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-1 1 8 KDN NO: PP9914/10/2012(030812) CD 79998 CREDITANALYSIS CREDITANALYSIS =90 MALAYSIAN RATING CORPORATION BERHAD (Company No.: 364803 V) RRC 25 Sept’08 TESCO STORES (MALAYSIA) SDN BHD Annual Review - 2012 Facility 1 Date February 2013 Rating History February 2012 November 2010 December 2009 Facility 2 Date February 2013 Rating History February 2012 November 2010 December 2009 Issues Rating Action Affirmed Rating Action Affirmed Affirmed Affirmed Current Rating AAA(cg) /MARC-1(cg) Rating AAA(cg) /MARC-1(cg) AAA(cg) /MARC-1(cg) AAA(cg) /MARC-1(cg) Current Rating AAAID(cg) /MARC-1(cg) Rating AAAID(cg) /MARC-1ID(cg) AAAID(cg) /MARC-1ID(cg) AAAID(cg) /MARC-1ID(cg) Outlook Negative Outlook Stable Stable Stable Rating Action Affirmed Rating Action Affirmed Affirmed Affirmed Outlook Negative Outlook Stable Stable Stable RM3.5 billion Conventional and Islamic Commercial Paper (CP) and Medium Term Notes (MTN) programme: Facility 1 - Conventional CP and MTN Facility 2 - Islamic CP and MTN CP/ICP MTN/IMTN CP/MTN Tesco PLC CIMB Investment Bhd Standard Chartered Bank Malaysia Bhd Standard Chartered Bank Malaysia Bhd CIMB Trustees Berhad Standard Chartered Bank Malaysia Bhd Taufiq Kamal Ngiam Tee Wei Rajan Paramesran (603) 2082 2200 taufiq@marc.com.my teewei@marc.com.my rajan@marc.com.my 7 years 15 years 2 November 2007 Tenure Issue Date Guarantor Corporate Debt Joint Lead Arrangers Facility Agent Trustee Security Agent Contact Analysts Retail Publication Date: February 21, 2013 This credit analysis report is published in relation to the press announcement made on February 20, 2013.

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MALAYSIAN RATING CORPORATION BERHAD CREDIT ANALYSIS CORPORATE DEBT/RETAIL Annual Review - 2012 TESCO STORES (MALAYSIA) SDN BHD Major Rating Factors Strengths  Strong operationaland financial support from its parent, Tesco PLC.  Major player in domestic grocery retail market; and  Improving financial performance. Challenges/Risks  High debt level;and  Challenging operating environment in the Tesco group’s primary UK market. Rationale MARC has affirmed Tesco Stores (Malaysia) Sdn Bhd’s (Tesco Malaysia) RM3.5 billion Conventional Commercial Papers/Medium Term Notes (CP/MTN) Facility and Islamic Commercial Papers/Medium Term Notes (ICP/IMTN) Facility at MARC-1(cg) /AAA(cg)and MARC-1ID(cg)/AAAID(cg) respectively. The outlook for the ratings is revised to negativefrom stable. The ratings reflect the credit strength of the corporate guarantee provided by Tesco Malaysia’s parent company, UK-based Tesco PLC (Tesco), for the rated facilities. Tesco carries a public information rating of AAA from MARC based on the retailer’s strong global market position in grocery retailing, its longstanding operational track record and its geographical diversity. The revised outlook to negative is premised onthe increasing competitive pressures in Tesco’s primary UK marketfrom which it derives a significant portion of its revenue and earnings, the challenging UK retail market, and increasing group debt levels. MARC observes that Tesco Malaysia, a joint-venture between Tesco (70%) and Malaysian conglomerate Sime Darby Berhad (30%),has slowed its store expansion in 2012 following a brisk expansion programme since it commenced retailing operations in 2002.For 2012, TescoMalaysia added only two stores (2011: seven stores) which added about 0.27 million sq ft of retailing space, bringing its total store strength to 47with 9.67 million sq ft of retailing space.The slower expansion could beattributable to themore stringent regulatory environmentfor opening of new hypermarkets in Malaysia. Nonetheless, among major retailers in Malaysia, Tesco Malaysia retains a leading market position, with a current market share of about 11% in the highly competitive and fragmented domestic grocery retailing segment, characterised mainly by a low pricingstrategy.MARC views the retailer’s competitive strengths to be its strong brand recognition, its wide range of product offerings and its store locations in major urban and suburban areas. Meanwhile, MARC notes that parent Tescois scaling back onsome of its global retailing operations,and at the same timeincreasing its investmentsin theUK.In this respect, Tesco has sold a 50% stake in its 117store Japanese chain and is reviewing its 200-store US-based Fresh and Easy chain, both of which have continued to incur significant losses for the group over the years. Tesco’s UK operations,where it dominates the grocery retailing market with a 30% market share, have come under increasing competitive pressure in recent years and as such, the retailer is undertaking a partly debt-funded£1 billion (RM4.9 billion)investment programmeto revamp itsUK operations. However, group net debt reduced to £7.2 billion (RM35.6billion) in the first half of financial year ending February 25, 2013 (1HFY2013)(1HFY2012: £9.5 billion). For 1HFY2013, Tesco’s consolidatedrevenue grew by a marginal MARC Analysis Tesco Stores (Malaysia) Sdn Bhd 1

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1.57% to £32.3 billion (1HFY2012: £31.8 billion) while pre-tax profit declined by 11.64% to £1.7 billion (1HFY2012: £1.9 billion) due mainly to rising cost of sales and financing costs.Nevertheless, MARC notes that the group’s liquidity position remains adequate to meet its current financial obligations. The performance of the group’s Malaysian subsidiarywas strong in FY2012, registering a 120.77% increase in pre-tax profit to RM132.9 million (FY2011: RM60.2 million) on the back of a 12.16% growth in revenue to RM4.3 billion (FY2011: RM3.9 billion). The performance wassupported by slower growth in operating costs due to the improved scale of operations as well as higher other operating income of RM196.4 million (FY2011: RM163.7 million), which includes increased rental receipts fromexternal partiesrenting floor space at its larger stores. Tesco Malaysia’s cash flow from operations (CFO) rose sharply to RM509.9 million (FY2011: RM179.7 million) while free cash flow (FCF) turned positive to RM213.4 million on lower capital expenditure due to relatively few store openings in the year. MARC observesTesco Malaysia’s total borrowings, including intercompany advances,remained fairly static at about RM2.83 billionas at end-FY2012 (FY2011: RM2.85 billion) despite the RM340.0 million repayment on the IMTN in the year. This is because the repayments are met by a corresponding increase in inter-company loanswhich continue to be the main source of its IMTN repayments. Notwithstanding this, the debt-to-equity ratio (DE) improved to 13.57 times at end-FY2012 (FY2011: 20.48 times)as shareholders’ funds rose to RM208.8 million on improved earnings. Tesco Malaysia currently has a total of RM175.0 million outstanding MTNs with maturities amounting to RM65.0 million and RM110.0 million in June 2013 and September 2014 respectively, repayments of which are expected to be largely supported by the Tesco group. The negative outlook reflects the risk of the Tesco’s ratings being lowered if the group’s business and financial profile continue to deteriorate. The rating agency will revise the rating outlook to stable should Tesco be able to strengthen its credit metrics that are commensurate with the current rating band. Exhibit 1: Financial highlights of Tesco Stores (Malaysia) Sdn Bhd FYE February 2012 2011 Revenue (RM mil) 4,327.7 3,858.3 132.9 Profit before tax (RM mil) 60.2 CFO (RM mil) 509.9 179.7 CFO interest coverage (x) 3.64 1.59 Free cash flow (RM mil) 213.4 (355.6) Debt to equity (x) 13.57 20.48 Total assets (RM mil) 4,249.4 4,093.0 Source: Tesco Malaysia 2010 3,529.5 76.7 437.6 6.61 (145.3) 25.45 3,757.8 2009 3,296.9 54.7 197.9 2.30 (492.5) 44.61 3,353.2 2008 2,563.8 (37.7) 86.8 1.93 (285.9) 49.19 2,534.9 Exhibit 2: Financial highlights of Tesco PLC FYE February Revenue (£ million) Operating profit (£ million) Profit before tax (£ million) Operating margin (%) CFO (£ million) CFO interest coverage (x) Debt-to-equity (x) Source: Tesco PLC 2012 64,539 3,985 3,835 6.17 4,939 9.30 0.66 2011 60,455 3,917 3,641 6.48 4,853 7.90 0.67 2010 56,910 3,457 3,176 6.07 5,435 7.88 0.90 2009 53,898 3,169 2,917 5.88 4,522 8.05 1.23 2008 47,298 2,791 2,803 5.90 3,753 9.15 0.68 2 MARC Analysis Tesco Stores (Malaysia) Sdn Bhd

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BACKGROUND Tesco Stores (Malaysia) Sdn Bhd (Tesco Malaysia) was incorporated on July 24, 2000 to undertake retail operations in Malaysia. It is a 70%-owned subsidiary of UK-based Tesco PLC (Tesco), with 30% held by local joint-venture partner Sime Darby Berhad (Sime Darby). The first store was opened in Puchong, Selangor in 2002, and since then, Tesco Malaysia has expanded its store network at a fairly brisk pace. Located in densely populated areas along the west coast of Peninsular Malaysia, namely the Klang Valley,Penang and Johor, the retailer currently has 47 Tesco stores in eight West Malaysia states. In 2012, it added two new hypermarkets, one in Paradigm Mall, Petaling Jaya and another in Bandar Bukit Puchong. Exhibit 3: Corporate structure Source: Tesco Malaysia Tesco Malaysia mainly operates in the hypermarket format, deriving considerable financial and operational support from Tesco as well as expertise from its parent’s retailing experience. Tesco is the largest UK retailer, with a commanding market share in its primary UK market, and the third largest retailer in the world in terms of revenue. As at August 25, 2012, Tesco has 6,612 stores located in 14 countries in the UK, Europe, Asia and the US. Tesco Malaysia’s other shareholder, Sime Darby, is Malaysia’s largest multinational conglomerate, with significant business activities in plantation, property, industrial, motors, and healthcare, and operations in more than 20 countries. INDUSTRY RISK ANALYSIS Malaysian Retail Outlook The domestic retail industry is fragmented, with sales of goods and services for personal and household usage undertaken by a wide range of retail outlets. These are generally located in shop-houses and retail malls. Sales are also undertaken through direct selling. Consumables that are sold are generally categorised as impulse products (i.e. cigarettes, prepaid mobile phone reload cards), durable goods (i.e. refrigerators, cars and smart phones) and non-durable goods (i.e. toiletries, beverages and grocery items). The major locally owned urban grocery retail chainsinclude Mydin, Econsave and 99 Speedmart,while Tesco Malaysia, Giant and Carrefour are the major foreign-owned grocery retail chains in Malaysia.These players have expanded rapidly in tandem with the urbanisation trend in the country.However, the government, through its Ministry of Domestic Trade and Consumer Affairs, closely regulates the retail industry and imposes stringent guidelines on expansion policy. In general, retail sales growth is closely linked to consumer sentiments, which are in turn driven by the strength of the economy.MARC forecasts the Malaysian GDP to grow by 5.3% in 2013 from an expected 5.0% in 2012. 3 MARC Analysis Tesco Stores (Malaysia) Sdn Bhd

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Consumer sentiment index reflects sustainable retail growth prospects The Consumer Sentiment Index (CSI), which gauges consumer spending patterns in the country, has steadily improved since the financial crisis in 2008/2009 on the back of government stimulus packages. As at 2Q2012, the CSI was 114.9 (1Q2012: 114.3), supported by a recent salary hike for government civil servants, the implementation of a minimum salary wage scheme, as well as various incentives, including cash payments to households with monthly income below RM3,000. Moderating these factors are the imposition of stricter guidelines on credit card spending and consumer loans by the central banks. While this is expected to impact consumer spending, the retail industry is projected to achieve a moderate 6.0% growth in 2012 compared to 8.1% in 2011 according to Retail Group Malaysia, although grocery retailing is expected to be relatively more resilient. Exhibit 4: Consumer sentiment index of Malaysia and private consumption year-on-year % change Source: MIER Increasing competition among retailers Although Malaysia’s retail sector is fragmented, traditional stores such as sundry stores dominate small towns andrural areas while non-traditional outlets such as supermarkets and hypermarkets have widespread presence in urban areas. In recent years, non-traditional outlets have steadily increased their combined market share, accounting for 50% to 55% of the total retail industry sales. The trend has exerted competitive pressures on traditional grocery retailers. Availability of retail space The availability of ample retail space in retail malls in urban and suburban areas has been a contributing factor for the growth of domestic retailing, in particular chain stores and franchises. Retail space has grown sharply in recent years, standing at 125.2 million sq ft as at June 30, 2012, of which the Klang Valley accounted for 48 million sq ft (or 38.3%). The current occupancy level of around 80% is expected to decline as sizeable retail space comes onstream in the near term. In terms of shop lots, an incoming supply of about 53,000 units nationwide to add to an existing 314,800 units as at end-2011 is expected to provide significant space to retailers seeking to expand operations. UK Retail Outlook Given that Tescogenerates about 66% of its revenue from its UK operations, the country’s economic growth prospects are crucial to the group’s performance. The UK economy continues to bemired in weak growth due to the imposition of austerity measures and a prolonged economic downturn in the Euro zone. While GDP grew by 1% in 3Q2012 following three quarters of negative growth, UK’s central bank, the Bank of England, has stated that this was a one-off growth and has predicted a decline in 4Q2012, 4 MARC Analysis Tesco Stores (Malaysia) Sdn Bhd

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forecasting a growth of only 1% for 2013. The bank expects sluggish growth for the next two years. Amidst weak economic growth, the UK is likely to see annual volume growth of not more than 1% (as compared to China). Additionally, retailers face challenges such as changes in consumer shopping habits such as using discount stores and convenience stores instead of big-box format stores. Exhibit 5: UK GDP growth in 3Q2012Exhibit 6:UK and China’s retail growth forecast Source: ONSSource: Economist Intelligence Unit BUSINESS RISK ANALYSIS Tesco Malaysia Domestic market share Exhibit 7: Malaysian grocery market share distribution Source: Tesco Malaysia Given the fragmented nature of Malaysia’s grocery retailing, independent supermarkets, grocery stores and market stall operators holda combined 63% share as at July 2012. The remaining market share is split among major grocery chain operators but increasing competition fromsmaller players such as Mydin and 99 Speedmart has slightly reducedmajor players’ market shares. Tesco’s grocery retailing market share declined to 11% as at July 2012 (2011: 12%), and any meaningful improvementcould be challenging in the prevailing retailing environment. Nonetheless, the strong awareness of the Tesco brand, its good reputation among consumers and its measured pace of store expansion to areas with high demographic growth would offer sufficient buffer to sustain its leading market position. 5 MARC Analysis Tesco Stores (Malaysia) Sdn Bhd

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Market strategy Exhibit 8: Tesco Malaysia brands Categories Description Tesco Value Cheapest in price due to simple packaging allows for more savings Tesco Choice Developed to compete with leading brands but at a cheaper price Tesco Light Healthy range for consumers concerned about their dietary needs Tesco Finest Premium product range with the finest ingredients Source: Tesco Malaysia Tesco Malaysia offers around 16,000 food and 58,000 non-food products catering to different market segments. Its retail in-house productsare segregated according to demographic pricingas shown in Exhibit 8. The retailer undertakes market research on consumer spending trends, frequent promotions in the media and pursues a competitive pricing strategy for its products. A significant proportion of its products are in-house brands that are both manufactured/developed locally as well as imported. For locally developed Tesco-branded products, the retailer is able to offer tier-pricing to its customers. With a view to promote customer loyalty, in addition to the current Tesco Clubcard,Tesco Malaysia has expanded credit/debit card facilities in collaboration with RHB Bank Berhad through which customers are rewarded based on their spending habits. Expansion expected to be limited Exhibit 9: Tesco Malaysia’s new stores in 2012 Store name Location Paradigm Petaling Jaya, Selangor Bandar Bukit Puchong Puchong, Selangor Source: Tesco Malaysia Opening date June 2012 November 2012 The two hypermarkets that opened in 2012 added 264,932 sq ft to Tesco Malaysia’s net usable area. This followed the seven openings in the preceding year. However, any expansion in the near term could be limited due to stringent guidelines imposed by the governmenton opening of new hypermarkets. ISSUE STRUCTURE RISK ANALYSIS Credit Risk Tesco Malaysia’s ratings are underpinned by the irrevocable corporate guarantee extended by its parent company, Tesco. Rollover Risk The Commercial Papers (CP) and Islamic Commercial Papers (ICP) are not underwritten; although no CPs/ICPs are outstanding at the date of this report, Tesco Malaysia may be exposed to short-term liquidity risk upon issuance of CPs/ICPs in the future if it is unable to roll over the CPs and the ICPs on their respective maturity dates. However, this risk is mitigated by Tesco’s financial standing, augmented by an internal understanding that the parent company will provide the necessary liquidity via intercompany loans to Tesco Malaysia should there be no takers for the CPs and/or ICPs or if the profit rate is deemed unfavourable. Refinancing Risk The programme is exposed to refinancing risk at maturity of each issuance as there is no sinking fund available or mechanism to ensure adequate money is available for profit and principal repayments. As a group financial policy, Tesco’s subsidiaries are expected to be self-sufficient in meeting its financing costs from operating cash flows. In this regard, Tesco Malaysia’s cash flow from operations (CFO) interest coverage is comfortable at 3.64 times as at FY2012. MARC opines that Tesco Malaysia will continue to rely on related companies within the Tesco group to support principal repayment. MARC Analysis Tesco Stores (Malaysia) Sdn Bhd 6

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