Tesco 2010 Annual Report Download - page 27

Tesco PLC Annual Report and Financial Statements 2010 25
Our business
Retailing
Services
Laying the
foundations for
further growth
Following the announcement in
July 2008 of our intention to take
full ownership of Tesco Bank,
we set a target to grow the
profitability of our Retailing
Services businesses from a little
under £400m in 2007/8 to £1bn.
This year we made good progress
in attracting new customers and
growing sales and profits while
at the same time laying the
foundations for further growth.
Total Retailing Services sales were
£3.6bn, up 4.2% on last year and
profits were £540m, up 17.6%.
Tesco Bank
Overall, Tesco Bank has delivered a
good performance in a challenging
retail banking market growing profits
by 13% to £250m. Bad debt levels
rose during the year but have now
stabilised and throughout have
remained below industry averages.
We have absorbed additional costs as
we begin the process of moving the
business onto its own infrastructure
and build the team as we prepare the
business for faster growth.
Commercial performance
We grew the number of customer
accounts by more than 400,000 in
the last year – to a total of more than
6.2 million across all products. We
have achieved double-digit customer
growth in our banking products,
including 27% growth in personal
loans. In insurance we held our
number of policies broadly flat in a
very competitive market; the number
of motor insurance policies declined
– partly as a result of a planned
reduction in our exposure to high-risk
drivers – but the number of policies
in home, pet and life insurance
increased. Our 130 in-store travel
bureaux saw an increase in
transactions of more than 80%
and the number of ATMs in our
network grew to over 2,800.
Profit
Gross profit grew 19% to £749m with
a good performance in banking being
partly offset by lower profitability
in insurance, primarily as a result of
lower investment income linked to the
current low interest rate environment.
Trading profit was up 13.1% to £250m
(compared to £221m in 2008/9 on a
pro forma basis). Profit before tax was
£114m – with the primary deduction
from operating profit being the
previously announced £127m non-
cash amortisation of intangibles
arising on acquisition. This profit
performance was achieved after an
increase in operating costs – as a
result of the change of ownership as
the business prepares for expansion
– and against the background of a
32% increase in bad debts – to £177m
which was in part offset by a credit
relating to the unwind of the fair value
adjustment created on acquisition.
Capital and liquidity
The Tier 1 capital ratio at the end
of 2009/10 was 13.0%. The funding
and liquidity position of the business
remained robust throughout the
period with customer deposits in
excess of customer lending. This is
further supported by a high-quality
liquid asset portfolio, net short-term
wholesale cash and investment
grade assets worth £1.3bn.
Management team
During the year good progress
has been made in completing
the recruitment of an experienced
management team in all areas
of the Bank: finance; risk; legal;
commercial; treasury; and IT. All
senior roles have now been filled.
Infrastructure
In September 2009 we entered into
an agreement with Fortis (UK) Ltd to
help us build the operational platform
and technical expertise required
to further develop our insurance
business. We have also selected the
core technology platforms for the
banking products. The migration
programmes for both sides of the
business are progressing well and we
expect to be writing business on the
new systems by the end of 2010/11.
We have secured new premises for
banking and insurance operations in
Glasgow and Newcastle, which will
open in mid 2010, creating 1,800 jobs.
New product development
Subject to regulatory approval we
anticipate launching new savings
products and mortgages by the end
of financial year 2010/11, with current
accounts to follow in the second half
of 2011.
6.2 million Tesco
Bank customers
Double-digit
customer growth
in our banking
products