Finanzas: Tesco PLC reports 1H results



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%

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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.»

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

  1. 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

  1. 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.

For more information: Tesco PLC

Fuente: Tesco PLC

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