REG - Tesco PLC - Half-year Report <Origin Href="QuoteRef">TSCO.L</Origin> - Part 3
04/10/2017 07:06
- Part 3: For the preceding part double click ID:nRSD6178Sb
Balance sheet
The following tables showing segment assets and liabilities exclude those balances that make up net debt (cash and cash
equivalents, short-term investments, joint venture loans and other receivables, bank and other borrowings, finance lease
payables, derivative financial instruments and net debt of the disposal group). Net debt balances have been included within
the unallocated segment to reflect how the Group manages these balances. Intercompany transactions have been eliminated
other than intercompany transactions with Tesco Bank in net debt.
At 26 August 2017 UK & ROI£m Central Europe£m Asia£m TescoBank£m Unallocated£m Total£m
Goodwill, software and other intangible assets 1,336 50 279 1,087 - 2,752
Property, plant and equipment and investment property 12,986 2,844 2,601 72 - 18,503
Investments in joint ventures and associates 14 1 641 94 - 750
Non-current other investments 3 - - 829 - 832
Non-current trade and other receivables(a) 12 8 12 - - 32
Non-current loans and advances to customers - - - 6,362 - 6,362
Deferred tax assets - 27 55 - - 82
Non-current assets(b) 14,351 2,930 3,588 8,444 - 29,313
Inventories and current trade and other receivables(c) 2,665 656 485 355 - 4,161
Current loans and advances to customers - - - 4,400 - 4,400
Current other investments - - - 122 - 122
Total trade and other payables (7,009) (962) (1,121) (213) - (9,305)
Total customer deposits and deposits from banks - - - (9,833) - (9,833)
Total provisions (1,004) (84) (46) (71) - (1,205)
Deferred tax liabilities (53) (30) (12) (7) - (102)
Net current tax (269) (11) (23) (30) - (333)
Post-employment benefits (2,922) - (23) - - (2,945)
Assets of the disposal group and classified as held for sale(d) 101 26 - - - 127
Liabilities of the disposal group(d) - - - - - -
Net debt (including Tesco Bank)(e) - - - (591) (3,260) (3,851)
Net assets 5,860 2,525 2,848 2,576 (3,260) 10,549
(a) Excludes loans to joint ventures of £138m (25 February 2017: £137m, 27 August 2016: £136m) which forms part of net
debt.
(b) Excludes derivative financial instrument non-current assets of £1,238m (25 February 2017: £1,303m, 27 August 2016:
£1,929m).
(c) Excludes net interest and other receivables of £1m (25 February 2017: £1m, 27 August 2016: £1m) which forms part
of net debt.
(d) Excludes net debt of the disposal group of £nil (25 February 2017: £(65)m, 27 August 2016: £(64)m). Refer to Note
7.
(e) Refer to Note 17.
At 25 February 2017 UK & ROI£m Central Europe£m Asia£m TescoBank£m Unallocated£m Total£m
Goodwill, software and other intangible assets 1,293 44 278 1,102 - 2,717
Property, plant and equipment and investment property 12,893 2,613 2,593 73 - 18,172
Investments in joint ventures and associates 11 1 656 71 - 739
Non-current other investments - - - 810 13 823
Non-current trade and other receivables(a) 23 7 13 - - 43
Non-current loans and advances to customers - - - 5,795 - 5,795
Deferred tax assets 601 23 83 - - 707
Non-current assets(b) 14,821 2,688 3,623 7,851 13 28,996
Inventories and current trade and other receivables(c) 2,389 654 394 338 - 3,775
Current loans and advances to customers - - - 4,166 - 4,166
Current other investments - - - 156 128 284
Total trade and other payables (7,006) (799) (1,152) (242) - (9,199)
Total customer deposits and deposits from banks - - - (8,963) - (8,963)
Total provisions (914) (80) (45) (84) - (1,123)
Deferred tax liabilities (7) (26) (41) (14) - (88)
Net current tax (579) (1) (12) (8) - (600)
Post-employment benefits (6,600) - (21) - - (6,621)
Assets of the disposal group and classified as held for sale(d) 100 46 - - 187 333
Liabilities of the disposal group(d) - - - - (95) (95)
Net debt (including Tesco Bank)(e) - - - (722) (3,729) (4,451)
Net assets 2,204 2,482 2,746 2,478 (3,496) 6,414
At 27 August 2016 UK & ROI£m Central Europe£m Asia£m TescoBank£m Unallocated£m Total£m
Goodwill, software and other intangible assets 1,363 43 277 1,135 - 2,818
Property, plant and equipment and investment property 12,527 2,585 2,495 74 - 17,681
Investments in joint ventures and associates 5 1 765 93 - 864
Non-current other investments - - - 881 21 902
Non-current trade and other receivables(a) 21 7 11 - - 39
Non-current loans and advances to customers - - - 5,278 - 5,278
Deferred tax assets 625 6 55 - - 686
Non-current assets(b) 14,541 2,642 3,603 7,461 21 28,268
Inventories and current trade and other receivables(c) 2,598 689 412 343 - 4,042
Current loans and advances to customers - - - 3,984 - 3,984
Current other investments - - - 75 122 197
Total trade and other payables (6,686) (820) (1,084) (209) - (8,799)
Total customer deposits and deposits from banks - - - (8,281) - (8,281)
Total provisions (806) (89) (48) (99) - (1,042)
Deferred tax liabilities - (39) (12) (29) - (80)
Net current tax (463) 1 (9) 20 - (451)
Post-employment benefits (7,102) - (21) - - (7,123)
Assets of the disposal group and classified as held for sale(d) 88 136 - - 237 461
Liabilities of the disposal group(d) - - - - (126) (126)
Net debt (including Tesco Bank)(e) - - - (787) (4,352) (5,139)
Net assets 2,170 2,520 2,841 2,478 (4,098) 5,911
(a)-(e) Refer to previous table for footnotes.
Other segment information
26 weeks ended 26 August 2017 UK & ROI£m Central Europe£m Asia£m TescoBank£m Total continuingoperations£m Discontinuedoperations£m Total£m
Capital expenditure
Property, plant and equipment 393 41 73 5 512 - 512
Goodwill, software and other intangible assets 78 4 1 21 104 - 104
Depreciation and amortisation
Property, plant and equipment (341) (74) (111) (6) (532) - (532)
Investment property (1) - - - (1) - (1)
Software and other intangible assets (58) (9) (5) (35) (107) - (107)
Impairment
Property, plant and equipment loss (13) (5) (1) - (19) - (19)
Property, plant and equipment reversal 19 - - - 19 - 19
Investment property reversal 2 - - - 2 - 2
26 weeks ended 27 August 2016 UK & ROI£m Central Europe£m Asia£m TescoBank£m Total continuingoperations£m Discontinuedoperations*£m Total£m
Capital expenditure
Property, plant and equipment 289 14 76 4 383 2 385
Goodwill, software and other intangible assets 49 6 1 12 68 - 68
Depreciation and amortisation
Property, plant and equipment (333) (69) (99) (7) (508) (5) (513)
Investment property (1) - - - (1) - (1)
Software and other intangible assets (55) (8) (4) (48) (115) (1) (116)
Impairment
Property, plant and equipment loss (39) - (1) - (40) (106) (146)
Property, plant and equipment reversal 35 - 1 - 36 - 36
* Discontinued operations in this table represents amounts up until the point a disposal group is classified as such. This
comprises amounts relating to Turkey in the first four months of the period ended 27 August 2016.
Cash flow statement
The following tables provide further analysis of the Group cash flow statement, including a split of cash flows between
Retail and Tesco Bank. The current period's presentation includes additional details on the line items impacted by
exceptional items, whilst removing the analysis between Retail continuing and discontinued operations. Comparatives for the
prior period have been amended accordingly.
Operating profit/(loss) of continuing operations 673 126 799 86 - 86 885
Operating profit/(loss) of discontinued operations - - - - - - -
Depreciation and amortisation 599 - 599 41 - 41 640
ATM net income (20) - (20) 20 - 20 -
(Profit)/loss arising on sale of property, plant and equipment and intangible assets (8) (44) (52) - - - (52)
(Profit)/loss arising on sale of subsidiaries and other investments (3) (124) (127) - - - (127)
(Profit)/loss arising on sale of joint ventures and associates (3) (16) (19) - - - (19)
Net impairment loss/(reversal) on other investments (22) - (22) - - - (22)
Net impairment loss/(reversal) on property, plant and equipment, intangible assets and investment property (2) - (2) - - - (2)
Share-based payments 61 - 61 3 - 3 64
Adjustment for non-cash element of pensions charge 3 - 3 - - - 3
Additional contribution into pension schemes (129) - (129) - - - (129)
Tesco Bank fair value movements included in operating profit - - - 81 - 81 81
Cash flows generated from operations excluding working capital 1,149 (58) 1,091 231 - 231 1,322
Decrease/(increase) in working capital 237 (189) 48 (50) (12) (62) (14)
Cash generated from/(used in) operations* 1,386 (247) 1,139 181 (12) 169 1,308
Interest paid (181) - (181) (2) - (2) (183)
Corporation tax (paid)/received (24) - (24) (14) - (14) (38)
Net cash generated from/(used in) operating activities 1,181 (247) 934 165 (12) 153 1,087
1,181
(247)
934
165
(12)
153
1,087
* Alternative performance measure: 'Retail operating cash flow' of £1,139m is the cash generated from operations of the
continuing Retail business. Included in Retail cash generated from/(used in) operations above of £1,139m is £nil relating
to discontinued operations.
Retail Tesco Bank Tesco Group
26 weeks ended 26 August 2017 Before exceptional items£m Exceptional items£m RetailTotal£m Before exceptional items£m Exceptional items£m Tesco Bank Total£m Total£m
Net cash generated from/(used in) operating activities 1,181 (247) 934 165 (12) 153 1,087
Proceeds from sale of property, plant and equipment, investment property, intangible assets and non-current assets classified as held for sale 83 55 138 1 - 1 139
Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale - store buy backs - (189) (189) - - - (189)
Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale - other capital expenditure (523) - (523) (7) - (7) (530)
Purchase of intangible assets (83) - (83) (23) - (23) (106)
Disposal of subsidiaries, net of cash disposed - 18 18 - - - 18
Acquisition of subsidiaries, net of cash acquired - - - - - - -
Proceeds from sale of joint ventures and associates - 19 19 - - - 19
Investments in joint ventures and associates - - - (15) - (15) (15)
Net (investments in)/proceeds from sale of other investments 33 196 229 7 - 7 236
Dividends received from joint ventures and associates 11 - 11 - - - 11
Interest received 32 - 32 - - - 32
Alternative performance measure: Free cash flow 734 (148) 586 128 (12) 116 702
Net (increase)/decrease in loans to joint ventures and associates (1) - (1) - - - (1)
Net (investments in)/proceeds from sale of short-term investments 345 - 345 - - - 345
Net cash generated from/(used in) investing activities (103) 99 (4) (37) - (37) (41)
Proceeds from issue of ordinary share capital 6 - 6 - - - 6
Increase in borrowings 435 - 435 - - - 435
Repayment of borrowings (1,028) - (1,028) (150) - (150) (1,178)
Net cash flows from derivative financial instruments 188 - 188 - - - 188
Repayment of obligations under finance leases (7) - (7) - - - (7)
Dividends paid to equity owners - - - - - -
Net cash generated from/(used in) financing activities (406) - (406) (150) - (150) (556)
Intra-Group funding and intercompany transactions (8) - (8) 8 - 8 -
Net increase/(decrease) in cash and cash equivalents 664 (148) 516 (14) (12) (26) 490
Cash and cash equivalents at the beginning of the period 3,043 789 3,832
Effect of foreign exchange rate changes (3) - (3)
Cash and cash equivalents including cash held in disposal group at the end of the period 3,556 763 4,319
Cash held in disposal group - - -
Cash and cash equivalents at the end of the period 3,556 763 4,319
Operating profit/(loss) of continuing operations 507 (14) 493 89 (67) 22 515
Operating profit/(loss) of discontinued operations (118) - (118) - - - (118)
Depreciation and amortisation 575 - 575 46 9 55 630
ATM net income (22) - (22) 22 - 22 -
(Profit)/loss arising on sale of property, plant and equipment and intangible assets 22 (42) (20) 2 - 2 (18)
(Profit)/loss arising on sale of subsidiaries and other investments 4 - 4 (4) - (4) -
(Profit)/loss arising on sale of joint ventures and associates (5) - (5) - - - (5)
Net impairment loss/(reversal) on other investments (5) - (5) - - - (5)
Net impairment loss/(reversal) on property, plant and equipment, intangible assets and investment property 110 - 110 - - - 110
Share-based payments (56) - (56) (1) - (1) (57)
Adjustment for non-cash element of pensions charge 4 - 4 - - - 4
Additional contribution into pension schemes (111) - (111) - - - (111)
Tesco Bank fair value movements included in operating profit - - - 27 1 28 28
Cash flows generated from operations excluding working capital 905 (56) 849 181 (57) 124 973
Decrease/(increase) in working capital 159 (44) 115 (9) 41 32 147
Cash generated from/(used in) operations* 1,064 (100) 964 172 (16) 156 1,120
Interest paid (203) - (203) (2) - (2) (205)
Corporation tax (paid)/received (17) - (17) 2 - 2 (15)
Net cash generated from/(used in) operating activities 844 (100) 744 172 (16) 156 900
844
(100)
744
172
(16)
156
900
*Alternative performance measure: 'Retail operating cash flow' of £955m is the cash generated from operations of the
continuing Retail business. Included in Retail cash generated from/(used in) operations above of £964m is £9m relating to
discontinued operations.
Retail Tesco Bank Tesco Group
26 weeks ended 27 August 2016 Before exceptional items£m Exceptional items£m RetailTotal£m Before exceptional items£m Exceptional items£m Tesco Bank Total£m Total£m
Net cash generated from/(used in) operating activities 844 (100) 744 172 (16) 156 900
Proceeds from sale of property, plant and equipment, investment property, intangible assets and non-current assets classified as held for sale 9 227 236 3 - 3 239
Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale - store buy backs (112) - (112) - - - (112)
Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale - other capital expenditure (372) - (372) (2) - (2) (374)
Purchase of intangible assets (57) - (57) (19) - (19) (76)
Disposal of subsidiaries, net of cash disposed 211 - 211 - - - 211
Acquisition of subsidiaries, net of cash acquired (12) - (12) - - - (12)
Proceeds from sale of joint ventures and associates - - - - - - -
Investments in joint ventures and associates - - - - - - -
Net (investments in)/proceeds from sale of other investments 95 - 95 62 - 62 157
Dividends received from joint ventures and associates 11 - 11 - - - 11
Interest received 9 - 9 - - - 9
Alternative performance measure: Free cash flow 626 127 753 216 (16) 200 953
Net (increase)/decrease in loans to joint ventures and associates 16 - 16 - - - 16
Net (investments in)/proceeds from sale of short-term investments (970) - (970) - - - (970)
Net cash generated from/(used in) investing activities (1,172) 227 (945) 44 - 44 (901)
Proceeds from issue of ordinary share capital - - - - - - -
Increase in borrowings 213 - 213 - - - 213
Repayment of borrowings (31) - (31) - - - (31)
Net cash flows from derivative financial instruments 104 - 104 - - - 104
Repayment of obligations under finance leases (5) - (5) - - - (5)
Dividends paid to equity owners - - - - - - -
Net cash generated from/(used in) financing activities 281 - 281 - - - 281
Intra-Group funding and intercompany transactions (17) - (17) 17 - 17 -
Net increase/(decrease) in cash and cash equivalents (64) 127 63 233 (16) 217 280
Cash and cash equivalents at the beginning of the period 2,528 554 3,082
Effect of foreign exchange rate changes 4 - 4
Cash and cash equivalents including cash held in disposal group at the end of the period 2,595 771 3,366
Cash held in disposal group (11) - (11)
Cash and cash equivalents at the end of the period 2,584 771 3,355
Note 3 Income and expenses
Continuing operations 26 weeks 2017£m 26 weeks 2016£m
Profit/(loss) before tax is stated after charging/(crediting) the following:
Property rental income, of which £17m (2016: £17m) relates to investment properties (181) (169)
Other rental income (27) (28)
Direct operating expenses arising on rental earning investment properties 10 9
Costs of inventories recognised as an expense 20,862 20,098
Inventory losses and provisions 665 570
Depreciation and amortisation 640 624
Operating lease expenses, of which £34m (2016: £42m) relates to hire of plant and machinery 504 514
Net impairment loss/(reversal) on property, plant and equipment, intangible assets and investment property (2) 4
Note 4 Exceptional items
Income statement
26 weeks ended 26 August 2017
Profit/(loss) for the period included the following exceptional items:
Exceptional items included in: Cost of sales£m Administrative expenses£m Property- related items£m Total exceptional items included within operating profit£m Finance costs£m Taxation£m Exceptional items within discontinued operations£m
Net restructuring and redundancy costs(a) (24) (39) - (63) - 12 -
Investment disposal(b) - 124 - 124 - (25) -
Property transactions(c) - - 65 65 - (7) -
Foreign exchange losses on GBP short-term investments held in overseas entities(d) - - - - (68) - -
Exceptional items relating to discontinued operations(e) - - - - - - 211
Total (24) 85 65 126 (68) (20) 211
(a) £(24)m relates to ongoing UK & ROI changes to store and call centre colleague structures and working practices,
whilst £(39)m relates to head office restructuring costs.
(b) The Group disposed of its remaining 8.8% investment stake in Lazada Group S.A. for net cash consideration of $254m
(£196m), generating a profit of £124m. The tax charge of £25m arises due to a capital gain on the disposal.
(c) As part of the Group's strategy to maximise value from property, the Group disposed of a property which generated
a profit of £44m and incurred a capital gains tax charge of £(7)m. The Group also recognised a net gain of £21m from the
unwind of its joint venture with British Land, whereby the Group purchased seven stores from the joint venture and disposed
of its remaining equity interest in the joint venture.
(d) The Group holds proceeds from the sale of the Korean operations in GBP money market funds in an intermediate
entity with a Euro functional currency. The £(68)m loss represents foreign exchange losses arising on the revaluation of
these sterling-denominated funds into Euros. The loss does not represent an economic loss to the Group since there is an
offset within other comprehensive income.
(e) Income from discontinued operations primarily relates to the release of a £340m provision relating to capital
gains tax in respect of the disposal of the Group's Korean operations, following completion of the tax assessment by Korean
Tax Authorities. This was offset by £(129)m net loss relating to the disposal of the Group's Turkish operations, primarily
due to the recycling of the currency translation reserve to the Group income statement. Refer to Note 7 for further
details.
26 weeks ended 27 August 2016
Profit/(loss) for the period included the following exceptional items:
Exceptional items included in: Cost of sales£m Administrative expenses£m Property- related items£m Total exceptional items included within operating profit£m Finance costs£m Taxation£m Exceptional items within discontinued operations£m
Net restructuring and redundancy costs (73) (17) (5) (95) - 21 -
Provision for customer redress (45) - - (45) - - -
Property transactions - - 59 59 - 37 -
Foreign exchange losses on GBP short-term investments held in overseas entities - - - - (200) - -
Exceptional items relating to discontinued operations - - - - - - (113)
Total (118) (17) 54 (81) (200) 58 (113)
Cash flow statement
The table below shows the impact of exceptional items on the Group cash flow statement:
Cash flows from operating activities Cash flows from investing activities
2017£m 2016£m 2017£m 2016£m
Prior year restructuring costs and other exceptional costs including trading store redundancies (55) (55) - -
Current year restructuring costs and other exceptional costs including trading store redundancies (29) (11) - -
Utilisation of onerous lease provisions (39) (48) - -
Property transactions(a) 9 13 (134) 227
Property transactions - sale of investment in joint venture - - 19 -
Provision for customer redress(b) (10) (15) - -
SFO/compensation payments(c) (135) - - -
Proceeds from sale of investments (Note 18) - - 196 -
Proceeds from sale of subsidiaries treated as discontinued(d) - - 23 -
Exceptional cash flows from discontinued operations - - (5) -
Total (259) (116) 99 227
(a) Property transactions is made up of £55m proceeds from disposal of properties and £(180)m from property buy backs
from the joint venture with British Land, comprising £(189)m paid for the properties acquired and £9m relating to working
capital and cash acquired.
(b) Settlement of claims for customer redress in Tesco Bank.
(c) Payments relating to the Deferred Prosecution Agreement (DPA) and Financial Conduct Authority (FCA) obligations.
(d) This relates to the disposal of the Group's Turkish operations comprising £34m proceeds received and £11m of cash
disposed. Refer to Note 7 for further details.
Note 5 Finance income and costs
Continuing operations Notes 26 weeks 2017£m 26 weeks 2016£m
Finance income
Interest receivable and similar income 32 26
Financial instruments - fair value remeasurements 10 57
Total finance income 42 83
Finance costs
GBP MTNs and Loans (105) (114)
EUR MTNs (45) (67)
USD Bonds (44) (46)
Finance charges payable under finance leases and hire purchase contracts (4) (4)
Other interest payable (31) (43)
Capitalised interest 11 1 3
Total finance costs before exceptional items and net pension finance costs (228) (271)
Net pension finance costs 16 (81) (58)
Foreign exchange losses on GBP short-term investments held in overseas entities (68) (200)
Total finance costs (377) (529)
Net finance cost (335) (446)
Note 6 Taxation
Recognised in the Group income statement
Continuing operations 26 weeks 2017£m 26 weeks 2016£m
UK 74 (3)
Overseas 64 43
Taxation charge 138 40
The tax charge in the Group income statement is based on management's best estimate of the full year effective tax rates by
geographical unit applied to half year profits, which is then adjusted for tax on exceptional items arising in the period
to 26 August 2017.
The Finance Act 2016 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017
and to 17% from 1 April 2020. These rate reductions were substantively enacted by the balance sheet date and therefore
included in these condensed consolidated interim financial statements.
Note 7 Discontinued operations and non-current assets classified as held for sale
Assets and liabilities of the disposal group and non-current assets classified as held for sale
26 August2017£m 25 February 2017£m 27 August 2016£m
Assets of the disposal group - 198 248
Non-current assets classified as held for sale 127 146 224
Total assets of the disposal group and non-current assets classified as held for sale 127 344
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