Tesco 1998 Annual Report Download - page 4

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Northern Ireland and Republic of Ireland
In May 1997 we acquired the food retailing businesses in
Northern Ireland and the Republic of Ireland of Associated
British Foods Plc for £643m. In the year, these businesses
contributed £1,110m to Group sales and £49m to operating
profit, more than offsetting the attributable funding cost of
£38m.These profits are in line with our prediction at the time
of the acquisition. Integration and reorganisation costs and asset
write-offs totalling £95m have been charged to the Group
results this year.
In Northern Ire l a n d , total sales increased by 4.3% on the
comparable period last year. Like-for-like sales were up 5.0%
including volume growth of 7.5%.The poor like-for-like sales
performance at acquisition of minus 5% has been substantially
improved and at the year end was ahead by around 20%.This
performance reflects the launch of Tesco products across the
whole range, the introduction of Clubcard and the store refit
programme. Sixteen stores have been re-opened as Tesco already
and we are currently refitting one store every week.
In the Republic of Ire l a n d , we have listened to customers and
established plans to improve the offer and grow the business,
whilst honouring our commitments to staff and the Irish
government. So far we have introduced Clubcard, improved
service, lowered prices and introduced more products including
Tesco brand – made in Ireland. We have also started to improve
the stores and open new ones. Eleven re-branded stores have
already been opened and a further six refits are under way. We
have also opened a new 30,000 square-foot Tesco store at
Athlone. All of this activity has met with a good response from
customers. Total sales have increased by 7.7% on the comparable
period last year, including like-for-like sales growth of 4.5%. By
the end of the year, like-for-like sales were up by around 14%.
Our initial progress has been encouraging and we are on track
with our plan to generate good profits and returns from these
businesses.
Europe
We completed the disposal of our food retailing business in
France, Catteau S.A., to Promodes S.A. on 24 February 1998 for
£250m. After adding back goodwill of £135m to net assets of
£115m, we recovered our investment prior to exit costs of £8m.
In the year, Catteau contributed £600m to Group sales including
VAT and made a small operating loss of £2m.
In Central Euro p e, our aim is to become a major retailer and to
participate in the steady growth in consumer demand and
expenditure that is expected to occur as these economies develop.
We are investing early, to grow the business by opening large
stores. So far we have opened two hypermarkets in Hungary,
including an 86,100 square-foot store in November 1997 at
Fogarasi in Budapest. Initial trading at this store and the Polus
store, opened in 1996, is encouraging. These two stores already
account for over half of our sales in Hungary. In the year ahead
we will open six hypermarkets including a further three in
Hungary, two in the Czech Republic and one in Poland. In total,
we will add around 600,000 square feet of new space – almost as
much as we will open in the UK.
Total Central Europe sales rose by 28.6% to £288m (1997 –
£224m) reflecting a full year’s contribution from our businesses
in the Czech Republic and Slovakia and our two new stores in
Hungary. The initial period in these emerging markets is
characterised by substantial investment in new stores and the
infrastructure needed to support them which will naturally hold
back profits in the short term.The operating loss of £1m
L i ke - fo r - l i ke sales performance since acquisition %
reported in the year to 31 December 1997 will rise to around
£13m in the year ahead. We are building a business for the longer
term in this region, our early trading experience is encouraging
and we are on track.
Central European sales performance
Existing stores Total stores
sales growth sales growth
Sales (in local currency) (in local currency)
£m % %
Hungary 78 23.9 80.5
Poland 34 41.2 99.4
Czech Republic 96 6.4 6.4
Slovakia 80 13.9 13.9
Total 288
Operating and financial review
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R e p u blic of
I re l a n d N o rthern I re l a n d