Annual Report and Financial Statements 2007 - Tesco PLC
Annual Report and Financial Statements 2007 - Tesco PLC
Annual Report and Financial Statements 2007 - Tesco PLC
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Operating <strong>and</strong> financial review<br />
Group summary<br />
<strong>2007</strong> 2006 ø Change<br />
£m £m %<br />
Group sales<br />
(including value added tax) 46,611 43,137 8.1<br />
Underlying profit<br />
before tax † 2,545 2,277 11.8<br />
Group profit before<br />
taxation 2,653 2,235 18.7<br />
Underlying diluted<br />
earnings per share (p) 22.36 20.30 10.1<br />
Diluted earnings<br />
per share (p) 23.31 19.92 17.0<br />
Dividend per share (p) 9.64 8.63 11.7<br />
UK performance<br />
<strong>2007</strong> 2006 ø Change<br />
£m £m %<br />
Sales<br />
(including value added tax) 35,580 32,657 9.0<br />
Operating profit 2,083 1,788 16.5<br />
Trading profit* 1,914 1,752 9.2<br />
Trading margin ‡ 5.9% 5.8%<br />
Rest of Europe performance<br />
<strong>2007</strong> 2006 ø Change<br />
£m £m %<br />
Sales<br />
(including value added tax) 6,324 5,820 8.7<br />
Operating profit 324 263 23.2<br />
Trading profit* 318 271 17.3<br />
Trading margin ‡ 5.7% 5.3%<br />
Asia performance<br />
<strong>2007</strong> 2006 ø Change<br />
£m £m %<br />
Sales<br />
(including value added tax) 4,707 4,660 1.0<br />
Operating profit 241 229 5.2<br />
Trading profit* 246 238 3.4<br />
Trading margin ‡ 5.6% 5.4%<br />
† Adjusted for IAS 32, IAS 39, the net difference between<br />
the IAS 19 income statement charge <strong>and</strong> ‘normal’ cash<br />
contributions for pensions, the Pensions Adjustment Finance<br />
Act 2006 <strong>and</strong> impairment of the Gerrards Cross site.<br />
* Trading Profit is an adjusted measure of operating profit<br />
excluding property-related items <strong>and</strong> replaces the IAS 19 income<br />
statement charge with ‘normal’ cash contributions for pensions.<br />
‡ Trading Margin is calculated using sales excluding value<br />
added tax.<br />
ø Results for the year ended 25 February 2006 include 52 weeks<br />
for the UK <strong>and</strong> the Republic of Irel<strong>and</strong> <strong>and</strong> 14 months for the<br />
majority of the remaining International businesses.<br />
This Operating <strong>and</strong> <strong>Financial</strong> Review (OFR)<br />
analyses the performance of the <strong>Tesco</strong> Group<br />
in the financial year ended 24 February <strong>2007</strong>.<br />
It also explains other aspects of the Group’s<br />
results <strong>and</strong> operations, including strategy<br />
<strong>and</strong> risk management.<br />
Long-term strategy<br />
<strong>Tesco</strong> has a well-established <strong>and</strong> consistent<br />
strategy for growth, which has allowed us to<br />
strengthen our core UK business <strong>and</strong> drive<br />
expansion into new markets. Our four part<br />
strategy to diversify the business was laid down<br />
in 1997 <strong>and</strong> has been the foundation of <strong>Tesco</strong>’s<br />
success in recent years. The new businesses<br />
which have been created <strong>and</strong> developed over<br />
the last decade as part of this strategy now have<br />
scale, they are competitive <strong>and</strong> profitable –<br />
in fact, they make more profit than the entire<br />
Group did in 1997.<br />
The objectives of the strategy are:<br />
• to grow the core UK business;<br />
• to become a successful international retailer;<br />
• to be as strong in non-food as in food; <strong>and</strong><br />
• to develop retailing services – such as <strong>Tesco</strong><br />
Personal Finance, Telecoms <strong>and</strong> tesco.com.<br />
In 2006/07, <strong>Tesco</strong> has again delivered a strong<br />
performance, with all four parts of the strategy<br />
contributing. We have sustained good growth<br />
in the UK <strong>and</strong> coped well with the challenges<br />
of recovering competitors, rising costs <strong>and</strong> a<br />
cautious consumer background. In our international<br />
operations we have also made good progress,<br />
completing our largest ever programme of new<br />
store openings <strong>and</strong> weathered difficult conditions<br />
in some of our largest markets. In non-food,<br />
more customers are choosing to shop with us<br />
even in a period of more cautious consumer<br />
spending <strong>and</strong> we have launched <strong>Tesco</strong> Direct,<br />
which extends our reach in selling a broad range<br />
of products on the internet <strong>and</strong> via catalogue.<br />
Finally, our retailing services have delivered<br />
another good year, with tesco.com sustaining<br />
its rapid growth, <strong>Tesco</strong> Personal Finance making<br />
progress in challenging markets <strong>and</strong> Telecoms<br />
continuing to build its customer base strongly.<br />
28,280<br />
23,101<br />
33,557<br />
26,876<br />
41,819<br />
29,511<br />
43,137<br />
32,657<br />
SALES PERFORMANCE<br />
£m<br />
46,611<br />
35,580<br />
03 04 05 *06* 07<br />
7.7<br />
4.0<br />
GROUP<br />
UK<br />
*Including 60 weeks<br />
International<br />
16.3<br />
14.2<br />
6.7<br />
03 04 05<br />
06<br />
UK SALES GROWTH %<br />
TOTAL<br />
11.9<br />
9.0<br />
10.7<br />
7.5<br />
LIKE-FOR-LIKE<br />
53rd WEEK<br />
9.0<br />
5.6<br />
07<br />
3<br />
OPERATING AND<br />
FINANCIAL REVIEW