FINANCIAL Group sales including VAT increased by 11.9% to £22.8bn (2000 – £20.4bn). Group profit before tax increased 12.0% to £1,070m, excluding the net loss on disposal of fixed assets, goodwill amortisation and integration costs. Group profit before tax rose by 13.0% to £1,054m.
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UK sales (excluding property development sales) grew by 8.5% to £19.9bn (2000 – £18.3bn) of which 4.8% came from existing stores and 3.7% from net new stores. Existing store growth has been driven by strong volumes as we have seen zero inflation in total and deflation in our core business. UK operating profit was 10.8% higher at £1,100m (2000 – £993m). The operating margin remained broadly flat at 6.0%. Total international sales grew by 43% to £2.9bn and contributed £74m to group profits, 48% more than last year. In the Rest of Europe, total sales rose by 29% to £2.0bn (2000 – £1.5bn) and contributed an operating profit of £70m, up from £51m last year. Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis. Within this, sales in the Republic of Ireland were ahead 6.7% in local currency. In Central Europe, total sales at constant exchange rates were up 86%. Both the region as a whole and our lead country, Hungary, moved into profit. We opened 17 new hypermarkets in the year giving us 36 in total contributing towards the 5.1m sq. ft. of total selling space in the region. In Asia, total sales were £919m up 85% on the previous year and we made a profit of £4m compared to a loss of £1m last year. We opened 13 hypermarkets in the year giving us 32 in total with 3.6m sq. ft. of selling space. Our lead country in the region Thailand, moved into profit in the year. Total joint ventures profit for the year was £21m compared to £11m last year. Within this our share of Tesco Personal Finance profits was £3m compared to a £4m loss last year. The tesco.com operations achieved sales of £237m and a loss of £9m both in line with the expectations we set out in May last year. Within this, grocery home shopping continued to be profitable. To date, we have invested £40m to build a business that already has annualised turnover of £300m. Net interest payable was £125m (2000 £99m). Corporation tax has been charged at an effective rate of 27.3% (2000 27.8%). Prior to accounting for the net loss on disposal of fixed assets, integration costs and goodwill amortisation, our underlying tax rate was 26.9% (2000 27.4%). Adjusted diluted earnings per share (excluding the net loss on disposal of fixed assets, integration costs and goodwill amortisation) increased by 11.1% to 11.31p (2000 10.18p). The Board has proposed a final dividend of 3.50p (2000 3.14p). This together with the interim dividend of 1.48p (2000 1.34p) gives a total dividend for the year of 4.98p (2000 4.48p). This represents an increase of 11.2% on last year and keeps dividend cover unchanged at 2.27 times. The final dividend will be paid on 29 June 2001 to shareholders on the Register of Members at the close of business on 20 April 2001. Shareholders will continue to have the right to receive the dividend in the form of fully paid ordinary shares instead of cash and forms of election will be sent to shareholders from 11 May 2001. Group capital expenditure in the year was £1.9bn (2000 £1.5bn) including £200m for the repurchase of UK stores previously part of sale and leaseback agreements. UK capex was £1.2bn including £705m on new stores and £175m on extensions and refits. Total international capital expenditure was £738m including £390m in Asia. We forecast group capital expenditure increasing slightly to £2.0bn in 2001/02 including £200m of further store buy backs. Net debt in the year increased by £744m to £2.8bn (2000 £2.1bn), with gearing increased to 52% (2000 43%). STRATEGY All four parts of our strategy continue to deliver strong results. 1) A Strong UK Core Business Our customer focused strategy and commitment to value have delivered increased market share and we see plenty of opportunity for future growth. 2) Non Food Good progress has been made towards our goal of being as strong in non-food as food. In the year, we added 1.5m sq. ft of non-food space around the world and are on track to achieve £5bn of group non-food sales by the end of 2002. 3) Retailing Services Tesco Personal Finance is now in profit and tesco.com is firmly established as the largest grocery e-tailer in the world. 4) International Growth Our organic growth programme is progressing well and our lead countries in Asia and Europe are now profitable. Last year, our international business represented 37% of group space and we are on track to deliver 45% by the end of 2002. UK BUSINESS The UK remains our core market and management is totally focused with getting it right for customers. We participated in a wide-ranging and exhaustive Competition Commission enquiry. We welcomed their findings, which were that:- The market was competitive Profits were not excessive Prices were competitive compared to other markets and There was a high degree of consumer satisfaction. The Commission recommended a binding code of conduct governing relationships between suppliers and the five leading supermarkets. We support this and expect it to operate from the early Autumn. Tesco is an inclusive business and in the year, customers continued to choose us, resulting in strong volume growth in both food and non food. Tesco leads on value in the UK. We measure thousands of prices every week and we have significantly improved our leading position against all the competition. Over the last 5 years Tesco has invested £1bn in price and, in real terms, our prices are now 11% lower than 5 years ago. But while cutting prices, we constantly respond to other customer needs. We have Relaunched our organics range making us the largest retailer of organics in the world Developed Finest foods into a £350m brand with over 500 products Extended 24 hour trading to over 300 stores bringing the convenience of round the clock shopping to most of the UK and Improved availability on the shelves at all times. Our change programmes delivered over £150m of efficiencies last year. Over the next few years, these world leading programmes will allow us to accelerate savings further. In the coming year alone, we expect to save over £200m. Foot and mouth has been a tragedy for British farmers. We are working closely with the farmers’ unions to ease their plight and maintain confidence in British agriculture. Tesco has stood by British farmers in a year in which currency fluctuations have led others to buy abroad. The company has paid higher prices by doing so and this has significantly benefited farm incomes. Throughout the crisis our retail prices have remained highly competitive. Our main suppliers are paying farmers more quickly for meat and are paying above the market price. This has contributed to rising costs, part of which we have absorbed to help the farmers through their difficulties. This has been a huge effort by everybody in the industry. Farmers know they can count on the support of Tesco customers and staff. NON FOOD Customers like our non food offer. They recognise its quality, value and choice. We are working hard to bring our non food range to more customers through our new store and extension programmes. We are making progress in all non food areas. In the year We sold £45m worth of TV’s and DVD players in our first year as a major electrical retailer We extended our clothing range, as ‘Florence and Fred’ We introduced a full non food offering in smaller stores. For example, Wrexham at 60k sq. ft., has the range that previously would have been in our 100k sq. ft. stores and We grew our range adding 8,000 new products this year. DEVELOPMENT PROGRAMME We have developed 5 distinctive store formats tailored to meet the needs of different customers in different areas. This has enabled us to maintain a strong opening programme despite working within a tough planning climate. This year we opened 1.3m sq. ft., of new space as part of our £1bn investment in the UK. Express we currently have 45 stores open and through our joint venture with Esso we will have almost 100 by the end of 2001/02. Extra we now have 23 Extra stores with plans to nearly double this in 2001/02. We are developing partnerships throughout the UK using new stores as anchors for local regeneration. These schemes create a range of opportunities providing Jobs for the unemployed; Training Subsidised transport, and Childcare. Today we will announce three new schemes at Beckton in London and Rugeley and Stafford in the Midlands bringing the total number to 12. TESCO PERSONAL FINANCE Tesco Personal Finance is now profitable and is one of the UK’s fastest growing financial services businesses. We have built on the Tesco brand strength and The Royal Bank of Scotland’s expertise and systems to give us a clear strategy for long term profitable growth. We now have 15 products and services with 2m customers, 400,000 savings accounts and 900,000 credit cards. Tesco Personal Finance is a success with customers as it brings new levels of service and value to the banking sector. E COMMERCE Tesco.com, our e commerce business, is unique. Customers love it, it is progressing well and we achieved our business plan and financial targets for the year. We now have Almost 1m registered customers 70,000 orders per week, giving weekly sales of over £6m Home shopping available to 90% of the UK population, a level not seen anywhere else in the world The site re launched, halving the time it takes to place an order Launched further non-food sites including our popular electrical site and Launched iVillage in the UK, the most popular internet site for women in the UK. Grocery home shopping has continued to be profitable and its world leading system is at least 2 years ahead of the competition. INTERNATIONAL BUSINESS We continue to build an international business of real scale that has already come a long way. In 1997 we opened our first two large stores in Hungary. Internationally we now have 68 hypermarkets, 10.4m sq. ft. of retail space, employing over 50,000 people contributing £2.9bn of group turnover and we are on track to operate 130 hypermarkets by 2002. Europe In Europe, we are seeing the respective economies grow at different rates, but overall, our development programme is on track. We opened 17 hypermarkets in 2000, giving us 36 in total with a further 18 to open in 2001. In Hungary, we opened 6 hypermarkets this year giving us 15 in total with plans to open a further 6 in the coming year. We are already in profit and are increasing the opening programme on the back of good market conditions and strong trading performance. Last year, in Budapest, we opened our 2 largest stores in the group at over 150k sq. ft. each. In Poland, we opened 6 hypermarkets this year giving us 10 in total with plans to open a further 5 in 2001. We have recognised the consumer squeeze on disposable incomes and adjusted our operating plans to reflect this. We plan to break even by the end of the year, a good result at this early stage. In the Czech Republic and Slovakia, we opened 5 hypermarkets this year giving us 11 in total with a further 7 to open in 2001. We are performing well and are stepping up site research with a view to a higher level of openings from 2002 onwards. This will include more hypermarkets in Prague and smaller hypermarkets for medium sized towns in both the Czech Republic and Slovakia. In the Republic of Ireland, we continue to grow market share from 22% last year to 24% now. We opened stores at Maynooth and Castlebar and now that the planning rules have been clarified, we expect to open more stores within this framework. We will open a further 5 stores in 2001/02. Asia In Asia the regional outlook for Tesco is exciting. We have seen some economic slowdown in the last quarter of the year but overall we are ahead of our development plans. We opened 13 hypermarkets in 2000 giving us 32 in total and expect to have 49 open by the end of 2001. In Thailand, over the last two years we have opened 10 stores and established a leading position in and around Bangkok. As expected this has impacted existing stores but underlying like for like growth remains strong. We now have 24 hypermarkets and plan to open a further 9 in 2001. The business has already moved into profit, providing a very strong position for future growth and profits are ahead of plan. Our larger malls in the country are performing particularly well and we are now introducing these into existing stores. In Korea, we opened 5 hypermarkets in the space of 65 days, a tremendous performance by the local management team. We now have 7 hypermarkets in total and are on track with our overall target for 24 hypermarkets by 2002. Our first two stores continue to trade well with sales of over £2m per week and new stores have all opened above target. In Taiwan, we acquired our first store in December 2000 which will give us valuable early experience for our future development programme. We will open 2 new stores in 2001. In addition With our partner, we are awaiting regulatory approval to start in Malaysia We continue to research in China and Japan and As you would expect we are always reviewing other opportunities around the world. CONCLUSION To conclude, this year we have Delivered strong results Made good progress with our transformation from a domestic to an international retailer and Achieved sales growth that is gaining momentum delivering the fastest organic growth rate of any major international retailer. We are establishing an international business with real capability and growth prospects that will make a substantial difference to the Tesco group over the next 10 years.
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