Tesco 2009 Annual Report Download - page 9

47%
30%
21%
UK
EUROPE
ASIA
US
2%
£41.5bn
£10.1bn
£7.6bn
UK
EUROPE
ASIA
US
£0.2bn
7
REPORT OF THE DIRECTORS
Tesco PLC Annual Report and Financial Statements 2009
a catalogue. Our retailing services have delivered another good year,
with tesco.com growing strongly, Tesco Personal Finance making good
progress and Telecoms continuing to build its customer base strongly
and grow profits. Finally, our work on community and environment
continues – we have recently opened our latest blueprint green store at
Cheetham Hill, Manchester, which has a carbon footprint 70% lower
than a normal store.
Markets served and business model
Tesco’s growth, driven by this strategy, has been predominantly
organic and we have used our skills and knowledge in understanding
customers, property development, supply chain management, new
product development, store formatting and adapting to local customer
needs – to create strong business models in our chosen markets. Where
we do not have all the required skills ourselves to be successful, we
regularly partner with existing businesses – and these relationships
have formed the basis of some of our most successful operations –
for example with Samsung in South Korea.
The UK grocery retail market remains our largest source of revenue,
representing some 50% of last year’s £59.4 billion of sales. International
retail sales – from our 12 markets in Europe, Asia and the United States,
comprise a further 30% of Group revenues and non-food (in a variety
of categories from health and beauty to electronics) accounts for most
of the remainder. Our services businesses have comparatively small
revenue streams, but they are increasingly material to our earnings base.
We have given them a renewed focus this year – deploying more capital
and management resources. A first key step in making these already
successful businesses much larger and more significant to the Group
was the acquisition of Royal Bank of Scotland’s share of Tesco Personal
Finance – and we expect these businesses, including our online shopping
channels, Telecoms and dunnhumby (our consumer research business)
to deliver £1 billion a year of profit for the Group within the next few years.
At the core of Tesco’s business model is a focus on trying to improve what
we do for customers. We aim to make their shopping experience as easy
as possible, lower prices where we can to help them spend less, give
them more choice about how they shop – in small stores, large stores or
online – and seek to bring simplicity and value to sometimes complicated
markets. We aim to be a good neighbour in the communities we serve,
be responsible, fair and honest in our dealings and give customers the
information and products they need to make greener choices. We are
also an inclusive business – everyone is welcome at Tesco.
Underpinning this approach is a relentless attitude to being the lowest
cost provider of goods and services in our chosen sectors – and this
combination of qualities is the reason we have been successful in some
of the world’s most competitive markets. We have recognised skills and
proprietary systems in key areas which help us deliver a low cost model
– particularly in customer relationship management, just-in-time supply
chain and distribution, property development and store formatting.
In some of our newer markets – such as telecoms or financial services, our
willingness to partner with established businesses has given us access
to their existing investment in systems and infrastructure and enabled
Tesco to develop competitive, profitable business models quickly and,
at the same time, limit our own investment and risk in the early years.
In the case of financial services, having successfully partnered with
Royal Bank of Scotland for a decade we now have the experience to take
sole ownership in order to pursue our aim of becoming a full-service retail
bank and give Tesco Personal Finance the focus that this will require.
My main challenge is to maintain the balance between staying on
strategy while living within our means. For a growth company like
Tesco it is vital of course that we meet the challenges posed by the
economic downturn – and the priorities there are the same as for
any finance director in the current environment – in helping the
business to find the resources to invest for customers, by keeping
a good grip on costs and cash.
At the same time though, I need to do what I can to help sustain Tesco’s
investment in future growth. By investing in the right opportunities,
protecting ourselves from unpredictable capital markets and trading
in a sustainable way we should exit this recession as an even stronger
company. That’s how Tesco emerged as a winner from the last
recession. Exciting opportunities are there to be grasped – for example,
land and property are already significantly cheaper, our online
businesses are not capital intensive and, given the loss of confidence in
the banking sector, our very conservative, straightforward approach in
Tesco Personal Finance may be exactly what customers are looking for.
Laurie Mcllwee Group Finance Director
Sales by region Sales growth contribution by region
As Group Finance Director, what are your
priorities at the moment?