Preliminary Results 2014/15

• £1.4bn Group trading profit, in line with expectations
• UK like-for-like sales volumes up for first time in over four years, driven by better availability, service and pricing; like-for-like sales performance improved to (1.0)% in Q4
• Significant reduction in UK trading profit, as previously announced
• Tough trading conditions overseas, especially in Korea; disappointing performance in Europe
• Transformation programme outlined in January progressing well; portfolio review ongoing
• £(7.0)bn one-off charges, predominantly non-cash; includes £(4.7)bn fixed asset impairment, reflecting challenging industry conditions and profit decline
• Pension deficit funding plan agreed with Trustee, comprising cash contributions of £270m per annum
• No final dividend, as previously announced
• Enhanced disclosure, including property valuation/ownership and commercial income
• Reiterating commitment to reinvest any savings or outperformance into further improvements for customers

Dave Lewis – Chief Executive:

“It has been a very difficult year for Tesco. The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years. We have faced into this reality, sought to draw a line under the past and begun to rebuild, and already we are beginning to see early encouraging signs from what we’ve done so far.

Over the last six months we have put customers back at the centre of everything we do. By focusing on the fundamentals of availability, service and targeted price reductions, we have seen a steady increase in footfall, transactions and, most significantly, volumes. More customers are buying more things at Tesco.

We are making deep changes to the way we organise and run our business, with a simpler, more agile office team, more colleagues serving customers and a new approach to the way we work with suppliers. I do not underestimate how difficult some of these changes have been for the team and I thank everyone for their professionalism and contribution at this time of great change.

The market is still challenging and we are not expecting any let up in the months ahead. When you add to this the fundamental changes we are making to our business and our offer, it is likely to lead to an increased level of volatility in short-term performance. Our clear priority – and the one that will deliver sustainable value for our shareholders – is to improve consistently for customers. The changes we have made and will continue to make put us in a stronger position to do this.”

HEADLINE GROUP RESULTS

53 weeks ended 28 February 2015 (unaudited)   On a continuing operations basis	2014/15		52 week change** (Actual exchange rates)		52 week change** (Constant exchange rates)		53 week change (Actual exchange  rates)
* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13 (Customer Loyalty Programmes). ** 52 week growth rates exclude week 53 (the 7 days ended 28 February 2015) for the UK and Republic of Ireland. *** Trading profit and underlying profit before tax are defined in Note 1 on page 16. **** Net debt excludes the net debt of Tesco Bank.
Group sales (inc. VAT)*	£69,654m		(3.0)%		(1.3)%		(1.7)%
Sales growth excluding fuel			(3.2)%		(1.3)%		(1.9)%
Group trading profit***	£1,390m		(58.2)%		(57.5)%		(58.1)%
- UK	£467m		(78.8)%		(78.8)%		(78.7)%
- Asia	£565m		(18.4)%		(15.3)%		(18.4)%
- Europe	£164m		(31.9)%		(31.1)%		(31.1)%
- Tesco Bank	£194m		0.0%		0.0%		0.0%
Underlying profit before tax***	£961m		(68.4)%				(68.5)%
Underlying diluted earnings per share	9.42p		(70.5)%				(70.6)%
Statutory loss before tax includes:
- Impairments (inc. £(4.7)bn property, £(0.6)bn China)	£(5,605)m
- Stock related charges	£(570)m
- Restructuring	£(416)m
- Prior years commercial income adj.	£(208)m
Statutory loss before tax	£(6,376)m		n/a				n/a
Diluted losses per share	(70.24)p		n/a				n/a
Capex	£2.0bn		n/a				down 28.2%
Net debt****	£(8.5)bn		n/a				n/a

UPDATE ON OUR PRIORITIES

Our performance in the first half of the year was not competitive enough in the face of challenging market and trading conditions. On 23 October 2014, we set out three key priorities. The progress we have made against these priorities includes:

1. Regaining competitiveness in core UK business:

• 4,652 net additional customer-facing roles in stores since September
• more space for the top 1,000 lines in each store, increasing availability, particularly in peak trading
• improved pricing on hundreds of branded products in January, with further price cuts on essential products such as butter, bread and ham in March
• a new commercial approach, with a planned review of each of our product ranges over an 18-month period, to simplify, further improve availability and set lower, more stable prices
• met with over 100 suppliers, creating new business plans to drive volume growth through a more focused range and create cost efficiencies throughout the whole supply chain
• restructuring of UK office and store management largely complete
• majority of initial annual cost savings of £250m available for reinvestment in 2015/16; further £150m savings identified across the Group
• on track to close Cheshunt and move head office to Welwyn Garden City in 2016
• closure of 43 unprofitable stores completed earlier this month
• Matt Davies takes up role as UK CEO on 11 May 2015, earlier than originally anticipated

2. Protecting and strengthening the balance sheet:

• decision not to pay a final dividend for 2014/15
• capital expenditure budget for 2015/16 confirmed as no more than £1bn
• funding plan agreed with pension trustees to close actuarial deficit
• consultation launched with colleagues to replace the defined benefit pension scheme with a defined contribution scheme
• all three Blinkbox businesses (movies, music and books) and Tesco Broadband sold or closed
• review of strategic options for dunnhumby business well-advanced; portfolio review ongoing
• exited plans to build out 49 stores; significant reduction to our store building programme
• thorough review of Group’s property portfolio, with impairment charge of £(4.7)bn ensuring impact of challenging industry conditions and profit decline are reflected on balance sheet
• asset swap completed in March with British Land to regain sole ownership of 21 superstores

3. Rebuilding trust and transparency:

• progress towards re-establishing trust in our pricing policy
• simpler performance measures launched – sharp reduction in the number of targets
• new Code of Conduct launched in February, with comprehensive training for 30,000 colleagues; ‘Protector Line’ in place across all markets
• increased focus on building longer-term, mutually beneficial partnerships with our suppliers; ‘Supplier Helpline’ launched last month
• simplification of commercial income underway; new guidelines launched
• improved stock routines in place and a comprehensive review of our property portfolio
• increased disclosure, including additional detail on property valuation and ownership
• new national charity partnership launched with Diabetes UK and the British Heart Foundation
• extended ‘Eat Happy Project’ to work with The Scout Association and The Children’s Food Trust

Outlook:

The market is still challenging and we don’t expect this to change in the immediate future. Over the next 12 months we will continue to focus on our three priorities: regaining competitiveness in our UK business; protecting and strengthening the balance sheet; and rebuilding trust and transparency in the business and the brand.

We are already making good progress on our initiatives and on the basis of actions already undertaken they will deliver significant cost savings in 2015/16. The immediate priority for these and any other savings delivered is reinvestment in the customer offer in order to further restore UK competitiveness.