Final Results

Tesco PLC 12 April 2005 12 April 2005 TESCO PLC PRELIMINARY RESULTS 2004/5 52 Weeks ended 26 February 2005 OUTSTANDING PERFORMANCE AS MORE CUSTOMERS WORLDWIDE CHOOSE TESCO GROUP HIGHLIGHTS • Sales up 12.4%* to £37.1bn, up 13.4%* at constant exchange rates • Underlying pre-tax profit** up 20.5%* to £2,029m • Pre-tax profit up 24.5%* to £1,962m • Post-tax return on capital employed increased to 11.5% • Underlying diluted earnings per share up 12.2% to 18.30p • Diluted earnings per share up 17.2% to 17.50p • Full year dividend per share up 10.5% to 7.56p • Net debt reduced to £3.8bn (£4.1bn last year) - gearing of 43% • 10m more customer visits weekly in our stores around the world • Planning to create 25,000 new jobs worldwide this year • £169m benefit for staff from Shares in Success and SAYE schemes UK • Sales up 11.9%* to £29.5bn • Underlying operating profit up 13.1%* to £1,694m • Like-for-like sales up 9.0%, including very strong volume of 8.9% • Non-food sales up 17% to £6.0bn, including clothing growth of 28% INTERNATIONAL • Sales up 13.1% to £7.6bn, up 18.3% at constant exchange rates • Underlying operating profit up 20.9% to £370m, up 26.5% at constant exchange rates • Like-for-like sales up 5.5% in first quarter 2005 RETAILING SERVICES • Tesco Personal Finance delivers £202m profit*** - Tesco share is £101m, up 26.5%. £50m dividend paid to Tesco in second half • Tesco.com sales up 24.1% to £719m and profit up 51.8% to £36m • Tesco Telecom customer numbers reach 1m Terry Leahy, Chief Executive, comments: 'These results again demonstrate the broad appeal of the Tesco brand. They also show that our new growth businesses - in international, in non-food and in services - have contributed as much profit as the entire business was making in 1997.' * 52 week comparison basis. ** Underlying pre-tax profit excludes net profit of £53m on disposal of fixed assets, integration costs (£53m) and goodwill amortisation (£67m). *** Pre-tax profits post minority interest. RESULTS Group sales, including VAT, increased on a 52 week basis by 12.4% to £37.1bn (last year £33.0bn). At constant exchange rates, on a 52 week basis, sales grew by 13.4%. Group underlying pre-tax profit increased on a 52 week basis by 20.5% to £2,029m (last year £1,684m). UK. UK sales increased on a 52 week basis by 11.9% to £29.5bn (last year £26.4bn), with like-for-like growth of 9.0% (including volume of 8.9%) and 2.9% from net new stores. Inflation of 0.1%, was entirely driven by cost increases in our petrol business. We saw deflation in our stores as we invested in lower prices for customers. Petrol had a significant impact on sales growth in the year, with volumes growing exceptionally strongly from the second quarter onwards, helped by our efforts to keep fuel prices down during a period of rising oil prices. Like-for-like sales growth during the year, excluding petrol, was 7.5%. During the second half, like-for-like sales increased by 9.5% including petrol and by 7.4%, excluding petrol. In the final seven weeks of the financial year (we reported on trading to 8 January with our Christmas and New Year statement), like-for-like sales grew by 9.3%. UK underlying operating profit was 13.1% higher on a 52 week basis at £1,694m (last year £1,498m). The operating margin moved up slightly, to just over 6.2%. International. Total international sales grew by 13.1% to £7.6bn and by 18.3% at constant exchange rates. International contributed £370m to underlying operating profit, up 20.9% on last year, with operating margins rising to 5.4% (last year 5.1%). At constant exchange rates, international profit grew by 26.5%. In The Rest of Europe, sales rose by 13.4% to £4.3bn (last year £3.8bn). At constant rates, sales grew by 15.7%. Underlying operating profit increased by 18.5% at actual rates to £218m (last year £184m) and by 21.4% at constant rates. In Asia, sales grew by 12.8% to £3.2bn (last year £2.8bn). At constant rates, sales grew by 21.8%. Underlying operating profit increased by 24.6% to £152m at actual rates (last year £122m) and by 34.2% at constant rates. One-off factors, including the full year effect of our acquisition in Japan last year and the pattern of our growth in Korea, contributed to an unusually large proportion of the year's profit growth being in the first half. We expect profit growth in the current year to be much more normally spread. Joint Ventures and Associates. Our share of profit (excluding goodwill amortisation) for the year was £135m compared to £99m last year. Tesco Personal Finance profit was £202m, of which our share was £101m, up 26.5% on last year. Net interest payable was £170m (last year £223m), giving cover of 12.5 times (last year 8.2 times). Tax has been charged at an effective rate of 30.2% (last year 31.1%). Prior to accounting for the net profit on disposal of fixed assets, resulting mainly from the property joint venture with Topland announced in March 2004, as well as goodwill amortisation and integration costs, our underlying tax rate was 29.5%, the same as last year. Underlying diluted earnings per share increased by 12.2% to 18.30p (last year -16.31p). Dividend. The Board has proposed a final dividend of 5.27p per share (last year 4.77p). This represents an increase of 10.5%. Together with the interim dividend of 2.29p (last year 2.07p) already paid, this brings the full year dividend to 7.56p, an increase of 10.5% on last year. The final dividend will be paid on 1 July 2005 to shareholders on the Register of Members at the close of business on 20 April 2005. 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 1 July 2005. Cash Flow and Balance Sheet. The group generated net cash of £121m during the year, benefiting from strong operating cash flow (£3.0bn, after an additional £200m contribution to our pension scheme) and the net proceeds of £646m from our property joint venture with Topland. Net debt reduced to £3.8bn at the year end, representing gearing of 43% (last year 51%). This is before around £350m cash generated after the year-end from our most recent property joint venture with Consensus announced last month. Group capital expenditure during the year (excluding acquisitions but including the Safeway stores purchased from Morrisons) was £2.4bn (last year £2.3bn). We expect group capital expenditure to be around £2.4bn again this year. UK capital expenditure was £1.7bn (last year £1.5bn), including £836m on new stores and £288m on extensions and refits. Total international capital expenditure was £746m (last year £765m) comprising £282m in Asia and £464m in Europe. Pensions. We are committed to our award-winning pension scheme for our people, which helps us to attract and retain the best. Ahead of the 2005 three-yearly full actuarial valuation of the scheme, which will be completed this autumn, the company has paid a cash contribution into the scheme of £200m to strengthen significantly its funding position. We expect to review the level of contributions to the scheme when the actuarial valuation has been completed. Return on Capital Employed. When we announced our share placing last January, we said that we had an aspiration to increase our post tax return on capital employed (ROCE) of 10.2% in the 2002/3 financial year by up to 200 basis points over five years on then current plans. The excellent progress we have made in the year, combined with the effect of the Topland property funding initiative, means that ROCE rose to 11.5% last year. IFRS. We are well advanced with preparation for the adoption of International Financial Reporting Standards (IFRS). The group will adopt IFRS for its 2005/6 financial reporting. We estimate that the adoption of IFRS will have a small adverse impact on statutory profit after tax (between zero and £30m* for 2004/5) and no impact on group pre-tax cash flow. We intend to issue 2004/5 financial information, restated for IFRS, towards the end of next month. Year-end Convergence. We announced in September that we had taken a decision to align our UK and International accounting periods, due to the increasing contribution our international businesses make to group results. We will do this for the 2005/6 year-end, which will be on 2 April 2006. Thereafter, the timetable will be as follows: - Half year end - last Sunday in September / first Sunday in October - Year end - first Sunday in April - 13 week quarters, with trading updates for Q1 and Q3 (Q3 to include the Christmas trading period). * This impact excludes the effect of IAS32 and IAS39 - Tesco has elected to take a one year exemption on these standards, as allowed under IFRS. STRATEGY We have continued to make strong progress with all four parts of our strategy - a strong UK core business, non-food, retailing services and international - by keeping our focus on trying to improve what we do for customers: - making their shopping trip as easy as possible - constantly seeking to reduce our prices to help them spend less - offering the convenience of either large or small stores - bringing simplicity and value to complicated markets. Core UK Business. UK sales grew by 11.9% in the year, on a 52 week basis, including a like-for-like increase of 9.0%. This growth is broadly based - across the country, by store format and by product category. More customers are choosing to shop at Tesco today compared with a year ago; one of the biggest increases we have seen in recent years. Average spend per visit (excluding Express) is also up - by over 2% - despite deflation in our stores, reflecting the success of our efforts to improve our inclusive offer on all fronts. We have continued to invest in the things that matter for customers. For example: • On-shelf availability has improved significantly during the year. Our measure of this, which is based on our in-store picking of Tesco.com orders, shows that availability improved by a full percentage point compared with last year. • Self-service checkouts, which save time for customers, are now in over 100 stores, with over 600,000 shoppers now regularly using them. Almost 20% of transactions in these stores are through these new tills. • We have strengthened again our position as the UK's best value retailer by investing over £230m last year in improving our price position through a series of price campaigns during the year. A further £67m of cuts were announced in early April. • The development of our Value brand continues and the range now extends to 2,200 products, including many non-food items. Our Finest range also continues to develop, with 400 new lines launched in the year, bringing the total to 2,300. Tesco re-invests efficiency savings for customers. Our Step-Change programme, which brings together many initiatives to make what we do quicker, simpler and cheaper, has delivered savings this year of £270m, on top of almost £200m achieved last year. For example, the introduction of bar-coded Clubcard key fobs has saved time for customers and staff at checkouts as well as encouraging higher card usage, particularly at Express stores. We have made good progress with the development of our store formats. During the second half, we opened our 100th Extra hypermarket in the UK, having opened the first, at Pitsea, only in 1997. Even in the current challenging planning environment, we anticipate being able to open up to 20 new Extras a year, mostly through extensions to existing superstores. The new Extra stores at Dumfries, Stockport and Stafford, which opened in the year, were part of our programme of regeneration partnerships. So far, 12 new stores, with over 800,000 square feet of space, have resulted from these partnerships, bringing jobs and modern retail standards to deprived urban areas. We have nine more such projects currently under development. Across the country more customers have access to our Express convenience stores as we bring the Tesco offer and lower prices to many new neighbourhoods. Over 4m of our customers now walk to their local Tesco as a result of the growth of Express. We converted 202 T & S stores during the year, bringing the total number of Express stores to 546. In doing so, we hit our target of over 500 Expresses by the year end several months ahead of schedule. 60 new Express stores are planned this year. In addition, a further 26 T & S stores will be converted, most of which will be completed in the first half. Thereafter, the expansion of Express will be mainly though organic growth, with One Stop retained as a successful convenience format in over 500 smaller stores. We have also completed the conversion of the Adminstore units in London (Cullens, Europa and Harts) with the last, at Notting Hill, re-opening in February. On average, these stores have seen sales more than double, with even higher increases in volume. A total of 1.5m square feet of new sales area was opened during the year in all formats, of which over 350,000 square feet was in extensions to existing stores. This includes the ten former Safeway stores, which we acquired last autumn and re-opened before Christmas. Customer reaction to these conversions has been very positive - sales in the stores have almost doubled and are nearly 20% above our forecasts. Looking forward, we are looking to maintain our rate of growth in selling area, from a combination of extensions and new stores. We are expecting a more normal year in the UK and we are keeping an eye on costs, especially energy, with the oil price up 70% year on year, and the huge rise in business rates. Non-Food. We have made further excellent progress with the development of our non-food offer. Sales growth, in the UK alone, was over 17% during the year with total non-food sales increasing to £6.0bn (last year £5.1bn). Volume growth was even higher, at 18%, driven by our ability to reduce prices for customers, funded by our growing scale and supply chain efficiency, including an increasing level of direct sourcing. In all the large non-food categories we have seen strong growth. For example, our home entertainment sales grew by 20%, the stationery, news and magazines category by 26% and health and beauty by 13%. We saw particularly good performance from many of our seasonal non-food ranges, which were up 27%. Our clothing brands Cherokee and Florence & Fred have once again achieved significant growth, and remain the fastest expanding in the UK market in both sterling and volume. Clothing sales, grew by 28% in the year. The fashion press has again regularly featured our products. Retailing Services. Our efforts to bring simplicity and value to sometimes complicated markets are behind the success of our retailing services businesses. In Telecoms, we now have a total of one million customers after only one full year of operation. We extended our product range with our entry into the broadband internet access market in August, priced at just £19.97. We now have a very competitive offer in mobiles, domestic fixed line and internet access with considerable scope for future growth. The business, which is still in its start-up phase, made a small operating loss of £4m. Tesco.com sales grew by 24.1% to £719m and profit increased by 51.8% to £36m. During the year we added eDiets and Legal Store to the .com offer, as well as a significant expansion in the ranges of non-foods available on-line. Tesco Personal Finance (TPF) has delivered another excellent performance, with total profit increasing by 26.5% to £202m (last year £160m) of which our share is £101m. TPF is providing excellent returns in only its seventh year. £100m of surplus capital, representing over 20% of the original investment in the joint venture, was returned to Tesco and Royal Bank of Scotland through a cash dividend during the second half. We now have 4.9m customer accounts, of which 1.7m are credit cards and 1.4m are motor insurance policies. Customer numbers are up 700,000 on last year. International. Our international operations have continued to make good progress. While we have faced competitive challenges in some of our markets in Central Europe, and much of our investment overseas is immature, we have delivered strong profit growth and improving returns. These businesses are well-adapted to the needs of their local customers. They are run by strong local management teams who can share Tesco group expertise in marketing, ranging and buying, store design and layout, format development, supply chain and systems. In almost all countries we are continuing to grow market share as we build our store networks and improve our like-for-like sales. At constant exchange rates, international sales increased by 18.3% in the year. At actual rates, sales grew by 13.1% to £7.6bn. Operating profit grew by 20.9% to £370m, with operating margins rising to 5.4% (last year 5.1%). At constant exchange rates, international profit grew by 26.5%. During the first quarter of 2005, we have seen an acceleration in our international sales growth. In the 12 weeks to 26 March like-for-like sales increased by 5.5% (adjusted for the timing of Easter). This improvement was driven by significantly stronger like-for-like sales growth in our Central European markets. International returns continue to rise. On a constant currency basis, cash return on investment (CROI*) has increased to 11%, despite a high level of immature capital. CROI on like for like stores in our four largest international businesses - Thailand, Korea, Ireland and Hungary - where 60% of our international capital is invested, is running at over 15%. This demonstrates that our international model is not only delivering good growth but also developing good returns as we gain strong market positions, and our stores mature. A total of 98 stores, with 3.1m square feet of selling area, were opened during the year including 47 hypermarkets. In addition, we acquired 25 Fre'c stores in Japan during September and in March 2005, after the year-end, 12 stores in Korea from Aram Mart. We plan to open 207 new stores in the current year, adding 5.4m square feet of selling area. In September, we successfully completed the acquisition of a 50% holding in Ting Hsin's Hymall business in China, extending our presence into Asia's largest market. Hymall now trades from a portfolio of 31 hypermarkets, mainly located in East and North East China. Hymall will open its first store in Beijing this summer as part of an enlarged new store development programme of 15 hypermarkets this year. Since the joint venture was established, Hymall's sales have grown strongly and the business made a small operating profit, of which our share was £1m, which is included in Associates and Joint Ventures. Our formats are rapidly being rolled out in our key international markets. With our large destination store networks now well-established and with first class supply chain infrastructure in place in many of our main markets, a growing part of our new space is coming through our smaller formats, such as compact hypermarkets and convenience stores. These serve the needs of customers in smaller catchments, adapted to the needs of local markets. They also cost less to build. For example, we are now trading Express stores in three countries. * Cash return on investment (CROI) is measured as earnings before interest, tax, depreciation and amortisation, expressed as a percentage of net invested capital. At the year end, our international operations were trading from 586 stores, including 273 hypermarkets, with a total of 27.6m square feet of selling space. In the Rest of Europe, sales increased by 15.7% at constant exchange rates and by 13.4% at actual rates. Profits grew by 18.5% at actual rates and by 21.4% at constant rates. • In Hungary, we have grown our business in a more difficult economic and retail environment. We have strengthened our market leading position by lowering prices, expanding our store network and developing our infrastructure. We opened nine new stores in the year, including our first 30,000 square feet compact hypermarket, adding 13% to our total space. This year, a further 14 stores with 688,000 square feet of sales area, are planned. We have just opened our tenth Tesco petrol filling station. In September, we opened our new 226,000 square feet fresh food distribution centre at Gyal which now accounts for over 95% of our volume. • In Poland, the economic background is improving and signs of renewed consumer confidence, combined with an improving offer in our stores, have been reflected in strengthening like-for-like sales. Our business is strong, we are growing market share and we remain well-placed to benefit from sustained economic upturn. The performance of the former HIT stores has been particularly pleasing. 95% of our volume now goes through our two new central distribution centres at Teresin - our 400,000 square feet ambient depot which opened in January 2004 and our new 160,000 square feet fresh depot, which opened last month. We have invested significantly in cutting prices during the year. Looking forward, we have a strong new store development programme, which will add 14% to our selling area this year. • In the Republic of Ireland, we have again traded well. Sales growth has benefited from strong like-for-like performance and an acceleration in the growth of our space. We opened seven new stores with 202,000 square feet of new sales area during the year, an increase of 11%. A further six new stores, with 108,000 square feet of sales area, are planned this year. Our new formats, led by Ireland's first Extra at Clare Hall, Dublin, which opened in July, our four Express stores and our four petrol stations, have all been very well-received by customers. • In recent months we have been meeting the more competitive market conditions in the Czech Republic with our largest ever programme of price reductions and promotions. This has involved substantial investment, paid for by higher sales and the benefits of improved buying and higher productivity. We have also accelerated our new store development, with three openings in the year, including one compact hypermarket, and a further eight openings planned this year, so that over two years we will have added 26% to our space in the Republic. Profits grew by over 20% during the year. • We have taken similar action in Slovakia, where we have a strong market position. Customers quickly noticed and responded to our lower prices, with like-for-like sales showing an immediate improvement. Our new store programme is now supported by the growth of our compact hypermarket format. We now have five such stores, with five more planned this year. Our new fresh foods central distribution depot at Beckov will open this summer. • In Turkey, we have traded ahead of expectations; achieving good sales growth, improved margins and a strong profit increase, whilst lowering prices and raising staff levels in our Kipa stores. We have introduced successfully some store layout changes such as power aisles in non-foods and more space for promotions. Our first new store, a 55,000 square feet hypermarket at Bodrum, will open in July. We will also go live this summer with the introduction into Kipa of a new suite of IT systems called 'Tesco in a Box' to run many key functions in the business, including supply chain and replenishment. In Asia, sales increased by 21.8% at constant exchange rates and by 12.8% at actual rates. Profits grew by 24.6% at actual rates and by 34.2% at constant rates. • Lotus has made further good progress in Thailand, where we are market leader, delivering strong sales, profit and market share growth, despite a slowing economy and some restriction on hypermarket opening hours. The successful development of new formats continues and we now have 107 stores trading across four formats, including 46 Express stores and 12 Value stores. All the newer formats are performing well, giving us many more opportunities to develop our national store network. • In Korea, Homeplus has continued to make excellent progress, delivering increased sales, including solid like-for-like growth, profits and returns. During the year we opened three new hypermarkets and since the year end, we have opened our first 45,000 square feet compact hypermarket in Namdaegu. We have also introduced the Express convenience format and we now have seven stores trading. In March we acquired 12 stores in Pusan, including three compact hypermarkets and nine potential Express stores from Aram Mart. Our organic store development programme is accelerating, with a total of 31 stores, with 550,000 square feet of space, including 24 Express stores, planned for this year. • In Taiwan, our stores have made good progress in the year, delivering a strong sales performance, increased market share and sharply reduced losses. Our fifth hypermarket in Ching Hai opened during the year and we opened our sixth, in Hsin Tien, in January this year. Together, these increase our selling space in Taiwan by over a third. • In Malaysia, we have seen strong sales growth and with five stores under construction, including two new hypermarkets, and more sites in the pipeline, we are making good progress towards building scale and we anticipate trading from 11 stores by the end of this year. We opened our sixth hypermaket, with 107,000 square feet of space, in Penang in December. • C Two-Network completed its acquisition of 25 Fre'c stores in Japan for the equivalent of £13m through an innovative deal with the Industrial Revitalisation Corporation in August. We are making good progress with the integration of the two businesses, combining Fre'c's expertise in fresh foods with C-Two's grocery operation to improve the overall offer for customers. The business now trades from 104 stores, with 15 new stores planned for this year. CORPORATE SOCIAL RESPONSIBILITY As a responsible company, Tesco works hard to bring real benefits to the communities we serve, the environment and the economy. Our commitment is embedded in the way we run our business. Communities. We are committed to making a difference to the communities around us in many different ways. For example, every year we adopt a Charity of the Year to support and in 2004 our staff and customers raised £3m for Help the Hospices. This year we will be supporting Age Concern. Healthy Living. Our customers tell us that they want us to make this easier, so we are further improving the labelling of our products, increasing our Healthy Living own brand range to nearly 500 lines and reducing salt content in many Tesco products. We help to keep the nation active and were the main sponsor of Cancer Research UK's Race for Life. Over 18,000 of our staff took part, raising over £20m for the charity. We are sponsoring Race for Life again this year and supporting a new event that will encourage men to take part for the first time. The Tesco Charity trust adds 20% to all money raised by our staff to charity. Environment. Our award winning store regeneration partnerships in deprived areas have now put 2,000 long term unemployed people back into work through our unique jobs and training guarantee. We completed three schemes last year, bringing the total to 12, and have another nine planned. To help protect our open spaces, this year we used brownfield (previously developed) land for over 96% of all new store developments. Tsunami Support. As our staff and customers would expect, Tesco was one of the first companies to react to the tsunami tragedy in South East Asia. Within hours of the disaster, we made a donation to the British Red Cross. We quickly followed this up with further donations totalling £300,000 from across the group and a two-day collection in our UK stores for the British Red Cross raised £2.8m. As well as money, Tesco provided lorry loads of food, water and shelter materials in Thailand, Malaysia and Sri Lanka. Suppliers. Tesco welcomed the findings of the recent review by the Office of Fair Trading (OFT) of the Supplier Code of Practice. After a lengthy independent audit of the workings of the code the OFT announced in March that no breaches of the code had been found at Tesco and that consumers benefit from vigorous market competition on both quality and price. Building on the constructive relationships Tesco has with its suppliers, we recently conducted a confidential supplier survey to understand what is good and where we can improve. The results were very positive. CONCLUSION These results again demonstrate the broad appeal of the Tesco brand. They also show that our new growth businesses - in international, in non-food and in services - have contributed as much profit as the entire business was making in 1997. CONTACTS Investor Relations: Steve Webb 01992 644800 Press: Jonathan Church 01992 644645 Angus Maitland - The Maitland Consultancy 020 7379 5151 This document is available via the internet at www.tesco.com A meeting for analysts will be held today at 9.00am and a press conference at 11.00am both at the Royal Bank of Scotland, 280 Bishopsgate, London EC2 4RB. TESCO PLC GROUP PROFIT AND LOSS ACCOUNT Total Total 52 53 weeks weeks Existing Acquisitions 2005 2004 Increase Year ended 26 Note £m £m £m £m % February 2005 ------- ------- -------- ------- ------- ------- Sales at Net Selling Prices 2 37,001 69 37,070 33,557 10.5% ------- ------- -------- ------- ------- ------- Turnover including share of joint ventures 34,237 116 34,353 31,050 ------- ------- -------- ------- ------- ------- Less share of joint ventures' turnover (324) (55) (379) (236) ------- ------- -------- ------- ------- ------- Turnover excluding value added tax 2 33,913 61 33,974 30,814 10.3% Operating Expenses - Normal operating expenses (31,785) (60) (31,845) (28,925) - Employee profit sharing (65) - (65) (57) - Integration costs (46) (7) (53) (45) - Goodwill amortisation (60) (2) (62) (52) ------- ------- -------- ------- ------- ------- Operating profit/(loss) 3 1,957 (8) 1,949 1,735 12.3% Share of operating profit/(loss) of joint ventures and associates 133 (3) 130 97 Net profit/ (loss) on disposal of fixed assets 53 - 53 (9) ------- ------- -------- ------- ------- ------- Profit/(loss) on ordinary activities before interest and taxation 2,143 (11) 2,132 1,823 17.0% ------- ------- -------- ------- ------- ------- Net interest payable (170) (223) ------- ------- -------- ------- ------- ------- Profit on ordinary activities before taxation 1,962 1,600 22.6% Underlying profit before net profit/ (loss) on disposal of fixed assets integration costs and goodwill amortisation 2,029 1,708 18.8% Net profit/ (loss) on disposal of fixed assets 53 (9) Integration costs (53) (45) Goodwill amortisation (62) (52) Goodwill amortisation in joint ventures and associates (5) (2) Tax on profit on ordinary activities (593) (498) ------- ------- -------- ------- ------- ------- Profit on ordinary activities after taxation 1,369 1,102 24.2% Minority interests (3) (2) ------- ------- -------- ------- ------- ------- Profit for the financial year 1,366 1,100 24.2% Dividends (587) (516) ------- ------- -------- ------- ------- ------- Retained profit for the financial year 779 584 33.4% ------- ------- -------- ------- ------- ------- Pence Pence Earnings per share 4 17.72 15.05 17.7% Adjusted for net (profit)/loss on disposal of fixed assets after taxation (0.65) 0.11 Adjusted for integration costs after taxation 0.59 0.55 Adjusted for goodwill amortisation 0.87 0.74 ------- ------- -------- ------- ------- ------- Underlying earnings per share 4 18.53 16.45 12.6% ------- ------- -------- ------- ------- ------- Diluted earnings per share 4 17.50 14.93 17.2% Adjusted for net (profit)/loss on dispolsal of fixed assets after taxation (0.64) 0.11 Adjusted for integration costs after taxation 0.58 0.54 Adjusted for goodwill amortisation 0.86 0.73 ------- ------- -------- ------- ------- ------- Underlying diluted earnings per share 4 18.30 16.31 12.2% ------- ------- -------- ------- ------- ------- Dividend per share 7.56 6.84 10.5% Dividend cover (times) 2.42 2.38 1.7% TESCO PLC GROUP BALANCE SHEET Restated 2005 2004 As at 26 February 2005 Note £m £m Fixed assets Intangible assets 1,044 965 Tangible assets 15,495 14,094 Investments 7 6 Investments in joint ventures Share of gross assets 4,280 2,006 Less: share of gross liabilities (4,037) (1,712) Goodwill 145 15 -------- ------- 388 309 Investments in associates 19 21 ------- -------- 16,953 15,395 Current assets Stocks 1,309 1,199 Debtors 1,002 826 Investments 346 430 Cash at bank and in hand 800 670 ------- -------- 3,457 3,125 Creditors: falling due within one year (6,072) (5,516) ------- -------- Net current liabilities (2,615) (2,391) ------- -------- Total assets less current liabilities 14,338 13,004 Creditors: falling due after more than one year (4,531) (4,368) Provisions for liabilities and charges (750) (593) ------- -------- Total net assets 9,057 8,043 ======= ======== Capital and Reserves Called up share capital 389 384 Share premium account 3,704 3,470 Other reserves 40 40 Profit and loss account 4,873 4,104 ------- -------- Equity shareholders' funds 9,006 7,998 Minority interests 51 45 ------- -------- Total capital employed 9,057 8,043 ======= ======== TESCO PLC GROUP CASH FLOW STATEMENT Restated 52 53 weeks weeks 2005 2004 Year ended 26 February 2005 Note £m £m Net cash inflow from operating activities 5 3,004 2,942 Dividends from joint ventures and associates 135 60 Returns on investments and servicing of finance Interest received 83 41 Interest paid (331) (320) Interest element of finance lease rental payments (15) (17) Cash received on sale of financial instruments - 235 -------- -------- Net cash outflow from returns on investments and servicing of finance (263) (61) Taxation (483) (326) Capital expenditure and financial investment Payments to acquire tangible fixed assets (2,304) (2,239) Proceeds from sale of tangible fixed assets 856 62 Net increase in loans to joint ventures (10) - -------- -------- Net cash outflow from capital expenditure and financial investment (1,458) (2,177) Acquisitions and disposals Purchase of subsidiary undertakings (84) (269) Net cash at bank and in hand acquired with subsidiaries 3 53 Proceeds from sale of subsidiary 16 - Net cash at bank and in hand disposed with subsidiary (11) - Invested in joint ventures (146) (48) Invested in associates and other investments (6) (8) -------- -------- Net cash outflow from acquisitions and disposals (228) (272) Equity dividends paid (448) (303) -------- -------- Cash inflow/(outflow) before use of liquid resources and financing 259 (137) Management of liquid resources Decrease / (increase) in short-term deposits 97 (220) Financing Ordinary shares issued for cash 146 868 Net purchase of own shares for share trusts (143) (51) Net decrease in other loans (18) (180) New finance leases 128 75 Capital element of finance leases repaid (348) (73) -------- -------- Net cash (outflow)/inflow from financing (235) 639 -------- -------- Increase in cash 121 282 ======== ======== TESCO PLC GROUP CASH FLOW STATEMENT (continued) Restated 52 53 weeks weeks 2005 2004 Year ended 26 February 2005 Note £m £m Reconciliation of net cash flow to movement in net debt Increase in cash 121 282 Cash outflow from decrease in debt and lease financing 238 178 (Decrease) / increase in liquid resources (97) 220 Loans and finance leases acquired with subsidiaries (17) (5) Amortisation of 4% unsecured deep discount bond, RPI and LPI Medium Term Notes (19) (20) Other non-cash movements on loans (14) - Other non-cash movements on finance leases (16) (2) Foreign exchange differences 52 (6) --------- -------- Decrease in net debt 248 647 Opening net debt 6 (4,090) (4,737) --------- -------- Closing net debt 6 (3,842) (4,090) ========= ======== TESCO PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 52 53 weeks weeks 2005 2004 Year ended 26 February 2005 £m £m Profit for the financial year 1,366 1,100 Tax effect of exchange adjustments offset in reserves 16 - Gain / (loss) on foreign currency net investments 19 (157) ------- ------ Total recognised gains and losses relating to the financial year 1,401 943 ------- ------ Prior year adjustment - Note 1 53 ------- Total recognised gains and losses since last annual report and financial statements 1,454 ------- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Restated 52 53 weeks weeks 2005 2004 Year ended 26 February 2005 £m £m Profit for the financial year 1,366 1,100 Dividends (587) (516) ------- -------- 779 584 Gain / (loss) on foreign currency net investments 19 (157) Tax effect of exchange adjustments offset in reserves 16 - Application of UITF 38 (29) 28 New share capital subscribed less expenses 130 844 Payment of dividends by shares in lieu of cash 93 158 ------- -------- Net addition to shareholders' funds 1,008 1,457 Opening shareholders' funds - restated 7,998 6,541 ------- -------- Closing shareholders' funds 9,006 7,998 ------- -------- TESCO PLC NOTES TO THE ACCOUNTS Note 1 Accounting policies These financial accounts have been prepared using the accounting policies set out in the Annual Report and Financial Statements 2004, with the exception of the policy on classification of own shares. Accounting for ESOP Trusts under UITF 38 changes the presentation of entity's own shares.As required by UITF 17 (revised) the directors have reviewed the classification and basis of accounting for shares held within ESOP trusts.The net effect is an increase in net assets of £53m at 28 February 2004 (£25m at 22 February 2003). In addition, the net cash outflow from the purchase of shares by the share trusts has been reclassified from capital expenditure and financial investment to financing. As in the prior year the group has continued to account for pensions and other post retirement benefits in accordance with SSAP 24, but has complied with the transitional disclosure requirements of FRS 17. Note 2 Group turnover analysis 52 weeks 53 weeks 2005 2004 Increase Year ended 26 February 2005 £m £m % Sales (inc VAT) UK 29,511 26,876 9.8% Rest of Europe * 4,349 3,834 13.4% Asia * 3,210 2,847 12.8% -------- --------- -------- Group 37,070 33,557 10.5% ======== ========= ======== Turnover (ex VAT) UK 27,146 24,760 9.6% Rest of Europe * 3,818 3,385 12.8% Asia * 3,010 2,669 12.8% -------- --------- -------- Group 33,974 30,814 10.3% ======== ========= ======== Note 3 Group operating profit analysis 52 weeks 2005 53 weeks 2004 Increase £m £m % UK 1,694 1,526 11.0% Rest of Europe * 218 184 18.5% Asia * 152 122 24.6% -------- --------- -------- 2,064 1,832 12.7% Integration costs (53) (45) 17.8% Goodwill amortisation (62) (52) 19.2% -------- --------- -------- Operating profit 1,949 1,735 12.3% ======== ========= ======== UK operating margin 6.2% 6.2% 0.0% International operating margin 5.4% 5.1% 0.3% * Results for Rest of Europe and Asia are for the year ended 31 December 2004, with the exception of the Republic of Ireland which is to 26 February 2005. Note 4 Earnings per share and diluted earnings per share The calculation of earnings, including and excluding net profit/(loss) on disposal of fixed assets, integration costs and goodwill amortisation, is based on the profit for the period of £1,366m (2004 - £1,100m). For the purpose of calculating earnings per share, the number of shares is the weighted average in issue during the 52 weeks of 7,707m (2004 - 7,307m 53 weeks). 52 weeks 53 weeks 2005 2004 Million Million Weighted average number of dilutive share options 97 61 Weighted average number of shares in issue in the period 7,707 7,307 --------- ---------- Total number of shares for calculating diluted earnings per share 7,804 7,368 --------- ---------- Note 5 Reconciliation of operating profit to net cash inflow from operating activities 52 weeks 2005 53 weeks 2004 £m £m Operating profit 1,949 1,735 Depreciation and amortisation 795 752 One-off pension contribution (200) - Increase in goods held for resale (67) (92) Decrease in development property - 15 (Increase) / decrease in debtors (48) 17 Increase in trade creditors 337 261 Increase in other creditors 238 254 Decrease in working capital 460 455 ---------- ---------- Net cash inflow from operating activities 3,004 2,942 ========== ========== Note 6 Analysis of changes in net debt At 28 Cash Other Acquisitions Exchange At 26 Feb flow non- movement Feb 2004 cash 2005 changes £m £m £m £m £m £m Cash at bank and in hand 670 121 - - 9 800 Liquid resources 430 (97) - - 13 346 Bank and other loans (775) 348 (14) (15) (15) (471) Finance leases (69) 63 - - - (6) ------- ------ ------- --------- -------- ------ Debt due within one year (844) 411 (14) (15) (15) (477) Bank and other loans (4,180) (330) (19) (2) 45 (4,486) Finance leases (166) 157 (16) - - (25) ------- ------ ------- --------- -------- ------ Debt due after one year (4,346) (173) (35) (2) 45 (4,511) ------- ------ ------- --------- -------- ------ (4,090) 262 (49) (17) 52 (3,842) ======= ====== ======= ========= ======== ====== Note 7 Sales and Profit comparison 52 weeks 53 weeks 52 weeks 52 weeks 52 weeks 2005 2004 2004 2005 v 2005 v pro forma 53 weeks 52 weeks 2004 2004 % increase % increase £m £m £m Group Sales inc VAT 37,070 33,557 32,989 10.5% 12.4% Underlying Group Profit before tax ** 2,029 1,708 1,684 18.8% 20.5% Group profit before 1,962 1,600 1,576 22.6% 24.5% tax ** Excluding net profit/(loss) on disposal of fixed assets, integration costs and goodwill amortisation. Note 8 Accounts The accounts do not constitute statutory accounts. The results for the year ended 26 February 2005 are extracts from the Group Annual Report and Financial Statements 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 53 weeks ended 28 February 2004 have been extracted from the Annual Report and Financial Statements for that period, (with the exception of the restatement referred to in Note 1.) 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 2005 Annual Review and Summary Financial Statement will be sent to shareholders. Copies of the 2005 Annual Report and Financial Statements will be sent to shareholders who have requested them. Copies of both documents will be available late May 2005 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 Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London, SW1P 3EE on Friday 24th June 2005 at 11am. This information is provided by RNS The company news service from the London Stock Exchange

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