"Our trading strategy based on low prices, customer service
and quality products has helped to increase loyalty and resulted in
further sales and profit growth".
Profit on ordinary activities before tax rose by 12.4% to £326m.
After excluding the net profit on disposal of fixed assets of £5m
(1995 - nil) profit before tax increased by 10.7% to £321m.
GROUP SALES including VAT increased by 14.0% to £6,715m. UK
sales have grown by 12.6% to £6,319m. Of this, 7% came from existing
stores, with underlying volume growth of 3%. New stores continue to
produce good sales growth and as a result, our UK market share has
increased once again, to an estimated 14.0% from 13.0% last year.
UK OPERATING PROFIT rose by 6.5% to £329m. The petrol retail
price war and the impact of higher oil prices significantly affected
petrol profits and overall UK operating margins. However, the mainstream
UK food business continues to perform well.
In EUROPE, sales including VAT increased by 41.4% to £396m,
including a first time contribution of £34.9m from Kmart in the
Czech Republic and Slovakia. Sales in local currencies increased by
20.0% at Catteau in France, 42.3% at Global in Hungary and 32.5% at
Savia in Poland.
Overall EUROPEAN OPERATING PROFITS increased by 37.2% to £5.9m
including a contribution of £0.8m from Kmart.
NET PROFIT ON DISPOSAL OF FIXED ASSETS was £5m (1995 - Nil).
This consists of £29m consideration on disposal of a subsidiary
to BAT, offset by property losses and provisions mainly attributable
to rationalisation of our non-food distribution network.
NET INTEREST PAYABLE was £14m (1995 - £23m), after capitalisation
of £14m (1995 - £16m). This resulted from lower levels of
average borrowings and lower interest rates than in the corresponding
period last year, as well as a £9m saving due to the conversion
in October 1995 of the £200m Convertible Capital Bonds.
CORPORATION TAX has been charged at an effective rate of 30.6% (1995
- 28.1%) which is our expectation for the full year. The effective
rate for the last full year was 31%.
FULLY DILUTED EARNINGS PER SHARE increased by 5.1% to 10.3p.
The Board is pleased to announce an interim dividend of 3.25p per
share. This is 6.6% higher than last year, against the adjusted underlying
earnings growth of 6.4%. The dividend will be paid on 2nd December
1996 to shareholders on the register of members at the close of business
on 1st October 1996. 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
11th October 1996.
Our UK sales growth continues to outperform the industry average
despite recent competitor marketing developments and tough year on
year comparatives. We have achieved this through the continued hard
work and commitment of our staff and by investing in initiatives which
our customers want. Being first with new ideas has helped us to continue
to lead the market and to meet our customers' expectations.
- PRICING - Over the last few years we have continued to invest in prices,
through initiatives like Value Lines, New Deal, produce and bakery
products and petrol. And now our customers are benefitting from our
latest initiative - "Unbeatable Value". This reinforces our commitment
to giving our customers the best value on offer in the market;
- CUSTOMER SERVICE - We are the first food retailer in the UK to provide
5,000 new customer assistants dedicated to service. Customers are very
happy with their introduction and they like the service they are
receiving;
- PRODUCT OFFER - Quality, choice and innovation through new products is a
key part of our total offer to customers. The range of Tesco own brand
products, together with leading brands, provides customers with the
widest choice in the market place. In the first half we introduced
1,000 new products, adding particularly to our "Items" clothing range.
New products have helped to boost sales for example in beers, wines and
spirits (up 15%), fruit and vegetables (up 16%) and home entertainment
and books (up 17%);
- CLUBCARD - More and more customers are using Clubcard and enjoying its
benefits. During the first half we introduced Clubcard points on petrol
and customers continued to earn additional points on certain products.
In the first half, customers earned vouchers worth over £44m. Clubcard
Plus was introduced in June and has helped our customers budget for
their grocery shopping. In the three months since launch, the number of
customers to have signed up is already ahead of our target for the first
full year. And Clubcard Plus is already regarded as offering the best
current account rate in the market;
- STORE FORMATS - Our flexible range of store formats continues to enable
us to open new stores in new markets, allowing us greater access to more
people. Whilst planning consent, especially with the latest revision of
PPG6, remains difficult, we are obtaining planning permission for new
stores at a satisfactory rate. In the meantime, our refit and extension
programme is generating new life and sales in existing stores.
STORE DEVELOPMENT
In the UK in the first half, we opened eight new stores, comprising two
superstores, three compact stores and three Express stores, with a total
sales area of 133,000 square feet. In addition 37,000 square feet of
extensions were added. Three stores with 23,000 square feet of sales area
were closed.
For the full year we plan to open nine superstores, twelve compact stores,
four Metro stores and seven Express sites - making a total of 32 stores, with
598,000 square feet of new space. We also plan to add 120,000 square feet in
extensions giving a total new space addition for the year of 718,000 square
feet.
In Europe, Catteau in France, opened three new stores adding 100,000 square
feet. In Hungary, we are planning to open one new 60,000 square feet store
in Budapest later in the year.
KMART
On 17 April 1996 we completed the purchase of 13 stores from Kmart
Corporation in the Czech Republic (Kmart CR) and Slovakia (Kmart SR) for
£79m. In the eleven weeks since acquisition these stores have contributed
£34.9m to group sales including VAT and are currently achieving like for like
sales growth of over 30%. In addition, the stores have contributed £0.8m to
group operating profit. The stores are in the process of being rebranded
Tesco and the first refitted store which included an extended food hall, was
launched in Brno in the Czech Republic, earlier this month.
CAPITAL EXPENDITURE
In the first half, capital expenditure totalled £284m (1995 - £299m). The
full year projected expenditure will be around £740m (1995 - £649m) of which
new stores, refits and extensions will account for approximately £500m.
CASH FLOWS
There has been a net cash inflow in the first half of £20m (1995 - £84m
inflow). Borrowings have reduced to £783m (February 1996 - £813m) to give a
gearing level of 22%. We expect to be cash neutral for the full year, prior
to taking into account the acquisition of Kmart.
CURRENT TRADING AND PROSPECTS
In the opening five weeks of our second half, despite facing some very tough
comparatives with last year, falling food price inflation and a host of
competitor marketing developments, our sales in the UK have continued to move
strongly ahead. Sales from existing stores have risen by 7.5% above last
year. With inflation in our sales currently at 3.5%, this represents strong
underlying volume growth of 4.0%. Total UK sales have grown by 13.0%. In
this time, we have maintained our outperformance against the industry
average.
The UK market remains very competitive. There are good prospects for Tesco
and we will continue to develop our business, in line with our customers'
expectations. We believe this will enable us to maintain our momentum. We
look forward to reporting a satisfactory outcome for the full year.
TESCO PLC
GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED)
1996 1995 Increase
24 weeks ended 10 August 1996 £m £m %
TURNOVER INCLUDING VAT Note 2 6,715 5,891 14.0
_____ _____
TURNOVER EXCLUDING VAT Note 2 6,237 5,472 14.0
OPERATING EXPENSES 5,902 5,159 14.4
Employee profit sharing Note 4 - -
_____ _____
OPERATING PROFIT Note 3 335 313 7.0
Net profit on disposal of 5 -
fixed assets
Net interest payable (14) (23)
_____ _____
PROFIT ON ORDINARY ACTIVITIES 326 290 12.4
BEFORE TAXATION
Profit before net profit on
disposal of fixed assets 321 290 10.7
Net profit on disposal of
fixed assets 5 -
Taxation 100 82
_____ _____
PROFIT ON ORDINARY ACTIVIITES 226 208 8.7
AFTER TAXATION
Minority equity interests - -
Dividends 70 64
_____ _____
RETAINED PROFIT 156 144
===== =====
Pence Pence
Earnings per share Note 5 10.5 10.1 4.0
Fully diluted earnings per share 10.3 9.8 5.1
Adjusted fully diluted earnings 10.0 9.4 6.4
per share
(excluding net profit on disposal
of fixed assets and with an effective
rate of tax of 31% in 1995)
Dividend per share 3.25 3.05 6.6
CONSOLIDATED GROUP BALANCE SHEET (UNAUDITED)
10 August 24 February
1996 1996
£m £m
FIXED ASSETS
Tangible assets 5,639 5,466
Investments 7 19
_____ _____
5,646 5,485
CURRENT ASSETS
Stocks 587 59
Debtors 94 80
Investments 96 54
Cash at bank and in hand 59 38
_____ _____
836 731
CREDITORS: FALLING DUE WITHIN ONE YEAR 2,118 2,002
_____ _____
NET CURRENT LIABILITIES (1,282) (1,271)
_____ _____
TOTAL ASSETS LESS CURRENT LIABILITIES 4,364 4,214
CREDITORS: FALLING DUE AFTER MORE 596 598
ONE YEAR
PROVISIONS FOR LIABILITIES AND CHARGES 23 22
_____ _____
3,745 3,594
CAPITAL AND RESERVES
Called up share capital 108 108
Share premium account 1,403 1,383
Reserves 2,228 2,097
_____ _____
EQUITY SHAREHOLDERS' FUNDS Note 6 3,739 3,588
Minority equity interests 6 6
_____ _____
3,745 3,594
===== =====
GROUP CASH FLOW STATEMENT (UNAUDITED)
1996 1995
24 weeks ended 10 August 1996 £m £m
NET CASH INFLOW FROM OPERATING Note 7 551 510
ACTIVITIES
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE:
Interest received 20 27
Interest paid (27) (46)
Interest element of finance lease (2) (2)
rental payments
Dividends paid (132) (111)
_____ _____
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (141) (132)
_____ _____
TAXATION:
Corporation tax paid (including advance
corporation tax) (43) (13)
_____ _____
INVESTING ACTIVITIES:
Payments to acquire tangible fixed assets (293) (292)
Receipts from sale of tangible fixed assets 37 11
Purchase of subsidiary undertakings Note 8 (103) -
Decrease in fixed asset investments 12 -
_____ _____
NET CASH OUTFLOW FROM INVESTMENT (347) (281)
ACTIVITIES _____ _____
NET CASH INFLOW BEFORE FINANCING 20 84
_____ _____
FINANCING:
Ordinary shares issued for cash 10 17
Repayment of E.C.S.C. loans 1996 (74) -
Redemption of 1/8% Deep discount bonds - (50)
Increase in other loans 2 4
Capital element of finance leases repaid (6) -
Increase in short-term deposits (10) (117)
_____ _____
NET CASH OUTFLOW FROM FINANCING (78) (146)
_____ _____
DECREASE IN CASH AND CASH EQUIVALENTS (58) (62)
===== =====
NOTES TO ACCOUNTS
The figures for the 52 weeks ended 24 February 1996 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 10 August 1996 were approved by the
directors on 16 September 1996.
Note 1 ACCOUNTING POLICIES
These accounts have been prepared using the accounting policies set out
in the 1996 Annual Reports and Accounts.
Note 2 GROUP TURNOVER ANALYSIS:
August August
1996 1995 Increase
£m £m %
Turnover (inc VAT)
Food Retailing - UK 6,319 5,611 12.6
Rest of Europe 396 280 41.4
_____ _____
Total Group 6,715 5,891 14.0
===== =====
Turnover (ex VAT)
Food Retailing - UK 5,883 5,220 12.7
Rest of Europe 354 252 40.5
_____ _____
Total Group 6,237 5,472 14.0
===== =====
During the period, property development sales were nil.
Note 3 OPERATING PROFIT ANALYSIS:
August August
1996 1995 Increase
£m £m %
Food Retailing - UK 329 309 6.5
Rest of Europe 6 4
___ ___
Total Group 335 313 7.0
=== ===
Total Group Operating Margin 5.4% 5.7%
During the period, property development operating profit was nil.
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 EARNINGS PER SHARE
The calculation of earnings per share including the net profit on
disposal of fixed assets is based on the earnings attributable to
ordinary shareholders of £226m (1995 - £208m), divided by the weighted
average number of ordinary shares in issue, 2,156m (1995 - 2,062m).
The calculation of fully diluted earnings per share takes account of the
ordinary share options granted under the company's various employee
share option schemes.
Note 6 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1996 1995
£m £m
Profit for the financial period 226 208
Dividends 70 64
_____ _____
156 144
New share capital subscribed less expenses 10 17
Payment of dividends by shares in lieu of cash 10 11
Goodwill arising on acquisition (25) -
_____ _____
Net addition to shareholders' funds 151 172
Shareholders' funds at 24 February 1996 3,588 3,104
_____ _____
Shareholders' funds at 10 August 1996 3,739 3,276
===== =====
Note 7 GROUP CASH FLOW STATEMENT
Reconciliation of operating profit to net cash inflow from operating
activities
1996 1995
£m £m
Operating Profit 335 313
Depreciation and amortisation 145 129
(Increase)/Decrease in stock (2) 6
(Increase)/Decrease in debtors (20) 4
Increase in trade creditors 91 42
Increase in other creditors 2 16
___ ___
Increase in working capital 71 68
___ ___
Net cash inflow from operating 551 510
activities === ===
Analysis of changes in financing and cash and cash equivalents during the
period
Share capital Net Other Cash and
(including borrowings cash
premium) and finance equivalents
lease
obligations
£m £m £m
As at 24 February 1996 1,491 653 (160)
Cash inflow/(outflow) 10 (88) (58)
Scrip dividend election 10 - -
_____ ____ ____
As at 10 August 1996 1,511 565 (218)
===== ==== ====
Analysis of balances of cash and cash equivalents as shown in balance sheet
10 August 24 February
1996 1996
£m £m
Cash at bank and in hand 59 38
Money market investments and deposits 96 54
Bank loans and overdrafts (352) (241)
_____ _____
(197) (149)
Less: deposits exceeding three months
to maturity when acquired (21) (11)
_____ _____
(218) (160)
===== =====
Note 8 ACQUISITIONS
On 17 April 1996 the group acquired Kmart CR a.s. and Kmart SR a.s. for
£79m. In addition, two new stores were acquired as trading businesses
in France through Ets. Catteau S.A. for £27m.
All the group's acquisitions have been accounted for using acquisition
accounting.
The acquisitions have been consolidated into the Tesco group balance sheet as
follows:
Balance Sheet Fair Value Fair Value
at acquisition adjustments balance sheet
£m £m £m
Fixed assets 74 (4) 70
Working capital 10 - 10
Taxation 1 - 1
___ ___ ___
Shareholders' Funds 85 (4) 81
Goodwill 25
___
Total purchase consideration 106
Cash and cash equivalents acquired 3
___
Purchase consideration paid 103
===
Note 9 Copies of the 1996 Interim Report and Accounts will be sent to all
shareholders. Copies will be available after 23 September 1996 from
the Company Secretary, Tesco PLC, PO Box 18, Delamare Road, Cheshunt,
Waltham Cross, Hertfordshire, EN8 9SL.
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 10
August 1996 set out on pages 7 to 13 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:
* in our opinion the interim financial information has been prepared using
accounting policies consistent with those adopted by Tesco PLC in its
financial statements for the 52 weeks ended
24 February 1996, and
* we are not aware of any material modifications that should be made to
the interim financial information as presented.
PRICE WATERHOUSE Southwark Towers
Chartered Accountants 32 London Bridge Street
18 September 1995 LONDON
SE1 9SY
Enquiries:
Press Frances Elliott 01992 646095
Investor Relations Jonathan Moore 01992 644800
If you have any financial comments or queries regarding Tesco, please send them
to Investor.Relations@uk.tesco.com
Copyright © 1996 Tesco Stores Ltd.
