Tesco 2015 Annual Report Download - page 14

Financial review
Alan Stewart
Chief Financial Officer
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of our financial statements
The reported year has been both an extremely challenging year for Tesco and a
year in which we began a process of considerable change. Against this backdrop
we delivered sales of £70bn in 2014/15, (1.3)% below last year on a 52 week basis
at constant currency. Trading profit declined by (58.1)% to £1.4bn principally as a
result of a fall in like-for-like sales, the accumulated costs of inefficiencies within
our operations and the changes we have made in the second half to stabilise the
business. Our statutory loss before tax was £(6.4)bn, after charging one-off items of
£(7.0)bn. Of these one-off items, £(0.6)bn will result in a direct cash outflow, with the
remaining amounts being non-cash adjustments to balance sheet carrying values.
Protecting and strengthening
our balance sheet
Upon our arrival as a new management
team we identified protecting and
strengthening the balance sheet as one
of our three priorities. This resulted in a
number of steps to begin to address our
balance sheet leverage of £(21.7)bn, which
we define more broadly to include net debt,
discounted rent or lease commitments and
our IAS 19 net pension liability:
• Liquidity and funding: We have
underpinned our liquidity and funding
position with access to £5bn of credit
facilities, which remained undrawn
at the year end. These facilities are secure,
multi-year credit lines ensuring we have the
flexibility to address our three immediate
priorities over an appropriate timeframe.
• Capital expenditure: In 2014/15
we reduced our capital expenditure
from £2.7bn to £2.0bn. Based on a
comprehensive analysis of the Group’s
requirements we expect to further reduce
our capital expenditure to £1.0bn in 2015/16,
net of disposals, without adversely affecting
our business.
• Dividends: Following the reduction
in the interim dividend, the Board has
recommended not to pay a final dividend.
• Pension: A plan to fund the deficit
has been agreed with the Trustee
with a payment of £270m per annum
and we are consulting with our colleagues
to replace our defined benefit pension
scheme with a defined contribution scheme.
• Property: We have undertaken a detailed
review of our property portfolio, including
where appropriate to review our lease
commitments. In addition we have taken
the difficult decision to close 43 unprofitable
stores and not to proceed with 49 new
store developments. In March 2015 we
also announced an asset swap with British
Land, regaining sole ownership of 21
superstores and reducing our exposure
to indexed rent reviews.
• Portfolio: In October we said that we would
review our portfolio. To date, this process has
resulted in the sale or the closure of Blinkbox
and Tesco Broadband and the appointment
of advisors to review our options for
dunnhumby. This process is on track.
In 2015/16, we will retain our focus on
financial discipline.
Enhanced disclosure
Restoring trust and transparency is also one
of our three priorities and part of this objective
will be met by progressively enhancing our
disclosure. In this review we provide greater
clarity around commercial income and the
valuation and ownership of our property. The
Notes to the accounts also include enhanced
disclosure of segmental assets (in Note 2 on
page 94), net debt (in Note 30 on page 135),
JVs and associates (in Note 13 on page 110)
and operating leases (in Note 34 on page 137).
Importantly, for 2015/16 we will also move to a
simpler profit measure based on operating profit
adjusted only for large and distorting impacts.
Group results 2014/15 (on a continuing operations basis)
On a continuing operations basis 2014/15
52 week
% change**
(actual exchange
rates)
52 week
% change**
(constant exchange
rates)
53 week
% change
(actual exchange
rates)
Group sales (including VAT)*£69,654m (3.0)% (1.3)% (1.7)%
Sales growth excluding fuel (3.2)% (1.3)% (1.9)%
Group trading profit £1,390m (58.2)% (57. 5)% (58.1)%
–UK £467m (78.8)% (78.8)% (78.7)%
–Asia £565m (18.4)% (15.3)% (18.4)%
–Europe £164m ( 31.9)% (31.1)% (31.1)%
–Tesco Bank £194m 0.0% 0.0% 0.0%
Underlying profit before tax £961m (68.4)% (68.5)%
Statutory loss before tax £(6,376)m n/a n/a
Underlying diluted earnings per share 9.42p (70.5)% (70.6)%
Diluted losses per share (70.24)p n/a n/a
* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13 (Customer Loyalty Programmes).
** 52 week growth rates exclude week 53 (the 7 days ended 28 February 2015) for the UK and Republic of Ireland.
12 Tesco PLC Annual Report and Financial Statements 2015