Interim Results 2016/17

5 Oct 2016


Group sales1,2 Operating profit pre exceptionals2,3 Operating profit2 Retail operating cash flow2,4
Net debt4,5
up 3.3%
up 60.2%
up 38.4%
up 20.7%
down 49.3% y-o-y
down 14.8% vs year-end


Positive like-for-like sales and volume growth in all regions across the Group

  • UK like-for-like sales growth of 0.6% and Group like-for-like sales growth of 1.0%6
  • UK volumes up 2.1%; UK transactions up 1.6%
  • International volumes up 3.3%; International transactions up 0.3%

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 £0.8bn since year-end
  • Rebuilding trust – brand health returned to highest level in more than four years7

Customer, colleague and supplier partner measures all improving

  • Most improved retailer in terms of customer recommendations8
  • 78% of colleagues recommend us as a ‘great place to work' (up from 70% in 1H 2014/15)
  • Very strong improvement in UK supplier satisfaction measure at 78% (up from 51% in 2014/15)

Well-placed against our plans – on track to deliver £1.2bn 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% 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% 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 £1.5bn 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 £1.4bn per year to support this programme

Statutory results: statutory revenue £27.3bn, up 1.4%; statutory profit before tax £71m, down (28.3)%

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% 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."

Serving Britain's shoppers a little better every day

Like-for-like sales performance6:

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%

Headline Group results

The Group has defined its alternative performance measures in the Glossary on page 43.

26 weeks ended 27 August 2016
On a continuing operations basis
  Year-on-year change
exchange rates)
  Year-on-year change
exchange rates)


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. Full detail of exceptional items can be found in Note 4 on page 27.
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 Turkey operation, as required by IFRS 5 and IFRS 10, has resulted in a reduction to the prior period UK & ROI operating profit of £(2)m.
Group sales (exc. VAT, exc. fuel)1 £24,402m   £23,684m   1.3%   3.3%
Fuel £2,936m   £3,282m   (10.9)%   (10.5)%
Statutory revenue (exc. VAT, inc. fuel) £27,338m   £26,966m   (0.4)%   1.4%
Group operating profit before exceptional items3 £596m   £372m   56.7%   60.2%
- UK & ROI9 £389m   £164m   134.1%   137.2%
- International £118m   £122m   (9.8)%   (3.3)%
- Tesco Bank £89m   £86m   3.5%   3.5%
Include exceptional items £(81)m   -        
Group operating profit £515m   £372m   34.4%   38.4%
Group profit before tax before exceptional items and net pension finance costs £410m   £183m       124.0%
Group statutory profit before tax £71m   £99m       (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 £0.5bn   £0.4bn       up 24.2%
Net debt4,5 £(4.4)bn   £(8.6)bn       down 49.3%
Cash generated from retail operations2,4 £1.0bn   £0.8bn       up 20.7%

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% 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% lower than September 2014 on a typical customer basket; number of products on multibuy promotions reduced by 27% year-on-year
  • ongoing range refinement, improved product adjacencies and around 10% 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 £1.0bn retail operating cash flow, including an underlying £0.1bn 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 £1.25bn capital expenditure this year
  • agreed the sale of our business in Turkey, which will contribute a £110m reduction in total indebtedness and avoid incremental cash investment
  • repaid two medium-term notes totalling £1.2bn at maturity following half-year end
  • long-term pension deficit funding agreement with Trustee in place; IAS 19 pension deficit up £(3.2)bn to £(5.9)bn due to lower bond yields

3. Rebuilding trust and transparency:

  • continued to build trusted, transparent and long-term relationships with suppliers; 78% of UK suppliers satisfied with experience of working with Tesco, an 18% 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 £12m 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% of colleagues recommend us as a ‘great place to work', up from 70% 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% and 4.0% by our 2019/20 financial year. This ambition is underpinned by six strategic drivers including the identification of £1.5bn 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 £1.4bn 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.

Dave Lewis, Chief Executive, will share further details of the six strategic drivers as part of our interim results presentation to investors and analysts at 9am today, which will be webcast as detailed on page 9.

Financial Results

The results of Kipa, our business in Turkey, have been classified as discontinued operations following the announcement of its sale (subject to regulatory clearances) on 10 June 2016.


On a continuing operations basis UK & ROI International1 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% at actual exchange rates and 1.0% at constant exchange rates.
(exc. VAT, exc. fuel)
£18,614m £5,285m £503m £24,402m
Change at constant exchange rates2 % 0.6% 3.2% 5.3% 1.3%
Change at actual exchange rates2 % 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)
£21,449m £5,386m £503m £27,338m
Includes: Fuel £2,835m

Group sales grew by 1.3% at constant exchange rates with positive like-for-like sales growth in all regions. At actual exchange rates, sales grew by 3.3% including a 2.0% 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% and, including a small contribution from net new store openings, total sales grew by 0.7%. 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% 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% 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% 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% 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 £27.3bn includes sales of fuel, which declined by around (10)% year-on-year, principally due to retail price deflation. Further information on sales performance is included in Appendices 1 to 3 starting on page 46 of this statement.

Operating profit before exceptional items:

On a continuing operations basis UK & ROI International Tesco Bank Group
Operating profit before exceptional items £389m £118m £89m £596m
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 £365m £128m £22m £515m

Group operating profit before exceptional items was £596m, up 56.7% at constant exchange rates, as we continue to rebuild profitability whilst investing in the customer offer. Statutory operating profit of £515m includes the impact of exceptional items, which are described in more detail in Note 4 on page 27.

UK & ROI operating profit before exceptional items was £389m, with a margin improvement of 23 basis points on the second half of 2015/16, 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)% at constant exchange rates to £118m, 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.

Further information on operating profit performance is included in Note 2 on page 20 of this statement.

Exceptional items in operating profit:

  This year Last year
Restructuring and redundancy £(95)m -
Tesco Bank customer redress £(45)m -
Property transactions £59m -
Total exceptional items in operating profit £(81)m -

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)m.

The majority (£(73)m) of the restructuring and redundancy charge relates to changes to store colleague structures and working practices in the UK & ROI business. The remaining £(22)m relates to simplification and head office relocation costs for Tesco Bank.

The £(45)m 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 £59m 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 £240m.

Further detail can be found in Note 4 on page 27 of this statement.

Joint ventures and associates

  This year Last year
Share of post-tax profits from JVs and associates £2m £13m

Our share of post-tax profits from joint ventures and associates was £2m, a decline of £(11)m 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 £26m £10m
IAS 32 and 39 ‘Financial instruments’ – fair value remeasurements £57m £34m
Finance income  £83m £44m
Interest payable £(274)m £(252)m
Capitalised interest £3m £6m
IAS 19 net pension finance costs £(58)m £(84)m
Finance costs £(329)m £(330)m
Exceptional charge:
Translation of Korea proceeds
£(200)m -
Statutory finance costs £(529)m £(330)m

Finance income increased to £83m, principally due to a favourable impact from the mark-to-market of financial instruments.

Interest payable rose to £(274)m 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 £1.2bn, which will result in a net annualised cash interest saving of £36m.

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 £26m to £(58)m is the result of the lower IAS 19 pension deficit in February 2016 vs February 2015.

A further exceptional non-cash loss of £(200)m 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.

Further detail can be found in Note 5 on page 28 of this statement.

Group tax:

On a continuing operations basis This year Last year
Tax on profit before exceptional items £(98)m £(52)m
Tax on profit £(40)m £(52)m

Tax on profit before exceptional items was £(98)m with an effective rate of tax for the Group of 28%.  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% 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% to 17% in 2020, the effective underlying tax rate for the full year is now expected to be in the region of 25%.

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

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)% on last year, due to a higher level of exceptional items this year.

Summary of total indebtedness1:

  Aug 2016 Feb 2016 Movement
1. Total indebtedness is defined in the glossary on page 43. Discounted operating lease commitments exclude Turkey.
Net debt (excludes Tesco Bank) £(4,352)m £(5,110)m £758m
Discounted operating lease commitments £(7,771)m £(7,787)m £16m
Pension deficit, IAS 19 basis (post-tax) £(5,853)m £(2,612)m £(3,241)m
Total indebtedness £(17,976)m £(15,509)m £(2,467)m

Total indebtedness was £(18.0)bn, an increase of £(2.5)bn since February 2016 due to a rise in the pension deficit, as measured by IAS19.  Net debt reduced by £0.8bn 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 £112m.  Excluding Turkey, 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% in the accounting valuation of our liabilities, increasing our reported accounting net deficit from £(2.6)bn to £(5.9)bn.  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 £270m per annum, a cash contribution of £126m 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.  Further detail can be found in Note 15 on page 38 of this statement.

As announced in June 2016, the sale of our business in Turkey, which is subject to usual local regulatory approvals, is expected to further reduce total indebtedness by £110m.

Summary retail cash flow:

  This year Last year
Cash flow from continuing operations excluding working capital £850m £1,048m
(Increase)/decrease in working capital    
- impact from exceptional items £(26)m £(388)m
- cash impact of new approach to supplier payments - £(231)m
- underlying decrease in working capital £131m £362m
Cash generated from operations – continuing operations £955m £791m
Cash generated from operations – discontinued operations £9m £214m
Cash generated from operations £964m £1,005m
Interest paid £(203)m £(173)m
Corporation tax paid £(17)m £(53)m
Net cash generated from retail operating activities £744m £779m
Cash capital expenditure £(541)m £(498)m
Free cash flow £203m £281m
Other investing activities £(404)m £507m
Net cash from/(used in) financing activities and intra-Group funding and intercompany transactions £264m £(560)m
Net increase in cash and cash equivalents £63m £228m
Include cash movements in debt items £867m £448m
Fair value and other non-cash movements £(172)m £(783)m
Movement in net debt £758m £(107)m

Excluding working capital, we generated £0.9bn cash from continuing retail operations, £(0.2)bn lower than last year, principally due to providing colleagues with the option of receiving the 2015/16 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 £131m.  Including working capital, cash generated from continuing retail operations was £955m, up 21% on last year.

Interest paid rose by £(30)m 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 £1.2bn, which will reduce cash interest costs by a net annualised saving of £36m.

Cash tax paid of £(17)m 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.

A reconciliation between the Retail and Group cash flows can be found in Note 2 on page 24.

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 (£bn) 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

In line with our increased focus on capital discipline, capital expenditure was £0.5bn in the half, similar to last year, and planned expenditure for the full year remains at around £1.25bn.  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.

Further details of current and forecast space can be found in Appendix 5, starting on page 48.

Tesco Bank

  This year Last year YOY Change
Revenue £503m £478m 5.2%
Operating profit before exceptional items £89m £86m 3.5%
Statutory operating profit £22m £86m (74.4)%
Lending to customers £9,262m £8,297m 11.6%
Customer deposits £8,107m £6,581m 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%, 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 are detailed in Note 4 on page 27 and 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%.  The balance sheet remains strong and well-positioned to support future lending growth from both a liquidity and capital perspective.

An income statement for Tesco Bank can be found in Appendix 6 on page 51 of this statement.  Balance sheet and cash flow detail for Tesco Bank can be found within Note 2 starting on page 21 of this statement.  Tesco Bank’s Interim results are also published today and are available at


Investor Relations: Chris Griffith 01707 912 900
Media: Ed Young 01707 918 701
  Philip Gawith, Teneo Blue Rubicon 0207 420 3143

This document is available at

A meeting for investors and analysts will be held today at 9.00am at London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.  Access will be by invitation only.  For those unable to attend, there will be a live webcast available on our website at  This will include all Q&A and will also be available for playback after the event.  All presentation materials, including a transcript, will be made available on our website.

An interview with Dave Lewis, Chief Executive, and Alan Stewart, Chief Financial Officer, discussing the Interim results is available now to download in video, audio and transcript form at


Risks and Uncertainties

As with any business, risk assessment and the implementation of mitigating actions and controls are critical to successfully achieving the Group's strategy. The Tesco Board has overall responsibility for risk management and internal controls within the context of achieving the Group's objectives. At the Group level each principal risk has an Executive Owner. The CEO has overall accountability for the control and management of risk. The principal risks and uncertainties faced by the Group remain those set out in our 2016 Annual Report and Financial Statements: people; customer proposition; transformation of the economic model; liquidity; competition and markets; brand, reputation and trust; technology; data security and data privacy; regulatory and compliance; and safety.

The Group also faces risks and uncertainties as a result of the Serious Fraud Office and other investigations, and the litigation risk associated with the matters under investigation as described in Note 18 of this release (Contingent Liabilities) and in our 2016 Annual Report and Financial Statements.

On 23 June 2016, the United Kingdom (UK) voted to leave the European Union (EU). The exact nature, process and timing of the UK’s exit from the EU are unknown.  This has to date created business uncertainty: The UK’s future approach to EU freedom of movement; market volatility; fluctuations in foreign exchange rates; changes to commodity prices; and interest rates, all of which may impact the Group.  Adjustments to the long-term outlook for UK interest rates might also affect UK Pension IAS 19 liabilities and related charges.

The risks and uncertainties associated with exiting from the EU have been considered by the Board and plans are in place.  The Board continues to monitor the impact of the referendum but does not currently believe there will be a material adverse impact on the Group’s results or financial position in the current financial year.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Interim Results for the six month period ended 27 August 2016 in accordance with applicable law, regulations and accounting standards. The Directors confirm that to the best of their knowledge the condensed consolidated interim financial statements have been prepared in accordance with IAS 34: ‘Interim Financial Reporting’, as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

  • an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
  • material related party transactions in the first six months of the year and any material changes in the related party transactions described in the last annual report.

The Directors of Tesco PLC are listed in the Tesco PLC 2016 Annual Report and Financial Statements, with the exception of Steve Golsby who was appointed a Non-executive Director of the Company on 1 October 2016.  A list of current directors is maintained on the Tesco PLC website at:

By order of the Board

John Allan* - Chairman
Dave Lewis - Chief Executive
Alan Stewart - Chief Financial Officer
Mark Armour*
Richard Cousins* - Senior Independent Director
Steve Golsby*
Byron Grote*
Mikael Olsson*
Deanna Oppenheimer*
Simon Patterson*
Alison Platt*
Lindsey Pownall*
*Non-executive Directors

Company Secretary
Robert Welch
4 October 2016

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

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This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to Tesco as of the date of the statement. All written or oral forward-looking statements attributable to Tesco are qualified by this caution. Tesco does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.