Interim Results 2013/14

26 weeks ended 24 August 2013 (unaudited)
On a continuing operations basis
2013/14 Growth
exchange rates)
(Constant exchange rates)
Group sales (inc. VAT)*
Sales growth excluding petrol
£35,582m 2.0%
Group trading profit £1,588m (7.6)% (8.8)%
- UK £1,131m 1.5% 1.5%
- Asia (exc. China**) £314m (7.4)% (12.4)%
- Europe £55m (67.8)% (70.8)%
- Tesco Bank £88m (6.4)% (6.4)%
Underlying profit before tax (excluding profit from property-related items) £1,466m (7.4)% (8.4)%
Underlying diluted earnings per share (excluding profit from property-related items) 14.88p (7.92)%*** n/a
Capex £1.3bn down 15.8% down 17.2%
Statutory profit before tax £1,387m (23.5)% (24.5)%


Philip Clarke, Chief Executive:

“Despite continuing challenges, we have made further progress on our strategic priorities.  We are strengthening our UK business, working to establish multichannel leadership and pursuing disciplined international growth.

Our performance in the UK has strengthened through the half, particularly in our food business, as we have continued our work to Build a Better Tesco.  More and more customers are benefiting from a better shopping environment, as our store refresh programme has gathered momentum.

We have continued our focus on becoming the leading multichannel retailer.  Our online grocery businesses have continued to perform well across the Group, and we are now offering the service in over 50 cities across nine markets outside the UK.

The challenging retail environment in Europe has continued to affect the performance and profitability of our businesses there.  The investments we have made to improve our offer for customers in the region are already starting to take effect and we expect a stronger second half as a result.

Today we have announced a partnership with China Resources Enterprise Ltd. (CRE) to create the leading food retailer in the world’s most populous country.  This, together with the conclusion of our strategic review in the United States, provides further evidence of our commitment to disciplined international growth and, more broadly, our approach to growth and returns.”


  • £1.6bn trading profit – reflecting good progress in UK and challenges in Europe
  • Interim dividend maintained at 4.63p
  • UK sales exc. petrol up +1.7%, with lower net new space contribution as planned
  • Sales supported by strong growth in online grocery: +13% in UK and +54% overseas
  • UK Food LFL improved to +1.0% in Q2; UK trading margin stable at 5.2%
  • Total UK LFL held back by initial work on transformation of general merchandise business, ahead of migration to higher-margin, higher-growth categories
  • Average large-store refresh sales uplifts between 3% and 5%, with improved margin
  • Q2 UK Clothing sales growth +8.6%
  • Strategic review in United States concluded with sale of Fresh & Easy to Yucaipa
  • Partnership formed with CRE giving Tesco 20% stake in China’s leading food retailer
  • Consistent approach to future growth, capital discipline, returns and cash

* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13.
** Our subsidiary in China is now treated as a discontinued operation following our agreement to partner with CRE.
*** Underlying diluted EPS growth calculated on a constant tax rate basis; (6.91)% at actual tax rates.


Continuing operations2 Group   UK3 Asia Europe Tesco Bank
Growth %   TY
Sales (inc. VAT)4 35,582 34,891 2.0%   24,196 5,542 5,346 498
Growth %         1.1% 7.7% 1.2% (3.1)%
UK LFL (exc. Petrol)         (0.5)%      
Revenue (exc. VAT)5 31,914 31,306 1.9%   21,630 5,204 4,582 498
Growth %         1.0% 7.5% 0.9% (6.4)%
UK LFL – IFRIC 13 compliant basis (exc. Petrol)         (0.4)%      
Trading profit6 1,588 1,718 (7.6)%   1,131 314 55 88
Growth %         1.5% (7.4)% (67.8)% (6.4)%
Trading profit margin4 4.93% 5.44% (51)bp   5.2% 6.0% 1.2% 17.7%
Change (basis points)         2bp (98)bp (256)bp (62)bp
Other underlying profit items:  
- Share of post-tax profits of joint ventures and associates 29 29 1.7%  
- Net interest cost (151) (164) 7.9%  
Underlying profit before tax7 1,466 1,583 (7.4)%  
- Profits/losses arising on property-related items 45  342 (86.8)%  
IAS adjustments (103)  (114) 9.6%  
Restructuring and other one-off costs  (21) 3 (800)%  
Statutory profit before tax 1,387 1,814 (23.5)%  
Dividend per share (pence) 4.63 4.63 0.0%  
Continuing operations2 Group   UK Asia Europe Tesco Bank
Capital expenditure (£bn) 1.3 1.5 (0.2)   0.8 0.9 0.4 0.3 0.1 0.2 0.0 0.1
Gross space added (million sq.ft.) 1.6 2.4 (0.8)   0.5 0.6 0.7 1.0 0.3 0.9 n/a n/a
Continuing operations2 Group          
  TY LY YOY Change          


  1. For UK, ROI and US, these results are for the 26 weeks ended 24 August 2013 and the previous period comparison is made with the 26 week period ended 25 August 2012. For Tesco Bank and India these results are for the 6 months ended 31 August 2013 and the previous period comparison is made with the 6 months ended 31 August 2012. For all other countries these results are for the 178 days ended 25 August 2013 and the previous period comparison is made with the 179 days ended 26 August 2012. All growth rates are calculated at actual exchange rates unless otherwise stated. Statutory numbers include the accounting impact of IFRIC 13 (Customer Loyalty Programmes). All other numbers are shown excluding the accounting impact of IFRIC 13, consistent with internal management reporting. More information can be found in Note 1 to the interim consolidated financial information.
  2. Continuing operations exclude China, Japan and US as discontinued operations.
  3. The UK segment excludes Tesco Bank, which is reported separately in accordance with IFRS 8 ‘Operating Segments’.
  4. Excludes the accounting impact of IFRIC 13 (Customer Loyalty Programmes). Trading margin is based on revenue excluding the accounting impact of IFRIC 13.
  5. Includes the accounting impact of IFRIC 13 (Customer Loyalty Programmes).
  6. Trading profit excludes property-related items and makes the same additional adjustments as our underlying profit measure, except for the impact of non-cash elements of IAS 17, 32 and 39, and the interest element of IAS 19.
  7. Underlying profit excludes the impact of non-cash elements of IAS 17, 19, 32, and 39 (principally the impact of annual uplifts in rents and rent-free periods, pension costs, and the marking to market of financial instruments); the amortisation charge on intangible assets arising on acquisition (Tesco Bank) and acquisition costs; and profits/losses arising on property-related items and the non-cash impact of IFRIC 13 (Customer Loyalty Programmes). It also excludes restructuring and other one-off items.
  8. Includes both continuing and discontinued operations.
Net cashflow from operating activities (£bn)8:        
- Retail 1.7 1.3 0.4  
- Tesco Bank (0.5) 0.0 (0.5)  
- Group 1.1 1.2 (0.1)  
IFRS pensions liability post-tax (£bn) 2.4 1.8 0.6  
Net debt (£bn)8 7.0 7.2 (0.2)  


We have continued to make progress on the three clear strategic priorities for the Group which we laid out in April:

  1. Continuing to invest in a strong UK business
  2. Establishing multichannel leadership in all of our markets
  3. Pursuing disciplined international growth

Our efforts to Build a Better Tesco in the UK are being recognised by more customers and our performance is improving as a result.  We have continued to invest in all parts of our offer, with one of the most significant changes in the first half being a further step up in the quality of our own-brand products.  We have also seen improving customer perceptions of our in-store service, a better price image since the launch of Price Promise in March, and our store refresh programme has gathered momentum.  Our like-for-like sales growth has improved through the half, driven by a stronger performance in our food business and despite the drag of our initial work to transform our general merchandise business.  This work will ultimately lead to higher sales densities and even higher profit densities across our large-store portfolio as we migrate to more sustainable, more productive general merchandise categories and reduce our exposure to low-margin, low-growth categories.

We have taken further steps towards establishing multichannel leadership in all of our markets.  Our online grocery home shopping business has now been rolled out to more than 50 cities overseas and we are seeing strong growth in all of our markets, including the UK.  We have continued to invest in improving the integration of our customer offer across all of our store formats and channels and last month we launched ‘Hudl’, our first tablet computer, which offers instant access to Tesco’s full range of digital services, all in one place.  We have also piloted three new Extra formats in the UK, showcasing a new type of retailing experience.  These bring together our best fresh food offer, our latest thinking on general merchandise, our next generation clothing departments and the introduction of our new casual dining concepts.  Whilst it is early days, all three stores are performing well ahead of expectations.

Our focus on disciplined international growth has seen us further reduce our capital investment overseas, with a greater proportion allocated to those markets which offer us significant growth potential and the opportunity to deliver strong returns, such as Korea, Malaysia and Thailand.

Challenging external conditions have held back our trading performance, particularly in Europe.  Overall economic growth has seen further declines in some of our largest markets, such as Ireland and Poland, with consumer confidence still tracking at historically low levels.  We are actively managing our response to the shift in consumer behaviour in these markets and have strictly limited our new store openings, focusing on smaller, proximity formats and online.  We have also focused on strengthening our customer offer across our entire business.  As a consequence, we expect these markets to deliver a stronger performance in the second half.

Since the end of the half, we have also made further progress in two areas which provide clear evidence of our focus on capital discipline:

First, we have concluded our strategic review in the United States with the sale of the majority of the Fresh & Easy business to Yucaipa, a US-based investment company.  This outcome ensures that the total cash cost of exit will be no more than £150m and provides ongoing employment for more than 4,000 of our colleagues in the United States.  Those stores not included in the sale have now ceased trading and we have already begun the wind-down and disposal process.

Second, we have announced that, subject to usual regulatory approvals, we are forming a partnership with China Resources Enterprise Ltd. (CRE), which will give Tesco a 20% stake in the largest food retail business in China.  The combined business will have more than 3,000 stores and will be the leading retailer in seven out of the eight most populous and affluent Chinese provinces.

In addition to contributing our existing business in China, we will make a cash contribution to the joint venture of c.£185m and a payment to CRE of c.£80m at completion, which is expected in the first half of 2014.  This will be followed with a further payment of c.£80m on the first anniversary of completion.

The joint venture, which will be self-funding, will secure significant cost and operational synergies from combining the two operations and for Tesco, will move us more quickly to profitability in China.  The deal is immediately beneficial to Group returns on capital employed, due in part to removing the impact of our Chinese business’s trading losses, which were £(72)m for the year ending February 2013, in addition to other, property-related losses.

From an accounting point of view, our existing business in China has to be treated as a discontinued operation within these results.  Further details can therefore be found in Note 4 to the accounts, on page 25.

Both of these actions underpin the approach to growth and returns that we laid out in April.  Importantly, they leave the Group better positioned to benefit from the inherent strengths of the Tesco model.  Whilst we are clearly still facing current challenges, our experience at home and overseas has helped us to develop unique strengths that will enable us to extract long-term value from international growth.  These include our retail and supply chain platforms, international buying scale and capability and our ability to capture and draw insight from customer data.  As the retail industry evolves and we deliver our objective of being the leading multichannel retailer, strengths such as our IT capability, own-brand expertise and ability to transfer management skills across the Group will become even more important competitive advantages.


We are continuing to make good progress on Building a Better Tesco in the UK and the investments we have made in our international businesses have started to feed through into an improved trading performance in the second half.

However, challenging economic conditions overseas, particularly in Europe, have held back consumer confidence and spending, leading to a lower level of sales than expected.  This has impacted profitability in the first half, and will therefore offset at least some of the benefit of our UK improvement in the full year results.

Nonetheless, we remain committed to achieving our guidance of mid-single digit trading profit growth in the medium-term and retain our absolute focus on driving improving returns, generating positive free cash flow and ensuring a disciplined allocation of capital.


Group sales, including VAT, increased by 2.0% to £35.6bn.  At constant exchange rates, sales increased by 0.5% (including petrol) and 0.9% (excluding petrol).

Group trading profit was £1,588m, down (7.6)% on last year, reflecting the effects of challenging economic and trading conditions in Europe, in addition to the impact of regulatory restrictions on opening hours in Korea.  Group trading margin was 4.93%, down (51) basis points.

Underlying profit before tax declined by (7.4)% to £1,466m.  As reported in April, we are accelerating the scaling back of our sale and leaseback programme and therefore, to ensure this profit measure most accurately reflects the underlying performance of the business, it has been redefined to exclude profit on property-related items.  This is consistent with the definition of underlying earnings per share used as the basis for our dividend policy.

Profits on property-related items fell significantly to £45m for the first half (2012/13: £342m).  We do expect a year-on-year reduction for the full year, consistent with the more rapid reduction of our sale and leaseback programme, but given the timing of transactions we also expect a greater contribution from property in the second half.

Group profit before tax declined by (23.5)% to £1,387m, due to the impact of significantly reduced profits from property-related items.

Following our announcement that we have entered into a partnership with CRE, the results of our Chinese business, in addition to those of our business in the United States, have been classified as discontinued in these results.  Further details can be found in Note 4 to the accounts, on page 25 of this statement.

Net finance costs decreased by 7.9% to £151m on an underlying basis, down from £164m last year, due to better average working capital and an additional cost from debt pre-financing in the prior year.  Capitalised interest reduced by £21m to £41m.

Total Group tax has been charged at an effective rate of 18.00% (last year 18.91%). This reflects the temporary benefit of a lower UK corporate tax rate on deferred tax liabilities.

Cash Flow and Balance Sheet.  Cash generated from Group operating activities reduced to £1.1bn (2012/13: £1.2bn).  Excluding Tesco Bank, cash generated from retail operating activities, after interest and tax, increased from £1.3bn to £1.7bn. This reflects better working capital management, partly offset by a £180m one-off pension contribution in the prior year. Net debt fell by £0.2bn to £7.0bn.

Pensions.  The Group's net pension deficit after tax has increased from £1.8bn at the year end to £2.4bn, due mainly to a reduction in real corporate bond yields leading to a fall of 0.3% in the discount rate for measuring liabilities.  This was partly offset by higher than expected asset returns over the period.

Group capital expenditure on a continuing basis was £1.3bn, or 3.6% of total sales, a reduction of £(0.2)bn versus last year.  We invested less new capital year-on-year in all of our reporting segments except Asia, consistent with our capital allocation priorities.  In the UK, capital expenditure was down by (15.9)% to £0.8bn; in Asia, we increased our spend by 8.1% to £0.4bn; and in Europe, we sharply reduced the level of new investment by (51.0)% to £0.1bn.


The Board has approved a maintained interim dividend of 4.63p per share.  The interim dividend will be paid on 20 December 2013 to shareholders on the Register of Members at the close of business on 11 October 2013.



Our plans to Build a Better Tesco in the UK have continued apace in the first half, with more and more customers seeing and responding positively to the changes we have made to our stores, our products, our marketing and the level of service we offer.

One of the most significant changes so far this year is the acceleration of our investment in the exclusivity, provenance and proximity of our food sourcing operations. Amongst other measures, all of our fresh chicken sold in the UK now comes from the UK and all our beef across fresh, frozen and ready meals is now 100% British or Irish. More widely, other elements of our fresh food offer have seen a significant investment in quality; all our pre-packed meat, fish and poultry, pre-packed salads, cut fruit and over half of our ready meals have been reviewed. This process of continuous improvement, underpinned by the other elements of the UK plan, has led to an improved like-for-like sales growth of +1.0% in our food business in the second quarter, and is despite annualising extended Sunday trading hours linked to last year’s London Olympics.

  UK Results H1 2013/14
  £m % growth
UK sales £24,196m 1.1%
UK revenue (exc. VAT, exc. impact of IFRIC 13) £21,889m 1.1%
UK trading profit £1,131m 1.5%
Trading margin (trading profit/revenue) 5.2% 2bp

Total UK sales increased by 1.1% to just over £24bn, with UK trading profit increasing by 1.5% to £1,131m. UK trading margin remained stable at 5.2% despite continued investment in our core food offer, helped by our progress so far on refocusing our general merchandise business on more profitable categories.

  UK LFL Growth 2013/14
  Q1 Q2 H1
* Compliant with IFRIC 13 (Loyalty schemes) – the variance between like-for-like sales growth excluding both petrol and VAT, and the same growth on an IFRIC 13-compliant basis is due principally to the consequences for revenue recognition of the changes to our Clubcard scheme announced in September 2011.
LFL (inc. VAT, inc. petrol) (1.6)% (0.2)% (0.9)%
LFL (inc. VAT, exc. petrol) (0.9)% 0.0% (0.5)%
LFL (exc. VAT, exc. petrol) (1.0)% 0.0% (0.5)%
LFL (exc. VAT, exc. petrol) IFRIC 13* (0.8)% 0.0% (0.4)%

The bulk of the initial work to improve the quality of our core own-brand products has now been completed, putting us well on track to meet our target of having 8,000 products re-formulated and re-packaged by the end of the year.  Over 1,750 brand new products have been introduced in the first half alone.  The first products from our new Finest range have already started to land in-store, with the official customer launch due later this month.  Finest is already one of the leading food brands in the UK, with annual sales of over £1.4bn and with more than 12 million products consumed each week.  The revamped range, which now has more than 1,500 products, has been assiduously benchmarked on the quality of its ingredients and recipes.  Over 400 new lines have been added, 200 removed and the vast majority of the remainder of the range re-specified.  Supporting the Finest re-launch, we are proud that Downton Abbey, ITV’s flagship primetime drama, has agreed to be the subject of Tesco’s first ever TV sponsorship deal.

This builds on the success of ‘Love Every Mouthful’, which will be an enduring marketing campaign highlighting the quality and provenance of our fresh food offer, encouraging our customers to try new and seasonal products.  The campaign has been particularly well-received and has generated significant social media interest, helping us to have a new and engaging conversation with our customers.  Initial customer research is very promising with customers recognising the emphasis we are placing on range, quality and freshness.

Having already delivered significant improvements in customer satisfaction with our in-store service last year, we have made more progress.  Customer Viewpoint scores have continued to strengthen, with a further 5% uplift in perceptions of overall customer service and colleague helpfulness, on top of the strong initial increases we reported in April.  Over 250,000 colleagues have received additional ‘Making Moments Matter’ training in the first half, helping them to deliver better, more personalised service to our customers.

We have also seen steady and consistent improvements in our price image since the launch of Price Promise in the UK in March.  The measure showing the biggest improvement – up more than 34% - is the proportion of customers who rate our price matching or beating as excellent or very good.  The coupon-at-till mechanic is also proving very popular, with three-quarters of customers who receive a money-off voucher feeling positive about the outcome of their Price Promise experience.

Our strategic shift away from in-store retailing of consumer electronics, coupled with the ongoing transformation of our general merchandise business, has continued to hold back our like-for-like sales performance.  Whilst the new product ranges are available in our pilot stores, and have started to be introduced in-store elsewhere, the transition to more sustainable categories will continue to be implemented well into next year.

As well as a strong ‘consumables and convenience’ offer of small, frequently bought items, we are creating destination categories such as Home, Cook & Dine, Papershop and Celebration.  These categories’ greater resilience to transition online provides the opportunity for more sustainable general merchandise growth.  Also, and partly as a result of this resilience, they all generate a much stronger cash gross margin than the categories in which we are reducing our exposure.

Our initiatives in clothing have been well-received by customers and colleagues alike, as we continue to build F&F into a fashion brand that our customers trust on quality, range and price.  Clothing has continued to perform strongly with improving like-for-like sales through the second quarter.  We have refreshed or refitted 47 of our in-store clothing departments in the first half, introducing the next generation store environment and achieving a combined like-for-like sales uplift of over +10% in refitted stores.  The roll-out of improved clothing departments will continue over the next two years with almost 30% of UK clothing space refitted this year.

Our programme of refreshing our store estate has gathered momentum in the first half, with more customers benefiting from upgrades to their local store.  So far over 30% of our large stores have now received store-wide improvements to their look and feel, with average sales uplifts running at between 3% and 5%.  Additional improvements have also been carried out to some departments across the entire estate.

In addition to the core refresh programme, last year we piloted three remodelled Superstore formats, in Bishops Stortford, Thetford and Chester.  Following the success of these pilots, we are remodelling over 60 Superstores this year, with over half of the programme already completed in the first half.  We are continuing to refine the blueprints as we roll changes out across the estate, with the latest generation remodels such as those in Rochdale and Chelmsford featuring stronger clothing departments and further changes in general merchandise space allocation and presentation.

In August, we launched three pilot remodelled Extra stores, in Watford, Purley and Coventry, each trialling different customer propositions.  In common with the Superstore remodels, we have adopted a ‘Food First’ approach in each of these, bringing the fresh food and ‘food to go’ offer to the front of the store and building relevant, sustainable general merchandise and clothing departments around this strong core.  Our acquisition of the Giraffe restaurant chain and investments in the Harris+Hoole coffee shop business and Euphorium Bakery have enabled us to also bring new casual dining concepts to these stores to create even more compelling retail destinations. Whilst it is very early days, the initial customer response has been very positive and following further review, including detailed customer feedback, we plan to start rolling out additional remodels across the Extra estate in 2014.

Our remodels and refreshes are determined based on a detailed understanding of the different shopping missions being undertaken by customers, using Clubcard data analysis prepared by dunnhumby, our marketing services company.  This is particularly relevant for our Express and Metro stores which typically have much tighter and more differentiated catchments.

Following the significant reduction in our new space programme last year, we again opened a smaller amount of net new space in the first half at 0.5 million square feet.  Around 30% of this new space was devoted to convenience formats, including 54 Express and 16 One Stop openings. In line with the lower level of new store openings, total net new space, contributed 2.0% to total UK sales growth of 1.1% (including petrol and VAT) in the first half of the year.  This compares to a total net new space contribution of 3.2% in the first half of 2012/13.

As part of the in-depth review of our property pipeline last year, we have taken steps to revisit a number of permissions for large-store developments in order to reconfigure the schemes and ensure they remain viable.  Three of these developments opened in the first half, all of which were originally planned with net selling areas of more than 100,000 square feet: Gateshead Extra, opened at 90,000 square feet; West Bromwich Extra, opened at 79,000 square feet; and, Sunderland Extra, opened at 67,000 square feet.  In all three cases, the amended plans help to future-proof our stores, create compelling destinations for consumers, and improve the overall return of the schemes by generating rental incomes from units built on the surplus space.

We have continued to benefit from a strong online grocery performance, with sales growth of nearly 13% and a further increase in market share.  We have seen an additional 40,000 customers sign up to one of our Delivery Saver subscription schemes in the first half and we have now rolled out Click & Collect drive-through collection points to nearly 200 locations.  Following the successful opening of our fifth dotcom-only store in Crawley earlier in the year, we will open our sixth, in Erith, later this month, supporting the significant demand for our grocery home shopping service in Greater London.  Our Erith facility will build on the learnings from our openings to date, with an increased level of automation and, as a result, a greater capacity in terms of the volume and number of orders.

Tesco Direct is a key part of our multichannel strategy, and our clear priority is to ensure we have a profitable and scalable model.  In line with the re-ranging of our in-store general merchandise offer, and in particular the electricals category, the profitability of Tesco Direct has improved despite lower sales. Against the backdrop of a tighter stocked-in range and inventory, the number of products available from third party ‘Sellers at Tesco’ has increased to more than 200,000 since the year-end.

Last week we took a significant step forward in our multichannel strategy ensuring that customers can shop whenever, however and wherever they want with the launch of Hudl, a tablet designed and built from scratch by Tesco.  We recognise the increasingly important role that smartphones and tablets are playing in people’s lives and the resulting changes to how our customers are communicating, working, learning, browsing and consuming.

Hudl is tailored around customer needs and ease of use with instant access to our full range of digital services, all in one place - these include blinkbox movies and music, Clubcard TV, banking and of course shopping for groceries, clothing, and general merchandise, as well as other popular pre-loaded apps such as YouTube, Google Maps and Google Play.  The device is available now to buy in-store and online.  It retails at £119 but as a thank you to our most loyal customers, Hudl will be available on Clubcard Boost, meaning many of them will be able to buy it for significantly less.

Our productivity programmes in the UK still have huge potential, not least through the use of technology.  We have introduced Scan as you Shop to more of our larger stores and over 300,000 customers are using it each week, allowing us to re-invest hours into service elsewhere in-store.  For stores where it has been introduced, on average more than 20% of sales are made through the technology.


  Asia Results* H1 2013/14
  Actual rates Constant rates
  £m % growth % growth
*Exc. China, with our subsidiary there now treated as a discontinued operation following our agreement to partner with CRE.
Asia sales £5,542m 7.7% 2.0%
Asia revenue (exc. VAT, exc. impact of IFRIC 13) £5,221m 7.6% 2.0%
Asia trading profit £314m (7.4)% (12.4)%
Trading margin (trading profit/revenue) 6.0% (98)bp (99)bp

Total sales in Asia increased by 7.7% at actual rates and by 2.0% at constant rates.

As expected, our first half performance in Asia has continued to be impacted by regulatory restrictions on opening hours in Korea.  The incremental impact on profitability in the first half was £(40)m, in line with our previous guidance.  We expect Korea to return to profit growth in the second half of the year, although the year-on-year effect on sales will continue to be somewhat volatile in the months ahead due to the varying application of the restrictions last year.

With the Thai economy now in recession, consumers are facing increasing pressures on household finances and our performance there has suffered as a result.  Efforts by the Thai government to increase domestic consumption in other sectors by offering cheap financing for high-ticket items, such as motor vehicles, have weighed further on the food retail sector.  We have also faced an increasing level of competition, particularly with respect to the rate of openings in the convenience sector.

In addition to these external factors, we have taken steps to address some parts of our own offer in Thailand which have underperformed in the first half and contributed to a disappointing like-for-like sales performance.  This includes the remerchandising and remarketing of our ‘Clubpack’ range of bulk-buy products, a particularly important category for small traders who shop with us and one which represents around 4% of our sales in Thailand.

Thailand remains a very profitable, high-returning business which, together with Korea and Malaysia, offers Tesco significant potential for further growth from the continued development of modern retail alone.

Although the economic backdrop in Malaysia remains relatively stable, our like-for-like sales growth has been impacted by falling consumer confidence following May’s general election.  We launched grocery home shopping in Malaysia at the start of the year, and have seen a very encouraging initial customer response.

Following today’s announcement that we will be forming a partnership with CRE in China, our existing business there has been treated as a discontinued operation within these results.  The partnership will move us much more quickly to profitability within China and removes the drag of current trading losses from our results for Asia as a whole.  As such, the strength of our other Asian businesses becomes more visible.

Our strong trading margins in the region are supported by a significant contribution from mall income.  Tesco is one of the largest mall operators in Asia, with more than a decade of experience of creating compelling, high-returning, retail destinations for customers.

We opened 0.7m square feet of net new space in Asia during the first half, representing around one-third of the planned net space for 2013/14, with the opening programme focused on the high-returning markets of Thailand and Korea.


  Europe Results H1 2013/14
  Actual rates Constant rates
  £m % growth % growth
Europe sales £5,346m 1.2% (3.1)%
Europe revenue (exc. VAT, exc. impact of IFRIC 13) £4,605m 1.0% (3.3)%
Europe trading profit £55m (67.8)% (70.8)%
Trading margin (trading profit/revenue) 1.2% (256)bp (262)bp

Total sales in Europe increased by 1.2% at actual rates and declined by (3.1)% at constant rates.  Like-for-like sales declined by (5.0)% for the region as a whole, with a small improvement in performance towards the end of the first half.

We saw a continuation of the external trends from the second half of last year, characterised by a difficult economic environment, strong competition and a consumer preference for smaller store formats, linked to high fuel costs and a desire by many consumers to manage household budgets on a day-to-day basis.  Our trading margin performance reflected investment in our offer for our customers as well as the negative leverage associated with like-for-like sales declines.

These trends were most acute in Turkey where the level of losses increased significantly year-on-year, reflecting our relative exposure to discretionary categories and large store formats.  We have focused the business on driving growth in its heartland around Izmir, and are beginning to see an improvement in its overall operational performance.

Excluding a benefit from the cessation of the Hungary crisis tax, the prevailing conditions resulted in profit declines in each of our four markets in Central Europe.  Specifically, our decision to invest in our offer in Poland contributed to lower profits, but with the result that Tesco Polska exited the half with an improving like-for-like sales trend.

In Ireland, the economy slipped back, albeit temporarily, into recession and consumers have faced further pressures on household finances.  As a result, the limited-range discounters have fared better than those, like us, with a broader offer.  We have plans to address this in the second half.  Despite the challenging conditions, Ireland, like Hungary, remains a high-returning business.

The second half of the year will see each of our Central European and Turkish markets benefit from change programmes that we have already started to implement.  Our European business as a whole will also be trading against a softer comparative base, following the impact of deteriorating external conditions on like-for-like sales and profitability in the second half of 2012/13.

We have made notable progress in online grocery, where we are unrivalled in our offer across Central Europe.  Customers can now choose from around 20,000 fresh, grocery, and household products, with two-hour delivery slots available in all markets.  Our service is already available in more than 30 major cities across the region and our progress will continue through the year, not least with the launch of grocery home shopping in Turkey early in 2014.

As planned, our new store programme in Europe is significantly smaller this year as we pursue our strategy of disciplined international growth.  We opened 0.2m square feet of net new store space in the first half – 75% less than in the same period last year.  Other than three previously committed hypermarkets in Poland, all of this new space is in smaller store formats.


  Tesco Bank H1 Results 2013/14
  £m % growth
Tesco Bank revenue (exc. VAT, exc. impact of IFRIC 13) £498m (3.1)%
Tesco Bank trading profit £88m (6.4)%
Tesco Bank trading margin 17.7% (62)bp

Tesco Bank’s trading profits were £88m, (6.4)% lower than last year. Excluding income from the legacy insurance distribution agreement in the prior year and the fair value release, trading profit grew by 21%.  Moreover, following a period of intense activity to migrate its systems, and the launch of new mortgage and ISA products, the Bank continues to make progress towards our strategy of enhancing loyalty by becoming customers’ natural choice for financial services.

The period saw good growth in our core banking products. Customer lending increased strongly to £6.4bn, with loans up 11% and credit card balances up 16% since the year-end.  Our mortgage product also continues to make good progress with balances growing to £0.5bn.  This growth has been supported by the Bank of England’s Funding for Lending Scheme (FLS).  Whilst our core funding will always be drawn from customer deposits, the FLS has enabled us to diversify our funding, utilising attractive rates, in the short term.

Overall, customer accounts on our banking products of credit cards, loans, mortgages and savings have grown by 6% since the year-end, and we remain on track to launch current accounts in the first half of 2014.

Within our insurance activities, our motor business has faced significant market headwinds.  We have continued to focus on offering our best prices to Clubcard customers and to adopt a disciplined approach to pricing and underwriting.  This approach has contributed to a (5)% reduction in motor policies since the year-end.  Home insurance has been re-launched offering customers the ability to better select the level of cover that is right for them and helping new business grow by 40%.  Nonetheless, insurance customer numbers on our primary products of motor, home and pet have fallen (4)% to 1.8 million.

The Bank no longer recognises any income in relation to the legacy agreement with the Direct Line Group. This income amounted to £17m in the first half of 2012/13.

We have continued to see strong evidence of Tesco Bank’s ability to enhance customer loyalty with Bank customers typically spending more in store and across our services.  Clubcard points with a value of over £70m were given to customers as a ‘thank you’ for using the Bank’s products in the period.

The Bank’s capital ratios and liquidity levels remain strong with a Risk Asset Ratio of 17% and £1.3bn of high-quality liquid assets.

An income statement, balance sheet and cash flow statement for Tesco Bank is available in the investor section of our corporate website at  Tesco Bank’s interim results are also published today and can be found at


In May 2013 we set out a new Tesco value: ‘We use our scale for good’.  This means that we will use our skills and capabilities as a leading global retailer to tackle the issues that matter most to our customers, to our colleagues and to our communities.

We have three big ambitions: creating new opportunities for young people, encouraging people to live healthier lives and reducing food waste.  Since launch, we have been developing new initiatives and establishing long-term plans towards these goals.  More information about our work in this area can be found at and we will be publishing a half year update at the end of October detailing our progress so far.

Supplementary Information

The following supplementary information can be found within our analyst pack, which is available online at

  • Group Income Statement
  • Segmental Summary
  • Tesco Bank – Income Statement, Balance Sheet, Cash Flow
  • Group Cash Flow
  • UK Sales Performance
  • International Sales Performance
  • Group Space Summary and Forecast
  • UK New Stores
  • Earnings Per Share


Investor Relations: Chris Griffith 01992 644 800
Media: Tom Hoskin
01992 644 645
0207 404 5959

This document is available online at

A meeting for investors and analysts will be held today at 9.30am at Nomura Bank, 1 Angel Lane, London, EC4R 3AB.  Access will be by invitation only.  Presentations from the meeting will be available at

An interview with Philip Clarke, Chief Executive, discussing the Interim Results is available now to download in video, audio and transcript form at

For more information please contact the Tesco Press Office on
01992 644645

We are a team of over 530,000 people in 12 markets dedicated to bringing the best value, choice and service to our millions of customers each week. Our core purpose is 'we make what matters better, together'.

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