Tesco 2012 Annual Report Download - page 9

We are clear on what we need to do, we have trialled substantial
elements of the changes and we know they work. Our investment
programme has already started and we expect this to deliver stronger
results. The Big Price Drop in September 2011 was the first step, but
the changes we are making are about much more than price. They are
a combination of price, quality, range and service, including a significant
investment to create an additional 20,000 jobs over the next two years.
These changes will reinvigorate the shopping trip for customers, and
consequently deliver improved performance for shareholders.
To be an outstanding international retailer
in stores and online
Our international businesses performed strongly, with trading profits
up 18%, or by 22% before the impact of a crisis tax levied in Hungary.
We have seen progress in our established businesses, such as in
Central Europe, South Korea and Thailand, and from our newer, rapidly
growing businesses, such as Fresh & Easy in the United States and
Tesco Malaysia. It is encouraging that we are winning market share
in almost all of our markets and, in some countries, at a faster rate than
for many years.
Asia: another strong performance
I am pleased with the performance of our businesses in Asia. Sales
and profit grew well – sales by over 10%, and trading profit by over
20%. We delivered solid like-for-like sales growth and an excellent
contribution from new stores.
Our business in Thailand had an extraordinary year. The worst flooding
for 70 years caused us to close over 150 stores temporarily and all four
of our distribution depots. The superb dedication of our team enabled
us to keep supply lines open for customers and to support staff affected
by the flooding, and we have come out of the crisis stronger. We grew
like-for-like sales and profits in the year. South Korea had another good
year, although I anticipate a modest reduction in like-for-like sales next
year as restrictions on trading hours for large retailers are implemented
across the country.
In China, we have continued to focus on building scale in three regions
of the country. With the economic environment currently proving
challenging for mainstream retailers, we have decided to take a more
cautious stance on the market, at least for now. We have decided not
to commit substantial new capital to freehold shopping centres, and
we have also elected to hold back on the pace of new hypermarket
development this year. We will only open 16 stores, instead of stepping
up as we had planned. We still believe that China can be an engine of
growth and we can speed up again when the outlook improves.
We took an important step this year in deciding to exit Japan. It is
right to focus on our larger, profitable and growing businesses in the
Asia region. It is never easy to make decisions of this kind and I would
like to thank our staff in Japan for their continued hard work and
professionalism through this time.
Europe: growth in a difficult environment
Following a strong performance in Europe in the first half of the year,
the performance in the second half was weaker than expected. Sales
for the year grew by 8% and trading profit increased marginally, by
0.4%. Trading profit growth would have been in line with sales had it
not been for the impact of the crisis tax imposed in Hungary, which
cost £38 million in the year.
The economic background was particularly difficult in Hungary and
in the Republic of Ireland this year. Given the current conditions, we
are focusing on growth primarily through our existing stores in these
markets, rather than investing substantial new capital. In addition to
these headwinds in two of our largest markets, profits were held back
by disruption connected to the opening of our new distribution centre
in Poland, but this is behind us now.
We have made good progress with the closer integration of our
European businesses this year, from sharing infrastructure to buying
as a single region. This means that we can leverage the skill and scale
of the Tesco Group to deliver a better shopping trip for customers
and higher returns for shareholders. One example of this is our recent
launch of grocery dotcom in Prague, with initial sales well ahead of
plan, and our dotcom business in Warsaw will be launched soon.
Our Extra format stores delivered an encouraging performance through
the year
United States: on the path to profitability
It has been a year of encouraging progress in Fresh & Easy. Sales grew
by 27%, with almost 12 percentage points coming from like-for-like
stores. We have also delivered reduced trading losses for the first time,
with an 18% improvement on last year. After four years of rising losses,
this is a decisive change of trend, driven by further improvements to our
customer offer. Features such as in-store bakeries, more loose produce,
additional ranges and new Fresh & Easy products have been very
popular with customers and we have seen an acceleration in our
already strong growth in customer numbers.
The progress we have made gives us more confidence that we will
deliver a further significant reduction in losses in the coming year. The
timing of break-even will be later than we had previously expected, as
we will focus on getting more of our existing stores to reach profitability
before we step up the rate of new store openings. We can then reach
sufficient scale to cover our substantial central overhead costs and we
anticipate that we will reach the break-even point during 2013/14.
Tesco PLC Annual Report and Financial Statements 2012 5
STRATEGIC REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTSOVERVIEW
Chief Executive’s review Strategy in action Business model