Tesco 2012 Annual Report Download - page 8

Performance in 2011/12
We delivered modest profit growth in a challenging economic
environment, with a strong international performance largely offset
by a reduction in UK profits. Whilst the year gave us many things to be
proud of, overall it was not the most pleasing performance. My team
and I are resolved to get Tesco back to winning, particularly at home.
Group sales increased by 7.4% to £72 billion, while Group trading
profit was up 1.3% on last year and underlying profit before tax rose
to £3.9 billion, an increase of 1.6%. Group capital expenditure in the
year was £3.8 billion. Group return on capital employed (‘ROCE’)
increased – to 13.3% (last year 12.9%).
The Board has proposed a final dividend of 10.13p per share, taking the
full year dividend to 14.76p, which is an increase of 2.1% on last year.
The decisions we have taken during the year have had an impact on
our financial performance. We decided to forego some short-term
profit to re-invest in the long-term health of the business, with a clear
focus on improving the shopping trip for customers.
The UK business clearly did not meet our own expectations in the
year and, partly as a result of this, we decided to accelerate our
plan to make improvements which has meant a necessary reset to
expectations for our growth in 2012/13 as well. This acceleration and
reset were announced with our Christmas trading update in January.
Despite this significant re-investment programme, we remain
committed to driving higher returns for shareholders. Although
our investment plans in the UK make achieving our ROCE target
more challenging in the short term, we still expect to deliver a
ROCE of 14.6% by 2014/15, with broadly based growth from
around the Group.
Strategic update
In last year’s Annual Report, I set out an evolution of our strategy
into seven parts:
 To grow the UK core;
 To be an outstanding international retailer in stores
and online;
 To be as strong in everything we sell as we are in food;
 To grow retail services in all our markets;
 To put our responsibilities to the communities we serve
at the heart of what we do;
 To be a creator of highly valued brands; and
 To build our team so that we create more value.
This strategy remains as relevant now as it did a year ago and
I’m pleased to be able to update you on the progress we have
made on each of these strategic objectives. I also set out immediate
management priorities for the business last year – keeping the UK
strong and growing; becoming outstanding internationally, not just
successful; becoming a multi-channel retailer wherever we trade;
delivering on the potential of retail services; applying Group
skill and scale; and delivering higher returns. You will see how
these priorities have shaped our actions through the year.
To grow the UK core
The deli counter in our Hertford Superstore has a flat glass front, bright
lighting and warmer, more engaging signage
In the UK, high petrol prices and falling real incomes affected customers’
discretionary spending in the year. The combination of disappointing
sales in the second half of the year and our decision to increase investment
into the shopping trip meant that our UK performance was weaker
than planned. Sales grew by 6.2%, supported by excellent new store
performance, but trading profit declined by (1.0)%.
The issue we are addressing is that the shopping trip just hasn’t been
improving fast enough and our standards haven’t been as consistent as
our customers have come to expect. As a result, we are taking action to
improve each aspect of the customer offer. This will involve significant
revenue and capital investment in a comprehensive plan encompassing
six key areas.
The UK Plan – Building a Better Tesco
Our Plan for the UK business has six elements:
Service & Staff: helping our people deliver great service by investment
in recruitment, training and equipment, dedicated to particular
departments such as produce so that our customers notice the change.
Stores & Formats: making our stores better places in which to shop
and work, with the pace of new store development moderating, and
the pace of refreshing our existing stores stepping up.
Price & Value: delivering great value for money through the right
blend of price, promotions, couponing and loyalty.
Range & Quality: building the right ranges of quality products,
reviewing and refreshing our entire range of Tesco brand products,
making our ranging more store and format-specific, and bringing
dunnhumby, our marketing insight business, back into the heart
of Tesco.
Brand & Marketing: making sure that we get back to having the right
conversation with our customers about Tesco.
Clicks & Bricks: making this a potent combination for our customers,
with the roll-out of Click & Collect and the transformation of our range
and online presence.
Chief Executive’s review
4 Tesco PLC Annual Report and Financial Statements 2012