Interim Results
Tesco PLC
21 September 2004
TESCO PLC
INTERIM RESULTS 2004/5
24 Weeks ended 14 August 2004
FIRST HALF PROFIT GROWTH OF 24.4%
GROUP HIGHLIGHTS
• Sales up 12.2% to £16.5bn, up 13.7% at constant exchange rates
• Underlying pre-tax profit* up 24.4% to £822m
• Pre-tax profit up 28.0% to £804m
• On track to exceed 11% post-tax return on capital employed by the
year-end
• Underlying diluted earnings per share up 16.6% to 7.45p
• Diluted earnings per share up 21.5% to 7.22p
• Interim dividend per share up 10.6% to 2.29p
• Net debt reduced to £3.5bn (£4.1bn at year-end and £5.0bn last year)
• On track to create 20,000 new jobs worldwide this year
UK
• Sales up 11.5% to £13.1bn
• Underlying operating profit up 13.3% to £707m
• Like-for-like sales up 8.3%, including very strong volume of 8.0%
• Non-food sales up 17%, including clothing growth of 39% and home
entertainment growth of 26%
• Agreement to acquire 10 Safeway stores with 250,000 square feet selling
area (subject to regulatory approval) from Wm Morrison
INTERNATIONAL
• International sales up 14.9% to £3.4bn, up 23.0% at constant exchange
rates
• International underlying operating profit up 42.9% to £140m, up 52.4% at
constant exchange rates
• China & Japan: acquisition of 50% holding in Ting Hsin's Hymall 25-store
hypermarket business and 25 store Fre'c acquisition by C Two-Network
completed in the second half
RETAILING SERVICES
• Tesco Personal Finance delivers £84m profit** - Tesco share is £42m, up
53.1%
• TPF customer accounts now at 4.6m and growing at 90,000 per month
• Tesco.com sales up 27% to £307m and profit up 95% to £15m
Terry Leahy, Chief Executive, comments:
'These results demonstrate the growing success of the four-part strategy we
began seven years ago. I am particularly pleased about the way we've done it -
this year, we have cut our prices by £5m a week, we are creating 20,000 jobs,
our efficiency savings will hit £270m and we are improving returns for
shareholders. We are well-placed to meet the challenges of tougher comparisons
during the second half'
* Underlying pre-tax profit excludes net profit of £26m on disposal of fixed
assets, integration costs (£18m) and goodwill amortisation (£26m).
** Pre-tax profits post minority interest.
RESULTS
Group sales, including VAT, increased by 12.2% to £16.5bn (last year £14.7bn*).
At constant exchange rates, sales grew by 13.7%. Group underlying pre-tax profit
increased by 24.4% to £822m.
UK. UK sales increased by 11.5% to £13.1bn (last year £11.8bn*), with
like-for-like growth of 8.3% (including volume of 8.0%) and 3.2% from net new
stores. Inflation of 0.3%, was entirely driven by cost increases in our petrol
business. We continued to see deflation in our stores as we invested in lower
prices.
Petrol had a significant impact in the second quarter. Total like-for-like sales
growth was 8.8%, 7.0% excluding petrol. We did not pass on all the oil cost
increases in our petrol prices, resulting in lower margins, which were partially
compensated by very strong petrol volumes.
UK underlying operating profit was 13.3% higher at £707m (last year £624m). The
operating margin increased slightly by 0.1% to 5.9%*.
International. Total international sales grew by 14.9% to £3.4bn and by 23.0% at
constant exchange rates. International contributed £140m to underlying operating
profits, up 42.9% on last year. At constant exchange rates, international profit
grew by 52.4%.
In The Rest of Europe, sales rose by 11.4% to £1.9bn (last year £1.7bn*). At
constant rates, sales grew by 18.3%. Underlying operating profit increased by
26.3% to £72m (last year £57m). In Asia, sales grew by 19.4% to £1.5bn (last
year £1.3bn*). At constant rates, sales grew by 29.2%. Underlying operating
profit increased by 65.9% to £68m (last year £41m).
Joint Ventures and Associates. Profit (excluding goodwill amortisation) for the
first half was £60m compared to £38m last year.
Net interest payable was £85m (last year £99m), giving cover of 10.5 times at
the half year (last year 7.3 times). Tax has been charged at an effective rate
of 30.1% (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, as well as goodwill amortisation and integration costs, our
underlying tax rate was 29.5% (last year- 29.6%).
Underlying diluted earnings per share increased by 16.6% to 7.45p (last year
-6.39p).
Dividend. The Board has proposed an interim dividend of 2.29p per share (last
year 2.07p). This represents an increase of 10.6%, in line with our stated
policy. The interim dividend will be paid on 26 November 2004 to shareholders on
the Register of Members at the close of business on 01 October 2004.
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 26 November 2004.
Cash Flow and Balance Sheet. The group generated net cash of £631m during the
first half, benefiting from strong operating cash flow (up 18.7% to £1.4bn) and
the proceeds of £650m from our property joint venture with Topland. Net debt
reduced to £3.5bn at the half year, representing gearing of 41%.
Group capital expenditure during the first half was £0.9bn (last year £1.0bn).
We expect group capital expenditure to be around £2.4bn for the full year,
excluding the costs of the Hymall and Fre'c acquisitions. UK capital expenditure
was £637m, including £319m on new stores and £103m on extensions and refits.
Total international capital expenditure was £245m, comprising £90m in Asia and
£155m in Europe.
* Last year sales figures restated due to FRS 5, Application Note G, 'Revenue
Recognition'
Return on Capital Employed. When we announced our share placing last January, we
said that we believed we could 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 current plans. The excellent progress we have made in the first half,
combined with the effect of the Topland property funding initiative, means that
ROCE is on track to exceed 11% this year.
IFRS. We are preparing for the adoption of International Accounting Standards.
For our 2004/5 year-end, we will include an update on our progress in the annual
report. In 2005/6, we will produce fully IFRS compliant accounts, reconciled to
UK GAAP. To help understanding of the key issues, we will be holding a seminar
for investors and analysts in early 2005. We are also intending to issue
restated 2004/5 accounts approximately one month after our 2004/5 full year
results announcement.
Year-end Convergence. We have 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 at the end of the first calendar quarter.
STRATEGY
We have continued to make excellent progress during the first half, with all
four parts of our strategy contributing strongly to our growth.
Core UK Business. UK sales grew by 11.5% in the first half, including
like-for-like growth of 8.3%. Sales per square foot increased by nearly 4% in
the first half.
We have seen significant growth in customer numbers and they are choosing to
spend more per visit. Despite deflation in our stores, average customer spend is
up 3%, reflecting our success in improving our inclusive offer on all fronts.
We have maintained our position as the UK's best value retailer and we invested
£120m in further improving our price position, with two price campaigns, in
April and July, launched during the first half alone. Two weeks ago we announced
a further £30m of price cuts and our investment so far in 2004 amounts to an
average reduction in prices of £5m per week.
The development of our Value brand continues and the range now extends to over
2,000 products, including non-food items. Our Finest range also continues to
develop, with 400 new lines launched in the first half and a further 200 planned
for Christmas. As an extra thank you for shopping with us, our regular Clubcard
users received vouchers worth an average of almost £14 during the first half.
Tesco re-invests efficiency savings for customers. Our Step-Change programme is
on track to deliver £270m of savings in total this year, on top of almost £200m
achieved last year.
We have continued to invest in our stores and the development of our newer
formats has made good progress. By the end of the year we will have 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.
Through the growth of our Express convenience business, we are able to bring the
Tesco offer and lower prices to many new neighbourhoods. We converted 90 T & S
stores during the first half, bringing the total number of Express stores to
over 380.
We have completed the sale of those T&S stores which did not fit our
requirements. We have also begun the conversion to Express of the Adminstore
units in London (Cullens, Europa and Harts) with the first, at Maida Vale,
re-opening last month. We now expect to hit our target of 500 Express stores
this year before Christmas, several months earlier than planned.
Our regeneration store development partnerships have proved very successful. So
far, 10 new stores, with 700,000 square feet of space, have resulted from these
partnerships, bringing jobs and modern retail standards to deprived urban areas.
We have four more projects currently under development.
A total of 409,000 square feet of new sales area was opened during the first
half in all our formats. Of this, 56,000 square feet was in extensions to
existing stores. Overall, including the 10 former Safeway stores (with 250,000
square feet of selling space) which we recently agreed, subject to regulatory
approval, to buy from Wm Morrison, we expect to open over 1.5m square feet of
new selling space this year, including 373,000 square feet of extensions.
Looking forward, we are aiming with our programme of space development to
maintain our growth in selling area, from a combination of extensions and new
stores.
Non-Food. The transformation of our non-food offer has continued at a fast pace,
resulting in sales growth, in the UK alone, of 17% during the first half. Volume
growth was even higher, at 20%, driven by our ability to reduce prices for
customers, funded by our growing scale and supply chain efficiency, including
direct sourcing.
We have made excellent progress in major non-food categories. For example, our
home entertainment sales grew by 26% and our stationery, news and magazines
category grew by 23%. Our share of the UK non-food market has grown to 6.5%
(last year 6.0%).
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, whilst still a small proportion of our
overall business, grew by 39% in the first half. The fashion press has again
regularly featured our products.
Retailing Services. Our retailing services operations have all performed well in
the first half.
In Telecoms, we have just extended our offer with our entry into the broadband
internet access market, priced at just £19.97. We are now very competitive in
mobiles, domestic fixed line and internet access. We now have a total of 650,000
customers in Telecoms, with considerable scope for growth.
Tesco.com sales grew by 27% to £307m and profits increased by 95% to £15m. We
are attracting many new shoppers and average customer spend has increased by
nearly 7% over the last three years. We have added eDiets and Legal Store to the
.com offer during the first half.
The momentum of growth in Tesco Personal Finance (TPF) has continued, with total
profit increasing to £84m (last year £56m) of which our share is £42m. TPF is
providing excellent returns in only its seventh year. We now have 4.6m customer
accounts, of which 1.6m are credit cards and 1.4m are motor insurance policies.
Customer numbers are currently growing at 90,000 per month.
International. Our international operations have made good progress. While we
have faced challenges in some of our markets mainly arising from sluggish
consumer spending, profit growth and returns have benefited from strong
marketing, improved productivity, better buying, the benefits of central
distribution and reduced start-up costs. In almost every country we are
continuing to grow market share.
At constant exchange rates, sales increased by 23.0% in the first half. At
actual rates, sales grew by 14.9% to £3.4bn. Profit grew by 42.9% to £140m, with
operating margins rising to 4.6% (last year 3.7%*). At constant exchange rates,
international profit grew by 52.4%.
A total of 34 stores, with 1.0m square feet of selling area, were opened in the
first half, including 13 hypermarkets. A further 65 stores are planned to open
during the second half, adding 1.8m square feet of selling area. Our formats are
rapidly being rolled out in our key international markets. By the end of the
first half, our international operations were trading from 471 stores, including
212 hypermarkets, with a total of 23.1m square feet of selling space.
Earlier this month, 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 trades from a first class portfolio of 25 hypermarkets,
mainly located in and around Shanghai. Including Hymall, over half our selling
space is now outside the UK.
In Europe, sales increased by 18.3% at constant exchange rates and by 11.4% at
actual rates. Profits grew by 26.3%.
• In Hungary, we celebrate our tenth anniversary this month. In the first
half we have seen strong growth in sales, profits and returns. We have
strengthened our market leading position. Earlier this month, we opened our
new fresh food distribution centre at Gyal and we have just launched our
third Tesco petrol filling station.
• In Poland, the economic background has remained difficult, although
recent signs of improving consumer confidence have been reflected in
positive like-for-like sales in our stores. Our business is strong, we are
growing market share and we remain well-placed to benefit from sustained
economic upturn. 60% of our volume now goes through our 400,000 square foot
central distribution centre, which opened in January. We have invested
significantly in cutting prices during the first half, in two separate
campaigns.
• In the Republic of Ireland, we have traded well. Our new formats, led by
Ireland's first Extra at Clare Hall, Dublin, our three Express stores and
our three petrol stations, have all been well-received by customers. We have
reduced prices by EUR 30m so far this year.
• We have experienced competitive market conditions in the Czech Republic.
During the first half we cut prices and launched 150 Value lines. We have
just opened our first Czech compact hypermarket in Melnik.
• In Slovakia, our new store programme will also be supported going
forward by the growth of our compact hypermarket format. We now have four
such stores, with four more planned to open in the second half. We opened a
110,000 square foot hypermarket at Lamac during the first half.
• In Turkey, we have improved margins in our Kipa stores, whilst lowering
prices and increasing staff levels. Customer numbers grew 12% in the first
half.
* Last year sales figures restated due to FRS5: Revenue Recognition, Application
Note G
In Asia, sales increased by 29.2% at constant exchange rates and by 19.4% at
actual rates, and profits by 65.9%.
• Lotus has made good progress in Thailand, posting strong sales, profit
and market share growth. The successful development of new formats continues
and we now have 84 stores trading across four formats, including 27 Express
stores.
• Despite the effects of the consumer credit squeeze in Korea, Homeplus
has continued to make excellent progress, delivering increased sales,
including a resumption in like-for-like growth, profits and returns. We
opened two new hypermarkets in the first half and two Express stores since
the half year.
• In Taiwan, our stores have delivered a strong sales performance,
increased market share and sharply reduced losses.
• In Malaysia, we have seen strong sales growth and with four new
hypermarkets under construction, we expect to double the size of our
business next year.
• After the half year, C Two-Network completed its acquisition of 25 Fre'c
stores in Japan for the equivalent of £13 million through an innovative deal
with the Industrial Revitalisation Corporation.
CORPORATE SOCIAL RESPONSIBILITY
We focus our corporate social responsibility programme on practical activities
that make a real difference. Three recent highlights are:
• More Fairtrade products are bought from Tesco than any other UK
retailer.
• We have been instrumental in developing and promoting SEDEX, a
cross-business, not-for-profit system for harmonising the assessment of
labour standards in the supply chain. Enforcing labour standards is vital
but when businesses operate separate assessment programmes it risks
duplication and unnecessary burdens on suppliers. By encouraging other
companies to join SEDEX, we help to keep costs down and improve both the
assessments and the procedures for corrective action if poor standards are
found.
• Tesco has again been national sponsor for Cancer Research UK's Race for
Life. More than 400,000 women took part this year, including 18,000 Tesco
employees around the UK. Race for Life is well on target to beat all
records, raising over £20m.
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
restated
2004 2003
Increase
24 weeks ended 14 August 2004 Note £m £m %
------- -------- -------
Sales at net selling prices 2 16,495 14,703 12.2
------- -------- -------
Turnover including share of joint 15,283 13,597
ventures
Less: share of joint ventures' turnover (140) (95)
------- -------- -------
Group turnover excluding value added tax 2 15,143 13,502 12.2
- Normal operating expenses (14,267) (12,755)
- Employee profit sharing (29) (25)
- Integration costs (18) (8)
- Goodwill amortisation (25) (22)
------- -------- -------
Operating profit 804 692 16.2
Share of operating profit of joint
ventures and associates 59 37
Net profit/(loss) on disposal of fixed 26 (2)
assets ------- -------- -------
Profit on ordinary activities before
interest and taxation 889 727 22.3
Net interest payable (85) (99)
------- -------- -------
Profit on ordinary activities before 804 628 28.0
taxation
Underlying profit before net profit/
(loss) on disposal of fixed assets,
integration costs and goodwill 822 661 24.4
amortisation
Net profit/(loss) on disposal of fixed 26 (2)
assets
Integration costs (18) (8)
Goodwill amortisation (25) (22)
Goodwill amortisation in joint ventures (1) (1)
and associates
------- -------- -------
Tax on profit on ordinary activities (242) (195)
------- -------- -------
Profit on ordinary activities after 562 433 29.8
taxation
Minority interests (2) (2)
------- -------- -------
Profit for the financial period 560 431 29.9
Dividends (177) (151)
------- -------- -------
Retained profit for the financial period 383 280
======= ======== =======
Pence Pence
Earnings per share 4 7.29 5.97
Adjusted for net profit/(loss) on
disposal of fixed (0.34) 0.03
assets after taxation
Adjusted for integration costs 0.23 0.10
Adjusted for goodwill amortisation 0.34 0.32
------- -------- -------
Underlying earnings per share 4 7.52 6.42 17.1
------- -------- -------
Diluted earnings per share 4 7.22 5.94
Adjusted for net profit/(loss) on
disposal of fixed (0.34) 0.03
assets after taxation
Adjusted for integration costs 0.23 0.10
Adjusted for goodwill amortisation 0.34 0.32
------- -------- -------
Underlying diluted earnings per share 4 7.45 6.39 16.6
------- -------- -------
Dividend per share 2.29 2.07 10.6
Dividend cover (times) 3.25 3.09
TESCO PLC
GROUP BALANCE SHEET
restated restated
14 Aug 28 Feb 9 Aug
2004 2004 2003
£m £m £m
--------- --------- ---------
Fixed assets
Intangible assets 1,015 965 995
Tangible assets 14,110 14,094 13,572
Investments 8 6 8
Investments in joint ventures 297 309 286
Investments in associates 21 21 19
--------- --------- ---------
15,451 15,395 14,880
Current assets
Stocks 1,167 1,199 1,117
Debtors 673 826 651
Investments 895 430 202
Cash at bank and in hand 606 670 490
--------- --------- ---------
3,341 3,125 2,460
Creditors: falling due within one year (5,136) (5,618) (5,591)
--------- --------- ---------
Net current liabilities (1,795) (2,493) (3,131)
--------- --------- ---------
Total assets less current liabilities 13,656 12,902 11,749
Creditors: falling due after more than one (4,626) (4,368) (4,273)
year
Provisions for liabilities and charges (617) (586) (535)
--------- --------- ---------
Total net assets 8,413 7,948 6,941
========= ========= =========
Capital and Reserves
Called up share capital 386 384 366
Share premium account 3,538 3,470 2,610
Other reserves 40 40 40
Profit and loss account 4,403 4,009 3,879
--------- --------- ---------
Equity shareholders' funds 8,367 7,903 6,895
Minority interests 46 45 46
--------- --------- ---------
Total capital employed 8,413 7,948 6,941
========= ========= =========
TESCO PLC
GROUP CASH FLOW STATEMENT
restated
2004 2003
24 weeks ended 14 August 2004 Note £m £m
------- -------
Net cash inflow from operating activities 5 1,433 1,207
Dividends from joint ventures and associates
Income received from joint ventures 45 1
Returns on investments and servicing of finance
Interest received 39 32
Interest paid (143) (131)
Interest element of finance lease rental payments (5) (2)
Cash received on sale of financial instruments - 171
------- -------
Net cash (outflow)/inflow from returns on investments
and servicing of finance (109) 70
Taxation (215) (157)
Capital expenditure
Payments to acquire tangible fixed assets (901) (1,023)
Receipts from sale of tangible fixed assets 710 28
------- -------
Net cash outflow from capital expenditure (191) (995)
Acquisitions and disposals
Purchase of subsidiaries (52) (164)
Net cash at bank and in hand acquired with 1 31
subsidiaries
Invested in joint ventures (24) (23)
Invested in associates and other investments (4) (3)
------- -------
Net cash outflow from acquisitions and disposals (79) (159)
Equity dividends paid (322) (167)
------- -------
Cash inflow/(outflow) before use of liquid resources
and financing 562 (200)
Management of liquid resources
(Increase)/decrease in short-term deposits (457) 37
Financing
Ordinary shares issued for cash 28 12
Net purchase of own shares for share trusts (96) (51)
(Decrease)/increase in other loans (173) 245
New finance leases 128 75
Capital element of finance leases repaid (51) (29)
------- -------
Net cash (outflow)/inflow from financing (164) 252
------- -------
(Decrease)/increase in cash (59) 89
======= =======
TESCO PLC
GROUP CASH FLOW STATEMENT (continued)
restated
2004 2003
24 weeks ended 14 August 2004 Note £m £m
------- -------
Reconciliation of net cash flow to movement in net
debt
(Decrease)/increase in cash (59) 89
Cash outflow/(inflow) from decrease/(increase) in
debt and lease financing 96 (291)
Increase/(decrease) in liquid resources 457 (37)
Loans acquired with subsidiary - (2)
Amortisation of 4% unsecured deep discount loan
stock, RPI bond and LPI bond (8) (8)
Foreign exchange differences 145 (7)
------- -------
Decrease/(increase) in net debt 631 (256)
Opening net debt at February 6 (4,090) (4,737)
------- -------
Closing net debt at August 6 (3,459) (4,993)
======= =======
TESCO PLC
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2004 2003
24 weeks ended 14 August 2004 £m £m
-------- --------
Profit for the financial period 560 431
Gain on foreign currency net investments 9 8
-------- --------
Total recognised gains and losses relating to the financial 569 439
period ======== ========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
restated
2004 2003
24 weeks ended 14 August 2004 £m £m
-------- --------
Profit for the financial period 560 431
Dividends (177) (151)
-------- --------
383 280
Gain on foreign currency net investments 9 8
Reduction in own shares held 10 5
New share capital subscribed less expenses 20 5
Payment of dividends by shares in lieu of cash 42 143
-------- --------
Net addition to shareholders' funds 464 441
Opening shareholders' funds at February 7,903 6,454
-------- --------
Closing shareholders' funds at August 8,367 6,895
======== ========
TESCO PLC
NOTES TO THE ACCOUNTS
The figures for the 53 weeks ended 28 February 2004 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 14 August 2004 were approved by the
Directors on 20 September 2004.
Note 1 Accounting policies
These financial statements 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.
UITF 38 - Accounting for ESOP trusts changes the presentation of an entity's own
shares held in an employee share trust from requiring them to be recognised as
assets to requiring them to be deducted in arriving at shareholders' funds.
The reclassification of shares acquired by the share trusts from fixed assets
and debtors to equity has reduced net assets by £32m at 14 August 2004 (9 August
2003 £57m) and 28 February 2004 £42m. In addition, the net cash outflow arising
from the purchase of shares by the share trusts has been reclassified from
capital expenditure and financial investment to financing.
In the Annual Report and Financial Statements 2004 the Group revised its
accounting policy for turnover in accordance with FRS 5 Application Note G
'Revenue Recognition' (issued November 2003).As a consequence the comparative
sales and cost of sales figures for the 24 weeks ended 9 August 2003 have been
restated. The change, which has no impact on operating profit or cash flow,
reduces sales and cost of sales by £195m.
Note 2 Group turnover analysis
restated
2004 2003 Increase
24 weeks ended 14 August 2004 £m £m %
-------- -------- --------
Sales (inc VAT)
UK 13,113 11,760 11.5
Rest of Europe * 1,852 1,662 11.4
Asia * 1,530 1,281 19.4
-------- -------- --------
Group 16,495 14,703 12.2
======== ======== ========
Turnover (ex VAT)
UK 12,079 10,829 11.5
Rest of Europe * 1,629 1,474 10.5
Asia * 1,435 1,199 19.7
-------- -------- --------
Group 15,143 13,502 12.2
======== ======== ========
Note 3 Group operating profit analysis
2004 2003 Increase
£m £m %
-------- -------- --------
UK 707 624 13.3
Rest of Europe 72 57 26.3
Asia 68 41 65.9
-------- -------- --------
847 722 17.3
Integration (18) (8)
Goodwill amortisation (25) (22)
-------- -------- --------
Operating profit 804 692 16.2
======== ======== ========
UK operating margin 5.9% 5.8%
Rest of Europe operating margin 4.4% 3.9%
Asia operating margin 4.7% 3.4%
======== ======== ========
• Results for Rest of Europe and Asia are for the period ended 30 June
2004, with the exception of the Republic of Ireland which is to 14 August
2004.
Note 4 Earnings per share and diluted earnings per share
The calculation of earnings is based on the profit for the period of £560m (2003
- £431m).
For the purpose of calculating earnings per share, the number of shares is the
weighted average in issue during the 24 weeks of 7,679 million (2003 - 7,224
million).
24 weeks 2004 24 weeks 2003
------------- -------------
Weighted average number of dilutive share
options 78 38
Weighted average number of shares in issue
in the period 7,679 7,224
-------- ---------
Total number of shares for calculating diluted
earnings per share (million) 7,757 7,262
-------- ---------
Note 5 Reconciliation of operating profit to net cash inflow from operating
activities
24 weeks 24 weeks
2004 2003
£m £m
-------- ---------
Operating profit 804 692
Depreciation and amortisation 371 336
Decrease in stocks 45 35
Increase in development property (3) (1)
Decrease in debtors 1 60
Increase in trade creditors 32 19
Increase in other creditors 183 66
Decrease in working capital 258 179
-------- ---------
Net cash inflow from operating activities 1,433 1,207
======== =========
Note 6 Analysis of changes in net debt
At 28 Feb Cash Other non Exchange At 14 Aug
2004 flow cash movements 2004
changes
£m £m £m £m £m
-------- -------- -------- -------- --------
Cash at bank and in 670 (59) - (5) 606
hand
Liquid resources (a) 430 457 - 8 895
Bank and other loans (775) 342 - 155 (278)
Finance leases (69) (19) - - (88)
-------- -------- -------- -------- --------
Debt due within one (844) 323 - 155 (366)
year
Bank and other loans (4,180) (169) (8) (13) (4,370)
Finance leases (166) (58) - - (224)
-------- -------- -------- -------- --------
Debt due after one year (4,346) (227) (8) (13) (4,594)
-------- -------- -------- -------- --------
(4,090) 494 (8) 145 (3,459)
======== ======== ======== ======== ========
(a) Liquid resources comprise short-term deposits and money-market investments
which mature within 12 months.
Note 7 Acquisitions
The company acquired Adminstore Limited, a UK convenience retailer on 17 April
2004. The purchase consideration including fees was £55m, resulting in goodwill
of £52m. The principal fair value adjustment made to the net book values of the
assets and liabilities of Adminstore Limited comprise the revaluation of
freehold property to market value, based on valuations obtained from independent
experts. Adjustments have also been made to align accounting policies for
tangible assets, these adjustments were immaterial. The acquisition has been
accounted for using acquisition accounting.
Book Adjustments Revaluations Fair values
values of to align at date of
acquired accounting acquisition
business policies
£m £m £m £m
Fixed Assets 3 - 1 4
Stock 3 - - 3
Debtors 4 - - 4
Cash 1 - - 1
Creditors (8) - - (8)
Provisions for
liabilities (1) - - (1)
and charges --------- --------- --------- ---------
Net assets acquired 2 - 1 3
Consideration - cash 55
--------- --------- --------- ---------
Goodwill 52
========= ========= ========= =========
For the year ended 27 September 2003, Adminstore Limited reported an audited
profit after tax of £1.3m. For the period 28 September 2003 to 17 April 2004,
the unaudited profit before exceptional items was £1.9m and the unaudited
post-tax loss after exceptional items was £7.6m.
Note 8 Subsequent Events
On 1 September 2004 the company formed a joint venture with Ting Hsin investing
in the Hymall chain of stores in China. The cost of the investment was £140m.
Hymall currently operates a chain of 25 hypermarkets mainly located in high
quality shopping mall developments.
Independent review report to Tesco PLC
Introduction
We have been instructed by the company to review the financial information which
comprises the group profit and loss account, the group balance sheet, the group
cash flow statement, the group statement of total recognised gains and losses,
the reconciliation of movements in shareholders' funds and the related notes. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 24 weeks ended
14 August 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
London
20 September 2004
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