Company Announcements

Preliminary Results 2021/22

Source: RNS
RNS Number : 1899I
Tesco PLC
13 April 2022
 

Preliminary Results 2021/22

 

CHAMPIONING GREAT VALUE FOR CUSTOMERS DELIVERS STRONG PERFORMANCE.

 

Performance highlights1,2:

2021/22

2020/213

Change at actual rate

Change at constant rate

Group sales (exc. VAT, exc. fuel)4

£54,768m

£53,445m

2.5%

3.0%

Adjusted operating profit5

£2,825m

£1,788m

58.0%

58.9%

     -     Retail

£2,649m

£1,963m

34.9%

35.8%

     -     Tesco Bank

£176m

£(175)m

n/m

n/m

Retail free cash flow6

£2,277m

£1,340m

69.9%

 

Net debt2,6

£(10.5)bn

£(12.0)bn

down 12.0%

 

Adjusted diluted EPS5,7

21.86p

11.58p

88.8%

 

Dividend per share

10.90p

9.15p

19.1%

 

Statutory measures:

 

 

 

 

Revenue (exc. VAT, inc. fuel)

£61.3bn

£57.9bn

6.0%

 

Operating profit

£2,560m

£1,547m

65.5%

 

Profit before tax

£2,033m

£636m

219.7%

 

Retail cash generated from operating activities

£3,614m

£321m

1,025.9%

 

Diluted EPS

19.64p

5.58p

252.0%

 

 

Strong sales and profit performance leading to retail free cash flow ahead of expectations:

·    Strong sales throughout the year; Retail 1-yr LFL8 sales growth includes UK market outperformance and sharp recovery in Booker; 2-yr LFL reflects strong performance throughout the pandemic across all businesses:

 

 

UK

ROI

Booker

UK&ROI

C.Europe

 Retail

1-yr LFL sales

0.4%

(2.9)%

15.3%

2.2%

2.9%

2.3%

 

2-yr LFL sales

8.2%

10.6%

11.9%

8.8%

2.5%

8.3%

 

                 

·    Total retail adjusted operating profit5 £2,649m, +35.8% at constant rates

     UK & ROI adjusted operating profit £2,481m, +35.4% due to higher sales and lower COVID-19 costs

     C. Europe adjusted operating profit £168m, +41.1% due to lower COVID-19 costs & higher YoY mall income

·    Bank adjusted operating profit £176m, returning to profit following last year's increase in potential bad debt provision

·    Statutory revenue £61.3bn, +6.0% and statutory operating profit £2,560m, +65.5%; driven by strong sales, reduced COVID-19 costs and a return to profitability in Tesco Bank

·    Retail free cashflow6 £2,277m, +69.9% from higher profit, lower pension contribution9 & higher working capital inflow

·    Net debt2,6 reduced by +£1.4bn since last year driven by strong cash flow; net debt ratio down to 2.5x

·    Adjusted diluted EPS5,7 21.86p, +88.8%; statutory diluted EPS 19.64p, +252.0%; reflecting higher profits

·    Proposed final dividend of 7.70pps to take full year dividend to 10.90pps - up +19.1% YoY

 

Strengthening our customer proposition:

·    Market share gains in UK, ROI & C.Europe; including +30bps to 27.7% in UK, outperforming on value and volume

·    Highest Brand NPS to date; Brand index further improved +9bps YoY (+63bps vs competitor average)

·    Aldi Price Match extended to c.650 lines, all promotions now on Clubcard Prices, re-launched 1,600 Low Everyday Prices

·    Value perception: outperformed market by 91bps; Quality perception: +11bps vs market decline of (32)bps

·    UK online share +142bps to 34.8%; 9.0m digital Clubcard app users; 'Tesco Whoosh' now in over 200 stores

 

Creating long-term, sustainable value for all Tesco stakeholders:

·    Substantial new pay deals agreed for hourly paid colleagues; additional thank you payment announced

·    Group supplier viewpoint survey reached highest ever score of 86.4% (+1.4% pts YoY)

·    Donated 53m meals through food redistribution programmes and 3m meals through 'Buy One to Help a Child' campaign

·    Ambitious targets for net zero (2035: own operations, 2050: scope 3); first UK-wide soft plastic recycling network

·    Multi-year performance & capital allocation frameworks set out, underpinned by four strategic priorities

·    £300m capital returned to date through share buyback programme; committing to a further £750m by April 2023


Detail on financial footnotes can be found on page 4.  Other data sources are referenced on page 15. 

 

 

Ken Murphy, Chief Executive:

"Before reflecting on business performance, I want to say that the entire Tesco family is thinking of all the people affected by the war in Ukraine.  The impact is particularly close to home for our colleagues in Central Europe, who are supporting with logistics and donations of food and clothing, as well as helping to transport donations to the Red Cross at the Ukrainian border.  Combining our own donations and matching those of customers, together we have raised almost £4m to support the vital work of the Red Cross, as well as more than £500k for humanitarian organisations in Central Europe.  We continue to offer support to those in Ukraine however we can.

Over the last year, we delivered a strong performance across the Group, growing share in every part of our business.  We did this by staying focused on our customers and doing the right thing for our colleagues, our supplier partners and the communities we serve.  I want to thank all of our colleagues who did a brilliant job navigating the ongoing pandemic, dealing with the supply chain challenges in the industry and tackling the onset of increasing inflation.

In October, we shared the four strategic priorities that will help us to stay competitive, accelerate our growth and ensure that we can sustainably generate strong levels of retail free cash flow.  We have already made good progress: our value perception is the strongest it has been for many years; we are building deeper relationships with more customers through the digitisation of Clubcard; and we are serving more customers wherever, whenever and however they want through more convenience stores, more than 100 new Click & Collect sites and the launch of Tesco Whoosh.

Tesco is at its best when it puts customers first - it's what we did during the pandemic and it is what we will continue to do now.   Clearly, the external environment has become more challenging in recent months.  Against a tough backdrop for our customers and with household budgets under pressure, we are laser-focused on keeping the cost of the weekly shop in check - working in close partnership with our suppliers, as well as doing everything we can to reduce our own costs. Through our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices, we are making more products more affordable, in more places than anyone else.

We are confident that taking this approach will enable us to deliver on the multi-year performance framework we shared in October, driving sustainable growth and generating strong retail free cash flow.  This confidence, and our strong performance to date is reflected in the increased pace and scale of our capital return programme, with a commitment to repurchase shares worth £750m over the next twelve months."

OUTLOOK.

We are running the business to generate sustainable value for all stakeholders and will continue to champion great value for customers at a time when they are facing increasing pressure on household budgets.

Given the significant uncertainties in the external environment, we believe it is appropriate to provide profit guidance in the form of a wider than usual range.  Our guidance for the 2022/23 financial year is therefore for retail adjusted operating profit of between £2.4bn and £2.6bn.  Three main factors are likely to influence our actual performance:

-     the extent of further normalisation in customer behaviour as we come out of the pandemic

-     the level of cost inflation that we experience and our ability to partially offset it through accelerating Save to Invest

-     the investment required to maintain the strength of our price position relative to the market

We expect Bank adjusted operating profit of c.£120m to £160m.

Our focus on cash flow remains unchanged and we expect another strong retail free cash flow performance within our £1.4bn to £1.8bn range.

CAPITAL RETURN PROGRAMME.

To date, we have purchased £300m worth of Tesco shares as part of our ongoing share buyback programme.

Reflecting our strong retail free cash flow to date and confidence in our ability to sustainably generate retail free cash flow within our guidance range of £1.4bn to £1.8bn going forwards, we are pleased to confirm a commitment to buy back a total of £750m worth of shares over the next twelve 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.

Going forward, we plan to announce any new forward commitments regarding our capital return programme as part of our preliminary results each April.

STRATEGIC UPDATE.

Tesco has a uniquely strong position in terms of reach, capability and market share, built up through decades of focusing on meeting our customers' needs.  We are hugely proud of the capability and commitment of our team of 345,000 colleagues, serving millions of customers across the Group.  We have market-leading positions in every channel and format in our core UK retail and wholesale markets, and through Clubcard, dunnhumby and over 40 million transactions every week, we have the insight to be able to understand and anticipate customers' changing needs.  We have the broadest, most compelling product range and strong relationships with our supplier partners, together with efficient, well-invested supply chain, distribution and fulfilment infrastructure.

In October, we refreshed our capital allocation framework and shared a new multi-year performance framework to guide our actions and track our progress over the coming years.  We shared four strategic priorities which will help drive top-line growth, grow our absolute profits and in doing so, generate between £1.4bn and £1.8bn retail free cash flow per year.  We are confident that this will enable us to maintain a strong and efficient balance sheet, invest for growth and deliver improved returns for our shareholders.  

We have already made good progress:

1) Magnetic value for customers - Re-defining value to become the customer's favourite

·    Strongest UK price position in six years with shelf price index improved by +70bps YoY, achieved through:

-     Aldi Price Match increased to c.650 lines; Aldi Price Match products feature in 99% of large baskets

-     Re-launched Low Everyday Prices on 1,600 lines, with a particular emphasis on household and health & beauty

-     100% of promotions now on Clubcard Prices, including our iconic £3 meal deal

·    Value perception outperformed market by 91bps; Quality perception +11bps vs market decline of (32)bps

·    Brand index further improved +9bps (vs competitor decline of (54)bps) on top of an exceptionally strong performance last year; 2-yr Brand index +413bps vs competitor average +132bps

·    Continuing to offer healthier choices through reformulation, with 7.7bn more calories removed

·    Removed 1.6bn pieces of plastic to date; UK's first nationwide soft plastic recycling network rolled out from March 2021

·    Launched first electric HGVs in UK, with pilot in Hungary & Czech Republic; EV charging points now in 500 UK stores

2) I love my Tesco Clubcard - Creating a competitive advantage through our powerful digital capability

·    Continuing to drive Clubcard penetration +390bps YoY:  Clubcard Prices launched in Tesco Express stores (May), Tesco Mobile (September) and Tesco Bank (October); also rolled out in ROI and launched Clubcard events in Central Europe

·    Number of customers accessing Clubcard via app now at 9.0m, with more than half of customers now receiving e-statements; Clubcard households reached over 20m

·    In-app personalised digital summary of customers' experience and value with Tesco trialled with one million customers

·    dunnhumby leveraging insights from >800m customers with team of >500 data scientists; new CEO started Jan 2022

3) Easily the most convenient - Serving customers wherever, whenever and however they want to be served

·    Online sales remain significantly ahead of pre-COVID levels; market share +142bps to 34.8%; orders held at c.1.2m/wk

·    Four UFCs with pick rates around four times higher than store-based picking; added 102 new Click & Collect sites

·    'Tesco Whoosh' superfast delivery service now available from >200 stores, rolling out to 600 stores this year

·    Simplified our offering, transitioned 89 Metro's to Express; opened 40 Express stores and 283 Booker retail partners

·    Announced intention in November to acquire ten Joyce's Supermarkets in Republic of Ireland, subject to CCPC approval

4) Save to invest - Significant opportunities to simplify, become more productive and reduce costs

·   New three-year savings plan underway, with target of c.£1bn through four streams - goods & services not for resale (GSNFR), property, store and distribution operations, and central overheads

·    Announced removal of counters in 317 stores in February, repurposing space to better reflect customers' needs

·    Announced the closure of Jack's format; six stores converted to superstores & seven due to close in FY22/23

·    Simpler supplier arrangements and improved procurement processes underway for goods & services not for resale

 

Group review of performance.

 

FY

FY3

Total change YoY

 

52 weeks ended 26 February 20221,2

2021/22

2020/21

Actual rate

Constant rate

 

 

 

 

 

Group sales (exc. VAT, exc. fuel)4

£54,768m

£53,445m

2.5%

3.0%

Fuel

£6,576m

£4,442m

48.1%

48.1%

Revenue (exc. VAT, inc. fuel)

£61,344m

£57,887m

6.0%

6.4%

 

 

 

 

 

Adjusted operating profit5

£2,825m

£1,788m

58.0%

58.9%

Adjusting items1

£(265)m

£(241)m

 

 

Group statutory operating profit

£2,560m

£1,547m

65.5%

 

 

 

 

 

 

Net finance costs

£(542)m

£(937)m

 

 

Joint ventures and associates

£15m

£26m

 

 

Group statutory profit before tax

£2,033m

£636m

219.7%

 

Group tax

£(510)m

£(104)m

 

 

Group statutory profit after tax

£1,523m

£532m

186.3%

 

 

 

 

 

 

Adjusted diluted EPS5,7

21.86p

11.58p

88.8%

 

Statutory diluted EPS

19.64p

5.58p

252.0%

 

Dividend per share

10.90p

9.15p

19.1%

 

Net debt2,6

£(10.5)bn

£(12.0)bn

 

 

Retail free cash flow6

£2.3bn

£1.3bn

 

 

Capex10

£1.1bn

£1.0bn

 

 

           

 

Group sales4 increased by +3.0% at constant rates, with growth across all regions on top of exceptionally strong sales last year.  Revenue increased by +6.4% at constant rates including fuel sales growth of +48.1% as customers travelled more following the easing of government restrictions.  Whilst two-year like-for-like fuel sales growth was negative at (6.4)%, this primarily reflects lower demand in the first half, with fuel sales ahead of pre-pandemic levels by the end of the year.

Group adjusted operating profit5 grew by +58.9% at constant rates, reflecting the strong sales performance across the retail businesses, a reduction in COVID-19 related costs and a return to profitability in Tesco Bank.  These benefits were partially offset by inflationary pressures in the cost base, particularly in distribution costs.  Group statutory operating profit, which includes adjusting items related to the costs of historical shareholder litigation claims, grew by +65.5%.

Finance income and finance costs reduced year-on-year primarily due to fair value remeasurement gains related to the mark-to-market movement on inflation-linked swaps, which were a £123m benefit this year compared to a £(214)m charge in the prior year.  The reduction in our share of profit from joint ventures and associates was principally due to profit from Tesco Underwriting being recognised within Tesco Bank operating profit following its full acquisition in May.  The increase in tax this year primarily reflects higher levels of both retail and Tesco Bank operating profit, in addition to the revaluation of deferred tax relating to the announced change in the UK corporation tax rate from 19% to 25%, effective 1 April 2023.

Our adjusted diluted EPS5,7 rose by +88.8%, reflecting the increase in retail and Tesco Bank operating profit and a reduction in net finance costs.  We have proposed a final dividend of 7.70 pence per ordinary share, taking the full-year dividend to 10.90 pence per ordinary share, an increase of 19.1% year-on-year.

Net debt2,6 reduced by £1.4bn year-on-year, primarily driven by strong free cash flow generation.  Retail free cash flow6 increased by £0.9bn year-on-year due to higher retail operating profits, the elimination of UK pension contributions (following the £2.5bn one-off contribution last year from the Asia disposal proceeds) and a working capital benefit from higher sales.  These benefits were partly offset by an increase in capital expenditure.  The net debt/ EBITDA ratio was 2.5 times at the year-end, compared to 3.3 times last year.

Further commentary on all of these metrics can be found below and a full income statement can be found on page 17.

 

Notes:

1.  The Group has defined and outlined the purpose of its alternative performance measures, including its performance highlights, in the Glossary starting on page 58.  During the year, the operating profit and EPS APMs were renamed. Profit has changed from 'Group operating profit before exceptional items and amortisation of acquired intangibles' to 'Adjusted operating profit'.  EPS has changed from 'Diluted EPS before exceptional and other items' to 'Adjusted diluted EPS'.  The definitions are unchanged.  The Retail free cash flow APM was amended in order to provide a more consistent and predictable view of free cash flow generated by the Group's retail operation.  'Exceptional items and amortisation of acquired intangibles' within operating profit, along with net pension finance costs, fair value remeasurements of financial instruments, and the tax impact of such items (below operating profit), are now called 'Adjusting items'.  The policy for determining adjusting items, and the items adjusted for, are unchanged from the prior year and hence there is no impact on previously reported APMs.            

2.  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, starting on page 34.

3.  The Group has changed its accounting policy for property buybacks in light of an evolution of accepted practice in relation to the application of IFRS 16 'Leases' to such transactions.  Comparatives have been restated for this change in accounting policy (see Note 1 on page 23 for further details).

4.  Group sales exclude VAT and fuel. Sales change shown on a comparable days basis for Central Europe.

5.  Adjusted operating profit and Adjusted diluted EPS exclude Adjusting items as noted in footnote 1.                                         

6.  Net debt and retail free cash flow exclude Tesco Bank.

7.  The share base used in Adjusted diluted EPS in the prior year is adjusted to capture the full impact of the share consolidation which followed the sale of our businesses in Thailand and Malaysia, as if it took place at the start of the 2020/21 financial year.  As such, Adjusted diluted EPS (adjusted for share consolidation) is presented on a basis other than in accordance with IAS 33.  Please see page 61 for a reconciliation to Adjusted diluted EPS.

8.  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).

9.  UK pension contributions were eliminated following the £2.5bn one-off contribution made to the scheme in the prior year from the proceeds from the sale of our businesses in Thailand and Malaysia.

10.Capex excludes additions arising from business combinations and buybacks of properties (typically stores), as well as additions relating to decommissioning provisions and similar items.

 

Segmental review of performance:

 

Sales performance: 

(exc. VAT, exc. fuel)4

 

Sales

LFL sales change8

Total sales change YoY

 

 

One-year

Two-year

Actual rate

Constant rate

 

 

 

 

 

 

     -  UK

£39,742m

0.4%

8.2%

0.8%

0.8%

     -  ROI

£2,487m

(2.9)%

10.6%

(7.1)%

(2.4)%

     -  Booker

£7,755m

15.3%

11.9%

15.1%

15.1%

  UK & ROI

£49,984m

2.2%

8.8%

2.3%

2.6%

  Central Europe

£3,862m

2.9%

2.5%

(0.0)%

3.7%

Retail

£53,846m

2.3%

8.3%

2.2%

2.7%

  Bank

£922m

-

-

25.4%

25.4%

Group Sales

£54,768m

2.3%

8.3%

2.5%

3.0%

  Fuel

£6,576m

48.0%

(6.4)%

48.1%

48.1%

Group Revenue

£61,344m

5.9%

6.4%

6.0%

6.4%

 

Further information on sales performance is included in the supplementary information starting on page 55.

 

Adjusted operating profit5 performance:

 

 

Profit

Total change YoY

Margin %

Margin % change

 

 

Actual rate

Constant rate

Actual rate

Actual rate

  UK & ROI

£2,481m

34.9%

35.4%

4.40%

+94bps

  Central Europe

£168m

35.5%

41.1%

4.18%

+107bps

Retail

£2,649m

34.9%

35.8%

4.38%

+95bps

  Bank

£176m

n/m

n/m

19.09%

n/m

Group

£2,825m

58.0%

58.9%

4.61%

+152bps

 

Further information on operating profit performance is included in Note 2 starting on page 25.

 

UK & ROI overview:

In the UK & Republic of Ireland (ROI), one-year like-for-like sales increased by +2.2% on top of exceptional growth last year, driven by a sharp recovery in Booker catering sales, strong non-food sales in the UK & ROI and sustained market outperformance in the UK.  Two-year like-for-like sales increased by +8.8% with all businesses growing versus pre-pandemic levels.

UK & ROI adjusted operating profit was £2,481m, up +35.4% at constant rates as higher sales volumes and lower COVID-19 costs year-on-year offset underlying operating cost inflation.

In the UK, we continued to incur COVID-19 related costs, primarily relating to colleague absence for those colleagues who were sick or self-isolating and additional costs related to sustained elevated online sales.  Total COVID-19 related costs were £(220)m, significantly less than the £(892)m incurred last year.  Our assumption for the current year is that we will incur a significantly lower level of COVID-19 costs as colleague absence rates return to pre-pandemic levels.  Around £(80)m of residual costs will remain, relating to increased online demand, however we do not plan to report these separately going forwards.

Adjusted operating margin was up +94 basis points versus last year.  Our core UK business benefited from strong growth in higher margin clothing sales, including an increase in full price sales from 77% last year to 86% this year, and Booker profitability recovered as catering demand increased following the reopening of the hospitality sector.  Lower COVID-19 related costs were partly offset by our investments in value and service.  We were able to more than offset inflationary pressures in the cost base this year with cost savings related to further simplifying our operating model.

UK - strong market outperformance, with sales growth on a one-year and two-year basis:

One-year like-for-like sales grew by +0.4%, including growth of +1.2% in the first half before sales declined by (0.5)% in the second half as we traded over elevated demand during the second and third national lockdowns in the prior year.  First half growth was driven by non-food and increased levels of discretionary spend compared to last year, when footfall in stores was lower and customers prioritised spending on food during the first national lockdown.  In the second half, food sales declined as customers were able to return to eating more out of home, and reflected very strong comparators last year, including double-digit growth in the fourth quarter.

We sought to mitigate as much price inflation as possible, ending the year with our strongest relative price position in over six years.  Our ongoing value investments and a higher promotional participation meant we saw sales deflation for the year as a whole, but with inflation increasing during the second half of the year, as the grocery market faced significant cost pressures.  

Two-year like-for-like sales grew by +8.2%, with growth both in stores and online, and in food and non-food.  Average basket sizes across the business remained higher than pre-pandemic levels, partially offset by fewer shopping trips. 

Our relentless focus on providing customers with great value and service resulted in consistent outperformance against the market throughout the year.  Our UK market share reached its highest level in over four years and we saw 23 consecutive periods of net switching gains.  We gained market share in the year on both a value and volume basis, with volume growing ahead of value as we did everything we could to minimise inflation for our customers.  We have market leading two-year improvements in brand index (+413bps), value (+483bps) and quality (+385bps) perception.  During the year we extended Clubcard Prices to all Express stores, increasing Clubcard sales penetration by +21%pts year-on-year in those stores.  Clubcard penetration in Large stores was 86%, increasing by +7%pts year-on-year.

Online one-year like-for-like sales declined by (6.5)% as some customers chose to return to shopping in our stores as the pandemic eased.  Online sales participation was 14% across the full year, with a peak during the first quarter of 15.5%.  Two-year like-for-like sales grew by +66.1% and sales participation in online was 5% higher than before the pandemic, driven by both a sustained increase in orders and higher basket sizes.  We have added £2.3 billion of online sales and fulfilled an average of over 1.2 million customer orders per week versus 0.7 million pre-pandemic.  

We have included the table below to aid understanding of our online performance:

Online performance

FY

2021/22

One-year change

Two-year change

LFL sales

£5.9bn

(6.5)%

+66.1%

Orders per week

1.22m

+0.9%

+63.3%

Basket size £

£94

(6.8)%

+2.2%

Online % of UK total sales

14.0%

(1.1)%pts

+4.8%pts

Delivery saver subscribers

683k

+11%

+38%

Click & Collect (C&C) locations

510

+39%

+55%

We opened three Urban Fulfilment Centres (UFCs) in the year, including Lakeside in the first half and Bradford and Horwich in the second half, taking the total number to four, with pick rates around four times higher than store-based picking.  The fifth UFC is expected to open next month, in Rutherglen.   

Following encouraging initial trials, we expanded 'Tesco Whoosh' - our 60-minute delivery service - from 50 stores in the first half to over 200 stores by the end of the year.  We offer customers over 1,700 products, including fresh food, and delivery slots are available between 7am and 10pm, every day.  We plan to roll the service out to 600 stores over the coming year.  In October, we launched a pilot with Gorillas in our Thornton Heath store in London, offering customers grocery deliveries within ten minutes on a range of 2,000 products.  

Convenience one-year like-for-like sales declined by (0.8)%, with a decline in the first half partially offset by growth of +4.0% in the second half as footfall in city centres recovered.  Growth was particularly strong in our 'on-the go' stores and in 'food to go' and 'food for tonight' ranges, where sales grew by +34.9% and +21.6% respectively.  Sales in our stores in neighbourhood locations declined following very high levels of demand last year as customers shopped closer to home. 

Non-food sales growth was particularly strong this year, driven mainly by Clothing +19.4% as customers spent more time shopping our ranges in-store and we responded to changing customer demand in our ranges.  Growth was particularly strong in Womenswear and Kids, and benefited from a re-balancing of space between Clothing and General Merchandise, now completed in 116 of our large stores, making Clothing more of a destination shop and making our food-adjacent General Merchandise ranges simpler and easier to shop.  Food sales were marginally behind last year, down (0.4)%, driven mainly by lower demand in those categories which benefited from elevated levels of in-home consumption last year, including meat, fish & poultry, and grocery.  Demand for plant-based products continues to grow at pace, with sales of plant-based meat alternatives growing by 130% since our 2018 baseline.  We expanded our plant-based ranges further in the year,  launching an additional 173 products, including our Wicked Kitchen meal deal in January.  On a two-year basis, total UK like-for-like sales grew across all categories, with a particularly strong contribution from food.  Sales in Finest* ranges grew by +25% on a two-year basis as customers treated themselves at home.

We rolled out soft plastic recycling facilities across all of our large UK stores and launched an innovative Reuse proposition in ten stores as we continue to tackle plastic waste.  We removed an additional 600 million pieces of plastic from our packaging this year, taking the cumulative total pieces of plastic removed over the past two years to 1.6 billion.  We removed a further 7.7 billion calories from our own brand ranges as part of our work towards achieving 65% of our sales from healthy products by 2025.  Our 'Buy One to Help a Child' campaign - where we gave a donation for every piece of fruit and vegetables purchased across our stores and online - provided FareShare with 3 million meals-worth of food to help charities and community groups.  

In September, we announced accelerated climate ambitions, bringing forward our Group own operations net zero target to 2035.  We also launched a new goal to be net zero across our entire value chain by 2050, aligned to a 1.5-degree pathway.  We continued to roll out electric online delivery vans, set up new renewable energy projects and launched our first two electric HGVs in our distribution operations this year.  We also launched our sustainability-linked supply-chain financing programme and issued our second sustainability-linked bond.  In November, we were delighted to be awarded the Prince of Wales's Terra Carta Seal in recognition of our commitment to and momentum towards a climate and nature-positive future.

 

ROI - one-year LFL (2.9)% reflecting higher demand last year; +10.6% growth on a two-year basis:

One-year like-for-like sales declined by (2.9)% as we traded over exceptional COVID-19 demand last year.  The COVID-19 impact was particularly strong in ROI as the restrictions on hospitality were in place for a longer period than in the UK.  Despite the exceptionally strong comparative, ROI like-for-like sales grew by +0.3% over Christmas and we gained market share in the fourth quarter.  Two-year like-for-like sales grew by +10.6%, reflecting a significant benefit from retained levels of higher in-home consumption.

Our online business grew by +3.1% on a one-year basis and now represents 8% of our sales.  We have maintained a leading position, with a market share of 59%.  We expanded our online offering further this year, rolling out an additional 37 Click & Collect locations and increasing our total slot capacity by 69%.  

We launched Aldi Price Match in ROI in January, with hundreds of products matched.  We have started to roll out Clubcard Prices, following successful Clubcard Prices Events.  We also focused on making shopping easier for customers, including rolling out 'Scan As You Shop' to all large stores.

We announced an intention to acquire ten Joyce's Supermarkets in Galway in November.  The acquisition is subject to the approval of the Competition and Consumer Protection Commission (CCPC).

 

Booker - strong sales growth on both a one-year and two-year basis:

 

 

Sales
 

LFL sales change

One-year

Two-year

Retail

£4,651m

0.7%

19.3%

Retail exc. Tobacco

£2,630m

(0.7)%

16.8%

Tobacco

£2,021m

2.5%

22.6%

Catering

£2,866m

56.1%

(1.6)%

Catering exc. BFL

£1,687m

52.0%

(1.6)%

Best Food Logistics (BFL)

£1,179m

62.5%

n/a

Total Booker*

£7,755m

15.3%

11.9%

* Total Booker also include small business sales of £238m

Booker delivered double-digit like-for-like sales growth on both a one-year and two-year basis.  One-year growth of +15.3% was driven by a sharp recovery in catering sales as hospitality outlets re-opened, with a strong contribution from Best Food Logistics, the majority of whose customers are fast-service restaurants.  Two-year catering sales declined by (1.6)% in total, impacted by the phased re-opening of the hospitality sector in the first half.  In the second half catering sales were ahead of pre-pandemic levels, with growth of +9.6% supported by strong execution and competitive pricing.

In the retail business, one-year like-for-like sales grew +0.7%, primarily due to inflation in tobacco driven by annual duty increases.  Retail sales excluding tobacco were marginally lower than last year as we lapped a strong uplift in neighbourhood-based convenience stores as customers shopped closer to home.  Despite supply chain challenges, we delivered a resilient performance and gained new customers.  Two-year retail like-for-like sales grew +19.3% driven by strong customer retention. 

Central Europe - growth across all channels and categories on a one-year and two-year like-for-like basis:

Like-for-like sales grew by +2.9% on a one-year basis and by +2.5% on a two-year basis, with growth across all channels and categories.  Growth was particularly strong in Slovakia and Hungary, and in our compact hypermarket and supermarket formats as customer footfall improved and we were able to offer our full range following non-food selling restrictions last year.  Trading conditions were more challenging in the Czech Republic, due to non-food sales restrictions in the first quarter. 

Non-food sales grew by +13.3%, with strong growth in both Clothing and General Merchandise.  We saw  a particularly positive customer response to our seasonal events.  Food sales grew by +1.0%.  

Customer NPS improved significantly across all markets year-on-year, driven by improvements in the shopping trip, with scores almost doubling by the end of the year for the region as a whole.   We continued to strengthen our value proposition in the region, including the launch of Clubcard Prices Events in Slovakia and Hungary.  Clubcard penetration increased during these events as customers accessed market-leading prices.  Following the success of these initial events, we will expand Clubcard Prices to all markets and categories in the current year.

Central Europe adjusted operating profit was £168m, an increase of +41.1% at constant rates.  Adjusted operating profit growth was driven by strong sales, lower COVID-19 related costs and higher margins from more full-priced non-food sales. 

We have agreed the sale of 17 malls and one retail park in Central Europe.  The transaction is expected to complete in the first half of the current year, generating proceeds of c.£200m and resulting in a c.£(12)m impact to adjusted operating profit in the current year, driven by a reduction in mall income.  We will continue to operate the Tesco hypermarkets in the malls on a long-term leasehold basis.

 

Tesco Bank - year-on-year profit increase reflecting prior year COVID-19 impact on potential bad debts:

 

This year

Last year

YoY

Revenue

£922m

£735m

25.4%

Adjusted operating profit/ (loss)

£176m

£(175)m

n/m

Lending to customers

£6.5bn

£6.4bn

1.6%

Customer deposits

£(5.3)bn

£(5.7)bn

7.0%

Net interest margin1

5.0%

4.7%

0.3%pts

Total capital ratio2

27.2%

28.5%

(1.3)%pts

1. The prior period net interest margin has been restated from 5.2% to 4.7%.

2. The prior period total capital ratio has been restated from 28.4% to 28.5%.

 

Revenue grew by +25.4%, due to the benefit of the full acquisition of Tesco Underwriting which completed in May 2021.  Revenue excluding Tesco Underwriting declined by (9.4)%, primarily as a result of lower income from unsecured lending due to lower average balances as customers paid down their debt during the pandemic, or increased savings buffers which reduced the need for new credit.  We did however see a strong recovery in credit card customers' spending levels and in new business unsecured lending volumes. 

ATM transactions increased by 13.6% year-on-year as cash usage recovered post-lockdown.  Travel money continued to be impacted by the pandemic and international travel restrictions, although we saw an encouraging increase in demand at the end of the year as restrictions eased. 

Tesco Bank adjusted operating profit was £176m, including a £13m contribution from Tesco Underwriting being fully consolidated.  The significant recovery reflects the charge last year related to an increase in the provision for potential bad debts which accounted for the anticipated macroeconomic impact from COVID-19.  We released part of this provision in the second half as the macroeconomic outlook improved and customer defaults remained low.  We then recognised a separate provision in the second half to reflect the increased risk associated with cost of living pressures. 

The Bank's balance sheet remains strong and we continue to have sufficient capital and liquidity to absorb changes in both regulatory and funding requirements.  In recognition of the sharp recovery in profitability in the year, the Bank paid a dividend of £87m to the Group.  This comprises the typical annual £50m dividend for the 21/22 financial year and a catch-up of £37m in relation to the reduced payment of £13m in the prior year.

Tesco Bank won 'Best Overall Provider' at the 2021 YourMoney Awards, in recognition of the quality of our customer service and competitive pricing of our products.  We introduced a number of new products and services for customers this year including Clubcard Pay+ in January.  We also expanded our offer with the re-launch of travel insurance.  Since August, all new and renewing Tesco Bank car and home insurance policies are being underwritten by Tesco Underwriting following the completion of its acquisition in May.

 

Adjusting items in statutory operating profit:

 

This year

Last year

Litigation costs

£(193)m

£(93)m

Property transactions

£128m

£26m

Net impairment (loss)/reversal of non-current assets

£(115)m

£128m

Amortisation of acquired intangible assets

£(76)m

£(76)m

Restructuring provisions

£(44)m

-

Asia licence fee income

£26m

-

Disposal of China associate

£15m

-

Fair value less cost of disposal movements on assets held for sale

£(6)m

-

Impairment charge on Tesco Bank goodwill

-

£(295)m

UK - ATM business rates

-

£105m

Booker integration costs

-

£(25)m

GMP equalisation

-

£(7)m

Employee share scheme

-

£(4)m

Total adjusting items in statutory operating profit

£(265)m

£(241)m

Adjusting items are excluded from our adjusted operating profit performance by virtue of their size and nature to provide a helpful alternative perspective of the year-on-year performance of the Group's ongoing trading business.  Total adjusting items in statutory operating profit in the year resulted in a charge of £(265)m, compared to a charge of £(241)m in the prior year.

In September 2020, two claimant law firms issued proceedings against us in relation to the overstatement of expected profit announced in 2014.  These claims have now been settled and we have recognised an adjusting charge of £(193)m.  The settlement of these claims was paid in full in the year, £(105)m in the first half and £(88)m in the second half.  This cash outflow is presented within adjusting cash items.  Given that the legal timeframe for bringing a claim has now elapsed, no further related claims can be brought by shareholders.

We recognised an adjusting credit of £128m related to the profit generated on disposal of properties in the year.  The majority of the property profits recognised related to the sale of our Fenny Lock distribution centre which generated proceeds of £146m and a £103m profit on disposal.

During the period, the Group recognised a net impairment charge of £(115)m on non-current assets. This includes £(62)m required as a result of the Group's acquisition of our partner's stake in The Tesco Sarum Limited Partnership joint venture which brought into full ownership eleven stores.  The remaining charge largely reflects normal fluctuations in store level performance, property fair values and changes in discount rates, as well as any specific store closures.

Amortisation of acquired intangible assets is excluded from our headline performance measures.  We incurred a charge of £(76)m in the period, which primarily relates to our merger with Booker in March 2018, which resulted in the recognition of £755m of intangible assets.

Restructuring provisions of £(44)m were recognised in the second half, relating to operational restructuring changes announced in February 2022 as part of our 'Save to Invest' programme.

We received software licence fee income of £26m from services provided to CP Group following the sale of our businesses in Asia.

Further detail on adjusting items can be found in Note 3, starting on page 31.

 

Joint ventures and associates:

Our share of post-tax profits from joint ventures and associates was £15m, compared to £26m in the prior year.  The year-on-year reduction was primarily due to profits from Tesco Underwriting Limited now being recognised in Tesco Bank adjusted operating profit following its full acquisition in May 2021 and a reduction in profits generated by our Trent Hypermarket Limited joint venture in India due to the adverse trading impacts of COVID-19 in the year.    

 

Net finance costs:

 

This year

Last year

Net interest on medium term notes, loans and bonds

£(208)m

£(218)m

Other interest receivable and similar income

£9m

£15m

Other finance charges and interest payable

£(39)m

£(31)m

Finance charges payable on lease liabilities

£(405)m

£(446)m

Net finance costs before net pension finance costs and fair value

remeasurements of financial instruments

£(643)m

£(680)m

Fair value remeasurements of financial instruments

£123m

£(214)m

Net pension finance costs

£(22)m

£(43)m

Net finance costs

£(542)m

£(937)m

Net interest on medium term notes, loans and bonds was £(208)m, down £10m year-on-year.  The reduction in finance costs from bond maturities, tenders and new debt issuances at lower rates of interest was largely offset by interest payable on the £(453)m of net debt we acquired with The Tesco Property (No. 2) Partnership in September 2020 and with the £(585)m of debt acquired with The Tesco Sarum Limited Partnership in December 2021.  The acquisition of The Tesco Sarum Limited Partnership brings into full ownership eleven stores and resulted in a reduction in the lease liability of £355m. 

The de-recognition of lease liabilities related to these property buybacks and the reducing nature of our total lease liability over time is the primary driver of the £41m reduction in finance charges payable on lease liabilities year-on-year.   

A non-cash fair value remeasurement credit of £123m primarily related to the mark-to-market movement on inflation-linked swaps, driven by the impact of an increase in expected future inflation rates.  These swaps eliminate the impact of future inflation on the Group's cash flow in relation to historical sale and leaseback property transactions. 

Net pension finance costs of £(22)m decreased by £21m, primarily driven by a reduction in the pension deficit following the £2.5bn one-off contribution made in the prior year from the proceeds from the sale of our businesses in Thailand and Malaysia.  We expect net pension finance income of £79m in the current year as a result of the closing IAS 19 pension surplus.

In February, we exercised the option to buy back our partner's equity in the Tesco Dorney Limited Partnership property joint venture.  We expect the transaction to complete towards the end of our 2022/23 financial year, bringing seven large stores back into full ownership.  This will result in annual cash rental savings of c.£30m and a c.£(0.3)bn increase in net debt, comprising a c.£(0.7)bn impact on borrowings, partially offset by a c.£0.4bn reduction in lease liabilities.  Following this transaction, we will have five UK property JV structures still in place, from a peak of 13 structures in 2015.  These five remaining structures contain property worth £3.2bn and debt of £2.1bn, with £1.9bn of associated lease liabilities on our balance sheet.  The three largest of our remaining property JVs are with the Tesco Pension fund. 

Further detail on finance income and costs can be found in Note 4 on page 32, as well as further detail on the adjusting items in Note 3 on page 31.

 

Group tax:

 

This year

Last year

Tax on adjusted profit

£(502)m

£(249)m

Tax on adjusting items

£(8)m

£145m

Tax on profit

£(510)m

£(104)m

 

Tax on adjusted Group profit was £(502)m, £(253)m higher than last year, reflecting higher levels of both retail and Tesco Bank operating profit, in addition to a one-off charge related to the revaluation of deferred tax, following the announced increase in the corporation tax rate in the UK from 19% to 25%, effective 1 April 2023.

The effective tax rate on adjusted Group profit was 22.8%, higher than the current UK statutory rate of 19%, primarily due to the revaluation of deferred tax.  The banking surcharge levied on Tesco Bank profit and depreciation of assets which do not qualify for tax relief also increased the tax rate.

We expect an adjusted effective tax rate of between 21% and 22% in the current financial year.  We forecast our adjusted effective tax rate to increase to around 26% from our 2023/24 financial year driven by the increase in the UK corporation tax rate in April 2023.  Further detail on Group tax can be found in Note 5 on page 32.

Total Group cash tax paid in the year was £(199)m on a continuing operations basis, which included £(152)m of tax paid in the UK.  Tax paid in the year was £(29)m higher than in the prior year, primarily due to higher levels of retail and Tesco Bank operating profit. This was partly offset by prior-year tax losses and a benefit from the super-deduction allowance on certain capital investments, introduced in the Chancellor's budget in March 2021, along with £120m in relation to the £2.5bn one-off pension contribution made in the prior year, the relief for which is required to be spread over four years for tax purposes.

 

Earnings per share:

 

This year

Last year

Adjusted diluted EPS

21.86p

11.58p

Statutory diluted earnings per share

19.64p

5.58p

Statutory basic earnings per share

19.86p

5.60p

 

The share base used in Adjusted diluted EPS in the prior year is adjusted to capture the full impact of the share consolidation which followed the sale of our businesses in Thailand and Malaysia, as if it took place at the start of the 2020/21 financial year.  As such, Adjusted diluted EPS (adjusted for share consolidation) is presented on a basis other than in accordance with IAS 33.  Please see page 61  for a reconciliation to Adjusted diluted EPS.

Adjusted diluted EPS was 21.86p (LY: 11.58p), +88.8% higher year-on-year as the recovery in retail and Tesco Bank profits, the drivers of which are described more fully in the segmental review of performance section above, more than offset the higher tax charge.

Statutory diluted earnings per share was 19.64p (LY: 5.58p) +252.0% higher year-on-year.  In addition to the recovery in adjusted operating profit, we saw a significant reduction in the net finance charge due to an offsetting credit from fair value remeasurement of financial instruments, the drivers of which are described in the net finance costs section.  These benefits more than offset a higher charge related to adjusting items and a higher tax charge in year, driven by higher adjusted operating profit.

 

Discontinued operations:

We completed the sale of our business in Poland to Salling Group A/S in March 2021, generating proceeds of £122m and a loss on disposal of £(23)m. 

Following the sale of Homeplus for £4.2bn in 2015, we received legal claims from the purchasers.  Although the majority of the claims were dismissed, some findings of liability were made.  On 17 September 2021, a Final Award to the purchasers of £119m in damages, interest and costs was granted.  An adjusting charge increasing the provision held by £33m was recognised in the year, with the total cash payment of £119m made in the second half.

Further information on discontinued operations is included in Note 6, starting on page 34.

Dividend:

Last year we held the full-year dividend in line with the 2019/20 financial year to recognise the strong cash generation of the business, despite the significant operating profit impact from the COVID-19 pandemic.  This represented an exception to our dividend policy and resulted in a dividend per share which exceeded 50% of adjusted diluted EPS. 

We propose to pay a final dividend of 7.70 pence per ordinary share, taking the full-year dividend to 10.90 pence per ordinary share, including the payment of an interim dividend of 3.20 pence per ordinary share in November 2021.  This year's final dividend is +19.1% higher than last year, reflecting the increase in retail and Tesco Bank adjusted operating profit and the impact from last year's policy exception.  It is our intention to pay a progressive dividend going forward - i.e. we aim to grow the dividend per share each year, broadly targeting a pay-out of around 50% of earnings.

The proposed final dividend was approved by the Board of Directors on 12 April 2022 and is subject to the approval of shareholders at this year's Annual General Meeting.  The final dividend will be paid on 24 June 2022 to shareholders who are on the register of members at close of business on 20 May 2022 (the Record Date).  Shareholders may elect to reinvest their dividend in the Dividend Reinvestment Plan (DRIP).  The last date for receipt of DRIP elections and revocations will be 7 June 2022.

 

Summary of total indebtedness (excludes Tesco Bank):

 

Feb-22

Feb-21

Movement

Net debt before lease liabilities

£(2,570)m

£(3,449)m

£879m

Lease liabilities

£(7,946)m

£(8,506)m

£560m

Net debt

£(10,516)m

£(11,955)m

£1,439m

Pension deficit, IAS 19 basis (post-tax)

£(242)m

£(1,004)m

£762m

Total indebtedness

£(10,758)m

£(12,959)m

£2,201m

 

 

 

 

Net debt / EBITDA

2.5x

3.3x

 

Total indebtedness ratio

2.5x

3.6x

 

Total indebtedness was £(10,758)m, down £2,201m year-on-year primarily driven by strong free cash flow generation leading to a reduction in net debt, net of dividends paid and a £762m reduction in the IAS 19 pension deficit.

Lease liabilities were £(7,946)m, down £560m year-on-year largely due to the de-recognition of £355m relating to the eleven stores we took back into full ownership following the purchase of our partner's stake in The Tesco Sarum Limited Partnership.  We also de-recognised £120m of lease liabilities relating to our Polish business following the sale of the business to Salling Group A/S in March 2021. 

The acquisition of our partner's stake in The Tesco Sarum Limited Partnership increased net debt by c.£(300)m, including £(585)m of borrowings acquired and £(64)m of derivatives, net of a reduction in the related lease liabilities. 

Pension liabilities significantly decreased during the year, primarily due to an increase in discount rates driven by higher corporate bond yields, partially offset by underlying market movements in inflation rates and gilts.  The pension assets increased year-on-year due to strong investment returns.  As a result, we carried a net IAS 19 pension surplus (post-tax) at the end of the year of £2,121m, compared to a net deficit of £(1,004)m last year.  The Group IAS 19 pension surplus is disregarded in total indebtedness and only pension schemes which are in a net deficit position are considered. 

We had strong levels of liquidity at the end of the year of £3.0 billion and our £2.5 billion committed facility remained undrawn.  Our committed facility currently matures in September 2024 and we have the option to extend this by a further year.  The rate of interest payable on this facility is linked to three of our sustainability commitments.  As we delivered these sustainability targets, we achieved the corresponding margin reduction in the year.  In October, we issued our second sustainability-linked bond, raising £400m at a low rate of interest.  This was issued to refinance a bond which was approaching maturity and the refinancing will result in an annual interest saving of £18m.

Our net debt to EBITDA ratio was 2.5 times, down from 3.3 times at the prior year-end and within our targeted range of 2.8 to 2.3 times.  The year-on-year improvement represents both an increase in our retail EBITDA due to higher sales and lower COVID-19 costs, and a reduction in net debt before lease liabilities driven by strong free cash flow generation. The total indebtedness ratio was 2.5 times compared to 3.6 times last year.

Fixed charge cover was 3.5 times this year, compared to 2.9 times last year, reflecting a reduction in net finance costs, lease interest payments, lease principal payments and higher retail EBITDA. 

Summary retail cash flow:

Our retail free cash flow APM definition was updated at the interim results this year to provide a better view of operational cash performance and excludes cashflows related to acquisitions & disposals, property transactions and adjusting cash items.  We continue to fully disclose these lines but they do not form part of the retail free cash flow headline APM.

The following table reconciles Group adjusted operating profit to retail free cash flow.  Further details are included on page 62.

 

This year

Last year

Adjusted operating profit

£2,825m

£1,788m

Less: Tesco Bank adjusted operating (profit) / loss

£(176)m

£175m

Retail adjusted operating profit

£2,649m

£1,963m

Add back: Depreciation and amortisation

£1,577m

£1,611m

Other reconciling items

£61m

£4m

Pension deficit contribution

£(19)m

£(351)m

Decrease in working capital

£501m

£450m

Retail cash generated from operations before adjusting items

£4,769m

£3,677m

Cash capex

£(1,050)m

£(902)m

Net interest

£(641)m

£(670)m

         - Interest related to Net debt (exc. lease liabilities)

£(239)m

£(226)m

         - Interest related to lease liabilities

£(402)m

£(444)m

Tax paid

£(195)m

£(161)m

Dividends received

£109m

£23m

Repayments of obligations under leases

£(571)m

£(561)m

Own shares purchased for share schemes

£(144)m

£(66)m

Retail free cash flow

£2,277m

£1,340m

Memo:

 

 

Acquisitions & disposals

£122m

£(2)m

Property proceeds & purchases

£228m

£(110)m

Cash impact of adjusting items

£(316)m

£(41)m


 

Retail free cash flow increased by +£937m year-on-year to £2,277m, driven by higher retail adjusted operating profit, a reduction in the pension contribution, a benefit from lower working capital and an increase in the dividend received from Tesco Bank following its return to profitability this year.

Following a £2.5bn one-off contribution towards the pension deficit in the prior year using the proceeds from the sale of our businesses in Thailand and Malaysia, UK pension contributions were eliminated.  We expect an annual benefit of c.£260m in retail free cash flow as a result of lower pension deficit contributions.  The pension cash outflow of £(19)m in the year mainly relates to Booker pension scheme. 

Our total working capital inflow was £501m, driven by the sharp recovery in fuel volumes and Booker's catering business in the first half as travel and hospitality sector restrictions were significantly fewer than at the end of the prior year.  In the second half, working capital was broadly neutral, as the seasonal unwind we would normally see following peak trading over the summer was offset by strong UK sales and higher fuel payables due to both higher volumes and cost price inflation.         

Cash capex increased by £(148)m year-on-year as we opened more stores in the UK than in the prior year as a result of COVID-19 and continued to expand our online proposition across the UK & ROI businesses. 

Interest paid related to net debt (exc. lease liabilities) of £(239)m was £(13)m higher year-on-year.  The benefit of bond buybacks and refinancing at lower rates of interest was more than offset by the impact of borrowings acquired as part of The Tesco Property (No. 2) Limited Partnership from September 2020 and The Tesco Sarum Limited Partnership from December 2021.  Interest paid related to lease liabilities decreased by £42m year-on-year primarily due to a reduction in the total lease liability following the de-recognition of the liabilities related to these properties.

Cash tax paid in the year was £(195)m, compared to £(161)m last year.  The increase reflects higher retail adjusted operating profits year-on-year, which was partially offset by prior-year tax losses and a benefit from the super-deduction allowance on certain capital investments, which was introduced in the Chancellor's budget in March 2021.  We also continue to receive tax relief in relation to the £2.5bn one-off pension contribution made in the prior year.  This amounted to £120m for the full-year.

We saw a net cash outflow of £(144)m related to the purchase of our own shares, which includes £(191)m of shares purchased in the market to offset the dilution from the issuance of new shares to satisfy the requirements of share schemes and a £47m cash inflow related to proceeds from colleague share saving schemes.  The net impact was £(78)m higher than the prior year, driven by the phasing of purchases to satisfy current year maturities.  This will lead to a significant reduction in the net spend in the current year.

Cashflows related to acquisitions & disposals, property transactions and adjusting cash items are now excluded from our simplified definition of retail free cash flow.

The inflow from disposals in the year of £122m includes  the  proceeds from the sale of our business in Poland to Salling Group A/S, which completed in March 2021.

We generated a net £228m from property transactions, which includes £308m generated from the sale of properties, net of an outflow of £(80)m related to property buybacks.  We disposed of our Fenny Lock distribution centre in the second half for proceeds of £146m and generated £109m from the sale of properties in Poland which were not included in the corporate transaction with Salling Group A/S.  We bought back one Extra store in Bury for £(37)m and paid cash consideration of £(43)m to buy back a full stake in The Tesco Sarum Limited Partnership.

The cash impact of adjusting items was £(316)m, of which £(312)m related to the settlement of shareholder litigation claims and a legal claim from the purchasers of our Homeplus business during the period.

 

Capital expenditure and space:

 

UK & ROI

Central Europe

Tesco Bank

Group

 

This year

Last year

This year

Last year

This year

Last year

This year

Last year

Capex

£963m

£875m

£91m

£85m

£47m

£55m

£1,101m

£1,015m

Openings (k sq ft)

180

135

54

30

-

-

234

165

Closures (k sq ft)

(146)

 (113)

(25)

 (22)

-

-

(171)

(135)

Repurposed (k sq ft)

-

 1

(125)

(63)

-

-

(125)

(62)

Net space change (k sq ft)

34

 23

(96)

 (55)

-

-

(62)

(32)

 

'Retail Selling Space' is defined as net space in store adjusted to exclude checkouts, space behind checkouts, customer service desks and customer toilets. The supplementary information (p.55) provides a full breakdown of space by segment.

 

Capital expenditure (capex) shown in the table above reflects expenditure on ongoing business activities across the Group, excluding property buybacks.

Our capital expenditure for the year was £1,101m, +£86m higher year-on-year, which primarily relates to the ongoing investment in our online proposition, and the opening of new Tesco Express and One Stop stores in the UK.  We opened a further three UFCs in the UK and rolled out more delivery vans and an additional 37 Click & Collect sites in ROI.  We also purchased an additional 20 electric delivery vans and two electric HGVs in the UK as we continue to work to reduce emissions from our own operations.

We opened two superstores in the UK, with sites in Mablethorpe and Wolverhampton, and a further 21 Tesco Express sites, which was slightly fewer than expected.  We expect to open 65 Tesco Express stores in the current year.

We expect 2022/23 full year capital expenditure to be at the top end of our £0.9bn to £1.2bn guidance range.

Statutory capital expenditure of £1.8bn includes £0.6bn relating to the buyback of one UK Extra store in Bury and The Tesco Sarum Limited Partnership property joint venture referred to above.

Further details of current and forecast space can be found in the supplementary information starting on page 55.

 

Property:

 

This year

Last year

 

UK & ROI

C. Europe

Group

UK & ROI

C. Europe

Group

Property1 - fully owned

 

 

 

 

 

 

-       Estimated market value

£16.6bn

£1.5bn

£18.1bn

£15.9bn

£2.0bn

£17.9bn

-       NBV2

£15.1bn

£1.4bn

£16.5bn

£14.8bn

£1.7bn

£16.5bn

% net selling space owned

56%

68%

58%

54%

77%

59%

% property owned by value3

58%

64%

58%

57%

73%

58%

 

1. Stores, malls, investment property, offices, distribution centres, fixtures and fittings and work-in-progress. Excludes joint ventures.

2. Property, plant and equipment excluding vehicles.

3. Excludes fixtures and fittings.

The estimated market value of our fully owned property as at the year-end increased by £0.2bn to £18.1bn.  The market value of £18.1bn represents a surplus of £1.6bn over the net book value (NBV).

Our Group freehold property ownership percentage, by value was in-line with the prior year at 58%.  In December, we completed the purchase of our partner's 50% stake in The Tesco Sarum Limited Partnership, bringing back into full ownership seven sites.  This acquisition contributed to a 1% increase in the percentage of fully owned properties in the UK & ROI and will deliver an annual cash rental saving of c.£30m.  We also repurchased one Extra store in the UK.

In Central Europe, the reduction in the market value of fully owned property year-on-year reflects the reclassification of a number of mall properties which are held for sale.  In the year, we released £109m of proceeds through the disposal of properties in Poland which were not included as part of the corporate sale.

 

Contacts:

Investor Relations:

Chris Griffith

01707 940 900

Media:

Simon Rew

0330 6780 639

 

Nick Claydon, Teneo

07974 982 547

 

This document is available at www.tescoplc.com/prelims2022.

A webcast including a live Q&A will be held today at 9.00am for investors and analysts and will be available on our website at www.tescoplc.com/prelims2022.  This will be available for playback after the event.  All presentation materials, including a transcript, will be made available on our website.

We will report our Q1 Trading statement on Friday 17th June 2022.

 

Information contained within this announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014. This announcement is being released on behalf of Tesco PLC by Robert Welch, Company Secretary.

 

 

Sources:

UK market share based on Kantar Total Tesco year-on-year market share gains of Grocers Total Till Roll on 12 week rolling basis to 20 February 2022.

UK online market share based on Kantar Total Tesco year-on-year market share gains of Total Till Roll online channel on 12 week rolling basis to 20 February 2022.

ROI online market share based on Kantar ROI Total Tesco market share of Total Till Roll online channel on 12 week rolling basis to 20 February 2022.

Brand Index, Value perception and Quality perception based on YouGov 12 week rolling basis to 27 February 2022.  'Market' consists of Sainsbury's, Morrisons, Asda, Aldi, Lidl, Waitrose, M&S, Co-op & Iceland.

Price index is calculated using the single retail selling price of each item, including price cut promotions across Q4; the index is weighted by sales and market share to reflect customer importance and competitor size.  Competitor set consists of Sainsbury's, Morrison's, Asda, Aldi & Lidl.

YoY Clubcard sales penetration is based on Large, Express and All stores from February 2021 to February 2022.

UK Express store openings include 19 One Stop conversions.

Number of new Booker retail partners shown net of openings and closures.

Disclaimer.

Certain statements made in this document are forward-looking statements.  For example, statements regarding future financial performance, market trends and our product pipeline are forward-looking statements.  Phrases such as "aim", "plan", "intend", "should", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements.  Forward looking statements are based on current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other important factors that could cause actual results or events to differ materially from what is expressed or implied by those statements.  Many factors may cause actual results, performance or achievements of Tesco to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.  Important factors that could cause actual results, performance or achievements of Tesco to differ materially from the expectations of Tesco include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and other regulation and policy, including in relation to the environment, health and safety and taxation, labour relations and work stoppages, interest rates and currency fluctuations, changes in its business strategy, political and economic uncertainty, including as a result of global pandemics.  As such, undue reliance should not be placed on forward-looking 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.  Other than in accordance with legal and regulatory obligations, Tesco undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Group income statement

 

 

 

 

52 weeks ended
26 February 2022

 

52 weeks ended

27 February 2021(a)

 

Notes

Before adjusting

items
£m

Adjusting

items(b)

(Note 3)
£m

Total
£m

 

Before adjusting
items
£m

Adjusting

items(b)

(Note 3)
£m

Total
£m

Continuing operations

 

 

 

 

 

 

 

 

Revenue

2

61,344

-

61,344

 

57,887

-

57,887

Cost of sales

 

(56,574)

(176)

(56,750)

 

(53,948)

221

(53,727)

Impairment reversal/(loss) on financial assets

2

39

-

39

 

(384)

-

(384)

Gross profit/(loss)

 

4,809

(176)

4,633

 

3,555

221

3,776

 

 

 

 

 

 

 

 

 

Administrative expenses

 

(1,984)

(89)

(2,073)

 

(1,767)

(462)

(2,229)

Operating profit/(loss)

 

2,825

(265)

2,560

 

1,788

(241)

1,547

 

 

 

 

 

 

 

 

 

Share of post-tax profits/(losses) of joint ventures and associates

 

15

-

15

 

26

-

26

Finance income

4

9

-

9

 

15

 -

15

Finance costs

4

(652)

101

(551)

 

(695)

(257)

(952)

Profit/(loss) before tax

 

2,197

(164)

2,033

 

1,134

(498)

636

 

 

 

 

 

 

 

 

 

Taxation

5

(502)

(8)

(510)

 

(249)

145

(104)

Profit/(loss) for the year from continuing operations

 

1,695

(172)

1,523

 

885

(353)

532

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

Profit/(loss) for the year from discontinued operations

6

(2)

(38)

(40)

 

309

5,117

5,426

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

 

1,693

(210)

1,483

 

1,194

4,764

5,958

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

Owners of the parent

 

1,691

(210)

1,481

 

1,190

4,764

5,954

Non-controlling interests

 

2

-

2

 

4

 -

4

 

 

1,693

(210)

1,483

 

1,194

4,764

5,958

 

 

 

 

 

 

 

 

 

Earnings/(losses) per share from continuing and discontinued operations

 

 

 

 

 

 

 

 

Basic

8

 

 

19.34p

 

 

 

61.83p

Diluted

8

 

 

19.12p

 

 

 

61.66p

 

 

 

 

 

 

 

 

 

Earnings/(losses) per share from continuing operations

 

 

 

 

 

 

 

 

Basic

8

 

 

19.86p

 

 

 

5.60p

Diluted

8

 

 

19.64p

 

 

 

5.58p

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  'Exceptional items and amortisation of acquired intangibles' have been renamed 'Adjusting items'. Refer to Note 1 for further details.

The notes on pages 23 to 54 form part of this condensed consolidated financial information.

 

Group statement of comprehensive income/(loss)

 

 

Notes

52 weeks
2022
£m

52 weeks

2021*

£m

Items that will not be reclassified to the Group income statement

 

 

 

Change in fair value of financial assets at fair value through other comprehensive income

 

4

-

Remeasurements of defined benefit pension schemes

20

4,075

(963)

Net fair value gains/(losses) on inventory cash flow hedges

 

33

(3)

Tax on items that will not be reclassified

 

(918)

248

 

 

3,194

(718)

Items that may subsequently be reclassified to the Group income statement

 

 

 

Change in fair value of financial assets at fair value through other comprehensive income

 

(25)

(1)

Currency translation differences:

 

 

 

Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments

 

(39)

(68)

Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and reported in the Group income statement

 

66

(413)

Gains/(losses) on cash flow hedges:

 

 

 

Net fair value gains/(losses)

 

44

59

Reclassified and reported in the Group income statement

 

(45)

(86)

Tax on items that may be reclassified

 

(5)

(3)

 

 

(4)

(512)

Total other comprehensive income/(loss) for the year

 

3,190

(1,230)

Profit/(loss) for the period

 

1,483

5,958

Total comprehensive income/(loss) for the year

 

4,673

4,728

 

 

 

 

Attributable to:

 

 

 

Owners of the parent

 

4,671

4,724

Non-controlling interests

 

2

4

Total comprehensive income/(loss) for the year

 

4,673

4,728

 

 

 

 

Total comprehensive income/(loss) attributable to owners of the parent arising from:

 

 

 

Continuing operations

 

4,645

(254)

Discontinued operations

 

26

4,978

 

 

4,671

4,724

*    Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

The notes on pages 23 to 54 form part of this condensed consolidated financial information.

 

Group balance sheet

 

 

Notes

26 February
2022
£m

27 February

2021(a)

£m

29 February

2020(a)

£m

Non-current assets

 

 

 

 

Goodwill and other intangible assets

9

5,360

5,393

6,078

Property, plant and equipment

10

17,060

16,945

19,157

Right of use assets

11

5,720

5,951

6,874

Investment property

 

22

19

26

Investments in joint ventures and associates

 

86

178

307

Other investments(b)

 

1,253

763

866

Trade and other receivables

 

159

170

166

Loans and advances to customers and banks

 

3,141

3,309

4,171

Reinsurance assets

14

184

-

-

Post-employment benefit surplus

20

3,150

-

-

Derivative financial instruments

 

942

1,425

1,083

Deferred tax assets

5

85

552

449

 

 

37,162

34,705

39,177

Current assets

 

 

 

 

Other investments(b)

 

226

178

202

Inventories

 

2,339

2,069

2,433

Trade and other receivables

 

1,263

1,263

1,396

Loans and advances to customers and banks

 

3,349

3,093

4,280

Reinsurance assets

14

61

-

-

Derivative financial instruments

 

69

37

63

Current tax assets

 

93

41

21

Short-term investments

13

2,076

1,011

1.076

Cash and cash equivalents

13

2,345

2,510

4,137

 

 

11,821

10,202

13,608

Assets of the disposal group and non-current assets classified as held for sale

6

368

605

285

 

 

12,189

10,807

13,893

Current liabilities

 

 

 

 

Trade and other payables

 

(9,181)

(8,399)

(8,922)

Borrowings

16

(725)

(1,080)

(2,219)

Lease liabilities

11

(547)

(575)

(598)

Derivative financial instruments

 

(26)

(81)

(61)

Customer deposits and deposits from banks

 

(4,729)

(5,321)

(6,377)

Insurance contract provisions

14

(623)

-

-

Current tax liabilities

 

(11)

(79)

(324)

Provisions

18

(283)

(186)

(155)

 

 

(16,125)

(15,721)

(18,656)

Liabilities of the disposal group classified as held for sale

6

(14)

(276)

-

Net current liabilities

 

(3,950)

(5,190)

(4,763)

Non-current liabilities

 

 

 

 

Trade and other payables

 

(53)

(109)

(170)

Borrowings

16

(6,674)

(6,188)

(6,005)

Lease liabilities

11

(7,411)

(7,827)

(8,968)

Derivative financial instruments

 

(357)

(926)

(887)

Customer deposits and deposits from banks

 

(1,650)

(1,017)

(1,830)

Insurance contract provisions

14

(27)

-

-

Post-employment benefit deficit

20

(303)

(1,222)

(3,085)

Deferred tax liabilities

5

(910)

(48)

(40)

Provisions

18

(183)

(119)

(137)

 

 

(17,568)

(17,456)

(21,122)

Net assets

 

15,644

12,059

13,292

Equity

 

 

 

 

Share capital

21

484

490

490

Share premium

 

5,165

5,165

5,165

Other reserves

 

3,079

3,183

3,658

Retained earnings

 

6,932

3,239

4,001

Equity attributable to owners of the parent

 

15,660

12,077

13,314

Non-controlling interests

 

(16)

(18)

(22)

Total equity

 

15,644

12,059

13,292

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  Refer to Note 1 for further details regarding changes in presentation of the primary financial statements.

The notes on pages 23 to 54 form part of this condensed consolidated financial information.

 

Group statement of changes in equity

 

 

 

 

 

Other reserves

 

 

 

 

 

Share
capital
£m

Share
premium
£m

Capital redemption reserve
£m

Hedging
reserve
£m

Translation
reserve
£m

Own
shares
held
£m

Merger reserve
£m

Retained earnings
£m

Total
£m

Non-controlling interests £m

Total
equity
£m

At 27 February 2021 (restated*)

490

5,165

16

90

175

(188)

3,090

3,239

12,077

(18)

12,059

Profit/(loss) for the year

-

-

-

-

-

-

-

1,481

1,481

2

1,483

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments

-

-

-

-

(39)

-

-

-

(39)

-

(39)

Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and reported in the Group income statement (Note 6)

-

-

-

-

66

-

-

-

66

-

66

Change in fair value of financial assets at fair value through other comprehensive income

-

-

-

-

-

-

-

(21)

(21)

-

(21)

Remeasurements of defined benefit pension schemes (Note 20)

-

-

-

-

-

-

-

4,075

4,075

-

4,075

Gains/(losses) on cash flow hedges

-

-

-

77

-

-

-

-

77

-

77

Cash flow hedges reclassified and reported in the Group income statement

-

-

-

(45)

-

-

-

-

(45)

-

(45)

Tax relating to components of other comprehensive income

-

-

-

(22)

-

-

-

(901)

(923)

-

(923)

Total other comprehensive
income/(loss)

-

-

-

10

27

-

-

3,153

3,190

-

3,190

Total comprehensive
income/(loss)

-

-

-

10

27

-

-

4,634

4,671

2

4,673

Inventory cash flow hedge movements

 

 

 

 

 

 

 

 

 

 

 

Gains/(losses) transferred to the cost of inventory

-

-

-

30

-

-

-

-

30

-

30

Total inventory cash flow hedge movements

-

-

-

30

-

-

-

-

30

-

30

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

Own shares purchased for cancellation

(Note 21)

(6)

-

6

-

-

(37)

-

(264)

(301)

-

(301)

Own shares purchased for share schemes (Note 21)

-

-

-

-

-

(279)

-

-

(279)

-

(279)

Share-based payments (Note 21)

-

-

-

-

-

139

-

12

151

-

151

Dividends (Note 7)

-

-

-

-

-

-

-

(704)

(704)

-

(704)

Tax on items credited to equity

-

-

-

-

-

-

-

15

15

-

15

Total transactions with owners

(6)

-

6

-

-

(177)

-

(941)

(1,118)

-

(1,118)

At 26 February 2022

484

5,165

22

130

202

(365)

3,090

6,932

15,660

(16)

15,644

*    Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

The notes on pages 23 to 54 form part of this condensed consolidated financial information.

 

 

 

 

 

Other reserves

 

 

 

 

 

Share
capital
£m

Share
premium
£m

Capital redemption reserve
£m

Cost of hedging reserve
£m

Hedging
reserve
£m

Translation
reserve
£m

Own
shares
held
£m

Merger reserve
£m

Retained earnings
£m

Total
£m

Non-controlling interests £m

Total
equity
£m

At 29 February 2020 (as previously reported)

490

5,165

16

(15)

154

663

(250)

3,090

4,078

13,391

(22)

13,369

Cumulative adjustment to opening balances

-

-

-

-

-

-

-

-

(77)

(77)

-

(77)

At 29 February 2020 (restated*)

490

5,165

16

(15)

154

663

(250)

3,090

4,001

13,314

(22)

13,292

Profit/(loss) for the year (restated*)

-

-

-

-

-

-

-

-

5,954

5,954

4

5,958

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

Retranslation of net assets of overseas subsidiaries, joint ventures and associates, net of hedging instruments

-

-

-

-

-

(68)

-

-

-

(68)

-

(68)

Movements in foreign exchange reserve and net investment hedging on subsidiary disposed, reclassified and reported in the Group income statement

-

-

-

-

-

(413)

-

-

-

(413)

-

(413)

Change in fair value of financial instruments at fair value through other comprehensive income

-

-

-

-

-

-

-

-

(1)

(1)

-

(1)

Remeasurements of defined benefit pension schemes (Note 20)

-

-

-

-

-

-

-

-

(963)

(963)

-

(963)

Gains/(losses) on cash flow hedges

-

-

-

17

39

-

-

-

-

56

-

56

Cash flow hedges reclassified and reported in the Group income statement

-

-

-

-

(86)

-

-

-

-

(86)

-

(86)

Tax relating to components of other comprehensive income

-

-

-

(2)

11

(7)

-

-

243

245

-

245

Total other comprehensive
income/(loss)

-

-

-

15

(36)

(488)

-

-

(721)

(1,230)

-

(1,230)

Total comprehensive
income/(loss) (restated*)

-

-

-

15

(36)

(488)

-

-

5,233

4,724

4

4,728

Inventory cash flow hedge movements

 

 

 

 

 

 

 

 

 

 

 

 

Gains/(losses) transferred to the cost of inventory

-

-

-

-

(28)

-

-

-

-

(28)

-

(28)

Total inventory cash flow hedge movements

-

-

-

-

(28)

-

-

-

-

(28)

-

(28)

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

Own shares purchased for share schemes (Note 21)

-

-

-

-

-

-

(246)

-

-

(246)

-

(246)

Share-based payments (Note 21)

-

-

-

-

-

-

308

-

(97)

211

-

211

Dividends (Note 7)

-

-

-

-

-

-

-

-

(5,892)

(5,892)

-

(5,892)

Tax on items charged to equity

-

-

-

-

-

-

-

-

(6)

(6)

-

(6)

Total transactions with owners

-

-

-

-

-

-

62

-

(5,995)

(5,933)

-

(5,933)

At 27 February 2021 (restated*)

490

5,165

16

-

90

175

(188)

3,090

3,239

12,077

(18)

 12,059

*    Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

The notes on pages 23 to 54 form part of this condensed consolidated financial information.

 

 

Group cash flow statement

 

 

Notes

52 weeks
2022
£m

52 weeks

2021(a)

£m

Cash flows generated from/(used in) operating activities

 

 

 

Operating profit/(loss) of continuing operations

 

2,560

1,547

Operating profit/(loss) of discontinued operations

 

(51)

5,482

Depreciation and amortisation

 

1,718

1,764

(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets classified as held for sale and early termination of leases

 

(123)

(23)

(Profit)/loss arising on sale of joint ventures and associates

 

(25)

-

(Profit)/loss arising on sale of subsidiaries

6

23

(5,197)

Transaction costs associated with sale of subsidiaries

 

-

6

Net impairment loss/(reversal) on property, plant and equipment, right of use assets, intangible assets and investment property

12

115

(89)

Impairment of goodwill

12

-

295

Net remeasurement (gain)/loss of non-current assets held for sale

 

3

(5)

Adjustment for non-cash element of pensions charge

 

7

14

Other defined benefit pension scheme payments

20

(19)

(2,851)

Share-based payments

19

66

30

Tesco Bank fair value movements included in operating profit/(loss)

 

(28)

367

Retail (increase)/decrease in inventories

 

(281)

(52)

Retail (increase)/decrease in development stock

 

-

2

Retail (increase)/decrease in trade and other receivables

 

27

63

Retail increase/(decrease) in trade and other payables

 

743

329

Retail increase/(decrease) in provisions

 

(65)

56

Retail (increase)/decrease in working capital

 

424

398

Tesco Bank (increase)/decrease in loans and advances to customers and banks

 

(95)

1,686

Tesco Bank (increase)/decrease in trade, reinsurance and other receivables

 

8

62

Tesco Bank increase/(decrease) in customer and bank deposits, trade, insurance and other payables

 

47

(1,902)

Tesco Bank increase/(decrease) in provisions

 

(22)

2

Tesco Bank (increase)/decrease in working capital

 

(62)

(152)

Cash generated from/(used in) operations

 

4,608

1,586

Interest paid

 

(650)

(729)

Corporation tax paid

 

(201)

(255)

Net cash generated from/(used in) operating activities

 

3,757

602

Cash flows generated from/(used in) investing activities

 

 

 

Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale

309

237

Purchase of property, plant and equipment and investment property

 

(949)

(1,171)

Purchase of intangible assets

 

(229)

(206)

Disposal of subsidiaries, net of cash disposed

6

161

7,093

Acquisition of subsidiaries, net of cash acquired

24

(48)

15

Proceeds from sale of joint ventures and associates

 

15

-

Increase in loans to joint ventures and associates

 

(4)

(2)

Investments in joint ventures and associates

 

(11)

(11)

Net (investments in)/proceeds from sale of short-term investments

 

(1,067)

62

Proceeds from sale of other investments(b)

 

274

201

Purchase of other investments(b)

 

(221)

(85)

Dividends received from joint ventures and associates

 

32

26

Interest received

 

3

12

Net cash generated from/(used in) investing activities

 

(1,735)

6,171

Cash flows generated from/(used in) financing activities

 

 

 

Own shares purchased for cancellation

21

(278)

-

Own shares purchased for share schemes

19

(144)

(66)

Repayment of capital element of obligations under leases

 

(577)

(621)

Increase in borrowings

 

394

1,098

Repayment of borrowings

 

(775)

(1,814)

Cash inflows from derivative financial instruments(b)

 

798

1,696

Cash outflows from derivative financial instruments(b)

 

(921)

(2,276)

Dividends paid to equity owners

7

(731)

(5,858)

Net cash generated from/(used in) financing activities

 

(2,234)

(7,841)

Net increase/(decrease) in cash and cash equivalents

 

(212)

(1,068)

Cash and cash equivalents at the beginning of the year

 

1,971

3,031

Effect of foreign exchange rate changes

 

12

8

Cash and cash equivalents including cash and overdrafts held in disposal groups at the end of the year

 

1,771

1,971

Cash and overdrafts held in disposal groups

6

-

7

Cash and cash equivalents at the end of the year

13

1,771

1,978

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  Refer to Note 1 for further details regarding the presentation of primary financial statements.

The notes on pages 23 to 54 form part of this condensed consolidated financial information.

 

Notes

Note 1 Basis of preparation

This preliminary consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and the principles of UK-adopted IFRS. The accounting policies applied, and the judgements, estimates and assumptions made in applying these policies, are consistent with those used in preparing the Annual Report and Group financial statements 2022, which are the same as those used in preparing the Annual Report and Group financial statements 2021, except as noted below. The financial year represents the 52 weeks ended 26 February 2022 (prior financial year 52 weeks ended 27 February 2021). This preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 26 February 2022 as defined under section 434 of the Companies Act 2006.

The Annual Report and Group financial statements for the 52 weeks ended 26 February 2022 were approved by the Board of Directors on 12 April 2022. The report of the auditor on those Group financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report and Group financial statements for 2022 will be filed with the Registrar in due course.

The Annual Report and Group financial statements for the 52 weeks ended 27 February 2021 were approved by the Board of Directors on 13 April 2021. The report of the auditor on those Group financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, which reflects a period of 18 months from the date of approval of the financial statements, and have concluded that there are no material uncertainties relating to going concern. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further information on the Group's strong liquidity position is given in the Summary of total indebtedness section. 

Adoption of new IFRSs

The Group early-adopted 'interest rate benchmark reform' phase 2 amendments in the prior year. The Group has elected not to apply the exemption granted in the 'COVID-19-related rent concessions beyond 30 June 2021' amendment to IFRS 16, 'Leases', as the Group has not received material COVID-19-related rent concessions as a lessee.

Other standards, interpretations and amendments effective in the current financial year have not had a material impact on the Group financial statements.

The Group has not applied any other standards, interpretations or amendments that have been issued but are not yet effective. The impact of the following is still under assessment:

-   IFRS 17 'Insurance contracts', which will become effective in the Group financial statements for the financial year ending 24 February 2024, subject to UK endorsement. IFRS 17 is expected to have an impact on the Group's subsidiary, Tesco Underwriting Limited (TU), which provides the insurance underwriting service for a number of the Group's general insurance products. An IFRS 17 project team has been established and work is well progressed on the design and build of reporting systems and processes for reporting under IFRS 17. It is expected that the simplified premium allocation approach will be applied to all material insurance and reinsurance contract groups. During the next financial year, parallel reporting for the comparative period will be established. Until the impact assessment is complete, it is not practical to provide an estimate of the financial impact of adopting IFRS 17.

Other standards, interpretations and amendments issued but not yet effective are not expected to have a material impact on the Group financial statements.

Change in accounting policy

The Group has changed its accounting policy for property buybacks in light of an evolution of accepted practice in relation to the application of IFRS 16 'Leases' to such transactions. Property buybacks outside of a corporate wrapper are now viewed as the modification of a lease to include a purchase option, followed by the immediate exercise of that purchase option. Applying lease modification accounting to property buybacks results in the lease liability being settled and the right of use asset forming part of the cost of the property, plant and equipment acquired, and no gain or loss being recognised in the income statement from the property buyback. Previously, they were treated as an immediate lease termination followed by a property purchase. As a result of the change in accounting policy, there is no longer an immediate income statement impact of such transactions, and the cost of the property, plant and equipment acquired is reduced accordingly.

Property buybacks inside a corporate wrapper (such as a special purpose vehicle or joint venture structure) that do not meet the definition of a business combination continue to be treated as asset acquisitions. The Group has changed its policy for such asset acquisitions to include in the cost of the asset acquisition the carrying values of pre-existing lease contracts and previously held interests, and no gain or loss is recognised in the income statement from the property buyback. Previously, pre-existing equity interests were remeasured to fair value by analogy to IFRS 3 'Business combinations' and surrendered as part of the cost of acquiring the underlying property and pre-existing lease contracts were treated as terminated, with any resulting gain or loss recognised in the income statement. This change in accounting policy for property buybacks inside a corporate wrapper means that the same accounting treatment is applied for all buybacks, consistent with the economics of such transactions being similar. The Group therefore believes that this approach is reliable and more relevant.

The impact on the 29 February 2020 balance sheet is to decrease property, plant and equipment by £77m, and decrease both net assets and retained earnings by £77m. The impact on the 27 February 2021 balance sheet is to decrease property, plant and equipment by £266m, and decrease both net assets and retained earnings by £266m. In the comparative period income statement, cost of sales increases and gross profit/(loss), operating profit/(loss), profit before tax, profit for the year from continuing operations and profit for the year all decrease by £189m, of which £162m relates to adjusting items. Basic and diluted EPS decrease by 1.96 pence. There is no impact on operating, investing or financing cash flows, Net debt or Total indebtedness.

Primary financial statements presentation

'Exceptional items and amortisation of acquired intangibles' within operating profit, along with net pension finance costs, fair value remeasurements of financial instruments, and the tax impact of such items (below operating profit), are now called 'Adjusting items', and are presented on the face of the income statement in the 'Adjusting items' column. The policy for determining adjusting items, and the items adjusted for, are unchanged from the prior year hence there is no impact on previously reported alternative performance measures from this change in presentation. Further detail on adjusting items is given in the 'Critical accounting judgements' section of this note. 

'Financial assets at fair value through other comprehensive income' and 'Investment securities at amortised cost' are now reported in 'Other investments' on the balance sheet.

On 4 May 2021, the Group acquired control over Tesco Underwriting Limited (TU), an insurance business which was previously a joint venture. The following new line items are added to the balance sheet: 'Reinsurance assets' and 'Insurance contract provisions'. In the income statement, gross insurance income is reported within 'Revenue' and insurance premium income ceded to reinsurers and net insurance claims are reported within 'Cost of sales'. Further detail is given in Note 14.

Cash inflows and outflows on other investments and derivative financial instruments previously presented on a net basis in the Group cash flow statement have been reassessed and are now reported separately, including for prior periods. Comparative net (investments in)/proceeds from sale of other investments of £116m are presented on a gross basis as proceeds from sale of other investments of £201m and purchase of other investments of £(85)m. Comparative net cash flows from derivative financial instruments of £(580)m are presented on a gross basis as cash inflows from derivative financial instruments of £1,696m and cash outflows from derivative financial instruments of £(2,276)m. There is no impact on net cash generated from operating, investing, or financing activities, and no impact on Net debt or Total indebtedness.

Accounting policies

Insurance

Prior to the acquisition of TU on 4 May 2021, the Group generated commission from the sale and service of motor and home insurance policies underwritten by TU. Following the acquisition, these amounts represent intercompany transactions which are fully eliminated in the Group income statement. The Group also generated commission from the sale and service of motor and home insurance policies underwritten by a third-party underwriter until August 2021 when the Group brought in-house the writing of home and motor insurance policies which were previously underwritten through its broker panel. Commission was based on commission rates which were independent of the profitability of underlying insurance policies. Similar commission income is also generated from the sale of white label insurance products underwritten by other third-party providers. This commission income is recognised on a net basis as such policies are sold.

In the case of some commission income on insurance policies managed and underwritten by a third party, the Group recognises commission income from policy renewals as such policies are sold. This is when the Group has satisfied all of its performance obligations in relation to the policy sold and it is considered highly probable that a significant reversal in the amount of revenue recognised will not occur in future periods. This calculation takes into account both estimates of future renewal volumes and renewal commission rates. A contract asset is recognised in relation to this revenue. This is unwound over the remainder of the contract with the customer, in this case being the third-party insurance provider.

The end policyholders have the right to cancel an insurance policy at any time. Therefore, a contract liability is recognised for the amount of any expected refunds due and the revenue recognised in relation to these sales is reduced accordingly. This contract refund liability is estimated using prior experience of customer refunds. The appropriateness of the assumptions used in this calculation is reassessed at each reporting date.

Classification of insurance contracts

Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary are classified as insurance contracts. These contracts remain insurance contracts until all rights and obligations are extinguished or expire. Insurance contracts may also transfer some financial risk.

Insurance income

Gross written premiums comprise premiums on contracts entered into during the year, irrespective of whether they relate in whole or in part to a later accounting period, and exclude tax and levies. An estimate is made at the balance sheet date to recognise retrospective adjustments to premiums. The earned portion of premiums written is recognised as revenue. Premiums are earned from the date of attachment of risk, over the indemnity period, based on the pattern of risks underwritten.

Insurance claims

Claims and claims handling expenses are recognised as incurred, based on the estimated cost of settling all liabilities arising on events occurring up to the balance sheet date.

Reinsurance

The Group cedes reinsurance in the normal course of business for the purpose of limiting its net loss potential through the diversification of its risks. Reinsurance arrangements, including quota share, excess of loss and adverse development cover contracts, do not relieve the Group from its direct obligations to its policyholders. Only contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance contracts. Amounts recoverable under such contracts are generally recognised in the same year as the related claim. Contracts that do not transfer significant insurance risk (i.e. financial reinsurance) are accounted for as financial instruments.

Reinsurance assets include balances due from reinsurance companies for reinsurance claims. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsured policy. The earned portion of reinsurance premiums (insurance premium income ceded to reinsurers) is recognised as reinsurance premium expense, and the provision for unearned reinsurance premiums comprises the element of reinsurance premiums relating to services to be received in future years. Amounts recoverable under reinsurance contracts are assessed for impairment at each year end date. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred after initial recognition, that the Group may not recover all amounts due and that the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer.

Provision for outstanding claims

The provision for outstanding claims represents the Group's estimate of the ultimate cost of settling all claims incurred but unpaid at the reporting date whether reported or not, and related internal and external claims handling expenses. Claims outstanding are assessed by reviewing individual claims data and making an allowance for claims incurred but not yet reported, adjusted for the effect of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, substantively enacted legislative changes and past experience and trends. Reinsurance and other recoveries are assessed in a manner similar to the claims outstanding and presented separately as assets.

Unearned premium and unexpired risk provision

The provision for unearned premiums comprises the proportion of gross premiums written which is estimated to be earned in the following or subsequent accounting periods, calculated separately for each insurance contract using the daily pro rata method, adjusted if necessary to reflect any variation in the incidence of risk during the period covered by the contract. Where the value of expected claims and expenses attributable to unexpired periods of policies in force exceeds the unearned premium provision, a further provision is made, calculated by reference to classes of business which are managed together.

Critical accounting judgements 

APMs - Adjusting items

Adjusting items relate to certain costs or incomes that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded from the Group's APMs by virtue of their size and nature in order to provide a helpful alternative perspective of the year-on-year trends, performance and position of the Group's trading business that is more comparable over time. This alternative view is consistent with how management views the business, and how it is reported internally to the Board and Executive Committee for performance analysis, planning, reporting, decision-making and incentive-setting purposes.

Management exercises judgement in determining the adjustments to apply to IFRS measurements, and this assessment covers the nature of the item, cause of occurrence and the scale of impact of that item on reported performance and individual financial statement line items, as well as consistency with prior periods. Reversals of previous adjusting items are assessed based on the same criteria to ensure an even-handed treatment of gains and losses. The amount and timing of adjusting items can be unpredictable and subject to a higher level of scrutiny by users of the accounts. Adjusting items can include, but are not limited to: litigation costs; impairment charges and reversals; property transactions such as disposals; amortisation of acquired intangibles; changes in uncertain tax positions; restructuring and redundancy costs; profits or losses on disposal of businesses; net pension finance costs; and fair value remeasurements of financial instruments. The tax effect of such items is also classified as adjusting.

The Group income statement is presented in a columnar format to enable users of the accounts to see the Group's performance before adjusting items, the adjusting items, and the statutory total on a line by line basis. An analysis of the adjusting items included in the Group income statement, together with the impact of these items on the Group cash flow statement, is disclosed in Note 3.

Refer to pages 58 to 63 for further details on the Group's APMs.

Key sources of estimation uncertainty

Impact of the war in Ukraine

In light of the war in Ukraine which commenced on 24 February 2022, the Group has considered whether any adjustments are required to reported amounts in the financial statements. The Group does not have any operations in Ukraine or Russia, but does have operations in Hungary and Slovakia, which border Ukraine. The Group is therefore not directly affected by trading restrictions or sanctions, but could be affected in future by possible wider macroeconomic consequences should the situation develop further. This could include an increase in domestic inflation from supply chain disruption, commodity shortages or commodity price increases affecting cash flows, or changes in market discount rates and valuations.

To the extent that there were observable indicators of change at the 26 February 2022 balance sheet date, these have been factored into the Group's financial statements as at 26 February 2022, in particular: assessing the impact on discount rates and cash flow scenarios used in impairment testing of goodwill and non-current assets; incorporating the latest macroeconomic data into ECL calculations in Tesco Bank; and evaluating the effect on pension discount rate and plan asset fair values. In Central Europe, the Group considered whether there were any specific impairment indicators for stores in Hungary and Slovakia and concluded that there were not. Also in Central Europe, the Group established that it remained appropriate to continue to classify certain properties as held for sale. Finally, the Group decided that there are more than sufficient future taxable profits to continue to recognise deferred tax assets.

Sensitivities of reasonably possible changes in key inputs to impairment testing of goodwill and non-current assets, Tesco Bank ECL and pension obligations are given in Notes 12, 17 and 20 respectively.

The Group reviewed non-adjusting macroeconomic movements after the balance sheet date (for example discount rates, asset values and inflation impact from fuel price increases and/or supply chain disruption) and concluded that those movements were within the range of the Group's existing sensitivities, hence no additional disclosures were required. The Group will continue to monitor the situation as it develops.

Note 2 Segmental reporting

The Group's operating segments are determined based on the Group's internal reporting to the Chief Operating Decision Maker (CODM). The CODM has been determined to be the Group Chief Executive, with support from the Executive Committee, as the function primarily responsible for the allocation of resources to segments and assessment of performance of the segments.

The principal activities of the Group are presented in the following segments:

-   Retailing and associated activities (Retail) in:

-   UK & ROI - the United Kingdom and Republic of Ireland; and

-   Central Europe - Czech Republic, Hungary and Slovakia.

-   Retail banking and insurance services through Tesco Bank in the UK (Tesco Bank).

This presentation reflects how the Group's operating performance is reviewed internally by management.

The CODM uses adjusted operating profit, as reviewed at monthly Executive Committee meetings, as the key measure of the segments' results as it reflects the segments' trading performance that is more comparable over time for the financial year under evaluation. Adjusted operating profit is a consistent measure within the Group as defined within the Glossary. Refer to Note 3 for adjusting items. Inter-segment revenue between the segments is not material.

Income statement

The segment results and the reconciliation of the segment measures to the respective statutory items included in the Group income statement are as follows:

52 weeks ended 26 February 2022
At constant exchange rates

UK & ROI
£m

Central
Europe
£m

Total Retail at constant exchange

£m

Tesco
Bank
£m

Total at
constant
exchange
£m

Foreign
exchange
£m

Total
at actual
exchange
£m

Continuing operations

 

 

 

 

 

 

 

Revenue

56,539

4,167

60,706

922

61,628

(284)

61,344

Less: Fuel sales

(6,420)

(160)

(6,580)

-

(6,580)

4

(6,576)

APM: Sales

50,119

4,007

54,126

922

55,048

(280)

54,768

Adjusted operating profit/(loss)

2,490

175

2,665

176

2,841

(16)

2,825

Adjusting items

(292)

26

(266)

-

(266)

1

(265)

Operating profit/(loss)

2,198

201

2,399

176

2,575

(15)

2,560

Adjusted operating margin

4.4%

4.2%

4.4%

19.1%

4.6%

 

4.6%

 

52 weeks ended 26 February 2022
At actual exchange rates

UK & ROI
£m

Central
Europe
£m

Total Retail

£m

Tesco
Bank
 £m

Total
at actual
exchange
£m

Continuing operations

 

 

 

 

 

Revenue

56,404

4,018

60,422

922

61,344

Less: Fuel sales

(6,420)

(156)

(6,576)

-

(6,576)

APM: Sales

49,984

3,862

53,846

922

54,768

Adjusted operating profit/(loss)

2,481

168

2,649

176

2,825

Adjusting items

(290)

25

(265)

-

(265)

Operating profit/(loss)

2,191

193

2,384

176

2,560

Adjusted operating margin

4.4%

4.2%

4.4%

19.1%

4.6%

Share of post-tax profits/(losses) of joint ventures and associates

 

 

 

 

15

Finance income

 

 

 

 

9

Finance costs

 

 

 

 

(551)

Profit/(loss) before tax

 

 

 

 

2,033

Tesco Bank revenue of £922m (2021: £735m) comprises interest and similar revenues of £473m (2021: £542m), fees and commissions revenue of £210m (2021: £193m), and insurance revenue of £239m (2021: £nil). For insurance, refer to Note 14.

 

52 weeks ended 27 February 2021

At actual exchange rates

UK & ROI
£m

Central
Europe
£m

Total Retail

£m

Tesco
Bank
£m

Total
at actual
exchange
£m

Continuing operations

 

 

 

 

 

Revenue

53,170

3,982

57,152

735

57,887

Less: Fuel sales

(4,322)

(120)

(4,442)

-

(4,442)

APM: Sales

48,848

3,862

52,710

735

53,445

Adjusted operating profit/(loss)*

1,839

124

1,963

(175)

1,788

Adjusting items*

51

3

54

(295)

(241)

Operating profit/(loss)*

1,890

127

2,017

(470)

1,547

Adjusted operating margin*

3.5%

3.1%

3.4%

(23.8)%

3.1%

Share of post-tax profits/(losses) of joint ventures and associates

 

 

 

 

26

Finance income

 

 

 

 

15

Finance costs

 

 

 

 

(952)

Profit/(loss) before tax*

 

 

 

 

636

*    Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

Balance sheet

The following tables showing segment assets and liabilities exclude those balances that make up net debt (cash and cash equivalents, short-term investments, joint venture loans and other receivables, bank and other borrowings, lease liabilities, derivative financial instruments and net debt of the disposal group). With the exception of lease liabilities which have been allocated to each segment, and Tesco Bank net debt, all other components of net debt have been included within the unallocated segment to reflect how these balances are managed. Intercompany transactions have been eliminated other than intercompany transactions with Tesco Bank in net debt.

At 26 February 2022

UK & ROI
£m

Central
Europe
£m

Tesco
Bank
 £m

Unallocated
£m

Total continuing operations
£m

Discontinued operations
£m

Total
£m

Goodwill and other intangible assets

4,700

31

629

-

5,360

-

5,360

Property, plant and equipment and investment property

15,552

1,462

68

-

17,082

-

17,082

Right of use assets

5,355

354

11

-

5,720

-

5,720

Investments in joint ventures and associates

85

1

-

-

86

-

86

Non-current other investments

12

-

1,241

-

1,253

-

1,253

Non-current trade and other receivables(a)

91

-

59

-

150

-

150

Non-current loans and advances to customers and banks

-

-

3,141

-

3,141

-

3,141

Non-current reinsurance assets(b)

-

-

184

-

184

-

184

Post-employment benefit surplus

3,150

-

-

-

3,150

-

3,150

Deferred tax assets

2

19

64

-

85

-

85

Non-current assets(c)

28,947

1,867

5,397

-

36,211

-

36,211

 

 

 

 

 

 

 

 

Inventories and current trade and other receivables(d)

2,981

285

239

-

3,505

-

3,505

Current loans and advances to customers and banks

-

-

3,349

-

3,349

-

3,349

Current reinsurance assets(b)

-

-

61

-

61

-

61

Current other investments

-

-

226

-

226

-

226

Total trade and other payables

(8,343)

(535)

(356)

-

(9,234)

-

(9,234)

Total customer deposits and deposits from banks

-

-

(6,379)

-

(6,379)

-

(6,379)

Total insurance contract provisions(b)

-

-

(650)

-

(650)

-

(650)

Total provisions

(401)

(28)

(37)

-

(466)

-

(466)

Deferred tax liabilities

(869)

(41)

-

-

(910)

-

(910)

Net current tax

90

(11)

3

-

82

-

82

Post-employment benefit deficit

(303)

-

-

-

(303)

-

(303)

Assets of the disposal group and non-current assets classified as held for sale

20

310

-

-

330

38

368

Liabilities of the disposal group classified as held for sale

-

-

-

-

-

(14)

(14)

Net debt(e)

(7,350)

(474)

300

(2,678)

(10,202)

-

(10,202)

Net assets

14,772

1,373

2,153

(2,678)

15,620

24

15,644

(a)  Excludes non-current loans to joint ventures of £9m (2021: £21m) which form part of net debt.

(b)  Includes assets and liabilities acquired in the acquisition of Tesco Underwriting Limited. Refer to Notes 14 and 24 for further details.

(c)  Excludes derivative financial instruments of £942m (2021: £1,425m) which form part of net debt.

(d)  Excludes net interest and other receivables of £1m (2021: £nil), and current loans to joint ventures of £96m (2021: £101m), both forming part of net debt.

(e)  Refer to Note 23. Net debt at 26 February 2022 excludes net debt of the disposal groups classified as held for sale of £(14)m (2021: £(276)m).

 

At 27 February 2021

UK & ROI
£m

Central
Europe
£m

Tesco
Bank
 £m

Unallocated
£m

Total continuing operations
£m

Discontinued operations
£m

Total
£m

Goodwill and other intangible assets

4,750

32

611

-

5,393

-

5,393

Property, plant and equipment and investment property(f)

15,131

1,768

65

-

16,964

-

16,964

Right of use assets

5,571

368

12

-

5,951

-

5,951

Investments in joint ventures and associates

84

1

93

-

178

-

178

Non-current other investments

9

-

754

-

763

-

763

Non-current trade and other receivables(a)

97

-

52

-

149

-

149

Non-current loans and advances to customers and banks

-

-

3,309

-

3,309

-

3,309

Deferred tax assets

460

25

67

-

552

-

552

Non-current assets(c)

26,102

2,194

4,963

-

33,259

-

33,259

 

 

 

 

 

 

 

 

Inventories and current trade and other receivables(d)

2,684

325

222

-

3,231

-

3,231

Current loans and advances to customers and banks

-

-

3,093

-

3,093

-

3,093

Current other investments

-

-

178

-

178

-

178

Total trade and other payables

(7,797)

(495)

(216)

-

(8,508)

-

(8,508)

Total customer deposits and deposits from banks

-

-

(6,338)

-

(6,338)

-

(6,338)

Total provisions

(224)

(22)

(59)

-

(305)

-

(305)

Deferred tax liabilities

(9)

(39)

-

-

(48)

-

(48)

Net current tax

(79)

5

36

-

(38)

-

(38)

Post-employment benefit deficit

(1,222)

-

-

-

(1,222)

-

(1,222)

Assets of the disposal group and non-current assets classified as held for sale

53

-

-

-

53

552

605

Liabilities of the disposal group classified as held for sale

-

-

-

-

-

(276)

(276)

Net debt(e)

(7,879)

(493)

242

(3,442)

(11,572)

-

(11,572)

Net assets

11,629

1,475

2,121

(3,442)

11,783

276

12,059

(a)-(e)  Refer to previous table for further footnotes.

(f)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

 

Other segment information

52 weeks ended 26 February 2022

UK & ROI
£m

Central
Europe
£m

Tesco
Bank
£m

Total continuing operations
£m

Discontinued operations
£m

Total
£m

Capital expenditure (including acquisitions through business
combinations):

 

 

 

 

 

 

Property, plant and equipment(a)(b)

1,485

89

14

1,588

-

1,588

Goodwill and other intangible assets(c)

186

10

71

267

-

267

Depreciation and amortisation:

 

 

 

 

 

 

Property, plant and equipment

(792)

(90)

(11)

(893)

-

(893)

Right of use assets

(500)

(35)

(2)

(537)

-

(537)

Investment property

(1)

-

-

(1)

-

(1)

Other intangible assets

(224)

(11)

(52)

(287)

-

(287)

Impairment

 

 

 

 

 

 

(Loss)/reversal on financial assets

10

(1)

30

39

-

39

(a)  Includes £584m related to obtaining control of The Tesco Sarum Limited Partnership (2021: £310m related to obtaining control of The Tesco Property (No. 2) Limited Partnership). Refer to Note 24 for further details.

(b)  Includes £1m (2021: £12m) of property, plant and equipment acquired through business combinations.

(c)  Includes £38m (2021: £5m) of goodwill and other intangible assets acquired through business combinations.

52 weeks ended 27 February 2021

UK & ROI
£m

Central
Europe
£m

Tesco
Bank
£m

Total continuing operations
£m

Discontinued operations
£m

Total
£m

Capital expenditure (including acquisitions through business
combinations):

 

 

 

 

 

 

Property, plant and equipment (a)(b)(d)

 1,270

 79

 15

 1,364

 2

 1,366

Goodwill and other intangible assets(c)

 156

 10

 40

 206

 -  

 206

Depreciation and amortisation:

 

 

 

 

 

 

Property, plant and equipment(d)

 (796)

 (99)

 (9)

 (904)

 (14)

 (918)

Right of use assets

 (522)

 (37)

 (2)

 (561)

 (5)

 (566)

Investment property

 (1)

 -  

 -  

 (1)

 -  

 (1)

Other intangible assets

 (225)

 (7)

 (46)

 (278)

 (1)

 (279)

Impairment

 

 

 

 

 

 

(Loss)/reversal on financial assets

 (23)

 (1)

 (360)

 (384)

 (2)

 (386)

(a)-(c)  Refer to previous table for further footnotes.

(d)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

 

Cash flow statement

The following tables provide further analysis of the Group cash flow statement, including a split of cash flows between Retail continuing operations and Tesco Bank as well as an analysis of Group continuing and discontinued operations. 

 

Retail

 

Bank

 

Discontinued operations

 

Tesco

Group

52 weeks ended 26 February 2022

Before adjusting

items

£m

Adjusting

items

£m

Retail
Total
£m

 

Before adjusting items
£m

Adjusting items
£m

Tesco
Bank
Total
£m

 

Total

£m

 

Total

£m

Operating profit/(loss)

2,649

(265)

2,384

 

176

-

176

 

(51)

 

2,509

Depreciation and amortisation

1,577

76

1,653

 

65

-

65

 

-

 

1,718

ATM net income

(14)

-

(14)

 

14

-

14

 

-

 

-

(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets held for sale and early termination of leases

5

(128)

(123)

 

-

-

-

 

-

 

(123)

(Profit)/loss arising on sale of joint ventures and associates

-

(15)

(15)

 

(10)

-

(10)

 

-

 

(25)

(Profit)/loss arising on sale of subsidiaries

-

-

-

 

-

-

-

 

23

 

23

Net impairment loss/(reversal) on property, plant and equipment, right of use assets, intangible assets and investment property

-

115

115

 

-

-

-

 

-

 

115

Net remeasurement (gain)/loss of non-current assets held for sale

-

6

6

 

-

-

-

 

(3)

 

3

Adjustment for non-cash element of pensions charge

7

-

7

 

-

-

-

 

-

 

7

Other defined benefit pension scheme payments

(19)

-

(19)

 

-

-

-

 

-

 

(19)

Share-based payments

63

-

63

 

3

-

3

 

-

 

66

Tesco Bank fair value movements included in operating profit/(loss)

-

-

-

 

(28)

-

(28)

 

-

 

(28)

Cash flows generated from operations excluding working capital

4,268

(211)

4,057

 

220

-

220

 

(31)

 

4,246

(Increase)/decrease in working capital

501

(105)

396

 

(54)

(8)

(62)

 

28

 

362

Cash generated from/(used in) operations

4,769

(316)

4,453

 

166

(8)

158

 

(3)

 

4,608

Interest paid

(644)

-

(644)

 

(5)

-

(5)

 

(1)

 

(650)

Corporation tax paid

(195)

-

(195)

 

(4)

-

(4)

 

(2)

 

(201)

Net cash generated from/(used in) operating activities(a)

3,930

(316)

3,614

 

157

(8)

149

 

(6)

 

3,757

Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale

-

308

308

 

1

-

1

 

-

 

309

Purchase of property, plant and equipment and investment property
- property buybacks

(37)

(43)

(80)

 

-

-

-

 

-

 

(80)

Purchase of property, plant and equipment and investment property
- other capital expenditure

(854)

-

(854)

 

(14)

-

(14)

 

(1)

 

(869)

Purchase of intangible assets

(196)

-

(196)

 

(33)

-

(33)

 

-

 

(229)

Disposal of subsidiaries, net of cash disposed

-

117

117

 

-

-

-

 

44

 

161

Acquisition of businesses, net of cash acquired

-

-

-

 

(48)

-

(48)

 

-

 

(48)

Proceeds from sale of joint ventures and associates

-

15

15

 

-

-

-

 

-

 

15

Increase in loans to joint ventures and associates

(4)

-

(4)

 

-

-

-

 

-

 

(4)

Investments in joint ventures and associates

(11)

-

(11)

 

-

-

-

 

-

 

(11)

Net (investments in)/proceeds from sale of short-term investments

(1,067)

-

(1,067)

 

-

-

-

 

-

 

(1,067)

Proceeds from sale of other investments(b)

2

-

2

 

272

-

272

 

-

 

274

Purchase of other investments(b)

(1)

-

(1)

 

(220)

-

(220)

 

-

 

(221)

Dividends received from joint ventures and associates

22

-

22

 

10

-

10

 

-

 

32

Dividends received from Tesco Bank

87

-

87

 

(87)

-

(87)

 

-

 

-

Interest received

3

-

3

 

-

-

-

 

-

 

3

Net cash generated from/(used in) investing activities(a)

(2,056)

397

(1,659)

 

(119)

-

(119)

 

43

 

(1,735)

Own shares purchased for cancellation

(278)

-

(278)

 

-

-

-

 

-

 

(278)

Own shares purchased for share schemes

(144)

-

(144)

 

-

-

-

 

-

 

(144)

Repayment of capital element of obligations under leases

(571)

-

(571)

 

(4)

-

(4)

 

(2)

 

(577)

Increase in borrowings

394

-

394

 

-

-

-

 

-

 

394

Repayment of borrowings

(754)

-

(754)

 

(21)

-

(21)

 

-

 

(775)

Cash inflows from derivative financial instruments(b)

798

-

798

 

-

-

-

 

-

 

798

Cash outflows from derivative financial instruments(b)

(921)

-

(921)

 

-

-

-

 

-

 

(921)

Dividends paid to equity holders

(704)

(27)

(731)

 

-

-

-

 

-

 

(731)

Net cash generated from/(used in) financing activities(a)

(2,180)

(27)

(2,207)

 

(25)

-

(25)

 

(2)

 

(2,234)

 

 

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

(306)

54

(252)

 

13

(8)

5

 

35

 

(212)

Cash and cash equivalents at the beginning of the year

 

 

 

 

 

 

 

 

 

 

1,971

Effect of foreign exchange rate changes

 

 

 

 

 

 

 

 

 

 

12

Cash and cash equivalents at the end of the year

 

 

 

 

 

 

 

 

 

 

1,771

Cash and overdrafts held in disposal groups

 

 

 

 

 

 

 

 

 

 

-

Cash and cash equivalents not held in disposal groups

 

 

 

 

 

 

 

 

 

 

1,771

(a)  Refer to page 62 for the reconciliation of the APM: Retail free cash flow.

(b)  Refer to Note 1 for further details regarding the presentation of primary financial statements.

 

 

Retail

 

Bank

 

Discontinued operations

 

Tesco

Group

52 weeks ended 27 February 2021

Before adjusting

            items

£m

           Adjusting

           items

£m

Retail
Total
£m

 

Before adjusting items
£m

Adjusting items
£m

Tesco
Bank
Total
£m

 

Total

£m

 

Total

£m

Operating profit/(loss)(c)

1,963

54

2,017

 

(175)

(295)

(470)

 

5,482

 

Depreciation and amortisation(c)

1,611

76

1,687

 

57

-

57

 

20

 

1,764

ATM net income

(13)

-

(13)

 

13

-

13

 

-

 

-

(Profit)/loss arising on sale of property, plant and equipment, investment property, intangible assets, assets held for sale and early termination of leases(c)

(17)

(13)

(30)

 

2

-

2

 

5

 

(23)

(Profit)/loss arising on sale of subsidiaries

-

-

-

 

-

-

-

 

(5,197)

 

(5,197)

Transaction and derivative costs associated with sale of subsidiaries

-

-

-

 

-

-

-

 

6

 

6

Net impairment loss/(reversal) on property, plant and equipment, right of use assets, intangible assets and investment property(c)

(4)

(128)

(132)

 

-

-

-

 

43

 

(89)

Impairment of goodwill

-

-

-

 

-

295

295

 

-

 

295

Net remeasurement (gain)/loss of non-current assets held for sale

-

-

-

 

-

-

-

 

(5)

 

(5)

Adjustment for non-cash element of pensions charge

7

7

14

 

-

-

-

 

-

 

14

Other defined benefit pension scheme payments

(351)

(2,500)

(2,851)

 

-

-

-

 

-

 

(2,851)

Share-based payments

31

-

31

 

(3)

-

(3)

 

2

 

30

Tesco Bank fair value movements included in operating profit/(loss)

-

-

-

 

367

-

367

 

-

 

367

Cash flows generated from operations excluding working capital

3,227

(2,504)

723

 

261

-

261

 

356

 

(Increase)/decrease in working capital

450

(11)

439

 

(133)

(19)

(152)

 

(41)

 

246

Cash generated from/(used in) operations

3,677

(2,515)

1,162

 

128

(19)

109

 

315

 

Interest paid

(680)

-

(680)

 

(6)

-

(6)

 

(43)

 

(729)

Corporation tax paid

(161)

-

(161)

 

(9)

-

(9)

 

(85)

 

(255)

Net cash generated from/(used in) operating activities(a)

2,836

(2,515)

321

 

113

(19)

94

 

187

 

602

Proceeds from sale of property, plant and equipment, investment property, intangible assets and assets classified as held for sale

33

148

181

 

-

51

51

 

5

 

Purchase of property, plant and equipment and investment property
- property buybacks

(239)

(52)

(291)

 

-

-

-

 

-

 

(291)

Purchase of property, plant and equipment and investment property
- other capital expenditure

(740)

-

(740)

 

(21)

-

(21)

 

(119)

 

(880)

Purchase of intangible assets

(162)

-

(162)

 

(40)

-

(40)

 

(4)

 

(206)

Disposal of subsidiaries, net of cash disposed

-

7,806

7,806

 

-

-

-

 

(713)

 

7,093

Acquisition of businesses, net of cash acquired

15

-

15

 

-

-

-

 

-

 

15

Increase in loans to joint ventures and associates

(2)

-

(2)

 

-

-

-

 

-

 

(2)

Investments in joint ventures and associates

(11)

-

(11)

 

-

-

-

 

-

 

(11)

Net (investments in)/proceeds from sale of short-term investments

62

-

62

 

-

-

-

 

-

 

62

Proceeds from sale of other investments(b)

-

-

-

 

201

-

201

 

-

 

201

Purchase of other investments(b)

(1)

-

(1)

 

(84)

-

(84)

 

-

 

(85)

Dividends received from joint ventures and associates

10

-

10

 

7

-

7

 

9

 

26

Dividends received from Tesco Bank

13

-

13

 

(13)

-

(13)

 

-

 

-

Interest received

10

-

10

 

-

-

-

 

2

 

12

Net cash generated from/(used in) investing activities(a)

(1,012)

7,902

6,890

 

50

51

101

 

(820)

 

6,171

Own shares purchased for share schemes

(66)

-

(66)

 

-

-

-

 

-

 

Repayment of capital element of obligations under leases

(561)

-

(561)

 

(3)

-

(3)

 

(57)

 

(621)

Increase in borrowings

1,097

-

1,097

 

1

-

1

 

-

 

1,098

Repayment of borrowings

(1,039)

-

(1,039)

 

(775)

-

(775)

 

-

 

(1,814)

Cash inflows from derivative financial instruments(b)

1,644

52

1,696

 

-

-

-

 

-

 

1,696

Cash outflows from derivative financial instruments(b)

(2,276)

-

(2,276)

 

-

-

-

 

-

 

(2,276)

Dividends paid to equity holders

(942)

(4,916)

(5,858)

 

-

-

-

 

-

 

(5,858)

Net cash generated from/(used in) financing activities(a)

(2,143)

(4,864)

(7,007)

 

(777)

-

(777)

 

(57)

 

(7,841)

 

 

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

(319)

523

204

 

(614)

32

(582)

 

(690)

 

(1,068)

Cash and cash equivalents at the beginning of the year

 

 

 

 

 

 

 

 

 

 

3,031

Effect of foreign exchange rate changes

 

 

 

 

 

 

 

 

 

 

8

Cash and cash equivalents at the end of the year

 

 

 

 

 

 

 

 

 

 

Cash and overdrafts held in disposal groups

 

 

 

 

 

 

 

 

 

 

7

Cash and cash equivalents not held in disposal groups

 

 

 

 

 

 

 

 

 

 

1,978

(a)-(b) Refer to previous table for footnotes.

(c) Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

 

Note 3 Adjusting items

Group income statement

Refer to Note 1 for further details regarding the assessment of items as adjusting.

52 weeks ended 26 February 2022

Profit/(loss) for the year included the following adjusting items:

 

Cost of sales
£m

Administrative expenses
£m

Total adjusting items included within operating profit
 £m

Share of joint venture and associates profits/(losses)
£m

Finance costs
£m

Taxation
£m

Adjusting items included within discontinued operations

£m

Property transactions(a)

1

127

128

-

-

(21)

-

Net impairment (loss)/reversal of non-current assets(b)

(140)

25

(115)

-

-

(26)

-

Fair value less cost of disposal movements on assets held for sale

-

(6)

(6)

-

-

-

-

Asia licence fee (c)

-

26

26

-

-

(5)

-

Litigation costs(d)

-

(193)

(193)

-

-

-

-

Disposal of China associate(e)

-

15

15

-

-

-

-

Restructuring provisions(f)

(37)

(7)

(44)

-

-

8

-

Amortisation of acquired intangible assets(g)

-

(76)

(76)

-

-

(7)

-

Net pension finance costs(h)

-

-

-

-

(22)

6

-

Fair value remeasurements of financial instruments(h)

-

-

-

-

123

(19)

-

Release of tax provisions(i)

-

-

-

-

-

56

-

Total adjusting items from continuing operations

(176)

(89)

(265)

-

101

(8)

-

Adjusting items relating to discontinued operations(j)

-

-

-

-

-

-

(38)

Total adjusting items

(176)

(89)

(265)

-

101

(8)

(38)

(a)  The Group disposed of surplus properties that generated a profit before tax of £128m.

(b)  Includes £(62)m relating to impairment on acquisition of The Tesco Sarum Limited Partnership, refer to Note 24. Refer to Note 12 for further details on net impairment (loss)/reversal of non-current assets.

(c)  Software licence fee income from services provided to CP Group as part of the Transitional Services Agreement relating to the sale of Asia.

(d)  Costs arising from the 2020 claims against Tesco PLC for matters arising out of or in connection with the overstatement of expected profit announced in 2014.

(e)  Additional proceeds received from escrow relating to the sale of the Group's 20% share of Gain Land to China Resources Holdings in the year ended 2020.

(f)   Provisions relating to operational restructuring changes announced in February 2022 as part of 'Save to Invest', a multi-year programme. Future cost savings will not be reported within adjusting items.

(g)  Amortisation of acquired intangibles relating to historical inorganic business combinations and does not reflect the Group's ongoing trading performance.

(h)  Net pension finance costs and fair value remeasurements of financial instruments are now included within adjusting items, as they can fluctuate significantly due to external market factors that are outside management's control. Refer to Note 1 for more details. Refer to Note 4 for details of finance income and costs.

(i)   The agreement of previously uncertain tax positions arising in prior periods has resulted in a release of tax provisions no longer required.

(j)   Refer to Note 6 for explanation of adjusting items relating to discontinued operations.

52 weeks ended 27 February 2021

Profit/(loss) for the year included the following adjusting items:

 

Cost of sales
£m

Administrative expenses
£m

Total adjusting items included within operating profit
 £m

Share of joint venture and associates profits/(losses)
£m

Finance costs
£m

Taxation
£m

Adjusting items included within discontinued operations

£m

Property transactions

19

7

26

-

-

18

-

Booker integration costs

(21)

(4)

(25)

-

-

4

-

ATM business rates

105

-

105

-

-

(20)

-

Litigation costs

-

(93)

(93)

-

-

-

-

GMP equalisation

(6)

(1)

(7)

-

-

1

-

Net impairment reversal of non-current assets*

128

-

128

-

-

(15)

-

Impairment charge on goodwill

-

(295)

(295)

-

-

-

-

Employee Share Scheme

(4)

-

(4)

-

-

-

-

Release of tax provisions

-

-

-

-

-

106

-

Amortisation of acquired intangible assets

-

(76)

(76)

-

-

2

-

Fair value remeasurements of financial instruments

-

-

-

-

(214)

41

-

Net pension finance costs

-

-

-

-

(43)

8

-

Total adjusting items from continuing operations*

221

(462)

(241)

-

(257)

145

-

Adjusting items relating to discontinued operations

-

-

-

-

-

-

5,117

Total adjusting items*

221

(462)

(241)

-

(257)

145

5,117

*    Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

 

Group cash flow statement

The table below shows the impact of adjusting items on the Group cash flow statement:

 

Cash flows from
operating activities

 

Cash flows from
investing activities

 

Cash flows from
financing activities

52 weeks
2022
£m

52 weeks
2021
£m

 

52 weeks
2022
£m

52 weeks
2021
£m

 

52 weeks
2022
£m

52 weeks
2021
£m

Property transactions(a)

-

-

 

308

148

 

-

-

Poland sale proceeds and costs(b)

-

-

 

122

(3)

 

-

-

Litigation costs(c)

(312)

(93)

 

-

(2)

 

-

-

Acquisition of property joint venture

-

-

 

(43)

(52)

 

-

-

Booker integration cash payments

(18)

(2)

 

-

-

 

-

-

Settlement of claims for customer redress in Tesco Bank

(8)

(19)

 

-

-

 

-

-

Disposal of China associate(d)

-

-

 

15

-

 

-

-

ATM business rates(e)

14

90

 

-

-

 

-

-

Special dividend(f)

-

-

 

-

-

 

(27)

(4,916)

Disposal of Asia operations

-

26

 

(5)

7,811

 

-

52

Additional pension contribution

-

(2,500)

 

-

-

 

-

-

Tesco Bank mortgage book disposal proceeds

-

-

 

-

51

 

-

-

Prior year restructuring and redundancy costs

-

(36)

 

-

-

 

-

-

Total continuing operations

(324)

(2,534)

 

397

7,953

 

(27)

(4,864)

Cash flows from discontinued operations(g)

(1)

(15)

 

44

(713)

 

-

-

Total

(325)

(2,549)

 

441

7,240

 

(27)

(4,864)

(a)  Property transactions include £109m proceeds relating to the sale of stores in Poland not included in the sale of the corporate business.

(b)  Poland sale proceeds and costs include £106m in respect of intercompany debt settled by the purchaser upon completion. Refer to Note 6 for further details.

(c)  Cash settlements arising from the claims against Tesco PLC for matters arising out of, or in connection with the overstatement of expected profit announced in 2014 and the 2015 sale of Korea Homeplus.

(d)  Additional proceeds received from escrow relating to the sale of the Group's 20% share of Gain Land to China Resources Holdings in the year ended 2020.

(e)  Amounts received in the year with respect to the Supreme Court ruling in May 2020 that the Tesco Group is due a refund of business rates related to ATMs in stores.

(f)   The Group paid a special dividend to shareholders in the previous financial year. Amounts paid in the current year relate to those balances not settled at the previous reporting date.

(g)  Cash flows from investing activities of £44m from discontinued operations are the movements in cash and cash equivalents from the disposal of the Poland business. This comprised a £57m reduction in overdrafts less £13m cash disposed. Refer to Note 6 for details.

Note 4 Finance income and costs

Continuing operations

Notes

52 weeks
2022
£m

52 weeks
2021
£m

Finance income

 

 

 

Interest receivable and similar income

 

4

10

Finance income receivable on net investment in leases

 

5

5

Total finance income

 

9

15

Finance costs

 

 

 

GBP MTNs and loans

 

(161)

(158)

EUR MTNs

 

(42)

(51)

USD bonds

 

(5)

(9)

Finance charges payable on lease liabilities

 

(405)

(446)

Other interest payable

 

(39)

(31)

Total finance costs before adjusting items

 

(652)

(695)

Fair value remeasurements of financial instruments*

 

123

(214)

Net pension finance costs

20

(22)

(43)

Total finance costs

 

(551)

(952)

Net finance costs

 

(542)

(937)

*    Fair value remeasurements of financial instruments included £nil (2021: £(160)m) relating to the premium paid on the repurchase of long-dated bonds.

Note 5 Taxation

Recognised in the Group Income statement

Continuing operations

52 weeks
2022
£m

52 weeks

2021

£m

Current tax (credit)/charge

 

 

UK corporation tax

201

228

Overseas tax

69

60

Adjustments in respect of prior years

(55)

(110)

 

215

178

Deferred tax (credit)/charge

 

 

Origination and reversal of temporary differences

216

(67)

Adjustments in respect of prior years

1

(19)

Change in tax rate*

78

12

 

295

(74)

Total income tax (credit)/charge

510

104

*    The UK Government announced an increase in the corporation tax rate from 19% to 25%, with an effective date of 1 April 2023, which was substantively enacted on 24 May 2021. Temporary differences have been remeasured using the enacted tax rates that are expected to apply when the liability is settled or the asset realised, giving rise to a change in tax rate impact of £78m.

Reconciliation of effective tax charge

Continuing operations

52 weeks
2022
£m

52 weeks

2021(a)

£m

Profit/(loss) before tax

2,033

636

Tax credit/(charge) at 19.0% (2021: 19.0%)

(386)

(121)

Effect of:

 

 

Non-qualifying depreciation(b)

(7)

(33)

Expenses not deductible

(57)

(40)

Property items taxed on a different basis to accounting entries

7

4

Impairment of non-current assets

(43)

(58)

Banking surcharge tax

(13)

13

Differences in overseas taxation rates

10

10

Adjustments in respect of prior years(c)

54

129

Share of losses of joint ventures and associates

3

5

Change in tax rate

(78)

(12)

Irrecoverable withholding tax

-

(1)

Total income tax credit/(charge)

(510)

(104)

Effective tax rate

25.1%

16.4%

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  This figure has been reduced by the tax effect of the super-deduction of £23m in respect of tax relief for fixed assets.

(c)  Prior year adjustments include tax credits of £56m in relation to uncertain tax positions (2021: £106m).

Reconciliation of effective tax charge on adjusted profit before tax

Continuing operations

52 weeks
2022
£m

52 weeks

2021(a)

£m

Profit/(loss) before tax

2,033

636

Less: Adjusting items

164

498

Adjusted profit before tax

2,197

1,134

Tax credit/(charge) at 19.0% (2021: 19.0%)

(417)

(216)

Effect of:

 

 

Non-qualifying depreciation(b)

(7)

(33)

Expenses not deductible

(32)

(21)

Property items taxed on a different basis to accounting entries

(1)

-

Impairment of non-current assets

-

(4)

Banking surcharge tax

(13)

13

Differences in overseas taxation rates

10

10

Adjustments in respect of prior years

(2)

(1)

Share of profits of joint ventures and associates

3

5

Change in tax rate

(43)

(1)

Irrecoverable withholding tax

-

(1)

Total income tax credit/(charge) before adjusting items

(502)

(249)

Adjusted effective tax rate

22.8%

22.0%

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  This figure has been reduced by the tax effect of the super-deduction of £23m in respect of tax relief for fixed assets.

 

Deferred tax

The following are the major deferred tax (liabilities)/assets recognised by the Group and movements thereon during the current and prior financial years measured using the tax rates that are expected to apply when the liability is settled or the asset realised based on the tax rates that have been enacted or substantively enacted by the balance sheet date:

 

Property-related

items(a)

£m

Acquired intangibles
£m

Post-
employment

benefits(b)

£m

Share-based
payments
£m

Short-term
timing
differences
£m

Tax losses
£m

Financial
instruments
£m

Total
£m

At 29 February 2020

(168)

(100)

512

51

93

4

 17

409

Discontinued operations

14

-

(6)

(6)

(63)

-

-

(61)

(Charge)/credit to the Group income statement

32

2

9

(3)

40

(1)

(5)

74

(Charge)/credit to the Group statement of changes in equity

-

-

-

(11)

-

-

-

(11)

(Charge)/credit to the Group statement of comprehensive income/(loss)

-

-

67

-

-

-

9

76

Acquisitions

(2)

-

-

-

-

-

19

17

Foreign exchange and other movements

(1)

-

-

-

(1)

-

2

-

At 27 February 2021

(125)

(98)

582

31

69

3

42

504

Discontinued operations

-

-

-

-

-

-

-

-

(Charge)/credit to the Group income statement

(227)

(10)

(1)

(6)

(24)

2

(29)

(295)

(Charge)/credit to the Group statement of changes in equity

-

-

-

14

-

-

-

14

(Charge)/credit to the Group statement of comprehensive income/(loss)

-

-

(1,030)

-

-

-

(17)

(1,047)

Acquisitions

-

-

-

-

-

-

-

-

Foreign exchange and other movements

-

-

(2)

-

-

1

-

(1)

At 26 February 2022

(352)

(108)

(451)

39

45

6

(4)

(825)

(a)  Property-related items include a deferred tax liability on rolled-over gains of £423m (2021: £305m), deferred tax assets on capital losses of £248m (2021: £187m) and deferred tax assets on IFRS 16 balances of £238m (2021: £267m). The remaining balance relates to accelerated tax depreciation.

(b)  The deferred tax liability on retirement benefits is the net of a deferred tax asset of £275m arising from additional contributions paid in the prior year and the deferred tax liability related to the pension surplus of £726m (see Note 20).

Note 6 Discontinued operations and assets classified as held for sale

Assets and liabilities of the disposal group and non-current assets classified as held for sale

 

2022
£m

2021
£m

Assets of the disposal group(a)

11

404

Non-current assets classified as held for sale(b)

357

201

Total assets of the disposal group and non-current assets classified as held for sale

368

605

Liabilities of the disposal group(a)

(14)

(276)

Total net assets of the disposal group and non-current assets classified as held for sale

354

329

(a)  The disposal group as at 26 February 2022, including £(14)m of net debt (2021: £(141)m), relates to residual properties and leases with respect to the Group's operation in Poland. Balances as at 27 February 2021 were with respect to the Group's operation in Poland.

(b)  The assets classified as held for sale consist mainly of properties in the UK, Poland and Central Europe due to be sold within one year.

Discontinued operations

Income statement of discontinued operations

 

2022

 

2021

 

Poland
£m

Other
£m

Total
£m

 

Thailand
and
Malaysia
£m

Poland
£m

Other
£m

Total
£m

Revenue

32

-

32

 

3,932

974

-

4,906

Operating costs(a)

(34)

-

(34)

 

(3,492)

(982)

-

(4,474)

Adjusted operating profit/(loss)

(2)

-

(2)

 

440

(8)

-

432

Share of post-tax profits/(losses) of joint ventures and associates

-

-

-

 

9

-

-

9

Finance (costs)/income

-

-

-

 

(26)

(19)

-

(45)

Adjusted profit/(loss) before tax

(2)

-

(2)

 

423

(27)

-

396

Taxation

-

-

-

 

(84)

(3)

-

(87)

Adjusted profit/(loss) after tax

(2)

-

(2)

 

339

(30)

-

309

Loss on disposal of Poland

(23)

-

(23)

 

-

-

-

-

Homeplus (Korea) claims settlement(b)

-

(33)

(33)

 

-

-

(88)

(88)

Other adjusting items(c)-(d)

3

4

7

 

(3)

(56)

-

(59)

Tax on adjusting items(e)

-

11

11

 

-

-

-

-

Profit after tax on disposal of Thailand and Malaysia

-

-

-

 

5,264

-

-

5,264

Total adjusting items

(20)

(18)

(38)

 

5,261

(56)

(88)

5,117

Total profit/(loss) after tax of discontinued operations

(22)

(18)

(40)

 

5,600

(86)

(88)

5,426

(a)  Operating costs include £nil depreciation and amortisation charges (2021: £(20)m).

(b)  £(33)m relates to the claims settlement from Homeplus (Korea) purchasers (2021: £(88)m).

(c)  Other adjusting items of £7m in the current year includes £4m reversal of accruals relating to legal costs and £3m fair value remeasurement of non-current assets classified as held for sale.

(d)  Other adjusting items of £(59)m in the prior year relates to £(7)m of net restructuring and redundancy costs, £(43)m of net impairment loss on non-current assets, £5m fair value remeasurement of non-current assets classified as held for sale, £(8)m loss on disposal of surplus properties and £(6)m of other corporate activity costs.

(e)  £11m tax on adjusting items relates to the reduction of withholding tax paid at the time of the sale relating to the Homeplus claim (2021: £nil).

On 18 June 2020, the Group reached agreement on the terms of a proposed corporate sale of its business in Poland, which was previously presented in the Group's Central Europe segment. The assets and liabilities related to the Group's Poland operation, as well as certain other properties that met the criteria to be classified as held for sale during the year ended 27 February 2021, were presented within discontinued operations. The corporate disposal completed on 16 March 2021.

The loss after tax for the Poland corporate sale comprises the following:

 

£m

Gross proceeds(a)

139

Costs to sell(b)

(12)

Net proceeds

127

 

 

Net book value of assets disposed

 

Goodwill and other intangible assets

(3)

Property, plant and equipment

(212)

Right of use assets

(69)

Inventories

(59)

Trade and other receivables

(15)

Cash and cash equivalents

(13)

Trade and other payables

105

Borrowings

57

Lease liabilities

110

Provisions

15

Net book value of assets and liabilities disposed

(84)

Currency translation reserve reclassified to income statement

(66)

Loss before and after tax on disposal

(23)

(a)  Proceeds include £106m with respect to intercompany debt settled by the purchaser upon completion.

(b)  Total costs associated with the sale of the business amounted to £(18)m, of which £(6)m was expensed in the prior financial year.

 

The disposal of the operations in Poland has reduced Net debt by £276m. This comprises £110m lease liabilities disposed and £166m net cash inflows, consisting of £139m proceeds less £(5)m received in the prior year, £57m reduction in overdrafts less £(13)m cash disposed, and £(12)m cash costs to sell. The total cash flows associated with the disposal are presented in 'disposal of subsidiaries, net of cash disposed', within investing cash flows.

 

During the year £5m was paid in relation to legal fees for the sale of the Asia business, expensed in the year ended 27 February 2021.

Cash flow statement

 

2022

 

 

2021

 

 

Poland
£m

 

Thailand and Malaysia
£m

Poland
£m

Total
£m

Net cash flows from operating activities

(6)

 

225

(38)

187

Net cash flows from investing activities

43

 

(811)

(9)

(820)

Net cash flows from financing activities

(2)

 

(42)

(15)

(57)

Net cash flows from discontinued operations

35

 

(628)

(62)

(690)

In the prior year, the profit after tax on disposal of the Group's Thailand and Malaysia operations was £5,264m. The disposal of the Asia operations and use of proceeds reduced Net debt by £525m, consisting of £765m of lease liabilities disposed and total cash flows associated with the disposal of £(240)m. The £(240)m cash flow included gross proceeds of £7,938m, cash and cash equivalents disposed of £(464)m excluding intercompany loans repaid prior to closing, net intercompany loans repaid of £(249)m, additional contribution into the defined benefit pension scheme of £(2,500)m, £(4,916)m special dividends paid to equity holders and other associated cash flows. The £(240)m total cash flows were presented £(2,474)m in operating cash flows, £7,098m in investing cash flows and £(4,864)m in financing cash flows.

Note 7 Dividends

 

2022

 

2021

 

Pence/share

£m

 

Pence/share

£m

Amounts recognised as distributions to owners in the financial year:

 

 

 

 

 

Paid prior financial year final dividend(a)

5.95

458

 

6.50

634

Paid interim dividend(b)

3.20

246

 

3.20

310

Paid special dividend(c)

-

-

 

50.93

4,948

Dividends paid to equity owners in the financial year

9.15

704

 

60.63

5,892

 

 

 

 

 

 

Proposed final dividend at financial year end

7.70

588

 

5.95

460

(a)  Excludes £2m prior financial year final dividend waived (2021: £3m).

(b)  Excludes £1m interim dividend waived (2021: £3m).

(c)  Excludes £nil special dividend waived (2021: £43m).

The proposed final dividend was approved by the Board of Directors on 12 April 2022 and is subject to the approval of shareholders at the AGM. The proposed dividend has not been included as a liability as at 26 February 2022, in accordance with IAS 10 'Events after the reporting period'. It will be paid on 24 June 2022 to shareholders who are on the Register of members at close of business on 20 May 2022.

A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. For those shareholders electing to receive the DRIP, the last date for receipt of a new election is 7 June 2022.

The Group has a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who have not had contact with Tesco PLC over the past 12 years, in accordance with the provisions set out in the Company's Articles of Association. £nil (2021: £nil) of unclaimed dividends in relation to these shares have been adjusted for in retained earnings. Refer to Note 21 for further details.

Note 8 Earnings/(losses) per share and diluted earnings/(losses) per share

Basic earnings/(losses) per share amounts are calculated by dividing the profit/(loss) attributable to owners of the parent by the weighted average number of Ordinary shares in issue during the financial year, excluding own shares held. The share consolidation and special dividend in 2021 and the share buyback programme commencing in 2022 affect earnings per share on a prospective basis, with comparatives not restated.

Diluted earnings/(losses) per share amounts are calculated by dividing the profit/(loss) attributable to owners of the parent by the weighted average number of Ordinary shares in issue during the financial year adjusted for the effects of potentially dilutive options. The dilutive effect is calculated on the full exercise of all potentially dilutive Ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

For the 52 weeks ended 26 February 2022 there were 88 million (2021: 27 million) potentially dilutive share options. As the Group has recognised a profit for the year from its continuing operations, dilutive effects have been considered in calculating diluted earnings per share.

 

2022

 

2021(a)

 

Basic

Potentially
dilutive share
options

Diluted

 

Basic

Potentially
dilutive share
options

Diluted

Profit/(loss) (£m)

 

 

 

 

 

 

 

Continuing operations(b)

1,521

-

1,521

 

539

-

539

Discontinued operations(c)

(40)

-

(40)

 

5,415

-

5,415

Total

1,481

-

1,481

 

5,954

-

5,954

Weighted average number of shares (millions)

7,658

88

7,746

 

9,629

27

9,656

Earnings/(losses) per share (pence)

 

 

 

 

 

 

 

Continuing operations

19.86

(0.22)

19.64

 

5.60

(0.02)

5.58

Discontinued operations

(0.52)

-

(0.52)

 

56.23

(0.15)

56.08

Total

19.34

(0.22)

19.12

 

61.83

(0.17)

61.66

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  Excludes profits/(losses) from non-controlling interests of £2m (2021: £(7)m).

(c)  Excludes profits from non-controlling interests of £nil (2021: £11m).

 

APM: Adjusted diluted earnings/(losses) per share

Continuing operations

Notes

52 weeks
2022

52 weeks

2021(a)

Profit/(loss) before tax

 

2,033

636

Less: adjusting items

3

164

498

Adjusted profit before tax (£m)

 

2,197

1,134

Adjusted profit before tax attributable to the owners of the parent (£m)(b)

 

2,195

1,141

Taxation on adjusted profit before tax attributable to the owners of the parent (£m)(c)

 

(502)

(249)

Adjusted profit after tax attributable to the owners of the parent (£m)

 

1,693

892

 

 

 

 

Basic weighted average number of shares (millions)

 

7,658

9,629

Adjusted basic earnings per share (pence)

 

22.11

9.26

 

 

 

 

Diluted weighted average number of shares (millions)

 

7,746

9,656

Adjusted diluted earnings per share (pence)

 

21.86

9.24

(a)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

(b)  Excludes profit before tax attributable to non-controlling interests of £2m (2021: £(7)m).

(c)  Excludes tax charges on losses attributable to non-controlling interests of £nil (2021: £nil).

Refer to page 61 in the Glossary for the Group's APM Adjusted diluted earnings per share (adjusted for share consolidation).

Note 9 Goodwill and other intangible assets

Goodwill of £4,291m (2021: £4,271m) consists of UK £3,788m (2021: £3,788m), ROI £3m (2021: £3m) and Tesco Bank £500m (2021: £480m). £20m of goodwill was recognised in Tesco Bank in the period from the acquisition of Tesco Underwriting Limited. Refer to Note 24 for further details.

Other intangible assets of £1,069m (2021: £1,122m) comprise software of £557m (2021: £532m), customer relationships of £418m (2021: £494m) and other intangible assets of £94m (2021: £96m), with additions in the year of £229m (2021: £201m) excluding assets acquired through business combinations.

Of the £287m (2021: £279m) amortisation of other intangible assets, £76m (2021: £76m) arising from the amortisation of intangible assets acquired through business combinations has been included within adjusting items. Refer to Note 3 for further details.

 

Note 10 Property, plant and equipment

Land and
buildings
£m

Other(a)

£m

Total
£m

Cost

 

 

 

At 27 February 2021 (restated(b))

21,653

5,743

27,396

Foreign currency translation

(76)

(15)

(91)

Additions(c)(d)

992

595

1,587

Acquired through business combinations(e)

                          - 

1

1

Reclassification(f)

(72)

                          - 

                     (72) 

Transfers to assets classified as held for sale

(446)

(17)

(463)

Disposals

(74)

(658)

(732)

At 26 February 2022

21,977

5,649

27,626

Accumulated depreciation and impairment losses

 

 

 

At 27 February 2021 (restated(b))

6,554

3,897

10,451

Foreign currency translation

(25)

(10)

(35)

Charge for the year

426

467

893

Impairment losses(g)

417

89

506

Reversal of impairment losses(g)

(324)

(43)

(367)

Transfers to assets classified as held for sale

(163)

(6)

(169)

Disposals

(71)

(642)

(713)

At 26 February 2022

6,814

3,752

10,566

 

 

 

 

Net carrying value

 

 

 

At 26 February 2022(h)

15,163

1,897

17,060

At 29 February 2021 (restated(b))

15,099

1,846

16,945

 

 

 

 

Construction in progress included above(i)

 

 

 

At 26 February 2022

97

212

309

At 27 February 2021

77

210

287

(a)  Other assets consist of fixtures and fittings with a net carrying value of £1,387m (2021: £1,349m), office equipment with a net carrying value of £200m (2021: £214m) and motor vehicles with a net carrying value of £310m (2021: £283m).

(b)  Comparatives have been restated due to a change in accounting policy. Refer to Note 1. 

(c)  Includes £584m of land and buildings related to obtaining control of The Tesco Sarum Limited Partnership, which was impaired by £(62)m on acquisition (2021: £310m of land and buildings related to obtaining control of The Tesco Property (No. 2) Limited Partnership, which was impaired by £(2)m on acquisition). The £584m (2021: £310m) additions comprised £584m (2021: £326m) cost of acquisition offset by £nil (2021: £16m) of historical deferred profit. Refer to Note 24.

(d)  Includes £37m (2021: £209m) relating to other property buyback transactions.

(e)  Assets recognised on acquisition of Tesco Underwriting Limited. Refer to Note 24.

(f)   £72m transferred to investment property subsequent to signing of sublease agreements with third parties.

(g)  Refer to Note 12.

(h)  Includes £2,231m (2021: £2,099m) of assets pledged as security for secured bonds and £914m (2021: £826m) of property held as security in favour of the Tesco PLC Pension Scheme.

(i)   Construction in progress does not include land.

 

Land and
buildings
£m

Other(a)

£m

Total
£m

Cost

 

 

 

At 29 February 2020 (restated(b))

24,693

6,925

31,618

Foreign currency translation

(38)

(15)

(53)

Additions(c)(d)

731

623

1,354

Acquired through business combinations

8

4

12

Transfers (to)/from assets classified as held for sale

29

-

29

Transfer to disposal group classified as held for sale

(3,642)

(1,415)

(5,057)

Disposals

(128)

(379)

(507)

At 27 February 2021 (restated(b))

21,653

5,743

27,396

Accumulated depreciation and impairment losses

 

 

 

At 29 February 2020 (restated(b))

7,745

4,716

12,461

Foreign currency translation

(15)

(10)

(25)

Charge for the year

429

489

918

Impairment losses(g)

323

107

430

Reversal of impairment losses(g)

(485)

(47)

(532)

Transfers (to)/from assets classified as held for sale

15

-

15

Transfer to disposal group classified as held for sale

(1,386)

(987)

(2,373)

Disposals

(72)

(371)

(443)

At 27 February 2021 (restated(b))

6,554

3,897

10,451

Net carrying value (restated(b))

15,099

1,846

16,945

Refer to previous table for footnotes.

Note 11 Leases

Group as lessee

On 17 December 2021, the Group obtained control of The Tesco Sarum Limited Partnership (2021: The Tesco Property (No. 2) Limited Partnership on 18 September 2020), previously accounted for as a joint venture, through the acquisition of the other partner's 50% interest, at which point the associated property leases from the joint venture became intercompany leases. Refer to Note 24 for further details.

Right of use assets

Land and
buildings
£m

Other
£m

Total
£m

Net carrying value at 27 February 2021

5,866

85

5,951

Additions

544

39

583

Depreciation charge for the year

(497)

(40)

(537)

Impairment losses(a)

(195)

-

(195)

Reversal of impairment losses(a)

234

-

234

Derecognition on acquisition of property joint venture (Note 24)

(243)

-

(243)

Other movements(b)

(75)

2

(73)

Net carrying value at 26 February 2022

5,634

86

5,720

(a)  Refer to Note 12.

(b)  Other movements include lease terminations, modifications and reassessments, foreign exchange, reclassifications between asset classes and entering into finance subleases.

Land and
buildings
£m

Other
£m

Total
£m

Net carrying value at 29 February 2020

6,734

140

6,874

Additions (including through business combinations)

308

42

350

Depreciation charge for the year

(517)

(49)

(566)

Impairment losses(a)

(225)

-

(225)

Reversal of impairment losses(a)

230

-

230

Derecognition on acquisition of property joint venture

(130)

-

(130)

Transfer to disposal group classified as held for sale

(724)

(20)

(744)

Other movements(b)

190

(28)

162

Net carrying value at 27 February 2021

5,866

85

5,951

Refer to previous table for footnotes.

Lease liabilities

The following table shows the discounted lease liabilities included in the Group balance sheet:

 

2022
£m

2021
£m

Current

547

575

Non-current

7,411

7,827

Total lease liabilities

7,958

8,402

Total undiscounted lease payments

11,515

12,527

A reconciliation of the Group's opening to closing lease liabilities balance is presented in Note 23.
 

Note 12 Impairment of non-current assets

Impairment losses and reversals

No impairment of goodwill was recognised in the current year (2021: £295m impairment of goodwill associated with Tesco Bank).

The table below summarises the Group's pre-tax impairment losses and reversals on other non-current assets and investments in joint ventures and associates, with the former aggregated by segment due to the large number of individually immaterial store cash-generating units. This includes any losses recognised immediately prior to classifying an asset or disposal group as held for sale but excludes all impairments post classification as held for sale. There were no impairment losses or reversals in the year (2021: £nil) with respect to Investments in joint ventures and associates and no impairments in other non-current assets and investments in joint ventures and associates in Tesco Bank (2021: Nil). All impairment losses and reversals are classified as adjusting items (2021: £128m net reversal).

UK & ROI

 

Central Europe

 

Total

 

Net

52 weeks ended 26 February 2022

Impairment
loss
£m

Impairment reversal
£m

 

Impairment
loss
£m

Impairment reversal
£m

 

Impairment
loss
£m

Impairment reversal
£m

 

Impairment (loss)/reversal
£m

Group balance sheet

 

 

 

 

 

 

 

 

 

 

Other intangible assets

(17)

8

 

(1)

-

 

(18)

8

 

(10)

Property, plant and equipment

(496)

319

 

(10)

48

 

(506)

367

 

(139)

Right of use assets

(183)

228

 

(12)

6

 

(195)

234

 

39

Investment property

(6)

1

 

-

-

 

(6)

1

 

(5)

Total impairment (loss)/reversal of other non-current assets

(702)

556

 

(23)

54

 

(725)

610

 

(115)

Group income statement

 

 

 

 

 

 

 

 

 

 

Cost of sales - adjusting

(682)

536

 

(19)

25

 

(701)

561

 

(140)

Administrative expenses - adjusting

(20)

20

 

(4)

29

 

(24)

49

 

25

Total impairment (loss)/reversal from continuing and discontinued operations

(702)

556

 

(23)

54

 

(725)

610

 

(115)

 

 

UK & ROI

 

Central Europe

 

Total continuing operations

 

Discontinued operations

 

Total*

 

Net

 

52 weeks ended 27 February 2021

Impairment
loss
£m

Impairment reversal
£m

 

Impairment
loss
£m

Impairment reversal
£m

 

Impairment
loss
£m

Impairment reversal
£m

 

Impairment
loss
£m

Impairment reversal
£m

 

Impairment
loss
£m

Impairment reversal
£m

 

Impairment (loss)/reversal
£m

 

Group balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other intangible assets

(32)

9

 

(2)

7

 

(34)

16

 

-

-

 

(34)

16

 

(18)

 

Property, plant and equipment

(341)

471

 

(23)

38

 

(364)

509

 

(66)

23

 

(430)

532

 

102

 

Right of use assets

(209)

229

 

(16)

1

 

(225)

230

 

-

-

 

(225)

230

 

5

 

Investment property

(2)

2

 

-

-

 

(2)

2

 

-

-

 

(2)

2

 

-

 

Total impairment (loss)/reversal of other non-current assets

(584)

711

 

(41)

46

 

(625)

757

 

(66)

23

 

(691)

780

 

89

 

Group income statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales - non-adjusting

(2)

-

 

-

-

 

(2)

-

 

-

-

 

(2)

-

 

(2)

 

Cost of sales - adjusting

(534)

657

 

(41)

46

 

(575)

703

 

-

-

 

(575)

703

 

128

 

Administrative expenses - non-adjusting

(48)

54

 

-

-

 

(48)

54

 

-

-

 

(48)

54

 

6

 

Administrative expenses - adjusting

-

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

 

Total impairment (loss)/reversal from continuing operations

(584)

711

 

(41)

46

 

(625)

757

 

-

-

 

(625)

757

 

132

 

Discontinued operations
- non-adjusting

-

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

 

Discontinued operations
- adjusting

-

-

 

-

-

 

-

-

 

(66)

23

 

(66)

23

 

(43)

 

Total impairment (loss)/reversal

(584)

711

 

(41)

46

 

(625)

757

 

(66)

23

 

(691)

780

 

89

 

*   Comparatives have been restated due to a change in accounting policy. Refer to Note 1 for further details.

 

The net impairment loss in UK & ROI includes an impairment loss of £62m in the UK in respect of the Group obtaining control of The Tesco Sarum Limited Partnership (2021: £2m impairment loss in the UK & ROI in respect of the Group obtaining control of The Tesco Property (No. 2) Limited Partnership). Refer to Note 24 for further details.

The remaining other non-current assets impairment losses and reversals for the Group largely reflect normal fluctuations expected from store-level performance, property fair values and changes in discount rates, as well as any specific store closures.

Impairment methodology

The impairment methodology is unchanged in the period from that described in Note 15 of the Annual Report and Financial Statements 2021.

Key assumptions and sensitivity

Key assumptions

For value in use calculations, the key assumptions to which the recoverable amounts are most sensitive are discount rates, long-term growth rates, future cash flows (incorporating sales volumes and prices and costs) and probabilities assigned to cash flow scenarios. For fair value less costs of disposal calculations, the key assumption is property fair values.

Sensitivity

The Group has carried out sensitivity analyses on the reasonably possible changes in key assumptions in the impairment tests for (a) each group of cash-generating units to which goodwill has been allocated and (b) for its portfolio of store cash-generating units.

(a)    With the exception of Tesco Bank goodwill, neither a reasonably possible one percentage point increase in discount rates, a 5% decrease in future cash flows nor a one percentage point decrease in long-term growth rates would indicate impairment in any group of cash-generating units to which goodwill has been allocated. Tesco Bank goodwill is not sensitive to a reasonably possible change in long-term growth rates, but is sensitive to a change in the discount rate and annual equity cash flows. An increase of 1.0%pt in the discount rate or a decrease in annual equity cash flows of 14.2% would reduce the year-end headroom of £212m to £nil.

(b)    While there is not a significant risk of an adjustment to the carrying amount of any one store cash-generating unit that would be material to the Group as a whole in the next financial year, the table below summarises the reasonably possible changes in key assumptions which most impact the impairment of the Group's entire portfolio of store cash-generating units, presented in aggregate due to the large number of individually immaterial store cash-generating units:

Key assumption

Reasonably possible change

Impact on impairment

2022
£m

Post-tax discount rates

Increase of 1.0%pt for each geographic region

Increase

(435)

Decrease of 1.0%pt for each geographic region

Decrease

365

Future cash flows

Increase of 5.0% for each geographic region

Decrease

106

Decrease of 5.0% for each geographic region

Increase

(115)

Long-term growth rates

Increase of 1.0%pt for each geographic region

Decrease

266

Decrease of 1.0%pt for each geographic region

Increase

(268)

 

Note 13 Cash and cash equivalents and short-term investments

Cash and cash equivalents

 

2022
£m

2021
£m

Cash at bank and on hand

2,322

2,495

Short-term deposits

23

15

Cash and cash equivalents in the Group balance sheet

2,345

2,510

Bank overdrafts

(574)

(532)

Cash and cash equivalents in the Group cash flow statement

1,771

1,978

Short-term investments

 

2022
£m

2021
£m

Money market funds and similar instruments

2,076

1,011

Cash and cash equivalents includes £84m (2021: £101m) of restricted amounts mainly relating to the Group's pension schemes and employee benefit trusts.

Note 14 Insurance

On 4 May 2021 the Group acquired the remaining 50.1% ordinary share capital of its joint venture entity, Tesco Underwriting Limited (TU). TU is an authorised insurance company which provides the insurance underwriting service for a number of the Group's general insurance products. Refer to Note 24 for further details regarding the acquisition. As balances in this note have arisen as a result of the acquisition of TU on 4 May 2021, there are no prior period comparative balances for the Group.

Insurance profit/(loss)

Continuing operations

52 weeks

2022
£m

Gross insurance premium income

239

 

 

Insurance premium income ceded to reinsurers

(105)

 

 

Current year claims paid

(104)

Change in prior year claims provision

52

Additional liabilities arising during the year

(98)

Insurance claims incurred

(150)

Reinsurers' share of claims incurred(a)

62

Net insurance claims

(88)

 

 

Net insurance profit/(loss)(b)

46

(a)  Includes £3m related to reinsurance quota share commission and profit commission.

(b)  The net insurance profit above arose subsequent to acquisition by the Group and is reported in the Tesco Bank operating segment.

Insurance contract provisions and reinsurance assets

The following tables show the breakdown of the Group's insurance contract provisions and reinsurance assets at 26 February 2022.

 

 

Gross
£m

Reinsurance

£m

Net
£m

Unearned premiums

156

(64)

92

Claims

494

(181)

313

Total insurance contract provisions

650

(245)

405

Of which:

 

 

 

Current

623

(61)

562

Non-current

27

(184)

(157)

Gross insurance provisions, unlike reinsurance assets, are classified as current or non-current based on contractual rights to defer settlement for at least 12 months after the reporting period, rather than expected timing of settlement. The table below shows the timing of cash outflows in relation to insurance claims liabilities, net of salvage and subrogation recoveries, based on current best estimates, at 26 February 2022. The actual timing of future settlement cash flows may differ from that disclosed below.

 

2022

 

£m

%

Due within one year

83

18

Due between two to five years

194

41

Due beyond five years

195

41

Total outstanding claims, net of salvage and subrogation recoveries

472

100

 

 

Analysis of movement in insurance contract provisions

Gross
£m

Reinsurance

£m

Net
£m

Balance at 27 February 2021

-

-

-

Acquired through business combinations

650

(247)

403

Claims (paid)/recovered through insurers

(171)

66

(105)

Movement in claims outstanding

156

(59)

97

Changes in provisions for unearned premiums

15

(5)

10

Balance at 26 February 2022

650

(245)

405

 

 

Analysis of movement in provision for gross unearned premiums

£m

Balance at 27 February 2021

-

Acquired through business combinations

141

Premiums written during the period

254

Less: premiums earned during the period

(239)

Balance at 26 February 2022

156

 

 

 

Analysis of movement in outstanding claims

Gross
£m

Salvage and subrogation recoveries

£m

Net
£m

Balance at 27 February 2021

-

-

-

Acquired through business combinations

509

(16)

493

Current period claims

213

(20)

193

Change in prior period claims

(57)

14

(43)

Current period claims paid

(104)

-

(104)

Prior period claims paid

(67)

-

(67)

Balance at 26 February 2022

494

(22)

472

Funds withheld

Funds withheld of £115m, included within trade and other payables, represent the balance due to reinsurers arising from Quota Share arrangements, by which a fixed proportion of both premiums and losses are ceded to third party reinsurers as part of the overall reinsurance protection strategy.

Claims provision and development

The nature of insurance makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate, casebycase, basis with due regard to the claim circumstances and historical evidence of the size of similar claims and provisions are based on information currently available. However, the ultimate liabilities may vary as a result of subsequent developments.

The cost of outstanding claims and the incurred but not reported (IBNR) claims provisions are estimated using various statistical methods. Such methods extrapolate the development of paid and incurred claims, average cost per claim and ultimate claim numbers for each accident period based upon observed development of earlier periods, with reference to suitable benchmarks. Assumptions used for insurance provisions are based on detailed studies, checked to ensure that they are consistent with observable market prices or other published information, with greater emphasis on current trends where there is sufficient information. To the extent that assumptions use historical claims development information, they also assume that the historical claims development pattern will occur again in the future, after allowing (where possible) for instances where this might not be the case, such as changing economic or legal trends.

Provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries. The Group is covered by a variety of excess of loss and quota share reinsurance programmes. The Group takes into account historical data, specific details for individual large claims and details of the reinsurance programme to assess the expected size of reinsurance recoveries.

Insurance risk management

The Group is exposed to insurance risk through its wholly owned subsidiary, TU. The Group defines insurance risk as the risks accepted through the provision of insurance products in return for a premium. These risks may or may not occur as expected and the amount and timing of these risks are uncertain and determined by events outside of the Group's control (e.g. flood or vehicular accident).

TU underwrites motor and home insurance policies, typically of one-year duration, in the UK and Channel Islands. TU operates a separate risk framework with dedicated risk and compliance teams and a suite of risk policies to ensure that the insurance portfolio is operating within an agreed risk appetite, with monthly monitoring of the portfolio against specific performance indicator thresholds and limits. Risks such as geographic concentration or high-severity, low frequency events (e.g. natural disasters in a particular area, severe bodily injury motor accidents) are mitigated through a high-quality backed reinsurance portfolio, and TU undertakes a Stress and Scenario Testing programme, considering multiple scenarios such as various adverse weather events, the hardening/softening of the insurance market and severe large bodily injury losses.

Insurance capital

Solvency II (SII) came into force on 1 January 2016. It provides a framework for managing and measuring the risks and the solvency position for all insurance companies in the EU. Following the UK's departure from the EU, the SII framework continues to be applied in the UK and its requirements are applicable to TU. TU assesses its Solvency Capital Requirement (SCR) using a Partial Internal Model for capital which was approved by the Prudential Regulation Authority (PRA) in 2020. TU models a range of stress and scenario tests that are published in its annual Solvency and Financial Condition Report. These show that TU's capital position is resilient to a range of possible scenarios. TU also maintains a capital contingency plan supported by its direct shareholder, Tesco Personal Finance plc. Available capital has remained above the SCR requirement during the period to 26 February 2022; and capital coverage of TU's SCR at end of February 2022 was 151.0% (unaudited).

Note 15 Commercial income

Below are the commercial income balances included within inventories and trade and other receivables, or netted against trade and other payables. Amounts received in advance of income being earned are included in accruals.

 

2022
£m

2021
£m

Current assets

 

 

Inventories

(15)

(24)

Trade and other receivables

 

 

Trade/other receivables

68

90

Accrued income

124

125

Current liabilities

 

 

Trade and other payables

 

 

Trade payables

112

170

Accruals

-

(2)

 

Note 16 Borrowings

Borrowings are classified as current and non-current based on their scheduled redemption date, and not their maturity date. Repayments of principal amounts are classified as current if the repayment is scheduled to be made within one year of the balance sheet date.

Current

 

 

 

2022
£m

2021
£m

Bank loans and overdrafts

 

 

605

559

Borrowings*

 

 

120

521

 

 

 

725

1,080

Non-current

 

 

 

2022
£m

2021
£m

Borrowings*

 

 

6,674

6,188

*   £1m of current and £243m of non-current borrowings (2021: £1m and £250m) relate to borrowings issued by Tesco Bank.

Borrowing facilities

The Group has a £2.5bn undrawn committed facility available at 26 February 2022, in respect of which all conditions precedent had been met as at that date, consisting of a syndicated revolving credit facility expiring in more than two years. The facility incurs commitment fees at market rates and would provide funding at floating rates. There were no utilisations of the facility during the financial year.

Note 17 Financial instruments

The fair values of financial instruments are determined by reference to prices available from the markets on which the instruments are traded, where they are available. Where market prices are not available, the fair value is calculated by discounting expected future cash flows at prevailing interest rates. The fair value of financial assets and liabilities measured at amortised cost is shown below.

The expected maturity of financial assets and liabilities is not considered to be materially different to their current and non-current classification.

Fair value of financial assets and liabilities measured at amortised cost

The table excludes cash and cash equivalents, short-term investments, trade receivables/payables, other receivables/payables and accruals where the carrying values approximate fair value. The levels in the table refer to the fair value measurement.

2022

 

2021

Carrying
value
£m

Fair
value
£m

 

Carrying
value
£m

Fair
value
£m

Financial assets measured at amortised cost

 

 

 

 

 

Loans and advances to customers - Tesco Bank (Level 3)

6,490

6,566

 

6,402

6,618

Investment securities at amortised cost (Level 1 and 2)(a)

857

867

 

927

932

Joint ventures and associates loan receivables (Level 2)(b)

105

126

 

122

153

Financial liabilities measured at amortised cost

 

 

 

 

 

Borrowings

 

 

 

 

 

Amortised cost (Level 1 and 2)(a)

(5,057)

(5,942)

 

(4,711)

(5,761)

Bonds in fair value hedge relationships (Level 1)

(2,342)

(2,401)

 

(2,557)

(2,658)

Customer deposits - Tesco Bank (Level 3)

(5,327)

(5,296)

 

(5,738)

(5,744)

Deposits from banks - Tesco Bank (Level 2)

(1,052)

(1,052)

 

(600)

(600)

(a)  These are principally Level 1 instruments.

(b)  Joint ventures and associates loan receivables carrying amounts of £105m (2021: £122m) are presented in the Group balance sheet net of deferred profits of £38m (2021: £38m) historically arising from the sale of property assets to joint ventures.

Fair value measurement by level of fair value hierarchy

The following table presents the Group's financial assets and liabilities that are measured at fair value, by level of fair value hierarchy:

-   quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

-   inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and

-   inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

Level 2 assets are valued by discounting future cash flows using externally sourced market yield curves, including interest rate curves and foreign exchange rates from highly liquid markets. For Level 3 assets, uncollateralised derivates are valued as per Level 2 but include certain data sources which are significantly less liquid; unlisted investments are valued based on less observable inputs such as recent funding rounds.

 

At 26 February 2022

Level 1
£m

Level 2
£m

Level 3
£m

Total
£m

Assets

 

 

 

 

Investments at fair value through other comprehensive income

585

-

12

597

Cash and cash equivalents at fair value through profit or loss

-

26

-

26

Investments at fair value through profit or loss

-

23

2

25

Derivative financial instruments:

 

 

 

 

Interest rate swaps

-

55

-

55

Cross-currency swaps

-

25

198

223

Index-linked swaps

-

115

551

666

Forward contracts

-

67

-

67

Total assets

585

311

763

1,659

Liabilities

 

 

 

 

Derivative financial instruments:

 

 

 

 

Interest rate swaps

-

(273)

-

(273)

Cross-currency swaps

-

(85)

-

(85)

Forward contracts

-

(25)

-

(25)

Total liabilities

-

(383)

-

(383)

Net assets/(liabilities)

585

(72)

763

1,276

 

At 27 February 2021

Level 1
£m

Level 2
£m

Level 3
£m

Total
£m

Assets

Investments at fair value through other comprehensive income

-

3

11

14

Cash and cash equivalents at fair value through profit or loss

-

14

-

14

Derivative financial instruments:

 

 

 

 

Interest rate swaps

-

42

-

42

Cross-currency swaps

-

298

-

298

Index-linked swaps

-

1,080

-

1,080

Forward contracts

-

42

-

42

Total assets

-

1,479

11

1,490

Liabilities

 

 

 

 

Derivative financial instruments:

 

 

 

 

Interest rate swaps

-

(162)

-

(162)

Cross-currency swaps

-

(38)

-

(38)

Index-linked swaps

-

(729)

-

(729)

Forward contracts

-

(78)

-

(78)

Total liabilities

-

(1,007)

-

(1,007)

Net assets/(liabilities)

-

472

11

483

During the financial year, there were no transfers (2021: no transfers) between Level 1 and Level 2 fair value measurements.

Level 3 Instruments

At the end of the period there was a transfer of £749m into Level 3 fair value measurement from Level 2 (2021: no transfers), arising from inclusion of a funding valuation adjustment (FVA) to certain derivatives due to evolving market practices, which incorporate unobservable input elements. There were no other transfers into or out of Level 3 (2021: no transfers).

As part of financial risk management, the Group holds certain uncollateralised derivative financial instruments, including interest rate and inflation swaps, cross-currency swaps, and forward contracts. These are valued using relevant inputs which are considered observable (Level 2), such as forward rates and FX rates from available market data. Unobservable inputs (Level 3) relate to the FVA, which is the estimate of the adjustment to the fair value that a market participant would make to account for funding costs. These are calculated on the future valuation of the derivative, based on the best estimate available to management of suitable relevant cost of funds. A ten basis points increase in the cost of funds would increase the FVA by £18m.

The following table presents the changes in Level 3 instruments:

2022

 

2021

Uncollateralised derivatives
£m

Unlisted equity investments
£m

 

Uncollateralised derivatives
£m

Unlisted equity investments
£m

At the beginning of the year

-

11

 

-

10

Gains/(losses) recognised in the Group statement of comprehensive income/(loss)

-

4

 

-

3

Disposal of financial asset at fair value through other comprehensive income

-

(2)

 

-

(4)

Addition of financial asset at fair value through other comprehensive income

-

1

 

-

2

Transfers into Level 3

749

-

 

-

-

At the end of the year

749

14

 

-

11

Tesco Bank expected credit losses (ECL)

Tesco Bank has commissioned four scenarios from its third-party provider, all of which were based on an economic outlook that sought to take account of the ramifications of the COVID-19 pandemic and cost-of-living pressures. These scenarios include a Base scenario, an Upside scenario and two different Downside scenarios. As the economic outlook continues to remain uncertain, the scenarios are based on the speed at which consumer and business confidence will support the recovery in GDP and the labour market. The Base scenario sees a return to pre-pandemic GDP by Q3 2022, with cost-of-living pressures stagnating growth and unemployment peaking at 4.7% by Q2 2022. The Upside scenario sees a sharper recovery driven by utilisation of accumulated savings from lockdown periods, while Downside 1 scenario assumes a 6.2% unemployment peak by Q2 2022. Downside 2 postulates the impact of recurrent COVID-19 variants driving new restrictions, with subsequent GDP declines and an 8.0% unemployment peak in Q2 2022. These scenarios are also reviewed to ensure an unbiased estimate of ECL by ensuring the credit loss distribution under a larger number of scenarios is adequately captured using these four scenarios and their respective weightings. The Base, Upside, Downside 1 and Downside 2 scenarios have been assigned weighting of 40%, 30%, 25% and 5% respectively.

The economic scenarios used include the following ranges of key indicators:

As at 26 February 2022 (five-year average)

Base
40%

Upside
30%

Downside 1
25%

Downside 2
5%

Bank of England base rate(a)

1.0%

1.2%

0.7%

0.4%

Gross domestic product(b)

1.8%

2.2%

1.5%

1.2%

Unemployment rate

4.1%

3.9%

4.9%

6.3%

Unemployment rate peak in year

4.2%

3.9%

5.1%

6.7%

As at 27 February 2021 (five-year average)

Base
40%

Upside
30%

Downside 1
25%

Downside 2
5%

Bank of England base rate(a)

0.1%

0.2%

0.1%

0.1%

Gross domestic product(b)

2.6%

3.5%

2.2%

1.8%

Unemployment rate

5.5%

4.7%

6.7%

8.6%

Unemployment rate peak in year

5.8%

4.9%

7.4%

9.3%

(a)  Simple average.

(b)  Annual growth rates.

Key assumptions and sensitivity

The key assumptions to which the Tesco Bank ECL is most sensitive are macroeconomic factors, probability of default (PD), loss given default (LGD), PD threshold (staging), and expected lifetime (revolving credit facilities). The table below sets out the changes in the ECL allowance that would arise from reasonably possible changes in these assumptions from those used in Tesco Bank's calculations as at 26 February 2022 and excludes specific management overlays which are discussed further below.

 

 

Impact on the loss allowance

Key assumption

Reasonably possible change

2022
£m

2021
£m

Closing ECL allowance

 

489

625

Macroeconomic factors (100% weighted)

Upside scenario

(27)

(66)

 

Base scenario

(13)

(1)

 

Downside scenario 1

31

57

 

Downside scenario 2

110

117

Probability of default

Increase of 2.5%

6

8

Decrease of 2.5%

(6)

(8)

Loss given default

Increase of 2.5%

7

10

Decrease of 2.5%

(7)

(10)

Probability of default threshold (staging)

Increase of 20%

(9)

(7)

 

Decrease of 20%

13

11

Expected lifetime (revolving credit facility)

Increase of 1 year

11

9

 

Decrease of 1 year

(10)

(9)

COVID-19 and cost-of-living pressures have had a significant impact on the UK economy and there remains a large degree of uncertainty around the scale and stress of the peak of the economic downturn and the speed and shape of any subsequent recovery. While there has been significant recovery observed in the wider economy, the degree of uncertainty remains high. As a result, Tesco Bank has recognised certain specific management overlays, to address the prevailing downside risks and ensure the potential impacts of future stress are adequately provided for, detailed below:

Overlay

Description of adjustment

2022
£m

2021
£m

Consumer spending(a)

In respect of the beneficial modelling impact of lower consumer spending through the pandemic

113

129

Cost of living(b)

A portion of Tesco Bank's customers may be more impacted by cost-of-living pressures, with deterioration in their ability to repay unsecured lending balances

75

-

Emergence of customer defaults

The emergence of defaults will be more aligned with previous economic downturns

19

-

War in Ukraine

Further potential inflationary pressures on cost of living

 

6

-

Customer support

The impact of customer support measures on arrears and defaults

-

64

Payment holidays

Increase in credit risk in respect of customers who sought an extension to their initial payment holiday

-

21

Total overlays

 

213

214

(a)  An increase or decrease of 10% on the adjustment for lower drawn balances would not result in a material increase or decrease of this management overlay.

(b)  Expanding the affected population to include customers who are five points lower on the indebtedness index would increase the overlay by £41m.

 

Note 18 Provisions

Property
provisions
£m

Restructuring
provisions
£m

 

Legal and regulatory provisions

£m

 

Operational insurance provisions

£m

Other
provisions
£m

Total
£m

At 27 February 2021

132

-

123

10

40

305

Foreign currency translation

-

-

(1)

(1)

-

(2)

Reclassifications

-

-

-

149

-

149

Amount released in the year

(32)

(2)

(5)

(49)

(1)

(89)

Amount provided in the year

120

70

253

73

5

521

Amount utilised in the year

(8)

(24)

(326)

(47)

(14)

(419)

Unwinding of discount

1

-

-

-

-

1

At 26 February 2022

213

44

44

135

30

466

The balances are analysed as follows:

2022
£m

2021
£m

Current

283

186

Non-current

183

119

466

305

Provisions are discounted based on the relevant risk-free rate and are risk-adjusted through adjusting the cash flow estimates.

Property provisions

Property provisions comprise onerous contracts related to unprofitable stores and vacant properties, decommissioning provisions and remediation works and dilapidations provisions.

Amounts provided in the year primarily relate to decommissioning, and amounts released in the year primarily relate to releases of dilapidation and similar remediation provisions.

The expected undiscounted aging of property provisions as at 26 February 2022:

 

Current

£m

1 to 5 years

£m

6 to 10 years

£m

11 to 15 years

£m

Over 15 years

£m

Total

£m

Property provisions

37

51

23

12

135

258

Restructuring provisions

Restructuring provisions of £44m, primarily relating to expected employee costs, are expected to be fully utilised in the following financial year to 25 February 2023. The provision is calculated in line with the expected settlement costs of impacted employees and excludes future operating costs.

Legal and regulatory provisions

Legal and regulatory provisions contain balances in relation to either ongoing or expected legal proceedings against the Group, or for costs associated with regulatory matters and/or breaches. Due to the nature of legal and regulatory matters, including unpredictable timings of legal cases or regulatory investigations, there is often uncertainty as to when provisions will be fully utilised.

During the year, the Group recognised a charge of £193m in relation to 2020 claims against Tesco PLC for matters arising out of or in connection with the overstatement of expected profit announced in 2014. These claims were settled in full during the year and, given that the legal timeframe for bringing a claim has now elapsed, no further related claims can be brought by shareholders.

During the year, an Arbitral Tribunal made findings of liability relating to claims regarding the sale of Homeplus (Korea) against the Group and made a Final Award of £119m in damages, interest and costs. Arbitration judgments are final and may not be appealed by either party. The Group recognised a charge of £33m within discontinued operations, increasing the provision held. The Final Award was cash settled during the year.

Other legal and regulatory provisions of £44m include £14m (2021: £22m) of provision relating to customer redress from Payment Protection Insurance (PPI) sales, with the remainder relating to various individually immaterial provisions.

Operational insurance provisions

Insurance provisions relate to outstanding liabilities from public and employer's liability and third-party motor claims across the Group's trading operations, separate to the Tesco Underwriting insurance balances in Note 14. Provisions relate to claims arising from incidents reported prior to the reporting date, including an allowance for those currently incurred but not reported. Amounts are measured considering claims history, including claims volume and average cost of claims, with assessment and projection by third-party actuaries. Releases in the year primarily relate to improved estimates of future outflows from revised actuarial valuations. The balance as at the financial year end is expected to be materially utilised within three years from the reporting date. This was reclassified to a provision during the financial year from trade and other payables, reflecting the uncertainties around the expected outflow for these balances.

Other provisions

Other provisions amounts primarily relate to a Tesco Bank expected credit loss provision recognised under IFRS 9 which exceeds the gross carrying amount of the related financial asset, primarily loans to customers. Further information on expected credit losses can be found within Note 17. The remaining balance relates to individually immaterial provisions that do not fall into any of the other categories.

Note 19 Share-based payments

The Group income statement charge for the financial year recognised in respect of share-based payments is £122m (2021: £73m), comprising £122m (2021: £69m) of continuing operations and £nil (2021: £4m) of discontinued operations, which is made up of share option schemes and share bonus payments. Of this amount, £109m (2021: £64m) will be settled in equity (refer to Note 21) and £13m (2021: £9m) in cash representing National Insurance contributions.

The share-based payment income statement charge is split in the cash flow statement with £66m (2021: £30m) in the 'share-based payment' non-cash movement line and £56m (2021: £43m) in the working capital movement 'Increase/decrease in trade and other payables' line, where the latter represents shares withheld from employees in order to settle their tax liability and national insurance. The 'own shares purchased for share schemes' financing cash outflow of £144m (2021: £66m) represents £191m (2021: £213m) cash paid to purchase own shares including related fees and taxes, offset by £47m (2021: £147m) cash received from employees exercising SAYE options.

Note 20 Post-employment benefits

Pensions

The Group operates a variety of post-employment benefit arrangements, covering both funded and unfunded defined benefit schemes and defined contribution schemes.

The principal defined benefit pension plan within the Group is the Tesco PLC Pension Scheme (the Scheme), a UK scheme closed to future accrual. The most recent completed triennial funding assessment of the Scheme was performed as at 31 December 2019 using the projected unit credit method. Subsequent to this triennial funding assessment it was agreed that no further pension deficit contributions would be required, with contributions being assessed at the next triennial review.

The Trustees of the Londis Pension Scheme entered into a buy-in agreement to secure the Londis Scheme's pension benefits in full with an insurer through the purchase of a bulk annuity policy. A premium of £8m was paid to the insurer on 24 March 2021. The Londis Scheme Trustees have subsequently announced that the buy-in will be converted to a buy-out, with individual annuity policies issued to the Londis Scheme members, and the Londis Scheme will be wound up. Commencement of the wind-up was triggered on 29 June 2021. The income statement charge in respect of this transaction is £1m based on the market conditions on the wind-up date and has been included in the Group income statement.

Movement in the Group pension surplus/(deficit) during the financial year

 

Fair value of plan assets

 

Defined benefit obligation

 

Net defined benefit surplus/(deficit)

2022
£m

2021
£m

 

2022
£m

2021
£m

 

2022
£m

2021
£m

Opening balance

20,082

17,425

 

(21,304)

(20,510)

 

(1,222)

(3,085)

Current service cost

-

-

 

(39)

(41)

 

(39)

(41)

Past service cost

-

-

 

-

(7)

 

-

(7)

Settlement charge(a)

-

-

 

(1)

-

 

(1)

-

Finance income/(cost)

391

341

 

(413)

(384)

 

(22)

(43)

Included in the Group income statement

391

341

 

(453)

(432)

 

(62)

(91)

 

 

 

 

 

 

 

 

Remeasurement gain/(loss):

 

 

 

 

 

 

 

 

Financial assumptions gain/(loss)

-

-

 

1,881

(1,193)

 

1,881

(1,193)

Demographic assumptions gain/(loss)

-

-

 

21

18

 

21

18

Experience gain/(loss)

-

-

 

(212)

354

 

(212)

354

Return on plan assets excluding finance income

2,385

(136)

 

-

-

 

2,385

(136)

Foreign currency translation

(9)

1

 

13

(4)

 

4

(3)

Included in the Group statement of comprehensive income/(loss)

2,376

(135)

 

1,703

(825)

 

4,079

(960)

 

 

 

 

 

 

 

 

Member contributions

2

2

 

(2)

(2)

 

-

-

Employer contributions

33

34

 

-

-

 

33

34

Additional employer contributions

16

2,836

 

-

-

 

16

2,836

Benefits paid

(502)

(421)

 

505

436

 

3

15

Scheme settlement

(8)

-

 

8

-

 

-

-

Classified as held for sale(b)

-

-

 

-

29

 

-

29

Other movements

(459)

2,451

 

511

463

 

52

2,914

 

 

 

 

 

 

 

 

Closing balance

22,390

20,082

 

(19,543)

(21,304)

 

2,847

(1,222)

Deferred tax asset/(liability)

 

 

 

 

 

 

(726)

218

Surplus/(deficit) in schemes at the end of the year, net of deferred tax

 

 

 

 

 

 

2,121

(1,004)

Consisting of:

 

 

 

 

 

 

 

 

Schemes in deficit(c)

 

 

 

 

 

 

(303)

(1,222)

Schemes in surplus

 

 

 

 

 

 

3,150

-

 

 

 

 

 

 

 

2,847

(1,222)

(a)  Settlement charge on Londis Scheme wind-up.

(b)  Movements in relation to discontinued operations up to classification as held for sale included £nil (2021: £(1)m) within the Group income statement, £nil (2021: £(6)m) in the Group statement of comprehensive income/loss and £nil (2021: £2m) in other movements.

(c)  Schemes in deficit, net of deferred tax £(242)m (2021: £(1,004)m).

Scheme principal assumptions

The major principal assumptions, used to value the defined benefit obligation of the Scheme are as follows:

2022
%

2021
%

Discount rate

2.8

2.0

Price inflation

3.3

2.9

Rate of increase in deferred pensions*

2.9

2.5

Rate of increase in pensions in payment*

 

 

Benefits accrued before 1 June 2012

3.1

2.8

Benefits accrued after 1 June 2012

2.8

2.5

*    In excess of any guaranteed minimum pension (GMP) element.

If the discount rate assumption increased by 0.1% or 1%, the Scheme defined benefit obligation would decrease by approximately £(404)m or £(3,467)m respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined benefit obligation would increase by approximately £404m or £4,732m respectively.

If the inflation assumption increased by 0.1% or 1%, the Scheme defined benefit obligation would increase by approximately £367m or £3,889m respectively. If this assumption decreased by 0.1% or 1%, the Scheme defined benefit obligation would decrease by approximately £(349)m or £(3,173)m respectively.

Movements in the defined benefit obligation from discount rate and inflation rate changes may be partially offset by movements in assets.

Note 21 Called-up share capital and reserves

 

2022

 

2021

Number of Ordinary shares

£m

 

Number of Ordinary shares

£m

Allotted, called-up and fully paid:

 

 

 

 

 

At the beginning of the year

7,731,707,820

490

 

9,793,496,561

490

Share consolidation (including shares issued*)

-

-

 

(2,061,788,741)

-

Shares purchased and cancelled

(93,721,289)

(6)

 

-

-

At the end of the year

7,637,986,531

484

 

7,731,707,820

490

*    To effect the share consolidation, 11 additional Ordinary shares were issued so that the total Ordinary shares is exactly divisible by 19

In order to maintain the comparability of the Company's share price before and after a special dividend of £4.9bn was declared in the prior financial year, a share consolidation was approved at the General Meeting held on 11 February 2021. Shareholders received 15 new Ordinary shares of 6 pence each for every existing 19 Ordinary shares of 5 pence each.

No shares were issued during the current financial year in relation to share options.

The Group has a share forfeiture programme, following the completion of a tracing and notification exercise to any shareholders who have not had contact with the Company over the past 12 years, in accordance with the provisions set out in the Company's Articles of Association. Under the share forfeiture programme, the shares and dividends associated with shares of untraced members are forfeited, with the resulting proceeds transferred to the Group to use for good causes in line with the Group's corporate responsibility strategy. During the current financial year, the Group received £nil (2021: £nil) proceeds from sale of untraced shares and £nil (2021: £nil) write-back of unclaimed dividends, which are reflected in share premium and retained earnings respectively.

As at 26 February 2022, the Directors were authorised, on behalf of the Company, to purchase up to a maximum in aggregate of 773.2 million (2021: 773.2 million) Ordinary shares until the conclusion of the 2022 AGM.

The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

Own shares held

The own shares held represents shares in Tesco PLC purchased from the market and held by the Tesco International Employee Benefit Trust to satisfy share awards under the Group's share scheme plans (refer to Note 19), and shares purchased for cancellation as part of the share buyback programme. Shares purchased for cancellation are included in own shares held until cancellation, at which point the consideration is transferred to retained earnings, and the nominal value of the shares is transferred from share capital to the capital redemption reserve. Own shares held can include equity elements of forward contracts where the Group has an obligation to purchase its own shares.

In relation to own shares purchased for cancellation, the Group had total cash outflows of £278m (2021: £nil) with the purchase of 98.5 million (2021: Nil) shares of 6 pence each at an average price of £2.82 per share (2021: n/a). 93.7 million shares were cancelled, representing 1.2% (2021: Nil) of the called-up share capital as at 26 February 2022, with total consideration of £264m (2021: £nil), including expenses of £1m, charged to retained earnings. At 26 February 2022, the Group had not yet cancelled 4.8 million (2021: Nil) shares with a total consideration of £14m (2021: £nil), representing 0.1% of the called-up share capital as at 26 February 2022 (2021: Nil). The uncancelled shares are included in the £37m (2021: £nil) increase in own shares purchased for cancellation within the statement of changes in equity, with the remaining £23m (2021: £nil) relating to shares to be delivered under a share repurchase agreement with an external bank.

In relation to own shares purchase for share schemes in the Group statement of changes in equity, the £279m (2021: £246m) increase in own shares held includes £191m (2021: £213m) paid to purchase own shares (including related fees and taxes), £50m (2021: £nil) of shares to be delivered under a share repurchase agreement with an external bank, £38m (2021: £30m) of shares withheld to settle employee tax and other minor movements of £nil (2021: £3m). The £139m (2021: £308m) decrease in own shares held is the gross amount of shares that employees were entitled to receive (of which £38m (2021: £30m) is withheld to settle employee tax). The £12m increase (2021: £97m decrease) in retained earnings primarily relates to £139m (2021: £308m) shares delivered to employees offset by £47m (2021: £147m) cash received from employees exercising SAYE options, £109m (2021: £64m) income statement charge and other minor movements of £(5)m (2021: £nil).

The number of Ordinary shares held by the Tesco International Employee Benefit Trust at 26 February 2022 was 49.9 million (2021: 58.4 million). This represents 0.65% of called-up share capital at the end of the year (2021: 0.76%).

A financial liability of £73m (2021: £nil) in respect of shares to be delivered under share repurchase agreements with external banks is included in other payables.

Capital redemption reserve

The capital redemption reserve relates to the repurchase and cancellation of shares of the Company. During the financial year, the aggregate nominal value of shares cancelled and transferred to the capital redemption reserve was £6m (2021: £nil).

Merger reserve

The merger reserve represents the difference between the market value and nominal value of shares issued for the acquisition of Booker on 2 March 2018.

Note 22 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures and associates are disclosed below:

Transactions

 

Joint ventures

 

Associates

2022
£m

2021
£m

 

2022
£m

2021
£m

Sales to related parties

                      501

479

 

-

-

Purchases from related parties

111

87

 

-

10

Dividends received

32

18

 

-

8

Injection of equity funding

11

14

 

-

-

Sales to related parties consist of service/management fees and loan interest.

Transactions between the Group and the Group's pension plans are disclosed in Note 20.

Balances

 

Joint ventures

 

Associates

 

2022
£m

2021
£m

 

2022
£m

2021
£m

Amounts owed to related parties

(9)

(23)

 

-

-

Amounts owed by related parties

36

40

 

-

-

Lease liabilities payable to related parties(a)

(2,335)

(2,718)

 

-

(144)

Loans to related parties (net of deferred profits)(b)

105

122

 

-

-

(a)  Lease liabilities payable to related parties represent leases entered into by the Group for properties held by joint ventures.

(b)  Loans to related parties of £105m (2021: £122m) are presented net of deferred profits of £38m (2021: £38m), historically arising from the sale of property assets to joint ventures. For loans to related parties, a 12-month expected credit loss (ECL) allowance is recorded on initial recognition. In the current and prior financial years, the ECL allowance was immaterial. 

A number of the Group's subsidiaries are members of one or more partnerships to whom the provisions of the Partnerships (Accounts) Regulations 2008 (Regulations) apply. The financial statements for those partnerships have been consolidated into these financial statements pursuant to Regulation 7 of the Regulations.

Note 23 Analysis of changes in net debt

Net debt excludes the net debt of Tesco Bank but includes that of discontinued operations. Balances and movements in respect of the total Group and Tesco Bank are presented to allow reconciliation between the Group balance sheet and the Group cash flow statement.

 

 

 

 

Non-cash movements

 

 

At
27 February
2021
 £m

Cash flows arising from financing activities
£m

Other cash flows(a)
£m

Fair value gains/(losses)
£m

Foreign exchange
£m

Interest income/
(charge)
£m

Acquisitions and
disposals(b)

£m

Other
£m

Discontinued operations(c)
£m

At
26 February
2022
£m

Total Group

 

 

 

 

 

 

 

 

 

 

Bank and other borrowings, excluding overdrafts

(6,736)

381

202

82

61

(209)

(606)

-

-

(6,825)

Lease liabilities

(8,402)

577

405

-

14

(405)

355

(492)

(10)

(7,958)

Net derivative financial instruments

455

123

43

100

-

(29)

(64)

-

-

628

Arising from financing activities

(14,683)

1,081

650

182

75

(643)

(315)

(492)

(10)

(14,155)

Cash and cash equivalents in the Group balance sheet

2,510

-

(204)

-

11

-

-

-

28

2,345

Overdrafts(d)

(532)

-

(8)

-

1

-

-

-

(35)

(574)

Cash and cash equivalents (including overdrafts) in the Group cash flow statement

1,978

-

(212)

-

12

-

-

-

(7)

1,771

Short-term investments

1,011

-

1,067

-

(2)

-

-

-

-

2,076

Joint venture loans

122

-

4

-

-

-

(21)

-

-

105

Interest and other receivables

-

-

(3)

-

-

4

-

-

-

1

Net debt of the disposal group

(141)

-

-

-

-

-

110

-

17

(14)

Total Group

(11,713)

1,081

1,506

182

85

(639)

(226)

(492)

-

(10,216)

Less: Tesco Bank

242

25

14

68

-

(7)

(42)

-

-

300

Retail

 

 

 

 

 

 

 

 

 

 

Bank and other borrowings, excluding overdrafts

(6,249)

360

200

74

61

(205)

(585)

-

-

(6,344)

Lease liabilities

(8,372)

573

402

-

14

(402)

355

(492)

(10)

(7,932)

Net derivative financial instruments

497

123

43

40

-

(29)

(64)

-

-

610

Arising from financing activities

(14,124)

1,056

645

114

75

(636)

(294)

(492)

(10)

(13,666)

Cash and cash equivalents in the Group balance sheet

1,730

-

(213)

-

11

-

-

-

28

1,556

Overdrafts(d)

(532)

-

(8)

-

1

-

-

-

(35)

(574)

Cash and cash equivalents (including overdrafts) in the Group cash flow statement(e)

1,198

-

(221)

-

12

-

-

-

(7)

982

Short-term investments

1,011

-

1,067

-

(2)

-

-

-

-

2,076

Joint venture loans

101

-

4

-

-

-

-

-

-

105

Interest and other receivables

-

-

(3)

-

-

4

-

-

-