Final Results
Tesco PLC
10 April 2002
TESCO PLC
PRELIMINARY STATEMENT OF RESULTS
52 WEEKS ENDED 23 FEBRUARY 2002
'WINNING AT HOME AND ABROAD'
Terry Leahy, Chief Executive, comments:
'This year marks the arrival of Tesco as an international group with market
leading positions in five of our nine countries and 65,000 staff overseas. Our
success is underpinned by the strength of our core UK business, and growth in
all parts of our strategy which moves UK profit growth of 10.3% to a group
profit growth of 14.1%. We continue to deliver great value for customers in
every community in which we operate'.
HIGHLIGHTS
• GROUP SALES UP 12.7% AND PRE-TAX PROFITS* OF £1.2bn, UP 14.1%
• INTERNATIONAL PROFITS UP 60.8% TO £119m
• CREATED A FURTHER 20,000 JOBS WORLD-WIDE WITH A FURTHER 21,000 TO COME
THIS YEAR
• TESCO PERSONAL FINANCE ACHIEVES £40m PRE-TAX PROFIT. TESCO SHARE IS £20M,
UP FROM £3M LAST YEAR
GROUP
• SALES UP 12.7% TO £25.7bn
• ADJUSTED DILUTED EPS* UP 13.9% TO 12.14p
• FULL YEAR DIVIDEND UP 12.4% TO 5.60p
UK
• SALES UP 9.1% TO £21.7bn
• LIKE FOR LIKE GROWTH OF 6.2%, INCLUDING STRONG VOLUME OF 6.8%
• A FURTHER 9,000 JOBS CREATED
INTERNATIONAL
• TOTAL INTERNATIONAL SALES UP 37.4% TO £4.0bn
• TOTAL INTERNATIONAL PROFIT UP 60.8% TO £119m
• 65,000 STAFF OVERSEAS INCLUDING A FURTHER 12,000 JOBS CREATED IN THE YEAR
• ON TRACK TO DELIVER OUR TARGETED RETURNS
* Excluding net loss on disposal of fixed assets and goodwill amortisation.
FINANCIAL
Group sales including VAT increased by 12.7% to £25.7bn (2001 - £22.8bn).
Group profit before tax increased by 14.1% to £1,221m, excluding the net loss on
disposal of fixed assets and goodwill amortisation.
UK sales grew by 9.1% to £21.7bn (2001 - £19.9bn) of which 6.2% came from
existing stores and 2.9% from net new stores. Existing store growth has been
driven by strong volumes of 6.8%.
UK operating profit was 10.3% higher at £1,213m (2001 - £1,100m). The operating
margin remained flat at 6.0%.
Total international sales grew by 37.4% to £4.0bn and contributed £119m to
profits, up 60.8% on last year.
In The Rest of Europe sales rose by 25.6% to £2.5bn (2001 - £2.0bn) and
contributed an operating profit of £90m, up 28.6% on last year.
In Asia sales were up 62.6% to £1.5bn and we made an operating profit of £29m up
625% on last year. Operating profits in Thailand and South Korea have been
partly offset by start-up losses in Taiwan.
Total joint ventures' profit for the year was £42m compared to £21m last year.
Within this our share of Tesco Personal Finance pre tax profit was £20m, up from
£3m last year.
Tesco.com continues to expand world-wide and we now operate in four countries.
Tesco.com is now profitable (excluding USA start-up costs) and we achieved sales
of £356m, up over 50% on last year.
Net interest payable was £153m (2001 - £125m).
Tax has been charged at an effective rate of 30.9% (2001 - 31.6% #). Prior to
accounting for the net loss on disposal of fixed assets and goodwill
amortisation, our underlying tax rate was 30.4% (2001 - 31.1%#).
Adjusted diluted earnings per share increased by 13.9% to 12.14p (2001 - 10.66p
#).
The Board has proposed a final dividend of 3.93p (2001 - 3.50p). This together
with the interim dividend of 1.67p (2001 - 1.48p) gives a total dividend of
5.60p (2001 - 4.98p). This represents an increase of 12.4% on last year and
dividend cover of 2.17 times. The final dividend will be paid on 28 June 2002 to
shareholders on the Register of Members at the close of business on 19 April
2002. 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 28 June 2002.
Group capital expenditure for the year was £2.0bn (2001 - £1.9bn). UK capital
expenditure was £1.3bn, including £219m of lease buybacks and freehold
purchases, £498m on new stores and £270m on extensions and refits. Total
international capital expenditure was £751m including £426m in Asia and £325m in
Europe. We forecast group capital expenditure to be £2.0bn for 2002/03.
Net debt at the year end increased by £756m to £3.6bn (Feb 2001 - £2.8bn), with
gearing increased to 64% (Feb 2001 - 56% #).
FRS 17 - Retirement Benefits. We seek to give our employees the certainty and
security for their retirement that they deserve, whilst trying to protect the
group and its shareholders from open-ended liabilities.
To this end, and in stark contrast to many other employers, in the last year we
have moved 59,000 employees who were on a defined contribution scheme onto a
defined benefits scheme. This scheme is based on career average earnings, rather
than final salary, so that each year, the company knows what liability it has to
fund. In this way, we believe we offer an industry leading benefit to our
employees, whilst allowing us to manage the group's exposure.
Our scheme has 117,000 members. It is a large scheme, but with 9,000 pensioners,
it is a very young scheme. Pension contributions far outweigh pension payments
and will continue to do so for many years.
FRS17, will be fully adopted by UK companies over the next two years. This
accounting standard gives rise to a notional surplus or deficit based on certain
required parameters.
At February 2002, the notional deficit was £127m (a gross deficit of £184m
offset by a deferred tax asset of £57m). This figure includes the £53m deficit
which is already being funded. We will not account for the profit and loss
effect until 2003/04. If we were to do this today, any charge would have been
less than £10m in the year.
Whatever notional numbers are reported under FRS17, we remain committed to
funding decisions based on our actuarial valuation, undertaken every 3 years and
to balance the financial security of employees with the needs of the group and
its shareholders.
STRATEGY
Our strategy is delivering outstanding results. The four key elements of our
strategy remain the same:-
• Core UK Business;
• Non-food;
• Retailing Services; and
• International.
CORE UK BUSINESS
The UK remains our core market. We have continued to gain customers from all our
competitors and we have increased our food market share to 16.7%.
This year we invested a further £280m in price. Price comparisons on over 70% of
everything we sell show we offer the cheapest products for our customers
compared with our major competitors. We have improved our price position against
every major retailer more than in any other year.
We have seen UK sales grow by 9.1% in the year including 6.8% volume,
contributing to compound growth of 24% over the last five years. We finished the
year strongly and quarter four sales volumes were the strongest for that period
in any of the last five years.
We have further improved Clubcard giving more choice than ever with the
introduction of Air Miles. In the first two weeks of this initiative we have
attracted an additional 30,000 new customers.
Our Step Change programmes are key to the success of our strategy. We continue
to innovate ensuring that efficiency savings are passed on to our customers.
Last year, we exceeded our expectations with over £200m of savings and we
anticipate a further £180m this year.
Our world leading Continuous Replenishment system is one of the key drivers of
our Step Change programme. It reduces order lead times, makes orders more
accurate and improves product availability, allowing us to serve customers
better.
Our development programme in the UK remains strong. Last year we opened 55 new
stores including 30 Expresses and 1.3m sq. ft. of new space. We plan to open a
further 75 new stores including 48 Expresses this year, and over 1.5m sq. ft. of
new space.
Our refresh and extension programme will improve 200 stores in the coming year.
This is enhancing our UK store portfolio and is a key driver of growth.
We try to ensure that our stores reflect the communities in which they operate.
Our corporate social responsibility programme includes:-
• Computers for Schools;
• A range of innovative recycling schemes;
• Local sourcing initiatives to help farmers;
• Support for a nominated charity of the year; and
• Sponsoring Race for Life.
We take pride in our 13 regeneration schemes, which are bringing investment to
areas of urban renewal. Our first three sites have created over 1,000 jobs for
the long-term unemployed across the UK.
NON-FOOD
We have made excellent progress in non-food this year. We now have over 4%
market share, putting us on track to go through our target of 6%.
In a year when sales were up 18%, some of the highlights have been:-
• Becoming market leader in volume sales for Health and Beauty;
• Growing our home entertainment business by over 80%;
• The successful launch of non-food value lines; and
• The purchase of a majority stake in The Nutri Centre, the UK's leading
complementary medicine retailer.
RETAILING SERVICES
Tesco Personal Finance has achieved outstanding profits of £40m, up from £6m
last year.
Tesco Personal Finance is popular, because it brings outstanding value and
excellent customer service. There is further opportunity for all our products as
we continue to develop the brand.
Tesco.com now operates successfully in the UK, Republic of Ireland, South Korea
and in the USA through Safeway Inc shops.
Our UK grocery homeshopping business covers 95% of the population and goes from
strength to strength. Weekly orders are over 85,000 and we have achieved more
than a 50% sales increase last year. Tesco.com has now moved into profit
(excluding USA start-up costs).
INTERNATIONAL
Our strategy of building a profitable international business of scale is clearly
working and we see further opportunity looking forward. We have delivered strong
growth with sales up 37.4% to £4.0bn and profits up 60.8% to £119m. We are on
track to deliver our targets, and we are hypermarket leader in Thailand,
Hungary, the Czech Republic, the Slovak Republic and the Republic of Ireland.
Last year we opened 16 hypermarkets in Europe and 18 in Asia, taking our total
number to 102. We now have 42% of group space overseas, putting us on track to
have the same international space as in the UK by 2003/04.
In Hungary, our lead country in Europe, we have hypermarket leadership and
continue to trade well. Sales grew by 49% including like for like sales of 9%.
We opened six stores last year, and are planning to open a further six in the
next twelve months. We will also open a state of the art distribution centre at
Herceghalom in June this year.
Poland has moved into profit, despite tough economic conditions, which is a
credit to the skills of the local management team. With 14 hypermarkets, its
profitability is in line with the Hungarian business at the same stage.
Total sales are up 38% and we will open a further 3-4 stores per year despite an
environment of tougher planning controls.
In the Czech and Slovak Republics we are delighted with the substantial profit
increase in both markets. Like for like sales have slowed against tough
comparatives but gross margin has grown substantially as we have eliminated high
volume unprofitable promotions.
In the Republic of Ireland we are seeing continued sales and profit growth and
we opened four new stores last year. An industrial dispute hit the business
during the year and was quickly settled. Since then trade has recovered strongly
to expected levels and quarter four sales were 10% up on last year.
Planning regulations have now become clearer, and looking forward we are excited
by the future opportunities to open more successful stores.
In Thailand we are clear market leader with 33 hypermarkets of which 16 are in
Bangkok. We are completing a trial of our Express store format and further
developments this year will include an innovative up-country hypermarket format
and further development of financial services.
In Korea we are a year ahead of our profit plan. Korea has the potential to
become a significant engine of growth for the group. We opened seven stores last
year, including our first in Seoul.
Returns are ahead of schedule in our early stores which opened in 2000 and as a
result our cash returns are ahead of plan.
In Taiwan we have three stores open and are incurring start-up losses. Our
latest store is trading successfully in Taoyuan. We expect to add another
hypermarket at the end of the year.
In Malaysia we have announced that we will open four stores from a standing
start. Our first store opens in May at Puchong, with a further three this year
and we already have planning permission for a further two stores next year.
CONCLUSION
These results demonstrate the fruits of our strategy that was laid out five
years ago and will provide strong future growth.
We have:-
• Arrived as a major international group, with eight of our nine businesses
now profitable and increased overseas profits by 60.8%;
• Strengthened our lead in the UK, growing food market share to 16.7%;
• Rapidly grown our UK non-food business by 18% in the year; and
• Achieved a sevenfold increase in Tesco Personal Finance profits.
# Restated due to the adoption of Financial Reporting Standard 19,
'Accounting for Deferred Tax'
-ends-
Contacts
Analysts Steven Butler 01992 644800
Lucy Cross 01992 646663
Press Chris Leake 01992 646869
Angus Maitland - The Maitland Consultancy 0207 3795151
This document is available via the Internet at http:/www.tesco.com
Today there will be an analysts meeting at 9.00am and a press conference at
12.30pm both at The Cafe Royal, 68 Regent Street, London W1B 5EL
TESCO PLC
GROUP PROFIT AND LOSS ACCOUNT
Restated #
2002 2001 Increase
52 weeks ended 23 February 2002 Note £m £m %
Total Group sales 25,805 22,881
Share of joint ventures' sales (151) (108)
Sales at Net Selling Prices 2 25,654 22,773 12.7%
Turnover excluding value added tax 2 23,653 20,988 12.7%
- Normal operating expenses (22,273) (19,770)
- Employee profit sharing (48) (44)
- Goodwill amortisation (10) (8)
Operating profit 3 1,322 1,166 13.4%
Share of operating profit of joint ventures and associates 42 21
Net loss on disposal of fixed assets (10) (8)
Profit on ordinary activities before interest and taxation 1,354 1,179 14.8%
Net interest payable (153) (125)
Profit on ordinary activities before taxation 1,201 1,054 13.9%
Profit before net loss on disposal of fixed assets and
Goodwill amortisation 1,221 1,070 14.1%
Net loss on disposal of fixed assets (10) (8)
Goodwill amortisation (10) (8)
Tax on profit on ordinary activities (371) (333)
Profit on ordinary activities after taxation 830 721 15.1%
Minority interests - 1
Profit for the financial year 830 722 15.0%
Dividends (390) (340)
Retained profit for the financial year 440 382
Restated #
Pence Pence
Earnings per share 5 12.05 10.63
Adjusted for net loss on disposal of fixed assets after taxation 0.14 0.12
Adjusted for goodwill amortisation 0.14 0.12
Adjusted earnings per share 5 12.33 10.87 13.4%
Diluted earnings per share 5 11.86 10.42
Adjusted for net loss on disposal of fixed assets after taxation 0.14 0.12
Adjusted for goodwill amortisation 0.14 0.12
Adjusted diluted earnings per share 5 12.14 10.66 13.9%
Dividend per share 5.60 4.98 12.4%
Dividend cover (times) 2.17 2.14
# Restated as a consequence of adopting FRS 19 'Deferred Tax'
TESCO PLC
GROUP BALANCE SHEET
Restated
2002 2001
As at 23 February 2002 Note £m £m
Fixed assets
Intangible assets 154 154
Tangible assets 11,032 9,580
Investments 69 101
Investments in joint ventures
Share of gross assets 1,480 1,283
Less: share of gross liabilities (1,266) (1,094)
Goodwill 18 14
232 203
Investments in associated undertakings 16 -
11,503 10,038
Current assets
Stocks 4 929 838
Debtors 454 322
Investments 225 255
Cash at bank and in hand 445 279
2,053 1,694
Creditors: falling due within one year (4,809) (4,389)
Net current liabilities (2,756) (2,695)
Total assets less current liabilities 8,747 7,343
Creditors: falling due after more than one year (2,741) (1,927)
Provisions for liabilities and charges (440) (402)
Total net assets 5,566 5,014
Capital and Reserves
Called up share capital 350 347
Share premium account 2,004 1,870
Other reserves 40 40
Profit and loss account 3,136 2,721
Equity shareholders' funds 5,530 4,978
Minority interests 36 36
Total capital employed 5,566 5,014
TESCO PLC
GROUP CASH FLOW STATEMENT
2002 2001
52 weeks ended 23 February 2002 Note £m £m
Net cash inflow from operating activities 6 2,038 1,937
Dividends from joint ventures and associates
Income received from joint ventures 15 -
Returns on investments and servicing of finance
Interest received 44 49
Interest paid (232) (206)
Interest element of finance lease rental payments (4) (4)
Net cash outflow from returns on investments and servicing of finance (192) (161)
Taxation (378) (272)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (1,877) (1,953)
Receipts from sale of tangible fixed assets 42 43
Purchase of own shares (85) (58)
Net cash outflow from capital expenditure and financial investment (1,920) (1,968)
Acquisitions and disposals
Purchase of subsidiary undertakings (31) (41)
Invested in joint ventures (46) (35)
Invested in associated undertakings and other investments (19) -
Net cash outflow from acquisitions and disposals (96) (76)
Equity dividends paid (297) (254)
Cash outflow before use of liquid resources and financing (830) (794)
Management of liquid resources
Decrease in short-term deposits 27 -
Financing
Ordinary shares issued for cash 82 88
Increase in other loans 916 928
New finance leases - 13
Capital element of finance leases repaid (24) (46)
Net cash inflow from financing 974 983
Increase in cash 171 189
TESCO PLC
GROUP CASH FLOW STATEMENT (continued)
2002 2001
52 weeks ended 23 February 2002 Note £m £m
Reconciliation of net cash flow to movement in net debt
Increase in cash 171 189
Cash inflow from increase in debt and lease financing (892) (895)
Cash used to increase liquid resources (27) -
Amortisation of 4% unsecured deep discount loan stock, RPI bond and LPI bond (14) (7)
Other non-cash movements (12) (8)
Foreign exchange differences 18 (23)
Increase in net debt (756) (744)
Opening net debt 7 (2,804) (2,060)
Closing net debt 7 (3,560) (2,804)
TESCO PLC
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Restated
2002 2001
52 weeks ended 23 February 2002 £m £m
Profit for the financial year 830 722
Gain/(loss) on foreign currency net investments 12 (2)
Total recognised gains and losses relating to the financial year 842 720
Prior year adjustment - note 1 (45)
Total recognised gains and losses since last annual report 797
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Restated
2002 2001
52 weeks ended 23 February 2002 £m £m
Profit for the financial year 830 722
Dividends (390) (340)
440 382
Gain/(loss) on foreign currency net investments 12 (2)
New share capital subscribed less expenses 45 110
Payment of dividends by shares in lieu of cash 55 52
Net addition to shareholders' funds 552 542
Opening shareholders' funds 4,978 4,436
Closing shareholders' funds 5,530 4,978
TESCO PLC
NOTES TO THE ACCOUNTS
______________________________________________________
Note 1 Accounting policies
These financial statements 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 for 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 £45m from £766m to £721m and to reduce opening
net assets by £333m from £4,769 to £4,436m. Earnings per share have been
restated from 11.29p to 10.63p and adjusted diluted earnings per share from
11.31p to 10.66p.
The Group also adopted the transitional disclosure requirements of FRS 17. Had
it been adopted fully this year, a post-tax shortfall of post-retirement pension
and healthcare assets over the respective liabilities amounting to £127m would
have been recognised. FRS 17 would not have resulted in any significant change
to current earnings.
Note 2 Group turnover analysis
2002 2001 Increase
52 weeks ended 23 February 2002 £m £m %
Turnover (inc VAT)
UK 21,685 19,884 9.1%
Rest of Europe * 2,475 1,970 25.6%
Asia * 1,494 919 62.6%
Group 25,654 22,773 12.7%
Turnover (ex VAT)
UK 20,052 18,372 9.1%
Rest of Europe * 2,203 1,756 25.5%
Asia * 1,398 860 62.6%
Group 23,653 20,988 12.7%
Note 3 Group operating profit analysis
2002 2001 Increase
£m £m %
UK 1,213 1,100 10.3%
Rest of Europe 90 70 28.6%
Asia 29 4 625.0%
1,332 1,174 13.5%
Goodwill amortisation (10) (8) 25.0%
Operating profit 1,322 1,166 13.4%
UK operating margin 6.0% 6.0%
* Results for Rest of Europe and Asia are for the year ended 31 December 2001,
with the exception of the Republic of Ireland which is to 23 February 2002.
TESCO PLC
NOTES TO THE ACCOUNTS (continued)
___________________________________________________________________________
Note 4 Stocks
Stocks comprise goods held for resale of £908m (2001 - £814m) and development
property of £21m (2001 - £24m).
Note 5 Earnings per share and diluted earnings per share
The calculation of earnings, including and excluding net loss on disposal of
fixed assets and goodwill amortisation, is based on the profit for the period of
£830m (2001 - £722m restated).
For the purpose of calculating earnings per share, the number of shares is the
weighted average in issue during the 52 weeks of 6,887m (2001 - 6,792m).
52 weeks 2002 52 weeks 2001
Million Million
Weighted average number of diluted share options 114 134
Weighted average number of shares in issue in the period 6,887 6,792
Total number of shares for calculating diluted
earnings per share 7,001 6,926
Note 6 Reconciliation of operating profit to net cash inflow from operating activities
52 weeks 2002 52 weeks 2001
£m £m
Operating profit 1,322 1,166
Depreciation and amortisation 534 476
Increase in goods held for resale (93) (174)
Decrease in development property 4 82
Increase in debtors (88) (72)
Increase in trade creditors 292 287
Increase in other creditors 67 172
Decrease in working capital 182 295
Net cash inflow from operating activities 2,038 1,937
TESCO PLC
NOTES TO THE ACCOUNTS (continued)
___________________________________________________________________________
Note 7 Analysis of changes in net debt
At 24 Feb Cash flow Other non cash Exchange At 23 Feb
2001 changes movements 2002
£m £m £m £m £m
Cash at bank and in hand 279 163 - 3 445
Overdrafts (8) 8 - - -
271 171 - 3 445
Money market investments and deposits 255 (27) - (3) 225
Bank and other loans (1,381) 105 (200) 2 (1,474)
Finance leases (24) 24 (15) - (15)
Debt due within one year (1,405) 129 (215) 2 (1,489)
Bank and other loans (1,908) (1,021) 186 16 (2,727)
Finance leases (17) - 3 - (14)
Debt due after one year (1,925) (1,021) 189 16 (2,741)
(2,804) (748) (26) 18 (3,560)
Note 8 Financial Statements
The financial statements do not constitute statutory accounts. The results for
the 52 weeks ended 23 February 2002 are extracts from the Group accounts for
that period, which will be delivered to the Registrar of Companies in due course
and on which the auditors have given an unqualified report which does not
contain a statement under Section 237(2) or (3) of the Companies Act 1985. The
results for the 52 weeks ended 24 February 2001 have been extracted from the
statutory accounts for that period, which have been delivered to the Registrar
of Companies and on which the auditors have given an unqualified report which
did not contain a statement under Section 237(2) or (3) of the Companies Act
1985.
Note 9 Annual Review
Copies of the 2002 Annual Review and Summary Financial Statements will be sent
to shareholders. Copies of the 2002 Annual Accounts will be sent to shareholders
who have requested them. Copies of both documents will be available late May
2002 from the Company Secretary, Tesco PLC, PO Box 18, Delamare Road, Cheshunt,
Waltham Cross, Hertfordshire, EN8 9SL. These documents will also be available on
the internet at www.tesco.com
Note 10 AGM
The Annual General Meeting will be held at the Royal Lancaster Hotel, Lancaster
Terrace, London W2 2TY on Friday 14 June 2002 at 11am.
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