Preliminary Results 2015/16
13 Apr 2016
A year of significant progress
|Group sales1,2||Operating profit
from £(5,750)m loss
Significant progress on all three transformation priorities
- UK like-for-like sales growth of 0.9% in 4Q; Group like-for-like sales growth of 1.6% in 4Q
- £6.2bn reduction in total indebtedness, including contribution from sale of Homeplus in Korea
- Customer, colleague, supplier measures all improved
Guided by a clear purpose, ‘serving shoppers a little better every day’
- UK customer satisfaction up 5% over the course of the year
- UK volumes up 3.3% in 4Q; UK transactions up 2.8% in 4Q
- International volumes up 5.5% in 4Q
Achieved what we set out to do
- £944m operating profit before exceptional items
- Retail operating cash flow of £2.6bn
- Initial £400m cost saving programme delivered
- UK & ROI property now 47% freehold (+6%) following two further transactions in Feb 2016
Improving trends across the Group
- Positive and improving like-for-like sales growth trends in all regions: UK, ROI, Europe and Asia
- Improving sales performance in all formats and categories
- Strong growth in Tesco Bank customer deposits and lending
- Continued growth at Tesco Mobile, the UK’s largest MVNO – now 4.6m customers
Clear commitment to the customer
- The customer is and always will be our prime focus
- Continuing to invest to improve the competitiveness of our offer
- Seven exclusive fresh food brands launched in March 2016
Dave Lewis, Chief Executive:
“We have made significant progress against the priorities we set out in October 2014. We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices. Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.
Our process of transformation has generated broad-based positive momentum in the UK and internationally. We set out to start rebuilding profitability whilst reinvesting in the customer offer, and we have done this. More customers are buying more things more often at Tesco.
As a team, we are committed to serving shoppers a little better every day, in what remains a challenging, deflationary and uncertain market. We are confident that the investments we are making are leading to sustainable improvements for customers whilst creating long-term value for our shareholders.”
Like-for-like sales performance
|UK & ROI||(1.5)%||(1.0)%||(1.5)%||0.9%||(1.3)%||(0.1)%||(0.7)%|
Headline Group results
|52 weeks ended 27 February 2016
On a continuing operations basis
53 week 2014/15 statutory results
|Group sales (exc. VAT, exc. fuel)||£48,352m||£49,853m||0.1%||(1.6)%||(3.0)%|
|Revenue (exc. VAT, inc. fuel)||£54,433m||£56,925m||(1.3)%||(2.8)%||(4.4)%|
|Group operating profit before exceptional items6||£944m||£940m||1.1%||0.0%||0.4%|
|- UK & ROI7||£505m||£498m||1.4%||0.6%||1.4%|
|- Tesco Bank||£162m||£188m||(13.8)%||(13.8)%||(13.8)%|
|Include exceptional items||£102m||£(6,690)m|
|Group statutory operating profit/(loss)||£1,046m||£(5,750)m||n/m||n/m||n/m|
|Group profit before tax before exceptional items and net pension finance costs||£435m||£490m||(11.9)%||(11.2)%|
|Group statutory profit/(loss) before tax||£162m||£(6,334)m||n/m||n/m|
|Diluted EPS before exceptional items||3.41p||4.14p||(17.6)%|
|Diluted EPS before exceptional items and net pension finance costs||4.97p||5.46p||(9.1)%|
|Net debt3,4||£(5.1)bn||£(8.5)bn||down 39.7%|
|Cash generated from retail operations3||£2.6bn||£1.9bn||up 38.8%|
- Group sales exclude VAT and fuel.
- For continuing operations. Change is shown at constant rates on a comparable 52 week basis.
- Includes both continuing and discontinued operations.
- Net debt excludes the net debt of Tesco Bank.
- Change is shown on a comparable 52 week basis.
- 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.
- The elimination of intercompany transactions between continuing operations and the Korea discontinued operation, as required by IFRS 5 and IFRS 10, has resulted in a reduction to the prior period UK & ROI operating profit of £(9)m.
Update on our priorities
The priorities we set out in October 2014 have guided the actions we have taken over the last 18 months.
1. Regaining competitiveness in core UK business:
- maintained investment in service with nine thousand more customer facing roles
- improved operational performance and simpler processes driving record levels of availability
- reduced prices on thousands of products, underpinned with unique ‘Brand Guarantee’
- reviewed every one of our 33 food categories, reducing the number of products by 18%, lowering the price of an average weekly shop by over 3% in the last year, whilst introducing 2,000 new lines
- generated annual positive volume growth for the first time in five years, supporting efforts to build long-term, mutually-beneficial relationships with suppliers
- completed UK management restructure, with a 25% reduction in roles in the office
- closed 60 unprofitable stores
- introduced seven exclusive brands, providing quality fresh foods at outstanding prices
2. Protecting and strengthening the balance sheet:
- reduced indebtedness by a total of £6.2bn, including a significant contribution from the sale of our Homeplus business in Korea in October
- agreed funding plan of £270m per annum with pension trustee to close actuarial deficit
- replaced UK defined benefit pension scheme with a defined contribution scheme from November, providing sustainable benefits for colleagues and greater certainty on future cash requirements
- generated retail operating cash flow of £2.6bn, despite £(0.3)bn working capital outflows relating to exceptional items and our new approach to cash payment terms with suppliers
- regained ownership of 70 stores and two distribution centres, improving our UK & ROI freehold ratio by 6% to 47% and reducing our exposure to inflation-linked and fixed-uplift rent reviews
- increased capital discipline, significantly reduced the level of capital expenditure
- restructured Central European overheads, improving the prospects for medium-term returns
- exited plans to build out 49 stores and, in October 2015 agreed sale of 14 sites for £250m
3. Rebuilding trust and transparency:
- aligned colleagues behind core purpose of ‘Serving Britain’s shoppers a little better every day’
- introduced lower, more stable prices, redirected promotional and coupon spend into core shelf edge prices; reduced number of multi-buy promotions by a third in the fourth quarter
- simplified our relationships with suppliers, moving from 24 forms of commercial income towards three and standardising payment terms
- Supplier Viewpoint measure improved from 51% to 68% in UK; from 58% to 70% for the Group
- built on success of Tesco Sustainable Dairy Group, guaranteeing an above-market price for milk produced for British own-label Mild, Medium, Mature, Red Leicester & Double Gloucester cheese
- announced aim to ensure all surplus food from stores goes to charity and not to waste by 2017
- started roll out of Community Food Connection with FareShare FoodCloud in over 100 stores
- improved Tesco Bank’s offer by removing monthly current account fees for customers in credit, and providing monthly communication of foregone interest
- Tesco Mobile named Which? recommended provider for fifth year in a row
We have made good progress over the last year. We are continuing to invest in our customer offer in order to improve our competitiveness in what remains a challenging, deflationary and uncertain market. This will be reflected in the pace of improvement in profitability in the current year, particularly in the first half.
We are increasingly confident that the actions we are taking are leading to sustainable improvements for customers and will result in a continued improvement in profitability and the creation of long-term value for shareholders.
- View full statement
Chris Griffith: 01707 912 900
Steve Milton: 01707 918 701
Philip Gawith, Teneo: 0207 240 2486