Tesco plc Preliminary Results 2010/11

Strong group results: sales up 8.1%, underlying profit up 12.3%

Strong group results: sales up 8.1%, underlying profit up 12.3%

  • Group sales up 8.1% to £67.6bn*
  • 12.3% rise in underlying profit before tax to £3.8bn
  • Group return on capital employed (ROCE) increased to 12.9% (last year 12.1%)
  • 7.8% growth in Group trading profit to £3.7bn, including 30% growth in Asia
  • Underlying diluted EPS growth of 10.8%**; dividend per share growth of 10.8%
  • Net debt reduced to £6.8bn by year-end, ahead of plan
  • Exceeded our 2010/11 carbon targets

Philip Clarke – Chief Executive

"I am pleased with our strong overall performance in the face of some challenging conditions and we are well-positioned, with multiple opportunities to deliver long-term growth and rising returns. I want to thank the 500,000 people who work at Tesco for their contribution to this performance.

We have equipped the business for global growth with new management structures and teams – including an experienced UK Board, which is bringing more focus and energy to our largest business. Asia and Europe made excellent progress contributing nearly 70% of our profit growth in the year. The momentum in the USA is building but still has some way to go."

New management structures in place and increased focus on UK core business:

  • New global Executive Committee in place, combining key business areas and support functions
  • Six immediate team objectives set – around performance, growth and returns
  • Dedicated, experienced UK Board appointed and operational
  • Plans to align senior management remuneration with growth and ROCE improvement

We have set some immediate objectives for the Tesco team:

  • First, keeping the UK strong and growing.
  • Second, we want to be outstanding internationally, not just successful.
  • Third, as the combination of stores and online becomes compelling for customers, we aim to become a multi-channel retailer wherever we trade.
  • Fourth, we will deliver on the potential of Retailing Services – of which the Bank is a big part.
  • Fifth, by applying Group skill and scale we will give our customers even more value and increase the competitive advantage to our businesses.
  • Sixth, deliver higher return on capital employed for shareholders.
52 weeks ended 26 February 2011 (unaudited) 2010/11 Change
vs. 2009/10
Group sales (inc. VAT)* £67,573m 8.1%
Group revenue (exc. VAT) £60,931m 7.1%
Group trading profit £3,679m 7.8%
Underlying profit before tax £3,813m 12.3%
Group profit before tax £3,535m 11.3%
Underlying diluted earnings per share 35.72p 10.8%**
Diluted earnings per share 32.94p 12.8%
Dividend per share 14.46p 10.8%
Net debt £6.8bn Down £1.1bn
Return on capital employed 12.9% Up 0.8%

* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13. ** Underlying diluted EPS growth calculated on a constant tax rate basis; 12.8% at actual tax rates.


  Group   UK2 Asia Europe US Tesco Bank
  TY LY Growth %   TY TY TY TY TY
  £m £m     £m £m £m £m £m
Sales (inc. VAT)3 67,573 62,537 8.1%   44,571 11,023 10,558 502 919
Growth %         5.5% 21.5% 5.6% 41.8% 6.9%
UK LFL (exc. Petrol)   56,910     1.0%        
Revenue (ex. VAT) 60,931 7.1%   40,117 10,241 9,159 495 919
Growth %         4.0% 21.4% 5.2% 41.8% 6.9%
UK LFL – IFRIC 13 compliant basis (exc. Petrol)         (0.2)%        
Trading profit4 3,679 3,412 7.8%   2,504 570 527 (186) 264
Growth %         3.8% 29.5% 11.2% (12.7)% 5.6%
Growth % (before sale & leaseback impact)       6.4% 5.55%      
Trading profit margin3 5.97% 5.93% 4bp   6.14% 5.73% (37.58)% 28.73%
Change (basis points)         (3)bp 35bp 30bp 970bp (34)bp
Profit arising on property-related items 427 377 13.3%            
Deduct: IAS adjustments (295) (332) 11.1%            
Statutory/ operating profit 3,811 3,457 10.2%            
JVs and associates 57 33 72.7%            
Net finance costs (333) (314) (6.1)%            
Statutory profit before tax 3,535 3,176 11.3%            
Add: IAS adjustments 278 219 26.9%            
Underlying profit before tax5 3,813 3,395 12.3%            
Dividend per share (pence) 14.46 13.05 10.8%            
  Group   UK Asia Europe US Tesco Bank
Capital expenditure (£bn) 3.7 3.1 0.6   1.7 1.1 0.6 0.1 0.2
Gross space added (million sq.ft.) 9.3 7.1 2.2   2.8 3.5 2.6 0.4 n/a
  TY LY YOY Change    
Operating cashflow (£bn)6 5.4 5.4 0.0    
IFRS pensions liability post-tax (£bn) 1.0 1.3 (0.3)    
Net debt (£bn) 6.8 7.9 (1.1)    


  1. For UK, ROI and US, these results are for the 52 weeks ended 26 February 2011 and the previous year comparison is made with the 52-week period ended 27 February 2010. For all other countries and Tesco Bank these results are for the year ended 28 February 2011 and the previous year comparison is made with the year ended 28 February 2010. All growth rates are calculated at actual exchange rates unless otherwise stated. Statutory numbers include the accounting impact of IFRIC 13 (Customer Loyalty Programmes). All other numbers are shown excluding the accounting impact of IFRIC 13, consistent with internal management reporting. More information can be found in Note 1 to the preliminary consolidated financial information.
  2. The UK segment excludes Tesco Bank, which is reported separately in accordance with IFRS8 ‘Operating Segments’.
  3. Excludes the accounting impact of IFRIC 13 (Customer Loyalty Programmes). Trading margin is based on revenue excluding the accounting impact of IFRIC 13.
  4. Trading profit excludes property profits and makes the same additional adjustments as our underlying profit measure, except for the impact of non-cash elements of IAS 32 and 39, and the interest element of IAS 19. More information can be found in Note 2 to the preliminary consolidated financial information.
  5. Underlying profit excludes the impact of non-cash elements of IAS 17, 19, 32, and 39 (principally the impact of annual uplifts in rents and rent-free periods, pension costs, and the marking to market of financial instruments); the amortisation charge on intangible assets arising on acquisition and acquisition costs, and the non-cash impact of IFRIC 13. It also excludes costs relating to restructuring (USA and Japan), closure costs (Vin Plus) and the impairment of goodwill in Japan.
  6. Cash generated from retail and Bank operations excludes Bank working capital funding.


Group sales, including VAT, increased by 8.1% to £67.6bn. At constant exchange rates, sales increased by 6.6% (including petrol) and 6.0% (excluding petrol).

Group trading profit was £3,679m, up 7.8% on last year and Group trading margin, at 6.0%, increased by 4 basis points. Underlying profit before tax rose to £3,813m, an increase of 12.3%. Before property, underlying profit before tax grew by 12.2%. On a statutory basis, Group operating profit rose by 10.2% to £3,811m. Group profit before tax increased 11.3% to £3,535m.

Net finance costs increased to £333m (£314m last year). However, before the non-cash IAS 19, 32, and 39 adjustments, actual net interest cost fell by £83m to £334m. This reflects the continued reduction in net debt.

Total Group tax has been charged at an effective rate of 24.4% (last year 26.4%). This reduction was largely driven by a reduction in the rate of UK corporation tax, and a lower Japan impairment than last year. We expect the tax rate for 2011/12 to be broadly unchanged.

Cash Flow and Balance Sheet. Net debt reduced to £6.8bn, ahead of our target of £7.0bn, helped by strong cash generation in the seasonally important second half of the year. During the year, we repaid £926m of our debt early and repaid £777m of maturing bonds. The strength of our property-backed balance sheet was again demonstrated through continued strong investor demand for our property sale and leaseback transactions during the year.

We expect net debt to fall further in the years ahead. Looking at our liabilities in the round, we will be focusing more on fixed charge cover as our primary balance sheet metric, which we are targeting to keep between 4 and 4.5 times. We also are targeting a ratio of 2.5 times lease-adjusted net debt to EBITDAR* which represents a similar level to where we were prior to the Homever and TPF acquisitions.

Group capital expenditure in the year was £3.7bn (last year £3.1bn), a little higher than our expectation at the beginning of the year, mainly as a result of exchange rate movements. Capital expenditure in the UK was £1.7bn, with an additional £0.2bn in the Bank, principally for the re-platforming of our systems, and £1.8bn in International. For the 2011/12 year we plan to invest around £4.0bn in capital expenditure and going forward we expect annual capital expenditure to total between 5% and 5.5% of Group sales.

Return on Capital Employed

Group Return on Capital Employed (ROCE) increased substantially – to 12.9% (last year 12.1%). We expect to deliver our target increase of 200 basis points, on our 2005/6 base of 12.6%, by 2014/15, taking ROCE to 14.6%. This increase will be driven predominantly by operational improvement – growth in asset turnover and margin – combined with improved capital efficiency (work in progress release and our property programme). By geography and business segment, the increases in ROCE will be broadly based, coming from Asia, Europe, the US, the UK and Tesco Bank.


The Board has proposed a final dividend of 10.09p per share, taking the full-year dividend to 14.46p. This represents an increase of 10.8% on last year’s full-year dividend, which is in line with the growth in underlying diluted earnings per share at constant tax rates. It is also the 27th consecutive year of dividend increase. The final dividend will be paid on 8th July 2011 to shareholders on the Register of Members at the close of business on 3rd May 2011.

* EBITDAR defined as statutory profit before interest, tax, depreciation, amortisation and rent.

Tesco Team Objectives

Tesco’s strategy is, and will remain, about broadly-based, profitable growth – and we have multiple opportunities to pursue that growth – in the UK, internationally, in food and other categories and in services. We also believe growth and sustainability are aligned, for example through our commitments to the communities we serve and the low-carbon programme we are pursuing in our business and our supply chain. So the fundamental elements of our strategy won’t alter but some are evolving – as, for example, our increased focus on internet retailing, demonstrates.

We have set six immediate team objectives against which we intend to be judged. They are as follows and we plan to report on these in each of our results announcements going forward: First, keeping the UK strong and growing; second, becoming outstanding internationally, not just successful; third, as the combination of stores and online becomes compelling for customers, we aim to become a multi-channel retailer wherever we trade; fourth, we will deliver on the potential of Retailing Services – of which the Bank is a big part; fifth, by applying Group skill and scale we will add more value and competitive advantage to our businesses and finally delivering higher returns for shareholders has resumed and it will continue.


A generally improving global economic environment provides a helpful background for Tesco in most of our markets in Asia and Europe as well as in the United States. In some specific countries – not least of course the UK – as consumers deal with higher taxes, public sector contraction and rising fuel costs, demand growth remains subdued. In these markets, we are assuming that the retail environment will remain challenging in 2011, particularly in the more discretionary product categories, but we have strong plans for growth, supported by improved productivity, which will help increase our competitiveness for customers. Overall, we believe Tesco is well-positioned to trade through these challenges successfully as is evidenced by today’s results.



  UK Results 2010/11
  £m % growth
UK sales £44,571m 5.5%
UK revenue (exc. VAT, exc. impact of IFRIC 13) £40,766m 4.3%
UK trading profit £2,504m 3.8%*
Trading margin (trading profit/revenue) 6.14% (3)bp

* 6.4% growth before rental and depreciation effects of sale and leaseback transactions

Our UK business delivered a solid performance during a period of unusually subdued industry growth, linked to the impact of high petrol prices on customers’ discretionary spending in our stores. Tesco grew sales faster than the market as a whole and profits grew, helped by excellent productivity, and a good performance from new stores. UK trading profit increased by 3.8%, or by 6.4% before the effects of our sale and leaseback programme; principally the additional rents incurred. However, we didn’t achieve our planned growth in the year and this was only partly attributable to the deterioration in the consumer environment during the second half. We can do better and we are taking action in key areas – for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers.

  UK Like-For-Like Growth 2010/11
  H1 Q3 Q4 H2 FY
LFL (inc. VAT, inc. petrol) 3.1% 1.6% 1.7% 1.6% 2.4%
LFL (inc. VAT, exc. petrol) 1.2% 1.5% 0.2% 0.8% 1.0%
LFL (exc. VAT, exc. petrol) 0.3% 0.5% (0.7)% (0.1)% 0.0%
LFL (exc. VAT, exc. Petrol and IFRIC 13 compliant) (0.3)% 0.7% (0.7)% 0.1% (0.2)%

Excluding petrol and VAT, like-for-like sales were flat, with an overall reduction of (0.1)% in the second half comprising 0.5% growth in the third quarter and a fall of (0.7)% in the fourth. Combined with a strong contribution in the year of 3.1% from net new space, including 3.5% in the second half, total sales (including petrol and VAT) grew by 5.5% in the year.

We have remained focused – as always – on customers. Our strategy is to earn their loyalty by helping them to spend less – through low prices, good promotions and Clubcard – and by improving the other key elements of the shopping trip for customers – in availability, service, range and quality. In food and drink categories we continued to perform ahead of the market, although in some of our other product areas growth was below our expectations, particularly during the second half (see general merchandise section below) and this is an area of significant focus for the new UK Board.

Our investment in improving our offer for customers, including the increased cost of Clubcard Double Points, continues to be supported by our Step-change productivity programme, which is now in its 14th year. Step-change projects improve the way we do things – in our stores, distribution centres and offices. The aim is to make everything we do ‘better for customers, simpler for staff and cheaper for Tesco’ and in some cases, projects are known as far as five years ahead of expected completion. We completed a programme in the year that delivered savings of some £550m in the UK – and we invested most of these savings back into our offer for customers.

Our work on applying Group skill and scale to drive value and competitiveness across our businesses globally, is drawing on this.


Our businesses have had a strong year overall, with improvements in sales, profits and returns. Most of our markets have seen steady economic improvement and in some cases – particularly in Asia – sharp improvement. Countries hardest hit in the downturn – in particular Hungary, Ireland and the western United States – have been slower to recover although, even there, we are now seeing signs of improvement. Japan remains a difficult retail environment.

A particularly encouraging feature of our performance in Asia and Europe has been excellent market share growth, with many of our businesses seeing strong growth in both customer numbers and like-for-like sales. These trends strengthened in the second half, with higher like-for-like growth compared with the first half. In the US, two year like-for-like growth was 20.1% in the fourth quarter.

  Asia, Europe, US Like-For-Like Growth Exc. Petrol 2010/11
  H1 Q3 Q4 H2 FY
Asia 1.4% 4.3% 1.9% 3.1% 2.3%
Europe 2.2% 3.6% 2.4% 3.0% 2.6%
United States 9.6% 9.8% 8.6% 9.2% 9.4%
Total 2.0% 4.1% 2.3% 3.1% 2.6%

Note: A full table of country LFL growth is provided in Appendix 1 on page 11

We have resumed a faster pace of new space opening now that economic conditions are generally improving. We opened 6.5m square feet of gross new space in 2010/11, compared with 5.1m square feet in 2009/10 and we plan to open a further 8.4m square feet during the current year.


  Asia Results 2010/11
  Actual rates Constant rates
  £m % growth % growth
Asia sales £11,023m 21.5% 9.7%
Asia revenue (exc. VAT, exc. impact of IFRIC 13) £10,278m 21.4% 9.6%
Asia trading profit £570m 29.5% 17.5%
Trading margin (trading profit/revenue) 5.55% 35bp 34bp

Another good performance in Asia saw increases in sales and profits – supported by improving like-for-like sales growth, a useful contribution from new stores and further benefits from our acquisition in Korea in 2008.

We have seen significantly improved sales growth compared to 2009/10, except for Japan, where economic as well as industry trading conditions remain difficult. Our performance in Asia was helped by favourable exchange rate movements but profits grew by almost 18% at constant currency. All countries except Japan and China made strong progress on profitability – with excellent growth coming from Thailand and Korea. China did not break-even during the second half of the year, which was a consequence of the slower consumer demand growth and our store roll-out being slower than planned.

Asian markets offer an exciting long-term growth opportunity and will be a key focus for our future international expansion, both in our established markets and in China. Having continued to invest through the downturn, we are now in an even stronger position as economic recovery continues.

This year we plan to open 5.1m square feet of new selling area. We have also continued to make good progress in developing strong brands in our leading Asian businesses with further expansion of Clubcard and our Retailing Services businesses.


  Europe Results 2010/11
  Actual rates Constant rates
  £m % growth % growth
Europe sales £10,558m 5.6% 7.4%
Europe revenue (exc. VAT, exc. impact of IFRIC 13) £9,192m 5.4% 7.1%
Europe trading profit £527m 11.2% 13.7%
Trading margin (trading profit/revenue) 5.73% 30bp 42bp

Our operations in Europe delivered record results and the strongest growth in sales, profits and margins for several years. Recovering economies generally helped but key to this performance was the striking improvement in the competitiveness of our local businesses, which have not only adjusted well to the demands of tough market conditions, but have won market share rapidly. In Ireland and Hungary, economic conditions and consumer confidence remained subdued but despite this, our businesses there made solid progress.

We have invested for customers through lower prices, sharper promotions and Clubcard, funded by strong productivity and substantial early benefits of our pan-European sourcing – and the resulting strong sales growth has driven an improvement in profitability and margins.

Sales growth varied across the region but all markets saw sharply improved like-for-like sales growth compared with 2009/10, with a good contribution also coming from new space. Our performance across Central Europe, was pleasing in both sales and profit terms – and was particularly good in the Czech Republic and Slovakia. In Ireland, like-for-like growth in the year was significantly stronger, and although it was broadly stable during the second half, the two-year trend has continued to improve.

With the improving economic outlook we are stepping up the rate of new store opening. Some 2.6m square feet of new space was opened in the year, with a programme to add a further 2.9m square feet of new space across the region in 2011/12.

We have been delighted by customer reaction to the remodelling and conversion of some of our older hypermarkets to the Extra format. Very strong sales improvements have been achieved in the stores – with an average sales uplift of 16% in the 8 completed so far. These refits are delivering particularly marked uplifts in fresh food categories, health & beauty, clothing and electricals.

United States

  US Results 2010/11
  Actual rates Constant rates
  £m % growth % growth
US sales £502m 41.8% 38.1%
US revenue (exc. VAT, exc. impact of IFRIC 13) £495m 41.8% 38.1%
US trading profit / (loss) £(186)m (12.7)% (9.7)%

Losses in Fresh & Easy increased in the year. Whilst this did not meet our guidance issued at the beginning of the year, it was a consequence of the initial costs of integrating our acquisitions of two dedicated fresh food suppliers, 2 Sisters and Wild Rocket Foods, and exchange rate movements. These businesses have now been fully integrated with our existing kitchen operations, with substantially improved financial performance, product quality and service levels.

We expect losses to reduce sharply in the current year as strong growth in like-for-like sales continues and improved store operating ratios start to deliver individual shop-door profitability. Despite the higher losses in 2010/11, the overall business remains on-track to break-even towards the end of the 2012/13 financial year.

Customer feedback remains excellent and our clear objective now is to accelerate the strong growth in customer numbers we are seeing, which is driving sales per store steadily towards the levels we require. These trends, combined with benefits of the growing scale of the store network around our Riverside distribution centre and manufacturing campus, give us confidence that the components of a profitable business model are coming together.

Although there is clearly some way to go, with these key elements moving in the right direction, we plan to accelerate the rate of new store opening to around 50 in the current year. With the improvements in our distribution centre and manufacturing campus productivity, resulting from the acquisition of the two suppliers, we now expect to reach break-even with around 300 stores trading, rather than the 400 we originally anticipated.


Our general merchandise business has continued to grow, despite the challenges of weak demand in some of our important markets – not least the UK. We have seen some strong key category and market share performances, which have helped compensate for the effects of cautious consumer spending in these more discretionary areas. In order to align with our new structures, we will going forward define non-food as general merchandise, clothing and electricals, (excluding health & beauty and household). Overall Group sales in this category rose 8.8% during the year to £10.3bn.

In the UK, general merchandise, clothing & electricals sales grew by 0.4% to £5.3bn. This growth reflected the challenging environment, particularly in our important electrical and entertainment categories, and a strong prior year performance. General merchandise sales growth was also affected by a smaller component of extension selling space in this year’s new space programme, with extensions providing just 10% of new space.

Toys, sports, books and magazines and gaming grew well but our performance in electrical goods was below the market and the growth in clothing was also not as strong as we had planned. Like-for-like growth across the whole of general merchandise, clothing & electricals was (3.3)% during the second half, compared with (0.3)% in the first half. Improving the performance of these categories in the UK is a priority. We have strengthened the teams and they are working on improvements to ranging, merchandising, pricing and promotions.

In Europe, General Merchandise, Clothing & Electrical sales were strong, reflecting an overall improving consumer background. Clothing sales, which are a substantial element of our sales mix, increased by a pleasing 9% at constant exchange rates in Central Europe and we are now clothing market leader in Hungary and the Czech Republic and Slovakia. Building on the success of the F&F brand we have introduced our F&F Blue and F&F Basics sub-brands in Europe and we opened our first standalone clothing store in Prague last autumn.

F&F, now in four of our Asian markets, has seen an excellent early response from customers. This is a very good example of the skill and scale of the Tesco Group being applied across our network.

We have seen strong general merchandise sales growth in our Asian businesses – which are predominantly hypermarket operations. Both hardline and softline sales growth was high-single digit, despite unseasonably warm weather during the third quarter in China and Korea which affected clothing performance. We saw particularly pleasing increases in electrical products – with double-digit growth in Thailand and over 30% in China.


Total Retailing Services sales were £4.0bn, up 12% on last year and trading profit grew to £583m*. This represents creditable progress towards our target of £1bn of aggregate profit from services.

Tesco Bank

  Tesco Bank Results 2010/11
  £m % growth
Tesco Bank revenue (exc. VAT, exc. impact of IFRIC 13) £919m 6.9%
Tesco Bank trading profit £264m 5.6%
Tesco Bank trading margin 28.73% (34)bp

Despite a challenging year in the wider banking sector, and as it completes its transition to full separation from Royal Bank of Scotland (RBS), Tesco Bank continues to perform well.

The business has made good progress with its systems re-platforming, which will complete as planned in 2011. We opened our new banking and insurance service centres in Glasgow and Newcastle in October 2010. All motor and home insurance business, including renewal policies sold since then have, as planned, been written on new systems. We have also launched successfully our first new product on our own banking platforms –the Fixed Rate Saver – last autumn. This has been followed by our recent innovative retail bond. Both of these initiatives exceeded plan and serve to diversify our funding base and increase the proportion of long-term funding available to the Bank.

The Bank has made progress in key areas – with savings strongly up, good growth in the loan book with improved margins and an excellent year in credit cards, with the transaction value up 20% on 2009/10. The car insurance book has also resumed growth, having plateaued before the change of control, despite the inevitable challenges of migration.

Customer account numbers grew well – in active credit cards by 11%, personal loans by 17% and motor insurance by 8%. Our Fixed Rate Saver product significantly exceeded expectations and we ended the year with a balance of £397m, 40% higher than planned and now have one, two and three-year options available for customers. The range of products available for customers will be broadened further this year with the planned launch of mortgages.

The Bank’s bad debt position has significantly improved year-on-year, with the charge to the income statement 26% lower, despite the growth in lending, as credit card and loan defaults reduced, helped by good management of bad debt and the quality of our new business. This excellent progress on bad debt has also resulted in an increase in the release of the fair value provisions we made in the Group balance sheet on acquisition. Based on a lower than expected level of claims, we have also released some of our provisions for customer claims against payment protection insurance policies.

These strong elements of the Bank’s performance mean that we have been able to offset the substantial extra provisions made in the year related to bodily injury claims in our motor insurance business – a trend affecting the whole industry – and the costs of migration, yet still delivering increased trading profit.

The baseline profitability of the Bank – before provisions movements and the adjustments required under acquisition accounting – continues to improve steadily, whilst absorbing the higher costs of migration away from RBS. We expect further improvements in the baseline profitability in 2011/12.

Our Core Tier 1 capital ratio has risen substantially – to a healthy 15.9% at the year-end. The strong growth in the Bank’s deposit base means that we have a significant excess of deposits over loans, as we build out balance sheet capacity ahead of the planned launch of mortgages.

An income statement and balance sheet for Tesco Bank is available in the Investor Centre section of our corporate website – (

* Retailing Services profit comprises profits from Telecoms, dotcom, dunnhumby and Tesco Bank, including UK store ATM income.

Online businesses grew sales strongly – by 15%, including our operations in Korea and Ireland. Our UK operations continued to grow well – with double–digit growth in grocery and a further 30% increase at Tesco Direct. Profits overall, saw a modest advance as we chose to invest in providing one-hour delivery time slots in London as well as innovations such as ‘click & collect’, ‘refund the difference’ and ‘wine by the case’, which have proved very popular with customers. Our iPhone application now accounts for 12% of customer traffic.

Telecoms saw strong growth in customer numbers, driven by a 24% rise in Tesco mobile subscribers as both pre-pay and contract grew during the year. Popular promotions, including using Clubcard, allowed pre-pay to grow in a declining market, whilst our contract business benefited from the iPhone 4 launch and our broadening handset range. Profitability was impacted in the short term by the costs of investing in the expansion of our Phone Shop network and handset subsidies as we grow our contract business.

dunnhumby, our marketing services business, had a very strong year, increasing sales and profits by over 30% with excellent growth in its UK and US supplier operations and from its other overseas joint ventures. The company is now a wholly-owned subsidiary of Tesco.


Tesco’s property activities have one principal objective: to ensure Tesco can retail from the best located and designed property in its markets. At the same time, we create sustainable, long-term value for shareholders from the development and management of prime retail property and this also provides the strong asset-backing to our balance sheet with the market value of our property currently exceeding £36.0bn (compared with a net book value of £26.3bn).

Tesco releases some of this value through carefully selected divestments of some of its property, as well as taking advantage of strong market conditions offering good yields. Over the last five years we have delivered in excess of £5bn of proceeds in line with our stated objectives in 2006 at an average net initial yield of 4.9%. We have also generated profits from property related items of £1.3bn over the past five years. We have used the proceeds to invest in property assets in growth economies, buy back c.£1.1bn of our own shares and enhance dividends for shareholders.

Future property plans

Our aim is to demonstrate the value created through Tesco’s property development activities by delivering a sustainable stream of property profit, based on the following principles:

  • The amount of profit will be approximately equal to the value we create annually from development activities. This is distinct from the increase in value of mature property which ultimately is reflected in shareholder value through trading profits. As long as we are creating as much property value as we are releasing, it will be sustainable;
  • The level of property divestments annually will remain below the levels of new investment in growth capital spend each year, thereby ensuring that our total asset base continues to grow;
  • We will increase our lease commitments from a combination of a continuing sale & leaseback programme and new leasehold acquisition, particularly in China and the US, but will broadly keep our Group property portfolio at around 70% freehold;
  • We expect rent as a proportion of EBITDAR* to remain broadly constant, ensuring an appropriate balance between rental growth and cash generation.

Based on these principles, and current levels of investment, we intend to realise property profits in the range £250m to £350m per year. This level of profits will be generated from divestments of just over £1 billion annually.

We plan to release property profits through two types of transaction:

  • Sale & leaseback of stores. We will conduct these transactions where pricing is best relative to the growth prospects of the underlying market; for the time being, this means the focus will remain in the UK.

* EBITDAR defined as statutory profit before interest, tax, depreciation, amortisation and rent.

  • Shopping malls. We have successful mall businesses in Korea, Thailand, Malaysia and our Central European markets, as well as a newly-developing mall business in China. In future, the development value which we create through these large projects will be increasingly realised through transactions in which Tesco sells, or part-sells, the whole development and leases back the hypermarket portion of the property. We will tend to focus on divestment of mature assets.


Communities are at the heart of what we do and we have established a leadership role on climate change. Our achievements this year include:

Caring for the environment. We have exceeded our target to reduce carbon emissions from our baseline portfolio of buildings by 5.5% compared to 2009/10. In total we have footprinted over 1,000 products, and carbon labelled over 500 products in store and online in the UK. We have also continued our carbon labelling programme in South Korea.

Actively supporting local communities. We have exceeded our 2010 target of donating at least 1% of pre-tax profits to charities and good causes, donating 1.8%. We have also exceeded our target to raise £7m for charity through staff and customer fundraising: in the UK alone, we raised £7.2m for our Charity of the Year, CLIC Sargent. Since the start of our computers and sports for schools schemes, we have given £170m worth of equipment to schools in the UK alone. We work with Mary’s Meals to provide daily meals to over 4,000 school children in Malawi, India, Kenya and Thailand.

Buying and selling products responsibly. Under our Trading Fairly programme we now have our own experts in China, Bangladesh and South Africa working directly with local suppliers to tackle labour issues. We have increased sales of local products in the UK to £1bn. We are co-leading a project across the consumer goods industry to achieve zero net deforestation by 2020.

Giving customers healthy choices. We have 100% nutrition labelling of eligible own-brand food lines in all our markets. In Thailand, around 4 million people participated in an aerobics competition, a Walkathon and football clinics. In the UK, around one million primary school children ran in the Great School Run and over 740,000 children have taken part in the F.A. Skills Programme.

Creating good jobs and careers. We have increased the total number of staff in the Group by 21,000. Our basic hourly rate of pay for a customer assistant in the UK is 7% higher than our three largest food retail competitors. Also in the UK, 216,000 staff shared a total of £105.5m through our Shares in Success scheme in 2010, and we opened a record eight Regeneration Partnership stores this year.

More details will be contained in our Corporate Responsibility report, published next month.

Supplementary Information

The following supplementary information can be found within our analyst pack, which is available via the internet at

  • Group Income Statement
  • Tesco Bank – Income Statement and Balance Sheet
  • UK Sales Performance
  • International Sales Performance
  • Group Space Summary and Forecast
  • Earnings Per Share

Appendix 1 – Country Like-For-Like Growth Inc. VAT Exc. Petrol

  Like-For-Like Growth 2010/11
  Q1 Q2 H1 Q3 Q4 H2 FY
UK 1.1% 1.3% 1.2% 1.5% 0.2% 0.8% 1.0%
Asia (1.8)% 5.0% 1.4% 4.3% 1.9% 3.1% 2.3%
China 3.2% 9.3% 6.2% 5.7% 4.3% 4.9% 5.5%
Japan (10.7)% (5.4)% (8.3)% (6.4)% (8.9)% (7.6)% (8.1)%
Malaysia (2.1)% (2.0)% (2.1)% 0.6% (1.8)% (0.7)% (1.4)%
South Korea 0.6% 6.0% 3.2% 5.7% 0.8% 3.1% 3.2%
Thailand (5.5)% 4.8% (0.8)% 2.9% 5.0% 4.0% 1.6%
Europe 0.7% 3.7% 2.2% 3.6% 2.4% 3.0% 2.6%
Czech Republic (2.2)% 4.4% 1.1% 2.8% 3.0% 2.9% 2.0%
Hungary (8.6)% (2.5)% (5.4)% 3.8% 2.7% 3.2% (1.2)%
Poland 0.8% 3.2% 2.0% 2.8% 1.3% 2.0% 2.0%
Slovakia 5.8% 11.6% 8.7% 13.7% 12.1% 12.9% 10.9%
Turkey (1.5)% 0.0% (0.7)% 2.8% (2.0)% 0.4% (0.1)%
Republic of Ireland 8.4% 7.4% 7.9% 0.9% (0.2)% 0.3% 3.9%
United States 7.5% 12.2% 9.6% 9.8% 8.6% 9.2% 9.4%


Investor Relations: Steve Webb 01992 644800
  Mark George 01992 644800
Press: Trevor Datson 01992 644645
  Angus Maitland – The Maitland Consultancy 0207 379 5151


This document is available via the internet at

A meeting for investors and analysts will be held today at 9.00am at the Royal Bank of Scotland, 280 Bishopsgate, London EC2 4RB. Access will be by invitation only. Presentations from the meeting will be available at

An interview with Philip Clarke, Chief Executive, discussing the Preliminary Results is available now to download in video, audio and transcript form at

Additional Disclosures

Risks and Uncertainties

As with any business, risk assessment and the implementation of mitigating actions and controls are vital to successfully achieving the Group’s strategy. The Tesco Board has overall responsibility for risk management and internal control within the context of achieving the Group’s objectives. The principal risks and uncertainties faced by the Group include:

  • Business and financial strategy, including Group Treasury
  • Operational threats and performance risk in the business
  • Competition and consolidation
  • People capabilities
  • Reputation
  • Environmental and climate change
  • Product safety and health and safety
  • Ethical risks in the supply chain
  • Fraud and compliance
  • Property
  • General merchandise, clothing & electricals
  • IT systems and infrastructure
  • Regulatory, political and economic environment, activism and terrorism
  • Pensions
  • Funding and liquidity, interest rate and foreign currency risk
  • Credit risk, Tesco Bank and insurance

Greater detail on these risks and uncertainties will be set out in our 2011 Annual Report, the publication of which will be announced in due course.

Statement of Directors’ Responsibilities

The Directors confirm that to the best of their knowledge this consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, International Financial Reporting Standards (IFRS) and IFRS Interpretation Commit tee (IFRIC) interpretations, as endorsed by the European Union (EU). The accounting policies applied are consistent with those described in the 2010 Annual Report, apart from those arising from the adoption of new International Financial Reporting Standards and Interpretations. In preparing the consolidated financial information, the Directors have also made reasonable and prudent judgements and estimates and prepared the consolidated financial information on the going concern basis. The consolidated financial information and management report contained herein give a true and fair view of the assets, liabilities, financial position and profit of the Group. The Directors of Tesco PLC as at the date of this announcement are as set out below.

The Board

David Reid* - Chairman
Philip Clarke - Chief Executive
Tim Mason - Deputy Chief Executive
Richard Brasher
Andrew Higginson
Laurie McIlwee
Lucy Neville-Rolfe CMG
David Potts
Gareth Bullock* Patrick Cescau* - Senior Non-executive Director
Stuart Chambers* Karen Cook*
Ken Hanna* Ken Hydon*
Jacqueline Tammenoms Bakker*
* Non-executive Directors

Company Secretary
Jonathan Lloyd

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