Tesco Annual Report
TESCO PLC ANNUAL REVIEW AND SUMMARY FINANCIAL STATEMENT 2002 ifc1 TESCO PLC TESCO PLC ifc1 UNITED KINGDOM REPUBLIC OF IRELAND HUNGARY POLAND CZECH REPUBLIC SLOVAK REPUBLIC THAILAND TESCO OPERATES 979 STORES , EMPLOYS 260,000 SOUTH KOREA PEOPLE , GIVING US ACCESS TO A POPULATION OF TAIWAN 280 MILLION ACROSS OUR 10 MARKETS MALAYSIA Our world-class team of people is building a world-class business by working harder to deliver great value for customers, in every store, in every country, every day. FINANCIAL HIGHLIGHTS 3 CHAIRMAN ‘ S STATEMENT OUR MARKETS GROUP SALES GROUP PROFIT BEFORE TAX †
UP UP UP UP 4 6 8 10 AT A GLANCE UK EUROPE ASIA EARNINGS PER SHARE † (adjusted diluted) DIVIDEND PER SHARE 12. 7% 14. 1% 13. 9% 12.
4% WHY WE ARE N O 1 12 CHIEF EXECUTIVE ‘ S REVIEW 14 16 ONE TEAM CATERING FOR ALL TASTES 2002 52 weeks 2001 52 weeks 18 20 ONE – STOP SHOP UNDERSTANDING LOCAL CUSTOMERS Group sales (including value added tax) (? m) 25,654 22,773 Pro? t on ordinary activities before tax † (? m) 1,221 1,070 22 INVESTING AND INNOVATING Earnings per share † (adjusted diluted) (p) 12. 14 10. 66 ‡ 24 26 28 FIRST FOR FINANCE Dividend per share E -@ SY SHOPPING SUPPORTING OUR LOCAL COMMUNITIES p) 5. 60 4. 98 Group enterprise value (market capitalisation plus net debt) (? m) 21,290 21,590 † THE DIRECTORS AND THE ACCOUNTS ‡ Excluding net loss on disposal of ? xed assets and goodwill amortisation.
Restated due to the adoption of Financial Reporting Standard (FRS) 19, ‘Deferred Tax’. 30 32 BOARD OF DIRECTORS SUMMARY DIRECTORS ‘ REPORT 34 SUMMARY FINANCIAL STATEMENT 36 INVESTOR INFORMATION TESCO PLC 3 This year marks the arrival of Tesco as an International Group with market leading positions in six of our ten countries and 65,000 staff overseas.
Our success is underpinned by the strength of our core UK business, and growth in all parts of our strategy which moves UK pro? t growth of 10. 3% to a Group pro? t growth of 14. 1%. We continue to deliver great value for customers in every community in which we operate.
Following excellent results last year the Tesco Group has achieved another year of outstanding organic growth. Group sales have risen by 12. 7% to ? 25. 7bn and underlying pre-tax pro? ts are up by 14. 1% to ? 1.
2bn, with adjusted diluted earnings per share increasing 13. 9% to 12. 14 pence, the highest growth for the last ten years.
DIVIDEND The board has recommended a ? nal dividend of 3. 93 pence.
This, together with the interim dividend of 1. 67 pence, gives a total for the year of 5. 60 pence up 12. 4% and a dividend cover of 2. 17 times.
P E R F O R M A N C E These results re? ect the outstanding performance from all aspects of the Tesco strategy, the core UK business, non-food, retailing services and international, all of which have contributed to growing Group pro? ts. Our organic growth momentum continues to be driven by our determination to deliver for customers wherever we operate. We are now pro? able in seven of our nine overseas businesses. Our strategy of being in developing markets is clearly working and we are well positioned to become the leading retailer in Central Europe and South East Asia. We are delighted with the progress that retailing services has made this year. Tesco Personal Finance has increased its pro? t sevenfold on last year.
Tesco. com now operates successfully in four countries. None of these achievements would have been possible without the considerable effort of the entire Tesco team. Worldwide we employ 260,000 people, 65,000 of whom are overseas.
We will create a further 21,000 jobs in the coming year.
Our people share in our success and it is my pleasure to thank everyone in the Group for all they have done. The effort and capability of the entire Tesco team has driven this transformation from a domestic to an international retailer. BOARD CHANGES John Melbourn CBE, Non-executive Director will be retiring at the AGM after six years with the Group. I would like to thank him for his valued contribution during this time. John Gardiner Chairman NEW STORES NUMBER OF S TO R E S SALES AREA OPENED I N 2001/02 PLANNED OPENINGS I N 2002/03 UNITED KINGDOM
Still our largest, most experienced operation, serving a population of 60 million.
Outstanding value, service and quality, continue to gain us market share. 729 76 48 46 15 13 35 14 3 0 979 18. 8m sq ft 55 4 6 7 3 3 11 7 2 0 98 75 REPUBLIC OF IRELAND The business was acquired in 1997. We maintained market leadership having rebranded our stores, and introduced Clubcard and Tesco Personal Finance. Four new stores opened in the year.
1. 7m sq ft 1 HUNGARY We entered the market in 1994 and this year grew pro? ts. We opened six hypermarkets this year. We are now developing a centralised distribution system.
We entered the market in 1995, and are now pro? table. There is huge potential for long-term growth and pro? tability in a country of 39 million people.
We now have 14 hypermarkets increasing to 18 in 2002. We entered the market in 1996. Acquisition of six department stores gave us regional buying power and non-food knowledge. We have quickly grown the business and now have 15 stores in total, including nine hypermarkets. We entered the market in 1996.
Acquisition of seven department stores gave us regional buying power and non-food knowledge. We have quickly grown the business and now have 13 stores in total, including eight hypermarkets.
We invested in the Lotus chain of 13 hypermarkets in 1997. We are now the market leader with 33 hypermarkets and have a leading position in, and around, Bangkok. We entered the market in 1999 through the acquisition of two high-turnover stores in partnership with Samsung.
In 2001 we added seven further hypermarkets, new systems and a distribution depot. 2. 1m sq ft 6 POLAND 1. 8m sq ft 4 CZECH REPUBLIC 1. 5m sq ft 3 SLOVAK REPUBLIC 1. 1m sq ft 4 THAILAND 3.
8m sq ft 16 SOUTH KOREA 1. 4m sq ft 9 TAIWAN We opened our ? rst hypermarket in December 2000. In 2001 we opened a further two hypermarkets. . 3m sq ft 1 MALAYSIA This year we announced our joint venture partnership with Sime Darby. May sees the opening of our ? rst store in Malaysia.
By the end of the year we will have four stores in the country. 0. 0m sq ft 4 32. 5m sq ft 123 One team around the world Tesco operates 979 stores around the world and employs 260,000 people. We have grown from a domestic retailer, to an International Group, through our organic growth programme. This year has seen all four parts of the Tesco strategy, the core UK business, non-food, retailing services and international all growing group pro? ability.
16,452 17,158 18,796 20,988 23,653 18,254 21,353 24,039 28,362 32,491 TESCO PLC 5 781 821 845 907 01 98 99 00 01 02 98 99 00 02 979 98 99 00 01 02 T U R N OV E R ? m N U M B E R O F S TO R E S S E L L I N G S PAC E 0 0 0 s q f t UNITED KINGDOM REST OF EUROPE ASIA 9% 9% 15% 6% 17% 25% 76% E M P L OY E E S 0 1 / 0 2 85% T U R N OV E R 0 1 / 0 2 58% S E L L I N G S PAC E 0 1 / 0 2 RETAILING SERVICES TESCO PERSONAL FINANCE was established in 1997 and now has 2. 5 million customer accounts, with 15 products and services and achieved pro? ts of ? 40m this year (Tesco share ? 20m). Tesco. om is the largest grocery e-tailer in the world and is pro? table (excluding USA start-up costs).
Our .
com offer is being further expanded into non-food and our international markets. NON – FOOD We have over 4% market share in the UK and worldwide we added 2m sq ft of non-food space, keeping us on track to achieve ? 5bn of Group non-food sales by the end of 2002/03. 6 TESCO PLC United Kingdom Tesco is the number one food retailer in the UK. This provides the foundation for growth, allowing us to move into retailing services and international markets. We have invested ? 1.
2 billion over the past ? e years in getting cheaper for customers and our contribution to British society was recognised this year with the RBS/Sunday Times Business Enterprise Award 2001. As the UK’s biggest private sector employer, we have 195,000 people committed to going the extra mile for our customers. This commitment has enabled us to become Britain’s largest and best value supermarket and have the biggest online supermarket offer in the world. UK STORE PROFILE 41 Extras 445 Superstores 168 Metro/high street 75 Express 729 Total TOTAL AMOUNT OF SPACE IN THE UK In the UK we have 729 stores, employing 195,000 people.
We have been innovative in developing different store formats, Extra, Superstore, Metro and Express, to meet our different customers’ needs.
Our non-food offer is being introduced into existing Superstores as well as in our Extra stores. This year we opened 30 Express convenience stores, bringing the bene? t of our customer focus and value to many more communities, and are rolling these out at a rate of over one a week. TESCO PLC 7 14,971 15,835 16,958 18,372 01 98 99 00 02 T U R N OV E R ? m UNITED KINGDOM TAKE OFF WITH CLUBCARD Ten million Clubcard customers can now earn Air Miles as they shop.
This par tnership creates further choice for customers by widening our offer and increasing loyalty. Since Clubcard’s launch in 1995, over ? 1 billion in vouchers has been given back to customers.
CHAMPION OF THE CUSTOMER 55 THIS YEAR WE OPENED 55 NEW STORES IN THE UK , GIVING US AN ADDITIONAL 1. 3m SQ FT OF NEW FLOOR SPACE . IN THE COMING YEAR WE PLAN TO OPEN 75 NEW STORES , BRINGING OUR TOTAL TO OVER 790 . This year we launched Customer Champions in over 300 stores to be the friendly face of Tesco. We have over 800 champions who welcome customers as they enter the store and resolve any customer queries or concerns.
Tesco Extra, Bar Hill, Cambridge 20,052 8 TESCO PLC Europe Our businesses in Europe continue to achieve results and gain momentum, supported by learnings from the UK. We are now the leading hypermarket retailer in four of our ? ve European markets, serving three million customers a week and employing 41,000 people. This year saw Europe-wide sales growth of 25. 6% and pro? t growth of 28. 6%. WE SELL FOR LESS As in the UK our policy is to offer the best value of any food retailer.
We launched price-cutting campaigns in all our European markets, bringing value to our customers.
We introduced hundreds of own-label lines and now offer customers Value lines in each country. Republic of Ireland has 76 stores, employing 10,500 people, with a total ? oor space of 1. 7m sq ft. IRISH SALES UP 8.
9% REPUBLIC OF IRELAND REPUBLIC OF IRELAND We opened four stores, Killarney and Tralee in Co Kerry, Newbridge in Co Kildare and Clearwater in Dublin. TESCO PLC 9 1,481 1,167 1,374 1,756 2,203 16 98 99 00 01 02 T U R N OV E R ? m E U RO P E HYPERMARKETS OPENED IN EUROPE THIS YEAR . IN ADDITION TO OUR HYPERMARKETS WE HAVE 147 SUPERMARKETS AND DEPARTMENT STORES IN OUR FIVE EUROPEAN COUNTRIES . TOTAL AMOUNT OF SPACE IN EUROPE
First class bakeries at Tesco Budaors store in Budapest, Hungary. Central Europe has 52 hypermarkets, employing 30,500 people. HUNGARY We are market leader, having opened six new stores this year.
We now have 48 stores with a total selling space of 2. 1m sq ft. We launched our new ownlabel clothing range and will be opening an ambient distribution centre at Hercegahlom in June. Increased sales and delivered pro? t this year. We opened four new hypermarkets, bringing the total number of hypermarkets and supermarkets to 46. Our Lubin store is a record breaker, opening just 16 weeks after construction started.
Around 50% of grocery distribution is centralised and all stores carry Tesco own-label products – 420 new own-label lines were launched this year. POLAND POLAND Mazgorzata Balik and Bozena Mackiewicz, Tesco Mory store, Poland. CZECH REPUBLIC SLOVAK REPUBLIC HUNGARY OTHER EUROPE We are hypermarket leader in the Slovak Republic and Czech Republic. We opened three new stores this year in the Slovak Republic, bringing the total to 13. In the Czech Republic we now have 15 stores, having opened three this year. In France we have our Vin Plus store near Calais, stocking around 1,200 products at savings of up to 50% on UK prices.
0 TESCO PLC Asia The milestone 100th international Tesco hypermarket opened this year, in Ulsan, South Korea. We now have international scale and a signi? cant world presence. In Asia, as elsewhere, we employ local management and staff to deliver for customers – only one in a thousand of our total international staff are ex-pats because we develop capability and skills locally, recruit and develop local people. THAILAND MALAYSIA T U R N OV E R ? m A S I A Mai and Darunee serving dessert in the food hall at the Rama IV store, in Bangkok, Thailand. 99 00 01 02
Asia has 50 hypermarkets employing 24,000 people. THAILAND Our lead country in the region is Thailand, where we employ over 16,000 people.
We are the market leader, opening nine new hypermarkets this year, bringing the total to 33. We launched Tesco own-brand, over 500 Value (SuperSaver) lines and a Tesco store card. We also opened our ? rst Lotus Express store showing we can export our format expertise overseas, and we plan to roll out more by the end of 2002. Topping a successful year, Tesco Lotus was awarded the title of Best Retail Business in the Thai press.
1,398 156 464 860 TESCO PLC 1 SOUTH KOREA SOUTH KOREA TAIWAN Five out of the top ten Group stores are in South Korea and Homeplus Youngdeungpo store took over ? 1. 1 million on opening day, a world record for Tesco. Samsung Tesco won numerous awards this year, including the Corporate Culture Award for the second consecutive year. We are already pro? table, a year ahead of schedule, and see South Korea as a good opportunity for growth. We were the ? rst retailer in the country to launch an online education site for employees.
TOTAL AMOUNT OF SPACE IN ASIA 7 NEW HYPERMARKETS IN SOUTH KOREA BRINGING THE TOTAL TO 14 .
WE HAVE 420 HOMEPLUS OWN – BRAND PRODUCTS AND SERVE 750,000 CUSTOMERS A WEEK . Two new stores were opened, in Tainan and Taoyuan Chingkou, bringing the total to three. This year we plan to open a further store. A golden award was presented to Tesco in January for our high standards of customer service.
TAIWAN M A L AYS I A We have star ted work on our ? rst store in the country, a hypermarket in Puchong, which will open in May. During the coming year we plan to open three further stores in a joint venture with Sime Darby. NEW MARKETS We are currently researching China and Japan as part of our continuing quest for new markets.
SOURCING A cutting-edge IT system now links our worldwide sourcing hubs in Bangalore, Hong Kong, Bangkok and Prague back to our UK head of? ce. This enables us to source from anywhere in the world and track progress and costs of orders from product idea to delivery in any country in which we operate.
WO R L DW I D E Tesco Homeplus store,Youngdeungpo, South Korea. 12 TESCO PLC still growing Winning at home and abroad The Tesco four part strategy, strong core UK business, non-food, retailing services and international growth have all delivered outstanding results, and contributed to Group pro? ts.
This is underpinned by our core purpose and values, which de? ne the way we run our business. Our UK BUSINESS remains our core market. We have RETAILING SERVICES have been a major success for us. increased our food market share.
Our focused strategy of Tesco Personal Finance achieved a pro? t of ? 40m of which our providing exceptional value and choice for customers has share was ? 20m. The business continues to go from strength continued to serve us well, and there is still plenty of to strength by bringing outstanding value, and convenience opportunity for future growth. This year we have again to the customer. nvested in price. Price comparisons on over 70% of Tesco. com now operates successfully in four countries: everything we sell show we offer the best value products for USA, South Korea and the Republic of Ireland alongside our customers.
Value is not only about price. This year, for our the UK. 85,000 customers a week love the convenience customers, we have also embarked on a programme it provides them with. Tesco. com in total is in pro? t of refreshing our Superstores, asking our staff (excluding USA start-up costs) and continues to E HARD R FOR and customers what they like and dislike provide opportunities for growth.
ES CU I TR about their local store, delivering INTERNATIONAL Our strategy of improvements for our customers and building an international business of scale CREATING staff through people, ser vice, opercontinues to gain momentum.
We have VALUE FOR ations, equipment and general store made good progress in all markets, and CUSTOMERS environment. We have continued to are con? dent of achieving both our TO EARN innovate for our customers by intropro? t target and returns. We announced THEIR LIFETIME ducing new ranges such as ‘The Food the start of our development in Malaysia LOYALTY Doctor’ and ‘Free From’, and over 3,500 in December.
After ? ve years, we are well PL B E new lines, including 300 Finest lines. This year positioned to become the leading retailer in TO HO KE W W E LI we have further improved Clubcard through the Central Europe and South East Asia in terms of introduction of Air Miles, giving our customers more both sales and pro? t.
We now have 42% of Group choice than ever. space overseas, putting us on track to have broadly the same NON – FOOD Huge progress has been made in non-food international space as in the UK by 2003/04. this year.
We have introduced thousands of new lines and IN SUMMARY Five years ago we laid out a strategy that launched our own Value brand on non-food lines. You will now would transform Tesco’s prospects for future growth. This year see opticians in many stores and we purchased a majority we have strengthened our lead in the UK and seen our nonstake in The Nutri Centre, the complementary medicine food business grow rapidly.
Tesco Personal Finance has achieved retailer. We have grown our market share to over 4% material contributions to Group pro? , and through organic and more customers than ever now have access to our nongrowth we have arrived as a major International Group. food offer. O ST -O N E ME NO RS E TR EA TED still delivering T TREA PE O Terry Leahy Chief Executive 14 TESCO PLC team one TESCO PLC 15 BUILDING A WORLD – CLASS TESCO TEAM is key to delivering our business strategy. As we expand around the globe we create a continuous demand for additional talent, meeting that need by developing our people, sharing learning, recruiting the best locally and creating jobs where people are valued wherever we operate.
All our 260,000 staff are encouraged to go the extra mile for customers. We look after our people so that they in turn look after our customers. DEVELOPING THE BEST Comprehensive training and development plus a new talent spotting scheme bring out the best in our staff. This year we promoted many of our people, placed 2,500 trainees on development programmes and appointed 2,520 new managers in the UK. Over 560 of our store managers have now attended the Management Programme at Manchester Business School.
Key directors and managers have also been trained in managing change, to enable them to involve staff in delivering improvements for customers. INVESTING IN OUR PEOPLE Our staff enjoy an industryleading package that includes the largest share ownership scheme of any British employer. In February 2002, ? 116 million was paid out to 37,000 staff when two Save-As-You-Earn share schemes matured. Buy-As-You-Earn, a tax-ef? cient share buying scheme for staff, was launched in October. VALUING STAFF The Tesco Values are a set of principles that describe the way we work together at Tesco.
The two main values are ‘Treat people how we like to be treated’ and ‘No-one tries harder for customers’. Our Values award scheme has helped us to understand the great things our people do every day for each other and our customers. We have issued over 75,000 awards to members of staff this year. The safety of our staff and customers is a top priority for Tesco. As the UK’s biggest private sector employer and construction client we pride ourselves on our excellent safety record. Further information on our commitment to health and safety will be featured on the Tesco website this year.
The UK’s biggest retailing careers website was launched by Tesco this year, at www. tesco. com/careers. The site complements the ways in which we already recognise and develop the talent of our people. PENSIONS We are giving staff more security with our pension scheme by moving from a de? ned contribution to a de? ned bene? t scheme.
16 TESCO PLC catering for Tesco is Britain’s best value supermarket. Not only is no supermarket cheaper than Tesco on products of the same quality, but we also offer unbeatable quality, range and service. We understand our customers have different tastes and requirements.
Our instore offer ranges from the Finest products to our Value range, catering for every customer in every community. ORGANICS Already the UK’s largest organics retailer, Tesco has plans to grow sales to ? 1 billion over ? ve years. We recently announced a further ? 12 million of organic produce being sourced in the UK.
Responding to customer demand, we also extended our organics range to over 1,000 lines and cut prices on the 50 most popular lines. FINEST The Finest range has grown by 300 lines over the year to 800, with additions including Finest Roast Onion Mayonnaise and Finest whisky.
The brand is now worth over ? 400 million. Tesco Finest is also sold internationally – in Taiwan you’ll ? nd Finest jams and sauces. VALUE Values lines can now be found in all our European markets.
Hungary has Value vodka and cheese. You’ll ? nd Value dumplings in Poland, while the Czech Republic has 200 Value lines across all ranges, including fresh foods and grocery. In Thailand we have Tesco own-brand products and over 500 Supersaver lines, while Value lines in Taiwan include fresh fruit and vegetables. all tastes SELL EA TESCO PLC 17 P ER MO RE L VO BRINGING PRICES DOWN
Our consistent approach to forcing down prices has resulted in ? 1. 2 billion of price cuts over the past six years. February saw a further ? 70 million of price cuts across 1,500 lines in the UK.
We employ the same strategy internationally, aiming to be the best value retailer wherever we operate. GET CH HOW UME SELLS FOR LESS GR OW B I G G E PROVIDING LOCAL FLAVOUR Wherever we operate we cater for local tastes, providing customers with the products they want, at the prices they want. Our local products are clearly identi? ed with country or county of origin – sometimes even the farm they came from.
Providing products to meet local customers’ needs is also clearly visible in our international operations. We sell Welsh beef in all our Welsh stores.
Our stores in Poland sell live carp, while in our South Korean stores you can buy 6-feet long strips of seaweed, live octopus and giant radishes weighing 2. 5kg. EXCELLENT EXPORTS R This year Tesco was named Retail Exporter of the Year. Our Special Reserve Whisky is going down a treat in Taiwan, where the popularity of Tesco Lemon Curd has also spread. Customers in Thailand, the Czech Republic and Taiwan have now got a taste for Tesco Muesli, having seen it featured in the ? m Bridget Jones’s Diary. We introduced 3,500 new food lines this year, including our ‘Ready to Bake’ range for special dietary needs.
New counters are being rolled out to some stores, including olive bars, pizza and Grab and Go. Responding to customer needs, we now plan up to 32 seasonal ranges a year, up from four just three years ago. This year we also acquired a majority stake in The Nutri Centre, enhancing our health and beauty offer and meeting our customers’ desire for natural products. INNOVATION ON A PLATE HEALTHY EATING We now have nearly 400 Healthy Eating lines in stores. January saw the launch of our Healthy Living Campaign.
Two new food ranges – ‘Free From’ for special dietary needs and the naturally healthy ‘Food Doctor’ – were launched and backed by a new Healthy Living Club and website (www.
tesco. com/healthyliving). The Healthy Living brand also covers our 5 A Day campaign to encourage people to eat ? ve servings of fruit and vegetables a day to help reduce the risk of cancer. Serve yourself at the olive bar, Tesco Extra, Bar Hill, Cambridge. Seaweed by the foot in South Korea. 18 TESCO PLC one-stop Customers love our non-food offer.
In the UK we have over a 4% market share, on track for our target of 6%.
Our extensive non-food range offers the quality, range, service and price that our customers expect – whether it be in our Extra stores, Superstores or online. This year we have launched thousands of new lines offering more choice in more markets for our customers. KEY UK HIGHLIGHTS WE SOLD 190,000 CAMERAS LAST YEAR, UP FROM 59,000 THE YEAR BEFORE. OVER THE PAST 12 MONTHS WE SOLD MORE THAN ONE MILLION HARRY POTTER PAPERBACKS. WE ARE THE MARKET LEADER IN MOBILE PHONE AIRTIME RETAILING, SELLING ? 3.
3 MILLION OF AIRTIME EVERY WEEK. ELECTRONIC TOP-UP ACCOUNTS FOR 25% OF ALL OUR AIRTIME SALES.
IN THE PAST YEAR WE SOLD TEN MILLION CDS. DVD SOFTWARE SALES INCREASED BY 254%. SALES OF OUR AUDIO RANGE, INCLUDING HI-FI’S AND WALKMANS, ROSE BY 300%. HOMESHOP HAS NOW BEEN ROLLED OUT TO 160 STORES FROM A BASE OF 15 JUST TWO YEARS AGO.
PURCHASED A MAJORITY STAKE IN THE NUTRI CENTRE, OUR COMPLEMENTARY MEDICINE RETAILER. INTRODUCED OPTICIANS INTO MANY OF OUR EXTRA STORES. WE ARE THE VOLUME MARKET LEADER IN TOILETRIES. WE WON THE MOTHER AND BABY RETAILER OF THE YEAR AWARD. OUR FLORENCE AND FRED CLOTHING RANGE HAS SEEN STRONG GROWTH, WITH THE MEN’S 2001 AUTUMN/ WINTER RANGE UP 86% THIS YEAR. OFFERING BEST PRICES
We have signi? antly reduced the price of thousands of health and beauty lines resulting in market leadership in sales volumes.
This year we saved customers over ? 70 million by signi? cantly reducing prices on many non-food lines, including branded goods such as Levi Jeans and Apple Mac computers. Following the end of Resale Price Maintenance on medicines we cut our prices by up to 50%. We continue to campaign to have more freedom to import branded goods from outside the European Community so that we can bring even greater value to our customers. The introduction of Value lines into our clothing offer saw adult jeans for ? 7.
9, kids’ jeans for ? 4. 99 and adult T-shirts for ? 2. 99. OVERSEAS OFFER In Thailand we have a strong offer in electricals, while in Poland you can ? nd an extensive range of ski wear. In Hungary, all manner of sporting goods are on offer. A typical overseas hypermarket has 55% of its ? oor space allocated to non-foods.
A wide selection of washing machines available at the Tesco Mory store, Poland. shop FOLLOWING A SUCCESSFUL TRIAL WHERE WE SOLD 2,000 SOFAS IN 12 WEEKS FROM 19 STORES, WE NOW HAVE PERMANENT FURNITURE DEPARTMENTS IN TEN EXTRA STORES. OTHER NON-FOOD LINES INTRODUCED THIS YEAR INCLUDE DIY, CARCARE AND LIGHTING.
THE MYSTERIES OF THE EAST ARE UNCOVERED WITH OUR FENG SHUI RANGE OF HEALTH AND BEAUTY PRODUCTS We now have opticians in many of our UK and Asian hypermarkets. 20 TESCO PLC Listening to customers allows us to ? ne-tune our ranges, opening hours and even the type of store we build in a local community. Catering for individual needs and employing local people not only bene? ts customers – it’s also good for staff, shareholders and society as a whole.
We pursue our focus on customers wherever in the world we operate. UNDERSTANDING Tesco Homeplus store,Youngdeungpo, South Korea. Tesco Extra, Irlam, Manchester.
Tesco cafe, Clearwater, Republic of Ireland. Tesco Express, Romford.
Tesco Lotus Rama IV, Thailand. Tesco Homeplus store, Jakjon, South Korea. FORMATS THAT FIT AS IA 17% U REST OF E Our customers have different shopping needs, so we vary our store format for them, tailoring the design so each store is better able to serve its community and make shopping more convenient. 58% DO 25% PE EXTRA STORES U NITE D KI N provide destination shopping with an extensive food and non-food offer, on major sites. provide one-stop shops for the weekly shop. provide convenience in our high streets.
G M RO SUPERMARKETS SELLING SPACE 01/02
METRO STORES for top-up and impulse shopping, can be found in busy thoroughfares. EXPRESS STORES TESCO PLC 21 local CUSTOMERS Tesco Budaors store, Budapest, Hungary. STAYING LOCAL Wherever in the world we operate, we stay local. The majority of store managers in Europe and Asia are local people and we have development programmes to grow our local talent for the future. Local sourcing, wherever practicable, means many products are sourced from within each national market. In October we unveiled an innovative new concept in store design at Irlam, Manchester.
We put together in one store a host of new initiatives imed at making things better for customers, simpler for staff and cheaper for Tesco. Our new store layout ensures that high volume products are moved as little as possible, many counters have self-service options and the ? ow of products to and from the sales ? oor has been improved. SHOP AROUND THE CLOCK We now have 365 UK stores open 24 hours a day, meeting the needs of people with different lifestyles right across the country. This year, Taoyuan Chingkou became the ? rst hypermarket in Taiwan to operate 24 hours a day, 365 days a year ; many of our international hypermarkets operate on a 24 hour basis.
Refresh My Superstore was launched this year, giving customers a real say in how their store is improved. Before any work is carried out, customers and staff are asked what changes they would like made, from the product ranges to the car park layout.
Their feedback forms the basis of the work then carried out. In the coming year we plan to refresh over 100 of our UK stores. KEEPING IT SIMPLE A REFRESHING CHANGE TESCO PLC 23 OUR UK STEP CHANGE PROGRAMME ACHIEVED SAVINGS OF OVER ? 200M IN ITS SECOND YEAR. BASED ON THE PRINCIPLES OF BETTER, SIMPLER AND CHEAPER, OUR OPERATIONS WERE IMPROVED AND EFFICIENCIES INCREASED.
A COMBINATION OF NEW SYSTEMS AND SAVINGS: BREAKING NEW GROUND: LEADING EDGE SYSTEMS NEW PROCESSES REALISED THESE ? Our Continuous Replenishment system, where products are ordered automatically based on continuous information ? ows from our checkouts, is now operating on nearly all food and drink lines, raising availability and simplifying operations. Using the world’s ? rst store-speci? c merchandising system we can now tailor each store range to meet the precise needs of its customers.
Linked to continuous replenishment, product space is allocated to demand. A new automatic scheduling system in stores works out the optimum staf? g levels required at checkouts, to match 12 million customers per week with 18,000 checkouts. EXTENDING THE SUPPLY CHAIN PROCESS A new team ? ? has been established to increase our ef? ciency by better managing the movement of goods between suppliers and our regional distribution centres. By working with suppliers, hauliers and consolidators we can reduce costs, miles travelled empty and lead times. We expect signi? cant savings in the next three years following our successful pilot in 2001. STRENGTHENING THE DISTRIBUTION NETWORK Two new distribution centres opened in the UK this year at Thurrock and Daventry.
These provide an 18% increase in our capacity. A new distribution centre in Hungary is also under construction. TAKING STEP CHANGE FURTHER In the year step change programmes, based on the successful UK template, were established in Central Europe and Thailand. This has made operations better for customers, simpler for staff and cheaper for the business. Daventry distribution centre.
24 TESCO PLC Tesco Personal Finance (TPF) is one of the UK’s fastest growing ? nancial services businesses. Over one million accounts and policies were opened this year and our share of pro? t rose from ? 3 million to ? 20 million. TPF now has over 2. million accounts. With 20% of sales now originating from the internet and 80% of business coming through the stores, our products are available where and when our customers want them.
NEW THIS YEAR The cheque pay-in facility at Tesco checkouts is a world-? rst initiative.
This was rolled out this year to over 500 stores. Instant Travel Insurance rolled out this year to 450 stores, a new and convenient way to buy travel insurance with no form ? lling and no fuss – just pick up a pack in store and pay at the checkout. ATM charity payout was a UK ? rst, with TPF donating 1p to charity for every withdrawal from our TPF cashpoint machines; ? 65,000 was raised for The Alzheimer’s Society. SAVINGS Total savings balances grew by more than 30% in 2001. F I R S T CLUBCARD F O R Personal loans grew to over ? 1 billion and we won awards from MoneyFacts and Your Money Direct magazine. LOANS Ten million Clubcard customers – members of the biggest and best loyalty card scheme in the UK.
Over ? 1 billion in vouchers has already been given to customers since Clubcard’s launch in 1995. CREDIT CARD With a 1. 5% introductory rate and a standard variable 15. 9% APR. Over one million credit cards are in issue earning customers extra Clubcard points every time they pay by credit card.
MOTOR INSURANCE Since its launch in March 2000, we have attracted over 500,000 new customers.
Over 450 own branded cashpoint machines installed handling over one million transactions each week. ATMS PET INSURANCE We are the fastest growing pet insurer in the UK with almost 250,000 dogs and cats covered. HOME INSURANCE TESCO PLC 25 5% discount for online customers, plus a further 5% discount for holders of Tesco Motor insurance. We have 100,000 policies in force this year. LIFE INSURANCE Being at the top of ‘Best Buy’ tables in the press has helped to grow the value of written policies.
TRAVEL MONEY Increasing in popularity with customers, this service delivers currency and travellers cheques to their home address. F I N A N C E TRAVEL INSURANCE Our customers have saved up to 50% on travel agents’ charges. OVERSEAS We successfully launched a credit card in the Republic of Ireland this year, following a successful pilot in which nearly 10,000 accounts were opened. The potential for international growth remains an exciting opportunity as Tesco expands its activities overseas. ONLINE BANKING Helping to make more complicated products easier to understand, we offer customers a choice of three equity ISAs. ISA
A free service for Instant Access Savings Account and Clubcard Plus customers.
26 TESCO PLC Tesco. com is the biggest online supermarket operator in the world. Covering 95% of the UK population, we have delivered to over a million homes. The site receives millions of unique visits each month. This year turnover reached ? 356 million. e-@sy shopping ?235m ? 356m ? 52m 00 01 02 T E S C O .
C O M also sells a huge range of non-food products. A new wine warehouse was launched in 2001 offering a much larger range of wine by the case than at a conventional store. Our broad range of online warehouses offers everything from prams to ? wers and TVs to dishwashers.
For example, our online enter tainment warehouse carries 1. 2 million books plus every single CD, video, DVD and computer game on UK release.
GROW T H IN T E S C O. C O M S A L E S AN D TO D D LE R BAB Y DV D GA MES MUSIC VI DEOS BO OKS TESCO PLC 27 TESCO. COM …
…was voted E-tailer of the Year in the 2001 Retail Week Awards, Best E-Commerce Service at the World Communication Awards and won the Large Corporate category at the Daily Telegraph and Barclays Bank @chievement 2001 awards. …is pioneering internet home shopping for blind and partially sighted people. The new Tesco. om access site (www.
tesco. com/access) is much simpler to use for visually impaired people, allowing text to be increased in size. If shoppers use a screen reader, a voice from the computer guides them as they shop online. This technology has also opened up shopping on the move via a pocket PC or smartphone. 85,000 GROCERY HOME SHOPPING ORDERS PER WEEK OVERSEAS Tesco.
com now operates on three continents. January saw the launch of the Tesco. com internet home shopping model in the USA, with Safeway Inc. The deal combines Tesco expertise in store-based home shopping with Safeway Inc’s leading presence in the American market.
Customers in Portland, Oregon, were ? rst to try the new service, followed by San Francisco.
Tesco. com is growing rapidly in the Republic of Ireland, where the service covers 70% of the population. You can also shop online with Tesco in South Korea, where we launched our e-homeplus service from the Homeplus store in Ansan, near Seoul. LE CTRIC A FL OWERS O G WINE ME LIVI N E L F RS ONAL LT H Y LIV N I H ANCE IN A G TE SCO HE H P E 28 TESCO PLC supporting our local A website, detailing our integrated policy for corporate social responsibility was launched this year at www. tesco. com/everylittlehelps
WORKING WITH SUPPLIERS WE ARE COMMITTED TO SELLING LOCAL PRODUCE AND ALREADY STOCK AROUND 7,000 REGIONAL LINES FROM ALL OVER THE UK.
WE ARE DEVELOPING A MASTERCLASS PROGRAMME WITH AGRICULTURAL COLLEGES TO HELP FARMERS GAIN A GREATER UNDERSTANDING OF THE RETAILING INDUSTRY – AFTER ALL, WE ARE UK FARMERS’ BIGGEST CUSTOMER. TESCO HAS ISSUED A CHALLENGE TO GROW OUR ORGANICS SALES TO ? 1 BILLION WITHIN FIVE YEARS, GIVING FARMERS THE OPPORTUNITY TO DEVELOP THEIR BUSINESSES. Knowing their onions – brothers Bill and John Rix from Essex, who grow onions and potatoes, have seen their business grow through heir excellent supply of produce to Tesco. DURING THE FOOT AND MOUTH CRISIS, TESCO WAS THE FIRST TO CONTRIBUTE TO A FUND SUPPORTING BRITISH FARMERS. communities Great responsibility comes with being the UK’s largest food retailer. That’s why Tesco has a ? rm commitment to support local people and communities, and protect the environment.
CHARITABLE SUPPORT TO COMMUNITIES in the UK and overseas, including contributions in cash and in kind from the Tesco Group and grants through the Tesco Charity Trust, amounted to ? 9. 0 million.
Tesco is a member of the Business in the Community Per Cent Club, having once again given 1% of our pre-tax pro? ts to support community activity. TESCO PLC 29 Our URBAN REGENERATION schemes have created around 1,000 jobs in the UK over the past year. These schemes are sited in high unemployment areas and provide training, family support and childcare as well as jobs.
Our schemes in Seacroft, Leeds, and St Rollox, Glasgow, won awards in 2001 for helping the long-term unemployed return to work. Other schemes in the pipeline include Rotherham and Beckton, East London.
COMPUTERS FOR SCHOOLS this year saw a 137% rise in vouchers issued. So far over ? 70 million worth of computer-related equipment has been given to 22,000 schools. The annual Tesco Our School Awards recognise young people for their outstanding contributions to school and community life.
Our CHARITY OF THE YEAR for 2001 was The Alzheimer’s Society and Alzheimer Scotland – Action on Dementia will receive over ? 2 million. This year we will be raising money for The Cystic Fibrosis Trust. The Tesco Charity Trust made cash grants of over ? 773,000 in 2001/2002 to local and national charities.
Sponsorship of the Race for Life in the coming year by Tesco will help raise ? 12 million for research into women’s cancers. A scheme to RECYCLE millions of unwanted mobile phones has been launched by Tesco and XS Tronix. Recycling saves them from being dumped in land? ll sites where they can release potentially dangerous substances.
Some handsets will be re-used in developing countries and every recycled phone generates a donation to charity. We also encouraged our customers to recyle their christmas cards and carrier bags through our stores this year. When ? ods devastated parts of Poland in the summer, Tesco led the fundraising for the homeless – action that was recognised of? cially by the Polish government. In the Republic of Ireland we launched our Charity of the Year scheme, raising €380,000 for the Irish Cancer Society. In South Korea we are recognised by the Ministry of the Environment as being the leading retailer for the promotion of environmental products.
In Thailand we support a wide range of community projects including agriculture, vocational training and development of small suppliers. A GLOBAL COMMITMENT
Our efforts have won us a place in the latest FTSE4Good index of socially responsible companies. board of directors DAVID REID 55 CA DEPUTY CHAIRMAN TERRY LEAHY 46 JOHN GARDINER 65 NON – EXECUTIVE CHAIRMAN G CHIEF EXECUTIVE G John Gardiner was appointed a Non-executive Director in 1988, and Non-executive Chairman in 1997. He is a Non-executive Director of The Economist. Terry Leahy became Chief Executive in 1997.
Joining Tesco in 1979, he held a number of marketing and commercial positions prior to being appointed to the Board of Tesco PLC in 1992. David Reid became Deputy Chairman in 1996.
He was appointed to the Board in 1985, having joined Tesco in the same year. He is responsible for international development and operations and strategic planning and is Chairman of Tartan TV Ltd. ROWLEY AGER 56 COMPANY SECRETARY I Rowley Ager was appointed to the Board in 1992. He joined Tesco in 1986 and became Company Secretary in 1990.
TIM MASON 44 MARKETING ; E – COMMERCE DIRECTOR DAVID POTTS 44 RETAIL DIRECTOR CHARLES ALLEN 45 NON – EXECUTIVE N G L Tim Mason was appointed to the Board in 1995. He joined Tesco in 1982. He is a Nonexecutive Director of Capital Radio PLC.
David Potts was appointed to the Board in 1998. He joined Tesco in 1973 and has held a number of store and Head Of? ce positions. From 1997 he directed the integration of our businesses in Northern Ireland and the Republic of Ireland before returning to the UK in his current role in July 2000.
Charles Allen was appointed a Non-executive Director in 1999. He is Executive Chairman of Granada PLC. TESCO PLC 31 JOHN GILDERSLEEVE 57 COMMERCIAL ; TRADING PHILIP CLARKE 41 LOGISTICS ; IT DIRECTOR I DIRECTOR ANDREW HIGGINSON 44 FINANCE DIRECTOR Philip Clarke was appointed to the Board in 1998.
Prior to his appointment he held a number of roles in store operations, commercial and marketing. John Gildersleeve was appointed to the Board in 1984. He is a Non-executive Director of Gallaher Group PLC and The Carphone Warehouse Group PLC.
Andrew Higginson was appointed to the Board in 1997. He is a member of the 100 Group of Finance Directors and the Financial Reporting Review Panel. N I G L Member of the Audit Committee Member of the Compliance Committee Member of the Nominations Committee Member of the Remuneration Committee DR HARALD EINSMANN 67 NON – EXECUTIVE G
JOHN MELBOURN CBE 64 NON-EXECUTIVE N G L VERONIQUE MORALI 43 NON – EXECUTIVE GRAHAM PIMLOTT 52 NON – EXECUTIVE N G L Dr Harald Einsmann was appointed a Non-executive Director in 1999. He is a Non-executive Director of EMI Group PLC and Interbrew S. A. in Belgium, is on the Board of Stora Enso Oyj, part of the Wallenberg Group and is a Director of British American Tobacco PLC.
John Melbourn was appointed a Non-executive Director in 1996. He is a Director of Gulf International Bank (U. K. ) Ltd. Veronique Morali was appointed a Non-executive Director in 2000. She is Chief Operating Of? er and Director of Fimalac S.
A. Graham Pimlott was appointed a Non-executive Director in 1993.
He is Deputy Chairman of Hammerson PLC. 32 TESCO PLC summary directors’ report PRINCIPAL ACTIVITY AND BUSINESS REVIEW The principal activity of the Group is the operation of food stores and associated activities in the UK, Republic of Ireland, France, Hungary, Poland, Czech Republic, Slovak Republic, Thailand, South Korea and Taiwan. The business review is within the summary ? nancial statement on pages 34 to 35.
DIVIDENDS The Directors recommend the payment of a ? nal dividend of 3. 3p per ordinary share to be paid on 28 June 2002 to members on the Register at the close of business on 19 April 2002. Together with the interim dividend of 1. 67p per ordinary share paid in December 2001 the total dividend for the year comes to 5. 60p, compared with 4.
98p for the previous year, an increase of 12. 4%. DIRECTORS Details of the current members of the Board are shown on pages 30 and 31. Sir Terry Leahy, Mr J Gildersleeve, Mr T J R Mason and Mr D T Potts retire from the Board by rotation. Being eligible, they offer themselves for re-election at the Annual General Meeting.
Their service contracts are terminable on two years’ notice from the company.
CORPORATE GOVERNANCE The company has complied with all the provisions of the Combined Code of Best Practice except as with regard to the provision on the length of the Directors’ service contracts. The Remuneration Committee has agreed that in future new appointments of Executive Directors would normally be based on a notice period of 12 months. The company has established a framework of internal control which is reviewed by the Audit Committee and has a separate Executive Committee, Remuneration Committee, Nominations Committee and Compliance Committee.
A full corporate governance statement is contained in the Annual Report and Financial Statements 2002. INDEPENDENT AUDITORS’ STATEMENT TO THE MEMBERS OF TESCO PLC We have examined the summary ? nancial statement of Tesco PLC. RESPECTIVE RESPONSIBILITIES OF The Directors are responsible for preparing the annual review and summary ? nancial statement in accordance with applicable law.
Our responsibility is to report to you our opinion on the consistency of the summary ? ancial statement, the Directors’ emoluments and the summary of executive share options and disclosable shareholdings within the annual review and summary ? nancial statement with the annual report and ? nancial statements and the Directors’ report and its compliance with the relevant requirements of Section 251 of the Companies Act 1985 and the regulations made thereunder. We also read the other information contained in the annual review and summary ? nancial statement and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary ? ancial statement. DIRECTORS AND AUDITORS BASIS OF OPINION We conducted our work in accordance with Bulletin 1999/6
‘The auditors’ statement on the summary ? nancial statement’ issued by the Auditing Practices Board for use in the United Kingdom. OPINION Summary report of the Directors on remuneration DIRECTORS ‘ REMUNERATION POLICY The remuneration packages, including contract periods, of Executive Directors are determined by the Remuneration Committee. It ensures that the remuneration package is appropriate for their responsibilities, taking into consideration the overall ? ancial and business position of the Group, the highly competitive industry of which the Group is part and the importance of recruiting and retaining management of the appropriate calibre.
Executive Directors are members of the Tesco PLC Pension Scheme, which is a de? ned bene? t scheme approved by the Inland Revenue. In our opinion the summary ? nancial statement is consistent with the annual report and ? nancial statements and the Directors’ report of Tesco PLC for the year ended 23 February 2002 and complies with the applicable requirements of Section 251 of the Companies Act 1985, and the regulations made thereunder.
