Tesco 2009 Annual Report Download - page 24

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50%
25%
10%
15%
Tesco Personal Finance*
tesco.com
Telecoms
dunnhumby
22 REPORT OF THE DIRECTORS
Retailing services – profit contribution
* Assumes TPF is fully consolidated for the year.
This year has seen an increased focus on our strategy for growth in
retailing services – where we now have substantial, profitable businesses
with long-term potential both in the UK and internationally. At the time
of our announcement last July of our acquisition from RBSG of its
50% shareholding in TPF, we set a target to grow the profitability of
the services businesses from a little under £400 million in 2007/8 to
£1 billion during the next few years. We are committing more capital,
management and other resources to support this growth.
Tesco Personal Finance. We completed the acquisition of TPF on
19 December 2008, for cash consideration of around £950m. The
business is profitable and well-capitalised, which is a strong platform
from which to pursue our plans to develop TPF from a successful,
popular collection of financial products to a full-service retail bank in
the years ahead. The new team, combining experienced management
from Tesco and from the banking industry, is coming together well.
Their focus for the time being is on migrating systems and customer
support over to our own platforms, beginning the development of
a branch network in Tesco stores and growing the business, both
through existing and new products. Overall TPF has delivered a good performance, despite the challenging
conditions in its markets and the protracted period between the
announcement of the acquisition and its completion. The following
commentary on the performance of the business relates to the
TPF pro-forma income statement and actual balance sheet, which
can be found in our Preliminary Results Statement (appendix 1) at
www.tesco.com/investorcentre, covering the year to 28 February 2009.
 Profit. Underlying profit before tax, which excludes the amortisation
of intangible assets linked to the acquisition, was £244 million. This
performance was achieved against the background of an increase in
bad debts, particularly during the second half of the year, although
TPF’s bad debt experience remains significantly better than the
banking industry average. Profit before tax and minority interest was
£212 million, which was also a pleasing performance in the context of
the broader economic conditions. Under IFRS, we are required to
amortise intangible assets arising on acquisition. This non-cash
charge for the period was £32 million and we expect this to increase
to approximately £130 million in 2009/10 and reduce thereafter.
Total revenue was £949 million – generated by a combination of
interest income and fees. The key products generating interest income
(savings, loans and credit cards) all held up well in the current climate.
In fee income, there was good growth from both credit cards and the
ATM estate. Underlying costs included an increased investment in
Tesco Compare and the planned rise in overhead cost as the business
prepares for a faster rate of growth. Impairment losses on the cards
and loans portfolios increased in the second half against the
background of deteriorating market conditions.
Retailing Services continued
Tesco PLC Annual Report and Financial Statements 2009
1.5m
Tesco Personal Finance has over 1.5 million
car and home insurance customers.