Profit and loss account
This year was another successful trading year for the Group. Total sales increased by 6.3% to £18,546m and Group underlying pre-tax profit increased by 7.8% to £881m. Adjusted diluted earnings per share rose 7.7% to 9.37p. A final dividend of 2.87p per share is proposed, making the full year dividend 4.12p, an increase of 6.5% over last year.

UK retail sales have grown 8.0% to £17,070m. Like-for-like sales were 4.0% which consists of volume of 2.5% and inflation of 1.5%. New stores continue to perform well, contributing 4.0% to sales including an additional 10 weeks of sales from Northern Ireland this year compared to last year. UK operating profit has increased to £919m, up 7.0%.

Our UK operating margin fell 0.1% to 5.8% reflecting our continued investment in service including longer opening hours and more service counters. Our change programmes continue to deliver greater efficiencies helping us to manage costs and grow profits.

Sales in Europe remain strong with total sales up 25% to £1.3bn. Sales in the Republic of Ireland are up 25%, reflecting the early benefits of our store rebranding programme. In Central Europe sales are up 37.5%. Our six new hypermarkets across the region have all traded strongly since opening.

Our business in Thailand, Lotus, has contributed £170m to Group sales and made an operating loss of £2m.

Tesco Personal Finance has now been trading for two years and our share of losses this year are £12m with the joint venture expected to break even in the second half of next year. Property joint ventures contributed £18m.

Tax has been charged for the year at an effective rate of 27.8%, a decline over last year mainly reflecting the impact of the QUEST scheme.

Net interest payable for the year was £90m, an increase of £18m over the previous year mainly reflecting our investment in Asia. Capitalised interest is marginally higher than last year at £35m.

Cash flow statement
Cash flow from operations remained strong generating £1,321m and comfortably covering capital expenditure. Interest and tax payments were £129m and £237m respectively for the year.

Group capital expenditure in the year was £1,067m. This included £73m in Ireland, £119m in Central Europe and £27m in Thailand. In the coming year we expect our Group capital expenditure to increase to around £1.3bn as we step up our development plans in Central Europe and Asia.

Cash used to acquire businesses totalled £255m, including £182m for our Lotus acquisition in Thailand in May 1998.

Net debt at the year end was £1,720m, an increase of £529m on the previous year, and gearing was 39.1%. This increase mainly reflects investment to implement our overseas development strategy.

Balance sheet
Total net assets have increased by £474m to £4,377m over last year.

Fixed assets increased by £1,057m after charging depreciation of £406m, an increase of £48m over last year.

Gearing at the year end was 39.1% while interest cover was 7.4 times. Total shareholder return to Tesco continues to out-perform both the sector and the market.

Over the past five years it has been 22.7% compared to a market average of 15.1%.

Terry Leahy
Andrew Higginson
Directors