Asda updates on 2021 trading & launches new 'Just Essentials' value range
- New ‘Just Essentials by Asda’ value range launched to keep households running on a budget
- With...
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In an interim announcement on 5th October 2022, Tesco announced that they are on track to deliver for their customers despite the tough backdrop.
Strong trading performance built on consistent an competitive offer, leading to strong retail free cash flow:
UK | ROI | Booker | UK&ROI | C.Europe | Retail | |
1-yr LFL sales | 0.7% | (0.1)% | 13.9% | 2.7% | 10.4% | 3.2% |
3-yr LFL sales | 9.9% | 12.1% | 21.0% | 11.5% | 11.0% | 11.5% |
“We know our customers are facing a tough time and watching every penny to make ends meet. That’s why we’re working relentlessly to keep the cost of the weekly shop as affordable as possible, with our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices, together covering more than 8,000 products, week in, week out. We’re also investing significantly in our colleagues, with a further boost to pay announced today for our UK stores. I want to say a big thank you to the whole Tesco team, and our supplier partners – together, we have built a more resilient, consistent business that’s well set up for the future.
By staying laser-focused on value and sticking to our strategy of inflating a little bit less and a little bit later, our price position has got even more competitive. Customers are seeking out the quality and value of our own brand ranges as they work to make their money go further, whether they are switching from branded products, between categories or cutting back on eating out.
As we look to the second half, cost inflation remains significant, and it is too early to predict how customers will adapt to ongoing changes in the market. Despite these uncertainties, our priorities are clear. We have the right long-term strategy and we will continue to balance the needs of all of our stakeholders. Most importantly, we will stay focused on delivering value for our customers and supporting them in every way we can.”
In April, we provided a wider than usual range of profit guidance for the 2022/23 financial year, given significant uncertainties in the external environment. Since then, post-pandemic normalisation has been compounded by cost-of-living driven changes in customer behaviour. Cost inflation is significant and we have continued to invest to support our customers and colleagues. However, our solid trading performance and acceleration of our Save to Invest programme have contributed to a strong financial result for the first half.
As a result, despite ongoing challenges in the market, we are able to maintain our profit guidance within our previous range, albeit towards the lower end. We therefore expect full year retail adjusted operating profit of between £2.4bn and £2.5bn. Significant uncertainties in the external environment still exist, most notably how consumer behaviour continues to evolve.
Our strong and ongoing focus on cash and a more positive expectation on working capital leads to an upgrade in our expectation for full year retail free cash flow to be at least £1.8bn.
We continue to expect Bank adjusted operating profit of c.£120m to £160m.
In April, we committed to buying back a total of £750m worth of Tesco shares by April 2023 as part of our ongoing capital return programme. Since then, we have purchased £450m worth of shares and will continue to purchase the remaining £300m worth over the coming months.
This means that, by April 2023, we will have bought back a cumulative £1.05bn worth of shares since the start of the programme in October 2021.
STRATEGIC PRIORITIES.
Our strategic priorities help us support customers by offering great value, quality and convenience, and rewarding loyalty, all of which are paramount in the current environment. We have a unique position through our reach and capability that makes us best-placed to continue to deliver for all our stakeholders, through our ongoing focus on customer satisfaction, market share and cash. Our brilliant colleagues and the strength of supplier relationships mean that we can serve our customers however they need us, whilst also driving long term, profitable growth in the business.
Our multi-year performance and capital allocation frameworks continue to guide our actions, creating sustainable, long-term value for all Tesco stakeholders. We are making good progress against our strategic priorities:
1) Magnetic value for customers - Re-defining value to become the customer’s favourite
2) I love my Tesco Clubcard – Creating a competitive advantage through our powerful digital capability
3) Easily the most convenient - Serving customers wherever, whenever and however they want to be served
4) Save to invest – Significant opportunities to simplify, become more productive and reduce costs
H1 22/23 | H1 21/223 | Total change YoY | ||
26 weeks ended 27 August 20221,2: | Actual rate | Constant rate | ||
Group sales (exc. VAT, exc. fuel)4 | £28,178m | £27,331m | 3.1% | 3.5% |
Fuel | £4,278m | £3,085m | 38.7% | 38.7% |
Revenue (exc. VAT, exc. fuel) | £32,456m | £30,416m | 6.7% | 7.0% |
Adjusted operating profit5 | £1,315m | £1,458m | (9.8)% | (9.8)% |
Adjusting items | £(579)m | £(154)m | ||
Group statutory operating profit | £736m | £1,304m | (43.6)% | |
Net finance cost | £(325)m | £(158)m | ||
Joint ventures and associates | £2m | £(3)m | ||
Group statutory profit before tax | £413m | £1,143m | (63.9)% | |
Group tax | £(148)m | £(313)m | ||
Group statutory profit after tax | £265m | £830m | (68.1)% | |
Adjusted diluted EPS5 | 10.67p | 11.22p | (4.9)% | |
Statutory diluted EPS | 3.44p | 10.70p | (67.9)% | |
Interim dividend per share | 3.85p | 3.20p | 20.3% | |
Net Debt2,6 | £(10.0)bn | £(10.2)bn | ||
Retail free cash flow6 | £1.3bn | £1.5bn | ||
Capex8 | £0.4bn | £0.4bn |
Group sales4 increased by +3.5% at constant rates, with sales growing across all segments following on from a strong performance throughout the pandemic. Sales growth strengthened in the second quarter as general market inflation increased, in addition to very resilient demand in Central Europe and Booker. Revenue increased by +7.0% at constant rates, including fuel sales growth of +38.7% driven by inflation across the market and higher volumes.
Group adjusted operating profit5 decreased by (9.8)% at constant rates, reflecting the impact of post-pandemic normalisation on food volumes and lower non-food sales following high demand in the first quarter last year. We saw significant cost inflation and some impact from a step up in own brand sales vs branded ranges as customers took steps to manage the pressure on their household budgets. These impacts were partially mitigated by the acceleration of our Save to Invest programme, a strong Booker sales performance, particularly in the catering business, and a reduction in COVID-19 related costs year-on-year.
Group statutory operating profit reduced by (43.6)% year-on-year due to the operating profit impacts above and an increase in adjusting items, principally driven by a £(626)m non-cash non-current asset impairment charge related to an increase in discount rates this year.
Net finance costs increased by £(167)m year-on-year primarily due to fair value remeasurements related to the mark-to-market movement on inflation-linked swaps, which led to a £(75)m charge this year compared to a £180m credit in the prior year. The increase in our share of profit from joint ventures and associates was due to an increase in profits from UK property joint ventures and a reduction in losses generated by our joint venture in India. The reduction in tax this year primarily reflects the reduction in retail operating profits and a one-off charge in the prior year related to the revaluation of deferred tax.
Our adjusted diluted EPS5 declined by (4.9)%, as the impact of the year-on-year reduction in retail operating profits was partly offset by a lower tax charge and the benefit of our ongoing share buyback programme. We have announced an interim dividend of 3.85 pence per ordinary share, an increase of +20.3% year-on-year, set in line with our policy at 35% of the prior full-year dividend.
Net debt2,6 reduced by £472m since the year end, driven by strong cash generation and after the outflow relating to our ongoing share buyback programme. We generated £1,283m of retail free cash flow6, including a working capital inflow driven by higher trade balances. This reflects a reduction of £(260)m year-on-year due to an even higher working capital inflow last year, driven by a sharp recovery in fuel and non-food volumes in the UK. The net debt/ EBITDA ratio was 2.5 times, the same as at the year end, as lower levels of net debt were offset by lower Retail EBITDA.
Further commentary on these metrics can be found below and a full income statement can be found on page 17.
Notes:
The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 45.
All measures apart from Net debt are shown on a continuing operations basis unless otherwise stated. Further details on discontinued operations can be found in Note 6 on page 32.
As previously reported in the Annual Report and Financial Statements 2022, the Group has changed its accounting policy for property buybacks, and comparatives have been restated (see Note 1 on page 23).
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 as noted in footnote 1.
Net debt and Retail free cash flow exclude Tesco Bank.
Like-for-like is a measure of growth in Group online sales and sales from stores that have been open for at least a year (at constant exchange rates, excluding VAT and fuel).
Capex excludes additions arising from business combinations and buybacks of property (typically stores), as well as additions relating to decommissioning provisions and similar items.
This statement first appeared on Tescoplc.com
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