REG - Tesco PLC - Tesco PLC Preliminary Results
13/04/2023 07:00
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RNS Number : 0413W Tesco PLC 13 April 2023
Preliminary Results 2022/23
INVESTING FOR CUSTOMERS AND DELIVERING A STRONG PERFORMANCE.
Performance highlights(1,2): FY 22/23 FY 21/22 Change at actual rates Change at constant rates
Group sales (exc. VAT, exc. fuel)(3) £57,656m £54,768m 5.3% 5.3%
Adjusted operating profit(4) £2,630m £2,825m (6.9)% (7.1)%
- Retail £2,487m £2,649m (6.1)% (6.3)%
- Tesco Bank £143m £176m (18.8)% (18.8)%
Retail free cash flow(5) £2,133m £2,277m (6.3)%
Net debt(2,5) £(10,493)m £(10,516)m 0.2%
Adjusted diluted EPS(4) 21.85p 21.86p (0.0)%
Dividend per share 10.90p 10.90p -
Statutory measures:
Revenue (exc. VAT, inc. fuel) £65,762m £61,344m 7.2%
Operating profit £1,525m £2,560m (40.4)%
Profit before tax £1,000m £2,033m (50.8)%
Retail cash generated from operating activities £3,752m £3,614m 3.8%
Diluted EPS 10.08p 19.64p (48.7)%
Delivered strong financial performance, with retail free cash flow ahead of
expectations:
• Strong sales performance across the Group, with Retail LFL(6) sales up 5.1%,
as volumes held up relatively well despite cost-of-living pressures and some
further post-pandemic normalisation
‑ UK & ROI LFL sales up 4.7%, including UK up 3.3%, ROI up 3.3% and Booker
up 12.0%
‑ Central Europe LFL sales up 10.4%
• Statutory revenue £65,762m, up 7.2% including fuel sales up 23.3%
• Total retail adjusted operating profit(4) £2,487m, down (6.3)% at constant
rates
‑ UK & ROI adjusted operating profit £2,307m, down (7.0)% driven by the
impact of lower YoY volumes and ongoing investment in our customer offer, with
Save to Invest largely offsetting significant operating cost inflation
‑ C.Europe adjusted operating profit £180m, up 3.6% with volumes resilient in
the face of significant market inflation
• Bank adjusted operating profit £143m, down (18.8)%, reflecting post COVID-19
macroeconomic provision release last year
• Statutory operating profit £1,525m, after £(982)m non-cash impairment charge
due primarily to higher discount rates
• Strong retail free cash flow(5) £2,133m, including working capital inflow of
£468m
• Flat net debt(2,5) year-on-year, with net debt/EBITDA ratio in middle of
target range at 2.6x
• Adjusted diluted EPS(4) 21.85p, flat year-on-year; statutory diluted EPS
10.08p, down YoY due to impairment charge
• Proposed final dividend of 7.05pps to take full year dividend to 10.90pps (in
line with last year's full year dividend)
Further strengthening our customer offer, underpinned by a relentless focus on
value:
• Solid UK market share performance; only full-line grocer to gain share over
three years
• Highest brand NPS of the full-line grocers; outperformed market on customer
satisfaction
• Most competitive offer ever, with powerful combination of Aldi Price Match,
Clubcard Prices & Low Everyday Prices helping us mitigate inflation and
drive value perception ahead of the market
• Customers recognising our focus on great quality, with perception up 89bps YoY
vs other full-line grocers down (153)bps
• Opened 2,000(th) Express store and 1,000(th) One Stop store; Whoosh rapid
delivery service now available in 1,000 stores
• Clubcard penetration up again in all markets; further increase in app users,
now 11.7m in UK, 0.7m in ROI and 2.0m in CE
Creating long-term, sustainable value for all Tesco stakeholders:
• Continued strong focus on customer satisfaction, market share and cash,
ensuring we balance all stakeholders' needs
• Biggest ever investment in pay; UK store colleagues now paid £11.02/hour(7)
with access to additional colleague benefits
• Working with suppliers to mitigate as much inflation as possible; record
supplier satisfaction score of 86.6%
• Supporting foodbanks and our communities with daily donations; 52m meals
provided by Tesco and our customers
• Further progress towards 2035 carbon neutral own operations commitment;
additional 243 electric home delivery vans; accelerated aim to halve our food
waste in our own operations by 2025, five years earlier than planned
• £750m worth of shares bought back since April 2022; cumulative £1.05bn
bought back since October 2021
Ken Murphy, Chief Executive:
"It's been an incredibly tough year for many of our customers, and we have
been determined to do everything we can to help. Our results reflect our
continued investment in delivering great value and quality for our customers,
whilst at the same time looking after our colleagues. This is despite
unprecedented levels of inflation in the prices we have paid our suppliers for
their products, and the cost of running our own operations. I am very proud
of the way the Tesco team has responded to these challenges and would like to
thank every colleague for the contribution they have made.
The resilience and agility that we have developed over the last few years has
created a sustainable competitive advantage that leaves us well-placed to deal
with any challenges that may arise. It has enabled us to deliver another
strong performance across the Group, whilst continuing to make strategic
progress.
Perhaps most importantly, over the last few years we have fundamentally
repositioned our value proposition. We are the most competitive we have ever
been, with our market-leading combination of Aldi Price Match, Clubcard Prices
and Low Everyday Prices changing the way customers perceive value at Tesco.
Through the combination of an ever more digital Clubcard, a world-class
integrated app for all our customers' needs, the 30+ years of experience at
dunnhumby and our unique reach and scale, we have built a powerful digital
platform that puts us in prime position to take advantage of the exciting
media monetisation and personalisation opportunities available to us.
We continue to target growth through making Tesco the most convenient place to
shop. This year we have opened 91 stores across the Group and are serving
over 450 net new Booker retail partners. Booker delivered its strongest year
ever, helped by an outstanding catering performance as even more customers
benefited from its unbeatable choice, price and service. Our acquisition of
nine Joyce's stores in the Republic of Ireland and, more recently, the
Paperchase brand in the UK signals our appetite to find new, value-creating
growth opportunities in our core markets.
Our focus on customer satisfaction, market share and free cash flow is
working. It is delivering strong results and enabling us to re-invest in the
business, maintain a strong balance sheet and return cash to shareholders.
We have already bought back over £1bn worth of shares and have today
announced a further £750m worth over the next twelve months.
I am really confident that by investing to give customers the best possible
value and continuing to look after our colleagues, we will create further
significant value for every stakeholder in Tesco."
OUTLOOK.
We are pleased with our strong performance in 2022/23 and confident that we
have the right strategy to keep winning. We will continue to prioritise
investment in our customer offer whilst doing everything we can to offset the
impact of ongoing elevated cost inflation.
We expect to be able to deliver a broadly flat level of retail adjusted
operating profit in 2023/24 and retail free cash flow within our target range
of £1.4bn to £1.8bn. We expect Bank adjusted operating profit of between
£130m and £160m.
CAPITAL RETURN PROGRAMME.
Since launching our ongoing capital return programme in October 2021, we have
now purchased a total of £1.05bn worth of shares, including £750m worth
since April 2022, as expected.
We see the buyback programme as an ongoing and critical driver of shareholder
returns. Reflecting the strength of our balance sheet and our confidence in
delivering strong future cash flows, we are pleased to announce that we will
buy back a total of £750m worth of shares over the next twelve months.
We will continue to announce any new forward commitments regarding our ongoing
capital return programme as part of our preliminary results each April.
STRATEGIC PRIORITIES.
Our four strategic priorities continue to guide us by ensuring we offer
outstanding value, great quality and market-leading convenience whilst also
rewarding loyalty. Our unrivalled reach, strong supplier relationships and
the capability of our exceptional teams means we are best-placed to serve our
customers whenever, wherever and however they need us. Through our digital
platform, powered by Clubcard and dunnhumby, we are building a significant
competitive advantage. We remain focused on driving top-line growth, profit
and cash, and in doing so, continuing to deliver for all of our stakeholders.
We have made further strong progress against our strategic priorities over the
last year:
1) Magnetic Value for Customers - Re-defining value to become the customer's
favourite
• We are at the most competitive we have ever been, including our market-leading
combination of:
‑ Aldi Price Match: market-leading commitment on >600 lines; in 99% of large
baskets & >85% of top-up shops
‑ Low Everyday Prices: continuing price lock on over a thousand everyday
products until July 2023
‑ Clubcard Prices: continuing to provide great offers and value to customers;
>10% increase in promotions YoY
• Improved quality perception: +89bps YoY (+492bps over 3yrs) vs other full-line
grocers (153)bps YoY (+15bps over 3yrs)
• Brand NPS highest of the full-line grocers; outperformed market on customer
satisfaction
• Record supplier satisfaction score of 86.6%; #1 in Advantage supplier survey
for seventh consecutive year
• Continued focus on health & sustainability; launched 'Better Baskets'
instore & online; removed 71bn calories to date
• Further progress towards 2035 carbon neutral own operations commitment;
additional 243 electric home delivery vans; accelerated plans to halve food
waste in our own operations by five years, from 2030 to 2025
2) I Love my Tesco Clubcard - Creating a competitive advantage through our
powerful digital capability
• Further increase in Clubcard sales penetration across all markets; UK now at
79%, ROI at 77% and C.Europe at 83%
• Nearly 21m active UK Clubcard households; over 14m Clubcard app users across
Group (UK: 11.7m, ROI: 0.7m, CE: 2.0m)
• Number of UK customers receiving in-app personalised coupons doubled to 4
million; 89m coupons issued to date
• Clubcard ranked #1 loyalty scheme in all three C.Europe countries; 95% of CE
promotions now on Clubcard Prices
• Completed migration of Clubcard app into Grocery app; now includes home
delivery, Click & Collect, Whoosh rapid delivery, GetGo queue-free
shopping, in-store stock checking, payment and full Clubcard functionality
3) Easily the Most Convenient - Serving customers wherever, whenever and
however they want to be served
• Online sales remain nearly 60% ahead of pre-pandemic levels, with orders held
at 1.1m per week
• Online market share remained strong at c.35%; opened fifth and sixth urban
fulfilment centres (UFCs)
• Tesco Whoosh delivery service now in 1,000 stores, available to >55% UK
households; average delivery time c.25mins
• Opened two superstores, 50 Express stores, 18 One Stop stores in UK; working
with 451 net new Booker retail partners
• Nine stores converted from Joyce's supermarkets in the Republic of Ireland,
trading ahead of expectations; also opened four new Express stores in Ireland
and seven small format stores in C.Europe
• Acquired Paperchase brand in January 2023; first products to be launched in UK
stores later this year
4) Save to Invest - Significant opportunities to simplify, become more
productive and reduce costs
• Strong progress across all areas: goods & services not for resale,
property, operations and central overheads
• Accelerated delivery of savings plan; in excess of £550m saved TY; on track
to achieve at least £1bn cumulative by Feb-24
• Streamlined management structure in larger Superstores and Extra stores;
closing all 467 remaining counters
• Implemented energy reduction initiatives in stores, significantly improving
efficiency and reducing costs
• Replaced weekly paper offer booklets with digital flyer in C.Europe, removing
c.3,500 tonnes of paper annually
GROUP REVIEW OF PERFORMANCE.
52 weeks ended 25 February 2023(1,2) FY 22/23 FY 21/22 Change at actual rates Change at constant rates
Sales (exc. VAT, exc. fuel)(3) £57,656m £54,768m 5.3% 5.3%
Fuel £8,106m £6,576m 23.3% 23.2%
Revenue (exc. VAT, inc. fuel) £65,762m £61,344m 7.2% 7.3%
Adjusted operating profit(4) £2,630m £2,825m (6.9)% (7.1)%
Adjusting items £(1,105)m £(265)m
Statutory operating profit £1,525m £2,560m (40.4)%
Net finance costs £(533)m £(542)m
Joint ventures and associates £8m £15m
Statutory profit before tax £1,000m £2,033m (50.8)%
Group tax £(247)m £(510)m
Statutory profit after tax £753m £1,523m (50.6)%
Adjusted diluted EPS(4) 21.85p 21.86p (0.0)%
Statutory diluted EPS 10.08p 19.64p (48.7)%
Dividend per share 10.90p 10.90p -
Net debt(2,5) £(10,493)m £(10,516)m 0.2%
Retail free cash flow(5) £2,133m £2,277m (6.3)%
Capex(8) £1,235m £1,101m 12.2%
Group sales(3) increased by 5.3% at constant rates, driven by strong sales
performance in all segments as volumes held up relatively well despite
cost-of-living pressures and some further post-pandemic normalisation. We
delivered a market-leading performance over the important Christmas trading
period, continuing to inflate behind the market as overall levels of inflation
increased. Booker delivered an exceptionally strong performance,
particularly in catering, with higher out-of-home consumption. Revenue
increased by 7.3% at constant rates, including fuel sales growth of 23.2%.
Group adjusted operating profit(4) decreased by (7.1)% at constant rates,
primarily reflecting the impact of lower year-on-year volumes, the ongoing
investment in our customer offer and significant operating cost inflation,
partially offset by a very strong Booker catering recovery and the
acceleration of our Save to Invest programme, which delivered in excess of
£550m of savings in the year.
Group statutory operating profit reduced by (40.4)% year-on-year due to the
operating profit impacts above and an increase in adjusting items, with the
key driver being a £(982)m non-cash impairment charge on non-current assets
(primarily property), mainly due to an increase in discount rates.
Net finance costs were broadly flat year-on-year as the benefit from higher
interest receivable and net pension finance income was partially offset by
non-cash fair value remeasurements. Further detail is shown on page 10.
Our share of profits from joint ventures and associates was lower year-on-year
due to a reduction in profits from UK property joint ventures. The reduction
in tax this year reflects the lower retail operating profits and a one-off
charge in the prior year related to the revaluation of deferred tax.
Adjusted diluted EPS(4) was in line with last year, as the impact of the
reduction in operating profit was offset by lower finance costs and tax
charges, and the benefit of our ongoing share buyback programme. We have
announced a full year dividend of 10.90p per ordinary share, in line with last
year.
Net debt(2,5) was broadly flat year-on-year, with strong cash generation
funding over £1.6bn of shareholder returns in the form of share buybacks and
dividends. We generated £2,133m of retail free cash flow(5), including a
net £468m working capital inflow. Retail free cash flow reduced by £(144)m
due to lower retail operating profits and higher levels of capital investment,
offset by a reduction in cash tax. The net debt/ EBITDA ratio was 2.6 times,
up from 2.5 times in the prior year due to a reduction in retail EBITDA.
Further commentary on these metrics can be found below and a full income
statement can be found on page 15.
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 46.
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 29.
3. Group sales exclude VAT and fuel. Sales change shown on a
comparable day's basis for Central Europe.
4. Adjusted operating profit and adjusted diluted EPS exclude
adjusting items.
5. Net debt and Retail free cash flow exclude Tesco Bank.
6. Like-for-like (LFL) 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).
7. UK colleagues in stores are now paid £11.02/hr (from
2-Apr-23). Colleagues in Outer London stores are paid £11.75/hr and those in
London Boroughs are paid £11.95/hr (both rates include location allowances).
8. Capex excludes additions arising from business combinations
and buybacks of property (typically stores). Refer to page 50 for a full
reconciliation.
Segmental review of performance:
Sales performance:
(exc. VAT, exc. fuel)(3)
Sales LFL sales change(6) Total sales change at actual rates Total sales change at constant rates
(£m)
- UK 41,040 3.3% 3.3% 3.3%
- ROI 2,645 3.3% 6.3% 5.4%
- Booker 8,684 12.0% 12.0% 12.0%
UK & ROI 52,369 4.7% 4.8% 4.7%
Central Europe 4,181 10.4% 8.3% 10.0%
Retail 56,550 5.1% 5.0% 5.1%
Bank 1,106 20.1% 20.1%
Group sales 57,656 5.3% 5.3%
Fuel 8,106 23.0% 23.3% 23.2%
Group revenue 65,762 7.2% 7.3%
Further information on sales performance is included in the supplementary
information starting on page 43.
Adjusted operating profit(4) performance:
Profit
(£m)
Change at actual rates Change at constant rates Margin % at actual rates Margin % change at actual rates
UK & ROI 2,307 (7.0)% (7.0)% 3.8% (57) bps
Central Europe 180 7.1% 3.6% 4.1% (10) bps
Retail 2,487 (6.1)% (6.3)% 3.8% (54) bps
Bank 143 (18.8)% (18.8)% 12.9% (616) bps
Group 2,630 (6.9)% (7.1)% 4.0% (61) bps
Further information on operating profit performance is included in Note 2
starting on page 21.
UK & ROI OVERVIEW:
In the UK, Republic of Ireland (ROI) and Booker, like-for-like sales increased
by 4.7% versus last year, with growth of 6.7% in the second half. We
delivered a very strong performance over Christmas (with like-for-like sales
growth of 7.8%), continuing to inflate behind the market as overall levels of
inflation increased. Booker delivered particularly strong sales growth of
12.0%, benefiting from continued market share growth in its catering business.
UK & ROI adjusted operating profit was £2,307m, down (7.0)% at constant
rates, primarily reflecting the impact of lower year-on-year volumes, the
ongoing investment in our customer offer and significant operating cost
inflation, partially offset by a very strong Booker catering recovery and the
acceleration of our Save to Invest programme.
Adjusted operating margin was 3.8%, (57)bps lower year-on-year, reflecting a
margin mix benefit last year from higher non- food sales and the year-on-year
operating profit impacts above.
Further information on each of the UK & ROI businesses follows below.
UK - strong customer offer and relentless focus on value:
Like-for-like sales grew by 3.3%, with particularly strong growth of 7.2%
across the six-week Christmas trading period. In the first half,
like-for-like sales grew by 0.7%, reflecting reduced year-on-year volumes due
to higher levels of in-home consumption in the prior year. Growth
accelerated in the second half, with like-for-like sales of 6.0%, driven by
rising levels of general market inflation and strong demand in the fourth
quarter, particularly during the key Christmas trading period.
Food sales grew by 4.6% for the full year, with own brand volume participation
increasing by 46bps as customers responded to our overall value proposition,
driving growth at both ends of our range; Finest sales were up 6.8% and sales
of our entry price and Exclusively at Tesco ranges were up 5.9%. We are at
the most competitive we have ever been, with our strongest price index to
date, as we continue to invest in our value proposition for customers. The
powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard
Prices, supported by our market-leading ranges, is helping customers manage
higher costs of living. We maintained a strong market share at 27.3% and
were the only full-line grocer to grow share versus pre-pandemic, whilst also
growing our overall brand index ahead of the market across the three years,
most noticeably in quality up 492bps.
Customers took greater advantage of our exclusive Clubcard Prices promotions,
with promotional participation increasing by 3.8ppts to 25.5% in February.
Clubcard sales penetration reached 78.5% by the end of the year, up 4.4ppts,
with penetration in convenience up 9.9ppts, benefiting from the roll-out of
Clubcard Prices to our Express stores in the second half of last year and more
recently the launch of our market-leading Clubcard Price Meal Deal.
Non-food sales declined by (4.5)% as we traded over strong sales in Home and
Clothing categories last year. Home sales declined by (6.4)%, driven by a
(9.8)% reduction in our range as we selectively exited low margin categories
such as electricals. We outperformed the market in key categories, such as
gifting and stationery (by 8.7ppts and 4.3ppts respectively). We purchased
the Paperchase brand in January, and we look forward to introducing a wider
range of cards, gifting and stationery later this year.
Clothing sales declined by (1.2)%, which mainly reflects the impact of trading
over exceptionally strong lockdown-linked demand in the first half of the
2021/22 financial year, partly offset by our efforts to rebalance space from
Home to Clothing. We saw a significant improvement in value perception,
ahead of other clothing retailers, and the number of customers purchasing at
least one product from our Home and Clothing ranges increased by 11.0% and
7.6% respectively. Clothing delivered growth of 7.0% in the fourth
quarter.
Sales grew well in both large and convenience store formats, by 4.0% and 6.4%
respectively, driven by particularly strong performance in food and higher
footfall as some customers switched back into stores from online. Growth was
particularly strong in our city centre convenience stores, notably in the
London region where sales grew by 9.4%.
Online sales declined by (5.4)%, in line with overall normalisation in the
market. Online sales participation stabilised to c.13%, around 4ppts higher
than pre-pandemic, driven by strong customer retention.
FY 22/23 One-year change Three-year change
Online performance
Sales (inc. VAT) £5.6bn (5.4)% 57.0%
Orders per week 1.14m (6.7)% 52.1%
Basket size £ £95 1.0% 3.2%
Online % of UK total sales 12.8% (1.2)ppts 3.6ppts
Delivery saver subscribers 688k 0.8% 39.1%
Click & Collect (C&C) locations 563 10.4% 71.1%
We opened our fifth and sixth Urban Fulfilment Centres (UFCs) in Rutherglen,
Glasgow (in May) and Bar Hill, Cambridge (in January). Tesco Whoosh - our
rapid delivery service - is now in 1,000 stores, exceeding our original target
of 800 stores. Our average delivery times have improved by around five
minutes to c.25 minutes with nearly two million orders delivered to customers
to date. Satisfaction scores are amongst the highest in the Group, with
Whoosh proving particularly popular amongst our most loyal customers.
ROI - consistently outperforming the market:
Like-for-like sales grew by 3.3% for the full year, including growth of 6.6%
in the second half as general market inflation increased. We delivered a
particularly strong Christmas, despite trading over high levels of in-home
consumption in the prior year as a result of hospitality restrictions. We
grew our market share to 22.9% by the end of the year, with gains of 64bps
year-on-year and 110bps versus pre-pandemic.
Total sales grew by 5.4% at constant rates, including a 1.5ppts contribution
from the nine Joyce's stores we acquired in June which were fully converted
and re-opened as Tesco stores in the third quarter. In addition, we opened
four new convenience stores, which contributed 0.7ppts to total sales growth.
Our continued investment in value through Aldi Price Match, Low Everyday
Prices and Clubcard Prices is proving to be a winning formula for customers in
Ireland. Clubcard Prices has been a particular success, with sales
penetration increasing by 22.8ppts to 76.5%.
BOOKER - an exceptionally strong performance across both catering and retail:
Sales LFL
£m
Total Retail 4,796 3.2%
Retail 2,888 9.9%
Tobacco 1,908 (5.6)%
Total Catering 3,629 26.7%
Catering 2,109 25.2%
Best Food Logistics 1,520 29.0%
Total Booker* 8,684 12.0%
* Total Booker also includes small business sales of £259m
Booker delivered exceptionally strong like-for-like sales growth of 12.0%.
Catering sales were particularly strong, increasing by 35.5% in the first half
as we lapped subdued demand due to pandemic-related restrictions in the prior
year. Catering grew by 18.9% in the second half as we continued to
significantly outperform the market, working with hospitality customers to
ensure they could continue to offer outstanding value whilst maintaining
strong menu choice. This included our price freeze on around 450 key
catering lines across the festive period. The number of customers signing up
to our 'Food Clubs' has further increased, with 44,000 members now able to
access exclusive deals and discounts.
The retail business also continued to grow well, with sales up 9.9% excluding
tobacco. Our Jack's product range is proving popular with our Booker retail
partners, enabling them to offer their customers a great value own brand
alternative on over 500 lines.
Retail tobacco sales declined by (5.6)%, reflecting the market trend as
customers returned to overseas travel and duty-free imports increased.
Excluding tobacco, total Booker sales growth was 18.4%.
CENTRAL EUROPE - strong delivery of cost reduction plans delivering profit
growth:
Like-for-like sales grew by 10.4%, with strong growth in all three markets.
Inflationary pressures were felt to a greater extent across our Central
European markets with even more significant levels of input cost inflation.
Food sales grew by 11.9%, with strong growth in both fresh and packaged
categories.
We rolled out Clubcard Prices to c.95% of promotions and our Low-Price
Guarantee continues to be positively received across all countries. Clubcard
penetration is now at 83% versus 60% last year and we have seen strong
improvements across our reward perceptions. Our reward scheme is ranked
number one in all three countries.
Central Europe adjusted operating profit was £180m, an increase of 3.6% at
constant rates. Our cost reduction programme helped offset significant
energy inflation, foreign exchange headwinds and an incremental £(25)m charge
related to a new extraordinary retail tax in Hungary.
In June, we completed the sale of 17 malls and one retail park, generating
proceeds of £203m and a £37m profit on disposal within adjusting items. We
are continuing to operate the Tesco hypermarkets in these malls on a leasehold
basis.
TESCO BANK:
FY 22/23 FY 21/22 YoY change
Revenue £1,106m £922m 20.1%
Adjusted operating profit £143m £176m (18.8)%
Lending to customers £7.1bn £6.5bn 9.1%
Customer deposits £(5.8)bn £(5.3)bn 8.3%
Net interest margin 4.9% 5.0% (0.1)ppts
Total capital ratio 25.7% 27.2% (1.5)ppts
Revenue grew by 20.1%, driven by an increase in credit card spend, a recovery
in demand for travel money and an increase in ATM transactions year-on-year as
cash usage continued to recover post-pandemic. In addition, insurance
revenue increased due to an additional two-month benefit from the acquisition
of Tesco Underwriting Limited in May 2021 as well as underlying growth in
policies.
Tesco Bank adjusted operating profit was £143m, down (18.8)% year-on-year,
predominantly due to the impact of a significant provision release in the
prior year related to the improved macroeconomic outlook post-pandemic. This
was partially offset by a strong performance in our travel money and ATM
businesses, combined with higher credit card income, in addition to a higher
contribution from the full consolidation of Tesco Underwriting Limited.
Overall lending to customers has increased by 9.1% to £7.1bn, due mainly to
higher credit card balances as a result of both increased retail spending and
growth in newly acquired accounts. Loan balances remained stable
year-on-year. Our level of customer defaults remains low and the Bank's
balance sheet remains in a strong position, with sufficient capital and
liquidity to absorb changes in both regulatory and funding requirements.
In addition to winning 'Credit Builder Card Provider of the Year' and 'Best
Card Provider (Introductory Rate)' at the Moneyfacts Awards in the first half,
Tesco Bank has since won 'Credit Card Provider' of the year at the 2023
Moneyfacts Consumer Awards in recognition of the wide range of credit cards we
offer for customers, combined with the unique benefit of being able to earn
Tesco Clubcard points.
We announced our two new charity partnerships with The Trussell Trust, who
work to end the need for food banks in the UK, and Maggie's, the cancer
support charity.
PLANET - Serving our customers, communities and planet a little better every
day:
We continue to roll-out innovations to help achieve our aim of net zero
emissions across our entire value chain by 2050, aligned to a 1.5-degree
pathway. In the fourth quarter we announced two new trials with our farmer
suppliers. We launched a low-carbon fertiliser trial with five of our key
field vegetable suppliers. With 75% of the fertiliser alternatives
manufactured in the UK, the trial is focused on increasing food security and
cutting greenhouse gas emissions for the harvests linked to the low-carbon
fertiliser of those key suppliers. We also launched a fava bean trial to
help scale up this UK-native, low carbon alternative protein to pea and soya,
including using it as an ingredient and as alternative feed for pigs.
We have made further progress towards our commitment to be carbon neutral in
our own operations by 2035. We introduced a further 243 electric vans into
our home delivery fleet, and in an industry first, we introduced a
zero-emissions electric lorry to trial deliveries across the 400 London stores
served by our Dagenham distribution centre.
This year we launched our 'Better Baskets' campaign, bringing together
affordable products to help customers make healthier and more sustainable
choices. Healthy products now account for 60% of sales volumes, up from 58%
last year, and we are on track to achieve our target of 65% by 2025.
Reformulation of own brand ranges has contributed to the removal of 71 billion
calories to date, putting us well on track to delivering our 100 billion
calorie reduction ambition by 2025.
In the third quarter, we announced our new aim to halve food waste in our own
operations by 2025, five years ahead of our previous commitment and the UN
Sustainable Development Goals (SDG) of 2030. In November, we rebranded
'Reduced to Clear' with new signage to let customers know that products are
'Reduced in price. Just as nice.', helping them to save on their weekly shop
and reduce food waste.
To help support the unprecedented demand in our communities, we have given
daily donations to foodbanks and local charities. In the third quarter we
launched The Give Back Express, allowing customers to purchase products most
needed by charities and donate them in store. Alongside our Winter Food
Collection, which provided an equivalent of 2.4 million meals this year, these
initiatives are made possible through our longstanding partnerships with
Community Food Connection, Trussell Trust, FareShare and free sharing app
Olio.
Adjusting items in statutory operating profit:
FY 22/23 FY 21/22
£m £m
Net impairment charge on non-current assets (982) (115)
Save to Invest restructuring provisions (138) (44)
Property transactions 91 128
Amortisation of acquired intangible assets (76) (76)
Disposal of Asia operations / China associate 2 41
Other* (2) (6)
Litigation costs - (193)
Total adjusting items in statutory operating profit (1,105) (265)
* Other includes fair value less cost of disposal movements on assets held for
sale, ATM business rates refund, and release of onerous contract provision.
See page 26.
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 resulted in a charge of
£(1,105)m, compared to a £(265)m charge in the prior year.
We recognised a £(982)m non-cash net impairment charge on non-current assets,
primarily property, driven mainly by a significant increase in discount rates
as a result of macroeconomic factors. The majority of the charge (£(626)m)
was booked in the first half the year, with an additional amount charged in
the second half as discount rates further increased.
We recognised a £(138)m restructuring provision related to the Save to Invest
programme which includes changes made to our store management structures and
the closure of our remaining UK counters.
We generated a £91m profit on the disposal of properties in the year,
including the sale of our Middlewich distribution centre in the UK, and the
disposal of 17 mall properties and a retail park in Central Europe.
Amortisation of acquired intangible assets is excluded from our headline
performance measures. We incurred a charge of £(76)m in the year, which
relates to the intangible assets that were recognised as a result of our
merger with Booker in March 2018.
In the prior year, we recognised litigation costs of £(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 also 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.
Further detail on adjusting items can be found in Note 3, starting on page 26,
with additional information relating to the non-cash net impairment charge in
Note 12, starting on page 31.
Joint ventures and associates:
Our share of post-tax profits from joint ventures and associates was £8m,
compared to £15m in the prior year, primarily due to a reduction in profits
from UK property joint ventures.
As announced within our interim results, we completed the buyback of our
partner's stake in The Tesco Dorney Limited Partnership property joint venture
in October 2022, bringing back seven large stores into full ownership. This
results in annual cash rental savings of c.£31m and has a broadly neutral
impact on net debt, as a £(0.4)bn increase in borrowings is offset by a
£0.4bn reduction in lease liabilities.
Following this transaction, we have five UK property joint ventures still in
place, from a peak of 13 structures in 2015. These five remaining structures
contain properties worth £3.0bn and debt of £2.0bn, with £2.0bn of
associated lease liabilities on our balance sheet. The three largest
remaining property JVs are with the Tesco Pension Scheme.
Net finance costs:
FY 22/23 £m FY 21/22
£m
Net interest on medium term notes, loans and bonds (231) (208)
Other interest receivable / (payable) 42 (30)
Finance charges payable on lease liabilities (373) (405)
Net finance costs before adjusting items (562) (643)
Fair value remeasurements of financial instruments (51) 123
Net pension finance income / (costs) 80 (22)
Net finance costs (533) (542)
Net interest on medium-term notes, loans and bonds was £(231)m, up £(23)m.
The combined impact of debt acquired through the acquisition of property
partnerships and increased interest rates on floating rate debt was largely
offset by the benefit of debt refinanced at a lower coupon in the prior year
and the buyback of a portion of secured debt in November 2022.
Other interest receivable totalled £42m, up £72m year-on-year due to higher
interest income on our cash balances and short-term deposits.
Finance charges payable on lease liabilities reduced by £32m
year-on-year. This was driven by the derecognition of £385m of lease
liabilities relating to the buyback of The Tesco Dorney Limited Partnership
mentioned above and £355m of lease liabilities related to the buyback of The
Tesco Sarum Limited Partnership in December 2021.
The non-cash fair value remeasurement charge of £(51)m primarily relates 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 £80m was driven by the IAS 19 pension surplus
as at the end of the 2021/22 financial year, compared to a charge of £(22)m
last year when the scheme was in an opening deficit position.
Further detail on finance income and costs can be found in Note 4 on page 27,
as well as further detail on the adjusting items in Note 3 on page 26.
Group tax:
FY 22/23 £m FY 21/22
£m
Tax on adjusted profit (442) (502)
Tax on adjusting items 195 (8)
Tax on profit (247) (510)
Tax on adjusted Group profit was £(442)m, £60m lower than last year,
reflecting a reduction in retail operating profit and a one-off charge in the
prior year related to the revaluation of deferred tax following the decision
to increase the corporation tax rate in the UK from 19% to 25% from April
2023. Adjusting items resulted in a £195m tax credit, driven predominantly
by taxable deductions relating to the higher impairment charge.
The effective tax rate on adjusted Group profit was 21.3%, higher than the
current UK statutory rate of 19%, primarily due to the depreciation of assets
which do not qualify for tax relief.
We expect our effective tax rate to be around 26% in FY 23/24 following the
increase in the UK corporation tax rate on 1 April 2023.
Earnings per share:
FY 22/23 FY 21/22 YoY change
Adjusted diluted EPS 21.85p 21.86p (0.0)%
Statutory diluted EPS 10.08p 19.64p (48.7)%
Statutory basic EPS 10.17p 19.86p (48.8)%
Adjusted diluted EPS was 21.85p, in line with last year, as the impact of
reduced adjusted operating profit was offset by lower finance costs and tax
charges year-on-year, and the benefit of our share buyback programme.
Statutory diluted earnings per share was 10.08p, (48.7)% lower year-on-year
due to an increase in adjusting items, principally a higher net impairment
charge on non-current assets.
Dividend:
We propose to pay a final dividend of 7.05 pence per ordinary share, taking
the full year dividend to 10.90 pence per ordinary share, in line with last
year. This includes the payment of an interim dividend of 3.85 pence per
ordinary share in November 2022.
The proposed final dividend was approved by the Board of Directors on 12 April
2023 and is subject to the approval of shareholders at this year's Annual
General Meeting. The final dividend will be paid on 23 June 2023 to
shareholders who are on the register of members at close of business on 12 May
2023 (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 2 June 2023.
Summary of total indebtedness (excludes Tesco Bank):
Feb-23 Feb-22 Movement
£m £m £m
Net debt before lease liabilities (2,775) (2,570) (205)
Lease liabilities (7,718) (7,946) 228
Net debt (10,493) (10,516) 23
Pension deficit, IAS 19 basis (post-tax) (300) (242) (58)
Total indebtedness (10,793) (10,758) (35)
Net debt / EBITDA 2.6x 2.5x
Total indebtedness ratio 2.7x 2.5x
Total indebtedness was £(10,793)m, broadly in line with last year as
increases in net debt and the IAS 19 pension deficit were largely offset by a
reduction in lease liabilities. Net debt before lease liabilities increased
by £(205)m year-on-year to £(2,775)m, driven by the impact of fair value
remeasurement of net derivatives and the purchase of a portion of the secured
debt of our property joint ventures, in order to reduce our ongoing net
interest cost.
Lease liabilities were £(7,718)m, down £228m year-on-year, primarily due to
the derecognition of £385m of lease liabilities following the purchase of our
partner's stake in The Tesco Dorney Limited Partnership. This was partially
offset by an increase in lease liabilities as a result of higher rent payments
this year due to the effect of RPI inflation and the lease back of 17 stores
situated in the mall properties sold in Central Europe.
We now carry an IAS 19 pension deficit, totalling £(300)m (post-tax), which
includes £(157)m relating to the main scheme and £(143)m related to other
Group pension schemes. The main scheme was in a surplus of £2.4bn (post
tax) in the prior year and was therefore disregarded in total indebtedness as
only pension schemes which are in a net deficit position are included. The
movement in the main scheme was driven by movements in discount rates and gilt
yields.
The accounting surplus/deficit does not drive contributions to the pension
schemes and can be volatile. As disclosed within our interim results, we
have agreed the actuarial pension valuation as at 31 March 2022 with the
Tesco Plc Pension Scheme Trustee at a surplus of £0.9bn. It was also agreed
with the Trustee that no pension deficit contributions are expected to be
required ahead of the next triennial valuation in 2025.
We had strong levels of liquidity at the end of the year of £2.7bn and our
£2.5bn committed facility remained undrawn. We refinanced the facility in
November 2022 for an initial three-year term. The rate of interest payable
on this facility continues to be linked to three of our sustainability
commitments.
Our net debt to EBITDA ratio was 2.6 times at the end of the year, up from 2.5
times in the prior year end and around the middle of our targeted range of 2.8
to 2.3 times. The year-on-year increase was driven by a reduction in retail
EBITDA. The total indebtedness ratio was 2.7 times compared to 2.5 times
last 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 free 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 21.
FY 22/23 FY 21/22
£m £m
Adjusted operating profit 2,630 2,825
Less: Tesco Bank adjusted operating (profit) / loss (143) (176)
Retail adjusted operating profit 2,487 2,649
Add back: Depreciation and amortisation 1,570 1,577
Other reconciling items 61 61
Pension deficit contribution (23) (19)
Decrease in working capital 468 501
Retail cash generated from operations before adjusting items 4,563 4,769
Cash capex (1,143) (1,050)
Net interest (573) (641)
- Interest related to Net debt before lease liabilities (202) (239)
- Interest related to lease liabilities (371) (402)
Tax paid (107) (195)
Dividends received 68 109
Repayments of obligations under leases (589) (571)
Own shares purchased for share schemes (86) (144)
Retail free cash flow 2,133 2,277
Memo (not included in Retail free cash flow):
- Net acquisitions and disposals (281) 122
- Property proceeds and purchases 266 228
- Cash impact of adjusting items (61) (316)
We delivered strong retail free cash flow of £2,133m, significantly ahead of
our target range of between £1.4bn and £1.8bn, driven by another strong
working capital performance. The year-on-year reduction of £(144)m was
primarily driven by lower retail adjusted operating profit and an increase in
capital expenditure, partially offset by lower tax and net interest payments.
Our total working capital inflow was £468m, driven primarily by higher trade
payable balances due to cost price inflation in addition to good working
capital management.
Net interest paid was lower year-on-year due to higher interest received as a
result of higher interest rates on cash balances and lower interest relating
to lease liabilities as a result of the buyback of the property partnerships
mentioned above.
Total retail cash tax paid in the year was £(107)m, compared to £(195)m last
year. The reduction reflects lower retail adjusted operating profits
year-on-year and the impact of tax allowable deductions relating to adjusting
items, primarily the impairment charge and fair value remeasurements. We
continue to benefit from a super-deduction allowance on certain capital
investments and we received in-year tax relief of £121m in relation to the
£2.5bn one-off pension contribution made in 2021 which is required to be
spread over four years for tax purposes. FY 23/24 will be the final year in
which we receive this pension-related tax relief. In the Spring Budget 2023,
the UK Government announced that 'full expensing' relief on certain capital
investments would be available from 1 April 2023 through to 31 March 2026, and
we expect this to have a broadly similar cash tax impact as the
super-deduction allowance that it replaces.
The net cash outflow of £(86)m for the purchase of our own shares comprises a
£(134)m purchase of shares to offset dilution from share scheme issuance,
offset by £48m proceeds received from colleagues in relation to those
schemes. The lower outflow compared to last year was driven by the timing of
purchases to satisfy FY 23/24 maturities.
The net cash impact of acquisitions and disposals was £(281)m, of which
c.£(200)m related to the purchase of a portion of the secured debt of our
property joint ventures, in order to reduce our ongoing net interest cost.
We generated £266m of proceeds from property transactions, including the sale
of 17 malls and one retail park in Central Europe and our Distribution Centre
in Middlewich in the UK. This was partially offset by the purchase of our
partner's stake in The Tesco Dorney Limited Partnership in October 2022.
Capital expenditure and space:
UK & ROI Central Europe Tesco Bank Group
FY 22/23 FY 21/22 FY 22/23 FY 21/22 FY 22/23 FY 21/22 FY 22/23 FY 21/22
Capex £1,069m £963m £115m £91m £51m £47m £1,235m £1,101m
Openings (k sq ft) 318 180 77 54 - - 395 234
Closures (k sq ft) (233) (146) (25) (25) - - (258) (171)
Repurposed (k sq ft) 9 - (407) (125) - - (398) (125)
Net space change (k sq ft) 94 34 (355) (96) - - (261) (62)
'Retail Selling Space' is defined as net space in store adjusted to exclude
checkouts, space behind checkouts, customer service desks and customer
toilets. The data above excludes space relating to franchise stores. A
full breakdown of space by segment is included in the supplementary
information starting on page 43.
Capital expenditure (capex) shown in the table above reflects expenditure on
ongoing business activities across the Group, excluding property buybacks.
Our capital expenditure for the year was £1,235m, £134m higher year-on-year,
which primarily relates to simplification projects within our UK stores and
the opening of convenience stores across both the UK and Ireland. We opened
our fifth and sixth UFCs in Rutherglen, Glasgow in May 2022 and Bar Hill,
Cambridge in January 2023.
In the UK, we opened two new superstores, at Freshwater & Cinderford, 18
new One Stop stores and a further 50 Tesco Express Stores, taking our total
number of Tesco Express stores to 1,998 at the end of the financial year. We
opened our 2,000th Express store in Cambridge in March, after the year end.
In the Republic of Ireland, we opened four new Tesco Express stores and
converted the nine Joyce's stores we acquired in June last year.
In Central Europe, we opened seven new small format stores and refreshed 35
large stores in the year, right sizing our selling space, to ensure our offer
remains relevant for customers. A further 56 store refreshes are planned
this year.
Statutory capital expenditure for the year was £1.5bn.
Further details of current and forecast space can be found in the
supplementary information starting on page 43.
Property:
UK & ROI Central Europe Group
Feb-23 Feb-22 Feb-23 Feb-22 Feb-23 Feb-22
Property(1) - fully owned
- Estimated market value £15.4bn £16.6bn £1.8bn £1.5bn £17.2bn £18.1bn
- NBV £14.9bn £15.1bn £1.5bn £1.4bn £16.4bn £16.5bn
% store selling space owned 58% 56% 68% 68% 60% 58%
% property owned by value(2) 59% 58% 65% 64% 60% 58%
1. Stores, malls, investment property, offices, distribution centres,
fixtures and fittings, work-in-progress. Excludes joint ventures.
2. Excludes fixtures and fittings.
The estimated market value of our fully owned property as at the year end
reduced by £(0.9)bn to £17.2bn due to the weakening of the UK property
investment market in the last six months. The market value represents a
surplus of £0.8bn over the net book value (NBV).
Our Group freehold property ownership percentage was 60%, an increase of 2%
year-on-year. The completion of the purchase of our partner's 50% stake in
The Tesco Dorney Limited Partnership in October brought back into full
ownership seven sites, contributing a 1% increase in the percentage of fully
owned properties in the UK & ROI. We also repurchased the Tesco Extra
stores in Mansfield and Melton Mowbray in the UK.
In Central Europe, the increase in the market value of fully owned property
reflects the assets that were held for sale last year, which were not sold,
coming back into the 'Property - fully owned' balance. In the year we
realised £203m of proceeds from the completed sale of 17 malls and one retail
park.
Contacts:
Investor Relations: Chris Griffith 01707 940 900
Rob Whiteley 01707 940 745
Media: Christine Heffernan 0330 6780 639
Teneo 0207 420 3143
This document is available at www.tescoplc.com/prelims2023
(www.tescoplc.com/prelims2023) .
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/prelims2023 (www.tescoplc.com/prelims2023) . 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 Q1 Trading statement on 16 June 2023.
Information contained within this announcement includes inside information as
defined in Article 7 of the Market Abuse Regulation No. 596/2014, including as
applied in the UK. The person responsible for arranging the release of this
announcement on behalf of Tesco PLC is Robert Welch, Company Secretary.
Sources:
· UK market share based on Kantar Total Grocers Total Till Roll on 12
week rolling basis to 19 February 2023.
· UK online market share based on Kantar Total Till Roll online
channel on 12 week rolling basis to 19 February 2023.
· Customer satisfaction based on YouGov Satisfaction scores on 12
week rolling basis to 26 February 2023.
· 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 26 February 2023. 'Market' consists of
Sainsbury's, Morrisons, Asda, Aldi, Lidl, Waitrose, M&S, Ocado, Co-op and
Iceland.
· Price index is calculated using the single retail selling price of
each item, including price cut promotions; the index is weighted by sales and
market share to reflect customer importance and competitor size. Competitor
set consists of Sainsbury's, Morrisons, Asda, Aldi and Lidl.
· YoY Clubcard sales penetration is based on all stores from February
2022 to February 2023.
· Number of Booker retail partners and Premier stores shown net of
openings and closures.
· 'Full-line grocers' refers to Tesco, Sainsbury's, Asda and
Morrisons and 'Limited-range discounters' refers to Aldi and Lidl.
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
52 weeks ended 52 weeks ended
25 February 2023 26 February 2022
Notes Before adjusting Adjusting Total Before adjusting Adjusting Total
£m
items
£m
items items
£m items
£m
(Note 3) (Note 3)
£m
£m
Continuing operations
Revenue 2 65,762 - 65,762 61,344 - 61,344
Cost of sales (61,005) (1,029) (62,034) (56,574) (176) (56,750)
Impairment (loss)/reversal on financial assets 2 (67) - (67) 39 - 39
Gross profit/(loss) 4,690 (1,029) 3,661 4,809 (176) 4,633
Administrative expenses (2,060) (76) (2,136) (1,984) (89) (2,073)
Operating profit/(loss) 2,630 (1,105) 1,525 2,825 (265) 2,560
Share of post-tax profits of joint ventures and associates 8 - 8 15 - 15
Finance income 4 85 - 85 9 - 9
Finance costs 4 (647) 29 (618) (652) 101 (551)
Profit/(loss) before tax 2,076 (1,076) 1,000 2,197 (164) 2,033
Taxation 5 (442) 195 (247) (502) (8) (510)
Profit/(loss) for the year from continuing operations 1,634 (881) 753 1,695 (172) 1,523
Discontinued operations
Profit/(loss) for the year from discontinued operations - (9) (9) (2) (38) (40)
Profit/(loss) for the year 1,634 (890) 744 1,693 (210) 1,483
Attributable to:
Owners of the parent 1,635 (890) 745 1,691 (210) 1,481
Non-controlling interests (1) - (1) 2 - 2
1,634 (890) 744 1,693 (210) 1,483
Earnings/(losses) per share from continuing and discontinued operations
Basic 8 10.05p 19.34p
Diluted 8 9.96p 19.12p
Earnings/(losses) per share from continuing operations
Basic 8 10.17p 19.86p
Diluted 8 10.08p 19.64p
The notes on pages 20 to 42 form part of this condensed consolidated financial
information.
Group statement of comprehensive income/(loss)
Notes 52 weeks ended 25 February 2023 £m 52 weeks ended 26 February 2022 £m
Items that will not be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other 2 4
comprehensive income
Remeasurements of defined benefit pension schemes 18 (3,341) 4,075
Net fair value gains on inventory cash flow hedges 54 33
Tax on items that will not be reclassified 853 (918)
(2,432) 3,194
Items that may subsequently be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other (43) (25)
comprehensive income
Currency translation differences:
Retranslation of net assets of overseas subsidiaries, joint ventures and 120 (39)
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary - 66
disposed, reclassified and reported in the Group income statement
Gains on cash flow hedges:
Net fair value gains 17 44
Reclassified and reported in the Group income statement (61) (45)
Tax on items that may be reclassified 21 (5)
54 (4)
Total other comprehensive income/(loss) for the year (2,378) 3,190
Profit/(loss) for the year 744 1,483
Total comprehensive income/(loss) for the year (1,634) 4,673
Attributable to:
Owners of the parent (1,639) 4,671
Non-controlling interests 5 2
Total comprehensive income/(loss) for the year (1,634) 4,673
Total comprehensive income/(loss) attributable to owners of the parent arising
from:
Continuing operations (1,630) 4,645
Discontinued operations (9) 26
(1,639) 4,671
The notes on pages 20 to 42 form part of this condensed consolidated financial
information.
Group balance sheet
Notes 25 February 26 February
2023 2022
£m
£m
Non-current assets
Goodwill and other intangible assets 9 5,375 5,360
Property, plant and equipment 10 16,862 17,060
Right of use assets 11 5,500 5,720
Investment property 24 22
Investments in joint ventures and associates 93 86
Other investments 1,339 1,253
Trade and other receivables 79 159
Loans and advances to customers 3,029 3,141
Reinsurance assets 145 184
Derivative financial instruments 873 942
Post-employment benefit surplus 18 6 3,150
Deferred tax assets 5 82 85
33,407 37,162
Current assets
Other investments 353 226
Inventories 2,510 2,339
Trade and other receivables 1,315 1,263
Loans and advances to customers 4,052 3,349
Reinsurance assets 72 61
Derivative financial instruments 57 69
Current tax assets 63 93
Short-term investments 13 1,628 2,076
Cash and cash equivalents 13 2,465 2,345
12,515 11,821
Assets of the disposal group and non-current assets classified as held for 6 210 368
sale
12,725 12,189
Current liabilities
Trade and other payables (9,818) (9,181)
Borrowings 15 (1,770) (725)
Lease liabilities 11 (595) (547)
Insurance contract provisions (570) (623)
Customer deposits and deposits from banks (4,485) (4,729)
Derivative financial instruments (99) (26)
Current tax liabilities (18) (11)
Provisions (366) (283)
(17,721) (16,125)
Liabilities of the disposal group classified as held for sale 6 (14) (14)
Net current liabilities (5,010) (3,950)
Non-current liabilities
Trade and other payables (153) (53)
Borrowings 15 (5,581) (6,674)
Lease liabilities 11 (7,132) (7,411)
Insurance contract provisions (35) (27)
Customer deposits and deposits from banks (2,265) (1,650)
Derivative financial instruments (288) (357)
Post-employment benefit deficit 18 (400) (303)
Deferred tax liabilities 5 (119) (910)
Provisions (194) (183)
(16,167) (17,568)
Net assets 12,230 15,644
Equity
Share capital 19 463 484
Share premium 5,165 5,165
Other reserves 19 3,123 3,079
Retained earnings 3,490 6,932
Equity attributable to owners of the parent 12,241 15,660
Non-controlling interests (11) (16)
Total equity 12,230 15,644
The notes on pages 20 to 42 form part of this condensed consolidated financial
information.
Group statement of changes in equity
Share Share Other reserves Retained earnings Total Non-controlling interests Total
capital
premium
£m
£m
equity
£m
£m (Note 19) £m
£m
£m
At 26 February 2022 484 5,165 3,079 6,932 15,660 (16) 15,644
Profit/(loss) for the year - - - 745 745 (1) 744
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - 120 - 120 - 120
associates, net of hedging instruments
Change in fair value of financial assets at fair value through other - - - (41) (41) - (41)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 18) - - - (3,341) (3,341) - (3,341)
Gains/(losses) on cash flow hedges - - 63 - 63 8 71
Cash flow hedges reclassified and reported in the Group income statement - - (61) - (61) - (61)
Tax relating to components of other comprehensive income - - 22 854 876 (2) 874
Total other comprehensive income/(loss) - - 144 (2,528) (2,384) 6 (2,378)
Total comprehensive income/(loss) - - 144 (1,783) (1,639) 5 (1,634)
Inventory cash flow hedge movements
Gains/(losses) transferred to the cost of inventory - - (127) - (127) - (127)
Total inventory cash flow hedge movements - - (127) - (127) - (127)
Transactions with owners
Own shares purchased for cancellation (Note 19) - - (758) - (758) - (758)
Own shares cancelled (Note 19) (21) - 816 (795) - - -
Own shares purchased for share schemes - - (188) - (188) - (188)
Share-based payments - - 157 (1) 156 - 156
Dividends (Note 7) - - - (858) (858) - (858)
Tax on items credited to equity - - - (5) (5) - (5)
Total transactions with owners (21) - 27 (1,659) (1,653) - (1,653)
At 25 February 2023 463 5,165 3,123 3,490 12,241 (11) 12,230
Share Share Other reserves Retained earnings Total Non-controlling interests Total
capital
premium
£m
£m
equity
£m
£m (Note 19) £m
£m
£m
At 27 February 2021 490 5,165 3,183 3,239 12,077 (18) 12,059
Profit/(loss) for the year - - - 1,481 1,481 2 1,483
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - (39) - (39) - (39)
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary - - 66 - 66 - 66
disposed, reclassified and reported in the Group income statement
Change in fair value of financial assets at fair value through other - - - (21) (21) - (21)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 18) - - - 4,075 4,075 - 4,075
Gains/(losses) on cash flow hedges - - 77 - 77 - 77
Cash flow hedges reclassified and reported in the Group income statement - - (45) - (45) - (45)
Tax relating to components of other comprehensive income - - (22) (901) (923) - (923)
Total other comprehensive income/(loss) - - 37 3,153 3,190 - 3,190
Total comprehensive income/(loss) - - 37 4,634 4,671 2 4,673
Inventory cash flow hedge movements
Gains/(losses) transferred to the cost of inventory - - 30 - 30 - 30
Total inventory cash flow hedge movements - - 30 - 30 - 30
Transactions with owners
Own shares purchased for cancellation (Note 19) - - (301) - (301) - (301)
Own shares cancelled (Note 19) (6) - 270 (264) - - -
Own shares purchased for share schemes - - (279) - (279) - (279)
Share-based payments - - 139 12 151 - 151
Dividends (Note 7) - - - (704) (704) - (704)
Tax on items credited to equity - - - 15 15 - 15
Total transactions with owners (6) - (171) (941) (1,118) - (1,118)
At 26 February 2022 484 5,165 3,079 6,932 15,660 (16) 15,644
The notes on pages 20 to 42 form part of this condensed consolidation
financial information.
Group cash flow statement
Notes 52 weeks ended 25 February 2023 52 weeks ended 26 February 2022
£m
£m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations 1,525 2,560
Operating profit/(loss) of discontinued operations (9) (51)
Depreciation and amortisation 1,700 1,718
(Profit)/loss arising on sale of property, plant and equipment, investment (76) (123)
property, intangible assets, assets classified as held for sale and early
termination of leases
(Profit)/loss arising from sale of other investments 3 -
(Profit)/loss arising on sale of joint ventures and associates - (25)
(Profit)/loss arising on sale of subsidiaries - 23
Net impairment loss on property, plant and equipment, right of use assets, 12 982 115
intangible assets and investment property
Net remeasurement loss on non-current assets held for sale 23 3
Adjustment for non-cash element of pensions charge - 7
Other defined benefit pension scheme payments 18 (23) (19)
Share-based payments 17 59 66
Tesco Bank fair value movements included in operating profit/(loss) 70 (28)
Retail (increase)/decrease in inventories (147) (281)
Retail (increase)/decrease in trade and other receivables (54) 27
Retail increase/(decrease) in trade and other payables 643 743
Retail increase/(decrease) in provisions 75 (65)
Retail (increase)/decrease in working capital 517 424
Tesco Bank (increase)/decrease in loans and advances to customers (696) (95)
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables 60 8
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance 369 47
and other payables
Tesco Bank increase/(decrease) in provisions (7) (22)
Tesco Bank (increase)/decrease in working capital (274) (62)
Cash generated from/(used in) operations 4,497 4,608
Interest paid (652) (650)
Corporation tax paid (123) (201)
Net cash generated from/(used in) operating activities 3,722 3,757
Cash flows generated from/(used in) investing activities
Proceeds from sale of property, plant and equipment, investment property, 342 309
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other (971) (949)
long-term assets
Purchase of intangible assets (279) (229)
Disposal of subsidiaries, net of cash disposed - 161
Acquisition of subsidiaries, net of cash acquired (71) (48)
Proceeds from sale of joint ventures and associates - 15
Increase in loans to joint ventures and associates (1) (4)
Investments in joint ventures and associates (10) (11)
Net (investments in)/proceeds from sale of short-term investments 451 (1,067)
Proceeds from sale of other investments 230 274
Purchase of other investments (529) (221)
Dividends received from joint ventures and associates 14 32
Interest received 70 3
Cash inflows from derivative financial instruments 54 -
Cash outflows from derivative financial instruments (6) -
Net cash generated from/(used in) investing activities (706) (1,735)
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation 19 (781) (278)
Own shares purchased for share schemes 17 (86) (144)
Repayment of capital element of obligations under leases (593) (577)
Cash outflows exceeding the incremental increase in assets in a property (21) -
buyback
Increase in borrowings - 394
Repayment of borrowings (709) (775)
Cash inflows from derivative financial instruments 232 798
Cash outflows from derivative financial instruments (371) (921)
Dividends paid to equity owners 7 (859) (731)
Net cash generated from/(used in) financing activities (3,188) (2,234)
Net increase/(decrease) in cash and cash equivalents (172) (212)
Cash and cash equivalents at the beginning of the year 1,771 1,971
Effect of foreign exchange rate changes (34) 12
Cash and cash equivalents at the end of the year 13 1,565 1,771
The notes on pages 20 to 42 form part of this condensed consolidated financial
information.
Note 1 Basis of preparation
This preliminary consolidated financial information has been prepared in
accordance with the Disclosure and Transparency Rules of the UK Financial
Conduct Authority, and the principles of UK-adopted IFRS. 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 Group financial statements 2023, which are the same as those
used in preparing the Annual Report and Group financial statements 2022. The
financial year represents the 52 weeks ended 25 February 2023 (prior financial
year 52 weeks ended 26 February 2022). This preliminary consolidated financial
information does not constitute statutory consolidated financial statements
for the 52 weeks ended 25 February 2023 as defined under section 434 of the
Companies Act 2006.
The Annual Report and Group financial statements for the 52 weeks ended 25
February 2023 were approved by the Board of Directors on 12 April 2023. The
report of the auditor on those Group financial statements was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006. The Annual Report and Group
financial statements for 2023 will be filed with the Registrar in due course.
The Annual Report and Group financial statements for the 52 weeks ended 26
February 2022 were approved by the Board of Directors on 12 April 2022. The
report of the auditor on those Group financial statements was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
The Directors have, at the time of approving the 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 financial statements, and have
concluded that there are no material uncertainties relating to going concern.
Thus they continue to adopt the going concern basis of accounting in preparing
the consolidated Group financial statements. Further information on the
Group's strong liquidity position is given in the Summary of total
indebtedness section.
Adoption of new IFRSs
New standards, interpretations and amendments effective in the current
financial year have not had a material impact on the consolidated Group
financial statements.
The Group has not applied any standards, interpretations or amendments that
have been issued but are not yet effective.
IFRS 17 'Insurance contracts' will become effective in the consolidated Group
financial statements for the financial year ending 24 February 2024. IFRS 17
will principally impact the Group's subsidiary, Tesco Underwriting Limited
(TU), which provides the insurance underwriting service for a number of the
Group's general insurance products. The simplified premium allocation approach
will be applied to all material insurance groups issued and reinsurance groups
purchased subsequent to the acquisition of TU in May 2021. For contract groups
issued prior to the acquisition date, the general model will be applied to the
associated acquired claims liabilities. The presentation of some of the line
items in the balance sheet and income statement may also change as a result of
IFRS 17 adoption. The Group will adopt IFRS 17 retrospectively and
comparatives will be restated from a transition date of 27 February 2022, with
an immaterial transition adjustment to the opening equity balance at that
date.
The impact of the following is still under assessment:
- IFRS 16 amendments 'Lease liability in a sale and leaseback', which will
become effective in the consolidated 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 on the consolidated Group financial
statements.
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 aids comparability over time for the
financial year 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:
52 weeks ended 25 February 2023 UK & ROI Central Total Retail at constant exchange Tesco Total at Foreign Total
At constant exchange rates
£m
Europe
Bank
constant
exchange
at actual
£m £m
£m
exchange
£m
exchange
£m
£m
Continuing operations
Revenue 60,214 4,468 64,682 1,106 65,788 (26) 65,762
Less: Fuel sales (7,877) (222) (8,099) - (8,099) (7) (8,106)
APM: Sales 52,337 4,246 56,583 1,106 57,689 (33) 57,656
Adjusted operating profit 2,307 174 2,481 143 2,624 6 2,630
Adjusting items (Note 3) (1,058) (33) (1,091) (11) (1,102) (3) (1,105)
Operating profit 1,249 141 1,390 132 1,522 3 1,525
Adjusted operating margin 3.8% 3.9% 3.8% 12.9% 4.0% 4.0%
52 weeks ended 25 February 2023 UK & ROI Central Total Retail Tesco Total
At actual exchange rates
£m
Europe
Bank
at actual
£m £m
£m
exchange
£m
Continuing operations
Revenue 60,246 4,410 64,656 1,106 65,762
Less: Fuel sales (7,877) (229) (8,106) - (8,106)
APM: Sales 52,369 4,181 56,550 1,106 57,656
Adjusted operating profit 2,307 180 2,487 143 2,630
Adjusting items (Note 3) (1,058) (36) (1,094) (11) (1,105)
Operating profit 1,249 144 1,393 132 1,525
Adjusted operating margin 3.8% 4.1% 3.8% 12.9% 4.0%
Share of post-tax profits of joint ventures and associates 8
Finance income 85
Finance costs (618)
Profit before tax 1,000
Tesco Bank revenue of £1,106m (2022: £922m) comprises interest and similar
revenues of £540m (2022: £473m), fees and commissions revenue of £257m
(2022: £210m) and insurance revenue of £309m (2022: £239m).
52 weeks ended 26 February 2022 UK & ROI Central Total Retail Tesco Total
£m
Europe
Bank
at actual
At actual exchange rates
£m £m
£m
exchange
£m
Continuing operations
Revenue 56,404 4,018 60,422 922 61,344
Less: Fuel sales (6,420) (156) (6,576) - (6,576)
APM: Sales 49,984 3,862 53,846 922 54,768
Adjusted operating profit 2,481 168 2,649 176 2,825
Adjusting items (Note 3) (290) 25 (265) - (265)
Operating profit 2,191 193 2,384 176 2,560
Adjusted operating margin 4.4% 4.2% 4.4% 19.1% 4.6%
Share of post-tax profits of joint ventures and associates 15
Finance income 9
Finance costs (551)
Profit before tax 2,033
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, 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.
At 25 February 2023 UK & ROI Central Tesco Unallocated Total continuing Discontinued operations Total
£m
Europe
Bank
£m
£m
£m
£m
£m operations
£m
Goodwill and other intangible assets 4,715 37 623 - 5,375 - 5,375
Property, plant and equipment and investment property 15,346 1,468 72 - 16,886 - 16,886
Right of use assets 5,057 433 10 - 5,500 - 5,500
Investments in joint ventures and associates 93 - - - 93 - 93
Non-current other investments 218 - 1,121 - 1,339 - 1,339
Non-current trade and other receivables((a)) 44 2 25 - 71 - 71
Non-current loans and advances to customers - - 3,029 - 3,029 - 3,029
Non-current reinsurance assets - - 145 - 145 - 145
Post-employment benefit surplus 6 - - - 6 - 6
Deferred tax assets 3 22 57 - 82 - 82
Non-current assets((b)) 25,482 1,962 5,082 - 32,526 - 32,526
Inventories and current trade and other receivables((c)) 3,118 358 243 - 3,719 - 3,719
Current loans and advances to customers - - 4,052 - 4,052 - 4,052
Current reinsurance assets - - 72 - 72 - 72
Current other investments 6 - 347 - 353 - 353
Total trade and other payables (8,986) (595) (390) - (9,971) - (9,971)
Total customer deposits and deposits from banks - - (6,750) - (6,750) - (6,750)
Total insurance contract provisions - - (605) - (605) - (605)
Total provisions (494) (36) (30) - (560) - (560)
Deferred tax liabilities (74) (45) - - (119) - (119)
Net current tax 52 (16) 9 - 45 - 45
Post-employment benefit deficit (400) - - - (400) - (400)
Assets of the disposal group and non-current assets classified as held for 25 169 - - 194 16 210
sale
Net debt (including Tesco Bank)((d)) (7,036) (553) 151 (2,890) (10,328) (14) (10,342)
Net assets 11,693 1,244 2,181 (2,890) 12,228 2 12,230
(a) Excludes non-current loans to joint ventures of £8m (2022: £9m) which
form part of net debt.
(b) Excludes derivative financial instruments of £873m (2022: £942m) which
form part of net debt.
(c) Excludes net interest and other receivables of £8m (2022: £1m), and
current loans to joint ventures of £98m (2022: £96m), both forming part of
net debt.
(d) Refer to Note 21. Net debt at 25 February 2023 includes net debt of the
disposal group classified as held for sale of £(14)m (2022: £(14)m).
At 26 February 2022 UK & ROI Central Tesco Unallocated Total continuing operations Discontinued operations Total
£m
Europe
Bank
£m
£m
£m
£m
£m
£m
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 - - 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 - - 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 20 310 - - 330 38 368
sale
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
Refer to previous table for footnotes.
Other segment information
52 weeks ended 25 February 2023 UK & ROI Central Tesco Total
£m
Europe
Bank
£m
£m
£m
Capital expenditure (including acquisitions through business combinations):
Property, plant and equipment((a)(b)) 1,176 104 14 1,294
Goodwill and other intangible assets((c)) 259 12 37 308
Depreciation and amortisation:
Property, plant and equipment (788) (84) (10) (882)
Right of use assets (500) (37) (2) (539)
Investment property (1) - - (1)
Other intangible assets (226) (10) (42) (278)
Impairment((d)):
(Loss) on financial assets (5) (1) (61) (67)
(a) Includes £248m related to obtaining control of The Tesco Dorney Limited
Partnership (2022: £584m related to obtaining control of The Tesco Sarum
Limited Partnership). Refer to Note 22 for further details.
(b) Includes £42m (2022: £1m) of property, plant and equipment acquired
through business combinations.
(c) Includes £31m (2022: £38m) of goodwill and other intangible assets
acquired through business combinations.
(d) Excludes impairment of other non-current assets. Refer to Note 12.
52 weeks ended 26 February 2022 UK & ROI Central Tesco Total
£m
Europe
Bank
£m
£m
£m
Capital expenditure (including acquisitions through business combinations):
Property, plant and equipment((a)(b)) 1,485 89 14 1,588
Goodwill and other intangible assets((c)) 186 10 71 267
Depreciation and amortisation:
Property, plant and equipment (792) (90) (11) (893)
Right of use assets (500) (35) (2) (537)
Investment property (1) - - (1)
Other intangible assets (224) (11) (52) (287)
Impairment((d)):
(Loss)/reversal on financial assets 10 (1) 30 39
Refer to previous table for footnotes.
Cash flow statement
The following tables provide a split of cash flows between Retail continuing
operations, Tesco Bank and Group discontinued operations.
Retail Bank Discontinued operations Tesco
Group
52 weeks ended 25 February 2023 Before adjusting Adjusting Retail Before adjusting items Adjusting items Tesco Total Total
Total
£m
£m
Bank
items items
£m
Total £m £m
£m
£m £m
Operating profit/(loss) 2,487 (1,094) 1,393 143 (11) 132 (9) 1,516
Depreciation and amortisation 1,570 76 1,646 54 - 54 - 1,700
ATM net income (16) - (16) 16 - 16 - -
(Profit)/loss arising on sale of property, plant and equipment, investment 13 (91) (78) - - - 2 (76)
property, intangible assets, assets held for sale and early termination of
leases
(Profit)/loss arising from sale of other investments - - - 3 - 3 - 3
Net impairment loss on property, plant and equipment, right of use assets, - 982 982 - - - - 982
intangible assets and investment property
Net remeasurement loss on non-current assets held for sale - 14 14 - - - 9 23
Other defined benefit pension scheme payments (23) - (23) - - - - (23)
Share-based payments 64 - 64 (5) - (5) - 59
Tesco Bank fair value movements included in operating profit/(loss) - - - 70 - 70 - 70
Cash flows generated from operations excluding working capital 4,095 (113) 3,982 281 (11) 270 2 4,254
(Increase)/decrease in working capital 468 52 520 (271) (3) (274) (3) 243
Cash generated from/(used in) operations 4,563 (61) 4,502 10 (14) (4) (1) 4,497
Interest paid (643) - (643) (9) - (9) - (652)
Corporation tax paid (107) - (107) (17) - (17) 1 (123)
Net cash generated from/(used in) operating activities* 3,813 (61) 3,752 (16) (14) (30) - 3,722
Proceeds from sale of property, plant and equipment, investment property, 6 335 341 1 - 1 - 342
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other (14) (40) (54) - - - - (54)
long-term assets - property buybacks
Purchase of property, plant and equipment, investment property and other (902) - (902) (15) - (15) - (917)
long-term assets - other capital expenditure
Purchase of intangible assets (241) - (241) (38) - (38) - (279)
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 (10) - (10) - - - - (10)
Net (investments in)/proceeds from sale of short-term investments 451 - 451 - - - - 451
Proceeds from sale of other investments 1 - 1 229 - 229 - 230
Purchase of other investments (206) - (206) (323) - (323) - (529)
Dividends received from joint ventures and associates 14 - 14 - - - - 14
Dividends received from Tesco Bank 54 - 54 (54) - (54) - -
Interest received 70 - 70 - - - - 70
Cash inflows from derivative financial instruments 54 - 54 - - - - 54
Cash outflows from derivative financial instruments (6) - (6) - - - - (6)
Net cash generated from/(used in) investing activities* (796) 295 (501) (205) - (205) - (706)
Own shares purchased for cancellation (781) - (781) - - - - (781)
Own shares purchased for share schemes (86) - (86) - - - - (86)
Repayment of capital element of obligations under leases (589) - (589) (4) - (4) - (593)
Cash outflows exceeding the incremental increase in assets in a property (21) - (21) - - - - (21)
buyback
Repayment of borrowings (608) - (608) (101) - (101) - (709)
Cash inflows from derivative financial instruments 232 - 232 - - - - 232
Cash outflows from derivative financial instruments (365) - (365) (6) - (6) - (371)
Dividends paid to equity holders (858) (1) (859) - - - - (859)
Net cash generated from/(used in) financing activities* (3,076) (1) (3,077) (111) - (111) - (3,188)
Net increase/(decrease) in cash and cash equivalents (59) 233 174 (332) (14) (346) - (172)
Cash and cash equivalents at the beginning of the year 1,771
Effect of foreign exchange rate changes (34)
Cash and cash equivalents at the end of the year 1,565
* Refer to page 50 for the reconciliation of the APM: Retail free cash
flow.
Retail Bank Discontinued operations Tesco
Group
52 weeks ended 26 February 2022 Before adjusting Adjusting Retail Before adjusting items Adjusting items Tesco Total Total
Total
£m
£m
Bank
items items
£m
Total £m £m
£m
£m £m
Operating profit/(loss) 2,649 (265) 2,384 176 - 176 (51) 2,509
Depreciation and amortisation 1,577 76 1,653 65 - 65 - 1,718
ATM net income (14) - (14) 14 - 14 - -
(Profit)/loss arising on sale of property, plant and equipment, investment 5 (128) (123) - - - - (123)
property, intangible assets, assets held for sale and early termination of
leases
(Profit)/loss arising on sale of joint ventures and associates - (15) (15) (10) - (10) - (25)
(Profit)/loss arising on sale of subsidiaries - - - - - - 23 23
Net impairment loss on property, plant and equipment, right of use assets, - 115 115 - - - - 115
intangible assets and investment property
Net remeasurement (gain)/loss on non-current assets held for sale - 6 6 - - - (3) 3
Adjustment for non-cash element of pensions charge 7 - 7 - - - - 7
Other defined benefit pension scheme payments (19) - (19) - - - - (19)
Share-based payments 63 - 63 3 - 3 - 66
Tesco Bank fair value movements included in operating profit/(loss) - - - (28) - (28) - (28)
Cash flows generated from operations excluding working capital 4,268 (211) 4,057 220 - 220 (31) 4,246
(Increase)/decrease in working capital 501 (105) 396 (54) (8) (62) 28 362
Cash generated from/(used in) operations 4,769 (316) 4,453 166 (8) 158 (3) 4,608
Interest paid (644) - (644) (5) - (5) (1) (650)
Corporation tax paid (195) - (195) (4) - (4) (2) (201)
Net cash generated from/(used in) operating activities* 3,930 (316) 3,614 157 (8) 149 (6) 3,757
Proceeds from sale of property, plant and equipment, investment property, - 308 308 1 - 1 - 309
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other (37) (43) (80) - - - - (80)
long-term assets - property buybacks
Purchase of property, plant and equipment, investment property and other (854) - (854) (14) - (14) (1) (869)
long-term assets - other capital expenditure
Purchase of intangible assets (196) - (196) (33) - (33) - (229)
Disposal of subsidiaries, net of cash disposed - 117 117 - - - 44 161
Acquisition of subsidiaries, net of cash acquired - - - (48) - (48) - (48)
Proceeds from sale of joint ventures and associates - 15 15 - - - - 15
Increase in loans to joint ventures and associates (4) - (4) - - - - (4)
Investments in joint ventures and associates (11) - (11) - - - - (11)
Net (investments in)/proceeds from sale of short-term investments (1,067) - (1,067) - - - - (1,067)
Proceeds from sale of other investments 2 - 2 272 - 272 - 274
Purchase of other investments (1) - (1) (220) - (220) - (221)
Dividends received from joint ventures and associates 22 - 22 10 - 10 - 32
Dividends received from Tesco Bank 87 - 87 (87) - (87) - -
Interest received 3 - 3 - - - - 3
Net cash generated from/(used in) investing activities* (2,056) 397 (1,659) (119) - (119) 43 (1,735)
Own shares purchased for cancellation (278) - (278) - - - - (278)
Own shares purchased for share schemes (144) - (144) - - - - (144)
Repayment of capital element of obligations under leases (571) - (571) (4) - (4) (2) (577)
Increase in borrowings 394 - 394 - - - - 394
Repayment of borrowings (754) - (754) (21) - (21) - (775)
Cash inflows from derivative financial instruments 798 - 798 - - - - 798
Cash outflows from derivative financial instruments (921) - (921) - - - - (921)
Dividends paid to equity holders (704) (27) (731) - - - - (731)
Net cash generated from/(used in) financing activities* (2,180) (27) (2,207) (25) - (25) (2) (2,234)
Net increase/(decrease) in cash and cash equivalents (306) 54 (252) 13 (8) 5 35 (212)
Cash and cash equivalents at the beginning of the year 1,971
Effect of foreign exchange rate changes 12
Cash and cash equivalents at the end of the year 1,771
Refer to previous table for footnote.
Note 3 Adjusting items
Group income statement
52 weeks ended 25 February 2023
Profit/(loss) for the year included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Share of joint venture and associates profits/(losses) Finance income/ Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
(costs) £m
£m
Total adjusting items
£m
Property transactions((a)) 36 55 91 - - 29 - 120
Net impairment (loss)/reversal of non-current assets((b)) (965) (17) (982) - - 129 - (853)
Fair value less cost of disposal movements on assets held for sale - (14) (14) - - 1 - (13)
Restructuring((c)) (107) (31) (138) - - 26 - (112)
Disposal of Asia operations((d)) - 2 2 - - - - 2
ATM business rates refund((e)) 7 - 7 - - (1) - 6
Release of onerous contract provision((f)) - 5 5 - - - - 5
Amortisation of acquired intangible assets((g)) - (76) (76) - - 14 - (62)
Net pension finance income((h)) - - - - 80 (15) - 65
Fair value remeasurements of financial instruments((h)) - - - - (51) 12 - (39)
Total adjusting items from continuing operations (1,029) (76) (1,105) - 29 195 - (881)
Adjusting items relating to discontinued operations((i)) - - - - - - (9) (9)
Total adjusting items (1,029) (76) (1,105) - 29 195 (9) (890)
(a) The Group disposed of surplus properties that generated a profit before
tax of £91m (2022: £128m). £37m relates to the disposal of mall properties
in Central Europe and associated store sale and leasebacks (2022: £nil).
Refer to Notes 6 and 11 for further details. Taxation includes £63m deferred
tax credit on lease simplifications relating to property joint venture
structures.
(b) Refer to Note 12 for further details on net impairment (loss)/reversal
of non-current assets. Includes £(7)m of impairment relating to the
acquisition of The Tesco Dorney Limited Partnership (refer to Note 22).
(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 £(182)m. Future cost savings will not be reported within
adjusting items.
(d) £4m relates to software licence fee income (2022: £26m) from services
provided to CP Group as part of the Transitional Services Agreement relating
to the sale of Asia. £(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
years.
(e) Ruling that Tesco Group is due a refund of business rates relating to
external facing ATMs in stores. Similar refunds have been recognised through
adjusting items in previous years.
(f) Release of onerous contract provisions in ROI that had been charged
through adjusting items in previous years.
(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 income and fair value remeasurements of financial
instruments are 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) Adjusting items relating to discontinued operations includes £(9)m
fair value remeasurement of non-current assets classified as held for sale,
£(2)m loss on disposal of surplus properties, both relating to Poland and
£2m income relating to the disposal of Korea.
52 weeks ended 26 February 2022
Profit/(loss) for the year included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Share of joint venture and associates profits/(losses) Finance income/ Taxation Adjusting items included within discontinued operations Total adjusting items
£m
£m
£m
£m
£m
(costs) £m £m
£m
Property transactions 1 127 128 - - (21) - 107
Net impairment (loss)/reversal of non-current assets (140) 25 (115) - - (26) - (141)
Fair value less cost of disposal movements on assets held for sale - (6) (6) - - - - (6)
Restructuring provisions (37) (7) (44) - - 8 - (36)
Asia licence fee - 26 26 - - (5) - 21
Litigation costs - (193) (193) - - - - (193)
Disposal of China associate - 15 15 - - - - 15
Amortisation of acquired intangible assets - (76) (76) - - (7) - (83)
Net pension finance costs - - - - (22) 6 - (16)
Fair value remeasurements of financial instruments - - - - 123 (19) - 104
Release of tax provisions - - - - - 56 - 56
Total adjusting items from continuing operations (176) (89) (265) - 101 (8) - (172)
Adjusting items relating to discontinued operations - - - - - - (38) (38)
Total adjusting items (176) (89) (265) - 101 (8) (38) (210)
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
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
2023
2022
2023
2022
2023
2022
£m
£m
£m
£m
£m
£m
Property transactions((a)) - - 335 308 - -
Poland sale proceeds and costs - - - 122 - -
Litigation costs - (312) - - - -
Acquisition of property joint venture - - (40) (43) - -
Booker integration cash payments - (18) - - - -
Settlement of claims for customer redress in Tesco Bank (4) (8) - - - -
Disposal of China associate - - - 15 - -
ATM business rates refund((b)) 5 14 - - - -
Special dividend - - - - (1) (27)
Disposal of Asia operations (2) - - (5) - -
Restructuring((c)) (74) - - - - -
Total continuing operations (75) (324) 295 397 (1) (27)
Cash flows from discontinued operations - (1) - 44 - -
Total (75) (325) 295 441 (1) (27)
(a) Property transactions include £43m proceeds (2022: £109m) relating to
the sale of stores in Poland not included in the sale of the corporate
business. £203m proceeds (2022: £nil) 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 year with respect to the ruling that Tesco Group
is due a refund of business rates relating to external facing ATMs in stores.
(c) Cash outflows relating to operational restructuring changes as part of
the multi-year 'Save to Invest' programme.
Note 4 Finance income and costs
Continuing operations Notes 52 weeks 52 weeks
2022
2023
£m
£m
Finance income
Interest receivable and similar income 78 4
Interest receivable on other investments 3 -
Finance income receivable on net investment in leases 4 5
Total finance income 85 9
Finance costs
GBP MTNs and loans (160) (161)
EUR MTNs (53) (42)
USD bonds (18) (5)
Finance charges payable on lease liabilities (373) (405)
Other interest payable (43) (39)
Total finance costs before adjusting items (647) (652)
Fair value remeasurements of financial instruments* (51) 123
Net pension finance income/(cost) 18 80 (22)
Total finance costs (618) (551)
Net finance costs (533) (542)
* Fair value remeasurements of financial instruments included £70m gain
(2022: £nil) relating to the repurchase of long-dated bonds.
Note 5 Taxation
Recognised in the Group income statement
Continuing operations 52 weeks 52 weeks
2023
£m 2022
£m
Current tax (credit)/charge
UK corporation tax 202 201
Overseas tax 78 69
Adjustments in respect of prior years 19 (55)
299 215
Deferred tax (credit)/charge
Origination and reversal of temporary differences (18) 216
Adjustments in respect of prior years (35) 1
Change in tax rate 1 78
(52) 295
Total income tax (credit)/charge 247 510
Reconciliation of effective tax charge
Continuing operations 52 weeks 52 weeks
2023
£m 2022
£m
Profit/(loss) before tax 1,000 2,033
Tax credit/(charge) at 19.0% (2022: 19.0%) (190) (386)
Effect of:
Non-qualifying depreciation* (5) (7)
Expenses not deductible (21) (57)
Property items taxed on a different basis to accounting entries 33 7
Impairment of non-current assets (87) (43)
Banking surcharge tax (5) (13)
Differences in overseas taxation rates 11 10
Adjustments in respect of prior years 16 54
Share of losses of joint ventures and associates 2 3
Change in tax rate (1) (78)
Total income tax credit/(charge) (247) (510)
Effective tax rate 24.7% 25.1%
* This figure has been reduced by the
tax effect of the super-deduction of £30m (2022: £23m) in respect of tax
relief for fixed assets.
Reconciliation of effective tax charge on adjusted profit before tax
Continuing operations 52 weeks 52 weeks
2023
£m 2022
£m
Profit/(loss) before tax 1,000 2,033
Add: Adjusting items 1,076 164
Adjusted profit before tax 2,076 2,197
Tax credit/(charge) at 19.0% (2022: 19.0%) (394) (417)
Effect of:
Non-qualifying depreciation((a)) (5) (7)
Expenses not deductible (21) (32)
Property items taxed on a different basis to accounting entries - (1)
Banking surcharge tax (5) (13)
Differences in overseas taxation rates 10 10
Adjustments in respect of prior years (3) (2)
Share of profits of joint ventures and associates 2 3
Change in tax rate((b)) (26) (43)
Total income tax credit/(charge) before adjusting items (442) (502)
Adjusted effective tax rate 21.3% 22.8%
(a) This figure has been reduced by the tax effect of the super-deduction of
£30m (2022: £23m) in respect of tax relief for fixed assets.
(b) Change in tax rate includes £31m (2022: £19m) in relation to provision
of deferred tax at 25% (2022: 25%) on assets qualifying for super-deductions.
Deferred tax
The following are the major deferred tax (liabilities)/assets recognised by
the Group and movements thereon during the current and prior financial years,
measured using the tax rates that are expected to apply when the liability is
settled or the asset realised based on the tax rates that have been enacted or
substantively enacted by the balance sheet date. Deferred tax assets are
recognised when it is probable sufficient taxable profits will be available to
utilise deductible temporary differences or unused tax losses. This assessment
is based on the Group's three-year long-term plan which is updated and
approved annually by the Board and is consistent with the Group's longer-term
viability statement and impairment assessments.
Property-related Acquired intangibles Post- Share-based Short-term Tax losses Financial Total
£m
employment
payments
timing
£m
instruments
£m
items((a))
£m
differences
£m
benefits((b))
£m
£m
£m
At 27 February 2021 (125) (98) 582 31 69 3 42 504
(Charge)/credit to the Group income statement (227) (10) (1) (6) (24) 2 (29) (295)
(Charge)/credit to the Group statement of changes in equity - - - 14 - - - 14
(Charge)/credit to the Group statement of comprehensive income/(loss) - - (1,030) - - - (17) (1,047)
Foreign exchange and other movements - - (2) - - 1 - (1)
At 26 February 2022 (352) (108) (451) 39 45 6 (4) (825)
(Charge)/credit to the Group income statement (80) 15 (13) 11 14 140 (35) 52
(Charge)/credit to the Group statement of changes in equity - - - (11) - - - (11)
(Charge)/credit to the Group statement of comprehensive income/(loss) - - 719 - - - 31 750
Foreign exchange and other movements (2) (2) - - 1 - - (3)
At 25 February 2023 (434) (95) 255 39 60 146 (8) (37)
(a) Property-related items include a deferred tax liability on rolled-over
gains of £421m (2022: £423m), deferred tax assets on capital losses of
£242m (2022: £248m) and deferred tax assets on IFRS 16 balances of £235m
(2022: £238m). The remaining balance relates to accelerated tax depreciation.
(b) The deferred tax asset on retirement benefits includes a deferred tax
asset of £155m (2022: £275m) arising from a one-off contribution of £2.5bn
paid in December 2020 on which tax deductions are spread over 4 years, with
the remaining balance related to the pension schemes in deficit. Refer to Note
18 for further details.
Note 6 Discontinued operations and assets classified as held for sale
Assets and liabilities of the disposal group and non-current assets classified
as held for sale
2023 2022
£m
£m
Assets of the disposal group((a)) 11 11
Non-current assets classified as held for sale((b)) 199 357
Total assets of the disposal group and non-current assets classified as held 210 368
for sale
Liabilities of the disposal group((a)) (14) (14)
Total net assets of the disposal group and non-current assets classified as 196 354
held for sale
(a) The disposal group as at 25 February 2023, including £(14)m of net debt
(2022: £(14)m), relates to residual properties and leases with respect to the
Group's operation in Poland. Balances as at 26 February 2022 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 year the Group sold 18 malls in Central Europe, leasing back 17
stores within those sites. Net proceeds from the sale and leaseback
transaction were £203m. As the sale and leaseback proceeds did not exceed the
fair value of the stores sold, the proceeds are presented in the 'investing'
category in the Group cash flow statement. The profit on disposal was £37m.
Refer to Note 3. Refer to Note 11 for details on the leaseback of the stores.
Note 7 Dividends
2023 2022
Pence/share £m Pence/share £m
Paid prior financial year final dividend((a)) 7.70 574 5.95 458
Paid interim dividend((b)) 3.85 284 3.20 246
Amounts recognised through equity as distributions to owners 11.55 858 9.15 704
Paid 2021 special dividend 50.93 1 50.93 27
Dividends paid in the financial year 859 731
Proposed final dividend at financial year end 7.05 516 7.70 588
(a) Excludes £7m prior financial year final dividend waived (2022: £2m) and
includes the write-back of unclaimed dividend of £5m (2022: £nil).
(b) Excludes £2m interim dividend waived (2022: £1m).
The proposed final dividend was approved by the Board of Directors on 12 April
2023 and is subject to the approval of shareholders at the AGM. The proposed
dividend has not been included as a liability as at 25 February 2023. It will
be paid on 23 June 2023 to shareholders who are on the Register of members at
close of business on 12 May 2023.
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 2 June 2023.
Note 8 Earnings/(losses) per share and diluted earnings/(losses) per share
For the 52 weeks ended 25 February 2023 there were 67 million (2022: 88
million) potentially dilutive share options and awards. As the Group has
recognised a profit for the year from its continuing operations, dilutive
effects have been considered in calculating diluted earnings per share.
52 weeks ended 25 February 2023 52 weeks ended 26 February 2022
Basic Potentially Diluted Basic Potentially Diluted
dilutive share
dilutive share
options and awards
options and awards
Profit/(loss) (£m)
Continuing operations* 754 - 754 1,521 - 1,521
Discontinued operations (9) - (9) (40) - (40)
Total 745 - 745 1,481 - 1,481
Weighted average number of shares (millions) 7,415 67 7,482 7,658 88 7,746
Earnings/(losses) per share (pence)
Continuing operations 10.17 (0.09) 10.08 19.86 (0.22) 19.64
Discontinued operations (0.12) - (0.12) (0.52) - (0.52)
Total 10.05 (0.09) 9.96 19.34 (0.22) 19.12
* Excludes profits/(losses) from non-controlling interests of £(1)m
(2022: £2m).
APM: Adjusted diluted earnings/(losses) per share
Continuing operations Notes 52 weeks 52 weeks
2023
2022
Profit/(loss) before tax (£m) 1,000 2,033
Less: Adjusting items (£m) 3 1,076 164
Adjusted profit before tax (£m) 2,076 2,197
Adjusted profit before tax attributable to the owners of the parent (£m)* 2,077 2,195
Taxation on adjusted profit before tax attributable to the owners of the 5 (442) (502)
parent (£m)
Adjusted profit after tax attributable to the owners of the parent (£m) 1,635 1,693
Basic weighted average number of shares (millions) 7,415 7,658
Adjusted basic earnings per share (pence) 22.05 22.11
Diluted weighted average number of shares (millions) 7,482 7,746
Adjusted diluted earnings per share (pence) 21.85 21.86
* Excludes profit/(losses) before tax attributable to non-controlling
interests of £(1)m (2022: £2m).
Note 9 Goodwill and other intangible assets
2023 2022
Goodwill((a)) Total other intangible assets((b)) Total Goodwill((a)) Total other intangible assets((b)) Total
£m
£m
£m
£m
£m £m
Net carrying value
Opening balance 4,291 1,069 5,360 4,271 1,122 5,393
Foreign currency translation 6 3 9 - - -
Additions - 277 277 - 229 229
Acquired through business combinations 30 1 31 20 18 38
Disposals - (3) (3) - (3) (3)
Amortisation charge for the year((c)) - (278) (278) - (287) (287)
Impairment losses((d)) - (28) (28) - (18) (18)
Reversal of impairment losses((d)) - 7 7 - 8 8
Closing balance 4,327 1,048 5,375 4,291 1,069 5,360
(a) Goodwill of £4,327m (2022: £4,291m) consists of UK £3,793m (2022:
£3,788m), ROI £34m (2022: £3m) and Tesco Bank £500m (2022: £500m).
(b) Total other intangible assets consists of software with a net carrying
value of £624m (2022: £557m), customer relationships with a net carrying
value of £342m (2022: £418m) and other intangible assets with a net carrying
value of £82m (2022: £94m).
(c) Of the £278m (2022: £287m) amortisation of total other intangible
assets, £76m (2022: £76m) has been included within adjusting items. £75m
(2022: £75m) of this balance arises from amortisation of intangible assets
recognised upon the Booker acquisition and £1m (2022: £1m) relates to the
amortisation of intangible assets recognised upon the acquisition of Best Food
Logistics.
(d) Refer to Note 12.
Note 10 Property, plant and equipment
2023 2022
Land and Other((a)) Total Land and Other((a)) Total
buildings
£m
buildings
£m
£m £m
£m £m
Net carrying value
Opening balance 15,163 1,897 17,060 15,099 1,846 16,945
Foreign currency translation 129 20 149 (51) (5) (56)
Additions((b)(c)) 591 661 1,252 992 595 1,587
Acquired through business combinations 42 - 42 - 1 1
Reclassification 2 (4) (2) (72) - (72)
Transfers to assets classified as held for sale (53) (3) (56) (283) (11) (294)
Disposals (52) (9) (61) (3) (16) (19)
Depreciation charge for the year (434) (448) (882) (426) (467) (893)
Impairment losses((d)) (686) (141) (827) (417) (89) (506)
Reversal of impairment losses((d)) 168 19 187 324 43 367
Closing balance 14,870 1,992 16,862 15,163 1,897 17,060
Construction in progress included above((e)) 109 278 387 97 212 309
(a) Other assets consist of fixtures and fittings with a net carrying value of
£1,496m (2022: £1,387m), office equipment with a net carrying value of
£201m (2022: £200m) and motor vehicles with a net carrying value of £295m
(2022: £310m). Depreciation charge for the year is £(292)m (2022: £(310)m),
£(71)m (2022: £(78)m) and £(85)m (2022: £(79)m), respectively.
(b) Includes £248m of land and buildings related to obtaining control of The
Tesco Dorney Limited Partnership, which was impaired by £(7)m on acquisition
(2022: £584m of land and buildings related to obtaining control of The Tesco
Sarum Limited Partnership, which was impaired by £(62)m on acquisition).
Refer to Note 22.
(c) Includes £29m (2022: £37m) relating to other 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 25
February 2023 were £200m (2022: £193m), principally relating to store
development.
Note 11 Leases
Group as lessee
On 6 October 2022, the Group obtained control of The Tesco Dorney Limited
Partnership (2022: The Tesco Sarum Limited Partnership on 17 December 2021),
previously accounted for as a joint venture, through the acquisition of the
other partner's 50% interest, at which point the associated property leases
from the joint venture became intercompany leases. Refer to Note 22 for
further details.
Right of use assets
2023 2022
Land and Other Total Land and Other Total
buildings
£m
£m
buildings
£m
£m
£m
£m
Net carrying value
Opening balance 5,634 86 5,720 5,866 85 5,951
Additions (including sale and leaseback transactions)((a)) 378 64 442 544 39 583
Acquired through business combinations 4 - 4 - - -
Depreciation charge for the year (501) (38) (539) (497) (40) (537)
Impairment losses((b)) (394) - (394) (195) - (195)
Reversal of impairment losses((b)) 72 - 72 234 - 234
Derecognition on acquisition of property joint venture((c)) (198) - (198) (243) - (243)
Other movements((d)) 392 1 393 (75) 2 (73)
Closing balance 5,387 113 5,500 5,634 86 5,720
(a) Includes £70m of land under an external lease related to obtaining
control of The Tesco Dorney Limited Partnership. Refer to Note 22.
(b) Refer to Note 12.
(c) Refer to Note 22.
(d) 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:
2023 2022
£m
£m
Current 595 547
Non-current 7,132 7,411
Total lease liabilities 7,727 7,958
Total undiscounted lease payments 10,897 11,515
A reconciliation of the Group's opening to closing lease liabilities balance
is presented in Note 21.
Sale and leaseback
During the year 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 with options to extend, and the store
leases have resulted in lease liability additions of £36m. 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 year (2022: £nil).
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 year (2022: £nil) with
respect to investments in joint ventures and associates and no impairments in
other non-current assets in Tesco Bank (2022: £nil). All impairment losses
and reversals are classified as adjusting items.
UK & ROI Central Europe Total Net
52 weeks ended 25 February 2023 Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment (loss)/reversal
loss
£m
loss
£m
loss
£m
£m
£m
£m
£m
Group balance sheet
Other intangible assets (28) 6 - 1 (28) 7 (21)
Property, plant and equipment (779) 181 (48) 6 (827) 187 (640)
Right of use assets (373) 65 (21) 7 (394) 72 (322)
Investment property (1) 2 - - (1) 2 1
Total impairment (loss)/reversal of other non-current assets (1,181) 254 (69) 14 (1,250) 268 (982)
Group income statement
Cost of sales (1,155) 245 (69) 14 (1,224) 259 (965)
Administrative expenses (26) 9 - - (26) 9 (17)
Total impairment (loss)/reversal from continuing operations (1,181) 254 (69) 14 (1,250) 268 (982)
UK & ROI Central Europe Total Net
52 weeks ended 26 February 2022 Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment (loss)/reversal
loss
£m
loss
£m
loss
£m
£m
£m
£m
£m
Group balance sheet
Other intangible assets (17) 8 (1) - (18) 8 (10)
Property, plant and equipment (496) 319 (10) 48 (506) 367 (139)
Right of use assets (183) 228 (12) 6 (195) 234 39
Investment property (6) 1 - - (6) 1 (5)
Total impairment (loss)/reversal of other non-current assets (702) 556 (23) 54 (725) 610 (115)
Group income statement
Cost of sales (682) 536 (19) 25 (701) 561 (140)
Administrative expenses (20) 20 (4) 29 (24) 49 25
Total impairment (loss)/reversal from continuing operations (702) 556 (23) 54 (725) 610 (115)
The net impairment loss in UK & ROI includes an impairment loss of £7m in
the UK in respect of the Group obtaining control of The Tesco Dorney Limited
Partnership (2022: £62m impairment loss in UK & ROI in respect of the
Group obtaining control of The Tesco Sarum Limited Partnership). Refer to Note
22 for further details.
The majority of the net impairment charge relates to increased discount rates
due to increases in government bond rates as a result of the prevailing
macroeconomic uncertainty. See the Key assumptions and sensitivity section of
this note for applicable discount rates. Property fair values in the UK have
also decreased due to the weakening of the property investment market in the
last six months, which has led to increased yields.
The remaining other non-current assets impairment losses and reversals for the
Group largely reflect normal fluctuations expected from
store-level performance, as well as any specific store closures.
Impairment methodology
The impairment methodology is unchanged in the period 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, 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
2023 2022 2023 2022
%
%
%
%
Pre-tax discount rates 7.4 - 8.6 5.4 - 7.8 8.0 - 16.8 5.7 - 11.3
Post-tax discount rates 6.5 4.7 - 5.8 6.3 - 11.1 4.5 - 8.8
Long-term growth rates 2.0 1.9 2.0 - 3.2 2.0 - 3.0
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 future cash flows and property fair
values sensitivities disclosed given the level of volatility seen in these
inputs since the previous year end, driven by the wider macroeconomic
environment.
(a) Except for Tesco Bank goodwill, neither a reasonably possible
increase of 1.0%pt in discount rates, a 10.0% 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 and the
amount by which these assumption values would have to change to make the
recoverable amount equal to the carrying value, the headroom sensitivity, and
the impact of reasonably possible changes to these assumptions:
Key assumption Assumption value Headroom sensitivity Reasonably possible change Impact on impairment
£m
Post-tax discount rates* 12.0% Increase of 0.3%pt Increase of 1.0%pt (114)
Annual equity cash flows Variable Decrease of 4.3% Decrease of 10.0% (71)
Long-term growth rates 1.7% Decrease of 0.4%pt Decrease of 1.0%pt (72)
(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.
Key assumption Reasonably possible change Impact on impairment 2023
£m
Post-tax discount rates* Increase of 1.0%pt for each geographic region Increase (479)
Decrease of 1.0%pt for each geographic region Decrease 434
Future cash flows Increase of 10.0% for each geographic region Decrease 279
Decrease of 10.0% for each geographic region Increase (321)
Long-term growth rates Increase of 1.0%pt for each geographic region Decrease 273
Decrease of 1.0%pt for each geographic region Increase (267)
Property fair values Increase of 10.0% for each geographic region Decrease 205
Decrease of 10.0% for each geographic region Increase (217)
* 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
2023 2022
£m
£m
Cash at bank and on hand 2,426 2,322
Short-term deposits 39 23
Cash and cash equivalents in the Group balance sheet 2,465 2,345
Bank overdrafts (900) (574)
Cash and cash equivalents in the Group cash flow statement 1,565 1,771
Short-term investments
2023 2022
£m
£m
Money market funds, deposits and similar instruments 1,628 2,076
Cash and cash equivalents includes £87m (2022: £84m) 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.
2023 2022
£m
£m
Current assets
Inventories (18) (15)
Trade and other receivables
Trade/other receivables 67 68
Accrued income 127 124
Current liabilities
Trade and other payables
Trade payables 112 112
Accruals (5) -
Note 15 Borrowings
Current
2023 2022(
£m ) £m
Bank loans and overdrafts 928 605
Borrowings* 842 120
1,770 725
Non-current
2023 2022
£m
£m
Borrowings* 5,581 6,674
* £nil (2022: £1m) of current and £137m (2022: £243m) of non-current
borrowings relate to borrowings issued by Tesco Bank.
Borrowing facilities
The Group has a £2.5bn undrawn committed facility available at 25 February
2023 (2022: £2.5bn), 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
(2022: £nil) of the facility during the financial year to 25 February 2023.
Note 16 Financial instruments
The expected maturity of financial assets and liabilities is not considered to
be materially different to their current and non-current classification.
The fair value of assets and liabilities measured at amortised cost and at
fair value are shown below.
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.
2023 2022
Level Carrying Fair Carrying Fair
value
value
value
value
£m
£m
£m
£m
Financial assets measured at amortised cost
Loans and advances to customers 3 7,081 7,058 6,490 6,566
Investments in debt instruments at amortised cost((a)) 1 and 2 1,093 1,097 857 867
Joint ventures and associates loan receivables((b)) 2 106 111 105 126
Financial liabilities measured at amortised cost
Borrowings
Amortised cost((a)) 1 (5,227) (5,496) (5,057) (5,942)
Bonds in fair value hedge relationships 1 (2,124) (2,167) (2,342) (2,401)
Customer deposits 3 (5,770) (5,640) (5,327) (5,296)
(a) These are principally Level 1 instruments.
(b) Joint ventures and associates loan receivables carrying amounts of
£106m (2022: £105m) are presented in the Group balance sheet net of deferred
profits of £38m (2022: £38m) 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 and liabilities,
uncollateralised derivatives 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.
At 25 February 2023 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 565 - 14 579
Short-term investments at fair value through profit or loss 660 - - 660
Cash and cash equivalents at fair value through profit or loss - 32 - 32
Investments at fair value through profit or loss - - 20 20
Derivative financial instruments:
Interest rate swaps - 123 - 123
Cross-currency swaps - 41 170 211
Index-linked swaps - 119 432 551
Foreign currency forward contracts - 41 - 41
Diesel forward contracts - 4 - 4
Total assets 1,225 360 636 2,221
Liabilities
Derivative financial instruments:
Interest rate swaps - (73) (86) (159)
Cross-currency swaps - (4) (137) (141)
Foreign currency forward contracts - (72) - (72)
Diesel forward contracts - (15) - (15)
Total liabilities - (164) (223) (387)
Net assets/(liabilities) 1,225 196 413 1,834
Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
At 26 February 2022
Assets
Investments at fair value through other comprehensive income 585 - 12 597
Short-term investments at fair value through profit or loss* 1,170 - - 1,170
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
Foreign currency forward contracts - 44 - 44
Diesel forward contracts - 23 - 23
Total assets 1,755 311 763 2,829
Liabilities
Derivative financial instruments:
Interest rate swaps - (273) - (273)
Cross-currency swaps - (85) - (85)
Foreign currency forward contracts - (25) - (25)
Total liabilities - (383) - (383)
Net assets/(liabilities) 1,755 (72) 763 2,446
* Comparatives have been re-presented for reclassification of certain
short-term investments from amortised cost to fair value through profit or
loss.
During the financial year, there were no transfers (2022: no transfers)
between Level 1 and Level 2 fair value measurements.
Level 3 Instruments
During the financial year, there were £nil (2022: £nil) of transfers from
Level 3 to Level 2 and £nil (2022: £nil) transfer from Level 3 to Level 1.
There were £18m of transfers of unlisted investments (2022: £nil) and
£(223)m of derivative liabilities (2022: derivative assets of £749m) to
Level 3 from Level 2 and £nil (2022: £nil) to Level 3 from Level 1.
As part of financial risk management, the Group holds certain uncollateralised
derivative financial instruments, including interest rate and inflation swaps,
cross-currency swaps, and forward contracts. These are valued using relevant
inputs which are considered observable (Level 2), such as forward rates and
foreign exchange rates from available market data. Unobservable inputs (Level
3) relate to the funding valuation adjustment (FVA), which is the estimate of
the adjustment to the fair value that a market participant would make to
account for funding costs. These are calculated on the future valuation of the
derivative, based on the best estimate available to management of suitable
relevant cost of funds. A 10 basis points increase in the cost of funds would
increase the FVA by £11m (2022: £18m).
The following table presents the changes in Level 3 instruments:
2023 2022
Uncollateralised derivatives Unlisted Uncollateralised derivatives Unlisted
£m
£m
investments investments
£m
£m
At the beginning of the year 749 14 - 11
Gains/(losses) recognised in finance costs* (114) - - -
Gains/(losses) recognised in other comprehensive income not reclassified to - 2 - 4
the income statement
Gains/(losses) recognised in other comprehensive income that may subsequently 6 - - -
be reclassified to the income statement
Additions - - - 1
Disposals (39) - - (2)
Transfers of assets/(liabilities) into Level 3 (223) 18 749 -
At the end of the year 379 34 749 14
* All gains or losses are unrealised.
Tesco Bank expected credit losses (ECL)
Tesco Bank has commissioned four scenarios from its third-party provider: a
Base scenario, an Upside scenario and two different Downside scenarios. The
Base scenario assumes the continuation of war in Ukraine affecting energy
prices and inflation, with GDP not expected to return to pre-pandemic levels
until Q2 2025. The scenario projects cost-of-living pressures continuing, real
disposable income declining and unemployment peaking at 5.7% by Q4 2024. The
Upside scenario sees a dissipation in global supply chain disruption and a
peak unemployment rate of 4.4% in 2024, while Downside scenario 1 assumes a
7.3% unemployment peak by 2025. Downside scenario 2 postulates spikes in
energy prices, higher inflation and further deprecation of Sterling against
the US Dollar, with subsequent GDP declines and a 9.6% unemployment peak in
2025. 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:
As at 25 February 2023 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 3.8% 3.0% 4.7% 5.8%
Gross domestic product((b)) 1.0% 1.5% 0.4% (0.1)%
Unemployment rate 5.2% 4.2% 6.5% 8.4%
Unemployment rate peak in year 5.4% 4.2% 6.8% 8.9%
As at 26 February 2022 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 1.0% 1.2% 0.7% 0.4%
Gross domestic product((b)) 1.8% 2.2% 1.5% 1.2%
Unemployment rate 4.1% 3.9% 4.9% 6.3%
Unemployment rate peak in year 4.2% 3.9% 5.1% 6.7%
(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 25 February 2023 and excludes specific management
overlays which are discussed further below.
Impact on the loss allowance
Key assumption Reasonably possible change 2023 2022
£m
£m
Closing ECL allowance 461 489
Macroeconomic factors (100% weighted) Upside scenario (59) (27)
Base scenario (11) (13)
Downside scenario 1 65 31
Downside scenario 2 161 110
Probability of default Increase of 10% (2022: 2.5%) 32 6
Decrease of 10% (2022: 2.5%) (31) (6)
Loss given default Increase of 2.5% 10 7
Decrease of 2.5% (10) (7)
Probability of default threshold (staging) Increase of 20% (9) (9)
Decrease of 20% 13 13
Expected lifetime (revolving credit facility) Increase of 1 year 3 11
Decrease of 1 year (5) (10)
Despite stability in the performance of the underlying portfolio, the
increased risk from a high inflationary environment and cost-of-living crisis
creates uncertainty on future loss projections and the current model outputs.
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:
Overlay Description of adjustment 2023 2022
£m
£m
Underestimation risk Risk that the beneficial impact of recent credit loss trends incorporated into 68 -
credit risk models are transitive and may reverse due to the uncertain
economic climate
Cost of living A portion of Tesco Bank's customers may be more impacted by cost-of-living 22 75
pressures, with deterioration in their ability to repay unsecured lending
balances
Consumer spending In respect of the beneficial modelling impact of lower consumer spending - 113
through the pandemic
Emergence of customer defaults The emergence of defaults will be more aligned with previous economic - 19
downturns
War in Ukraine Further potential inflationary pressures on cost of living - 6
Total overlays 90 213
Note 17 Share-based payments
The table below shows amounts charged to the Group income statement in respect
of share-based payments:
2023 2022
£m £m
Income statement
Equity-settled share-based payment charge 101 109
Cash-settled National Insurance contributions 11 13
112 122
The table below shows amounts included in the Group cash flow statement in
relation to share-based payments and own shares purchased for share schemes:
2023 2022
£m £m
Share-based payment charge included in operating profit/(loss) (112) (122)
Share-based payments non-cash movement 59 66
Increase/(decrease) in trade and other payables* 53 56
Included in Group operating cash flows - -
Cash paid to purchase own shares including related fees and taxes (134) (191)
Cash received from employees exercising SAYE options 48 47
Included in Group financing cash flows (86) (144)
* Shares withheld from employees in order to settle their tax liability
and National Insurance.
Note 18 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
£0.9bn. 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 £17m per annum (previously £25m per annum) from October 2022. The Scheme
remained in a funding surplus as at 25 February 2023.
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.
IFRIC 14
For schemes 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 following
a gradual settlement.
Movement in the Group pension surplus/(deficit) during the financial year
Net defined benefit surplus/(deficit)
2023 2022
£m
£m
Opening balance 2,847 (1,222)
Current service cost (24) (39)
Settlement charge((a)) - (1)
Finance income/(cost) 80 (22)
Included in the Group income statement 56 (62)
Remeasurement gain/(loss):
Financial assumptions gain/(loss) 7,652 1,881
Demographic assumptions gain/(loss) (228) 21
Experience gain/(loss) (1,244) (212)
Return on plan assets excluding finance income (9,518) 2,385
Foreign currency translation (3) 4
Included in the Group statement of comprehensive income/(loss) (3,341) 4,079
Employer contributions 24 33
Additional employer contributions 20 16
Benefits paid 3 3
Other movements 47 52
Closing balance (391) 2,847
Withholding tax on surplus((b)) (3) -
Closing balance, net of withholding tax (394) 2,847
Consisting of:
Schemes in deficit (400) (303)
Schemes in surplus((c)) 6 3,150
Deferred tax asset/(liability) 100 (726)
Surplus/(deficit) in schemes at the end of the year, net of deferred tax (294) 2,121
(a) Settlement charge on Londis Scheme buy-out in 2022.
(b) Recognised through other comprehensive income in remeasurements of
defined benefit pension schemes.
(c) In 2023, schemes in surplus in the UK are presented on the balance sheet
net of a 35% withholding tax.
Scheme principal assumptions
The principal assumptions, on a weighted average basis, used by external
actuaries to value the defined benefit obligation of the Scheme were as
follows:
2023 2022
% %
Discount rate 4.9 2.8
Price inflation 3.0 3.3
Rate of increase in deferred pensions* 2.6 2.9
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012 2.9 3.1
Benefits accrued after 1 June 2012 2.5 2.8
* In excess of any guaranteed minimum pension (GMP) element.
If the discount rate assumption increased by 0.1% or 1%, the Scheme defined
benefit obligation would decrease by approximately £(213)m or £(1,921)m
respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined
benefit obligation would increase by approximately £226m or £2,498m
respectively.
If the inflation assumption increased by 0.1% or 1% the Scheme defined benefit
obligation would increase by approximately £201m and £2,147m respectively.
If this assumption decreased by 0.1% or 1%, the Scheme defined benefit
obligation would decrease by approximately £(201)m or £(1,783)m
respectively.
Movements in the defined benefit obligation from discount rate and inflation
rate changes will be partially offset by movements in assets.
Note 19 Share capital and other reserves
Share capital
2023 2022
Ordinary shares of 6 ⅓p each Ordinary shares of 6 ⅓p each
Number £m Number £m
Allotted, called-up and fully paid:
At the beginning of the year 7,637,986,531 484 7,731,707,820 490
Shares cancelled (319,645,336) (21) (93,721,289) (6)
At the end of the financial year 7,318,341,195 463 7,637,986,531 484
No shares were issued during the current financial year in relation to share
options. 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.
Other reserves
The table below sets out the movements in other reserves:
Capital redemption reserve Hedging Translation Own Merger Total
£m
reserve*
reserve
shares
£m
£m
held reserve( £m
£m ) £m
At 26 February 2022 22 130 202 (365) 3,090 3,079
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - 120 - - 120
associates, net of hedging instruments
Gains/(losses) on cash flow hedges - 63 - - - 63
Cash flow hedges reclassified and reported in the Group income statement - (61) - - - (61)
Tax relating to components of other comprehensive income - 22 - - - 22
Total other comprehensive income/(loss) - 24 120 - - 144
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory - (127) - - - (127)
Total inventory cash flow hedge movements - (127) - - - (127)
Transactions with owners
Own shares purchased for cancellation - - - (758) - (758)
Own shares cancelled 21 - - 795 - 816
Own shares purchased for share schemes - - - (188) - (188)
Share-based payments (Note 17) - - - 157 - 157
Total transactions with owners 21 - - 6 - 27
At 25 February 2023 43 27 322 (359) 3,090 3,123
* Movements in cost of hedging reserve is £nil (2022: £nil) and
balance at 25 February 2023 is £nil (2022: £nil).
Capital redemption reserve Hedging Translation Own Merger Total
£m
reserve*
reserve
shares
£m
£m
held reserve( £m
£m ) £m
At 27 February 2021 16 90 175 (188) 3,090 3,183
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - (39) - - (39)
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary - - 66 - - 66
disposed, reclassified and reported in the Group income statement
Gains/(losses) on cash flow hedges - 77 - - - 77
Cash flow hedges reclassified and reported in the Group income statement - (45) - - - (45)
Tax relating to components of other comprehensive income - (22) - - - (22)
Total other comprehensive income/(loss) - 10 27 - - 37
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory - 30 - - - 30
Total inventory cash flow hedge movements - 30 - - - 30
Transactions with owners
Own shares purchased for cancellation - - - (301) - (301)
Own shares cancelled 6 - - 264 - 270
Own shares purchased for share schemes - - - (279) - (279)
Share-based payments (Note 17) - - - 139 - 139
Total transactions with owners 6 - - (177) - (171)
At 26 February 2022 22 130 202 (365) 3,090 3,079
Refer to previous table for footnote.
Own shares held
The table below presents the reconciliation of own shares purchased for
cancellation between the Group statement of changes in equity and the Group
cash flow statement:
2023 2022
Own shares purchased for cancellation £m £m
Included in the Group statement of changes in equity((a)) (758) (301)
Payments in relation to prior year financial liabilities (23) -
Outstanding amount recognised as financial liabilities((b)) - 23
Included in the Group cash flow statement((c)) (781) (278)
(a) 319.6 million (2022: 93.7 million) shares were cancelled, representing
4.4% of the called-up share capital as at 25 February 2023 (2022: 1.2%), This
includes 4.8 million shares purchased not yet cancelled as at 26 February 2022
with total consideration of £14m. The total consideration of £795m (2022:
£264m), including expenses of £9m (2022: £1m), was charged to retained
earnings.
(b) Shares to be delivered under a share repurchase agreement with an external
bank, included in other payables.
(c) 314.8 million (2022: 98.5 million) shares purchased at an average price of
£2.48 per share (2022: £2.82).
Note 20 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its joint ventures and associates are
disclosed below:
Transactions
Joint ventures
2023 2022
£m
£m
Sales to related parties 599 501
Purchases from related parties 122 111
Dividends received 14 32
Injection of equity funding 10 11
Sales to related parties consist of service/management fees and loan interest.
Transactions between the Group and the Group's pension plans are disclosed in
Note 18.
Balances
Joint ventures
2023 2022
£m
£m
Amounts owed to related parties (7) (9)
Amounts owed by related parties 27 36
Lease liabilities payable to related parties((a)) (1,950) (2,335)
Loans to related parties (net of deferred profits)((b)) 106 105
(a) Lease liabilities payable to related parties represent leases entered into
by the Group for properties held by joint ventures.
(b) Loans to related parties of £106m (2022: £105m) are presented net of
deferred profits of £38m (2022: £38m), historically arising from the sale of
property assets to joint ventures. For loans to related parties, a 12-month
expected credit loss (ECL) allowance is recorded on initial recognition. In
the current and prior financial years, the ECL allowance was immaterial.
Amounts owed to and owed by related parties are measured at amortised cost and
the carrying values approximate fair value.
There were no transactions or balances held with associates in the current or
prior financial year.
Note 21 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 and movements in respect of
the total Group and Tesco Bank are presented to allow reconciliation between
the Group balance sheet and the Group cash flow statement.
2023 2022
Group Bank Retail Group Bank Retail
£m £m £m £m £m £m
Bank and other borrowings, excluding overdrafts (6,451) (375) (6,076) (6,825) (481) (6,344)
Lease liabilities (7,727) (23) (7,704) (7,958) (26) (7,932)
Net financing derivatives 472 (9) 481 553 (6) 559
Share purchase obligations (55) - (55) (73) - (73)
Liabilities from financing activities (13,761) (407) (13,354) (14,303) (513) (13,790)
Cash and cash equivalents in the balance sheet 2,465 444 2,021 2,345 789 1,556
Overdrafts* (900) - (900) (574) - (574)
Cash and cash equivalents (including overdrafts) in the cash flow statement 1,565 444 1,121 1,771 789 982
Short-term investments 1,628 - 1,628 2,076 - 2,076
Joint venture loans 106 - 106 105 - 105
Interest and other receivables 8 - 8 1 - 1
Net operating and investing derivatives 71 114 (43) 75 24 51
Net debt of disposal group (14) - (14) (14) - (14)
Less: Share purchase obligations 55 - 55 73 - 73
Net debt APM (10,493) (10,516)
* 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:
2023 2022
£m
£m
Opening Net debt (10,516) (11,955)
Change in liabilities from Group financing activities 2,327 1,359
Less: Change in cash flows arising from share purchase obligations (886) (278)
Less: Change in cash flows from Tesco Bank financing activities (111) (25)
Change in Net debt from financing activities 1,330 1,056
Net increase/(decrease) in Retail cash and cash equivalents including 173 (221)
overdrafts*
Interest paid on components of Net debt 643 645
Interest received on components of Net debt (70) (3)
Net increase/(decrease) in short-term investments (451) 1,067
Net increase/(decrease) in joint venture loans 1 4
Change in cash flows from operating and investing derivatives (48) -
Other changes in Net debt from cash flow activities 248 1,492
Retail net interest charge on components of Net debt (558) (632)
Retail fair value and foreign exchange movements of Net debt (254) 199
Retail other non-cash movements (697) (492)
Acquisitions and disposals (46) (184)
Change in Net debt from non-cash movements (1,555) (1,109)
Closing Net debt (10,493) (10,516)
* Net increase/(decrease) in Retail cash and cash equivalents including
overdrafts includes £nil (2022: £35m) movement in cash and cash equivalents
of discontinued operations and £(1)m (2022: £(4)m) intragroup funding and
intercompany transactions.
The table below sets out the movements in liabilities arising from financing
activities:
Bank and other borrowings, excluding overdrafts Lease liabilities Net financing derivatives((a)) Share purchase obligations((b)) Liabilities from Group financing activities((c))
£m £m £m £m £m
At 26 February 2022 (6,825) (7,958) 553 (73) (14,303)
Cash flows arising from financing activities 709 593 139 886 2,327
Cash flows arising from operating activities:
Interest paid 241 373 44 - 658
Non-cash movements:
Fair value gains/(losses) 199 - (170) - 29
Foreign exchange (160) (45) - - (205)
Interest income/(charge) (227) (373) (55) - (655)
Acquisitions and disposals((d)) (388) 381 (39) - (46)
Lease additions, terminations, modifications and reassessments - (698) - - (698)
Share purchase agreements - - - (868) (868)
At 25 February 2023 (6,451) (7,727) 472 (55) (13,761)
(a) Net financing derivatives comprise those derivatives which hedge the
Group's exposures in respect of lease liabilities and borrowings. Net
operating and investing derivatives, which form part of the Group's Net debt
APM, are not included.
(b) Share purchase obligations form part of the liabilities arising from the
Group's financing activities, but do not form part of Net debt. Cash flows
arising from financing activities exclude £(29)m (2022: £(191)m) cash
outflows relating to other cancellable arrangements and £48m (2022: £47m)
cash received from employees exercising SAYE options.
(c) Liabilities from Group financing activities are represented to include
liabilities from share purchase obligations of £(55)m (2022: £(73)m) and
exclude net operating and investing derivatives of £71m (2022: £75m).
(d) Acquisitions and disposals include a derecognition of £385m of lease
liabilities and an increase of £(384)m in borrowings and £(39)m in net
financing derivatives from the acquisition of The Tesco Dorney Limited
Partnership. Refer to Note 22.
Bank and other borrowings, excluding overdrafts Lease liabilities Net financing derivatives((a)) Share purchase obligations((b)) Liabilities from Group financing activities((c))
£m £m £m £m £m
At 27 February 2021 (6,736) (8,402) 521 - (14,617)
Cash flows arising from financing activities 381 577 123 278 1,359
Cash flows arising from operating activities
Interest paid 202 405 36 - 643
Non-cash movements:
Fair value gains/(losses) 82 - (30) - 52
Foreign exchange 61 14 - - 75
Interest income/(charge) (209) (405) (33) - (647)
Acquisitions and disposals (606) 355 (64) - (315)
Lease additions, terminations, modifications and reassessments - (492) - - (492)
Share purchase agreements - - (351) (351)
Discontinued operations - (10) - - (10)
At 26 February 2022 (6,825) (7,958) 553 (73) (14,303)
Refer to previous table for footnotes.
Note 22 Acquisitions
Acquisition of property joint venture - The Tesco Dorney Limited Partnership
On 6 October 2022, the Group obtained control of The Tesco Dorney Limited
Partnership (the partnership), previously accounted for as a joint venture,
through the acquisition of the other partner's 50% interest for £40m. The
Group paid £12m stamp duty on the acquisition. The partnership had bond and
derivative liabilities, and long-leased four stores, and three mixed-use sites
anchored by stores which the partnership previously leased to the Group. The
Group in turn subleases certain commercial units and residential accommodation
to third parties. The acquisition, which has been treated as an asset
acquisition, increased the Group's owned and leased property portfolio and
borrowings, replacing the Group's associated right of use assets and lease
liabilities.
The table below sets out the values to the Group in respect of obtaining
control of the partnership:
Notes £m
Property, plant and equipment 10 248
Right of use assets 11 70
Cash and cash equivalents 12
Other working capital (3)
Borrowings 21 (384)
Derivative liabilities 21 (39)
Total assets and liabilities acquired (96)
Consideration paid 40
Stamp duty paid 12
Derecognition of the Group's lease liabilities with the partnership 21 (385)
Derecognition of the Group's right of use assets with the partnership 11 198
Derecognition of the Group's finance lease receivable 39
Total cost* (96)
* The carrying value of the pre-existing joint venture interest was
£nil.
The Group recognised the following gains and losses as an adjusting item
within cost of sales in the Group income statement. The related tax charge on
acquisition of £29m has also been classified as an adjusting item. Refer to
Note 3 for further details.
Notes £m
Impairment of property, plant and equipment acquired 12 (7)
Total adjusting gain/(loss) within cost of sales (7)
Taxation - adjusting item 3 (29)
Total adjusting gain/(loss) after taxation (36)
Note 23 Contingent liabilities
As previously reported, Tesco Stores Limited (TSL) (along with all the major
supermarkets) has received claims from current and former hourly-paid store
colleagues alleging that they do work of equal value to that of colleagues
working in its distribution centres and that differences in terms and
conditions relating to pay are not objectively justifiable (the Equal Pay
Claims). The claimants are seeking the differential between the pay terms
looking back, and equivalence of pay terms moving forward. As at the date of
this disclosure, there are approximately 42,000 claims against TSL, with the
number of claims expected to continue to increase as the litigation
progresses.
UK equal pay law provides that an employee is entitled to the same terms in
relation to pay as those of a comparator of the opposite sex in the same
employment if they are employed to do work of equal value. The legislation
achieves this by implying a clause into the contract of employment, which has
the effect of importing into the employee's contract the more favourable
term(s) of the comparator.
Equal pay claims are typically heard in three stages and the claimants have to
win at every stage in order to succeed. The first stage is comparability which
is effectively a technical gateway to the claims proceeding. The claimants
have to show that there is a valid basis in law for comparing their pay and
the pay of any comparator. One of the legal bases here is that pay terms are
set by the same body. Following a European court ruling on this, TSL has made
a concession on comparability.
The second and third stages are an equal value assessment and the
consideration of TSL's material factor defences (non-discriminatory reasons
for differentials in pay terms) to any claims which succeed at the equal value
assessment stage. Completion of these two stages is a lengthy process and
likely to take many years with hearings and appeals a part of that process. A
final date is impossible to predict with any certainty and any final decision
may be delayed further by any final appeals.
At present, the total number of Equal Pay Claims that may be received, the
merits, and likely outcome of those claims and of TSL's defences to them, and
the potential impact on the Group, are subject to various and substantial
uncertainties. There are multiple factual and legal defences to these claims
and the Group intends to defend them vigorously, while at the same time taking
appropriate steps to mitigate the risks. The Group therefore cannot make an
assessment of the likely outcome of the litigation, or the potential quantum
of its liability or the potential impact on the Group at this stage. Depending
on the outcome at the various stages of the Equal Pay Claims, and dependent on
the number of any ultimately successful claims, the potential quantum of its
liability could be material.
There are a number of other contingent liabilities that arise in the normal
course of business, which if realised, are not expected to result in a
material liability to the Group.
Note 24 Events after the reporting period
On 27 February, the Group issued a €500m and a £250m bond, maturing 2031
and 2035 respectively. There were no other events after the reporting period
requiring disclosure.
Supplementary information (unaudited)
One-year like-for-like sales performance (exc. VAT, exc. fuel)
Like-for-like sales
Q1 Q2 Q3 Q4 H1 H2 FY
2022/23
2022/23
2022/23
2022/23
2022/23 2022/23 2022/23
UK & ROI 1.5% 3.9% 5.2% 8.1% 2.7% 6.7% 4.7%
UK (1.5)% 2.8% 4.3% 7.6% 0.7% 6.0% 3.3%
ROI (2.4)% 2.4% 5.3% 7.8% (0.1)% 6.6% 3.3%
Booker 19.4% 9.3% 9.3% 11.1% 13.9% 10.2% 12.0%
Central Europe 9.0% 11.8% 12.3% 8.5% 10.4% 10.3% 10.4%
Total Retail 2.0% 4.5% 5.7% 8.2% 3.2% 6.9% 5.1%
Three-year like-for-like sales performance (exc. VAT, exc. fuel)
Like-for-like sales
Q1 Q2 Q3 Q4 H1 H2 FY
2022/23
2022/23
2022/23
2022/23
2022/23 2022/23 2022/23
UK & ROI 9.7% 13.3% 13.7% 17.3% 11.5% 15.5% 13.5%
UK 8.1% 11.6% 11.9% 16.3% 9.9% 14.1% 12.0%
ROI 10.1% 14.3% 14.3% 20.1% 12.1% 17.3% 14.7%
Booker 19.6% 22.3% 24.0% 23.1% 21.0% 23.6% 22.2%
Central Europe 11.3% 10.6% 16.9% 14.2% 11.0% 15.5% 13.2%
Total Retail 9.9% 13.1% 13.9% 17.1% 11.5% 15.5% 13.5%
Total sales performance (exc. VAT, exc. fuel)
Actual rates Constant rates
H1 H2 FY H1 H2 FY
2022/23 2022/23 2022/23 2022/23 2022/23 2022/23
UK & ROI 2.6% 7.0% 4.8% 2.6% 6.8% 4.7%
UK 0.6% 6.0% 3.3% 0.6% 6.0% 3.3%
ROI (0.6)% 13.2% 6.3% 1.0% 9.7% 5.4%
Booker 13.8% 10.2% 12.0% 13.8% 10.2% 12.0%
Central Europe 5.9% 10.7% 8.3% 9.5% 10.4% 10.0%
Total Retail 2.8% 7.2% 5.0% 3.1% 7.1% 5.1%
Tesco Bank 24.6% 16.0% 20.1% 24.6% 16.0% 20.1%
Total Group 3.1% 7.4% 5.3% 3.5% 7.2% 5.3%
Country detail - Retail
Revenue (exc. VAT, inc. fuel)
Local currency £m Average exchange Closing exchange
(m) rate rate
UK 48,917 48,917 1.0 1.0
ROI 3,077 2,645 1.2 1.1
Booker 8,684 8,684 1.0 1.0
Czech Republic 45,603 1,601 28.5 26.8
Hungary 668,601 1,451 460.8 430.4
Slovakia 1,580 1,358 1.2 1.1
UK sales area by size of store
25 February 2023 26 February 2022
Store size (sq. ft.) No. of stores Million sq. ft. % of total No. of stores Million sq. ft. % of total
sq. ft. sq. ft.
0-3,000 2,605 5.6 14.6% 2,556 5.5 14.2%
3,001-20,000 276 2.9 7.6% 281 3.0 7.8%
20,001-40,000 286 8.2 21.2% 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 21.6% 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* 3,521 38.6 100.0% 3,478 38.7 100.0%
* Excludes Booker and franchise stores.
Actual Group space - store numbers((a))
2021/22 Openings Closures/ Net gain/ 2022/23 Repurposing/
year end
disposals
(reduction)((b)) year end extensions((c))
Large((d)) 798 2 (1) 1 799 6
Convenience 1,966 50 (18) 32 1,998 -
Dotcom only 6 - - - 6 -
Total Tesco 2,770 52 (19) 33 2,803 6
One Stop((e)) 695 18 (1) 17 712 -
Booker 192 - (1) (1) 191 -
Jack's 13 - (7) (7) 6 (6)
UK((e)) 3,670 70 (28) 42 3,712 -
ROI((f)) 152 14 - 14 166 1
UK & ROI((e)) 3,822 84 (28) 56 3,878 1
Czech Republic((e)) 185 4 (2) 2 187 8
Hungary 198 - (1) (1) 197 13
Slovakia((e)) 154 3 - 3 157 14
Central Europe((e)) 537 7 (3) 4 541 35
Group((e)) 4,359 91 (31) 60 4,419 36
UK (One Stop) 252 53 (14) 39 291 -
Czech Republic 126 4 (6) (2) 124 -
Slovakia 15 12 (2) 10 25 -
Franchise stores 393 69 (22) 47 440 -
Total Group 4,752 160 (53) 107 4,859 36
Actual Group space - '000 sq. ft.((a))
2021/22 Openings Closures/ Repurposing/ Net gain/ 2022/23
year end
disposals
year end
extensions((c)) (reduction)
Large((d)) 31,402 26 (65) 64 25 31,427
Convenience 5,287 129 (72) - 57 5,344
Dotcom only 716 - - - - 716
Total Tesco 37,405 155 (137) 64 82 37,487
One Stop((e)) 1,134 37 (2) - 35 1,169
Booker 8,210 - (29) - (29) 8,181
Jack's 128 - (65) (63) (128) -
UK((e)) 46,877 192 (233) 1 (40) 46,837
ROI((f)) 3,344 126 - 8 134 3,478
UK & ROI((e)) 50,221 318 (233) 9 94 50,315
Czech Republic((e)) 4,248 46 (22) (126) (102) 4,146
Hungary 5,927 - (3) (254) (257) 5,670
Slovakia((e)) 3,143 31 - (27) 4 3,147
Central Europe((e)) 13,318 77 (25) (407) (355) 12,963
Group((e)) 63,539 395 (258) (398) (261) 63,278
UK (One Stop) 367 71 (18) - 53 420
Czech Republic 115 3 (4) - (1) 114
Slovakia 13 11 (1) - 10 23
Franchise stores 495 85 (23) - 62 557
Total Group 64,034 480 (281) (398) (199) 63,835
(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) Six Jack's stores converted to Large stores; reflected within
repurposing/extensions.
(e) Excludes franchise stores.
(f) Openings include 10 stores as a result of the acquisition of Joyce's
stores, one of which we will sell as a condition of the clearance of the
transaction.
Group space forecast to 24 February 2024 - '000 sq. ft.((a))
2022/23 Openings Closures/ disposals Repurposing/ Net gain/ 2023/24
year end
year end extensions (reduction)
Large 31,427 36 (15) - 21 31,448
Convenience 5,344 196 (21) - 175 5,519
Dotcom only 716 - - - - 716
Total Tesco 37,487 232 (36) - 196 37,683
One Stop((b)) 1,169 68 (9) - 59 1,228
Booker 8,181 - - - - 8,181
UK((b)) 46,837 300 (45) - 255 47,092
ROI 3,478 51 (17) - 34 3,512
UK & ROI((b)) 50,315 351 (62) - 289 50,604
Czech Republic((b)) 4,146 20 (13) (80) (73) 4,073
Hungary 5,670 - - (305) (305) 5,365
Slovakia((b)) 3,147 59 - (27) 32 3,179
Central Europe((b)) 12,963 79 (13) (412) (346) 12,617
Group((b)) 63,278 430 (75) (412) (57) 63,221
UK (One Stop) 420 161 (16) - 145 565
Czech Republic 114 3 (3) - - 114
Slovakia 23 10 - - 10 33
Franchise stores 557 174 (19) - 155 712
Total Group 63,835 604 (94) (412) 98 63,933
(a) Continuing operations.
(b) Excludes franchise stores.
Tesco Bank income statement
2023((a)) 2022((a))
£m £m
Revenue
Interest receivable and similar income 540 473
Fees and commissions receivable 257 210
Gross insurance premium income 309 239
1,106 922
Direct costs
Interest payable (99) (42)
Fees and commissions payable (10) (20)
Insurance premium income ceded to reinsurers (139) (105)
Insurance claims incurred (175) (150)
Reinsurers' share of claims incurred 90 62
(333) (255)
Other income/(expenses) (5) 15
Gross profit 768 682
Other expenses
Staff costs (218) (210)
Premises and equipment (70) (68)
Other administrative expenses (222) (193)
Depreciation and amortisation (54) (65)
Impairment (loss)/reversal on financial assets (61) 30
Adjusted operating profit 143 176
Adjusting items((b)) (11) -
Operating profit/(loss) 132 176
Finance income/(costs): movements on derivatives and hedge accounting 2 2
Finance income/(costs): interest (8) (4)
Finance income/(costs): leases (2) (2)
Share of profit/(loss) of joint venture - 3
Profit/(loss) for the year 124 175
(a) These results are for the 12 months ended 28 February 2023 and the
previous period represents the 12 months ended 28 February 2022.
(b) Adjusting items of £(11)m in 2023 (2022: £nil) relate to operational
restructuring changes, as part of the multi-year 'Save to Invest' programme.
Refer to Note 3 for further details.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the Directors have adopted various
Alternative performance measures (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.
Group APMs
APM Closest equivalent Adjustments to reconcile Definition and purpose
IFRS measure
to IFRS measure
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 sales No direct equivalent - Ratio N/A - Growth in sales is a ratio that measures year-on-year movement in Group
sales for continuing operations for 52 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 (LFL) No direct 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.
APM Closest equivalent Adjustments to reconcile to IFRS measure Definition and purpose
IFRS measure
Profit measures
Adjusted operating profit Operating profit from continuing operations((a)) - Adjusting items((b)) - Adjusted operating profit is the headline measure of the Group's
performance, based on operating profit from continuing operations before the
impact of 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.
Adjusted total finance costs Finance costs - Adjusting items((b)) - Adjusting items within finance costs include net pension finance
income/costs and fair value remeasurements. Net pension finance income/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 before tax Profit before 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 margin No direct 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 earnings Diluted earnings per share from continuing operations - Adjusting items((b)) - This metric shows the adjusted profit after tax from continuing operations
attributable to owners of the parent divided by the weighted average number of
per share ordinary shares in issue during the financial period, adjusted for the
effects of potentially dilutive share options.
Retail EBITDA (earnings before adjusting items, interest, tax, depreciation Retail operating profit from continuing operations((a)) - Adjusting items((b)) - This measure is widely used by analysts, investors and other users of the
and amortisation)
accounts to evaluate comparable profitability of companies, as it excludes the
- Depreciation and amortisation impact of differing capital structures and tax 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 margin No direct equivalent - Ratio N/A - Net interest margin is calculated by dividing Tesco Bank 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 rate Effective tax rate - Adjusting items((b)) - Adjusted effective tax rate is calculated as total 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.
Closest equivalent Adjustments to reconcile to Definition and purpose
IFRS measure
IFRS measure
Balance sheet measures
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 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 ratio No direct 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.
Total indebtedness ratio No direct equivalent - Ratio N/A - Total indebtedness ratio is calculated as Total 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 cover No direct 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
income/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 and equipment, intangible asset, and investment property - Additions relating to property buybacks - Capex excludes additions arising from business combinations and buybacks
additions, excluding those from business combinations
of properties (typically stores), as well as additions relating to
- Additions relating to decommissioning provisions and similar items decommissioning provisions and similar items.
- Property buybacks are variable in timing, with the number and value of
buybacks dependent on opportunities that arise within any given financial
year. Excluding property buybacks therefore gives an alternative view of
trends in capital expenditure in the Group's ongoing trading operations.
- 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 cash flow No direct equivalent - N/A - Retail free cash flow includes continuing cash flows 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, associates and unlisted equity 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
Retail EBITDA
Notes APM APM
2023 2022
£m £m
Operating profit 2 1,525 2,560
Less: Adjusting items 2 1,105 265
Adjusted operating profit 2 2,630 2,825
Less: Tesco Bank adjusted operating profit 2 (143) (176)
Retail adjusted operating profit 2 2,487 2,649
Add: Retail depreciation and amortisation before adjusting items 2 1,570 1,577
Retail EBITDA 4,057 4,226
Net interest margin
Notes APM APM
2023 2022
£m £m
Tesco Bank revenue 2 1,106 922
Less: Tesco Bank revenue from fees and commissions receivable 2 (257) (210)
Less: Tesco Bank revenue from gross insurance premium income 2 (309) (239)
Tesco Bank interest expense within operating profit (99) (42)
Tesco Bank interest expense within finance income/(costs) (8) (4)
Net interest income 433 427
Average interest earning assets 8,835 8,505
Net interest margin (%) 4.9% 5.0%
APMs: Reconciliation of balance sheet measures
Net debt
A reconciliation of Net debt is provided in Note 21.
Net debt/EBITDA and Total indebtedness ratio
Notes APM APM
2023 2022
£m £m
Net debt 21 10,493 10,516
Retail EBITDA 4,057 4,226
Net debt/EBITDA ratio 2.6 2.5
Net debt 21 10,493 10,516
Add: Defined benefit pension deficit, net of deferred tax 18 300 242
Total indebtedness 10,793 10,758
Retail EBITDA 4,057 4,226
Total indebtedness ratio 2.7 2.5
Fixed charge cover
Notes APM APM
2023 2022
£m £m
Net finance costs 4 533 542
Less: Net pension finance income/(costs) 4 80 (22)
Less: Fair value remeasurements of financial instruments 4 (51) 123
Adjusted total finance costs 562 643
Less: Finance charges payable on lease liabilities 4 (373) (405)
Adjusted total finance cost, excluding capitalised interest and finance 189 238
charges payable on lease liabilities
Add: Total lease liability payments 966 977
Less: Discontinued operations total lease liability payments - (2)
1,155 1,213
Retail EBITDA 4,057 4,226
Fixed charge cover (ratio) 3.5 3.5
Capex
Notes APM APM
2023 2022
£m £m
Property, plant and equipment additions((a)) 10 1,252 1,587
Other intangible asset additions((a)) 9 277 229
Less: Additions from obtaining control of property joint venture((b)) 10 (248) (584)
Less: Additions from other property buybacks 10 (29) (37)
Less: Additions relating to decommissioning provisions and similar items (17) (94)
Capex 1,235 1,101
(a) Excluding amounts acquired through business combinations.
(b) Acquisition of The Tesco Dorney Limited Partnership in 2023 and The Tesco
Sarum Limited Partnership in 2022.
APMs: Reconciliation of cash flow measures
Notes APM APM
2023 2022
£m £m
Cash generated from/(used in) operating activities 2 3,722 3,757
Cash generated from/(used in) investing activities 2 (706) (1,735)
Less: Cash generated from/(used in) operating activities in Tesco Bank 2 30 (149)
Less: Cash generated from/(used in) operating activities in discontinued 2 - 6
operations
Less: Cash generated from/(used in) investing activities in Tesco Bank 2 205 119
Less: Cash generated from/(used in) investing activities in discontinued 2 - (43)
operations
2 3,251 1,955
Own shares purchased in relation to share schemes 2 (86) (144)
Retail repayments of capital element of obligations under leases 2 (589) (571)
Exclude/add back:
Retail proceeds from sale of property, plant and equipment, investment 2 (341) (308)
property, intangible assets and assets classified as held for sale
Retail purchase of property, plant and equipment, investment property and 2 54 80
other long-term assets - property buybacks
Retail disposal of subsidiaries, net of cash disposed 2 - (117)
Retail acquisition of businesses, net of cash acquired 2 66 -
Retail investments in/(proceeds from sale of) joint ventures and associates 2 10 (4)
Retail adjusting net cash (generated from)/used in operating activities 2 61 316
Retail increase in loans to joint ventures and associates 2 1 4
Retail net investments in/(proceeds from sale of) other investments 2 205 (1)
Retail net investments in/(proceeds from sale of) short-term investments 2 (451) 1,067
Retail cash inflows from derivative financial instruments within investing 2 (54) -
activities
Retail cash outflows from derivative financial instruments within investing 2 6 -
activities
Retail free cash flow 2 2,133 2,277
The following table reconciles the Retail free cash flow APM to that
previously presented:
Notes APM APM
2023 2022
£m £m
Retail free cash flow 2 2,133 2,277
Retail proceeds from sale of property, plant and equipment, investment 2 341 308
property, intangible assets and assets classified as held for sale
Retail purchase of property, plant and equipment and investment property - 2 (54) (80)
property buybacks
Retail cash outflows exceeding the incremental increase in assets in a 2 (21) -
property buyback
Retail disposal of subsidiaries, net of cash disposed 2 - 117
Retail acquisition of businesses, net of cash acquired 2 (66) -
Retail (investments in)/proceeds from sale of joint ventures and associates 2 (10) 4
Retail (investments in)/proceeds from sale of other investments 2 (205) 1
Retail adjusting net cash (generated from)/used in operating activities 2 (61) (316)
Memo: Retail free cash flow including cash flows from non-major corporate 2 2,057 2,311
acquisitions and disposals, cash flows from the sale or buyback of properties,
and Retail adjusting cash flows from operating activities
Glossary - Other
CPI
Consumer price index.
Capital employed
This is calculated as net assets less net debt less net assets of the disposal
group and non-current assets classified as held for sale.
Dividend per share
This is calculated as interim dividend per share paid plus final dividend per
share declared in respect of that financial year.
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.
FTE
Full-time equivalents.
LPI
Limited price index.
Market capitalisation
The total value of all Tesco shares calculated as total number of shares
multiplied by the closing share price at the year 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).
Return on capital employed (ROCE)
Return divided by the average of opening and closing capital employed.
RPI
Retail price index.
Total capital ratio
This is calculated by dividing total regulatory capital by total
risk‐weighted assets.
SONIA
Sterling Overnight Index Average.
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.
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