REG - Tesco PLC - Tesco PLC Interim Results 23/24
04/10/2023 07:15
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RNS Number : 5918O Tesco PLC 04 October 2023
Interim Results 2023/24
WINNING WITH CUSTOMERS BY INVESTING IN VALUE AND QUALITY.
Performance highlights(2,3): H1 23/24 H1 22/23(1) Change at actual rates Change at constant rates
Group sales (exc. VAT, exc. fuel)(4) £30,749m £28,241m 8.9% 8.4%
Adjusted operating profit(5) £1,482m £1,300m 14.0% 13.9%
- Retail £1,417m £1,248m 13.5% 13.5%
- Tesco Bank £65m £52m 25.0% 25.0%
Retail free cash flow(6) £1,368m £1,283m 6.6%
Net debt(3,6) £(9,888)m £(10,044)m 1.6%
Adjusted diluted EPS(5) 12.26p 10.50p 16.8%
Interim dividend per share 3.85p 3.85p -
Statutory measures(3):
Revenue (exc. VAT, inc. fuel) £34,149m £32,519m 5.0%
Operating profit £1,482m £721m 105.5%
Profit before tax £1,217m £396m 207.3%
Retail cash generated from operating activities £2,068m £2,038m 1.5%
Diluted EPS 12.83p 3.27p 292.4%
Ken Murphy, Chief Executive:
"We know how challenging it is for many households across the country, as they
continue to grapple with ongoing cost of living pressures. We are committed
to doing everything we can to drive down food bills and Tesco is now
consistently the cheapest full-line grocer.
Our investments in value, and in improving more than 1,100 own brand products
from pasta to fresh fish, are helping us to offer outstanding quality at great
prices, all underpinned by market-leading availability. Customers are
responding well, contributing to market share gains in store and online.
We're seeing the results at both ends of the basket, with strong growth in our
Finest range as shoppers look to save by treating themselves at home, voting
with their feet as they switch from premium retailers to Tesco.
This relentless focus on customers, combined with significant cost reductions
from our Save to Invest programme, has driven our strong performance in the
first half of the year. Food inflation fell across the half and while
external pressures remain, we expect that it will continue to do so in the
second half of the year. We are in a strong position to keep investing for
customers, and will continue to lower prices wherever we can - doing
everything in our power to make sure customers can have a fantastic,
affordable Christmas by shopping at Tesco."
Delivered strong financial performance driven by relentless focus on value for
customers:
• Strong sales across the Group, with Retail LFL(7) sales up 7.8%; inflation
fell across the half, with volume and sales mix trends ahead of expectations:
- UK & ROI LFL sales up 8.4%, including UK up 8.7%, ROI up 6.9% and Booker
up 7.5%
- C.Europe LFL sales up 0.9% reflecting strength of LY base and market volume
contraction due to sustained high inflation
• Retail adjusted operating profit(5) £1,417m, up 13.5% at constant rates,
including Save to Invest delivery of c.£290m
- UK & ROI adjusted operating profit £1,371m, up 17.2%, with accelerated
cost savings and a resilient volume performance offsetting significant cost
pressures
- Central Europe adjusted operating profit £46m, down (41.8)% due to a
significant decline in Hungary driven by the impact of currency devaluation on
input costs and regulatory actions; Slovakia and Czech Republic performing
well
• Tesco Bank adjusted operating profit £65m, up 25.0%, primarily driven by
strong income growth; £250m special dividend returned to the Group reflecting
the strength of Bank's balance sheet
• Strong retail free cash flow(6) £1,368m, including a positive working capital
inflow of £368m
• Net debt(3,6) improved by £605m since year-end due to strong cash flow &
Bank special dividend; net debt/EBITDA ratio 2.3x
• Interim dividend per share of 3.85p, in line with our interim dividend policy
at 35% of prior year full year dividend
Statutory profit performance reflects prior year impairment charge:
• Statutory revenue £34.1bn, up 5.0% at actual rates, with fuel sales down
(20.5)% due to lower retail prices
• Statutory operating profit £1,482m, up 105.5% and profit before tax £1,217m
up 207.3%, primarily reflecting last year's £(626)m non-cash impairment
charge, with no charge in the first half of the current year, and strong
trading performance
Footnotes can be found on page 4
Continuing to offer customers great value, underpinned by focus on quality:
• Consistently the cheapest of the full-line grocers across the half, with our
powerful combination of Aldi Price Match on more than 650 lines, over a
thousand Low Everyday Prices locked to January 2024 and exclusive Clubcard
Prices deals
• Prices cut on c.2,500 products by the end of the half, from bread to broccoli,
with average saving of c.12%
• Clubcard Prices on over 8,000 products across the store, saving customers up
to c.£390 per year
• Investment in quality and product innovation, launching 335 brand new products
and reformulating 1,150
• Net switching gains from premium retailers for 13 consecutive periods; further
strengthened Finest offer leading to both sales and volume growth; launched
more than 150 brand new Finest products
• Introduced more affordable own brand products in Express stores; savings of up
to 40% vs. the products they replaced
• Strong market share performance: UK up +30bps, with gains in both stores and
online; ROI market share up +70bps
• Market-leading availability, up +7ppts YoY; Brand NPS +2pts YoY, driven by
improvements in range & shopping experience
Creating long-term, sustainable value for all Tesco stakeholders:
• Continued strong focus on customer satisfaction, market share and cash,
ensuring we balance all stakeholders' needs
• Biggest investment in pay and new wellbeing services for colleagues, including
launch of virtual GP appointments
• Enhanced sourcing capabilities, working with suppliers to unlock savings for
customers; #1 in Advantage supplier survey for eighth consecutive year
• Launched Stronger Starts grants programme to help 5,300 schools give children
a healthier, stronger start in life
• One of the first companies globally to validate ambitious net-zero
science-based targets on all GHG emissions, including Scope 3; introduced
500th electric home delivery van into fleet
CAPITAL RETURN PROGRAMME.
In April this year we announced our commitment to buy back a total of £750m
worth of shares by April 2024. We purchased £503m worth of shares in the
first half and will purchase the remaining shares by April.
Since launching our ongoing capital return programme in October 2021, we have
now purchased a total of almost £1.6bn worth of shares. We continue to see
the buyback programme as an ongoing and critical driver of shareholder
returns, reflecting the strength of our balance sheet and our confidence in
delivering strong future cash flows.
OUTLOOK.
Looking forward, we will continue to prioritise investment in our customer
offer, working with our supplier partners to reduce prices wherever we can
whilst delivering the outstanding quality our customers expect.
This relentless focus on customers, combined with significant cost reductions
from our Save to Invest programme, resulted in a strong performance in the
first half of the year which means we now expect to deliver between £2.6bn
and £2.7bn retail adjusted operating profit for the 2023/24 financial year.
We also now expect to generate retail free cash flow of between £1.8bn and
£2.0bn this year, ahead of our medium-term guidance range of £1.4bn to
£1.8bn.
We continue to expect Bank adjusted operating profit of between £130m and
£160m.
STRATEGIC PRIORITIES.
We remain focused on delivering on our four strategic priorities. We are
committed to supporting our customers with great quality, value and
convenience, whilst ensuring we reward them for their loyalty. Our brilliant
colleagues, unrivalled reach and strong supplier relationships mean we can
serve our customers whenever, wherever, and however they need us. Our
priorities guide us to drive top-line growth, grow profit and generate cash,
and in doing so, deliver for all of our stakeholders.
We have made further progress against our strategic priorities during the
half:
1) Magnetic Value for Customers - Re-defining value to become the customer's
favourite
• Further strengthened our market-leading combination of Aldi Price Match, Low
Everyday Prices and Clubcard Prices, enabling us to be the cheapest of the
full-line grocers across the half
• Led the way on passing on savings to customers, applying new capabilities
developed within our sourcing team to capture cost price reductions ahead of
the market
• Continued to elevate the importance of quality and innovation within our
product range, improving our competitiveness and performance against premium
retailers
• Further improved our convenience offering, increasing the number of own brand
products in Tesco Express, driving up fresh participation in One Stop and
increasing sales of Jack's to Booker's retailer customers
• Locked prices on 650 essential Booker catering products over key summer
trading period; 700 now locked to Christmas
• Continued commitment to healthy, affordable diets; committed to not sell HFSS
products on volume-led promotions; Better Baskets supports our commitment to
achieve 65% healthy volume sales by 2025
2) I Love my Tesco Clubcard - Creating a competitive advantage through our
powerful digital capability
• Customers benefiting from Clubcard across the Group; Clubcard sales
penetration up in all businesses: UK 80%, ROI 80%, Central Europe 85%, Mobile
86% and Bank 67%
• World-class Tesco app with 16m users across the Group (12.8m in UK, 0.8m in
ROI and 2.5m in CE)
• 7.5m UK customers using digital Clubcard at till, up 62% YoY; 15.4m UK
customers opting into e-statements, up 57% YoY
• 86m personalised coupons issued to nearly 6m customers this half; trialling a
broader range of personalisation to support in-store shopping experience via
Scan as You Shop
• Expanding digital platform; added >750 in-store screens; >300 suppliers
using our online sponsored search functionality
3) Easily the Most Convenient - Serving customers wherever, whenever and
however they want to be served
• Online performance continues to outpace market, share up +71bps YoY; switching
gains from online competitors
• Strengthened online availability to 97.6%; number of 'perfect orders' up
+12ppts YoY
• Opened a further three UFCs since February, adding 1m order capacity per year;
now at nine UFCs in total
• Tesco Whoosh now in 1,414 stores, making rapid delivery available to c.60% of
population; now offering larger baskets
• Launched 'Chef Central' in Booker, offering multi-site national and regional
customers the ability to offer standardised menus through a defined product
range, with great value products delivered directly to their doors
• Opened 33 stores across the Group (16 Express & 11 One Stop stores in UK,
one new superstore in ROI and five new stores in C.Europe); working with 143
net new Booker retail partners
• Introduced 500th electric customer home delivery van; fleet to be fully
electric in the UK by 2030
4) Save to Invest - Significant opportunities to simplify, become more
productive and reduce costs
• Another strong Save to Invest performance, delivering c.£290m in the half,
with a target to deliver a total of c.£600m by year-end, contributing to at
least £1.1bn cumulative savings between February 2022 February 2024
• Making progress across all areas: goods & services not for resale,
property, operations and central overheads
• Optimised management structures launched in over 800 large stores, including
introduction of 1,700 Shift Leader roles
• Continued streamlining of Express checkouts, with increased proportion of
self-service, upgraded colleague-operated checkouts and additional accessible
service desks
• End-to-end review of promotional replenishment to strengthen availability and
deliver efficiency gains
• Further energy consumption initiatives delivered in the half, including
upgraded LED lighting
GROUP REVIEW OF PERFORMANCE.
26 weeks ended 26 August 2023(2,3) H1 23/24 H1 22/23(1) Change at Change at constant rates
actual rates
Sales (exc. VAT, exc. Fuel)(4) £30,749m £28,241m 8.9% 8.4%
Fuel £3,400m £4,278m (20.5)% (20.6)%
Revenue (exc. VAT, inc. fuel) £34,149m £32,519m 5.0% 4.6%
Adjusted operating profit(5) £1,482m £1,300m 14.0% 13.9%
Adjusting items - £(579)m
Statutory operating profit £1,482m £721m 105.5%
Net finance costs £(269)m £(327)m
Joint ventures and associates £4m £2m
Statutory profit before tax £1,217m £396m 207.3%
Group tax £(288)m £(144)m
Statutory profit after tax £929m £252m 268.7%
Adjusted diluted EPS(5) 12.26p 10.50p 16.8%
Statutory diluted EPS 12.83p 3.27p 292.4%
Interim dividend per share 3.85p 3.85p -
Net debt(3,6) £(9,888)m £(10,044)m 1.6%
Retail free cash flow(6) £1,368m £1,283m 6.6%
Capex(8) £523m £448m 16.7%
Group sales(4) increased by 8.4% at constant rates, with growth across all
segments. The impact of inflation was evident across all markets, although
eased across the half as we worked hard to ensure that savings from falling
global commodity prices were passed onto customers. Customer demand held up
well in response to our ongoing focus on offering great value and quality and
sales volumes were stronger than we had anticipated. Group revenue increased
by 4.6% at constant rates, including a (20.6)% decline in fuel sales,
primarily due to lower selling prices year-on-year.
Group adjusted operating profit(5) increased by 13.9% at constant rates, with
Save to Invest contributing a further c.£290m of cost savings in the half.
We effectively managed the inflationary pressures in our cost base and
customer demand was resilient as we invested further in value.
Group statutory operating profit increased by 105.5% year-on-year, primarily
due to a £(626)m non-cash impairment charge in the prior year driven by an
increase in discount rates, combined with the strong trading performance
mentioned above. Discount rates have remained largely stable since February,
and there was no impairment charge or release in the first half.
Net finance costs decreased by £58m year-on-year primarily due to fair value
remeasurements related to the mark-to-market movement on index-linked swaps,
which led to a £28m credit this year compared to a £(75)m charge in the
prior year.
The higher tax charge this year was mainly driven by the increase in UK
corporation tax rates effective from April, in addition to higher retail
operating profits.
Our adjusted diluted EPS(5) increased by 16.8%, due to higher retail operating
profits and the ongoing benefit from our share buyback programme. We have
announced an interim dividend of 3.85 pence per ordinary share, in line with
last year and our interim policy to pay 35% of the prior full-year dividend.
We generated £1,368m of retail free cash flow(6), including a working capital
inflow of £368m. Net debt(3,6) reduced by £605m since the prior year end,
driven by strong retail free cash flow and a £250m special dividend from the
Bank, partially offset by the cash returned to shareholders via both our
ongoing share buyback programme and final dividend. The net debt/EBITDA
ratio was 2.3 times, compared to 2.6 times as at 25 February 2023.
Further commentary on these metrics can be found below and a full income
statement can be found on page 16.
Notes:
1. Comparatives have been restated for the adoption of IFRS 17 Insurance
Contracts. Refer to Notes 1 and 20 for further details.
2. The Group has defined and outlined the purpose of its alternative
performance measures, including its performance highlights, in the Glossary
starting on page 46.
3. All measures apart from Net debt are shown on a continuing operations
basis unless otherwise stated. Further information on Net debt can be found
in Note 18 on page 41.
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.
6. Net debt and Retail free cash flow exclude Tesco Bank.
7. Like-for-like is a measure of growth in Group online sales and sales from
stores that have been open for at least a year (at constant exchange rates,
excluding VAT and fuel).
8. Capex excludes additions arising from business combinations, property
buybacks (typically stores) and store purchases. Refer to page 46 for
further details.
Segmental review of performance:
Sales performance:
(exc. VAT, exc. Fuel)(1,4)
Sales LFL sales change Total sales change at Total sales change at constant rates
(£m) actual rates
- UK 21,811 8.7% 9.1% 9.1%
- ROI 1,398 6.9% 13.0% 10.0%
- Booker 4,704 7.5% 6.9% 6.9%
UK & ROI 27,913 8.4% 8.9% 8.8%
Central Europe 2,134 0.9% 6.7% 1.4%
Retail 30,047 7.8% 8.7% 8.2%
Bank 702 16.5% 16.5%
Group sales 30,749 8.9% 8.4%
Fuel 3,400 (20.6)% (20.5)% (20.6)%
Group revenue 34,149 5.0% 4.6%
Further information on sales performance is included in the appendices
starting on page 53.
Adjusted operating profit(1,5) performance:
Profit
(£m)
Change at actual rates Change at constant rates Margin % at actual rates Margin % change at actual rates
UK & ROI 1,371 17.3% 17.2% 4.4% 47 bps
Central Europe 46 (41.8)% (41.8)% 2.1% (163) bps
Retail 1,417 13.5% 13.5% 4.2% 33 bps
Bank 65 25.0% 25.0% 9.3% 64 bps
Group 1,482 14.0% 13.9% 4.3% 34 bps
Further information on operating profit performance is included in Note 2
starting on page 23.
UK & ROI overview:
In the UK, Republic of Ireland (ROI) and Booker, like-for-like sales increased
by 8.4%. Sales growth was stronger in the first quarter at 8.8%, followed by
growth of 8.0% in the second quarter as we traded over exceptionally warm
weather last year. Inflation gradually eased during the half as we cut
prices across everyday grocery lines.
UK & ROI adjusted operating profit was £1,371m, up 17.2% at constant
rates, driven by the ongoing acceleration of our Save to Invest programme, a
resilient volume performance across the segment and a continued strong
contribution from Booker.
Adjusted operating margin was 4.4%, 47bps higher year-on-year, reflecting the
cumulative effect of accelerating our Save to Invest delivery over the past
twelve months. Our current year operating margin has now recovered to levels
similar to those seen before the pandemic.
UK - Championing value and quality, with strong execution for customers,
leading to market share gains:
Like-for-like sales grew by 8.7% in the half, driven by a strong performance
across all formats and channels. Price inflation fell gradually across the
half, as we worked hard to pass on savings for customers as input cost
inflation eased. Volumes and sales mix performance improved into the second
quarter. Sales growth was higher in the first quarter at 9.0%, before
falling slightly in the second quarter to 8.4% as we traded over exceptionally
warm weather and the Platinum Jubilee celebrations in the prior year.
We were consistently the cheapest of the full-line grocers across the half,
with our price position improving even further this year. Throughout the
half, we continued to build on our powerful combination of Aldi Price Match,
Clubcard Prices and our commitment to Low Everyday Prices, which we recently
extended, with prices locked on over 1,000 products until January 2024. We
were first to market with price cuts on key ranges such as milk, pasta and
cooking oil in June, and last month we extended our 'Price Cuts' campaign to
support families by cutting the price of frequently purchased food and baby
products including nappies. By the end of the first half, c.2,500 products
were on average c.12% cheaper than at the start of the year. We have
market-leading capabilities in commodity forecasting and purchasing, which
allows us to work in close partnership with our supplier partners to be first
to market with the best prices possible for customers.
Overall market share grew by +30bps year-on-year to 27.2%, with a particularly
strong performance in our online business. We saw switching gains across six
consecutive periods, with thirteen consecutive periods of net gains from
premium retailers as our customers sought to treat themselves. Finest sales
were a particular highlight, with volumes up 4.1% in the half.
Food sales were particularly strong, growing by 10.6% as we continued to
innovate our ranges to offer customers even better-quality products at a great
price. We launched 335 new products in the first half, including our Finest
Summer Selection and Asian ready meal ranges, and reformulated and improved
1,150 own brand products, including the relaunch of our fresh fish and pasta
ranges. These relaunches contributed towards market share gains in the
'dinner for tonight' mission. We were recognised as The International Wine
Challenge's 'Wine Supermarket of the Year' for the first time in eleven years,
reflecting our efforts to enhance our premium wine offering. We launched our
premium lunch time meal deal in the first quarter, with strong feedback on the
quality of the products; 31% of customers who bought into the deal were new to
a meal deal offer of any sort.
Home and Clothing sales, which account for around 7% of total UK sales,
declined by (4.8)%, which primarily reflects the impact of strategic ranging
decisions, including exiting and reducing low returning categories such as
large electricals and adult footwear. Excluding these impacts, sales were
broadly flat. We outperformed the rest of the market in Clothing across the
half and further improved our value perception against our key competitors.
We will launch our Paperchase range in 120 stores in November, with great
quality products which reflect the heritage of the Paperchase brand.
Sales grew across large and convenience store formats, by 9.3% and 5.1%
respectively. In our large stores, we tailored our trade plan to offer
customers market-leading deals over key seasonal events, leading to an
increase in price satisfaction year-on-year. We supported families through
the school holidays by once again offering free kids' meals in our cafés to
Clubcard holders with any purchase. Convenience sales, which include a
higher proportion of food-on-the-go, were impacted by poorer weather this year
lapping exceptionally warm weather last year. Our city-centre Tesco Express
stores performed particularly well, with like-for-like growth of c.7.5%.
Online sales grew by 10.0%, as we further increased the proportion of 'perfect
order' deliveries, meaning on time with full availability. Online market
share grew by +71bps year-on-year, with customer satisfaction scores up
+7pts. Online sales participation remains stable at 13.0% of UK sales, which
is 4ppts higher than pre-pandemic, driven by strong customer retention.
Online performance H1 One-year change
23/24
Sales inc. VAT £3.0bn 10.0%
Orders per week 1.18m 4.2%
Basket size £98 5.2%
Online % of UK total sales 13.0% 0.1ppts
We opened our seventh and eighth Urban Fulfilment Centres (UFCs) in the half
in Gallions Reach and King's Lynn, and in September we opened our ninth UFC in
Coventry, which completes our opening plan for the current year. We rolled
out 'Tesco Whoosh' - our rapid delivery service - to over 400 further stores
taking the total number to 1,414 stores. On average, we offer 2,800
products, with some of our larger stores offering an even wider range.
Average delivery times improved year-on-year to around 25 minutes, with
customer satisfaction scores up 8.9ppts year-on-year.
ROI - New space contributes to market share gains; strengthening our value
proposition:
ROI sales grew by 10.0% at constant rates in the first half, with a
contribution from new stores of 3.1%, which includes the nine Joyce's stores
we acquired in June last year. We opened one new superstore, in Adamstown,
and we continue to look for opportunities to bring Tesco to more communities
in the market. Like-for-like sales grew by 6.9% in the half, including
volume growth in the second quarter.
We delivered consistent market share gains, with an increase of +70bps
year-on-year. We have seen nine periods of consecutive switching gains.
Food sales growth was particularly strong at 8.9% and we lowered the price of
over 700 essential products through our 'Price Cuts' campaign, leading to a
steady decline in inflation across the half. Non-food sales declined by
(4.5)%, primarily driven by the cooler, wetter weather over the summer and a
slight contraction in discretionary spending. We continue to lead the market
on 'Reward' with good engagement on Clubcard Prices, driving a 14.8ppts
improvement year-on-year in Clubcard sales penetration to 80%.
BOOKER - Evolving the offer to deliver further growth across both retail and
catering:
Sales LFL
£m
Total Retail 2,587 6.0%
Retail 1,647 14.2%
Tobacco 940 (5.9)%
Total Catering 1,973 9.1%
Catering 1,194 11.6%
Best Food Logistics 779 5.4%
Total Booker* 4,704 7.5%
* Total Booker also includes small business sales of £144m
Booker delivered like-for-like sales growth of 7.5%, with further growth
across both retail and catering, despite a challenging trading
environment.
Retail sales grew by 14.2% excluding tobacco, driven by a further 143 net new
retail partners and our continued focus on price, choice, and service.
Growth was particularly strong in our entry level ranges at +20% year-on-year,
with c.40,000 of our retailer customers now having purchased Jack's branded
products. Tobacco like-for-like sales declined by (5.9)% overall, driven by
a general market contraction.
Catering sales were also strong, increasing by 9.1% in the half, with
customers responding well to the strength of our offer, including a
significant step forward in availability year-on-year. We further supported
customers by adapting our ranges to offer great menu choice at fantastic
prices, and by locking the price on 650 essential products over the peak
summer trading period. Our 'On-Trade' club, which launched in May, now
offers almost 6,000 licensed customers access to discounted prices on 95 of
our most popular products across drinks, snacks and essential food products,
supporting them to offset the cost headwinds they currently face. We have a
further 45,000 customers registered with our 'Fast Food' and 'Just Eat' clubs,
accessing similar, exclusive discounts.
In July, we launched 'Chef Central', which is a new concept, offering
multi-site national and regional customers the ability to offer standardised
menus through a defined product range, with great value products delivered
directly to their doors. We will utilise our existing Booker and Best Food
Logistics infrastructure to expand into this new customer segment, delivering
true incremental growth.
We sold the Ritter-Courivaud business, which supplied premium caterers, for
up-front cash consideration of £15m, in June.
CENTRAL EUROPE - Volumes challenged by sustained high market inflation; local
regulatory actions impacting profit:
Like-for-like sales grew by 0.9%, reflecting the impact of government stimulus
in Hungary being scaled back and a general volume contraction in the market
due to inflationary pressures, which continue to be felt to a greater extent
in Central Europe. Inflation eased across the second quarter as commodity
prices started to fall, particularly in fresh food categories.
Food sales increased by 1.9% in the first half, as we cut the price of over a
thousand products and introduced new, great value promotions through Clubcard
Prices. Non-food sales declined by (4.6)%, mainly driven by a reduction in
discretionary spending across the market. In response to a customer need for
great value family essentials, we launched a new 'Basics' kids and baby
clothing range, which is performing well and receiving strong feedback from
customers.
Customer NPS improved in all markets, with particularly strong growth in
Slovakia and Czech Republic. We are ranked first in all three markets for
'Reward' and our Clubcard digital subscriber base continues to grow,
increasing by 25% since the year end, to 2.5 million customers.
Central Europe adjusted operating profit was £46m, a reduction of (41.8)%
year-on-year at constant rates, primarily driven by external factors facing
our business in Hungary. Consumers in Hungary have experienced significantly
higher inflation than those in any of our other markets for a sustained period
of time, which is putting downward pressure on volumes. Local regulatory
actions, such as price caps and mandatory promotions on everyday grocery
products remain in place and impede our ability to recover the impact of
currency devaluation, which puts pressure on our input and operating costs.
TESCO BANK - Growth across new and existing customers; special dividend paid
to the Group:
H1 23/24 H1 22/23(1) YoY change
Revenue £702m £603m 16.5%
Adjusted operating profit £65m £52m 25.0%
Lending to customers £7.4bn £6.7bn 10.0%
Customer deposits £6.3bn £5.5bn 14.8%
Net interest margin 4.7% 4.7% (0.0)ppts
Total capital ratio 20.4% 25.5% (5.1)ppts
Revenue grew by 16.5%, driven by solid growth in our credit cards business due
to higher balances and stronger yields. The insurance business also
performed strongly, with high levels of renewals and growth in new business
volumes, owing to our competitive pricing.
Tesco Bank adjusted operating profit was £65m, an increase of 25.0%
year-on-year, primarily driven by higher income across credits cards and money
services. The impact from impairment charges was lower this year due mainly
to an improvement in the economic outlook.
Tesco Bank paid a one-off special dividend of £250m to the Group in the first
half, reflecting the strength of the Bank's balance sheet and capital
ratios. Tesco Bank's ordinary dividend policy is expected to remain
unchanged. The total capital ratio at the end of the half was 20.4%, which
was (5.1)ppts lower than last year due to the return of excess capital to the
Group. 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.
We launched Clubcard Prices in loans and travel money in the first half,
giving Clubcard customers access to exclusive rates, with Clubcard penetration
now at 67%. Tesco Bank was recognised as both 'Best Car Insurance Provider'
and 'Best Home Insurance Provider' at the YourMoney Personal Finance Awards in
April and as 'Best Card Provider' at the Moneyfacts Awards in July.
Adjusting items in statutory operating profit:
H1 23/24 H1 22/23
£m £m
Net impairment loss on non-current assets - (626)
Property transactions 24 81
Amortisation of acquired intangible assets (37) (38)
Other(*) 13 4
Total adjusting items in statutory operating profit - (579)
* Refer to Note 3 for detailed split of adjusting items.
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. Net
adjusting items in statutory operating profit in the first half were nil,
compared to a charge in the prior year of £(579)m.
In the prior year we recognised a £(626)m non-cash net impairment charge on
non-current assets, primarily driven by an increase in discount rates last
year due to macroeconomic factors. Discount rates have remained largely
stable since February, and there was no impairment charge or release in the
first half.
Property transactions of £24m relate to £8m of properties sold in the period
and a £16m gain arising from the remeasurement of assets held for sale,
subsequently reclassified to property, plant and equipment (as detailed in
Note 3 on page 29). In the prior year we recognised an adjusting credit of
£81m related to the profit generated on the disposal of 17 mall properties
and a retail park in Central Europe and associated store sale and leasebacks.
Amortisation of acquired intangible assets is excluded from our headline
performance measures. We incurred a charge of £(37)m in the first half,
which primarily relates to the intangible assets that were recognised as a
result of our merger with Booker in March 2018.
Further detail on adjusting items can be found in Note 3, starting on page 29.
Net finance costs:
H1 23/24 H1 22/23(1)
£m £m
Interest on medium term notes, loans and bonds (160) (105)
Net other interest receivable 60 4
Net finance expenses from insurance contracts (4) (2)
Finance charges payable on lease liabilities (183) (189)
Net finance costs before adjusting items (287) (292)
Fair value remeasurements of financial instruments 28 (75)
Net pension finance income / (costs) (10) 40
Net finance costs (269) (327)
Net finance costs before adjusting items were £(287)m, £5m lower
year-on-year as the impact of higher interest income on cash, short-term
deposits and money market funds offset higher net interest on debt. Net
interest on medium term notes, loans and bonds was up £(55)m driven by the
impact of new debt issuance at the start of the year (ahead of an existing
debt maturity in October 2023) and higher floating rates of interest.
Finance charges payable on lease liabilities totalled £(183)m, a reduction of
£6m year-on-year, as lease renewals and rent reviews were offset by the
reducing nature of our total lease liability.
Within adjusting items, fair value remeasurements of financial instruments led
to an income of £28m compared to costs of £(75)m in the prior year, largely
driven by non-cash mark-to-market gains on index-linked swaps and other
derivatives. The index-linked swaps eliminate the impact of future inflation
on the Group's cash flow in relation to historical sale and leaseback property
transactions. This was partially offset by net pension finance costs of
£(10)m compared to income of £40m in the prior year, due to the change in
balance sheet position of the IAS 19 pension deficit at year end, compared to
an opening surplus in the prior year.
Further detail on finance income and costs can be found in Note 4 on page 30,
as well as further detail on the adjusting items in Note 3 on page 29.
Group tax:
H1 23/24 H1 22/23(1)
£m £m
Tax on adjusted profit (311) (211)
Tax on adjusting items 23 67
Tax on profit (288) (144)
Tax on adjusted Group profit was £(311)m, £(100)m higher than last year,
reflecting an increase in the UK corporation tax rate from 19% to 25%,
effective from 1 April 2023, and higher levels of retail operating profit
year-on-year. The £23m credit in tax on adjusting items relates to the
release of a tax provision, following a settlement relating to our exit from
the Gainland associate in China in FY20. The £67m adjusting items credit in
the prior year predominately related to a taxable deduction on the higher
impairment charge.
Our effective tax rate on adjusted Group profit was 25.9% in the half, which
is higher than the current UK statutory rate, primarily due to the
depreciation of assets which do not quality for tax relief. We expect our
effective tax rate to be around 26% in the current year.
Earnings per share:
H1 23/24 H1 22/23(1) YoY change
Adjusted diluted EPS 12.26p 10.50p 16.8%
Statutory diluted EPS 12.83p 3.27p 292.4%
Statutory basic EPS 12.93p 3.30p 291.8%
Adjusted diluted EPS was 12.26p, 16.8% higher year-on-year due to an increase
in retail operating profit and the ongoing benefit of our share buyback
programme, partially offset by a higher tax charge as a result of the increase
in the UK corporation tax rate.
Statutory diluted earnings per share was 12.83p, an increase of 292.4%
year-on-year, primarily due to a significant reduction in adjusting items
driven by the £(626)m impairment charge on non-current assets in the prior
year.
Dividend:
The interim dividend has been set at 3.85 pence per ordinary share, in line
with our policy of setting the interim dividend at 35% of the prior full-year
dividend.
The interim dividend will be paid on 24 November 2023 to shareholders who are
on the register of members at close of business on 13 October 2023 (the Record
Date). Shareholders may elect to reinvest their dividend in the Dividend
Reinvestment Plan (DRIP). The last date for receipt of DRIP elections and
revocations will be 3 November 2023.
Summary of total indebtedness (excludes Tesco Bank):
Aug-23 Feb-23 Movement
£m £m £m
Net debt before lease liabilities (2,200) (2,775) 575
Lease liabilities (7,688) (7,718) 30
Net debt (9,888) (10,493) 605
Pension deficit, IAS 19 basis (post-tax) (150) (300) 150
Total indebtedness (10,038) (10,793) 755
Net debt / EBITDA ratio 2.3x 2.6x
Total indebtedness ratio 2.4x 2.7x
Net debt was £(9,888)m, a reduction of £605m versus year end, predominately
driven by strong retail free cash flow of £1,368m and the receipt of a £250m
special dividend from Tesco Bank, which more than offset the cash outflows
relating to our ongoing share buyback programme of £(503)m and last year's
final dividend of £(509)m. Lease liabilities were down £30m versus year
end, with the impact of lease renewals and rent reviews in the half offset by
the reducing nature of our overall lease liability.
Total indebtedness was £(10,038)m, a reduction of £755m versus year end.
We continue to carry an IAS 19 pension deficit, totalling £(150)m (post-tax),
which includes £(37)m relating to the main scheme and £(113)m relating to
other Group pension schemes. The reduction in the main scheme deficit since
the year end was driven by movements in discount rates and gilt yields. This
accounting deficit does not drive contributions to the pension schemes and can
be volatile. Based on the triennial valuation in March 2022, it was agreed
with the Trustees that no pension deficit contributions are expected to be
required ahead of the next triennial valuation in 2025. The scheme remained
in a funding surplus as at 26 August 2023.
We had strong levels of liquidity at the end of the first half of £3.8bn and
our £2.5bn committed facility remained undrawn. Our committed facility is
in place until at least November 2025, with two remaining one-year extension
options available.
Our net debt to EBITDA ratio was 2.3 times at the end of the first half, down
from 2.6 times at year end and within our targeted range of 2.8 to 2.3
times. The year-on-year reduction was driven by an increase in retail EBITDA
and a decrease in net debt before lease liabilities. The total indebtedness
ratio was 2.4 times, compared to 2.7 times at year end.
Fixed charge cover was 3.6 times at the end of the first half, which has
improved since the year end, primarily due to an increase in retail EBITDA.
Summary retail free cash flow:
The following table reconciles Group adjusted operating profit to retail free
cash flow. Further details are included in Note 2 starting on page 23.
H1 23/24 H1 22/23(1)
£m £m
Adjusted operating profit 1,482 1,300
Less: Tesco Bank adjusted operating (profit) / loss (65) (52)
Retail adjusted operating profit 1,417 1,248
Add back: Depreciation and amortisation 790 784
Other reconciling items 18 10
Pension deficit contribution (13) (12)
Decrease in working capital 368 390
Retail cash generated from operations before adjusting items 2,580 2,420
Cash capex (595) (507)
Net interest (273) (294)
- Interest related to net debt before lease liabilities (91) (106)
- Interest related to lease liabilities (182) (188)
Tax paid (38) (45)
Dividends received 6 5
Repayments of obligations under leases (306) (292)
Own shares purchased for share schemes (6) (4)
Retail free cash flow 1,368 1,283
Memo (not included in Retail free cash flow):
- Special dividend received from Tesco Bank 250 -
- Net acquisitions and disposals 7 (77)
- Property buybacks, store purchases, and disposal proceeds (3) 301
- Cash impact of adjusting items (87) (31)
Strong retail free cash flow of £1,368m was £85m higher than last year,
driven by higher retail adjusted operating profit, which was partially offset
by higher cash capex spend.
The working capital inflow of £368m reflects the strong sales performance in
the half, leading to higher trade balances.
Interest paid related to net debt before lease liabilities of £(91)m was
£15m lower year-on-year, driven by higher levels of interest received on
short-term cash deposits. Interest relating to lease liabilities was
£(182)m, down £6m year-on-year, primarily due to a reduction in our overall
lease liability.
Within the memo lines shown, a £(304)m reduction from proceeds from property
transactions year-on-year is driven by disposals in the prior year, including
17 malls and one retail park in Central Europe, excess land surrounding our
New Malden store, and our Distribution Centre in Middlewich in the UK.
Within the half there was no cash impact from store purchases.
The cash impact of adjusting items was £(87)m, driven by operational
restructuring changes as part of the multi-year 'Save to Invest' programme.
This relates to activity announced at the end of the prior financial year.
Capital expenditure and space:
UK & ROI Central Europe Tesco Bank Group
H1 23/24 H1 22/23 H1 23/24 H1 22/23 H1 23/24 H1 22/23 H1 23/24 H1 22/23
Capex £465m £389m £43m £36m £15m £23m £523m £448m
Openings (k sq ft) 81 243 49 16 - - 130 259
Closures (k sq ft) (117) (229) (14) (22) - - (131) (251)
Repurposed (k sq ft) - 10 (149) (259) - - (149) (249)
Net space change (k sq ft) (36) 24 (114) (265) - - (150) (241)
'Retail Selling Space' is defined as net space in store adjusted to exclude
checkouts, space behind checkouts, customer service desks and customer
toilets. The data above excludes space relating to franchise stores. A
full breakdown of space by segment is included in the appendices starting on
page 53.
Capital expenditure (capex) shown in the table above reflects expenditure on
ongoing business activities across the Group, excluding property buybacks.
Our capital expenditure in the first half was £523m, £75m higher
year-on-year, reflecting a flatter profile of capital investment across the
year which brings more spend into the first half, and an increase in spend on
our store refresh programme, dotcom vehicles and the expansion of Booker's
distribution capacity.
We continue to invest in our store opening programmes, with sixteen Tesco
Express stores and eleven One Stop stores opened in the first half in the UK
& ROI. We also opened two UFCs within the half and since the end of the
half, we have opened our ninth UFC. We expect to open a further two
Superstores, c.40 Tesco Express stores and c.25 One Stop stores in the UK in
the second half of the year. In Ireland, we opened one superstore, in
Adamstown and we will open a further eight Tesco Express stores in the second
half.
In Central Europe, we opened five new stores and refreshed twenty-two of our
stores this year.
We now expect full year capital expenditure of c.£1.3bn, a small increase
year-on-year principally driven by the pace of our refresh programme, a small
number of additional openings and investment in our digital platform.
Statutory capital expenditure for the first half was £0.6bn.
Further details of current and forecast space can be found in the appendices
starting on page 53.
Contacts.
Investor Relations: Chris Griffith 01707 940 900
Media: Christine Heffernan 0330 6780 639
Teneo 0207 4203 143
This document is available at www.tescoplc.com/interims2023
(http://www.tescoplc.com/interims23) .
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/interims2023 (http://www.tescoplc.com/interims23) . This
will be available for playback after the event. All presentation materials,
including a transcript, will be made available on our website.
We will report our Q3 & Christmas Trading statement on 11 January 2024.
Information contained within this announcement includes inside information as
defined in Article 7 of the Market Abuse Regulation No. 596/2014, including as
applied in the UK. The person responsible for arranging the release of this
announcement on behalf of Tesco PLC is Robert Welch, Company Secretary.
Sources:
· UK Price index is an internal measure calculated using the retail
selling price of each item on a per unit or unit of measure basis. Competitor
retail selling prices are collected weekly by a third party. The price index
includes price cut promotions and is weighted by sales to reflect customer
importance. Full-line grocers consists of Tesco, Sainsbury's, Asda and
Morrisons.
· c.£390 of savings for Clubcard: c.£390 saving is based on the top
25% of Tesco Clubcard members and large stores sales between 29/08/22 and
27/08/23. Tesco Clubcard Price savings versus regular Tesco price.
· Premium retailer gains refers to Kantar net switching gains from
Waitrose & M&S on 12 week rolling basis to 3 September 2023.
· UK market share based on Kantar Total Grocers Total Till Roll on 12
week rolling basis to 3 September 2023.
· ROI market share based on Kantar Total Till Roll on 12 week rolling
basis to 3 September 2023.
· Availability based on Multi channel tracker. 3 period rolling
data. Responses to question: "Had any products that you wanted to buy sold
out?"
· Brand NPS is based on BASIS Global Brand Tracker. 3 period rolling
data. Responses to the question: "How likely is it that you would recommend
the following company to a friend or colleague as a place to shop?"
· 65% healthy volume sales by 2025: Tesco tracks the healthiness of its
products and ranges using the UK Government's nutrient profiling model.
· UK online market share based on Kantar Total Grocery online channel
on 12 week rolling basis to 3 September 2023.
· Online switching gains based on Kantar net switching gains from: Asda
online, Sainsbury's online, Ocado, Morrisons online and Amazon, on 12 week
rolling basis to 3 September 2023.
· Number of Booker retail partners and Premier stores shown net of
openings and closures.
· UK Clothing market share based on Global Data store-based retailer
read on 13-week basis to 27 August 2023.
Additional Disclosures.
Principal Risks and Uncertainties.
The principal risks and uncertainties faced by the Group remain those as set
out on page 38 to 45 of our Annual Report and Financial Statement 2023: cyber
security; data privacy; pandemics; climate change; technology; political,
regulatory and compliance; people; health and safety; product safety and food
integrity; responsible sourcing; financial performance; Tesco Bank;
competitions and markets; customer; and security of supply. There are no
further significant changes to our Principal Risks, currently being expected
for the remaining six months of the year.
Statement of Directors' Responsibilities.
The Directors are responsible for preparing the Interim Results for the 26
week period ended 26 August 2023 in accordance with applicable law,
regulations and accounting standards. Each of the Directors confirm that to
the best of their knowledge the condensed consolidated interim financial
statements have been prepared in accordance with IAS 34: 'Interim Financial
Reporting', as adopted by the European Union and that the interim management
report includes a true and fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
• an indication of the important events that have occurred during the first 26
weeks of the financial year and their impact on the condensed consolidated
interim financial statements, and a description of the principal risks and
uncertainties for the remainder of the financial year; and
• material related party transactions in the first 26 weeks of the year and any
material changes in the related party transactions described in the last
annual report.
The Directors of Tesco PLC are listed on pages 51 to 54 of the Tesco PLC
Annual Report and Financial Statements 2023, with the exception of Gerry
Murphy and Dame Carolyn Fairbairn who both joined the Board on 1 September
2023.
A list of current directors is maintained on the Tesco PLC website at:
www.tescoplc.com (http://www.tescoplc.com) .
By order of the Board Directors
Gerry Murphy - Non-executive Chairman
Ken Murphy - Group Chief Executive
Imran Nawaz - Chief Financial Officer
Melissa Bethell*
Bertrand Bodson*
Dame Carolyn Fairbairn*
Thierry Garnier*
Stewart Gilliland*
Byron Grote*
Alison Platt*
Caroline Silver*
Karen Whitworth*
*Independent Non-executive Directors
3 October 2023
Disclaimer.
Certain statements made in this document are forward-looking statements. For
example, statements regarding future financial performance, market trends and
our product pipeline are forward-looking statements. Phrases such as "aim",
"plan", "intend", "should", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions are
generally intended to identify forward-looking statements. Forward looking
statements are based on current expectations and assumptions and are subject
to a number of known and unknown risks, uncertainties and other important
factors that could cause actual results or events to differ materially from
what is expressed or implied by those statements. Many factors may cause
actual results, performance or achievements of Tesco to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Important factors that could
cause actual results, performance or achievements of Tesco to differ
materially from the expectations of Tesco include, among other things, general
business and economic conditions globally, industry trends, competition,
changes in government and other regulation and policy, including in relation
to the environment, health and safety and taxation, labour relations and work
stoppages, interest rates and currency fluctuations, changes in its business
strategy, political and economic uncertainty, including as a result of global
pandemics. As such, undue reliance should not be placed on forward-looking
statements. Any forward-looking statement is based on information available
to Tesco as of the date of the statement. All written or oral
forward-looking statements attributable to Tesco are qualified by this
caution. Other than in accordance with legal and regulatory obligations,
Tesco undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise.
Group income statement
26 weeks ended 26 weeks ended
26 August 2023*
27 August 2022 (restated*)
Notes Before adjusting Adjusting Total Before adjusting Adjusting Total
£m
items
£m
items items
£m items
£m
(Note 3) (Note 3)
£m
£m
Continuing operations
Retail revenue 33,447 - 33,447 31,916 - 31,916
Tesco Bank interest and similar income 479 - 479 376 - 376
Insurance revenue 223 - 223 227 - 227
Revenue 2 34,149 - 34,149 32,519 - 32,519
Cost of sales (31,327) 5 (31,322) (30,000) (577) (30,577)
Insurance service expenses (206) - (206) (204) - (204)
Net expenses from reinsurance contracts held (27) - (27) (32) - (32)
Impairment loss on financial assets 2 (34) - (34) (42) - (42)
Gross profit/(loss) 2,555 5 2,560 2,241 (577) 1,664
Administrative expenses (1,073) (5) (1,078) (941) (2) (943)
Operating profit/(loss) 1,482 - 1,482 1,300 (579) 721
Share of post-tax profits of joint ventures and associates 4 - 4 2 - 2
Finance income 4 131 - 131 19 - 19
Finance costs 4 (418) 18 (400) (311) (35) (346)
Profit/(loss) before tax 1,199 18 1,217 1,010 (614) 396
Taxation 5 (311) 23 (288) (211) 67 (144)
Profit/(loss) for the period from continuing operations 888 41 929 799 (547) 252
Discontinued operations
Profit/(loss) for the period from discontinued operations - - - - (7) (7)
Profit/(loss) for the period 888 41 929 799 (554) 245
Attributable to:
Owners of the parent 886 41 927 794 (554) 240
Non-controlling interests 2 - 2 5 - 5
888 41 929 799 (554) 245
Earnings per share from continuing and discontinued operations
Basic 8 12.93p 3.21p
Diluted 8 12.83p 3.18p
Earnings per share from continuing operations
Basic 8 12.93p 3.30p
Diluted 8 12.83p 3.27p
* Following the Group's adoption of IFRS 17 the income statement has
been re-presented, and comparatives have been restated, impacting Tesco Bank.
Refer to Notes 1 and 20 for further details.
The notes on pages 21 to 45 form part of this condensed consolidated financial
information.
Group statement of comprehensive income/(loss)
Notes 26 weeks ended 26 August 2023 26 weeks ended 27 August 2022 (restated*)
£m £m
Items that will not be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other (1) 6
comprehensive income
Remeasurements of defined benefit pension schemes 16 213 (2,070)
Net fair value gains/(losses) on inventory cash flow hedges (15) 45
Tax on items that will not be reclassified (49) 772
148 (1,247)
Items that may subsequently be reclassified to the Group income statement
Change in fair value of financial assets at fair value through other (5) (38)
comprehensive income
Currency translation differences:
Retranslation of net assets of overseas subsidiaries, joint ventures and (73) (24)
associates, net of hedging instruments
Gains/(losses) on cash flow hedges:
Net fair value gains/(losses) 16 23
Reclassified and reported in the Group income statement (25) (8)
Finance income/(expenses) from insurance contracts issued 4 36
Finance income/(expenses) from reinsurance contracts held (2) (17)
Tax on items that may be reclassified (8) 1
(93) (27)
Total other comprehensive income/(loss) for the period 55 (1,274)
Profit/(loss) for the period 929 245
Total comprehensive income/(loss) for the period 984 (1,029)
Attributable to:
Owners of the parent 980 (1,034)
Non-controlling interests 4 5
Total comprehensive income/(loss) for the period 984 (1,029)
Total comprehensive income/(loss) attributable to owners of the parent arising
from:
Continuing operations 980 (1,027)
Discontinued operations - (7)
980 (1,034)
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
The notes on pages 21 to 45 form part of this condensed consolidated financial
information.
Group balance sheet
Notes 26 August 25 February 27 August
2023
2023 2022
£m
(restated*) (restated*)
£m £m
Non-current assets
Goodwill and other intangible assets 5,367 5,375 5,364
Property, plant and equipment 9 16,790 16,862 16,388
Right of use assets 10 5,522 5,500 5,609
Investment property 25 24 21
Investments in joint ventures and associates 97 93 90
Other investments 1,360 1,339 1,282
Trade and other receivables 68 79 202
Loans and advances to customers 3,362 3,029 2,994
Reinsurance contract assets 19 110 135 142
Derivative financial instruments 851 873 1,001
Post-employment benefit surpluses 16 22 6 1,070
Deferred tax assets 76 84 89
33,650 33,399 34,252
Current assets
Other investments 325 353 169
Inventories 2,856 2,510 2,584
Trade and other receivables 1,283 1,240 1,315
Loans and advances to customers 4,060 3,948 3,755
Derivative financial instruments 71 57 159
Current tax assets 16 63 111
Short-term investments 12 2,692 1,628 2,256
Cash and cash equivalents 12 2,526 2,465 2,435
13,829 12,264 12,784
Assets of the disposal group and non-current assets classified as held for 6 141 210 277
sale
13,970 12,474 13,061
Current liabilities
Trade and other payables (10,591) (9,779) (9,789)
Borrowings 14 (2,017) (1,770) (1,055)
Lease liabilities 10 (593) (595) (591)
Insurance contract liabilities 19 (498) (489) (507)
Customer deposits and deposits from banks (4,860) (4,485) (4,576)
Derivative financial instruments (64) (99) (28)
Current tax liabilities (57) (18) (27)
Provisions (278) (366) (235)
(18,958) (17,601) (16,808)
Liabilities of the disposal group classified as held for sale 6 - (14) (14)
Net current liabilities (4,988) (5,141) (3,761)
Non-current liabilities
Trade and other payables (67) (54) (78)
Borrowings 14 (5,911) (5,581) (6,523)
Lease liabilities 10 (7,116) (7,132) (7,408)
Customer deposits and deposits from banks (2,465) (2,265) (1,893)
Derivative financial instruments (329) (288) (267)
Post-employment benefit deficits 16 (200) (400) (242)
Deferred tax liabilities (322) (119) (229)
Provisions (195) (194) (185)
(16,605) (16,033) (16,825)
Net assets 12,057 12,225 13,666
Equity
Share capital 17 451 463 474
Share premium 5,165 5,165 5,165
Other reserves 17 3,018 3,139 3,220
Retained earnings 3,430 3,469 4,818
Equity attributable to owners of the parent 12,064 12,236 13,677
Non-controlling interests (7) (11) (11)
Total equity 12,057 12,225 13,666
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
The notes on pages 21 to 45 form part of this condensed consolidated financial
information.
These unaudited condensed consolidated interim financial statements for the 26
weeks ended 26 August 2023 were approved by the Board on 3 October 2023.
Group statement of changes in equity
Share Share Other reserves Retained earnings Total Non-controlling interests Total
capital
premium
£m
£m
equity
£m
£m (Note 17) £m
£m
£m
At 25 February 2023 (as previously reported) 463 5,165 3,123 3,490 12,241 (11) 12,230
Cumulative adjustment on initial application of IFRS 17 (net of tax) - - 16 (21) (5) - (5)
At 25 February 2023 (restated*) 463 5,165 3,139 3,469 12,236 (11) 12,225
Profit/(loss) for the period - - - 927 927 2 929
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - (73) - (73) - (73)
associates, net of hedging instruments
Change in fair value of financial assets at fair value through other - - - (6) (6) - (6)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 16) - - - 213 213 - 213
Gains/(losses) on cash flow hedges - - (1) - (1) 2 1
Cash flow hedges reclassified and reported in the Group income statement - - (25) - (25) - (25)
Finance income/(expenses) from insurance contracts issued - - 4 - 4 - 4
Finance income/(expenses) from reinsurance contracts held - - (2) - (2) - (2)
Tax relating to components of other comprehensive income - - (8) (49) (57) - (57)
Total other comprehensive income/(loss) - - (105) 158 53 2 55
Total comprehensive income/(loss) - - (105) 1,085 980 4 984
Transfer from hedging reserve to retained earnings - - 44 (44) - - -
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory - - 47 - 47 - 47
Total inventory cash flow hedge movements - - 47 - 47 - 47
Transactions with owners
Own shares purchased for cancellation (Note 17) - - (752) - (752) - (752)
Own shares cancelled (Note 17) (12) - 515 (503) - - -
Own shares purchased for share schemes - - (47) - (47) - (47)
Share-based payments - - 177 (67) 110 - 110
Dividends (Note 7) - - - (510) (510) - (510)
Total transactions with owners (12) - (107) (1,080) (1,199) - (1,199)
At 26 August 2023 451 5,165 3,018 3,430 12,064 (7) 12,057
Share Share Other reserves (Note 17) Retained earnings Total Non-controlling interests Total
capital
premium
£m
£m
£m
equity
£m
£m £m
£m
At 26 February 2022 (as previously reported) 484 5,165 3,079 6,932 15,660 (16) 15,644
Cumulative adjustment on initial application of IFRS 17 (net of tax) - - 1 (13) (12) - (12)
At 26 February 2022 (restated*) 484 5,165 3,080 6,919 15,648 (16) 15,632
Profit/(loss) for the period* - - - 240 240 5 245
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - (24) - (24) - (24)
associates, net of hedging instruments
Change in fair value of financial assets at fair value through other - - - (32) (32) - (32)
comprehensive income
Remeasurements of defined benefit pension schemes (Note 16) - - - (2,070) (2,070) - (2,070)
Gains/(losses) on cash flow hedges - - 68 - 68 - 68
Cash flow hedges reclassified and reported in the Group income statement - - (8) - (8) - (8)
Finance income/(expenses) from insurance contracts issued* - - 36 - 36 - 36
Finance income/(expenses) from reinsurance contracts held* - - (17) - (17) - (17)
Tax relating to components of other comprehensive income - - (22) 795 773 - 773
Total other comprehensive income/(loss) - - 33 (1,307) (1,274) - (1,274)
Total comprehensive income/(loss) - - 33 (1,067) (1,034) 5 (1,029)
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory - - 34 - 34 - 34
Total inventory cash flow hedge movements - - 34 - 34 - 34
Transactions with owners
Own shares purchased for cancellation (Note 17) - - (451) - (451) - (451)
Own shares cancelled (Note 17) (10) - 421 (411) - - -
Own shares purchased for share schemes - - (48) - (48) - (48)
Share-based payments - - 151 (45) 106 - 106
Dividends (Note 7) - - - (578) (578) - (578)
Total transactions with owners (10) - 73 (1,034) (971) - (971)
At 27 August 2022 474 5,165 3,220 4,818 13,677 (11) 13,666
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
The notes on pages 21 to 45 form part of this condensed consolidated financial
information.
Group cash flow statement
Notes 26 weeks ended 26 August 2023 26 weeks ended 27 August 2022
£m (restated*)
£m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations 1,482 721
Operating profit/(loss) of discontinued operations - (7)
Depreciation and amortisation 850 849
(Profit)/loss arising on sale of property, plant and equipment, investment 2 (74)
property, intangible assets, assets classified as held for sale and early
termination of leases
(Profit)/loss arising on sale of subsidiaries (12) -
Net impairment loss on property, plant and equipment, right of use assets, 11 - 626
intangible assets and investment property
Net remeasurement (gain)/loss of non-current assets held for sale (16) 8
Defined benefit pension scheme payments 16 (13) (12)
Share-based payments 13 13
Tesco Bank fair value movements included in operating profit 38 37
Retail (increase)/decrease in inventories (364) (244)
Retail (increase)/decrease in trade and other receivables (39) (183)
Retail increase/(decrease) in trade and other payables 764 821
Retail increase/(decrease) in provisions (81) (51)
Retail (increase)/decrease in working capital 280 343
Tesco Bank (increase)/decrease in loans and advances to customers (480) (445)
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables 26 71
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance 583 58
and other payables
Tesco Bank increase/(decrease) in provisions (2) 1
Tesco Bank (increase)/decrease in working capital 127 (315)
Cash generated from/(used in) operations 2,751 2,189
Interest paid (394) (309)
Corporation tax paid (45) (55)
Net cash generated from/(used in) operating activities 2,312 1,825
Cash flows generated from/(used in) investing activities
Proceeds from sale of property, plant and equipment, investment property, 34 301
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other (499) (399)
long-term assets
Purchase of intangible assets (138) (134)
Disposal of subsidiaries, net of cash disposed 15 -
Acquisition of subsidiaries, net of cash acquired - (71)
Increase in loans to joint ventures and associates - (1)
Investments in joint ventures and associates (5) (6)
Net (investments in)/proceeds from sale of short-term investments (1,076) (179)
Proceeds from sale of other investments 83 148
Purchase of other investments (87) (183)
Dividends received from joint ventures and associates 6 5
Interest received 114 12
Cash inflows from derivative financial instruments 3 -
Cash outflows from derivative financial instruments (15) -
Net cash generated from/(used in) investing activities (1,565) (507)
Cash flows generated from/(used in) financing activities
Own shares purchased for cancellation 17 (503) (409)
Own shares purchased for share schemes (6) (4)
Repayment of capital element of obligations under leases (308) (294)
Cash outflows exceeding the incremental increase in assets in a property (15) -
buyback
Increase in borrowings 982 -
Repayment of borrowings (97) (29)
Cash inflows from derivative financial instruments 68 79
Cash outflows from derivative financial instruments (66) (274)
Dividends paid to equity owners 7 (509) (579)
Net cash generated from/(used in) financing activities (454) (1,510)
Net increase/(decrease) in cash and cash equivalents 293 (192)
Cash and cash equivalents at the beginning of the period 1,565 1,771
Effect of foreign exchange rate changes (9) 5
Cash and cash equivalents at the end of the period 12 1,849 1,584
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
The notes on pages 21 to 45 form part of this condensed consolidated financial
information.
Note 1 Basis of preparation
These unaudited condensed consolidated interim financial statements have been
prepared in accordance with the Disclosure Guidance and Transparency Rules of
the UK Financial Conduct Authority, and with IAS 34 'Interim Financial
Reporting' under UK-adopted international accounting standards. Unless
otherwise stated, the accounting policies applied, and the judgements,
estimates and assumptions made in applying these policies, are consistent with
those used in preparing the Annual Report and Financial Statements 2023. The
financial period represents the 26 weeks ended 26 August 2023 (prior financial
period 26 weeks ended 27 August 2022, prior financial year 52 weeks ended 25
February 2023).
These condensed consolidated interim financial statements for the current
period and prior financial periods do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. A copy of the statutory
accounts for the prior financial year has been filed with the Registrar of
Companies. The auditor's report on those accounts was not qualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The Directors have, at the time of approving the condensed consolidated
interim financial statements, a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future, which reflects a period of 18 months from the date of approval of the
condensed consolidated interim financial statements, and have concluded that
there are no material uncertainties relating to going concern. The Directors
have therefore continued to adopt the going concern basis in preparing the
condensed consolidated interim financial statements. Further information on
the Group's strong liquidity position is given in the Group review of
performance, Summary of total indebtedness section.
Adoption of new IFRSs
IFRS 17 'Insurance contracts' is effective for the accounting period
commencing 26 February 2023. IFRS 17 has been applied fully retrospectively
and comparatives for prior periods have been restated from a transition date
of 27 February 2022. Refer to Note 20 for further details.
Other standards, interpretations and amendments effective in the current
financial year have not had a material impact on the condensed consolidated
interim financial statements.
The Group has not applied any other standards, interpretations or amendments
that have been issued but are not yet effective. The impact of the following
is still under assessment:
- IFRS 16 amendments 'Lease liability in a sale and leaseback', which will
become effective in the Group financial statements for the financial year
ending 22 February 2025.
Other standards, interpretations and amendments issued but not yet effective
are not expected to have a material impact.
Accounting policies
Insurance
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.
Level of aggregation
The level of aggregation for the Group is determined firstly by dividing the
business written into motor and home portfolios. Portfolios comprise groups of
contracts with similar risks which are managed together. At initial
recognition the Group assesses whether the motor and home portfolios are
divided further into groups of contracts that are onerous, have no significant
possibility of becoming onerous, or are neither.
In determining the level of aggregation, the Group identifies a contract as
the smallest 'unit', i.e. the lowest common denominator. No group for level of
aggregation purposes shall contain contracts issued more than one year apart.
The Group divides portfolios of reinsurance contracts held applying the same
principles.
Insurance contracts issued
Insurance contract liabilities include both a liability for incurred claims
(LIC), which represents outstanding claims and incurred but not reported
claims and other incurred insurance expenses; and a liability for remaining
coverage (LRC), which represents the Group's obligation for insured events
related to the unexpired portion of the coverage period. The LRC is measured
either using the general model or a simplified premium allocation approach
(PAA).
The Group applies the PAA to all insurance contracts issued since the
acquisition of Tesco Underwriting (TU) in May 2021. The Group qualifies to use
this approach as the coverage period of each contract in the group is one year
or less. There is no allowance for the time value of money as the premiums are
due within one year of the coverage period.
The Group applies the general model to all issued insurance contracts acquired
on the acquisition of TU, as the settlement of these claims and their
associated insurance risk will spread over multiple years. The Group has
recognised an acquired claims liability as part of the LRC, which is measured
at the probability-weighted average of discounted cash flows plus a risk
adjustment for non-financial risk, plus any contractual service margin (CSM)
if the fulfilment cash flows result in a net inflow. If the fulfilment cash
flows result in a net outflow, an onerous loss is recognised in the Group
income statement. The risk adjustment reflects the compensation that the Group
requires for bearing uncertainty in respect of the amount and timing of the
cash flows from non-financial risk, whilst the CSM represents the unearned
profit in the contracts relating to services that will be provided under the
contracts in the future.
Commission payable to agents and other acquisition costs, which are incurred
for acquiring new and renewal insurance business that is primarily related to
the production of that business, are deferred and presented as part of the
LRC. Such deferred acquisition costs are amortised over the period of
insurance contract services on the basis of the passage of time.
The carrying amount of the LRC measured under the general model is updated at
the end of each reporting period to reflect current estimates of the amounts,
timing and uncertainty of future cash flows, as well as discount rates and
other financial variables.
The Group estimates the LIC as the discounted value of expected fulfilment
cash flows related to incurred claims and other incurred insurance expenses,
plus an explicit adjustment for non-financial risk. The fulfilment cash flows
incorporate, in an unbiased way, all reasonable and supportable information
available about the amount, timing and uncertainty of those future cash flows.
Estimates of the present value of future cash flows are adjusted for events
which have occurred since actuarial valuation.
Future cash flows are assessed by reviewing individual claims data and making
an allowance for claims incurred but not yet reported, adjusted for the effect
on the claims incurred 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
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 ceded includes quota share, excess of loss and adverse development
cover contracts. Reinsurance arrangements 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.
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 Group applies the PAA to all reinsurance contracts that it holds, except
for contracts held prior to the acquisition of TU. The PAA is applicable for
all reinsurance contracts purchased since the acquisition of TU as the
contracts either qualify automatically in having a coverage period of one year
or less, or because there is no material difference in their measurement
between the PAA and the general model.
Modification and derecognition of insurance and reinsurance contracts
The Group derecognises insurance and reinsurance contracts when the rights and
obligations relating to the contract are extinguished (i.e. discharged,
cancelled or expired). When a modification is not treated as a derecognition,
the Group recognises amounts paid or received for the modification with the
contract as an adjustment to the relevant LRC or asset for remaining coverage.
Presentation of insurance contracts issued and reinsurance contracts held
The Group classifies all insurance contract liabilities as current as it does
not have the right to defer settlement beyond 12 months after the reporting
date. The Group classifies its reinsurance portfolio as non-current as it does
not reasonably expect to realise its reinsurance assets within 12 months of
the reporting date.
Insurance revenue
The insurance revenue recognised is the amount of expected premium receipts
allocated to the period. For insurance contracts issued after the acquisition
of TU in May 2021, the Group allocates the expected premium receipts to each
period of insurance contract services based on the passage of time.
The insurance revenue recognised for insurance contracts acquired as part of
the acquisition of TU comprises:
- Claims costs incurred in the period measured at the amounts expected
at the beginning of the period;
- Changes in the risk adjustment for non-financial risk; and
- The amount of the CSM recognised for services provided in the period.
Insurance service expenses
Insurance service expenses include total claims cost for the period, as well
as all directly attributable insurance expenses. There are no acquisition
costs for acquired claims. Insurance acquisition cash flows arising from the
costs of selling, underwriting and starting a group of insurance contracts are
allocated to insurance service expenses based on the passage of time.
Net income or expenses from reinsurance contracts held
The Group separately presents income or expenses from reinsurance contracts
held from the expenses or income from insurance contracts issued. The Group
presents the income or expenses from a group of reinsurance contracts held as
a single amount.
Insurance finance income and expenses
Insurance finance income or expenses comprise the change in the carrying
amount of the group of insurance contracts arising from the effect of the time
value of money, financial risk and changes in financial risk.
The impact of changes in market interest rates on the carrying value of
insurance assets and liabilities is reflected in the Group statement of other
comprehensive income in order to minimise accounting mismatches between the
accounting for financial assets and insurance assets and liabilities. The
Group's financial assets backing both the motor and home insurance portfolios
are predominantly measured at fair value through other comprehensive income.
The amount of insurance finance income or expenses recognised in the Group
income statement is calculated using the discount rate curve determined at the
date of the incurred claim.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have adopted various
APMs. Refer to the Glossary for a full list of the Group's APMs, including
comprehensive definitions, their purpose, reconciliations to IFRS measures and
details of any changes to APMs.
Note 2 Segmental reporting
The Group's operating segments are determined based on the Group's internal
reporting to the Chief Operating Decision Maker (CODM). The CODM has been
determined to be the Group Chief Executive, with support from the Executive
Committee, as the function primarily responsible for the allocation of
resources to segments and assessment of performance of the segments.
The principal activities of the Group are presented in the following segments:
Retailing and associated activities (Retail) in:
UK & ROI - the United Kingdom and Republic of Ireland; and
Central Europe - Czech Republic, Hungary and Slovakia.
Retail banking and insurance services through Tesco Bank in the UK (Tesco
Bank).
This presentation reflects how the Group's operating performance is reviewed
internally by management.
The CODM uses adjusted operating profit, as reviewed at monthly Executive
Committee meetings, as the key measure of the segments' results as it reflects
the segments' trading performance that aids comparability over time for the
financial year under evaluation. Adjusted operating profit is a consistent
measure within the Group as defined within the Glossary. Refer to Note 3 for
adjusting items. Inter-segment revenue between the segments is not material.
Income statement
The segment results and the reconciliation of the segment measures to the
respective statutory items included in the Group income statement are as
follows:
26 weeks ended 26 August 2023 UK & ROI Central Total Retail at constant exchange Tesco Total at Foreign Total
At constant exchange rates
£m
Europe
Bank
constant
exchange
at actual
£m £m
£m
exchange
£m
exchange
£m
£m
Continuing operations
Revenue 31,213 2,141 33,354 702 34,056 93 34,149
Less: Fuel sales (3,313) (85) (3,398) - (3,398) (2) (3,400)
Sales 27,900 2,056 29,956 702 30,658 91 30,749
Adjusted operating profit 1,370 46 1,416 65 1,481 1 1,482
Adjusting items (Note 3) (16) 16 - - - - -
Operating profit 1,354 62 1,416 65 1,481 1 1,482
Adjusted operating margin 4.4% 2.1% 4.2% 9.3% 4.3% 4.3%
26 weeks ended 26 August 2023 UK & ROI Central Total Retail Tesco Total
At actual exchange rates
£m
Europe
Bank
at actual
£m £m
£m
exchange
£m
Continuing operations
Revenue 31,226 2,221 33,447 702 34,149
Less: Fuel sales (3,313) (87) (3,400) - (3,400)
Sales 27,913 2,134 30,047 702 30,749
Adjusted operating profit 1,371 46 1,417 65 1,482
Adjusting items (Note 3) (16) 16 - - -
Operating profit 1,355 62 1,417 65 1,482
Adjusted operating margin 4.4% 2.1% 4.2% 9.3% 4.3%
Share of post-tax profits of joint ventures and associates 4
Finance income 131
Finance costs (400)
Profit before tax 1,217
Tesco Bank revenue of £702m (26 weeks ended 27 August 2022: £603m) comprises
interest income of £342m (26 weeks ended 27 August 2022: £242m), fees and
commissions income of £137m (26 weeks ended 27 August 2022: £134m), and
insurance revenue of £223m (26 weeks ended 27 August 2022: £227m).
26 weeks ended 27 August 2022 UK & ROI Central Total Retail Tesco Total
£m
Europe
Bank (restated*)
at actual
At actual exchange rates
£m £m
£m
exchange (restated*)
£m
Continuing operations
Revenue 29,783 2,133 31,916 603 32,519
Less: Fuel sales (4,153) (125) (4,278) - (4,278)
Sales 25,630 2,008 27,638 603 28,241
Adjusted operating profit 1,169 79 1,248 52 1,300
Adjusting items (Note 3) (567) (7) (574) (5) (579)
Operating profit 602 72 674 47 721
Adjusted operating margin 3.9% 3.7% 3.9% 8.6% 4.0%
Share of post-tax profits of joint ventures and associates 2
Finance income 19
Finance costs (346)
Profit before tax 396
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 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, 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 August 2023 UK & ROI Central Tesco Unallocated Total
£m
Europe
Bank
£m
£m
£m
£m
Goodwill and other intangible assets 4,715 34 618 - 5,367
Property, plant and equipment and investment property 15,272 1,473 70 - 16,815
Right of use assets 5,073 439 10 - 5,522
Investments in joint ventures and associates 97 - - - 97
Non-current other investments 223 - 1,137 - 1,360
Non-current trade and other receivables((a)) 34 2 32 - 68
Non-current loans and advances to customers - - 3,362 - 3,362
Non-current reinsurance contract assets - - 110 - 110
Post-employment benefit surpluses 22 - - - 22
Deferred tax assets 2 21 53 - 76
Non-current assets((b)) 25,438 1,969 5,392 - 32,799
Inventories and current trade and other receivables((c)) 3,463 385 162 - 4,010
Current loans and advances to customers - - 4,060 - 4,060
Current other investments 4 - 321 - 325
Total trade and other payables (9,746) (664) (248) - (10,658)
Total customer deposits and deposits from banks - - (7,325) - (7,325)
Total insurance contract liabilities - - (498) - (498)
Total provisions (411) (34) (28) - (473)
Deferred tax liabilities (275) (47) - - (322)
Net current tax (37) (12) 8 - (41)
Post-employment benefit deficits (200) - - - (200)
Non-current assets classified as held for sale 24 117 - - 141
Net debt (including Tesco Bank)((d)) (7,000) (558) 127 (2,330) (9,761)
Net assets 11,260 1,156 1,971 (2,330) 12,057
(a) Excludes non-current loans to joint ventures of £nil (25 February 2023:
£8m, 27 August 2022: £81m) which form part of net debt.
(b) Excludes derivative financial instruments of £851m (25 February 2023:
£873m, 27 August 2022: £1,001m) which form part of net debt.
(c) Excludes net interest and other receivables of £23m (25 February 2023:
£8m, 27 August 2022: £4m), and current loans to joint ventures of £106m (25
February 2023: £98m, 27 August 2022: £25m), both forming part of net debt.
(d) Refer to Note 18. Net debt at 26 August 2023 includes net debt of the
disposal group classified as held for sale of £nil (25 February 2023:
£(14)m, 27 August 2022: £(14)m).
At 25 February 2023 UK & ROI Central Tesco Unallocated Total continuing operations (restated((e))) Discontinued operations Total (restated((e)))
£m
Europe
Bank (restated((e)))
£m
£m
£m
£m
£m
£m
Goodwill and other intangible assets 4,715 37 623 - 5,375 - 5,375
Property, plant and equipment and investment property 15,346 1,468 72 - 16,886 - 16,886
Right of use assets 5,057 433 10 - 5,500 - 5,500
Investments in joint ventures and associates 93 - - - 93 - 93
Non-current other investments 218 - 1,121 - 1,339 - 1,339
Non-current trade and other receivables((a)) 44 2 25 - 71 - 71
Non-current loans and advances to customers - - 3,029 - 3,029 - 3,029
Non-current reinsurance contract assets - - 135 - 135 - 135
Post-employment benefit surplus 6 - - - 6 - 6
Deferred tax assets 3 22 59 - 84 - 84
Non-current assets((b)) 25,482 1,962 5,074 - 32,518 - 32,518
Inventories and current trade and other receivables((c)) 3,118 358 168 - 3,644 - 3,644
Current loans and advances to customers - - 3,948 - 3,948 - 3,948
Current other investments 6 - 347 - 353 - 353
Total trade and other payables (8,986) (595) (252) - (9,833) - (9,833)
Total customer deposits and deposits from banks - - (6,750) - (6,750) - (6,750)
Total insurance contract liabilities - - (489) - (489) - (489)
Total provisions (494) (36) (30) - (560) - (560)
Deferred tax liabilities (74) (45) - - (119) - (119)
Net current tax 52 (16) 9 - 45 - 45
Post-employment benefit deficits (400) - - - (400) - (400)
Assets of the disposal group and non-current assets classified as held for 25 169 - - 194 16 210
sale
Net debt (including Tesco Bank)((d)) (7,036) (553) 151 (2,890) (10,328) (14) (10,342)
Net assets 11,693 1,244 2,176 (2,890) 12,223 2 12,225
At 27 August 2022 UK & ROI Central Tesco Unallocated Total continuing operations (restated((e))) Discontinued operations Total (restated((e)))
£m
Europe
Bank (restated((e)))
£m
£m
£m
£m
£m
£m
Goodwill and other intangible assets 4,712 27 625 - 5,364 - 5,364
Property, plant and equipment and investment property 15,057 1,283 69 - 16,409 - 16,409
Right of use assets 5,211 388 10 - 5,609 - 5,609
Investments in joint ventures and associates 89 1 - - 90 - 90
Non-current other investments 23 - 1,259 - 1,282 - 1,282
Non-current trade and other receivables((a)) 88 2 31 - 121 - 121
Non-current reinsurance contract assets - - 142 - 142 - 142
Non-current loans and advances to customers - - 2,994 - 2,994 - 2,994
Post-employment benefit surpluses 1,070 - - - 1,070 - 1,070
Deferred tax assets 2 17 70 - 89 - 89
Non-current assets((b)) 26,252 1,718 5,200 - 33,170 - 33,170
Inventories and current trade and other receivables((c)) 3,342 355 173 - 3,870 - 3,870
Current loans and advances to customers - - 3,755 - 3,755 - 3,755
Current other investments - - 169 - 169 - 169
Total trade and other payables (9,029) (611) (227) - (9,867) - (9,867)
Total customer deposits and deposits from banks - - (6,469) - (6,469) - (6,469)
Total insurance contract liabilities - - (507) - (507) - (507)
Total provisions (352) (30) (38) - (420) - (420)
Deferred tax liabilities (185) (44) - - (229) - (229)
Net current tax 97 (16) 3 - 84 - 84
Post-employment benefit deficits (242) - - - (242) - (242)
Assets of the disposal group and non-current assets classified as held for 19 235 - - 254 23 277
sale
Net debt (including Tesco Bank)((d)) (7,354) (509) 119 (2,167) (9,911) (14) (9,925)
Net assets 12,548 1,098 2,178 (2,167) 13,657 9 13,666
(a)-(d) Refer to previous table for footnotes.
(e) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
Other segment information
26 weeks ended 26 August 2023 UK & ROI Central Tesco Total
£m
Europe
Bank
£m
£m
£m
Capital expenditure (including acquisitions through business combinations):
Property, plant and equipment((a)) 381 38 3 422
Goodwill and other intangible assets((b)) 118 5 12 135
Depreciation and amortisation:
Property, plant and equipment (397) (42) (5) (444)
Right of use assets (247) (22) (1) (270)
Other intangible assets (113) (6) (17) (136)
Impairment((c)):
Loss on financial assets - (1) (33) (34)
(a) Includes £nil (26 weeks ended 27 August 2022: £42m) of property, plant
and equipment acquired through business combinations.
(b) Includes £nil (26 weeks ended 27 August 2022: £31m) of goodwill and
other intangible assets acquired through business combinations.
(c) Excludes impairment of other non-current assets. Refer to Note 11.
26 weeks ended 27 August 2022 UK & ROI Central Tesco Total
£m
Europe
Bank
£m
£m
£m
Capital expenditure (including acquisitions through business combinations):
Property, plant and equipment((a)) 321 32 5 358
Goodwill and other intangible assets((b)) 141 4 18 163
Depreciation and amortisation:
Property, plant and equipment (396) (41) (4) (441)
Right of use assets (250) (18) (1) (269)
Other intangible assets (112) (5) (22) (139)
Impairment((c)):
Loss on financial assets (2) (1) (39) (42)
Refer to previous table for footnotes.
Cash flow statement
The following table provides a split of cash flows between Retail and Tesco
Bank.
Retail Bank Tesco
Group
26 weeks ended 26 August 2023 Before adjusting Adjusting Retail Before adjusting items Adjusting items Tesco Total
Total
£m
£m
Bank
items items
£m
Total £m
£m
£m £m
Operating profit/(loss) 1,417 - 1,417 65 - 65 1,482
Depreciation and amortisation 790 37 827 23 - 23 850
ATM net income (5) - (5) 5 - 5 -
(Profit)/loss arising on sale of property, plant and equipment, investment 10 (8) 2 - - - 2
property, intangible assets, assets held for sale and early termination of
leases
(Profit)/loss arising on sale of subsidiaries - (12) (12) - - - (12)
Net remeasurement gain of non-current assets held for sale - (16) (16) - - - (16)
Defined benefit pension scheme payments (13) - (13) - - - (13)
Share-based payments 13 - 13 - - - 13
Tesco Bank fair value movements included in operating profit/(loss) - - - 38 - 38 38
Cash flows generated from operations excluding working capital 2,212 1 2,213 131 - 131 2,344
(Increase)/decrease in working capital 368 (88) 280 128 (1) 127 407
Cash generated from/(used in) operations 2,580 (87) 2,493 259 (1) 258 2,751
Interest paid (387) - (387) (7) - (7) (394)
Corporation tax paid (38) - (38) (7) - (7) (45)
Net cash generated from/(used in) operating activities* 2,155 (87) 2,068 245 (1) 244 2,312
Proceeds from sale of property, plant and equipment, investment property, 2 32 34 - - - 34
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other (22) - (22) - - - (22)
long-term assets - property buybacks and store purchases
Purchase of property, plant and equipment, investment property and other (472) - (472) (5) - (5) (477)
long-term assets - other capital expenditure
Purchase of intangible assets (123) - (123) (15) - (15) (138)
Disposal of subsidiaries, net of cash disposed - 15 15 - - - 15
Investments in joint ventures and associates (5) - (5) - - - (5)
Net (investments in)/proceeds from sale of short-term investments (1,076) - (1,076) - - - (1,076)
Proceeds from sale of other investments 2 - 2 81 - 81 83
Purchase of other investments (5) - (5) (82) - (82) (87)
Dividends received from joint ventures and associates 6 - 6 - - - 6
Special dividend received from Tesco Bank 250 - 250 (250) - (250) -
Interest received 114 - 114 - - - 114
Cash inflows from derivative financial instruments 3 - 3 - - - 3
Cash outflows from derivative financial instruments (15) - (15) - - - (15)
Net cash generated from/(used in) investing activities* (1,341) 47 (1,294) (271) - (271) (1,565)
Own shares purchased for cancellation (503) - (503) - - - (503)
Own shares purchased for share schemes (6) - (6) - - - (6)
Repayment of capital element of obligations under leases (306) - (306) (2) - (2) (308)
Cash outflows exceeding the incremental increase in assets in a property (15) - (15) - - - (15)
buyback
Increase in borrowings 682 - 682 300 - 300 982
Repayment of borrowings (97) - (97) - - - (97)
Cash inflows from derivative financial instruments 68 - 68 - - - 68
Cash outflows from derivative financial instruments (66) - (66) - - - (66)
Dividends paid to equity holders (509) - (509) - - - (509)
Net cash generated from/(used in) financing activities* (752) - (752) 298 - 298 (454)
Net increase/(decrease) in cash and cash equivalents 62 (40) 22 272 (1) 271 293
Cash and cash equivalents at the beginning of the period 1,565
Effect of foreign exchange rate changes (9)
Cash and cash equivalents at the end of the period 1,849
* Refer to page 50 for the reconciliation of the APM: Retail free cash
flow.
The following table provides a split of cash flows between Retail continuing
operations, Tesco Bank and Group discontinued operations.
Retail Bank (restated((a))) Discontinued operations Tesco
Group
(restated((a)))
26 weeks ended 27 August 2022 Before adjusting Adjusting Retail Before adjusting items Adjusting items Tesco Total Total
Total
£m
£m
Bank
items items
£m
Total £m £m
£m
£m £m
Operating profit/(loss) 1,248 (574) 674 52 (5) 47 (7) 714
Depreciation and amortisation 784 38 822 27 - 27 - 849
ATM net income (9) - (9) 9 - 9 - -
(Profit)/loss arising on sale of property, plant and equipment, investment 5 (81) (76) - - - 2 (74)
property, intangible assets, assets held for sale and early termination of
leases
Net impairment loss on property, plant and equipment, right of use assets, - 626 626 - - - - 626
intangible assets and investment property
Net remeasurement loss of non-current assets held for sale - 3 3 - - - 5 8
Defined benefit pension scheme payments (12) - (12) - - - - (12)
Share-based payments 14 - 14 (1) - (1) - 13
Tesco Bank fair value movements included in operating profit/(loss) - - - 37 - 37 - 37
Cash flows generated from operations excluding working capital 2,030 12 2,042 124 (5) 119 - 2,161
(Increase)/decrease in working capital 390 (43) 347 (316) 1 (315) (4) 28
Cash generated from/(used in) operations 2,420 (31) 2,389 (192) (4) (196) (4) 2,189
Interest paid (306) - (306) (3) - (3) - (309)
Corporation tax paid (45) - (45) (10) - (10) - (55)
Net cash generated from/(used in) operating activities((b)) 2,069 (31) 2,038 (205) (4) (209) (4) 1,825
Proceeds from sale of property, plant and equipment, investment property, 4 297 301 - - - - 301
intangible assets and assets classified as held for sale
Purchase of property, plant and equipment, investment property and other (393) - (393) (6) - (6) - (399)
long-term assets - other capital expenditure
Purchase of intangible assets (114) - (114) (20) - (20) - (134)
Acquisition of subsidiaries, net of cash acquired (66) - (66) (5) - (5) - (71)
Increase in loans to joint ventures and associates (1) - (1) - - - - (1)
Investments in joint ventures and associates (6) - (6) - - - - (6)
Net (investments in)/proceeds from sale of short-term investments (179) - (179) - - - - (179)
Proceeds from sale of other investments - - - 148 - 148 - 148
Purchase of other investments (5) - (5) (178) - (178) - (183)
Dividends received from joint ventures and associates 5 - 5 - - - - 5
Interest received 12 - 12 - - - - 12
Net cash generated from/(used in) investing activities((b)) (743) 297 (446) (61) - (61) - (507)
Own shares purchased for cancellation (409) - (409) - - - - (409)
Own shares purchased for share schemes (4) - (4) - - - - (4)
Repayment of capital element of obligations under leases (292) - (292) (2) - (2) - (294)
Repayment of borrowings (29) - (29) - - - - (29)
Cash inflows from derivative financial instruments 79 - 79 - - - - 79
Cash outflows from derivative financial instruments (274) - (274) - - - - (274)
Dividends paid to equity holders (578) (1) (579) - - - - (579)
Net cash generated from/(used in) financing activities((b)) (1,507) (1) (1,508) (2) - (2) - (1,510)
Net increase/(decrease) in cash and cash equivalents (181) 265 84 (268) (4) (272) (4) (192)
Cash and cash equivalents at the beginning of the period 1,771
Effect of foreign exchange rate changes 5
Cash and cash equivalents at the end of the period 1,584
(a) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(b) Refer to page 50 for the reconciliation of the APM: Retail free cash
flow.
Note 3 Adjusting items
Group income statement
26 weeks ended 26 August 2023
Profit/(loss) for the period included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Finance income/(costs) Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
£m
Total adjusting items
£m
Property transactions((a)) 2 22 24 - (4) - 20
Restructuring((b)) 3 (2) 1 - - - 1
Amortisation of acquired intangible assets((c)) - (37) (37) - 9 - (28)
Disposal of subsidiary((d)) - 12 12 - - - 12
Net pension finance income/(costs)((e)) - - - (10) 2 - (8)
Fair value remeasurements of financial instruments((e)) - - - 28 (7) - 21
Release of tax provision on sale of associate in a prior year((f)) - - - - 23 - 23
Total adjusting items 5 (5) - 18 23 - 41
(a) The Group disposed of surplus properties that generated a profit before
tax of £8m (26 weeks ended 27 August 2022: £81m). In addition, there was a
£16m gain (26 weeks ended 27 August 2022: £nil) arising from the
remeasurement of assets held for sale, subsequently reclassified to property,
plant and equipment.
(b) Provisions relating to operational restructuring changes announced as
part of 'Save to Invest', a multi-year programme which commenced in June 2022.
The total cost of the programme to date is £(181)m. Future cost savings will
not be reported within adjusting items.
(c) Amortisation of acquired intangibles relates to historical inorganic
business combinations and does not reflect the Group's ongoing trading
performance.
(d) On 30 June 2023 the Group disposed of its Booker subsidiary
Ritter-Courivaud Limited, part of the UK & ROI segment.
(e) Net pension finance costs and fair value remeasurements of financial
instruments are included within adjusting items, as they can fluctuate
significantly due to external market factors that are outside management's
control. Refer to Note 4 for details of finance income and costs.
(f) During the current financial year, the Group reached a settlement with
the Chinese tax authorities in respect of the sale of the Group's 20% share of
Gain Land Limited to China Resources Holdings on 28 February 2020. As a result
of the settlement, which had not been paid at the balance sheet date, the
Group released a tax provision of £23m.
26 weeks ended 27 August 2022
Profit/(loss) for the period included the following adjusting items:
Cost of sales Administrative expenses Total adjusting items included within operating profit Finance income/(costs) Taxation Adjusting items included within discontinued operations
£m
£m
£m
£m
£m
£m
Total adjusting items
£m
Property transactions 38 43 81 - (11) - 70
Net impairment loss of non-current assets (620) (6) (626) - 60 - (566)
Fair value less cost of disposal movements on assets held for sale - (3) (3) - - - (3)
Restructuring (2) (5) (7) - 2 - (5)
Disposal of Asia operations - 2 2 - (1) - 1
ATM business rates refund 7 - 7 - (1) - 6
Release of onerous contract provision - 5 5 - (1) - 4
Amortisation of acquired intangible assets - (38) (38) - 7 - (31)
Net pension finance income - - - 40 - - 40
Fair value remeasurements of financial instruments - - - (75) 12 - (63)
Total adjusting items from continuing operations (577) (2) (579) (35) 67 - (547)
Adjusting items relating to discontinued operations - - - - - (7) (7)
Total adjusting items (577) (2) (579) (35) 67 (7) (554)
Group cash flow statement
The table below shows the impact of adjusting items on the Group cash flow
statement:
Cash flows from Cash flows from Cash flows from
operating activities
investing activities
financing activities
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
2023
2022
2023
2022
2023
2022
£m
£m
£m
£m
£m
£m
Property transactions((a)) - - 32 297 - -
Disposal of subsidiaries((b)) - - 15 - - -
Restructuring((c)) (88) (31) - - - -
Booker integration cash payments - (1) - - - -
Customer redress claims settlement in Tesco Bank - (2) - - - -
ATM business rates refund - 1 - - - -
Disposal of Asia operations - (2) - - - -
Special dividend - - - - - (1)
Total (88) (35) 47 297 - (1)
(a) Property transactions include £14m proceeds (26 weeks ended 27 August
2022: £27m) relating to the sale of stores in Poland not included in the sale
of the corporate business.
(b) On 30 June 2023 the Group disposed of its Booker subsidiary
Ritter-Courivaud Limited, part of the UK & ROI segment.
(c) Cash outflows relating to operational restructuring changes as part of
the multi-year 'Save to Invest' programme, which commenced in June 2023.
Note 4 Finance income and costs
Continuing operations Notes 26 weeks 26 weeks
2023
2022
£m (restated*)
£m
Finance income
Interest receivable and similar income 123 15
Interest receivable on other investments 6 -
Finance income receivable on net investment in leases 1 3
Finance income from reinsurance contracts held 1 1
Total finance income 131 19
Finance costs
GBP MTNs and loans (96) (78)
EUR MTNs (55) (23)
USD bonds (9) (4)
Finance charges payable on lease liabilities (183) (189)
Finance expenses from insurance contracts issued (5) (3)
Other interest payable (70) (14)
Total finance costs before adjusting items (418) (311)
Fair value remeasurements of financial instruments 28 (75)
Net pension finance costs 16 (10) 40
Total finance costs (400) (346)
Net finance costs (269) (327)
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
Note 5 Taxation
Recognised in the Group income statement
Continuing operations 26 weeks 26 weeks
2023
2022
£m
(restated*)
£m
Current tax charge
UK corporation tax 180 91
Overseas tax 35 25
215 116
Deferred tax charge
Origination and reversal of temporary differences 73 28
73 28
Total income tax charge 288 144
Analysed as:
Tax charge/(credit) on adjusted profit 311 211
Tax charge/(credit) on adjusting items (23) (67)
Total income tax charge 288 144
Effective tax rate 23.7% 36.4%
Adjusted effective tax rate 25.9% 20.9%
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
The tax charge in the Group income statement is based on management's best
estimate of the full year effective tax rates by geographical unit applied to
half year profits, which is then adjusted for tax on adjusting items arising
in the period to 26 August 2023. The statutory rate of corporation tax has
been applied to the adjusting items, based on the geographical unit of that
item. Refer to Note 3 for further details.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023. The Group has
applied the exception under IAS 12 to recognising and disclosing information
about deferred tax assets and liabilities related to top-up income taxes.
Note 6 Assets classified as held for sale
26 August 2023 25 February 2023 27 August 2022
£m
£m
£m
Assets of the disposal group((a)) - 11 11
Non-current assets classified as held for sale((b)) 141 199 266
Total assets of the disposal group and non-current assets classified as held 141 210 277
for sale
Liabilities of the disposal group((a)) - (14) (14)
Total net assets of the disposal group and non-current assets classified as 141 196 263
held for sale
(a) The disposal group, including £nil of net debt as at 26 August 2023 (25
February 2023: £(14)m, 27 August 2022: £(14)m), related to residual
properties and leases with respect to the Group's operation in Poland.
(b) The assets classified as held for sale consist primarily of properties
in Central Europe due to be sold within one year. Due to the individual nature
of each property, fair values are classified as Level 3 within the fair value
hierarchy.
Note 7 Dividends
26 weeks ended 26 August 2023 26 weeks ended 27 August 2022
Pence/share £m Pence/share £m
Amounts recognised through equity as distributions to owners:
Paid prior financial year final dividend* 7.05 510 7.70 578
Paid 2021 special dividend - - 50.93 1
(Increase)/decrease in unclaimed dividends - (1) - -
Dividends paid in the financial period 509 579
Interim dividend declared for the current period 3.85 274 3.85 288
* Excludes £6m prior financial year final dividend waived (27 August
2022: £10m).
The interim dividend was approved by the Board of Directors on 3 October 2023.
It will be paid on 24 November 2023 to shareholders who are on the Register of
members at close of business on 13 October 2023.
A dividend reinvestment plan (DRIP) is available to shareholders who would
prefer to invest their dividends in the shares of the Company. For those
shareholders electing to receive the DRIP, the last date for receipt of a new
election is 3 November 2023.
Note 8 Earnings/(losses) per share and diluted earnings/(losses) per
share
26 weeks ended 26 August 2023 26 weeks ended 27 August 2022 (restated((a)))
Basic Dilutive share Diluted Basic Dilutive share Diluted
options and awards
options and awards
Profit/(loss) (£m)
Continuing operations((b)) 927 - 927 247 - 247
Discontinued operations - - - (7) - (7)
Total 927 - 927 240 - 240
Weighted average number of shares (millions) 7,172 54 7,226 7,492 73 7,565
Earnings/(losses) per share (pence)
Continuing operations 12.93 (0.10) 12.83 3.30 (0.03) 3.27
Discontinued operations - - - (0.09) - (0.09)
Total 12.93 (0.10) 12.83 3.21 (0.03) 3.18
(a) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(b) Excludes profits attributable to non-controlling interests of £2m (26
weeks ended 27 August 2022: £5m).
APM: Adjusted diluted earnings per share
Continuing operations Notes 26 weeks 26 weeks
2023
2022
(restated((a)))
Profit/(loss) before tax (£m) 1,217 396
Less: Adjusting items (£m) 3 (18) 614
Adjusted profit before tax (£m) 1,199 1,010
Adjusted profit before tax attributable to the owners of the parent (£m)((b)) 1,197 1,005
Taxation on adjusted profit before tax attributable to the owners of the (311) (211)
parent (£m)
Adjusted profit after tax attributable to the owners of the parent (£m) 886 794
Basic weighted average number of shares (millions) 7,172 7,492
Adjusted basic earnings per share (pence) 12.35 10.60
Diluted weighted average number of shares (millions) 7,226 7,565
Adjusted diluted earnings per share (pence) 12.26 10.50
(a) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(b) Excludes profit before tax attributable to non-controlling interests of
£2m (26 weeks ended 27 August 2022: £5m).
Note 9 Property, plant and equipment
26 August 2023 27 August 2022
Land and Other((a)) Total Land and Other((a)) Total
buildings
£m
buildings
£m
£m £m
£m £m
Net carrying value
Opening balance 14,870 1,992 16,862 15,163 1,897 17,060
Foreign currency translation (81) (13) (94) (12) (3) (15)
Additions((b)) 144 278 422 126 190 316
Acquired through business combinations - - - 42 - 42
Reclassification 3 (3) - 3 (3) -
Transfers (to)/from assets classified as held for sale 56 2 58 (105) (5) (110)
Disposals (8) (6) (14) (42) (4) (46)
Depreciation charge for the period (221) (223) (444) (214) (227) (441)
Impairment losses((c)) - - - (358) (66) (424)
Reversal of impairment losses((c)) - - - 1 5 6
Closing balance 14,763 2,027 16,790 14,604 1,784 16,388
Construction in progress included above((d)) 86 244 330 107 172 279
(a) Other assets consist of fixtures and fittings with a net carrying value
of £1,529m (25 February 2023: £1,496m, 27 August 2022: £1,330m), office
equipment with a net carrying value of £199m (25 February 2023: £201m, 27
August 2022: £186m) and motor vehicles with a net carrying value of £299m
(25 February 2023: £295m, 27 August 2022: £268m).
(b) Includes £34m (25 February 2023: £29m, 27 August 2022: £nil) relating
to property buyback and store purchase transactions.
(c) Refer to Note 11.
(d) Construction in progress does not include land.
Commitments for capital expenditure contracted for, but not incurred, at 26
August 2023 were £279m (25 February 2023: £200m, 27 August 2022: £309m),
principally relating to store development.
Note 10 Leases
Group as lessee
Right of use assets
26 August 2023 27 August 2022
Land and Other Total Land and Other Total
buildings
£m
£m
buildings
£m
£m
£m
£m
Net carrying value
Opening balance 5,387 113 5,500 5,634 86 5,720
Additions (including sale and leaseback transactions) 126 9 135 163 42 205
Acquired through business combinations - - - 4 - 4
Depreciation charge for the period (252) (18) (270) (249) (20) (269)
Impairment losses((a)) - - - (189) - (189)
Reversal of impairment losses((a)) - - - 3 - 3
Other movements((b)) 156 1 157 135 - 135
Closing balance 5,417 105 5,522 5,501 108 5,609
(a) Refer to Note 11.
(b) Other movements include lease terminations, modifications and
reassessments, foreign exchange, reclassifications between asset classes,
entering into finance subleases and transfers from the disposal group.
Lease liabilities
The following table shows the discounted lease liabilities included in the
Group balance sheet and the contractual undiscounted lease payments:
26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Current 593 595 591
Non-current 7,116 7,132 7,408
Total lease liabilities 7,709 7,727 7,999
Total undiscounted lease payments 10,800 10,897 11,463
A reconciliation of the Group's opening to closing lease liabilities balance
is presented in Note 18.
Note 11 Impairment of non-current assets
No impairment of goodwill was recognised in the current period to 26 August
2023 (26 weeks ended 27 August 2022: £nil).
The Group has reviewed both internal and external sources of information and
has concluded that there are no indicators of impairment or impairment
reversal during the 26 weeks ended 26 August 2023, hence no impairment losses
or reversals have been recognised in the period. The table below summarises
the Group's pre-tax impairment losses and reversals on other non-current
assets for the 26 weeks ended 27 August 2022, aggregated by segment due to the
large number of individually immaterial store cash-generating units. This
includes any impairment (losses)/reversals recognised immediately prior to
classifying an asset or disposal group as held for sale but excludes any
changes in fair value less costs to sell under IFRS 5 'Non-current Assets Held
for Sale and Discontinued Operations' post classification as held for sale.
There were no impairment losses or reversals in the period (26 weeks ended 27
August 2022: £nil) with respect to investments in joint ventures and
associates and no impairments in other non-current assets in Tesco Bank (26
weeks ended 27 August 2022: £nil). All impairment losses and reversals are
classified as adjusting items.
UK & ROI Central Europe Total Net
26 weeks ended 27 August 2022 Impairment Impairment reversal Impairment Impairment reversal Impairment Impairment reversal Impairment (loss)/reversal
loss
£m
loss
£m
loss
£m
£m
£m
£m
£m
Group balance sheet
Other intangible assets (19) - (3) - (22) - (22)
Property, plant and equipment (393) 4 (31) 2 (424) 6 (418)
Right of use assets (180) 2 (9) 1 (189) 3 (186)
Investment property (1) 1 - - (1) 1 -
Total impairment (loss)/reversal of other non-current assets (593) 7 (43) 3 (636) 10 (626)
Group income statement
Cost of sales (585) 5 (43) 3 (628) 8 (620)
Administrative expenses (8) 2 - - (8) 2 (6)
Total impairment (loss)/reversal from continuing operations (593) 7 (43) 3 (636) 10 (626)
Note 12 Cash and cash equivalents and short-term investments
Cash and cash equivalents
26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Cash at bank and on hand 2,470 2,426 2,397
Short-term deposits 56 39 38
Cash and cash equivalents in the Group balance sheet 2,526 2,465 2,435
Bank overdrafts (677) (900) (851)
Cash and cash equivalents in the Group cash flow statement 1,849 1,565 1,584
Short-term investments
26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Money market funds, deposits and similar instruments 2,692 1,628 2,256
Cash and cash equivalents includes £28m (25 February 2023: £87m, 27 August
2022: £78m) of restricted amounts mainly relating to the Group's pension
schemes and employee benefit trusts.
Note 13 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.
26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Current assets
Inventories (12) (18) (12)
Trade and other receivables
Trade/other receivables 61 67 61
Accrued income 105 127 106
Current liabilities
Trade and other payables
Trade payables 96 112 81
Accruals - (5) (8)
Note 14 Borrowings
Borrowings are classified as current and non-current based on their scheduled
repayment dates. Repayments of principal amounts are classified as current if
the repayment is scheduled to be made within one year of the balance sheet
date. During the 26-week period ended 26 August 2023, the Group has made
principal repayments of £97m (26 weeks ended 27 August 2022: £25m), and
there has been £982m issuance of borrowings (26 weeks ended 27 August 2022:
£nil) comprising a €500m bond maturing February 2031 and £250m bond
maturing February 2035, and a £300m floating rate bond maturing April 2026 in
Tesco Bank.
Current
26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Bank loans and overdrafts 704 928 882
Borrowings* 1,313 842 173
2,017 1,770 1,055
Non-current
26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Borrowings* 5,911 5,581 6,523
* £139m of current (25 February 2023: £nil, 27 August 2022: £1m) and
£299m of non-current borrowings (25 February 2023: £137m, 27 August 2022:
£234m) relate to borrowings issued by Tesco Bank.
Borrowing facilities
The Group has a £2.5bn undrawn committed facility available at 26 August 2023
(25 February 2023: £2.5bn, 27 August 2022: £2.5bn), in respect of which all
conditions precedent had been met as at that date, consisting of a syndicated
revolving credit facility expiring in more than two years. The facility incurs
commitment fees at market rates and would provide funding at floating rates.
In addition, Tesco Bank has a separate £200m committed repurchase facility,
maturing in 2024.
There were no utilisations of either facility during the financial period to
26 August 2023 (26 weeks ended 27 August 2022: £nil).
Note 15 Financial instruments
The expected maturity of financial assets and liabilities is not considered to
be materially different to their current and non-current classification.
Fair value of financial assets and liabilities measured at amortised cost
The table excludes cash and cash equivalents, short-term investments, trade
receivables/payables, other receivables/payables, accruals and deposits from
banks where the carrying values approximate fair value. The levels in the
table refer to the fair value measurement hierarchy.
26 August 2023 25 February 2023 (restated((a))) 27 August 2022 (restated((a)))
Level Carrying Fair Carrying Fair Carrying Fair
value
value((b))
value
value
value
value
£m
£m
£m
£m
£m
£m
Financial assets measured at amortised cost
Loans and advances to customers 3 7,422 7,385 6,977 6,955 6,749 6,801
Investment securities at amortised cost((c)) 1 and 2 1,030 1,025 1,093 1,097 875 879
Joint ventures and associates loan receivables((d)) 2 106 110 106 111 106 112
Financial liabilities measured at amortised cost
Borrowings
Amortised cost 1 (5,238) (5,480) (5,227) (5,496) (5,364) (5,781)
Bonds in fair value hedge relationships((c)) 1 and 2 (2,690) (2,729) (2,124) (2,167) (2,214) (2,223)
Customer deposits 3 (6,342) (6,205) (5,770) (5,640) (5,526) (5,432)
(a) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(b) Refer to the fair value measurement section below for details on Level 2
and 3 valuation methodology.
(c) These are principally Level 1 instruments.
(d) Joint ventures and associates loan receivables carrying amounts of
£106m (25 February 2023: £106m, 27 August 2022: £106m) are presented in the
Group balance sheet net of deferred profits of £38m (25 February 2023: £38m,
27 August 2022: £38m) historically arising from the sale of property assets
to joint ventures.
Fair value measurement by level of fair value hierarchy
The following table presents the Group's financial assets and liabilities that
are measured at fair value, by level of fair value hierarchy:
quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (Level 2); and
inputs for the asset or liability that are not based on observable market data
(that is, unobservable inputs) (Level 3).
Level 2 assets and liabilities are valued by discounting future cash flows
using externally sourced market yield curves, including interest rate curves
and foreign exchange rates from highly liquid markets. For Level 3 assets and
liabilities, uncollateralised derivatives are valued as per Level 2 but
include certain data sources which are significantly less liquid; unlisted
investments are valued based on less observable inputs such as recent funding
rounds.
At 26 August 2023 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 616 - 18 634
Short-term investments at fair value through profit or loss 1,055 - - 1,055
Cash and cash equivalents at fair value through profit or loss - 55 - 55
Investments at fair value through profit or loss - 20 1 21
Derivative financial instruments:
Interest rate swaps - 128 - 128
Cross-currency swaps - - 174 174
Index-linked swaps - - 590 590
Foreign currency forward contracts - 28 - 28
Diesel forward contracts - 2 - 2
Total assets 1,671 233 783 2,687
Liabilities
Derivative financial instruments:
Interest rate swaps - (20) (163) (183)
Cross-currency swaps - - (162) (162)
Foreign currency forward contracts - (45) - (45)
Diesel forward contracts - (3) - (3)
Total liabilities - (68) (325) (393)
Net assets 1,671 165 458 2,294
At 25 February 2023 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 565 - 14 579
Short-term investments at fair value through profit or loss 660 - - 660
Cash and cash equivalents at fair value through profit or loss - 32 - 32
Investments at fair value through profit or loss - - 20 20
Derivative financial instruments:
Interest rate swaps - 123 - 123
Cross-currency swaps - 41 170 211
Index-linked swaps - 119 432 551
Foreign currency forward contracts - 41 - 41
Diesel forward contracts - 4 - 4
Total assets 1,225 360 636 2,221
Liabilities
Derivative financial instruments:
Interest rate swaps - (73) (86) (159)
Cross-currency swaps - (4) (137) (141)
Foreign currency forward contracts - (72) - (72)
Diesel forward contracts - (15) - (15)
Total liabilities - (164) (223) (387)
Net assets 1,225 196 413 1,834
At 27 August 2022 Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets
Investments at fair value through other comprehensive income 533 - 18 551
Short-term investments at fair value through profit or loss* 914 - - 914
Cash and cash equivalents at fair value through profit or loss - 56 - 56
Investments at fair value through profit or loss - 24 1 25
Derivative financial instruments:
Interest rate swaps - 119 - 119
Cross-currency swaps - 32 182 214
Index-linked swaps - 117 559 676
Foreign currency forward contracts - 115 - 115
Diesel forward contracts - 36 - 36
Total assets 1,447 499 760 2,706
Liabilities
Derivative financial instruments:
Interest rate swaps - (135) - (135)
Cross-currency swaps - (132) - (132)
Foreign currency forward contracts - (28) - (28)
Total liabilities - (295) - (295)
Net assets 1,447 204 760 2,411
* Comparatives have been re-presented for reclassification of certain
short-term investments from amortised cost to fair value through profit or
loss.
During the period, there were no transfers (26 weeks ended 27 August 2022: no
transfers) between Level 1 and Level 2 fair value measurements.
Level 3 Instruments
The valuation techniques and significant unobservable inputs are unchanged in
the period from that described in Note 26 of the Annual Report and Financial
Statements 2023.
The following table presents the changes in Level 3 instruments:
26 weeks ended 26 weeks ended
26 August 2023 27 August 2022
Uncollateralised derivatives Unlisted Uncollateralised derivatives Unlisted
£m
£m
investments investments
£m
£m
At the beginning of the period 379 34 749 14
Gains/(losses) recognised in finance costs((a)) (56) 1 (37) -
Gains/(losses) recognised in other comprehensive income not reclassified to - (1) - 6
the income statement
Gains/(losses) recognised in other comprehensive income that may subsequently 15 - 29 -
be reclassified to the income statement
Additions - 5 - -
Transfers of assets/(liabilities) into Level 3((b)) 101 - - -
Transfer of assets/(liabilities) from Level 3((c)) - (20) - (1)
At the end of the period 439 19 741 19
(a) All gains or losses are unrealised.
(b) There were £nil transfers of unlisted investments and £101m of
derivative assets (26 weeks ended 27 August 2022: £nil) to Level 3 from Level
2 and £nil (26 weeks ended 27 August 2022: £nil) to Level 3 from Level 1.
(c) There was £(20)m unlisted investments transferred from Level 3 to Level
2 (26 weeks ended 27 August 2022: £(1)m) and £nil transfers from Level 3 to
Level 1 (26 weeks ended 27 August 2022: £nil).
Tesco Bank expected credit losses (ECL)
Tesco Bank has commissioned four scenarios from its third-party provider, all
of which were based on an economic outlook that sought to take account of the
ramifications of ongoing cost-of-living pressures:
Scenario Scenario assumptions Weighting (%)
Base Inflation has peaked, with average 7.5% inflation across 2023, easing to below 40
3% in the second half of 2024. Interest rates peak at 5.75% and there is
modest economic growth in 2023
Upside Improvements in energy supply and global supply chains leads to inflation of 30
2% by Q2 2024, base rates falling in Q4 2023 and commensurate increases in
business and consumer confidence
Downside 1 Disruption to energy supplies from geopolitical tensions drive energy price 25
rises that are passed on to consumers leading to higher inflation, 7% base
rates in 2023, and economic contraction until 2026
Downside 2 Similar to Downside 1, but inflation remains higher for longer, base rates 5
reach 8.5% and unemployment peaks to 7.4% in 2024
The economic scenarios used include the following ranges of key indicators:
As at 26 August 2023 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 4.7% 3.8% 5.8% 7.2%
Gross domestic product((b)) 1.2% 1.7% 0.6% 0.1%
Unemployment rate 4.2% 3.9% 5.1% 6.5%
Unemployment rate peak in year 4.3% 3.9% 5.3% 6.8%
As at 25 February 2023 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 3.8% 3.0% 4.7% 5.8%
Gross domestic product((b)) 1.0% 1.5% 0.4% (0.1)%
Unemployment rate 5.2% 4.2% 6.5% 8.4%
Unemployment rate peak in year 5.4% 4.2% 6.8% 8.9%
As at 27 August 2022 (five-year average) Base Upside Downside 1 Downside 2
40%
30%
25%
5%
Bank of England base rate((a)) 2.4% 2.0% 3.0% 3.9%
Gross domestic product((b)) 1.2% 1.6% 0.8% 0.4%
Unemployment rate 4.8% 4.1% 5.6% 7.1%
Unemployment rate peak in year 4.9% 4.1% 5.9% 7.5%
(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 August 2023 and excludes specific management
overlays which are discussed further below.
Impact on the loss allowance
Key assumption Reasonably possible change 26 August 25 February 2023* 27 August
£m
2023 2022*
£m
£m
Closing ECL allowance 452 460 471
Macroeconomic factors (100% weighted) Upside scenario (37) (59) (47)
Base scenario (11) (11) (9)
Downside scenario 1 40 65 45
Downside scenario 2 110 161 139
Probability of default Increase of 10% (27 August 2022: 2.5%) 33 32 9
Decrease of 10% (27 August 2022: 2.5%) (32) (31) (9)
Loss given default Increase of 2.5% 10 10 9
Decrease of 2.5% (10) (10) (9)
Probability of default threshold (staging) Increase of 20% (8) (9) (17)
Decrease of 20% 13 13 19
Expected lifetime (revolving credit facility) Increase of 1 year 4 3 18
Decrease of 1 year (6) (5) (19)
* Following the Group's adoption of IFRS 17, comparatives have been restated,
impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
The economic forecasts received by the Group during the period suggest ongoing
uncertainty in the wider macroeconomic environment remains, mainly as a result
of inflationary pressures, which are impacting interest rates and exacerbating
the cost-of-living crisis. The economic environment experienced during the
COVID-19 pandemic, coupled with the unprecedented nature of government support
measures, has broken the historically observed relationship between
unemployment and default, on which the Group's models are based. As a result,
Tesco Bank has recognised certain specific management overlays, to address the
prevailing downside risks and ensure the potential impacts of future stress
are adequately provided for, detailed below:
Overlay Description of adjustment 26 August 25 February 27 August
2023 2023 2022
£m
£m
£m
Underestimation risk Risk that the beneficial impact of recent credit loss trends incorporated into 56 68 -
credit risk models are transitive and may reverse due to the uncertain
economic climate
Cost of living A portion of Tesco Bank's customers may be more impacted by cost-of-living 20 22 45
pressures, with deterioration in their ability to repay unsecured lending
balances
Macroeconomic uncertainty Volatility in energy prices around the reporting date, with subsequent impact - - 53
on the macroeconomic environment, indicate the potential for a more severe and
lengthy downturn than modelled in the third-party economic scenarios
Consumer spending In respect of the beneficial modelling impact of lower consumer spending - - 46
through the pandemic
Total overlays 76 90 144
Movements in the management overlays above also reflect incorporation over
time of the identified risks into the modelled scenarios.
Note 16 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering
both funded and unfunded defined benefit schemes and defined contribution
schemes.
The principal defined benefit pension plan within the Group is the Tesco PLC
Pension Scheme (the Scheme), a UK scheme closed to future accrual. The latest
triennial actuarial pension funding valuation for the Scheme as at 31 March
2022 using a projected unit credit method showed a funding surplus of £0.9bn.
The Scheme remained in a funding surplus as at 26 August 2023.
IFRIC 14
For schemes in an accounting surplus position, these surpluses are recognised
on the balance sheet in line with IFRIC 14, as the Group has an unconditional
legal right to any future economic benefits by way of future refunds following
a gradual settlement.
Movement in the Group pension surplus/(deficit) during the financial period
Net defined benefit surplus/(deficit)
26 August 2023 25 February 2023 27 August 2022
£m
£m
£m
Opening balance (391) 2,847 2,847
Current service cost (7) (24) (13)
Finance income/(cost) (10) 80 40
Included in the Group income statement (17) 56 27
Remeasurement gain/(loss):
Financial assumptions gain/(loss) 1,183 7,652 5,107
Demographic assumptions gain/(loss) 219 (228) (454)
Experience gain/(loss) (202) (1,244) (1,022)
Return on plan assets excluding finance income (987) (9,518) (5,125)
Foreign currency translation - (3) (1)
Included in the Group statement of comprehensive income/(loss) 213 (3,341) (1,495)
Employer contributions 7 24 13
Additional employer contributions 11 20 10
Benefits paid 2 3 2
Other movements 20 47 25
Closing balance (175) (391) 1,404
Withholding tax on surplus((a)) (3) (3) (576)
Closing balance, net of withholding tax (178) (394) 828
Consisting of:
Schemes in deficit (200) (400) (242)
Schemes in surplus((b)) 22 6 1,070
Deferred tax asset/(liability)((c)) 48 100 56
Surplus/(deficit) in schemes at the end of the period, net of deferred tax (130) (294) 884
(a) Movements recognised through other comprehensive income in
remeasurements of defined benefit pension schemes.
(b) Net of a 35% withholding tax for UK schemes.
(c) Including £(2)m deferred tax liability relating to schemes in surplus
(25 February 2023: £nil, 27 August 2022: £nil).
Scheme principal assumptions
The principal assumptions, on a weighted average basis, used by external
actuaries to value the defined benefit obligation of the Scheme were as
follows:
26 August 25 February 27 August
2023 2023 2022
%
%
%
Discount rate((a)) 5.4 4.9 4.0
Price inflation 3.1 3.0 3.2
Rate of increase in deferred pensions((b)) 2.6 2.6 2.8
Rate of increase in pensions in payment((b))
Benefits accrued before 1 June 2012 2.9 2.9 3.1
Benefits accrued after 1 June 2012 2.6 2.5 2.7
(a) The discount rate for the Scheme is determined by reference to market
yields of high-quality corporate bonds of suitable currency and term to the
Scheme cash flows and extrapolated based on the trend observable in corporate
bond yields.
(b) 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 £(184)m or £(1,659)m
respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined
benefit obligation would increase by approximately £184m or £2,131m
respectively.
If the inflation assumption increased by 0.1% or 1%, the Scheme defined
benefit obligation would increase by approximately £161m or £1,740m
respectively. If this assumption decreased by 0.1% or 1% the Scheme defined
benefit obligation would decrease by approximately £(161)m or £(1,463)m
respectively.
Movements in the defined benefit obligation from discount rate and inflation
rate changes may be partially offset by movements in assets.
Note 17 Share capital and other reserves
26 weeks ended 52 weeks ended
26 August 2023 25 February 2023
Ordinary shares of 6 ⅓p each Ordinary shares of 6 ⅓p each
Number £m Number £m
Allotted, called-up and fully paid:
At the beginning of the financial period 7,318,341,195 463 7,637,986,531 484
Shares purchased and cancelled (190,590,518) (12) (319,645,336) (21)
At the end of the financial period 7,127,750,677 451 7,318,341,195 463
No shares were issued during the current or prior financial period in relation
to share options or bonus awards. The holders of Ordinary shares are entitled
to receive dividends as declared from time to time and are entitled to one
vote per share at general meetings of the Company.
Other reserves
The table below sets out the movements in other reserves:
Capital redemption reserve Hedging Translation Own Merger Insurance finance reserve((c)) Total
£m
reserve((a))
reserve
shares
£m
£m
held((b)) reserve( £m £m
£m ) £m
At 25 February 2023 (as previously reported) 43 27 322 (359) 3,090 - 3,123
Cumulative adjustment on initial application of IFRS 17 (net of tax) - - - - - 16 16
At 25 February 2023 (restated((c))) 43 27 322 (359) 3,090 16 3,139
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - (73) - - - (73)
associates, net of hedging instruments
Gains/(losses) on cash flow hedges - (1) - - - - (1)
Cash flow hedges reclassified and reported in the Group income statement - (25) - - - - (25)
Finance income/(expenses) from insurance contracts issued - - - - - 4 4
Finance income/(expenses) from reinsurance contracts held - - - - - (2) (2)
Tax relating to components of other comprehensive income - (7) - - - (1) (8)
Total other comprehensive income/(loss) - (33) (73) - - 1 (105)
Transfer from hedging reserve to retained earnings - 44 - - - - 44
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory - 47 - - - - 47
Total inventory cash flow hedge movements - 47 - - - - 47
Transactions with owners
Own shares purchased for cancellation - - - (752) - - (752)
Own shares cancelled 12 - - 503 - - 515
Own shares purchased for share schemes - - - (47) - - (47)
Share-based payments - - - 177 - - 177
Total transactions with owners 12 - - (119) - - (107)
At 26 August 2023 55 85 249 (478) 3,090 17 3,018
(a) Movements in cost of hedging reserve in the 26 weeks ended and balances
as at 26 August 2023 are £nil (25 February 2023: £nil, 27 August 2022:
£nil).
(b) Including nil shares purchased but not yet cancelled (25 February 2023:
Nil, 27 August 2022: 4.3 million) and 52.4 million shares held by the Employee
Benefit Trust (25 February 2023: 55.6 million, 27 August 2022: 57.5 million).
(c) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(d)
Capital redemption reserve Hedging Translation Own Merger Insurance finance reserve((c)) Total
£m
reserve((a))
reserve
shares
£m
£m
held((b)) reserve( £m £m
£m ) £m
At 26 February 2022 (as previously reported) 22 130 202 (365) 3,090 - 3,079
Cumulative adjustment on initial application of IFRS 17 (net of tax) - - - - - 1 1
At 26 February 2022 (restated((c))) 22 130 202 (365) 3,090 1 3,080
Other comprehensive income/(loss)
Retranslation of net assets of overseas subsidiaries, joint ventures and - - (24) - - - (24)
associates, net of hedging instruments
Gains/(losses) on cash flow hedges - 68 - - - - 68
Cash flow hedges reclassified and reported in the Group income statement - (8) - - - - (8)
Finance income/(expenses) from insurance contracts issued((c)) - - - - - 36 36
Finance income/(expenses) from reinsurance contracts held((c)) - - - - - (17) (17)
Tax relating to components of other comprehensive income - (17) - - - (5) (22)
Total other comprehensive income/(loss) - 43 (24) - - 14 33
Inventory cash flow hedge movements
(Gains)/losses transferred to the cost of inventory - 34 - - - - 34
Total inventory cash flow hedge movements - 34 - - - - 34
Transactions with owners
Own shares purchased for cancellation - - - (451) - - (451)
Own shares cancelled 10 - - 411 - - 421
Own shares purchased for share schemes - - - (48) - - (48)
Share-based payments - - - 151 - - 151
Total transactions with owners 10 - - 63 - - 73
At 27 August 2022 32 207 178 (302) 3,090 15 3,220
Refer to previous table for footnotes.
Own shares held
The table below presents the reconciliation of own shares purchased for
cancellation between the Group statement of changes in equity and the Group
cash flow statement:
26 August 27 August
2023 2022
Own shares purchased for cancellation £m £m
Included in the Group statement of changes in equity((a)) (752) (451)
Payments in relation to prior year financial liabilities - (23)
Outstanding amount recognised as financial liabilities((b)) 249 66
Other movements - (1)
Included in the Group cash flow statement((c)) (503) (409)
(a) 190.6 million (27 August 2022: 155.2 million) shares, representing 2.7% of
the called-up share capital as at 26 August 2023 (27 August 2022: 2.1%), with
total consideration of £503m (27 August 2022: £411m) including expenses of
£2m (27 August 2022: £4m) were cancelled and charged to retained earnings.
(b) Shares to be delivered under an uncancellable share repurchase agreement
with an external bank, included in other payables.
(c) 190.6 million (27 August 2022: 154.8 million) shares purchased at an
average price of £2.64 per share (27 August 2022: £2.64).
Insurance finance reserve
Insurance finance reserve includes the impact of changes in market discount
rates on insurance and reinsurance contract assets and liabilities.
Note 18 Analysis of changes in net debt
Net debt, as defined in the Glossary, excludes the net debt of Tesco Bank but
includes that of discontinued operations. Balances and movements in respect of
the total Group and Tesco Bank are presented to allow reconciliation between
the Group balance sheet and the Group cash flow statement.
26 August 2023 25 February 2023 27 August 2022
Group Bank Retail Group Bank Retail Group Bank Retail
£m £m £m £m £m £m £m £m £m
Bank and other borrowings, excluding overdrafts (7,251) (676) (6,575) (6,451) (375) (6,076) (6,727) (473) (6,254)
Lease liabilities (7,709) (21) (7,688) (7,727) (23) (7,704) (7,999) (24) (7,975)
Net financing derivatives 429 (7) 436 472 (9) 481 690 (15) 705
Share purchase obligations (249) - (249) (55) - (55) (66) - (66)
Liabilities from financing activities (14,780) (704) (14,076) (13,761) (407) (13,354) (14,102) (512) (13,590)
Cash and cash equivalents in the balance sheet 2,526 716 1,810 2,465 444 2,021 2,435 520 1,915
Overdrafts* (677) - (677) (900) - (900) (851) - (851)
Cash and cash equivalents (including overdrafts) in the cash flow statement 1,849 716 1,133 1,565 444 1,121 1,584 520 1,064
Short-term investments 2,692 - 2,692 1,628 - 1,628 2,256 - 2,256
Joint venture loans 106 - 106 106 - 106 106 - 106
Interest and other receivables 23 - 23 8 - 8 4 - 4
Net operating and investing derivatives 100 115 (15) 71 114 (43) 175 111 64
Net debt of disposal group - - - (14) - (14) (14) - (14)
Less: Share purchase obligations 249 - 249 55 - 55 66 - 66
Net debt APM (9,888) (10,493) (10,044)
* 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 12.
A reconciliation between movements in Net debt and the Group cash flow
statement is presented below:
26 August 27 August
2023 2022
£m
£m
Opening Net debt (10,493) (10,516)
Change in liabilities from Group financing activities (21) 976
Less: Cash flows arising from share purchase obligations (558) (458)
Less: Cash flows from Tesco Bank financing activities 298 (2)
Change in Net debt from financing activities (281) 516
Net increase/(decrease) in Retail cash and cash equivalents including 21 76
overdrafts*
Interest paid on components of Net debt 387 306
Interest received on components of Net debt (114) (12)
Net increase/(decrease) in short-term investments 1,076 179
Net increase/(decrease) in joint venture loans - 1
Cash flows from investing derivatives 12 -
Changes in Net debt from operating and investing activities 1,382 550
Retail net interest charge on components of Net debt (276) (289)
Retail fair value and foreign exchange movements of Net debt 81 27
Retail other non-cash movements (302) (324)
Acquisitions and disposals 1 (8)
Change in Net debt from non-cash movements (496) (594)
Closing Net debt (9,888) (10,044)
* Net increase/(decrease) in Retail cash and cash equivalents including
overdrafts includes £nil (27 August 2022: £(4)m) movement in cash and cash
equivalents of discontinued operations and £(1)m (27 August 2022: £(4)m)
intragroup funding and intercompany transactions.
The table below sets out the movements in liabilities arising from financing
activities:
Bank and other borrowings, excluding overdrafts Lease liabilities Net financing derivatives((a)) Share purchase obligations((b)) Liabilities from Group financing activities
£m £m £m £m £m
At 25 February 2023 (6,451) (7,727) 472 (55) (13,761)
Cash flows arising from financing activities (885) 308 (2) 558 (21)
Cash flows arising from operating activities:
Interest paid 177 183 34 - 394
Non-cash movements:
Fair value gains/(losses) (18) - (18) - (36)
Foreign exchange 102 25 - - 127
Interest income/(charge) (176) (183) (57) - (416)
Acquisitions and disposals - 1 - - 1
Lease additions, terminations, modifications and reassessments - (316) - - (316)
Share purchase agreements - - - (752) (752)
At 26 August 2023 (7,251) (7,709) 429 (249) (14,780)
(a) Net financing derivatives comprise those derivatives which hedge the
Group's exposures in respect of lease liabilities and borrowings. Net
operating and investing derivatives, which form part of the Group's Net debt
APM, are not included.
(b) Share purchase obligations form part of the liabilities arising from the
Group's financing activities, but do not form part of Net debt. Cash flows
arising from financing activities exclude £49m (26 weeks ended 27 August
2022: £45m) cash received from employees exercising SAYE options.
Bank and other borrowings, excluding overdrafts Lease liabilities Net financing derivatives((a)) Share purchase obligations((b)) Liabilities from Group financing activities
£m £m £m £m £m
At 26 February 2022 (6,825) (7,958) 553 (73) (14,303)
Cash flows arising from financing activities 29 294 195 458 976
Cash flows arising from operating activities:
Interest paid 118 189 2 - 309
Non-cash movements:
Fair value gains/(losses) 116 - (41) - 75
Foreign exchange (61) (7) - - (68)
Interest income/(charge) (100) (189) (19) - (308)
Acquisitions and disposals (4) (4) - - (8)
Lease additions, terminations, modifications and reassessments - (324) - - (324)
Share purchase agreements - - - (451) (451)
At 27 August 2022 (6,727) (7,999) 690 (66) (14,102)
Refer to previous table for footnotes.
Note 19 Insurance
Balances in this note relate to the Group's subsidiary, Tesco Underwriting
Limited (TU), part of the Tesco Bank operating segment.
At 26 August 2023 At 25 February 2023 (restated((a))) At 27 August 2022 (restated((a)))
Insurance contract liabilities Reinsurance contracts held Net (liabilities)/ Insurance contract liabilities Reinsurance contracts held Net (liabilities)/ Insurance contract liabilities Reinsurance contracts held Net (liabilities)/
£m £m assets £m £m assets £m £m assets
£m £m £m
(Liabilities)/assets for remaining coverage (260) (190) (450) (264) (107) (371) (321) (73) (394)
(Liabilities)/assets for incurred claims (238) 300 62 (225) 242 17 (186) 215 29
(498) 110 (388) (489) 135 (354) (507) 142 (365)
Contracts measured under PAA (312) 43 (269) (278) 63 (215) (238) 47 (191)
Contracts not measured under PAA((b)) (186) 67 (119) (211) 72 (139) (269) 95 (174)
(498) 110 (388) (489) 135 (354) (507) 142 (365)
(a) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(b) Contracts not measured under PAA relate to liability for remaining
coverage.
Measurement components of insurance contract liabilities and reinsurance
contract assets are set out in the table below. The estimate of the present
value of future cash flows is adjusted for events since the actuarial
valuation:
At 26 August 2023 At 25 February 2023 (restated*) At 27 August 2022 (restated*)
Present value of future cash flows Present value of future cash flows Present value of future cash flows
£m Risk adjustment £m Risk adjustment £m Risk adjustment
£m £m £m
CSM Total CSM Total CSM Total
£m £m £m £m £m £m
Insurance contract liabilities (401) (17) (80) (498) (405) (18) (66) (489) (428) (20) (59) (507)
Reinsurance contract assets 74 7 29 110 96 7 32 135 106 8 28 142
Net (liabilities)/assets (327) (10) (51) (388) (309) (11) (34) (354) (322) (12) (31) (365)
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
Note 20 Changes in accounting policies - IFRS 17 'Insurance contracts'
This note explains the impact of the adoption of IFRS 17 'Insurance contracts'
on the Group's financial position, financial performance and cash flows. IFRS
17 primarily impacts Tesco Bank and there is no material impact on the Retail
segment.
IFRS 17 'Insurance contracts' is effective for the accounting period
commencing 26 February 2023. IFRS 17 has been applied fully retrospectively
and comparatives for prior periods have been restated from a transition date
of 27 February 2022. Refer to Note 1 for the Group's insurance accounting
policies.
The Group applies the premium allocation approach to measure its portfolio of
insurance contracts issued and reinsurance groups purchased, except for claims
liabilities acquired as part of the acquisition of Tesco Underwriting Limited
on 4 May 2021. Unlike post-acquisition contracts issued with a term of one
year, the Group has applied the general measurement model (GMM) to the
acquired claims liabilities because the settlement of these claims and their
associated insurance risk will spread over multiple years. This measurement
leads to the recognition of revenue and expenses in relation to these acquired
claims over a longer period of time. It includes a contractual service margin
(CSM) which represents the difference between the consideration paid for the
acquired claims at acquisition and the risk-adjusted discounted fulfilment
cash flows, and will be allocated to the Group income statement over time to
reflect the pattern of actual claims settlement.
Group income statement restatement
The table below sets out the impact of IFRS 17 on the comparative period Group
income statement for the 26 weeks ended 27 August 2022. There is no impact on
adjusting items.
26 weeks ended 27 August 2022
Reported* Restated
Total Reclassification Remeasurements Total
£m £m £m £m
Continuing operations
Retail revenue 31,916 - - 31,916
Tesco Bank interest and similar income 386 (10) - 376
Insurance revenue 154 10 63 227
Revenue 32,456 - 63 32,519
Cost of sales (30,579) 2 - (30,577)
Insurance service expenses (77) (46) (81) (204)
Net expenses from reinsurance contracts held (35) - 3 (32)
Impairment loss on financial assets (42) - - (42)
Gross profit/(loss) 1,723 (44) (15) 1,664
Administrative expenses (987) 44 - (943)
Operating profit/(loss) 736 - (15) 721
Share of post-tax profits of joint ventures and associates 2 - - 2
Finance income 18 - 1 19
Finance costs (343) - (3) (346)
Profit/(loss) before tax 413 - (17) 396
Taxation (148) - 4 (144)
Profit/(loss) for the period from continuing operations 265 - (13) 252
Discontinued operations
Profit/(loss) for the period from discontinued operations (7) - - (7)
Profit/(loss) for the period 258 - (13) 245
Attributable to:
Owners of the parent 253 - (13) 240
Non-controlling interests 5 - - 5
258 - (13) 245
Earnings per share from continuing and discontinued operations
Basic 3.38p - (0.17)p 3.21p
Diluted 3.35p - (0.17)p 3.18p
Earnings per share from continuing operations
Basic 3.47p - (0.17)p 3.30p
Diluted 3.44p - (0.17)p 3.27p
* The income statement has been re-presented to separately present
insurance revenue, insurance service expenses and net expenses from
reinsurance contracts held, and to separately present Tesco Bank interest and
similar income.
IFRS 17 impact Description
Reclassification Primarily relates to directly attributable insurance expenses, previously
included in administrative expenses and cost of sales, which were reclassified
to insurance service expenses.
Remeasurements Primarily relates to the impact of acquired claims and other remeasurements
under IFRS 17. Under the GMM, the profit in relation to acquired claims is
deferred on the balance sheet at the transition date and recognised in the
income statement in subsequent periods. The unwinding of the related CSM
balance accordingly increased revenue and profit in the comparative period.
However, this increase was offset by the deferral of net gains on the release
of claims reserves in relation to acquired claims.
Group balance sheet restatement
The table below sets out the impact of IFRS 17 on the transition balance sheet
at 27 February 2022 and on the comparative period balance sheet as at 27
August 2022 and 25 February 2023.
25 February 2023 27 August 2022 26 February 2022
Reported Reclassification Remeasurements Restated Reported Reclassification Remeasurements Restated Reported Reclassification Remeasurements Restated
£m £m £m £m £m £m £m £m £m £m £m £m
Non-current assets
Reinsurance contract assets 145 (36) 26 135 173 (51) 20 142 184 (46) 33 171
Deferred tax assets 82 - 2 84 86 - 3 89 85 - 3 88
Current assets
Trade and other receivables 1,315 (75) - 1,240 1,366 (51) - 1,315 1,263 (42) - 1,221
Loans and advances to customers 4,052 (105) 1 3,948 3,848 (94) 1 3,755 3,349 (100) 2 3,251
Reinsurance contract assets 72 (72) - - 58 (58) - - 61 (61) - -
Current liabilities
Trade and other payables (9,818) 36 3 (9,779) (9,799) 8 2 (9,789) (9,181) 121 3 (9,057)
Insurance contract liabilities (570) 118 (37) (489) (574) 104 (37) (507) (623) 101 (52) (574)
Non-current liabilities
Trade and other payables (153) 99 - (54) (195) 117 - (78) (53) - (1) (54)
Insurance contract liabilities (35) 35 - - (25) 25 - - (27) 27 - -
Net assets impact - (5) - (11) - (12)
Equity
Other reserves 3,123 - 16 3,139 3,205 - 15 3,220 3,079 - 1 3,080
Retained earnings 3,490 - (21) 3,469 4,844 - (26) 4,818 6,932 - (13) 6,919
Equity impact - (5) - (11) - (12)
IFRS 17 impact Description
Reclassification Before the transition, the rights and obligations arising from a portfolio of
insurance contracts and reinsurance contracts were presented in various line
items in the Group balance sheet depending on their nature. IFRS 17 requires
all insurance and reinsurance related balances to be classified within either
insurance contract liabilities or reinsurance contract assets. Premiums
receivable, previously included in loans and advances to customers, were
reclassified to insurance contract liabilities (25 February 2023: £105m, 27
August 2022: £94m, 27 February 2022: £100m); and funds withheld arising from
quota share arrangements, previously included in trade and other payables,
were reclassified to reinsurance contract assets (25 February 2023: £124m, 27
August 2022: £117m, 27 February 2022: £115m). All other relevant balances
have also been reclassified accordingly.
All insurance contract liabilities have been classified as current and all
reinsurance contract assets as non-current, as contracts are now considered on
a portfolio basis rather than on an individual contract basis and are not
permitted to be split between current and non-current.
Remeasurements Primarily relates to the recognition and allocation of CSM in relation to
acquired claims, deferred acquisition cost balances and the impact of the risk
adjustment and discounting.
Group cash flow statement restatement
The table below sets out the impact of IFRS 17 on the comparative period Group
cash flow statement for the 26 weeks ended 27 August 2022.
26 weeks ended 27 August 2022
Reported IFRS 17 impact Restated
£m
£m £m
Cash flows generated from/(used in) operating activities
Operating profit/(loss) of continuing operations 736 (15) 721
Tesco Bank (increase)/decrease in loans and advances to customers (440) (5) (445)
Tesco Bank (increase)/decrease in trade, reinsurance and other receivables 63 8 71
Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance 46 12 58
and other payables
Tesco Bank increase/(decrease) in provisions 1 - 1
Tesco Bank (increase)/decrease in working capital (330) 15 (315)
Cash generated from/(used in) operations impact -
IFRS 17 has no impact on net cash generated from operating, investing and
financing activities for the period, or cash and cash equivalents at the end
of the period.
APMs
The only material impact on Alternative performance measures relates to Net
interest margin. Refer to the Glossary on page 49.
Note 21 Contingent liabilities
There have been no material changes to the contingent liabilities of the Group
in the period.
Note 22 Events after the reporting period
There were no material events after the reporting period requiring disclosure.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the Directors have adopted various
Alternative performance measures (APMs).
These measures are not defined by International Financial Reporting Standards
(IFRS) and therefore may not be directly comparable with other companies'
APMs, including those in the Group's industry. APMs should be considered in
addition to, and are not intended to be a substitute for, or superior to, IFRS
measures.
Purpose
The Directors believe that these APMs assist in providing additional useful
information on the trends, performance and position of the Group. APMs aid
comparability between geographical units or provide measures that are widely
used across the industry. They also aid comparability between reporting
periods; adjusting for certain costs or incomes that derive from events or
transactions that fall within the normal activities of the Group but which, by
virtue of their size or nature, are adjusted, can provide a helpful
alternative perspective on year-on-year trends, performance and position that
aids comparability over time.
The alternative view presented by these APMs is consistent with how management
views the business, and how it is reported internally to the Board and
Executive Committee for performance analysis, planning, reporting,
decision-making and incentive-setting purposes.
Further information on the Group's adjusting items, which is a critical
accounting judgement, can be found in Note 3.
Some of the Group's IFRS measures are translated at constant exchange rates.
Constant exchange rates are the average actual periodic exchange rates for the
previous financial period and are used to eliminate the effects of exchange
rate fluctuations in assessing performance. Actual exchange rates are the
average actual periodic exchange rates for that financial period.
Changes to APMs
To align with how management consider property disposals, store buybacks, and
properties acquired through business combinations, the Directors have amended
the Retail free cash flow and Capex definitions to exclude store property
purchases. These transactions are all excluded because of their unpredictable
or irregular timing. This change of definition does not impact the period.
During the period, Tesco Bank paid a £250m special dividend that represented
a one-off return of excess capital from the Bank to the Retail segment. As
this is not expected to recur, management has excluded it from the Retail free
cash flow measure, as this best helps comparability of the Retail segment over
time.
Group APMs
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose
Income statement
Revenue measures
Sales Revenue Fuel sales Excludes the impact of fuel sales made at petrol filling stations to
demonstrate the Group's performance in the Retail and financial services
businesses. It removes volatilities outside of the control of management,
associated with the movement in fuel prices.
This is a key management incentive metric.
This measure is also presented on a Retail and Tesco Bank basis.
Growth in sales No direct equivalent Ratio N/A Growth in sales is a ratio that measures year-on-year movement in Group sales
for continuing operations for 26 weeks. It shows the annual rate of increase
in the Group's sales and is considered a good indicator of how rapidly
the Group's core business is growing.
Like-for-like (LFL) No direct equivalent Ratio N/A Like-for-like is a measure of growth in Group online sales and sales from
stores that have been open for at least a year (but excludes prior year sales
of stores closed during the year) at constant foreign exchange rates. It is a
widely used indicator of a retailer's current trading performance and is
important when comparing growth between retailers that have different profiles
of expansion, disposals and closures.
Profit measures
Adjusted operating profit Operating profit from continuing operations((a)) Adjusting items((b)) Adjusted operating profit is the headline measure of the Group's performance,
based on operating profit from continuing operations before the impact of
adjusting items. Refer to the APM Purpose section of the Glossary.
Amortisation of acquired intangibles is included within adjusting items
because it relates to historical inorganic business combinations and does not
reflect the Group's ongoing trading performance (related revenue and other
costs from acquisitions are not adjusted).
This is a key management incentive metric.
This measure is also presented on a Retail and Tesco Bank basis.
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose
Adjusted total finance costs Finance costs Adjusting items((b)) Adjusting items within finance costs include net pension finance income/costs
and fair value remeasurements on financial instruments. Net pension finance
income/costs are impacted by corporate bond yields, which can fluctuate
significantly and are reset each year based on external market factors that
are outside management's control. Fair value remeasurements are impacted by
changes to credit risk and various market indices, applying to financial
instruments resulting from liability management exercises, which can fluctuate
significantly outside of management's control. This measure helps to provide
an alternative view of year-on-year trends in the Group's finance costs.
Adjusted profit before tax Profit before tax Adjusting items((b)) This measure is the summation of the impact of all adjusting items on profit
before tax. Refer to the APM Purpose section of the Glossary.
Adjusted operating margin No direct equivalent Ratio N/A Operating margin is calculated as adjusted operating profit divided by
revenue. Progression in operating margin is an important indicator of the
Group's operating efficiency.
Adjusted diluted earnings Diluted earnings per share from continuing operations Adjusting items((b)) This metric shows the adjusted profit after tax from continuing operations
attributable to owners of the parent divided by the weighted average number of
per share ordinary shares in issue during the financial period, adjusted for the
effects of dilutive share options.
Retail EBITDA (earnings before adjusting items, interest, tax, depreciation Retail operating profit from continuing operations((a)) Adjusting items((b)) This measure is widely used by analysts, investors and other users of the
and amortisation)
accounts to evaluate comparable profitability of companies, as it excludes the
Depreciation and amortisation impact of differing capital structures and tax positions, variations in
tangible asset portfolios and differences in identification and recognition of
intangible assets. It is used to derive the Net debt/EBITDA and Total
indebtedness ratios, and Fixed charge cover APMs.
Net interest margin No direct equivalent Ratio N/A Net interest margin is calculated by dividing Tesco Bank annualised net
interest income, less annualised lease interest expense, by average
interest-bearing assets.
It is a measure of the gross profitability of Tesco Bank's lending operations.
Tax measures
Adjusted effective tax rate Effective tax rate Adjusting items((b)) Adjusted effective tax rate is calculated as total income tax credit/(charge)
excluding the tax impact of adjusting items, divided by adjusted profit before
tax. This APM provides an indication of the ongoing tax rate across the Group.
Balance sheet
Net debt No direct equivalent N/A Net debt excludes the net debt of Tesco Bank but includes that of the
discontinued operations to reflect the net debt obligations of the Retail
business.
Net debt comprises bank and other borrowings, lease liabilities, and net
derivative financial instruments, offset by cash and cash equivalents,
short-term investments, joint venture loans, and interest and other
receivables.
It is a useful measure of the progress in generating cash and strengthening of
the Group's balance sheet position and is a measure widely used by credit
rating agencies.
Net debt/EBITDA ratio No direct equivalent Ratio N/A Net debt/EBITDA ratio is calculated as Net debt divided by the rolling
12-month Retail EBITDA. It is a measure of the Group's ability to meet its
payment obligations, showing how long it would take the Group to repay its
current net debt if both net debt and EBITDA remained constant. It is widely
used by analysts and credit rating agencies.
Total indebtedness No direct equivalent N/A Total indebtedness is Net debt plus the IAS 19 deficit in any pension schemes
(net of associated deferred tax) to provide an overall view of the Group's
obligations, including the long-term commitments to the Group's pension
schemes. Pension surpluses are not included. It is an important measure of the
long-term obligations of the Group and is a measure widely used by credit
rating agencies.
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Definition and purpose
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 on financial instruments)
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 and store purchases Capex excludes additions arising from business combinations, buybacks of
additions, excluding those from business combinations
properties (typically stores), purchases of store properties, as well as
Additions relating to decommissioning provisions and similar items additions relating to decommissioning provisions and similar items.
Property buybacks and purchases of store properties are variable in timing,
with the number and value of transactions dependent on opportunities that
arise within any given financial year. Excluding property buybacks and store
property purchases 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 and purchase stores;
proceeds from the sale of subsidiaries; cash utilised in business
acquisitions; cash used for investment in joint ventures, associates and
unlisted equity investments; receipt of special dividends from Tesco Bank; and
adjusting cash items in operating cash activities.
By adjusting for these factors, which can have unpredictable timings or
amounts, or can be driven by external events or non-operational business
decisions (such as acquisitions and disposals of properties as opportunities
arise), the Directors and management believe this provides a view of free cash
flow generated by the Group's retail trading operations that is more
predictable and comparable over time and reflects the cash available to
shareholders.
This is a key management incentive metric.
(a) Operating profit is presented on the Group income statement. It is not
defined per IFRS, however, is a generally accepted profit measure.
(b) Refer to Note 3.
APMs: Reconciliation of income statement measures
(a) As the incomes and expenses included
in debt APMs are calculated using a rolling 12-month period, the amounts for
the 12 months to 26 August 2023 are not disclosed in the notes to the
condensed consolidated interim financial statements for the current financial
period.
Retail EBITDA
52 weeks ended 52 weeks ended
26 August 2023 25 February 2023
(restated*)
£m £m
Operating profit 2,278 1,517
Less: Adjusting items 526 1,105
Adjusted operating profit 2,804 2,622
Less: Tesco Bank adjusted operating profit (148) (135)
Retail adjusted operating profit 2,656 2,487
Add: Retail depreciation and amortisation before adjusting items 1,576 1,570
Retail EBITDA 4,232 4,057
(c) * Following the Group's adoption of IFRS 17, comparatives have
been restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further
details.
Net interest margin
31 August 2023 31 August 2022
(restated*)
£m £m
Tesco Bank revenue 702 603
Less: Tesco Bank fees and commissions income (137) (134)
Less: Tesco Bank insurance revenue (223) (227)
Less: Tesco Bank interest expense within operating profit (116) (34)
Less: Tesco Bank interest expense within finance income/(costs) (7) (3)
Net interest income 219 205
Annualised net interest income 436 406
Average interest-earning assets 9,264 8,630
Net interest margin (%) 4.7% 4.7%
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
APMs: Reconciliation of balance sheet measures
Net debt
(b) A reconciliation of Net debt is provided
in Note 18.
Net debt/EBITDA and Total indebtedness ratio
Notes 26 August 2023 25 February 2023
£m £m
Net debt 18 9,888 10,493
Retail EBITDA 4,232 4,057
Net debt/EBITDA ratio 2.3 2.6
Net debt 18 9,888 10,493
Add: Defined benefit pension deficit, net of deferred tax 16 150 300
Total indebtedness 10,038 10,793
Retail EBITDA 4,232 4,057
Total indebtedness ratio 2.4 2.7
Fixed charge cover
52 weeks ended 52 weeks ended
26 August 2023 25 February 2023
(restated*)
£m £m
Net finance costs 478 536
Less: Net pension finance income/(costs) 30 80
Add: Fair value remeasurements of financial instruments 52 (51)
Adjusted total finance costs 560 565
Less: Finance charges payable on lease liabilities (367) (373)
Adjusted total finance cost, excluding finance charges payable on lease 193 192
liabilities
Add: Total lease liability payments 974 966
1,167 1,158
Retail EBITDA 4,232 4,057
Fixed charge cover (ratio) 3.6 3.5
* Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
Capex
Notes 26 August 2023 27 August 2022
£m £m
Property, plant and equipment additions* 9 422 316
Other intangible asset additions* 135 132
Less: Additions from property buybacks 9 (34) -
Less: Additions from store purchases - -
Capex 523 448
(d) * Excluding amounts acquired through business combinations.
APMs: Reconciliation of cash flow measures
Notes 26 weeks ended 26 weeks ended
26 August 2023 27 August 2022
£m £m
Cash generated from/(used in) operating activities 2 2,312 1,825
Cash generated from/(used in) investing activities 2 (1,565) (507)
Less: Cash generated from/(used in) operating activities in Tesco Bank 2 (244) 209
Less: Cash generated from/(used in) operating activities in discontinued 2 - 4
operations
Less: Cash generated from/(used in) investing activities in Tesco Bank 2 271 61
Less: Cash generated from/(used in) investing activities in discontinued 2 - -
operations
774 1,592
Own shares purchased in relation to share schemes 2 (6) (4)
Retail repayments of capital element of obligations under leases 2 (306) (292)
Exclude/add back:
Retail proceeds from sale of property, plant and equipment, investment 2 (34) (301)
property, intangible assets and assets classified as held for sale
Retail purchase of property, plant and equipment, investment property and 2 22 -
other long-term assets - property buybacks and store purchases
Retail disposal of subsidiaries, net of cash disposed 2 (15) -
Retail acquisition of subsidiaries, net of cash acquired 2 - 66
Retail investments in/(proceeds from sale of) joint ventures and associates 2 5 6
Retail adjusting net cash (generated from)/used in operating activities 2 87 31
Retail increase in loans to joint ventures and associates 2 - 1
Retail special dividends received from Tesco Bank 2 (250) -
Retail net investments in/(proceeds from sale of) other investments 2 3 5
Retail net investments in/(proceeds from sale of) short-term investments 2 1,076 179
Retail cash inflows from derivative financial instruments within investing 2 (3) -
activities
Retail cash outflows from derivative financial instruments within investing 2 15 -
activities
Retail free cash flow 1,368 1,283
Glossary - Other
Expected credit loss (ECL)
Credit loss represents the portion of the debt that a company is unlikely to
recover. The expected credit loss is the projected future losses based on
probability-weighted calculations.
ESG
Environmental, social and governance.
MTN
Medium-term note.
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.
Total capital ratio
This is calculated by dividing total regulatory capital by total
risk‐weighted assets.
Independent review report to Tesco PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the 26 weeks ended 26
August 2023 which comprises the Group income statement, the Group statement of
comprehensive income/(loss), the Group balance sheet, the Group statement of
changes in equity, the Group cash flow statement and related notes 1 to 22.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the 26 weeks ended 26 August 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
3 October 2023
Appendices
Appendix 1
One-year like-for-like sales performance (exc. VAT, exc. fuel)
Like-for-like sales
H1 H2 FY Q1 Q2 HY
2022/23
2023/24
2023/24
2023/24
2022/23 2022/23
UK & ROI 2.7% 6.7% 4.7% 8.8% 8.0% 8.4%
UK 0.7% 6.0% 3.3% 9.0% 8.4% 8.7%
ROI (0.1)% 6.6% 3.3% 7.3% 6.5% 6.9%
Booker 13.9% 10.2% 12.0% 8.4% 6.6% 7.5%
Central Europe 10.4% 10.3% 10.4% 1.1% 0.7% 0.9%
Total Retail 3.2% 6.9% 5.1% 8.2% 7.5% 7.8%
Appendix 2
Total sales performance (exc. VAT, exc. fuel)
Actual rates Constant rates
H1 H2 FY H1 H1 H2 FY H1
2022/23
2022/23
2022/23 2022/23 2023/24 2022/23 2022/23 2023/24
UK & ROI 2.6% 7.0% 4.8% 8.9% 2.6% 6.8% 4.7% 8.8%
UK 0.6% 6.0% 3.3% 9.1% 0.6% 6.0% 3.3% 9.1%
ROI (0.6)% 13.2% 6.3% 13.0% 1.0% 9.7% 5.4% 10.0%
Booker 13.8% 10.2% 12.0% 6.9% 13.8% 10.2% 12.0% 6.9%
Central Europe 5.9% 10.7% 8.3% 6.7% 9.5% 10.4% 10.0% 1.4%
Total Retail 2.8% 7.2% 5.0% 8.7% 3.1% 7.1% 5.1% 8.2%
Appendix 3
Country detail - Retail
Revenue (exc. VAT, inc. fuel)
Local currency £m Average exchange Closing exchange
(m) rate rate
UK 25,124 25,124 1.0 1.0
ROI 1,610 1,398 1.2 1.2
Booker 4,704 4,704 1.0 1.0
Czech Republic 21,355 782 27.3 28.1
Hungary 322,956 742 435.3 445.1
Slovakia 803 697 1.2 1.2
Appendix 4
UK sales area by size of store
26 August 2023 25 February 2023
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 2,628 5.7 14.7% 2,605 5.6 14.6%
3,001-20,000 274 2.9 7.5% 276 2.9 7.6%
20,001-40,000 286 8.2 21.2% 286 8.2 21.2%
40,001-60,000 182 8.8 22.7% 182 8.8 22.8%
60,001-80,000 119 8.4 21.7% 119 8.4 21.6%
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* 3,542 38.7 100.0% 3,521 38.6 100.0%
* Excludes Booker and franchise stores.
Appendix 5
Actual Group space - store numbers((a))
2022/23 Openings Closures/ Net gain/ As at 26 Repurposing/
year end
disposals
(reduction)((b)) August 2023 extensions((c))
Large((d)) 805 - (1) (1) 804 -
Convenience 1,998 16 (2) 14 2,012 -
Dotcom only 6 - - - 6 -
Total Tesco 2,809 16 (3) 13 2,822 -
One Stop((e)) 712 11 (3) 8 720 -
Booker 191 - (1) (1) 190 -
UK((e)) 3,712 27 (7) 20 3,732 -
ROI 166 1 - 1 167 -
UK & ROI((e)) 3,878 28 (7) 21 3,899 -
Czech Republic((e)) 187 1 (2) (1) 186 3
Hungary 197 - - - 197 11
Slovakia((e)) 157 4 - 4 161 6
Central Europe((e)) 541 5 (2) 3 544 20
Group((e)) 4,419 33 (9) 24 4,443 20
UK (One Stop) 291 16 (12) 4 295 -
Czech Republic 124 - (5) (5) 119 -
Slovakia 25 4 (2) 2 27 -
Franchise stores 440 20 (19) 1 441 -
Total Group 4,859 53 (28) 25 4,884 20
Actual Group space - '000 sq. ft.((a))
2022/23 Openings Closures/ Repurposing/ Net gain/ As at 26
year end
disposals
extensions((c)) (reduction) August 2023
Large 31,427 - (15) - (15) 31,412
Convenience 5,344 37 (10) - 27 5,371
Dotcom only 716 - - - - 716
Total Tesco 37,487 37 (25) - 12 37,499
One Stop((e)) 1,169 19 (5) - 14 1,183
Booker 8,181 - (87) - (87) 8,094
UK((e)) 46,837 56 (117) - (61) 46,776
ROI 3,478 25 - - 25 3,503
UK & ROI((e)) 50,315 81 (117) - (36) 50,279
Czech Republic((e)) 4,146 8 (14) (19) (25) 4,121
Hungary 5,670 - - (128) (128) 5,542
Slovakia((e)) 3,147 41 - (2) 39 3,186
Central Europe((e)) 12,963 49 (14) (149) (114) 12,849
Group((e)) 63,278 130 (131) (149) (150) 63,128
UK (One Stop) 420 23 (16) - 7 427
Czech Republic 114 - (5) - (5) 109
Slovakia 23 4 (2) - 2 25
Franchise stores 557 27 (23) - 4 561
Total Group 63,835 157 (154) (149) (146) 63,689
(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) 2022/23 Large stores restated to reflect the conversion of the six
Jack's stores last year, reported 799 at full year 2022/23.
(e) Excludes franchise stores.
Group space forecast to 24 February 2024 - '000 sq. ft.((a))
As at 26 Openings Closures/ disposals Repurposing/ Net gain/ 2023/24
year end
August 2023 extensions((b)) (reduction)((c))
Large 31,412 60 (19) - 41 31,453
Convenience 5,371 123 (20) - 103 5,474
Dotcom only 716 - - - - 716
Total Tesco 37,499 183 (39) - 144 37,643
One Stop((d)) 1,183 48 (6) - 42 1,225
Booker 8,094 - - - - 8,094
UK((d)) 46,776 231 (45) - 186 46,962
ROI 3,503 24 (17) - 7 3,510
UK & ROI((d)) 50,279 255 (62) - 193 50,472
Czech Republic((d)) 4,121 11 (18) (34) (41) 4,080
Hungary 5,542 - - (126) (126) 5,416
Slovakia((d)) 3,186 54 - (40) 14 3,200
Central Europe((d)) 12,849 65 (18) (200) (153) 12,696
Group((d)) 63,128 320 (80) (200) 40 63,168
UK (One Stop) 427 57 (4) - 53 480
Czech Republic 109 - (7) - (7) 102
Slovakia 25 5 1 - 6 31
Franchise stores 561 62 (10) - 52 613
Total Group 63,689 382 (90) (200) 92 63,781
(a) Continuing operations.
(b) Repurposing of retail selling space.
(c) The net gain/(reduction) reflects the number of store openings less the
number of store closures/disposals and repurposing/extensions.
(d) Excludes franchise stores.
Appendix 6
Tesco Bank income statement
H1 H1
2023/24((a)) 2022/23((a))
(restated((b)))
£m £m
Revenue
Interest income 342 242
Fees and commissions income 137 134
Insurance revenue 223 227
702 603
Direct costs
Interest expense (116) (34)
Fees and commissions expense (10) (6)
Insurance service expenses((c)) (206) (204)
Net expenses from reinsurance contracts held (27) (32)
(359) (276)
Other income 1 2
Gross profit 344 329
Other expenses
Staff costs (97) (99)
Premises and equipment (29) (31)
Other administrative expenses (100) (84)
Depreciation and amortisation((c)) (20) (25)
Impairment loss on financial assets (33) (38)
Adjusted operating profit/(loss) 65 52
Adjusting items((d)) - (5)
Operating profit/(loss) 65 47
Finance income/(costs): movements on derivatives and hedge accounting - 2
Finance income/(costs): interest (7) (3)
Finance income/(costs): leases (1) (1)
Finance income/(costs): insurance (4) (2)
Profit/(loss) for the period 53 43
(a) These results are for the six months ended 31 August 2023 and the
previous period represents the six months ended 31 August 2022.
(b) Following the Group's adoption of IFRS 17, comparatives have been
restated, impacting Tesco Bank. Refer to Notes 1 and 20 for further details.
(c) Depreciation and amortisation of £(3)m (27 August 2022: £(2)m) form
part of insurance service expenses.
(d) Adjusting items of £(5)m in H1 2022/2023 related to operational
restructuring changes, part of the 'Save to Invest' programme.
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