Preliminary Results 2022/23
INVESTING FOR CUSTOMERS AND DELIVERING A STRONG PERFORMANCE .
| Performance highlights1,2 : | FY 22/23 | FY 21/22 | Change at actual rates | Change at constant rates | |
| Group sales (exc. VAT, exc. fuel)3 | £57,656m | £54,768m | 5.3% | 5.3% | |
| Adjusted operating profit4 | £2,630m | £2,825m | (6.9)% | (7.1)% | |
| – Retail | £2,487m | £2,649m | (6.1)% | (6.3)% | |
| – Tesco Bank | £143m | £176m | (18.8)% | (18.8)% | |
| Retail free cash flow5 | £2,133m | £2,277m | (6.3)% | ||
| Net debt2,5 | £(10,493)m | £(10,516)m | 0.2% | ||
| Adjusted diluted EPS4 | 21.85p | 21.86p | (0.0)% | ||
| Dividend per share | 10.90p | 10.90p | – | ||
| Statutory measur es: | |||||
| Revenue (exc. VAT, inc. fuel) | £65,762m | £61,344m | 7.2% | ||
| Operating profit | £1,525m | £2,560m | (40.4)% | ||
| Profit before tax | £1,000m | £2,033m | (50.8)% | ||
| Retail cash generated from operating activities | £3,752m | £3,614m | 3.8% | ||
| Diluted EPS | 10.08p | 19.64p | (48.7)% |
Delivered strong financial performance, with retail free cash flow ahead of expectations:
| • | Strong sales performance across the Group, with Retail LFL6 sales up 5.1%, as volumes held up relatively well despite cost-of-living pressures and some further post-pandemic normalisation | |
| ‑ | UK & ROI LFL sales up 4.7%, including UK up 3.3%, ROI up 3.3% and Booker up 12.0% | |
| ‑ | Central Europe LFL sales up 10.4% | |
| • | Statutory revenue £65,762m, up 7.2% including fuel sales up 23.3% | |
| • | Total retail adjusted operating profit4 £2,487m, down (6.3)% at constant rates | |
| ‑ | UK & ROI adjusted operating profit £2,307m, down (7.0)% driven by the impact of lower YoY volumes and ongoing investment in our customer offer, with Save to Invest largely offsetting significant operating cost inflation | |
| ‑ | C.Europe adjusted operating profit £180m, up 3.6% with volumes resilient in the face of significant market inflation | |
| • | Bank adjusted operating profit £143m, down (18.8)%, reflecting post COVID-19 macroeconomic provision release last year | |
| • | Statutory operating profit £1,525m, after £(982)m non-cash impairment charge due primarily to higher discount rates | |
| • | Strong retail free cash flow5 £2,133m, including working capital inflow of £468m | |
| • | Flat net debt2,5 year-on-year, with net debt/EBITDA ratio in middle of target range at 2.6x | |
| • | Adjusted diluted EPS4 21.85p, flat year-on-year; statutory diluted EPS 10.08p, down YoY due to impairment charge | |
| • | Proposed final dividend of 7.05pps to take full year dividend to 10.90pps (in line with last year’s full year dividend) | |
Further strengthening our customer offer, underpinned by a relentless focus on value:
| • | Solid UK market share performance; only full-line grocer to gain share over three years |
| • | Highest brand NPS of the full-line grocers; outperformed market on customer satisfaction |
| • | Most competitive offer ever, with powerful combination of Aldi Price Match, Clubcard Prices & Low Everyday Prices helping us mitigate inflation and drive value perception ahead of the market |
| • | Customers recognising our focus on great quality, with perception up 89bps YoY vs other full-line grocers down (153)bps |
| • | Opened 2,000th Express store and 1,000th One Stop store; Whoosh rapid delivery service now available in 1,000 stores |
| • | Clubcard penetration up again in all markets; further increase in app users, now 11.7m in UK, 0.7m in ROI and 2.0m in CE |
Creating long-term, sustainable value for all Tesco stakeholders:
| • | Continued strong focus on customer satisfaction, market share and cash, ensuring we balance all stakeholders’ needs |
| • | Biggest ever investment in pay; UK store colleagues now paid £11.02/hour7 with access to additional colleague benefits |
| • | Working with suppliers to mitigate as much inflation as possible; record supplier satisfaction score of 86.6% |
| • | Supporting foodbanks and our communities with daily donations; 52m meals provided by Tesco and our customers |
| • | Further progress towards 2035 carbon neutral own operations commitment; additional 243 electric home delivery vans; accelerated aim to halve our food waste in our own operations by 2025, five years earlier than planned |
| • | £750m worth of shares bought back since April 2022; cumulative £1.05bn bought back since October 2021 |
Ken Murphy, Chief Executive:
“It’s been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help. Our results reflect our continued investment in delivering great value and quality for our customers, whilst at the same time looking after our colleagues. This is despite unprecedented levels of inflation in the prices we have paid our suppliers for their products, and the cost of running our own operations. I am very proud of the way the Tesco team has responded to these challenges and would like to thank every colleague for the contribution they have made.
The resilience and agility that we have developed over the last few years has created a sustainable competitive advantage that leaves us well-placed to deal with any challenges that may arise. It has enabled us to deliver another strong performance across the Group, whilst continuing to make strategic progress.
Perhaps most importantly, over the last few years we have fundamentally repositioned our value proposition. We are the most competitive we have ever been, with our market-leading combination of Aldi Price Match, Clubcard Prices and Low Everyday Prices changing the way customers perceive value at Tesco.
Through the combination of an ever more digital Clubcard, a world-class integrated app for all our customers’ needs, the 30+ years of experience at dunnhumby and our unique reach and scale, we have built a powerful digital platform that puts us in prime position to take advantage of the exciting media monetisation and personalisation opportunities available to us.
We continue to target growth through making Tesco the most convenient place to shop. This year we have opened 91 stores across the Group and are serving over 450 net new Booker retail partners. Booker delivered its strongest year ever, helped by an outstanding catering performance as even more customers benefited from its unbeatable choice, price and service. Our acquisition of nine Joyce’s stores in the Republic of Ireland and, more recently, the Paperchase brand in the UK signals our appetite to find new, value-creating growth opportunities in our core markets.
Our focus on customer satisfaction, market share and free cash flow is working. It is delivering strong results and enabling us to re-invest in the business, maintain a strong balance sheet and return cash to shareholders. We have already bought back over £1bn worth of shares and have today announced a further £750m worth over the next twelve months.
I am really confident that by investing to give customers the best possible value and continuing to look after our colleagues, we will create further significant value for every stakeholder in Tesco.”
OUTLOOK .
We are pleased with our strong performance in 2022/23 and confident that we have the right strategy to keep winning. We will continue to prioritise investment in our customer offer whilst doing everything we can to offset the impact of ongoing elevated cost inflation.
We expect to be able to deliver a broadly flat level of retail adjusted operating profit in 2023/24 and retail free cash flow within our target range of £1.4bn to £1.8bn. We expect Bank adjusted operating profit of between £130m and £160m.
CAPITAL RETURN PROGRAMME .
Since launching our ongoing capital return programme in October 2021, we have now purchased a total of £1.05bn worth of shares, including £750m worth since April 2022, as expected.
We see the buyback programme as an ongoing and critical driver of shareholder returns. Reflecting the strength of our balance sheet and our confidence in delivering strong future cash flows, we are pleased to announce that we will buy back a total of £750m worth of shares over the next twelve months.
We will continue to announce any new forward commitments regarding our ongoing capital return programme as part of our preliminary results each April.
STRATEGIC PRIORITIES .
Our four strategic priorities continue to guide us by ensuring we offer outstanding value, great quality and market-leading convenience whilst also rewarding loyalty. Our unrivalled reach, strong supplier relationships and the capability of our exceptional teams means we are best-placed to serve our customers whenever, wherever and however they need us. Through our digital platform, powered by Clubcard and dunnhumby, we are building a significant competitive advantage. We remain focused on driving top-line growth, profit and cash, and in doing so, continuing to deliver for all of our stakeholders.
We have made further strong progress against our strategic priorities over the last year:
1) Magnetic Value for Customers – Re-defining value to become the customer’s favourite
| • | We are at the most competitive we have ever been, including our market-leading combination of: | |
| ‑ | Aldi Price Match: market-leading commitment on >600 lines; in 99% of large baskets & >85% of top-up shops | |
| ‑ | Low Everyday Prices: continuing price lock on over a thousand everyday products until July 2023 | |
| ‑ | Clubcard Prices: continuing to provide great offers and value to customers; >10% increase in promotions YoY | |
| • | Improved quality perception: +89bps YoY (+492bps over 3yrs) vs other full-line grocers (153)bps YoY (+15bps over 3yrs) | |
| • | Brand NPS highest of the full-line grocers; outperformed market on customer satisfaction | |
| • | Record supplier satisfaction score of 86.6%; #1 in Advantage supplier survey for seventh consecutive year | |
| • | Continued focus on health & sustainability; launched ‘Better Baskets’ instore & online; removed 71bn calories to date | |
| • | Further progress towards 2035 carbon neutral own operations commitment; additional 243 electric home delivery vans; accelerated plans to halve food waste in our own operations by five years, from 2030 to 2025 | |
2) I Love my Tesco Clubcard – Creating a competitive advantage through our powerful digital capability
| • | Further increase in Clubcard sales penetration across all markets; UK now at 79%, ROI at 77% and C.Europe at 83% |
| • | Nearly 21m active UK Clubcard households; over 14m Clubcard app users across Group (UK: 11.7m, ROI: 0.7m, CE: 2.0m) |
| • | Number of UK customers receiving in-app personalised coupons doubled to 4 million; 89m coupons issued to date |
| • | Clubcard ranked #1 loyalty scheme in all three C.Europe countries; 95% of CE promotions now on Clubcard Prices |
| • | Completed migration of Clubcard app into Grocery app; now includes home delivery, Click & Collect, Whoosh rapid delivery, GetGo queue-free shopping, in-store stock checking, payment and full Clubcard functionality |
3) Easily the Most Convenient – Serving customers wherever, whenever and however they want to be served
| • | Online sales remain nearly 60% ahead of pre-pandemic levels, with orders held at 1.1m per week |
| • | Online market share remained strong at c.35%; opened fifth and sixth urban fulfilment centres (UFCs) |
| • | Tesco Whoosh delivery service now in 1,000 stores, available to >55% UK households; average delivery time c.25mins |
| • | Opened two superstores, 50 Express stores, 18 One Stop stores in UK; working with 451 net new Booker retail partners |
| • | Nine stores converted from Joyce’s supermarkets in the Republic of Ireland, trading ahead of expectations; also opened four new Express stores in Ireland and seven small format stores in C.Europe |
| • | Acquired Paperchase brand in January 2023; first products to be launched in UK stores later this year |
4) Save to Invest – Significant opportunities to simplify, become more productive and reduce costs
| • | Strong progress across all areas: goods & services not for resale, property, operations and central overheads |
| • | Accelerated delivery of savings plan; in excess of £550m saved TY; on track to achieve at least £1bn cumulative by Feb-24 |
| • | Streamlined management structure in larger Superstores and Extra stores; closing all 467 remaining counters |
| • | Implemented energy reduction initiatives in stores, significantly improving efficiency and reducing costs |
| • | Replaced weekly paper offer booklets with digital flyer in C.Europe, removing c.3,500 tonnes of paper annually |
GROUP REVIEW OF PERFORMANCE .
| 52 weeks ended 25 February 20231,2 | FY 22/23 | FY 21/22 | Change at actual rates | Change at constant rates | |
| Sales (exc. VAT, exc. fuel)3 | £57,656m | £54,768m | 5.3% | 5.3% | |
| Fuel | £8,106m | £6,576m | 23.3% | 23.2% | |
| Revenue (exc. VAT, inc. fuel) | £65,762m | £61,344m | 7.2% | 7.3% | |
| Adjusted operating profit4 | £2,630m | £2,825m | (6.9)% | (7.1)% | |
| Adjusting items | £(1,105)m | £(265)m | |||
| Statutory operating profit | £1,525m | £2,560m | (40.4)% | ||
| Net finance costs | £(533)m | £(542)m | |||
| Joint ventures and associates | £8m | £15m | |||
| Statutory profit before tax | £1,000m | £2,033m | (50.8)% | ||
| Group tax | £(247)m | £(510)m | |||
| Statutory profit after tax | £753m | £1,523m | (50.6)% | ||
| Adjusted diluted EPS4 | 21.85p | 21.86p | (0.0)% | ||
| Statutory diluted EPS | 10.08p | 19.64p | (48.7)% | ||
| Dividend per share | 10.90p | 10.90p | – | ||
| Net debt 2,5 | £(10,493)m | £(10,516)m | 0.2% | ||
| Retail free cash flow 5 | £2,133m | £2,277m | (6.3)% | ||
| Capex 8 | £1,235m | £1,101m | 12.2% | ||
Group sales3 increased by 5.3% at constant rates, driven by strong sales performance in all segments as volumes held up relatively well despite cost-of-living pressures and some further post-pandemic normalisation. We delivered a market-leading performance over the important Christmas trading period, continuing to inflate behind the market as overall levels of inflation increased. Booker delivered an exceptionally strong performance, particularly in catering, with higher out-of-home consumption. Revenue increased by 7.3% at constant rates, including fuel sales growth of 23.2%.
Group adjusted operating profit4 decreased by (7.1)% at constant rates, primarily reflecting the impact of lower year-on-year volumes, the ongoing investment in our customer offer and significant operating cost inflation, partially offset by a very strong Booker catering recovery and the acceleration of our Save to Invest programme, which delivered in excess of £550m of savings in the year.
Group statutory operating profit reduced by (40.4)% year-on-year due to the operating profit impacts above and an increase in adjusting items, with the key driver being a £(982)m non-cash impairment charge on non-current assets (primarily property), mainly due to an increase in discount rates.
Net finance costs were broadly flat year-on-year as the benefit from higher interest receivable and net pension finance income was partially offset by non-cash fair value remeasurements. Further detail is shown on page 10. Our share of profits from joint ventures and associates was lower year-on-year due to a reduction in profits from UK property joint ventures. The reduction in tax this year reflects the lower retail operating profits and a one-off charge in the prior year related to the revaluation of deferred tax.
Adjusted diluted EPS4 was in line with last year, as the impact of the reduction in operating profit was offset by lower finance costs and tax charges, and the benefit of our ongoing share buyback programme. We have announced a full year dividend of 10.90p per ordinary share, in line with last year.
Net debt2,5 was broadly flat year-on-year, with strong cash generation funding over £1.6bn of shareholder returns in the form of share buybacks and dividends. We generated £2,133m of retail free cash flow5, including a net £468m working capital inflow. Retail free cash flow reduced by £(144)m due to lower retail operating profits and higher levels of capital investment, offset by a reduction in cash tax. The net debt/ EBITDA ratio was 2.6 times, up from 2.5 times in the prior year due to a reduction in retail EBITDA.