REG - Tesco Personal FinTesco PLC - Final Results <Origin Href="QuoteRef">TSCO.L</Origin> - Part 4
12/04/2017 07:06
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make judgements and estimates that are reasonable and prudent. Where accounting
standards are not specific and Management have to choose a policy, IAS 8, 'Accounting Policies, Changes in Accounting
Estimates and Errors', requires them to adopt policies that will result in relevant and reliable information in the light
of the requirements and guidance in IFRSs dealing with similar and related issues and the IASB Framework for the
Preparation and Presentation of Financial Statements.
The judgements and assumptions involved in the Group's accounting policies that are considered to be the most important to
the portrayal of its financial condition are discussed below. The use of estimates, assumptions or models that differ from
those adopted by the Group would affect its reported results.
Loan impairment provisions
The Group's loan impairment provisions are established to recognise incurred impairment losses in its portfolio of customer
loans classified as loans and receivables and carried at amortised cost. A loan is impaired when there is objective
evidence that events since the loan was granted have affected expected cash flows from the loan. The impairment loss is the
difference between the carrying value of the loan and the present value of estimated future cash flows at the loan's
original EIR.
The Group's loan impairment provisions are established on a portfolio basis using a statistical methodology taking into
account the level of arrears, collateral, past loss experience and defaults based on portfolio trends. The most significant
factors in establishing these provisions are the expected loss rates. These portfolios include Mortgages, Credit Card
receivables, Personal Loans and Personal Current Accounts. The future credit quality of these portfolios is subject to
uncertainties that could cause actual credit losses to differ materially from reported loan impairment provisions.
The key assumptions used in the statistical models are the probability of default; the expected cash recoveries included in
the loss given default; and the loss emergence period. These key assumptions are monitored throughout the year to ensure
the impairment provision takes into account the most recent trends observed in each portfolio.
The table below shows a sensitivity analysis of key assumptions, demonstrating the impact on the unsecured Personal Loan
receivables provision and the unsecured Credit Card receivables provision, respectively, of a variation in each.
Consequential change in provision
Assumption Change inassumption Unsecured PersonalLoan receivables Unsecured CreditCard receivables
2017 2016 2017 2016
£m £m £m £m
Probability of default +/- 10% +/- 3.9 +/- 2.3 +/- 2.0 +/- 1.8
Expected cash recoveries +/- 10% -/+ 2.2 -/+ 2.0 -/+ 2.9 -/+ 2.6
Loss emergence period +/- 1 month +/- 4.1 +/- 2.7 +/- 3.5 +/- 3.3
Individual impairment losses on secured Mortgages are estimated using an individual valuation of the underlying asset.
Although the portfolio is growing, sensitivity to movement in the House Price Index remains relatively low.
The impairment loss on loans and advances is disclosed in further detail in note 9.
38
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Critical Accounting Estimates and Judgements in Applying Accounting Policies (continued)
Effective interest rate (EIR)
IAS 39 requires the Group to measure the interest earned on its Credit Cards portfolio by applying the EIR methodology. The
main area of judgement in measuring the EIR on the Group's Credit Card portfolio is the expected attrition of the balances
drawn at the reporting date.
Management use a pay rates assumption to determine the expected repayment profile of the balances drawn as at the reporting
date to the expected remaining term (capped to a maximum of 5 years from origination).
An increase of the pay rates assumption by 10% will reduce the asset value by £1.9m and a corresponding reduction of the
pay rates assumption will increase the asset value by £2.0m.
Provision for customer redress
The Group has a provision for potential customer redress in relation to Payment Protection Insurance (PPI). Refer to note
27 for further details, including the key assumptions made in arriving at each element of this provision and a sensitivity
analysis of key assumptions in the PPI model.
Investment in joint venture
The Group holds an investment in a joint venture, Tesco Underwriting Limited (TU), an authorised insurance company, and
recognises the carrying value of its investment and the Group's share of TU's results using the equity method of accounting
(see note 1 for further details).
TU's results are sensitive to changes in the insurance reserves it recognises in respect of insurance policies written, net
of reinsurance. Consequently, material increases in these reserves could have an impact on the carrying value of the
investment in the Company and Consolidated Statement of Financial Position.
The impact of any increase in reserves is determined by TU's ability to amend its pricing to reflect the increased costs of
providing cover under the policies written.
A key element of the reserving calculation is the application of the Ogden tables, which are used to calculate the cost of
any claim that involves compensation for loss of future benefits. The tables provide an estimate of the return to be
expected from the investment of a lump sum damages award. A discount rate of 2.5% was set in 2001 and was previously used
by TU in assessing its reserves for relevant cases.
Following a consultation by the Ministry of Justice (MoJ), which was launched in August 2012, a new rate of -0.75% was set
by the MoJ on 27 February 2017 and is effective from 20 March 2017. The impact of this in TU was a post-tax charge of
£45.7m, of which the Group has recognised £22.8m in the Consolidated Income Statement for the year through its share of
TU's results. The carrying value of the Group's investment in TU has been correspondingly reduced by an equivalent amount.
A full reconciliation of the Group's carrying value of TU is set out at note 20.
A reduction in the Ogden rate for 2017 to -1.0% would decrease the carrying value of the Group's investment in TU by £0.4m.
An increase in the Ogden rate for 2017 to +1.0% would increase the carrying value of the Group's investment in TU by
£0.7m.
39
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
3. Segmental Reporting
Following the measurement approach of IFRS 8, 'Operating Segments', the Group's operating segments are reported in
accordance with the internal reporting provided to the Board of Directors, which is responsible for allocating resources to
the operating segments and assessing their performance.
During the year, the Group underwent an organisational restructure which combined the Banking and Insurance businesses
together into a single function, enabling reporting of business results to the Board of Directors, as chief operating
decision-maker, to be streamlined to a single segment focussed upon the customer.
The reportable segments at 28 February 2017 have therefore reduced from two segments (Banking and Insurance) to one
segment, covering all of the Group's activities. Accordingly, prior periods have been restated to present a single
reportable segment, the results of which are set out in the Consolidated Income Statement and Consolidated Statement of
Financial Position.
4. Net Interest Income
2017 2016
£m £m
Interest and similar income
On assets held at amortised cost
Loans and advances to customers 592.9 551.5
Loans and advances to banks 2.4 3.0
Interest on investment securities - loans and receivables 1.4 1.4
596.7 555.9
On assets held at fair value
Interest on investment securities - available-for-sale 21.4 18.9
21.4 18.9
Total 618.1 574.8
Interest expense and similar charges
On liabilities held at amortised cost
Deposits from customers (111.9) (103.0)
Deposits from banks (3.1) (5.7)
Debt securities in issue (26.5) (32.3)
Subordinated liabilities and notes (4.3) (4.5)
(145.8) (145.5)
On liabilities held at fair value
Interest rate swap expenses (33.1) (24.5)
(33.1) (24.5)
Total (178.9) (170.0)
Net interest income 439.2 404.8
40
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
5. Net Fees and Commissions Income
2017 2016
£m £m
Fees and commissions income
Banking income 254.2 268.4
Insurance income 123.2 124.5
Other income 16.6 13.2
394.0 406.1
Fees and commissions expense
Banking expense (31.3) (30.8)
Net fees and commissions income 362.7 375.3
6. Gains/(Losses) on Financial Instruments, Movements on Derivatives and Hedge Accounting
2017 2016
£m £m
Foreign exchange gain on financial assets 10.5 9.4
Net losses arising on derivatives not designated as hedginginstruments under IAS 39 (8.1) (15.1)
Fair value hedge ineffectiveness (refer to note 15) 3.9 (2.4)
6.3 (8.1)
7. Realised Gain on Investment Securities
2017 2016
£m £m
Financial assets classified as available-for-sale
Realised gain on disposals 4.2 0.6
4.2 0.6
41
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
8. Administrative Expenses
2017 2016
£m £m
Staff costs
Wages and salaries 107.3 108.7
Social security costs 11.6 10.0
Other pension costs 4.8 6.5
Share based payments 9.9 12.1
Other costs including temporary staff 32.2 35.4
Restructuring costs* 6.9 1.0
172.7 173.7
Non staff costs
Premises and equipment 72.3 76.2
Operating leases 4.2 4.9
Marketing 62.2 63.0
Auditor's remuneration (refer below) 0.6 0.6
Outsourcing and professional fees 66.2 65.7
Other administrative expenses 43.8 44.2
Restructuring costs* 3.0 -
252.3 254.6
425.0 428.3
*During the year, the Group recognised organisational restructuring costs within administrative expenses amounting to £9.9m
(2016: £1.0m), of which £6.9m (2016: £1.0m) related to staff costs and £3.0m (2016: £nil) related to property operating
lease exit costs.
During the year the Group obtained the following services from the incumbent auditor, Deloitte.
2017 2016
£'000 £'000
Audit services
Audit of the Company and Consolidated Financial Statements 397 397
Audit of the Company's subsidiaries 32 32
429 429
Non audit services
Audit related assurance services 84 52
Taxation advisory services - 76
Other non audit services not covered above 79 86
163 214
Total auditor's remuneration 592 643
The average monthly number of persons (including Executive Directors) employed by the Group split by employee function
during the year, was:
2017 2016
Number Number
Head office and administration* 1,248 1,162
Operations* 2,630 2,469
3,878 3,631
*During the year, the Group underwent an organisational restructure. As a result, the classification of roles between Head
office and administration and Operations was redefined, with a significant number of employee roles being reclassified from
Operations to Head office and administration.
42
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
9. Impairment on Loans and Advances to Customers
2017 2016
£m £m
Loans and advances to customers
Increase in impairment allowance, net of recoveries* 100.9 64.2
Impairment charge on Irish Credit Card book 1.9 -
Total impairment allowances, net of recoveries (refer note 14) 102.8 64.2
Insurance premiums written off during the year as uncollectable 3.6 3.6
106.4 67.8
*Recoveries include £21.6m received through the sale of non-performing debt to third parties (2016: £19.7m).
10. Directors' Emoluments
The remuneration of the Directors paid by the Group during the year was as follows:
2017 2016
£m £m
Aggregate emoluments 5.2 5.2
Aggregate amounts receivable under long-term incentive schemes 2.1 4.5
Loss of office 0.4 -
Share based payments 1.2 1.5
Total emoluments 8.9 11.2
2017 2016
Number Number
Number of Directors to whom retirement benefits are accruing under defined benefit schemes - -
Number of Directors in respect of whose qualifying services shares were received or receivable under long term incentive schemes 4 5
Number of Directors who exercised share options in the year - -
The total emoluments of the highest paid Director were £2.1m (2016: £2.2m). During the year the highest paid Director did
not exercise any share options (2016: £nil).
At 28 February 2017 the accrued pension and lump sum under a defined benefit scheme for the highest paid Director was £nil
(2016: £nil).
During the year to 28 February 2017 three Directors (2016: one Director) left the company. One Director was paid a sum of
£0.4m (2016: £nil) upon leaving, in line with contractual terms and conditions.
43
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
11. Income Tax
Income tax (credit)/charge
2017 2016
£m £m
Current tax charge for the year 42.0 52.1
Adjustments in respect of prior years (51.5) (41.8)
Total current tax (credit)/charge for the year (9.5) 10.3
Deferred tax credit for the year 21 (15.2) (5.4)
Tax rate change 21 (1.3) 7.3
Adjustments in respect of prior years 21 (1.3) (10.0)
Total deferred tax credit for the year (17.8) (8.1)
Income tax (credit)/charge (27.3) 2.2
The standard rate of corporation tax in the UK was changed from 21% to 20% with effect from 1 April 2015. This gives a
blended Corporation Tax rate for the Group for the full year of 20.0% (2016: 20.1%). In addition, a banking surcharge of
8% was introduced with effect from 1 January 2016.
The tax assessed for the full year is lower (2016: lower) than that calculated using the overall blended Corporation Tax
rate for the Group. The differences are explained below:
2017 2016
£m £m
Profit before taxation 110.1 187.9
Profit on ordinary activities multiplied by blended rate in the UK of20.0% (2016: 20.1%) 22.0 37.8
Factors affecting charge for the year:
Group relief surrendered without payment in respect of the current year (24.0) -
Impact of banking surcharge 17.5 2.9
Expenses not deductible for tax purposes* 8.8 3.1
Adjustment in respect of prior years - current tax** (51.5) (41.8)
Adjustment in respect of prior years - deferred tax (1.3) (10.0)
Share based payments 1.1 2.4
Other tax adjustments (1.7) -
Tax rate change (1.3) 7.3
Share of loss of joint venture 3.1 0.5
Income tax (credit)/charge (27.3) 2.2
*The majority of the adjustment relates to the non deductibility of an additional PPI provision of £45.0m recognised in the
year.
**The 2016 adjustment in respect of prior years arises largely as a result of group relief being made available to the
Company from the Tesco PLC tax group, reducing the tax charge in respect of 2015 by £35.4m.
**The 2017 adjustment in respect of prior years arises largely as a result of group relief being made available to the
Company from the Tesco PLC tax group, reducing the tax charge in respect of 2016 by £48.8m.
44
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
11. Income Tax (continued)
In July 2015 the Summer Budget Statement included an announcement that the standard rate of corporation tax would be
reduced to 19% from 1 April 2017, and further reduced to 18% from 1 April 2020. The March 2016 Budget Statement included an
announcement that the standard rate of corporation tax in the UK would be further reduced to 17% from 1 April 2020. All of
these rate reductions were enacted by the reporting date and are therefore incorporated in these Financial Statements. The
changes are expected to reduce the Group's effective tax rate in the medium term.
Income tax relating to components of other comprehensive income
Before tax amount Tax charge Net of tax amount
2017 £m £m £m
Net gains on available-for-sale investment securities 7.1 (5.0) 2.1
Net gains on cash flow hedges 1.6 (0.6) 1.0
8.7 (5.6) 3.1
Before tax amount Tax credit Net of tax amount
2016 £m £m £m
Net losses on available-for-sale investment securities (2.8) 0.5 (2.3)
Net losses on cash flow hedges (3.0) 0.7 (2.3)
(5.8) 1.2 (4.6)
Deferred tax charged directly to the Statement of Changes in Equity
Before tax amount Tax credit Net of tax amount
2017 £m £m £m
Net gains on share based payments 0.9 2.8 3.7
0.9 2.8 3.7
Before tax amount Tax credit Net of tax amount
2016 £m £m £m
Net gains on share based payments 10.1 - 10.1
10.1 - 10.1
12. Distributions to Equity Holders
2017 2016
£m £m
Ordinary dividend paid 50.0 50.0
On 22 February 2017 an interim dividend of £50.0m (£0.0410 per ordinary share) was paid. In the prior year, an interim
dividend of £50.0m (£0.0410 per ordinary share) was paid on 23 February 2016.
45
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Cash and Balances with Central Banks
Group Company
2017 2016 2017 2016
£m £m £m £m
Cash at bank 156.1 115.3 47.7 57.0
Balances held with the Bank of England other than mandatory reserve deposits 632.5 436.5 632.5 436.5
Included in cash and cash equivalents (note 36) 788.6 551.8 680.2 493.5
Mandatory reserves deposits held with the Bank of England 14.3 13.1 14.3 13.1
802.9 564.9 694.5 506.6
Mandatory reserve deposits are not available in the Group's day to day operations and are non interest bearing. Other
balances are subject to variable interest rates based on the Bank of England base rates.
14. Loans and Advances to Customers
Group and Company 2017 2016
£m £m
Secured Mortgage lending 2,160.7 1,671.8
Unsecured lending 7,970.9 6,997.5
Fair value hedge adjustment 23.4 30.3
Gross loans and advances to customers 10,155.0 8,699.6
Less: allowance for impairment (193.8) (153.9)
Net loans and advances to customers 9,961.2 8,545.7
Current 4,166.1 3,820.9
Non-current 5,795.1 4,724.8
Fair value hedge adjustments
Fair value hedge adjustments amounting to £23.4m (2016: £30.3m) are in respect of fixed rate Loans and Mortgages. These
adjustments are largely offset by derivatives, which are used to manage interest rate risk and are designated as fair value
hedges within loans and advances to customers.
Allowance for impairment
The following table shows the movement in the provision for impairment on loans and advances to customers:
Group and Company 2017 2016
£m £m
At beginning of year 153.9 139.5
Amounts written off (60.3) (47.3)
Increase in allowance, net of recoveries*, charged to the income statement (refer to note 9) 102.8 64.2
Foreign currency translation 0.1 0.2
Unwind of discount (2.7) (2.7)
At end of year 193.8 153.9
*Recoveries include £21.6m received through the sale of non-performing debt to third parties (2016: £19.7m).
46
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Derivative Financial Instruments
Strategy in using derivative financial instruments
The objective when using a derivative financial instrument is to ensure that the risk to reward profile of a transaction is
optimised, allowing the Group to manage its exposure to interest rate and foreign exchange rate risk. The intention is to
only use derivatives to create economically effective hedges. There are specific requirements stipulated under IAS 39 which
must be met for a derivative to qualify for hedge accounting. As a result, not all derivatives can be designated as being
in an accounting hedge relationship, either because natural accounting offsets are expected or because obtaining hedge
accounting would be especially onerous.
For those derivatives where hedge accounting is applied, gains and losses are offset by hedge adjustments in the
Consolidated Income Statement. For those derivatives held for economic hedging purposes which cannot be designated as being
in an accounting hedge relationship, the gains and losses are recognised in the Consolidated Income Statement. In the
Statement of Financial Position there is no distinction between derivatives where hedge accounting is applied and
derivatives which cannot be designated as being in an accounting hedge relationship.
Fair value hedge
The Group's risk management objective of creating economically effective hedges is to use interest rate contracts to swap
fixed rate exposures back to a floating rate LIBOR basis where no existing offset is available. This includes the hedging
of fixed rate Personal Loans, Mortgages and certain Savings balances, holdings of fixed rate investment securities and
issuances of fixed rate debt, which protects the Group against the fair value volatility of these financial assets and
financial liabilities due to movements in interest rates. Each swap is defined as hedging one or more fixed rate assets or
liabilities.
Cash flow hedge
The Group held five inflation linked interest rate swaps (2016: five) as cash flow hedges to mitigate the variability in
cash flows associated with an inflation linked debt security issued by the Bank. The cash flows are expected to occur over
the term to maturity in December 2019.
Ineffectiveness recognised in the Consolidated Income Statement in respect of cash flow hedges for the 12 months to 28
February 2017 was £nil (2016: £nil). Amounts are recycled from the cash flow hedge reserve when the underlying hedge item
affects the Consolidated Income Statement. Therefore as the carrying value of the asset or liability is adjusted in respect
of movements in the hedged risk, recycled amounts directly offset this adjustment within net interest income. Recycled
amounts for the 12 months to 28 February 2017 were £2.3m (2016: £2.8m).
47
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Derivative Financial Instruments (continued)
Derivatives not in a hedge relationship
All derivative financial instruments are held for economic hedging purposes, although not all derivatives are designated as
hedging instruments under the terms of IAS 39. The Group has the following derivative contracts in economic hedge
relationships but not in accounting hedge relationships:
· Foreign exchange forward contracts and cross currency interest rate swaps used to hedge the exchange rate risk
inherent in cash flows from foreign currency assets
· Interest rate swaps that were not previously held in hedge accounting relationships and are viewed as trading
derivatives under IAS 39.
The analysis below splits derivatives between those classified in hedge accounting relationships and those not in hedge
accounting relationships.
Group and Company Notional Assetfair value Liabilityfair value
2017 £m £m £m
Derivatives in hedge accounting relationships
Derivatives designated as fair value hedges
Interest rate swaps 3,528.4 13.2 (116.2)
Derivatives designated as cash flow hedges
Interest rate swaps 60.0 - (1.7)
RPI basis swaps 60.0 11.2 -
Total derivatives in hedge accounting relationships 3,648.4 24.4 (117.9)
Group and Company Notional Assetfair value Liabilityfair value
2017 £m £m £m
Derivatives not in hedge accounting relationships
Interest rate derivatives
Interest rate swaps 1,226.8 3.2 (6.0)
Currency derivatives
Forward foreign exchange contracts 35.5 0.1 (0.2)
Cross currency swaps 71.4 1.0 (9.2)
Total derivatives not in hedge accounting relationships 1,333.7 4.3 (15.4)
Total derivative financial instruments 4,982.1 28.7 (133.3)
48
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Derivative Financial Instruments (continued)
Group and Company Notional Assetfair value Liability fair value
2016 £m £m £m
Derivatives in hedge accounting relationships
Derivatives designated as fair value hedges
Interest rate swaps 3,495.7 12.9 (129.1)
Derivatives designated as cash flow hedges
Interest rate swaps 60.0 - (1.9)
RPI basis swaps 60.0 7.4 -
Total derivatives in hedge accounting relationships 3,615.7 20.3 (131.0)
Group and Company Notional Assetfair value Liability fair value
2016 £m £m £m
Derivatives not in hedge accounting relationships
Interest rate derivatives
Interest rate swaps 2,303.7 5.1 (13.8)
Currency derivatives
Forward foreign exchange contracts 32.7 - (1.2)
Cross currency swaps 64.3 3.9 (4.5)
Total derivatives not in hedge accounting relationships 2,400.7 9.0 (19.5)
Total derivative financial instruments 6,016.4 29.3 (150.5)
Derivatives, whether designated in hedge accounting relationships or not, are regarded as current where they are expected
to mature within one year. All other derivatives are regarded as non-current.
Assets Assets Liabilities Liabilities
2017 2016 2017 2016
£m £m £m £m
Current 1.3 - (17.0) (7.3)
Non-current 27.4 29.3 (116.3) (143.2)
28.7 29.3 (133.3) (150.5)
The analysis below details the ineffectiveness in the fair value hedge relationships included in the Consolidated Income
Statement:
2017 2016
£m £m
Fair value losses on interest rate swaps in designated fair value hedges (11.5) (33.0)
Fair value hedge adjustments on hedged items 15.4 30.6
Net gains/(losses) in Consolidated Income Statement (refer to note 6) 3.9 (2.4)
49
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
16. Investment Securities
Group and Company 2017 2016
£m £m
Available-for-sale
Government-backed investment securities 117.4 88.6
Gilts 572.5 629.6
Supranational investments securities 176.1 184.2
Other investment securities 98.4 77.7
Equity securities 1.7 3.5
966.1 983.6
Loans and receivables
Investment in subordinated debt issued by Tesco Underwriting Limited (TU) 34.1 34.1
34.1 34.1
Current 190.4 90.6
Non-current 809.8 927.1
There were no impairment charges within the year (2016: £nil).
Available-for-sale
Included in investment securities are fixed-interest investment securities totalling £883.2m (2016: £907.1m) and
variable-interest investment securities amounting to £81.2m (2016: £73.0m).
The equity security above relates to the fair value of the Group's interest in VISA Inc. The prior year value of £3.5m
related to the fair value of the Group's investment in VISA Europe Limited. Following closing of the deal by VISA Inc. to
acquire VISA Europe Limited on 21 June 2016, the Group disposed of its investment in VISA Europe Limited for consideration
of £4.2m.
As part of the transaction, the Group also acquired an interest in preferred stock issued by VISA Inc during the period,
the estimated fair value of which is £1.7m at 28 February 2017. The preferred stock may be convertible into Class A Common
Stock of VISA Inc. at certain future dates, the earliest point being June 2020. Conversion is contingent upon future
events, principally related to the outcome of interchange litigation against VISA Europe Limited. As such, the valuation
of £1.7m reflects both an illiquidity discount and the risk of a reduction in the conversion rate to VISA Inc. common
stock. The reduction in the conversion rate is the most significant unobservable input to the valuation.
Loans and receivables
The investment in subordinated debt issued by TU relates to subordinated notes of £34.1m (2016: £34.1m). Interest
receivable on these notes is based on a rate of three month LIBOR plus a spread ranging from 350 - 450 basis points (2016:
350 - 450 basis points). No impairment charges were recognised in respect of this investment (2016: £nil).
50
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Prepayments and Accrued Income
Group and Company 2017 2016
£m £m
Prepayments 7.9 6.4
Accrued income 34.3 36.7
42.2 43.1
All amounts are classified as current at the year end.
18. Other Assets
Group Company
2017 2016 2017 2016
£m £m £m £m
Amount due from insurance premiums and commissions receivable 20.1 19.8 20.1 19.8
Accounts receivable and sundry receivables 269.8 245.8 269.8 245.8
Amounts due from Tesco Group subsidiaries 8.9 11.4 8.9 11.4
Amounts due from Tesco Personal Finance Group Limited and its subsidiaries 0.3 0.3 88.4 38.5
299.1 277.3 387.2 315.5
All amounts are classified as current at the year end.
19. Investment in Group Undertakings
The following companies are accounted for as subsidiaries of the Group. These are securitisation structured entities
established in connection with the Group's Credit Card securitisation transactions. Although none of the equity of the
securitisation structured entities is owned by the Company, the nature of these entities means that the Group has the
rights to variable returns from its involvement with these securitisation structured entities and has the ability to affect
those returns through its power over them. As such they are effectively controlled by the Group. The Company does not hold
any investments in Group undertakings.
Name of company Nature of business Place of incorporation Registered address
Delamare Cards Holdco Limited Securitisation entity UK Asticus Building, 2nd floor, 21 Palmer Street, London, SW1H 0AD
Delamare Cards MTN Issuer plc Securitisation entity UK Asticus Building, 2nd floor, 21 Palmer Street, London, SW1H 0AD
Delamare Cards Receivables Trustee Limited Securitisation entity UK Asticus Building, 2nd floor, 21 Palmer Street, London, SW1H 0AD
Delamare Cards Funding 1 Limited Securitisation entity UK Asticus Building, 2nd floor, 21 Palmer Street, London, SW1H 0AD
Delamare Cards Funding 2 Limited Securitisation entity UK Asticus Building, 2nd floor, 21 Palmer Street, London, SW1H 0AD
All of the above companies have a financial year end of 31 December. The management accounts of these entities are used to
consolidate the results to 28 February 2017 within these Consolidated Financial Statements.
51
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
20. Investment in Joint Venture
The following table shows the aggregate movement in the Group's investment in its joint venture in the year:
Group 2017 2016
£m £m
At beginning of year 76.1 79.7
Share of loss of joint venture* (15.6) (2.6)
Share of available-for-sale reserve of joint venture ** 10.5 (1.0)
At end of year 71.0 76.1
*Including a charge of £22.8m (2016: £nil), representing the Group's share of losses incurred by TU relating to the impact
on TU's insurance reserves of a change in the Ogden tables.
**The Group's share of the movement in the available-for-sale reserve represents the recognised portion of other
comprehensive income/(expense) of the joint venture.
Details of the Group's joint venture
Ownership interest
Name of company Registered address Nature of business Place of Incorporation 2017 2016
Tesco Underwriting Limited Ageas House, Hampshire Corporate Park, Templars Way, Eastleigh, Hampshire, SO53 3YA Insurance England 49.9% of Ordinary Share Capital 49.9% of Ordinary Share Capital
TU is an authorised insurance company which provides the insurance underwriting service for a number of the Group's general
insurance products. TU is a private company and there is no quoted market price available for its shares.
The Group uses the equity method of accounting for its investment in TU, which has a financial year end of 31 December. The
accounting year end date for TU differs from that of the Group as it is in line with the other joint venture partner. The
management accounts of TU are used to consolidate the results to 28 February 2017 within these Consolidated Financial
Statements.
Summarised financial information for the joint venture
This information reflects the amounts presented in the management accounts of the joint venture (and not the Group's share
of those amounts):
Group 2017 2016
£m £m
Non-current assets 879.7 751.2
Current assets 148.3 153.8
Current liabilities (823.0) (689.8)
Non-current liabilities (68.3) (68.3)
Net assets 136.7 146.9
Cash and cash equivalents 42.5 67.4
Current financial liabilities (excluding trade and other payables and provisions) (12.1) (14.8)
Non-current financial liabilities (excluding trade and other payables and provisions) (68.3) (68.3)
52
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
20. Investment in Joint Venture (continued)
2017 2016
£m £m
Income Statement
Revenue 373.6 387.5
Expenses including claims costs (404.8) (392.6)
Loss for the year (31.2) (5.1)
Other comprehensive income/(expense) 21.1 (2.0)
Total comprehensive expense (10.1) (7.1)
The above loss includes the following:
Depreciation and amortisation (2.7) (3.5)
Interest income 14.4 13.1
Interest expense (2.9) (2.9)
Income tax credit 2.5 2.3
Reconciliation of the summarised financial position
A reconciliation of the summarised financial information presented to the carrying amount of the investment in joint
venture is as follows.
Group 2017 2016
£m £m
Net assets of the joint venture 136.7 146.9
Group share at 49.9% 68.2 73.3
Capitalised legal costs included in investment carrying value 2.8 2.8
Carrying value of investment in joint ventureat end of year 71.0 76.1
Other information
There are no contingent liabilities or commitments in respect of the joint venture. The investment in the joint venture is
classified as non-current.
Company
The Company carries the investment in the joint venture at cost. The following table shows the aggregate movement in the
Company's investment in the joint venture in the year:
Company 2017 2016
£m £m
At beginning and end of year 71.0 71.0
53
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. Deferred Income Tax Liability
The deferred income tax liability can be analysed as follows:
2017 Accelerated capital allowances Other Total
Group and Company £m £m £m
At beginning of year (32.9) 1.9 (31.0)
Credited to the Consolidated Income Statement in the current year 15.1 0.1 15.2
Credited/(charged) to the Consolidated Income Statement for prior years 1.6 (0.3) 1.3
Charged to equity - (0.5) (0.5)
Change in tax rate 1.2 0.1 1.3
At end of year (15.0) 1.3 (13.7)
Deferred tax asset to be recovered within one year 1.4
Deferred tax asset to be recovered after more than one year 2.8
4.2
Deferred tax liability to be recovered within one year (3.6)
Deferred tax liability to be recovered after more than one year (14.3)
(17.9)
Deferred tax liabilities (net) (13.7)
2016 Accelerated capital allowances Other Total
Group and Company £m £m £m
At beginning of year (45.1) 5.3 (39.8)
Credited/(charged) to the Consolidated Income Statement in the current year 6.4 (1.0) 5.4
Credited/(charged) to the Consolidated Income Statement for prior years 13.4 (3.4) 10.0
Credited to equity - 0.7 0.7
Change in tax rate (7.6) 0.3 (7.3)
At end of year (32.9) 1.9 (31.0)
Deferred tax asset to be recovered within one year 1.4
1.4
Deferred tax liability to be recovered within one year (11.8)
Deferred tax liability to be recovered after more than one year (20.6)
(32.4)
Deferred tax liabilities (net) (31.0)
54
TESCO PERSONAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS (continued)
22. Intangible Assets
Group and Company Work in Progress Computer software Total
£m £m £m
Cost
At 1 March 2016 21.7 604.6 626.3
Additions 31.3 3.6 34.9
Transfers (17.1) 16.9 (0.2)
Disposals (1.6) (16.8) (18.4)
At 28 February 2017 34.3 608.3 642.6
Accumulated amortisation
At 1 March 2016 - (262.4) (262.4)
Charge for the year - (93.5) (93.5)
Disposals - 13.3 13.3
At 28 February 2017 - (342.6) (342.6)
Net carrying value
At 28 February 2017 34.3 265.7 300.0
Cost
At 1 March 2015 28.2 566.4 594.6
Additions 29.2 5.0 34.2
Transfers (34.0) 33.3 (0.7)
Disposals (1.7) (0.1) (1.8)
At 29 February 2016 21.7 604.6 626.3
Accumulated amortisation
At 1 March 2015 - (192.0) (192.0)
Charge for the year - (70.4) (70.4)
At 29 February 2016 - (262.4) (262.4)
Net carrying value
At 29 February 2016 21.7 342.2 363.9
Work in progress relates primarily to the internal development of IT software assets. Intangible asset balances are
non-current.
During the year, the Group reassessed the useful life of certain of its intangible fixed assets, reducing the expected life
to a maximum of one year. This reduction in useful life reflects the impact of business restructuring commenced during the
first half of the financial year which has continued over the second half of 2016/17. The impact of this change has been
to increase the amortisation charge by £19.0m over 2016/17, primarily arising from the residual amortisation of the Group's
insurance platform which will be replaced in 2017. As this represents a change in accounting estimate, no prior year
adjustment is required.
55
TESCO
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