RNS Number : 9429J
Tesco PLC
10 April 2024
 

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Preliminary Results 2023/24

 

MARKET SHARE GAINS AND RETuRN TO POSITIVE VOLUME GROWTH AS CUSTOMERS SHOP MORE AT TESCO.

 

 

 

 

 

Performance highlights (on a continuing operations basis)1,2

FY 23/24

FY 22/233

Change at actual rates

Change at constant rates

 

Group sales (exc. VAT, exc. fuel)4

£61,477m

£57,216m

7.4%

7.2%


Adjusted operating profit5

£2,829m

£2,509m

12.8%

12.7%


     -     Retail

£2,760m

£2,487m

11.0%

10.9%


     -     Tesco Bank1

£69m

£22m

213.6%

213.6%


Retail free cash flow6

£2,063m

£2,133m

(3.3)%



Net debt6,7

£(9,764)m

£(10,493)m

6.9%



Adjusted diluted EPS5

23.41p

20.53p

14.0%



Dividend per share7

12.10p

10.90p

11.0%



Statutory measures (on a continuing operations basis)1





Revenue (exc. VAT, inc. fuel)

£68,187m

£65,322m

4.4%



Operating profit

£2,821m

£1,410m

100.1%



Profit before tax

£2,289m

£882m

159.5%



Retail cash generated from operating activities

£3,712m

£3,752m

(1.1)%



Diluted EPS

24.53p

8.81p

178.4%



Statutory measures (including discontinued operations)1





Profit for the year (after tax)

£1,192m

£736m

62.0%



Diluted EPS

16.56p

9.85p

68.1%



 

The results of our existing banking operations (credit cards, loans and savings) have been treated as discontinued following our 9 February 2024 announcement of the proposed sale to Barclays.  As such, Tesco Bank results included in continuing operations above refer only to the retained Tesco Bank business, i.e. insurance and money services.  Total Tesco Bank adjusted operating profit including discontinued operations was £148m1.

Ken Murphy, Chief Executive

"This strong performance reflects the hard work of colleagues across the whole Tesco Group, and their commitment to serving our customers.  Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we've made to the value and quality of our products. 

Inflationary pressures have lessened substantially, however we are conscious that things are still difficult for many customers, so we have worked hard to reduce prices and have now been the cheapest full-line grocer for well over a year.  We have continued to invest in helping customers where it matters most, cutting prices on more than 4,000 products and doubling down on our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices.  Customer perception of the quality of our products is growing ahead of the market and we continue to win customers from premium retailers, with sales of Tesco Finest now exceeding £2bn.

We have strong momentum in our business, and are encouraged by signs of improving consumer sentiment.  We're excited about the opportunities ahead, with the right plans to keep winning with customers, as well as a great team to deliver them."

Sales growth across all markets and continued cost savings deliver strong financial performance:

·   Strong sales performance across the Group, with Retail LFL8 sales up 6.8%; inflation fell throughout the year, with volume growth in the UK and Republic of Ireland across the second half

- UK & ROI LFL sales up 7.3%, including UK up 7.7%, ROI up 6.8% and Booker up 5.4%

- Central Europe LFL sales up 0.2% in a challenging trading environment, with our investments in value supporting an improving volume trajectory during the second half 

·   Statutory revenue £68,187m, up 4.4%, includes impact of (17.2)% lower fuel sales, primarily due to reduced retail prices

·   Retail adjusted operating profit5 £2,760m, up 10.9% at constant rates, including Save to Invest delivery of c.£640m

- UK & ROI adjusted operating profit £2,670m, up 15.7%, as a strong trading performance and accelerated cost savings offset significant cost headwinds and our investments in value, quality and service

- Central Europe adjusted operating profit £90m, down (50.0)%, primarily driven by cost inflation headwinds and regulatory actions in Hungary

·   Statutory operating profit1 £2,821m, up 100.1%, reflects last year's £(982)m non-cash impairment charge compared to a £28m net release this year

·   Strong retail free cash flow6 £2,063m, including a positive working capital inflow of £418m

·   Net debt6,7 reduced by £729m due to strong cash flow and Bank special dividend of £250m; net debt/EBITDA ratio at 2.2x

·   Supporting returns to shareholders through ongoing buyback programme; £750m of shares purchased during 23/24

·   Proposed final dividend of 8.25pps, with full year dividend of 12.10pps, up 11.0% year-on-year  

Winning with customers through investments in value, quality and service:

·   Strengthening brand perception in both value and quality; all customer satisfaction measures improving

·   Overall gains in both value and volume share in UK and ROI; UK value +28bps and volume +8bps, with 12 consecutive periods of switching gains; ROI value +73bps and volume +76bps, with 15 consecutive periods of switching gains

·   Latest market share results (to 17 March 2024) strengthened further, with UK value +53bps and volume +26bps

·   Unique customer offer combining Aldi Price Match on >600 lines, Low Everyday Prices on >1,000 lines and c.8,000 exclusive Clubcard Prices deals each week, means we have been the cheapest full-line grocer for 16 consecutive months

·   Investing in product quality and innovation, launching over 1,000 new products and improving c.2,700 existing lines

·   Value for money and quality reflected in 19 consecutive periods of net switching gains from premium retailers

Maintaining disciplined approach to investment whilst investing in high-returning future growth & digital capability:

·   Continued store expansion & improvement, with net increase of 87 stores (UK 74, ROI 4, CE 9) and 389 store refreshes

·   Developing AI technology solutions to drive productivity, competitiveness and value for customers, including new range optimisation tool which automates bespoke product selection based on store location and demographic 

·   Enhanced transport scheduling system and new stock assembly processes driving greater supply chain efficiency

·   Started construction of fresh food distribution centre in Aylesford, Kent, incorporating robotic automation technology

·   Stepped up investment to support Booker growth, including conversion of Fareham Makro into c.120k sq.ft retail hub, unlocking more choice for retail customers and freeing up catering capacity

·   Continuing to selectively invest in high-returning initiatives, with total capital expenditure of £1.3bn in 23/24; expected spend of £1.4bn in 24/25

·   Entered into global grocery retail innovation partnership with Ahold Delhaize, Sobeys, Shoprite and Woolworths, to jointly invest in startups which accelerate growth and sustainability

Balancing the needs of all stakeholders to create long-term, sustainable value:

·   Largest ever increase in colleague pay, in addition to 'Thank You' payment for hourly paid colleagues and new wellbeing benefits, including virtual GP appointments and enhanced family leave

·   Investing in skills and employment with more hours for existing colleagues, the launch of a new retail apprenticeship programme, and plans to create c.2,000 additional UK roles across 70 new stores and our technology and online teams 

·   Continued strong support for our communities with launch of Stronger Starts programme, funding activities and nutrition in 4,000 projects, and significantly increased donations to food banks and charities, now at 4 million meals per month

·   Improving product sourcing and efficiency of supply chain through collaboration with suppliers, contributing an additional £75m to British agriculture; #1 position in Advantage supplier survey for eighth year in a row

·   Healthy products now 63% of sales volume in UK and ROI, well on track to achieve 2025 target of 65%

Planned sale of banking operations and long-term strategic partnership with Barclays announced in February 2024:

·   Sale expected to complete in second half of 2024, generating c.£700m cash (net of transaction costs) made up of c.£600m consideration and c.£100m other net cash; planned sale results in a remeasurement loss of £(628)m (post-tax)

·   Combined with £250m special dividend paid to the Group by Tesco Bank in August 2023, expected to deliver c.£1bn of cash

·   Total Tesco Bank adjusted operating profit for the year of £148m, in line with guidance; including £69m from retained business (insurance and money services), presented within continuing operations

·   Banking operations classified as discontinued, with £79m adjusted operating profit excluded from headline performance

·   On an annualised basis, we expect the retained Tesco Bank business to generate £80m to £100m adjusted operating profit, including income from partnership with Barclays, enabling us to offer Tesco-branded financial products and services

CAPITAL RETURN PROGRAMME.

Since launching our capital return programme in October 2021, we have now purchased £1.8bn worth of shares, including £750m in the twelve months to April 2024.  We continue to see the buyback programme as an ongoing and critical driver of shareholder returns and we are pleased to announce that we will buy back £1.0bn worth of shares over the next twelve months, including £250m funded by the special dividend paid by Tesco Bank in August 2023.  A further update on our plans for the return of the proceeds generated from the sale of our banking operations will be provided following completion.

OUTLOOK.

The investments we've made to date have strengthened our offer to customers, made us more efficient, and more digitally capable, establishing a strong foundation for future growth.  We are building a consistent track record of delivery against the performance framework we set out in October 2021.

For the 2024/25 financial year, we expect retail adjusted operating profit of at least £2.8bn.  In addition, we expect total adjusted operating profit from the retained Tesco Bank business of around £80m, which includes a part-year amount of partnership income, based on the completion of the transaction towards the end of this calendar year.  We expect to generate retail free cash flow within our guidance range of £1.4bn to £1.8bn.

STRATEGIC PRIORITIES.

Our strategic priorities ensure that we focus on offering great value, quality and convenience whilst also rewarding loyalty.  Through our colleagues, our reach and our supplier relationships we are well-placed to serve our customers whenever, wherever and however they need us.  Our strategy guides us to drive top-line growth, grow profit and generate cash and in doing so, deliver for all our stakeholders.

1) Magnetic Value for Customers - Re-defining value to become the customer's favourite

·   Led the way on passing savings on to customers; prices cut on over 4,000 products by an average of c.12% over the year

·   Clubcard Prices on around 8,000 products each week, saving customers up to £360 off the annual cost of their groceries

·   Continual process of quality innovation and improvement, with 1,047 new lines introduced during the year, including our new Finest Summer, 'Slow Cooked' and Christmas party food ranges and meat-free Plant Chef ready meals

·   Finest sales now >£2bn, up 15.7% during the year, with volumes up 9.0% and more than 23m customers buying into our Finest brand, including one in four customer baskets containing a Finest product over Christmas 

·   Increases in all customer perception scores, including satisfaction (+101bps), quality (+96bps) and value (+88bps)

·   Further strengthening our non-food offering with the introduction of Paperchase and The Entertainer brands, adding premium stationery and an even more compelling toys range to our stores, respectively 

·   Quality of Booker offer reflected in winning 2023 Quality Awards Foodservice Operator of the year

·   Largest ever Booker Catering price lock on over 700 products throughout the Christmas period, with a further 600 products locked through to May 2024

2) I Love my Tesco Clubcard - Creating a competitive advantage through our powerful digital capability

·   Expanding Clubcard reach: now over 22m Clubcard households in UK, +6.2% YoY; Tesco app users increased to 16.3m across the Group: UK 12.7m, ROI 1.0m, Central Europe 2.6m

·   Clubcard sales penetration up in all markets, now at: UK 82%, ROI 85%, Central Europe 87%, Mobile 88% and Bank 66%

·   Double Clubcard points event for first time in a decade, >10bn Clubcard points issued during January & February event

·   Growing personalisation: issuing 289m personalised coupons to 7.6m customers during the year; 'Clubcard Unpacked' shopper insight reached over 17m customers, up from 9m last year

·   Growing reach of digital media with significant increase in number of connected screens; c.2,000 now installed

·   Leveraging Clubcard insights and dunnhumby expertise to create sophisticated digital platform; more than 17,000 campaigns delivered in the year, with newly created team focused on growing our retail media contribution

3) Easily the Most Convenient - Serving customers wherever, whenever and however they want to be served

·   Opened 113 stores across the Group (seven new superstores, 60 Express stores & 27 One Stop stores in UK, one superstore and four Express stores in ROI, and 14 new stores in Central Europe)

·   UK online market share strong at c.34%; further strengthened availability to 98.1% with 'perfect orders' up 20ppts YoY

·   Whoosh now available in 1,424 stores; available to 66% of population; with 74% of deliveries within 30 minutes and larger baskets now available in over 1,000 stores

·   Opened a further three Urban Fulfilment Centres in Gallions Reach, King's Lynn and Coventry; now at nine UFCs in total

·   Almost doubled number of electric home delivery vans to 571, now at 11% of fleet; target to be fully electric in UK by 2030

·   Working with 354 net new Booker retail partners; converted existing Fareham site into c.120k sq.ft retail hub, unlocking more choice for retail customers and freeing up catering capacity

·   Tesco Mobile ranked highest mobile brand in the UK Customer Satisfaction index - also won overall network of the year and best network for customer service at the 2024 Uswitch Telecoms Awards

4) Save to Invest - Significant opportunities to simplify, become more productive and reduce costs

·   Exceeded savings target, with c.£640m of savings in 23/24 and £1.2bn total cumulative savings over past two years

·   Strong delivery across all areas: goods and services not for resale, property, operations and central overheads

·   Completed space realignment and optimisation of management structures in large stores

·   End-to-end review of promotional replenishment to strengthen availability and deliver efficiency gains

·   Further energy consumption initiatives delivered in the year, including upgraded LED lighting

·   Strong plan to deliver a further £500m of efficiency savings in 24/25

COMMUNITIES.

During the year, we launched Stronger Starts, our £5m grant programme, which has so far supported around 4,000 projects for children and young people, providing support around health, nutrition and physical activity.

We have worked with our redistribution partners to significantly increase the amount of surplus food we donate to charities and local communities in the UK, donating over four million meals per month, bringing our total to date to over 200 million meals.  In ROI, we celebrated ten years of the Surplus Redistribution Programme, with 20 million meals donated to date, whilst Booker have joined Tesco in being awarded the FareShare Food Partner Logo in recognition of their consistent food donation work. 

We've made strong progress on health in the year, with healthy products now accounting for 63% of sales volume in the UK and ROI, well on track towards achieving our target of 65% by 2025.  We remain committed to making healthy options more accessible and affordable for all our customers, and we expanded our Better Baskets campaign in the year, with dedicated zones now in seven different aisles in our large stores. 

PLANET.

We continue to take action on climate change and this year we became one of the first companies globally to set validated science-based targets on all greenhouse gas emissions across our full Group value chain, including those originating from forests, land and agriculture (FLAG). The Science Based Targets Initiative (SBTi) validated our stretching commitments, as we work towards our objective of net zero across our entire value chain by 2050, aligned to a 1.5-degree pathway.  We have made significant progress in the year in reducing emissions in our own operations (Scope 1 and 2), delivering a 61% reduction against our baseline, exceeding our 2025 target of 60%.  Our actions included rolling out 278 more electric delivery vans in the UK, moving to lower emissions refrigerant gases in our chilled distribution network, and installing heat pumps which are now in most of our UK Express stores and a small number of stores across ROI and Central Europe.

We already use 100% renewable electricity across the Group and plan to roll-out solar panels on 100 of our stores across the UK over the next three years.  We generate renewable energy as part of our partnership with EDF Renewables and a number of other partners, through offsite power purchase arrangements.  These partnerships are expected to generate around a third of our UK electricity demand within the next 18 months.  We are also supporting our agricultural suppliers' transition to low-carbon fertilisers, with our second year of trials underway and covering ten times the area of the first year; and engaging our suppliers to better support our net zero commitment, with over 70% (by cost of goods sold) now having publicly set a net zero ambition. 

GROUP REVIEW OF PERFORMANCE.

On a continuing operations basis1

As set out on page 1 of this release, the results of our existing banking operations have been treated as discontinued following the announcement of our proposed sale to Barclays.  As such, Tesco Bank results included in the table below and within the segmental review of performance, refer only to the retained Tesco Bank business, i.e. insurance and money services, unless otherwise stated.

52 weeks ended 24 February 20242,7

 

FY 23/24

FY 22/233

Change at

actual rates

Change at constant rates

 

Sales (exc. VAT, exc. fuel)4

£61,477m

£57,216m

7.4%

7.2%

 

Fuel

£6,710m

£8,106m

(17.2)%

(17.2)%


Revenue (exc. VAT, inc. fuel)

£68,187m

£65,322m

4.4%

4.2%

 



 

 

 


Adjusted operating profit5

£2,829m

£2,509m

12.8%

12.7%

 

Adjusting items

£(8)m

£(1,099)m


 

 

Statutory operating profit

£2,821m

£1,410m

100.1%

 

 

 

 

 

 

 

 

Net finance costs

£(538)m

£(536)m




Joint ventures and associates

£6m

£8m




Statutory profit before tax

£2,289m

£882m

159.5%

 

 

Group tax

£(525)m

£(224)m

 



Statutory profit after tax

£1,764m

£658m

168.1%

 

 



 

 



Adjusted diluted EPS5

23.41p

20.53p

14.0%



Statutory diluted EPS

24.53p

8.81p

178.4%



Dividend per share7

12.10p

10.90p

11.0%

 

 

Net debt6,7

£(9,764)m

£(10,493)m

6.9%

 

 

Retail free cash flow6

£2,063m

£2,133m

(3.3)%

 

 

Capex9

£1,314m

£1,235m

6.4%

 

 

 

 

 

 

 

 

 

Group sales4 increased by 7.2% at constant rates, with growth across all segments.  The impact of inflation was evident across all markets, although reduced gradually across the year as many global commodity prices fell and we passed savings on to customers by cutting prices across everyday grocery lines.  Customer demand was resilient and volume performance improved across the year, supported by our ongoing investments in value, quality, and service.  Revenue increased by 4.2% at constant rates, including a (17.2)% decline in fuel sales, primarily driven by lower retail prices year-on-year.

Group adjusted operating profit5 increased by 12.7% at constant rates, including a further c.£640m contribution from Save to Invest in the year.  We effectively managed significant cost headwinds, whilst our ongoing investments in the customer offer drove stronger than expected volumes.

Group statutory operating profit improved by 100.1% year-on-year, primarily due to a £(982)m non-cash net impairment charge in the prior year.  The non-cash net impairment release of £28m in the current year reflects an improvement in UK & ROI performance, partially offset by lower property market values.

Net finance costs were broadly flat year-on-year, with stable net interest costs and a £(98)m increase in net pensions finance costs, being largely offset by a £91m movement in fair value remeasurements of financial instruments.

The higher tax charge this year was driven mainly by an increase in UK corporation tax rates effective from April 2023, the impact of higher retail operating profits and a lower tax credit on adjusting items, driven by last year's net impairment charge.  

Adjusted diluted EPS5 increased by 14.0%, due to higher retail adjusted operating profits and the ongoing benefit from our share buyback programme.  We have announced a full year dividend of 12.10 pence per ordinary share, up 11.0% year-on-year.

We generated £2,063m of retail free cash flow6, including a net £418m working capital inflow.  Net debt6,7 reduced by £729m to £9.8bn, driven by this strong retail free cash flow and the £250m special dividend from Tesco Bank.  This was partially offset by cash returned to shareholders via our ongoing share buyback programme and dividend payments made in the year.  The net debt/EBITDA ratio was 2.2 times, compared to 2.6 times last year, driven by strong cash generation and higher retail EBITDA.

Further commentary on these metrics can be found below and a full income statement can be found on page 15.

Notes:

1.         Following the announcement in February 2024 that we have reached an agreement to sell our Banking operations, the performance of these banking operations has been presented as a discontinued operation with comparatives also restated.  Discontinued operations are excluded from our headline performance metrics.  The assets and liabilities related to the discontinued operations have been classified as held for sale.  Retained business (money services and insurance) has been presented on a continuing operations basis and therefore within headline performance measures.  Further details on discontinued operations can be found in Note 6, starting on page 30, and please refer to Note 2 for the segmental results of the Bank.

2.         The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 50.          

3.         Comparatives have been restated for the adoption of IFRS 17 'Insurance contracts' and to present Banking operations as a discontinued operation.  Refer to Notes 1, 6 and 22 for further details.

4.         Group sales exclude VAT and fuel.  Sales change shown on a comparable days basis for Central Europe.

5.         Adjusted operating profit and adjusted diluted EPS exclude adjusting items.

6.         Net debt and Retail free cash flow exclude Tesco Bank. 

7.         All measures apart from Net debt and Dividend per share are shown on a continuing operations basis unless otherwise stated.  Further information on Net debt can be found in Note 21, starting on page 45.

8.         Like-for-like (LFL) is a measure of growth in Group sales from stores that have been open for at least a year and online sales (at constant exchange rates, excluding VAT and fuel).

9.         Capex excludes additions arising from business combinations, property buybacks (typically stores) and other store purchases.  Refer to page 54 for further details.

 

Segmental review of performance:

Sales performance:

(exc. VAT, exc. fuel)3,4,7

On a continuing operations basis1

Sales

(£m)

LFL sales change8

Total sales change at actual rates3

Total sales change at constant rates3

 





     -  UK

44,371

7.7%

8.1%

8.1%

     -  ROI

2,891

6.8%

9.3%

8.5%

     -  Booker

9,082

5.4%

4.6%

4.6%

  UK & ROI

56,344

7.3%

7.6%

7.6%

  Central Europe

4,322

0.2%

3.1%

0.6%

Retail

60,666

6.8%

7.3%

7.0%

  Tesco Bank

811


21.7%

21.7%

Group sales

61,477

 

7.4%

7.2%

  Fuel

6,710

(17.3)%

(17.2)%

(17.2)%

Group revenue

68,187

 

4.4%

4.2%

 

Further information on sales performance is included in the supplementary information starting on page 57.

Adjusted operating profit3,5,7 performance:

 

Profit
(£m)

 


 

 

On a continuing operations basis1

Change at actual rates

Change at constant rates

Margin % at actual rates

Margin % change at actual rates

 

  UK & ROI

2,670

15.7%

15.7%

4.2%

42 bps


  Central Europe

90

(50.0)%

(50.0)%

2.0%

(208) bps


Retail

2,760

11.0%

10.9%

4.1%

25 bps

 

  Tesco Bank

69

213.6%

213.6%

8.5%

520 bps


Group

2,829

12.8%

12.7%

4.1%

31 bps

 

 

Further information on operating profit performance is included in Note 2 starting on page 22.

UK & ROI OVERVIEW:

In the UK, Republic of Ireland (ROI) and Booker, like-for-like sales increased by 7.3%.  Inflation fell gradually across the year as we worked hard to cut prices across everyday grocery lines in response to falling global commodity prices.  Volumes were stronger than anticipated across the year and returned to growth in the second half.     

UK & ROI adjusted operating profit was £2,670m, up 15.7% at constant rates, reflecting the accelerated delivery of our Save to Invest programme, effective management of inflationary cost pressures, resilient volumes, and a strong contribution from Booker.

Adjusted operating margin was 4.2%, 42bps higher year-on-year, reflecting the cumulative effect of our Save to Invest programme.  Our current year operating margin is now similar to pre-pandemic levels.

Further information on each of the UK & ROI businesses follows below.

UK - Executing strongly across all areas of the shopping trip, leading to market share gains:

Like-for-like sales grew by 7.7%, driven by a strong performance across all formats and channels.  Sales inflation fell across the year, whilst volumes improved as customers responded well to our efforts to cut prices ahead of the market, our investments in service and market-leading availability.  

Overall market share grew by +28bps year-on-year to 27.6%, with a particularly strong performance in our large stores.  We delivered eight consecutive four-week periods of market share gains and in the latest period (to 17 March 2024), we grew volumes ahead of the market.  We have now delivered 12 consecutive four-week periods of switching gains, including continued gains from the premium retailers, supported by ongoing investments in quality.  Our Finest range performed well, with volumes up 9.0% and record sales over Christmas.

Food sales grew by 9.3%, with volume growth in the second half supported by market-leading availability, our continued investment in price and our focus on great quality across the range.  We launched 1,047 new products and reformulated and improved a further c.2,700, including re-launches across our 'food for tonight' customer mission, such as our new Tex Mex Feast range, meat-free Plant Chef ready meals and Finest 'Dinner for Two' offer, in addition to category relaunches across chocolate, fish and pasta.  Overall brand perception increased by 133bps at the end of the year, driven by a significant step up across all drivers, including satisfaction (+101bps), quality (+96bps) and value (+88bps). 

We have been the cheapest of the full-line grocers since November 2022 and our price position strengthened again this year, including a further improvement against the limited-range discounters.  Over 4,000 products were cheaper at the end of the year than at the start, with an average reduction of around 12%. 

Clubcard Prices continue to offer customers exclusive access to around 8,000 great value promotions each week.  We also ran the first double Clubcard points event in over a decade, with more than 10 billion Clubcard points issued across January and February.  Clubcard sales penetration grew by a further 3ppts in the year to 82% The number of customers engaging with the Tesco app reached 12.7 million by the end of the year and has increased by over 40% since we completed the roll-out of Clubcard Prices in March 2022. 

Home and Clothing sales, which now account for around 7% of total UK sales, declined by (3.4)% for the full year, reflecting the impact of strategic ranging decisions, including exiting low returning categories such as large electricals. Excluding these impacts, sales were broadly flat.  Our clothing sales grew faster than the broader store-based clothing market, with Womenswear a particular highlight, growing 3.7%.  We launched the Paperchase brand in 120 stores in time for Christmas, offering more customers access to a range of premium stationery and cards which reflects the heritage of the brand.  In January, we announced a new partnership with The Entertainer and we will roll-out a leading range of toy brands to around 750 UK stores across the coming year. 

Sales grew across both large and convenience store formats, by 8.2% and 4.5% respectively.  In our large stores, we invested across key seasonal events, including increasing the number of colleagues on the shop floor, delivering market-leading availability, leading to an improvement across our customer metrics, including price satisfaction and service.  Convenience sales were impacted by trading over exceptionally hot weather in the first half and by some customers switching a greater level of spend to our large stores.  Our city-centre stores continue to perform well, growing by 6.0%. 

Online sales grew by 10.4%, including a c.2ppts contribution from the roll-out of Tesco Whoosh.  Overall online average orders per week were up 5.3% year-on-year to 1.2 million and we further improved the proportion of 'perfect orders', meaning more customers received their order on time and at full availability.  Customer satisfaction scores improved as a result, with availability up 21ppts and price satisfaction up 9ppts year-on-year.  Online sales participation remains stable at c.13% of total UK sales.       

Tesco Whoosh, our rapid delivery service, is now available in 1,424 stores, adding a further 424 in the year.  The number of active Tesco Whoosh customers more than doubled year-on-year as we expanded the offer to 66% of the population.  Customers can access a range of 2,900 products on average, with some of our larger stores offering an even broader range.  Customer satisfaction scores continue to improve, including a particularly strong step forward in availability, with 74% of orders delivered within 30 minutes.

We opened three further Urban Fulfilment Centres (UFC) in the year, in Gallions Reach and King's Lynn in the first half, followed by Coventry in September, adding a total of one million order capacity per year. 

Online performance

 

FY 23/24

YoY change

Sales inc. VAT

£6.2bn

10.4%

Orders per week

 

1.20m

5.3%

Basket size

 

£99

4.2%

Online % of UK total sales

 

13.1%

0.3ppts

ROI - Volume growth driving strong market share gains:

We have now gained market share in ROI for 24 consecutive four-week periods, taking our share to 23.6% at the end of the year, up 73bps year-on-year. 

Like-for like sales grew by 6.8% for the full year, including three consecutive quarters of volume growth.  Total sales grew by 8.5% at constant rates, including a 1.7ppts contribution from new stores, driven by the full-year impact of the nine Joyce's stores we acquired in 2022, the opening of a new superstore in Adamstown and four new Tesco Express stores. 

Food sales grew by 9.1%, including volume growth in fresh food supported by an extensive refresh in 22 stores, with new and improved produce and bakery areas and innovations in coffee, hot food and food-on-the-go offers.  The investments we are making in the overall quality of our products was recognised when we won 45 awards at the 'Blas na hÉireann' ('Taste of Ireland') awards in October, with strong coverage across our range.   

We lowered the price of over 800 essential products by an average of c.12%, through our 'Price Cuts' campaign, leading to a gradual decline in inflation across the year.  Clubcard sales penetration stepped up by a further 8ppts year-on-year to 85%, supported by exclusive Clubcard Prices deals, including market-leading offers over Christmas.

The reallocation of space towards food through our store refresh programme impacted Home and Clothing sales, which declined by (3.9)%. 

BOOKER - Strong growth across core catering and retail; building profitable growth capacity:


Sales

£m

LFL

Retail (excluding tobacco)

3,205

11.0%

Tobacco

1,858

(4.3)%

Catering*

2,501

10.2%

Best Food Logistics

1,518

(0.1)%

Total Booker

9,082

5.4%

*  Includes small businesses sales

Booker delivered overall like-for-like sales growth of 5.4%, with further growth across the two key business streams of catering and retail.  

Retail sales (excluding tobacco) grew by 11.0%, supported by a further 211 net new retail partners in the second half and record levels of availability.  Our entry level ranges, Euroshopper and Jack's, performed particularly strongly, with sales up 16% year-on-year as we expanded the number of lines within these ranges in response to customer demand.  Customer satisfaction improved across the year due to our focus on availability and value.  Tobacco sales declined by (4.3)% overall, reflecting an ongoing market volume contraction.

Catering sales increased by 10.2%, with particularly strong growth in our own label 'Chef's Essential' and 'Chef's Larder' ranges.  We launched our largest ever Price Lock, on over 700 products throughout the festive period, and our 'On-Trade' club now offers almost 9,000 licensed customers access to discounted prices on some of our most popular products, including snacks, drinks and food.  We also have 45,000 customers signed up to our 'Fast Food' club, which provides them with access to exclusive deals and discounts.  Our investments in quality were recognised when we were awarded 2023 Quality Awards Foodservice Operator of the year. 

Best Food Logistics sales declined by (0.1)%, which includes a sales decline of (5.4)% in the second half, driven by our actions to exit unprofitable contracts.

In November, we repurposed a former Makro freehold store in Fareham, converting the site to a c.120k sq.ft. distribution centre which further centralises fulfilment to our retail customers, offering them a broader range, whilst creating capacity in our branches to grow our catering business.  We have plans in place to further enhance our capacity in the current year. 

CENTRAL EUROPE - Challenging backdrop across markets; encouraging volume response to value investments:

Like-for-like sales grew by 0.2%, reflecting a challenging trading environment due to ongoing inflationary pressures.  Inflation fell sharply across the second half, whilst the volume trajectory improved and we delivered volume growth over the key Christmas trading period, driven by a strong customer response to our value investments, which included a 'Low Price Guarantee' on over 500 lines.

Food sales grew by 1.1%, with growth across both fresh and packaged categories, including volume growth across the fourth quarter.  Non-food sales declined by (4.8)%, mainly driven by a reduction in discretionary spending across the markets.  We launched a new 'Basics' range in Clothing and Home, offering customers great value and quality at a competitive, entry price point.  We recently expanded this range to all of our largest stores in the region.  Clubcard penetration is now at 87%, which is 2ppts higher than last year.

Central Europe adjusted operating profit was £90m, a decrease of (50.0)% year-on-year at constant rates, primarily driven by external factors facing our business in Hungary and a challenging trading environment across the region, which was partially offset by a strong Save to Invest delivery.  In Hungary, local regulatory actions, such as incremental retail taxes, price caps and mandatory promotions on everyday grocery products remained in place and limited our ability to recover the impact of higher operating costs. 

 

TESCO BANK:

Our existing banking operations (credit cards, loans and savings), which are due to be sold to Barclays Bank UK plc, have been treated as discontinued operations within these results.  Our headline performance measures therefore only include those business lines which are treated as continuing operations, i.e. insurance, ATMs, travel money and gift cards. 

Full detail on the accounting impacts of the announced sale can be found within Note 6, starting on page 30.  The key impacts are to present banking operations (credit cards, loans and savings) as discontinued, remeasuring assets and liabilities as held for sale on the balance sheet to £7.7bn and £7.1bn, respectively.  In doing so, we have recognised a post-tax loss of £(628)m, which includes a £(211)m write-down of goodwill allocated to the banking operations and contributes to an overall loss for the year from discontinued operations of £(572)m after tax. 

Subject to usual regulatory approvals, the sale will generate c.£600m of proceeds on completion, and a further c.£100m of cash after the settlement of certain regulatory capital amounts and transaction costs.  When combined with this year's £250m special dividend paid by Tesco Bank, the Group will have generated a total of c.£1bn of cash, the majority of which will be returned to shareholders by means of incremental share buybacks.

The breakdown of our overall performance between continuing and discontinued operations is shown in the table below.     

 

FY 23/24

FY 22/233

YoY change

Revenue

£1,521m

£1,234m

 23.1%

     Continuing operations

£811m

£666m

21.7%

     Discontinued operations

£710m

£568m

 24.9%

Adjusted operating profit

£148m

£135m

9.6%

     Continuing operations*

£69m

£22m

213.6%

     Discontinued operations

£79m

£113m

(30.1)%

 

*  Includes net investment income associated with banking operations which will cease on completion of the proposed sale to Barclays (FY 23/24: £12m, FY 22/23: £(6)m)

Continuing operations revenue grew by 21.7%, primarily driven by strong growth in insurance due to high levels of renewals and new business volumes.

The growth in adjusted operating profit on a continuing operations basis was driven by a strong performance in insurance, gift cards and travel money, in addition to £15m benefit resulting from the up-front recognition of a one-year extension of our pet insurance agreement and £12m of net investment income which will cease following completion of the proposed sale to Barclays.  Adjusted operating profit from discontinued operations includes a £(28)m charge relating to customer redress provisions.

We expect the transaction to complete in the second half of this calendar year.  Post-completion, the revenue and adjusted operating profit contribution from the retained business will be included within retail adjusted operating profit.  For the 24/25 financial year, we expect a contribution from the retained business of around £80m, which includes a part-year amount of strategic partnership income, based on the expected completion timeline.  On an on-going basis, we expect an adjusted operating profit contribution of between £80m to £100m per year.

Adjusting items:


FY 23/24

 £m

FY 22/23

 £m

Net impairment release / (charge) on non-current assets

28

(982)

Save to Invest restructuring provisions

(50)

(132)

Property transactions

75

91

Amortisation of acquired intangible assets

(74)

(76)

Other*

13

-

Total adjusting items in statutory operating profit (continuing operations)

(8)

(1,099)

Net finance income

20

27

Tax

68

195

Total adjusting items (continuing operations)

80

(877)

Adjusting items (discontinued operations)

(628)

(13)

Total adjusting items

(548)

(890)

* Other includes the disposal of Booker's Ritter-Courivaud Limited subsidiary, see page 27 for further detail.

Adjusting items are excluded from our adjusted operating profit performance by virtue of their size and nature to provide a helpful perspective of the year-on-year performance of the Group's ongoing business.  Total adjusting items in statutory operating profit from continuing operations resulted in a net charge of £(8)m, compared to a £(1,099)m net charge in the prior year.  

In the current year, there was a non-cash net impairment release on non-current assets of £28m, primarily reflecting an improvement in UK & ROI performance, partially offset by a reduction in property fair values due to market factors, and a challenging performance in Central Europe.  This compares to a £(982)m non-cash net impairment charge in the prior year as a consequence of higher discount rates, which have remained broadly stable in the current year.

We recognised an adjusting credit of £75m related to property transactions, including £30m generated on exiting a leasehold site in Gateshead and a further £12m from the remeasurement of assets held for sale.  In the prior year, we recognised an adjusting credit of £91m related to the disposal of the Middlewich distribution centre in the UK, and 17 mall properties and one retail park in Central Europe.

Amortisation of acquired intangible assets is excluded from our headline performance measures.  We incurred a charge of £(74)m in the year, which primarily relates to the intangible assets that were recognised as a result of our merger with Booker in March 2018.

In the current year, we recognised a £(50)m restructuring provision related to our ongoing Save to Invest programme.  In the prior year, we recognised a provision of £(132)m which included changes made to our store management structures and the closure of our remaining UK counters.

Further detail on adjusting items can be found in Note 3, starting on page 27 and on discontinued operations in Note 6, starting on page 30.

Net finance costs:

On a continuing operations basis

FY 23/24 £m

FY 22/233

£m

Net interest costs

(179)

(189)

Net finance expenses from insurance contracts

(6)

(3)

Finance charges payable on lease liabilities

(373)

(371)

Net finance costs before adjusting items

(558)

(563)

Fair value remeasurements of financial instruments

38

(53)

Net pension finance income / (costs)

(18)

80

Net finance costs

(538)

(536)

 

Net finance costs of £(538)m were broadly flat year-on-year.  Within adjusting items, fair value remeasurements of financial instruments led to a credit of £38m compared to a £(53)m charge in the prior year, largely driven by non-cash mark-to-market gains on index-linked swaps and other derivatives.  This was partially offset by net pension finance costs this year of £(18)m, compared to an income of £80m in the prior year, which reflects the IAS 19 pension deficit at the start of 2023/24, compared to an opening surplus in 2022/23. 

Further detail on finance income and costs can be found in Note 4 on page 28, as well as further detail on the adjusting items in Note 3, starting on page 27.

Group tax:

On a continuing operations basis

FY 23/24 £m

FY 22/233

£m

Tax on adjusted profit

(593)

(419)

Tax on adjusting items

68

195

Tax on profit

(525)

(224)

 

Tax on adjusted Group profit was £(593)m, £(174)m higher than last year, primarily reflecting an increase in the UK corporation tax rate from 19% to 25%, effective from 1  April 2023, as well as stronger retail adjusted operating profit year-on-year. 

The £68m credit in tax on adjusting items primarily relates to tax relief on impairment charges on qualifying assets, as well as a settlement related to our exit from the Gain Land associate in China in 2020.  In the prior year, the £195m adjusting credit was driven by tax relief relating to the non-cash impairment charge of £(982)m.

The effective tax rate on adjusted Group profit was 26.0%, higher than the current UK statutory rate, primarily due to the depreciation of assets which do not qualify for tax relief.  We expect our 2024/25 effective tax rate to be around 27%, reflecting the full-year impact of the increase in the UK statutory rate mentioned above.

Earnings per share:

On a continuing operations basis

FY 23/24

FY 22/233

YoY change

Adjusted diluted EPS

23.41p

20.53p

14.0%

Statutory diluted EPS

24.53p

8.81p

178.4%

Statutory basic EPS

24.80p

8.89p

179.0%

On a total basis, including discontinued operations




Statutory diluted EPS

16.56p

9.85p

68.1%

Statutory basic EPS

16.74p

9.94p

68.4%

 

Adjusted diluted EPS was 23.41p, 14.0% higher year-on-year, due to an increase in retail operating profit and the benefit from our ongoing share buyback programme, partially offset by a higher tax charge.

Statutory diluted EPS was 24.53p, 178.4% higher year-on-year, due to a significant reduction in adjusting items driven by the £(982)m non-cash net impairment charge in the prior year.  

On a total basis, including discontinued operations, statutory diluted EPS was 16.56p, 68.1% higher year-on-year.  The adjusted diluted EPS growth described above and the effect of last year's net impairment charge were partially offset by the remeasurement loss related to the planned sale of our banking operations, which was recognised in the year.

Dividend:

We propose to pay a final dividend of 8.25 pence per ordinary share, taking the full year dividend to 12.10 pence per ordinary share.  The full year dividend is based on our 50% pay-out policy, applied to total Group earnings per share in the year, including the discontinued operations of Tesco Bank as it was under Group ownership for the entire financial year.  This includes the payment of an interim dividend of 3.85 pence per ordinary share in November 2023. 

The proposed final dividend was approved by the Board of Directors on 9 April 2024 and is subject to the approval of shareholders at this year's Annual General Meeting.  The final dividend will be paid on 28 June 2024 to shareholders who are on the register of members at close of business on 17 May 2024 (the Record Date).  Shareholders may elect to reinvest their dividend in the Dividend Reinvestment Plan (DRIP).  The last date for receipt of DRIP elections and revocations will be 7 June 2024.

Summary of total indebtedness (excludes Tesco Bank):

 

Feb-24

£m

Feb-23

£m

Movement

£m

Net debt before lease liabilities

(2,144)

(2,775)

631

Lease liabilities

(7,620)

(7,718)

98

Net debt

(9,764)

(10,493)

729

Pension deficit, IAS 19 basis (post-tax)

(493)

(300)

(193)

Total indebtedness

(10,257)

(10,793)

536

 

 

 

 

Net debt / EBITDA

2.2x

2.6x

 

Total indebtedness ratio

2.4x

2.7x

 

 

Net debt was £(9,764)m, a reduction of £729m year-on-year, predominantly driven by strong retail free cash flow generation of £2,063m and the receipt of a £250m special dividend from Tesco Bank, which more than offset a total of £(1.5)bn of shareholder returns, including the £(750)m share buyback and dividend payments of £(778)m.  Lease liabilities reduced by £98m year-on-year, driven by the overall reducing nature of our lease liability, partially offset by the impact of rent reviews and new stores.

Total indebtedness was £(10,257)m, a reduction of £536m year-on-year, which was primarily driven by the £729m reduction in net debt explained above, partially offset by a £(193)m increase in the IAS 19 pension deficit.  The IAS 19 pension deficit does not determine the extent of pension contributions and reflects movements in discount rate assumptions mandated by the accounting standard, which can be volatile.  The trustees of each pension scheme, including the main Tesco Pension Scheme are required to calculate the net surplus/deficit on the basis of Technical Provisions issued by the Pensions Regulator.  On this basis, the main UK scheme continues to be in surplus.  The next triennial valuation for this scheme, on a Technical Provisions basis, is scheduled in March 2025.

We had strong levels of liquidity at the year-end, including £3.2 billion of cash and highly liquid short-term deposits and money market investments.  In addition, our £2.5 billion committed revolving credit facility remained undrawn throughout the year.

Our Net debt to EBITDA ratio was 2.2 times at the end of the year, down from 2.6 times in the prior year.  The year-on-year reduction was driven by an increase in Retail EBITDA and a decrease in net debt which includes a £250m benefit from the special dividend paid by Tesco Bank in the first half.  The total indebtedness ratio was 2.4 times compared to 2.7 times last year-end.  

Fixed charge cover was 3.7 times at the end of the year, an improvement year-on-year, primarily driven by an increase in Retail EBITDA.

Summary retail free cash flow:

The following table reconciles Group adjusted operating profit to retail free cash flow.  Further details are included in Note 2, starting on page 22.

On a continuing operations basis

FY 23/24

£m

FY 22/233

£m

Adjusted operating profit

2,829

2,509

Less: Tesco Bank adjusted operating (profit) / loss

(69)

(22)

Retail adjusted operating profit

2,760

2,487

Add back: Depreciation and amortisation

1,602

1,570

Other reconciling items

82

61

Pensions

(29)

(23)

Decrease in working capital

418

468

Retail cash generated from operations before adjusting items

4,833

4,563

Cash capex

(1,289)

(1,143)

Net interest

(560)

(573)

         - Interest related to Net debt before lease liabilities

(188)

(202)

         - Interest related to lease liabilities

(372)

(371)

Tax paid

(214)

(107)

Dividends received

9

68

Repayments of obligations under leases

(623)

(589)

Own shares purchased for share schemes

(93)

(86)

Retail free cash flow

2,063

2,133

 

Memo (not included in Retail free cash flow definition):

 

 

         - Special dividend received from Tesco Bank

250

-

         - Net acquisitions and disposals

(2)

(281)

         - Property buybacks, store purchases and disposal proceeds

(66)

266

         - Cash impact of adjusting items

(98)

(61)



We delivered strong retail free cash flow of £2,063m, significantly ahead of our medium-term target range of between £1.4bn to £1.8bn, driven by higher retail adjusted operating profit and another strong working capital performance.  The year-on-year reduction of £(70)m primarily reflects the higher cash capital expenditure (Capex) and tax paid.

Our total working capital inflow was £418m, reflecting the strong sales performance in the year and the impact of input cost inflation, leading to higher trade balances.

Net interest paid was broadly flat year-on-year.

Tax paid was £(107)m higher year-on-year, driven by an increase in the UK statutory tax rate in addition to higher retail profits.  We continued to benefit from in-year tax relief of £155m related to the £2.5bn one-off pension contribution made in 2021, which was required to be spread over four years.  Moving forward, we will no longer benefit from this relief.

Dividends received of £9m were £(59)m lower year-on-year due to the removal of the annual dividend received from Tesco Bank, following the announcement of the planned sale of our existing banking operations.  In the first half of the year, Tesco Bank paid a one-off special dividend of £250m to the Group, reflecting the strength of the Bank's balance sheet and capital ratios.  This special dividend is not included within retail free cash flow.

Within the memo lines shown, the net £(66)m outflow relating to property transactions results from the buyback of three stores and two freehold sites in the UK, partially offset by proceeds generated from held for sale sites in Central Europe, and the exit of a leasehold site in Gateshead.  The £266m inflow in the prior year primarily related to the sale of 17 malls and one retail park in Central Europe and our distribution centre in Middlewich in the UK.

The cash impact of adjusting items of £(98)m relates to operational restructuring changes as part of our Save to Invest programme which were announced at the end of the prior financial year.

Capital expenditure and space:

 

UK & ROI

Central Europe

Tesco Bank

Group

On a continuing operations basis

FY 23/24

FY 22/23

FY 23/24

FY 22/23

FY 23/24

FY 22/23

FY 23/24

FY 22/23

Capex

£1,171m

£1,069m

£113m

£115m

£30m

£51m

£1,314m

£1,235m

Openings (k sq ft)

366

318

87

77

-

-

453

395

Closures (k sq ft)

(204)

(233)

(22)

(25)

-

-

(226)

(258)

Repurposed (k sq ft)

           -

9

(342)

(407)

-

-

(342)

(398)

Net space change (k sq ft)

162

94

(277)

(355)

-

-

(115)

(261)

 

'Retail Selling Space' is defined as net space in store adjusted to exclude checkouts, space behind checkouts, customer service desks and customer toilets.  The data above excludes space relating to franchise stores.  A full breakdown of space by segment is included in the supplementary information starting on page 57.

 

Capital expenditure shown in the table above reflects expenditure on ongoing business activities across the Group, excluding property buybacks and store purchases.  

We have been pleased with the results of our continued investment in our store estate, including refreshing a total of 389 stores and opening seven superstores, 60 Tesco Express stores and 27 One Stop stores in the UK.  We also opened an additional UFC in the second half taking our full year openings to three and our total number of UFCs to nine.  In Ireland, we opened one superstore in Adamstown in the first half, followed by four Tesco Express stores in the second half.  In Central Europe, we opened 14 new convenience stores.

Our total capital expenditure for the year was £1,314m, £79m higher year-on-year.  This reflects increased investment in high-returning areas such as Save to Invest and our digital platforms, in addition to the impact of inflation.  We continue to see attractive opportunities to commit capital to these types of high-returning investments going forwards, with next year's overall capital investment expected to total around £1.4bn.

Statutory capital expenditure for the year was £1.5bn.

Further details of current space can be found in the supplementary information starting on page 57.

Property:

 

UK & ROI

Central Europe

Group

 

Feb-24

 

Feb-23

 

Feb-24

 

Feb-23

 

Feb-24

 

Feb-23

 

Property1 - fully owned

 

 

 

 

 

 

-       Estimated market value

£15.1bn

£15.4bn

£1.8bn

£1.8bn

£16.9bn

£17.2bn

-       NBV

£15.2bn

£14.9bn

£1.5bn

£1.5bn

£16.7bn

£16.4bn

% store selling space owned

58%

58%

68%

68%

60%

60%

% property owned by value2

59%

59%

65%

65%

60%

60%

 

1.    Stores, malls, investment property, offices, distribution centres, fixtures and fittings, work-in-progress.  Excludes joint ventures.

2.    Excludes fixtures and fittings.

 

The estimated market value of our fully owned property as at the year-end reduced by £(0.3)bn to £16.9bn due to a small decline in the UK property investment market year-on-year.  The market value represents a surplus of £0.2bn over the net book value (NBV).

Our Group freehold property ownership percentage was 60%, flat year-on-year.  In January 2024, we obtained control of The Tesco Coral Limited Partnership property joint venture, bringing back two large stores into full ownership with the remaining two stores operating on a leased basis, under full ownership of the previous joint venture partner.  We also repurchased two large stores as part of our ongoing buyback strategy, Milton Cambridge and New Oscott Extra, and purchased the freehold to two new large stores in the UK.

In Central Europe, the market value of fully owned property remains flat year-on-year, with small increases in value offset by foreign exchange movements.

Contacts.

Investor Relations:

Chris Griffith

01707 940 900

Media:

Christine Heffernan

0330 6780 639


Teneo

0207 4203 143

 

This document is available at www.tescoplc.com/prelims2024

A webcast including a live Q&A will be held today at 9.00am for investors and analysts and will be available on our website at www.tescoplc.com/prelims2024.   This will be available for playback after the event.   All presentation materials, including a transcript, will be made available on our website.

We will report our Q1 Trading statement on 14 June 2024.

Sources.

·     UK market share based on Kantar Total Grocers Total Till Roll on 12 week rolling basis to 18 February 2024.

·     UK Kantar net switching gains 12 w/e rolling basis to 18 February 2024.

·     ROI market share based on Kantar Total Till Roll on 12 week rolling basis to 18 February 2024.

·     'Latest market share' based on Kantar Total Grocers Total Till Roll on a 4 week basis to 17 March 2024.

·     Premium retailer gains refers to Kantar net switching gains from Waitrose & M&S on 12 week rolling basis to 18 February 2024.

·     'Full-line grocers' refers to Tesco, Sainsbury's, Asda and Morrisons and 'Limited-range discounters' refers to Aldi and Lidl.

·     UK Price index is an internal measure calculated using the retail selling price of each item on a per unit or unit of measure basis. Competitor retail selling prices are collected weekly by a third party. The price index includes price cut promotions and is weighted by sales to reflect customer importance.

·     c.£360 of savings for Clubcard: c.£360 saving is based on the top 25% of Tesco Clubcard members and large stores sales between 27/02/2023 - 25/02/2024. Tesco Clubcard Price savings versus regular Tesco price.

·     Customer satisfaction and Brand Perception based on YoY changes in YouGov BrandIndex scores for the 12 weeks ended 25 February 2024.

·     Availability based on Multi channel tracker. 3 period rolling data. Responses to question: "Had any products that you wanted to buy sold out?".

·     63% healthy volume sales by 2025: Tesco tracks the healthiness of its products and ranges using the UK Government's nutrient profiling model.

·     Number of Booker retail partners and Premier stores shown net of openings and closures.

 

Disclaimer.

Certain statements made in this document are forward-looking statements. For example, statements regarding future financial performance, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "should", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward looking statements are based on current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other important factors that could cause actual results or events to differ materially from what is expressed or implied by those statements. Many factors may cause actual results, performance or achievements of Tesco to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of Tesco to differ materially from the expectations of Tesco include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and other regulation and policy, including in relation to the environment, health and safety and taxation, labour relations and work stoppages, interest rates and currency fluctuations, changes in its business strategy, political and economic uncertainty, including as a result of global pandemics. As such, undue reliance should not be placed on forward-looking statements. Any forward-looking statement is based on information available to Tesco as of the date of the statement. All written or oral forward-looking statements attributable to Tesco are qualified by this caution. Other than in accordance with legal and regulatory obligations, Tesco undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Group income statement



52 weeks ended
24 February 2024


52 weeks ended
25 February 2023 (restated(a))


Notes

Before adjusting

items
£m

Adjusting

items

(Note 3)
£m

Total
£m


Before adjusting
items
£m

Adjusting

items

(Note 3)
£m

Total
£m

Continuing operations









Revenue from sale of goods and services


67,673

-

67,673


64,864

-

64,864

Insurance revenue(b)


514

-

514


458

-

458

Revenue

2

68,187

-

68,187


65,322

-

65,322










Cost of sales


(62,832)

(4)

(62,836)


(60,487)

(1,029)

(61,516)

Insurance service expenses(b)


(454)

-

(454)


(408)

-

(408)

Net expenses from reinsurance contracts held(b)


(48)

-

(48)


(37)

-

(37)

Gross profit/(loss)


4,853

(4)

4,849


4,390

(1,029)

3,361










Administrative expenses


(2,024)

(4)

(2,028)


(1,881)

(70)

(1,951)

Operating profit/(loss)

2

2,829

(8)

2,821


2,509

(1,099)

1,410










Share of post-tax profits of joint ventures and associates


6

-

6


8

-

8

Finance income

4

267

-

267


87

-

87

Finance costs

4

(825)

20

(805)


(650)

27

(623)

Profit/(loss) before tax from continuing operations


2,277

12

2,289


1,954

(1,072)

882










Taxation

5

(593)

68

(525)


(419)

195

(224)

Profit/(loss) for the year from continuing operations


1,684

80

1,764


1,535

(877)

658










Discontinued operations









Profit/(loss) for the year from discontinued operations

6

56

(628)

(572)


91

(13)

78










Profit/(loss) for the year


1,740

(548)

1,192

 

1,626

(890)

736










Attributable to:









Owners of the parent


1,736

(548)

1,188


1,627

(890)

737

Non-controlling interests


4

-

4


(1)

-

(1)



1,740

(548)

1,192


1,626

(890)

736










Earnings per share from continuing and discontinued operations









Basic

8



16.74p




9.94p

Diluted

8



16.56p




9.85p










Earnings per share from continuing operations









Basic

8



24.80p




8.89p

Diluted

8



24.53p




8.81p

(a)  Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

(b)  Following the adoption of IFRS 17, the income statement has been re-presented to separately present insurance revenue, insurance service expenses and net expenses from reinsurance contracts held. Refer to Note 1 for further details.

The notes on pages 20 to 49 form part of this condensed consolidated financial information.

 

Group statement of comprehensive income/(loss)

               


Notes

52 weeks ended 24 February 2024

 

£m

52 weeks ended 25 February 2023 (restated*)

£m

Items that will not be reclassified to the Group income statement




Change in fair value of financial assets at fair value through other comprehensive income


-

2

Remeasurements of defined benefit pension schemes

18

(251)

(3,341)

Net fair value gains/(losses) on inventory cash flow hedges


(38)

54

Tax on items that will not be reclassified


62

853



(227)

(2,432)

Items that may subsequently be reclassified to the Group income statement




Change in fair value of financial assets at fair value through other comprehensive income


16

(43)

Currency translation differences:




Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments


(116)

120

Gains on cash flow hedges:




Net fair value gains


25

17

Reclassified and reported in the Group income statement


(56)

(61)

Finance income/(expenses) from insurance contracts issued


(4)

39

Finance income/(expenses) from reinsurance contracts held


1

(20)

Tax on items that may be reclassified


(6)

17



(140)

69

Total other comprehensive income/(loss) for the year


(367)

(2,363)

Profit/(loss) for the year


1,192

736

Total comprehensive income/(loss) for the year


825

(1,627)





Attributable to:




Owners of the parent


820

(1,632)

Non-controlling interests


5

5

Total comprehensive income/(loss) for the year


825

(1,627)





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




Continuing operations


1,392

(1,710)

Discontinued operations

6

(572)

78



820

(1,632)

* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

 

The notes on pages 20 to 49 form part of this condensed consolidated financial information.

 

Group balance sheet


Notes

24 February 2024


£m

25 February 2023 (restated*)
£m

26 February 2022 (restated*)
£m

Non-current assets





Goodwill and other intangible assets


5,066

5,375

5,360

Property, plant and equipment

9

17,221

16,862

17,060

Right of use assets

10

5,478

5,500

5,720

Investment property


24

24

22

Investments in joint ventures and associates


102

93

86

Other investments


1,546

1,339

1,253

Trade and other receivables


36

79

159

Loans and advances to customers


-

3,029

3,141

Reinsurance contract assets

15

125

135

171

Derivative financial instruments


781

873

942

Post-employment benefit surplus

18

22

6

3,150

Deferred tax assets

5

32

84

88



30,433

33,399

37,152

Current assets





Other investments


206

353

226

Inventories


2,635

2,510

2,339

Trade and other receivables


1,349

1,235

1,218

Loans and advances to customers


-

3,948

3,251

Derivative financial instruments


55

57

69

Current tax assets


110

63

93

Short-term investments

12

2,128

1,628

2,076

Cash and cash equivalents

12

2,340

2,465

2,345



8,823

12,259

11,617

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

6

7,783

210

368



16,606

12,469

11,985

Current liabilities





Trade and other payables


(10,264)

(9,762)

 (9,040)

Borrowings

14

(1,536)

(1,770)

 (725)

Lease liabilities

10

(584)

(595)

 (547)

Provisions


(306)

(366)

 (283)

Insurance contract liabilities

15

(526)

(501)

 (588)

Customer deposits and deposits from banks


(108)

(4,485)

 (4,729)

Derivative financial instruments


(25)

(99)

 (26)

Current tax liabilities


(1)

(18)

 (11)



(13,350)

(17,596)

 (15,949)

Liabilities of the disposal group classified as held for sale

6

(7,122)

(14)

 (14)

Net current liabilities


(3,866)

(5,141)

 (3,978)

Non-current liabilities





Trade and other payables


(39)

(54)

 (54)

Borrowings

14

(5,683)

(5,581)

 (6,674)

Lease liabilities

10

(7,038)

(7,132)

 (7,411)

Provisions


(175)

(194)

 (183)

Customer deposits and deposits from banks


(800)

(2,265)

 (1,650)

Derivative financial instruments


(241)

(288)

 (357)

Post-employment benefit deficit

18

(657)

(400)

 (303)

Deferred tax liabilities

5

(269)

(119)

 (910)



(14,902)

(16,033)

 (17,542)

Net assets


11,665

12,225

15,632

Equity





Share capital

19

445

463

484

Share premium


5,165

5,165

5,165

Other reserves

19

3,131

3,139

3,080

Retained earnings


2,930

3,469

6,919

Equity attributable to owners of the parent


11,671

12,236

15,648

Non-controlling interests


(6)

(11)

 (16)

Total equity


11,665

12,225

15,632

* Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 22 for further details.

The notes on pages 20 to 49 form part of this condensed consolidated financial information.

 

Group statement of changes in equity

 


Notes

Share
capital
£m

Share
premium
£m

Other reserves

(Note 19)
£m

Retained earnings
£m

Total
£m

Non-controlling interests

£m

Total
equity
£m

At 25 February 2023 (as previously reported)

 

463

5,165

3,123

3,490

12,241

 (11)

12,230

Cumulative adjustment on initial application of IFRS 17 (net of tax)


 -  

 -  

16

(21)

(5)

 -  

(5)

At 25 February 2023 (restated*)

 

463

5,165

3,139

3,469

12,236

(11)

12,225

Profit/(loss) for the year

 

 -  

 -  

-

   1,188

1,188

            4

1,192

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments


 -  

 -  

(116)

           -  

(116)

               -  

(116)

Change in fair value of financial assets at fair value through other comprehensive income


 -  

 -  

-

           16

16

               -  

16

Remeasurements of defined benefit pension schemes

18

 -  

 -  

-

        (251)

(251)

               -  

(251)

Gains/(losses) on cash flow hedges


 -  

 -  

(14)

 -  

(14)

 1

(13)

Cash flow hedges reclassified and reported in the Group income statement


 -  

 -  

(56)

 -  

(56)

 -  

(56)

Finance income/(expenses) from insurance contracts issued


 -  

 -  

(4)

 -  

(4)

 -  

(4)

Finance income/(expenses) from reinsurance contracts held


 -  

 -  

1

 -  

1

 -  

1

Tax relating to components of other comprehensive income


 -  

 -  

(4)

 60

56

 -  

56

Total other comprehensive income/(loss)

 

-

-

(193)

(175)

(368)

1

(367)

Total comprehensive income/(loss)

 

-

-

(193)

1,013

820

5

825

Transfer from hedging reserve to retained earnings

 

 -  

 -  

44

 (44)

-

-

-

Inventory cash flow hedge movements

 

 

 

 

 

 

 

 

(Gains)/losses transferred to the cost of inventory


 -  

 -  

79

 -  

79

-

79

Total inventory cash flow hedge movements

 

-

-

79

-

79

-

79

Transactions with owners

 

 

 

 

 

 

 


Own shares purchased for cancellation

19

 -  

 -  

(752)

           -  

(752)

           -  

(752)

Own shares cancelled

19

 (18)

 -  

770

       (752)

-

           -  

-

Own shares purchased for share schemes


 -  

 -  

(140)

           -  

(140)

           -  

(140)

Share-based payments


 -  

 -  

184

            11

195

           -  

195

Dividends

7

 -  

 -  

-

       (777)

(777)

           -  

(777)

Tax on items charged/(credited) to equity


 -  

 -  

-

           10

10

           -  

10

Total transactions with owners

 

(18)

-

62

(1,508)

(1,464)

-

(1,464)

At 24 February 2024

 

445

5,165

3,131

2,930

11,671

(6)

11,665

 


Notes

Share
capital
£m

Share
premium
£m

Other reserves (Note 19)
£m

Retained earnings
£m

Total
£m

Non-controlling interests

£m

Total
equity
£m

At 26 February 2022 (as previously reported)

 

484

5,165

3,079

6,932

15,660

(16)

15,644

Cumulative adjustment on initial application of IFRS 17 (net of tax)


-

-

1

(13)

(12)

-

(12)

At 26 February 2022 (restated*)

 

484

5,165

3,080

6,919

15,648

(16)

15,632

Profit/(loss) for the year*

 

-

-

-

737

737

(1)

736

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments


-

-

120

-

120

-

120

Change in fair value of financial assets at fair value through other comprehensive income


-

-

-

(41)

(41)

-

(41)

Remeasurements of defined benefit pension schemes

18

-

-

-

(3,341)

(3,341)

-

(3,341)

Gains/(losses) on cash flow hedges


-

-

63

-

63

8

71

Cash flow hedges reclassified and reported in the Group income statement


-

-

(61)

-

(61)

-

(61)

Finance income/(expenses) from insurance contracts issued*


-

-

39

-

39

-

39

Finance income/(expenses) from reinsurance contracts held*


-

-

(20)

-

(20)

-

(20)

Tax relating to components of other comprehensive income*


-

-

18

854

872

(2)

870

Total other comprehensive income/(loss)*

 

-

-

159

(2,528)

(2,369)

6

(2,363)

Total comprehensive income/(loss)*

 

-

-

159

(1,791)

(1,632)

5

(1,627)

Inventory cash flow hedge movements

 

 

 

 

 

 

 

 

(Gains)/losses transferred to the cost of inventory


-

-

(127)

-

(127)

-

(127)

Total inventory cash flow hedge movements

 

-

-

(127)

-

(127)

-

(127)

Transactions with owners

 








Own shares purchased for cancellation

19

-

-

(758)

-

(758)

-

(758)

Own shares cancelled

19

(21)

-

816

(795)

-

-

-

Own shares purchased for share schemes


-

-

(188)

-

(188)

-

(188)

Share-based payments


-

-

157

(1)

156

-

156

Dividends

7

-

-

-

(858)

(858)

-

(858)

Tax on items charged/(credited) to equity


-

-

-

(5)

(5)

-

(5)

Total transactions with owners

 

(21)

-

27

(1,659)

(1,653)

-

(1,653)

At 25 February 2023 (restated*)

 

463

5,165

3,139

3,469

12,236

(11)

12,225

Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 22 for further details.

 

The notes on pages 20 to 49 form part of this condensed consolidated financial information.

 

Group cash flow statement


Notes

52 weeks ended 24 February 2024


£m

52 weeks ended 25 February 2023 (restated*)

£m

Cash flows generated from/(used in) operating activities




Operating profit/(loss) of continuing operations


2,821

1,410

Operating profit/(loss) of discontinued operations

6

(659)

98

Depreciation and amortisation


1,723

1,700

(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets classified as held for sale and early termination of leases


(53)

(76)

(Profit)/loss arising from sale of other investments


-

3

(Profit)/loss arising on sale of joint ventures and associates


(9)

-

(Profit)/loss arising on sale of subsidiaries


(12)

-

Net impairment (reversal)/loss on property, plant and equipment, right of use assets, intangible assets and investment property

11

(28)

982

Net remeasurement loss on non-current assets held for sale


720

23

Defined benefit pension scheme payments

18

(29)

(23)

Share-based payments

17

78

59

Fair value movements included in operating profit/(loss)


71

70

Retail (increase)/decrease in inventories


(150)

(147)

Retail (increase)/decrease in trade and other receivables


(118)

(54)

Retail increase/(decrease) in trade and other payables


714

643

Retail increase/(decrease) in provisions


(72)

75

Retail (increase)/decrease in working capital


374

517

Tesco Bank (increase)/decrease in loans and advances to customers


(714)

(690)

Tesco Bank (increase)/decrease in trade, reinsurance and other receivables


(9)

83

Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance liabilities and other payables


584

348

Tesco Bank increase/(decrease) in provisions


28

(7)

Tesco Bank (increase)/decrease in working capital


(111)

(266)

Cash generated from/(used in) operations


4,886

4,497

Interest paid


(824)

(652)

Corporation tax paid


(223)

(123)

Net cash generated from/(used in) operating activities


3,839

3,722

Cash flows generated from/(used in) investing activities




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


55

342

Purchase of property, plant and equipment, investment property and other long-term assets


(1,108)

(971)

Purchase of intangible assets


(278)

(279)

Disposal of subsidiaries, net of cash disposed


15

-

Acquisition of subsidiaries, net of cash acquired


(17)

(71)

Proceeds from sale of joint ventures and associates


9

-

Increase in loans to joint ventures and associates


(61)

(1)

Investments in joint ventures and associates


(9)

(10)

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


(507)

451

Proceeds from sale of other investments


352

230

Purchase of other investments


(390)

(529)

Dividends received from joint ventures and associates


9

14

Interest received


249

70

Cash inflows from derivative financial instruments


5

54

Cash outflows from derivative financial instruments


(24)

(6)

Net cash generated from/(used in) investing activities


(1,700)

(706)

Cash flows generated from/(used in) financing activities




Own shares purchased for cancellation

19

(752)

(781)

Own shares purchased for share schemes

17

(93)

(86)

Repayment of capital element of obligations under leases


(627)

(593)

Cash outflows exceeding the incremental increase in assets in a property buyback


(62)

(21)

Increase in borrowings


1,232

-

Repayment of borrowings


(775)

(709)

Cash inflows from derivative financial instruments


98

232

Cash outflows from derivative financial instruments


(102)

(371)

Dividends paid to equity owners

7

(778)

(859)

Net cash generated from/(used in) financing activities


(1,859)

(3,188)

Net increase/(decrease) in cash and cash equivalents


280

(172)

Cash and cash equivalents at the beginning of the year


1,565

1,771

Effect of foreign exchange rate changes


29

(34)

Cash and cash equivalents including cash held in the disposal group at the end of the year


1,874

1,565

Less: Cash held in the disposal group


(346)

-

Cash and cash equivalents at the end of the year

12

1,528

1,565

* Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

The notes on pages 20 to 49 form part of this condensed consolidated financial information.

 

Notes

Note 1 Basis of preparation

This preliminary consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and the principles of UK-adopted IFRS. The accounting policies applied, and the judgements, estimates and assumptions made in applying these policies, are consistent with those used in preparing the Annual Report and Group financial statements 2024, which are the same as those used in preparing the Annual Report and Group financial statements 2023, except as noted below. The financial year represents the 52 weeks ended 24 February 2024 (prior financial year 52 weeks ended 25 February 2023). This preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 24 February 2024 as defined under section 434 of the Companies Act 2006.

The Annual Report and Group financial statements for the 52 weeks ended 24 February 2024 were approved by the Board of Directors on 9 April 2024. The report of the auditor on those Group financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report and Group financial statements for 2024 will be filed with the Registrar in due course.

The Annual Report and Group financial statements for the 52 weeks ended 25 February 2023 were approved by the Board of Directors on 12 April 2023. The report of the auditor on those Group financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, which reflects a period of 18 months from the date of approval of the financial statements, and have concluded that there are no material uncertainties relating to going concern. Thus they continue to adopt the going concern basis of accounting in preparing the consolidated Group financial statements. Further information on the Group's strong liquidity position is given in the Summary of total indebtedness section.

Adoption of new IFRSs

IFRS 17 'Insurance contracts' is effective for the accounting period commencing 26 February 2023. IFRS 17 has been applied fully retrospectively and comparatives for prior periods have been restated from a transition date of 27 February 2022. Refer to Note 22 for further details.

Other standards, interpretations and amendments effective in the current financial year have not had a material impact on the consolidated Group financial statements.

The Group has not applied any standards, interpretations or amendments that have been issued but are not yet effective. The impact of the following is under assessment:

-   IFRS 18 'Primary financial statements', which will become effective in the consolidated Group financial statements for the financial year ending 26 February 2028, subject to UK endorsement.

Other standards, interpretations and amendments issued but not yet effective are not expected to have a material impact on the consolidated Group financial statements.

Discontinued operations

During the year, the Board approved a plan to dispose of the Group's regulated Banking operations, which form the major part of the Tesco Bank segment. The net results of the Banking operations are presented as a discontinued operation in the Group income statement, for which the comparatives have been restated. The assets and liabilities of the Banking operations disposal group are presented separately in the Group balance sheet as held for sale. For further details, refer to Note 6.

Accounting policies

Insurance

Classification of insurance contracts

Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary are classified as insurance contracts. These contracts remain insurance contracts until all rights and obligations are extinguished or expire. Insurance contracts may also transfer some financial risk.

Level of aggregation

The level of aggregation for the Group is determined firstly by dividing the business written into motor and home portfolios. Portfolios comprise groups of contracts with similar risks which are managed together. At initial recognition the Group assesses whether the motor and home portfolios are divided further into groups of contracts that are onerous, have no significant possibility of becoming onerous, or are neither.

In determining the level of aggregation, the Group identifies a contract as the smallest 'unit', i.e. the lowest common denominator. No group for level of aggregation purposes shall contain contracts issued more than one year apart.

The Group divides portfolios of reinsurance contracts held applying the same principles.

Insurance contracts issued

Insurance contract liabilities include both a liability for incurred claims (LIC), which represents outstanding claims and incurred but not reported claims and other incurred insurance expenses; and a liability for remaining coverage (LRC), which represents the Group's obligation for insured events related to the unexpired portion of the coverage period. The LRC is measured either using the general model or a simplified premium allocation approach (PAA).

The Group applies the PAA to all insurance contracts issued since the acquisition of Tesco Underwriting (TU) in May 2021. The Group qualifies to use this approach as the coverage period of each contract in the group is one year or less. There is no allowance for the time value of money as the premiums are due within one year of the coverage period.

The Group applies the general model to all issued insurance contracts acquired on the acquisition of TU, as the settlement of these claims and their associated insurance risk will spread over multiple years. The Group has recognised an acquired claims liability as part of the LRC, which is measured at the probability-weighted average of discounted cash flows plus a risk adjustment for non-financial risk, plus any contractual service margin (CSM) if the fulfilment cash flows result in a net inflow. If the fulfilment cash flows result in a net outflow, an onerous loss is recognised in the Group income statement. The risk adjustment reflects the compensation that the Group requires for bearing uncertainty in respect of the amount and timing of the cash flows from non-financial risk, whilst the CSM represents the unearned profit in the contracts relating to services that will be provided under the contracts in the future.

Commission payable to agents and other acquisition costs, which are incurred for acquiring new and renewal insurance business that is primarily related to the production of that business, are deferred and presented as part of the LRC. Such deferred acquisition costs are amortised over the period of insurance contract services on the basis of the passage of time.

The carrying amount of the LRC measured under the general model is updated at the end of each reporting period to reflect current estimates of the amounts, timing and uncertainty of future cash flows, as well as discount rates and other financial variables.

The Group estimates the LIC as the discounted value of expected fulfilment cash flows related to incurred claims and other incurred insurance expenses, plus an explicit adjustment for non-financial risk. The fulfilment cash flows incorporate, in an unbiased way, all reasonable and supportable information available about the amount, timing and uncertainty of those future cash flows. Estimates of the present value of future cash flows reflect current expectations as at the end of the reporting period and are adjusted for events which have occurred since actuarial valuation.

Future cash flows are assessed by reviewing individual claims data and making an allowance for claims incurred but not yet reported, adjusted for the effect on the claims incurred of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, substantively enacted legislative changes and past experience and trends.

Reinsurance

The Group cedes reinsurance in the normal course of business for the purpose of limiting its net loss potential through the diversification of its risks. Reinsurance ceded includes quota share, excess of loss and adverse development cover contracts. Reinsurance arrangements do not relieve the Group from its direct obligations to its policyholders. Only contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance contracts.

Reinsurance assets include balances due from reinsurance companies for reinsurance claims. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsured policy.

The Group applies the PAA to all reinsurance contracts that it holds, except for contracts held prior to the acquisition of TU. The PAA is applicable for all reinsurance contracts purchased since the acquisition of TU as the contracts either qualify automatically in having a coverage period of one year or less, or because there is no material difference in their measurement between the PAA and the general model.

Modification and derecognition of insurance and reinsurance contracts

The Group derecognises insurance and reinsurance contracts when the rights and obligations relating to the contract are extinguished (i.e. discharged, cancelled or expired). When a modification is not treated as a derecognition, the Group recognises amounts paid or received for the modification with the contract as an adjustment to the relevant LRC or asset for remaining coverage.

Presentation of insurance contracts issued and reinsurance contracts held

The Group classifies all insurance contract liabilities as current as it does not have the right to defer settlement beyond 12 months after the reporting date. The Group classifies its reinsurance portfolio as non-current as it does not reasonably expect to realise its reinsurance assets within 12 months of the reporting date.

Insurance revenue

The insurance revenue recognised is the amount of expected premium receipts allocated to the period. For insurance contracts issued after the acquisition of TU in May 2021, the Group allocates the expected premium receipts to each period of insurance contract services based on the passage of time.

The insurance revenue recognised for insurance contracts acquired as part of the acquisition of TU comprises:

-    Claims costs incurred in the period measured at the amounts expected at the beginning of the period;

-    Changes in the risk adjustment for non-financial risk; and

-    The amount of the CSM recognised for services provided in the period.

Insurance service expenses

Insurance service expenses include total claims cost for the period, as well as all directly attributable insurance expenses. There are no acquisition costs for acquired claims. Insurance acquisition cash flows arising from the costs of selling, underwriting and starting a group of insurance contracts are allocated to insurance service expenses based on the passage of time.

Net income or expenses from reinsurance contracts held

The Group separately presents income or expenses from reinsurance contracts held from the expenses or income from insurance contracts issued. The Group presents the income or expenses from a group of reinsurance contracts held as a single amount.

Insurance finance income and expenses

Insurance finance income or expenses comprise the change in the carrying amount of the group of insurance contracts arising from the effect of the time value of money, financial risk and changes in financial risk.

The impact of changes in market interest rates on the carrying value of insurance assets and liabilities is reflected in the Group statement of other comprehensive income in order to minimise accounting mismatches between the accounting for financial assets and insurance assets and liabilities. The Group's financial assets backing both the motor and home insurance portfolios are predominantly measured at fair value through other comprehensive income.

The amount of insurance finance income or expenses recognised in the Group income statement is calculated using the discount rate curve determined at the date of the incurred claim.

Note 2 Segmental reporting

The Group's operating segments are determined based on the Group's organisational structure and internal reporting to the Chief Operating Decision Maker (CODM). The CODM has been determined to be the Group Chief Executive, with support from the Executive Committee, as the function primarily responsible for the allocation of resources to segments and assessment of performance of the segments.

The principal activities of the Group are presented in the following reportable segments:

Retailing and associated activities (Retail) in:

UK & ROI - the United Kingdom and Republic of Ireland; and

Central Europe - Czech Republic, Hungary and Slovakia.

Retail banking, insurance and money services through Tesco Bank in the UK (Tesco Bank).

In February 2024, the Board announced the sale of the Group's banking operation ('Banking operations'), which has been consequently classified as a discontinued operation. Refer to Note 6 for further details. The remaining insurance business and money services are included within continuing operations. Both continuing and discontinued elements remain within the Tesco Bank segment, reflecting the Group's organisational structure and internal reporting to the CODM at the year end.

The CODM uses adjusted operating profit, as reviewed at periodic Executive Committee meetings, as the key measure of the segments' results as it reflects the segments' trading performance that aids comparability over time for the financial year under evaluation. Adjusted operating profit is a consistent measure within the Group as defined within the Glossary. Refer to Note 3 for adjusting items. Inter-segment revenue between the segments is not material.

Income statement

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

52 weeks ended 24 February 2024
At constant exchange rates

UK & ROI
£m

Central
Europe
£m

Total
Retail
£m

Tesco
  Bank
£m

Total segments at 
constant
exchange
£m

Foreign exchange
£m

Exclude:
Banking operations
£m

Continuing operations at
actual
exchange
£m

Revenue

62,864

4,388

67,252

1,521

68,773

124

(710)

68,187

Less: Fuel sales

(6,537)

(171)

(6,708)

-

(6,708)

(2)

-

(6,710)

Sales

56,327

4,217

60,544

1,521

62,065

122

(710)

61,477

Adjusted operating profit

2,669

90

2,759

148

2,907

1

(79)

2,829

Adjusting items (Note 3)

19

(23)

(4)

(741)

(745)

(1)

738

(8)

Operating profit

2,688

67

2,755

(593)

2,162

-

659

2,821

Adjusted operating margin

4.2%

2.1%

4.1%

9.7%

4.2%


11.1%

4.1%

 

Tesco Bank segmental revenue of £1,521m (2023: £1,234m) comprises continuing interest income of £94m (2023: £38m), fees and commissions income of £203m (2023: £170m), insurance revenue of £514m (2023: £458m) and revenue within the discontinued Banking operations of £710m (2023: £568m).

52 weeks ended 24 February 2024
At actual exchange rates

UK & ROI
£m

Central
Europe
£m

Total
Retail
£m

Tesco
Bank
£m

Total

segments
£m

Exclude:
Banking operations
£m

Continuing operations at actual exchange
£m

Revenue

62,880

4,496

67,376

1,521

68,897

(710)

68,187

Less: Fuel sales

(6,536)

(174)

(6,710)

-

(6,710)

-

(6,710)

Sales

56,344

4,322

60,666

1,521

62,187

(710)

61,477

Adjusted operating profit

2,670

90

2,760

148

2,908

(79)

2,829

Adjusting items (Note 3)

19

(24)

(5)

(741)

(746)

738

(8)

Operating profit

2,689

66

2,755

(593)

2,162

659

2,821

Adjusted operating margin

4.2%

2.0%

4.1%

9.7%

4.2%

11.1%

4.1%

Share of post-tax profits of joint ventures and associates







6

Finance income







267

Finance costs







(805)

Profit before tax



 

 



2,289

 

52 weeks ended 25 February 2023
At actual exchange rates

UK & ROI
£m

Central
Europe
£m

Total
Retail
£m

Tesco
  Bank (restated*)
£m

Total

 segments (restated*) 

£m

Exclude:
Banking  operations

(restated*)
£m

Continuing operations at  actual
exchange (restated*)
£m

Revenue

60,246

4,410

64,656

1,234

65,890

(568)

65,322

Less: Fuel sales

(7,877)

(229)

(8,106)

-

(8,106)

-

(8,106)

Sales

52,369

4,181

56,550

1,234

57,784

(568)

57,216

Adjusted operating profit

2,307

180

2,487

135

2,622

(113)

2,509

Adjusting items (Note 3)

(1,058)

(36)

(1,094)

(11)

(1,105)

6

(1,099)

Operating profit

1,249

144

1,393

124

1,517

(107)

1,410

Adjusted operating margin

3.8%

4.1%

3.8%

10.9%

4.0%

19.9%

3.8%

Share of post-tax profits of joint ventures and associates



8

Finance income


87

Finance costs


(623)

Profit before tax





882

* Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

Balance sheet

The following tables show segment net assets and net debt (cash and cash equivalents, short-term investments, joint venture loans, bank and other borrowings, lease liabilities, derivative financial instruments and net debt of the disposal group). Lease liabilities, joint venture loans and interest receivables have been allocated to each segment. All other components of net debt have been included within the unallocated segment to reflect how these balances are managed. Intercompany transactions have been eliminated other than intercompany transactions with Tesco Bank in net debt. Balances in relation to the discontinued Banking operations have been included in the Tesco Bank segment in both current and prior year.

.At 24 February 2024

UK & ROI
£m

Central
Europe
£m


Tesco Bank
 £m

Unallocated
£m

Total
£m

Goodwill and other intangible assets(a)

4,713

33

320

-

5,066

Property, plant and equipment and investment property

15,707

1,475

63

-

17,245

Right of use assets

5,038

439

1

-

5,478

Non-current assets held for sale

23

62

-

-

85

Net assets of the disposal group excluding net debt(b)

-

-

758

-

758

Net debt (including Tesco Bank)(c)

(6,926)

(575)

(102)

(2,263)

(9,866)

Other net assets/(liabilities)

(7,101)

(300)

300

-

(7,101)

Total net assets

11,454

1,134

1,340

(2,263)

11,665

(a)  Refer to Note 11 for the allocation of goodwill between remaining operations and the Banking operations disposal group classified as held for sale.

(b)  Excludes £(182)m of net debt items within the Tesco Bank segment relating to the Banking operations disposal group.

(c)  Refer to Note 21.

 

 

At 25 February 2023

UK & ROI
£m

Central
Europe
£m

Tesco Bank
(restated(a))
 £m

Unallocated(b)
£m

Total

(restated(a))
£m

Goodwill and other intangible assets

4,715

37

623

-

5,375

Property, plant and equipment and investment property

15,346

1,468

72

-

16,886

Right of use assets

5,057

433

10

-

5,500

Assets of the disposal group and non-current assets held for sale

25

169

-

16

210

Net debt (including Tesco Bank)(c)

(7,036)

(553)

151

 (2,904)

(10,342)

Other net assets/(liabilities)

(6,414)

(310)

1,320

-

(5,404)

Total net assets

11,693

1,244

2,176

(2,888)

12,225

(a)  Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 22 for further details.

(b)  Includes £16m of assets and £(14)m of items within net debt relating to residual properties and leases with respect to the Group's operation in Poland.

(c)  Refer to previous table for footnote.

Other segment information

The table below shows the Group's total capital expenditure, depreciation and amortisation, and impairment loss on financial assets, reconciling to continuing operations:

52 weeks ended 24 February 2024

UK & ROI
£m

Central
Europe
£m

Tesco
Bank
£m

Total

segments
£m

Exclude: Banking operations
£m

Continuing operations
£m

Capital expenditure (including acquisitions through business combinations):







Property, plant and equipment(a)(b)

1,091

99

8

1,198

-

1,198

Goodwill and other intangible assets(c)

255

12

25

292

(22)

270

Depreciation and amortisation:







Property, plant and equipment

(802)

(86)

(11)

(899)

3

(896)

Right of use assets

(496)

(46)

(2)

(544)

1

(543)

Other intangible assets

(235)

(12)

(33)

(280)

25

(255)

Impairment:







(Loss)/reversal on financial assets

1

1

(65)

(63)

65

2

(a)  Includes £65m of land and buildings related to obtaining control of The Tesco Coral Limited Partnership (2023: £248m of land and buildings related to obtaining control of The Tesco Dorney Limited Partnership). Refer to Note 9.

(b)  Includes £nil (2023: £42m) of property, plant and equipment acquired through business combinations.

(c)  Includes £17m (2023: £31m) of goodwill and other intangible assets acquired through business combinations.

52 weeks ended 24 February 2023

UK & ROI
£m

Central
Europe
£m

Tesco
Bank(d)
£m

Total segments(d)

 £m

Exclude: Banking operations(d)
£m

Continuing operations(d)
£m

Capital expenditure (including acquisitions through business combinations):







Property, plant and equipment(a)(b)

1,176

104

14

1,294

(2)

1,292

Goodwill and other intangible assets(c)

259

12

37

308

(26)

282

Depreciation and amortisation:







Property, plant and equipment

(788)

(84)

(10)

(882)

2

(880)

Right of use assets

(500)

(37)

(2)

(539)

1

(538)

Investment property

(1)

-

-

(1)

-

(1)

Other intangible assets

(226)

(10)

(42)

(278)

31

(247)

Impairment:







(Loss)/reversal on financial assets

(5)

(1)

(60)

(66)

60

(6)

(a)-(c) Refer to previous table for footnotes.

(d)  Comparatives have been restated following the adoption of IFRS 17 and to present Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

 

Cash flow statement

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




 Tesco Bank




Retail


Continuing

operations


Discontinued

operations


Tesco

Group

52 weeks ended 24 February 2024

Before adjusting

items

£m

Adjusting

items

£m


Total
£m


Before adjusting items
£m

Adjusting items
£m


Total
£m


Total

£m


Total

£m

 

Operating profit/(loss)

2,760

(5)

2,755


69

(3)

66


(659)

 

2,162

 

Depreciation and amortisation

1,602

75

1,677


17

-

17


29


1,723

 

ATM net income

(9)

-

(9)


9

-

9


-


-

 

(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets held for sale and early termination of leases

10

(63)

(53)


-

-

-


-


(53)

 

(Profit)/loss arising on sale of joint ventures and associates

-

(9)

(9)


-

-

-


-


(9)

 

(Profit)/loss arising on sale of subsidiaries

-

(12)

(12)


-

-

-


-


(12)

 

Net impairment (reversal)/loss on property, plant and equipment, right of use assets, intangible assets and investment property

-

(28)

(28)


-

-

-


-


(28)

 

Net remeasurement (gain)/loss on non-current assets held for sale

-

(12)

(12)


-

-

-


732


720

 

Defined benefit pension scheme payments

(29)

-

(29)


-

-

-


-


(29)

 

Share-based payments

75

-

75


(3)

-

(3)


6


78

 

Fair value movements included in operating profit/(loss)

6

-

6


3

-

3


62


71

 

Cash generated from/(used in) operations excluding working capital

4,415

(54)

4,361

 

95

(3)

92

 

170

 

4,623

 

(Increase)/decrease in working capital

418

(44)

374


(105)

1

(104)


(7)


263

 

Cash generated from/(used in) operations

4,833

(98)

4,735

 

(10)

(2)

(12)

 

163

 

4,886

 

Interest paid

(809)

-

(809)


(14)

-

(14)


(1)


(824)

 

Corporation tax paid

(214)

-

(214)


(9)

-

(9)


-


(223)

 

Net cash generated from/(used in) operating activities*

3,810

(98)

3,712

 

(33)

(2)

(35)

 

162

 

3,839

 

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

2

53

55


-

-

-


-


55

 

Purchase of property, plant and equipment, investment property and other long-term assets - property buybacks and store purchases

(66)

7

(59)


-

-

-


-


(59)

 

Purchase of property, plant and equipment, investment property and other long-term assets - other capital expenditure

(1,039)

-

(1,039)


(10)

-

(10)


-


(1,049)

 

Purchase of intangible assets

(250)

-

(250)


(6)

-

(6)


(22)


(278)

 

Disposal of subsidiaries, net of cash disposed

-

15

15


-

-

-


-


15

 

Acquisition of subsidiaries, net of cash acquired

(17)

-

(17)


-

-

-


-


(17)

 

Proceeds from the sale of joint ventures and associates

-

9

9


-

-

-


-


9

 

Increase in loans to joint ventures and associates

(61)

-

(61)


-

-

-


-


(61)

 

Investments in joint ventures and associates

(9)

-

(9)


-

-

-


-


(9)

 

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

(507)

-

(507)


-

-

-


-


(507)

 

Proceeds from sale of other investments

5

-

5


347

-

347


-


352

 

Purchase of other investments

(5)

-

(5)


(385)

-

(385)


-


(390)

 

Dividends received from joint ventures and associates

9

-

9


-

-

-


-


9

 

Special dividend received from Tesco Bank

250

-

250


(250)

-

(250)


-


-

 

Interest received

249

-

249


-

-

-


-


249

 

Cash inflows from derivative financial instruments

5

-

5


-

-

-


-


5

 

Cash outflows from derivative financial instruments

(24)

-

(24)


-

-

-


-


(24)

 

Net cash generated from/(used in) investing activities*

(1,458)

84

(1,374)

 

(304)

-

(304)

 

(22)

 

(1,700)

 

Own shares purchased for cancellation

(752)

-

(752)


-

-

-


-


(752)

 

Own shares purchased for share schemes

(93)

-

(93)


-

-

-


-


(93)

 

Repayment of capital element of obligations under leases

(623)

-

(623)


(2)

-

(2)


(2)


(627)

 

Cash outflows exceeding the incremental increase in assets in a property buyback

(62)

-

(62)


-

-

-


-


(62)

 

Increase in borrowings

682

-

682


-

-

-


550


1,232

 

Repayment of borrowings

(775)

-

(775)


-

-

-


-


(775)

 

Cash inflows from derivative financial instruments

98

-

98


-

-

-


-


98

 

Cash outflows from derivative financial instruments

(102)

-

(102)


-

-

-


-


(102)

 

Dividends paid to equity holders

(777)

(1)

(778)


-

-

-


-


(778)

 

Net cash generated from/(used in) financing activities*

(2,404)

(1)

(2,405)

 

(2)

-

(2)

 

548

 

(1,859)

 


 

 

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

(52)

(15)

(67)

 

(339)

(2)

(341)

 

688

 

280

 

Cash and cash equivalents at the beginning of the year











1,565

 

Effect of foreign exchange rate changes











29

 

Cash and cash equivalents, including cash held in the disposal group, at the end of the year











1,874

 

Less: Cash held in the disposal group











(346)

 

Cash and cash equivalents at the end of the year











1,528

 

* Refer to page 55 for the reconciliation of the APM: Retail free cash flow.

 


Retail


Tesco Bank continuing

operations (restated(a))


Discontinued

operations(b)


Tesco

Group

(restated(a))

52 weeks ended 25 February 2023

Before adjusting

items

£m

Adjusting

items

£m


Total
£m


Before adjusting items
£m

Adjusting items
£m


Total
£m


Total

£m


Total

£m

Operating profit/(loss)

2,487

(1,094)

1,393


22

(5)

17


98

 

1,508

Depreciation and amortisation

1,570

76

1,646


19

-

19


35


1,700

ATM net income

(16)

-

(16)


16

-

16


-


-

(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets held for sale and early termination of leases

13

(91)

(78)


-

-

-


2


(76)

(Profit)/loss arising from sale of other investments

-

-

-


3

-

3


-


3

Net impairment loss on property, plant and equipment, right of use assets, intangible assets and investment property

-

982

982


-

-

-


-


982

Net remeasurement loss on non-current assets held for sale

-

14

14


-

-

-


9


23

Defined benefit pension scheme payments

(23)

-

(23)


-

-

-


-


(23)

Share-based payments

64

-

64


(2)

-

(2)


(3)


59

Fair value movements included in operating profit/(loss)

-

-

-


15

-

15


55


70

Cash generated from/(used in) operations excluding working capital

4,095

(113)

3,982

 

73

(5)

68

 

196

 

4,246

(Increase)/decrease in working capital

468

52

520


(39)

(3)

(42)


(227)


251

Cash generated from/(used in) operations

4,563

(61)

4,502

 

34

(8)

26

 

(31)

 

4,497

Interest paid

(643)

-

(643)


(9)

-

(9)


-


(652)

Corporation tax paid

(107)

-

(107)


(17)

-

(17)


1


(123)

Net cash generated from/(used in) operating activities(c)

3,813

(61)

3,752

 

8

(8)

-

 

(30)

 

3,722

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

6

335

341


1

-

1


-


342

Purchase of property, plant and equipment, investment property and other long-term assets - property buybacks

(14)

(40)

(54)


-

-

-


-


(54)

Purchase of property, plant and equipment, investment property and other long-term assets - other capital expenditure

(902)

-

(902)


(13)

-

(13)


(2)


(917)

Purchase of intangible assets

(241)

-

(241)


(12)

-

(12)


(26)


(279)

Acquisition of subsidiaries, net of cash acquired

(66)

-

(66)


(5)

-

(5)


-


(71)

Increase in loans to joint ventures and associates

(1)

-

(1)


-

-

-


-


(1)

Investments in joint ventures and associates

(10)

-

(10)


-

-

-


-


(10)

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

451

-

451


-

-

-


-


451

Proceeds from sale of other investments

1

-

1


229

-

229


-


230

Purchase of other investments

(206)

-

(206)


(323)

-

(323)


-


(529)

Dividends received from joint ventures and associates

14

-

14


-

-

-


-


14

Dividends received from Tesco Bank

54

-

54


(54)

-

(54)


-


-

Interest received

70

-

70


-

-

-


-


70

Cash inflows from derivative financial instruments

54

-

54


-

-

-


-


54

Cash outflows from derivative financial instruments

(6)

-

(6)


-

-

-


-


(6)

Net cash generated from/(used in) investing activities(c)

(796)

295

(501)

 

(177)

-

(177)

 

(28)

 

(706)

Own shares purchased for cancellation

(781)

-

(781)


-

-

-


-


(781)

Own shares purchased for share schemes

(86)

-

(86)


-

-

-


-


(86)

Repayment of capital element of obligations under leases

(589)

-

(589)


(2)

-

(2)


(2)


(593)

Cash outflows exceeding the incremental increase in assets in a property buyback

(21)

-

(21)


-

-

-


-


(21)

Repayment of borrowings

(608)

-

(608)


(101)

-

(101)


-


(709)

Cash inflows from derivative financial instruments

232

-

232


-

-

-


-


232

Cash outflows from derivative financial instruments

(365)

-

(365)


(6)

-

(6)


-


(371)

Dividends paid to equity holders

(858)

(1)

(859)


-

-

-


-


(859)

Net cash generated from/(used in) financing activities(c)

(3,076)

(1)

(3,077)

 

(109)

-

(109)

 

(2)

 

(3,188)


 

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

(59)

233

174

 

(278)

(8)

(286)

 

(60)

 

(172)

Cash and cash equivalents at the beginning of the year











1,771

Effect of foreign exchange rate changes











(34)

Cash and cash equivalents at the end of the year



 




 


 

 

1,565

(a)  Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation within the Tesco Bank segment. Refer to Notes 1, 6 and 22 for further details.

(b)  Comprising Banking operations and immaterial balances in relation to the Group's residual properties in Poland. Refer to Note 6.

(c)  Refer to page 55 for the reconciliation of the APM: Retail free cash flow.

 

Note 3 Adjusting items

Group income statement

52 weeks ended 24 February 2024

Profit/(loss) for the year included the following adjusting items:

 


Cost of sales
£m

Administrative expenses
£m

Total adjusting items included within operating profit
 £m

Finance income/

 (costs)
£m

Taxation
£m

Adjusting items included within discontinued operations

£m

 

 

Total adjusting items

£m

Property transactions(a)

6

69

75

-

(18)

-

57

Disposal of China associate in a prior year(b)

-

9

9

-

23

-

32

Net impairment (loss)/reversal of non-current assets(c)

35

(7)

28

-

38

-

66

Restructuring(d)

(45)

(5)

(50)

-

12

-

(38)

Amortisation of acquired intangible assets(e)

-

(74)

(74)

-

18

-

(56)

Disposal of subsidiary(f)

-

12

12

-

-

-

12

Banking operations disposal costs(g)

-

(8)

(8)

-

-

-

(8)

Net pension finance income/(costs)(h)

-

-

-

(18)

5

-

(13)

Fair value remeasurements of financial instruments(h)

-

-

-

38

(10)

-

28

Total adjusting items from continuing operations

(4)

(4)

(8)

20

68

-

80

Adjusting items relating to discontinued operations(i)

-

-

-

-

-

(628)

(628)

Total adjusting items

(4)

(4)

(8)

20

68

(628)

(548)

(a)  The Group disposed of surplus properties that generated a profit before tax of £63m (2023: £91m). In addition, there was a £12m gain (2023: £nil) arising from the remeasurement of assets held for sale, subsequently reclassified to property, plant and equipment.

(b)  During the current financial year, the Group reached a settlement with the Chinese tax authorities in respect of the sale of the Group's 20% share of Gain Land Limited to China Resources Holdings on 28 February 2020. As a result of the settlement the Group released a tax provision of £23m (2023: £nil). Additionally, final proceeds of £9m were recognised upon settlement.

(c)  Refer to Note 11 for further details on net impairment (loss)/reversal of non-current assets.

(d)  Provisions relating to operational restructuring changes announced as part of 'Save to Invest', a multi-year programme which commenced in June 2022. The total pre-tax cost of the programme to date is £(232)m (2023: £(182)m). Future cost savings will not be reported within adjusting items.

(e)  Amortisation of acquired intangibles relates to historical inorganic business combinations and does not reflect the Group's ongoing trading performance.

(f)   On 30 June 2023 the Group disposed of its Booker subsidiary Ritter-Courivaud Limited, part of the UK & ROI segment.

(g)  Costs incurred within the continuing Group in relation to the sale of Banking operations.

(h)  Net pension finance costs and fair value remeasurements of financial instruments are included within adjusting items, as they can fluctuate significantly due to external market factors that are outside management's control. Refer to Note 4 for details of finance income and costs. Refer to Note 18 for details of pension schemes.

(i)   Refer to Note 6.

52 weeks ended 25 February 2023

Profit/(loss) for the year included the following adjusting items:


Cost of sales
£m

Administrative expenses
£m

Total adjusting items included within operating profit
 £m

Finance income/

 (costs)
£m

Taxation
£m

Adjusting items included within discontinued operations

£m

 

 

Total adjusting items

(restated*)

£m

Property transactions

36

55

91

-

29

-

120

Net impairment (loss)/reversal of non-current assets

(965)

(17)

(982)

-

129

-

(853)

Fair value less cost of disposal movements on assets held for sale

-

(14)

(14)

-

1

-

(13)

Restructuring

(107)

(25)

(132)

-

26

-

(106)

Disposal of Asia operations

-

2

2

-

-

-

2

ATM business rates refund

7

-

7

-

(1)

-

6

Release of onerous contract provision

-

5

5

-

-

-

5

Amortisation of acquired intangible assets

-

(76)

(76)

-

14

-

(62)

Net pension finance income

-

-

-

80

(15)

-

65

Fair value remeasurements of financial instruments

-

-

-

(53)

12

-

(41)

Total adjusting items from continuing operations

(1,029)

(70)

(1,099)

27

195

-

(877)

Adjusting items relating to discontinued operations*

-

-

-

-

-

(13)

(13)

Total adjusting items

(1,029)

(70)

(1,099)

27

195

(13)

(890)

*    Comparatives have been restated to present Banking operations as a discontinued operation. Refer to Notes 1 and 6.

 

Group cash flow statement

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


Cash flows from
operating activities


Cash flows from
investing activities


Cash flows from
financing activities

52 weeks
2024


£m

52 weeks
2023

(restated(a))
£m


52 weeks
2024


£m

52 weeks
2023


£m


52 weeks
2024


£m

52 weeks
2023

 

£m

Property transactions(b)

-

-


53

335


-

-

Disposal of subsidiaries(c)

-

-


15

-


-

-

Restructuring(d)

(100)

(68)


-

-


-

-

Disposal of China associate

-

-


 9

-


-

-

Customer redress claims settlement in Tesco Bank

-

 (4)


-

-


-

-

ATM business rates refund

-

 5


-

-


-

-

Disposal of Asia operations

-

(2)


-

-


-

-

Acquisition of property joint venture

-

-


7

(40)


-

-

Special dividend

-

-


-

-


(1)

(1)

Total adjusting items from continuing operations

(100)

(69)

 

84

295

 

(1)

(1)

Adjusting items relating to discontinued operations

(1)

(8)


-

-


-

-

Total

(101)

(77)

 

84

295

 

(1)

(1)

(a)  Comparatives have been restated to present Banking operations as a discontinued operation. Refer to Notes 1 and 6.

(b)  Property transactions include £14m proceeds (2023: £43m) relating to the sale of stores in Poland not included in the sale of the corporate business.

(c)  On 30 June 2023, the Group disposed of its Booker subsidiary Ritter-Courivaud Limited, part of the UK & ROI segment.

(d)  Cash outflows relating to operational restructuring changes as part of the multi-year 'Save to Invest' programme, which commenced in June 2022.

Note 4 Finance income and costs

Continuing operations

Notes

52 weeks
2024


£m

52 weeks

2023

(restated(a))

£m

Finance income




Interest and similar income


252

78

Interest income from other investments


12

3

Finance income on net investment in leases


2

4

Finance income from reinsurance contracts held


1

2

Total finance income

 

267

87

Finance costs




GBP MTNs and loans


(190)

(160)

EUR MTNs


(113)

(53)

USD bonds


(15)

(18)

Interest expense on lease liabilities


(373)

(371)

Finance expense from insurance contracts issued


(7)

(5)

Other interest costs


(127)

(43)

Total finance costs before adjusting items

 

(825)

(650)

Fair value remeasurements of financial instruments(b)


38

(53)

Net pension finance income/(cost)

18

(18)

80

Total finance costs


(805)

(623)

Net finance costs


(538)

(536)

(a)  Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

(b)  Fair value remeasurements of financial instruments included £nil (2023: £70m gain) relating to the repurchase of long-dated bonds.

Note 5 Taxation

Recognised in the Group income statement

Continuing operations

52 weeks
2024


£m

52 weeks

2023

(restated*)

£m

Current tax (credit)/charge



UK corporation tax

351

174

Overseas tax

71

78

Adjustments in respect of prior years

(29)

19


393

271

Deferred tax (credit)/charge



Origination and reversal of temporary differences

133

(15)

Adjustments in respect of prior years

(4)

(35)

Change in tax rate

3

3


132

(47)

Total income tax (credit)/charge

525

224

* Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

 

Reconciliation of effective tax charge

Continuing operations

52 weeks
2024


£m

52 weeks

2023

(restated(a))

£m

Profit/(loss) before tax

2,289

882

Tax credit/(charge) at 24.45% (2023: 19%)

(560)

(168)

Effect of:



Non-qualifying depreciation(b)

(39)

(5)

Expenses not deductible

(24)

(23)

Property items taxed on a different basis to accounting entries

6

33

Net impairment (loss)/reversal of non-current assets

46

(87)

Differences in overseas taxation rates

15

11

Adjustments in respect of prior years

33

16

Share of profits of joint ventures and associates

2

2

Change in tax rate

(3)

(3)

Irrecoverable withholding tax

(1)

-

Total income tax credit/(charge)

(525)

(224)

Effective tax rate

22.9%

25.4%

(a)  Comparatives have been restated following the adoption of IFRS 17 and re-presented to disclose Banking operations as a discontinued operation. Refer to Notes 1, 6 and 22 for further details.

(b)  This figure has been reduced by the tax effect of the super-deduction of £3m (2023: £30m) in respect of tax relief for fixed assets.

Reconciliation of effective tax charge on adjusted profit before tax

Continuing operations

52 weeks
2024


£m

52 weeks

2023

(restated(a))

£m

Profit/(loss) before tax

2,289

882

Exclude: Adjusting items

(12)

1,072

Adjusted profit before tax

2,277

1,954

Tax credit/(charge) at 24.45% (2023: 19%)

(557)

(371)

Effect of:



Non-qualifying depreciation(b)

(39)

(5)

Expenses not deductible

(23)

(24)

Differences in overseas taxation rates

19

10

Adjustments in respect of prior years

10

(3)

Share of profits of joint ventures and associates

2

2

Change in tax rate(c)

(4)

(28)

Irrecoverable withholding tax

(1)

-

Total income tax credit/(charge) before adjusting items

(593)

(419)

Adjusted effective tax rate

26.0%

21.4%

(a)-(b) Refer to previous table for footnotes.

(c)  Change in tax rate includes £nil (2023: £31m) in relation to provision of deferred tax at 25% (2023: 25%) on assets qualifying for super-deductions.

 

Deferred tax

The following are the major deferred tax (liabilities)/assets recognised by the Group and movements thereon during the current and prior financial years, measured using the tax rates that are expected to apply when the liability is settled or the asset realised based on the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised when it is probable sufficient taxable profits will be available to utilise deductible temporary differences or unused tax losses. This assessment is based on the Group's three-year long-term plan which is updated and approved annually by the Board and is consistent with the Group's longer-term viability statement and impairment assessments.


Property-related

items(a)

£m

Acquired intangibles
£m

Post-
employment

benefits(b)

£m

Share-based
payments
£m

Other

short-term
timing
differences
£m

Tax losses
£m

Financial
instruments
£m

Total
£m

At 26 February 2022 (as previously reported)

(352)

(108)

(451)

39

45

6

(4)

(825)

Cumulative adjustment on initial application of IFRS 17

-

-

-

-

3

-

-

3

At 26 February 2022 (restated(c))

(352)

(108)

(451)

39

 48

6

(4)

(822)

(Charge)/credit to the Group income statement

(89)

15

(13)

12

14

140

(32)

47

(Charge)/credit to the Group statement of changes in equity

-

-

-

(11)

-

-

-

(11)

(Charge)/credit to the Group statement of comprehensive income/(loss)

-

-

719

-

-

-

27

746

Discontinued operations

9

-

-

(1)

-

-

-

8

Foreign exchange and other movements

(2)

(2)

-

-

1

-

-

(3)

At 25 February 2023 (restated(c))

(434)

(95)

255

39

 63

146

(9)

(35)

(Charge)/credit to the Group income statement

(85)

18

2

-

11

(73)

(5)

(132)

(Charge)/credit to the Group statement of changes in equity

-

-

-

10

-

-

-

10

(Charge)/credit to the Group statement of comprehensive income/(loss)

-

-

(95)

-

-

-

(8)

(103)

Discontinued operations

27

-

-

-

-

-

(3)

24

Foreign exchange and other movements

(1)

-

-

-

-

-

-

(1)

At 24 February 2024

(493)

(77)

162

49

74

73

(25)

(237)

(a)  Property-related items include a deferred tax liability on rolled-over gains of £424m (2023: £421m), deferred tax assets on capital losses of £242m (2023: £242m) and deferred tax assets on IFRS 16 balances of £199m (2023: £235m). The remaining balance relates to accelerated tax depreciation.

(b)  The deferred tax asset on post-employment retirement benefits includes a deferred tax asset of £nil (2023: £155m) arising from a one-off contribution of £2.5bn paid in December 2020 on which tax deductions are spread over 4 years, resulting in the closing balance entirely relating to pension schemes in deficit. Refer to Note 18 for further details.

(c)  Comparatives have been restated following the adoption of IFRS 17. Refer to Notes 1 and 22 for further details.

Changes in tax law or its interpretation

The Group is within the scope of the Organisation for Economic Co-operation and Development (OECD) Pillar Two model rules. Pillar Two legislation has been enacted in the UK introducing a global minimum effective tax rate of 15%. The legislation implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023. The Group has applied the exception under IAS 12 to recognising and disclosing information about deferred tax assets and liabilities related to top-up income taxes. Under the legislation, the Group is liable to pay a top-up tax for the difference between its effective tax rate per jurisdiction and the 15% minimum rate. The Group has performed an assessment of the potential exposure to Pillar Two income taxes and there is not expected to be a material impact on the Group's tax charge.

 

Note 6 Discontinued operations

The following table presents a breakdown of the assets and liabilities of disposal groups and non-current assets classified as held for sale.

 

2024

2023(b)


Banking operations
£m


Other
(a)

£m

Total
£m

Total
£m

Assets of the disposal group

7,698

-

7,698

11

Non-current assets classified as held for sale(c)

-

85

85

199

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

7,698

85

7,783

210

Liabilities of the disposal group

(7,122)

-

(7,122)

(14)

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

576

85

661

196

(a)  Other 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. Due to the individual nature of each property, fair values are classified as Level 3 within the fair value hierarchy.

(b)  The assets and liabilities of the disposal group in the comparative period included £(14)m of net debt relating to residual properties and leases with respect to the Group's operation in Poland. During the year, the net debt and £11m of assets were reclassified from the disposal group to continuing operations, as the residual balances no longer met the held for sale classification criteria.

(c)  The movement in other non-current assets classified as held for sale in the current year includes a £12m gain arising from fair value remeasurement and £(126)m of assets reclassified to property, plant and equipment as these balances no longer met the held for sale criteria.

Disposal of Banking operations

In February 2024, the Group reached agreement on the terms of a proposed sale of its banking operations, comprising personal loans, credit cards, customer deposits, and associated operational capabilities ('Banking operations') for consideration of £600m. The sale is subject to regulatory approval and is expected to complete within 12 months of the reporting date.

The related assets and liabilities have been classified as held for sale in the Banking operations disposal group within the Tesco Bank segment, with Group results re-presented to present Banking operations as a discontinued operation. Refer to Note 1 for further details.

Balance sheet of the disposal group

The following table presents a breakdown of the assets and liabilities of the Banking operations disposal group:


2024

£m

Loans and advances to customers

7,669

Derivative financial instruments

54

Trade and other receivables

47

Cash and cash equivalents

346

Excess loss on remeasurement of the disposal group

(418)

Assets of the disposal group classified as held for sale

7,698



Trade and other payables

(81)

Borrowings

(549)

Provisions

(19)

Lease liabilities

(17)

Deposits from customers

(6,440)

Derivative financial instruments

(16)

Liabilities of the disposal group classified as held for sale

(7,122)

Upon classification as held for sale, the Group recognised a £(732)m loss on remeasuring the disposal group to fair value less costs to sell. The loss was allocated to goodwill and other assets of the disposal group within the scope of the measurement requirements of IFRS 5, which were fully written off. The excess loss remaining  was then recognised as a reduction in the total assets of the disposal group, which primarily comprise loans and advances to customers measured under IFRS 9.

The Group has continued to measure financial assets within the disposal group under IFRS 9, as they are out of scope of the measurement requirements of IFRS 5. Loans and advances to customers and customer deposits are measured at amortised cost. Derivative financial instruments are measured at fair value as Level 2 instruments. In the year Tesco Bank issued £550m of notes, in relation to securitisation transactions, which form part of the Banking operations disposal group. Interest payable on these notes is based on sterling overnight index average (SONIA) plus a margin of 80 to 92 basis points (2023: no notes in issue).

Income statement of discontinued operations


2024


2023(a)


Banking operations
£m


Banking operations
£m

Other

£m

Total
£m

Revenue

710


568

-

568

Operating costs

(631)


(455)

-

(455)

Adjusted operating profit/(loss)

79

 

113

-

113

Adjusted finance (costs)/income

(1)


(2)

-

(2)

Adjusted profit/(loss) before tax

78


111

-

111

Taxation

(22)

 

(20)

-

(20)

Adjusted profit/(loss) after tax

56

 

91

-

91

Fair value remeasurement of assets of the disposal group(b)

(732)


-

-

-

Fair value remeasurement of non-current assets held for sale(c)

-


-

(9)

(9)

Other adjusting items(d)

(11)


(4)

-

(4)

Tax on adjusting items

115


-

-

-

Total adjusting items

(628)

 

(4)

(9)

(13)

Total profit/(loss) after tax of discontinued operations

(572)

 

87

(9)

78

(a)  Comparatives have been re-presented to disclose Banking operations as a discontinued operation.

(b)  Fair value remeasurement of assets of the disposal group includes £(211)m of goodwill impairment, £(96)m remeasurements on non-current assets, £(418)m loss in excess of the carrying amount of the non-current assets and £(7)m costs already incurred in relation to the sale. Refer to Note 11 for further details on goodwill.

(c)  Fair value remeasurement of non-current assets held for sale in the prior year of £(9)m primarily relate to surplus properties in Poland.

(d)  Other adjusting items of £(11)m in the current year comprises £(6)m indirect costs incurred in relation to the sale of Banking operations and £(5)m of costs relating to fair value remeasurement of financial assets. Other adjusting items of £(4)m in the prior year primarily relate to operational restructuring changes as part of the 'Save to Invest' programme.

Cash flow statement of discontinued operations


2024


2023


Banking operations
£m


Banking operations
£m

Net cash flows from operating activities

162


(30)

Net cash flows from investing activities

(22)


(28)

Net cash flows from financing activities

548


(2)

Net cash flows from discontinued operations

688


(60)

Expected credit losses (ECLs) of the Banking operations disposal group

The Banking operations disposal group has specific risks in relation to ECLs on loans and advances to customers. The financial risk for ECLs is that a retail customer or counterparty to a wholesale transaction will fail to meet its obligations in accordance with contractually agreed terms and Tesco Bank will incur losses as a result.

To minimise the potential exposure to bad debts that are outside risk appetite, processes, systems and limits have been established that cover the end-to-end retail credit risk customer life cycle. These include credit scoring, affordability, credit policies and guides, and monitoring and reporting. Controls and risk mitigants include daily monitoring of exposures, investing in counterparties with investment-grade ratings, restricting the amount that can be invested with one counterparty and credit-rating mitigation techniques. Assessment of the ECLs on loans and advances to customers has taken into account a range of macroeconomic scenarios.

The table below presents the maximum exposure of the disposal group to credit risk i.e. total gross exposure, by stages.


2024

 

2023 (restated(a))


Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Stage 1


Stage 2


Stage 3

Total


£m

 

Not past
 due
£m

<30 days
past due
£m

>30 days
past due
£m

Total
£m

 

£m