Tesco PLC – Annual report – 24 February 2018
Longer term viability statement
The context for assessment
The aim of the viability statement is for the Directors to report on the assessment of the prospects of the Company meeting its liabilities over the assessment period, taking into account the current financial position, outlook and principal risks.
The Directors have based their assessment of viability on the Group’s current strategic plan, which is updated and approved annually by the Board, delivering the Group’s purpose of ‘serving shoppers a little better every day’ and underpinned by the six strategic drivers (detailed on pages 8 and 9). The strategic plan necessarily makes assumptions relating to: the prevailing economic climate and global economy; the structural challenges facing our sector; competitor actions; market dynamics; changing customer behaviours; and the costs associated with delivering the strategy. Strategic plans also address and respond to the Group’s principal risks.
- The assessment period
The Directors have assessed the viability of the Company over a three-year period to February 2021. The Directors have determined that a three-year period is an appropriate timeframe for assessment, given the dynamic nature of the retail sector and product offering, and is in line with the Company’s strategic planning period.
- Assessment of viability
The viability of the Company has been assessed taking into account the Company’s current financial position, including external funding in place over the assessment period, and after modelling the impact of certain scenarios arising from the principal risks which have the greatest potential impact on viability in that period.
Four scenarios have been modelled, considered severe but plausible, that encompass these identified risks. None of these scenarios individually threaten the viability of the Company, therefore the compound impact of these scenarios has been evaluated as the most severe stress scenario.
These scenarios assumed that external debt is repaid as it becomes due and includes consolidation of the Booker business and associated synergies.
The scenarios above are hypothetical and purposefully severe for the purpose of creating outcomes that have the ability to threaten the viability of the Group. In the case of these scenarios arising, various options are available to the Group in order to maintain liquidity so as to continue in operation such as: accessing new external funding early; more radical short-term cost reduction actions; and reducing capital expenditure. None of these actions are assumed in our current scenario modelling.
Based on these severe but plausible scenarios, the Directors have a reasonable expectation that the Company will continue to operate and meet its liabilities as they fall due over the three-year period considered.