DIVIDEND PER SHARE UP 9.2% TO 3.55p
TERRY LEAHY, CHIEF EXECUTIVE, said:
"Our continuing strong like for like volume growth, now up 18% in
four years, represents a consistent long term performance. Our commitment
to giving customers what they want, when they want has led to further
growth in sales and profit in the first half. Since then, our record
£75m Clubcard payout in August has helped drive our like for like
sales ahead to 8%."
INTERIM STATEMENT
RESULTS
Profit before tax (excluding the net loss on disposal of fixed assets)
rose by 9.0% to £350m (1996 - £321m). Including the loss on disposal
of fixed assets of £4m (1996 - £5m profit) profit on ordinary activity
before tax was up 6.1% to £346m (1996 - £326m).
GROUP SALES including VAT increased by 15.2% to £7,733m (1996 -
£6,715m). Excluding the recently acquired businesses in Ireland, group
sales increased by 9.7% to £7,365m. Sales in the UK have grown by
10.1% to £6,956m (1996 - £6,319m). Of this, 6.0% came from existing
stores, with underlying volume growth of 5.1%. New stores contributed
a further 4.5% to sales growth before closures of 0.4%.
UK OPERATING PROFIT rose by 12.2% to £369m. Our UK operating margin
rose slightly to 5.7% (1996 - 5.6%) reflecting strong trading and
a recovery in petrol profits more than offsetting our continued investment
in service, value and customer loyalty.
In IRELAND we completed the acquisition of the food retailing businesses
of Associated British Foods Plc on 8 May 1997 for £641m. In the 14
weeks since acquisition, these businesses have contributed £368m to
group sales and £14m to operating profit, which more than offset the
attributable funding cost of £12m. The provision for integration and
re-organisation costs and asset write- offs will be finalised and
charged in the second half results.
In the rest of EUROPE, sales rose by 3.3% to £409m (1996 - £396m).
The first half loss was £2m (1996 - £6m profit) arising mainly from
infrastructure and start up costs incurred in Central Europe.
GROUP OPERATING PROFIT was up 13.7% to £381m (1996 - £335m).
Losses from ASSOCIATED UNDERTAKINGS were £2m including a £3m loss
as our share of the start up costs for Tesco Personal Finance.
NET INTEREST PAYABLE was £29m (1996 - £14m) with the increase on
last year primarily relating to the financing costs of the acquisition
in Ireland.
CORPORATION TAX has been charged at an effective rate of 30% (1996
- 30.6%) which is our expectation of the underlying tax charge for
the full year.
ADJUSTED FULLY DILUTED EARNINGS PER SHARE (excluding the net loss
on disposal of fixed assets) increased by 8.9% to 11.0p.
DIVIDEND
The Board is pleased to announce an interim dividend of 3.55p per
share. This is 9.2% higher than last year, against the underlying
earnings per share growth of 8.9%. The dividend will be paid on 1
December 1997 to shareholders on the register of members at the close
of business on 26 September 1997. 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 1997.
UK TRADING
Sales performance during the first half has been strong. We have
maintained our outperformance against the industry average and have
increased market share to an estimated 15%, up from 14.2% last year.
Over four years we have seen growth in like for like volumes of 18%.
Our customer focused strategy underpins our performance and drives
it further forward. We listen first of all to customers, understand
their needs and then adapt our business to give them what they want.
This means better value, better service, better quality, more choice
and better stores.
During the first half we have been busy:
* Our UNBEATABLE VALUE pledge has been a major initiative for
Tesco. Since its launch a year ago, we have invested over
£60m to give customers the best value on everyday products.
As a result, customers know there is no need to shop around;
* We have continued to invest in IMPROVING CUSTOMER SERVICE.
We have extended trading hours to 10.00 p.m. in 250 stores,
to 24 hours five days a week in four stores, and in the last
year, we have added 20 pharmacies, 36 fish counters, 51 hot
chicken counters and 75 meat counters. We have also spent £4m
on improving our fleet of 200,000 trolleys. In addition, we
are rolling out our programme for the next generation scanning
systems which give customers better service at the checkout.
* Providing BETTER QUALITY PRODUCTS and even MORE CHOICE in both
food and non-food is a key element in our offer to customers.
In the first half we have launched another 1,000 Tesco brand
food products, as well as continuously improving our existing
products. Extending our product offer into new areas is
fundamental to improving choice. Customers want non-food
products and superstores are well placed to serve this need.
As the recent examples of Levis and Adidas show, we are determined
to give customers as good a deal in non-food as they already
receive from us in food. We have launched over 7,000 new non-food
products into our stores in the first half with a good sales response.
For example, in our initial extensions, non-food sales are currently
up by over 40%. In addition, through extending our stores, we have
created a new format, Tesco Extra which combines all the qualities
of a superstore, together with our new non-food departments. The
first Tesco Extra at Pitsea in Essex now has a sales area of
102,000 sq.ft. with a quarter of this dedicated to non-food.
Non-food sales at the store are currently up by over 60%. This,
together with a major upgrade to the foodhall, has helped make
this 20 year old store, once again, the number one store in the
company with total sales up nearly 30% on last year. Overall, we
are pleased with the performance of non-food and will continue
with more Extras and extensions, both in the remainder of
this year and next;
* With the Royal Bank of Scotland we have created TESCO PERSONAL
FINANCE to provide a range of financial products and services
directly relevant to customers' everyday needs. In July we
relaunched Clubcard Plus and introduced Tesco Visa card. Today,
Tesco Personal Finance will launch a new instant access savings
account with 6.5% rate of interest and a minimum investment of
only £1;
* CLUBCARD is our way of saying thank you to our customers.
During the first half we responded to customers by lowering
the threshold to one point for every £1 spent and offered more
products with extra points including double points on petrol.
The popularity of Clubcard has helped add a further one million
members in the first half taking total membership to around ten
million. All of this led to the biggest Clubcard payout ever
in August when customers received over £75m in Clubcard vouchers
and product coupons;
* Our new STORE OPENING PROGRAMME extends the Tesco offer to
more customers. We opened eight new stores in the first half,
comprising three superstores, and five compacts giving
211,000 sq.ft. We have also added 56,000 sq.ft. via extensions
to existing stores. In the second half, we expect to open a
further 16 stores (four superstores, eight compacts, three Metro
and one Express) adding 354,000 sq.ft. and complete a further
150,000 sq.ft. of extensions. This brings total space to be
added this year to almost 770,000 sq.ft.
EUROPEAN TRADING
In France, total retail sales at Catteau were up by 1.1% with flat
like for like sales. This sales performance, together with a lower
gross margin, the closure of much of Catteau's wholesale operation
and the adverse impact due to the strong Pound has resulted in an
operating profit of £1m in the first half (1996 - £5m profit). Since
the end of June, like for like sales have improved and are currently
running at around 2%.
In Central Europe, total sales were up by approximately 60% including
like for like sales growth of 25%. Total losses amounted to £3m (1996
- £1m profit). Prior to central infrastructure and start-up costs
of £8m (1996 - £3m) underlying profits increased by 25% to £5m (1996
- £4m profit) which is a good reflection of our trading performance.
Sales at our first 60,000 sq.ft hypermarket at the Polus Centre in
Budapest continue to perform well. Our second hypermarket of 86,100
sq.ft. will open in Budapest in November.
IRELAND
Total sales have increased by around 5%, with like for like up nearly
3%. Operating profits for the 14 weeks were £14m which is in line
with the equivalent period prior to acquisition. There are no synergy
benefits in the first period, but we expect that some will start to
come through in the second half and accordingly, we expect the acquisition
to be slightly earnings enhancing this year. Our plans are progressing
well and we continue to expect significant benefits to flow through
over the next two to three years.
With regard to our business plans, in Northern Ireland with increasing
competitor activity we are implementing a rapid programme of product
introductions and refits, together with marketing and service initiatives.
These are already having a positive impact on sales.
In the Republic of Ireland, the Quinnsworth brand is strong and
sales continue to perform well. We have been talking to customers,
staff and suppliers and have established plans to further improve
the customer offer and also honour our commitments to staff and local
supply base.
CAPITAL EXPENDITURE
In the first half, group capital expenditure was £327m (1996 - £284m)
with around £19m spent in Europe, the majority of which was in Central
Europe. In the UK capital expenditure was £303m, including £160m on
new stores and £37m on refits and extensions. For the full year, projected
group capital expenditure will be around £830m including Ireland (1996
- £740m).
CHANGE IN NET DEBT
Total net debt at the half year end increased by £496m to £1,245m
(February 1997 - £749m). This reflects the cash outflow on our net
capital expenditure and acquisitions of £857m (1996 - £347m) partly
offset by strong cash generation from the main business of £576m (1996
- £551m). As a result, gearing has increased to 34% (February 1997
- 19%).
CURRENT TRADING AND PROSPECTS
In the opening four weeks of our second half, our sales in the UK
have continued to move strongly ahead boosted, in particular, by our
latest and largest ever Clubcard mailing. Sales in existing stores
are up 8% on last year, comprising volume growth of 6% and inflation
of 2%. Total UK sales have grown by 12.1%. We do expect tougher comparatives
in the coming weeks as we go through the anniversary of the launch
of Unbeatable Value in September last year.
The Board are pleased with progress in what continues to be a highly
competitive market place. We are moving ahead in the UK and our core
business will continue to drive group earnings whilst we implement
our plans for the Irish businesses and continue investment in our
new businesses in Central Europe and financial services.
The current year ending 28 February 1998 will comprise 53 weeks
and therefore the second half will include 29 weeks performance.
GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED)
1997 1996 INCREASE
24 WEEKS ENDED 9 AUGUST 1997 £m £m %
TURONVER INCLUDING VAT Note 2 7,733 6,715 15.2
----- -----
TURNOVER EXCLUDING VAT Note 2 7,162 6,237 14.8
Operating expenses 6,781 5,902 14.9
Employee profit sharing Note 4 - -
----- -----
OPERATING PROFIT Note 3 381 335 13.7
Share of loss of associated
undertakings (2) -
Net (loss)/profit on
disposal of fixed assets (4) 5
Net interest payable (29) (14)
----- ----
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 346 326 6.1
Profit before net (loss)/profit on 350 321 9.0
disposal of fixed assets
Net (loss)/profit on disposal (4) 5
of fixed assets
Taxation 104 100
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION 242 226 7.1
Dividends 78 70
---- ----
RETAINED PROFIT 164 156
==== ====
Pence Pence
Earnings per share Note 5 11.1 10.5 5.7
Fully diluted earnings per share 10.8 10.3 4.9
Adjusted fully diluted earnings
per share (excluding net (loss)/ 11.0 10.1 8.9
profit on disposal of fixed
assets)
Dividend per share 3.55 3.25 9.2
CONSOLIDATED GROUP BALANCE SHEET (UNAUDITED)
9 August 22 February
1997 1997
£m £m
FIXED ASSETS
Tangible assets 6,261 5,826
Investments 21 23
----- -----
6,282 5,849
CURRENT ASSETS
Stocks 651 550
Debtors 164 78
Investments 287 80
Cash at bank and in hand 168 65
----- -----
1,270 773
CREDITORS: FALLING DUE WITHIN
ONE YEAR (2,953) (2,101)
------- -------
NET CURRENT LIABILITIES (1,683) (1,328)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 4,599 4,521
CREDITORS: FALLING DUE AFTER MORE
THAN ONE YEAR (946) (611)
PROVISIONS FOR LIABILITIES AND CHARGES (22) (20)
----- -----
3,631 3,890
===== =====
CAPITAL AND RESERVES
Called up share capital 109 109
Share premium account 1,457 1,431
Reserves 2,065 2,350
----- -----
EQUITY SHAREHOLDERS' FUNDS Note 6 3,631 3,890
===== =====
GROUP CASH FLOW STATEMENT (UNAUDITED)
1997 1996
24 weeks ended 9 August 1997 £m £m
NET CASH INFLOW FROM OPERATING
ACTIVITIES Note 7 576 551
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE:
Interest received 10 20
Interest paid (36) (25)
Interest element of finance lease
rental payments (1) (2)
---- ----
NET CASH OUTFLOW FROM RETURNS
ON INVESTMENTS AND SERVICING OF FINANCE (27) (7)
---- ----
TAXATION:
Corporation tax paid (including advance
corporation tax) (35) (43)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (296) (293)
Receipts from sale of fixed assets 11 37
Decrease in fixed asset investment - 12
--- ---
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE
AND FINANCIAL INVESTMENTS (285) (244)
ACQUISITIONS
Purchase of subsidiary undertakings (637) (106)
Net cash acquired with subsidiary 65 3
---- ----
NET CASH OUTFLOW FROM ACQUISITIONS (572) (103)
EQUITY DIVIDENDS PAID (142) (132)
CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID
RESOURCES AND FINANCING (485) 22
---- ----
MANAGEMENT OF LIQUID RESOURCES
Increase in short term deposits (211) (42)
---- ----
FINANCING
Ordinary shares issued for cash 14 10
Increase in other loans 311 35
Redemption of E.C.S.C. loans 1996 - (74)
Capital element of finance lease rental
payments (6) (6)
---- ----
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 319 (35)
---- ----
DECREASE IN CASH IN THE PERIOD (377) (55)
---- ----
RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN NET DEBT
Decrease in cash in the period (377) (55)
Cash inflow from increase in debt
and lease financing (305) 45
Cash outflow from increase in liquid
resources 211 42
Amortisation of 4% unsecured deep
discount loan stock (1) (2)
Loan acquired on acquisition (20) -
Translation difference (4) -
---- ----
MOVEMENT IN NET DEBT IN THE PERIOD (496) 30
Net debt at 22 February 1997 (749) (813)
------ -----
Net debt at 9 August 1997 (1,245) (783)
------ -----
NOTES TO THE ACCOUNTS
The figures for the 52 weeks ended 22 February 1997 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 9 August 1997 were approved
bythe directors on 15 September 1997.
Note 1 Accounting policies
These accounts have been prepared using the accounting
policies set out in the 1997 Annual Report and Accounts.
Note 2 Group turnover analysis:
24 weeks 24 weeks
1997 1996 Increase
£m £m %
Turnover (inc VAT)
Food Retailing - UK 6,956 6,319 10.1
Ireland 368 - -
Rest of Europe 409 396 3.3
----- -----
Total Group 7,733 6,715 15.2
===== =====
Turnover (ex VAT)
Food Retailing - UK 6,461 5,883 9.8
Ireland 340 - -
Rest of Europe 361 354 2.0
----- -----
Total Group 7,162 6,237 14.8
===== =====
Note 3 Operating profit analysis:
24 weeks 24 weeks
1997 1996 Increase
£m £m %
Food Retailing - UK 369 329 12.2
Ireland 14 - -
Rest of Europe (2) 6 -
---- ----
Total Group 381 335 13.7
==== ====
UK Operating Margin 5.7% 5.6%
Total Group Operating Margin 5.3% 5.4%
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 or loss on disposal of fixed assets is based on
the earnings attributable to ordinary shareholders of £242m
(1996 - £226m), divided by the weighted average number of
ordinary shares in issue, 2,178m (1996 - 2,156m).
The calculation of fully diluted earnings per share takes
account of the ordinary share options granted under the
the company's various employee share option schemes.
Note 6 Reconciliation of movements in shareholders' funds
1997 1996
£m £m
Profit for the financial period 242 226
Dividends (78) (70)
---- ----
164 156
Loss on foreign currency translation (7) -
New share capital subscribed less expenses 14 10
Payment of dividends by shares in lieu of cash 12 10
Goodwill arising on acquisition (442) (25)
---- ----
NET (REDUCTION)/ADDITION TO SHAREHOLDERS'
FUNDS (259) 151
Shareholders' funds at 22 February 1997 3,890 3,588
----- -----
Shareholders' funds at 9 August 1997 3,631 3,739
===== =====
Note 7 Group cash flow statement
Reconciliation of operating profit to net cash inflow from
operating activities
1997 1996
£m £m
Operating Profit 381 335
Depreciation and amortisation 163 145
--- ---
(Increase) in stock (42) (2)
(Increase) in debtors (64) (20)
Increase in trade creditors 159 91
(Decrease)/Increase in other creditors (21) 2
---- ---
Increase in working capital 32 71
--- ---
Net cash inflow from operating activities 576 551
=== ===
Analysis of changes in net debt:
At 22 Cash Other Acquisitions Exchange At 9
February Flow Non-Cash (exc Cash & Movements Aug
1997 Changes Overdrafts) 1997
£m £m £m £m £m £m
Cash at bank and
in hand 65 105 - - (2) 168
Overdrafts (38) (482) - - - (520)
---- ----- --- --- --- -----
27 (377) - - (2) (352)
Money market
investments &
deposits 80 211 - - (4) 287
Bank and other loans
(<1 year) (247) 8 - - 1 (238)
Finance leases (21) 6 - - - (15)
---- --- --- --- --- -----
(268) 14 - - 1 (253)
Bank and other
loans (533) (319) (1) (20) - (873)
Finance leases (55) - - - 1 (54)
----- ---- --- ---- --- ----
Debt due after
one year (588) (319) (1) (20) 1 (927)
----- ----- --- ---- --- ------
(749) (471) (1) (20) (4) (1,245)
===== ===== === ==== === =======
Note 8 Acquisitions
On 8 May 1997 the company acquired the Irish food retailing
and related businesses of Associated British Foods plc for
£641m in cash, including acquisition costs.
The company acquired a controlling interest in the Polish
chain of stores called Madex and Minor on 10 March 1997 for £4m.
All of the group's acquisitions have been accounted for using
acquisition accounting.
The acquisitions of the Polish chain and the Irish businesses have
been consolidated into the Tesco group balance sheet as follows:
Balance Sheet Provisional
at Acquisition Irish Fair
Value Fair Value
Ireland Poland Adjustments Balance Sheet
£m £m £m £m
Fixed assets 296 2 19 317
Stock 64 1 - 65
Debtors 21 - 12 33
Net cash 65 - - 65
Loans (20) - - (20)
Creditors (241) (5) - (246)
Taxation (11) - - (11)
---- --- --- ----
Shareholders' funds 174 (2) 31 203
---- --- ---
Goodwill 442
----
Total purchase consideration 645
----
The provisional goodwill figure of £442m comprises £436m for
the Irish acquisitions and £6m for the Polish acquisitions.
Note 9 Copies of the 1997 Interim Report and Accounts will be sent
to all shareholders. Copies will be available after 22 September
1997 from the Company Secretary, Tesco PLC, PO Box 18, Delamare
Road, Cheshunt, Waltham Cross, Hertfordshire, EN8 9SL.
If you have any financial comments or queries regarding Tesco, please
send them to Investor.Relations@uk.tesco.com
Copyright © 1996 Tesco Stores Ltd.
