TIDMTSCO
RNS Number : 1267O
Tesco PLC
06 October 2021
STRONG H1 OUTPERFORMANCE LEADING TO INCREASED FY PROFIT
OUTLOOK.
STRATEGIC PRIORITIES SET OUT; SHARE BUYBACK PROGRAMME
ANNOUNCED.
Headline measures H1 21/22 H1 20/21 Change Change
(1,2) : at actual at constant
rate rate
Group sales (exc.
VAT, exc. fuel)(3) GBP27,331m GBP26,652m 2.6% 3.0%
Adjusted operating
profit(4) GBP1,458m GBP1,037m 40.6% 41.0%
- Retail GBP1,386m GBP1,192m 16.3% 16.6%
- Tesco Bank GBP72m GBP(155)m 146.5% 146.5%
Retail free cash
flow(5) GBP1,543m GBP797m 93.6%
Net debt(2,5) GBP(10.2)bn GBP(12.5)bn down 18.5%
Adjusted diluted
EPS(6) 11.22p 7.29p 54.0%
Interim dividend
per share 3.20p 3.20p -
Statutory measures:
Revenue (exc. VAT,
inc. fuel) GBP30.4bn GBP28.7bn 5.9%
Operating profit GBP1,304m GBP1,007m 29.5%
Profit before tax GBP1,143m GBP551m 107.4%
Diluted EPS 10.70p 4.06p 163.5%
A strong first half leading to an upgrade in full year profit
expectations:
-- Elevated sales continued into first half; Group Retail 1-yr
LFL(7) sales growth includes UK market outperformance and sharp
recovery of Booker catering; 2-yr LFL reflects strong performance
throughout pandemic across all businesses:
UK ROI Booker UK&ROI C.Europe Retail
1-yr LFL
sales 1.2% (2.6)% 11.0% 2.4% 1.4% 2.3%
2-yr LFL
sales 8.9% 12.2% 9.1% 9.1% 0.3% 8.4%
-- Total adjusted retail operating profit(4) GBP1,386m, +16.6% at constant rates
-- UK & ROI adjusted operating profit GBP1,318m, +16.5% due
to higher sales and lower COVID-19 costs, part offset by YoY effect
of last year's GBP249m business rates relief (repaid in H2 last
year)
-- Central Europe adjusted operating profit GBP68m, +18.6% due
to lower COVID-19 costs & higher YoY mall income
-- Bank adjusted operating profit GBP72m, returning to profit
following last year's increase in potential bad debt provision
-- Retail free cash flow(5) GBP1,543m, +93.6% inc. higher
profit, lower pension contribution & c.GBP400m working capital
phasing
-- Net debt(2,5) reduced by +GBP1.7bn since February reflecting strong cash flow
-- Adjusted diluted EPS(6) 11.22p, +54.0% reflecting higher
retail profits and return to profitability for Tesco Bank
-- Interim dividend of 3.20p, in line with prior year; aligned
to policy at 35% of last year's full year dividend
-- Strong first half performance leading to increased full year
profit expectations: adjusted retail operating profit now expected
to be between GBP2.5bn and GBP2.6bn
Strengthening our customer proposition:
-- Grown UK market share; Customer satisfaction improving across all areas
-- 'Aldi Price Match' expanded to c.650 products, Clubcard
Prices now in Express stores and unbeatable Low Everyday Prices
relaunched on 1,600 products
-- Strengthened digital platform: online LFL sales +2.3% (2-yr
LFL: +74.1%) with market share maintained; now over 20m Clubcard
households including 6.6m app users; on-demand grocery delivery
trials progressing well
-- Group net zero own operations climate goal accelerated to
2035; new 2050 scope 3 target announced; soft plastic recycling now
in all UK large stores; ambitious health commitments launched
across UK, Central Europe & Booker
Creating long-term, sustainable value for all Tesco
stakeholders:
-- Strategic priorities and multi-year performance framework set out
-- Aim to drive top and bottom line growth and generate between
GBP1.4bn and GBP1.8bn retail free cash flow per year
-- Capital allocation framework refreshed
-- GBP500m share buyback announced
Detail on footnotes can be found on page 5.
Ken Murphy, Chief Executive:
"We've had a strong six months; sales and profit have grown
ahead of expectations, and we've outperformed the market. This was
a strong team effort and I would particularly like to recognise and
thank our colleagues who continue to do an incredible job in
difficult times. I'm really pleased with our progress as we
increased customer satisfaction and grew market share leading to a
strong financial performance. With various different challenges
currently affecting the industry, the resilience of our supply
chain and the depth of our supplier partnerships has once again
been shown to be a key asset.
Against a backdrop of profound change, Tesco has many unique
advantages. The scale and reach of our store estate and online
operations are unmatched in the UK. Our ability to reward loyalty
through Clubcard enhances our relationship with customers. Our
world-class food retail expertise combined with our strong supplier
partnerships ensures we can offer our customers great value and
quality, removing reasons to shop elsewhere. Together, these
strengths mean that Tesco can anticipate and respond to changes in
the market, meeting customers' needs better than anyone.
Today, we are sharing the strategic priorities that will enable
us to build on these advantages to stay competitive, accelerate
growth and generate between GBP1.4bn and GBP1.8bn retail free cash
flow per year. These priorities will ensure we do the basics
brilliantly, operate as efficiently as possible and grow our
business by building unbeatable digital, convenience and loyalty
platforms.
We are committed to creating value for all stakeholders in our
business. Our commitments to the communities we serve and society
more broadly are reflected in our new purpose: serving customers,
communities and the planet a little better every day. For
shareholders, our strong performance to date and our confidence in
our ability to generate cash in the coming years has enabled us to
announce the start of a buyback programme that will balance the
maintenance of a strong capital structure with returning surplus
cash."
OUTLOOK .
As a result of our strong first half performance, we have
increased our adjusted retail operating profit expectations for
this financial year to between GBP2.5bn and GBP2.6bn. Although we
do not yet know how the external environment and consumer behaviour
will evolve in the second half, we have assumed that some of the
elevated sales fall away and that we will continue to invest in our
customer offer.
We now expect Tesco Bank to deliver adjusted operating profit of
at least GBP120m for this financial year. This expectation remains
highly dependent on the economic outlook.
CAPITAL ALLOCATION AND LAUNCH OF ONGOING SHARE BUYBACK
PROGRAMME.
We have conducted a detailed review of our capital allocation
framework, focusing in particular on the appropriateness of our
leverage target, on the application of our dividend policy and on
our ability to return surplus cash to shareholders. This review has
resulted in two changes.
First, we will use a simpler measure of Net debt*/EBITDA when
assessing leverage for the purpose of capital allocation targeting
a range of 2.8 to 2.3 times, consistent with a solid investment
grade credit rating. The inclusion of the IAS 19 pension deficit
within the total indebtedness ratio used previously created
material volatility which could not be accurately predicted and has
no bearing on our near-term cash obligations or our long-term,
unwavering commitment to our pension scheme members.
Second, we are confirming that it is our intention to pay a
progressive dividend - i.e. we will aim to grow the dividend per
share each year, broadly targeting a pay-out of around 50% of
earnings.
Capital expenditure will remain between GBP0.9bn and GBP1.2bn
per year.
Our refreshed capital allocation framework is as follows:
1. Reinvest in business and customer offer
2. Maintain a solid investment grade balance sheet
3. Pay a progressive dividend
4. Consider inorganic growth opportunities that may arise
5. Return surplus cash to shareholders
Following our strong first half performance, our leverage ratio
stands at 2.7 times. We are therefore announcing the start of an
ongoing share buyback programme, with the first tranche of GBP500m
in shares to be repurchased by no later than October 2022. We will
provide an update on our progress alongside our preliminary results
in April 2022.
* For the avoidance of doubt, Net debt is inclusive of IFRS 16
lease obligations. A full definition can be found in the glossary
on page 64.
CREATING VALUE IN A DYNAMIC MARKET.
The retail sector is undergoing significant change. Customers
are faced with an increasing range of choices as to where, how and
when to shop, with the COVID-19 pandemic accelerating a number of
profound shifts in consumer behaviour. The competitive environment
has changed materially, with a particular emphasis on value and
greater importance placed on fuller-service offerings such as
grocery home delivery. Consumers and other stakeholders are also
placing greater importance on environmental and social
considerations which sometimes require significant change at an
industry, national or even global level.
We believe we can thrive against this backdrop. Tesco has a
uniquely strong position in terms of reach, capability and market
share, built up through decades of focusing on meeting our
customers' needs. We are hugely proud of the capability and
commitment of our team of nearly 360,000 colleagues, serving
millions of customers across the Group. We have market-leading
positions in every channel and format in our core UK retail and
wholesale markets, and through Clubcard, dunnhumby and over 40
million transactions every week, we have the insight to be able to
understand and anticipate customers' changing needs. We have the
broadest, most compelling product range and strong relationships
with our supplier partners, together with efficient, well-invested
supply chain, distribution and fulfilment infrastructure.
MULTI-YEAR PERFORMANCE FRAMEWORK.
Combined, these capabilities will allow us to create
sustainable, long-term value for every Tesco stakeholder. Today, we
are sharing the framework we will use to guide our actions and
track our progress over the coming years:
Specifically, we are seeking to:
-- Drive top-line growth, underpinned by:
-- Increasing customer satisfaction relative to the market
-- Growing or at least maintaining our core UK market share
-- Grow our absolute profits whilst maintaining sector-leading margins through:
-- Leveraging our assets efficiently across all channels
-- Accessing new revenue streams across our digital platform
-- Targeting productivity initiatives to at least offset inflation
-- In doing so, generate between GBP1.4bn and GBP1.8bn retail free cash flow per year
We are confident that this will enable us to maintain a strong
and efficient balance sheet, invest for growth and deliver improved
returns for our shareholders.
Our progress against each of the measures is unlikely to be
linear. For example, our near-term performance will likely reflect
the annualisation of our exceptionally strong top-line performance
through the COVID-19 period, which could result in a temporary
reduction in sales.
Delivery against the framework will be enabled by four strategic
priorities:
STRATEGIC PRIORITIES.
1) Magnetic value for customers
Value is much broader than just price - we see it as the
intersection of price, quality and, increasingly, sustainability.
We want to make high quality, healthy and sustainably-sourced food
available and affordable to everyone, and in doing so, remove
reasons for customers to want or need to shop anywhere else.
Clearly, price will remain a critical part of this and we will
maintain the competitiveness we have established through Aldi Price
Match, Low Everyday Prices and Clubcard Prices.
The quality of our products is already high. We will seek
further improvements by continuing to innovate with our supplier
partners. We will leverage the strength of Tesco Finest* as part of
a renewed focus on premium products and further refine our supply
chain to ensure that the quality of everything we sell is protected
all the way from farm (or factory) to fork.
We aim be the easiest place to shop for healthy and sustainable
foods. We are working hard to reduce the environmental impact of
both our own and our supplier partners' operations, including
through continuing to remove, reduce, reuse and recycle packaging
wherever we can. We are also committed to continuing to make a
positive contribution to the communities we operate in.
2) I love my Tesco Clubcard
We have created one of the leading digital retail platforms in
the UK. The combination of Clubcard - used by more than 20 million
households in the UK alone - with our online grocery business, our
nearly seven million regular app users and dunnhumby's analytical
expertise creates a powerful digital capability. It gives us the
ability to manage vast amounts of data, gain unique insights and
respond quickly and effectively. When this is brought together with
our unrivalled physical network, it gives us a competitive
advantage that is hard to replicate.
For customers, we will use this advantage to provide a much
richer experience, personalising their offer to a much greater
degree and responding to their changing needs in real time. They
will be able to choose how, when and where they shop with us -
across our full range of products and services - and how they earn
and use the rewards they accumulate. We will use all of the assets
we have - and critically, Clubcard - to ensure that the more
customers use Tesco, the more useful Tesco becomes to them - a
powerful virtuous circle.
Clubcard, and our digital platform more broadly, will also be at
the heart of a reinvention of our supplier strategy. It gives us
the ability to access incremental income streams by providing
suppliers with the opportunity to market their products in more
targeted ways such as advertising on our grocery home shopping
website or offering a tailored range of additional products direct
to specific customers.
3) Easily the most convenient
To be 'convenient' now means serving customers wherever,
whenever and however they want to be served. We believe we can do
that better than anyone by leveraging our existing reach and strong
network. We will continue to adapt our existing estate whilst
seeking out capital-light growth in the two key growth channels:
online and convenience.
We have already evolved our well-located large store estate to
provide the backbone of our online grocery business. Our annual
online sales have already exceeded GBP6bn, boosted by increased
demand as a result of the COVID-19 pandemic. We plan to continue
this growth whilst constantly innovating to improve efficiency, for
example through the roll-out of urban fulfilment centres (UFCs) and
continued improvements in our existing manual picking and delivery
operations.
We also have a strong presence in the second fastest growing
food retail channel - convenience - with the combination of our
1,941 fully-owned Express convenience stores, our 710 owned and 233
franchised One Stop stores and our wholesale relationship with
c.90,000 Booker retail customers. This gives us a strong platform
from which to accelerate growth through capital-light opportunities
to open new space and continuing to add new franchisees and symbol
store operators, leaving us well-placed to benefit from the
continuing trend towards more frequent top-up shopping.
Our strong presence across all channels positions us well to
serve the increasing demand for more immediate grocery delivery
services. We are continuing to test and learn from various trials
of new, on-demand services, such as our own Tesco Whoosh platform
and One Stop's trial partnership with Deliveroo. Our UFC programme
also provides the capability for a large basket on-demand offer,
potentially enabling customers to collect their full weekly or
fortnightly shop within minutes of placing an order.
4) Save to invest
Cost efficiency is a deep-seated principle within Tesco that has
been brought back to the fore in recent years, enabling us to
regain our competitiveness and rebuild the financial strength of
the business.
As we look forward, we see significant further opportunities to
simplify, become more productive and reduce costs. As a minimum, we
are seeking to offset the impact of cost inflation on our business
each year. In addition, we believe we can create additional
headroom that will allow us to fund investments in competitiveness
and growth, supporting the other three strategic priorities.
Having conducted a detailed review, we have identified c.GBP1bn
of gross savings through simplification across areas such as goods
not for resale, improved productivity, optimisation of our delivery
network and central overheads.
We expect to deliver these savings over the next three years.
Whilst our intention is to do this predominantly through
incremental changes to existing operations, we will continually
review opportunities to accelerate our plans and highlight any
exceptional costs which could be incurred as a result.
We will provide an update on progress against our performance
framework and these four strategic priorities at our interim and
preliminary results each year.
Group review of performance.
H1 H1 Total change YoY
26 weeks ended 28 August 2021(1,2) 2021/22 2020/21 Actual Constant
rate rate
Group sales (exc. VAT, exc.
fuel)(3) GBP27,331m GBP26,652m 2.6% 3.0%
Fuel GBP3,085m GBP2,066m 49.3% 49.3%
Revenue (exc. VAT, inc. fuel) GBP30,416m GBP28,718m 5.9% 6.3%
Adjusted operating profit (4) GBP1,458m GBP1,037m 40.6% 41.0%
Exceptionals & amortisation GBP(154)m GBP(30)m
of acquired intangibles
Group statutory operating profit GBP1,304m GBP1,007m 29.5%
Net finance costs GBP(158)m GBP(469)m
Joint ventures and associates GBP(3)m GBP13m
Group statutory profit before
tax GBP1,143m GBP551m 107.4%
Group tax GBP(313)m GBP(154)m
Group statutory profit after
tax GBP830m GBP397m 109.1%
Adjusted diluted EPS(6) 11.22p 7.29p 54.0%
Statutory diluted EPS 10.70p 4.06p 163.5%
Interim dividend per share 3.20p 3.20p -
Net debt (2,5) GBP(10.2)bn GBP(12.5)bn
Retail free cash flow (5) GBP1.5bn GBP0.8bn
Capex (8) GBP0.4bn GBP0.4bn
We have made two changes to the Alternative Performance Measures
(APMs) above:
-- We have renamed our operating profit and EPS APMs. Profit has
changed from 'Group operating profit before exceptional items and
amortisation of acquired intangibles' to 'Adjusted operating
profit'. EPS has changed from 'Diluted EPS before exceptional and
other items' to 'Adjusted diluted EPS'. The definitions are
unchanged and this has no impact on the current or previously
reported figures.
-- We have amended the definition of our Retail free cash flow
APM in order to provide a more consistent and predictable view of
free cash flow generated by the core retail operation. It now
excludes cash flows from business acquisitions and disposals,
investments in joint ventures and associates, cash flows from the
sale or buyback of property, and other exceptional cash flows.
More detail on these changes can be found in the Glossary on
page 62.
Group sales(3) increased by +3.0% at constant rates with a
strong performance across all regions as we continued to benefit
from elevated sales as a result of the COVID-19 pandemic. Revenue
increased by +6.3% at constant rates including growth of +49.3% in
fuel sales reflecting a significant recovery in travel driven by
the easing of Government restrictions early in the half. Fuel sales
remained below pre-pandemic levels with two-year like-for-like
sales down by (11.3)%.
Group adjusted operating profit(4) grew by +41.0% at constant
rates, reflecting sustained strong UK sales, a reduction in
COVID-19 related costs in our retail businesses and a return to
profitability in Tesco Bank. These benefits were partially offset
by the year-on-year effect of GBP(249)m UK Government business
rates relief included in the prior year. Statutory operating profit
grew by +29.5%, impacted by the settlement of historic shareholder
litigation claims, reported within exceptional items.
Finance income and finance costs reduced year-on-year due to
fair value remeasurements related to the mark-to-market movement on
inflation-linked swaps, which were a GBP180m credit this year
compared to a GBP(108)m debit last year. The change in our share of
joint ventures and associates was principally due to profit from
Tesco Underwriting being recognised within Tesco Bank operating
profit following its full acquisition in May. The first half tax
rate was broadly stable year-on-year with the increase in tax
charge primarily reflecting higher levels of operating profit.
Our adjusted diluted EPS(6) rose by +54.0% reflecting the
increase in profitability. We have announced an interim dividend in
line with last year and aligned to our policy of setting the
interim dividend at 35% of the prior year full-year dividend.
Net debt(2,5) reduced since the beginning of the financial year
primarily driven by strong free cash flow generation. Retail free
cash flow(5) increased by GBP0.7bn year-on-year due to higher
retail operating profits, the elimination of UK pension
contributions (following the GBP2.5bn one-off contribution last
year from the Asia disposal proceeds) and a c.GBP400m working
capital phasing benefit. These benefits were partly offset by a
small increase in capital expenditure.
Further commentary on all of these metrics can be found below
and a full income statement can be found on page 17.
Notes:
1. The Group has defined and outlined the purpose of its
alternative performance measures, including its headline measures,
in the Glossary starting on page 62.
2. All measures apart from net debt are shown on a continuing
operations basis unless otherwise stated. Further details on
discontinued operations can be found in Note 6, starting on page
40.
3. Group sales exclude VAT and fuel. Sales change shown on a
comparable days basis for Central Europe.
4. 'Adjusted' operating profit excludes exceptional items and
amortisation of acquired intangibles. 'Adjusted' EPS excludes
exceptional items, amortisation of acquired intangibles, net
pension finance costs and fair value remeasurements of financial
instruments.
5. Net debt and retail free cash flow exclude Tesco Bank. In
addition, we have amended the definition of our Retail free cash
flow APM in order to provide a more consistent and predictable view
of free cash flow generated by the core retail operation. For more
detail, see page 64 in the Glossary.
6. The share base used in adjusted diluted EPS in the prior year
is restated to capture the full impact of the share consolidation
which followed the sale of our businesses in Thailand and Malaysia,
as if it took place at the start of the 2020/21 financial year. As
such, this metric is presented on a basis other than in accordance
with IAS33. Please see page 65 for a reconciliation to diluted
adjusted EPS.
7. Like-for-like is a measure of growth in Group online sales
and sales from stores that have been open for at least a year (at
constant exchange rates, excluding VAT and fuel).
8. Capex is shown excluding property buybacks. Statutory capital
expenditure (including property buybacks) for the 26 weeks ended 28
August 2021 was GBP0.5bn (LY GBP0.5bn).
Segmental review of performance:
Sales performance:
(exc. VAT, exc. fuel)(2)
Sales LFL sales change(7) Total sales change
YoY
GBPm One-year Two-year Actual rate Constant
rate
- UK GBP19,883m 1.2% 8.9% 1.8% 1.8%
- ROI GBP1,245m (2.6)% 12.2% (5.8)% (2.0)%
- Booker GBP3,865m 11.0% 9.1% 11.1% 11.1%
UK & ROI GBP24,993m 2.4% 9.1% 2.7% 2.9%
Central
Europe GBP1,905m 1.4% 0.3% (0.8)% 2.6%
-------------- ------------ ---------- ---------- ------------ ---------
Retail GBP26,898m 2.3% 8.4% 2.4% 2.9%
-------------- ------------ ---------- ---------- ------------ ---------
Bank GBP433m - - 12.2% 12.2%
-------------- ------------ ---------- ---------- ------------ ---------
Group GBP27,331m 2.3% 8.4% 2.6% 3.0%
-------------- ------------ ---------- ---------- ------------ ---------
Memo: Fuel GBP3,085m 50.1% (11.3)% 49.3% 49.3%
Further information on sales performance is included in
Appendices 1 to 3 (starting on page 70).
Adjusted operating profit (4) performance:
Profit Total change YoY Margin Margin change YoY
GBPm Actual Constant % Actual Constant
rate rate rate rate
UK & ROI GBP1,318m 16.3% 16.5% 4.71% +41bp +40bp
Central
Europe GBP68m 15.3% 18.6% 3.44% +48bp +47bp
----------- ----------- -------- --------- ------- --------- ---------
Retail GBP1,386m 16.3% 16.6% 4.62% +41bp +41bp
----------- ----------- -------- --------- ------- --------- ---------
Bank GBP72m 146.5% 146.5% 16.63% +5,678bp +5,678bp
----------- ----------- -------- --------- ------- --------- ---------
Group GBP1,458m 40.6% 41.0% 4.79% +118bp +118bp
----------- ----------- -------- --------- ------- --------- ---------
Further information on operating profit performance is included
in Note 2 (starting on page 25).
UK & ROI overview :
In the UK & Republic of Ireland (ROI), two-year
like-for-like sales increased by 9.1% with all areas - UK, ROI and
Booker - making a strong contribution. One-year like-for-like sales
grew by +2.4% driven by a sharp recovery in our Booker catering
business and growth in the UK business as we outperformed the rest
of the market.
UK & ROI adjusted operating profit was GBP1,318m, up +16.5%
at constant rates due to higher sales and lower COVID-19 costs
offset by the year-on-year effect of GBP(249)m UK Government
business rates relief included in the prior year. In December 2020
we made the decision to forgo this relief, which was repaid in the
second half of the prior year.
In the UK, we continue to incur COVID-19 related costs, which
totalled GBP(122)m in the first half - significantly less than the
GBP(533)m costs incurred in the first half of last year. This
year's costs primarily related to colleague absence, maintaining a
safe environment in stores for colleagues and customers and
additional costs in relation to elevated online sales. Our best
estimate remains for around GBP(220)m COVID-19 related costs to be
incurred this year.
Operating margin was up 40 basis points versus last year at
constant rates as the benefit from lower COVID-19 related costs, a
recovery in Booker catering and a greater participation in
higher-margin non-food sales was partially offset by an increase in
margin-dilutive fuel sales and the impact of UK Government business
rates relief in the prior year.
UK - continued strong performance with growth on top of
exceptional sales last year:
In the UK, sales grew ahead of expectations and we outperformed
the market as customer satisfaction improved across all key areas.
Two-year like-for-like sales grew by +8.9% driven by a strong
customer proposition on top of the benefit of customers continuing
to eat more meals at home than prior to the pandemic.
One-year like-for-like sales were up +0.5% in the first quarter
with a strong contribution from general merchandise and clothing.
Like-for-like sales accelerated in the second quarter to +2.0% as
comparatives softened due to the easing of COVID-19 restrictions in
the summer of 2020. As industry supply chains came under increasing
pressure, we were able to leverage our strong supplier
relationships and distribution capability to maintain good levels
of availability for customers, contributing to our market
outperformance. Events such as the delayed Euro 2020 Football
Championship and 'stay-cations' also contributed to our growth in
the current year.
We continued to expand our value proposition and customers
responded well, with our value perception improving by 170 basis
points year-on-year. In April, we re-launched 'Low Everyday
Prices,' offering unbeatable value on c.1,600 products and giving
customers the confidence that the core lines they buy will always
be competitively priced. We rolled out Clubcard Prices to Express
stores in May and extended the range of promotions covered by the
scheme to include meal deals and other multi-product promotions. As
a result, across all stores, Clubcard sales penetration increased
by 14 percentage points year-on-year to 70%. In September, we added
c.100 own-label products to Aldi Price Match, taking the total to
c.650. Overall, promotional participation was held at c.23% across
the half as we prioritised those offers which are most meaningful
to customers.
Customers continued to shop less frequently and with
considerably larger baskets than before the pandemic. As we
continued to prioritise the safety of our customers, large stores
performed well with two-year like-for-like sales up 4.3%.
In our online business, two-year like-for-like sales were up
+74.1% with over 700,000 more customers now shopping with us
compared to pre-pandemic levels. Online one-year like-for-like
sales grew by 2.3% as we traded over the significant ramp up in
capacity last year and as customers gained confidence in returning
to physical stores. Sales were supported by the opening of 75 more
Click & Collect locations and the re-opening of our Delivery
Saver offering from April. We have included the table below to aid
understanding of our online performance:
Online performance H1 One-year Two-year
change change
2021/22
LFL sales +2.3% +74.1%
Orders per week 1.27m +12.4% +69.0%
Basket size GBP GBP94 (8.4)% +2.9%
Online % of UK 14.6% (0.1)%pts +5.2%pts
total sales
Delivery saver
subscribers 668k +13% +34%
C&C locations 454 +24% +38%
We opened our second Urban Fulfilment Centre (UFC) in Lakeside
in May, which will have capacity at maturity to process 1,000
orders per day. We are encouraged by the performance of our first
two UFCs, where pick rates are up to four times higher than
store-based picking. We expect to have five UFC's operational by
April next year with our third UFC in Bradford due to open in
January.
We are testing and learning from on-demand trials within our UK
business including 'Tesco Whoosh' - our 60 minute delivery service,
which is already in over 50 Express stores, with more being added
every week. This service offers 1,700 of our most popular products,
including fresh food, everyday essentials and household products
and is available 7am-10pm, every day.
Convenience store two-year like-for-like sales were down (2.0)%,
with a stronger performance at the end of the half as footfall in
our city centre Express stores continued to recover. One-year
like-for-like convenience store sales were down (5.0)%, as we
traded over a particularly strong performance in neighbourhood
locations last year. In May, we re-branded the majority of our
Metro stores as Express stores, reflecting that customers were
principally using them to buy food for that day.
Two-year like-for-like food sales increased by +8.7% including a
benefit from customers eating more meals at home. On a one-year
basis, the effects of customer stockpiling last year resulted in a
decline in food sales of (2.1)% in the first quarter although this
recovered to growth of +0.7% in the second quarter. Plant-based
foods continue to grow strongly including our Plant Chef products
which grew by 52% as we made targeted price investments and further
expanded our range. We continue to innovate with exciting new
products to inspire customers such as our Finest* meal kits -
re-creating the restaurant experience at home - and new ranges such
as Beautifully Balanced - helping customers eat more of their
'5-a-day' fruit and vegetable portions. General merchandise and
clothing sales grew sharply due to increased demand versus the
prior year when customers were prioritising spend in essential
categories. Having reappraised our non-food offer through the
pandemic, customers are now shopping it more frequently.
We rolled out soft plastic recycling facilities across all of
our large UK stores and launched an innovative Reuse proposition in
ten stores as we continue to tackle plastic pollution. Over the
Summer, our 'Buy One to Help a Child' campaign - during
which we gave a donation for every piece of fruit and vegetables
purchased across our stores and online - enabling FareShare to
provide 3m meals-worth of food to help charities and community
groups.
We are continuing to drive action on climate change in support
of our net zero ambition, including new renewable electricity
generation projects, the continued roll out of EV charge points and
sustainability-linked supply chain financing. We have further
strengthened our climate ambitions, accelerating our Group own
operations net zero target to 2035 to be in line with the UK and
launching a new goal to be net zero across our entire value chain
(i.e. including scope 3 emissions) by 2050, aligned to a 1.5-degree
pathway. We were delighted to be awarded the Prince of Wales's
Terra Carta Seal in recognition of our commitment to and momentum
towards a climate and Nature-positive future.
ROI - sales decline reflects exceptionally strong performance
LY; two-year LFL sales +12.2%:
Two-year like-for-like sales in ROI grew by +12.2% with a strong
performance across all categories and channels. One-year
like-for-like sales declined by (6.1)% in the first quarter
reflecting the impact of stockpiling in the prior year which was
particularly marked due to earlier and stricter lockdown
restrictions than in the UK. In the second quarter, one-year
like-for-like sales grew by +1.2% including the benefit of a strong
clothing performance and seasonal events such as Back to School,
gardening and Father's Day.
Our market-leading online business continued to perform
exceptionally well with like-for-like sales growth of 74.8% on a
two-year basis and +10.8% on a one-year basis. Online sales now
represent c.8% of total ROI sales.
We launched Clubcard Prices Events in April, giving our Clubcard
customers access to exclusive deals. We also focused on making
shopping easier for customers, including rolling out 'Scan As You
Shop' to all large stores.
In July, our shortened payment terms for over 200 of our small
Irish food and drink suppliers were further extended until February
2022.
Booker - sharp recovery in catering sales in the half:
Sales
GBPm LFL sales change
One-year Two-year
Retail 2,392 (2.8)% 19.4%
Retail exc. Tobacco 1,354 (6.5)% 17.1%
Tobacco 1,038 2.7% 22.5%
Catering 1,352 54.4% (11.6)%
Catering exc. BFL 802 37.5% (11.6)%
Best Food Logistics
(BFL) 550 89.3% n/a
Total Booker* 3,865 11.0% 9.1%
-------------------------- ------ --------- ---------
* Total Booker also include small business sales of GBP121m
Overall, two-year like-for-like sales growth in Booker was +9.1%
driven by the expansion of our retail business. One-year
like-for-like growth of +11.0% was driven by a sharp recovery in
demand from catering customers.
Two-year retail like-for-like sales were up +19.4% as we
expanded our ranges and invested in price on key product lines.
One-year retail like-for-like sales were down (2.8)% reflecting an
increase in the number of customers shopping closer to home last
year through the initial stages of the COVID-19 pandemic. The
increase in tobacco sales reflects increased domestic purchases due
to the impact of travel restrictions on duty-free sales.
Two-year catering like-for-like sales fell by (11.6)% due to
government restrictions in place at the beginning of the half. By
the end of the half, catering sales were ahead of pre-pandemic
levels. One-year catering like-for-like sales increased by +54.4%
as we adapted our offer to support our hospitality customers as the
sector re-opened for outdoor dining from mid-April and for indoor
dining from mid-May. The recovery in our catering sales was
supported by great prices on key volume lines and market-leading
availability as we worked hard to minimise the impact of supply
chain challenges due to the shortage of HGV drivers and high
numbers of colleagues required to isolate due to COVID-19
notifications. Excluding Best Food Logistics, whose customers were
mostly closed for part of last year, catering like-for-like sales
grew by +37.5%.
Central Europe - growth across all markets in Q2 following
easing of government restrictions:
Like-for-like sales increased by +0.3% on a two-year basis and
by +1.4% on a one-year basis, driven by a strong performance in
Slovakia and Hungary. Trading conditions were more challenging in
the Czech Republic, due to non-food sales restrictions in the first
quarter.
All three markets delivered sales growth in the second quarter
as customers returned to our large stores following the lifting of
COVID-19 restrictions which had encouraged shopping locally. We
have market-leading online positions in Slovakia and Hungary and
have doubled the size of our total online business over two
years.
Central Europe operating profit was GBP68m, up +18.6% at
constant rates reflecting a strong sales performance, a reduction
in COVID-19 related costs and a prior year reduction in income
caused by temporary mall closures. We incurred a charge of GBP(16)m
in relation to the retail sales tax in Hungary which was introduced
in May 2020 - a year-on-year impact of GBP(6)m.
Tesco Bank - year-on-year profit increase reflecting prior year
COVID-19 impact on potential bad debts:
This year Last year YoY
Revenue GBP433m GBP386m 12.2%
Adjusted operating profit/
(loss) GBP72m GBP(155)m 146.5%
Lending to customers GBP6.4bn GBP7.3bn (12.1)%
Customer deposits GBP5.0bn GBP6.6bn (24.1)%
Net interest margin* 5.1% 4.6% 0.5%pts
Total capital ratio 26.6% 24.3% 2.3%pts
*The prior period net interest margin has been restated from
5.0% to 4.6%.
Revenue grew by +12.2% reflecting the benefit of the full
acquisition of Tesco Underwriting which completed in May. Excluding
Tesco Underwriting, revenue declined by (12.2)% principally due to
a fall in income from unsecured lending. This was driven by lower
credit balances, largely due to lower levels of customer spending,
particularly in the second half of last year. We started to see a
recovery in credit card spending through the period.
The gradual easing of lockdown measures in the first half drove
an increase in ATM income, however the ongoing uncertainty and
restrictions on foreign travel continue to significantly impact
travel money.
Tesco Bank adjusted operating profit was GBP72m, including a
GBP12m contribution from Tesco Underwriting, which is fully
consolidated following its acquisition in May. The significant
year-on-year change was due to last year's increase in the
provision for potential bad debts driven by the expected
macro-economic impact of COVID-19.
The Bank's balance sheet remains strong and we continue to have
sufficient capital and liquidity to absorb changes in both
regulatory and funding requirements.
We introduced a number of new products and services for
customers in the first half. In March, we launched a trial of
Clubcard Pay+ which is an account that comes with a debit card, and
is designed to help shoppers pay, save and collect Tesco Clubcard
points. In March, we also expanded our offer with the re-launch of
travel insurance. Since August, all new and renewing Tesco Bank car
and home insurance policies are now being underwritten by Tesco
Underwriting following the completion of its acquisition in
May.
Exceptional items and amortisation of acquired intangibles in
statutory operating profit:
This year Last year
Litigation costs GBP(193)m GBP(93)m
Property transactions GBP21m GBP(2)m
Booker integration costs - GBP(2)m
UK - ATM business rates - GBP105m
Asia licence fee income GBP19m -
Net impairment reversal of non-current GBP37m -
assets
----------------------------------------- ---------- ----------
Total exceptional items in statutory GBP(116)m GBP8m
operating profit
Amortisation of acquired intangible GBP(38)m GBP(38)m
assets
----------------------------------------- ---------- ----------
Total exceptional items and amortisation GBP(154)m GBP(30)m
of acquired intangibles in statutory
operating profit
Exceptional items are excluded from our adjusted operating
profit performance by virtue of their size and nature to best
reflect the underlying performance of the business. Total
exceptional items in the half resulted in a charge of GBP(116)m,
compared to a credit of GBP8m in the prior year.
In September 2020, two claimant law firms issued proceedings
against us in relation to the overstatement of expected profit
announced in 2014. These claims have now been settled and we have
recognised an exceptional charge of GBP(193)m, with GBP(105)m paid
in July and therefore included in the first half cash flow
statement. The remaining amount of GBP(88)m has been paid in the
second half. Given that the legal timeframe for bringing a claim
has now elapsed, no further related claims can be brought by
shareholders.
Following the sale of Homeplus for GBP4.2bn in 2015, we received
legal claims from the purchasers. Although the majority of the
claims were dismissed, some findings of liability were made. On 17
September 2021, a Final Award to the purchasers of GBP119m in
damages, interest and costs was granted. Although not included in
the table above as it relates to discontinued operations, this has
been recognised as an adjusting post balance sheet event, with an
exceptional charge increasing the provision held by GBP33m. The
total cash payment of GBP119m will be made in the second half.
We received software licence fee income of GBP19m from services
provided to CP Group following the sale of our businesses in
Asia.
During the period, the Group recognised a net impairment
reversal of GBP37m. GBP24m of this related to the anticipated sale
of mall sites in Central Europe, recognised immediately prior to
their reclassification as held for sale. The remaining net reversal
of GBP13m largely reflects normal fluctuations in store level
performance, property fair values and changes in discount rates, as
well as any specific store closures.
Further detail on exceptional items can be found in Note 3,
starting on page 37 of this statement.
Amortisation of acquired intangible assets is excluded from our
headline performance measures. We incurred a charge of GBP(38)m in
the period, which primarily relates to our merger with Booker in
March 2018, which resulted in the recognition of goodwill of
GBP3,093m and GBP755m of intangible assets.
Joint ventures and associates:
Our share of post-tax losses from joint ventures and associates
was GBP(3)m, which includes losses related to our joint venture in
India partly offset by the profit generated from UK property joint
ventures.
In the prior year, we recognised GBP13m of post-tax profit from
joint ventures and associates, including a GBP10m contribution from
our Tesco Underwriting Ltd joint venture. The year-on-year change
was principally due to profit from Tesco Underwriting being
recognised within Tesco Bank operating profit following its full
acquisition in May.
Net finance costs:
This year Last year
Net interest on medium term notes, loans GBP(104)m GBP(102)m
and bonds
Other interest receivable and similar GBP5m GBP7m
income
Other finance charges and interest payable GBP(21)m GBP(9)m
Finance charges payable on lease liabilities GBP(207)m GBP(229)m
--------------------------------------------- ---------- ----------
Net finance costs before net pension GBP(327)m GBP(333)m
finance costs and fair value remeasurements
of financial instruments
Fair value remeasurements of financial GBP180m GBP(108)m
instruments
Net pension finance costs GBP(11)m GBP(28)m
--------------------------------------------- ---------- ----------
Net finance costs GBP(158)m GBP(469)m
Net interest on medium-term notes and bonds was GBP(104)m, up
GBP(2)m year-on-year. A reduction in finance costs from bond
maturities, tenders and new debt issuances at lower rates of
interest was more than offset in the first half by interest payable
on the GBP(453)m debt we acquired with the Tesco Property (No. 2)
Partnership in September 2020. This transaction brought twelve
stores and two distribution centres back into full ownership,
resulting in a GBP254m reduction in lease liabilities. This
contributed just under half of the GBP22m year-on-year reduction in
finance charges payable on lease liabilities shown above.
Net finance costs before net pension finance costs and fair
value remeasurements of financial instruments were GBP(327)m,
broadly in line with last year.
A fair value remeasurement credit of GBP180m primarily related
to the mark-to-market movement on inflation linked swaps, driven by
the impact of increased expected future inflation rates. These
swaps eliminate the impact of future inflation on the Group's cash
flow in relation to historical sale and leaseback property
transactions.
Net pension finance costs of GBP(11)m decreased by GBP17m,
primarily driven by a reduction in the pension deficit following
the GBP2.5bn one-off contribution made in the prior year from the
proceeds from the sale of our businesses in Thailand and Malaysia.
We continue to expect net pension finance costs of GBP(23)m for the
full-year.
In the second half, we will buy back our partner's equity in the
Tesco Sarum Limited Partnership property joint venture, which will
result in us bringing eleven stores back into full ownership. This
will result in annual cash rental savings of c.GBP30m and a
c.GBP(0.3)bn increase in net debt, due to a c.GBP(0.7)bn impact on
underlying net debt and a c.GBP0.4bn reduction in lease
liabilities. Following this transaction, we will have six UK
property JV structures still in place, from a peak of 13 structures
in 2015. These six remaining structures contain property worth
GBP3.5bn and debt of GBP2.6bn, with GBP2.3bn of associated lease
liabilities on our balance sheet. The three largest of our
remaining property JVs are with the Tesco Pension fund. We continue
to evaluate store buyback opportunities and use capital for this
purpose where it is economically attractive.
Further detail on finance income and costs can be found in Note
4 on page 39, as well as further detail on the exceptional items in
Note 3 on page 37.
Group tax:
This year Last year
Tax on adjusted profit GBP(294)m GBP(129)m
Tax on exceptional items and GBP(19)m GBP(25)m
amortisation of acquired intangibles
-------------------------------------- ---------- ----------
Tax on profit GBP(313)m GBP(154)m
Tax on adjusted Group profit was GBP(294)m, GBP(165)m higher
than last year, primarily reflecting higher levels of retail
operating profit. Following the decision to increase headline
corporation tax rates in the UK from April 2023 from 19% to 25%, we
also recognised a one-off charge in the first half related to the
revaluation of our deferred tax.
The effective tax rate on adjusted Group profit was 22.7%,
higher than the current UK statutory rate of 19%, primarily due to
depreciation of assets which do not qualify for tax relief. We
continue to expect an effective tax rate of c.23% for the current
financial year. Following the increase in the UK corporation tax
rate expected in 2023, we forecast our effective tax rate to
increase to between 26% - 27% over the medium-term.
Earnings per share:
This year Last year
Adjusted diluted EPS 11.22p 7.29p
Statutory diluted earnings per
share 10.70p 4.06p
Statutory basic earnings per share 10.80p 4.07p
The share base used in adjusted diluted EPS in the prior year is
restated to capture the full impact of the share consolidation
which followed the sale of our businesses in Thailand and Malaysia,
as if it took place at the start of the 2020/21 financial year. As
such, this metric is presented on a basis other than in accordance
with IAS33. Please see page 65 for a reconciliation to diluted
adjusted EPS.
Adjusted diluted EPS was 11.22p (LY: 7.29p), 54.0% higher
year-on-year driven by higher profits, as discussed above.
Statutory diluted earnings per share was 10.70p (LY: 4.06p)
+163.5% higher year-on-year as the recovery in operating profit
more than offset the associated higher tax charge and higher
exceptional items and reflecting the share consolidation which took
place in February, following the sale of our businesses in Thailand
and Malaysia and associated payment of a GBP5bn special
dividend.
Dividend:
The interim dividend has been set at 3.20 pence per ordinary
share, in line with the prior year and aligned to our policy of
setting the interim dividend at 35% of the prior year full-year
dividend. The interim dividend was approved by the Board of
Directors on 5 October 2021. It is our intention to pay a
progressive dividend going forward - i.e. we will aim to grow the
dividend per share each year, broadly targeting a pay-out of around
50% of earnings.
The interim dividend will be paid on 26 November 2021 to
shareholders who are on the register of members at close of
business on 15 October 2021 (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 5 November 2021.
Summary of total indebtedness:
Aug-21 Feb-21 Movement
Underlying net debt (excludes GBP(2,005)m GBP(3,449)m GBP1,444m
Tesco Bank)
Lease liabilities GBP(8,217)m GBP(8,506)m GBP289m
Net debt GBP(10,222)m GBP(11,955)m GBP1,733m
Pension deficit, IAS 19 basis GBP(455)m GBP(1,004)m GBP549m
(post-tax)
Total indebtedness GBP(10,677)m GBP(12,959)m GBP2,282m
Net debt / EBITDA 2.7x 3.3x
Total indebtedness ratio 2.8x 3.6x
Total indebtedness at the end of the first half was
GBP(10,677)m, down GBP2.3bn since the year-end primarily driven by
a reduction in underlying net debt from strong free cash flow
generation, net of dividends paid as well as a reduction in the IAS
19 pension deficit.
Lease liabilities were GBP(8,217)m, down by GBP289m since the
year-end, reflecting the de-recognition of leased assets in our
Polish business which we disposed of in March. On a continuing
operations basis, lease liabilities were broadly in nline with the
year-end as rental payments were offset by additions and lease
renewals and extensions.
The IAS 19 pension deficit (post-tax) was GBP(455)m at the end
of the first half, reducing from GBP(1,004)m in February due to a
significant increase in pension assets due to a fall in index
linked gilt yields and strong equity markets. This increase in
assets was only partially offset by an increase in liabilities
driven by a fall in corporate bond discount rates as well as a rise
in long-term inflation rates. The accounting deficit does not drive
contributions to the schemes. The next triennial valuation is on 31
March 2022.
We had a total of GBP3.3bn of cash liquidity available at the
end of the first half. We recently extended our GBP2.5bn revolving
credit facility by one-year, which we put in place in September
last year for a three-year period and we have the option to extend
this for a further year. The rate of interest payable on this
facility is linked to three of our ESG commitments. As we delivered
these ESG targets last year, we secured the corresponding margin
reduction in the half. We continue to optimise our debt portfolio
and earlier this week, we pre-paid GBP375m of debt which carried a
high rate of interest generating an initial annual saving of
GBP19m.
Our net debt to EBITDA ratio was 2.7 times, compared to 3.3
times at the prior year-end, reflecting a reduction in underlying
net debt as a result of continued strong free cash flow generation
and an increase in retail EBITDA as operating profits recover
following the adverse impact from COVID-19 in the prior year. The
total indebtedness ratio was 2.8 times, compared to 3.6 times at
the prior year end.
Fixed charge cover was 3.1 times at the end of the first half,
up from 2.9 times at the prior year-end, driven by a reduction in
net finance costs, lease interest payments, principal lease
payments and by a recovery in retail EBITDA.
Summary retail cash flow:
To provide a better view of operational cash performance, we
have updated our definition of our retail free cash flow APM to
exclude cashflows related to acquisitions & disposals, property
transactions and exceptional cash items. We will continue to fully
disclose these lines but they will not form part of the retail free
cash flow headline APM going forward.
The following table reconciles Group adjusted operating profit
to retail free cash flow. Further details are included in Note 2,
starting on page 25.
This year Last year
Adjusted operating profit GBP1,458m GBP1,037m
Less: Tesco Bank operating profit / (loss) GBP(72)m GBP155m
before exceptional items
------------------------------------------------ ---------- ----------
Retail adjusted operating profit GBP1,386m GBP1,192m
Add back: Depreciation and amortisation GBP787m GBP802m
Other reconciling items GBP21m GBP(28)m
Pension deficit contribution GBP(11)m GBP(161)m
Decrease in working capital GBP556m GBP170m
Retail cash generated from operations GBP2,739m GBP1,975m
before exceptional items
Cash capex GBP(495)m GBP(369)m
Net interest GBP(314)m GBP(319)m
- Interest related to net debt (exc. GBP(107)m GBP(91)m
lease liabilities)
- Interest related to lease liabilities GBP(207)m GBP(228)m
Tax paid GBP(49)m GBP(125)m
Dividends received GBP3m GBP6m
Repayments of obligations under leases GBP(286)m GBP(292)m
Market purchases of shares (net of proceeds) GBP(55)m GBP(79)m
------------------------------------------------ ---------- ----------
Retail free cash flow GBP1,543m GBP797m
Memo:
Acquisitions & disposals GBP117m -
Property proceeds & purchases GBP72m GBP(116)m
Exceptional cash items GBP(107)m GBP(127)m
Retail free cash flow increased by GBP746m year-on-year to
GBP1,543m, driven by higher retail operating profits, a reduction
in the pension contribution and a working capital phasing benefit
partially offset by higher capex spend.
Following a GBP2.5bn one-off contribution towards the pension
deficit in the prior year using the proceeds from the sale of our
businesses in Thailand and Malaysia, UK pension contributions were
eliminated. The pension outflow of GBP(11)m in the first half
mainly relates to our scheme in Booker. We expect an annual benefit
of c.GBP260m in retail free cash flow as a result of lower pension
deficit contributions.
Our total working capital inflow was GBP556m, driven mainly by a
significant recovery in fuel sales and the recovery of Booker's
catering business on top of the usual Booker seasonal sales peak.
We expect a total working capital unwind of around GBP400m in the
second half, as this seasonal benefit reverses and based on our
expectation that some of the elevated sales we have seen in the
first half in the UK fall away.
Cash capex increased by GBP(126)m year-on-year including an
impact from delayed store development in the prior year as a result
of COVID-19.
Interest paid related to net debt (exc. lease liabilities) of
GBP(107)m was GBP(16)m higher year-on-year as the benefit of bond
buybacks and refinancing at lower rates of interest was more than
offset by the impact of borrowings acquired as part of The Tesco
Property (No. 2) Limited Partnership from September 2020. Interest
paid related to lease liabilities decreased by GBP21m year-on-year
primarily due to a corresponding reduction in the total lease
liability.
Cash tax paid in the half was GBP(49)m, compared to GBP(125)m
last year. The reduction in cash tax paid reflects the utilisation
of prior-year tax losses and a benefit from the super-deduction
allowance on certain capital investments, which was introduced in
the Chancellor's budget in March 2021. We continue to receive tax
relief in relation to the GBP2.5bn one-off pension contribution
made in the prior year. This amounted to GBP60m in the half, in
line with last year, and is expected to total GBP120m for the
full-year.
We purchased GBP(55)m of shares in the market to offset the
dilution from the issuance of new shares to satisfy the
requirements of share schemes. This was GBP24m lower than the prior
year due to a reduced volume of share scheme maturities this
year.
As described above, cashflows related to acquisitions &
disposals, property transactions and exceptional cash items are now
excluded from our simplified definition of free cash flow.
The inflow from acquisitions in the half totalled GBP117m as we
recognised proceeds from the sale of our business in Poland to
Salling Group A/S, which completed in March.
We generated a net GBP72m from property transactions in the
half. This included property proceeds of GBP109m, up GBP77m
year-on-year, primarily from the sale of properties in Poland which
were not sold as part of the corporate transaction. We also bought
back one Extra store in Bury for GBP(37)m.
The outflow from exceptional cash items was GBP(107)m, of which
GBP(105)m related to the settlement of shareholder litigation
claims during the period, as mentioned above.
Capital expenditure and space :
UK & ROI Central Europe Tesco Bank Group
This Last This Last This Last This Last
year year year year year year year year
Capital expenditure GBP404m GBP310m GBP25m GBP39m GBP19m GBP25m GBP448m GBP374m
Openings (k sq ft) 72 9 14 13 - - 86 22
Closures (k sq ft) (60) (4) (15) (10) - - (75) (14)
Repurposed (k sq
ft) - 1 5 (51) - - 5 (50)
Net space change
(k sq ft) 12 6 4 (48) - - 16 (42)
'Retail Selling Space' is defined as net space in store adjusted
to exclude checkouts, space behind checkouts, customer service
desks and customer toilets. Appendix 5 (p.73) provides a full
breakdown of space by segment.
Capital expenditure shown in the table above reflects
expenditure on ongoing business activities across the Group.
Our capital expenditure for the half was GBP448m, GBP74m higher
year-on-year, primarily due to higher spend on in-store maintenance
and the opening of new stores. We expect full year capital
expenditure to be in line with our GBP0.9bn to GBP1.2bn guidance
range.
Statutory capital expenditure of GBP485m includes GBP37m
relating to the buyback of one UK Extra store in Bury.
Further details of current and forecast space can be found in
Appendix 5 starting on page 72.
Contacts:
Investor Relations: Chris Griffith 01707 940 900
Sarah Titterington 01707 940 693
Media: Christine Heffernan 0330 678 0639
Nick Claydon, Teneo 07974 982 547
This document is available at www.tescoplc.com/interims2021
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/interims2021 . This will be available for playback
after the event. All presentation materials, including a
transcript, will be made available on our website.
We will report our Q3 and Christmas Trading statement on
Thursday 13 January 2022.
Additional Disclosures.
Principal Risks and Uncertainties.
As with any business, effective risk management and controls are
critical to successfully achieving the Group's strategy. Tesco has
an established risk management process to identify, assess and
monitor the principal risks faced by the business. A robust review
of those risks that the Group believe could seriously affect its
performance, future prospects, reputation or its ability to deliver
against its priorities, is performed on a regular basis. This
review includes an assessment of emerging and principal risks we
believe would threaten the Group's business model, future
performance, solvency or liquidity. The Tesco Board has overall
responsibility for risk management and internal controls within the
context of achieving the Group's objectives. At the Group level
each principal risk has an Executive Owner. The Group Chief
Executive has overall accountability for the control and management
of risk.
The principal risks and uncertainties faced by the Group remain
those as set out on pages 31 to 37 of our Annual Report and
Financial Statements 2021: Brexit; COVID-19; data security and data
privacy; health and safety; climate change; responsible sourcing
and supply chain; competition and markets; transformation;
political, regulatory and compliance; technology; people; customer;
brand, reputation and trust; Tesco Bank; and liquidity. There have
been no significant changes to the description of the principal
risks, key controls and mitigating factors currently expected for
the remaining six months of the year.
Statement of Directors' Responsibilities.
The Directors are responsible for preparing the Interim Results
for the 26 week period ended 28 August 2021 in accordance with
applicable law, regulations and accounting standards. Each of the
Directors confirm that to the best of their knowledge the condensed
consolidated interim financial statements have been prepared in
accordance with IAS 34: 'Interim Financial Reporting', as adopted
by the European Union and that the interim management report
includes a true and fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
-- an indication of the important events that have occurred
during the first 26 weeks of the financial year and their impact on
the condensed consolidated interim financial statements, and a
description of the principal risks and uncertainties for the
remainder of the financial year; and
-- material related party transactions in the first 26 weeks of
the year and any material changes in the related party transactions
described in the last annual report.
The Directors of Tesco PLC are listed on pages 42 to 46 of the
Tesco PLC Annual Report and Financial Statements 2021. As
previously announced, Alan Stewart retired as Chief Financial
Officer on 30 April 2021 and was succeeded by Imran Nawaz.
A list of current directors is maintained on the Tesco PLC
website at: www.tescoplc.com .
By order of the Board
Directors
John Allan - Non-executive Chairman
Ken Murphy - Group Chief Executive Officer
Imran Nawaz - Chief Financial Officer
Melissa Bethell*
Bertrand Bodson*
Thierry Garnier*
Stewart Gilliland*
Steve Golsby*
Byron Grote*
Simon Patterson*
Alison Platt*
Lindsey Pownall*
Karen Whitworth*
*Non-executive Directors
Robert Welch, Company Secretary
5 October 2021
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regulations.
Disclaimer.
Certain statements made in this document are forward-looking
statements. For example, statements regarding expected revenue
growth and operating margins, market trends and our product
pipeline are forward-looking statements. Phrases such as "aim",
"plan", "intend", "should", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions
are generally intended to identify forward-looking statements.
Forward looking statements are based on current expectations and
assumptions and are subject to a number of known and unknown risks,
uncertainties and other important factors that could cause actual
results or events to differ materially from what is expressed or
implied by those statements. Many factors may cause actual results,
performance or achievements of Tesco to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements. Important factors that
could cause actual results, performance or achievements of Tesco to
differ materially from the expectations of Tesco include, among
other things, general business and economic conditions globally,
industry trends, competition, changes in government and other
regulation and policy, including in relation to the environment,
health and safety and taxation, labour relations and work
stoppages, interest rates and currency fluctuations, changes in its
business strategy, political and economic uncertainty, including as
a result of global pandemics. As such, undue reliance should not be
placed on forward-looking statements. Any forward-looking statement
is based on information available to Tesco as of the date of the
statement. All written or oral forward-looking statements
attributable to Tesco are qualified by this caution. Other than in
accordance with legal and regulatory obligations, Tesco undertakes
no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Group income statement
26 weeks ended 26 weeks ended
28 August 2021 29 August 2020
------------------------------------------ --------------------------------------
Before Exceptional Before Exceptional
exceptional items and exceptional items and
items amortisation items and amortisation
and amortisation of acquired amortisation of acquired
of acquired intangibles of acquired intangibles
intangibles (Note 3) Total intangibles (Note 3) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------- -------- ------------- ------------- --------
Continuing operations
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Revenue 2 30,416 - 30,416 28,718 - 28,718
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Cost of sales (27,972) 24 (27,948) (26,550) 103 (26,447)
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Impairment loss on
financial
assets 2 (20) - (20) (264) - (264)
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Gross profit 2,424 24 2,448 1,904 103 2,007
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Administrative expenses (966) (178) (1,144) (867) (133) (1,000)
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Operating profit/(loss) 1,458 (154) 1,304 1,037 (30) 1,007
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Share of post-tax
profits/(losses)
of joint ventures and
associates (3) - (3) 13 - 13
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Finance income 4 5 - 5 7 - 7
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Finance costs 4 (163) - (163) (476) - (476)
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Profit/(loss) before tax 1,297 (154) 1,143 581 (30) 551
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Taxation 5 (294) (19) (313) (129) (25) (154)
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Profit/(loss) for the
period from continuing
operations 1,003 (173) 830 452 (55) 397
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Discontinued operations
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Profit/(loss) for the
period from discontinued
operations 6 (5) (44) (49) 192 (124) 68
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Profit/(loss) for the
period 998 (217) 781 644 (179) 465
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Attributable to:
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Owners of the parent 998 (217) 781 639 (179) 460
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Non-controlling interests - - - 5 - 5
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
998 (217) 781 644 (179) 465
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Earnings/(losses) per
share from continuing
and discontinued
operations
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Basic 8 10.16p 4.72p
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Diluted 8 10.07p 4.71p
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Earnings/(losses) per
share from continuing
operations
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Basic 8 10.80p 4.07p
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
Diluted 8 10.70p 4.06p
------------------------- ----- ----------------- ------------- -------- ------------- ------------- --------
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
Group statement of comprehensive income/(loss)
26 weeks 26 weeks
2021 2020
Notes GBPm GBPm
------------------------------------------------------------- ----- -------- --------
Items that will not be reclassified to the Group
income statement
Remeasurements of defined benefit pension schemes 20 646 (1,112)
Net fair value gains/(losses) on inventory cash
flow hedges 80 (18)
Tax on items that will not be reclassified (64) 288
------------------------------------------------------------- ----- -------- --------
662 (842)
------------------------------------------------------------- ----- -------- --------
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 (2) (2)
Currency translation differences:
Retranslation of net assets of overseas subsidiaries,
joint ventures and associates, net of hedging instruments 13 (67)
Movements in foreign exchange reserve and net investment
hedging on subsidiary disposed,
reclassified and reported in the Group income statement 66 -
Gains/(losses) on other cash flow hedges:
Net fair value gains/(losses) 42 41
Reclassified and reported in the Group income statement (16) (40)
Tax on items that may be reclassified (34) (3)
------------------------------------------------------------- ----- -------- --------
69 (71)
------------------------------------------------------------- ----- -------- --------
Total other comprehensive income/(loss) for the
period 731 (913)
Profit/(loss) for the period 781 465
------------------------------------------------------------- ----- -------- --------
Total comprehensive income/(loss) for the period 1,512 (448)
------------------------------------------------------------- ----- -------- --------
Attributable to:
Owners of the parent 1,512 (453)
Non-controlling interests - 5
------------------------------------------------------------- ----- -------- --------
Total comprehensive income/(loss) for the period 1,512 (448)
------------------------------------------------------------- ----- -------- --------
Total comprehensive income/(loss) attributable to
owners of the parent arising from:
Continuing operations 1,495 (439)
Discontinued operations 17 (14)
------------------------------------------------------------- ----- -------- --------
1,512 (453)
------------------------------------------------------------- ----- -------- --------
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
Group balance sheet
28 August 27 February 29 August
2021 2021 2020*
Notes GBPm GBPm GBPm
--------------------------------------------- ----- --------- ----------- ---------
Non-current assets
--------------------------------------------- ----- --------- ----------- ---------
Goodwill and other intangible assets 9 5,389 5,393 5,742
--------------------------------------------- ----- --------- ----------- ---------
Property, plant and equipment 10 16,794 17,211 16,560
--------------------------------------------- ----- --------- ----------- ---------
Right of use assets 11 5,809 5,951 6,150
--------------------------------------------- ----- --------- ----------- ---------
Investment property 91 19 19
--------------------------------------------- ----- --------- ----------- ---------
Investments in joint ventures and associates 84 178 178
--------------------------------------------- ----- --------- ----------- ---------
Other investments* 13 1,218 763 836
--------------------------------------------- ----- --------- ----------- ---------
Trade and other receivables 257 170 254
--------------------------------------------- ----- --------- ----------- ---------
Loans and advances to customers and banks 3,169 3,309 3,655
--------------------------------------------- ----- --------- ----------- ---------
Reinsurance assets 16 205 - -
--------------------------------------------- ----- --------- ----------- ---------
Derivative financial instruments 1,664 1,425 1,113
--------------------------------------------- ----- --------- ----------- ---------
Deferred tax assets 270 552 627
--------------------------------------------- ----- --------- ----------- ---------
34,950 34,971 35,134
--------------------------------------------- ----- --------- ----------- ---------
Current assets
--------------------------------------------- ----- --------- ----------- ---------
Other investments* 13 348 178 26
--------------------------------------------- ----- --------- ----------- ---------
Inventories 14 2,223 2,069 2,254
--------------------------------------------- ----- --------- ----------- ---------
Trade and other receivables 1,149 1,263 1,416
--------------------------------------------- ----- --------- ----------- ---------
Loans and advances to customers and banks 3,287 3,093 3,630
--------------------------------------------- ----- --------- ----------- ---------
Reinsurance assets 16 52 - -
--------------------------------------------- ----- --------- ----------- ---------
Derivative financial instruments 44 37 284
--------------------------------------------- ----- --------- ----------- ---------
Current tax assets 44 41 55
--------------------------------------------- ----- --------- ----------- ---------
Short-term investments 15 2,331 1,011 942
--------------------------------------------- ----- --------- ----------- ---------
Cash and cash equivalents 15 2,219 2,510 4,124
--------------------------------------------- ----- --------- ----------- ---------
11,697 10,202 12,731
--------------------------------------------- ----- --------- ----------- ---------
Assets of the disposal group and non-current
assets classified as held for sale 6 447 605 5,199
--------------------------------------------- ----- --------- ----------- ---------
12,144 10,807 17,930
--------------------------------------------- ----- --------- ----------- ---------
Current liabilities
--------------------------------------------- ----- --------- ----------- ---------
Trade and other payables (8,889) (8,399) (8,297)
--------------------------------------------- ----- --------- ----------- ---------
Borrowings 18 (1,220) (1,080) (2,209)
--------------------------------------------- ----- --------- ----------- ---------
Lease liabilities 11 (557) (575) (557)
--------------------------------------------- ----- --------- ----------- ---------
Derivative financial instruments (31) (81) (166)
--------------------------------------------- ----- --------- ----------- ---------
Customer deposits and deposits from banks (4,587) (5,321) (5,599)
--------------------------------------------- ----- --------- ----------- ---------
Insurance contract provisions 16 (190) - -
--------------------------------------------- ----- --------- ----------- ---------
Current tax liabilities (142) (79) (246)
--------------------------------------------- ----- --------- ----------- ---------
Provisions (336) (186) (198)
--------------------------------------------- ----- --------- ----------- ---------
(15,952) (15,721) (17,272)
--------------------------------------------- ----- --------- ----------- ---------
Liabilities of the disposal group classified
as held for sale 6 (22) (276) (2,098)
--------------------------------------------- ----- --------- ----------- ---------
Net current liabilities (3,830) (5,190) (1,440)
--------------------------------------------- ----- --------- ----------- ---------
Non-current liabilities
--------------------------------------------- ----- --------- ----------- ---------
Trade and other payables (219) (109) (100)
--------------------------------------------- ----- --------- ----------- ---------
Borrowings 18 (6,130) (6,188) (6,527)
--------------------------------------------- ----- --------- ----------- ---------
Lease liabilities 11 (7,670) (7,827) (8,199)
--------------------------------------------- ----- --------- ----------- ---------
Derivative financial instruments (986) (926) (957)
--------------------------------------------- ----- --------- ----------- ---------
Customer deposits and deposits from banks (1,573) (1,017) (1,538)
--------------------------------------------- ----- --------- ----------- ---------
Insurance contract provisions 16 (465) - -
--------------------------------------------- ----- --------- ----------- ---------
Post-employment benefit obligations 20 (580) (1,222) (4,043)
--------------------------------------------- ----- --------- ----------- ---------
Deferred tax liabilities (51) (48) (43)
--------------------------------------------- ----- --------- ----------- ---------
Provisions (110) (119) (90)
--------------------------------------------- ----- --------- ----------- ---------
(17,784) (17,456) (21,497)
--------------------------------------------- ----- --------- ----------- ---------
Net assets 13,336 12,325 12,197
--------------------------------------------- ----- --------- ----------- ---------
Equity
--------------------------------------------- ----- --------- ----------- ---------
Share capital 22 490 490 490
--------------------------------------------- ----- --------- ----------- ---------
Share premium 5,165 5,165 5,165
--------------------------------------------- ----- --------- ----------- ---------
All other reserves 3,309 3,183 3,570
--------------------------------------------- ----- --------- ----------- ---------
Retained earnings 4,390 3,505 2,989
--------------------------------------------- ----- --------- ----------- ---------
Equity attributable to owners of the parent 13,354 12,343 12,214
--------------------------------------------- ----- --------- ----------- ---------
Non-controlling interests (18) (18) (17)
--------------------------------------------- ----- --------- ----------- ---------
Total equity 13,336 12,325 12,197
--------------------------------------------- ----- --------- ----------- ---------
* Refer to Note 1 for further details regarding the prior year
restatement and changes in presentation of the balance sheet.
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
These unaudited condensed consolidated interim financial
statements for the 26 weeks ended 28 August 2021 were approved by
the Board on 5 October 2021.
Group statement of changes in equity
All other reserves
---------------------------------------------------
Capital Own Non-
Share Share redemption Hedging Translation shares Merger Retained controlling Total
capital premium reserve reserve reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
At 27 February
2021 490 5,165 16 90 175 (188) 3,090 3,505 12,343 (18) 12,325
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Profit/(loss)
for the period - - - - - - - 781 781 - 781
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Other
comprehensive
income/(loss)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Retranslation
of net assets
of overseas
subsidiaries,
joint ventures
and
associates,
net of hedging
instruments - - - - 13 - - - 13 - 13
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Movements in
foreign
exchange
reserve and
net investment
hedging on
subsidiary
disposed,
reclassified
and reported
in the Group
income
statement
(Note 6) - - - - 66 - - - 66 - 66
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Change in fair
value of
financial
assets at fair
value through
other
comprehensive
income - - - - - - - (2) (2) - (2)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Remeasurements
of defined
benefit
pension
schemes - - - - - - - 646 646 - 646
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Gains/(losses)
on cash flow
hedges - - - 122 - - - - 122 - 122
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Cash flow
hedges
reclassified
and reported
in the Group
income
statement - - - (16) - - - - (16) - (16)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Tax relating
to components
of other
comprehensive
income - - - (34) - - - (64) (98) - (98)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Total other
comprehensive
income/(loss) - - - 72 79 - - 580 731 - 731
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Total
comprehensive
income/(loss) - - - 72 79 - - 1,361 1,512 - 1,512
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Inventory cash
flow hedge
movements
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Gains/(losses)
transferred
to the cost
of inventory - - - (20) - - - - (20) - (20)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Tax on
gains/(losses)
transferred - - - 7 - - - - 7 - 7
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Total inventory
cash flow
hedge
movements - - - (13) - - - - (13) - (13)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Transactions
with owners
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Purchase of
own shares - - - - - (109) - - (109) - (109)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Share-based
payments - - - - - 97 - (18) 79 - 79
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Dividends (Note
7) - - - - - - - (458) (458) - (458)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
Total
transactions
with owners - - - - - (12) - (476) (488) - (488)
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
At 28 August
2021 490 5,165 16 149 254 (200) 3,090 4,390 13,354 (18) 13,336
--------------- ------- ------- ---------- -------- ----------- ------ -------- -------- ------ ----------- ------
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
Group statement of changes in equity continued
All other reserves
------------------------------------------------------------
Cost
Capital of Own Non-
Share Share redemption hedging Hedging Translation shares Merger Retained controlling Total
capital premium reserve reserve reserve reserve held reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
At 29 February
2020 490 5,165 16 (15) 154 663 (250) 3,090 4,078 13,391 (22) 13,369
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Profit/(loss)
for the period - - - - - - - - 460 460 5 465
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Other
comprehensive
income/(loss)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Retranslation
of net assets
of overseas
subsidiaries,
joint ventures
and
associates,
net of hedging
instruments - - - - - (67) - - - (67) - (67)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Movements in - - - - - - - - - - - -
foreign
exchange
reserve and
net investment
hedging on
subsidiary
disposed,
reclassified
and reported
in the Group
income
statement
(Note 6)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Change in fair
value of
financial
assets at fair
value through
other
comprehensive
income - - - - - - - - (2) (2) - (2)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Remeasurements
of defined
benefit
pension
schemes - - - - - - - - (1,112) (1,112) - (1,112)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Gains/(losses)
on cash flow
hedges - - - (4) 27 - - - 23 - 23
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Cash flow
hedges
reclassified
and reported
in the Group
income
statement - - - - (40) - - - - (40) - (40)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Tax relating
to components
of other
comprehensive
income - - - 1 (1) - - - 285 285 - 285
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Total other
comprehensive
income/(loss) - - - (3) (14) (67) - - (829) (913) - (913)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Total
comprehensive
income/(loss) - - - (3) (14) (67) - - (369) (453) 5 (448)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Inventory cash
flow hedge
movements
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Gains/(losses)
transferred
to the cost
of inventory - - - - (28) - - - - (28) - (28)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Tax on
gains/(losses)
transferred - - - - 4 - - - - 4 - 4
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Total inventory
cash flow
hedge
movements - - - - (24) - - - - (24) - (24)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Transactions
with owners
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Purchase of
own shares - - - - - - (219) - (219) - (219)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Share-based
payments - - - - - - 239 - (86) 153 - 153
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Dividends (Note
7) - - - - - - - - (634) (634) - (634)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
Total
transactions
with owners - - - - - - 20 - (720) (700) - (700)
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
At 29 August
2020 490 5,165 16 (18) 116 596 (230) 3,090 2,989 12,214 (17) 12,197
--------------- ------- ------- ---------- ------- -------- ----------- ------ -------- -------- ------- ----------- -------
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
Group cash flow statement
26 weeks 26 weeks
2021 2020(a)
Notes GBPm GBPm
---------------------------------------------------------------- ------- -------- --------
Cash flows generated from/(used in) operating activities
---------------------------------------------------------------- ------- -------- --------
Operating profit/(loss) of continuing operations 1,304 1,007
---------------------------------------------------------------- ------- -------- --------
Operating profit/(loss) of discontinued operations (55) 95
---------------------------------------------------------------- ------- -------- --------
Depreciation and amortisation 856 889
---------------------------------------------------------------- ------- -------- --------
(Profit)/loss arising on sale of property, plant and
equipment, investment property, intangible assets
and assets classified as held for sale and early termination
of leases (20) (32)
---------------------------------------------------------------- ------- -------- --------
(Profit)/loss arising on sale of joint ventures and
associates 23 (10) -
---------------------------------------------------------------- ------- -------- --------
(Profit)/loss arising on sale of subsidiaries 6 26 -
---------------------------------------------------------------- ------- -------- --------
Transaction costs associated with sale of subsidiaries - 30
---------------------------------------------------------------- ------- -------- --------
Net impairment loss/(reversal) on property, plant
and equipment, right of use assets, intangible assets
and investment property (36) 53
---------------------------------------------------------------- ------- -------- --------
Net remeasurement (gain)/loss on non-current assets
held for sale (5) -
---------------------------------------------------------------- ------- -------- --------
Adjustment for non-cash element of pensions charge 6 -
---------------------------------------------------------------- ------- -------- --------
Other defined benefit pension scheme payments 20 (11) (161)
---------------------------------------------------------------- ------- -------- --------
Share-based payments 26 15
---------------------------------------------------------------- ------- -------- --------
Tesco Bank fair value movements included in operating
profit/(loss) 19 259
---------------------------------------------------------------- ------- ======== ========
Retail (increase)/decrease in inventories (155) (172)
---------------------------------------------------------------- ------- -------- --------
Retail (increase)/decrease in development stock - 1
---------------------------------------------------------------- ------- -------- --------
Retail (increase)/decrease in trade and other receivables 28 (21)
---------------------------------------------------------------- ------- -------- --------
Retail increase/(decrease) in trade and other payables 634 201
---------------------------------------------------------------- ------- -------- --------
Retail increase/(decrease) in provisions 142 64
---------------------------------------------------------------- ------- ======== ========
Retail (increase)/decrease in working capital 649 73
---------------------------------------------------------------- ------- ======== ========
Tesco Bank (increase)/decrease in loans and advances
to customers and banks (46) (145)
---------------------------------------------------------------- ------- -------- --------
Tesco Bank (increase)/decrease in trade, insurance,
and other receivables (7) (76)
---------------------------------------------------------------- ------- -------- --------
Tesco Bank increase/(decrease) in customer and bank
deposits, trade, insurance, and other payables (217) 107
---------------------------------------------------------------- ------- -------- --------
Tesco Bank increase/(decrease) in provisions (11) (16)
---------------------------------------------------------------- ------- ======== ========
Tesco Bank (increase)/decrease in working capital (281) (130)
---------------------------------------------------------------- ------- -------- --------
Cash generated from/(used in) operations 2,468 2,098
---------------------------------------------------------------- ------- -------- --------
Interest paid (318) (351)
---------------------------------------------------------------- ------- -------- --------
Corporation tax paid (52) (147)
---------------------------------------------------------------- ------- -------- --------
Net cash generated from/(used in) operating activities 2,098 1,600
---------------------------------------------------------------- ------- -------- --------
(a) Refer to footnotes on the next page.
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
Group cash flow statement continued
26 weeks 26 weeks
2021 2020(a)
Notes GBPm GBPm
--------------------------------------------------------- ----- -------- --------
Net cash generated from/(used in) operating activities 2,098 1,600
--------------------------------------------------------- ----- -------- --------
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 109 83
--------------------------------------------------------- ----- -------- --------
Purchase of property, plant and equipment and investment
property (453) (537)
--------------------------------------------------------- ----- -------- --------
Purchase of intangible assets (100) (89)
--------------------------------------------------------- ----- -------- --------
Disposal of subsidiaries, net of cash disposed 6 169 (26)
--------------------------------------------------------- ----- -------- --------
Acquisition of subsidiaries, net of cash acquired 23 (81) 15
--------------------------------------------------------- ----- -------- --------
Increase in loans to joint ventures and associates - (1)
--------------------------------------------------------- ----- -------- --------
Investments in associates and joint ventures (8) (11)
--------------------------------------------------------- ----- -------- --------
Net (investments in)/proceeds from sale of short-term
investments (1,320) 134
--------------------------------------------------------- ----- -------- --------
Proceeds from sale of other investments(b) 51 202
--------------------------------------------------------- ----- -------- --------
Purchase of other investments(b) (44) -
--------------------------------------------------------- ----- -------- --------
Dividends received from joint ventures and associates 13 12
--------------------------------------------------------- ----- -------- --------
Interest received 2 5
--------------------------------------------------------- ----- -------- --------
Net cash generated from/(used in) investing activities (1,662) (213)
--------------------------------------------------------- ----- -------- --------
Cash flows generated from/(used in) financing activities
--------------------------------------------------------- ----- -------- --------
Own shares purchased (55) (79)
--------------------------------------------------------- ----- -------- --------
Repayments of capital element of obligations under
leases (288) (321)
--------------------------------------------------------- ----- -------- --------
Increase in borrowings - 448
--------------------------------------------------------- ----- -------- --------
Repayment of borrowings (47) (287)
--------------------------------------------------------- ----- -------- --------
Cash inflows from derivative financial instruments(b) 247 334
--------------------------------------------------------- ----- -------- --------
Cash outflows from derivative financial instruments(b) (286) (558)
--------------------------------------------------------- ----- -------- --------
Dividends paid to equity owners 7 (484) (634)
--------------------------------------------------------- ----- -------- --------
Net cash generated from/(used in) financing activities (913) (1,097)
--------------------------------------------------------- ----- -------- --------
Net increase/(decrease) in cash and cash equivalents (477) 290
--------------------------------------------------------- ----- -------- --------
Cash and cash equivalents at the beginning of the
period 1,971 3,031
--------------------------------------------------------- ----- -------- --------
Effect of foreign exchange rate changes 60 (21)
--------------------------------------------------------- ----- -------- --------
Cash and cash equivalents including cash and overdrafts
held in disposal groups at the end of the period 1,554 3,300
--------------------------------------------------------- ----- -------- --------
Cash and overdrafts held in disposal groups 6 - (546)
--------------------------------------------------------- ----- -------- --------
Cash and cash equivalents at the end of the period 15 1,554 2,754
--------------------------------------------------------- ----- -------- --------
(a) Refer to Note 1 for further details regarding the prior
period restatement.
(b) Refer to Note 1 for further details regarding the primary
financial statements presentation.
The notes on pages 24 to 61 form part of this condensed
consolidated financial information.
Note 1 Basis of preparation
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the UK Financial Conduct
Authority, and with IAS 34 'Interim Financial Reporting' under
UK-adopted international accounting standards. Unless otherwise
stated, the accounting policies applied, and the judgements,
estimates and assumptions made in applying these policies, are
consistent with those used in preparing the Annual Report and
Financial Statements 2021. The financial period represents the 26
weeks ended 28 August 2021 (prior financial period 26 weeks ended
29 August 2020, prior financial year 52 weeks ended 27 February
2021).
These condensed consolidated interim financial statements for
the current period and prior financial periods do not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for the prior financial year
has been filed with the Registrar of Companies. The auditor's
report on those accounts was not qualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
The Directors consider that the Group has adequate resources to
continue in operational existence for the foreseeable future and
have concluded that there are no material uncertainties relating to
going concern. The Directors have therefore continued to adopt the
going concern basis in preparing the condensed consolidated interim
financial statements. Further information on the Group's strong
liquidity position is given in the Group review of performance,
Summary of total indebtedness section.
Prior period restatement
Consistent with the Annual Report and Financial Statements 2021,
the condensed consolidated interim financial statements include a
prior period restatement for the 26 weeks ended 29 August 2020 in
relation to notional cash pooling arrangements where the intention
to net settle cannot be clearly demonstrated.
The Group has corrected prior period comparatives by grossing up
cash and overdraft balances that had previously been offset on the
balance sheet. The impact on the 29 August 2020 balance sheet is an
increase in both cash and overdraft balances of GBP918m. All
overdrafts including those subject to cash pooling arrangements are
considered an integral part of the Group's cash management and so
the cash flow statement has been restated to include all overdrafts
in cash and cash equivalents on the cash flow statement.
Previously, only overdrafts that were offset on the balance sheet
were also included within cash and cash equivalents on the cash
flow statement. The impact on the 29 August 2020 cash flow
statement is to decrease cash and cash equivalent balances at the
beginning of the period and at the end of the period by GBP377m and
GBP452m respectively. There is no impact on the comparative period
income statement, net debt or Total indebtedness.
Primary financial statements presentation
'Financial assets at fair value through other comprehensive
income' and 'Investment securities at amortised cost' are now
reported in 'Other investments' on the balance sheet, with further
detail given in Note 13.
On 4 May 2021, the Group acquired control over Tesco
Underwriting Limited, an insurance business which was previously a
joint venture. The following new line items are added to the
balance sheet: 'Reinsurance assets' and 'Insurance contract
provisions'. In the income statement, gross insurance income is
reported within 'Revenue' and insurance premium income ceded to
reinsurers and net insurance claims are reported within 'Cost of
sales'. Further detail is given in Note 16.
Cash inflows and outflows on other investments and derivative
financial instruments previously presented on a net basis in the
Group cash flow statement have been reassessed and are now reported
separately, including for prior periods. Comparative net
(investments in)/proceeds from sale of other investments of GBP202m
are presented on a gross basis as proceeds from sale of other
investments of GBP202m and purchase of other investments of GBPnil.
Comparative net cash flows from derivative financial instruments of
GBP(224)m are presented on a gross basis as cash inflows from
derivative financial instruments of GBP334m and cash outflows from
derivative financial instruments of GBP(558)m. There is no impact
on net cash generated from operating, investing, or financing
activities, and no impact on net debt or Total indebtedness.
Accounting policies
The Group has applied the following accounting policies in
relation to the Tesco Underwriting insurance business:
Insurance income
Gross written premiums comprise premiums on contracts entered
into during the year, irrespective of whether they relate in whole
or in part to a later accounting period, and exclude tax and
levies. An estimate is made at the balance sheet date to recognise
retrospective adjustments to premiums. The earned portion of
premiums received is recognised as revenue. Premiums are earned
from the date of attachment of risk, over the indemnity period,
based on the pattern of risks underwritten.
Net insurance claims
Claims and claims handling expenses are recognised as incurred,
based on the estimated cost of settling all liabilities arising on
events occurring up to the balance sheet date.
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.
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 arrangements, including
quota share, excess of loss and adverse development cover
contracts, 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. Amounts recoverable under such contracts are generally
recognised in the same year as the related claim. Contracts that do
not transfer significant insurance risk (i.e. financial
reinsurance) are accounted for as financial instruments.
Note 1 Basis of preparation continued
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 earned portion of reinsurance premiums
(insurance premium income ceded to reinsurers) is recognised as
reinsurance premium expense, and the provision for unearned
reinsurance premiums comprises the element of reinsurance premiums
relating to services to be received in future years. Amounts
recoverable under reinsurance contracts are assessed for impairment
at each year end date. Such assets are deemed impaired if there is
objective evidence, as a result of an event that occurred after
initial recognition, that the Group may not recover all amounts due
and that the event has a reliably measurable impact on the amounts
that the Group will receive from the reinsurer.
Provision for outstanding claims
The provision for outstanding claims represents the Group's
estimate of the ultimate cost of settling all claims incurred but
unpaid at the reporting date whether reported or not, and related
internal and external claims handling expenses. Claims outstanding
are assessed by reviewing individual claims data and making an
allowance for claims incurred but not yet reported, adjusted for
the effect of both internal and external foreseeable events, such
as changes in claims handling procedures, inflation, judicial
trends, legislative changes and past experience and trends.
Reinsurance and other recoveries are assessed in a manner similar
to the claims outstanding and presented separately as assets.
Unearned premium and unexpired risk provision
The provision for unearned premiums comprises the proportion of
gross premiums written which is estimated to be earned in the
following or subsequent accounting periods, calculated separately
for each insurance contract using the daily pro rata method,
adjusted if necessary to reflect any variation in the incidence of
risk during the period covered by the contract. Where the value of
expected claims and expenses attributable to unexpired periods of
policies in force exceeds the unearned premium provision, a further
provision is made, calculated by reference to classes of business
which are managed together.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have
adopted various APMs. Refer to the Glossary for a full list of the
Group's APMs, including comprehensive definitions, their purpose,
reconciliations to IFRS measures and details of any changes to
APMs.
Note 2 Segmental reporting
The Group's operating segments are determined based on the
Group's internal reporting to the Chief Operating Decision Maker
(CODM). The CODM has been determined to be the Group Chief
Executive, with support from the Executive Committee, as the
function primarily responsible for the allocation of resources to
segments and assessment of performance of the segments.
The principal activities of the Group are presented in the
following segments:
-- Retailing and associated activities (Retail) in:
-- UK & ROI - the United Kingdom, Republic of Ireland; and
-- Central Europe - Czech Republic, Hungary and Slovakia.
-- Retail banking and insurance services through Tesco Bank in the UK (Tesco Bank).
This presentation reflects how the Group's operating performance
is reviewed internally by management.
The CODM uses adjusted operating profit, as reviewed at monthly
Executive Committee meetings, as the key measure of the segments'
results as it reflects the segments' underlying performance for the
financial period under evaluation. Adjusted operating profit is a
consistent measure within the Group as defined within the Glossary.
Refer to Note 3 for exceptional items and amortisation of acquired
intangibles. Inter-segment revenue between the operating segments
is not material.
Income statement
The segment results and the reconciliation of the segment
measures to the respective statutory items included in the Group
income statement are as follows:
Total at Total
26 weeks ended 28 August Central Tesco constant Foreign at actual
2021 UK & ROI Europe Bank exchange exchange exchange
At constant exchange rates GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ----- --------- ---------- ----------
Continuing operations
----------------------------------- -------- ------- ----- --------- ---------- ----------
Group sales 25,050 1,967 433 27,450 (119) 27,331
----------------------------------- -------- ------- ----- --------- ---------- ----------
Revenue 28,063 2,040 433 30,536 (120) 30,416
----------------------------------- -------- ------- ----- --------- ---------- ----------
Adjusted operating profit/(loss) 1,320 70 72 1,462 (4) 1,458
----------------------------------- -------- ------- ----- --------- ---------- ----------
Exceptional items and amortisation
of acquired intangibles (178) 25 - (153) (1) (154)
----------------------------------- -------- ------- ----- --------- ---------- ----------
Operating profit/(loss) 1,142 95 72 1,309 (5) 1,304
----------------------------------- -------- ------- ----- --------- ---------- ----------
Operating margin 4.7% 3.4% 16.6% 4.8% 4.8%
----------------------------------- -------- ------- ----- --------- ---------- ----------
Note 2 Segmental reporting continued
Total at
Central Tesco actual
26 weeks ended 28 August 2021 UK & ROI Europe Bank exchange
At actual exchange rates GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ----- ---------
Continuing operations
----------------------------------- -------- ------- ----- ---------
Group sales 24,993 1,905 433 27,331
----------------------------------- -------- ------- ----- ---------
Revenue 28,006 1,977 433 30,416
----------------------------------- -------- ------- ----- ---------
Adjusted operating profit/(loss) 1,318 68 72 1,458
----------------------------------- -------- ------- ----- ---------
Exceptional items and amortisation
of acquired intangibles (178) 24 - (154)
----------------------------------- -------- ------- ----- ---------
Operating profit/(loss) 1,140 92 72 1,304
----------------------------------- -------- ------- ----- ---------
Operating margin 4.7% 3.4% 16.6% 4.8%
----------------------------------- -------- ------- ----- ---------
Share of post-tax profits/(losses)
of joint ventures and associates (3)
----------------------------------- -------- ------- ----- ---------
Finance income 5
----------------------------------- -------- ------- ----- ---------
Finance costs (163)
----------------------------------- -------- ------- ----- ---------
Profit/(loss) before tax 1,143
----------------------------------- -------- ------- ----- ---------
Tesco Bank revenue of GBP433m (26 weeks ended 29 August 2020:
GBP386m) comprises interest and similar revenues of GBP238m (26
weeks ended 29 August 2020: GBP292m), fees and commissions revenue
of GBP101m (26 weeks ended 29 August 2020: GBP94m), and insurance
revenue of GBP94m (26 weeks ended 29 August 2020: GBPnil). For
insurance, refer to Note 16.
Total at
Central Tesco actual
26 weeks ended 29 August 2020 UK & ROI Europe Bank exchange
At actual exchange rates GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ------- ---------
Continuing operations
----------------------------------- -------- ------- ------- ---------
Group sales 24,337 1,929 386 26,652
----------------------------------- -------- ------- ------- ---------
Revenue 26,341 1,991 386 28,718
----------------------------------- -------- ------- ------- ---------
Adjusted operating profit/(loss) 1,133 59 (155) 1,037
----------------------------------- -------- ------- ------- ---------
Exceptional items and amortisation
of acquired intangibles (28) (2) - (30)
----------------------------------- -------- ------- ------- ---------
Operating profit/(loss) 1,105 57 (155) 1,007
----------------------------------- -------- ------- ------- ---------
Operating margin 4.3% 3.0% (40.2)% 3.6%
----------------------------------- -------- ------- ------- ---------
Share of post-tax profits/(losses)
of joint ventures and associates 13
----------------------------------- -------- ------- ------- ---------
Finance income 7
----------------------------------- -------- ------- ------- ---------
Finance costs (476)
----------------------------------- -------- ------- ------- ---------
Profit/(loss) before tax 551
----------------------------------- -------- ------- ------- ---------
Note 2 Segmental reporting continued
Balance sheet
The following tables showing segment assets and liabilities
exclude those balances that make up net debt (cash and cash
equivalents, short-term investments, joint venture loans and other
receivables, bank and other borrowings, lease liabilities,
derivative financial instruments and net debt of the disposal
group). With the exception of lease liabilities which have been
allocated to each segment, all other components of net debt have
been included within the unallocated segment to reflect how the
Group manages these balances. Intercompany transactions have been
eliminated other than intercompany transactions with Tesco Bank in
net debt.
Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank Unallocated operations operations Total
At 28 August 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Goodwill and other intangible
assets 4,719 30 640 - 5,389 - 5,389
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Property, plant and equipment
and investment property 15,366 1,454 65 - 16,885 - 16,885
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Right of use assets 5,426 371 12 - 5,809 - 5,809
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Investments in joint ventures
and associates 83 1 - - 84 - 84
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Non-current other investments 9 - 1,209 - 1,218 - 1,218
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Non-current trade and other
receivables(a) 99 2 78 - 179 - 179
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Non-current reinsurance assets(b) - - 205 - 205 - 205
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Non-current loans and advances
to customers and banks - - 3,169 - 3,169 - 3,169
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Deferred tax assets 175 26 69 - 270 - 270
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Non-current assets (c) 25,877 1,884 5,447 - 33,208 - 33,208
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Inventories and current trade
and other receivables(d)(e) 2,804 318 226 - 3,348 - 3,348
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Current reinsurance assets(b) - - 52 - 52 - 52
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Current loans and advances
to customers and banks - - 3,287 - 3,287 - 3,287
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Current other investments - - 348 - 348 - 348
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Total trade and other payables (8,270) (533) (305) - (9,108) - (9,108)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Total customer deposits and
deposits from banks - - (6,160) - (6,160) - (6,160)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Total insurance contract provisions(b) - - (655) - (655) - (655)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Total provisions (376) (22) (48) - (446) - (446)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Deferred tax liabilities (11) (40) - - (51) - (51)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Net current tax (125) 2 25 - (98) - (98)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Post-employment benefits (580) - - - (580) - (580)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Assets of the disposal group
and non-current assets classified
as held for sale 20 328 - - 348 99 447
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Liabilities of the disposal
group classified as held for
sale - - - - - (22) (22)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Net debt (including Tesco Bank)(f)(g) (7,709) (489) (31) (2,005) (10,234) - (10,234)
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
Net assets 11,630 1,448 2,186 (2,005) 13,259 77 13,336
--------------------------------------- ------- ------- ------- ----------- ----------- ------------ --------
(a) Excludes loans to joint ventures of GBP78m (27 February
2021: GBP21m, 29 August 2020: GBP104m) which form part of net
debt.
(b) Balances acquired in the acquisition of Tesco Underwriting
Limited, see Note 1 for further details.
(c) Excludes derivative financial instrument non-current assets
of GBP1,664m (27 February 2021: GBP1,425m, 29 August 2020:
GBP1,113m) which form part of net debt.
(d) Excludes net interest and other receivables of GBPnil (27
February 2021: GBPnil, 29 August 2020: GBP3m) which form part of
net debt.
(e) Excludes loans to joint ventures of GBP24m (27 February
2021: GBP101m, 29 August 2020: GBP24m) which form part of net
debt.
(f) Refer to Note 21.
(g) Net debt (including Tesco Bank) at 28 August 2021 excludes
net debt of the disposal group classified as held for sale of
GBP(19)m.
Note 2 Segmental reporting continued
Total
Balance sheet continued UK & Central Tesco continuing Discontinued
ROI Europe Bank Unallocated operations operations Total
At 27 February 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Goodwill and other intangible
assets 4,750 32 611 - 5,393 - 5,393
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Property, plant and equipment
and investment property 15,397 1,768 65 - 17,230 - 17,230
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Right of use assets 5,571 368 12 - 5,951 - 5,951
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Investments in joint ventures
and associates 84 1 93 - 178 - 178
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Non-current other investments 9 - 754 - 763 - 763
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Non-current trade and other
receivables(a) 97 - 52 - 149 - 149
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Non-current loans and advances
to customers and banks - - 3,309 - 3,309 - 3,309
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Deferred tax assets 460 25 67 - 552 - 552
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Non-current assets (c) 26,368 2,194 4,963 - 33,525 - 33,525
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Inventories and current
trade and other receivables
( d)(e) 2,684 325 222 - 3,231 - 3,231
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Current loans and advances
to customers and banks - - 3,093 - 3,093 - 3,093
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Current other investments - - 178 - 178 - 178
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Total trade and other payables (7,797) (495) (216) - (8,508) - (8,508)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Total customer deposits
and deposits from banks - - (6,338) - (6,338) - (6,338)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Total insurance contract - - - - - - -
provisions(b)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Total provisions (224) (22) (59) - (305) - (305)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Deferred tax liabilities (9) (39) - - (48) - (48)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Net current tax (79) 5 36 - (38) - (38)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Post-employment benefits (1,222) - - - (1,222) - (1,222)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Assets of the disposal groups
and other non-current assets
classified as held for sale 53 - - - 53 552 605
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Liabilities of the disposal
group classified as held
for sale - - - - - (276) (276)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Net debt (including Tesco
Bank)(f)(g) (7,879) (493) 242 (3,442) (11,572) - (11,572)
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
Net assets 11,895 1,475 2,121 (3,442) 12,049 276 12,325
------------------------------- ------- ------- ------- ----------- ------------ ------------ --------
(a)-(g) Refer to previous table for footnotes.
Note 2 Segmental reporting continued
Balance sheet continued Total
UK & Central Tesco continuing Discontinued
ROI Europe Bank Unallocated operations operations Total
At 29 August 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Goodwill and other intangible
assets 4,811 26 905 - 5,742 - 5,742
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Property, plant and equipment
and investment property 14,689 1,827 63 - 16,579 - 16,579
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Right of use assets 5,733 404 13 - 6,150 - 6,150
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Investments in joint ventures
and associates 82 1 95 - 178 - 178
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Non-current other investments 6 - 830 - 836 - 836
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Non-current trade and other
receivables(a) 92 1 57 - 150 - 150
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Non-current loans and advances
to customers and banks - - 3,655 - 3,655 - 3,655
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Deferred tax assets 520 33 74 - 627 - 627
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Non-current assets (c) 25,933 2,292 5,692 - 33,917 - 33,917
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Inventories and current
trade and other receivables(d)(e) 2,831 372 440 - 3,643 - 3,643
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Current loans and advances
to customers and banks - - 3,630 - 3,630 - 3,630
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Current other investments - - 26 26 - 26
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Total trade and other payables (7,519) (532) (346) - (8,397) - (8,397)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Total customer deposits
and deposits from banks - - (7,137) - (7,137) - (7,137)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Total provisions (229) (11) (48) - (288) - (288)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Total insurance contract - - -
provisions(b) - - - -
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Deferred tax liabilities (4) (39) - - (43) - (43)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Net current tax (242) 26 25 - (191) - (191)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Post-employment benefits (4,043) - - - (4,043) - (4,043)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Assets of the disposal groups
and non-current assets classified
as held for sale 67 - - - 67 5,132 5,199
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Liabilities of the disposal
groups classified as held
for sale - - - - - (2,098) (2,098)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Net debt (including Tesco
Bank)(f)(g) (8,207) (518) 254 (3,550) (12,021) - (12,021)
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
Net assets 8,587 1,590 2,536 (3,550) 9,163 3,034 12,197
----------------------------------- ------- ------- ------- ----------- ------------ -------------- --------
(a)-(g) Refer to previous table for footnotes.
Note 2 Segmental reporting continued
Other segment information
Total Discontinued
Central Tesco continuing operations Total
26 weeks ended 28 August UK & ROI Europe Bank operations GBPm GBPm
2021 GBPm GBPm GBPm GBPm
--------------------------------- -------- ------- ------ ----------- -------------- -------
Capital expenditure (including
acquisitions through business
combinations):
--------------------------------- -------- ------- ------ ----------- -------------- -------
Property, plant and equipment
(a)(b) 359 22 5 386 1 387
--------------------------------- -------- ------- ------ ----------- -------------- -------
Goodwill and other intangible
assets (c) 81 4 53 138 - 138
--------------------------------- -------- ------- ------ ----------- -------------- -------
Depreciation and amortisation:
--------------------------------- -------- ------- ------ ----------- -------------- -------
Property, plant and equipment (396) (47) (5) (448) - (448)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Right of use assets (248) (18) (1) (267) (1) (268)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Other intangible assets (110) (6) (24) (140) - (140)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Impairment:
--------------------------------- -------- ------- ------ ----------- -------------- -------
(Loss)/reversal on financial
assets 2 (1) (21) (20) - (20)
--------------------------------- -------- ------- ------ ----------- -------------- -------
(a) Includes GBP 1 m (29 August 2020: GBP12m) acquired through business
combinations.
(b) Includes GBPnil (29 August 2020: GBP54m) related to the disposal
groups subsequent to reclassification to held for sale.
(c) Includes GBP 38 m (29 August 2020: GBP5m) of goodwill and other
intangible assets acquired through business combinations.
Total
Central Tesco continuing Discontinued
26 weeks ended 29 August UK & ROI Europe Bank operations operations Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- ------- ------ ----------- -------------- -------
Capital expenditure (including
acquisitions through business
combinations):
--------------------------------- -------- ------- ------ ----------- -------------- -------
Property, plant and equipment
(a)(b) 406 35 7 448 56 504
--------------------------------- -------- ------- ------ ----------- -------------- -------
Goodwill and other intangible
assets (c) 71 4 18 93 1 94
--------------------------------- -------- ------- ------ ----------- -------------- -------
Depreciation and amortisation:
--------------------------------- -------- ------- ------ ----------- -------------- -------
Property, plant and equipment (399) (50) (4) (453) (14) (467)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Right of use assets (259) (18) (1) (278) (5) (283)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Other intangible assets (110) (4) (24) (138) (1) (139)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Impairment:
--------------------------------- -------- ------- ------ ----------- -------------- -------
(Loss)/reversal on financial
assets (6) (1) (257) (264) (6) (270)
--------------------------------- -------- ------- ------ ----------- -------------- -------
Note 2 Segmental reporting continued
Cash flow statement
The following tables provide further analysis of the Group cash
flow statement, including a split of cash flows between Retail and
Tesco Bank as well as an analysis of Retail continuing and
discontinued operations.
Tesco
Retail Tesco Bank Group
--------------------------- ------------------------------------ --------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items and items and items and items and
amortisation amortisation amortisation amortisation Tesco
26 weeks ended 28 of acquired of acquired Retail of acquired of acquired Bank
August intangibles intangibles Total intangibles intangibles Total Total
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Continuing
operations
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Operating
profit/(loss)
of continuing
operations 1,386 (154) 1,232 72 - 72 1,304
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Depreciation and
amortisation 787 38 825 30 - 30 855
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
ATM net income (8) - (8) 8 - 8 -
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
(Profit)/loss
arising
on sale of
property, plant
and equipment,
investment
property,
intangible assets
and assets
classified
as held for sale
and early
termination of
leases (1) (21) (22) - - - (22)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
(Profit)/loss
arising
on sale of joint
ventures
and associates - - - (10) - (10) (10)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Net impairment
loss/(reversal)
on property, plant
and
equipment, right of
use
assets, intangible
assets
and investment
property - (36) (36) - - - (36)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Net remeasurement
(gain)/loss
on non-current
assets
held for sale - (1) (1) - - - (1)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Adjustment for
non-cash
element of pensions
charge 6 - 6 - - - 6
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Other defined
benefit
pension scheme
payments (11) - (11) - - - (11)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Share-based payments 24 - 24 2 - 2 26
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Tesco Bank fair
value
movements included
in
operating
profit/(loss) - - - 19 - 19 19
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Cash flows generated
from
operations
excluding working
capital 2,183 (174) 2,009 121 - 121 2,130
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
(Increase)/decrease
in
working capital 556 67 623 (277) (4) (281) 342
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Cash generated
from/(used
in) operations 2,739 (107) 2,632 (156) (4) (160) 2,472
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Interest paid (316) - (316) (2) - (2) (318)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Corporation tax paid (49) - (49) (1) - (1) (50)
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Net cash generated
from/(used
in) operating
activities 2,374 (107) 2,267 (159) (4) (163) 2,104
-------------------- ------------ ------------- ------ ------------- ------------- ------------- -----------
Note 2 Segmental reporting continued
Cash flow statement continued
Tesco
Retail Tesco Bank Group
------------------------------------ ------------------------------------ --------------
Before
exceptional Before Exceptional
items Exceptional exceptional items
and items and items and and
amortisation amortisation amortisation amortisation Tesco
of acquired of acquired Retail of acquired of acquired Bank
26 weeks ended 28 August intangibles intangibles Total intangibles intangibles Total Total
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Continuing operations
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net cash generated
from/(used
in) operating
activities(a) 2,374 (107) 2,267 (159) (4) (163) 2,104
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Proceeds from sale of
property,
plant and equipment,
investment
property, intangible
assets
and assets classified as
held
for sale - 109 109 - - - 109
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Purchase of property,
plant
and equipment and
investment
property - store buy
backs (37) - (37) - - - (37)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Purchase of property,
plant
and equipment and
investment
property - other capital
expenditure (410) - (410) (5) - (5) (415)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Purchase of intangible
assets (85) - (85) (15) - (15) (100)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Disposal of subsidiaries,
net of cash disposed - 125 125 - - - 125
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Acquisition of businesses,
net of cash acquired - - - (81) - (81) (81)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Increase in loans to joint - - - - - - -
ventures and associates
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Investments in associates
and joint ventures (8) - (8) - - - (8)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net (investments
in)/proceeds
from sale of short-term
investments (1,320) - (1,320) - - - (1,320)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Proceeds from sale of
other
investments(b) - - - 51 - 51 51
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Purchase of other
investments(b) - - - (44) - (44) (44)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Dividends received from
joint
ventures and associates 3 - 3 10 - 10 13
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Interest received 2 - 2 - - - 2
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net cash generated
from/(used
in) investing
activities(a) (1,855) 234 (1,621) (84) - (84) (1,705)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Own shares purchased (55) - (55) - - - (55)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Repayment of capital
element
of obligations under
leases (286) - (286) (1) - (1) (287)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Increase in borrowings - - - - - - -
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Repayment of borrowings (26) - (26) (21) - (21) (47)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Cash inflows from
derivative
financial instruments(b) 247 - 247 - - - 247
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Cash outflows from
derivative
financial instruments(b) (286) - (286) - - - (286)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Dividends paid to equity
owners (458) (26) (484) - - - (484)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net cash generated
from/(used
in) financing
activities(a) (864) (26) (890) (22) - (22) (912)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net increase/(decrease) in
cash and cash equivalents
from continuing
operations (345) 101 (244) (265) (4) (269) (513)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net increase/(decrease) in
cash and cash equivalents
from discontinued
operations (8) 44 36 - - - 36
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Intra-Group funding and
intercompany
transactions (3) - (3) 3 - 3 -
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Net increase/(decrease) in
cash and cash equivalents (356) 145 (211) (262) (4) (266) (477)
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Cash and cash equivalents
at the beginning of the
period 1,191 780 1,971
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Effect of foreign exchange
rate changes 60 - 60
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Cash and cash equivalents
at the end of the period 1,040 514 1,554
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Cash and overdrafts held - - -
in
disposal groups
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
Cash and cash equivalents
not held in disposal
groups 1,040 514 1,554
-------------------------- ------------ ------------- ------- ------------- ------------- ------ --------------
(a) See page 67 for the reconciliation of the APM: Retail free
cash flow.
(b) Refer to Note 1 for further details regarding the primary
financial statements presentation.
Note 2 Segmental reporting continued
Tesco
Retail Tesco Bank Group
---------------------------- ----------------------------------------------- --------
Before Before
exceptional Exceptional exceptional Exceptional
items and items and items and items and
amortisation amortisation amortisation amortisation Tesco
of acquired of acquired Retail of acquired of acquired Bank
26 weeks ended 29 August intangibles intangibles Total(a) intangibles intangibles Total Total(a)
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Continuing operations
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Operating profit/(loss)
of continuing operations 1,192 (30) 1,162 (155) - (155) 1,007
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Depreciation and
amortisation 802 38 840 29 - 29 869
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
ATM net income (8) - (8) 8 - 8 -
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
(Profit)/loss arising
on sale of property,
plant
and equipment,
investment
property, intangible
assets
and assets classified
as held for sale and
early
termination of leases (36) 1 (35) - - - (35)
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Net impairment
loss/(reversal)
on property, plant and
equipment, right of use
assets, intangible
assets
and investment property 10 - 10 - - - 10
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Other defined benefit
pension scheme payments (161) - (161) - - - (161)
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Share-based payments 6 - 6 3 - 3 9
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Tesco Bank fair value
movements included in
operating profit/(loss) - - - 259 - 259 259
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Cash flows generated from
operations excluding
working
capital 1,805 9 1,814 144 - 144 1,958
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
(Increase)/decrease in
working capital 170 (136) 34 (116) (14) (130) (96)
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Cash generated from/(used
in) operations 1,975 (127) 1,848 28 (14) 14 1,862
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Interest paid (323) - (323) (3) - (3) (326)
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Corporation tax paid (125) - (125) (9) - (9) (134)
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Net cash generated
from/(used
in) operating activities 1,527 (127) 1,400 16 (14) 2 1,402
------------------------- ------------- ------------- --------- ------------- ------------- ------ --------
Cash flow statement continued
(a) Refer to footnotes on the next page.
Note 2 Segmental reporting continued
Tesco Tesco
Retail Bank Group
------------------------------------- -------------------------------------- ------------------------------
Before Before
exceptional Exceptional exceptional
items items items Exceptional
and and and items and
amortisation amortisation amortisation amortisation Tesco
of acquired of acquired Retail of acquired of acquired Bank
26 weeks ended 29 August intangibles intangibles Total(a) intangibles intangibles Total Total(a)
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Continuing operations
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net cash generated
from/(used
in) operating
activities(c) 1,527 (127) 1,400 16 (14) 2 1,402
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Proceeds from sale of
property,
plant and equipment,
investment
property, intangible
assets
and assets classified as
held
for sale - 32 32 - 51 51 83
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Purchase of property,
plant
and equipment and
investment
property - store buy
backs (148) - (148) - - - (148)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Purchase of property,
plant
and equipment and
investment
property - other capital
expenditure (299) - (299) (24) - (24) (323)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Purchase of intangible
assets (70) - (70) (18) - (18) (88)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Disposal of subsidiaries,
net
of cash disposed (1) (25) (26) - - - (26)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Acquisition of businesses,
net of cash acquired 15 - 15 - - - 15
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Increase in loans to joint
ventures and associates (1) - (1) - - - (1)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Investments in associates
and
joint ventures (11) - (11) - - - (11)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net (investments
in)/proceeds
from sale of short-term
investments 134 - 134 - - - 134
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Proceeds from sale of
other
investments(b) - - - 202 - 202 202
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Purchase of other - - - - - - -
investments(b)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Dividends received from
joint
ventures and associates 6 - 6 - - - 6
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Interest received 4 - 4 - - - 4
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net cash generated
from/(used
in) investing
activities(c) (371) 7 (364) 160 51 211 (153)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Own shares purchased (79) - (79) - - - (79)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Repayment of capital
elements
of obligations under
leases (292) - (292) (2) - (2) (294)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Increase in borrowings 448 - 448 - - - 448
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Repayment of borrowings (287) - (287) - - - (287)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash inflows from
derivative
financial instruments(b) 334 - 334 - - - 334
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash outflows from
derivative
financial instruments(b) (315) (243) (558) - - - (558)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Dividends paid to equity
owners (634) - (634) - - - (634)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net cash generated
from/(used
in) financing
activities(c) (825) (243) (1,068) (2) - (2) (1,070)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net increase/(decrease) in
cash and cash equivalents
from
continuing operations 331 (363) (32) 174 37 211 179
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net increase/(decrease) in
cash and cash equivalents
from
discontinued operations 114 (3) 111 - - - 111
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Intra-Group funding and
intercompany
transactions (5) - (5) 5 - 5 -
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Net increase/(decrease) in
cash and cash equivalents 440 (366) 74 179 37 216 290
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash and cash equivalents
at
the beginning of the
period 1,667 1,364 3,031
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Effect of foreign exchange
rate changes (21) - (21)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash and cash equivalents
at
the end of the period 1,720 1,580 3,300
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash and overdrafts held
in
disposal group (546) - (546)
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash and cash equivalents
not
held in disposal group 1,174 1,580 2,754
-------------------------- ------------ ------------ --------- --------------- --------------------- -------- --------------------
Cash flow statement continued
(a) Refer to Note 1 for further details regarding the prior
period restatement.
(b) Refer to Note 1 for further details regarding the primary
financial statements presentation.
(c) See page 67 for the reconciliation of the APM: Retail free
cash flow.
Note 2 Segmental reporting continued
Cash flow statement continued
Continuing Discontinued
operations operations Total Group
----------------- ----------------- -----------------
2021 2020(a) 2021 2020(a) 2021 2020(a)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------ --------- ------ --------- ------ ---------
Operating profit/(loss) 1,304 1,007 (55) 95 1,249 1,102
------------------------------------------ ------ --------- ------ --------- ------ ---------
Depreciation and amortisation 855 869 1 20 856 889
------------------------------------------ ------ --------- ------ --------- ------ ---------
(Profit)/loss arising on sale
of property, plant and equipment,
investment property, intangible
assets and assets held for sale
and early termination of leases (22) (35) 2 3 (20) (32)
------------------------------------------ ------ --------- ------ --------- ------ ---------
(Profit)/loss arising on sale
of joint venture and associates (10) - - - (10) -
------------------------------------------ ------ --------- ------ --------- ------ ---------
(Profit)/loss arising on sale
of subsidiaries - - 26 - 26 -
------------------------------------------ ------ --------- ------ --------- ------ ---------
Transaction costs associated with
sale of subsidiaries - - - 30 - 30
------------------------------------------ ------ --------- ------ --------- ------ ---------
Net impairment loss/(reversal)
on property, plant and equipment,
right of use assets, intangible
assets and investment property (36) 10 - 43 (36) 53
------------------------------------------ ------ --------- ------ --------- ------ ---------
Net remeasurement (gain)/loss
on non-current assets held for
sale (1) - (4) - (5) -
------------------------------------------ ------ --------- ------ --------- ------ ---------
Adjustment for non-cash element
of pensions charge 6 - - - 6 -
------------------------------------------ ------ --------- ------ --------- ------ ---------
Other defined benefit pension
scheme payments (11) (161) - - (11) (161)
------------------------------------------ ------ --------- ------ --------- ------ ---------
Share-based payments 26 9 - 6 26 15
------------------------------------------ ------ --------- ------ --------- ------ ---------
Tesco Bank fair value movements
included in operating profit/(loss) 19 259 - - 19 259
------------------------------------------ ------ --------- ------ --------- ------ ---------
Cash flows generated from operations
excluding working capital 2,130 1,958 (30) 197 2,100 2,155
------------------------------------------ ------ --------- ------ --------- ------ ---------
(Increase)/decrease in working
capital 342 (96) 26 39 368 (57)
------------------------------------------ ------ --------- ------ --------- ------ ---------
Cash generated from/(used in) operations 2,472 1,862 (4) 236 2,468 2,098
------------------------------------------ ------ --------- ------ --------- ------ ---------
Interest paid (318) (326) - (25) (318) (351)
------------------------------------------ ------ --------- ------ --------- ------ ---------
Corporation tax paid (50) (134) (2) (13) (52) (147)
------------------------------------------ ------ --------- ------ --------- ------ ---------
Net cash generated from/(used in)
operating activities 2,104 1,402 (6) 198 2,098 1,600
------------------------------------------ ------ --------- ------ --------- ------ ---------
(a) Refer to footnotes on the next page.
Note 2 Segmental reporting continued
Continuing Discontinued
Cash flow statement continued operations operations Total Group
------------------ ----------------- ------------------
2021 2020(a) 2021 2020(a) 2021 2020(a)
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Net cash generated from/(used in)
operating activities(c) 2,104 1,402 (6) 198 2,098 1,600
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Proceeds from sale of property, plant
and equipment, investment property,
intangible assets and non-current
assets classified as held for sale 109 83 - - 109 83
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Purchase of property, plant and equipment,
investment property and non-current
assets classified as held for sale
- store buybacks (37) (148) - - (37) (148)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Purchase of property, plant and equipment,
investment property and non-current
assets classified as held for sale
- other capital expenditure (415) (323) (1) (66) (416) (389)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Purchase of intangible assets (100) (88) - (1) (100) (89)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Disposal of subsidiaries, net of cash
disposed 125 (26) 44 - 169 (26)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Acquisition of businesses, net of
cash acquired (Note 23) (81) 15 - - (81) 15
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Increase in loans to joint ventures
and associates - (1) - - - (1)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Investments in joint ventures and
associates (8) (11) - - (8) (11)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Net (investments in)/proceeds from
sale of short-term investments (1,320) 134 - - (1,320) 134
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Proceeds from sale of other investments(b) 51 202 - - 51 202
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Purchase of other investments(b) (44) - - - (44) -
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Dividends received from joint ventures
and associates 13 6 - 6 13 12
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Interest received 2 4 - 1 2 5
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Net cash generated from/(used in)
investing activities(c) (1,705) (153) 43 (60) (1,662) (213)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Own shares purchased (55) (79) - - (55) (79)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Repayments of capital element of obligations
under leases (287) (294) (1) (27) (288) (321)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Increase in borrowings - 448 - - - 448
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Repayment of borrowings (47) (287) - - (47) (287)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Cash inflows from derivative financial
instruments(b) 247 334 - - 247 334
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Cash outflows from derivative financial
instruments(b) (286) (558) - - (286) (558)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Dividends paid to equity owners (484) (634) - - (484) (634)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Net cash generated from/(used in)
financing activities(c) (912) (1,070) (1) (27) (913) (1,097)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Net increase/(decrease) in cash and
cash equivalents before intra-Group
funding and intercompany transactions (513) 179 36 111 (477) 290
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Intra-Group funding and intercompany
transactions 27 (113) (27) 113 - -
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Net increase/(decrease) in cash and
cash equivalents (486) 66 9 224 (477) 290
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Cash and cash equivalents at the beginning
of the period 1,971 3,031
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Effects of foreign exchange rate changes 60 (21)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Cash and cash equivalents at the end
of the period 1,554 3,300
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Cash and overdrafts held in disposal
groups - (546)
--------------------------------------------- ------- --------- ------ --------- ------- ---------
Cash and cash equivalents not held
in disposal groups 1,554 2,754
--------------------------------------------- ------- --------- ------ --------- ------- ---------
(a) Refer to Note 1 for further details regarding the prior
period restatement.
(b) Refer to Note 1 for further details regarding the primary
financial statements presentation.
(c) See page 67 for the reconciliation of the APM: Retail free
cash flow.
Note 3 Exceptional items and amortisation of acquired
intangibles
Income statement
26 weeks ended 28 August 2021
Profit/(loss) for the period included the following exceptional
items and amortisation of acquired intangibles:
Total
exceptional
items and
amortisation
Exceptional of acquired
items and intangibles Exceptional
amortisation of included Share of items
acquired within joint ventures within
intangibles Cost Administrative operating and associates Finance discontinued
included of sales expenses profit profits/(losses) costs Taxation operations
in: GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Exceptional
items:
Property
transactions(a) - 21 21 - - - -
Net impairment
reversal
of non-current
assets(b) 24 13 37 - - - -
Asia licence
fee(c) - 19 19 - - (4) -
Litigation
costs(d) - (193) (193) - - - -
Total
exceptional
items
from continuing
operations
before
amortisation
of acquired
intangibles 24 (140) (116) - - (4) -
Amortisation of
acquired
intangible
assets (Note
9) - (38) (38) - - (15) -
Total
exceptional
items
from continuing
operations
and
amortisation of
acquired
intangibles 24 (178) (154) - - (19) -
Exceptional
items relating
to discontinued
operations(e) - - - - - - (44)
Total
exceptional
items
and
amortisation of
acquired
intangibles 24 (178) (154) - - (19) (44)
(a) The Group disposed of surplus properties which generated a
profit of GBP21m.
(b) Comprised of GBP36m net impairment reversal relating to the
Group's non-current assets. Refer to Note 12 for further details.
GBP1m relates to an impairment reversal
of non-current assets classified as assets held for sale.
(c) Software licence fee income from services provided to CP
Group as part of the Transitional Services Agreement relating to
the sale of Asia.
(d) Costs arising from the 2020 claims against Tesco PLC for
matters arising out of or in connection with the overstatement of
expected profit announced in 2014 .
(e) Refer to Note 6.
26 weeks ended 29 August 2020
Profit/(loss) for the period included the following exceptional
items and amortisation of acquired intangibles:
Total exceptional
Exceptional items items and
and amortisation
amortisation of of acquired Share of Exceptional
acquired intangibles joint ventures items within
intangibles Cost Administrative included within and associates Finance discontinued
included of sales expenses operating profit profits/(losses) costs Taxation operations
in: GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Exceptional items:
Property
transactions (2) - (2) - - - -
Booker integration - (2) (2) - - - -
ATM business rates 105 - 105 - - (20) -
Litigation costs - (93) (93) - - - -
Total exceptional
items
from continuing
operations
before
amortisation of
acquired
intangibles 103 (95) 8 - - (20) -
Amortisation of
acquired
intangible assets
(Note
9) - (38) (38) - - (5) -
Total exceptional
items
from continuing
operations
and amortisation
of acquired
intangibles 103 (133) (30) - - (25) -
Exceptional items
relating
to discontinued
operations - - - - - - (124)
Total exceptional
items
and amortisation
of acquired
intangibles 103 (133) (30) - - (25) (124)
Note 3 Exceptional items and amortisation of acquired
intangibles continued
Cash flow statement
The table below shows the impact of exceptional items on the
Group cash flow statement:
Amortisation of acquired intangibles does not affect the Group's
cash flow.
Cash flows from Cash flows from Cash flows from
operating activities investing activities financing activities
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Prior year restructuring
and redundancy costs - (32) - - - -
Property transactions(a) - - 109 32 - -
Tesco Bank mortgage book
disposal proceeds - - - 51 - -
Settlement of claims for
customer redress in Tesco
Bank (4) (14) - - - -
Litigation costs(b) (105) (93) - - - -
Costs associated with the
sale of Asia - - (5) (25) - -
Poland sale proceeds(c) - - 130 - - -
Booker integration cash payments (14) (2) - - - -
Hedging costs associated
with the sale of Asia - - - - - (243)
ATM business rates(d) 12 - - - - -
Special dividend(e) - - - - (26) -
Total continuing operations (111) (141) 234 58 (26) (243)
Exceptional cash flow from
discontinued operations(f) - (3) 44 - - -
Total (111) (144) 278 58 (26) (243)
(a) Property transactions include GBP73m proceeds relating to
the sale of stores in Poland not included in the sale of the
corporate business.
(b) Costs arising from the 2020 claims against Tesco PLC for
matters arising out of or in connection with the overstatement of
expected profit announced in 2014.
(c) Poland sale proceeds include GBP106m in respect of
intercompany debt settled by the purchaser upon completion. Refer
to Note 6 for further details.
(d) Amounts received in the year with respect to the Supreme
Court ruling related to external facing ATM's in stores.
(e) Amounts paid in the year relating to unsettled elements of
the special dividend.
(f) Exceptional cash flows of GBP44m from discontinued
operations comprise of GBP57m borrowings less GBP(13)m cash
disposed.
Note 4 Finance income and costs
26 weeks 26 weeks
2021 2020
Continuing operations Notes GBPm GBPm
Finance income
Interest receivable and similar income 2 5
Finance income receivable on net investment in leases 3 2
Total finance income 5 7
Finance costs
GBP MTNs and loans (82) (70)
EUR MTNs (20) (27)
USD bonds (2) (5)
Finance charges payable on lease liabilities (207) (229)
Other interest payable (21) (9)
Fair value remeasurements of financial instruments 180 (108)
Total finance costs before net pension finance costs (152) (448)
Net pension finance costs 20 (11) (28)
Total finance costs (163) (476)
Net finance costs (158) (469)
Note 5 Taxation
Recognised in the Group income statement
26 weeks 26 weeks
2021 2020
Continuing operations GBPm GBPm
Current tax charge/(credit)
UK corporation tax 154 109
Overseas tax 28 22
Deferred tax charge/(credit)
Origination and reversal of temporary differences 88 (7)
Change in tax rate 43 30
Total income tax charge/(credit) 313 154
The tax charge in the Group income statement is based on
management's best estimate of the full year effective tax rates by
geographical unit applied to half year profits, which is then
adjusted for tax on exceptional items and amortisation of acquired
intangibles arising in the period to 28 August 2021. The standard
rate of corporation tax has been applied to the exceptional profits
and losses on an item by item basis, based on the geographical unit
of that item. Refer to Note 3 for further details.
The Finance Act 2021 included legislation to increase the main
rate of UK corporation tax from 19% to 25% from 1 April 2023. As
the change to the main UK corporation tax rate was substantively
enacted by the balance sheet date the impact is included in these
condensed consolidated interim financial statements with temporary
differences remeasured using the enacted tax rates that are
expected to apply when the liability is settled or the asset
realised. The UK corporation tax rate change increased the deferred
tax asset by GBP44m, comprising of a GBP43m deferred tax charge
recognised within the consolidated income statement for the period
and a GBP87m deferred tax credit (principally in relation to
post-employment benefits) recognised in other comprehensive income.
Subsequently the deferred tax asset has decreased mainly due to the
revaluation gain on the pension scheme. Refer to Note 20 for
further details.
Note 6 Discontinued operations and assets classified as held for
sale
26 weeks 26 weeks
Income statement of discontinued operations 2021 2020
Malaysia
Poland Other Total and Thailand Poland Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit/(loss) before exceptional
items (2) - (2) 277 (12) - 265
Share of post-tax profits/(losses)
of joint ventures and associates - - - 6 - - 6
Finance (costs)/income - - - (18) (7) - (25)
Profit/(loss) before tax, before exceptional
items (2) - (2) 265 (19) - 246
Taxation (3) - (3) (53) (1) - (54)
Profit after tax, before exceptional
items (5) - (5) 212 (20) - 192
Loss on disposal of Poland* (26) - (26) - - - -
Homeplus (Korea) claims provision* - (33) (33) - - (86) (86)
Other exceptional items* 2 4 6 (26) (58) - (84)
Tax on exceptional items* - 9 9 46 - - 46
Total profit/(loss) after tax of discontinued
operations (29) (20) (49) 232 (78) (86) 68
* Exceptional items of GBP(44)m (26 weeks ended 29 August 2020:
GBP(124)m) include GBP(26)m loss on disposal of Poland (26 weeks
ended 29 August 2020: GBPnil), GBP(33)m provision relating to
claims from Homeplus (Korea) purchasers (26 weeks ended 29 August
2020: GBP(86)m), GBP4m reversal of accruals relating to legal costs
(26 weeks ended 29 August 2020: GBPnil), GBP(2)m costs relating to
Poland properties (26 weeks ended 29 August 2020: GBPnil), GBP4m of
net impairment gain on non-current assets (26 weeks ended 29 August
2020: GBP(43)m loss), GBP9m tax on exceptional items (26 weeks
ended 29 August 2020: GBP46m) being the reduction of withholding
tax paid at the time of the sale relating to the Homeplus claim,
GBPnil transaction costs (26 weeks ended 26 August 2020: GBP(28)m),
GBPnil of net restructuring and redundancy costs (26 weeks ended 29
August 2020: GBP(8)m), GBPnil on disposal of surplus properties (26
weeks ended 29 August 2020: GBP(3)m loss) and GBPnil fair value
loss due to the income statement impact of the derivative contracts
entered into by the Group to economically hedge the foreign
exchange risk on the anticipated USD disposal proceeds from the
Asia business (26 weeks ended 29 August 2020: GBP(2)m loss).
On 18 June 2020, the Group reached agreement on the terms of a
proposed corporate sale of its business in Poland, which was
previously presented in the Group's Central Europe segment. The
assets and liabilities related to the Group's Poland operation, as
well as certain other properties that met the criteria to be
classified as held for sale during the year ended 27 February 2021,
were presented within discontinued operations. The corporate
transaction completed on 16 March 2021.
The loss after tax for the Poland corporate sale comprises the
following:
GBPm
Gross proceeds(a) 139
Costs to sell and indemnities(b) (15)
Net proceeds 124
Net book value of assets and liabilities disposed
Goodwill and other intangible assets (3)
Property, plant and equipment (212)
Right of use assets (69)
Inventories (59)
Trade and other receivables (15)
Cash and cash equivalents (13)
Trade and other payables 105
Borrowings 57
Lease liabilities 110
Provisions 15
Net book value of assets and liabilities disposed (84)
Currency translation reserve reclassified to income statement (66)
Loss before and after tax on disposal (26)
(a) Proceeds include GBP106m with respect to intercompany debt
settled by the purchaser upon completion.
(b) Total costs associated with the sale of the business
amounted to GBP(21)m, of which GBP(6)m was expensed in the prior
financial year. Costs to sell and
indemnities include GBP(11)m indemnities given and GBP(4)m legal
and professional fees.
The disposal of the operations in Poland has reduced Retail net
debt by GBP284m. This comprises GBP110m lease liabilities disposed
and GBP174m net cash flows, consisting of GBP139m proceeds less
GBP(5)m received in the prior year, GBP57m borrowings less GBP(13)m
cash disposed, and GBP(4)m cash costs to sell. The total cash flows
associated with the disposal are presented in disposal of
subsidiaries net of cash disposed, within investing cash flows.
During the period GBP5m was paid in relation to legal fees for
the sale of the Asia business, expensed in the year ended 27
February 2021.
Note 6 Discontinued operations and assets classified as held for
sale continued
Assets and liabilities of the disposal group and non-current
assets classified as held for sale
28 August 27 February 29 August
2021 2021 2020
GBPm GBPm GBPm
Assets of the disposal group(a) 12 404 4,892
Non-current assets classified as held for sale(b) 435 201 307
Total assets of the disposal group and non-current
assets classified as held for sale 447 605 5,199
Total liabilities of the disposal group(a) (22) (276) (2,098)
Total net assets of the disposal group and non-current
assets classified as held for sale 425 329 3,101
(a) The disposal group, including GBP(19)m of net debt, relates
to residual properties and leases with respect to the Group's
operation in Poland. Balances as at 27
February 2021 were with respect to the Group's operation in
Poland, and as at 29 August 2020 were with respect to the Group's
operations in Thailand,
Malaysia and Poland.
(b) The assets classified as held for sale consist of properties
in the UK, Poland and Central Europe due to be sold within one
year.
Note 7 Dividends
26 weeks 26 weeks
2021 2020
Pence/share GBPm Pence/share GBPm
Amounts recognised as distributions to
owners in the period:
Prior financial year final dividend(*) 5.95 458 6.50 634
Interim dividend declared for the current
period 3.20 247 3.20 314
* Excludes GBP2m dividends waived (29 August 2020: GBP3m).
The interim dividend was approved by the Board of Directors on 5
October 2021 and has not been included as a liability as at 28
August 2021. It will be paid on 26 November 2021 to shareholders
who are on the Register of members at close of business on 15
October 2021.
A dividend reinvestment plan (DRIP) is available to shareholders
who would prefer to invest their dividends in the shares of the
Company. For those shareholders electing to receive the DRIP, the
last date for receipt of a new election is 5 November 2021.
Note 8 Earnings/(losses) per share and diluted earnings/(losses)
per share
Basic earnings/(losses) per share amounts are calculated by
dividing the profit/(loss) attributable to owners of the parent by
the weighted average number of ordinary shares in issue during the
financial period.
Diluted earnings/(losses) per share amounts are calculated by
dividing the profit/(loss) attributable to owners of the parent by
the weighted average number of ordinary shares in issue during the
financial period adjusted for the effects of potentially dilutive
share options. The dilutive effect is calculated on the full
exercise of all potentially dilutive ordinary share options granted
by the Group, including performance-based options which the Group
considers to have been earned.
For the 26 weeks ended 28 August 2021 there were 69 million (26
weeks ended 29 August 2020: 27 million) potentially dilutive share
options. As the Group has recognised a profit for the period,
dilutive effects have been considered in calculating diluted
earnings per share.
26 weeks ended 28 August 26 weeks ended 29 August
2021 2020
Potentially Potentially
dilutive dilutive
Basic share options Diluted Basic share options Diluted
Profit/(loss) (GBPm)
Continuing operations 830 - 830 397 - 397
Discontinued operations* (49) - (49) 63 - 63
Total 781 - 781 460 - 460
Weighted average number
of shares (millions) 7,685 69 7,754 9,744 27 9,771
Earnings/(losses) per
share (pence)
Continuing operations 10.80 (0.10) 10.70 4.07 (0.01) 4.06
Discontinued operations (0.64) 0.01 (0.63) 0.65 - 0.65
Total 10.16 (0.09) 10.07 4.72 (0.01) 4.71
* Excludes profits from non-controlling interests of GBPnil (26
weeks ended 29 August 2020: GBP5m).
Note 8 Earnings/(losses) per share and diluted earnings/(losses)
per share continued
Alternative performance measure: Adjusted diluted
earnings/(losses) per share
26 weeks 26 weeks
Notes 2021 2020
Profit before tax from continuing operations before
exceptional items and amortisation of acquired intangibles
(GBPm) 1,297 581
Add: Net pension finance costs (GBPm) 4 11 28
Add: Fair value remeasurements of financial instruments
(GBPm) 4 (180) 108
Adjusted profit before tax (GBPm) 1,128 717
Adjusted profit before tax attributable to the owners
of the parent (GBPm) 1,128 717
Taxation on adjusted profit before tax attributable
to the owners of the parent (GBPm) (258) (155)
Adjusted profit after tax (GBPm) 870 562
Basic weighted average number of shares (millions) 7,685 9,744
Adjusted basic earnings per share (pence) 11.32 5.77
Diluted weighted average number of shares (millions) 7,754 9,771
Adjusted diluted earnings per share (pence)* 11.22 5.75
* Refer to page 65 for a reconciliation of the Group's APM
Adjusted diluted earnings per share (adjusted for share
consolidation).
Note 9 Goodwill and other intangible assets
Goodwill of GBP4,291m (27 February 2021: GBP4,271m, 29 August
2020: GBP4,570m) consists of UK GBP3,788m (27 February 2021:
GBP3,788m, 29 August 2020: GBP3,792m), ROI GBP3m (27 February 2021:
GBP3m, 29 August 2020: GBP3m) and Tesco Bank GBP500m (27 February
2021: GBP480m, 29 August 2020: GBP775m). GBP20m of goodwill was
recognised in Tesco Bank in the period from the acquisition of
Tesco Underwriting Limited. Refer to Note 23 for further
details.
Other intangible assets of GBP1,098m (27 February 2021:
GBP1,122m, 29 August 2020: GBP1,172m) comprise of software of
GBP547m (27 February 2021: GBP532m, 29 August 2020: GBP527m),
customer relationships of GBP456m (27 February 2021: GBP494m, 29
August 2020: GBP533m) and other intangible assets of GBP95m (27
February 2021: GBP96m, 29 August 2020: GBP112m).
Of the GBP140m (26 weeks ending 29 August 2020: GBP139m)
amortisation of other intangible assets, GBP38m (26 weeks ended 29
August 2020: GBP38m) arising from the amortisation of intangible
assets acquired through business combinations has been included
within exceptional items and amortisation of intangible assets.
Refer to Note 3 for further details.
Note 10 Property, plant and equipment
Land and Other
buildings (a) Total
GBPm GBPm GBPm
Cost
At 27 February 2021 22,024 5,743 27,767
Foreign currency translation 1 3 4
Additions 164 221 385
Acquired through business combinations(b) - 1 1
Reclassification(c) (71) (1) (72)
Disposals (65) (285) (350)
Transfers (to)/from assets held for sale (443) (16) (459)
At 28 August 2021 21,610 5,666 27,276
Accumulated depreciation and impairment losses
At 27 February 2021 6,653 3,903 10,556
Foreign currency translation 1 3 4
Charge for the period 213 235 448
Impairment losses(d) 2 - 2
Reversal of impairment losses(d) (34) (4) (38)
Reclassification (2) 1 (1)
Disposals (50) (275) (325)
Transfers (to)/from assets held for sale (157) (7) (164)
At 28 August 2021 6,626 3,856 10,482
Net carrying value
At 28 August 2021 14,984 1,810 16,794
At 29 August 2020 14,807 1,753 16,560
Construction in progress included above(e)
At 28 August 2021 88 155 243
At 29 August 2020 61 165 226
(a) Other assets consist of fixtures and fittings with a net
carrying value of GBP1,325m (27 February 2021: GBP1,345m, 29 August
2020: GBP1,286m), office equipment with a net carrying value of
GBP195m (27 February 2021: GBP213m, 29 August 2020: GBP212m) and
motor vehicles with a net carrying value of GBP290m (27 February
2021: GBP282m, 29 August 2020: GBP255m).
(b) Assets recognised on acquisition of Tesco Underwriting
Limited. Refer to Note 23.
(c) GBP71m transferred to Investment property.
(d) Refer to Note 12.
(e) Construction in progress does not include land.
Commitments for capital expenditure contracted for, but not
incurred, at 28 August 2021 were GBP229m (27 February 2021:
GBP203m, 29 August 2020: GBP234m), principally relating to store
development.
Note 10 Property, plant and equipment continued
Land and
buildings Other(a) Total
GBPm GBPm GBPm
Cost
At 29 February 2020 24,868 6,925 31,793
Foreign currency translation 102 21 123
Additions 228 210 438
Acquired through business combinations 8 4 12
Reclassification (5) 264 259
Disposals (25) (160) (185)
Transfers (to)/from assets held for sale 28 - 28
Transfer to disposal group classified as held for
sale (3,642) (1,415) (5,057)
At 29 August 2020 21,562 5,849 27,411
Accumulated depreciation and impairment losses
At 29 February 2020 7,841 4,718 12,559
Foreign currency translation 34 15 49
Charge for the period 219 248 467
Impairment losses(d) 68 11 79
Reversal of impairment losses(d) (31) (3) (34)
Reclassification 8 250 258
Disposals (22) (156) (178)
Transfers (to)/from assets held for sale 24 - 24
Transfer to disposal group classified as held for
sale (1,386) (987) (2,373)
At 29 August 2020 6,755 4,096 10,851
Net carrying value 14,807 1,753 16,560
(a)-(d) Refer to previous page for footnotes.
Note 11 Leases
Right of use assets
Land and
buildings Other Total
GBPm GBPm GBPm
Net carrying value at 27 February 2021 5,866 85 5,951
Additions (including through business combinations) 79 12 91
Depreciation charge for the period (247) (20) (267)
Impairment losses(a) - - -
Reversal of impairment losses(a) - - -
Other(b) 34 - 34
Net carrying value at 28 August 2021 5,732 77 5,809
Land and
buildings Other Total
GBPm GBPm GBPm
Net carrying value at 29 February 2020 6,734 140 6,874
Additions (including through business combinations) 173 30 203
Depreciation charge for the period (259) (24) (283)
Impairment losses(a) (8) - (8)
Reversal of impairment losses(a) 2 - 2
Transfer to disposal group classified as held for
sale (724) (20) (744)
Other(b) 106 - 106
Net carrying value at 29 August 2020 6,024 126 6,150
(a) Refer to Note 12.
(b) Other movements include lease terminations, modifications
and reassessments, foreign exchange, reclassifications between
asset classes and entering into finance subleases.
Note 11 Leases continued
Lease liabilities
The following tables show the discounted lease liabilities
included in the Group balance sheet and the contractual
undiscounted lease payments:
28 August 27 February 29 August
2021 2021 2020
Lease liabilities GBPm GBPm GBPm
Current 557 575 557
Non-current 7,670 7,827 8,199
Total lease liabilities 8,227 8,402 8,756
Total undiscounted lease payments 12,175 12,527 13,186
A reconciliation of the Group's opening to closing lease
liabilities balance is presented in Note 21.
Note 12 Impairment of non-current assets
Impairment losses and reversals
No goodwill impairment losses were recognised by the Group in
the period to 28 August 2021 (29 August 2020: GBPnil).
The table below summarises the Group's pre-tax impairment losses
and reversals on other non-current assets and investments in joint
ventures and associates, with the former aggregated by segment due
to the large number of individually immaterial store
cash-generating units. This includes any losses recognised
immediately before classifying an asset or disposal group as held
for sale. Impairment losses and reversals are presented gross.
There were no impairment losses or reversals in the period (26
weeks ended 29 August 2020: GBPnil) with respect to other
non-current assets and investments in joint ventures and associates
in Tesco Bank.
UK & ROI Central Europe Total*
Impairment Impairment Impairment Impairment Impairment Impairment
26 weeks ended 28 loss reversal loss reversal loss reversal
August 2021 GBPm GBPm GBPm GBPm GBPm GBPm
Group balance sheet
Other intangible assets - - - - - -
Property, plant and
equipment (2) 14 - 24 (2) 38
Right of use assets - - - - - -
Investment property - - - - - -
Other non-current
assets (2) 14 - 24 (2) 38
Investments in joint - - - - - -
ventures and associates
Total impairment (loss)/reversal (2) 14 - 24 (2) 38
Group income statement
Cost of sales
- exceptional - - - 24 - 24
Administrative expenses
- exceptional (2) 14 - - (2) 14
Total impairment (loss)/reversal (2) 14 - 24 (2) 38
* Of the GBP36m other non-current assets net impairment reversal
for the Group (29 August 2020: net loss of GBP53m), a net reversal
of GBP36m (29 August 2020: net
loss of GBP43m) has been classified within exceptional items, of
which GBPnil (29 August 2020: net loss of GBP43m) was also
recognised in discontinued operations.
Note 12 Impairment of non-current assets continued
Total continuing Discontinued
UK & ROI Central Europe operations operations Total*
Impairment Impairment Impairment Impairment Impairment Impairment Impairment Impairment Impairment Impairment
26 weeks ended loss reversal loss reversal loss reversal loss reversal loss reversal
29 August 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Group balance
sheet
Other intangible - - - - - - - - - -
assets
Property, plant
and equipment (13) 11 - - (13) 11 (66) 23 (79) 34
Right of use
assets (8) 2 - - (8) 2 - - (8) 2
Investment
property (2) - - - (2) - - - (2) -
Other
non-current
assets (23) 13 - - (23) 13 (66) 23 (89) 36
Investments - - - - - - - - - -
in joint
ventures
and associates
Total impairment
(loss)/
reversal (23) 13 - - (23) 13 (66) 23 (89) 36
Group income
statement
Administrative
expenses
- underlying (23) 13 - - (23) 13 - - (23) 13
Total impairment
(loss)/
reversal
from continuing
operations (23) 13 - - (23) 13 - - (23) 13
Discontinued
operations -
exceptional - - - - - - (66) 23 (66) 23
Total impairment
(loss)/reversal (23) 13 - - (23) 13 (66) 23 (89) 36
-- Refer to previous table for footnote.
During the period to 28 August 2021, 24 mall assets in Central
Europe have been reclassified to assets held for sale. Immediately
prior to their reclassification, the expected proceeds net of
disposal costs exceeded the carrying value such that previous
impairments of GBP24m were reversed.
The remaining other non-current assets impairment losses and
reversals for the Group largely reflect normal fluctuations
expected from store-level performance, property fair values and
changes in discount rates, as well as any specific store
closures.
The impact of the pandemic on Tesco Bank includes higher
expected credit losses arising from the economic downturn and lower
revenues as a result of lower consumer spending and borrowing. The
Bank's performance is sensitive to the speed of the economic
recovery and as a result a full impairment test of the goodwill
allocated to Tesco Bank has been conducted. The carrying amount of
goodwill allocated to Tesco Bank pre-impairment review was GBP500m,
impairment testing on a value in use basis resulted in a
recoverable amount of GBP624m and headroom of GBP124m. Additional
sensitivities are given in the Key assumptions and sensitivity
section below.
Impairment methodology
The impairment methodology is unchanged from that described in
Note 15 of the Annual Report and Financial Statements 2021.
Key assumptions and sensitivity
With the exception of Tesco Bank, no reasonably possible changes
in key assumptions would indicate an impairment for any group of
cash-generating units to which goodwill has been allocated.
Similarly, there is not a significant risk of an adjustment to the
carrying amount of any one store cash-generating unit that would be
material to the Group as a whole in the next financial year.
The key assumptions to which the Tesco Bank goodwill recoverable
amount is most sensitive are the discount rate, equity cash flows
in excess of the regulatory capital requirement and the long-term
growth rate. The table below sets out the amount by which these
assumption values would have to change for the recoverable amount
to equal the carrying amount.
Amount by which assumption
value would have to change
Key assumption for the recoverable amount
Assumption value to equal the carrying amount
Post-tax discount rate 10.2% Increase of 0.5ppt
Annual equity cash flows Variable Decrease of GBP17m p.a.
Long-term growth rate 1.6% Decrease of 2.5ppt
Note 13 Other Investments
Fair value
Fair value through
At amortised through other comprehensive
cost profit/loss income Total
At 28 August 2021 GBPm GBPm GBPm GBPm
Investments in debt instruments(a) 929 - 603 1,532
Expected credit loss allowance - - - -
Investments in equity instruments - - 9 9
Property fund investments(b) - 25 - 25
Other investments 929 25 612 1,566
Of which:
Current 196 - 152 348
Non-current 733 25 460 1,218
929 25 612 1,566
(a) Debt instruments held at fair value through other
comprehensive income were recognised following the acquisition of
Tesco Underwriting Limited.
Refer to Note 23.
(b) Property fund investments were recognised following the
acquisition of Tesco Underwriting Limited. Refer to Note 23.
Fair value
Fair value through
At amortised through other comprehensive
cost profit/loss income Total
At 27 February 2021 GBPm GBPm GBPm GBPm
Investments in debt instruments 928 - - 928
Expected credit loss allowance (1) - - (1)
Investments in equity instruments - - 14 14
Other investments 927 - 14 941
Of which:
Current 175 - 3 178
Non-current 752 - 11 763
927 - 14 941
Fair value
Fair value through
At amortised through other comprehensive
cost profit/loss income Total
At 29 August 2020 GBPm GBPm GBPm GBPm
Investments in debt instruments 852 - - 852
Expected credit loss allowance - - - -
Investments in equity instruments - - 10 10
Other investments 852 - 10 862
Of which:
Current 26 - - 26
Non-current 826 - 10 836
852 - 10 862
Note 14 Inventories
28 August 27 February 29 August
2021 2021 2020
GBPm GBPm GBPm
Goods held for resale 2,220 2,066 2,251
Development properties 3 3 3
2,223 2,069 2,254
Cost of inventories from continuing operations recognised as an
expense for the 26 weeks ended 28 August 2021 was GBP22,403m (26
weeks ended 29 August 2020: GBP20,948m). Inventory losses and
provisions from continuing operations recognised as an expense for
the 26 weeks ended 28 August 2021 were GBP502m (26 weeks ended 29
August 2020: GBP524m).
Note 15 Cash and cash equivalents and short-term investments
28 August 27 February 29 August
Cash and cash equivalents 2021 2021 2020*
GBPm GBPm GBPm
Cash at bank and on hand 2, 198 2,495 4,101
Short-term deposits 21 15 23
Cash and cash equivalents in the Group balance sheet 2, 219 2,510 4,124
Bank overdrafts (665) (532) (1,370)
Cash and cash equivalents in the Group cash flow
statement 1,554 1,978 2,754
* Refer to Note 1 for further details regarding the prior year restatement
in relation to notional cash pooling arrangements.
28 August 27 February 29 August
Short-term investments 2021 2021 2020
GBPm GBPm GBPm
Money market funds 2,331 1,011 942
Cash and cash equivalents includes GBP84m (27 February 2021:
GBP101m, 29 August 2020: GBP61m) of restricted amounts mainly
relating to the Group's pension schemes and employee benefit
trusts.
Note 16 Insurance
On 4 May 2021 the Group acquired the remaining 50.1% ordinary
share capital of its joint venture entity, Tesco Underwriting
Limited ("TU"). TU is an authorised insurance company which
provides the insurance underwriting service for a number of the
Group's general insurance products. Refer to Note 23 for further
details regarding the acquisition.
Insurance profit/(loss)
26 weeks
2021
Continuing operations GBPm
Gross insurance premium income 94
Insurance premium income ceded to reinsurers (42)
Current year claims paid (35)
Change in prior year claims provision 15
Additional liabilities arising during the year (41)
Total claims and benefits incurred (61)
Reinsurers' share of claims and benefits incurred(a) 34
Net insurance claims (27)
Net insurance profit/(loss)(b) 25
(a) Includes GBP5m related to Reinsurance quota share commission
and Profit commission.
(b) The net insurance profit above arose subsequent to
acquisition by the Group and is reported in the Tesco Bank
operating segment.
Note 16 Insurance continued
Insurance contract provisions and reinsurance assets
The following tables show the breakdown of the Group's insurance
contract provisions and reinsurance assets at 28 August 2021. As
balances in this note have arisen a result of the acquisition of TU
on 4 May 2021, there are no prior period comparative balances for
the Group.
Gross Reinsurance Net
GBPm GBPm GBPm
Unearned premiums 147 (60) 87
Claims reported by policy holders 539 (284) 255
Claims incurred but not reported (31) 87 56
Total insurance contract provisions 655 (257) 398
Of which:
Current 190 (52) 138
Non-current 465 (205) 260
655 (257) 398
Gross Reinsurance Net
Insurance contract provisions GBPm GBPm GBPm
Balance at 27 February 2021 - - -
Acquired through business combination 650 (247) 403
Claims (paid)/recovered from insurers (61) 20 (41)
Movement in claims incurred but not reported (15) 11 (4)
Claims reported in the period 75 (40) 35
Change in provision for unearned premiums 6 (1) 5
At 28 August 2021 655 (257) 398
28 August
2021
Gross unearned premium GBPm
Balance at 27 February 2021 -
Acquired through business combination 141
Premium written during the period 100
Less: premiums earned during the period (94)
At 28 August 2021 147
Gross Recoveries Net
Outstanding claims GBPm GBPm GBPm
Balance at 27 February 2021 - - -
Acquired through business combination 509 (16) 493
Current period claims 76 (3) 73
Change in prior period claims (16) 4 (12)
Current period claims paid (34) - (34)
Prior period claims paid (27) - (27)
At 28 August 2021 508 (15) 493
Funds withheld
Funds withheld of GBP106m, included within trade and other
payables, represent the balance due to reinsurers arising from
Quota Share arrangements, by which a fixed proportion of both
premiums and losses are ceded to third party reinsurers as part of
the overall reinsurance protection strategy.
Note 16 Insurance continued
Claims provision and development
The nature of insurance business makes it difficult to predict
with certainty the likely outcome of any particular claim and the
ultimate cost of notified claims. Each notified claim is assessed
on a separate, case-by-case basis with due regard to the claim
circumstances and historical evidence of the size of similar
claims, and provisions are based on the latest information
available. However, the ultimate liabilities may vary as a result
of subsequent developments.
The cost of outstanding claims and the incurred but not reported
(IBNR) provisions are estimated using various statistical methods.
Such methods extrapolate the development of paid and incurred
claims, average cost per claim and ultimate claim numbers for each
accident period based upon observed development of earlier periods,
with reference to suitable benchmarks. Assumptions used for
insurance provisions are based on detailed studies, checked to
ensure that they are consistent with observable market prices or
other published information, with greater emphasis on current
trends where there is sufficient information. To the extent that
assumptions use historical claims development information, they
also assume that the historical claims development pattern will
occur again in the future, after allowing (where possible) for
instances where this might not be the case, such as changing
economic or legal trends.
Provisions are initially estimated at a gross level and a
separate calculation is carried out to estimate the size of
reinsurance recoveries. The Group is covered by a variety of excess
of loss and quota share reinsurance programmes. The Group takes
account of historical data, specific details for individual large
claims and details of the reinsurance programme to assess the
expected size of reinsurance recoveries.
Insurance risk management
The Group is exposed to insurance risk through its wholly owned
subsidiary, TU. The Group defines insurance risk as the risks
accepted through the provision of insurance products in return for
a premium. These risks may or may not occur as expected and the
amount and timing of these risks are uncertain and determined by
events outside of the Group's control (e.g. flood or severe bodily
injury motor accidents).
TU underwrites motor and home insurance policies, typically of
one-year duration, in the UK and Channel Islands. TU operates a
separate risk framework with dedicated risk and compliance teams
and a suite of risk policies to ensure that the insurance portfolio
is operating within an agreed risk appetite, with monthly
monitoring of the portfolio against specific performance indicator
thresholds and limits. Risks such as geographic concentration or
high-severity, low frequency events (e.g. natural disasters in a
particular area, severe bodily injury motor accidents) are
mitigated through a high-quality backed reinsurance portfolio, and
TU undertakes a Stress and Scenario Testing programme, considering
multiple scenarios such as various adverse weather events, the
hardening/softening of the insurance market and severe large bodily
injury losses.
Capital
Solvency II (SII) came into force on 1 January 2016. It provides
a framework for managing and measuring the risks and the solvency
position for all insurance companies in the EU. Following the UK's
departure from the EU, the SII framework continues to be applied in
the UK and its requirements are applicable to TU. TU assess its SCR
using a Partial Internal Model for capital which was approved by
the PRA in 2020. TU models a range of stress and scenario tests
that are published in its annual Solvency and Financial Condition
Report. These show that TU's capital position is resilient to a
range of possible scenarios. TU also maintains a capital
contingency plan supported by Tesco Bank. TU's available capital
has remained above its SCR requirement during the period since the
end of December 2020; and capital coverage of TU's SCR at the end
of August 2021 as assessed as materially the same as the position
at the end of December 2020.
Note 17 Commercial income
Below are the commercial income balances included within
inventories and trade and other receivables, or netted against
trade and other payables. Amounts received in advance of income
being earned are included in accruals.
28 August 27 February 29 August
2021 2021 2020
GBPm GBPm GBPm
Current assets
Inventories (14) (24) (19)
Trade and other receivables
Trade/other receivables 69 90 99
Accrued income 101 125 88
Current liabilities
Trade and other payables
Trade payables 120 170 128
Accruals (1) (2) (2)
Note 18 Borrowings
Borrowings are classified as current and non-current based on
their scheduled redemption date and not their maturity date.
Repayments of principal amounts are classified as current if the
repayment is scheduled to be made within one year of the reporting
date. There have been no redemptions or issuance of borrowings
during the 26 week period ended 28 August 2021.
Current
28 August 27 February 29 August
2021 2021 2020(a)
GBPm GBPm GBPm
Bank loans and overdrafts 693 559 1,403
Borrowings(b) 527 521 806
1,220 1,080 2,209
Non-current
28 August 27 February 29 August
2021 2021 2020(a)
GBPm GBPm GBPm
Borrowings(b) 6,130 6,188 6,527
(a) Refer to Note 1 for details of the prior year restatement.
(b) GBPnil of current and GBP250m of non-current borrowings (27
February 2021: GBP1m and GBP250m, 29 August 2020: GBP461m and
GBP554m) relate to borrowings
issued by Tesco Bank.
Borrowing facilities
The Group has a GBP2.5bn undrawn committed facility available at
28 August 2021, in respect of which all conditions precedent had
been met as at that date, consisting of a syndicated revolving
credit facility expiring in more than two years. All facilities
incur commitment fees at market rates and would provide funding at
floating rates. There were no utilisations of the facility during
the financial period.
Note 19 Financial instruments
The following table presents the Group's financial assets and
liabilities by level of fair value hierarchy:
-- quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
-- inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is derived from prices) (Level
2); and
-- inputs for the asset or liability that are not based on
observable market data (from unobservable inputs) (Level 3).
The fair values of financial instruments have been determined by
reference to prices available from the markets on which the
instruments are traded, where they are available. Where market
prices are not available, the fair value has been calculated by
discounting expected future cash flows at prevailing interest
rates. The expected maturity of the financial assets and
liabilities is not considered to be materially different to their
current and non-current classifications.
Level Level Level
1 2 3 Total
At 28 August 2021 GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through other
comprehensive income 603 - 9 612
Cash and cash equivalents at fair value through
profit and loss - 26 - 26
Non-derivative financial assets at fair value
through profit and loss - 23 2 25
Derivative financial instruments:
- Interest rate swaps - 38 - 38
- Cross currency swaps - 284 - 284
- Index-linked swaps - 1,339 - 1,339
- Forward contracts - 47 - 47
Total assets 2,371
Liabilities
Derivative financial instruments:
- Interest rate swaps - (368) - (368)
- Cross currency swaps - (37) - (37)
- Index-linked swaps - (583) - (583)
- Forward contracts - (29) - (29)
Total liabilities (1,017)
Net assets/(liabilities) 1,354
Level Level Level
1 2 3 Total
At 27 February 2021 GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through other
comprehensive income - 3 11 14
Cash and cash equivalents at fair value through
profit and loss - 14 - 14
Non-derivative financial assets at fair value - - - -
through profit and loss
Derivative financial instruments:
- Interest rate swaps - 42 - 42
- Cross currency swaps - 298 - 298
- Index-linked swaps - 1,080 - 1,080
- Forward contracts - 42 - 42
Total assets 1,490
Liabilities
Derivative financial instruments:
- Interest rate swaps - (162) - (162)
- Cross currency swaps - (38) - (38)
- Index-linked swaps - (729) - (729)
- Forward contracts - (78) - (78)
Total liabilities (1,007)
Net assets/(liabilities) 483
Note 19 Financial instruments continued
Level Level Level
1 2 3 Total
At 29 August 2020 GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through other
comprehensive income - - 10 10
Cash and cash equivalents at fair value through
profit and loss - 24 - 24
Non-derivative financial assets at fair value - - - -
through profit and loss
Derivative financial instruments:
- Interest rate swaps - 59 - 59
- Cross currency swaps - 487 - 487
- Index-linked swaps - 567 - 567
- Forward contracts - 284 - 284
Total assets 1,431
Liabilities
Derivative financial instruments:
- Interest rate swaps - (80) - (80)
- Cross currency swaps - (11) - (11)
- Index-linked swaps - (918) - (918)
- Forward contracts - (106) (8) (114)
Total liabilities (1,123)
Net assets/(liabilities) 308
There were no transfers between Levels 1 and 2 during the period
(27 February 2021: GBPnil, 29 August 2020: GBPnil) and no transfers
into and out of Level 3 fair value measurements (27 February 2021:
GBPnil, 29 August 2020: GBPnil).
Note 19 Financial instruments continued
Carrying amounts versus fair values
The fair value of financial assets and liabilities measured at
amortised cost is shown below. The table excludes cash and cash
equivalents, short-term investments, trade receivables/payables,
and other receivables/payables where the carrying values
approximate fair value:
28 August 2021 27 February 2021 29 August 2020(a)
GBPm GBPm GBPm
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Financial assets measured
at amortised cost
Loans and advances to customers
- Tesco Bank 6,405 6,559 6,402 6,618 7,285 7,454
Loans and advances to banks
- Tesco Bank 51 51 - - - -
Investment securities at
amortised cost 929 934 927 932 852 854
Joint ventures and associates
loan receivables(b) 102 130 122 153 128 192
Financial liabilities measured
at amortised cost
Borrowings
Amortised cost (4,558) (5,711) (4,711) (5,761) (5,844) (6,898)
Bonds in fair value hedge
relationships (2,792) (2,913) (2,557) (2,658) (2,892) (2,901)
Customer deposits - Tesco
Bank (5,035) (5,038) (5,738) (5,744) (6,637) (6,647)
Deposits from banks - Tesco
Bank (1,125) (1,125) (600) (600) (500) (500)
(a) Refer to Note 1 for details of the prior year
restatement.
(b) Joint venture and associate loan receivables carrying
amounts of GBP102m (27 February 2021: GBP122m, 29 August 2020:
GBP128m) are presented in the Group balance
sheet net of deferred profits of GBP38m (27 February 2021:
GBP38m, 29 August 2020: GBP54m).
Tesco Bank expected credit loss (ECL)
Tesco Bank commissioned four scenarios from its third-party
provider, all of which were based on an economic outlook that
sought to take account of the potential ramifications of the
current COVID-19 pandemic. These scenarios included a Base
scenario, an Upside scenario and two different Downside scenarios.
As the economic outlook remained uncertain, the Group's scenarios
were based on different projected shapes of the recovery, the speed
at which consumer and business confidence would support the
recovery of GDP and the labour market, and success of the COVID --
19 vaccine roll out against emerging strains of the virus. The Base
scenario anticipates a prompt economic recovery to pre-pandemic
levels driven by strong consumer spending following easing of
restrictions. The Upside scenario involves a sharper economic
recovery driven by utilisation of savings built up in lockdown,
while Downside 1 scenario assumes a longer delay until the economy
recovers driven by recurring restrictions. Downside 2 assumes
vaccines will be ineffective against new variants, leading to
further national lockdowns. These scenarios are also reviewed to
ensure an unbiased estimate of ECL by ensuring the credit loss
distribution under a larger number of scenarios is adequately
captured using these four scenarios and their respective
weightings. The Base, Upside, Downside 1 and Downside 2 scenarios
have been assigned weighting of 40%, 30%, 25% and 5%
respectively.
The weighted economic measures from the scenarios are as
follows:
Base Upside Downside Downside
1 2
As at 28 August 2021 (5 year average) 40% 30% 25% 5%
Bank of England base rate(a) 0.4% 0.6% 0.2 % 0.0%
Gross domestic product(b) 3.2% 3.7% 2.8 % 2.3%
Unemployment rate(a) 5.0% 4.5% 6.2 % 8.2%
Unemployment rate peak in year 5.3% 4.8% 6.8 % 9.1%
Base Upside Downside Downside
1 2
As at 29 August 2020 (5 year average) 50% 34% 15% 1%
Bank of England base rate(a) 0.1% 0.1% 0.1 % 0.1%
Gross domestic product(b) 1.1% 1.7% 0.4 % 0.1%
Unemployment rate(a) 6.3% 4.8% 9.1 % 11.8%
Unemployment rate peak in year 7.2% 5.1% 10.1 % 13.0%
(a) Simple average
(b) Annual growth rates
Note 19 Financial instruments continued
Key assumptions and sensitivity
The key assumptions to which the Tesco Bank ECL is most
sensitive are the probability of default (PD), loss given default
(LGD), PD threshold (staging), and expected lifetime (revolving
credit facilities). The table below sets out the changes in the ECL
allowance that would arise from reasonably possible changes in
these assumptions from those used in Tesco Bank's calculations as
at 28 August 2021.
Impact on the loss allowance
28 August 27 February 29 August
Reasonably 2021 2021 2020
possible change GBPm GBPm GBPm
Closing ECL allowance 579 625 650
Macroeconomic factors (100% weighted) Upside scenario (28) (66) (83)
Base scenario (8) (1) 24
Downside scenario
1 31 57 99
Downside scenario
2 79 117 181
Increase of
Probability of default 2.5% 7 8 13
Decrease of
2.5% (7) (8) (13)
Increase of
Loss given default 2.5% 9 10 15
Decrease of
2.5% (9) (10) (15)
Probability of default threshold Increase of
(staging) 20% (9) (7) (19)
Decrease of
20% 12 11 21
Expected lifetime (revolving Increase of
credit facilities) 1 year 11 9 4
Decrease of
1 year (10) (9) (4)
The Covid -- 19 pandemic has had a significant impact on the
global economy and there remains a large degree of uncertainty
around the impact on unemployment and the speed and shape of any
economic recovery. The extension of government support measures
such as furlough has been unprecedented and this, coupled with the
granting of payment holidays by the Group, has distorted the
historically observed relationship between unemployment and
default. Projected levels of unemployment have fallen from the
expectation held at year end, however the Group has yet to see
significant defaults emerge in its lending portfolio. As such,
Covid -- 19 specific adjustments to the Group's modelled ECL
provision, to capture the estimated impact of the stress within the
ECL provision, have been recognised for an overall post-model
adjustment of GBP240m which includes three management overlays. A
first GBP174m adjustment is in respect of the beneficial modelling
impact of lower consumer spending through the pandemic. An increase
or decrease of 10% on the adjustment for lower drawn balances would
not result in a material increase or decrease of this management
overlay. A second GBP57m adjustment aligns the potential recovery
to the shape of previous economic downturns, and a third GBP9m
adjustment is to recognise an increase in credit risk in respect of
customers who sought an extension to their initial payment
holiday.
Note 20 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit
arrangements, covering both funded and unfunded defined benefit
schemes and defined contribution schemes.
The principal defined benefit pension plan within the Group is
the Tesco PLC Pension Scheme (the Scheme), a UK scheme closed to
future accrual. The most recent completed triennial actuarial
assessment of the Scheme was performed as at 31 December 2019 using
the projected unit credit method. Subsequent to this triennial
actuarial assessment it was agreed that no further pension deficit
contributions would be required, with contributions being assessed
at the next triennial review.
The Trustees of the Londis pension scheme entered into a buy-in
agreement to secure the Londis Scheme's pension benefits in full
with an insurer through the purchase of a bulk annuity policy. A
one-off premium of GBP8m was paid to the insurer on 24 March 2021.
The Trustees have subsequently announced that the buy-in will be
converted to a buy-out, with individual annuity policies issued to
Londis Scheme members, and the Londis Scheme will be wound up.
Commencement of the wind up was triggered on 29 June 2021. The
estimated charge in respect of this transaction is GBP1m based on
the market conditions on the wind-up date and has been included in
the Group income statement.
Note 20 Post-employment benefits continued
Summary of movements in Group deficit during the financial
period
Changes in the Group deficit, including movements of
discontinued operations up to classification as held for sale.
28 August 27 February 29 August
2021 2021* 2020*
GBPm GBPm GBPm
Deficit in schemes at the beginning of the period (1,222) (3,085) (3,085)
Current service cost (21) (41) (22)
Past service cost - (7) -
Finance income/(cost) (11) (43) (28)
Included in the Group income statement (32) (91) (50)
Remeasurement gain/(loss)
Financial assumptions gain/(loss) (3,562) (1,193) (1,712)
Demographic assumptions gain/(loss) 23 18 (102)
Experience gain/(loss) 5 354 79
Return on plan assets excluding finance income 4,180 (136) 623
Foreign currency translation 2 (3) (8)
Included in the Group statement of comprehensive
income/(loss) 648 (960) (1,120)
Employer contributions 15 34 22
Additional employer contributions 9 2,836 147
Benefits paid 2 15 14
Classified as held for sale - 29 29
Other movements 26 2,914 212
Deficit in schemes at the end of the period (580) (1,222) (4,043)
Deferred tax asset 125 218 751
Deficit in schemes at the end of the period,
net of deferred tax (455) (1,004) (3,292)
* Movement in relation to discontinued operations for the year
ended 27 February 2021 included GBP(1)m (29 August 2020: GBP(1)m)
within the income statement,
GBP(6)m (29 August 2020: GBP1m) in Group statement of
comprehensive income/loss and GBP2m (29 August 2020: GBPnil) in
other movements.
Scheme principal assumptions
The major financial assumptions, used to value the defined
benefit obligation of the Scheme are as follows:
28 August 27 February 29 August
2021
2021 % 2020
% %
Discount rate 1.6 2.0 1.7
Price inflation 3.2 2.9 2.9
Rate of increase in deferred pensions* 2.8 2.5 2.1
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012 3.0 2.8 2.7
Benefits accrued after 1 June 2012 2.7 2.5 2.2
-- In excess of any Guaranteed Minimum Pension (GMP) element.
If the discount rate assumption increased by 0.1% or 1.0%, the
Scheme defined benefit obligation would decrease by approximately
GBP586m or GBP5,106m respectively. If this assumption decreased by
0.1% or 1.0%, the Scheme defined benefit obligation would increase
by approximately GBP609m or GBP7,214m respectively.
If the inflation assumption increased by 0.1% or 1.0%, the
Scheme defined benefit obligation would increase by approximately
GBP539m or GBP5,949m respectively. If this assumption decreased by
0.1% or 1.0%, the Scheme defined benefit obligation would decrease
by approximately GBP515m or GBP4,684m respectively.
Movements in the defined benefit obligation from discount rate
and inflation rate changes may be partially offset by movements in
assets.
Note 21 Analysis of changes in net debt
Non-cash movements
Cash flows
arising Fair Acquisitions
At 27 from Other value Interest and At 28
February financing cash gains/ Foreign income/ disposals Discontinued August
2021 activities flows (losses) exchange (charge) (a) Other operations 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total Group
Bank and other
borrowings,
excluding overdrafts (6,736) 47 107 2 18 (102) (21) - - (6,685)
Lease liabilities (8,402) 288 207 - 5 (207) - (113) (5) (8,227)
Net derivative
financial
instruments 455 39 4 216 - (23) - - - 691
Arising from financing
activities (14,683) 374 318 218 23 (332) (21) (113) (5) (14,221)
Cash and cash
equivalents
in the Group balance
sheet 2,510 - (379) - 60 - - - 28 2,219
Overdrafts(b) (532) - (98) - - .- - - (35) (665)
Cash and cash
equivalents
(including overdrafts)
in the Group cash
flow statement 1,978 - (477) - 60 - - - (7) 1,554
Short-term investments 1,011 - 1,320 - - - - - - 2,331
Joint venture loans 122 - - - 1 - (21) - - 102
Interest and other
receivables - - (2) - - 2 - - - -
Net debt of the
disposal
group (141) - - - - - 110 - 12 (19)
Total Group (11,713) 374 1,159 218 84 (330) 68 (113) - (10,253)
Tesco Bank
Bank and other
borrowings,
excluding overdrafts (487) 21 2 - - (2) (21) - - (487)
Lease liabilities (30) 1 - - - - - - - (29)
Net derivative
financial
instruments (42) - - 13 - - - - - (29)
Arising from financing
activities (559) 22 2 13 - (2) (21) - - (545)
Cash and cash
equivalents
in the Group balance
sheet 780 - (266) - - - - - - 514
Overdrafts(b) - - - - - - - - - -
Cash and cash
equivalents
(including overdrafts)
in the Group cash
flow statement 780 - (266) - - - - - - 514
Joint ventures loans 21 - - - - - (21) - - -
Tesco Bank 242 22 (264) 13 - (2) (42) - - (31)
Retail
Bank and other
borrowings,
excluding overdrafts (6,249) 26 105 2 18 (100) - - - (6,198)
Lease liabilities (8,372) 287 207 - 5 (207) - (113) (5) (8,198)
Net derivative
financial
instruments 497 39 4 203 - (23) - - - 720
Arising from financing
activities (14,124) 352 316 205 23 (330) - (113) (5) (13,676)
Cash and cash
equivalents
in the Group balance
sheet 1,730 - (113) - 60 - - - 28 1,705
Overdrafts(b) (532) - (98) - - - - - (35) (665)
Cash and cash
equivalents
(including overdrafts)
in the Group cash
flow statement 1,198 - (211) - 60 - - - (7) 1,040
Short-term investments 1,011 - 1,320 - - - - - - 2,331
Joint ventures loans 101 - - - 1 - - - - 102
Interest and other
receivables - - (2) - - 2 - - - -
Net debt of the
disposal
group (141) - - - - - 110 - 12 (19)
Net debt (11,955) 352 1,423 205 84 (328) 110 (113) - (10,222)
(a) Movements in Group net debt arising from disposal of the
Group's Poland operations and acquisition of Tesco Underwriting
Limited. Refer to Notes 6 and 23.
(b) Overdraft balances are included within bank and other
borrowings in the Group balance sheet, and within cash and cash
equivalents in the Group cash flow
statement. Refer to Note 15.
(c) Refer to Note 1 for details of the prior year
restatement.
Note 21 Analysis of changes in net debt continued
Non-cash movements
Cash flows
arising Fair Acquisitions
At 29 from Other value Interest and At 29
February financing cash gains/ Foreign income/ disposals Discontinued August
2020 activities flows (losses) exchange (charge) (a) Other operations 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total Group
Bank and other
borrowings,
excluding overdrafts (7,118) (161) 113 1 (92) (109) - - - (7,366)
Lease liabilities (9,566) 321 252 - (8) (252) - (312) 809 (8,756)
Net derivative financial
instruments 198 224 (14) (133) 1 (2) - - - 274
Arising from financing
activities (16,486) 384 351 (132) (99) (363) - (312) 809 (15,848)
Cash and cash
equivalents
in the Group balance
sheet 4,137 - 606 - (21) - - - (598) 4,124
Overdrafts(b)(c) (1,106) - (316) - - - - - 52 (1,370)
Cash and cash
equivalents
(including overdrafts)
in the Group cash
flow statement 3,031 - 290 - (21) - - - (546) 2,754
Short-term investments 1,076 - (134) - - - - - - 942
Joint venture loans 127 - 1 - - - - - - 128
Interest and other
receivables 1 - (5) - - 7 - - - 3
Net debt of the disposal
group - - - - - - - - (263) (263)
Total Group (12,251) 384 503 (132) (120) (356) - (312) - (12,284)
Tesco Bank
Bank and other
borrowings,
excluding overdrafts (1,260) - 2 10 - (2) - - - (1,250)
Lease liabilities (33) 2 1 - - (1) - - - (31)
Net derivative financial
instruments (45) - - (21) - - - - - (66)
Arising from financing
activities (1,338) 2 3 (11) - (3) - - - (1,347)
Cash and cash
equivalents
in the Group balance
sheet 1,364 - 216 - - - - - - 1,580
Overdrafts(b)(c) - - - - - - - - - -
Cash and cash
equivalents
(including overdrafts)
in the Group cash
flow statement 1,364 - 216 - - - - - - 1,580
Joint ventures loans 21 - - - - - - - - 21
Tesco Bank 47 2 219 (11) - (3) - - - 254
Retail
Bank and other
borrowings,
excluding overdrafts (5,858) (161) 111 (9) (92) (107) - - - (6,116)
Lease liabilities (9,533) 319 251 - (8) (251) - (312) 809 (8,725)
Net derivative financial
instruments 243 224 (14) (112) 1 (2) - - - 340
Arising from financing
activities (15,148) 382 348 (121) (99) (360) - (312) 809 (14,501)
Cash and cash
equivalents
in the Group balance
sheet 2,773 - 390 - (21) - - - (598) 2,544
Overdrafts(b)(c) (1,106) - (316) - - - - - 52 (1,370)
Cash and cash
equivalents
(including overdrafts)
in the Group cash
flow statement 1,667 - 74 - (21) - - - (546) 1,174
Short-term investments 1,076 - (134) - - - - - - 942
Joint ventures loans 106 - 1 - - - - - - 107
Interest and other
receivables 1 - (5) - - 7 - - - 3
Net debt of the disposal
group - - - - - - - - (263) (263)
Net debt (12,298) 382 284 (121) (120) (353) - (312) - (12,538)
Net debt excludes the net debt of Tesco Bank but includes that
of discontinued operations. Balances and movements in respect of
the total Group and Tesco Bank are presented to allow
reconciliation between the Group balance sheet and the Group cash
flow statement.
(a)-(c) Refer to previous table for footnotes.
Note 21 Analysis of changes in net debt continued
Note 22 Called up share capital
26 weeks ended 52 weeks ended
28 August 2021 27 February 2021
Number of Number of
Ordinary Ordinary
shares GBPm shares GBPm
Allotted, called up and fully
paid:
At the beginning of the year 7,731,707,820 490 9,793,496,561 490
Share consolidation (including
shares issued)* - - (2,061,788,741) -
At the beginning and end of the
financial period 7,731,707,820 490 7,731,707,820 490
* To effect the share consolidation, 11 additional Ordinary
shares were issued so that the total Ordinary shares is exactly
divisible by 19.
In order to maintain the comparability of the Company's share
price before and after a special dividend of GBP4.9bn was declared
in the prior financial year, a share consolidation was approved at
the General Meeting held on 11 February 2021. Shareholders received
15 new Ordinary shares of 6 1/3 pence each for every existing 19
Ordinary shares of 5 pence each.
No shares were issued during the current financial period in
relation to share options or bonus awards.
The holders of Ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at general meetings of Tesco PLC (the Company).
Own shares purchased
Own shares represent the shares of Tesco PLC that are held in
Treasury or by the Employee Benefit Trust. Own shares are recorded
at cost and are deducted from equity.
The own shares held represents the cost of shares in Tesco PLC
purchased in the market and held by the Tesco International
Employee Benefit Trust to satisfy share awards under the Group's
share scheme plans. The number of Ordinary shares held by the Tesco
International Employee Benefit Trust at 28 August 2021 was 51.3
million (27 February 2021: 58.4 million). This represents 0.66% of
called-up share capital at the end of the financial period (27
February 2021: 0.76%).
Reconciliation of net cash flow to movement in Net debt 28 August 29 August
2021 2020
GBPm GBPm
Net increase/(decrease) in cash and cash equivalents
including overdrafts (477) 290
Elimination of Tesco Bank movement in cash and cash equivalents
including overdrafts 266 (216)
Retail cash movement in other Net debt items:
Net increase/(decrease) in short-term investments 1,320 (134)
Net increase/(decrease) in joint venture loans - 1
Net (increase)/decrease in borrowings and lease liabilities 313 158
Net cash flows from derivative financial instruments 39 224
Net interest paid on components of Net debt 314 343
Change in Net debt resulting from cash flow 1,775 666
Retail net interest charge on components of Net debt (328) (353)
Retail fair value and foreign exchange movements 289 (241)
Retail other non-cash movements (113) (312)
Disposal of Poland operations (Note 6) 110 -
(Increase)/decrease in Net debt 1,733 (240)
Opening Net debt (11,955) (12,298)
Closing Net debt (10,222) (12,538)
No own shares held of Tesco PLC were cancelled during the
financial periods presented.
Note 23 Business combinations
On 4 May 2021 the Group acquired the remaining 50.1% ordinary
share capital of its joint venture entity, Tesco Underwriting
Limited ("TU"), from its joint venture partner, Ageas (UK) Limited.
TU is an authorised insurance company which provides the insurance
underwriting service for a number of the Group's general insurance
products.
The transaction has been accounted for as an acquisition of a
business in accordance with IFRS 3 'Business Combinations'. The
acquisition is in line with the Group's strategy of focusing on
propositions which better meet the needs of Tesco shoppers. The
investment will significantly enhance the Group's insurance
capability. Total cash consideration of GBP90m has been paid to
date, with an additional deferred payment of GBP5m due to be paid
on expiry of the exit period, subject to the fulfilment of the
joint venture partner's obligations in relation to the migration
and transition of the TU business to the Group. Expiry of the exit
period is expected to be one year from the acquisition date.
In line with the requirements of IFRS 3, the existing equity
interest in TU held by the Group immediately before the acquisition
date was remeasured to a fair value of GBP89m. This resulted in a
remeasurement gain for the Group of GBP5m, included in the Group
income statement. The Group also recognised a gain of GBP5m in
relation to its share of TU's available-for-sale (AFS) reserve
immediately prior to acquisition, included in the Group income
statement.
Consideration
GBPm
Cash consideration paid 90
Contingent consideration 5
Non-cash settlement of pre-existing relationships 12
Fair value of the Group's initial 49.9% investment 89
Total purchase consideration 196
The table below shows the total purchase consideration of the
acquisition in the period:
The table below sets out the fair values of the identifiable
assets and liabilities acquired:
Fair value
GBPm
Assets
Cash and balances with central banks 9
Loans and advances to banks 33
Investment securities 635
Reinsurance assets 247
Prepayments and accrued income 2
Other assets 24
Intangible assets 18
Property, plant and equipment 1
Total assets 969
Liabilities
Accruals and deferred income (15)
Other liabilities (5)
Deferred income tax liability (2)
Insurance funds withheld (100)
Insurance contract provisions (650)
Subordinated liabilities (21)
Total liabilities (793)
Total fair value acquired 176
Total purchase consideration 196
Less: Fair value acquired 176
Goodwill recognised 20
Note 23 Business combinations continued
The goodwill arising on the acquisition is primarily
attributable to synergies which are expected to be realised from
the acquisition and having full control over the insurance business
and has been allocated to the Tesco Bank segment. None of the
goodwill is expected to be deductible for tax purposes. Acquired
intangible assets comprise internally generated computer software
of GBP18m, which is amortised over a period of 5 years. The fair
value of acquired insurance and other receivables was GBP26m.
The contribution of the business since acquisition to operating
profit and profit before tax was GBP24m and GBP12m respectively. If
the acquisition had occurred on 28 February 2021, the Group's total
income net of insurance claims for the year would have increased by
GBP12m to GBP36m and the profit before tax would have increased by
GBP4m to GBP16m.
Transaction costs of GBP1m, included in administrative expenses,
were incurred by the Group in relation to the acquisition during
the period to 28 August 2021 (29 August 2020: GBP2m).
Note 24 Contingent liabilities
There are a number of contingent liabilities that arise in the
normal course of business, which if realised, are not expected to
result in a material liability to the Group. The Group recognises
provisions for liabilities when it is more likely than not that a
settlement will be required and the value of such a payment can be
reliably estimated.
In September 2020 two claimant law firms issued proceedings
against Tesco PLC for matters arising out of or in connection with
the overstatement of profit announced in 2014.These claims have now
been settled and the Group has taken an exceptional charge in the
amount of GBP193m as a result of settlement and associated legal
costs. Given that the legal timeframe for bringing a claim has now
elapsed, no further related claims can be brought by
shareholders.
Prior to the disposal of its Korean operations (Homeplus), Tesco
PLC provided guarantees in respect of 13 Homeplus lease agreements
in Korea in the event of termination of the relevant lease
agreement by the landlord due to Homeplus' default. Entities
controlled by MBK Partners and Canada Pension Plan Investment Board
as the purchasers of Homeplus, undertook to procure Tesco PLC's
release from these guarantees following the disposal of Homeplus.
At 29 August 2021, three guarantees remained outstanding. This
liability decreases over time with all relevant leases expiring in
the period between 2027 and 2028. The maximum potential liability
under these outstanding guarantees is between KRW 64bn (GBP40m) and
KRW 92bn (GBP57m). In the event that the guarantees are called, the
potential economic outflow is estimated at KRW 34bn (GBP21m), with
funds of KRW 21bn (GBP13m) placed in escrow to provide the payment
mechanism for these guarantees. The net potential outflow to Tesco
is therefore estimated at KRW 13bn (GBP8m). Additionally, Tesco PLC
has the benefit of an indemnity from the purchasers of Homeplus for
any claims made over and above the amounts in escrow.
Following the sale of Homeplus for GBP4.2bn in 2015, Tesco
Stores Limited and Tesco Holdings B.V received claims from the
purchasers relating to the sale of the business. In July 2020, an
Arbitral Tribunal dismissed the majority of the claims. It made
findings of liability in relation to the remaining claims and on 17
September 2021 made a Final Award of a payment from the Group to
the purchasers of GBP119m in damages, interest and costs.
Arbitration judgments are final and may not be appealed by either
party. This was recognised as an adjusting post balance sheet
event, with an exceptional discontinued charge increasing the
provision held by GBP33m. The Final Award was cash settled on 30
September.
As previously reported, Tesco Stores Limited has received claims
from current and former Tesco store colleagues alleging that their
work is of equal value to that of colleagues working in Tesco's
distribution centres and that differences in terms and conditions
relating to pay are not objectively justifiable. The claimants are
seeking the differential between the pay terms looking back, and
equivalence of pay terms moving forward. At present, the likely
number of claims that may be received and the merit, likely outcome
and potential impact on the Group of any such litigation is subject
to a number of significant uncertainties and therefore, the Group
cannot make any assessment of the likely outcome or quantum of any
such litigation as at the date of this disclosure. There are
substantial factual and legal defences to these claims and the
Group intends to vigorously defend them.
Note 25 Events after reporting period
On 17 September 2021, an arbitral tribunal made a Final Award in
relation to claims from the purchasers relating to the sale of
Homeplus (Korea) in 2015. Refer to Note 24 for further details.
On 4 October 2021, the Group repaid gross debt totalling
GBP375m, consisting of GBP293m of debt and GBP82m of swap break
costs. This had no impact on net debt.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the Directors have
adopted various APMs.
These measures are not defined by International Financial
Reporting Standards (IFRS) and therefore may not be directly
comparable with other companies' APMs, including those in the
Group's industry.
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measurements.
Purpose
The Directors believe that these APMs assist in providing
additional useful information on the underlying trends, performance
and position of the Group.
APMs are also used to enhance the comparability of information
between reporting periods and geographical units (such as
like-for-like sales), by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid users in
understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive-setting
purposes.
Some of the Group's IFRS measures are translated at constant
exchange rates. Constant exchange rates are the average actual
periodic exchange rates for the previous financial period and are
used to eliminate the effects of exchange rate fluctuations in
assessing performance. Actual exchange rates are the average actual
periodic exchange rates for that financial period.
Changes to APMs
The Directors and management have redefined Retail free cash
flow to exclude cash flows from business acquisitions and
disposals, investments in joint ventures and associates, cash flows
from the sale of property and other fixed assets, buyback of
property and other exceptional cash flows. This provides a more
consistent and predictable view of free cash flow generated by the
core retail operation by adjusting for non-recurring, volatile or
uncontrollable factors which may be driven by external events or
non-operational business decisions such as acquisitions and
disposals of properties as opportunities arise. The Retail
operating cash flow and Free cash flow APMs are no longer used
following the redefinition of the Retail free cash flow APM.
The Directors and management have simplified the naming of the
Group's profit and EPS APMs. References to: before exceptional
items, amortisation of acquired intangibles, net pension finance
costs and/or fair value remeasurements of financial instruments, as
applicable, have been replaced with "adjusted" in the names of the
measures. Their definitions remain unchanged and there has been no
impact on current or on previously reported figures.
The Directors and management have added Net debt / EBITDA ratio
as a new indebtedness APM, which is defined as Net debt divided by
Retail EBITDA. This metric is used to demonstrate the Group's
ability to meet its payment obligations and removes any distortion
associated with the volatility of IAS 19 pension movements included
in the existing Total indebtedness ratio APM. Since the new APM is
intended to provide additional useful information on underlying
indebtedness trends, Directors and management will continue to
present the existing indebtedness APMs.
Closest Adjustments
equivalent to reconcile
APM IFRS measure to IFRS measure Definition and purpose
Income statement
Revenue measures
Group sales Revenue * Exclude sales made at petrol filling stations
* Excludes the impact of sales made at petrol filling
stations to demonstrate the Group's underlying
performance in the core retail and financial services
businesses by removing the volatilities associated
with the movement in fuel prices. This is a key
management incentive metric.
Growth in No direct
sales equivalent * Consistent with accounting policy * Growth in sales is a ratio that measures year-on-year
movement in Group sales for continuing operations for
26 weeks. It shows the annual rate of increase in the
Group's sales and is considered a good indicator of
how rapidly the Group's core business is growing.
Like-for-like No direct
equivalent * Consistent with accounting policy * Like-for-like is a measure of growth in Group online
sales and sales from stores that have been open for
at least a year (but excludes prior year sales of
stores closed during the year) at constant foreign
exchange rates. It is a widely used indicator of a
retailer's current trading performance and is
important when comparing growth between retailers
that have different profiles of expansion, disposals
and closures.
Retail sales Revenue
* Exclude Tesco Bank sales * Group sales excluding Tesco Bank sales to demonstrate
the Group's underlying performance in the core Retail
businesses.
* Exclude sales made at petrol filling stations
Profit measures
Adjusted Operating
operating profit* * Exceptional items * Adjusted operating profit is the headline measure of
profit the Group's performance, and is based on operating
profit from continuing operations before the impact
* Amortisation of acquired intangibles of exceptional items and amortisation of intangible
assets acquired in business combinations. Exceptional
items relate to certain cost or incomes that derive
from events or transactions that fall within the
normal activities of the Group but which,
individually or, if of similar type, in aggregate,
are excluded by virtue of their size and nature in
order to reflect management's view of the underlying
performance of the Group. This is a key management
incentive metric.
Retail adjusted Operating
operating profit* * Tesco Bank operating profit * Retail adjusted operating profit is a measure of the
profit Group's operating profit from continuing operations
from the Retail business excluding Tesco Bank. It is
* Retail exceptional items based on adjusted operating profit excluding Tesco
Bank.
* Retail amortisation of acquired intangibles
-- Operating profit is presented on the Group income statement.
It is not defined per IFRS, however, is a generally accepted profit
measure
Glossary - Alternative performance measures continued
Adjustments
Closest equivalent to reconcile
APM IFRS measure to IFRS measure Definition and purpose
Profit measures
continued
Operating No direct
margin equivalent * Consistent with accounting policy * Operating margin is calculated as adjusted operating
profit divided by revenue. Progression in operating
margin is an important indicator of the Group's
operating efficiency.
Retail earnings Operating
before exceptional profit* * Exceptional items * This measure is based on Retail operating profit from
items, interest, continuing operations. It excludes Retail exceptional
tax, depreciation items, depreciation and amortisation and is used to
and amortisation * Depreciation and amortisation derive the Total indebtedness ratio and Fixed charge
(Retail EBITDA) cover APMs.
* Tesco Bank earnings
before exceptional
items, interest,
tax, depreciation
and amortisation
* Discontinued operations
Adjusted profit Profit before
before tax tax * Exceptional items * This measure excludes exceptional items and
amortisation of acquired intangibles, net finance
costs of the defined benefit pension deficit and fair
* Amortisation of acquired intangibles value remeasurements of financial instruments. Net
pension finance costs are impacted by corporate bond
yields, which can fluctuate significantly and are
* Net pension finance costs reset each year based on often volatile external
market factors. Fair value remeasurements are
impacted by changes to credit risk and various market
* Fair value remeasurements of financial instruments indices, which can fluctuate significantly. Also
included in these items are fair value remeasurements
of financial instruments resulting from liability
management exercises.
Adjusted total Finance costs
finance costs * Exceptional items * This measure is the net finance costs adjusted for
non-recurring one-off items, net pension finance
costs and fair value remeasurements of financial
* Net pension finance costs instruments. Net pension finance costs are impacted
by corporate bond yields, which can fluctuate
significantly and are reset each year based on often
* Fair value remeasurements of financial instruments volatile external market factors. Fair value
remeasurements are impacted by changes to credit risk
and various market indices, which can fluctuate
significantly. Also included in these items are fair
value remeasurements of financial instruments
resulting from liability management exercises.
Adjusted diluted Diluted earnings
earnings per per share * Exceptional items * This relates to adjusted profit after tax
share attributable to owners of the parent divided by the
weighted average number of ordinary shares in issue
* Amortisation of acquired intangibles during the financial period adjusted for the effects
of potentially dilutive share options.
* Discontinued operations
* It excludes net pension finance costs and fair value
* Net pension finance costs
remeasurements of financial instruments.
Net pension finance costs are
* Fair value remeasurements of financial instruments impacted by corporate bond yields,
which can fluctuate significantly
and are reset each year based
on often volatile external market
factors. Fair value remeasurements
are impacted by changes to credit
risk and various market indices,
which can fluctuate significantly.
Also included in these items
are fair value remeasurements
of financial instruments resulting
from liability management exercises.
Adjusted diluted Diluted earnings
earnings per per share * Exceptional items * This relates to adjusted profit after tax
share (adjusted attributable to owners of the parent divided by the
for share weighted average number of ordinary shares in issue
consolidation) * Amortisation of acquired intangibles during the financial period adjusted for the effects
of potentially dilutive share options.
* Discontinued operations
* It is adjusted for the effects of potentially
dilutive share options and to reflect the full impact
* Net pension finance costs of the share consolidation as if it had taken place
at the start of the previous financial year. This
metric is used to demonstrate the underlying earnings
* Fair value remeasurements of financial instruments per share of the Group's continuing operations, and
removes any distortion from the sale of the Group's
businesses in Thailand and Malaysia, as the earnings
* Weighted average number of diluted shares from discontinued operations are excluded, but the
weighted average share base used in the statutory IAS
33 denominator does not reflect the full impact of
the share consolidation and special dividend. To aid
comparability, this APM, which is presented on a
basis other than in accordance with IAS 33, includes
the full impact of the share consolidation as if it
had taken place at the start of the previous
financial year.
* It excludes net pension finance costs and fair value
remeasurements of financial instruments. Net pension
finance costs are impacted by corporate bond yields,
which can fluctuate significantly and are reset each
year based on often volatile external market factors.
Fair value remeasurements are impacted by changes to
credit risk and various market indices, which can
fluctuate significantly. Also included in these items
are fair value remeasurements of financial
instruments resulting from liability management
exercises. This is a key management incentive metric
Glossary - Alternative performance measures continued
Closest
equivalent Adjustments to
IFRS reconcile to IFRS
APM measure measure Definition and Purpose
Tax measures
Effective Effective
tax rate on tax * Exceptional items and * Effective tax rate on adjusted Group operating profit
adjusted rate is calculated as total income tax credit/(charge)
operating excluding the tax impact of exceptional items and
profit their tax impact amortisation of acquired intangibles from continuing
* Amortisation of acquired intangibles and their tax operations divided by adjusted operating profit. This
impact provides an indication of the ongoing tax rate across
the Group.
Effective Effective
tax rate on tax * Exceptional items and * Effective tax rate on adjusted Group profit before
adjusted rate tax is calculated as total income tax credit/(charge)
profit excluding the tax impact of exceptional items and
before tax their tax impact amortisation of acquired intangibles items, net
* Amortisation of acquired intangibles and their tax pension finance costs and fair value remeasurements
impact divided from continuing operations by the adjusted
profit before tax.
* Net pension finance costs and their tax impact
* Fair value remeasurements of financial instruments
and their tax impact
Balance
sheet
measures
Net debt Borrowings
less * Net debt from Tesco Bank * Net debt excludes the net debt of Tesco Bank but
cash includes that of the discontinued operations to
and reflect the net debt obligations of the Retail
related business. Net debt comprises bank and other
hedges borrowings, lease liabilities, net derivative
financial instruments, joint venture loans and other
receivables and net interest receivables/payables,
offset by cash and cash equivalents and short-term
investments. It is a useful measure of the progress
in generating cash and strengthening of the Group's
balance sheet position and is a measure widely used
by credit rating agencies.
Net debt/ No direct
EBITDA ratio equivalent * Consistent with accounting policy * Net debt/ EBITDA ratio is calculated as Net debt
divided by the rolling 12-month Retail EBITDA. It is
a measure of the Group's ability to meet its payment
obligations and is widely used by analysts and credit
rating agencies.
Total Borrowings
indebtedness less * Consistent with accounting policy * Total indebtedness is the net debt plus the IAS 19
cash deficit in the pension schemes (net of associated
and deferred tax) to provide an overall view of the
related Group's obligations. It is an important measure of
hedges the long-term obligations of the Group and is a
measure widely used by credit rating agencies.
Total No direct
indebtedness equivalent * Consistent with accounting policy * Total indebtedness ratio is calculated as Total
ratio indebtedness divided by the rolling 12-month Retail
EBITDA. It is a measure of the Group's ability to
meet its payment obligations and is widely used by
analysts and credit rating agencies.
Fixed charge No direct
cover equivalent * Consistent with accounting policy * Fixed charge cover is calculated as the rolling
12-month Retail EBITDA divided by the sum of net
finance cost (excluding net pension finance costs,
finance charges payable on lease liabilities,
exceptional items, capitalised interest and fair
value remeasurements) and all lease liability
payments from continuing operations. It is a measure
of the Group's ability to meet its payment
obligations and is widely used by analysts and credit
rating agencies.
Cash flow
measures
Retail free Cash
cash flow generated * Tesco Bank operating cash flow * Retail free cash flow includes all cash flows from
from continuing operations from operating and investing
operating activities for the Retail business, the market
activities * Retail cash generated from/(used in) investing purchase of shares net of proceeds from shares issued
activities, in relation to share schemes and repayment of
obligations under leases, excluding the effects of
Tesco Bank's cash flows. The following items are
* Market purchase of shares excluded: investing cash flows that increase/decrease
items within Net debt, proceeds from the sale of
property, plant and equipment, investment property,
issued in relation intangible assets and assets classified as held for
to share schemes sale, cash utilised to buy back stores, proceeds from
* Repayment of obligations under leases the sale of subsidiaries, cash utilised in business
acquisitions, cash used for investment in joint
ventures and associates, and exceptional cash items.
* Investing cash flows that increase/decrease items This measure reflects the cash available to
within Net debt shareholders. This is a key management metric.
* Cash flows from/(used in) business acquisitions and
disposals
* Cash flows from the buyback of stores
* Cash flows from the sale of property, plant and
equipment, investment property, intangible assets and
assets classified as held for sale
* Cash flows from investments in joint ventures and
associates
* Other exceptional cash flows
Alternative performance measures
Adjusted diluted earnings per share (adjusted 28 August 29 August
for share consolidation) 2021 2020
Weighted average number of diluted shares
Diluted weighted average number of shares
(millions) 7,754 9,771
Adjustment to reflect the post-consolidation
share base as if it had been in place from
the start of the previous financial year
(millions) - (2,057)
Adjusted diluted weighted average number
of shares (adjusted for share consolidation)
(millions) 7,754 7,714
Adjusted diluted earnings per share (pence) 11.22 5.75
Adjustment to reflect the post-consolidation
share base as if it had been in place from
the start of the previous financial year
(pence) - 1.54
Adjusted diluted earnings per share (adjusted
for share consolidation) (pence) 11.22 7.29
Reconciliation of debt metrics
As the incomes and expenses included in debt APMs are calculated using
a rolling 12-month period, the amounts for the 12 months to 28 August
2021 are not disclosed in the notes to the condensed consolidated interim
financial statements for the current financial period.
28 August 27
2021 February
GBPm 2021
Retail EBITDA GBPm
Adjusted operating profit/(loss) 2,236 1,815
Add/(less): Tesco Bank operating loss/(profit)
before exceptional items (52) 175
Retail adjusted operating profit 2,184 1,990
Add: Depreciation and amortisation (excluding
amortisation of acquired intangibles) 1,657 1,671
Less: Tesco Bank depreciation and amortisation (58) (57)
Retail EBITDA 3,783 3,604
28 August 27
2021 February
Total indebtedness ratio GBPm 2021
GBPm
Net debt (GBPm) 10,222 11,955
Retail EBITDA (GBPm) 3,783 3,604
Net debt / EBITDA ratio 2.7 3.3
Add: Defined benefit pension deficit, net
of deferred tax (GBPm) 455 1,004
Total indebtedness (GBPm) 10,677 12,959
Retail EBITDA (GBPm) 3,783 3,604
Total indebtedness ratio 2.8 3.6
Alternative performance measures continued
28 August 27
2021 February
Fixed charge cover 2021
Net finance costs (GBPm) 626 937
Less: Net pension finance costs (GBPm) (26) (43)
Add: Fair value remeasurements of financial
instruments (GBPm) 74 (214)
Adjusted total finance costs (GBPm) 674 680
Add: Capitalised interest (GBPm) - -
Less: Finance charges payable on lease
liabilities (GBPm) (424) (446)
Adjusted total finance cost, excluding
capitalised interest and finance charges
payable on lease liabilities (GBPm) 250 234
Add: Retail total lease liability payments
(GBPm) 977 1,104
Less: Retail discontinued operations lease
liability payments GBP(m) - (99)
1,227 1,239
Retail EBITDA (GBPm) 3,783 3,604
Fixed charge cover 3.1 2.9
Reconciliation of debt metrics continued
Alternative performance measures continued
Retail free cash flow
Continuing operations
26 weeks 26 weeks
2021 2020
Note GBPm GBPm
Retail cash generated from/ (used in) operating
activities 2 2,267 1,400
Retail cash generated from/ (used in) investing
activities 2 (1,621) (364)
Own shares purchased in relation to share
schemes 2 (55) (79)
Retail repayment of capital element of
obligations under leases 2 (286) (292)
Exclude/add back:
Retail proceeds from sale of property,
plant and equipment, investment property,
intangible assets and assets classified
as held for sale 2 (109) (32)
Retail purchase of property, plant and
equipment and investment property - store
buy backs 2 37 148
Retail disposal of subsidiaries, net of
cash disposed 2 (125) 26
Retail acquisition of businesses, net of
cash acquired 2 - (15)
Retail investment in associates and joint
ventures 2 8 11
Retail exceptional net cash (generated
from)/used in operating activities 2 107 127
Retail increase/ (decrease) in loans to
joint ventures and associates 2 - 1
Retail net investments in/(proceeds from
sale of) short-term investments 2 1,320 (134)
Retail free cash flow 1,543 797
As a memo at transition, the following table reconciles the
Retail free cash flow APM to that previously presented:
26 weeks 26 weeks
2021 2020
Note GBPm GBPm
Retail free cash flow 2 1,543 797
Retail proceeds from sale of property,
plant and equipment, investment property,
intangible assets and assets classified
as held for sale 2 109 32
Retail purchase of property, plant and
equipment and investment property - store
buy backs 2 (37) (148)
Retail disposal of subsidiaries, net of
cash disposed 2 125 (26)
Add: Cash outflow from major disposal* - 22
Retail acquisition of businesses, net of
cash acquired 2 - 15
Retail investment in associates and joint
ventures 2 (8) (11)
Retail exceptional net cash generated from/(used
in) operating activities 2 (107) (127)
Memo: Retail free cash flow including cash
flows from non-major corporate acquisitions
and disposals, cash flows from the sale
or buyback of properties, and retail exceptional
cash flows from operating activities 1,625 554
* Cash outflows relating to the disposal of Asia in the 26 week
period ended 29 August 2020.
Glossary - Other
Capital expenditure (Capex)
The additions to property, plant and equipment, investment property
and intangible assets (excluding assets acquired under business combinations).
Capital employed
Net assets plus net debt plus dividend creditor less net assets of
the disposal groups and non-current assets classified as held for
sale.
Enterprise Value
This is calculated as market capitalisation plus net debt.
ESG
Environmental, social and governance.
Expected credit loss (ECL)
Credit loss represents the portion of the debt that a company is unlikely
to recover. The expected credit loss is the projected future losses
based on probability-weighted calculations.
Market capitalisation
The total value of all Tesco shares calculated as total number of
shares multiplied by closing share price at the period end.
MTN
Medium term note.
MREL
Minimum requirements for own funds and eligible liabilities (European
Banking Authority).
Return on capital employed (ROCE)
Return divided by the average of opening and closing capital employed.
Return
Profit before exceptional items, amortisation of acquired intangibles
and interest, after tax (applied at effective rate of tax).
RPI
Retail Price Index.
Total shareholder return
The notional annualised return from a share, measured as the percentage
change in the share price, plus the dividends paid with the gross
dividends, reinvested in Tesco shares. This is measured over both
a one and five year period.
Independent review report to Tesco PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
26 weeks ended 28 August 2021 which comprises the Group income
statement, the Group statement of comprehensive income, the Group
balance sheet, the Group statement of changes in equity, the Group
cash flow statement and related notes 1 to 25. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 28
August 2021 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
5 October 2021
Appendix 1
One-year like-for-like sales performance (exc. VAT, exc.
fuel)
Like-for-like
sales
H1 H2 FY Q1 Q2 H1
2020/21 2020/21 2020/21 2021/22 2021/22 2021/22
UK&ROI 7.2% 6.5% 6.8% 1.3% 3.6% 2.4%
UK 7.6% 7.8% 7.7% 0.5% 2.0% 1.2%
ROI 15.5% 12.6% 14.0% (6.1)% 1.2% (2.6)%
Booker 2.2% (4.0)% (0.8)% 9.2% 12.5% 11.0%
Central Europe (0.9)% 0.1% (0.4)% (1.6)% 4.3% 1.4%
Total Retail 6.5% 6.0% 6.3% 1.0% 3.6% 2.3%
Tesco Bank n/a n/a n/a n/a n/a n/a
Total Group 6.5% 6.0% 6.3% 1.0% 3.6% 2.3%
Appendix 2
Total sales performance (exc. VAT, exc. fuel)
Actual rates Constant rates
H1 H2* FY H1 H1 H2* FY H1
2020/21 2020/21 2020/21 2021/22 2020/21 2020/21 2020/21 2021/22
UK&ROI 8.6% 9.1% 8.8% 2.7% 8.5% 8.8% 8.6% 2.9%
UK 7.7% 8.3% 8.0% 1.8% 7.7% 8.3% 8.0% 1.8%
ROI 16.3% 17.5% 16.9% (5.8)% 14.5% 12.9% 13.7% (2.0)%
Booker 11.0% 10.6% 10.5% 11.1% 11.0% 10.6% 10.5% 11.1%
Central Europe (4.3)% 0.1% (2.1)% (0.8)% (1.5)% 0.1% (0.6)% 2.6%
Total Retail 7.5% 8.3% 7.9% 2.4% 7.7% 8.1% 7.9% 2.9%
Tesco Bank (31.4)% (31.0)% (31.2)% 12.2% (31.4)% (31.0)% (31.2)% 12.2%
Total Group 6.6% 7.5% 7.1% 2.6% 6.8% 7.3% 7.0% 3.0%
* In order to ensure the best comparability year-on-year, sales
growth in H2 FY 2020/21 is reported as sales for 26 weeks ending 27
February 2021 against
sales for 26 weeks ending 29 February 2020
Appendix 3
Country detail - Retail
Revenue
(exc. VAT, inc.
fuel)
Local Average Closing
currency exchange exchange
(m) GBPm rate rate
UK 22,896 22,896 1.0 1.0
ROI 1,450 1,245 1.2 1.2
Booker 3,865 3,865 1.0 1.0
Czech Republic 20,342 680 29.9 29.8
Hungary 282,621 680 415.6 407.5
Slovakia 697 599 1.2 1.2
Appendix 4
UK sales area by size of store
Store size (sq. ft.) 28 August 2021 27 February 2021
No. of Million % of total No. of Million % of total
stores sq. ft. sq. ft. stores sq. ft. sq. ft.
0 - 3,000 2,544 5.5 14.2% 2,534 5.5 14.2%
3,001 - 20,000 280 3.0 7.8% 282 3.0 7.8%
20,001 - 40,000 286 8.2 21.2% 285 8.2 21.2%
40,001 - 60,000 182 8.8 22.8% 182 8.8 22.8%
60,001 - 80,000 120 8.4 21.8% 120 8.4 21.8%
80,001 - 100,000 45 3.7 9.6% 45 3.7 9.6%
Over 100,000 8 1.0 2.6% 8 1.0 2.6%
Total(*) 3,465 38.6 100.0% 3,456 38.6 100%
-- Excludes Booker and franchise stores.
Appendix 5
Actual Group space - store numbers (a)
2020/21 Closures/ Net gain/ As at 28 Repurposing/
year-end Openings disposals (reduction)(b) August 2021 extensions
Large 795 1 (1) - 795 -
Convenience 1,938 8 (5) 3 1,941 -
Dotcom only 6 - - - 6 -
Total Tesco 2,739 9 (6) 3 2,742 -
One Stop
(c) 705 5 - 5 710 -
Booker 194 - (1) (1) 193 -
Jack's 12 1 - 1 13 -
UK (c) 3,650 15 (7) 8 3,658 -
ROI 151 - - - 151 -
UK & ROI
(c) 3,801 15 (7) 8 3,809 -
Czech Republic
(c) 183 - - - 183 -
Hungary 201 - (2) (2) 199 -
Slovakia 153 1 - 1 154 -
Central Europe
(c) 537 1 (2) (1) 536 -
Group (c) 4,338 16 (9) 7 4,345 -
UK (One Stop) 207 30 (4) 26 233 -
Czech Republic 123 5 (1) 4 127 -
Slovakia 5 3 - 3 8 -
Franchise
stores 335 38 (5) 33 368 -
(a) Continuing operations.
(b) The net gain/(reduction) reflects the number of store
openings less the number of store closures/disposals.
(c) Excludes franchise stores.
Appendix 5 continued
Actual Group space - '000 sq. ft.(a)
2020/21 Closures/ Repurposing/ Net gain/ As at 28
year-end Openings disposals extensions(b) (reduction) August 2021
Large 31,339 33 (9) - 24 31,363
Convenience 5,244 19 (14) - 5 5,249
Dotcom only 716 - - - - 716
Total Tesco 37,299 52 (23) - 37,328
One Stop(c) 1,150 10 - - 10 1,160
Booker 8,284 - (37) - (37) 8,247
Jack's 119 10 - - 10 129
UK (c) 46,852 72 (60) - 12 46,864
ROI 3,335 - - - - 3,335
UK & ROI(c) 50,187 72 (60) - 12 50,199
Czech Republic(c) 4,266 - - - - 4,266
Hungary 5,997 - (15) - (15) 5,982
Slovakia 3,151 14 - 5 19 3,170
Central Europe(c) 13,414 14 (15) 5 4 13,418
Group(c) 63,601 86 (75) 5 16 63,617
UK (One Stop) 256 41 (5) 42 78 334
Czech Republic 118 3 (6) - (3) 115
Slovakia 5 3 - - 3 8
Franchise stores 379 47 (11) 42 78 457
(a) Continuing operations.
(b) Repurposing of retail selling space.
(c) Excludes franchise stores.
Appendix 5 continued
Group space forecast to 26 February 2022 - '000 sq. ft.(a)
As at
28
August Closures/ Net gain/ 2021/22
2021 Openings disposals Repurposing/extensions(b) (reduction) year-end
Large 31,363 24 - - 24 31,387
Convenience 5,249 74 (7) - 67 5,316
Dotcom only 716 - - - - 716
Total Tesco 37,328 98 (7) - 91 37,419
One Stop(c) 1,160 6 - - 6 1,166
Booker 8,247 - (37) - (37) 8,210
Jack's 129 - - - - 129
UK(c) 46,864 104 (44) - 60 46,924
ROI 3,335 23 - - 23 3,358
UK & ROI(c) 50,199 127 (44) - 83 50,282
Czech Republic(c) 4,266 43 - - 43 4,309
Hungary 5,982 - - - - 5,982
Slovakia 3,170 - - - - 3,170
Central Europe(c) 13,418 43 - - 43 13,461
Group(c) 63,617 170 (44) - 126 63,743
UK (One Stop) 334 27 - - 27 361
Czech Republic 115 3 (2) - 1 116
Slovakia 8 15 - - 15 23
Franchise stores 457 45 (2) - 43 500
(a) Continuing operations.
(b) Repurposing of retail selling space.
(c) Excludes franchise stores.
Appendix 6
Tesco Bank income statement
H1 H1
2021/22* 2020/21*
GBPm GBPm
Revenue
Interest receivable and similar income 238 292
Fees and commissions receivable 101 94
Gross insurance premium income 94 -
433 386
Direct costs
Interest payable (20) (51)
Fees and commissions payable (10) (6)
Insurance premium income ceded to reinsurers (42) -
Insurance claims (61) -
Reinsurers' share of claims and benefits
incurred 34 -
(99) (57)
Other income 11 -
Gross profit 345 329
Other expenses
Staff costs (104) (91)
Premises and equipment (33) (36)
Other administrative expenses (85) (70)
Depreciation and amortisation (30) (30)
Impairment loss on financial assets (21) (257)
Operating profit/(loss) before exceptional
items 72 (155)
Exceptional items - -
Operating profit/(loss) 72 (155)
Net finance costs: movements on derivatives
and hedge accounting (1) (1)
Net finance costs: interest (3) (3)
Share of profit/(loss) of joint venture 3 9
Profit/(loss) before tax 71 (150)
* These results are for the six months ended 31 August 2021 and
the previous comparison is made with the six months ended 31 August
2020.
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