Principal activity and business review
The principal activity of the group is the operation of food stores and associated activities in the United Kingdom, France, Hungary and Poland. A review of the business is contained on pages 6 to 26.

Group results
Group turnover excluding VAT rose by £1,993m to £12,094m, representing an increase of 19.7%. Group profit on ordinary activities before taxation for the year was £675m compared with 551m for the previous year. The amount allocated to the employee profit sharing scheme this year was £29m as against £25m for last year. After provision for tax of £209m and dividends, paid and proposed, of £206m, profit retained for the financial year amounted to £260m.

Dividends
The directors recommend the payment of a final dividend of 6.55p per ordinary share to be paid on 1 July 1996 to members on the Register at the close of business on 30 April 1996. Together with the interim dividend of 3.05p per ordinary share paid in December 1995 the total for the year comes to 9.60p compared with 8.60p for the previous year, an increase of 11.6%.

Tangible fixed assets
Capital expenditure amounted to £649m compared with £771m during the previous year. Changes in fixed assets are summarised in note 11 to the financial statements on page 47. In the directors' opinion, the properties of the group have a market value in excess of the book value of £4,768m included in these financial statements.

Acquisitions
During the year the group acquired, for a total consideration of £30m, a controlling interest in the Polish food retailer Savia, additional shares in the Hungarian food retailer Global and a number of small businesses in France through Catteau. Details of acquisitions are set out in note 30 to the financial statements on page 56.

Post balance sheet event
On 5 March 1996 the Board announced that it will acquire two retailing businesses in the Czech Republic and Slovakia for approximately £77m in cash from Kmart Corporation. The acquisition is expected to be completed in April 1996.

Share capital
The authorised and issued share capital of the company, together with details of the shares issued during the period, are shown in note 22 to the financial statements on page 52.

Company's shareholders
An analysis of the company's shareholders is shown on page 60. So far as the company is aware, at the date of this report Prudential Corporation holds 68,083,417 ordinary shares (3.2% of the total) on behalf of itself and others. The company is not aware of any other ordinary shareholders with interests of 3% or more.

Directors and their interests
The names and biographical details of the present directors are set out on pages 20 and 21.

Mr J Gildersleeve, Mr TP Leahy, Mr TJ RMason and Mr GF Pimlott retire from the Board by rotation according to the company's Articles of Association. Being eligible, they offer themselves for re-election.

Mr J W Melbourn was appointed as a director on 15 April 1996. In accordance with the company's Articles of Association, he retires and, being eligible, he offers himself for re-election.

The service contracts of Mr J Gildersleeve, Mr TP Leahy and Mr TJ RMason are terminable on two years' notice from the company. Mr J W Melbourn and Mr G F Pimlott do not have a service contract.

The interests of directors and their immediate families in the shares of Tesco PLC, along with details of directors' share options, are set out in note 6 to the financial statements on pages 41 to 44.

At no time during the year did any of the directors have a material interest in any significant contract with the company or any of its subsidiaries.

Directors' and officers' liability insurance
Directors' and officers' liability insurance was in force throughout the financial year ended 24 February 1996.

Employment policies
The group depends on the skills and commitment of its employees in order to achieve its objectives. Company staff at every level are encouraged to make their fullest possible contribution to Tesco success.

A key business priority is to provide First Class Service to the customer. Ongoing training programmes seek to ensure that employees understand the company's customer service objectives and strive to achieve them.

The group's selection, training, development and promotion policies ensure equal opportunities for all employees regardless of gender, marital status, race, age or disability. All decisions are based on merit.

Internal communications are designed to ensure that employees are well informed about the business of the group.

These include a staff magazine, videos and staff briefing sessions. Staff attitudes are frequently researched through surveys and store visits and management seeks to respond positively to the needs of employees.

Employees are encouraged to become involved in the financial performance of the group through a variety of schemes, principally the Tesco employee profit sharing scheme and the savings-related share option scheme.

Emloyee profit sharing
The company has established a discretionary trust for the benefit of employees. Its main role is to purchase shares in order to satisfy the requirements of the group's profit sharing scheme. The trustee is Barclays Private Bank & Trust (Isle of Man) Limited.

Political and charitable donations
Contributions to community projects and to charity via the Tesco Charity Trust amounted to £727,000 (1995 -£403,000). There were no political donations.

Income and Corporation Taxes Act 1988
The company is not a close company for the purposes of this Act. This status has not changed from 24 February 1996 to the date of this report.

Auditors
Price Waterhouse have expressed their willingness to continue in office. In accordance with section 384 of the Companies Act 1985, a resolution proposing the re-appointment of Price Waterhouse as auditors of the company will be put to the Annual General Meeting.

Annual General Meeting
A separate circular accompanying the Annual Report and Accounts explains the special business to be considered at the Annual General Meeting on 7 June 1996.

This report was approved by the Board on 15 April 1996.

By Order of the Board
Rowley Ager Secretary
15 April 1996

Tesco PLC
Registered Number: 445790