Final Results - Year Ended 26 February 2000

Tesco PLC 11 April 2000 TESCO PLC PRELIMINARY STATEMENT OF RESULTS 52 WEEKS ENDED 26 FEBRUARY 2000 Terry Leahy, Chief Executive, comments: 'Tesco group sales for the first time have now exceeded £20bn. This achievement reflects our obsession with doing the right thing for customers. We have seen an outstanding performance in the UK during some of the toughest ever trading conditions, our international business is accelerating, and we are moving into new retail services such as e-commerce. Looking forward we see group growth continuing as our strategy gains further momentum.' * GROUP SALES EXCEED £20bn, UP 9.8% * GROUP PROFIT BEFORE TAX UP 10.8% * UNDERLYING GROUP PROFIT BEFORE TAX* UP 8.4% to £955m * ADJUSTED DILUTED EPS* UP 8.6% TO 10.18p * DIVIDEND PER SHARE UP 8.7% TO 4.48p * UK SALES UP 7.4% TO £18,331m INCLUDING LIKE-FOR-LIKE GROWTH OF 4.2% * SALES FROM THE REST OF EUROPE UP 18.8% TO £1.5bn * ASIA SALES UP NEARLY 200% TO £497m * TESCO.COM TO BE A NEW 100% SUBSIDIARY COMPANY * 20,000 JOBS TO BE CREATED WORLDWIDE, OF WHICH 8,000 ARE WITHIN THE UK * Excluding net loss on disposal of fixed assets, integration costs and goodwill amortisation. FINANCIAL RESULTS Group sales including VAT increased by 9.8% to £20,358m (1999 - £18,546m). Group profit before tax rose by 10.8% to £933m. Excluding the net loss on disposal of fixed assets, goodwill amortisation and integration costs, group profit before tax increased 8.4% to £955m. UK sales (excluding property development sales) grew by 7.4% to £18,331m (1999 - £17,070m) of which 4.2% came from existing stores and 3.2% from net new stores. Inflation in our UK business totalled 1.0% for the year and was due entirely to duty increases on petrol, tobacco and alcohol. Within grocery we have seen deflation and significant volume increases. UK operating profit was 8.1% higher at £993m (1999 - £919m). The operating margin remained broadly flat at 5.9%. Tesco continues to offer customers better value and service and so performs well above the market and is one of a very few large retailers to deliver continued profit growth. Total international sales grew by 39% to £2.0bn and contributed £50m to group profits, 8.7% more than last year. In the Rest of Europe total sales rose by 18.8% to £1,527m (1999 - £1,285m) and contributed an operating profit of £51m, up from £48m last year. Within this, retail sales in the Republic of Ireland in local currency were ahead 6.1%. We have now re-branded nearly 50 stores and our customers continue to benefit from the extended range, improved service and better value. In Central Europe total sales at constant exchange rates were up 76.8%. This reflects strong growth from our increasing number of hypermarkets in the region. We opened eleven new hypermarkets in the year giving us 19 in total with 2m sq. ft. Together, in 1999, our Asian businesses contributed sales of £497m up nearly 200% on the previous year and made a small loss of £(1)m (1999 £(2)m). Our Tesco Lotus business in Thailand now comprises 17 hypermarkets and has shown strong sales growth up 96% on last year to £357m. We currently have 2.1m sq. ft. of selling space in Thailand which will increase to 2.8m sq. ft. at the end of 2000. We anticipate Tesco Lotus moving into profit in 2000, as it achieves critical mass, with the region as a whole moving forward as our development programme gathers pace. On 23 March 1999 we announced that we had formed a partnership with the Samsung Corporation to develop hypermarkets in South Korea. Tesco has now invested a total of £142m, for an 81% controlling interest. In the 32 weeks to 31 December the two acquired trading stores contributed £140m to group sales. Our total share of profits from joint ventures was £11m compared to £6m last year. Tesco Personal Finance made an operating loss of £4m in the year compared to a £12m loss last year. Net interest payable was £99m (1999 - £90m). Interest on our additional borrowings reflecting our investment plans was offset by lower interest rates. Corporation tax has been charged at an effective rate of 27.8% (1999- 28.1%). Prior to accounting for the net loss on disposal of fixed assets, integration costs and goodwill amortisation, our underlying tax rate was 27.4% (1999 - 27.8%). Adjusted diluted earnings per share (excluding the net loss on disposal of fixed assets, integration costs and goodwill amortised) increased by 8.6% to 10.18p (1999 - 9.37p). Dividend The Board has proposed a final net dividend of 3.14p giving a total dividend for the year of 4.48p (1999 - 4.12p). This represents an increase of 8.7% and dividend cover has been maintained at 2.27 times. The final dividend will be paid on 30 June 2000 to shareholders on the Register of Members at the close of business on 25 April 2000. 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 dispatched to shareholders from 12 May 2000. Capital Expenditure Group capital expenditure was £1,488m (1999 - £1,067m) with £989m in the UK, including £579m on new stores and £182m on extensions and refits. Total international capital expenditure was £499m including £186m in Asia. In the year ahead we see group capital expenditure increasing to £1.6bn. Change in Net Debt Net debt in the year increased by £340m to £2,060m (February 1999 - £1,720m), with gearing increased to 43% (February 1999 - 39%). Strategy Strong UK core business. We have real momentum and have yet again increased our UK market share: to 15.5%, up from 15.4% last year. International Growth. In our international markets the pace has quickened, our businesses are progressing well and will contribute to group profits in the year 2000. Non-Food. We aim to be as strong in non-food as we are in food. We've pushed our share of the £75bn non-food market up from 1% to 3% in three years and we're committed to doubling it again within the next four years. Follow the Customer. As customers change we change. That's why we have developed the largest grocery homeshopping business in the world, sell mobile phones and are growing our financial service business. UK Business Our UK business is strong and we have continued to seize new opportunities to ensure that no-one tries harder than we do for customers, in the toughest of trading climates. We've also had to devote a substantial amount of senior management time to the Competition Commission inquiry. But we have kept our eye on the ball and remain focused on getting cheaper, offering ever-better value and providing more choice, service and convenience for our customers. Our long-term strategy of getting cheaper continues. This is the seventh successive year of price investment and this year totalled £380m and over the last two weeks we have announced further price cuts on wine and produce. Tesco leads on value in the UK. In real terms, our prices have fallen by 7.5% in the past four years and despite price cuts we have again held our operating margin as a result of real volume increases and savings from our change programmes. Our change programmes remain critical to our strategy and will deliver a 'step change' in our cost base. We have achieved cost savings of over £100m from these this year and will deliver more going forward. To further improve the supply chain we recently announced our collaborative partnership with 11 of the world's leading retailers to establish The World- Wide Retail Exchange. The group has over 30,000 stores and sales of $320bn and will bring improved efficiency to our global supply chain through the use of B2B commerce. This year whilst cutting prices, we have been responding to other customer needs. We have improved product availability, extended our non-food business, extended trading hours, improved Clubcard and improved customer service. Non-food In non-food we are rapidly growing market share by bringing real value to the customer. In health and beauty, many products are now over 20% cheaper than our major high street competitors and in chart CD's we now have nearly 8% market share. Through our largest store format, Extra, we are developing hypermarkets in the UK. The current 9 will grow to 14 by the end of February 2001. Our extension programme provides a full non-food offering in many more stores. This year we have added 40 non-food worlds to give us 90 and plan to increase this further to 140 by February 2001. We are developing our non-food capability and by the end of 2002 we expect group non-food to contribute around £5bn to sales. New Space Our store opening and extension programme has added 1.2m sq ft this year to UK space, up 20% on the previous year. We see this level of openings continuing in the coming year as we look at new ways of bringing space online:- * We are developing 6 partnerships throughout the UK to build stores in regeneration areas. The first of these sites will open in Leeds this September and these schemes will create over 2,000 new jobs. * 85% of our UK new stores are now built on brownfield sites. * In February we announced our intention to develop up to 150 new Tesco Express stores on Esso forecourts. E-commerce We have been developing our e-commerce business for over 5 years and are pleased with the progress. Our Internet grocery homeshopping business is the largest in the world with annualised turnover of £125m and is at least 2 years ahead of its nearest competitor. Our ISP continues to grow steadily, with over 400,000 users. Our personal finance business is now on the net and we are able to offer extended non-food ranges as on the Internet our virtual store can be as large as we like. As our e-commerce strategy is integral to the future development of our business we need the freedom to act quickly and place additional focus in this area with the prospect of exciting growth. We are today announcing the creation of 'tesco.com' the grouping of our B2C e- business as a 100% owned subsidiary to ensure we achieve these goals. 'tesco.com' will be headed by John Browett as CEO and Carolyn Bradley as COO. We expect to spend around £35m of capital expenditure in this financial year as we develop our B2C e-business. Tesco Personal Finance Tesco Personal Finance is our fast growing financial services business. We are pleased with its progress and the customer likes the value and convenience offered. We now understand our customers needs. By using both our Clubcard database and in-store marketing, we are able to recruit new customers for TPF at a low cost, allowing us to offer financial products at very competitive prices. We have doubled the number of customer accounts to 1.5m in the last year. We have also seen particularly strong growth in Visa card accounts with over 250,000 applications received in January 2000. This represented 20% of all credit card accounts opened in the month. In addition to Visa card we offer Savings accounts, Clubcard Plus, Travel Insurance, Loans, Pensions and ISA's and more recently Pet Insurance. International Business In our international businesses we are building scale, developing capability and accelerating growth. Our strategy is to access growth for the Tesco Group through:- * focusing on two key regions, Asia & Europe, accessing 250m people; * adding value; * building significant scale that takes us to market leadership; * improving capability to become a world class hypermarket operator; and * looking to add additional countries in existing regions. Republic of Ireland We have made good progress this year with the roll out of the Tesco brand into Ireland. Sales have increased by 6.1% in the year with no new stores and 20% cumulatively since acquisition. The programme of store conversions and re-branding is continuing and will be completed by 2001. These stores continue to perform well, customers like the extended ranges, improved service and even better value. We have started moving products to being distributed centrally. Currently our new dry grocery warehouse handles 45% of products which is expected to build up to 95% over the next two years. We are finalising the project for a composite fresh food warehouse opening in 2001. Next year shows further progress as we complete the conversion programme and open 2 new stores. Hypermarket Programme We have made significant progress since 1997, when we had only 2 hypermarkets. We now have 38 and are well on the way to 130 hypermarkets by 2002. Tesco is building a strong position and is delivering its stated opening programme which is one of the benefits of our focus being in only 2 regions. Our international space is growing faster than that of our major competitors. We have now built real momentum in our programmes, both in terms of number of hypermarket openings and percentage increase in international space. With the level of international openings we are forecasting that the current 30% of group space outside the UK will increase to 45% by 2002. We are currently researching additional countries, particularly in Asia, with Malaysia well advanced and new research projects now started in China and Japan. Hypermarket Capability We strongly believe that international success is about retail capability which will determine success with customers, sales and profits. We have developed a world class hypermarket format with a common layout, common operations, common systems, but overlaid with local marketing, local services, local staff and local management. We are making excellent progress in convergence to this standard hypermarket format shown by our stores in Mory in Poland, Rama IV in Bangkok, Ansan in Korea and Newcastle in the UK. Global Sourcing We are building scale in our global sourcing function. We are setting up three sourcing 'hubs', in Hong Kong, India and Thailand and plan a further one for Central Europe in June. Over Easter this year we will launch our first global promotions with the same centrally purchased products being sold in seven different countries. Tesco - Competitiveness The result of these developments in capability is that Tesco is increasingly very competitive against other world class hypermarket operators. We are achieving our sales targets, getting good 2nd year and 3rd year growth; and successfully absorbing impacts from our competitor's store openings. In terms of sales per store and sales per sq. ft., our stores perform well against the competition in all countries. Our 2 stores in Korea have the highest sales in that country and Taegu is the highest turnover store in the Tesco Group. With regard to returns, we target ourselves with a Cash Return on Investment in hypermarkets by year 4 of 15 - 20%. Our lead countries, of Hungary in Central Europe and Thailand in Asia, are moving into profit and are on track to achieve these levels of return. To summarise our international business:- * we are building a business of scale with sales planned to contribute around £5bn by 2002; * we have developed real capability in building and operating hypermarkets while retaining local culture and flair. Conclusion Momentum runs across our businesses - our obsession with doing the right things for customers brings growth in food, non-food, homeshopping, Tesco Personal Finance and internationally. We are moving from being a strong domestic player to being an international retailer of real scale. Our UK food business is continuing to compete effectively as it responds to the changing needs of the customer. Non-food is growing faster than food as new space comes on stream and as we develop our global non-food capability. We have been developing our Internet business for over 5 years, we are ahead of the game and developing rapidly. Our international businesses are starting to achieve real scale. Overall 3.5m sq. ft. of new space, increasing from 2.2m sq. ft., will come on stream this year, two thirds of it outside the UK. We expect our average annual earnings growth to reflect this in the next few years, particularly as our international business achieves economic scale and our e-commerce business continues to grow rapidly. Contacts Press Nicole Lander Office 01992 646739 Analysts Steve Butler Office 01992 644800 This document is available via the Internet at http:/www.tesco.co.uk Note:- A conference call is arranged for 3.00pm today for people that are unable to attend the presentation. Please call 0208 8964300 with Access Code:- C1871 to join the call. TESCO PLC GROUP PROFIT AND LOSS ACCOUNT 2000 1999 Increase 52 weeks ended 26 February 2000 Note £m £m % Sales at net selling prices 1 20,358 18,546 +9.8 Turnover excluding value added tax 1 18,796 17,158 +9.5 Operating expenses - Normal operating expenses (17,712) (16,155) - Employee profit sharing (41) (38) - Integration costs (6) (26) - Goodwill amortisation (7) (5) Operating profit 2 1,030 934 +10.3 Net loss on disposal of fixed assets (9) (8) Share of operating profit of joint ventures 11 6 Profit on ordinary activities before interest 1,032 932 +10.7 Net interest payable (99) (90) Profit on ordinary activities before taxation 933 842 +10.8 Profit before integration costs, net loss on disposal of fixed assets and goodwill amortisation 955 881 +8.4 Goodwill amortisation (7) (5) Integration costs (6) (26) Net loss on disposal of fixed (9) (8) assets Tax on profit on ordinary (259) (237) activities Profit on ordinary activities after taxation 674 605 +11.4 Minority interests - 1 Profit for the financial year 674 606 +11.2 Dividends (302) (277) Retained profit for the financial year 372 329 Pence Pence Earnings per share 3 10.07 9.14 Adjusted for goodwill amortisation 0.10 0.06 Adjusted for integration costs after taxation 0.06 0.27 Adjusted for net loss on disposal of fixed assets after taxation 0.13 0.12 Adjusted earnings per share 10.36 9.59 +8.03 Diluted earnings per share 9.89 8.93 Adjusted for goodwill amortisation 0.10 0.06 Adjusted for integration costs after taxation 0.06 0.26 Adjusted for net loss on disposal of fixed assets after taxation 0.13 0.12 Adjusted diluted earnings per 10.18 9.37 +8.64 share Dividend per share 4.48 4.12 +8.7 Dividend cover (times) 2.27 2.27 TESCO PLC GROUP BALANCE SHEET Note 2000 1999 As at 26 February 2000 £m £m Fixed assets Intangible assets 136 112 Tangible assets 8,140 7,105 Investments 79 102 Investments in joint ventures 172 234 8,527 7,553 Current Assets Stocks 4 744 667 Debtors 252 151 Investments 258 201 Cash at bank and in hand 88 127 1,342 1,146 Creditors: falling due within one year (3,487) (3,075) Net current liabilities (2,145) (1,929) Total assets less current liabilities 6,382 5,624 Creditors: falling due after more than one year (1,565) (1,230) Provisions for liabilities and charges (19) (17) Total net assets 4,798 4,377 Capital and reserves Called up share capital 341 339 Share premium account 1,650 1,577 Other reserves 40 40 Profit and loss account 2,738 2,426 Equity shareholders' funds 4,769 4,382 Minority interest 29 (5) Total capital employed 4,798 4,377 TESCO PLC GROUP CASH FLOW STATEMENT Note 2000 1999 52 weeks ended 26 February 2000 £m £m Net cash inflow from operating activities 5 1,513 1,321 Returns on investments and servicing of finance Interest received 58 34 Interest paid (188) (162) Interest element of finance lease rental payments (1) (1) Net cash outflow from returns on investments and servicing of finance (131) (129) Taxation Corporation tax paid (including advance corporation tax) (213) (237) Capital expenditure and financial investment Payments to acquire tangible fixed (1,296) (1,032) assets Receipts from sale of tangible fixed assets 85 27 Purchase of own shares (18) - Net cash outflow from capital expenditure and financial investment (1,229) (1,005) Acquisitions and disposals Purchase of subsidiary undertakings (61) (184) Net cash acquired with subsidiary undertaking - 2 Disposal of subsidiary undertaking - (4) Received from/(invested in) joint ventures 62 (69) Net cash inflow/(outflow) from acquisitions and disposals 1 (255) Equity dividends paid (262) (238) Cash outflow before use of liquid resources and financing (321) (543) Management of liquid resources Increase in short term deposits (68) (7) Financing Ordinary shares issued for cash 20 42 Increase in other loans 322 719 New finance leases 29 - Capital element of finance leases repaid (20) (15) Net cash inflow from financing 351 746 (Decrease)/increase in cash in the period (38) 196 TESCO PLC GROUP CASH FLOW STATEMENT (continued) 2000 1999 52 weeks ended 26 February 2000 £m £m Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the period (38) 196 Cash inflow from increase in debt and lease financing (331) (704) Loans and finance leases acquired with subsidiary - (19) Cash used to increase liquid resources 68 7 Amortisation of 4% unsecured deep discount loan stock (4) (3) Other non-cash movements (30) - Foreign exchange differences (5) (6) Increase in net debt (340) (529) Net debt at 27 February 1999 (1,720) (1,191) Net debt at 26 February 2000 (2,060) (1,720) TESCO PLC NOTES 1. Group Turnover Analysis: 2000 1999 Increase £m £m % Turnover (inc. VAT) Food Retailing 18,331 17,070 +7.4 Property Development 3 21 Total UK 18,334 17,091 +7.3 Europe * 1,527 1,285 +18.8 Asia * 497 170 +192.4 Group 20,358 18,546 +9.8 Turnover (ex VAT) Food Retailing 16,955 15,814 +7.2 Property Development 3 21 Total UK 16,958 15,835 +7.1 Europe * 1,374 1,167 +17.7 Asia * 464 156 +197.4 Group 18,796 17,158 +9.5 2. Group Operating Profit Analysis: 2000 1999 Increase £m £m % Food Retailing 993 919 +8.1 Property Development - - Total UK 993 919 +8.1 Europe * 51 48 +6.3 Asia * (1) (2) +50.0 1,043 965 +8.1 Integration costs (6) (26) Amortisation of goodwill (7) (5) Group 1,030 934 +10.3 * Results for Europe and Asia are for the year ended 31 December 1999, with the exception of the Republic of Ireland which is to 26 February 2000. 3. The calculations of the earnings per ordinary share are based on the profit on ordinary activities after taxation and minority interests divided by the weighted average number of ordinary shares in issue, 6,693m(1999- 6,627m). 4. Stocks comprise goods held for resale of £636m (1999 - £595m) and development property of £108m (1999 - £72m). 5. Reconciliation of operating profit to net cash inflow from operating activities 2000 1999 £m £m £m £m Operating profit 1,030 934 Depreciation and goodwill amortisation 435 406 Increase in goods held for resale (47) (69) (Increase)/decrease in development property (40) 13 Increase in debtors (45) (12) Increase in trade creditors 156 81 Increase/(decrease) in other creditors 24 (32) Decrease/(increase) in working capital 48 (19) Net cash inflow from operating 1,513 1,321 activities 6. The financial statements do not constitute statutory accounts. The results for the 52 weeks ended 26 February 2000 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 27 February 1999 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. 7. Copies of the 2000 Annual Review and Summary Financial Statements will be sent to shareholders. Copies of the 2000 Annual Accounts will be sent to shareholders who have requested them. Copies of both documents will be available after 16 May from the Company Secretary, Tesco PLC, Delamare Road, Cheshunt, Waltham Cross, Hertfordshire, EN8 9SL. These documents will also be available on the internet at www.tesco.co.uk 8. The Annual General Meeting will be held at the Royal Lancaster Hotel, Lancaster Terrace, London W2 2TY on Thursday 15th June 2000 at 11.00 am.

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