overview
1 Chairman’sstatement2 Tescoaroundtheworld4 ChiefExecutive’sreview6 Ourvision
business review
14 Ourbusiness16 GrowingtheUKcore18 Tobeanoutstanding
internationalretailer20 Tobestrongineverything
wesell
22 Growingretailservices24 Communityattheheart
ofwhatwedo26 Buildingbrands28 Buildingourteam
summary financial statement
30 SummaryreportoftheDirectors
33 Groupfinancials36 OurBoardofDirectorsIBC Financialcalendar
* underlying diluted earnings per share growth calculated on constant tax rate basis; 12.8% at actual tax rates
+8.1%Group sales (including vat): £67,573m
+12.3%underlying profit before tax: £3,813m
+11.3%Group profit before tax: £3,535m
+10.8%*
underlying diluted earnings per share: 35.72p
+10.8%Dividend per share: 14.46p
Ourcorepurposeistocreatevalueforcustomerstoearntheirlifetimeloyalty.
OurValuessitattheheartofourbusiness.Theyare:
Noonetriesharderforcustomers;and
Treatpeoplehowweliketobetreated.
Contents
After14yearsasCEO,TerryLeahyannouncedhisretirementinJuneand,aspartofourlong-termsuccessionplan,PhilipClarkereplacedhimatthehelminMarch2011.
Terryisundoubtedlyoneoftheleadingbusinessmenofhisgeneration.Underhisleadershipwehavemorethanquadrupledoursalesandprofits,expandedinto13countriesoutsidetheUKandenterednewmarketssuchasonlineretailingandfinancialservices.OnbehalfofeveryoneatTescoandallourshareholders,itisaprivilegetothankTerryforhisunrivalledcontributiontothesuccessofthebusiness.
TherecouldbenobetterpersontoleadusgoingforwardthanPhilipClarke.PhiliphasworkedatTescothroughouthiscareer,spendingmanyyearsinRetailandCommercial.HejoinedtheTescoBoardin1998and,aspartofhisroleasAsia,EuropeandITDirector,hasbeenattheheartofmanyofourmostimportantdevelopmentsandoperationalimprovementsinrecentyears,suchasentryintoChina,TurkeyandIndiaandtheintroductionoftheTescoHindustanServiceCentre(HSC)–ourglobalservicesarm.
IsettheNominationsCommitteetheobjectiveofdeliveringaseamlesssuccessionandIamdelightedwiththeoutcome.ThehandoverprocessfromTerrytoPhilipwasverysmooth.IhaveeveryconfidencethatunderPhilip’sleadership,Tescowillgoontoachieveevengreatersuccessinthefuture.
InorderfortheTescoBoardtobetterreflecttheglobalnatureofourbusiness,providemorefocusonkeyareasofperformanceanddeliveronourimmediateobjectives,wemadeadditionalchangesinMarch2011.TimMasonhasbecomeDeputyCEOandChiefMarketingOfficerinadditiontohisroleasPresidentandCEOFresh&Easy.
RichardBrasherhasassumedthenewlycreatedroleofCEOfortheUK,aswellashavingresponsibilityfortheRepublicofIreland,whilstDavidPottshasbecomethefirstCEOofourgrowingAsiabusiness.LaurieMcIlweehastakenonresponsibilityforGroupStrategyinadditiontohisroleasCFO.
Iampleasedtoreportanothergoodsetofresultsinwhathasbeenachallengingyearinsomeofourmarkets.
AndrewHigginsonandLucyNeville-RolfewillcontinueintheirrolesasCEORetailServicesandExecutiveDirector(CorporateandLegalAffairs)respectively.
TherehavealsobeenafewchangestotheNon-executivemembersoftheBoardthisyear.RodneyChaseCBEretiredfromhispositionasDeputyChairmanandSeniorIndependentDirectorinJuly.PatrickCescau,whohasservedontheBoardsinceFebruary2009,hasreplacedRodneyasSeniorIndependentDirector.
CharlesAllenCBEandDrHaraldEinsmann,whohadbothservedontheTescoBoardsinceFebruary1999,alsoretiredinJulyandwerereplacedbyStuartChambersandGarethBullock.
Stuart,formerlyCEOofNSGGroupandPilkingtonplc,hasreplacedCharlesasChairmanoftheRemunerationCommittee.Gareth,formerGroupExecutiveDirectorofStandardCharteredPLC,hasjoinedtheAuditCommittee.
IwouldliketothankCharles,HaraldandRodneyfortheirexcellentadviceandimportantcontributionsoveracombined30years’service,andalsoformallywelcomeGarethandStuart,whobringwiththemawealthofinternationalexperienceandnewexpertiseinfinancialservices,furtheraddingtotheoverallstrengthoftheTescoBoard.
DividendIamdelightedtoreportthatwehaveagainincreasedourdividend–forthe27thconsecutiveyear.TheBoardhasproposedafinaldividendof10.09ppershare,takingthefull-yeardividendto14.46p.Thisrepresentsanincreaseof10.8%onlastyear’sfull-yeardividend,whichisinlinewiththegrowthinunderlyingdilutedearningspershareatconstanttaxrates.
communityThisyear,wedonatedover£64milliontocharity–againmeetingourtargettodonatetheequivalentofover1%ofourprofitstocharitiesandgood causes.
We’vemadefurtherprogresstowardsourgoalofbecomingazero-carbonbusinessby2050.Thisyearwehavereducedemissionsfromourbaselineportfolioofbuildingsby7.7%.
our peopleOurgrowthoverthepastyearisadirectresultofthededication,passionandhardworkofourpeople–ateamwhichisnowover492,000strong.I’mdelightedthatourshareownershipincentiveschemesarehelpingourstafftogettheirownpersonalstakeinthebusiness.Thisyear216,000employeessharedarecord£105.5millionthroughourSharesInSuccessscheme.OnbehalfoftheBoard,Iwouldliketothankallofourpeoplefortheirongoingcommitmenttoprovidingthebestpossibleserviceforourcustomers.
David Reid Chairman
oVeRVIeW
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 1
Chairman’s statement
Creatingvalueforcustomersacrossallourbusinesses
2 — TESCOPLCAnnualReviewandFinancialStatement2011
tesco around the world
oVeRVIeW
UK
revenue*
£40,766mnumber of stores
2,715employees
293,676selling space (sq ft, % of Group)
36.7msqft
35.4%
tesco Bank
revenue*
£919memployees
1,274
Us
revenue*
£495mnumber of stores
164employees
4,134selling space (sq ft, % of Group)
1.7msqft
1.6%
employee figures represent the average number of employees during the year
± 230 employees across asia and europe work in locations other than those listed
* revenues are sales excluding vat and exclude the impact of ifric 13 (customer loyalty schemes)† revenue for europe includes france; revenue for asia includes india
GDP growth: economist intelligence unit
TESCOPLCAnnualReviewandFinancialStatement2011 — 3
revenue* GDP growth (£m) stores employees (% real change pa)
south Korea 4,984 354 23,131 6.1thailand 2,844 782 38,395 7.9China 1,141 105 27,096 10.3Malaysia 794 38 11,023 7.2Japan 476 140 4,367 4.0
europe
revenue*†
£9,192mnumber of stores
1,082employees±
89,559selling space (sq ft, % of Group)
30.2msqft
29.2%
India
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.
Asia
revenue*†
£10,278mnumber of stores
1,419employees±
104,071selling space (sq ft, % of Group)
35.0msqft
33.8%
revenue* GDP growth (£m) stores employees (% real change pa)
Republic of Ireland 2,332 130 13,344 -0.8 Poland 2,156 371 24,932 3.8Hungary 1,649 205 21,157 1.2Czech Republic 1,355 158 12,812 2.3slovakia 996 97 9,105 4.0turkey 700 121 8,038 8.1
I’mpleasedtoreportthatTescohasonceagainachievedagoodsetofresultswithgoodsales,profitandearningspersharegrowth,despitechallengingconditionsinsomeofourmarkets.
Iamparticularlypleasedwithourprogressonreturnoncapital,wherewehaveseenROCEgrowstronglyto12.9%,representinganimportantfirststeptowardsour2014/15targetof14.6%,withfurtherincreasestocome.
IntheUK,wehaveanoutstandingcorebusiness.Itmadeprogressintheyearbutsomeaspectsofourperformancecanimprove.StrongersalesmomentumhereisakeypriorityandIamconfidentthatthefocusandenergyournewUKleadershipteamisbringingtothebusinesswillseeareturntoforminthemonthsaheadasTescotriestodoitsbittohelpcustomerswhofacepressureontheirhousehold budgets.
Theincreasingscaleandcompetitivenessofourinternationalbusinessesarenowdrivingstronggrowthinsales,marketshare,profitsandreturns,supportedbythegenerallyimprovingglobaleconomicenvironment.Wehavebuiltsomeexcellentspringboardsforfuturegrowth,andwhilstthereisstillworktodo,particularlyintheUnitedStates,IamdelightedwithourperformanceinEuropeandAsia,whereIexpectfurtherstronggrowththisyearandbeyond.
Wehavesetsiximmediateteamobjectivesagainstwhichweintendtobejudged.First,keepingtheUKstrongandgrowing;second,wewanttobeoutstandinginternationally,notjustsuccessful;third,asthecombinationofstoresandonlinebecomescompellingforcustomers,weaimtobecomeamulti-channelretailerwhereverwetrade;fourth,wewilldeliveronthepotentialofretailingservices–ofwhich
TescoBankisabigpart;fifth,byapplyingGroupskillandscalewewillgiveourcustomersevenmorevalueandincreasethecompetitiveadvantagetoourbusinesses;andfinally,todeliverhigherreturnsoncapitalemployedforshareholders.
Also,aspartofourcommitmenttocommunities,wewanttowidenourcontributionfromtacklingclimatechangetobroaderaspectsofsustainability.
Vision and strategy
Tescoisabusinessbuiltaroundcustomersandstaff,high-qualityassetsaroundtheworldandmultipleopportunitiesforgrowth.Myjobistobuildonthislegacy–forallourstakeholders.Goingforward,therewillmostlybecontinuity.Wehaveasoundstrategy,astrongteamandtheperiodofhighestriskwiththediversificationofthebusinessisnowbehindus.However,therewillalsobesomechanges,becauseweknowthatwecandosomethingsbetterandbecause,ascustomerschange,somustTesco.
Importantly,therewillbenochangetothefoundationsofourbusiness:ourcorepurpose–to create value for customers to earn their lifetime loyalty –andourValues–no one tries harder for customers and treat people how we like to be treated.
Ihavesetoutanewvisionforthefutureofthebusiness.IwouldlikeTescotobeseenasthemost highly valuedbusinessintheworld.Valuednotonlybyourcustomers,butalsobythecommunitiesweserve,ourstaffandourshareholders.
Wewill win locally by applying our skills globally.Thekeywordhereis‘locally’.SevenyearsofrunningourbusinessesinAsiaandEuropehastaughtmethatallretailingislocal.ButincreasinglyweareutilisingtheskillandscaleoftheGroupto
IhaveinheritedagreatlegacyandIamreallyexcitedaboutthefuture.Intheendofcourse,weknowit’sallaboutperformance;that’swhatmattersandthat’swhatweaimtodeliver.
Buildingonoursuccess
oVeRVIeW
4 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
Chief executive’s review
benefittheperformanceandcompetitivenessofeachofourbusinessesaroundtheworld.
Wewillbea modern and innovative company.We’llstayaheadofthecurve,anticipatingchangesandadaptingforthesakeofourcustomersandstaff.
Weare,andwewillremaina growth company.Wewillcontinuetopursuegrowthinallpartsofthebusiness–intheUK,internationally,inservicesandacrossgeneralmerchandise,clothingandelectricals.
Moredetailonournewvisioncanbefoundonpages6to13.
Toputthisvisionintopractice,ourstrategyisevolving–withaslightchangeinemphasiswhichbuildsonthesuccessofourpreviousfive-partstrategythathasservedussowelloverthepast14years.Soourstrategywillnowhavesevenparts.Muchofitwillbefamiliarbutwithsomeimportantnewadditionsaroundbeingamulti-channelretailer,creatinghighlyvaluedbrandsandbuildingourteam:
• TogrowtheUKcore
• Tobeanoutstandinginternationalretailerinstoresandonline
• Tobeasstrongineverythingwesellasweareinfood
• Togrowretailservicesinallourmarkets
• Toputourresponsibilitiestothecommunitiesweserveattheheartofwhatwedo
• Tobeacreatorofhighlyvaluedbrands
• Tobuildourteamsothatwecreatemorevalue
Moredetailsonourstrategycanbefoundonpage14.
Management structures
We’vemadesomechangestoourmanagementstructuresinordertoequipthebusinesstodeliverourstrategyandvision.ThismeansCEOsforeachofourmainareasoffocus–theUK,Asia,ServicesincludingTescoBank,EuropeandtheUS–beingsupportedbytheintegratingfunctionssuchasITandFinancetoleveragetheskillandscaleoftheGroup.
ThebiggestpartofthischangewasintheUK,whichnowhasitsownCEOandmanagementboardforthefirsttime.Thiswillbringmorefocusandenergytoourlargestbusiness.Ofcourse,structuresdon’tmanagecompanies,peopledoandI’mconfidentthatatalllevelswehavetheverybestteamworkinghardtodeliverthebestshoppingtripforourcustomers.
IhaveinheritedagreatlegacyandIamreallyexcitedaboutthefuture.Intheendofcourse,weknowit’sallaboutperformance;that’swhatmattersandthat’swhatweaimtodeliver.
Philip Clarke GroupChiefExecutive
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 5
to be the most hiGhly valueD by:
the customers we serve
Ourcorepurposeistocreatevalueforcustomerstoearntheirlifetimeloyalty.ThisobjectivesitsrightattheheartofourbusinessasonepartofourValues–‘Noonetriesharderforcustomers’.
Weknowthatwearealreadyvaluedbyourcustomersacrossourmarkets.IntheUK,forexample,wehavethemostloyalcustomerbaseofthemajorgroceryretailersandinSouthKorea,HomepluswasawardedSouthKorea’sMostAdmiredCompanyawardinOctober2010.
the communities in which we operate
ForTescotobeconsideredaforceforgood,wemustbeagoodneighbourandaresponsiblememberofsociety.ThisiswhyCommunityispartofourbalancedscorecardapproachtorunningourbusiness–andwhyeachmarkethasitsownCommunityPlan,withpromisesrelatingtotheenvironment,communities,responsiblesourcing,healthylivingandjobsandcareers.
our loyal and committed staff
Weknowthatifwelookafterourstaff,theywilllookafterourcustomers.Workcanbealargepartofourlivessoourpeopledeserveanemployerwhocares.That’swhyoneofourValuesis‘Treatpeoplehowweliketobetreated’.
Wearecommittedtoprovidingopportunitiesforourpeopletogetonandturntheirjobsintocareers,andacrossallofourmarketsweofferawiderangeofcompetitivebenefits.IntheUS,forexample,wepayatleast75%ofmedical,dental,prescriptionandvisioncosts.69%ofemployeesacrosstheGroupwhocompletedourannualstaffsurveysaidthattheyfindtheirworkinteresting.
our shareholders
Astheownersofthebusiness,it’scrucialthatourshareholdersvalueTescohighly.Shareholderswantagoodreturnontheirinvestmentandthat’swhatwewillcontinuetodeliverforthem.Wehaveover200,000shareholders,includingalargenumberofpensionfunds.Weoffersustainable,profitablegrowthfromacombinationofastrongcoreUKbusinessandexposuretorapidlygrowingemergingmarkets.Overthepastdecadeourtotalshareholderreturn(TSR)hasoutperformedtheFTSE100by53.2%andwe’vedelivereddividendgrowthforthepast27years–thelongestrecordofconsecutiveincreasebyanyFTSE100company.
OURVISION
69%of employees across the Group who completed our annual staff survey said that they find their work interesting
to learn more about our vision and strategy: http://ar2011.tescoplc.com/ businessreview/ourstrategy
7
tesco Clubcard
Allretailingislocal.AndClubcardisoneofthewaysinwhichwecanberesponsivetolocalcustomerneeds.Inadditiontorewardingcustomersfortheirloyalty,Clubcardprovidesuswithinsightfrommillionsofcustomertransactions.Fromthiswecandeveloptailoredranges,promotionsandmarketingbycountryorregion–infactrightdowntotheindividualcustomerviatheirClubcardmailing.
TheknowledgeandexpertiseofoperatingClubcardwasdevelopedintheUKbuthasnowbeenrolledouttoafurther11countriesacrosstheGroup,withmoremembersinAsiaandEuropethanathomeintheUK.
F&F
We’vebeensuccessfulatexportinganumberofourbrandsinternationally,tailoringthemtolocaltrends,needsandpriceranges.
F&Fisagoodexampleofhowoneofourbrandshasspreadgloballyandwonlocally.We’rebringingthebenefitsofourGroupskillandscaletoourbuyingandsourcingoperations,helpingtoreducecostsandimprovequality.InCentralEuropeforexample,95%ofourclothingsupplierbaseisthesameasIrelandandtheUK,eventhoughtowinineachmarket,weadaptourrangetolocaltrends,tastesandclimates.
F&Fisnowintenofourmarketsandisthemarket-leadingclothingbrandintheCzechRepublic,HungaryandSlovakia.Wealsoopenedourfirststand-aloneF&FstoreinPraguethisyear.
World-class training for national talent
Weknowthattobeasuccessfulinternationalretailerweneedtocombinedeeplocalknowledgewithglobalexperience–thisiswhyallofourinternationalmanagementteamsareamixtureofnationalsandpeoplefromourUKbusiness.
Inaddition,theexperienceofworkinginternationallyhelpsusattract,retainanddevelopourpeople–overafifthofourdirectorsarecurrentlyworkingoutsidetheirhomecountry.
OurAcademysupportsthedevelopmentofbothoperationalexpertiseandleadershipexcellence.Managementcoursesaredevelopedbasedonglobalbestpracticeandthenusedtotrainteamsineachlocalmarket.OurfirstdedicatedAcademycentrewillopeninSeoul–servingAsia–inJuly.
OURVISION
to learn more about our vision and strategy: http://ar2011.tescoplc.com/ businessreview/ourstrategy
9
online retailing
Customersexpecttobeabletoshopwhereandwhentheywant–asshoppinghabitshavechangedovertheyearswe’vechangedtoo.Aswe’vegrownfromaUKsupermarketchaintowardsbecominganinternationalmulti-channelretailerwe’vecontinuedtoinnovateeverystepoftheway.
Wewereviewedaspioneerswhenwefirstlaunchedanonlinegrocerybusiness11yearsago.It’snowthelargestmostprofitablebusinessofitskindintheworld.
Usingtheirsmartphones,ourcustomerscannowscanthebarcodeofgroceryitems,orderonlineandhavetheirshoppingdeliveredtotheirhome.
A leader in green retailing
Asaglobalbusinessweknowthatwecanmakearealdifferenceintacklingclimatechange–cuttingourownemissions,workingwithsuppliersandhelpingcustomerstocuttheircarbonfootprint.Wealsounderstandthatsuccessfulbusinessesneedtobegreentogrow.
Our2050targettobeazero-carbonbusinesswillbeachievedthroughimprovedefficiencyandbygeneratingourenergyfromrenewablesources.We’remakinggoodprogress–overthepastyearwehavereducedemissionsfromourbaselineportfolioofbuildingsby7.7%.
Wehavepledgedtohelpcustomerscuttheircarbonfootprintsby50%by2020.WehaveworkedwiththeCarbonTrustandotherstakeholderstodevelopauniversalcarbonfootprintlabelwhichdescribestheemissionsassociatedwitheachproduct.SinceJanuary2008,wehavecarbonlabelledmorethan500everydayproductsintheUKandhavestartedtolabelproductsinSouthKorea,helpingourcustomerstomakegreenerchoices.
OURVISION
500+Products carbon labelled since 2008
to learn more about our vision and strategy: http://ar2011.tescoplc.com/ businessreview/ourstrategy
11
UK: an outstanding business
WehavemorethandoubledsalesandprofitinourUKbusinessoverthelastdecade,cementingourpositionasclearmarketleader.Yetthereremainsignificantopportunitiesforfurthergrowth.TheUKhasthelowestgroceryretailspacepercapitaofanycountryintheEU;only54%ofshoppersareabletoreachaTescoExtrawithin15minutesandwehaveonlyasmallshareoftheconveniencesector.
Beyondgrocerywe’vedevelopedastrongpositioninmanyothercategoriessuchasclothing,electricalsandentertainment.Butwithamarketshareofaround4%inthenon-foodsectorthereisstillplentymoretocome.
International growth
Morethantwo-thirdsofourprofitgrowthnowcomesfrommarketsoutsidetheUK.WeopenedourfirstinternationalTescostorein1995;todaywe’rein13marketsacrossEurope,AsiaandNorthAmerica.65%ofourfloorspaceisnowoutsidetheUK,andourbusinessesinAsiaandEuropearecollectivelythesamesizeasthewholeofTescowas11yearsago.We’vebuiltsuccessful,diversebusinessesacrosstheworld,yetthejourneyisonlyjustbeginning.
We’vealreadydevelopedmarket-leading,highlyprofitablebusinessesinanumberofcountries.InSouthKorea,ourlargestinternationalbusiness,Homeplus,alreadygenerates£5billionrevenue.Yet,ifHomeplusweretogrowtohavethesameproportionofthetotalretailmarketthatTescohasachievedintheUK,thebusinesswouldbemorethanthreetimesaslargeasitistoday.
Duringourfirstdecadeofinternationalexpansionwe’veprovedthatweareabletodevelopprofitableandmarket-leadingbusinessesinmanyofourmarkets.Overthenextdecade,inadditiontofurtherexpandingourestablishedoverseasbusinesses,wearefocusedondeliveringgrowthinthreeoftheworld’slargesteconomies:China,IndiaandtheUnitedStates,whichbetweenthemofferdecadesoffuturegrowth.
new services
CustomerstrustTescoandappreciatethatweprovidevalue,simplicityandgoodservice.Thisisourapproachwitheverythingwesellandisthekeytooursuccessinfollowingthecustomerintonewareassuchasbankingandtelecoms.
TescoBankintheUKnowhasover6.5millioncustomeraccountsandgeneratesannualprofitsof£264million.We’vemadeparticularlygoodprogressincreditcards.InFebruary,oneineightofallMasterCardandVisacreditcardtransactionsintheUKweremadeonaTescocreditcard.Aswebroadenouroffer–withmortgageslaunchingthisyear–weaimtobecomethebestchoiceforallourcustomers’bankingneeds.
WehavealsoestablishedasuccessfulTelecomsbusiness.TescoMobilenowhasover2.5millioncustomers.Byfocusingonvalueandgoodserviceandthroughour194PhoneShopswearechangingthewaythatcustomersbuyphones,servicesandaccessories.
OURVISION
to learn more about our vision and strategy: http://ar2011.tescoplc.com/ businessreview/ourstrategy
13
Businessreview
our strategy
In1997,Tescosetoutastrategytogrowthecorebusinessanddiversifywithnewproductsandservicesinexistingandnewmarkets.Thisstrategyenabledustodeliverstrong,sustainedgrowthoverthepast14years.We’vefollowedcustomersintolargeexpandingmarketsintheUK–suchasfinancialservices,generalmerchandiseandtelecoms–andnewmarketsabroad,initiallyinEuropeandAsiaandmorerecentlyintheUnitedStates.
Inordertoreflectchangingconsumerneedsandtheincreasinglyglobalnatureofourbusinesswe’veevolvedourstrategy.Thestrategynowhassevenpartsandappliestoourfivebusinesssegments–theUK,Asia,Europe,theUnitedStatesandTescoBank.
Someelementsofthestrategyremainunchanged.Thegoal‘togrowthecoreUKbusiness’isasrelevanttodayasitwasin1997.TheUKisthelargestbusinessintheGroupandakeydriverofsalesandprofit.Therearemanyopportunitiesforfurthergrowthandsowewillcontinueto grow the UK core.
Anotherofouroriginalgoalswastobea‘successfulinternationalretailer’.In1997,ourinternationalbusinessesgenerated1.8%oftheGroup’sprofits.Todaytheyrepresent25%andwe’renoweithernumberoneornumbertwoineightofour13marketsoutsidetheUK.Sowe’realready‘successful’.Ournextstepisto be an outstanding international retailer in stores and online.
In1997,wewerelargelyafoodretailersowesetourselvesthechallengeofbecoming‘asstronginnon-foodasinfood’.Asourbusinesshasgrownandweofferaneverwidervarietyofproductstocustomers,thetermnon-foodnolongerdoesjusticetoalltheproductsandserviceswesell.Wenowaimto be as strong in everything we sell as we are in food.
Ourservicesbusinesseshavecomealongwaysincewefirstincludedinourstrategythedesire‘todevelopretailingservices’.TodaythesepartsofTescogenerate£583millionprofit,representing16%oftheGrouptotal.TodatethishasbeenlargelyUK-focused,butasmanyofourinternationalbusinesseshavenowestablishedwell-knownbrandsintheirlocalmarket,itistimetoexpandourambitionsandaimto grow retail services in all our markets.
In2007,weaddedafifthelementtoourstrategytounderpinourcommitmenttocommunitiesandtheenvironment.We’veupdatedthisobjectiveslightlybyemphasisingourresponsibilitiesintheseareas.Ourgoalisto put our responsibilities to the communities we serve at the heart of what we do.
Therearetwonewstrategicgoals,bothofwhichreflectthewaythatTescohasdevelopedoverthelastdecadeandourareasofemphasisforthefuture.
Thefirstisto be a creator of highly valued brands.OurbrandhasevolvedfromalogoaboveafewstoresintheUKtoamultitudeofstore,productandservicebrandsacrosstheworld.Buildingbrandsgivesourbusinessmoremeaningwithourcustomers.Ononelevel,thisrelatestoourRetailbrandssuchastheTescobranditself,butitalsoreferstoourProductbrandssuchasF&FandTechnikaandourPillarbrandssuchasFinestandValue.
Ourfinalgoalisto build our team so that we create more value.AsourbusinesscontinuestogrowanddiversifyweneedmoreleaderstorunthemanysubstantialbusinessandsupportfunctionswithintheGroup.Ourleadersnotonlyhaveanimportantroletoday,butalsohavearesponsibilitytohelpbuildabiggerandbetterteamforthefuture.
Ourprogressintheseareasisreviewedoverthefollowingpages.
14 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
our business
BUsIness ReVIeW
TogrowtheUKcore
16Tobeanoutstandinginternationalretailerinstoresandonline
18Tobeasstrongineverythingwesellasweareinfood
20Togrowretailservicesinallourmarkets
22Toputourresponsibilitiestothecommunitiesweserveattheheartofwhatwedo
24Tobeacreatorofhighlyvaluedbrands
26Tobuildourteamsothatwecreatemorevalue
28
Ourseven-partstrategy
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 15
TogrowtheUKcore
Inourmarket-leadingUKbusiness,wehavedeliveredasolidperformancebykeepingourfocusonthecustomer,providingthemwithgreatvalue,choiceandservice.
TheUKeconomyisinrecoverybutconsumershavebeenunderpressurethisyearduetoacombinationofhighpetrolprices,foodandutilityinflationand,morerecently,theVATincrease.Asaresult,we’reexperiencingaperiodofunusuallysubduedindustrygrowth.Excludingpetrol,like-for-likegrowthintheindustryhasbeensignificantlylowerthanlastyear.
Againstthisbackdrop,ourUKbusinesshasdeliveredasolidperformance.TotalUKsaleswere£44.6billion,growingby5.5%,whichwasaheadofthemarket.UKtradingprofitincreasedby3.8%orby6.4%beforetheeffectsofoursaleandleasebackprogramme;principallytheadditionalrentsincurred.
Clubcard
Clubcardisouruniquecustomerloyaltyprogramme–ourwayofsaying‘thankyou’toourcustomers.Itisnowmorepopularthaneverbefore,withactivemembershipofover15millioncustomers,comparedto13millionatthestartof2008/9.
Clubcardcontinuestobeasignificantdriverofgrowthforourbusinessandensuresthatourcustomerbasecontinuestodemonstrateconsiderablyhigherlevelsofloyaltythanourcompetitors.Formostof2010,Clubcardwasthenumberonereasonbehindcustomersswitchingtousfortheirweeklyshop.
stores
Newspacehascontinuedtodrivesalesgrowth.We’veopenedover200newstoresin2010/11andhaveastrongopeningprogrammeforthecomingyear.
Wehavealsorefreshedorextendedover400storesthisyear,receivingagreatresponsefromcustomers.Forexample,wehaveadded7,000sqfttoWembleyExtra,expandingourWorldFoodsoffertomeetbettertheneedsofcustomersinthelocalareaandthestoreisoutperformingby16%.
Range
Ourcustomerstellusthatqualityisincreasinglyimportanttothem,itisnotsimplyaboutfindingthecheapestproduct.Wehavesteppedupouremphasisonquality,withaccelerated
productdevelopment,leadingtotheintroductionofover2,000newandimprovedfoodproducts.
TheincreasingimportanceofqualityforcustomersisalsosupportedbythestrongperformanceofourFinestrange,whichhasoutpacedthegrowthofotherareasofourfoodrange,witha6.3%increaseinsalesthisyear.
Manyofourcustomerswanttobuylocallysourcedproductstosupporttheirlocalcommunities.WehavefivededicatedregionalbuyingofficesthroughouttheUKandin2010/11weincreasedsalesoflocalproductsto£1billion,upfrom£850millionin2009/10.
Price
Weremainfocusedondeliveringthebestvaluetoallcustomers.ThelaunchofEssentialSavingsinMaywasaninvestmentinlowerpricesontheeverydayproductswhichourcustomersbuy.Wehaveintroducedmoremulti-buysintothepromotionprogrammetohelpcustomerssavemoney.TogethertheseinitiativeshavehelpedustomaintainourleadingpositioninahighlycompetitivemarketandtoencouragecustomerstoswitchtoTescothroughouttheyear.
Availability
Wehavemaintainedhighlevelsofavailabilitythisyearthroughanumberofprogrammes,frombetterpromotionalforecastingthroughtoimprovedprocessesformonitoringavailabilityinourstores.Ourcustomersarebenefitingfromthisworkandhavenoticedtheimprovements–customersatisfactionwithavailabilityisatarecordhigh–up7%fromlastyearand13%fromtheyearbefore.
service
Weworkcontinuallytoimproveserviceforourcustomers.Wehavetrainedover80,000staffthisyearinEveryLittleHelpsskillsforcheckouts,supportingthemtodeliverhelpful,friendlyandefficientservice.Wealsoknowhowimportantitisforourcustomerstobeabletochoosethecheckoutthatisrightforthem,soweareworkingtocreatetheidealcheckoutconfigurationineachofourstoresbasedonthelocalcustomerprofile.
£44.6bnUK sales
£2.5bnTrading profit
16 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
BUsIness ReVIeW
Growing the UK core
clubcarD
clubcard continues to play an important role in earning customers’ loyalty. we’ve continued to invest in Double Points, we have introduced the big clubcard voucher exchange and we have expanded our Partner reward scheme.
No.1reasonforcustomers
switchingtoTesco
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 17
thailanD
tesco lotus, our business in thailand, is one of our most successful international businesses with strong profitability and the highest return on capital of all our overseas markets. we now operate 782 stores with 11m sq ft of space, having added a further 119 stores in the year.
21%SalesinThailand
up21%
18 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
Tobeanoutstandinginternationalretailerinstoresandonline
£11.0bnAsia sales
£10.6bnEurope sales
Mostofourmarketshaveseensteadyeconomicimprovementoverthepastyearandinsomecases–particularlyinAsia–sharpimprovement.Countrieshardesthitinthedownturn–inparticularHungary,IrelandandtheUnitedStates–havebeenslowertorecover,althougheventherewearenowseeingsignsofimprovement.
AparticularlyencouragingfeatureofourperformanceinAsiaandEuropehasbeenexcellentmarketsharegrowth,withmanyofourbusinessesseeingstronggrowthinbothcustomernumbersandlike-for-likesales.
Wehaveresumedafasterpaceofnewspaceopeningnowthateconomicconditionsaregenerallyimproving.Weopened6.5msqftofgrossnewspacein2010/11,comparedwith5.1msqftin2009/10andplantoopenafurther8.4msqftduringthecurrentyear.
Asia
OurbusinessesinAsiahavedeliveredanothergoodperformanceleadingtoincreasesinsalesandprofits–supportedbyimprovinglike-for-likesalesgrowth,ausefulcontributionfromnewstoresandfurtherbenefitsfromouracquisitioninSouthKoreain2008.
AseconomiesinAsiarecover,weareseeingimprovingsalestrends.Ourperformancewashelpedbyfavourableexchangeratemovementsbutneverthelessprofitsgrewbyalmost18%atconstantcurrencyrates–withexcellentgrowthcomingfromSouthKoreaandThailand.
OurAsianmarketsofferanexcitinglong-termgrowthopportunityandwillbeakeyfocusforourfutureinternationalexpansion,bothinourestablishedmarketsandinChina.Wehavecontinuedtoinvestthroughthedownturntoensurethatweareinanevenstrongerpositionastheeconomicrecoverycontinues.
Thisyearweplantoopen5.1msqftofnewsellingarea.WehavealsocontinuedtomakegoodprogressindevelopingstrongbrandsinourleadingAsianbusinesseswithfurtherexpansionofClubcardandourretailservicesbusinesses.
europe
OuroperationsinEuropehavedeliveredrecordresultsandstronggrowthinsales,profitsandmargins.Recoveringeconomiesgenerallyhelpedbutkeytothisperformancewasthestrikingimprovementinthecompetitivenessofourlocalbusinesses,whichwonincreasedmarketsharerapidly.
Wehaveinvestedforcustomersthroughlowerprices,sharperpromotionsandClubcard,fundedbystrongproductivityandsubstantialearlybenefitsofourpan-Europeansourcing.Theresultingstrongsalesgrowthhasdrivenanimprovementinprofitabilityandmargins.
Salesgrowthvariedacrosstheregionbutallmarketssawsharplyimprovedlike-for-likesalesgrowthcomparedwith2009/10,withagoodcontributionalsocomingfromnewspace.
Withtheimprovingeconomicoutlookwearesteppinguptherateofnewstoreopening.Some2.6msqftofnewspacewasopenedintheyear,withaprogrammetoaddafurther2.9msqftofnewspaceacrosstheregionin2011/12.
WehavebeendelightedbycustomerreactiontotheremodellingandconversionofsomeofourolderhypermarketstotheExtraformat.Verystrongsalesimprovementshavebeenachievedinthestores–withanaveragesalesupliftof16%intheeightcompletedsofar.Theserefitsaredeliveringparticularlymarkedupliftsinfreshfoodcategories,health&beauty,clothingandelectricals.
United states
CustomerfeedbackatFresh&Easyremainsexcellentandstronggrowthincustomernumbersisdrivingsteadysalesimprovementineachstore.
Weexpectlossestoreducesharplyinthecurrentyearasstronggrowthinlike-for-likesalescontinuesandimprovedstoreoperatingratiosstarttodelivershop-doorprofitability.Wehaveastrongplanforthebusinesstobreak-eventowardstheendofthe2012/13financialyear.
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 19
BUsIness ReVIeW
to be an outstanding international retailer
Tobeasstrongineverythingwesellasweareinfood
£10.3bnGroup sales
8.8%Group sales growth
Ourgeneralmerchandise,clothingandelectricalbusinesseshavecontinuedtogrow,despitethechallengesofweakdemandinsomeofourimportantmarkets.
IntheUK,highpetrolpricesandincreasesinVAThavehadasignificantimpactondiscretionaryconsumerspending.Manyhighstreetretailershavesufferedfromdecliningsalesandhaveissuedprofitwarnings.Tescohasfaredbetter–andmaintainedmarketshare–butwehaven’tbeensparedtheimpactofsubdueddemand.IntheUK,generalmerchandise,clothingandelectricalssalesgrewby0.4%to£5.3billion.Generalmerchandisesalesgrowthwasaffectedbyasmallercomponentofextensionsellingspaceinthisyear’snewspaceprogramme,withextensionsprovidingjust10%ofnewspace.
Inourinternationalmarketsthepicturevariesconsiderablybycountry.MostofourmarketsinEuropeandAsiasawstronggrowthingeneralmerchandiseastheeconomicrecoverytookholdduringtheyear,althoughanumberofmarkets–suchasIrelandandHungary–remainchallenging.
UK
ImprovingtheperformanceofgeneralmerchandiseintheUKisoneofourkeypriorities.Ouraimistoofferourcustomersthesamegreatquality,priceandrangeinourgeneralmerchandiseofferastheywouldfindwiththeirTescogroceryshop.Thefocusisondeliveringinthreekeyareaswiththeaimofimprovingthegeneralmerchandiseshoppingtripforourcustomers:
Investing in making the ranges more aspirationalInelectricals,wewerethefirstUKsupermarkettostocktheAppleiPadandtheAmazonKindle–twoofthemostsought-aftertechnologyproductsonthemarket.Keepingintunewithchangesintechnologyandrespondingquicklytoofferourcustomersthelatestelectricalinnovationsiscentraltoourstrategyandtobuildingourreputationasaleadingretailerineverythingwesell.
enhancing the shopping experience with specialist adviceInover200ofourlargeststores,wehaveTescoTechSupportteams,madeupofstaffspecificallytrainedtohelpcustomerswithtechnicalqueriesonelectricalitemsfromTVstocamerasandsatellitenavigationsystems.Theadditionaladvicehelps
customersgettherightproductfortheirindividualneeds,supportingareductioninproductreturns.Alongsideourin-storeteams,wehaveafreeelectricalhelplineforourcustomers,mannedbyfullytrainedengineers,andadedicatedTechSupportwebsite.
Developing our multi-channel capabilityOurmulti-channelapproachmakesiteasyforourcustomerstoshopinawaythatsuitsthem–online,in-storeorfromcatalogues.Customerscanbrowseinacatalogue,orderonlineandthencollectin-storeortheycanorderin-storeandhavethegoodsdeliveredtotheirhome.Thisyear,over40%ofTescoDirectelectricalpurchaseshavebeenmadeonlineandpickedupin-storethroughourClickandCollectservice.
europe
InEurope,generalmerchandise,clothingandelectricalssaleswerestrong,reflectinganoverallimprovingconsumerbackgroundandastrengtheningofferinourstores.
ClothinginCentralEuropehadasuccessfulyearwitha9%year-on-yeargrowthintotalsales.WearenowtheclothingmarketleaderintheCzechRepublic,HungaryandSlovakia.BuildingonthesuccessoftheF&Fbrand,wehaveintroducedourF&FBlueandF&FBasicssub-brandstoprovideourcustomerswithagreaterrangetochoosefrom.Ourfirststand-aloneF&FstorealsoopenedsuccessfullyinPraguelastyear,highlightingtheappealofthebrandintheCzechRepublic.
Asia
OurF&FclothingbrandlaunchedinSouthKoreaandThailandthisyearandtheearlyresponsefromcustomershasbeenexcellent–averygoodexampleoftheskillandscaleoftheTescoGroupbeingappliedacrossourglobalnetwork.
LastyearweopenedourfirstthreeSportsMultishopsinHomeplusstoresinSouthKorea.Theseinnovativesportszonesaredesignedtomeetgrowingcustomerneedsforsportinggoods,inaone-stopshoppingenvironment.SportsMultishophasincreasedsalesofsportinggoodsinthesestoresbyover60%withhighcustomerpenetration.
20 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
BUsIness ReVIeW
to be strong in everything we sell
clothinG
clothing is a key element of our customer offer in central europe and we have had another pleasing year with 9% sales growth. we are now clothing market leader in the czech republic, hungary and slovakia.
9%Clothingsales
growthinCentralEurope
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 21
tesco telecoms
we now have 194 Phone shops in stores across the uK and this year, we have begun to open Phone shops in our refreshed extra stores in central europe. our Phone shops provide our customers with support and advice so that they can choose the best option for them.
194PhoneShops
intheUK
22 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
Togrowretailservicesinallourmarkets
InJuly2008whenweannouncedourintentiontotakefullownershipofTescoBank,wesetatargettogrowtheprofitabilityofourretailservicesbusinessesfromjustunder£400millionin2007/8to£1billion.
Thisyear,wehavemadecreditableprogressinmovingtowardsthistarget.Wehaveattractednewcustomers,grownsalesandprofitandcontinuedtoinvest–particularlyininfrastructure–toequipthebusinessforfurthergrowth.
Wewantallofourcustomers,acrossallofourmarkets,tohaveaccesstoourfinancial,telecomsandonlineservices.WecandothisbyapplyingGroupskillandscaleandbuildingontheknowledgewhichwehaveacquiredfromourretailservicesexperienceintheUK,IrelandandSouthKorea.
In2010/11,totalretailservicessaleswere£4.0billion,up12%on2009/10andtradingprofitgrewto£583million.*
tesco Bank
Despiteachallengingyearinthewiderbankingsector,andasitcompletesitstransitiontofullseparationfromTheRoyalBankofScotland(RBS),TescoBankcontinuestoperformwell.
Thebusinesshasmadegoodprogresswithitssystemsre-platforming,whichwillcompleteasplannedin2011.WeopenedournewbankingandinsuranceservicecentresinGlasgowandNewcastleinOctober2010.Allnewmotorandhomeinsurancebusiness,includingrenewalpoliciessoldsincethenhave,asplanned,beenwrittenonnewsystems.Wealsolaunchedsuccessfullyourfirstnewproductonourownbankingplatforms–theFixedRateSaver–lastautumn.Thishasbeenfollowedbyourrecentinnovativeretailbond.Bothoftheseinitiativesexceededplanandservetodiversifyourfundingbaseandincreasetheproportionoflong-termfundingavailabletotheBank.
TheBankhasmadeprogressinkeyareas–withsavingsstronglyup,goodgrowthintheloanbookwithimprovedmarginsandanexcellentyearincreditcards,withthetransactionvalueup20%on2009/10.Thecarinsurancebook
hasalsoresumedgrowth,havingplateauedbeforethechangeofcontrol,despitetheinevitablechallengesofmigration.
Customeraccountnumbersgrewwell–inactivecreditcardsby11%,personalloansby17%andmotorinsuranceby8%.OurFixedRateSaverproductsignificantlyexceededexpectationsandweendedtheyearwithabalanceof£397million,40%higherthanplannedandwenowhaveone,twoandthree-yearoptionsavailableforcustomers.Therangeofproductsavailableforcustomerswillbebroadenedfurtherthisyearwiththeplannedlaunchofmortgages.
tesco.com
Ouronlinebusinesses,includingonlinegroceryandTescoDirect,hadanotherstrongyear.TakingintoaccountouroperationsinSouthKoreaandIreland,totalsalesgrewby15%.OurUKoperationscontinuedtogrowwell,withdouble-digitgrowthingroceryandafurther30%increaseatTescoDirect.
tesco telecoms
OurTelecomsbusinessgrewwellduringtheyear,maintainingstrongmarketshare,drivenprimarilybythegrowthofTescoMobile.In2010TescoMobilewasoneofthefastestgrowingUKmobilenetworks,growingitscustomerbaseby24%toover2.5million.
OurTescoMobilejointventureswithO2inIrelandandSlovakiaareperformingwell.Bothbusinessesaregrowingstronglyandmovedintoprofitforthefirsttimethisyear.
dunnhumby
dunnhumbyhashadaverystrongyear,increasingsalesandprofitsbyover30%withexcellentgrowthintheUKsupplierbusinessandfromitsoverseasjointventureswithretailers.
Followingtheacquisitionofthefinal10%ofthebusinessinthefirsthalfoftheyear,dunnhumbyisnowawhollyownedsubsidiaryofTesco.
*RetailservicesprofitcomprisesprofitfromTelecoms,tesco.com,dunnhumbyandTescoBank,includingUKstoreATMincome.
£4.0bnRetail services sales
15%Online business sales growth
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 23
Growing retail services
BUsIness ReVIeW
Toputourresponsibilitiestothecommunitiesweserveattheheartofwhatwedo
7.7%Emissions reduction from our baseline portfolio of buildings
£64m+Donated to local charities and good causes
Weworkhardtobeagoodneighbourinthecommunitiesaroundourstoresandprovidealeadershiproleontheenvironment.Buildingalong-termsustainablebusinessiscrucialtoourfuturesuccess.
Wewanttobehighlyvaluedbyourlocalcommunitiesandthisyear,wehavemadegoodprogresswithourcommunitypromises:
• Buyingandsellingourproductsresponsibly;
• Caringfortheenvironment;
• Providingcustomerswithhealthychoices;
• Activelysupportinglocalcommunities;and
• Creatinggoodjobsandcareers.
Buying and selling our products responsibly
Weworkinpartnershipwithoursupplierstoensureourproductsaresourcedresponsibly.
WecontinuetoengagewithoursuppliersthroughourTradingFairlyprogramme.InBangladesh,ChinaandSouthAfrica,wehelpsuppliersandstakeholdersaddresslocalandnationalchallenges.
Wehavelistenedtoourcustomersandknowthatmanyofthemwanttobuylocallysourcedproducts.ThisyearintheUK,wehavereachedsalesof£1billionforlocalproducts.
Caring for the environment
Asoneoftheworld’slargestretailers,wehaveaclearresponsibility–andasignificantopportunity–toprotecttheenvironment.Ouraimistocreatemoresustainablewaysofdoingbusiness.
Ourglobaldirectcarbonfootprintin2010/11was5.44milliontonnesofCO2e(carbondioxideequivalent).Thisyear,wecontinuedtodecoupleourbusinessgrowthfromthegrowthinourcarbonemissions:whileournetsalesareagrewby8.8%,ourcarbonfootprintincreasedbyonly1.7%.
Thisyear,weopenedourfirstinternationalzero-carbonstoreinJaromer,CzechRepublic,andcompletedtwomorezero-carbonstoresintheUK,inWelshpoolandBourne.
Providing customers with healthy choices
Wewanttohelpourstaffandcustomerstoleadhealthylives.Asaglobalbusiness,weknowthat‘healthylives’meandifferentthingsinourdifferentmarkets.
Wehaveaclearroletoplayinmakinghigh-qualityfoodsaffordabletoeveryone,andingivingcustomerstheinformationtheyneedtomakehealthyfoodchoices.Wecanalsouseourtrustedbrandtoencourageourstaffandcustomersacrosstheworldtoadopthealthy,activelifestyles.
Wecurrentlyhave100%nutritionlabellingoneligibleown-brandfoodlinesinallofourmarkets.Lastyear,weencouragedover7.2millionstaffandcustomerstogetactiveacrosstheworld–exceedingourtargetsinallourmarkets.
Actively supporting local communities
WewantTescotobemorethanastoretothestaffandcustomerswholiveinthecommunitiesaroundourstores.
Wehaveexceededourtargetofdonatingatleast1%ofpre-taxprofitstocharitiesandgoodcauses.Intotal,thismeansthatwehavedonatedover£64millionthisyear.Wehavealsoraised£7.2millionforourUKCharityoftheYear,CLICSargent.
WearecontinuingtorolloutourCommunityChampions–Tescoemployeeswhospendaproportionoftheirweekcoordinatingactivitiesintheirlocalcommunities.Wenowhaveover650CommunityChampionsacrosstheGroup.
Creating good jobs and careers
Wehaveover290,000employeesacrosstheUK,makingusthebiggestprivate-sectoremployerinthismarket,andover492,000worldwide.Wearededicatedtoprovidingdiversecareeropportunitiesforallourstaffworldwide–frompositionsinstores,torolesforstoremanagers,buyers,accountantsandlawyers.Thisyear,weincreasedthetotalnumberofstaffintheGroupby21,000.
Thisyear,wedevelopedeightnewRegenerationPartnerships–bringingthetotalto35storesandaround4,000jobsforlong-termunemployedpeople.
24 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
BUsIness ReVIeW
Community at the heart of what we do
schools of extenDeD eDucation
in south Korea, we celebrated the opening of our 100th school of extended education and took our total to 107 in the year. our south Korean schools provide people with a place to get involved in a variety of activities from dance classes to cooking.
940,000+PlacesatourSchools
ofExtendedEducationinSouthKoreathisyear
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 25
tesco value anD finest in the uK
the popularity of our Pillar brands with customers has meant that tesco value has become the second largest food brand in the uK – ahead of coca-cola – with sales of more than £1 billion a year.
tesco value is only pushed into second place by tesco finest. more than half of our customers buy from the finest range on a regular basis, from finest spectacles to finest restaurant collection ready meals. £1bn
BothFinestandValuenowsell
morethan£1bneachyear
26 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
Tobeacreatorofhighlyvaluedbrands
What’s the benefit to both our stakeholders and our Company of building brands?
Bybuildingstrongbrandsthroughourownproducts,weoffercustomersincreasedvalue,choiceandquality.Customerstrustourbrands.Theyareloyaltoourbrandsbecausetheyknowwhattoexpectfromthemandwhattheystandfor.Withwines,forexample,theFinestlogohelpscustomerstopickoutagoodqualityoptionwithouthavingtobeaconnoisseur.
StrongProductandPillarbrandsgiveusakeypointofdifferentiationfromourcompetitorsandenableustocontinuetomeetthechangingneedsofourcustomers.Oncecustomersunderstandthevaluesthatourbrandsstandfor,theyaremorelikelytotrustinourabilitytodiversifyintonewserviceareas.Infinancialservices,forexample,withTescoBankwe’vebroughtstraightforwardandgood-qualitybankingsolutionsbasedontheneedsofourcustomerstoamarketcharacterisedbycomplexityandpoorcustomerservice.
Whereverweoperatewesupportlocalcommunities,theircausesandtheenvironment.Throughinitiativessuchasour
CommunityChampionsprogramme,GetHealthywithTescoLotusinThailandandtheUKTescoGreatSchoolRun,we’reknowntobeagoodneighbour.Bybenefitinglocalcommunities,ourbrandhastakenonnewmeaningamongstakeholders–thatofaresponsibleretailer.
Bydevelopingabrandreputationforofferinggreatvalueandservicetocustomersandbeingaresponsiblememberofthecommunity,wecanattractgreatpeopletoworkforus.Asaresponsibleandflexibleemployerwithatrackrecordofdevelopingtalentwithinthebusiness,Tescoisalsoseenasagreatplacetobuildacareer.
Theincreasedemotionalandfunctionalloyaltyfromcustomers,staffandcommunitiesgeneratedbyourbrandbuildinghascontributedtoTescobecomingaprofitable,sustainablegrowthopportunityforshareholderstoinvestin.InvestmentprovidesuswithfurtheropportunitiestobuildanddevelopourbrandsacrosstheGroup,inturnallowingustodiversifytothebenefitofcustomers,staff,communitiesandshareholders.
Homeplusreceived South Korea’s Most Admired Company award in October 2010
a brand is a promise, a set of fundamental principles that define a product or business. it is an intangible representation of what a company stands for in the minds of its customers and other stakeholders.
Pillar brandsProduct brands
Retail brands
Phone Shop
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 27
BUsIness ReVIeW
Building brands
Tobuildourteamsothatwecreatemorevalue
£105.5m Value of shares awarded under Shares In Success
75%We pay at least 75% of employee medical, dental, prescription and vision costs in the US
Wetreatpeoplehowweliketobetreated.WewantourpeopletoenjoyworkingatTesco.Ourpeopledoagreatjobeachandeverydaybygivingourcustomersthebestpossibleshoppingtrip.
Bycreatinganopenenvironmentoftrustandrespect,ourpeoplefeelsupported,theysharetheirknowledgeandexperienceandworkhardtogiveourcustomersgreatservice.
Wesupportourpeople,trustingintheirabilitytodeliverwhilehelpingthemtoreachtheirfullpotential.Weencourageourpeopletolearnonthejobandtakeresponsibilityfromdayone.
Everyyear,webuildourplansfortheyeararoundourPeoplePromises.Wewantallofourpeopleacrossallofourmarketsto:
• betreatedwithrespect;
• haveanopportunitytogeton;
• haveamanagerwhohelpsthem;and
• haveaninterestingjob.
It’sthroughourPeoplePromisesandourbenefitspackagethatweareproudtosaythatourpeoplestaywithusforalongtime.AroundhalfofourDirectorpopulationhasatleast12years’service.
Inrecognitionoftheimportanceofpeopleacrossourbusiness,ourGroupPersonnelDirector,AlisonHorner,isnowpartofourExecutiveCommittee.AlisonisagreatexampleoftalentdevelopedinTesco,with12yearsofexperienceacrossthebusinessinbothPersonnelandOperations.
Recruitment and growth
AsTescogrowsanddiversifies,weareabletooffermorejobstopeopleinthecommunitiesaroundourstores,depotsandoffices.Thisyearwehaverecruited21,000peopleworldwide.
Ourgraduateprogrammesfasttrackgraduatetraineeswithhighpotentialintoleadershippositions.Thisyearwehaverecruitedaround140CommercialgraduatesintoUKandCentralEuropeanbuyingandgeneralmerchandiseroles–thelargestnumberofCommercialgraduatesthatwehaveemployedsincetheprogrammebegan.Thisispartofourongoingcommitmenttoinvestinfutureleaders.
talent and promotions
OneofourPeoplePromisesis‘anopportunitytogeton’.Wepromisetosupportanddevelopourpeoplethroughouttheircareers.
Wewantthewomeninourteamstoachievetheirfullpotential.Inthelastfouryearsthenumberoffemaledirectorshasincreasedbynearly70%acrosstheGroup,andwehavethreewomenonourBoard.
Building capability
Aspartofourongoingcommitmenttobuildingcapability,weareinvestingintheTescoAcademy.OurAcademysupportsthedevelopmentofourpeoplethroughtrainingcourses,networkingopportunitiesandmentoring.
InJuly,wewillopenourzero-carbonAcademycentreinIncheon,SouthKorea.AsiaisarapidlygrowingregionforTescoandtheAcademywillhelpustobuildcapabilityinthearea.
InChina,ourStoreManagerProgrammehasbeencreatedsothatwecanrecruitanddeveloppeopletobecomeourfutureStoreManagers.TheprogrammestartedinOctober2010with22candidatestakingpart.
Rewards and benefits
Ourpeopledoagreatjobforourcustomersandwewantthemtofeelvaluedandrewarded.Weinvestinpayand,intheUK,wehavethehighestpayratesforcustomerassistantsofanymajorsupermarket.
Acrossallofourmarkets,weofferawiderangeofcompetitivebenefits.IntheUS,wepayatleast75%ofmedical,dental,prescriptionandvisioncosts.IntheUKwehaveanopendefinedbenefitpensionschemewhichisgreatlyvaluedbyourstaffandrareamongFTSE100companies.
ShareownershipincentiveschemeshelpourstafftogettheirownpersonalstakeinTesco.216,000staffsharedatotalof£105.5millionwhentheShares|nSuccessschemematuredin2010.
28 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
Building our team
BUsIness ReVIeW
career DeveloPment
we believe that home-grown managers make valuable business leaders because they understand our culture and approach. our new ceo, Philip clarke, is an example of this, having started work at tesco part-time as a schoolboy. across the business, we currently have almost 30,000 people on development programmes, gaining the knowledge, leadership skills and qualifications for their next role.
30,000Peopletrainingfor
theirnextrole
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 29
Principal activity and business reviewTheprincipalactivityoftheGroupisretailingandassociatedactivitiesintheUK,China,theCzechRepublic,Hungary,theRepublicofIreland,India,Japan,Malaysia,Poland,Slovakia,SouthKorea,Thailand,TurkeyandtheUS.TheGroupalsoprovidesretailbankingandinsuranceservicesthroughitssubsidiary,TescoBank.ThesummaryoftheGroupfinancialsisonpages33to35.
DividendsTheDirectorsrecommendthepaymentofafinaldividendof10.09pperordinaryshare,tobepaidon8July2011tomembersontheRegisteratthecloseofbusinesson3May2011.Togetherwiththeinterimdividendof4.37pperordinarysharepaidinDecember2010,thetotaldividendfortheyearwillbe14.46pcomparedwith13.05pforthepreviousyear,anincreaseof10.8%.
DirectorsDetailsofthecurrentmembersoftheBoardareshownonpage36.
GarethBullockandStuartChambersjoinedtheBoardon3July2010.TheywillofferthemselvesforelectionandtheotherDirectorswillofferthemselvesforre-electionattheAnnualGeneralMeetingon1July2011.
Corporate governanceTescoPLCiscommittedtothehigheststandardsofcorporategovernance.
TheBoardconsidersthatTescoPLCcompliedinallrespectswiththeCombinedCodeonCorporateGovernancefortheyearended26February2011withtheexceptionofprovisionA.3.2,inrespectofwhichtheCompanywasnotincomplianceforpartoftheyear,andcompliedwiththenewUKCorporateGovernanceCodeinallrespectswiththeexceptionofprovisionsB.1.2andB.6.2.
ProvisionsA.3.2andB.1.2requirethatatleasthalfoftheBoard,excludingtheChairman,shouldcompriseNon-executiveDirectorsdeterminedbytheBoardtobeindependent.TheBoardrecognisestheimportanceofabalancedboardwithanappropriatelevelofindependence.TheBoardhadonemoreExecutivethanNon-executiveDirectors(excludingtheChairman)betweenJuly2010andtheendofthefinancialyear.FollowingSirTerryLeahy’sretirementandtheappointmentofPhilipClarkeashissuccessorasCEOinMarch2011,thereisnowanequalnumberofExecutiveandindependentNon-executiveDirectorsandtheBoardisagainbalancedandcompliantwiththisprovision.
ProvisionB.6.2ofthenewUKCorporateGovernanceCoderequiresthateverythreeyearsthereshouldbeanexternallyledevaluationoftheBoard’sperformance.TheBoardusuallycarriesoutanexternalBoardevaluationeverythreeyears,withinternalevaluationsintheinterveningyears.Thelastexternalevaluationtookplacein2007andanexternallyfacilitatedevaluationwouldnormallyhavetakenplacethisyear.GiventheextensiveBoardandseniormanagementchangestakingplaceitwasdecidedthatitwouldbemoreappropriatetoconductaninternalevaluationprocessandtocarryoutanexternallyfacilitatedprocessnextyearoncethesechangeshavehadanopportunitytobedin.
AfullcorporategovernancestatementiscontainedintheAnnualReportandFinancialStatements2011.
summary report of the Directors on remuneration
Remuneration policyItistheroleoftheRemunerationCommitteetodetermineandrecommendtotheBoardtheremunerationpolicyfortheChairmanandExecutiveDirectors.Tescohasalong-standingpolicyofvaluingtalentandexperienceandseekstoprovideincentivesfordeliveringhigh,sustainableandprofitablegrowthwhichleadstoastrongincreaseinvalueforshareholders.Theremunerationstrategyistailoredtorewardthedeliveryofstrongyear-on-yearearningsgrowthaswellassustainedperformanceinthelongerterm.TheRemunerationCommitteehasreviewedourexecutiveremunerationarrangementsinlightofourstrategy,ouroperationalgoalsandthefeedbackfromshareholders.Whilstwebelievethatourremunerationarrangementsarebroadlycompetitiveandoperatewell,theCommitteehasfoundopportunitiestosimplifyandre-balancewhereappropriate.FulldetailsarecontainedintheAnnualReportandFinancialStatements2011.
ComplianceIncarryingoutitsduties,theRemunerationCommitteegivesfullconsiderationtobestpractice.TheCommitteewasconstitutedandoperatedthroughouttheyearinaccordancewiththeprinciplesoutlinedintheListingRulesoftheFinancialServicesAuthorityderivedfromtheCombinedCodeonCorporateGovernance.TheRemunerationreporthasbeendrawnupinaccordancewiththeCombinedCodeonCorporateGovernance,Schedule8oftheLargeandMediumSizedCompaniesandGroups(AccountsandReports)Regulations2008andtheFinancialServicesAuthorityListingRules.TheRemunerationReportalsocomplieswiththedisclosuresrequiredbytheDirectors’RemunerationReportRegulations2002.
AsummaryofDirectors’emolumentsandinterestsissetoutonpages31and32.ThefullRemunerationReportisprovidedintheAnnualReportandFinancialStatements2011.
30 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
sUMMARy FInAnCIAl stAteMent
summary report of the Directors
Independent auditors’ statement to the members of tesco PlC WehaveexaminedthesummaryfinancialstatementwhichcomprisestheSummaryConsolidatedIncomeStatement,SummaryConsolidatedBalanceSheet,SummaryGroupCashFlowStatement,SummaryreportoftheDirectorsandSummaryreportoftheDirectorsonremunerationsetoutonpages30to35.
Respective responsibilities of directors and auditors ThedirectorsareresponsibleforpreparingthesummarisedAnnualReviewandSummaryFinancialStatementinaccordancewithapplicableUnitedKingdomlaw.
OurresponsibilityistoreporttoyououropinionontheconsistencyofthesummaryfinancialstatementwithinthesummarisedAnnualReviewwiththefullannualfinancialstatements,theReportoftheDirectorsandtheDirectors’RemunerationReportanditscompliancewiththerelevantrequirementsofsection428oftheCompaniesAct2006andtheregulationsmadethereunder.
WealsoreadtheotherinformationcontainedinthesummarisedAnnualReviewandconsider
theimplicationsforourstatementifwebecomeawareofanyapparentmisstatementsormaterialinconsistencieswiththesummaryfinancialstatement.TheotherinformationcomprisesonlytheChairman’sstatement,theChiefExecutive’sreviewandtheotheritemslistedonthecontentspage.
Thisstatement,includingtheopinion,hasbeenpreparedforandonlyforthecompany’smembersasabodyinaccordancewithsection428oftheCompaniesAct2006andfornootherpurpose.Wedonot,ingivingthisopinion,acceptorassumeresponsibilityforanyotherpurposeortoanyotherpersontowhomthisstatementisshownorintowhosehandsitmaycomesavewhereexpresslyagreedbyourpriorconsentinwriting.
WeconductedourworkinaccordancewithBulletin2008/3issuedbytheAuditingPracticesBoard.Ourreportsonthecompany’sfullannualfinancialstatementsdescribethebasisofourauditopinionsonthosefinancialstatements,theReportoftheDirectorsandtheDirectors’RemunerationReport.
opinion Inouropinionthesummaryfinancialstatementisconsistentwiththefullannualfinancial
statements,theReportoftheDirectorsandtheDirectors’RemunerationReportofTescoPLCforthe52weeksended26February2011andcomplieswiththeapplicablerequirementsofsection428oftheCompaniesAct2006,andtheregulationsmadethereunder.
PricewaterhouseCoopers llPCharteredAccountantsandStatutoryAuditorsEmbankmentPlace6May2011
notes: (a)ThemaintenanceandintegrityofTescoPLC
websiteistheresponsibilityofthedirectors;theworkcarriedoutbytheauditorsdoesnotinvolveconsiderationofthesemattersand,accordingly,theauditorsacceptnoresponsibilityforanychangesthatmayhaveoccurredtothefullannualfinancialstatementsorthesummaryfinancialstatementsincetheywereinitiallypresentedonthewebsite.
(b)LegislationintheUnitedKingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.
Directors’ emoluments Fixedemoluments Performance-relatedemoluments
Salary£000
Benefits3
£000
Short-termcash
£000
Short-termdeferredshares
£000
total 2010/11
£000
Total2009/10
£000
executive Directors
RichardBrasher 825 40 765 632 2,262 2,402
PhilipClarke 825 38 765 632 2,260 2,701
AndrewHigginson 825 65 765 632 2,287 2,724
SirTerryLeahy 1,432 77 1,328 1,386 4,223 5,220
TimMason–basesalary1 825 376 716 649 2,566 3,616
TimMason–supplement1 200 – 172 156 528 649
TimMason–total 1,025 376 888 805 3,094 4,265
LaurieMcIlwee 752 57 765 632 2,206 1,789
LucyNeville-Rolfe 625 83 574 474 1,756 1,809
DavidPotts 825 86 765 632 2,308 2,708
non-executive Directors
CharlesAllen2 35 – – – 35 95
GarethBullock2 52 – – – 52 –
PatrickCescau 109 – – – 109 89
StuartChambers2 64 – – – 64 –
RodneyChase2 49 – – – 49 135
KarenCook 80 – – – 80 77
HaraldEinsmann2 28 – – – 28 77
KenHanna 92 – – – 92 79
KenHydon 98 – – – 98 95
DavidReid(Chairman) 629 64 – – 693 677
JacquelineTammenomsBakker 76 – – – 76 65
Total 8,446 886 6,615 5,825 21,772 25,007
1 TimMason’ssalaryismadeupofabasesalaryandanon-pensionablesalarysupplement(shownseparately).TimMason’sbenefitsaremadeupoftravel,medical,tax-relatedcostsandservicesandfreesharesawardedundertheallemployeeShareIncentivePlan(SIP).PaymentsinrelationtotaxequalisationonequityawardsgrantedpriortohisappointmentasUSCEOtotalling£768,000arenotincludedinthetableabove.
2 GarethBullockandStuartChamberswereappointedduringtheyear.Thefiguresinthetableabovearefromtheirdatesofappointment.CharlesAllen,RodneyChaseandHaraldEinsmannretiredduringtheyear.
3 WiththeexceptionofTimMason,benefitsaremadeupofcarbenefits,chauffeurs,disabilityandhealthinsurance,staffdiscount,gym/leisureclubmembershipandfreesharesawardedundertheallemployeeSIP.UndertheSIP,sharesintheCompanyareallocatedtoparticipantsintheschemeuptoHMRCapprovedlimits(currently£3,000perannum).TheamountofprofitallocatedtotheschemeisdeterminedbytheBoardtakingintoaccountCompanyperformance.
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 31
Disclosable interests of the Directors, including family interests
Optionsheldat27February20101
(oronappointmentiflater) Granted Exercised Lapsed
Valuerealisedduring2010/11
£000
options held at 26 february
20111,3
Ordinarysharesat26February
20112
executive Directors
RichardBrasher 2,044,136 909,721 1,298 45,567 2 2,906,992 1,220,793
PhilipClarke 2,849,105 907,282 219,123 45,567 871 3,491,697 1,824,638
AndrewHigginson 2,849,105 907,282 219,123 45,567 949 3,491,697 1,349,712
SirTerryLeahy 10,639,425 1,791,369 2,997,330 79,819 5,175 9,353,645 7,075,849
TimMason 1,159,489 387,638 1,298 0 2 1,545,829 3,876,520
LaurieMcIlwee 743,466 739,584 0 0 0 1,483,050 222,301
LucyNeville-Rolfe 1,417,358 681,078 1,298 29,919 2 2,067,219 452,886
DavidPotts 2,849,105 909,721 786,050 45,567 977 2,927,209 1,851,253
non-executive Directors
CharlesAllen4 – – – – – –
GarethBullock4 – – – – – –
PatrickCescau – – – – – –
StuartChambers4 – – – – – 5,500
RodneyChase4 – – – – – –
KarenCook – – – – – –
HaraldEinsmann4 – – – – – 355,984
KenHanna – – – – – –
KenHydon – – – – – 30,093
DavidReid – – – – – 194,337
JacquelineTammenomsBakker – – – – – –
total 24,551,189 7,233,675 4,225,520 292,006 7,978 27,267,338 18,459,866
1 OptionstoacquireordinarysharesshownabovecompriseoptionsheldundertheExecutiveShareOptionschemes,DiscretionaryShareOptionPlan,SaveAsYouEarnscheme,andnilcostoptionsunderthePerformanceSharePlan(PSP),ExecutiveIncentivePlan(EIP)andGroupNewBusinessIncentivePlan.
2 OrdinarysharesshowninthistableincludesharesheldundertheShareIncentivePlanandsharesheldunderapromiseawardedunderthePSP,EIPandUSLongTermIncentivePlan.
3 Theexercisepriceofoutstandingoptionsrangesfrom0pto473.75p.4 CharlesAllen,RodneyChaseandHaraldEinsmannretiredfromtheBoardon2July2010.GarethBullockandStuartChamberswereappointedon3July2010.
32 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
sUMMARy FInAnCIAl stAteMent
summary report of the Directors
Group sales,includingVAT,increasedby8.1%to£67.6billion.Atconstantexchangerates,salesincreasedby6.6%(includingpetrol)and6.0%(excludingpetrol).
Group trading profitwas£3,679million,up7.8%onlastyearandGrouptradingmargin,at6.0%,increasedby4basispoints.Underlying profit before taxroseto£3,813million,anincreaseof12.3%.Beforeproperty,underlyingprofitbeforetaxgrewby12.2%.Onastatutorybasis,Group operating profitroseby10.2%to£3,811million.Group profit before taxincreased11.3%to£3,535million.
net finance costsincreasedto£333million(£314millionlastyear).However,beforethenon-cashIAS19,32,and39adjustments,actualnetinterestcostfellby£83millionto£334million.Thisreflectsthecontinuedreductioninnetdebt.
TotalGroup taxhasbeenchargedataneffectiverateof24.4%(lastyear26.4%).ThisreductionwaslargelydrivenbyareductionintherateofUKcorporationtax,andalowerJapanimpairmentthanlastyear.Weexpectthetaxratefor2011/12tobebroadlyunchanged.
Cash Flow and Balance sheet.Netdebtreducedto£6.8billion,aheadofourtargetof£7.0billion,helpedbystrongcashgenerationintheseasonallyimportantsecondhalfoftheyear.Duringtheyear,werepaid£926millionofourdebtearlyandrepaid£777millionofmaturingbonds.Thestrengthofourproperty-backedbalancesheetwasagaindemonstratedthroughcontinuedstronginvestordemandforourpropertysaleandleasebacktransactionsduringtheyear.
Weexpectnetdebttofallfurtherintheyearsahead.Lookingatourliabilitiesintheround,wewillbefocusingmoreonfixedchargecoverasourprimarybalancesheetmetric,whichwearetargetingtokeepbetween4and4.5times.Wealsoaretargetingaratioof2.5timeslease-adjustednetdebttoEBITDAR*whichrepresentsasimilarleveltowherewewerepriortotheHomeverandTPFacquisitions.
Groupcapital expenditure intheyearwas£3.7billion(lastyear£3.1billion),alittlehigherthanourexpectationatthebeginningoftheyear,mainlyasaresultofexchangeratemovements.CapitalexpenditureintheUKwas£1.7billion,withanadditional£0.2billionintheBank,principallyforthere-platformingofoursystems,and£1.8billioninInternational.Forthe2011/12yearweplantoinvestaround£4.0billionincapitalexpenditureandgoingforwardweexpectannualcapitalexpendituretototalbetween5%and5.5%ofGroupsales.
GroupReturn on Capital employed(ROCE)increasedsubstantially–to12.9%(lastyear12.1%).Weexpecttodeliverourtargetincreaseof200basispoints,onour2005/6baseof12.6%,by2014/15,takingROCEto14.6%.Thisincreasewillbedrivenpredominantlybyoperationalimprovement–growthinassetturnoverandmargin–combinedwithimprovedcapitalefficiency(workinprogressreleaseandourpropertyprogramme).Bygeographyandbusinesssegment,theincreasesinROCEwillbebroadlybased,comingfromAsia,Europe,theUS,theUKandTescoBank.
TheBoardhasproposedafinal dividendof10.09ppershare,takingthefull-yeardividendto14.46p.Thisrepresentsanincreaseof10.8%onlastyear’sfull-yeardividend,whichisinlinewiththegrowthinunderlyingdilutedearningspershareatconstanttaxrates.Itisalsothe27thconsecutiveyearofdividendincrease.Thefinaldividendwillbepaidon8July2011toshareholdersontheRegisterofMembersatthecloseofbusinesson3May2011.
*EBITDARdefinedasstatutoryprofitbeforeinterest,tax,depreciation,amortisationandrent.
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 33
sUMMARy FInAnCIAl stAteMent
Group financials
summary Group income statementyear ended 26 february 2011
52 weeks2011
£m
52weeks2010
£m
continuing operations
revenue (sales excluding vat) 60,931 56,910
Costofsales (55,871) (52,303)
Gross profit 5,060 4,607
Administrativeexpenses (1,676) (1,527)
Profitarisingonproperty-relateditems 427 377
operating profit 3,811 3,457
Shareofpost-taxprofitsofjointventuresandassociates 57 33
Financeincome 150 265
Financecosts (483) (579)
Profit before tax 3,535 3,176
Taxation (864) (840)
Profit for the year 2,671 2,336
attributable to:
Ownersoftheparent 2,655 2,327
Non-controllinginterests 16 9
2,671 2,336
earnings per share
Basic 33.10p 29.33p
Diluted 32.94p 29.19p
non-GaaP measure: underlying profit before tax
52 weeks2011
£m
52weeks2010
£m
Profitbeforetax 3,535 3,176
Adjustmentsfor:
IAS32andIAS39‘FinancialInstruments’–fairvalueremeasurements (19) (151)
IAS19‘EmployeeBenefits’–non-cashGroupIncomeStatementchargeforpensions 113 24
IAS17‘Leases’–impactofannualupliftsinrentandrent-freeperiods 50 41
IFRS3‘BusinessCombinations’–intangibleassetamortisationchargesandcostsarisingfromacquisitions 42 127
IFRIC13‘CustomerLoyaltyProgrammes’–fairvalueofawards 8 14
IAS36‘ImpairmentofAssets’–impairmentofgoodwillarisingonacquisitions 55 131
Restructuringcosts 29 33
Underlyingprofitbeforetax 3,813 3,395
34 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
sUMMARy FInAnCIAl stAteMent
Group financials
summary Group balance sheet 26 february2011
£m
27February2010
£m
Non-currentassets 35,337 34,258
Currentassets(includingnon-currentassetsheldforsale) 11,869 11,765
Currentliabilities (17,731) (16,015)
Netcurrentliabilities (5,862) (4,250)
Totalassetslesscurrentliabilities 29,475 30,008
Non-currentliabilities (12,852) (15,327)
net assets 16,623 14,681
Equityattributabletoownersoftheparent 16,535 14,596
Non-controllinginterests 88 85
total equity 16,623 14,681
Balance sheetNetassetshaveincreasedby£1,942millionto£16,623million.Non-currentassetsincreasedby£1,079million,afterchargingdepreciationandamortisationof£1,420million.
Groupcapitalexpenditurewas£3.7billion.UKcapitalexpenditurewas£1.7billion.TescoBankcapitalexpenditurewas£0.2billion.Totalinternationalcapitalexpenditureroseto£1.8billion;£1.0billioninAsia,£0.6billioninEuropeand£0.2billionintheUS.IntheyearaheadweforecastGroupcapitalexpendituretobearound£4.0billion.
summary Group cash flow statementyear ended 26 february 2011
52 weeks2011
£m
52weeks2010
£m
Cashgeneratedfromoperations 5,366 5,947
Interestpaid (614) (690)
Corporationtaxpaid (760) (512)
net cash from operating activities 3,992 4,745 net cash used in investing activities (1,859) (1,877) cash flows from financing activities
Dividendspaidtoequityowners (1,081) (968)
Othernetcashflowsfromfinancingactivities (1,955) (2,639)
net cash from financing activities (3,036) (3,607)
Reconciliation of net cash flow to movement in net debtyear ended 26 february 2011
52 weeks2011
£m
52weeks2010
£m
Netdecreaseincashandcashequivalents (903) (739)
InvestmentinTescoBank (446) (230)
EliminationofnetincreaseinTescoBankcashandcashequivalents 56 (167)
Debtacquiredonacquisition (17) –
Netcashoutflowtorepaydebtandleasefinancing 2,870 2,780
DividendreceivedfromTescoBank 150 150
(Decrease)/increaseinshort-terminvestments (292) 81
Increaseinjointventureloanreceivables 159 45
Othernon-cashmovements (438) (249)
Decrease in net debt in the year 1,139 1,671
Openingnetdebt (7,929) (9,600)
Closingnetdebt (6,790) (7,929)
NB.Thereconciliationofnetcashflowtomovementinnetdebtnoteisnotaprimarystatementanddoesnotformpartofthecashflowstatementbutformspartofthenotestothefinancialstatements.
TESCOPLCAnnualReviewandSummaryFinancialStatement2011 — 35
1
1. David Reid–64Non-executiveChairmanDavidReidbecameNon-executiveChairmanon2April2004.PriortohisappointmenthewasDeputyChairmanofTescoPLCandhasservedontheTescoBoardsince1985.DavidisaNon-executiveDirector(SID)ofReedElsevierGroupPLCandChairmanofbothKwik-FitGroupandWhizz-Kidz.InNovember2010DavidwasappointedoneofPrimeMinisterDavidCameron’sBusinessAmbassadors.
2. Philip Clarke–50GroupChiefExecutivePhilipClarkewasappointedtotheBoardon16November1998.PriortohisappointmentasCEOinMarch2011hewasAsia,Europe&ITDirectorandhaspreviouslyheldanumberofrolesinstoreoperations,commercialandmarketing.
3. tim Mason–53DeputyGroupCEOandCMOandCEOFresh&EasyTimMasonhasbeenPresidentandChiefExecutiveOfficer,Fresh&EasyNeighborhoodMarketsinceJanuary2006andbecameDeputyGroupCEOandChiefMarketingOfficerinMarch2011.HewasappointedtotheBoardon16February1995.HejoinedTescoin1982.
4. Richard Brasher –49CEO–UKandROIRichardBrasherwasappointedtotheBoardon15March2004.HejoinedTescoin1986.Hehasheldanumberofmarketing,commercialandstoreoperationspositions,mostrecentlyBoardCommercialDirector,beforebeingappointedUKandROICEOinMarch2011.
5. Andrew Higginson–53CEO–RetailServicesAndrewHigginsonwasappointedtotheBoardon17November1997.PriortohisappointmentasChiefExecutiveofRetailingServicesinJuly2008hewasGroupFinanceandStrategyDirector.HeisChairmanofTescoBankandaNon-executiveDirectorofBSkyBplc.
6. laurie McIlwee–48ChiefFinancialOfficerLaurieMcIlweewasappointedtotheBoardon27January2009.HejoinedTescoin2000asUKFinanceDirectorandbecameDistributionDirectorin2005.LaurieisaCharteredManagementAccountant.
7. lucy neville-Rolfe, CMG–58ExecutiveDirector(CorporateandLegalAffairs)LucyNeville-RolfewasappointedtotheBoardon14December2006.ShejoinedTescoin1997fromtheCabinetOffice.SheisDeputyChairoftheBritishRetailConsortium,aNon-executiveDirectorofITVplcandtheCarbonTrustandamemberoftheChinaBritainBusinessCouncil,theUKIndiaBusinessCouncilandtheCorporateLeadersGrouponClimateChange.
8. David Potts–53CEO–AsiaDavidPottswasappointedtotheBoardon16November1998.HejoinedTescoin1973.From1997hedirectedtheintegrationofourbusinessesinNorthernIrelandandtheRepublicofIrelandbeforereturningtotheUKin2000asDirectorresponsibleforUKRetailOperations.From2004,David’sresponsibilitiesalsoincludedtheUKSupplyChainandtheRepublicofIreland,beforebeingappointedCEOAsiainMarch2011.
9. Patrick Cescau–62SeniorIndependentDirector10. Gareth Bullock–57Non-executiveDirector11. stuart Chambers–55Non-executiveDirector12. Karen Cook–57Non-executiveDirector13. Ken Hanna–57Non-executiveDirector14. Ken Hydon–66Non-executiveDirector15. Jacqueline tammenoms Bakker–57Non-executiveDirector16. Jonathan lloyd –44CompanySecretary
Directors’agesasat26February2011.
2 3 4 5 6
7
13
8
14
9
15
10
16
11 12
36 — TESCOPLCAnnualReviewandSummaryFinancialStatement2011
sUMMARy FInAnCIAl stAteMent
our Board of Directors
Financialyearend2010/11 26February2011Finalex-dividenddate 27April2011Recorddate 3May2011Q1InterimManagementStatement June2011AnnualGeneralMeeting 1July2011Finaldividendpaymentdate 8July2011Half-yearend2011/12 27August2011InterimResults October2011Q3InterimManagementStatement December2011ChristmasandNewYearTradingStatement January2012Financialyearended2011/12 25February2012
Pleasenotethatdatesareprovisionalandsubjecttochange.
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