TESCO: Interim Results 2024/25

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