Preliminary Results 2012/13

Building a Better Tesco

52 weeks ended 23 February 2013 (unaudited)
On a continuing operations basis
2012/13 Growth
exchange rates)
(Constant exchange rates)
Group sales (inc. VAT)*
Sales growth excluding petrol
£72,363m 1.3%
Group trading profit £3,453m (13.0)% (12.3)%
- UK £2,272m (8.3)% (8.3)%
- Asia £661m (10.3)% (9.8)%
- Europe £329m (37.8)% (33.3)%
- Tesco Bank £191m (15.1)% (15.1)%
Underlying profit before tax £3,549m (14.5)% (14.0)%
Underlying diluted earnings per share 35.97p (14.0)%** n/a
ROCE (adjusted for one-off items) 12.7% (200)bp n/a
Capex £3.0bn down 19.0% down 18.1%
Statutory profit before tax includes the following one-off items:
- UK property write-down £(804)m  
- Goodwill impairment (Poland, Czech Republic, Turkey) £(495)m  
- Increased provision for PPI (Tesco Bank) (incl. H1 £(30)m) £(115)m  
Statutory profit before tax £1,960m (51.5)% n/a
United States treated as discontinued, with restructuring and other one-off costs of £(1.0)bn


Philip Clarke, Chief Executive:

"The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today. With profound and rapid change in the way consumers live their lives, our objective is to be the best multichannel retailer for customers.

Our plan to 'Build a Better Tesco' is on track and I am pleased with the real progress in the UK. We have already made substantial improvements to our customers' shopping experience, which are starting to be reflected in a better performance.

We have set the business on the right track to deliver realistic, sustainable and attractive returns and long-term growth for shareholders. The consequences are non-cash write-offs relating to the United States, from which we today confirm our decision to exit, and for UK property investments which we will not pursue because of our fundamentally different approach to space.

We have also faced external challenges which have affected our performance, notably in Europe and Korea.

Our focus now is on disciplined and targeted investment in those markets with significant growth potential and the opportunity to deliver strong returns."


  • £3.5bn trading profit – year-on-year performance largely reflects UK reinvestment
  • Final dividend maintained at 10.13p, giving full-year dividend of 14.76p
  • Good progress in the UK, delivering improved results – for customers and for Tesco
  • Strong online performance: Group sales of over £3bn for the first time – up 13%
  • Confirming exit from the United States – process well-advanced
  • F+F brand clothing sales now exceed £1bn in UK alone, with +9% LFL sales growth
  • Clear approach to future growth, capital expenditure, returns and cash, providing clarity for shareholders

* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13.
** Underlying diluted EPS growth calculated on a constant tax rate basis; (10.8)% at actual tax rates.


Continuing operations2 Group   UK3 Asia Europe Tesco Bank
Growth %   TY
Sales (inc. VAT)4 72,363 71,402 1.3%   48,216 12,317 10,809 1,021
Growth %         1.8% 5.9% (4.9)% (2.2)%
UK LFL (exc. Petrol)         (0.3)%      
Revenue (exc. VAT)5 64,826 63,916 1.4%   43,088 11,443 9,274 1,021
Growth %         2.0% 6.0% (5.6)% (2.2)%
UK LFL – IFRIC 13 compliant basis (exc. Petrol)         (0.3)%      
Trading profit6 3,453 3,969 (13.0)%   2,272 661 329 191
Growth %         (8.3)% (10.3)% (37.8)% (15.1)%
Trading profit margin4 5.28% 6.15% (87)bp   5.21% 5.76% 3.53% 18.71%
Change (basis points)         (58)bp (105)bp (183)bp (284)bp
Other underlying profit items:  
- Profits/ losses arising on property-related items 370 397 (6.8)%  
- Share of post-tax profits of joint ventures and associates 46 80 (42.5)%  
- Net interest cost (320) (297) (7.7)%  
Underlying profit before tax7 3,549 4,149 (14.5)%  
IAS adjustments (33) (43) 23.3%  
Restructuring and other one-off costs  
- Impairment of PPE and onerous lease provisions (895) - n/m  
- Provision for customer redress (115) (57) (101.8)%  
- Impairment of goodwill (495) - n/m  
- Other restructuring and one-off items (51) (11) (363.6)%  
Statutory profit before tax 1,960 4,038 (51.5)%  
Dividend per share (pence) 14.76 14.76 0.0%  
  Group   UK Asia Europe Tesco Bank
Capital expenditure (£bn) 3.0 3.7 (0.7)   1.4 1.6 1.0 1.2 0.5 0.7 0.1 0.2
Gross space added
(million sq.ft.)
6.2 9.7 (3.5)   1.5 2.6 3.3 4.5 1.4 2.7 n/a n/a
  TY LY YOY Change
  1. The financial year represents the 52 weeks ended 23 February 2013 (prior financial year 52 weeks ended 25 February 2012). For the UK, the Republic of Ireland and the US, the results are for the 52 weeks ended 23 February 2013 (prior financial year 52 weeks ended 25 February 2012). For all other operations, the results are for the calendar year ended 28 February 2013 (prior financial year ended 29 February 2012). 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. Continuing operations exclude the results from our operations in US and Japan which have been treated as discontinued.
  3. The UK segment excludes Tesco Bank, which is reported separately in accordance with IFRS 8 'Operating Segments'.
  4. Excludes the accounting impact of IFRIC 13 (Customer Loyalty Programmes). Trading margin is based on revenue excluding the accounting impact of IFRIC 13.
  5. Includes the accounting impact of IFRIC 13 (Customer Loyalty Programmes).
  6. 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 17, 32 and 39, and the interest element of IAS 19.
  7. 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 (Tesco Bank) and acquisition costs, and the non-cash impact of IFRIC 13 (Customer Loyalty Programmes). It also excludes restructuring and other one-off costs (relating to Asia, Europe, Tesco Bank).
  8. Including US and Japan as discontinued operations.
  9. Including US as a discontinued operation in the year ended 23 February 2013, and US and Japan in the year ended 25 February 2012.
Net cashflow from operating activities (£bn)8 2.8 4.4 (1.6)
IFRS pensions liability post-tax (£bn) 1.8 1.4 0.4
Net debt (£bn)9 6.6 6.8 (0.2)


It has been an important year for the Tesco Group, with challenges and opportunities in many of the markets we operate in. Some of these formed a core part of our plans for the year - such as our investment to get the UK business back on track; some became more prevalent throughout the course of the year – such as the severity of the impact of regulatory restrictions on opening hours in Korea, and the deteriorating economic conditions and the consequential impacts on consumers in Europe.

Despite these challenges, we have taken action throughout the year to better position the Group for the future. In the last twelve months, we have:

  • Announced and made progress on our plans to 'Build a Better Tesco' in the UK
  • Launched a strategic review of Fresh & Easy in the United States
  • Taken a more measured approach to our growth in China
  • Successfully completed our work to establish Tesco Bank on our own platforms
  • Exited Japan

Today, we have announced further action in two areas:

First, based on our progress so far with our strategic review of Fresh & Easy, including the indications of interest received from third parties, we have confirmed that the outcome of the review will be an exit from the United States. As such, Fresh & Easy has been treated as a discontinued operation within these results. Whilst the process is ongoing, and as such the form and final financial impact of the exit is still to be determined, we have written down the assets of the business and booked a provision for ongoing liabilities. The total impact to profit after tax is £(1.2)bn, including £(169)m trading losses and £(1.0)bn non-cash items – predominantly the impairment of fixed assets and provisions for onerous leases. Further details can be found in Note 4 to the accounts, on page 27.

Second, following on from our announcement in April 2012 that we would be reducing the level of new space growth in the UK going forward, we have carried out an in-depth review of our property pipeline. We have reviewed all of the schemes included in the pipeline individually, assessing their viability and potential to deliver an appropriate level of return on capital employed if built out. As a result, we have identified more than 100 sites – the majority of which were bought between five and ten years ago, at a higher point in the property cycle – which we no longer plan to develop and have therefore written their values down. In addition to a number of other provisions, including for the impairment of schemes which still can deliver an attractive return, but one lower than originally anticipated, this has led to a total one-off UK property write-down of £(804)m.

The fundamental change in our approach to new space also has implications for our sale and leaseback programme. Two years ago, we reviewed the programme and announced a steady reduction in the level of divestments, in order to ensure that any property profits released were matched to the level of new profit created by development activities. Given that we have significantly reduced the amount of these activities going forward, we believe that it is appropriate to accelerate the scaling back of the sale and leaseback programme, such that it is unlikely to make a material contribution after the next few years.

Our reported underlying profit measure includes these property profits and therefore its growth over the next few years will be held back by this accelerated reduction. We will therefore adjust for this impact when using underlying earnings per share as the basis for our dividend policy.


The actions we have taken over the last two years have removed a number of significant barriers to progress and underpin our more disciplined approach to capital allocation.

As we adapt to ensure we deliver on our objective to be the best multichannel retailer for our customers, we are realistic in our approach to growth and returns. We can therefore offer clarity to shareholders about how we intend to deliver an appropriate balance of growth and returns in the years ahead:

We are managing the business in order to:

  • Generate positive free cash flow
  • Ensure a disciplined allocation of capital within a range of 3.5% to 4% of sales
  • Maintain a strong investment grade credit rating

We are therefore allocating our capital to achieve three clear priorities:

  1. Continuing to invest in a strong UK business
  2. Establishing multichannel leadership in all of our markets
  3. Pursuing disciplined international growth

This means that, in the current economic environment, investors can expect us to deliver:

  • Mid-single digit trading profit growth
  • Return on capital employed within a range of 12% to 15%
  • Dividend growth, broadly in line with underlying earnings*, with a target cover of more than 2 times

These are appropriate and realistic objectives for the business. As we deliver our objective of being the leading multichannel retailer, we are determined to do even better – for customers and for shareholders.

We will update on our progress in the context of these objectives as part of our future results announcements.

*We will adjust for the impact of reduced property profits from the scaling back of our sale and leaseback programme in this context.


Group sales, including VAT, increased by 1.3% to £72.4bn. At constant exchange rates, sales increased by 2.5% (including petrol) and 3.1% (excluding petrol).

Group trading profit was £3,453m, down (13.0)% on last year, reflecting our previously announced investment in the shopping trip for customers in the UK, in addition to the impact of regulatory restrictions on opening hours in Korea and the effects of deteriorating economic conditions, particularly in Central Europe. Group trading margin was 5.3%, down 87 basis points.

Underlying profit before tax declined by (14.5)% to £3,549m. Group profit before tax declined by (51.5)% to £1,960m, due to the impact of a number of significant one-off charges, including:

  • UK property write-down of £(804)m, following an in-depth review of our forward pipeline
  • Goodwill impairment of £(495)m, reflecting the impact of differing growth prospects in today's environment for the businesses we acquired in Poland, the Czech Republic and Turkey in the mid-1990s to early-2000s
  • Increase of £(115)m in our provision for potential Payment Protection Insurance claims against Tesco Bank

Following our confirmation that the strategic review of Fresh & Easy will result in an exit from the United States, the results of our business there, in addition to those of our business in Japan, have been classified as discontinued operations in these results. Further details can be found in Note 4 to the accounts, on page 26 of this statement.

Net finance costs increased to £282m, from £235m last year, largely due to the revaluation of the liability relating to the purchase of the minority interest in our Korean business in July 2011, which reduced net finance costs by £35m in the 2011/12 financial year. Capitalised interest reduced by £17m to £123m.

Total Group tax has been charged at an effective rate (on profit before tax prior to the one-off charges mentioned above) of 18.6% (last year 21.6%), mainly reflecting a fall in the UK corporation tax rate. The effective rate of tax on statutory profit before tax after the one-off charges, is 29.3%.

Cash Flow and Balance Sheet. Cash generated from retail operating activities reduced to £2.9bn (2011/12: £3.8bn), with an overall increase in the level of working capital (before one-off items), in addition to the trading profit impact and a one-off pension contribution. The working capital increase was largely as a result of regulatory impacts in a number of markets and shorter order lead times for general merchandise reducing creditor days year-on-year. Despite this, net debt fell by £241m to £6.6bn, due to reduced capital expenditure and increased property proceeds.

We continued to see strong investor demand for our property during the year. Following the successful launch of the Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF) with 17 malls in Thailand in March 2012, we injected a further five malls into the fund in November. In August, we completed the sale and leaseback of four stores in Korea and in February, a further transaction in the UK including four trading stores and three mixed-use sites. These contributed to proceeds of over £1.3bn and profits arising on property-related items of £370m.

Pensions. The Group's net pension deficit after tax has increased from £1,407m to £1,839m, due mainly to a reduction in real corporate bond yields leading to a fall of 0.3% in the discount rate used to measure our liabilities. This was partially offset by the one-off cash contribution of £180m we announced in April last year, together with higher than expected asset returns.

Group capital expenditure was £3.0bn, or 4.1% of sales, a reduction of £0.7bn versus last year. Capital expenditure fell year-on-year in every one of our reporting segments, with UK expenditure down 13% to £1.4bn, Asia down 17% to £1.0bn, Europe down 34% to £0.5bn and the Bank down 33% to £0.1bn.

Group Return on Capital Employed (ROCE) decreased during the year as expected, reflecting the combined impacts of our investment in the UK, the regulatory impact in Korea and the consequential impact of the deteriorating economic conditions in Central Europe. Prior to the impact of one-off charges, Group ROCE was 12.7%, compared to 14.7% last year (based on a continuing operations basis, and therefore excluding the United States).


The Board has approved a maintained final dividend of 10.13p per share, giving a full year dividend of 14.76p, demonstrating our confidence that the steps we have taken in 2012/13 will set the Group on track to resume growth in 2013/14 and beyond. The final dividend will be paid on 5 July 2013 to shareholders on the Register of Members at the close of business on 26 April 2013.



Our planned investment to 'Build a Better Tesco' has delivered an improved performance, despite trading conditions for the market as a whole remaining difficult throughout the year. Consumer confidence remained very low and customers continued to manage household budgets carefully in the face of high inflation. Despite this, our underlying performance significantly improved throughout the year, led by a much stronger performance in food – the main focus of our efforts to date.

  UK Results 2012/13
  £m % growth
UK sales £48,216m 1.8%
UK revenue (exc. VAT, exc. impact of IFRIC 13) £43,579m 1.8%
UK trading profit £2,272m (8.3)%
Trading margin (trading profit/revenue) 5.21% (58)bp

Total UK sales increased by 1.8% to just over £48bn, with UK trading profit declining by (8.3)% to £2,272m as a result of the investment we announced last year. UK trading margin was 5.2% - in line with the guidance given at our Preliminary Results in April last year. We believe this level of margin is sustainable and appropriate for the foreseeable future.

  UK LFL Growth 2012/13
  H1 Q3 Q4 H2 FY

*Compliant with IFRIC 13 (Loyalty schemes) – the variance between like-for-like sales growth excluding both petrol and VAT, and the same growth on an IFRIC 13-compliant basis is due principally to the consequences for revenue recognition of the changes to our Clubcard scheme announced in September 2011.

LFL (inc.VAT, inc. petrol) (1.0)% (1.2)% (0.8)% (1.0)% (1.0)%
LFL (inc VAT, exc. petrol) (0.6)% (0.7)% 0.5% (0.1)% (0.3)%
LFL (exc. VAT, exc. petrol) (0.7)% (0.6)% 0.5% (0.1)% (0.4)%
LFL (exc. VAT, exc. petrol) IFRIC 13* (0.2)% (0.1)% (0.4)% (0.2)% (0.3)%

Although like-for-like sales had been boosted by seasonal events in the first half, our performance improved during the second half, with our fourth quarter delivering the strongest level of like-for-like sales growth, excluding petrol and VAT, for three years. This was driven by a market-leading performance through the important Christmas & New Year period and was achieved despite a tougher comparative base as we lapped the exceptionally high levels of couponing activity undertaken in early 2012.

General merchandise has continued to weigh on UK performance throughout the year, with a slight decline in total sales and a decline in like-for-like sales of over 5% for the year as a whole. Clothing, however, has continued to deliver a strong performance, as customers have responded well to the better garment quality, ranging, and merchandising we have introduced. Sales from our F&F ranges of clothing alone now total more than £1bn, with like-for-like sales growth of over 9% for the year.

As planned, we opened a significantly smaller amount of net new space this year – at 1.4 million square feet, this was a (40)% reduction versus the prior year. This new space – which included 120 Express and 26 One Stop stores - performed well, contributing to total sales growth of 2.6% (excluding petrol and VAT) for the full year. We plan to open a similar amount of net new space in 2013/14, including a larger proportion focused on convenience.

Last year we made a £1bn commitment to 'Build a Better Tesco' in the UK – a six-part plan focused on improving every aspect of our customers' shopping trips. The six parts of this plan are:

  • Service & Staff
  • Stores & Formats
  • Price & Value
  • Range & Quality
  • Brand & Marketing
  • Clicks & Bricks

We have made significant progress against all six parts of the plan and in doing so have identified numerous further opportunities to continue to improve our offer in the year ahead. Our new 'customer viewpoint' tracks customer perceptions of 12 aspects of the shopping trip in each of our stores on a regular and frequent basis, and customer perceptions in every one of these aspects have improved, underpinning our confidence that the underlying improvement we have seen in our trading performance is driven by the improvements we have made.

There have been many initiatives under each point of the plan, but improving the customer experience in store has been key. We have appointed 8,000 new colleagues, helping us to serve customers better and ensuring stores get the additional hours they need at the times they need them most. More than 250,000 colleagues in-store have received customer service training, with additional technical training for 36,000 of our colleagues, particularly focusing on fresh food departments.

We refreshed just over 300 of our existing stores – representing almost a quarter of our total selling space – with a variety of changes to improve the look and feel of the stores, while many more stores received specific department upgrades. This work will continue this year, with a focus on Express and Metro formats, particularly in and around London. By investing in the Harris + Hoole coffee chain, working with the Euphorium bakery brand in London and acquiring the Giraffe restaurant chain, we have made important steps towards turning our stores into compelling retail destinations for customers.

We have sent out over 32 million additional highly-personalised Clubcard mailings, rewarding our most loyal customers. Since the year-end, we have rolled out our automatic coupon-at-till Price Promise, following a successful trial in Northern Ireland. Price Promise compares the cost of a basket of goods – both branded and own-label – against an equivalent basket at J Sainsbury, Morrisons and Asda.

Under Range & Quality, the re-launch of Everyday Value in April last year has proved very popular with customers with like-for-like sales tracking at over 6%. In addition, over 3,500 of our core Tesco Brand own-label products have been re-launched or improved, and this year we plan to deliver all 8,000 of these lines and also re-launch Tesco Finest – already one of the UK's largest food brands in its own right. Using insights from dunnhumby, over 60% of our entire food range is now differentiated by socio-demographic groupings across all of our stores.

One major challenge in the final weeks of the year was the discovery in January of equine DNA in beef and other meat products throughout the UK industry. We responded immediately, leading the industry by withdrawing the four affected products, carrying out our own tests on potentially affected products and placing full-page notices to alert customers in the national press. Any performance impact appears to have been short-term and largely limited to those frozen meat categories where products were withdrawn and to chilled ready meals. We have seen customers choosing to substitute some of the directly-affected product groups with alternatives, such as fish and poultry.

Our 'Building a Better Tesco' plan was supported ahead of Christmas by the first fully integrated multichannel communications programme developed with our new agency. The results of the activity were significant, with a 7% improvement in our key advertising measures during the period. Customer feedback showed that we created standout and differentiation, putting a warmer and more engaging face to the brand that was welcomed by all.

Clicks & Bricks is at the heart of our strategy for the future of the business. Our online grocery business has had another strong year, with sales growing ahead of the market, by 12.8% to £2.3bn. Over 120,000 customers have already signed up for our Delivery Saver subscription service, accounting for almost 25% of our weekly online grocery sales. We already have over 150 Grocery Click & Collect locations, with plans to more than double that number in the year ahead. We opened our fifth dotcom only store in Crawley in January, and we will open an additional dotcom only store for the London area, in Erith, in the second half of the year.

Tesco Direct has significantly expanded its product offering, to nearly 300,000 products, up from 75,000 at the start of the year. Around two-thirds of Tesco Direct orders are collected in-store, and we have doubled the number of Click & Collect locations available to over 1,500 in the last twelve months.

Tesco Direct is a key part of our multichannel strategy going forward, but its path to profitability has progressed less quickly than anticipated. It is a clear priority for the year ahead – and the one which is receiving most of our focus in this area – to ensure that we have a profitable, scalable model before we look to accelerate growth.


  International Results* 2012/13
  Actual rates Constant rates
  £m % growth % growth

*Exc. Japan & United States

International sales £23,126m 0.6% 4.1%
International revenue (exc. VAT, exc. impact of IFRIC 13) £20,798m 0.5% 3.9%
International trading profit £990m (21.8)% (19.6)%
Trading margin (trading profit/revenue) 4.76% (136)bp (139)bp

Our international businesses have been impacted this year by external pressures - both economic and regulatory - as we highlighted at our Interim Results in October. In Asia, the introduction of new regulatory restrictions on opening hours in Korea has led to an impact broadly in line with our expectations. In our European markets, economic conditions continued to deteriorate through the second half, with consumers severely affected by a combination of government austerity measures, increased unemployment and higher inflation. Our performance, particularly in Central Europe, has suffered as a result.

  International LFL* Growth 2012/13
  H1 Q3 Q4 H2 FY

*Exc. petrol, exc. Japan & United States
Note: A full table of quarterly country LFL growth is provided in Appendix 2 on page 15.

Asia (1.4)% (1.2)% (2.5)% (1.9)% (1.7)%
Europe (0.2)% (3.6)% (4.5)% (4.3)% (2.3)%
Total International (0.8)% (2.4)% (3.5)% (3.0)% (2.0)%

We opened 4.3 million square feet of net new international selling space in 2012/13 - a reduction of 37% compared to the level opened in the prior year. A much greater proportion of this new space was focused on smaller format stores, and we now have over 1,930 convenience stores across our businesses outside the UK.

We successfully launched dotcom grocery operations in 13 further cities across the Czech Republic, Poland and Slovakia this year, building on the success of our operations in Ireland and South Korea. Just prior to the year-end we launched in Bangkok and since March we have also started operations in Budapest and Kuala Lumpur, meaning we now have dotcom grocery in eight of our 11 international markets. We plan to launch in China – initially in Shanghai – later this year. Our total international online sales grew by 46.5% to £281m, contributing to online sales for the Group as a whole of more than £3bn for the first time.

In line with our efforts to move to a more sustainable balance of growth and returns, we have adopted a new approach to capital allocation between our international markets. As such, we intend to commit a greater proportion of our capital investment to Korea, Thailand and Malaysia where we have strong positions and significant potential for further growth. In our European businesses, we will concentrate on holding our current market positions and improving returns. In our less mature markets – China, Turkey and India – we will focus our efforts on establishing and then pursuing a profitable approach to growth.

  Asia Results* 2012/13
  Actual rates Constant rates
  £m % growth % growth

*Exc. Japan

Asia sales £12,317m 5.9% 6.1%
Asia revenue (exc. VAT, exc. impact of IFRIC 13) £11,479m 6.0% 6.2%
Asia trading profit £661m (10.3)% (9.8)%
Trading margin (trading profit/revenue) 5.76% (105)bp (102)bp

Total sales in Asia increased by 6.1% at constant rates, with a good overall performance, benefiting from a strong contribution from Thailand – held back by the impact of regulatory restrictions on opening hours in Korea. These restrictions led to a decline in trading profit for the region as a whole.

Thailand continues to be one of our strongest international businesses and we have made good progress throughout the year. Following on from the success of the first Asian hypermarket refit to our Extra format in our Rama IV store in Bangkok in 2011, we now have eight Extra stores trading, including our first 5K Extra. We took another step towards multichannel leadership in the market with the launch of online grocery home shopping in Bangkok in February and our convenience business continues to prove popular with Thai consumers – we now have over 1,115 Express stores trading, with plans for a further 340 in the year ahead.

The impact of the regulations restricting shopping hours in Korea was broadly in line with our guidance of £(100)m, with significant levels of Sunday store closures throughout the second half and considerable uncertainty in the market impacting operations even when stores were able to open. Following the passing of legislation in January this year, the situation seems more certain, with more consistent store closures expected on alternate Sundays. With the extension of 24-hour trading restrictions to between midnight and 10.00am and increased credit card interchange fees, we expect a maximum incremental impact of £40m in 2013/14, as we face the full year effect of the regulations.

As we described at the start of the year, we have adopted a more cautious stance in China. We still see an excess amount of new space being opened in the market – ahead of customer demand – and we have moderated our pace of development accordingly. We opened just 12 new stores this year and closed five underperforming stores as part of our increased focus on our three strongest regions. China remains a strategically important market for Tesco.

This year we plan to open 2.8m square feet of net new selling area in Asia overall, in addition to continued roll-out of our grocery dotcom operations.

  Europe Results 2012/13
  Actual rates Constant rates
  £m % growth % growth
Europe sales £10,809m (4.9)% 2.1%
Europe revenue (exc. VAT, exc. impact of IFRIC 13) £9,319m (5.5)% 1.4%
Europe trading profit £329m (37.8)% (33.3)%
Trading margin (trading profit/revenue) 3.53% (183)bp (183)bp

Economic conditions across our European markets have deteriorated throughout the year, with consumers facing the combined challenges of austerity measures, increasing unemployment and high levels of inflation. This is reflected in a disappointing performance in the region, with a decline in overall sales and a reduction in profitability. General merchandise sales have been particularly affected, and are a contributor to declining like-for-like sales across the region.

The Czech Republic has been one of the worst-affected markets by the economic crisis and has now experienced four consecutive quarters of declining GDP. Food inflation is at a four-year high – partly due to increases in the applicable rate of VAT which were introduced at the start of 2012 – and consumer confidence has stayed at very low levels. The market has also seen increased competitive tension, with our desire to maintain a compelling offer for our customers impacting margins.

Our sales growth in Poland has been impacted by a sharp decline in the rate of growth in consumer spending, which worsened through the year with an overall reduction in the fourth quarter. Consumer confidence remains near historic low levels. In Ireland, after a period of relative calm following its early exposure to the crisis, customers are facing a further round of austerity measures which has further impacted spending.

Some of our businesses however have proved more resilient than others. In Hungary and Slovakia, for example, whilst consumers are still under pressure, inflation has started to trend down recently and like-for-like sales growth is much less impacted than in other markets. Our business in Hungary has also faced an additional crisis tax on sales for the last three years, which has held back our total profitability in that market. Following a change in legislation in January this year, this tax will no longer be applied, from the start of our 13/14 financial year. Whilst we expect some of the benefit to be offset by increases in other taxes, we expect this change to lead to a year-on-year improvement in profit of c.£30m.

In Turkey, we have faced particularly intense competition, in a year in which we have retrenched from our strategy of pursuing large store expansion to the east of the country. Like many other businesses, we have experienced intense cost-price inflation and the impact of this has been exacerbated by a number of one-off, historic issues. The resulting losses have contributed to our shortfall versus expectations for European performance.

We opened 1.4 million square feet of net new space during the year, lower than our original plan of 1.8 million square feet. More than half of the reduced level of new space was devoted to smaller format stores. Our programme for next year is significantly smaller again, comprising 0.4 million square feet across the region. We are also continuing to repurpose some of our existing space in a number of our largest stores, with recent successful examples including Karlovy Vary in the Czech Republic.


  Tesco Bank Results 2012/13
  £m % growth
Tesco Bank revenue (exc. VAT, exc. impact of IFRIC 13) £1,021m (2.2)%
Tesco Bank trading profit £191m (15.1)%
Tesco Bank trading margin 18.71% (284)bp

It has been a significant year for Tesco Bank as we have sought to establish ourselves as a natural choice for the provision of financial services and products for Tesco customers.

The final stage of the migration from RBS was completed in May with the successful transfer of 2.8m credit card customers onto the Bank's own, newly-built platforms. This is a significant point in the Bank's development, having built robust and scalable system infrastructure within a three and a half year period. Whilst this was just a few months longer than the original schedule, we also scaled back the marketing of our existing products to ensure we had sufficient capacity to complete the final stages of transition smoothly for our existing customers, holding back our overall performance as a result.

Following this period of restricted marketing activity, we have seen good growth in banking products, with much of this generated in the second half. Customer deposits were up 11% to £6.0bn and customer lending increased strongly to £5.6bn, with credit card balances up 14% and loans up 17%. We now have over 6.6 million customer accounts – up 3% on last year. Despite weaker consumer spending in the market as a whole, transaction volumes in the ATM estate and spend on credit cards continued to grow at 3% and 2% respectively.

We launched our first range of mortgage products in August, with significant interest from customers and the industry as a whole. Our new product launches continued in the second half, with ISAs and Junior ISAs in November.

A challenging insurance market has seen strong downward price pressure in motor insurance and uncertainty created by a number of regulatory changes, including the introduction of gender neutral pricing in December. Working with Tesco Underwriting Ltd., our joint venture with Ageas Insurance Ltd., we have taken a disciplined approach to pricing and underwriting activity during this period, which has resulted in a reduction in the overall number of Tesco insurance policies sold. We have focused our efforts on ensuring we can deliver the best prices for Clubcard customers and, in the second half, extended the panel of insurers we work with to include Aviva Plc.

We have continued to see strong evidence of the additional loyalty demonstrated by Tesco customers who have a number of banking and insurance products with Tesco Bank. Clubcard points with a value of over £100m were given to customers as a 'thank you' for using the Bank's products within the year.

In September, the Bank reached agreement with Direct Line Group ("DLG") on the terms of the final settlement of the legacy insurance distribution arrangement. This resulted in a final commission settlement and the repayment of £259m of capital previously provided to DLG by the Bank. The return of capital has allowed the Bank to pay £105m dividend back to the Tesco Group in the second half and provides capital to support the future growth of the Bank's ongoing activities. As a result of the agreement, the Bank will no longer recognise any income in relation to this legacy arrangement. This income amounted to £22m in 2012/13, down from £63m in 2011/12).

During the second half of the year, in line with others in the banking industry, we started our full-scale proactive customer contact programme for customers who were sold payment protection insurance in the period prior to 2007. As a result of this activity and the contact received directly from customers relating to PPI, the Bank has made a further increase of £85m to the provision in the second half, taking the total charge for the year to £115m and the cumulative charge to £222m.

As reported at the half year, following settlement of a dispute with a former business partner, the Bank recognised a one-off receipt of £30m in the year.

The Bank ends the year with strong capital ratios (Risk Asset Ratio of c.19%) and strong levels of liquidity (£1.9bn of high quality liquid assets). An income statement, balance sheet and cash flow statement for Tesco Bank is available in the investor section of our corporate website – (

Tesco and Society

With over 520,000 colleagues and over 6,700 stores in 12 markets, we are one of the world's largest retailers. We care about using this capability to make a significant contribution to the most pressing challenges facing society.

This year we have been taking a detailed look at our approach to corporate responsibility. We have worked to understand where we can have the biggest impact. We have identified three areas that matter to us, our colleagues, our customers and society: providing opportunities for young people, helping our customers and colleagues to lead healthier lives, and reducing food waste globally.

We are also building on the essential work we already do as a responsible corporate citizen. Whether we are reducing our impact on the environment, being a great employer, supporting local communities or trading responsibly, doing the right thing matters for the success and growth of our business.

We will explain these ambitions and our plans in more detail in our Tesco and Society Report which will be published in May.

Supplementary Information

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

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


Investor Relations: Chris Griffith 01992 644 800
Press: Tom Hoskin
01992 644 645
0207 404 5959

This document is available via the internet at

A meeting for investors and analysts will be held today at 9.00am at Nomura Bank, 1 Angel Lane, London, EC4R 3AB. 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 controls within the context of achieving the Group's objectives. The principal risks and uncertainties faced by the Group include:

  • Business and financial strategies
  • Competition and consolidation
  • Reputational risk
  • Performance risk in the business
  • Property
  • Economic, political and regulatory risks
  • Product safety
  • IT systems and infrastructure
  • People
  • Group Treasury and Tesco Bank risks
  • Pension risks
  • Fraud, compliance and internal controls
  • Business continuity and crisis management

Greater detail on these risks and uncertainties will be set out in our 2013 Annual Report, the publication of which will be announced in due course.

Appendix 1 – Segmental Sales Growth Rates*

    Total Sales Growth 2012/13 – Actual Rates**
    Q1 Q2 H1 Q3 Q4 H2 FY
Inc. Petrol Group 2.1% 0.9% 1.2% 0.9% 1.5% 1.5% 1.3%
  International 2.4% (2.0)% (0.7)% (0.4)% 2.3% 1.8% 0.6%
  Asia 9.0% 4.3% 5.4% 5.1% 5.5% 6.4% 5.9%
  Europe (3.9)% (8.3)% (6.8)% (6.1)% (1.3)% (3.1)% (4.9)%
  UK 2.1% 2.3% 2.2% 1.7% 1.2% 1.4% 1.8%
  Tesco Bank (3.7)% 0.4% (1.5)% (1.6)% (4.1)% (2.9)% (2.2)%
Exc. Petrol Group 2.1% 1.4% 1.4% 1.3% 2.5% 2.2% 1.8%
  International 2.5% (1.8)% (0.6)% (0.3)% 2.5% 2.0% 0.7%
  Asia 9.0% 4.3% 5.4% 5.1% 5.5% 6.4% 5.9%
  Europe (4.0)% (8.3)% (6.9)% (6.2)% (1.0)% (3.0)% (4.9)%
  UK 2.0% 3.4% 2.7% 2.3% 2.7% 2.5% 2.6%
  Tesco Bank (3.7)% 0.4% (1.5)% (1.6)% (4.1)% (2.9)% (2.2)%
    Total Sales Growth 2012/13 – Constant Rates**
    Q1 Q2 H1 Q3 Q4 H2 FY
Inc. Petrol Group 3.7% 3.1% 3.1% 2.3% 1.0% 1.9% 2.5%
  International 7.5% 4.8% 5.2% 3.9% 0.9% 3.1% 4.1%
  Asia 9.1% 5.4% 6.0% 6.8% 3.7% 6.2% 6.1%
  Europe 6.0% 4.3% 4.4% 1.1% (2.2)% (0.2)% 2.1%
  UK 2.1% 2.3% 2.2% 1.7% 1.2% 1.4% 1.8%
  Tesco Bank (3.7)% 0.4% (1.5)% (1.6)% (4.1)% (2.9)% (2.2)%
Exc. Petrol Group 3.8% 3.9% 3.5% 2.9% 2.0% 2.7% 3.1%
  International 7.5% 4.9% 5.2% 4.0% 1.1% 3.2% 4.2%
  Asia 9.1% 5.4% 6.0% 6.8% 3.7% 6.2% 6.1%
  Europe 6.0% 4.3% 4.4% 1.1% (2.0)% (0.1)% 2.2%
  UK 2.0% 3.4% 2.7% 2.3% 2.7% 2.5% 2.6%
  Tesco Bank (3.7)% 0.4% (1.5)% (1.6)% (4.1)% (2.9)% (2.2)%

*Growth rates shown on a continuing operations basis.
** Quarterly growth rates based on comparable days for the current year and the previous year comparison. Half 1 growth rates based on comparable days for the current year and the previous year comparison for the UK and the Republic of Ireland. All other countries are for 179 days ended 26 August 2012 compared to 181 days ended 28 August 2011. Half 2 growth rates are based on comparable days for the current year and the previous year comparison for the UK and the Republic of Ireland. All other countries are for 186 days ended 28 February 2013 compared to 185 days ended 29 February 2012.

    Like-For-Like Sales Growth 2012/13*
    Q1 Q2 H1 Q3 Q4 H2 FY

*Like-for-like growth shown on a continuing operations basis.

Inc. Petrol Group (0.6)% (1.2)% (0.9)% (1.6)% (1.7)% (1.7)% (1.3)%
  International 0.4% (1.9)% (0.8)% (2.3)% (3.6)% (3.1)% (1.9)%
  Asia 0.4% (3.0)% (1.4)% (1.2)% (2.5)% (1.9)% (1.7)%
  Europe 0.5% (0.8)% (0.1)% (3.4)% (4.7)% (4.3)% (2.2)%
  UK (1.1)% (0.8)% (1.0)% (1.2)% (0.8)% (1.0)% (1.0)%
  Tesco Bank N/A N/A N/A N/A N/A N/A N/A
Exc. Petrol Group (0.8)% (0.6)% (0.7)% (1.3)% (1.0)% (1.2)% (0.9)%
  International 0.4% (1.9)% (0.8)% (2.4)% (3.5)% (3.0)% (2.0)%
  Asia 0.4% (3.0)% (1.4)% (1.2)% (2.5)% (1.9)% (1.7)%
  Europe 0.4% (0.8)% (0.2)% (3.6)% (4.5)% (4.3)% (2.3)%
  UK (1.4)% 0.2% (0.6)% (0.7)% 0.5% (0.1)% (0.3)%
  Tesco Bank N/A N/A N/A N/A N/A N/A N/A

Appendix 2 – Country Like-For-Like Growth Inc. VAT Exc. Petrol*

Like-For-Like Growth
  Q1 Q2 H1 Q3 Q4 H2 FY
UK (1.4)% 0.2% (0.6)% (0.7)% 0.5% (0.1)% (0.3)%
Asia 0.4% (3.0)% (1.4)% (1.2)% (2.5)% (1.9)% (1.7)%
China 0.6% (1.0)% (0.3)% (1.5)% (2.0)% (1.7)% (1.1)%
Malaysia (1.7)% 0.9% (0.2)% 1.7% 0.6% 1.1% 0.5%
South Korea (1.1)% (6.6)% (4.0)% (5.1)% (7.9)% (6.6)% (5.3)%
Thailand 2.5% 0.9% 1.7% 4.4% 4.5% 4.4% 3.1%
Europe 0.4% (0.8)% (0.2)% (3.6)% (4.5)% (4.3)% (2.3)%
Czech Republic (4.5)% (7.0)% (5.8)% (9.2)% (7.1)% (8.2)% (7.0)%
Hungary 0.1% (0.8)% (0.4)% 0.6% (2.2)% (1.0)% (0.7)%
Poland 3.3% 1.0% 2.2% (6.6)% (8.3)% (8.0)% (3.0)%
Slovakia 3.4% 2.6% 3.0% (2.1)% (0.8)% (1.5)% 0.6%
Turkey (2.7)% (1.6)% (2.1)% (7.0)% (10.0)% (8.8)% (5.4)%
Republic of Ireland 0.4% 0.2% 0.3% (0.3)% (1.4)% (0.9)% (0.3)%
Like-For-Like Growth
  Q1 Q2 H1 Q3 Q4 H2 FY
UK 1.0% (0.0)% 0.5% 0.1% (1.0)% (0.5)% 0.0%
Asia 3.6% 3.9% 3.8% 0.8% (0.4)% 0.2% 1.9%
China 6.4% 6.1% 6.2% 3.4% 1.7% 2.5% 4.1%
Malaysia (3.2)% 5.4% 1.2% (5.0)% (3.4)% (4.1)% (1.7)%
South Korea 1.2% 0.9% 1.0% 0.3% (2.1)% (1.0)% 0.0%
Thailand 8.0% 7.5% 7.8% 1.4% 2.2% 1.9% 4.7%
Europe 2.0% 0.1% 1.0% 0.9% 0.3% 0.6% 0.8%
Czech Republic 3.7% 0.0% 1.8% (0.3)% (5.5)% (3.0)% (0.8)%
Hungary 3.5% 1.8% 2.6% 1.2% 2.3% 1.8% 2.2%
Poland 1.6% (2.2)% (0.4)% 4.0% 2.8% 3.4% 1.6%
Slovakia 11.0% 4.9% 7.8% 5.7% 1.3% 3.3% 5.4%
Turkey 3.4% 5.3% 4.4% (2.6)% 0.2% (1.3)% 1.5%
Republic of Ireland (3.9)% (3.0)% (3.4)% (2.4)% (0.7)% (1.5)% (2.4)%

* Like-for-like growth shown on a continuing operations basis.

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