Personal Interview with Chief Executive Dave Lewis for UK business editors. What has Tesco achieved in 2015 to prove that companies culture is changing? I joined Tesco at a challenging time, the global market is more competitive than ever and our position internationally had at that time wavered. In addition, we had significant internal challenges, the commercial income issue identified in September was a significant blow. In light of this, we have cooperated fully with the Serious Fraud Organisations inquiries, and have worked to produce a programme of change across Tesco. We have spent 2015 rebuilding trust and transparency amongst our suppliers and our customers. We knew that this would never be a quick fix, and neither did we want it to be. Trust will instead be rebuilt through laying solid foundations for our future by following our three strategic priorities, and creating lasting changes that will reshape the future of Tesco. Why should stakeholders continue to invest in Tesco? Despite the challenges Tesco has faced in the past year, I have never once lost my belief in the company. The passion to do the right thing for customers is overwhelming, and their commitment to delivering the highest of standards is unrivalled. Yet we are aware of the reality of Tesco’s situation, we are publishing losses of 6.4bn for 2014/15. Largely as a result of a series of one-off charges representing our past performance. These results reflect the difficulties our business has faced over recent years, although we are also beginning to see promising signs from the changes we are making. We identified that we were incurring losses from more than twelve sites that we are no longer developing, these sites have now been sold, marking further progress on our strategic priority of protecting and strengthening our balance sheet. Our responsibility is now to focus on nurturing these signs of recovery and maintain the relationship with our customers, after all Tesco became a great business by putting our customers first and we shall continue to do this. Since the three key priorities where set how do you think Tesco is responding? Have there been any notable changes in your eyes? In October we set ourselves three strategic priorities and over the past few months we have worked hard to achieve these targets. In terms of our competitiveness I believe we stand strong in what is undeniably still a very challenging market,
therefore I feel that real progress is being made, and we continue to make huge achievements in this area. Our second priority of protecting and strengthening the balance sheet was surrounded by a number of extremely difficult decisions, not least, the sale of Homeplus in Korea. Homeplus has been a very valuable part of Tesco, yet its sale has allowed us to make a huge impact on the debts of the business, in turn allowing us to invest in other assets we have in Europe and Southeast Asia. Thirdly, the priority of building trust and transparency within the business, and the brand. We know that this will be neither a short or easy journey, yet we have done a lot within the past year to change our situation for the better. Our chief financial officer Alan Stewart, along with his team have worked hard to make information in the financial markets clearer and more transparent. A change that has been welcomed by both shareholders and investors, from these changes, trust has now grown, which is incredibly important.
Briefing note November 2015 For the attention of Christine Tacon, Groceries Code Adjudicator Tesco to propose economically sustainable deal with dairy farmers after milk price protest. Key messages: • Drive to simplify relationships with suppliers through a review of Tesco’s agreement with dairy famers. • Tesco to propose a new deal with dairy farmers after an uncertain summer for the agriculture industry. • Farmers have been contacted regarding new terms, including the review of prices quarterly and ranking suppliers according to performance. In 2007 Tesco established the Tesco Sustainable Dairy Group (TSDG). An organisation of 650 farmers who supply their products to our stores, one of the key purposes of this group has always been to ensure the prices paid to TSDG is fair. During 2015 we have seen a huge decline in the price of milk. According to data from the Agriculture and Horticulture Development Board, prices have hit 30-month lows. In light of this, Tesco is pursuing new deals with dairy farmers. We have written to members of TSDG outlining new terms which will include reviewing milk prices quarterly as opposed to every six months and using a system to rank suppliers, based on milk quality, animal welfare and environmental standards. These terms will be introduced from 1 February 2016. To guarantee this criterion we have a dedicated agriculture team at Tesco, who are accountable for creating and implementing our strict Livestock Codes of Practice. In addition, TSDG dairy farmers are now visited annually by an independent auditor.
Tesco will continue to ensure that TSDG farmers receive a price that accounts for the cost of production, using the costing system Promar. Enabling dairy farmers to become more sustainable and supporting their futures. This new price charts the fourth price increase since 2012, each of which have been agreed with the TSDG committee. At Tesco we understand we have a duty to provide an economically sustainable system to address not only short term, but also the longer term issues surrounding dairy farming. Striving to find the fairest way to deliver the best quality milk for our customers, whilst ensuring the highest standards of animal welfare. This new proposal aligns with the corporate values of Tesco, where we treat people how they want to be treated, using our scale for good, as one of the largest retailers in the world we endeavour to act responsibly and set an example for other retailers to follow, making British farming more competitive in order to encourage continuous improvement through the supply chain. Provided by: Dave Lewis, CEO Tesco, 15 November 2015.