DIVIDEND PER SHARE UP 13% TO 3.05p
Sir Ian MacLaurin, Chairman, said:
"We continue to listen closely to our customers and to respond swiftly
to meet their needs and preferences. Clubcard is a very important
example, which has generated excellent sales growth".
INTERIM STATEMENT
RESULTS
Profit on ordinary activities before tax rose by 16% to £290m. After
excluding the net loss on properties in 1994 of £2m (1995 - nil),
profit before tax increased by 15.1%.
GROUP SALES including VAT increased by 25.6% to £5,891m, including
a £270m contribution from the Wm Low business which was acquired in
the second half of last year. UK sales, excluding Wm Low, have grown
strongly by 19.5% to £5,341m. 9.5% of this came from new stores, net
of closures, and 10% from sales in existing stores, comprising 4%
inflation and 6% volume. Clubcard - the first loyalty card to be established
nationally - has been very popular with over six million active members.
The good summer weather also helped increase sales with market share
rising by 2% to 12.6%.
Strong sales led to a UK OPERATING PROFIT increase of 18.9% to £296m,
excluding Wm Low. We maintained operating margins at 6% as a result
of the favourable effect of higher sales volumes on our wages and
expense ratios. This offset the effect of reduced selling prices (gross
margins were down 0.3% compared with the first half of last year)
and the cost of vouchers given to Clubcard members which were worth
£25m.
Sales in WM LOW stores have continued to grow strongly and were
25% higher than the corresponding period last year (before acquisition
by Tesco). The £13m operating profit contribution from Wm Low for
the first half year was in line with our plans and reflects the strong
sales performance. All 57 stores have been integrated into the Tesco
systems and distribution network and are trading under the Tesco name.
The refit programme, which will result in further improvements in
store facilities and product ranges, began in August and will be completed
at the end of 1996. Our staff have achieved an excellent performance
in the first twelve months, whilst taking the many changes in their
stride. We are now well on course to generate our target level of
return.
We continued our early development in EUROPE with sales excluding
VAT increasing by 28.6% to £252m. This included a 17% increase in
the retail sales of CATTEAU, our French subsidiary, consisting of
12.4% from new stores and 4.6% from existing stores. The 4.6% growth
in existing stores' sales compares to a 2.9% decline last year and
includes deflation of 1.3%. This turnround in sales performance reflects
our commitment to improving volumes through more aggressive pricing.
This has been achieved at a cost to gross margins which were 2% down
on the previous year. As a result operating profits were lower than
the previous year. We continue to make good progress in developing
the infrastructure of the business in terms of buing, marketing and
distribution.
Turnover at GLOBAL, our Hungarian subsidiary, the results of which
were consolidated for the first time in the second half of last year,
was £17m and operating profits were in line with plans. Overall, EUROPEAN
OPERATING PROFIT reduced to £4m (1994 - £8m).
NET INTEREST PAYABLE was £23m (1994 - £5m), after capitalisation
of £16m (1994 - £20m). This movement, which was in line with our projections,
was primarily because of both higher interest rates and higher levels
of average borrowings than in the corresponding period last year.
CORPORATION TAX has been charged at an effective rate of 28.1% which
is our expectation for the full year (1994 - 30.9%). This is lower
than our previous forecast of 31% mainly because of the favourable
result of a number of prior year claims with the Inland Revenue. The
underlying rate of tax is 31% for this year and this is our projection
for next year.
FULLY DILUTED EARNINGS PER SHARE (excluding net loss on disposal
of properties) increased by 15.3% to 9.8p. The impact of the effective
rate of tax being lower than the underlying rate has been to improve
earnings in this first half by 0.4p. Earnings would otherwise therefore
have risen by 10.6%.
DIVIDEND
The Board is pleased to recommend an interim dividend of 3.05p per
share. This is 13% higher than last year, compared to the underlying
earnings growth of 10.6%. The dividend will be paid on 1 December
to shareholders on the register of members at the close of business
on 3 October. Shareholders will continue to have the right to receive
the interim dividend in the form of fully paid ordinary shares instead
of cash, and forms of election will be despatched on 13 October.
TRADING
For the fourth consecutive half-year, Tesco sales growth has been
above the industry average. We have achieved this through our policy
of listening closely to our customers and moving swiftly to meet their
needs and preferences, particularly in the following areas:
PRICING: we continue to offer the best value for money of
all the superstore retailers. Our initiatives on price have been made
at the right times and meet the right customer requirements.
CUSTOMER SERVICE: the One-in-Front initiative to minimise
queuing, part of our First Class Service programme, is very popular
with customers.
CUSTOMER LOYALTY: customers also like Clubcard, which we
launched nationally in February. We are giving members over £50m this
year in the form of money-off vouchers. At this early stage we are
very satisfied with the return on our investment in terms of higher
sales arising from increased loyalty and spending. We are already
developing new ideas, such as the Student Clubcard launched last week
at 75 campuses across the country.
PRODUCT OFFER: we aim to give our customers an attractive
choice of new and imaginative products. In the first half year we
introduced over 1,100 new products including a completely re-designed
clothing range called 'Items'. New product areas have been introduced
in more of our stores. 165 stores have clothing, 103 have leisure
departments and 137 have pharmacies.
STORE FORMATS: we have developed our town-centre Metro stores
and our smaller, compact, superstores to reach consumers in catchment
areas which are smaller and different from those for traditional superstores.
Our trial of Express petrol stations with convenience stores has continued
with a third store opened in the first half. We continue to open more
of our very popular superstores with upgraded designs and features.
We believe that our continued focus on these areas of our business
will lead to further growth in future years.
STORE DEVELOPMENT
In the first half we opened ten new stores, comprising three superstores,
five compact superstores, one Metro and one Express, with a total
of 245,000 square feet sales area. We closed two stores with a total
sales area of 22,000 square feet. We now have 527 stores trading including
20 compact superstores, 22 Metro and three Express stores. In the
second half we will open 15 new stores taking the total sales area
opened in the year to 688,500 square feet. Our major refit and extension
programme has continued with 22 refits completed in the first half
and 22,000 square feet added through internal and external extensions.
In France, Catteau opened one new store, with two more planned for
the second half. There were no openings in Hungary in the first half
but one is planned for November.
CAPITAL EXPENDITURE
In the first half, capital expenditure totalled £299m (1994 - £408m)
and, with a higher level of expenditure in the second half, the full
year is projected to approach £700m (1994/95 - £771m). The majority
of this will be incurred on the UK store development and refit programmes.
CASH FLOWS
There has been a net cash inflow in the first half of £84m (1994
- £152m outflow) arising mainly from lower capital expenditure compared
with last year. Borrowings have decreased to £939m (February 1995
- £1,040m) to give a gearing level of 28.7%. We are planning for a
breakeven cash flow over the full year.
CURRENT TRADING AND PROSPECTS
Following the end of the hot weather, sales from existing stores
for the first five weeks of the second half have been 8% higher than
the same period last year. Total sales growth is running at 16%. These
figures exclude Wm Low, where sales growth is continuing at over 25%.
Our investments in lower selling prices and better customer service,
together with Clubcard, have generated significant volume gains; we
plan to continue with this trading strategy.
We will continue to develop the business to meet our customers'
requirements. We believe that there are good prospects for Tesco in
the UK, and we are adding to our early experience in Europe. We look
forward to reporting a satisfactory outcome for the full year.
TESCO PLC
GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED)
1995 1994 Increase
24 WEEKS ENDED 12 AUGUST 1995 £m £m %
----------------------------------------------------------------------------
Group turnover including VAT 5,891 4,689 25.6
--------- ---------
Group turnover excluding VAT 5,472 4,357 25.6
Operating expenses 5,159 4,100
Employee profit sharing - -
--------- ---------
Group operating profit 313 257 21.8
Net loss on disposal of
properties - (2)
Net interest payable (23) (5)
--------- ---------
Profit on ordinary activities
before taxation 290 250 16.0
Taxation 82 81
--------- ---------
Profit on ordinary activities
after taxation 208 169
Minority interest - -
Dividends 64 55
--------- ---------
Retained profit 144 114
========= =========
pence pence
----- -----
Earnings per share 10.1 8.6
Fully diluted earnings per share 9.8 8.4
Fully diluted earnings per share
(excluding net loss on disposal
of properties and assuming a
1995 effective rate of tax of 31%). 9.4 8.5 10.6
Dividend per share 3.05 2.70 13.0
TESCO PLC
CONSOLIDATED BALANCE SHEET (UNAUDITED)
12 August 25 February
1995 1995
£m £m
------------------------------------------------------------------------------
Fixed assets
Tangible assets 5,372 5,204
Investments 6 6
--------- ---------
5,378 5,210
Current assets
Stocks (goods for resale) 409 415
Debtors 98 104
Investments 248 135
Cash at bank and in hand 59 44
--------- ---------
814 698
Creditors
Amounts falling due within
one year 1,932 1,781
--------- ---------
Net current liabilities (1,118) (1,083)
--------- ---------
Total assets less current
liabilities 4,260 4,127
Creditors
Amounts falling due after more
than one year 881 921
Provisions for liabilities and
charges 93 93
--------- ---------
3,286 3,113
========= =========
Capital and reserves
Called up share capital 104 103
Share premium account 1,179 1,152
Reserves 1,993 1,849
--------- ---------
3,276 3,104
Minority interest 10 9
--------- ---------
3,286 3,113
========= =========
TESCO PLC
GROUP CASH FLOW STATEMENT (UNAUDITED)
1995 1994
24 weeks ended 12 August 1995 £m £m
------------------------------------------------------------------------------
Net cash inflow from operating activities 510 401
Returns on investments and servicing of
finance:
Interest received 27 19
Interest paid (46) (25)
Interest element of finance lease
rental payments (2) (2)
Dividends paid (111) (96)
--------- ---------
Net cash outflow from returns on
investments and servicing of finance (132) (104)
--------- ---------
Taxation:
Corporation tax paid (including
advance corporation tax) (13) (29)
--------- ---------
Investing activities:
Payments to acquire tangible
fixed assets (292) (411)
Receipts from sale of tangible
fixed assets 11 12
Purchase of subsidiary undertakings - (21)
--------- ---------
Net cash outflow from investing
activities (281) (420)
--------- ----------
Net cash inflow/(outflow) before financing 84 (152)
--------- ---------
Financing:
Ordinary shares issued for cash 17 11
Redemption of 1/8% Deep discount bond (50) -
New finance leases 8 7
Increase in other loans 4 4
Capital element of finance leases repaid (8) (6)
Increase in short-term deposits (117) (13)
Net cash (outflow)/inflow from financing (146) 3
--------- ---------
Decrease in cash and cash equivalents (62) (149)
========= =========
NOTES TO THE ACCOUNTS
The figures for the 52 weeks ended 25 February 1995 have been extracted
from the accounts which have been filed with the Registrar of Companies
and which contain an unqualified audit report and did not include
a statement under Section 237(2) or (3) of the Companies Act 1985.
The accounts for the 24 weeks ended 12 August 1995 were approved
by the directors on 18 September 1995.
Note 1 Accounting policies
These accounts have been prepared using the accounting policies
set out in the 1995 Annual Report and Accounts.
Note 2 Segmental analysis of turnover and operating profit
The group's operations of food retailing and associated activities
are carried out in the United Kingdom, France and Hungary. Continental
European operations results are for the six months ended 30 June 1995.
1995 1994
Turnover Operating Turnover Operating
excluding VAT profit excluding VAT profit
£m £m £m £m
Tesco 4,967 296 4,161 249
Wm Low 253 13 - -
------- ------- ------- -------
United Kingdom 5,220 309 4,161 249
Rest of Europe 252 13 196 8
------- ------- ------- -------
Group 5,472 313 4,357 257
======= ======= ======= =======
Note 3 Earnings per share
The calculation of earnings per share including the net loss on
disposal of properties is based on the earnings attributable to ordinary
shareholders of £208m (1994 - £169m), divided by the weighted average
number of ordinary shares in issue, 2,062m (1994 - 1,968m).
The calculation of fully diluted earnings per share takes account
of the 9% convertible capital bonds and the ordinary share options
granted under the company's various employee share option schemes.
Note 4 Profit sharing
The results for the period do not contain provision for the employee
profit share. The scheme is based on profits for the full financial
year and an appropriate sum will be allocated on publication of the
results for the full year.
Note 5 Reconciliation of movements in shareholders' funds
1995 1994
£m £m
Profit for the financial period 208 169
Dividends 64 55
------- -------
144 114
New share capital subscribed
less expenses 17 11
Payment of dividends by shares
in lieu of cash 11 8
Goodwill arising on acquisition - (4)
------- -------
172 129
Net addition to shareholders' funds
Shareholders' funds at
25 February 1995 3,104 2,749
------- -------
Shareholders' funds at 12 August 1995 3,276 2,878
======= =======
Note 6 Group cash flow statement
Reconciliation of operating profit to net cash inflow from operating
activities
1995 1994
£m £m
Operating profit 313 257
Depreciation and amortisation 129 106
Decrease/(increase) in stock 6 (54)
Decrease in debtors 4 6
Increase in trade creditors 42 65
Increase in other creditors 16 21
------- -------
Net cash inflow from operating
activities 510 401
======= =======
Analysis of changes in financing and cash and cash equivalents during the
period
Net other
Share borrowings
capital and finance Cash and
(including lease cash
premium) obligations equivalents
£m £m £m
At 25 February 1995 1,255 864 (176)
Cash inflow/(outflow) 17 (163) (62)
Scrip dividend election 11 - -
-------- -------- --------
At 12 August 1995 1,283 701 (238)
======== ======== ========
Analysis of the balances of cash and cash equivalents as shown in the balance
sheet.
12 August 25 February
1995 1995
£m £m
Cash at bank and in hand 59 44
Money market investments and deposits 248 131
Bank loans and overdrafts (375) (298)
-------- --------
(68) (123)
Less: Deposits exceeding three
months to maturity when acquired (170) (53)
-------- ---------
(238) (176)
======== ========
REVIEW REPORT BY THE AUDITORS TO THE BOARD OF DIRECTORS OF TESCO
PLC
We have reviewed the interim financial information for the 24 weeks
ended 12 August 1995 set out on pages 7 to 12 which is the responsibility
of, and has been approved by, the directors. Our responsibility is
to report on the results of our review.
Our review was carried out having regard to the Bulletin 'Review
of Interim Financial Information', issued by the Auditing Practices
Board. This review consisted principally of applying analytical procedures
to the underlying financial data, assessing whether accounting policies
have been consistently applied, and making enquiries of management
responsible for financial and accounting matters. The review excluded
audit procedures such as tests of controls and verification of assets
and liabilities and was therefore substantially less in scope than
an audit performed in accordance with Auditing Standards. Accordingly
we do not express an audit opinion on the interim financial information.
On the basis of our review:
