REG - Tesco PLC - Interim Results 2022/23
05/10/2022 09:33
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RNS Number : 7905B Tesco PLC 05 October 2022
Interim Results 2022/23
ON TRACK AND DELIVERING FOR CUSTOMERS DESPITE TOUGH BACKDROP.
Headline measures(1,2): H1 22/23 H1 21/22(3) Change at Change at constant rate
actual rate
Group sales (exc. VAT, exc. fuel)(4) £28,178m £27,331m 3.1% 3.5%
Adjusted operating profit(5) £1,315m £1,458m (9.8)% (9.8)%
- Retail £1,248m £1,386m (10.0)% (10.0)%
- Tesco Bank £67m £72m (6.9)% (6.9)%
Retail free cash flow(6) £1,283m £1,543m (16.9)%
Net debt(2,6) £(10.0)bn £(10.2)bn (1.7)%
Adjusted diluted EPS(5) 10.67p 11.22p (4.9)%
Interim dividend per share 3.85p 3.20p 20.3%
Statutory measures:
Revenue (exc. VAT, inc. fuel) £32.5bn £30.4bn 6.7%
Operating profit £736m £1,304m (43.6)%
Profit before tax £413m £1,143m (63.9)%
Retail cash generated from operating activities £2,038m £2,267m (10.1)%
Diluted EPS 3.44p 10.70p (67.9)%
Strong trading performance built on consistent and competitive offer, leading
to strong retail free cash flow:
· Retail(7) LFL sales up +3.2% following strong performance throughout
pandemic; 1-yr UK & ROI LFL reflects post-pandemic normalisation &
cost-of-living changes in customer behaviour; strong Booker growth in catering
& retail
UK ROI Booker UK & ROI C.Europe Retail
1-yr LFL sales 0.7% (0.1)% 13.9% 2.7% 10.4% 3.2%
3-yr LFL sales 9.9% 12.1% 21.0% 11.5% 11.0% 11.5%
· Statutory revenue £32.5bn, up +6.7% including strong growth in fuel
sales
· Total adjusted retail operating profit(5) £1,248m, down (10.0)% at
constant rates
- UK & ROI adjusted operating profit £1,169m, down (11.5)% mainly due to
the impact of reduced YoY volumes as a result of post-pandemic normalisation,
in addition to net cost inflation and our ongoing investment in the customer
offer
- C.Europe adjusted operating profit £79m, up +19.1% as volumes remained
strong despite significant inflation
· Bank adjusted operating profit £67m, down (6.9)% driven primarily by
up-front charges on new business
· Statutory operating profit £736m, after £(626)m non-current asset
impairment charge driven by higher discount rates
· Strong retail free cash flow(6) £1,283m; YoY decline reflects last
year's exceptionally strong performance
· Net debt(2,6) reduced by £0.5bn since February driven by strong cash
generation; net debt ratio stable at 2.5x
· Adjusted diluted EPS(5) 10.67p, down (4.9)% due to lower profit part
offset by reduced tax; statutory diluted EPS 3.44p
· Interim dividend of 3.85p, up +20.3%, in line with policy at 35% of
prior year's full year dividend
Supporting customers through relentless focus on value:
· Solid UK market share performance, in line with expectations
reflecting normalisation & with less inflation than market
· Competitiveness of offer recognised by customers in a tough market:
Brand NPS now highest of the full-line grocers
· Powerful combination of Aldi Price Match, Low Everyday Prices and
Clubcard Prices helping ease cost-of-living pressures, leading to most
competitive price index vs. limited-range discounters to date
· Helping customers spend less by eating-in, with +13% YoY increase in
Finest range; quality perception +208bps
· Accelerating Save to Invest to help mitigate cost inflation;
c.£0.5bn this year & c.£1bn cumulative by Feb-24, 1 yr early
Creating long-term, sustainable value for all Tesco stakeholders:
· Strong and ongoing focus on customer satisfaction, market share and
cash, ensuring we balance all stakeholder needs
· Biggest single-year investment in colleague pay, in addition to
increase announced today for our UK stores; further support includes extended
discount allowance, increased access to hours & free food in colleague
rooms
· Working together with supplier partners to mitigate inflation,
helping customers with unparalleled financial pressures
· Daily donations to support unprecedented foodbank demand in our
communities - over 20m meals provided in H1
· Ongoing commitment to return capital; £450m returned to shareholders
since April; cumulative £750m since Oct-21
Footnotes can be found on page 4.
Ken Murphy, Chief Executive:
"We know our customers are facing a tough time and watching every penny to
make ends meet. That's why we're working relentlessly to keep the cost of
the weekly shop as affordable as possible, with our powerful combination of
Aldi Price Match, Low Everyday Prices and Clubcard Prices, together
covering more than 8,000 products, week in, week out. We're also investing
significantly in our colleagues, with a further boost to pay announced today
for our UK stores. I want to say a big thank you to the whole Tesco team,
and our supplier partners - together, we have built a more resilient,
consistent business that's well set up for the future.
By staying laser-focused on value and sticking to our strategy of inflating a
little bit less and a little bit later, our price position has got even more
competitive. Customers are seeking out the quality and value of our own
brand ranges as they work to make their money go further, whether they are
switching from branded products, between categories or cutting back on eating
out.
As we look to the second half, cost inflation remains significant, and it is
too early to predict how customers will adapt to ongoing changes in the
market. Despite these uncertainties, our priorities are clear. We have the
right long-term strategy and we will continue to balance the needs of all of
our stakeholders. Most importantly, we will stay focused on delivering value
for our customers and supporting them in every way we can."
OUTLOOK.
In April, we provided a wider than usual range of profit guidance for the
2022/23 financial year, given significant uncertainties in the external
environment. Since then, post-pandemic normalisation has been compounded by
cost-of-living driven changes in customer behaviour. Cost inflation is
significant and we have continued to invest to support our customers and
colleagues. However, our solid trading performance and acceleration of our
Save to Invest programme have contributed to a strong financial result for the
first half.
As a result, despite ongoing challenges in the market, we are able to maintain
our profit guidance within our previous range, albeit towards the lower end.
We therefore expect full year retail adjusted operating profit of between
£2.4bn and £2.5bn. Significant uncertainties in the external environment
still exist, most notably how consumer behaviour continues to evolve.
Our strong and ongoing focus on cash and a more positive expectation on
working capital leads to an upgrade in our expectation for full year retail
free cash flow to be at least £1.8bn.
We continue to expect Bank adjusted operating profit of c.£120m to £160m.
CAPITAL RETURN PROGRAMME.
In April, we committed to buying back a total of £750m worth of Tesco shares
by April 2023 as part of our ongoing capital return programme. Since then,
we have purchased £450m worth of shares and will continue to purchase the
remaining £300m worth over the coming months.
This means that, by April 2023, we will have bought back a cumulative £1.05bn
worth of shares since the start of the programme in October 2021.
STRATEGIC PRIORITIES.
Our strategic priorities help us support customers by offering great value,
quality and convenience, and rewarding loyalty, all of which are paramount in
the current environment. We have a unique position through our reach and
capability that makes us best-placed to continue to deliver for all our
stakeholders, through our ongoing focus on customer satisfaction, market share
and cash. Our brilliant colleagues and the strength of supplier
relationships mean that we can serve our customers however they need us,
whilst also driving long term, profitable growth in the business.
Our multi-year performance and capital allocation frameworks continue to guide
our actions, creating sustainable, long-term value for all Tesco
stakeholders. We are making good progress against our strategic priorities:
1) Magnetic value for customers - Re-defining value to become the customer's
favourite
· Relentless focus on value for customers, supported by our
market-leading combination of:
- Aldi Price Match: strongest price commitment in market; in 99% of all large
baskets and over 80% of top-up shops
- Low Everyday Prices: over a thousand everyday products now locked at low
prices until 2023
- Clubcard Prices: helping customers spend less on groceries, clothing,
general merchandise, Mobile & Tesco Bank
· Ongoing price investment leading to most competitive position vs.
limited-range discounters to date
· Strengthened premium offering, increasing Finest range +13% YoY;
quality perception +208bps YoY (vs market +77bps)
· Strong relationships with suppliers recognised: No. 1 in Advantage
supplier survey for seventh consecutive year
· Continued focus on sustainability: saved 12m pieces of plastic/yr by
removing multipack wrap from own brand drinks; launched 'Better Baskets'
helping customers make healthy & sustainable choices without conceding on
price; introduced eight solar-powered refrigerated trailers and launched first
electric city-centre store delivery lorry
2) I love my Tesco Clubcard - Creating a competitive advantage through our
powerful digital capability
· Clubcard satisfaction score up +505bps YoY; Clubcard generosity
perception score up +359bps YoY
· Digital personalised rewards extended to 2.0m Clubcard customers;
17.2m targeted in-app coupons issued to date
· Clubcard sales penetration increased by +9.8ppts and +18.6ppts in ROI
& C.Europe YoY respectively
· Number of customers accessing Clubcard via app now at 10m in UK, 0.3m
in ROI and 1.0m in C.Europe
· Tesco Media & Insights platform powered by dunnhumby now working
with over 450 consumer goods brands
3) Easily the most convenient - Serving customers wherever, whenever and
however they want to be served
· Online sales and orders both remain >50% ahead of pre-COVID levels
· Leading online market share resilient at 35.9%, even as overall
online volumes continue to normalise
· Continued roll out of Click & Collect sites, now within 25min
drive of >70% of UK households; kerbside collection now in 180 Click &
Collect locations
· Fifth UFC opened in Rutherglen; fastest capacity ramp up to date in
just eight weeks; fulfilling >3,600 orders/wk
· Opened 17 Tesco Express stores, 5 One Stop stores, 54 Booker Retail
Partner stores and 141 Premier stores
· Continued roll out of 'Tesco Whoosh' superfast delivery service, now
in over 400 sites; plan to get to 800 by year end
4) Save to invest - Significant opportunities to simplify, become more
productive and reduce costs
· Strong progress across all four streams: goods & services not for
resale, property, operations, & central overheads
· Now expecting to deliver accelerated savings this year of c.£500m,
partially mitigating significant cost pressures
· Seeking to deliver original three year plan 12 months early: now
targeting c.£1bn cumulative savings by end of Feb 2024
· Simplified stock and replenishment routines rolled out in store,
freeing up 47,000 hours
· Additional self-service checkout roll out driving efficiency and
improved customer experience
· Improved ROI fleet utilisation, better C.Europe depot utilisation and
increased use of Bengaluru shared services team
GROUP REVIEW OF PERFORMANCE.
H1 22/23 H1 21/22(3) Total change YoY
26 weeks ended 27 August 2022(1,2) Actual rate Constant rate
Group sales (exc. VAT, exc. fuel)(4) £28,178m £27,331m 3.1% 3.5%
Fuel £4,278m £3,085m 38.7% 38.7%
Revenue (exc. VAT, inc. fuel) £32,456m £30,416m 6.7% 7.0%
Adjusted operating profit(5) £1,315m £1,458m (9.8)% (9.8)%
Adjusting items £(579)m £(154)m
Group statutory operating profit £736m £1,304m (43.6)%
Net finance costs £(325)m £(158)m
Joint ventures and associates £2m £(3)m
Group statutory profit before tax £413m £1,143m (63.9)%
Group tax £(148)m £(313)m
Group statutory profit after tax £265m £830m (68.1)%
Adjusted diluted EPS(5) 10.67p 11.22p (4.9)%
Statutory diluted EPS 3.44p 10.70p (67.9)%
Interim dividend per share 3.85p 3.20p 20.3%
Net debt(2,6) £(10.0)bn £(10.2)bn
Retail free cash flow(6) £1.3bn £1.5bn
Capex(8) £0.4bn £0.4bn
Group sales(4) increased by +3.5% at constant rates, with sales growing across
all segments following on from a strong performance throughout the pandemic.
Sales growth strengthened in the second quarter as general market inflation
increased, in addition to very resilient demand in Central Europe and
Booker. Revenue increased by +7.0% at constant rates, including fuel sales
growth of +38.7% driven by inflation across the market and higher volumes.
Group adjusted operating profit(5) decreased by (9.8)% at constant rates,
reflecting the impact of post-pandemic normalisation on food volumes and lower
non-food sales following high demand in the first quarter last year. We saw
significant cost inflation and some impact from a step up in own brand sales
vs branded ranges as customers took steps to manage the pressure on their
household budgets. These impacts were partially mitigated by the
acceleration of our Save to Invest programme, a strong Booker sales
performance, particularly in the catering business, and a reduction in
COVID-19 related costs year-on-year.
Group statutory operating profit reduced by (43.6)% year-on-year due to the
operating profit impacts above and an increase in adjusting items, principally
driven by a £(626)m non-cash non-current asset impairment charge related to
an increase in discount rates this year.
Net finance costs increased by £(167)m year-on-year primarily due to fair
value remeasurements related to the mark-to-market movement on
inflation-linked swaps, which led to a £(75)m charge this year compared to a
£180m credit in the prior year. The increase in our share of profit from
joint ventures and associates was due to an increase in profits from UK
property joint ventures and a reduction in losses generated by our joint
venture in India. The reduction in tax this year primarily reflects the
reduction in retail operating profits and a one-off charge in the prior year
related to the revaluation of deferred tax.
Our adjusted diluted EPS(5) declined by (4.9)%, as the impact of the
year-on-year reduction in retail operating profits was partly offset by a
lower tax charge and the benefit of our ongoing share buyback programme. We
have announced an interim dividend of 3.85 pence per ordinary share, an
increase of +20.3% year-on-year, set in line with our policy at 35% of the
prior full-year dividend.
Net debt(2,6) reduced by £472m since the year end, driven by strong cash
generation and after the outflow relating to our ongoing share buyback
programme. We generated £1,283m of retail free cash flow(6), including a
working capital inflow driven by higher trade balances. This reflects a
reduction of £(260)m year-on-year due to an even higher working capital
inflow last year, driven by a sharp recovery in fuel and non-food volumes in
the UK. The net debt/ EBITDA ratio was 2.5 times, the same as at the year
end, as lower levels of net debt were offset by lower Retail EBITDA.
Further commentary on these metrics can be found below and a full income
statement can be found on page 17.
Notes:
1. The Group has defined and outlined the purpose of its alternative
performance measures, including its performance highlights, in the Glossary
starting on page 45.
2. All measures apart from Net debt are shown on a continuing operations
basis unless otherwise stated. Further details on discontinued operations
can be found in Note 6 on page 32.
3. As previously reported in the Annual Report and Financial Statements
2022, the Group has changed its accounting policy for property buybacks, and
comparatives have been restated (see Note 1 on page 23).
4. Group sales exclude VAT and fuel. Sales change shown on a comparable
days basis for Central Europe.
5. Adjusted operating profit and Adjusted diluted EPS exclude Adjusting
items as noted in footnote 1.
6. Net debt and Retail free cash flow exclude Tesco Bank.
7. Like-for-like is a measure of growth in Group online sales and sales from
stores that have been open for at least a year (at constant exchange rates,
excluding VAT and fuel).
8. Capex excludes additions arising from business combinations and buybacks
of property (typically stores), as well as additions relating to
decommissioning provisions and similar items.
Segmental review of performance:
Sales performance:
(exc. VAT, exc. fuel)(4)
Sales LFL sales change(7) Total sales change YoY
Actual rate Co
ns
ta
nt
ra
te
- UK £19,994m 0.7% 0.6% 0.6%
- ROI £1,237m (0.1)% (0.6)% 1.0%
- Booker £4,399m 13.9% 13.8% 13.8%
UK & ROI £25,630m 2.7% 2.6% 2.6%
Central Europe £2,008m 10.4% 5.9% 9.5%
Retail £27,638m 3.2% 2.8% 3.1%
Bank £540m - 24.6% 24.6%
Group Sales £28,178m 3.2% 3.1% 3.5%
Fuel £4,278m 38.4% 38.7% 38.7%
Group Revenue £32,456m 6.9% 6.7% 7.0%
Further information on sales performance is included in the appendices
starting on page 52.
Adjusted operating profit(5) performance:
Total change YoY Margin % Margin % change
Profit Actual rate Constant rate Actual Rates Actual rate
UK & ROI £1,169m (11.3)% (11.5)% 3.9% (78) bps
Central Europe £79m 16.2% 19.1% 3.7% 26 bps
Retail £1,248m (10.0)% (10.0)% 3.9% (71) bps
Bank £67m (6.9)% (6.9)% 12.4% (422) bps
Group £1,315m (9.8)% (9.8)% 4.1% (74) bps
Further information on operating profit performance is included in Note 2
starting on page 24.
UK & ROI overview:
In the UK & Republic of Ireland (ROI), like-for-like sales increased by
+2.7% on a one-year basis, driven by a strong performance in Booker,
particularly in catering, and solid performances in the UK and ROI following
on from strong growth throughout the pandemic. On a three-year basis, sales
in our UK & ROI segment were up by +11.5%.
UK & ROI adjusted operating profit was £1,169m, down (11.5)% at constant
rates driven mainly by post-pandemic sales normalisation, in addition to net
cost inflation and our ongoing investment in our customer offer.
Adjusted operating margin was 3.9%, (78)bps lower year-on-year, reflecting a
margin mix benefit last year from high non-food sales, the impact of operating
cost inflation in the current year and the effects of our relentless focus on
value for our customers.
UK - performance reflects relentless focus on value:
Our year-on-year trading performance in the first half continued to be shaped
by the effects of the pandemic. Like-for-like sales declined by (1.5)% in
the first quarter as we traded over a lockdown in the prior year, which
benefited from elevated food sales, peak online demand and strong non-food
sales. Like-for-like sales strengthened in the second quarter, growing at
+2.8%, as we traded over a more normal period in the prior year and customers
continued to respond well to the strength of our offer. We also benefited
from the exceptionally warm weather and Platinum Jubilee celebrations.
Retail inflation gradually increased across the half, although we continued to
inflate behind the market to protect prices for customers. Like-for-like
sales grew by +0.7% for the first half as a whole.
Food sales grew by +1.6% in the half, including the anticipated unwind of
elevated volumes as customer behaviour continued to normalise post-pandemic.
This was offset by the impact of inflation, particularly in those categories
most exposed to fluctuations in commodity prices and global supply
disruptions, including bakery, dairy and grocery. We have started to see
tangible changes in behaviour as customers seek to manage higher
costs-of-living by seeking out the great value offered by our own brand
ranges. In addition to switching from branded products to own brand ranges,
we have also seen, for example, customers trading from fresh products into
frozen equivalents. Our own brand volume participation increased by +80bps
in the second quarter, with particularly high switching in core grocery
products. We increased the distribution of Aldi Price Match lines by almost
17% as part of our ongoing investment in the customer offer.
Although we continued to outperform the market in non-food, sales declined by
(6.0)% as we traded over exceptionally strong demand and a higher full price
sales mix linked to the lockdown in the first quarter last year. Customer
count increased across both Clothing and Home, by +8% and +13% respectively.
We are laser-focused on providing great value for customers through a
combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices. We
improved our price position even further year-on-year despite significant
input cost pressures, with gains in important categories for customers such as
produce and prepared food. Through Clubcard Prices, we continue to offer
customers access to thousands of exclusive deals across all channels and
categories. Overall Clubcard penetration reached 75.4% by the end of the
half, up 4.6ppts, including an increase of 16.8ppts in convenience stores.
The entire market has seen a contraction in customer perception scores as a
result of the challenging conditions faced by customers. Against this
backdrop, our Brand NPS is the highest amongst the full-line grocers and we
have increased our quality perception score by over +200bps year-on-year.
Compared to pre-pandemic, we continue to have the strongest perception gains
in the market in brand (+632bps), quality (+694bps) and value perception
(+525bps).
Our market share performance remains strong, outperforming the market for the
majority of the first half. Our performance was even stronger on a volume
basis than on a value basis as we passed on less inflation to customers than
our competitors.
Sales grew in both large and convenience stores, by +1.4% and +6.5%
respectively, driven by higher footfall as some customers switched back into
stores from online. Sales in our convenience stores in towns and city
centres grew by +25% due to a sharp recovery in footfall. Large store sales
growth was impacted by very strong non-food demand in the first quarter last
year. Following our decision to exit the 'Jacks' format last year, we
converted six of the 13 stores in the first half.
Online like-for-like sales declined by (11.3)%, with many customers choosing
to return to shopping in our stores, leading to a (10.5)% unwind in order
volumes. Online sales participation was 12.9%, which is still +3.6ppts
higher than before the pandemic and we have retained nearly 70% of our peak
active customer base. We have continued to expand our Click & Collect
offer, with over 200 additional sites since the start of the pandemic now
reaching over 70% of UK households within 25 minutes.
We have included the table below to aid understanding of our online
performance:
Online performance H1 One-year change Three-year change
22/23
LFL sales £2.7bn (11.3)% 53.4%
Orders per week 1.13m (10.5)% 51.8%
Basket size £ £93 (1.1)% 1.7%
Online % of UK total sales 12.9% (1.6)ppts 3.6ppts
Delivery saver subscribers 666k (0.4)% 35.4%
Click & Collect (C&C) locations 530 16.7% 61.0%
We opened our fifth Urban Fulfilment Centre (UFC) in the half, in
Rutherglen. We continue to evolve the UFC model as we test and learn with
each new site, and we will review future opportunities to roll-out as they
arise.
We now offer 'Tesco Whoosh' - our 60-minute delivery service - in over 400
stores, after rolling-out to an additional 242 stores in the first half.
Average basket size has increased to around £25, as we have refined the
proposition, and we now offer customers over 2,600 products. We plan to roll
out to a total of 800 stores by the end of the financial year.
Supporting our supplier partners has been a key focus in these challenging
market conditions. In September 2022, we were pleased to be awarded the No.1
ranking in the Advantage Voice of the Supplier survey for the seventh
consecutive year. We have taken extra steps to protect fresh food suppliers.
For example, in March, we announced a significant increase in the price we pay
British dairy farmers to reflect the increasing cost of production. We also
announced £10m in extra funding for UK pig farmers, as the industry continues
to face significant increases in on-farm costs. We have reaffirmed our
commitment to UK egg farmers, announcing new five-year contracts for our egg
suppliers. This will mean that we continue to stock 100% British shell eggs
and provide farmers with the confidence to invest and plan for the future.
We have accelerated our target to halve food waste in our own operations by
five years, bringing it forward to 2025. Over 70% of food waste happens in
the home and so we launched a "Use Up Day" campaign, providing a range of
resources to help families spend less on their weekly shop by making the most
of the food they've already bought. In May 2022 we also launched our 'Better
Baskets' campaign, through which we are making it easier for customers to make
healthier, more sustainable and more affordable choices every time they shop
with us.
As part of our ongoing efforts to help customers, especially under the current
cost-of-living pressures, over the summer we offered free kids' meals in our
cafes to Clubcard holders with any purchase - "Kids Eat Free". We have also
been giving daily donations to foodbanks and local charities to support
unprecedented levels of demand, providing the equivalent of over 20m meals
across the half.
We have continued to roll out electric online delivery vans, set up renewable
energy projects and launch more electric HGVs in our distribution
operations. We have also introduced eight solar-powered refrigerated
trailers and our first electric lorry to service city centre Express stores in
London, saving thousands of litres of diesel and tonnes of carbon per year.
We also continue to expand our electric vehicle charging network, which has
now reached its 500th store.
ROI - increasing customer engagement by expanding our value proposition:
Like-for-like sales declined by (0.1)% in the half, including a decline of
(2.4)% in the first quarter, as we traded over lockdown last year. The
COVID-19 impact on the base was particularly strong in ROI with restrictions
in place for a longer period than in other markets. In the second quarter,
the effects of the COVID-19 unwind on volumes year-on-year eased, and sales
grew by +2.4%. This also reflected a gradual increase in inflation in the
market.
We reinforced our value proposition by completing the rollout of Aldi Price
Match, Low Everyday Prices and Clubcard Prices across all categories.
Customer engagement with Clubcard Prices has been strong, leading to a
+9.8ppts increase in Clubcard sales penetration to 65%.
We continue to expand our market-leading online business and now offer Click
& Collect in over 71% of our large stores, leading to sales growth of
+5.9%. In June, we completed the acquisition of ten Joyce's stores, one of
which we will sell as a condition of the clearance of the transaction.
BOOKER - sharp catering recovery and sustained demand despite challenging
backdrop:
Sales One-year LFL
Retail £2,442m 2.2%
Retail exc. Tobacco £1,443m 6.7%
Tobacco £999m (3.7)%
Catering £1,830m 35.5%
Catering exc. BFL £1,090m 36.1%
Best Food Logistics (BFL) £740m 34.6%
Total Booker* £4,399m 13.9%
* Total Booker also include small business sales of £127m
Booker delivered strong like-for-like sales growth of +13.9%, driven
particularly by a sharp recovery in catering demand in the first quarter as we
traded over a period of restrictions in the prior year. Catering sales grew
by +35.5% over the first half, driven by increased volume and inflation which
was particularly prominent in fresh food. The retail business also continued
to grow, with sales up +6.7% excluding tobacco, driven by strong customer
retention. Tobacco sales declined by (3.7)%, reflecting the market trend as
customers returned to overseas travel and duty-free imports increased.
We expanded our 'Food Clubs', which now have over 40,000 members who can
access exclusive deals and discounts. The breadth of our range allows our
catering customers to flex their menus to offer consumers the best possible
value and we now offer 'Click & Collect' to caterers at 134 sites,
providing greater choice and flexibility.
On a three-year basis, sales growth was very strong in both the retail and
catering businesses, growing by 22.2% and 21.3% respectively.
CENTRAL EUROPE - inflationary environment, robust volumes & strong profit
growth:
Like-for-like sales grew by +10.4%, with growth in all countries.
Inflationary pressures were felt to a greater extent across our Central
European markets with significant levels of input cost inflation. Volumes
were resilient, partially due to government support for customers, such as
price caps on essential food products.
We strengthened our value proposition by rolling-out Clubcard Prices and Low
Price Guarantee across all countries. Customers have responded positively,
driving Clubcard penetration up in all three countries and contributing to
market share gains of +16bps year-on-year.
Central Europe adjusted operating profit was £79m, an increase of +19.1% at
constant rates. Adjusted operating profit growth was driven by a strong
trading performance and the delivery of cost reduction plans which offset
inflation in energy and colleague pay awards. Profit growth was offset by an
increase in the rate of 'crisis tax' payable by retailers in Hungary. The
charge increased by £14m in the first half, with the full-year cost expected
to increase by £27m.
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. It
will result in a c.£(11)m gross impact to adjusted operating profit in the
current year due to a reduction in mall income. We will continue to operate
the Tesco hypermarkets in these malls on a leasehold basis.
TESCO BANK:
H1 22/23 H1 21/22 YoY change
Revenue £540m £433m 24.6%
Adjusted operating profit £67m £72m (6.9)%
Lending to customers £6.8bn £6.4bn 6.8%
Customer deposits £(5.5)bn £(5.0)bn (9.7)%
Net interest margin 4.9% 5.1% (0.2)ppts
Total capital ratio 25.4% 26.6% (1.2)ppts
Revenue grew by +24.6%, including an additional two-month benefit from the
acquisition of Tesco Underwriting Limited in May 2021. Revenue excluding
Tesco Underwriting Limited increased by +14%, driven by an increase in new
credit card customers, higher levels of retail spending year-on-year and an
increase in travel money demand. ATM transactions increased by +9%
year-on-year as cash usage recovered post-lockdown.
Tesco Bank adjusted operating profit was £67m, including an £18m
contribution, versus £12m last year, from the full consolidation of Tesco
Underwriting Limited. Adjusted operating profit declined by (6.9)%
year-on-year predominantly due to a higher impairment charge driven by
up-front charges on new business and the impact of a weaker macro-economic
outlook. These impacts were offset to some extent by a strong recovery in
our Travel Money and ATM businesses, together with higher credit card income.
The Bank's balance sheet remains strong, and we continue to have sufficient
capital and liquidity to absorb changes in both regulatory and funding
requirements.
The Bank was recognised for several key products in the first half, winning
'Credit Builder Card Provider of the Year' and 'Best Card Provider
(Introductory Rate)' at the Moneyfacts Consumer Awards. In recognition of
our digital claims solution for car insurance customers, we also won the
'Digital Innovation of the Year' at the 2022 British Insurance Awards. We
also announced our two new charity partnerships in the first half, with The
Trussell Trust and Maggie's, the cancer support charity.
Adjusting items in statutory operating profit:
H1 22/23 H1 21/22
Net impairment (charge)/ reversal of non-current assets £(626)m £36m
Litigation costs - £(193)m
Property transactions £81m £21m
Amortisation of acquired intangible assets £(38)m £(38)m
Restructuring provision £(7)m -
ATM business rates refund £7m -
Release of onerous contract provision £5m -
Disposal of Asia operations £2m £19m
Fair value less cost of disposal movements on assets held for sale £(3)m £1m
Total adjusting items in statutory operating profit £(579)m £(154)m
Adjusting items are excluded from our adjusted operating profit performance by
virtue of their size and nature to provide a helpful alternative perspective
of the year-on-year performance of the Group's ongoing trading business.
Total adjusting items in statutory operating profit in the first half resulted
in a charge of £(579)m compared to a £(154)m in the prior year.
We recognised a £(626)m non-cash net impairment charge on non-current assets,
primarily driven by an increase in discount rates year-on-year.
In the prior year we recognised litigation costs of £(193)m in adjusting
items, relating to proceedings issued against us by two claimant law firms in
relation to the overstatement of expected profits announced in 2014. The
cash flow related to these claims was settled in the prior year. Given the
legal timeframe for bringing a claim has now elapsed, no further related
claims can be brought by shareholders.
We recognised an adjusting credit of £81m related to the profit generated on
the disposal of properties in the half, including the disposal of mall
properties in Central Europe and associated store sale and lease backs.
Amortisation of acquired intangible assets is excluded from our headline
performance measures. We incurred a charge of £(38)m in the period, which
primarily relates to our merger with Booker in March 2018, which resulted in
the recognition of £755m of intangible assets.
Further detail on adjusting items can be found in Note 3, starting on page 30.
Joint ventures and associates:
Our share of post-tax profits from joint ventures and associates was £2m,
compared to a loss of £(3)m in the prior year. The year-on-year improvement
was primarily due to higher profits from UK property joint ventures and a
reduction in losses generated by our Trent Hypermarket Limited joint venture
in India due to COVID-19 trading impacts in the prior year.
Net finance costs:
H1 22/23 H1 21/22
Net interest on medium term notes, loans and bonds £(105)m £(104)m
Other interest receivable and similar income £18m £5m
Other finance charges and interest payable £(14)m £(21)m
Finance charges payable on lease liabilities £(189)m £(207)m
Net finance costs before net pension finance costs and fair value £(290)m £(327)m
remeasurements of financial instruments
Fair value remeasurements of financial instruments £(75)m £180m
Net pension finance income/ (costs) £40m £(11)m
Net finance costs £(325)m £(158)m
Net interest on medium-term notes and bonds was £(105)m, up £(1)m
year-on-year. The impact of bond maturities, tenders, and new debt issuances
at lower rates of interest was offset by the interest payable on the £(585)m
of debt acquired with The Tesco Sarum Limited Partnership in December 2021.
Finance charges payable on lease liabilities reduced by £18m year-on-year,
driven by the reducing nature of our total lease liability and the
de-recognition of £355m of lease liabilities related to the buyback of The
Tesco Sarum Limited Partnership in December 2021, which brought back into full
ownership seven sites.
A non-cash fair value remeasurement charge of £(75)m primarily related to the
mark-to-market movement on inflation-linked swaps, driven by an increase in
discount rates. These swaps eliminate the impact of future inflation on the
Group's cash flow in relation to historical sale and leaseback property
transactions.
Net pension finance income of £40m in the half related to the IAS 19 pension
surplus, compared to a charge of £(11)m last year when the scheme was in a
deficit position. The drivers of the IAS 19 pension surplus are discussed in
further detail in the Summary of total indebtedness section. We expect net
pension finance income of £79m in the current year as a result of the IAS 19
pension surplus at the end of the prior year.
In February, we exercised the option to buy back our partner's stake in The
Tesco Dorney Limited Partnership property joint venture. We expect this
transaction to complete towards the end of the current financial year,
bringing seven large stores back into full ownership. This will result in
annual cash rental savings of c.£31m and a c.£(0.1)bn increase in net debt,
comprising a c.£(0.5)bn impact on borrowings, partially offset by a c.£0.4bn
reduction in lease liabilities. Following this transaction, we will have
five UK property joint ventures still in place, from a peak of 13 structures
in 2015. These five remaining structures contain property worth £3.2bn and
debt of £2.1bn, with £2.0bn of associated lease liabilities on our balance
sheet. The three largest of our remaining property JVs are with the Tesco
Pension Fund.
Further detail on finance income and costs can be found in Note 4 on page 31,
as well as further detail on the adjusting items in Note 3 on page 30.
Group tax:
H1 22/23 H1 21/22
Tax on adjusted profit £(215)m £(258)m
Tax on adjusting items £67m £(55)m
Tax on profit £(148)m £(313)m
Tax on adjusted Group profit was £(215)m, £43m lower than last year,
reflecting lower levels of retail operating profit year-on-year and a one-off
charge in the prior year related to the revaluation of deferred tax following
the decision to increase the headline rate of corporation tax from 19% to 25%
in April 2023.
The effective tax rate on adjusted Group profit was 21%, higher than the
current UK statutory rate of 19%, primarily due to the banking surcharge
levied on Tesco Bank profit and the depreciation of assets which do not
qualify for tax relief.
Following the announcement by the UK Government to cancel the planned increase
in the corporation tax rate from 19% to 25% in April 2023, we expect the
effective tax rate on adjusted Group profit to be around 18% in the current
year. This is lower than our previous guidance of between 21% and 22% due to
a credit relating to the revaluation of deferred tax. We now expect our
effective tax rate to be around 21% in the medium term, compared to 26%
previously. This guidance assumes the legislation is enacted ahead of our
financial year end.
Earnings per share:
H1 22/23 H1 21/22 YoY change
Adjusted diluted EPS 10.67p 11.22p (4.9)%
Statutory diluted earnings per share 3.44p 10.70p (67.9)%
Statutory basic earnings per share 3.47p 10.80p (67.9)%
Adjusted diluted EPS was 10.67p (LY: 11.22p), (4.9)% lower year-on-year due to
a reduction in retail operating profit, partially offset by a lower tax charge
year-on-year.
Statutory diluted earnings per share was 3.44p (LY: 10.70p) (67.9)% lower
year-on-year, due to an increase in adjusting items, driven by a higher net
impairment charge on non-current assets, which was partially offset by charges
last year related to shareholder litigation claims. This increase in
adjusting items was partially offset by a lower tax charge in the current year
and an increase in profits from our joint ventures.
Dividend:
The interim dividend has been set at 3.85 pence per ordinary share, an
increase of +20.3% year-on-year and in line with our policy of setting the
interim dividend at 35% of the prior full-year dividend. The increase in
this year's interim dividend therefore reflects the significant recovery in
both retail and Tesco Bank adjusted operating profitability in the prior
year.
The interim dividend will be paid on 25 November 2022 to shareholders who are
on the register of members at close of business on 14 October 2022 (the Record
Date). Shareholders may elect to reinvest their dividend in the Dividend
Reinvestment Plan (DRIP). The last date for receipt of DRIP elections and
revocations will be 4 November 2022.
Summary of total indebtedness (excludes Tesco Bank):
Aug-22 Feb-22 Movement
Net debt before lease liabilities £(2,055)m £(2,570)m £515m
Lease liabilities £(7,989)m £(7,946)m £(43)m
Net debt £(10,044)m £(10,516)m £472m
Pension deficit, IAS 19 basis (post-tax) £(186)m £(242)m £56m
Total indebtedness £(10,230)m £(10,758)m £528m
Net debt / EBITDA 2.5x 2.5x
Total indebtedness ratio 2.5x 2.5x
Total Indebtedness was £(10,230)m, down £528m versus year end, driven by a
reduction in net debt due to strong cash generation and after the outflow
relating to our ongoing share buyback programme.
Lease liabilities were £(7,989)m, up £(43)m versus year end, largely due to
the recognition of new leases related to the leaseback of 17 stores situated
in the mall properties sold in Central Europe in June 2022.
The total impact on net debt from the sale of these 17 mall properties and one
retail park was an improvement of £167m, comprising £203m of cash proceeds
received, offset by £(36)m new lease liabilities recognised.
The Group's IAS 19 pension surplus is disregarded in total indebtedness and
only pension schemes which are in a net deficit position are included. We
continue to carry IAS 19 pension surpluses totalling £1,070m (post-tax),
reduced since the year end largely due to movements in hedging assets and
updated demographic assumptions. Other pension schemes carried a net deficit
of £(186)m at the end of the first half and are therefore included in total
indebtedness. This combined deficit is £56m better than the year end,
driven by market movements in discount rate, inflation rate and fair value of
assets of the pension scheme.
We have agreed the actuarial pension valuation as at 31 March 2022 with the
Tesco Plc Pension Scheme Trustee at a surplus of £0.9bn. It was also agreed
with the Trustee that no pension deficit contributions are required ahead of
the next triennial valuation in 2025 and that the expense payments made to the
Scheme by Tesco will reduce to £(17)m per annum (currently £(25)m per annum)
from October 2022.
We had strong levels of liquidity at the end of the first half of £3.2bn and
our £2.5bn committed facility remained undrawn. Our committed facility
currently matures in September 2025, following our decision to exercise the
final one-year extension option. The rate of interest payable on this
facility is linked to three of our sustainability commitments and we achieved
the corresponding margin reduction for the current financial year based on our
performance last year.
Our net debt to EBITDA ratio was 2.5 times at the end of the first half, which
is in-line with the year end and within our targeted range of 2.8 to 2.3
times. The year-on-year reduction is driven by a reduction in retail EBITDA
and an increase in net debt before lease liabilities. The total indebtedness
ratio was also 2.5 times and stable since the year end.
Fixed charge cover was 3.5 times this year, which was stable year-on-year, as
a reduction in retail EBITDA offset lower net finance costs and lease interest
payments.
Summary retail cash flow:
The following table reconciles Group adjusted operating profit to retail free
cash flow. Further details are included in Note 2 starting on page 24.
H1 22/23 H1 21/22
Adjusted operating profit £1,315m £1,458m
Less: Tesco Bank adjusted operating (profit) / loss £(67)m £(72)m
Retail adjusted operating profit £1,248m £1,386m
Add back: Depreciation and amortisation £784m £787m
Other reconciling items £10m £21m
Pension deficit contribution £(12)m £(11)m
Decrease in working capital £390m £556m
Retail cash generated from operations before adjusting items £2,420m £2,739m
Cash capex £(507)m £(495)m
Net interest £(294)m £(314)m
- Interest related to Net debt before lease liabilities £(106)m £(107)m
- Interest related to lease liabilities £(188)m £(207)m
Tax paid £(45)m £(49)m
Dividends received £5m £3m
Repayments of obligations under leases £(292)m £(286)m
Own shares purchased for share schemes £(4)m £(55)m
Retail free cash flow £1,283m £1,543m
Memo (not included in Retail free cash flow):
Acquisitions & disposals £(77)m £117m
Property proceeds & purchases £301m £72m
Cash impact of adjusting items £(31)m £(107)m
Strong retail free cash flow of £1,283m was £(260)m lower than last year's
exceptionally strong performance, driven by lower retail adjusted operating
profit and a lower working capital inflow.
Our total working capital inflow was £390m, driven primarily by the usual
sales peak we see over summer and higher trade payable balances due to cost
price inflation. The working capital inflow was £(166)m lower than last
year due to a reduction in volumes as a result of the ongoing normalisation of
customer behaviours following the COVID-19 pandemic, and an increase in stock
levels this year due to significant disruption in the supply chain last
year.
Interest paid related to net debt before lease liabilities of £(106)m was
flat year-on-year. Interest relating to lease liabilities was £(188)m, down
£19m year-on-year primarily due to a reduction in the UK lease liabilities.
Cash tax paid was in line with last year as we continue to benefit from the
super-deduction allowance on certain capital investments and tax relief in
relation to the £2.5bn one-off pension contribution made in 2021.
The net outflow related to the purchase of our own shares for colleague share
schemes was £(4)m, comprising £(49)m of shares purchased in the market to
offset the issuance of new shares to satisfy the share schemes and a £45m
inflow relating to the proceeds from colleague share saving schemes. The
lower outflow compared to last year was driven by the timing of purchases to
satisfy current year maturities. Share repurchases for cancellations are
excluded.
We generated £301m of proceeds from property transactions, including the sale
of 17 malls and one retail park in Central Europe, excess land surrounding our
New Malden store, and our Distribution Centre in Middlewich in the UK.
The cash impact of adjusting items was £(31)m, of which £(29)m relates to
operational restructuring changes as part of the multi-year 'Save to invest'
programme. This relates to activity announced at the end of the prior
financial year.
Capital expenditure and space:
UK & ROI Central Europe Tesco Bank Group
This year Last year This year Last year This year Last year This year Last year
Capex £389m £404m £36m £25m £23m £19m £448m £448m
Openings (k sq ft) 243 72 16 14 - - 259 86
Closures (k sq ft) (229) (60) (22) (15) - - (251) (75)
Repurposed (k sq ft) 10 - (259) 5 - - (249) 5
Net space change (k sq ft) 24 12 (265) 4 - - (241) 16
'Retail Selling Space' is defined as net space in store adjusted to exclude
checkouts, space behind checkouts, customer service desks and customer
toilets. The above excludes spaces relating to franchise stores. Appendices -
appendix 5 (p.54) provides a full breakdown of space by segment.
Capital expenditure (capex) shown in the table above reflects expenditure on
ongoing business activities across the Group, excluding property buybacks.
Our capital expenditure in the first half was £448m, flat year-on-year which
includes the continuing investment in our online proposition such as the
opening of our fifth UFC in Rutherglen in May and the addition of 169 delivery
vans. We also opened one new Tesco Superstore, 19 Tesco Express stores and
five One Stop stores in the UK & ROI.
We expect to open a further two Tesco Superstores, 52 Tesco Express stores and
15 One Stop stores in the UK in the second half. In Ireland, we will refit
all nine Joyce's stores, acquired in the first half, before re-opening these
stores under the Tesco brand in the coming months. We have two more UFCs
planned for the second half, bringing our total UFCs in operation to seven by
the end of the current year.
In Central Europe, we invested more capex in our large store refresh programme
year-on-year, and we will have refreshed 19 more stores than last year by the
end of the current year.
We expect 2022/23 full year capital expenditure to be at the top end of our
£0.9bn to £1.2bn guidance range. Statutory capital expenditure for the
first half was £0.5bn.
Further details of current and forecast space can be found in the appendices
starting on page 52.
Contacts:
Investor Relations: Chris Griffith 01707 940 900
Rob Whiteley 01707 940 745
Media: Christine Heffernan 0330 6780 639
Ben Foster, Teneo 07776 240 806
This document is available at www.tescoplc.com/interims2022
(www.tescoplc.com/interims2022) .
A webcast including a live Q&A will be held today at 9.00am for investors
and analysts and will be available on our website at
www.tescoplc.com/interims2022 (www.tescoplc.com/interims2022) . This will be
available for playback after the event. All presentation materials,
including a transcript, will be made available on our website.
We will report our Q3 & Christmas Trading statement on 12 January 2023.
Sources:
• UK market share based on Kantar Total Tesco YoY market share gains of Grocers
Total Till Roll on 12 week rolling basis to 4 September 2022.
• C. Europe market share based on GFK Household Food panel data for the YoY
growth of the 22 week period between March and July 2022.
• Brand NPS is based on BASIS Global Brand Tracker. 3 period rolling data.
Responses to the question: "How likely is it that you would recommend the
following company to a friend or colleague?"
• Brand Index, Value perception and Quality perception based on YouGov 12 week
rolling basis to 27 August 2022. 'Market' consists of Sainsbury's,
Morrisons, Asda, Aldi, Lidl, Waitrose, M&S, Ocado, Co-op & Iceland.
• Price index is calculated using the single retail selling price of each item,
including price cut promotions across the first half; the index is weighted by
sales and market share to reflect customer importance and competitor size.
• YoY Clubcard sales penetration is based on in all stores from August 2021 to
August 2022.
• Number of Booker Retail Partners and Premier stores shown net of openings and
closures.
• Full-line grocers refers to Tesco, Sainsbury's, Asda & Morrisons;
Limited-range discounters refers to Aldi & Lidl.
Additional Disclosures.
Principal Risks and Uncertainties.
The principal risks and uncertainties faced by the Group remain those as set
out on page 31 to 37 of our Annual Report and Financial Statement 2022: cyber
security; data privacy; pandemics (COVID-19); climate change; technology;
political, regulatory and compliance; people; health and safety; product
safety and food integrity; responsible sourcing; financial performance; Tesco
Bank; competitions and markets; brand, reputation and trust; and customer.
Given the inflationary pressure and rise in cost-of-living, we have observed a
shift in customer shopping behaviours which has resulted in the customer risk
increasing when compared to the previous year. Management continues to
monitor the changes in customer trends, enabling them to identify the key
drivers of the change, which supports the development of specific response
strategies to manage the risk. The impact of inflationary pressures and
reduction in customer disposable income are reflected within our FY23
forecasts. There are no further changes to our assessment of the Principal
Risks in the remaining six months of the year.
Statement of Directors' Responsibilities.
The Directors are responsible for preparing the Interim Results for the 26
week period ended 27 August 2022 in accordance with applicable law,
regulations and accounting standards. Each of the Directors confirm that to
the best of their knowledge the condensed consolidated interim financial
statements have been prepared in accordance with IAS 34: 'Interim Financial
Reporting', as adopted by the European Union and that the interim management
report includes a true and fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
• an indication of the important events that have occurred during the first 26
weeks of the financial year and their impact on the condensed consolidated
interim financial statements, and a description of the principal risks and
uncertainties for the remainder of the financial year; and
• material related party transactions in the first 26 weeks of the year and any
material changes in the related party transactions described in the last
annual report.
The Directors of Tesco PLC are listed on pages 42 to 46 of the Tesco PLC
Annual Report and Financial Statements 2022, with the exception of Caroline
Silver who joined the Board on 1 October 2022.
A list of current directors is maintained on the Tesco PLC website at:
www.tescoplc.com (http://www.tescoplc.com) .
By order of the Board Directors
John Allan - Non-executive Chairman
Ken Murphy - Group Chief Executive
Imran Nawaz - Chief Financial Officer
Melissa Bethell*
Bertrand Bodson*
Thierry Garnier*
Stewart Gilliland*
Byron Grote*
Alison Platt CMG*
Lindsey Pownall OBE*
Caroline Silver*
Karen Whitworth*
*Independent Non-executive Directors
Robert Welch, Company Secretary
4 October 2022
Disclaimer.
Certain statements made in this document are forward-looking statements. For
example, statements regarding future financial performance, market trends and
our product pipeline are forward-looking statements. Phrases such as "aim",
"plan", "intend", "should", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions are
generally intended to identify forward-looking statements. Forward looking
statements are based on current expectations and assumptions and are subject
to a number of known and unknown risks, uncertainties and other important
factors that could cause actual results or events to differ materially from
what is expressed or implied by those statements. Many factors may cause
actual results, performance or achievements of Tesco to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Important factors that could
cause actual results, performance or achievements of Tesco to differ
materially from the expectations of Tesco include, among other things, general
business and economic conditions globally, industry trends, competition,
changes in government and other regulation and policy, including in relation
to the environment, health and safety and taxation, labour relations and work
stoppages, interest rates and currency fluctuations, changes in its business
strategy, political and economic uncertainty, including as a result of global
pandemics. As such, undue reliance should not be placed on forward-looking
statements. Any forward-looking statement is based on information available
to Tesco as of the date of the statement. All written or oral
forward-looking statements attributable to Tesco are qualified by this
caution. Other than in accordance with legal and regulatory obligations,
Tesco undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise.
Group income statement
26 weeks ended 26 weeks ended
27 August 2022
28 August 2021
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 32,456 - 32,456 30,416 - 30,416
Cost of sales (30,114) (577) (30,691) (27,972) 24 (27,948)
Impairment loss on financial assets 2 (42) - (42) (20) - (20)
Gross profit/(loss) 2,300 (577) 1,723 2,424 24 2,448
Administrative expenses (985) (2) (987) (966) (178) (1,144)
Operating profit/(loss) 1,315 (579) 736 1,458 (154) 1,304
Share of post-tax profits/(losses) of joint ventures and associates 2 - 2 (3) - (3)
Finance income 4 18 - 18 5 - 5
Finance costs 4 (308) (35) (343) (332) 169 (163)
Profit/(loss) before tax 1,027 (614) 413 1,128 15 1,143
Taxation 5 (215) 67 (148) (258) (55) (313)
Profit/(loss) for the period from continuing operations 812 (547) 265 870 (40) 830
Discontinued operations
Profit/(loss) for the period from discontinued operations 6 - (7) (7) (5) (44) (49)
Profit/(loss) for the period 812 (554) 258 865 (84) 781
Attributable to:
Owners of the parent 807 (554) 253 865 (84) 781
Non-controlling interests 5 - 5 - - -
812 (554) 258 865 (84) 781
Earnings per share from continuing and discontinued operations
Basic 8 3.38p 10.16p
Diluted 8 3.35p 10.07p
Earnings per share from continuing operations
Basic 8 3.47p 10.80p
Diluted 8 3.44p 10.70p
* As previously reported in the Annual Report and Financial Statements
2022, 'Exceptional items and amortisation of acquired intangibles' have been
renamed 'Adjusting items' and net pension finance costs and fair value
remeasurements of financial instruments and associated tax impacts are now
included within adjusting items. Refer to Notes 1 and 3 for further details.
The notes on pages 23 to 44 form part of this condensed consolidated financial
information.
Group statement of comprehensive income/(loss)
Notes 26 weeks ended 27 August 2022 26 weeks ended
£m
28 August 2021
£m
Items that will not be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other 6 -
comprehensive income
Remeasurements of defined benefit pension schemes 17 (2,070) 646
Net fair value gains on inventory cash flow hedges 45 80
Tax on items that will not be reclassified 772 (64)
(1,247) 662
Items that may subsequently be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other (38) (2)
comprehensive income
Currency translation differences:
Retranslation of net assets of overseas subsidiaries, joint ventures and (24) 13
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/(losses) on cash flow hedges:
Net fair value gains/(losses) 23 42
Reclassified and reported in the Group income statement (8) (16)
Tax on items that may be reclassified 6 (34)
(41) 69
Total other comprehensive income/(loss) for the period (1,288) 731
Profit/(loss) for the period 258 781
Total comprehensive income/(loss) for the period (1,030) 1,512
Attributable to:
Owners of the parent (1,035) 1,512
Non-controlling interests 5 -
Total comprehensive income/(loss) for the period (1,030) 1,512
Total comprehensive income/(loss) attributable to owners of the parent arising
from:
Continuing operations (1,028) 1,495
Discontinued operations (7) 17
(1,035) 1,512
The notes on pages 23 to 44 form part of this condensed consolidated financial
information.
Group balance sheet
Notes 27 August 26 February 28 August
2022
£m 2022 2021(*)
£m £m
Non-current assets
Goodwill and other intangible assets 9 5,364 5,360 5,389
Property, plant and equipment 10 16,388 17,060 16,528
Right of use assets 11 5,609 5,720 5,809
Investment property 21 22 91
Investments in joint ventures and associates 90 86 84
Other investments 1,282 1,253 1,218
Trade and other receivables 202 159 257
Loans and advances to customers and banks 2,994 3,141 3,169
Reinsurance assets 173 184 205
Post-employment benefit surplus 17 1,070 3,150 -
Derivative financial instruments 1,001 942 1,664
Deferred tax assets 86 85 270
34,280 37,162 34,684
Current assets
Other investments 169 226 348
Inventories 2,584 2,339 2,223
Trade and other receivables 1,366 1,263 1,149
Loans and advances to customers and banks 3,848 3,349 3,287
Reinsurance assets 58 61 52
Derivative financial instruments 159 69 44
Current tax assets 111 93 44
Short-term investments 13 2,256 2,076 2,331
Cash and cash equivalents 13 2,435 2,345 2,219
12,986 11,821 11,697
Assets of the disposal group and non-current assets classified as held for 6 277 368 447
sale
13,263 12,189 12,144
Current liabilities
Trade and other payables (9,799) (9,181) (8,889)
Borrowings 15 (1,055) (725) (1,220)
Lease liabilities 11 (591) (547) (557)
Derivative financial instruments (28) (26) (31)
Customer deposits and deposits from banks (4,576) (4,729) (4,587)
Insurance contract provisions (574) (623) (625)
Current tax liabilities (27) (11) (142)
Provisions (235) (283) (336)
(16,885) (16,125) (16,387)
Liabilities of the disposal group classified as held for sale 6 (14) (14) (22)
Net current liabilities (3,636) (3,950) (4,265)
Non-current liabilities
Trade and other payables (195) (53) (219)
Borrowings 15 (6,523) (6,674) (6,130)
Lease liabilities 11 (7,408) (7,411) (7,670)
Derivative financial instruments (267) (357) (986)
Customer deposits and deposits from banks (1,893) (1,650) (1,573)
Insurance contract provisions (25) (27) (30)
Post-employment benefit deficit 17 (242) (303) (580)
Deferred tax liabilities (229) (910) (51)
Provisions (185) (183) (110)
(16,967) (17,568) (17,349)
Net assets 13,677 15,644 13,070
Equity
Share capital 18 474 484 490
Share premium 5,165 5,165 5,165
Other reserves 3,205 3,079 3,309
Retained earnings 4,844 6,932 4,124
Equity attributable to owners of the parent 13,688 15,660 13,088
Non-controlling interests (11) (16) (18)
Total equity 13,677 15,644 13,070
* Refer to Note 1 for further details regarding the restatement of
comparatives due to a change in accounting policy and the re-presentation of
insurance contract provisions.
The notes on pages 23 to 44 form part of this condensed consolidated financial
information.
These unaudited condensed consolidated interim financial statements for the 26
weeks ended 27 August 2022 were approved by the Board on 4 October 2022.
Group statement of changes in equity
Other reserves
Share Share Capital redemption reserve Hedging Translation Own Merger reserve( Retained earnings Total Non-controlling interests £m Total
capital
premium
£m
reserve
reserve
shares ) £m
£m
£m
equity
£m
£m
£m
£m
held
£m
£m
At 26 February 2022 484 5,165 22 130 202 (365) 3,090 6,932 15,660 (16) 15,644
Profit/(loss) for the period - - - - - - - 253 253 5 258
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - - - (24) - - - (24) - (24)
associates, net of hedging instruments
Change in fair value of financial assets at fair value through other - - - - - - - (32) (32) - (32)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 17) - - - - - - - (2,070) (2,070) - (2,070)
Gains/(losses) on cash flow hedges - - - 68 - - - - 68 - 68
Cash flow hedges reclassified and reported in the Group income statement - - - (8) - - - - (8) - (8)
Tax relating to components of other comprehensive income - - - (17) - - - 795 778 - 778
Total other comprehensive - - - 43 (24) - - (1,307) (1,288) - (1,288)
income/(loss)
Total comprehensive - - - 43 (24) - - (1,054) (1,035) 5 (1,030)
income/(loss)
Inventory cash flow hedge movements
Gains/(losses) transferred to the cost of inventory - - - 34 - - - - 34 - 34
Total inventory cash flow hedge movements - - - 34 - - - - 34 - 34
Transactions with owners
Own shares purchased for cancellation (10) - 10 - - (40) - (411) (451) - (451)
(Note 18)
Own shares purchased for share schemes - - - - - (48) - - (48) - (48)
Share-based payments - - - - - 151 - (45) 106 - 106
Dividends (Note 7) - - - - - - - (578) (578) - (578)
Total transactions with owners (10) - 10 - - 63 - (1,034) (971) - (971)
At 27 August 2022 474 5,165 32 207 178 (302) 3,090 4,844 13,688 (11) 13,677
The notes on pages 23 to 44 form part of this condensed consolidated financial
information.
Other reserves
Share Share Capital redemption reserve Hedging Translation Own Merger reserve( Retained earnings Total Non-controlling interests £m Total
capital
premium
£m
reserve
reserve
shares ) £m
£m
£m
equity
£m
£m
£m
£m
held
£m
£m
At 27 February 2021 (as previously reported) 490 5,165 16 90 175 (188) 3,090 3,505 12,343 (18) 12,325
Cumulative adjustment to opening balances - - - - - - - (266) (266) - (266)
At 27 February 2021 (restated*) 490 5,165 16 90 175 (188) 3,090 3,239 12,077 (18) 12,059
Profit/(loss) for the period - - - - - - - 781 781 - 781
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - - - 13 - - - 13 - 13
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 - - - - - - - (2) (2) - (2)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 17) - - - - - - - 646 646 - 646
Gains/(losses) on cash flow hedges - - - 122 - - - - 122 - 122
Cash flow hedges reclassified and reported in the Group income statement - - - (16) - - - - (16) - (16)
Tax relating to components of other comprehensive income - - - (34) - - - (64) (98) - (98)
Total other comprehensive - - - 72 79 - - 580 731 - 731
income/(loss)
Total comprehensive - - - 72 79 - - 1,361 1,512 - 1,512
income/(loss) (restated*)
Inventory cash flow hedge movements
Gains/(losses) transferred to the cost of inventory - - - (20) - - - - (20) - (20)
Tax on gains/(losses) transferred - - - 7 - - - - 7 - 7
Total inventory cash flow hedge movements - - - (13) - - - - (13) - (13)
Transactions with owners
Own shares purchased for share schemes - - - - - (109) - - (109) - (109)
Share-based payments - - - - - 97 - (18) 79 - 79
Dividends (Note 7) - - - - - - - (458) (458) - (458)
Total transactions with owners - - - - - (12) - (476) (488) - (488)
At 28 August 2021 (restated*) 490 5,165 16 149 254 (200) 3,090 4,124 13,088 (18) 13,070
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
The notes on pages 23 to 44 form part of this condensed consolidated financial
information.
Group cash flow statement
Notes 26 weeks ended 27 August 2022 26 weeks ended 28 August 2021
£m
£m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations 736 1,304
Operating profit/(loss) of discontinued operations (7) (55)
Depreciation and amortisation 849 856
(Profit)/loss arising on sale of property, plant and equipment, investment (74) (20)
property, intangible assets, assets classified as held for sale and early
termination of leases
(Profit)/loss arising on sale of joint ventures and associates - (10)
(Profit)/loss arising on sale of subsidiaries 6 - 26
Net impairment loss/(reversal) on property, plant and equipment, right of use 12 626 (36)
assets, intangible assets and investment property
Net remeasurement (gain)/loss of non-current assets held for sale 8 (5)
Adjustment for non-cash element of pensions charge - 6
Other defined benefit pension scheme payments 17 (12) (11)
Share-based payments 13 26
Tesco Bank fair value movements included in operating profit/(loss) 37 19
Retail (increase)/decrease in inventories (244) (155)
Retail (increase)/decrease in trade and other receivables (183) 28
Retail increase/(decrease) in trade and other payables 821 634
Retail increase/(decrease) in provisions (51) 142
Retail (increase)/decrease in working capital 343 649
Tesco Bank (increase)/decrease in loans and advances to customers and banks (440) (46)
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables 63 (7)
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance 46 (217)
and other payables
Tesco Bank increase/(decrease) in provisions 1 (11)
Tesco Bank (increase)/decrease in working capital (330) (281)
Cash generated from/(used in) operations 2,189 2,468
Interest paid (309) (318)
Corporation tax paid (55) (52)
Net cash generated from/(used in) operating activities 1,825 2,098
Cash flows generated from/(used in) investing activities
Proceeds from sale of property, plant and equipment, investment property, 301 109
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment and investment property (399) (453)
Purchase of intangible assets (134) (100)
Disposal of subsidiaries, net of cash disposed - 169
Acquisition of subsidiaries, net of cash acquired (71) (81)
Increase in loans to joint ventures and associates (1) -
Investments in joint ventures and associates (6) (8)
Net (investments in)/proceeds from sale of short-term investments (179) (1,320)
Proceeds from sale of other investments 148 51
Purchase of other investments (183) (44)
Dividends received from joint ventures and associates 5 13
Interest received 12 2
Net cash generated from/(used in) investing activities (507) (1,662)
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation 18 (409) -
Own shares purchased for share schemes 18 (4) (55)
Repayment of capital element of obligations under leases (294) (288)
Repayment of borrowings (29) (47)
Cash inflows from derivative financial instruments 79 247
Cash outflows from derivative financial instruments (274) (286)
Dividends paid to equity owners 7 (579) (484)
Net cash generated from/(used in) financing activities (1,510) (913)
Net increase/(decrease) in cash and cash equivalents (192) (477)
Cash and cash equivalents at the beginning of the period 1,771 1,971
Effect of foreign exchange rate changes 5 60
Cash and cash equivalents at the end of the period 13 1,584 1,554
The notes on pages 23 to 44 form part of this condensed consolidated financial
information.
Note 1 Basis of preparation
These unaudited condensed consolidated interim financial statements have been
prepared in accordance with the Disclosure Guidance and Transparency Rules of
the UK Financial Conduct Authority, and with IAS 34 'Interim Financial
Reporting' under UK-adopted international accounting standards. Unless
otherwise stated, the accounting policies applied, and the judgements,
estimates and assumptions made in applying these policies, are consistent with
those used in preparing the Annual Report and Financial Statements 2022. The
financial period represents the 26 weeks ended 27 August 2022 (prior financial
period 26 weeks ended 28 August 2021, prior financial year 52 weeks ended 26
February 2022).
These condensed consolidated interim financial statements for the current
period and prior financial periods do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. A copy of the statutory
accounts for the prior financial year has been filed with the Registrar of
Companies. The auditor's report on those accounts was not qualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The Directors have, at the time of approving the condensed consolidated
interim financial statements, a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future, which reflects a period of 18 months from the date of approval of the
condensed consolidated interim financial statements, and have concluded that
there are no material uncertainties relating to going concern. The Directors
have therefore continued to adopt the going concern basis in preparing the
condensed consolidated interim financial statements. Further information on
the Group's strong liquidity position is given in the Group review of
performance, Summary of total indebtedness section.
Change in accounting policy
As previously reported in the Annual Report and Financial Statements 2022, the
Group changed its accounting policy for property buybacks. The impact on the
28 August 2021 comparative balance sheet was to decrease property, plant and
equipment by £266m, and decrease both net assets and retained earnings by
£266m. There is no impact on the comparative period income statement,
operating, investing or financing cash flows, Net debt or Total indebtedness.
Prior period re-presentation
The condensed consolidated interim financial statements include a prior period
re-presentation in relation to the current and non-current classification of
the insurance contract provisions recognised on the acquisition of Tesco
Underwriting Limited, where the right to defer settlement cannot be clearly
demonstrated for the total non-current element. The impact on the 28 August
2021 balance sheet is to increase current insurance contract provisions by
£435m and to decrease non-current insurance contract provisions by the
corresponding amount. There is no impact on the 28 August 2021 income
statement or cash flow statement. The 26 February 2022 balance sheet was
already presented accordingly and so does not require re-presentation.
Primary financial statements presentation
As previously reported in the Annual Report and Financial Statements 2022,
'Exceptional items and amortisation of acquired intangibles' within operating
profit, along with net pension finance costs, fair value remeasurements of
financial instruments, and the tax impact of such items (below operating
profit), are now called 'Adjusting items', and are presented on the face of
the income statement in the 'Adjusting items' column. The policy for
determining adjusting items, and the items adjusted for, are unchanged hence
there is no impact on previously reported alternative performance measures
from this change in presentation.
Accounting policies
New standards, interpretations and amendments effective in the current
financial year have not had a material impact on the condensed consolidated
interim financial statements.
The Group has not applied any other standards, interpretations or amendments
that have been issued but are not yet effective. The impact of the following
is still under assessment:
· IFRS 17 'Insurance contracts', which will become effective in the Group
financial statements for the financial year ending 24 February 2024. IFRS 17
is expected to have an impact on the Group's subsidiary, Tesco Underwriting
Limited (TU), which provides the insurance underwriting service for a number
of the Group's general insurance products. It is expected that the simplified
premium allocation approach will be applied to all material insurance and
reinsurance contract groups issued subsequent to the acquisition of TU, and
that IFRS 17 will be applied retrospectively. The Group continues to assess
the expected impact of IFRS 17 and work, including parallel reporting for the
comparative period, is progressing according to the project plan. The Group
intends to disclose the financial impact in the Annual Report and Financial
Statements 2023.
· IFRS 16 amendments 'Lease liability in a sale and leaseback', which will
become effective in the Group financial statements for the financial year
ending 22 February 2025, subject to UK endorsement.
Other standards, interpretations and amendments issued but not yet effective
are not expected to have a material impact.
Critical accounting judgements
Pension surplus tax rate
As described in Note 17, the Group operates certain defined benefit pension
plans in a surplus position. A tax provision is required, with the tax rate
being the rate that is expected to apply when the surplus is realised. This in
turn depends on the manner in which the Group expects to recover the surplus,
either through reduced future contributions (which attracts a 25% deferred tax
rate being the current prevailing corporation tax rate) or through refund of
the surplus (which attracts a 35% withholding tax known as the 'authorised
surplus payments charge'). A 25% deferred tax rate is presented within
deferred tax liabilities on the balance sheet, whereas the 35% 'authorised
surplus payments charge' is presented net against the pension surplus on the
balance sheet. As set out in Note 17, management has applied judgement to
determine that the expected manner of recovery is through an ultimate refund
of the surplus, hence a 35% withholding tax rate applies, which is presented
net against the pension surplus on the balance sheet.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have adopted various
APMs. Refer to the Glossary for a full list of the Group's APMs, including
comprehensive definitions, their purpose, reconciliations to IFRS measures and
details of any changes to APMs.
Note 2 Segmental reporting
The Group's operating segments are determined based on the Group's internal
reporting to the Chief Operating Decision Maker (CODM). The CODM has been
determined to be the Group Chief Executive, with support from the Executive
Committee, as the function primarily responsible for the allocation of
resources to segments and assessment of performance of the segments.
The principal activities of the Group are presented in the following segments:
Retailing and associated activities (Retail) in:
UK & ROI - the United Kingdom and Republic of Ireland; and
Central Europe - Czech Republic, Hungary and Slovakia.
Retail banking and insurance services through Tesco Bank in the UK (Tesco
Bank).
This presentation reflects how the Group's operating performance is reviewed
internally by management.
The CODM uses adjusted operating profit, as reviewed at monthly Executive
Committee meetings, as the key measure of the segments' results as it reflects
the segments' trading performance that is more comparable over time for the
financial period under evaluation. Adjusted operating profit is a consistent
measure within the Group as defined within the Glossary. Refer to Note 3 for
adjusting items. Inter-segment revenue between the segments is not material.
Income statement
The segment results and the reconciliation of the segment measures to the
respective statutory items included in the Group income statement are as
follows:
26 weeks ended 27 August 2022 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 29,790 2,191 31,981 540 32,521 (65) 32,456
Less: Fuel sales (4,153) (124) (4,277) - (4,277) (1) (4,278)
Sales 25,637 2,067 27,704 540 28,244 (66) 28,178
Adjusted operating profit/(loss) 1,167 81 1,248 67 1,315 - 1,315
Adjusting items* (568) (4) (572) (5) (577) (2) (579)
Operating profit/(loss) 599 77 676 62 738 (2) 736
Adjusted operating margin 3.9% 3.7% 3.9% 12.4% 4.0% 4.1%
26 weeks ended 27 August 2022 UK & ROI Central Total Retail Tesco Total
At actual exchange rates
£m
Europe
Bank
at actual
£m £m
£m
exchange
£m
Continuing operations
Revenue 29,783 2,133 31,916 540 32,456
Less: Fuel sales (4,153) (125) (4,278) - (4,278)
Sales 25,630 2,008 27,638 540 28,178
Adjusted operating profit/(loss) 1,169 79 1,248 67 1,315
Adjusting items* (567) (7) (574) (5) (579)
Operating profit/(loss) 602 72 674 62 736
Adjusted operating margin 3.9% 3.7% 3.9% 12.4% 4.1%
Share of post-tax profits/(losses) of joint ventures and associates 2
Finance income 18
Finance costs (343)
Profit/(loss) before tax 413
* Refer to Note 3 for further details.
Tesco Bank revenue of £540m (26 weeks ended 28 August 2021: £433m) comprises
interest and similar revenues of £252m (26 weeks ended 28 August 2021:
£238m), fees and commissions revenue of £134m (26 weeks ended 28 August
2021: £101m), and insurance revenue of £154m (26 weeks ended 28 August 2021:
£94m).
26 weeks ended 28 August 2021 UK & ROI Central Total Retail Tesco Total
£m
Europe
Bank
at actual
At actual exchange rates
£m £m
£m
exchange
£m
Continuing operations
Revenue 28,006 1,977 29,983 433 30,416
Less: Fuel sales (3,013) (72) (3,085) - (3,085)
Sales 24,993 1,905 26,898 433 27,331
Adjusted operating profit/(loss) 1,318 68 1,386 72 1,458
Adjusting items* (178) 24 (154) - (154)
Operating profit/(loss) 1,140 92 1,232 72 1,304
Adjusted operating margin 4.7% 3.4% 4.6% 16.6% 4.8%
Share of post-tax profits/(losses) of joint ventures and associates (3)
Finance income 5
Finance costs (163)
Profit/(loss) before tax 1,143
* Refer to previous table for footnote.
Balance sheet
The following tables showing segment assets and liabilities exclude those
balances that make up net debt (cash and cash equivalents, short-term
investments, joint venture loans and other receivables, bank and other
borrowings, lease liabilities, derivative financial instruments and net debt
of the disposal group). With the exception of lease liabilities which have
been allocated to each segment, and Tesco Bank net debt, all other components
of net debt have been included within the unallocated segment to reflect how
these balances are managed. Intercompany transactions have been eliminated
other than intercompany transactions with Tesco Bank in net debt.
At 27 August 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 4,712 27 625 - 5,364 - 5,364
Property, plant and equipment and investment property 15,057 1,283 69 - 16,409 - 16,409
Right of use assets 5,211 388 10 - 5,609 - 5,609
Investments in joint ventures and associates 89 1 - - 90 - 90
Non-current other investments 23 - 1,259 - 1,282 - 1,282
Non-current trade and other receivables((a)) 88 2 31 - 121 - 121
Non-current loans and advances to customers and banks - - 2,994 - 2,994 - 2,994
Non-current reinsurance assets - - 173 - 173 - 173
Post-employment benefit surplus 1,070 - - - 1,070 - 1,070
Deferred tax assets 2 17 67 - 86 - 86
Non-current assets((b)) 26,252 1,718 5,228 - 33,198 - 33,198
Inventories and current trade and other receivables((c)) 3,342 355 224 - 3,921 - 3,921
Current loans and advances to customers and banks - - 3,848 - 3,848 - 3,848
Current reinsurance assets - - 58 - 58 - 58
Current other investments - - 169 - 169 - 169
Total trade and other payables (9,029) (611) (354) - (9,994) - (9,994)
Total customer deposits and deposits from banks - - (6,469) - (6,469) - (6,469)
Total insurance contract provisions - - (599) - (599) - (599)
Total provisions (352) (30) (38) - (420) - (420)
Deferred tax liabilities (185) (44) - - (229) - (229)
Net current tax 97 (16) 3 - 84 - 84
Post-employment benefit deficit (242) - - - (242) - (242)
Assets of the disposal group and non-current assets classified as held for 19 235 - - 254 23 277
sale
Net debt (including Tesco Bank)((d)) (7,354) (509) 119 (2,167) (9,911) (14) (9,925)
Net assets 12,548 1,098 2,189 (2,167) 13,668 9 13,677
(a) Excludes non-current loans to joint ventures of £81m (26 February 2022:
£9m, 28 August 2021: £78m) which form part of net debt.
(b) Excludes derivative financial instruments of £1,001m (26 February 2022:
£942m, 28 August 2021: £1,664m) which form part of net debt.
(c) Excludes net interest and other receivables of £4m (26 February 2022:
£1m, 28 August 2021: £nil), and current loans to joint ventures of £25m (26
February 2022: £96m, 28 August 2021: £24m), both forming part of net debt.
(d) Refer to Note 19. Net debt at 27 August 2022 includes net debt of the
disposal group classified as held for sale of £(14)m (26 February 2022:
£(14)m, 28 August 2021: £(19)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 and banks - - 3,141 - 3,141 - 3,141
Non-current reinsurance assets - - 184 - 184 - 184
Post-employment benefit surplus 3,150 - - - 3,150 - 3,150
Deferred tax assets 2 19 64 - 85 - 85
Non-current assets((b)) 28,947 1,867 5,397 - 36,211 - 36,211
Inventories and current trade and other receivables((c)) 2,981 285 239 - 3,505 - 3,505
Current loans and advances to customers and banks - - 3,349 - 3,349 - 3,349
Current reinsurance assets - - 61 - 61 - 61
Current other investments - - 226 - 226 - 226
Total trade and other payables (8,343) (535) (356) - (9,234) - (9,234)
Total customer deposits and deposits from banks - - (6,379) - (6,379) - (6,379)
Total insurance contract provisions - - (650) - (650) - (650)
Total provisions (401) (28) (37) - (466) - (466)
Deferred tax liabilities (869) (41) - - (910) - (910)
Net current tax 90 (11) 3 - 82 - 82
Post-employment benefit deficit (303) - - - (303) - (303)
Assets of the disposal group and non-current assets classified as held for 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
(a)-(d) Refer to previous table for footnotes.
At 28 August 2021 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 4,719 30 640 - 5,389 - 5,389
Property, plant and equipment and investment property((e)) 15,100 1,454 65 - 16,619 - 16,619
Right of use assets 5,426 371 12 - 5,809 - 5,809
Investments in joint ventures and associates 83 1 - - 84 - 84
Non-current other investments 9 - 1,209 - 1,218 - 1,218
Non-current trade and other receivables((a)) 99 2 78 - 179 - 179
Non-current reinsurance assets - - 205 - 205 - 205
Non-current loans and advances to customers and banks - - 3,169 - 3,169 - 3,169
Post-employment benefit surplus - - - - - - -
Deferred tax assets 175 26 69 - 270 - 270
Non-current assets((b)) 25,611 1,884 5,447 - 32,942 - 32,942
Inventories and current trade and other receivables((c)) 2,804 318 226 - 3,348 - 3,348
Current reinsurance assets - - 52 - 52 - 52
Current loans and advances to customers and banks - - 3,287 - 3,287 - 3,287
Current other investments - - 348 - 348 - 348
Total trade and other payables (8,270) (533) (305) - (9,108) - (9,108)
Total customer deposits and deposits from banks - - (6,160) - (6,160) - (6,160)
Total insurance contract provisions - - (655) - (655) - (655)
Total provisions (376) (22) (48) - (446) - (446)
Deferred tax liabilities (11) (40) - - (51) - (51)
Net current tax (125) 2 25 (98) (98)
Post-employment benefit deficit (580) - - - (580) - (580)
Assets of the disposal group and non-current assets classified as held for 20 328 - - 348 99 447
sale
Liabilities of the disposal group classified as held for sale, excluding net - - - - - (3) (3)
debt
Net debt (including Tesco Bank)((d)) (7,709) (489) (31) (2,005) (10,234) (19) (10,253)
Net assets 11,364 1,448 2,186 (2,005) 12,993 77 13,070
(a)-(d) Refer to previous table for footnotes.
(e) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details
Other segment information
26 weeks ended 27 August 2022 UK & ROI Central Tesco Total continuing operations Discontinued operations Total
£m
Europe
Bank
£m
£m
£m
£m
£m
Capital expenditure (including acquisitions through business
combinations):
Property, plant and equipment((a)) 321 32 5 358 - 358
Goodwill and other intangible assets((b)) 141 4 18 163 - 163
Depreciation and amortisation:
Property, plant and equipment (396) (41) (4) (441) - (441)
Right of use assets (250) (18) (1) (269) - (269)
Other intangible assets (112) (5) (22) (139) - (139)
Impairment((c)):
(Loss)/reversal on financial assets (2) (1) (39) (42) - (42)
(a) Includes £42m (26 weeks ended 28 August 2021: £1m) of property, plant
and equipment acquired through business combinations.
(b) Includes £31m (26 weeks ended 28 August 2021: £38m) of goodwill and
other intangible assets acquired through business combinations.
(c) Excludes impairment of other non-current assets. Refer to Note 12.
26 weeks ended 28 August 2021 UK & ROI Central Tesco Total continuing operations Discontinued operations Total
£m
Europe
Bank
£m
£m
£m
£m
£m
Capital expenditure (including acquisitions through business
combinations):
Property, plant and equipment((a)) 359 22 5 386 1 387
Goodwill and other intangible assets((b)) 81 4 53 138 - 138
Depreciation and amortisation:
Property, plant and equipment (396) (47) (5) (448) - (448)
Right of use assets (248) (18) (1) (267) (1) (268)
Other intangible assets (110) (6) (24) (140) - (140)
Impairment((c)):
(Loss)/reversal on financial assets 2 (1) (21) (20) - (20)
Cash flow statement
The following tables provide further analysis of the Group cash flow
statement, including a split of cash flows between Retail continuing
operations and Tesco Bank as well as an analysis of Group continuing and
discontinued operations.
Retail Bank Discontinued operations Tesco
Group
26 weeks ended 27 August 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) 1,248 (574) 674 67 (5) 62 (7) 729
Depreciation and amortisation 784 38 822 27 - 27 - 849
ATM net income (9) - (9) 9 - 9 - -
(Profit)/loss arising on sale of property, plant and equipment, investment 5 (81) (76) - - - 2 (74)
property, intangible assets, assets held for sale and early termination of
leases
Net impairment loss/(reversal) on property, plant and equipment, right of use - 626 626 - - - - 626
assets, intangible assets and investment property
Net remeasurement (gain)/loss of non-current assets held for sale - 3 3 - - - 5 8
Other defined benefit pension scheme payments (12) - (12) - - - - (12)
Share-based payments 14 - 14 (1) - (1) - 13
Tesco Bank fair value movements included in operating profit/(loss) - - - 37 - 37 - 37
Cash flows generated from operations excluding working capital 2,030 12 2,042 139 (5) 134 - 2,176
(Increase)/decrease in working capital 390 (43) 347 (331) 1 (330) (4) 13
Cash generated from/(used in) operations 2,420 (31) 2,389 (192) (4) (196) (4) 2,189
Interest paid (306) - (306) (3) - (3) - (309)
Corporation tax paid (45) - (45) (10) - (10) - (55)
Net cash generated from/(used in) operating activities* 2,069 (31) 2,038 (205) (4) (209) (4) 1,825
Proceeds from sale of property, plant and equipment, investment property, 4 297 301 - - - - 301
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment and investment property (393) - (393) (6) - (6) - (399)
- other capital expenditure
Purchase of intangible assets (114) - (114) (20) - (20) - (134)
Acquisition of subsidiaries, net of cash acquired (66) - (66) (5) - (5) - (71)
Increase in loans to joint ventures and associates (1) - (1) - - - - (1)
Investments in joint ventures and associates (6) - (6) - - - - (6)
Net (investments in)/proceeds from sale of short-term investments (179) - (179) - - - - (179)
Proceeds from sale of other investments - - - 148 - 148 - 148
Purchase of other investments (5) - (5) (178) - (178) - (183)
Dividends received from joint ventures and associates 5 - 5 - - - - 5
Interest received 12 - 12 - - - - 12
Net cash generated from/(used in) investing activities* (743) 297 (446) (61) - (61) - (507)
Own shares purchased for cancellation (409) - (409) - - - - (409)
Own shares purchased for share schemes (4) - (4) - - - - (4)
Repayment of capital element of obligations under leases (292) - (292) (2) - (2) - (294)
Repayment of borrowings (29) - (29) - - - - (29)
Cash inflows from derivative financial instruments 79 - 79 - - - - 79
Cash outflows from derivative financial instruments (274) - (274) - - - - (274)
Dividends paid to equity holders (578) (1) (579) - - - - (579)
Net cash generated from/(used in) financing activities* (1,507) (1) (1,508) (2) - (2) - (1,510)
Net increase/(decrease) in cash and cash equivalents (181) 265 84 (268) (4) (272) (4) (192)
Cash and cash equivalents at the beginning of the period 1,771
Effect of foreign exchange rate changes 5
Cash and cash equivalents at the end of the period 1,584
* Refer to page 49 for the reconciliation of the APM: Retail free cash
flow.
Retail Bank Discontinued operations Tesco
Group
26 weeks ended 28 August 2021 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) 1,386 (154) 1,232 72 - 72 (55) 1,249
Depreciation and amortisation 787 38 825 30 - 30 1 856
ATM net income (8) - (8) 8 - 8 - -
(Profit)/loss arising on sale of property, plant and equipment, investment (1) (21) (22) - - - 2 (20)
property, intangible assets, assets held for sale and early termination of
leases
(Profit)/loss arising on sale of joint ventures and associates - - - (10) - (10) - (10)
(Profit)/loss arising on sale of subsidiaries - - - - - - 26 26
Net impairment loss/(reversal) on property, plant and equipment, right of use - (36) (36) - - - - (36)
assets, intangible assets and investment property
Net remeasurement (gain)/loss of non-current assets held for sale - (1) (1) - - - (4) (5)
Adjustment for non-cash element of pensions charge 6 - 6 - - - - 6
Other defined benefit pension scheme payments (11) - (11) - - - - (11)
Share-based payments 24 - 24 2 - 2 - 26
Tesco Bank fair value movements included in operating profit/(loss) - - - 19 - 19 - 19
Cash flows generated from operations excluding working capital 2,183 (174) 2,009 121 - 121 (30) 2,100
(Increase)/decrease in working capital 556 67 623 (277) (4) (281) 26 368
Cash generated from/(used in) operations 2,739 (107) 2,632 (156) (4) (160) (4) 2,468
Interest paid (316) - (316) (2) - (2) - (318)
Corporation tax paid (49) - (49) (1) - (1) (2) (52)
Net cash generated from/(used in) operating activities* 2,374 (107) 2,267 (159) (4) (163) (6) 2,098
Proceeds from sale of property, plant and equipment, investment property, - 109 109 - - - - 109
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment and investment property (37) - (37) - - - - (37)
- property buybacks
Purchase of property, plant and equipment and investment property (410) - (410) (5) - (5) (1) (416)
- other capital expenditure
Purchase of intangible assets (85) - (85) (15) - (15) - (100)
Disposal of subsidiaries, net of cash disposed - 125 125 - - - 44 169
Acquisition of businesses, net of cash acquired - - - (81) - (81) - (81)
Investments in joint ventures and associates (8) - (8) - - - - (8)
Net (investments in)/proceeds from sale of short-term investments (1,320) - (1,320) - - - - (1,320)
Proceeds from sale of other investments - - - 51 - 51 - 51
Purchase of other investments - - - (44) - (44) - (44)
Dividends received from joint ventures and associates 3 - 3 10 - 10 - 13
Interest received 2 - 2 - - - - 2
Net cash generated from/(used in) investing activities* (1,855) 234 (1,621) (84) - (84) 43 (1,662)
Own shares purchased for share schemes (55) - (55) - - - - (55)
Repayment of capital element of obligations under leases (286) - (286) (1) - (1) (1) (288)
Repayment of borrowings (26) - (26) (21) - (21) - (47)
Cash inflows from derivative financial instruments 247 - 247 - - - - 247
Cash outflows from derivative financial instruments (286) - (286) - - - - (286)
Dividends paid to equity holders (458) (26) (484) - - - - (484)
Net cash generated from/(used in) financing activities* (864) (26) (890) (22) - (22) (1) (913)
Net increase/(decrease) in cash and cash equivalents (345) 101 (244) (265) (4) (269) 36 (477)
Cash and cash equivalents at the beginning of the period 1,971
Effect of foreign exchange rate changes 60
Cash and cash equivalents at the end of the period 1,554
Refer to previous table for footnote.
Note 3 Adjusting items
Group income statement
26 weeks ended 27 August 2022
Profit/(loss) for the period included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Share of joint venture and associates profits/(losses) Finance costs Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
£m
£m
Total adjusting items
£m
Property transactions((a)) 38 43 81 - - (11) - 70
Net impairment (loss)/reversal of non-current assets((b)) (620) (6) (626) - - 60 - (566)
Fair value less cost of disposal movements on assets held for sale - (3) (3) - - - - (3)
Restructuring((c)) (2) (5) (7) - - 2 - (5)
Disposal of Asia operations((d)) - 2 2 - - (1) - 1
ATM business rates refund((e)) 7 - 7 - - (1) - 6
Release of onerous contract provision((f)) - 5 5 - - (1) - 4
Amortisation of acquired intangible assets((g)) - (38) (38) - - 7 - (31)
Net pension finance costs((h)) - - - - 40 - - 40
Fair value remeasurements of financial instruments((h)) - - - - (75) 12 - (63)
Total adjusting items from continuing operations (577) (2) (579) - (35) 67 - (547)
Adjusting items relating to discontinued operations((i)) - - - - - - (7) (7)
Total adjusting items (577) (2) (579) - (35) 67 (7) (554)
(a) The Group disposed of surplus properties that generated a profit before
tax of £81m (26 weeks ended 28 August 2021: £21m). £37m relates to the
disposal of mall properties in Central Europe and associated store sale and
leasebacks (26 weeks ended 28 August 2021: £nil). Refer to Notes 6 and 11 for
further details.
(b) Refer to Note 12 for further details on net impairment (loss)/reversal
of non-current assets.
(c) Provisions relating to operational restructuring changes announced as
part of 'Save to Invest', a multi-year programme. The total cost of the
programme to date is £(51)m. Future cost savings will not be reported within
adjusting items.
(d) £4m relates to software licence fee income from services provided to CP
Group as part of the Transitional Services Agreement relating to the sale of
Asia. £(2)m relates to payment of outstanding employer tax liabilities as
part of the disposal of Asia. Costs and income in relation to the disposal of
Asia have been recognised in adjusting items in previous periods.
(e) Ruling that Tesco Group is due a refund of business rates relating to
external facing ATMs in stores in Scotland. Similar refunds have been
recognised through adjusting items in previous periods.
(f) Release of onerous contract provisions in ROI that had been charged
through adjusting items in previous periods.
(g) Amortisation of acquired intangibles relates to historical inorganic
business combinations and does not reflect the Group's ongoing trading
performance.
(h) Net pension finance costs and fair value remeasurements of financial
instruments are now included within adjusting items, as they can fluctuate
significantly due to external market factors that are outside management's
control. Refer to Note 4 for details of finance income and costs.
(i) Refer to Note 6 for explanation of adjusting items relating to
discontinued operations.
26 weeks ended 28 August 2021
Profit/(loss) for the period included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Share of joint venture and associates profits/(losses) Finance costs Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
£m
£m
Total adjusting items
£m
Property transactions - 21 21 - - - - 21
Net impairment reversal of non-current assets 24 13 37 - - - - 37
Asia licence fee - 19 19 - - (4) - 15
Litigation costs - (193) (193) - - - - (193)
Amortisation of acquired intangible assets - (38) (38) - - (15) - (53)
Fair value remeasurements of financial instruments - - - - 180 (38) - 142
Net pension finance costs - - - - (11) 2 - (9)
Total adjusting items from continuing operations 24 (178) (154) - 169 (55) - (40)
Adjusting items relating to discontinued operations - - - - - - (44) (44)
Total adjusting items 24 (178) (154) - 169 (55) (44) (84)
Group cash flow statement
The table below shows the impact of adjusting items on the Group cash flow
statement:
Cash flows from Cash flows from Cash flows from
operating activities
investing activities
financing activities
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
2022
2021
2022
2021
2022
2021
£m
£m
£m
£m
£m
£m
Property transactions((a)) - - 297 109 - -
Poland sale proceeds and costs - - - 130 - -
Litigation costs - (105) - - - -
Booker integration cash payments (1) (14) - - - -
Settlement of claims for customer redress in Tesco Bank (2) (4) - - - -
ATM business rates refund((b)) 1 12 - - - -
Special dividend - - - - (1) (26)
Disposal of Asia operations (2) - - (5) - -
Restructuring((c)) (31) - - - - -
Total continuing operations (35) (111) 297 234 (1) (26)
Cash flows from discontinued operations - - - 44 - -
Total (35) (111) 297 278 (1) (26)
(a) Property transactions include £27m proceeds (26 weeks ended 28 August
2021: £73m) relating to the sale of stores in Poland not included in the sale
of the corporate business. £203m proceeds (26 weeks ended 28 August 2021:
£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 period with respect to the ruling that Tesco
Group is due a refund of business rates relating to external facing ATMs in
stores in Scotland.
(c) Cash outflows relating to operational restructuring changes as part of
the multi-year 'Save to Invest' programme.
Note 4 Finance income and costs
Continuing operations Notes 26 weeks 26 weeks
2022
2021
£m
£m
Finance income
Interest receivable and similar income 15 2
Finance income receivable on net investment in leases 3 3
Total finance income 18 5
Finance costs
GBP MTNs and loans (78) (82)
EUR MTNs (23) (20)
USD bonds (4) (2)
Finance charges payable on lease liabilities (189) (207)
Other interest payable (14) (21)
Total finance costs before adjusting items (308) (332)
Fair value remeasurements of financial instruments (75) 180
Net pension finance income/(costs) 17 40 (11)
Total finance costs (343) (163)
Net finance costs (325) (158)
Note 5 Taxation
Recognised in the Group income statement
Continuing operations 26 weeks 26 weeks
2022
£m 2021
£m
Current tax charge
UK corporation tax 91 154
Overseas tax 25 28
116 182
Deferred tax charge
Origination and reversal of temporary differences 32 88
Change in tax rate - 43
32 131
Total income tax charge 148 313
Analysed as:
Tax charge/(credit) on adjusted profit 215 258
Tax charge/(credit) on adjusting items (67) 55
Total income tax charge 148 313
Effective tax rate 35.8% 27.4%
Adjusted effective tax rate 20.9% 22.9%
An increase in the corporation tax rate from 19% to 25%, with an effective
date of 1 April 2023, was substantively enacted on 24 May 2021. Temporary
differences have been remeasured using the enacted tax rates that are expected
to apply when the liability is settled or the asset realised. On 23 September
2022, the government announced that the planned increase will be cancelled. As
this change was not enacted at the balance sheet date, it has not been
reflected in the measurement of deferred tax balances.
The tax charge in the Group income statement is based on management's best
estimate of the full year effective tax rates by geographical unit applied to
half year profits, which is then adjusted for tax on adjusting items arising
in the period to 27 August 2022. The statutory rate of corporation tax has
been applied to the adjusting items, based on the geographical unit of that
item. Refer to Note 3 for further details.
A deferred tax credit has been recognised in the Group statement of
comprehensive income in relation to the pension surplus due to a change in the
expected manner of recovery. Refer to Note 17 for further details.
Note 6 Discontinued operations and assets classified as held for sale
Assets and liabilities of the disposal group and assets classified as held for
sale
27 August 2022 26 February 2022 28 August 2021
£m
£m
£m
Assets of the disposal group((a)) 11 11 12
Non-current assets classified as held for sale((b)) 266 357 435
Total assets of the disposal group and non-current assets classified as held 277 368 447
for sale
Liabilities of the disposal group((a)) (14) (14) (22)
Total net assets of the disposal group and non-current assets classified as 263 354 425
held for sale
(a) The disposal group as at 27 August 2022, including £(14)m of net debt
(26 February 2022: £(14)m, 28 August 2021: £(19)m), relates to residual
properties and leases with respect to the Group's operation in Poland.
Balances as at 26 February 2022 and 28 August 2021 were also with respect to
the Group's operation in Poland.
(b) The assets classified as held for sale consist mainly of properties in
the UK, Poland and Central Europe due to be sold within one year. Due to the
individual nature of each property, fair values are classified as Level 3
within the fair value hierarchy.
Assets classified as held for sale
During the period the Group sold 18 malls in Central Europe, leasing back 17
stores within those sites. Net proceeds from the sale and leaseback
transaction were £203m with a profit on disposal of £37m (refer to Note 3).
Refer to Note 11 for details on the leaseback of the stores.
Discontinued operations
Income statement of discontinued operations
26 weeks 2022 26 weeks 2021
Poland Poland Other Total
£m
£m
£m
£m
Revenue - 32 - 32
Operating costs((a)) - (34) - (34)
Adjusted operating profit/(loss) - (2) - (2)
Share of post-tax profits/(losses) of joint ventures and associates - - - -
Finance (costs)/income - - - -
Adjusted profit/(loss) before tax - (2) - (2)
Taxation - (3) - (3)
Adjusted profit/(loss) after tax - (5) - (5)
Loss on disposal of Poland - (26) - (26)
Homeplus (Korea) claims settlement - - (33) (33)
Other adjusting items((b)(c)) (7) 2 4 6
Tax on adjusting items - - 9 9
Total adjusting items (7) (24) (20) (44)
Total profit/(loss) after tax of discontinued operations (7) (29) (20) (49)
(a) Operating costs include £nil depreciation and amortisation charges (26
weeks ended 28 August 2021: £(1)m).
(b) Other adjusting items of £(7)m in the current period ended 27 August
2022 includes £(5)m fair value remeasurement of non-current assets classified
as held for sale and £(2)m loss on disposal of surplus properties.
(c) Other adjusting items of £6m in the prior period ended 28 August 2021
includes £4m reversal of accruals relating to legal costs, £(2)m costs
relating to Poland properties and £4m fair value remeasurement of non-current
assets classified as held for sale.
Cash flow statement
26 weeks 26 weeks
2022 2021
Poland Poland
£m £m
Net cash flows from operating activities (4) (6)
Net cash flows from investing activities - 43
Net cash flows from financing activities - (1)
Net cash flows from discontinued operations (4) 36
Note 7 Dividends
26 weeks 2022 ((a)) 26 weeks 2021((a))
Pence/share £m Pence/share £m
Amounts recognised as distributions to owners in the financial period:
Paid prior financial year final dividend((b)) 7.70 578 5.95 458
Interim dividend declared for the current period 3.85 288 3.20 247
(a) Excludes special dividends of £1m paid (28 August 2021: £26m).
(b) Excludes £10m prior financial year final dividend waived (28 August 2021:
£2m).
The interim dividend was approved by the Board of Directors on 4 October 2022.
The proposed dividend has not been included as a liability as at 27 August
2022, in accordance with IAS 10 'Events after the reporting period'. It will
be paid on 25 November 2022 to shareholders who are on the Register of members
at close of business on 14 October 2022.
A dividend reinvestment plan (DRIP) is available to shareholders who would
prefer to invest their dividends in the shares of the Company. For those
shareholders electing to receive the DRIP, the last date for receipt of a new
election is 4 November 2022.
Note 8 Earnings/(losses) per share and diluted earnings/(losses) per share
For the 26 weeks ended 27 August 2022 there were 73 million (26 weeks ended 28
August 2021: 69 million) potentially dilutive share options. As the Group has
recognised a profit for the period from its continuing operations, dilutive
effects have been considered in calculating diluted earnings per share.
26 weeks ended 27 August 2022 26 weeks ended 28 August 2021
Basic Potentially Diluted Basic Potentially Diluted
dilutive share
dilutive share
options
options
Profit/(loss) (£m)
Continuing operations* 260 - 260 830 - 830
Discontinued operations (7) - (7) (49) - (49)
Total 253 - 253 781 - 781
Weighted average number of shares (millions) 7,492 73 7,565 7,685 69 7,754
Earnings/(losses) per share (pence)
Continuing operations 3.47 (0.03) 3.44 10.80 (0.10) 10.70
Discontinued operations (0.09) - (0.09) (0.64) 0.01 (0.63)
Total 3.38 (0.03) 3.35 10.16 (0.09) 10.07
* Excludes profits from non-controlling interests of £5m (26 weeks ended
28 August 2021: £nil).
APM: Adjusted diluted earnings per share
Continuing operations Notes 26 weeks 26 weeks
2022
2021
Profit/(loss) before tax (£m) 413 1,143
(Add)/less: adjusting items (£m) 3 614 (15)
Adjusted profit before tax (£m) 1,027 1,128
Adjusted profit before tax attributable to the owners of the parent (£m)* 1,022 1,128
Taxation on adjusted profit before tax attributable to the owners of the (215) (258)
parent (£m)
Adjusted profit after tax attributable to the owners of the parent (£m) 807 870
Basic weighted average number of shares (millions) 7,492 7,685
Adjusted basic earnings per share (pence) 10.77 11.32
Diluted weighted average number of shares (millions) 7,565 7,754
Adjusted diluted earnings per share (pence) 10.67 11.22
* Excludes profit before tax attributable to non-controlling interests of
£5m (26 weeks ended 28 August 2021: £nil).
Note 9 Goodwill and other intangible assets
Goodwill of £4,323m (26 February 2022: £4,291m, 28 August 2021: £4,291m)
consists of UK & ROI £3,823m (26 February 2022: £3,791m, 28 August 2021:
£3,791m) and Tesco Bank £500m (26 February 2022: £500m, 28 August 2021:
£500m). £30m of goodwill was recognised in UK & ROI during the period.
Other intangible assets of £1,041m (26 February 2022: £1,069m, 28 August
2021: £1,098m) comprise software of £584m (26 February 2022: £557m, 28
August 2021: £547m), customer relationships of £380m (26 February 2022:
£418m, 28 August 2021: £456m) and other intangible assets of £77m (26
February 2022: £94m, 28 August 2021: £95m), with additions in the period of
£132m (26 February 2022: £229m, 28 August 2021: £100m) excluding assets
acquired through business combinations.
Of the £139m (26 weeks ended 28 August 2021: £140m) amortisation of other
intangible assets, £38m (26 weeks ended 28 August 2021: £38m) arising from
the amortisation of intangible assets acquired through business combinations
has been included within adjusting items. Refer to Note 3 for further details.
Note 10 Property, plant and equipment
27 August 2022 28 August 2021 (restated((a)))
Land and Other((b)) Total Land and Other((b)) 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 (12) (3) (15) - - -
Additions((c)) 126 190 316 164 221 385
Acquired through business combinations 42 - 42 - 1 1
Reclassification 3 (3) - (69) (2) (71)
Transfers to assets classified as held for sale (105) (5) (110) (286) (9) (295)
Disposals (42) (4) (46) (15) (10) (25)
Depreciation charge for the period (214) (227) (441) (213) (235) (448)
Impairment losses((d)) (358) (66) (424) (2) - (2)
Reversal of impairment losses((d)) 1 5 6 34 4 38
Closing balance 14,604 1,784 16,388 14,712 1,816 16,528
Construction in progress included above((e)) 107 172 279 88 155 243
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) Other assets consist of fixtures and fittings with a net carrying value
of £1,330m (26 February 2022: £1,387m, 28 August 2021: £1,329m), office
equipment with a net carrying value of £186m (26 February 2022: £200m, 28
August 2021: £196m) and motor vehicles with a net carrying value of £268m
(26 February 2022: £310m, 28 August 2021: £291m).
(c) Includes £nil (26 February 2022: £37m, 28 August 2021: £37m) relating
to property buyback transactions.
(d) Refer to Note 12.
(e) Construction in progress does not include land.
Commitments for capital expenditure contracted for, but not incurred, at 27
August 2022 were £309m (26 February 2022: £193m, 28 August 2021: £229m),
principally relating to store development.
Note 11 Leases
Group as lessee
Right of use assets
27 August 2022 28 August 2021
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) 163 42 205 79 12 91
Acquired through business combinations 4 - 4 - - -
Depreciation charge for the period (249) (20) (269) (247) (20) (267)
Impairment losses((a)) (189) - (189) - - -
Reversal of impairment losses((a)) 3 - 3 - - -
Other movements((b)) 135 - 135 34 - 34
Closing balance 5,501 108 5,609 5,732 77 5,809
(a) Refer to Note 12.
(b) Other movements include lease terminations, modifications and
reassessments, foreign exchange, reclassifications between asset classes and
entering into finance subleases.
Lease liabilities
The following table shows the discounted lease liabilities included in the
Group balance sheet and the contractual undiscounted lease payments:
27 August 26 February 28 August
2022 2022 2021
£m
£m
£m
Current 591 547 557
Non-current 7,408 7,411 7,670
Total lease liabilities 7,999 7,958 8,227
Total undiscounted lease payments 11,463 11,515 12,175
A reconciliation of the Group's opening to closing lease liabilities balance
is presented in Note 19.
Sale and leaseback
During the period the Group sold 18 malls in Central Europe, leasing back 17
stores within those sites. Refer to Note 6 for details on the net proceeds and
profit from the transaction. The stores are being leased back over a 15-year
lease term at below-market rentals, and the store leases have resulted in
lease liability additions of £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 period to 27 August
2022 (26 weeks ended 28 August 2021: £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 period (26 weeks ended 28
August 2021: £nil) with respect to investments in joint ventures and
associates and no impairments in other non-current assets in Tesco Bank (26
weeks ended 28 August 2021: £nil). All impairment losses and reversals are
classified as adjusting items (26 weeks ended 28 August 2021: £36m net
reversal).
UK & ROI Central Europe Total Net
26 weeks ended 27 August 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 (19) - (3) - (22) - (22)
Property, plant and equipment (393) 4 (31) 2 (424) 6 (418)
Right of use assets (180) 2 (9) 1 (189) 3 (186)
Investment property (1) 1 - - (1) 1 -
Total impairment (loss)/reversal of other non-current assets (593) 7 (43) 3 (636) 10 (626)
Group income statement
Cost of sales (585) 5 (43) 3 (628) 8 (620)
Administrative expenses (8) 2 - - (8) 2 (6)
Total impairment (loss)/reversal from continuing operations (593) 7 (43) 3 (636) 10 (626)
UK & ROI Central Europe Total Net
26 weeks ended 28 August 2021 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 - - - - - - -
Property, plant and equipment (2) 14 - 24 (2) 38 36
Right of use assets - - - - - - -
Investment property - - - - - - -
Total impairment (loss)/reversal of other non-current assets (2) 14 - 24 (2) 38 36
Group income statement
Cost of sales - - - 24 - 24 24
Administrative expenses (2) 14 - - (2) 14 12
Total impairment (loss)/reversal from continuing operations (2) 14 - 24 (2) 38 36
The Group considered whether the large degree of uncertainty in the wider
macroeconomic environment, exacerbated by the war in Ukraine impacting global
energy markets and food prices and accompanied by an increase in the Bank of
England's base rate, represented a significant impairment indicator as at 27
August 2022. Management concluded that the increase in discount rates in
particular was a significant impairment indicator and therefore a full
impairment test was undertaken.
The net impairment charge principally relates to the increase in discount
rates. Other key inputs, including the latest Board-approved annual long-term
plan and related cashflow forecasts, have been assessed and remain largely
unchanged since the previous year end. Management considered the level of risk
included in the impairment cash flow scenarios and concluded their probability
weightings remain appropriate but has extended the reasonably possible
movements in the other sensitivities disclosed.
The impairment methodology is unchanged from that described in Note 15 of the
Annual Report and Financial Statements 2022.
Key assumptions and sensitivity
Key assumptions
For value in use calculations, the key assumptions to which the recoverable
amounts are most sensitive are discount rates, long-term growth rates and
future cash flows (incorporating sales volumes and prices and costs). For fair
value less costs of disposal calculations, the key assumption is property fair
values.
The discount rates and long-term growth rates for the Group's portfolio of
store cash-generating units, aggregated by segment due to the large number of
individually immaterial store cash-generating units, are:
UK & ROI Central Europe
27 August 26 February 28 August 27 August 26 February 28 August
2022 2022 2021 2022 2022 2021
%
%
%
%
% %
Pre-tax discount rates 6.9 - 9.3 5.4 - 7.8 4.8 - 7.3 7.7 - 15.9 5.7 - 11.3 5.0 - 7.9
Post-tax discount rates 6.0 - 7.0 4.7 - 5.8 4.2 - 5.5 6.1 - 12.4 4.5 - 8.8 4.0 - 7.2
Long-term growth rates 1.9 1.9 1.7 - 2.1 2.0 - 3.1 2.0 - 3.0 2.0 - 3.3
Sensitivity
The Group has carried out sensitivity analyses on the reasonably possible
changes in key assumptions in the impairment tests for (a) each group of
cash-generating units to which goodwill has been allocated and (b) for its
portfolio of store cash-generating units. Management has extended the
reasonably possible movements in the sensitivities disclosed given the level
of volatility seen in these inputs since the year end, driven by the wider
macroeconomic environment.
(a) Except for Tesco Bank goodwill, neither a reasonably possible
increase of 3.0%pt in discount rates, a 10% decrease in future cash flows nor
a 1.0%pt decrease in long-term growth rates would indicate impairment in any
group of cash-generating units to which goodwill has been allocated. For Tesco
Bank, the following table shows the assumptions adopted, the amount by which
these assumption values would have to change to make the recoverable amount
equal to the carrying value, and the impact of reasonably possible changes to
these assumptions on potential goodwill impairment:
Key assumption Assumption value Headroom sensitivity Reasonably possible change Impact on impairment
£m
Post-tax discount rates 12.0% Increase of 0.6%pts Increase of 3.0%pt (393)
Annual equity cash flows Variable Decrease of 7.7% Decrease of 10.0% (34)
Long-term growth rates 1.6% Decrease of 0.8%pts Decrease of 1.0%pt (30)
(b) While there is not a significant risk of an adjustment to the
carrying amount of any one store cash-generating unit that would be material
to the Group as a whole in the next financial year, the table below summarises
the reasonably possible changes in key assumptions which most impact the
impairment of the Group's entire portfolio of store cash-generating units,
presented in aggregate due to the large number of individually immaterial
store cash-generating units. The impairment is not highly sensitive to the
probability weightings assigned to the cash flow scenarios.
Key assumption Reasonably possible change Impact on impairment 27 August
2022
£m
Post-tax discount rates* Increase of 3.0%pt for each geographic region Increase (1,384)
Decrease of 2.0%pt for each geographic region Decrease 857
Future cash flows Increase of 10.0% for each geographic region Decrease 284
Decrease of 10.0% for each geographic region Increase (320)
Long-term growth rates Increase of 1.0%pt for each geographic region Decrease 292
Decrease of 1.0%pt for each geographic region Increase (283)
Property fair values Increase of 10.0% for each geographic region Decrease 198
Decrease of 10.0% for each geographic region Increase (197)
* Sensitivities are applied to post-tax discount rates used to derive
the pre-tax discount rates.
Note 13 Cash and cash equivalents and short-term investments
Cash and cash equivalents
27 August 26 February 28 August
2022 2022 2021
£m
£m
£m
Cash at bank and on hand 2,397 2,322 2,198
Short-term deposits 38 23 21
Cash and cash equivalents in the Group balance sheet 2,435 2,345 2,219
Bank overdrafts (851) (574) (665)
Cash and cash equivalents in the Group cash flow statement 1,584 1,771 1,554
Short-term investments
27 August 26 February 28 August
2022 2022 2021
£m
£m
£n
Money market funds and similar instruments 2,256 2,076 2,331
Cash and cash equivalents includes £78m (26 February 2022: £84m, 28 August
2021: £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.
27 August 26 February 28 August
2022 2022 2021
£m
£m
£m
Current assets
Inventories (12) (15) (14)
Trade and other receivables
Trade/other receivables 61 68 69
Accrued income 106 124 101
Current liabilities
Trade and other payables
Trade payables 81 112 120
Accruals (8) - (1)
Note 15 Borrowings
Borrowings are classified as current and non-current based on their scheduled
repayment dates. Repayments of principal amounts are classified as current if
the repayment is scheduled to be made within one year of the balance sheet
date. During the 26 week period ended 27 August 2022, the Group has made
principal repayments of £25m (26 week ended 28 August 2021: £24m), and there
has been no issuance of borrowings (26 week ended 28 August 2021: £nil).
Current
27 August 26 February 2022( 28 August
) £m
2022 2021
£m
£m
Bank loans and overdrafts 882 605 693
Borrowings* 173 120 527
1,055 725 1,220
Non-current
27 August 26 February 28 August
2022 2022 2021(
£m
) £m
£m
Borrowings* 6,523 6,674 6,130
* £1m of current and £234m of non-current borrowings (26 February 2022:
£1m and £243m, 28 August 2021: £nil and £250m) relate to borrowings issued
by Tesco Bank.
Borrowing facilities
The Group has a £2.5bn undrawn committed facility available at 27 August 2022
(26 February 2022: £2.5bn, 28 August 2021: £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 of the facility during the financial period to 27
August 2022 (26 weeks ended 28 August 2021: £nil).
Note 16 Financial instruments
The fair values of financial instruments are determined by reference to prices
available from the markets on which the instruments are traded, where they are
available. Where market prices are not available, the fair value is calculated
by discounting expected future cash flows at prevailing interest rates. The
fair value of financial assets and liabilities measured at amortised cost is
shown below.
The expected maturity of financial assets and liabilities is not considered to
be materially different to their current and non-current classification.
Fair value of financial assets and liabilities measured at amortised cost
The table excludes cash and cash equivalents, short-term investments, trade
receivables/payables, other receivables/payables, accruals and deposits from
banks where the carrying values approximate fair value. The levels in the
table refer to the fair value measurement.
27 August 2022 26 February 2022 28 August 2021
Level Carrying Fair Carrying Fair Carrying Fair
value
value
value
value
value
value
£m
£m
£m
£m
£m
£m
Financial assets measured at amortised cost
Loans and advances to customers 3 6,842 6,893 6,490 6,566 6,405 6,559
Loans and advances to banks 3 - - - - 51 51
Investment securities at amortised cost((a)) 1 and 2 875 879 857 867 929 934
Joint ventures and associates loan receivables((b)) 2 106 112 105 126 102 130
Financial liabilities measured at amortised cost
Borrowings
Amortised cost((a)) 1 and 2 (5,364) (5,781) (5,057) (5,942) (4,558) (5,711)
Bonds in fair value hedge relationships 1 (2,214) (2,223) (2,342) (2,401) (2,792) (2,913)
Customer deposits 3 (5,526) (5,432) (5,327) (5,296) (5,035) (5,038)
(a) These are principally Level 1 instruments.
(b) Joint ventures and associates loan receivables carrying amounts of
£106m (26 February 2022: £105m, 28 August 2021: £102m) are presented in the
Group balance sheet net of deferred profits of £38m (26 February 2022: £38m,
28 August 2021: £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,
uncollateralised derivates are valued as per Level 2 but include certain data
sources which are significantly less liquid; unlisted investments are valued
based on less observable inputs such as recent funding rounds.
At 27 August 2022 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 533 - 18 551
Cash and cash equivalents at fair value through profit or loss - 56 - 56
Investments at fair value through profit or loss - 24 1 25
Derivative financial instruments:
Interest rate swaps - 119 - 119
Cross-currency swaps - 32 182 214
Index-linked swaps - 117 559 676
Forward contracts - 151 - 151
Total assets 533 499 760 1,792
Liabilities
Derivative financial instruments:
Interest rate swaps - (135) - (135)
Cross-currency swaps - (132) - (132)
Forward contracts - (28) - (28)
Total liabilities - (295) - (295)
Net assets/(liabilities) 533 204 760 1,497
At 26 February 2022 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 585 - 12 597
Cash and cash equivalents at fair value through profit or loss - 26 - 26
Investments at fair value through profit or loss - 23 2 25
Derivative financial instruments:
Interest rate swaps - 55 - 55
Cross-currency swaps - 25 198 223
Index-linked swaps - 115 551 666
Forward contracts - 67 - 67
Total assets 585 311 763 1,659
Liabilities
Derivative financial instruments:
Interest rate swaps - (273) - (273)
Cross-currency swaps - (85) - (85)
Forward contracts - (25) - (25)
Total liabilities - (383) - (383)
Net assets/(liabilities) 585 (72) 763 1,276
At 28 August 2021 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 603 - 9 612
Cash and cash equivalents at fair value through profit or loss - 26 - 26
Investments at fair value through profit or loss - 23 2 25
Derivative financial instruments:
Interest rate swaps - 38 - 38
Cross-currency swaps - 284 - 284
Index-linked swaps - 1,339 - 1,339
Forward contracts - 47 - 47
Total assets 603 1,757 11 2,371
Liabilities
Derivative financial instruments:
Interest rate swaps - (368) - (368)
Cross-currency swaps - (37) - (37)
Index-linked swaps - (583) - (583)
Forward contracts - (29) - (29)
Total liabilities - (1,017) - (1,017)
Net assets/(liabilities) 603 740 11 1,354
During the period, there were no transfers (26 February 2022: no transfers, 28
August 2021: no transfers) between Level 1 and Level 2 fair value
measurements.
Level 3 Instruments
During the period, there was a £1m transfer out of Level 3 fair value
remeasurement into Level 2 (26 February 2022: £749m transfer into Level 3
from Level 2, 28 August 2021: no transfers).
The valuation techniques and significant unobservable inputs are unchanged in
the period from that described in Note 25 of the Annual Report and Financial
Statements 2022.
The following table presents the changes in Level 3 instruments:
26 weeks ended 52 weeks ended
27 August 2022 26 February 2022
Uncollateralised derivatives Unlisted Uncollateralised derivatives Unlisted
£m
£m
investments investments
£m
£m
At the beginning of the period 749 14 - 11
Gains/(losses) recognised in finance costs* (37) - - -
Gains/(losses) recognised in other comprehensive income not reclassified to - 6 - 4
the income statement
Gains/(losses) recognised in other comprehensive income that may subsequently 29 - - -
be reclassified to the income statement
Additions - - - 1
Disposals - - - (2)
Transfers into/(out) of Level 3 - (1) 749 -
At the end of the period 741 19 749 14
* All gains or losses are unrealised.
Tesco Bank expected credit losses (ECL)
Tesco Bank has commissioned four scenarios from its third-party provider, all
of which were based on an economic outlook that sought to take account of the
ramifications of ongoing cost-of-living pressures. These scenarios include a
Base scenario, an Upside scenario and two different Downside scenarios. As the
economic outlook continues to remain uncertain, the scenarios are based on the
varying levels of inflation and energy cost increases. The Base scenario
assumes a 55% rise in the Ofgem price cap, inflation peaking at 11.5% by Q4
2022 with interest rates reaching 3% in 2023 and a technical recession in late
2022. The Upside scenario sees less severe impacts to global energy markets
than initially feared, with a 10.4% inflation peak and robust nominal pay
growth driving spending. The Downside 1 scenario assumes further increases in
the Bank of England base rate to 4% by 2023, an Ofgem price cap rise of 65%
and inflation peaking at 12.6%. Downside 2 is similar to the previous scenario
but postulates higher and longer inflation peaks necessitating further
increases in the Bank of England base rate to 5% in 2023, and additional
geopolitical tensions further impacting global energy markets. These scenarios
are also reviewed to ensure an unbiased estimate of ECL by ensuring the credit
loss distribution under a larger number of scenarios is adequately captured
using these four scenarios and their respective weightings. The Base, Upside,
Downside 1 and Downside 2 scenarios have been assigned weighting of 40%, 30%,
25% and 5% respectively.
The economic scenarios used include the following ranges of key indicators:
As at 27 August 2022 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 2.4% 2.0% 3.0% 3.9%
Gross domestic product((b)) 1.2% 1.6% 0.8% 0.4%
Unemployment rate((a)) 4.8% 4.1% 5.6% 7.1%
Unemployment rate peak in year 4.9% 4.1% 5.9% 7.5%
As at 28 August 2021 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 0.4% 0.6% 0.2% 0.0%
Gross domestic product((b)) 3.2% 3.7% 2.8% 2.3%
Unemployment rate((a)) 5.0% 4.5% 6.2% 8.2%
Unemployment rate peak in year 5.3% 4.8% 6.8% 9.1%
(a) Simple average.
(b) Annual growth rates.
Key assumptions and sensitivity
The key assumptions to which the Tesco Bank ECL is most sensitive are
macroeconomic factors, probability of default (PD), loss given default (LGD),
PD threshold (staging), and expected lifetime (revolving credit facilities).
The table below sets out the changes in the ECL allowance that would arise
from reasonably possible changes in these assumptions from those used in Tesco
Bank's calculations as at 27 August 2022 and excludes specific management
overlays which are discussed further below.
Impact on the loss allowance
Key assumption Reasonably possible change 27 August 26 February 2022 28 August
£m
2022 2021
£m
£m
Closing ECL allowance 472 489 579
Macroeconomic factors (100% weighted) Upside scenario (47) (27) (28)
Base scenario (9) (13) (8)
Downside scenario 1 45 31 31
Downside scenario 2 139 110 79
Probability of default Increase of 2.5% 9 6 7
Decrease of 2.5% (9) (6) (7)
Loss given default Increase of 2.5% 9 7 9
Decrease of 2.5% (9) (7) (9)
Probability of default threshold (staging) Increase of 20% (17) (9) (9)
Decrease of 20% 19 13 12
Expected lifetime (revolving credit facility) Increase of 1 year 18 11 11
Decrease of 1 year (19) (10) (10)
The economic forecasts received by the Group during the period suggest that
downside risks associated with the COVID‐19 pandemic have largely receded.
There remains ongoing uncertainty in the wider macroeconomic environment,
mainly as a result of geopolitical tensions, which are impacting global energy
markets and food prices, driving up the rate inflation and amplifying the
cost-of-living crisis. The economic environment experienced over the past two
years, coupled with the unprecedented nature of government support measures,
has broken the historically observed relationship between unemployment and
default, on which the models are based. As a result, Tesco Bank has recognised
certain specific management overlays, to address the prevailing downside risks
and ensure the potential impacts of future stress are adequately provided for,
detailed below:
Overlay Description of adjustment 27 August 26 February 28 August
2022 2022 2021
£m
£m
£m
Macroeconomic uncertainty Volatility in energy prices around the reporting date, with subsequent impact 53 - -
on the macroeconomic environment, indicate the potential for a more severe and
lengthy downturn than modelled in the third-party economic scenarios
Consumer spending((a)) In respect of the beneficial modelling impact of lower consumer spending 46 113 174
through the pandemic
Cost of living((b)) A portion of Tesco Bank's customers may be more impacted by cost-of-living 45 75 -
pressures, with deterioration in their ability to repay unsecured lending
balances
Emergence of customer defaults The emergence of defaults will be more aligned with previous economic - 19 57
downturns
War in Ukraine Further potential inflationary pressures on cost of living, now incorporated - 6 -
into the economic scenarios
Payment holidays Increase in credit risk in respect of customers who sought an extension to - - 9
their initial payment holiday
Total overlays 144 213 240
(a) An increase or decrease of 10% on the adjustment for lower drawn
balances would not result in a material increase or decrease of this
management overlay.
(b) Expanding the affected population to include customers who are five
points lower on the indebtedness index would increase the overlay by £27m.
Movements in the management overlays above also reflect incorporation over
time of the identified risks into the modelled scenarios and, in the case of
the consumer spending overlay, portfolio utilisation moving back towards
pre-pandemic levels.
On 23 September 2022, the government announced its Growth Plan 2022, setting
out the government's approach to creating economic growth. This was preceded
earlier in September 2022 by confirmation of the Energy Price Guarantee, which
limits the price energy suppliers can charge customers and is aimed at
reducing the burden of rising energy prices on consumers and businesses as
well as curbing inflation by 4 to 5 percentage points. The Bank of England
also raised the base rate of interest by 50 basis points to 2.25% in September
2022. Whilst the government did not publish economic scenario information
alongside its Growth Plan 2022 which would show the potential future impact of
these measures, including their impact on the timing and extent of future
interest rate increases, management considers that the sensitivities cover a
suitably broad range of potential outcomes as at 27 August 2022.
Note 17 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering
both funded and unfunded defined benefit schemes and defined contribution
schemes.
The principal defined benefit pension plan within the Group is the Tesco PLC
Pension Scheme (the Scheme), a UK scheme closed to future accrual. The latest
triennial actuarial pension funding valuation for the Scheme as at 31 March
2022 using a projected unit credit method has shown a funding surplus of
£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 (currently £25m per annum) from October 2022. It was also
agreed to reduce the investment risk within the Scheme to further reduce the
likelihood of deficit contributions being required in the future.
The Republic of Ireland (ROI) defined benefit pension schemes were closed to
future accrual in March 2022. Following this, a new defined contribution
scheme was launched for colleagues in the ROI.
Tax on schemes in surplus
Several schemes, including the Scheme, are in an accounting surplus position.
These surpluses are recognised on the balance sheet in line with IFRIC 14, as
the Group has an unconditional legal right to any future economic benefits by
way of future refunds.
The tax treatment of the surpluses is based on the expected manner of recovery
(through reduction of future contributions or from refunds) with the former
giving rise to a deferred tax liability and the latter a withholding tax that
does not represent an income tax of the Group. Management's judgement is that
the recovery will now ultimately be via future refunds as opposed to through
reduction of future contributions, due to improvements noted in the most
recent funding valuation and the substantial investment de-risking that
occurred during the period that reduces the risk of future contributions being
required. The surplus is therefore recognised net of a withholding tax of 35%,
which would be levied prior to the future refund of any surplus.
Movement in the Group pension surplus/(deficit) during the financial period
Net defined benefit surplus/(deficit)
27 August 26 February 28 August
2022 2022 2021
£m
£m
£m
Opening balance 2,847 (1,222) (1,222)
Current service cost (13) (39) (21)
Settlement charge((a)) - (1) -
Finance income/(cost) 40 (22) (11)
Included in the Group income statement 27 (62) (32)
Remeasurement gain/(loss):
Financial assumptions gain/(loss) 5,107 1,881 (3,562)
Demographic assumptions gain/(loss) (454) 21 23
Experience gain/(loss) (1,022) (212) 5
Return on plan assets excluding finance income (5,125) 2,385 4,180
Foreign currency translation (1) 4 2
Included in the Group statement of comprehensive income/(loss) (1,495) 4,079 648
Employer contributions 13 33 15
Additional employer contributions 10 16 9
Benefits paid 2 3 2
Other movements 25 52 26
Withholding tax on surplus((b)) (576) - -
Closing balance 828 2,847 (580)
Consisting of:
Schemes in deficit (242) (303) (580)
Schemes in surplus((c)) 1,070 3,150 -
Surplus/(deficit) in schemes at the end of the period 828 2,847 (580)
Deferred tax asset/(liability) 56 (726) 125
Surplus/(deficit) in schemes at the end of the period, net of deferred tax 884 2,121 (455)
(a) Settlement charge on Londis Scheme wind-up.
(b) Recognised through other comprehensive income in remeasurements of
defined benefit pension schemes.
(c) Schemes in surplus are presented on the balance sheet net of a 35%
withholding tax.
Scheme principal assumptions
The principal assumptions used to value the defined benefit obligation of the
Scheme are as follows:
27 August 26 February 28 August
2022 2022 2021
%
%
%
Discount rate 4.0 2.8 1.6
Price inflation 3.2 3.3 3.2
Rate of increase in deferred pensions* 2.8 2.9 2.8
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012 3.1 3.1 3.0
Benefits accrued after 1 June 2012 2.7 2.8 2.7
* In excess of any guaranteed minimum pension (GMP) element.
If the discount rate assumption increased by 3.0%, the Scheme defined benefit
obligation would decrease by approximately £5,865m respectively. If this
assumption decreased by 3.0%, the Scheme defined benefit obligation would
increase by approximately £15,014m respectively.
If the inflation assumption increased by 3.0%, the Scheme defined benefit
obligation would increase by approximately £9,328m respectively. If this
assumption decreased by 3.0%, the Scheme defined benefit obligation would
decrease by approximately £5,462m respectively.
Movements in the defined benefit obligation from discount rate and inflation
rate changes will be partially offset by movements in assets.
Note 18 Called-up share capital and reserves
26 weeks ended 52 weeks ended
27 August 2022 26 February 2022
Ordinary shares 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 purchased and cancelled (155,224,570) (10) (93,721,289) (6)
At the end of the financial period 7,482,761,961 474 7,637,986,531 484
No shares were issued during the current or prior financial period in relation
to share options or bonus awards. The holders of Ordinary shares are entitled
to receive dividends as declared from time to time and are entitled to one
vote per share at general meetings of the Company.
Own shares held
The Group had cash outflows in the period of £409m for shares purchased for
cancellation (26 weeks ended 28 August 2021: £nil). This included £23m
relating to the settlement of share repurchase agreements with external banks
recognised as a financial liability as at 26 February 2022 (26 weeks ended 28
August 2021: £nil) and other minor movements of £1m (26 weeks ended 28
August 2021: £nil). The average purchase price was £2.64 per share (26 weeks
ended 28 August 2021: n/a). A financial liability of £66m (26 February 2022:
£23m, 28 August 2021: £nil) in respect of shares purchased for cancellation
to be delivered under share repurchase agreements is included in other
payables.
155.2 million shares (26 weeks ended 28 August 2021: Nil), including 4.8
million shares purchased not yet cancelled as at 26 February 2022, were
cancelled during the period, with a total consideration of £411m charged to
retained earnings (26 weeks ended 28 August 2021: £nil). As at 27 August
2022, 4.3 million shares (26 weeks ended 28 August 2021: Nil) were not yet
cancelled with a total consideration of £11m (26 weeks ended 28 August 2021:
£nil).
The Group had cash outflows in the period of £4m for shares purchased for
share schemes (26 weeks ended 28 August 2021: £55m). This included £49m
relating to the settlement of share repurchase agreements with external banks
recognised as a financial liability as at 26 February 2022 (26 weeks ended 28
August 2021: £nil), purchases in the period of £nil (26 weeks ended 28
August 2021: £91m), and £45m cash received from employees exercising SAYE
options (26 weeks ended 28 August 2021: £36m).
Note 19 Analysis of changes in net debt
Net debt, as defined in the Glossary, excludes the net debt of Tesco Bank but
includes that of discontinued operations. Balances in respect of the total
Group and Tesco Bank are presented below to allow reconciliation to the Group
balance sheet:
27 August 2022 26 February 2022 28 August 2021
Group Bank Retail Group Bank Retail Group Bank Retail
£m £m £m £m £m £m £m £m £m
Bank and other borrowings, excluding overdrafts (6,727) (473) (6,254) (6,825) (481) (6,344) (6,685) (487) (6,198)
Lease liabilities (7,999) (24) (7,975) (7,958) (26) (7,932) (8,227) (29) (8,198)
Net financing derivatives 690 (15) 705 556 (6) 562 734 1 733
Net operating and investing derivatives 175 111 64 72 24 48 (43) (30) (13)
Cash and cash equivalents in the balance sheet 2,435 520 1,915 2,345 789 1,556 2,219 514 1,705
Overdrafts* (851) - (851) (574) - (574) (665) - (665)
Cash and cash equivalents (including overdrafts) in the cash flow statement 1,584 520 1,064 1,771 789 982 1,554 514 1,040
Short-term investments 2,256 - 2,256 2,076 - 2,076 2,331 - 2,331
Joint venture loans 106 - 106 105 - 105 102 - 102
Interest and other receivables 4 - 4 1 - 1 - - -
Net debt of disposal group (14) - (14) (14) - (14) (19) - (19)
Net debt APM (10,044) (10,516) (10,222)
* Overdraft balances are included within borrowings in the Group balance
sheet, and within cash and cash equivalents in the Group cash flow statement.
Refer to Note 13.
A reconciliation between movements in Net debt and the Group cash flow
statement is presented below:
27 August 28 August
2022 2021
£m
£m
Opening Net debt (10,516) (11,955)
Cash flows from Group financing activities, excluding own shares purchased and 518 374
dividends paid
Less: Change in cash flows from Tesco Bank financing activities (2) (22)
Change in Net debt from financing activities 516 352
Net increase/(decrease) in Retail cash and cash equivalents including 76 (211)
overdrafts*
Interest paid on components of Net debt 306 316
Interest received on components of Net debt (12) (2)
Net increase/(decrease) in short-term investments 179 1,320
Net increase/(decrease) in joint venture loans 1 -
Other changes in Net debt from cash flow activities 550 1,423
Retail net interest charge on components of Net debt (289) (328)
Retail fair value and foreign exchange movements of Net debt 27 289
Retail other non-cash movements (324) (113)
Acquisitions and disposals (8) 110
Change in Net debt from non-cash movements (594) (42)
Closing Net debt (10,044) (10,222)
* Net increase/(decrease) in Retail cash and cash equivalents including
overdrafts includes £(4)m (28 August 2021: £36m) movement in cash and cash
equivalent of discontinued operations and £(4)m (28 August 2021: £(3)m)
intragroup funding and intercompany transactions.
The table below sets out the movements in bank and other borrowings (excluding
overdrafts), lease liabilities, net financing derivatives and share purchase
obligations:
Bank and other borrowings, excluding overdrafts Lease liabilities((a)) Net financing derivatives((b)) Share purchase obligations((c)) Total
£m £m £m £m £m
At 26 February 2022 (6,825) (7,958) 556 (73) (14,300)
Cash flows arising from financing activities 29 294 195 458 976
Interest paid 118 189 2 - 309
Non-cash movements:
Fair value gains/(losses) 116 - (44) - 72
Foreign exchange (61) (7) - - (68)
Interest income/(charge) (100) (189) (19) - (308)
Acquisitions and disposals (4) (4) - - (8)
Other - (324) - (451) (775)
At 27 August 2022 (6,727) (7,999) 690 (66) (14,102)
(a) Other lease liability movements include lease additions, terminations,
modifications and reassessments.
(b) Net financing derivatives comprise those derivatives which hedge the
Group's exposures in respect of lease liabilities and borrowings. Operating
and investing derivatives, which form part of the Group's Net debt APM, are
not included.
(c) Share purchase obligations form part of the liabilities arising from the
Group's financing activities, but do not form part of Net debt. Other includes
liabilities arising from the share purchase agreements with external banks in
the period.
Bank and other borrowings, excluding overdrafts Lease liabilities((a)) Net financing derivatives((b)) Share purchase obligations((c)) Total
£m £m £m £m £m
At 27 February 2021 (6,736) (8,402) 478 - (14,660)
Cash flows arising from financing activities 47 288 40 - 375
Interest paid 107 207 4 - 318
Non-cash movements:
Fair value gains/(losses) 2 - 235 - 237
Foreign exchange 18 5 - - 23
Interest income/(charge) (102) (207) (23) - (332)
Acquisitions and disposals (21) - - - (21)
Other - (113) - - (113)
Discontinued operations - (5) - - (5)
At 28 August 2021 (6,685) (8,227) 734 - (14,178)
Refer to previous table for footnotes.
Note 20 Contingent liabilities
There have been no material changes to the contingent liabilities of the Group
in the period.
Note 21 Events after the reporting period
See Notes 5 and 16 for the impact of the government announcement of its Growth
Plan 2022 on 23 September 2022 on tax and expected credit loss respectively.
There were no other material events after the reporting period requiring
disclosure.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the Directors have adopted various
APMs.
These measures are not defined by International Financial Reporting Standards
(IFRS) and therefore may not be directly comparable with other companies'
APMs, including those in the Group's industry. APMs should be considered in
addition to, and are not intended to be a substitute for, or superior to, IFRS
measures.
Purpose
The Directors believe that these APMs assist in providing additional useful
information on the trends, performance and position of the Group. APMs aid
comparability between geographical units or provide measures that are widely
used across the industry. They also aid comparability between reporting
periods; adjusting for certain costs or incomes that derive from events or
transactions that fall within the normal activities of the Group but which, by
virtue of their size or nature, are adjusted, can provide a helpful
alternative perspective on year-on-year trends, performance and position that
aids comparability over time.
The alternative view presented by these APMs is consistent with how management
views the business, and how it is reported internally to the Board and
Executive Committee for performance analysis, planning, reporting,
decision-making and incentive-setting purposes.
Further information on the Group's adjusting items, which is a critical
accounting judgement, can be found in Note 3.
Some of the Group's IFRS measures are translated at constant exchange rates.
Constant exchange rates are the average actual periodic exchange rates for the
previous financial period and are used to eliminate the effects of exchange
rate fluctuations in assessing performance. Actual exchange rates are the
average actual periodic exchange rates for that financial period.
Changes to APMs
The Adjusted diluted earnings per share (adjusted for share consolidation) APM
was previously provided to aid year-on-year comparability in the event of a
share consolidation. The APM is no longer relevant for the 2022/23 financial
year so has been removed.
As previously reported in the Annual Report and Financial Statements 2022,
'Exceptional items and amortisation of acquired intangibles' within operating
profit, along with net pension finance costs, fair value remeasurements of
financial instruments, and the tax impact of such items (below operating
profit), are now called 'Adjusting items', and are presented on the face of
the income statement in the 'Adjusting items' column. The policy for
determining adjusting items and the items adjusted for, are unchanged hence
there is no impact on previously reported alternative performance measures
from this change in presentation.
Group APMs
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 26 weeks. It shows the annual rate
of increase in the Group's sales and is considered a good indicator of how
rapidly the Group's core business is growing.
Like-for-like (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.
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.
APM Closest equivalent Adjustments to reconcile Definition and purpose
IFRS measure
to IFRS measure
Adjusted total finance costs Finance costs · Adjusting items((b)) · Adjusting items within finance costs include net pension finance
costs and fair value measurements. Net pension finance costs are impacted by
corporate bond yields, which can fluctuate significantly and are reset each
year based on external market factors that are outside management's control.
Fair value remeasurements are impacted by changes to credit risk and various
market indices, applying to financial instruments resulting from liability
management exercises, which can fluctuate significantly outside of
management's control. This measure helps to provide an alternative view of
year-on-year trends in the Group's finance costs.
Adjusted profit 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
per share average number of 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
and amortisation)
of the accounts to evaluate comparable profitability of companies, as it
· Depreciation and amortisation excludes the 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 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.
Balance sheet
Net debt No direct equivalent · N/A · Net debt excludes the net debt of Tesco Bank but includes that of
the discontinued operations to reflect the net debt obligations of the Retail
business.
· Net debt comprises bank and other borrowings, lease liabilities,
net derivative financial instruments, joint venture loans and other
receivables and net interest receivables/payables, offset by cash and cash
equivalents and short-term investments.
· It is a useful measure of the progress in generating cash and
strengthening of the Group's balance sheet position and is a measure widely
used by credit rating agencies.
Net debt/EBITDA 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.
APM Closest equivalent Adjustments to reconcile to IFRS measure Definition and purpose
IFRS measure
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
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
additions, excluding those from business combinations
buybacks 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 and associates; net investments in and
proceeds from the sale of other investments; and adjusting cash items in
operating cash activities.
· By adjusting for these factors, which can have unpredictable
timings or amounts, or can be driven by external events or non-operational
business decisions (such as acquisitions and disposals of properties as
opportunities arise), the Directors and management believe this provides a
view of free cash flow generated by the Group's retail trading operations that
is more predictable and comparable over time and reflects the cash available
to shareholders.
· This is a key management incentive metric.
(a) Operating profit is presented on the Group income statement. It is not
defined per IFRS, however, is a generally accepted profit measure.
(b) Refer to Note 3.
APMs: Reconciliation of income statement measures
As the incomes and expenses included in debt APMs are calculated using a
rolling 12-month period, the amounts for the 12 months to 27 August 2022 are
not disclosed in the notes to the condensed consolidated interim financial
statements for the current financial period.
Retail EBITDA
APM APM
52 weeks ended 52 weeks ended
27 August 26 February
2022 2022
£m £m
Operating profit 1,992 2,560
Less: Adjusting items 690 265
Adjusted operating profit 2,682 2,825
Less: Tesco Bank adjusted operating profit (171) (176)
Retail adjusted operating profit 2,511 2,649
Add: Retail depreciation and amortisation before adjusting items 1,574 1,577
Retail EBITDA 4,085 4,226
Net interest margin
Notes APM APM
26 weeks 26 weeks
2022 2021
£m £m
Tesco Bank revenue 2 540 433
Less: Tesco Bank revenue from fees and commissions receivable 2 (134) (101)
Less: Tesco Bank revenue from gross insurance premium income 2 (154) (94)
Less: Tesco Bank interest payable within operating profit (34) (20)
Less: Tesco Bank interest payable within finance income/(costs) (3) (2)
Net interest income 215 216
Annualised net interest income 426 427
Average interest earning assets 8,773 8,307
Net interest margin 4.9% 5.1%
APMs: Reconciliation of balance sheet measures
Net debt
A reconciliation of Net debt is provided in Note 19.
Net debt/EBITDA and Total indebtedness ratio
Notes APM APM
27 August 26 February
2022 2022
Net debt (£m) 19 10,044 10,516
Retail EBITDA (£m) 4,085 4,226
Net debt/EBITDA ratio 2.5 2.5
Net debt (£m) 19 10,044 10,516
Add: Defined benefit pension deficit, net of deferred tax (£m) 17 186 242
Total indebtedness (£m) 10,230 10,758
Retail EBITDA (£m) 4,085 4,226
Total indebtedness ratio 2.5 2.5
Fixed charge cover
APM APM
52 weeks ended 52 weeks ended
27 August 26 February
2022 2022
Net finance costs (£m) 709 542
Less: Net pension finance (income)/costs (£m) 29 (22)
Add: Fair value remeasurements of financial instruments (£m) (132) 123
Adjusted total finance costs (£m) 606 643
Less: Finance charges payable on lease liabilities (£m) (387) (405)
Adjusted total finance cost, excluding capitalised interest and finance 219 238
charges payable on lease liabilities (£m)
Add: Total lease liability payments (£m) 965 977
Less: Discontinued operations total lease liability payments (£m) - (2)
1,184 1,213
Retail EBITDA (£m) 4,085 4,226
Fixed charge cover 3.5 3.5
Capex
Notes APM APM
27 August 28 August
2022 2021
£m £m
Property, plant and equipment additions* 10 316 385
Other intangible asset additions* 9 132 100
Less: Additions from property buybacks 10 - (37)
Capex 448 448
* Excluding amounts acquired through business combinations.
APMs: Reconciliation of cash flow measures
Notes APM APM
26 weeks 26 weeks
2022 2021
£m £m
Cash generated from/(used in) operating activities 2 1,825 2,098
Cash generated from/(used in) investing activities 2 (507) (1,662)
Less: Cash generated from/(used in) operating activities in Tesco Bank 2 209 163
Less: Cash generated from/(used in) operating activities in discontinued 2 4 6
operations
Less: Cash generated from/(used in) investing activities in Tesco Bank 2 61 84
Less: Cash generated from/(used in) investing activities in discontinued 2 - (43)
operations
2 1,592 646
Own shares purchased in relation to share schemes 2 (4) (55)
Retail repayments of capital element of obligations under leases 2 (292) (286)
Exclude/add back:
Retail proceeds from sale of property, plant and equipment, investment 2 (301) (109)
property, intangible assets and assets classified as held for sale
Retail purchase of property, plant and equipment and investment property - 2 - 37
property buybacks
Retail disposal of subsidiaries, net of cash disposed 2 - (125)
Retail acquisition of subsidiaries, net of cash acquired 2 66 -
Retail investments in joint ventures and associates 2 6 8
Retail adjusting net cash (generated from)/used in operating activities 2 31 107
Retail increase in loans to joint ventures and associates 2 1 -
Retail net investments in/(proceeds from sale of) other investments 2 5 -
Retail net investments in/(proceeds from sale of) short-term investments 2 179 1,320
Retail free cash flow 2 1,283 1,543
Glossary - Other
Enterprise value
This is calculated as market capitalisation plus net debt.
Expected credit loss (ECL)
Credit loss represents the portion of the debt that a company is unlikely to
recover. The expected credit loss is the projected future losses based on
probability-weighted calculations.
ESG
Environmental, social and governance.
Market
capitalisation
The total value of all Tesco shares calculated as total number of shares
multiplied by the closing share price at the period end.
MTN
Medium term note.
MREL
Minimum requirements for own funds and eligible liabilities (European Banking
Authority).
Net promoter score (NPS)
This is a loyalty measure based on a single question requiring a score between
0-10. The NPS is calculated by subtracting the percentage of detractors
(scoring 0-6) from the percentage of promoters (scoring 9-10). This generates
a figure between -100 and 100 which is the NPS.
Return
Profit before adjusting items and interest, after tax (applied at effective
rate of tax).
RPI
Retail price index.
Total capital ratio
This is calculated by dividing total regulatory capital by total
risk‐weighted assets.
Total shareholder return
The notional annualised return from a share, measured as the percentage change
in the share price, plus the dividends paid with the gross dividends,
reinvested in Tesco shares. This is measured over both a one and five-year
period.
Independent review report to Tesco PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half yearly financial report for the 26 weeks ended 27
August 2022 which comprises the Group income statement, the Group statement of
comprehensive income/(loss), the Group balance sheet, the Group statement of
changes in equity, the Group cash flow statement and related notes 1 to 21.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the 26 weeks ended 27 August 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the group a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
4 October 2022
Appendices
Appendix 1
One-year like-for-like sales performance (exc. VAT, exc. fuel)
Like-for-like sales
H1 H2 FY Q1 Q2 HY
2021/22
2022/23
2022/23
2022/23
2021/22 2021/22
UK & ROI 2.4% 2.1% 2.2% 1.5% 3.9% 2.7%
UK 1.2% (0.5)% 0.4% (1.5)% 2.8% 0.7%
ROI (2.6)% (3.2)% (2.9)% (2.4)% 2.4% (0.1)%
Booker 11.0% 19.9% 15.3% 19.4% 9.3% 13.9%
Central Europe 1.4% 4.5% 2.9% 9.0% 11.8% 10.4%
Total Retail 2.3% 2.3% 2.3% 2.0% 4.5% 3.2%
Tesco Bank n/a n/a n/a n/a n/a n/a
Total Group 2.3% 2.3% 2.3% 2.0% 4.5% 3.2%
Appendix 2
Total sales performance (exc. VAT, exc. fuel)
Actual rates Constant rates
H1 H2 FY H1 H1 H2 FY H1
2021/22 2021/22 2021/22 2022/23 2021/22 2021/22 2021/22 2022/23
UK & ROI 2.7% 2.0% 2.3% 2.6% 2.9% 2.3% 2.6% 2.6%
UK 1.8% (0.2)% 0.8% 0.6% 1.8% (0.2)% 0.8% 0.6%
ROI (5.8)% (8.4)% (7.1)% (0.6)% (2.0)% (2.9)% (2.4)% 1.0%
Booker 11.1% 19.4% 15.1% 13.8% 11.1% 19.4% 15.1% 13.8%
Central Europe (0.8)% 0.7% (0.0)% 5.9% 2.6% 4.9% 3.7% 9.5%
Total Retail 2.4% 1.9% 2.2% 2.8% 2.9% 2.5% 2.7% 3.1%
Tesco Bank 12.2% 39.9% 25.4% 24.6% 12.2% 39.9% 25.4% 24.6%
Total Group 2.6% 2.4% 2.5% 3.1% 3.0% 3.0% 3.0% 3.5%
Appendix 3
Country detail - Retail
Revenue (exc. VAT, inc. fuel)
Local currency £m Average exchange Closing exchange
(m) rate rate
UK 24,147 24,147 1.0 1.0
ROI 1,464 1,237 1.2 1.2
Booker 4,399 4,399 1.0 1.0
Czech Republic 22,646 775 29.2 29.0
Hungary 324,083 704 460.3 484.9
Slovakia 774 654 1.2 1.2
Appendix 4
UK sales area by size of store
27 August 2022 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 2,572 5.5 14.2% 2,556 5.5 14.2%
3,001-20,000 272 2.9 7.5% 281 3.0 7.8%
20,001-40,000 287 8.3 21.5% 286 8.3 21.4%
40,001-60,000 182 8.8 22.8% 182 8.8 22.7%
60,001-80,000 119 8.4 21.8% 120 8.4 21.7%
80,001-100,000 45 3.7 9.6% 45 3.7 9.6%
Over 100,000 8 1.0 2.6% 8 1.0 2.6%
Total* 3,485 38.6 100.0% 3,478 38.7 100.0%
* Excludes Booker and franchise stores.
Appendix 5
Actual Group space - store numbers((a))
2021/22 Openings Closures/ Net gain/ As at 27 Repurposing/
year end
disposals
(reduction)((b)) August 2022 extensions((c))
Large 798 7 (1) 6 804 -
Convenience 1,966 17 (8) 9 1,975 -
Dotcom only 6 - - - 6 -
Total Tesco 2,770 24 (9) 15 2,785 -
One Stop((d)) 695 5 - 5 700 -
Booker 192 - - - 192 -
Jack's 13 - (13) (13) - -
UK((d)) 3,670 29 (22) 7 3,677 -
ROI 152 12 - 12 164 1
UK & ROI((d)) 3,822 41 (22) 19 3,841 1
Czech Republic((d)) 185 1 (2) (1) 184 5
Hungary 198 - - - 198 6
Slovakia((d)) 154 1 - 1 155 3
Central Europe((d)) 537 2 (2) - 537 14
Group((d)) 4,359 43 (24) 19 4,378 15
UK (One Stop) 252 28 (8) 20 272 -
Czech Republic 126 2 (1) 1 127 -
Slovakia 15 7 - 7 22 -
Franchise stores 393 37 (9) 28 421 -
Total Group 4,752 80 (33) 47 4,799 15
Actual Group space - '000 sq. ft.((a))
2021/22 Openings Closures/ Repurposing/ Net gain/ As at 27
year end
disposals
extensions((c)) (reduction) August 2022
Large 31,402 76 (65) - 11 31,413
Convenience 5,287 39 (36) - 3 5,290
Dotcom only 716 - - - - 716
Total Tesco 37,405 115 (101) - 14 37,419
One Stop((d)) 1,134 8 - - 8 1,142
Booker 8,210 - - - - 8,210
Jack's 128 - (128) - (128) -
UK((d)) 46,877 123 (229) - (106) 46,771
ROI 3,344 120 - 10 130 3,474
UK & ROI((d)) 50,221 243 (229) 10 24 50,245
Czech Republic((d)) 4,248 5 (22) (81) (98) 4,150
Hungary 5,927 - - (178) (178) 5,749
Slovakia((d)) 3,143 11 - - 11 3,154
Central Europe((d)) 13,318 16 (22) (259) (265) 13,053
Group((d)) 63,539 259 (251) (249) (241) 63,298
UK (One Stop) 367 38 (10) - 28 395
Czech Republic 115 1 (1) - - 115
Slovakia 13 8 - - 8 21
Franchise stores 495 47 (11) - 36 531
Total Group 64,034 306 (262) (249) (205) 63,829
(a) Continuing operations.
(b) The net gain/(reduction) reflects the number of store openings less the
number of store closures/disposals.
(c) Repurposing of retail selling space.
(d) Excludes franchise stores.
Group space forecast to 25 February 2023 - '000 sq. ft.((a))
As at 27 Openings Closures/ disposals Repurposing/ Net gain/ 2022/23
year end
August 2022 extensions (reduction)
Large 31,413 26 - - 26 31,439
5,411
716
Convenience 5,290 134 (13) - 121
Dotcom only 716 - - - -
Total Tesco 37,419 160 (13) - 147 37,566
One Stop((b)) 1,142 24 - - 24 1,166
Booker 8,210 - (29) - (29) 8,181
UK((b)) 46,771 184 (42) - 142 46,913
3,495
ROI 3,474 38 (17) - 21
UK & ROI((b)) 50,245 222 (59) - 163 50,408
Czech Republic((b)) 4,150 41 - (43) (2) 4,148
Hungary 5,749 - - (123) (123) 5,626
Slovakia((b)) 3,154 27 - (27) - 3,154
Central Europe((b)) 13,053 68 - (193) (125) 12,928
Group((b)) 63,298 290 (59) (193) 38 63,336
UK (One Stop) 395 60 - - 60 455
117
Czech Republic 115 2 - - 2
Slovakia 21 11 - - 11 32
Franchise stores 531 73 - - 73 604
Total Group 63,829 363 (59) (193) 111 63,940
(a) Continuing operations.
(b) Excludes franchise stores.
Appendix 6
Tesco Bank income statement
H1 H1
2022/23((a)) 2021/22((a))
£m £m
Revenue
Interest receivable and similar income 252 238
Fees and commissions receivable 134 101
Gross insurance premium income 154 94
540 433
Direct costs
Interest payable (34) (20)
Fees and commissions payable (6) (10)
Insurance premium income ceded to reinsurers (69) (42)
Insurance claims (77) (61)
Reinsurers' share of claims incurred 34 34
(152) (99)
Other income 2 11
Gross profit 390 345
Other expenses
Staff costs (115) (104)
Premises and equipment (34) (33)
Other administrative expenses (108) (85)
Depreciation and amortisation (27) (30)
Impairment reversal/(loss) on financial assets (39) (21)
Adjusted operating profit/(loss) 67 72
Adjusting items((b)) (5) -
Operating profit/(loss) 62 72
Finance income/(costs): movements on derivatives and hedge accounting 2 (1)
Finance income/(costs): interest (3) (2)
Finance income/(costs): leases (1) (1)
Share of profit/(loss) of joint venture - 3
Profit/(loss) before tax 60 71
(a) These results are for the six months ended 31 August 2022 and the
previous period represents the six months ended 31 August 2021.
(b) Adjusting items of £(5)m in H1 2022/23 (H1 2021/2022: £nil) relate to
operational restructuring changes, as part of the multi-year 'Save to Invest'
programme.
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