Interim Results 2024/25
STRONG CUSTOMER OFFER DELIVERS VOLUME GROWTH AND MARKET SHARE GAINS.
Performance highlights (on a continuing operations basis)1,2 | H1 24/25 | H1 23/24 | Change at actual rates | Change at constant rates |
Group sales (exc. VAT, exc. fuel)3 | £31,463m | £30,401m | 3.5% | 4.0% |
Adjusted operating profit4 | £1,649m | £1,426m | 15.6% | 15.8% |
– Retail | £1,555m | £1,417m | 9.7% | 10.0% |
– Tesco Bank*,1 | £94m | £9m | n/m9 | n/m |
Retail free cash flow5 | £1,261m | £1,368m | (7.8)% | |
Net debt5,6 | £(9,676)m | £(9,888)m | 2.1% | |
Adjusted diluted EPS4 | 14.45p | 11.68p | 23.7% | |
Interim dividend per share6 | 4.25p | 3.85p | 10.4% | |
Statutory measures (on a continuing operations basis)1 | ||||
Revenue (exc. VAT, inc. fuel) | £34,773m | £33,801m | 2.9% | |
Operating profit | £1,612m | £1,426m | 13.0% | |
Profit before tax | £1,392m | £1,161m | 19.9% | |
Retail cash generated from operating activities | £1,943m | £2,068m | (6.0)% | |
Diluted EPS | 14.62p | 12.25p | 19.3% | |
Statutory measures (including discontinued operations)1 | ||||
Revenue (exc. VAT, inc. fuel) | £35,180m | £34,149m | 3.1% | |
Profit after tax | £1,051m | £929m | 13.1% | |
Diluted EPS | 15.03p | 12.83p | 17.1% |
Ken Murphy, Chief Executive:
“We’ve been working really hard to offer our customers the best possible value, quality, and service and they are shopping more at Tesco as a result. We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve across a broad range of measures.
The combination of price, quality and innovation means we are as competitive as we have ever been, and we have been the cheapest full-line grocer for nearly two years. Our strong UK and ROI market share gains across the last year demonstrate our continued momentum. I want to say a big thank you to all my Tesco colleagues for their hard work serving customers so well. As we approach the Christmas season, we are looking forward to sharing the quality of our festive food with customers, and can’t wait for them to taste it.
We are in good shape, with volume growth delivering strong financial performance. This builds on our track record of delivery for all our stakeholders. Our strong momentum allows us to continue to focus on value, quality, innovation, and the broader customer experience, whilst investing in growth opportunities in a disciplined, returns-focused way.”
Volume-driven growth delivering strong financial performance and cash returns:
- Improved customer satisfaction driving strong market share gains in UK +62bps, with ROI +88bps
- Volume-driven sales growth, with Retail LFL7 sales up 2.9%; growth across UK +4.0%, ROI +4.7% and CE +0.6%
- Booker LFL sales down (1.9)%, reflecting a decline in the tobacco market and Best Food Logistics volumes
- Retail adjusted operating profit4 up 10.0% at constant rates to £1,555m with progress in both UK & ROI and Central Europe; statutory operating profit1 £1,612m, up 13.0%
- Tesco Bank adjusted operating profit from continuing operations of £94m includes £42m of non-recurring benefits, mainly due to upfront income recognition from a new five-year pet insurance agreement
- Adjusted diluted EPS1,4 up 23.7% to 14.45p, driven by higher adjusted operating profit, lower net finance costs and the benefit of our ongoing share buyback programme; statutory diluted EPS on a continuing operations basis up 19.3% to 14.62p
- Continued strong retail free cash flow5 of £1,261m in the first half compared to £1,368m in the first half of last year, reflecting a lower benefit from working capital and higher tax paid; net debt5,6 down 2.1% to £(9,676)m
*Comparatives have been re-presented to disclose banking operations as a discontinued operation. Total Tesco Bank adjusted operating profit including discontinued operations was £188m1. Tesco Bank results included in the table above and within the segmental review of performance refer only to the retained Tesco Bank business, i.e. insurance and money services, unless otherwise stated. Further footnotes can be found on page 4.
Improving customer satisfaction through relentless focus on quality, service and price:
- Continued net switching gains for 19 consecutive four-week periods in the UK and 22 in ROI
- Powerful value combination of Aldi Price Match on >700 lines, Low Everyday Prices on >1,000 lines and >8,000 Clubcard Prices deals each week, meaning we have now been the cheapest full-line grocer since November 2022
- Additional hours invested in stores, the equivalent of more than 2,000 extra colleague roles year-on-year, helping us deliver market-leading availability
- Investing in product quality, innovation and sustainability, launching 282 new products and improving 580
- #1 position in the Advantage supplier survey for ninth year in a row
- Winner at the Grocer Gold Awards 2024 with accolades including Finest being named ‘Own Label Range of the Year’ and Tesco winning ‘Grocer 33 Price Award’ and, for the 10th year running, ‘Britain’s Favourite Supermarket’
Further progress in high-returning future growth and digital capability:
- Clubcard sales penetration up in all markets year-on-year: UK 82%, ROI 85%, Central Europe 87%; further personalisation, with 4.9m customers receiving ‘Clubcard Challenges’ tailored to their shopping habits
- Expanding retail media channel via the Tesco Media and Insight Platform; growth in active advertisers, campaigns per advertiser and spend per campaign
- On track to open new chilled distribution centre in Aylesford in Summer 2025, leveraging robotic automation to streamline operations, improve efficiency and support our commitment to deliver a seamless shopping experience for customers
- Investing in capital-light Booker catering capacity: new catering hubs in Eccles, Charlton and Enfield allow us to better service growing demand for delivery
- ROI ‘fresh first’ refresh programme and product innovation driving market outperformance and share gains
Investing further for colleagues, communities, and the planet:
- Largest ever increase in store colleague pay and improved parental and wellbeing offerings, culminating in standout colleague satisfaction results and winning ‘Employer of the Year (Retailer)’ at the Grocer Gold Awards 2024
- Continuation of Stronger Starts, our grant programme to help children have a stronger start in life through healthy food and physical activities, awarding funding of more than £9m to date to over 8,000 projects
- Further support for communities, donating c.2.5m meals per month; in the half reaching 220m meals donated since the start of our partnership with FareShare; food donation bags rolled out across all large stores
- Progress towards ambitious climate change targets; announcing a further renewable energy Power Purchase Agreement (PPA) in Scotland, contributing to our target to source 60% of electricity demand via PPA or onsite generation by 2030
CAPITAL RETURN PROGRAMME.
- Share buyback programme remains a critical driver of shareholder returns, reflecting strength of our balance sheet and confidence in delivering strong future cash flows
- In April, announced commitment to buy back £1bn worth of shares over the following twelve months, including £250m funded by the special dividend paid by Tesco Bank in August 2023
- £575m worth of shares purchased in first half; on track to complete the £1bn buyback by April 2025
- £2.4bn worth of shares purchased since launch of capital return programme in October 2021
- Sale of banking operations due to complete before end of calendar year; intention remains to return majority of proceeds via incremental share buyback following completion
OUTLOOK.
The significant investments we are making in value, quality and service across the Group have delivered volume growth ahead of our expectations in the first half. Due to this strong performance, we now expect to deliver around £2.9bn retail adjusted operating profit for the 2024/25 financial year (previously ‘at least £2.8bn’). We continue to expect to generate retail free cash flow within our medium-term guidance range of £1.4bn to £1.8bn.
We now expect an adjusted operating profit contribution from the retained Tesco Bank business of around £120m for the 2024/25 financial year, including the £42m non-recurring benefit described above. On an ongoing basis, we continue to expect an adjusted operating profit contribution of between £80m to £100m per year, including strategic partnership income from Barclays.
STRATEGIC PRIORITIES.
Our strategic priorities ensure that we focus on offering great value, quality and convenience whilst rewarding loyalty. Through our colleagues, our reach and our supplier relationships, we are well-placed to serve our customers wherever, whenever and however they need us. Our strategy guides us to deliver top-line growth, grow profit and generate cash and in doing so, deliver for all our stakeholders.
1) Magnetic Value for Customers – Re-defining value to become the customer’s favourite
- Value front and centre, with prices cut on over 2,850 products by an average of around 9% in the UK over the half and Clubcard Prices saving customers up to £385 off their annual grocery bill
- Overall brand perception in UK increased by +596bps year-on-year, stepping forward across all drivers, including impression (+1,058bps), value (+650bps) and satisfaction (+446bps)
- Enhancing quality credentials through taste-led innovation across the range, irrespective of budget; includes exciting dinner for tonight launches, such as Root & Soul’s modern vegetarian dishes, and Pinch, a new range of Indian ready meals
- Finest volumes up +14.9% YoY with over 20m customers shopping Finest in the half, recognising our investments in quality; new Finest products include a new Finest Sourdough range, and we relaunched our Finest Dine In proposition
- Winning combination from Booker of improved availability, further progress in customer satisfaction scores and great value, with Everyday Low Prices on over 700 catering products held until January 2025
- In Central Europe, customers continue to respond well to our targeted value investments, with prices cut on at least 1,500 products in each market
2) I Love my Tesco Clubcard – Creating a competitive advantage through our powerful digital capability
- Unrivalled Clubcard reach with now over 23m Clubcard households in the UK; group-wide Tesco app users at 16.3m with visits to the app up year-on-year
- Largest and most generous supermarket Reward Partner scheme, including ‘Clubcard Moments’ offers, such as ‘3 months of Disney+ on us’ during the summer, with 11.5m free codes made available to customers via the Tesco app
- Dedicated Tesco Media and Insight Platform team mobilised; partnerships agreed with WPP and Publicis to leverage our combined expertise and reach across a broader pool of advertisers
- Surpassed 4,000 digital in-store screens; over 7,600 campaigns delivered in the first half, with 91 brands participating in our ‘Summer of Sport’ event
3) Easily the Most Convenient – Serving customers wherever, whenever and however they want to be served
- Opened 44 stores across the Group; 26 in the UK, 7 in ROI and 11 in Central Europe, and refreshed a further 182
- AI-powered range curation tool through partnership with dunnhumby, enabling improved tailoring of store offer to local shopping habits
- UK online customer satisfaction up +11pts YoY and new record number of Delivery Saver subscribers at 727k, up +12% YoY
- Tesco Whoosh delivering strong order and basket size growth, with active customers up +19.8% in the half
- Launched Tesco Marketplace; now offering over 150,000 products across categories including garden, home and pet care
- Integrated a further 397 net new Booker retail partners, taking the total outlets to 7,787 across Premier, Londis, Budgens and Family Shopper
4) Save to Invest – Significant opportunities to simplify, become more productive and reduce costs
- On track to deliver £500m efficiency savings target for the 2024/25 financial year, with a c.£260m contribution in the half
- Continued progress across all areas, including goods & services not for resale, operations, property and central overheads
- End-to-end review of stock flow from suppliers to store, optimising waste performance and improving availability
- Simplifying in-store routines, such as optimising the checkout model whilst minimising queueing times for customers, and refining replenishment routines
- Taking further action to reduce stock loss, including anti-push out technology and additional security gates
GROUP REVIEW OF PERFORMANCE.
On a continuing operations basis1
The results of our banking operations have been treated as discontinued following the announcement of our proposed sale to Barclays. As such, Tesco Bank results included in the table below and within the segmental review of performance section, refer only to the retained Tesco Bank business, i.e. insurance and money services, unless otherwise stated.
26 weeks ended 24 August 20242,6 | H1 24/25 | H1 23/24 | Change at actual rates | Change at constant rates |
Sales (exc. VAT, exc. fuel)3 | £31,463m | £30,401m | 3.5% | 4.0% |
Fuel | £3,310m | £3,400m | (2.7)% | (2.5)% |
Revenue (exc. VAT, inc. fuel) | £34,773m | £33,801m | 2.9% | 3.3% |
Adjusted operating profit4 | £1,649m | £1,426m | 15.6% | 15.8% |
Adjusting items | £(37)m | – | ||
Statutory operating profit | £1,612m | £1,426m | 13.0% | |
Net finance cost | £(218)m | £(269)m | ||
Joint ventures and associates | £(2)m | £4m | ||
Statutory profit before tax | £1,392m | £1,161m | 19.9% | |
Taxation | £(370)m | £(274)m | ||
Statutory profit after tax | £1,022m | £887m | 15.2% | |
Adjusted diluted EPS4 | 14.45p | 11.68p | 23.7% | |
Statutory diluted EPS | 14.62p | 12.25p | 19.3% | |
Interim dividend per share6 | 4.25p | 3.85p | 10.4% | |
Net Debt5,6 | £(9,676)m | £(9,888)m | 2.1% | |
Retail free cash flow5 | £1,261m | £1,368m | (7.8)% | |
Capex8 | £530m | £523m | 1.3% |
Sales3 increased by 4.0% at constant rates, including a strong contribution from volume growth, driven by our ongoing investments in value, quality and service. Sales inflation returned to more normalised levels as cost inflation headwinds eased. We continued to work with our supplier partners to lower prices for customers as quickly as possible. Revenue increased by 3.3% at constant rates, including a (2.5)% decline in fuel sales.
Adjusted operating profit4 increased by 15.8% at constant rates, primarily driven by our retail operations, where strong volume growth and a c.£260m contribution from Save to Invest more than offset further investments in the customer offer and colleague pay. Adjusted operating profit from the retained Tesco Bank business was £94m, up from £9m in the prior year. The current year includes £42m of non-recurring items, including the accounting for upfront commission income on the signing of a new five-year pet insurance contract. The prior year included a £(24)m impact from a movement in insurance reserves. The year-on-year growth excluding these items was driven by strong underlying performance in the insurance business.
Statutory operating profit improved by 13.0% year-on-year, as the strong adjusted operating profit performance described above was partially offset by lower gains on property transactions in the half.
Net finance costs were £51m lower year-on-year, due to higher interest earned on cash, short-term deposits and money market funds, and favourable non-cash mark-to-market movements on certain derivative financial instruments. The higher tax charge this year was mainly driven by higher profit and a higher statutory tax rate versus last year.
Adjusted diluted EPS4 grew by 23.7%. This was driven mainly by higher retail adjusted operating profit and the year-on-year increase in Tesco Bank adjusted operating profit described above. Our EPS growth also continues to benefit from a reduction in share count as a result of our ongoing share buyback programme. We have announced an interim dividend of 4.25 pence per ordinary share, in line with our policy to pay 35% of the prior full-year dividend.
We generated £1,261m of retail free cash flow5, including a net £169m working capital inflow. Net debt5,6 reduced by £88m since February 2024. Strong retail free cash flow generation offset cash returned to shareholders via dividends and our ongoing share buyback programme. Lease liabilities decreased by £79m since February 2024, primarily driven by the overall reducing nature of our lease liability. The net debt/EBITDA ratio was 2.1 times at the end of the first half.
Further commentary on these metrics can be found below and a full income statement can be found on page 16.
Notes:
- The performance of our banking operations has been presented as a discontinued operation with comparatives also restated. The retained business (insurance and money services) has been presented on a continuing operations basis and therefore within headline performance measures. Further details on discontinued operations can be found in Note 6, starting on page 29.
- The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 43.
- Group sales exclude VAT and fuel. Sales change shown on a comparable days basis for Central Europe.
- Adjusted operating profit and adjusted diluted EPS exclude adjusting items.
- Net debt and retail free cash flow exclude Tesco Bank.
- All measures apart from net debt and dividend per share are shown on a continuing operations basis unless otherwise stated. Further information on net debt can be found in Note 18, starting on page 41.
- Like-for-like (LFL) is a measure of growth in group sales from stores that have been open for at least a year and online sales (at constant exchange rates, excluding VAT and fuel).
- Capex excludes additions arising from business combinations, property buybacks (typically stores) and other store purchases. Refer to page 45 for further details.
- Not meaningful (n/m)