Tesco 2006 Annual Report Download - page 10

8 Tesco plc
Operating and financial review continued
Operations, resources and relationships
Wehave continued to make good progress with all four parts
of our strategy:
• maintain a strong core UK business
• become a successful international retailer
• be as strong in non-food as in food
• develop retailing services
We have done this by keeping our focus on trying to improve
what we do for customers. We try to make their shopping
experience as easy as possible, lower prices where we can to
help them spend less, givethem morechoiceabout how they
shop – in small stores, large stores or on-line, and seek to bring
simplicity and value to sometimes complicated markets.
International Our International businesses delivered a solid
performance this year, despite challenging economic and
competitive conditions in some markets. With rising customer
numbers, good sales growth, growing local scale, increasing
store maturity and the benefits of central distribution,
performance and returns from our International operations
arecontinuing to strengthen.
International returns are continuing to rise. On a constant
currency basis, cash return on investment (CROI*) for
International has increased to 11.4%, despite a high level
of immature capital. Like-for-like CROI in our four largest
International businesses – Thailand, Korea, Republic of Ireland
and Hungary – where over 60% of our International capital is
invested, is running at an average of 16%. This demonstrates
that our International model is notonly delivering good growth
but also developing good returns as we build strong market
positions and our stores mature.
Atotal of 238 stores, with 5.4m sq ft of selling area, were
opened during the year, including 72 hypermarkets. In Asia we
opened 3.1m sqft of space and in Restof Europe 2.3m sqft.
In Central Europe, we opened more new space than we did in
the UK. Thesenumbers included the acquisition of 12 stores in
Korea from Aram-Mart, nine from Julius Meinl in Poland and
eight Tanekin stores in Japan. 27 small stores were acquired
from Edeka in the Czech Republic after the year end.
At the end of February, our International operations were
trading from 814 stores, including 341 hypermarkets, with a
total of 32.8m sq ft of selling space. Almost 56% of Group
sales area is now in International. Excluding the Edeka stores,
we plan to open 396 new stores in the current year, adding
6.6m sq ft of selling area.
The deal we announced in September to swap our store
assets in Taiwan, plus cash, for Carrefour’s hypermarkets in
the Czech Republic and Slovakia has been given clearance by
the competition authorities in Taiwan and the Czech Republic.
Adecision in Slovakia is expected soon and, assuming the
combination of the four Carrefour stores with Tesco’s existing
network is permitted, we anticipate that the deal will be
completed during the current year.
Multi-format capability is developing well across our
International network. With our large destination stores now
established and with first class supply chain infrastructure in
placeor planned for most of our main markets, a growing
part of our new space is coming through our smaller formats,
such as compact hypermarkets, discount supermarkets and
convenience stores. Smaller formats serve the needs of
customersin smaller catchment areas and they also cost less to
build. For example, we now have Express stores in six countries
outside the UK, with 139 stores in Thailand alone, and discount
supermarkets in seven countries, including openings in the
Czech Republic, Malaysia and Thailand. Of the 419 stores
planned toopen outside the UK this year (including the Edeka
stores), 338 will be in smaller formats.
• Wehave now established a strong local team which has
begun toaccelerateour expansion programme in China
beyond the Yangtse delta and manage the transfer of Tesco
know-how and systems into the business. Hymall now
trades from a portfolio of 39 hypermarkets with 12 more
planned in the current year. The first store in Guangzhou
has opened, the first in Beijing opens this Autumn and
sites havebeen secured in Shenzhen. Hymall’s sales have
continued to grow strongly and the business made a small
profit after tax and interest, of which our share was £2m.
4
We sold 100,000
cashmere jumpers in
just two weeks.
3
Our Tescodiets
programme helps
customers to plan
flexible healthy
meals each week.
*Cash return on investment (CROI) is measured as earnings before interest, tax,
depreciation and amortisation, expressed as a percentage of net invested capital.