Terry Leahy, Chief Executive, comments: “These results underline the strength of our four part strategy – a strong core UK business, non food, retailing services and our international business plus the commitment of the whole Tesco team to create continued value for our customers”.

GROUP

• SALES UP 14.2% TO £11.5bn
  
• UNDERLYING PROFIT BEFORE TAX* UP 14.0% to £481m
  
• ADJUSTED DILUTED EPS* UP 13.0% TO 4.78p
  
• 
  
  
  
  

  Company Profile: Tesco

  INTERIM DIVIDEND UP 12.8% TO 1.67p
  
• A FURTHER 20,000 JOBS TO BE CREATED WORLDWIDE THIS YEAR

UK

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• SALES UP 10% TO £9.8bn
  
• LIKE-FOR-LIKE GROWTH OF 7%
  
• OUTPERFORMING THE INDUSTRY WITH STRONG VOLUME GROWTH OF 6.9%
  
• TESCO PERSONAL FINANCE SHARE OF PROFIT INCREASES TO £7m

INTERNATIONAL

• ON TRACK TO DELIVER TARGETED RETURNS
  
• TOTAL INTERNATIONAL PROFIT UP 120% TO £33m
  
• TOTAL INTERNATIONAL SALES UP 46% TO £1.7bn
  
• SALES FROM THE REST OF EUROPE** UP 32% TO £1.1bn
  
• SALES IN ASIA UP 76% TO £0.6bn

* Excluding net loss on disposal of fixed assets and goodwill amortisation. (see page 9)

** Rest of Europe includes Republic of Ireland, Hungary, Poland, Czech Republic and Slovak Republic

FINANCIAL

Group sales including VAT increased by 14.2% to £11.5bn (2000 – £10.1bn).

Group profit before tax increased by 14% to £481m, excluding the net loss on disposal of fixed assets and goodwill amortisation. Group profit before tax rose by 13.5% to £471m.

UK sales (excluding property development sales) grew by 10% to £9.8bn (2000 – £8.9bn) of which 7.0% came from existing stores and 3.0% from net new stores. Existing store growth has been driven by strong volumes of 6.9%.

Inflation increased in the first quarter, then reduced resulting in negligible inflation of 0.1% for the half year.

UK operating profit was 12.1% higher at £501m (2000 – £447m). The operating margin remained broadly flat at 5.5%.

Total international sales grew by 46% to £1.7bn and contributed £33m to group profits, up 120% on last year.

In the Rest of Europe, sales rose by 32% to £1.1bn (2000 – £0.8bn) and contributed an operating profit of £24m, up 85% on last year.

Within this, sales in the Republic of Ireland were ahead 7.8% on the previous year.

In Central Europe total sales were strong, up 48%.

In Asia, sales were up 76% to £652m and we made a profit of £9m up from £2m in the first half last year. Trading profits in Thailand and South Korea have been partly offset by start up losses in Taiwan.

Total joint ventures profit for the first half was £15m compared to £10m in the first half last year. Within this our share of Tesco Personal Finance profit was £7m.

Tesco.com in total achieved sales of £146m up 77% on last year, a period when we were still rolling out the service. Grocery homeshopping made good profits, however overall tesco.com made a small loss of £3m in the first half, reflecting the launch cost of new sites such as our wine warehouse.

Net interest payable was £68m (2000 – £50m).

Corporation tax has been charged at an effective rate of 31.2% (2000 – 31.6% #). Prior to accounting for the net loss on disposal of fixed assets and goodwill amortisation, our underlying tax rate was 30.6% (2000 – 31.0% #). We have adopted FRS19 on deferred tax, this will raise our effective rate of tax for 2001/02 by circa 3.5%.

Adjusted diluted earnings per share (excluding the net loss on disposal of fixed assets and goodwill amortisation) increased by 13% to 4.78p (2000 – 4.23p #).

The Board has proposed an interim dividend of 1.67p (2000 – 1.48p). This represents an increase of 12.8% on last year and keeps dividend cover unchanged at 2.86 times. The interim dividend will be paid on 30 November 2001 to shareholders on the Register of Members at the close of business on 28 September 2001. Shareholders will continue to have the right to receive the dividend in the form of fully paid ordinary shares instead of cash. The first day of dealing in the new shares will be on 30 November 2001.

Group capital expenditure in the half year was £0.7bn (2000 – £0.7bn). UK capital expenditure was £0.4bn including £182m on new stores and £95m on extensions and refits. Total international capital expenditure was £256m including £145m in Asia. We forecast group capital expenditure to be £2.0bn for the year including £250m for UK stores previously part of sale and leaseback agreements.

Net debt at the half year increased by £229m to £3.0bn (Feb 2001 – £2.8bn), with gearing increased to 57% (Feb 2001 – 56% #).

STRATEGY

The four key elements of our strategy remain the same.

1. A Strong UK Core Business – our continued investment and commitment to bring value to the customer has grown market share and we have taken trade from all our competitors in the first half.
   
2. Non Food – we continue to make progress towards our goal of being as strong in non- food as food. In the first half we launched 4,500 new products in the UK providing further choice for customers and opened a further 0.5m sq. ft. of non food space worldwide.
   
3. Retailing Services – Tesco Personal Finance grew profits significantly in the first half. Tesco.com will be profitable this year – grocery homeshopping is already in profit and we recently announced that we are taking grocery homeshopping to the USA.
   
4. International Growth – we are on track to deliver more than 45% of group space internationally by 2002 and in 2003 we will have more space overseas than in the UK. We are confident of achieving our store cash return targets.

UK BUSINESS

The UK remains our core market. We continue to lead on value and yesterday our customers benefited from a further £100m investment across 3,500 products, the largest number ever.

We compare prices weekly on over 66% of our total sales showing that our prices are now 12.5% cheaper than they were 5 years ago.

Our drive for value and customer obsession has resulted in our volumes growing consistently by a compound 24% in the last 5 years.

In response to research we have enhanced our Clubcard giving customers more choice than ever. Around 80% of our customers use Clubcard and in the first half we gave away nearly £100m of coupons. Clubcard coupons can now be used to pay not only for shopping but also for motor insurance and holidays.

We continue to innovate through our step change programme ensuring that efficiency savings are passed to our customers. In the first half we exceeded our expectations and are on target to achieve savings of £200m this year.

To improve our supply chain network further, we are opening two new distribution centres, at Daventry for frozen food and Thurrock for dry grocery. These will help create over 1,000 jobs and put extra capacity into the network, improving service to the store and product availability for the customer.

Our development programme in the UK is on target with 13 new stores opening in the first half. A strong extension and refit programme and further high street investment are also enhancing our UK store portfolio.

Our successful regeneration scheme at Leeds Seacroft recently won the Business in the Community innovation award and this month we opened our second regeneration store in Durham, a 60,000 sq. ft. Extra which has created 430 new jobs.

We opened eleven Express stores in the first half. In recent months we have been opening Express stores at a rate of one per week and we are on track for 150 stores by the end of 2002. Sales densities in these stores are amongst the highest in the group and we are now actively looking for stand-alone sites.

NON FOOD

We continue to make progress in non-food putting us on track for a 6% market share. First half highlights include:-

• Becoming market leader in volume sales for health & beauty;
  
• DVD sales up over 300%;
  
• 48% market share on the launch of the latest Harry Potter paperback.

We recently acquired a major stake in the Nutri Centre, the leader in complementary medicines. This will enhance our health & beauty offer meeting customers desire for natural products.

We opened six Extra stores in the first half and we are on the way to having over 40 in total by the year-end.

Our most recent Extra at Swansea illustrates the importance of format development. This store was originally 14,000 sq. ft. It was then extended twice to become a superstore of 42,000 sq. ft. and has now been replaced by an 80,000 sq. ft. Extra that has more than doubled turnover.

TESCO PERSONAL FINANCE

Tesco Personal Finance achieved a profit of £14m, of which our share was £7m compared to break even in the first half last year. Our low cost model has delivered these results in just four years.

Despite achieving outstanding growth there is further opportunity for all our products as we have on average only a 2% market share.

Equally significant for the future is that 35% of our new Tesco Personal Finance applications are via the Internet.

E-COMMERCE

Tesco.com has made excellent progress and we now reach 94% of the UK population. In the first half our grocery homeshopping operation achieved like for like sales of nearly 40% and created 600 new jobs.

In June we announced our plans to take our successful grocery homeshopping system to the USA where there is 60% internet penetration as opposed to 35% in the UK. We will be accessing potentially 150 million people through 1,500 Safeway Inc. shops.

INTERNATIONAL BUSINESS

Our strategy of building an international business of real scale continues to gain momentum. We are delighted with the progress we are making and overall are on track to achieve our targets.

In Hungary, we continue to grow sales and profits. We are looking to increase the opening programme on the back of our successful hypermarkets. We are looking at smaller hypermarket formats for smaller towns to build on our existing share of the food retail market.

Returns on the early hypermarkets are very encouraging. Fogarasi, our first conforming hypermarket in Budapest, is already achieving a 21% cash return.

In Poland, like for like sales have increased to 5%. Our opening programme continues with 4 new hypermarkets this year. We are keen to open more, but are restricted by the new regional planning structure. We are probably a year behind our original plan but even if current market conditions continue we still anticipate year 4 store cash returns of 15% – 20%. Our first store at Wroclaw in its third year is delivering a cash return of 22%.

In the Czech Republic, our hypermarkets are performing well. Returns from our lead stores look good. Zlicin in Prague already shows a cash return of 17% and we are looking to achieve targeted store returns during year 4 or sooner.

In the Slovak Republic we will open a further 3 hypermarkets this year and Nitra our first store which opened in 1999 is already achieving a 19% cash return.

In the Republic of Ireland, we are seeing continued sales and profit growth. In the first half we have invested in prices reinforcing our commitment to bring value to the consumer.

We opened 1 new store in the first half and we are on track to open 4 in total this year giving us 77 stores in total.

In Asia, despite slowing GDP growth, our stores have continued to trade well.

In Thailand, we continue to strengthen our position in Bangkok and to build a strong investment portfolio of stores in up country towns where we have reduced total store cost including land to around £7m – £8m per store.

In our major hypermarkets, where we have malls, rental income is helping us reach profit earlier than anticipated.

In Korea, the turnover of the first 2 stores continues to be outstanding. The 5 stores opened last year are all performing strongly and are in our top 10 stores in the Tesco group in terms of sales.

In terms of financial returns we are ahead of both our short-term plan and our 5-year plan targets. We are committed to opening 6 stores this year and 11 next year.

In Taiwan, we are still in a start up phase. We have learnt much from our first store, in the face of stiff local price competition. We are looking forward to opening our first two stores on green field sites in the next few months and building a business of scale over the next few years.

In Malaysia, we expect to open our first store next year.

We continue to research other international opportunities including China and Japan.

In conclusion, we have:-

The fastest organic growth rate;
Strong results; and
Continued progress against our clear strategy
John Gardiner, Chairman of Tesco PLC, said:-

“I would like to offer our condolences to all the families and friends of the thousands of people affected by events in the United States last week – and especially to the financial community which has been hit so hard”.

# Restated due to the adoption of Financial Reporting Standard 19, “Accounting for Deferred Tax”

This document is available via the Internet at http:/www.tesco.com

TESCO PLC

GROUP PROFIT AND LOSS ACCOUNT

TESCO PLC

TESCO PLC

TESCO PLC

TESCO PLC

TESCO PLC

NOTES TO THE ACCOUNTS

Note 1 Accounting policies 

These accounts have been prepared using the accounting policies set out in the Annual Report and Financial Statements 2001 with the exception of the policy on deferred tax. Financial Reporting Standard (FRS) 19 ‘Deferred Tax’ has been adopted with effect from 25 February 2001. FRS 19 requires that deferred tax be recognised in respect of all timing differences that have originated, but not reversed, by the balance sheet date. Prior to 25 February 2001 the Group’s accounting policy was to provide the deferred tax which was likely to be payable or recoverable.

The prior year comparatives have been restated to comply with FRS 19. The effect is to reduce profit after tax by £17m (full year effect £45m) from £301m to £284m and to reduce opening net assets by £333m from £4,769m to £4,436m. Earnings per share have been restated from 4.45p to 4.20p and adjusted diluted earnings per share from 4.48p to 4.23p.

TESCO PLC

TESCO PLC

NOTES TO THE ACCOUNTS

Note 1 Accounting policies

These accounts have been prepared using the accounting policies set out in the Annual Report and Financial Statements 2001 with the exception of the policy on deferred tax. Financial Reporting Standard (FRS) 19 ‘Deferred Tax’ has been adopted with effect from 25 February 2001. FRS 19 requires that deferred tax be recognised in respect of all timing differences that have originated, but not reversed, by the balance sheet date. Prior to 25 February 2001 the Group’s accounting policy was to provide the deferred tax which was likely to be payable or recoverable.

The prior year comparatives have been restated to comply with FRS 19. The effect is to reduce profit after tax by £17m (full year effect £45m) from £301m to £284m and to reduce opening net assets by £333m from £4,769m to £4,436m. Earnings per share have been restated from 4.45p to 4.20p and adjusted diluted earnings per share from 4.48p to 4.23p.

* Results for Rest of Europe and Asia are for the period ended 30 June 2001, with the exception of the Republic of Ireland which is to 11 August 2001.

Note 4 Earnings per share and diluted earnings per share

The calculation of earnings, including net loss on disposal of fixed assets and goodwill amortisation is based on the profit for the period of £324m (2000 – £284m restated).

For the purpose of calculating earnings per share, the number of shares is the weighted average in issue during the 24 weeks of 6,869m (2000 – 6,768m).