Tesco 2005 Annual Report Download - page 8

6Tesco PLC
Operating and financial review continued
Tesco.com sales grew by 24.1% to £719m and profits
increased by 51.8% to £36m. During the year, we added
eDiets and Legal Store to the tesco.com offer, as well as a
significant expansion in the non-food ranges available online.
Tesco Personal Finance (TPF) total profit has increased by 26.5%
to £202m (2004 – £160m) of which our share is £101m. TPF
is providing excellent returns in only its seventh year. £100m
of surplus capital, representing 20% of the original investment
in the joint venture, was returned to Tesco and Royal Bank of
Scotland through a cash dividend. We now have almost five
million customer accounts, an increase of 700,000 on last year.
International Our international operations have continued
to make good progress, delivering strong profit growth and
improving returns.
These businesses are well adapted to the needs of their
local customers. They are run by strong local management
teams who share Tesco Group expertise. In almost every country
we are continuing to grow market share as we build our store
networks and improve our like-for-like sales.
At constant exchange rates, sales increased by 18.3% in the
year. At actual rates, sales grew by 13.1% to £7.6bn. Profit
grew by 20.9% to £370m, with operating margins rising to
5.4% (2004 – 5.1%). At constant exchange rates, international
profit grew by 26.5%.
International returns continue to rise. On a constant currency
basis, cash return on investment (CROI) has increased to 11%,
despite a high level of immature capital. CROI on like-for-like
stores in our four largest international businesses – Thailand,
Korea, Ireland and Hungary – where 60% of our international
capital is invested, is running at over 15%. This demonstrates
that our international model is not only delivering good growth
but also developing good returns as we gain strong market
positions, and our stores mature.
A total of 98 stores with 3.1m sq ft of selling area, were
opened during the year, including 47 hypermarkets. In addition
we acquired 25 Fre’c stores in Japan, and since the end of
the financial year we purchased 12 stores in Korea from Arum
Mart. We plan to open 207 new stores, adding 5.4m sq ft of
selling area.
In September, we successfully completed the acquisition
of a 50% holding in Ting Hsin’s Hymall business in China,
extending our presence into Asia’s largest market. Hymall now
trades from 31 hypermarkets, and will open its first store in
Beijing this summer as part of an enlarged new store development
programme of 15 hypermarkets. Since the joint venture was
established, Hymall’s sales have grown strongly and the business
made a small profit, of which our share, £1m, is included in our
share of operating profit of Joint ventures and Associates.
Our formats are rapidly being rolled out in our key international
markets. With our large destination store networks now well-
established and with first class supply chain infrastructure in
place in many of our main markets, a growing part of our new
space is coming through our smaller formats, such as compact
hypermarkets and convenience stores. These serve the needs of
customers in smaller catchments, as well as costing less to build.
At the end of the year, our international operations were
trading from 585 stores, including 273 hypermarkets, with
a total of 27.6m sq ft of selling space.
Rest of Europe Sales increased by 15.7% at constant exchange
rates and by 13.4% at actual exchange rates. Profits grew by
18.5% at actual exchange rates and by 21.4% at constant
exchange rates.
•In Hungary, we have grown our business in a more difficult
economic and retail environment. We have strengthened
our market leading position by lowering prices, expanding
our store network and developing our infrastructure. We
opened nine new stores in the year, adding 13% to our
total space. In the current year, a further 14 stores with
688,000 sq ft of sales area, are planned. In September, we
opened our new 226,000 sq ft fresh food distribution centre
at Gyál, which now accounts for over 95% of our volume.
•In Poland, the economic background is improving and
signs of renewed consumer confidence, combined with
an improving offer, have been reflected in strengthening
like-for-like sales. We have invested significantly in cutting
prices during the year. Our business is strong, we are
growing market share and we remain well placed to benefit
from a sustained economic upturn. The performance of
the former HIT stores has been particularly pleasing. 95%
of our volume now goes through our two new central
distribution centres – our 400,000 sq ft ambient depot
which opened in January 2004 and our new 160,000 sq ft
fresh depot which opened in March 2005.
• In the Republic of Ireland, we have again traded well.
Sales growth has benefited from strong like-for-like
performance and an acceleration in the growth of our space.
We opened seven new stores with 202,000 sq ft of new sales
area, an increase of 11%. A further six new stores, with
108,000 sq ft of sales area, are planned for the following
year. Our new formats, led by Ireland’s first Extra at Clare
Hall, Dublin, have all been very well received by customers.
• In recent months we have been meeting the more
competitive market conditions in the Czech Republic
with our largest ever programme of price reductions and
promotions. This has involved substantial investment, paid
for by higher sales and the benefits of improved buying and
improved productivity. We have also accelerated our new
store development, with three openings in the year, including