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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