Tesco 2013 Annual Report Download - page 6

2Tesco PLC Annual Report and Financial Statements 2013
Chairman’s statement continued
The Board also has been reshaped during the year. We now have
a smaller Board, of ten, with a different balance of Executives and
Non-executives. Three Executive Directors – Andrew Higginson,
Tim Mason and Lucy Neville-Rolfe – have left the Board since our last
Annual Report and we are grateful for all that they have contributed
to Tesco over many years. The Group Executive Committee rather
than the Board is now the focus of operational business oversight,
allowing the Board to focus on a more strategic agenda.
We have also seen Karen Cook and Ken Hydon, two long-serving
Non-executives, retire after nine years on the Board and we extend
our thanks to them for their contributions. Liv Garfield, Chief
Executive of BT Openreach, joined the Board as a Non-executive
Director on 1 April 2013.
Laying the foundations for future growth
As immediate operational business issues are addressed, our
attention can turn increasingly to the strategic judgements that will
determine Tesco’s prosperity and value for shareholders over the
next decade. Our strategic choices are defined by three parameters:
the strength of the Tesco brand; the internet and all the associated
developments it is driving; and the potential to leverage our skill and
scale internationally.
All retailers must decide how to position their businesses relative
to the rapid development of the internet which, together with social
media, is changing both how consumers choose to shop and what
they expect from a retailer that aspires to serve them. This creates
both opportunities and challenges which Tesco needs to understand
and respond to, both in terms of offering more diverse ways for
customers to shop and by forging more personal, customised
relationships with its customers.
Internationally, we have the potential to create value for shareholders
by leveraging our skill and scale into relatively high-growth economies
with less well-developed retail sectors. The key to unlocking this
value is discipline in how opportunities are approached and flexibility,
drawing on the lessons of experience, in how they are developed.
At the same time, and driven by many of the same factors,
brand and reputation will become ever more critical points of
differentiation as the internet continues to broaden access and
choice for consumers, and as consumers themselves develop
expectations about levels of choice, service and, increasingly,
behaviours that match their own values and aspirations.
Against this background, the investment choices we make over
the next few years as we develop Tesco as an international
multichannel retailer with strong brands and a distinctive identity
appreciated by customers, are and will continue to be critical
judgements for the Board as it seeks to secure long-term returns
for shareholders.
We will approach these choices within a framework of rigorous
capital discipline. A company like Tesco will often appear to have
multiple short-term opportunities to invest, but sustained returns
depend on a rigorous judgement about both the quantum and
allocation of capital over time. As we made clear in our Preliminary
Results announcement in April, this is a discipline that now informs
all that we do.
Financial results
The financial results for the year reflected the steps being taken
to ensure that we can deliver sustainable and attractive returns and
long-term growth for shareholders. Hence, while we continued
to see sales growth, of 1.3%, Group trading profit was down (13.0)%
on last year and underlying profit before tax down by (14.5)%,
reflecting our previously announced investment in the shopping trip
for customers in the UK, in addition to the impact of regulatory
restrictions on opening hours in South Korea and the effects of
deteriorating economic conditions, particularly in Central Europe.
Statutory profit before tax fell by (51.5)%, due to the impact of a
number of significant but one-off charges related to the important
steps we are taking to reshape the business, including a write-down
of our UK property following an in-depth review of our forward
pipeline, our exit from the US and goodwill impairment of businesses
in Poland, Czech Republic, and Turkey.
Return on capital employed (‘ROCE’) decreased during the year
as expected, reflecting the impact of the decline in trading profit
as described above. Prior to the impact of one-off charges, Group
ROCE was 12.7%. We continued our long record of strong dividend
payouts to shareholders, with the full year dividend maintained
at 14.76p.
I would like to extend my thanks, on behalf of the Board, to everyone
in Tesco who in an exceptional year has, as always, striven to
anticipate and meet the needs of our customers while all the time
retaining a sense of perspective, sometimes a sense of humour and
always a sense of respect for others. They are a great group of
people and we are lucky to have them.
Sir Richard Broadbent Chairman