Tesco plc Preliminary Results show Market Share Gains and Positive Volume Growth

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Tesco plc (LON:TSCO) has announced its Preliminary Results 2023/24.

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


Performance highlights (on a continuing operations basis)^1,2	FY 23/24	FY 22/23³	Change at actual rates	Change at constant rates
Group sales (exc. VAT, exc. fuel)⁴	£61,477m	£57,216m	7.4%	7.2%
Adjusted operating profit⁵	£2,829m	£2,509m	12.8%	12.7%
– Retail	£2,760m	£2,487m	11.0%	10.9%
– Tesco Bank¹	£69m	£22m	213.6%	213.6%
Retail free cash flow⁶	£2,063m	£2,133m	(3.3)%
Net debt^6,7	£(9,764)m	£(10,493)m	6.9%
Adjusted diluted EPS⁵	23.41p	20.53p	14.0%
Dividend per share⁷	12.10p	10.90p	11.0%
Statutory measures (on a continuing operations basis)¹
Revenue (exc. VAT, inc. fuel)	£68,187m	£65,322m	4.4%
Operating profit	£2,821m	£1,410m	100.1%
Profit before tax	£2,289m	£882m	159.5%
Retail cash generated from operating activities	£3,712m	£3,752m	(1.1)%
Diluted EPS	24.53p	8.81p	178.4%
Statutory measures (including discontinued operations)¹
Profit for the year (after tax)	£1,192m	£736m	62.0%
Diluted EPS	16.56p	9.85p	68.1%

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

Ken Murphy, Chief Executive

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

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

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

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

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

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

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

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

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

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

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

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

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

· Net debt^6,7 reduced by £729m due to strong cash flow and Bank special dividend of £250m; net debt/EBITDA ratio at 2.2x

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CAPITAL RETURN PROGRAMME.

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

OUTLOOK.

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

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

STRATEGIC PRIORITIES.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMMUNITIES.

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

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

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

PLANET.

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

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

GROUP REVIEW OF PERFORMANCE.

On a continuing operations basis¹

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

52 weeks ended 24 February 2024^2,7	FY 23/24	FY 22/23³	Change atactual rates	Change at constant rates
Sales (exc. VAT, exc. fuel)⁴	£61,477m	£57,216m	7.4%	7.2%
Fuel	£6,710m	£8,106m	(17.2)%	(17.2)%
Revenue (exc. VAT, inc. fuel)	£68,187m	£65,322m	4.4%	4.2%

Adjusted operating profit⁵	£2,829m	£2,509m	12.8%	12.7%
Adjusting items	£(8)m	£(1,099)m
Statutory operating profit	£2,821m	£1,410m	100.1%

Net finance costs	£(538)m	£(536)m
Joint ventures and associates	£6m	£8m
Statutory profit before tax	£2,289m	£882m	159.5%
Group tax	£(525)m	£(224)m
Statutory profit after tax	£1,764m	£658m	168.1%

Adjusted diluted EPS⁵	23.41p	20.53p	14.0%
Statutory diluted EPS	24.53p	8.81p	178.4%
Dividend per share⁷	12.10p	10.90p	11.0%
Net debt^6,7	£(9,764)m	£(10,493)m	6.9%
Retail free cash flow⁶	£2,063m	£2,133m	(3.3)%
Capex⁹	£1,314m	£1,235m	6.4%

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

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

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

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

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

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

We generated £2,063m of retail free cash flow⁶, including a net £418m working capital inflow. Net debt^6,7 reduced by £729m to £9.8bn, driven by this strong retail free cash flow and the £250m special dividend from Tesco Bank. This was partially offset by cash returned to shareholders via our ongoing share buyback programme and dividend payments made in the year. The net debt/EBITDA ratio was 2.2 times, compared to 2.6 times last year, driven by strong cash generation and higher retail EBITDA.

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

Notes:

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

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

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

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

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

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

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

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

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

Segmental review of performance:

Sales performance:

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

On a continuing operations basis¹	Sales(£m)	LFL sales change⁸	Total sales change at actual rates³	Total sales change at constant rates³

– UK	44,371	7.7%	8.1%	8.1%
– ROI	2,891	6.8%	9.3%	8.5%
– Booker	9,082	5.4%	4.6%	4.6%
UK & ROI	56,344	7.3%	7.6%	7.6%
Central Europe	4,322	0.2%	3.1%	0.6%
Retail	60,666	6.8%	7.3%	7.0%
Tesco Bank	811		21.7%	21.7%
Group sales	61,477		7.4%	7.2%
Fuel	6,710	(17.3)%	(17.2)%	(17.2)%
Group revenue	68,187		4.4%	4.2%

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

Adjusted operating profit^3,5,7 performance:

	Profit (£m)
On a continuing operations basis¹	Profit (£m)	Change at actual rates	Change at constant rates	Margin % at actual rates	Margin % change at actual rates
UK & ROI	2,670	15.7%	15.7%	4.2%	42 bps
Central Europe	90	(50.0)%	(50.0)%	2.0%	(208) bps
Retail	2,760	11.0%	10.9%	4.1%	25 bps
Tesco Bank	69	213.6%	213.6%	8.5%	520 bps
Group	2,829	12.8%	12.7%	4.1%	31 bps

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

UK & ROI OVERVIEW:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Online performance	FY 23/24	YoY change
Sales inc. VAT	£6.2bn	10.4%
Orders per week	1.20m	5.3%
Basket size	£99	4.2%
Online % of UK total sales	13.1%	0.3ppts

ROI – Volume growth driving strong market share gains:

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

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

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

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

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

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

	Sales£m	LFL
Retail (excluding tobacco)	3,205	11.0%
Tobacco	1,858	(4.3)%
Catering*	2,501	10.2%
Best Food Logistics	1,518	(0.1)%
Total Booker	9,082	5.4%

* Includes small businesses sales

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

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

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

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

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

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

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

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

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

TESCO BANK:

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

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

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

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

	FY 23/24	FY 22/23³	YoY change
Revenue	£1,521m	£1,234m	23.1%
Continuing operations	£811m	£666m	21.7%
Discontinued operations	£710m	£568m	24.9%
Adjusted operating profit	£148m	£135m	9.6%
Continuing operations*	£69m	£22m	213.6%
Discontinued operations	£79m	£113m	(30.1)%

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

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

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

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

Adjusting items:

	FY 23/24 £m	FY 22/23 £m
Net impairment release / (charge) on non-current assets	28	(982)
Save to Invest restructuring provisions	(50)	(132)
Property transactions	75	91
Amortisation of acquired intangible assets	(74)	(76)
Other*	13	–
Total adjusting items in statutory operating profit (continuing operations)	(8)	(1,099)
Net finance income	20	27
Tax	68	195
Total adjusting items (continuing operations)	80	(877)
Adjusting items (discontinued operations)	(628)	(13)
Total adjusting items	(548)	(890)

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

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

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

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

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

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

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

Net finance costs:

On a continuing operations basis	FY 23/24 £m	FY 22/23³£m
Net interest costs	(179)	(189)
Net finance expenses from insurance contracts	(6)	(3)
Finance charges payable on lease liabilities	(373)	(371)
Net finance costs before adjusting items	(558)	(563)
Fair value remeasurements of financial instruments	38	(53)
Net pension finance income / (costs)	(18)	80
Net finance costs	(538)	(536)

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

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

Group tax:

On a continuing operations basis	FY 23/24 £m	FY 22/23³£m
Tax on adjusted profit	(593)	(419)
Tax on adjusting items	68	195
Tax on profit	(525)	(224)

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

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

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

Earnings per share:

On a continuing operations basis	FY 23/24	FY 22/23³	YoY change
Adjusted diluted EPS	23.41p	20.53p	14.0%
Statutory diluted EPS	24.53p	8.81p	178.4%
Statutory basic EPS	24.80p	8.89p	179.0%
On a total basis, including discontinued operations
Statutory diluted EPS	16.56p	9.85p	68.1%
Statutory basic EPS	16.74p	9.94p	68.4%

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

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

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

Dividend:

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

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

Summary of total indebtedness (excludes Tesco Bank):

	Feb-24£m	Feb-23£m	Movement£m
Net debt before lease liabilities	(2,144)	(2,775)	631
Lease liabilities	(7,620)	(7,718)	98
Net debt	(9,764)	(10,493)	729
Pension deficit, IAS 19 basis (post-tax)	(493)	(300)	(193)
Total indebtedness	(10,257)	(10,793)	536

Net debt / EBITDA	2.2x	2.6x
Total indebtedness ratio	2.4x	2.7x

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

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

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

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

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

Summary retail free cash flow:

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

On a continuing operations basis	FY 23/24£m	FY 22/23³£m
Adjusted operating profit	2,829	2,509
Less: Tesco Bank adjusted operating (profit) / loss	(69)	(22)
Retail adjusted operating profit	2,760	2,487
Add back: Depreciation and amortisation	1,602	1,570
Other reconciling items	82	61
Pensions	(29)	(23)
Decrease in working capital	418	468
Retail cash generated from operations before adjusting items	4,833	4,563
Cash capex	(1,289)	(1,143)
Net interest	(560)	(573)
– Interest related to Net debt before lease liabilities	(188)	(202)
– Interest related to lease liabilities	(372)	(371)
Tax paid	(214)	(107)
Dividends received	9	68
Repayments of obligations under leases	(623)	(589)
Own shares purchased for share schemes	(93)	(86)
Retail free cash flow	2,063	2,133
Memo (not included in Retail free cash flow definition):
– Special dividend received from Tesco Bank	250	–
– Net acquisitions and disposals	(2)	(281)
– Property buybacks, store purchases and disposal proceeds	(66)	266
– Cash impact of adjusting items	(98)	(61)

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

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

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

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

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

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

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

Capital expenditure and space:

	UK & ROI		Central Europe		Tesco Bank		Group
On a continuing operations basis	FY 23/24	FY 22/23	FY 23/24	FY 22/23	FY 23/24	FY 22/23	FY 23/24	FY 22/23
Capex	£1,171m	£1,069m	£113m	£115m	£30m	£51m	£1,314m	£1,235m
Openings (k sq ft)	366	318	87	77	–	–	453	395
Closures (k sq ft)	(204)	(233)	(22)	(25)	–	–	(226)	(258)
Repurposed (k sq ft)	–	9	(342)	(407)	–	–	(342)	(398)
Net space change (k sq ft)	162	94	(277)	(355)	–	–	(115)	(261)

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

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

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

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

Statutory capital expenditure for the year was £1.5bn.

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

Property:

	UK & ROI		Central Europe		Group
	Feb-24	Feb-23	Feb-24	Feb-23	Feb-24	Feb-23
Property¹ – fully owned
– Estimated market value	£15.1bn	£15.4bn	£1.8bn	£1.8bn	£16.9bn	£17.2bn
– NBV	£15.2bn	£14.9bn	£1.5bn	£1.5bn	£16.7bn	£16.4bn
% store selling space owned	58%	58%	68%	68%	60%	60%
% property owned by value²	59%	59%	65%	65%	60%	60%

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

2. Excludes fixtures and fittings.

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

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

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

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

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

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

Sources.

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

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

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

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

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

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

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

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

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

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

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

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