Tesco 2013 Annual Report Download - page 9

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Tesco PLC Annual Report and Financial Statements 2013
OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
These decisive actions are necessary in order to ensure sustainable longer-term growth.
I am acutely aware that withdrawing from the US and writing down the value of property
developments no longer appropriate for the future have had a significant impact. It is time
to act and I believe this work has cleared the way for the business now to move forward.
Having tackled these issues, Tesco is a more focused business, which can apply all of its
considerable resources and energies to meeting the challenges and grasping the opportunities
created by the changes taking place in our industry today. These actions may have been the
most visible, and therefore the most tangible, signs of change to the outside world but within
Tesco we’ve been making other important changes to prepare the business for the future –
putting it on track for sustainable growth and returns.
Setting financial disciplines for the future
Not only have we started on the journey of transforming our business to enable it to move
forward as a leader in the new digital world, we are also fundamentally changing the
financial profile of the Group.
The Tesco of the future will pursue more focused growth, consume less capital and generate
more free cash flow. Making this transformation in all its aspects will of course not be
without its challenges – and the clearest evidence of this can be seen in the first reduction
in profits of the Group for two decades, which we reported on in April.
Everything we are doing reflects my determination to deliver shareholder value, an
appropriate balance between investing for future growth, and delivering sustainable returns
for our shareholders. I want to be very clear: if there is one lesson to be learned from the
past it is the importance of capital discipline and this marks the start of a new era of capital
discipline in Tesco.
We are confident we can deliver attractive and sustainable returns within a framework where
capital expenditure falls to around 3.5% to 4% of sales.
For our investors, this means they can expect mid-single digit trading profit growth and
return on capital employed within a range of 12% to 15%.
The fundamental change in our approach to new space I described earlier 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.
The outcomes which we have laid out for investors will be achieved through disciplined
investment, focused on those existing markets where we see the best opportunity for
significant growth and returns.
Driving future growth and returns
For me as your CEO, driving sustainable growth within this new financial framework is about
three priorities. These are not new areas for us but they each have the capacity to be the
engines of growth for the Group for years to come:
(i) Continue to strengthen the UK business
(ii) Drive sustainable growth through multichannel leadership
(iii) Pursue disciplined international growth
Whilst the past year has not been without some significant challenges, we have made
progress on these priorities:
“ Everything we are doing
reflects my determination
to deliver shareholder value,
an appropriate balance
between investing for
future growth, and
delivering sustainable
returns for our shareholders.”