Interim Results

Tesco PLC 17 September 2002 17 September 2002 TESCO PLC INTERIM STATEMENT OF RESULTS 24 WEEKS ENDED 10 AUGUST 2002 Terry Leahy, Chief Executive, comments: 'These results show that we are delivering our programme for long term growth. The four elements of our strategy remain the same:- a strong UK core, non-food growth, retailing services and international expansion. Our customer focused strategy is bringing value, choice and convenience to 280 million customers every week in 10 countries.' HIGHLIGHTS • GROUP SALES UP 10.6% AND PRE-TAX PROFIT* OF £545m, UP 13.3% • INTERNATIONAL OPERATING PROFIT UP 79% TO £59m • 21,000 NEW JOBS WORLD-WIDE • TESCO PERSONAL FINANCE ACHIEVES £34m PRE-TAX PROFIT. TESCO SHARE IS £17m, UP 143% • PROGRESS WITH NEW STORE FORMATS AT HOME AND ABROAD GROUP • SALES UP 10.6% TO £12.7bn • ADJUSTED DILUTED EPS* UP 13.8% TO 5.44p • INTERIM DIVIDEND UP 12.0% TO 1.87p • SALES UP 65% AND PRE-TAX PROFIT UP 56% OVER THE LAST 5 YEARS UK • SALES UP 6.8% TO £10.5bn • LIKE FOR LIKE GROWTH OF 3.9%, INCLUDING STRONG VOLUME OF 5.5% • A FURTHER 9,000 JOBS CREATED THIS YEAR INCLUDING REGENERATION SCHEMES HELPING THE LONG TERM UNEMPLOYED INTERNATIONAL • TOTAL INTERNATIONAL SALES UP 32% TO £2.3bn • TOTAL INTERNATIONAL OPERATING PROFIT UP 79% TO £59m • 12,000 JOBS TO BE CREATED IN THE YEAR • ON TRACK TO DELIVER OUR TARGETED RETURNS * Excluding net loss on disposal of fixed assets and goodwill amortisation. FINANCIAL Group sales increased by 10.6% to £12.7bn (2001 - £11.5bn). Group profit before tax increased by 13.3% to £545m, excluding the net loss on disposal of fixed assets and goodwill amortisation. UK sales are up by 6.8% to £10.5bn (2001 - £9.8bn) of which 3.9% came from existing stores and 2.9% from net new stores. Existing store growth has been driven by strong volumes of 5.5%. Our continued price cuts drive prices down and in the first half we saw deflation of 1.6%. UK operating profit was 7.2% higher at £537m (2001 - £501m). The operating margin remained broadly flat at 5.6%. Total international sales grew by 32.3% to £2.3bn and contributed £59m to profits, up 78.8% on last year. In the rest of Europe sales rose by 18.7% to £1.3bn (2001 - £1.1bn) and contributed an operating profit of £36m, up 50.0% on last year. In Asia sales were up 54.4% to £1.0bn and we made an operating profit of £23m up 155.6%. Total joint ventures and associates profit for the first half was £27m compared to £15m in the first half last year. Within this our share of Tesco Personal Finance pre-tax profit was £17m, up 143%. Tesco.com in total achieved sales of £186m up 27% on the first half last year and made a profit of £1.9m (excluding GroceryWorks' start-up costs). Net interest payable was £78m (2001 - £68m). Tax has been charged at an effective rate of 30.3% (2001 - 31.2%). Prior to accounting for the net loss on disposal of fixed assets and goodwill amortisation, our underlying tax rate was 29.7% (2001 - 30.6%). Adjusted diluted earnings per share increased by 13.8% to 5.44p (2001 - 4.78p). The Board has proposed an interim dividend of 1.87p (2001 - 1.67p). This represents an increase of 12.0% on last year and dividend cover of 2.91 times. The interim dividend will be paid on 29 November 2002 to shareholders on the Register of Members at the close of business on 27 September 2002. Shareholders will continue to have the right to receive the dividend in the form of fully paid ordinary shares instead of cash. The first day of dealing in the new shares will be on 29 November 2002. Group capital expenditure in the first half was £891m (2001 - £697m). UK capital expenditure was £530m, including £304m on new stores and £108m on extensions and refits. Total international capital expenditure was £361m including £235m in Asia and £126m in Europe. We anticipate group capital expenditure for the full year to be around £2.1bn. Net debt at the half year increased by £0.9bn to £4.5bn (Feb 2002 - £3.6bn), with gearing increasing to 78% (Feb 2002 - 64%) reflecting our growth programme at home and overseas. Interest cover remains strong at 7.9 times. STRATEGY The four key elements of our strategy remain the same and continue to deliver; a strong UK core business, non-food growth, retailing services and international. Our customer focused strategy repeatedly delivers solid results, by bringing value, choice and convenience to millions of customers every week. UK There has been concern about a slowing retail market. What we have seen is a return to a more normal level of sales across the industry. Our strategy of providing exceptional value and choice for customers has served us well in this environment. We have seen UK sales grow by 6.8% in the first half, including 5.5% like for like volume, contributing to a 24% volume growth in the last 5 years. This year we have already invested over £100m in price. We will continue to invest ensuring we offer the cheapest products for our customers. This, combined with good service reinforces our position as Britain's best value supermarket. Clubcard is the UK's biggest loyalty scheme and we know from customers that it is their favourite. Through the introduction of air miles we have attracted over 60,000 new customers. We innovate through our step change programme, ensuring efficiency savings are passed on to our customers. We are on track to deliver savings of £180m this year through these programmes. Our development programme in the UK is on track with 37 new stores opening in the first half. We plan to open 1.5m sq. ft. of new selling space this year. We will have 62 Extra stores by the year end, from a base of only one in 1997. Our regeneration programme goes from strength to strength with Beckton in East London opening yesterday. Our regeneration schemes have already provided training and employment for over 1,300 unemployed people many of whom were long term unemployed. We have 13 regeneration partnerships in different stages of development and plan to launch another eight in the coming months. Our refresh and extension programme has transformed 57 stores in the first half. We use customer and staff feedback to improve the store and the result is better returns. Our 100th Express store opened yesterday in Christchurch in Dorset. Express meets the growing consumer demand for convenience within a £20bn market. These stores are the new 'local shop' and we see the opportunity to build a substantial business in the UK. NON-FOOD Some of the highlights from the first half include:- • The UK's largest market share of the recent Lord of the Rings video and DVD launch; • The strongest growth in magazine sales of any retailer; and • 13% of chart music sales. Earlier this month we launched Cherokee clothing into our stores. Cherokee is the third biggest clothing brand in the USA, now exclusive to Tesco in the UK and we are delighted with the initial reaction from our customers. Cherokee, Florence and Fred and Value lines now give us an exciting clothing offer, bringing value, choice and convenience to our customers in a growing number of stores. RETAILING SERVICES Tesco Personal Finance is popular, because it brings outstanding value and excellent customer service. In just five years we have grown a substantial business delivering strong profits. Tesco.com grew sales by 27% in the first half and increased profits to £1.9m (excluding GroceryWorks' start-up costs). Our UK grocery home shopping business covers 95% of the population, and has over 85,000 weekly orders. We have recently launched a pocket PC shopper, a new innovation that allows customers to shop for groceries any time, any place. We are an international .com retailer. Our home shopping model is now working in the Republic of Ireland and Korea. Our joint venture with Safeway Inc is operational in the USA and will this week be rolled out in Southern California. CORPORATE SOCIAL RESPONSIBILITY We ensure that our stores reflect the communities in which they operate. In the first half of this year our corporate social responsibility programme has included:- • Race for Life. More than 250,000 women and over 16,000 Tesco employees have participated, raising over £12m for Cancer Research; • Computers for Schools with 1,200 new schools taking part. We are on track to donate over £7m to schools this year taking the total to over £77m since the scheme began; and • Our new Corporate Social Responsibility website which covers everything from information for farmers to energy saving. Our staff share in our success. Over 100,000 staff are shareholders benefiting from Save-as-you-Earn, Buy-as-you-Earn and Profit Share schemes. We have an award winning pension scheme, which means all UK staff are eligible for a defined benefit pension, giving them the certainty and security for retirement that they deserve. INTERNATIONAL Our strategy of building a profitable international business of scale both in Europe and Asia continues to make excellent progress with sales up 32% and operating profit up 79%. We are market leader in the first five markets we entered. We are profitable in eight of our ten markets. We are on track to achieve our targets, including £140m-£160m operating profit from our developing markets, excluding Malaysia which has just started trading. Our operating margins are improving each year. We are through the difficult period of start up losses and learning. We now have a business model that is delivering increasing operating profits and covering the cost of funding. In the first half we opened three hypermarkets in Europe and five in Asia. We will open twenty eight hypermarkets in the second half giving us over 150 hypermarkets by the end of 2002. We will have more space overseas than in the UK by 2003/04. We will create 12,000 jobs in our overseas business by the year end, taking the total employed to over 77,000. In Europe, all countries were profitable in the first half. We will have over 80 hypermarkets by the end of this year, making us the strongest retailer in the region. In Hungary, we have built a business of scale, with a significant presence in Budapest. This year we will open a further three stores, taking the total number of hypermarkets to 26 at the year end. In the first half sales grew by 26% and we are continuing to grow profits. In Poland, the last market in Central Europe that we entered we now have 15 hypermarkets. Total sales in the Tesco stores were up 24% in a tough trading environment. We are on track to make a good profit this year. The acquisition of HIT will give us 13 more hypermarkets, two stores under construction and a number of sites all of which are freehold. Very good progress has been made on the transaction. We have anti-trust approval and control of the operating companies. We expect soon to have final approval from the government for the transfer of the properties. The combination of HIT and Tesco in Poland will significantly enhance our profile, and bring Tesco value, range and service to even more customers. We expect the HIT acquisition to be earnings neutral for the current year and enhance earnings from 2003/04. In the Czech Republic and Slovakia we have a successful business model and profits have increased substantially. We will have 11 hypermarkets in the Czech Republic and 12 hypermarkets in Slovakia by the end of this year. In the Republic of Ireland, we continue to see good sales and profit growth. Planning permissions are coming through for new stores. We have an exciting opening programme planned which includes our first petrol station at Killarney early in 2003 and our first 60,000 sq. ft. hypermarket in Clarehall, Dublin. With regard to future development in Europe, we recently announced that we are in talks with Kipa in Turkey. In Asia, we continue to trade well and we are developing at a slightly faster rate than our original plans. In Thailand, we are market leader with 35 hypermarkets and a further six will open before the year end. We currently have eight Express stores open with a further two planned. Our new supermarket format in Bangkok, and our new value format for up country towns both open in January. The latter will allow us to access 40 million people that live outside the major conurbations. Korea continues to provide us with a tremendous opportunity building on our strong partnership with Samsung. We have achieved planned sales, profits and returns. We have opened a further two stores in the first half taking the total to 16. We have an additional six stores planned for this year. Looking forward there is a solid opening programme of eight to ten sites per annum. In Taiwan we have two stores open with a further store planned in the second half of the year at Chungli. In Malaysia we have opened our first store in Puchong which is trading well with a further two stores to open in the second half. CONCLUSION From our results, it is clear that our four part strategy is delivering our programme for long term growth. We have:- • gained market share from our UK competitors; • developed a winning formula for international growth with profit up 79% on last year; • increased world-wide non-food sales to £7bn a year; and • in only 5 years created a major new force in financial services. -ends- Contacts Analysts Steven Butler 01992 644800 Lucy Cross 01992 646663 Press John Church 01992 646606 Angus Maitland-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 Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2EQ TESCO PLC GROUP PROFIT AND LOSS ACCOUNT 2002 2001 Increase 24 weeks ended 10 August 2002 Note £m £m % Sales at net selling prices 2 12,733 11,511 10.6 Turnover including share of joint ventures 11,820 10,682 Less: share of joint ventures' turnover (80) (58) Group turnover excluding value added tax 2 11,740 10,624 10.5 - Normal operating expenses (11,123) (10,070) - Employee profit sharing (21) (20) - Goodwill amortisation (4) (4) Operating profit 3 592 530 11.7 Share of operating profit of joint ventures and associates 27 15 Net loss on disposal of fixed assets (6) (6) Profit on ordinary activities before interest and taxation 613 539 13.7 Net interest payable (78) (68) Profit on ordinary activities before taxation 535 471 13.6 Profit before net loss on disposal of fixed assets and Goodwill amortisation 545 481 13.3 Net loss on disposal of fixed assets (6) (6) Goodwill amortisation (4) (4) Tax on profit on ordinary activities (162) (147) Profit on ordinary activities after taxation 373 324 15.1 Minority interests - - Profit for the financial year 373 324 15.1 Dividends (131) (115) Retained profit for the financial year 242 209 Pence Pence Earnings per share 4 5.36 4.72 Adjusted for net loss on disposal of fixed assets after taxation 0.08 0.08 Adjusted for goodwill amortisation 0.06 0.06 Adjusted earnings per share 4 5.50 4.86 13.2 Diluted earnings per share 4 5.30 4.64 Adjusted for net loss on disposal of fixed assets after taxation 0.08 0.08 Adjusted for goodwill amortisation 0.06 0.06 Adjusted diluted earnings per share 4 5.44 4.78 13.8 Dividend per share 1.87 1.67 12.0 Dividend cover (times) 2.91 2.86 TESCO PLC GROUP BALANCE SHEET 10 Aug 23 Feb 11 Aug 2002 2002 2001 £m £m £m Fixed assets Intangible assets 152 154 151 Tangible assets 11,661 11,032 10,015 Investments 66 69 99 Investments in joint ventures 246 232 225 Investments in associated undertakings 17 16 16 12,142 11,503 10,506 Current assets Stocks 957 929 884 Debtors 893 454 307 Investments 235 225 325 Cash at bank and in hand 397 445 482 2,482 2,053 1,998 Creditors: falling due within one year (5,271) (4,809) (4,314) Net current liabilities (2,789) (2,756) (2,316) Total assets less current liabilities 9,353 8,747 8,190 Creditors: falling due after more than one year (3,052) (2,741) (2,465) Provisions for liabilities and charges (459) (440) (419) Total net assets 5,842 5,566 5,306 Capital and Reserves Called up share capital 351 350 348 Share premium account 2,056 2,004 1,931 Other reserves 40 40 40 Profit and loss account 3,351 3,136 2,951 Equity shareholders' funds 5,798 5,530 5,270 Minority interests 44 36 36 Total capital employed 5,842 5,566 5,306 TESCO PLC GROUP CASH FLOW STATEMENT 2002 2001 24 weeks ended 10 August 2002 Note £m £m Net cash inflow from operating activities 5 849 950 Dividends from joint ventures and associates Income received from joint ventures 4 - Returns on investments and servicing of finance Interest received 20 19 Interest paid (125) (111) Interest element of finance lease rental payments (2) (2) Net cash outflow from returns on investments and servicing of finance (107) (94) Taxation (145) (154) Capital expenditure and financial investment Payments to acquire tangible fixed assets (864) (690) Receipts from sale of tangible fixed assets 3 27 Purchase of own shares (33) (27) Net cash outflow from capital expenditure and financial investment (894) (690) Acquisitions and disposals Purchase of subsidiary undertakings (1) (8) Invested in joint ventures (13) (24) Invested in associated undertakings and other investments (386) (16) Net cash outflow from acquisitions and disposals (400) (48) Equity dividends paid (247) (194) Cash outflow before use of liquid resources and financing (940) (230) Management of liquid resources Increase in short-term deposits (9) (74) Financing Ordinary shares issued for cash 27 19 Increase in other loans 887 500 Capital element of finance leases repaid (14) (15) Net cash inflow from financing 900 504 (Decrease) / Increase in cash (49) 200 TESCO PLC GROUP CASH FLOW STATEMENT (continued) 2002 2001 24 weeks ended 10 August 2002 Note £m £m Reconciliation of net cash flow to movement in net debt (Decrease)/Increase in cash (49) 200 Cash inflow from increase in debt and lease financing (873) (485) Cash used to increase liquid resources 9 74 Amortisation of 4% unsecured deep discount loan stock, RPI bond and LPI bond (8) (5) Other non-cash movements (15) (12) Foreign exchange differences (8) (1) Increase in net debt (944) (229) Opening net debt 6 (3,560) (2,804) Closing net debt 6 (4,504) (3,033) TESCO PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2002 2001 24 weeks ended 10 August 2002 £m £m Profit for the financial year 373 324 (Loss)/Gain on foreign currency net investments (19) 23 Total recognised gains and losses relating to the financial year 354 347 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2002 2001 24 weeks ended 10 August 2002 £m £m Profit for the financial year 373 324 Dividends (131) (115) 242 209 (Loss)/Gain on foreign currency net investments (19) 23 New share capital subscribed less expenses 19 16 Payment of dividends by shares in lieu of cash 26 44 Net addition to shareholders' funds 268 292 Opening shareholders' funds 5,530 4,978 Closing shareholders' funds 5,798 5,270 TESCO PLC NOTES TO THE ACCOUNTS ________________________________________________________________________________ The figures for the 52 weeks ended 23 February 2002 have been extracted from the accounts which have been filed with the Registrar of Companies and which contain an unqualified audit report and did not include a statement under section 237(2) or (3) of the Companies Act 1985. The accounts for the 24 weeks ended 10 August 2002 were approved by the Directors on 16 September 2002. Note 1 Accounting policies These financial statements have been prepared using the accounting policies set out in the Annual Report and Financial Statements 2002. Note 2 Group turnover analysis 2002 2001 Increase 24 weeks ended 10 August 2002 £m £m % Sales (inc VAT) UK 10,464 9,796 6.8 Rest of Europe * 1,262 1,063 18.7 Asia * 1,007 652 54.4 Group 12,733 11,511 10.6 Turnover (ex VAT) UK 9,675 9,064 6.7 Rest of Europe * 1,123 949 18.3 Asia * 942 611 54.2 Group 11,740 10,624 10.5 Note 3 Group operating profit analysis 2002 2001 Increase £m £m % UK 537 501 7.2 Rest of Europe 36 24 50.0 Asia 23 9 155.6 596 534 11.6 Goodwill amortisation (4) (4) - Operating profit 592 530 11.7 UK operating margin 5.6% 5.5% * Results for Rest of Europe and Asia are for the period ended 30 June 2002, with the exception of the Republic of Ireland which is to 10 August 2002. TESCO PLC NOTES TO THE ACCOUNTS (continued) _________________________________________________________________________________ Note 4 Earnings per share and diluted earnings per share The calculation of earnings, including and excluding net loss on disposal of fixed assets and goodwill amortisation, is based on the profit for the period of £373m (2001 - £324m). For the purpose of calculating earnings per share, the number of shares is the weighted average in issue during the 24 weeks of 6,960m (2001 - 6,869m). 24 weeks 2002 24 weeks 2001 Weighted average number of diluted share options 82 120 Weighted average number of shares in issue in the period 6,960 6,869 Total number of shares for calculating diluted 7,042 6,989 earnings per share (million) Note 5 Reconciliation of operating profit to net cash inflow from operating activities 24 weeks 2002 24 weeks 2001 £m £m Operating profit 592 530 Depreciation and amortisation 270 247 Increase in stocks (27) (45) Decrease in debtors 13 10 Increase in trade creditors 34 121 Decrease)/Increase in other creditors (33) 87 (Increase)/Decrease in working capital (13) 173 Net cash inflow from operating activities 849 950 TESCO PLC NOTES TO THE ACCOUNTS (continued) ________________________________________________________________________________ Note 6 Analysis of changes in net debt At 23 Feb Cash flow Other non cash Exchange At 10 Aug 2002 changes movements 2002 £m £m £m £m £m Cash at bank and in hand 445 (49) - 1 397 Overdrafts - - - - - 445 (49) - 1 397 Money market investments and deposits 225 9 - 1 235 Bank and other loans (1,474) (599) - (10) (2,083) Finance leases (15) 14 (12) - (13) Debt due within one year (1,489) (585) (12) (10) (2,096) Bank and other loans (2,727) (288) (8) - (3,023) Finance leases (14) - (3) - (17) Debt due after one year (2,741) (288) (11) - (3,040) (3,560) (913) (23) (8) (4,504) This information is provided by RNS The company news service from the London Stock Exchange http://www.londonstockexchange.com/rns/mediastream/mediastream.asp?RNSNo=2561B

Companies

Tesco (TSCO)
Investor Meets Company
UK 100