years in the
financial services sector, thus enabling him to fulfil the role as Audit Committee Chair.
James is currently Group Finance Director at Phoenix Group Holdings and joined their Board of Directors in June 2012 with
responsibility for Finance, Treasury and Investor Relations. Previous appointments include Chief Financial Officer of
Northern Rock plc and a variety of senior finance and strategy related roles for Lloyds Banking Group plc, including
Finance Director of the Scottish Widows Group.
Robert Endersby has spent over 30 years working in the financial services sector, both within the UK and internationally
and is an Associate of the London Institute of Banking and Finance.
Robert's previous key appointments included Chief Risk Officer and member of the Executive Board of Danske Bank A/S, Vice
Chairman of Danske Bank Oyj and senior risk management positions in Barclays, The Royal Bank of Scotland and ING Group.
Robert currently holds Non-Executive positions with Credit Suisse International and Credit Suisse Securities (Europe)
Limited.
Simon Machell has worked in financial services for 30 years and has experience in both general and life insurance in the
UK, Europe and Asia. The majority of Simon's experience was gained from a range of roles with Aviva, including Chief
Executive of the RAC, Chief Executive of the general insurance business in the UK and running the insurance businesses in
14 markets across Eastern Europe and Asia. Simon holds Non-Executive roles with Pacific Life Re, Prudential Corporation
(Asia) and Tesco Underwriting Limited.
Simon is a Fellow of the Institute of Chartered Accountants in England and Wales. Simon is also a visiting professor of
insurance at the Southwest University of Finance and Economics in Chengdu, China.
The Chairman, Chief Executive, Chief Financial Officer, Chief Risk Officer, Internal Audit Director, Director of Financial
Control and Tesco PLC Internal Audit Director attend committee meetings.
The external auditor also attends.
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TESCO PERSONAL FINANCE PLC
DIRECTORS' REPORT (continued)
Audit Committee responsibilities
The key responsibilities of the Committee are to:
§ Review the Financial Statements;
§ Review the accounting policies and practices for compliance with relevant standards;
§ Examine the arrangements made by Management regarding compliance with requirements and standards under the regulatory
system;
§ Review the internal control systems, including those relating to Management's responsibility for the appropriateness and
effectiveness of systems and controls;
§ Review the internal audit programme and oversee the internal audit function;
§ Consider the effectiveness of the external auditor and their independence;
§ Provide an interface between Management and the external auditor;
§ Work closely with the Board Risk Committee to avoid, as much as possible, any overlap or gap in the overall risk and
assurance activities of the two committees;
§ Carry out such investigations or reviews as shall be referred to it by the Board;
§ Review the Group's plans for business continuity;
§ Approve the annual plan of Risk Assurance activity within Tesco Bank;
§ Receive and review reports, findings and recommendations from Risk;
§ Review and consider the adequacy of any follow up action, and any relevant investigation work, carried out by or on
behalf of Risk; and
§ Review and monitor Management's response to findings and recommendations following investigations carried out by Risk.
During the year, the Committee received reports from a number of business areas including Finance in relation to financial
reporting and Risk in relation to regulatory compliance, fraud, bribery and corruption and integrated assurance. The
Committee also considered a variety of matters including the internal financial control framework and operational
resilience.
In relation to the Financial Statements, the Committee reviewed and recommended approval of the half-yearly results and
annual Financial Statements, oversaw impairment reviews and provided oversight of the statutory audit process.
The Committee assesses the need for training on an ongoing basis and the annual agenda provides time for technical updates,
which are provided by both internal and external experts. During the year, the Audit Committee received specific training
on accounting and reporting developments. Training is also provided on an ongoing basis to meet the specific needs of
individual committee members.
It is essential for the Audit Committee to be able to have an honest and open relationship with both its external and
internal auditors. This relationship is developed and maintained through private meetings with both Deloitte and the
Internal Audit Director.
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TESCO PERSONAL FINANCE PLC
DIRECTORS' REPORT (continued)
The Internal Audit function supports the Audit Committee in providing an independent assessment of the adequacy and
effectiveness of internal controls and the system of risk management. The function has the necessary resources and access
to information to enable it to fulfil its mandate, and is equipped to perform in accordance with the Institute of Internal
Auditors International Standards of the Professional Practice of Internal Auditing.
In compliance with the above standards, the Audit Committee assessed the effectiveness of the Internal Audit function with
the results of the 2016 assessment being positive.
The effectiveness of the Committee was reviewed as part of the wider Board effectiveness review which included interviews
with all Committee members. It was concluded that the Committee continued to be effective.
Non-audit fees
Deloitte contributes an independent perspective, arising from its work, on certain aspects of the Group's internal
financial control systems, and reports to the Audit Committee. The independence of the external auditor in relation to the
Group is considered annually by the Committee.
The Group has a non-audit services policy for work carried out by its external auditor. This is split into three categories
as explained below:
1. Pre-approved for the external auditor - audit-related in nature;
2. Work for which Audit Committee approval is specifically required - transaction work and corporate tax
services, and certain advisory services; and
3. Work from which the external auditor is prohibited.
The Committee concluded that it was in the best interests of the Group for the external auditor to provide a limited number
of non-audit services during the year due to their experience, expertise and knowledge of the Group's operations. Auditor
objectivity and independence was considered for each engagement and the Committee was satisfied that the audit independence
was not, at any point, compromised.
Deloitte follows its own ethical guidelines and continually reviews its audit team to ensure its independence is not
compromised. The fees paid to the external auditors in the year are disclosed in note 8 to the Financial Statements.
Directors' Indemnities
In terms of Section 236 of the Companies Act 2006, all Non-Executive Directors have been issued a Qualifying Third Party
Indemnity Provision by Tesco Personal Finance Group Limited. All Qualifying Third Party Indemnities were in force at the
date of approval of the Financial Statements.
There was also a Qualifying Third Party Indemnity Provision issued by Tesco Personal Finance Group Limited in force during
the year for Deanna Oppenheimer until the date of her resignation.
19
TESCO PERSONAL FINANCE PLC
DIRECTORS' REPORT (continued)
Our People
The Group is committed to promoting a diverse and inclusive workplace, reflective of the communities in which it does
business. It approaches diversity in the broadest sense, recognising that successful businesses flourish through embracing
diversity into their business strategy, and developing talent at every level in the organisation.
The Group's selection, training, development and promotion policies are designed to provide equality of opportunity for all
colleagues, regardless of factors such as age, disability, gender reassignment, race, religion or belief, ethnic origin,
gender, sexual orientation, marriage and civil partnership, pregnancy and maternity or trade union affiliation. Decisions
are based on merit.
The Group is committed to developing the skills and knowledge and supporting the wellbeing of its colleagues in order to
help achieve its objectives and create a great place to work. It ensures that the Tesco Values are reflected within its
employment policies and practices to encourage engagement, enabling colleagues to be their best and able to contribute to
the delivery of the Group's core purpose.
There are processes in place for understanding and responding to colleagues' needs through surveys and regular performance
and development reviews. Business developments are communicated frequently to keep colleagues well informed about the
progress of the Group. Ongoing training programmes also seek to ensure that colleagues understand the Group's objectives
and the regulatory environment in which it operates.
The Group works with colleagues, including those with disabilities, to adapt work practices where necessary in order to
help them work effectively within the business.
Colleagues are encouraged to become involved in the financial performance of the wider Tesco PLC Group through a variety of
schemes, principally the Tesco employee profit-sharing scheme (Shares in Success), the savings related share option scheme
(Save As You Earn) and the partnership share plan (Buy As You Earn).
Cautionary statement regarding forward-looking information
Where this document contains forward-looking statements, these are made by the Directors in good faith based on the
information available to them at the time of their approval of this report. These statements should be treated with caution
due to the inherent risks and uncertainties underlying any such forward-looking information. The Group cautions users of
these Financial Statements that a number of factors, including matters referred to in this document, could cause actual
results to differ materially from those contained in any forward-looking statement. Such factors include, but are not
limited to, those discussed under 'Principal risks and uncertainties' on pages 7 to 10 of this Annual Report.
Statement of Directors' Responsibilities
The following should be read in conjunction with the responsibilities of the independent auditor set out in their report on
page 113.
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare such financial statements for each financial year. Under that law the
Directors have prepared the Group and Company Financial Statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU). Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that year.
20
TESCO PERSONAL FINANCE PLC
DIRECTORS' REPORT (continued)
In preparing these Financial Statements, the Directors are required to:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the Group's and Company's
financial position and financial performance; and
· make an assessment of the Group's and Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and
enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Group's website. Legislation in the United Kingdom
governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed on page 1 of the Annual Report and Financial Statements, confirms that to the
best of their knowledge:
· the Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit of the Group;
· the Strategic Report contained in the Annual Report includes a fair review of the development and performance of the
business and the position of Group, together with a description of the principal risks and uncertainties that it faces;
and
· the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the
information necessary for the Company's shareholders to assess the Group's and Company's position, performance, business
model and strategy.
Disclosure in respect of the Independent Auditor
So far as each Director is aware at the date of approving this report, there is no relevant audit information, being
information needed by the auditor in connection with preparing this report, of which the auditor is unaware. All of the
Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any
relevant audit information and to establish that the auditor is aware of that information.
External Audit Partner
The external audit partner for the year to 28 February 2017 was Stephen Williams ACA who has fulfilled this role since
Deloitte LLP's appointment as external auditor on 30 June 2015.
Approved by the Board of Directors and signed by order of the Board.
Michael Mustard
Company Secretary
10 April 2017
21
TESCO PERSONAL FINANCE PLC
CONSOLIDATED INCOME STATEMENT
For the Year Ended 28 February 2017
2017 2016
Note £m £m
Interest and similar income 4 618.1 574.8
Interest expense and similar charges 4 (178.9) (170.0)
Net interest income 439.2 404.8
Fees and commissions income 5 394.0 406.1
Fees and commissions expense 5 (31.3) (30.8)
Net fees and commissions income 362.7 375.3
Gains/(losses) on financial instruments, movements on derivatives and hedge accounting 6 6.3 (8.1)
Realised gain on investment securities 7 4.2 0.6
Net other income/(expense) 10.5 (7.5)
Total income 812.4 772.6
Administrative expenses 8 (425.0) (428.3)
Depreciation and amortisation 22,23 (110.3) (86.0)
Provision for customer redress 27 (45.0) -
Operating expenses (580.3) (514.3)
Impairment on loans and advances to customers 9 (106.4) (67.8)
Operating profit 125.7 190.5
Share of loss of joint venture 20 (15.6) (2.6)
Profit before tax 110.1 187.9
Income tax credit/(charge) 11 27.3 (2.2)
Profit for the year attributable to owners of the parent 137.4 185.7
22
TESCO PERSONAL FINANCE PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended 28 February 2017
Note 2017 2016
£m £m
Profit for the year 137.4 185.7
Items that may be reclassified subsequently to the income statement
Unrealised net gains/(losses) on available-for-sale investment securitiesbefore tax 11 7.1 (2.8)
Net gains/(losses) arising on cash flow hedges before tax 11 1.6 (3.0)
Tax relating to items that may be reclassified subsequently to theincome statement 11 (5.6) 1.2
Share of other comprehensive income/(expense) of joint venture 20 10.5 (1.0)
Total items that may be reclassified subsequently to theincome statement 13.6 (5.6)
Total comprehensive income for the year attributable to ownersof the parent 151.0 180.1
23
TESCO PERSONAL FINANCE PLC
CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION
For the Year Ended 28 February 2017
Company number SC173199
Group Company
2017 2016 2017 2016
Note £m £m £m £m
Assets
Cash and balances with central banks 13 802.9 564.9 694.5 506.6
Loans and advances to customers 14 9,961.2 8,545.7 9,961.2 8,545.7
Derivative financial instruments 15 28.7 29.3 28.7 29.3
Investment securities:
- Available-for-sale 16 966.1 983.6 966.1 983.6
- Loans and receivables 16 34.1 34.1 34.1 34.1
Prepayments and accrued income 17 42.2 43.1 42.2 43.1
Current income tax asset - 1.7 - 1.7
Other assets 18 299.1 277.3 387.2 315.5
Investment in joint venture 20 71.0 76.1 71.0 71.0
Intangible assets 22 300.0 363.9 300.0 363.9
Property, plant and equipment 23 73.3 78.9 73.3 78.9
Total assets 12,578.6 10,998.6 12,558.3 10,973.4
Liabilities
Deposits from banks 24 499.8 82.0 499.8 82.0
Deposits from customers 25 8,466.8 7,398.5 8,466.8 7,398.5
Debt securities in issue 26 1,204.3 1,206.6 406.0 408.9
Derivative financial instruments 15 133.3 150.5 133.3 150.5
Provisions for liabilities and charges 27 83.5 58.2 83.5 58.2
Accruals and deferred income 28 115.1 128.2 115.1 128.2
Current income tax liability 8.3 - 8.3 -
Other liabilities 29 148.3 142.8 925.3 919.0
Deferred income tax liability 21 13.7 31.0 13.7 31.0
Subordinated liabilities and notes 30 235.0 235.0 235.0 235.0
Total liabilities 10,908.1 9,432.8 10,886.8 9,411.3
Equity and reserves attributable to owners of parent
Share capital 31 122.0 122.0 122.0 122.0
Share premium account 31 1,097.9 1,097.9 1,097.9 1,097.9
Retained earnings 406.2 318.8 417.4 314.8
Other reserves 32 44.4 27.1 34.2 27.4
Total equity 1,670.5 1,565.8 1,671.5 1,562.1
Total liabilities and equity 12,578.6 10,998.6 12,558.3 10,973.4
Profit for the year of £152.6m (2016: £189.7m) is attributable to the Company.
The Consolidated and Company Financial Statements on pages 22 to 112 were approved by the Board of Directors and authorised
for issue on 10 April 2017 and were signed on its behalf by:
Declan Hourican
Director
24
Note Sharecapital Share premium Retained earnings Subordinated notes Other reserves Totalequity
£m £m £m £m £m £m
Balance at 1 March 2016 122.0 1,097.9 318.8 - 27.1 1,565.8
Comprehensive income
Profit for the year - - 137.4 - - 137.4
Net gains on available-for-sale investment securities 11 - - - - 2.1 2.1
Net gains on cash flow hedges 11 - - - - 1.0 1.0
Share of other comprehensive income of joint venture 20 - - - - 10.5 10.5
Total comprehensive income
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