A business for a new decade Tesco PLC Annual Review and Summary Financial Statement 2010 Contents Financial highlights Overview Chairman’s statement A business for a new decade Tesco at a glance Chief Executive’s review Our business Long-term strategy and business highlights International Core UK Non-food Retailing Services Community Our people 1 2 6 8 Group sales (including VAT)* +6. 8% +10. 1% +10. 4% +9. 1% +9. 8% +9. 1% 2008/9 ‡ Underlying profit before tax Group profit before tax 10 12 14 16 18 20 22 Underlying diluted earnings per share** Diluted earnings per share
Summary Financial Statement Summary report of the Directors 24 Group financials 26 Our Board of Directors 29 Dividend per share All growth figures reported on a 52-week basis.
52 weeks ended 27 February 2010 2009/10 52 weeks 53 weeks Group sales (? m) (including VAT)* Group revenue (? m) (excluding VAT) Group trading profit (? m) Underlying profit before tax (? m) Group profit before tax (? m) Underlying diluted earnings per share (p) Dividend per share (p) Group enterprise value (? bn) (market capitalisation plus net debt) Return on capital employed 62,537 56,910 3,412 3,395 3,176 31. 6 13. 05 41. 4 12. 1% 58,570 53,115 3,039 3,083 2,876 28. 50 – – – 59,426 53,898 3,086 3,124 2,917 28. 87 11. 96 35. 9 12. 8% * Group sales (inc. VAT) excludes the accounting impact of IFRIC 13 (Customer Loyalty Programmes).
** Growth in underlying diluted EPS calculated on a constant tax rate basis. ‡ Restated for the impact of IFRIC 13 and IFRS 2. www. tesco. com/annualreview2010 Over the past decade Tesco has transformed itself into a diverse international business – and by following our consistent strategy we are well positioned for long-term growth.
I am pleased to report that the Tesco team has once again delivered a good set of results – guided by experienced management who have steered the business through recessions before. As markets around the world are emerging from this recession each part of our business is well positioned to pursue our strategy for growth. We have continued to grow sales, profits and market share over the past year. We’ve also significantly strengthened our balance sheet.
Our acquisition in South Korea is performing well and delivering excellent results, we’ve opened our first three Tesco Lifespace shopping malls in China and we have made good progress building the infrastructure and developing new products for Tesco Bank. I am also pleased to announce that we again increased our dividend – for the 26th consecutive year. This consistent track record of delivering dividend growth for shareholders is unrivalled in the FTSE 100. The strong Group results over the last year have been achieved through a constant focus on what matters most to customers in challenging times around the world.
A good example of this has been our renewed focus on rewarding loyalty – at home and abroad – which has been a great success with customers. In the UK, we increased our Clubcard investment with Double Points – giving customers even greater reward for their loyalty. Internationally, we launched Clubcard in three more countries during the year – in Poland, Slovakia and Thailand – and for the first time we now have more Clubcard holders internationally than in the UK. It has been another significant year for our work on the environment and within local communities.
As we grow, our customers increasingly look to Tesco to take the lead in these areas – and we are. In January, we opened the world’s first zero-carbon store at Ramsey in Cambridgeshire – the latest step in our journey to reduce the carbon footprint of our business. Over the past year we have made significant progress towards our long-term goals by reducing our emissions by 7. 8% on our baseline 2006/7 store and distribution porfolio. This year we donated over ? 60 million to charities – once again exceeding our target to give the equivalent of 1% of our profits to good causes.
These good results are testament to the hard work of our people. The Tesco team is now 472,000 strong – and we remain united by our goal to improve the shopping trip for our customers. I would like to thank all our people for their hard work which I know will continue in the year ahead. David Reid Chairman Tesco PLC Annual Review and Summary Financial Statement 2010 1 A growth busi People Sales area 472,000 (000s) 94m sq ft (m sq ft) International International UK UK 472 94 94 237 28 28 03 04 05 06 07 08 09 2010 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 2010 09 2010 01 02 2
Tesco PLC Annual Review and Summary Financial Statement 2010 Our position amongst the leading global retailers hasn’t happened by chance. For well over a decade, our long-term strategy has been delivering strong and consistent growth. ness… Group sales Operating profit Total shareholder return* ?62. 5bn (? bn) ?3. 5bn (? bn) Tesco FTSE 100 Eurofirst Food & Drug 400 350 300 250 200 150 100 50 0 * Index rebased to 100 62. 5 3. 5 22. 8 01 02 03 04 05 06 07 08 09 2010 1. 2 01 02 03 04 05 06 07 08 09 2010 00 01 02 03 04 05 06 07 08 09 2010 Tesco PLC Annual Review and Summary Financial Statement 2010 Through diversification into new geographies, new product areas and new services, we’re developing a business for the future – with sustainable growth for years to come. … for a new de 53% In 2000, Tesco was operating in markets representing 8% of global GDP; today it’s 53%. Zero We are committed to being carbonneutral by 2050 and helping our customers halve their own carbon footprint by 2020. 65% Today 65% of our selling space is outside the UK. 4 Tesco PLC Annual Review and Summary Financial Statement 2010 cade Global We’re starting to unlock the benefits of being a global Group: 8% 48% of our space is less than five years old. • Global sourcing volumes have grown threefold in six years • Clubcard is now in seven countries • F&F clothing is in ten countries • Group shared services centre in Bangalore. No. 1 Customers expect to be able to shop where and when they want – as well as having great stores we’re the most profitable online grocery retailer in the world. Multi-format Our flexible range of formats helps us to adapt our approach to local customers – wherever they are – from Extra hypermarkets to Express convenience stores. Local
We’ve learnt how to be ‘local’; in South Korea, our largest international business, we have over 22,000 employees and just six UK expats. Tesco PLC Annual Review and Summary Financial Statement 2010 5 Tesco in numbers By remaining focused on our strategy and helping customers to save money, Tesco has weathered the economic storm well. Group sales ?62. 5bn ? 3. 4bn 4,811 472,000 14 Tesco Bank ? 0. 9bn Asia ? 9. 1bn Europe ? 10. 0bn UK ? 42. 3bn US ? 0. 4bn Group sales ? bn 43. 1 46. 6 51. 8 59. 4 62. 5 Underlying profit before tax 2006 2007 2008 2009 2010 Stores worldwide Group space by region
US 1. 5% People worldwide Europe 29. 5% UK 35. 1% Asia 33. 8% Countries Group sales Group profit Tesco Bank 7% International 22% UK 71% 6 Tesco PLC Annual Review and Summary Financial Statement 2010 Tesco around the world Europe Region Revenue* ? m Stores Employees UK Total Revenue* ? m Stores Employees 38,558 2,482 287,669 Republic of Ireland Poland Hungary Czech Republic Slovakia Turkey Total 2,282 1,942 1,698 1,287 891 595 8,695 119 336 176 136 81 105 953 14,158 23,655 20,079 12,949 8,105 7,630 86,576 Asia Region Revenue* ? m Stores Employees US Total Revenue* ? m Stores Employees
South Korea Thailand China Malaysia Japan Total 4,162 2,344 844 633 449 8,432 305 663 88 32 142 1,230 22,739 34,775 22,668 9,423 4,636 94,241 349 145 3,246 India In 2009/10 there were an additional 362 people working in other locations such as international buying global hubs. Store numbers exclude one store in Calais, France. Total Revenue for Europe excludes France. Total Revenue for Asia excludes India. * Revenues are sales excluding VAT. In India, we have an exclusive franchise agreement with Trent, the retail arm of the Tata Group. We are supporting the development of their Star Bazaar format.
We plan to open our first cash and carry store by the end of the year. Tesco PLC Annual Review and Summary Financial Statement 2010 7 Our well-established and consistent strategy for growth has given the business momentum to grow through the downturn. C e or UK No n- fo I n te r n i o n a l at Sir Terry Leahy Chief Executive 8 Tesco PLC Annual Review and Summary Financial Statement 2010 Re ta ilin g Se r v i ce s od Comm uni ty Chief Executive’s review Watch the video: www. tesco. com/annualreview2010/ resultspresentation This year’s results show another solid performance from across the Group.
By staying focused on doing the right thing for customers we have weathered the economic storm well. And by remaining committed to our long-term strategy we are emerging from recession stronger – with good building blocks in place for future growth. Each element of our strategy – UK, International, Non-food, Retailing Services and Community – is stronger now than this time last year. In International, our businesses have made good progress in a challenging global economic environment. Our strategy is working – we’ve grown sales, profits and market shares and we’ve continued to invest in the drivers of future growth.
Our performance in Asia was particularly pleasing, our business in Europe held up well despite the obvious economic challenges and I believe the start-up losses in our US business will now begin to reduce as Fresh & Easy establishes itself. Our UK business had a good year. By remaining focused on helping customers spend less and encouraging loyalty with an increased investment in Clubcard, our UK business has delivered a solid performance. In our core grocery operations, we’re growing ahead of the industry as a whole and we have been less affected by falling inflation than the market at large. In Non-food we have made good progress.
In the UK we achieved a particularly strong performance in electricals, entertainment and toys. Our clothing range is becoming an international success, led by our F&F range which is growing rapidly in our European markets and this year was launched in four countries in Asia. Our Retailing Services have grown sales and profits once again. We’ve also been building the platforms for future growth, particularly in Tesco Bank, which is making good progress in developing its own systems and people capabilities as well as working on a broader product range as it moves towards becoming a full-service retail bank.
In the same way that we’ve stuck to our strategy in other parts of the business, we’ve also remained committed to our work on Community and the environment. In October, we set ourselves three challenging long-term targets: to become a zero-carbon business by 2050; to reduce the carbon impact of the products in our supply chain by 30% by 2020; and to help our customers halve their own carbon footprint by 2020. And we’re making good progress already. We’re delivering for all stakeholders: an improved shopping trip for customers; training and good careers for our staff; growth and nnovation with our suppliers; in local communities we’re supporting causes that matter to customers; and we’re delivering good returns to shareholders. Looking forward The outlook for shareholder returns is encouraging: we have a strong core UK business growing well; our international businesses offer significant upside from recovery in the short term and maturity in the longer term; our balance sheet is strengthening; and we’re creating value through good property development.
Our positions in high-growth international economies and non-food meant we were always likely to face strong headwinds during the recession but it will be these parts of our business which will grow fastest in the recovery and beyond. I am confident that with the prospect of an improving global economy and recent investments in acquisitions and new selling space making a greater contribution going forward, returns will improve significantly – starting this year. Sir Terry Leahy Chief Executive
Tesco PLC Annual Review and Summary Financial Statement 2010 9 Long-term strategy International Core UK Tesco has a well-established and consistent strategy for growth. The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong, sustainable long-term growth by following customers into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia and more recently in the United States.
The strategy has five elements, reflecting our four established areas of focus plus Tesco’s commitments on community and the environment: • to be a successful international retailer; • to grow the core UK business; • to be as strong in non-food as in food; • to develop retailing services; and • to put community at the heart of what we do. The strategy to diversify the business has been the foundation of Tesco’s growth in recent years. It was laid down in 1997, with the fifth element – Community – being added in 2007.
Many of the new businesses that have been created and developed over the last 13 years as part of this strategy are now of significant scale and highly profitable – in fact we are now market leader in many of our markets outside the UK. In 1997 our International business generated 1. 8% of the Group’s profits and we had only just entered the Retailing Services markets; today these parts of our business represent 22% and 16% of profits respectively. Importantly, the strategy has given the business momentum to grow well through the economic downturn.
By continuing to invest through the recession – in the customer offer, in infrastructure and in our people – we are now well placed to grow faster and improve shareholder returns as the global economic environment improves. Our international business has delivered a strong performance despite many of our markets feeling the impact of the global recession. Sales Our market-leading UK business has continued to grow well by helping customers to spend less during the downturn. Sales ?19. 4bn Sales up ?42. 3bn Sales up 8. 8% 4. 2% Trading profit 15 The first Tesco outside the UK opened just 15 years ago – in Hungary New space 2. 4bn Trading profit up 6. 7% UK results1 ?m 42,254 2,413 6. 2% % growth 4. 2%* 6. 7% 0. 1% Sales (inc. VAT) Trading profit Trading margin 5. 1m sq ft New stores 324 Regional results Asia Sales (inc. VAT) Trading profit Trading margin ? m 9,072 440 5. 2% % growth 19. 7% 23. 9% 0. 2% * 5. 5% sales growth ex-petrol. 1 Tesco. com, Tesco Telecoms and dunnhumby are included in the UK segment and Tesco Bank is excluded from the UK segment under IFRS 8. 15m active Clubcard holders Europe Sales (inc. VAT) Trading profit Trading margin ?m 9,997 474 5. 4% % growth (0. 7)% (4. 0)% (0. 2)% US Sales (inc.
VAT) Trading profit ?m 354 (165) % growth 72. 7% (17. 9)% 10 Tesco PLC Annual Review and Summary Financial Statement 2010 Non-food Retailing Services Community Our people Our general merchandise offer is growing in sophistication with improved ranges and prices and more global sourcing. Sales We’ve made good progress this year in our Retailing Services businesses: Tesco Bank; tesco. com; Telecoms; and dunnhumby. Sales We’re continuing to lead the way in caring for the environment, supporting local communities and encouraging healthy lifestyles. Store waste in the UK diverted from going directly to landfill
As we grow our business we’re developing our people to become leaders for the future. People ?13. 1bn Sales up ?3. 6bn Tesco Bank Trading profit up 6. 2% 1 in 4 We sell 1 in every 4 smallscreen TVs sold in the UK 100% 270 Community Champions 472,000 810 new graduates recruited this year 17. 6% 400,000 new customer accounts over the past year tesco. com 6. 2m We helped 6. 2 million people get active worldwide ?98m in shares awarded under Shares In Success scheme 1,000+ Tesco Tech Support advisors in UK stores 100% 100% of eligible own brand products now have nutritional labelling 4% Like-for-like clothing sales in Central Europe up 14% 1bn grocery items delivered last year 17 The first 17 students completed the Tesco Foundation Degree in July 500 Carbon-footprinted products in the UK and South Korea 26% Profits up Telecoms 4m Improved attendance levels put an additional four million hours into UK stores and depots 2m+ Tesco Mobile customers 195,000 of our people have a personal stake in Tesco 100+ Phone Shops 50% of people on the boards of our international businesses are local to that country 10 F&F sold in 10 countries dunnhumby 26 unnhumby serves other retailers and manufacturers in 26 international markets p Tesco PLC Annual Review and Summary Financial Statement 2010 11 International Our international business has delivered a strong performance despite many of our markets feeling the impact of the global recession In International we have delivered a resilient performance in the face of challenging economic headwinds. Our businesses have made good progress – delivering for customers today and at the same time investing in the drivers of future growth. Our strategy is working – and we ended this year stronger than we started it.
Each of our businesses has adapted itself to the demands of its local market – with strong local management teams finding ways to lower costs and deliver great value for customers. Increasingly our international businesses are also utilising the scale and skill of the Tesco Group – with more international sourcing, Discount Brands now in seven markets, F&F clothing now in ten countries, Clubcard introduced in seven countries with more Clubcard holders internationally than in the UK – and the Tesco Operating Model sharing our global best practice to the benefit of all our businesses.
With clear signs that our international markets are starting to recover we are planning to resume a faster pace of new space opening in the coming year. In 2009/10 we opened 5. 1m sq ft of new space and in 2010/11 we will open 8. 5m sq ft in addition to nine shopping malls in China. The performance of our International businesses through this severe recession has provided reassurance on the quality Lifespace – our unique approach in China The size and scale of China provides unique challenges for a retailer but also offers a huge opportunity for a business prepared to show flexibility and vision.
Our strategy is to expand into less developed second and third tier cities by opening hypermarkets in leading shopping malls. We’ve found it hard to find locations with the right facilities in some cities – giving us an opportunity to develop our own malls, to ensure they are the right size, location and design to meet the needs of the new Chinese consumer. During the year we opened our first three Tesco Lifespace shopping malls in Fushun (pictured), Qingdao and Qinhuangdao and we will open nine more this year.
Each mall comprises approximately 500,000 sq ft of retail space over five floors and is a onestop destination providing shopping (including a 100,000 sq ft Tesco hypermarket), entertainment, dining and leisure. We are partnering with investors to share the capital commitment on some of these projects, enabling us to roll out more sites faster. and resilience of our assets and local management teams and strengthens our confidence in our international strategy and long-term growth prospects. In Asia, we have delivered a strong performance despite challenging economic conditions in the region.
We have grown sales and profits well – driven by new space and the excellent performance of the stores acquired in South Korea in 2008, which are now profitable. Europe overall delivered a robust performance against strong economic headwinds in the form of increasing unemployment and price deflation. By reducing costs and lowering prices for customers and by continuing to invest in new space we have made market share gains across our markets. A good example is Ireland where we have made substantial changes to our business, which was facing the dual challenge of a severe recession and crossborder trading.
By integrating more of our international brand buying with our UK business we have been able to reduce the prices of 12,500 products by an average of around 20%. In the United States, Fresh & Easy has been making good progress, despite prolonged weakness in the California, Nevada and Arizona economies. Losses were broadly in line with guidance and reflect the fact that Fresh & Easy has been built with the infrastructure to support hundreds of stores. Although we do not expect losses to be much lower in 2010/11 we believe they have now peaked.
There are more Clubcard holders internationally than in the UK 12 Tesco PLC Annual Review and Summary Financial Statement 2010 “… I get special offers with my Member card” Ji Tesco customer Shanghai, China Tesco works for me… Watch the video: www. tesco. com/tescoworksforme Tesco PLC Annual Review and Summary Financial Statement 2010 13 “… Tesco Express – it’s the easiest thing at lunchtime” Kevin and Allan Tesco customers East Ham and Islington Tesco works for us… Watch the video: www. tesco. com/tescoworksforme 14 Tesco PLC Annual Review and Summary Financial Statement 2010
Core UK Our market-leading UK business has continued to grow well by helping customers to spend less during the downturn Our strategy of earning customers’ loyalty by helping them to spend less – with low prices and affordable new products such as the Discount Brands – deflated sales growth initially but it was the right thing to do for customers. By encouraging and rewarding loyalty – through an increased investment in Clubcard – we have maintained steadier sales growth during the year than the industry as a whole, which has seen significant slowdown with the steep decline in inflation.
Whilst focusing on lowering prices and offering great promotions has been a real priority during the recession, delivering for customers is also about providing an ‘Every little helps’ shopping trip. That’s why we have continued to invest in availability, service, range and quality. We understand how important it is to our customers that their favourite items are available every time they shop. Over the past year we have introduced a number of new initiatives to improve stock management and reduce further the number of gaps on our shelves.
By developing more efficient ordering systems, introducing better in-store monitoring processes and changing the way we store our stock we have reduced evening gaps in fresh food by 18%. We’ve also stayed ahead of our competitors on key customer service measures. Our one-in-front initiative – where if there is more than one customer queuing at a single checkout we open another – and increased investment in selfservice checkouts, which now account for a quarter of all Clubcard – 15 years of loyalty Clubcard is our unique way of saying thank you to our customers for shopping with us.
Launched in 1995, Clubcard now has 15 million active members in the UK. Clubcard not only rewards our customers for their loyalty, but it also provides us with valuable insight into changing shopping patterns. By monitoring this data and spotting trends early we’re able to respond quickly and ensure that we’re always providing customers with what they want, when and where they want it. This year Clubcard became even more rewarding. By increasing our investment with Double Points, customers earned ? 550 million in total in vouchers.
Double Points has encouraged more customers to sign up, a Clubcard is now used with a higher proportion of transactions than before and 18% more UK households are redeeming vouchers than a year ago. The knowledge and expertise of operating Clubcard – combined with insight and analysis from dunnhumby – is now being adopted across our international businesses. We now have Clubcard in seven of our international markets – in fact we now have more Clubcard holders overseas than in the UK. transactions, continue to keep us ahead of the industry on customer measures of checkout service.
We trained more than 200,000 staff to help them respond better to customer needs and our ‘Every Comment Helps’ initiative, which encourages customers to give instant feedback via text or email, has given us the benefit of 60,000 customer comments to help us improve our offer and service. Tesco’s diverse and adaptable range allows us to offer a wide choice for every customer whatever their budget. Through the recession we have helped customers with lower-priced ranges such as Discount Brands and Market Value and we have also offered them affordable treats such as the Finest Restaurant Collection ready meals, which have been very popular.
We continue to innovate our range with over 2,600 new or improved own-label food lines launched this year. Quality – particularly in fresh food – remains important to customers even in tough times and as we emerge from recession this will become even more important. That’s why we have been investing in our fresh food offer with a wide-ranging change programme. Improved technical standards, additional specialist staff training, closer relationships with our suppliers and significant changes to the way we merchandise some key products are helping us deliver a stronger range and better shopping experience for customers.
These and other initiatives helped Tesco win the ‘Fresh Produce Retailer of the Year’ Award in 2009. Customers earned ? 550m in Clubcard vouchers Tesco PLC Annual Review and Summary Financial Statement 2010 15 Non-food Our general merchandise offer is growing in sophistication with improved ranges and prices, more global sourcing and a stronger online presence By remaining focused on providing customers with excellent quality and value, our non-food business has been resilient through the downturn.
In some key categories we have made significant market share gains as more customers have been encouraged to try our non-food range in the search for great value and as some competitors have felt the strain. With our growing range in-store, customers are recognising the convenience of buying non-food items with their weekly groceries, rather than making a special trip to the high street. Our sales in toys, for example, continue to grow rapidly – up 25% this year. In entertainment products, we’re reducing prices and differentiating our range by signing deals directly with film studios.
This year we signed a groundbreaking deal with DreamWorks for the exclusive rights to the short animated film Merry Madagascar, which sold over one million copies over Christmas. In some areas, such as electricals, customers are looking for specialist, impartial advice. That’s why we now employ over 1,000 specially trained Tesco Tech Support advisors in our largest stores in the UK. This team has helped Tesco double turnover in electricals in the last four years; we now sell one in every six microwaves in the UK and one in four small-screen TVs.
F&F – a global brand Our ambition is to make F&F a leading global fashion brand, offering unbeatable value for money, not compromised by quality, design or provenance. F&F launched in the UK in 2001 and has expanded rapidly since then with sales last year of ? 540 million in the UK – supported by the launch of our online clothing site in October. F&F launched in Central Europe in 2008 and we’re already making excellent progress. F&F is rapidly becoming established in the region with customer awareness of the brand growing from 34% to 61% in the last year.
Across our markets in Central Europe, Tesco is already one of the largest clothing retailers. In fact during the year we sold more F&F items – 68 million – than the combined populations of our four countries in the region: Poland; Hungary; Czech Republic; and Slovakia. We’re now building on the success in the UK and Central Europe to launch F&F across our Asian markets. This year we launched in China, Malaysia, South Korea and Thailand. As with any brand, F&F can’t afford to stand still, which is why we’re broadening the brand’s appeal with new ranges – F&F Couture and F&F Jewellery.
We are also bringing global scale and skill to our non-food business. For example, in Europe, the use of joint buying for clothing – whereby 95% of the supplier base in Central Europe is the same as Ireland and the UK – enables us to reduce supply chain costs, helping us to maximise quality whilst minimising prices for customers. Shopping habits are changing – customers want to buy online as well as from stores and catalogues – and many will use a combination of these to research before buying. With an integrated multichannel approach we’re making it easy for customers, hichever way they want to shop. In addition to the 15,500 products available online through Tesco Direct, we now have two new specialist websites launched in October: • www. tesco. com/clothing combines familiar Tesco labels – such as Cherokee and F&F – with new Tesco lines offered exclusively online, plus a number of other brands. It became one of the top ten most visited clothing websites within a few weeks of its launch; • www. tesco. com/entertainment has brought together, for the first time, our entire physical and digital entertainment offer, in a new and easy to use one-stop site.
Customers can buy a CD, DVD or game and a film or album download, all in one transaction. From the outset the new site has proved popular with customers. 16 Tesco PLC Annual Review and Summary Financial Statement 2010 Watch the video: www. tesco. com/tescoworksforme Tesco works for me… Sasha with Schmoo Tesco customer Friern Barnet “… everything is in one location – I just bought a washing line” Tesco PLC Annual Review and Summary Financial Statement 2010 17 Watch the video: www. tesco. com/tescoworksforme … I have my cat insured with Tesco – they were very reasonable” Tesco works for me… Sue with Lexi Tesco customer Muswell Hill 18 Tesco PLC Annual Review and Summary Financial Statement 2010 Retailing Services We’ve made good progress this year in our Retailing Services businesses Following the announcement in July 2008 of our intention to take full ownership of Tesco Bank, we set a target to grow the profitability of our Retailing Services businesses from a little under ? 400 million in 2007/8 to ? 1 billion.
This year we made good progress in attracting new customers and growing sales and profits while at the same time laying the foundations for further growth. Tesco Bank Overall, Tesco Bank has delivered a good performance in a challenging retail banking market growing profits by 13% to ? 250 million. Bad debt levels rose during the year but have now stabilised and throughout have remained below industry averages. We grew the number of customer accounts by more than 400,000 in the last year – to a total of more than 6. 2 million across all products.
We’ve made good progress in developing the systems we’ll need to operate Tesco Bank on a standalone basis, selecting partners for both our banking and insurance platforms. Subject to regulatory approval, we anticipate launching new savings products and mortgages by the end of financial year 2010/11, with current accounts to follow by the second half of 2011. tesco. com Our online businesses – including dotcom grocery and Direct – delivered another strong performance, achieving a 14% increase in sales with profits rising 26% to ? 136 million.
The number of active customers in our online grocery business has grown to over one million and basket size has increased. Tesco Direct also had another good tesco. com – a leading online retailer Including both our grocery and non-food offer, tesco. com is one of the largest online retailers in the UK, with sales of more than ? 2 billion. Just as in our stores, our success comes from listening to customers and a constant drive to ensure that we provide an online ‘Every little helps’ shopping experience. With more than a million active customers, our online rocery business is the market leader and the most profitable business of its kind in the world. It continues to grow strongly – last year we delivered over one billion items. We have put ease of use at the heart of our online shopping trip – for example, our ‘favourites’ feature, which makes shopping online easier by using Clubcard to remember a customer’s favourite in-store and online purchases. We also continue to innovate with our ‘price match’ on any substituted products and our ‘shorter than we’d like’ code life guarantee.
Tesco Direct extends the reach of our non-food offer with over 15,500 products available to customers via the internet and catalogues. Customers can choose to have goods delivered to their home or they can pick them up at one of our 261 in-store Direct desks. This year we relaunched our online entertainment site, enabling customers to buy downloads alongside the physical product, and we launched our online clothing website with a range of 2,500 fashionable items, of which 1,000 were exclusively online. year making good progress on its customer service offer, growing sales by 28% and continuing on its path towards profitability.
Tesco Telecoms Profit from our telecoms business grew, driven primarily by Tesco Mobile, which achieved a 14% increase in customer numbers – to more than two million – in a declining pre-pay phone market. Tesco Mobile also successfully entered the ‘pay monthly’ market this year and in December broadend its appeal further by becoming only the third UK operator to offer the iPhone, for which sales have been encouraging. We have made good progress in rolling out our in-store Phone Shops with 105 open at year end and a further 100 planned by the end of this year.
Phone Shops are transforming our ability to sell products that require an assisted sale, particularly contract mobile phones. Also in 2009 we signed a wholesale broadband agreement with Cable & Wireless, which will enable us to relaunch our broadband offer to customers in 2010 with higher bandwidth speeds and lower prices. dunnhumby This year marks dunnhumby’s 20th anniversary. In addition to supporting Tesco’s Clubcard in seven countries around the world, dunnhumby serves other retailers and manufacturers in 26 international markets; in fact Tesco now represents only around 15% of its sales. unnhumby is growing fast – with profits up 28% in the year. dunnhumby now touches the lives of over 350 million consumers through its client relationships. 19 Tesco PLC Annual Review and Summary Financial Statement 2010 Community We’re continuing to lead the way in caring for the environment, supporting local communities and encouraging healthy lifestyles We are committed to being a responsible neighbour within our local communities and taking a leadership role on the environment. This is something our customers expect and we believe is increasingly important for our growth.
Caring for the environment Over the past few years we have played a leadership role amongst large businesses in tackling climate change, through our own actions and in collaboration with our customers, suppliers, NGOs and governments around the world. We have made great progress this year in reducing CO2 emissions across our business globally. Emissions from our baseline 2007 store and distribution centre portfolio have fallen by 7. 8% over the past year and new stores and distribution centres built since 2006/7 are on average emitting 28. 8% less CO2 than their equivalents in 2006/7.
We have delivered on our promise to divert 100% of store waste in the UK from going directly to landfill. The Key to a Low-Carbon World’. At that conference, we committed ourselves to a new set of challenging long-term targets: to become a zero-carbon business by 2050; to reduce the carbon impact of products in our supply chain by 30% by 2020; and to help our customers halve their own footprints by 2020. Actively supporting local communities Throughout the year, we gave over ? 60 million in donations to charities and contributions to community projects including cause-related marketing, gifts-inkind, staff time and management costs.
Once again we have donated the equivalent of more than 1% of our profits to good causes. Additionally, including our Charity of the Year partnerships, which go from strength to strength, this year our staff raised over ? 7 million for charity across the Group. Throughout the year we gave over ? 60m in donations to charities We have launched our Trading Fairly programme and recruited our first ethical action managers in South Africa and Bangladesh, who work with our local suppliers to improve conditions across the supply chain.
We have also introduced ‘Trading Fairly’ Awards for our produce and clothing suppliers, which reward suppliers making particularly strong efforts to improve conditions for their employees. Giving customers healthy choices Across the Group we have exceeded our target of nutritional labelling on own-brand products – we now label 100% of eligible products – giving customers the tools they need to make healthy choices. As part of our strategy to encourage customers to lead more active lives, we run a range of programmes around the world from aerobic competitions in Thailand to charity ‘Runs for life’ in Slovakia and the Czech Republic.
This year we succeeded in getting 6. 2 million people active across the world. Creating good jobs and careers We are dedicated to creating good jobs wherever we are. We will create 16,000 new jobs this year, including 9,000 in the UK and 380 for the long-term unemployed. We have continued to roll out Community Champions right across the Group. Community Champions are staff members who dedicate paid hours to coordinate store activities in their We opened the world’s first zero-carbon supermarket in Ramsey, local communities.
The Champions support local charities, organisations, Cambridgeshire, in January this year, deploying a range of energy- schools and causes that local people really care about. We now have efficiency measures, natural Champions in seven countries. refrigeration and renewable energy technology. Buying and selling products responsibly In 2007 Tesco invested ? 25 million In 2009, over 3,300 suppliers to create a new Sustainable covering all our markets Consumption Institute (SCI) responded to our Group-wide at the University of Manchester. nonymous supplier survey – The SCI aims to answer some Supplier Viewpoint. At least 90% of the fundamental questions agreed that we pay on time, about how to make a consumer we are professional, we treat society sustainable. them with respect and we are committed to meeting customer In October, the SCI held a requirements. conference to launch its first major report ‘Consumers: 20 Tesco PLC Annual Review and Summary Financial Statement 2010 “… Tesco is environmentally friendly” Tesco works for me… Julia with Krystian Tesco customer Krakow, Poland Watch the video: www. esco. com/tescoworksforme Tesco PLC Annual Review and Summary Financial Statement 2010 21 Watch the video: www. tesco. com/tescoworksforme Tesco works for me… Marcia Tesco employee Cheshunt “… you are given the opportunity to go as far as you want” 22 Tesco PLC Annual Review and Summary Financial Statement 2010 Our people As we grow our business we’re developing our people to become leaders for the future Our Values are ‘No-one tries harder for customers’ and ‘We treat people how we like to be treated’. These values are interlinked and underpin everything we do at Tesco.
We know that by managing our people well – in a culture of trust and respect – they will in turn try their hardest for customers. By offering competitive pay and benefits and an opportunity to develop a long-term varied career with good training, we are able to keep our people motivated, committed and excited about working at Tesco. In the UK, for example, in our internal ‘Viewpoint’ staff survey this year, we improved on 24 out of the 25 measures and attendance levels improved again, putting an additional four million hours into our stores and depots.
Our people are crucial to our success and it is essential that they feel rewarded for the work they do and supported in their development. We offer good pay across all our businesses, as well as benefits in each market that reflect employees’ priorities. Despite the tough global market in 2009 we continued to invest in pay at the annual review. We focused on our core rates and in a tough financial year our pay competitiveness improved in most markets. In many developing markets, employees place most value on good basic pay and being paid fairly for overtime and these are our priorities.
In Malaysia, for example, where there is no legal minimum wage, the minimum a Tesco employee will receive is 30% more than the Poverty Line Index. In Thailand this year we introduced a staff discount linked to Clubcard. In the UK, our reward package leads the market on pay and benefits. We are one of the few FTSE businesses to still have an open defined benefit pension scheme, which is greatly valued by staff. We are committed to providing opportunities for our people to get on and turn their jobs into careers. Last year we had more people on development programmes than ever before.
The first 17 students to complete the Tesco Foundation Degree graduated in July. The Foundation Degree in Retail – delivered and awarded by Manchester Metropolitan University – is a twoyear development programme aimed at providing work-focused retail training to managers at Tesco. We have now have 60 people on the scheme and are working on ways to make it grow. ‘No-one tries harder for customers’ We believe that even in difficult times it is essential to invest in future talent. That’s why this year, while many other businesses were cutting their graduate schemes, we increased our graduate intake to 810, including 535 in Asia.
We now have 480 people at Director level in the business. Of these, 50% work in our International business – a combination of local hires and people moving from the UK business. We also understand the importance of increasing mobility. As a global business we’re developing leaders with a global perspective and now have 34% of our Directors with at least one year of experience outside their home country. Over the coming year we will be investing nearly ? 30 million in a purpose-built training facility in South Korea, set to become our Tesco Academy hub for Asia.
The new Academy will help ensure that the development of our people in Asia keeps pace with the rapidly growing business. We strive to provide an inclusive environment where all difference is valued, people are able to be themselves, enjoy coming to work and realise their full potential, regardless of their gender, marital status, race, age, sexual orientation, creed, ethnic origin, religion or belief, or disability. ‘We treat people how we like to be treated’ Tesco PLC Annual Review and Summary Financial Statement 2010 23 Summary report of the Directors Principal activity and business review
The principal activity of the Group is retailing and associated activities in the UK, China, the Czech Republic, Hungary, the Republic of Ireland, India, Japan, Malaysia, Poland, Slovakia, South Korea, Thailand, Turkey and the US. The Group also provides retail banking and insurance services through its subsidiary Tesco Bank. The summary of the Group financials is on pages 26 to 28. Dividends The Directors recommend the payment of a final dividend of 9. 16 pence per ordinary share to be paid on 9 July 2010 to members on the Register at the close of business on 30 April 2010.
Together with the interim dividend of 3. 89 pence per ordinary share paid in December 2009, the total dividend for the year will be 13. 05 pence, compared with 11. 96 pence for the previous year, an increase of 9. 1%. Directors Details of the current members of the Board are shown on the inside back cover. David Reid, Lucy Neville-Rolfe, David Potts, Ken Hydon and Tim Mason retire from the Board and, being eligible, offer themselves for re-election at the Annual General Meeting (AGM). Ken Hanna joined the Board on 1 April 2009. Corporate governance
Tesco PLC is committed to the highest standards of corporate governance. The Board considers that Tesco PLC complied in all respects with the Combined Code on Corporate Governance for the year ended 27 February 2010 with the exception of provision A. 3. 2, in respect of which the company was not in compliance for part of the year. Provision A. 3. 2 requires that at least half of the Board, excluding the Chairman, should comprise Non-executive directors determined by the Board to be independent. The Board recognises the importance of a balanced board with an appropriate level of independence.
Due to unexpected changes to the Board in the previous year, with the resignation of Carolyn McCall and Mervyn Davies as Non-executive Directors, the Board was not in balance at the beginning of the year. At this stage, Ken Hanna’s impending appointment to the Board had already been announced, and he joined the Board with effect from 1 April 2009, at which point the Board became balanced and once again fully compliant with provision A. 3. 2. A full corporate governance statement is contained in the Annual Report and Financial Statements 2010.
Summary report of the Directors on remuneration Remuneration policy It is the role of the Remuneration Committee to determine and recommend to the Board the remuneration policy for the Chairman and Executive Directors. Tesco has a long-standing policy of valuing talent and experience and seeks to provide incentives for delivering high, sustainable and profitable growth which leads to a strong increase in value for shareholders. The remuneration strategy is tailored to reward the delivery of strong year-on-year earnings growth as well as sustained performance in the longer term. Compliance
In carrying out its duties, the Remuneration Committee gives full consideration to best practice. The Committee was constituted and operated throughout the year in accordance with the principles outlined in the Listing Rules of the Financial Services Authority derived from the Combined Code on Corporate Governance. The Remuneration Report complies with the disclosures required by the Directors’ Remuneration Report Regulations 2002. A summary of Directors’ emoluments and interests is set out on page 25. The full Remuneration Report is provided in the Annual Report and Financial Statements 2010.
Independent auditors’ statement to the members of Tesco PLC We have examined the summary financial statement which comprises the Summary Consolidated Income Statement, Summary Consolidated Balance Sheet, Summary Consolidated Statement of Comprehensive income, Summary Consolidated Cash Flow Statement and the Summary Directors’ Remuneration Report set out on pages 24 to 28. Respective responsibilities of directors and auditors The directors are responsible for preparing the summarised Annual Review and Summary Financial Statement in accordance with applicable United Kingdom law.
Our responsibility is to report to you our opinion on the consistency of the summary financial statement within the summarised Annual Review with the full annual financial statements, the Directors’ Report and the Directors’ Remuneration Report, and its compliance with the relevant requirements of section 428 of the Companies Act 2006 and the regulations made thereunder. 24 We also read the other information contained in the summarised Annual Review and consider the implications for our statement if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement.
The other information comprises only the other items listed on the contents page. This statement, including the opinion, has been prepared for and only for the company’s members as a body in accordance with section 428 of the Companies Act 2006 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We conducted our work in accordance with Bulletin 2008/3 issued by the Auditing Practices Board.
Our reports on the company’s full annual financial statements describes the basis of our audit opinions on those financial statements, the Directors’ report and the Directors’ Remuneration Report. Opinion In our opinion the Summary Financial Statement is consistent with the full Annual Financial Statements, the Directors’ Report and the Directors’ Remuneration Report of Tesco plc for the year ended 27 February 2010 and complies with the applicable requirements of section 428 of the Companies Act 2006, and the regulations made thereunder.
PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 5 May 2010 Notes: (a) The maintenance and integrity of the Tesco plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the full annual financial statements or the summary financial statement since they were initially presented on the web site. b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Tesco PLC Annual Review and Summary Financial Statement 2010 Directors’ emoluments Fixed emoluments Salary ? 000 Allowances ? 000 Benefits ? 000 2 Short-term cash ? 000 Performance-related emoluments Short-term Long-term3 deferred shares ? 000 ? 000 Total 2009/10 ? m Total 2008/9 ? 000
Executive Directors Richard Brasher Philip Clarke Andrew Higginson Sir Terry Leahy Tim Mason – base salary1 Tim Mason – supplement1 Tim Mason – total Laurie McIlwee Lucy Neville-Rolfe David Potts Non-executive Directors Charles Allen Patrick Cescau Rodney Chase Karen Cook Harald Einsmann Ken Hanna4 Ken Hydon David Reid (Chairman) Jacqueline Tammenoms Bakker Total 805 805 805 1,398 816 200 1,016 588 589 805 95 89 135 77 77 79 95 610 65 8,133 – – – – 305 – 305 – – – – – – – – – – – – 305 63 38 56 115 343 – 343 50 69 45 – – – – – – – 67 – 846 71 771 771 1,340 914 225 1,139 579 579 771 – – – – – – – – – 6,721 763 763 763 1,784 909 224 1,133 572 572 763 – – – – – – – – – 7,113 – 324 329 583 329 – 329 – – 324 – – – – – – – – – 1,889 2,402 2,701 2,724 5,220 3,616 649 4,265 1,789 1,809 2,708 95 89 135 77 77 79 95 677 65 25,007 2,267 2,720 2,754 5,102 3,225 560 3,785 91 1,606 2,719 91 5 129 73 73 – 91 657 9 22,172 1 Tim Mason’s salary is made up of a base salary and a non-pensionable salary supplement (shown separately). Allowances are made up of compensation payments for additional tax due on equity awards made prior to his move to the US.
Tim Mason’s benefits are made up of car, travel, medical, tax related costs and services and free shares awarded under the all employee Share Incentive Plan 2 With the exception of Tim Mason, benefits are made up of car benefits, chauffeurs, disability and health insurance, staff discount, gym/leisure club membership and free shares awarded under the all employee Share Incentive Plan. 3 The long-term bonus figures relate to the additional 12. 5% enhancements allocated in April 2009 and February 2010 on long-term awards under the old bonus scheme. 4 Ken Hanna was appointed during the year.
The figure shown is from his date of appointment. Disclosable interests of the Directors, including family interests Options held at 28 February 20091 (or on appointment if later) Lapsed/ exchanged4 Options held Value realised Ordinary shares at 27 February during 2009/10 at 27 February ? 000 20101,3 2010 2 Granted Exercised Executive Directors Richard Brasher Philip Clarke Andrew Higginson Sir Terry Leahy Tim Mason Laurie McIlwee Lucy Neville-Rolfe David Potts Non-executive Directors Charles Allen Patrick Cescau Rodney Chase Karen Cook Harald Einsmann Ken Hanna Ken Hydon David Reid (Chairman) Jacqueline Tammenoms Bakker Total ,684,552 3,331,548 3,765,901 12,558,542 2,641,390 384,824 1,226,627 3,331,548 – – – – – – – – – 30,924,932 859,323 863,034 857,817 1,608,375 477,969 573,043 597,937 864,851 – – – – – – – – – 6,702,349 1,977,885 1,012,704 1,441,840 2,419,408 1,959,870 214,401 225,607 1,014,521 – – – – – – – – – 10,266,236 521,854 332,773 332,773 1,108,084 0 0 181,599 332,773 – – – – – – – – – 2,809,856 2,044,136 2,849,105 2,849,105 10,639,425 1,159,489 743,466 1,417,358 2,849,105 – – – – – – – – – 24,551,189 4,782 4,059 4,205 8,300 3,668 232 260 4,260 – – – – – – – – – 29,766 ,186,704 1,811,821 1,586,895 7,806,736 4,134,570 237,241 443,091 2,559,979 – – – – 355,984 – 30,093 194,080 – 20,347,194 1 Options to acquire Ordinary shares shown above comprise options held under the Executive Share Option Scheme, Discretionary Share Option Plan, Save As You Earn scheme and nil cost options under the Performance Share Plan (PSP), Executive Incentive Plan (EIP) and Group New Business Incentive Plan. 2 Ordinary shares shown in this table include shares held as part of incentive plans and shares held under a promise as part of the PSP. 3 The exercise price of outstanding options ranges from 0p to 473. 5p. 4 During the year a number of awards were reclassified from nil cost options to restricted shares after Executive Directors agreed to exchange awards already earned under incentive plans to crystallise the tax due. Full details can be found in the Annual Report and Financial Statements 2010. Tesco PLC Annual Review and Summary Financial Statement 2010 25 Group financials These results are for the 52 weeks ended 27 February 2010. In the last full financial year, we reported a 53-week period for the UK, Republic of Ireland and the United States (US) and a 52-week period for the rest of the Group.
Growth rates in these results are expressed for the UK, Republic of Ireland and US to coincide with the comparable 52 weeks last year. Statutory numbers include the adoption of IFRIC 13 (Customer Loyalty Programmes). All other numbers are shown excluding IFRIC 13, consistent with internal management reporting. More information can be found in note 1 to the Group financial statements in the Annual Report and Financial Statements. Group sales, including VAT, increased by 6. 8% to ? 62. 5 billion. At constant exchange rates, sales increased by 6. 1% (including petrol) and 7. 7% (excluding petrol).
Underlying profit before tax rose to ? 3,395 million, an increase of 10. 1%. Group trading profit was ? 3,412 million, up 12. 3% on last year and Group trading margin, at 5. 9%, rose 25 basis points. These were helped by the fact that Tesco Bank was fully consolidated in 2010 and accounted for as a joint venture for most of 2009. Group operating profit rose by 10. 7% to ? 3,457 million. Group profit before tax increased 10. 4% to ? 3,176 million. On a statutory 52-week basis (compared to 53 weeks last year), Group operating profit rose by 9. 1% to ? 3,457 million and Group profit before tax rose by 8. % to ? 3,176m. Cash flow and balance sheet Tesco liquidity has improved significantly during the year through strong cash generation, tight control of capex and working capital improvements arising from better inventory management. Net debt has consequently reduced by ? 1. 7 billion to ? 7. 9 billion. Excluding the effects of currency fluctuations, we expect to reduce net debt to ? 7. 5 billion by the end of the 2010/11 financial year. The strength of our property backed balance sheet was further demonstrated with profitable market leading sale and leaseback transactions.
Group capital expenditure was ? 3. 1 billion (last year ? 4. 7 billion). This reduced level of spend was achieved whilst still delivering 8% growth in Group selling space. This year we plan to invest around ? 3. 5 billion in capital expenditure. Excluding Tesco Bank, cash flow from operating activities totalled ? 5. 4 billion (? 5. 1 billion in 2009), including a ? 0. 6 billion improvement in working capital. Finance costs and tax Net finance costs, after net favourable IFRS adjustments of ? 103 million*, reduced to ? 314 million (? 356 million last year on a consistent 52-week basis).
A reduction in the underlying interest charge is expected next year. Total Group tax has been charged at an effective rate of 26. 4% (last year 26. 7%). We expect the tax rate in 2010/11 to be around 26%. Dividend Underlying diluted earnings per share increased by 9. 2% to 16. 62p in the second half, calculated using a constant tax rate. The Board has approved a final dividend of 9. 16p per share, taking the full-year dividend to 13. 05p. This represents an increase of 9. 1% on last year’s full-year dividend which is in line with the growth in underlying diluted earnings per share at constant exchange rates.
The final dividend will be paid on 9 July 2010 to shareholders on the Register of Members at the close of business on 30 April 2010. Property We are continuing to release value created through the long-term development of our property portfolio. In the year we completed deals with total proceeds of ? 1. 8bn and we expect to divest a similar amount this year. The strong demand for these assets and the good yields achieved (initial yields between 5. 0% and 5. 2% for stores) demonstrate the strong underlying value of our property and the strength of the Tesco covenant. Profits from property in the year were ? 77m. Our property mix remains strong – over 70% of our property is freehold – supported by substantial new capital investment in freehold assets each year. Our latest property assets valuation of ? 34. 6bn reflects recent firming yields across the market and confirms that our assets are worth well in excess of their book value. Pension Our award-winning defined-benefit career-average pension scheme is an important part of our competitive benefits package, which helps Tesco recruit and retain the best people. In the UK we have 160,000 employees in the scheme. As at February 010, under the IAS 19 methodology of pension liability valuation, the scheme had a deficit on a post-tax basis of ? 1. 3bn, compared to ? 1. 4bn at the half year. The last actuarial valuation of the scheme’s assets and liabilities showed a small and manageable deficit. Return on capital employed We have continued to invest during the recession, which has put pressure on returns in the short term but is enabling us to make good progress in all our markets. During the financial year 2010 our post-tax return on capital employed (ROCE) fell from 12. 8%** to 12. 1%. Having raised ROCE from 10. % in 2003 to 12. 6% in 2006, we committed in April 2006 to increase ROCE a further 200 basis points to 14. 6%. We are reaffirming this commitment with confidence that with the prospect of an improving global economy and recent significant investments in acquisitions and new space making a greater contribution going forward, returns will improve in the coming few years, starting in 2010/11. The Summary Financial Statement on pages 27 and 28 and the Summary Report of the Directors on pages 24 and 25 are a summary of information in the Annual Report and Financial Statements 2010.
This Summary Financial Statement does not contain sufficient information to allow as full an understanding of the results of the Group and state of affairs of the Group and of its policies and arrangements concerning Directors’ remuneration as is provided by the Annual Report and Financial Statements 2010. The Directors’ Report, the financial statements and auditors’ report on those financial statements, which is unqualified, are contained in a separate publication entitled Annual Report and Financial Statements 2010.
Copies may be obtained free of charge by writing to: The Company Secretary, Tesco PLC, Tesco House, Delamare Road, Cheshunt, Hertfordshire EN8 9SL Shareholders wishing to receive the Annual Report and Financial Statements as well as the Annual Review and Summary Financial Statement in future years should write to this address. The Summary Financial Statement was approved by the Board on 5 May 2010. Sir Terry Leahy Directors Laurie McIlwee * ? 151 million benefit from IAS 32 and IAS 39 (Fair value of derivatives) partially offset by ? 48 million cost as a result of IAS 19 (Pensions). ** In 2008/9, ROCE on a 52-week comparable basis was 12. %. On a 53-week basis it was 12. 8% (restated for the impact of IFRIC 13, IFRS 2 and goodwill adjustments). 26 Tesco PLC Annual Review and Summary Financial Statement 2010 Summary Group income statement 52 weeks ended 27 February 2010 2010 ? m 2009 Restated* ? m Continuing operations Revenue (sales excluding VAT) Cost of sales Gross profit Administrative expenses Profit arising on property-related items Operating profit Share of post-tax profits of joint ventures and associates Finance income Finance costs Profit before tax Taxation Profit for the year Attributable to: Owners of the parent Minority interests 6,910 (52,303) 4,607 (1,527) 377 3,457 33 265 (579) 3,176 (840) 2,336 53,898 (49,713) 4,185 (1,252) 236 3,169 110 116 (478) 2,917 (779) 2,138 2,327 9 2,336 2,133 5 2,138 Earnings per share Basic Diluted 29. 33p 29. 19p 2010 27. 14p 26. 96p 2009 Restated* ? m Non-GAAP measure: underlying profit before tax ?m
Profit before tax Adjustments for: IAS 32 and IAS 39 ‘Financial Instruments’ – fair value remeasurements IAS 19 Non-cash Group Income Statement charge for pensions IAS 17 ‘Leases’ – Impact of annual uplifts in rent and rent-free periods IFRS 3 Amortisation charge from intangibles arising on acquisition IFRIC 13 ‘Customer Loyalty Programmes’ – fair value of awards Exceptional items: IAS 36 Impairment of goodwill arising on acquisitions Restructuring costs Underlying profit before tax * See note 1 Accounting policies of the Group financial statements in the Annual Report and Financial Statements. ,176 (151) 24 41 127 14 131 33 3,395 2,917 88 27 27 32 33 – – 3,124 Tesco PLC Annual Review and Summary Financial Statement 2010 27 Group financials continued Summary Group balance sheet 27 February 2010 2010 ? m 2009 Restated* ? m Non-current assets Current assets (including non-current assets held for sale) Current liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Net assets Equity attributable to owners of the parent Minority interests Total equity * See note 1 Accounting policies of the Group financial statements in the Annual Report and Financial Statements. 4,258 11,765 (16,015) (4,250) 30,008 (15,327) 14,681 14,596 85 14,681 32,085 13,479 (17,595) (4,116) 27,969 (15,063) 12,906 12,849 57 12,906 Balance sheet Net assets have increased by ? 1,775 million to ? 14,681 million. Non-current assets increased by ? 2,173 million, after charging depreciation and amortisation of ? 1,384 million. Group capital expenditure was ? 3. 1 billion. UK capital expenditure was ? 1. 5 billion. Tesco Bank capital expenditure was ? 0. 1 billion. Total international capital expenditure rose to ? 1. 5 billion, ? 0. 8 billion in Asia, ? 0. 6 billion in Europe and ? . 1 billion in the US. In the year ahead we forecast Group capital expenditure to be around ? 3. 5 billion. Summary Group cash flow statement 52 weeks ended 27 February 2010 2010 ? m 2009 Restated* ? m Cash generated from operations Interest paid Corporation tax paid Net cash from operating activities Net cash used in investing activities Cash flows from financing activities Dividends paid Other net cash flows from financing activities Net cash from financing activities * See note 1 Accounting policies of the Group financial statements in the Annual Report and Financial Statements. ,947 (690) (512) 4,745 (1,877) 4,978 (562) (456) 3,960 (5,974) (968) (2,639) (3
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