Tesco 2014 Annual Report Download - page 16

There is a £(540) million write-down of goodwill in our Chinese
business included in discontinued operations. This prudently
reflects the lower end of a range of independent valuations of
the proposed combination carried out in the second half of the
year for accounting purposes. These valuations were, as required
by the relevant accounting standards, produced on a standalone
existing basis for each business. As such, they do not take account
of the strategic value and significant synergies available once the
businesses are merged.
Segmental results
UK
Full-year sales in the UK declined by (0.1)% and grew by 0.8%
excluding petrol. Like-for-like sales declined by (1.3)% including
VAT and excluding petrol. This reflects the weaker grocery market,
lower inflation across the industry, a continuing drag from our
large stores and the work to transform our general merchandise.
UK results
£m % growth
UK sales £4 8 ,177m (0.1)%
UK revenue (exc. VAT, exc. impact of IFRIC 13) £43,570m 0.0%
UK trading profit £2,191m (3.6)%
Trading margin (trading profit/revenue) 5.03% (18)bp
Total sales for the year included a 2.1% contribution from new
space, lower than last year as we reduced our new store opening
programme. We expect it to be lower again next year.
Our full-year trading margin was 5.03%, a reduction of (18)
basis points. Trading margin in the first half increased by 2
basis points, but declined by (28) basis points in the second
half. This is reflective of our trading performance and our
determination to improve and strengthen the customer offer.
Asia
Although we have strong high-returning businesses in Asia
with leading market positions, their performance this year reflects
a number of challenges. Sales grew by 1.4% at constant rates,
including a 5.9% contribution from new stores as we continue
to invest in these growth markets. Like-for-like sales declined by
(4.5)% and our trading margin declined by almost 60 basis points
to 6.71%.
Asia results*
£m
Actual rates
% growth
Constant rates
% growth
Asia sales £10,947m 2.7% 1.4%
Asia revenue (exc. VAT, exc. impact of IFRIC 13) £10,309m 2.6% 1.4%
Asia trading profit £692m (5.6)% (6.8)%
Trading margin (trading profit/revenue) 6.71% (59)bp (59)bp
* Exc. China, with our subsidiary there now treated as a discontinued operation
following our agreement to partner with CRE.
Although we have annualised the introduction of the DIDA opening
hours regulations in South Korea, year-on-year changes in the days
and hours of the closures have continued to impact sales. We have
worked hard to mitigate the residual effects of the regulation by fully
aligning our operations to the current pattern of trading.
In Thailand, our performance has been held back by our own
execution as well as external pressures. We implemented a strong
plan, including steps to address some parts of our offer which
underperformed in the first half. This included the remerchandising
and remarketing of our ‘Clubpack’ range of bulk buy products,
a particularly important category for small traders who shop with us.
The Thai economy also fell into recession during the year and this
has since been compounded by the recent political unrest.
The full-year numbers for Asia benefited from currency, but in the
fourth quarter we saw a negative impact, driven by the Thai Baht.
Whilst it is difficult to predict currency movements going forward,
this impact has continued into the new financial year.
South Korea, Malaysia and Thailand remain markets in which
we see significant future potential and opportunities to invest in
high-returning stores. We have opened 2.1 million square feet of
new space in these markets this year, a reduction compared to the
2.3 million we opened last year. In the coming year we intend to
be even more focused with plans to open 1.2 million square feet,
with much of it in convenience.
Europe
Conditions in Europe have remained challenging this year, particularly
for our large stores. Sales declined (2.0)% at constant rates. Like-for-
like sales declined by (3.5)% excluding petrol. Our trading profit for the
region declined by (27.7)% at actual exchange rates to £238 million,
resulting in a 2.57% trading margin. Our decision to invest in the
shopping trip through price, quality, range and service resulted in a
stronger second half performance. The region’s like-for-like sales have
improved through the year, from (5.5)% in the first quarter to (0.6)%
in the fourth quarter.
Reflecting the year-on-year decline in the profits of our European
businesses, we revised our long-term budgets. These revisions
have resulted in the asset impairment of £(734) million to the
carrying value of these businesses.
Europe results
£m
Actual rates
% growth
Constant rates
% growth
Europe sales £10,767m (0.4)% (2.0)%
Europe revenue (exc. VAT, exc. impact of IFRIC 13) £9,267m (0.6)% (2.2)%
Europe trading profit £238m (27.7 )% (32.8)%
Trading margin (trading profit/revenue) 2.57% (96)bp (111)bp
Poland was a particular focus for us in the year and we are pleased
with the customer response to our plans, with an improved
like-for-like sales trend through the year.
Ireland has continued to be a difficult market this year with severe
pressure on consumer spending, strong competition from the
discounters and aggressive couponing activity. Although the launch
of Price Promise in the second half has helped improve customer
trust in our prices, and we have been working hard to show customers
the breadth and points of difference in our offer, our weaker trading
performance in this market has impacted on the profitability of our
European segment.
We have continued to focus on the heartland of our business in Turkey
and the stores there have contributed to a gradual improvement in
like-for-like sales over the year. Nevertheless, addressing our position
in Turkey is very much a priority.
We continue to be very disciplined in our allocation of capital to
Europe. We have reduced capital expenditure in the region by
nearly 40% this year, and expect to maintain a similar or lower
level of spend in 2014/15. Going forward, new investment will be
scarce and focused only on targeted opportunities, primarily in
convenience and online.
Other information
Governance Financial statementsStrategic report
Tesco PLC Annual Report and Financial Statements 2014 13