Performance
Group sales grew by 19.8%. In the UK, sales in existing stores rose by 8.9%
on the previous year and total sales increased by 19.8%. New stores' sales, net of
closures, contributed 10.9%. Operating margins in the UK were maintained at
6.2%. Group profit before tax, excluding the net loss on disposal of fixed assets,
increased by 14.5% to £681m. The Financial Review describes this performance in greater depth.
The driving force is our staff, who have done a sterling job in all parts of
the company. Wherever we go, people tell us how brilliant our staff are and how
well they look after customers. We are determined to improve opportunities for
their training and development, as well as to offer them one of the best pay and benefits packages in the retail sector. For example this year, we have allocated £29m (1995 - £25m) to our employee profit sharing scheme which will benefit
over 70,000 of our staff. With their ongoing involvement and interest, the company
will continue to move forward steadily and surely.
Clubcard
For additional information on Clubcard:
Wm low
The performance of the stores has gone from strength to strength with the
support of loyal customers and thanks to great staff. Since we acquired the business
in 1994, sales have increased by almost 40% and operating profits have more than
doubled. We expect further progress in the year ahead.
For additional information on Wm low:
Store development programme
This achievement has been in the face of continuing change in government
planning policy. The Government seek to encourage store development in town
centres and to discourage driving, in order to reduce vehicle emissions. The
proposed new guidelines to local councils discriminate, however, against new stores
on the edge of towns, near where people actually live and to which, for bulk
shopping, they need to drive only a short distance. It is still possible, but difficult, to
negotiate planning permissions for suitable sites with local authorities who want to
stop food shopping taking place outside their local communities. Meanwhile, we
continue also to invest in town centres through the Metro format.
We took our first steps in Northern Ireland, acquiring three sites, two in Belfast
and one in Lisburn, County Antrim. Two of these sites are subject to public enquiry
in the early summer, and the Metro, in the centre of Belfast, will open in the autumn.
For additional information on Store development programme:
Europe
Our investment in Global in Hungary in 1994 signalled our intention to
expand into Central Europe. We believe that there are good prospects for growth
in this region, where there has been very little investment in retailing and distribution.
In November 1995, we invested £8m in Savia, a small food retail chain in southern
Poland. And just after the year end, in March, we announced that we had agreed to
buy the two retailing businesses of the US retailer, Kmart in the Czech Republic and
Slovakia for approximately £77m.The transaction is expected to be completed in April.
We will then be operating in four countries in Central Europe which form
a coherent geographical region. This will give us advantages as we develop the
supply chain and other aspects of the business.
In accordance with our strategy of developing a European retailing business,
with Kmart, we will have invested £340m in France and Central Europe. We expect
to invest further in the future.
For additional information on Europe:
Community involvement
For additional information on Community involvement:
Board appointments
I will retire from the Chair at the conclusion of the Annual General Meeting
in June 1997. John Gardiner, a Deputy Chairman, will succeed as Chairman on a
part-time basis.
Victor Benjamin will retire as a Deputy Chairman at the Annual General
Meeting in June 1996 after 14 years' service. His professional skills, wisdom and wide
experience have given the Board an invaluable perspective, and have contributed
significantly to the company's progress and expansion. I thank him for his help and
support and wish him a very happy retirement. David Reid will be appointed a
Deputy Chairman and will also continue as Finance and Distribution Director.
And finally, I welcome John Melbourn, a director of National Westminster
Bank Plc, who was appointed a non-executive director on 15 April 1996.
For additional information on Board appointments:
Dividends
Current trading and prospects
The BSE crisis has caused many of our customers to alter their buying
habits. Our overall sales of meat, fish and poultry have been satisfactory. We
remain committed to British farming and we continue to work closely with
the industry so that our customers can buy British beef with confidence.
The current petrol price war has affected industry sales and margins.
This has been exacerbated by recent cost price increases without corresponding
increases in retail prices. Our profit from petrol will be impacted in the current
year, if these conditions continue throughout the year. We will work hard to
offset any adverse effect by our performance in other parts of the business.
We have made a good start to the year ahead and for the first five weeks,
UK sales from existing stores rose by 7% above last year and total UK sales grew
by 13%. However, the market remains very competitive. We will continue to
introduce a host of new ideas which we believe will appeal to our customers
and help us maintain our forward momentum.
Conclusion
My Board colleagues and I continue to see good opportunities for growth
in the UK. And the steps we have taken to reinforce our strategy in France and
Central Europe will result over time in additional growth. We are committed to
delivering benefits to our customers and staff, wherever they are, and thereby
provide a good return for our shareholders.
We have worked more closely than ever with our customers, suppliers, and staff this
year to provide better quality products, better value for money, improved customer
service and more attractive stores. Illustrated in this report are some of the ways in
which we have achieved this. All these efforts have resulted in a very satisfactory
performance, which has strengthened our already strong trading base.
Competition continued to be fierce throughout the year. Price continues to be
at the forefront of the customer's mind and to be one of the key determinants of
where people choose to shop. To meet their expectations, we have continued to
keep prices low across the board and in two important areas, bakery and produce,
we introduced new initiatives to significantly reduce prices.
The enthusiasm with which staff launched Clubcard is an example of the difference
they can make. During the past twelve months it has grown into the UK's most
popular loyalty card, with over eight million cards in issue. Customers clearly
enjoy the discounts and other benefits of belonging to the club, which include
special Christmas shopping evenings and wine and cheese tastings.We started
to extend these benefits, for example, by linking with B&Q and also Lunn Poly
through Thomson Holidays. We are also beginning to use the information we receive
about shopping patterns to focus special offers and promotions more accurately
to meet customers' preferences. We are planning a range of new developments
over the next few months which we believe Clubcard members will find
attractive and appropriate to them.
Customer Loyalty
UK operating performance
Notes to the financial statements - note 1
This year saw the first full year's contribution from Wm Low. We completed our
integration plan so that all stores now operate on Tesco systems. We have consolidated
our distribution at Dundee and the expanded Livingston site, where in addition,
we have established a new recycling centre. The store refit plan will be completed
in the year ahead.
UK operating performance
Store locations
Notes to the financial statements - note 1
We opened 23 new stores this year adding 673,000 sq ft of new selling space.
This includes ten superstores, eleven compact stores (supermarkets of less than
26,500 sq ft) and two Metro stores. We also opened six Express stores adding a
further 12,000 sq ft.
Financial review - UK opening programme charts
In France, Catteau increased sales, helped along by continued investment in lower
prices. We also continued to invest in improved systems to strengthen the business.
Four new stores were opened, including two in the outskirts of Paris.
Financial review - Europe
Notes to the financial statements - note 1 and note 30
I should like to pay personal tribute to all the staff who continue to raise substantial
sums of money for charities which help children, the elderly, sick and disadvantaged.
The Riding for the Disabled Association received £850,000 as Tesco Charity of
the Year for 1995/96. And in many other ways, in hospices, hospitals, community
associations and schools, our staff have given their time and experience to help
others. My Board colleagues and I enormously appreciate and endorse these activities.
We are also pleased that Computers for Schools, in its fifth year, continues to be so
popular with teachers, parents and pupils alike. So far, over 21,000 computers have
been claimed by over 12,000 schools. And their interest continues to grow.
Business review - Environmental responsibilities
In November, I announced key changes which the Board have agreed to implement
over the next two years. David Malpas, who joined the Board in 1979 and became
Managing Director in 1983, will retire in early 1997. Terry Leahy, current Deputy
Managing Director, will then become Chief Executive.
Board of Directors
Corporate Governance - Board and board committees
Report of the renumeration committee
Directors report
Notes to the financial statements - note 6
The Board has reviewed the dividend policy established in January 1994. In
the light of improved returns and the investment opportunities now available,
the Board believes that it is appropriate to pay progressive dividends but at a
growth rate much closer to that of earnings, thereby retaining dividend cover
close to current levels. The Board has proposed a final net dividend of 6.55 pence
per share. The total dividend for the year therefore amounts to 9.60 pence, an
increase of 11.6% over last year.
Since the end of our financial year, there have been a number of developments.
We have introduced Clubcard on petrol sales, reduced prices in a number of
product areas including our Value Lines, and introduced customer assistants
nationwide. All of these developments have proved very popular with customers.
We have achieved excellent results in a very competitive climate. We met the
short term market challenges and also invested for the long term. We developed
Clubcard as a means of rewarding customers and understanding more closely their
wishes. We also continued to provide better pay and benefits and opportunities
for development for our staff. Our traditional trading philosophy, based on keeping
prices down, is right for these times.
Sir Ian MacLaurin Chairman