REG - Tesco PLC - Interim Results 2016/17 <Origin Href="QuoteRef">TSCO.L</Origin> - Part 3
05/10/2016 07:05
- Part 3: For the preceding part double click ID:nRSE7004Lb
- (77)
Net (investments in)/ proceeds from sale of short-term investments (970) 293 - - (970) 293
Net proceeds from sale of other investments 95 16 62 94 157 110
Dividends received from joint ventures and associates 11 18 - - 11 18
Interest received 9 1 - - 9 1
Net cash (used in)/ from investing activities (945) 9 44 79 (901) 88
Proceeds from issue of ordinary share capital - 1 - - - 1
Increase in borrowings 213 118 - 300 213 418
Repayment of borrowings (31) (869) - - (31) (869)
Net cash flows from derivative financial instruments 104 186 - - 104 186
Repayments of obligations under finance leases (5) (7) - - (5) (7)
Net cash from/ (used in) financing activities 281 (571) - 300 281 (271)
Intra-Group funding and intercompany transactions (17) 11 17 (11) - -
Net increase/ (decrease) in cash and cash equivalents 63 228 217 (64) 280 164
Cash and cash equivalents at the beginning of the period 2,528 1,558 554 616 3,082 2,174
Effect of foreign exchange rate changes 4 (31) - - 4 (31)
Cash and cash equivalents including cash held in disposal groups at the end of the period 2,595 1,755 771 552 3,366 2,307
Cash held in disposal groups* (11) (121) - - (11) (121)
Cash and cash equivalents at the end of the period 2,584 1,634 771 552 3,355 2,186
* This relates to the cash held within discontinued operations reported within assets of the disposal groups.
Continuing operations Discontinued operations Retail
2016£m 2015£m 2016£m 2015£m 2016£m 2015£m
Operating profit/ (loss) 493 286 (118) 51 375 337
Depreciation and amortisation 569 583 6 96 575 679
ATM net income (22) (20) - - (22) (20)
(Profit)/ loss arising on sale of property, plant and equipment and intangible assets (24) 5 4 - (20) 5
Loss arising on sale of subsidiaries & other investments 4 - - - 4 -
Profit arising on sale of joint ventures and associates (5) (6) - - (5) (6)
Net reversal of impairment of other investments (5) (7) - - (5) (7)
Impairment of loans/ investments in joint ventures and associates - 2 - - - 2
Net impairment charge of property, plant and equipment and intangible assets 4 37 106 1 110 38
Adjustment for non-cash element of pensions charge 4 104 - - 4 104
Additional contribution into pension schemes (111) (93) - - (111) (93)
Share-based payments (57) 157 1 3 (56) 160
Cash flow from operations excluding working capital 850 1,048 (1) 151 849 1,199
Decrease/ (increase) in working capital 105 (257) 10 63 115 (194)
Cash generated from operations 955 791 9 214 964 1,005
Interest paid (195) (149) (8) (24) (203) (173)
Corporation tax paid (17) (44) - (9) (17) (53)
Net cash generated from operating activities 743 598 1 181 744 779
Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale (480) (390) (4) (37) (484) (427)
Purchase of intangible assets (57) (68) - (3) (57) (71)
Alternative performance measure: Free cash flow 206 140 (3) 141 203 281
Note 3 Income and expenses
Continuing operations 2016£m 2015£m
Profit/ (loss) before tax is stated after charging/ (crediting) the following:
Property rental income, of which £17m (2015: £20m) relates to investment properties (169) (159)
Other rental income (28) (27)
Direct operating expenses arising on rental earning investment properties 9 11
Costs of inventories recognised as an expense 20,098 19,802
Inventory losses and provisions 570 549
Depreciation and amortisation 624 628
Operating lease expenses, of which £42m (2015: £52m) relates to hire of plant and machinery 514 557
Net impairment losses on property, plant and equipment and investment property 4 19
Impairment of goodwill, software and other intangibles - 18
Impairment of investment in and loans to joint ventures and associates - 2
Note 4 Exceptional items
Income statement
26 weeks ended 27 August 2016
Profit/ (loss) for the period includes the following exceptional items:
Exceptional items included in: Cost of sales£m Administrative expenses£m Property- related items£m Total exceptional items included within operating profit £m Finance costs£m Taxation£m Exceptional items within discontinued operations £m
Net restructuring and redundancy costs(a) (73) (17) (5) (95) - 21 -
Provision for customer redress(b) (45) - - (45) - - -
Property transactions(c) - - 59 59 - 37 -
Foreign exchange losses on GBP short-term investments held in overseas entities(d) - - - - (200) - -
Exceptional items relating to discontinued operations(e) - - - - - - (113)
Total (118) (17) 54 (81) (200) 58 (113)
(a) This includes £73m relating to ongoing UK & ROI changes to store colleague structures and working practices and £22m
relating to Tesco Bank business simplification and head office relocation costs.
(b) Updated guidance from the Financial Conduct Authority ('FCA') proposing an extension to the expected Payment
Protection Insurance ('PPI') settlement deadline, inclusion of items that had previously been out of scope for settlement
and higher operational costs and claim rates than previously estimated, have resulted in a provision of £45m.
(c) In the period, the Group has continued with its strategy of strengthening its balance sheet through the disposal of
some properties and a development site in UK & ROI, and a mall in Central Europe, resulting in profit of £59m. There is a
tax credit of £37m on these property disposals primarily due to a lower book value than tax value of assets disposed. Refer
to item ** below for cash proceeds.
(d) The group holds £2.5bn of proceeds from the sale of the Korean operations in GBP money market funds in an intermediate
entity with a Euro functional currency. The £200m loss represents foreign exchange losses arising on the revaluation of
these sterling-denominated funds into Euros. The loss does not represent an economic loss to the Group since there is an
offset within other comprehensive income.
(e) On 10 June 2016, the Group announced the proposed sale of its Turkish operations. This includes an impairment of £106m
following a re-measurement of the assets and liabilities of the Turkish operations to fair value less costs to sell, £2m of
costs to sell the Turkish operations and £5m loss due to foreign exchange movements on provisions held on previous
disposals. Refer to Note 7 for further details.
Income statement
26 weeks ended 29 August 2015
Loss for the period includes the following exceptional items:
Exceptional items included in: Cost of sales£m Administrative expenses£m Property Total exceptional items included within operating profit £m Finance costs£m Taxation£m Exceptional items within discontinued operations £m
- related items£m
Deferred tax and costs to sell - Korea - - - - - - (419)
At 27 February 2016, in assessing whether income and expense items met the Group's criteria as exceptional for the full
year, items totalling £4m reflected in operating profit as non-exceptional cost in the first half of the year were
subsequently reclassified to exceptional. This is as a result of restructuring activities extended beyond the original
scope in the prior year, as well as two further property transactions where the Group regained sole ownership of stores and
distribution centres.
Cash flow statement
The table below shows the impact of exceptional items on the cash flow statement:
Cash flows from operating activities Cash flows from investing activities
Exceptional items included in: 2016£m 2015£m 2016£m 2015£m
Restructuring costs and other exceptional costs including trading store redundancies* (66) (278) - -
Utilisation of onerous lease provisions (48) (123) - -
Property transactions** 13 - 227 -
Provision for customer redress*** (15) (11) - -
Total (116) (412) 227 -
* Cash outflows on settlement of restructuring and redundancy costs.
** The proceeds from property transactions totalled £240m comprising, £227m net proceeds from the sale of a mall in
Central Europe and other properties in the UK & ROI, and £13m for a development site in UK & ROI. Refer to item (c) above.
*** Settlement of claims for customer redress in Tesco Bank.
Note 5 Finance income and costs
Continuing operations 2016£m 2015£m
Finance income
Interest receivable and similar income 26 10
Financial instruments - fair value remeasurements 57 34
Total finance income 83 44
Finance costs
GBP MTNs and Loans (114) (86)
EUR MTNs (67) (61)
USD Bonds (46) (43)
Finance charges payable under finance leases and hire purchase contracts (4) (5)
Other interest payable (43) (57)
Capitalised interest* 3 6
Total finance costs before exceptional items and net pension finance costs (271) (246)
Net pension finance costs (Note 15) (58) (84)
Foreign exchange losses on GBP short-term investments held in overseas entities (Note 4) (200) -
Total finance costs (529) (330)
Net finance cost (446) (286)
* A deferred tax liability is recognised in respect of capitalised interest at the applicable rate in the country in which
the interest is capitalised.
GBP MTNs and Loans
Interest payable on the 4% RPI GBP MTN 2016 includes £nil (2015: £(1)m) of Retail Price Index ('RPI') related accretion.
Interest payable on the 3.322% LPI GBP MTN 2025 includes £2m (2015: £3m) of RPI-related accretion.
Interest payable on the 1.982% RPI GBP MTN 2036 includes £1m (2015: £nil) of RPI-related accretion.
Note 6 Taxation
Recognised in the Group income statement
Continuing operations 2016£m 2015£m
UK (3) 31
Overseas 43 21
Taxation charge/ (credit) 40 52
The tax charge in the Group income statement is based on management's best estimate of the full year effective tax rate
based on expected full year profits to 25 February 2017.
The Finance Bill 2016 includes legislation to reduce the main rate of corporation tax to 17% from 1 April 2020. This rate
reduction had not been substantively enacted at the balance sheet date and has therefore not been reflected in this
condensed consolidated interim financial statements.
Note 7 Discontinued operations and non-current assets classified as held for sale
Assets and liabilities of the disposal groups and non-current assets classified as held for sale
27 August2016£m 27 February2016£m 29 August2015£m
Assets of the disposal group - Turkey 248 - -
Assets of the disposal groups - Korea and US - - 4,962
Non-current assets classified as held for sale 224 236 192
Total assets of the disposal groups and non-current assets classified as held for sale 472 236 5,154
Total liabilities of the disposal group - Turkey (201) - -
Total liabilities of the disposal groups - Korea and US - - (1,528)
Total net assets of the disposal groups and non-current assets classified as held for sale 271 236 3,626
The non-current assets classified as held for sale consist mainly of properties in the UK and Central Europe due to be sold
within one year.
Discontinued operations
On 10 June 2016, the Group announced the proposed sale of its 95.5% controlling interest in Tesco Kipa Kitle Pazarlama
Ticaret Lojistik ve Gıda Sanayi A.Ş. (referred to as 'Turkish operations' or Turkey') to Migros Ticaret A.Ş ('Migros'). In
accordance with IFRS 5 'Non-current Assets Held for sale and Discontinued Operations', the assets and liabilities related
to the Turkish operations have been classified as a disposal group held for sale within the period. The sale is subject to
local regulatory approvals with completion expected in the financial year.
An impairment of £106m was recognised in property, plant and equipment, based on the expected realisable value on sale,
immediately prior to reclassification of the business as a disposal group held for sale. These impairments have been
included as exceptional items within discontinued operations. The gain/(loss) on disposal at completion will also reflect
the impact of recycling of the Turkey currency translation reserve; at the period end the recycling would have reduced the
profit/increased the loss on sale by £113m.
The tables below show the results of the discontinued operations which are included in the Group income statement, Group
balance sheet and Group cash flow statement respectively.
Income statement 2016 2015
Total*£m Turkey£m Korea£m Total£m
Revenue 270 261 2,635 2,896
Expenses** (288) (286) (2,564) (2,850)
Profit/ (loss) before tax before exceptional items (18) (25) 71 46
Taxation - - (42) (42)
Profit/ (loss) after tax before exceptional items (18) (25) 29 4
Impairment losses - Turkey (106) - - -
Costs to sell and other provisions - Turkey (2) - - -
Deferred tax charge - Korea - - (408) (408)
Costs to sell and other items - Korea - - (11) (11)
Foreign exchange gain/ (loss) on tax liabilities on past disposals (5) - - -
Total profit/ (loss) after tax of discontinued operations*** (131) (25) (390) (415)
* These figures represent the results of Turkey for the current period and the foreign exchange gain/ (loss) of £(5)m on
the Group's tax liabilities relating to businesses previously disposed.
** Intercompany recharges totalling £1m (2015: £2m) between continuing operations and the Turkey discontinued operation
have been eliminated, and intercompany recharges and intercompany loan interest totalling £39m between continuing
operations and the Korea discontinued operation have been eliminated in 2015. These eliminations impact the performance of
continuing and discontinued operations, reducing the profit/ (loss) before tax of continuing operations by £1m (2015:
£41m), whilst increasing the profit/ (loss) before tax of Turkey and Korea discontinued operations by the same respective
amounts.
*** Total profit/ (loss) after tax of discontinued operations includes losses of £6m attributable to non-controlling
interests (2015: loss of £1m).
Loss per share impact from discontinued operations 2016Pence/share 2015Pence/share
Basic (1.54)p (5.09)p
Diluted (1.54)p (5.07)p
Balance Sheet Total Turkey 2016£m
Assets of the disposal group
Goodwill and other intangible assets 10
Property, plant and equipment 135
Investment property -
Inventories 55
Trade and other receivables 37
Cash and cash equivalents 11
Total assets of the disposal group 248
Trade and other payables (115)
Borrowings (75)
Other liabilities (11)
Total liabilities of the disposal group (201)
Total net assets of the disposal group 47
Cash flow statement Total Turkey 2016£m Total Turkey,
Korea & US2015£m
Net cash flows from operating activities 1 181
Net cash flows from investing activities (3) 14
Net cash flows from financing activities 12 (91)
Net cash flows from discontinued operations 10 104
Intra-Group funding and intercompany transactions (3) (60)
Net cash flows from discontinued operations, net of intercompany 7 44
Note 8 Dividends
2016 2015
Pence/ £m Pence/ £m
share share
Amounts recognised as distributions to owners in the financial period:
Prior financial period final dividend - - - -
Current financial period interim dividend - - - -
Dividends paid to equity owners in the financial period - - - -
Note 9 Earnings/ (losses) per share and diluted earnings/ (losses) per share
Basic earnings/ (losses) per share amounts are calculated by dividing the profit/ (loss) attributable to owners of the
parent by the weighted average number of ordinary shares in issue during the financial period.
Diluted earnings/ (losses) per share amounts are calculated by dividing the profit/ (loss) attributable to owners of the
parent by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of
potentially dilutive options. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary
share options granted by the Group, including performance-based options which the Group considers to have been earned.
As at the 27 August 2016 there were 3m (2015: 45m) potentially dilutive share options. As the Group has recognised a profit
for the period from its continuing operations dilutive effects have been considered in calculating diluted earnings per
share.
2016 2015
Basic Potentially dilutive share options Diluted Basic Potentially dilutive share options Diluted
Profit/ (loss) (£m)
Continuing operations* 34 - 34 49 - 49
Discontinued operations** (125) - (125) (414) - (414)
Total (91) - (91) (365) - (365)
Weighted average number of shares (millions) 8,142 3 8,145 8,122 45 8,167
Earnings/ (losses) per share
Continuing operations 0.42p - 0.42p 0.60p - 0.60p
Discontinued operations (1.54)p - (1.54)p (5.09)p 0.02p (5.07)p
Total (1.12)p - (1.12)p (4.49)p 0.02p (4.47)p
* Excludes losses from non-controlling interests of £3m (2015: £2m).
** Excludes losses from non-controlling interests of £6m (2015: £1m).
Alternative performance measure: Earnings/ (losses) and diluted earnings/ (losses) per share from continuing operations
before exceptional items
2016 2015
Basic Potentially dilutive share options Diluted Basic Potentially dilutive share options Diluted
Profit/ (loss) (£m)
Continuing operations* 257 - 257 49 - 49
Discontinued operations** (17) - (17) 5 - 5
Total 240 - 240 54 - 54
Weighted average number of shares (millions) 8,142 3 8,145 8,122 45 8,167
Earnings/ (losses) per share
Continuing operations 3.16p - 3.16p 0.60p - 0.60p
Discontinued operations (0.21)p - (0.21)p 0.06p - 0.06p
Total 2.95p - 2.95p 0.66p - 0.66p
* Excludes losses from non-controlling interests before exceptional items of £3m (2015: £2m).
** Excludes losses from non-controlling interests before exceptional items of £1m (2015: £1m).
Alternative performance measure: Diluted earnings/ (losses) per share from continuing operations before exceptional items
and net pension finance costs
2016 2015
Profit before tax from continuing operations before exceptional items (£m) 352 99
Add: Net pension finance costs (£m) (Note 15) 58 84
Profit before tax from continuing operations before exceptional items and net pension finance costs (£m) 410 183
Profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m) 413 185
Taxation on profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m) (108) (69)
Profit after tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m) 305 116
Diluted weighted average number of shares (millions) 8,145 8,167
Diluted earnings per share from continuing operations before exceptional items and net pension finance costs 3.74p 1.42p
There have been no transactions involving ordinary shares between the reporting date and the date of approval of the
condensed consolidated interim financial statements which would significantly change the earnings per share calculations
shown above.
Note 10 Goodwill and other intangible assets
Goodwill and other intangible assets of £2,818m (27 February 2016: £2,874m, 29 August 2015: £3,122m) comprise £1,832m
goodwill (27 February 2016: £1,827m, 29 August 2015: £1,768m), £925m software (27 February 2016: £975m, 29 August 2015:
£1,268m) and other intangible assets £61m (27 February 2016: £72m, 29 August 2015: £86m).
Goodwill
The impairment review methodology for goodwill is unchanged from that described in the 2016 Annual Report and Group
financial statements. There were no indicators of goodwill impairment in the period; the annual goodwill impairment review
will occur in the second half of the year.
The components of goodwill are as follows: 27 August 2016 27 February 2016 29 August 2015
£m £m £m
Malaysia 77 70 63
Tesco Bank 802 802 802
Thailand 174 159 143
UK 750 767 731
Other 29 29 29
1,832 1,827 1,768
Note 11 Property, plant and equipment
Cost Land andbuildings£m Other*£m Total£m
At 27 February 2016 22,557 10,468 33,025
Foreign currency translation 704 305 1,009
Additions** 241 144 385
Acquired through business combinations - - -
Reclassification (21) 17 (4)
Classified as held for sale (149) (5) (154)
Disposals (497) (262) (759)
Transfer to disposal group classified as held for sale (317) (151) (468)
At 27 August 2016 22,518 10,516 33,034
Accumulated depreciation and impairment losses
At 27 February 2016 7,198 7,927 15,125
Foreign currency translation 259 229 488
Charge for the period 195 318 513
Impairment losses 145 1 146
Reversal of impairment losses (36) - (36)
Reclassification (1) (1) (2)
Classified as held for sale (43) (3) (46)
Disposals (207) (226) (433)
Transfer to disposal group classified as held for sale (232) (102) (334)
At 27 August 2016 7,278 8,143 15,421
Net carrying value
At 27 August 2016 15,240 2,373 17,613
At 29 August 2015 13,928 2,493 16,421
Construction in progress included above***
At 27 August 2016 103 64 167
At 29 August 2015 197 75 272
* Other assets consist of fixtures and fittings with a net carrying value of £1,985m (29 August 2015: £2,123m), office
equipment with a net carrying value of £124m (29 August 2015: £166m) and motor vehicles with a net carrying value of £264m
(29 August 2015: £204m).
** Includes £3m (29 August 2015: £7m) in respect of interest capitalised, principally relating to land and building
assets. The capitalisation rate used to determine the amount of finance costs capitalised during the financial period was
4.9% (29 August 2015: 4.4%). Interest capitalised is deducted in determining taxable profit in the financial period in
which it is incurred.
*** Construction in progress does not include land.
The impairment review methodology for property, plant and equipment is unchanged from that described in the 2016 Annual
Report and Group financial statements. The United Kingdom's electorate decision to leave the European Union (Brexit) has
resulted in increased uncertainty, including uncertainty over property fair values. Consequently, the Group assessed
changes to the key factors affecting impairment, covering discount rates, trading performance, and a review of the impact
of Brexit on property fair values, in conjunction with independent professional valuers. The review concluded that there
were no indicators of impairment. The Group continues to monitor for any potential impacts of Brexit on property fair
values and impairment.
As a result of the Group's decision to sell its Turkish operations an impairment charge has been recognised upon
reclassification of these assets to assets of the disposal group. This impairment has been classified as an exceptional
item; refer to Note 4 and Note 7 for further details.
Cost Land andbuildings£m Other*£m Total£m
At 28 February 2015 25,298 11,493 36,791
Foreign currency translation (544) (234) (778)
Additions** 128 213 341
Acquired through business combinations 477 13 490
Reclassification (30) (8) (38)
Classified as held for sale (379) (19) (398)
Disposals (295) (60) (355)
Transfer to disposal group classified as held for sale (3,584) (1,202) (4,786)
At 29 August 2015 21,071 10,196 31,267
Accumulated depreciation and impairment losses
At 28 February 2015 8,021 8,330 16,351
Foreign currency translation (120) (147) (267)
Charge for the period 214 384 598
Impairment losses 32 7 39
Reversal of impairment losses (14) (1) (15)
Reclassification (18) (8) (26)
Classified as held for sale (279) (16) (295)
Disposals (214) (38) (252)
Transfer to disposal group classified as held for sale (479) (808) (1,287)
At 29 August 2015 7,143 7,703 14,846
Refer to previous table for footnotes.
Following a re-evaluation of the allocation of the prior period impairment between the components of cash generating units,
the prior period movement table has been re-presented. There is no impact on the net carrying value, income statement,
depreciation or impairment loss.
Commitments for capital expenditure contracted for, but not incurred, at 27 August 2016 were £271m (27 February 2016:
£215m, 29 August 2015: £290m), principally relating to store development. This excludes balances associated with the
discontinued operations in Korea and Turkey of £nil (27 February 2016: £nil, 29 August 2015: £11m).
Note 12 Borrowings
Current Par value Maturity 27 August 2016£m 27 February 2016£m 29 August 2015£m
Commercial paper, bank loans and overdrafts - - 971 845 1,203
Loans from joint ventures - - 6 6 6
4% RPI MTN(a) £310m Sep 2016 317 316 -
5.875% MTN E1,039m Sep 2016 940 877 -
2.7% USD Bond $500m Jan 2017 381 361 -
5.4478% Term Loan £382m Jan 2017 389 396 -
5.5457% Secured Bond(d)(e) £373m Feb 2029 15 14 -
Finance leases - - 6 11 10
3,025 2,826 1,219
Refer to the next table for footnotes.
Non-current Par value Maturity 27 August 2016£m 27 February 2016£m 29 August 2015£m
4% RPI MTN(a) £310m Sep 2016 - - 312
5.875% MTN E1,039m Sep 2016 - - 869
2.7% USD Bond $500m Jan 2017 - - 326
LIBOR +0.5% Term Loan £488m Oct 2017 481 478 476
1.250% MTN E500m Nov 2017 430 394 368
5.5% USD Bond $850m Nov 2017 687 666 621
5.2% Tesco Bank Retail Bond £125m Aug 2018 131 132 134
3.375% MTN E750m Nov 2018 656 595 562
LIBOR + 0.45% Tesco Bank Bond £150m May 2019 150 150 150
1.375% MTN E1,250m Jul 2019 1,066 990 913
5.5% MTN £350m Dec 2019 363 353 363
1% RPI Tesco Bank Retail Bond £66m Dec 2019 66 66 65
LIBOR + 0.65% Tesco Bank Bond £300m Apr 2020 299 299 299
2.125% MTN E500m Nov 2020 432 394 370
5% Tesco Bank Retail Bond £200m Nov 2020 213 211 203
LIBOR + 0.65% Tesco Bank Bond £350m May 2021 349 349 349
6.125% MTN £900m Feb 2022 923 896 923
5% MTN £389m Mar 2023 403 411 397
2.5% MTN E750m Jul 2024 637 595 545
3.322% LPI MTN(b) £319m Nov 2025 322 320 318
5.5457% Secured Bond(d)(e) £373m Feb 2029 347 353 -
6.067% Secured Bond(d) £200m Feb 2029 189 189 -
LIBOR + 1.2% Secured Bond(d) £50m Feb 2029 30 30 -
6% MTN £200m Dec 2029 261 257 265
5.5% MTN £200m Jan 2033 263 259 266
1.982% RPI MTN(c) £264m Mar 2036 266 265 263
6.15% USD Bond $1,150m Nov 2037 1,106 1,035 902
4.875% MTN £173m Mar 2042 171 175 171
5.125% MTN(f) E600m Apr 2047 515 486 559
5.2% MTN £279m Mar 2057 275 275 275
Finance leases - - 99 88 121
11,130 10,711 11,385
(a) The 4% RPI MTN is redeemable at par, including indexation for increases in the Retail Price Index (RPI) over the life
of the MTN.
(b) The 3.322% Limited Price Inflation (LPI) MTN is redeemable at par, indexed for increases in the RPI over the life of
the MTN. The maximum indexation of the principal in any one year is 5%, with a minimum of 0%.
(c) The 1.982% RPI MTN is redeemable at par, including indexation for increases in the RPI over the life of the MTN.
(d) The bonds are secured by a charge over the property, plant and equipment held within the Tesco Property Limited
Partnership, a 100% owned subsidiary of Tesco PLC.
(e) This is an amortising bond which matures in Feb 2029. £15m is the principal repayment due within the next 12 months,
and is payable quarterly. The remainder is payable in quarterly instalments until maturity in Feb 2029.
(f) The decrease in carrying value of the bond from 29 August 2015 to 27 February 2016 was due to a change of the hedge
relationship from a fair value to a cash flow hedge, which was recognised in the statement of comprehensive income in the
prior year.
Borrowing facilities
The Group has the following undrawn committed facilities available at 27 August 2016, in respect of which all conditions
precedent had been met as at that date:
27 August 2016£m 27 February 2016£m 29 August 2015£m
Expiring in less than one year - 100 100
Expiring between one and two years 600 2,200 -
Expiring in more than two years 4,428 2,700 4,916
5,028 5,000 5,016
The current year undrawn committed facilities include £2.4bn (27 February 2016: £2.4bn, 29 August 2015: £2.4bn) of
bilateral facilities and a £2.6bn (27 February 2016: £2.6bn, 29 August 2015: £2.6bn) revolving credit facility. During the
period £1.8bn equivalent of bilateral facilities were refinanced in a tenor of three years to a final maturity of August
2019.
All facilities incur commitment fees at market rates and would provide funding at floating rates.
Note 13 Financial instruments
The following table presents the Group's financial assets and liabilities that are measured at fair value at 27 August
2016, by level of fair value hierarchy:
· quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
· inputs other than quoted prices included within Level 1 that are observable for the asset or liability either
directly (from prices) or indirectly (derived from prices) (Level 2); and
· inputs for the asset or liability that are not based on observable market data (from unobservable inputs) (Level
3).
27 August 2016 Level 1£m Level 2£m Level 3£m Total£m
Assets
Available-for-sale financial assets 954 - 123 1,077
Derivative financial instruments:
- Interest rate swaps and similar instruments - 36 - 36
- Cross currency swaps - 1,272 - 1,272
- Index-linked swaps - 797 - 797
- Forward contracts - 136 - 136
Total assets 954 2,241 123 3,318
Liabilities
Derivative financial instruments:
- Interest rate swaps and similar instruments - (484) - (484)
- Cross currency swaps - (7) - (7)
- Index-linked swaps - (520) - (520)
- Forward contracts - (77) - (77)
Total liabilities - (1,088) - (1,088)
Total 954 1,153 123 2,230
27 February 2016 Level 1£m Level 2£m Level 3£m Total£m
Assets
Available-for-sale financial assets 980 - 125 1,105
Derivative financial instruments:
- Interest rate swaps and similar instruments - 35 - 35
- Cross currency swaps - 935 - 935
- Index-linked swaps - 637 - 637
- Forward contracts - 101 - 101
Total assets 980 1,708 125 2,813
Liabilities
Derivative financial instruments:
- Interest rate swaps and similar instruments - (406) - (406)
- Cross currency swaps - (67) - (67)
- Index-linked swaps - (421) - (421)
- Forward contracts - (57) - (57)
Total liabilities - (951) - (951)
Total 980 757 125 1,862
29 August 2015 Level 1£m Level 2£m Level 3£m Total£m
Assets
Available-for-sale financial assets 739 - 113 852
Derivative financial instruments:
- Interest rate swaps and similar instruments - 25 - 25
- Cross currency swaps - 549 - 549
- Index-linked swaps - 680 - 680
- Forward contracts - 77 - 77
Total assets 739 1,331 113 2,183
Liabilities
Derivative financial instruments:
- Interest rate swaps and similar instruments - (330) - (330)
- Cross currency swaps - (151) - (151)
- Index-linked swaps - (443) - (443)
- Forward contracts - (51) - (51)
Total liabilities - (975) - (975)
Total 739 356 113 1,208
There were no transfers between Levels 1 and 2 during the period (27 February 2016: no transfers, 29 August 2015: no
transfers) and no transfers into or out of Level 3 fair value measurements (27 February 2016: no transfers, 29 August 2015:
no transfers).
The Group's policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the
event or change in circumstances that caused the transfer.
Carrying amounts versus fair values
The carrying amounts of the following financial assets and financial liabilities are a reasonable approximation of their
fair value: cash and cash equivalents, short-term and other investments, other receivables, derivative financial
assets/liabilities and deposits from banks (Tesco Bank).
The carrying value and fair value of the remaining financial assets and liabilities are as follows:
27 August 2016 27 February 2016 29 August 2015
Carrying Value£m Fair Value£m Carrying Value£m Fair Value£m Carrying Value£m Fair Value£m
Assets
Loans and advances to customers - Tesco Bank 9,262 9,437 8,542 8,822 8,293 8,338
Joint venture and associate loan receivables 137 164 149 163 148 153
Liabilities
Short-term borrowings:
- Amortised cost (2,079) (2,083) (1,938) (1,936) (1,209) (1,209)
- Bonds in fair value hedge relationships (940) (940) (877) (865) - -
Long-term borrowings:
- Amortised cost (9,873) (10,361) (9,512) (9,136) (8,510) (8,420)
- Bonds in fair value hedge relationships (1,158) (900) (1,111) (800) (2,754) (2,415)
Customer deposits - Tesco Bank (8,107) (8,138) (7,397) (7,405) (6,580) (6,566)
Finance lease liabilities (105) (115) (99) (101) (131) (131)
Note 14 Commercial income
Commercial income relates to volume-related allowances, promotional and marketing allowances and various other fees and
discounts received in connection with the purchase of goods for resale from suppliers. Most of the income received from
suppliers relates to adjustments to a core
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