TIDMTSCO
RNS Number : 7905B
Tesco PLC
05 October 2022
Interim Results 2022/23
ON TRACK AND DELIVERING FOR CUSTOMERS DESPITE TOUGH BACKDROP
.
Headline measures (1,2) : H1 22/23 H1 21/22(3) Change at Change at
actual rate constant
rate
Group sales (exc. VAT, exc.
fuel)(4) GBP28,178m GBP27,331m 3.1% 3.5%
Adjusted operating profit(5) GBP1,315m GBP1,458m (9.8)% (9.8)%
- Retail GBP1,248m GBP1,386m (10.0)% (10.0)%
- Tesco Bank GBP67m GBP72m (6.9)% (6.9)%
Retail free cash flow(6) GBP1,283m GBP1,543m (16.9)%
Net debt(2,6) GBP(10.0)bn GBP(10.2)bn (1.7)%
Adjusted diluted EPS(5) 10.67p 11.22p (4.9)%
Interim dividend per share 3.85p 3.20p 20.3%
Statutory measure s:
Revenue (exc. VAT, inc. fuel) GBP32.5bn GBP30.4bn 6.7%
Operating profit GBP736m GBP1,304m (43.6)%
Profit before tax GBP413m GBP1,143m (63.9)%
Retail cash generated from
operating activities GBP2,038m GBP2,267m (10.1)%
Diluted EPS 3.44p 10.70p (67.9)%
Strong trading performance built on consistent and competitive
offer, leading to strong retail free cash flow:
-- Retail(7) LFL sales up +3.2% following strong performance
throughout pandemic; 1-yr UK & ROI LFL reflects post-pandemic
normalisation & cost-of-living changes in customer behaviour;
strong Booker growth in catering & retail
UK ROI Booker UK & C.Europe Retail
ROI
1-yr LFL
sales 0.7% (0.1)% 13.9% 2.7% 10.4% 3.2%
3-yr LFL
sales 9.9% 12.1% 21.0% 11.5% 11.0% 11.5%
-- Statutory revenue GBP32.5bn, up +6.7% including strong growth in fuel sales
-- Total adjusted retail operating profit(5) GBP1,248m, down (10.0)% at constant rates
- UK & ROI adjusted operating profit GBP1,169m, down (11.5)%
mainly due to the impact of reduced YoY volumes as a result of
post-pandemic normalisation, in addition to net cost inflation and
our ongoing investment in the customer offer
- C.Europe adjusted operating profit GBP79m, up +19.1% as
volumes remained strong despite significant inflation
-- Bank adjusted operating profit GBP67m, down (6.9)% driven
primarily by up-front charges on new business
-- Statutory operating profit GBP736m, after GBP(626)m
non-current asset impairment charge driven by higher discount
rates
-- Strong retail free cash flow(6) GBP1,283m; YoY decline
reflects last year's exceptionally strong performance
-- Net debt(2,6) reduced by GBP0.5bn since February driven by
strong cash generation; net debt ratio stable at 2.5x
-- Adjusted diluted EPS(5) 10.67p, down (4.9)% due to lower
profit part offset by reduced tax; statutory diluted EPS 3.44p
-- Interim dividend of 3.85p, up +20.3%, in line with policy at
35% of prior year's full year dividend
Supporting customers through relentless focus on value:
-- Solid UK market share performance, in line with expectations
reflecting normalisation & with less inflation than market
-- Competitiveness of offer recognised by customers in a tough
market: Brand NPS now highest of the full-line grocers
-- Powerful combination of Aldi Price Match, Low Everyday Prices
and Clubcard Prices helping ease cost-of-living pressures, leading
to most competitive price index vs. limited-range discounters to
date
-- Helping customers spend less by eating-in, with +13% YoY
increase in Finest range; quality perception +208bps
-- Accelerating Save to Invest to help mitigate cost inflation;
c.GBP0.5bn this year & c.GBP1bn cumulative by Feb-24, 1 yr
early
Creating long-term, sustainable value for all Tesco
stakeholders:
-- Strong and ongoing focus on customer satisfaction, market
share and cash, ensuring we balance all stakeholder needs
-- Biggest single-year investment in colleague pay, in addition
to increase announced today for our UK stores; further support
includes extended discount allowance, increased access to hours
& free food in colleague rooms
-- Working together with supplier partners to mitigate
inflation, helping customers with unparalleled financial
pressures
-- Daily donations to support unprecedented foodbank demand in
our communities - over 20m meals provided in H1
-- Ongoing commitment to return capital; GBP450m returned to
shareholders since April; cumulative GBP750m since Oct-21
Footnotes can be found on page 4.
Ken Murphy, Chief Executive:
"We know our customers are facing a tough time and watching
every penny to make ends meet. That's why we're working
relentlessly to keep the cost of the weekly shop as affordable as
possible, with our powerful combination of Aldi Price Match, Low
Everyday Prices and Clubcard Prices, together covering more than
8,000 products, week in, week out. We're also investing
significantly in our colleagues, with a further boost to pay
announced today for our UK stores. I want to say a big thank you to
the whole Tesco team, and our supplier partners - together, we have
built a more resilient, consistent business that's well set up for
the future.
By staying laser-focused on value and sticking to our strategy
of inflating a little bit less and a little bit later, our price
position has got even more competitive. Customers are seeking out
the quality and value of our own brand ranges as they work to make
their money go further, whether they are switching from branded
products, between categories or cutting back on eating out.
As we look to the second half, cost inflation remains
significant, and it is too early to predict how customers will
adapt to ongoing changes in the market. Despite these
uncertainties, our priorities are clear. We have the right
long-term strategy and we will continue to balance the needs of all
of our stakeholders. Most importantly, we will stay focused on
delivering value for our customers and supporting them in every way
we can."
OUTLOOK .
In April, we provided a wider than usual range of profit
guidance for the 2022/23 financial year, given significant
uncertainties in the external environment. Since then,
post-pandemic normalisation has been compounded by cost-of-living
driven changes in customer behaviour. Cost inflation is significant
and we have continued to invest to support our customers and
colleagues. However, our solid trading performance and acceleration
of our Save to Invest programme have contributed to a strong
financial result for the first half.
As a result, despite ongoing challenges in the market, we are
able to maintain our profit guidance within our previous range,
albeit towards the lower end. We therefore expect full year retail
adjusted operating profit of between GBP2.4bn and GBP2.5bn.
Significant uncertainties in the external environment still exist,
most notably how consumer behaviour continues to evolve.
Our strong and ongoing focus on cash and a more positive
expectation on working capital leads to an upgrade in our
expectation for full year retail free cash flow to be at least
GBP1.8bn.
We continue to expect Bank adjusted operating profit of
c.GBP120m to GBP160m.
CAPITAL RETURN PROGRAMME .
In April, we committed to buying back a total of GBP750m worth
of Tesco shares by April 2023 as part of our ongoing capital return
programme. Since then, we have purchased GBP450m worth of shares
and will continue to purchase the remaining GBP300m worth over the
coming months.
This means that, by April 2023, we will have bought back a
cumulative GBP1.05bn worth of shares since the start of the
programme in October 2021.
STRATEGIC PRIORITIES .
Our strategic priorities help us support customers by offering
great value, quality and convenience, and rewarding loyalty, all of
which are paramount in the current environment. We have a unique
position through our reach and capability that makes us best-placed
to continue to deliver for all our stakeholders, through our
ongoing focus on customer satisfaction, market share and cash. Our
brilliant colleagues and the strength of supplier relationships
mean that we can serve our customers however they need us, whilst
also driving long term, profitable growth in the business.
Our multi-year performance and capital allocation frameworks
continue to guide our actions, creating sustainable, long-term
value for all Tesco stakeholders. We are making good progress
against our strategic priorities:
1) Magnetic value for customers - Re-defining value to become
the customer's favourite
-- Relentless focus on value for customers, supported by our market-leading combination of:
- Aldi Price Match: strongest price commitment in market; in 99%
of all large baskets and over 80% of top-up shops
- Low Everyday Prices: over a thousand everyday products now
locked at low prices until 2023
- Clubcard Prices: helping customers spend less on groceries,
clothing, general merchandise, Mobile & Tesco Bank
-- Ongoing price investment leading to most competitive position
vs. limited-range discounters to date
-- Strengthened premium offering, increasing Finest range +13%
YoY; quality perception +208bps YoY (vs market +77bps)
-- Strong relationships with suppliers recognised: No. 1 in
Advantage supplier survey for seventh consecutive year
-- Continued focus on sustainability: saved 12m pieces of
plastic/yr by removing multipack wrap from own brand drinks;
launched 'Better Baskets' helping customers make healthy &
sustainable choices without conceding on price; introduced eight
solar-powered refrigerated trailers and launched first electric
city-centre store delivery lorry
2) I love my Tesco Clubcard - Creating a competitive advantage
through our powerful digital capability
-- Clubcard satisfaction score up +505bps YoY; Clubcard
generosity perception score up +359bps YoY
-- Digital personalised rewards extended to 2.0m Clubcard
customers; 17.2m targeted in-app coupons issued to date
-- Clubcard sales penetration increased by +9.8ppts and
+18.6ppts in ROI & C.Europe YoY respectively
-- Number of customers accessing Clubcard via app now at 10m in
UK, 0.3m in ROI and 1.0m in C.Europe
-- Tesco Media & Insights platform powered by dunnhumby now
working with over 450 consumer goods brands
3) Easily the most convenient - Serving customers wherever,
whenever and however they want to be served
-- Online sales and orders both remain >50% ahead of pre-COVID levels
-- Leading online market share resilient at 35.9%, even as
overall online volumes continue to normalise
-- Continued roll out of Click & Collect sites, now within
25min drive of >70% of UK households; kerbside collection now in
180 Click & Collect locations
-- Fifth UFC opened in Rutherglen; fastest capacity ramp up to
date in just eight weeks; fulfilling >3,600 orders/wk
-- Opened 17 Tesco Express stores, 5 One Stop stores, 54 Booker
Retail Partner stores and 141 Premier stores
-- Continued roll out of 'Tesco Whoosh' superfast delivery
service, now in over 400 sites; plan to get to 800 by year end
4) Save to invest - Significant opportunities to simplify,
become more productive and reduce costs
-- Strong progress across all four streams: goods & services
not for resale, property, operations, & central overheads
-- Now expecting to deliver accelerated savings this year of
c.GBP500m, partially mitigating significant cost pressures
-- Seeking to deliver original three year plan 12 months early:
now targeting c.GBP1bn cumulative savings by end of Feb 2024
-- Simplified stock and replenishment routines rolled out in store, freeing up 47,000 hours
-- Additional self-service checkout roll out driving efficiency and improved customer experience
-- Improved ROI fleet utilisation, better C.Europe depot
utilisation and increased use of Bengaluru shared services team
GROUP REVIEW OF PERFORMANCE .
H1 22/23 H1 21/22(3) Total change YoY
26 weeks ended 27 August 2022(1,2) Actual Constant
rate rate
Group sales (exc. VAT, exc.
fuel)(4) GBP28,178m GBP27,331m 3.1% 3.5%
Fuel GBP4,278m GBP3,085m 38.7% 38.7%
Revenue (exc. VAT, inc. fuel) GBP32,456m GBP30,416m 6.7% 7.0%
Adjusted operating profit (5) GBP1,315m GBP1,458m (9.8)% (9.8)%
Adjusting items GBP(579)m GBP(154)m
Group statutory operating profit GBP736m GBP1,304m (43.6)%
Net finance costs GBP(325)m GBP(158)m
Joint ventures and associates GBP2m GBP(3)m
Group statutory profit before
tax GBP413m GBP1,143m (63.9)%
Group tax GBP(148)m GBP(313)m
Group statutory profit after
tax GBP265m GBP830m (68.1)%
Adjusted diluted EPS(5) 10.67p 11.22p (4.9)%
Statutory diluted EPS 3.44p 10.70p (67.9)%
Interim dividend per share 3.85p 3.20p 20.3%
Net debt (2,6) GBP(10.0)bn GBP(10.2)bn
Retail free cash flow (6) GBP1.3bn GBP1.5bn
Capex (8) GBP0.4bn GBP0.4bn
Group sales(4) increased by +3.5% at constant rates, with sales
growing across all segments following on from a strong performance
throughout the pandemic. Sales growth strengthened in the second
quarter as general market inflation increased, in addition to very
resilient demand in Central Europe and Booker. Revenue increased by
+7.0% at constant rates, including fuel sales growth of +38.7%
driven by inflation across the market and higher volumes.
Group adjusted operating profit(5) decreased by (9.8)% at
constant rates, reflecting the impact of post-pandemic
normalisation on food volumes and lower non-food sales following
high demand in the first quarter last year. We saw significant cost
inflation and some impact from a step up in own brand sales vs
branded ranges as customers took steps to manage the pressure on
their household budgets. These impacts were partially mitigated by
the acceleration of our Save to Invest programme, a strong Booker
sales performance, particularly in the catering business, and a
reduction in COVID-19 related costs year-on-year.
Group statutory operating profit reduced by (43.6)% year-on-year
due to the operating profit impacts above and an increase in
adjusting items, principally driven by a GBP(626)m non-cash
non-current asset impairment charge related to an increase in
discount rates this year.
Net finance costs increased by GBP(167)m year-on-year primarily
due to fair value remeasurements related to the mark-to-market
movement on inflation-linked swaps, which led to a GBP(75)m charge
this year compared to a GBP180m credit in the prior year. The
increase in our share of profit from joint ventures and associates
was due to an increase in profits from UK property joint ventures
and a reduction in losses generated by our joint venture in India.
The reduction in tax this year primarily reflects the reduction in
retail operating profits and a one-off charge in the prior year
related to the revaluation of deferred tax.
O ur adjusted diluted EPS(5) declined by (4.9)%, as the impact
of the year-on-year reduction in retail operating profits was
partly offset by a lower tax charge and the benefit of our ongoing
share buyback programme. We have announced an interim dividend of
3.85 pence per ordinary share, an increase of +20.3% year-on-year,
set in line with our policy at 35% of the prior full-year
dividend.
Net debt(2,6) reduced by GBP472m since the year end, driven by
strong cash generation and after the outflow relating to our
ongoing share buyback programme. We generated GBP1,283m of retail
free cash flow(6) , including a working capital inflow driven by
higher trade balances. This reflects a reduction of GBP(260)m
year-on-year due to an even higher working capital inflow last
year, driven by a sharp recovery in fuel and non-food volumes in
the UK. The net debt/ EBITDA ratio was 2.5 times, the same as at
the year end, as lower levels of net debt were offset by lower
Retail EBITDA.
Further commentary on these metrics can be found below and a
full income statement can be found on page 17.
Notes:
1. The Group has defined and outlined the purpose of its
alternative performance measures, including its performance
highlights, in the Glossary starting on page 45.
2. All measures apart from Net debt are shown on a continuing
operations basis unless otherwise stated. Further details on
discontinued operations can be found in Note 6 on page 32.
3. As previously reported in the Annual Report and Financial
Statements 2022, the Group has changed its accounting policy for
property buybacks, and comparatives have been restated (see Note 1
on page 23).
4. Group sales exclude VAT and fuel. Sales change shown on a
comparable days basis for Central Europe.
5. Adjusted operating profit and Adjusted diluted EPS exclude
Adjusting items as noted in footnote 1.
6. Net debt and Retail free cash flow exclude Tesco Bank.
7. Like-for-like is a measure of growth in Group online sales
and sales from stores that have been open for at least a year (at
constant exchange rates, excluding VAT and fuel).
8. Capex excludes additions arising from business combinations
and buybacks of property (typically stores), as well as additions
relating to decommissioning provisions and similar items.
Segmental review of performance :
Sales performance :
(exc. VAT, exc. fuel)(4)
Total sales change YoY
LFL sales Actual rate Constant rate
Sales change(7)
- UK GBP19,994m 0.7% 0.6% 0.6%
- ROI GBP1,237m (0.1)% (0.6)% 1.0%
- Booker GBP4,399m 13.9% 13.8% 13.8%
UK & ROI GBP25,630m 2.7% 2.6% 2.6%
Central Europe GBP2,008m 10.4% 5.9% 9.5%
----------------- ------------ ----------- ------------ ----------------
Retail GBP27,638m 3.2% 2.8% 3.1%
----------------- ------------ ----------- ------------ ----------------
Bank GBP540m - 24.6% 24.6%
----------------- ------------ ----------- ------------ ----------------
Group Sales GBP28,178m 3.2% 3.1% 3.5%
----------------- ------------ ----------- ------------ ----------------
Fuel GBP4,278m 38.4% 38.7% 38.7%
----------------- ------------ ----------- ------------ ----------------
Group Revenue GBP32,456m 6.9% 6.7% 7.0%
----------------- ------------ ----------- ------------ ----------------
Further information on sales performance is included in the
appendices starting on page 52.
Adjusted operating profit (5) performanc e:
Total change YoY Margin % Margin % change
Actual rate Constant Actual Rates Actual rate
Profit rate
UK & ROI GBP1,169m (11.3)% (11.5)% 3.9% (78) bps
Central Europe GBP79m 16.2% 19.1% 3.7% 26 bps
----------------- ----------- ------------ --------- ------------- ----------------
Retail GBP1,248m (10.0)% (10.0)% 3.9% (71) bps
----------------- ----------- ------------ --------- ------------- ----------------
Bank GBP67m (6.9)% (6.9)% 12.4% (422) bps
----------------- ----------- ------------ --------- ------------- ----------------
Group GBP1,315m (9.8)% (9.8)% 4.1% (74) bps
----------------- ----------- ------------ --------- ------------- ----------------
Further information on operating profit performance is included
in Note 2 starting on page 24.
UK & ROI overview :
In the UK & Republic of Ireland (ROI), like-for-like sales
increased by +2.7% on a one-year basis, driven by a strong
performance in Booker, particularly in catering, and solid
performances in the UK and ROI following on from strong growth
throughout the pandemic. On a three-year basis, sales in our UK
& ROI segment were up by +11.5%.
UK & ROI adjusted operating profit was GBP1,169m, down
(11.5)% at constant rates driven mainly by post-pandemic sales
normalisation, in addition to net cost inflation and our ongoing
investment in our customer offer.
Adjusted operating margin was 3.9%, (78)bps lower year-on-year,
reflecting a margin mix benefit last year from high non-food sales,
the impact of operating cost inflation in the current year and the
effects of our relentless focus on value for our customers.
UK - performance reflects relentless focus on value:
Our year-on-year trading performance in the first half continued
to be shaped by the effects of the pandemic. Like-for-like sales
declined by (1.5)% in the first quarter as we traded over a
lockdown in the prior year, which benefited from elevated food
sales, peak online demand and strong non-food sales. Like-for-like
sales strengthened in the second quarter, growing at +2.8%, as we
traded over a more normal period in the prior year and customers
continued to respond well to the strength of our offer. We also
benefited from the exceptionally warm weather and Platinum Jubilee
celebrations. Retail inflation gradually increased across the half,
although we continued to inflate behind the market to protect
prices for customers. Like-for-like sales grew by +0.7% for the
first half as a whole.
Food sales grew by +1.6% in the half, including the anticipated
unwind of elevated volumes as customer behaviour continued to
normalise post-pandemic. This was offset by the impact of
inflation, particularly in those categories most exposed to
fluctuations in commodity prices and global supply disruptions,
including bakery, dairy and grocery. We have started to see
tangible changes in behaviour as customers seek to manage higher
costs-of-living by seeking out the great value offered by our own
brand ranges. In addition to switching from branded products to own
brand ranges, we have also seen, for example, customers trading
from fresh products into frozen equivalents. Our own brand volume
participation increased by +80bps in the second quarter, with
particularly high switching in core grocery products. We increased
the distribution of Aldi Price Match lines by almost 17% as part of
our ongoing investment in the customer offer.
Although we continued to outperform the market in non-food,
sales declined by (6.0)% as we traded over exceptionally strong
demand and a higher full price sales mix linked to the lockdown in
the first quarter last year. Customer count increased across both
Clothing and Home, by +8% and +13% respectively.
We are laser-focused on providing great value for customers
through a combination of Aldi Price Match, Low Everyday Prices and
Clubcard Prices. We improved our price position even further
year-on-year despite significant input cost pressures, with gains
in important categories for customers such as produce and prepared
food. Through Clubcard Prices, we continue to offer customers
access to thousands of exclusive deals across all channels and
categories. Overall Clubcard penetration reached 75.4% by the end
of the half, up 4.6ppts, including an increase of 16.8ppts in
convenience stores.
The entire market has seen a contraction in customer perception
scores as a result of the challenging conditions faced by
customers. Against this backdrop, our Brand NPS is the highest
amongst the full-line grocers and we have increased our quality
perception score by over +200bps year-on-year. Compared to
pre-pandemic, we continue to have the strongest perception gains in
the market in brand (+632bps), quality (+694bps) and value
perception (+525bps).
Our market share performance remains strong, outperforming the
market for the majority of the first half. Our performance was even
stronger on a volume basis than on a value basis as we passed on
less inflation to customers than our competitors.
Sales grew in both large and convenience stores, by +1.4% and
+6.5% respectively, driven by higher footfall as some customers
switched back into stores from online. Sales in our convenience
stores in towns and city centres grew by +25% due to a sharp
recovery in footfall. Large store sales growth was impacted by very
strong non-food demand in the first quarter last year. Following
our decision to exit the 'Jacks' format last year, we converted six
of the 13 stores in the first half.
Online like-for-like sales declined by (11.3)%, with many
customers choosing to return to shopping in our stores, leading to
a (10.5)% unwind in order volumes. Online sales participation was
12.9%, which is still +3.6ppts higher than before the pandemic and
we have retained nearly 70% of our peak active customer base. We
have continued to expand our Click & Collect offer, with over
200 additional sites since the start of the pandemic now reaching
over 70% of UK households within 25 minutes.
We have included the table below to aid understanding of our
online performance:
Online performance H1 One-year Three-year
change change
22/23
LFL sales GBP2.7bn (11.3)% 53.4%
Orders per week 1.13m (10.5)% 51.8%
Basket size GBP GBP93 (1.1)% 1.7%
Online % of UK total 12.9% (1.6)ppts 3.6ppts
sales
Delivery saver subscribers 666k (0.4)% 35.4%
Click & Collect (C&C)
locations 530 16.7% 61.0%
We opened our fifth Urban Fulfilment Centre (UFC) in the half,
in Rutherglen. We continue to evolve the UFC model as we test and
learn with each new site, and we will review future opportunities
to roll-out as they arise.
We now offer 'Tesco Whoosh' - our 60-minute delivery service -
in over 400 stores, after rolling-out to an additional 242 stores
in the first half. Average basket size has increased to around
GBP25, as we have refined the proposition, and we now offer
customers over 2,600 products. We plan to roll out to a total of
800 stores by the end of the financial year.
Supporting our supplier partners has been a key focus in these
challenging market conditions. In September 2022, we were pleased
to be awarded the No.1 ranking in the Advantage Voice of the
Supplier survey for the seventh consecutive year. We have taken
extra steps to protect fresh food suppliers. For example, in March,
we announced a significant increase in the price we pay British
dairy farmers to reflect the increasing cost of production. We also
announced GBP10m in extra funding for UK pig farmers, as the
industry continues to face significant increases in on-farm costs.
We have reaffirmed our commitment to UK egg farmers, announcing new
five-year contracts for our egg suppliers. This will mean that we
continue to stock 100% British shell eggs and provide farmers with
the confidence to invest and plan for the future.
We have accelerated our target to halve food waste in our own
operations by five years, bringing it forward to 2025. Over 70% of
food waste happens in the home and so we launched a "Use Up Day"
campaign, providing a range of resources to help families spend
less on their weekly shop by making the most of the food they've
already bought. In May 2022 we also launched our 'Better Baskets'
campaign, through which we are making it easier for customers to
make healthier, more sustainable and more affordable choices every
time they shop with us.
As part of our ongoing efforts to help customers, especially
under the current cost-of-living pressures, over the summer we
offered free kids' meals in our cafes to Clubcard holders with any
purchase - "Kids Eat Free". We have also been giving daily
donations to foodbanks and local charities to support unprecedented
levels of demand, providing the equivalent of over 20m meals across
the half.
We have continued to roll out electric online delivery vans, set
up renewable energy projects and launch more electric HGVs in our
distribution operations. We have also introduced eight
solar-powered refrigerated trailers and our first electric lorry to
service city centre Express stores in London, saving thousands of
litres of diesel and tonnes of carbon per year. We also continue to
expand our electric vehicle charging network, which has now reached
its 500th store.
ROI - increasing customer engagement by expanding our value
proposition:
Like-for-like sales declined by (0.1)% in the half, including a
decline of (2.4)% in the first quarter, as we traded over lockdown
last year. The COVID-19 impact on the base was particularly strong
in ROI with restrictions in place for a longer period than in other
markets. In the second quarter, the effects of the COVID-19 unwind
on volumes year-on-year eased, and sales grew by +2.4%. This also
reflected a gradual increase in inflation in the market.
We reinforced our value proposition by completing the rollout of
Aldi Price Match, Low Everyday Prices and Clubcard Prices across
all categories. Customer engagement with Clubcard Prices has been
strong, leading to a +9.8ppts increase in Clubcard sales
penetration to 65%.
We continue to expand our market-leading online business and now
offer Click & Collect in over 71% of our large stores, leading
to sales growth of +5.9%. In June, we completed the acquisition of
ten Joyce's stores, one of which we will sell as a condition of the
clearance of the transaction.
BOOKER - sharp catering recovery and sustained demand despite
challenging backdrop:
Sales One-year
LFL
Retail GBP2,442m 2.2%
Retail exc. Tobacco GBP1,443m 6.7%
Tobacco GBP999m (3.7)%
Catering GBP1,830m 35.5%
Catering exc. BFL GBP1,090m 36.1%
Best Food Logistics
(BFL) GBP740m 34.6%
-------------------------- ----------- ---------
Total Booker* GBP4,399m 13.9%
* Total Booker also include small business sales of GBP127m
Booker delivered strong like-for-like sales growth of +13.9%,
driven particularly by a sharp recovery in catering demand in the
first quarter as we traded over a period of restrictions in the
prior year. Catering sales grew by +35.5% over the first half,
driven by increased volume and inflation which was particularly
prominent in fresh food. The retail business also continued to
grow, with sales up +6.7% excluding tobacco, driven by strong
customer retention. Tobacco sales declined by (3.7)%, reflecting
the market trend as customers returned to overseas travel and
duty-free imports increased.
We expanded our 'Food Clubs', which now have over 40,000 members
who can access exclusive deals and discounts. The breadth of our
range allows our catering customers to flex their menus to offer
consumers the best possible value and we now offer 'Click &
Collect' to caterers at 134 sites, providing greater choice and
flexibility.
On a three-year basis, sales growth was very strong in both the
retail and catering businesses, growing by 22.2% and 21.3%
respectively.
CENTRAL EUROPE - inflationary environment, robust volumes &
strong profit growth:
Like-for-like sales grew by +10.4%, with growth in all
countries. Inflationary pressures were felt to a greater extent
across our Central European markets with significant levels of
input cost inflation. Volumes were resilient, partially due to
government support for customers, such as price caps on essential
food products.
We strengthened our value proposition by rolling-out Clubcard
Prices and Low Price Guarantee across all countries. Customers have
responded positively, driving Clubcard penetration up in all three
countries and contributing to market share gains of +16bps
year-on-year.
Central Europe adjusted operating profit was GBP79m, an increase
of +19.1% at constant rates. Adjusted operating profit growth was
driven by a strong trading performance and the delivery of cost
reduction plans which offset inflation in energy and colleague pay
awards. Profit growth was offset by an increase in the rate of
'crisis tax' payable by retailers in Hungary. The charge increased
by GBP14m in the first half, with the full-year cost expected to
increase by GBP27m.
In June, we completed the sale of 17 malls and one retail park,
generating proceeds of GBP203m and a GBP37m profit on disposal
within adjusting items. It will result in a c.GBP(11)m gross impact
to adjusted operating profit in the current year due to a reduction
in mall income. We will continue to operate the Tesco hypermarkets
in these malls on a leasehold basis.
TESCO BANK:
H1 22/23 H1 21/22 YoY change
Revenue GBP540m GBP433m 24.6%
Adjusted operating profit GBP67m GBP72m (6.9)%
Lending to customers GBP6.8bn GBP6.4bn 6.8%
Customer deposits GBP(5.5)bn GBP(5.0)bn (9.7)%
Net interest margin 4.9% 5.1% (0.2)ppts
Total capital ratio 25.4% 26.6% (1.2)ppts
Revenue grew by +24.6%, including an additional two-month
benefit from the acquisition of Tesco Underwriting Limited in May
2021. Revenue excluding Tesco Underwriting Limited increased by
+14%, driven by an increase in new credit card customers, higher
levels of retail spending year-on-year and an increase in travel
money demand. ATM transactions increased by +9% year-on-year as
cash usage recovered post-lockdown.
Tesco Bank adjusted operating profit was GBP67m, including an
GBP18m contribution, versus GBP12m last year, from the full
consolidation of Tesco Underwriting Limited. Adjusted operating
profit declined by (6.9)% year-on-year predominantly due to a
higher impairment charge driven by up-front charges on new business
and the impact of a weaker macro-economic outlook. These impacts
were offset to some extent by a strong recovery in our Travel Money
and ATM businesses, together with higher credit card income.
The Bank's balance sheet remains strong, and we continue to have
sufficient capital and liquidity to absorb changes in both
regulatory and funding requirements.
The Bank was recognised for several key products in the first
half, winning 'Credit Builder Card Provider of the Year' and 'Best
Card Provider (Introductory Rate)' at the Moneyfacts Consumer
Awards. In recognition of our digital claims solution for car
insurance customers, we also won the 'Digital Innovation of the
Year' at the 2022 British Insurance Awards. We also announced our
two new charity partnerships in the first half, with The Trussell
Trust and Maggie's, the cancer support charity.
Adjusting items in statutory operating profit:
H1 22/23 H1 21/22
Net impairment (charge)/ reversal of GBP(626)m GBP36m
non-current assets
Litigation costs - GBP(193)m
Property transactions GBP81m GBP21m
Amortisation of acquired intangible GBP(38)m GBP(38)m
assets
Restructuring provision GBP(7)m -
ATM business rates refund GBP7m -
Release of onerous contract provision GBP5m -
Disposal of Asia operations GBP2m GBP19m
Fair value less cost of disposal movements GBP(3)m GBP1m
on assets held for sale
------------------------------------------- ---------- ----------
Total adjusting items in statutory GBP(579)m GBP(154)m
operating profit
Adjusting items are excluded from our adjusted operating profit
performance by virtue of their size and nature to provide a helpful
alternative perspective of the year-on-year performance of the
Group's ongoing trading business. Total adjusting items in
statutory operating profit in the first half resulted in a charge
of GBP(579)m compared to a GBP(154)m in the prior year.
We recognised a GBP(626)m non-cash net impairment charge on
non-current assets, primarily driven by an increase in discount
rates year-on-year.
In the prior year we recognised litigation costs of GBP(193)m in
adjusting items, relating to proceedings issued against us by two
claimant law firms in relation to the overstatement of expected
profits announced in 2014. The cash flow related to these claims
was settled in the prior year. Given the legal timeframe for
bringing a claim has now elapsed, no further related claims can be
brought by shareholders.
We recognised an adjusting credit of GBP81m related to the
profit generated on the disposal of properties in the half,
including the disposal of mall properties in Central Europe and
associated store sale and lease backs.
Amortisation of acquired intangible assets is excluded from our
headline performance measures. We incurred a charge of GBP(38)m in
the period, which primarily relates to our merger with Booker in
March 2018, which resulted in the recognition of GBP755m of
intangible assets.
Further detail on adjusting items can be found in Note 3,
starting on page 30.
Joint ventures and associates:
Our share of post-tax profits from joint ventures and associates
was GBP2m, compared to a loss of GBP(3)m in the prior year. The
year-on-year improvement was primarily due to higher profits from
UK property joint ventures and a reduction in losses generated by
our Trent Hypermarket Limited joint venture in India due to
COVID-19 trading impacts in the prior year.
Net finance costs:
H1 22/23 H1 21/22
Net interest on medium term notes, loans GBP(105)m GBP(104)m
and bonds
Other interest receivable and similar GBP18m GBP5m
income
Other finance charges and interest payable GBP(14)m GBP(21)m
Finance charges payable on lease liabilities GBP(189)m GBP(207)m
--------------------------------------------- ---------- ----------
Net finance costs before net pension GBP(290)m GBP(327)m
finance costs and fair value
remeasurements of financial instruments
Fair value remeasurements of financial GBP(75)m GBP180m
instruments
Net pension finance income/ (costs) GBP40m GBP(11)m
--------------------------------------------- ---------- ----------
Net finance costs GBP(325)m GBP(158)m
Net interest on medium-term notes and bonds was GBP(105)m, up
GBP(1)m year-on-year. The impact of bond maturities, tenders, and
new debt issuances at lower rates of interest was offset by the
interest payable on the GBP(585)m of debt acquired with The Tesco
Sarum Limited Partnership in December 2021.
Finance charges payable on lease liabilities reduced by GBP18m
year-on-year, driven by the reducing nature of our total lease
liability and the de-recognition of GBP355m of lease liabilities
related to the buyback of The Tesco Sarum Limited Partnership in
December 2021, which brought back into full ownership seven
sites.
A non-cash fair value remeasurement charge of GBP(75)m primarily
related to the mark-to-market movement on inflation-linked swaps,
driven by an increase in discount rates. These swaps eliminate the
impact of future inflation on the Group's cash flow in relation to
historical sale and leaseback property transactions.
Net pension finance income of GBP40m in the half related to the
IAS 19 pension surplus, compared to a charge of GBP(11)m last year
when the scheme was in a deficit position. The drivers of the IAS
19 pension surplus are discussed in further detail in the Summary
of total indebtedness section. We expect net pension finance income
of GBP79m in the current year as a result of the IAS 19 pension
surplus at the end of the prior year.
In February, we exercised the option to buy back our partner's
stake in The Tesco Dorney Limited Partnership property joint
venture. We expect this transaction to complete towards the end of
the current financial year, bringing seven large stores back into
full ownership. This will result in annual cash rental savings of
c.GBP31m and a c.GBP(0.1)bn increase in net debt, comprising a
c.GBP(0.5)bn impact on borrowings, partially offset by a c.GBP0.4bn
reduction in lease liabilities. Following this transaction, we will
have five UK property joint ventures still in place, from a peak of
13 structures in 2015. These five remaining structures contain
property worth GBP3.2bn and debt of GBP2.1bn, with GBP2.0bn of
associated lease liabilities on our balance sheet. The three
largest of our remaining property JVs are with the Tesco Pension
Fund.
Further detail on finance income and costs can be found in Note
4 on page 31, as well as further detail on the adjusting items in
Note 3 on page 30.
Group tax:
H1 22/23 H1 21/22
Tax on adjusted profit GBP(215)m GBP(258)m
Tax on adjusting items GBP67m GBP(55)m
----------------------- ---------- ----------
Tax on profit GBP(148)m GBP(313)m
Tax on adjusted Group profit was GBP(215)m, GBP43m lower than
last year, reflecting lower levels of retail operating profit
year-on-year and a one-off charge in the prior year related to the
revaluation of deferred tax following the decision to increase the
headline rate of corporation tax from 19% to 25% in April 2023.
The effective tax rate on adjusted Group profit was 21%, higher
than the current UK statutory rate of 19%, primarily due to the
banking surcharge levied on Tesco Bank profit and the depreciation
of assets which do not qualify for tax relief.
Following the announcement by the UK Government to cancel the
planned increase in the corporation tax rate from 19% to 25% in
April 2023, we expect the effective tax rate on adjusted Group
profit to be around 18% in the current year. This is lower than our
previous guidance of between 21% and 22% due to a credit relating
to the revaluation of deferred tax. We now expect our effective tax
rate to be around 21% in the medium term, compared to 26%
previously. This guidance assumes the legislation is enacted ahead
of our financial year end.
Earnings per share:
H1 22/23 H1 21/22 YoY change
Adjusted diluted EPS 10.67p 11.22p (4.9)%
Statutory diluted earnings
per share 3.44p 10.70p (67.9)%
Statutory basic earnings
per share 3.47p 10.80p (67.9)%
Adjusted diluted EPS was 10.67p (LY: 11.22p), (4.9)% lower
year-on-year due to a reduction in retail operating profit,
partially offset by a lower tax charge year-on-year.
Statutory diluted earnings per share was 3.44p (LY: 10.70p)
(67.9)% lower year-on-year, due to an increase in adjusting items,
driven by a higher net impairment charge on non-current assets,
which was partially offset by charges last year related to
shareholder litigation claims. This increase in adjusting items was
partially offset by a lower tax charge in the current year and an
increase in profits from our joint ventures.
Dividend:
The interim dividend has been set at 3.85 pence per ordinary
share, an increase of +20.3% year-on-year and in line with our
policy of setting the interim dividend at 35% of the prior
full-year dividend. The increase in this year's interim dividend
therefore reflects the significant recovery in both retail and
Tesco Bank adjusted operating profitability in the prior year.
The interim dividend will be paid on 25 November 2022 to
shareholders who are on the register of members at close of
business on 14 October 2022 (the Record Date). Shareholders may
elect to reinvest their dividend in the Dividend Reinvestment Plan
(DRIP). The last date for receipt of DRIP elections and revocations
will be 4 November 2022.
Summary of total indebtedness (excludes Tesco Bank):
Aug-22 Feb-22 Movement
Net debt before lease liabilities GBP(2,055)m GBP(2,570)m GBP515m
Lease liabilities GBP(7,989)m GBP(7,946)m GBP(43)m
----------------------------------- ------------- ------------- ---------
Net debt GBP(10,044)m GBP(10,516)m GBP472m
Pension deficit, IAS 19 basis GBP(186)m GBP(242)m GBP56m
(post-tax)
----------------------------------- ------------- ------------- ---------
Total indebtedness GBP(10,230)m GBP(10,758)m GBP528m
Net debt / EBITDA 2.5x 2.5x
Total indebtedness ratio 2.5x 2.5x
Total Indebtedness was GBP(10,230)m, down GBP528m versus year
end, driven by a reduction in net debt due to strong cash
generation and after the outflow relating to our ongoing share
buyback programme.
Lease liabilities were GBP(7,989)m, up GBP(43)m versus year end,
largely due to the recognition of new leases related to the
leaseback of 17 stores situated in the mall properties sold in
Central Europe in June 2022.
The total impact on net debt from the sale of these 17 mall
properties and one retail park was an improvement of GBP167m,
comprising GBP203m of cash proceeds received, offset by GBP(36)m
new lease liabilities recognised.
The Group's IAS 19 pension surplus is disregarded in total
indebtedness and only pension schemes which are in a net deficit
position are included. We continue to carry IAS 19 pension
surpluses totalling GBP1,070m (post-tax), reduced since the year
end largely due to movements in hedging assets and updated
demographic assumptions. Other pension schemes carried a net
deficit of GBP(186)m at the end of the first half and are therefore
included in total indebtedness. This combined deficit is GBP56m
better than the year end, driven by market movements in discount
rate, inflation rate and fair value of assets of the pension
scheme.
We have agreed the actuarial pension valuation as at 31 March
2022 with the Tesco Plc Pension Scheme Trustee at a surplus of
GBP0.9bn. It was also agreed with the Trustee that no pension
deficit contributions are required ahead of the next triennial
valuation in 2025 and that the expense payments made to the Scheme
by Tesco will reduce to GBP(17)m per annum (currently GBP(25)m per
annum) from October 2022.
We had strong levels of liquidity at the end of the first half
of GBP3.2bn and our GBP2.5bn committed facility remained undrawn.
Our committed facility currently matures in September 2025,
following our decision to exercise the final one-year extension
option. The rate of interest payable on this facility is linked to
three of our sustainability commitments and we achieved the
corresponding margin reduction for the current financial year based
on our performance last year.
Our net debt to EBITDA ratio was 2.5 times at the end of the
first half, which is in-line with the year end and within our
targeted range of 2.8 to 2.3 times. The year-on-year reduction is
driven by a reduction in retail EBITDA and an increase in net debt
before lease liabilities. The total indebtedness ratio was also 2.5
times and stable since the year end.
Fixed charge cover was 3.5 times this year, which was stable
year-on-year, as a reduction in retail EBITDA offset lower net
finance costs and lease interest payments.
Summary retail cash flow:
The following table reconciles Group adjusted operating profit
to retail free cash flow. Further details are included in Note 2
starting on page 24.
H1 22/23 H1 21/22
Adjusted operating profit GBP1,315m GBP1,458m
Less: Tesco Bank adjusted operating (profit) GBP(67)m GBP(72)m
/ loss
------------------------------------------------ ---------- ----------
Retail adjusted operating profit GBP1,248m GBP1,386m
Add back: Depreciation and amortisation GBP784m GBP787m
Other reconciling items GBP10m GBP21m
Pension deficit contribution GBP(12)m GBP(11)m
Decrease in working capital GBP390m GBP556m
Retail cash generated from operations GBP2,420m GBP2,739m
before adjusting items
Cash capex GBP(507)m GBP(495)m
Net interest GBP(294)m GBP(314)m
- Interest related to Net debt before GBP(106)m GBP(107)m
lease liabilities
- Interest related to lease liabilities GBP(188)m GBP(207)m
Tax paid GBP(45)m GBP(49)m
Dividends received GBP5m GBP3m
Repayments of obligations under leases GBP(292)m GBP(286)m
Own shares purchased for share schemes GBP(4)m GBP(55)m
------------------------------------------------ ---------- ----------
Retail free cash flow GBP1,283m GBP1,543m
Memo (not included in Retail free cash
flow):
Acquisitions & disposals GBP(77)m GBP117m
Property proceeds & purchases GBP301m GBP72m
Cash impact of adjusting items GBP(31)m GBP(107)m
Strong retail free cash flow of GBP1,283m was GBP(260)m lower
than last year's exceptionally strong performance, driven by lower
retail adjusted operating profit and a lower working capital
inflow.
Our total working capital inflow was GBP390m, driven primarily
by the usual sales peak we see over summer and higher trade payable
balances due to cost price inflation. The working capital inflow
was GBP(166)m lower than last year due to a reduction in volumes as
a result of the ongoing normalisation of customer behaviours
following the COVID-19 pandemic, and an increase in stock levels
this year due to significant disruption in the supply chain last
year.
Interest paid related to net debt before lease liabilities of
GBP(106)m was flat year-on-year. Interest relating to lease
liabilities was GBP(188)m, down GBP19m year-on-year primarily due
to a reduction in the UK lease liabilities.
Cash tax paid was in line with last year as we continue to
benefit from the super-deduction allowance on certain capital
investments and tax relief in relation to the GBP2.5bn one-off
pension contribution made in 2021.
The net outflow related to the purchase of our own shares for
colleague share schemes was GBP(4)m, comprising GBP(49)m of shares
purchased in the market to offset the issuance of new shares to
satisfy the share schemes and a GBP45m inflow relating to the
proceeds from colleague share saving schemes. The lower outflow
compared to last year was driven by the timing of purchases to
satisfy current year maturities. Share repurchases for
cancellations are excluded.
We generated GBP301m of proceeds from property transactions,
including the sale of 17 malls and one retail park in Central
Europe, excess land surrounding our New Malden store, and our
Distribution Centre in Middlewich in the UK.
The cash impact of adjusting items was GBP(31)m, of which
GBP(29)m relates to operational restructuring changes as part of
the multi-year 'Save to invest' programme. This relates to activity
announced at the end of the prior financial year.
Capital expenditure and space:
UK & ROI Central Europe Tesco Bank Group
This Last This Last This Last This Last
year year year year year year year year
Capex GBP389m GBP404m GBP36m GBP25m GBP23m GBP19m GBP448m GBP448m
Openings (k sq
ft) 243 72 16 14 - - 259 86
Closures (k sq
ft) (229) (60) (22) (15) - - (251) (75)
Repurposed (k
sq ft) 10 - (259) 5 - - (249) 5
Net space change
(k sq ft) 24 12 (265) 4 - - (241) 16
'Retail Selling Space' is defined as net space in store adjusted
to exclude checkouts, space behind checkouts, customer service
desks and customer toilets. The above excludes spaces relating to
franchise stores. Appendices - appendix 5 (p.54) provides a full
breakdown of space by segment.
Capital expenditure (capex) shown in the table above reflects
expenditure on ongoing business activities across the Group,
excluding property buybacks.
Our capital expenditure in the first half was GBP448m, flat
year-on-year which includes the continuing investment in our online
proposition such as the opening of our fifth UFC in Rutherglen in
May and the addition of 169 delivery vans. We also opened one new
Tesco Superstore, 19 Tesco Express stores and five One Stop stores
in the UK & ROI.
We expect to open a further two Tesco Superstores, 52 Tesco
Express stores and 15 One Stop stores in the UK in the second half.
In Ireland, we will refit all nine Joyce's stores, acquired in the
first half, before re-opening these stores under the Tesco brand in
the coming months. We have two more UFCs planned for the second
half, bringing our total UFCs in operation to seven by the end of
the current year.
In Central Europe, we invested more capex in our large store
refresh programme year-on-year, and we will have refreshed 19 more
stores than last year by the end of the current year.
We expect 2022/23 full year capital expenditure to be at the top
end of our GBP0.9bn to GBP1.2bn guidance range. Statutory capital
expenditure for the first half was GBP0.5bn.
Further details of current and forecast space can be found in
the appendices starting on page 52.
Contacts :
Investor Relations: Chris Griffith 01707 940 900
Rob Whiteley 01707 940 745
Media: Christine Heffernan 0330 6780 639
Ben Foster, Teneo 07776 240 806
This document is available at www.tescoplc.com/interims2022
.
A webcast including a live Q&A will be held today at 9.00am
for investors and analysts and will be available on our website at
www.tescoplc.com/interims2022 . This will be available for playback
after the event. All presentation materials, including a
transcript, will be made available on our website.
We will report our Q3 & Christmas Trading statement on 12
January 2023.
Sources:
-- UK market share based on Kantar Total Tesco YoY market share
gains of Grocers Total Till Roll on 12 week rolling basis
to 4 September 2022.
-- C. Europe market share based on GFK Household Food panel
data for the YoY growth of the 22 week period between March
and July 2022.
-- Brand NPS is based on BASIS Global Brand Tracker. 3 period
rolling data. Responses to the question: "How likely is
it that you would recommend the following company to a friend
or colleague?"
-- Brand Index, Value perception and Quality perception based
on YouGov 12 week rolling basis to 27 August 2022. 'Market'
consists of Sainsbury's, Morrisons, Asda, Aldi, Lidl, Waitrose,
M&S, Ocado, Co-op & Iceland.
-- Price index is calculated using the single retail selling
price of each item, including price cut promotions across
the first half; the index is weighted by sales and market
share to reflect customer importance and competitor size.
-- YoY Clubcard sales penetration is based on in all stores
from August 2021 to August 2022.
-- Number of Booker Retail Partners and Premier stores shown
net of openings and closures.
-- Full-line grocers refers to Tesco, Sainsbury's, Asda & Morrisons;
Limited-range discounters refers to Aldi & Lidl.
Additional Disclosures .
Principal Risks and Uncertainties .
The principal risks and uncertainties faced by the Group remain
those as set out on page 31 to 37 of our Annual Report and
Financial Statement 2022: cyber security; data privacy; pandemics
(COVID-19); climate change; technology; political, regulatory and
compliance; people; health and safety; product safety and food
integrity; responsible sourcing; financial performance; Tesco Bank;
competitions and markets; brand, reputation and trust; and
customer.
Given the inflationary pressure and rise in cost-of-living, we
have observed a shift in customer shopping behaviours which has
resulted in the customer risk increasing when compared to the
previous year. Management continues to monitor the changes in
customer trends, enabling them to identify the key drivers of the
change, which supports the development of specific response
strategies to manage the risk. The impact of inflationary pressures
and reduction in customer disposable income are reflected within
our FY23 forecasts. There are no further changes to our assessment
of the Principal Risks in the remaining six months of the year.
Statement of Directors' Responsibilities .
The Directors are responsible for preparing the Interim Results
for the 26 week period ended 27 August 2022 in accordance with
applicable law, regulations and accounting standards. Each of the
Directors confirm that to the best of their knowledge the condensed
consolidated interim financial statements have been prepared in
accordance with IAS 34: 'Interim Financial Reporting', as adopted
by the European Union and that the interim management report
includes a true and fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
-- an indication of the important events that have occurred during the first 26 weeks of the
financial year and their impact on the condensed consolidated interim financial statements,
and a description of the principal risks and uncertainties for the remainder of the financial
year; and
-- material related party transactions in the first 26 weeks of the year and any material changes
in the related party transactions described in the last annual report.
The Directors of Tesco PLC are listed on pages 42 to 46 of the
Tesco PLC Annual Report and Financial Statements 2022, with the
exception of Caroline Silver who joined the Board on 1 October
2022.
A list of current directors is maintained on the Tesco PLC
website at: www.tescoplc.com .
By order of the Board Directors
John Allan - Non-executive Chairman
Ken Murphy - Group Chief Executive
Imran Nawaz - Chief Financial Officer
Melissa Bethell*
Bertrand Bodson*
Thierry Garnier*
Stewart Gilliland*
Byron Grote*
Alison Platt CMG*
Lindsey Pownall OBE*
Caroline Silver*
Karen Whitworth*
*Independent Non-executive Directors
Robert Welch, Company Secretary
4 October 2022
Disclaimer .
Certain statements made in this document are forward-looking
statements. For example, statements regarding future financial
performance, market trends and our product pipeline are
forward-looking statements. Phrases such as "aim", "plan",
"intend", "should", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions
are generally intended to identify forward-looking statements.
Forward looking statements are based on current expectations and
assumptions and are subject to a number of known and unknown risks,
uncertainties and other important factors that could cause actual
results or events to differ materially from what is expressed or
implied by those statements. Many factors may cause actual results,
performance or achievements of Tesco to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements. Important factors that
could cause actual results, performance or achievements of Tesco to
differ materially from the expectations of Tesco include, among
other things, general business and economic conditions globally,
industry trends, competition, changes in government and other
regulation and policy, including in relation to the environment,
health and safety and taxation, labour relations and work
stoppages, interest rates and currency fluctuations, changes in its
business strategy, political and economic uncertainty, including as
a result of global pandemics. As such, undue reliance should not be
placed on forward-looking statements. Any forward-looking statement
is based on information available to Tesco as of the date of the
statement. All written or oral forward-looking statements
attributable to Tesco are qualified by this caution. Other than in
accordance with legal and regulatory obligations, Tesco undertakes
no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Group income statement
26 weeks ended 26 weeks ended
27 August 2022 28 August 2021
=============================== ===============================
Adjusting Adjusting
Before Before
adjusting items(*) adjusting items(*)
(Note (Note
items 3) Total items 3) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ===== ========== ========= ======== ========== ========= ========
Continuing operations
Revenue 2 32,456 - 32,456 30,416 - 30,416
Cost of sales (30,114) (577) (30,691) (27,972) 24 (27,948)
Impairment loss on financial
assets 2 (42) - (42) (20) - (20)
=================================== ===== ========== ========= ======== ========== ========= ========
Gross profit/(loss) 2,300 (577) 1,723 2,424 24 2,448
Administrative expenses (985) (2) (987) (966) (178) (1,144)
=================================== ===== ========== ========= ======== ========== ========= ========
Operating profit/(loss) 1,315 (579) 736 1,458 (154) 1,304
Share of post-tax profits/(losses)
of joint ventures and associates 2 - 2 (3) - (3)
Finance income 4 18 - 18 5 - 5
Finance costs 4 (308) (35) (343) (332) 169 (163)
=================================== ===== ========== ========= ======== ========== ========= ========
Profit/(loss) before tax 1,027 (614) 413 1,128 15 1,143
Taxation 5 (215) 67 (148) (258) (55) (313)
=================================== ===== ========== ========= ======== ========== ========= ========
Profit/(loss) for the period
from continuing operations 812 (547) 265 870 (40) 830
Discontinued operations
Profit/(loss) for the period
from discontinued operations 6 - (7) (7) (5) (44) (49)
Profit/(loss) for the period 812 (554) 258 865 (84) 781
=================================== ===== ---------- --------- -------- ========== ========= ========
Attributable to:
Owners of the parent 807 (554) 253 865 (84) 781
Non-controlling interests 5 - 5 - - -
=================================== ===== ========== ========= ======== ========== ========= ========
812 (554) 258 865 (84) 781
=================================== ===== ---------- --------- -------- ========== ========= ========
Earnings per share from continuing
and discontinued operations
Basic 8 3.38p 10.16p
Diluted 8 3.35p 10.07p
=================================== ===== ========== ========= ======== ========== ========= ========
Earnings per share from continuing
operations
Basic 8 3.47p 10.80p
Diluted 8 3.44p 10.70p
=================================== ===== ========== ========= ======== ========== ========= ========
* As previously reported in the Annual Report and Financial
Statements 2022, 'Exceptional items and amortisation of acquired
intangibles' have been renamed 'Adjusting items' and net pension
finance costs and fair value remeasurements of financial
instruments and associated tax impacts are now included within
adjusting items. Refer to Notes 1 and 3 for further details.
The notes on pages 23 to 44 form part of this condensed
consolidated financial information.
Group statement of comprehensive income/(loss)
26 weeks 26 weeks
ended ended
27 August 28 August
2022 2021
Notes GBPm GBPm
=========================================================== ===== ========== ==========
Items that will not be reclassified to the Group
income statement
Change in fair value of financial assets at fair
value through other comprehensive income 6 -
Remeasurements of defined benefit pension schemes 17 (2,070) 646
Net fair value gains on inventory cash flow hedges 45 80
Tax on items that will not be reclassified 772 (64)
(1,247) 662
=========================================================== ===== ========== ==========
Items that may subsequently be reclassified
to the Group income statement
Change in fair value of financial assets at fair
value through other comprehensive income (38) (2)
Currency translation differences:
Retranslation of net assets of overseas subsidiaries,
joint ventures and associates, net of hedging
instruments (24) 13
Movements in foreign exchange reserve and net
investment hedging on subsidiary disposed, reclassified
and reported in the Group income statement - 66
Gains/(losses) on cash flow hedges:
Net fair value gains/(losses) 23 42
Reclassified and reported in the Group income
statement (8) (16)
Tax on items that may be reclassified 6 (34)
=========================================================== ===== ========== ==========
(41) 69
=========================================================== ===== ========== ==========
Total other comprehensive income/(loss) for
the period (1,288) 731
Profit/(loss) for the period 258 781
=========================================================== ===== ========== ==========
Total comprehensive income/(loss) for the period (1,030) 1,512
=========================================================== ===== ========== ==========
Attributable to:
Owners of the parent (1,035) 1,512
Non-controlling interests 5 -
=========================================================== ===== ========== ==========
Total comprehensive income/(loss) for the period (1,030) 1,512
=========================================================== ===== ========== ==========
Total comprehensive income/(loss) attributable
to owners of the parent arising from:
Continuing operations (1,028) 1,495
Discontinued operations (7) 17
=========================================================== ===== ========== ==========
(1,035) 1,512
=========================================================== ===== ========== ==========
The notes on pages 23 to 44 form part of this condensed
consolidated financial information.
Group balance sheet
27 August 26 February 28 August
2022 2022 2021(*)
Notes GBPm GBPm GBPm
============================================= ===== ========= =========== =========
Non-current assets
Goodwill and other intangible assets 9 5,364 5,360 5,389
Property, plant and equipment 10 16,388 17,060 16,528
Right of use assets 11 5,609 5,720 5,809
Investment property 21 22 91
Investments in joint ventures and associates 90 86 84
Other investments 1,282 1,253 1,218
Trade and other receivables 202 159 257
Loans and advances to customers and banks 2,994 3,141 3,169
Reinsurance assets 173 184 205
Post-employment benefit surplus 17 1,070 3,150 -
Derivative financial instruments 1,001 942 1,664
Deferred tax assets 86 85 270
============================================= ===== ========= =========== =========
34,280 37,162 34,684
============================================= ===== ========= =========== =========
Current assets
Other investments 169 226 348
Inventories 2,584 2,339 2,223
Trade and other receivables 1,366 1,263 1,149
Loans and advances to customers and banks 3,848 3,349 3,287
Reinsurance assets 58 61 52
Derivative financial instruments 159 69 44
Current tax assets 111 93 44
Short-term investments 13 2,256 2,076 2,331
Cash and cash equivalents 13 2,435 2,345 2,219
============================================= ===== ========= =========== =========
12,986 11,821 11,697
============================================= ===== ========= =========== =========
Assets of the disposal group and non-current
assets classified as held for sale 6 277 368 447
============================================= ===== ========= =========== =========
13,263 12,189 12,144
============================================= ===== ========= =========== =========
Current liabilities
Trade and other payables (9,799) (9,181) (8,889)
Borrowings 15 (1,055) (725) (1,220)
Lease liabilities 11 (591) (547) (557)
Derivative financial instruments (28) (26) (31)
Customer deposits and deposits from banks (4,576) (4,729) (4,587)
Insurance contract provisions (574) (623) (625)
Current tax liabilities (27) (11) (142)
Provisions (235) (283) (336)
============================================= ===== ========= =========== =========
(16,885) (16,125) (16,387)
============================================= ===== ========= =========== =========
Liabilities of the disposal group classified
as held for sale 6 (14) (14) (22)
============================================= ===== ========= =========== =========
Net current liabilities (3,636) (3,950) (4,265)
============================================= ===== ========= =========== =========
Non-current liabilities
Trade and other payables (195) (53) (219)
Borrowings 15 (6,523) (6,674) (6,130)
Lease liabilities 11 (7,408) (7,411) (7,670)
Derivative financial instruments (267) (357) (986)
Customer deposits and deposits from banks (1,893) (1,650) (1,573)
Insurance contract provisions (25) (27) (30)
Post-employment benefit deficit 17 (242) (303) (580)
Deferred tax liabilities (229) (910) (51)
Provisions (185) (183) (110)
============================================= ===== ========= =========== =========
(16,967) (17,568) (17,349)
============================================= ===== ========= =========== =========
Net assets 13,677 15,644 13,070
============================================= ===== ========= =========== =========
Equity
Share capital 18 474 484 490
Share premium 5,165 5,165 5,165
Other reserves 3,205 3,079 3,309
Retained earnings 4,844 6,932 4,124
============================================= ===== ========= =========== =========
Equity attributable to owners of the parent 13,688 15,660 13,088
Non-controlling interests (11) (16) (18)
============================================= ===== ========= =========== =========
Total equity 13,677 15,644 13,070
============================================= ===== ========= =========== =========
* Refer to Note 1 for further details regarding the restatement
of comparatives due to a change in accounting policy and the
re-presentation of insurance contract provisions.
The notes on pages 23 to 44 form part of this condensed
consolidated financial information.
These unaudited condensed consolidated interim financial
statements for the 26 weeks ended 27 August 2022 were approved by
the Board on 4 October 2022.
Group statement of changes in equity
Other reserves
Capital Own
Share Share redemption Hedging Translation shares Merger Retained Non-controlling Total
capital premium reserve reserve reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
At 26 February
2022 484 5,165 22 130 202 (365) 3,090 6,932 15,660 (16) 15,644
Profit/(loss)
for
the period - - - - - - - 253 253 5 258
Other
comprehensive
income/(loss)
Retranslation
of net
assets of
overseas
subsidiaries,
joint
ventures and
associates,
net of hedging
instruments - - - - (24) - - - (24) - (24)
Change in fair
value
of financial
assets
at fair value
through
other
comprehensive
income - - - - - - - (32) (32) - (32)
Remeasurements
of defined
benefit
pension
schemes
(Note 17) - - - - - - - (2,070) (2,070) - (2,070)
Gains/(losses)
on cash
flow hedges - - - 68 - - - - 68 - 68
Cash flow
hedges
reclassified
and reported
in the
Group income
statement - - - (8) - - - - (8) - (8)
Tax relating to
components
of other
comprehensive
income - - - (17) - - - 795 778 - 778
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
Total other
comprehensive
income/(loss) - - - 43 (24) - - (1,307) (1,288) - (1,288)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
Total
comprehensive
income/(loss) - - - 43 (24) - - (1,054) (1,035) 5 (1,030)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
Inventory cash
flow
hedge movements
Gains/(losses)
transferred
to the cost of
inventory - - - 34 - - - - 34 - 34
Total inventory
cash
flow hedge
movements - - - 34 - - - - 34 - 34
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
Transactions
with
owners
Own shares
purchased
for
cancellation
(Note 18) (10) - 10 - - (40) - (411) (451) - (451)
Own shares
purchased
for share
schemes - - - - - (48) - - (48) - (48)
Share-based
payments - - - - - 151 - (45) 106 - 106
Dividends (Note
7) - - - - - - - (578) (578) - (578)
Total
transactions
with owners (10) - 10 - - 63 - (1,034) (971) - (971)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
At 27 August
2022 474 5,165 32 207 178 (302) 3,090 4,844 13,688 (11) 13,677
=============== ======= ======= ========== ======= =========== ====== ======== ======== ======= =============== =======
The notes on pages 23 to 44 form part of this condensed
consolidated financial information.
Other reserves
Capital Own
Share Share redemption Hedging Translation shares Merger Retained Non-controlling Total
capital premium reserve reserve reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
At 27 February
2021
(as previously
reported) 490 5,165 16 90 175 (188) 3,090 3,505 12,343 (18) 12,325
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Cumulative
adjustment
to opening
balances - - - - - - - (266) (266) - (266)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
At 27 February
2021
(restated*) 490 5,165 16 90 175 (188) 3,090 3,239 12,077 (18) 12,059
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Profit/(loss)
for
the period - - - - - - - 781 781 - 781
Other
comprehensive
income/(loss)
Retranslation
of net
assets of
overseas
subsidiaries,
joint
ventures and
associates,
net of hedging
instruments - - - - 13 - - - 13 - 13
Movements in
foreign
exchange
reserve and
net investment
hedging
on subsidiary
disposed,
reclassified
and reported
in the Group
income
statement - - - - 66 - - - 66 - 66
Change in fair
value
of financial
assets
at fair value
through
other
comprehensive
income - - - - - - - (2) (2) - (2)
Remeasurements
of defined
benefit
pension
schemes
(Note 17) - - - - - - - 646 646 - 646
Gains/(losses)
on cash
flow hedges - - - 122 - - - - 122 - 122
Cash flow
hedges
reclassified
and reported
in the
Group income
statement - - - (16) - - - - (16) - (16)
Tax relating to
components
of other
comprehensive
income - - - (34) - - - (64) (98) - (98)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Total other
comprehensive
income/(loss) - - - 72 79 - - 580 731 - 731
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Total
comprehensive
income/(loss)
(restated*) - - - 72 79 - - 1,361 1,512 - 1,512
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Inventory cash
flow
hedge movements
Gains/(losses)
transferred
to the cost of
inventory - - - (20) - - - - (20) - (20)
Tax on
gains/(losses)
transferred - - - 7 - - - - 7 - 7
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Total inventory
cash
flow hedge
movements - - - (13) - - - - (13) - (13)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
Transactions
with
owners
Own shares
purchased
for share
schemes - - - - - (109) - - (109) - (109)
Share-based
payments - - - - - 97 - (18) 79 - 79
Dividends (Note
7) - - - - - - - (458) (458) - (458)
Total
transactions
with owners - - - - - (12) - (476) (488) - (488)
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
At 28 August
2021
(restated*) 490 5,165 16 149 254 (200) 3,090 4,124 13,088 (18) 13,070
=============== ======= ======= ========== ======= =========== ====== ======== ======== ====== =============== ======
* Comparatives have been restated due to a change in accounting
policy. Refer to Note 1 for further details.
The notes on pages 23 to 44 form part of this condensed
consolidated financial information.
Group cash flow statement
26 weeks 26 weeks
ended ended
27 August 28 August
2022 2021
Notes GBPm GBPm
============================================================ ===== ========== ==========
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations 736 1,304
Operating profit/(loss) of discontinued operations (7) (55)
Depreciation and amortisation 849 856
(Profit)/loss arising on sale of property, plant
and equipment, investment property, intangible assets,
assets classified as held for sale and early termination
of leases (74) (20)
(Profit)/loss arising on sale of joint ventures and
associates - (10)
(Profit)/loss arising on sale of subsidiaries 6 - 26
Net impairment loss/(reversal) on property, plant
and equipment, right of use assets, intangible assets
and investment property 12 626 (36)
Net remeasurement (gain)/loss of non-current assets
held for sale 8 (5)
Adjustment for non-cash element of pensions charge - 6
Other defined benefit pension scheme payments 17 (12) (11)
Share-based payments 13 26
Tesco Bank fair value movements included in operating
profit/(loss) 37 19
========== ==========
Retail (increase)/decrease in inventories (244) (155)
Retail (increase)/decrease in trade and other receivables (183) 28
Retail increase/(decrease) in trade and other payables 821 634
Retail increase/(decrease) in provisions (51) 142
========== ==========
Retail (increase)/decrease in working capital 343 649
========== ==========
Tesco Bank (increase)/decrease in loans and advances
to customers and banks (440) (46)
Tesco Bank (increase)/decrease in trade, reinsurance
and other receivables 63 (7)
Tesco Bank increase/(decrease) in customer and bank
deposits, trade, insurance and other payables 46 (217)
Tesco Bank increase/(decrease) in provisions 1 (11)
========== ==========
Tesco Bank (increase)/decrease in working capital (330) (281)
============================================================ ===== ========== ==========
Cash generated from/(used in) operations 2,189 2,468
Interest paid (309) (318)
Corporation tax paid (55) (52)
============================================================ ===== ========== ==========
Net cash generated from/(used in) operating activities 1,825 2,098
============================================================ ===== ========== ==========
Cash flows generated from/(used in) investing activities
Proceeds from sale of property, plant and equipment,
investment property, intangible assets and assets
classified as held for sale 301 109
Purchase of property, plant and equipment and investment
property (399) (453)
Purchase of intangible assets (134) (100)
Disposal of subsidiaries, net of cash disposed - 169
Acquisition of subsidiaries, net of cash acquired (71) (81)
Increase in loans to joint ventures and associates (1) -
Investments in joint ventures and associates (6) (8)
Net (investments in)/proceeds from sale of short-term
investments (179) (1,320)
Proceeds from sale of other investments 148 51
Purchase of other investments (183) (44)
Dividends received from joint ventures and associates 5 13
Interest received 12 2
============================================================ ===== ========== ==========
Net cash generated from/(used in) investing activities (507) (1,662)
============================================================ ===== ========== ==========
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation 18 (409) -
Own shares purchased for share schemes 18 (4) (55)
Repayment of capital element of obligations under
leases (294) (288)
Repayment of borrowings (29) (47)
Cash inflows from derivative financial instruments 79 247
Cash outflows from derivative financial instruments (274) (286)
Dividends paid to equity owners 7 (579) (484)
============================================================ ===== ========== ==========
Net cash generated from/(used in) financing activities (1,510) (913)
============================================================ ===== ========== ==========
Net increase/(decrease) in cash and cash equivalents (192) (477)
Cash and cash equivalents at the beginning of the
period 1,771 1,971
Effect of foreign exchange rate changes 5 60
============================================================ ===== ========== ==========
Cash and cash equivalents at the end of the period 13 1,584 1,554
============================================================ ===== ========== ==========
The notes on pages 23 to 44 form part of this condensed
consolidated financial information.
Note 1 Basis of preparation
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the UK Financial Conduct
Authority, and with IAS 34 'Interim Financial Reporting' under
UK-adopted international accounting standards. Unless otherwise
stated, the accounting policies applied, and the judgements,
estimates and assumptions made in applying these policies, are
consistent with those used in preparing the Annual Report and
Financial Statements 2022. The financial period represents the 26
weeks ended 27 August 2022 (prior financial period 26 weeks ended
28 August 2021, prior financial year 52 weeks ended 26 February
2022).
These condensed consolidated interim financial statements for
the current period and prior financial periods do not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for the prior financial year
has been filed with the Registrar of Companies. The auditor's
report on those accounts was not qualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
The Directors have, at the time of approving the condensed
consolidated interim financial statements, a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future, which reflects a period of 18
months from the date of approval of the condensed consolidated
interim financial statements, and have concluded that there are no
material uncertainties relating to going concern. The Directors
have therefore continued to adopt the going concern basis in
preparing the condensed consolidated interim financial statements.
Further information on the Group's strong liquidity position is
given in the Group review of performance, Summary of total
indebtedness section.
Change in accounting policy
As previously reported in the Annual Report and Financial
Statements 2022, the Group changed its accounting policy for
property buybacks. The impact on the 28 August 2021 comparative
balance sheet was to decrease property, plant and equipment by
GBP266m, and decrease both net assets and retained earnings by
GBP266m. There is no impact on the comparative period income
statement, operating, investing or financing cash flows, Net debt
or Total indebtedness.
Prior period re-presentation
The condensed consolidated interim financial statements include
a prior period re-presentation in relation to the current and
non-current classification of the insurance contract provisions
recognised on the acquisition of Tesco Underwriting Limited, where
the right to defer settlement cannot be clearly demonstrated for
the total non-current element. The impact on the 28 August 2021
balance sheet is to increase current insurance contract provisions
by GBP435m and to decrease non-current insurance contract
provisions by the corresponding amount. There is no impact on the
28 August 2021 income statement or cash flow statement. The 26
February 2022 balance sheet was already presented accordingly and
so does not require re-presentation.
Primary financial statements presentation
As previously reported in the Annual Report and Financial
Statements 2022, 'Exceptional items and amortisation of acquired
intangibles' within operating profit, along with net pension
finance costs, fair value remeasurements of financial instruments,
and the tax impact of such items (below operating profit), are now
called 'Adjusting items', and are presented on the face of the
income statement in the 'Adjusting items' column. The policy for
determining adjusting items, and the items adjusted for, are
unchanged hence there is no impact on previously reported
alternative performance measures from this change in
presentation.
Accounting policies
New standards, interpretations and amendments effective in the
current financial year have not had a material impact on the
condensed consolidated interim financial statements.
The Group has not applied any other standards, interpretations
or amendments that have been issued but are not yet effective. The
impact of the following is still under assessment:
-- IFRS 17 'Insurance contracts', which will become effective in
the Group financial statements for the financial year ending 24
February 2024. IFRS 17 is expected to have an impact on the Group's
subsidiary, Tesco Underwriting Limited (TU), which provides the
insurance underwriting service for a number of the Group's general
insurance products. It is expected that the simplified premium
allocation approach will be applied to all material insurance and
reinsurance contract groups issued subsequent to the acquisition of
TU, and that IFRS 17 will be applied retrospectively. The Group
continues to assess the expected impact of IFRS 17 and work,
including parallel reporting for the comparative period, is
progressing according to the project plan. The Group intends to
disclose the financial impact in the Annual Report and Financial
Statements 2023.
-- IFRS 16 amendments 'Lease liability in a sale and leaseback',
which will become effective in the Group financial statements for
the financial year ending 22 February 2025, subject to UK
endorsement.
Other standards, interpretations and amendments issued but not
yet effective are not expected to have a material impact.
Critical accounting judgements
Pension surplus tax rate
As described in Note 17, the Group operates certain defined
benefit pension plans in a surplus position. A tax provision is
required, with the tax rate being the rate that is expected to
apply when the surplus is realised. This in turn depends on the
manner in which the Group expects to recover the surplus, either
through reduced future contributions (which attracts a 25% deferred
tax rate being the current prevailing corporation tax rate) or
through refund of the surplus (which attracts a 35% withholding tax
known as the 'authorised surplus payments charge'). A 25% deferred
tax rate is presented within deferred tax liabilities on the
balance sheet, whereas the 35% 'authorised surplus payments charge'
is presented net against the pension surplus on the balance sheet.
As set out in Note 17, management has applied judgement to
determine that the expected manner of recovery is through an
ultimate refund of the surplus, hence a 35% withholding tax rate
applies, which is presented net against the pension surplus on the
balance sheet.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have
adopted various APMs. Refer to the Glossary for a full list of the
Group's APMs, including comprehensive definitions, their purpose,
reconciliations to IFRS measures and details of any changes to
APMs.
Note 2 Segmental reporting
The Group's operating segments are determined based on the
Group's internal reporting to the Chief Operating Decision Maker
(CODM). The CODM has been determined to be the Group Chief
Executive, with support from the Executive Committee, as the
function primarily responsible for the allocation of resources to
segments and assessment of performance of the segments.
The principal activities of the Group are presented in the
following segments:
Retailing and associated activities (Retail) in:
UK & ROI - the United Kingdom and Republic of Ireland;
and
Central Europe - Czech Republic, Hungary and Slovakia.
Retail banking and insurance services through Tesco Bank in the
UK (Tesco Bank).
This presentation reflects how the Group's operating performance
is reviewed internally by management.
The CODM uses adjusted operating profit, as reviewed at monthly
Executive Committee meetings, as the key measure of the segments'
results as it reflects the segments' trading performance that is
more comparable over time for the financial period under
evaluation. Adjusted operating profit is a consistent measure
within the Group as defined within the Glossary. Refer to Note 3
for adjusting items. Inter-segment revenue between the segments is
not material.
Income statement
The segment results and the reconciliation of the segment
measures to the respective statutory items included in the Group
income statement are as follows:
Total Total
Retail at Total
26 weeks ended 27 August Central at constant Tesco constant Foreign at actual
2022 UK & ROI Europe exchange Bank exchange exchange exchange
At constant exchange rates GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================= ======== ======= ============ ===== ========= ========= ==========
Continuing operations
Revenue 29,790 2,191 31,981 540 32,521 (65) 32,456
Less: Fuel sales (4,153) (124) (4,277) - (4,277) (1) (4,278)
================================= ======== ======= ============ ===== ========= ========= ==========
Sales 25,637 2,067 27,704 540 28,244 (66) 28,178
================================= ======== ======= ============ ===== ========= ========= ==========
Adjusted operating profit/(loss) 1,167 81 1,248 67 1,315 - 1,315
Adjusting items* (568) (4) (572) (5) (577) (2) (579)
================================= ======== ======= ============ ===== ========= ========= ==========
Operating profit/(loss) 599 77 676 62 738 (2) 736
Adjusted operating margin 3.9% 3.7% 3.9% 12.4% 4.0% 4.1%
================================= ======== ======= ============ ===== ========= ========= ==========
Total
Central Total Tesco at actual
26 weeks ended 27 August 2022 UK & ROI Europe Retail Bank exchange
At actual exchange rates GBPm GBPm GBPm GBPm GBPm
====================================== ======== ======= ======= ===== ==========
Continuing operations
Revenue 29,783 2,133 31,916 540 32,456
Less: Fuel sales (4,153) (125) (4,278) - (4,278)
====================================== ======== ======= ======= ===== ==========
Sales 25,630 2,008 27,638 540 28,178
====================================== ======== ======= ======= ===== ==========
Adjusted operating profit/(loss) 1,169 79 1,248 67 1,315
Adjusting items* (567) (7) (574) (5) (579)
====================================== ======== ======= ======= ===== ==========
Operating profit/(loss) 602 72 674 62 736
Adjusted operating margin 3.9% 3.7% 3.9% 12.4% 4.1%
====================================== ======== ======= ======= ===== ==========
Share of post-tax profits/(losses) of
joint ventures and associates 2
Finance income 18
Finance costs (343)
====================================== ======== ======= ======= ===== ==========
Profit/(loss) before tax 413
====================================== ======== ======= ======= ===== ==========
* Refer to Note 3 for further details.
Tesco Bank revenue of GBP540m (26 weeks ended 28 August 2021:
GBP433m) comprises interest and similar revenues of GBP252m (26
weeks ended 28 August 2021: GBP238m), fees and commissions revenue
of GBP134m (26 weeks ended 28 August 2021: GBP101m), and insurance
revenue of GBP154m (26 weeks ended 28 August 2021: GBP94m).
Total
Central Total Tesco at actual
26 weeks ended 28 August 2021 UK & ROI Europe Retail Bank exchange
At actual exchange rates GBPm GBPm GBPm GBPm GBPm
====================================== ======== ======= ======= ===== ==========
Continuing operations
Revenue 28,006 1,977 29,983 433 30,416
Less: Fuel sales (3,013) (72) (3,085) - (3,085)
====================================== ======== ======= ======= ===== ==========
Sales 24,993 1,905 26,898 433 27,331
====================================== ======== ======= ======= ===== ==========
Adjusted operating profit/(loss) 1,318 68 1,386 72 1,458
Adjusting items* (178) 24 (154) - (154)
====================================== ======== ======= ======= ===== ==========
Operating profit/(loss) 1,140 92 1,232 72 1,304
Adjusted operating margin 4.7% 3.4% 4.6% 16.6% 4.8%
====================================== ======== ======= ======= ===== ==========
Share of post-tax profits/(losses) of
joint ventures and associates (3)
Finance income 5
Finance costs (163)
====================================== ======== ======= ======= ===== ==========
Profit/(loss) before tax 1,143
====================================== ======== ======= ======= ===== ==========
* Refer to previous table for footnote.
Balance sheet
The following tables showing segment assets and liabilities
exclude those balances that make up net debt (cash and cash
equivalents, short-term investments, joint venture loans and other
receivables, bank and other borrowings, lease liabilities,
derivative financial instruments and net debt of the disposal
group). With the exception of lease liabilities which have been
allocated to each segment, and Tesco Bank net debt, all other
components of net debt have been included within the unallocated
segment to reflect how these balances are managed. Intercompany
transactions have been eliminated other than intercompany
transactions with Tesco Bank in net debt.
Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank Unallocated operations operations Total
At 27 August 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======= ======= ======= =========== =========== ============ =======
Goodwill and other intangible
assets 4,712 27 625 - 5,364 - 5,364
Property, plant and equipment
and investment property 15,057 1,283 69 - 16,409 - 16,409
Right of use assets 5,211 388 10 - 5,609 - 5,609
Investments in joint ventures
and associates 89 1 - - 90 - 90
Non-current other investments 23 - 1,259 - 1,282 - 1,282
Non-current trade and other
receivables(a) 88 2 31 - 121 - 121
Non-current loans and advances
to customers and banks - - 2,994 - 2,994 - 2,994
Non-current reinsurance assets - - 173 - 173 - 173
Post-employment benefit surplus 1,070 - - - 1,070 - 1,070
Deferred tax assets 2 17 67 - 86 - 86
==================================== ======= ======= ======= =========== =========== ============ =======
Non-current assets(b) 26,252 1,718 5,228 - 33,198 - 33,198
==================================== ======= ======= ======= =========== =========== ============ =======
Inventories and current trade
and other receivables(c) 3,342 355 224 - 3,921 - 3,921
Current loans and advances
to customers and banks - - 3,848 - 3,848 - 3,848
Current reinsurance assets - - 58 - 58 - 58
Current other investments - - 169 - 169 - 169
Total trade and other payables (9,029) (611) (354) - (9,994) - (9,994)
Total customer deposits and
deposits from banks - - (6,469) - (6,469) - (6,469)
Total insurance contract provisions - - (599) - (599) - (599)
Total provisions (352) (30) (38) - (420) - (420)
Deferred tax liabilities (185) (44) - - (229) - (229)
Net current tax 97 (16) 3 - 84 - 84
Post-employment benefit deficit (242) - - - (242) - (242)
Assets of the disposal group
and non-current assets classified
as held for sale 19 235 - - 254 23 277
Net debt (including Tesco
Bank)(d) (7,354) (509) 119 (2,167) (9,911) (14) (9,925)
==================================== ======= ======= ======= =========== =========== ============ =======
Net assets 12,548 1,098 2,189 (2,167) 13,668 9 13,677
==================================== ======= ======= ======= =========== =========== ============ =======
(a) Excludes non-current loans to joint ventures of GBP81m (26
February 2022: GBP9m, 28 August 2021: GBP78m) which form part of
net debt.
(b) Excludes derivative financial instruments of GBP1,001m (26
February 2022: GBP942m, 28 August 2021: GBP1,664m) which form part
of net debt.
(c) Excludes net interest and other receivables of GBP4m (26
February 2022: GBP1m, 28 August 2021: GBPnil), and current loans to
joint ventures of GBP25m (26 February 2022: GBP96m, 28 August 2021:
GBP24m), both forming part of net debt.
(d) Refer to Note 19. Net debt at 27 August 2022 includes net
debt of the disposal group classified as held for sale of GBP(14)m
(26 February 2022: GBP(14)m, 28 August 2021: GBP(19)m).
Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank Unallocated operations operations Total
At 26 February 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======= ======= ======= =========== =========== ============ ========
Goodwill and other intangible
assets 4,700 31 629 - 5,360 - 5,360
Property, plant and equipment
and investment property 15,552 1,462 68 - 17,082 - 17,082
Right of use assets 5,355 354 11 - 5,720 - 5,720
Investments in joint ventures
and associates 85 1 - - 86 - 86
Non-current other investments 12 - 1,241 - 1,253 - 1,253
Non-current trade and other
receivables(a) 91 - 59 - 150 - 150
Non-current loans and advances
to customers and banks - - 3,141 - 3,141 - 3,141
Non-current reinsurance assets - - 184 - 184 - 184
Post-employment benefit surplus 3,150 - - - 3,150 - 3,150
Deferred tax assets 2 19 64 - 85 - 85
==================================== ======= ======= ======= =========== =========== ============ ========
Non-current assets(b) 28,947 1,867 5,397 - 36,211 - 36,211
==================================== ======= ======= ======= =========== =========== ============ ========
Inventories and current trade
and other receivables(c) 2,981 285 239 - 3,505 - 3,505
Current loans and advances
to customers and banks - - 3,349 - 3,349 - 3,349
Current reinsurance assets - - 61 - 61 - 61
Current other investments - - 226 - 226 - 226
Total trade and other payables (8,343) (535) (356) - (9,234) - (9,234)
Total customer deposits and
deposits from banks - - (6,379) - (6,379) - (6,379)
Total insurance contract provisions - - (650) - (650) - (650)
Total provisions (401) (28) (37) - (466) - (466)
Deferred tax liabilities (869) (41) - - (910) - (910)
Net current tax 90 (11) 3 - 82 - 82
Post-employment benefit deficit (303) - - - (303) - (303)
Assets of the disposal group
and non-current assets classified
as held for sale 20 310 - - 330 38 368
Net debt (including Tesco
Bank)(d) (7,350) (474) 300 (2,678) (10,202) (14) (10,216)
==================================== ======= ======= ======= =========== =========== ============ ========
Net assets 14,772 1,373 2,153 (2,678) 15,620 24 15,644
==================================== ======= ======= ======= =========== =========== ============ ========
(a) -(d) Refer to previous table for footnotes.
Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank Unallocated operations operations Total
At 28 August 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======= ======= ======= =========== =========== ============ ========
Goodwill and other intangible
assets 4,719 30 640 - 5,389 - 5,389
Property, plant and equipment
and investment property(e) 15,100 1,454 65 - 16,619 - 16,619
Right of use assets 5,426 371 12 - 5,809 - 5,809
Investments in joint ventures
and associates 83 1 - - 84 - 84
Non-current other investments 9 - 1,209 - 1,218 - 1,218
Non-current trade and other
receivables(a) 99 2 78 - 179 - 179
Non-current reinsurance assets - - 205 - 205 - 205
Non-current loans and advances
to customers and banks - - 3,169 - 3,169 - 3,169
Post-employment benefit surplus - - - - - - -
Deferred tax assets 175 26 69 - 270 - 270
==================================== ======= ======= ======= =========== =========== ============ ========
Non-current assets(b) 25,611 1,884 5,447 - 32,942 - 32,942
==================================== ======= ======= ======= =========== =========== ============ ========
Inventories and current trade
and other receivables(c) 2,804 318 226 - 3,348 - 3,348
Current reinsurance assets - - 52 - 52 - 52
Current loans and advances
to customers and banks - - 3,287 - 3,287 - 3,287
Current other investments - - 348 - 348 - 348
Total trade and other payables (8,270) (533) (305) - (9,108) - (9,108)
Total customer deposits and
deposits from banks - - (6,160) - (6,160) - (6,160)
Total insurance contract provisions - - (655) - (655) - (655)
Total provisions (376) (22) (48) - (446) - (446)
Deferred tax liabilities (11) (40) - - (51) - (51)
Net current tax (125) 2 25 (98) (98)
Post-employment benefit deficit (580) - - - (580) - (580)
Assets of the disposal group
and non-current assets classified
as held for sale 20 328 - - 348 99 447
Liabilities of the disposal
group classified as held for
sale, excluding net debt - - - - - (3) (3)
Net debt (including Tesco
Bank)(d) (7,709) (489) (31) (2,005) (10,234) (19) (10,253)
==================================== ======= ======= ======= =========== =========== ============ ========
Net assets 11,364 1,448 2,186 (2,005) 12,993 77 13,070
==================================== ======= ======= ======= =========== =========== ============ ========
(a) -(d) Refer to previous table for footnotes.
(e) Comparatives have been restated due to a change in
accounting policy. Refer to Note 1 for further details
Other segment information
Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank operations operations Total
26 weeks ended 27 August 2022 GBPm GBPm GBPm GBPm GBPm GBPm
============================================ ===== ======= ===== =========== ============ =====
Capital expenditure (including acquisitions
through business
combinations):
Property, plant and equipment(a) 321 32 5 358 - 358
Goodwill and other intangible assets(b) 141 4 18 163 - 163
Depreciation and amortisation:
Property, plant and equipment (396) (41) (4) (441) - (441)
Right of use assets (250) (18) (1) (269) - (269)
Other intangible assets (112) (5) (22) (139) - (139)
Impairment(c) :
(Loss)/reversal on financial assets (2) (1) (39) (42) - (42)
============================================ ===== ======= ===== =========== ============ =====
(a) Includes GBP42m (26 weeks ended 28 August 2021: GBP1m) of
property, plant and equipment acquired through business
combinations.
(b) Includes GBP31m (26 weeks ended 28 August 2021: GBP38m) of
goodwill and other intangible assets acquired through business
combinations.
(c) Excludes impairment of other non-current assets. Refer to
Note 12.
Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank operations operations Total
26 weeks ended 28 August 2021 GBPm GBPm GBPm GBPm GBPm GBPm
============================================ ===== ======= ===== =========== ============ =====
Capital expenditure (including acquisitions
through business
combinations):
Property, plant and equipment(a) 359 22 5 386 1 387
Goodwill and other intangible assets(b) 81 4 53 138 - 138
Depreciation and amortisation:
Property, plant and equipment (396) (47) (5) (448) - (448)
Right of use assets (248) (18) (1) (267) (1) (268)
Other intangible assets (110) (6) (24) (140) - (140)
Impairment(c) :
(Loss)/reversal on financial assets 2 (1) (21) (20) - (20)
============================================ ===== ======= ===== =========== ============ =====
Cash flow statement
The following tables provide further analysis of the Group cash
flow statement, including a split of cash flows between Retail
continuing operations and Tesco Bank as well as an analysis of
Group continuing and discontinued operations.
Discontinued Tesco
Retail Bank operations Group
============================== ============================= ============ =======
Before Before Tesco
adjusting Adjusting Retail adjusting Adjusting Bank
26 weeks ended 27 August items items Total items items Total Total Total
2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========== ========= ======= ========== ========= ====== ============ =======
Operating profit/(loss) 1,248 (574) 674 67 (5) 62 (7) 729
Depreciation and
amortisation 784 38 822 27 - 27 - 849
ATM net income (9) - (9) 9 - 9 - -
(Profit)/loss arising on
sale of
property, plant and
equipment,
investment property,
intangible
assets, assets held for
sale and
early termination of
leases 5 (81) (76) - - - 2 (74)
Net impairment
loss/(reversal)
on property, plant and
equipment,
right of use assets,
intangible
assets and investment
property - 626 626 - - - - 626
Net remeasurement
(gain)/loss of
non-current assets held
for sale - 3 3 - - - 5 8
Other defined benefit
pension scheme
payments (12) - (12) - - - - (12)
Share-based payments 14 - 14 (1) - (1) - 13
Tesco Bank fair value
movements
included in operating
profit/(loss) - - - 37 - 37 - 37
========================== ========== ========= ======= ========== ========= ====== ============ =======
Cash flows generated from
operations
excluding working capital 2,030 12 2,042 139 (5) 134 - 2,176
(Increase)/decrease in
working
capital 390 (43) 347 (331) 1 (330) (4) 13
========================== ========== ========= ======= ========== ========= ====== ============ =======
Cash generated from/(used
in)
operations 2,420 (31) 2,389 (192) (4) (196) (4) 2,189
Interest paid (306) - (306) (3) - (3) - (309)
Corporation tax paid (45) - (45) (10) - (10) - (55)
========================== ========== ========= ======= ========== ========= ====== ============ =======
Net cash generated
from/(used
in) operating activities* 2,069 (31) 2,038 (205) (4) (209) (4) 1,825
========================== ========== ========= ======= ========== ========= ====== ============ =======
Proceeds from sale of
property,
plant and equipment,
investment
property, intangible
assets and
assets classified as held
for sale 4 297 301 - - - - 301
Purchase of property,
plant and
equipment and investment
property
- other capital
expenditure (393) - (393) (6) - (6) - (399)
Purchase of intangible
assets (114) - (114) (20) - (20) - (134)
Acquisition of
subsidiaries, net
of cash acquired (66) - (66) (5) - (5) - (71)
Increase in loans to joint
ventures
and associates (1) - (1) - - - - (1)
Investments in joint
ventures and
associates (6) - (6) - - - - (6)
Net (investments
in)/proceeds from
sale of short-term
investments (179) - (179) - - - - (179)
Proceeds from sale of
other investments - - - 148 - 148 - 148
Purchase of other
investments (5) - (5) (178) - (178) - (183)
Dividends received from
joint ventures
and associates 5 - 5 - - - - 5
Interest received 12 - 12 - - - - 12
========================== ========== ========= ======= ========== ========= ====== ============ =======
Net cash generated
from/(used
in) investing activities* (743) 297 (446) (61) - (61) - (507)
========================== ========== ========= ======= ========== ========= ====== ============ =======
Own shares purchased for
cancellation (409) - (409) - - - - (409)
Own shares purchased for
share
schemes (4) - (4) - - - - (4)
Repayment of capital
element of
obligations under leases (292) - (292) (2) - (2) - (294)
Repayment of borrowings (29) - (29) - - - - (29)
Cash inflows from
derivative financial
instruments 79 - 79 - - - - 79
Cash outflows from
derivative financial
instruments (274) - (274) - - - - (274)
Dividends paid to equity
holders (578) (1) (579) - - - - (579)
========================== ========== ========= ======= ========== ========= ====== ============ =======
Net cash generated
from/(used
in) financing activities* (1,507) (1) (1,508) (2) - (2) - (1,510)
========================== ========== ========= ======= ========== ========= ====== ============ =======
Net increase/(decrease) in
cash
and cash equivalents (181) 265 84 (268) (4) (272) (4) (192)
========================== ========== ========= ======= ========== ========= ====== ============ =======
Cash and cash equivalents
at the
beginning of the period 1,771
Effect of foreign exchange
rate
changes 5
========================== ========== ========= ======= ========== ========= ====== ============ =======
Cash and cash equivalents
at the
end of the period 1,584
========================== ========== ========= ======= ========== ========= ====== ============ =======
* Refer to page 49 for the reconciliation of the APM: Retail free cash flow.
Discontinued Tesco
Retail Bank operations Group
======================================= =========================== ============ =======
Before Before Tesco
adjusting Adjusting Retail adjusting Adjusting Bank
26 weeks ended 28 August items items Total items items Total Total Total
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========= =================== ======= ========= ========= ===== ============ =======
Operating profit/(loss) 1,386 (154) 1,232 72 - 72 (55) 1,249
Depreciation and
amortisation 787 38 825 30 - 30 1 856
ATM net income (8) - (8) 8 - 8 - -
(Profit)/loss arising on
sale of
property, plant and
equipment,
investment property,
intangible
assets, assets held for
sale and
early termination of
leases (1) (21) (22) - - - 2 (20)
(Profit)/loss arising on
sale of
joint ventures and
associates - - - (10) - (10) - (10)
(Profit)/loss arising on
sale of
subsidiaries - - - - - - 26 26
Net impairment
loss/(reversal)
on property, plant and
equipment,
right of use assets,
intangible
assets and investment
property - (36) (36) - - - - (36)
Net remeasurement
(gain)/loss of
non-current assets held
for sale - (1) (1) - - - (4) (5)
Adjustment for non-cash
element
of pensions charge 6 - 6 - - - - 6
Other defined benefit
pension scheme ( 11
payments (11) - (11) - - - - )
Share-based payments 24 - 24 2 - 2 - 26
Tesco Bank fair value
movements
included in operating
profit/(loss) - - - 19 - 19 - 19
========================== ========= =================== ======= ========= ========= ===== ============ =======
Cash flows generated from
operations
excluding working capital 2,183 (174) 2,009 121 - 121 (30) 2,100
(Increase)/decrease in
working
capital 556 67 623 (277) (4) (281) 26 368
========================== ========= =================== ======= ========= ========= ===== ============ =======
Cash generated from/(used
in)
operations 2,739 (107) 2,632 (156) (4) (160) (4) 2,468
Interest paid (316) - (316) (2) - (2) - (318)
Corporation tax paid (49) - (49) (1) - (1) (2) (52)
========================== ========= =================== ======= ========= ========= ===== ============ =======
Net cash generated
from/(used
in) operating activities* 2,374 (107) 2,267 (159) (4) (163) (6) 2,098
========================== ========= =================== ======= ========= ========= ===== ============ =======
Proceeds from sale of
property,
plant and equipment,
investment
property, intangible
assets and
assets classified as held
for sale - 109 109 - - - - 109
Purchase of property,
plant and
equipment and investment
property
- property buybacks (37) - (37) - - - - (37)
Purchase of property,
plant and
equipment and investment
property
- other capital
expenditure (410) - (410) (5) - (5) (1) (416)
Purchase of intangible
assets (85) - (85) (15) - (15) - (100)
Disposal of subsidiaries,
net of
cash disposed - 125 125 - - - 44 169
Acquisition of businesses,
net
of cash acquired - - - (81) - (81) - (81)
Investments in joint
ventures and
associates (8) - (8) - - - - (8)
Net (investments
in)/proceeds from
sale of short-term
investments (1,320) - (1,320) - - - - (1,320)
Proceeds from sale of
other investments - - - 51 - 51 - 51
Purchase of other
investments - - - (44) - (44) - (44)
Dividends received from
joint ventures
and associates 3 - 3 10 - 10 - 13
Interest received 2 - 2 - - - - 2
========================== ========= =================== ======= ========= ========= ===== ============ =======
Net cash generated
from/(used
in) investing activities* (1,855) 234 (1,621) (84) - (84) 43 (1,662)
========================== ========= =================== ======= ========= ========= ===== ============ =======
Own shares purchased for
share
schemes (55) - (55) - - - - (55)
Repayment of capital
element of
obligations under leases (286) - (286) (1) - (1) (1) (288)
( 47
Repayment of borrowings (26) - (26) (21) - (21) - )
Cash inflows from
derivative financial
instruments 247 - 247 - - - - 247
Cash outflows from
derivative financial
instruments (286) - (286) - - - - (286)
Dividends paid to equity
holders (458) (26) (484) - - - - (484)
========================== ========= =================== ======= ========= ========= ===== ============ =======
Net cash generated
from/(used
in) financing activities* (864) (26) (890) (22) - (22) (1) (913)
========================== ========= =================== ======= ========= ========= ===== ============ =======
Net increase/(decrease) in
cash
and cash equivalents (345) 101 (244) (265) (4) (269) 36 (477)
========================== ========= =================== ======= ========= ========= ===== ============ =======
Cash and cash equivalents
at the
beginning of the period 1,971
Effect of foreign exchange
rate
changes 60
========================== ========= =================== ======= ========= ========= ===== ============ =======
Cash and cash equivalents
at the
end of the period 1,554
========================== ========= =================== ======= ========= ========= ===== ============ =======
Refer to previous table for footnote.
Note 3 Adjusting items
Group income statement
26 weeks ended 27 August 2022
Profit/(loss) for the period included the following adjusting
items:
Total
adjusting Adjusting
items Share items Total
included of joint included adjusting
within venture within items
Cost of Administrative operating and associates Finance discontinued GBPm
sales expenses profit profits/(losses) costs Taxation operations
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======= ============== ========== ================ ======= ======== ============ ===========
Property
transactions(a) 38 43 81 - - (11) - 70
Net impairment
(loss)/reversal
of non-current
assets(b) (620) (6) (626) - - 60 - (566)
Fair value less
cost of disposal
movements on
assets
held for sale - (3) (3) - - - - (3)
Restructuring(c) (2) (5) (7) - - 2 - (5)
Disposal of Asia
operations(d) - 2 2 - - (1) - 1
ATM business
rates
refund(e) 7 - 7 - - (1) - 6
Release of
onerous
contract
provision(f) - 5 5 - - (1) - 4
Amortisation of
acquired
intangible
assets(g) - (38) (38) - - 7 - (31)
Net pension
finance
costs(h) - - - - 40 - - 40
Fair value
remeasurements
of financial
instruments(h) - - - - (75) 12 - (63)
Total adjusting
items from
continuing
operations (577) (2) (579) - (35) 67 - (547)
================= ======= ============== ========== ================ ======= ======== ============ ===========
Adjusting items
relating to
discontinued
operations(i) - - - - - - (7) (7)
================= ======= ============== ========== ================ ======= ======== ============ ===========
Total adjusting
items (577) (2) (579) - (35) 67 (7) (554)
================= ======= ============== ========== ================ ======= ======== ============ ===========
(a) The Group disposed of surplus properties that generated a
profit before tax of GBP81m (26 weeks ended 28 August 2021:
GBP21m). GBP37m relates to the disposal of mall properties in
Central Europe and associated store sale and leasebacks (26 weeks
ended 28 August 2021: GBPnil). Refer to Notes 6 and 11 for further
details.
(b) Refer to Note 12 for further details on net impairment
(loss)/reversal of non-current assets.
(c) Provisions relating to operational restructuring changes
announced as part of 'Save to Invest', a multi-year programme. The
total cost of the programme to date is GBP(51)m. Future cost
savings will not be reported within adjusting items.
(d) GBP4m relates to software licence fee income from services
provided to CP Group as part of the Transitional Services Agreement
relating to the sale of Asia. GBP(2)m relates to payment of
outstanding employer tax liabilities as part of the disposal of
Asia. Costs and income in relation to the disposal of Asia have
been recognised in adjusting items in previous periods.
(e) Ruling that Tesco Group is due a refund of business rates
relating to external facing ATMs in stores in Scotland. Similar
refunds have been recognised through adjusting items in previous
periods.
(f) Release of onerous contract provisions in ROI that had been
charged through adjusting items in previous periods.
(g) Amortisation of acquired intangibles relates to historical
inorganic business combinations and does not reflect the Group's
ongoing trading performance.
(h) Net pension finance costs and fair value remeasurements of
financial instruments are now included within adjusting items, as
they can fluctuate significantly due to external market factors
that are outside management's control. Refer to Note 4 for details
of finance income and costs.
(i) Refer to Note 6 for explanation of adjusting items relating to discontinued operations.
26 weeks ended 28 August 2021
Profit/(loss) for the period included the following adjusting
items:
Total
adjusting Adjusting
items Share items Total
included of joint included adjusting
within venture within items
Cost of Administrative operating and associates Finance discontinued GBPm
sales expenses profit profits/(losses) costs Taxation operations
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ======= ============== ========== ================ ======= ======== ============= ===========
Property
transactions - 21 21 - - - - 21
Net impairment
reversal
of non-current
assets 24 13 37 - - - - 37
Asia licence fee - 19 19 - - (4) - 15
Litigation costs - (193) (193) - - - - (193)
Amortisation of
acquired
intangible
assets - (38) (38) - - (15) - (53)
Fair value
remeasurements
of financial
instruments - - - - 180 (38) - 142
Net pension
finance
costs - - - - (11) 2 - (9)
================ ======= ============== ========== ================ ======= ======== ============= ===========
Total adjusting
items from
continuing
operations 24 (178) (154) - 169 (55) - (40)
================ ======= ============== ========== ================ ======= ======== ============= ===========
Adjusting items
relating to
discontinued
operations - - - - - - (44) (44)
================ ======= ============== ========== ================ ======= ======== ============= ===========
Total adjusting
items 24 (178) (154) - 169 (55) (44) (84)
================ ======= ============== ========== ================ ======= ======== ============= ===========
Group cash flow statement
The table below shows the impact of adjusting items on the Group
cash flow statement:
Cash flows from Cash flows from Cash flows from
operating activities investing activities financing activities
======================= ======================= =======================
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
============================= =========== ========== =========== ========== =========== ==========
Property transactions(a) - - 297 109 - -
Poland sale proceeds and
costs - - - 130 - -
Litigation costs - (105) - - - -
Booker integration cash
payments (1) (14) - - - -
Settlement of claims for
customer redress in Tesco
Bank (2) (4) - - - -
ATM business rates refund(b) 1 12 - - - -
Special dividend - - - - (1) (26)
Disposal of Asia operations (2) - - (5) - -
Restructuring(c) (31) - - - - -
Total continuing operations (35) (111) 297 234 (1) (26)
Cash flows from discontinued
operations - - - 44 - -
Total (35) (111) 297 278 (1) (26)
============================= =========== ========== =========== ========== =========== ==========
(a) Property transactions include GBP27m proceeds (26 weeks
ended 28 August 2021: GBP73m) relating to the sale of stores in
Poland not included in the sale of the corporate business. GBP203m
proceeds (26 weeks ended 28 August 2021: GBPnil) relate to the
disposal of mall properties in Central Europe and the associated
store sale and leasebacks. Refer to Notes 6 and 11 for further
details.
(b) Amounts received in the period with respect to the ruling
that Tesco Group is due a refund of business rates relating to
external facing ATMs in stores in Scotland.
(c) Cash outflows relating to operational restructuring changes
as part of the multi-year 'Save to Invest' programme.
Note 4 Finance income and costs
26 weeks 26 weeks
2022 2021
Continuing operations Notes GBPm GBPm
=================================================== ===== ======== ========
Finance income
Interest receivable and similar income 15 2
Finance income receivable on net investment in
leases 3 3
=================================================== ===== ======== ========
Total finance income 18 5
=================================================== ===== ======== ========
Finance costs
GBP MTNs and loans (78) (82)
EUR MTNs (23) (20)
USD bonds (4) (2)
Finance charges payable on lease liabilities (189) (207)
Other interest payable (14) (21)
Total finance costs before adjusting items (308) (332)
Fair value remeasurements of financial instruments (75) 180
Net pension finance income/(costs) 17 40 (11)
=================================================== ===== ======== ========
Total finance costs (343) (163)
=================================================== ===== ======== ========
Net finance costs (325) (158)
=================================================== ===== ======== ========
Note 5 Taxation
Recognised in the Group income statement
26 weeks 26 weeks
2022 2021
Continuing operations GBPm GBPm
================================================== ======== ========
Current tax charge
UK corporation tax 91 154
Overseas tax 25 28
116 182
================================================== ======== ========
Deferred tax charge
Origination and reversal of temporary differences 32 88
Change in tax rate - 43
32 131
================================================== ======== ========
Total income tax charge 148 313
================================================== ======== ========
Analysed as:
Tax charge/(credit) on adjusted profit 215 258
Tax charge/(credit) on adjusting items (67) 55
================================================== ======== ========
Total income tax charge 148 313
================================================== ======== ========
Effective tax rate 35.8% 27.4%
================================================== ======== ========
Adjusted effective tax rate 20.9% 22.9%
================================================== ======== ========
An increase in the corporation tax rate from 19% to 25%, with an
effective date of 1 April 2023, was substantively enacted on 24 May
2021. Temporary differences have been remeasured using the enacted
tax rates that are expected to apply when the liability is settled
or the asset realised. On 23 September 2022, the government
announced that the planned increase will be cancelled. As this
change was not enacted at the balance sheet date, it has not been
reflected in the measurement of deferred tax balances.
The tax charge in the Group income statement is based on
management's best estimate of the full year effective tax rates by
geographical unit applied to half year profits, which is then
adjusted for tax on adjusting items arising in the period to 27
August 2022. The statutory rate of corporation tax has been applied
to the adjusting items, based on the geographical unit of that
item. Refer to Note 3 for further details.
A deferred tax credit has been recognised in the Group statement
of comprehensive income in relation to the pension surplus due to a
change in the expected manner of recovery. Refer to Note 17 for
further details.
Note 6 Discontinued operations and assets classified as held for
sale
Assets and liabilities of the disposal group and assets
classified as held for sale
27 August 26 February 28 August
2022 2022 2021
GBPm GBPm GBPm
======================================================= ========= =========== =========
Assets of the disposal group(a) 11 11 12
Non-current assets classified as held for sale(b) 266 357 435
======================================================= ========= =========== =========
Total assets of the disposal group and non-current
assets classified as held for sale 277 368 447
Liabilities of the disposal group(a) (14) (14) (22)
======================================================= ========= =========== =========
Total net assets of the disposal group and non-current
assets classified as held for sale 263 354 425
======================================================= ========= =========== =========
(a) The disposal group as at 27 August 2022, including GBP(14)m
of net debt (26 February 2022: GBP(14)m, 28 August 2021: GBP(19)m),
relates to residual properties and leases with respect to the
Group's operation in Poland. Balances as at 26 February 2022 and 28
August 2021 were also with respect to the Group's operation in
Poland.
(b) The assets classified as held for sale consist mainly of
properties in the UK, Poland and Central Europe due to be sold
within one year. Due to the individual nature of each property,
fair values are classified as Level 3 within the fair value
hierarchy.
Assets classified as held for sale
During the period the Group sold 18 malls in Central Europe,
leasing back 17 stores within those sites. Net proceeds from the
sale and leaseback transaction were GBP203m with a profit on
disposal of GBP37m (refer to Note 3). Refer to Note 11 for details
on the leaseback of the stores.
Discontinued operations
Income statement of discontinued operations
26 weeks 26 weeks
2022 2021
======== ====== ======== =====
Poland Poland Other Total
GBPm GBPm GBPm GBPm
======== ====== ======== =====
Revenue - 32 - 32
Operating costs(a) - (34) - (34)
============================================== ======== ====== ======== =====
Adjusted operating profit/(loss) - (2) - (2)
Share of post-tax profits/(losses) of - - - -
joint ventures and associates
Finance (costs)/income - - - -
============================================== ======== ====== ======== =====
Adjusted profit/(loss) before tax - (2) - (2)
Taxation - (3) - (3)
============================================== ======== ====== ======== =====
Adjusted profit/(loss) after tax - (5) - (5)
Loss on disposal of Poland - (26) - (26)
Homeplus (Korea) claims settlement - - (33) (33)
Other adjusting items(b)(c) (7) 2 4 6
Tax on adjusting items - - 9 9
============================================== ======== ====== ======== =====
Total adjusting items (7) (24) (20) (44)
============================================== ======== ====== ======== =====
Total profit/(loss) after tax of discontinued
operations (7) (29) (20) (49)
============================================== ======== ====== ======== =====
(a) Operating costs include GBPnil depreciation and amortisation
charges (26 weeks ended 28 August 2021: GBP(1)m).
(b) Other adjusting items of GBP(7)m in the current period ended
27 August 2022 includes GBP(5)m fair value remeasurement of
non-current assets classified as held for sale and GBP(2)m loss on
disposal of surplus properties.
(c) Other adjusting items of GBP6m in the prior period ended 28
August 2021 includes GBP4m reversal of accruals relating to legal
costs, GBP(2)m costs relating to Poland properties and GBP4m fair
value remeasurement of non-current assets classified as held for
sale.
Cash flow statement
26 weeks 26 weeks
2022 2021
======== ========
Poland Poland
GBPm GBPm
============================================ ======== ========
Net cash flows from operating activities (4) (6)
Net cash flows from investing activities - 43
Net cash flows from financing activities - (1)
============================================ ======== ========
Net cash flows from discontinued operations (4) 36
============================================ ======== ========
Note 7 Dividends
26 weeks 2022
(a) 26 weeks 2021(a)
================= ==================
Pence/share GBPm Pence/share GBPm
============================================ =========== ==== ============ ====
Amounts recognised as distributions to
owners in the financial period:
Paid prior financial year final dividend(b) 7.70 578 5.95 458
Interim dividend declared for the current
period 3.85 288 3.20 247
============================================ =========== ==== ============ ====
(a) Excludes special dividends of GBP1m paid (28 August 2021:
GBP26m).
(b) Excludes GBP10m prior financial year final dividend waived
(28 August 2021: GBP2m).
The interim dividend was approved by the Board of Directors on 4
October 2022. The proposed dividend has not been included as a
liability as at 27 August 2022, in accordance with IAS 10 'Events
after the reporting period'. It will be paid on 25 November 2022 to
shareholders who are on the Register of members at close of
business on 14 October 2022.
A dividend reinvestment plan (DRIP) is available to shareholders
who would prefer to invest their dividends in the shares of the
Company. For those shareholders electing to receive the DRIP, the
last date for receipt of a new election is 4 November 2022.
Note 8 Earnings/(losses) per share and diluted earnings/(losses)
per share
For the 26 weeks ended 27 August 2022 there were 73 million (26
weeks ended 28 August 2021: 69 million) potentially dilutive share
options. As the Group has recognised a profit for the period from
its continuing operations, dilutive effects have been considered in
calculating diluted earnings per share.
26 weeks ended 27 August 26 weeks ended 28 August
2022 2021
============================ ============================
Potentially Potentially
dilutive dilutive
share share
Basic options Diluted Basic options Diluted
============================ ====== =========== ======= ====== =========== =======
Profit/(loss) (GBPm)
Continuing operations* 260 - 260 830 - 830
Discontinued operations (7) - (7) (49) - (49)
============================ ====== =========== ======= ====== =========== =======
Total 253 - 253 781 - 781
============================ ====== =========== ======= ====== =========== =======
Weighted average number
of shares (millions) 7,492 73 7,565 7,685 69 7,754
============================ ====== =========== ======= ====== =========== =======
Earnings/(losses) per share
(pence)
Continuing operations 3.47 (0.03) 3.44 10.80 (0.10) 10.70
Discontinued operations (0.09) - (0.09) (0.64) 0.01 (0.63)
============================ ====== =========== ======= ====== =========== =======
Total 3.38 (0.03) 3.35 10.16 (0.09) 10.07
============================ ====== =========== ======= ====== =========== =======
* Excludes profits from non-controlling interests of GBP5m (26
weeks ended 28 August 2021: GBPnil).
APM: Adjusted diluted earnings per share
26 weeks 26 weeks
Continuing operations Notes 2022 2021
===================================================== ===== ======== ========
Profit/(loss) before tax (GBPm) 413 1,143
(Add)/less: adjusting items (GBPm) 3 614 (15)
===================================================== ===== ======== ========
Adjusted profit before tax (GBPm) 1,027 1,128
===================================================== ===== ======== ========
Adjusted profit before tax attributable to the
owners of the parent (GBPm)* 1,022 1,128
Taxation on adjusted profit before tax attributable
to the owners of the parent (GBPm) (215) (258)
===================================================== ===== ======== ========
Adjusted profit after tax attributable to the
owners of the parent (GBPm) 807 870
===================================================== ===== ======== ========
Basic weighted average number of shares (millions) 7,492 7,685
===================================================== ===== ======== ========
Adjusted basic earnings per share (pence) 10.77 11.32
===================================================== ===== ======== ========
Diluted weighted average number of shares (millions) 7,565 7,754
===================================================== ===== ======== ========
Adjusted diluted earnings per share (pence) 10.67 11.22
===================================================== ===== ======== ========
* Excludes profit before tax attributable to non-controlling
interests of GBP5m (26 weeks ended 28 August 2021: GBPnil).
Note 9 Goodwill and other intangible assets
Goodwill of GBP4,323m (26 February 2022: GBP4,291m, 28 August
2021: GBP4,291m) consists of UK & ROI GBP3,823m (26 February
2022: GBP3,791m, 28 August 2021: GBP3,791m) and Tesco Bank GBP500m
(26 February 2022: GBP500m, 28 August 2021: GBP500m). GBP30m of
goodwill was recognised in UK & ROI during the period.
Other intangible assets of GBP1,041m (26 February 2022:
GBP1,069m, 28 August 2021: GBP1,098m) comprise software of GBP584m
(26 February 2022: GBP557m, 28 August 2021: GBP547m), customer
relationships of GBP380m (26 February 2022: GBP418m, 28 August
2021: GBP456m) and other intangible assets of GBP77m (26 February
2022: GBP94m, 28 August 2021: GBP95m), with additions in the period
of GBP132m (26 February 2022: GBP229m, 28 August 2021: GBP100m)
excluding assets acquired through business combinations.
Of the GBP139m (26 weeks ended 28 August 2021: GBP140m)
amortisation of other intangible assets, GBP38m (26 weeks ended 28
August 2021: GBP38m) arising from the amortisation of intangible
assets acquired through business combinations has been included
within adjusting items. Refer to Note 3 for further details.
Note 10 Property, plant and equipment
27 August 2022 28 August 2021 (restated(a)
)
========================= ===============================
Land and Other Land and Other
buildings (b) Total buildings (b) Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ===== ====== ============= ======= =======
Net carrying value
Opening balance 15,163 1,897 17,060 15,099 1,846 16,945
Foreign currency translation (12) (3) (15) - - -
Additions(c) 126 190 316 164 221 385
Acquired through business
combinations 42 - 42 - 1 1
Reclassification 3 (3) - (69) (2) (71)
Transfers to assets classified
as held for sale (105) (5) (110) (286) (9) (295)
Disposals (42) (4) (46) (15) (10) (25)
Depreciation charge for the
period (214) (227) (441) (213) (235) (448)
Impairment losses(d) (358) (66) (424) (2) - (2)
Reversal of impairment losses(d) 1 5 6 34 4 38
================================= ========== ===== ====== ============= ======= =======
Closing balance 14,604 1,784 16,388 14,712 1,816 16,528
================================= ========== ===== ====== ============= ======= =======
Construction in progress
included above(e) 107 172 279 88 155 243
================================= ========== ===== ====== ============= ======= =======
(a) Comparatives have been restated due to a change in
accounting policy. Refer to Note 1 for further details.
(b) Other assets consist of fixtures and fittings with a net
carrying value of GBP1,330m (26 February 2022: GBP1,387m, 28 August
2021: GBP1,329m), office equipment with a net carrying value of
GBP186m (26 February 2022: GBP200m, 28 August 2021: GBP196m) and
motor vehicles with a net carrying value of GBP268m (26 February
2022: GBP310m, 28 August 2021: GBP291m).
(c) Includes GBPnil (26 February 2022: GBP37m, 28 August 2021:
GBP37m) relating to property buyback transactions.
(d) Refer to Note 12.
(e) Construction in progress does not include land.
Commitments for capital expenditure contracted for, but not
incurred, at 27 August 2022 were GBP309m (26 February 2022:
GBP193m, 28 August 2021: GBP229m), principally relating to store
development.
Note 11 Leases
Group as lessee
Right of use assets
27 August 2022 28 August
2021
======================== ========== ========= =====
Land and Land and
buildings Other Total buildings Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ===== ===== ========== ========= =====
Net carrying value
Opening balance 5,634 86 5,720 5,866 85 5,951
Additions (including sale
and leaseback transactions) 163 42 205 79 12 91
Acquired through business
combinations 4 - 4 - - -
Depreciation charge for the
period (249) (20) (269) (247) (20) (267)
Impairment losses(a) (189) - (189) - - -
Reversal of impairment losses(a) 3 - 3 - - -
Other movements(b) 135 - 135 34 - 34
================================= ========== ===== ===== ========== ========= =====
Closing balance 5,501 108 5,609 5,732 77 5,809
================================= ========== ===== ===== ========== ========= =====
(a) Refer to Note 12.
(b) Other movements include lease terminations, modifications
and reassessments, foreign exchange, reclassifications between
asset classes and entering into finance subleases.
Lease liabilities
The following table shows the discounted lease liabilities
included in the Group balance sheet and the contractual
undiscounted lease payments:
27 August 26 February 28 August
2022 2022 2021
GBPm GBPm GBPm
================================== ========= =========== =========
Current 591 547 557
Non-current 7,408 7,411 7,670
================================== ========= =========== =========
Total lease liabilities 7,999 7,958 8,227
================================== ========= =========== =========
Total undiscounted lease payments 11,463 11,515 12,175
================================== ========= =========== =========
A reconciliation of the Group's opening to closing lease
liabilities balance is presented in Note 19.
Sale and leaseback
During the period the Group sold 18 malls in Central Europe,
leasing back 17 stores within those sites. Refer to Note 6 for
details on the net proceeds and profit from the transaction. The
stores are being leased back over a 15-year lease term at
below-market rentals, and the store leases have resulted in lease
liability additions of GBP36m. The sale and leaseback transaction
allows the Group to relinquish control over the malls while
continuing to operate the stores within those sites.
Note 12 Impairment of non-current assets
Impairment losses and reversals
No impairment of goodwill was recognised in the current period
to 27 August 2022 (26 weeks ended 28 August 2021: GBPnil).
The table below summarises the Group's pre-tax impairment losses
and reversals on other non-current assets, aggregated by segment
due to the large number of individually immaterial store
cash-generating units. This includes any losses recognised
immediately prior to classifying an asset or disposal group as held
for sale but excludes all impairments post classification as held
for sale. There were no impairment losses or reversals in the
period (26 weeks ended 28 August 2021: GBPnil) with respect to
investments in joint ventures and associates and no impairments in
other non-current assets in Tesco Bank (26 weeks ended 28 August
2021: GBPnil). All impairment losses and reversals are classified
as adjusting items (26 weeks ended 28 August 2021: GBP36m net
reversal).
UK & ROI Central Europe Total Net
====================== ====================== ====================== ===============
Impairment Impairment Impairment Impairment Impairment Impairment Impairment
loss reversal loss reversal loss reversal (loss)/reversal
26 weeks ended 27 August 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ========== ========== ========== ========== ========== ===============
Group balance sheet
Other intangible assets (19) - (3) - (22) - (22)
Property, plant and equipment (393) 4 (31) 2 (424) 6 (418)
Right of use assets (180) 2 (9) 1 (189) 3 (186)
Investment property (1) 1 - - (1) 1 -
============================== ========== ========== ========== ========== ========== ========== ===============
Total impairment
(loss)/reversal
of other non-current asset s (593) 7 (43) 3 (636) 10 (626)
============================== ========== ========== ========== ========== ========== ========== ===============
Group income statement
Cost of sales (585) 5 (43) 3 (628) 8 (620)
Administrative expenses (8) 2 - - (8) 2 (6)
============================== ========== ========== ========== ========== ========== ========== ===============
Total impairment
(loss)/reversal
from continuing operations (593) 7 (43) 3 (636) 10 (626)
============================== ========== ========== ========== ========== ========== ========== ===============
UK & ROI Central Europe Total Net
====================== ====================== ====================== ===============
Impairment Impairment Impairment Impairment Impairment Impairment Impairment
loss reversal loss reversal loss reversal (loss)/reversal
26 weeks ended 28 August 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================== ========== ========== ========== ========== ========== ========== ===============
Group balance sheet
Other intangible assets - - - - - - -
Property, plant and equipment (2) 14 - 24 (2) 38 36
Right of use assets - - - - - - -
Investment property - - - - - - -
============================== ========== ========== ========== ========== ========== ========== ===============
Total impairment
(loss)/reversal
of other non-current asset s (2) 14 - 24 (2) 38 36
============================== ========== ========== ========== ========== ========== ========== ===============
Group income statement
Cost of sales - - - 24 - 24 24
Administrative expenses (2) 14 - - (2) 14 12
============================== ========== ========== ========== ========== ========== ========== ===============
Total impairment
(loss)/reversal
from continuing operations (2) 14 - 24 (2) 38 36
============================== ========== ========== ========== ========== ========== ========== ===============
The Group considered whether the large degree of uncertainty in
the wider macroeconomic environment, exacerbated by the war in
Ukraine impacting global energy markets and food prices and
accompanied by an increase in the Bank of England's base rate,
represented a significant impairment indicator as at 27 August
2022. Management concluded that the increase in discount rates in
particular was a significant impairment indicator and therefore a
full impairment test was undertaken.
The net impairment charge principally relates to the increase in
discount rates. Other key inputs, including the latest
Board-approved annual long-term plan and related cashflow
forecasts, have been assessed and remain largely unchanged since
the previous year end. Management considered the level of risk
included in the impairment cash flow scenarios and concluded their
probability weightings remain appropriate but has extended the
reasonably possible movements in the other sensitivities
disclosed.
The impairment methodology is unchanged from that described in
Note 15 of the Annual Report and Financial Statements 2022.
Key assumptions and sensitivity
Key assumptions
For value in use calculations, the key assumptions to which the
recoverable amounts are most sensitive are discount rates,
long-term growth rates and future cash flows (incorporating sales
volumes and prices and costs). For fair value less costs of
disposal calculations, the key assumption is property fair
values.
The discount rates and long-term growth rates for the Group's
portfolio of store cash-generating units, aggregated by segment due
to the large number of individually immaterial store
cash-generating units, are:
UK & ROI Central Europe
27 August 26 February 28 August 27 August 26 February 28 August
2022 2022 2021 2022 2022 2021
% % % % % %
======================== ========= =========== ========= ========= =========== =========
Pre-tax discount rates 6.9 - 5.4 - 4.8 - 7.7 - 5.7 - 5.0 -
9.3 7.8 7.3 15.9 11.3 7.9
Post-tax discount rates 6.0 - 4.7 - 4.2 - 6.1 - 4.5 - 4.0 -
7.0 5.8 5.5 12.4 8.8 7.2
1.7 - 2.0 - 2.0 - 2.0 -
Long-term growth rates 1.9 1.9 2.1 3.1 3.0 3.3
======================== ========= =========== ========= ========= =========== =========
Sensitivity
The Group has carried out sensitivity analyses on the reasonably
possible changes in key assumptions in the impairment tests for (a)
each group of cash-generating units to which goodwill has been
allocated and (b) for its portfolio of store cash-generating units.
Management has extended the reasonably possible movements in the
sensitivities disclosed given the level of volatility seen in these
inputs since the year end, driven by the wider macroeconomic
environment.
(a) Except for Tesco Bank goodwill, neither a reasonably
possible increase of 3.0%pt in discount rates, a 10% decrease in
future cash flows nor a 1.0%pt decrease in long-term growth rates
would indicate impairment in any group of cash-generating units to
which goodwill has been allocated. For Tesco Bank, the following
table shows the assumptions adopted, the amount by which these
assumption values would have to change to make the recoverable
amount equal to the carrying value, and the impact of reasonably
possible changes to these assumptions on potential goodwill
impairment:
Reasonably possible Impact on impairment
Key assumption Assumption value Headroom sensitivity change GBPm
=================== ================ ==================== =================== ====================
Post-tax discount Increase of
rates 12.0% 0.6%pts Increase of 3.0%pt (393)
Annual equity cash Decrease of
flows Variable 7.7% Decrease of 10.0% (34)
=================== ================ ==================== =================== ====================
Long-term growth Decrease of
rates 1.6% 0.8%pts Decrease of 1.0%pt (30)
=================== ================ ==================== =================== ====================
(b) While there is not a significant risk of an adjustment to
the carrying amount of any one store cash-generating unit that
would be material to the Group as a whole in the next financial
year, the table below summarises the reasonably possible changes in
key assumptions which most impact the impairment of the Group's
entire portfolio of store cash-generating units, presented in
aggregate due to the large number of individually immaterial store
cash-generating units. The impairment is not highly sensitive to
the probability weightings assigned to the cash flow scenarios.
27 August
2022
Key assumption Reasonably possible change Impact on impairment GBPm
================== ====================================== ===================== =========
Post-tax discount Increase of 3.0%pt for each
rates* geographic region Increase (1,384)
Decrease of 2.0%pt for each
geographic region Decrease 857
================== ====================================== ===================== =========
Increase of 10.0% for each geographic
Future cash flows region Decrease 284
Decrease of 10.0% for each geographic
region Increase (320)
================== ====================================== ===================== =========
Long-term growth Increase of 1.0%pt for each
rates geographic region Decrease 292
Decrease of 1.0%pt for each
geographic region Increase (283)
================== ====================================== ===================== =========
Property fair Increase of 10.0% for each geographic
values region Decrease 198
Decrease of 10.0% for each geographic
region Increase (197)
================== ====================================== ===================== =========
* Sensitivities are applied to post-tax discount rates used to
derive the pre-tax discount rates.
Note 13 Cash and cash equivalents and short-term investments
Cash and cash equivalents
27 August 26 February 28 August
2022 2022 2021
GBPm GBPm GBPm
=============================================== ========= =========== =========
Cash at bank and on hand 2,397 2,322 2, 198
Short-term deposits 38 23 21
=============================================== ========= =========== =========
Cash and cash equivalents in the Group balance
sheet 2,435 2,345 2,219
Bank overdrafts (851) (574) (665)
=============================================== ========= =========== =========
Cash and cash equivalents in the Group cash
flow statement 1,584 1,771 1,554
=============================================== ========= =========== =========
Short-term investments
27 August 26 February 28 August
2022 2022 2021
GBPm GBPm GBPn
=========================================== ========= =========== =========
Money market funds and similar instruments 2,256 2,076 2,331
=========================================== ========= =========== =========
Cash and cash equivalents includes GBP78m (26 February 2022:
GBP84m, 28 August 2021: GBP84m) of restricted amounts mainly
relating to the Group's pension schemes and employee benefit
trusts.
Note 14 Commercial income
Below are the commercial income balances included within
inventories and trade and other receivables, or netted against
trade and other payables. Amounts received in advance of income
being earned are included in accruals.
27 August 26 February 28 August
2022 2022 2021
GBPm GBPm GBPm
============================ ========= =========== =========
Current assets
Inventories (12) (15) (14)
Trade and other receivables
Trade/other receivables 61 68 69
Accrued income 106 124 101
============================ ========= =========== =========
Current liabilities
Trade and other payables
Trade payables 81 112 120
Accruals (8) - (1)
============================ ========= =========== =========
Note 15 Borrowings
Borrowings are classified as current and non-current based on
their scheduled repayment dates. Repayments of principal amounts
are classified as current if the repayment is scheduled to be made
within one year of the balance sheet date. During the 26 week
period ended 27 August 2022, the Group has made principal
repayments of GBP25m (26 week ended 28 August 2021: GBP24m), and
there has been no issuance of borrowings (26 week ended 28 August
2021: GBPnil).
Current
27 August 28 August
2022 26 February 2021
GBPm 2022 GBPm GBPm
========================== ========= =========== =========
Bank loans and overdrafts 882 605 693
Borrowings* 173 120 527
============================ ========= =========== =========
1,055 725 1,220
========================== ========= =========== =========
Non-current
27 August 26 February
2022 2022 28 August
GBPm GBPm 2021 GBPm
============ ========= =========== ==========
Borrowings* 6,523 6,674 6,130
============== ========= =========== ==========
* GBP1m of current and GBP234m of non-current borrowings (26
February 2022: GBP1m and GBP243m, 28 August 2021: GBPnil and
GBP250m) relate to borrowings issued by Tesco Bank.
Borrowing facilities
The Group has a GBP2.5bn undrawn committed facility available at
27 August 2022 (26 February 2022: GBP2.5bn, 28 August 2021:
GBP2.5bn), in respect of which all conditions precedent had been
met as at that date, consisting of a syndicated revolving credit
facility expiring in more than two years. The facility incurs
commitment fees at market rates and would provide funding at
floating rates. There were no utilisations of the facility during
the financial period to 27 August 2022 (26 weeks ended 28 August
2021: GBPnil).
Note 16 Financial instruments
The fair values of financial instruments are determined by
reference to prices available from the markets on which the
instruments are traded, where they are available. Where market
prices are not available, the fair value is calculated by
discounting expected future cash flows at prevailing interest
rates. The fair value of financial assets and liabilities measured
at amortised cost is shown below.
The expected maturity of financial assets and liabilities is not
considered to be materially different to their current and
non-current classification.
Fair value of financial assets and liabilities measured at
amortised cost
The table excludes cash and cash equivalents, short-term
investments, trade receivables/payables, other
receivables/payables, accruals and deposits from banks where the
carrying values approximate fair value. The levels in the table
refer to the fair value measurement.
26 February 28 August
27 August 2022 2022 2021
================= ================= =================
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
Level GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ===== ======== ======= ======== ======= ======== =======
Financial assets measured
at amortised cost
Loans and advances to customers 3 6,842 6,893 6,490 6,566 6,405 6,559
Loans and advances to banks 3 - - - - 51 51
Investment securities at amortised 1 and
cost(a) 2 875 879 857 867 929 934
Joint ventures and associates
loan receivables(b) 2 106 112 105 126 102 130
=================================== ===== ======== ======= ======== ======= ======== =======
Financial liabilities measured
at amortised cost
Borrowings
1 and
Amortised cost(a) 2 (5,364) (5,781) (5,057) (5,942) (4,558) (5,711)
Bonds in fair value hedge
relationships 1 (2,214) (2,223) (2,342) (2,401) (2,792) (2,913)
Customer deposits 3 (5,526) (5,432) (5,327) (5,296) (5,035) (5,038)
=================================== ===== ======== ======= ======== ======= ======== =======
(a) These are principally Level 1 instruments.
(b) Joint ventures and associates loan receivables carrying
amounts of GBP106m (26 February 2022: GBP105m, 28 August 2021:
GBP102m) are presented in the Group balance sheet net of deferred
profits of GBP38m (26 February 2022: GBP38m, 28 August 2021:
GBP38m) historically arising from the sale of property assets to
joint ventures.
Fair value measurement by level of fair value hierarchy
The following table presents the Group's financial assets and
liabilities that are measured at fair value, by level of fair value
hierarchy:
-- quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices) (Level 2);
and
-- inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
Level 2 assets are valued by discounting future cash flows using
externally sourced market yield curves, including interest rate
curves and foreign exchange rates from highly liquid markets. For
Level 3 assets, uncollateralised derivates are valued as per Level
2 but include certain data sources which are significantly less
liquid; unlisted investments are valued based on less observable
inputs such as recent funding rounds.
Level Level Level
1 2 3 Total
At 27 August 2022 GBPm GBPm GBPm GBPm
========================================= ===== ===== ===== =====
Assets
Investments at fair value through other
comprehensive income 533 - 18 551
Cash and cash equivalents at fair value
through profit or loss - 56 - 56
Investments at fair value through profit
or loss - 24 1 25
Derivative financial instruments:
Interest rate swaps - 119 - 119
Cross-currency swaps - 32 182 214
Index-linked swaps - 117 559 676
Forward contracts - 151 - 151
========================================= ===== ===== ===== =====
Total assets 533 499 760 1,792
========================================= ===== ===== ===== =====
Liabilities
Derivative financial instruments:
Interest rate swaps - (135) - (135)
Cross-currency swaps - (132) - (132)
Forward contracts - (28) - (28)
========================================= ===== ===== ===== =====
Total liabilities - (295) - (295)
========================================= ===== ===== ===== =====
Net assets/(liabilities) 533 204 760 1,497
========================================= ===== ===== ===== =====
Level Level Level
1 2 3 Total
At 26 February 2022 GBPm GBPm GBPm GBPm
========================================= ====== ====== ====== ======
Assets
Investments at fair value through other
comprehensive income 585 - 12 597
Cash and cash equivalents at fair value
through profit or loss - 26 - 26
Investments at fair value through profit
or loss - 23 2 25
Derivative financial instruments:
Interest rate swaps - 55 - 55
Cross-currency swaps - 25 198 223
Index-linked swaps - 115 551 666
Forward contracts - 67 - 67
========================================= ====== ====== ====== ======
Total assets 585 311 763 1,659
========================================= ====== ====== ====== ======
Liabilities
Derivative financial instruments:
Interest rate swaps - (273) - (273)
Cross-currency swaps - (85) - (85)
Forward contracts - (25) - (25)
========================================= ====== ====== ====== ======
Total liabilities - (383) - (383)
========================================= ====== ====== ====== ======
Net assets/(liabilities) 585 (72) 763 1,276
========================================= ====== ====== ====== ======
Level Level Level
1 2 3 Total
At 28 August 2021 GBPm GBPm GBPm GBPm
========================================= ====== ======= ====== =======
Assets
Investments at fair value through other
comprehensive income 603 - 9 612
Cash and cash equivalents at fair value
through profit or loss - 26 - 26
Investments at fair value through profit
or loss - 23 2 25
Derivative financial instruments:
Interest rate swaps - 38 - 38
Cross-currency swaps - 284 - 284
Index-linked swaps - 1,339 - 1,339
Forward contracts - 47 - 47
========================================= ====== ======= ====== =======
Total assets 603 1,757 11 2,371
========================================= ====== ======= ====== =======
Liabilities
Derivative financial instruments:
Interest rate swaps - (368) - (368)
Cross-currency swaps - (37) - (37)
Index-linked swaps - (583) - (583)
Forward contracts - (29) - (29)
========================================= ====== ======= ====== =======
Total liabilities - (1,017) - (1,017)
========================================= ====== ======= ====== =======
Net assets/(liabilities) 603 740 11 1,354
========================================= ====== ======= ====== =======
During the period, there were no transfers (26 February 2022: no
transfers, 28 August 2021: no transfers) between Level 1 and Level
2 fair value measurements.
Level 3 Instruments
During the period, there was a GBP1m transfer out of Level 3
fair value remeasurement into Level 2 (26 February 2022: GBP749m
transfer into Level 3 from Level 2, 28 August 2021: no
transfers).
The valuation techniques and significant unobservable inputs are
unchanged in the period from that described in Note 25 of the
Annual Report and Financial Statements 2022.
The following table presents the changes in Level 3
instruments:
26 weeks ended 52 weeks ended
27 August 2022 26 February 2022
============================== ==============================
Uncollateralised Unlisted Uncollateralised Unlisted
derivatives investments derivatives investments
GBPm GBPm GBPm GBPm
============================================ ================ ============ ================ ============
At the beginning of the period 749 14 - 11
Gains/(losses) recognised in finance
costs* (37) - - -
Gains/(losses) recognised in other
comprehensive income not reclassified
to the income statement - 6 - 4
Gains/(losses) recognised in other
comprehensive income that may subsequently
be reclassified to the income statement 29 - - -
Additions - - - 1
Disposals - - - (2)
Transfers into/(out) of Level 3 - (1) 749 -
At the end of the period 741 19 749 14
============================================ ================ ============ ================ ============
* All gains or losses are unrealised.
Tesco Bank expected credit losses (ECL)
Tesco Bank has commissioned four scenarios from its third-party
provider, all of which were based on an economic outlook that
sought to take account of the ramifications of ongoing
cost-of-living pressures. These scenarios include a Base scenario,
an Upside scenario and two different Downside scenarios. As the
economic outlook continues to remain uncertain, the scenarios are
based on the varying levels of inflation and energy cost increases.
The Base scenario assumes a 55% rise in the Ofgem price cap,
inflation peaking at 11.5% by Q4 2022 with interest rates reaching
3% in 2023 and a technical recession in late 2022. The Upside
scenario sees less severe impacts to global energy markets than
initially feared, with a 10.4% inflation peak and robust nominal
pay growth driving spending. The Downside 1 scenario assumes
further increases in the Bank of England base rate to 4% by 2023,
an Ofgem price cap rise of 65% and inflation peaking at 12.6%.
Downside 2 is similar to the previous scenario but postulates
higher and longer inflation peaks necessitating further increases
in the Bank of England base rate to 5% in 2023, and additional
geopolitical tensions further impacting global energy markets.
These scenarios are also reviewed to ensure an unbiased estimate of
ECL by ensuring the credit loss distribution under a larger number
of scenarios is adequately captured using these four scenarios and
their respective weightings. The Base, Upside, Downside 1 and
Downside 2 scenarios have been assigned weighting of 40%, 30%, 25%
and 5% respectively.
The economic scenarios used include the following ranges of key
indicators:
Downside Downside
Base Upside 1 2
As at 27 August 2022 (five-year average) 40% 30% 25% 5%
========================================= ===== ====== ======== ========
Bank of England base rate(a) 2.4% 2.0% 3.0% 3.9%
Gross domestic product(b) 1.2% 1.6% 0.8% 0.4%
Unemployment rate(a) 4.8% 4.1% 5.6% 7.1%
Unemployment rate peak in year 4.9% 4.1% 5.9% 7.5%
========================================= ===== ====== ======== ========
Downside Downside
Base Upside 1 2
As at 28 August 2021 (five-year average) 40% 30% 25% 5%
========================================= ===== ====== ======== ========
Bank of England base rate(a) 0.4% 0.6% 0.2 % 0.0%
Gross domestic product(b) 3.2% 3.7% 2.8 % 2.3%
Unemployment rate(a) 5.0% 4.5% 6.2 % 8.2%
Unemployment rate peak in year 5.3% 4.8% 6.8 % 9.1%
========================================= ===== ====== ======== ========
(a) Simple average.
(b) Annual growth rates.
Key assumptions and sensitivity
The key assumptions to which the Tesco Bank ECL is most
sensitive are macroeconomic factors, probability of default (PD),
loss given default (LGD), PD threshold (staging), and expected
lifetime (revolving credit facilities). The table below sets out
the changes in the ECL allowance that would arise from reasonably
possible changes in these assumptions from those used in Tesco
Bank's calculations as at 27 August 2022 and excludes specific
management overlays which are discussed further below.
Impact on the loss
allowance
27 August 26 February 28 August
2022 2022 2021
Key assumption Reasonably possible change GBPm GBPm GBPm
================================= =========================== ========= =========== =========
Closing ECL allowance 472 489 579
============================================================== ========= =========== =========
Macroeconomic factors (100%
weighted) Upside scenario (47) (27) (28)
Base scenario (9) (13) (8)
Downside scenario 1 45 31 31
Downside scenario 2 139 110 79
============================================================= ========= =========== =========
Probability of default Increase of 2.5% 9 6 7
Decrease of 2.5% (9) (6) (7)
================================= =========================== ========= =========== =========
Loss given default Increase of 2.5% 9 7 9
Decrease of 2.5% (9) (7) (9)
================================= =========================== ========= =========== =========
Probability of default threshold
(staging) Increase of 20% (17) (9) (9)
Decrease of 20% 19 13 12
============================================================= ========= =========== =========
Expected lifetime (revolving
credit facility) Increase of 1 year 18 11 11
Decrease of 1 year (19) (10) (10)
============================================================= ========= =========== =========
The economic forecasts received by the Group during the period
suggest that downside risks associated with the COVID -- 19
pandemic have largely receded. There remains ongoing uncertainty in
the wider macroeconomic environment, mainly as a result of
geopolitical tensions, which are impacting global energy markets
and food prices, driving up the rate inflation and amplifying the
cost-of-living crisis. The economic environment experienced over
the past two years, coupled with the unprecedented nature of
government support measures, has broken the historically observed
relationship between unemployment and default, on which the models
are based. As a result, Tesco Bank has recognised certain specific
management overlays, to address the prevailing downside risks and
ensure the potential impacts of future stress are adequately
provided for, detailed below:
27 August 26 February 28 August
2022 2022 2021
Overlay Description of adjustment GBPm GBPm GBPm
========================== ================================ ========= =========== =========
Volatility in energy prices
around the reporting date,
with subsequent impact on
the macroeconomic environment,
indicate the potential for
a more severe and lengthy
downturn than modelled in
the third-party economic
Macroeconomic uncertainty scenarios 53 - -
========================== ================================ ========= =========== =========
In respect of the beneficial
modelling impact of lower
consumer spending through
Consumer spending(a) the pandemic 46 113 174
========================== ================================ ========= =========== =========
A portion of Tesco Bank's
customers may be more impacted
by cost-of-living pressures,
with deterioration in their
ability to repay unsecured
Cost of living(b) lending balances 45 75 -
========================== ================================ ========= =========== =========
The emergence of defaults
Emergence of customer will be more aligned with
defaults previous economic downturns - 19 57
========================== ================================ ========= =========== =========
Further potential inflationary
pressures on cost of living,
now incorporated into the
War in Ukraine economic scenarios - 6 -
========================== ================================ ========= =========== =========
Increase in credit risk
in respect of customers
who sought an extension
to their initial payment
Payment holidays holiday - - 9
========================== ================================ ========= =========== =========
Total overlays 144 213 240
============================================================ ========= =========== =========
(a) An increase or decrease of 10% on the adjustment for lower
drawn balances would not result in a material increase or decrease
of this management overlay.
(b) Expanding the affected population to include customers who
are five points lower on the indebtedness index would increase the
overlay by GBP27m.
Movements in the management overlays above also reflect
incorporation over time of the identified risks into the modelled
scenarios and, in the case of the consumer spending overlay,
portfolio utilisation moving back towards pre-pandemic levels.
On 23 September 2022, the government announced its Growth Plan
2022, setting out the government's approach to creating economic
growth. This was preceded earlier in September 2022 by confirmation
of the Energy Price Guarantee, which limits the price energy
suppliers can charge customers and is aimed at reducing the burden
of rising energy prices on consumers and businesses as well as
curbing inflation by 4 to 5 percentage points. The Bank of England
also raised the base rate of interest by 50 basis points to 2.25%
in September 2022. Whilst the government did not publish economic
scenario information alongside its Growth Plan 2022 which would
show the potential future impact of these measures, including their
impact on the timing and extent of future interest rate increases,
management considers that the sensitivities cover a suitably broad
range of potential outcomes as at 27 August 2022.
Note 17 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit
arrangements, covering both funded and unfunded defined benefit
schemes and defined contribution schemes.
The principal defined benefit pension plan within the Group is
the Tesco PLC Pension Scheme (the Scheme), a UK scheme closed to
future accrual. The latest triennial actuarial pension funding
valuation for the Scheme as at 31 March 2022 using a projected unit
credit method has shown a funding surplus of GBP0.9bn. It was
agreed with the Scheme Trustee that no pension deficit
contributions would be required and that the expense payments made
to the Scheme by the Group, including the Pension Protection Fund
levy, will reduce to GBP17m per annum (currently GBP25m per annum)
from October 2022. It was also agreed to reduce the investment risk
within the Scheme to further reduce the likelihood of deficit
contributions being required in the future.
The Republic of Ireland (ROI) defined benefit pension schemes
were closed to future accrual in March 2022. Following this, a new
defined contribution scheme was launched for colleagues in the
ROI.
Tax on schemes in surplus
Several schemes, including the Scheme, are in an accounting
surplus position. These surpluses are recognised on the balance
sheet in line with IFRIC 14, as the Group has an unconditional
legal right to any future economic benefits by way of future
refunds.
The tax treatment of the surpluses is based on the expected
manner of recovery (through reduction of future contributions or
from refunds) with the former giving rise to a deferred tax
liability and the latter a withholding tax that does not represent
an income tax of the Group. Management's judgement is that the
recovery will now ultimately be via future refunds as opposed to
through reduction of future contributions, due to improvements
noted in the most recent funding valuation and the substantial
investment de-risking that occurred during the period that reduces
the risk of future contributions being required. The surplus is
therefore recognised net of a withholding tax of 35%, which would
be levied prior to the future refund of any surplus.
Movement in the Group pension surplus/(deficit) during the
financial period
Net defined benefit surplus/(deficit)
=========================================
27 August 26 February 28 August
2022 2022 2021
GBPm GBPm GBPm
========================================== ============ ============== ===========
Opening balance 2,847 (1,222) (1,222)
Current service cost (13) (39) (21)
Settlement charge(a) - (1) -
Finance income/(cost) 40 (22) (11)
Included in the Group income statement 27 (62) (32)
========================================== ============ ============== ===========
Remeasurement gain/(loss):
Financial assumptions gain/(loss) 5,107 1,881 (3,562)
Demographic assumptions gain/(loss) (454) 21 23
Experience gain/(loss) (1,022) (212) 5
Return on plan assets excluding finance
income (5,125) 2,385 4,180
Foreign currency translation (1) 4 2
Included in the Group statement of
comprehensive income/(loss) (1,495) 4,079 648
========================================== ============ ============== ===========
Employer contributions 13 33 15
Additional employer contributions 10 16 9
Benefits paid 2 3 2
Other movements 25 52 26
========================================== ============ ============== ===========
Withholding tax on surplus(b) (576) - -
========================================== ============ ============== ===========
Closing balance 828 2,847 (580)
Consisting of:
Schemes in deficit (242) (303) (580)
Schemes in surplus(c) 1,070 3,150 -
========================================== ============ ============== ===========
Surplus/(deficit) in schemes at the
end of the period 828 2,847 (580)
Deferred tax asset/(liability) 56 (726) 125
========================================== ============ ============== ===========
Surplus/(deficit) in schemes at the
end of the period, net of deferred tax 884 2,121 (455)
========================================== ============ ============== ===========
(a) Settlement charge on Londis Scheme wind-up.
(b) Recognised through other comprehensive income in
remeasurements of defined benefit pension schemes.
(c) Schemes in surplus are presented on the balance sheet net of
a 35% withholding tax.
Scheme principal assumptions
The principal assumptions used to value the defined benefit
obligation of the Scheme are as follows:
27 August 26 February 28 August
2022 2022 2021
% % %
================================================ ========= =========== =========
Discount rate 4.0 2.8 1.6
Price inflation 3.2 3.3 3.2
Rate of increase in deferred pensions* 2.8 2.9 2.8
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012 3.1 3.1 3.0
Benefits accrued after 1 June 2012 2.7 2.8 2.7
================================================ ========= =========== =========
* In excess of any guaranteed minimum pension (GMP) element.
If the discount rate assumption increased by 3.0%, the Scheme
defined benefit obligation would decrease by approximately
GBP5,865m respectively. If this assumption decreased by 3.0%, the
Scheme defined benefit obligation would increase by approximately
GBP15,014m respectively.
If the inflation assumption increased by 3.0%, the Scheme
defined benefit obligation would increase by approximately
GBP9,328m respectively. If this assumption decreased by 3.0%, the
Scheme defined benefit obligation would decrease by approximately
GBP5,462m respectively.
Movements in the defined benefit obligation from discount rate
and inflation rate changes will be partially offset by movements in
assets.
Note 18 Called-up share capital and reserves
26 weeks ended 52 weeks ended
27 August 2022 26 February 2022
Ordinary shares Ordinary shares
of 6 1/3 p each of 6 1/3 p each
=================== ===================
Number GBPm Number GBPm
====================================
Allotted, called-up and fully paid:
At the beginning of the year 7,637,986,531 484 7,731,707,820 490
Shares purchased and cancelled (155,224,570) (10) (93,721,289) (6)
==================================== ============= ==== ============= ====
At the end of the financial period 7,482,761,961 474 7,637,986,531 484
==================================== ============= ==== ============= ====
No shares were issued during the current or prior financial
period in relation to share options or bonus awards. The holders of
Ordinary shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at general
meetings of the Company.
Own shares held
The Group had cash outflows in the period of GBP409m for shares
purchased for cancellation (26 weeks ended 28 August 2021: GBPnil).
This included GBP23m relating to the settlement of share repurchase
agreements with external banks recognised as a financial liability
as at 26 February 2022 (26 weeks ended 28 August 2021: GBPnil) and
other minor movements of GBP1m (26 weeks ended 28 August 2021:
GBPnil). The average purchase price was GBP2.64 per share (26 weeks
ended 28 August 2021: n/a). A financial liability of GBP66m (26
February 2022: GBP23m, 28 August 2021: GBPnil) in respect of shares
purchased for cancellation to be delivered under share repurchase
agreements is included in other payables.
155.2 million shares (26 weeks ended 28 August 2021: Nil),
including 4.8 million shares purchased not yet cancelled as at 26
February 2022, were cancelled during the period, with a total
consideration of GBP411m charged to retained earnings (26 weeks
ended 28 August 2021: GBPnil). As at 27 August 2022, 4.3 million
shares (26 weeks ended 28 August 2021: Nil) were not yet cancelled
with a total consideration of GBP11m (26 weeks ended 28 August
2021: GBPnil).
The Group had cash outflows in the period of GBP4m for shares
purchased for share schemes (26 weeks ended 28 August 2021:
GBP55m). This included GBP49m relating to the settlement of share
repurchase agreements with external banks recognised as a financial
liability as at 26 February 2022 (26 weeks ended 28 August 2021:
GBPnil), purchases in the period of GBPnil (26 weeks ended 28
August 2021: GBP91m), and GBP45m cash received from employees
exercising SAYE options (26 weeks ended 28 August 2021:
GBP36m).
Note 19 Analysis of changes in net debt
Net debt, as defined in the Glossary, excludes the net debt of
Tesco Bank but includes that of discontinued operations. Balances
in respect of the total Group and Tesco Bank are presented below to
allow reconciliation to the Group balance sheet:
27 August 2022 26 February 2022 28 August 2021
======================== =========================== ========================
Group Bank Retail Group Bank Retail Group Bank Retail
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======= ===== ======== ======== ====== ========= ======= ===== ========
Bank and other borrowings,
excluding overdrafts (6,727) (473) (6,254) (6,825) (481) (6,344) (6,685) (487) (6,198)
Lease liabilities (7,999) (24) (7,975) (7,958) (26) (7,932) (8,227) (29) (8,198)
Net financing derivatives 690 (15) 705 556 (6) 562 734 1 733
Net operating and
investing derivatives 175 111 64 72 24 48 (43) (30) (13)
Cash and cash equivalents
in the balance sheet 2,435 520 1,915 2,345 789 1,556 2,219 514 1,705
Overdrafts* (851) - (851) (574) - (574) (665) - (665)
============================ ======= ===== ======== ======== ====== ========= ======= ===== ========
Cash and cash equivalents
(including overdrafts)
in the cash flow
statement 1,584 520 1,064 1,771 789 982 1,554 514 1,040
Short-term investments 2,256 - 2,256 2,076 - 2,076 2,331 - 2,331
Joint venture loans 106 - 106 105 - 105 102 - 102
Interest and other
receivables 4 - 4 1 - 1 - - -
Net debt of disposal
group (14) - (14) (14) - (14) (19) - (19)
Net debt APM (10,044) (10,516) (10,222)
============================ ======= ===== ======== ======== ====== ========= ======= ===== ========
* Overdraft balances are included within borrowings in the Group
balance sheet, and within cash and cash equivalents in the Group
cash flow statement. Refer to Note 13.
A reconciliation between movements in Net debt and the Group
cash flow statement is presented below:
27 August 28 August
2022 2021
GBPm GBPm
============================================================ ========= =========
Opening Net debt (10,516) (11,955)
Cash flows from Group financing activities, excluding
own shares purchased and dividends paid 518 374
Less: Change in cash flows from Tesco Bank financing
activities (2) (22)
============================================================ ========= =========
Change in Net debt from financing activities 516 352
Net increase/(decrease) in Retail cash and cash equivalents
including overdrafts* 76 (211)
Interest paid on components of Net debt 306 316
Interest received on components of Net debt (12) (2)
Net increase/(decrease) in short-term investments 179 1,320
Net increase/(decrease) in joint venture loans 1 -
Other changes in Net debt from cash flow activities 550 1,423
Retail net interest charge on components of Net debt (289) (328)
Retail fair value and foreign exchange movements of
Net debt 27 289
Retail other non-cash movements (324) (113)
Acquisitions and disposals (8) 110
Change in Net debt from non-cash movements (594) (42)
Closing Net debt (10,044) (10,222)
============================================================ ========= =========
* Net increase/(decrease) in Retail cash and cash equivalents
including overdrafts includes GBP(4)m (28 August 2021: GBP36m)
movement in cash and cash equivalent of discontinued operations and
GBP(4)m (28 August 2021: GBP(3)m) intragroup funding and
intercompany transactions.
The table below sets out the movements in bank and other
borrowings (excluding overdrafts), lease liabilities, net financing
derivatives and share purchase obligations:
Bank and
other borrowings,
excluding Net financing Share purchase
overdrafts Lease liabilities(a) derivatives(b) obligations(c) Total
GBPm GBPm GBPm GBPm GBPm
============================= ================== ==================== =============== =============== ========
At 26 February 2022 (6,825) (7,958) 556 (73) (14,300)
Cash flows arising
from financing activities 29 294 195 458 976
Interest paid 118 189 2 - 309
Non-cash movements:
Fair value gains/(losses) 116 - (44) - 72
Foreign exchange (61) (7) - - (68)
Interest income/(charge) (100) (189) (19) - (308)
Acquisitions and disposals (4) (4) - - (8)
Other - (324) - (451) (775)
At 27 August 2022 (6,727) (7,999) 690 (66) (14,102)
============================= ================== ==================== =============== =============== ========
(a) Other lease liability movements include lease additions,
terminations, modifications and reassessments.
(b) Net financing derivatives comprise those derivatives which
hedge the Group's exposures in respect of lease liabilities and
borrowings. Operating and investing derivatives, which form part of
the Group's Net debt APM, are not included.
(c) Share purchase obligations form part of the liabilities
arising from the Group's financing activities, but do not form part
of Net debt. Other includes liabilities arising from the share
purchase agreements with external banks in the period.
Bank and
other borrowings,
excluding Net financing Share purchase
overdrafts Lease liabilities(a) derivatives(b) obligations(c) Total
GBPm GBPm GBPm GBPm GBPm
============================= ================== ==================== =============== =============== ========
At 27 February 2021 (6,736) (8,402) 478 - (14,660)
Cash flows arising
from financing activities 47 288 40 - 375
Interest paid 107 207 4 - 318
Non-cash movements:
Fair value gains/(losses) 2 - 235 - 237
Foreign exchange 18 5 - - 23
Interest income/(charge) (102) (207) (23) - (332)
Acquisitions and disposals (21) - - - (21)
Other - (113) - - (113)
Discontinued operations - (5) - - (5)
============================= ================== ==================== =============== =============== ========
At 28 August 2021 (6,685) (8,227) 734 - (14,178)
============================= ================== ==================== =============== =============== ========
Refer to previous table for footnotes.
Note 20 Contingent liabilities
There have been no material changes to the contingent
liabilities of the Group in the period.
Note 21 Events after the reporting period
See Notes 5 and 16 for the impact of the government announcement
of its Growth Plan 2022 on 23 September 2022 on tax and expected
credit loss respectively.
There were no other material events after the reporting period
requiring disclosure.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the Directors have
adopted various APMs.
These measures are not defined by International Financial
Reporting Standards (IFRS) and therefore may not be directly
comparable with other companies' APMs, including those in the
Group's industry. APMs should be considered in addition to, and are
not intended to be a substitute for, or superior to, IFRS
measures.
Purpose
The Directors believe that these APMs assist in providing
additional useful information on the trends, performance and
position of the Group. APMs aid comparability between geographical
units or provide measures that are widely used across the industry.
They also aid comparability between reporting periods; adjusting
for certain costs or incomes that derive from events or
transactions that fall within the normal activities of the Group
but which, by virtue of their size or nature, are adjusted, can
provide a helpful alternative perspective on year-on-year trends,
performance and position that aids comparability over time.
The alternative view presented by these APMs is consistent with
how management views the business, and how it is reported
internally to the Board and Executive Committee for performance
analysis, planning, reporting, decision-making and
incentive-setting purposes.
Further information on the Group's adjusting items, which is a
critical accounting judgement, can be found in Note 3.
Some of the Group's IFRS measures are translated at constant
exchange rates. Constant exchange rates are the average actual
periodic exchange rates for the previous financial period and are
used to eliminate the effects of exchange rate fluctuations in
assessing performance. Actual exchange rates are the average actual
periodic exchange rates for that financial period.
Changes to APMs
The Adjusted diluted earnings per share (adjusted for share
consolidation) APM was previously provided to aid year-on-year
comparability in the event of a share consolidation. The APM is no
longer relevant for the 2022/23 financial year so has been
removed.
As previously reported in the Annual Report and Financial
Statements 2022, 'Exceptional items and amortisation of acquired
intangibles' within operating profit, along with net pension
finance costs, fair value remeasurements of financial instruments,
and the tax impact of such items (below operating profit), are now
called 'Adjusting items', and are presented on the face of the
income statement in the 'Adjusting items' column. The policy for
determining adjusting items and the items adjusted for, are
unchanged hence there is no impact on previously reported
alternative performance measures from this change in
presentation.
Group APMs
Closest Adjustments to
equivalent reconcile
APM IFRS measure to IFRS measure Definition and purpose
============== ============= ======================== ===========================================================
Income
statement
============== ============= ======================== ===========================================================
Revenue
measures
============== ============= ======================== ===========================================================
Sales Revenue
* Fuel sales * Excludes the impact of fuel sales made at petrol
filling stations to demonstrate the Group's
performance in the retail and financial services
businesses. It removes volatilities outside of the
control of management, associated with the movement
in fuel prices.
* This is a key management incentive metric.
* This measure is also presented on a Retail and Tesco
Bank basis.
============== ============= ======================== ===========================================================
Growth in No direct
sales equivalent * Ratio N/A * Growth in sales is a ratio that measures year-on-year
movement in Group sales for continuing operations for
26 weeks. It shows the annual rate of increase in the
Group's sales and is considered a good indicator of
how rapidly the Group's core business is growing.
============== ============= ======================== ===========================================================
Like-for-like No direct
(LFL) equivalent * Ratio N/A * Like-for-like is a measure of growth in Group online
sales and sales from stores that have been open for
at least a year (but excludes prior year sales of
stores closed during the year) at constant foreign
exchange rates. It is a widely used indicator of a
retailer's current trading performance and is
important when comparing growth between retailers
that have different profiles of expansion, disposals
and closures.
============== ============= ======================== ===========================================================
Profit measures
Adjusted Operating
operating profit * Adjusting items(b) * Adjusted operating profit is the headline measure of
profit from the Group's performance, based on operating profit
continuing from continuing operations before the impact of
operations(a) adjusting items. Refer to the APM Purpose section of
the Glossary.
* Amortisation of acquired intangibles is included
within adjusting items because it relates to
historical inorganic business combinations and does
not reflect the Group's ongoing trading performance
(related revenue and other costs from acquisitions
are not adjusted).
* This is a key management incentive metric.
* This measure is also presented on a Retail and Tesco
Bank basis.
============== ============= ======================== ===========================================================
Closest Adjustments
equivalent to reconcile
APM IFRS measure to IFRS measure Definition and purpose
================ ================ ===================================== =============================================================
Adjusted total Finance costs
finance costs * Adjusting items(b) * Adjusting items within finance costs include net
pension finance costs and fair value measurements.
Net pension finance costs are impacted by corporate
bond yields, which can fluctuate significantly and
are reset each year based on external market factors
that are outside management's control. Fair value
remeasurements are impacted by changes to credit risk
and various market indices, applying to financial
instruments resulting from liability management
exercises, which can fluctuate significantly outside
of management's control. This measure helps to
provide an alternative view of year-on-year trends in
the Group's finance costs.
================== ================ ===================================== ===========================================================
Adjusted profit Profit before
before tax tax * Adjusting items(b) * This measure is the summation of the impact of all
adjusting items on profit before tax. Refer to the
APM Purpose section of the Glossary.
================== ================ ===================================== ===========================================================
Adjusted operating No direct
margin equivalent * Ratio N/A * Operating margin is calculated as adjusted operating
profit divided by revenue. Progression in operating
margin is an important indicator of the Group's
operating efficiency.
================== ================ ===================================== ===========================================================
Adjusted diluted Diluted earnings
earnings per share from * Adjusting items(b) * This metric shows the adjusted profit after tax from
per share continuing continuing operations attributable to owners of the
operations parent divided by the weighted average number of
ordinary shares in issue during the financial period,
adjusted for the effects of potentially dilutive
share options.
================== ================ ===================================== ===========================================================
Retail EBITDA Retail operating
(earnings before profit from * Adjusting items(b) * This measure is widely used by analysts, investors
adjusting items, continuing and other users of the accounts to evaluate
interest, tax, operations(a) comparable profitability of companies, as it excludes
depreciation * Depreciation and amortisation the impact of differing capital structures and tax
and amortisation) positions, variations in tangible asset portfolios
and differences in identification and recognition of
intangible assets. It is used to derive the Net
debt/EBITDA and Total indebtedness ratios, and Fixed
charge cover APMs.
================== ================ ===================================== ===========================================================
Net interest No direct
margin equivalent * Ratio N/A * Net interest margin is calculated by dividing
annualised net interest income, less annualised lease
interest expense, by average interest-bearing assets.
* It is a measure of the gross profitability of Tesco
Bank's lending operations.
================== ================ ===================================== ===========================================================
Tax measures
============================================================================================================================================
Adjusted Effective tax
effective rate * Adjusting items(b) * Adjusted effective tax rate is calculated as total
tax rate income tax credit/(charge) excluding the tax impact
of adjusting items, divided by adjusted profit before
tax. This APM provides an indication of the ongoing
tax rate across the Group.
================== ================ ===================================== ===========================================================
Balance sheet
============================================================================================================================================
Net debt No direct
equivalent * N/A * Net debt excludes the net debt of Tesco Bank but
includes that of the discontinued operations to
reflect the net debt obligations of the Retail
business.
* Net debt comprises bank and other borrowings, lease
liabilities, net derivative financial instruments,
joint venture loans and other receivables and net
interest receivables/payables, offset by cash and
cash equivalents and short-term investments.
* It is a useful measure of the progress in generating
cash and strengthening of the Group's balance sheet
position and is a measure widely used by credit
rating agencies.
================== ================ ===================================== ===========================================================
Net debt/EBITDA No direct
ratio equivalent * Ratio N/A * Net debt/EBITDA ratio is calculated as Net debt
divided by the rolling 12-month Retail EBITDA. It is
a measure of the Group's ability to meet its payment
obligations, showing how long it would take the Group
to repay its current net debt if both net debt and
EBITDA remained constant. It is widely used by
analysts and credit rating agencies.
================== ================ ===================================== ===========================================================
Total indebtedness No direct
equivalent * N/A * Total indebtedness is Net debt plus the IAS 19
deficit in any pension schemes (net of associated
deferred tax) to provide an overall view of the
Group's obligations, including the long-term
commitments to the Group's pension schemes. Pension
surpluses are not included. It is an important
measure of the long-term obligations of the Group and
is a measure widely used by credit rating agencies.
================== ================ ===================================== ===========================================================
Closest Adjustments to
equivalent reconcile to
APM IFRS measure IFRS measure Definition and purpose
============ ============ ========================================================== ===========================================================
Total No direct
indebtedness equivalent * Ratio N/A * Total indebtedness ratio is calculated as Total
ratio indebtedness divided by the rolling 12-month Retail
EBITDA. It is a measure of the Group's ability to
meet its payment obligations and is widely used by
analysts and credit rating agencies.
============ ============ ========================================================== ===========================================================
Fixed charge No direct
cover equivalent * Ratio N/A * Fixed charge cover is calculated as the rolling
12-month Retail EBITDA divided by the sum of net
finance costs (excluding net pension finance costs,
finance charges payable on lease liabilities,
capitalised interest and fair value remeasurements)
and all lease liability payments from continuing
operations. It is a measure of the Group's ability to
meet its payment obligations and is widely used by
analysts and credit rating agencies.
============ ============ ========================================================== ===========================================================
Capex Property,
plant * Additions relating to property buybacks * Capex excludes additions arising from business
and combinations and buybacks of properties (typically
equipment, stores), as well as additions relating to
intangible * Additions relating to decommissioning provisions and decommissioning provisions and similar items.
asset, similar items
and
investment * Property buybacks are variable in timing, with the
property number and value of buybacks dependent on
additions, opportunities that arise within any given financial
excluding year. Excluding property buybacks therefore gives an
those alternative view of trends in capital expenditure in
from the Group's ongoing trading operations.
business
combinations
* Additions relating to decommissioning provisions and
similar items are adjusted because they do not result
in near-term cash outflows.
============ ============ ========================================================== ===========================================================
Cash flow measures
=====================================================================================================================================================
Retail free No direct
cash equivalent * N/A * Retail free cash flow includes continuing cash flows
flow from operating and investing activities for the
Retail business, the market purchase of shares net of
proceeds from shares issued in relation to share
schemes, and repayment of obligations under leases,
excluding the effects of Tesco Bank's cash flows. The
following items are excluded: investing cash flows
that increase/decrease items within Net debt;
proceeds from the sale of property, plant and
equipment, investment property, intangible assets and
assets classified as held for sale; cash utilised to
buy back property; proceeds from the sale of
subsidiaries; cash utilised in business acquisitions;
cash used for investment in joint ventures and
associates; net investments in and proceeds from the
sale of other investments; and adjusting cash items
in operating cash activities.
* By adjusting for these factors, which can have
unpredictable timings or amounts, or can be driven by
external events or non-operational business decisions
(such as acquisitions and disposals of properties as
opportunities arise), the Directors and management
believe this provides a view of free cash flow
generated by the Group's retail trading operations
that is more predictable and comparable over time and
reflects the cash available to shareholders.
* This is a key management incentive metric.
============ ============ ========================================================== ===========================================================
(a) Operating profit is presented on the Group income statement.
It is not defined per IFRS, however, is a generally accepted profit
measure.
(b) Refer to Note 3.
APMs: Reconciliation of income statement measures
As the incomes and expenses included in debt APMs are calculated
using a rolling 12-month period, the amounts for the 12 months to
27 August 2022 are not disclosed in the notes to the condensed
consolidated interim financial statements for the current financial
period.
Retail EBITDA
APM APM
52 weeks 52 weeks
ended ended
27 August 26 February
2022 2022
GBPm GBPm
================================================= ======= ========== ============
Operating profit 1,992 2,560
Less: Adjusting items 690 265
========================================================== ========== ============
Adjusted operating profit 2,682 2,825
Less: Tesco Bank adjusted operating profit (171) (176)
========================================================== ========== ============
Retail adjusted operating profit 2,511 2,649
Add: Retail depreciation and amortisation before
adjusting items 1,574 1,577
Retail EBITDA 4,085 4,226
================================================= ======= ========== ============
Net interest margin
APM APM
26 weeks 26 weeks
2022 2021
Notes GBPm GBPm
=================================================== ===== ========= =========
Tesco Bank revenue 2 540 433
Less: Tesco Bank revenue from fees and commissions
receivable 2 (134) (101)
Less: Tesco Bank revenue from gross insurance
premium income 2 (154) (94)
Less: Tesco Bank interest payable within operating
profit (34) (20)
Less: Tesco Bank interest payable within finance
income/(costs) (3) (2)
=================================================== ===== ========= =========
Net interest income 215 216
=================================================== ===== ========= =========
Annualised net interest income 426 427
=================================================== ===== ========= =========
Average interest earning assets 8,773 8,307
=================================================== ===== ========= =========
Net interest margin 4.9% 5.1%
=================================================== ===== ========= =========
APMs: Reconciliation of balance sheet measures
Net debt
A reconciliation of Net debt is provided in Note 19.
Net debt/EBITDA and Total indebtedness ratio
APM APM
27 August 26 February
Notes 2022 2022
============================================== ====== ========== ============
Net debt (GBPm) 19 10,044 10,516
Retail EBITDA (GBPm) 4,085 4,226
============================================== ====== ========== ============
Net debt/EBITDA ratio 2.5 2.5
============================================== ====== ========== ============
Net debt (GBPm) 19 10,044 10,516
============================================== ====== ========== ============
Add: Defined benefit pension deficit, net of
deferred tax (GBPm) 17 186 242
============================================== ====== ========== ============
Total indebtedness (GBPm) 10,230 10,758
============================================== ====== ========== ============
Retail EBITDA (GBPm) 4,085 4,226
============================================== ====== ========== ============
Total indebtedness ratio 2.5 2.5
============================================== ====== ========== ============
Fixed charge cover
APM APM
52 weeks 52 weeks
ended ended
27 August 26 February
2022 2022
======================================================== ======= ========== ============
Net finance costs (GBPm) 709 542
Less: Net pension finance (income)/costs (GBPm) 29 (22)
Add: Fair value remeasurements of financial instruments
(GBPm) (132) 123
================================================================= ========== ============
Adjusted total finance costs (GBPm) 606 643
Less: Finance charges payable on lease liabilities
(GBPm) (387) (405)
================================================================= ========== ============
Adjusted total finance cost, excluding capitalised
interest and finance charges payable on lease
liabilities (GBPm) 219 238
Add: Total lease liability payments (GBPm) 965 977
Less: Discontinued operations total lease liability
payments (GBPm) - (2)
======================================================== ======= ========== ============
1,184 1,213
================================================================ ========== ============
Retail EBITDA (GBPm) 4,085 4,226
======================================================== ======= ========== ============
Fixed charge cover 3.5 3.5
================================================================= ========== ============
Capex
APM APM
27 August 28 August
2022 2021
Notes GBPm GBPm
============================================== ===== ========== ==========
Property, plant and equipment additions* 10 316 385
Other intangible asset additions* 9 132 100
Less: Additions from property buybacks 10 - (37)
Capex 448 448
============================================== ===== ========== ==========
* Excluding amounts acquired through business combinations.
APMs: Reconciliation of cash flow measures
APM APM
26 weeks 26 weeks
2022 2021
Notes GBPm GBPm
====================================================== ===== ========= =========
Cash generated from/(used in) operating activities 2 1,825 2,098
Cash generated from/(used in) investing activities 2 (507) (1,662)
Less: Cash generated from/(used in) operating
activities in Tesco Bank 2 209 163
Less: Cash generated from/(used in) operating
activities in discontinued operations 2 4 6
Less: Cash generated from/(used in) investing
activities in Tesco Bank 2 61 84
Less: Cash generated from/(used in) investing
activities in discontinued operations 2 - (43)
====================================================== ===== ========= =========
2 1,592 646
Own shares purchased in relation to share schemes 2 (4) (55)
Retail repayments of capital element of obligations
under leases 2 (292) (286)
Exclude/add back:
Retail proceeds from sale of property, plant
and equipment, investment property, intangible
assets and assets classified as held for sale 2 (301) (109)
Retail purchase of property, plant and equipment
and investment property - property buybacks 2 - 37
Retail disposal of subsidiaries, net of cash
disposed 2 - (125)
Retail acquisition of subsidiaries, net of cash
acquired 2 66 -
Retail investments in joint ventures and associates 2 6 8
Retail adjusting net cash (generated from)/used
in operating activities 2 31 107
Retail increase in loans to joint ventures and
associates 2 1 -
Retail net investments in/(proceeds from sale
of) other investments 2 5 -
Retail net investments in/(proceeds from sale
of) short-term investments 2 179 1,320
====================================================== ===== ========= =========
Retail free cash flow 2 1,283 1,543
====================================================== ===== ========= =========
Glossary - Other
Enterprise value
This is calculated as market capitalisation plus net debt.
Expected credit loss (ECL)
Credit loss represents the portion of the debt that a company is
unlikely to recover. The expected credit loss is the projected
future losses based on probability-weighted calculations.
ESG
Environmental, social and governance.
Market capitalisation
The total value of all Tesco shares calculated as total number
of shares multiplied by the closing share price at the period
end.
MTN
Medium term note.
MREL
Minimum requirements for own funds and eligible liabilities
(European Banking Authority).
Net promoter score (NPS)
This is a loyalty measure based on a single question requiring a
score between 0-10. The NPS is calculated by subtracting the
percentage of detractors (scoring 0-6) from the percentage of
promoters (scoring 9-10). This generates a figure between -100 and
100 which is the NPS.
Return
Profit before adjusting items and interest, after tax (applied
at effective rate of tax).
RPI
Retail price index.
Total capital ratio
This is calculated by dividing total regulatory capital by total
risk -- weighted assets.
Total shareholder return
The notional annualised return from a share, measured as the
percentage change in the share price, plus the dividends paid with
the gross dividends, reinvested in Tesco shares. This is measured
over both a one and five-year period.
Independent review report to Tesco PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half yearly financial report for the
26 weeks ended 27 August 2022 which comprises the Group income
statement, the Group statement of comprehensive income/(loss), the
Group balance sheet, the Group statement of changes in equity, the
Group cash flow statement and related notes 1 to 21.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 27
August 2022 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
4 October 2022
Appendices
Appendix 1
One-year like-for-like sales performance (exc. VAT, exc.
fuel)
Like-for-like sales
==============================================================
H1 H2 FY Q1 Q2 HY
2021/22 2021/22 2021/22 2022/23 2022/23 2022/23
===================== ======== ======== ========= ========= ========= =========
UK & ROI 2.4% 2.1% 2.2% 1.5% 3.9% 2.7%
UK 1.2% (0.5)% 0.4% (1.5)% 2.8% 0.7%
ROI (2.6)% (3.2)% (2.9)% (2.4)% 2.4% (0.1)%
Booker 11.0% 19.9% 15.3% 19.4% 9.3% 13.9%
Central Europe 1.4% 4.5% 2.9% 9.0% 11.8% 10.4%
===================== ======== ======== ========= ========= ========= =========
Total Retail 2.3% 2.3% 2.3% 2.0% 4.5% 3.2%
===================== ======== ======== ========= ========= ========= =========
Tesco Bank n/a n/a n/a n/a n/a n/a
===================== ======== ======== ========= ========= ========= =========
Total Group 2.3% 2.3% 2.3% 2.0% 4.5% 3.2%
===================== ======== ======== ========= ========= ========= =========
Appendix 2
Total sales performance (exc. VAT, exc. fuel)
Actual rates Constant rates
====================================== ======================================
H1 H2 FY H1 H1 H2 FY H1
2021/22 2021/22 2021/22 2022/23 2021/22 2021/22 2021/22 2022/23
=============== ======== ======== ======== ======== ======== ======== ======== ========
UK & ROI 2.7% 2.0% 2.3% 2.6% 2.9% 2.3% 2.6% 2.6%
UK 1.8% (0.2)% 0.8% 0.6% 1.8% (0.2)% 0.8% 0.6%
ROI (5.8)% (8.4)% (7.1)% (0.6)% (2.0)% (2.9)% (2.4)% 1.0%
Booker 11.1% 19.4% 15.1% 13.8% 11.1% 19.4% 15.1% 13.8%
Central Europe (0.8)% 0.7% (0.0)% 5.9% 2.6% 4.9% 3.7% 9.5%
=============== ======== ======== ======== ======== ======== ======== ======== ========
Total Retail 2.4% 1.9% 2.2% 2.8% 2.9% 2.5% 2.7% 3.1%
=============== ======== ======== ======== ======== ======== ======== ======== ========
Tesco Bank 12.2% 39.9% 25.4% 24.6% 12.2% 39.9% 25.4% 24.6%
=============== ======== ======== ======== ======== ======== ======== ======== ========
Total Group 2.6% 2.4% 2.5% 3.1% 3.0% 3.0% 3.0% 3.5%
=============== ======== ======== ======== ======== ======== ======== ======== ========
Appendix 3
Country detail - Retail
Revenue (exc.
VAT, inc. fuel)
========================= ========= =========
Local Average Closing
currency exchange exchange
(m) GBPm rate rate
======================================= ================= ====== ========= =========
UK 24,147 24,147 1.0 1.0
ROI 1,464 1,237 1.2 1.2
Booker 4,399 4,399 1.0 1.0
Czech Republic 22,646 775 29.2 29.0
Hungary 324,083 704 460.3 484.9
Slovakia 774 654 1.2 1.2
======================================= ================= ====== ========= =========
Appendix 4
UK sales area by size of store
27 August 26 February
2022 2022
==================== ============= ========= ========== ======= =========== ==========
No. of Million % of total No. of Million % of total
Store size (sq. ft.) stores sq. ft. sq. ft. stores sq. ft. sq. ft.
==================== ============= ========= ========== ======= =========== ==========
0-3,000 2,572 5.5 14.2% 2,556 5.5 14.2%
3,001-20,000 272 2.9 7.5% 281 3.0 7.8%
20,001-40,000 287 8.3 21.5% 286 8.3 21.4%
40,001-60,000 182 8.8 22.8% 182 8.8 22.7%
60,001-80,000 119 8.4 21.8% 120 8.4 21.7%
80,001-100,000 45 3.7 9.6% 45 3.7 9.6%
Over 100,000 8 1.0 2.6% 8 1.0 2.6%
==================== ============= ========= ========== ======= =========== ==========
Total * 3,485 38.6 100.0% 3,478 38.7 100.0%
==================== ============= ========= ========== ======= =========== ==========
* Excludes Booker and franchise stores.
Appendix 5
Actual Group space - store numbers(a)
As at
2021/22 27
year Closures/ Net gain/ August Repurposing/
end Openings disposals (reduction)(b) 2022 extensions(c)
========================== ======= ================== ==================== ======================== =================== =============
Large 798 7 (1) 6 804 -
Convenience 1,966 17 (8) 9 1,975 -
Dotcom only 6 - - - 6 -
========================== ======= ================== ==================== ======================== =================== =============
Total Tesco 2,770 24 (9) 15 2,785 -
========================== ======= ================== ==================== ======================== =================== =============
One Stop(d) 695 5 - 5 700 -
Booker 192 - - - 192 -
Jack's 13 - (13) (13) - -
========================== ======= ================== ==================== ======================== =================== =============
UK(d) 3,670 29 (22) 7 3,677 -
ROI 152 12 - 12 164 1
========================== ======= ================== ==================== ======================== =================== =============
UK & ROI(d) 3,822 41 (22) 19 3,841 1
========================== ======= ================== ==================== ======================== =================== =============
Czech Republic(d) 185 1 (2) (1) 184 5
Hungary 198 - - - 198 6
Slovakia(d) 154 1 - 1 155 3
========================== ======= ================== ==================== ======================== =================== =============
Central Europe(d) 537 2 (2) - 537 14
========================== ======= ================== ==================== ======================== =================== =============
Group(d) 4,359 43 (24) 19 4,378 15
========================== ======= ================== ==================== ======================== =================== =============
UK (One Stop) 252 28 (8) 20 272 -
Czech Republic 126 2 (1) 1 127 -
Slovakia 15 7 - 7 22 -
========================== ======= ================== ==================== ======================== =================== =============
Franchise stores 393 37 (9) 28 421 -
========================== ======= ================== ==================== ======================== =================== =============
Total Group 4,752 80 (33) 47 4,799 15
========================== ======= ================== ==================== ======================== =================== =============
Actual Group space - '000 sq. ft.(a)
As at
2021/22 27
year Closures/ Repurposing/ Net gain/ August
end Openings disposals extensions(c) (reduction) 2022
========================== ======= ==================== ==================== ============= ============== =====================
Large 31,402 76 (65) - 11 31,413
Convenience 5,287 39 (36) - 3 5,290
Dotcom only 716 - - - - 716
========================== ======= ==================== ==================== ============= ============== =====================
Total Tesco 37,405 115 (101) - 14 37,419
========================== ======= ==================== ==================== ============= ============== =====================
One Stop(d) 1,134 8 - - 8 1,142
Booker 8,210 - - - - 8,210
Jack's 128 - (128) - (128) -
========================== ======= ==================== ==================== ============= ============== =====================
UK(d) 46,877 123 (229) - (106) 46,771
ROI 3,344 120 - 10 130 3,474
========================== ======= ==================== ==================== ============= ============== =====================
UK & ROI(d) 50,221 243 (229) 10 24 50,245
========================== ======= ==================== ==================== ============= ============== =====================
Czech Republic(d) 4,248 5 (22) (81) (98) 4,150
Hungary 5,927 - - (178) (178) 5,749
Slovakia(d) 3,143 11 - - 11 3,154
========================== ======= ==================== ==================== ============= ============== =====================
Central Europe(d) 13,318 16 (22) (259) (265) 13,053
========================== ======= ==================== ==================== ============= ============== =====================
Group(d) 63,539 259 (251) (249) (241) 63,298
========================== ======= ==================== ==================== ============= ============== =====================
UK (One Stop) 367 38 (10) - 28 395
Czech Republic 115 1 (1) - - 115
Slovakia 13 8 - - 8 21
========================== ======= ==================== ==================== ============= ============== =====================
Franchise stores 495 47 (11) - 36 531
========================== ======= ==================== ==================== ============= ============== =====================
Total Group 64,034 306 (262) (249) (205) 63,829
========================== ======= ==================== ==================== ============= ============== =====================
(a) Continuing operations.
(b) The net gain/(reduction) reflects the number of store
openings less the number of store closures/disposals.
(c) Repurposing of retail selling space.
(d) Excludes franchise stores.
Group space forecast to 25 February 2023 - '000 sq. ft.(a)
As at
27 2022/23
August Closures/ Repurposing/ Net gain/ year
2022 Openings disposals extensions (reduction) end
================ =================== ========================= ========== ================== =========== =======
Large 31,413 26 - - 26 31,439
5,411
716
=======
Convenience 5,290 134 (13) - 121
=======
Dotcom only 716 - - - -
================ =================== ========================= ========== ================== =========== =======
Total Tesco 37,419 160 (13) - 147 37,566
================ =================== ========================= ========== ================== =========== =======
One Stop(b) 1,142 24 - - 24 1,166
Booker 8,210 - (29) - (29) 8,181
UK(b) 46,771 184 (42) - 142 46,913
3,495
=======
ROI 3,474 38 (17) - 21
================ =================== ========================= ========== ================== =========== =======
UK & ROI(b) 50,245 222 (59) - 163 50,408
================ =================== ========================= ========== ================== =========== =======
Czech
Republic(b) 4,150 41 - (43) (2) 4,148
Hungary 5,749 - - (123) (123) 5,626
Slovakia(b) 3,154 27 - (27) - 3,154
================ =================== ========================= ========== ================== =========== =======
Central
Europe(b) 13,053 68 - (193) (125) 12,928
================ =================== ========================= ========== ================== =========== =======
Group(b) 63,298 290 (59) (193) 38 63,336
================ =================== ========================= ========== ================== =========== =======
UK (One Stop) 395 60 - - 60 455
117
Czech Republic 115 2 - - 2
Slovakia 21 11 - - 11 32
================ =================== ========================= ========== ================== =========== =======
Franchise stores 531 73 - - 73 604
================ =================== ========================= ========== ================== =========== =======
Total Group 63,829 363 (59) (193) 111 63,940
================ =================== ========================= ========== ================== =========== =======
(a) Continuing operations.
(b) Excludes franchise stores.
Appendix 6
Tesco Bank income statement
H1 H1
2022/23(a) 2021/22(a)
GBPm GBPm
===================================================== =========== ===========
Revenue
Interest receivable and similar income 252 238
Fees and commissions receivable 134 101
Gross insurance premium income 154 94
===================================================== =========== ===========
540 433
===================================================== =========== ===========
Direct costs
Interest payable (34) (20)
Fees and commissions payable (6) (10)
Insurance premium income ceded to reinsurers (69) (42)
Insurance claims (77) (61)
Reinsurers' share of claims incurred 34 34
===================================================== =========== ===========
(152) (99)
Other income 2 11
===================================================== =========== ===========
Gross profit 390 345
Other expenses
Staff costs (115) (104)
Premises and equipment (34) (33)
Other administrative expenses (108) (85)
Depreciation and amortisation (27) (30)
Impairment reversal/(loss) on financial assets (39) (21)
===================================================== =========== ===========
Adjusted operating profit/(loss) 67 72
Adjusting items(b) (5) -
===================================================== =========== ===========
Operating profit/(loss) 62 72
Finance income/(costs): movements on derivatives and
hedge accounting 2 (1)
Finance income/(costs): interest (3) (2)
Finance income/(costs): leases (1) (1)
Share of profit/(loss) of joint venture - 3
===================================================== =========== ===========
Profit/(loss) before tax 60 71
===================================================== =========== ===========
(a) These results are for the six months ended 31 August 2022
and the previous period represents the six months ended 31 August
2021.
(b) Adjusting items of GBP(5)m in H1 2022/23 (H1 2021/2022:
GBPnil) relate to operational restructuring changes, as part of the
multi-year 'Save to Invest' programme.
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END
IR BKQBPKBDBAKK
(END) Dow Jones Newswires
October 05, 2022 02:00 ET (06:00 GMT)
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