Final Results

Tesco PLC 10 April 2001 10 April 2001 TESCO PLC PRELIMINARY STATEMENT OF RESULTS 52 WEEKS ENDED 24 FEBRUARY 2001 Terry Leahy, Chief Executive, comments: 'This year the Tesco strategy has continued to deliver for the customer. All four parts of this strategy - a strong core UK business, non-food, retailing services and our international business - have contributed to these strong results. We made good progress on our long term transformation from a domestic to an international retailer and we achieved sales growth that is gaining momentum and delivering the fastest organic growth rate of any major international retailer.' GROUP - SALES UP 11.9% TO £22.8bn - UNDERLYING PROFIT BEFORE TAX* UP 12.0% to £1,070m - ADJUSTED DILUTED EPS* UP 11.1% TO 11.31p - DIVIDEND PER SHARE UP 11.2% TO 4.98p - 240,000 PEOPLE WORLD-WIDE AND 20,000 JOBS TO BE CREATED THIS YEAR UK - SALES UP 8.5% TO £19.9bn - LIKE-FOR-LIKE GROWTH OF 4.8% - OUTPERFORMING THE INDUSTRY WITH STRONG VOLUME GROWTH OF 4.8% INTERNATIONAL - CENTRAL EUROPE AND ASIA BOTH DELIVERING PROFITS - TOTAL INTERNATIONAL PROFIT UP 48% TO £74m - TOTAL INTERNATIONAL SALES UP 43% TO £2.9bn - SALES FROM THE REST OF EUROPE** UP 29% TO £2.0bn - SALES IN ASIA UP 85% TO £919m * Excluding net loss on disposal of fixed assets, integration costs and goodwill amortisation. ** Rest of Europe includes Republic of Ireland and Central Europe. FINANCIAL Group sales including VAT increased by 11.9% to £22.8bn (2000 - £20.4bn). Group profit before tax increased 12.0% to £1,070m, excluding the net loss on disposal of fixed assets, goodwill amortisation and integration costs. Group profit before tax rose by 13.0% to £1,054m. UK sales (excluding property development sales) grew by 8.5% to £19.9bn (2000 - £18.3bn) of which 4.8% came from existing stores and 3.7% from net new stores. Existing store growth has been driven by strong volumes as we have seen zero inflation in total and deflation in our core business. UK operating profit was 10.8% higher at £1,100m (2000 - £993m). The operating margin remained broadly flat at 6.0%. Total international sales grew by 43% to £2.9bn and contributed £74m to group profits, 48% more than last year. In the Rest of Europe, total sales rose by 29% to £2.0bn (2000 - £1.5bn) and contributed an operating profit of £70m, up from £51m last year. Within this, sales in the Republic of Ireland were ahead 6.7% in local currency. In Central Europe, total sales at constant exchange rates were up 86%. Both the region as a whole and our lead country, Hungary, moved into profit. We opened 17 new hypermarkets in the year giving us 36 in total contributing towards the 5.1m sq. ft. of total selling space in the region. In Asia, total sales were £919m up 85% on the previous year and we made a profit of £4m compared to a loss of £1m last year. We opened 13 hypermarkets in the year giving us 32 in total with 3.6m sq. ft. of selling space. Our lead country in the region Thailand, moved into profit in the year. Total joint ventures profit for the year was £21m compared to £11m last year. Within this our share of Tesco Personal Finance profits was £3m compared to a £4m loss last year. The tesco.com operations achieved sales of £237m and a loss of £9m - both in line with the expectations we set out in May last year. Within this, grocery home-shopping continued to be profitable. To date, we have invested £40m to build a business that already has annualised turnover of £300m. Net interest payable was £125m (2000 - £99m). Corporation tax has been charged at an effective rate of 27.3% (2000 - 27.8%). Prior to accounting for the net loss on disposal of fixed assets, integration costs and goodwill amortisation, our underlying tax rate was 26.9% (2000 - 27.4%). Adjusted diluted earnings per share (excluding the net loss on disposal of fixed assets, integration costs and goodwill amortisation) increased by 11.1% to 11.31p (2000 - 10.18p). The Board has proposed a final dividend of 3.50p (2000 - 3.14p). This together with the interim dividend of 1.48p (2000 - 1.34p) gives a total dividend for the year of 4.98p (2000 - 4.48p). This represents an increase of 11.2% on last year and keeps dividend cover unchanged at 2.27 times. The final dividend will be paid on 29 June 2001 to shareholders on the Register of Members at the close of business on 20 April 2001. 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 sent to shareholders from 11 May 2001. Group capital expenditure in the year was £1.9bn (2000 - £1.5bn) including £ 200m for the re-purchase of UK stores previously part of sale & leaseback agreements. UK capex was £1.2bn including £705m on new stores and £175m on extensions and refits. Total international capital expenditure was £738m including £390m in Asia. We forecast group capital expenditure increasing slightly to £2.0bn in 2001/02 including £200m of further store buy backs. Net debt in the year increased by £744m to £2.8bn (2000 - £2.1bn), with gearing increased to 52% (2000 - 43%). STRATEGY All four parts of our strategy continue to deliver strong results. 1) A Strong UK Core Business Our customer focused strategy and commitment to value have delivered increased market share and we see plenty of opportunity for future growth. 2) Non Food Good progress has been made towards our goal of being as strong in non-food as food. In the year, we added 1.5m sq. ft of non-food space around the world and are on track to achieve £5bn of group non-food sales by the end of 2002. 3) Retailing Services Tesco Personal Finance is now in profit and tesco.com is firmly established as the largest grocery e-tailer in the world. 4) International Growth Our organic growth programme is progressing well and our lead countries in Asia and Europe are now profitable. Last year, our international business represented 37% of group space and we are on track to deliver 45% by the end of 2002. UK BUSINESS The UK remains our core market and management is totally focused with getting it right for customers. We participated in a wide-ranging and exhaustive Competition Commission enquiry. We welcomed their findings, which were that:- * The market was competitive; * Profits were not excessive; * Prices were competitive compared to other markets; and * There was a high degree of consumer satisfaction. The Commission recommended a binding code of conduct governing relationships between suppliers and the five leading supermarkets. We support this and expect it to operate from the early Autumn. Tesco is an inclusive business and in the year, customers continued to choose us, resulting in strong volume growth in both food and non-food. Tesco leads on value in the UK. We measure thousands of prices every week and we have significantly improved our leading position against all the competition. Over the last 5 years Tesco has invested £1bn in price and, in real terms, our prices are now 11% lower than 5 years ago. But while cutting prices, we constantly respond to other customer needs. We have:- * Re-launched our organics range - making us the largest retailer of organics in the world; * Developed Finest foods into a £350m brand with over 500 products; * Extended 24 hour trading to over 300 stores - bringing the convenience of round the clock shopping to most of the UK; and * Improved availability on the shelves at all times. Our change programmes delivered over £150m of efficiencies last year. Over the next few years, these world leading programmes will allow us to accelerate savings further. In the coming year alone, we expect to save over £200m. Foot and mouth has been a tragedy for British farmers. We are working closely with the farmers' unions to ease their plight and maintain confidence in British agriculture. Tesco has stood by British farmers in a year in which currency fluctuations have led others to buy abroad. The company has paid higher prices by doing so and this has significantly benefited farm incomes. Throughout the crisis our retail prices have remained highly competitive. Our main suppliers are paying farmers more quickly for meat and are paying above the market price. This has contributed to rising costs, part of which we have absorbed to help the farmers through their difficulties. This has been a huge effort by everybody in the industry. Farmers know they can count on the support of Tesco customers and staff. NON-FOOD Customers like our non-food offer. They recognise its quality, value and choice. We are working hard to bring our non-food range to more customers through our new store and extension programmes. We are making progress in all non-food areas. In the year:- * We sold £45m worth of TV's and DVD players in our first year as a major electrical retailer; * We extended our clothing range, as 'Florence and Fred'; * We introduced a full non-food offering in smaller stores. For example, Wrexham at 60k sq. ft., has the range that previously would have been in our 100k sq. ft. stores; and * We grew our range adding 8,000 new products this year. DEVELOPMENT PROGRAMME We have developed 5 distinctive store formats tailored to meet the needs of different customers in different areas. This has enabled us to maintain a strong opening programme despite working within a tough planning climate. This year we opened 1.3m sq. ft., of new space as part of our £1bn investment in the UK. * Express - we currently have 45 stores open and through our joint venture with Esso we will have almost 100 by the end of 2001/02. * Extra - we now have 23 Extra stores with plans to nearly double this in 2001/02. We are developing partnerships throughout the UK using new stores as anchors for local regeneration. These schemes create a range of opportunities providing : * Jobs for the unemployed; * Training; * Subsidised transport, and * Childcare. Today we will announce three new schemes at Beckton in London and Rugeley and Stafford in the Midlands bringing the total number to 12. TESCO PERSONAL FINANCE Tesco Personal Finance is now profitable and is one of the UK's fastest growing financial services businesses. We have built on the Tesco brand strength and The Royal Bank of Scotland's expertise and systems to give us a clear strategy for long-term profitable growth. We now have 15 products and services with 2m customers, 400,000 savings accounts and 900,000 credit cards. Tesco Personal Finance is a success with customers as it brings new levels of service and value to the banking sector. E-COMMERCE Tesco.com, our e-commerce business, is unique. Customers love it, it is progressing well and we achieved our business plan and financial targets for the year. We now have:- * Almost 1m registered customers; * 70,000 orders per week, giving weekly sales of over £6m; * Home-shopping available to 90% of the UK population, a level not seen anywhere else in the world; * The site re-launched, halving the time it takes to place an order; * Launched further non-food sites including our popular electrical site; and * Launched iVillage in the UK, the most popular internet site for women in the UK. Grocery home-shopping has continued to be profitable and its world leading system is at least 2 years ahead of the competition. INTERNATIONAL BUSINESS We continue to build an international business of real scale that has already come a long way. In 1997 we opened our first two large stores in Hungary. Internationally we now have 68 hypermarkets, 10.4m sq. ft. of retail space, employing over 50,000 people contributing £2.9bn of group turnover and we are on track to operate 130 hypermarkets by 2002. Europe In Europe, we are seeing the respective economies grow at different rates, but overall, our development programme is on track. We opened 17 hypermarkets in 2000, giving us 36 in total with a further 18 to open in 2001. In Hungary, we opened 6 hypermarkets this year giving us 15 in total with plans to open a further 6 in the coming year. We are already in profit and are increasing the opening programme on the back of good market conditions and strong trading performance. Last year, in Budapest, we opened our 2 largest stores in the group at over 150k sq. ft. each. In Poland, we opened 6 hypermarkets this year giving us 10 in total with plans to open a further 5 in 2001. We have recognised the consumer squeeze on disposable incomes and adjusted our operating plans to reflect this. We plan to break even by the end of the year, a good result at this early stage. In the Czech Republic and Slovakia, we opened 5 hypermarkets this year giving us 11 in total with a further 7 to open in 2001. We are performing well and are stepping up site research with a view to a higher level of openings from 2002 onwards. This will include more hypermarkets in Prague and smaller hypermarkets for medium sized towns in both the Czech Republic and Slovakia. In the Republic of Ireland, we continue to grow market share from 22% last year to 24% now. We opened stores at Maynooth and Castlebar and now that the planning rules have been clarified, we expect to open more stores within this framework. We will open a further 5 stores in 2001/02. Asia In Asia the regional outlook for Tesco is exciting. We have seen some economic slowdown in the last quarter of the year but overall we are ahead of our development plans. We opened 13 hypermarkets in 2000 giving us 32 in total and expect to have 49 open by the end of 2001. In Thailand, over the last two years we have opened 10 stores and established a leading position in and around Bangkok. As expected this has impacted existing stores but underlying like for like growth remains strong. We now have 24 hypermarkets and plan to open a further 9 in 2001. The business has already moved into profit, providing a very strong position for future growth and profits are ahead of plan. Our larger malls in the country are performing particularly well and we are now introducing these into existing stores. In Korea, we opened 5 hypermarkets in the space of 65 days, a tremendous performance by the local management team. We now have 7 hypermarkets in total and are on track with our overall target for 24 hypermarkets by 2002. Our first two stores continue to trade well with sales of over £2m per week and new stores have all opened above target. In Taiwan, we acquired our first store in December 2000 which will give us valuable early experience for our future development programme. We will open 2 new stores in 2001. In addition:- * With our partner, we are awaiting regulatory approval to start in Malaysia; * We continue to research in China and Japan; and * As you would expect we are always reviewing other opportunities around the world. CONCLUSION To conclude, this year we have:- * Delivered strong results; * Made good progress with our transformation from a domestic to an international retailer; and * Achieved sales growth that is gaining momentum - delivering the fastest organic growth rate of any major international retailer. We are establishing an international business with real capability and growth prospects that will make a substantial difference to the Tesco group over the next 10 years. -ends- Contacts Analysts Steve Butler 01992 644800 Press Chris Leake 01992 646869 Angus Maitland - The Maitland Consultancy 0207 3795151 Philip Gawith - 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 Merchant Taylor's Hall, 30 Threadneedle Street, London, EC2 TESCO PLC GROUP PROFIT AND LOSS ACCOUNT 2001 2000 Increase 52 weeks ended 24 February 2001 Note £m £m % Sales at net selling prices 2 22,773 20,358 +11.9 Turnover excluding value added tax 2 20,988 18,796 +11.7 - Normal operating expenses (19,770) (17,712) - Employee profit sharing (44) (41) - Integration costs - (6) - Goodwill amortisation (8) (7) Operating profit 3 1,166 1,030 +13.2 Share of operating profit of joint 21 11 ventures Net loss on disposal of fixed (8) (9) assets Profit on ordinary activities 1,179 1,032 +14.2 before interest and taxation Net interest payable (125) (99) Profit on ordinary activities 1,054 933 +13.0 before taxation Profit before integration costs, net loss on disposal of fixed assets and 1,070 955 +12.0 goodwill amortisation Integration costs - (6) Net loss on disposal of fixed (8) (9) assets Goodwill amortisation (8) (7) Tax on profit on ordinary (288) (259) activities Profit on ordinary activities 766 674 +13.7 after taxation Minority interest 1 - Profit for the financial year 767 674 +13.8 Dividends (340) (302) Retained profit for the financial 427 372 year Pence Pence Earnings per share 5 11.29 10.07 Adjusted for integration costs - 0.06 after taxation Adjusted for net loss on disposal 0.12 0.13 of fixed assets after taxation Adjusted for goodwill amortisation 0.12 0.10 Adjusted earnings per share 5 11.53 10.36 +11.3 Diluted earnings per share 5 11.07 9.89 Adjusted for integration costs - 0.06 after taxation Adjusted for net loss on disposal 0.12 0.13 of fixed assets after taxation Adjusted for goodwill amortisation 0.12 0.10 Adjusted diluted earnings per share 5 11.31 10.18 +11.1 Dividend per share 4.98 4.48 +11.2 Dividend cover (times) 2.27 2.27 TESCO PLC GROUP BALANCE SHEET 2001 2000 As at 24 February 2001 Note £m £m Fixed assets Intangible assets 154 136 Tangible assets 9,580 8,140 Investments 101 79 Investments in joint ventures 203 172 10,038 8,527 Current assets Stocks 4 838 744 Debtors 322 252 Investments 255 258 Cash at bank and in hand 279 88 1,694 1,342 Creditors: falling due within one year (4,389) (3,487) Net current liabilities (2,695) (2,145) Total assets less current liabilities 7,343 6,382 Creditors: falling due after more than one year (1,927) (1,565) Provisions for liabilities and charges (24) (19) Total net assets 5,392 4,798 Capital and Reserves Called up share capital 347 341 Share premium account 1,870 1,650 Other reserves 40 40 Profit and loss account 3,099 2,738 Equity shareholders' funds 5,356 4,769 Minority interest 36 29 Total capital employed 5,392 4,798 TESCO PLC GROUP CASH FLOW STATEMENT 2001 2000 52 weeks ended 24 February 2001 Note £m £m Net cash inflow from operating activities 6 1,937 1,513 Returns on investments and servicing of finance Interest received 49 58 Interest paid (206) (188) Interest element of finance lease rental payments (4) (1) Net cash outflow from returns on investments and (161) (131) servicing of finance Taxation (272) (213) Capital expenditure and financial investment Payments to acquire tangible fixed assets (1,953) (1,296) Receipts from sale of tangible fixed assets 43 85 Purchase of own shares (58) (18) Net cash outflow from capital expenditure and (1,968) (1,229) financial investment Acquisitions Purchase of subsidiary undertakings (41) (61) (Invested in)/received from joint ventures (35) 62 Net cash (outflow)/inflow from acquisitions and (76) 1 disposals Equity dividends paid (254) (262) Cash outflow before use of liquid resources and (794) (321) financing Management of liquid resources Increase in short term deposits - (68) Financing Ordinary shares issued for cash 88 20 Increase in other loans 928 322 New finance leases 13 29 Capital element of finance leases repaid (46) (20) Net cash inflow from financing 983 351 Increase / (decrease) in cash 189 (38) TESCO PLC GROUP CASH FLOW STATEMENT (continued) 2001 2000 52 weeks ended 24 February 2001 Note £m £m Reconciliation of net cash flow to movement in net debt Increase / (decrease) in cash 189 (38) Cash inflow from increase in debt and lease (895) (331) financing Cash used to increase liquid resources - 68 Amortisation of 4% unsecured deep discount loan (7) (4) stock and RPI bond Other non-cash movements (8) (30) Foreign exchange differences (23) (5) Increase in net debt (744) (340) Opening net debt 7 (2,060) (1,720) Closing net debt 7 (2,804) (2,060) TESCO PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2001 2000 52 weeks ended 24 February 2001 £m £m Profit for the financial year 767 674 Loss on foreign currency net investments (2) (36) Total recognised gains and losses relating to the financial 765 638 year RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS 2001 2000 52 weeks ended 24 February 2001 £m £m Profit for the financial year 767 674 Dividends (340) (302) 427 372 Loss on foreign currency net investments (2) (36) New share capital subscribed less expenses 110 30 Payment of dividends by shares in lieu of cash 52 21 Net addition to shareholders' funds 587 387 Opening shareholders' funds 4,769 4,382 Closing shareholders' funds 5,356 4,769 TESCO PLC NOTES TO THE ACCOUNTS _____________________________________________________________ Note 1 Accounting policies These accounts have been prepared using the accounting policies set out in the Annual Report and Financial Statements 2001. Note 2 Group turnover analysis 2001 2000 Increase 52 weeks ended 24 February 2001 £m £m % Turnover (inc VAT) Food Retailing 19,880 18,331 +8.5 Property Development 4 3 +33.3 Total UK 19,884 18,334 +8.5 Rest of Europe * 1,970 1,527 +29.0 Asia * 919 497 +84.9 Group 22,773 20,358 +11.9 Turnover (ex VAT) Food Retailing 18,368 16,955 +8.3 Property Development 4 3 +33.3 Total UK 18,372 16,958 +8.3 Rest of Europe * 1,756 1,374 +27.8 Asia * 860 464 +85.3 Group 20,988 18,796 +11.7 Note 3 Group operating profit analysis 2001 2000 Increase £m £m % UK 1,100 993 +10.8 Rest of Europe 70 51 +37.3 Asia 4 (1) 1,174 1,043 +12.6 Goodwill amortisation (8) (7) +14.3 Integration costs - (6) Operating profit 1,166 1,030 +13.2 UK operating margin 6.0 5.9 * Results for Rest of Europe and Asia are for the year ended 31 December 2000, with the exception of the Republic of Ireland which is to 24 February 2001. TESCO PLC NOTES TO THE ACCOUNTS (continued) _______________________________________________________________________ Note 4 Stocks Stocks comprise goods held for resale of £814m (2000 - £636m) and development property of £24m (2000 - £108m). Note 5 Earnings per share and diluted earnings per share The calculation of earnings, including integration costs, net loss on disposal of fixed assets and goodwill amortisation is based on the profit for the period of £767m (2000 - £674m). For the purpose of calculating earnings per share, the number of shares is the weighted average in issue during the 52 weeks of 6,792m (2000 - 6,693m). 52 weeks 2001 52 weeks 2000 Million Million Weighted average number of diluted share 134 124 options Weighted average number of shares in issue 6,792 6,693 in the period Total number of shares for calculating diluted Earnings per share 6,926 6,817 Note 6 Reconciliation of operating profit to net cash inflow from operating activities 52 weeks 2001 52 weeks 2000 £m £m Operating profit 1,166 1,030 Depreciation and amortisation 476 435 Increase in goods held for resale (174) (47) Decrease / (increase) in development 82 (40) property Increase in debtors (72) (45) Increase in trade creditors 287 156 Increase in other creditors 172 24 Decrease in working capital 295 48 Net cash inflow from operating activities 1,937 1,513 TESCO PLC NOTES TO THE ACCOUNTS (continued) Note 7 Analysis of changes in net debt At 26 Feb Cash Other non Exchange At 24 Feb 2000 flow cash movements 2001 changes £m £m £m £m £m Cash at bank 88 189 - 2 279 and in hand Overdrafts (35) 27 - - (8) 53 216 - 2 271 Money market 258 - - (3) 255 investments and deposits Bank and other (797) (576) (7) (1) (1,381) loans Finance leases (15) (1) (8) - (24) Debt due (812) (577) (15) (1) (1,405) within one year Bank and other (1,508) (379) - (21) (1,908) loans Finance leases (51) 34 - - (17) Debt due after (1,559) (345) - (21) (1,925) one year (2,060) (706) (15) (23) (2,804) Note 8 Financial Statements The financial statements do not constitute statutory accounts. The results for the 52 weeks ended 24 February 2001 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 26 February 2000 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 2001 Annual Review and Summary Financial Statements will be sent to shareholders. Copies of the 2001 Annual Accounts will be sent to shareholders who have requested them. Copies of both documents will be available late May 2001 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 15th June 2001.

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