Interim Results

Tesco PLC 16 September 2003 TESCO PLC INTERIM STATEMENT OF RESULTS 24 WEEKS ENDED 9 AUGUST 2003 'MORE CUSTOMERS CHOOSE TESCO' HIGHLIGHTS • GROUP SALES UP 17.0% • UNDERLYING PRE-TAX PROFIT* OF £661M UP 21.3% • PRE-TAX PROFIT UP 17.4% TO £628M • INTERNATIONAL OPERATING PROFIT UP 66.1% TO £98M • 307,000 EMPLOYEES WORLD-WIDE AND CREATING 22,000 JOBS THIS YEAR GROUP • SALES UP 17.0% TO £14.9BN • UNDERLYING DILUTED EPS* UP 17.5% TO 6.39P. DILUTED EPS UP 12.1% TO 5.94P • HALF YEAR DIVIDEND UP 10.7% TO 2.07P UK • UK UNDERLYING OPERATING PROFIT UP 16.2% TO £624M • SALES UP 14.2% TO £12.0BN • LIKE FOR LIKE GROWTH OF 6.3%, INCLUDING STRONG VOLUME OF 6.2% INTERNATIONAL • TOTAL INTERNATIONAL SALES UP 30.0% TO £3.0BN • TOTAL INTERNATIONAL UNDERLYING OPERATING PROFIT UP 66.1% TO £98M • 47% OF GROUP SPACE Terry Leahy, Chief Executive, comments: 'It has been an outstanding first half. Customers have told us what they want and we have been doing a better job for them right across the group. Our results show all four parts of the strategy are delivering for customers and shareholders.' * Underlying pre-tax profit excludes net loss on disposal of fixed assets, integration costs and goodwill amortisation. Underlying operating profit on the following pages refers to operating profit excluding net loss on disposal of fixed assets, integration costs and goodwill amortisation. FINANCIAL Group sales including VAT increased by 17.0% to £14.9bn (2002 - £12.7bn). Group underlying pre-tax profit increased by 21.3% to £661m. UK sales grew by 14.2% to £12.0bn (2002 - £10.5bn) of which 6.3% came from existing stores and 7.9% from net new stores, including 4.8% from T&S. Existing store growth is driven by strong volumes of 6.2%. UK underlying operating profit was 16.2% higher at £624m (2002 - £537m). The operating margin increased by 0.1% to 5.7%. Total international sales grew by 30.0% to £3.0bn and contributed £98m to underlying operating profits, up 66.1% on last year. In The Rest of Europe sales rose by 32.1% to £1.7bn (2002 - £1.3bn) and contributed an underlying operating profit of £57m, up 58.3% on last year. In Asia sales were up 27.4% to £1.3bn and we made an underlying operating profit of £41m up 78.3% on last year. In the first half we successfully completed the acquisition of the C Two-Network in Japan. Total joint ventures' and associates' profit (excluding goodwill amortisation) for the first half was £38m compared to £27m last year. Net interest payable was £99m (2002 - £78m). Tax has been charged at an effective rate of 31.1% (2002 - 30.3%). Prior to accounting for the net loss on disposal of fixed assets, goodwill amortisation and integration costs, our underlying tax rate was 29.6% (2002 - 29.7%). Underlying diluted earnings per share increased by 17.5% to 6.39p (2002 - 5.44p). The Board has proposed an interim dividend of 2.07p (2002 - 1.87p). This represents an increase of 10.7% in line with our policy set out at the year end. Dividend cover increases to 3.09 times from 2.91 times last half year. The interim dividend will be paid on 28 November 2003 to shareholders on the Register of Members at the close of business on 26 September 2003. 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 November 2003. Group capital expenditure for the first half was £1.0bn (2002 - £0.9bn). We anticipate group capital expenditure to be around £2.2bn for the full year. UK capital expenditure was £0.7bn, including £402m on new stores and £141m on extensions and refits. Total international capital expenditure was £320m including £151m in Asia and £169m in Europe. We have a strong balance sheet and gearing has reduced to 72% at the half year. The group generated strong operating cashflow of £1.2bn up 42%. Net debt at the half year was £5.0bn up £0.3bn of which £0.1bn was due to the purchase of C Two-Network. We anticipate debt increasing to £5.2bn at the year end. Interest cover remains strong at 7.3 times. STRATEGY We have delivered an outstanding performance in the first half and all four parts of our strategy have contributed to this growth. We await the decision of the Secretary of State on Safeway. We have avoided distraction and have focused on doing the best job for customers and have delivered great results. No matter what the outcome, we will remain focused on delivering the best for customers. CORE UK BUSINESS Customers tell us that we offer great value and in the first half we gained share from all parts of the market. Despite this, our share of the total retail market is just 12.3% and there is a lot left to go for. We have seen UK sales grow by 14.2%, including 6.2% like for like volume, contributing to 26% volume growth in the last five years. We are particularly pleased with the level of sales in the first half. We have done some things better and sales have also been helped by the good weather. Customers also tell us they like different store types and in the first half we have been busy developing all formats. We are pleased with the trading performance of the T&S stores. They are ahead of plan and we are looking to convert 136 stores this year. Our development programme in the UK is on track with 39 stores opening in the first half. We are planning to open 1.4 million sq. ft. of new selling space this year. This includes 21 Extras and 35 Convenience Express stores. The refresh programme has made a big difference for customers. It is designed by customers, costs less and returns are greater. This, in addition to other refits and extensions, will mean we have updated over 400 stores in the last two years. Our step change programme ensures efficiency savings are re-invested for customers. We will deliver savings of over £180m this year. NON FOOD We are moving towards our goal of being as strong in non food as we are in food. Our clothing ranges Cherokee, Florence and Fred and Tesco are the fastest growing in the UK both in value and volume. Our garment sales have seen a 37% volume increase. We now have a 4.4% market share and the good news is this area still has significant potential. RETAILING SERVICES Tesco Personal Finance goes from strength to strength, and our share of half year profit is £28m, up 64%, and we now have four million customer accounts. Tesco.com sales grew by 32% and achieved profits of £11m in the first half excluding start ups. Tesco.com has made almost the same profit in the first half as it did in the whole of last year. Our customers wanted us to move into Telecoms. In the next few weeks we will launch Tesco Mobile. Tesco Talk, our landline service, is helping customers knock up to 30% off their BT home phone bill. Our directory enquiry service, '118 321' was launched last month. INTERNATIONAL We are making substantial progress in our international business with sales up 30% and profits up 66%. We are trading well against our competitors and have grown market share in all markets despite challenging economic conditions. Our operating margins have increased to 3.7% from 2.9%. We have already become one of the leading and most profitable international operators in Europe and Asia and there is a lot more to go for. We are still able to grow our overseas businesses with a further 37 hypermarkets opening this year, therefore continuing to develop our long term plans even though economic conditions are challenging. We did the same in the UK in the early 1990's and built the strong position we have today. We demonstrated at our year end that we had achieved the targets for the emerging markets set out in 1999. We continue to make good progress in sales, profits and returns. Our lead countries, Hungary and Thailand are delivering returns close to our first hurdle of 15% and are close to self financing. In Poland we have completed the integration of the HIT stores which we acquired in July last year. We are opening four stores this year building a leading business for the long term. In the Czech Republic and Slovakia we are seeing better like for like sales. This has been on the back of a stronger pricing position in both countries. In Hungary where we have a leading position our sales have been strong. We have opened two smaller 50,000 sq. ft. hypermarkets that are trading well over budget. This year we will be opening 22 hypermarkets in Central Europe taking the total to 88, giving us the largest portfolio of hypermarkets across the region. In Ireland the Tesco offer is gaining customers and market share. This is driven by the new store opening programme and market leading like for like sales growth. We have established a strong position in Thailand with 55 stores. We are growing faster than anyone else through hypermarkets and our new up country Value stores. Our 10 Express convenience stores are working well and we will be opening an additional 40 in and around Bangkok over the next two years. Despite the economic slowdown and tightening of credit availability in Korea, we are pleased with our progress. Korea has seen a strong increase in sales, profits and returns this year. In Taiwan we have substantially improved our retail performance and this is reflected in the strong sales performance of all stores. We plan to open a further 6 stores in the next 2 - 3 years. In Malaysia, we are gaining momentum and have a further 4 stores opening in 2004 which doubles our number of stores. A modern supply chain is critical to improving productivity and margins and achieving returns. We are developing an industry leading supply chain across our international business with state of the art depots including the largest in Asia in Korea. In the first half we have successfully completed the acquisition of the C Two-Network in Japan. The C Two-Network is a small, price leading retailer with 78 stores in Tokyo. It is a profitable business with strong management. The C Two team will be working with a small Tesco team formulating the detailed store development plans for the next few years. We continue to explore opportunities in China and Turkey. CORPORATE SOCIAL RESPONSIBILITY We ensure that our stores reflect the communities in which they operate. Highlights include:- • Becoming the top company in the Business in the Community survey for the food and drug sector; • Through our Computers for Schools programme giving away over £84m of Computer equipment in recent years; • Our award winning Race for Life sponsorship, with 300,000 people taking part at 130 separate venues in aid of Cancer Research UK; • Opening our regeneration partnership in Shettlestone with a further two opening in Warrington and Batley in October; and • Establishing programmes to support a Charity of the Year in Poland and local charities in the Czech and Slovakia. Our staff share in our success. This year staff have benefited from Save as you Earn, Buy as you Earn and over £57m given in profit share. Our Shares in Success scheme is open to all staff with one year's service. Over 100,000 of our staff are now shareholders. -ends- Contacts Press Lucy Neville-Rolfe 01992 646606 Angus Maitland - The Maitland Consultancy 020 7379 5151 Analysts Steven N Butler 01992 644800 Lucy Cross 01992 646663 This document is available via the Internet at www.tesco.com Today there will be an analysts meeting at 9.00am and a press conference at 12.30pm both at The Royal Bank of Scotland, 280 Bishopsgate, London EC2M 4RB TESCO PLC GROUP PROFIT AND LOSS ACCOUNT 2003 2002 Increase 24 weeks ended 9 August 2003 Note £m £m % --------------------------------------- ------ ------- -------- ------- Sales at net selling prices 2 14,901 12,733 17.0 --------------------------------------- ------ ------- -------- ------- Turnover including share of joint ventures 13,795 11,820 Less: share of joint ventures' turnover (95) (80) --------------------------------------- ------ ------- -------- ------- Group turnover excluding value added tax 2 13,700 11,740 16.7 - Normal operating expenses (12,953) (11,123) - Employee profit sharing (25) (21) - Integration costs (8) - - Goodwill amortisation (22) (4) --------------------------------------- ------ ------- -------- ------- Operating profit 692 592 16.9 Share of operating profit of joint ventures and associates 37 27 Net loss on disposal of fixed assets (2) (6) --------------------------------------- ------ ------- -------- ------- Profit on ordinary activities before interest and taxation 727 613 18.6 Net interest payable (99) (78) --------------------------------------- ------ ------- -------- ------- Profit on ordinary activities before 628 535 17.4 taxation Underlying profit before net loss on disposal of fixed assets, integration costs and goodwill 661 545 21.3 amortisation Net loss on disposal of fixed assets (2) (6) Integration costs (8) - Goodwill amortisation (22) (4) Goodwill amortisation in joint ventures (1) - and associates --------------------------------------- ------ ------- -------- ------- Tax on profit on ordinary activities (195) (162) --------------------------------------- ------ ------- -------- ------- Profit on ordinary activities after 433 373 16.1 taxation Minority interests (2) - --------------------------------------- ------ ------- -------- ------- Profit for the financial period 431 373 15.5 Dividends (151) (131) --------------------------------------- ------ ------- -------- ------- Retained profit for the financial period 280 242 --------------------------------------- ------ ------- -------- ------- Pence Pence Earnings per share 4 5.97 5.36 Adjusted for net loss on disposal of fixed assets after taxation 0.03 0.08 Adjusted for integration costs 0.10 0.00 Adjusted for goodwill amortisation 0.32 0.06 --------------------------------------- ------ ------- -------- ------- Underlying earnings per share 4 6.42 5.50 16.7 --------------------------------------- ------ ------- -------- ------- Diluted earnings per share 4 5.94 5.30 Adjusted for net loss on disposal of fixed assets after taxation 0.03 0.08 Adjusted for integration costs 0.10 0.00 Adjusted for goodwill amortisation 0.32 0.06 --------------------------------------- ------ ------- -------- ------- Underlying diluted earnings per share 4 6.39 5.44 17.5 --------------------------------------- ------ ------- -------- ------- Dividend per share 2.07 1.87 10.7 Dividend cover (times) 3.09 2.91 TESCO PLC GROUP BALANCE SHEET 9 Aug 22 Feb 10 Aug 2003 2003 2002 £m £m £m ------------------------------------------ ------- ------- -------- Fixed assets Intangible assets 995 890 152 Tangible assets 13,572 12,828 11,661 Investments 53 59 66 Investments in joint ventures 286 266 246 Investments in associated undertakings 19 18 17 ------- ------- -------- 14,925 14,061 12,142 Current assets Stocks 1,117 1,140 957 Debtors 663 662 893 Investments 202 239 235 Cash at bank and in hand 490 399 397 ------- ------- -------- 2,472 2,440 2,482 Creditors: falling due within one year (5,591) (5,372) (5,271) ------- ------- -------- Net current liabilities (3,119) (2,932) (2,789) ------- ------- -------- Total assets less current liabilities 11,806 11,129 9,353 Creditors: falling due after more than one (4,273) (4,049) (3,052) year Provisions for liabilities and charges (535) (521) (459) ------- ------- -------- Total net assets 6,998 6,559 5,842 ======= ======= ======== Capital and Reserves Called up share capital 366 362 351 Share premium account 2,610 2,465 2,056 Other reserves 40 40 40 Profit and loss account 3,936 3,649 3,351 ------- ------- -------- Equity shareholders' funds 6,952 6,516 5,798 Minority interests 46 43 44 ------- ------- -------- Total capital employed 6,998 6,559 5,842 ======= ======= ======== TESCO PLC GROUP CASH FLOW STATEMENT 2003 2002 24 weeks ended 9 August 2003 Note £m £m ----------------------------------------------------- ------ ------ ------- Net cash inflow from operating activities 5 1,207 849 Dividends from joint ventures and associates Income received from joint ventures 1 4 Returns on investments and servicing of finance Interest received 32 20 Interest paid (131) (125) Interest element of finance lease rental payments (2) (2) Cash received on sale of financial instruments 171 - ------ ------- Net cash inflow/(outflow) from returns on investments and servicing of finance 70 (107) Taxation (157) (145) Capital expenditure and financial investment Payments to acquire tangible fixed assets (1,023) (864) Receipts from sale of tangible fixed assets 28 3 Purchase of own shares (51) (33) ------ ------- Net cash outflow from capital expenditure and financial investment (1,046) (894) Acquisitions and disposals Purchase of subsidiary undertakings (164) (1) Net cash at bank and in hand acquired with subsidiaries 31 - Invested in joint ventures (23) (13) Invested in associated undertakings and other (3) (386) investments ------ ------- Net cash outflow from acquisitions and disposals (159) (400) Equity dividends paid (167) (247) ------ ------- Cash outflow before use of liquid resources and (251) (940) financing Management of liquid resources Decrease/(increase) in short-term deposits 37 (9) Financing Ordinary shares issued for cash 12 27 Increase in other loans 245 887 New finance leases 75 - Capital element of finance leases repaid (29) (14) ------ ------- Net cash inflow from financing 303 900 ------ ------- Increase / (Decrease) in cash 89 (49) ====== ======= TESCO PLC GROUP CASH FLOW STATEMENT (continued) 2003 2002 24 weeks ended 9 August 2003 Note £m £m --------------------------------------------------- ------ ------- ------- Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 89 (49) Cash inflow from increase in debt and lease financing (291) (873) (Decrease)/increase in liquid resources (37) 9 Loans acquired with subsidiary (2) - Amortisation of 4% unsecured deep discount loan stock, RPI bond and LPI bond (8) (8) Other non-cash movements - (15) Foreign exchange differences (7) (8) ------- ------- Increase in net debt (256) (944) Opening net debt at February 6 (4,737) (3,560) ------- ------- Closing net debt at August 6 (4,993) (4,504) ======= ======= TESCO PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2003 2002 24 weeks ended 9 August 2003 £m £m ------------------------------------------------------ -------- --------- Profit for the financial period 431 373 Gain/(Loss) on foreign currency net investments 8 (19) ------------------------------------------------------ -------- --------- Total recognised gains and losses relating to the financial period 439 354 ------------------------------------------------------ -------- --------- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2003 2002 24 weeks ended 9 August 2003 £m £m -------------------------------------------------- --------- --------- Profit for the financial period 431 373 Dividends (151) (131) -------------------------------------------------- --------- --------- 280 242 Gain/(Loss) on foreign currency net investments 8 (19) New share capital subscribed less expenses 5 19 Payment of dividends by shares in lieu of cash 143 26 -------------------------------------------------- --------- --------- Net addition to shareholders' funds 436 268 Opening shareholders' funds at February 6,516 5,530 -------------------------------------------------- --------- --------- Closing shareholders' funds at August 6,952 5,798 -------------------------------------------------- --------- --------- TESCO PLC NOTES TO THE ACCOUNTS The figures for the 52 weeks ended 22 February 2003 have been extracted from the accounts which have been filed with the Registrar of Companies and which contain an unqualified audit report and did not include a statement under section 237(2) or (3) of the Companies Act 1985. The accounts for the 24 weeks ended 9 August 2003 were approved by the Directors on 15 September 2003. Note 1 Accounting policies These financial statements have been prepared using the accounting policies set out in the Annual Report and Financial Statements 2003. Note 2 Group turnover analysis 2003 2002 Increase 24 weeks ended 9 August 2003 £m £m % --------------------------- ------- -------- -------- Sales (inc VAT) UK 11,951 10,464 14.2 Rest of Europe * 1,667 1,262 32.1 Asia * 1,283 1,007 27.4 --------------------------- ------- -------- -------- Group 14,901 12,733 17.0 =========================== ======= ======== ======== Turnover (ex VAT) UK 11,020 9,675 13.9 Rest of Europe * 1,478 1,123 31.6 Asia * 1,202 942 27.6 --------------------------- ------- -------- -------- Group 13,700 11,740 16.7 =========================== ======= ======== ======== Note 3 Group operating profit analysis 2003 2002 Increase £m £m % --------------------------- ------- -------- -------- UK 624 537 16.2 Rest of Europe 57 36 58.3 Asia 41 23 78.3 --------------------------- ------- -------- -------- 722 596 21.1 Integration (8) - Goodwill amortisation (22) (4) --------------------------- ------- -------- -------- Operating profit 692 592 16.9 =========================== ======= ======== ======== UK operating margin 5.7% 5.6% Rest of Europe operating margin 3.9% 3.2% Asia operating margin 3.4% 2.4% * Results for Rest of Europe and Asia are for the period ended 30 June 2003, with the exception of the Republic of Ireland which is to 9 August 2003. TESCO PLC NOTES TO THE ACCOUNTS (continued) Note 4 Earnings per share and diluted earnings per share The calculation of earnings, including and excluding net loss on disposal of fixed assets, integration costs and goodwill amortisation, is based on the profit for the period of £431m (2002 - £373m). For the purpose of calculating earnings per share, the number of shares is the weighted average in issue during the 24 weeks of 7,224m (2002 - 6,960m). 24 weeks 24 weeks 2003 2002 --------- --------- Weighted average number of diluted share options 38 82 Weighted average number of shares in issue in the period 7,224 6,960 ------------------------------------------------- --------- --------- Total number of shares for calculating diluted 7,262 7,042 earnings per share (million) ------------------------------------------------- --------- --------- Note 5 Reconciliation of operating profit to net cash inflow from operating activities 24 weeks 24 weeks 2003 2002 £m £m Operating profit 692 592 Depreciation and amortisation 336 270 Decrease/(increase) in stocks 35 (27) Increase in development property (1) - Decrease in debtors 60 13 Increase in trade creditors 19 34 Increase/(decrease) in other creditors 66 (33) Decrease/(increase) in working capital 179 (13) --------- --------- Net cash inflow from operating activities 1,207 849 ========= ========= TESCO PLC NOTES TO THE ACCOUNTS (continued) Note 6 Analysis of changes in net debt At 22 Feb Cash Acquisitions Other non Exchange At 9 Aug 2003 flow cash movements 2003 changes £m £m £m £m £m £m Cash at 399 89 - - 2 490 and in hand ------- ------- --------- ------- -------- -------- Money market 239 (37) - - - 202 investments and deposits Bank and other loans (1,286) (76) - - (5) (1,367) Finance leases (55) (10) - - - (65) ------- ------- --------- ------- -------- -------- Debt due within one year (1,341) (86) - - (5) (1,432) Bank and other loans (3,863) (169) (2) (8) (4) (4,046) Finance leases (171) (36) - - - (207) ------- ------- --------- ------- -------- -------- Debt due after one year (4,034) (205) (2) (8) (4) (4,253) ------- ------- --------- ------- -------- -------- (4,737) (239) (2) (8) (7) (4,993) ======= ======= ========= ======= ======== ======== Note 7 Acquisitions On 17th July 2003, the company acquired a controlling interest in C Two-Network, a Japanese food retailer, for £166m including acquisition costs. This acquisition has been accounted for using acquisition accounting. Net assets acquired totalled £43m. A fair value assessment is currently being undertaken, and any adjustments will be made in the second half of the year. Webcast URL http://events.simplywebcast.com/tesco_interim_2003/ This information is provided by RNS The company news service from the London Stock Exchange

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