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April 17, 2013

UK: Tesco to exploit “skill and scale” for international growth

UK retail group Tesco has said it will look to exploit "skill and scale" to expand its international sales in growth economies in 2013.

UK retail group Tesco has said it will look to exploit “skill and scale” to expand its international sales in growth economies in 2013.

Tesco, which this morning (17 April) revealed a drop in annual profits and confirmed plans to exit the US, said it wants to “enhance returns” in the more mature markets it operates in. It will therefore allocate its capital to the markets it believes have the most sustainable advantage, the company said. 

“We are going to aim to be the multi-channel leader in all of these [markets]”, chief executive Philip Clarke told analysts. “We are going to focus on our existing markets, we are going to think about their future potential in three groupings.”

The first of these groupings, he said, include: Korea, Malaysia and Thailand. “These are three of our strongest international businesses in markets with significant future potential,” Clarke said.

“We have an opportunity to build share. In Korea and Thailand. Convenience and online will be the key focus of our plans going forward … and there are still opportunities for further hypermarket development in Malaysia.”

Its second grouping – Ireland, Czech, Hungary, Poland and Slovakia – Clarke said Tesco is looking to hold on to its position and improve returns.

“Our focus is about making the most of our assets and driving further benefits from our skills and scale, like joint buying and distribution. There will be some targeted investment in convenience and online. Our focus is on improving returns.”

The focus of its third group of India, China and Turkey will be to “change long-term potential”, Clarke said. “Our focus is, and it will remain, on establishing clear, profitable approaches to growth before committing significantly more capital in the future.”

He said: “We are only going to pursue profitable growth not growth at any cost. We have a good model in these markets, they are different to the US and Japan but we will take a measured approach as we aim to establish a model that delivers growth and returns.”

Tesco, which this morning revealed a 51% slide in annual pre-tax profits to GBP1.96bn, admitted that while its European markets “remain attractive”, that the group’s performance in Europe continues to be “fundamentally disappointing”.

“Clearly, we faced significant headwinds throughout the year and some macroeconomic uncertainties have continued to impact our business. Every market has been seriously affected with very real consequences for our customers. The combined economies of the markets are over 12% smaller than they were in 2008 and this has had a particularly marked impact upon general merchandise business across the region, holding back our overall like-for-like sales performance.”

Clarke said its Hungary and Slovakia markets proved the most resilient to the economic headwinds, but said markets such as the Czech Republic, Turkey and Poland experienced increased competitor activity.

As a result, Clarke reiterated that while Tesco’s objective is little changed in Europe, its capital discipline in this region now has.

“We are now tightly constraining any future investments in this group in order to focus on our unrelenting objective: Holding our market share and improving returns.”

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