Source - RNS
RNS Number : 7004L
Tesco PLC
05 October 2016
 

 

 

Interim Results 2016/17

 

STRONG FIRST HALF PROGRESS;

CLEAR PLAN TO CREATE LONG-TERM VALUE

 

 

Group sales1,2

Operating profit pre exceptionals2,3

Operating profit2

Retail operating cash flow2,4

 

Net debt4,5

£24.4bn

up 3.3%

£596m

up 60.2%

£515m

up 38.4%

£955m

up 20.7%

£(4.4)bn

down 49.3% y-o-y

down 14.8% vs year-end

 

Headlines

Positive like-for-like sales and volume growth in all regions across the Group

·   UK like-for-like sales growth of 0.6% and Group like-for-like sales growth of 1.0%6

·   UK volumes up 2.1%; UK transactions up 1.6%

·   International volumes up 3.3%; International transactions up 0.3%

 

Significant progress against all three priorities

·   Competitive in the UK - all key customer metrics improving relative to the market

·   More secure balance sheet - net debt reduced by further £0.8bn since year-end

·   Rebuilding trust - brand health returned to highest level in more than four years7

 

Customer, colleague and supplier partner measures all improving

·   Most improved retailer in terms of customer recommendations8

·   78% of colleagues recommend us as a 'great place to work' (up from 70% in 1H 2014/15)

·   Very strong improvement in UK supplier satisfaction measure at 78% (up from 51% in 2014/15)

 

Well-placed against our plans - on track to deliver £1.2bn Group operating profit before exceptional items for the full year

·   Rebuilding profitability whilst investing in our customer offer

·   Group operating profit before exceptional items up 60% in the first half

·   Exclusive fresh food brands performing ahead of plan; investment part-offset by mix benefit

 

Sharing our ambition to deliver 3.5-4.0% Group operating margin by 2019/20

·   Underpinned by six strategic drivers, we will strengthen our customer offer whilst creating long-term, sustainable value for shareholders

·   Includes £1.5bn further operating cost reductions, to be realised through a more efficient and responsive distribution system, a simpler store operating model & goods not for resale savings

·   Total capex will average £1.4bn per year to support this programme

 

Statutory results: statutory revenue £27.3bn, up 1.4%; statutory profit before tax £71m, down (28.3)%

 

Dave Lewis, Chief Executive:

"We have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the Group as we re-invest in our customer offer whilst rebuilding profitability in a sustainable way.

 

The entire Tesco team is focused on serving shoppers a little better every day.  We are more competitive across our offer.  Prices are more than 6% lower than two years ago, availability and service have never been better and our range is more compelling.  Our new fresh food brands are performing ahead of expectations, improving our value proposition and further removing reasons for customers to shop elsewhere.

 

Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future.  Today, we are sharing the plans we have in place to become even more competitive for our customers, even simpler for colleagues and an even better partner for our suppliers, whilst creating long-term, sustainable value for our shareholders.

 

Like-for-like sales performance6:

 

 

1H

2015/16

2H

 2015/16

FY

2015/16

1Q

2016/17

2Q

2016/17

 

1H

2016/17

UK & ROI

(1.3)%

(0.1)%

(0.7)%

0.3%

0.9%

 

0.6%

   UK

(1.1)%

(0.1)%

(0.6)%

0.3%

0.9%

 

0.6%

   ROI

(3.7)%

0.0%

(1.9)%

0.3%

0.1%

 

0.2%

International

0.6%

3.2%

2.0%

3.0%

2.1%

 

2.6%

   Europe

2.6%

3.6%

3.1%

2.8%

1.3%

 

2.0%

   Asia

(1.7)%

2.9%

0.6%

3.3%

3.0%

 

3.2%

Group

(0.9)%

0.6%

(0.1)%

0.9%

1.1%

 

1.0%

 

Headline Group results

The Group has defined its alternative performance measures in the Glossary on page 43.

 

 

26 weeks ended 27 August 2016

 

On a continuing operations basis

1H

2016/17

 

1H

2015/16

 

Year-on-year change

(Constant

exchange rates)

 

Year-on-year change

(Actual

exchange rates)

Group sales (exc. VAT, exc. fuel)1

£24,402m

 

£23,684m

 

1.3%

 

3.3%

Fuel

£2,936m

 

£3,282m

 

(10.9)%

 

(10.5)%

Statutory revenue (exc. VAT, inc. fuel)

£27,338m

 

£26,966m

 

(0.4)%

 

1.4%

 

 

 

 

 

 

 

 

Group operating profit before exceptional items3

UK & ROI9

International

Tesco Bank

 

£596m

£389m

£118m

£89m

 

 

£372m

£164m

£122m

£86m

 

 

56.7%

134.1%

(9.8)%

3.5%

 

 

60.2%

137.2%

(3.3)%

3.5%

Include exceptional items

 

£(81)m

 

 

-

 

 

 

 

 

Group operating profit

£515m

 

£372m

 

34.4%

 

38.4%

 

 

 

 

 

 

 

 

Group profit before tax before exceptional items and net pension finance costs

£410m

 

£183m

 

 

 

124.0%

 

 

 

 

 

 

 

 

Group statutory profit before tax

£71m

 

£99m

 

 

 

(28.3)%

 

 

 

 

 

 

 

 

Diluted EPS before exceptional items

3.16p

 

0.60p

 

 

 

426.7%

Diluted EPS before exceptional items and net pension finance costs

3.74p

 

1.42p

 

 

 

163.4%

Diluted EPS

0.42p

 

0.60p

 

 

 

(30.0)%

 

 

 

 

 

 

 

 

Capex

£0.5bn

 

£0.4bn

 

 

 

up 24.2%

Net debt4,5

£(4.4)bn

 

£(8.6)bn

 

 

 

down 49.3%

Cash generated from retail operations2,4

£1.0bn

 

£0.8bn

 

 

 

up 20.7%

 

 

 

Notes

1.   Group sales exclude VAT and fuel.  Sales growth shown on a comparable 26 week basis.

2.   For continuing operations.

3.   Exceptional items are excluded by virtue of their size and nature in order to better reflect management's view of the performance of the Group.  Full detail of exceptional items can be found in Note 4 on page 27.

4.   In order to provide further analysis of the Group cash flow statement, net debt and retail operating cash flow, which exclude the impact of Tesco Bank, are separately disclosed.

5.   Includes both continuing and discontinued operations.

6.   Like-for-like is the growth in sales from stores that have been open for at least a year at a constant foreign exchange rate and includes online sales.  

7.   As per YouGov BrandIndex, August 2016.

8.   As per the periodic Customer Spotlight Tracker.

9.   The elimination of intercompany transactions between continuing operations and the discontinued Turkey operation, as required by IFRS 5 and IFRS 10, has resulted in a reduction to the prior period UK & ROI operating profit of £(2)m.

 

Update on our priorities

The progress we have made against the three priorities first set out in October 2014 has enabled us to stabilise the Group.  We are more competitive, our balance sheet is more secure and we are rebuilding trust and transparency in the Tesco brand.

 

1. Regaining competitiveness in core UK business:

·   seventh consecutive quarter of both volume and transaction growth; outperformed the market in volume growth in all food categories

·   introduced seven new, exclusive fresh food brands delivering market-leading price and quality across the range; 80% of customers making repeat purchases of these products

·   all key customer metrics stronger against competitors; maintained record availability and rated as number one by customers for checkout waiting time

·   clearer, lower and more stable prices - now more than 6% lower than September 2014 on a typical customer basket; number of products on multibuy promotions reduced by 27% year-on-year

·   ongoing range refinement, improved product adjacencies and around 10% increase in own-label space in our larger shops; new range simplification in convenience stores

·   3,000 more customer-facing colleagues since February 2016; customer service rating most improved relative to the market  

·   sales of Harris + Hoole, Dobbies and Giraffe completed and sale of Euphorium agreed, supporting our greater focus on the core UK business

 

2. Protecting and strengthening the balance sheet:

·   generated £1.0bn retail operating cash flow, including an underlying £0.1bn working capital inflow

·   regained full ownership of six superstores in the half, in line with our aim to reduce exposure to inflation-linked and fixed-uplift rental agreements

·   maintained focus on strong capital discipline;  on track for £1.25bn capital expenditure this year

·   agreed the sale of our business in Turkey, which will contribute a £110m reduction in total indebtedness and avoid incremental cash investment

·   repaid two medium-term notes totalling £1.2bn at maturity following half-year end

·   long-term pension deficit funding agreement with Trustee in place; IAS 19 pension deficit up £(3.2)bn to £(5.9)bn due to lower bond yields

 

3. Rebuilding trust and transparency:

·   continued to build trusted, transparent and long-term relationships with suppliers; 78% of UK suppliers satisfied with experience of working with Tesco, an 18% year-on-year improvement

·   recognised as most improved retailer in the Groceries Code Adjudicator 2016 Annual Survey

·   'BrandIndex', an external measure of brand health, at highest level for more than four years

·   introduced 'Free Fruit for Kids' initiative in our large stores, helping customers live more healthily

·   donated £12m to local community projects chosen by customers through 'Bags of Help' scheme

·   ranked number one supermarket for reducing food waste by The Grocer

·   introduced long-term 'Fair For Farmers Guarantee' on all our own-label fresh milk

·   helping colleagues simplify the way we work in shops; 78% of colleagues recommend us as a 'great place to work', up from 70% two years ago

 

Looking ahead

Whilst we expect the market to remain challenging and uncertain, we have clear plans which will enable us to deliver more value for all of our stakeholders: customers, colleagues, suppliers and shareholders.

 

Today, we are sharing our ambition to deliver a Group operating margin of between 3.5% and 4.0% by our 2019/20 financial year.  This ambition is underpinned by six strategic drivers including the identification of £1.5bn further operating cost reductions which we will secure over the next three years.   This will enable us to further invest in our offer for customers, offset expected inflationary pressures on costs and continue to rebuild profitability.  Alongside these cost reductions, we will be looking to further differentiate our brand, continue our focus on strong cash generation, maximise the margin mix from our sales, maximise the value of our property portfolio and continue to innovate both in how we operate the business and in our offer for customers.

 

Some of these initiatives will require investment and as a result we expect our total capital expenditure to average £1.4bn per annum over the period to 2019/20.  The benefits of the initiatives should start to become evident over the coming months, however given their nature and profile, the margin improvement will likely be more weighted towards the end of the plan.

 

Dave Lewis, Chief Executive, will share further details of the six strategic drivers as part of our interim results presentation to investors and analysts at 9am today, which will be webcast as detailed on page 9.

 

Financial Results

The results of Kipa, our business in Turkey, have been classified as discontinued operations following the announcement of its sale (subject to regulatory clearances) on 10 June 2016.

 

Sales:

On a continuing operations basis

UK & ROI

International1

Tesco Bank

Group

Sales

(exc. VAT, exc. fuel)

£18,614m

£5,285m

£503m

£24,402m

Change at constant exchange rates2 %

0.6%

3.2%

5.3%

1.3%

Change at actual exchange rates2 %

1.2%

10.9%

5.3%

3.3%

Like-for-like sales (exc. VAT, exc. fuel)

0.6%

2.6%

-

1.0%

Statutory revenue

(exc. VAT, inc. fuel)

£21,449m

£5,386m

£503m

£27,338m

Includes: Fuel

£2,835m

 

£101m

 

-

 

£2,936m

 

1.  International consists of Central Europe (Czech Republic, Hungary, Poland and Slovakia), Malaysia and Thailand.

2. Sales change shown on a comparable 26 week basis; statutory Group sales change was 3.0% at actual exchange rates and 1.0% at constant exchange rates.

 

Group sales grew by 1.3% at constant exchange rates with positive like-for-like sales growth in all regions.  At actual exchange rates, sales grew by 3.3% including a 2.0% foreign exchange translation effect principally due to the strength of European currencies relative to Sterling.  

 

We delivered positive like-for-like sales growth in the combined UK & ROI business for the half for the first time since 2010/11, driven by sustained volume growth in both markets.

 

In the UK, like-for-like sales grew by 0.6% and, including a small contribution from net new store openings, total sales grew by 0.7%.  Our continued investment in lowering prices and further falls in commodity prices contributed to sustained deflation throughout the half.

 

We have delivered continued improvement across all aspects of our customer offer in the half.  In addition to further strong improvements in measures of colleague service and helpfulness, we have maintained record levels of availability, supported by the work carried out last year to ensure our product ranges were simpler and more relevant for customers.  We have continued to reduce and simplify our product range in the half, grouping products around meal solutions in our larger stores and streamlining our convenience store ranges.  Customers in the UK recognised the further improvements across our offer in service, availability, range and price by voting us 'Britain's Favourite Supermarket' at the Grocer Gold Awards in June 2016. 

 

The value of our food sales in the UK grew for the first time since 2013 in the second quarter and we outperformed the market on volume growth in all food categories.  The seven exclusive fresh food brands we launched in March 2016 led to a sales volume growth outperformance of the market in 'produce' and 'meat' of 6% and these brands continue to be cheaper, on average, than comparable lines in the rest of the market.  

 

All formats - including our largest, Extra format - saw an improving trend in like-for-like sales performance throughout the half.  The rate of online grocery sales growth moderated, as planned, due to the changes we have made to improve the sustainability of our offer.

 

In a market that remains highly competitive, like-for-like sales in the Republic of Ireland grew 0.2% as customer perceptions of our proposition improved significantly year-on-year.  Whilst top-line growth in value terms was held back by our continued investment in lower prices, we retain our leading position in the market in volume terms thanks to a strong performance in fresh food.

 

International sales grew by 3.2% at constant exchange rates, including a net positive contribution from new store openings in Asia which offset the impact of store closures in Europe.  Like-for-like sales grew by 2.6% overall with positive growth in both Europe and Asia. 

 

Our business in Thailand delivered a strong performance, driven principally by improvements in our fresh food offer.  Sales are growing across all store formats and we are maintaining our strong market share position.

 

In Europe, we harmonised more of our product offering and promotions across each of the countries we operate in and inspired customers with new events and improvements in our fresh food offer.  We continued to invest in reducing prices for customers, contributing to ongoing deflation.  In Hungary, we responded effectively to the repeal of the legislation which had previously enforced Sunday closures.

 

Group statutory revenue of £27.3bn includes sales of fuel, which declined by around (10)% year-on-year, principally due to retail price deflation.  Further information on sales performance is included in Appendices 1 to 3 starting on page 46 of this statement.

 

Operating profit before exceptional items:

On a continuing operations basis

UK & ROI

International

Tesco Bank

Group

Operating profit before exceptional items

£389m

£118m

£89m

£596m

Change at constant exchange rates %

134.1%

(9.8)%

3.5%

56.7%

Change at actual exchange rates %

137.2%

(3.3)%

3.5%

60.2%

Operating profit margin before exceptional items

1.81%

2.19%

17.69%

2.18%

Change at constant exchange rates (bp)

104bp

(29)bp

(30)bp

79bp

Change at actual exchange rates (bp)

105bp

(30)bp

(30)bp

80bp

Operating profit

£365m

£128m

£22m

£515m

 

Group operating profit before exceptional items was £596m, up 56.7% at constant exchange rates, as we continue to rebuild profitability whilst investing in the customer offer.  Statutory operating profit of £515m includes the impact of exceptional items, which are described in more detail in Note 4 on page 27.

 

UK & ROI operating profit before exceptional items was £389m, with a margin improvement of 23 basis points on the second half of 2015/16, despite a significant net investment in the quality and price of our new exclusive fresh food brands.  In addition to the benefit of a strong volume performance across the new brands, our overall profitability also benefited from a favourable product mix.  As a result, our first half profitability was ahead of our initial plan.

 

Our long-term sustainable partnerships with suppliers are supporting us to innovate and add value to the customer offer whilst helping us to identify initiatives to leverage our scale and reduce costs.  For example, we have been able to work with our fresh fruit and vegetable growers to ensure that we can change our trading strategy at a market-leading pace following unexpected crop surpluses, enabling us to offer great seasonal deals for customers and utilise a much greater proportion of the growers' output, reducing waste.

 

We are continuing to optimise our store operating model, improving the customer experience with the introduction of new customer service desks, changing replenishment hours and revising trading hours.  To support a greater focus on our core business, the sales of Giraffe, Dobbies and Harris + Hoole were completed in the half and the sale of Euphorium was agreed.

 

International operating profit before exceptional items decreased by (9.8)% at constant exchange rates to £118m, largely driven by continuing investments in our customer offer and an intensely competitive environment, particularly in Poland and the Czech Republic.  We are continuing to make operational changes across both Europe and Asia in order to further improve the shopping trip for customers, simplify the way we work and generate cost savings.

 

Whilst we note the European Commission's investigation into the introduction of a new retail tax in Poland from September, we remain cautious about further legislative changes in our European markets.

 

Further information on operating profit performance is included in Note 2 on page 20 of this statement.

 

Exceptional items in operating profit:

 

This year

Last year

Restructuring and redundancy

£(95)m

-

Tesco Bank customer redress

£(45)m

-

Property transactions

£59m

-

Total exceptional items in operating profit

£(81)m

-

 

Exceptional items are excluded from our headline performance measures by virtue of their size and nature, in order to better reflect management's view of the performance of the Group.  In the current year, the net effect of exceptional items on operating profit is £(81)m.

 

The majority (£(73)m) of the restructuring and redundancy charge relates to changes to store colleague structures and working practices in the UK & ROI business. The remaining £(22)m relates to simplification and head office relocation costs for Tesco Bank. 

 

The £(45)m charge for customer redress principally relates to a provision for settlement of claims in Tesco Bank relating to prior years, following the updated guidance published by the Financial Conduct Authority.

 

Finally, the property profit of £59m relates to the sale of a number of properties and a development site in the UK & ROI business, in addition to the Liberec Forum shopping centre in the Czech Republic, for combined proceeds of £240m.

 

Further detail can be found in Note 4 on page 27 of this statement.

 

Joint ventures and associates:

 

This year

Last year

Share of post-tax profits from JVs and associates

£2m

£13m

 

Our share of post-tax profits from joint ventures and associates was £2m, a decline of £(11)m year-on-year due to lower profits recognised from UK property joint ventures and a higher level of losses in our partnership with China Resources (Holdings) Company Ltd.

 

Finance income and finance costs:

 

This year

Last year

Interest receivable and similar income

£26m

£10m

IAS 32 and 39 'Financial instruments' - fair value remeasurements

£57m

£34m

Finance income 

£83m

£44m

Interest payable

£(274)m

£(252)m

Capitalised interest

£3m

£6m

IAS 19 net pension finance costs

£(58)m

£(84)m

Finance costs

£(329)m

£(330)m

Exceptional charge:

Translation of Korea proceeds

£(200)m

-

Statutory finance costs

£(529)m

£(330)m

 

Finance income increased to £83m, principally due to a favourable impact from the mark-to-market of financial instruments.

 

Interest payable rose to £(274)m due to the debt acquired as part of our February 2016 agreement to regain sole ownership of 49 stores and two distribution centres.  Following the end of the half-year, we repaid two medium term notes at maturity in September 2016 at a cost of £1.2bn, which will result in a net annualised cash interest saving of £36m.

 

Net pension finance costs are calculated, as required by IAS 19, with reference to the pension deficit at the start of the year.  As such, the reduction of £26m to £(58)m is the result of the lower IAS 19 pension deficit in February 2016 vs February 2015.

 

A further exceptional non-cash loss of £(200)m arose on the translation of the proceeds from the sale of our Homeplus business in Korea which are held in GBP money market funds in a non-Sterling denominated subsidiary.  This does not represent any economic cost to the Group.

 

Further detail can be found in Note 5 on page 28 of this statement.

 

Group tax:

On a continuing operations basis

This year

Last year

Tax on profit before exceptional items

£(98)m

£(52)m

Tax on profit

£(40)m

£(52)m

 

Tax on profit before exceptional items was £(98)m with an effective rate of tax for the Group of 28%.  This tax rate is higher than the UK statutory rate mainly due to the higher effective tax rates in overseas jurisdictions and the impact of the banking surcharge tax, which was introduced in January 2016 and imposes an additional 8% levy on the profits of banking companies.

 

Following enactment of the Finance Act 2016 after the end of the half-year in September, reducing the UK corporation tax rate from 18% to 17% in 2020, the effective underlying tax rate for the full year is now expected to be in the region of 25%.

 

Earnings per share:

On a continuing operations basis

This year

Last year

Diluted earnings per share before exceptional items

3.16p

0.60p

Diluted earnings per share before exceptional items and net pension finance costs

3.74p

1.42p

Diluted earnings per share

0.42p

0.60p

 

Diluted earnings per share before exceptional items were 3.16p, significantly higher than last year due to improved underlying profitability.  Diluted earnings per share before exceptional items and net pension finance costs were 3.74p and were also significantly higher than last year.  Statutory diluted earnings per share were 0.42p, down (30.0)% on last year, due to a higher level of exceptional items this year.  

 

Summary of total indebtedness1:

 

Aug 2016

Feb 2016

Movement

Net debt (excludes Tesco Bank)

£(4,352)m

£(5,110)m

£758m

Discounted operating lease commitments

£(7,771)m

£(7,787)m

£16m

Pension deficit, IAS 19 basis (post-tax)

£(5,853)m

£(2,612)m

£(3,241)m

Total indebtedness

£(17,976)m

£(15,509)m

£(2,467)m

1.   Total indebtedness is defined in the glossary on page 43. Discounted operating lease commitments exclude Turkey.

 

Total indebtedness was £(18.0)bn, an increase of £(2.5)bn since February 2016 due to a rise in the pension deficit, as measured by IAS19.  Net debt reduced by £0.8bn as the cash we generated from operations and business disposals, more than offset capital and other expenditure.

 

We aim to increase the proportion of owned property and reduce exposure to index-linked and fixed-uplift rent inflation over the long-term.  Following the re-acquisition of 70 stores and two distribution centres last year, we regained ownership of a further six stores, increasing freehold assets by another £112m.  Excluding Turkey, discounted operating lease commitments were slightly down on last year, despite the extension of a number of leases.

 

In November 2015, we replaced our UK defined benefit pension scheme with a defined contribution pension scheme, significantly reducing future pension risk and giving greater certainty on future cash requirements.  To calculate the pension deficit for accounting purposes, we are required to use corporate bond yields as the basis for the discount rate of our long-term liabilities, irrespective of the mix of our assets and their expected returns.  The sharp decrease in corporate bond yields since the year-end - the biggest six-monthly fall recorded since the iBoxx corporate bond index was first introduced in 2000 - has therefore driven a rise of more than 50% in the accounting valuation of our liabilities, increasing our reported accounting net deficit from £(2.6)bn to £(5.9)bn.  Our defined benefit pension scheme assets have performed well and we are progressing with our asset de-risking strategy, which aims to reduce risks from changes in interest rates and inflation. 

 

In accordance with last year's long-term deficit funding agreement with the Trustee of £270m per annum, a cash contribution of £126m was made to the scheme.  The next triennial actuarial valuation will be conducted as at March 2017 and is due to be reported in 2018.  Further detail can be found in Note 15 on page 38 of this statement.

 

As announced in June 2016, the sale of our business in Turkey, which is subject to usual local regulatory approvals, is expected to further reduce total indebtedness by £110m. 

 

Summary retail cash flow:

 

This year

Last year

Cash flow from continuing operations excluding working capital

£850m

£1,048m

(Increase)/decrease in working capital

 

 

-           impact from exceptional items

£(26)m

£(388)m

-           cash impact of new approach to supplier payments

-

£(231)m

-           underlying decrease in working capital

£131m

£362m

Cash generated from operations - continuing operations

£955m

£791m

Cash generated from operations - discontinued operations

£9m

£214m

Cash generated from operations

£964m

£1,005m

Interest paid

£(203)m

£(173)m

Corporation tax paid

£(17)m

£(53)m

Net cash generated from retail operating activities

£744m

£779m

Cash capital expenditure

£(541)m

£(498)m

Free cash flow

£203m

£281m

Other investing activities

£(404)m

£507m

Net cash from/(used in) financing activities and intra-Group funding and intercompany transactions

£264m

£(560)m

Net increase in cash and cash equivalents

£63m

£228m

Include cash movements in debt items

£867m

£448m

Fair value and other non-cash movements

£(172)m

£(783)m

Movement in net debt

£758m

£(107)m

 

Excluding working capital, we generated £0.9bn cash from continuing retail operations, £(0.2)bn lower than last year, principally due to providing colleagues with the option of receiving the 2015/16 Turnaround Bonus in cash rather than shares, reducing the dilutive impact of new share issuance.  On an underlying basis, the benefit of stock flow initiatives and trading term standardisation, combined with offsetting seasonal timing impacts, has contributed to a net working capital inflow of £131m.  Including working capital, cash generated from continuing retail operations was £955m, up 21% on last year.

 

Interest paid rose by £(30)m due to the debt acquired as part of our February 2016 agreement to regain sole ownership of 49 stores and two distribution centres.  As mentioned above, following the end of the half year, we repaid two medium term notes at maturity in September 2016 at a cost of £1.2bn, which will reduce cash interest costs by a net annualised saving of £36m.

 

Cash tax paid of £(17)m is net of refunds received of taxes previously paid, as we continue to reach settlement of historic enquiries into tax returns in a number of jurisdictions.

 

A reconciliation between the Retail and Group cash flows can be found in Note 2 on page 24.

 

Capital expenditure and space:

 

Group

 

UK & ROI

International

Tesco Bank

 

This year

Last year

YOY Change

 

This year

Last year

This year

Last year

This year

Last year

Capital expenditure (£bn)

0.5

0.4

0.1

 

0.3

0.3

0.1

0.1

0.0

0.0

Gross space added (m sq ft)1,2

0.3

0.3

-

 

0.1

0.0

0.2

0.2

n/a

n/a

Net space added (m sq ft)1

(1.8)

(1.0)

(0.8)

 

(1.6)

(0.9)

(0.2)

(0.1)

n/a

n/a

1. Excluding franchise stores.

2. 'Gross space added' excludes repurposing/extensions.

 

In line with our increased focus on capital discipline, capital expenditure was £0.5bn in the half, similar to last year, and planned expenditure for the full year remains at around £1.25bn.  We expect to refresh more than 200 stores in the UK this year, the vast majority of which will be completed in the second half.

 

Overall, net space reduced by (1.8)m square feet, principally due to the disposal of (1.7)m square feet from the sale of Dobbies garden centres.  We opened 0.3m square feet of selling space, mainly in Thailand.  In the year, we intend to repurpose around 1.0m square feet across the Group as we create compelling shopping destinations for customers which are simpler to operate.

 

Further details of current and forecast space can be found in Appendix 5, starting on page 48.

 

Tesco Bank

 

This year

Last year

YOY Change

Revenue

£503m

£478m

5.2%

Operating profit before exceptional items

£89m

£86m

3.5%

Statutory operating profit

£22m

£86m

(74.4)%

Lending to customers

£9,262m

£8,297m

11.6%

Customer deposits

£8,107m

£6,581m

23.2%

Net interest margin

3.9%

4.2%

(0.3)%

Risk asset ratio

19.9%

19.1%

0.8%

 

Tesco Bank continues to develop its suite of products and services to best meet the needs of Tesco customers.  In the half, these innovations included the launch of a premium credit card, the introduction of digital signatures to simplify the loans process and the further roll out of PayQwiq, an app which allows customers to pay with their phones in our shops.   

Active customer account numbers in Tesco Bank rose by 2%, with continued strong growth in both customer lending and deposits.  Operating profit before exceptional items increased year-on-year as the impact of the European Commission cap on interchange income was more than offset by an improved underlying trading performance and proceeds from the sale of non-performing debt.  Exceptional items relating to Tesco Bank are detailed in Note 4 on page 27 and included an increase in the provision for customer redress and a restructuring charge.  Statutory operating profit, as shown above, is after these exceptional items.

 

Risk weighted assets have risen in line with lending and the Core Tier 1 ratio has remained stable at 16.6%.  The balance sheet remains strong and well-positioned to support future lending growth from both a liquidity and capital perspective.

 

An income statement for Tesco Bank can be found in Appendix 6 on page 51 of this statement.  Balance sheet and cash flow detail for Tesco Bank can be found within Note 2 starting on page 21 of this statement.  Tesco Bank's Interim results are also published today and are available at www.corporate.tescobank.com

 

Contacts

Investor Relations: Chris Griffith 01707 912 900
Media: Ed Young 01707 918 701

 

Philip Gawith, Teneo Blue Rubicon

0207 420 3143

 

This document is available at www.tescoplc.com/interims2016.

 

A meeting for investors and analysts will be held today at 9.00am at London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.  Access will be by invitation only.  For those unable to attend, there will be a live webcast available on our website at www.tescoplc.com/interims2016.  This will include all Q&A and will also be available for playback after the event.  All presentation materials, including a transcript, will be made available on our website.

 

An interview with Dave Lewis, Chief Executive, and Alan Stewart, Chief Financial Officer, discussing the Interim results is available now to download in video, audio and transcript form at www.tescoplc.com/interims2016.

 

ADDITIONAL DISCLOSURES

Risks and Uncertainties

 

As with any business, risk assessment and the implementation of mitigating actions and controls are critical to successfully achieving the Group's strategy. The Tesco Board has overall responsibility for risk management and internal controls within the context of achieving the Group's objectives. At the Group level each principal risk has an Executive Owner. The CEO has overall accountability for the control and management of risk. The principal risks and uncertainties faced by the Group remain those set out in our 2016 Annual Report and Financial Statements: people; customer proposition; transformation of the economic model; liquidity; competition and markets; brand, reputation and trust; technology; data security and data privacy; regulatory and compliance; and safety.

 

The Group also faces risks and uncertainties as a result of the Serious Fraud Office and other investigations, and the litigation risk associated with the matters under investigation as described in Note 18 of this release (Contingent Liabilities) and in our 2016 Annual Report and Financial Statements.

 

On 23 June 2016, the United Kingdom (UK) voted to leave the European Union (EU). The exact nature, process and timing of the UK's exit from the EU are unknown.  This has to date created business uncertainty: The UK's future approach to EU freedom of movement; market volatility; fluctuations in foreign exchange rates; changes to commodity prices; and interest rates, all of which may impact the Group.  Adjustments to the long-term outlook for UK interest rates might also affect UK Pension IAS 19 liabilities and related charges.

 

The risks and uncertainties associated with exiting from the EU have been considered by the Board and plans are in place.  The Board continues to monitor the impact of the referendum but does not currently believe there will be a material adverse impact on the Group's results or financial position in the current financial year.

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Interim Results for the six month period ended 27 August 2016 in accordance with applicable law, regulations and accounting standards. 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 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 six months 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 remaining six months of the financial year; and

·   material related party transactions in the first six months 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 in the Tesco PLC 2016 Annual Report and Financial Statements, with the exception of Steve Golsby who was appointed a Non-executive Director of the Company on 1 October 2016.  A list of current directors is maintained on the Tesco PLC website at: www.tescoplc.com.

 

By order of the Board

 

Directors

John Allan* - Chairman

Dave Lewis - Chief Executive

Alan Stewart - Chief Financial Officer

Mark Armour*

Richard Cousins* - Senior Independent Director

Steve Golsby*

Byron Grote*

Mikael Olsson*

Deanna Oppenheimer*

Simon Patterson*

Alison Platt*

Lindsey Pownall*

*Non-executive Directors

 

Company Secretary

Robert Welch

4 October 2016

 

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

 

Disclaimer

This document may contain forward-looking statements that may or may not prove accurate.  For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements.  Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the 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.  Tesco does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.

 

TESCO PLC

Group income statement

26 weeks ended

27 August 2016

26 weeks ended

29 August 2015

Notes

Before exceptional items

£m

Exceptional items

(Note 4)

£m

Total

£m

Before exceptional items

£m

Exceptional
items

(Note 4)

£m

Total

£m

Continuing operations

Revenue

2

27,338

-

27,338

26,966

-

26,966

Cost of sales

(25,877)

(118)

(25,995)

(25,687)

-

(25,687)

Gross profit/ (loss)

1,461

(118)

1,343

1,279

-

1,279

Administrative expenses

(865)

(17)

(882)

(916)

-

(916)

Profits arising on property-related items

-

54

54

9

-

9

Operating profit/ (loss)

2

596

(81)

515

372

-

372

Share of post-tax profits/ (losses) of joint ventures and associates

2

-

2

13

-

13

Finance income

5

83

-

83

44

-

44

Finance costs

5

(329)

(200)

(529)

(330)

-

(330)

Profit/ (loss) before tax

352

(281)

71

99

-

99

Taxation

6

(98)

58

(40)

(52)

-

(52)

Profit/ (loss) for the period from continuing operations

254

(223)

31

47

-

47

Discontinued operations

Profit/ (loss) for the period from discontinued operations

7

(18)

(113)

(131)

4

(419)

(415)

Profit/ (loss) for the period

236

(336)

(100)

51

(419)

(368)

Attributable to:

Owners of the parent

240

(331)

(91)

54

(419)

(365)

Non-controlling interests

(4)

(5)

(9)

(3)

-

(3)

236

(336)

(100)

51

(419)

(368)

Earnings/ (losses) per share from continuing and discontinued operations

Basic

9

2.95p

(1.12)p

0.66p

(4.49)p

Diluted

9

2.95p

(1.12)p

0.66p

(4.47)p

Earnings/ (losses) per share from continuing operations

Basic

9

3.16p

0.42p

0.60p

0.60p

Diluted

9

3.16p

0.42p

0.60p

0.60p

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements.

 

TESCO PLC

Group statement of comprehensive income/ (loss)

 

26 weeks ended 27 August 2016

Note

26 weeks

2016

£m

26 weeks

2015

£m

Items that will not be reclassified to income statement

 

 

 

Remeasurements on defined benefit pension schemes

15

(3,983)

(308)

Tax on items that will not be reclassified

 

716

66

 

 

(3,267)

(242)

Items that may subsequently be reclassified to income statement

 

 

 

Change in fair value of available-for-sale financial assets and investments

 

75

-

Currency translation differences:

 

 

 

Retranslation of net assets of overseas subsidiaries

 

648

(434)

Gains/ (losses) on cash flow hedges:

 

 

 

Net fair value gains/ (losses)

 

330

(4)

Reclassified and reported in the Group income statement

 

(300)

(59)

Tax on items that may be reclassified

 

(34)

27

 

 

719

(470)

Total other comprehensive income/ (loss) for the period

 

(2,548)

(712)

Profit/ (loss) for the period

 

(100)

       (368)

Total comprehensive income/ (loss) for the period

 

(2,648)

(1,080)

 

 

 

 

Attributable to:

 

 

 

Owners of the parent

 

(2,639)

(1,075)

Non-controlling interests

 

(9)

(5)

Total comprehensive income/ (loss) for the period

 

(2,648)

(1,080)

 

 

 

 

Total comprehensive income/ (loss) attributable to owners of the parent arises from:

 

 

 

Continuing operations

 

(2,517)

(428)

Discontinued operations

 

(122)

(647)

 

 

(2,639)

(1,075)

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements.

 

TESCO PLC
Group balance sheet

 

E

 

Notes

27 August   

2016

£m

27 February

2016

£m

29 August   

2015

£m

 

Non-current assets

 

 

 

 

Goodwill and other intangible assets

10

2,818

2,874

3,122

Property, plant and equipment

11

17,613

17,900

16,421

Investment property

 

68

78

77

Investments in joint ventures and associates

 

864

785

852

Other investments

 

1,099

1,135

879

Loans and advances to customers

 

5,278

4,723

4,376

Derivative financial instruments

 

1,929

1,532

1,252

Deferred tax assets

 

686

49

671

 

 

30,355

29,076

27,650

Current assets

 

 

 

 

Inventories

 

2,505

2,430

2,620

Trade and other receivables

 

1,713

1,607

1,605

Loans and advances to customers

 

3,984

3,819

3,917

Derivative financial instruments

 

312

176

79

Current tax assets

 

41

15

16

Short-term investments

 

4,435

3,463

300

Cash and cash equivalents

 

3,355

3,082

2,186

 

 

16,345

14,592

10,723

Assets of the disposal groups and non-current assets classified as held for sale

7

472

236

5,154

 

 

16,817

14,828

15,877

Current liabilities

 

 

 

 

Trade and other payables

 

(8,799)

(8,568)

(8,483)

Borrowings

12

(3,025)

(2,826)

(1,219)

Derivative financial instruments and other liabilities

 

(94)

(62)

(70)

Customer deposits and deposits from banks

 

(8,281)

(7,479)

(7,026)

Current tax liabilities

 

(492)

(419)

(181)

Provisions

 

(376)

(360)

(324)

 

 

(21,067)

(19,714)

(17,303)

Liabilities of the disposal groups classified as held for sale

7

(201)

-

(1,528)

Net current liabilities

 

(4,451)

(4,886)

(2,954)

Non-current liabilities

 

 

 

 

Borrowings

12

(11,130)

(10,711)

(11,385)

Derivative financial instruments and other liabilities

 

(994)

(889)

(905)

Post-employment benefit obligations

15

(7,123)

(3,175)

(5,196)

Deferred tax liabilities

 

(80)

(135)

(472)

Provisions

 

(666)

(664)

(580)

 

 

(19,993)

(15,574)

(18,538)

Net assets

 

5,911

8,616

6,158

Equity

 

 

 

 

Share capital

 

409

407

406

Share premium

 

5,095

5,095

5,095

All other reserves

 

501

(141)

(878)

Retained earnings

 

(75)

3,265

1,540

Equity attributable to owners of the parent

 

5,930

8,626

6,163

Non-controlling interests

 

(19)

(10)

(5)

Total equity

 

5,911

8,616

6,158

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements

 

TESCO PLC
Group statement of changes in equity

 

 

 

All other reserves

 

 

Share

capital

£m

Share

premium

£m

 

Other

reserves

£m

Capital

Redemption

reserve

£m

 

Hedging

reserve

£m

Translation

reserve

£m

Treasury

shares

£m

Retained

earnings

£m

 

Total

£m

Non-

controlling

interests

£m

 

Total

equity

£m

At 27 February 2016

407

5,095

40

16

211

(401)

(7)

3,265

8,626

(10)

8,616

Profit/ (loss) for the period

-

-

-

-

-

-

-

(91)

(91)

(9)

(100)

Other comprehensive income/ (loss)

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of available-for-sale financial assets and investments

-

-

-

-

-

-

-

75

75

-

75

Currency translation differences

-

-

-

-

-

648

-

-

648

-

648

Remeasurements on defined benefit pension schemes

-

-

-

-

-

-

-

(3,983)

(3,983)

-

(3,983)

Gains/ (losses) on cash flow hedges

-

-

-

-

30

-

-

-

30

-

30

Tax relating to components of other comprehensive income

-

-

-

-

(5)

(14)

-

701

682

-

682

Total other comprehensive income/ (loss)

-

-

-

-

25

634

-

(3,207)

(2,548)

-

(2,548)

Total comprehensive income/ (loss)

-

-

-

-

25

634

-

(3,298)

(2,639)

(9)

(2,648)

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury shares

-

-

-

-

-

-

(23)

-

(23)

-

(23)

Share-based payments

-

-

-

-

-

-

6

(42)

(36)

-

(36)

Issue of shares

2

-

-

-

-

-

-

-

2

-

2

Dividends

-

-

-

-

-

-

-

-

-

-

-

Changes in non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

Total transactions with owners

2

-

-

-

-

-

(17)

(42)

(57)

-

(57)

At 27 August 2016

409

5,095

40

16

236

233

(24)

(75)

5,930

(19)

5,911

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements.

 

 

 

 

All other reserves

 

 

Share

capital

£m

Share

premium

£m

 

Other

reserves

£m

Capital

redemption

reserve

£m

 

Hedging

reserve

£m

Translation

reserve

£m

Treasury

shares

£m

Retained

earnings

£m

 

Total

£m

Non-

controlling

interests

£m

 

Total

equity

£m

At 28 February 2015

406

5,094

40

16

35

(488)

(17)

1,985

7,071

-

7,071

Profit/ (loss) for the period

-

-

-

-

-

-

-

(365)

(365)

(3)

(368)

Other comprehensive income/ (loss)

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of available-for-sale financial assets and investments

-

-

-

-

-

-

-

-

-

-

-

Currency translation differences

-

-

-

-

-

(432)

-

-

(432)

(2)

(434)

Remeasurements on defined benefit pension schemes

-

-

-

-

 

-

-

(308)

(308)

-

(308)

Gains/ (losses)  on cash flow hedges

-

-

-

-

(63)

-

-

-

(63)

-

(63)

Tax relating to components of other comprehensive income

-

-

-

-

12

15

-

66

93

-

93

Total other comprehensive income/ (loss)

-

-

-

-

(51)

(417)

-

(242)

(710)

(2)

(712)

Total comprehensive income/ (loss)

-

-

-

-

(51)

(417)

-

(607)

(1,075)

(5)

(1,080)

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury shares

-

-

-

-

-

-

(4)

-

(4)

-

(4)

Share-based payments

-

-

-

-

-

-

8

162

170

-

170

Issue of shares

-

1

-

-

-

-

-

-

1

-

1

Dividends

-

-

-

-

-

-

-

-

-

-

-

Changes in non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

Total transactions with owners

-

1

-

-

-

-

4

162

167

-

167

At 29 August 2015

406

5,095

40

16

(16)

(905)

(13)

1,540

6,163

(5)

6,158

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements.

 

TESCO PLC
Group cash flow statement

 

26 weeks ended 27 August 2016

Note

26 weeks

2016

£m

26 weeks

2015

£m

Cash flows from operating activities

 

 

 

Operating profit of continuing operations

2

515

372

Operating  profit/ (loss) of discontinued operations

 

(118)

51

Depreciation and amortisation

2

630

724

(Profit)/ loss arising on sale of property, plant and equipment and intangible assets

 

(18)

4

Profit arising on sale of joint ventures and associates

 

(5)

(6)

Net reversal of impairment of other investments

 

(5)

(7)

Impairment of loans/ investments in joint ventures and associates

 

-

2

Net impairment charge of property, plant and equipment and intangible assets

 

110

38

Adjustment for non-cash element of pensions charge

 

4

104

Additional contribution into pension schemes

 

(111)

(93)

Share-based payments

 

(57)

166

Tesco Bank non-cash items included in operating profit

 

28

22

(Increase)/ decrease  in inventories

 

(69)

107

Decrease/ (increase) in development stock

 

4

(6)

(Increase)/ decrease in trade and other receivables

 

(116)

50

Increase in trade and other payables

 

353

36

Decrease in provisions

 

(57)

(381)

Tesco Bank increase in loans and advances to customers

 

(744)

(605)

Tesco Bank increase in trade and other receivables

 

(29)

(128)

Tesco Bank increase in customer and bank deposits, trade and other payables

 

764

131

Tesco Bank increase/ (decrease) in provisions

 

41

(11)

Decrease/ (increase) in working capital

 

147

(807)

Cash generated from operations

 

1,120

570

Interest paid

 

(205)

(175)

Corporation tax paid

 

(15)

(48)

Net cash generated from operating activities

 

900

347

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements.

 

 

26 weeks ended 27 August 2016

Note

26 weeks

2016

£m

26 weeks

2015

£m

Net cash generated from operating activities

 

900

347

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale

 

(486)

(433)

Purchase of intangible assets

 

(76)

(80)

Disposal of subsidiaries, net of cash disposed

 

211

-

Acquisition of subsidiaries, net of cash acquired

 

(12)

(23)

Proceeds from sale of joint ventures and associates

 

-

129

Proceeds from sale of property, plant and equipment, investment property, intangible assets and non-current assets classified as held for sale

 

239

147

Net decrease in loans to joint ventures and associates

 

16

3

Investments in joint ventures and associates

 

-

(77)

Net (investments in)/ proceeds from sale of short-term investments

 

(970)

293

Net proceeds from sale of other investments

 

157

110

Dividends received from joint ventures and associates

 

11

18

Interest received

 

9

1

Net cash (used in)/ from investing activities

 

(901)

88

Cash flows from financing activities

 

 

 

Proceeds from issue of ordinary share capital

 

-

1

Increase in borrowings

 

213

418

Repayment of borrowings

 

(31)

(869)

Net cash flows from derivative financial instruments

 

104

186

Repayments of obligations under finance leases

 

(5)

(7)

Net cash from/ (used in) financing activities

 

281

(271)

Net increase in cash and cash equivalents

 

280

164

Cash and cash equivalents at beginning of the period

 

3,082

2,174

Effect of foreign exchange rate changes

 

4

(31)

Cash and cash equivalents including cash held in disposal groups at the end of the period

 

3,366

2,307

Cash held in disposal groups

7

(11)

(121)

Cash and cash equivalents at the end of the period

 

3,355

2,186

The notes on pages 19 to 41 form part of these condensed consolidated interim financial statements.

 

The unaudited condensed consolidated interim financial statements for the 26 weeks ended 27 August 2016 were approved by the Directors on 4 October 2016.

 

Note 1 Basis of preparation

These condensed consolidated interim financial statements for the 26 weeks ended 27 August 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. The accounting policies applied are consistent with those described in the Annual Report and Group financial statements 2016.  There are no new or amended standards effective in the period which have had a material impact on the condensed consolidated interim financial statements. The financial period represents the 26 weeks ended 27 August 2016 (prior period 26 weeks ended 29 August 2015, prior financial year 52 weeks ended 27 February 2016).

 

The condensed consolidated interim financial statements for the current period and prior financial year 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 delivered to 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 consider that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the condensed consolidated interim financial statements. 

 

Discontinued operations

In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations', the net results of the Group's Kipa business in Turkey ('Turkey' or 'Turkish operations') and the Group's Homeplus business in Korea ('Korea' or 'Korean operations') are presented within discontinued operations in the Group income statement (for which the comparatives have been restated for Turkey) and the assets and liabilities of these businesses are presented separately in the Group balance sheet. Refer to Note 7 for further details.

 

Use of alternative performance measures

The Directors have adopted various alternative performance measures to provide additional useful information on the underlying trends, performance and position of the Group. These measures are used for performance analysis.  The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies' alternative performance measures.  These measures are not intended to be a substitute for, or superior to, IFRS measurements.

 

Diluted earnings per share from continuing operations before exceptional items

This relates to profit after tax before exceptional items attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options.

 

Diluted earnings per share from continuing operations before exceptional items and net pension finance costs          
This relates to profit after tax before exceptional items and net pension finance costs attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options.

 

Exceptional items

Exceptional items relate to certain costs or incomes that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded from the Group's alternative performance measures by virtue of their size and nature in order to better reflect management's view of the performance of the Group. The tax impact on exceptional items is included within the Group income statement.

The Group exercises judgement in assessing whether items should be classified as exceptional. This assessment covers the nature of the item, cause of occurrence and the scale of impact of that item on reported performance. Reversals of previous exceptional items are assessed based on the same criteria.

 

Free cash flow

Free cash flow is net cash generated from/ (used in) operating activities less capital expenditure on property, plant and equipment, investment property and intangible assets.

 

Net debt

Net debt excludes the net debt of Tesco Bank but includes that of the discontinued operations. Net debt comprises bank and other borrowings, finance lease payables, net derivative financial instruments, joint venture loans and other receivables and net interest receivables/ payables, offset by cash and cash equivalents and short-term investments.

 

Operating margin

Operating margin is based on operating profit before exceptional items and on revenue.

 

Operating profit before exceptional items

This is the headline measure of the Group's performance, and is based on operating profit before the impact of exceptional items.

 

Profit before tax before exceptional items and net pension finance costs

This measure excludes exceptional items and the net finance costs of the defined benefit pension deficit as the costs are impacted by corporate bond yields, which can fluctuate significantly.

 

Profit/ (losses) arising on property-related items

These relate to the Group's property activities including gains and losses on disposal of property assets, development property built for resale and property joint ventures; costs resulting from changes in the Group's store portfolio and distribution network, including pre-opening and post closure costs; and income/ (charges) associated with impairment of non-trading property and related onerous contracts.

 

Revenue excl. fuel

This is the headline measure of revenue for the Group. It excludes the impact of sales, predominantly fuel sales, made at petrol filling stations, due to the volatilities associated with movements in fuel prices.

 

Total indebtedness

Net debt plus the IAS19 deficit in the pension schemes (net of associated deferred tax) plus the present value of future minimum rentals payable under non-cancellable operating leases.

 

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 Officer, 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

·      International - Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand;

·     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.

 

In addition, the retailing and associated activities in Turkey have been classified as discontinued operations in the current period; their performance in this period and comparative periods is therefore part of discontinued operations as presented in Note 7 and excluded from segmental performances below.

 

The CODM uses operating profit before exceptional items, as reviewed at monthly Executive Committee meetings, as the key measure of the segments' results as it better reflects the segments' underlying performance for the financial period under evaluation. Operating profit before exceptional items is a consistent measure within the Group as defined within Note 1. Refer to Note 4 for exceptional items. Inter-segment revenue between the operating segments is not material.

 

Income statement

The segment results and the reconciliation of the segment measures to the respective statutory items included in the Group income statement are as follows:
 

 

26 weeks ended 27 August 2016

At constant exchange rates(a)

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total at constant

exchange

£m

 

Foreign

exchange

£m

Total at actual

exchange

£m

Continuing operations

 

 

 

 

 

 

Revenue excl. fuel

18,508

4,918

503

23,929

473

24,402

Revenue

21,339

5,011

503

26,853

485

27,338

Operating profit before exceptional items(b)

384

110

89

583

13

596

Exceptional items

(24)

8

(67)

(83)

2

(81)

Operating profit

360

118

22

500

15

515

Operating margin(c)

1.8%

2.2%

17.7%

2.2%

 

2.2%

 

26 weeks ended 27 August 2016

At actual exchange rates(d)

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total at actual

exchange

£m

Continuing operations

 

 

 

 

Revenue excl. fuel

18,614

5,285

503

24,402

Revenue

21,449

5,386

503

27,338

Operating profit before exceptional items(b)

389

118

89

596

Exceptional items

(24)

10

(67)

(81)

Operating profit

365

128

22

515

Operating margin(c)

1.8%

2.2%

17.7%

2.2%

Share of post-tax profits/ (losses) of joint ventures and associates

 

 

 

2

Finance income

 

 

 

83

Finance costs

 

 

 

(529)

Profit/ (loss) before tax

 

 

 

71

 

(a) Constant exchange rates are the average actual periodic exchange rates for the previous financial period.

(b) Intercompany recharges totalling £1m between continuing operations and the Turkey discontinued operations have been eliminated.

(c)        Operating margin is based on operating profit before exceptional items and on revenue.

(d) Actual exchange rates are the average actual periodic exchange rates for that financial period.

 

 

26 weeks ended 29 August 2015

At actual exchange rates*

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total at actual

exchange

£m

Continuing operations

 

 

 

 

Revenue excl. fuel

18,394

4,812

478

23,684

Revenue

21,581

4,907

478

26,966

Operating profit before exceptional items**

164

122

86

372

Exceptional items

-

-

-

-

Operating profit

164

122

86

372

Operating margin***

0.8%

2.5%

18.0%

1.4%

Share of post-tax profits/ (losses) of joint ventures and associates

 

 

 

13

Finance income

 

 

 

44

Finance costs

 

 

 

(330)

Profit/ (loss) before tax                                                                                                                                     

 

 

 

99

*    Actual exchange rates are the average actual periodic exchange rates for that financial period.

**   Intercompany recharges totalling £2m between continuing operations and the Turkey discontinued operations have been eliminated.

***  Operating margin is based on operating profit before exceptional items and on revenue.

 

Balance sheet

The following tables showing segment assets and liabilities exclude those balances that make up net debt (cash and cash equivalents, short-term investments, joint venture loans and other receivables, bank and other borrowings, finance lease payables, derivative financial instruments and net debt of the disposal groups). Net debt balances have been included within the unallocated segment to reflect how the Group manages these balances. Intercompany transactions have been eliminated, other than intercompany transactions with Tesco Bank in net debt.

 

 

At 27 August 2016

UK & ROI

£m

International

£m

Tesco

Bank

£m

Other/

unallocated

£m

Total

£m

Goodwill and other intangible assets

1,363

320

1,135

-

2,818

Property, plant and equipment and investment property

12,527

5,080

74

-

17,681

Investments in joint ventures and associates

5

766

93

-

864

Other investments

-

-

956

143

1,099

Loans and advances to customers - non-current

-

-

5,278

-

5,278

Deferred tax assets

625

61

-

-

686

Non-current assets(a)

14,520

6,227

7,536

143

28,426

 

 

 

 

 

 

Inventories and trade and other receivables(b)

2,619

1,119

343

-

4,081

Trade and other payables

(6,686)

(1,904)

(209)

-

(8,799)

Loans and advances to customers - current

-

-

3,984

-

3,984

Customer deposits and deposits from banks

-

-

(8,281)

-

(8,281)

Total provisions

(806)

(137)

(99)

-

(1,042)

Deferred tax liabilities

-

(51)

(29)

-

(80)

Net current tax

(463)

(8)

20

-

(451)

Post-employment benefit obligations

(7,102)

(21)

-

-

(7,123)

Assets held for sale and of the disposal groups(c)

88

136

-

237

461

Liabilities of the disposal groups(c)

-

-

-

(126)

(126)

Net debt(d)

-

-

(787)

(4,352)

(5,139)

Net assets

2,170

5,361

2,478

(4,098)

5,911

 

(a) Excludes derivative financial instrument non-current assets of £1,929m (27 February 2016: £1,532m, 29 August 2015: £1,252m).

(b) Excludes loans to joint ventures of £136m (27 February 2016: £149m, 29 August 2015: £149m) and interest and other receivables of £1m (27 February 2016: £1m, 29 August 2015: £nil).

(c) Excludes net debt of the disposal groups of £64m (27 February 2016: £nil, 29 August 2015: £121m). Refer to Note 7.

(d) Refer to Note 16.

 

 

At 27 February 2016                  

UK & ROI

£m

International

£m

Tesco

Bank

£m

Other/

unallocated

£m

Total

£m

Goodwill and other intangible assets

1,391

309

1,174

-

2,874

Property, plant and equipment and investment property

12,815

5,085

78

-

17,978

Investments in joint ventures and associates

5

704

76

-

785

Other investments

-

-

984

151

1,135

Loans and advances to customers - non-current

-

-

4,723

-

4,723

Deferred tax assets

-

49

-

-

49

Non-current assets(a)

14,211

6,147

7,035

151

27,544

 

 

 

 

 

 

Inventories and trade and other receivables(b)

2,557

1,016

314

-

3,887

Trade and other payables

(6,580)

(1,736)

(252)

-

(8,568)

Loans and advances to customers - current

-

-

3,819

-

3,819

Customer deposits and deposits from banks

-

-

(7,479)

-

(7,479)

Total provisions

(837)

(129)

(58)

-

(1,024)

Deferred tax liabilities

(64)

(39)

(32)

-

(135)

Net current tax

(403)

(3)

2

-

(404)

Post-employment benefit obligations

(3,153)

(22)

-

-

(3,175)

Assets held for sale and of the disposal groups(c)

165

71

-

-

236

Liabilities of the disposal groups(c)

-

-

-

-

-

Net debt(d)

-

-

(975)

(5,110)

(6,085)

Net assets

5,896

5,305

2,374

(4,959)

8,616

Refer to previous table for footnotes.

 

At 29 August 2015                                 

UK & ROI

£m

International

£m

Tesco

Bank

£m

Other/

unallocated

£m

Total

£m

Goodwill and other intangible assets

1,633

297

1,192

-

3,122

Property, plant and equipment and investment property

11,681

4,738

79

-

16,498

Investments in joint ventures and associates

15

759

78

-

852

Other investments

-

-

738

141

879

Loans and advances to customers - non-current

-

-

4,376

-

4,376

Deferred tax assets

585

86

-

-

671

Non-current assets(a)

13,914

5,880

6,463

141

26,398

 

 

 

 

 

 

Inventories and trade and other receivables(b)

2,689

1,025

362

-

4,076

Trade and other payables

(6,499)

(1,615)

(369)

-

(8,483)

Loans and advances to customers - current

-

-

3,917

-

3,917

Customer deposits and deposits from banks

-

-

(7,026)

-

(7,026)

Total provisions

(739)

(86)

(79)

-

(904)

Deferred tax liabilities

(408)

(26)

(38)

-

(472)

Net current tax

(137)

(6)

(22)

-

(165)

Post-employment benefit obligations

(5,179)

(17)

-

-

(5,196)

Assets held for sale and of the disposal groups(c)

182

10

-

4,841

5,033

Liabilities of the disposal groups(c)

-

-

-

(1,528)

(1,528)

Net debt(d)

-

-

(904)

(8,588)

(9,492)

Net assets

3,823

5,165

2,304

(5,134)

6,158

Refer to previous table for footnotes.

 

 

26 weeks ended 27 August 2016

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total

 continuing

operations

£m

Discontinued

operations

£m

Total

£m

Capital expenditure (including acquisitions through
business combinations):

 

 

 

 

 

 

Property, plant and equipment*

289

90

4

383

2

385

Investment property

-

-

-

-

-

-

Goodwill, software and other intangible assets

49

7

12

68

-

68

Depreciation:

 

 

 

 

 

 

Property, plant and equipment

(333)

(168)

(7)

(508)

(5)

(513)

Investment property

(1)

-

-

(1)

-

(1)

Amortisation of intangible assets

(55)

(12)

(48)

(115)

(1)

(116)

Impairment of intangible assets

-

-

-

-

-

-

Impairment of goodwill

-

-

-

-

-

-

Impairment of property, plant and equipment  and investment properties

(39)

(1)

-

(40)

(106)

(146)

Reversal of  impairment of property, plant and equipment  and investment properties

35

1

-

36

-

36

*    Includes £nil (2015: £490m) of property, plant and equipment acquired through business combinations.

 

26 weeks ended 29 August 2015

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total

 continuing

operations

£m

Discontinued

operations

£m

Total

£m

Capital expenditure (including acquisitions through
business combinations):

 

 

 

 

 

 

Property, plant and equipment*

691

82

2

775

56

831

Investment property

-

-

-

-

-

-

Goodwill, software and other intangible assets

83

5

11

99

3

102

Depreciation:

 

 

 

 

 

 

Property, plant and equipment

(351)

(150)

(7)

(508)

(90)

(598)

Investment property

-

-

-

-

-

-

Amortisation of intangible assets

(71)

(11)

(38)

(120)

(6)

(126)

Impairment of intangible assets

(18)

-

-

(18)

-

(18)

Impairment of goodwill

-

-

-

-

-

-

Impairment of property, plant and equipment  and investment properties

(22)

(17)

-

(39)

(1)

(40)

Reversal of  impairment of property, plant and equipment  and investment properties

19

1

-

20

-

20

 

Refer to previous table for footnotes.

  

Cash flow statement

 

The following tables provide further analysis of the Group cash flow statement, including a split of cash flows between Retail and Tesco Bank as well as continuing operations and discontinued operations.

 

 

Retail

Tesco Bank

Tesco Group

 

2016

£m

2015

£m

2016

£m

2015

£m

2016

£m

2015

£m

Operating profit of continuing operations*

493

286

22

86

515

372

Operating profit/ (loss) of discontinued operations

(118)

51

-

-

(118)

51

Depreciation and amortisation

575

679

55

45

630

724

ATM net income

(22)

(20)

22

20

-

-

(Profit)/ loss arising on sale of property, plant and equipment and intangible assets

 (20)

 

 5

2

 (1)

(18)

 4

Loss/ (profit) arising on sale of subsidiaries and other investments

4

-

(4)

-

-

-

Profit arising on sale of joint ventures and associates

(5)

(6)

-

-

(5)

(6)

Net reversal of impairment of other investments

(5)

(7)

-

-

(5)

(7)

Impairment of loans/ investments in joint ventures and associates

-

 2

-

 -

-

 2

Net impairment charge of property, plant and equipment and intangible assets

110

 38

-

-

110

 38

Adjustment for non-cash element of pensions charge

4

104

-

-

4

104

Additional contribution into pension schemes

(111)

(93)

-

-

(111)

(93)

Share-based payments

(56)

160

(1)

6

(57)

166

Tesco Bank non-cash items included in operating profit

-

-

28

22

28

22

Cash flow from operations excluding working capital

849

1,199

124

178

973

1,377

Decrease/ (increase) in working capital

115

(194)

32

(613)

147

(807)

Cash generated from/ (used in) operations

964

1,005

156

(435)

1,120

570

Interest paid

(203)

(173)

(2)

(2)

(205)

(175)

Corporation tax (paid)/ received

(17)

(53)

2

5

(15)

(48)

Net cash generated from/ (used in) operating activities

744

779

156

(432)

900

347

*    Tesco Bank operating profit as per Bank income statement excluding ATM net income segmental adjustment.

 

 

 

Retail

Tesco Bank

Tesco Group

 

2016

£m

2015

£m

2016

£m

2015

£m

2016

£m

2015

£m

Net cash generated from/ (used in) operating activities

744

779

156

(432)

900

347

Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale

(484)

 

(427)

(2)

 

(6)

(486)

 

(433)

Purchase of intangible assets

(57)

(71)

(19)

(9)

(76)

(80)

Alternative performance measure: Free cash flow

203

281

135

(447)

338

(166)

 

 

 

 

 

 

 

Disposal of subsidiaries, net of cash disposed

211

-

-

-

211

-

Acquisition of subsidiaries, net of cash acquired

(12)

(23)

-

-

(12)

(23)

Proceeds from sale of property, plant and equipment, investment property, intangible assets and non-current assets classified as held for sale

236

 147

3

 -

239

 147

Proceeds from sale of joint ventures and associates

-

129

-

-

-

129

Net decrease in loans to joint ventures and associates

16

3

-

-

16

3

Investments in joint ventures and associates

-

(77)

-

-

-

(77)

Net (investments in)/ proceeds from sale of short-term investments

(970)

 293

-

 -

(970)

 293

Net proceeds from sale of other investments

95

16

62

94

157

110

Dividends received from joint ventures and associates

11

18

-

-

11

18

Interest received

9

1

-

-

9

1

Net cash (used in)/ from investing activities

(945)

9

44

79

(901)

88

 

 

 

 

 

 

 

Proceeds from issue of ordinary share capital

-

1

-

-

-

1

Increase in borrowings

213

118

-

300

213

418

Repayment of borrowings

(31)

(869)

-

-

(31)

(869)

Net cash flows from derivative financial instruments

104

186

-

-

104

186

Repayments of obligations under finance leases

(5)

(7)

-

-

(5)

(7)

Net cash from/ (used in) financing activities

281

(571)

-

300

281

(271)

 

 

 

 

 

 

 

Intra-Group funding and intercompany transactions

(17)

11

17

(11)

-

-

 

 

 

 

 

 

 

Net increase/ (decrease) in cash and cash equivalents

63

228

217

(64)

280

164

Cash and cash equivalents at the beginning of the period

2,528

1,558

554

616

3,082

2,174

Effect of foreign exchange rate changes

4

(31)

-

-

4

(31)

Cash and cash equivalents including cash held in disposal groups at the end of the period

2,595

 1,755

771

 552

3,366

 2,307

Cash held in disposal groups*

(11)

(121)

-

-

(11)

(121)

Cash and cash equivalents at the end of the period

2,584

1,634

771

552

3,355

2,186

*    This relates to the cash held within discontinued operations reported within assets of the disposal groups.

 

 

Continuing operations

Discontinued operations

Retail

 

2016

£m

2015

£m

2016

£m

2015

£m

2016

£m

2015

£m

Operating profit/ (loss)

493

286

(118)

51

375

337

Depreciation and amortisation

569

583

6

96

575

679

ATM net income

(22)

(20)

-

-

(22)

(20)

(Profit)/ loss arising on sale of property, plant and equipment and intangible assets

(24)

5

4

-

(20)

5

Loss arising on sale of subsidiaries & other investments

4

-

-

-

4

-

Profit arising on sale of joint ventures and associates

(5)

(6)

-

-

(5)

(6)

Net reversal of impairment of other investments

(5)

(7)

-

-

(5)

(7)

Impairment of loans/ investments in joint ventures and associates

-

 

2

-

 

-

-

 

2

Net impairment charge of property, plant and equipment and intangible assets

4

 37

106

 1

110

 38

Adjustment for non-cash element of pensions charge

4

104

-

-

4

104

Additional contribution into pension schemes

(111)

(93)

-

-

(111)

(93)

Share-based payments

(57)

157

1

3

(56)

160

Cash flow from operations excluding working capital

850

1,048

(1)

151

849

1,199

Decrease/ (increase) in working capital

                    105

(257)

10

63

115

(194)

Cash generated from operations

955

791

9

214

964

1,005

Interest paid

(195)

(149)

(8)

(24)

(203)

(173)

Corporation tax paid

(17)

(44)

-

(9)

(17)

(53)

Net cash generated from operating activities

743

598

1

                        181

744

779

Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale

(480)

 (390)

(4)

 (37)

(484)

 (427)

Purchase of intangible assets

(57)

(68)

-

(3)

(57)

(71)

Alternative performance measure: Free cash flow

206

140

(3)

141

203

281

 

Note 3 Income and expenses

Continuing operations

2016

£m

2015

£m

Profit/ (loss) before tax is stated after charging/ (crediting) the following:

 

 

Property rental income, of which £17m (2015: £20m) relates to investment properties

(169)

(159)

Other rental income

(28)

(27)

Direct operating expenses arising on rental earning investment properties

9

11

Costs of inventories recognised as an expense

20,098

19,802

Inventory losses and provisions

570

549

Depreciation and amortisation

624

628

Operating lease expenses, of which £42m (2015: £52m) relates to hire of plant and machinery

514

557

Net impairment losses on property, plant and equipment and investment property

4

19

Impairment of goodwill, software and other intangibles

-

18

Impairment of investment in and loans to joint ventures and associates

-

2

 

Note 4 Exceptional items

Income statement

26 weeks ended 27 August 2016

Profit/ (loss) for the period includes the following exceptional items:

 

 

Exceptional items included in:

Cost

 of sales

£m

Administrative expenses

£m

Property- related items

£m

Total exceptional items included  within operating profit

£m

Finance costs

£m

Taxation

£m

Exceptional items within discontinued operations

£m

Net restructuring and redundancy costs(a)

(73)

(17)

(5)

(95)

-

21

-

Provision for customer redress(b)

(45)

-

-

(45)

-

-

-

Property transactions(c)

-

-

59

59

-

37

-

Foreign exchange losses on GBP short-term investments held in overseas entities(d)

-

-

-

-

(200)

-

-

Exceptional items relating to discontinued operations(e)

-

-

-

-

-

-

(113)

Total

(118)

(17)

54

(81)

(200)

58

(113)

 

(a) This includes £73m relating to ongoing UK & ROI changes to store colleague structures and working practices and £22m relating to Tesco Bank business simplification and head office relocation costs.

(b)  Updated guidance from the Financial Conduct Authority ('FCA') proposing an extension to the expected Payment Protection Insurance ('PPI') settlement deadline, inclusion of items that had previously been out of scope for settlement and higher operational costs and claim rates than previously estimated, have resulted in a provision of £45m.

(c) In the period, the Group has continued with its strategy of strengthening its balance sheet through the disposal of some properties and a development site in UK & ROI, and a mall in Central Europe, resulting in profit of £59m. There is a tax credit of £37m on these property disposals primarily due to a lower book value than tax value of assets disposed. Refer to item ** below for cash proceeds.

(d)  The group holds £2.5bn of proceeds from the sale of the Korean operations in GBP money market funds in an intermediate entity with a Euro functional currency.  The £200m loss represents foreign exchange losses arising on the revaluation of these sterling-denominated funds into Euros.  The loss does not represent an economic loss to the Group since there is an offset within other comprehensive income.

(e) On 10 June 2016, the Group announced the proposed sale of its Turkish operations. This includes an impairment of £106m following a re-measurement of the assets and liabilities of the Turkish operations to fair value less costs to sell, £2m of costs to sell the Turkish operations and £5m loss due to foreign exchange movements on provisions held on previous disposals. Refer to Note 7 for further details.

 

Income statement

26 weeks ended 29 August 2015

Loss for the period includes the following exceptional items:

Exceptional items included in:

Cost of sales

£m

Administrative expenses

£m

Property
- related items

£m

Total exceptional items included within operating profit

£m

Finance costs

£m

Taxation

£m

Exceptional items within discontinued operations

£m

Deferred tax and costs to sell - Korea

-

-

-

-

-

-

(419)

 

At 27 February 2016, in assessing whether income and expense items met the Group's criteria as exceptional for the full year, items totalling £4m reflected in operating profit as non-exceptional cost in the first half of the year were subsequently reclassified to exceptional. This is as a result of restructuring activities extended beyond the original scope in the prior year, as well as two further property transactions where the Group regained sole ownership of stores and distribution centres.

 

Cash flow statement

The table below shows the impact of exceptional items on the cash flow statement:

 

Cash flows from operating activities

Cash flows from investing activities

 

Exceptional items included in:

2016

£m

2015

£m

2016

£m

2015

£m

Restructuring costs and other exceptional costs including trading store redundancies*

(66)

(278)

-

-

Utilisation of onerous lease  provisions

(48)

(123)

-

-

Property transactions**

13

-

227

-

Provision for customer redress***

(15)

(11)

-

-

Total

(116)

(412)

227

-

*    Cash outflows on settlement of restructuring and redundancy costs.

**   The proceeds from property transactions totalled £240m comprising, £227m net proceeds from the sale of a mall in Central Europe and other properties in the UK & ROI, and £13m for a development site in UK & ROI. Refer to item (c) above.

***  Settlement of claims for customer redress in Tesco Bank.

 

Note 5 Finance income and costs

 

Continuing operations

2016

£m

2015

£m

Finance income

 

 

Interest receivable and similar income

26

10

Financial instruments - fair value remeasurements

57

34

Total finance income

83

44

Finance costs

 

 

GBP MTNs and Loans

(114)

(86)

EUR MTNs

(67)

(61)

USD Bonds

(46)

(43)

Finance charges payable under finance leases and hire purchase contracts

(4)

(5)

Other interest payable

(43)

(57)

Capitalised interest*

3

6

Total finance costs before exceptional items and net pension finance costs

(271)

(246)

Net pension finance costs  (Note 15)

(58)

(84)

Foreign exchange losses on GBP short-term investments held in overseas entities (Note 4)

(200)

-

Total finance costs

(529)

(330)

Net finance cost

(446)

(286)

* A deferred tax liability is recognised in respect of capitalised interest at the applicable rate in the country in which the interest is capitalised.

  

GBP MTNs and Loans

Interest payable on the 4% RPI GBP MTN 2016 includes £nil (2015: £(1)m) of Retail Price Index ('RPI') related accretion.

Interest payable on the 3.322% LPI GBP MTN 2025 includes £2m (2015: £3m) of RPI-related accretion.

Interest payable on the 1.982% RPI GBP MTN 2036 includes £1m (2015: £nil) of RPI-related accretion.

 

Note 6 Taxation

Recognised in the Group income statement

Continuing operations

2016

£m

2015

£m

UK

(3)

31

Overseas

43

21

Taxation charge/ (credit)

40

52

 

The tax charge in the Group income statement is based on management's best estimate of the full year effective tax rate based on expected full year profits to 25 February 2017.

 

The Finance Bill 2016 includes legislation to reduce the main rate of corporation tax to 17% from 1 April 2020. This rate reduction had not been substantively enacted at the balance sheet date and has therefore not been reflected in this condensed consolidated interim financial statements.

 

Note 7 Discontinued operations and non-current assets classified as held for sale

Assets and liabilities of the disposal groups and non-current assets classified as held for sale

 

27 August

2016

£m

27 February

2016

£m

29 August

2015

£m

Assets of the disposal group - Turkey

248

-

-

Assets of the disposal groups - Korea and US

-

-

4,962

Non-current assets classified as held for sale

224

236

192

Total assets of the disposal groups and non-current assets classified as held for sale

472

236

5,154

Total liabilities of the disposal group - Turkey

(201)

-

-

Total liabilities of the disposal groups - Korea and US

-

-

(1,528)

Total net assets of the disposal groups and non-current assets classified as held for sale

271

236

3,626

 

The non-current assets classified as held for sale consist mainly of properties in the UK and Central Europe due to be sold within one year.

 

Discontinued operations

On 10 June 2016, the Group announced the proposed sale of its 95.5% controlling interest in Tesco Kipa Kitle Pazarlama Ticaret Lojistik ve Gıda Sanayi A.Ş. (referred to as 'Turkish operations' or Turkey') to Migros Ticaret A.Ş ('Migros'). In accordance with IFRS 5 'Non-current Assets Held for sale and Discontinued Operations', the assets and liabilities related to the Turkish operations have been classified as a disposal group held for sale within the period. The sale is subject to local regulatory approvals with completion expected in the financial year.

 

An impairment of £106m was recognised in property, plant and equipment, based on the expected realisable value on sale, immediately prior to reclassification of the business as a disposal group held for sale. These impairments have been included as exceptional items within discontinued operations. The gain/(loss) on disposal at completion will also reflect the impact of recycling of the Turkey currency translation reserve; at the period end the recycling would have reduced the profit/increased the loss on sale by £113m.

 

The tables below show the results of the discontinued operations which are included in the Group income statement, Group balance sheet and Group cash flow statement respectively.

 

Income statement

 

2016

2015

 

Total*

£m

Turkey

£m

Korea

£m

Total

£m

 

Revenue

270

261

2,635

2,896

 

Expenses**

(288)

(286)

(2,564)

(2,850)

 

Profit/ (loss) before tax before exceptional items

(18)

(25)

71

46

 

Taxation

-

-

(42)

(42)

 

Profit/ (loss) after tax before exceptional items

(18)

(25)

29

4

 

Impairment losses - Turkey

(106)

-

-

-

 

Costs to sell and other provisions - Turkey

(2)

-

-

-

 

Deferred tax charge - Korea

-

-

(408)

(408)

 

Costs to sell and other items - Korea

-

-

(11)

(11)

 

Foreign exchange gain/ (loss) on tax liabilities on past disposals

(5)

-

-

-

 

Total profit/ (loss) after tax of discontinued operations***

(131)

(25)

(390)

(415)

 

*    These figures represent the results of Turkey for the current period and the foreign exchange gain/ (loss) of £(5)m on the Group's tax liabilities relating to businesses previously disposed.

**   Intercompany recharges totalling £1m (2015: £2m) between continuing operations and the Turkey discontinued operation have been eliminated, and intercompany recharges and intercompany loan interest totalling £39m between continuing operations and the Korea discontinued operation have been eliminated in 2015. These eliminations impact the performance of continuing and discontinued operations, reducing the profit/ (loss) before tax of continuing operations by £1m (2015: £41m), whilst increasing the profit/ (loss) before tax of Turkey and Korea discontinued operations by the same respective amounts.

*** Total profit/ (loss) after tax of discontinued operations includes losses of £6m attributable to non-controlling interests (2015: loss of £1m).

 

Loss per share impact from discontinued operations

2016

Pence/share

2015

Pence/share

Basic

(1.54)p

(5.09)p

Diluted

(1.54)p

(5.07)p

 

Balance Sheet

Total Turkey

2016

£m

Assets of the disposal group

 

Goodwill and other intangible assets

10

Property, plant and equipment

135

Investment property

-

Inventories

55

Trade and other receivables

37

Cash and cash equivalents

11

Total assets of the disposal group

248

Trade and other payables

(115)

Borrowings

(75)

Other liabilities

(11)

Total liabilities of the disposal group

(201)

Total net assets of the disposal group

47

 

 

Cash flow statement

Total Turkey

2016

£m

Total Turkey,
Korea & US

2015

£m

Net cash flows from operating activities

1

181

Net cash flows from investing activities

(3)

14

Net cash flows from financing activities

12

(91)

Net cash flows from discontinued operations

10

104

Intra-Group funding and intercompany transactions

(3)

(60)

Net cash flows from discontinued operations, net of intercompany

7

44

 

Note 8 Dividends

 

2016

2015

 

Pence/
share

£m

Pence/
share

Amounts recognised as distributions to owners in the financial period:

 

 

 

 

Prior financial period final dividend

-

-

-

-

Current financial period interim dividend

-

-

-

-

Dividends paid to equity owners in the financial period

-

-

-

-

 

Note 9 Earnings/ (losses) per share and diluted earnings/ (losses) per share

Basic earnings/ (losses) per share amounts are calculated by dividing the profit/ (loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial period.

 

Diluted earnings/ (losses) per share amounts are calculated by dividing the profit/ (loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

 

As at the 27 August 2016 there were 3m (2015: 45m) potentially dilutive share options. As the Group has recognised a profit for the period from its continuing operations dilutive effects have been considered in calculating diluted earnings per share.  

 

 

2016

2015

 

Basic

Potentially

 dilutive share options

Diluted

Basic

Potentially

 dilutive share options

Diluted

Profit/ (loss) (£m)

 

 

 

 

 

 

Continuing operations*

34

-

34

49

-

49

Discontinued operations**

(125)

-

(125)

(414)

-

(414)

Total

(91)

-

(91)

(365)

-

(365)

Weighted average number of shares (millions)

8,142

3

8,145

8,122

45

8,167

Earnings/ (losses) per share

 

 

 

 

 

 

Continuing operations

0.42p

-

0.42p

0.60p

-

0.60p

Discontinued operations

(1.54)p

-

(1.54)p

(5.09)p

0.02p

(5.07)p

Total

(1.12)p

-

(1.12)p

(4.49)p

0.02p

(4.47)p

*    Excludes losses from non-controlling interests of £3m (2015: £2m).
**   Excludes losses from non-controlling interests of £6m (2015: £1m).

 

Alternative performance measure: Earnings/ (losses) and diluted earnings/ (losses) per share from continuing operations before exceptional items

 

 

2016

2015

 

Basic

Potentially

 dilutive share options

Diluted

Basic

Potentially

 dilutive share options

Diluted

Profit/ (loss) (£m)

 

 

 

 

 

 

Continuing operations*

257

-

257

49

-

49

Discontinued operations**

(17)

-

(17)

5

-

5

Total

240

-

240

54

-

54

Weighted average number of shares (millions)

8,142

3

8,145

8,122

45

8,167

Earnings/ (losses) per share

 

 

 

 

 

 

Continuing operations

3.16p

-

3.16p

0.60p

-

0.60p

Discontinued operations

(0.21)p

-

(0.21)p

0.06p

-

0.06p

Total

2.95p

-

2.95p

0.66p

-

0.66p

*    Excludes losses from non-controlling interests before exceptional items of £3m (2015: £2m).
**   Excludes losses from non-controlling interests before exceptional items of £1m (2015: £1m).

 

Alternative performance measure: Diluted earnings/ (losses) per share from continuing operations before exceptional items and net pension finance costs

 

 

2016

2015

Profit before tax from continuing operations before exceptional items (£m)

352

99

Add: Net pension finance costs (£m) (Note 15)

58

84

Profit before tax from continuing operations before exceptional items and net pension finance costs (£m)

410

183

Profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent  (£m)

413

185

Taxation on profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m)

(108)

(69)

 

Profit after tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m)

305

116

 

Diluted weighted average number of shares (millions)

8,145

8,167

Diluted earnings per share from continuing operations before exceptional items and net pension finance costs

3.74p

1.42p

 

There have been no transactions involving ordinary shares between the reporting date and the date of approval of the condensed consolidated interim financial statements which would significantly change the earnings per share calculations shown above.

 

Note 10 Goodwill and other intangible assets

Goodwill and other intangible assets of £2,818m (27 February 2016: £2,874m, 29 August 2015: £3,122m) comprise £1,832m goodwill (27 February 2016: £1,827m, 29 August 2015: £1,768m), £925m software (27 February 2016: £975m, 29 August 2015: £1,268m) and other intangible assets £61m (27 February 2016: £72m, 29 August 2015: £86m).

 

Goodwill

The impairment review methodology for goodwill is unchanged from that described in the 2016 Annual Report and Group financial statements. There were no indicators of goodwill impairment in the period; the annual goodwill impairment review will occur in the second half of the year.

 

The components of goodwill are as follows:

27 August 2016

27 February 2016

29 August 2015

 

£m

£m

£m

Malaysia

77

70

63

Tesco Bank

802

802

802

Thailand

174

159

143

UK

750

767

731

Other

29

29

29

 

1,832

1,827

1,768

 

 

Note 11 Property, plant and equipment

 

Cost

Land and

buildings

£m

Other*

£m

Total

£m

At 27 February 2016

22,557

10,468

33,025

Foreign currency translation

704

305

1,009

Additions**

241

144

385

Acquired through business combinations

-

-

-

Reclassification

(21)

17

(4)

Classified as held for sale

(149)

(5)

(154)

Disposals

(497)

(262)

(759)

Transfer to disposal group classified as held for sale

(317)

(151)

(468)

At 27 August 2016

22,518

10,516

33,034

 

Accumulated depreciation and impairment losses

 

 

 

At 27 February 2016

7,198

7,927

15,125

Foreign currency translation

259

229

488

Charge for the period

195

318

513

Impairment losses

145

1

146

Reversal of impairment losses

(36)

-

(36)

Reclassification

(1)

(1)

(2)

Classified as held for sale

(43)

(3)

(46)

Disposals

(207)

(226)

(433)

Transfer to disposal group classified as held for sale

(232)

(102)

(334)

At 27 August 2016

7,278

8,143

15,421

Net carrying value

 

 

 

At 27 August 2016

15,240

2,373

17,613

At 29 August 2015

13,928

2,493

16,421

           

 

Construction in progress included above***

 

 

 

At 27 August 2016

103

64

167

At 29 August 2015

197

75

272

*    Other assets consist of fixtures and fittings with a net carrying value of £1,985m (29 August 2015: £2,123m), office equipment with a net carrying value of £124m (29 August 2015: £166m) and motor vehicles with a net carrying value of £264m (29 August 2015: £204m).

**   Includes £3m (29 August 2015: £7m) in respect of interest capitalised, principally relating to land and building assets. The capitalisation rate used to determine the amount of finance costs capitalised during the financial period was 4.9% (29 August 2015: 4.4%). Interest capitalised is deducted in determining taxable profit in the financial period in which it is incurred.

***  Construction in progress does not include land.

 

The impairment review methodology for property, plant and equipment is unchanged from that described in the 2016 Annual Report and Group financial statements. The United Kingdom's electorate decision to leave the European Union (Brexit) has resulted in increased uncertainty, including uncertainty over property fair values. Consequently, the Group assessed changes to the key factors affecting impairment, covering discount rates, trading performance, and a review of the impact of Brexit on property fair values, in conjunction with independent professional valuers. The review concluded that there were no indicators of impairment. The Group continues to monitor for any potential impacts of Brexit on property fair values and impairment.

 

As a result of the Group's decision to sell its Turkish operations an impairment charge has been recognised upon reclassification of these assets to assets of the disposal group. This impairment has been classified as an exceptional item; refer to Note 4 and Note 7 for further details.

 

Cost

Land and

buildings

£m

Other*

£m

Total

£m

At 28 February 2015

25,298

11,493

36,791

Foreign currency translation

(544)

(234)

(778)

Additions**

128

213

341

Acquired through business combinations

477

13

490

Reclassification

(30)

(8)

(38)

Classified as held for sale

(379)

(19)

(398)

Disposals

(295)

(60)

(355)

Transfer to disposal group classified as held for sale

(3,584)

(1,202)

(4,786)

At 29 August 2015

21,071

10,196

31,267

 

Accumulated depreciation and impairment losses

 

 

 

At 28 February 2015

8,021

8,330

16,351

Foreign currency translation

(120)

(147)

(267)

Charge for the period

214

384

598

Impairment losses

32

7

39

Reversal of impairment losses

(14)

(1)

(15)

Reclassification

(18)

(8)

(26)

Classified as held for sale

(279)

(16)

(295)

Disposals

(214)

(38)

(252)

Transfer to disposal group classified as held for sale

(479)

(808)

(1,287)

At 29 August 2015

7,143

7,703

14,846

Refer to previous table for footnotes.

 

Following a re-evaluation of the allocation of the prior period impairment between the components of cash generating units, the prior period movement table has been re-presented. There is no impact on the net carrying value, income statement, depreciation or impairment loss.

 

Commitments for capital expenditure contracted for, but not incurred, at 27 August 2016 were £271m (27 February 2016: £215m, 29 August 2015: £290m), principally relating to store development. This excludes balances associated with the discontinued operations in Korea and Turkey of £nil (27 February 2016: £nil, 29 August 2015: £11m).

 

Note 12 Borrowings

 

Current

Par value

Maturity

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Commercial paper, bank loans and overdrafts

-

-

971

845

1,203

Loans from joint ventures

-

-

6

6

6

4% RPI MTN(a)

£310m

Sep 2016

317

316

-

5.875% MTN

€1,039m

Sep 2016

940

877

-

2.7% USD Bond

$500m

Jan 2017

381

361

-

5.4478% Term Loan

£382m

Jan 2017

389

396

-

5.5457% Secured Bond(d)(e)

£373m

Feb 2029

15

14

-

Finance leases

-

-

6

11

10

 

 

 

3,025

2,826

1,219

Refer to the next table for footnotes.

 

Non-current

Par value

Maturity

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

4% RPI MTN(a)

£310m

Sep 2016

-

-

312

5.875% MTN

€1,039m

Sep 2016

-

-

869

2.7% USD Bond

$500m

Jan 2017

-

-

326

LIBOR +0.5% Term Loan

£488m

Oct 2017

481

478

476

1.250% MTN

€500m

Nov 2017

430

394

368

5.5% USD Bond

$850m

Nov 2017

687

666

621

5.2% Tesco Bank Retail Bond

£125m

Aug 2018

131

132

134

3.375% MTN

€750m

Nov 2018

656

595

562

LIBOR + 0.45% Tesco Bank Bond

£150m

May 2019

150

150

150

1.375% MTN

€1,250m

Jul  2019

1,066

990

913

5.5% MTN

£350m

Dec 2019

363

353

363

1% RPI Tesco Bank Retail Bond

£66m

Dec 2019

66

66

65

LIBOR + 0.65% Tesco Bank Bond

£300m

Apr 2020

299

299

299

2.125% MTN

€500m

Nov 2020

432

394

370

5% Tesco Bank Retail Bond

£200m

Nov 2020

213

211

203

LIBOR + 0.65% Tesco Bank Bond

£350m

May 2021

349

349

349

6.125% MTN

£900m

Feb 2022

923

896

923

5% MTN

£389m

Mar 2023

403

411

397

2.5% MTN

€750m

Jul 2024

637

595

545

3.322% LPI MTN(b)

£319m

Nov 2025

322

320

318

5.5457% Secured Bond(d)(e)

£373m

Feb 2029

347

353

-

6.067% Secured Bond(d)

£200m

Feb 2029

189

189

-

LIBOR + 1.2% Secured Bond(d)

£50m

Feb 2029

30

30

-

6% MTN

£200m

Dec 2029

261

257

265

5.5% MTN

£200m

Jan 2033

263

259

266

1.982% RPI MTN(c)

£264m

Mar 2036

266

265

263

6.15% USD Bond

$1,150m

Nov 2037

1,106

1,035

902

4.875% MTN

£173m

Mar 2042

171

175

171

5.125% MTN(f)

€600m

Apr 2047

515

486

559

5.2% MTN

£279m

Mar 2057

275

275

275

Finance leases

-

-

99

88

121

 

 

 

11,130

10,711

11,385

 

(a)  The 4% RPI MTN is redeemable at par, including indexation for increases in the Retail Price Index (RPI) over the life of the MTN.

(b) The 3.322% Limited Price Inflation (LPI) MTN is redeemable at par, indexed for increases in the RPI over the life of the MTN. The maximum indexation of the principal in any one year is 5%, with a minimum of 0%.

(c)  The 1.982% RPI MTN is redeemable at par, including indexation for increases in the RPI over the life of the MTN.

(d) The bonds are secured by a charge over the property, plant and equipment held within the Tesco Property Limited Partnership, a 100% owned subsidiary of Tesco PLC.

(e) This is an amortising bond which matures in Feb 2029. £15m is the principal repayment due within the next 12 months, and is payable quarterly. The remainder is payable in quarterly instalments until maturity in Feb 2029.

(f)  The decrease in carrying value of the bond from 29 August 2015 to 27 February 2016 was due to a change of the hedge relationship from a fair value to a cash flow hedge, which was recognised in the statement of comprehensive income in the prior year.  

 

Borrowing facilities

The Group has the following undrawn committed facilities available at 27 August 2016, in respect of which all conditions precedent had been met as at that date:

 

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Expiring in less than one year

-

100

100

Expiring between one and two years

600

2,200

-

Expiring in more than two years

4,428

2,700

4,916

 

5,028

5,000

5,016

 

The current year undrawn committed facilities include £2.4bn (27 February 2016: £2.4bn, 29 August 2015: £2.4bn) of bilateral facilities and a £2.6bn (27 February 2016: £2.6bn, 29 August 2015: £2.6bn) revolving credit facility. During the period £1.8bn equivalent of bilateral facilities were refinanced in a tenor of three years to a final maturity of August 2019.

 

All facilities incur commitment fees at market rates and would provide funding at floating rates.

 

Note 13 Financial instruments

The following table presents the Group's financial assets and liabilities that are measured at fair value at 27 August 2016, 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 (from prices) or indirectly (derived from prices) (Level 2); and

·        inputs for the asset or liability that are not based on observable market data (from unobservable inputs) (Level 3).

 

27 August 2016

Level 1

£m

Level 2

£m

Level 3

£m

Total

£m

Assets

 

 

 

 

Available-for-sale financial assets

954

-

123

1,077

Derivative financial instruments:

 

 

 

 

  - Interest rate swaps and similar instruments

-

36

-

36

  - Cross currency swaps

-

1,272

-

1,272

  - Index-linked swaps

-

797

-

797

  - Forward contracts

-

136

-

136

Total assets

954

2,241

123

3,318

 

 

 

 

 

Liabilities

 

 

 

 

Derivative financial instruments:

 

 

 

 

  - Interest rate swaps and similar instruments

-

(484)

-

(484)

  - Cross currency swaps

-

(7)

-

(7)

  - Index-linked swaps

-

(520)

-

(520)

  - Forward contracts

-

(77)

-

(77)

Total liabilities

-

(1,088)

-

(1,088)

Total

954

1,153

123

2,230

 

27 February 2016

Level 1

£m

Level 2

£m

Level 3

£m

 

Total

£m

Assets

 

 

 

 

 

Available-for-sale financial assets

980

-

125

 

1,105

Derivative financial instruments:

 

 

 

 

 

  - Interest rate swaps and similar instruments

-

35

-

 

35

  - Cross currency swaps

-

935

-

 

935

  - Index-linked swaps

-

637

-

 

637

  - Forward contracts

-

101

-

 

101

Total assets

980

1,708

125

 

2,813

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Derivative financial instruments:

 

 

 

 

 

  - Interest rate swaps and similar instruments

-

(406)

-

 

(406)

  - Cross currency swaps

-

(67)

-

 

(67)

  - Index-linked swaps

-

(421)

-

 

(421)

  - Forward contracts

-

(57)

-

 

(57)

Total liabilities

-

(951)

-

 

(951)

Total

980

757

125

 

1,862

 

29 August 2015

Level 1

£m

Level 2

£m

Level 3

£m

Total

£m

Assets

 

 

 

 

Available-for-sale financial assets

739

-

113

852

Derivative financial instruments:

 

 

 

 

  - Interest rate swaps and similar instruments

-

25

-

25

  - Cross currency swaps

-

549

-

549

  - Index-linked swaps

-

680

-

680

  - Forward contracts

-

77

-

77

Total assets

739

1,331

113

2,183

 

 

 

 

Liabilities

 

 

 

Derivative financial instruments:

 

 

 

  - Interest rate swaps and similar instruments

-

(330)

-

(330)

  - Cross currency swaps

-

(151)

-

(151)

  - Index-linked swaps

-

(443)

-

(443)

  - Forward contracts

-

(51)

-

(51)

Total liabilities

-

(975)

-

(975)

Total

739

356

113

1,208

 

There were no transfers between Levels 1 and 2 during the period (27 February 2016: no transfers, 29 August 2015: no transfers) and no transfers into or out of Level 3 fair value measurements (27 February 2016: no transfers, 29 August 2015: no transfers).

 

The Group's policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

 

Carrying amounts versus fair values

The carrying amounts of the following financial assets and financial liabilities are a reasonable approximation of their fair value: cash and cash equivalents, short-term and other investments, other receivables, derivative financial assets/liabilities and deposits from banks (Tesco Bank).

 

The carrying value and fair value of the remaining financial assets and liabilities are as follows:

 

 

27 August 2016

27 February 2016

29 August 2015

 

Carrying

 Value

£m

Fair

Value

£m

Carrying

 Value

£m

Fair

Value

£m

Carrying

Value

£m

Fair

Value

£m

Assets

 

 

 

 

 

 

Loans and advances to customers - Tesco Bank

9,262

9,437

8,542

8,822

8,293

8,338

Joint venture and associate loan receivables

137

164

149

163

148

153

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Short-term borrowings:

 

 

 

 

 

 

- Amortised cost

(2,079)

(2,083)

(1,938)

(1,936)

(1,209)

(1,209)

- Bonds in fair value hedge relationships

(940)

(940)

(877)

(865)

-

-

Long-term borrowings:

 

 

 

 

 

 

- Amortised cost

(9,873)

(10,361)

(9,512)

(9,136)

(8,510)

(8,420)

- Bonds in fair value hedge relationships

(1,158)

(900)

(1,111)

(800)

(2,754)

(2,415)

Customer deposits - Tesco Bank

(8,107)

(8,138)

(7,397)

(7,405)

(6,580)

(6,566)

Finance lease liabilities

(105)

(115)

(99)

(101)

(131)

(131)

 

Note 14 Commercial income

Commercial income relates to volume-related allowances, promotional and marketing allowances and various other fees and discounts received in connection with the purchase of goods for resale from suppliers. Most of the income received from suppliers relates to adjustments to a core cost price of a product, and as such is considered part of the purchase price for that product. Accounting for the amount and timing of recognition of commercial income may require the exercise of judgement, as detailed in the 2016 Annual Report and Group financial statements.

 

Commercial income is recognised when earned by the Group, which occurs when all obligations conditional for earning income have been discharged, and the income can be measured reliably based on the terms of the contract. The income is recognised as a credit within cost of sales. Where the income earned relates to inventories which are held by the Group at period ends, the income is included within the cost of those inventories, and recognised in cost of sales upon sale of those inventories. Amounts due relating to commercial income are recognised within other receivables, except in cases where the Group currently has a legally enforceable right of set-off and intends to offset amounts due from suppliers against amounts owed to those suppliers, in which case only the net amount receivable or payable is recognised. Accrued commercial income is recognised within accrued income when commercial income earned has not been invoiced at the balance sheet date.

 

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 and deferred income.

 

 

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Current assets

 

 

 

Inventories

(53)

(75)

(71)

Trade and other receivables

 

 

 

- Other receivables

188

201

83

- Accrued income

93

100

95

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

 

 

- Trade payables

186

305

178

- Accruals and deferred income

(27)

(43)

(39)

 

The 27 February 2016 accruals and deferred income disclosure in this note included amounts that were unrelated to commercial income, and has therefore been amended accordingly.

 

Whilst the commercial income balances disclosed above are based on our contracts with suppliers, they only represent part of the overall economic relationship with the suppliers. Accordingly, these balances should be viewed together with other balances related to the purchase of goods in order to understand the overall economic impact to the Group.

 

 

Note 15 Post-employment benefits

Pensions

The Group operates a variety of post-employment benefit arrangements, covering both funded and unfunded defined benefit schemes and funded defined contribution schemes. The most significant of these are the funded defined benefit pension schemes for the Group's employees in the UK (now closed to future accrual) and the Republic of Ireland, and the funded defined contribution pension scheme for employees in the UK. Of these schemes, the UK defined benefit pension deficit represents 96% of the Group deficit (2015: 96%).

 

The principal plan within the Group is the Tesco PLC Pension Scheme (the 'Scheme'), which is a funded defined benefit pension scheme in the UK, the assets of which are held as a segregated fund and administered by the Trustee.

 

The Career Average section of the Scheme ('Pension Builder') was closed to new members and future accrual on 21 November 2015. The Final Salary section of the Scheme, which was closed to new entrants in 2001, was also closed to future accrual on 21 November 2015. In their place, a defined contribution scheme, Tesco Retirement Savings Plan, was opened on 22 November 2015 and is open to all Tesco colleagues in the UK.

 

At 31 March 2014, the deficit valuation arising from the triennial actuarial assessment was £2.8bn. A plan to contribute £270m a year has been agreed with the Trustee, to fund the UK deficit and to meet the expenses of the scheme.

 

UK Principal assumptions

The major assumptions, on a weighted average basis, used by the actuaries to value the defined benefit obligation as at 27 August 2016 were as follows:

 

 

27 August 2016

%

27 February 2016

%

29 August 2015

%

Discount rate

2.1

3.8

3.8

Price inflation

2.8

2.9

3.2

Rate of increase in deferred pensions*

1.8

1.9

2.2

Rate of increase in salaries

N/A

N/A

3.3

Rate of increase in pensions in payment*

 

 

 

     Benefits accrued before 1 June 2012

2.6

2.7

3.0

     Benefits accrued after 1 June 2012

1.8

1.9

2.2

Rate of increase in career average benefits

 

 

 

     Benefits accrued before 1 June 2012

N/A

N/A

3.2

     Benefits accrued after 1 June 2012

N/A

N/A

2.2

*    In excess of any Guaranteed Minimum Pension ('GMP') element.

 

The rate of increase in salaries and career average benefits are no longer applicable, as the Scheme has closed to future accrual.

 

The main financial assumption is the discount rate. If the discount rate increased by 0.1% or 1.0%, the UK defined benefit obligation would decrease by approximately £533m or £4,620m respectively. If this assumption decreased by 0.1% or 1.0%, the UK defined benefit obligation would increase by approximately £533m or £6,673m respectively.

 

Summary of movements in Group deficit during the financial period

 

Changes in the Group deficit, including movements of discontinued operations up to classification as held for sale, are as follows:

 

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Deficit in schemes at beginning of the period

(3,175)

(4,842)

(4,842)

Current service cost

(22)

(570)

(386)

Past service credit

-

535

-

Net pension finance cost

(58)

(155)

(84)

Contributions by employer

128

656

374

Foreign currency translation

(18)

(8)

5

Remeasurements

(3,983)

1,164

(308)

Transfer to disposal group classified as held for sale*

5

45

45

Deficit in schemes at the end of the period

(7,123)

(3,175)

(5,196)

Deferred tax asset **

1,270

563

1,029

Deficit in schemes at the end of the period, net of deferred tax

(5,853)

(2,612)

(4,167)

*    Value after deferred tax is £5m (29 August 2015: £34m).

**   The deferred tax assets in relation to the retirement benefit obligation has been partly offset with group deferred tax liabilities in the balance sheet.

 

Note 16 Analysis of changes in net debt

 

 

At

27 February

2016

£m

Cash

flow

£m

Fair value and foreign exchange movements

£m

Interest (charge)/

income

£m

Other

non-cash

movements

£m

Reclassifications of movements in net debt of the disposal group

£m

At

27 August

2016

£m

Total Group

 

 

 

 

 

 

 

Cash and cash equivalents

3,082

280

4

-

-

                     (11)

3,355

Short-term investments

3,463

970

2

-

-

-

4,435

Joint ventures loans

149

(16)

-

-

3

-

136

Interest and other receivables

1

(16)

-

16

-

-

1

Bank and other borrowings

(13,253)

(182)

(442)

(5)

-

75

(13,807)

Interest payables

(185)

205

(11)

(252)

-

-

(243)

Finance lease payables

(99)

5

(8)

-

(3)

-

(105)

Net derivative financial instruments

698

(104)

494

3

-

-

1,091

Net derivative interest

59

7

-

(4)

-

-

62

Net debt of the disposal group

-

-

-

-

-

(64)

(64)

Total Group

(6,085)

1,149

39

(242)

-

-

(5,139)

 

 

 

 

 

 

 

 

Tesco Bank

 

 

 

 

 

 

 

Cash and cash equivalents

554

217

-

-

-

-

771

Joint ventures loans

34

-

-

-

-

-

34

Bank and other borrowings

(1,441)

-

(3)

-

-

-

(1,444)

Interest payables

(1)

2

-

(2)

-

-

(1)

Net derivative financial instruments

(121)

-

(26)

-

-

-

(147)

Tesco Bank

(975)

219

(29)

(2)

-

-

(787)

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

Cash and cash equivalents

2,528

63

4

-

-

(11)

2,584

Short-term investments

3,463

970

2

-

-

-

4,435

Joint ventures loans

115

(16)

-

-

3

-

102

Interest and other receivables

1

(16)

-

16

-

-

1

Bank and other borrowings

(11,812)

(182)

(439)

(5)

-

75

(12,363)

Interest payables

(184)

203

(11)

(250)

-

-

(242)

Finance lease payables

(99)

5

(8)

-

(3)

-

(105)

Net derivative financial instruments

819

(104)

520

3

-

-

1,238

Net derivative interest

59

7

-

(4)

-

-

62

Net debt of the disposal group

-

-

-

-

-

(64)

(64)

Net debt

(5,110)

        930

68

(240)

-

-

(4,352)

 

Net debt excludes the net debt of Tesco Bank but includes that of discontinued operations. Balances and movements in respect of the total Group and Tesco Bank are presented to allow reconciliation between the Group balance sheet and the Group cash flow statement.

 

Reconciliation of net cash flow to movement in net debt

 

27 August

2016

£m

   29 August

2015
£m

Net increase in cash and cash equivalents

280

164

Elimination of Tesco Bank movement in cash and cash equivalents

(217)

64

Retail cash movement in other net debt items

 

 

Net increase/ (decrease) in short-term investments

970

(293)

Net decrease in joint venture loans

(16)

(3)

Net (increase)/ decrease in borrowings and lease financing

(177)

758

Net cash flows from derivative financial instruments

   (104)

(186)

Net interest paid on components of net debt

194

172

Change in net debt resulting from cash flow

930

676

 

 

 

Retail net interest charge on components of net debt

(240)

(221)

Retail fair value and foreign exchange movements

68

31

Debt acquired on business combinations

-

(561)

Retail other non-cash movements

-

(32)

Decrease/ (increase) in net debt for the period

758

(107)

 

 

 

Opening net debt

(5,110)

(8,481)

Closing net debt

(4,352)

(8,588)

 

Note 17 Disposals

On 10 June 2016, the Group announced the proposed sale of its 95.5% controlling interest in its Turkish operations to Migros. The assets and liabilities related to the Turkish operations have been classified as a disposal group held for sale within the period. The sale is subject to local regulatory approvals with completion expected in the financial year. Refer to Note 7 for further information.

 

During the period, the Group sold its interests in Dobbies Garden Centres, Giraffe and Harris + Hoole and closed its Nutricentre business, further enhancing the focus of the UK retail business on its core strengths. The Group received £213m in cash net of costs incurred and cash disposed, of which £198m related to Dobbies, and recognised £1m in deferred consideration. The Group disposed of net assets of £243m and incurred costs to sell of £12m. In addition, the Group disposed of a 6.9% interest (on a fully diluted basis) in Lazada Group S.A. ('Lazada') for net cash consideration of US$115m (£81m), retaining an 8.8% shareholding. The total loss of £4m from these transactions has been included within the Group's underlying results.

 

Note 18 Contingent liabilities

There are a number of contingent liabilities that arise in the normal course of business which if realised are not expected to result in a material liability to the Group. The Group recognises provisions for liabilities when it is more likely than not that a settlement will be required and the value of such a payment can be reliably estimated.

 

On 22 September 2014, the Group announced that it had identified an overstatement of its expected profit for the first half of the year, as contained in guidance it had issued in August 2014, relating to the recognition of commercial income and the deferral of costs. The Serious Fraud Office ('SFO') commenced an investigation into accounting practices at the Group on 29 October 2014.

 

On 9 September 2016, the SFO announced its decision to prosecute three former Group employees for fraud and false accounting, while the Group's position is still under consideration. The timing and outcome of the SFO investigation in relation to the Group remains unclear and there is the possibility of fines and/or other consequences. The Group is co-operating with the SFO.

 

The Group has reached agreements to settle both a class action and an opt out action brought by US investors who dealt through the American Depository Receipts ('ADRs') programme which represented approximately 2.46% of issued share capital. As previously reported, law firms in the UK have announced the intention of forming claimant groups to commence litigation against the Group for matters arising out of or in connection with its overstatement, and purport to have secured third party funding for such litigation. In this regard, the Group has received two letters before action from two law firms. No such litigation has yet been formally commenced and the Group is consequently unable to make any assessment of the likely outcome.

 

Prior to the disposal of its Korean operations ('Homeplus'), Tesco PLC provided guarantees in respect of thirteen Homeplus lease agreements in Korea in the event of termination of the relevant lease agreement by the landlord due to Homeplus's default. Entities controlled by MBK and CPPIB, as the purchasers of Homeplus, undertook to procure Tesco PLC's release from these guarantees following the disposal of Homeplus, which currently remains outstanding. The maximum potential liability as at 27 February 2016 under these guarantees was approximately KRW627bn (£427m).

 

This liability decreases over time with all relevant leases expiring in the period between 2026 and 2033. Tesco PLC has the benefit of an indemnity from the purchasers of Homeplus for any claims made under such guarantees.

 

Note 19 Lease commitments

Operating lease commitments - Group as lessee

Future minimum rentals payable under non-cancellable operating leases are as follows:

 

 

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Within one year

1,266

1,296

1,163

Greater than one year but less than five years

3,890

3,918

4,172

After five years

7,751

7,831

8,669

Total minimum lease payments

12,907 

13,045

14,004

 

Future minimum rentals payable under non-cancellable operating leases after five years are analysed further as follows:

 

 

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Greater than five years but less than ten years

3,310

3,272

3,669

Greater than ten years but less than fifteen years

2,335

2,303

2,586

After fifteen years

2,106

2,256

2,414

Total minimum lease payments - after five years

7,751

7,831

8,669

 

The Group has used operating lease commitments from continuing operations discounted at 7% (27 February 2016: 7%, 29 August 2015: 7%) of £7,771m (27 February 2016: £7,814m, 29 August 2015: £9,091m) in its calculation of total indebtedness. Total operating lease commitments included for Turkey were £27m at 27 February 2016 and £41m at 29 August 2015.

 

Operating lease payments represent rentals payable by the Group for certain of its retail, distribution and office properties and other assets such as motor vehicles.  The leases have varying terms, purchase options, escalation clauses and renewal rights. Purchase options and renewal rights where they occur are at market value. Escalation clauses are in line with market practices and include inflation linked, fixed rates, resets to market rents and hybrids of these.

 

The Group has lease break options on certain sale and leaseback transactions. These options are exercisable if the Group exercises an existing option to buy back, at market value and at a specified date, either the leased assets or the equity of the other joint venture partner. No commitment has been included in respect of the buy-back option as the option is at the Group's discretion. The Group is not obliged to pay lease rentals after that date, therefore minimum lease payments exclude those falling after the buy-back date. The current market value of these properties is £3.0bn (27 February 2016: £3.2bn, 29 August 2015: £4.0bn) and the total lease rentals, if they were to be incurred following the option exercise date, would be £2.5bn (27 February 2016: £2.6bn, 29 August 2015: £3.1bn) using current rent values. These lease break options are between 2016 and 2023.

 

The additional lease rentals if incurred following the option exercise date would be as follows:

 

 

27 August 2016

£m

27 February 2016

£m

29 August 2015

£m

Within one year

36

45

10

Greater than one period but less than five years

82

72

189

Greater than five years but less than ten years

667

686

819

Greater than ten years but less than fifteen years

661

718

810

After fifteen years

1,054

1,115

1,245

Total contingent additional lease rentals

2,500

2,636

3,073

 

Operating lease commitments with joint ventures and associates

Since 1988 the Group has entered into several joint ventures and associates, and sold and leased back properties to and from these joint ventures and associates. The terms of these sale and leasebacks vary. However, common factors include: the sale of the properties to the joint venture or associate at market value; options within the lease for the Group to repurchase the properties at market value; market rent reviews; and 20 to 30 full-year lease terms. The Group reviews the substance as well as the form of the arrangements when determining the classification of leases as operating or finance. All of the leases under these arrangements are operating leases.

 

Independent review report to Tesco PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 27 August 2016 which comprises the Group Income Statement, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group Statement of Changes in Equity, the Group Cash Flow Statement and related Notes 1 to 19. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  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.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. 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 Ireland) 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.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 27 August 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

4 October 2016

 

Glossary

Alternative performance measures
The Directors use alternative performance measures as they believe these measures provide additional useful information on the underlying trends, performance and position of the Group. These measures are used for performance analysis.  The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies' alternative performance measures.  These measures are not intended to be a substitute for, or superior to, IFRS measurements.

 

Diluted earnings per share from continuing operations before exceptional items

Profit after tax before exceptional items attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

Diluted earnings per share from continuing operations before exceptional items and net pension finance costs

Profit after tax before exceptional items and net pension finance costs attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

Exceptional items

Exceptional items relate to certain costs or incomes that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded from the Group's alternative performance measures by virtue of their size and nature in order to better reflect management's view of the performance of the Group.

The Group exercises judgement in assessing whether items should be classified as exceptional. This assessment covers the nature of the item, cause of occurrence and the scale of impact of that item on reported performance. Reversals of previous exceptional items are assessed based on the same criteria.

Free cash flow

Free cash flow is net cash generated from/ (used in) operating activities less capital expenditure on property, plant and equipment, investment property and intangible assets.

Growth in sales

The year on year percentage movement in revenue excl. fuel for continuing operations excluding fuel for 26 weeks at a constant foreign exchange rate.

Like-for-like

Like-for-like is the growth in sales from stores that have been open for at least a year at a constant foreign exchange rate and includes online sales.

 

Net debt

Net debt excludes the net debt of Tesco Bank but includes that of the discontinued operations. Net debt comprises bank and other borrowings, finance lease payables, net derivative financial instruments, joint venture loans and other receivables and net interest receivables/payables, offset by cash and cash equivalents, and short-term investments.

Operating margin

Operating margin is based on operating profit before exceptional items and on revenue.

Operating profit before exceptional items

This is the headline measure of the Group's performance, and is based on operating profit before the impact of exceptional items.

Profit before tax ('PBT') before exceptional items and net pension finance costs 

This measure excludes exceptional items and the net finance costs of the defined benefit pension deficit as the costs are impacted by corporate bond yields, which can fluctuate significantly.

Profit/ (losses) arising on property-related items

These relate to the Group's property activities including gains and losses on disposal of property assets, development property built for resale and property joint ventures; costs resulting from changes in the Group's store portfolio and distribution network, including pre-opening and post-closure costs; and income/ (charges) associated with impairment of non-trading property and related onerous contracts.

Retail cash flow

Cash generated from/ (used in) operations for retail activities.

Revenue excl. fuel

This is the headline measure of revenue for the Group. It excludes the impact of sales, predominantly fuel sales, made at petrol filling stations, due to the volatilities associated with movements in fuel prices.

Total indebtedness

Net debt plus IAS19 deficit in the pension schemes (net of associated deferred tax) plus the present value of future minimum rentals payable under non-cancellable operating leases.

Glossary

 

Other

 

Capital expenditure ('Capex')

The additions to property, plant and equipment, investment property and intangible assets (excluding assets acquired under business combinations).

Capital employed

Net assets plus net debt plus dividend creditor less net assets of the disposal groups and non-current assets classified as held for sale.

Enterprise Value

This is calculated as market capitalisation plus net debt.

FTE

FTE refers to full time equivalents.

LPI

LPI refers to Limited Price Inflation.

Market capitalisation

The total value of all Tesco shares calculated as total number of shares multiplied by closing share price at period-end.

MTN

MTN refers to 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.

Pension deficit, IAS 19 basis (post tax)

This is post-employment benefit obligations net of the related deferred tax.

Return on capital employed ('ROCE')

Return divided by the average of opening and closing capital employed.

Return

Profit before exceptional items and interest, after tax (applied at effective rate of tax).

RPI

RPI refers to Retail Price Index.

Total shareholder return ('TSR')

The notional annualised return from a share, measured as the percentage change in the share price, plus the dividends paid with the gross dividends reinvested in Tesco shares. This is measured over both a one and five-year period.

 

 

 

Investor information

Registrar and shareholding enquiries

If you have any administrative enquiries about your holding of Tesco PLC shares (other than ADRs) please contact:

Equiniti Limited

Aspect House

Spencer Road

Lancing

West Sussex

BN99 6DA

Telephone 0371 384 2977

 

Tesco PLC website

The Directors are responsible for the maintenance and integrity of the financial information on our website. This information has been prepared under relevant accounting standards and legislation. Tesco information, including this press release is available on our website:

www.tescoplc.com.

 

Electronic communications

You can register for Shareview, a free online share information and dealing service operated by Equiniti. Once you have registered you can:

 

·     check your shareholding

·     access shareholder information

·     elect to receive information electronically, getting quick access to these important documents and helping to save the environment by reducing the amount of paper used

·     vote on the resolutions at the Annual General Meeting.

 

To register, log on to www.shareview.co.uk and click on 'register'. Your rights as a shareholder will not be affected in any way. If you have any questions about the service, please call 0371 384 2977.

 

Security reminder

Under the Companies Act 2006 we are obliged to hold the names and addresses of all shareholders on a register of members and give a copy of this list to the Registrar of Companies every year. The Registrar of Companies makes this list available to anyone who requests it and many companies use this information to market their services. We are aware that some of our shareholders have received unsolicited calls or correspondence from companies concerning investment matters. Tesco has no relationship with and does not endorse any of the services offered by these companies. Details of any facilities that we endorse are included in our communications. If you are concerned about any direct mailing or telephone calls purporting to be from Tesco, please contact us by writing to the Company Secretary, Tesco House, Shire Park, Welwyn Garden City, Hertfordshire, AL7 1GA or by calling us on 01992 632222.

 

Customer services

Tesco Customer Services

Freepost SC02298

Dundee

DD1 9NF

Telephone 0800 505555 

 

Investor relations

Investor relations department

Tesco PLC

Tesco House

Shire Park

Welwyn Garden City

Hertfordshire

AL7 1GA

Telephone 01707 912922

 

Secretary and registered office

Mr Robert Welch

Tesco PLC

Tesco House

Shire Park

Welwyn Garden City

Hertfordshire

AL7 1GA

Telephone 01992 632222

 

Financial Calendar

2017

Financial year-end

25 February

Preliminary results announced*

 12 April

* Please note that this date is provisional and subject to change.

 

Appendix 1

Total Sales Performance at Actual Rates (Exc. VAT, Exc. Fuel)

 

 

 

1H

2015/16

2H

2015/16

FY

2015/16

1Q

2016/17

2Q

2016/17

1H

2016/17

UK & ROI

(1.2)%

(0.6)%

(0.9)%

0.7%

1.7%

1.2%

   UK

(0.6)%

(0.3)%

(0.4)%

0.3%

1.0%

0.7%

   ROI

(13.5)%

(5.1)%

(9.3)%

8.7%

15.3%

11.9%

International

(4.3)%

(3.1)%

(3.7)%

5.6%

16.5%

10.9%

   Europe

(8.8)%

(3.6)%

(6.2)%

8.2%

15.1%

11.6%

   Asia

1.5%

(2.5)%

(0.5)%

2.8%

18.2%

10.1%

Tesco Bank

(0.8)%

2.4%

0.8%

3.5%

7.2%

5.3%

Group

(1.9)%

(1.0)%

(1.4)%

1.8%

4.7%

3.3%

 

Appendix 2

Total Sales Performance at Constant Rates (Exc. VAT, Exc. Fuel)

 

 

 

1H

2015/16

2H

2015/16

FY

2015/16

1Q

2016/17

2Q

2016/17

1H

2016/17

UK & ROI

(0.6)%

(0.3)%

(0.5)%

0.3%

1.0%

0.6%

   UK

(0.6)%

(0.3)%

(0.4)%

0.3%

1.0%

0.7%

   ROI

(2.2)%

0.3%

(1.0)%

0.2%

(0.3)%

(0.1)%

International

0.6%

3.1%

1.9%

3.6%

2.8%

3.2%

   Europe

2.4%

2.2%

2.3%

2.4%

1.2%

1.8%

   Asia

(1.7)%

4.3%

1.3%

5.0%

4.8%

4.9%

Tesco Bank

(0.8)%

2.4%

0.8%

3.5%

7.2%

5.3%

Group

(0.4)%

0.4%

0.1%

1.1%

1.5%

1.3%

 

Note

These results have been reported on a continuing operations basis and exclude the results from our operations in Turkey.  Growth rates are all based on comparable days.  For example, for the UK and ROI, these results are for the 26 weeks ending 27 August 2016 and 29 August 2015 respectively.

 

Appendix 3

Country Detail

 

 

Revenue

(Exc. VAT, Inc. Fuel)

 

 

 

Local

Currency

(m)

£m

Average exchange rate

Closing exchange rate

UK

20,465

20,465

1.000

1.000

ROI

1,223

984

1.243

1.171

Czech Republic

20,748

617

33.62

31.66

Hungary

294,389

757

388.8

361.9

Poland

5,388

996

5.409

5.069

Slovakia

690

555

1.243

1.171

Malaysia

2,181

389

5.612

5.293

Thailand

100,615

2,053

49.01

45.53

 

Memo:

Turkey

1,098

270

4.064

3.881

 

Appendix 4

UK Sales Area by Size of Store

 

 

August 2016

August 2015

 

No. of stores

Million

sq ft

% of total sq ft

No. of stores

Million

sq ft

% of total sq ft

0 - 3,000

2,504

5.2

13.0%

2,474

5.1

12.3%

3,001 - 20,000

283

3.4

8.6%

289

3.5

8.4%

20,001 - 40,000

277

8.1

20.4%

283

8.3

20.0%

40,001 - 60,000

181

9.2

23.1%

202

10.1

24.4%

60,001 - 80,000

130

8.7

21.9%

127

8.9

21.4%

80,001 - 100,000

45

4.2

10.6%

50

4.6

11.1%

Over 100,000

9

1.0

2.4%

9

1.0

2.4%

Total1

3,429

39.9

100.0%

3,434

41.4

100.0%

Note

1.  Excludes franchise stores.

 

 

Appendix 5

Actual Group Space - store numbers1

 

 

2015/16 year end

As at 27 Aug 2016

Net gain/

reduction2

Openings

Closures/

disposals

Repurposing/

extensions

      Extra

252

252

-

-

-

1

      Superstore

478

478

-

1

(1)

-

      Metro

177

176

(1)

-

(1)

-

      Express

1,732

1,734

2

8

(6)

-

      Dotcom only

6

6

-

-

-

-

      Total Tesco

2,645

2,646

1

9

(8)

1

      One Stop3

779

783

4

12

(8)

-

      Dobbies

36

-

(36)

-

(36)

-

   UK3

3,460

3,429

(31)

21

(52)

1

   ROI

149

148

(1)

-

(1)

-

UK & ROI3

3,609

3,577

(32)

21

(53)

1

      Czech Republic3

201

200

(1)

-

(1)

1

      Hungary

208

208

-

-

-

-

      Poland

440

437

(3)

-

(3)

-

      Slovakia

161

155

(6)

-

(6)

2

   Europe3

1,010

1,000

(10)

-

(10)

3

      Malaysia

62

65

3

3

-

1

      Thailand

1,815

1,869

54

56

(2)

9

   Asia

1,877

1,934

57

59

(2)

10

International3

2,887

2,934

47

59

(12)

13

Group3

6,496

6,511

15

80

(65)

14

   UK (One Stop)

134

146

12

16

(4)

-

   Czech Republic

103

100

(3)

-

(3)

-

Franchise stores

237

246

9

16

(7)

-

 

Group store numbers above exclude the 168 stores in Turkey as at 27 August 2016.

 

Notes

1.  Continuing operations.

2.  The net gain/reduction reflects the number of store openings less the number of store closures/disposals.

3. Excludes franchise stores.

 

Actual Group Space - '000 sq ft1

 

 

2015/16 year end

As at 27 Aug 2016

Net gain/

reduction

Openings

Closures/

disposals

Repurposing/

extensions

      Extra

17,846

17,841

(5)

-

-

(5)

      Superstore

14,002

14,038

36

59

(23)

-

      Metro

2,005

1,993

(12)

-

(12)

-

      Express

4,031

4,040

9

19

(10)

-

      Dotcom only

716

716

-

-

-

-

      Total Tesco

38,600

38,628

28

78

(45)

(5)

      One Stop2

1,256

1,268

12

23

(11)

-

      Dobbies

1,652

-

(1,652)

-

(1,652)

-

   UK2

41,508

39,896

(1,612)

101

(1,708)

(5)

   ROI

3,560

3,543

(17)

-

(17)

-

UK & ROI2

45,068

43,439

(1,629)

101

(1,725)

(5)

      Czech Republic2

5,558

5,506

(52)

-

(1)

(51)

      Hungary

6,931

6,931

-

-

-

-

      Poland

9,688

9,667

(21)

-

(21)

-

      Slovakia

3,969

3,870

(99)

-

(72)

(27)

   Europe2

26,146

25,974

(172)

-

(94)

(78)

      Malaysia

4,164

4,134

(30)

35

-

(65)

      Thailand

15,536

15,551

15

213

(11)

(187)

   Asia

19,700

19,685

(15)

248

(11)

(252)

International2

45,846

46,659

(187)

248

(105)

(330)

Group2

90,914

89,098

(1,816)

349

(1,830)

(335)

   UK (One Stop)

185

199

14

20

(6)

-

   Czech Republic

96

94

(2)

-

(2)

-

Franchise stores

281

293

12

20

(8)

-

 

Group space numbers above exclude the 3,489k sq ft in Turkey as at 27 August 2016.

 

Notes

1.  Continuing operations.

2. Excludes franchise stores.

Group Space Forecast to 25 February 2017 - '000 sq ft1

 

 

As at 27 Aug 2016

2016/17 year end

Net gain/

reduction

Openings

Closures/

disposals

Repurposing/

extensions

      Extra

17,841

17,740

(101)

-

-

(101)

      Superstore

14,038

14,090

52

52

-

-

      Metro

1,993

1,993

-

-

-

-

      Express

4,040

4,065

25

29

(4)

-

      Dotcom only

716

716

-

-

-

-

      Total Tesco

38,628

38,604

(24)

81

(4)

(101)

      One Stop2

1,268

1,264

(4)

29

(33)

-

   UK2

39,896

39,868

(28)

110

(37)

(101)

   ROI

3,543

3,543

-

-

-

-

UK & ROI2

43,439

43,411

(28)

110

(37)

(101)

      Czech Republic2

5,506

5,480

(26)

-

(26)

-

      Hungary

6,931

6,899

(32)

-

(2)

(30)

      Poland

9,667

9,578

(89)

-

(64)

(25)

      Slovakia

3,870

3,859

(11)

-

(11)

-

   Europe2

25,974

25,816

(158)

-

(103)

(55)

      Malaysia

4,134

3,952

(182)

-

-

(182)

      Thailand

15,551

15,510

(41)

305

-

(346)

   Asia

19,685

19,462

(223)

305

-

(528)

International2

45,659

45,278

(381)

305

(103)

(583)

Group2

89,098

88,689

(409)

415

(140)

(684)

   UK (One Stop)

199

264

65

65

-

-

   Czech Republic

94

94

-

-

-

-

Franchise stores

293

358

65

65

-

-

 

Notes

1.  Continuing operations.

2.   Excludes franchise stores.

 

Appendix 6

Tesco Bank Income Statement

 

 

1H

2016/171

£m

 

1H

2015/161

£m

Revenue

 

 

 

Interest receivable and similar income

301

 

283

Fees and commissions receivable

202

 

195

 

503

 

478

 

 

 

 

Direct Costs

 

 

 

Interest payable

(89)

 

(81)

Fees and commissions payable

(12)

 

(1)

 

(101)

 

(82)

 

 

 

 

Gross profit

402

 

396

 

 

 

 

Other expenses:

 

 

 

   Staff costs

(83)

 

(84)

   Premises and equipment

(37)

 

(40)

   Other administrative expenses

(108)

 

(108)

   Depreciation and amortisation

(44)

 

(43)

   Provisions for bad and doubtful debts

(41)

 

(35)

 

 

 

 

Operating profit before exceptional items

89

 

86

 

 

 

 

   Restructuring and other exceptional items2

(67)

 

-

 

 

 

 

Operating profit

22

 

86

 

 

 

 

Net finance costs: movements on derivatives and hedge accounting

(3)

 

(7)

Net finance costs: interest

(2)

 

(2)

Share of (loss)/profit of joint ventures and associates

5

 

2

 

 

 

 

Profit before tax

22

 

79

 

Notes

1.  These results are for the 6 months ended 31 August 2016 and the previous period comparison is made with the 6 months ended 31 August 2015.

2.  Restructuring and other exceptional items in 2016/17 consist of a £45m increase in customer redress provision and £22m restructuring costs.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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