REG - Tesco PLC - Preliminary Results 2021/22
13/04/2022 07:00
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RNS Number : 1899I Tesco PLC 13 April 2022
Preliminary Results 2021/22
CHAMPIONING GREAT VALUE FOR CUSTOMERS DELIVERS STRONG PERFORMANCE.
Performance highlights(1,2): 2021/22 2020/21(3) Change at actual rate Change at constant rate
Group sales (exc. VAT, exc. fuel)(4) £54,768m £53,445m 2.5% 3.0%
Adjusted operating profit(5) £2,825m £1,788m 58.0% 58.9%
- Retail £2,649m £1,963m 34.9% 35.8%
- Tesco Bank £176m £(175)m n/m n/m
Retail free cash flow(6) £2,277m £1,340m 69.9%
Net debt(2,6) £(10.5)bn £(12.0)bn down 12.0%
Adjusted diluted EPS(5,7) 21.86p 11.58p 88.8%
Dividend per share 10.90p 9.15p 19.1%
Statutory measures:
Revenue (exc. VAT, inc. fuel) £61.3bn £57.9bn 6.0%
Operating profit £2,560m £1,547m 65.5%
Profit before tax £2,033m £636m 219.7%
Retail cash generated from operating activities £3,614m £321m 1,025.9%
Diluted EPS 19.64p 5.58p 252.0%
Strong sales and profit performance leading to retail free cash flow ahead of
expectations:
· Strong sales throughout the year; Retail 1-yr LFL(8) sales growth
includes UK market outperformance and sharp recovery in Booker; 2-yr LFL
reflects strong performance throughout the pandemic across all businesses:
UK ROI Booker UK&ROI C.Europe Retail
1-yr LFL sales 0.4% (2.9)% 15.3% 2.2% 2.9% 2.3%
2-yr LFL sales 8.2% 10.6% 11.9% 8.8% 2.5% 8.3%
· Total retail adjusted operating profit(5) £2,649m, +35.8% at
constant rates
− UK & ROI adjusted operating profit £2,481m, +35.4% due to
higher sales and lower COVID-19 costs
− C. Europe adjusted operating profit £168m, +41.1% due to lower
COVID-19 costs & higher YoY mall income
· Bank adjusted operating profit £176m, returning to profit following
last year's increase in potential bad debt provision
· Statutory revenue £61.3bn, +6.0% and statutory operating profit
£2,560m, +65.5%; driven by strong sales, reduced COVID-19 costs and a return
to profitability in Tesco Bank
· Retail free cashflow(6) £2,277m, +69.9% from higher profit, lower
pension contribution(9) & higher working capital inflow
· Net debt(2,6) reduced by +£1.4bn since last year driven by strong
cash flow; net debt ratio down to 2.5x
· Adjusted diluted EPS(5,7) 21.86p, +88.8%; statutory diluted EPS
19.64p, +252.0%; reflecting higher profits
· Proposed final dividend of 7.70pps to take full year dividend to
10.90pps - up +19.1% YoY
Strengthening our customer proposition:
· Market share gains in UK, ROI & C.Europe; including +30bps to
27.7% in UK, outperforming on value and volume
· Highest Brand NPS to date; Brand index further improved +9bps YoY
(+63bps vs competitor average)
· Aldi Price Match extended to c.650 lines, all promotions now on
Clubcard Prices, re-launched 1,600 Low Everyday Prices
· Value perception: outperformed market by 91bps; Quality perception:
+11bps vs market decline of (32)bps
· UK online share +142bps to 34.8%; 9.0m digital Clubcard app users;
'Tesco Whoosh' now in over 200 stores
Creating long-term, sustainable value for all Tesco stakeholders:
· Substantial new pay deals agreed for hourly paid colleagues;
additional thank you payment announced
· Group supplier viewpoint survey reached highest ever score of 86.4%
(+1.4% pts YoY)
· Donated 53m meals through food redistribution programmes and 3m meals
through 'Buy One to Help a Child' campaign
· Ambitious targets for net zero (2035: own operations, 2050: scope 3);
first UK-wide soft plastic recycling network
· Multi-year performance & capital allocation frameworks set out,
underpinned by four strategic priorities
· £300m capital returned to date through share buyback programme;
committing to a further £750m by April 2023
Detail on financial footnotes can be found on page 4. Other data sources are
referenced on page 15.
Ken Murphy, Chief Executive:
"Before reflecting on business performance, I want to say that the entire
Tesco family is thinking of all the people affected by the war in Ukraine.
The impact is particularly close to home for our colleagues in Central Europe,
who are supporting with logistics and donations of food and clothing, as well
as helping to transport donations to the Red Cross at the Ukrainian border.
Combining our own donations and matching those of customers, together we have
raised almost £4m to support the vital work of the Red Cross, as well as more
than £500k for humanitarian organisations in Central Europe. We continue to
offer support to those in Ukraine however we can.
Over the last year, we delivered a strong performance across the Group,
growing share in every part of our business. We did this by staying focused
on our customers and doing the right thing for our colleagues, our supplier
partners and the communities we serve. I want to thank all of our colleagues
who did a brilliant job navigating the ongoing pandemic, dealing with the
supply chain challenges in the industry and tackling the onset of increasing
inflation.
In October, we shared the four strategic priorities that will help us to stay
competitive, accelerate our growth and ensure that we can sustainably generate
strong levels of retail free cash flow. We have already made good progress:
our value perception is the strongest it has been for many years; we are
building deeper relationships with more customers through the digitisation of
Clubcard; and we are serving more customers wherever, whenever and however
they want through more convenience stores, more than 100 new Click &
Collect sites and the launch of Tesco Whoosh.
Tesco is at its best when it puts customers first - it's what we did during
the pandemic and it is what we will continue to do now. Clearly, the
external environment has become more challenging in recent months. Against a
tough backdrop for our customers and with household budgets under pressure, we
are laser-focused on keeping the cost of the weekly shop in check - working in
close partnership with our suppliers, as well as doing everything we can to
reduce our own costs. Through our powerful combination of Aldi Price Match,
Low Everyday Prices and Clubcard Prices, we are making more products more
affordable, in more places than anyone else.
We are confident that taking this approach will enable us to deliver on the
multi-year performance framework we shared in October, driving sustainable
growth and generating strong retail free cash flow. This confidence, and our
strong performance to date is reflected in the increased pace and scale of our
capital return programme, with a commitment to repurchase shares worth £750m
over the next twelve months."
OUTLOOK.
We are running the business to generate sustainable value for all stakeholders
and will continue to champion great value for customers at a time when they
are facing increasing pressure on household budgets.
Given the significant uncertainties in the external environment, we believe it
is appropriate to provide profit guidance in the form of a wider than usual
range. Our guidance for the 2022/23 financial year is therefore for retail
adjusted operating profit of between £2.4bn and £2.6bn. Three main factors
are likely to influence our actual performance:
- the extent of further normalisation in customer behaviour as we come
out of the pandemic
- the level of cost inflation that we experience and our ability to
partially offset it through accelerating Save to Invest
- the investment required to maintain the strength of our price
position relative to the market
We expect Bank adjusted operating profit of c.£120m to £160m.
Our focus on cash flow remains unchanged and we expect another strong retail
free cash flow performance within our £1.4bn to £1.8bn range.
CAPITAL RETURN PROGRAMME.
To date, we have purchased £300m worth of Tesco shares as part of our ongoing
share buyback programme.
Reflecting our strong retail free cash flow to date and confidence in our
ability to sustainably generate retail free cash flow within our guidance
range of £1.4bn to £1.8bn going forwards, we are pleased to confirm a
commitment to buy back a total of £750m worth of shares over the next twelve
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.
Going forward, we plan to announce any new forward commitments regarding our
capital return programme as part of our preliminary results each April.
STRATEGIC UPDATE.
Tesco has a uniquely strong position in terms of reach, capability and market
share, built up through decades of focusing on meeting our customers' needs.
We are hugely proud of the capability and commitment of our team of 345,000
colleagues, serving millions of customers across the Group. We have
market-leading positions in every channel and format in our core UK retail and
wholesale markets, and through Clubcard, dunnhumby and over 40 million
transactions every week, we have the insight to be able to understand and
anticipate customers' changing needs. We have the broadest, most compelling
product range and strong relationships with our supplier partners, together
with efficient, well-invested supply chain, distribution and fulfilment
infrastructure.
In October, we refreshed our capital allocation framework and shared a new
multi-year performance framework to guide our actions and track our progress
over the coming years. We shared four strategic priorities which will help
drive top-line growth, grow our absolute profits and in doing so, generate
between £1.4bn and £1.8bn retail free cash flow per year. We are confident
that this will enable us to maintain a strong and efficient balance sheet,
invest for growth and deliver improved returns for our shareholders.
We have already made good progress:
1) Magnetic value for customers - Re-defining value to become the customer's
favourite
· Strongest UK price position in six years with shelf price index
improved by +70bps YoY, achieved through:
- Aldi Price Match increased to c.650 lines; Aldi Price Match products
feature in 99% of large baskets
- Re-launched Low Everyday Prices on 1,600 lines, with a particular
emphasis on household and health & beauty
- 100% of promotions now on Clubcard Prices, including our iconic £3
meal deal
· Value perception outperformed market by 91bps; Quality perception
+11bps vs market decline of (32)bps
· Brand index further improved +9bps (vs competitor decline of (54)bps)
on top of an exceptionally strong performance last year; 2-yr Brand index
+413bps vs competitor average +132bps
· Continuing to offer healthier choices through reformulation, with
7.7bn more calories removed
· Removed 1.6bn pieces of plastic to date; UK's first nationwide soft
plastic recycling network rolled out from March 2021
· Launched first electric HGVs in UK, with pilot in Hungary & Czech
Republic; EV charging points now in 500 UK stores
2) I love my Tesco Clubcard - Creating a competitive advantage through our
powerful digital capability
· Continuing to drive Clubcard penetration +390bps YoY: Clubcard
Prices launched in Tesco Express stores (May), Tesco Mobile (September) and
Tesco Bank (October); also rolled out in ROI and launched Clubcard events in
Central Europe
· Number of customers accessing Clubcard via app now at 9.0m, with more
than half of customers now receiving e-statements; Clubcard households reached
over 20m
· In-app personalised digital summary of customers' experience and
value with Tesco trialled with one million customers
· dunnhumby leveraging insights from >800m customers with team of
>500 data scientists; new CEO started Jan 2022
3) Easily the most convenient - Serving customers wherever, whenever and
however they want to be served
· Online sales remain significantly ahead of pre-COVID levels; market
share +142bps to 34.8%; orders held at c.1.2m/wk
· Four UFCs with pick rates around four times higher than store-based
picking; added 102 new Click & Collect sites
· 'Tesco Whoosh' superfast delivery service now available from >200
stores, rolling out to 600 stores this year
· Simplified our offering, transitioned 89 Metro's to Express; opened
40 Express stores and 283 Booker retail partners
· Announced intention in November to acquire ten Joyce's Supermarkets
in Republic of Ireland, subject to CCPC approval
4) Save to invest - Significant opportunities to simplify, become more
productive and reduce costs
· New three-year savings plan underway, with target of c.£1bn through
four streams - goods & services not for resale (GSNFR), property, store
and distribution operations, and central overheads
· Announced removal of counters in 317 stores in February, repurposing
space to better reflect customers' needs
· Announced the closure of Jack's format; six stores converted to
superstores & seven due to close in FY22/23
· Simpler supplier arrangements and improved procurement processes
underway for goods & services not for resale
Group review of performance.
FY FY(3) Total change YoY
52 weeks ended 26 February 2022(1,2) 2021/22 2020/21 Actual rate Constant rate
Group sales (exc. VAT, exc. fuel)(4) £54,768m £53,445m 2.5% 3.0%
Fuel £6,576m £4,442m 48.1% 48.1%
Revenue (exc. VAT, inc. fuel) £61,344m £57,887m 6.0% 6.4%
Adjusted operating profit(5) £2,825m £1,788m 58.0% 58.9%
Adjusting items(1) £(265)m £(241)m
Group statutory operating profit £2,560m £1,547m 65.5%
Net finance costs £(542)m £(937)m
Joint ventures and associates £15m £26m
Group statutory profit before tax £2,033m £636m 219.7%
Group tax £(510)m £(104)m
Group statutory profit after tax £1,523m £532m 186.3%
Adjusted diluted EPS(5,7) 21.86p 11.58p 88.8%
Statutory diluted EPS 19.64p 5.58p 252.0%
Dividend per share 10.90p 9.15p 19.1%
Net debt(2,6) £(10.5)bn £(12.0)bn
Retail free cash flow(6) £2.3bn £1.3bn
Capex(10) £1.1bn £1.0bn
Group sales(4) increased by +3.0% at constant rates, with growth across all
regions on top of exceptionally strong sales last year. Revenue increased by
+6.4% at constant rates including fuel sales growth of +48.1% as customers
travelled more following the easing of government restrictions. Whilst
two-year like-for-like fuel sales growth was negative at (6.4)%, this
primarily reflects lower demand in the first half, with fuel sales ahead of
pre-pandemic levels by the end of the year.
Group adjusted operating profit(5) grew by +58.9% at constant rates,
reflecting the strong sales performance across the retail businesses, a
reduction in COVID-19 related costs and a return to profitability in Tesco
Bank. These benefits were partially offset by inflationary pressures in the
cost base, particularly in distribution costs. Group statutory operating
profit, which includes adjusting items related to the costs of historical
shareholder litigation claims, grew by +65.5%.
Finance income and finance costs reduced year-on-year primarily due to fair
value remeasurement gains related to the mark-to-market movement on
inflation-linked swaps, which were a £123m benefit this year compared to a
£(214)m charge in the prior year. The reduction in our share of profit from
joint ventures and associates was principally due to profit from Tesco
Underwriting being recognised within Tesco Bank operating profit following its
full acquisition in May. The increase in tax this year primarily reflects
higher levels of both retail and Tesco Bank operating profit, in addition to
the revaluation of deferred tax relating to the announced change in the UK
corporation tax rate from 19% to 25%, effective 1 April 2023.
Our adjusted diluted EPS(5,7) rose by +88.8%, reflecting the increase in
retail and Tesco Bank operating profit and a reduction in net finance costs.
We have proposed a final dividend of 7.70 pence per ordinary share, taking the
full-year dividend to 10.90 pence per ordinary share, an increase of 19.1%
year-on-year.
Net debt(2,6) reduced by £1.4bn year-on-year, primarily driven by strong free
cash flow generation. Retail free cash flow(6) increased by £0.9bn
year-on-year due to higher retail operating profits, the elimination of UK
pension contributions (following the £2.5bn one-off contribution last year
from the Asia disposal proceeds) and a working capital benefit from higher
sales. These benefits were partly offset by an increase in capital
expenditure. The net debt/ EBITDA ratio was 2.5 times at the year-end,
compared to 3.3 times last year.
Further commentary on all of 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 58. During the year, the operating profit and EPS APMs were
renamed. Profit has changed from 'Group operating profit before exceptional
items and amortisation of acquired intangibles' to 'Adjusted operating
profit'. EPS has changed from 'Diluted EPS before exceptional and other
items' to 'Adjusted diluted EPS'. The definitions are unchanged. The
Retail free cash flow APM was amended in order to provide a more consistent
and predictable view of free cash flow generated by the Group's retail
operation. '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'. The policy for
determining adjusting items, and the items adjusted for, are unchanged from
the prior year and hence there is no impact on previously reported
APMs.
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, starting on page 34.
3. The Group has changed its accounting policy for property buybacks in
light of an evolution of accepted practice in relation to the application of
IFRS 16 'Leases' to such transactions. Comparatives have been restated for
this change in accounting policy (see Note 1 on page 23 for further details).
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. The share base used in Adjusted diluted EPS in the prior year is adjusted
to capture the full impact of the share consolidation which followed the sale
of our businesses in Thailand and Malaysia, as if it took place at the start
of the 2020/21 financial year. As such, Adjusted diluted EPS (adjusted for
share consolidation) is presented on a basis other than in accordance with IAS
33. Please see page 61 for a reconciliation to Adjusted diluted EPS.
8. 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).
9. UK pension contributions were eliminated following the £2.5bn one-off
contribution made to the scheme in the prior year from the proceeds from the
sale of our businesses in Thailand and Malaysia.
10.Capex excludes additions arising from business combinations and buybacks of
properties (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(8) Total sales change YoY
One-year Two-year Actual rate Constant rate
- UK £39,742m 0.4% 8.2% 0.8% 0.8%
- ROI £2,487m (2.9)% 10.6% (7.1)% (2.4)%
- Booker £7,755m 15.3% 11.9% 15.1% 15.1%
UK & ROI £49,984m 2.2% 8.8% 2.3% 2.6%
Central Europe £3,862m 2.9% 2.5% (0.0)% 3.7%
Retail £53,846m 2.3% 8.3% 2.2% 2.7%
Bank £922m - - 25.4% 25.4%
Group Sales £54,768m 2.3% 8.3% 2.5% 3.0%
Fuel £6,576m 48.0% (6.4)% 48.1% 48.1%
Group Revenue £61,344m 5.9% 6.4% 6.0% 6.4%
Further information on sales performance is included in the supplementary
information starting on page 55.
Adjusted operating profit(5) performance:
Profit Total change YoY Margin % Margin % change
Actual rate Constant rate Actual rate Actual rate
UK & ROI £2,481m 34.9% 35.4% 4.40% +94bps
Central Europe £168m 35.5% 41.1% 4.18% +107bps
Retail £2,649m 34.9% 35.8% 4.38% +95bps
Bank £176m n/m n/m 19.09% n/m
Group £2,825m 58.0% 58.9% 4.61% +152bps
Further information on operating profit performance is included in Note 2
starting on page 25.
UK & ROI overview:
In the UK & Republic of Ireland (ROI), one-year like-for-like sales
increased by +2.2% on top of exceptional growth last year, driven by a sharp
recovery in Booker catering sales, strong non-food sales in the UK & ROI
and sustained market outperformance in the UK. Two-year like-for-like sales
increased by +8.8% with all businesses growing versus pre-pandemic levels.
UK & ROI adjusted operating profit was £2,481m, up +35.4% at constant
rates as higher sales volumes and lower COVID-19 costs year-on-year offset
underlying operating cost inflation.
In the UK, we continued to incur COVID-19 related costs, primarily relating to
colleague absence for those colleagues who were sick or self-isolating and
additional costs related to sustained elevated online sales. Total COVID-19
related costs were £(220)m, significantly less than the £(892)m incurred
last year. Our assumption for the current year is that we will incur a
significantly lower level of COVID-19 costs as colleague absence rates return
to pre-pandemic levels. Around £(80)m of residual costs will remain,
relating to increased online demand, however we do not plan to report these
separately going forwards.
Adjusted operating margin was up +94 basis points versus last year. Our core
UK business benefited from strong growth in higher margin clothing sales,
including an increase in full price sales from 77% last year to 86% this year,
and Booker profitability recovered as catering demand increased following the
reopening of the hospitality sector. Lower COVID-19 related costs were
partly offset by our investments in value and service. We were able to more
than offset inflationary pressures in the cost base this year with cost
savings related to further simplifying our operating model.
UK - strong market outperformance, with sales growth on a one-year and
two-year basis:
One-year like-for-like sales grew by +0.4%, including growth of +1.2% in the
first half before sales declined by (0.5)% in the second half as we traded
over elevated demand during the second and third national lockdowns in the
prior year. First half growth was driven by non-food and increased levels of
discretionary spend compared to last year, when footfall in stores was lower
and customers prioritised spending on food during the first national
lockdown. In the second half, food sales declined as customers were able to
return to eating more out of home, and reflected very strong comparators last
year, including double-digit growth in the fourth quarter.
We sought to mitigate as much price inflation as possible, ending the year
with our strongest relative price position in over six years. Our ongoing
value investments and a higher promotional participation meant we saw sales
deflation for the year as a whole, but with inflation increasing during the
second half of the year, as the grocery market faced significant cost
pressures.
Two-year like-for-like sales grew by +8.2%, with growth both in stores and
online, and in food and non-food. Average basket sizes across the business
remained higher than pre-pandemic levels, partially offset by fewer shopping
trips.
Our relentless focus on providing customers with great value and service
resulted in consistent outperformance against the market throughout the
year. Our UK market share reached its highest level in over four years and
we saw 23 consecutive periods of net switching gains. We gained market share
in the year on both a value and volume basis, with volume growing ahead of
value as we did everything we could to minimise inflation for our customers.
We have market leading two-year improvements in brand index (+413bps), value
(+483bps) and quality (+385bps) perception. During the year we extended
Clubcard Prices to all Express stores, increasing Clubcard sales penetration
by +21%pts year-on-year in those stores. Clubcard penetration in Large
stores was 86%, increasing by +7%pts year-on-year.
Online one-year like-for-like sales declined by (6.5)% as some customers chose
to return to shopping in our stores as the pandemic eased. Online sales
participation was 14% across the full year, with a peak during the first
quarter of 15.5%. Two-year like-for-like sales grew by +66.1% and sales
participation in online was 5% higher than before the pandemic, driven by both
a sustained increase in orders and higher basket sizes. We have added £2.3
billion of online sales and fulfilled an average of over 1.2 million customer
orders per week versus 0.7 million pre-pandemic.
We have included the table below to aid understanding of our online
performance:
Online performance FY One-year change Two-year change
2021/22
LFL sales £5.9bn (6.5)% +66.1%
Orders per week 1.22m +0.9% +63.3%
Basket size £ £94 (6.8)% +2.2%
Online % of UK total sales 14.0% (1.1)%pts +4.8%pts
Delivery saver subscribers 683k +11% +38%
Click & Collect (C&C) locations 510 +39% +55%
We opened three Urban Fulfilment Centres (UFCs) in the year, including
Lakeside in the first half and Bradford and Horwich in the second half, taking
the total number to four, with pick rates around four times higher than
store-based picking. The fifth UFC is expected to open next month, in
Rutherglen.
Following encouraging initial trials, we expanded 'Tesco Whoosh' - our
60-minute delivery service - from 50 stores in the first half to over 200
stores by the end of the year. We offer customers over 1,700 products,
including fresh food, and delivery slots are available between 7am and 10pm,
every day. We plan to roll the service out to 600 stores over the coming
year. In October, we launched a pilot with Gorillas in our Thornton Heath
store in London, offering customers grocery deliveries within ten minutes on a
range of 2,000 products.
Convenience one-year like-for-like sales declined by (0.8)%, with a decline in
the first half partially offset by growth of +4.0% in the second half as
footfall in city centres recovered. Growth was particularly strong in our
'on-the go' stores and in 'food to go' and 'food for tonight' ranges, where
sales grew by +34.9% and +21.6% respectively. Sales in our stores in
neighbourhood locations declined following very high levels of demand last
year as customers shopped closer to home.
Non-food sales growth was particularly strong this year, driven mainly by
Clothing +19.4% as customers spent more time shopping our ranges in-store and
we responded to changing customer demand in our ranges. Growth was
particularly strong in Womenswear and Kids, and benefited from a re-balancing
of space between Clothing and General Merchandise, now completed in 116 of our
large stores, making Clothing more of a destination shop and making our
food-adjacent General Merchandise ranges simpler and easier to shop. Food
sales were marginally behind last year, down (0.4)%, driven mainly by lower
demand in those categories which benefited from elevated levels of in-home
consumption last year, including meat, fish & poultry, and grocery.
Demand for plant-based products continues to grow at pace, with sales of
plant-based meat alternatives growing by 130% since our 2018 baseline. We
expanded our plant-based ranges further in the year, launching an additional
173 products, including our Wicked Kitchen meal deal in January. On a
two-year basis, total UK like-for-like sales grew across all categories, with
a particularly strong contribution from food. Sales in Finest* ranges grew
by +25% on a two-year basis as customers treated themselves at home.
We rolled out soft plastic recycling facilities across all of our large UK
stores and launched an innovative Reuse proposition in ten stores as we
continue to tackle plastic waste. We removed an additional 600 million
pieces of plastic from our packaging this year, taking the cumulative total
pieces of plastic removed over the past two years to 1.6 billion. We removed
a further 7.7 billion calories from our own brand ranges as part of our work
towards achieving 65% of our sales from healthy products by 2025. Our 'Buy
One to Help a Child' campaign - where we gave a donation for every piece of
fruit and vegetables purchased across our stores and online - provided
FareShare with 3 million meals-worth of food to help charities and community
groups.
In September, we announced accelerated climate ambitions, bringing forward our
Group own operations net zero target to 2035. We also launched a new goal to
be net zero across our entire value chain by 2050, aligned to a 1.5-degree
pathway. We continued to roll out electric online delivery vans, set up new
renewable energy projects and launched our first two electric HGVs in our
distribution operations this year. We also launched our
sustainability-linked supply-chain financing programme and issued our second
sustainability-linked bond. In November, we were delighted to be awarded the
Prince of Wales's Terra Carta Seal in recognition of our commitment to and
momentum towards a climate and nature-positive future.
ROI - one-year LFL (2.9)% reflecting higher demand last year; +10.6% growth on
a two-year basis:
One-year like-for-like sales declined by (2.9)% as we traded over exceptional
COVID-19 demand last year. The COVID-19 impact was particularly strong in
ROI as the restrictions on hospitality were in place for a longer period than
in the UK. Despite the exceptionally strong comparative, ROI like-for-like
sales grew by +0.3% over Christmas and we gained market share in the fourth
quarter. Two-year like-for-like sales grew by +10.6%, reflecting a
significant benefit from retained levels of higher in-home consumption.
Our online business grew by +3.1% on a one-year basis and now represents 8% of
our sales. We have maintained a leading position, with a market share of
59%. We expanded our online offering further this year, rolling out an
additional 37 Click & Collect locations and increasing our total slot
capacity by 69%.
We launched Aldi Price Match in ROI in January, with hundreds of products
matched. We have started to roll out Clubcard Prices, following successful
Clubcard Prices Events. We also focused on making shopping easier for
customers, including rolling out 'Scan As You Shop' to all large stores.
We announced an intention to acquire ten Joyce's Supermarkets in Galway in
November. The acquisition is subject to the approval of the Competition and
Consumer Protection Commission (CCPC).
Booker - strong sales growth on both a one-year and two-year basis:
Sales LFL sales change
One-year Two-year
Retail £4,651m 0.7% 19.3%
Retail exc. Tobacco £2,630m (0.7)% 16.8%
Tobacco £2,021m 2.5% 22.6%
Catering £2,866m 56.1% (1.6)%
Catering exc. BFL £1,687m 52.0% (1.6)%
Best Food Logistics (BFL) £1,179m 62.5% n/a
Total Booker* £7,755m 15.3% 11.9%
* Total Booker also include small business sales of £238m
Booker delivered double-digit like-for-like sales growth on both a one-year
and two-year basis. One-year growth of +15.3% was driven by a sharp recovery
in catering sales as hospitality outlets re-opened, with a strong contribution
from Best Food Logistics, the majority of whose customers are fast-service
restaurants. Two-year catering sales declined by (1.6)% in total, impacted
by the phased re-opening of the hospitality sector in the first half. In the
second half catering sales were ahead of pre-pandemic levels, with growth of
+9.6% supported by strong execution and competitive pricing.
In the retail business, one-year like-for-like sales grew +0.7%, primarily due
to inflation in tobacco driven by annual duty increases. Retail sales
excluding tobacco were marginally lower than last year as we lapped a strong
uplift in neighbourhood-based convenience stores as customers shopped closer
to home. Despite supply chain challenges, we delivered a resilient
performance and gained new customers. Two-year retail like-for-like sales
grew +19.3% driven by strong customer retention.
Central Europe - growth across all channels and categories on a one-year and
two-year like-for-like basis:
Like-for-like sales grew by +2.9% on a one-year basis and by +2.5% on a
two-year basis, with growth across all channels and categories. Growth was
particularly strong in Slovakia and Hungary, and in our compact hypermarket
and supermarket formats as customer footfall improved and we were able to
offer our full range following non-food selling restrictions last year.
Trading conditions were more challenging in the Czech Republic, due to
non-food sales restrictions in the first quarter.
Non-food sales grew by +13.3%, with strong growth in both Clothing and General
Merchandise. We saw a particularly positive customer response to our
seasonal events. Food sales grew by +1.0%.
Customer NPS improved significantly across all markets year-on-year, driven by
improvements in the shopping trip, with scores almost doubling by the end of
the year for the region as a whole. We continued to strengthen our value
proposition in the region, including the launch of Clubcard Prices Events in
Slovakia and Hungary. Clubcard penetration increased during these events as
customers accessed market-leading prices. Following the success of these
initial events, we will expand Clubcard Prices to all markets and categories
in the current year.
Central Europe adjusted operating profit was £168m, an increase of +41.1% at
constant rates. Adjusted operating profit growth was driven by strong sales,
lower COVID-19 related costs and higher margins from more full-priced non-food
sales.
We have agreed the sale of 17 malls and one retail park in Central Europe.
The transaction is expected to complete in the first half of the current year,
generating proceeds of c.£200m and resulting in a c.£(12)m impact to
adjusted operating profit in the current year, driven by a reduction in mall
income. We will continue to operate the Tesco hypermarkets in the malls on a
long-term leasehold basis.
Tesco Bank - year-on-year profit increase reflecting prior year COVID-19
impact on potential bad debts:
This year Last year YoY
Revenue £922m £735m 25.4%
Adjusted operating profit/ (loss) £176m £(175)m n/m
Lending to customers £6.5bn £6.4bn 1.6%
Customer deposits £(5.3)bn £(5.7)bn 7.0%
Net interest margin(1) 5.0% 4.7% 0.3%pts
Total capital ratio(2) 27.2% 28.5% (1.3)%pts
1. The prior period net interest margin has been restated from 5.2% to 4.7%.
2. The prior period total capital ratio has been restated from 28.4% to 28.5%.
Revenue grew by +25.4%, due to the benefit of the full acquisition of Tesco
Underwriting which completed in May 2021. Revenue excluding Tesco
Underwriting declined by (9.4)%, primarily as a result of lower income from
unsecured lending due to lower average balances as customers paid down their
debt during the pandemic, or increased savings buffers which reduced the need
for new credit. We did however see a strong recovery in credit card
customers' spending levels and in new business unsecured lending volumes.
ATM transactions increased by 13.6% year-on-year as cash usage recovered
post-lockdown. Travel money continued to be impacted by the pandemic and
international travel restrictions, although we saw an encouraging increase in
demand at the end of the year as restrictions eased.
Tesco Bank adjusted operating profit was £176m, including a £13m
contribution from Tesco Underwriting being fully consolidated. The
significant recovery reflects the charge last year related to an increase in
the provision for potential bad debts which accounted for the anticipated
macroeconomic impact from COVID-19. We released part of this provision in
the second half as the macroeconomic outlook improved and customer defaults
remained low. We then recognised a separate provision in the second half to
reflect the increased risk associated with cost of living pressures.
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. In recognition of the sharp recovery in profitability in the
year, the Bank paid a dividend of £87m to the Group. This comprises the
typical annual £50m dividend for the 21/22 financial year and a catch-up of
£37m in relation to the reduced payment of £13m in the prior year.
Tesco Bank won 'Best Overall Provider' at the 2021 YourMoney Awards, in
recognition of the quality of our customer service and competitive pricing of
our products. We introduced a number of new products and services for
customers this year including Clubcard Pay+ in January. We also expanded our
offer with the re-launch of travel insurance. Since August, all new and
renewing Tesco Bank car and home insurance policies are being underwritten by
Tesco Underwriting following the completion of its acquisition in May.
Adjusting items in statutory operating profit:
This year Last year
Litigation costs £(193)m £(93)m
Property transactions £128m £26m
Net impairment (loss)/reversal of non-current assets £(115)m £128m
Amortisation of acquired intangible assets £(76)m £(76)m
Restructuring provisions £(44)m -
Asia licence fee income £26m -
Disposal of China associate £15m -
Fair value less cost of disposal movements on assets held for sale £(6)m -
Impairment charge on Tesco Bank goodwill - £(295)m
UK - ATM business rates - £105m
Booker integration costs - £(25)m
GMP equalisation - £(7)m
Employee share scheme - £(4)m
Total adjusting items in statutory operating profit £(265)m £(241)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 year resulted in a
charge of £(265)m, compared to a charge of £(241)m in the prior year.
In September 2020, two claimant law firms issued proceedings against us in
relation to the overstatement of expected profit announced in 2014. These
claims have now been settled and we have recognised an adjusting charge of
£(193)m. The settlement of these claims was paid in full in the year,
£(105)m in the first half and £(88)m in the second half. This cash outflow
is presented within adjusting cash items. Given that 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 £128m related to the profit generated on
disposal of properties in the year. The majority of the property profits
recognised related to the sale of our Fenny Lock distribution centre which
generated proceeds of £146m and a £103m profit on disposal.
During the period, the Group recognised a net impairment charge of £(115)m on
non-current assets. This includes £(62)m required as a result of the Group's
acquisition of our partner's stake in The Tesco Sarum Limited Partnership
joint venture which brought into full ownership eleven stores. The remaining
charge largely reflects normal fluctuations in store level performance,
property fair values and changes in discount rates, as well as any specific
store closures.
Amortisation of acquired intangible assets is excluded from our headline
performance measures. We incurred a charge of £(76)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.
Restructuring provisions of £(44)m were recognised in the second half,
relating to operational restructuring changes announced in February 2022 as
part of our 'Save to Invest' programme.
We received software licence fee income of £26m from services provided to CP
Group following the sale of our businesses in Asia.
Further detail on adjusting items can be found in Note 3, starting on page 31.
Joint ventures and associates:
Our share of post-tax profits from joint ventures and associates was £15m,
compared to £26m in the prior year. The year-on-year reduction was
primarily due to profits from Tesco Underwriting Limited now being recognised
in Tesco Bank adjusted operating profit following its full acquisition in May
2021 and a reduction in profits generated by our Trent Hypermarket Limited
joint venture in India due to the adverse trading impacts of COVID-19 in the
year.
Net finance costs:
This year Last year
Net interest on medium term notes, loans and bonds £(208)m £(218)m
Other interest receivable and similar income £9m £15m
Other finance charges and interest payable £(39)m £(31)m
Finance charges payable on lease liabilities £(405)m £(446)m
Net finance costs before net pension finance costs and fair value £(643)m £(680)m
remeasurements of financial instruments
Fair value remeasurements of financial instruments £123m £(214)m
Net pension finance costs £(22)m £(43)m
Net finance costs £(542)m £(937)m
Net interest on medium term notes, loans and bonds was £(208)m, down £10m
year-on-year. The reduction in finance costs from bond maturities, tenders
and new debt issuances at lower rates of interest was largely offset by
interest payable on the £(453)m of net debt we acquired with The Tesco
Property (No. 2) Partnership in September 2020 and with the £(585)m of debt
acquired with The Tesco Sarum Limited Partnership in December 2021. The
acquisition of The Tesco Sarum Limited Partnership brings into full ownership
eleven stores and resulted in a reduction in the lease liability of £355m.
The de-recognition of lease liabilities related to these property buybacks and
the reducing nature of our total lease liability over time is the primary
driver of the £41m reduction in finance charges payable on lease liabilities
year-on-year.
A non-cash fair value remeasurement credit of £123m primarily related to the
mark-to-market movement on inflation-linked swaps, driven by the impact of an
increase in expected future inflation 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 costs of £(22)m decreased by £21m, primarily driven by a
reduction in the pension deficit following the £2.5bn one-off contribution
made in the prior year from the proceeds from the sale of our businesses in
Thailand and Malaysia. We expect net pension finance income of £79m in the
current year as a result of the closing IAS 19 pension surplus.
In February, we exercised the option to buy back our partner's equity in the
Tesco Dorney Limited Partnership property joint venture. We expect the
transaction to complete towards the end of our 2022/23 financial year,
bringing seven large stores back into full ownership. This will result in
annual cash rental savings of c.£30m and a c.£(0.3)bn increase in net debt,
comprising a c.£(0.7)bn impact on borrowings, partially offset by a c.£0.4bn
reduction in lease liabilities. Following this transaction, we will have
five UK property JV structures 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 £1.9bn 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 32,
as well as further detail on the adjusting items in Note 3 on page 31.
Group tax:
This year Last year
Tax on adjusted profit £(502)m £(249)m
Tax on adjusting items £(8)m £145m
Tax on profit £(510)m £(104)m
Tax on adjusted Group profit was £(502)m, £(253)m higher than last year,
reflecting higher levels of both retail and Tesco Bank operating profit, in
addition to a one-off charge related to the revaluation of deferred tax,
following the announced increase in the corporation tax rate in the UK from
19% to 25%, effective 1 April 2023.
The effective tax rate on adjusted Group profit was 22.8%, higher than the
current UK statutory rate of 19%, primarily due to the revaluation of deferred
tax. The banking surcharge levied on Tesco Bank profit and depreciation of
assets which do not qualify for tax relief also increased the tax rate.
We expect an adjusted effective tax rate of between 21% and 22% in the current
financial year. We forecast our adjusted effective tax rate to increase to
around 26% from our 2023/24 financial year driven by the increase in the UK
corporation tax rate in April 2023. Further detail on Group tax can be found
in Note 5 on page 32.
Total Group cash tax paid in the year was £(199)m on a continuing operations
basis, which included £(152)m of tax paid in the UK. Tax paid in the year
was £(29)m higher than in the prior year, primarily due to higher levels of
retail and Tesco Bank operating profit. This was partly offset by prior-year
tax losses and a benefit from the super-deduction allowance on certain capital
investments, introduced in the Chancellor's budget in March 2021, along with
£120m in relation to the £2.5bn one-off pension contribution made in the
prior year, the relief for which is required to be spread over four years for
tax purposes.
Earnings per share:
This year Last year
Adjusted diluted EPS 21.86p 11.58p
Statutory diluted earnings per share 19.64p 5.58p
Statutory basic earnings per share 19.86p 5.60p
The share base used in Adjusted diluted EPS in the prior year is adjusted to
capture the full impact of the share consolidation which followed the sale of
our businesses in Thailand and Malaysia, as if it took place at the start of
the 2020/21 financial year. As such, Adjusted diluted EPS (adjusted for
share consolidation) is presented on a basis other than in accordance with IAS
33. Please see page 61 for a reconciliation to Adjusted diluted EPS.
Adjusted diluted EPS was 21.86p (LY: 11.58p), +88.8% higher year-on-year as
the recovery in retail and Tesco Bank profits, the drivers of which are
described more fully in the segmental review of performance section above,
more than offset the higher tax charge.
Statutory diluted earnings per share was 19.64p (LY: 5.58p) +252.0% higher
year-on-year. In addition to the recovery in adjusted operating profit, we
saw a significant reduction in the net finance charge due to an offsetting
credit from fair value remeasurement of financial instruments, the drivers of
which are described in the net finance costs section. These benefits more
than offset a higher charge related to adjusting items and a higher tax charge
in year, driven by higher adjusted operating profit.
Discontinued operations:
We completed the sale of our business in Poland to Salling Group A/S in March
2021, generating proceeds of £122m and a loss on disposal of £(23)m.
Following the sale of Homeplus for £4.2bn in 2015, we received legal claims
from the purchasers. Although the majority of the claims were dismissed,
some findings of liability were made. On 17 September 2021, a Final Award to
the purchasers of £119m in damages, interest and costs was granted. An
adjusting charge increasing the provision held by £33m was recognised in the
year, with the total cash payment of £119m made in the second half.
Further information on discontinued operations is included in Note 6, starting
on page 34.
Dividend:
Last year we held the full-year dividend in line with the 2019/20 financial
year to recognise the strong cash generation of the business, despite the
significant operating profit impact from the COVID-19 pandemic. This
represented an exception to our dividend policy and resulted in a dividend per
share which exceeded 50% of adjusted diluted EPS.
We propose to pay a final dividend of 7.70 pence per ordinary share, taking
the full-year dividend to 10.90 pence per ordinary share, including the
payment of an interim dividend of 3.20 pence per ordinary share in November
2021. This year's final dividend is +19.1% higher than last year, reflecting
the increase in retail and Tesco Bank adjusted operating profit and the impact
from last year's policy exception. It is our intention to pay a progressive
dividend going forward - i.e. we aim to grow the dividend per share each year,
broadly targeting a pay-out of around 50% of earnings.
The proposed final dividend was approved by the Board of Directors on 12 April
2022 and is subject to the approval of shareholders at this year's Annual
General Meeting. The final dividend will be paid on 24 June 2022 to
shareholders who are on the register of members at close of business on 20 May
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 7 June 2022.
Summary of total indebtedness (excludes Tesco Bank):
Feb-22 Feb-21 Movement
Net debt before lease liabilities £(2,570)m £(3,449)m £879m
Lease liabilities £(7,946)m £(8,506)m £560m
Net debt £(10,516)m £(11,955)m £1,439m
Pension deficit, IAS 19 basis (post-tax) £(242)m £(1,004)m £762m
Total indebtedness £(10,758)m £(12,959)m £2,201m
Net debt / EBITDA 2.5x 3.3x
Total indebtedness ratio 2.5x 3.6x
Total indebtedness was £(10,758)m, down £2,201m year-on-year primarily
driven by strong free cash flow generation leading to a reduction in net debt,
net of dividends paid and a £762m reduction in the IAS 19 pension deficit.
Lease liabilities were £(7,946)m, down £560m year-on-year largely due to the
de-recognition of £355m relating to the eleven stores we took back into full
ownership following the purchase of our partner's stake in The Tesco Sarum
Limited Partnership. We also de-recognised £120m of lease liabilities
relating to our Polish business following the sale of the business to Salling
Group A/S in March 2021.
The acquisition of our partner's stake in The Tesco Sarum Limited Partnership
increased net debt by c.£(300)m, including £(585)m of borrowings acquired
and £(64)m of derivatives, net of a reduction in the related lease
liabilities.
Pension liabilities significantly decreased during the year, primarily due to
an increase in discount rates driven by higher corporate bond yields,
partially offset by underlying market movements in inflation rates and
gilts. The pension assets increased year-on-year due to strong investment
returns. As a result, we carried a net IAS 19 pension surplus (post-tax) at
the end of the year of £2,121m, compared to a net deficit of £(1,004)m last
year. The Group IAS 19 pension surplus is disregarded in total indebtedness
and only pension schemes which are in a net deficit position are considered.
We had strong levels of liquidity at the end of the year of £3.0 billion and
our £2.5 billion committed facility remained undrawn. Our committed
facility currently matures in September 2024 and we have the option to extend
this by a further year. The rate of interest payable on this facility is
linked to three of our sustainability commitments. As we delivered these
sustainability targets, we achieved the corresponding margin reduction in the
year. In October, we issued our second sustainability-linked bond, raising
£400m at a low rate of interest. This was issued to refinance a bond which
was approaching maturity and the refinancing will result in an annual interest
saving of £18m.
Our net debt to EBITDA ratio was 2.5 times, down from 3.3 times at the prior
year-end and within our targeted range of 2.8 to 2.3 times. The year-on-year
improvement represents both an increase in our retail EBITDA due to higher
sales and lower COVID-19 costs, and a reduction in net debt before lease
liabilities driven by strong free cash flow generation. The total indebtedness
ratio was 2.5 times compared to 3.6 times last year.
Fixed charge cover was 3.5 times this year, compared to 2.9 times last year,
reflecting a reduction in net finance costs, lease interest payments, lease
principal payments and higher retail EBITDA.
Summary retail cash flow:
Our retail free cash flow APM definition was updated at the interim results
this year to provide a better view of operational cash performance and
excludes cashflows related to acquisitions & disposals, property
transactions and adjusting cash items. We continue to fully disclose these
lines but they do not form part of the retail free cash flow headline APM.
The following table reconciles Group adjusted operating profit to retail free
cash flow. Further details are included on page 62.
This year Last year
Adjusted operating profit £2,825m £1,788m
Less: Tesco Bank adjusted operating (profit) / loss £(176)m £175m
Retail adjusted operating profit £2,649m £1,963m
Add back: Depreciation and amortisation £1,577m £1,611m
Other reconciling items £61m £4m
Pension deficit contribution £(19)m £(351)m
Decrease in working capital £501m £450m
Retail cash generated from operations before adjusting items £4,769m £3,677m
Cash capex £(1,050)m £(902)m
Net interest £(641)m £(670)m
- Interest related to Net debt (exc. lease liabilities) £(239)m £(226)m
- Interest related to lease liabilities £(402)m £(444)m
Tax paid £(195)m £(161)m
Dividends received £109m £23m
Repayments of obligations under leases £(571)m £(561)m
Own shares purchased for share schemes £(144)m £(66)m
Retail free cash flow £2,277m £1,340m
Memo:
Acquisitions & disposals £122m £(2)m
Property proceeds & purchases £228m £(110)m
Cash impact of adjusting items £(316)m £(41)m
Retail free cash flow increased by +£937m year-on-year to £2,277m, driven by
higher retail adjusted operating profit, a reduction in the pension
contribution, a benefit from lower working capital and an increase in the
dividend received from Tesco Bank following its return to profitability this
year.
Following a £2.5bn one-off contribution towards the pension deficit in the
prior year using the proceeds from the sale of our businesses in Thailand and
Malaysia, UK pension contributions were eliminated. We expect an annual
benefit of c.£260m in retail free cash flow as a result of lower pension
deficit contributions. The pension cash outflow of £(19)m in the year
mainly relates to Booker pension scheme.
Our total working capital inflow was £501m, driven by the sharp recovery in
fuel volumes and Booker's catering business in the first half as travel and
hospitality sector restrictions were significantly fewer than at the end of
the prior year. In the second half, working capital was broadly neutral, as
the seasonal unwind we would normally see following peak trading over the
summer was offset by strong UK sales and higher fuel payables due to both
higher volumes and cost price inflation.
Cash capex increased by £(148)m year-on-year as we opened more stores in the
UK than in the prior year as a result of COVID-19 and continued to expand our
online proposition across the UK & ROI businesses.
Interest paid related to net debt (exc. lease liabilities) of £(239)m was
£(13)m higher year-on-year. The benefit of bond buybacks and refinancing at
lower rates of interest was more than offset by the impact of borrowings
acquired as part of The Tesco Property (No. 2) Limited Partnership from
September 2020 and The Tesco Sarum Limited Partnership from December 2021.
Interest paid related to lease liabilities decreased by £42m year-on-year
primarily due to a reduction in the total lease liability following the
de-recognition of the liabilities related to these properties.
Cash tax paid in the year was £(195)m, compared to £(161)m last year. The
increase reflects higher retail adjusted operating profits year-on-year, which
was partially offset by prior-year tax losses and a benefit from the
super-deduction allowance on certain capital investments, which was introduced
in the Chancellor's budget in March 2021. We also continue to receive tax
relief in relation to the £2.5bn one-off pension contribution made in the
prior year. This amounted to £120m for the full-year.
We saw a net cash outflow of £(144)m related to the purchase of our own
shares, which includes £(191)m of shares purchased in the market to offset
the dilution from the issuance of new shares to satisfy the requirements of
share schemes and a £47m cash inflow related to proceeds from colleague share
saving schemes. The net impact was £(78)m higher than the prior year,
driven by the phasing of purchases to satisfy current year maturities. This
will lead to a significant reduction in the net spend in the current year.
Cashflows related to acquisitions & disposals, property transactions and
adjusting cash items are now excluded from our simplified definition of retail
free cash flow.
The inflow from disposals in the year of £122m includes the proceeds from
the sale of our business in Poland to Salling Group A/S, which completed in
March 2021.
We generated a net £228m from property transactions, which includes £308m
generated from the sale of properties, net of an outflow of £(80)m related to
property buybacks. We disposed of our Fenny Lock distribution centre in the
second half for proceeds of £146m and generated £109m from the sale of
properties in Poland which were not included in the corporate transaction with
Salling Group A/S. We bought back one Extra store in Bury for £(37)m and
paid cash consideration of £(43)m to buy back a full stake in The Tesco Sarum
Limited Partnership.
The cash impact of adjusting items was £(316)m, of which £(312)m related to
the settlement of shareholder litigation claims and a legal claim from the
purchasers of our Homeplus business during the period.
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 £963m £875m £91m £85m £47m £55m £1,101m £1,015m
Openings (k sq ft) 180 135 54 30 - - 234 165
Closures (k sq ft) (146) (113) (25) (22) - - (171) (135)
Repurposed (k sq ft) - 1 (125) (63) - - (125) (62)
Net space change (k sq ft) 34 23 (96) (55) - - (62) (32)
'Retail Selling Space' is defined as net space in store adjusted to exclude
checkouts, space behind checkouts, customer service desks and customer
toilets. The supplementary information (p.55) 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 for the year was £1,101m, +£86m higher year-on-year,
which primarily relates to the ongoing investment in our online proposition,
and the opening of new Tesco Express and One Stop stores in the UK. We
opened a further three UFCs in the UK and rolled out more delivery vans and an
additional 37 Click & Collect sites in ROI. We also purchased an
additional 20 electric delivery vans and two electric HGVs in the UK as we
continue to work to reduce emissions from our own operations.
We opened two superstores in the UK, with sites in Mablethorpe and
Wolverhampton, and a further 21 Tesco Express sites, which was slightly fewer
than expected. We expect to open 65 Tesco Express stores in 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 of £1.8bn includes £0.6bn relating to the
buyback of one UK Extra store in Bury and The Tesco Sarum Limited Partnership
property joint venture referred to above.
Further details of current and forecast space can be found in the
supplementary information starting on page 55.
Property:
This year Last year
UK & ROI C. Europe Group UK & ROI C. Europe Group
Property(1) - fully owned
- Estimated market value £16.6bn £1.5bn £18.1bn £15.9bn £2.0bn £17.9bn
- NBV(2) £15.1bn £1.4bn £16.5bn £14.8bn £1.7bn £16.5bn
% net selling space owned 56% 68% 58% 54% 77% 59%
% property owned by value(3) 58% 64% 58% 57% 73% 58%
1. Stores, malls, investment property, offices, distribution centres, fixtures
and fittings and work-in-progress. Excludes joint ventures.
2. Property, plant and equipment excluding vehicles.
3. Excludes fixtures and fittings.
The estimated market value of our fully owned property as at the year-end
increased by £0.2bn to £18.1bn. The market value of £18.1bn represents a
surplus of £1.6bn over the net book value (NBV).
Our Group freehold property ownership percentage, by value was in-line with
the prior year at 58%. In December, we completed the purchase of our
partner's 50% stake in The Tesco Sarum Limited Partnership, bringing back into
full ownership seven sites. This acquisition contributed to a 1% increase in
the percentage of fully owned properties in the UK & ROI and will deliver
an annual cash rental saving of c.£30m. We also repurchased one Extra store
in the UK.
In Central Europe, the reduction in the market value of fully owned property
year-on-year reflects the reclassification of a number of mall properties
which are held for sale. In the year, we released £109m of proceeds through
the disposal of properties in Poland which were not included as part of the
corporate sale.
Contacts:
Investor Relations: Chris Griffith 01707 940 900
Media: Simon Rew 0330 6780 639
Nick Claydon, Teneo 07974 982 547
This document is available at www.tescoplc.com/prelims2022
(http://www.tescoplc.com/prelims2022) .
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/prelims2022 (http://www.tescoplc.com/prelims2022) . This
will be available for playback after the event. All presentation materials,
including a transcript, will be made available on our website.
We will report our Q1 Trading statement on Friday 17(th) June 2022.
Information contained within this announcement includes inside information as
defined in Article 7 of the Market Abuse Regulation No. 596/2014. This
announcement is being released on behalf of Tesco PLC by Robert Welch, Company
Secretary.
Sources:
UK market share based on Kantar Total Tesco year-on-year market share gains of
Grocers Total Till Roll on 12 week rolling basis to 20 February 2022.
UK online market share based on Kantar Total Tesco year-on-year market share
gains of Total Till Roll online channel on 12 week rolling basis to 20
February 2022.
ROI online market share based on Kantar ROI Total Tesco market share of Total
Till Roll online channel on 12 week rolling basis to 20 February 2022.
Brand Index, Value perception and Quality perception based on YouGov 12 week
rolling basis to 27 February 2022. 'Market' consists of Sainsbury's,
Morrisons, Asda, Aldi, Lidl, Waitrose, M&S, Co-op & Iceland.
Price index is calculated using the single retail selling price of each item,
including price cut promotions across Q4; the index is weighted by sales and
market share to reflect customer importance and competitor size. Competitor
set consists of Sainsbury's, Morrison's, Asda, Aldi & Lidl.
YoY Clubcard sales penetration is based on Large, Express and All stores from
February 2021 to February 2022.
UK Express store openings include 19 One Stop conversions.
Number of new Booker retail partners shown net of openings and closures.
Disclaimer.
Certain statements made in this document are forward-looking statements. For
example, statements regarding future financial performance, market trends and
our product pipeline are forward-looking statements. Phrases such as "aim",
"plan", "intend", "should", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions are
generally intended to identify forward-looking statements. Forward looking
statements are based on current expectations and assumptions and are subject
to a number of known and unknown risks, uncertainties and other important
factors that could cause actual results or events to differ materially from
what is expressed or implied by those statements. Many factors may cause
actual results, performance or achievements of Tesco to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Important factors that could
cause actual results, performance or achievements of Tesco to differ
materially from the expectations of Tesco include, among other things, general
business and economic conditions globally, industry trends, competition,
changes in government and other regulation and policy, including in relation
to the environment, health and safety and taxation, labour relations and work
stoppages, interest rates and currency fluctuations, changes in its business
strategy, political and economic uncertainty, including as a result of global
pandemics. As such, undue reliance should not be placed on forward-looking
statements. Any forward-looking statement is based on information available
to Tesco as of the date of the statement. All written or oral forward-looking
statements attributable to Tesco are qualified by this caution. Other than
in accordance with legal and regulatory obligations, Tesco undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
Group income statement
52 weeks ended 52 weeks ended
26 February 2022
27 February 2021((a))
Notes Before adjusting Adjusting Total Before adjusting Adjusting Total
£m
items
£m
items items((b))
£m items((b))
£m
(Note 3) (Note 3)
£m
£m
Continuing operations
Revenue 2 61,344 - 61,344 57,887 - 57,887
Cost of sales (56,574) (176) (56,750) (53,948) 221 (53,727)
Impairment reversal/(loss) on financial assets 2 39 - 39 (384) - (384)
Gross profit/(loss) 4,809 (176) 4,633 3,555 221 3,776
Administrative expenses (1,984) (89) (2,073) (1,767) (462) (2,229)
Operating profit/(loss) 2,825 (265) 2,560 1,788 (241) 1,547
Share of post-tax profits/(losses) of joint ventures and associates 15 - 15 26 - 26
Finance income 4 9 - 9 15 - 15
Finance costs 4 (652) 101 (551) (695) (257) (952)
Profit/(loss) before tax 2,197 (164) 2,033 1,134 (498) 636
Taxation 5 (502) (8) (510) (249) 145 (104)
Profit/(loss) for the year from continuing operations 1,695 (172) 1,523 885 (353) 532
Discontinued operations
Profit/(loss) for the year from discontinued operations 6 (2) (38) (40) 309 5,117 5,426
Profit/(loss) for the year 1,693 (210) 1,483 1,194 4,764 5,958
Attributable to:
Owners of the parent 1,691 (210) 1,481 1,190 4,764 5,954
Non-controlling interests 2 - 2 4 - 4
1,693 (210) 1,483 1,194 4,764 5,958
Earnings/(losses) per share from continuing and discontinued operations
Basic 8 19.34p 61.83p
Diluted 8 19.12p 61.66p
Earnings/(losses) per share from continuing operations
Basic 8 19.86p 5.60p
Diluted 8 19.64p 5.58p
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) 'Exceptional items and amortisation of acquired intangibles' have been
renamed 'Adjusting items'. Refer to Note 1 for further details.
The notes on pages 23 to 54 form part of this condensed consolidated financial
information.
Group statement of comprehensive income/(loss)
Notes 52 weeks 52 weeks
2022
£m 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 4 -
comprehensive income
Remeasurements of defined benefit pension schemes 20 4,075 (963)
Net fair value gains/(losses) on inventory cash flow hedges 33 (3)
Tax on items that will not be reclassified (918) 248
3,194 (718)
Items that may subsequently be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other (25) (1)
comprehensive income
Currency translation differences:
Retranslation of net assets of overseas subsidiaries, joint ventures and (39) (68)
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary 66 (413)
disposed, reclassified and reported in the Group income statement
Gains/(losses) on cash flow hedges:
Net fair value gains/(losses) 44 59
Reclassified and reported in the Group income statement (45) (86)
Tax on items that may be reclassified (5) (3)
(4) (512)
Total other comprehensive income/(loss) for the year 3,190 (1,230)
Profit/(loss) for the period 1,483 5,958
Total comprehensive income/(loss) for the year 4,673 4,728
Attributable to:
Owners of the parent 4,671 4,724
Non-controlling interests 2 4
Total comprehensive income/(loss) for the year 4,673 4,728
Total comprehensive income/(loss) attributable to owners of the parent arising
from:
Continuing operations 4,645 (254)
Discontinued operations 26 4,978
4,671 4,724
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
The notes on pages 23 to 54 form part of this condensed consolidated financial
information.
Group balance sheet
Notes 26 February 27 February 29 February
2022
£m 2021((a)) 2020((a))
£m £m
Non-current assets
Goodwill and other intangible assets 9 5,360 5,393 6,078
Property, plant and equipment 10 17,060 16,945 19,157
Right of use assets 11 5,720 5,951 6,874
Investment property 22 19 26
Investments in joint ventures and associates 86 178 307
Other investments((b)) 1,253 763 866
Trade and other receivables 159 170 166
Loans and advances to customers and banks 3,141 3,309 4,171
Reinsurance assets 14 184 - -
Post-employment benefit surplus 20 3,150 - -
Derivative financial instruments 942 1,425 1,083
Deferred tax assets 5 85 552 449
37,162 34,705 39,177
Current assets
Other investments((b)) 226 178 202
Inventories 2,339 2,069 2,433
Trade and other receivables 1,263 1,263 1,396
Loans and advances to customers and banks 3,349 3,093 4,280
Reinsurance assets 14 61 - -
Derivative financial instruments 69 37 63
Current tax assets 93 41 21
Short-term investments 13 2,076 1,011 1.076
Cash and cash equivalents 13 2,345 2,510 4,137
11,821 10,202 13,608
Assets of the disposal group and non-current assets classified as held for 6 368 605 285
sale
12,189 10,807 13,893
Current liabilities
Trade and other payables (9,181) (8,399) (8,922)
Borrowings 16 (725) (1,080) (2,219)
Lease liabilities 11 (547) (575) (598)
Derivative financial instruments (26) (81) (61)
Customer deposits and deposits from banks (4,729) (5,321) (6,377)
Insurance contract provisions 14 (623) - -
Current tax liabilities (11) (79) (324)
Provisions 18 (283) (186) (155)
(16,125) (15,721) (18,656)
Liabilities of the disposal group classified as held for sale 6 (14) (276) -
Net current liabilities (3,950) (5,190) (4,763)
Non-current liabilities
Trade and other payables (53) (109) (170)
Borrowings 16 (6,674) (6,188) (6,005)
Lease liabilities 11 (7,411) (7,827) (8,968)
Derivative financial instruments (357) (926) (887)
Customer deposits and deposits from banks (1,650) (1,017) (1,830)
Insurance contract provisions 14 (27) - -
Post-employment benefit deficit 20 (303) (1,222) (3,085)
Deferred tax liabilities 5 (910) (48) (40)
Provisions 18 (183) (119) (137)
(17,568) (17,456) (21,122)
Net assets 15,644 12,059 13,292
Equity
Share capital 21 484 490 490
Share premium 5,165 5,165 5,165
Other reserves 3,079 3,183 3,658
Retained earnings 6,932 3,239 4,001
Equity attributable to owners of the parent 15,660 12,077 13,314
Non-controlling interests (16) (18) (22)
Total equity 15,644 12,059 13,292
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) Refer to Note 1 for further details regarding changes in presentation of
the primary financial statements.
The notes on pages 23 to 54 form part of this condensed consolidated financial
information.
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 27 February 2021 (restated*) 490 5,165 16 90 175 (188) 3,090 3,239 12,077 (18) 12,059
Profit/(loss) for the year - - - - - - - 1,481 1,481 2 1,483
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - - - (39) - - - (39) - (39)
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary - - - - 66 - - - 66 - 66
disposed, reclassified and reported in the Group income statement (Note 6)
Change in fair value of financial assets at fair value through other - - - - - - - (21) (21) - (21)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 20) - - - - - - - 4,075 4,075 - 4,075
Gains/(losses) on cash flow hedges - - - 77 - - - - 77 - 77
Cash flow hedges reclassified and reported in the Group income statement - - - (45) - - - - (45) - (45)
Tax relating to components of other comprehensive income - - - (22) - - - (901) (923) - (923)
Total other comprehensive - - - 10 27 - - 3,153 3,190 - 3,190
income/(loss)
Total comprehensive - - - 10 27 - - 4,634 4,671 2 4,673
income/(loss)
Inventory cash flow hedge movements
Gains/(losses) transferred to the cost of inventory - - - 30 - - - - 30 - 30
Total inventory cash flow hedge movements - - - 30 - - - - 30 - 30
Transactions with owners
Own shares purchased for cancellation (6) - 6 - - (37) - (264) (301) - (301)
(Note 21)
Own shares purchased for share schemes (Note 21) - - - - - (279) - - (279) - (279)
Share-based payments (Note 21) - - - - - 139 - 12 151 - 151
Dividends (Note 7) - - - - - - - (704) (704) - (704)
Tax on items credited to equity - - - - - - - 15 15 - 15
Total transactions with owners (6) - 6 - - (177) - (941) (1,118) - (1,118)
At 26 February 2022 484 5,165 22 130 202 (365) 3,090 6,932 15,660 (16) 15,644
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
The notes on pages 23 to 54 form part of this condensed consolidated financial
information.
Other reserves
Share Share Capital redemption reserve Cost of hedging reserve Hedging Translation Own Merger reserve Retained earnings Total Non-controlling interests £m Total
capital
premium
£m
£m
reserve
reserve
shares
£m
£m
£m
equity
£m
£m
£m
£m
held
£m
£m
At 29 February 2020 (as previously reported) 490 5,165 16 (15) 154 663 (250) 3,090 4,078 13,391 (22) 13,369
Cumulative adjustment to opening balances - - - - - - - - (77) (77) - (77)
At 29 February 2020 (restated*) 490 5,165 16 (15) 154 663 (250) 3,090 4,001 13,314 (22) 13,292
Profit/(loss) for the year (restated*) - - - - - - - - 5,954 5,954 4 5,958
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - - - - (68) - - - (68) - (68)
associates, net of hedging instruments
Movements in foreign exchange reserve and net investment hedging on subsidiary - - - - - (413) - - - (413) - (413)
disposed, reclassified and reported in the Group income statement
Change in fair value of financial instruments at fair value through other - - - - - - - - (1) (1) - (1)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 20) - - - - - - - - (963) (963) - (963)
Gains/(losses) on cash flow hedges - - - 17 39 - - - - 56 - 56
Cash flow hedges reclassified and reported in the Group income statement - - - - (86) - - - - (86) - (86)
Tax relating to components of other comprehensive income - - - (2) 11 (7) - - 243 245 - 245
Total other comprehensive - - - 15 (36) (488) - - (721) (1,230) - (1,230)
income/(loss)
Total comprehensive - - - 15 (36) (488) - - 5,233 4,724 4 4,728
income/(loss) (restated*)
Inventory cash flow hedge movements
Gains/(losses) transferred to the cost of inventory - - - - (28) - - - - (28) - (28)
Total inventory cash flow hedge movements - - - - (28) - - - - (28) - (28)
Transactions with owners
Own shares purchased for share schemes (Note 21) - - - - - - (246) - - (246) - (246)
Share-based payments (Note 21) - - - - - - 308 - (97) 211 - 211
Dividends (Note 7) - - - - - - - - (5,892) (5,892) - (5,892)
Tax on items charged to equity - - - - - - - - (6) (6) - (6)
Total transactions with owners - - - - - - 62 - (5,995) (5,933) - (5,933)
At 27 February 2021 (restated*) 490 5,165 16 - 90 175 (188) 3,090 3,239 12,077 (18) 12,059
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
The notes on pages 23 to 54 form part of this condensed consolidated financial
information.
Group cash flow statement
Notes 52 weeks 52 weeks
2022
£m 2021((a))
£m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations 2,560 1,547
Operating profit/(loss) of discontinued operations (51) 5,482
Depreciation and amortisation 1,718 1,764
(Profit)/loss arising on sale of property, plant and equipment, investment (123) (23)
property, intangible assets, assets classified as held for sale and early
termination of leases
(Profit)/loss arising on sale of joint ventures and associates (25) -
(Profit)/loss arising on sale of subsidiaries 6 23 (5,197)
Transaction costs associated with sale of subsidiaries - 6
Net impairment loss/(reversal) on property, plant and equipment, right of use 12 115 (89)
assets, intangible assets and investment property
Impairment of goodwill 12 - 295
Net remeasurement (gain)/loss of non-current assets held for sale 3 (5)
Adjustment for non-cash element of pensions charge 7 14
Other defined benefit pension scheme payments 20 (19) (2,851)
Share-based payments 19 66 30
Tesco Bank fair value movements included in operating profit/(loss) (28) 367
Retail (increase)/decrease in inventories (281) (52)
Retail (increase)/decrease in development stock - 2
Retail (increase)/decrease in trade and other receivables 27 63
Retail increase/(decrease) in trade and other payables 743 329
Retail increase/(decrease) in provisions (65) 56
Retail (increase)/decrease in working capital 424 398
Tesco Bank (increase)/decrease in loans and advances to customers and banks (95) 1,686
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables 8 62
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance 47 (1,902)
and other payables
Tesco Bank increase/(decrease) in provisions (22) 2
Tesco Bank (increase)/decrease in working capital (62) (152)
Cash generated from/(used in) operations 4,608 1,586
Interest paid (650) (729)
Corporation tax paid (201) (255)
Net cash generated from/(used in) operating activities 3,757 602
Cash flows generated from/(used in) investing activities
Proceeds from sale of property, plant and equipment, investment property, 309 237
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment and investment property (949) (1,171)
Purchase of intangible assets (229) (206)
Disposal of subsidiaries, net of cash disposed 6 161 7,093
Acquisition of subsidiaries, net of cash acquired 24 (48) 15
Proceeds from sale of joint ventures and associates 15 -
Increase in loans to joint ventures and associates (4) (2)
Investments in joint ventures and associates (11) (11)
Net (investments in)/proceeds from sale of short-term investments (1,067) 62
Proceeds from sale of other investments((b)) 274 201
Purchase of other investments((b)) (221) (85)
Dividends received from joint ventures and associates 32 26
Interest received 3 12
Net cash generated from/(used in) investing activities (1,735) 6,171
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation 21 (278) -
Own shares purchased for share schemes 19 (144) (66)
Repayment of capital element of obligations under leases (577) (621)
Increase in borrowings 394 1,098
Repayment of borrowings (775) (1,814)
Cash inflows from derivative financial instruments((b)) 798 1,696
Cash outflows from derivative financial instruments((b)) (921) (2,276)
Dividends paid to equity owners 7 (731) (5,858)
Net cash generated from/(used in) financing activities (2,234) (7,841)
Net increase/(decrease) in cash and cash equivalents (212) (1,068)
Cash and cash equivalents at the beginning of the year 1,971 3,031
Effect of foreign exchange rate changes 12 8
Cash and cash equivalents including cash and overdrafts held in disposal 1,771 1,971
groups at the end of the year
Cash and overdrafts held in disposal groups 6 - 7
Cash and cash equivalents at the end of the year 13 1,771 1,978
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) Refer to Note 1 for further details regarding the presentation of
primary financial statements.
The notes on pages 23 to 54 form part of this condensed consolidated financial
information.
Notes
Note 1 Basis of preparation
This preliminary consolidated financial information has been prepared in
accordance with the Disclosure and Transparency Rules of the UK Financial
Conduct Authority, and the principles of UK-adopted IFRS. The accounting
policies applied, and the judgements, estimates and assumptions made in
applying these policies, are consistent with those used in preparing the
Annual Report and Group financial statements 2022, which are the same as those
used in preparing the Annual Report and Group financial statements 2021,
except as noted below. The financial year represents the 52 weeks ended 26
February 2022 (prior financial year 52 weeks ended 27 February 2021). This
preliminary consolidated financial information does not constitute statutory
consolidated financial statements for the 52 weeks ended 26 February 2022 as
defined under section 434 of the Companies Act 2006.
The Annual Report and Group financial statements for the 52 weeks ended 26
February 2022 were approved by the Board of Directors on 12 April 2022. The
report of the auditor on those Group financial statements was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006. The Annual Report and Group
financial statements for 2022 will be filed with the Registrar in due course.
The Annual Report and Group financial statements for the 52 weeks ended 27
February 2021 were approved by the Board of Directors on 13 April 2021. The
report of the auditor on those Group financial statements was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future, which reflects a period of
18 months from the date of approval of the financial statements, and have
concluded that there are no material uncertainties relating to going concern.
Thus they continue to adopt the going concern basis of accounting in preparing
the financial statements. Further information on the Group's strong liquidity
position is given in the Summary of total indebtedness section.
Adoption of new IFRSs
The Group early-adopted 'interest rate benchmark reform' phase 2 amendments
in the prior year. The Group has elected not to apply the exemption granted in
the 'COVID-19-related rent concessions beyond 30 June 2021' amendment to IFRS
16, 'Leases', as the Group has not received material COVID-19-related rent
concessions as a lessee.
Other standards, interpretations and amendments effective in the current
financial year have not had a material impact on the Group 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, subject
to UK endorsement. 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.
An IFRS 17 project team has been established and work is well progressed on
the design and build of reporting systems and processes for reporting under
IFRS 17. It is expected that the simplified premium allocation approach will
be applied to all material insurance and reinsurance contract groups. During
the next financial year, parallel reporting for the comparative period will be
established. Until the impact assessment is complete, it is not practical to
provide an estimate of the financial impact of adopting IFRS 17.
Other standards, interpretations and amendments issued but not yet effective
are not expected to have a material impact on the Group financial statements.
Change in accounting policy
The Group has changed its accounting policy for property buybacks in light of
an evolution of accepted practice in relation to the application of IFRS 16
'Leases' to such transactions. Property buybacks outside of a corporate
wrapper are now viewed as the modification of a lease to include a purchase
option, followed by the immediate exercise of that purchase option. Applying
lease modification accounting to property buybacks results in the lease
liability being settled and the right of use asset forming part of the cost of
the property, plant and equipment acquired, and no gain or loss being
recognised in the income statement from the property buyback. Previously, they
were treated as an immediate lease termination followed by a property
purchase. As a result of the change in accounting policy, there is no longer
an immediate income statement impact of such transactions, and the cost of the
property, plant and equipment acquired is reduced accordingly.
Property buybacks inside a corporate wrapper (such as a special purpose
vehicle or joint venture structure) that do not meet the definition of a
business combination continue to be treated as asset acquisitions. The Group
has changed its policy for such asset acquisitions to include in the cost of
the asset acquisition the carrying values of pre-existing lease contracts and
previously held interests, and no gain or loss is recognised in the income
statement from the property buyback. Previously, pre-existing equity interests
were remeasured to fair value by analogy to IFRS 3 'Business combinations' and
surrendered as part of the cost of acquiring the underlying property and
pre-existing lease contracts were treated as terminated, with any resulting
gain or loss recognised in the income statement. This change in accounting
policy for property buybacks inside a corporate wrapper means that the same
accounting treatment is applied for all buybacks, consistent with the
economics of such transactions being similar. The Group therefore believes
that this approach is reliable and more relevant.
The impact on the 29 February 2020 balance sheet is to decrease property,
plant and equipment by £77m, and decrease both net assets and retained
earnings by £77m. The impact on the 27 February 2021 balance sheet is to
decrease property, plant and equipment by £266m, and decrease both net assets
and retained earnings by £266m. In the comparative period income statement,
cost of sales increases and gross profit/(loss), operating profit/(loss),
profit before tax, profit for the year from continuing operations and profit
for the year all decrease by £189m, of which £162m relates to adjusting
items. Basic and diluted EPS decrease by 1.96 pence. There is no impact on
operating, investing or financing cash flows, Net debt or Total indebtedness.
Primary financial statements presentation
'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 from
the prior year hence there is no impact on previously reported alternative
performance measures from this change in presentation. Further detail on
adjusting items is given in the 'Critical accounting judgements' section of
this note.
'Financial assets at fair value through other comprehensive income' and
'Investment securities at amortised cost' are now reported in 'Other
investments' on the balance sheet.
On 4 May 2021, the Group acquired control over Tesco Underwriting Limited
(TU), an insurance business which was previously a joint venture. The
following new line items are added to the balance sheet: 'Reinsurance assets'
and 'Insurance contract provisions'. In the income statement, gross insurance
income is reported within 'Revenue' and insurance premium income ceded to
reinsurers and net insurance claims are reported within 'Cost of sales'.
Further detail is given in Note 14.
Cash inflows and outflows on other investments and derivative financial
instruments previously presented on a net basis in the Group cash flow
statement have been reassessed and are now reported separately, including for
prior periods. Comparative net (investments in)/proceeds from sale of other
investments of £116m are presented on a gross basis as proceeds from sale of
other investments of £201m and purchase of other investments of £(85)m.
Comparative net cash flows from derivative financial instruments of £(580)m
are presented on a gross basis as cash inflows from derivative financial
instruments of £1,696m and cash outflows from derivative financial
instruments of £(2,276)m. There is no impact on net cash generated from
operating, investing, or financing activities, and no impact on Net debt or
Total indebtedness.
Accounting policies
Insurance
Prior to the acquisition of TU on 4 May 2021, the Group generated commission
from the sale and service of motor and home insurance policies underwritten by
TU. Following the acquisition, these amounts represent intercompany
transactions which are fully eliminated in the Group income statement. The
Group also generated commission from the sale and service of motor and home
insurance policies underwritten by a third-party underwriter until August 2021
when the Group brought in-house the writing of home and motor insurance
policies which were previously underwritten through its broker panel.
Commission was based on commission rates which were independent of the
profitability of underlying insurance policies. Similar commission income is
also generated from the sale of white label insurance products underwritten
by other third-party providers. This commission income is recognised on a net
basis as such policies are sold.
In the case of some commission income on insurance policies managed and
underwritten by a third party, the Group recognises commission income from
policy renewals as such policies are sold. This is when the Group has
satisfied all of its performance obligations in relation to the policy sold
and it is considered highly probable that a significant reversal in the amount
of revenue recognised will not occur in future periods. This calculation takes
into account both estimates of future renewal volumes and renewal commission
rates. A contract asset is recognised in relation to this revenue. This is
unwound over the remainder of the contract with the customer, in this case
being the third-party insurance provider.
The end policyholders have the right to cancel an insurance policy at any
time. Therefore, a contract liability is recognised for the amount of any
expected refunds due and the revenue recognised in relation to these sales is
reduced accordingly. This contract refund liability is estimated using prior
experience of customer refunds. The appropriateness of the assumptions used in
this calculation is reassessed at each reporting date.
Classification of insurance contracts
Contracts under which the Group accepts significant insurance risk from
another party (the policyholder) by agreeing to compensate the policyholder or
other beneficiary if a specified uncertain future event (the insured event)
adversely affects the policyholder or other beneficiary are classified as
insurance contracts. These contracts remain insurance contracts until all
rights and obligations are extinguished or expire. Insurance contracts may
also transfer some financial risk.
Insurance income
Gross written premiums comprise premiums on contracts entered into during the
year, irrespective of whether they relate in whole or in part to a later
accounting period, and exclude tax and levies. An estimate is made at the
balance sheet date to recognise retrospective adjustments to premiums. The
earned portion of premiums written is recognised as revenue. Premiums are
earned from the date of attachment of risk, over the indemnity period, based
on the pattern of risks underwritten.
Insurance claims
Claims and claims handling expenses are recognised as incurred, based on the
estimated cost of settling all liabilities arising on events occurring up to
the balance sheet date.
Reinsurance
The Group cedes reinsurance in the normal course of business for the purpose
of limiting its net loss potential through the diversification of its risks.
Reinsurance arrangements, including quota share, excess of loss and adverse
development cover contracts, do not relieve the Group from its direct
obligations to its policyholders. Only contracts that give rise to a
significant transfer of insurance risk are accounted for as reinsurance
contracts. Amounts recoverable under such contracts are generally recognised
in the same year as the related claim. Contracts that do not transfer
significant insurance risk (i.e. financial reinsurance) are accounted for as
financial instruments.
Reinsurance assets include balances due from reinsurance companies for
reinsurance claims. Amounts recoverable from reinsurers are estimated in a
manner consistent with the outstanding claims provision or settled claims
associated with the reinsured policy. The earned portion of reinsurance
premiums (insurance premium income ceded to reinsurers) is recognised as
reinsurance premium expense, and the provision for unearned reinsurance
premiums comprises the element of reinsurance premiums relating to services to
be received in future years. Amounts recoverable under reinsurance contracts
are assessed for impairment at each year end date. Such assets are deemed
impaired if there is objective evidence, as a result of an event that occurred
after initial recognition, that the Group may not recover all amounts due and
that the event has a reliably measurable impact on the amounts that the Group
will receive from the reinsurer.
Provision for outstanding claims
The provision for outstanding claims represents the Group's estimate of the
ultimate cost of settling all claims incurred but unpaid at the reporting date
whether reported or not, and related internal and external claims handling
expenses. Claims outstanding are assessed by reviewing individual claims data
and making an allowance for claims incurred but not yet reported, adjusted for
the effect of both internal and external foreseeable events, such as changes
in claims handling procedures, inflation, judicial trends, substantively
enacted legislative changes and past experience and trends. Reinsurance and
other recoveries are assessed in a manner similar to the claims outstanding
and presented separately as assets.
Unearned premium and unexpired risk provision
The provision for unearned premiums comprises the proportion of gross premiums
written which is estimated to be earned in the following or subsequent
accounting periods, calculated separately for each insurance contract using
the daily pro rata method, adjusted if necessary to reflect any variation in
the incidence of risk during the period covered by the contract. Where the
value of expected claims and expenses attributable to unexpired periods of
policies in force exceeds the unearned premium provision, a further provision
is made, calculated by reference to classes of business which are managed
together.
Critical accounting judgements
APMs - Adjusting items
Adjusting items relate to certain costs or incomes that derive from events or
transactions that fall within the normal activities of the Group but which,
individually or, if of a similar type, in aggregate, are excluded from the
Group's APMs by virtue of their size and nature in order to provide a helpful
alternative perspective of the year-on-year trends, performance and position
of the Group's trading business that is more comparable over time. This
alternative view 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.
Management exercises judgement in determining the adjustments to apply to IFRS
measurements, and this assessment covers the nature of the item, cause of
occurrence and the scale of impact of that item on reported performance and
individual financial statement line items, as well as consistency with prior
periods. Reversals of previous adjusting items are assessed based on the same
criteria to ensure an even-handed treatment of gains and losses. The amount
and timing of adjusting items can be unpredictable and subject to a higher
level of scrutiny by users of the accounts. Adjusting items can include, but
are not limited to: litigation costs; impairment charges and reversals;
property transactions such as disposals; amortisation of acquired intangibles;
changes in uncertain tax positions; restructuring and redundancy costs;
profits or losses on disposal of businesses; net pension finance costs; and
fair value remeasurements of financial instruments. The tax effect of such
items is also classified as adjusting.
The Group income statement is presented in a columnar format to enable users
of the accounts to see the Group's performance before adjusting items, the
adjusting items, and the statutory total on a line by line basis. An analysis
of the adjusting items included in the Group income statement, together with
the impact of these items on the Group cash flow statement, is disclosed in
Note 3.
Refer to pages 58 to 63 for further details on the Group's APMs.
Key sources of estimation uncertainty
Impact of the war in Ukraine
In light of the war in Ukraine which commenced on 24 February 2022, the Group
has considered whether any adjustments are required to reported amounts in the
financial statements. The Group does not have any operations in Ukraine or
Russia, but does have operations in Hungary and Slovakia, which border
Ukraine. The Group is therefore not directly affected by trading restrictions
or sanctions, but could be affected in future by possible wider macroeconomic
consequences should the situation develop further. This could include an
increase in domestic inflation from supply chain disruption, commodity
shortages or commodity price increases affecting cash flows, or changes in
market discount rates and valuations.
To the extent that there were observable indicators of change at the 26
February 2022 balance sheet date, these have been factored into the Group's
financial statements as at 26 February 2022, in particular: assessing the
impact on discount rates and cash flow scenarios used in impairment testing of
goodwill and non-current assets; incorporating the latest macroeconomic data
into ECL calculations in Tesco Bank; and evaluating the effect on pension
discount rate and plan asset fair values. In Central Europe, the Group
considered whether there were any specific impairment indicators for stores in
Hungary and Slovakia and concluded that there were not. Also in Central
Europe, the Group established that it remained appropriate to continue to
classify certain properties as held for sale. Finally, the Group decided that
there are more than sufficient future taxable profits to continue to recognise
deferred tax assets.
Sensitivities of reasonably possible changes in key inputs to impairment
testing of goodwill and non-current assets, Tesco Bank ECL and pension
obligations are given in Notes 12, 17 and 20 respectively.
The Group reviewed non-adjusting macroeconomic movements after the balance
sheet date (for example discount rates, asset values and inflation impact from
fuel price increases and/or supply chain disruption) and concluded that those
movements were within the range of the Group's existing sensitivities, hence
no additional disclosures were required. The Group will continue to monitor
the situation as it develops.
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 year under evaluation. Adjusted operating profit is a consistent
measure within the Group as defined within the Glossary. Refer to Note 3 for
adjusting items. Inter-segment revenue between the segments is not material.
Income statement
The segment results and the reconciliation of the segment measures to the
respective statutory items included in the Group income statement are as
follows:
52 weeks ended 26 February 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 56,539 4,167 60,706 922 61,628 (284) 61,344
Less: Fuel sales (6,420) (160) (6,580) - (6,580) 4 (6,576)
APM: Sales 50,119 4,007 54,126 922 55,048 (280) 54,768
Adjusted operating profit/(loss) 2,490 175 2,665 176 2,841 (16) 2,825
Adjusting items (292) 26 (266) - (266) 1 (265)
Operating profit/(loss) 2,198 201 2,399 176 2,575 (15) 2,560
Adjusted operating margin 4.4% 4.2% 4.4% 19.1% 4.6% 4.6%
52 weeks ended 26 February 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 56,404 4,018 60,422 922 61,344
Less: Fuel sales (6,420) (156) (6,576) - (6,576)
APM: Sales 49,984 3,862 53,846 922 54,768
Adjusted operating profit/(loss) 2,481 168 2,649 176 2,825
Adjusting items (290) 25 (265) - (265)
Operating profit/(loss) 2,191 193 2,384 176 2,560
Adjusted operating margin 4.4% 4.2% 4.4% 19.1% 4.6%
Share of post-tax profits/(losses) of joint ventures and associates 15
Finance income 9
Finance costs (551)
Profit/(loss) before tax 2,033
Tesco Bank revenue of £922m (2021: £735m) comprises interest and similar
revenues of £473m (2021: £542m), fees and commissions revenue of £210m
(2021: £193m), and insurance revenue of £239m (2021: £nil). For insurance,
refer to Note 14.
52 weeks ended 27 February 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 53,170 3,982 57,152 735 57,887
Less: Fuel sales (4,322) (120) (4,442) - (4,442)
APM: Sales 48,848 3,862 52,710 735 53,445
Adjusted operating profit/(loss)* 1,839 124 1,963 (175) 1,788
Adjusting items* 51 3 54 (295) (241)
Operating profit/(loss)* 1,890 127 2,017 (470) 1,547
Adjusted operating margin* 3.5% 3.1% 3.4% (23.8)% 3.1%
Share of post-tax profits/(losses) of joint ventures and associates 26
Finance income 15
Finance costs (952)
Profit/(loss) before tax* 636
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
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 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((b)) - - 184 - 184 - 184
Post-employment benefit surplus 3,150 - - - 3,150 - 3,150
Deferred tax assets 2 19 64 - 85 - 85
Non-current assets((c)) 28,947 1,867 5,397 - 36,211 - 36,211
Inventories and current trade and other receivables((d)) 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((b)) - - 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((b)) - - (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
Liabilities of the disposal group classified as held for sale - - - - - (14) (14)
Net debt((e)) (7,350) (474) 300 (2,678) (10,202) - (10,202)
Net assets 14,772 1,373 2,153 (2,678) 15,620 24 15,644
(a) Excludes non-current loans to joint ventures of £9m (2021: £21m) which
form part of net debt.
(b) Includes assets and liabilities acquired in the acquisition of Tesco
Underwriting Limited. Refer to Notes 14 and 24 for further details.
(c) Excludes derivative financial instruments of £942m (2021: £1,425m)
which form part of net debt.
(d) Excludes net interest and other receivables of £1m (2021: £nil), and
current loans to joint ventures of £96m (2021: £101m), both forming part of
net debt.
(e) Refer to Note 23. Net debt at 26 February 2022 excludes net debt of the
disposal groups classified as held for sale of £(14)m (2021: £(276)m).
At 27 February 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 4,750 32 611 - 5,393 - 5,393
Property, plant and equipment and investment property((f)) 15,131 1,768 65 - 16,964 - 16,964
Right of use assets 5,571 368 12 - 5,951 - 5,951
Investments in joint ventures and associates 84 1 93 - 178 - 178
Non-current other investments 9 - 754 - 763 - 763
Non-current trade and other receivables((a)) 97 - 52 - 149 - 149
Non-current loans and advances to customers and banks - - 3,309 - 3,309 - 3,309
Deferred tax assets 460 25 67 - 552 - 552
Non-current assets((c)) 26,102 2,194 4,963 - 33,259 - 33,259
Inventories and current trade and other receivables((d)) 2,684 325 222 - 3,231 - 3,231
Current loans and advances to customers and banks - - 3,093 - 3,093 - 3,093
Current other investments - - 178 - 178 - 178
Total trade and other payables (7,797) (495) (216) - (8,508) - (8,508)
Total customer deposits and deposits from banks - - (6,338) - (6,338) - (6,338)
Total provisions (224) (22) (59) - (305) - (305)
Deferred tax liabilities (9) (39) - - (48) - (48)
Net current tax (79) 5 36 - (38) - (38)
Post-employment benefit deficit (1,222) - - - (1,222) - (1,222)
Assets of the disposal group and non-current assets classified as held for 53 - - - 53 552 605
sale
Liabilities of the disposal group classified as held for sale - - - - - (276) (276)
Net debt((e)) (7,879) (493) 242 (3,442) (11,572) - (11,572)
Net assets 11,629 1,475 2,121 (3,442) 11,783 276 12,059
(a)-(e) Refer to previous table for further footnotes.
(f) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
Other segment information
52 weeks ended 26 February 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)(b)) 1,485 89 14 1,588 - 1,588
Goodwill and other intangible assets((c)) 186 10 71 267 - 267
Depreciation and amortisation:
Property, plant and equipment (792) (90) (11) (893) - (893)
Right of use assets (500) (35) (2) (537) - (537)
Investment property (1) - - (1) - (1)
Other intangible assets (224) (11) (52) (287) - (287)
Impairment
(Loss)/reversal on financial assets 10 (1) 30 39 - 39
(a) Includes £584m related to obtaining control of The Tesco Sarum Limited
Partnership (2021: £310m related to obtaining control of The Tesco Property
(No. 2) Limited Partnership). Refer to Note 24 for further details.
(b) Includes £1m (2021: £12m) of property, plant and equipment acquired
through business combinations.
(c) Includes £38m (2021: £5m) of goodwill and other intangible assets
acquired through business combinations.
52 weeks ended 27 February 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)(b)(d)) 1,270 79 15 1,364 2 1,366
Goodwill and other intangible assets((c)) 156 10 40 206 - 206
Depreciation and amortisation:
Property, plant and equipment((d)) (796) (99) (9) (904) (14) (918)
Right of use assets (522) (37) (2) (561) (5) (566)
Investment property (1) - - (1) - (1)
Other intangible assets (225) (7) (46) (278) (1) (279)
Impairment
(Loss)/reversal on financial assets (23) (1) (360) (384) (2) (386)
(a)-(c) Refer to previous table for further footnotes.
(d) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
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
52 weeks ended 26 February 2022 Before adjusting Adjusting Retail Before adjusting items Adjusting items Tesco Total Total
Total
£m
£m
Bank
items items
£m
Total £m £m
£m
£m £m
Operating profit/(loss) 2,649 (265) 2,384 176 - 176 (51) 2,509
Depreciation and amortisation 1,577 76 1,653 65 - 65 - 1,718
ATM net income (14) - (14) 14 - 14 - -
(Profit)/loss arising on sale of property, plant and equipment, investment 5 (128) (123) - - - - (123)
property, intangible assets, assets held for sale and early termination of
leases
(Profit)/loss arising on sale of joint ventures and associates - (15) (15) (10) - (10) - (25)
(Profit)/loss arising on sale of subsidiaries - - - - - - 23 23
Net impairment loss/(reversal) on property, plant and equipment, right of use - 115 115 - - - - 115
assets, intangible assets and investment property
Net remeasurement (gain)/loss of non-current assets held for sale - 6 6 - - - (3) 3
Adjustment for non-cash element of pensions charge 7 - 7 - - - - 7
Other defined benefit pension scheme payments (19) - (19) - - - - (19)
Share-based payments 63 - 63 3 - 3 - 66
Tesco Bank fair value movements included in operating profit/(loss) - - - (28) - (28) - (28)
Cash flows generated from operations excluding working capital 4,268 (211) 4,057 220 - 220 (31) 4,246
(Increase)/decrease in working capital 501 (105) 396 (54) (8) (62) 28 362
Cash generated from/(used in) operations 4,769 (316) 4,453 166 (8) 158 (3) 4,608
Interest paid (644) - (644) (5) - (5) (1) (650)
Corporation tax paid (195) - (195) (4) - (4) (2) (201)
Net cash generated from/(used in) operating activities((a)) 3,930 (316) 3,614 157 (8) 149 (6) 3,757
Proceeds from sale of property, plant and equipment, investment property, - 308 308 1 - 1 - 309
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment and investment property (37) (43) (80) - - - - (80)
- property buybacks
Purchase of property, plant and equipment and investment property (854) - (854) (14) - (14) (1) (869)
- other capital expenditure
Purchase of intangible assets (196) - (196) (33) - (33) - (229)
Disposal of subsidiaries, net of cash disposed - 117 117 - - - 44 161
Acquisition of businesses, net of cash acquired - - - (48) - (48) - (48)
Proceeds from sale of joint ventures and associates - 15 15 - - - - 15
Increase in loans to joint ventures and associates (4) - (4) - - - - (4)
Investments in joint ventures and associates (11) - (11) - - - - (11)
Net (investments in)/proceeds from sale of short-term investments (1,067) - (1,067) - - - - (1,067)
Proceeds from sale of other investments((b)) 2 - 2 272 - 272 - 274
Purchase of other investments((b)) (1) - (1) (220) - (220) - (221)
Dividends received from joint ventures and associates 22 - 22 10 - 10 - 32
Dividends received from Tesco Bank 87 - 87 (87) - (87) - -
Interest received 3 - 3 - - - - 3
Net cash generated from/(used in) investing activities((a)) (2,056) 397 (1,659) (119) - (119) 43 (1,735)
Own shares purchased for cancellation (278) - (278) - - - - (278)
Own shares purchased for share schemes (144) - (144) - - - - (144)
Repayment of capital element of obligations under leases (571) - (571) (4) - (4) (2) (577)
Increase in borrowings 394 - 394 - - - - 394
Repayment of borrowings (754) - (754) (21) - (21) - (775)
Cash inflows from derivative financial instruments((b)) 798 - 798 - - - - 798
Cash outflows from derivative financial instruments((b)) (921) - (921) - - - - (921)
Dividends paid to equity holders (704) (27) (731) - - - - (731)
Net cash generated from/(used in) financing activities((a)) (2,180) (27) (2,207) (25) - (25) (2) (2,234)
Net increase/(decrease) in cash and cash equivalents (306) 54 (252) 13 (8) 5 35 (212)
Cash and cash equivalents at the beginning of the year 1,971
Effect of foreign exchange rate changes 12
Cash and cash equivalents at the end of the year 1,771
Cash and overdrafts held in disposal groups -
Cash and cash equivalents not held in disposal groups 1,771
(a) Refer to page 62 for the reconciliation of the APM: Retail free cash
flow.
(b) Refer to Note 1 for further details regarding the presentation of
primary financial statements.
Retail Bank Discontinued operations Tesco
Group
52 weeks ended 27 February 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)((c)) 1,963 54 2,017 (175) (295) (470) 5,482 7,029
Depreciation and amortisation((c)) 1,611 76 1,687 57 - 57 20 1,764
ATM net income (13) - (13) 13 - 13 - -
(Profit)/loss arising on sale of property, plant and equipment, investment (17) (13) (30) 2 - 2 5 (23)
property, intangible assets, assets held for sale and early termination of
leases((c))
(Profit)/loss arising on sale of subsidiaries - - - - - - (5,197) (5,197)
Transaction and derivative costs associated with sale of subsidiaries - - - - - - 6 6
Net impairment loss/(reversal) on property, plant and equipment, right of use (4) (128) (132) - - - 43 (89)
assets, intangible assets and investment property((c))
Impairment of goodwill - - - - 295 295 - 295
Net remeasurement (gain)/loss of non-current assets held for sale - - - - - - (5) (5)
Adjustment for non-cash element of pensions charge 7 7 14 - - - - 14
Other defined benefit pension scheme payments (351) (2,500) (2,851) - - - - (2,851)
Share-based payments 31 - 31 (3) - (3) 2 30
Tesco Bank fair value movements included in operating profit/(loss) - - - 367 - 367 - 367
Cash flows generated from operations excluding working capital 3,227 (2,504) 723 261 - 261 356 1,340
(Increase)/decrease in working capital 450 (11) 439 (133) (19) (152) (41) 246
Cash generated from/(used in) operations 3,677 (2,515) 1,162 128 (19) 109 315 1,586
Interest paid (680) - (680) (6) - (6) (43) (729)
Corporation tax paid (161) - (161) (9) - (9) (85) (255)
Net cash generated from/(used in) operating activities((a)) 2,836 (2,515) 321 113 (19) 94 187 602
Proceeds from sale of property, plant and equipment, investment property, 33 148 181 - 51 51 5 237
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment and investment property (239) (52) (291) - - - - (291)
- property buybacks
Purchase of property, plant and equipment and investment property (740) - (740) (21) - (21) (119) (880)
- other capital expenditure
Purchase of intangible assets (162) - (162) (40) - (40) (4) (206)
Disposal of subsidiaries, net of cash disposed - 7,806 7,806 - - - (713) 7,093
Acquisition of businesses, net of cash acquired 15 - 15 - - - - 15
Increase in loans to joint ventures and associates (2) - (2) - - - - (2)
Investments in joint ventures and associates (11) - (11) - - - - (11)
Net (investments in)/proceeds from sale of short-term investments 62 - 62 - - - - 62
Proceeds from sale of other investments((b)) - - - 201 - 201 - 201
Purchase of other investments((b)) (1) - (1) (84) - (84) - (85)
Dividends received from joint ventures and associates 10 - 10 7 - 7 9 26
Dividends received from Tesco Bank 13 - 13 (13) - (13) - -
Interest received 10 - 10 - - - 2 12
Net cash generated from/(used in) investing activities((a)) (1,012) 7,902 6,890 50 51 101 (820) 6,171
Own shares purchased for share schemes (66) - (66) - - - - (66)
Repayment of capital element of obligations under leases (561) - (561) (3) - (3) (57) (621)
Increase in borrowings 1,097 - 1,097 1 - 1 - 1,098
Repayment of borrowings (1,039) - (1,039) (775) - (775) - (1,814)
Cash inflows from derivative financial instruments((b)) 1,644 52 1,696 - - - - 1,696
Cash outflows from derivative financial instruments((b)) (2,276) - (2,276) - - - - (2,276)
Dividends paid to equity holders (942) (4,916) (5,858) - - - - (5,858)
Net cash generated from/(used in) financing activities((a)) (2,143) (4,864) (7,007) (777) - (777) (57) (7,841)
Net increase/(decrease) in cash and cash equivalents (319) 523 204 (614) 32 (582) (690) (1,068)
Cash and cash equivalents at the beginning of the year 3,031
Effect of foreign exchange rate changes 8
Cash and cash equivalents at the end of the year 1,971
Cash and overdrafts held in disposal groups 7
Cash and cash equivalents not held in disposal groups 1,978
(a)-(b) Refer to previous table for footnotes.
(c) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
Note 3 Adjusting items
Group income statement
Refer to Note 1 for further details regarding the assessment of items as
adjusting.
52 weeks ended 26 February 2022
Profit/(loss) for the year included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Share of joint venture and associates profits/(losses) Finance costs Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
£m
£m
Property transactions((a)) 1 127 128 - - (21) -
Net impairment (loss)/reversal of non-current assets((b)) (140) 25 (115) - - (26) -
Fair value less cost of disposal movements on assets held for sale - (6) (6) - - - -
Asia licence fee ((c)) - 26 26 - - (5) -
Litigation costs((d)) - (193) (193) - - - -
Disposal of China associate((e)) - 15 15 - - - -
Restructuring provisions((f)) (37) (7) (44) - - 8 -
Amortisation of acquired intangible assets((g)) - (76) (76) - - (7) -
Net pension finance costs((h)) - - - - (22) 6 -
Fair value remeasurements of financial instruments((h)) - - - - 123 (19) -
Release of tax provisions((i)) - - - - - 56 -
Total adjusting items from continuing operations (176) (89) (265) - 101 (8) -
Adjusting items relating to discontinued operations((j)) - - - - - - (38)
Total adjusting items (176) (89) (265) - 101 (8) (38)
(a) The Group disposed of surplus properties that generated a profit before
tax of £128m.
(b) Includes £(62)m relating to impairment on acquisition of The Tesco
Sarum Limited Partnership, refer to Note 24. Refer to Note 12 for further
details on net impairment (loss)/reversal of non-current assets.
(c) Software licence fee income from services provided to CP Group as part
of the Transitional Services Agreement relating to the sale of Asia.
(d) Costs arising from the 2020 claims against Tesco PLC for matters arising
out of or in connection with the overstatement of expected profit announced in
2014.
(e) Additional proceeds received from escrow relating to the sale of the
Group's 20% share of Gain Land to China Resources Holdings in the year ended
2020.
(f) Provisions relating to operational restructuring changes announced in
February 2022 as part of 'Save to Invest', a multi-year programme. Future cost
savings will not be reported within adjusting items.
(g) Amortisation of acquired intangibles relating 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 1 for more details. Refer to Note 4 for details of
finance income and costs.
(i) The agreement of previously uncertain tax positions arising in prior
periods has resulted in a release of tax provisions no longer required.
(j) Refer to Note 6 for explanation of adjusting items relating to
discontinued operations.
52 weeks ended 27 February 2021
Profit/(loss) for the year included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Share of joint venture and associates profits/(losses) Finance costs Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
£m
£m
Property transactions 19 7 26 - - 18 -
Booker integration costs (21) (4) (25) - - 4 -
ATM business rates 105 - 105 - - (20) -
Litigation costs - (93) (93) - - - -
GMP equalisation (6) (1) (7) - - 1 -
Net impairment reversal of non-current assets* 128 - 128 - - (15) -
Impairment charge on goodwill - (295) (295) - - - -
Employee Share Scheme (4) - (4) - - - -
Release of tax provisions - - - - - 106 -
Amortisation of acquired intangible assets - (76) (76) - - 2 -
Fair value remeasurements of financial instruments - - - - (214) 41 -
Net pension finance costs - - - - (43) 8 -
Total adjusting items from continuing operations(*) 221 (462) (241) - (257) 145 -
Adjusting items relating to discontinued operations - - - - - - 5,117
Total adjusting items* 221 (462) (241) - (257) 145 5,117
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
Group cash flow statement
The table below shows the impact of adjusting items on the Group cash flow
statement:
Cash flows from Cash flows from Cash flows from
operating activities
investing activities
financing activities
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
2022
2021
2022
2021
2022
2021
£m
£m
£m
£m
£m
£m
Property transactions((a)) - - 308 148 - -
Poland sale proceeds and costs((b)) - - 122 (3) - -
Litigation costs((c)) (312) (93) - (2) - -
Acquisition of property joint venture - - (43) (52) - -
Booker integration cash payments (18) (2) - - - -
Settlement of claims for customer redress in Tesco Bank (8) (19) - - - -
Disposal of China associate((d)) - - 15 - - -
ATM business rates((e)) 14 90 - - - -
Special dividend((f)) - - - - (27) (4,916)
Disposal of Asia operations - 26 (5) 7,811 - 52
Additional pension contribution - (2,500) - - - -
Tesco Bank mortgage book disposal proceeds - - - 51 - -
Prior year restructuring and redundancy costs - (36) - - - -
Total continuing operations (324) (2,534) 397 7,953 (27) (4,864)
Cash flows from discontinued operations((g)) (1) (15) 44 (713) - -
Total (325) (2,549) 441 7,240 (27) (4,864)
(a) Property transactions include £109m proceeds relating to the sale of
stores in Poland not included in the sale of the corporate business.
(b) Poland sale proceeds and costs include £106m in respect of intercompany
debt settled by the purchaser upon completion. Refer to Note 6 for further
details.
(c) Cash settlements arising from the claims against Tesco PLC for matters
arising out of, or in connection with the overstatement of expected profit
announced in 2014 and the 2015 sale of Korea Homeplus.
(d) Additional proceeds received from escrow relating to the sale of the
Group's 20% share of Gain Land to China Resources Holdings in the year ended
2020.
(e) Amounts received in the year with respect to the Supreme Court ruling in
May 2020 that the Tesco Group is due a refund of business rates related to
ATMs in stores.
(f) The Group paid a special dividend to shareholders in the previous
financial year. Amounts paid in the current year relate to those balances not
settled at the previous reporting date.
(g) Cash flows from investing activities of £44m from discontinued
operations are the movements in cash and cash equivalents from the disposal of
the Poland business. This comprised a £57m reduction in overdrafts less £13m
cash disposed. Refer to Note 6 for details.
Note 4 Finance income and costs
Continuing operations Notes 52 weeks 52 weeks
2022
2021
£m
£m
Finance income
Interest receivable and similar income 4 10
Finance income receivable on net investment in leases 5 5
Total finance income 9 15
Finance costs
GBP MTNs and loans (161) (158)
EUR MTNs (42) (51)
USD bonds (5) (9)
Finance charges payable on lease liabilities (405) (446)
Other interest payable (39) (31)
Total finance costs before adjusting items (652) (695)
Fair value remeasurements of financial instruments* 123 (214)
Net pension finance costs 20 (22) (43)
Total finance costs (551) (952)
Net finance costs (542) (937)
* Fair value remeasurements of financial instruments included £nil
(2021: £(160)m) relating to the premium paid on the repurchase of long-dated
bonds.
Note 5 Taxation
Recognised in the Group Income statement
Continuing operations 52 weeks 52 weeks
2022
£m 2021
£m
Current tax (credit)/charge
UK corporation tax 201 228
Overseas tax 69 60
Adjustments in respect of prior years (55) (110)
215 178
Deferred tax (credit)/charge
Origination and reversal of temporary differences 216 (67)
Adjustments in respect of prior years 1 (19)
Change in tax rate* 78 12
295 (74)
Total income tax (credit)/charge 510 104
* The UK Government announced an increase in the corporation tax rate
from 19% to 25%, with an effective date of 1 April 2023, which 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, giving rise to a change in tax
rate impact of £78m.
Reconciliation of effective tax charge
Continuing operations 52 weeks 52 weeks
2022
£m 2021((a))
£m
Profit/(loss) before tax 2,033 636
Tax credit/(charge) at 19.0% (2021: 19.0%) (386) (121)
Effect of:
Non-qualifying depreciation((b)) (7) (33)
Expenses not deductible (57) (40)
Property items taxed on a different basis to accounting entries 7 4
Impairment of non-current assets (43) (58)
Banking surcharge tax (13) 13
Differences in overseas taxation rates 10 10
Adjustments in respect of prior years((c)) 54 129
Share of losses of joint ventures and associates 3 5
Change in tax rate (78) (12)
Irrecoverable withholding tax - (1)
Total income tax credit/(charge) (510) (104)
Effective tax rate 25.1% 16.4%
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) This figure has been reduced by the tax effect of the super-deduction of
£23m in respect of tax relief for fixed assets.
(c) Prior year adjustments include tax credits of £56m in relation to
uncertain tax positions (2021: £106m).
Reconciliation of effective tax charge on adjusted profit before tax
Continuing operations 52 weeks 52 weeks
2022
£m 2021((a))
£m
Profit/(loss) before tax 2,033 636
Less: Adjusting items 164 498
Adjusted profit before tax 2,197 1,134
Tax credit/(charge) at 19.0% (2021: 19.0%) (417) (216)
Effect of:
Non-qualifying depreciation((b)) (7) (33)
Expenses not deductible (32) (21)
Property items taxed on a different basis to accounting entries (1) -
Impairment of non-current assets - (4)
Banking surcharge tax (13) 13
Differences in overseas taxation rates 10 10
Adjustments in respect of prior years (2) (1)
Share of profits of joint ventures and associates 3 5
Change in tax rate (43) (1)
Irrecoverable withholding tax - (1)
Total income tax credit/(charge) before adjusting items (502) (249)
Adjusted effective tax rate 22.8% 22.0%
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) This figure has been reduced by the tax effect of the super-deduction of
£23m in respect of tax relief for fixed assets.
Deferred tax
The following are the major deferred tax (liabilities)/assets recognised by
the Group and movements thereon during the current and prior financial years
measured using the tax rates that are expected to apply when the liability is
settled or the asset realised based on the tax rates that have been enacted or
substantively enacted by the balance sheet date:
Property-related Acquired intangibles Post- Share-based Short-term Tax losses Financial Total
£m
employment
payments
timing
£m
instruments
£m
items((a))
£m
differences
£m
benefits((b))
£m
£m
£m
At 29 February 2020 (168) (100) 512 51 93 4 17 409
Discontinued operations 14 - (6) (6) (63) - - (61)
(Charge)/credit to the Group income statement 32 2 9 (3) 40 (1) (5) 74
(Charge)/credit to the Group statement of changes in equity - - - (11) - - - (11)
(Charge)/credit to the Group statement of comprehensive income/(loss) - - 67 - - - 9 76
Acquisitions (2) - - - - - 19 17
Foreign exchange and other movements (1) - - - (1) - 2 -
At 27 February 2021 (125) (98) 582 31 69 3 42 504
Discontinued operations - - - - - - - -
(Charge)/credit to the Group income statement (227) (10) (1) (6) (24) 2 (29) (295)
(Charge)/credit to the Group statement of changes in equity - - - 14 - - - 14
(Charge)/credit to the Group statement of comprehensive income/(loss) - - (1,030) - - - (17) (1,047)
Acquisitions - - - - - - - -
Foreign exchange and other movements - - (2) - - 1 - (1)
At 26 February 2022 (352) (108) (451) 39 45 6 (4) (825)
(a) Property-related items include a deferred tax liability on rolled-over
gains of £423m (2021: £305m), deferred tax assets on capital losses of
£248m (2021: £187m) and deferred tax assets on IFRS 16 balances of £238m
(2021: £267m). The remaining balance relates to accelerated tax depreciation.
(b) The deferred tax liability on retirement benefits is the net of a
deferred tax asset of £275m arising from additional contributions paid in the
prior year and the deferred tax liability related to the pension surplus of
£726m (see Note 20).
Note 6 Discontinued operations and assets classified as held for sale
Assets and liabilities of the disposal group and non-current assets classified
as held for sale
2022 2021
£m
£m
Assets of the disposal group((a)) 11 404
Non-current assets classified as held for sale((b)) 357 201
Total assets of the disposal group and non-current assets classified as held 368 605
for sale
Liabilities of the disposal group((a)) (14) (276)
Total net assets of the disposal group and non-current assets classified as 354 329
held for sale
(a) The disposal group as at 26 February 2022, including £(14)m of net debt
(2021: £(141)m), relates to residual properties and leases with respect to
the Group's operation in Poland. Balances as at 27 February 2021 were 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.
Discontinued operations
Income statement of discontinued operations
2022 2021
Poland Other Total Thailand Poland Other Total
£m
£m
£m
and
£m
£m
£m
Malaysia
£m
Revenue 32 - 32 3,932 974 - 4,906
Operating costs((a)) (34) - (34) (3,492) (982) - (4,474)
Adjusted operating profit/(loss) (2) - (2) 440 (8) - 432
Share of post-tax profits/(losses) of joint ventures and associates - - - 9 - - 9
Finance (costs)/income - - - (26) (19) - (45)
Adjusted profit/(loss) before tax (2) - (2) 423 (27) - 396
Taxation - - - (84) (3) - (87)
Adjusted profit/(loss) after tax (2) - (2) 339 (30) - 309
Loss on disposal of Poland (23) - (23) - - - -
Homeplus (Korea) claims settlement((b)) - (33) (33) - - (88) (88)
Other adjusting items((c)-(d)) 3 4 7 (3) (56) - (59)
Tax on adjusting items((e)) - 11 11 - - - -
Profit after tax on disposal of Thailand and Malaysia - - - 5,264 - - 5,264
Total adjusting items (20) (18) (38) 5,261 (56) (88) 5,117
Total profit/(loss) after tax of discontinued operations (22) (18) (40) 5,600 (86) (88) 5,426
(a) Operating costs include £nil depreciation and amortisation charges
(2021: £(20)m).
(b) £(33)m relates to the claims settlement from Homeplus (Korea)
purchasers (2021: £(88)m).
(c) Other adjusting items of £7m in the current year includes £4m reversal
of accruals relating to legal costs and £3m fair value remeasurement of
non-current assets classified as held for sale.
(d) Other adjusting items of £(59)m in the prior year relates to £(7)m of
net restructuring and redundancy costs, £(43)m of net impairment loss on
non-current assets, £5m fair value remeasurement of non-current assets
classified as held for sale, £(8)m loss on disposal of surplus properties and
£(6)m of other corporate activity costs.
(e) £11m tax on adjusting items relates to the reduction of withholding tax
paid at the time of the sale relating to the Homeplus claim (2021: £nil).
On 18 June 2020, the Group reached agreement on the terms of a proposed
corporate sale of its business in Poland, which was previously presented in
the Group's Central Europe segment. The assets and liabilities related to the
Group's Poland operation, as well as certain other properties that met the
criteria to be classified as held for sale during the year ended 27 February
2021, were presented within discontinued operations. The corporate disposal
completed on 16 March 2021.
The loss after tax for the Poland corporate sale comprises the following:
£m
Gross proceeds((a)) 139
Costs to sell((b)) (12)
Net proceeds 127
Net book value of assets disposed
Goodwill and other intangible assets (3)
Property, plant and equipment (212)
Right of use assets (69)
Inventories (59)
Trade and other receivables (15)
Cash and cash equivalents (13)
Trade and other payables 105
Borrowings 57
Lease liabilities 110
Provisions 15
Net book value of assets and liabilities disposed (84)
Currency translation reserve reclassified to income statement (66)
Loss before and after tax on disposal (23)
(a) Proceeds include £106m with respect to intercompany debt settled by the
purchaser upon completion.
(b) Total costs associated with the sale of the business amounted to
£(18)m, of which £(6)m was expensed in the prior financial year.
The disposal of the operations in Poland has reduced Net debt by £276m. This
comprises £110m lease liabilities disposed and £166m net cash inflows,
consisting of £139m proceeds less £(5)m received in the prior year, £57m
reduction in overdrafts less £(13)m cash disposed, and £(12)m cash costs to
sell. The total cash flows associated with the disposal are presented in
'disposal of subsidiaries, net of cash disposed', within investing cash flows.
During the year £5m was paid in relation to legal fees for the sale of the
Asia business, expensed in the year ended 27 February 2021.
Cash flow statement
2022 2021
Poland Thailand and Malaysia Poland Total
£m
£m
£m
£m
Net cash flows from operating activities (6) 225 (38) 187
Net cash flows from investing activities 43 (811) (9) (820)
Net cash flows from financing activities (2) (42) (15) (57)
Net cash flows from discontinued operations 35 (628) (62) (690)
In the prior year, the profit after tax on disposal of the Group's Thailand
and Malaysia operations was £5,264m. The disposal of the Asia operations and
use of proceeds reduced Net debt by £525m, consisting of £765m of lease
liabilities disposed and total cash flows associated with the disposal of
£(240)m. The £(240)m cash flow included gross proceeds of £7,938m, cash and
cash equivalents disposed of £(464)m excluding intercompany loans repaid
prior to closing, net intercompany loans repaid of £(249)m, additional
contribution into the defined benefit pension scheme of £(2,500)m, £(4,916)m
special dividends paid to equity holders and other associated cash flows. The
£(240)m total cash flows were presented £(2,474)m in operating cash flows,
£7,098m in investing cash flows and £(4,864)m in financing cash flows.
Note 7 Dividends
2022 2021
Pence/share £m Pence/share £m
Amounts recognised as distributions to owners in the financial year:
Paid prior financial year final dividend((a)) 5.95 458 6.50 634
Paid interim dividend((b)) 3.20 246 3.20 310
Paid special dividend((c)) - - 50.93 4,948
Dividends paid to equity owners in the financial year 9.15 704 60.63 5,892
Proposed final dividend at financial year end 7.70 588 5.95 460
(a) Excludes £2m prior financial year final dividend waived (2021: £3m).
(b) Excludes £1m interim dividend waived (2021: £3m).
(c) Excludes £nil special dividend waived (2021: £43m).
The proposed final dividend was approved by the Board of Directors on 12 April
2022 and is subject to the approval of shareholders at the AGM. The proposed
dividend has not been included as a liability as at 26 February 2022, in
accordance with IAS 10 'Events after the reporting period'. It will be paid on
24 June 2022 to shareholders who are on the Register of members at close of
business on 20 May 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 7 June 2022.
The Group has a share forfeiture programme following the completion of a
tracing and notification exercise to any shareholders who have not had
contact with Tesco PLC over the past 12 years, in accordance with the
provisions set out in the Company's Articles of Association. £nil (2021:
£nil) of unclaimed dividends in relation to these shares have been adjusted
for in retained earnings. Refer to Note 21 for further details.
Note 8 Earnings/(losses) per share and diluted earnings/(losses) per share
Basic earnings/(losses) per share amounts are calculated by dividing the
profit/(loss) attributable to owners of the parent by the weighted average
number of Ordinary shares in issue during the financial year, excluding own
shares held. The share consolidation and special dividend in 2021 and the
share buyback programme commencing in 2022 affect earnings per share on a
prospective basis, with comparatives not restated.
Diluted earnings/(losses) per share amounts are calculated by dividing the
profit/(loss) attributable to owners of the parent by the weighted average
number of Ordinary shares in issue during the financial year adjusted for the
effects of potentially dilutive options. The dilutive effect is calculated on
the full exercise of all potentially dilutive Ordinary share options granted
by the Group, including performance-based options which the Group considers to
have been earned.
For the 52 weeks ended 26 February 2022 there were 88 million (2021: 27
million) potentially dilutive share options. As the Group has recognised a
profit for the year from its continuing operations, dilutive effects have been
considered in calculating diluted earnings per share.
2022 2021((a))
Basic Potentially Diluted Basic Potentially Diluted
dilutive share
dilutive share
options
options
Profit/(loss) (£m)
Continuing operations((b)) 1,521 - 1,521 539 - 539
Discontinued operations((c)) (40) - (40) 5,415 - 5,415
Total 1,481 - 1,481 5,954 - 5,954
Weighted average number of shares (millions) 7,658 88 7,746 9,629 27 9,656
Earnings/(losses) per share (pence)
Continuing operations 19.86 (0.22) 19.64 5.60 (0.02) 5.58
Discontinued operations (0.52) - (0.52) 56.23 (0.15) 56.08
Total 19.34 (0.22) 19.12 61.83 (0.17) 61.66
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) Excludes profits/(losses) from non-controlling interests of £2m (2021:
£(7)m).
(c) Excludes profits from non-controlling interests of £nil (2021: £11m).
APM: Adjusted diluted earnings/(losses) per share
Continuing operations Notes 52 weeks 52 weeks
2022
2021((a))
Profit/(loss) before tax 2,033 636
Less: adjusting items 3 164 498
Adjusted profit before tax (£m) 2,197 1,134
Adjusted profit before tax attributable to the owners of the parent (£m)((b)) 2,195 1,141
Taxation on adjusted profit before tax attributable to the owners of the (502) (249)
parent (£m)((c))
Adjusted profit after tax attributable to the owners of the parent (£m) 1,693 892
Basic weighted average number of shares (millions) 7,658 9,629
Adjusted basic earnings per share (pence) 22.11 9.26
Diluted weighted average number of shares (millions) 7,746 9,656
Adjusted diluted earnings per share (pence) 21.86 9.24
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) Excludes profit before tax attributable to non-controlling interests of
£2m (2021: £(7)m).
(c) Excludes tax charges on losses attributable to non-controlling interests
of £nil (2021: £nil).
Refer to page 61 in the Glossary for the Group's APM Adjusted diluted earnings
per share (adjusted for share consolidation).
Note 9 Goodwill and other intangible assets
Goodwill of £4,291m (2021: £4,271m) consists of UK £3,788m (2021:
£3,788m), ROI £3m (2021: £3m) and Tesco Bank £500m (2021: £480m). £20m
of goodwill was recognised in Tesco Bank in the period from the acquisition of
Tesco Underwriting Limited. Refer to Note 24 for further details.
Other intangible assets of £1,069m (2021: £1,122m) comprise software of
£557m (2021: £532m), customer relationships of £418m (2021: £494m) and
other intangible assets of £94m (2021: £96m), with additions in the year of
£229m (2021: £201m) excluding assets acquired through business combinations.
Of the £287m (2021: £279m) amortisation of other intangible assets, £76m
(2021: £76m) 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
Land and Other((a)) Total
buildings
£m
£m £m
Cost
At 27 February 2021 (restated((b))) 21,653 5,743 27,396
Foreign currency translation (76) (15) (91)
Additions((c)(d)) 992 595 1,587
Acquired through business combinations((e)) - 1 1
Reclassification((f)) (72) - (72)
Transfers to assets classified as held for sale (446) (17) (463)
Disposals (74) (658) (732)
At 26 February 2022 21,977 5,649 27,626
Accumulated depreciation and impairment losses
At 27 February 2021 (restated((b))) 6,554 3,897 10,451
Foreign currency translation (25) (10) (35)
Charge for the year 426 467 893
Impairment losses((g)) 417 89 506
Reversal of impairment losses((g)) (324) (43) (367)
Transfers to assets classified as held for sale (163) (6) (169)
Disposals (71) (642) (713)
At 26 February 2022 6,814 3,752 10,566
Net carrying value
At 26 February 2022((h)) 15,163 1,897 17,060
At 29 February 2021 (restated((b))) 15,099 1,846 16,945
Construction in progress included above((i))
At 26 February 2022 97 212 309
At 27 February 2021 77 210 287
(a) Other assets consist of fixtures and fittings with a net carrying value
of £1,387m (2021: £1,349m), office equipment with a net carrying value of
£200m (2021: £214m) and motor vehicles with a net carrying value of £310m
(2021: £283m).
(b) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1.
(c) Includes £584m of land and buildings related to obtaining control of
The Tesco Sarum Limited Partnership, which was impaired by £(62)m on
acquisition (2021: £310m of land and buildings related to obtaining control
of The Tesco Property (No. 2) Limited Partnership, which was impaired by
£(2)m on acquisition). The £584m (2021: £310m) additions comprised £584m
(2021: £326m) cost of acquisition offset by £nil (2021: £16m) of historical
deferred profit. Refer to Note 24.
(d) Includes £37m (2021: £209m) relating to other property buyback
transactions.
(e) Assets recognised on acquisition of Tesco Underwriting Limited. Refer to
Note 24.
(f) £72m transferred to investment property subsequent to signing of
sublease agreements with third parties.
(g) Refer to Note 12.
(h) Includes £2,231m (2021: £2,099m) of assets pledged as security for
secured bonds and £914m (2021: £826m) of property held as security in favour
of the Tesco PLC Pension Scheme.
(i) Construction in progress does not include land.
Land and Other((a)) Total
buildings
£m
£m £m
Cost
At 29 February 2020 (restated((b))) 24,693 6,925 31,618
Foreign currency translation (38) (15) (53)
Additions((c)(d)) 731 623 1,354
Acquired through business combinations 8 4 12
Transfers (to)/from assets classified as held for sale 29 - 29
Transfer to disposal group classified as held for sale (3,642) (1,415) (5,057)
Disposals (128) (379) (507)
At 27 February 2021 (restated((b))) 21,653 5,743 27,396
Accumulated depreciation and impairment losses
At 29 February 2020 (restated((b))) 7,745 4,716 12,461
Foreign currency translation (15) (10) (25)
Charge for the year 429 489 918
Impairment losses((g)) 323 107 430
Reversal of impairment losses((g)) (485) (47) (532)
Transfers (to)/from assets classified as held for sale 15 - 15
Transfer to disposal group classified as held for sale (1,386) (987) (2,373)
Disposals (72) (371) (443)
At 27 February 2021 (restated((b))) 6,554 3,897 10,451
Net carrying value (restated((b))) 15,099 1,846 16,945
Refer to previous table for footnotes.
Note 11 Leases
Group as lessee
On 17 December 2021, the Group obtained control of The Tesco Sarum Limited
Partnership (2021: The Tesco Property (No. 2) Limited Partnership on 18
September 2020), previously accounted for as a joint venture, through the
acquisition of the other partner's 50% interest, at which point the associated
property leases from the joint venture became intercompany leases. Refer to
Note 24 for further details.
Right of use assets
Land and Other Total
buildings
£m
£m
£m
Net carrying value at 27 February 2021 5,866 85 5,951
Additions 544 39 583
Depreciation charge for the year (497) (40) (537)
Impairment losses((a)) (195) - (195)
Reversal of impairment losses((a)) 234 - 234
Derecognition on acquisition of property joint venture (Note 24) (243) - (243)
Other movements((b)) (75) 2 (73)
Net carrying value at 26 February 2022 5,634 86 5,720
(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.
Land and Other Total
buildings
£m
£m
£m
Net carrying value at 29 February 2020 6,734 140 6,874
Additions (including through business combinations) 308 42 350
Depreciation charge for the year (517) (49) (566)
Impairment losses((a)) (225) - (225)
Reversal of impairment losses((a)) 230 - 230
Derecognition on acquisition of property joint venture (130) - (130)
Transfer to disposal group classified as held for sale (724) (20) (744)
Other movements((b)) 190 (28) 162
Net carrying value at 27 February 2021 5,866 85 5,951
Refer to previous table for footnotes.
Lease liabilities
The following table shows the discounted lease liabilities included in the
Group balance sheet:
2022 2021
£m
£m
Current 547 575
Non-current 7,411 7,827
Total lease liabilities 7,958 8,402
Total undiscounted lease payments 11,515 12,527
A reconciliation of the Group's opening to closing lease liabilities balance
is presented in Note 23.
Note 12 Impairment of non-current assets
Impairment losses and reversals
No impairment of goodwill was recognised in the current year (2021: £295m
impairment of goodwill associated with Tesco Bank).
The table below summarises the Group's pre-tax impairment losses and reversals
on other non-current assets and investments in joint ventures and associates,
with the former aggregated by segment due to the large number of individually
immaterial store cash-generating units. This includes any losses recognised
immediately prior to classifying an asset or disposal group as held for sale
but excludes all impairments post classification as held for sale. There were
no impairment losses or reversals in the year (2021: £nil) with respect to
Investments in joint ventures and associates and no impairments in other
non-current assets and investments in joint ventures and associates in Tesco
Bank (2021: Nil). All impairment losses and reversals are classified as
adjusting items (2021: £128m net reversal).
UK & ROI Central Europe Total Net
52 weeks ended 26 February 2022 Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment (loss)/reversal
loss
£m
loss
£m
loss
£m
£m
£m
£m
£m
Group balance sheet
Other intangible assets (17) 8 (1) - (18) 8 (10)
Property, plant and equipment (496) 319 (10) 48 (506) 367 (139)
Right of use assets (183) 228 (12) 6 (195) 234 39
Investment property (6) 1 - - (6) 1 (5)
Total impairment (loss)/reversal of other non-current assets (702) 556 (23) 54 (725) 610 (115)
Group income statement
Cost of sales - adjusting (682) 536 (19) 25 (701) 561 (140)
Administrative expenses - adjusting (20) 20 (4) 29 (24) 49 25
Total impairment (loss)/reversal from continuing and discontinued operations (702) 556 (23) 54 (725) 610 (115)
UK & ROI Central Europe Total continuing operations Discontinued operations Total(*) Net
52 weeks ended 27 February 2021 Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment (loss)/reversal
loss
£m
loss
£m
loss
£m
loss
£m
loss
£m
£m
£m
£m
£m
£m
£m
Group balance sheet
Other intangible assets (32) 9 (2) 7 (34) 16 - - (34) 16 (18)
Property, plant and equipment (341) 471 (23) 38 (364) 509 (66) 23 (430) 532 102
Right of use assets (209) 229 (16) 1 (225) 230 - - (225) 230 5
Investment property (2) 2 - - (2) 2 - - (2) 2 -
Total impairment (loss)/reversal of other non-current assets (584) 711 (41) 46 (625) 757 (66) 23 (691) 780 89
Group income statement
Cost of sales - non-adjusting (2) - - - (2) - - - (2) - (2)
Cost of sales - adjusting (534) 657 (41) 46 (575) 703 - - (575) 703 128
Administrative expenses - non-adjusting (48) 54 - - (48) 54 - - (48) 54 6
Administrative expenses - adjusting - - - - - - - - - - -
Total impairment (loss)/reversal from continuing operations (584) 711 (41) 46 (625) 757 - - (625) 757 132
Discontinued operations - - - - - - - - - - -
- non-adjusting
Discontinued operations - - - - - - (66) 23 (66) 23 (43)
- adjusting
Total impairment (loss)/reversal (584) 711 (41) 46 (625) 757 (66) 23 (691) 780 89
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
The net impairment loss in UK & ROI includes an impairment loss of £62m
in the UK in respect of the Group obtaining control of The Tesco Sarum Limited
Partnership (2021: £2m impairment loss in the UK & ROI in respect of the
Group obtaining control of The Tesco Property (No. 2) Limited Partnership).
Refer to Note 24 for further details.
The remaining other non-current assets impairment losses and reversals for the
Group largely reflect normal fluctuations expected from store-level
performance, property fair values and changes in discount rates, as well as
any specific store closures.
Impairment methodology
The impairment methodology is unchanged in the period from that described in
Note 15 of the Annual Report and Financial Statements 2021.
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, future
cash flows (incorporating sales volumes and prices and costs) and
probabilities assigned to cash flow scenarios. For fair value less costs of
disposal calculations, the key assumption is property fair values.
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.
(a) With the exception of Tesco Bank goodwill, neither a reasonably
possible one percentage point increase in discount rates, a 5% decrease in
future cash flows nor a one percentage point decrease in long-term growth
rates would indicate impairment in any group of cash-generating units to which
goodwill has been allocated. Tesco Bank goodwill is not sensitive to a
reasonably possible change in long-term growth rates, but is sensitive to a
change in the discount rate and annual equity cash flows. An increase of
1.0%pt in the discount rate or a decrease in annual equity cash flows of 14.2%
would reduce the year-end headroom of £212m to £nil.
(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:
Key assumption Reasonably possible change Impact on impairment 2022
£m
Post-tax discount rates Increase of 1.0%pt for each geographic region Increase (435)
Decrease of 1.0%pt for each geographic region Decrease 365
Future cash flows Increase of 5.0% for each geographic region Decrease 106
Decrease of 5.0% for each geographic region Increase (115)
Long-term growth rates Increase of 1.0%pt for each geographic region Decrease 266
Decrease of 1.0%pt for each geographic region Increase (268)
Note 13 Cash and cash equivalents and short-term investments
Cash and cash equivalents
2022 2021
£m
£m
Cash at bank and on hand 2,322 2,495
Short-term deposits 23 15
Cash and cash equivalents in the Group balance sheet 2,345 2,510
Bank overdrafts (574) (532)
Cash and cash equivalents in the Group cash flow statement 1,771 1,978
Short-term investments
2022 2021
£m
£m
Money market funds and similar instruments 2,076 1,011
Cash and cash equivalents includes £84m (2021: £101m) of restricted amounts
mainly relating to the Group's pension schemes and employee benefit trusts.
Note 14 Insurance
On 4 May 2021 the Group acquired the remaining 50.1% ordinary share capital of
its joint venture entity, Tesco Underwriting Limited (TU). TU is an authorised
insurance company which provides the insurance underwriting service for a
number of the Group's general insurance products. Refer to Note 24 for further
details regarding the acquisition. As balances in this note have arisen as a
result of the acquisition of TU on 4 May 2021, there are no prior period
comparative balances for the Group.
Insurance profit/(loss)
Continuing operations 52 weeks
2022
£m
Gross insurance premium income 239
Insurance premium income ceded to reinsurers (105)
Current year claims paid (104)
Change in prior year claims provision 52
Additional liabilities arising during the year (98)
Insurance claims incurred (150)
Reinsurers' share of claims incurred((a)) 62
Net insurance claims (88)
Net insurance profit/(loss)((b)) 46
(a) Includes £3m related to reinsurance quota share commission and profit
commission.
(b) The net insurance profit above arose subsequent to acquisition by the
Group and is reported in the Tesco Bank operating segment.
Insurance contract provisions and reinsurance assets
The following tables show the breakdown of the Group's insurance contract
provisions and reinsurance assets at 26 February 2022.
Gross Reinsurance Net
£m
£m
£m
Unearned premiums 156 (64) 92
Claims 494 (181) 313
Total insurance contract provisions 650 (245) 405
Of which:
Current 623 (61) 562
Non-current 27 (184) (157)
Gross insurance provisions, unlike reinsurance assets, are classified as
current or non-current based on contractual rights to defer settlement for at
least 12 months after the reporting period, rather than expected timing of
settlement. The table below shows the timing of cash outflows in relation to
insurance claims liabilities, net of salvage and subrogation recoveries, based
on current best estimates, at 26 February 2022. The actual timing of future
settlement cash flows may differ from that disclosed below.
2022
£m %
Due within one year 83 18
Due between two to five years 194 41
Due beyond five years 195 41
Total outstanding claims, net of salvage and subrogation recoveries 472 100
Gross Reinsurance Net
£m
£m
Analysis of movement in insurance contract provisions £m
Balance at 27 February 2021 - - -
Acquired through business combinations 650 (247) 403
Claims (paid)/recovered through insurers (171) 66 (105)
Movement in claims outstanding 156 (59) 97
Changes in provisions for unearned premiums 15 (5) 10
Balance at 26 February 2022 650 (245) 405
£m
Analysis of movement in provision for gross unearned premiums
Balance at 27 February 2021 -
Acquired through business combinations 141
Premiums written during the period 254
Less: premiums earned during the period (239)
Balance at 26 February 2022 156
Gross Salvage and subrogation recoveries Net
£m
£m
Analysis of movement in outstanding claims £m
Balance at 27 February 2021 - - -
Acquired through business combinations 509 (16) 493
Current period claims 213 (20) 193
Change in prior period claims (57) 14 (43)
Current period claims paid (104) - (104)
Prior period claims paid (67) - (67)
Balance at 26 February 2022 494 (22) 472
Funds withheld
Funds withheld of £115m, included within trade and other payables, represent
the balance due to reinsurers arising from Quota Share arrangements, by which
a fixed proportion of both premiums and losses are ceded to third party
reinsurers as part of the overall reinsurance protection strategy.
Claims provision and development
The nature of insurance makes it very difficult to predict with certainty the
likely outcome of any particular claim and the ultimate cost of notified
claims. Each notified claim is assessed on a separate, case‐by‐case, basis
with due regard to the claim circumstances and historical evidence of the size
of similar claims and provisions are based on information currently available.
However, the ultimate liabilities may vary as a result of subsequent
developments.
The cost of outstanding claims and the incurred but not reported (IBNR) claims
provisions are estimated using various statistical methods. Such methods
extrapolate the development of paid and incurred claims, average cost per
claim and ultimate claim numbers for each accident period based upon observed
development of earlier periods, with reference to suitable benchmarks.
Assumptions used for insurance provisions are based on detailed studies,
checked to ensure that they are consistent with observable market prices or
other published information, with greater emphasis on current trends where
there is sufficient information. To the extent that assumptions use historical
claims development information, they also assume that the historical claims
development pattern will occur again in the future, after allowing (where
possible) for instances where this might not be the case, such as changing
economic or legal trends.
Provisions are initially estimated at a gross level and a separate calculation
is carried out to estimate the size of reinsurance recoveries. The Group is
covered by a variety of excess of loss and quota share reinsurance programmes.
The Group takes into account historical data, specific details for individual
large claims and details of the reinsurance programme to assess the expected
size of reinsurance recoveries.
Insurance risk management
The Group is exposed to insurance risk through its wholly owned subsidiary,
TU. The Group defines insurance risk as the risks accepted through the
provision of insurance products in return for a premium. These risks may or
may not occur as expected and the amount and timing of these risks are
uncertain and determined by events outside of the Group's control (e.g. flood
or vehicular accident).
TU underwrites motor and home insurance policies, typically of one-year
duration, in the UK and Channel Islands. TU operates a separate risk framework
with dedicated risk and compliance teams and a suite of risk policies to
ensure that the insurance portfolio is operating within an agreed risk
appetite, with monthly monitoring of the portfolio against specific
performance indicator thresholds and limits. Risks such as geographic
concentration or high-severity, low frequency events (e.g. natural disasters
in a particular area, severe bodily injury motor accidents) are mitigated
through a high-quality backed reinsurance portfolio, and TU undertakes a
Stress and Scenario Testing programme, considering multiple scenarios such as
various adverse weather events, the hardening/softening of the insurance
market and severe large bodily injury losses.
Insurance capital
Solvency II (SII) came into force on 1 January 2016. It provides a framework
for managing and measuring the risks and the solvency position for all
insurance companies in the EU. Following the UK's departure from the EU, the
SII framework continues to be applied in the UK and its requirements are
applicable to TU. TU assesses its Solvency Capital Requirement (SCR) using a
Partial Internal Model for capital which was approved by the Prudential
Regulation Authority (PRA) in 2020. TU models a range of stress and scenario
tests that are published in its annual Solvency and Financial Condition
Report. These show that TU's capital position is resilient to a range of
possible scenarios. TU also maintains a capital contingency plan supported by
its direct shareholder, Tesco Personal Finance plc. Available capital has
remained above the SCR requirement during the period to 26 February 2022; and
capital coverage of TU's SCR at end of February 2022 was 151.0% (unaudited).
Note 15 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.
2022 2021
£m
£m
Current assets
Inventories (15) (24)
Trade and other receivables
Trade/other receivables 68 90
Accrued income 124 125
Current liabilities
Trade and other payables
Trade payables 112 170
Accruals - (2)
Note 16 Borrowings
Borrowings are classified as current and non-current based on their scheduled
redemption date, and not their maturity date. Repayments of principal amounts
are classified as current if the repayment is scheduled to be made within one
year of the balance sheet date.
Current
2022 2021
£m
£m
Bank loans and overdrafts 605 559
Borrowings* 120 521
725 1,080
Non-current
2022 2021
£m
£m
Borrowings* 6,674 6,188
* £1m of current and £243m of non-current borrowings (2021: £1m and
£250m) relate to borrowings issued by Tesco Bank.
Borrowing facilities
The Group has a £2.5bn undrawn committed facility available at 26 February
2022, 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 year.
Note 17 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 and accruals where the
carrying values approximate fair value. The levels in the table refer to the
fair value measurement.
2022 2021
Carrying Fair Carrying Fair
value
value
value
value
£m
£m
£m
£m
Financial assets measured at amortised cost
Loans and advances to customers - Tesco Bank (Level 3) 6,490 6,566 6,402 6,618
Investment securities at amortised cost (Level 1 and 2)((a)) 857 867 927 932
Joint ventures and associates loan receivables (Level 2)((b)) 105 126 122 153
Financial liabilities measured at amortised cost
Borrowings
Amortised cost (Level 1 and 2)((a)) (5,057) (5,942) (4,711) (5,761)
Bonds in fair value hedge relationships (Level 1) (2,342) (2,401) (2,557) (2,658)
Customer deposits - Tesco Bank (Level 3) (5,327) (5,296) (5,738) (5,744)
Deposits from banks - Tesco Bank (Level 2) (1,052) (1,052) (600) (600)
(a) These are principally Level 1 instruments.
(b) Joint ventures and associates loan receivables carrying amounts of
£105m (2021: £122m) are presented in the Group balance sheet net of deferred
profits of £38m (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 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 27 February 2021 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income - 3 11 14
Cash and cash equivalents at fair value through profit or loss - 14 - 14
Derivative financial instruments:
Interest rate swaps - 42 - 42
Cross-currency swaps - 298 - 298
Index-linked swaps - 1,080 - 1,080
Forward contracts - 42 - 42
Total assets - 1,479 11 1,490
Liabilities
Derivative financial instruments:
Interest rate swaps - (162) - (162)
Cross-currency swaps - (38) - (38)
Index-linked swaps - (729) - (729)
Forward contracts - (78) - (78)
Total liabilities - (1,007) - (1,007)
Net assets/(liabilities) - 472 11 483
During the financial year, there were no transfers (2021: no transfers)
between Level 1 and Level 2 fair value measurements.
Level 3 Instruments
At the end of the period there was a transfer of £749m into Level 3 fair
value measurement from Level 2 (2021: no transfers), arising from inclusion of
a funding valuation adjustment (FVA) to certain derivatives due to evolving
market practices, which incorporate unobservable input elements. There were no
other transfers into or out of Level 3 (2021: no transfers).
As part of financial risk management, the Group holds certain uncollateralised
derivative financial instruments, including interest rate and inflation swaps,
cross-currency swaps, and forward contracts. These are valued using relevant
inputs which are considered observable (Level 2), such as forward rates and FX
rates from available market data. Unobservable inputs (Level 3) relate to the
FVA, which is the estimate of the adjustment to the fair value that a market
participant would make to account for funding costs. These are calculated on
the future valuation of the derivative, based on the best estimate available
to management of suitable relevant cost of funds. A ten basis points increase
in the cost of funds would increase the FVA by £18m.
The following table presents the changes in Level 3 instruments:
2022 2021
Uncollateralised derivatives Unlisted equity investments Uncollateralised derivatives Unlisted equity investments
£m
£m
£m
£m
At the beginning of the year - 11 - 10
Gains/(losses) recognised in the Group statement of comprehensive - 4 - 3
income/(loss)
Disposal of financial asset at fair value through other comprehensive income - (2) - (4)
Addition of financial asset at fair value through other comprehensive income - 1 - 2
Transfers into Level 3 749 - - -
At the end of the year 749 14 - 11
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 the COVID-19 pandemic and 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 speed at which consumer and business confidence
will support the recovery in GDP and the labour market. The Base scenario sees
a return to pre-pandemic GDP by Q3 2022, with cost-of-living pressures
stagnating growth and unemployment peaking at 4.7% by Q2 2022. The Upside
scenario sees a sharper recovery driven by utilisation of accumulated savings
from lockdown periods, while Downside 1 scenario assumes a 6.2% unemployment
peak by Q2 2022. Downside 2 postulates the impact of recurrent COVID-19
variants driving new restrictions, with subsequent GDP declines and an 8.0%
unemployment peak in Q2 2022. 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 26 February 2022 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 1.0% 1.2% 0.7% 0.4%
Gross domestic product((b)) 1.8% 2.2% 1.5% 1.2%
Unemployment rate 4.1% 3.9% 4.9% 6.3%
Unemployment rate peak in year 4.2% 3.9% 5.1% 6.7%
As at 27 February 2021 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 0.1% 0.2% 0.1% 0.1%
Gross domestic product((b)) 2.6% 3.5% 2.2% 1.8%
Unemployment rate 5.5% 4.7% 6.7% 8.6%
Unemployment rate peak in year 5.8% 4.9% 7.4% 9.3%
(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 26 February 2022 and excludes specific management
overlays which are discussed further below.
Impact on the loss allowance
Key assumption Reasonably possible change 2022 2021
£m
£m
Closing ECL allowance 489 625
Macroeconomic factors (100% weighted) Upside scenario (27) (66)
Base scenario (13) (1)
Downside scenario 1 31 57
Downside scenario 2 110 117
Probability of default Increase of 2.5% 6 8
Decrease of 2.5% (6) (8)
Loss given default Increase of 2.5% 7 10
Decrease of 2.5% (7) (10)
Probability of default threshold (staging) Increase of 20% (9) (7)
Decrease of 20% 13 11
Expected lifetime (revolving credit facility) Increase of 1 year 11 9
Decrease of 1 year (10) (9)
COVID-19 and cost-of-living pressures have had a significant impact on the UK
economy and there remains a large degree of uncertainty around the scale and
stress of the peak of the economic downturn and the speed and shape of any
subsequent recovery. While there has been significant recovery observed in the
wider economy, the degree of uncertainty remains high. 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 2022 2021
£m
£m
Consumer spending((a)) In respect of the beneficial modelling impact of lower consumer spending 113 129
through the pandemic
Cost of living((b)) A portion of Tesco Bank's customers may be more impacted by cost-of-living 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 -
downturns
War in Ukraine Further potential inflationary pressures on cost of living 6 -
Customer support The impact of customer support measures on arrears and defaults - 64
Payment holidays Increase in credit risk in respect of customers who sought an extension to - 21
their initial payment holiday
Total overlays 213 214
(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 £41m.
Note 18 Provisions
Property Restructuring Other Total
provisions
provisions
provisions
£m
£m
£m Legal and regulatory provisions Operational insurance provisions
£m
£m £m
At 27 February 2021 132 - 123 10 40 305
Foreign currency translation - - (1) (1) - (2)
Reclassifications - - - 149 - 149
Amount released in the year (32) (2) (5) (49) (1) (89)
Amount provided in the year 120 70 253 73 5 521
Amount utilised in the year (8) (24) (326) (47) (14) (419)
Unwinding of discount 1 - - - - 1
At 26 February 2022 213 44 44 135 30 466
The balances are analysed as follows:
2022 2021
£m
£m
Current 283 186
Non-current 183 119
466 305
Provisions are discounted based on the relevant risk-free rate and are
risk-adjusted through adjusting the cash flow estimates.
Property provisions
Property provisions comprise onerous contracts related to unprofitable stores
and vacant properties, decommissioning provisions and remediation works and
dilapidations provisions.
Amounts provided in the year primarily relate to decommissioning, and amounts
released in the year primarily relate to releases of dilapidation and similar
remediation provisions.
The expected undiscounted aging of property provisions as at 26 February 2022:
Current 1 to 5 years 6 to 10 years 11 to 15 years Over 15 years Total
£m £m £m £m £m £m
Property provisions 37 51 23 12 135 258
Restructuring provisions
Restructuring provisions of £44m, primarily relating to expected employee
costs, are expected to be fully utilised in the following financial year to 25
February 2023. The provision is calculated in line with the expected
settlement costs of impacted employees and excludes future operating costs.
Legal and regulatory provisions
Legal and regulatory provisions contain balances in relation to either ongoing
or expected legal proceedings against the Group, or for costs associated with
regulatory matters and/or breaches. Due to the nature of legal and regulatory
matters, including unpredictable timings of legal cases or regulatory
investigations, there is often uncertainty as to when provisions will be fully
utilised.
During the year, the Group recognised a charge of £193m in relation to 2020
claims against Tesco PLC for matters arising out of or in connection with the
overstatement of expected profit announced in 2014. These claims were settled
in full during the year and, given that the legal timeframe for bringing a
claim has now elapsed, no further related claims can be brought by
shareholders.
During the year, an Arbitral Tribunal made findings of liability relating to
claims regarding the sale of Homeplus (Korea) against the Group and made a
Final Award of £119m in damages, interest and costs. Arbitration judgments
are final and may not be appealed by either party. The Group recognised a
charge of £33m within discontinued operations, increasing the provision held.
The Final Award was cash settled during the year.
Other legal and regulatory provisions of £44m include £14m (2021: £22m) of
provision relating to customer redress from Payment Protection Insurance (PPI)
sales, with the remainder relating to various individually immaterial
provisions.
Operational insurance provisions
Insurance provisions relate to outstanding liabilities from public and
employer's liability and third-party motor claims across the Group's trading
operations, separate to the Tesco Underwriting insurance balances in Note 14.
Provisions relate to claims arising from incidents reported prior to the
reporting date, including an allowance for those currently incurred but not
reported. Amounts are measured considering claims history, including claims
volume and average cost of claims, with assessment and projection by
third-party actuaries. Releases in the year primarily relate to improved
estimates of future outflows from revised actuarial valuations. The balance as
at the financial year end is expected to be materially utilised within three
years from the reporting date. This was reclassified to a provision during the
financial year from trade and other payables, reflecting the uncertainties
around the expected outflow for these balances.
Other provisions
Other provisions amounts primarily relate to a Tesco Bank expected credit loss
provision recognised under IFRS 9 which exceeds the gross carrying amount of
the related financial asset, primarily loans to customers. Further information
on expected credit losses can be found within Note 17. The remaining balance
relates to individually immaterial provisions that do not fall into any of the
other categories.
Note 19 Share-based payments
The Group income statement charge for the financial year recognised in respect
of share-based payments is £122m (2021: £73m), comprising £122m (2021:
£69m) of continuing operations and £nil (2021: £4m) of discontinued
operations, which is made up of share option schemes and share bonus payments.
Of this amount, £109m (2021: £64m) will be settled in equity (refer to Note
21) and £13m (2021: £9m) in cash representing National Insurance
contributions.
The share-based payment income statement charge is split in the cash flow
statement with £66m (2021: £30m) in the 'share-based payment' non-cash
movement line and £56m (2021: £43m) in the working capital movement
'Increase/decrease in trade and other payables' line, where the latter
represents shares withheld from employees in order to settle their tax
liability and national insurance. The 'own shares purchased for share schemes'
financing cash outflow of £144m (2021: £66m) represents £191m (2021:
£213m) cash paid to purchase own shares including related fees and taxes,
offset by £47m (2021: £147m) cash received from employees exercising SAYE
options.
Note 20 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 most
recent completed triennial funding assessment of the Scheme was performed as
at 31 December 2019 using the projected unit credit method. Subsequent to this
triennial funding assessment it was agreed that no further pension deficit
contributions would be required, with contributions being assessed at the next
triennial review.
The Trustees of the Londis Pension Scheme entered into a buy-in agreement to
secure the Londis Scheme's pension benefits in full with an insurer through
the purchase of a bulk annuity policy. A premium of £8m was paid to the
insurer on 24 March 2021. The Londis Scheme Trustees have subsequently
announced that the buy-in will be converted to a buy-out, with individual
annuity policies issued to the Londis Scheme members, and the Londis Scheme
will be wound up. Commencement of the wind-up was triggered on 29 June 2021.
The income statement charge in respect of this transaction is £1m based on
the market conditions on the wind-up date and has been included in the Group
income statement.
Movement in the Group pension surplus/(deficit) during the financial year
Fair value of plan assets Defined benefit obligation Net defined benefit surplus/(deficit)
2022 2021 2022 2021 2022 2021
£m
£m
£m
£m
£m
£m
Opening balance 20,082 17,425 (21,304) (20,510) (1,222) (3,085)
Current service cost - - (39) (41) (39) (41)
Past service cost - - - (7) - (7)
Settlement charge((a)) - - (1) - (1) -
Finance income/(cost) 391 341 (413) (384) (22) (43)
Included in the Group income statement 391 341 (453) (432) (62) (91)
Remeasurement gain/(loss):
Financial assumptions gain/(loss) - - 1,881 (1,193) 1,881 (1,193)
Demographic assumptions gain/(loss) - - 21 18 21 18
Experience gain/(loss) - - (212) 354 (212) 354
Return on plan assets excluding finance income 2,385 (136) - - 2,385 (136)
Foreign currency translation (9) 1 13 (4) 4 (3)
Included in the Group statement of comprehensive income/(loss) 2,376 (135) 1,703 (825) 4,079 (960)
Member contributions 2 2 (2) (2) - -
Employer contributions 33 34 - - 33 34
Additional employer contributions 16 2,836 - - 16 2,836
Benefits paid (502) (421) 505 436 3 15
Scheme settlement (8) - 8 - - -
Classified as held for sale((b)) - - - 29 - 29
Other movements (459) 2,451 511 463 52 2,914
Closing balance 22,390 20,082 (19,543) (21,304) 2,847 (1,222)
Deferred tax asset/(liability) (726) 218
Surplus/(deficit) in schemes at the end of the year, net of deferred tax 2,121 (1,004)
Consisting of:
Schemes in deficit((c)) (303) (1,222)
Schemes in surplus 3,150 -
2,847 (1,222)
(a) Settlement charge on Londis Scheme wind-up.
(b) Movements in relation to discontinued operations up to classification as
held for sale included £nil (2021: £(1)m) within the Group income statement,
£nil (2021: £(6)m) in the Group statement of comprehensive income/loss and
£nil (2021: £2m) in other movements.
(c) Schemes in deficit, net of deferred tax £(242)m (2021: £(1,004)m).
Scheme principal assumptions
The major principal assumptions, used to value the defined benefit obligation
of the Scheme are as follows:
2022 2021
%
%
Discount rate 2.8 2.0
Price inflation 3.3 2.9
Rate of increase in deferred pensions* 2.9 2.5
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012 3.1 2.8
Benefits accrued after 1 June 2012 2.8 2.5
* In excess of any guaranteed minimum pension (GMP) element.
If the discount rate assumption increased by 0.1% or 1%, the Scheme defined
benefit obligation would decrease by approximately £(404)m or £(3,467)m
respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined
benefit obligation would increase by approximately £404m or £4,732m
respectively.
If the inflation assumption increased by 0.1% or 1%, the Scheme defined
benefit obligation would increase by approximately £367m or £3,889m
respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined
benefit obligation would decrease by approximately £(349)m or £(3,173)m
respectively.
Movements in the defined benefit obligation from discount rate and inflation
rate changes may be partially offset by movements in assets.
Note 21 Called-up share capital and reserves
2022 2021
Number of Ordinary shares £m Number of Ordinary shares £m
Allotted, called-up and fully paid:
At the beginning of the year 7,731,707,820 490 9,793,496,561 490
Share consolidation (including shares issued*) - - (2,061,788,741) -
Shares purchased and cancelled (93,721,289) (6) - -
At the end of the year 7,637,986,531 484 7,731,707,820 490
* To effect the share consolidation, 11 additional Ordinary shares were
issued so that the total Ordinary shares is exactly divisible by 19
In order to maintain the comparability of the Company's share price before and
after a special dividend of £4.9bn was declared in the prior financial year,
a share consolidation was approved at the General Meeting held on 11 February
2021. Shareholders received 15 new Ordinary shares of 6 ⅓ pence each for
every existing 19 Ordinary shares of 5 pence each.
No shares were issued during the current financial year in relation to share
options.
The Group has a share forfeiture programme, following the completion of a
tracing and notification exercise to any shareholders who have not had
contact with the Company over the past 12 years, in accordance with the
provisions set out in the Company's Articles of Association. Under the share
forfeiture programme, the shares and dividends associated with shares of
untraced members are forfeited, with the resulting proceeds transferred to the
Group to use for good causes in line with the Group's corporate responsibility
strategy. During the current financial year, the Group received £nil (2021:
£nil) proceeds from sale of untraced shares and £nil (2021: £nil)
write-back of unclaimed dividends, which are reflected in share premium and
retained earnings respectively.
As at 26 February 2022, the Directors were authorised, on behalf of the
Company, to purchase up to a maximum in aggregate of 773.2 million (2021:
773.2 million) Ordinary shares until the conclusion of the 2022 AGM.
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 own shares held represents shares in Tesco PLC purchased from the market
and held by the Tesco International Employee Benefit Trust to satisfy share
awards under the Group's share scheme plans (refer to Note 19), and shares
purchased for cancellation as part of the share buyback programme. Shares
purchased for cancellation are included in own shares held until cancellation,
at which point the consideration is transferred to retained earnings, and the
nominal value of the shares is transferred from share capital to the capital
redemption reserve. Own shares held can include equity elements of forward
contracts where the Group has an obligation to purchase its own shares.
In relation to own shares purchased for cancellation, the Group had total cash
outflows of £278m (2021: £nil) with the purchase of 98.5 million (2021: Nil)
shares of 6 ⅓ pence each at an average price of £2.82 per share (2021:
n/a). 93.7 million shares were cancelled, representing 1.2% (2021: Nil) of the
called-up share capital as at 26 February 2022, with total consideration of
£264m (2021: £nil), including expenses of £1m, charged to retained
earnings. At 26 February 2022, the Group had not yet cancelled 4.8 million
(2021: Nil) shares with a total consideration of £14m (2021: £nil),
representing 0.1% of the called-up share capital as at 26 February 2022 (2021:
Nil). The uncancelled shares are included in the £37m (2021: £nil) increase
in own shares purchased for cancellation within the statement of changes in
equity, with the remaining £23m (2021: £nil) relating to shares to be
delivered under a share repurchase agreement with an external bank.
In relation to own shares purchase for share schemes in the Group statement of
changes in equity, the £279m (2021: £246m) increase in own shares held
includes £191m (2021: £213m) paid to purchase own shares (including related
fees and taxes), £50m (2021: £nil) of shares to be delivered under a share
repurchase agreement with an external bank, £38m (2021: £30m) of shares
withheld to settle employee tax and other minor movements of £nil (2021:
£3m). The £139m (2021: £308m) decrease in own shares held is the gross
amount of shares that employees were entitled to receive (of which £38m
(2021: £30m) is withheld to settle employee tax). The £12m increase (2021:
£97m decrease) in retained earnings primarily relates to £139m (2021:
£308m) shares delivered to employees offset by £47m (2021: £147m) cash
received from employees exercising SAYE options, £109m (2021: £64m) income
statement charge and other minor movements of £(5)m (2021: £nil).
The number of Ordinary shares held by the Tesco International Employee Benefit
Trust at 26 February 2022 was 49.9 million (2021: 58.4 million). This
represents 0.65% of called-up share capital at the end of the year (2021:
0.76%).
A financial liability of £73m (2021: £nil) in respect of shares to be
delivered under share repurchase agreements with external banks is included in
other payables.
Capital redemption reserve
The capital redemption reserve relates to the repurchase and cancellation of
shares of the Company. During the financial year, the aggregate nominal value
of shares cancelled and transferred to the capital redemption reserve was £6m
(2021: £nil).
Merger reserve
The merger reserve represents the difference between the market value and
nominal value of shares issued for the acquisition of Booker on 2 March 2018.
Note 22 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its joint ventures and associates are
disclosed below:
Transactions
Joint ventures Associates
2022 2021 2022 2021
£m
£m
£m
£m
Sales to related parties 501 479 - -
Purchases from related parties 111 87 - 10
Dividends received 32 18 - 8
Injection of equity funding 11 14 - -
Sales to related parties consist of service/management fees and loan interest.
Transactions between the Group and the Group's pension plans are disclosed in
Note 20.
Balances
Joint ventures Associates
2022 2021 2022 2021
£m
£m
£m
£m
Amounts owed to related parties (9) (23) - -
Amounts owed by related parties 36 40 - -
Lease liabilities payable to related parties((a)) (2,335) (2,718) - (144)
Loans to related parties (net of deferred profits)((b)) 105 122 - -
(a) Lease liabilities payable to related parties represent leases entered
into by the Group for properties held by joint ventures.
(b) Loans to related parties of £105m (2021: £122m) are presented net of
deferred profits of £38m (2021: £38m), historically arising from the sale of
property assets to joint ventures. For loans to related parties, a 12-month
expected credit loss (ECL) allowance is recorded on initial recognition. In
the current and prior financial years, the ECL allowance was immaterial.
A number of the Group's subsidiaries are members of one or more partnerships
to whom the provisions of the Partnerships (Accounts) Regulations 2008
(Regulations) apply. The financial statements for those partnerships have been
consolidated into these financial statements pursuant to Regulation 7 of the
Regulations.
Note 23 Analysis of changes in net debt
Net debt excludes the net debt of Tesco Bank but includes that of discontinued
operations. Balances and movements in respect of the total Group and Tesco
Bank are presented to allow reconciliation between the Group balance sheet and
the Group cash flow statement.
Non-cash movements
At Cash flows arising from financing activities Other cash flows((a)) Fair value gains/(losses) Foreign exchange Interest income/ Acquisitions and Other Discontinued operations((c)) At
27 February
£m
£m
£m
£m
(charge)
disposals((b))
£m
£m
26 February
2021
£m
£m
2022
£m
£m
Total Group
Bank and other borrowings, excluding overdrafts (6,736) 381 202 82 61 (209) (606) - - (6,825)
Lease liabilities (8,402) 577 405 - 14 (405) 355 (492) (10) (7,958)
Net derivative financial instruments 455 123 43 100 - (29) (64) - - 628
Arising from financing activities (14,683) 1,081 650 182 75 (643) (315) (492) (10) (14,155)
Cash and cash equivalents in the Group balance sheet 2,510 - (204) - 11 - - - 28 2,345
Overdrafts((d)) (532) - (8) - 1 - - - (35) (574)
Cash and cash equivalents (including overdrafts) in the Group cash flow 1,978 - (212) - 12 - - - (7) 1,771
statement
Short-term investments 1,011 - 1,067 - (2) - - - - 2,076
Joint venture loans 122 - 4 - - - (21) - - 105
Interest and other receivables - - (3) - - 4 - - - 1
Net debt of the disposal group (141) - - - - - 110 - 17 (14)
Total Group (11,713) 1,081 1,506 182 85 (639) (226) (492) - (10,216)
Less: Tesco Bank 242 25 14 68 - (7) (42) - - 300
Retail
Bank and other borrowings, excluding overdrafts (6,249) 360 200 74 61 (205) (585) - - (6,344)
Lease liabilities (8,372) 573 402 - 14 (402) 355 (492) (10) (7,932)
Net derivative financial instruments 497 123 43 40 - (29) (64) - - 610
Arising from financing activities (14,124) 1,056 645 114 75 (636) (294) (492) (10) (13,666)
Cash and cash equivalents in the Group balance sheet 1,730 - (213) - 11 - - - 28 1,556
Overdrafts((d)) (532) - (8) - 1 - - - (35) (574)
Cash and cash equivalents (including overdrafts) in the Group cash flow 1,198 - (221) - 12 - - - (7) 982
statement((e))
Short-term investments 1,011 - 1,067 - (2) - - - - 2,076
Joint venture loans 101 - 4 - - - - - - 105
Interest and other receivables - - (3) - - 4 - - - 1
Net debt of the disposal group (141) - - - - - 110 - 17 (14)
Net debt APM (11,955) 1,056 1,492 114 85 (632) (184) (492) - (10,516)
(a) Other cash flows for bank and other borrowings excluding overdrafts,
lease liabilities and net derivative financial instruments relate to elements
of operating and investing activities. Refer to Group cash flow statement.
(b) Movements in Group net debt arising from acquisitions/disposals include
an increase in borrowings of £21m and joint venture loans of £21m from the
acquisition of Tesco Underwriting Limited, with the remainder relating to the
acquisition of The Tesco Sarum Limited Partnership and disposal of Poland.
Refer to Note 24 and Note 6. In the prior year, the movements include the
disposal of the Group's Thailand and Malaysia operations, the acquisition of
The Tesco Property (No. 2) Limited Partnership and the acquisition of the
trade and assets of Best Food Logistics.
(c) Movements in lease liabilities in discontinued operations includes
repayment of capital element of obligations under leases of £2m, lease
terminations of £6m and foreign exchange translation of £2m.
(d) 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.
(e) The movement in cash and cash equivalents including overdrafts for
Retail includes £4m (2021: £2m) intragroup funding and intercompany
transactions.
Non-cash movements
At Cash flows arising from financing activities Other cash flows((a)) Fair value gains/(losses) Foreign exchange Interest income/ Acquisitions and Other Discontinued operations At
29 February
£m
£m
£m
£m
(charge)
£m
£m
27 February
2020
£m disposals((b))
2021
£m
£m
£m
Total Group
Bank and other borrowings, excluding overdrafts (7,118) 716 223 (41) (2) (226) (288) - - (6,736)
Lease liabilities (9,566) 621 488 - - (488) 977 (568) 134 (8,402)
Net derivative financial instruments 198 580 18 (203) - (20) (118) - - 455
Arising from financing activities (16,486) 1,917 729 (244) (2) (734) 571 (568) 134 (14,683)
Cash and cash equivalents in the Group balance sheet 4,137 - (1,607) - 8 - - - (28) 2,510
Overdrafts((d)) (1,106) - 539 - - - - - 35 (532)
Cash and cash equivalents (including overdrafts) in the Group cash flow 3,031 - (1,068) - 8 - - - 7 1,978
statement
Short-term investments 1,076 - (62) - (3) - - - - 1,011
Joint venture loans 127 - 2 - - 2 (9) - - 122
Interest and other receivables 1 - (12) - - 11 - - - -
Net debt of the disposal group - - - - - - - - (141) (141)
Total Group (12,251) 1,917 (411) (244) 3 (721) 562 (568) - (11,713)
Less: Tesco Bank 47 777 (578) 2 - (6) - - - 242
Retail
Bank and other borrowings, excluding overdrafts (5,858) (58) 219 (40) (2) (222) (288) - - (6,249)
Lease liabilities (9,533) 618 486 - - (486) 977 (568) 134 (8,372)
Net derivative financial instruments 243 580 18 (206) - (20) (118) - - 497
Arising from financing activities (15,148) 1,140 723 (246) (2) (728) 571 (568) 134 (14,124)
Cash and cash equivalents in the Group balance sheet 2,773 - (1,023) - 8 - - - (28) 1,730
Overdrafts((d)) (1,106) - 539 - - - - - 35 (532)
Cash and cash equivalents (including overdrafts) in the Group cash flow 1,667 - (484) - 8 - - - 7 1,198
statement((e))
Short-term investments 1,076 - (62) - (3) - - - - 1,011
Joint venture loans 106 - 2 - - 2 (9) - - 101
Interest and other receivables 1 - (12) - - 11 - - - -
Net debt of the disposal group - - - - - - - - (141) (141)
Net debt APM (12,298) 1,140 167 (246) 3 (715) 562 (568) - (11,955)
Refer to previous table for footnotes.
2022 2021
£m
£m
Net increase/(decrease) in cash and cash equivalents including overdrafts (212) (1,068)
Elimination of Tesco Bank movement in cash and cash equivalents including (9) 584
overdrafts*
Retail cash movement in other Net debt items:
Net increase/(decrease) in short-term investments 1,067 (62)
Net increase/(decrease) in joint venture loans 4 2
Net (increase)/decrease in borrowings and lease liabilities 933 560
Net cash flows from derivative financial instruments 123 580
Net interest paid on components of Net debt 642 711
Change in Net debt resulting from cash flow 2,548 1,307
Retail net interest charge on components of Net debt (632) (715)
Retail fair value and foreign exchange movements 199 (243)
Retail other non-cash movements (492) (568)
Acquisition of property joint venture (Note 24) (294) (161)
Acquisition of Best Food Logistics - (42)
Disposal of Poland operations (Note 6) 110 -
Disposal of the Asia business - 765
(Increase)/decrease in Net debt 1,439 343
Opening Net debt (11,955) (12,298)
Closing Net debt (10,516) (11,955)
* The movement in cash and cash equivalents including overdrafts for
Tesco Bank includes £(4)m (2021: £(2)m) intragroup funding and intercompany
transactions.
Note 24 Acquisitions
Acquisition of Tesco Underwriting Limited
On 4 May 2021 the Group acquired the remaining 50.1% ordinary share capital of
its joint venture entity, Tesco Underwriting Limited (TU), from its joint
venture partner, Ageas (UK) Limited. TU is an authorised insurance company
which provides the insurance underwriting service for several of the Group's
general insurance products.
The transaction has been accounted for as an acquisition of a business in
accordance with IFRS 3 'Business Combinations'. The acquisition is in line
with the Group's strategy of focusing on propositions which better meet the
needs of Tesco shoppers. The investment will significantly enhance the Group's
insurance capability. Total cash consideration of £90m has been paid to date,
with an additional deferred payment of £5m due to be paid on expiry of the
exit period, subject to the fulfilment of the joint venture partner's
obligations in relation to the migration and transition of the TU business to
the Group. Payment is expected to take place in May 2022. In line with the
requirements of IFRS 3, the existing equity interest in TU held by the Group
immediately before the acquisition date was remeasured to a fair value of
£89m. This resulted in a remeasurement gain for the Group of £5m, included
in the Group income statement.
The Group also recognised a gain of £5m in relation to its share of TU's
available-for-sale (AFS) reserve immediately prior to acquisition, included in
the Group income statement.
£m
Cash consideration paid 90
Contingent consideration 5
Non-cash settlement of pre-existing relationships 12
Fair value of the Group's 49.9% investment 89
Total purchase consideration 196
The table below sets out the fair values of the identifiable assets and
liabilities acquired:
Assets £m
Cash and balances with central banks 42
Investment securities 635
Reinsurance assets 247
Prepayments and accrued income 2
Other assets 24
Intangible assets 18
Property, plant and equipment 1
Total assets 969
Liabilities
Accruals and deferred income (15)
Other liabilities (5)
Deferred tax liability (2)
Insurance fund withheld (100)
Insurance contract provisions (650)
Subordinated liabilities (21)
Total liabilities (793)
Total fair value acquired 176
Total purchase consideration 196
Less: Fair value recognised (176)
Goodwill recognised 20
The goodwill arising on the acquisition is primarily attributable to synergies
which are expected to be realised from the acquisition and having full control
over the insurance business and has been allocated to the Tesco Bank segment.
None of the goodwill is expected to be deductible for tax purposes. Acquired
intangible assets comprise internally generated computer software of £18m,
which is amortised over a period of five years. The fair value of acquired
insurance and other receivables was £26m.
The contribution of the business since acquisition to revenue, operating
profit and profit before tax was £239m, £13m and £16m respectively. If the
acquisition had occurred on 28 February 2021, the Group's revenue for the year
would have increased by £51m to £61,395m, operating profit would have
increased by £5m to £2,565m and profit before tax would have increased by
£2m to £2,035m.
Transaction costs of £3m, included in administrative expenses, were incurred
by the Group in relation to the acquisition during the year to 26 February
2022 (2021: £nil).
Acquisition of property joint venture - The Tesco Sarum Limited Partnership
On 17 December 2021, the Group obtained control of The Tesco Sarum Limited
Partnership (the partnership), previously accounted for as a joint venture,
through the acquisition of the other partner's 50% interest for £35m. The
Group paid £13m stamp duty on the acquisition. The partnership had bond and
derivative liabilities, and owned 11 stores, which the partnership previously
leased to the Group. The acquisition, which has been treated as an asset
acquisition, increased the Group's owned property portfolio and borrowings,
replacing the Group's associated right of use assets and lease liabilities.
The table below sets out the values to the Group in respect of obtaining
control of the partnership:
Notes £m
Property, plant and equipment 10 584
Cash and cash equivalents 5
Other working capital (4)
Borrowings 23 (585)
Derivative liabilities 23 (64)
Total assets and liabilities acquired (64)
Consideration paid 35
Stamp duty paid 13
Derecognition of the Group's lease liabilities with the partnership 23 (355)
Derecognition of the Group's right of use assets with the partnership 11 243
Total cost* (64)
* The carrying value of the pre-existing joint venture interest was
£nil.
The Group recognised the following gains and losses as an adjusting item
within cost of sales on the Group income statement. The related tax charge on
acquisition of £25m has also been classified as an adjusting item. Refer to
Note 3 for further details.
Notes £m
Impairment of property, plant and equipment acquired 12 (62)
Total adjusting gain/(loss) within cost of sales (62)
Taxation - adjusting item 3 (25)
Total adjusting gain/(loss) after taxation (87)
Note 25 Contingent liabilities
Contingent liabilities
As previously reported, Tesco Stores Limited (TSL) (along with all the major
supermarkets) has received claims from current and former hourly-paid store
colleagues alleging that they do work of equal value to that of colleagues
working in its distribution centres and that differences in terms and
conditions relating to pay are not objectively justifiable (the Equal Pay
Claims). The claimants are seeking the differential between the pay terms
looking back, and equivalence of pay terms moving forward. As at the date of
this disclosure, there are approximately 30,000 claims against TSL, with the
number of claims expected to continue to increase as the litigation
progresses.
UK equal pay law provides that an employee is entitled to the same terms in
relation to pay as those of a comparator of the opposite sex in the same
employment if they are employed to do work of equal value. The legislation
achieves this by implying a clause into the contract of employment, which has
the effect of importing into the employee's contract the more favourable
term(s) of the comparator.
Equal pay claims are typically heard in three stages and the claimants have to
win at every stage in order to succeed. The first stage is comparability which
is effectively a technical gateway to the claims proceeding. The claimants
have to show that their pay and the pay of any comparator are set by the same
body. Following superior court decisions involving other major supermarkets,
TSL has conceded this point.
The second and third stages are an equal value assessment and the
consideration of TSL's material factor defences (non-discriminatory reasons
for differentials in pay terms) to any claims which succeed at the equal value
assessment stage. These two stages remain some time away and it is currently
estimated that the Equal Pay Claims are unlikely to be determined before 2027,
although a final date is impossible to predict with any certainty and any
final decision may be delayed further by any appeals.
At present, the total number of Equal Pay Claims that may be received, the
merits, and likely outcome of those claims and of TSL's defences to them, and
the potential impact on the Group, are subject to various and substantial
uncertainties. There are multiple factual and legal defences to these claims
and the Group intends to defend them vigorously, while at the same time taking
appropriate steps to mitigate the risks. The Group therefore cannot make an
assessment of the likely outcome of the litigation, or the potential quantum
of its liability or the potential impact on the Group at this stage. In the
event TSL were to be unsuccessful in its legal defences at all stages of the
Equal Pay Claims, and dependent on the number of any ultimately successful
claims, the potential quantum of its liability could be material.
There are a number of other contingent liabilities that arise in the normal
course of business, which if realised, are not expected to result in a
material liability to the Group.
Note 26 Events after the reporting period
See Note 1 for further details of the Group's assessment of the impact of the
war in Ukraine, both before and after the balance sheet date. There were no
other events after the reporting period requiring disclosure.
Supplementary information (unaudited)
One-year like-for-like sales performance (exc. VAT, exc. fuel)
Like-for-like sales
Q1 Q2 Q3 Q4 H1 H2 FY
2021/22
2021/22
2021/22
2021/22
2021/22 2021/22 2021/22
UK & ROI 1.3% 3.6% 2.3% 1.9% 2.4% 2.1% 2.2%
UK 0.5% 2.0% 0.2% (1.2)% 1.2% (0.5)% 0.4%
ROI (6.1)% 1.2% (3.3)% (3.0)% (2.6)% (3.2)% (2.9)%
Booker 9.2% 12.5% 16.2% 24.2% 11.0% 19.9% 15.3%
Central Europe (1.6)% 4.3% 3.1% 5.8% 1.4% 4.5% 2.9%
Total Retail 1.0% 3.6% 2.4% 2.2% 2.3% 2.3% 2.3%
Tesco Bank n/a n/a n/a n/a n/a n/a n/a
Total Group 1.0% 3.6% 2.4% 2.2% 2.3% 2.3% 2.3%
Total sales performance (exc. VAT, exc. fuel)
Actual rates Constant rates
H1 H2 FY H1 H2 FY
2021/22 2021/22 2021/22 2021/22 2021/22 2021/22
UK & ROI 2.7% 2.0% 2.3% 2.9% 2.3% 2.6%
UK 1.8% (0.2)% 0.8% 1.8% (0.2)% 0.8%
ROI (5.8)% (8.4)% (7.1)% (2.0)% (2.9)% (2.4)%
Booker 11.1% 19.4% 15.1% 11.1% 19.4% 15.1%
Central Europe (0.8)% 0.7% (0.0)% 2.6% 4.9% 3.7%
Total Retail 2.4% 1.9% 2.2% 2.9% 2.5% 2.7%
Tesco Bank 12.2% 39.9% 25.4% 12.2% 39.9% 25.4%
Total Group 2.6% 2.4% 2.5% 3.0% 3.0% 3.0%
Country detail - Retail
Revenue (exc. VAT, inc. fuel)
Local currency £m Average exchange Closing exchange
(m) rate rate
UK 46,161 46,161 1.0 1.0
ROI 2,919 2,488 1.2 1.2
Booker 7,755 7,755 1.0 1.0
Czech Republic 41,832 1,404 29.8 29.4
Hungary 575,048 1,368 420.4 434.6
Slovakia 1,441 1,228 1.2 1.2
UK sales area by size of store
26 February 2022 27 February 2021
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 2,556 5.5 14.2% 2,534 5.5 14.2%
3,001-20,000 281 3.0 7.8% 282 3.0 7.8%
20,001-40,000 286 8.3 21.4% 285 8.2 21.2%
40,001-60,000 182 8.8 22.7% 182 8.8 22.8%
60,001-80,000 120 8.4 21.7% 120 8.4 21.8%
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* 3,478 38.7 100.0% 3,456 38.6 100.0%
* Excludes Booker and franchise stores.
Group space summary
Actual Group space - store numbers((a))
2020/21 Openings Closures/ Net gain/ 2021/22 Repurposing/
year end
disposals
(reduction)((b)) year end extensions((c))
Large((d)) 797 2 (1) 1 798 -
Convenience((d)) 1,936 40 (10) 30 1,966 -
Dotcom only 6 - - - 6 -
Total Tesco 2,739 42 (11) 31 2,770 -
One Stop((e)) 705 10 (20) (10) 695 -
Booker 194 - (2) (2) 192 -
Jack's 12 1 - 1 13 -
UK((e)) 3,650 53 (33) 20 3,670 -
ROI 151 1 - 1 152 -
UK & ROI((e)) 3,801 54 (33) 21 3,822 -
Czech Republic((e)) 183 2 - 2 185 3
Hungary 201 - (3) (3) 198 4
Slovakia((e)) 153 1 - 1 154 5
Central Europe((e)) 537 3 (3) - 537 12
Group((e)) 4,338 57 (36) 21 4,359 12
UK (One Stop) 207 55 (10) 45 252 -
Czech Republic 123 7 (4) 3 126 -
Slovakia 5 10 - 10 15 -
Franchise stores 335 72 (14) 58 393 -
Total Group 4,673 129 (50) 79 4,752 12
Actual Group space - '000 sq. ft.((a))
2020/21 Openings Closures/ Repurposing/ Net gain/ 2021/22
year end
disposals
extensions((c)) (reduction)((b)) year end
Large((d)) 31,356 55 (9) - 46 31,402
Convenience((d)) 5,227 85 (25) - 60 5,287
Dotcom only 716 - - - - 716
Total Tesco 37,299 140 (34) - 106 37,405
One Stop((e)) 1,150 22 (38) - (16) 1,134
Booker 8,284 - (74) - (74) 8,210
Jack's 119 9 - - 9 128
UK((e)) 46,852 171 (146) - 25 46,877
ROI 3,335 9 - - 9 3,344
UK & ROI((e)) 50,187 180 (146) - 34 50,221
Czech Republic((e)) 4,266 41 - (59) (18) 4,248
Hungary 5,997 - (25) (45) (70) 5,927
Slovakia((e)) 3,151 13 - (21) (8) 3,143
Central Europe((e)) 13,414 54 (25) (125) (96) 13,318
Group((e)) 63,601 234 (171) (125) (62) 63,539
UK (One Stop) 256 81 (12) 42 111 367
Czech Republic 118 5 (8) - (3) 115
Slovakia 5 8 - - 8 13
Franchise stores 379 94 (20) 42 116 495
Total Group 63,980 328 (191) (83) 54 64,034
(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) Following the rebranding of Metro stores in the first half of 2021/22, 2
stores (17,361 sq. ft. of space) have been reclassified from Convenience to
Large in the 2020/21 brought forward figures.
(e) Excludes franchise stores.
Group space forecast to 25 February 2023 - '000 sq. ft.((a))
2021/22 Openings Closures/ disposals Repurposing/ Net gain/ 2022/23
year end
year end extensions (reduction)
Large 31,402 94 (65) 9 38 31,440
5,421
716
Convenience 5,287 150 (16) - 134
Dotcom only 716 - - - -
Total Tesco 37,405 244 (81) 9 172 37,577
One Stop((b)) 1,134 40 - - 40 1,174
Booker 8,210 - - - - 8,210
-
Jack's 128 - (128) - (128)
UK((b)) 46,877 284 (209) 9 84 46,961
3,394
ROI 3,344 43 - 7 50
UK & ROI((b)) 50,221 327 (209) 16 134 50,355
Czech Republic((b)) 4,248 45 - (134) (89) 4,159
Hungary 5,927 - - (141) (141) 5,786
Slovakia 3,143 69 - (29) 40 3,183
Central Europe((b)) 13,318 114 - (304) (190) 13,128
Group((b)) 63,539 441 (209) (288) (56) 63,483
UK (One Stop) 367 126 - - 126 493
120
Czech Republic 115 6 (1) - 5
Slovakia 13 18 - - 18 31
Franchise stores 495 150 (1) - 149 644
Total Group 64,034 591 (210) (288) 93 64,127
(a) Continuing operations.
(b) Excludes franchise stores.
Tesco Bank income statement
2022((a)) 2021((a))
£m £m
Revenue
Interest receivable and similar income 473 542
Fees and commissions receivable 210 193
Gross insurance premium income 239 -
922 735
Direct costs
Interest payable (42) (83)
Fees and commissions payable (20) (17)
Insurance premium income ceded to reinsurers (105) -
Insurance claims (150) -
Reinsurers' share of claims incurred 62 -
(255) (100)
Other income 15 -
Gross profit 682 635
Other expenses
Staff costs (210) (176)
Premises and equipment (68) (75)
Other administrative expenses (193) (142)
Depreciation and amortisation (65) (57)
Impairment reversal/(loss) on financial assets 30 (360)
Operating profit/(loss) before adjusting items 176 (175)
Adjusting items((b)) - (295)
Operating profit/(loss) 176 (470)
Finance income/(costs): movements on derivatives and hedge accounting 2 (2)
Finance income/(costs): interest (4) (6)
Finance income/(costs): leases (2) (1)
Share of profit/(loss) of joint venture 3 16
Profit/(loss) for the year 175 (463)
(a) These results are for the 12 months ended 28 February 2022 and the
previous period represents the 12 months ended 28 February 2021.
(b) Adjusting items in 2022 comprise a goodwill impairment charge of £nil
(2021: goodwill impairment charge of £(295)m).
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
is more comparable 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 Notes 1 and 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 Directors and management have redefined Retail free cash flow to exclude
cash flows from business acquisitions and disposals, investments in joint
ventures, associates, unlisted equity investments, cash flows from the sale of
property and other fixed assets, buyback of property and other adjusted cash
flows. 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.
The Retail operating cash flow and Free cash flow APMs are no longer used
following the redefinition of the Retail free cash flow APM.
The Directors and management have simplified the naming of the Group's profit
and EPS APMs. References to: exceptional items and amortisation of acquired
intangibles, net pension finance costs and/or fair value remeasurements of
financial instruments, as applicable, have been replaced with 'adjusted' in
the names of the measures. The definitions of these APMs have not altered. For
consistency, net pension finance costs and fair value remeasurements of
financial instruments have been included within adjusting items on the face of
the income statement.
Comparative information has been restated for these changes.
The Directors and management have added Net debt/EBITDA ratio as a new
indebtedness APM, which is defined as Net debt divided by Retail EBITDA. This
metric is used to demonstrate the Group's ability to meet its payment
obligations and removes any movements in the IAS 19 pension obligation,
largely driven by external market factors outside of the control of
management, that are present in the Total Indebtedness measure. Since the new
APM is intended to provide additional useful information on trends in
indebtedness, the Directors and management will continue to present the
existing indebtedness APMs.
Group APMs
APM Closest equivalent Adjustments to reconcile Definition
IFRS measure
to IFRS measure
and purpose
Income statement
Revenue measures
Sales Revenue - Fuel sales - Excludes the impact of fuel sales made at petrol filling stations to
demonstrate the Group's performance in the retail and financial services
businesses. It removes volatilities outside of the control of management,
associated with the movement in fuel prices.
- This is a key management incentive metric.
- This measure is also presented on a Retail and Tesco Bank basis.
Growth in sales No direct equivalent - Ratio N/A - Growth in sales is a ratio that measures year-on-year movement in Group
sales for continuing operations for 52 weeks. It shows the annual rate of
increase in the Group's sales and is considered a good indicator of how
rapidly the Group's core business is growing.
Like-for-like (LFL) No direct equivalent - Ratio N/A - Like-for-like is a measure of growth in Group online sales and sales from
stores that have been open for at least a year (but excludes prior year sales
of stores closed during the year) at constant foreign exchange rates. It is a
widely used indicator of a retailer's current trading performance and is
important when comparing growth between retailers that have different profiles
of expansion, disposals and closures.
APM Closest equivalent Adjustments to reconcile Definition
IFRS measure
to IFRS measure
and purpose
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
and Note 1 for further information on adjusting items.
- Amortisation of acquired intangibles is included within adjusting items
because it relates to historical inorganic business combinations and does not
reflect the Group's ongoing trading performance (related revenue and other
costs from acquisitions are not adjusted).
- This is a key management incentive metric.
- This measure is also presented on a Retail and Tesco Bank basis.
Adjusted total finance costs Finance costs - Adjusting items((b)) - Adjusting items within finance costs include net pension finance 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 and Note 1
for further information on adjusting items.
Adjusted operating margin No direct equivalent - Ratio N/A - Operating margin is calculated as adjusted operating profit divided by
revenue. Progression in operating margin is an important indicator of the
Group's operating efficiency.
Adjusted diluted earnings Diluted earnings per share from continuing operations - Adjusting items((b)) - This metric shows the adjusted profit after tax from continuing operations
attributable to owners of the parent divided by the weighted average number of
per share ordinary shares in issue during the financial period adjusted for the effects
of potentially dilutive share options.
Adjusted diluted earnings per share (adjusted for share consolidation) Diluted earnings per share from continuing operations - Adjusting items((b)) - To aid comparability, this measure is adjusted to reflect the full impact
of the 2020/21 financial year share consolidation as if it had taken place at
- Weighted average number of diluted shares the start of the previous financial year, providing an alternative view of the
year-on-year progression of adjusted diluted earnings per share.
- By presenting the weighted average number of diluted shares in this way,
it removes the impact of the sale of our businesses in Thailand and Malaysia
to provide a consistent view between numerator and denominator. Earnings from
discontinued operations are excluded from the numerator, but the weighted
average share base used in the statutory IAS 33 denominator reflects the full
impact of the share consolidation and special dividend in the 2020/21
financial year.
Retail EBITDA (earnings before adjusting items, interest, tax, depreciation Retail operating profit from continuing operations((a)) - Adjusting items((b)) - This measure is widely used by analysts, investors and other users of the
and amortisation)
accounts to evaluate comparable profitability of companies, as it excludes the
- Depreciation and amortisation impact of differing capital structures and tax positions, variations in
tangible asset portfolios and differences in identification and recognition of
intangible assets. It is used to derive the Net debt/EBITDA and Total
indebtedness ratios, and Fixed charge cover APMs.
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.
APM Closest equivalent Adjustments to reconcile Definition
IFRS measure
to IFRS measure
and purpose
Balance sheet measures
Net debt No direct equivalent - N/A - Net debt excludes the net debt of Tesco Bank but includes that of the
discontinued operations to reflect the net debt obligations of the Retail
business.
- Net debt comprises bank and other borrowings, lease liabilities, net
derivative financial instruments, joint venture loans and 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.
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 buybacks
additions, excluding those from business combinations
of properties (typically stores), as well as additions relating to
- Additions relating to decommissioning provisions and similar items decommissioning provisions and similar items
- Property buybacks are variable in timing, with the number and value of
buybacks dependent on opportunities that arise within any given financial
year. Excluding property buybacks therefore gives an alternative view of
trends in capital expenditure in the Group's ongoing trading operations.
- Additions relating to decommissioning provisions and similar items are
adjusted because they do not result in near-term cash outflows.
Cash flow measures
Retail free cash flow No direct equivalent - N/A - Retail free cash flow includes continuing cash flows from operating and
investing activities for the Retail business, the market purchase of shares
net of proceeds from shares issued in relation to share schemes, and repayment
of obligations under leases, excluding the effects of Tesco Bank's cash flows.
The following items are excluded: investing cash flows that increase/decrease
items within Net debt; proceeds from the sale of property, plant and
equipment, investment property, intangible assets and assets classified as
held for sale; cash utilised to buy back property; proceeds from the sale of
subsidiaries; cash utilised in business acquisitions; cash used for investment
in joint ventures, associates and unlisted equity investments; and adjusting
cash items in operating cash activities.
- By adjusting for these factors, which can have unpredictable timings or
amounts, or can be driven by external events or non-operational business
decisions (such as acquisitions and disposals of properties as opportunities
arise), the Directors and management believe this provides a view of free cash
flow generated by the Group's retail trading operations that is more
predictable and comparable over time and reflects the cash available to
shareholders.
- This is a key management incentive metric.
(a) Operating profit is presented on the Group income statement. It is not
defined per IFRS, however, is a generally accepted profit measure.
(b) Refer to Note 1 and Note 3.
APMs: Reconciliation of income statement measures
Adjusted diluted earnings/(loss) per share (adjusted for share consolidation)
Notes APM APM*
2022
2021
Adjusted profit after tax attributable to owners of the parent (£m) 8 1,693 892
Diluted weighted average number of shares (millions) 7,746 9,656
Adjustment to reflect the post-consolidation share base as if it had been in - (1,956)
place from the start of the previous financial year (millions)
Adjusted diluted weighted average number of shares (adjusted for share 7,746 7,700
consolidation) (millions)
Adjusted diluted earnings per share (pence) 21.86 9.24
Adjustment to reflect the post-consolidation share base as if it had been in - 2.34
place from the start of the previous financial year (pence)
Adjusted diluted earnings per share (adjusted for share consolidation) (pence) 21.86 11.58
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
Retail EBITDA
Notes APM APM*
2022 2021
£m £m
Operating profit/(loss) 2 2,560 1,547
Less: Adjusting items 2 265 241
Adjusted operating profit 2 2,825 1,788
Less: Adjusted Tesco Bank operating (profit)/loss 2 (176) 175
Retail adjusted operating profit 2 2,649 1,963
Add: Depreciation and amortisation before adjusting items 2 1,642 1,668
Less: Tesco Bank depreciation and amortisation 2 (65) (57)
Retail EBITDA 4,226 3,574
* Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
APMs: Reconciliation of balance sheet measures
Net debt/EBITDA and Total indebtedness ratio
Notes APM APM
2022 2021
Net debt (£m) 23 10,516 11,955
Retail EBITDA (£m) 4,226 3,574
Net debt/EBITDA ratio 2.5 3.3
Net debt (£m) 23 10,516 11,955
Add: Defined benefit pension deficit, net of deferred tax (£m) 20 242 1,004
Total indebtedness (£m) 10,758 12,959
Retail EBITDA (£m) 4,226 3,574
Total indebtedness ratio 2.5 3.6
Fixed charge cover
Notes APM APM
2022 2021
Net finance costs (£m) 4 542 937
Less: Net pension finance costs (£m) 4 (22) (43)
Add: Fair value remeasurements of financial instruments (£m) 4 123 (214)
Adjusted total finance costs (£m) 643 680
Less: Finance charges payable on lease liabilities (£m) 4 (405) (446)
Adjusted total finance cost, excluding capitalised interest and finance 238 234
charges payable on lease liabilities (£m)
Add: Retail total lease liability payments (£m) 23 977 1,104
Less: Retail discontinued operations total lease liability payments (£m) (2) (99)
1,213 1,239
Retail EBITDA (£m) 4,226 3,574
Fixed charge cover 3.5 2.9
Capex
Notes APM APM
2022 2021((a))
£m £m
Property, plant and equipment additions((b)) 10 1,587 1,354
Goodwill and other intangible asset additions((b)) 9 229 201
Less: Additions from obtaining control of property joint venture((c)) 10 (584) (326)
Less: Additions from other property buybacks 10 (37) (209)
Less: Additions relating to decommissioning provisions and similar items (94) (5)
Capex 1,101 1,015
(a) Comparatives have been restated due to a change in accounting policy.
Refer to Note 1 for further details.
(b) Excluding amounts acquired through business combinations.
(c) Acquisition of The Tesco Sarum Limited Partnership in 2022 and The Tesco
Property (No.2) Limited Partnership in 2021.( )
( )
APMs: Reconciliation of cash flow measures
Notes APM APM
2022 2021
£m £m
Cash generated from/(used in) operating activities 2 3,757 602
Cash generated from/(used in) investing activities 2 (1,735) 6,171
Less: Cash generated from/(used in) operating activities in Tesco Bank 2 (149) (94)
Less: Cash generated from/(used in) operating activities in discontinued 2 6 (187)
operations
Less: Cash generated from/(used in) investing activities in Tesco Bank 2 119 (101)
Less: Cash generated from/(used in) investing activities in discontinued 2 (43) 820
operations
2 1,955 7,211
Own shares purchased in relation to share schemes 2 (144) (66)
Retail repayments of capital element of obligations under leases 2 (571) (561)
Exclude/add back:
Retail proceeds from sale of property, plant and equipment, investment 2 (308) (181)
property, intangible assets and assets classified as held for sale
Retail purchase of property, plant and equipment and investment property - 2 80 291
property buybacks
Retail disposal of subsidiaries, net of cash disposed 2 (117) (7,806)
Retail acquisition of businesses, net of cash acquired 2 - (15)
Retail investments in/(proceeds from sale of) joint ventures and associates 2 (4) 11
Retail adjusting net cash (generated from)/used in operating activities 2 316 2,515
Retail increase/(decrease) in loans to joint ventures and associates 2 4 2
Retail net investments in/(proceeds from sale of) other investments 2 (1) 1
Retail net investments in/(proceeds from sale of) short-term investments 2 1,067 (62)
Retail free cash flow 2 2,277 1,340
The following table reconciles the Retail free cash flow APM to that
previously presented:
Notes APM APM
2022 2021
£m £m
Retail free cash flow 2 2,277 1,340
Retail proceeds from sale of property, plant and equipment, investment 2 308 181
property, intangible assets and assets classified as held for sale
Retail purchase of property, plant and equipment and investment property - 2 (80) (291)
property buybacks
Retail disposal of subsidiaries, net of cash disposed 2 117 7,806
Add: Cash outflow from major disposal* - (5,337)
Retail acquisition of businesses, net of cash acquired 2 - 15
Retail (investments in)/proceeds from sale of joint ventures and associates 2 4 (11)
Retail (investments in)/proceeds from sale of other investments 2 1 (1)
Retail adjusting net cash (generated from)/used in operating activities 2 (316) (2,515)
Memo: Retail free cash flow including cash flows from non-major corporate 2 2,311 1,187
acquisitions and disposals, cash flows from the sale or buyback of properties,
and Retail adjusting cash flows from operating activities
* Retail cash flow from major disposal of £5,337m in the financial year
ended 27 February 2021 principally comprises the £7.8bn proceeds on disposal
of the Group's Asia operations, excluding cash disposed and intercompany loan
repayments, less the £2.5bn additional pension contribution.
Glossary - Other
CPI
Consumer price index.
Dividend per share
This is calculated as interim dividend per share paid plus final dividend per
share declared in respect of that financial year.
Enterprise value
This is calculated as market capitalisation plus net debt.
EURIBOR
Euro Interbank Offered Rate.
ESG
Environmental, social and governance.
FTE
Full-time equivalents.
LIBOR
London Interbank Offered Rate.
LPI
Limited price index.
Market capitalisation
The total value of all Tesco shares calculated as total number of shares
multiplied by the closing share price at year end.
MTN
Medium term note.
MREL
Minimum requirements for own funds and eligible liabilities (European Banking
Authority).
Net promoter score (NPS)
This is a loyalty measure based on a single question requiring a score between
0-10. The NPS is calculated by subtracting the percentage of detractors
(scoring 0-6) from the percentage of promoters (scoring 9-10). This generates
a figure between -100 and 100 which is the NPS.
Return
Profit before adjusting items and interest, after tax (applied at effective
rate of tax).
RPI
Retail price index.
SONIA
Sterling Overnight Index Average.
Total shareholder return
The notional annualised return from a share, measured as the percentage change
in the share price, plus the dividends paid with the gross dividends,
reinvested in Tesco shares. This is measured over both a one and five-year
period.
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