Hertfordshire / UK. (tesco) British Tesco PLC on October 05 announced interim financial results for the first half 2016/2017 – the 26 weeks ended 27 August 2016. Chief Executive Dave Lewis: «We have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the Group as we re-invest in our customer offer whilst rebuilding profitability in a sustainable way».
«The entire Tesco team is focused on serving shoppers a little better every day. We are more competitive across our offer. Prices are more than 6 percent lower than two years ago, availability and service have never been better and our range is more compelling. Our new fresh food brands are performing ahead of expectations, improving our value proposition and further removing reasons for customers to shop elsewhere».
«Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future. Today, we are sharing the plans we have in place to become even more competitive for our customers, even simpler for colleagues and an even better partner for our suppliers, whilst creating long-term, sustainable value for our shareholders». The company reports a strong first half progress and a clear plan to create long-tem value, Tesco announces in its news release.
Group sales (1’2) | Operating profit pre exceptionals (2’3) | Operating profit (2) | Retail operating cash flow (2’4) | Net debt (4’5) |
24.4 billion GBP up 3.3% | 596 million GBP up 60.2% | 515 million GBP up 38.4% | 955 million GBP up 20.7% | (4.4) billion GBP down 49.3% y-o-y down 14.8% versus year-end |
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Headlines
Positive like-for-like sales and volume growth in all regions across the Group
- UK like-for-like sales growth of 0.6 percent and Group like-for-like sales growth of 1.0 percent (6)
- UK volumes up 2.1 percent; UK transactions up 1.6 percent
- International volumes up 3.3 percent; International transactions up 0.3 percent
Significant progress against all three priorities
- Competitive in the UK – all key customer metrics improving relative to the market
- More secure balance sheet – net debt reduced by further 0.8 billion GBP since year-end
- Rebuilding trust – brand health returned to highest level in more than four years (7)
Customer, colleague and supplier partner measures all improving
- Most improved retailer in terms of customer recommendations (8)
- 78 percent of colleagues recommend us as a ‘great place to work’ (up from 70 percent in 1H 2014/2015)
- Very strong improvement in UK supplier satisfaction measure at 78 percent (up from 51 percent in 2014/2015)
Well-placed against our plans – on track to deliver 1.2 billion GBP Group operating profit before exceptional items for the full year
- Rebuilding profitability whilst investing in our customer offer
- Group operating profit before exceptional items up 60 percent in the first half
- Exclusive fresh food brands performing ahead of plan; investment part-offset by mix benefit
Sharing our ambition to deliver 3.5-4.0 percent Group operating margin by 2019/20
- Underpinned by six strategic drivers, we will strengthen our customer offer whilst creating long-term, sustainable value for shareholders
- Includes 1.5 billion GBP further operating cost reductions, to be realised through a more efficient and responsive distribution system, a simpler store operating model + goods not for resale savings
- Total capex will average 1.4 billion GBP per year to support this programme
Statutory results: statutory revenue 27.3 billion GBP, up 1.4 percent; statutory profit before tax 71 million GBP, down (28.3) percent
Dave Lewis, Chief Executive
«We have made further strong progress in the first half, with positive like-for-like sales growth across all parts of the Group as we re-invest in our customer offer whilst rebuilding profitability in a sustainable way».
«The entire Tesco team is focused on serving shoppers a little better every day. We are more competitive across our offer. Prices are more than 6 percent lower than two years ago, availability and service have never been better and our range is more compelling. Our new fresh food brands are performing ahead of expectations, improving our value proposition and further removing reasons for customers to shop elsewhere».
«Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilising the business and positioning us well for the future. Today, we are sharing the plans we have in place to become even more competitive for our customers, even simpler for colleagues and an even better partner for our suppliers, whilst creating long-term, sustainable value for our shareholders».
Like-for-like sales performance (6)
1H 2015/2016 | 2H 2015/2016 | FY 2015/2016 | 1Q 2016/2017 | 2Q 2016/2017 | 1H 2016/2017 | ||
UK + ROI | (1.3)% | (0.1)% | (0.7)% | 0.3% | 0.9% | 0.6% | |
UK | (1.1)% | (0.1)% | (0.6)% | 0.3% | 0.9% | 0.6% | |
ROI | (3.7)% | 0.0% | (1.9)% | 0.3% | 0.1% | 0.2% | |
International | 0.6% | 3.2% | 2.0% | 3.0% | 2.1% | 2.6% | |
Europe | 2.6% | 3.6% | 3.1% | 2.8% | 1.3% | 2.0% | |
Asia | (1.7)% | 2.9% | 0.6% | 3.3% | 3.0% | 3.2% | |
Group | (0.9)% | 0.6% | (0.1)% | 0.9% | 1.1% | 1.0% |
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Headline Group results
26 weeks ended 27 August 2016 On a continuing operations basis |
1H 2016/2017 | 1H 2015/2016 | YOY change (Constant exchange rates) | YOY change (Actual exchange rates) | |||
Notes 1. Group sales exclude VAT and fuel. Sales growth shown on a comparable 26 week basis. 2. For continuing operations. 3. Exceptional items are excluded by virtue of their size and nature in order to better reflect management’s view of the performance of the Group. 4. In order to provide further analysis of the Group cash flow statement, net debt and retail operating cash flow, which exclude the impact of Tesco Bank, are separately disclosed. 5. Includes both continuing and discontinued operations. 6. Like-for-like is the growth in sales from stores that have been open for at least a year at a constant foreign exchange rate and includes online sales. 7. As per YouGov BrandIndex, August 2016. 8. As per the periodic Customer Spotlight Tracker. 9. The elimination of intercompany transactions between continuing operations and the discontinued Türkiye operation, as required by IFRS 5 and IFRS 10, has resulted in a reduction to the prior period UK + ROI operating profit of (2) million GBP. |
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Group sales (exc. VAT, exc. fuel) (1) | 24’402 mio. GBP | 23’684 mio. GBP | 1.3% | 3.3% | |||
Fuel | 2’936 mio. GBP | 3’282 mio. GBP | (10.9)% | (10.5)% | |||
Statutory revenue (exc. VAT, inc. fuel) | 27’338 mio. GBP | 26’966 mio. GBP | (0.4)% | 1.4% | |||
Group operating profit before exceptional items (3) | 596 mio. GBP | 372 mio. GBP | 56.7% | 60.2% | |||
– UK + ROI (9) | 389 mio. GBP | 164 mio. GBP | 134.1% | 137.2% | |||
– International | 118 mio. GBP | 122 mio. GBP | (9.8)% | (3.3)% | |||
– Tesco Bank | 89 mio. GBP | 86 mio. GBP | 3.5% | 3.5% | |||
Include exceptional items | (81) mio. GBP | – | |||||
Group operating profit | 515 mio. GBP | 372 mio. GBP | 34.4% | 38.4% | |||
Group profit before tax before exceptional items and net pension finance costs | 410 mio. GBP | 183 mio. GBP | 124.0% | ||||
Group statutory profit before tax | 71 mio. GBP | 99 mio. GBP | (28.3)% | ||||
Diluted EPS before exceptional items | 3.16p | 0.60p | 426.7% | ||||
Diluted EPS before exceptional items and net pension finance costs | 3.74p | 1.42p | 163.4% | ||||
Diluted EPS | 0.42p | 0.60p | (30.0)% | ||||
Capex | 0.5 bio. GBP | 0.4 bio. GBP | up 24.2% | ||||
Net debt (4’5) | (4.4) bio. GBP | (8.6) bio. GBP | down 49.3% | ||||
Cash generated from retail operations (2’4) | 1.0 bio. GBP | 0.8 bio. GBP | up 20.7% |
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Update on our priorities
The progress we have made against the three priorities first set out in October 2014 has enabled us to stabilise the Group. We are more competitive, our balance sheet is more secure and we are rebuilding trust and transparency in the Tesco brand.
1. Regaining competitiveness in core UK business:
- seventh consecutive quarter of both volume and transaction growth; outperformed the market in volume growth in all food categories
- introduced seven new, exclusive fresh food brands delivering market-leading price and quality across the range; 80 percent of customers making repeat purchases of these products
- all key customer metrics stronger against competitors; maintained record availability and rated as number one by customers for checkout waiting time
- clearer, lower and more stable prices – now more than 6 percent lower than September 2014 on a typical customer basket; number of products on multibuy promotions reduced by 27 percent year-on-year
- ongoing range refinement, improved product adjacencies and around 10 percent increase in own-label space in our larger shops; new range simplification in convenience stores
- 3’000 more customer-facing colleagues since February 2016; customer service rating most improved relative to the market
- sales of Harris + Hoole, Dobbies and Giraffe completed and sale of Euphorium agreed, supporting our greater focus on the core UK business
2. Protecting and strengthening the balance sheet:
- generated 1.0 billion GBP retail operating cash flow, including an underlying 0.1 billion GBP working capital inflow
- regained full ownership of six superstores in the half, in line with our aim to reduce exposure to inflation-linked and fixed-uplift rental agreements
- maintained focus on strong capital discipline; on track for 1.25 billion GBP capital expenditure this year
- agreed the sale of our business in Türkiye, which will contribute a 110 million GBP reduction in total indebtedness and avoid incremental cash investment
- repaid two medium-term notes totalling 1.2 billion GBP at maturity following half-year end
- long-term pension deficit funding agreement with Trustee in place; IAS 19 pension deficit up (3.2) billion GBP to (5.9) billion GBP due to lower bond yields
3. Rebuilding trust and transparency:
- continued to build trusted, transparent and long-term relationships with suppliers; 78 percent of UK suppliers satisfied with experience of working with Tesco, an 18 percent year-on-year improvement
- recognised as most improved retailer in the Groceries Code Adjudicator 2016 Annual Survey
- ‘BrandIndex’, an external measure of brand health, at highest level for more than four years
- introduced ‘Free Fruit for Kids’ initiative in our large stores, helping customers live more healthily
- donated 12 million GBP to local community projects chosen by customers through ‘Bags of Help’ scheme
- ranked number one supermarket for reducing food waste by The Grocer
- introduced long-term ‘Fair For Farmers Guarantee’ on all our own-label fresh milk
- helping colleagues simplify the way we work in shops; 78 percent of colleagues recommend us as a ‘great place to work’, up from 70 percent two years ago
Looking ahead
Whilst we expect the market to remain challenging and uncertain, we have clear plans which will enable us to deliver more value for all of our stakeholders: customers, colleagues, suppliers and shareholders.
Today, we are sharing our ambition to deliver a Group operating margin of between 3.5 percent and 4.0 percent by our 2019/20 financial year. This ambition is underpinned by six strategic drivers including the identification of 1.5 billion GBP further operating cost reductions which we will secure over the next three years. This will enable us to further invest in our offer for customers, offset expected inflationary pressures on costs and continue to rebuild profitability. Alongside these cost reductions, we will be looking to further differentiate our brand, continue our focus on strong cash generation, maximise the margin mix from our sales, maximise the value of our property portfolio and continue to innovate both in how we operate the business and in our offer for customers.
Some of these initiatives will require investment and as a result we expect our total capital expenditure to average 1.4 billion GBP per annum over the period to 2019/20. The benefits of the initiatives should start to become evident over the coming months, however given their nature and profile, the margin improvement will likely be more weighted towards the end of the plan.
Financial Results
The results of Kipa, our business in Türkiye, have been classified as discontinued operations following the announcement of its sale (subject to regulatory clearances) on 10 June 2016.
Sales:
On a continuing operations basis | UK + ROI | International (1) | Tesco Bank | Group | |
1. International consists of Central Europe (Czech Republic, Hungary, Poland and Slovakia), Malaysia and Thailand. 2. Sales change shown on a comparable 26 week basis; statutory Group sales change was 3.0 percent at actual exchange rates and 1.0 percent at constant exchange rates. |
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Sales (exc. VAT, exc. fuel) | 18’614 mio. GBP | 5’285 mio. GBP | 503 mio. GBP | 24’402 mio. GBP | |
Change at constant exchange rates (2) % | 0.6% | 3.2% | 5.3% | 1.3% | |
Change at actual exchange rates (2) % | 1.2% | 10.9% | 5.3% | 3.3% | |
Like-for-like sales (exc. VAT, exc. fuel) | 0.6% | 2.6% | – | 1.0% | |
Statutory revenue (exc. VAT, inc. fuel) | 21’449 mio. GBP | 5’386 mio. GBP | 503 mio. GBP | 27’338 mio. GBP | |
Includes: Fuel | 2’835 mio. GBP | 101 mio. GBP | – | 2’936 mio. GBP |
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Group sales grew by 1.3 percent at constant exchange rates with positive like-for-like sales growth in all regions. At actual exchange rates, sales grew by 3.3 percent including a 2.0 percent foreign exchange translation effect principally due to the strength of European currencies relative to Sterling.
We delivered positive like-for-like sales growth in the combined UK + ROI business for the half for the first time since 2010/11, driven by sustained volume growth in both markets.
In the UK, like-for-like sales grew by 0.6 percent and, including a small contribution from net new store openings, total sales grew by 0.7 percent. Our continued investment in lowering prices and further falls in commodity prices contributed to sustained deflation throughout the half.
We have delivered continued improvement across all aspects of our customer offer in the half. In addition to further strong improvements in measures of colleague service and helpfulness, we have maintained record levels of availability, supported by the work carried out last year to ensure our product ranges were simpler and more relevant for customers. We have continued to reduce and simplify our product range in the half, grouping products around meal solutions in our larger stores and streamlining our convenience store ranges. Customers in the UK recognised the further improvements across our offer in service, availability, range and price by voting us ‘Britain’s Favourite Supermarket’ at the Grocer Gold Awards in June 2016.
The value of our food sales in the UK grew for the first time since 2013 in the second quarter and we outperformed the market on volume growth in all food categories. The seven exclusive fresh food brands we launched in March 2016 led to a sales volume growth outperformance of the market in ‘produce’ and ‘meat’ of 6 percent and these brands continue to be cheaper, on average, than comparable lines in the rest of the market.
All formats – including our largest, Extra format – saw an improving trend in like-for-like sales performance throughout the half. The rate of online grocery sales growth moderated, as planned, due to the changes we have made to improve the sustainability of our offer.
In a market that remains highly competitive, like-for-like sales in the Republic of Ireland grew 0.2 percent as customer perceptions of our proposition improved significantly year-on-year. Whilst top-line growth in value terms was held back by our continued investment in lower prices, we retain our leading position in the market in volume terms thanks to a strong performance in fresh food.
International sales grew by 3.2 percent at constant exchange rates, including a net positive contribution from new store openings in Asia which offset the impact of store closures in Europe. Like-for-like sales grew by 2.6 percent overall with positive growth in both Europe and Asia.
Our business in Thailand delivered a strong performance, driven principally by improvements in our fresh food offer. Sales are growing across all store formats and we are maintaining our strong market share position.
In Europe, we harmonised more of our product offering and promotions across each of the countries we operate in and inspired customers with new events and improvements in our fresh food offer. We continued to invest in reducing prices for customers, contributing to ongoing deflation. In Hungary, we responded effectively to the repeal of the legislation which had previously enforced Sunday closures.
Group statutory revenue of 27.3 billion GBP includes sales of fuel, which declined by around (10) percent year-on-year, principally due to retail price deflation.
Operating profit before exceptional items:
On a continuing operations basis | UK + ROI | International | Tesco Bank | Group |
Operating profit before exceptional items | 389 mio. GBP | 118 mio. GBP | 89 mio. GBP | 596 mio. GBP |
Change at constant exchange rates % | 134.1% | (9.8)% | 3.5% | 56.7% |
Change at actual exchange rates % | 137.2% | (3.3)% | 3.5% | 60.2% |
Operating profit margin before exceptional items | 1.81% | 2.19% | 17.69% | 2.18% |
Change at constant exchange rates (bp) | 104bp | (29)bp | (30)bp | 79bp |
Change at actual exchange rates (bp) | 105bp | (30)bp | (30)bp | 80bp |
Operating profit | 365 mio. GBP | 128 mio. GBP | 22 mio. GBP | 515 mio. GBP |
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Group operating profit before exceptional items was 596 million GBP, up 56.7 percent at constant exchange rates, as we continue to rebuild profitability whilst investing in the customer offer. Statutory operating profit of 515 million GBP includes the impact of exceptional items.
UK + ROI operating profit before exceptional items was 389 million GBP, with a margin improvement of 23 basis points on the second half of 2015/2016, despite a significant net investment in the quality and price of our new exclusive fresh food brands. In addition to the benefit of a strong volume performance across the new brands, our overall profitability also benefited from a favourable product mix. As a result, our first half profitability was ahead of our initial plan.
Our long-term sustainable partnerships with suppliers are supporting us to innovate and add value to the customer offer whilst helping us to identify initiatives to leverage our scale and reduce costs. For example, we have been able to work with our fresh fruit and vegetable growers to ensure that we can change our trading strategy at a market-leading pace following unexpected crop surpluses, enabling us to offer great seasonal deals for customers and utilise a much greater proportion of the growers’ output, reducing waste.
We are continuing to optimise our store operating model, improving the customer experience with the introduction of new customer service desks, changing replenishment hours and revising trading hours. To support a greater focus on our core business, the sales of Giraffe, Dobbies and Harris + Hoole were completed in the half and the sale of Euphorium was agreed.
International operating profit before exceptional items decreased by (9.8) percent at constant exchange rates to 118 million GBP, largely driven by continuing investments in our customer offer and an intensely competitive environment, particularly in Poland and the Czech Republic. We are continuing to make operational changes across both Europe and Asia in order to further improve the shopping trip for customers, simplify the way we work and generate cost savings.
Whilst we note the European Commission’s investigation into the introduction of a new retail tax in Poland from September, we remain cautious about further legislative changes in our European markets.
Exceptional items in operating profit:
This year | Last year | |
Restructuring and redundancy | (95) mio. GBP | – |
Tesco Bank customer redress | (45) mio. GBP | – |
Property transactions | 59 mio. GBP | – |
Total exceptional items in operating profit | (81) mio. GBP | – |
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Exceptional items are excluded from our headline performance measures by virtue of their size and nature, in order to better reflect management’s view of the performance of the Group. In the current year, the net effect of exceptional items on operating profit is (81) million GBP.
The majority ((73) million GBP) of the restructuring and redundancy charge relates to changes to store colleague structures and working practices in the UK + ROI business. The remaining (22) million GBP relates to simplification and head office relocation costs for Tesco Bank.
The (45) million GBP charge for customer redress principally relates to a provision for settlement of claims in Tesco Bank relating to prior years, following the updated guidance published by the Financial Conduct Authority.
Finally, the property profit of 59 million GBP relates to the sale of a number of properties and a development site in the UK + ROI business, in addition to the Liberec Forum shopping centre in the Czech Republic, for combined proceeds of 240 million GBP.
Joint ventures and associates
This year | Last year | |
Share of post-tax profits from JVs and associates | 2 mio. GBP | 13 mio. GBP |
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Our share of post-tax profits from joint ventures and associates was 2 million GBP, a decline of (11) million GBP year-on-year due to lower profits recognised from UK property joint ventures and a higher level of losses in our partnership with China Resources (Holdings) Company Ltd.
Finance income and finance costs:
This year | Last year | |
Interest receivable and similar income | 26 mio. GBP | 10 mio. GBP |
IAS 32 and 39 ‘Financial instruments’ – fair value remeasurements | 57 mio. GBP | 34 mio. GBP |
Finance income | 83 mio. GBP | 44 mio. GBP |
Interest payable | (274) mio. GBP | (252) mio. GBP |
Capitalised interest | 3 mio. GBP | 6 mio. GBP |
IAS 19 net pension finance costs | (58) mio. GBP | (84) mio. GBP |
Finance costs | (329) mio. GBP | (330) mio. GBP |
Exceptional charge: Translation of Korea proceeds | (200) mio. GBP | – |
Statutory finance costs | (529) mio. GBP | (330) mio. GBP |
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Finance income increased to 83 million GBP, principally due to a favourable impact from the mark-to-market of financial instruments.
Interest payable rose to (274) million GBP due to the debt acquired as part of our February 2016 agreement to regain sole ownership of 49 stores and two distribution centres. Following the end of the half-year, we repaid two medium term notes at maturity in September 2016 at a cost of 1.2 billion GBP, which will result in a net annualised cash interest saving of 36 million GBP.
Net pension finance costs are calculated, as required by IAS 19, with reference to the pension deficit at the start of the year. As such, the reduction of 26 million GBP to (58) million GBP is the result of the lower IAS 19 pension deficit in February 2016 versus February 2015.
A further exceptional non-cash loss of (200) million GBP arose on the translation of the proceeds from the sale of our Homeplus business in Korea which are held in GBP money market funds in a non-Sterling denominated subsidiary. This does not represent any economic cost to the Group.
Group tax:
On a continuing operations basis | This year | Last year |
Tax on profit before exceptional items | (98) mio. GBP | (52) mio. GBP |
Tax on profit | (40) mio. GBP | (52) mio. GBP |
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Tax on profit before exceptional items was (98) million GBP with an effective rate of tax for the Group of 28 percent. This tax rate is higher than the UK statutory rate mainly due to the higher effective tax rates in overseas jurisdictions and the impact of the banking surcharge tax, which was introduced in January 2016 and imposes an additional 8 percent levy on the profits of banking companies.
Following enactment of the Finance Act 2016 after the end of the half-year in September, reducing the UK corporation tax rate from 18 percent to 17 percent in 2020, the effective underlying tax rate for the full year is now expected to be in the region of 25 percent.
Earnings per share:
On a continuing operations basis | This year | Last year |
Diluted earnings per share before exceptional items | 3.16p | 0.60p |
Diluted earnings per share before exceptional items and net pension finance costs | 3.74p | 1.42p |
Diluted earnings per share | 0.42p | 0.60p |
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Diluted earnings per share before exceptional items were 3.16p, significantly higher than last year due to improved underlying profitability. Diluted earnings per share before exceptional items and net pension finance costs were 3.74p and were also significantly higher than last year. Statutory diluted earnings per share were 0.42p, down (30.0) percent on last year, due to a higher level of exceptional items this year.
Summary of total indebtedness (1):
Aug 2016 | Feb 2016 | Movement | |
1. Discounted operating lease commitments exclude Türkiye. | |||
Net debt (excludes Tesco Bank) | (4’352) mio. GBP | (5’110) mio. GBP | 758 mio. GBP |
Discounted operating lease commitments | (7’771) mio. GBP | (7’787) mio. GBP | 16 mio. GBP |
Pension deficit, IAS 19 basis (post-tax) | (5’853) mio. GBP | (2’612) mio. GBP | (3’241) mio. GBP |
Total indebtedness | (17’976) mio. GBP | (15’509) mio. GBP | (2’467) mio. GBP |
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Total indebtedness was (18.0) billion GBP, an increase of (2.5) billion GBP since February 2016 due to a rise in the pension deficit, as measured by IAS19. Net debt reduced by 0.8 billion GBP as the cash we generated from operations and business disposals, more than offset capital and other expenditure.
We aim to increase the proportion of owned property and reduce exposure to index-linked and fixed-uplift rent inflation over the long-term. Following the re-acquisition of 70 stores and two distribution centres last year, we regained ownership of a further six stores, increasing freehold assets by another 112 million GBP. Excluding Türkiye, discounted operating lease commitments were slightly down on last year, despite the extension of a number of leases.
In November 2015, we replaced our UK defined benefit pension scheme with a defined contribution pension scheme, significantly reducing future pension risk and giving greater certainty on future cash requirements. To calculate the pension deficit for accounting purposes, we are required to use corporate bond yields as the basis for the discount rate of our long-term liabilities, irrespective of the mix of our assets and their expected returns. The sharp decrease in corporate bond yields since the year-end – the biggest six-monthly fall recorded since the iBoxx corporate bond index was first introduced in 2000 – has therefore driven a rise of more than 50 percent in the accounting valuation of our liabilities, increasing our reported accounting net deficit from (2.6) billion GBP to (5.9) billion GBP. Our defined benefit pension scheme assets have performed well and we are progressing with our asset de-risking strategy, which aims to reduce risks from changes in interest rates and inflation.
In accordance with last year’s long-term deficit funding agreement with the Trustee of 270 million GBP per annum, a cash contribution of 126 million GBP was made to the scheme. The next triennial actuarial valuation will be conducted as at March 2017 and is due to be reported in 2018.
As announced in June 2016, the sale of our business in Türkiye, which is subject to usual local regulatory approvals, is expected to further reduce total indebtedness by 110 million GBP.
Summary retail cash flow:
This year | Last year | |
Cash flow from continuing operations excluding working capital | 850 mio. GBP | 1’048 mio. GBP |
(Increase)/decrease in working capital | ||
– impact from exceptional items | (26) mio. GBP | (388) mio. GBP |
– cash impact of new approach to supplier payments | – | (231) mio. GBP |
– underlying decrease in working capital | 131 mio. GBP | 362 mio. GBP |
Cash generated from operations – continuing operations | 955 mio. GBP | 791 mio. GBP |
Cash generated from operations – discontinued operations | 9 mio. GBP | 214 mio. GBP |
Cash generated from operations | 964 mio. GBP | 1’005 mio. GBP |
Interest paid | (203) mio. GBP | (173) mio. GBP |
Corporation tax paid | (17) mio. GBP | (53) mio. GBP |
Net cash generated from retail operating activities | 744 mio. GBP | 779 mio. GBP |
Cash capital expenditure | (541) mio. GBP | (498) mio. GBP |
Free cash flow | 203 mio. GBP | 281 mio. GBP |
Other investing activities | (404) mio. GBP | 507 mio. GBP |
Net cash from/(used in) financing activities and intra-Group funding and intercompany transactions | 264 mio. GBP | (560) mio. GBP |
Net increase in cash and cash equivalents | 63 mio. GBP | 228 mio. GBP |
Include cash movements in debt items | 867 mio. GBP | 448 mio. GBP |
Fair value and other non-cash movements | (172) mio. GBP | (783) mio. GBP |
Movement in net debt | 758 mio. GBP | (107) mio. GBP |
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Excluding working capital, we generated 0.9 billion GBP cash from continuing retail operations, (0.2) billion GBP lower than last year, principally due to providing colleagues with the option of receiving the 2015/2016 Turnaround Bonus in cash rather than shares, reducing the dilutive impact of new share issuance. On an underlying basis, the benefit of stock flow initiatives and trading term standardisation, combined with offsetting seasonal timing impacts, has contributed to a net working capital inflow of 131 million GBP. Including working capital, cash generated from continuing retail operations was 955 million GBP, up 21 percent on last year.
Interest paid rose by (30) million GBP due to the debt acquired as part of our February 2016 agreement to regain sole ownership of 49 stores and two distribution centres. As mentioned above, following the end of the half year, we repaid two medium term notes at maturity in September 2016 at a cost of 1.2 billion GBP, which will reduce cash interest costs by a net annualised saving of 36 million GBP.
Cash tax paid of (17) million GBP is net of refunds received of taxes previously paid, as we continue to reach settlement of historic enquiries into tax returns in a number of jurisdictions.
Capital expenditure and space:
Group | UK + ROI | International | Tesco Bank | |||||||
This year | Last year | YOY Change | This year | Last year | This year | Last year | This year | Last year | ||
1. Excluding franchise stores. 2. ‘Gross space added’ excludes repurposing/extensions. | ||||||||||
Capital expenditure (bio. GBP) | 0.5 | 0.4 | 0.1 | 0.3 | 0.3 | 0.1 | 0.1 | 0.0 | 0.0 | |
Gross space added (m sq ft) (1’2) | 0.3 | 0.3 | – | 0.1 | 0.0 | 0.2 | 0.2 | n/a | n/a | |
Net space added (m sq ft)(1) | (1.8) | (1.0) | (0.8) | (1.6) | (0.9) | (0.2) | (0.1) | n/a | n/a |
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In line with our increased focus on capital discipline, capital expenditure was 0.5 billion GBP in the half, similar to last year, and planned expenditure for the full year remains at around 1.25 billion GBP. We expect to refresh more than 200 stores in the UK this year, the vast majority of which will be completed in the second half.
Overall, net space reduced by (1.8)m square feet, principally due to the disposal of (1.7)m square feet from the sale of Dobbies garden centres. We opened 0.3m square feet of selling space, mainly in Thailand. In the year, we intend to repurpose around 1.0m square feet across the Group as we create compelling shopping destinations for customers which are simpler to operate.
Tesco Bank
This year | Last year | YOY Change | |
Revenue | 503 mio. GBP | 478 mio. GBP | 5.2% |
Operating profit before exceptional items | 89 mio. GBP | 86 mio. GBP | 3.5% |
Statutory operating profit | 22 mio. GBP | 86 mio. GBP | (74.4)% |
Lending to customers | 9’262 mio. GBP | 8’297 mio. GBP | 11.6% |
Customer deposits | 8’107 mio. GBP | 6’581 mio. GBP | 23.2% |
Net interest margin | 3.9% | 4.2% | (0.3)% |
Risk asset ratio | 19.9% | 19.1% | 0.8% |
.
Tesco Bank continues to develop its suite of products and services to best meet the needs of Tesco customers. In the half, these innovations included the launch of a premium credit card, the introduction of digital signatures to simplify the loans process and the further roll out of PayQwiq, an app which allows customers to pay with their phones in our shops.
Active customer account numbers in Tesco Bank rose by 2 percent, with continued strong growth in both customer lending and deposits. Operating profit before exceptional items increased year-on-year as the impact of the European Commission cap on interchange income was more than offset by an improved underlying trading performance and proceeds from the sale of non-performing debt. Exceptional items relating to Tesco Bank included an increase in the provision for customer redress and a restructuring charge. Statutory operating profit, as shown above, is after these exceptional items.
Risk weighted assets have risen in line with lending and the Core Tier 1 ratio has remained stable at 16.6 percent. The balance sheet remains strong and well-positioned to support future lending growth from both a liquidity and capital perspective.
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