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Tesco PLC (TSCO)

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Wednesday 13 April, 2016

Tesco PLC

Preliminary Results 2015/16

RNS Number : 9998U
Tesco PLC
13 April 2016
 



 

Preliminary Results 2015/16

 

A YEAR OF SIGNIFICANT PROGRESS

 

Group sales1,2

Operating profit before exceptionals2

Statutory operating profit

Retail operating cash flow3

 

Net debt3,4

£48.4bn

up 0.1%

£944m

up 1.1%

£1,046m

from £(5,750)m loss

£2.6bn

up 39%

£(5.1)bn

down 40%

 

 

Headlines

Significant progress on all three transformation priorities

·   UK like-for-like sales growth of 0.9% in 4Q; Group like-for-like sales growth of 1.6% in 4Q

·   £6.2bn reduction in total indebtedness, including contribution from sale of Homeplus in Korea

·   Customer, colleague, supplier measures all improved

Guided by a clear purpose, 'serving shoppers a little better every day'

·   UK customer satisfaction up 5% over the course of the year

·   UK volumes up 3.3% in 4Q;  UK transactions up 2.8% in 4Q

·   International volumes up 5.5% in 4Q  

Achieved what we set out to do

·   £944m operating profit before exceptional items

·   Retail operating cash flow of £2.6bn

·   Initial £400m cost saving programme delivered

·   UK & ROI property now 47% freehold (+6%) following two further transactions in Feb 2016

Improving trends across the Group

·   Positive and improving like-for-like sales growth trends in all regions:  UK, ROI, Europe and Asia

·   Improving sales performance in all formats and categories

·   Strong growth in Tesco Bank customer deposits and lending

·   Continued growth at Tesco Mobile, the UK's largest MVNO - now 4.6m customers

Clear commitment to the customer

·   The customer is and always will be our prime focus

·   Continuing to invest to improve the competitiveness of our offer

·   Seven exclusive fresh food brands launched in March 2016

 

Dave Lewis, Chief Executive:

"We have made significant progress against the priorities we set out in October 2014.  We have regained competitiveness in the UK with significantly better service, a simpler range, record levels of availability and lower and more stable prices.  Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.

Our process of transformation has generated broad-based positive momentum in the UK and internationally.  We set out to start rebuilding profitability whilst reinvesting in the customer offer, and we have done this.  More customers are buying more things more often at Tesco.

As a team, we are committed to serving shoppers a little better every day, in what remains a challenging, deflationary and uncertain market.  We are confident that the investments we are making are leading to sustainable improvements for customers whilst creating long-term value for our shareholders."

 

Like-for-like sales performance

 


1Q

2015/16

2Q

 2015/16

3Q

2015/16

4Q

2015/16

1H

2015/16

2H

2015/16

 

FY

2015/16

UK & ROI

(1.5)%

(1.0)%

(1.5)%

0.9%

(1.3)%

(0.1)%


(0.7)%

   UK

(1.3)%

(1.0)%

(1.5)%

0.9%

(1.1)%

(0.1)%


(0.6)%

   ROI

(4.4)%

(2.9)%

(1.2)%

1.0%

(3.7)%

0.0%


(1.9)%

International

(0.2)%

2.3%

2.9%

3.8%

1.0%

3.4%


2.3%

   Europe

2.2%

4.0%

3.3%

4.1%

3.2%

3.7%


3.5%

   Asia

(3.4)%

0.1%

2.4%

3.5%

(1.7)%

2.9%


0.6%

Group

(1.2)%

(0.3)%

(0.5)%

1.6%

(0.8)%

0.6%


0.0%

 

Headline Group results

 

52 weeks ended 27 February 2016

 

On a continuing operations basis

2015/16


2014/15


Year-on-year change5

(Constant

exchange rates)


Year-on-year change5

(Actual

exchange rates)


Change vs

53 week 2014/15 statutory results

Group sales (exc. VAT, exc. fuel)

£48,352m


£49,853m


0.1%


(1.6)%


(3.0)%

Fuel

£6,081m


£7,072m


(11.3)%


(10.9)%


(14.0)%

Revenue (exc. VAT, inc. fuel)

£54,433m


£56,925m


(1.3)%


(2.8)%


(4.4)%











Group operating profit before exceptional items6

UK & ROI7

International

Tesco Bank

 

£944m

£505m

£277m

£162m


 

£940m

£498m

£254m

£188m


 

1.1%

1.4%

11.4%

(13.8)%


 

0.0%

0.6%

9.1%

(13.8)%


 

0.4%

1.4%

9.1%

(13.8)%

Include exceptional items

 

£102m

 


£(6,690)m

 







Group statutory operating profit/(loss)

£1,046m


£(5,750)m


n/m


n/m


n/m











Group profit before tax before exceptional items and net pension finance costs

£435m


£490m




(11.9)%


(11.2)%











Group statutory profit/(loss) before tax

£162m


£(6,334)m




n/m


n/m











Diluted EPS before exceptional items

3.41p


4.14p






(17.6)%

Diluted EPS before exceptional items and net pension finance costs

4.97p


5.46p






(9.1)%

Diluted EPS

2.76p


(69.56)p






n/m











Capex

£1.0bn


£1.8bn






down 45.4%

Net debt3,4

£(5.1)bn


£(8.5)bn






down 39.7%

Cash generated from retail operations3

£2.6bn


£1.9bn






up 38.8%

 

Notes

1. Group sales exclude VAT and fuel.

2. For continuing operations. Change is shown at constant rates on a comparable 52 week basis.

3. Includes both continuing and discontinued operations.

4. Net debt excludes the net debt of Tesco Bank.

5. Change is shown on a comparable 52 week basis.

6. Exceptional items are excluded by virtue of their size and nature in order to better reflect management's view of the performance of the Group.

7. The elimination of intercompany transactions between continuing operations and the Korea discontinued operation, as required by IFRS 5 and

    IFRS 10, has resulted in a reduction to the prior period UK & ROI operating profit of £(9)m.

 

Update on our priorities

The priorities we set out in October 2014 have guided the actions we have taken over the last 18 months. 

1. Regaining competitiveness in core UK business:

·    

maintained investment in service with nine thousand more customer facing roles

·    

improved operational performance and simpler processes driving record levels of availability

·    

reduced prices on thousands of products, underpinned with unique 'Brand Guarantee'

·    

reviewed every one of our 33 food categories, reducing the number of products by 18%, lowering the price of an average weekly shop by over 3% in the last year, whilst introducing 2,000 new lines

·    

generated annual positive volume growth for the first time in five years, supporting efforts to build long-term, mutually-beneficial relationships with suppliers

·    

completed UK management restructure, with a 25% reduction in roles in the office

·    

closed 60 unprofitable stores

·    

introduced seven exclusive brands, providing quality fresh foods at outstanding prices



2. Protecting and strengthening the balance sheet:

·    

reduced indebtedness by a total of £6.2bn, including a significant contribution from the sale of our Homeplus business in Korea in October

·    

agreed funding plan of £270m per annum with pension trustee to close actuarial deficit

·    

replaced UK defined benefit pension scheme with a defined contribution scheme from November, providing sustainable benefits for colleagues and greater certainty on future cash requirements

·    

generated retail operating cash flow of £2.6bn, despite £(0.3)bn working capital outflows relating to exceptional items and our new approach to cash payment terms with suppliers

·    

regained ownership of 70 stores and two distribution centres, improving our UK & ROI freehold ratio by 6% to 47% and reducing our exposure to inflation-linked and fixed-uplift rent reviews

·    

increased capital discipline, significantly reduced the level of capital expenditure

·    

restructured Central European overheads, improving the prospects for medium-term returns

·    

exited plans to build out 49 stores and, in October 2015 agreed sale of 14 sites for £250m

3. Rebuilding trust and transparency:

·     

aligned colleagues behind core purpose of 'Serving Britain's shoppers a little better every day'

·     

introduced lower, more stable prices, redirected promotional and coupon spend into core shelf edge prices; reduced number of multi-buy promotions by a third in the fourth quarter

·     

simplified our relationships with suppliers, moving from 24 forms of commercial income towards three and standardising payment terms

·     

Supplier Viewpoint measure improved from 51% to 68% in UK; from 58% to 70% for the Group

·     

built on success of Tesco Sustainable Dairy Group, guaranteeing an above-market price for milk produced for British own-label Mild, Medium, Mature, Red Leicester & Double Gloucester cheese

·     

announced aim to ensure all surplus food from stores goes to charity and not to waste by 2017

·     

started roll out of Community Food Connection with FareShare FoodCloud in over 100 stores

·     

improved Tesco Bank's offer by removing monthly current account fees for customers in credit, and providing monthly communication of foregone interest

·     

Tesco Mobile named Which? recommended provider for fifth year in a row

 

Outlook

We have made good progress over the last year.  We are continuing to invest in our customer offer in order to improve our competitiveness in what remains a challenging, deflationary and uncertain market.  This will be reflected in the pace of improvement in profitability in the current year, particularly in the first half.

We are increasingly confident that the actions we are taking are leading to sustainable improvements for customers and will result in a continued improvement in profitability and the creation of long-term value for shareholders.

 

Financial Results

Our reporting segments ('UK & ROI', 'International' and 'Tesco Bank') are aligned to the way we operate the business and report performance internally.

The results of our business in Korea have been classified as discontinued operations following the sale of Homeplus on 22 October 2015. 

Sales:


UK & ROI

International1

Tesco Bank

Group

Sales

(exc. VAT, exc. fuel)

£37,189m

£10,208m

£955m

£48,352m

52 week change at constant exchange rates2 %

(0.5)%

1.8%

0.8%

0.1%

52 week change at actual exchange rates2 %

(0.9)%

(4.3)%

0.8%

(1.6)%

Like-for-like sales (exc. VAT, exc. fuel)

(0.7)%

2.3%

-

0.0%

Revenue

(exc. VAT, inc. fuel)

£43,080m

£10,398m

£955m

£54,433m

Includes: Fuel

£5,891m

 

£190m

 

-

 

£6,081m

 

1.  International consists of Central Europe (Czech Republic, Hungary, Poland and Slovakia), Malaysia, Thailand and Turkey.

2. Sales change shown on a comparable 52 week basis; statutory Group sales change was (3.0)% at actual exchange rates and (1.4)% at constant exchange

    rates.

 

Group sales grew by 0.1% on a 52 week basis at constant exchange rates.  At actual exchange rates, sales declined by (1.6)% including a (1.7)% foreign exchange translation effect principally due to weakness across our European currencies. Further information on sales performance is included in Appendices 1 to 3 on page 43 of this statement.

In the UK and the Republic of Ireland, there was a marked improvement in like-for-like sales performance from (1.3)% in the first half to (0.1)% in the second half.

In the UK, customers are responding well to changes we have made in all aspects of our offer and we have seen an improving trend through the year in both customer numbers and volume growth.  Full year UK sales declined by (0.4)% on a 52 week basis, reflecting both an improving trajectory in our like-for-like sales performance and a declining contribution from net new store space, due to store closures.

UK like-for-like sales, excluding VAT and excluding fuel, fell by (0.6)% in the year but improved over the course of the year, rising by 0.9% in the fourth quarter driven by a strong performance across all our store formats and product categories.  High levels of deflation persisted due to our own price investments in addition to commodity price decreases.

In a highly competitive market, customer numbers at Tesco Mobile grew by 5% to 4.6m.  It retained its position as the number one network for customer satisfaction3 and was named Which? recommended provider for the fifth consecutive year.

In the Republic of Ireland, we made a significant investment to ensure our customers receive the most competitive offer possible.  Like-for-like sales performance turned positive in the fourth quarter for the first time since 2012.

International sales grew by 1.8% at constant exchange rates.  We achieved positive like-for-like sales growth in both Asia and Europe in the second half driven by improvements across our offer with a particular emphasis on price and fresh foods.  We delivered market share gains in five of our seven international markets.

In Central Europe, the restructure of the management team for Czech Republic, Hungary, Poland and Slovakia is complete and moves us from operating as four individual country teams to one single regional team.  We are in the process of moving to an operating model which will create substantial buying and operational synergies and help us to fund further improvements in the customer offer.

 

3. Survey conducted by Satmetrix, a cloud-based technology provider.

 

Operating profit before exceptional items:


UK & ROI

International

Tesco Bank

Group

Operating profit before exceptional items

£505m

£277m

£162m

£944m

52 week change at constant exchange rates %

1.4%

11.4%

(13.8)%

1.1%

52 week change at actual exchange rates %

0.6%

9.1%

(13.8)%

0.0%

Operating profit margin before exceptional items

1.17%

2.66%

16.96%

1.73%

52 week change at constant exchange rates (bp)

4bp

23bp

(140)bp

7bp

52 week change at actual exchange rates (bp)

4bp

34bp

(140)bp

8bp

 

Group operating profit before exceptional items was £944m, up 1.1% on last year on a 52 week basis at constant exchange rates due to the significant investment in our customer offer across all markets driving positive sales momentum and starting to generate positive operational leverage. 

Our full year UK & ROI operating profit before exceptional items was £505m, with margin growth of 81 basis points between the first and the second half. This improvement marks the next stage of our journey to rebuild profitability from the losses we made in the second half of 2014/15.  We have made permanent reductions to our cost base, transformed the way we work with suppliers, started to generate leverage through increasing sales volumes and begun to improve productivity throughout our operations.

International profits increased by 11.4% at constant exchange rates to £277m, with margin growth of 138 basis points between the first and the second half.  The 'food supervision fee' which had been proposed in Hungary was not introduced and therefore has no impact on these results. We continue to be cautious about potential legislative changes in our European markets.  Following investments in the offer in both Asia and Europe, we have seen improving like-for-like sales growth and we are beginning to generate positive operational gearing. 

 

Exceptional items in operating profit:


This year

Last year

Net impairment of property, plant and equipment, onerous lease provisions, intangible assets and investments in joint ventures and associates

£(408)m

£(5,389)m

Net restructuring and redundancy

£(126)m

£(406)m

Property transactions

£156m

-

Past service credit and associated costs arising on UK defined benefit pension scheme closure

£480m

-

Stock-related

-

£(500)m

Reversal of commercial income recognised in prior years:

-     Recognised in 13/14

-     Recognised in years prior to 13/14

 

-

-

 

 

£(53)m

£(155)m

Other

-

£(187)m

Total exceptional items in operating profit

£102m

£(6,690)m

 

Exceptional items are excluded from our headline performance measures by virtue of their size and nature, in order to better reflect management's view of the performance of the Group.   In the current year, the net effect of exceptional items on operating profit is £102m, with a mix of both charges and credits.

Exceptional items include an information technology impairment and asset write-off of £(275)m, as we move towards a single online platform for customers and a net non-cash property impairment and onerous lease provision of £(133)m, including write-downs of construction-in-progress and non-trading sites of £(109)m. 

A UK & ROI net restructuring and redundancy charge of £(126)m relates principally to store colleague structures and working practices changes and business rationalisation, and is partially offset by the release of a prior year provision.

We generated net profits (pre-tax) of £156m from property transactions.  In order to increase our freehold ownership and reduce our exposure to indexed rent reviews, we regained sole ownership of 70 stores and two distribution centres in transactions with British Land in March 2015 and Phoenix Life Assurance and the British Airways Pension Fund in February 2016.  In October 2015, we agreed the sale of 14 sites in the south of England to Meyer Bergman for mixed-use and residential development, generating cash proceeds of £218m in the year. 

Following the closure of our UK defined benefit pension scheme in November, a non-cash actuarial credit of £538m has been recognised, as all accrued deferred pension benefits now increase in line with the consumer price index.  This was partly offset by a £(58)m charge related to the scheme closure, including a payment to members, equivalent to one week's pay and capped at £500 per colleague, paid directly into a new defined contribution scheme.

Last year, we recognised exceptional items of £(6.7)bn, of which around £(0.6)bn was linked to a direct future cash outflow.

Further detail can be found in Note 4 on page 25 of this statement.

 

Joint ventures and associates:


This year

Last year

Share of post-tax losses from JVs and associates

£(21)m

£(13)m

 

Losses from joint ventures and associates increased by £(8)m to £(21)m, due to a higher level of losses from our partnership with CRE in China in addition to a lower level of dunnhumby profitability following the restructure of our relationship with Kroger in April 2015.  These impacts were partially offset by increased profits recognised on our UK property joint ventures.

 

Finance income and finance costs:


This year

Last year

Interest receivable and similar income

£29m

£80m

Finance income

£29m

£80m

 

Interest receivable and other income decreased by £(51)m to £29m, due to reduced income from debt-hedging swaps.


This year

Last year

Interest payable

£(504)m

£(535)m

Capitalised interest

£6m

£44m

IAS 32 and 39 'Financial instruments' - fair value remeasurements

£(19)m

£(26)m

IAS 19 net pension finance costs

£(155)m

£(134)m

Finance costs

£(672)m

£(651)m

Exceptional charge:

Translation of Korea proceeds

£(220)m

-

Statutory finance costs

£(892)m

£(651)m

 

Finance costs increased by £21m to £(672)m.  Interest payable includes an overall reduction of £49m in interest costs on bonds and medium term notes, which was largely offset by the unwinding of the discount on onerous lease provisions.  The prior year also included set up costs relating to new credit facilities.  Capitalised interest reduced by £38m, reflecting a lower level of work-in-progress. Net pension finance costs of £(155)m rose in line with the opening pension deficit, offset in part by a lower opening discount rate.

An exceptional non-cash loss of £(220)m arose on the translation of the proceeds from the sale of our Homeplus business in Korea which are held in GBP money market funds in a non-Sterling denominated subsidiary.  This does not represent any economic cost to the Group.

Further detail can be found in Note 5 on page 27 of this statement.

 

Group tax:


This year

Last year

Tax on profit before exceptional items

£(8)m

£(28)m

Tax on profit/(loss)

£54m

£670m

 

Tax on profit before exceptional items was £(8)m with an effective rate of tax for the Group of 3%. This tax rate is lower than the UK statutory rate primarily due to a lower book value than tax value of property assets disposed of in the year, partially offset by unrecognised tax losses. 

On a statutory basis, including an exceptional credit of £86m relating to a release of provisions in respect of uncertain tax positions following settlement of a number of historic enquiries relating to years up to 2011, there is a tax credit of £54m.  

The effective underlying tax rate for the 2016/17 financial year is expected to be around 30%.

 

Earnings per share:

On a continuing operations basis

This year

Last year

Diluted earnings per share before exceptional items

3.41p

4.14p

Diluted earnings per share before exceptional items and net pension finance costs

4.97p

5.46p

Diluted earnings/(losses) per share

2.76p

(69.56)p

 

Diluted earnings per share before exceptional items were 3.41p, down (17.6)% on last year despite a lower tax charge due to higher net finance costs.  Diluted earnings per share before exceptional items and net pension finance costs were 4.97p, (9.1)% lower year-on-year.  Statutory diluted earnings per share from continuing operations were higher than last year at 2.76p reflecting significant exceptional items in the prior year.

 

Summary of total indebtedness:


This year

Last year

Movement

Net debt (excludes Tesco Bank)

£(5,110)m

£(8,481)m

£3,371m

Discounted operating lease commitments

£(7,814)m

£(9,353)m

£1,539m

Pension deficit, IAS 19 basis (post-tax)

£(2,612)m

£(3,885)m

£1,273m

Total indebtedness

£(15,536)m

£(21,719)m

£6,183m

 

Total indebtedness was £(15.5)bn, a decrease of £6.2bn since last year.  The sale of our business in Korea contributed £4.1bn of this reduction, comprising net cash proceeds of £3.3bn and a £0.8bn reduction in capitalised lease and other commitments. 

Our long-term aim is to increase the ownership of our property and reduce our exposure to index-linked and fixed-uplift rent inflation.  In March 2015 we completed an asset swap with British Land, regaining sole ownership of 21 superstores and in February 2016 we regained sole ownership of 49 large stores and two distribution centres from Phoenix Life Assurance and the British Airways Pension Fund.  These transactions resulted in an increase of £1.7bn in freehold assets and contribute to a significant reduction in lease commitments. The net debt movement shown above includes the acquisition of £(1.5)bn of associated debt. 

On an accounting basis, the Group's net pension deficit after tax decreased from £(3.9)bn last year to £(2.6)bn at the year end. This was driven by a recalculation of the deficit following the closure of the UK defined benefit scheme and an increase of 30 basis points in real corporate bond yields, leading to a corresponding increase in the discount rate used to measure our long term liabilities. In accordance with the long-term deficit funding agreement with the Trustee of £270m per annum in place since April 2015, a cash contribution of £249m was made to the scheme.  Following the significant reduction in future pension risk, by closing the defined benefit scheme, the Trustee is now working with its advisers and the company to reduce risk further, by beginning to implement an asset de-risking strategy.

We have a strong funding and liquidity profile underpinned by £5.0bn committed facilities, comprising a £2.6bn revolving credit facility and £2.4bn bilateral facilities.

 

Summary retail cash flow1:


This year

Last year

Cash flow from operations excluding working capital

£2,231m

£715m

(Increase)/decrease in working capital



-           impact from exceptional items

£(91)m

£1,805m

-           cash impact of new approach to supplier payments

£(231)m

£(1,073)m

-           underlying decrease in working capital

£672m

£413m

Cash generated from operations

£2,581m

£1,860m

Interest paid

£(422)m

£(609)m

Corporation tax received/(paid)

£125m

£(347)m

Net cash generated from retail operating activities

£2,284m

£904m

Cash capital expenditure

£(1,004)m

£(2,244)m

Free cash flow

£1,280m

£(1,340)m

Other investing activities

£543m

£253m

Net cash (used in)/from financing activities and intra-Group funding and intercompany transactions

£(854)m

£239m

Net increase/(decrease) in cash and cash equivalents

£969m

£(848)m

Include/(exclude) cash movements in debt items

£4,219m

£(1,010)m

Fair value and other non-cash movements

£(1,817)m

£(26)m

Movement in net debt

£3,371m

£(1,884)m

1.   Includes both continuing and discontinued operations.

 

We generated £2.2bn cash from continuing and discontinued retail operations and improved working capital by £0.4bn. On an underlying and continuing operations basis, working capital improved by £0.4bn driven by a £0.3bn reduction in inventory with improvements evident in all areas of the Group and a £0.1bn inflow from trade balances, including an improvement from an increased focus on up-front unit price.  Additionally, there was a £0.3bn inflow generated by our discontinued business in Korea up to the point of disposal.  The overall reduction in working capital also includes the net impact of exceptional items of £(0.1)bn and the first half £(0.2)bn outflow relating to the new approach to cash payments to suppliers which we outlined last year.   

Interest paid was £187m lower than last year as three medium term notes which matured in the prior year were refinanced at lower rates.  In addition, timing differences resulted in a lower number of instalments requiring payment in 2015/16 than the prior year.  

Cash tax was a net refund of £125m, which arose primarily as tax losses made in the 2014/15 financial year were carried back to offset against taxable profits from 2013/14.

Cash movements of £4.2bn in debt items primarily reflect the proceeds from the sale of our Homeplus business in Korea, which have been placed in short-term investments.

Fair value and other non-cash movements include £1.5bn of debt acquired when we regained sole ownership of 70 stores and two distribution centres.

 

Capital expenditure and space:


Group


UK & ROI

International

Tesco Bank


This year

Last year

YOY Change


This year

Last year

This year

Last year

This year

Last year

Capital expenditure (£bn)

1.0

1.8

(0.8)


0.7

1.3

0.3

0.4

0.0

0.1

Gross space added (m sq ft)1,2

0.7

1.6

(0.9)


0.3

0.8

0.4

0.7

n/a

n/a

Net space added (m sq ft)1

(1.2)

0.1

(1.3)


(0.8)

0.6

(0.4)

(0.5)

n/a

n/a

1. Excluding franchise stores.

2. 'Gross space added' excludes repurposing/extensions.

 

Capital expenditure was £1.0bn, a decrease of £0.8bn year-on-year, with lower spend in each region.  Group capital expenditure in 2016/17 will be around £1.25bn including an increased spend to refresh UK stores and an accelerated store opening programme in Thailand.

This year, we closed more selling space than we opened leading to a net reduction of (1.2)m sq. ft, of which (0.8)m sq. ft was in the UK & ROI.  Internationally, we reduced net space by (0.4)m sq. ft. as repurposing of (0.4)m sq. ft. of existing space in Asia and (0.3)m sq. ft. of closures in Europe more than offset our reduced opening programme.

 

Property


UK & ROI

International

Group

Property1 - fully owned




- Estimated market value

£13.3bn

£6.4bn

£19.7bn

- NBV2

£12.6bn

£5.0bn

£17.6bn

% net selling space owned

52%

71%

61%

% total property owned - by value3

47%

75%

54%

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.

 

Our long-term aim is to increase the ownership of our property and reduce our exposure to index-linked and fixed-uplift rent inflation.  The March 2015 asset swap with British Land and February 2016 transactions with Phoenix Life Assurance and the British Airways Pension Fund, through which we regained sole ownership of 70 large stores and two distribution centres, enabled us to increase the proportion of freehold property in the UK & ROI by 6% to 47%.  These transactions result in a combined saving in fixed-uplift and index-linked rent of £115m per annum at current rental levels.

The sale of our property assets within the disposal of our business in Korea drove the year-on-year reduction of £3.2bn in the estimated market value of fully-owned property across the Group to £19.7bn at year-end. This valuation gives an estimated surplus of £2.1bn over the net book value, with our Group freehold ownership percentage now 54% by value and 61% by selling space, an increase of 5% by value and 3% by selling space on last year.

This estimated market value excludes our share of property joint ventures. Including this, the valuation would increase by £0.2bn, net of the debt in the joint ventures.

The Group operating lease charge reduced by 10% in the year to £1.2bn and we continue to evaluate opportunities to further reduce our exposure to index-linked and fixed-uplift rent inflation.  Based on current rent, around three-quarters of our UK lease charge relates to fixed-uplift or index-linked rental agreements.

 

Tesco Bank


This year

Last year

YOY Change

Revenue

£955m

£947m

0.8%

Operating profit before exceptional items

£162m

£188m

(13.8)%

Lending to customers

£8,542m

£7,720m

10.6%

Customer deposits

£7,397m

£6,914m

7.0%

Net interest margin

4.2%

4.2%

0.0%

Risk asset ratio

20.0%

18.8%

1.2%

 

Tesco Bank continues to offer customers a differentiated banking and insurance offer, with 7.6 million accounts at the year end.  Active customer account numbers have grown by 1.0%, supported by a strengthened customer proposition including higher value personal loan products, 95% loan-to-value mortgages and the removal of monthly current account fees.  Customer lending increased by 10.6% to £8.5bn, with strong growth in mortgage balances.   Operating profit before exceptional items reduced by (13.8)% to £162m.  This decline was primarily due to the introduction of European Commission caps on interchange income from December 2015, following the initial reduction driven by MasterCard's agreement with the Competition and Markets Authority last April.  The full year effect of this change will be felt in the 2016/17 financial year. 

Risk weighted assets have risen in line with lending and the Core Tier 1 ratio has improved to 16.6%.  The balance sheet remains strong and well-positioned to support future lending growth from both a liquidity and capital perspective.

An income statement for Tesco Bank can be found in Appendix 6 on page 48 of this statement.  Balance sheet and cash flow detail for Tesco Bank can be found within Note 2 starting on page 20 of this statement. Tesco Bank's full year results are also published today and are available at www.corporate.tescobank.com

 

Contacts

Investor Relations:

Chris Griffith

01707 912 900

Media:

Steve Milton

01707 918 701

 

Philip Gawith, Teneo

0207 240 2486

 

This document is available at www.tescoplc.com/prelims2016.

A meeting for investors and analysts will be held today at 9.00am at London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.  Access will be by invitation only.  For those unable to attend, there will be a live webcast available on our website at www.tescoplc.com/prelims2016.  This will include all Q&A and will also be available for playback after the event.  All presentation materials, including a transcript, will be made available on our website.

An interview with Dave Lewis, Chief Executive, and Alan Stewart, Chief Financial Officer, discussing the Preliminary Results is available now to download in video, audio and transcript form at www.tescoplc.com/prelims2016.

 

Disclaimer

This document may contain forward-looking statements that may or may not prove accurate.  For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements.  Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements.  Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the 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.  Tesco does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.

 

TESCO PLC

Group income statement

 


Notes

52 weeks ended

27 February 2016


53 weeks ended

28 February 2015

Before exceptional items

£m

Exceptional items

(Note 4)

£m

Total

 

 

£m

Before exceptional items

£m

Exceptional items

(Note 4)

£m

Total

 

 

£m

Continuing operations









Revenue

2

54,433

-

54,433


56,925

-

56,925

Cost of sales


(51,629)

50

(51,579)


(54,247)

(4,881)

(59,128)

Gross profit/ (loss)


2,804

50

2,854


2,678

(4,881)

(2,203)

Administrative expenses


(1,874)

22

(1,852)


(1,690)

(884)

(2,574)

Profits/ (losses) arising on property-related items


14

30

44


(48)

(925)

(973)

Operating profit/ (loss)


944

102

1,046


940

(6,690)

(5,750)

Share of post-tax losses of joint ventures and associates


(21)

-

(21)


(13)

-

(13)

Finance income

5

29

-

29


80

-

80

Finance costs

5

(672)

(220)

(892)


(651)

-

(651)

Profit/ (loss) before tax


280

(118)

162


356

(6,690)

(6,334)

Taxation

6

(8)

62

54


(28)

698

670

Profit/ (loss) for the year from continuing operations


272

(56)

216


328

(5,992)

(5,664)

Discontinued operations









Profit/ (loss) for the year from discontinued operations

7

81

(168)

(87)


188

(290)

(102)

Profit/ (loss) for the year


353

(224)

129


516

(6,282)

(5,766)










Attributable to:









Owners of the parent


359

(221)

138


524

(6,265)

(5,741)

Non-controlling interests


(6)

(3)

(9)


(8)

(17)

(25)



353

(224)

129


516

(6,282)

(5,766)










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









Basic

9

4.42p


1.70p


6.46p


(70.82)p

Diluted

9

4.40p


1.69p


6.46p


(70.82)p



















Earnings/ (losses) per share from continuing operations









Basic

9

3.42p


2.77p


4.14p


(69.56)p

Diluted

9

3.41p


2.76p


4.14p


(69.56)p

 

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 

TESCO PLC

Group statement of comprehensive income (loss)

 

52 weeks ended 27 February 2016

Notes

52 weeks

2016

£m

53 weeks

2015

£m

Items that will not be reclassified to income statement




Remeasurements on defined benefit pension schemes

14

1,164

(1,473)

Tax on items that will not be reclassified


(300)

291



864

(1,182)

Items that may subsequently be reclassified to income statement




Change in fair value of available-for-sale financial assets and investments


5

(8)

Currency translation differences:




Retranslation of net assets of overseas subsidiaries


168

5

Movements in foreign exchange reserve and net investment hedging on

subsidiary disposed, reclassified and reported in the Group Income Statement


(88)

(17)

Gains/ (losses) on cash flow hedges:




Net fair value gain/ (losses)


318

(2)

Reclassified and reported in the Group Income Statement


(292)

102

Change in hedge relationship

12

186

-

Tax on items that may be reclassified


(30)

(7)



267

73

Total other comprehensive income/ (loss) for the year


1,131

(1,109)

Profit/ (loss) for the year


129

(5,766)

Total comprehensive income/ (loss) for the year


1,260

(6,875)





Attributable to:




Owners of the parent


1,270

(6,850)

Non-controlling interests


(10)

(25)

Total comprehensive income/ (loss) for the year


1,260

(6,875)





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




Continuing operations


1,436

(6,971)

Discontinued operations


(166)

121



1,270

(6,850)

 

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 

TESCO PLC

Group balance sheet


Notes

27 February

2016

£m

28 February

2015

£m

Non-current assets




Goodwill and other intangible assets

10

2,874

3,771

Property, plant and equipment

11

17,900

20,440

Investment property


78

164

Investments in joint ventures and associates


785

940

Other investments


1,135

975

Loans and advances to customers


4,723

3,906

Derivative financial instruments


1,532

1,546

Deferred tax assets


49

514



29,076

32,256

Current assets




Inventories


2,430

2,957

Trade and other receivables


1,607

2,121

Loans and advances to customers


3,819

3,814

Derivative financial instruments


176

153

Current tax assets


15

16

Short-term investments


3,463

593

Cash and cash equivalents


3,082

2,165



14,592

11,819

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

7

236

139



14,828

11,958

Current liabilities




Trade and other payables


(8,568)

(9,922)

Borrowings

12

(2,826)

(2,008)

Derivative financial instruments and other liabilities


(62)

(89)

Customer deposits and deposits from banks


(7,479)

(7,020)

Current tax liabilities


(419)

(95)

Provisions


(360)

(671)



(19,714)

(19,805)

Liabilities of the disposal groups classified as held for sale

7

-

(5)

Net current liabilities


(4,886)

(7,852)

Non-current liabilities




Borrowings

12

(10,711)

(10,651)

Derivative financial instruments and other liabilities


(889)

(946)

Post-employment benefit obligations

14

(3,175)

(4,842)

Deferred tax liabilities


(135)

(199)

Provisions


(664)

(695)



(15,574)

(17,333)

Net assets


8,616

7,071

Equity




Share capital


407

406

Share premium


5,095

5,094

All other reserves


(141)

(414)

Retained earnings


3,265

1,985

Equity attributable to owners of the parent


8,626

7,071

Non-controlling interests


(10)

-

Total equity


8,616

7,071

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 

TESCO PLC

Group statement of changes in equity



All other reserves



Share

capital

£m

Share

premium

£m

 

Other

 reserves

£m

Capital

redemption

reserve

£m

 

 Hedging

reserve

£m

 Translation

reserve

£m

Treasury

shares

£m

 Retained

 earnings

£m

 

Total

£m

Non-

controlling

interests

£m

 

Total

equity

£m

At 28 February 2015

406

5,094

40

16

35

(488)

(17)

1,985

7,071

-

7,071

Profit/ (loss) for the year

-

-

-

-

-

-

-

138

138

(9)

129

Other comprehensive income/ (loss)












Change in fair value of available-for-sale financial assets and investments

-

-

-

-

-

-

-

5

5

-

5

Currency translation differences

-

-

-

-

-

81

-

-

81

(1)

80

Remeasurements on defined benefit pension schemes

-

-

-

-

-

-

-

1,164

1,164

-

1,164

Gains/ (losses) on cash flow hedges

-

-

-

-

212

-

-

-

212

-

212

Tax relating to components of other comprehensive income

-

-

-

-

(36)

6

-

(300)

(330)

-

(330)

Total other comprehensive income/ (loss)

-

-

-

-

176

87

-

869

1,132

(1)

1,131

Total comprehensive income/ (loss)

-

-

-

-

176

87

-

1,007

1,270

(10)

1,260

Transactions with owners












Purchase of treasury shares

-

-

-

-

-

-

(5)

-

(5)

-

(5)

Share-based payments

-

-

-

-

-

-

15

273

288

-

288

Issue of shares

1

1

-

-

-

-

-

-

2

-

2

Dividends

-

-

-

-

-

-

-

-

-

-

-

Changes in non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

Total transactions with owners

1

1

-

-

-

-

10

273

285

-

285

At 27 February 2016

407

5,095

40

16

211

(401)

(7)

3,265

8,626

(10)

8,616

 

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 



All other reserves



Share

capital

£m

Share

premium

£m

 

Other

 reserves

£m

Capital

redemption

reserve

£m

 

 Hedging

reserve

£m

 Translation

reserve

£m

Treasury

shares

£m

 Retained

 earnings

£m

 

Total

£m

Non-

controlling

interests

£m

 

Total

equity

£m

At 22 February 2014

405

5,080

40

16

(44)

(490)

(20)

9,728

14,715

7

14,722

Loss for the year

-

-

-

-

-

-

-

(5,741)

(5,741)

(25)

(5,766)

Other comprehensive income/ (loss)












Change in fair value of available-for-sale financial assets and investments

-

-

-

-

-

-

-

(8)

(8)

-

(8)

Currency translation differences

-

-

-

-

-

(12)

-

-

(12)

-

(12)

Remeasurements on defined benefit pension schemes

-

-

-

-

-

-

-

(1,473)

(1,473)

-

(1,473)

Gains/ (losses)  on cash flow hedges

-

-

-

-

100

-

-

-

100

-

100

Tax relating to components of other comprehensive income

-

-

-

-

(21)

14

-

291

284

-

284

Total other comprehensive income/ (loss)

-

-

-

-

79

2

-

(1,190)

(1,109)

-

(1,109)

Total comprehensive income/ (loss)

-

-

-

-

79

2

-

(6,931)

(6,850)

(25)

(6,875)

Transactions with owners












Purchase of treasury shares

-

-

-

-

-

-

(15)

-

(15)

-

(15)

Share-based payments

-

-

-

-

-

-

18

102

120

-

120

Issue of shares

1

14

-

-

-

-

-

-

15

-

15

Dividends

-

-

-

-

-

-

-

(914)

(914)

-

(914)

Changes in non-controlling interests

-

-

-

-

-

-

-

-

-

18

18

Total transactions with owners

1

14

-

-

-

-

3

(812)

(794)

18

(776)

At 28 February 2015

406

5,094

40

16

35

(488)

(17)

1,985

7,071

-

7,071

 

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 

TESCO PLC

Group cash flow statement

 

52 weeks ended 27 February 2016

Notes

52 weeks

2016

£m

53 weeks

2015

£m

Cash flows from operating activities




Operating profit/ (loss) of continuing operations


1,046

(5,750)

Operating profit/ (loss) of discontinued operation


128

(52)

Depreciation and amortisation


1,334

1,552

Loss arising on sale of property, plant and equipment and intangible assets


164

49

Loss arising on sale of subsidiaries and other investments


-

41

Profit arising on sale of joint ventures and associates


(1)

-

Impairment of goodwill


18

116

Net reversal of impairment of other investments


(7)

-

Impairment of loans/ investments in joint ventures and associates


1

712

Net impairment charge of property, plant and equipment and intangible assets


182

4,171

Adjustment for non-cash element of pensions charge


(395)

68

Additional contribution into pension schemes

14

(223)

(13)

Share-based payments


283

105

Tesco Bank non-cash items included in operating profit


72

58

Decrease  in inventories


251

577

Decrease in development stock


99

59

Decrease in trade and other receivables


20

32

Increase/ (decrease) in trade and other payables


260

(449)

(Decrease)/ increase in provisions


(280)

926

Tesco Bank increase in loans and advances to customers


(868)

(846)

Tesco Bank increase in trade and other receivables


(78)

(60)

Tesco Bank increase in customer and bank deposits, trade and other payables


463

186

Tesco Bank decrease in provisions


(35)

(15)

(Increase)/ decrease in working capital


(168)

410

Cash generated from operations


2,434

1,467

Interest paid


(426)

(613)

Corporation tax received/ (paid)


118

(370)

Net cash generated from operating activities


2,126

484

 

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 

52 weeks ended 27 February 2016

Notes

52 weeks

2016

£m

53 weeks

2015

£m

Net cash generated from operating activities


2,126

484

Cash flows from investing activities




Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale


(871)

(1,989)

Purchase of intangible assets


(167)

(329)

Disposal of subsidiaries, net of cash disposed


3,237

(157)

Acquisition of subsidiaries, net of cash acquired

16

(325)

(86)

Proceeds from sale of joint ventures and associates


192

-

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


350

244

Net (increase)/ decrease in loans to joint ventures and associates


(1)

21

Investments in joint ventures and associates


(77)

(382)

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


(2,894)

423

Net (investments in)/ proceeds from sale of other investments


(103)

48

Dividends received from joint ventures and associates


41

88

Interest received


3

104

Net cash used in investing activities


(615)

(2,015)

Cash flows from financing activities




Proceeds from issue of ordinary share capital


1

15

Increase in borrowings


586

4,889

Repayment of borrowings


(1,328)

(3,185)

Net cash flows from derivative financial instruments


154

(6)

Repayments of obligations under finance leases


(17)

(3)

Rights issue to  non-controlling interests


-

18

Dividends paid to equity owners

8

-

(914)

Net cash (used in)/ from financing activities


(604)

814

Net increase/ (decrease) in cash and cash equivalents


907

(717)

Cash and cash equivalents at beginning of the year


2,174

2,813

Effect of foreign exchange rate changes


1

78

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


3,082

2,174

Cash held in disposal groups

7

-

(9)

Cash and cash equivalents at the end of the year


3,082

2,165

 

The notes on pages 18 to 41 form part of this condensed consolidated financial information.

 

The preliminary consolidated financial information for the 52 weeks ended 27 February 2016 was approved by the Directors on 12 April 2016.

 

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, the principles of International Financial Reporting Standards ('IFRS') and the IFRS Interpretation Committee ('IFRIC') interpretations as adopted by the European Union. The accounting policies applied are consistent with those described in the Annual Report and Group Financial Statements 2015. The preliminary consolidated financial information has been prepared on a going concern basis. This preliminary consolidated financial information does not constitute statutory consolidated financial statements for the 52 weeks ended 27 February 2016 as defined in section 434 of the Companies Act 2006.

 

The Annual Report and Group Financial Statements for the 52 weeks ended 27 February 2016 were approved by the Board of Directors on 12 April  2016. 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 2016 will be filed with the Registrar in due course.

 

The Annual Report and Group Financial Statements for the 53 weeks ended 28 February 2015 were approved by the Board of Directors on 5 May 2015 and have been filed with the Registrar of Companies. 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 consider that the Group has, at the time of approving the Group Financial Statements, adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the preliminary consolidated financial information.

 

Discontinued operations

In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations', the net results of the Korean and Chinese operations are presented within discontinued operations in the Group Income Statement (for which the comparatives have been restated) and the assets and liabilities of these operations are presented separately in the Group Balance Sheet. Refer to Note 7 for further details.

 

Use of non-GAAP measures

The Directors have adopted new measures of performance, namely revenue excluding fuel, operating profit before exceptional items and profit before tax before exceptional items adjusted for net pension finance costs. These measures replace the previous measures of sales including VAT (excluding IFRIC 13), trading profit and underlying profit.

 

The Directors believe that these non-GAAP measures provide additional useful information to shareholders on the underlying trends, performance and position of the Group. These measures are used for performance analysis.  The non-GAAP measures are not defined by IFRS and therefore may not be directly comparable with other companies' non-GAAP measures.  These measures are not intended to be a substitute for, or superior to, IFRS measurements.  The tax impact on non-GAAP measures is included within the Group Income Statement.

 

Revenue exc. fuel

This is the headline measure of revenue for the Group. It excludes the impact of sales, predominantly fuel sales, made at petrol filling stations, due to the volatilities associated with movements in fuel prices.

 

Operating profit before exceptional items

This is the headline measure of the Group's performance, and is based on operating profit before the impact of exceptional items.

 

Exceptional items

Exceptional 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 non-GAAP performance measures by virtue of their size and nature in order to better reflect management's view of the performance of the Group.

 

The Group exercises judgement in assessing whether items should be classified as exceptional. This assessment covers both the nature of the item, cause of occurrence and the scale of impact of that item on reported performance. Reversals of previous exceptional items are assessed based on the same criteria.

 

Profit before tax before exceptional items and net pension finance costs

This measure excludes exceptional items and the net finance costs of the defined benefit pension deficit as the costs are impacted by corporate bond yields which can fluctuate significantly.

 

Free cash flow

Free cash flow is net cash generated from/ (used in) operating activities less capital expenditure on property, plant and equipment, investment property and intangible assets.

 

Net debt

Net debt excludes the net debt of Tesco Bank but includes that of the discontinued operations. Net debt comprises bank and other borrowings, finance lease payables, net derivative financial instruments, joint venture loans and other receivables and net interest receivables/ payables, offset by cash and cash equivalents and short-term investments.


 

Operating margin

Operating margin is based on operating profit before exceptional items and on revenue.

 

Total indebtedness

Net debt plus the IAS19 deficit in the pension schemes (net of associated deferred tax) plus the present value of future minimum rentals payable under non-cancellable operating leases.

 

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 Officer, 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.

 

In line with changes in management reporting and management structure reporting to the CODM, the Group has reassessed its reportable segments and determined:

·     that the retailing and associated activities in the Republic of Ireland ('ROI'), previously disclosed as part of the Europe segment, be combined in a UK and Republic of Ireland segment going forward; and

·     that the retailing and associated activities in other countries, previously segregated between the Europe and the Asia segments, be combined in an International segment.

 

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

·     Retailing and associated activities ('Retail') in:

·      UK & ROI - the UK and Republic of Ireland; and

·      International - Czech Republic, Hungary, Poland, Slovakia, Malaysia, Thailand and Turkey;

·     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. Segmental information for the 53 weeks ended 28 February 2015 has been restated accordingly.

 

In addition, the retailing and associated activities in the Republic of Korea ('Korea') have been classified as discontinued operations in the current period; their performance in this period and comparative periods is therefore part of discontinued operations as presented in Note 7 and excluded from segmental performances below.

 

The CODM uses operating profit before exceptional items, as reviewed at monthly Executive Committee meetings, as the key measure of the segments' results as it better reflects the segments' underlying performance for the financial period under evaluation. Operating profit before exceptional items is a consistent measure within the Group as defined within Note 1. Refer to Note 4 for exceptional items. Inter-segment revenue between the operating segments is not material.

 

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 27 February 2016

At constant exchange rates*

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total at constant

exchange

£m

 

Foreign

exchange

£m

Total at actual

exchange

£m

Continuing operations







Revenue exc. fuel

37,359

10,858

955

49,172

(820)

48,352

Revenue

43,256

11,066

955

55,277

(844)

54,433

Operating profit before exceptional items

509

283

162

954

(10)

944

Exceptional items

96

9

(1)

104

(2)

102

Operating profit/ (loss)

605

292

161

1,058

(12)

1,046

Operating margin**

1.2%

2.6%

17.0%

1.7%

-

1.7%

 

52 weeks ended 27 February 2016

At actual exchange rates***

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total at actual

exchange

£m

Continuing operations





Revenue exc. fuel

37,189

10,208

955

48,352

Revenue

43,080

10,398

955

54,433

Operating profit before exceptional items

505

277

162

944

Exceptional items

94

9

(1)

102

Operating profit

599

286

161

1,046

Operating margin**

1.2%

2.7%

17.0%

1.7%

Share of post-tax losses of joint ventures and associates




(21)

Finance income




29

Finance costs




(892)

Profit/ (loss) before tax




162

*     Constant exchange rates are the average actual periodic exchange rates for the previous financial period.

**    Operating margin is based on operating profit before exceptional items and on revenue.

***   Actual exchange rates are the average actual periodic exchange rates for that financial period.

 

 

 

 

53 weeks ended 28 February 2015

At actual exchange rates*

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total at actual

exchange

£m

Continuing operations





Revenue exc. fuel

38,228

10,678

947

49,853

Revenue**

45,062

10,916

947

56,925

Operating profit before exceptional items

498

254

188

940

Exceptional items

(5,832)

(823)

(35)

(6,690)

Operating profit/ (loss)

(5,334)

(569)

153

(5,750)

Operating margin***

1.1%

2.3%

19.9%

1.7%

Share of post-tax losses of joint ventures and associates




(13)

Finance income




80

Finance costs




(651)

Profit/ (loss) before tax




(6,334)

*     Actual exchange rates are the average actual periodic exchange rates for that financial period.

**    Includes a reclassification of £77m from Tesco Bank to the UK & ROI segment, relating to revenue recognition on Clubcard vouchers. There is no impact on segmental operating profit before exceptional items or operating profit.

***   Operating margin is based on operating profit before exceptional items and on revenue.

 

 

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, finance lease payables, derivative financial instruments and net debt of the disposal groups). Net debt balances have been included within the unallocated segment to reflect how the Group manages these balances. Intercompany transactions have been eliminated, other than intercompany transactions with Tesco Bank in net debt.

 

At 27 February 2016


UK & ROI

£m

International

£m

Tesco

Bank

£m

Other/

unallocated

£m

Total

£m

Goodwill and other intangible assets


1,391

309

1,174

-

2,874

Property, plant and equipment and investment property


12,815

5,085

78

-

17,978

Investments in joint ventures and associates


5

704

76

-

785

Other investments


-

-

984

151

1,135

Loans and advances to customers - non-current


-

-

4,723

-

4,723

Deferred tax asset


-

49

-

-

49

Non-current assets(a)


14,211

6,147

7,035

151

27,544








Inventories and trade and other receivables(b)


2,557

1,016

314

-

3,887

Trade and other payables


(6,580)

(1,736)

(252)

-

(8,568)

Loans and advances to customers - current


-

-

3,819

-

3,819

Customer deposits and deposits from banks


-

-

(7,479)

-

(7,479)

Total provisions


(837)

(129)

(58)

-

(1,024)

Deferred tax liability


(64)

(39)

(32)

-

(135)

Net current tax


(403)

(3)

2

-

(404)

Post-employment benefits


(3,153)

(22)

-

-

(3,175)

Assets held for sale and of the disposal groups(c)


165

71

-

-

236

Liabilities of the disposal groups


-

-

-

-

-

Net debt(d)


-

-

(975)

(5,110)

(6,085)

Net assets


5,896

5,305

2,374

(4,959)

8,616

(a) Excludes derivative financial instrument non-current assets of £1,532m (2015: 1,546m).

(b) Excludes loans to joint ventures of £149m (2015: £207m) and interest and other receivables of £1m (2015:£1m).

(c) Excludes net debt of the disposal groups of £nil (2015: £9m). Refer to Note 7.

(d) Refer to Note 15.

 

At 28 February 2015                              


UK & ROI

£m

International

£m

Tesco

Bank

£m

Other/

unallocated

£m

Total

£m

Goodwill and other intangible assets


1,648

900

1,223

-

3,771

Property, plant and equipment and investment property


11,604

8,914

86

-

20,604

Investments in joint ventures and associates


89

771

80

-

940

Other investments


-

-

827

148

975

Loans and advances to customers - non-current


-

-

3,906

-

3,906

Deferred tax asset


433

81

-

-

514

Non-current assets(a)


13,774

10,666

6,122

148

30,710








Inventories and trade and other receivables(b)


2,814

1,821

235

-

4,870

Trade and other payables


(6,931)

(2,746)

(245)

-

(9,922)

Loans and advances to customers - current


-

-

3,814

-

3,814

Customer deposits and deposits from banks


-

-

(7,020)

-

(7,020)

Total provisions


(1,071)

(205)

(90)

-

(1,366)

Deferred tax liability


-

(158)

(41)

-

(199)

Net current tax


(89)

5

5

-

(79)

Post-employment benefits


(4,773)

(69)

-

-

(4,842)

Assets held for sale and of the disposal groups(c)


61

69

-

-

130

Liabilities of the disposal groups(c)


-

-

-

(5)

(5)

Net debt(d)


-

-

(539)

(8,481)

(9,020)

Net assets


3,785

9,383

2,241

(8,338)

7,071

Refer to previous table for footnotes

 

 

Other segment information

52 weeks ended 27 February 2016

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total

 continuing

operations

£m

Discontinued

operations**

£m

Total

£m

Capital expenditure (including acquisitions through
business combinations):







Property, plant and equipment*

2,300

236

8

2,544

55

2,599

Investment property

5

-

-

5

-

5

Goodwill, software and other intangible assets

188

18

32

238

3

241

Depreciation:







Property, plant and equipment

(688)

(293)

(16)

(997)

(80)

(1,077)

Investment property

(2)

-

-

(2)

-

(2)

Amortisation of intangible assets

(145)

(30)

(75)

(250)

(5)

(255)

Impairment of intangible assets

(159)

(10)

-

(169)

-

(169)

Impairment of goodwill

(18)

-

-

(18)

-

(18)

Impairment of property, plant and equipment  and investment properties

(164)

(100)

-

(264)

(1)

(265)

Reversal of  impairment of property, plant and equipment  and investment properties

133

119

-

252

-

252

*     Includes £1,742m (2015: £3m) of property, plant and equipment acquired through business combinations.

**    Discontinued operations in this table represents amounts up until the point a disposal group is classified as such. This comprises those of Korea in the first six months of the year ended 27 February 2016 and in the twelve months of the year ended 28 February 2015.

 

53 weeks ended 28 February 2015

UK & ROI

£m

International

£m

Tesco

Bank

£m

Total

 continuing

operations

£m

Discontinued

operations**

£m

Total

£m

Capital expenditure (including acquisitions through
business combinations):







Property, plant and equipment*

1,119

364

14

1,497

145

1,642

Investment property

-

-

-

-

-

-

Goodwill, software and other intangible assets

351

28

45

424

11

435

Depreciation:







Property, plant and equipment

(741)

(358)

(18)

(1,117)

(176)

(1,293)

Investment property

-

-

-

-

(1)

(1)

Amortisation of intangible assets

(154)

(26)

(68)

(248)

(9)

(257)

Impairment of intangible assets

(46)

(3)

(4)

(53)

-

(53)

Impairment of goodwill

(116)

-

-

(116)

-

(116)

Impairment of property, plant and equipment  and investment properties

(3,504)

(607)

-

(4,111)

(202)

(4,313)

Reversal of  impairment of property, plant and equipment  and investment properties

132

35

-

167

29

196

Refer to previous table for footnotes

 

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

 


Retail

Tesco Bank

Tesco Group


2016

£m

2015

£m

2016

£m

2015

£m

2016

£m

2015

£m

Operating profit/ (loss) of continuing operations*

885

(5,903)

161

153

1,046

(5,750)

Operating profit/ (loss) of discontinued operations

128

(52)

-

-

128

(52)

Depreciation and amortisation

1,243

1,466

91

86

1,334

1,552

ATM net income

(38)

(28)

38

28

-

-

Loss/ (profit) arising on sale of property, plant and equipment and intangible assets

165

42

(1)

7

164

49

Loss arising on sale of subsidiaries and other investments

-

41

-

-

-

41

Profit arising on sale of joint ventures and associates

(1)

-

-

-

(1)

-

Impairment of goodwill

18

116

-

-

18

116

Net reversal of impairment of other investments

(7)

-

-

-

(7)

-

Impairment of loans/ investments in joint ventures and associates

1

712

-

-

1

712

Net impairment of property, plant and equipment and intangible assets

182

4,167

-

4

182

4,171

Adjustment for non-cash element of pensions charge

(395)

68

-

-

(395)

68

Additional contribution into pension schemes

(223)

(13)

-

-

(223)

(13)

Share-based payments

273

99

10

6

283

105

Tesco Bank non-cash items included in operating profit

-

-

72

58

72

58

Cash flow from operations excluding working capital

2,231

715

371

342

2,602

1,057

Decrease / (increase) in working capital

350

1,145

(518)

(735)

(168)

410

Cash generated from / (used in) operations

2,581

1,860

(147)

(393)

2,434

1,467

Interest paid

(422)

(609)

(4)

(4)

(426)

(613)

Corporation tax received/ (paid)

125

(347)

(7)

(23)

118

(370)

Net cash generated from/ (used in) operating activities

2,284

904

(158)

(420)

2,126

484

*     Tesco Bank operating profit as per Bank Income Statement excluding ATM net income segmental adjustment.

 


Retail

Tesco Bank

Tesco Group


2016

£m

2015

£m

2016

£m

2015

£m

2016

£m

2015

£m

Net cash generated from/ (used in) operating activities

2,284

904

(158)

(420)

2,126

484

Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale

(858)

(1,977)

(13)

(12)

(871)

(1,989)

Purchase of intangible assets

(146)

(267)

(21)

(62)

(167)

(329)

Non-GAAP measure: Free cash flow

1,280

(1,340)

(192)

(494)

1,088

(1,834)








Disposal of subsidiaries, net of cash disposed

3,237

(157)

-

-

3,237

(157)

Acquisition of subsidiaries, net of cash acquired

(325)

(86)

-

-

(325)

(86)

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

350

244

-

-

350

244

Proceeds from sale of joint ventures and associates

192

-

-

-

192

-

Net (increase)/ decrease in loans to joint ventures and associates

(1)

21

-

-

(1)

21

Net investments in joint ventures and associates

(77)

(382)

-

-

(77)

(382)

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

(2,894)

423

-

-

(2,894)

423

Net proceeds from sale of/ (investments in) other investments

17

5

(120)

43

(103)

48

Dividends received from joint ventures and associates

41

81

-

7

41

88

Interest received

3

104

-

-

3

104

Net cash used in investing activities

(461)

(1,991)

(154)

(24)

(615)

(2,015)








Proceeds from issue of ordinary share capital

1

15

-

-

1

15

Increase in borrowings

286

4,391

300

498

586

4,889

Repayment of borrowings

(1,328)

(3,185)

-

-

(1,328)

(3,185)

Net cash flows from derivative financial instruments

154

(6)

-

-

154

(6)

Repayment of obligations under finance leases

(17)

(3)

-

-

(17)

(3)

Rights issue to non-controlling interests

-

18

-

-

-

18

Dividends paid to equity owners

-

(914)

-

-

-

(914)

Net cash (used in)/ generated from financing activities

(904)

316

300

498

(604)

814








Intra-Group funding and intercompany transactions

50

(77)

(50)

77

-

-








Net increase/ (decrease) in cash and cash equivalents

969

(848)

(62)

131

907

(717)

Cash and cash equivalents at the beginning of the year

1,558

2,328

616

485

2,174

2,813

Effect of foreign exchange rate changes

1

78

-

-

1

78

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

2,528

1,558

554

616

3,082

2,174

Cash held in disposal groups*

-

(9)

-

-

-

(9)

Cash and cash equivalents at the end of the year

2,528

1,549

554

616

3,082

2,165

*     This relates to the cash held within discontinued operations reported within assets of the disposal groups.

 


Continuing operations

Discontinued operations

Retail


2016

£m

2015

£m

2016

£m

2015

£m

2016

£m

2015

£m

Operating profit/ (loss)

885

(5,903)

128

(52)

1,013

(5,955)

Depreciation and amortisation

1,158

1,280

85

186

1,243

1,466

ATM net income

(38)

(28)

-

-

(38)

(28)

Loss arising on sale of property, plant and equipment and intangible assets

165

28

-

14

165

42

Loss arising on sale of subsidiaries & other investments

-

41

-

-

-

41

Profit arising on sale of joint ventures and associates

(1)

-

-

-

(1)

-

Impairment of goodwill

18

116

-

-

18

116

Net reversal of impairment of other investments

(7)

-

-

-

(7)

-

Impairment of loans/ investments in joint ventures and associates

1

712

-

-

1

712

Net impairment of property, plant and equipment and intangible assets

181

3,993

1

174

182

4,167

Adjustment for non-cash element of pensions charge

(400)

68

5

-

(395)

68

Additional contribution into pension schemes

(223)

(2)

-

(11)

(223)

(13)

Share-based payments

271

102

2

(3)

273

99

Cash flow from operations excluding working capital

2,010

407

221

308

2,231

715

Decrease/ (increase) in working capital

70

1,270

280

(125)

350

1,145

Cash generated from operations

2,080

1,677

501

183

2,581

1,860

Interest paid

(394)

(560)

(28)

(49)

(422)

(609)

Corporation tax received/ (paid)

167

(267)

(42)

(80)

125

(347)

Net cash generated from operating activities

1,853

850

431

54

2,284

904

Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale

(776)

(1,774)

(82)

(203)

(858)

(1,977)

Purchase of intangible assets

(146)

(266)

-

(1)

(146)

(267)

Non-GAAP measure: Free cash flow

931

(1,190)

349

(150)

1,280

(1,340)

 

Note 3 Income and expenses

Continuing operations

2016

£m

2015

£m

Profit/ (loss) before tax is stated after charging/ (crediting) the following:



Property rental income, of which £39m (2015: £40m) relates to investment properties

(331)

(344)

Other rental income

(53)

(53)

Direct operating expenses arising on rental earning investment properties

20

19

Costs of inventories recognised as an expense

39,955

42,515

Inventory losses and provisions*

1,263

1,623

Depreciation and amortisation charged

1,249

1,366

Operating lease expenses, of which £102m (2015: £106m) relates to hire of plant and machinery

1,160

1,289

Net impairment losses on property, plant and equipment and investment property

13

3,944

Impairment of goodwill, software and other intangibles

187

169

Impairment of investment in and loans to joint ventures and associates

1

712

*     Includes £nil (2015: £359m) exceptional inventory provision. 

 

Note 4 Exceptional items

Income Statement

52 weeks ended 27 February 2016

Profit/ (loss) for the period includes the following exceptional items:

 

 

Exceptional items included in:

Cost of sales

 

 

 

 

 

£m

Administrative expenses

 

 

 

 

 

 

£m

Property- related items

 

 

 

 

 

£m

Total

exceptional

items

included

within

operating

profit

 

£m

Finance costs

 

 

 

 

 

 

£m

Taxation

 

 

 

 

 

 

 

£m

Loss on disposal of Korean operations

 

 

 

£m

Net impairment of PPE, intangible assets and onerous lease provisions(a)

(299)

-

(109)

(408)

-

73

-

Net restructuring and redundancy costs(b)

(75)

(34)

(17)

(126)

-

9

-

Property transactions(c)

-

-

156

156

-

(20)

-

Past service credit and other associated costs(d)

424

56

-

480

-

(86)

-

Foreign exchange losses on GBP balances held in overseas entities(e)

-

-

-

-

(220)

-

-

Release of overprovision of tax liabilities in prior years(f)

-

-

-

-

-

86

-

Loss on disposal of Korean operations(g)

-

-

-

-

-

-

(168)

Total

50

22

30

102

(220)

62

(168)

 

In assessing whether income and expense items met the Group's criteria as exceptional, items totalling £4m reflected in operating profit as non-exceptional cost in the first half of the year have subsequently been reclassified to exceptional. This is as a result of restructuring activities extended beyond the original scope, as well as two further property transactions where the Group regained sole ownership of stores and distribution centres.

 

(a) Following an evaluation of the cash-generating unit for technology and associated fixed assets principally relating to online general merchandise, impairment charges and write-offs of £275m have been recorded as the Group moves toward a single online platform for customers. In addition, a net property, plant and equipment ('PPE') impairment and onerous lease charge of £133m has arisen, including write downs on construction in progress and non-trading sites of £109m. Refer to Notes 10 and 11 for further details on impairment.

 

(b) A net charge of £126m has been recognised as restructuring and redundancy costs in the UK & ROI. This includes £89m relating to store colleague structures and working practices and £34m relating to head office restructuring costs, partly offset by a provision release of £74m related to the prior year changes to store colleague working arrangements. In addition, there have been costs of £77m related to business rationalisation including the closure of UK Homeplus stores. These costs include impairment of PPE, goodwill and onerous lease provisions - refer to Notes 10 and 11 for further details on impairment.

 

(c) In line with the Group's strategy to strengthen its balance sheet, the Group has taken sole control of 70 stores and two distribution centres previously held in three joint ventures, whilst selling its interests in two property joint ventures, as discussed in Note 16. The Group has also disposed of twelve development sites in London.

 

(d) As a result of the closure of the UK defined benefit pension scheme (the 'Scheme'), all active members of the Scheme became deferred members. The rate at which previously accrued benefits grow until retirement differs for active and deferred members. The rate of increase for deferred members aligns with the consumer price index and resulted in an actuarial credit of £538m. This credit was offset by one-off payments of £58m relating to auto-enrolment and top-up payments to the new defined contribution scheme for some colleagues previously in the defined benefit scheme.

 

(e) The Group holds £2.5bn of proceeds from the sale of the Korean operations in GBP money market funds in an intermediate entity with a Euro functional currency. The £220m loss represents foreign exchange losses arising on the revaluation of these sterling-denominated funds into Euros. The loss does not represent an economic loss to the Group since there is an offset within other comprehensive income.

 

(f) In agreeing tax liabilities for past years up to 2011, the Group has identified provisions of £86m held for uncertain tax positions which are no longer required.

 

(g) On 22 October 2015, the Group completed its sale of its Korea operations, made up of Homeplus Co. Limited, Homeplus Tesco Co. Limited and related subsidiaries, to a group of investors led by MBK Partners and including Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings (Private) Limited. Refer to Note 7 for further details.

 

Income Statement

53 weeks ended 28 February 2015

Loss for the period includes the following exceptional items:

 

Exceptional items included in:

Cost of sales

 

 

 

 

 

£m

Administrative expenses

 

 

 

 

 

£m

Property- related items

 

 

 

 

£m

Total

exceptional

items

included

within

operating

profit

£m

Finance costs

 

 

 

 

 

£m

Taxation

 

 

 

 

 

 

£m

Exceptional items within discontinued operations

 

 

 

£m

Impairment of PPE and onerous lease provisions

(3,586)

-

(925)

(4,511)

-

460

-

Impairment of goodwill and intangible assets

(166)

-

-

(166)

-

17

-

Inventory valuations and provisions

(500)

-

-

(500)

-

87

-

Reversal of commercial income recognised in previous years

(208)

-

-

(208)

-

38

-

Restructuring costs including trading store redundancies

(261)

(145)

-

(406)

-

75

-

Other restructuring and one-off items

(160)

-

-

(160)

-

15

-

Impairment of investments in and loans to joint ventures and associates

-

(712)

-

(712)

-

-

-

Provision for customer redress

-

(27)

-

(27)

-

6

-

Exceptional items related to discontinued operations

-

-

-

-

-

-

(307)

Tax on exceptional items related to discontinued operations

-

-

-

-

-

-

17

Total

(4,881)

(884)

(925)

(6,690)

-

698

(290)

 

Cash Flow Statement

The table below shows the impact of exceptional items on the Cash Flow Statement:

 


Cash flows from operating activities


Cash flows from investing activities

 

Exceptional items included in:

2016

£m

2015

£m


2016

£m

2015

£m

Prior year restructuring costs and other exceptional costs including trading store redundancies(a)

(251)

(174)


-

-

Current year restructuring costs including trading store redundancy costs(b)

(63)

-


-

-

Utilisation of onerous lease provisions

(90)

-


-

-

Property transactions - sale of development sites(c)

218

-


-

-

Defined benefit pension scheme closure cost(d)

(58)

-


-

-

Provision for customer redress(e)

(34)

(42)


-

-

Property transactions - buy back of property joint ventures, net of £15m cash acquired(f)

-

-


(139)

-

Total

(278)

(216)


(139)

-

 

(a) Cash outflows on settlement of exceptional redundancy provisions booked in the 53 weeks ended 28 February 2015.

(b) Cash outflows on settlement of restructuring and redundancy costs. Refer to item (b) on page 25.

(c)        Cash proceeds received on sale of twelve development sites. Refer to item (c) on page 25.

(d) One-off payment on closure of defined benefit pension scheme. Refer to item (d) on page 25.

(e) Settlement of claims for customer redress in Tesco Bank from prior years.

(f) During the year, the Group obtained sole control of three separate property partnerships, previously accounted for as joint ventures, through acquisition of the other partners' 50% interest in each of the partnerships. Net cash outflow is due to: acquisition of subsidiaries of £(317)m; proceeds on sale of joint ventures of £172m; and repayment of loans by joint ventures of £6m. Refer to Note 16 for further details.

 

In addition, the Group received a tax refund of £263m. This relates to a claim raised with HMRC to carry back the loss made in the 53 weeks ended 28 February 2015 to offset against the taxable profits from the 52 weeks ended 22 February 2014. 

 

Note 5 Finance income and costs

 

Continuing operations

2016

£m

2015

£m

Finance income



Interest receivable and similar income

29

80

Total finance income

29

80

Finance costs



GBP MTNs

(176)

(191)

EUR MTNs

(122)

(155)

USD Bonds

(86)

(85)

Other MTNs

-

(2)

Finance charges payable under finance leases and hire purchase contracts

(9)

(9)

Other interest payable

(111)

(93)

Capitalised interest*

6

44

Financial instruments - fair value remeasurements

(19)

(26)

Total finance costs before exceptional items and net pension finance costs

(517)

(517)

Net pension finance costs  (Note 14)

(155)

(134)

Foreign exchange losses on GBP short-term investments held in overseas entities (Note 4)

(220)

-

Total finance costs

(892)

(651)

Net finance cost

(863)

(571)

*     A deferred tax liability is recognised in respect of capitalised interest at the applicable rate in the country in which the interest is capitalised.

                

GBP MTNs

Interest payable on the 4% RPI GBP MTN 2016 includes £3m (2015: £8m) of Retail Price Index ('RPI') related accretion.

Interest payable on the 3.322% LPI GBP MTN 2025 includes £3m (2015: £7m) of RPI-related accretion.

Interest payable on the 1.982% RPI GBP MTN 2036 includes £3m (2015: £7m) of RPI-related accretion.

 

Note 6 Taxation

Recognised in the Group Income Statement

Continuing operations

2016

£m

2015

£m

UK

(176)

(690)

Overseas

122

20

Taxation (credit)/ charge

(54)

(670)

 

Finance (No.2) Act 2015 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020. These rate reductions were substantively enacted by the Balance Sheet date and therefore included in this consolidated financial information.

 

In addition to the changes in the rates of corporation tax disclosed above it was announced in the March 2016 Budget Statement that the main rate of corporation tax will be further reduced by 1% to 17% from 1 April 2020. This further rate reduction had not been substantively enacted at the Balance Sheet date and has therefore not been reflected in this consolidated financial information.

 

Note 7 Discontinued operations and non-current assets classified as held for sale

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


2016

£m

2015

£m

Assets of the disposal groups

-

9

Non-current assets classified as held for sale

236

130

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

236

139

Total liabilities of the disposal groups

-

(5)

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

236

134

 

The non-current assets classified as held for sale consist mainly of properties in the UK and central Europe due to be sold within one year.

 

Discontinued operations

 

On 22 October 2015, the Group completed its sale of the Korean operations, made up of Homeplus Co. Limited, Homeplus Tesco Co. Limited and related subsidiaries, to a group of investors led by MBK Partners and including Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings (Private) Limited. In accordance with IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations', the Korean operations for the period up to 22 October 2015 have been classified as a disposal group.

 

The tables below show the results of the discontinued operations which are included in the Group Income Statement, Group Balance Sheet and Group Cash Flow Statement respectively.

 

Income Statement

 

2016


2015


Total*

£m


Korea

£m

China and US***

£m


Total

£m

Revenue

3,526


5,359

281


5,640

Expenses**

(3,404)


(5,139)

(299)


(5,438)

Profit/ (loss) before tax before exceptional items

122


220

(18)


202

Taxation

(41)


(13)

(1)


(14)

Profit/ (loss) after tax before exceptional items

81


207

(19)


188

Loss after tax on disposal of Chinese operations (net of £53m tax charge)

-


-

(28)


(28)

Exceptional items pre-tax

-


(332)

-


(332)

Tax on exceptional items

-


70

-


70

Loss after tax on disposal of Korean operations

(168)


-

-


-

Total loss after tax of discontinued operations

(87)


(55)

(47)


(102)

*     The results of Korea are for the period ended 22 October 2015, at which point the operations were sold.

**    Intercompany recharges and intercompany loan interest totalling £48m (2015: £90m) between continuing operations and the Korea discontinued operation have been eliminated. This elimination impacts the performance of continuing and discontinued operations, reducing the profit/ (loss) before tax of continuing operations by £48m (2015: £90m), whilst increasing the profit/ (loss) before tax of Korea discontinued operations by the same amounts.

***   The results of China are for the 13 weeks ended 28 May 2014, at which point the operations were contributed into a new venture with China Resource Enterprise Limited.

 

The loss after tax on disposal of the Group's Korean operations is made up as follows:


£m

Gross proceeds

3,944

Withholding tax and stamp duty

(341)

Net proceeds

3,603

Net book value of assets disposed:


Goodwill and other intangible assets

(548)

Property, plant and equipment

(3,616)

Investment property

(31)

Deferred tax assets

(134)

Inventories

(204)

Trade and other receivables

(510)

Cash and cash equivalents

(362)

Trade and other payables

1,390

Borrowings

97

Current tax

(6)

Provisions

74

Post-employment benefit obligation

52

Deferred tax liabilities

265

Costs to sell and other provisions

(55)

Currency translation reserve recycled to income statement

88

Taxation

(271)

Loss after tax of disposal of Korean operations

(168)

 

There is the potential for the Korean National Tax Service to interpret International Tax Conventions in a manner which gives rise to a tax liability in Korea on the sale of the Korean business. MBK Partners, the purchasers, considering this potential interpretation, withheld and paid capital gains tax of £325m from the sale proceeds to entirely eliminate any possible challenge against the purchasers by the Korean tax authorities. In addition, a further provision of £271m has been made for potential additional capital gains tax on the disposal.

 

The Group intends to vigorously contest this interpretation through the Korean legal process. To this end, the Group has filed a claim for a refund of the capital gains tax withheld by the purchasers. The Korean National Tax Service have commenced an investigation into this claim. It is anticipated the full Korean legal process could take four to five years.

 

Loss per share impact from discontinued operations

2016

Pence/share


2015

Pence/share

Basic

(1.07)


(1.26)

Diluted

(1.07)


(1.26)

 

Cash flow statement

Total Korea

2016

£m


Total Korea, China & US

2015

£m

Net cash flows from operating activities

431


54

Net cash flows from investing activities

(34)


(104)

Net cash flows from financing activities

(4)


165

Net cash flows from discontinued operations

393


115

Intra-Group funding and intercompany transactions

(103)


(339)

Net cash flows from discontinued operations, net of intercompany

290


(224)

Net cash flows from disposal of subsidiary

(366)


(148)

Net cash flows from discontinued operations, net of intercompany and disposal of subsidiary

(76)


(372)



 

Note 8 Dividends


2016


2015


Pence/share

£m


Pence/share

£m

Amounts recognised as distributions to owners in the financial year:






Prior financial year final dividend

-

-


10.13

819

Current financial year interim dividend

-

-


1.16

95

Dividends paid to equity owners in the financial year

-


11.29

914

 

No dividend has been paid or is proposed in respect of the financial year ended 27 February 2016.

 

Note 9 Earnings/ (losses) per share and diluted earnings 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.

 

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. The Group has recognised a profit for the financial year from its continuing operations therefore the diluted earnings/ (losses) per share includes this dilutive/ antidilutive effect.

 

Given the loss for the 53 weeks ended 28 February 2015, the Group recognised a basic loss per share rather than a basic earnings per share. The dilutive effect of the 12m potentially dilutive share options in that year was not considered in calculating the diluted loss per share as it would have reduced the loss per share. For the 52 weeks ended 27 February 2016 there were 26m potentially dilutive share options. As the Group has recognised a profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent the dilutive effects have been considered in calculating diluted earnings per share from continuing operations before exceptional items and net pension finance costs.


2016


2015


Basic

Potentially

 dilutive share options

Diluted


Basic

Potentially

 dilutive share options

Diluted

Profit/ (loss) (£m)








Continuing operations*

225

-

225


(5,639)

-

(5,639)

Discontinued operations

(87)

-

(87)


(102)

-

(102)

Total

138

-

138


(5,741)

-

(5,741)

Weighted average number of shares (millions)

8,126

26

8,152


8,107

-

8,107

Earnings/ (losses) per share (pence)








Continuing operations

2.77

(0.01)

2.76


(69.56)

-

(69.56)

Discontinued operations

(1.07)

-

(1.07)


(1.26)

-

(1.26)

Total

1.70

(0.01)

1.69


(70.82)

-

(70.82)

*   Profit/ (loss) from continuing operations of £225m (2015: £5,639m) excludes losses from non-controlling interests of £9m (2015: £25m).

 

Non-GAAP measure: Earnings and diluted earnings per share from continuing operations before exceptional items


2016


2015


Basic

Potentially

 dilutive share options

Diluted


Basic

Potentially

 dilutive share options

Diluted

Profit/ (loss) (£m)








Continuing operations*

278

-

278


336

-

336

Discontinued operations

81

-

81


188

-

188

Total

359

-

359


524

-

524

Weighted average number of shares (millions)

8,126

26

8,152


8,107

12

8,119

Earnings/ (losses) per share (pence)








Continuing operations

3.42

(0.01)

3.41


4.14

-

4.14

Discontinued operations

1.00

(0.01)

0.99


2.32

-

2.32

Total

4.42

(0.02)

4.40


6.46

-

6.46

*   Profit/ (loss) from continuing operations of £278m (2015: £336m) excludes losses from non-controlling interest of £6m (2015: £8m).

 

Non-GAAP measure: Diluted earnings per share from continuing operations before exceptional items and net pension finance costs

 

 


2016


2015

 

Profit before tax from continuing operations before exceptional items (£m)

280


356

 

Add: Net pension finance costs (£m) (Note 14)

155


134

 

Profit before tax from continuing operations before exceptional items and net pension finance costs (£m)

435


490

 

Profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent  (£m)

442


494

Taxation on profit before tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m)

(37)


(51)

 

Profit after tax from continuing operations before exceptional items and net pension finance costs attributable to the owners of the parent (£m)

405


443

 

 

Diluted weighted average number of shares (millions)

8,152


8,119

 

Diluted earnings per share from continuing operations before exceptional items and net pension finance costs (pence)

4.97


5.46

 

There have been no transactions involving ordinary shares between the reporting date and the date of approval of the condensed consolidated financial information which would significantly change the earnings per share calculations shown above.

 

Note 10 Goodwill and other intangible assets

Goodwill and other intangible assets comprise £1,827m (2015: £2,288m) goodwill, £975m (2015: £1,374m) software and  £72m (2015: £109m) other intangible assets.

 

Goodwill

The components of goodwill are as follows:


Balances


Pre-tax discount rates


Post-tax discount rates


Long term growth rates


2016

2015


2016

2015


2016

2015


2016

2015


£m

£m










Malaysia

70

74


12.3%

12.5%


9.4%

9.4%


2.1%

3.2%

Korea

-

502


-

10.8%


-

8.2%


-

2.8%

Tesco Bank

802

802


11.0%

10.5%


8.2%

8.4%


4.0%

4.0%

Thailand

159

159


10.1%

12.3%


8.1%

9.9%


2.6%

3.3%

UK

767

722


9.1%

8.8%


7.2%

7.0%


2.0%

2.1%

Other

29

29


-

-


-

-


-

-


1,827

2,288










The Group disposed of its Korean operation during the current year, including goodwill. Refer to Note 7.

 

Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated to groups of cash-generating units according to the level at which management monitor that goodwill.

 

Impairment reviews were performed by comparing the carrying value of goodwill with the recoverable amount of the cash-generating units to which goodwill has been allocated. Recoverable amounts for cash-generating units are based on the higher of value in use and fair value less costs of disposal. Value in use is calculated from cash flow projections for generally five years using data from the Group's latest internal forecasts, the results of which are reviewed by the Board. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market.

 

The pre-tax discount rates used to calculate value in use range are derived from the Group's post-tax weighted average cost of capital, as adjusted for the specific risks relating to each cash-generating unit. The forecasts are extrapolated beyond five years based on estimated long-term average growth rates as shown above.

 

A resulting charge of £18m has been recognised for businesses included in the UK & ROI segment. This charge has been classified as an exceptional item within 'Net restructuring and redundancy costs' within cost of sales.

 

The Group has carried out a sensitivity analysis on the impairment tests of each group of cash-generating units to which goodwill has been allocated. An increase in the discount rate or reduction in the long term growth rate by less than one percentage point would cause the carrying value of goodwill in the Malaysia (£70m) and Sociomantic (£43m, included in UK above) groups of cash-generating units to equal their recoverable values.

 

Impairment of software

An impairment of £154m of software has been recognised in the year, principally as a result of an evaluation of the cash-generating unit for technology relating to online general merchandising as the Group moves toward a single online platform for customers. In addition, assets with a total net carrying value of £98m were written off within disposals. These amounts have been reflected as 'Net impairment of PPE, intangible assets and onerous lease provisions' within exceptional items in cost of sales. The other amounts have not been classified as exceptional items.

 

Note 11 Property, plant and equipment

 


Land and

buildings

£m

Other*

£m

Total

£m

Cost




At 28 February 2015

25,298

11,493

36,791

Foreign currency translation

76

34

110

Additions**

364

493

857

Acquired through business combinations

1,725

17

1,742

Reclassification

(93)

2

(91)

Classified as held for sale

(715)

(23)

(738)

Disposals

(515)

(346)

(861)

Transfer to disposal group classified as held for sale

(3,583)

(1,202)

(4,785)

At 27 February 2016

22,557

10,468

33,025





Accumulated depreciation and impairment losses




At 28 February 2015

8,021

8,330

16,351

Foreign currency translation

93

49

142

Charge for the year

318

759

1,077

Impairment losses

263

-

263

Reversal of impairment losses

(220)

(25)

(245)

Reclassification

(28)

(77)

(105)

Classified as held for sale

(475)

(20)

(495)

Disposals

(295)

(281)

(576)

Transfer to disposal group classified as held for sale

(479)

(808)

(1,287)

At 27 February 2016

7,198

7,927

15,125





Net carrying value




At 27 February 2016

15,359

2,541

17,900

At 28 February 2015

17,277

3,163

20,440





Construction in progress included above***




At 27 February 2016

121

63

184

At 28 February 2015

271

71

342

*     Other assets consist of fixtures and fittings with a net carrying value of £2,145m (2015: £2,722m), office equipment with a net carrying value of £144m (2015: £233m) and motor

vehicles with a net carrying value of £252m (2015: £208m).

**    Includes £7m (2015: £44m) in respect of interest capitalised, principally relating to land and building assets. The capitalisation rate used to determine the amount of finance costs capitalised during the financial year was 4.6% (2015: 4.4%). Interest capitalised is deducted in determining taxable profit in the financial year in which it is incurred.

***   Construction in progress does not include land.

 

Following a re-evaluation of the allocation of the prior year impairment between the components of cash generating units, the prior year movement table has been re-presented. There is no impact on the net carrying value, income statement, depreciation or impairment loss.

 


Land and

buildings

£m

Other*

£m

Total

£m

Cost




At 22 February 2014

25,734

10,851

36,585

Foreign currency translation

(314)

(106)

(420)

Additions**

799

840

1,639

Acquired through business combinations

-

3

3

Reclassification

(591)

152

(439)

Classified as held for sale

30

(18)

12

Disposals

(360)

(229)

(589)

At 28 February 2015

25,298

11,493

36,791





Accumulated depreciation and impairment losses




At 22 February 2014

4,985

7,110

12,095

Foreign currency translation

(186)

(96)

(282)

Charge for the year

446

847

1,293

Impairment losses

3,621

671

4,292

Reversal of impairment losses

(169)

(7)

(176)

Reclassification

(358)

-

(358)

Classified as held for sale

(86)

(16)

(102)

Disposals

(232)

(179)

(411)

At 28 February 2015

8,021

8,330

16,351

Refer to previous table for footnotes

 

Impairment of property, plant and equipment

The Group has determined that for the purposes of impairment testing, each store is a cash-generating unit. Cash-generating units are tested for impairment if there are indicators of impairment at the Balance Sheet date. Recoverable amounts for cash-generating units are based on the higher of value in use or fair value less costs of disposal. Fair values for the Group's properties were determined with the assistance of independent, professional valuers where appropriate.

 

The net carrying value of £17,900m (2015: £20,440m) above comprises £13,731m (2015: £13,642m) of unimpaired assets and £4,169m (2015: £6,798m) of impaired assets. Of the impaired assets, £1,805m (2015: £3,841m) carrying value was supported by value in use and £2,364m (2015: £2,957m) was supported by fair value. Due to the individual nature of each property, these fair values are classified as Level 3 within the fair value hierarchy. 

 

Fair values are determined in regard to the market rent for the stores or for alternative uses with investment yields appropriate to reflect the physical characteristics of the property, location, infrastructure, redevelopment potential and other factors. In some cases, fair values include residual valuations where stores may be viable for redevelopment. The key inputs to the valuation are the potential market rents and yields, both of which are largely based on rentals and yields for similar properties in that location.

 

Value in use is generally calculated from cash flow projections for five years using data from the Group's latest internal forecast, the results of which are reviewed by the Board. The forecasts are extrapolated beyond five years based on estimated long-term growth rates of 2% to 6% (2015: 2% to 5%).

 

The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. The pre-tax discount rates used to calculate value in use predominately range from 9% to 12% (2015: 9% to 12%) depending on the specific conditions in which each cash-generating unit operates. On a post-tax basis, the discount rates predominately range from 7% to 9% (2015: 7% to 10%). These discount rates are derived from the Group's post-tax weighted average cost of capital, as adjusted for the specific risks relating to each geographical region.

 

A net impairment loss of £18m (£263m loss offset by £245m reversal) has been recognised in the year, largely reflecting normal fluctuations expected from store level performance within the continuing challenging economic environment. These losses and reversals have been largely presented net at an operating segment level to reflect the underlying trends in the businesses. The impairment loss of £263m (2015: £4,118m) relates to properties in the UK & ROI of £164m (2015: £3,484m) and International of £99m (2015: £634m), whilst the impairment reversal of £245m (2015: £176m) relates to properties in the UK & ROI of £126m (2015: £133m) and International of £119m (2015: £43m).

 

Of the £18m net loss, a £93m release within exceptional items related to trading stores and online general merchandising hardware has been classified as 'Net impairment of PPE, intangible assets and onerous lease provisions' included within cost of sales. In addition, an £89m loss within exceptional items related to construction in progress and closed stores has been classified as 'Net impairment of PPE, intangible assets and onerous lease provisions' included within profits/ (losses) arising on property-related items. An additional £34m loss within exceptional items relating to business rationalisation in the UK & ROI has been classified as 'Net restructuring and redundancy costs' included within cost of sales. The remaining £12m reversal has not been included within exceptional items.

 

The prior year net impairment loss of £4,116m included £174m related to Korean operations which were disposed of in the current financial year. Of the remaining £3,942m impairment loss related to continuing operations, £3,094m was classified as an exceptional item within 'Impairment of PPE and onerous lease provisions' within cost of sales. An additional £777m impairment loss related to construction in progress and closed stores was classified as 'Impairment of PPE and onerous lease provisions' included within profits/ (losses) arising on property-related items. The remaining £71m impairment loss was not included within exceptional items.

 

Note 12 Borrowings

Current

Par value

Maturity

2016

£m

2015

£m

Commercial paper, bank loans and overdrafts

-

-

845

1,982

Loans from joint ventures

-

-

6

16

4% RPI MTN(a)

£310m

Sep 2016

316

-

5.875% MTN

€1,039m

Sep 2016

877

-

2.7% USD Bond

$500m

Jan 2017

361

-

5.4478% Term Loan

£382m

Jan 2017

396

-

5.5457% Secured Bond(d)(e)

£380m

Feb 2029

14

-

Finance leases



11

10




2,826

2,008

Refer to the next table for footnotes.

 

Non-current


Par value

Maturity

2016

£m

2015

£m

4% RPI MTN(a)

£310m

Sep 2016

-

313

5.875% MTN

€1,039m

Sep 2016

-

872

2.7% USD Bond

$500m

Jan 2017

-

325

LIBOR +0.5% Term Loan

£488m

Oct 2017

478

-

1.250% MTN

€500m

Nov 2017

394

362

5.5% USD Bond

$850m

Nov 2017

666

625

5.2% Tesco Bank Retail Bond

£125m

Aug 2018

132

135

3.375% MTN

€750m

Nov 2018

595

548

LIBOR + 0.45% Tesco Bank Bond

£150m

May 2019

150

149

1.375% MTN

€1,250m

Jul  2019

990

911

5.5% MTN

£350m

Dec 2019

353

353

1% RPI Tesco Bank Retail Bond

£66m

Dec 2019

66

60

 

LIBOR + 0.65% Tesco Bank Bond

£300m

Apr 2020

299

-

 

2.125% MTN

€500m

Nov 2020

394

362

 

5% Tesco Bank Retail Bond

£200m

Nov 2020

211

205

 

LIBOR + 0.65% Tesco Bank Bond

£350m

May 2021

349

349

 

6.125% MTN

£900m

Feb 2022

896

895

 

5% MTN

£389m

Mar 2023

411

407

 

2.5% MTN

€750m

Jul 2024

595

547

 

3.322% LPI MTN(b)

£317m

Nov 2025

320

318

 

5.5457% Secured Bond(d)(e)

£380m

Feb 2029

353

-

 

6.067% Secured Bond(d)

£200m

Feb 2029

189

-

 

LIBOR + 1.2% Secured Bond(d)

£50m

Feb 2029

30

-

 

6% MTN

£200m

Dec 2029

257

261

 

5.5% MTN

£200m

Jan 2033

259

262

 

1.982% RPI MTN(c)

£263m

Mar 2036

265

263

 

6.15% USD Bond

$1,150m

Nov 2037

1,035

917

 

4.875% MTN

£173m

Mar 2042

175

175

 

5.125% MTN(f)

€600m

Apr 2047

486

631

 

5.2% MTN

£279m

Mar 2057

275

275

 

Finance leases

-

-

88

131

 




10,711

10,651

(a)   The 4% RPI MTN is redeemable at par, including indexation for increases in the Retail Price Index (RPI) over the life of the MTN.

(b)   The 3.322% Limited Price Inflation (LPI) MTN is redeemable at par, indexed for increases in the RPI over the life of the MTN. The maximum indexation of the principal in any one year is 5%, with a minimum of 0%.

(c)   The 1.982% RPI MTN is redeemable at par, including indexation for increases in the RPI over the life of the MTN.

(d)   The bonds are secured by a charge over the Property, Plant and Equipment held within the Tesco Property Limited Partnership, a 100% owned subsidiary of Tesco PLC. The carrying amounts of assets pledged as security for secured bonds is £838m.

(e)   This is an amortising bond which matures in Feb 2029. £14m is the principal repayment due within the next 12 months.

(f ) The decrease in carrying value of the bond includes £186m of reduction due to a change of the hedge relationship from a fair value to a cash flow hedge which has been   recognised in the Statement of Comprehensive Income in the current year.

 

Borrowing facilities

The Group has the following undrawn committed facilities available at 27 February 2016, in respect of which all conditions precedent had been met as at that date:


2016

£m

2015

£m

Expiring in less than one year

100

132

Expiring between one and two years

2,200

200

Expiring in more than two years

2,700

4,800


5,000

5,132

The current year undrawn committed facilities include £2.4bn of bilateral facilities and a £2.6bn revolving credit facility.

 

All facilities incur commitment fees at market rates and would provide funding at floating rates.

 

Note 13 Commercial Income

Commercial income relates to volume-related allowances, promotional and marketing allowances and various other fees and discounts received in connection with the purchase of goods for resale from suppliers. Most of the income received from suppliers relates to adjustments to a core cost price of a product, and as such is considered part of the purchase price for that product. Accounting for the amount and timing of recognition of commercial income may require the exercise of judgement, as detailed in Note 1 of the latest Annual Report and Group Financial Statements.

 

Commercial income is recognised when earned by the Group, which occurs when all obligations conditional for earning income have been discharged, and the income can be measured reliably based on the terms of the contract. The income is recognised as a credit within Cost of sales. Where the income earned relates to inventories which are held by the Group at period ends, the income is included within the cost of those inventories, and recognised in Cost of sales upon sale of those inventories. Amounts due relating to commercial income are recognised within other receivables, except in cases where the Group currently has a legally enforceable right of set-off and intends to offset amounts due from suppliers against amounts owed to those suppliers, in which case only the net amount receivable or payable is recognised. Accrued commercial income is recognised within accrued income when commercial income earned has not been invoiced at the balance sheet date.

 

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 and deferred income.

 


2016

£m

2015

£m

Current assets



Inventories

(75)

(93)

Trade and other receivables



- Other receivables

201

97

- Accrued income

100

158




Current liabilities



Trade and other payables



- Trade payables

305

347

- Accruals and deferred income

(131)

(53)

 

Whilst the commercial income balances disclosed above are based on our contracts with suppliers, they only represent part of the overall economic relationship with the suppliers. Accordingly, these balances should be viewed together with other balances related to the purchase of goods in order to understand the overall economic impact to the Group.

 

Note 14 Post-employment benefits

Pensions

The Group operates a variety of post-employment benefit arrangements, covering both funded and unfunded defined benefit schemes and funded defined contribution schemes. The most significant of these are the funded defined benefit pension schemes for the Group's employees in the UK (now closed to future accrual) and the Republic of Ireland, and the funded defined contribution pension scheme for employees in the UK. Of these schemes, the UK defined benefit deficit represents 94% of the Group deficit (2015: 95%).

 

The principal plan within the Group is the Tesco PLC Pension Scheme (the 'Scheme'), which is a funded defined benefit pension scheme in the UK, the assets of which are held as a segregated fund and administered by the Trustee.

 

The Career Average section of the Scheme ('Pension Builder') was closed to new members and future accrual on 21 November 2015. The Final Salary section of the Scheme, which was closed to new entrants in 2001, was also closed to future accrual on 21 November 2015. As a result of this closure a one off past service credit and other associated costs have been recognised as exceptional items as set out in Note 4. In addition a new defined contribution scheme, Tesco Retirement Savings Plan, was opened on 22 November 2015 and is open to all Tesco colleagues in the UK.

 

At 31 March 2014, the deficit valuation arising from the triennial actuarial assessment was £2.8bn. A plan to pay £270m a year has been agreed with the Trustee, to fund the UK deficit and to meet the expenses of the scheme.

 

UK Principal assumptions                                                                        

The major assumptions, on a weighted average basis, used by the actuaries to value the defined benefit obligation as at 27 February 2016 were as follows:      

 


2016

%

2015

%

Discount rate

3.8

3.7

Price inflation

2.9

3.1

Rate of increase in deferred pensions*

1.9

2.1

Rate of increase in salaries

N/A

3.2

Rate of increase in pensions in payment*



     Benefits accrued before 1 June 2012

2.7

2.9

     Benefits accrued after 1 June 2012

1.9

2.1

Rate of increase in career average benefits



     Benefits accrued before 1 June 2012

N/A

3.1

     Benefits accrued after 1 June 2012

N/A

2.1

*     In excess of any Guaranteed Minimum Pension ('GMP') element.

 

The rate of increase in salaries and career average benefits are no longer applicable, as the Scheme has closed to future accrual.

 

The main financial assumption is the real discount rate (i.e., the excess of the discount rate over the rate of price inflation). If this assumption increased/decreased by 0.1%, the UK defined benefit obligation would decrease/ increase by approximately £312m.

 

Summary of movements in Group deficit during the financial year

Changes in the Group deficit, including movements of Korean operations up to classification as held for sale, are as follows:

 


2016

£m

2015

£m

Deficit in schemes at beginning of the year

(4,842)

(3,193)

Current service cost

(570)

(631)

Past service credit

535

-

Net pension finance cost*

(155)

(136)

Contributions by employer

433

563

Additional contribution by employer

223

13

Foreign currency translation

(8)

15

Remeasurements

1,164

(1,473)

Transfer to disposal group classified as held for sale

45

-

Deficit in schemes at the end of the year

(3,175)

(4,842)

Deferred tax asset **

563

957

Deficit in schemes at the end of the year, net of deferred tax

(2,612)

(3,885)

*     Includes £nil (2015: £2m) in Korea.

**    The deferred tax asset in relation to the retirement benefit obligation has been partly offset with group deferred tax liabilities in the balance sheet.

 

Note 15 Analysis of changes in net debt


At

28 February

2015

£m

Cash

flow

£m

Fair value and foreign exchange movements

£m

Interest (charge)/

income

£m

Other

non-cash

movements

£m

Debt

acquired on

business

combinations

£m

Debt

disposed

- Korean

operations

£m

Reclassifications of movements in net debt disposal groups

£m

At

27 February

2016

£m

Total Group










Cash and cash equivalents

2,165

907

1

-

-

-

-

9

3,082

Short-term investments

593

2,894

(24)

-

-

-

-

-

3,463

Joint ventures loans

207

1

-

-

(30)

(29)

-

-

149

Interest and other receivables

1

(26)

-

26

-

-

-

-

1

Bank and other borrowings

(12,358)

742

(253)

(23)

-

(1,455)

94

-

(13,253)

Interest payables

(160)

426

-

(444)

-

(10)

3

-

(185)

Finance lease payables

(141)

17

1

-

(5)

29

-

-

(99)

Net derivative financial instruments

610

(154)

314

8

-

(80)

-

-

698

Net derivative interest

54

23

-

(18)

-

-

-

-

59

Net debt of the disposal groups

9

-

-

-

-

-

-

(9)

-

Total Group

(9,020)

4,830

39

(451)

(35)

(1,545)

97

-

(6,085)

Tesco Bank










Cash and cash equivalents

616

(62)

-

-

-

-

-

-

554

Joint ventures loans

34

-

-

-

-

-

-

-

34

Bank and other borrowings

(1,133)

(300)

(8)

-

-

-

-

-

(1,441)

Interest payables

(1)

4

-

(4)

-

-

-

-

(1)

Net derivative financial instruments

(55)

-

(66)

-

-

-

-

-

(121)

Tesco Bank

(539)

(358)

(74)

(4)

-

-

-

-

(975)

Retail










Cash and cash equivalents

1,549

969

1

-

-

-

-

9

2,528

Short-term investments

593

2,894

(24)

-

-

-

-

-

3,463

Joint ventures loans

173

1

-

-

(30)

(29)

-

-

115

Interest and other receivables

1

(26)

-

26

-

-

-

-

1

Bank and other borrowings

(11,225)

1,042

(245)

(23)

-

(1,455)

94

-

(11,812)

Interest payables

(159)

422

-

(440)

-

(10)

3

-

(184)

Finance lease payables

(141)

17

1

-

(5)

29

-

-

(99)

Net derivative financial instruments

665

(154)

380

8

-

(80)

-

-

819

Net derivative interest

54

23

-

(18)

-

-

-

-

59

Net debt of the disposal groups

9

-

-

-

-

-

-

(9)

-

Net debt

(8,481)

5,188

113

(447)

(35)

(1,545)

97

-

(5,110)

 

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.

 

Reconciliation of net cash flow to movement in net debt



2016

£m

2015
£m

Net increase/ (decrease) in cash and cash equivalents


907

 (717)

Elimination of Tesco Bank movement in cash and cash equivalents


62

(131)

Retail cash movement in other net debt items




Net increase/ (decrease) in short-term investments


2,894

(423)

Net increase/ (decrease) in joint venture loans


1

(40)

Net decrease/ (increase) in borrowings and lease financing


1,059

(1,058)

Net cash flows from derivative financial instruments


(154)

6

Net interest paid on components of net debt


419

505

Change in net debt resulting from cash flow


5,188

(1,858)





Retail net interest charge on components of net debt


(447)

(443)

Retail fair value and foreign exchange movements


113

 241

Debt disposed on disposal of Chinese operations


-

255

Debt disposed on disposal of Korean operations


97

-

Debt acquired on business combinations


(1,545)

-

Retail other non-cash movements


(35)

(79)

Decrease/ (increase) in net debt for the year


3,371

(1,884)





Opening net debt


(8,481)

(6,597)

Closing net debt


(5,110)

(8,481)

 

Note 16 Business combinations and other acquisitions

During the year, the Group obtained sole control of three separate property partnerships, previously accounted for as joint ventures, through acquisition of the other partners' 50% interests in each of the partnerships. The acquisitions increased the Group's owned property portfolio by £1,714m, comprising 70 stores and 2 distribution centres, reduced the Group's undiscounted lease commitments by £852m (discounted £563m) and increased borrowings and derivative liabilities by £1,545m.

 

On 20 March 2015 the Group received British Land Co PLC's ('British Land') share of the Tesco Aqua Limited partnership ('Aqua') and cash of £96m in exchange for British Land taking sole ownership of three shopping centres, three retail parks and three standalone stores which were previously held in two joint ventures between the two companies. Further information received after the interim results August 2015 and within the measurement period resulted in the recognition of a deferred tax liability of £18m and associated goodwill of £22m, together with re-allocation of cash flows within investment activities to better reflect the facts and circumstances that existed at the acquisition date. The net profit of £28m on these transactions comprises a loss on acquisition of Aqua of £175m offset by a profit of £203m. The profit arises largely on the sale of the Group's shares in the two joint ventures together with releases of related deferred income balances.

 

On 25 February 2016, the Group obtained sole control of the Tesco Red Limited Partnership ('Red') and Tesco Property Limited Partnership ('TPLP') from British Airways Pension Fund and Phoenix Life Assurance Limited respectively, realising a net loss of £53m on acquisition. The Group additionally released previously recognised impairments, onerous leases and deferred income balances relating to these entities totalling £84m, resulting in a net profit of £31m from the two transactions.

 

The overall profit of £59m from these transactions has been classified as an exceptional item in 'Property transactions' included within 'Profits/ (losses) arising on property-related items'. The profit includes a £14m gain on remeasuring the Group's 50% interest in the three joint ventures immediately prior to the acquisition to a fair value asset of £24m. Across the three transactions, goodwill balances totalling £41m have been recognised on recognition of deferred tax liability balances on land, due to the Group controlling the reversal of a portion of these tax liabilities, and not expecting them to be realised. This goodwill is not deductible for tax purposes.

 

Provisional fair values on acquisition

The table below sets out the provisional fair values to the Group in respect of these acquisitions.


Aqua

£m

Red

£m

TPLP

£m

Total

Plant, Property and Equipment

466

410

838

1,714

Cash

4

9

2

15

Other receivables

-

-

97

97

Borrowings

(474)

(400)

(591)

(1,465)

Derivative financial instruments

(57)

-

(23)

(80)

Deferred tax

(18)

(25)

(80)

(123)

Other liabilities

(70)

(77)

(4)

(151)


(149)

(83)

239

7






Goodwill

22

19

-

41

Carrying value of investments in joint ventures immediately prior to acquisition

-

-

10

10

Purchase consideration*

48

69

149

266






Profit on related disposals and other items

203

50

34

287

*Additional cash payments of £67m were made to novate loans previously held by the other joint venture partners.

 

The acquisitions above have increased profit for the period by £12m; there has been no impact on revenues in the period.

 

In addition, the Group obtained sole control of Euphorium Group Limited and Harris + Hoole Holdings Ltd (Ireland) for total consideration of £7m.

 

The overall cash outflow of £325m on acquisition of subsidiaries comprises the £273m purchase consideration for Aqua, Red, TPLP, Euphorium Group Limited and Harris + Hoole Holdings Ltd (Ireland), together with the £67m novated loans, net of £15m cash acquired.

 

 

Note 17 Contingent liabilities

 

There are a number of contingent liabilities that arise in the normal course of business which if realised are not expected to result in a material liability to the Group. The Group recognises provisions for liabilities when it is more likely than not that a settlement will be required and the value of such a payment can be reliably estimated.

 

On 22 September 2014, the Group announced that it had identified an overstatement of its expected profit for the first half of the year, as contained in guidance it had issued in August 2014, relating to the recognition of commercial income and the deferral of costs. The Serious Fraud Office ('SFO') commenced an investigation into accounting practices at the Group on 29 October 2014. It is not possible to predict the timescale or outcome of the SFO investigation, but the SFO could decide to prosecute individuals and the Group, and there is the possibility of fines and/or other consequences. The Group is cooperating with the SFO.

 

In November 2015 the Group reached agreement in principle to settle a class action by US investors who dealt through the American Depository Receipts ('ADRs') programme which represented approximately 2.3% of issued share capital. This consisted of a settlement of US$12 million with no admission of liability. The Group is also facing a claim in Ohio by the remaining holders of ADRs, which is equivalent to 0.16% of the total issued ordinary shares of the Group. The Group is defending this claim. In addition, law firms in the UK have announced the intention of forming claimant groups to commence litigation against the Group for matters arising out of or in connection with its overstatement, and purport to have secured third party funding for such litigation. No such litigation has yet been formally threatened or commenced and the Group is consequently unable to make any assessment of the likely outcome or quantum.

 

Prior to the disposal of its Korean operations ('Homeplus'), Tesco PLC provided guarantees in respect of thirteen Homeplus lease agreements in Korea in the event of termination of the relevant lease agreement by the landlord due to Homeplus's default. Entities controlled by MBK and CPPIB, as the purchasers of Homeplus, undertook to procure Tesco PLC's release from these guarantees following the disposal of Homeplus. The maximum potential liability as at 27 February 2016 under these guarantees is approximately KRW627bn (£357m). This liability decreases over time with all relevant leases expiring in the period between 2026 and 2033. Tesco PLC has the benefit of an indemnity from the purchasers of Homeplus for any claims made under such guarantees.

 

Note 18 Lease commitments

Operating lease commitments - Group as lessee

Future minimum rentals payable under non-cancellable operating leases are as follows:

 


2016

£m

2015

£m

Within one year

1,296

1,324

Greater than one year but less than five years

3,918

4,686

After five years

7,831

9,697

Total minimum lease payments

13,045

15,707

 

Future minimum rentals payable under non-cancellable operating leases after five years are analysed further as follows:

 


2016

£m

2015

£m

Greater than five years but less than ten years

3,272

4,243

Greater than ten years but less than fifteen years

2,303

2,853

After fifteen years

2,256

2,601

Total minimum lease payments - after five years

7,831

9,697

 

Total operating lease commitments in Korea of £1,242m were included in 2015.

 

The Group has used operating lease commitments discounted at 7% (2015: 7%) of £7,814m (2015: £9,353m) in its calculation of total indebtedness.

 

Operating lease payments represent rentals payable by the Group for certain of its retail, distribution and office properties and other assets such as motor vehicles. The leases have varying terms, purchase options, escalation clauses and renewal rights. Purchase options and renewal rights, where they occur, are at market value. Escalation clauses are in line with market practices and include inflation linked, fixed rates, resets to market rents and hybrids of these.

 

The Group has lease-break options on certain sale and leaseback transactions. These options are exercisable if the Group exercises an existing option to buy back, at market value and at a specified date, either the leased asset or the equity of the other joint venture partner. No commitment has been included in respect of the buy-back option as the option is at the Group's discretion. The Group is not obliged to pay lease rentals after that date, therefore minimum lease payments exclude those falling after the buy-back date. The current market value of these properties is £3.2bn (2015: £4.7bn) and the total lease rentals, if they were to be incurred following the option exercise date, would be £2.6bn (2015: £3.9bn) using current rent values. The lease break options are exercisable between 2016 and 2023.

 

The additional lease rentals if incurred following the option exercise date would be as follows:

 


2016

£m

2015

£m

Within one year

45

10

Greater than one year but less than five years

72

372

Greater than five years but less than ten years

686

1,095

Greater than ten years but less than fifteen years

718

1,084

After fifteen years

1,115

1,349

Total contingent additional lease rentals

2,636

3,910

 

Operating lease commitments with joint ventures and associates

Since 1988, the Group has entered into several joint ventures and associates, and sold and leased back properties to and from these joint ventures and associates. The terms of these sale and leasebacks vary. However, common factors include: the sale of the properties to the joint venture or associate at market value; options within the lease for the Group to repurchase the properties at market value; market rent reviews; and 20 to 30 full-year lease terms. The Group reviews the substance as well as the form of the arrangements when determining the classification of leases as operating or finance. All of the leases under these arrangements are operating leases.

Note 19 Events after the reporting period

On 12 April 2016 the Group announced the disposal of an 8.6% stake (on a fully diluted basis) in Lazada Group S.A. ('Lazada') to Alibaba Group Holding Limited ('Alibaba') for gross cash consideration of US$129m (£90m). The Group's investment in Lazada was recognised as an available-for-sale financial asset at 27 February 2016 with a total carrying value of £121m which represented a 19.6% stake on a fully diluted basis. Following the transaction, which also involved issue of new capital by Lazada, the Group retains an 8.3% (on a fully diluted basis) investment in Lazada. This investment is subject to a put/call option giving the Group the right to sell and Alibaba the right to buy at fair market value in the following twelve to eighteen months.

 

Glossary


Capital expenditure ('Capex')

The additions to property, plant and equipment, investment property and intangible assets (excluding assets acquired under business combinations).

 

Capital employed

Net assets plus net debt plus dividend creditor less net assets of the disposal groups and non-current assets classified as held for sale.

 

Diluted earnings per share from continuing operations before exceptional items

Profit after tax before exceptional items attributable to owners of the parent divided 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.

 

Diluted earnings per share from continuing operations before exceptional items and net pension finance costs

Profit after tax before exceptional items and net pension finance costs attributable to owners of the parent divided 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.

 

Enterprise Value

This is calculated as Market capitalisation plus Net debt.

 

Exceptional items

Exceptional 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 non-GAAP performance measures by virtue of their size and nature in order to better reflect management's view of the performance of the Group.

 

The Group exercises judgement in assessing whether items should be classified as exceptional. This assessment covers both the nature of the item, cause of occurrence and the scale of impact of that item on reported performance. Reversals of previous exceptional items are assessed based on the same criteria.

 

FTE

FTE refers to full time equivalents.

 

Free cash flow

Free cash flow is net cash generated from/ (used in) operating activities less capital expenditure on property, plant and equipment, investment property and intangible assets.

 

Growth in sales

The YoY% (year on year) movement in revenue exc. fuel for continuing operations excluding fuel for 52 weeks at constant foreign exchange rate.

 

Like-for-like

Like-for-like is the growth in sales from stores that have been open for at least a year at a constant foreign exchange rate and includes online sales.

 

LPI

LPI refers to Limited Price Inflation.

 

Market capitalisation

The total value of all Tesco shares calculated as total number of shares multiplied by closing share price at year-end.

MTN

MTN refers to Medium Term Note.

 

Net debt

Net debt excludes the net debt of Tesco Bank but includes that of the discontinued operations. Net debt comprises bank and other borrowings, finance lease payables, net derivative financial instruments, joint venture loans and other receivables and net interest receivables/payables, offset by cash and cash equivalents, and short-term investments.

 

Net Promoter Score ('NPS')

This is a loyalty measure based on a single question requiring a score between 0-10.  The NPS is calculated by subtracting the percentage of detractors (scoring 0-6) from the percentage of promoters (scoring 9-10). This generates a figure between -100 and 100 which is the NPS.

 

Operating margin

Operating margin is based on operating profit before exceptional items and on revenue.

 

Operating profit before exceptional items

This is the headline measure of the Group's performance, and is based on operating profit before the impact of exceptional items.

 

Pension deficit, IAS 19 basis (post tax)

This is post-employment benefit obligations net of the related deferred tax.

 

Profit before tax before exceptional items and net pension
finance costs

This measure excludes exceptional items and the net finance costs of the defined benefit pension deficit as the costs are impacted by corporate bond yields, which can fluctuate significantly.

 

Retail cash flow

Cash generated from/ (used in) operations for retail activities.

 

Return on capital employed ('ROCE')

Return divided by the average of opening and closing capital employed.

 

Return

Profit before exceptional items and interest, after tax (applied at effective rate of tax).

 

Revenue exc. fuel

This is the headline measure of revenue for the Group. It excludes the impact of sales, predominantly fuel sales, made at petrol filling stations, due to the volatilities associated with movements in fuel prices.

 

RPI

RPI refers to Retail Price Index.


Total indebtedness

Net debt plus IAS19 deficit in the pension schemes (net of associated deferred tax) plus the present value of future minimum rentals payable under non-cancellable operating leases.

 

Total shareholder return ('TSR')

The notional annualised return from a share, measured as the percentage change in the share price, plus the dividends paid with the gross dividends reinvested in Tesco shares. This is measured over both a one- and five-year period. For example, five-year total shareholder return for 2015/16 is the annualised growth in the share price from 2010/11 and dividends paid and reinvested in Tesco shares, as a percentage of the 2010/11 share price.



Appendix 1

Total Sales Performance at Actual Rates (Exc. VAT, Exc. Fuel)

 

 


1Q

2015/16

2Q

2015/16

3Q

2015/16

4Q

2015/16

1H

2015/16

2H

2015/16

FY

2015/16

UK & ROI

(1.0)%

(1.4)%

(1.9)%

0.4%

(1.2)%

(0.6)%

(0.9)%

   UK

(0.3)%

(0.9)%

(1.5)%

0.5%

(0.6)%

(0.3)%

(0.4)%

   ROI

(14.7)%

(12.2)%

(9.3)%

(1.1)%

(13.5)%

(5.1)%

(9.3)%

International

(3.9)%

(5.2)%

(6.6)%

(1.5)%

(4.6)%

(4.0)%

(4.3)%

   Europe

(9.4)%

(8.3)%

(8.2)%

(2.1)%

(8.8)%

(5.1)%

(7.0)%

   Asia

3.5%

(0.7)%

(4.5)%

(0.6)%

1.5%

(2.5)%

(0.5)%

Tesco Bank

0.9%

(2.5)%

(1.7)%

6.9%

(0.8)%

2.4%

0.8%

Group

(1.7)%

(2.3)%

(2.9)%

0.1%

(1.9)%

(1.3)%

(1.6)%

 

 

Appendix 2

Total Sales Performance at Constant Rates (Exc. VAT, Exc. Fuel)

 

 


1Q

2015/16

2Q 2015/16

3Q

2015/16

4Q

2015/16

1H

2015/16

2H

2015/16

FY

2015/16

UK & ROI

(0.4)%

(0.9)%

(1.5)%

0.5%

(0.6)%

(0.3)%

(0.5)%

   UK

(0.3)%

(0.9)%

(1.5)%

0.5%

(0.6)%

(0.3)%

(0.4)%

   ROI

(2.7)%

(1.7)%

(0.9)%

1.1%

(2.2)%

0.3%

(1.0)%

International

(0.5)%

2.1%

2.4%

3.4%

0.8%

2.9%

1.8%

   Europe

1.8%

3.3%

1.5%

2.2%

2.5%

1.9%

2.2%

   Asia

(3.5)%

0.3%

3.7%

5.0%

(1.7)%

4.3%

1.3%

Tesco Bank

0.9%

(2.5)%

(1.7)%

6.9%

(0.8)%

2.4%

0.8%

Group

(0.4)%

(0.3)%

(0.7)%

1.3%

(0.3)%

0.4%

0.1%

 

 

Notes

These results have been reported on a continuing operations basis and exclude the results from our operations in Korea.  Growth rates are all based on comparable days.  For example, for the UK and ROI, these results are for the 52 weeks ending 28 February 2015 and 27 February 2016 respectively.

 

Appendix 3

Country Detail

 


Revenue

(Exc. VAT, Inc. Fuel)




Local

Currency

(m)

£m

Average exchange rate

Closing exchange rate

UK

41,259

41,259

1.000

1.000

ROI

2,503

1,821

1.375

1.269

Czech Republic

42,483

1,137

37.36

34.34

Hungary

576,799

1,353

426.3

395.3

Poland

11,188

1,933

5.787

5.534

Slovakia

1,370

996

1.375

1.269

Turkey

2,135

501

4.264

4.099

Malaysia

4,511

742

6.075

5.855

Thailand

195,081

3,705

52.66

49.61

 

 

Appendix 4

UK Sales Area by Size of Store

 


February 2016

February 2015


No. of stores

Million

sq ft

% of total sq ft

No. of stores

Million

sq ft

% of total sq ft

0 - 3,000

2,498

5.2

12.5%

2,481

5.2

12.3%

3,001 - 20,000

289

3.5

8.4%

321

4.0

9.6%

20,001 - 40,000

283

8.3

20.0%

306

9.1

21.6%

40,001 - 60,000

204

10.4

25.0%

195

10.4

24.5%

60,001 - 80,000

132

8.9

21.5%

123

7.9

18.7%

80,001 - 100,000

45

4.2

10.2%

45

4.1

9.6%

Over 100,000

9

1.0

2.4%

14

1.6

3.7%

Total1

3,460

41.5

100.0%

3,485

42.3

100.0%

Note

1.  Excludes franchise stores.

 

Appendix 5

Actual Group Space - store numbers1

 


2014/15 year end

2015/16 year end

Net gain/

reduction2

Openings

Closures/

disposals

Repurposing/

extensions

      Extra

250

252

2

2

-

5

      Homeplus

11

-

(11)

-

(11)

-

      Superstore

487

478

(9)

1

(10)

-

      Metro

191

177

(14)

1

(15)

-

      Express

1,735

1,732

(3)

29

(32)

-

      Dotcom only

6

6

-

-

-

-

      Total Tesco

2,680

2,645

(35)

33

(68)

5

      One Stop3

770

779

9

24

(15)

-

      Dobbies

35

36

1

1

-

-

   UK3

3,485

3,460

(25)

58

(83)

5

   ROI

149

149

-

-

-

-

UK & ROI3

3,634

3,609

(25)

58

(83)

5

      Czech Republic3

209

201

(8)

-

(8)

-

      Hungary

209

208

(1)

-

(1)

5

      Poland

449

440

(9)

-

(9)

-

      Slovakia

155

161

6

6

-

-

      Turkey

173

169

(4)

1

(5)

-

   Europe3

1,195

1,179

(16)

7

(23)

5

      Malaysia

54

62

8

8

-

4

      Thailand

1,759

1,815

56

65

(9)

20

   Asia

1,813

1,877

64

73

(9)

24

International3

3,008

3,056

48

80

(32)

29

Group3

6,642

6,665

23

138

(115)

34

   UK (One Stop)

76

134

58

61

(3)

-

   Czech Republic

131

103

(28)

-

(28)

-

Franchise stores

207

237

30

61

(31)

-

 

Notes

1.  Continuing operations.

2.  The net gain/reduction reflects the number of store openings less the number of store closures/disposals.

3. Excludes franchise stores.

 

Actual Group Space - '000 sq ft1

 


2014/15 year end

2015/16 year end

Net gain/

reduction

Openings

Closures/

disposals

Repurposing/

extensions

      Extra

17,763

17,846

83

127

-

(44)

      Homeplus

488

-

(488)

-

(488)

-

      Superstore

14,254

14,002

(252)

16

(268)

-

      Metro

2,150

2,005

(145)

15

(160)

-

      Express

4,030

4,031

1

70

(69)

-

      Dotcom only

716

716

-

-

-

-

      Total Tesco

39,401

38,600

(801)

228

(985)

(44)

      One Stop2

1,235

1,256

21

44

(23)

-

      Dobbies

1,648

1,652

4

4

-

-

   UK2

42,284

41,508

(776)

276

(1,008)

(44)

   ROI

3,560

3,560

-

-

-

-

UK & ROI2

45,844

45,068

(776)

276

(1,008)

(44)

      Czech Republic2

5,653

5,558

(95)

-

(95)

-

      Hungary

7,026

6,931

(95)

-

(2)

(93)

      Poland

9,736

9,688

(48)

-

(48)

-

      Slovakia

3,928

3,969

41

41

-

-

      Turkey

3,663

3,492

(171)

4

(175)

-

   Europe2

30,006

29,638

(368)

45

(320)

(93)

      Malaysia

4,025

4,164

139

136

-

3

      Thailand

15,712

15,536

(176)

255

(13)

(418)

   Asia

19,737

19,700

(37)

391

(13)

(415)

International2

49,743

49,338

(405)

436

(333)

(508)

Group2

95,587

94,406

(1,181)

712

(1,341)

(552)

   UK (One Stop)

102

185

83

86

(3)

-

   Czech Republic

122

96

(26)

-

(26)

-

Franchise stores

224

281

57

86

(29)

-

 

 

Notes

1.  Continuing operations.

2. Excludes franchise stores.

Group Space Forecast to 25 February 2017 - '000 sq ft1

 


2015/16 year end

2016/17 year end

Net gain/

reduction

Openings

Closures/

disposals

Repurposing/

extensions

      Extra

17,846

17,905

59

59

-

-

      Superstore

14,002

14,017

15

38

(23)

-

      Metro

2,005

1,994

(11)

-

(11)

-

      Express

4,031

4,074

43

47

(4)

-

      Dotcom only

716

716

-

-

-

-

      Total Tesco

38,600

38,706

106

144

(38)

-

      One Stop2

1,256

1,260

4

49

(45)

-

      Dobbies

1,652

1,652

-

-

-

-

   UK2

41,508

41,618

110

193

(83)

-