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    Business and Financial Review 1 Consolidated Income Statement 8 Consolidated Statement of Comprehensive Income 9 Consolidated Statement of Financial Position 10 Consolidated Statement of Changes in Equity 11 Consolidated Cash Flow Statement 12 Notes to the Consolidated Financial Statements 13 Statement of Directors’ Responsibilities 23




    In the Business and Financial Review and Financial Statements, unless specified otherwise, the ‘Company’ means Tesco Personal Finance Plc and the ‘Group’ means the Company and its subsidiaries and associated undertaking included in the consolidated financial statements. The Group operates using the trading name of Tesco Bank. Tesco Personal Finance Plc is a wholly owned subsidiary of Tesco Personal Finance Group Limited, the share capital of which is wholly owned by Tesco Plc. A reconciliation of the results contained within this preliminary report to the Tesco Bank results presented in the Tesco Plc preliminary results 2012/13 can be found on the Tesco Plc internet page http://www.tescoplc.com/media/549681/rns.pdf. PRINCIPAL ACTIVITIES The Group is engaged in the provision of banking and general insurance services. The Group is primarily focussed on providing financial services and products to personal customers in the UK, the Republic of Ireland, Poland and Hungary. The Company owns 49.9% of Tesco Underwriting Limited, an authorised insurance company. FINANCIAL PERFORMANCE The Group has continued to make good progress throughout the year, particularly within the Banking business in the second half of the year following completion of the last phase of operational migration. The full year profit has, however, been impacted by two non trading items:

    • An incremental provision of £115.0m (2012: £57.4m) for potential customer redress. • The Group received a non recurring payment of £30.0m following settlement of a dispute with

    a former business partner. In addition, following the termination of the legacy insurance distribution agreement with Direct Line Group (DLG) the final commission under this arrangement of £21.7m (2012: £63.3m) was recognised in the year. Headlines

    • Profit before tax is £124.0m, down by 22.3% (2012: £159.6m).

    • Adjusting for non trading items and the cessation of the historic insurance distribution agreement, profits grew 14.4% to £187.3m (2012: £163.7m)1.

    • Customer assets grew 19.2% to £5.6bn (2012: £4.7bn) and customer deposits grew 11.4% to £6.0bn (2012: £5.4bn).

    • The Risk Asset Ratio at 28 February 2013 was 19.1% (2012: 16.0%) reflecting the

    repatriation of capital from DLG of £258.5m (2012: £nil). A dividend of £105.0m (2012: £108.2m) was paid to the Group’s parent company in February 2013.

    1 In 2011/12 non trading items also included a non recurring fee of £10.0m payable to a supplier on the successful migration of the Motor and Home Insurance business.



    BUSINESS AND FINANCIAL REVIEW (continued) BUSINESS OVERVIEW This has been another year of significant activity in the Group. May 2012 saw the successful migration of the Group’s credit card business from Royal Bank of Scotland Group (RBS) to the Group’s operational platforms. In August, the Group launched its Mortgages product and at 28 February 2013 £258.0m of balances were outstanding with a further £78.5m in the pipeline. In November, both Cash and Junior ISAs were launched widening the Group’s savings offering and diversifying its funding base. Following the completion of the migration to the Group’s operational platforms, a revised organisational structure was implemented, creating two business units, one focussed on Banking activity and the second on Insurance. This has created two business units with full responsibility for the end to end customer experience in their respective markets. As reported at the Half Year, the Group reached agreement with DLG in relation to the termination of the legacy insurance distribution agreement. The £258.5m of capital previously provided to DLG has been repaid to the Group in full. Fees and commission income from DLG relating to policies sold prior to October 2010 was £21.7m (2012: £63.3m) and this is the key driver of the reduction in the Group’s non interest income to £353.6m (2012: £400.5m). The Group has undertaken an exercise to contact customers who were historically sold Personal Loan Payment Protection Insurance (PPI) where there is the potential for that sale to have been non compliant. The result of this exercise, combined with the ongoing compensation claims from customers in relation to historic PPI sales (both linked to Personal Loans and Credit Cards) has resulted in the Group increasing the provision for redress in relation to historic PPI sales. In the second half of the year the Group increased the provision by £60.0m taking the total charge for the year to £90.0m (2012: £57.4m). The Group has further provided an additional £25.0m (2012: £nil) in respect of customer redress relating to the historic sale of certain products sold to credit card customers. The full year profit also includes a non recurring credit of £30.0m following settlement of a dispute with a former business partner. As highlighted at the Half Year, the Group has confirmed its intention to draw on the Bank of England’s (BoE) Funding for Lending Scheme (FLS). Whilst the Group’s lending will continue to be primarily funded by customer deposits, which have grown by £0.6bn to £6.0bn (2012: £5.4bn), the FLS scheme will provide support to the Group’s lending plans in the short term. As part of the Group’s Community programme, it announced in October 2012 its commitment to make funding available to Grameen Scotland for the purpose of supporting social enterprise in deprived parts of the UK. Banking The Banking trading environment proved to be very challenging and highly competitive across the main product categories, however despite this the Group made significant progress in developing its products and services during the year which has resulted in growth in the number of customers choosing our products. In May 2012, the Credit Card business was the final area to be migrated to the Group’s own operating platforms. The Group scaled back marketing activity in the first half of the year to ensure this transition was successful, with high levels of service maintained throughout the migration process to the 2.8 million customer base. This created the platform to support an enhanced product offering to the Group’s new and existing customers with additional acquisition offers launched to help serve the needs of Tesco customers. Retail Sales exceeded £1.0bn each month with good levels of customer account and balance growth achieved in the second half of the year following the migration period.



    BUSINESS AND FINANCIAL REVIEW (continued) The Group also successfully launched two new key products in the second half of the year, Mortgages and Cash ISAs. For Mortgages, the Group offered a competitive set of products which proved to be popular and helped grow customer balances beyond expected levels to £258.0m at the year end. Cash ISAs were a welcome addition to the Savings portfolio which not only extended the offering for customers but will help provide a further source of funding in the periods to come as the Group looks to grow its lending activity. The year also saw a fairly substantial reduction in customer interest rates on both lending and savings products within the market place. Against this backdrop the Group was successful in growing both its Personal Loan and Savings balances and continued to offer existing and new Savings customers competitive rates of interest. Insurance The Group’s insurance business provides a wide range of general insurance and selected life insurance products to over 2.1 million customers in the UK and the Republic of Ireland. The motor insurance market saw significant change in the year with a number of regulatory developments, the introduction of gender neutral pricing and sustained downward price pressure. Despite this, excluding the impact of legacy insurance income, the insurance business succeeded in increasing the profit contribution from the insurance distribution arrangements put in place in 2010, up 15.5% to £112.9m (2012: £97.8m). Further progress was made across the product range to improve the proposition for Tesco customers with activity focused on delivering the best prices across the range of insurance products for those customers holding a Tesco Clubcard and in the second half of the year the Group extended its panel of insurers to include Aviva. As a result of the termination of the historic arrangement with DLG in September 2012 the Group received a final commission statement and related legacy income in line with expectations. Consequently the final income from this arrangement was recognised in the year (2013: £21.7m; 2012: £63.3m). BUSINESS DEVELOPMENT The Directors do not anticipate any material change in either the type or level of activities of the Group in the

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