Tesco 2007 Annual Report Download - page 13

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11
OPERATING AND
FINANCIAL REVIEW
•Tesco Malaysia has made excellent progress, moving
strongly through to profitability in the year, delivering
another year of very strong (over 50%) sales growth, and
achieving a near-doubling of space helped by the Makro
acquisition, which completed in January. Substantial refits
to the Makro stores have now begun, taking eight to nine
weeks per store to complete and involving significant
changes to layouts and ranges. We are developing a
good market position in Malaysia with a strong new store
programme in place for this year which will add a further
22% of space to our network.
• Political uncertainty in Thailand during the second half of
the year produced a difficult business climate. Nevertheless,
Tesco Lotus, which has a strong market position, again
performed well, delivering good growth in sales and profit.
The successful development and roll-out of new small
formats continues and to date, we have 370 stores trading
across four formats, including 75 hypermarkets (of which
17 are Value stores). We also have 266 Express stores
and 29 supermarkets which are proving very popular
with customers.
Europe Our rate of expansion in European markets stepped up
significantly in the year with 4.7m sq ft of new space added –
representing almost 30% growth. Successful regional initiatives
to strengthen our business – from pan-European purchasing
of own brand products and fresh produce to the introduction
of the Cherokee clothing range – have contributed to further
improvements in our competitiveness. Customer numbers
are up significantly and this is driving substantial market
share gains.
• In the Czech Republic, our business has grown by almost
two-thirds in the year and is now one of the leaders in the
market. We again delivered strong profit growth despite
competitive market conditions and the challenges of
integrating the Carrefour and Edeka acquisitions.
Conversion of the 11 Carrefour stores is almost complete,
we have a strong organic store opening programme which
will add some 13% to our space in the current year and we
have begun remodelling our department stores – with the
first, at Brno, performing well.
• We continued to make progress in Hungary but although
overall sales grew, profit performance was below budget.
The effects of Government austerity measures last August
on an already difficult economic and retail environment
have been severe. Consumer spending levels are
significantly down, with non-food categories particularly
affected. Despite these challenges we have a strong
market position which we have continued to strengthen
by lowering prices, expanding our store network and
developing our infrastructure. We opened 14 new stores
in 2006/07, including 10 hypermarkets, and we plan
to add 15% to our total space in the current year.
• Against the background of an improving economy and a
consolidating retail industry in Poland, we are making very
good progress, with rising sales, profits and returns. Sales
growth has continued to be strong, driven by sustained
improvement in existing store performance and a growing
contribution from new space. The development of our
1k (around 10,000 sqft), 2k and 3k store formats as part
of an enlarged opening programme is going well. The
acquisition of the Leader Price stores from Casino, which
was announced last July and completed in December has
accelerated our 1k format expansion and contributed to a
37% overall space increase in Poland. Leader Price stores
are being converted rapidly to Tesco with, on average,
25% sales uplifts.
•Tesco
Ireland delivered another excellent performance with
improved profits and another year of strong sales growth
in existing stores. Our new store opening programme
will be substantially bigger this year – with 240,000 sq ft,
representing growth of over 10%. The new 740,000 sq ft
distribution centre at Donabate, in north Dublin, opens this
month. Our competitive position is also strong and we’re
investing more for customers – for example, our largest
ever programme of price cuts in Ireland, which started last
spring, has been well-received.
• In Slovakia the success of our compact hypermarket format
and a strong economy have underpinned pleasing growth
in sales, profits and returns. We now have 25 such stores,
representing approaching half of our total space, with more
planned. We introduced our 1k format this year – opening
the first store at Vrable and we now have six trading with
nine more planned this year. Our organic expansion will
add around 15% to our space this year.