Annual Report 2018 and Notice of Meeting 2018

We now have a more consistent approach to building impactful customer propositions, offering high quality, competitive value, while improving the customer experience. Propositions are now developed across channels and geographies to ensure consistency in the engagement with customers. Group-wide customer insight management is undertaken to understand customer behaviour, expectations and experience, and leverage more consistently across the different parts of the business.

We monitor the effectiveness of our processes by regular tracking of our business, and those of our competitors, against measures that customers tell us are important to their shopping experience. We have well established product development and quality management processes, which keep the needs of our customers central to our decision making.

We have multiple transformation programmes underway to simplify our business with clear market strategies and business plans in place. Our service model processes provide a framework for implementing change. We have appropriate executive level oversight for all the transformation activities.

Transformation programmes are supported by experienced resources from within the business and externally as required.

We maintain an infrastructure of systems, policies and reports to ensure discipline and oversight on liquidity matters, including specific treasury and debt-related issues. Our treasury policies are communicated across the Group and are regularly reviewed by the Board, Executive Committee and management.

The Group's funding strategy is approved annually by the Board and includes maintaining appropriate levels of working capital, undrawn committed facilities and access to the capital markets. The Audit Committee reviews and approves annually the viability and going concern statements and reports into the Board.

There is a long-term funding framework in place for the pension deficit and there is ongoing communication and engagement with the Pension Trustees.

While recognising that Tesco Bank is financially separate from Tesco PLC, there is ongoing monitoring of the activities of Tesco Bank that could give rise to risks to Tesco PLC.

Our Board actively develops and regularly challenges the strategic direction of our business and we actively seek to be competitive on price, range and service, as well as developing our online and multiple formats to allow us to compete in different markets.

Our Executive Committee and operational management regularly review markets, trading opportunities, competitor strategy and activity and, additionally, we engage in market scanning and competitor analysis to refine our customer proposition.

We continue to develop communication and engagement programmes to listen to our customers and stakeholders and reflect their needs in our plans. This includes the supplier viewpoint programme and the integration of local community and local marketing programmes. We continue to maximise the value and impact of our brand with the advice of specialist external agencies and in-house marketing expertise. Maintaining a differentiated brand is one of our strategic priorities and our Group processes, policies and our Code of Business Conduct sets out how we can make the right decisions for our customers, colleagues, suppliers, communities and investors. Our Corporate Responsibility Committee is in place to oversee all corporate responsibility activities and initiatives ensuring alignment with customer priorities and our brand. Further details can be found on page 39.

We continue to assess our technology resilience capabilities and have identified opportunities to make significant enhancements. We are progressing greater adoption of cloud computing technologies to provide further resilience.

We have combined governance processes covering both technology disaster recovery and business continuity to ensure alignment.

Our technology security programme is designed to continuously strengthen our infrastructure and Information Technology General Controls.

Our multi-year data security programme has been driving the enhancement of our security capabilities. We continue to work towards meeting regulatory requirements and regularly report the status of the security programme to governance and oversight committees.

We have established a team to detect, report and respond to security incidents in a timely fashion. We have a third-party supplier assurance programme focusing on data security and privacy risks.

We are making significant investment across the Group to ensure we comply with the requirements of the General Data Protection Regulation (GDPR) in Europe, and any other relevant legislation globally. We put our customers and our colleagues at the heart of all decisions we make in relation to the processing of personal data.

Our privacy compliance programme, driven by the Group Privacy Officer continues to drive compliance throughout our global business.

Wherever we operate, we aim to ensure that the impact of political and regulatory changes is incorporated in our strategic planning. We manage regulatory risks through the use of our risk management framework and we have implemented compliance programmes to manage our most important risks (e.g. bribery and competition law).

Our compliance programmes ensure that sustainable controls are implemented to mitigate the risk and we conduct assurance activities for each risk area.

Our Code of Business Conduct is supported by new starter and annual compliance training and other tools such as our whistleblowing hotline.

The engagement of leadership and senior management is critical in the successful management of this risk area and leaders provide clear tone from the top for colleagues.

We have a business-wide, risk-based safety framework which defines how we implement safety controls to ensure that colleagues, contractors and customers have a safe place to work and shop.

Each business is required to maintain a Safety Improvement Plan to document and track enhancements. Overall governance is provided by the Group Risk and Compliance Committee, with each business unit operating their own Health and Safety Committee.

Our annual colleague survey programme allows us to measure safety behaviour improvements Group-wide. The survey results alongside other inputs through the year, informs the delivery of safety initiatives and targeted communications.

We seek to understand and respond to colleagues' needs by listening to their feedback from open conversations, social media, colleague surveys and performance reviews.

Talent planning and people development processes are well established across the Group. Talent and succession planning is discussed annually by the Board and three times a year at the Executive Committee and Nominations and Governance Committee. The Remuneration Committee agrees objectives and remuneration arrangements for senior management, and the current remuneration policy is due for review at this year's Annual General Meeting.

There is a change programme in place, supported by Executive Committee and Audit Committee governance, to deliver technology and processes that are simple, helpful and trusted to all our markets.

We have product standards, policies and guidance covering both food and non-food, as well as goods and services not for resale, ensuring that products are safe, legal and of the required quality, and that the human rights of workers are respected and environmental impacts are managed responsibly. Refer to pages 16 to 21 for specific actions highlighted under our Little Helps Plan.

Supplier audit programmes are in place to monitor product safety, traceability and integrity, human rights and environmental standards, including unannounced specification inspections of suppliers and facilities.

We run colleague training programmes on food and product safety, responsible sourcing, hygiene controls and provide support for stores. We also provide targeted training for colleagues and suppliers dealing with specific challenges such as modern slavery. Our store audit programme seeks to ensure we comply with safety and legal requirements.

A detailed synergy realisation and integration plan is being implemented with period-end reporting and tracking of targeted benefits and key performance indicators.

For further information on the Tesco and Booker merger see page 7.

The nature of the UK's future trading relationship with the EU is still to be determined. We continue to contribute to important public policy discussions and engage with government, regulatory bodies and industry.

As further details of the terms of our departure from the EU emerge, we will continue to assess and monitor the potential risks and impacts of these on Tesco customers, colleagues and shareholders and take appropriate measures.

The Bank has a defined risk appetite, which is approved and reviewed regularly by both the Bank's Board and the Tesco PLC Board. The risk appetite 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 and its strategic priorities, long-term plan, capital planning and liquidity management. Adherence to risk appetite is monitored through a series of ratios and limits.

The Bank operates a risk management framework that is underpinned by governance, policies, processes and controls, reporting, assurance and stress testing.

There is Bank Board risk reporting throughout the year, with updates to the Tesco PLC Audit Committee by the Bank's Chief Financial Officer, Chief Risk Officer and Audit Committee Chairman. A member of the Tesco PLC Board is also a member of the Bank's Board.