Tesco 2014 Annual Report Download - page 9

Our work, however, to refresh seven of
our largest stores, including our stores in
Dongsuwon and Yuseong, has delivered
encouraging results. We also continued to
grow our convenience portfolio, with the
opening of 71 ‘365 plus’ franchise stores.
We have had a challenging year in
Thailand, reflecting the impact of the
recessionary conditions on consumers
and the political unrest. Thailand is one
of our largest international markets and
we have implemented a strong plan to
improve our offer. We have continued to
build a strong multichannel business,
growing our grocery home shopping
and convenience businesses to almost
1,400 convenience stores.
In Malaysia, our performance has been more
resilient. We opened two new stores during the
year and grew our grocery home shopping
business in its first year of operation.
In Europe, we faced weak momentum
running into the start of the year and the
challenges were common across our
markets with larger stores under-performing.
Addressing these challenges we have
tailored our plans in each market to provide
a more compelling fresh offer, focusing on
seasonal events and leveraging our sourcing
scale and supply chain capability. We have
also used our strengths in Clubcard and F&F
to drive further improvements in our offer for
customers. Turkey in particular has faced very
challenging economic and competitive
conditions and our focus is on finding a
profitable model for a country with excellent
long-term potential. We are in early stage
discussions with potential partners and,
should that not prove successful, we also
have a range of realistic alternative options.
An excellent example of our strategy in action
is our partnership with China Resources
Enterprise Ltd. Subject to the usual regulatory
approvals, it will give Tesco a 20% ownership
stake of the largest food retail business in
China. The joint venture, which will be
self-funding going forward, will secure
significant cost and operational synergies,
and will move us more quickly to profitability in
what is one of the world’s most exciting retail
markets alongside an expert local partner.
We have entered into an agreement with
Trent Limited, part of the Tata Group, to
form a 50:50 joint venture with Trent
Hypermarket Limited, developing our
presence in the Indian market.
We firmly believe that our partnerships in
both China and India will allow us to capitalise
on these enormously exciting markets in a
way which is disciplined in our use of capital
and focused on profitable growth.
2014/15: to provide market-leading delivery
pricing, twice the number of Click & Collect
locations, including alternative locations such
as London tube stations, and added-value
products and services, including Tesco Bank’s
current account and digital wallet.
In the medium term, we will offer one-hour
delivery slots to the whole of the UK, for
non-food as well as food, and for third-party
sellers as well as our own products. By doing
so, we will effectively create an e-commerce
infrastructure not just for Tesco but for others
as well. It is because we have the potential
to innovate on this scale that we believe
your company will emerge a winner in the
coming multichannel world of retailing.
3. Pursuing disciplined international
growth
Last year, I described our international
markets in three cohorts:
•South Korea, Malaysia and Thailand –
markets with significant future potential
•Ireland, Czech Republic, Hungary,
Poland and Slovakia – markets where
we are focused on holding our position
and improving returns
•China, India and Turkey – markets where
we know we must refocus on a more
profitable approach to growth
Through our international businesses we
have the opportunity to create value for
customers and shareholders by leveraging
the know-how that we have gained from
nine decades of retailing in addition to using
our scale to better effect across the Group.
As well as doing even more to improve our
customer offer across all our markets, we’ve
taken action to ensure that this value is
realised across each of these three cohorts.
In line with our third strategic priority, we
have applied an even greater level of capital
discipline. While we continue to allocate
capital to markets where we see greatest
potential for growth, our investment is lower
than previous years and will fall even further
as part of our commitment that Group-wide
capital expenditure will be no more than
£2.5 billion for at least the next three
financial years. We are spending more on
our existing space due to our accelerated
refresh programme, we are maintaining
our level of spend on technology and we’re
spending significantly less on new space.
Taking our Asian businesses first, we have
a strong position in South Korea and it
remains a high-returning business for us,
but the sales trends have not been as we
would have wanted them to be in the last
two years. The regulatory restrictions on
store opening hours have continued to
impact our sales.
“ Through our international
businesses we have the
opportunity to create
value for customers
and shareholders by
leveraging the know-how
that we have gained from
nine decades of retailing.”
06 Tesco PLC Annual Report and Financial Statements 2014
Report from the Chief Executive continued