Tesco Plc volume growth delivering strong financial performance

Tesco PLC (LON:TSCO) has annonced its 2024/25 interim results.

Strong customer offer delivers volume growth and market share gains.

Performance highlights (on a continuing operations basis)1,2	H1 24/25	H1 23/24	Change at actual rates	Change at constant rates
Group sales (exc. VAT, exc. fuel)3	£31,463m	£30,401m	3.5%	4.0%
Adjusted operating profit4	£1,649m	£1,426m	15.6%	15.8%
–     Retail	£1,555m	£1,417m	9.7%	10.0%
–     Tesco Bank*, 1	£94m	£9m	n/m9	n/m
Retail free cash flow5	£1,261m	£1,368m	(7.8)%
Net debt5,6	£(9,676)m	£(9,888)m	2.1%
Adjusted diluted EPS4	14.45p	11.68p	23.7%
Interim dividend per share6	4.25p	3.85p	10.4%
Statutory measures (on a continuing operations basis)1
Revenue (exc. VAT, inc. fuel)	£34,773m	£33,801m	2.9%
Operating profit	£1,612m	£1,426m	13.0%
Profit before tax	£1,392m	£1,161m	19.9%
Retail cash generated from operating activities	£1,943m	£2,068m	(6.0)%
Diluted EPS	14.62p	12.25p	19.3%
Statutory measures (including discontinued operations)1
Revenue (exc. VAT, inc. fuel)	£35,180m	£34,149m	3.1%
Profit after tax	£1,051m	£929m	13.1%
Diluted EPS	15.03p	12.83p	17.1%

Ken Murphy, Chief Executive

“We’ve been working really hard to offer our customers the best possible value, quality, and service and they are shopping more at Tesco as a result.  We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve across a broad range of measures.  

The combination of price, quality and innovation means we are as competitive as we have ever been, and we have been the cheapest full-line grocer for nearly two years.  Our strong UK and ROI market share gains across the last year demonstrate our continued momentum.  I want to say a big thank you to all my Tesco colleagues for their hard work serving customers so well.  As we approach the Christmas season, we are looking forward to sharing the quality of our festive food with customers, and can’t wait for them to taste it.

We are in good shape, with volume growth delivering strong financial performance.  This builds on our track record of delivery for all our stakeholders.  Our strong momentum allows us to continue to focus on value, quality, innovation, and the broader customer experience, whilst investing in growth opportunities in a disciplined, returns-focused way.”

Volume-driven growth delivering strong financial performance and cash returns:

•	Improved customer satisfaction driving strong market share gains in UK +62bps, with ROI +88bps
•	Volume-driven sales growth, with Retail LFL7 sales up 2.9%; growth across UK +4.0%, ROI +4.7% and CE +0.6%
•	Booker LFL sales down (1.9)%, reflecting a decline in the tobacco market and Best Food Logistics volumes
•	Retail adjusted operating profit4 up 10.0% at constant rates to £1,555m with progress in both UK & ROI and Central Europe; statutory operating profit1 £1,612m, up 13.0%
•	Tesco Bank adjusted operating profit from continuing operations of £94m includes £42m of non-recurring benefits, mainly due to upfront income recognition from a new five-year pet insurance agreement
•	Adjusted diluted EPS1,4 up 23.7% to 14.45p, driven by higher adjusted operating profit, lower net finance costs and the benefit of our ongoing share buyback programme; statutory diluted EPS on a continuing operations basis up 19.3% to 14.62p
•	Continued strong retail free cash flow5 of £1,261m in the first half compared to £1,368m in the first half of last year, reflecting a lower benefit from working capital and higher tax paid; net debt5,6 down 2.1% to £(9,676)m

^{*  Comparatives have been re-presented to disclose banking operations as a discontinued operation. Total Tesco Bank adjusted operating profit including discontinued operations was £188m1.  Tesco Bank results included in the table above and within the segmental review of performance refer only to the retained Tesco Bank business, i.e. insurance and money services, unless otherwise stated.  Further footnotes can be found on page 4.}

Improving customer satisfaction through relentless focus on quality, service and price:

•	Continued net switching gains for 19 consecutive four-week periods in the UK and 22 in ROI
•	Powerful value combination of Aldi Price Match on >700 lines, Low Everyday Prices on >1,000 lines and >8,000 Clubcard Prices deals each week, meaning we have now been the cheapest full-line grocer since November 2022
•	Additional hours invested in stores, the equivalent of more than 2,000 extra colleague roles year-on-year, helping us deliver market-leading availability
•	Investing in product quality, innovation and sustainability, launching 282 new products and improving 580
•	#1 position in the Advantage supplier survey for ninth year in a row
•	Winner at the Grocer Gold Awards 2024 with accolades including Finest being named ‘Own Label Range of the Year’ and Tesco winning ‘Grocer 33 Price Award’ and, for the 10th year running, ‘Britain’s Favourite Supermarket’

Further progress in high-returning future growth and digital capability:

•	Clubcard sales penetration up in all markets year-on-year: UK 82%, ROI 85%, Central Europe 87%; further personalisation, with 4.9m customers receiving ‘Clubcard Challenges’ tailored to their shopping habits
•	Expanding retail media channel via the Tesco Media and Insight Platform; growth in active advertisers, campaigns per advertiser and spend per campaign
•	On track to open new chilled distribution centre in Aylesford in Summer 2025, leveraging robotic automation to streamline operations, improve efficiency and support our commitment to deliver a seamless shopping experience for customers
•	Investing in capital-light Booker catering capacity: new catering hubs in Eccles, Charlton and Enfield allow us to better service growing demand for delivery
•	ROI ‘fresh first’ refresh programme and product innovation driving market outperformance and share gains

Investing further for colleagues, communities, and the planet:

•	Largest ever increase in store colleague pay and improved parental and wellbeing offerings, culminating in standout colleague satisfaction results and winning ‘Employer of the Year (Retailer)’ at the Grocer Gold Awards 2024
•	Continuation of Stronger Starts, our grant programme to help children have a stronger start in life through healthy food and physical activities, awarding funding of more than £9m to date to over 8,000 projects
•	Further support for communities, donating c.2.5m meals per month; in the half reaching 220m meals donated since the start of our partnership with FareShare; food donation bags rolled out across all large stores
•	Progress towards ambitious climate change targets; announcing a further renewable energy Power Purchase Agreement (PPA) in Scotland, contributing to our target to source 60% of electricity demand via PPA or onsite generation by 2030

CAPITAL RETURN PROGRAMME.

•	Share buyback programme remains a critical driver of shareholder returns, reflecting strength of our balance sheet and confidence in delivering strong future cash flows
•	In April, announced commitment to buy back £1bn worth of shares over the following twelve months, including £250m funded by the special dividend paid by Tesco Bank in August 2023
•	£575m worth of shares purchased in first half; on track to complete the £1bn buyback by April 2025
•	£2.4bn worth of shares purchased since launch of capital return programme in October 2021
•	Sale of banking operations due to complete before end of calendar year; intention remains to return majority of proceeds via incremental share buyback following completion

OUTLOOK.

The significant investments we are making in value, quality and service across the Group have delivered volume growth ahead of our expectations in the first half.  Due to this strong performance, we now expect to deliver around £2.9bn retail adjusted operating profit for the 2024/25 financial year (previously ‘at least £2.8bn’).  We continue to expect to generate retail free cash flow within our medium-term guidance range of £1.4bn to £1.8bn.

We now expect an adjusted operating profit contribution from the retained Tesco Bank business of around £120m for the 2024/25 financial year, including the £42m non-recurring benefit described above.  On an ongoing basis, we continue to expect an adjusted operating profit contribution of between £80m to £100m per year, including strategic partnership income from Barclays.

STRATEGIC PRIORITIES.

Our strategic priorities ensure that we focus on offering great value, quality and convenience whilst rewarding loyalty. Through our colleagues, our reach and our supplier relationships, we are well-placed to serve our customers wherever, whenever and however they need us. Our strategy guides us to deliver 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

•	Value front and centre, with prices cut on over 2,850 products by an average of around 9% in the UK over the half and Clubcard Prices saving customers up to £385 off their annual grocery bill
•	Overall brand perception in UK increased by +596bps year-on-year, stepping forward across all drivers, including impression (+1,058bps), value (+650bps) and satisfaction (+446bps)
•	Enhancing quality credentials through taste-led innovation across the range, irrespective of budget; includes exciting dinner for tonight launches, such as Root & Soul’s modern vegetarian dishes, and Pinch, a new range of Indian ready meals
•	Finest volumes up +14.9% YoY with over 20m customers shopping Finest in the half, recognising our investments in quality; new Finest products include a new Finest Sourdough range, and we relaunched our Finest Dine In proposition
•	Winning combination from Booker of improved availability, further progress in customer satisfaction scores and great value, with Everyday Low Prices on over 700 catering products held until January 2025
•	In Central Europe, customers continue to respond well to our targeted value investments, with prices cut on at least 1,500 products in each market

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

•	Unrivalled Clubcard reach with now over 23m Clubcard households in the UK; group-wide Tesco app users at 16.3m with visits to the app up year-on-year
•	Largest and most generous supermarket Reward Partner scheme, including ‘Clubcard Moments’ offers, such as ‘3 months of Disney+ on us’ during the summer, with 11.5m free codes made available to customers via the Tesco app
•	Dedicated Tesco Media and Insight Platform team mobilised; partnerships agreed with WPP and Publicis to leverage our combined expertise and reach across a broader pool of advertisers
•	Surpassed 4,000 digital in-store screens; over 7,600 campaigns delivered in the first half, with 91 brands participating in our ‘Summer of Sport’ event

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

•	Opened 44 stores across the Group; 26 in the UK, 7 in ROI and 11 in Central Europe, and refreshed a further 182
•	AI-powered range curation tool through partnership with dunnhumby, enabling improved tailoring of store offer to local shopping habits
•	UK online customer satisfaction up +11pts YoY and new record number of Delivery Saver subscribers at 727k, up +12% YoY
•	Tesco Whoosh delivering strong order and basket size growth, with active customers up +19.8% in the half
•	Launched Tesco Marketplace; now offering over 150,000 products across categories including garden, home and pet care
•	Integrated a further 397 net new Booker retail partners, taking the total outlets to 7,787 across Premier, Londis, Budgens and Family Shopper

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

•	On track to deliver £500m efficiency savings target for the 2024/25 financial year, with a c.£260m contribution in the half
•	Continued progress across all areas, including goods & services not for resale, operations, property and central overheads
•	End-to-end review of stock flow from suppliers to store, optimising waste performance and improving availability
•	Simplifying in-store routines, such as optimising the checkout model whilst minimising queueing times for customers, and refining replenishment routines
•	Taking further action to reduce stock loss, including anti-push out technology and additional security gates

GROUP REVIEW OF PERFORMANCE.

On a continuing operations basis¹

The results of our 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 section, refer only to the retained Tesco Bank business, i.e. insurance and money services, unless otherwise stated.

26 weeks ended 24 August 20242,6		H1 24/25		H1 23/24		Change atactual rates		Change at constant rates
Sales (exc. VAT, exc. fuel)3		£31,463m		£30,401m		3.5%		4.0%
Fuel		£3,310m		£3,400m		(2.7)%		(2.5)%
Revenue (exc. VAT, inc. fuel)		£34,773m		£33,801m		2.9%		3.3%
Adjusted operating profit4		£1,649m		£1,426m		15.6%		15.8%
Adjusting items		£(37)m		–
Statutory operating profit		£1,612m		£1,426m		13.0%
Net finance costs		£(218)m		£(269)m
Joint ventures and associates		£(2)m		£4m
Statutory profit before tax		£1,392m		£1,161m		19.9%
Taxation		£(370)m		£(274)m
Statutory profit after tax		£1,022m		£887m		15.2%
Adjusted diluted EPS4		14.45p		11.68p		23.7%
Statutory diluted EPS		14.62p		12.25p		19.3%
Interim dividend per share6		4.25p		3.85p		10.4%
Net debt5,6		£(9,676)m		£(9,888)m		2.1%
Retail free cash flow5		£1,261m		£1,368m		(7.8)%
Capex8		£530m		£523m		1.3%

Sales³ increased by 4.0% at constant rates, including a strong contribution from volume growth, driven by our ongoing investments in value, quality and service.  Sales inflation returned to more normalised levels as cost inflation headwinds eased.  We continued to work with our supplier partners to lower prices for customers as quickly as possible.  Revenue increased by 3.3% at constant rates, including a (2.5)% decline in fuel sales.

Adjusted operating profit⁴ increased by 15.8% at constant rates, primarily driven by our retail operations, where strong volume growth and a c.£260m contribution from Save to Invest more than offset further investments in the customer offer and colleague pay.  Adjusted operating profit from the retained Tesco Bank business was £94m, up from £9m in the prior year.  The current year includes £42m of non-recurring items, including the accounting for upfront commission income on the signing of a new five-year pet insurance contract.  The prior year included a £(24)m impact from a movement in insurance reserves.  The year-on-year growth excluding these items was driven by strong underlying performance in the insurance business.  

Statutory operating profit improved by 13.0% year-on-year, as the strong adjusted operating profit performance described above was partially offset by lower gains on property transactions in the half. 

Net finance costs were £51m lower year-on-year, due to higher interest earned on cash, short-term deposits and money market funds, and favourable non-cash mark-to-market movements on certain derivative financial instruments.  The higher tax charge this year was mainly driven by higher profit and a higher statutory tax rate versus last year.

Adjusted diluted EPS⁴ grew by 23.7%.  This was driven mainly by higher retail adjusted operating profit and the year-on-year increase in Tesco Bank adjusted operating profit described above.  Our EPS growth also continues to benefit from a reduction in share count as a result of our ongoing share buyback programme.  We have announced an interim dividend of 4.25 pence per ordinary share, in line with our policy to pay 35% of the prior full-year dividend.

We generated £1,261m of retail free cash flow⁵, including a net £169m working capital inflow.  Net debt^5,6 reduced by £88m since February 2024.  Strong retail free cash flow generation offset cash returned to shareholders via dividends and our ongoing share buyback programme.  Lease liabilities decreased by £79m since February 2024, primarily driven by the overall reducing nature of our lease liability.  The net debt/EBITDA ratio was 2.1 times at the end of the first half. 

Further commentary on these metrics can be found below and a full income statement can be found on page 16.

Notes:

1.         The performance of our banking operations has been presented as a discontinued operation with comparatives also restated. The retained business (insurance and money services) 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 29.

2.         The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 43.   

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

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

5.         Net debt and retail free cash flow exclude Tesco Bank. 

6.         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 18, starting on page 41.

7.         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).

8.         Capex excludes additions arising from business combinations, property buybacks (typically stores) and other store purchases.  Refer to page 45 for further details.

9.         Not meaningful (n/m)

Segmental review of performance:

Sales performance:

(exc. VAT, exc. Fuel)^3,6

On a continuing operations basis1	Sales(£m)	LFL sales change7	Total sales change at actual rates	Total sales change at constant rates
–  UK	22,845	4.0%	4.7%	4.7%
–  ROI	1,449	4.7%	3.6%	5.6%
–  Booker	4,623	(1.9)%	(1.7)%	(1.7)%
UK & ROI	28,917	3.1%	3.6%	3.7%
Central Europe	2,027	0.6%	(4.2)%	0.9%
Retail	30,944	2.9%	3.0%	3.5%
Tesco Bank	519		46.6%	46.6%
Group sales	31,463		3.5%	4.0%
Fuel	3,310	(2.8)%	(2.7)%	(2.5)%
Group revenue	34,773		2.9%	3.3%

Further information on sales performance is included in the appendices starting on page 50.

Adjusted operating profit^4,6 performance:

	Profit (£m)
On a continuing operations basis1		Change at actual rates	Change at constant rates	Margin % at actual rates	Margin % change at actual rates
UK & ROI	1,506	9.8%	10.0%	4.7%	29 bps
Central Europe	49	6.5%	8.7%	2.3%	26 bps
Retail	1,555	9.7%	10.0%	4.5%	30 bps
Tesco Bank	94	n/m	n/m	18.1%	n/m
Group	1,649	15.6%	15.8%	4.7%	52 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 3.1%.  Volume growth was particularly strong in the UK and ROI, and we delivered market share and switching gains in every period in the first half.  Sales inflation stabilised at more normalised levels as inflationary pressures from global commodities continued to ease.  We invested further in lowering prices across everyday grocery lines and in an even stronger promotional offering over key seasonal events.  The Booker like-for-like sales decline results from further growth in core retail and catering being offset by the continued tobacco market decline and weakness in some areas of the fast-food market serviced by Best Food Logistics.

UK & ROI adjusted operating profit was £1,506m, up 10.0% at constant rates, driven by strong retail volume growth and the ongoing delivery of our Save to Invest programme, which helped to offset continued operating cost inflation, particularly related to colleague pay awards. 

UK – Growing volumes and market share through relentless focus on quality, service and value:

Like-for-like sales grew by 4.0%, driven by a strong performance across stores and online.  Volume growth was ahead of our expectations, and we grew consistently ahead of the market.

Overall market share grew by +62bps year-on-year to 27.8%, our highest market share level since January 2022, with a particularly strong performance in our large stores.  We have now delivered 15 consecutive four-week periods of market share gains and 19 consecutive four-week periods of switching gains.  Overall brand perception increased by +596bps year-on-year, stepping forward across all drivers, including impression (+1,058bps), value (+650bps) and satisfaction (+446bps).

Food sales grew by 4.9%, including a particularly strong volume performance in fresh food, driven by our ongoing investments in product quality and innovation.  We launched 282 new products, including our Root & Soul range of modern vegetarian dishes, and improved a further 580, including our Taste Shack and Finest Dine In ranges.  Finest sales continued to grow particularly strongly, with volumes up 14.9% year-on-year and over 20 million customers shopping Finest in the half.

We have now been the cheapest of the full-line grocers since November 2022 and we further strengthened our position in the half.  Over 2,850 products were cheaper at the end of the half than at the start, with an average reduction of around 9%. 

Home and Clothing sales grew by 0.3%, which includes a (1.3)ppts drag from the transition to our new partnership with The Entertainer.  The partnership, which offers customers an even stronger range of toys in our stores, means we no longer recognise toy sales, and instead earn commission income.  The transition will complete in the second half of the year as planned in around 750 UK stores.  Excluding this impact, Home and Clothing sales grew by 1.6%, primarily driven by a strong clothing performance, where we continue to grow ahead of the broader store-based clothing market.   

Sales grew across both large and convenience store formats, by 4.2% and 0.5% respectively.  In our large stores, we invested in an even stronger promotional offer over key seasonal events, including our ‘Summer of Sport’ campaign.  We had more colleagues on the shop floor year-on-year, delivering market-leading availability, and resulting in a three-year-high net promoter score.  Convenience sales, which include a higher proportion of food-on-the-go, were impacted by poor weather in the half and the ongoing decline in the tobacco market.  

Online sales grew by 9.3%, driven primarily by volume growth, including a c.2ppts contribution from Tesco Whoosh.  Overall average orders per week were up 9.3% year-on-year to 1.3 million and we continued to improve the proportion of ‘perfect orders’, leading to a further step-up in customer satisfaction scores.  Online sales participation increased slightly to 13.5% of total UK sales.  Tesco Whoosh, our rapid delivery service, is now available in 1,460 stores, with average basket size and average orders per store continuing to grow, and already high customer satisfaction scores seeing further improvement.

Online performance		H1 24/25	YoY change
Sales inc. VAT		£3.3bn	9.3%
Orders per week		1.29m	9.3%
Basket size*		£108	4.4%
Online % of UK total sales		13.5%	0.6ppts

*  Excludes Tesco Whoosh

In June, we introduced Tesco Marketplace, offering customers an even broader range of products from our specially selected partners.  We are now offering over 150,000 products across categories including garden, homeware, pet care and toys, with a strong pipeline of further sellers being added over the coming months. 

ROI – Ongoing volume growth driving strong market share gains:

Like-for-like sales grew by 4.7% in the half, driven by our ongoing investments in product quality and innovation, and our extensive refresh programme, which we rolled out to a further eleven stores.  Total sales grew by 5.6% at constant rates, including a 0.9ppts contribution from new stores, driven by the opening of four new large stores and three new Tesco Express stores in the half.

Food sales grew by 5.4%, which includes a strong contribution from fresh food volume growth as we continue to invest in product quality and innovation across the range.  These investments culminated in us winning eight gold medals at the 2024 ‘Monde Selection Awards’.

Non-food sales declined by (0.8)%, which includes a (1.4)ppts impact from the transition to our new partnership with The Entertainer, as in the UK.  Excluding toys, non-food sales grew by 0.6%.

We have now gained market share in ROI for 31 consecutive four-week periods, taking our share to 23.5% at the end of the first half, up +88bps year-on-year.  Clubcard sales penetration stepped up by a further 5ppts year-on-year to 85.3%.

BOOKER – Growth across core catering and retail following strong performance last year:

	Sales£m	LFL
Core retail	1,657	0.6%
Core catering*	1,350	1.7%
Tobacco	888	(7.3)%
Best Food Logistics	728	(6.6)%
Total Booker	4,623	(1.9)%

*  Includes sales to small businesses and sales from Venus Wine and Spirit Merchants PLC, which was acquired in June 2024 and so is excluded from LFL growth.

Overall like-for-like sales declined by (1.9)%, reflecting the continuing decline in the tobacco market and weakness in parts of the fast-food market serviced by Best Food Logistics, whilst the core retail and catering businesses continue to deliver growth against a challenging market backdrop.   

Core retail sales increased by 0.6% year-on-year, driven by a further 397 net new retail partners for our symbol brands (Premier, Londis, Budgens and Family Shopper).  The independent convenience sector is seeing some trading softness, with some customers switching to larger store formats.  Booker’s symbol brands in contrast performed strongly, with sales up 3.1%, supported by a further improvement in availability.  Our Premier brand was awarded the ‘Symbol/Franchise Retailer of the Year’ at the Grocer Gold Awards 2024.  

Core catering sales increased by 1.7%, primarily driven by stronger volumes, as customers responded well to an extension of our Everyday Low Prices campaign, with prices locked on over 700 products until January 2025.  Customer satisfaction levels remained high at c.86%, and availability improved even further to c.98% in the half.

In June, we acquired Venus Wine and Spirit Merchants PLC, a specialist wine and spirits merchant, offering our on-trade catering customers an even larger selection of spirits, wines, lagers, ciders and ales.  The integration is progressing well, and we are continuing to expand the customer base. 

CENTRAL EUROPE – Ongoing improvement in trading trajectory as market challenges start to ease:

Like-for-like sales grew by 0.6%, primarily driven by volume growth, reflecting a gradual recovery in customer sentiment in the region as customers’ disposable incomes started to recover following a period of significant inflationary pressures.  Food sales grew by 0.9% year-on-year, including a particularly strong performance in fresh food.  Customers responded well to our targeted value investments, including price cuts on at least 1,500 products in each market. 

Non-food sales declined by (1.7)%, which includes an impact from market-wide availability challenges in clothing, and wetter weather in the second quarter, which was partly offset by an increase in the proportion of full price sales year-on-year.

Central Europe adjusted operating profit was £49m, an increase of 8.7% year-on-year at constant rates, primarily driven by volume growth and further progress in our Save to Invest programme.  We continue to expect an ongoing recovery in adjusted operating profit in the region. 

TESCO BANK:

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

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

	H1 24/25	H1 23/24	YoY change
Revenue	£926m	£702m	31.9%
Continuing operations*	£519m	£354m	46.6%
Discontinued operations	£407m	£348m	17.0%
Adjusted operating profit	£188m	£65m	189.2%
Continuing operations*	£94m	£9m	n/m
Discontinued operations	£94m	£56m	67.9%

*  Includes revenue of £33m (H1 23/24: £33m) and net investment income in adjusted operating profit of £9m (H1 23/24: £3m) associated with banking operations which will cease following completion of the proposed sale to Barclays.

Continuing operations revenue grew by 46.6%, primarily driven by strong growth in the insurance business due to high levels of renewals and new business volumes, and the accounting impact of signing a new five-year pet insurance agreement. 

Adjusted operating profit on a continuing operations basis was £94m, compared to £9m in the prior year.  The first half performance included a £42m non-recurring benefit, including the £33m accounting impact of upfront commission income on the signing of a new pet insurance agreement and £9m income on banking deposits with the Bank of England, which will cease following completion of the proposed sale to Barclays.  In addition, the prior year included a £(24)m impact from a movement in insurance reserves.  The remaining adjusted operating profit growth mostly reflects a strong performance in motor and home insurance.  Adjusted operating profit from discontinued operations was £94m, compared to £56m in the prior year, primarily driven by favourable movements in expected credit losses due to recent improvements in the economic outlook.

We expect the transaction to complete by the end of this calendar year.  On an ongoing basis, we expect an adjusted operating profit contribution of between £80m to £100m per year.  For the 24/25 financial year, we now expect a contribution from the retained Tesco Bank business of around £120m, which includes the £42m of non-recurring benefit described above. 

Adjusting items:

	H1 24/25 £m	H1 23/24 £m
Property transactions	7	24
Amortisation of acquired intangible assets	(38)	(37)
Other*	(6)	13
Total adjusting items in statutory operating profit (continuing operations)	(37)	–
Net finance income	51	18
Tax	(2)	23
Total adjusting items (continuing operations)	12	41
Adjusting items (discontinued operations)	(41)	–
Total adjusting items	(29)	41

*  Other includes the gain on disposal of Booker’s Ritter-Courivaud Limited subsidiary in the prior year.

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 £(37)m, compared to net nil in the prior year.  

Property transactions of £7m relates primarily to the sale of surplus properties.  In the prior year, property transactions represented net income of £24m.  We continue to present £(38)m of amortisation of acquired intangible assets, principally relating to the merger with Booker, as an adjusting item.

Adjusting items in net finance income and tax are set out below.  Adjusting items in discontinued operations of £(41)m primarily relates to fair value remeasurement of assets of the disposal group, associated with the sale of our banking operations to Barclays.

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 29.

Net finance costs:

On a continuing operations basis	H1 24/25£m	H1 23/24£m
Net interest costs	(77)	(100)
Net finance expenses from insurance contracts	(6)	(4)
Finance charges payable on lease liabilities	(186)	(183)
Net finance costs before adjusting items	(269)	(287)
Fair value remeasurements of financial instruments	66	28
Net pension finance income / (costs)	(15)	(10)
Adjusting items in net finance costs	51	18
Net finance costs	(218)	(269)

Net finance costs before adjusting items were £(269)m, £18m lower year-on-year due to higher interest earned on cash, short-term deposits and money market funds. Within adjusting items, fair value remeasurements of financial instruments led to a credit of £66m compared to a £28m credit in the prior year, largely driven by non-cash mark-to-market movements on certain derivative financial instruments that are not hedge accounted.

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	H1 24/25£m	H1 23/24£m
Tax on adjusted profit	(368)	(297)
Tax on adjusting items	(2)	23
Tax on profit	(370)	(274)

Tax on adjusted Group profit was £(368)m, £(71)m higher than last year, primarily due to higher profit and the full year impact of the increase in the UK corporation tax rate from 19% to 25%, effective from 1 April 2023.

The prior year £23m adjusting credit relates to the release of a tax provision, following a settlement relating to our exit from the Gain Land Associate in China in February 2020.

The effective tax rate on adjusted Group profit was 26.7%, higher than the current UK statutory rate of 25%, primarily due to the depreciation of assets which do not qualify for tax relief.  We continue to expect our effective tax rate to be around 27% in the current year.

Earnings per share:

On a continuing operations basis	H1 24/25	H1 23/24	YoY change
Adjusted diluted EPS	14.45p	11.68p	23.7%
Statutory diluted EPS	14.62p	12.25p	19.3%
Statutory basic EPS	14.76p	12.34p	19.6%
On a total basis, including discontinued operations
Statutory diluted EPS	15.03p	12.83p	17.1%
Statutory basic EPS	15.18p	12.93p	17.4%

Adjusted diluted EPS was 14.45p, 23.7% higher year-on-year, mainly due to an increase in adjusted operating profit, the benefit of our ongoing share buyback programme and a reduction in net finance costs.

Statutory diluted EPS was 14.62p, 19.3% higher year-on-year, as the adjusted operating profit performance was partially offset by lower profits generated on property transactions and higher favourable non-cash mark-to-market movements on financial instruments.

On a total basis, including discontinued operations, statutory diluted EPS was 15.03p, 17.1% higher year-on-year.

Dividend:

The interim dividend has been set at 4.25 pence per ordinary share, in line with our policy of setting the interim dividend at 35% of the prior full-year dividend.

The interim dividend will be paid on 22 November 2024 to shareholders who are on the register of members at close of business on 11 October 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 1 November 2024.

Summary of total indebtedness (excludes Tesco Bank):

	Aug-24£m	Feb-24£m	Movement£m
Net debt before lease liabilities	(2,135)	(2,144)	9
Lease liabilities	(7,541)	(7,620)	79
Net debt	(9,676)	(9,764)	88
Pension deficit, IAS 19 basis (post-tax)	(320)	(493)	173
Total indebtedness	(9,996)	(10,257)	261
Net debt / EBITDA	2.1x	2.2x
Total indebtedness ratio	2.2x	2.4x

Net debt was £(9,676)m, a reduction of £88m versus year end, predominantly driven by strong retail free cash flow generation of £1,261m which exceeded the cash outflows relating to our ongoing share buyback programme of £(575)m and last year’s final dividend of £(575)m.  Lease liabilities of £(7,541)m were £79m lower compared to year end, driven by the overall reducing nature of our lease liability, partially offset by the impact of rent reviews and new stores.

Total indebtedness was £(9,996)m, a decrease of £261m versus year end.  In addition to the net debt impacts described above, the IAS 19 pension deficit (post-tax) decreased by £173m to £(320)m, reflecting movements in market conditions which impact discount rate assumptions and can have a volatile effect on the IAS 19 position.  The trustees of each pension scheme, including the main Tesco Pension Scheme, are required to calculate the net funding surplus/deficit on the basis of Technical Provisions in accordance with regulations and guidance issued by the relevant regulator.  On this basis, the main UK scheme continues to be in surplus.  

We had strong levels of liquidity at the end of the first half, including £3.1 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 and is in place until at least October 2026, with one remaining one-year extension option available.

Our Net debt to EBITDA ratio was 2.1 times at the end of the first half, below our target range of 2.8 to 2.3 times.  The total indebtedness ratio was 2.2 times compared to 2.4 times at year-end.

Fixed charge cover was 3.9 times at the end of the first half, which is an improvement since year end, primarily due to 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	H1 24/25£m	H1 23/24£m
Adjusted operating profit	1,649	1,426
Less: Tesco Bank adjusted operating (profit) / loss	(94)	(9)
Retail adjusted operating profit	1,555	1,417
Add back: Depreciation and amortisation	819	790
Other reconciling items	22	18
Pensions	(14)	(13)
Decrease in working capital	169	368
Retail cash generated from operations before adjusting items	2,551	2,580
Cash capex	(594)	(595)
Net interest	(244)	(273)
– Interest related to Net debt before lease liabilities	(58)	(91)
– Interest related to lease liabilities	(186)	(182)
Tax paid	(176)	(38)
Dividends received	2	6
Repayment of capital element of obligations under leases	(295)	(306)
Own shares purchased for share schemes	17	(6)
Retail free cash flow	1,261	1,368
Memo (not included in retail free cash flow definition):
– Special dividend received from Tesco Bank	–	250
– Net acquisitions and disposals	(50)	7
– Property buybacks, store purchases and disposal proceeds	(14)	(3)
– Cash impact of adjusting items	(52)	(87)

We delivered strong retail free cash flow of £1,261m, driven by the retail adjusted operating profit performance and including a further benefit from working capital.  This is £(107)m lower than last year, primarily reflecting lower working capital benefits and higher tax paid.

Our total working capital inflow was £169m, reflecting the strong volume performance in the half, leading to higher trade balances.  The higher working capital benefit last year primarily reflects a higher level of cost inflation, which has normalised in the current year.

Net interest paid was £29m lower year-on-year, due to higher interest earned on cash balances, short-term deposits and money market funds. 

Tax paid was £(138)m higher year-on-year, mainly due to no longer benefiting from tax relief related to the £2.5bn one-off pension contribution made in 2021, which was fully utilised in the prior year, and the impact of higher retail adjusted operating profit year-on-year.   

Within the memo lines shown, the net £(50)m outflow relating to acquisitions and disposals primarily relates to Booker’s acquisition of Venus Wine and Spirit Merchants PLC.  The cash impact of adjusting items of £(52)m relates to operational restructuring changes as part of our Save to Invest programme, which were provided for at the end of the prior financial year.

Capital expenditure and space:

	UK & ROI		Central Europe		Tesco Bank		Group
	H1 24/25	H1 23/24	H1 24/25	H1 23/24	H1 24/25	H1* 23/24	H1 24/25	H1 23/24
Capex	£494m	£465m	£33m	£43m	£3m	£15m	£530m	£523m
Openings (k sq ft)	116	81	44	49	–	–	160	130
Closures (k sq ft)	(35)	(117)	–	(14)	–	–	(35)	(131)
Repurposed (k sq ft)	–	–	(107)	(149)	–	–	(107)	(149)
Net space change (k sq ft)	81	(36)	(63)	(114)	–	–	18	(150)

The data above excludes space relating to franchise stores.  A full breakdown of space by segment is included in the appendices starting on page 50.

 *  Includes £13m relating to the banking operations disposal group, classified as held for sale in February 2024.

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

Our capital expenditure in the first half was £530m, which was broadly in line with last year.  We continue to prioritise investments in high returning areas, including automation in parts of our distribution network and developing our digital platforms, in addition to continued investment in our store estate.

In the first half, we opened a total of 44 stores across the Group and refreshed a further 182 stores.  In the UK, we opened one superstore, 19 Tesco Express stores and six One Stop stores and in ROI we opened four new large stores and three Tesco Express stores.  In Central Europe, we opened eleven new convenience stores.

We continue to expect full year capital expenditure of around £1.4bn.

Statutory capital expenditure for the first half was £0.6bn.

Further details of current space can be found in the appendices starting on page 50.

Contacts.

Investor Relations:	Chris Griffith	01707 940 900
	Andrew Gwynn	01707 942 409
Media:	Christine Heffernan	0330 6780 639
	Teneo	0207 4203 143

This document is available at www.tescoplc.com/interims2024.   

A webcast including a Q&A will be held today at 9.00am for investors and analysts and will be available on our website at www.tescoplc.com/interims2024.  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 & Christmas Trading statement on 9 January 2025.

Sources.

Sources.

• UK market share based on Kantar Total Grocers Total Till Roll on 12-week rolling basis to 1 September 2024.
• UK Kantar net switching gains 12-week rolling basis to 1 September 2024.
• ROI market share based on Kantar Total Till Roll on 12-week rolling basis to 1 September 2024.
• ROI Kantar net switching gains 12-week rolling basis to 1 September 2024.
• ‘Full-line grocers’ refers to Tesco, Sainsbury’s, Asda and Morrisons.
• 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.
• Clubcard Prices saving of up to £385 is based on the top 25% of Tesco Clubcard members and large stores sales between 1 September 2023 and 30 August 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 August 2024.
• Availability based on Multi channel tracker. 3 period rolling data. Responses to: “I Can Get What I Want”.
• Number of new Booker retail partners is net of openings and closures.
• Brand NPS is based on BASIS Global Brand Tracker. 3 period rolling data. Responses to the question: “How likely is it that you would recommend the following company to a friend or colleague as a place to shop?”
• Colleague satisfaction based on Every Voice Matters colleague engagement survey result for July 2024. Refers to responses of agreement to ‘I would recommend Tesco as a great place to work’.