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Tesco PLC TSCO
Q1 2013 Earnings Call Transcript

Transcript Call Date 06/05/2013

Operator: Good morning and welcome to the Tesco Q1 Call. Throughout this call, all participants will be in a listen-only mode and afterwards there will be a question-and-answer session. Just to remind you, this conference call is being recorded.

Today, I'm very pleased to pass you over to Philip Clarke, Chief Executive Officer. Sir, please begin your meeting.

Philip Clarke - Group Chief Executive: Good morning, everyone. Thank you for joining our conference call. I'm joined by Chris Griffith and by Laurie McIlwee, our CFO. I'll keep my opening remarks brief before we hand over to you for your questions. It is only seven weeks since we laid out our approach for growth and returns for the Group and we started the year on track. You'll remember I described the first priority for the Group as continuing to invest in a strong business and we've made further progress on our plans to Build a Better Tesco in the U.K. in the first quarter.

Clearly, the home market has been subdued and our performance reflects this. We have, though, continued to deliver improvements in every part of our offer and customers are appreciating these with perception scores increasing on all of our key measures.

But our headline performance has been held back by two factors. Firstly and most significantly, the accelerating work we're doing on general merchandise has been a bigger drag on our performance than it was in Q4. You know this is all due to our overexposure to categories such as consumer electronics, but it's now starting to affect our strategy to migrate to higher margin, higher growth categories. We have a lot more to do in this area, including the repurposing of space in many of our stores, which we'll start imminently and so we expect the drag to continue. It's, of course, the top line drag rather than the bottom line drag as you know.

Secondly, our performance wasn't helped by the horsemeat contamination. Although only four of our products were affected, of course, still four are too many, we were linked to the issue early on. As such, we ended up being impacted more than other retailers, even those who had many, many more products affected. Although the overall impact was relatively small and difficult to quantify, it's notable that the two categories that are linked to the contamination, chilled convenience and frozen foods, are the only two food categories where our performance was lower in Q1 than in the last two months of last year. Happily, sales in these categories have picked up in recent times and the work we've begun many months ago to move to more collaborative longer-term contracts with suppliers and the farmers has been accelerated by our focus in this area to great effect.

I mentioned the widespread improvements in customer perception scores earlier. The area we're seeing most dramatic improvement in the first quarter is price and specifically trust in price. Price Promise has been warmly welcomed by customers across the U.K., as it was when we launched it in Northern Ireland last year as a way of alignment to (lead price with the door) and not to worry about losing out if their favorite products happen to be a few pence cheaper elsewhere on any particular shopping trip. I'm pleased to say we got many more improvements planned for the coming months across the offer in the U.K. and we're confident that these two will contribute to improving performance.

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