Interim Results 2022/23
ON TRACK AND DELIVERING FOR CUSTOMERS DESPITE TOUGH BACKDROP .
| Headline measures 1,2 : | H1 22/23 | H1 21/223 | Change at actual rate | Change at constant rate |
| Group sales (exc. VAT, exc. fuel)4 | £28,178m | £27,331m | 3.1% | 3.5% |
| Adjusted operating profit5 | £1,315m | £1,458m | (9.8)% | (9.8)% |
| – Retail | £1,248m | £1,386m | (10.0)% | (10.0)% |
| – Tesco Bank | £67m | £72m | (6.9)% | (6.9)% |
| Retail free cash flow6 | £1,283m | £1,543m | (16.9)% | |
| Net debt2,6 | £(10.0)bn | £(10.2)bn | (1.7)% | |
| Adjusted diluted EPS5 | 10.67p | 11.22p | (4.9)% | |
| Interim dividend per share | 3.85p | 3.20p | 20.3% | |
| Statutory measure s: | ||||
| Revenue (exc. VAT, inc. fuel) | £32.5bn | £30.4bn | 6.7% | |
| Operating profit | £736m | £1,304m | (43.6)% | |
| Profit before tax | £413m | £1,143m | (63.9)% | |
| Retail cash generated from operating activities | £2,038m | £2,267m | (10.1)% | |
| Diluted EPS | 3.44p | 10.70p | (67.9)% |
Strong trading performance built on consistent and competitive offer, leading to strong retail free cash flow:
· Retail7 LFL sales up +3.2% following strong performance throughout pandemic; 1-yr UK & ROI LFL reflects post-pandemic normalisation & cost-of-living changes in customer behaviour; strong Booker growth in catering & retail
| UK | ROI | Booker | UK & ROI | C.Europe | Retail | |||
| 1-yr LFL sales | 0.7% | (0.1)% | 13.9% | 2.7% | 10.4% | 3.2% | ||
| 3-yr LFL sales | 9.9% | 12.1% | 21.0% | 11.5% | 11.0% | 11.5% | ||
· Statutory revenue £32.5bn, up +6.7% including strong growth in fuel sales
· Total adjusted retail operating profit5 £1,248m, down (10.0)% at constant rates
– UK & ROI adjusted operating profit £1,169m, down (11.5)% mainly due to the impact of reduced YoY volumes as a result of post-pandemic normalisation, in addition to net cost inflation and our ongoing investment in the customer offer
– C.Europe adjusted operating profit £79m, up +19.1% as volumes remained strong despite significant inflation
· Bank adjusted operating profit £67m, down (6.9)% driven primarily by up-front charges on new business
· Statutory operating profit £736m, after £(626)m non-current asset impairment charge driven by higher discount rates
· Strong retail free cash flow6 £1,283m; YoY decline reflects last year’s exceptionally strong performance
· Net debt2,6 reduced by £0.5bn since February driven by strong cash generation; net debt ratio stable at 2.5x
· Adjusted diluted EPS5 10.67p, down (4.9)% due to lower profit part offset by reduced tax; statutory diluted EPS 3.44p
· Interim dividend of 3.85p, up +20.3%, in line with policy at 35% of prior year’s full year dividend
Supporting customers through relentless focus on value:
· Solid UK market share performance, in line with expectations reflecting normalisation & with less inflation than market
· Competitiveness of offer recognised by customers in a tough market: Brand NPS now highest of the full-line grocers
· Powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices helping ease cost-of-living pressures, leading to most competitive price index vs. limited-range discounters to date
· Helping customers spend less by eating-in, with +13% YoY increase in Finest range; quality perception +208bps
· Accelerating Save to Invest to help mitigate cost inflation; c.£0.5bn this year & c.£1bn cumulative by Feb-24, 1 yr early
Creating long-term, sustainable value for all Tesco stakeholders:
· Strong and ongoing focus on customer satisfaction, market share and cash, ensuring we balance all stakeholder needs
· Biggest single-year investment in colleague pay, in addition to increase announced today for our UK stores; further support includes extended discount allowance, increased access to hours & free food in colleague rooms
· Working together with supplier partners to mitigate inflation, helping customers with unparalleled financial pressures
· Daily donations to support unprecedented foodbank demand in our communities – over 20m meals provided in H1
· Ongoing commitment to return capital; £450m returned to shareholders since April; cumulative £750m since Oct-21
Footnotes can be found on page 4.
Ken Murphy, Chief Executive:
“We know our customers are facing a tough time and watching every penny to make ends meet. That’s why we’re working relentlessly to keep the cost of the weekly shop as affordable as possible, with our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices, together covering more than 8,000 products, week in, week out. We’re also investing significantly in our colleagues, with a further boost to pay announced today for our UK stores. I want to say a big thank you to the whole Tesco team, and our supplier partners – together, we have built a more resilient, consistent business that’s well set up for the future.
By staying laser-focused on value and sticking to our strategy of inflating a little bit less and a little bit later, our price position has got even more competitive. Customers are seeking out the quality and value of our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out.
As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market. Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders. Most importantly, we will stay focused on delivering value for our customers and supporting them in every way we can.”
OUTLOOK .
In April, we provided a wider than usual range of profit guidance for the 2022/23 financial year, given significant uncertainties in the external environment. Since then, post-pandemic normalisation has been compounded by cost-of-living driven changes in customer behaviour. Cost inflation is significant and we have continued to invest to support our customers and colleagues. However, our solid trading performance and acceleration of our Save to Invest programme have contributed to a strong financial result for the first half.
As a result, despite ongoing challenges in the market, we are able to maintain our profit guidance within our previous range, albeit towards the lower end. We therefore expect full year retail adjusted operating profit of between £2.4bn and £2.5bn. Significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve.
Our strong and ongoing focus on cash and a more positive expectation on working capital leads to an upgrade in our expectation for full year retail free cash flow to be at least £1.8bn.
We continue to expect Bank adjusted operating profit of c.£120m to £160m.